We now hear empirical evidence about home prices across the nation. They rose (median) by 1%. They’re expected to rise by a tad more than that this year. Oh my.
Home builders also sold their new stuff last year for more than the year before. It’s also expected they’ll go up just a touch this year too. Oh my.
Developers are continuing to break ground on new projects all over the country. I guess they’re operating on the sound business principle that if they build it you will come. OR, they’ve done massive market research, analyzed the data within an inch of its life, concluding there’s still a thriving market for their product — at higher prices than the last project. Oh my.
This is the new bubble. You know, where reality bubbles to the top, assigning disaster theories to the writing room of The Tonight Show for Jay’s stand-up routine.
Lenders will lay low for a short while, (Captian Obvious Speaks) as they strive to create product that is attractive to both borrowers, underwriters, and their bottom line. Nothing trumps the number one axiom of real estate lending — lenders lend. Duh, Captain Obvious.
If you think we’re headed back to 20% down payments, then you’re also are still waiting for windmills to replace oil for energy. Why do you think we went from 20-30% down to 0-10% in the first place? Just maybe it was because lenders weren’t making enough loans to suit them. You’re on a roll Captain.
Idaho is the third fastest growing state in the nation. People are beating a path to their door. I wonder if that’s why the general Boise region is pegged to double in population in the next couple decades? Is it possible that the Phoenix area, which is also a population growth monster, will continue to prosper? Captain Obvious says — “Uh, yeah.” Duh
So here we are again poised to wet our collective pants laughing at all the Chicken Littles out there. And those laughing the loudest? The ones who looked at the real data, learned from history, and became disciples of Captain Obvious.
By the way, the name Captain Obvious comes from the Latin root phrase, One Who Learns From Observation and History. If you don’t believe me you can ask Greg. 🙂
Axiom: The directions of the lines on all the charts don’t go up or down forever. Yet every single time there’s an upward trend ending, we are told the sky is falling. They said it after the ’69, ’74, ’81, ’91, and ’01 recessions. (Of course, the ’01 recession went unnoticed in real estate.) It’s like they believe that a six pack of beer will now consist of five beers. Axiom: A six pack of beer contains six beers. Duh
This post was ghost written by Captain Obvious.
Brian Brady says:
Two things are clear:
1- Builders build
2- Lenders lend
They don’t always do it successfully but your “jagged line” theory proves that the direction always reverses.
March 25, 2007 — 1:58 pm
Jeff Brown says:
And the unspoken point, is that generally speaking they don’t build or lend against their own interests – at least not on purpose, right?
March 25, 2007 — 2:18 pm
Brian Brady says:
Never, Jeff. Why work against your own purpose? People love to talk about the dumb builders or irresponsible lenders” but Pardee Homes and BofA wouldn’t be building and lending if they didn’t expect to make a profit from their activities.
It may sound awfully naive to suggest that you watch building and lending activity for a precise prediction of the future but you’d be innocently correct.
March 25, 2007 — 9:56 pm
Jeff Brown says:
It may sound awfully naive to suggest that you watch building and lending activity for a precise prediction of the future but you’d be innocently correct.
Heck, if I watched builders and lenders to guide me, history says I’d be the last lemming over the cliff most of the time. 🙂
That said, they complete their due diligence, and make their decisions based up their own analysis of data they acquired through solid research.
Sometimes they’re just wrong.
In our own town we now have the San Elijos (?) development in the North County. They’re not exactly cheap homes. I’d say that project could turn out to be a potential indicator of where the market is, and where it might be going.
March 25, 2007 — 10:07 pm
azrob00 says:
fact: 50500 active listings on the mls today, an absolute record.
fact: 19000 vacant homes for sale. (vacant are more motivated)
fact: sales so far this month are over 1000 lower then the same period time in march last year.
fact: sales so far this year are over 3000 lower than last year, a year that saw most areas of phoenix metro decline.
Keep insulting the “chicken littles” but my ph’d in international finance says there’s big trouble in river city…
March 25, 2007 — 11:28 pm
Todd Carpenter says:
I likened the Sub Prime Mortgage Implosion to this year’s Housing Bubble. One downside to the digital highway is that the rest of the media can read what the New York Times has to say on any subject, and rehash it as their own before most of the nation has their first cup of copy. Then, since the same story is hammered out of every facet of media, the average Joe get’s the impression that it’s a bigger problem than it really is. I can’t wait for West Nile Season to come around so they can lay off the mortgage hype.
March 26, 2007 — 1:32 am
Bill Williams says:
A wise man once suggested to me that when “everyone” warns you about the market (stocks or housing) crashing, it is either the end of the world or a perfect buying opportunity… and so far the end of the world hasn’t happened.
Idaho? You know you’re living in Idaho when you have as many jobs as you have dogs 😉
March 26, 2007 — 4:19 am
Jeff Brown says:
azrob00 – You could be correct.
Of course the media could be correct about interest rates skyrocketing too. Of course, they WILL be right one of these days as they’ve been saying it for the last five years.
And for the record, I’m not making fun, just having fun. A national real estate price melt down could happen. It would also be the first national RE price crash in our history.
March 26, 2007 — 8:38 am
Jeff Brown says:
Todd – It gets even better on cable, doesn’t it? It reminds me of the original Saturday Night Live skit about Spain’s dictator, Franco. “Franco is still dead.”:)
March 26, 2007 — 8:41 am
Jeff Brown says:
Hey Bill! Joe Kennedy got out of the stock market around May of ’29. Why? A shoeshine boy gave him a stock tip. He said if he’s getting tips from the shoeshine boy, it must be time to get outa Dodge. He was totally out when it crashed about five months later.
>Idaho? You know you’re living in Idaho when you have as many jobs as you have dogs.
Or when you’re driving on Chinden about 40 mph and folks are motioning you to slow down. 🙂
Good to hear from you Bill.
March 26, 2007 — 8:47 am
Doktaire says:
Then why did new homes for Febuary drop 18.3% year over year. Why are is the media only reporting the 3.9% drop from the previous month, and not being clear about that?
Please, answer this.
Ga
March 26, 2007 — 12:55 pm
bbryan says:
“A wise man once suggested to me that when “everyone” warns you about the market (stocks or housing) crashing, it is either the end of the world or a perfect buying opportunity… and so far the end of the world hasn’t happened. ”
A wise man would not buy before the lion’s share of price drops had occurred.
“Of course the media could be correct about interest rates skyrocketing too. Of course, they WILL be right one of these days as they’ve been saying it for the last five years.”
Five years ago, I was out buying a Phoenix area house. But selling it in Fall 2005 was clearly the financially correct move. Buying now at 15 or 20% below the 2005 peak would simply be foolish.
March 26, 2007 — 12:57 pm
Jeff Brown says:
GA – Far be from me to even attempt to explain why the media does anything. They should be including year over year data in their articles, I agree.
In San Diego, arguably one of the worst hit regions in the country by this correction, we’ve seen calendar 2006 median prices go up 1%. That’s empirical, publically recorded evidence. What does it mean? We’ll wait and see. I think most reasonable people however wouldn’t take that U-turn in our market and continue to predict prices falling in the bubble mode.
New homes in SD are still being built, many $100-400K above our current median sales price. We’ll see by summer if those builders were incorrect in their assessment, or if those predicting disaster were incorrect.
March 26, 2007 — 1:26 pm
Jeff Brown says:
>A wise man would not buy before the lion’s share of price drops had occurred.
There’s a vast difference between being wise and ‘knowing’ when the lion’s share of price drops have occurred. I’m assuming the wise man’s crystal ball is as cracked as ours is. 🙂
As far as buying in Phoenix at 15-20% below the 2005 highs? Only time will clear that prediction up. I think you may find that a discount of that kind hasn’t happened for over 80% of the Phoenix market. The last report I saw was still in the single digits for lost value in 2006.
We’ll see. Thanks for the comment – and huge congrats for selling your Phoenix stuff when you did. Great job.
March 26, 2007 — 1:41 pm
Doktaire says:
The other important point is that the Febuary sales really took place before the “sub-prime meltdown” became headlines. Could we be in for even worse next month, now that credit is being tightened up so much?
March 26, 2007 — 1:53 pm
Doktaire says:
I mean, if fewer and fewer and people can get loans, who is going to buy all the houses?
March 26, 2007 — 2:27 pm
Doktaire says:
Personally, I am panicking, you guys seem to be acting like nothing is wrong, so what is the real story? I am getting all kinds of conflicting views, and I just want the straight story, should I be getting our of real-estate right now?
March 26, 2007 — 2:40 pm
Jeff Brown says:
Doktaire – I don’t know where your real estate is.
I believe your panic is in large part due to drinking a little of the media’s Kool-Aid. Remember, bad news sells newspapers and air time.
The real story? Predictions for San Diego were value drops of 30% or more. The most recent numbers show a 1% increase for calendar year 2006. Where’s the free fall in that number? The decrease in value in San Diego County (about 3mil pop.) in median price terms, was single digits, probably around 5-7% or so.
That kind of value loss isn’t as much as the last correction we endured, which was during the early ’90’s S & L ‘crisis’. That was almost a depression compared to the tea party we’re experiencing now. It was brutal. Our current situation? A normal correction.
Don’t panic. Find a solid investment broker who can guide you to an area of growth somewhere in the country. If it makes sense to sell your investment property now, then do it. If not, just sit and wait.
In San Diego I’m telling everyone to sell their income property because it’s simply too valuable now, much less in another 10 years. Who in their right mind will want to invest in a $750K 45 year old duplex in a blue collar area? Not me, and I’ll wager not you either.
If you need further guidance email me and I’ll be glad to point you in the right direction.
March 26, 2007 — 3:09 pm
Brian Brady says:
Jeff:
I could write a post on this but I won’t. Chip Mason, the founder of Legg Mason (www.leggmason.com) once pointed out that the S&P500 had an 18% volatility from high to low prices in flat years. So, someone bought low and sold high while the market went down.
Real estate investment has now become the equivalent of careful securities selection. Am I on the right track?
March 26, 2007 — 4:30 pm
Jeff Brown says:
Brian – I’ve always taken that approach. Each sale or exchange is analyzed on a stand alone basis. I learned that lesson the hard way back in the big run-up of the mid-late ’70’s.
I will say though that I’d much rather figure out a real estate deal than one for securites. What a pain. 🙂
March 26, 2007 — 5:36 pm
Jeff Brown says:
Doktaire – I don’t think that’s going to be earth shattering to anyone but the particular lenders who may be hardest hit, and of course the borrowers who may be facing their worst case scenario.
You’re talking about less than 1% of loans in a subset of loans for an entire industry. Our economy is so huge, and we have so much wealth, it won’t have a significant effect.
There will be a percentage of buyers who will now be unable to qualify. But then they probably shouldn’t have been able to qualify in the first place anyway, right?
March 27, 2007 — 9:09 am