I think the real estate market may have finally peaked

[al_bundy]

Fatwallet has had a housing bubble thread for the last two years and lately there has been a lot of anecdotal posts from around the country about how houses aren't selling at listed prices and sellers have to drop their asking prices

A few weeks ago the NY Times reported that in NYC there is price pressure and people don't want to pay 10% over last year's prices

On Jim Cramer's Mad Money, he said that 3 home care companies had bad earnings. One is in lawn care and the other two are in something else about making your home look nice. He also warned people to start selling Home Depot and Lowe's to lock in profits

Prices of building materials are increasing and this may hurt home builders soon

I don't know if prices will fall of a cliff like some are predicting, and I doubt it will happen because I don't think people will willingly walk away and take the bad credit hit. And every local market is different so we may see appreciation in some markets and depreciation in others. But I think that prices may have finally peaked and there will be a small correction or several years of a flat housing market. I think the mania and euphoria is finally over.



EDIT
a lot of people see australia as a leading indicator and things have started to cool off there as well

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go up

[monkey42]

I just bought a house a few weeks back, so based on that, prices will drop. Its a skill I have.

[Duran]

Originally Posted by al_bundy

Fatwallet has had a housing bubble thread for the last two years and lately there has been a lot of anecdotal posts from around the country about how houses aren't selling at listed prices and sellers have to drop their asking prices

On Jim Cramer's Mad Money, he said that 3 home care companies had bad earnings. One is in lawn care and the other two are in something else about making your home look nice. He also warned people to start selling Home Depot and Lowe's to lock in profits.

Jim Cramer is a hack, and Fatwallet has had that thread forever. Not that I don't believe the housing market might be at it's peak, they are just not the sources I'd use as evidence.

[X]

Originally Posted by al_bundy

On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go up

That's a bunch of crap.

The reason the yield of the 10 year T-note went down so much today is because there is such high foreign demand for it. The Chinese aren't the only players and they don't have a lot of alternatives anyway.

[DodgingCars]

I think the more telling signs as that the 5-year or so price increases have been around the world. Britain, Austrailia, France, Spain, Belgium, etc., and these countries (especially Britain and Australia) are starting to see their prices dropping. Some market have already slowed. I just heard that price increases in Orange and San Diego Co. are about a 1/3 of what they were last year (something like 7% to last years 21%).

Other indications are that too many houses have been built and there simply won't be enough demand. Estimates show that the demand should be about 1.6 million houses, but 1.9 million were built last year and 2 million are in the process of being built.

I think the bubble is coming, but some markets will be hit first -- probably California and NY first.

[DodgingCars]

Other signs we're in a bubble:

Increasing # of investors/speculators.
Increasing # of "creative mortgages."

Or the simple fact that these price cannot stay this high. It's getting to the point where about 5% of LA residents can actually afford to buy.

[BigPete]

Just give me 2 more years and I'll have my $50k down payment sitting in the bank waiting for the bubble to burst.

[al_bundy]

Originally Posted by X

That's a bunch of crap.

The reason the yield of the 10 year T-note went down so much today is because there is such high foreign demand for it. The Chinese aren't the only players and they don't have a lot of alternatives anyway.

the market went down today and people usually flock to bonds in a down stock market. It's not like the whole world has to stop investing in T-Bills. Just a small percentage is big enough to send rates higher.

[al_bundy]

Originally Posted by DodgingCars

I think the more telling signs as that the 5-year or so price increases have been around the world. Britain, Austrailia, France, Spain, Belgium, etc., and these countries (especially Britain and Australia) are starting to see their prices dropping. Some market have already slowed. I just heard that price increases in Orange and San Diego Co. are about a 1/3 of what they were last year (something like 7% to last years 21%).

Other indications are that too many houses have been built and there simply won't be enough demand. Estimates show that the demand should be about 1.6 million houses, but 1.9 million were built last year and 2 million are in the process of being built.

I think the bubble is coming, but some markets will be hit first -- probably California and NY first.

forgot to mention, but a lot of people see australia as a leading indicator and things have started to cool off there as well

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

[X]

Originally Posted by al_bundy

the market went down today and people usually flock to bonds in a down stock market. It's not like the whole world has to stop investing in T-Bills. Just a small percentage is big enough to send rates higher.

We will see. Just like we have over the last couple of years when the experts said the same thing.

The problem is there aren't many better places to put a lot of money and the Chinese aren't going after Unocal just as an alternative investment.

[DodgingCars]

Originally Posted by X

We will see. Just like we have over the last couple of years when the experts said the same thing.

The problem is there aren't many better places to put a lot of money and the Chinese aren't going after Unocal just as an alternative investment.

I like the one quote I heard, "No one knows if a bubble exists until after it bursts." or something like that. I think it's true. Though, I also like this other (paraphrased) quote: "If this many people are arguing over whether there is a bubble or not, there probably is."

[The Bus]

Originally Posted by al_bundy

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

Bonds are a great buy. When bond prices go up, rates go down, and rates have nowhere to go but down from these 70-year historical highs.

Wait a second...

Originally Posted by al_bundy

a lot of people see australia as a leading indicator and things have started to cool off there as well

That market was a lot more overheated as well, though. See, for example:

Originally Posted by al_bundy

On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go up

Rates go up... prices go down... Why is this a good time to get into bonds again?



Directly from Barry Habib:

The mini-rally we’ve enjoyed the past two days is undergoing a bit of a pause this morning, but the party isn’t necessarily over quite yet. As could be expected, profit takers are grabbing their recent gains and pulling some money off the table, and this morning also brought slightly better than expected news in the form of a modest decline in the number of weekly Initial Jobless Claims.

At this point, Bonds have only given up yesterday’s mid-day gains, so rate sheets shouldn’t look much different this morning over yesterday's. It’s not unusual to see Bonds move around a little after a nice move higher, and we’ve got dual support just underfoot at the 25 and 200-day Moving Averages. With a slim economic calendar this week, these levels of support will act as our barometer. If we are able to hold ground and close above these levels, it shows Bonds may have some legs to potentially improve further. If we close below these levels, it may signal further price weakness ahead.

Another look at the health of the housing market today, as Existing Home Sales were reported basically in line with expectations at 7.13M units. In our recent exclusive interview with Frank Nothaft, Chief Economist of Freddie Mac – he noted that housing is experiencing the lowest levels of inventory available in 30 years, which definitely indicates that demand for housing is still plenty strong.

Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow will be hitting the airwaves this morning, testifying before the Senate Finance Committee on China. Topics of discussion will be their “undervalued” currency and China’s interest in purchasing Unocal, one of the largest US oil refineries. Traders will be tuning in to the proceedings for any comments of note from Greenspan or Snow.

Now, Barry Habib is about as bullish as you can find someone on the housing market, so take his words with a grain of salt.

I think "the housing market" is just the latest thing that newspapers can carry stories on. Slow news week? Run that housing market bubble story we've been holding onto for the past 10 months...



I'll put money on this statement: You will only see any major drops in nominal prices in investment and vacation homes and certain metropolitan markets (CA, NY, DC, a few others). The "bursting" of the bubble won't affect 95% of homeowners.

[rexinnih]

C'mon bubble burst. Poppa needs to buy a house.

[grrrah]

Originally Posted by BigPete

Just give me 2 more years and I'll have my $50k down payment sitting in the bank waiting for the bubble to burst.

my advice is don't wait.

I put $0 down, and have to pay the dreaded PMI. Within a year, hoping the bubble doesn't burst too bad, I will have the 20% equity, can stop the PMI, and already have a place at a better price. After 5 months, I am almost at the 20%.

Based on the bidding wars going on right now(during the winter season too), there isnt a shortage of buyers around here.

[tronmaster]

Hopefully it hits Hawaii soon, the prices here are going sky high. Price of paradise...

[pyro383]

The housing "bubble" started in 95 and after 02 they stated it wasn't a bubble because they have never seen the market sustain this type of growth it isn't typical. Prices are going to have to level off soon ie 5-10yrs because of 2 things. Kids can't afford to own and companies can't afford to pay for kids to own.

[al_bundy]

if prices have really peaked or are about to peak then I don't think interest rates have to go up. in many markets prices are at the point where you need to get an ARM or an IO loan at current low rates just to be able to make a payment.

I think what's going to happen is just what greenspan wanted to happen. The market will flatten out with maybe a slight deflation in prices and a minimum amount of foreclosures as people are able to refi into decent rates.

[Duran]

Originally Posted by pyro383

The housing "bubble" started in 95 and after 02 they stated it wasn't a bubble because they have never seen the market sustain this type of growth it isn't typical.

That's the same crap the "experts" spewed about the stock market and the breaking of the business cycle in the 90s. We saw how that turned out.

[Oraphus]

that stupid thread at fatwallet has been going for the last 3 years. Most of the people on there are idiots and talking out of their ass. If they would have invested their money in to realestate instead of posting.."it'll drop any second now" they could have made a lot of money during this time.
The prices are leveling off in certain places where they were way overinflated to begin with. See Vegas, Arizona, etc.
Other places, like Bay Area CA, are still going strong though.

[al_bundy]

i've been reading it since it was in the 30's but I did notice that the tone changed in the last month. For the last two years everyone was posting stupid newspaper stories about people bidding up prices or links to stupid books about how the world is going to end. In the last month people started posting links to stories and anecdotal evidence that there is price pressure, asking prices are dropping and homes are taking longer to sell.

In the new home sales report that came out today and volume is up, but the median price is down

[fujishig]

Well, I live in CA, and if there is no bubble, then I'm never owning a house (here, at least), since I certainly can't afford more than maybe a closet, and I'm not like most of these people who have no problem getting a interest-only loan and counting on increasing equity. I know this is the only way a lot of people can afford houses, but when more than half of new housing loans are interest only, there's a problem. Ah, I'll pay off my debt and save some money for a few years, and see what the market is like by then. If the median price rises to a mil by then, I guess I'm renting until I'm dead.

I wonder how much of the "demand" for housing is from speculators and "investors" and how much is from people actually wanting to live in them?

By the way, about Hawaii: someone mentioned (maybe in the FW thread) that the reason housing is so expensive there is because it takes so long for a new house to be built. Not to mention the limited real estate there. I was born in Hawaii, and often wonder how people can afford to live there, since last I checked, tourism is still down and that's the number one industry there, not to mention the cost of living (even taking housing out) is sky high.

Of course, I'm hoping it's not a nation-wide bubble, since that could hurt our economy, but to me the coastal real estate markets are ridiculous.

[DodgingCars]

Actually, there was a great article in the Economist on this. Some of their predictions seemed a little dramatic, but many of the reasons they citied that they believe that this is a bubble seemed legitimate. I know that people have talked about this for a couple of years, but I think the talk is getting more serious. We're also starting to see the market cool in some places overseas and even domestically (I mentioned earlier that Orange County and San Diego County had both seen some cooling). Most of the people that are taking the "There's no housing bubble!" stance seem to be in real estate or home building. I think all the talk of a housing bubble will cool the market a little (investors may back off).

We're starting to see more economists talking about seeing a bubble. There were several reports release just last week -- UCLA was one of them.

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? Houses in better areas (i.e. better school districts) have prices at about $700-800k. Someone I know lives on a street with, in my opinion, fairly modest houses selling for over a million dollars. These houses would have been $600k, at most, 5 years ago.

[DodgingCars]

Originally Posted by fujishig

I wonder how much of the "demand" for housing is from speculators and "investors" and how much is from people actually wanting to live in them?

I think that I read that it's something like 30% of houses sold last year were to investors and another 30% were 2nd homes. Less than 50% of the homes bought last year were for a primary residence.

Edit: I believe this figure was in LA or California, not nationally.

[fujishig]

Originally Posted by DodgingCars

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? .

I read the same articles from the FW thread. You know who's buying the houses?

1. Makeshift "investors" who hope that the real estate market continues growing at it's current rate, and who either take out money from their primary home to invest in a second one, or just take out an interest-only or ARM and hope to sell in a couple of years (although that new law will kill short term sellers with taxes) They don't mind paying the appreciated price because they assume some other guy will pay even more later on down the line.

2. Young families who are afraid of being priced out of the housing market and are forced to take IO or ARM loans to even afford the monthly payments on the house. They are assured that the equity will continue to grow at this insane rate so that by the time they have to pay off principal or the rate becomes adjustable and their payments rise, they should have enough to cover it.


I'm really, really close to being buyer number 2.