Tuesday, February 19, 2008

Comment that deserves a post...

This comment was posted by an anonymous reader this morning:



"Kate--what's your sense of when the market will bottom out? Like anonymous above, we are waiting things out, but friends (who mostly already own, please note) keep saying this is the trench. I doubt it, but wondered what your thoughts are as a savvy trend-watcher?"



Well, in my humble opinion, we are nowhere near the bottom. I think the big drop in listing prices that we are hearing so much about is all phantom losses . . . mainly a factor of the purely delusional listings falling off the MLS. This happened when the last boom busted too. Agents can't afford to market listings that they know aren't going to move and so they drop the crazy pie-in-the-sky listings. But the rest of the listings have stayed pretty firm (for Sherman Oaks: South of the Boulevard we're still seeing the low $1M on average; North of Ventura we're looking at three-quarters of a million, and North of the 101 we're looking at mid-600s.).



We still aren't seeing houses move. Sure, once in a while you'll see an excited agent-blogger chirping about how such-and-such listing flew off the market in just days! "Could the market be turning up?" she blathers. The answer is: "No." Because the truth is, those houses that are "flying" off the market aren't closing. They fall out of escrow because the would-be buyers are either not qualified or simply figure out that it's not a good deal.



And, until houses start to really move, we will keep sliding downhill. There *may* be a slight uptick this Spring (just like there is every year) but that will just mean that the fall will be more dramatic this holiday season. That's just simple statistics. When you have only a very small sample of housings reporting statistics, they will jump up and down a bit more wildly.



In short, there's no rush. You won't miss the bottom. It's not like on Wednesday we're bottoming out and by Thursday there'll be a 150% increase. When the time comes, you'll have months and months to decide on a home.



But don't take my word for it. Visit some of the other fine blogs out there. Notably: LA Land and Westside Bubble (both are linked at the right). You'll find a wealth of links on Westside Bubble in particular.



And don't be shy! If you'd like to offer your two cents the comments are wide open, Peeps. Go ahead and record your predictions for posterity and for Anon

10 comments:

Karen Marx said...

It was six years to the bottom last time and we didn't have so far to fall. I wouldn't be surprised if it was at least that long this time.

Anonymous said...

Unless there's a big rise in salaries, which just ain't going to happen, housing prices have to come down to within 2-3 times income as opposed to the 7-8 times income we're seeing now.

Emil said...

People who bought expensive in the last 3 years won't be willing to sell loosing money. They will want to wait it out, living in these homes for a looooooong time. People who bought with variable interest rate mortgages and who cannot afford the higher payments (even refinancing) will either foreclose or sell as high as they can to minimize their losses. Poor suckers. Natural resistence to downfall. It is because of this that it will take between 5 and 10 years until this goes back to historic trends.

Relax, save and invest smart. You will be in much better position to buy a house in a few more years.

A good read:

http://finance.yahoo.com/real-estate/article/104340/Housing-Meltdown;_ylt=Av2KpAgSb7djW4y4c.dleslO7sMF

Westside Bubble said...

Thanks for the kind words, Kate!

I was about to write what Karen Marx already did about six years last time, although most of the fall was in four.

See here for S&P/Case-Shiller graphs of the 1990s drop, with some added Santa Monica perspective.

kate said...

Hi Emil:

You wrote:

"People who bought expensive in the last 3 years won't be willing to sell loosing [sic] money."

Some people will take a loss thinking they'll make it up when they buy a bigger house at an even bigger loss. Still others will be forced to sell regardless of what they are "willing" to do.

Next, you write: "It is because of this that it will take between 5 and 10 years until this goes back to historic trends."

I see your point, but the thing is there's nothing historical about this collapse. We've never had a market with such rampant fraud and overextension. More than half of the houses that I personally bid on in early 2007 were bought by investors -- investors who are between a rock and a hard place today. So, for those reasons, I think we will see a much faster correction this time than in bubbles past (and so far we have).

Anonymous said...

kate said...
"........, I think we will see a much faster correction this time than in bubbles past (and so far we have)."

I really hope you (we actually) continue to be right on this.

Emil said...

Hey Kate,

Right off the bat: I love your blog! It's nice to share thoughts with people living in the same area and going through the same dilemmas. :)

You write:

"Some people will take a loss thinking they'll make it up when they buy a bigger house at an even bigger loss."

Buying a bigger house will require extra money (even factoring in declining house prices). I'm not sure that there are too many people able to pull that one off. Sticking to their current home (assuming they can afford the payments) is quite an attractive alternative which does not contribute to a quick housing correction. The people that cannot afford their payments - oh well.

"I see your point, but the thing is there's nothing historical about this collapse. We've never had a market with such rampant fraud and overextension. More than half of the houses that I personally bid on in early 2007 were bought by investors -- investors who are between a rock and a hard place today. So, for those reasons, I think we will see a much faster correction this time than in bubbles past (and so far we have)."

Agreed. The housing bubble is a completely unprecedented phenomenon (see the chart at http://us.news2.yimg.com/us.yimg.com/p/fi/14/90/63.jpg). My point was that you cannot underestimate the resilience of whoever bought these houses (a mix of young families, investors, yuppies, etc.), this potentially leading to somewhat of a delay in the time it takes to go back to the historic trend line shown on the graph of the link I included a few lines above. Sure, I would love that this would happen quick (baby coming hopefully next year), but only time can tell.

I switched a good portion of my investments over to short term in case this thing does bottom out within 2 years. But it's not advisable to put all your eggs in one basket...

ProblemWithCaring said...

Please forward this blog post to your fellow la land guestblogger "justcallmemaria"...

Anonymous said...

yeah, months and months to buy when we are at bottom is a little understated. It will likely sit flat at the bottom for a few years, so no hurry if you don't need a house right away. Even if it didn't drop any more from this point it would still be flat for even longer.

Anonymous said...

Emil -

People who bought at high market and can afford their mortgages might also be inclined to sell. They can potentially sell into the downturn and buy in later at a cheaper price, better selection, lower property taxes. The net result might be a better property at a lower basis and you can play the market a little to improve your situation and limit some of your losses. Obviously a lot of people won't do this, but I know that many will.