September 12, 2007

FLASH: Real Estate fund manager expects a 50% fall in home values for inflated coastal markets

Are Arizona and Nevada close enough to the coast Ken?

For anyone thinking of buying a home today in San Diego, Miami, Tampa, Naples, Phoenix, Vegas, Boston, DC, Sacramento and a few others - unless you're getting 50% off of the peak bubble price, don't even think about it.

And nice to see an expert talk about the 800-pound gorilla in the room - that incentives are cuts in value just like price cuts are.


"I expect a 50% decline in the inflated coastal markets.... [When] homebuilders' conference calls talk about the concessions they make in the form of extras at no cost to the buyer, they can be 20% to 30% of the house price. So the full 50%... may come in other forms"

- Kenneth Heebner, manager, CGM Realty Fund, September 2007

41 comments:

Anonymous said...

Must Read Barbera Analysis:

LIBOR Increase Devastating

To this end, we see no hint that the credit default worries centering around CDO’s and infecting the ABCP market have abated. Instead, over the last two weeks, the spreads on London based Libor 3 month borrowing over Fed Funds have continued to widen out.
The widening yield spreads in recent days have been quite dramatic, and have served to strengthened overseas currencies. Yet the big downside risk ahead still resides in the US Credit Market where the long march of “resetting” adjustable rate mortgages has just begun. Looking out over the next 12 months, the US is facing a monumental series of ‘resets’ to its pile of Adjustable Rate Mortgages on the order of $50 to $60 Billion dollars per month, with some months north of $70 billion. In this light, the surge in recent weeks in overseas Libor Rates is potentially devastating news for the US Homeowner because within the US, increases on Adjustable Rate Mortgages are tied to the LIBOR Rate, and NOT the Fed Funds Rate. In fact, a recent article by Randall Forsyth in Barron’s pointed out that most resets will take place at several points ABOVE LIBOR. “This means that some of those borrowers may face mortgage rates of close to 10%, with the recent rise in Libor rates exacerbating this squeeze.” Consequently, even if the Fed lowers the Fed Funds rate by 25 basis points, the offsetting rise in Libor Rate imply that for most borrowers, there will be no benefit whatsoever.

borkafatty said...

Holy shit, anyone else see the dollar reach fresh new lows overnight...we break circa 1980 dollar 78.18 low the dollar is toast...why people are not running with torches in the streets is beyond me.

Wait I know why because the MSM is reporting that all is well...The stock Market is no longer the Gage to how healthy the US economy, as that to is rigged with filth..we are truly doomed as a nation..the only thing we can hope for now is...well you figure it out I already have my own personal thoughts.

Budvar said...

"“This means that some of those borrowers may face mortgage rates of close to 10%,"

With teaser rates of 4%, and if rates adjust to 10%, your mortgage payment doesn't increase 6% as many folk believe, but 120%!!

Anonymous said...

...The stock Market is no longer the Gage to how healthy the US economy

==========

Once again the lack of education comes shining through. It's Gauge not Gage Cletus.

lionstone said...

The dollar since 1971.

http://research.stlouisfed.org
/fred2/series/TWEXM?cid=105


UNFREAKINBELIEVABLE!!

christiangustafson said...

Hey don't forget lovely Seattle in that list! We're going to have a 50-60% drop here as well. Houses that were $300K in 2000 are selling for $700-$800K in the central city now.

This will of course collapse, and will be a fabulous spectacle!

Ben Bernanke called last night, assured me that he's raising rates to save us savers.

Anonymous said...

Once again the lack of education comes shining through. It's Gauge not Gage Cletus.

Oh shut up!

BTW - You didn't add the comma; you must be uneducated also.

Once again, the lack of education comes shining through. It's Gauge not Gage Cletus.

Anonymous said...

Keith to be fair, how many times were "experts" wrong before? Just because a fund manager makes a prediction does not make it true.

Anonymous said...

[ Hey don't forget lovely Seattle in that list! We're going to have a 50-60% drop here as well. Houses that were $300K in 2000 are selling for $700-$800K in the central city now. ]

They might correct to $550-600k but no where near a 50% drop.

One thing that's going to be really interesting is the price drops in the luxury condos that are going up everywhere. Granted there's only a couple dozen in each building so they don't need that many people to fill them. I've never seen so many construction cranes all building the same thing.

Amusing story in the PI the other week about someone buying at the 1 hotel on 1st (or 3rd?) and Pine saying that's he's only giong to have to rent out for 22 days of the month at over $300 a night to break even. Good luck with that.

Mammoth said...

Seattle isn't on the list because 'Seattle is different.'

[spits coffee on the keyboard and monitor]

Anonymous said...

Holy Cow!

Does this mean my 700 square foot sh%t box in LA is no longer worth a cool million?

Kirby said...

Homes built and sold for $650K without landscape and upgrades in 2002 in San Diego, hit an average high of 1,100,000 . No way a 50% drop.

JimAtLaw said...

Exactly 2:57... No matter what the high school dropout at the loft sales desk told you...

Anonymous said...

Portland is different too. I just read that young people making 50K are snapping up 300K condos.

Anonymous said...

In passive listening to the radio this morning here in the NYC area, the business report girl was talking about stock prices for a few major homebuilders here. After she mentioned the report and how their stock price is declining, she said something similar to: hey how about building smaller more affordable homes so more people could have a chance to buy. I did laugh a little.

Anonymous said...

ofr course its worth a million....in worthless dollars...i lile the realists price odf 84,000 as price becomes taxable value

Anonymous said...

Phoenix? Las Vegas?

Uhm KEEFIE you need a geography lesson friend. Notice he said coastal and last I checked neither LV nor PHX were anywhere near a coast.

Anonymous said...

RIGHT ON Borkafatty!. The halls of "higher education" are filled with lazy thinkers. People who would rather point out type-o's then respond with thoughtful logic. To further support their no-thought agenda they then try to humiliate the person who mis-speaks mis spells. No one dare confront them as they too may be humiliated.

This "Your stupid because you made a grammatical mistake and I am smart because I pointed it out" mentality has got to stop! It is immature and narcissistic.

I don't know if it will though. After all is this not how many lawyers make their living.

BRING ON DEFLATION!

stuckinthecity said...

Chicago is on the coast of Lake Michigan.....eh? eh?

stuckinthecity said...

[ Hey don't forget lovely Seattle in that list! We're going to have a 50-60% drop here as well. Houses that were $300K in 2000 are selling for $700-$800K in the central city now. ]

They might correct to $550-600k but no where near a 50% drop.
----------

Prices will adjust to what people can afford.

I never understood where they get the numbers for Chicago. Median income is $46k, but the median home price is $270k! That is 5.86x the earning of the median income! In the forgotten City of Chicago.

"They" call the Midwest the area in which you fly over when you go from NY to LA. Chicago has no spectacular desert here, no movie stars, no Central Park, no Inner Costal. Face it, things are FUBAR across the country.

Ron said...

I wonder how people will receive this, as more lies or maybe they have a clue now and take heed? When I told this 50% figure to my friend he about freaked out and said impossible.

Anonymous said...

A friend of mine in Los Angeles said that a huge number of realtors and mortgage brokers have been applying for 'positions' in...

the gay porn industry.

Frank@NeverColdCall.com said...

Arizona and Nevada may be over 50%. The sheer number of foreclosures in that state will do it.

Anonymous said...

This "Your stupid because you made a grammatical mistake and I am smart because I pointed it out" mentality has got to stop! It is immature and narcissistic.

+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=

I agree!!

bearmaster said...

I think those builder concessions will mean less and less as overpaying for a property becomes more of a concern for a potential buyer who is entering a deflationary (conservative, economize, cut-back) mindset.

The bottom line is, what am I buying the place for and what will my monthly payment be and will it be a stretch? I don't care about the big screen TV and the new car and the trip to Europe, thanks - but I want my monthly mortgage payments to stay lower and be totally predictable.

Anonymous said...

As I have said before.

I live in the Bay Area and happily rent.

The simple home I rent would HAVE TO decrease by 50% or my rent would have to double before the cost to buy equals the cost to own.

Home prices may not drop by 50% but Home VALUES WILL drop by 50%.

Its the math stupid.

The goal of the fed will be to try to string this along so that prices only drop 20% but inflation increases by 30% giving a 50% drop. At that point the cost of renting my Bay Area home will approach the cost of buying it.

SUCKERS!!!!

REisMyLife said...

A 300,000 house in 200o in Seattle should probably be worth around 422,000 today, so close to a 50% drop may be possible.

Anonymous said...

Nuclear 9/11 will kill housing prices within 500 miles of the crater.

Don't buy any real estate until nuclear 9/11!

Anonymous said...

SEATTLE/BELLEVUE IS SPECIAL

Anonymous said...

I'm expecting a 50-60% drop here in Da O.C. before it's over.

That was the percentage fall we had in the last RE crash, 10-12 years ago. If it drops more than 60%, I can pick up one of those Twenties Craftsman bungalows on foreclosure...

k.w. - southern ca. said...

Your house, or any house, is worth only what someone will pay for it.

What many are doing here in LA are still asking for over-inflated prices, hoping to really get a fraction of that in the end.

Some will fall for the bait and purchase a continueing depreciating house, but more people have now wised up and would rather wait it out.


Anonymous said...
Holy Cow!

Does this mean my 700 square foot sh%t box in LA is no longer worth a cool million?

RE.Agent said...

A 50% drop after 100% gains still leaves the shrewd investor up 50%.

k.w. - southern ca. said...

Southern Ca. is looking increasingly bad along the coast ... foresale signs cropping up more and more.

As Peter Schiff pointed out ...

"[...It doesn't matter where you live,
all areas will be hit by the housing downturn...]"

green day said...

Wake me up, when September ends...

Anonymous said...

"realtors and mortgage brokers applying for positions in the...

gay porn industry."


A bartender friend in Pahrump,NV says that plenty of female realtors and mortgage brokers seeking work in the brothels of Pahrump and Carson City.

To be honest, I find prostitution, porn,and stripping to be much more honest and respectable lines of work than real estate simply because you get what you pay for!


SEX VS. REAL ESTATE!!

Sounds like an upcoming HBO or SHOWTIME special.

SeattleLuxuryCondoRenter said...

With regards to this quote about Seattle...

One thing that's going to be really interesting is the price drops in the luxury condos that are going up everywhere. Granted there's only a couple dozen in each building so they don't need that many people to fill them. I've never seen so many construction cranes all building the same thing.

WTF? A couple dozen in each building? Olive8, Parc, Gallery, 2200, Cosmopolitan, Enso, Rollins, Escala and on and on and on.

TONS of unsold condos are not listed by the builders on the MLS.

Anonymous said...

Scottsdale AZ might as well be California. Prices have tripled in 3 years due to the plague of scum from Cali

Anonymous said...

50% on the west coast
30% in the northeast & mid-atlantic
40% in sofla
10% in flyover

Anonymous said...

A friend of mine in Los Angeles said that a huge number of realtors and mortgage brokers have been applying for 'positions' in...

the gay porn industry.


What Homeric symmetry.

Now they'll really feel what it's like to get buggered themselves!

"Mortgage broker? BOT-TOM!! snap snap--neeeext!"

Anonymous said...

RE.Agent said...
A 50% drop after 100% gains still leaves the shrewd investor up 50%.

September 13, 2007 12:49 AM

-------------------------

You're joking, right? A 100% gain followed by a 50% drop leaves the screwed specuvestor right back where he started from, minus carrying costs, transaction costs, and inflation.

Anonymous said...

I think that the author of this blog may not know exactly what he (or she) speaks of when they always speak about the Las Vegas real estate market - or for that matter Las Vegas itself. I was born and raised in Las Vegas. I've lived in other states and have visited many other countries. While I will agree that LV may not be my perfect choice for a place to live and work - I still have not found that perfect place. LV has world class entertainment and nice outdoor recreational area(s) - just look at the recent National Geographic article on LV. Now reference the housing market. I have owned a number of homes in LV - and currently still do. I also own properties in other states as well. I sold my primary residence here in LV last year - sat it out a year - and then decided to purchase another home because I couldn't stand renting anymore. I bought a new construction home for about $150,000 less than my neighbors paid within the past 6 months before my purchase. With that said, I can certainly say that new construction will never, I repeat never fall another 50 percent in LV. New construction is already down 25-30 percent from highs and was for obvious reasons was less sticky on the downside. Resale homes will follow suit - but, I also doubt that they'll fall another 50 percent - due to the fact that they're already down 10-15 percent depending on what numbers you use (incentives, etc. The med. price of the average home in LV is now hovering around 300,000. Back in 1995 it was approx. 150,000. The historical average for price appreciation nationwide is 6.4 percent. 1995 prices adjusted for 2007-2008 prices show that the average LV home should be approx. 255,000-265,000. This is a far cry from the 150,000 they'd have to fall if the author of this blog were right. I don't see it happening...Never...I will give you that the market stinks here right now...and it has a way to go down...If the next two years is anything like the last two years were talking about a 30,000 dollar drop in prices - which incidentally will put us right about where we should be adjusted for past trends, inflation, etc. That's my 2 cents....And if it gets any worse...Well it'll be worse everywhere...take care..