October 30, 2006

Look - it's a falling knife - let's reach out and grab it!..... OUCH!!!


I love their anecdote - a nice 23% off sale for a new homedebtor who felt he got a good deal. I hope they follow up 2 years from now to see if he still feels that way... he he he...


It's 'Seller beware' in Housing - Buyers have the upper hand as owners cling to old optimism about pricing

Roger Maehler has good reason to feel smug about the panoramic mountain views from his new backyard.

"I think I got a good deal," the Scottsdale, Ariz., resident says of the acre-plus adobe ranchette he snagged last week for $655,000-a 23 percent discount from the original $850,000 asking price.

Complete with swimming pool, spa, and a big-screen TV in the great room, the sprawling five-bedroom property was high on his list when he began shopping for a new home in May. But like many buyers these days, Maehler decided to hold off and see how the weakening market shook out over the summer. "I guess it was worth the wait," he says.

"I literally could have spent eight hours a day, five days a week looking at houses," says Maehler, who toured more than 30 properties before making a bid.

Indeed, the national inventory of 4.3 million unsold homes now stands at about a seven-month supply, a glut some economists say will persist until sellers make meaningful cuts in their asking prices. "Buyers want more than the traditional 2 to 5 percent price reduction before they sign on the dotted line," says Gregory Miller, chief economist for SunTrust Bank, who doesn't expect a significant reduction in inventory until early next year.

29 comments:

David in JAX said...

I don't live in Scottsdale or AZ. But, from what I've read about the market in that area, a 23% reduction is not a good deal right now.

David in JAX said...

Also, I wouldn't even consider 23% off of asking in my area right now, NE Florida, unless that price brought it down to below 2004 prices.

Bill Bond said...
This comment has been removed by a blog administrator.
Anonymous said...

October 30, 2006
Op-Ed Columnist
Bursting Bubble Blues
By PAUL KRUGMAN

Here are the five stages of housing grief:

1. Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)

2. “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)

3. Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)

4. Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)

5. Insert expletive here.

We’ve now reached stage 4. Will we move on to stage 5?

Over the last few years, most good U.S. economic news has been the result of soaring home prices. Spending on new houses created jobs and poured cash into the economy. Consumers borrowed against the rising values of existing homes and went on a buying spree, spending more than they earned for the first time since the great depression.

But the housing boom became a bubble, fueled by a surge of irresponsible bank lending, which continues even now. (Yesterday’s Denver Post tells of a runaway prisoner who managed to borrow enough to buy three expensive houses while on the lam, then bought two more while in prison.) The question now is how much pain the bursting bubble will inflict.

Last week’s report on G.D.P. showed the first signs of serious economic damage. According to the “advance” estimates (which are often subject to major revisions), growth in the third quarter of 2006 slowed to its worst level since early 2003. A plunge in spending on residential construction, which fell at an annual rate of 17 percent, was the main culprit. But was that just a temporary setback, or the beginning of something much worse?

Some say the worst is already over. Mr. Greenspan, who’s been an optimist all the way, now argues that the latest data on new-home sales and mortgage applications suggest that housing has already bottomed out. Business investment is still growing briskly, and so far consumers haven’t cut their spending. So maybe this is as bad as it gets.

But I think the pessimists have a stronger case. There’s a lot of evidence that home prices, although they’ve started to decline, are still way out of line. Spending on home construction remains abnormally high as a percentage of G.D.P., because banks are still lending freely in spite of rapidly rising foreclosure rates.

This means that home sales probably still have a long way to fall. And you don’t want to make too much of the fact that some housing indicators have turned up; those indicators tend to bounce around a lot from month to month.

Moreover, much of the good news in the latest economic report is unsustainable at best, suspect at worst. Almost half of last quarter’s estimated growth was the result of a reported surge in automobile output, which some observers think was a statistical illusion, not something that really happened.

So this is probably just the beginning. How bad can it get? Well, you don’t have to go far to find grim forecasts: Merrill Lynch predicts that the unemployment rate will rise from 4.6 percent now to 5.8 percent by the end of next year.

In case you’re wondering, I don’t blame the Bush administration for the latest bad economic numbers. If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending.

Still, the bad news will have political consequences. The Bush administration has been trying to shift attention away from the disaster in Iraq to an allegedly booming economy. That strategy wasn’t working too well even when the headline numbers were good, because it never felt like a boom to most Americans. But now even the headline numbers have turned lousy.

And if that hurts the G.O.P. in next week’s election, well, there’s a certain poetic justice involved. The administration tried to claim undeserved credit for the positive effects of the housing boom, so why shouldn’t it receive some blame for the negative effects of the housing bust?



Copyright 2006 The New York Times Company

Anonymous said...

Last night, a realtor told me that,"she would appreciate if I didn't contact her again.....that I was negative and enjoying the suffering of realtors, and the decline of assets........."

She is right. I do.

Paul E. Math said...

I'm inclined to say that 23% off is a meaningless stat. The seller could have had a $1.3M asking price then the final sale price would have been 50% off - does that make it any better deal?

The buyer should figure out, for his area, what the average income is and then figure out what the average price of a home should be based on that. Then calculate that price per square foot and see how it compares to what he's paying per square foot for the specific house he's looking at. If he values the pool and the spa and the mountain view then, by all means, add in a little extra. Does it work out to be more or less than $650k? That would be how I would determine if it's a good deal or not.

Another way of evaluating would be, as others on this blog have suggested, roll back the clock to 2001, take the price the house would have sold for back then and multiply by inflation plus 1.

Perhaps the buyer did these comparisons and we're not looking at an intellectually lazy buyer but just lazy journalism. But, as I say, comparing the final sale price to the original asking price is like those mattress stores that perpetually sell all models for 50% off - the original price is meaningless.

keith said...

let's say you bought a house for $200,000 in 2004, and then listed it in 2006 for $800,000.

Then you take 25% off and say - come on down everyone, 25% off sale! Save $200,000!

If some sucker buys it, he's still a sucker, and you still got paid

$ and % off is meaningless. It's what did you pay for the asset vs. its true market value.

But then again, most people are idiots. Just look at 'em crowd around the sale racks at JC Penny, buying things they don't need because they're "half off"

azfamdeals1 said...

Nothing in Scottsdale, AZ. is worth 655K....despite the description, the house is most likely some stucco box built with the cheapest stock materials and unskilled labor. I've seen hundreds of homes like that here and within 2-4 yrs. they're back on the market again, The amount of homes for sale here in N. Scottsdale is staggering..I live in a mature area of resale homes not a new development and yesterday there were 8 open houses literally steps from my front door with hardly any lookers all day.

The Thinker said...

It is oft said that we are in a buyer’s market and yet asking prices are still beyond belief. We are far closer to the top than the bottom. We are still squarely in a sellers market where any seller can still make a quick sale and a disgusting profit by reducing their asking price to a level that is lower than the pack but still grossly unreasonable.

Westchesterchick said...

If that guy thinks he got a buy at $655 - he better stick his head in the sand for the next few years or get himself a prescription for Prozac. Prices would have to roll back to at least 2001 without the bidding wars before most average Americans could dip their toes back in the water.

borkafatty said...

GAO Chief Warns Economic Disaster Looms

http://tinyurl.com/y5ndly

Paul E. Math said...

Reading this article, you know who else is worthy of some scorn? Zaher El-Assi. Do we have a name or a term for this sort of loser yet? His own broker says he is not serious about selling his condo and his asking price is unrealistically high - so why is he listing it? Answer: attention.

I can just see him at work or at parties or bars and talking to people about how the sale of his condo is going and he keeps talking and talking, waiting and waiting for someone to ask him what his asking price is. And when they finally ask and he finally gets to tell them he closes his eyes and raises his eyebrows to do so. "899" he says and sort-of sniffs the air like he imagines 'rich' people are supposed to do.

What a pompous, insecure, attention-starved ass.

keith said...

YEAH!!! THE THINKER'S BACK!!!!

tabasco jenkins said...

Thinker's back to make strange comments that don't make much sense, and one would hope are sarcastic, but given past comments, probably aren't. Yeah.

Given this one example of somebody actually selling their house in the Phoenix area, the "thinker" says:

"We are still squarely in a sellers market where any seller can still make a quick sale and a disgusting profit by reducing their asking price to a level that is lower than the pack but still grossly unreasonable. "

That's like saying because one guy hits the jackpot at a casino, that the odds are stacked in favor of the gambler.

Good "thinking".

BubbleShanker said...

What can he rent it for, right now? That will tell you the value.

Anonymous said...

to buy right now you would have to be:

a. retarded
b. under the gun for a house for some reason beyond your control
c. caving into pressure by a nagging and ugly wife and her partner in crime, Suzanne
d. not in control of your financial life or destiny
e. have a big ego and belive that renting is below you
d. all or some of the above.

SMARTER THAN KEITH said...

Hey Tobasco,
Sorry to bust your bubble. But thinkers point is excellent. I guess it is beyond you to graspsuch a concept.

borkafatty said...

The thud down the hall could be something spooky or scary – better just stay in your chair and maybe it will go away. It is the week where many scary things are going bump in the night, including the economy. We have been wondering when the effects of a slower housing market would show up in the economic data, and it seems to be right now. The coming week will be laden with economic data that should go a long way to either confirm the initial GDP report of 1.6% economic growth. Over the past couple of years the employment picture has brightened due to all the construction work – which now may be unfurling. It has been argued in many quarters that the economy has been boosted by as much as a half of a percent on GDP due to housing – and we may just be seeing the initial hit to growth. We believe the housing market may have more than just a quarter or two of effect upon the economy, as prices are still historically high compared to incomes and the amount of homes sitting is also very high. We may have to wait until after the NEXT Halloween before we can say all the skeletons are out of the closet. Until then, the economic data may be more tricks than treats.


http://tinyurl.com/yg7gkk

tabasco jenkins said...

Hey smarter than Keith,

So, you think the reason why Phoenix is looking at an inventory of 54,000 homes is simply because they are priced too high, and not at all due to ther being more supply than demand?

So, if all 54,000 sellers lowered their asking price by 20, 30, or 40% then suddenly 54,000 buyers would come out of the woodwork?

Show me those 54,000 buyers. I'd like to know just where they're hiding.

Sure, all 54,000 sellers could conceivably lower their asking price to 1 dollar and attract 54,000 buyers. But this would never happen because sellers aren't going to voluntarily sell their homes for less than what they owe their lender, thus the concept of a seller's or buyer's market existing in real estate due to the fact that an equillibrium price between supply and demand does not instantly appear due to outstanding loan balances. If there is more supply than demand, then it is a buyer's market. More demand than supply, it is a seller's market. There is no exception based on one seller hitting the jackpot and luckily finding a buyer.

But, yeah, the "thinker" has a real good point, which I would argue is that just because one "thinks", does not mean that one is intelligent.

Zaher El-Assi said...

Check it out! This Zaher El-Assi who is trying to get $800,000 only paid $415,000 in 2003. What a greater fool.

Look it up!
http://www.masslandrecords.com

keith said...

"Thinker's back to make strange comments that don't make much sense"

- the thinker is far and way my favorite poster. I think he's brilliant.

Butch is also spot-on in my book

keith said...

Richard is actually adding value lately to the blog too. The medication must be kicking in

FlyingMonkeyWarrior said...

Where is Butch?

tabasco jenkins said...

Anybody who is egotistical enough to go by the pseudonynm "The Thinker" and use the namesake statue as their avatar is hardly anybody to be taken seriously. From what I've noticed in the past, he tries to make a somewhat contrarian point everytime he comments and very rarely makes much of a point beyond being transparent in the fact that he is trying very hard to appear to be a higher thinking intellectual, and usually failing in the eyes of anyone who can see through glass. But you can go ahead defending him if you'd like. I defy him to actually comment substantively on anything. Until he does, my rather empty opinion of him stands.

az_lender said...

I agree with bubbleshanker. The price-to-rent ratio is key. Last Calif downturn bottomed with prices definitely less than 150x monthly rent, maybe as little as 120x. Also agree w/ the person who said the 54,000 inventory is too large to be absorbed no matter what price reductions are offered. As a commentator on that more-frequently-visited blog remarked this morning, true market prices at the moment are Undefined because the time series is exhibiting a discontinuity.

Anonymous said...

Tabasco-

Unbelievable that you do not understand Thinkers' comment.

What he said is very true and totally rational/easy to grasp.

As to the guy who got his 23% off "deal", well, hope he loves the place to death and can afford the payments EASILY cuz he's stuck with that more than likely still way overpriced place now.

People are fools. Buying at the beginning of the downturn of the biggest RE Bubble in history.

tabasco jenkins said...

anon,

Ugh, not quite sure why everybody here wants to give the thinker a blogger bj, but it's kind of nauseating. What he said was not rational nor true. One lucky seller does not make a seller's market. It is a buyer's market. What people have a hard time grasping is what the terms "buyer's market" and "seller's market" mean. It does not mean that if real estate is in a buyer's market that one should buy, it just means that buyers have more negotiating power than sellers. Thus buyers are able to submit offers lower than the asking price for the home they want because they have more negotiating power. It is a real estate term that does not lend itself well to investment viewpoints of the market. It is intended to describe the negotiating power for people who are buying or selling their home for old fashioned reasons like relocation. God, are people thick around here sometimes.

Zaher E. said...

Hi Paul:
Thanks for the comment. You are 100% correct. The place was purchased for 415 in 2003. What you dont know my friend is that that I purcahsed 4 walls and a floor. An empty loft. and if you visit the site and take a look (loft165.com) you will see the extensive buildout. Further, if you do a little more research, you might find that condo 12 in the same building which involved a much less complex buildout sold for 769. So my friend, hope you felt smart typing it, if you are going to refer to data, make sure you have all the data points.

ZE said...

Data, data, data:
Paul, for your eyes only:

165 Chestnut Hill Ave #12 sold for $777,000.00

http://www.masslandrecords.com/malr/controller?commandflag=getDetails&optflag=DetailsCommand&county=ma025&userid=null&userCategory=7&nameid=165&ptrno=5335208&instrumentnumber=157657&fileDate=11/28/2005&volume=38557&page=26&partytype=&name=CHESTNUT%2BHILL%2BAVE%2BUNIT%2B12&town=100001&officeid=70&fromdate=01/02/1979&todate=11/22/2006&subdetail=yes