August 07, 2006

The Arizona Republic publishes an "article" by Greg Swann, the idiot realtor who called HP'ers "brownshirts" and "flying monkies" the other day

I can't believe I'm reading this crap. Guess the Republic must be feeling the heat from it's REIC advertisers. Give carte-blanche space to the town idiot, but even mention HP - no way!

I can't believe I'm reading this crap. Phoenix prices are crashing, inventory has exploded, panic has set in, and this gets published? Bizarre!

Don't be chicken about the real estate market

If you follow the real estate news, sooner or later you have to ask yourself, "How many times can the sky fall in a given day?" During our recent run-up in values, the Chicken Littles couldn't stop clucking about imminent doom. Since then the market has cooled, but the Chicken Little chatter is hotter than ever. The real estate market must collapse. It simply must.

This prediction will lay an egg. But don't hold your breath waiting for an admission of error. And if you yourself are waiting for the explosive report of the real estate bubble popping, you might just hear a pin drop instead. Here's why:

* Real estate and securities are both leveraged, but the real estate market is not the stock market. Stocks are instantly transferable. You can acquire or liquidate a portfolio in seconds. Moreover, while stocks are subject to margin calls, it would be insane for lenders to call their mortgages en masse.

* More to the point, homes have intrinsic value. A stock is worth what someone will pay for it, right down to nothing. In any place where it rains, snows or gets really hot, homes will be worth something.

* Which leads us to demand. Some locales have more houses than occupants. No bubbles will burst in those places, either, but their values will slowly deflate. In a market like metropolitan Phoenix, long-term demand exceeds supply. As long as it does, our long-term trend in values should be nothing but upward.

* Finally, sellers in a buyer's market are a lot less time-sensitive than buyers in a seller's market. In the latter case, the longer that buyers delay acting, the greater their costs. Hence, the frenzy. But if sellers stand fast in a buyer's market, they might suffer a loss. But they might do better by waiting. Or the marginal cost of waiting may be less than taking a low-ball offer. Or they may elect simply to wait out the market.

The bottom line is, Chicken Little be fried, the real estate market will be fine.

Greg Swann, a broker for Bloodhound Realty, specializes in West Valley real estate. You can reach him at (602) 740-7531.

25 comments:

Any Mouse Still Fence Sitting said...

Bloodbath Realty plus unrealistic optimism equals denial

Anonymous said...

Forget the splashy high-profile, big markets if you re tracking where home real estate investors are putting their money these days. Forget Miami, Naples, Vegas, San Diego and LA. Start thinking about lower-key places like South Bend, Indiana; Pocatello and Boise, Idaho; and the northern Maryland panhandle.

According to a new analysis of mortgage data for the first quarter of 2006 nationwide, investors in those four local housing markets accounted for higher percentages of total purchases than anywhere else in the country: More than one out of five purchases in each went to investors.

The study was done by Loan Performance LLC, a subsidiary of First American Real Estate Solutions. Loan Performance has access to a vast database comprised of millions of active, ongoing mortgages, through cooperative agreements with virtually all major lenders and Wall Street investment banks. That huge database allows it to essentially look inside the mortgage market in real-time, observing emerging trends in delinquencies, types of loans being originated, loan to value ratios, credit scores and many other characteristics on a market-by-market basis.

In its latest analysis, covering new mortgages originated for home purchases between January 1 and March 31 of this year, Loan Performance found a stunning 25.8 percent of all mortgages financing home real estate purchases in the Cumberland, MD-eastern West Virginia market went to people who identified themselves as investors, not primary owner-occupants. In South Bend, Indiana, investors accounted for 23 percent of all new purchasers. In Boise, Idaho it was 20.8 percent and Pocatello 20.2 percent.

By contrast, Miami and Naples, Florida, where investor purchases of condo units and preconstruction contracts were all the rage during the peak boom years of 2003-mid 2005, investors accounted for just one out of six new purchases during the first quarter of this year.

Although Loan Performance offered no theories about current investor patterns, the top several hot spots -- at least as percentage shares of the total local market -- appear to share some common characteristics. Real estate prices in all of them are moderate by national norms, and rental properties tend to cash flow better than, say, Miami condos, which come with high price tags and negative cash flows for investors. Also real estate appreciation in places like Boise, the northern Maryland panhandle and West Virginia never went off the charts during the boom years, but maintained steady, moderate growth. Second home purchases may also have played a role in the Idaho, Maryland and West Virginia markets.

Loan Performance also looked at the markets with the highest percentages of higher-risk negative amortization and interest-only mortgages during the first quarter of 2006. West Virginia topped the neg-am list with more than half of all new home loans -- 51.4 percent -- carrying negative amortization options. In Wyoming 26.2 percent of all new purchase loans were neg-am, as were 22.5 percent in Nevada, 21 percent in California and 15.6 percent in Florida.

Neg-am loans allow home buyers to make monthly payments that are less than the amounts needed to amortize or pay off the debt over the stated term of the loan. Typically neg-am loans either require balloon payments at some point during the term, or in the case of popular payment-option loans, to "reset" at some point to a payment level sufficient to pay off the debt within the stated term of the mortgage.

By depressing monthly payments, neg-am loans allow purchasers to acquire properties that they might not otherwise be able to afford using a traditional mortgage. For that reason they are popular with buyers and investors in many markets, but also carry elevated risks of default should borrowers be unable to make payments after the "reset" date, refinance into affordable replacement loans, or make balloon payments.

john_law_the_II said...

this dope will be in the history books if I have to write the damn book myself.

oldboy said...

* More to the point, homes have intrinsic value. A stock is worth what someone will pay for it, right down to nothing. In any place where it rains, snows or gets really hot, homes will be worth something.

Does anyone else think that this is the most illogical argument one has ever heard? A house is also worth what someone will pay for it. Did this guy finish 6th grade?

Bushwick Bill said...

* More to the point, homes have intrinsic value. A stock is worth what someone will pay for it, right down to nothing. In any place where it rains, snows or gets really hot, homes will be worth something.

There is alot I could say about the article, but this statement takes the cake.

Value is subjective. People are placing less value on this once hot market. This is why prices are going down. There is no intrinsic value. The buyer and seller determine the price. When the buyer has the upper hand then price falls.

oldboy said...

* Finally, sellers in a buyer's market are a lot less time-sensitive than buyers in a seller's market. In the latter case, the longer that buyers delay acting, the greater their costs. Hence, the frenzy. But if sellers stand fast in a buyer's market, they might suffer a loss. But they might do better by waiting. Or the marginal cost of waiting may be less than taking a low-ball offer. Or they may elect simply to wait out the market.

Again is this logical to anyone? Frenzy can occur in buyers and sellers markets. What happen's to people who can't "wait the market out", say if you need to MOVE.

Anonymous said...

"More to the point, homes have intrinsic value. A stock is worth what someone will pay for it, right down to nothing. In any place where it rains, snows or gets really hot, homes will be worth something."

As usual, an analysis that completely misses the point. Just more proof of the incredibly low "entry barrier" for realtors, a "profession" in the absolute loosest of terms".

BTW, Swann, I know you're reading this -- you LOOK incredibly stupid, too. You'd be well-advised to drop your picture from the website.

Swann, P.S.S: When the Phoenix crash is complete, we'll be back to haunt you for the remainder of your days. Count on it. Consider it payback for being the incredibly arrogant and pompous ass you are.

Anonymous said...

I will call him in two years at his new number... what is the number for Mc Donald's around there again??

MotherJugs&Speed said...

Listen you guys, stop acting like Chicken Littles, OK!? You're fucking up the realtor's game. Let's just accept Mr. Swann's article, like Gary Watts' "15% is in the bag", and everything will work out just fine.

Sold at the peak said...

"In any place where it rains, snows or gets really hot, homes will be worth something."

I guess Syracuse, NY no longer has weather. Losing population for years, the city has been bulldozing perfectly attractive craftsmen homes, because no one wants them.

Dragasoni said...

Man, this guy sounds like an idiot. For the love of God, homes are NOT freakin' ATM's!! A home is a shelter, a roof over your head. It's NOT an endless source of free money. At best, homes should only appreciate at the same rate as inflation. When they don't, reversion to the mean kicks in. Trsut me, Phoenix is toast.

http://dragasoni.blogspot.com

-Dragasoni-

dan said...

Funny stuff! Swann should write for The Onion.

"Hunter" said...

Where do I sign up for the free comercial with the Arizona Republic?

Anonymous said...

The whole "homes aren't ATMS" thing- could that have changed when the laws on flipping and capital gains were changed? You used to have to hold a house for 2.5 years or pay short term gains, right? And you could only be exempt from cap gains once, the "over-55" rule. Now there's no time limit and no cap gains, right?

Correct me, admonish me, discuss.

Anonymous said...

He's been sandbagging the AZ Republic, castigating them in the same shrill personal terms as he's gone after us, because they've been reporting the real estate market "too negatively" if you can believe it -- he really is a piece of work. You almost have to admire his moxie. What a character.

Anonymous said...

I think all this won't end until people de-link the words 'investment' and 'home'. A home can be part of an intelligent investment strategy if you don't pay too much and actually put money down - or it can be a rod with which to beat your own back.

Swann seems to have a superficial grasp of Intrinsic Value and gets confused about the difference between price and value.

Price is what someone will pay for something. Intrinsic Value is the value of all future cash flow discounted to the present. IE, you can't ignore Fundamentals on one hand and tout Intrinsic Value with the other.

Cheers, Haggis

panicearly said...

"homes will be worth something"

i loved this line.
its just simple and elegant, its like saying "yup"

BubbleShanker said...

Phoenix homes must go down at least 60%, they are just now starting to see the gravity of the situation. Peak sales time is over, now it is ground and pound time!

Sure they live there said...

"More than one out of five purchases in each went to investors."

Ha! At least that is what the loan application stated. Probably more like 40%, not 20%.

Simpler times said...

"In any place where it rains, snows or gets really hot..."

He has a good point about rain. It is valuable to farming. Rain is much better than irrigation. I do not see ANY value in a place that gets really hot. That increases the cost to live there (cooling) and prohibits growing food crops without irrigation.

The idiots need to get back to fundimentals.

Anonymous said...

how can this guy write and post this dribble, unless he has no plans of being in business in 2007 or 2008, or maybe changing his name?

Your_Mother said...

To the illiterates who post to this site: There is no such word as "alot". Did you graduate from 6th grade? "A lot." Two words, dummy!

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