Housing won't hit bottom 'til 2012

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Submitted by briansd1 on December 13, 2010 - 1:30pm

Sounds about right to me:

Burns, the economist, believes that the housing market overall is headed back toward 2002 price levels, on grounds that the gains seen over the last year or so will be reversed as a new flood of foreclosures and short sales hit the market.

That would mean a small retreat for the general market, in which prices are now at 2003 levels. It would be a more dramatic downturn at the high end, where prices are about where they were in 2005. He predicted they won't hit bottom till 2012.

Real estate agents say one reason the high-end market has taken longer to reach bottom can be summed up in one three-letter word: ego. Wealthy sellers may not need the money and refuse to reduce their price for fear they'll look like they are in financial trouble, said Bob Hurwitz of Hurwitz James Co. in Beverly Hills.

http://www.latimes.com/business/la-fi-lu...

Submitted by ocrenter on December 13, 2010 - 2:31pm.

what else is new.

another article in MSM affirming what was already articulated on the blogosphere couple of years ago...

Submitted by deadzone on December 13, 2010 - 2:38pm.

No crap, if you pay attention to the ARM reset charts it has been obvious for a few years now that there is no chance for a real housing bottom until at least 2012. The bulk of the ARM resets occur in 2011 and 2012. So regardless of interest rates and other factors, there is no chance for a real recovery to begin until those ARMs (aka foreclosures) are out of the system.

Submitted by briansd1 on December 13, 2010 - 2:47pm.

ocrenter wrote:
what else is new.

another article in MSM affirming what was already articulated on the blogosphere couple of years ago...

True. Nothing new.

But it's nice to be vindicated. ;)

Submitted by briansd1 on December 13, 2010 - 2:52pm.

deadzone wrote:
No crap, if you pay attention to the ARM reset charts it has been obvious for a few years now that there is no chance for a real housing bottom until at least 2012. The bulk of the ARM resets occur in 2011 and 2012. So regardless of interest rates and other factors, there is no chance for a real recovery to begin until those ARMs (aka foreclosures) are out of the system.

Yeah, deadzone. The resets are what we need to watch -- not necessarily interest rate resets, but resets to include principal paydown.

An aquaintaince of mine is about to walk on her house because her interest-only loan resets next year. Back then she was so sure that buying was the right thing.

Submitted by scaredyclassic on December 13, 2010 - 3:12pm.

I personally am going to hit rock bottom in 2016. Then according to most research I should begin to cheer up as middle age passes and I become old.

Submitted by carlsbadworker on December 13, 2010 - 3:17pm.

briansd1 wrote:
...a new flood of foreclosures and short sales hit the market.

Really? My patience is running out.

Submitted by permabear on December 13, 2010 - 3:21pm.

briansd1 wrote:
An aquaintaince of mine is about to walk on her house because her interest-only loan resets next year. Back then she was so sure that buying was the right thing.

But what is her payment going to reset to?

Interest rates may well be lower than her existing fixed-rate. LIBOR with spread is at around 3% right now. Has she called the bank to ask what her new payment is going to be? Even with principal it could be lower.

I'd be curious to hear whether it's going to go up or down. I have several coworkers who were freaking out, but then their payments went down rather than up.

Submitted by deadzone on December 13, 2010 - 3:46pm.

I would be curious to hear of a real example of someone with an interest only ARM who will have lower payments when it resets. If someone has an example, could they please share the math? Presumably when your LTV is below some threshold there is an additional payment shock (recast). Certainly anyone who purchased during the bubble with interest only is at least 20% underwater, most likely much more. I assume there is also no re-financing options available in this situation correct?

Submitted by sdrealtor on December 13, 2010 - 4:13pm.

My best friend had a 5/1 ARM that reset last year. He doesnt have any equity but isnt underwater either. He makes plenty of money, comes from a wealthy family and has plenty saved so he isnt worried at all. The reduction in his monthly payment was enough to make the monthly payments on his new BMW.

Submitted by sdrealtor on December 13, 2010 - 4:18pm.

Articles like that are written to sell newpapers and are pretty meaningless. What does it mean when they say high end prices are about where they were in 2005? It doesnt mean anything to my client who is in escrow on a prime coastal property at what is a 2000 and possibly a 1999 price. We are already close enough to a bottom. There is no point in time when everything magically hits bottom. There is a period of time where the smart buyers can go out armed with knowledge, money and a great agent to make their own bottom. That time is now and will persist for a few years. That is were the big winners will be found. Those of you sitting out there waiting for some magical moment will not be among them.

Submitted by ucodegen on December 13, 2010 - 4:31pm.

briansd1 wrote:
Yeah, deadzone. The resets are what we need to watch -- not necessarily interest rate resets, but resets to include principal paydown.

Just a slight technicality:
reset = Interest rate change - like with an I/O or amortizing loan that tracks LIBOR or Prime.
recast = When an I/O mortgage becomes fully amortizing. The recast signifies a change in the 'structure' of the loan and not just the interest rate. Mortgage modifications or loan modifications are sometimes known as recasts - particularly if I/O to amortizing or amortizing to I/O.

Submitted by briansd1 on December 13, 2010 - 4:51pm.

permabear wrote:

But what is her payment going to reset to?

Interest rates may well be lower than her existing fixed-rate. LIBOR with spread is at around 3% right now. Has she called the bank to ask what her new payment is going to be? Even with principal it could be lower.

Here's my acquaintance's situation. I won't call her a friend because acquaintance is a better word.

The mortgage balance is $345,000
Monthly interest-only payments at $1,725 6% fixed, not adjustable.
Recast (edited from reset per ucodegen's post above) to $2,472

The place is valued at about the loan balance (on a lucky day) so no refi possible.

Her heart is not in the place anymore so I'm telling her to walk. She's going to try to buy something else first, then walk. Hell, why not?

permabear wrote:

I'd be curious to hear whether it's going to go up or down. I have several coworkers who were freaking out, but then their payments went down rather than up.

If they have adjustable rates, then they might be OK. Until rates move up. Hope they have enough equity and good enough credit to refi before rates jump.

We'll see how long the government is able to keep rates low.

Submitted by briansd1 on December 13, 2010 - 5:04pm.

sdrealtor wrote:
There is a period of time where the smart buyers can go out armed with knowledge, money and a great agent to make their own bottom.

I wonder... was there a time during the peak, when you said that now is the wrong time to buy? Or were you selling the "you've gotta pay for your lifestyle" ideal back then too?

sdrealtor wrote:

That time is now and will persist for a few years.

I think that "persist for a few years" it the key here, unless you're a hen about to lay an egg. ;)

Submitted by sdrealtor on December 13, 2010 - 6:03pm.

I sold very few homes to buyer clients around the peak. i told tons of people to rent and wait. I told clients to sell and rent for a few years. Now I am telling those same clients its time to start looking to buy.

The persist for a few years is the key but that doesnt mean wait a few years and then head out. The best deals are very elusive. The house my client is getting is the kind that stays in a family forever and only rarely do properties like this hit the market at any time or any price. If you arent looking now and arent ready to strike when that opportunity presents itself (which could take a couple eyars of work to find) it is very unlikely you will be among the truly big winners in this cycle.

Submitted by desmond on December 13, 2010 - 6:12pm.

"Those of you sitting out there waiting for some magical moment will not be among them"

That is your opinion and is no better than the guy "trying to sell newspapers". "Magic" has nothing to do with anything, another cheap worthless comment by you.

Submitted by scaredyclassic on December 13, 2010 - 6:35pm.

Obviously noone knows the future. But I think it may be true that finding the right place at a good price w good interest rate takes work time And knowledge about what you want and luck much more so than I wouldve thought. Simply waiting for the bottom is an exercise in futility, since it too is impossible to know.

Submitted by sdrealtor on December 13, 2010 - 7:00pm.

It may be an opinion but it is a very educated opinion from someone who isnt selling anything to piggs. I'm not here trolling for business only offering free advicxe to people I have enjoyed sharing the last few years conversing with. It is neither cheap nor worthless advice. It is hard work to find a great opportunity and there are far too many eyes watching this market for one to drop into someone's lap. Great deals dont just happen they are created through hard work and patience. If you arent diligently watching the market and educating yourselves you wont find one and if you do you would be unlikely to recognize it.

ocrenter is perfect example. He bought his house at a time no one thought was a bottom but he found his own. The time to get what he got is past but he saw it and had the confidence to act because he was diligently watching the whole time.

Submitted by jpinpb on December 13, 2010 - 8:21pm.

sdrealtor wrote:
ocrenter is perfect example. He bought his house at a time no one thought was a bottom but he found his own. The time to get what he got is past but he saw it and had the confidence to act because he was diligently watching the whole time.

I could be very mistaken, since I don't know where ocr bought, but something tells me it wasn't a high-end luxury home along the coast. I think there's still room to drop as the article alludes, especially the high-end. Already seeing some drops in 92106 that I didn't see last year.

Submitted by bearishgurl on December 13, 2010 - 8:22pm.

sdrealtor wrote:
The persist for a few years is the key but that doesnt mean wait a few years and then head out. The best deals are very elusive. The house my client is getting is the kind that stays in a family forever and only rarely do properties like this hit the market at any time or any price. If you arent looking now and arent ready to strike when that opportunity presents itself (which could take a couple eyars of work to find) it is very unlikely you will be among the truly big winners in this cycle.

For ONCE, sdr . . . I agree. I've experienced a few "cycles" in my lifetime and always have known this. I've tried to articulate this concept here, but feel it may have fallen on deaf ears :={

Submitted by bearishgurl on December 13, 2010 - 8:26pm.

walterwhite wrote:
Obviously noone knows the future. But I think it may be true that finding the right place at a good price w good interest rate takes work time And knowledge about what you want and luck much more so than I wouldve thought. Simply waiting for the bottom is an exercise in futility, since it too is impossible to know.

scaredy, totally agree here. And I am happy for you that you found the confidence in the face of uncertainty to ACT on a property that will suit your needs for a VERY LONG TIME to come. Congratulations, again!

Submitted by deadzone on December 13, 2010 - 8:32pm.

sdrealtor wrote:
My best friend had a 5/1 ARM that reset last year. He doesnt have any equity but isnt underwater either. He makes plenty of money, comes from a wealthy family and has plenty saved so he isnt worried at all. The reduction in his monthly payment was enough to make the monthly payments on his new BMW.

Is this interest only? If so, how can he not be underwater? I am still waiting for an example of an interest only loan made during the bubble where the payment went down.

Submitted by bearishgurl on December 13, 2010 - 8:46pm.

jpinpb wrote:
. . . I think there's still room to drop as the article alludes, especially the high-end. Already seeing some drops in 92106 that I didn't see last year.

. . . jpinpb, I too, saw this when Pigg jstoesz brought this issue up last week on another thread. But even so, I'm sure you're aware that, in 92106, a property even NEXT DOOR to an extremely desireable property (for my purposes) may not be ANYWHERE NEAR AS DESIRABLE as its neighboring property. It all depends upon lot size, topography of lot, and most of all, the way the structure is facing/tilting towards, as to allow for a possible sit-down SD dtn skyline-view. If the property is situated correctly, but facing towards a lesser view (i.e. Pt. Loma Lighthouse or Sea World) and cannot be remodeled to orient correctly due to land elevation, structure limitations or easements, then, to me, it would not be suitable for my needs or be a "knockdown." Since a "knockdown" would add considerable $$ and headache to a potential remodel, it would totally justify or may not even be worth its lower asking price . . . to me. IMO, in 92106. you pay for exactly what you get, nothing more, nothing less.

To me, 92106, in and of itself, is not particularly "desireable." A sit-down dtn SD view from inside the living area makes it so.

Submitted by jpinpb on December 13, 2010 - 9:07pm.

BG - just going by what I've seen last year versus now compared to the bubble price. Not talking about view or fixers. Just noticing the decline in prices in areas that were holding up last year. Some listings were holding on to wish-upon-a-star prices and have had to deal with reality and reduce.

Submitted by bearishgurl on December 13, 2010 - 9:48pm.

brian, in regards to your original post, I read the LA times article and I believe the bottom has not hit on those areas that have several/many owners who purchased or took back a property in foreclosure in the last 10 years who now find themselves NEEDING to sell.

In areas where not much has sold in the last ten years and/or few properties were "cashed-out" in a refi or "heloced," the bottom has already passed or is currently passing. I believe all residential RE in CA (especially in non-tract areas) is situated in a "micro-market." Each "micro-market" creates sales comps for itself, however far and few between.

Potential buyers who think a "stable area" (as referred to in the paragraph directly above) will cave in value in the coming years (from today's prices) will experience a huge letdown stemming from missed opportunities in sitting on the sidelines waiting for miracles that will never happen.

And yes, I still consider myself a pragmatic "bear" :=]

Submitted by bearishgurl on December 13, 2010 - 9:20pm.

jpinpb wrote:
BG - just going by what I've seen last year versus now compared to the bubble price. Not talking about view or fixers. Just noticing the decline in prices in areas that were holding up last year. Some listings were holding on to wish-upon-a-star prices and have had to deal with reality and reduce.

Agreed, but if some of these "reduced" properties had a present or potential "sit-down skyline view" to offer from INSIDE the "living areas" of the home to offer (NOT a "peek" view out a corner bathroom window, lol), they wouldn't have had to reduce to this degree. In 92106, the value is COMPLETELY DEPENDENT upon the "amenities" of the individual property.

Submitted by bearishgurl on December 13, 2010 - 9:32pm.

In a nutshell, what I am trying to convey here, is that in areas where sellers can hang on indefinitely (i.e. areas with many "prop-13" owners w/zero encumbrances and few "distressed properties"), the "bottom" has passed. I'm not saying these values will now skyrocket but don't expect them to go down, either.

There are MANY micro areas in SD County which fit this criteria. It doesn't have anything to do with current value of these properties. It only has to do with whether they will go down some more. IMO, the answer to this is NO.

Submitted by GH on December 13, 2010 - 9:43pm.

We are now five years off peak, and have finished the first dead cat bounce. I give it till 2016 or later depending on how bad things get in other areas of the economy. For better or worse, it looks likely that we will have a republican Senate, Congress and President in two years. It seems better when we have a deadlock situation.

Submitted by deadzone on December 13, 2010 - 9:44pm.

Can you give some specific examples of these "micro areas" where you think the bottom as passed?

Submitted by sdrealtor on December 13, 2010 - 10:17pm.

deadzone wrote:
sdrealtor wrote:
My best friend had a 5/1 ARM that reset last year. He doesnt have any equity but isnt underwater either. He makes plenty of money, comes from a wealthy family and has plenty saved so he isnt worried at all. The reduction in his monthly payment was enough to make the monthly payments on his new BMW.

Is this interest only? If so, how can he not be underwater? I am still waiting for an example of an interest only loan made during the bubble where the payment went down.

Actually it is an interest only loan. He put 10% down and has since paid off his 10% second. HIs first is interest only and went down several hundred dollars a month when the 5/1 arm reset at a much lower rate. I keep telling him to go to a 30 yr fixed but his payment is so ridiculously low he cant see straight to doing it. His mortgage is less than 1/2 what his property would rent for.

Submitted by sdrealtor on December 13, 2010 - 10:22pm.

jpinpb wrote:
sdrealtor wrote:
ocrenter is perfect example. He bought his house at a time no one thought was a bottom but he found his own. The time to get what he got is past but he saw it and had the confidence to act because he was diligently watching the whole time.

I could be very mistaken, since I don't know where ocr bought, but something tells me it wasn't a high-end luxury home along the coast. I think there's still room to drop as the article alludes, especially the high-end. Already seeing some drops in 92106 that I didn't see last year.

I am not talking about general price levels dropping I am talking about finding oneself a remarkable property and a remarkable deal. I think ocr found one and thats all I say on that topic. They are out there now but very hard to find. If you are not looking for them constantly with laserlike focus you wont find one.

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