And away we go. First came the buildup and mania. Then came realization and inventory. then sales volume dries up as prices remain flat and nobody buys. Now come the dramatic, drastic and swift price declines in a desperate attempt to lure a buyer.
Classic bubble, classic ponzi scheme, playing out like a econ 101 textbook. The smart ones get their prices down NOW and get out, while the stupid ones and the greedy ones hold out hope that they can get the price they "deserve" or last year's price.
Blue light special on aisle four underway...
Home sellers lower prices
Home sellers are learning what any retailer, from Wal-Mart to the owner of the corner gas station, already knows: Low prices are one of the surest ways to beat the competition.
Coldwell Banker Residential Brokerage, Massachusetts' largest real estate firm with more than 3,500 agents, is coaching agents on how to persuade clients to list their homes at an asking price that undercuts those of comparable ones on the market. The hope is low prices will attract more prospective buyers, leading to faster sales.
Other real estate agents in the Boston area report success with similar strategies in a housing market with an unprecedented glut of properties for sale.
Called "drama pricing" or "energy pricing," it is a drastic measure for difficult times. And it seems to run counter to the conventional strategy of selling your home for the highest price possible.
While the real estate industry has been reluctant to publicly acknowledge a downturn, that's not what they are telling their clients.
While it may seem obvious a house will sell faster at a lower price, Coldwell Banker's efforts reflect a sea change in the market's psychology. ''There's a lot of stuff on the market, and it's going to have downward pressure on prices."
July 19, 2006
The Firesale Begins: Realtors getting training on how to set "Drama Pricing"
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data that showed U.S. home-builders' confidence plunged to a 15-year low in July, reflecting growing worries about rising interest rates and declining affordability, the National Association of Home Builders said Tuesday.
The Commerce Department will report on housing starts for June at 8:30 a.m. Eastern time Wednesday. Economists are looking for a 3.6% decline to 1.89 million, according to a survey
Construction has led, directly and indirectly, to about 40% of job growth since 2003, according to Joseph LaVorgna, an economist for Deutsche Bank. "As housing-market activity slows further in coming months, we are likely to see construction payrolls turn from being a significant contributor to employment growth to a drag," he said.
In July, all three components of the home-builders' index fell. Current sales index fell to 43 from 47, the expected sales index dropped to 46 from 51 and the traffic of potential buyers index fell to 27 from 29.
The decline shows "growing builder uncertainty on the heels of reduced sales and increased cancellations," said David Seiders, chief economist for the home builders.
Seiders said that builders are worried that the Federal Reserve will drive interest rates even higher. He added that the index's movement is historically similar to the 1994-95 period, when the Fed tightened and the housing market cooled.
Sentiment of builders in the West, who have been the most optimistic, plunged 9 points to 51. Sentiment fell 5 points to 36 in the Northeast and dropped 4 points to 21 in the Midwest. Sentiment improved to 50 from 48 in the South.
Chief economist Joshua Shapiro of MFR said home builders may now be too pessimistic. "There is undoubtedly a price correction going on in many parts of the country, and we may take the current results as more indicative of home builders realizing that prices have been too high to sustain home building at the recent high pace, rather than that orders are about to collapse."
Applications for mortgage loans at U.S. banks dropped by 6.7% last week to the lowest level seen on a seasonally adjusted basis since May 2002, the Mortgage Bankers Association said Wednesday.
The number of mortgage applications was down 31% compared with a year ago.
Applications for mortgages to purchase homes fell a seasonally adjusted 6.2%, hitting the lowest level since November 2003. Purchase applications are down 19% in the past year.
The MBA's purchase index is expected to decline another 20% or so, said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
Applications for refinancing loans fell 7.5% on a seasonally adjusted basis. Refinance applications are down about 47% in the past year.
The decline in purchase applications has been much steeper than the recent drop in U.S. home sales. New-home sales have sunk about 6% in the past year, while sales of existing homes are down about 7%. See full story.
The slowdown in home sales "has the potential to translate into a hard landing for the economy because the housing sector has played a major role in the current expansion," said Asha Bangalore, an economist for Northern Trust.
Refinancings accounted for 35.3% of total applications, down from 35.5% in the prior week, the MBA's survey data showed. At the peak of the refinance boom in 2003, refinancings accounted for more than 80% of applications.
Adjustable-rate loans accounted for 29.1% of applications, down from 29.6% last week. In March 2005, ARMs accounted for just over 36% of applications.
The average rate for a 30-year fixed loan rose to 6.86% from 6.73% on a week-to-week basis; it's the highest rate since April 2002. Similarly, the rate for a 15-year fixed averaged 6.49% vs. 6.37% last week; it's the highest since April 2002.
One-year ARMs averaged 6.36%, up from 6.22%; it's the highest since February 2001.
Meanwhile, the spread between the rate on a one-year ARM and a 30-year fixed mortgage dropped to 50 basis points, one of the narrowest in the past five years. A narrow spread means buyers cannot reduce their monthly payment very much by choosing an adjustable-rate loan
Homeowner sellers declare, "I'm not giving it away. I'll let it sit until I get my price."
Real-estate sector businesses don't work that way. They need transactions, at any price. That's why they are taking the lead to slash prices--setting new, lower comps. Homeowner attitudes are pretty much irrelevant at this point.
"Homeowner sellers declare, "I'm not giving it away. I'll let it sit until I get my price."
Sounds very similar to the yahoo who held Yahoo at 250 and watched it go to 4, hoping each slight increase they would be able to get their price.
Maybe this will open the market for fee only realtors who will list and try and sell your house based on hours served, like a lawyer.
At first they will get people who want to try for maximum price that a commission based realtor won't take. But once they get a toehold in the market, they may become more competition. But the sellers may actually resist, since they don't want to pay someone who may, or may not sell their house. Sellers actually like the motivation to the realtor of a commission only deal, it's just that commissions are to high...
Maybe the realtor could say, sell in 2 weeks, 2%, sell in 4 weeks, 4%, sell in 6 weeks or more, 6%. And tell the seller to set the price....
"Let me get this straight, home ownership sits at over 70%, so everyone who wanted a home, has already bought a home"
I'm a part of a cult... we're known as Bubblewatchers. In the past, some four five years ago, I was thinking about getting a home or condo but then the world changed. We entered a tech recession but instead of the housing prices going down, they went up. That's when my life changed, I was insecure in my profession (systems engineering with annual layoffs) but I was suppose to 'feel good' about owning something. Suddenly, I lost faith in the RE markets, I knew at the bottom of my heart that an unstable job market cannot lead to a run up in housing prices, instead it was clearly an expansion of credit to stave off the tech bubble collapse. That's when I lost interest in ever owning a home and today, I have my 20+% downpayment, however, I prefer to use it to get through periods of joblessness which are bound to happen during the next decade.
I have my 20+% downpayment, however, I prefer to use it to get through periods of joblessness which are bound to happen during the next decade.
That's exactly how the younger generation in Japan felt all through the 90's.
The idea of slaving like their parents for a crackerbox and eating
whatever "Top Ramen" is in Japanese?
No way.
For people under 40, owning a home (apartment, ok) in much of Japan is like owning a toupee.
"For people under 40, owning a home (apartment, ok)"
Well... renting an apartment is fine but the flipside (ownership) is a condo and those are usually the first to go when the bubble bursts for real. Condo's in major cities (Boston, SF, DC, LA, etc) are like 250-300+ times rent which is clearly bubble trouble. Also, the shear number of condos build in south Florida during the past five years will probably house much of the population of the next generation, living in FL.
"I have my 20+% downpayment, however, I prefer to use it to get through periods of joblessness which are bound to happen during the next decade"
Clearly in the cards and in today's world, that includes knowledge and other white collar professionals along with tradesmen and other housing centered workers. Assuming that the insurance industries and the govt can make their numbers, healthcare might be the only area where continuity of employment is available but more likely than not, only doctors will benefit from 'full employment' since they've effectively restricted entry into their profession.
Let me get this straight, home ownership sits at over 70%, so everyone who wanted a home, has already bought a home, even people with no down, and bad credit. My point is there are no more buyers, at any price, there is just a huge glut of unwanted homes that will drift slowly down in price for the next 5-10 years, made worse by illegals moving back because there is no work for them here.
Yeah....LMAO!!!!! But, shhhssssshhhh, don't tell anyone.
"only doctors will benefit from 'full employment' since they've effectively restricted entry into their profession."
?????
Yea, it really sucks that they require you to take all those exams, intern, residency, AND get a license! Not fair!
Even with all that, incompentent doctors still make it into the profession.
Federal Reserve,private investment bankers who are the major stock holders,set this mess up also by hooking in gullible,naive home owners and yes greedy ones also by lowering loan standards, o down,negative adjustables, etc. Greenspan said 2 years ago,'adjustables were a great way to buy a house'.Retired 15 years ago as a mortgage broker and am trully sad what has happened. Perhaps the lender will offer 50,75,100 yr. loans to help these suicide loans. Any doubters?
"Even with all that, incompetent doctors still make it into the profession."
It's simply the art of getting accepted, GPA/MCAT, extracurriculars, and bs-ing the interviews. A lot of medical schools accept semi-professional athletes, musicians, etc with median stats so it's not just some academic meat grinder, it's more a society, a clubhouse like a Masonic lodge.
Practically no one flunks medical school. Most schools use Honors, Pass, Fail and if you're on the verge of failing, they get you tutors, counseling, and all that stuff whereas typical graduate schools routinely dismiss students even before doing the qualifiers.
So don't be too surprised at the amount of incompetence in the profession. It's just a part of a typical society, you get the good and bad, the only difference is that the admissions' committees were suppose to weed out the bad apples.
Anon wrote,
"For people under 40, owning a home (apartment, ok) in much of Japan is like owning a toupee."
Now that's an interesting comment. Seriously. If you (Anon) have some insight into the mindset of the Japanese when it comes to real estate, I'd like to hear more.
By the way, your comment reminded me of a quote,
"One generation abandons the enterprises of another like stranded vessels." - Thoreau
Interesting site. Useful information. Bookmarked.
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The bubble up here in Maine and in other rural areas was largely a result of post-9/11 paranoia. So the worse things get in the Middle East, the better the bubble in the sticks.
(But I'd rather face terrorists that what I found up here in Maine.
http://victimordeal.blogspot.com/)
The market has changed in much of the county. However, the degree of change is price is still dependent on economic factors as well as how over-priced the area may be. Areas like southern California, Florida, Arizona and parts of New York are screwed. For everywhere else, the home sellers just need to modify their expectations. The dust will have settled by this time next year and the market will have stablilized
BN
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