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Housing by the Numbers

A brutal piece in Comstock Funds is highlighted in Marketbeat today. The Comstock boys ask "Is the Housing Hard Landing Already Here?"  (Their answer is a resounding yes).

Here is Housing by the numbers:

• 32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000

• 43% of first-time home buyers in 2005 put no money down.

• 15.2% of 2005 home buyers owe at least 10% more than their home is worth.

• 10% of all home owners have no equity in their homes

• $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.

• 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.

• Homeowners face higher payments as mortgages are reset.  Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.

• According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.

• The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.

• New home sales are down 22% and existing home sales down 11%.

• The NASB housing market index has recorded an all-time decline.

• The housing affordability index is at a 15-year low.

• The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.

• The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001.  From 1976 to 1996 it never was above 220.

• According to the NAR the year-to year prices of existing homes are now flat.  A short time ago they were rising at a yearly rate of 16%.

• Nationally, home prices have not declined on a year-to-year basis since 1933.  Recently, however, prices have been dropping in the North East, West and Mid-West. 

• Sales incentives are now estimated at 3% to 7% of selling prices.

Wow -- that is some soft landing you got there . . .

 

Source:
The Hard Landing For Housing is Already Here
Thursday, September 14, 2006
Comstock
http://tinyurl.com/f56sh

Friday, September 15, 2006 | 04:05 PM | Permalink | Comments (66) | TrackBack (1)
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Comments

When you east-coasters say Mid-West... do they mean Ohio or the REAL midwest... (the states west of the mississippi and east of the rockies)?

I live in what I consider the real midwest and between St. Louis and Denver, there aren't many markets that had any sort of housing inflation (relative to real inflation). Though many new homes are now coming with discounts, often times the discounts are still putting it pricier than the cost of the house one year ago. Looking at housing prices in Memphis, STL, Omaha, Kansas City, OKC, etc.... housing prices are stable or slightly up... and almost identical to inflation for their relative areas.

Posted by: Chad K | Sep 15, 2006 4:39:58 PM

I forgot...

I agree... bubble -- burst -- big. However, being that the bubble itself was a set of regional bubbles, I don't see places like Houston, where houses are super-cheap relative to the rest of the country, dropping in value. However, being that some major metropolitan areas has huge housing bubbles... certain the overall trend will be down.

Posted by: Chad K | Sep 15, 2006 4:43:28 PM

From my latest visit to India, I can tell you that the housing bubble is truly a global phenomenon.

I was struck by how many new condos were "dark" at night - i.e. not occupied by its owners. In India with its huge population density and chronic acute housing shortage, this would be unthinkable a few years ago.

On the flight back I was told the following get-rich-quick scheme by the guy in the next seat:

1. In a new housing construction, book three condos before the construction even starts.
2. 6 months later as the construction nears completion, two of those condos have appreciated enough to pay off the third condo.
3. Sell off two condos, and the third one is free.

Rinse, Repeat.

Also - if you think the cost of ownership to rent ratio is too high in the US, the numbers in India will boggle your mind. Houses that rent for Rs. 10000 would cost at least Rs. 50000 in mortgage payments monthly. This inspite of the fact that Indian real estate investors consider renting condos out as risky due to fear of damage and poor law enforcement for eviction etc.

To complete the global picture, consider this - in one of the condo buildings I surveyed in Pune (near Bombay), the builder told me that 50% of the condos were sold to US investors who used, wait for it, HELOCs in their US properties to buy property in India.

Posted by: digger | Sep 15, 2006 5:04:44 PM

Drawing comparison to the 1980's Savings and Loan bankruptcy problems and later recession/bear market, it seems this housing bubble pop will eventually carry over into bad loans/residential bankruptcies. When the economy/Federal Reserve/Congress has to adjust to the housing bubble bad debt, it seems then will the bear market will be in full force. The problem is in the timing when this will occur.

Posted by: MDDwave | Sep 15, 2006 5:08:59 PM

When I was about 12, somebody gave me a water rocket for my birthday.

It was one of the kind that had a hand pump that you attached to its base.... directions said to put maybe a tablespoon full of this powder that came with it (I know now it was baking soda) and a small dash of another packet (citrate) into the rocket, then fill it with water, mix, and pump the hand pump 6-9 times.

Well.... I put maybe 3 tablespoons of the baking soda along with probably half the packet of citrate in (plus I squeezed some orange pulp into it as well), and then I pumped it maybe 30 times. It was humanly impossible for my 12-year-old self to make the 31st stroke.

You'd just have to know me to understand.

My younger brother, who was smarter than I, had already figured out that something big was gonna happen, and he disappeared from the scene, to watch me from a safe distance as I attempted to trigger the device.

It wouldn't trigger. The pressure was so great that I couldn't make the thing trip the switch. I pushed and pushed and pushed again... nothing.

It's a lot like waiting for the housing market to impact the economy... maybe it will and maybe it won't. We aren't capable of knowing that yet.

Finally... I was able to trip the switch and I got a mouth and eye full of mixture... and I never found the rocket... ever... and I looked for hours around my house.

Posted by: Eclectic | Sep 15, 2006 5:11:26 PM

"It's a lot like waiting for the housing market to impact the economy... maybe it will and maybe it won't. We aren't capable of knowing that yet."

I guess some people just have to see it to believe it.

Posted by: Danielle | Sep 15, 2006 5:32:11 PM

I can confirm what digger says.

I bought a 1200 plot for 400,000 Rs in 1997. My brother tells me that it would go for 3,000,000 Rs today.
THis is in bangalore- the silicon valley of india.

People seem to be flipping homes, condos everywhere. A cousin in b'lore bought 1200 sqft condo for 22,00000 Rs. He would not live there since he lives with his mother and brother. But rent for this condo would not cover his mortgage. But he must have paid lot of cash upfront and hence it does not matter. he is in software industry and gets paid gobs of money, i guess.

Posted by: desidude | Sep 15, 2006 5:49:39 PM

Chad K, all other thins equal, sure, Houston might not have a problem. But ask yourself this - when you have bubbles in a few handfuls of markets that constitute probably 60% of the US housing market capitalization, and those markets simultaneously pull back what could easily be 25% (if not 50%, if things really go the way they seem to be going), what is going to happen to the rest of the economy, seeing that it is 70% consumer spending, housing construction is already in recession, govt spending is already totally out of control, the US dollar needs high rates to avoid a collapse, especially if imports slow, and monetary policy is still barely above neutral. Take a look at the freddie mac cash out refi numbers, and the HELOC numbers, where they are now, vs where they are in a realistic housing market. Imagine some small share of that being spent. THen think that the freddie numbers woefully understate the issue, because they are on conventional loans. Look how meager job growth is already, and think about where business investment and employment gains are likely to head when the consumer side slows.

Put it all together, and then ask yourself, why would Houston, or any other place, escape unscathed, when the whole economy slows?

If you can find a plausible way that you can have a bunch of regional housing market bubbles burst, and still see consumer spending go on as if nothing happened, despite the reality of the next two years of mortgage resets, where so many of those homeowners will have loans that are under water, please, be my guest. Id love to hear how this happens. Does the saving rate go to -10%? Do people cash out even more of their 401ks, than the scary high percent that are already doing so? Does the stock market rise when CFOs are cuting back capital investment and domestic demand is flagging?

Posted by: Geoff | Sep 15, 2006 6:03:20 PM

If it's already here, then we have nothing to fear. But, I don't think that's what he means.
Now back to watching taped testimony by the NAHB, NAR & FDIC to the Senate Banking sub-Committee on C-SPAN

Posted by: Larry Nusbaum | Sep 15, 2006 7:37:06 PM

These are great comments that prove that we are nearing a singularity that’s going to suck in everything. Hang on! Nobody can escape this one.

Posted by: touche | Sep 15, 2006 7:54:58 PM

I guess it depends on the definition of "hard landing." If that means a recession, or some people defaulting, or home prices dropping slightly, then yes, we are probably having a hard landing.

If "hard landing" means a return to Hoovervilles and depression conditions (which is not far from what I've heard some fund managers say), then I think this is a soft landing.

Posted by: DonV | Sep 15, 2006 8:15:14 PM

follow the lenders (lending): It's not a problem with A.R.M.s in general, because they are great vehicles for financing real estate, especially 1-4 unit properties.
It's the world of Option-ARMs in particular and the way they sold and then underwritten.
According to the FDIC. they have no way of knowing how many 100% borrowers are out there and I believe them. It's because two loans were created to get to 100% (an 80% first and a 20% second, usually in the form of a HELOC)
Sub-Prime lenders and borrowers are facing some bad "Options", but not all.

Posted by: Larry Nusbaum | Sep 15, 2006 8:21:08 PM

In the Chicago area, there are already ads aimed at those who should be switching from ARM's to fixed rate. Since the 10-year has behaved well, these rates are still in the 6 to 6.25 range, but that might still price out buyers who are in on a shoestring.

Posted by: oldprof | Sep 15, 2006 8:23:40 PM

oldprof : IF A BORROWER IS FACING A "RESET" AND IS ON A SHOESTRING, MAYBE THEY SHOULD GET ANOTHER 5 YEAR OPTION-ARM?

Posted by: Larry Nusbaum | Sep 15, 2006 8:35:50 PM

And don't forget: all those mind-bending housing stats were driven with ZERO REAL INCOME GROWTH.

Posted by: Vega | Sep 15, 2006 8:59:32 PM

Vega: we haven't had "REAL INCOME GROWTH" in 35 years......

Posted by: Larry Nusbaum | Sep 15, 2006 9:03:11 PM

Danielle,

I tend to believe the housing market will impact the economy, and I will believe it when I see it. But, until it does, it's only a theory.

Here's the story: It's Mauldin to Minter to Ritholtz to Fleckenstein.... it's like you're wanting to get into a club and the secret handshake also requires you to recite an excerpt from the ritualistic tome on housing.

M-M-R-F: "Now, when did you say NASB recorded an all time high, hmmmm?"
Potential clubmember (PC): "I... I... but... I can't r-em-e-m-be--rrrr!"

M-M-R-F: "You call yourself a member of this club, do you?"
PC: "Well, yeah... I thought I did, but I'm not so sure.. not now...."

M-M-R-F: "Shaddup!... Look, let's try again... see if you can get this one!"
PC: "oKaa-a-Y...."

M-M-R-F: "Alright, listen up!... If you were onE of tHe 32.6% that bought a house from one of the 43% that couldn't make their payments and, well, and then if you took 15.2% of $2.7 trillion... but then you got foreclosed on... err... uh, yeah!... that's right, you Got fOreclosed on, then would you... uh... would you be able to convert to a fixed?"
PC: "Stop it!.... stop it... I cAn'T taKE it any morE!.... I don't knowwwwww!.... Oh, I don't want to join any-morrreee!" (exiting)

M-M-R-F: "Weak-minded unbeliever!"

Posted by: Eclectic | Sep 15, 2006 9:21:25 PM

Housing Bubble blogs are two and three years old! LMAO!
example: http://patrick.net/housing/crash.html#hitlog

Posted by: Larry Nusbaum | Sep 15, 2006 9:24:12 PM

• 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.

LOL! They also have a bit of equity as well.

Posted by: Larry Nusbaum | Sep 15, 2006 9:35:40 PM

Real estate market: YOU NEED ME ON THAT WALL. YOU WANT ME ON THAT WALL.

Posted by: Larry Nusbaum | Sep 15, 2006 9:39:02 PM

Some of you guys oughta not post after you've started drinkin...

Posted by: Bob A | Sep 15, 2006 9:52:01 PM

"Some of you guys oughta not post after you've started drinkin...
Posted by: Bob A | Sep 15, 2006 9:52:01 PM"

YEAH, ESPECIALLY THOSE RENTERS "PREDICTING" A BUBBLE FOR THE PAST 4 YEARS!

Posted by: Larry Nusbaum | Sep 15, 2006 10:00:57 PM

Larry

does anyone ever read your blog ?????

Posted by: BC | Sep 15, 2006 10:29:52 PM

I have no idea, BC

Posted by: Larry Nusbaum | Sep 15, 2006 10:48:41 PM

BC: my blog is not a "sky is falling" blog. Sky is falling is what is hot right now. Have at it!

Posted by: Larry Nusbaum | Sep 15, 2006 10:50:25 PM

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