The long slow pop

Man, quite the trifecta of housing bubble articles on the local news site today. I’m not going to quite pull a Rucker here, I’ll just summarize the titles:

Mortgage Fears Jolt Stocks
Dow dives 242 amid troubles for subprime lenders.

Late house payments, foreclosures soar

Worries rise over high risk lending

And meanwhile, The Housing Bubble Blog keeps churning along with nationwide reports of Big Fat Fucking Trouble in the subprime world.

I’m figuring it’ll be 2009 before this all hits bottom. The adjustable rates are going to keep spiking over the next two years, and until they’ve all bumped up and all the foreclosures have gone down, this is just going to keep on snowballing.

There’s a place practically across the street from us that’s been on the market since last August. They dropped the price from $599K to $579K in December. I think they’re hoping that springtime will bring out the buyers. I also think they’re dreaming. According to zillow.com (the ultimate pry-on-your-neighbor real estate tool), though, they’ve owned the house for long enough that their mortgage is pretty tiny, so maybe they’re just wanting to wait it out. They’re gonna have to wait a looooooooong time…

Edit: Boo yah!

So what does all this mean for potential homebuyers? Wait?

Um, yes. Wait. Wait until the foreclosure rates start going back down.

I insert my babble from the other thread here, mutatis mutandis.

It does seem like the market is see-sawing on whether to have a honest to goodness crash or just a correction right now.

Yes. I’m now officially in the “starting to get scared camp.” We are scheduled to see a house tomorrow; I may tell my broker that I’m out of the game right now.

I think the crash hasn’t actually taken hold yet because a lot of sellers still believe they can get 5-10% annual appreciation and priced their houses accordingly. The places that are priced lower are still selling, but there’s a lot of stuff out there that just sits and sits because the seller isn’t willing to lower the price. However, as more of these articles start trickling into people’s attention, you’ll see prices drop as people try to get as much as they can while they still can, which will cause the groupthink to turn and you’ll get a vicious cycle driving prices down just like the one that drove them up.

Nah, go see the house. Just don’t buy it. Watch the mls site and see if that house drops its price and get your realtor to tell you what it sells for, if it does. It’s never a bad idea to be better informed.

Oh. I thought this said the long slow poop.

<- renting 4 evar

Here’s another good read from the not-particularly-subtly-named blog The Mess That Greenspan Made: Plankton and Ponzi Finance.

Clearly, the explosion of exotic mortgages – sub-prime; interest only; pay-option, with negative amortization, et al – in recent years, have been textbook examples of Minsky’s speculative and Ponzi units.

And as Bill Gross explained long ago, such mortgages have been the food of the Plankton, the first-time homeowner, driving the homeownership rate to record highs, as displayed back in Chart 1, while also fueling accelerating home price appreciation. But as Minsky had forewarned, eventually this game must come to an end, as Ponzi borrowers are forced to “make positions by selling out of positions,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventually default or dropping off the keys on the lenders’ doorstep.

Oh yeah, that’s what I meant. I wasn’t going to call him and tell him it is off tomorrow. Just debating whether to tell him that we are going to dial back the looking for awhile and wait to see what happens with pricing.

I like the realtor (I know, I know, they’re slimeballs :), so I don’t want to waste his time and let him think I’m actively looking for the perfect house to buy (and take up his time to go out and look at them) if I really have no intent of buying in the next six months to a year in waiting on the market. So I just have to debate what I will tell him if I stick with my decision to dial it back.

Again, to hopefully remove some of the, “SlyFrog’s a kooky idiot,” thoughts (if that is possible), I have been watching MLS on about 50 houses of interest on an ongoing basis since November. So I’m trying my best to be informed about what is happening.

See the house and make an offer for 10% less. Maybe they’re desperate already?

Yeah, I’ll take a look at it. The problem is, I really do think, regardless of whether there is going to be a big market slide, that people here are really being greedy in their asking prices. I’m seeing a lot of houses sit on the market because they are just priced unrealistically. That’s part of what is unnerving me.

So asking 10% less for some of these inflated asking prices might be still paying 20% too much. :)

That’s why you should get your realtor to tell you the selling prices. If you only ever see the asking price you won’t really know what the market is. If you know what similar properties have sold for you’ll have a better idea what a house is worth.

Except in a falling market, even recent sale prices aren’t a good indicator of current value.

I’m not sure why I’m hyping the crash so much – I’m a fucking homeowner! But then again, we always looked at our house as a way to stay in touch with the market, not as a long-term investment. (e.g. if the market spikes, our house spikes, and our next house is not out of reach… if the market tanks, our next house tanks along with our current house.) Maybe I’d have a different attitude if we weren’t planning to move soon. Or maybe not. Investments are long-term animals, and bubbles always come and go, and if you’re not holding something for >10 years you’re dancing on the edge.

Next week I close on the sale of my house, which I’ve lived in for two years, for about 10% over what I paid (yay divorce). It was on the market for all of two months, during which time we actually had two offers (one fell through). What pop?

Yes, my anecdote trumps statistics. Neener neener.

I’m doing that myself, and asking my realtor prices where the market data hasn’t hit the MLS sites yet.

It is absolutely great this day and age. Most of the MLS enabled sites let you do the research yourself. The last place we went to, I went to my realtor with a package of paper showing comparables, and mentioning that nothing with the house’s square footage, age, and lot size had sold within the last two years for a price higher than $60k less than they were asking for theirs.

I’m actually being pretty brutal on the research on this stuff. As mentioned, I’ve been watching listings, comparing sold comparables on line, etc. since November, to the point where I’m probably spending too much time at work on the web obsessing over this. :) My biggest fear is not that I will overpay vis-a-vis existing comparables and other houses in the area; my fear as that those prices, along with what I pay, will be bubble inflated prices, and the market will drop from there in the next few years.

Yet NYC housing pricing continue to go up and up.

I can’t tell you how insane prices are in NYC (not even manhatten, brooklyn too). A poorly constructed, small, aluminum-sided house in an “up and coming” neighborhood (i.e. one with no business and poor subway access) runs well over a million. You can get one for only $900k in Bed Stuy (famous for being name checked by every east coast hip hop artist as the place where you earn your street cred). These are placed that sold for $150k-200k or so 5 years ago.

Meanwhile hundreds of new “luxury condos” are going up all over the city with 2 bedroom apartments going for a million or more.

I’ve pretty much given up, I realize new york can’t go the opposite direction of the rest of the country forever, but who knows when it’s going to come down to something reasonable.

Just enjoy the schadenfreude when all the owners of those million dollar shitholes are left hanging.

It’s a limited real estate issue. It’ll won’t come down without a serious market correction or rise in the crime rate. Hard to say whether that will happen quickly or slowly at this point.

Same for San Francisco.