The fuse is now lit. The structural imbalances worldwide have never been greater and the fuel at the end of the fuse is enormous. In addition, amount at risk increases every day.
The interesting thing is that no one knows how long the fuse is. For some inexplicable reason everyone acts as if they can get out before the stick ignites. It’s simply not possible.
My wife is British, so we look at exchange rates. And we look at the price of oil. And food. We’re losing a percent or so of our buying power each week.
The 13-month-long decline in home prices in 20 major U.S. cities accelerated in August, with prices dropping a record 0.7% in the month, according to the Case-Shiller price index released Tuesday by Standard & Poor’s Corp.
Prices were down 4.4% in the past year, the fastest decline in the seven-year history of the 20-city index. In the original 10-city index, prices have fallen 5% in the past year, the biggest decline since 1991.
“The fall in home prices is showing no real signs of a slowdown or turnaround,” said Robert Shiller, co-creator of the index and chief economist for MacroMarkets, in a release.
… Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as the result of payment resets.
… Prices could fall much further. In a separate report, analysts at Goldman Sachs figured that prices in California are about 35% to 40% overvalued, compared with past relationships between home prices and income growth. The median sales price of a home in California was $589,000 in August, Goldman said, but should be around $375,000, they said.
Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday.
Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August’s sales had been reported at a 795,000 pace.
September’s sales were slightly higher than the 758,000 pace expected by economists surveyed by MarketWatch.
The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.
Got that? The previous three months were actually much worse than reported.
Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday.
Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. The 8% drop was the largest monthly percentage decline in that period.
Nationwide, sales of existing homes were down 19.1% in September compared with September 2006.
Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.
And remember, the real wave of ARM resets is yet to come. (ARM resets are adjustable rate mortgages resetting out of their initial, low “teaser” rates to the real interest rate. When this happens mortgage payments can as much as double.) Figure maybe five months after an ARM reset until the homeowner is in such trouble that a foreclosure occurs.
So this is just the beginning of the beginning. And as more and more foreclosed properties come up for auction, prices WILL fall, and fall… until houses are again selling for what they are worth.
San Jose Mercury News – ‘Betrayed by our builder’.
A homebuilder is marking homes down from $630,000 to $285,000. The front-page story includes a large graphic: “$630,000 – current residents — $285,000 prospective residents”
A San Francisco Bay Area homebuilder can’t sell all the houses it built in a development in Manteca. Current residents paid up to $630,000 for a 3-hour round-trip commute. But now they’re auctioning the remaining homes, starting at a more realistic price of $285,000.
This headline is going to have a huge impact because it means every homeowner in the SF Bay Area who thinks they have a $630,000 property now will begin to realize that in the end, if they want – or need – to sell that house, they are going to be competing with $285,000 prices.
Let that sink in a while…
This one takes some explaining. The big homebuilders borrowed money and bought up a lot of land. Now they are in trouble, running out of cash to run their businesses and pay down the debt – and the only way they can hope to surive is to build MORE houses to sell at a steep discount, because this brings in at least SOME cash.
Of course, the effect on the rest of the economy will be terrible: MORE houses dumped on an already-saturated market, at even lower prices. This will force prices to drop further, and more people to be in trouble. Calculated Risk: Homebuilders Struggle to Survive,
We could make fun of the analysts that claimed the homebuilders would have strong cash flow during a downturn (due to less investment in land and improvements) and that the homebuilders were “land banks”. Those investment ideas were Dumb and Dumber!
But the more important point is that the homebuilders struggle to survive shows why the builders are still overbuilding. Building homes, and selling at a deep discount, is the only way they can liquidate land to raise cash and pay down their debts in the current environment. This is why housing starts are still too high and will likely fall further over the next few quarters.
Home-builder stocks rose Monday after a Citigroup analyst raised his stock ratings on several of the sector’s largest companies on signs the worst may be behind the embattled industry.
Worst may be OVER?
Let’s see, highest housing inventory ever, difficult to get credit, mortgage rates rising in response to Fed bailout attempt, prices far, far, far above what an average person can afford, a huge wave of ARM resets coming next year… and some probably-23-year-old analyst sees a price bottom?
Oh yes, go buy stocks based on a bottom – suckers.
Median sales price down 7.5% in past year, biggest drop in 37 years
Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales pace since June 2000, the Commerce Department estimated Thursday.
Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market.
… The median sales price fell 7.5% to $225,700 compared with a year earlier, the largest year-over-year decline in 37 years.
The worst is yet to come. Maybe a year from now is the time to start thinking about loking for a bottom.
U.S. Homes Post Steepest Price Drop in 16 Years
The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.
So the situation: a huge wave of “ARM resets” – steep rises in monthly payments for holders of adjustable mortgages – is only beginning. Then it takes several months before they get into enough trouble to be forced into foreclosure. At the same time, it is hard to get a mortgage now, the largest number of homes for sale in history, and everyone aware that prices are falling and it is just stupid to buy a house now. So prices are going to be dropping, maybe a lot, for some time. There is no way around it.
(Feel free to add other “doom and gloom” factors in the comments.)