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ParticipantPop.Bomb
ParticipantA lot of people are currently arguing that rents will increase at a quicker rate than they have in the past. I don’t share that view, but I also don’t think they’re likely to go down. We still have wages and population here and the rental market is directly tied to those trends. Unlike with an owner, a tenant doesn’t have any interest in the property beyond it’s immediate use as housing.
It’s hard to imagine a decline in rental prices that would be so much and so fast that it would make a difference to you over a 2-year period. The sales market would have to lose 30% or more during that time period in order for it to affect the rental market at all, and even then I doubt the rents would decline even 10% at that point. A 10% “loss” of a $2,000 monthly rental payment over the course of a year wouldn’t even equal the cost of moving.
ParticipantThey’re talking about this subject over in Hawaii right now. Their economy is so dependent on tourism that a flu epidemic that cuts into travel and vacation would be catastrophic for them.
ParticipantI think you meant “pre-bubble” prices. I also think it depends on how you qualify “pre-bubble”. I would quality “pre-bubble” as pricing that was perhaps above the long term trendline but still within the standard deviation of +25% or so. Under that definition, we’d only need a 30% or 35% correction in most areas to get there. That’s still a massive correction and it would still hurt a lot of people – some badly enough that they wouldn’t recover.
If you define “pre-bubble” as anything over the trendline then we are talking about corrections of up to 60% or more. If you’re talking about rolling prices back to 1994 then those prices were undervalued relative to the long term trend.
Of course, these numbers apply to SD County. I think a couple markets might be in for a little worse than what we get, but most markets won’t be hurt as badly because most markets are not as overextended. Some markets are not significantly overextended at all – they’ll only suffer to the extent the indirect damage reaches them.
ParticipantSerious consideration of a 50% correction does not represent an extreme. An extreme would be referring to a downswing that overshoots the trendline in proportion to the excess of the upswing. During every cycle so far the market has corrected to the trendline then overcorrected a little more.
If we look at the trendline in terms of statistics and numbers, without any of the emotional baggage, there is an extreme scenario that most people haven’t given serious consideration to. If the trendline includes markets that are overvalued and undervalued, and if we extrapolate that trendline to continue forward as it has in the past, the 50% correction wouldn’t really represent a correction. It would be a break from the old trendline and would establish a new trendline of its own. It could be argued that a correction of only 50% would represent a version of the New Paradigm, albeit not the extreme version NAR has been pushing.
Just to get to the trendline would take a correction of 60% or more, depending on whose numbers are being used and whether inflation is factored in. Add in even a nominal overcorrection of 10% and that adds up to a 70% downswing. Now THERE’s an extreme!!
It’s strange that as a society we seem to be able to comprehend the 300% increase ($200,000 home increases to $600,000 current price), but we can’t wrap our minds around a 60% correction ($600,000 decreases to $240,000). That we think that 6% interest rates can co-exist indefinitely with our current rate of spending and consumption. I think it has something to do with a widespread sense of entitlement. I don’t know about anyone else, but as time goes on I’m feeling more and more like a Roman.
BTW, I’m don’t trust that “the government won’t let it happen”. As far as I’m concerned, the government not only did allow the current upswing to happen – they encouraged it and relied upon it to provide a short term fix to their economic problems.
Then again, I’m an extremist.
ParticipantThe rules in question have nothing to do with how you handle your money. You’re welcome to do what you like with it.
They have to do with how the banks underwrite the loans that are ultimately insured by the taxpayers. When the taxpayers get involved it goes from being merely commerce and ventures into the public domain. These rules are in place to protect the public’s interest, which in the case of the mortgage markets is substantial.
ParticipantThe numbers make sense except for that pesky inflation. The 30% price correction up front is balanced out with another 10%+ or more correction in the way of inflation. The net result is the same either way.
That’s the problem with the Soft Landing. They aren’t making any distinction between PRICES and VALUE. If prices remain flat for 10 years the value of those prices have still declined just as much as if there had been a correction because of the effects of inflation on the dollars that comprise the price.
ParticipantPrice declines were uneven. No price range was exempt, but some did worse than others. I saw some segments that only declined by 15% and other than declined by as much as 45%. 20% – 25% declines were pretty common. The outlying areas got hurt the worst, areas like La Jolla and Rancho Santa Fe got hurt the least. But no area escaped – there was no safe haven during the last bust.
ParticipantI think you guys might have to split the difference on this one. The original question was whether marketing a property as a foreclosure results in additional discounting. We’ll have to track this sale to see at what price it does eventually sell. I’m betting it will be below the current listing price.
I agree that the 10/2004 sale was $44,000 higher than anything recorded in the MLS for that project. The next 2 highest sales were at $880,000 for a 3974 SqFt unit in 11/2004; and more recently, $879,00 for a smaller 3070 SqFt unit in 05/2006. Using the 11/2004 sale as a benchmark, this property’s 10/2004 sale was way high to begin with. Maybe as much as $60,000. You can’t blame the market for that portion of any losses.
Using the 05/2006 sale, the current listing price may be a little low for a market sale. Or not – there are yet a couple of other actives in this project right now that if they sold within their ranges would indicate to a lower value for this property.
To answer SDRealtor’s comment, a responsible appraiser might have mentioned the $924,000 sale if they were doing an appraisal during that time period, but it stood out so far from the trend that it would have otherwise been discarded as not being representative of the trends at that time. No one sale makes or breaks.
If the lender is compelled to sell they could possibly be forced to accept whatever comes along. Again, if this happens it will represent an isolated incident in this project (so far) and would be rejected as a sale on that basis. It’s when there start to be enough of them to affect the other sales that these forced sales become relevant market indicators.
That’s the thing about using volumes of data – there are always exceptions to the trends and those exceptions only add noise to the analysis. It’s easier to analyze the trends when you toss the outliers.
ParticipantThis is a molehill. I deal with property data all day long – it’s literally the only thing (productive, anyways) that I do. I think there are a couple areas that peaked in 2004 and some that have peaked later. I’m still seeing a couple of the builders getting away with phase increases in their subdivisions, although those increases are way down from what they were doing a couple years ago. I do not subscribe to the idea that the entire region has already shown a 10% hit and I’d be hard pressed to name more than a dozen neighborhoods that I could show to have done that.
I think the quibbling over when and how much is just that – quibbling. You guys are chasing trees instead of the forest. The big point is that any discernable decrease in a year’s time is an anathema to the Soft Landing viewpoint because we are only in the beginning stanges of this side of the cycle.
Just be patient – the data will demonstrate the trend, whatever that trend is. If the RTM crowd is right the rate of change will demonstrated by so much data that we won’t need to argue its validity; the same holds true for the New Paradigm/Soft Landing crowd. If the data doesn’t conclusively demonstrate the trend then it’s not really a trend, is it?
Participant“Price reduced” signs are only relevant if you assume the initial listing prices were reasonable to begin with. Realty agents are sometimes forced to list properties at unreasonable prices as a condition of obtaining the listing, and then they have to wait for their sellers to get serious enough about selling to consider more reasonable pricing.
I pretty much ignore price reductions in a listing just as I ignore active listings as value indicators. Most of the time the only thing an active listing is good for is in establishing an upper limit of value. In a declining market that means that at least some list prices will be below some of the more dated closed sale prices.
ParticipantThe one thing that these markets have demonstrated, time and again, is that the psychology of the herd is one of the fundamental elements the contributes to the trends. After a certain point, the perception does become the reality until the reality runs too far to the extreme.
ParticipantAhh, the standard NAR party line, regurgitated.
The agent’s phrase “meeting the demand” is meaningless because “the demand” is irrelevent until those people have the financial means to satisfy their demand. That happens in one of two ways – either those households all have to make the $150k+ annual incomes it would take to buy at the current prices, or the current prices have to come back down to what an annual household income of $70k can afford to buy.
If there is so much demand at these prices, why are there 15,000 units languishing on the market right now?
ParticipantIt depends on the lender’s performance and their relationship with their respective regulatory agencies. If they have a good (in terms of safe/secure) track record the feds won’t lean on them too badly to dump their REO properties under liquidation conditions. If they’ve been having problems or they have a lot of foreclosures coming up, the feds will force them to sell ASAP. Selling under those conditions means the price will be discounted as much as it takes to move the unit in 60 days or less.
Putting the phrase “Bank Owned Foreclosure” in an MLS listing is a guaranteed way to generate lowball offers below whatever the low point of the market is at that time. Just as when the market’s hot and buyers will pay anything to get in, when the market is in decline some sellers will do anything to get out.
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