Yuppie ghetto sign

I posted yesterday with an article a picture of a sign I found hilarious (although misspelled) - the Yuppie Ghetto sign. See one here, and also a modified ad I found funny too.

Got me thinking - any HP readers have any art skills? If so, please send me your version of a Yuppie Ghetto sign. Or maybe one on the Housing Bubble - "Don't buy - it's gonna blow" kinda thing. Send to housingpanic@yahoo.com

I'll then post (with credit) the best ones.

Then... HP readers can print out at home, and if they're so inclined, go out one sunny Saturday afternoon and tape 'em over some of the builder signs in their towns.

A little street theater to make the point, save our fellow man from making a big mistake (buying at the top)

Dot-Condo Update: Condo market is due for a checkup (elephants-to-be reaching for the sky)

I've gotta believe condo developers are trying to unload their units like Arizona Cardinals tickets after the first quarter.

And I've gotta believe that folks who signed purchase agreements and put $$$ down are contemplating walking away from that investment, cutting their losses.

And it's not just Miami, San Diego and Phoenix. Dallas chimes in here:

After peaking at a 963,000 annualized rate in June, U.S. condo sales are off by 11 percent; they hit 857,000 in November. Speculators' tempered enthusiasm has driven price gains down to 10 percent from 18 percent in June.

Most notably, condo inventories have doubled in a year and a half. In June 2004, inventories were at 218,000 units and running at an ultra-skinny 3.1 months' supply. As of November, the number of condos on the market is at 423,000, or 5.9 months.

Local real estate types tell me that out-of-staters are behind much of the oversupply that's set to flood the market next year and the year after. They say some of the behemoths under construction have been sold to more speculators than future residents.

I've got news for local developers: Speculators are dumping condos from Vegas to Miami. Some buyers are breaking contracts before construction is complete.

The reality is, local buyers are in no shape to ride to the rescue of the current oversupply of condos, much less any elephants-to-be reaching for the sky

Inverted yield curve to cool housing market (sorry condo flippers - party's over)

The easy credit spigot is getting cranked a bit tighter

Of course, that means less buyers, longer listings, and declining prices

The bond market is popping the dreams of home ownership for some Americans.

Home buyers who can only afford to buy homes with lower adjustable-rate mortgages (ARMs), those who can scrape into a house with more "exotic" loans with low teaser rates, and some investors contemplating second home purchases could be soon shut out as short-term rates rise, analysts said.

Higher ARMs rates will next year further crimp housing demand, which has shown signs of fatigue in recent months.

ARMs have allowed more people, including risky borrowers with spotty credit histories, to buy homes for the first time

While ARMs have been instrumental in expanding home ownership, their rapid growth in recent years worried regulators because speculators have used the more exotic types of ARMs to buy and quickly sell properties, especially condominiums.

"I think people who were trying to get into investment properties and trying to flip them won't see those financial advantages with the short-term rates being higher than the long-term rates," said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York.

Don't get caught in the housing bubble crash

Well, the nice thing after the wipe-out is that people will buy homes again for one reason and one reason only - to live in them.

Ah, the old days...

It's funny to me too that the biggest bubble markets are the cities with the cheesiest, flashiest, live beyond your means, get-rich-quick, uneducated lazy losers - Miami, Las Vegas, Phoenix and Los Angeles. Couldn't be more different than quality, hard working folks in Kansas, if you know what I mean.

Good commentary on the crash. Here's some out-takes...

In 1998, I began loudly warning people about the approaching dot-com bust. I had analyzed the situation and knew the bubble was going to burst. There was no doubt in my mind, because I looked at the fundamentals of these internet companies' finances... the internet startups that had stock prices in the billions of dollars but had sold no products, had no revenues and had no customers. You don't have to be a genius to figure out that bubble was going to burst, and something very similar is happening today in the housing market

First, let's get back to the dot-com market, because, in hindsight, it was easy to see that it was a bubble about to burst. Think about what you were doing in 1998, 1999 or 2000. You were probably invested in the stock market. You thought you were doing pretty well. You thought you were building up a huge retirement. Everybody was getting rich, at least on paper.

In a sane, normal housing economy, that's the thinking that's going on. But today in the United States, especially in key cities, there's something amiss. Increasingly, people are not buying houses to live in them, nor to rent them out. They are buying them for speculation. They're buying them because they are anticipating a price increase. They're buying houses for the same reason they bought stocks during the internet boom. They don't even care what it's for. They don't care if the house is a place to live in. It's just a way to double their money.

Happy New Years HousingPanic Readers! Make this your New Year's Resolution: Protect yourself and your family from what's coming

Ah, what fun 2006 has in store for us... Get to higher ground. Don't be greedy. And help those who could use your help.

In a world which has lost its senses, where greed and short-term thinking rule the day, some may choose to break away from the herd. They'll be glad they did.

"Two things are infinite: the universe and human stupidity; and I'm not sure
about the universe" - Albert Einstein

The end of the housing bubble (Today's debt and leverage makes the 1920s look like child's play)

(Doesn't the picture capture it - the smiling, unaware homeowner using leverage to raise the rock - which is just about to quickly roll down and crush him?)

This writer does a good job bringing the various data together, in a way which might make you feel like getting out of all stocks, real estate and investments quicker than you were thinking, and getting into cash. What makes this bubble in my book the mother of all bubbles is one thing:

Leverage. Crazy-out-of-control-never-before-seen leverage.

Among the highlights (or low-lights):

The housing bubble is in the early stages of implosion. We do not know for sure how long the adjustment will take or are we sure how deep it will be, but we do know it has to happen and that the risks to our economy and the world economy are enormous.

Sub-prime loans now make up over 50% of mortgages and with those come all sorts of exotic mortgages that borrowers do not understand and eventually won’t be able to service.

That means many millions of Americans will go broke and bankrupt over the next several years.

$11 trillion in real estate values in just a few years time could become $6 trillion in value

Today’s debt and leverage makes the 1920s look like child’s play

How can a market be solid and safe when you have to have new buyers whose average down payment is 3%? They’ll walk away from negative equity in a nanosecond. How many had to have mom and dad dig into their own home equity to buy that house? Worse yet, 45% of first-time buyers put down nothing on their new digs

Interest-only mortgages nationwide average 31%. In California, they make up 61%, and in Santa Rose and Vallejo, where they are 77% and 78% respectively. Would you have ever believed that bankers and the Fed would let this distortion go that far? Next year, 2006, about $300 billion in mortgage debt will enter its adjustable period.

NBC Nightly News: Has the housing bubble sprung a leak?

The bursting bubble sure has hit the mainstream now. Which, even though it's a day late and dollar short, actually does in some way hasten the end of the boom - as that nervousness in the back of minds of potential buyers and also all homeowners

Here's the equation: More listings + Less Buyers = Declining Prices = Worry = More Media Coverage = Panic = Many More Listings = Rapidly Declining Prices = Common Sense.

And away we go....

Are we nearing the end of those sky-rocketing real estate prices? The typical home in America has appreciated 55 percent since 2000. But many areas of the country saw even more dramatic appreciation than that. Now, there’s strong evidence that the record pace is starting to slow. Has the housing bubble has sprung a leak?

Nancy and Phil Marrone spent today cautiously going over new home listings, and doing a few walk-throughs in Northern New Jersey. They’re worried they’re buying just as the market turns south.

“You may invest in something that you like and then all of a sudden you can’t sell it for anywhere near what you paid for it,” says Phil Marrone. “It is a little scary.”

The long way down: Most overvalued housing markets

Latest analysis of 299 markets: See how your hometown ranks.

Sixty-five of the nation's 299 biggest real estate markets are severely overpriced and subject to possible price corrections.


Naples, FL
+84%
Merced, CA
+77%
Salinas, CA
+75%
Port St. Lucie, FL
+72%
Stockton, CA
+72%
Madera, CA
+70%
Santa Barbara, CA
+70%
Modesto, CA
+67%
Napa, CA
+65%
Riverside, CA
+65%
Medford, OR
+64%
Sacramento, CA
+61%
Atlantic City, NJ
+59%
Chico, CA
+59%
Fresno, CA
+58%
West Palm Beach, FL
+57%
Redding, CA
+56%
Santa Rosa, CA
+56%
Bend, OR
+56%
Sarasota, FL
+56%
Miami, FL
+55%
Oxnard, CA
+55%
Vero Beach, FL
+54%
Los Angeles, CA
+54%
Fort Lauderdale, FL
+53%
Vallejo, CA
+53%
San Luis Obispo, CA
+53%
Cape Coral, FL
+52%
Bakersfield, CA
+51%
Palm Bay, FL
+49%
Barnstable Town, MA
+48%
Oakland, CA
+47%
Ocean City, NJ
+47%
Prescott, AZ
+46%
Panama City, FL
+46%
San Diego, CA
+46%
Visalia, CA
+45%
San Jose, CA
+44%
Deltona, FL
+44%
Santa Cruz, CA
+44%
Santa Ana, CA
+44%
Bellingham, WA
+43%
Fort Walton Beach, FL
+43%
Nassau-Suffolk, NY
+43%
Poughkeepsie, NY
+39%
Reno, NV
+38%
Las Vegas, NV
+38%
Kingston, NY
+38%
Washington, DC-VA-MD-WV
+37%
Bethesda, MD
+36%
Providence, RI-MA
+35%
San Francisco, CA
+35%
St. George, UT
+35%
Ocala, FL
+35%
Phoenix, AZ
+35%
Portland, OR-WA
+35%

Aw - they had such pretty pictures and billboards - Las Vegas condo projects killed (bye bye Ivana)

Saw this one coming a mile away - and not just vegas, but we'll be reporting these in Phoenix, LA, Miami, Boston, DC, etc (thanks HP reader Arioch for the lead)

Remember the classic dot-com collapse site "f*ckedcompany.com"? I think we need "f*ckedcondoproject.com" - anyone want to start that one?

You'll really know the bubble has burst when you see not only the never-started condo projects pulled, but the ones that are in the middle of their builds. Shells of buildings mothballed, perhaps for years and years.

Here's the report from Vegas. This list is gonna get longer and longer and longer...

Despite substantial sales hype over the past year and several lavish promotional events, Australian developer Victor Altomare announced that he is closing down operations on his two Las Vegas high rise condo projects, Liberty Towers and Ivana.

Even though it was over 85% sold out, the Liberty Towers site has already been purchased and the Ivana site is actively on the block.

Unlucky buyers in Liberty Towers believed they had firm contracts on their units, but found out too late that the developer had never signed them and was not obligated to complete the transaction.

Earlier this year several other high profile projects also tanked, including Krystal Sands, Michael Jordan’s Aqua Blue, and the Conrad Majestic. Vegas Grand re-priced their units up more than $100,000 above original reservation estimates, shocking buyers who had waited over a year to go to contract.

Dead Projects (may be purchased later by another developer):
Ivana -- site currently on the market
Aqua Blue -- site sold but no announcement yet on new use
Majestic -- rumors that this project may come back
Krystal Sands -- site sold to Turnberry
Liberty Towers -- site sold to another Australian developer
Urban Village -- site sold to Centex

12.28.2005 - The Housing Bubble Has Burst

The Fat Lady Has Sung

It's here. Just read the headlines. Add it up. It ain't brain surgery. The bubble has burst. Someone had to officially declare it, so let HousingPanic be the first.

"Yield Curve Inverts"
"New Home Sales Fall 21% in West"
"Gold Hits Record High"
"Median US Home Value Falls 4.1 % in November"
"Fed Raises 13th Straight Time"
"Phoenix Home Listings Soar"
"Tougher rules eyed on risky mortgages"
"Investors Moving out of Housing"
"Mortgage Applications Fall to 11-Month Low"
"Housing Slowdown May Claim 800,000 Jobs"
" US new home sales dropped 11.3% in November"
" Existing US homes sales drop 1.7% in Nov"

Pop. Tilt. Game over.

HousingPanic now moves from the theoretical discussion of manias, panics and crashes, and the "are we in a housing bubble" question, to the reporting of the long march downward, the repercussions, and how to best stay above water.

And away we go.

Oh, denial... "Experts" say "no bubble here"

I'm seeing "experts" (usually with a vested interest in the bubble continuing) saying there's no bubble, well, except for some areas that are gonna blow.

See my post yesterday about bubble qualities - DENIAL was the final proof. Well, we're there.

Bad news for the "there's no bubble here" crowd - when it crashes in Phoenix, when it tumbles in San Diego, when Boston's meltdown gets ugly, every city will feel the pain. Why? Mentality. People in Cleveland will see what's going on elsewhere and in the back of their minds, they'll be just a little nervous buying that new condo.

And consumers nationwide will pull back, worried their market may be next.

Denver Post 12/28:
The Denver market's growth is slow and sustainable, unlike skyrocketing markets in Phoenix and San Diego that are likely to crash as mortgage rates rise and the economy slows.

"I think it says the housing market hasn't collapsed, but it's a sluggish market, particularly in terms of prices," said Tucker Hart Adams, a regional economist with U.S. Bank in Denver. "I think the parts of the country that are seeing these double-digit increases are just headed for problems down the road."

AP 12/27:
The head of one of the nation's largest home ownership service providers says home sales may slow down next year as supply catches up with demand. But HomeServices of America president and CEO Ron Peltier says there is no real estate bubble.

Peltier acknowledged in an interview with CNBC that some markets -- such as Las Vegas, Miami, New York and southern California -- are "overheated." But he says prices in most markets should rise in the low single digits in 2006.

UPI 12/25:
Richard A. Smith, chief executive of the soon-to-be-independent real estate services division of the Cendant Corp., says there is no U.S. housing bubble.

However, Smith did acknowledge regional housing bubbles, such as the savings and loan bubble in Texas and the bubble in Southern California.

Palm Beach Post 12/26
Some 73 percent of well-to-do Floridians expect double-digit increases in the value of their homes over the next five years, while only 5 percent expect a decrease in home values.

Politically incorrect topic of the day - Will the bursting of the housing bubble cause the illegal Mexican immigrants to go home?

Ok, let's keep this to a housing bubble context if we can...

My question, living in Arizona, the home of illegal immigration, is:

Will the Mexicans go home when the bubble bursts?

(Note that I'm saying "Mexican" not "Hispanic" because I'm specifically saying illegal immigrants from the country of Mexico)

With 40% of Phoenix jobs tied to housing and homebuilding, with obviously most of the people involved in actually building and remodeling homes Mexican immigrants (most non-English speaking, likely illegal) - when construction dries up, will they go home - Illegal Immigration Problem Solved?

In Arizona, The Arizona Builders Alliance said "64,000 of the state's 160,000 construction workers are Hispanic and estimates that 16,000 are undocumented" - and I'd say that 16,000 number is low by about 100,000 if you add in any job associated with home building and remodeling.

With 11 million to 20 million illegals in the US today, this could be a major issue and societal disruption.

Thoughts?

FLASH: Treasury yield curve inverts

"It's different this time" they'll say.

No, it's not. It never is. We just want it to be.

The yield on the benchmark 10-year Treasury fell below that of two-year notes early Tuesday, inverting the yield curve for the first time since December 2000.

Previous inversions have typically signaled a slowing economy or recession and debate has raged over what an inverted curve means in the current environment of robust growth and relatively subdued inflation.

Classic "there's no bubble" quotes from 1929 - sound familiar?

As I keep saying, we've been here before, and those that don't understand history are doomed to repeat it. And it sure is looking and feeling kinda 1929 to me... At least HP readers on both sides of the current housing bubble issue won't be ignorant of historical bubbles and crashes, eh?

Here's a great collection of historic pre and post 1929 crash quotes, via patrick.net

I challenge HP'ers to post recent "there's no bubble" quotes (Bob Toll, Greenspan, NAR, etc)

Here's my favorite - sounds like "there'll be a soft landing in housing, not a crash" that we keep hearing today...

There may be a recession in stock prices, but not anything in the nature of a
crash."- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

Wonk alert: Greenspan's paper in 1966 on credit, bubbles and gold

Funny how such a smart guy made the very mistake that in 1966 he wrote about, causing him to be the king of bubbles. For the wonks among us, read the whole article - it's very interesting given today's over-speculative, over-credited economic condition.

The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom.

Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom.

But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.

As a result, the American economy collapsed

Then he writes on the gold standard:

It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.

The six characteristics of bubbles (check, check, check, check, check, check)

Besides the now-famous "Biggest Bubble Ever" article in the Economist earlier this year, I feel this article breaking down the six "bubble proofs" is an excellent read, from an albeit interesting source. Enjoy.

Merrill Lynch economist, David Rosenberg, identifies six characteristics of any kind of asset bubble:

1) Overheated prices
2) Over-ownership
3) Too much debt
4) Speculation
5) Complacency
6) Denial

Some, including famous investor Sir John Templeton, predict that, when the bubble bursts, housing prices will plummet at least 20 percent just for starters. He expects that 20 percent of homeowners with a mortgage will lose their homes when the bubble pops and has even told investors to prepare for a crash similar to the stock market crash of 1929 that led to the Great Depression! (Daily Reckoning, April 1 and August 18)

Here's some listings from Phoenix - hurry these won't last!

This apartment is a steal in Scottsdale at less than $1500 per sq. foot (Seriously. No, seriously). At only $4.2 Million, this 2-bedroom condo (it's not really a loft) would have a low, low monthly payment of $25,181, plus your condo fee of $1200 a month of course. But it would make a great investment, as rent for this two-bedroom charmer would be at least $2,500 per month - so no worries there!



This charmer sits next to the busy 101 freeway in Tempe, under the flight path of Sky Harbor, and in an area surrounded by junk yards, a horse stable, a porn shop and an In and Out burger for those nights you'd like to dine out.

Enjoy the hum of the freeway and roar of the jet engines as you contemplate why you just paid $1 Million (or $7000+ per month) for a place that would rent out for $2000 a month max.


Folks, have people lost there minds? Are you seeing listings that make no sense in your neck of the woods too? And after all the bubble press, bad housing numbers and rising interest rates who in their right mind would be out today making an offer on one of these insanely overpriced units?

Phoenix we have a problem - listing explosion update

For the folks that don't live here, I can't tell you how incredibly interesting it is to see an entire city go up for sale at the exact same time. You would have guessed we have some big manufacturing plant close down. Or maybe a toxic spill.

You drive down streets where it's odd to see a home WITHOUT a for sale sign up. Like that one homeowner must be stubborn or something, holding out, or missed the memo to leave.

Here's the listings. These are just amazing. Absolutely amazing. When the speculators get out, they seriously GET OUT.

6/30: 11,665
7/20: 10,748
7/30: 11,655
8/10: 13,099
8/30: 15,042
9/10: 16,716
9/20: 17,516
9/30: 18,799
10/10: 20,073
10/20: 21,806
10/30: 23,770
11/20: 26,616
11/30: 26,811
12/20: 27,580

FLASH: New Home Sales Plummet in November - Down 11.3%, Median Price Falls 4.1% from October

Wow. These numbers were much worse than even I expected.

The 4.1% drop in US Median Home Value from October is the most shocking - that number folks is nationwide. So if you bought a home for $500,000 in October, it's now worth $20,000 less. Ouch. Pretty tough 30 day loss. And we're just getting started.

No Santa Claus rally for those beaten down homebuilder stocks... Hope "the banker" had stop-losses in...

Sales of new homes plunged in November by the largest amount in nearly 12 years, providing the most dramatic evidence yet that the red hot housing market over the last five years is starting to cool down.

Some of that price moderation was evidenced in the November report, which showed that the median price of a new home sold was $225,200 last month. That was up just 0.3 percent from November 2004, the weakest year-over-year price change in two years. The November median price was down 4.1 percent from the October median sales price of $234,800.

Some economists are worried that housing prices in some areas have been driven higher by a speculative frenzy that could see prices plunging as sales slow in the hottest markets. That scenario would evoke memories of the sharp declines that occurred when the stock market bubble burst in early 2000.

Wonder when they'll announce the cancellation:

I heard Learning Annex is paying Trump $1 Million per appearance. Yup, $1 Million. LA drew 40,000 people to one of these seminars in May.

Classic bubble sign #433: Get rich quick seminars about the bubble asset (tulip bulbs, gold, .com stocks, now houses)

Anyone remember COMDEX? Anyone remember day-trading seminars? Anyone remember the last time Trump settled with bankers to avoid going bankrupt? Anyone remember ANYTHING?

How much money do you want to make?

Whether it’s $5k, $50k or $5 million, real estate investing is your answer! Real estate investing provides the highest returns, the greatest values and the least risk.

Can you afford to miss even a single deal? Click above to register for this real estate investing event of the lifetime!

Question for readers on "the rules" - what real estate rules and truisms have been tossed out the window during the current bubble?

Here's some I've always heard or followed - before this current bubble of course, where as with all other bubbles, the #1 rule seems to be "hey, it's different this time"

Here's my list. What did I miss?

1) You should not buy a property for more than 150 times the monthly rent

Take the loft I sold in Arizona. It would rent for $1000 a month (1 bed, 1 bath, 1100 sq. ft). So a fair price would be $150k. I bought it for $170k in 2002. But sold for $315k. So the 150 rule would dictate it would need to fetch over $2000 a month in rent, and that's not even close. During this bubble, rent has no relation to price. Bottom line is if you can't rent your place out and break even, worry.

2) You should buy a home for a maximum of 3 times your monthly income

I'm hearing in California we're at 10 times income, Miami is 6 times income. Ouch. Here's the income gap by state - notice Arizona now has the biggest gap. During this bubble, this rule got shown the door by Mr. Interest Only.

3) Location, Location, Location

Always the top one I thought. But now I'm seeing in Phoenix new homes being built next to the hum of busy highways (including some nice $800,000 condos near me), under airport landing zones, 2o to 50 miles outside the city center, under power lines, in bad neighborhoods. I guess during this bubble, location, location, location ain't in effect

4) Your house payment should be no more than 28 percent of your gross monthly income

Do the math for your area - I think Phoenix, SF, LA, Boston, Miami and others are wayyyy over 28%. And the bartender buying that $500,000 condo on $50,000 in income? Not even close during this bubble. But no problem getting that loan

Don't believe a housing bubble can happen here? NY Times Sunday: Take it from Japan, bubbles hurt

Not all bubbles are the same, but I believe they do share some common characteristics, namely:

1) easy credit
2) buying on the expectation of future gains
3) leverage
4) panic buying - buy now or get 'priced out of the market'
5) rampant speculation
6) believing past performance DOES guarantee future returns
7) the shoe-shine guy gets in

The Japan housing bubble experience is amazing - an incredible rise followed by a spectacular fall. Phoenix is a perfect example here - up 55% in one year solely due to speculation. And likely down 30% in the following two, just to get back to where it started.

Here's a few quotes from this excellent read (hat-tip to HP reader Adrian):

With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain.

Their experiences contain many warnings. One is to shun the sort of temptations that appear in red-hot real estate markets, particularly the use of risky or exotic loans to borrow beyond one's means. Another is to avoid property that may be hard to unload when the market cools.

Most of all, economists say, Japan's experience teaches the need to be skeptical of that fundamental myth behind all asset bubbles: that prices will keep rising forever. Like their United States counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. When prices dropped, many buyers were financially battered or even wiped out.

Merry Christmas Housing Panic Readers! What'd you all get (with the Housing ATM loot?)

Heck, even the realtors, mortgage agents, appraisers and homebuilders... Enjoy

So now is come our joyful feast,

Let every man be jolly;

Each room with ivy leaves is dressed,

And every post with holly.

Though some churls at our mirth repine,

Round your foreheads garlands twine,

Drown sorrow in a cup of wine,

And let us all be merry.

I love this blog - "MarinPOS" - and look at this listing

Hey, at least in Phoenix for $625,000 you get a nice, shiny new 1200 sq. foot condo with hardwood flooring, views, a pool and hot tub.

In this area outside San Fran, you get this horrific POS (yuck!):

This 690 sq ft Larkspur house has not only seen two world wars (built in 1913) but has also seen the sun.

That's about the only nice thing the realtor who wrote this one up has to say --

"...but up a quiet lane with sun".

The implication being that other Madrone Canyon houses are in the dark (which is fairly accurate).

No "lifestyle upgrades" mentioned.

And someone really ought to tell the realtor that using the light meter that comes with a camera is generally considered a good idea.

This PoS will set you back $625,000. That's $906/sq ft in case you are wondering.

2006: Expect some good news, expect some bad news - HousingPanic poll results (still time to vote!)

The good news: Britney will be divorcing Kevin, Bird Flu will not break out, and the mother of all hurricanes won't be hitting.

The bad news: The Fed will raise rates above 5%, the Dow and Dollar will drop, and poor, poor GM...

Thanks all for voting in the latest HP survey - I'll keep it open until year-end so you can still get on record

What is MOST likely to happen in 2006?

Answers Votes Percent

* Fed raises rates above 5% - 29 - 24%
* Dow closes 2006 below 10,000 - 9 - 8%
* Dollar falls 10%+ to major currencies - 10 - 8%
* Bush/Cheney impeached - 7 - 6%
* Major Avian Flu outbreak - 2 - 2%
* Hurricane season worse damage than '05 - 1 - 1%
* Yield curve inverts - 14 - 12%
* GM declares bankruptcy -18 - 15%
* Major quake hits California - 4 - 3%
* Britney divorces Kevin - 25 - 21%

Aw, I'll sure miss 'em: Condo flippers may be in too deep

Wasn't it just a few days ago when the NASDAQ "day traders" got wiped out? Another generation of get-rich-quicks just a few years behind the last. And the same lessons to be learned.

Hat-tip to Boston HP reader David for the link

The Hub’s jittery condominium market faces another storm cloud: hundreds of unsold units in new condo towers that brokers and mom-and-pop investors had bought early on in hopes of flipping for quick profits.

Some have exited, as planned, with thousands in windfall profits. But others may not be so lucky amid falling sales and dropping prices in an overloaded condo market, real estate executives say.

With the market sliding, a flood of condo flips could grease the market’s downward slide, executives warn.

“Putting more supply in a soft market, that obviously would create more volatility in prices on the down side,” said Thomas Meagher, head of Northeast Apartment Advisors.

“There are a huge number of flippers,” Kelley said. “If I didn’t close quickly, I would be up against 30 or 40 units in a matter of a week.”

Wonk alert - Excellent read from PIMCO bringing together many of the topics we've been discussing: BW2, MEW, Yield Curve, Fed, Rent PE, Housing Bubble

For the West Wing and obscure economic theory book crowd amongst Housing Panic readers, this is an excellent analysis from PIMCO's Paul McCulley on some of the topics this blog has been involved in during the past few weeks, namely the interconnected role of BW2, the trade imbalance, the yield curve, rent PE, the housing bubble, and mortgage equity withdrawal (MEW).

Try to get through it - in my opinion, besides the Economist's article on The Biggest Bubble Ever, this write up does an excellent job of tying it all together. Hat-tip to HP reader GD for the link

Here's a few selected highlights for the crib-notes crowd:

If Fed-engineered changes in nominal rates no longer reflect changes in long-term inflationary expectations, but rather changes in real rates, then logic suggests that long-dated income-producing assets – bonds, stocks and real estate – will become inherently more prone to bubble and burst.

I’m not persuaded that the Fed has reached that level of enlightenment yet, even as its contemporaries on foreign shores have moved decidedly in that direction. (look what's happening and being said in New Zealand by contrast, where rates are going up fast in order to get a hold of the bubble there)

And downward pressure on real long-term interest rates is the stuff of asset inflation, notably for long-duration assets and in particular, property.

Rightly or wrongly, most Americans look at MEW (Mortgage Equity Withdrawal) as the closest thing there is to a free lunch: home prices magically go up, generating unrealized capital gains, which can be magically monetized, if not realized, by borrowing against them.

It’s not really free, of course, as homeowners must pay interest on the debt that extracts the equity. They are also exposing themselves to intensified risk of declining home prices, just like people who put increased margin debt on their stock portfolios. But it’s fun while house prices are rapidly appreciating, enabling consumers to increase their spending faster than their paychecks

But ultimately, there is a limit to how high the price-to-rent ratio can go, because as the ratio increases, fewer prospective home buyers have sufficient income to support the debt necessary to pay asking prices, particularly when mortgage interest rates rise

That’s called declining affordability, and it will ultimately bring any bubble in house prices to an end, undermining the MEW game

But once the momentum breaks – and again, Morgan, declining affordability is the fundamental break – reflexive demand becomes reflexive supply, as former speculative buyers become eager sellers. That’s what we expect in the year ahead

When the American property market comes off the boil, maybe turning tepid, the world will feel the impact, not just American homeowners

Housing bubble effect #5000: Get out the pink slips: Loan apps fall to 11-month low

Seems I know more than a few people (mainly in their 20's, no career, no direction) who got into recruited into lending business in the past year (and then went out and bought a house with the new job too!).

I think the accounting term for what's about to happen is LIFO (last in, first out).

Even crazy easy credit isn't enough to get people to get new loans. Wonder what the industry can come up with for a last call.

U.S. mortgage applications fell to an 11-month low last week on a drop in demand for loans to buy homes, suggesting a slowdown in the housing market, according to industry data Wednesday.

"Housing has passed its peak," said Robert Brusca, chief economist at Fact and Opinion Economics

In addition to falling loan demand, U.S. home builder optimism fell in December to its lowest since April 2003, according to the National Association of Home Builders.

From San Diego: This sums it up: "'We are so spoiled that we need to be spanked"

And spanked we shall be.

It used to take a couple of weeks to sell a property in San Diego. These days, sellers had better be prepared to wait at least a few months, according to those in the industry

The number of properties listed on the county's Multiple Listing Service, a database used by buyers and sellers to list homes for sale, has risen dramatically in the last 18 months. In June 2004 there were slightly more than 6,000 properties on the market in San Diego County; today there are more than 15,000.

As more properties hit the market and investors begin to abandon the city's once bonanza-like real estate market, there has not been a subsequent rise in home sales

'We are so spoiled that we need to be spanked,' said Kismit Cyriacks-Vella, a realtor and real estate investor in downtown San Diego. Cyriacks-Vella is not just being flippant.

She said investors are due a good thrashing because the last few years have seen them earn rewards that are simply impossible to sustain.

Readers - Open thread to discuss new Housing Panic poll (see right sidebar and vote)

What is MOST likely to happen in 2006?

* Fed raises rates above 5%
* Dow closes 2006 below 10,000
* Dollar falls 10%+ to major currencies
* Bush/Cheney impeached
* Major Avian Flu outbreak
* Hurricane season worse damage than '05
* Yield curve inverts
* GM declares bankruptcy
* Major quake hits California
* Britney divorces Kevin

What did I miss? What else could speed up the housing bubble burst? Or maybe none of these bad things happen, and housing continues to skyrocket?

The nightmare of an interest-only loan - and we're just getting started

Doesn't it seem like the same guys in this interest-only business are in the payday loan business too?

It used to be called loan sharking. Preying on the uneducated, gullible masses.

These rates (and payments) will continue to climb in 2006, causing more and more inventory to hit the market as desperate homeowners who can't afford their higher payments dump houses on the market to get whatever they can and get out.

Hat-tip to Dusty for the article.

Steve Clerman decided to refinance his townhouse in Montgomery Village back in 2003. One offer jumped out at him from the flood of loan solicitations that arrived in his mailbox, and he signed up for an interest-only, adjustable-rate mortgage.

It was a relatively new type of loan, tempting to him and a growing number of people because it required very low monthly payments in its early years, since none of the money was used to pay off the loan's principal.

Now, though, Clerman feels trapped in a mortgage he says he didn't understand. In the past year, his interest rate has risen from 4.5 percent to 6.5 percent, and it is likely to head higher. Meanwhile, he has just looked at the loan's fine print and realized that he is locked into it for five years: If he tries to refinance or sell the home during that period, he owes the lender a $4,900 pre-payment penalty.

"I think I'm going to sell and get whatever I can for it," said Clerman, 50, an insurance salesman. "I'm in a really lousy mortgage."

Housing Panic biggest bubble market survey results - Congrats SF/San Jose and Phoenix!

Thanks all for voting - interesting results, with one classic, old-school bubble market (San Fran / Marin/ San Jose), and one "what the heck happened all of a sudden" gold-rush house-of-cards bubble market (Phoenix) heading the list.

Sorry SF and Phoenix - no trophy, medal or box of cookies. Just our heartfelt condolences


1 San Fran / Marin / San Jose - 33 votes = 17%
2 Phoenix / Scottsdale - 31 votes = 16%
3 Los Angeles / Orange County - 26 votes = 14%
4 Miami / S. Florida - 24 votes = 13%
5 San Diego - 24 votes = 13%
6 Boston - 18 votes = 9%
7 Las Vegas - 9 votes = 5%
8 Naples / Tampa - 9 votes = 5%
9 New Jersey - 9 votes = 5%
10 Other - 8 votes = 4%

Let the desperation begin - Centex offering $25,000 incentive in Phoenix

We predicted this a few weeks ago. Builders will want to protect their pricing (thus the median home price numbers) - and their trick to do this is incentives - free cars, cash, jacuzzis, pools, upgrades, dancing girls, whatever it'll take

Make no mistake, this is a desperate $25,000 cut in price - the first of many to unload inventory. Boy, can you imagine buying a few days ago in one of their developments, and NOT getting this offer?

Can you say homebuyer lawsuit? Can you say cancelled contracts?

Can you say MELTDOWN IN PHOENIX UNDERWAY

Question for readers - are you thinking about putting in "low-ball" offers soon?

Doesn't it seem tempting as desperation sets in to go out and put in some low-ball offers to see if they'll get accepted?

But is this like the catch-a-falling-knife strategy during the dot-com implosion?

I'm seeing condos going up like mushrooms here in Arizona, and you just know the developers (or the flippers) are freaking out. So how about a nice 20% below list offer? Or maybe 40%?

One condo development going up here in Scottsdale, in a REALLY bad area, has eight units, priced from $500,000 to $600,000 for like 1200 square feet. Seriously.

Wonder how low that developer will go. $300,000? He'd likely still make money at that price.

Let's hear your take

Cut off time in Arizona - Home loans catch up to consumers

Hey, when there's no good jobs, no real economy, and you needed some cash, taking out that cash-out refi seemed like a great idea.

But then the equity line runs dry, appreciation stops (and depreciation starts) and what's a broke homeowner to do now?

By the way, when this phase of the bubble hit the UK, the first noticeable drop was on the "high street" - the worst retail sales performance in 23 years as consumers ran out of cash.

That Bankruptcy law that Congress passed a few weeks ago is looking more and more conspirital by the day, isn't it?


The housing boom has bailed out a lot of people in metropolitan Phoenix.

Homeowners caught between higher bill payments and flat incomes have been able to tap their rapidly rising home equity to stay afloat or even buy new cars and furniture. Others have been able to refinance using adjustable-rate loans to cut their payments.

Those with too much debt have been able to evade foreclosure and bankruptcy, and even pocket some cash, by selling their homes quickly.

But now, Phoenix's home appreciation rates are leveling off, and it's taking longer for homes to sell. At the same time, interest rates are rising on many home equity lines and adjustable-rate mortgages. Gas prices are higher. Health care is costlier. Credit-card payments are rising.

Timber! Housing bubble deflating, says builders survey

It was interesting to see the meltdown in builder stocks (SPF, TOL, PHM, CTX, ...) happen BEFORE the builders published their bearish results, but AFTER the builder insiders cashed in (Mr. Bob Toll being public enemy #1)

In a further sign that the nation's housing market may have begun a long-anticipated slowdown, the nation's home builders are growing somewhat more bearish, with confidence levels eroding across every region of the country.

The monthly Housing Market Index compiled by the National Association of Home Builders and Wells Fargo Bank, a gauge of builder confidence in the single-family home market, declined four points to a reading of 57, its lowest level since April 2003.

"As expected, the housing market appears to be coming off the recent record pace of home sales," said David Seiders, chief economist for the builders' trade group. "Our surveys indicate that three out of every four builders are experiencing some buyer resistance to current home prices, and many are offering certain concessions to buyers in order to help maintain sales volume."

Do Not Expect a Housing Boom in 2006!

Couldn't agree more here with Gary Kaltbaum at Fox News. Especially that the hottest will now become the coldest. It's called gravitating toward the mean...

Here's his take:

* When websites open up to help you flip condos, it is a sign of being late in the game
* When colleges start teaching you how to flip condos, it is a sign of being late in the game
* When your best buddy quits his job of twenty years to become a mortgage or real estate broker, it is a sign of being late in the game.

I am in no way saying the end of the world is coming. I am just saying that we are going to see a pretty decent dip in prices over the next couple of years...and maybe worse. My simple motto is "do not be the last one in!"

The biggest losses will come from the hottest areas. That's how it always works.

Hat tip to Business Week Hot Property for recommending this blog

I also strongly recommend all readers bookmark their section on housing for daily reading - very well done, balanced and informative... seriously!

Here's the web link to bookmark, with our mention today (thanks Toddi)"

http://www.businessweek.com/the_thread/hotproperty/

Fortune Magazine: Could renting be smarter?

Good series in Fortune today posted here at Housing Panic:

Article 1 - renting is smarter
Article 2 - cashing out
Article 3 - declining markets expected

Bottom line - watch that rush for the exits speed up

And of course, TODAY, in most markets, renting is smarter. Do the math. And avoid the pending downfall. I emphasize TODAY, because in a normal market, home ownership is much smarter. But no longer folks. Things have changed.

"Everyone told us to just get in and the rising market would take care of us," Andy says. "But I thought, who is going to buy this house from me for $850,000?"

Once again they crunched a few numbers. This time they decided to rent -- and they're saving a bundle. For $2,350 a month, they have a four- bedroom, 2,100-square-foot home. If they were to purchase that same home today for $700,000 (the going rate for a similar house in the neighborhood), the monthly payment on a 30-year, $630,000 mortgage at 6.1 percent would run them more than $3,800.

The rental market, in fact, can be an excellent tool for gauging the health (and risk) in a local market -- particularly in cities where home prices have risen much faster than rents.

Fortune Magazine: Real estate - is it time to cash out?

Watch the action as retiring baby boomers rush to cash out while the getting is still good - especially those second homes... you can already see the action in the listing numbers from Boston, Sacramento and Phoenix

Jim and Diane Smith are homeowners on the edge. For the past several months they have been taking mental notes on every new housing statistic in the papers: existing-home sales, housing starts, inventories and so on.

They're not real estate pros -- Jim is an information technology executive with Marriott International -- but they have a ton of money at stake in the form of a lovely Alexandria, Va., brick colonial they purchased seven years ago for $410,000.

It's now worth just north of $1 million.

On the one hand, the Smiths can hardly believe their good luck. "In 2000, when the first house on the street went for $600,000, everyone [in the neighborhood] was high-fiving," says Jim. "By the time one went for $950,000 this summer, we all went, 'Holy cow! What happened?'"

But their euphoria is accompanied by a healthy dose of anxiety as they worry about how long the good times might last. The Smiths have decided to make the most of their opportunity and cash out: They've put their house on the market.

Fortune Magazine: Real Estate: Is the party over?

Good series of articles with a dubious pricing analysis at CNN Money today - look at the chart for your city and comment.

I can tell you Phoenix would be lucky to get a single digit decrease - to get back to the historical Rent / Ownership PE line, or income line, we'd be looking at 30%+ declines (and we will)

Everybody from Los Angeles to Boston -- your mom, your doctor, your dry cleaner -- is puzzling over which way the nation's real estate market is headed. Up or down? Bubble or not?

Merry Christmas Housing Panic readers - enjoy this one final US-consumer-run-amok blowout holiday season

I've got a feeling next year at this time won't be quite so cherry for the American consumer as the housing ATM closes, interest rates move up and the wealth effect of housing ends.

So get out there and enjoy the shopping with your fellow citizens this week!

On Best Buy on Wal-mart on Tiffany on Dixon's...

'Twas the week before Christmas, when all through the still
overpriced, on-the-market-for-six-months-now cookier cutter house

Not a creature was stirring, not even a realtor, mortgage lender, appraiser
or mouse;

The slick brochures and realtor cards were hung by the chimney
with care,

In hopes that a still-clueless prospective buyer soon would be there

Ah-choo! Other countries worries about the US catching a cold (as our excesses unwind in 2006)

Record and unsustainable trade deficits. The mother of all housing bubbles. Entitlement programs run amock. Massive budget deficits. A war that won't end. Consumer pullback as the housing ATM closes.

Ah-choo.

Times are good in Canada, really good. Now watch out.

The story is not quite as simple as that, of course, since we're talking about an economic forecast that takes into account factors from all over the globe. But this is the essence of a sobering new warning from chief economist Clement Gignac at the National Bank of Canada.

Gignac paints a persuasive picture that 2006 could well be the year in which our luck runs out as years of accumulated financial excesses in the U.S. economy start to come unwound, beginning with the deflation of a housing bubble that may be stretched to its limit.

What do you all think? A bang, or a whimper?

I'm thinking we're seeing the bang right now (drastic listing increases followed by a drastic quick cut of at least 10% in many markets) then followed by a whimper - 5%+ declines until the median housing line gets back in line with the income and rent lines.

Good article here from MN:

Housing boom bound to run out of steam

News that the Twin Cities area housing market cooled in October is no surprise. Sale prices for existing homes had increased sharply for two years. New construction had boomed. Neither trend was sustainable over the long run.

The most important economic law is that if things cannot go on forever, they won't. The housing boom has to end, and apparently is starting to do so. The only question is whether it will end with a bang or a whimper.

A bang would see house prices falling 20 percent or more, many households defaulting on mortgages and construction coming to a virtual standstill. It would take five years or more to sort out and might be the foremost economic problem on most people's minds during that period. Personal bankruptcies would rise, mortgage companies would write off large losses and many builders would go belly up.

A whimper would see stagnation in prices. Some houses would appreciate a few percent a year while prices of others fell by similar proportions. Overall, prices would remain essentially flat for three to five years as incomes and the general price level caught up to housing. Turnover and refinancing would drop dramatically as people hunkered down in their homes. Mortgage defaults might increase, but would not reach epidemic proportions.

Goodbye day traders in 2000, goodbye flippers in 2006: Real estate slump chills 'flippers'

Ah, I'll sure miss 'em. 22 year-olds with 14 houses, bartenders spouting about retiring by 30.

Note to flippers (and former day-traders): Get a job. Work hard. Contribute to society. And sorry about that Chapter 11 rule change.

Get in, get out, get the next deal. That's the code of the ''flipper. Flipping -- buying and quickly reselling homes -- has helped some investors make a killing over the past few years in markets such as the North Shore.

But with concerns rising about a slowing housing market, has the world flipped on flippers?

Some analysts and brokers think so. Short-term investors can't expect the same quick, lucrative turnarounds anymore, said Beverly realtor Pam Cote. There are many more properties on the market, and buyers are spending more time deciding, she said.

A good scam - another classic sign of a bubble top: Neighbors suspect scam in home sales

Ah, you just can't beat some good corruption and scams when it comes to identifying the top of a bubble period. Classic.

Enron, Worldcom, Tyco followed by Mortgage Fraud, Toll Brothers insider selling and now this little story of a classic pump and dump (with loans going unpaid) scam

Alan Baugh's curiosity was piqued when the one-story, four-bedroom, three-bath home down the street sold quickly for far more than he thought it was worth.

The county taxed it at a value of $260,000, and the owners originally asked for $319,000, but it sold for $390,000 within a month of going on the market and remained vacant for months.

At least four other homes on a three-block stretch of Mr. Baugh's street in Prestonwood Estates have similar stories. The area has become either one of the hottest zones for eager investors or ground zero for a well-oiled mortgage fraud scheme.

Which one it is depends on whom you ask.

"In my mind, this is organized crime – with buyers, sellers and real estate professionals all cooperating with each other," said Mr. Baugh, a mortgage banker.

Here come the cancellations: Built on the boom: Realty feels a chill - Days of torrid buying, prices giving way to 'for sale' cycle

Wow. I would imagine people in Sacramento (and around the country) who put deposits down on condos and houses to flip are thinking real hard about walking away from those deposits right about now.

Also, don't the public homebuilders have to report surges in cancellations once they are known? This article today is right on top of one earlier this week on cancellations which noted:

Cancellations are up dramatically over a year ago, in large part because more would-be buyers are finding they can't sell their existing homes fast enough or for as much as they had hoped, said John Orr, the BIA's president. November cancellations represented about 40 percent of sales last month, BIA data show, compared with just 16 percent in November 2004.

From lines to buy to lines to sell in just a few months. Oh, how quickly the worm turns...

On a sun-scorched Saturday 18 months ago, hordes of people lined up for hours outside a sales trailer in a West Sacramento housing development called The Rivers. Their prize: stylish homes at $550,000 and up.

Now they're lining up to sell. The homes that sold in July 2004 have just been completed, and some owners want out. On one small street, Woodhaven Place, five buyers have put their properties on the market. Three have already dropped their asking prices.

"If I had known a year later that there would be a million homes listed, I might not have bought," said Lynette Wall, a real estate agent who helped her husband buy an $809,000 home on Woodhaven.

A wintry chill has descended on the Sacramento housing market. Sales have slowed, cancellations of new-home purchases have soared, and prices in some areas are edging downward - signaling the end of an epic housing boom that increased wealth, generated jobs and turned real estate into the healthiest sector of an otherwise sluggish economy.

"For Sale" signs have doubled in the past six months. Cancellations of new-home purchases shot up 260 percent in the third quarter over last year, says Hanley Wood Market Intelligence.