RE: We Have Reached the Stage of Dispair

[don]

he has it about right on the psychology of the market - shades of EJ's cycle of yesteryear. What he does underestimate (or neglects to mention, among other things) is the economy at large, the enormous shadow inventory, the coming austerity from above, etc . . .

How did it come to this?
I'm trapped behind these walls
I got no air to breathe
It's like I'm under water
Can you hear me?
My silent scream
Lunatica -- How Did It Come To This?

So many buyers were so certain prices would rise 10% or more per year forever. Those same kool aid intoxicated fools are now underwater, trapped behind their over-improved walls, eating off their priceless granite tops, wondering how did it come to this? The hope of a recovery is dissipating with the double dip in home prices, and pessimism about the future is pervading the land. Those are exactly the sentiments one finds at the bottom of the real estate cycle.

Housing is in last phase of 'bubble,' expert says

Dec. 2, 2011 05:25 PM

Nishu Sood, director of Wall Street's Deutsche Bank Securities, used the term "revulsion" to describe the current phase of metro Phoenix's housing market.
"Revulsion," as in many people are averse to the very product that got the nation in trouble in the first place.

Revulsion is another way to describe the conditions of despair. Everyone who owns an underwater house wishes they didn't, and all hope of attaining riches is lost.

The despair stage is actually the best time to buy real estate, but it requires the most patience. First, part of the reason for despair is because nearly everyone knows prices are not going up any time soon. That perception of the market is not wrong. Prices don't rise quickly when the despair stage passes. In fact, prices may languish there for years or even decades. What makes the despair stage an enticing buying opportunity is the current cashflow or savings over renting.

Sood was the lead speaker at the Scottsdale-based Land Advisors' third annual housing forecast for the Phoenix area, presented to a group of the region's top real-estate executives. He was quick to point out that revulsion was the last phase in the "bubble" cycle before recovery for the region's housing market.

The bottom occurs in the despair stage, but the "recovery" is rarely a robust increase in prices, particularly with the overhang of supply.

He said if Land Advisors would have asked him to speak about Phoenix's housing market in the years between 2006-10, everyone attending would have needed a shot of bourbon to make it through his negative evaluations and projections. This week, Sood said he felt more positive about Phoenix's housing market and its oncoming recovery than he did about many other parts of the country.

Yes, both Phoenix and Las Vegas are much closer to the bottom than Orange County. We have not reached capitulation here, although recent price drops are showing those signs. The coastal areas are still in denial.

That's something that made the executive sitting next to me smile with relief. This is the same man who brought in a Corona at the start of the 3 p.m conference because he thought he would need it to get through another negative forecast. Sood's evolution of the housing bubble includes these cycles:

A change in the mortgage business and upgrades in technology during the 1990s made it easier to make and obtain loans.

Upgrades in technology? LOL! Financial innovation, right?

In 2002, home prices started to climb, though most people were more concerned about dot.com stocks.

By 2004, housing euphoria had begun, and home prices were soaring. Then, in 2005-06, came the explosion of the housing market. One later speaker said that's when "anyone who could fog a mirror with their breath could get a mortgage to buy a home."

In 2007-08, the painful market reversal hit. Some had expected it, but few were prepared for its carnage.

The financial crisis followed in 2008-09. It continues to shake the
world.

And the current situation: revulsion. Sood said many people now are distrustful and averse to housing. But, he said, the next and, one hopes, the last phase of housing bubble will be the
recovery.

Speakers also included Land Advisors CEO Greg Vogel, Avatar Properties President Carl Mulac, Cromford Report founder and analyst Mike Orr, and the CEO of homebuilder Taylor Morrison, Sheryl Palmer. None of them believes full recovery will come in 2012. But most agree it could start next year and be in full swing by 2014.
Reach the reporter at catherine.reagor@arizonarepublic.com.

I think the markets which have been totally crushed including Phoenix, Las Vegas, Riverside County, and other fringe markets will begin to recover in 2014, and the pace of new construction should pick up considerably by 2015. Many of the developers I know are making plans for that end. We have been only building homes at the rate of replacement for the last 4 years. By 2014, we should have absorbed the housing stock from 2003-2007 through foreclosure and resale. It's always darkest before the dawn.

http://www.irvinehousingblog.com/blo...ce=patrick.net

[goodrich4bk]

Re: We Have Reached the Stage of Dispair

The last sentence is overly optimistic. According to current stats, the nation's inventory of unsold housing is about 8 million units (this includes shadow inventory). A normal market is between 2 and 2.5 million units. Current absorption is about 1.5 million units per year. Unless sales increase, this means it will take over 3 years just to get to 2.5 million (the high point of inventory in a balanced market).

I think it will take longer for the following reasons:

1. The above projection assumes no increases in inventory. The first boomers retired this year and many of them have mortgage debt that is unserviceable with their likely retirement income. These will be forced sales in the coming decade that few people are currently expecting.

2. The above projection assumes no change in historical ability of new households to afford their first home. The next generation (i.e., the consumers who must purchase that first home to fund the sales activity of existing homeowners) is burdened by non-dischargeable student loan debt that is much greater than the boomers had at the time they entered the market. This is because declining tax revenues have forced states to shift more of the cost of a college education from taxpayers to students. This generation, unlike their parents, are also more exposed to global wage competition. Therefore, their inflation adjusted net disposable income is significantly smaller than their parents'. This will require a longer savings accumulation period before these buyers can afford their first home.

3. The above projection assumes that for each new household there will be one home sold. Again, this is a historical pattern that I believe will not continue at the same rate. New households can live in vacant bedrooms of existing occupied homes for much less than they can via the purchase of an entirely new home. The average home in America has 3 bedrooms and only 2.2 occupants, many of whom share one bedroom. Retired boomers struggling to stay in their underwater homes will start renting rooms and once this behavior is deemed "normal" a flood of bedrooms will hit the market for very reasonable prices. In other words, the housing wonks are looking at the inventory of homes per capita instead of living space per capita. As real wages decline to eliminate wage arbitrage via globalization, our housing patterns will look more like those in Europe and Asia, where multi-generational housing and room lets are the rule not the exception.

[lektrode]

Re: We Have Reached the Stage of Dispair

ah but yes, that stuff is certainly valid - but first we have to make sure the year end bonus pool is taken care of, which was heard (on dave lettermans show the other night, and even HE aint happy to hear it) to be 10 BILLION for this year???
in which they supposedly 'lost money' in Q3 ?

http://blogs.wsj.com/developments/20...y-almost-here/
Goldman: Housing Market Bottom Is Really, Finally (Almost) Here

could it be that someone is holding huge piles of currently out of the money bets on MBS and CDS etc?
and that in order to get out of those - profitably - we need to have some support from the bullhorn ?

and then....

theres this:

http://occupyourhomes.org/

http://abcnews.go.com/Business/occup...ry?id=15097834

A subset of Occupy Wall Street protesters across the country are bringing their fight indoors with plans to stay in foreclosed homes for months. The group launched a national campaign on Tuesday called Occupy Our Homes -- literally living in the homes of foreclosed homeowners, giving temporary reprieve from the bitter cold.
Nick Espinosa, one of the organizers of Occupy Minneapolis, which officially launched Oct. 7, said Minnesota's cold makes it difficult for people to spend the winter outdoors, where the temperature is forecasted to reach a low of two degrees on Thursday just as Hennepin County authorities removed unattended tarps and chairs at the plaza outside the Minneapolis government center, the Associated Press reported.
The numbers at the plaza fluctuate, but they are "dwindling," Espinosa said.
"It makes sense to be indoors but really this is a larger issue," he said. "It's an opportunity for a way to bring what is happening on Wall Street to back to Main Street and to communities most affected by this crisis."
Foreclosures are still plaguing communities across the country as foreclosure activity recently hit a seven-month high, RealtryTrac reported last month. There were foreclosure filings on 230,678 properties across the country in October, the real estate site said, an increase of seven percent from the previous month though down 31 percent from a year ago.



This week the first major lawsuit filed over "robo-signing" target="external" foreclosure processing was filed in Massachusetts against Bank of America, JP Morgan Chase, Citi, Ally Financial and Wells Fargo, as well as the Mortgage Electronic Registration System, Inc. (MERS corp). The suit alleges the companies used fraudulent documentation in processing foreclosures.
Steve Fletcher, executive director of nonprofit group Minnesota's Neighborhoods Organizing for Change, has joined with Occupy Minneapolis protesters to live on the properties of two foreclosed homeowners.
About 50 people began occupying the home of Bobby Hull, 57, this week. Fletcher said he and other protesters plan to stay in the four-bedroom home of Hull, who is scheduled to be evicted from his home on Feb. 17.
"We're going to support Bobby until he has a sustainable mortgage that lets him stay in his house," Fletcher said. "We find it appalling that banks will not renegotiate with him but they will sell his house for pennies on the dollar to other banks."
Hull, who was an independent contractor but is unemployed after suffering from multiple heart attacks and surgery on his right rotator cuff, opened his living room and a pot of gumbo to about 50 protesters who offered to help him save his home.
He called them "caring, sharing and wonderful folks."
"I think they have a good mission and a lot of drive," Hull said.
When asked what his neighbors thought of his new house guests, he said none have complained.
"They haven't said much. I got a couple who are really supportive," Hull said. "Others ask, 'Are you sure you want to do this?'
But Hull said "it's not a big deal" to his neighbors.
"I always have a lot of guests at my house," Hull, who has nine brothers and sisters, said. "Anytime we have any kind of family gathering it looks pretty much the same."
In addition to the dozens of protesters who plan to stay at Hull's house sporadically until they know he can keep his house, Hull is also housing his nephew and his son, daughter-in-law, and granddaughter.
"There are people camping out in my living room for the moment but its working. There's a roof over everyone's head and we've got heat and food," he said.

just wonderin how well this plays for/into next november?

yep, curiouser and curiouser, said alice...

[skidder]

Re: We Have Reached the Stage of Dispair

Not sure why these OWS folks aren't just cutting to the chase and showing up at the personal residences of the elite bankers en masse?

[lektrode]

Re: We Have Reached the Stage of Dispair

Not sure why these OWS folks aren't just cutting to the chase and showing up at the personal residences of the elite bankers en masse?

i suspect that if we dont start to see some REAL prosecutions of the perps perty quick, that just might happen.
and i, along with millions of otherwise law-abiding, somewhat-content but suddenly un-proseperous citizens might just go along with em.

its going the be a VERY interesting election 'season' this next year.

[Starving Steve]

Re: We Have Reached the Stage of Dispair

Just watching the real-estate market in California, and I notice that foreclosed homes sell and then, about a month later, are back onto the real-estate market at a few thousand dollars less. And then the homes sit, once again, waiting for a sucker....... Very strange. It would seem that the sales are fake sales to mis-inform the real-estate market. In 1929, this kind of shenanigan in stocks (not real estate) was called, "painting the tape".

I watch one subdivision closely, and this is what appears to be happening. So maybe one bank sells the houses to another bank, and they have a hidden agreement to cover each others' losses from the suckers that finally do nibble on their bait.

It is hard to imagine a recovery in the real-estate market when no-one has work. ([Sic,] "if the free market works, where's the work?") Second, the baby-boom generation has to sell homes to retire, or at minimum, to down-size maybe into a condo or apartment and move closer to shopping centres. Third, Silicon Valley may be on borrowed time, especially since they are the high-cost producer, and only significant producer, of high-tech..... But China might solve this little problem for the Valley.... and soon. Fourth, if money earns no interest, who is going to buy and with what? Money has stopped moving. Fifth, the banks are in no mood to lend, especially now holding inventories of unsold/unsaleable foreclosures, and especially now when money lost in real-estate can not be easily replaced via compound interest from bonds.

[don]

Re: We Have Reached the Stage of Dispair

its going the be a VERY interesting election 'season' this next year.

I told a friend of mine August should be more than its usual hot and muggy self. He lives in Tampa and had no idea that's where the Republican Convention will be held.

The Dems? Charlotte, the corporate home of you know who

(starts with an A)

[davidstvz]

Re: We Have Reached the Stage of Dispair

I finished paying off my first car (a 2010) earlier this year at the age of 31 and started saving up to put a down payment on a house. However, my growing awareness of the financial crisis and the potential for yet higher unemployment has got me scared to pull the trigger. I won't be ready for another year anyway (just signed an apartment lease), but with no job security, how can I risk taking on a mortgage, even if it is a "good deal". It's not a good deal if, at some point, I can't pay due to unemployment and get foreclosed on. That would only be tolerable if the market is truly at bottom when I buy (or back to non-bubble growth) so that I can retain equity if I eventually cannot pay. My point is, I can't imagine buying a house any time soon whether we're supposedly at bottom or not.

[goodrich4bk]

Re: We Have Reached the Stage of Dispair

Steve:

I subscribe to a foreclosure service and I've seen the same thing. In most cases, it is a result of zillow, trulia and other RE sites reporting the trustee's sale credit bid as a "sale". Banks have significantly lowered their opening bids in the past year but are chasing the market down. In the area I watch around Placerville, they were bidding at $140 a foot when the actual market was $120, and now they're bidding $115 a foot when the market is actually $100.

One exception continues to be Fannie and some of the securitized private lable loans. These are often bid with a "full credit bid" which usually makes no sense because the IRS will tax the bidder on the interest portion of the bid even though no actual cash was received for that interest (just title to a home that will never be worth more than the principle). Of course, in Fannie's case, they don't have to worry about paying tax on this sort of "phantom income" because they have huge losses to carry forward. Still, by making a full credit bid they are reducing their loss carryforwards dollar for dollar, so there has to be a benefit ---- and their is. By making full credit bids for underwater homes they make their foreclosure losses smaller, at least until the home in REO resells. In short, it is a form of kicking the loss to later quarters.

[lektrode]

Re: We Have Reached the Stage of Dispair

I told a friend of mine August should be more than its usual hot and muggy self. He lives in Tampa and had no idea that's where the Republican Convention will be held.

The Dems? Charlotte, the corporate home of you know who

(starts with an A)

uh huh...
now _thats_ very interesting - tampa eye can understand (since the FL cops wont put up with _any_ crap from the crowd thats likely to show up outside...)

but charlotte?
dont spose its because they worried about losing even more votes in NC, do ya?

[Starving Steve]

Re: We Have Reached the Stage of Dispair

If you were to play the role of Mr. Johnie Cash or Mr. Market in this declining market, thus to offer 100% of your offer with cash, what would you bid the foreclosures now?

[goodrich4bk]

Re: We Have Reached the Stage of Dispair

David:

You've just identified a fourth reason why this time is different (than other "bottoms"): people are now understanding the value of liquidity.

When I was buying my first home 25 years ago, I saw very little evidence that homes fell dramatically in price. Still, I took out a regular 20% down loan and made sure that I fixed the rate for 30 years (I had seen others get caught in the Volker updraft with adjustible rates and wanted no part of that risk). 15 years later, I watched while friends of mine made much larger profits using adjustible loans with small down payments. One friend was a contractor who built and moved every two years, capturing his capital gains tax free. He was soon making more from just living in his home than I had ever made as a partner in a large law firm. This and many other examples drove many people --- and not just Americans --- to give great value to illiquidity and low down payments. Real estate agents routinely advised their clients to buy as "much home" as they could afford because the leverage would make the home a much better investment than anything else.

Of course, it all caught up with him because his reliance on capital gains for consumable income meant that he could not get out at the top. He lost it all, including his marriage and his business. Unfortunately, his story is not unusual. So every friend and relative of his, and every friend and relative of those friends and relatives, now "get it". They now see that if they buy a house and they lose their job, or are required for work reasons to move after the house's value has dropped, they will be wiped out financially and be unable to get credit for many years. Their kids may not be able to afford college and their marriages may fail from the stress and disappointment.

Once these stark risks are truly understood, the "dream" of homeownership rapidly loses its allure. My father's generation so appreciated liquidity that they paid a premium to rent until the 1960's, when boom times and inflation finally snuffed out the memories of the Great Depression.

That will be the time to buy, and not a moment earlier. Wait until rents are higher than homeownership costs, but only AFTER interest rates have normalized (i.e., turned positive), inventory is back to four months or less of sales, all shadow inventory has been listed and required down payments are back to 20%.

[lektrode]

Re: We Have Reached the Stage of Dispair

excellently astute observation mr g4bk
mr steve too!

i almost got screwed into a dump in SLC this past spring - the location was exactly where i was looking for and so was willing to overlook the issues the house had - jumped the gun a bit and offered 40% less than it sold for last in 2006 (which was 15% less than asking, just as they were about to drop the price = DAMN! offered too much..) anyway, decided to proceed, just because of the loc - 'fast forward' to july4 weekend (and the GD banks wonder why nothing is moving, nearly 100daze tween the offer and actually getting a contract signed???) - had a house inspector have a closer look at the dump and that was enuf for me (whos not afraid of a few fix'em up problems) to stop it right there - from all i was able to learn by that moment, the place was basically worth what a cleaned-off lot was in that area; meaning: demolish/cart-away the house and then the lot would be ready to build on - my thinking was wait till they relisted and then offer that much, take it or leave it - unfortunately i was being distracted by the rather unpleasant need to work for a living and missed it selling for just exactly what i thot it was worth, or just half what it had been originally listed for, before they had dropped it once already, before we offered - or less than 40% of what it had been bought for in 2006.

i can wait, can/will the banks?
is the question...

[Starving Steve]

Re: We Have Reached the Stage of Dispair

Don't you just love when times get tough, your lover serves you your breakfast and then serves you your divorce papers? "Honey, how's the coffee this morning?"

[lektrode]

Re: We Have Reached the Stage of Dispair

never mind, "honey, i bet the house on netflix stock - (or the groupon IPO) - we're gonna make it big, i just know it..."


now... what was i going to do today, anyway....

work?
shur... maybe next year my biz will snap back after 'the recovery gains steam'