Saturday, March 24, 2012

Major Head Fake In Process for 2012

It appears some people are tired of waiting and have now starting bidding on properties. With limited listed inventory in some areas, multiple offers have made a relative comeback. The MSM news is all about increasing job creation and now the stock market has doubled since the crash of March 2008. Don't be fooled. We are still in the Great Recession (Depression), as nothing has changed that will replace the good paying jobs lost since 2008. The FIRE (Finance, Real Estate & Real Estate) Industry that was responsible for the boom years of 2000 - 2007 and good paying jobs has not been replaced with anything other substantial industry. The monthly jobs numbers being reported are suspect, especially in an election year. Government reporting of job growth using the Birth/Death model is seriously flawed and says nothing about exactly what kind of jobs are being created.. Low paying jobs I'm afraid, which do not support single family home purchases on the Westside of Los Angeles.

The other major problem that has yet to be solved is the amount of shadow industry still piling up as NODs, Auction Sales, REOs, Short Sales and Underwater Homedbtors is up to 7 times the amount of listed inventory. Take a look at the RPX Monitor concerning these inventory numbers. Be sure to read the entire article and not just the headline.  And yes, I realize these are national numbers however, if you think there isn't anyone upside down or behind in payments on the Westside, I have a bridge for you. Anyone who bought in  2005, 2006, 2007or 2008, is probably upside down or way behind, unless they put a huge chunk of change down. And if they did, it's possible they have lost much or all of it. It will be interesting to see if banks let more air out of the tires this spring, by releasing more foreclosures. Bank of America has just announced a new program to turn homedebtors into renters before they offload them to investors through foreclosures. BOA still holds the Countrywide Bag of fke mortgages and would like nothing better than to purge themselves this spring, if they can't unload them to investors under the the perceived housing recovery.

The Fed is even telegraphing its moves, as they have committed to not raising interest rates until 2014. No matter who gets elected in 2012, they will try to keep interest rates as low as possible, for as long as possible, to slowly deflate the housing bubble at the taxpayers (homeowners and debtors) in a Japanese-like fashion. The idea is to keep the zombie banks alive until they eventually recover, while real estate slowly declines as the currency is slowly devalued. Once that objective is achieved, an inflationary environment will follow. When that occurs is anybodies guess, but not just yet. God, forbid they throw homeowners under the bus by raising interest rates to soon in order to sell treasuries to foreign investors. Keep an eye on Greece to see what exactly happens when a government sticks it to their taxpayers in order to keep their banks alive.

Do you really believe the economy is getting better? Does your job or investments seem more stable? If you answered no, then you are not alone. Companies are still laying off and trimming staff while the government attempts to wean the housing industry off of life support again. Remember what happened when they attempted to reduce the upper limit of conforming loans by $100,000 last October. It lasted all of 1 month before raising it again.

Waiting at least another year before buying could avoid you a lot of downside risk. Election years are always tricky with the incumbent trying to look good, especially, since the economy will be the number 1 issue that decides the presidency. On the other hand, If you fall in love with the home of your dreams, can afford the monthly nut, your income is rock solid and you don't mind losing a possible 20-25% over the next few years, jump right in.

29 comments:

greengroovymom said...

I think you are crazy to think there will be a big flood of inventory from banks. At least in desirable Santa Monica.

And if there is, it will quickly move up to market prices. No huge discounts unless the house is a tear down. Even then the investors/flippers are back in the market and will pounce. Good luck for a mere mortal to get in on any deals.

I bought a home from the government in 1994. In SM. And it was NOT a screaming deal. What makes this different?

latesummer2009 said...

Exactly how much was your screaming deal and how did you get it? And, why did't investors, flippers get it then?

greengroovymom said...

Late summer...

You misread my post: It was not a screaming deal.. The house was a foreclosure, then the savings and loan went under...so the government listed it for $410K, and I got it for $390K as it needed a new roof, new electrical and a new furnace...not exactly much of a discount for that

There were over 100 homes on the market in 90405 in 1994...flippers had their pick. Mine probably was too much $$$ for the amount of work it needed. I liked mine as it had character...flippers I think go for size/amount of work needed. Not the charm or vintage tilework...:)

The house I bought had been unoccupied for over 2 years when I got it and was in bad shape.

These conditions are vastly different from today. The interest rates were high, so lots of renters. When the supply of homes on the market increased, the prices moved down and the rental/owning parity evened out a bit. The economy was improving, but the consumer confidence was not there.

Remember interest rate were 8-9%....so the mortgage was a killer.

Anonymous said...

My wife and I have been looking every weekend and homes in Santa Monica, Westchester, Culver City, Mar Vista, and there are not many houses for sale, mostly poor quality houses, and way overpriced. Our realtor said that inventory is down because many are upside down on their mortgages and can't sell or don't want to foreclose, also many are not changing jobs and remain in their houses, and folks that can sell want to wait until prices are back up again to 2007 levels, to sell. We are very frustrated that we can't find a decent house for $450,000.

Anonymous said...

Latesummer I agree with you

head fake - did you see that the house at the corner of 22nd and Georgina now has a sold sign on it -

the developer bought the land for 3.0 million and then sold the house for 7.1 million

Anonymous said...

"Election years are always tricky"

You nailed it!

Its best this one and see what happens next year. I think one more leg down is coming and this one will be brutal to the high end areas.

Anonymous said...

10+ TRILLION debt dollars? Shadow inventory to the moon? ARTIFICIAL ultra low interstate rates? Need more proof?

Anonymous said...

Conforming limit max is still $625,500 in the high value areas - they did not return to $729k...

Anonymous said...

As a Realtor, yes the spring buying spree is in effect. There are most definitely multiple offers going on with accepted offers going in some cases well over list price for cash, inventory is very low. Properties that would have been lucky to get one buyer before, now have two or three. Properties that had 2-3 offers before are now getting 5.

New builds are getting a lot of buyers attention. Most buyers are not looking for fixers, they want homes that are remodeled and finished. Lots of activity in Venice.

The "shadow inventory" seems to be dropping in overall numbers from the last couple of years. But the lenders are continuing to not deal straight with the public. They still hold much of what they actually have off the books by delaying the foreclosure process. BofA for example, remains as stupid as ever in both qualification of loans given out as well as intransigent bureaucratic failures to facilitate their existing shadow inventory sales.

Anonymous said...

Why is inventory so low?

latesummer2009 said...

People are underwater basically and can't sell. With banks not foreclosing, they are trying to wait it out. They could be waiting along time as US debt continues to pile up. Think Japan.

Anonymous said...

No one under 40 has any money. Prices on the westside are going to decline for years.

latesummer2009 said...

Excellent point anon 1:54. Exactly who is going to buy houses from those that bought at bubble prices from 2005 - 2012, The new generation is broke.

Anonymous said...

yes but the new generation on the westside have parents that profitted from the bubble and will eagerly help their children buy homes and stay close by.

Anonymous said...

People under 40 no longer see the advantage to owning a home. They want to be flexible in case they need to move for a job. There have been surveys done on this -- the younger generation just saw the wipe out and don't believe there are advantages to owning. It's hard to argue with them.

Anonymous said...

5:30 pm, you live in dreamland. I come from a professional class family on the westside and I can tell you there is no way me or my friends or siblings are going to inherit enough money to buy at current westside prices. Why would you spew such drivel? I am so tired of hearing this bs view. You need to get a clue. After the medical expenses, etc. and waiting for my surviving parent to pass on, and splitting the money 3 ways, there's not going to be much left. Stop kidding yourself. Yes, there will always be a few, but not a fraction of what it would take. Consider the number of overpriced homes and condos from Malibu to SM to BH to the Hollywood Hills. Just no way on earth those homes will be bought with inherited wealth. Wake up, and just stop. You must be a home debtor or real estate agent.

Anonymous said...

Generally, the parents who own on the westside don't have much money either except the house. Plus a lot of the parents are underwater too when they traded up. Sorry but this is reality. The under 40 generation can hardly pay the rent much less else. They will take any cash they do get and bank it to pay for their children's education, etc. The younger generations are in real trouble, and what little the do split with their siblings won't be spent buying over priced dwellings. It will be banked for security reasons -- the shock of the great recession necessitates this reaction.

latesummer2009 said...

Just ignore those who are trying to justify home purchases during the last 5 years, or trying to sell houses now. Home buying habits have changed dramatically since the crash of 2007 here on The Westside. As mentioned above, and for a myriad of other reasons, most people now are hesitant to buy a home. It is probably going to remain that way for sometime, untl the overhang of shadow inventory works through and jobs stabilize. By the time that happens, you will see another big leg down in prices on The Westside. There is some pent-up demand for weak hands, as inventory continues to pile up in the shadows.

And the big question still remains, who would buy it from you at bubble prices, when you are ready to sell? Rich foreign investors? From where? And how many? I'm afraid that line doesn't work anymore.

Anonymous said...

in your opinion what year will it be good to buy? or is it better to rent forever?

latesummer2009 said...

Unemployment needs to stabilize around 6%, shadow inventory must be drastically reduced, and prices need to drop back around 2000 levels before I consider buying. That's when I see the decline in prices ending. Unfortunately, all of this depends on how long the govt wants to drag it out. We seem to be on the Japanese track right now, which is slowly letting the air out until inflation finally catches up. That could be most of this decade.

Anonymous said...

The situation with underwater homeowners is interesting. On the one hand, they have been taken out of the move-up market, reducing demand for trade-up houses. On the other hand, if forced to sell, they are more willing to cut the asking price because they are playing with the lender's money, not their own (except the delusional ones who think they can break even). Short sales do take longer to complete because the lender has to be worn down, but many ultimately occur at prices that further erode the market.

Not many people following this website are interested in condos, but the condo market on the westside shows the effect of the factors latesummer2009 cites much more than the single family house market. Most of the condo sales this year have been at the bottom end of any given market. The more expensive the condo, the longer it sits.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

I have a friend who bought a $1M+ little house in the Westside last year. But, he is the heir to a Swiss watch co...

Arcadier said...

My ultimate fear, is that by waiting most of the SFH will be taken by wealthy foreign asian buyers looking to invest. Thats hows its going in Arcadia.

http://arcadiahousingfail.wordpress.com

Anonymous said...

"latesummer2009 said...
Unemployment needs to stabilize around 6%, shadow inventory must be drastically reduced, and prices need to drop back around 2000 levels before I consider buying."


Out of curiosity, if prices do not "drop back around 2000 levels" will you nevertheless buy, or are you content with renting forever?

This is a serious/non-snarky question. I do hope you answer...

latesummer2009 said...

We are still in a deflationary environment. I am content to rent for at least another 5 years if necessary, here on the Westside, as I see prices continuing to erode. Other areas have corrected more than here and are worth considering. Once again, buying is a personal decision and depends on your individual finances, income stability anf family situation etc. i am merely looking at whether prices are rising or falling. INMHO, I believe they are still declining and have a ways to go.

The only reason I would buy before then is if we get into a hyperinflationary scenario, which I dont see any evidence of yet.

Anonymous said...

Latesummer,

Adjusting for inflation, prices have rolled all the way back 22 years.

Look at the actual sale prices in 1990. Raw dirt in the Franklin 90402 (7500 square foot lots) was selling for $900k
Fast forward to today - the same raw dirt in the Franklin 90402 (7500 square foot lots) sells for 1.7 million

The increase in the price of the dirt has been the SAME as general inflation in the economy.

So prices in real terms are back at 1990 levels

Look at the math

Anonymous said...

"The only reason I would buy before then is if we get into a hyperinflationary scenario, which I dont see any evidence of yet."


So, lets say, prices stay where they are now (roughly 2003/2004 values depending upon area), and continue to stay there, for another 10-15 years while inflation/incomes ooze ever so slowly upward, providing a floor...

If this were the case, would you really be content renting for another 10-15 years, on top of the what 10 years you have been renting thusfar???

Dont get me wrong, I am just trying to gauge your risk tolerance (vs mine), and again, I appreciate the response as I do not want this to seem snarky.

But in any event, 20-25 years of renting? Are you really willing to rent that long if prices do not hit your predetermined outcome?

latesummer2009 said...

I said I'm prepared to wait another 5 years here if necesssary. If I don't see the cost of buying and risk of losing equity drastically reduced by then, I will take my housing dollars elsewhere and pull the trigger on a house.