September 24, 2007

FLASH: American homedebtors even dumber than I thought possible, homes won't be selling again for quite some time


Supply, demand, price, right? Wrong. There is no demand, there is huge supply, but 74% of dumb homedebtors still don't get it, and aren't lowering their prices (mark to market anyone?), so therefore homes won't be selling.

And you'll see supply continue to build and build, while sales continue to fall.
And then, one day, maybe years from now, homedebtors will get it. Like Hovnanian got it the other day with their hilarious firesale. And the desperate homedebtors will FINALLY lower their prices, FINALLY mark to market, FINALLY leave denial behind. But by then, it'll be too late.

Here's CNBC's Diana Olick:


Homeowners Just Don't Understand Value Of Homes

A new survey out today from Reuters/University of Michigan looks at homeowners’ perceptions of their own homes’ values. When the survey flashed over the wires this morning, my email lit up with all the “Alert” desk folks at CNBC saying, “Omigod, this is huge.” I don’t agree. I say it’s not huge enough.

The survey’s headline says, “A record 26% of U.S. homeowners say the value of their homes has fallen during the past year.” Further, 21% of homeowners polled in September expect the value of their home to decline in the year ahead. The survey finds even bigger numbers if you look at folks just in the West, but that’s an overall national picture.

Ok, so 26% is a record, but I have to ask, why isn’t it higher??
So why do 74% of American’s not get it?

34 comments:

wc said...

What's important is that Joe Flipper realizes RE isn't going up so that small time speculators leave the market completely. Other than that, people are always dying, having strokes, transferring jobs and divorcing. Those owners usually have to sell. And anyone that bought pre-2001 can chop their price almost in half and still be in good shape. At some point, even an idiot realizes he can't ask for $600K when the identical house on his street is only going for $300K.

Agent #777 said...

From what I have read, it would not be another 74%. Maybe 71% - you have to exclude the people in Tennessee, for another few months anyway.

Anonymous said...

Yes, Diana Olick hits the nail on the head. NYTimes article (tiny URL like below) is also a very good analysis of the human behavior revolving around selling RE in a declining market.

http://tinyurl.com/ypszg6

The conclusion is that due to "Loss Aversion" people put their homes up for sale and let them languish above current market price purely because the cannot handle/accept taking a loss. Of course this likely has to do with the fact that they cannot afford to absorb the loss but even people who can still refuse to sell low. The result is they end up losing more because of carrying costs and further drops in the FMV while they wait/hope for someone to come forward and be their greater fool.

The torching of a home for the insurance money to presumably pay off the mortgage is just another manifestation of "Loss Averson" (hint hint the mortgage is against the land as well as the structure upon which is sits, the lien does not go away just because the structure does!!)

The results of loss aversion are actually what the seller is trying to avoid. They want to be in the black so they can purchase a new home, but because the let the place sit on the market forever they cannot purchase and because when they finally do sell they get even less they cannot purchase and finally if the default on the loan due to lack of funds and ruined credit they cannot purchase, so "Loss Aversion" behavior actually just further exacerbates the problem that caused prices to drop in the first place, it increases supply and causes demand to drop!!

The solution:

Drama cut the price, get it sold, take the financial hit in the short term so that you protect your credit and immediately start saving plus you get to move on with your lives and have less stress!!! This gets the market back to fundamentals more quickly and you'll be able to recapture your loss in the form of falling prices!!!

The only hope is that toxic loans will force more people into the self realization that the value in terms of just turning off the financial obligation of a mortgage is priceless and that they can get back into the market more quickly the sooner they sell!!

Vandal said...

You gotta give it more time...downward pricing on homes tends to "stick". Past history on the last 2 boom/bust periods show an almost equal length of time for the boom and bust periods. We've just past the end of a 5 to 7 year boom in the middle of 2006, though the magnitude is far greater than anything in the past, it is very likely that the bust will also take 5 to 7 years to unwind. For several bubble cities this is only year one of the bust, and early year two for the rest.

Anonymous said...

Is that Michael Moore?

Mammoth said...

.
.
.
Hey Keith and other HP'ers in Europe,

Re: the image for this thread, is this really how Americans today are percieved by those living overseas?

Yikes!

Anonymous said...

My friend here in Carlsbad, CA told me yesterday that over the next 2 years RE will drop NO MORE than 5% in San Diego County. I almost fell off my chair and asked him again if he ment 5%. He assured me that NO MORE than 5% and then we will start to run up again.
He really does not get it. Reality is cruel when you start out in a $850K POS track home. OUCH!!!!!!
I think he will see at least a 30% whack.

Anonymous said...

If you look at the survey respondents you may see the answer. 65%+ have been in their homes for over 5 years. Many probably never figured out that their houses went up so high in the first place. The survey should have broken it down by people actively selling a house. Broken down by owner occupied and investors might have given a more interesting statistic.

Anonymous said...

When there is no "model" and they can't understand comps ("market") they only choice is "mark-to-memory." Even intelligent people still parrot the "real estate always goes up" mantra without even examining the evidence.

Couple of interesting foreclosure-related articles in the Mpls paper this weekend. Might open some more eyes.

Veronica Lodge said...

RE: A record 26% of U.S. homeowners say the value of their homes has fallen during the past year... So why do 74% of American’s not get it?

That's not all they don't get.

Many Americans are still disgustingly-hopeful and optimistic. They cling to the belief that their country is an economically sound, non-aggressive, cradle of democracy. The majority of Americans conveniently ignore the obvious:

1. Their country is run by an organized crime syndicate.

2. Their military and political leaders are guilty of heinous war crimes.

3. Their financial future will be grim now that the dollar is collapsing.

4. 9/11 was an inside job which is being used as an excuse to invade oil-producing countries and turn America into a prison camp.

Soon, 100% of Americans will get it, but it will be too late.

V.L.

Anonymous said...

Being in sales for most of my life, I've come to learn that people buy on emotion. Its all about perception and perceived value. What's more tied to emotion than the price tag on someone's castle, remember this, after all, is the "American Dream."

Tie in the fact the rapid appreciation in houses we've seen the past few years and its reasonable that people just wont "get it" when it comes to a housing collapse. Then there's the personal factor. Homedebtors and Americans in general tie the integrity of their social status, indeed their overall status within society, with the value of their personal property. Hence, the past few years we've seen an avalanche of people from co-workers to neighbors to family members just boast about how much money they made on their most recent real estate deal.

This has been the mania we've had to put up with for the past few years. But as the old saying goes "Pride cometh before the Fall." But right now the FALL is already here in house prices but the Pride factor still hasn't disappeared! Amazing, isn't it!

Anonymous said...

And as I informed many friends, a nephew and a fishing buddy that 2007 was a very bad time to buy a debt trap (house), I got the same look from them all, you know that glazed over you don't know what the hell you are talking about look...

I even told my fishing buddy, to offer 160K on a 249K home, if he had to have it. He was going to offer 200K. He bought for 180, put 30 down and he still hasn't even bothered to call me, as he has finally figured out what I was telling him all along. WAIT.

Dumbasses must suffer, its evolution.

Anonymous said...

The saying I've heard in the South isn't Fat Dumb and Ugly, its Fat Dumb and Happy. It's somebody who you can't tell them anything or get them to change their ways. Sometimes type As can get envious of them for a minute when beaten down, but only for a minute.

Anonymous said...

Except seattle/bellevue its special

Anonymous said...

"This is horrible, but we're die-hard union, so we have to," Ahrens said. "We got a mortgage, two car payments and tons of freaking bills."

A quote from one of the UAW communist organization members, regarding the strike. How is that GM's fault? Who told them to overspend? idiots. This people, is stupidity at it's finest. This is what most Americans have become.

Anonymous said...

I thought that was Michael Moore.

Anonymous said...

Those 76% are as mindblogging as the 38% freaks who still support Bush.

Anonymous said...

the image for this thread, is this really how Americans today are percieved by those living overseas?

Pretty much. I've lived in several countries, including in Europe and South America. Americans are the most hated people on earth. Sad.

Anonymous said...

Most of the news about the housing drop has only hit the popular press during the past few weeks, perhaps three months or so, so I don't think these statistics are too surprising. So, take the same poll in six months and I think many more home owners (or mortgage payers) will have a more realistic and pessimistic opinion. Most people don't pay attention to housing news every day of their lives, as many of the readers of HP do. The news hits those who have purchased in the past few years much harder than long-term owners, and they will probably be more interested in what's happening than people who purchased years ago and don't plan to move...though they will be hit by the destruction of many neighborhoods with the spread of foreclosures.

Anonymous said...

.


that's either borka or honica!



.

Anonymous said...

Anonymous said...
Those 76% are as mindblogging as the 38% freaks who still support Bush.

September 24, 2007 8:02 PM

==================================

I support Bush. Fuck you. Now be a good little liberal and get your next marching orders from dailykos...that is right after you cash your welfare check.

You people need to be in prison camps.

Anonymous said...

veronica lodge you need help and fast. Drugs today can do wonders for the mentally unbalanced. Please for your safety and those around you seek professional help immediately.

Anonymous said...

This is stupid. Why is it that the belief on this blog is that EVERY homeowner in America HAS to sell. The market is made of people that sell, and people that buy. If the seller wants to sell at a certain price, and the buyer does not want to pay that price, either the seller lowers or the buyer raises. If neither happens, no sale. That does not mean that a seller MUST sell at whatever price the buyer demands. You guys think that every homeowner in America has this mandate that they must sell at YOUR price or else. Contrary to what you people believe, most sellers are just saying NO. they aren't stupid, they just see all the panic out there, and the media hype and are just saying they will not sell at a firesale price. Period. The same privelege that you doom and gloomers had when you felt that prices were out of control. You walked. That is your choice, but now the other side is saying no and you are calling them idiots. Look in the mirror gentlemen, you may learn something.

God bless America said...

"Pretty much. I've lived in several countries, including in Europe and South America. Americans are the most hated people on earth. Sad."

If that is true, then why do we have such an immigration problem? Why are there so many people (not just Mexicans) out staying their visas? If America is such a toilet as so many on this blog believe then why do we have millions of immigrants from all over the world that want to live here. I think the problem is that you people here are spoiled, and don't know what it is like some places in the world. If the biggest issue that you complain about is that your neighbor is too fat or lazy, or you worry about the price of your house everyday, you need a big reality check.

And, BTW if you don't like it here, then get the F$%& out!!!! More for the rest of us.

Jane said...

Actually, the image of Americans in Australia is that of a nation of people on the decline. America used to be a great nation. But with the invasion of Iraq, the seeming endless obsession you have with celebrities and your terrible diet (and bodies!!), you are kind of laughed at now. They showed a TV program here the other night on Texas "The Fatest City in America". Dumb, fat and self-obsessed pretty well sums up your image outside of your borders. It's not that you are disliked as such, you just come across as really stupid and self-serving. By the way, we don't all want to come and live in America. I would be really scared to live in your country with no proper healthcare or welfare system, trillions of dollars in trade deficits and a falling dollar and George W. Bush at the helm. No thanks, we are happy were we are!!

Anonymous said...

The people that want to move here are a) desperately poor and see it as the land of opportunity or b) rich and see it as a place you can live, not contribute much to your society and can screw others out of money with impunity.

America: Land of the desperate immigrant and magnet for the selfish.

Anonymous said...

"This is stupid. Why is it that the belief on this blog is that EVERY homeowner in America HAS to sell."

"You guys think that every homeowner in America has this mandate that they must sell at YOUR price or else. Contrary to what you people believe, most sellers are just saying NO. they aren't stupid, they just see all the panic out there, and the media hype and are just saying they will not sell at a firesale price."

_________________________________

The problem is that there are a lot of people who want to sell, and then act surprised that they can't at the mark-to-myth price. The problem is, prices are going down at least in REAL terms relative to other things in the economy. So, people can accept that they've lost money, and do the markdown, or hold out and hold on. The problem with "holding on" is that if you can't, you are screwed for life, and you may ruin your children's lives. It's like gambling. If you are forced to sell, you are truly screwed.

My parents lost everything they had trying to hold on to 2 crapboxes in Sacramento and Phoenix in the last bubble (late 80s/early 90s) and it took over 15 years for them to pay off most of the mistakes. They still have no assets, and some debt to this day. I learned never to overleverage and wait for the blood to run in the streets...then buy!

Anonymous said...

hey, it ain't fat if you wear a T-shirt with "Big Dawg" written on it!

Buford P. Redneck

Anonymous said...

Veronica Lodge:

2. Their military and political leaders are guilty of heinous war crimes.

4. 9/11 was an inside job which is being used as an excuse to invade oil-producing countries and turn America into a prison camp.

You are an embarassment to all true Americans - fat or not. Your true vapid, shallow existence is truely disgusting. You are a true example of dumb, ugly America.

Anonymous said...

Go to the mall, and that is what the average Baby Boomer looks like. In 20 years, we will talk about how boomers died younger than the greatest generation even though they expected to live longer. Fat and longevity do not go hand in hand.

Anonymous said...

Jane in Australia:
Texas is NOT a city you idiot!!
Says alot for your morons down under.

Anonymous said...

Jane -

Every time I read about Australia, it's racist attacks, epic drought, collapse of agriculture, fascist in roads on your liberties, and YOUR idiot leaders supporting OUR idiot leaders.

And your kangaroos are being hit by cars.

Mark in San Diego/Zurich said...

The image of Americans here in Zurich is perhaps not as bad as other parts of Europe (although the Swiss are always polite). . .but we were in a small elevator that said - Load Limit 8 persons. . .one person said in Swiss German. . ."or four Americans". . . .a big laugh from all of us. . .

Anonymous said...

To anon@11:36p :

" now the other side is saying no and you are calling them idiots. "


We're calling them idiots because they're continuing to pay the monthly carrying cost of a home that will have no buyer at their desired price. Sure, it's all well and good to decide not to sell -- if you've got no continued exposure. However, we all know people who claim to flip for a living or for an investment.. and those people are crying into the night right now.

Yell as much as you want -- you won't get what you think you deserve because right now EVERY market in the country is overbuilt. Buyers will walk because they can get a better deal somewhere else.