What I am about to say probably won't come as a surprise to many of the long time readers, but after talking to my friend, he believes that many people could benefit from much of what we talked about in our conversation.
As much as many people are seeing inventories increase, prices decrease, and the sales pace drop dramatically...I am here to tell you that YOU AIN'T SEEN NOTHING YET!!!
I know the pundits and experts like our favorite econoMISSED Leslie Appleton-Young, are saying that yes, things are slowing, but that is all that is going to happen. Things will turn around in 12-18 months. The market is just finding a balance between buyers and sellers.
BLA BLA BLA... Read this 'gem' from a nice Desert Sun 'fluff piece' titled "Real Estate Upswing Predicted for Valley - Expert says market will bounce back": Leslie Appleton-Young, chief economist for the California Association of Realtors, told more than 500 real estate agents, mortgage brokers and other business people at a real estate forecast symposium Thursday in Palm Desert that home sales and median prices statewide are likely to decline slightly from the once ‘red-hot market,’ then level off over the next 18 months.
“‘The housing market is going through an adjustment after a four-year boom that was not sustainable, but the (economic) fundamentals are still very positive for this region,’ Appleton-Young said. ‘But there’s no area of California that is immune to the adjustments,’ she said.”
I am here to tell you BULLSH!T regarding 'positive fundamentals' or that things are just going to 'level-off'. What part of doubling inventories, and a 40-50% slower sales pace makes the fundamentals so 'positive'? Not to mention that incomes in the desert communities do not afford most of these 400k+ 'starter homes'. I also find it pretty funny that 500 RE agents show up to a meeting in an area that has barely sold 700+ homes so far this year. I'm not so good at math, but it doesn't seem like that is enough houses to 'employ' 500 agents.
All you have to do is read the articles on Ben Jones fabulous blog to see what is going on. I scan his blog daily...the difference is that I am not surprised one bit at anything I read there. Heck, I tried to tell people what was coming....and I STILL AM!!
I tried telling people for the past few years that this was going to happen, but nobody wanted to hear it. I was told that I was just bitter because I 'didn't own a home' or missed the boat. This blog gave me a place to share my thoughts to whomever wanted to read them. I guess some people wanted to hear what was really going on in the industry as well over a million unique visitors have hit my blog. As for some of the people who told me I was crazy a year or so ago, some of those same people have actually contacted me for advice because all that 'equity' they had, is evaporating, and the mortgage payments are starting to take their toll. Again, lets use Orange County as an example...what REALLY happened the past 5 years to take the median home price from about $220k to about $620k??? Think about it...
I was just in NYC for a quick business trip. I happened to get lucky and was asked to share a limo with 4-5 other people instead of waiting in the taxi line that was easily 60 people long. As traffic from JFK was terrible, we had plenty of time to talk. The topic of real estate came up when they found out I was from SoCal (the other people were from Utah). Needless to say, these people were surprised by much of what I said, but they all agreed that mathematically things didn't make sense. After we dropped the group off at their hotel, it was just the limo driver and myself. I guess he was listening pretty intently to our conversation, because he asked me what I knew about filing BK. He said that his mortgage alone was over $2700 a month, and that didn't include the taxes. He said he had talked to some friends about the BK process, and that he wasn't considering it now, but in a few months. He was amazed at how fast things turned, and that he couldn't even sell his house for what he paid for it. I didn't get into too much detail with the guy, I just hope he and his wife figure things out.
Lets take a look at some of the things we have seen in the news lately. We have seen homebuilders reporting large amounts of cancellations, a decrease in profits, and some smaller homebuilders are even losing money now. We are seeing inventories increasing, and the sales pace in many major areas is 35-55% slower than it was just a year ago. We are seeing stories start to pop up about appraisal fraud, people being upside down on their homes, and people trying to find ways out of their housing contracts. We are seeing that the builders are cutting prices in many areas, and this is 'screwing' the individual homeowners that can't match the builders with incentives and/or price decreases. We are seeing rather large layoffs in the mortgage industry as loan production is down from previous years. ALL of this is happening...AND WE ARE NOT EVEN IN 2007 YET!!!!!!!
You think things are getting interesting now? Just check back in 12 months and see how things are. I will tell you that the spokespeople for the NAR and CAR are doing nothing but blowing hot air. Their logic of a 'soft-landing' is filled with more holes than all the golf courses in Florida. I'm sorry, but the fundamentals do NOT support property values where they currently are in the 'bubble areas'. There is NO way to rationalize or explain it. Over the next 12-24 months, many of the flippers, 'investors', and interest-only-ARM-home'owners' will be flushed from the market. There will be even MORE properties coming on the market, with less people that will be in the market for them.
That also brings me to another point. Just as many 'novice' investors and flippers hit the market, there were also a lot of 'novice' developers that entered the fray. Many of these developers (along with established homebuilders/developers) started housing projects when things were good, but won't be completing things until 2007/2008 time frame. You have already heard stories of some developments being canned because it was early enough in the project. But many more were too far along and have to complete their projects. These builders/developers are facing cancellations and will be forced to sell their units in a market that already has a larger than normal inventory. It will be interesting to see how well these 'new homes' are absorbed into the already bloated housing inventory.
So, my advice to you BE INFORMED before you make any financial decisions. Do NOT blindly follow the advice of the industry 'experts' or any other person that has a financial interest in the industry. Look at the stock market bubble. All of the analysts, MBAs, and financial 'gurus' said "it was different this time". They had 'strong buy' on stocks that were trading at 100+ times future earnings. As we can look back and see, they were all WRONG. The same things are being said today about property values. If the numbers don't make sense...then it is NOT a good deal, no matter what the realtor says! Notice how people call property 'investment property' and not 'income property' anymore?? Maybe that is because most of the 'investments' of the past few years are NOT throwing off 'positive income'. Check back to this post in 1, 2, 3 years from now and see where things are. I feel confident that 2007 is going to be the 'year' that REALLY shakes things up a bit. It is going to be interesting to see what happens when 18-25% of the 9 trillion dollars of outstanding mortgages adjusts in 1 year.
Well, I hope this helps people some. I am working on a few posts right now. There was a 'Flip that House' marathon on TV this past weekend, and I managed to catch quite a few shows. I will give the shorter posts a shot, as that will help me be able to post more frequently and get ideas on 'paper' when I have them, and not have to incorporate them into a larger post. I look forward to the comments and feedback.
Stay tuned...the next 12 months will be VERY interesting!