A survey finds that two-thirds of lenders think we are in a housing bubble and the aftermath will not be pretty. They predict that the nation-wide drop in house prices could be as high as 20%. One can only imagine how much larger the drop could be in bubbly areas like the Bay Area. Why would anyone buy a house now, especially an over-priced and rather ordinary Marin POS?Some choice quotes:
Two-thirds of lenders nationwide believe a real estate bubble currently exists in the United States - and half of them believe it has already begun to burst or will burst in the next six months, according to the results of this quarter’s Phoenix Management ‘Lending Climate in America’ Survey.
A significant 93 percent of lenders surveyed expect an anticipated housing correction to result in real estate prices declining 10 to 20 percent across the country. ‘In the minds of lenders, the housing bubble has moved from ‘Loch Ness monster’ myth status to an economic reality that could have a significant, negative impact on the lives of many Americans,’ said Michael E. Jacoby.
A year ago, 46 percent of lenders believed we were in a housing bubble. Today, that number has climbed to 66 percent, and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20 percent.
When asked when they believed the housing bubble would burst, thirty percent of lenders said it has already begun to happen. Twenty percent predicted it would occur in the next one to six months, and 27 percent thought it would happen seven to 12 months from now. Nine percent said it would occur in 2007.
Among the 92 lenders who participated in this quarter’s survey, only nine percent said they did not believe a housing bubble existed. When asked which area of the country was likely to be most affected by a housing correction, 30 percent of respondents named the Northeast, followed closely by 27 percent who predicted the West Coast. Fourteen percent named the Southeast, and five percent, each, named: the Mid-Atlantic, the Mid-West, or said all regions will be affected equally.
Half of all lenders believe a housing correction will result in real estate prices dropping up to ten percent. Forty-three percent of lenders said the decline would be as high as 20 percent.
10 comments:
well at least the lenders have accomplished the first step- admitting there's a problem. But will they ever cop to their participation in the real estate debacle?
Slightly off topic, but I wonder if rent control in SF and Oakland will play a part in the housing bubble burst. Since rents cannot increase exponentially to bring the rent / price equation back into alighnment, I wonder if it's another nail in the coffin of high prices throughout the bay area?
trakz,
I would say that rent control has little to nothing to do with the bubble here. All parts of the Bay Area have the RE disease, while only SF and maybe berkeley and maybe oakland have the rent control disease. But it is only on older units, though that may still be 70% of the rental stock in those cities.
Further, they cannot increase rents exponentially since market rent in SF isn't really much different that in "choicer" areas like marin.
Rent control is idiotic in a lot of ways, but it only has a very minor effect on the area housing market in terms of elevating home purchases.
Lastly, in sf anyway, newly rented appartments are rented at market rate and only controlled from that point.
Athena,
I really don't think that's the way to approach this. I'm sure you would agree that everyone is entitlted to a profit? They are not doing anything unethical or taking advantage of anyone. Besides they get their rules and guidelines from the Federal Government.
So again, I'll state that everyone should use this to your advantage. Regardless of this silly blog and the thoughts we have this market is changing and dropping.
There is opportunity here...
Caddis
last year,when i brought up the bubble with lenders reps,or re agents i got terrified looks and shushed,but most would talk about it guardedly if sure they wouldnt be overheard...sure lenders bear a lot of responsibility,they come up with the products and underwriting standards,and also have seminars for loan agents to teach them how to sell the product....i have never explained how an arm worked to someone without their becoming concerned about the risk...it is a risky product,however i have had lots of people who refused to listen to an explanation....no joke,they explicitly told me they did not want to hear about risks
caddis -
I guess I sort of agree with you if I understood you right. My feeling is a "speculator" is someone who buys during a bubble; an "investor" is someone who buys during the bust.
Caddis- I can agree that there will be opportunities. Honestly I will buy a house if it is priced within what I think is reasonable for what I want... however, it will be a house I want to live in.
What I don't agree with is that I DO think that some lenders ARE in fact taking advantage of people. Maybe not as an intent of the industry, but I think there are pockets of thought who are aware they can make a loan to someone who is not an ideal candidate for a loan and know that they bear no responsibility because they will sell it and therefore suffer no consequences.
At first I was in disbelief when I would hear these stories, but they have become so prevalent with people sharing that they themselves couldn't believe they would be given such a huge loan and allowed to buy their mcmansion... so I DO think that is a problem.
I think that while the market is changing and there will be opportunities- there is going to be a lot of pain all the way around and we are going to know personally many people who are in further over their heads than we ever imagined.
Marinite said...
My feeling is a "speculator" is someone who buys during a bubble; an "investor" is someone who buys during the bust.
I would agree with you, except I would change the terminology a bit. In investing, they are called "weak hands" (speculator) and "strong hands" (investor). Weak hands are those who have highly leveraged assets; downturns cause selling-off to stay solvent. Strong hands (investors) have lower or no leverage that allows them to hold assets in downturns because they are still providing returns. However, it is a long-known fact that strong hands buy in down markets and sell in up markets while weak hands do the opposite.
BTW, I believe that the terminology originated from poker where weak hands would fold after a quick run on the pot to try to scare out strong-hands. The sad part about weak-hand investing is that it almost always ends in large losses because the euphoria of the first folds propels them to take bigger risks which then quickly turns into dispair and finally fear and loathing of the asset. That is when strong hands buy back in.
Such a colorful phrase... "fear and loathing of the asset."
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