The value of the dollar fell out from under it, so the cost of commodities and labor to build the house went way up. For the national averages (the flyover states), compare the cost of houses to their replacement cost. You just about can't build for less than $100 a square foot because the dollar lost a lot of its punch.
Since I'm so vocal, I'll play. I have mortgages on my home and several rental properties. I would like to move up to a bigger more expensive house. But I feel that whether the prices of houses go up or down, it won't matter because interest rates move inversly so the payments would probably be much the same. FWIW, I win if the price of houses goes up because I have lots of property so my net worth goes up. But I also win if the housing market stagnates because I collect more rents so my cash flow goes up. I win either way. Thats the beauty of being an "owner" in America. Same with owning stocks or any other asset I suppose. There are some winners out there who sold their houses before prices dropped in their neck of the woods, and then rented. They came out ahead if they get back in before their profis evaporate. However, like a lot of "winners", they get greedy and think the trend will go on forever and for housing, history shows up it seldoms works. You can't short forever. No way I would short on housing now, but thats me. SM
This is a possible scenario for areas that have normal financing as the main form of purchase. Any area that has a proliferation of ARMS/IO loans will have severe drops in value as people that could barely afford minimum payments get busted out at reset time. I live in one of the areas with LOTS of ARMS... it isn't pretty already. My friend made an offer on a $440K home for 365K, realtor/seller said "no problem" as long as it closes for 440K... GEE, do you think there is a buyers credit coming back at closing??? Gotta keep those comps up. It's an illusion now, reported numbers here have no merit. Substance over form... I told him to make absolutely sure the lending institution was fully aware, in writing/disclosure, of the huge credit he was receiving at closing. A transaction like that should be reported at the ACTUAL value exchanged, not some puffed amount. My 2 cents.
I think your reasons are why the stock market is having such a huge problem gauging the impact on the economy. There is simply not enough good information. However, if history is any guide a real estate bust could have large ramifications on the banking system. Unlike a 5 years, the crisis will have global ramifications.
How can you research if an area has a prepondernace of IO/ARMs? That would be a nice edge to have in case you are thinking of pulling trigger to buy now or wait 3months.
Toll Sees Glimmers of Hope for Housing Source: Business Week Publication date: December 6, 2006 Toll Brothers (TOL) Dec. 5 said its profit took hits during the recent quarter, as the weak housing market continues buffeting the luxury home builder. But CEO Robert I. Toll also hinted that some markets might be stabilizing. The Horsham [Pa.]-based company builds homes all over the country, including states with once superheated real estate markets like California and New York. But housing market activity slowed earlier this year, after record-low interest rates had boosted lending and home buying for many years. Toll Brothers' net income during the quarter ended Oct. 31 fell 44% to $173.8 million compared to the same period last year. This included pre-tax write-downs of $115.0 million. Toll has had to write off properties in recent months. Noting uncertain market conditions, the company estimated that it had $60 million of pre-tax land-related write-downs for fiscal year 2007, above the $16 million it had budgeted annually in recent years. "As we previously announced, this quarter's results were negatively impacted by our higher than normal 585 cancellations," said CEO Robert I. Toll in a press release. Toll had given preliminary results Nov. 7 that his customers only signed $710 million of contracts during the quarter, compared to $1.59 billion in the same period of 2005. Cancellations amounted to 37% of the contracts signed in the fourth quarter, compared to 18% in last year's third quarter. Standard & Poor's equity analyst William Mack said Toll's reported quarterly earnings per share of $1.07 was below his $1.10 estimate, and noted that the the size of the land writedown was nearly twice the midpoint of the company's guided range. While the company's debt continues to rise, the analyst says "inventories and book value are improving." Mack raised his target price on the stock to $36 from $30. Investors bid up the stock 3.5% to $33.04 per share in early trading on the New York Stock Exchange Dec. 5. Toll wasn't completely pessimistic. "Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above," Toll said in a press release. He says the metro D.C. suburbs of northern Virginia, the first market in which he saw activity slow, seems to have stabilized, although at levels much lower than in the past few years. He also sees the market stabilizing in the metro DC's Maryland market, a more lot-constrained region where builders built fewer spec homes and there were fewer speculative buyers. The last major downturn, in the late 1980's and early 1990's, provided a springboard for Toll Brothers to expand into northern Virginia, the New York City suburbs, southern Connecticut, metro Los Angeles and San Francisco. The company took its first major steps to becoming the national brand for luxury new homes during tough times, Toll says. "We have learned by managing through five previous downturns that times of stress in our industry often produce unexpected opportunities," Toll added.
I went looking for a home today in sherman oaks to see what the market is about i was shocked my realtor took me to a property that had come on the market, a bank foreclosure, the realtor had never seen it either it sold in dec 2005 for 1.175 million, then went into foreclosure the bank was asking about 940k for it now my realtor walked inside and said point blank this is a piece of shit house and he wouldnt pay much over 700k for it personally, and he would wager money it is not going to get any more than that really right now so you guys do the math
This feels like a panic market in the beginning. Prices sky-high, some dumb schlumps bought at the top, and then.... nothing. Prices didn't fall, but housing didn't move. So, right now there is a disconnect between what people want to get for their homes and what they can get. Particularly since nobody with the disposable income to do so wants to pay these levels. If everyone 'knows' they can get it cheaper later, it does become somewhat of a self-fulfilling prophecy (early on in the down move only) as people simply won't buy. We're still in a stage of disbelief. Reality, then horror, still to come. Even if prices don't 'drop' - they won't rise for years. And there will be fire sales again. Bob campbell - you still around on this board? Some prognostication from you would be worthwhile reading.