Few people have noted the similarities between home prices and commodity prices over the last 10 years, but if you look at a chart of prices , you will see a large almost straight line run up in prices between 1999 and the end of 2005. At that point in time prices actually quit rising and leveled out or even went slightly down for 2 years prior to the crash. Like commodities , real estate values were governed by a herd mentality on the way up which caused prices across the country to rise much farther than they should have risen. Momentum is a very powerful thing, just ask any commodities trader who makes boat loads of money just following the current trend even if it does not make fundamental or logical sense. Home prices did the same thing prior to 2005. I bring all this up because now the momentum in the housing market points to even lower prices across the country, possibly much lower. As with commodities , the herd mentality and momentum will take home prices to much lower levels.
You will know that home prices have actually reached bottom by looking at news and print articles and listening to all the so called experts. Once most of them are convinced that the housing market is totally dead and will never rise again, that is the time to run out and buy because that will be the bottom of the market. Based upon the amount of foreclosures and short sales real estate values are going to keep going lower for at least the next year and probably two, so save up your down payment money for when the market really does hit bottom. Don't worry , I will let you all know when that is.
Wednesday, March 9, 2011
Monday, February 28, 2011
Sales up, Prices down,Who's that new neighbor?
New government reports for January are showing that the number of home sales is up slightly while values are slightly lower. Banks are still very tight with their money and will continue to be as long as year over year home values are dropping.
So, who is buying homes in a market of no credit? The answer is that investors have started to step up and buy deeply discounted homes for all cash. Recent sales figures show that they now account for almost 25 percent of all sales.
What do these investors do with a home they just bought at a deep discount? Some of them will fix them up and try to sell them for a short term profit, but most investors will fix the homes cosmetically and then rent them out. Since they paid all cash for the homes they do not have mortgages to cover and hopefully , soon they will have an appreciating asset on their books. This is a gamble that more and more are willing to take.
Unfortunately, as these investors buy more and more homes and turn them into rentals, they actually degrade the overall values in those neighborhoods that have a high percentage of rental homes as compared to owner occupied homes. If you drive around most any neighborhood it is not hard to see which people have a pride of home ownership and which people really don't give a crap how the home looks because its not theirs. A neighborhood with more of the latter type will lose value overall.
So, the trend will continue for awhile with slightly more and more sales but a large percentage of them going to investors who will turn them into rentals thus keeping a cap on any possible upswing in home values for the foreseeable future.
Sorry, there is no good news in the housing markets yet, even higher sales of this type are not really a good thing.
So, who is buying homes in a market of no credit? The answer is that investors have started to step up and buy deeply discounted homes for all cash. Recent sales figures show that they now account for almost 25 percent of all sales.
What do these investors do with a home they just bought at a deep discount? Some of them will fix them up and try to sell them for a short term profit, but most investors will fix the homes cosmetically and then rent them out. Since they paid all cash for the homes they do not have mortgages to cover and hopefully , soon they will have an appreciating asset on their books. This is a gamble that more and more are willing to take.
Unfortunately, as these investors buy more and more homes and turn them into rentals, they actually degrade the overall values in those neighborhoods that have a high percentage of rental homes as compared to owner occupied homes. If you drive around most any neighborhood it is not hard to see which people have a pride of home ownership and which people really don't give a crap how the home looks because its not theirs. A neighborhood with more of the latter type will lose value overall.
So, the trend will continue for awhile with slightly more and more sales but a large percentage of them going to investors who will turn them into rentals thus keeping a cap on any possible upswing in home values for the foreseeable future.
Sorry, there is no good news in the housing markets yet, even higher sales of this type are not really a good thing.
Tuesday, February 22, 2011
Home prices are down again, is anyone surprised?
New value studies are out for homes across the country and it shows that the median prices in 19 of 20 of the largest metro areas is down from .2 percent to 2 percent. The 2 percent is from the Seattle which is down 6 percent over the last year.
Home prices across the country are now approximately where they were in 2003. We have lost 8 years and trillions of dollars all across the planet because some banks and rating agencies needed bigger bonuses for there fat cat top executives. It should interest you to know that most of these same executives are still with their companies, doing the same jobs and just starting to do the same crap that caused the financial crisis in the first place.
I saw a report on 60 minutes on CNBC last week that partially explained why some of the worst offenders of the crash are not facing any charges. They were let go by their firms, if only to save face, and once they were unemployed, they were hired back by our government to help sort out the mess they made. Yes sir, our tax dollars hard at work again.
Some so called experts are finally starting to say that the housing market is in for a double dip and will go even lower before it levels out or stops.
I don't know about all of you , but my home value is so far under water that I could not even sell my home in a short sale. Welcome to the new poverty class in America, homeowners that owe way more than their home is worth and are stuck.
Home prices across the country are now approximately where they were in 2003. We have lost 8 years and trillions of dollars all across the planet because some banks and rating agencies needed bigger bonuses for there fat cat top executives. It should interest you to know that most of these same executives are still with their companies, doing the same jobs and just starting to do the same crap that caused the financial crisis in the first place.
I saw a report on 60 minutes on CNBC last week that partially explained why some of the worst offenders of the crash are not facing any charges. They were let go by their firms, if only to save face, and once they were unemployed, they were hired back by our government to help sort out the mess they made. Yes sir, our tax dollars hard at work again.
Some so called experts are finally starting to say that the housing market is in for a double dip and will go even lower before it levels out or stops.
I don't know about all of you , but my home value is so far under water that I could not even sell my home in a short sale. Welcome to the new poverty class in America, homeowners that owe way more than their home is worth and are stuck.
Saturday, February 19, 2011
Small bump in interest rates kills market
As most people are aware , mortgage interest rates have risen to about five percent over the last month or so. This rise in interest rates has had a dramatic effect of the market as refinancing of existing loans has come to a screeching halt. The market is very fragile right now and higher interest rates will only make things worse.
Just read an article about some new mortgage backed securities that are being packaged and sold to investors. Yes , the same kind that got us into this mess in the first place. Based upon how these securities are being rated by the big rating agencies , it appears that nothing at all has changed. The company bringing these securities to market gave them to an agency to be rated but did not agree with the rating. Just like before , they took their package of mortgages and walked them across the street to another rating agency who agreed with them that , yes , they are worthy of a AAA rating and rated them as such. In a very rare bit of honesty , the original rating agency disclosed why it would not rate them AAA. They said that most of these mortgages were originated by homeowners in San Francisco and that an earthquake would back a significant number of the homes covered in this security worthless from damage. When you read the current prospectus for these mortgages , they do not mention anything about earthquakes. Maybe having all these potentially toxic securities rated by at least two agencies should be part of the law. Of course , such common sense will never survive a trip through Washington D.C..
So hold onto your wallets and hide the kids because the people with all the leftover money are conspiring to take what little we have and the rating agencies are along for the ride again. History does repeat itself , it just usually takes a lot longer.
Just read an article about some new mortgage backed securities that are being packaged and sold to investors. Yes , the same kind that got us into this mess in the first place. Based upon how these securities are being rated by the big rating agencies , it appears that nothing at all has changed. The company bringing these securities to market gave them to an agency to be rated but did not agree with the rating. Just like before , they took their package of mortgages and walked them across the street to another rating agency who agreed with them that , yes , they are worthy of a AAA rating and rated them as such. In a very rare bit of honesty , the original rating agency disclosed why it would not rate them AAA. They said that most of these mortgages were originated by homeowners in San Francisco and that an earthquake would back a significant number of the homes covered in this security worthless from damage. When you read the current prospectus for these mortgages , they do not mention anything about earthquakes. Maybe having all these potentially toxic securities rated by at least two agencies should be part of the law. Of course , such common sense will never survive a trip through Washington D.C..
So hold onto your wallets and hide the kids because the people with all the leftover money are conspiring to take what little we have and the rating agencies are along for the ride again. History does repeat itself , it just usually takes a lot longer.
Wednesday, February 16, 2011
Do's and Do nots for homeowners in today's market
There is not a lot of news worthy of looking at today so I will discuss another topic that I hear a lot about from homeowners in my area.
Question: should I re-model my kitchen?, bath?, update flooring?,landscape my yard?, How much more will my house be worth if I do one or more of these?
Most homeowners are shocked and disappointed by my answer, which is, doing any or even all of those things will probably not bring you a big return, certainly not the type of returns from a few years ago. The marketplace that we are in today is very different than the one from a few years ago when homes were compared to atm's and updating and upgrading paid you back and more. Those days are gone. The only reason to spend a lot of money updating your home is because you want to do it for yourself to enjoy yourself, period. No mater how much money you spend upgrading your home so it is much nicer than all your neighbors, it is very unlikely that your home would sell for more than the most expensive sale from the last 6 months in your neighborhood. This is true even if your home is much nicer and more updated than that previous sale.
Prospective buyers are almost always focused on price in this market and any owner occupied home must compete in the marketplace with bank sponsored short sale homes and bank owned homes. If your home is priced way above the market which includes these homes, it simply will not sell. The only benefit that I have witnessed from doing updates to your home and then trying to sell it is that if it is priced correctly, it will sell faster than homes that have not been updated but seldom for more money.
I know that this is bad news for many homeowners out there but I'm afraid is is the reality of this market.
Good Luck.
Question: should I re-model my kitchen?, bath?, update flooring?,landscape my yard?, How much more will my house be worth if I do one or more of these?
Most homeowners are shocked and disappointed by my answer, which is, doing any or even all of those things will probably not bring you a big return, certainly not the type of returns from a few years ago. The marketplace that we are in today is very different than the one from a few years ago when homes were compared to atm's and updating and upgrading paid you back and more. Those days are gone. The only reason to spend a lot of money updating your home is because you want to do it for yourself to enjoy yourself, period. No mater how much money you spend upgrading your home so it is much nicer than all your neighbors, it is very unlikely that your home would sell for more than the most expensive sale from the last 6 months in your neighborhood. This is true even if your home is much nicer and more updated than that previous sale.
Prospective buyers are almost always focused on price in this market and any owner occupied home must compete in the marketplace with bank sponsored short sale homes and bank owned homes. If your home is priced way above the market which includes these homes, it simply will not sell. The only benefit that I have witnessed from doing updates to your home and then trying to sell it is that if it is priced correctly, it will sell faster than homes that have not been updated but seldom for more money.
I know that this is bad news for many homeowners out there but I'm afraid is is the reality of this market.
Good Luck.
Monday, February 14, 2011
Sales and interest rates up?
There is both a report from the NAR ( National Association of Realtors ) and Government sources showing that sales of existing homes are up 15.4 percent in the last quarter and that interest rates have just risen to over 5 percent for the first time in many months.
How could both of these things be happening at the same time. Things must be getting better. Lets take a closer look.
NAR statistics show only homes that have been listed through their network of realtors, they do not include homes sold at foreclosure auctions or private sales from banks or individuals have were not listed with a realtor. These sales have negative effect on prices in most neighborhoods around the country and in many neighborhoods , they make up the bulk of sales that are happening.
The result is that there are more overall sales of homes at still falling or stagnant prices and that a large percentage of these homes are being bought for cash by investors who are betting that these homes will not lose anymore value. Although the statistics show a quarter over quarter increase in sales of existing homes , the year over year sales numbers are virtually unchanged. So that means that a large percentage of homes is being bought up by investor/gamblers and not by prospective homeowners. These homes will turn into rental units for a while and overall , they are of no real help to the economy or sentiment as more and more rental properties in a neighborhood tends to depress prices.
Why would interest rates be moving up. In a word, banks are nervous that the Government is going to get out of the mortgage business and leave them holding their own bags. This makes them nervous and as a result , credit is drying up even more. You will probably see requirements for new loans get even tougher than they are currently. Items like higher credit scores and down payments of 25 to 30 percent will become standard in order to get a mortgage. Less and less people will be able to buy homes.
There are many ways to interpret how the above information will effect the economy and most of it depends on whether people have good jobs that they feel secure with. That is not the case at the moment and until it is, real estate will continue to languish and be a drag on everybody.
How could both of these things be happening at the same time. Things must be getting better. Lets take a closer look.
NAR statistics show only homes that have been listed through their network of realtors, they do not include homes sold at foreclosure auctions or private sales from banks or individuals have were not listed with a realtor. These sales have negative effect on prices in most neighborhoods around the country and in many neighborhoods , they make up the bulk of sales that are happening.
The result is that there are more overall sales of homes at still falling or stagnant prices and that a large percentage of these homes are being bought for cash by investors who are betting that these homes will not lose anymore value. Although the statistics show a quarter over quarter increase in sales of existing homes , the year over year sales numbers are virtually unchanged. So that means that a large percentage of homes is being bought up by investor/gamblers and not by prospective homeowners. These homes will turn into rental units for a while and overall , they are of no real help to the economy or sentiment as more and more rental properties in a neighborhood tends to depress prices.
Why would interest rates be moving up. In a word, banks are nervous that the Government is going to get out of the mortgage business and leave them holding their own bags. This makes them nervous and as a result , credit is drying up even more. You will probably see requirements for new loans get even tougher than they are currently. Items like higher credit scores and down payments of 25 to 30 percent will become standard in order to get a mortgage. Less and less people will be able to buy homes.
There are many ways to interpret how the above information will effect the economy and most of it depends on whether people have good jobs that they feel secure with. That is not the case at the moment and until it is, real estate will continue to languish and be a drag on everybody.
Saturday, February 12, 2011
I have a wonder
I wonder why nobody has gone to jail. I wonder why there have been no trials. I wonder why there have not been any charges filed. What happened?
Was it not obvious to everyone that banks colluded with rating agencies to create trillions of dollars worth of nearly worthless derivatives based upon mortgages that they new would default. Again I ask , why have there been no trials, no charges or even any significant changes in the system.
To their credit , or shame , congress did act in 2009. They destroyed the appraisal industry and put it in the hands of the very banks they were trying to protect us from. As a result , the appraisal you receive now is very likely from the lowest bidder who is also the least experienced appraiser that could be found. The process now takes twice as long and costs the consumer more money than before. Thanks for nothing.
Meanwhile , rating agencies who magically turned coal into gold with the help and guidance of major investment banks are still doing business the same exact way they were prior to the crash. Bonds and derivatives are sent to these agencies for a rating and the bank that created the bond or derivative pays for the rating. Is there really any wonder to what happened. Is there any doubt that it will absolutely happen again because there is money to be made at the expanse of us all.
It is pretty clear who holds the power in this country, those with all the money make all the rules. They can defraud the entire world out of trillions of dollars without repercussion or consequences , they can get us to give them money to stay in business and keep congress from changing any of the rules that caused the crisis. Meanwhile , they vote themselves multi-million dollar bonuses because they are so smart.
This is America where fair play and justice prevail, so I still wonder-- why has nobody gone to jail?
Was it not obvious to everyone that banks colluded with rating agencies to create trillions of dollars worth of nearly worthless derivatives based upon mortgages that they new would default. Again I ask , why have there been no trials, no charges or even any significant changes in the system.
To their credit , or shame , congress did act in 2009. They destroyed the appraisal industry and put it in the hands of the very banks they were trying to protect us from. As a result , the appraisal you receive now is very likely from the lowest bidder who is also the least experienced appraiser that could be found. The process now takes twice as long and costs the consumer more money than before. Thanks for nothing.
Meanwhile , rating agencies who magically turned coal into gold with the help and guidance of major investment banks are still doing business the same exact way they were prior to the crash. Bonds and derivatives are sent to these agencies for a rating and the bank that created the bond or derivative pays for the rating. Is there really any wonder to what happened. Is there any doubt that it will absolutely happen again because there is money to be made at the expanse of us all.
It is pretty clear who holds the power in this country, those with all the money make all the rules. They can defraud the entire world out of trillions of dollars without repercussion or consequences , they can get us to give them money to stay in business and keep congress from changing any of the rules that caused the crisis. Meanwhile , they vote themselves multi-million dollar bonuses because they are so smart.
This is America where fair play and justice prevail, so I still wonder-- why has nobody gone to jail?
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