Will we see a selling panic in housing?

[TheBreeze]

It looks like all of the banks are tightening up their lending standards at once. Supposedly the MBS market is all but dead and only the best paper is getting sold on the secondary market. I think when housing data comes out for the month of August we are going to see sales drop off a cliff.

My guess is that only 20% of home buyers in the last year in California would have gotten a loan based on the new standards banks are coming out with. I think this means we are going to see home sales in California drop at least 80% YOY for the month of August.

So far, we have seen more or less a stagnant market in California. Prices have been dropping, but there doesn’t seem to be much urgency on the part of the sellers. Up to this point, buyers have still been able to get loans for the most part. Various lenders had been tightening up their standards sporadically, but most folks could still get a loan somewhere.

The ability for most people to get a loan now is gone. Next month, or the month after, or the month after that, home sales are going to drop off a cliff. At that point, I think sellers are going to start to feel a real sense of urgency. I expect the magnitude of this housing downturn to really hit ‘home’ once sellers realize that their pool of eligible buyers has basically dried up. At that point, I expect to see a near race to the bottom. No seller will want to be the last frog in the boiling water and they will all want to jump out at once and will start lowering prices voraciously. It’s one thing to stay in the pot as the temperature is slowly raised, and quite another to try and stay in the pot when someone is pouring boiling water on your head.

So anyhoo, I expect to see prices in Southern California come down 20% by the end of the year, and then possibly another 20-40% next year. The moment we have all been waiting for will soon be here (at last!).

So what does the board think about my theory? Am I way off? Could we finally see a selling panic in Southern California after years of bubblicious price increases?

[LA_Renter]

I don’t think that a 20% decline in prices this year is actually possible given the illiquid nature of RE and the number of transactions that would have to take place in order for that to happen. The thing that will stand out for the balance of the year as you pointed out will be a severe drop off in volume, more than the severe drop off in volume we have today. I agree this last round of developments in mortgages has more punch. We are only 5% off the peak prices and all of a sudden we have 1990’s lending standards in place if not tighter. The real story here is the economy, this is a shock to the system. I guess the real question is will the credit markets stay this locked up and for how long? What will the Fed do? In areas like Southern California this is not as much of an interest rate story as it is a quality of loan story. The Fed could drop half a point (which IMO would be a dangerous move for a variety of reasons that have discussed on this site) but that won’t bring back the lax underwriting that fueled the market. I like many others on this site have been following this for a couple of years now, this has the feel of a major shift in the market. It’s still like watching ice cream melt but now that ice cream is sitting on a concrete bench in Phoenix in August at noon. JMHO

[LA_Renter]

I don’t think that a 20% decline in prices this year is actually possible given the illiquid nature of RE and the number of transactions that would have to take place in order for that to happen. The thing that will stand out for the balance of the year as you pointed out will be a severe drop off in volume, more than the severe drop off in volume we have today. I agree this last round of developments in mortgages has more punch. We are only 5% off the peak prices and all of a sudden we have 1990’s lending standards in place if not tighter. The real story here is the economy, this is a shock to the system. I guess the real question is will the credit markets stay this locked up and for how long? What will the Fed do? In areas like Southern California this is not as much of an interest rate story as it is a quality of loan story. The Fed could drop half a point (which IMO would be a dangerous move for a variety of reasons that have discussed on this site) but that won’t bring back the lax underwriting that fueled the market. I like many others on this site have been following this for a couple of years now, this has the feel of a major shift in the market. It’s still like watching ice cream melt but now that ice cream is sitting on a concrete bench in Phoenix in August at noon. JMHO

[The-Shoveler]

“I don’t think that a 20% decline in prices this year is actually possible”

Heck, I think we have had at least 20% (more like 25%) drop in the prices of new homes in Temecula in the last few months.

So I guess it can happen,

[The-Shoveler]

“I don’t think that a 20% decline in prices this year is actually possible”

Heck, I think we have had at least 20% (more like 25%) drop in the prices of new homes in Temecula in the last few months.

So I guess it can happen,

[LA_Renter]

That’s a good point Nor-La-Temcu-SD-GUY. It will be interesting to see how aggressive the home builders become in this environment. Talk about ripe conditions for a fire sale. Existing home owners are not going to like what they see and will try hold their price in vain as long as they can. These things do take time though.

[LA_Renter]

That’s a good point Nor-La-Temcu-SD-GUY. It will be interesting to see how aggressive the home builders become in this environment. Talk about ripe conditions for a fire sale. Existing home owners are not going to like what they see and will try hold their price in vain as long as they can. These things do take time though.

[Bugs]

It’s all coming together. ARM resets, foreclosures, dropping sale volumes, the loss of RE-dependent jobs, and the negative publicity that influences the market psychology – it’s all combining to create that vicious cycle that feeds on itself.

The engine that ran our local economy is having the equivalent of a massive coronary – it’s arteries clogged by the junk food and the toxins we’ve been shoveling into it. The bulls are hoping the government will find some magical heart defibrillator to shock the patient back to life. What they apparently don’t realize – or don’t want to realize – is that there isn’t enough current in the paddles to cut through the blubber, let alone excite that heart to beat strong enough to force any circulation through those arteries.

Some of these FBs are already corpses – others are dead men walking and they don’t even know it. Intervention? They’d be better off making their peace and resolving to go quietly.

[Bugs]

It’s all coming together. ARM resets, foreclosures, dropping sale volumes, the loss of RE-dependent jobs, and the negative publicity that influences the market psychology – it’s all combining to create that vicious cycle that feeds on itself.

The engine that ran our local economy is having the equivalent of a massive coronary – it’s arteries clogged by the junk food and the toxins we’ve been shoveling into it. The bulls are hoping the government will find some magical heart defibrillator to shock the patient back to life. What they apparently don’t realize – or don’t want to realize – is that there isn’t enough current in the paddles to cut through the blubber, let alone excite that heart to beat strong enough to force any circulation through those arteries.

Some of these FBs are already corpses – others are dead men walking and they don’t even know it. Intervention? They’d be better off making their peace and resolving to go quietly.

[HereWeGo]

Don’t discount the powers of the Fed.

[HereWeGo]

Don’t discount the powers of the Fed.

[Chris Scoreboard Johnston]

Pigs will fly before prices drop 20% by years ends and another 20 to 40% next year. I urge people to get rid of this overly emotional thinking on things, it is never going to allow you to see true opportunities for what they are.

[Chris Scoreboard Johnston]

Pigs will fly before prices drop 20% by years ends and another 20 to 40% next year. I urge people to get rid of this overly emotional thinking on things, it is never going to allow you to see true opportunities for what they are.

[LA_Renter]

The FED is the wild card here but he’s looking at weak dollar and oil over $75 a barrel. Also if the FED injects liquidity back into the market it will not go back into RE, it will more than likely find it’s way to something that’s inflationary like energy. There is no easy fix here. Like I said earlier interest rates will only help a little, the lax underwriting is history. I always wonder what Ben really thinks of Greenspan. THANKS AL! I’ll handle it from here……A**hole.

[LA_Renter]

The FED is the wild card here but he’s looking at weak dollar and oil over $75 a barrel. Also if the FED injects liquidity back into the market it will not go back into RE, it will more than likely find it’s way to something that’s inflationary like energy. There is no easy fix here. Like I said earlier interest rates will only help a little, the lax underwriting is history. I always wonder what Ben really thinks of Greenspan. THANKS AL! I’ll handle it from here……A**hole.

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