Wednesday, October 28, 2009
Realty Alliance Discussion
Realty Alliance Discussion
Good News/Bad News
Good news: AMERICANS LOVE REAL ESTATE We live in it, we like to talk about, fix it up, watch it on TV We really like our Housing
I am son of real estate agent, I own 2 homes in NYS, I enjoy Real Estate.
1929 Crash (80th anniversary) breakeven until 1954
Diff between RE/Stocks: Outside of Love Canal and Detroit, RE goto 0
6th inning You know when its in the Onion, EVERYONE is aware: Thousands Of Abandoned, Foreclosed Homes Threatened By Florida Hurricane
Bad news: We are addicted to the easy fix. Zero Interest rates, FHA No money down,
Just as You cannot Drink yourself sober, you can not "easy credit your way back to a healthy real estate market!
If you want to sell some homes, if you want to see a healthy real estate market, you need to get real.
1) ABDICATION OF LENDING STANDARDS
1 Million BC to 2009 ß 2002-2007 à
Borrowers ability to repay Lenders ability to sell to Securitizers
a) Liar loans, No doc NINJA
-Grape picker in California making $14 k $750,000 Mortgage
b) 90 day warranty
c) Securitized Loans Are 5X More Likely to Be Delinquent
d) All of the Securitizers are gone.
5 big wall street inv houses are gone/350 lenders bankrupt
2) FORECLOSURES: 6 states account for 62% of US total foreclosures: California, Florida, Arizona, and Nevada have the greatest foreclosure activity. Add in Illinois and Michigan.
300,000 per month, 3 million per year
In the West, home sales under $100k are up 116% in the past year
ARMS RACE Strategic Defaults (walk away) / Strategic Non-Foreclosure
Delinquencies are rising, but foreclosure starts are not
3) EHS Prices: In September 2009, single family home sale prices look like this:
21% less than $100k
49% $100K to $250k
22% $250 to $500K
5.6% $500k to $750K
1.3% $750k to $1m
1.3% $1M and up
Less than 10% of the homes sold in the US were > $500k. (8.2% of sales).
September, 70% of transacted homes were priced under $250,000.
Homes under $100k are up 22.5%
(Sales: Fell NSA 5.4% (vs 17% avg, and 10% reported)
4) Home prices are still too high!
I use 3 metrics:
Median income/median price
RE Capitalization as a % of GDP
Cost of renting vs owning
All 3 are appreciably off their highs but they still have 10-15%
(assuming we just mean revert)
Falling not necessary -- Sideways for 5-7 years gets you there
5) Tax Credit $8,000 subsidy actually costs $43,000 per extra house sold;
$15,000 Home Buyers Credit Costs $292,000/home
1) The hottest markets are where foreclosures have driven prices down 50% or greater;
2) Inventory remains significantly elevated its closer to 10 months than historic averages of 5-6 months;
3) Mortgage rates are at unusually low levels despite this, sales remain generally soft;
4) Prices remain elevated by historic norms;
5) Big increase on the low end Starter homes and Condos are moving units; The middle and larger (jumbo mortgages) are a vast wasteland;
6) Lots of "shadow" inventory is waiting to come on the market once prices improve; These were specs, vacation property, etc that got caught when the market collapsed they are renting them out or they are vacant.
Palm Beach Post, Monday, March 05, 2007 "Some Realtors are grumbling about prices not falling. Guess who they're blaming? Here's what Thomas Lawler, former Fannie Mae economist and current president of Lawler Economic & Housing Consulting in Vienna, Va., has to say in his private newsletter:
"A growing number of Realtors in Florida are frustrated with the state and national Realtors groups' efforts to 'spin' the market as one that is strengthening and where home prices are stabilizing.
"Many (though probably not yet most) Realtors are frustrated by customers who continue to list their homes at price levels that are 'unrealistic,' and as a result, sales volumes and thus commissions continue to remain depressed. "While Realtors have noted to customers that many home builders in Florida have slashed new-home prices in order to move bloated inventories, many home sellers are still holding off, hoping along with FAR and NAR that prices will start moving back up soon."
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