July 25, 2007

When does it really get messy? When existing homedebtors realize they have to Mark to Market, the new prices set by the homebuilders

We all know in places like Phoenix, Las Vegas, San Diego, Miami, Tampa, Washington D.C., Boston, Sacramento and more, that new homebuilders have taken prices down big-time - either posted price or through the use of massive incentives.


Yet in those markets, stubborn existing homedebtors, less in tune with the market or Econ 101, and still under the illusion that 2005 prices are real, haven't adjusted their prices to the new market reality - or Marked to Market (yes, there's those three words again).

So what's happening in those markets and more? New homes are selling moderately well at the new prices as homebuilders take the haircut, slash the prices, and move the inventory, yet existing homes continue to not sell, and pile up like tumbleweed on a windy western day.

Eventually, some existing homedebtors will have to sell - or have the house sold for them via foreclosure. This starts the rush for the exits, the first ones out the door will be best off, then the real mess starts.

Note to existing homedebtors - 2005 prices are a joke. 2006 prices are a joke. 2007 prices are a joke. If you want to sell, just look at what true new home prices are at in your neighborhood (posted price less incentives), and price accordingly.

Here's a quick tidbit on this from CNBC's Diana Olick yesterday. Not only are prices going to come down, but when they do, watch for even more blood in the streets with the lenders.

I spoke to Nishu Sood, an analyst over at Deutsche Bank today, and he makes an interesting point. The big home builders have lowered their prices in the hot markets, like Las Vegas, down 25%, but the existing home owners have not dropped as far.

He expects to see existing home owners start to drop prices more dramatically in the second half of this year. If prices really start to hit the skids in these big markets--which are where all those speculator investors lived and breathed--then you can expect all those adjustable rate mortgages they used to really kick into high gear default.

14 comments:

Anonymous said...

Sorry, but I haven't seen any markdowns in Phoenix area except for hellholes like Queen Creek, Maricopa, Surprise, etc.

When they are marked down in places like Scottsdale or Fountain Hills, then I'll get excited.

Anonymous said...

Mark to market send chills down my back

bickerer said...

John Mellencamps album from last year is pretty crappy I hear. But it's best song is a real nice musical piece with convoluted lyrics rambling about ghost towns along the highway.

I thought it was idiotic when I first heard it, but maybe he was onto something.

Anonymous said...

Anyone have a guesstimate for what a house on the intercoastal or the bay will cost when all is said and done in Tampa?

Anonymous said...

A seller needs enough equity to "price to market" without the cooperation of the mortgage holder. Many sellers don't have it. Without the equity, you have short sales and foreclosures.

Anonymous said...

This will be foretold when the credit market goes into revolt. Right now it's very shaky...

Anonymous said...

High prices = low sales volume, until all hope is lost

Mark said...

My in-laws live in Tampa and they say no one is lowering prices down there. A crappy 1300 sq. ft. 1969 ranch that sold for 100,000 in 2001 and 250,000 in 2005 is now going for 249,000. Seriously.

The in-laws say the media down there, both the papers and the news, all say that Tampa will be the first city in the nation to turn around, and there's a lot of job creation so demand for houses will be high, and young families are moving to Tampa in droves, blah, blah, blah. Not to mention when Forbes says Tampa is the number one city in the US to buy a house right now, it doesn't help the delusion. They just think that if they hold out long enough, they'll get their price.

As long as the entire bay area is under the impression that everyone and there brother wants to move to Tampa-Clearwater-St. Petersburg, they refuse to lower prices and no one is telling them to.

The entire Tampa-Clearwater-St. Petersburg area is a sh*thole. It is extremely congested with people, traffic, and buildings. Education is poor, incomes are very low, and crime is pretty high. Why would anyone want to live there?

Mark said...

Here is a load of crap from today's St. Petersburg Times:


The online edition of Forbes magazine, with help from business prognosticator Moody's Economy.com, touts the Tampa Bay area as the No. 1 place in the country to buy a house.

Come again? Aren't we supposed to be in the throes of housing agony?

Hear them out: Because of our area's overall strong, growing economy and comparably modest housing prices, Forbes calls Tampa-St.Petersburg-Clearwater a prime bounce-back market.

It predicts our area will experience what it calls a V-shaped recovery, where a market experiences a free fall, but rebounds strongly once it hits bottom.

Other regions will chart U-shaped or L-shaped courses. U-shaped recoveries are those in which prices fall slowly and recover gradually. Think Boston and Sacramento.

The L-shaped phenomenon is when prices plummet but remain mostly in a trough owing to underlying economic problems in the city. Think Detroit.

"While the Tampa market has yet to bottom out, the silver lining for buyers is that it is a highly resilient market," the article says.

"Most of the fallout in Tampa can be attributed to its high investor share, which is correctable given the good economic and job-growth projections."

To get on Forbes' top 10 list, a region needed an oversupply of real estate with plenty of sellers keen to strike a bargain. That's not all, though. Forbes also sought areas where prices wouldn't fall cataclysmically, so that buyers wouldn't be booking a fare on a sinking ship.

Based on Moody's figures, Tampa Bay home prices should bottom out in the first quarter of 2008, once the region burns off excess inventory from speculators who went hog wild in 2005.

Fast Facts:

Forbes' top 10

1. Tampa

2. Minneapolis

3. Miami

4. Kansas City

5. Chicago

6. Phoenix

7. San Diego

8. Milwaukee

9. New York City

10. Atlanta

burn baby burn said...

A friend of mine just bought a home in Destin FL. It was a model home and has never been lived in. It listed for 440K he closed on it for 225K. How do you think the new neighbors are going to like him? I told him it would be 150K in a year. He said it might be but he is getting old and pans on dieing in this house. Things are just now getting interesting.

Anonymous said...

housing prices ARE not dropping in the DC N.O.V area! I wish they would. the people here in the Fredericksburg Area still have a sence of realestate expectation which drives me nutz. Most of the banks dont even get it yet..
On The other hand Arizona just sucks i lived there for 10 years.It was fine until 2002 when the Dolf Deroos,Kiyosoki types moved in. now is Is just like India. Ignorant People bathing in a poluted river..

Anonymous said...

1. Tampa
2. Minneapolis
3. Miami
4. Kansas City
5. Chicago
6. Phoenix
7. San Diego
8. Milwaukee
9. New York City
10. Atlanta

Milwaukee? Was there last year for a few weeks A sadder more pathetic city I can't imagine. Population has been declining steadily for decades, wtf makes Forbes think all of a sudden an influx of people will show and increase r/e prices?

Atlanta? 110,000 homes for sale there right now. 6 months ago the number was 75,000. Good luck with that.

I used to think Forbes was a serious magazine.

true believer said...

hi i'm the mail lady. ha ha ha anyway today i was showing all my coworkers (we love looking at the real estate postcards, the prices are insane in some cities Danville, Blackhawk, Lafayette, Moraga, San Jose, Concord, Alamo just to name a few cities not truly mentioned anywhere still a house cost 750,000 for 1800-2500 sq ft. Blackhawk is so exclusive I don't think one can go there without a police escort. LOL)anyway today i was passing around a post card advertising 3 homes for auction in Sacto, the first 199,000 for a reconditioned four plex, yikes, and a 4 bed, 2 bath 1800 sq ft for 149,000 opening bid at least 1 year ago it would have been 350,000 another post card the original selling price 700,000 we'll sell it to you for 350,000 isn't that like a 50% price reduction. So if it doesn't sale and it probably won't will it go at a 80% price reduction. Maybe a 2 for one sale maybe buy 2 get one free. This is a nightmare. The last wave of foreclosures are starting to slack off but the storage centers are racking in the big bucks and trying to hold em off in bankruptcy is a big thing now. Where will this all lead?

Anonymous said...

It will get really messy when the banks liquidate the homes they foreclosed on.

4 years or so from now, there will be some bargains.

That's if this country survives intact. This collapse is going to be culture-changing and possibly political changing.