Slow decline or is a big chunk about to be ripped out?

[gn]

“My difficulty, which SD R no doubt shares, is seeing homesellers actually radically adjust their expectations so quickly. People hate change and resist it at all costs”

It’s true that sellers are stubborn & unlikely to lower prices. But if they can’t deal with the ballooning ARMs, they’ll face foreclosure & their houses will end up being sold by the lenders at reduced prices.

[gn]

“My difficulty, which SD R no doubt shares, is seeing homesellers actually radically adjust their expectations so quickly. People hate change and resist it at all costs”

It’s true that sellers are stubborn & unlikely to lower prices. But if they can’t deal with the ballooning ARMs, they’ll face foreclosure & their houses will end up being sold by the lenders at reduced prices.

[sdrealtor]

AN,
That is exactly what has been happeing the last few years with builders undercutting resales. I cant speak for other parts of the County but there is alot less new product on the market now. I believe this is one of the reasons my area has held up as well as it has. In the Coastal areas there just isnt enough new building going on rigth now to really haev amajor impact on pricing.

[sdrealtor]

AN,
That is exactly what has been happeing the last few years with builders undercutting resales. I cant speak for other parts of the County but there is alot less new product on the market now. I believe this is one of the reasons my area has held up as well as it has. In the Coastal areas there just isnt enough new building going on rigth now to really haev amajor impact on pricing.

[sdrealtor]

gn
I agree that many homes will end up back with the banks. The whole foreclosure process spans many months and frequently more than 1 year from the time a missed payment turns into an REO on the market. The banks are rational sellers but are always looking behind at past market conditions rather than ahead at what might be coming. Throw in relatively low inventory and it could be some time before they fell the need to radically reduce prices.

I dont disagree with you or any of the other posters that it s coming but all I keep hearing “It’s coming”. I would really like to see someone lay out a realistic assumption as to how it could play out on the street level.

[sdrealtor]

gn
I agree that many homes will end up back with the banks. The whole foreclosure process spans many months and frequently more than 1 year from the time a missed payment turns into an REO on the market. The banks are rational sellers but are always looking behind at past market conditions rather than ahead at what might be coming. Throw in relatively low inventory and it could be some time before they fell the need to radically reduce prices.

I dont disagree with you or any of the other posters that it s coming but all I keep hearing “It’s coming”. I would really like to see someone lay out a realistic assumption as to how it could play out on the street level.

[SD Realtor]

Pretty much agreed with sdr… There is NO DOUBT that many people will be forced to sell. They WILL have to sell at whatever the market dictates. However I see people with equity that are not in risky loan vehicles simply shutting it down and sitting tight. Whether they are wise to do that is not the point of the post, the point is that there is a very large number of people, with equity, with relatively safe financing vehicles, that will simply sit tight.

Will that support the market? No I doubt it. Will there still be alot of inventory, alot of REO, alot of distressed sales? Of course.

I think sometimes people may obscure the fact that there was alot of housing market activity before 2003.

Finally there are other people who also have horrid financing vehicles but who put alot of cash down. They are refinancing and sitting tight. Yes they lost equity but no they are not bailing out. There was a recent withdrawn listing on Sunset Ridge in Scripps that I was tracking that did this.

Agreed again with sdr on the REO pricing. That has been one of the most frustrating things of all this year and 06 was that the REO properties really are not priced that well…at least not yet….

SD Realtor

[SD Realtor]

Pretty much agreed with sdr… There is NO DOUBT that many people will be forced to sell. They WILL have to sell at whatever the market dictates. However I see people with equity that are not in risky loan vehicles simply shutting it down and sitting tight. Whether they are wise to do that is not the point of the post, the point is that there is a very large number of people, with equity, with relatively safe financing vehicles, that will simply sit tight.

Will that support the market? No I doubt it. Will there still be alot of inventory, alot of REO, alot of distressed sales? Of course.

I think sometimes people may obscure the fact that there was alot of housing market activity before 2003.

Finally there are other people who also have horrid financing vehicles but who put alot of cash down. They are refinancing and sitting tight. Yes they lost equity but no they are not bailing out. There was a recent withdrawn listing on Sunset Ridge in Scripps that I was tracking that did this.

Agreed again with sdr on the REO pricing. That has been one of the most frustrating things of all this year and 06 was that the REO properties really are not priced that well…at least not yet….

SD Realtor

[DaCounselor]

“How many of us remember what it was like in the early-mid 90’s? The last thing anyone wanted to do then was buy a home.”
______________________

I honestly don’t recall a widespread anti home ownership sentiment in SD during that time period. My recollection is that we were in the midst of a recession and most people I knew were under-employed and/or struggling to make a buck and/or concerned about career prospects in SD. The local economy seemed pretty narrow in scope and the phrase “sunshine wages” got tossed around quite a bit. I know a number of those in the “young professional” category who packed up and moved away, looking for greener pastures. But I just don’t recall anyone saying they didn’t want to buy a home or that a home in SD would be a terrible investment. In fact, my recollection is just the opposite – but the problem was no one was making the money or felt secure enough in their job to take the plunge. Of course, this is just my recollection.

Psychology on the buy-side is of course most relevant in a situation where someone has the means to get into the market but may choose not to. This is where things get interesting. En masse, how long will those who are able to stifle the seemingly inherent urge to own their own home be able to hold off on buying? How long will they wait? I have absolutely no idea. How will the general psychological make-up of many Americans – I want what I want and I want it now – factor in? Will MSM reporting “real estate = bad” trigger a sheep mentality that will over-ride what I see as a pre-existing and inherent desire to own and the “I want it now” mentality? Who knows – I sure don’t. But it’s going to be interesting to see how it plays out.

[DaCounselor]

“How many of us remember what it was like in the early-mid 90’s? The last thing anyone wanted to do then was buy a home.”
______________________

I honestly don’t recall a widespread anti home ownership sentiment in SD during that time period. My recollection is that we were in the midst of a recession and most people I knew were under-employed and/or struggling to make a buck and/or concerned about career prospects in SD. The local economy seemed pretty narrow in scope and the phrase “sunshine wages” got tossed around quite a bit. I know a number of those in the “young professional” category who packed up and moved away, looking for greener pastures. But I just don’t recall anyone saying they didn’t want to buy a home or that a home in SD would be a terrible investment. In fact, my recollection is just the opposite – but the problem was no one was making the money or felt secure enough in their job to take the plunge. Of course, this is just my recollection.

Psychology on the buy-side is of course most relevant in a situation where someone has the means to get into the market but may choose not to. This is where things get interesting. En masse, how long will those who are able to stifle the seemingly inherent urge to own their own home be able to hold off on buying? How long will they wait? I have absolutely no idea. How will the general psychological make-up of many Americans – I want what I want and I want it now – factor in? Will MSM reporting “real estate = bad” trigger a sheep mentality that will over-ride what I see as a pre-existing and inherent desire to own and the “I want it now” mentality? Who knows – I sure don’t. But it’s going to be interesting to see how it plays out.

[gn]

Like the last bubble, we know that when a bubble pops, it’s not pretty.

Unlike the last bubble, this time around, the amount of the credit extended to investors was unprecedented. This means that the number of properties being held by “specuvestors” is also unprecendented. So, it’ll probably be uglier than the early 90s.

It’s like watching a horror movie. 15 minutes into the movie, there’s some scary part, but that’s just to warm things up. We haven’t gotten to the REALLY scary part yet.

[gn]

Like the last bubble, we know that when a bubble pops, it’s not pretty.

Unlike the last bubble, this time around, the amount of the credit extended to investors was unprecedented. This means that the number of properties being held by “specuvestors” is also unprecendented. So, it’ll probably be uglier than the early 90s.

It’s like watching a horror movie. 15 minutes into the movie, there’s some scary part, but that’s just to warm things up. We haven’t gotten to the REALLY scary part yet.

[sdrealtor]

I dont know the exact figure but I believe the actual number of “specuvestors” in SD county was relatively low.

That is not to say that there wasnt rampant speculation in SD County. Several months ago Rich (our host) put together a great series about people speculating with their primary residences. That is the real problem we face as I see it. People bought homes they really couldnt afford with the false expectation that RE always goes up. However, these primary residence speculators will be prone to hang on longer than pure specuvestors. Just another thing that has me stuck on a slow painful ecline rather than a short and steep one.

[sdrealtor]

I dont know the exact figure but I believe the actual number of “specuvestors” in SD county was relatively low.

That is not to say that there wasnt rampant speculation in SD County. Several months ago Rich (our host) put together a great series about people speculating with their primary residences. That is the real problem we face as I see it. People bought homes they really couldnt afford with the false expectation that RE always goes up. However, these primary residence speculators will be prone to hang on longer than pure specuvestors. Just another thing that has me stuck on a slow painful ecline rather than a short and steep one.

[Tone]

I think it all depends on the lenders.

For example, because of rumblings from the sub-prime market during the past couple of months, lenders have recently put the screws on 100% financing. What will happen once the bulk of foreclosures hit later this year and into next? Lenders could really tighten up standards in response. Furthermore, if investors are not willing to take on the risk of packaged mortgages, this could further push lenders back to the lending standards of yesteryear (20% down anyone?)

A change in lending standards could seriously dry up the pool of buyers and crash the market quickly as REOs and those who must sell race to the bottom to attract a shrunken pool of buyers. At least that’s a scenario I could see play out.

[Author]

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