To follow up from last week’s Inman Connect, here are the answers from panelists to the question, “When will the housing market recover?”
Noah Rosenblatt, Founder of Urbandigs
Severe and deep recession, housing may bottom at the end of 2009 with recovery in 2011.
Dottie Herman, President, Prudential Douglas Elliman
We’ll hit bottom in the first quarter of 2009, after the election and stay flat for a few years.
Avram Goldman, President and CEO of Pacific Union GMAC Real Estate
We’re in a recession now. Some markets will do fine and go up, some markets will be down a long time.
Yves Smith, NakedCapitalism
I wish I could say 2010. The Alt-A ARM resets bother me because they will peak in 2011. Market will bottom in 2010 and stay flat for a long time.
John Williams, Economist; Shadowstats.com
We’ll have an L shaped decline, hyperinflation, and a great depression.
CR, CalculatedRisk
Foreclosures are moving upstream. Notice of defaults will rise in the mid and higher price ranges. They’ll never reach the foreclosure levels of the subprime loans, but foreclosures in the mid and higher price ranges will rise. Wonders if our government is out of tricks; the new housing bill doesn’t do much, but we have to have confidence in our GSEs. Different areas will bottom out at different times: 2010 to 2012.
Same question, two days later, different panel. Here are their answers:
Alex Perriello, CEO Realogy
We’ll have a sloppy, rocky, bumpy bottom. It’s not pretty where we are today. Inventory is key. We can support 4.6 to 4.8 million sales nationwide. The last time inventory was this high (nationwide it is 11 months) was in 1986. Inventory drives price. Realtors should datamine their clients who bought 2002 and prior: Sell them a new home! Market to renters! Alex says it’s too early to call the bottom.
Joel Singer, EVP, California Assoc of Realtors
Prices are exploding downward in CA. Worried that if anything happens to the GSEs all bets are off. There’s a lot of wild cards in the financial sector. Cali seems to have hit a bottom but this may be a false bottom.
Patrick Stone, Chairman, The Stone Group
What hasn’t been fully communicated is that price stability has been achieved in a third of the country. In the next six months, we’ll see another third achieve it. The last third will achieve price stability in “probably one year” unless we have a cataclysmic event where the impact on our economy could be severe. The stability of our financial system is paramount to finding the bottom.
Jonathan Miller, Co-Founder, Miller Samuel, inc.
It’s very challenging for appraisers to come up with a value when there’s a lower pace of sales. Until progress is made with the credit markets, it is too soon to talk about the bottom. To call a bottom is not professional. We can’t do it.
My, what a cheerful bunch!
I’m glad to see that reality has finally taken a seat at the industry leaders’ table though. The health of the financial system is a very important factor, one that too many overlook, along with wage and employment trends.
How low we go, and where the bottom is are unknown. What seems more certain is that the recovery will be long and slow. America, both in terms of it’s government and its consumers, needs to rid itself of significant amounts of debt before being able to start the rebuilding process. The required accumulation of capital simply isn’t there, and won’t be for some time.
We can’t be at bottom. Builders are still buying lots 🙂
Perhaps, maybe, wild cards,?????? These guys are experts????
We’re better off visiting fortune tellers to get a glimpse of the future.
Or how about this one. “We are in the proces of experiencing a decline in a U shaped bottom vs. a V shaped bottom” Give me a freaking break. These guys actually get paid for this.
Let’s get creative and go and sell some houses. Who remembers the early 80’s? 17% interst rates, Savings and Loans going under.
That was the end of the world too. Its just that we didn’t have 24/7 bad news media shoving it down our throats all the time.
Well at least now that these predictions have been made, we finally know what will happen and can plan our lives accordingly.
Kary,
I don’t know about planning. I’m so anxiously awating the bottom. However, now we learn if we hit bottom we may not hit bottom.
“Cali seems to have hit a bottom but this may be a false bottom.”
This guy should run for President.
In the meantime I’ll just keep helping clients.
Greg-
You do realize Kary was being facetious.
Here’s an intereting report from Radar Logic:
http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforMay2008.pdf
Seattle is not doing so bad…
This forum needs a rolleyes smiley. 😉 and 😀 and 🙂 just don’t quite convey that..
Noah Rosenblat has more details from the panel on his blog:
http://www.urbandigs.com/2008/07/inman_bull_vs_bear_debate.html
Salvatore, I have found that buyers and sellers are desperate for someone to tell them what’s going on; for someone to help them make sense of the news. There is a common thread that runs through all of their forecasts: we have not yet hit bottom.
Yes there are consumers who will always need or choose to buy or sell in a down market, but creativity has nothing to do with the sheer number of Realtors holding a license, trying to earn a living compared with the declining number of home buyers out there, and the declining number of home sellers that are able to price their home competitively.
There’s just too much inventory and too few buyers. Nothing the media says will change that. Even the Foreclosure Rescue Bill with its “tax credit” for homebuyers isn’t going to be enough to help this market. We have to work through the existing inventory and then work through all the shadow inventory of people who will take their home off the market and re-list next year or in 2010…..or the REOs that will be coming on the market for the next several years.
The panelists were very concerned about continuing problems with Fannie and Freddie, even in light of the assurance of the housing bill being passed and signed. This is the dark horse. All bets are off if Fannie and Freddie’s problems worsen.
Buyers who are okay with staying in their home for a decade and have a back up plan if financial distress hits them (such as savings, and the ability to rent their home for enough to cover their payment) are still going to buy. Some sellers are going to be better off listing today and pricing aggressively rather than wait to list next year.
From my vantage point, consumers are looking to their real estate agent for market expertise, and in today’s market, this includes gathering all this media data and helping the consumer sort it all out in order to make a good decision.
If real estate agents cannot provide what consumers need, then the value of a real estate agent continues to be erroded.
Consumers will then find other sources to help them make their decision and just need the Realtor to unlock the listing.
Buy! Buy! Sell! Sell! locks agents into a retail sales role where you’re worth far less than a Realtor who will sit down with a consumer and listen to all their concerns, and maybe even say, “Now’s not a good time for you to buy a home based on everything you’ve told me.”
An L-shaped decline and a depression? That even surprised me, and I’m about the most “doom” a person can be about the future of the economy.
I agree with Mr. Miller that it would be too difficult to call the bottom, though. More foreclosures are on the way, Option ARMs haven’t begun resetting in large numbers, and one or two large bank failures will expose just how little money the FDIC has to “insure” deposits.
Reading over all the predictions, it seems as if those people predicting outright deflation (like me) are in the decided minority. I find it interesting that people seem to be more concerned about the rise in energy and commodity prices than they are about the fall in stocks, real-estate, and non government bonds.
In my view, the collapse in asset prices from the credit crunch, will result in a global recession and out-and-out demand destruction. Already we are hearing about factory closings in China due to a drop in demand, and things don’t seem to be getting better for domestic firms (retailers going bust, GM reporting even deeper losses, airlines cancelling aircraft orders, etc).
Eventually, the contracting economy will result in lower demand for commodities/energy, which will cause those prices to fall too. This will NOT be a ’70s redux.
What will things be like 5 years from now?
– low T-bill rates (the same as now, if not lower)
– EXTREMELY tight mortgage criterion (i.e. huge down-payments and impeccable credit required), but the rates will be low
– real-estate and stock values down 80% to 90% from peak (even in the greater Seattle area)
– unemployment in the 15% to 20% range
All this said, I am actually quite excited about the future! I feel that society has been living in some alternate fantasy universe for decades, mis-placing values and priorities. There’s nothing like a thumping recession to get one thinking clearly about what’s REALLY important.
I am NOT one of those prophets of the apocalypse. A serious recession isn’t something to be feared. Heck, even in the great depression life still went on. My grand-parents tell stories about how they led happy (if austere) child-hoods. I look forward to my 5 and 3 year olds growing up in a saner world where everyone isn’t obsessed with keeping up with the Joneses and can appreciate the simpler things…
Are the factories closing in China due to a drop in demand, or due to currency issues? If a drop in demand, is it because their customers can no longer trust them to produce safe goods that won’t subject them (the retailers) to liability?
“Manufacturing in China contracted for the first time since a survey began in 2005 as export demand faltered and factories closed to clear the air before the Olympic Games.”
“The expansion of the world’s fourth-biggest economy slowed for the fourth straight quarter in the three months through June on weaker U.S. demand.”
http://www.bloomberg.com/apps/news?pid=20601080&sid=a5WZayG1omPQ&refer=asia
Okay,
So give me a plan to help the sellers. Remember them… they die, they get divorced, their employers make them move, families grow so the house is too small. What do we tell them, sorry Mr. and Mrs. seller we can’t help you, you just have to stay there and not sell.
Tell me as a real estate agent what is the “value proposition” that I can give the sellers to do business with me. Or do we just give up and wait for the “bottom”, whenever that occurs.
Jillayne, there is nothing that you say that I disagree with. But in reality as a listing agents we are “selling” a commodity on consignment for a client. We do not own the inventory, they do and they have to sell. All I am saying lets give them the counsel that they need to help them.
As far as buyers. You given me a lot of negatives. Give me a reason to buy now, legitmate of course but give me one. Is there anything????
I can come up with several.
As far as Fannie and Freddie. The mortgage backed securities which ultimately find thier way to the bond market have always been backed by the full faith and credit of the US government. Maybe that was implied, but what we have now is the written guarantee.
I would think with a half a trillion in mortgages Fannie and Freddie are guaranteeing, would be significant enough to keep the Fed window open for them. Don’t forget that there are those Foreign entities that have a lot of that money. Our stature in the international commuinity isn’t going to be worth squat if we don’t back those securities. So I think we will be okay with the new guarantee. Anyway, if they close where is the mortgage money going to come from? Jumbos are what we need to get the new construction houses going? That ain’t happening throught FHA.
Hang in there and let’s be positive. I have been doing this for over 30 years and the profits of doom have been around before, but with a little tenacity and luck we will make it.
Sal
Sniglet, I don’t think that answers the question. They aren’t using demand in the technical sense–they’re talking about sales.
Kary said: “They aren’t using demand in the technical sense–they’re talking about sales.”
What else matters? If people stop buying the goods your factory produces you can’t stay in business. The reasons for the drop in orders are somewhat beside the point.
Sniglett, you were attributing the drop to some worldwide recession. I’m assuming the dollar has dropped relative to China’s currency, and there’s clearly the lead and pet poisoning issues that could also be affecting their sales. It doesn’t matter to the Chinese what the reason is, but it’s not support for your claim if it’s those other two things.
“You do realize Kary was being facetious”
Yeah, Q Diddy I did. So was I. And I agree with many of Sal’s sentiments.
Give a guy or a gal a blog and they become authority on the economy. With a little controversy an audience develops and the swelled head syndrome starts. Now they write to attract the attention of other bloggers, not necessarily the consumer to create a national audience. Then they go on stage to become an industry expert to get quoted on other blogs.
That being said, everyone is entitled to their opinion. And opinion is what it is. We see local hobyists on blogs battling the world economy out every day.
“and in today’s market, this includes gathering all this media data and helping the consumer sort it all out in order to make a good decision. ”
Bloggers opinion? Media data? Economist? Hobbyist? Broker? Politician? National Data? Local Data?
And the ever loving prediction.
Which no matter which way one thinks on the matter……is opinion.
Brad Inman gave a nod to CR from Calculated Risk for calling the bubble and subsequent meltdown in 2005.
Roubini was called a nut for his predictions and so far almost all of them have come to pass, including the Fannie Freddie bailout he predicted would happen back in 2006.
So, Greg, how are you helping your buyers and sellers make a good decision given all the economic and housing news? Should they just ignore all the “opinions” out there?
Jillayne wrote-
“Roubini was called a nut for his predictions and so far almost all of them have come to pass, including the Fannie Freddie bailout he predicted would happen back in 2006.”
Does he have any other predictions? I’m looking for a few trade ideas. Which predictions did not pan out?
Well so far Freddie and Fannie haven’t been bailed out, so I wouldn’t put that in the win column just yet. But for the story outing the government’s planning, it’s possible no changes would have been made yet.
Are they even using the discount window yet? I could see that they would since that has to be pretty attractive, but I’m not sure what the restrictions are on that.
“Well so far Freddie and Fannie haven’t been bailed out,”
So then how would you explain to clients the recent bill signed by President Bush?
Hi Q-diddy,
All the news from the dark side that is Roubini can be found here:
http://www.rgemonitor.com/index.php
Jillayne wrote: “So, Greg, how are you helping your buyers and sellers make a good decision given all the economic and housing news? Should they just ignore all the “opinions
Jillayne wrote: “So then how would you explain to clients the recent bill signed by President Bush?”
It was legislation put in place in case they need to be bailed out. Have they actually taken advantage of any of it yet?
@Kary
“Seriously, I don’t try to change what people think they should do. They could be right, they could be wrong, and I could be right and I could be wrong. The point is they are grown people perfectly capable of making their own buy/sell decisions, and I don’t want to be responsible for them making the wrong decision.”
This is the same stance that mortgage loan originators took when consumers made the decision to select a pay option, interest-only, negative-am ARM.
IMHO, the more responsibility we shift off ourselves as professionals the less value we have in the eyes of the consumer.
Full responsibility, no. Realtors as a whole group are nowhere near educated enough to be able to take that on. Perhaps a balance?
@ Kary
“It was legislation put in place in case they need to be bailed out. Have they actually taken advantage of any of it yet?”
Shall we start the countdown clock?
Or perhaps we can start counting the days until the existing bailout measures put into place aren’t enough and we have to nationalize both of them.
The difference is an ARM is inherently risky. And if you go interest only because that’s the only way you can get into a property, that too in inherently risky. I would have never advised anyone to go with an ARM.
Also I remember mortgage brokers sort of giving me a blind stare when PMI became deductible. I was of the opinion that people would be better off paying slightly more and only having one mortgage, but the mortgage people I was talking to couldn’t understand that line of thinking. (I was trying to minimize the buyer’s potential downside in a worst case foreclosure scenario.)
Real estate agents (or anyone else for that matter) don’t know where prices are headed. Look how badly Ardell missed on her second quarter prediction, when at the time she made the prediction probably 60%+ of the deals had already been written. Look how badly I apparently missed on what was happening in July, when probably close to 100% of the deals were already written.
No one knows where prices are headed even short term. Long term is even more difficult. It’s irresponsible for agents to try to guide their clients based on where they think the market is headed, unless that agent is willing to step up to the plate and guarantee the result! 😉
Jillayne wrote: “Shall we start the countdown clock?”
Is that then an admission that the prediction made still hasn’t come true?
If the government had not have stepped in it would have already happened.
Here are my predictions:
1. The mortgage market will shrink
2. Rates will stabilize around 8-12%
3. F&F limits will be reduced, their stock will rise
4. Covered bonds will go over $1 trillion in issuance
“So, Greg, how are you helping your buyers and sellers make a good decision given all the economic and housing news? Should they just ignore all the “opinions
Who do you hold up as a credible authority, Greg? Anyone?
Greg Perry-
Hey, are you the dude from the commercials?
bili,
Ronald Reagan, of course. Is there any other? 😉
Q-diddy
There are two of us……
The other guy has more hair!
Sniglet, the difference between our world today and the world during the late 20’s and 30’s is today most people are untrained at how to grow food, sew, fix things, repair their cars … in short, to do for themselves. We don’t live on farms anymore. If you had to, for survival, could you shoot, skin and clean a deer or other wildlife? Where would you go hunting? What if you didn’t have gas to get there? And, living in nearly all of our cities we have violent young people who have more guns and automatic weaponry than most soldiers at war … and seemingly little conscious or caring of right or wrong. Would you want to still live in your condo downtown in Sniglet’s world?
Sniglet, this can’t be the kind of world you really want for your young children. There’s a huge difference between a recession and a terrible depression.
Sal, very few people seem to remember how difficult the economy was in the years between 1982 and 1986, yet, you are so right: the news was there, but not 24/7.
It’s August, summer in the Pacific NW. Did any of you get outside today for an hour or more? Did you go find the beach, some sand, some fun? I think we all need more of that!
Take a day, take a week, the world will still be the same when you come back.
Jillayne wrote: “If the government had not have stepped in it would have already happened.”
Maybe, but if that article had not been written it wouldn’t have been necessary for the government to do squat. Writing that article about 2 business days prior to one of the two entities doing a new bond issuance was completely irresponsible. But even sadder is how the market reacted to that non-news event. It’s amazing how stupid people who control large amounts of money are sometimes.
All of you who think that agents should refer their clients to bloggers, try this experiment. Take your life savings and start watching CNBC. Invest away based on what you see and let us know how it goes.
I sure don’t want to live in Sniglet’s depression world! Do you realize the difference in how we live today vs. the late 20’s and 30’s? If you had to go out and hunt an animal to feed your family or yourself, could you? Would you? Where would you go? What if you didn’t have gas – how would you get there, let alone bring back your fresh kill to the refrigerator. Oh, wait. Could you afford electricity?
It is August in the beautiful Pacific NW, and we’re in for our last stretch of long, long daylight days and wonderful weather. Shut down your computers, take a day, take a week, everything will still be the same as when you left it.
This constant discussion of “how bad is it going to get” vs. a more hopeful discussion of “what can we do to help make things better” is as unbalanced as saying everything is rosy. In the meantime, the weather is wonderful right here in our beautiful part of the world. Go outside! 🙂
Kudos to Jonathan Miller. Anyone who “predicts” the bottom, run from—don’t walk.
So Leanne,
What can we do to help make things better?
I can offer you my contributions. I’ve been teaching classes for Realtors on short sales, foreclosure, how to become an REO agent, the new distressed property law, advanced case studies in short sales, and my newest class I just taught a few days ago called “how to survive in a down market.” I also teach about 20 different classes for mortgage lenders, with many topics helping them to focus on how to survive and thrive with the new federal and state laws. This fall I’ll be teaching a class on loss mitigation at Bellevue College to hopefully help some of the new employees at the non profit counseling agencies.
I believe a rational discussion about how bad things might get is healthy because it helps people work through whatever cycle they’re in so they can move forward and make good decisions with their life.
I spent 20 minutes on the phone today with a Realtor who almost broke down into tears who called me because he wanted someone to talk to about how to find a job that can pay his bills while also keeping his real estate license. .
The NAR economist was on raincityradio a couple of weeks ago and said that what we need is to motivate buyers to buy homes Right Now! That the “tax credit” in the fannie/freddie bailout bill was needed to get buyers to buy.
Move along, nothing to see here, keep your rose colored glasses on, it’s a beautiful day, it’s a great time to buy and sell…..no wonder Realtors have a public relations issue with consumers.
@Kary
“All of you who think that agents should refer their clients to bloggers, try this experiment.”
There’s a very well known blogger in Seattle named Tim Ellis who started Seattle Bubble who now commands quite a bit of respect from the consumers who read his analysis.
I refer real estate agents to read SeattleBubble, because consumers are there, looking for the analysis on the Seattle market that they can’t get with the MSM (mainstream media) and that many real estate agents are unwilling to provide.
@Sal
“So give me a plan to help the sellers.”
It might be better to sell now instead of waiting until next year when prices could fall further, and all the shadow inventory (sellers in the wait) and REOs come onto the market.
“Give me a reason to buy now, legitmate of course but give me one. Is there anything????”
Sure. Buyers should consider buying if they have 6 months cash reserves saved up for if one or both breadwinners loses their job, and they should buy if they believe they’ll be able to hold the property for many years into the future. Another good reason to buy is if the homeowner can rent the property for enough to cover the mortgage payment, in the event they must find other living arrangments.
Consider a newly married couple who has one and then two children. They might want to move to a bigger place sooner than anticipated, but won’t be able to do this if they cannot sell, and they cannot cover the mortgage payment with rental income. Consider that one of the breadwinners accepts a job promotion and transfer…..and they can’t sell. Well if they can cover the mortgage payment with rental income this will also help.
In some parts of California, the REOs are being marked way, way down. Investors are now scooping these up because they pencil.
There will always be homebuyers. There’s just fewer of them right now.
Jillayne, unless the married couple has 30% equity in their property, they will have to qualify w/both PITI’s as of today. If they do have 30% equity in their property, they can get credit for 75% of their rental income to offset their mortgage payment.
‘What can we do to help make things better?’
I wrote a Knol:
http://knol.google.com/k/ardell-dellaloggia/how-much-house-can-i-afford/3vhhv360k5slz/2#
@Greg,
“Agents, brokers, mortgage lenders, real estate hobbyists and real estate trainers can have opinions, however we must be careful WHO we hold up as credible authorities and professionals when it comes to the world of economics and predictions.”
So let’s ask again, is there anyone that you hold up as a credible authority?
There are only a few people who participated on these two Inman panels that could be called economists. Yves identifies as a financial analyst in one of her bios. The only identified economist was John Williams, who offered the darkest prediction. In my opinion, CR had the most thoughtful response when he said “different areas will bottom out at different times.”
Most of the people on the panel were representatives of the real estate industry.
Ardell, you are so on top of things with knol…I’ve heard about it but have not checked that out…I did check out your knol… DTI’s for FHA will go higher. It’s still up to AUS.
Hey Ardell,
I like your knol!
Hi Rhonda,
I predict that guidelines for fannie/freddie/fha will continue to get tighter.
What do you think? We’re seeing this new change with Fannie but do you think Freddie and FHA will tighten up in this area too?
How are you counseling your clients?
@ Jillayne, make things better? Well, I think too many here are 24/7 writing about the negative everything that they aren’t enjoying a beautiful summer.
Life is short!
“DTI’s for FHA will go higher. It’s still up to AUS.”
Can you say that in English? I know FHA has higher ratios, but I always qualify someone using 28/36 ad then show them where they are going from there. That way if they stretch to FHA or VA which are higher, they will know that they are strething, and will expect money to be tight. Or maybe they’ll wait until they can do better.
Someone with 3 children maybe can’t stretch. Or maybe they start thinking that their job is not all that secure or they decide to base it on one income and not two, just in case one loses their job.
Starting at conservative may prevent salespeople from talking them into more than they can handle.
The practice of handing people a letter telling them how much house they can afford, without letting them in on how that number is calculated, was a HUGE mistake. When I started in real estate they were handed a letter with a payment amount, not a sales price, and told what the ratios were to come up with that payment amount. Upon seeing the payment, many decided to buy for less…not more.
When the got a sales price, they stretched it up a bit, not knowing that the professtional may have already stretched the ratios to come up with that number.
Hopefully blogs and knols and other info will allow people to Google and get info before stepping out without being armed with lots of Knol-edge.
Thanks Jillayne. I try to keep things very simple so young people can understand it. It’s the way I explain it to my children who are in their early 20s…all three.
Most of my clients for the past 15 years have bought less than what they qualified for. Smart people. They didn’t need blogs or knols :-)!
Ardell, how’s this for English:
a computer will still determine what a risk factor is for someone to qualify or not for a loan regardless if it make sense to you, me or the borrower. It comes down to the borrower (IMHO) to stand up and say “this is the most I want to pay for a mortgage” every month.
I am amazedd at what “the computer” (AUS) will approve and equally so at what it does not.
Ardell, I do 100% agree w/you that hopefully consumers will become more educated about the difference between how much they can qualify for and what they can afford.
With that said, some consumers probably can afford more than they can qualify for in today’s mortgage market.
Jillayne, great question re: comment 49…I’m going to stew on it and either reply here over the weekend…
Jillayne wrote: “There’s a very well known blogger in Seattle named Tim Ellis who started Seattle Bubble who now commands quite a bit of respect from the consumers who read his analysis.”
I’m not terribly familiar with him, but I do know who he is. So I have a question. How long ago did he become negative on the Seattle market?
And I do remember a blog here where someone said he said the time to buy would be after six consecutive months of price increases. My response was that would be a horrible time to buy, because that would be evidence of a superheated market. Six months of increases is rather rare due to seasonal issues.
And an inspector sent me a link to that site with a piece about how actives dropped 500 in June. They were all trying to speculate what it meant–were sellers giving up, etc. The June 12, 2008 effective date of the distressed property law didn’t occur to any of them.
So basically count me as unimpressed. If I’m going to send someone to a blogger site it will be for a specific piece, such as one here on short sales. I’d never send them to any piece that pretends an ability to predict the future.
Rhonda wrote: ” Ardell, I do 100% agree w/you that hopefully consumers will become more educated about the difference between how much they can qualify for and what they can afford. — With that said, some consumers probably can afford more than they can qualify for in today’s mortgage market.”
I’ve sort of noticed that. I always used to warn people not to try to borrow all they qualified for. But with the tightening standards that’s less of a concern now. The problem with agents is we tend to deal with different people at different times, so we can’t judge things like that real well.
Do you have any kind of a gut feel (or better) what kind of numbers we’re talking about? If someone would have qualified for $300,000 last year, what would that likely be this year? Does it vary depending on down payment?
Kary, it’s hard to put a figure on it…but down payment is a factor. Although FHA is still available and is now what I’m doing most of–even for borrowers who would “normally” be conventional with a down payment.
I just wanted to say, congratulations to Jillayne for being a ray of light on this blog; speaking the truth and helping to educate 6 percenters.
Wake me up when Kary gets his head out of the sand (and other dark places). That might actually be the “bottom” of the market.
@Jillayne,
WOW! You are quite the wrecking ball on this topic, and I must say that I am impressed. I applaud your efforts to bring light to those wallowing in darkness. Thanks.
@Sniglet #11,
I would agree with what you posted, except that Treasury rate will likely be much, much higher, and all other interest rates as well.
For deflation to occur, you need to have a rapidly declining money supply relative to existing goods and services. This is going to happen through widespread defaults, which increases the risk on the lender. In deflation, money rises in value, and the way we express that is in the prevailing interest rate. Today, when cheap money reigns supreme, we are flooded with money and interest rates are low. We are drowning in the stuff and it has distorted all matters of things. If money is easy to obtain, then interest rates are low. This also happens after a prolonged period without widespread defaults. Lenders perceive low risk.
In deflation, all that is in reverse. Money spirals upward to pricelessness, and risks from widespread defaults grows. This should, and will, hike interest rates.
Also, think about the fate of US debt certificates.
The export nations are currently fat on them (cheap money), and as their economies crater due to cratering export demand, they will have few options left to put food on the table and prevent massive social unrest. They will be forced to sell their Ts to raise cash. This will cause interest rates to rise as the bond market sells off. The US.gov is obviously on a spending spree and they will have to issue more Ts in the face of a declining bond market to keep that going. Again, they will have to pay more for a rapidly declining money supply, which is expressed in much higher interest rates. Finally, the existing bond market is insanely overbought, and is due for a sharp decline to historic levels, if not well below.
People often mistake the rising value of the dollar as a reason people will be willing to lend at lower rates. I assure you that this will be trumped by the liqidation of existing debt, default risk, and relative scarcity of money. All those translate to higher interest rates.
That is my opinion. I could be wrong.
@Leanne,
Sniglet doesn’t wish for economic catastrophe, but is merely forecasting it (accurately, I might add). It is a beautiful August day in the PNW, but come this October, I will be forecastiing grey skies, rain, wind, mildew, and dropping temperatures. I assure you that I do not want crappy weather, but I know it is coming.
@KLK,
Dude, you need scale out a few notches and look at the macro economy. You may think that people can’t predict prices in real estate, but that is plainly not true. Perhaps you need to expand your circles outside of the echo-chamber and see that many of us have been predicting this for several years. Frankly, I fail to see how anyone CAN’T see this for what it is. I guess it is hard to see something that your career depends on not seeing. I know that in 1998-2001, I failed to see how the airline industry was going to immolate itself in 2003-present. By early 2002, I was on board with the current state of the industry.
I know that most predicted what happened, but my source of income clouded my judgment.
Eleua, I don’t doubt people have been predicting. The problem is that anyone who is “right” is simply lucky, and they were probably making the same prediction for so long that they’re way under water.
You need to stop looking at single factor, or maybe two single factors, and think that they will control the direction of the market. It doesn’t happen that way, in part because they completely ignore the biggest factor of all: People want to buy property!
Look at it this way. I don’t like new construction. I don’t like plastic pipe, 24″ centers, synthetic siding, cookie cutter houses put onto small lots, etc. I just mentioned 5 reasons that new construction should cost less than existing construction. But it doesn’t. And the reason is enough people like things that are new that the new construction sells for a premium.
BTW, my business isn’t that dependent on the market. People will be buying and selling at just about any price, because people need to move. And as I mentioned before, I didn’t notice the volume was at historically low levels in December, because my wife and I were so busy. Worst comes to worst and I’ll need to get over my distaste of doing short sales.
syntethik, I’m the one that uses contra-indicators. The people speaking at the meeting in the OP–those are the contra-indicators.
>The problem is that anyone who is “right
synthetik, I’ve repeatedly said stocks are different than real estate. I do sometimes use stocks as an example of how many experts (and the press) are wrong, but typically point out that with stocks there’s a lot more information than with real estate. Also with stocks trends occur faster, and information is available quicker, so charting has a bit more use. Stocks and real estate are apples and oranges.
As to the income stream, it’s doing just fine. We were working 7 days a week between December and mid-June. Transactions and revenues are up (but that’s mainly because I’ve only been doing this for two years). As I mentioned recently, early this year one of you asked over in P-I land why we didn’t just take a few months off. My answer was we were too busy. If I’d made my vacation plans based on what I read in the news, as opposed to reality, I would have lost a lot of money.
Jillayne, I just realized I didn’t answer you re: 49. I’m re-reading the question and I’m not sure of specifically what you are asking. Advising them how? Which mortgage program best suits their needs?
Synthetik wrote-
“So it was just pure luck that I was short subprime in February 2007”
How exactly did you short subprime?
@Q-diddy,
Short FRE, LEND, BAC, WM, PMI, MBIA, ABK, WB, CTX, WCI, XLF, LEH, BSC.
Eleua-
I was hoping to get that answer from Synthetik, not you.
Good for Synthetik…perhaps he/she is living the dream.
Should I be long now?
Should you be long?
Short term – possibly,
Long term – if you want to live in a Pioneer Square flophouse with KLK.
Eleua, I’ll add my financial condition to the long list of items you’re wrong about. 😉
Meredith Whitney thinks “the tunnel is about to collapse.”
http://calculatedrisk.blogspot.com/2008/08/fortune-on-analyst-meredith-whitney.html
Though not an economist, her aptitude as a financial analyst is well regarded enough for the FDIC to ask her to present her findings.
Also, here’s a 20 min Dr. Shiller interview from Princeton.
http://economistsview.typepad.com/economistsview/2008/08/robert-shiller.html
Eleua wrote-
“Long term – if you want to live in a Pioneer Square flophouse with KLK.”
So in the next 12 months (short term), I should be long mortgages, but in the long run (>12 months) I shouldn’t?
How does that make sense?
Q-diddy:
I was short NEW (New Century), LEND (American Home Lenders) and FMT (Fremont Mortgage).
I learned all I know about trading options from Eleua. He rocks – but you already knew that. I agree that there may be more short term rally in stocks but my long term target for the DOW is <7000. S&P500 <650
@Kary: Stocks -are- different from Real Estate. The markets are barely down 20%, while the San Diego RE market is down 40%+. Coming soon to a well-heeled Seattle homedebtor near you.
Q-diddy,
When I say short-term, I am talking out to a possible month to 6 weeks. Even then, that is a very high risk trade to go long.
I seriously doubt that the banks are going to get through the next 12 weeks without another major crisis.
I love it. One anonymous Internet poster looking for stock investment advice from another anonymous Internet poster. And that second poster is willing if not eager to give the advice.
Do you people have any idea how foolish what you are doing is? Seriously. Do you?
But of course, despite your public foolishness, we’re supposed to listen to you about where real estate and the economy as a whole are headed?
Oh, and I’m supposed to direct my clients to sites like this to get a feel for the market?
I’ll pass.
Eleua-
So what you’re really talking about is day trading or speculative trading.
What about the more conservative folks that want to invest in property/mortgages for the long run?
What’s your call on bank stocks for the long term?
synthetik wrote: “The markets are barely down 20%, while the San Diego RE market is down 40%+.”
The 20% figure is amazingly low, given the amount of foreign money that probably pulled out with the dive in the dollar.
As to San Diego, rather obviously not Seattle. It’s had a downturn in the recent past before this one, and went up more than 50% between 2003 and 2005. Seattle went up about 20% during that time.
http://mysite.verizon.net/vodkajim/housingbubble/san_diego.html
Kary wrote-
“Do you people have any idea how foolish what you are doing is? Seriously. Do you?”
That was my point. 😉
Jillayne,
$900 Billion in loans were originated last year. YTD this year, $100Billion. – Meredith Whitney (at the 4:13 min mark of that video interview)
My takeaway on that commentary: I don’t care what business any sane and reasonable small business owner or CEO is in, with that kind of a drop off in liquidity to lend to borrowers, you cannot spin the negative impact that will have on the housing market and economy in general.
I would love to get back to gaining the 71% of the purchase business our office enjoyed that has since evaporated due to 100% loans largely going away. I would love to re-capture our office closing serial refinancers every six months or so, but it is not going to happen.
Kary,
The days of “we talk down to you and you don’t get to have an opinion” are over. This is blogging and WEB 2.0. Like a big Cocktail Party. The readers get to decide what to take away or not. Just like getting a stock tip at a Cocktail Party. Could be from someone who really knows their stuff…could be from someone who doesn’t. Lots of talk is good.
If the think people having this kind of conversation is “foolish”, you should be blogging.
I keep forgetting I can’t jump in and make edits on Jillayne’s posts anymore. I’ll have to be more careful.
That should say: If you think people having this kind of conversation is “foolish”, you shouldn’t be blogging.
The post is about a bunch of people’s opinions, so why shouldn’t the comment stream also be a bunch of people’s opinions?
Ardell,
Hmmm
Kary is a reader.
Doesn’t he get to voice his opionion? His opinion is that it their actions are foolish.
Q-Diddy had the same opionion
I have the same opinion, as well.
Everybody gets to keep their opinions.
I saw no name calling, Kary was describing actions.
Wow, we’re going to debate whether getting stock investment advice from an anonymous party over the Internet is foolish? I think any reasonable source would say that’s a fairly factual statement.
Part of the reason I react to bubble bloggers on real estate is I remember anonymous people on Internet sites talking up or down various stocks. They’d try to obtain large gatherings who would worship and follow what they said. One in particular I recall switched his call from bullish to bearish after the stock he was promoting had dropped significantly, and right at the point in time it took a significant and sustained bounce. No accountability at all for his actions. Just a lot of people who made bad financial decisions listening to him. And now in this thread we see the bubble bloggers are apparently many of the same people!
@Q-diddy,
I don’t think there is anything conservative about investing in real estate or mortgages in the near future. That is a grope for yield and will likely end in tears.
Forcast for bank stocks: lots more pain, huge number of bankruptcies, and a very decent shot at a systemic failure. Bank stocks are going to bounce around like a red rubber ball as investors sell off banks because of their insolvency, while they are buoyed by the US Treasury and The FED insisting that the system is healthy (but give us another $1.3T, just in case it is not).
KLK,
Nobody is giving advice. People are asking for and giving opinions.
If I say, “Buy WM at $4.80, because the yield is attractive and the risk of bankruptcy (this week) is less than 25% and this should fit well with your risk tolerance and financial objectives,” then I am giving advice.
If someone asks me what I think about bank stocks in the long run, that is no different than if he asked me if I liked the new Indiana Jones movie. I gave my opinion, and my reasons for this are all over the internet. If he goes “all-in” on WFC OCT puts at the $25 strike, that’s his cross to bear.
I’ve given my opinion on several subjects, not least of which is real estate valuations. Whenever somone asks me if they should buy or sell, all I do is take them through MY thought process on what is important to ME. If it helps them, then great. If it is of no value, then they got what they paid for.
So far, nobody has called me and complained.
BTW, 20c on the dollar by 2010.
“Nobody is giving advice. People are asking for and giving opinions.”
Fair enough for me.
Greg,
The dig on “sites like this” and today’s Kary quote from the PI article today “Kary Krismer, a Keller Williams agent and contributor to Seattle Real Estate Professionals, said he would prefer the online discussion to focus on “useful topics” such as marketing strategies and potential legal pitfalls.”
Most people I know find topics of discussion between peers who are not in the real estate industry quite “useful”, and “sites like this” that encourage and support “foolish” activities in the minds of some, are really quite useful to many people. Maybe not Kary, but many others.
It really is time we stopped being us against “the bubble bloggers”. That term should be dropped from our vocabulary. It is never said as a compliment and “the bubble bloggers” have added great value and balance to the discussions.
…..and yet, Ardell, Kary is just as entitled to his opinion as you are to yours. Being an attorney, he has an intense interest in legal pitfalls.
I was following this thread today, not the PI article. Perhaps your comment was out of context?
IMHO, personal attacks should not be tolerated in any venue. What is wrong with civil debate?
I dislike labels such as “bubbleheads” (I personally do not use such). I equally do not like labels such as “those Realtors”, yet they happen often from both ends.
The conversation today was completely civil on this post. I was enjoying watching Eleua, Synthetic, Kary and Q-Diddy work things out.
Kary has just as much right to his opinion as you and I. To single him out is unfair. FWIW, I often disagree with Kary. So What?
Eleua and Synthetic have never needed a referee that I have ever seen. They seem to be able to take care of themselves.
Ardell wrote: “Most people I know find topics of discussion between peers who are not in the real estate industry quite “useful
There are always losers and winners in the market. I think it’s great that Eleua and Synthetik are riding the “subprime short train” to fortune and glory. They had an intuition, took risk and made a ton of money. Last I recall that was still OK in this country. However, the majority of the market is not doing so well.
I’ve always felt it is a bad idea to give advice about investments online and I’ve expressed that before in other posts. There are just too many variables to consider and a blog is not the proper medium to discuss it. Should the blogger have a moral obligation? Yes, but they should also have the freedom to express their opinions.
Lastly, I think it’s idiotic for anybody to literally take stuff from a blog and make investment decisions. Then again, people have been known to do worse.
I wish I’d taken the risk of shorting Citigroup and Boeing. I really didn’t understand Boeing being over $100 with the tanker deal then still up in the air, and the Dreamliner not yet having been produced (especially given the potential issues with multiple partners and the problems Airbus faced with its last new entry). But I wasn’t going around posting on web sites that people should short either one of those.