We're Too Special for Bail-Outs

If there are to be mortgage bail-outs, it looks like the Bay Area won't get much or any of it; the Bay Area is just too special. But that's okay. I mean, who wants to be "bailed out" and trapped in their house when their house is worth less than their mortgage? Sometimes it is better to just jump ship and swim to shore than to be handed a designer life preserver while locked in your cabin.

Fannie Mae and Freddie Mac pledged at least $20 billion to help homeowners caught in the subprime meltdown, but those in the Bay Area could be left out.

The loan limit on government-sponsored enterprise loans for single-family homes in California is $417,000. The Bay Area’s median home price in March was $639,000, according to DataQuick.

Since the loan caps are made by the federal government, there’s little Fannie Mae or Freddie Mac can do, said Fannie Mae spokesman Alfred King. ‘It’s going to be tough in some areas like yours,’ King said.

‘It’s cruelly cosmetic for California,’ said Ed Leamer, director of the University of California, Los Angeles Anderson Forecast. ‘It’s just restructuring, not debt forgiveness.’ Leamer said that even $40 billion is too small to make a difference.

S & P/Case-Shiller/Futures Tool

The following chart is from the S & P/Case-Shiller/Futures tool over at the excellent Paper Money blog where you can also find a tutorial on how to use the tool (I've taken the liberty to annotate some of the chart's major features; but I think its message is self-explanatory); it may be the closest thing to a crystal ball that we have:

Compare with:

Subsidized Irresponsibility

Another perspective on the potential mortgage bail-outs (edited slightly from the original; emphasis mine):

There already currently exists, in place, fully staffed and funded a huge interlocking set of government programs designed to grant relief from too much debt. It is called bankruptcy. To subvert or undermine either the terms or stigma associated with bankruptcy is to fundamentally abandon the principles of capitalism, sense of fair play, and [the] mercantilistic honor system of taxation and commerce that have served our society so well. A FB [f***ed borrower] or FL [f***ed lender] bailout abrogates the contract with the rest of us who played by the rules. Ultimately the[re] is but one operative principle of government; Tax something, get less of it. Subsidize something, get more. Why on earth are we even considering subsidizing irresponsible lending/borrowing?

- Exurban Nation

More March Results

I'm really tired today so I'll make this quick.

The start of the spring selling season is not looking so great in Marin. Here is Vision RE's data to start things off:


Dang! There are a lot of negative numbers in that table.

And I think it's cool that Vision RE is now hinting at some of the problems with the DOM statistic. Is it possible that this blog has actually had an effect?

The days on Market have been stable for the past few months at approximately 90 days. These numbers are deceiving because the Multiple Listing Service does not “Accumulate” Days on market when a listing has been removed for 30 days and then re-listed. It is important as a buyer to get an analysis of the listing history of the property so you know the marketing timeline of the home.

There are good reasons homes are removed from the market, including restaging, holiday’s etc. Sometimes when a home has been on the market for more than 100 days a rest is needed so the listing agent and the owner can regroup and decide on the next steps to get the house sold. When it re-appears you might see a new list price but not always.

Again, I think the DOM should only reset if there has either been a long period of time between when the house was taken off the market and when it was put back on (say six months or so) or if substantial changes to the house have been made during the intervening period such that it is fair to consider it a "different" house (e.g., new floors, new roof, remodeling, new landscaping, additions, etc.).

Anyway...

The Marin Heat Index isn't looking so hot (recall that a reading of 0.80 and below is considered a so-called "buyer's market"):


All of this is consistent with my previous suggestion that DataQuick's results are now likely biased (in the statistical sense) in the everything-is-fine direction.

On a side note, I ran into one of my real estate agent "friends" the other day. About a year or so ago we had a friendly argument about which direction the Marin market was heading. It should come as no surprise to you that I argued in favor of the not so positive direction for all the reasons you will find on this blog. She, quite naturally, disagreed. Well, she came up to me the other day rather embarrassed and said "you were absolutely right" (about the market direction in Marin). Very gratifying (but it's been a friendly debate). Interestingly, she volunteered to me that the subprime "meltdown" has been having a significant impact here in Marin; the lower end is not selling too well and the move-up chain is breaking. This is consistent with what Vision RE says way down in their report:

Demand in the entry-level market has fallen, which will impact the move-up market. The million dollar plus market is pretty much immune to the sub-prime mortgage tightening.

But I would say that it is really the two to three million dollar plus market that is immune; I suspect a lot of the so called "Alt-A" loans found their way into the million to two million dollar Marin market. Somewhere on this blog (here's one, here's another; I know there was another one [note to self: must start using labels]) I have a break-down of the large number of "toxic" loans and "liar's loans" that were made over the last few years in the Bay Area.

But anyway, this is precisely why it can be that prices are coming down while the county median/mean price stays flat or increases slightly. As fewer and fewer "lower end" houses sell, more and more of the selling activity is concentrated in the more expensive houses. Thus the overall county average/median goes up but the sorts of houses that more typical families buy either don't sell or sell at a discount. Sooner or later, the houses that don't sell and that must sell will be sold at steeper discounts -- this mess with the housing bubble simply isn't going away any time soon. So I expect that as the situation worsens with time we will start to see the county median/average being impacted in a more serious way.

But what do I know? My crystal ball is as good as yours. So share your thoughts.

It's Snowing in Hell

So let me see if I've got this right. After having to endure over the last few years the relentless lying, manipulating, shilling, and outright deception by the NAR, the vast majority of it geared towards making the claim that there was only a snowball's chance in Hell of the national housing market falling, we now learn that the NAR is admitting that the national housing market will fall for the first time since like forever. (Ripley expresses my thoughts the best on this one.) And yet the economy is supposedly doing great, jobs are a plenty, yadda yadda. What could it mean? The real estate industry disgusts me.

From the Motley Fool:

You just know the housing situation has gotten bad if the six-percenters at the National Association of Realtors finally feel the need to reveal the awful truth: Prices are going to fall. The latest verbiage from the world's most vocal housing-bubble cheerleader, NAR economist David Lereah, actually predicts that home prices will drop by 0.7 % in 2007.

Of course, you wouldn't know that to read the headline, which, as usual, paints the fantasy that everything is always good for housing. In other words, it's exactly what you'd expect from a guy who's been shilling housing not only in press releases for his trade group, but in misguided books like the wonderfully timed (from 2005) Are You Missing the Real Estate Boom?, the failed broadside against the skeptics Why the Housing Boom Will Not Bust (from 2006), and the still later "oops-I-better-tweak-my-lousy-thesis" response, All Real Estate is Local. (By the way, this blog post tells a tale of Lereah's real estate investment prowess these days.)...

Fools, what bubbles up must eventually come down. It would just be nice if Lereah, the mortgage bankers, and the rest of the crowd would recognize the monster they've made and make real amends. But don't bet on it. Their paychecks depend on the myth of housing as an investment, rather than a sound living choice if purchased at the right price.

And if the lying NAR isn't bad enough, if the CAR's shilling in Marin and the Marin Association of Realtors' propaganda blitz didn't make you sick, well, guess what? Now the NAR is going to redefine how they calculate the median sale price so that the market's ills don't look so extreme:

U.S. realtors are predicting that house prices will tumble this year for the first time since the 1960s...

And in sharp contrast to assurances from Federal Reserve Board chairman Ben Bernanke, the National Association of Realtors acknowledged yesterday that the subprime lending collapse is already causing banks to tighten lending standards, and that it will prolong the housing slowdown...

The value of homes in some of the country's priciest markets are now falling by double digits, easily overwhelming broader price increases in many more cities where homes cost less...the median price is being driven down by sharp declines in some of the hottest markets during the long housing boom...

"We've never seen a distortion of this effect. . . . This is a weird event," NAR spokesman Walt Molony said.

That's because house prices are rising in a vast swath of the country, including much of the mid-Atlantic, the Northeast, Midwest and Texas.

Mr. Molony said the distortion is so significant that the NAR is working on an adjusted median price to better reflect what's actually happening in most of the country.

NAR has also scaled back its estimate for the volume of sales, which will see an uncharacteristic retreat.

Can you believe that? You should. They did it before with the redefinition of the calculation of affordability* to make housing look more affordable than it is under more traditional calculations.

Clearly, the real estate industry's modus operandi is:

"If there is no way to spin the data in our favor, then change the way we calculate the data until we get the numbers that we like."

Are you mad yet?

This has become a war. A war of perceptions. We have the lying, manipulating, corrupt real estate industry on the one side. And on the other side is the American buying public and our communities. Which banner are you going to rally behind?

And truly, how healthy can a market really be when it is highly dependent on belief and perception and the manipulation thereof?

People in Marin are not particularly religious, that's a fact, but they know all about militant blind faith.

*Thanks Chuck, Lander for the link.

Some March, 2006 Results

I know I said I wasn't going to use DataQuick's data so much any more, but look at Marin. It's flat for March, 2007. Slightly negative in fact. Recall the changes in how DataQuick calculates the median and then realize that negative appreciation is probably worse; worse for small counties like Marin but not for larger counties like Sonoma.

But appreciation is flat? In Marin? What about that big 'ol 10% jump in appreciation in January that some of our RE trolls wet their undies over? And this is the beginning of the infamous Spring selling season. Is -0.1% a harbinger of things to come?

And I'll throw this one in for free. I know I've said it before...but how can it be that median county-wide sales price can rise in a down market? Why isn't that paradoxical? Because the higher end still sells while the lower end does not. In fact, every single house that sells can be selling at a price reduction and yet still the county median can go up if the net proportion of more expensive houses that sells is greater than the lower end. It's just something to keep in mind and a big reason why people should not put much weight into the reported county medians. I don't, but since most people do you find it talked about on this blog. And as this down market progresses and as lending tightens, that line separating the "lower end" from the "higher end" rises. Sooner or later it will become obvious in Marin. It just takes longer here because prices are so much higher to begin with; the low end for us is the mid to high end for others:

The Union Tribune reports from California. “Sales of San Diego County homes in March dropped to their lowest level since 1995, but prices bounced back, DataQuick reported. There were 3,218 sales, up 12.4 percent from February, but sales were down 26.3 percent from a year ago, the biggest year-over-year decline for any March since 1995.”

“It was also the 34th straight month to show year-over-year sales volume drops.” “DataQuick President Marshall Prentice said in a statement that the medians are rising because of a drop off in starter home sales in Southern California.”

And I better throw this one about inventory into the mix too; sorry to be in such a rush:

Home inventory is on the rise in the San Francisco Bay Area. During the month of March, Bay Area home listings increased at one of the highest rates in the nation. The large amount of inventory could cause prices in the Bay Area to fall even further.

San Francisco Bay Area homes are selling at the slowest rate since 1996, and unsold inventory is on the rise. But that isn't stopping anyone from putting their home on the market.

According to a survey by ZipRealty, home listings in the Bay Area increased at nearly double rate in March. In fact, the Bay Area had one of the highest increases in all of the metropolitan areas surveyed-second only to Los Angeles.

In all, the number of home listings increased 12.2 percent in March compared to the previous month. That's almost twice the 6.5 percent average increase recorded for the other metropolitan areas.

According to the California Association of Realtors, the increase in home listings between February and March usually averages somewhere around 2 percent.

Real Estate Roller Coaster

US Home prices adjusted for inflation plotted as a roller coaster the graph is here: http://www.speculativebubble.com/videos/real-estate-roller-coaster.php