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ParticipantI appraised all through the 1990s and I saw it all. Early in the cycle I appraised half-completed spec homes where the contractors had pocketed the draws and split. I appraised apartment properties where 7 out of 8 comparable sales were being sold by a bank. I appraised commercial properties at $40/SqFt – inclusive of land and improvements. I appraised SFR lots for $25,000; and on occasion less than that. I appraised properties that the banks declined to foreclose on because they didn’t think they could discount them enough to unload them and they didn’t want to carry the asset for more than a year. I appraised a lot of properties for divorce attorneys because couples were splitting up over their RE losses.
By the time it was all over I just KNEW the carnage was so obvious that these people would learn a lesson they would never forget. How wrong was I about that?
Now it’s 2007 and I have already appraised a couple half completed spec homes (and appraising houses isn’t even my thing) and condo conversions; I’m already running into market segments where there are enough must-sell listings to influence the pricing. I’m already appraising properties where the borrower is attempting to work their way out. Even the commercial properties are peaking and starting to trend down. And yes, the commercial markets are just as gassed now as the residential markets were at their peak.
I’d claim deja vu but it’s happening so much more quickly that I think it really is going to be different this time. Different-bad, not different-good.
ParticipantRewriting a mortgage into conventional terms will only help a small number of borrowers. Those who lied about income to get loans on properties they could never have afforded otherwise are beyond help.
Personally, I think there are a lot more of the latter (the liars), than the former (the honest). So I HOPE the lenders who wrote those loans throw more good money after bad; it will hasten their own demise and flush them from the market for good.
ParticipantAs closely as we are watching these numbers, it amazes me that a couple of our own regulars are concerned about possibly missing out when the market turns.
Trust me, anyone who is paying attention to these indicators will have plenty of time to make their move when the time comes.
ParticipantHow much prices in that area will change will depend in part on how many of those properties end up in the must-sell category. If the area really is that economically stable and the price increases haven’t been based primarily on the lack of credit underwriting then there won’t be as much “gas” to burn off. It’s hard for me to imagine that to be the case, but I suppose it could happen. I don’t know enough about that regional economy to have an opinion.
ParticipantThe 400 bump does look good, but I still don’t think we’ll hit the 2400 number that would represent the 35% increase over February’s numbers, and we’re even farther off the number from March 2006 at 2,900.
ParticipantI strongly agree that some segments of the market and some individual properties will do better than others. I strongly disagree that there is any safe haven anywhere in the market that will be isolated from the regional trends.
Although these different segments do march to different tempos, ultimately they are all connected. If the bottom end of the market does fall out it absolutely will affect the middle which in turn will undermine the upper ends of the market. You will not see $130,000 beaters in Barrio Logan and $2,000,000 tract homes in Carlsbad.
No matter what anyone says, we have a lot more poor and moderate income folks in this region than we do wealthy business owners and trust fund kids.
It also doesn’t matter how many people in La Costa can stay put if the number of must-sell transactions climbs beyond a token level. It’s the ratio of must-sell transactions to total volume that will determine the pace and extent of decline. Remember, must-sell transactions include other factors besides financing; like probate, divorce, relocations, employment, and retirement.
Our volume for 2007 so far looks to be significantly lower than 2006 was, and 2006 was a lot lower than any year between 1998-2006. If 2007 keeps on its present pace we may be on track for a total volume equal to that of 1996. This, despite the fact that we’ve added a ton of inventory during this upleg – with more in the pipeline – whilst adding very few to our population. All this means that the must-sell transactions will have an outsized effect on the trends.
ParticipantJust for some perspective, prior to this upleg you could buy houses in these size ranges in that area for less than $170,000. Compared to SD County or OC County, this area will take the bigger hit. I don’t think it’s beyond the realm of possibility that the neighborhood you’re in could settle in at $225,000 by the time its all over.
ParticipantIf the slope of the curve going up this time had been the same as the slope of the late ’80s I’d agree that this downslope would resemble the pace of that downslope. For the first half of this upleg the slope was similar, but the second half of the slope was much more steep.
The upleg of the ’80s lasted less than 5 years; the upleg this time lasted 10 years. The ’80s upleg stretched about 25% above the trendline; the upleg this time stretched 65%+ above the trendline. This indicates to the use of a different slope for this downleg than the one from the 1980s.
First of all there’s the length of time – it’s possible that this downleg could last longer than the one from the early ’90s, which lasted longer than the upleg that preceded it.
Then there’s the slope – if we applied the reverse slope from the upleg to this downleg it woud indicate to relatively sharp decreases during the first half followed by more moderate decreases before the downleg bottoms out and the new cycle starts.
If 2006 demonstrated a 8% decline and the first half of this downleg does turn out to be 4 years, that would indicate to a 32% or so first half and perhaps another 14% – 16% for the second half. And we’d be looking at a recovery after 2015, not 2011.
We’d better hope it is different (better) this time.
ParticipantWith a 2005 purchase, the only way I’d suggest not selling is if you think your household has the means and the interest to stay in place for at least the next 5 years, possibly longer.
Consider the worst case scenario; okay, not the worst scenario, but the scenario that occurs if the underlying premise (return to the long term pricing trend) happens. If the pricing really does return to trend and then overcorrect, as has happened in every other previous cycle, we would be looking at the 50% off peak pricing to occur at the bottom of this cycle. You could be looking at a $300k loss in equity if that happens.
But there is a possibility that such a correction might not be the end of our problems. It’s possible that the next upcycle will be very weak and the upswing won’t reach the peak that occurred this time. If that happened, the market might not reach the $750k level during the next cycle. Instead of being underwater only for the remainder of this cycle you might also end up being underwater throught the entire next cycle, too. Now we’re talking 15 years, not 5.
I doubt many people would give this scenario serious consideration, but it is a possibility. All that has to happen is the specuvestors get scared out or regulated out of the real estate market as a result of stricter lending underwriting criteria, thereby eliminating the most agressive buyers that drove this last cycle.
March 30, 2007 at 8:02 PM in reply to: Almost back from vacation and wondering about something #48802ParticipantA foreclosure shows up as a foreclosure, whereas a short sale only shows up as a deficiency. Foreclosure is harder on the credit rating.
ParticipantAs of the end of the day the number had already jumped to just over 2,000, which is a pretty big jump for the one business day. Maybe it will hit 2,400 by the time it’s all over.
ParticipantI’ve been saying that for years. I’ve also been saying that by the time it’s all over the media will be painting it as the fault of appraisers the same way they did with the accountants during Enron and Tyco.
ParticipantHow about this for a coincidence?
The MLS lists 1786 sales of SFRs/Condos for the period of 02/01/2007 – 02/28/2007; and at the moment it lists 1,786 sales for the period between 03/01/2007 – 03/28/2007.
Because sdr pointed it out a few months ago, I realize that some of the agents lag a bit in reporting their sales and we still have 3 days to go this month, so March’s numbers will go higher. However, I am a bit surprised that they aren’t already substantially higher right now.
The MLS reported 29,000+ sales for all of 2006, which averaged out to ~2,400 sales a month. The February 2006 sales amounted to 1,913 (6.5% more than 2007), and the March 2006 sales amounted to 2,906 which is a substantial jump (35%) over the preceding month. In order to show a similar jump this year, March 2007 would have to top out at about 2,400 sales, which is a long ways to go from the current 1,786.
I guess the big question is how many MLS listings resulting in sales occurring earlier this month have yet to be updated?
ParticipantI’ll bet the Beemer dealers all over are hating life right about now.
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