Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“People constantly speak of the government doing this or that, as they might speak of God doing it. But the government is really nothing but a group of men, and usually they are very inferior men. They may have some better man working for them, but they themselves are seldom worthy of any respect.”     H. L. Mencken

April 24, 2007

Housing Slide Not Over Yet

by Brad Warbiany

Remember in March and early April, when everyone was cheering the strong sales of existing homes during the month of February? Perhaps we were finally turning the corner, right?

The National Association of Realtors’ index for pending sales of existing homes rose in February at a seasonally adjusted annual rate of 0.7 percent. The index is well below where it was a year ago but stronger than investors expected, reassuring them that the housing sector, while weak, is not being pummeled by the struggling subprime mortgage sector.

Some folks thought the market had done a 180. But it now appears to be little more than a stutter-step. The market juked the perma-bulls right out of their cleats on this one!

Sales of existing homes plunged in March by the largest amount in nearly two decades, reflecting bad weather and increasing problems in the subprime mortgage market, a real estate trade group reported Tuesday.

The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent drop in January 1989, another period of recession conditions in housing. The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year’s big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

Everyone said, as they always do in a major asset bubble market, that “this one is different”. And it some senses, they’re right, real estate is different. But different doesn’t preclude a crash. If you hold $500K in a technology stock, and you need to liquidate as it’s dropping like a rock, you might sell for $300K in a day just to get rid of it, because you know it will be worthless tomorrow. If you own a $500K home, though, you can’t get rid of it in a day, you’re in debt to pay for it, and unlike the technology stock, it will never be completely worthless. But that doesn’t mean that the market can’t reprice it at $300K and screw you.

Oh, and despite what they said last month, it now appears that they see the error of their ways:

Lereah said that the troubles in mortgage lending were also playing a significant part in depressing sales. Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

This has been brewing for a long time, and it doesn’t take a rocket surgeon to have seen it coming. You flood the market with liquidity, loosen interest rates and lending standards, and you create an asset bubble. It had to burst or deflate. With housing, it’s tough to burst, because there is inherent value, but it’s starting to deflate quite rapidly now.

Hat Tip: Doug


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14 Comments

  1. I am precluded for compliance reasons at this point from writing on this, but yeah. I have been beating this drum for two years. It will likely take a couple of years to unwind, and longer for prices to rise at rates appreciably above inflation.

    Comment by Lance — April 24, 2007 @ 12:59 pm
  2. [...] Warbiany notes the housing slump is still on, and seems to be gathering steam. I can’t say much for legal compliance reasons other than I [...]

    Pingback by A Second Hand Conjecture » Housing still falling — April 24, 2007 @ 1:05 pm
  3. The post is spot on but I’m not quite clear on what a ‘rocket surgeon’ is. :D

    Comment by tkc — April 25, 2007 @ 4:19 pm
  4. Isn’t rocket surgeon a Stiffler line from one of the American Pie movies?

    Comment by Nick M. — April 25, 2007 @ 5:26 pm
  5. I just continue to shake my head as I read through all these stories about the housing market. It totally frustrates me when I read stories about how things are turning around and the bottom has passed. I sold my house in the height of the market in Aug 2005. At the time I knew things couldn’t go on like they were and realtors were telling everyone things were great. Just like the internet bubble I knew that it had to reverse direction. I make a good buck but I knew I couldn’t afford to buy my own house, it was the red flag that convince me things were overpriced. I downsized and got out before the fall. I really feel sorry for others that fell for the realtors lies and got stuck but for many it was driven by sheer greed. I always say, “its better to get out a year early then one day late”.

    Comment by Tom — April 25, 2007 @ 11:01 pm
  6. A house may not go down to zero like a tech stock, but a stock doesn’t cost you taxes and maintenance while it goes down and you cannot sell it, but a house is a constant expense. Never invest in anything that needs to be painted or fed.

    Comment by Mark — April 26, 2007 @ 10:10 am
  7. Well this crash maybe a positive for the so-called sub-prime victims (idiots). Looks like all the sub-primer will be converted to more affordable loan products by all the bail outs offered by the leading mortgage lenders.

    This is like amnesty all over again for the illegal home loans to the sub-primers

    Comment by Anonymous — April 26, 2007 @ 10:37 am
  8. Californian foreclosures up 68 percent

    Comment by Wesley — April 26, 2007 @ 12:05 pm
  9. I remember back in 1999 and 2000 when everything was going up like crazy. The .com craze was in full bore and I thought housing prices would decline in 2001. Thanks to Mr. Greenspan they didn’t but created this massive price bubble. I hear people saying that price’s will possibly fall to 2001 levels but shouldn’t they really fall to 1998 pricing? I mean the .com bubble did start the whole mess in the first place. Just a little food for thought.

    Comment by Ray — April 26, 2007 @ 12:11 pm
  10. I don’t think housing can fall to the prices of 2001/2 (though might happen is some neigborhoods) the reason being the various bailout schemes that the feds,states are coming up with. I wonder what this say to the guy who kept clear of this PONZI scheme and those wacky loans…does it not say you are an idiot? Should have taken it…the tax payer would bail you out…know what? i’m waiting patiently..next time i would take out one that is 10 times my income then turn around and say I never understood that it is interest Only…

    Comment by tuma — April 26, 2007 @ 3:19 pm
  11. >”I am precluded for compliance reasons at this
    >point from writing on this, but yeah. I have been
    >beating this drum for two years. It will likely
    >take a couple of years to unwind, and longer for
    >prices to rise at rates appreciably above inflation.”

    Y’know, that’s part of the problem. Housing should depreciate as it ages, not appreciate. That it does at all is troublesome. That it ever outpaces inflation at all is bad for affordability. That people see housing as an investment is a huge problem.

    Comment by Tesh — April 26, 2007 @ 3:26 pm
  12. Al Gore and the Mafia have alot in common;

    Al Gore purchases Carbon Credits to offset his extreme energy consumption.

    The Mafia hands out Turkeys on Christmas and Thanksgiving to offset their criminal activity.

    We are inducing Americans to consume more energy by giving them an out via Carbon Credits. You can do as much damage to the environment as you want, you will just have to purchase more Carbon Credits and hope that the so called “non-profit” green organizations spend your money wisely.

    We are the one’s responsible for our actions. We should never defer that responsibility.

    Comment by Michael — April 26, 2007 @ 5:20 pm
  13. Hi there,

    I LIVE in southern CA, I’ve been reading these blogs and reports now for a few months.. AND I have to say that I have seen first hand the subprime types of loans and What type of people they are lending it to. What I mean by “first hand” is that I have friends, yes ,very good friends, that ARE illegal Aliens and they have gotten loans that I would NEVER have even considered. The sad thing is that before they got the loans, they informed me of their plan and I thought in my mind that ‘they will NEVER be qualified for one, because I know their alien status and I knew how little they made”… Guess what? I was wrong. On top of that, after they got the loan, I was the one that ‘read; it over for them to make sure that they understood what the monthly payments were gonna be and what type of loan they were getting in to.

    So #1, I am caught in a very tough position. Yes, these are Very close friends of mine. I love them very much and I don’t judge them by their legal status, BUT I am so INFURIATED by our system that they would allow illegal aliens to get a loan to buy a home in the US whereas the real citizens (the legal, law abiding ones) get nailed for abiding by the lending guidlines and not taking on loans like these. #3, DON”T buy into this “its the low-income, hispanics, that Don’t understand english that are being taken advantage of… NO NO NO NO NO.. It is the other way around. THEY are taking advantage of our system and basically laughing all the way to the bank. And with the current ‘Bailout plan’ .. They seem like they will keep on laughing to the bank, because many o them will be ‘bailed out’..

    What type of loans did they get?.. ALL of them 100% NO money down, stated income..and yes.. adjustable blah blah blah.

    NOW how did they get these loans? Well on the loan documents their is one page that asks you if you are a permanent resident or a US citizen… And you know what?.. The bank or the loan officer just tell them to ‘MARK;’ the box that says that they are US citizen because then they will not ask to see proof. If you mark the box that says ‘permanent resident”, they will ask to see a copy of your green card, etc.. proof..
    AND how did these illegal aliens get a VALID social security number so that you can check their credit history?… THEY BUY ONE. Yes it IS ALL illegal.. ALL OF IT. SO all of you out there, I recommend you CHECK your credit reports Often. You see its a WIN WIN situation for the illegals, because they got into the homes with NO MONEY down, they did it with a fake (bought) social security number… SO what’s the worse that can happen to them? Yes, they lose a home that they should not have been allowed to own AND their credit gets ruined.. OOPS.. NO not their credit.. Some other poor person’s credit gets ruined… ALL they have to do is BUY another Social Security NUMBER.. Do you GET the PICTURE yet???? AND the BEST that could happen to them if they took this NO RISK gamble… ?? Is that they WALK away with Hundreds of thousands of Dollars in Funny Real Estate Money.. So Can you BLAME These people for taking this OPPORTUNITY of a lifetime?

    How do I know?.. Like I said I have VERY dear friends that are illegal aliens. AGain I love them very much. I don’t blame them for wanting to be in this country and doing whatever it takes to make it here.. ITS just a SHAME that our US govt. are NOT able to control nor protect its citizens. In fact , we are making being a citizen very unattractive when you see how much BENEFITS being and illegal has.

    So PLEASE dont buy into the poor victim stories… They are NOT victims.. And please don’t blame the appraisers for it… A house will not be SOLD by they appraised value alone. You have to have a willing BUYER to pay the Price. We are being taken advantage and used and WE don’t even know it. Its just another strategy.. by whom.. I don’t know. But if I were them, I would be smiling too.. and telling ALL of my family members to HURRY and JET accross that border.. NO MATTER what it costs, CUZ life is REALLY good here in the US.

    Huh, I could go on and on and on…. but I will stop here. I’m tired.. tired of all this upside down mess. Lord help us.

    Betty

    Comment by Betty — April 27, 2007 @ 12:00 am
  14. youve pretty much said it all betty except for: this activity has ruined whole neighborhooods. Im in phx. the middle class sold out and were able to “upgrade” into better or brand new homes. ..and up the ladder it went..helping our economy here, but now that the markets “adjusting” the controllers are now sucking our $$ thru the gas prices. adding to inflation. Now Im paying $300/mo. for gas. I ask you: were their intentions to better our lives & economy? the answer is: NO. we may have benefited some but only because they needed us to (banks, mtgs, brokers, realtors,lenders) so they could continue with their greed. Inflation goes up, and usually in an election yr. interest goes down so that may help keep housing prices stable.. But what about the year after?

    Comment by pat — April 27, 2007 @ 7:55 am

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