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Lower House Prices Will Cause More Housing Gridlock... not liquidation

By BoomAndBustCycle follow BoomAndBustCycle   2012 Jun 13, 6:06am 17,838 views   47 comments   watch   nsfw   quote   share      


We are already in a gridlock situation where everyone that bought in 2004-2007 that hasn't foreclosed is basically TRAPPED in their home. The only way they can move is via short sale or walking away.

Lower home prices just equals more inventory gridlock... You can't buy a home from someone that doesn't have the cash to make up the difference to sell you the home.

So, rolling back home prices will lead to less inventory because 1996-2002 buyers now won't have enough equity to sell their homes. It's a catch-22, renters want/need lower home prices, buyers can't AFFORD to sell at lower prices.

Maybe Boomers will be forced to sell you their paid off home/ retirement fund.. But I think the majority of them will stay put.

#housing

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8   True Real House Sheriff   ignore (0)   2012 Jun 13, 5:21pm     ↓ dislike (0)   quote   flag        

So with gridlock and low inventory -- prices will have to stabilize or go up due to existing demand. Right? Builders will need to build more housing then.

9   dunnross   ignore (6)   2012 Jun 13, 11:39pm     ↓ dislike (0)   quote   flag        

Margaret Has A HorseFace says

BoomAndBustCycle says

And with builders building less homes than is needed for our population growth....

Hey JackAss,

US population growth is at the lowest levels in history. Immigration is flat to negative.

Why are you lying about housing?

Even though the population, itself, is still growing, household formation has started to come down. Couple that with a lower family income, and retiring baby boomers, makes for very bleak future for the house market.

10   True Real House Sheriff   ignore (0)   2012 Jun 14, 1:32am     ↓ dislike (0)   quote   flag        

Everywhere I look in California, prices are up. You can blame a lot of overseas money from all cash buyers scarfing up whatever limited inventory there is left. Re household formations... aren't we grabbing at straws here? Demand is not just national, it's international now. Good neighborhoods and areas will always have demand from somewhere. And bad areas will continue to suck.

11   CrazyMan   ignore (0)   2012 Jun 14, 1:42am     ↓ dislike (0)   quote   flag        

Yay, another tool.

12   dunnross   ignore (6)   2012 Jun 14, 1:55am     ↓ dislike (0)   quote   flag        

House Sheriff says

aren't we grabbing at straws here? Demand is not just national, it's international now.

No, you are the one grabbing at straws, my friend. "Foreigners buying up all of California RE" schpiel, is just as bogus as "Oklahomans buying up all the California RE" back in the last RE bust, here. And who might these foreigners be? Are they Greek or Spanish, or Chinese, perhaps. Have you checked the average household income in China, lately? Even the Chinese wealthy are sitting on negative equity from the RE crash in China. Do you think they are going to be thinking about buying anything out here? You sure are right about the "international demand" though. It all comes down to the US consumer who needs to be buying all that Chinese junk, to keep the Chinese rich happy. Problem is, US consumer isn't in the mood to buy much junk, lately, since his housing ATM is depleted.

13   True Real House Sheriff   ignore (0)   2012 Jun 14, 2:11am     ↓ dislike (0)   quote   flag        

You guys are funny. I've been hunting around the more affordable areas in California, and the rich Chinese are doing exactly that... gobbling everything up in cash. You mentioned "average household income"... .well we aren't talking about average here, but RICH. There will always be rich/astute/shrewd folks who will come out and buy where they think there is value. Don't know why you continue to stay deluded about what is happening in the here and now. Sure, things can change sometime down the road, but right now, it's a frustrating place to be if you are a home buyer or investor.

Oh, and before anyone calls me names, I'll be happy to see a cratering in price. It would only benefit me. I'd give anything for the market to tank right now.

14   Goran_K   ignore (3)   2012 Jun 14, 2:26am     ↓ dislike (2)   quote   flag        

This point only makes sense if banks aren't willing to take back homes and allow underwater people to squat. Otherwise, there is lots of inventory out there. The "gridlock" is being caused by the banks, but even they have a breaking point:
http://money.cnn.com/2012/06/14/real_estate/foreclosures/index.htm?hpt=hp_t2

15   True Real House Sheriff   ignore (0)   2012 Jun 14, 2:48am     ↓ dislike (0)   quote   flag        

The point I'm making here is that certain areas are seeing upticks/recovery/low inventory. That can't be denied. Will it last? Who knows. Banks seem perfectly happy to trickle out their properties ever so gradually. Now saying "buy later when prices crater..." -- not sure that will apply to certain areas anymore. If there's a frenzy here at fairly "affordable" prices, I doubt there will be room to go down a lot further.

E-man, agreed. Any buyer wants to see depressed prices. We want to believe that the market will cool or slump sometime in the future. I'm looking for opportunities.

Here's a question: How many talking heads here are actually pushing out offers and doing the work to try to secure a house at this time? I'm reporting what's going on in the field as a buyer right now in California.

Call It Crazy, I'm waiting....

16   True Real House Sheriff   ignore (0)   2012 Jun 14, 2:53am     ↓ dislike (0)   quote   flag        

Margaret Has A HorseFace says

House Sheriff says

The point I'm making here is that certain areas are seeing upticks/recovery/low inventory.

And you're lying.

Lying about low inventory? Now you're terribly misinformed and your responses are frankly, terribly juvenile.

17   True Real House Sheriff   ignore (0)   2012 Jun 14, 2:59am     ↓ dislike (0)   quote   flag        

Margaret Has A HorseFace says

House Sheriff says

Lying about low inventory? Now you're terribly misinformed.

And you're lying about prices too.

Why are you lying?

Whenever you are pushed into a corner and have lost an argument, you always resort to the same replies. It's rather amusing, really. Nobody here has a handle on ALL local markets, and neither do you. So chances are, you won't know that prices are up in certain neighborhoods where inventory is very tight. Simple supply/demand right? Now if that inventory increases, then prices will decrease, which is what I'm hoping will happen.

18   dunnross   ignore (6)   2012 Jun 14, 3:01am     ↓ dislike (0)   quote   flag        

House Sheriff says

I'm reporting what's going on in the field as a buyer right now in California.

There are lots of delusional sellers right now, thinking they can get inflated prices. Asking prices are, indeed, up. Selling prices are still going down, as reflected by the C-S index. Besides, the uptick is due to high season, and the uptick this year, is no bigger than what we saw last year. In my area of Almaden, selling prices are, at best, flat. But the summer selling season is winding down, and, come fall, lots of these investors buying now, are going to be heavily disappointed. The next leg down in housing, we are going to see a major paradigm shift in investors' attitudes.

19   True Real House Sheriff   ignore (0)   2012 Jun 14, 3:04am     ↓ dislike (0)   quote   flag        

dunnross, I'm *really*, *really* hoping (cross my fingers) that you are right. And when you say:

The next leg down in housing, we are going to see a major paradigm shift in investors' attitudes.

you are referring to investors who bought right now? Well if this happens, investors in the sidelines who keep their powder dry will be absolutely enthralled.

20   Strategic Renter   ignore (1)   2012 Jun 14, 3:16am     ↓ dislike (0)   quote   flag        

Many realtors are increasing staff in anticipation of a surge in underwater sellers. The end of the debt foregiveness act in December is the main reason for this. Together with yesterdays dataquick report that SFR prices are still falling and todays news that mortgage rates have risen it is all looking very good for buyers watching and waiting.

21   BoomAndBustCycle   ignore (2)   2012 Jun 14, 3:29am     ↓ dislike (0)   quote   flag        

Strategic Renter says

Many realtors are increasing staff in anticipation of a surge in underwater sellers.

Sorry, if you haven't listed your short sale by now.. it's highly doubtful you'll close on a new short sale listing by December.

It's far more likely the deb forgiveness act will be extended than any significant surge in short sales by years end.

22   Strategic Renter   ignore (1)   2012 Jun 14, 3:32am     ↓ dislike (0)   quote   flag        

BoomAndBustCycle says

Strategic Renter says

Many realtors are increasing staff in anticipation of a surge in underwater sellers.

Sorry, if you haven't listed your short sale by now.. it's highly doubtful you'll close on a new short sale listing by December.

It's far more likely the deb forgiveness act will be extended than any significant surge in short sales by years end.

The goverment do not want to extend it because it forces loan owners to stay in their houses. The act is an easy out for them. Also with the new short sale regulations coming in requiring an answer in 30 days then there is still plenty of time. Realtors know this. That is why they are increasing staff.

23   BoomAndBustCycle   ignore (2)   2012 Jun 14, 3:36am     ↓ dislike (0)   quote   flag        

Call it Crazy says

Look at Dunnross's chart above... look closely at the RED line!! Everyone is chanting that sales and prices are up! But guess, what it's the normal Spring bounce!!

I dont' think sales prices are up or going up much if at all... But i also don't see a sharp 20%+ drops on the horizon like so many bears predict. I think it's going to be all about rental parity... and monthly payments from here on out will continue teetering around whatever median rents are in the area.

I also don't see interest rates rising anytime soon. (If something causes rents to crash, then all bets are off for the housing market though.. one concession I will make). I think we'll risk massive inflation with ultra-low rates.. before risking massive deflation by raising interest rates.

And yes, i think the whole market is rigged... and the FED and global banking system can keep rates as low as they want for as long as they want.

24   tatupu70   ignore (0)   2012 Jun 14, 3:57am     ↓ dislike (0)   quote   flag        

dunnross says

Selling prices are still going down, as reflected by the C-S index.

The latest CS index list reflects sales for about ~6 months ago. Selling prices were going down then, but the CS index says nothing about what is happening now.

25   tatupu70   ignore (0)   2012 Jun 14, 3:59am     ↓ dislike (0)   quote   flag        

Call it Crazy says

It should be the Spring time bounce here, but sales volume is way down..

Why do you keep perpetuating this lie. I've already proven it to be factually incorrect.

26   Goran_K   ignore (3)   2012 Jun 14, 4:04am     ↓ dislike (2)   quote   flag        

I see a lot of downside to housing. I can be bearish or bullish on housing depending on the market factors, and right now they are all bearish.

Even with 1/4 to 1/2 the inventory, the Spring bounce is one of the weakest in years. The banks tried to create a false bottom by restricting supply but if there is no DEMAND, then their strategy fails, which is what is happening now. No one is dumb enough to just hop into a $700,000 mortgage these days, the bubble implosion happened only a few years ago and it's fresh in people's memories.

Now the banks have a tough choice; let people continue to squat creating more moral hazard, or start foreclosing again and pass this giant kidney stone. It looks like recent news says they are doing the latter.

27   Strategic Renter   ignore (1)   2012 Jun 14, 4:05am     ↓ dislike (0)   quote   flag        

tatupu70 says

Call it Crazy says

It should be the Spring time bounce here, but sales volume is way down..

Why do you keep perpetuating this lie. I've already proven it to be factually incorrect.

C.A.R.’s Pending Home Sales Index (PHSI)* declined from a revised 138.9 in March to 128.0 in April, based on signed contracts
C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.3 in May

June and July's completed sales are going to be very bad. Also Dataquick reporting SFR still falling and mortgage rates rising then the only way for prices is down

28   tatupu70   ignore (0)   2012 Jun 14, 4:07am     ↓ dislike (0)   quote   flag        

Goran_K says

Even with 1/4 to 1/2 the inventory, the Spring bounce is one of the weakest in years.

Why do you think the spring bounce is over? The last reports we've gotten were from April, right? That's closer to winter than to summer...

29   Goran_K   ignore (3)   2012 Jun 14, 4:09am     ↓ dislike (2)   quote   flag        

Pending sales dropped drastically from April to May. That's what happens when you cut inventory artificially.

All this to keep bad assets on the books as good, and letting people squat for free.

30   tatupu70   ignore (0)   2012 Jun 14, 4:10am     ↓ dislike (0)   quote   flag        

Strategic Renter says

C.A.R.’s Pending Home Sales Index (PHSI)* declined from a revised 138.9 in March to 128.0 in April, based on signed contracts
C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.3 in May
June and July's completed sales are going to be very bad. Also Dataquick reporting SFR still falling and mortgage rates rising then the only way for prices is down

I hadn't seen that data-I was just looking at actual sales volumes. While part of that could be due to the low inventory, I agree that pending home index is a pretty good indicator of future sales and prices.

How could dataquick be reporting mortgage rates rising?? That is obviously false. Rates declined quite a bit from last week and are at pretty much all time lows.

32   tatupu70   ignore (0)   2012 Jun 14, 4:16am     ↓ dislike (0)   quote   flag        

Strategic Renter says

1st rise in mortgage rates in 7 weeks
http://lansner.ocregister.com/2012/06/14/1st-rise-in-mortgage-rates-in-7-weeks/163651/

OK--I don't call a slight rise for 1 week out of 7 to be a trend...

33   tatupu70   ignore (0)   2012 Jun 14, 4:19am     ↓ dislike (0)   quote   flag        

Strategic Renter says

C.A.R.’s Pending Home Sales Index (PHSI)* declined from a revised 138.9 in March to 128.0 in April, based on signed contracts
C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.3 in May

OK--looked up the CAR index. Didn't know it was California only. Nationwide pending homes sales were down in April 2012 from March 2012, but up from April 2011.

I'd be careful to draw too many conclusions from that yet. Still seems like this year is stronger than last year IMO. Even with the lower inventory.

34   Strategic Renter   ignore (1)   2012 Jun 14, 4:37am     ↓ dislike (0)   quote   flag        

tatupu70 says

Strategic Renter says

C.A.R.’s Pending Home Sales Index (PHSI)* declined from a revised 138.9 in March to 128.0 in April, based on signed contracts

C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.3 in May

OK--looked up the CAR index. Didn't know it was California only. Nationwide pending homes sales were down in April 2012 from March 2012, but up from April 2011.

I'd be careful to draw too many conclusions from that yet. Still seems like this year is stronger than last year IMO. Even with the lower inventory.

Because they do the old trick of revising down April. Next month they will revise down May. so they can report June up etc etc

35   True Real House Sheriff   ignore (0)   2012 Jun 14, 4:37am     ↓ dislike (0)   quote   flag        

BoomAndBustCycle says

I dont' think sales prices are up or going up much if at all... But i also don't see a sharp 20%+ drops on the horizon like so many bears predict. I think it's going to be all about rental parity... and monthly payments from here on out will continue teetering around whatever median rents are in the area.

THIS.

36   FortWayne   ignore (4)   2012 Jun 14, 4:43am     ↓ dislike (0)   quote   flag        

Laws of supply and demand (fundamentals) will still be in effect. The only question is what will underwater buyers will be willing to bear. I think you'll see a lot of short sales this year due to the buyers who are walking away while tremendously upside down.

Those who are comfortable and are underwater will probably not care and just accept to live with a certain loss ratio.

37   CL   ignore (0)   2012 Jun 14, 4:51am     ↓ dislike (0)   quote   flag        

Call it Crazy says

I look around all the time and what I'm seeing ain't good!!! The sheer amount of "shadow inventory" is amazing. I have never seen this many vacant and empty houses since I've been around this planet

Me, too. Anecdotal, to be sure, but there are a lot of vacancies where nothing is happening.

My own former home just sits there growing weeds while the grass dies.

38   Strategic Renter   ignore (1)   2012 Jun 14, 4:53am     ↓ dislike (0)   quote   flag        

FortWayne says

Laws of supply and demand (fundamentals) will still be in effect. The only question is what will underwater buyers will be willing to bear. I think you'll see a lot of short sales this year due to the buyers who are walking away while tremendously upside down.

Those who are comfortable and are underwater will probably not care and just accept to live with a certain loss ratio.

Quality Auto Repair Since 1979

If they don't they will be bankrupted by the IRS.

39   tatupu70   ignore (0)   2012 Jun 14, 6:10am     ↓ dislike (0)   quote   flag        

Call it Crazy says

I've given you chart after chart of data, all you have done is to be a keyboard commando.... step up to the plate and produce some facts or charts to support your keyboard!!!

lol. You post charts of zillow home values. Which are pretty much meaningless. I've posted link after link showing actual sales. Yet you continue to say home sales are down.

Here you go again:

http://www.nasdaq.com/article/us-april-existing-home-sales-up-34-20120522-00914

Oh yeah, I forgot, you don't like NAR numbers. Unless they agree with you, of course. Then they are OK.

And I just posted the pending home sales, which are down from March, but up from April 2011.

40   dunnross   ignore (6)   2012 Jun 14, 3:42pm     ↓ dislike (0)   quote   flag        

Goran_K says

Pending sales dropped drastically from April to May. That's what happens when you cut inventory artificially.

Why do you think banks dropped the inventory so much? They knew that prices were about to crater, so, they figured, they could take advantage of these stupid investors and sell a little more inventory (albeit very little) at over-inflated prices. Once the current pool of fools dries up (and there are less and less of them by the hour), it's Willy Coyote time, again!

41   dunnross   ignore (6)   2012 Jun 14, 4:48pm     ↓ dislike (0)   quote   flag        

tatupu70 says

The latest CS index list reflects sales for about ~6 months ago

CS index is only 2 month old, not 6 month old. On May 30, they released data through Mar 29. Since high season starts after Super Bowl, the C-S index showed 2 good month of high-season prices:

http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----

42   BoomAndBustCycle   ignore (2)   2012 Jun 14, 4:55pm     ↓ dislike (0)   quote   flag        

dunnross says

Goran_K says

Pending sales dropped drastically from April to May. That's what happens when you cut inventory artificially.

Why do you think banks dropped the inventory so much? They knew that prices were about to crater, so, they figured, they could take advantage of these stupid investors and sell a little more inventory (albeit very little) at over-inflated prices. Once the current pool of fools dries up (and there are less and less of them by the hour), it's Willy Coyote time, again!

If the banks sold all the shadow inventory to all the housing bears in waiting at 10 cents on the dollar how would this help our current situtation? What would really change? Those underwater would still be underwater and there would be zero inventory rather than the slow trickle we have now.

43   dunnross   ignore (6)   2012 Jun 14, 5:09pm     ↓ dislike (0)   quote   flag        

BoomAndBustCycle says

If the banks sold all the shadow inventory to all the housing bears in waiting at 10 cents on the dollar how would this help our current situtation?

It would help the economy recover much faster, that's for sure. In fact, if the FED didn't liquidate mark-to-market, bail out all those deadbeat banks, and kept interest rates artificially low, we would be enjoying a real recovery right now. Prices would be 80% lower, but sales would be back to their normal levels. Instead, we have an 80% drop in sales and only a 20% drop in prices (so far) and Japan-style multi-decade decline. You decide which one is better.

44   tatupu70   ignore (0)   2012 Jun 14, 9:18pm     ↓ dislike (0)   quote   flag        

dunnross says

CS index is only 2 month old, not 6 month old. On May 30, they released data through Mar 29. Since high season starts after Super Bowl, the C-S index showed 2 good month of high-season prices:

Subtract out the time between offer accepted and closing date (another ~6 weeks) and realize that CS is a 3 month average so you've still got sales from November in there..

I stand by my statement.

45   Goran_K   ignore (3)   2012 Jun 15, 2:00am     ↓ dislike (2)   quote   flag        

dunnross says

It would help the economy recover much faster, that's for sure. In fact, if the FED didn't liquidate mark-to-market, bail out all those deadbeat banks, and kept interest rates artificially low, we would be enjoying a real recovery right now. Prices would be 80% lower, but sales would be back to their normal levels. Instead, we have an 80% drop in sales and only a 20% drop in prices (so far) and Japan-style multi-decade decline. You decide which one is better.

This.

Right now the U.S major banks are zombies that are cannibalizing the U.S economy. If we just "liquidate" the infection (bad assets), we can take the short term shock, but steadily return to normal much quicker than Japan which still has a very weak housing market over two decades later.

46   tatupu70   ignore (0)   2012 Jun 15, 2:23am     ↓ dislike (0)   quote   flag        

Boom/Dunross-

Please don't qoute Goran_K. I have him on ignore because he pretends to be above the whole bull vs. bear debate, but really is just a permabear in disguise. And I don't want to see his drivel anymore.

thanks in advance

47   thomas.wong1986   ignore (3)   2012 Jun 15, 1:12pm     ↓ dislike (0)   quote   flag        

BoomAndBustCycle says

So, rolling back home prices will lead to less inventory because 1996-2002 buyers now won't have enough equity to sell their homes. It's a catch-22, renters want/need lower home prices, buyers can't AFFORD to sell at lower prices.

No you become the poster child of the RE bubble for many others to remind them of your mistake... therefore they wont in anyway overpay like you did. Eventually the owners will sell, take a loss to get rid of their own low savings rate.

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