Thursday, March 01, 2007

Game On

Of course, we've been preaching to the choir here - either prices have to come down in Florida, or median incomes have to go up (way up). And we all know the likelihood of option #2 coming to fruition. Ergo, the laws of supply and demand are finally coming to life, like an old rusty train that's been overhauled and lubricated and finally leaving the station for the first time in 5 years. From Shannon Behnken at the Tampa Tribune.

'TAMPA - The Tampa Bay area experienced its steepest home price slump in recent memory in January, while the number of home sales continued to drop. Sales activity in the area stands in stark contrast to national data that showed sales of existing homes rose by the largest number in two years.

"The housing market in Tampa doesn't look good at all," said Per Gunnar Berglund, senior economist for Moody's "This is the sharpest drop in pricing since the early 1990s."'

And as goes Tampa, goes the rest of the state. Maybe in the far north interior things haven't changed, but for the majority of the population, consider this to be the starting gun to our multi-year race to the bottom.

And lest we forget, it's always good to hear the cooked numbers from FAR (Florida Ass. of Realtors) as well as "we're just around the corner from recovery" droning from the NAR. The fairy tale just wouldn't be complete without involvement of our evil (yet charmingly simple) giant. First, FAR.

'The median sales price of existing single-family homes in the Tampa-St. Petersburg-Clearwater area was $214,000 in January, down 7 percent from December and significantly below the real estate market's $239,900 peak in June, according to data released Tuesday by the Florida Association of Realtors.

The association said the area's median sales price in January was 1 percent below the same month a year ago. In December, the median sales price was $230,800.'

Wrongo-bongo. I've been tracking median prices for over a year in the bay area, and currently it is still around $270K. So, unless the median home is selling for $55K less than the listing price, these numbers are cooked, baked, and diced. Onto the NAR - cheerleading time from economist Lawrence Yun!

'Yun said he does not think the Florida housing market will suffer too much. The job market remains strong, and many people continue to move to Florida from the Northeast, which should continue to drive demand for real estate, he said.

"This is a short-term correction," Yun said. "The local fundamentals are good."'

WHAT THE F is this guy talking about?!!! More people are leaving the state than are moving in, sales are way down, prices are way down (crooked accounting by FAR notwithstanding) and median incomes are still far below median prices. Mr. Yun, tear down this wall! (of lies and deceipt!) The local fundamentals are not good - the laws of supply and demand say they are very, very bad.

And hey, while we're at it, let's hear the same drivel from our local liars-club.

'Carlos Fuentes, president of the Greater Tampa Association of Realtors, said that despite the drop experienced by the larger metropolitan area, local data on prices in Hillsborough County are trending upward.'

Trending upward in his mind, maybe. Trending upward in one or two super-wealthy neighborhoods, maybe. Trending upwards if you're standing on your head, maybe.

Full Article


CRAZY G said...

Of little notice, but very important news yesterday, Freddie Mac, effectively cut off sub-prime mortgages...
Nouriel Roubini, thinks we are headed for the worst of the worst housing recessions:
Is the Sub-Prime “Garbage” 6% or Rather 50% of the Mortgage Market? And the Worst Housing Recession in Decades...
Nouriel Roubini | Feb 28, 2007
Now even mainstream media and mainstream analysts regularly speak of the sub-prime “meltdown” or “carnage” and refer to these sub-prime mortgages as “garbage” or “trash”. Since most of these sub-prime mortgages were junk that should have never been originated in the first place, now the new spin in financial markets is to minimize the nature of the problem by making two arguments: first, sub-prime loans are only a very small fraction of the housing market, specifically only 6% of it; second, sub-prime problems are a niche problem that is not affecting other parts of the mortgage market. Both arguments are utter spin without any basis. Let us see why.

Where did the Mortgage Bankers Association (MBA) get the “sub-prime is only 6%” figure that it is spinning around in every possible media? Their trick is to consider all homeowners, even the 35% of homeowners who do not have any mortgage and then argue that only 6% of homeowners are sub-prime borrowers. Why is this spin and why is the actual figure for “garbage” mortgages actually closer to 50% of the flow of new mortgages in 2005-2006 rather than the “6%” being spinned around? Several reasons.

Let me elaborate:

Sub-prime are now 13% of the stock of mortgages, not 6%.
Sub-prime mortgages were at least 20% of mortgage originations in 2005 and 2006.
The same “monster” lending practices used for subprime mortgages were also used for most “near-prime” and “prime” mortgages.
Many pseudo “near-prime” mortgages (such as Alt-A) are undistinguishable from sub-prime ones and have now sharply rising default rates
What is defined as sub-prime is subject to highly cosmetic accounting by banks: the rule that FICO scores of 660 or below are sub-prime is often diluted down to 630 or even 620 to exclude many mortgages from a sub-prime classification.
Counting all of the categories above, subprime-like mortgages accounted for almost 50% of all originations in 2005 and 2006 not the 6% figure spinned by the industry lobbies.
So whenever you hear the spin about the sub-prime meltdown not being such a big deal as “sub-prime mortgages” are only 6% of the housing market beware of such misleading spins. Properly measured sub-prime and near sub-prime and effectively sub-prime (because of creative accounting) mortgages accounted for almost 50% of all originations last year. So the mountain of “garbage” and “trash” that has been piling up in this sub-prime carnage includes a good half of new mortgages created in recent times. And the meltdown of these mortgages – both those that are formally sub-prime and those that are effectively sub-prime – will create a massive credit crunch in short order. At the end of the day “garbage” is garbage, whatever you name it. What is labeled as “Prime Garbage” stinks as much as the “Subprime Garbage”. And if it walks, ducks and quacks like garbage it passes the smell test of being garbage. Some of that garbage may rot more or faster than the rest but the overall state of the mortgage and housing market is the worst in decades.

Also, note that with new home sales down 16.4% in January ( the biggest drop since 1994 as reported today) and housing starts down another 14% in January alone, both the demand and the supply side of the housing market are in literal free fall and collapse. The only things that are mushrooming in the housing market are cancellations (in the 30 to 40% range for major home builders) and the stock of unsold new and old homes that is at historically unprecedented highs. All this means home prices headed sharply south in the months ahead. As I argued last summer (see here and here and here) this is the worst housing recession in the last five decades. In a long paper with Christian Menegatti that I will publish next week I will flesh out in much detail the arguments on why the housing recession is nowhere close to bottoming out and why the housing recession will get much worse before it reaches any bottom.

Instead, let me now go into some more detail about each of the above monstrosities on how "sub-prime" mortgages are measured and why the "garbage" in mortgages is closer to 50% of recent mortgages rather than 6%.

Crazy thinks that houses are mispriced, and all the builders want the sweet spot, above $300k.
Whereas affordablity is something under $250K
After June 1st, when some of these sub-prime mortgages reset [again], Crazy thinks you'll see some real carnage..
As in BEARS, being carnivores.
Some people are going to get their posterior sphinctures eaten out of them

zippo said...

"Mr. Yun, tear down this wall!"


Quoting Uncle Ronnie? Jerry, this is has to be one of your best yet. I almost fell out of my chair, laughing so hard.

Keep it going, bro'.

Anonymous said...

I couldn't agree more. Since I work with numbers, I couldn't see the economics of the deal even as the real estate market was hot. In the "old" days,the investment involved "ONE" variable, the interest rate! Real estate taxes and insurance was a known and stable factor. So if you hade to carry a negative cash flow, you would anticipate overcoming it within a reasonable amount of time by a rent increase. But once the insurance and real estate factors skyrocketed, a positive return anytime in the near future was a pipe dream.

I have no idea how so many flippers are doing it. I have a friend that acquired 5 properties and he seems to be doing well. And since he is my best friend, I would know if this wasn't the case.

Anyway, thanks for your dedication to this blog. While I have been reading it everyday for months, its my first comment. This should tell you that you probably have a mass following even if they do not participate with comments.

FL - Paradise Lost said...

And then there's this:

Take a look at the latest numbers from the GTAR (Greater Tampa Association of Realtors):

Inventory sold in January: 966
Existing inventory: 19,288

Divide, and you get Months of Inventory currently on the market.

Result: 20 MONTHS

That, friends, is an all-time high. What a surprise - they don't happen to mention this in their monthly report.

Good luck to all the screwed sellers out there.

GTAR January 2007 Report

CRAZY G said...


Get this one, partially lifted from the other blog, with Crazy's research following:

The News Press reports from Florida. “Compared to the market a year ago, both prices and numbers of sales in Lee County were down sharply: prices were off 7 percent from January 2006’s $287,200 and sales were down 34 percent. Locally, some would-be sellers are feeling a mounting frustration as they find themselves unable to dispose of their homes for what they consider a fair price.”

“‘It’s incongruous,’ said Jerry Adler, who’s been trying to sell his four-bedroom, three-bath house in south Fort Myers for a year and a half so he can move to Tucson, Ariz. ‘The mortgage rates are good, the median price is down, building permits are down, employment is up, so what the hell does sales price have to do with it?’”

“Adler started off asking $535,000 and now has it listed at $464,900 but still hasn’t had a nibble, he said. ‘It’s not logical.’”

“Meanwhile, the supply of unsold resales continues to mount: about 15,000 single-family homes for sale in Lee County, about four times what it was a year ago.”


He said it's not logical....
The original owner paid $189K for the house in 1/'00, Mr Adler bought the house in 8/'00 for """" $209K"""
In 2007 he was asking $535K, but dropped the price to $464K...



CRAZY G said...

In the last 3-4 days we've seen some wild gyrations in the stock market, supposedly because it is over priced?? The Dow Jones Industrial average dropped several hundred points the other day, and again, today, opened, and went down 200 something, only to recover..
The simple reason why it drops so precipitously, is, "" THERE ARE NO BIDS"".....
If there are no bids for real estate....SHOULD THE PRICE NOT DROP???....
It's like a guy putting in a sell order @$100, when the stock last traded @$90 and there are no bids till $80...

DUHH!!! WHAT's THE NEXT SALE GOING TO BE.... either $80 or $90, depending on the next type of order coming in...

The $100 order is out of the money, on marking to market....
Unless he's goes back ,and re-enters his sell order, it'll soon be standing alone out there in never never land....

Right now there are no bids in real estate, to cover the supply of sell orders. You can ask anything you want, and it still may not sell, even if it is supposedly priced right/correct.
And after the sub-prime shut-down takes effect, there may in fact be fewer buyer qualified, and thereby fewer bids

xSparta said...

Hey Bloggers. Check out this link. Talk about confusing. Are prices steady, going up, or going down. Someone is lying lying lying! Notice the Tampa area price appreciation.

Anonymous said...

prices are tanking and lots of worried bankrupt people looking to get out, but it ain;t going to happen.

sleepless in florida.

Anonymous said...

The Tampa Bay area housing market is on a rebound right now. Check out this great site I found about why it is now a good time to buy a home in Tampa Bay. It helped me make up my mind.

adrin said...

Hello, this blog is nice!!

Boise real estate

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