Why would anyone listen to the cheerleaders at the National Association of Realtors? Two years ago, were they predicting a decline in house prices? Were they predicting the collapse of the subprime market? Were they predicting the carnage that is unfolding in formerly hot markets around the country?
Yet, there the cheerleaders were, out today, saying prices will be robust in 2008.
The group has never seen a full-year decline in existing home prices in the nearly 40 years it has compiled national sales statistics. As recently as March, the group was still forecasting a 1.2 percent rise in the median existing home price for this year.
It also is looking for a 2.6 percent drop in new home prices for all of 2007. That is also worse than the previous estimate of a 2.3 percent drop in prices.
And while the forecast for new home prices is to increase for all of 2008, the new estimate of a 2.2 percent increase from 2007 levels is less than the previous forecast of a 2.6 percent jump in prices. The latest forecast is for a 1.8 percent rise in existing home prices in 2008, slightly better than its previous estimate of a 1.7 percent rise.
"Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," Yun said in the group's forecast. "Local conditions vary considerably, but with historically low mortgage interest rates this summer and sustained job gains, it could be a good time for first-time buyers with a long-term view to test the housing waters." [Emphasis added.]
Or it could be a good time to get your head handed to you on a silver platter.
NAR economists.
Maybe NAR is correct, I don't know. But in my opinion, saying that a market - which has compounded 10% per year the past five years after rising 3% per year on average for the past 100 years - is a buying opportunity after a 2.6% decline is akin to the True Believers of technology telling you that the Nasdaq was a buy at 4000 in 2000.
But its not NAR's fault. The problems, according to NAR, can easily be traced to ...
In a slide show Thursday to the Greater Tampa Association of Realtors, Yun delivered a message of short-term pain leading to long-term gain.
"Five years from now you will be very happy you're in this business and located in Tampa," Yun said over a brown-bag lunch to about 75 real estate agents.
In Yun's view, rising incomes and declining home prices ought to have stimulated sales this year were it not for housing bubble scares in the media. [Emphasis added.]
The media!
Of course, the frenzy of title flipping, no doc loans, 0 down, liar's loans, cheap money, and cheerleading NAR economists had nothing to with the outsized returns in real estate. Its the media's fault!
Perhaps Mr. Yun doesn't realize things are so bad in Florida that chapters in his association just down the west coast are not reporting sales figures because they do not want to be associated with the carnage in the rest of the state.
The Naples Area Board of Realtors has long wanted to report that city's results undiluted by lower-priced and worse-performing neighbors.
In fact, for the past few months, the board has refused to submit its sales and price numbers to the Florida Association of Realtors for its comprehensive monthly reports. ...
Observers say that Naples' strong, expensive but medium-small market does not want to be lumped into any other database because it could drag down the statistics.
With much the same sentiment, the Sarasota Association of Realtors would prefer to be judged only within the boundaries of its Multiple Listing Service, and it issues a monthly release timed to coincide with the FAR's (Florida Association of Realtors) monthly statistics.
Of course, things weren't really as good as advertised in the Sunshine state as fraud was prevalent in some of the hottest markets.
Property appraisers in South Florida say they routinely come under pressure to value houses for more than they are really worth. ...
''From talking with appraisers in Southeast Florida, there are entire neighborhoods where all of the data is polluted,'' says Francois Gregoire, chairman of the Florida Real Estate Appraisal Board.
On the private website MortgageFraudWatchList.org, South Florida appraisers logged 20 attempts in less than a month to get them to misrepresent the value of a property.
''This is the worst I've seen it ever,'' says Doreen Campbell, a Davie appraiser who has been in the industry for more than 25 years.
And now, in Miami, buyers can't be found for condos listed at half the price compared to a few years ago.
Even seemingly great deals were snubbed. Example: a two-bedroom condo on Claughton Island Drive in Miami bought last June for $690,000. The outstanding balance on the loan was $588,062, but the lender was willing to let the property go for $373,900.
I was looking for such bargains when I went condo shopping on the coast last weekend. I didn't find any but it will.
One seller in Destin gets it. He has dropped the price of his house by $1,000,000.
A Destin doctor who has had his pulse on the Destin real estate scene for more than 30 years has slashed the asking price of his bayfront home by $1 million.
Now, the home that Darlene and Dr. Mike Raim live in carries a listing price of $1.79 million. It was $2.79 million.
And his logic is bang on.
“The trend is that prices are moving to the same level that they were in 2003. As you will recall, 2004 and 2005 saw tremendous and often unrealistic growth. The market has now corrected itself. Many properties doubled in value during that time, so a drop of half the value is not unrealistic right now if a seller needs to sell.”
It has been quite a yo-yo for home prices just east of Destin in Pensacola.
The market is not stagnant, however. Doug Gooch, president of the Pensacola Association of Realtors, said 508 houses and condominiums moved last month, at an average price of $222,000. That compares with 724 houses sold in June 2004, three months before Ivan hit, at an average price of $193,000. Prices have fallen since their post-Ivan highs - when the average sale was $290,000 - but they are still buoyant.
Who may wind up being the biggest landlord in America? Why, Wall Street, of course!
Bear Stearns, the second-biggest U.S. underwriter of mortgage-backed securities now reeling from the worst housing decline since the 1930s, never planned to take possession of the three-bedroom house. After selling the property last week, Bear Stearns said it still owns 18 houses in the Decatur area acquired since November. Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. are listed in public records as the owners of at least 35 homes in the suburb, where 19,000 people live seven miles east of downtown Atlanta.
As foreclosures climb, Wall Street's lenders and investors are claiming a bigger chunk of Main Street. The value of U.S. homes held by commercial banks swelled 53 percent nationwide to $2.3 billion at the end of March, the highest since 1992, from $1.5 billion a year earlier, according to the Federal Deposit Insurance Corp. ...
Conditions are the worst since the 1990-1991 recession, which was caused by a credit crunch that followed a boom-bust real estate cycle similar to the last seven years, Gumbinger said. Like the 2000 to 2005 boom, the previous surge in sales and prices was sparked by a decline in mortgage rates, and featured ``risky mortgage lending,'' he said.
The reason why the banks are going lower is because they hold more mortgages on their balance sheets since the last bubble burst. It doesn't matter if they are solid. The market will sell the stocks down anyways. Banks are highly levered businesses dependent on asset market prices. And asset market prices are correcting.
But homeowners have not yet come to terms with what is occurring in the real estate market.
Despite turmoil in the housing markets that includes record foreclosure numbers, mortgage rate increases and home price depreciation, homeowners don't believe there's a real estate slump, according to a new poll.
Most - 55 percent - are confident that their homes continued to increase in value compared with a year ago, according to a nationwide telephone survey conducted this month by The Boston Consulting Group (BCG), a business and management strategy firm. ...
74 percent of the survey respondents said they were confident that they could sell their home within six months at the price they think it's worth.
Inventories are increasing in many markets, however - listings now spend an average of more than seven months on the market, up from five or six months last year.
Looking long-term makes homeowners even more optimistic: 85 percent believe their home will rise in value during the next five years, and 63 percent believe a house is a good investment.
The perception gap between what Americans believe and the current housing market reality can influence their behavior. According to Silverstein, most homeowners (76 percent) have not, for example, pared back their consumer spending in response to current market conditions.
Yet, housing may actually be getting less affordable.
Home prices may have fallen this year, but a new study says housing has become more unaffordable. And if interest rates continue to rise, the balance could tip even further.
According to the 2007 State of the Nation's Housing report from the Joint Center for Housing Studies of Harvard University, 17 million of American households in 2005 were putting more than half their income into paying for shelter - a rise of 1.2 million from the prior year, and a jump of 3.2 million from 2001.
"There's an ongoing affordability problem - and it's getting worse," Rachel Drew, a research analyst with the center, said at a conference earlier this week in New York.
Three main factors intersect to affect affordability: mortgage rates, income and prices.
Mortgage rates have generally been a favorable part of the equation. Since the start of 2001, they've ranged from an average of 5.23 percent for a 30-year fixed in June, 2003 to 7.16 percent in June of 2006. Even after the Federal Reserve started raising its rates in June, 2004, mortgage rates stayed low.
Median income, however, has dropped. Real wages fell from 2000 to 2005, according to the report. By 2006 household income was 1 percent below 1999 levels, according to stats from the Current Population Study of the U.S. Census Bureau.
Wages dropped but mortgage rates held steady; affordability shouldn't have suffered too badly if the third part of the equation - housing costs - remained stable.
But they didn't. Single-family home prices skyrocketed, from an inflation-adjusted median of $154,563 in 2000 to $221,900 in 2006, according to the National Association of Realtors (NAR), for an increase of 46 percent.
I read an article by Goldman Sachs this week that argues otherwise.
Rising rates could make things much worse.
The worst is yet to come for the U.S. housing market.
The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.
``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.''
Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession.
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