Mark Hanson doesn't think we're out of the woods yet

NEW -> Contingent Buyer Assistance Program
<blockquote>

Hogwash.

The over $2,000,000 market is dead. Absolutely dead.

And prices in the under $800,000 market will decline more than another 20%.</blockquote>


Adjusted for inflation or in nominal terms? Right now, homes under 750k are going up. This is based on the buyers that I personally know who are bidding on homes.



To clarify, when I say 2mil, I'm talking about the low 2mils and specifically, I'm talking about Newport Coast and homes with an ocean view and even more specifically, I'm talking about the last 60 days. I've been shopping for homes for a year now and have bid on 5 homes. The ones that SHOULD sell for low 2s and that get listed above 2.5 sit for months. Ultimately, the buyer faces reality and cuts the price and when they get close to low 2's, interest sky rockets.



I have multiple backup offers behind me. There were 5 or 6 ocean view homes I had to choose from in Pacific Ridge in the first half of summer. All of a sudden by mid/late summer, they all got snatched up near/at/or above asking and in most cases, for all cash. My broker was very bearish said to me, "I have to eat my words, things have absolutely turned in the past couple of months."



Perhaps, in aggregate, the data shows a slow high end market but there are people, many with cash, snapping up the BEST properties. When something gets priced right, it moves and moves fast. And much to my surprise, there is a large number of cash buyers. I'm thinking to myself, "where are all these people who have a few million in cash coming from?!".



Anyway, just some more information for you guys to process. But this info is coming from a bearish buyer reporting "frontline" information.



BTW: No offense to anyone but if I was a guy with a few mil in cash (maybe someone from a foreign country), I think I'd look at the coast before I pay 2mil for an inland property like Coto.
 
[quote author="JCie" date=1256821115]<blockquote>

Hogwash.

The over $2,000,000 market is dead. Absolutely dead.

And prices in the under $800,000 market will decline more than another 20%.</blockquote>


Adjusted for inflation or in nominal terms? Right now, homes under 750k are going up. This is based on the buyers that I personally know who are bidding on homes.



To clarify, when I say 2mil, I'm talking about the low 2mils and specifically, I'm talking about Newport Coast and homes with an ocean view and even more specifically, I'm talking about the last 60 days. I've been shopping for homes for a year now and have bid on 5 homes. The ones that SHOULD sell for low 2s and that get listed above 2.5 sit for months. Ultimately, the buyer faces reality and cuts the price and when they get close to low 2's, interest sky rockets.



I have multiple backup offers behind me. There were 5 or 6 ocean view homes I had to choose from in Pacific Ridge in the first half of summer. All of a sudden by mid/late summer, they all got snatched up near/at/or above asking and in most cases, for all cash. My broker was very bearish said to me, "I have to eat my words, things have absolutely turned in the past couple of months."



Perhaps, in aggregate, the data shows a slow high end market but there are people, many with cash, snapping up the BEST properties. When something gets priced right, it moves and moves fast. And much to my surprise, there is a large number of cash buyers. <strong>I'm thinking to myself, "where are all these people who have a few million in cash coming from?!". </strong>



Anyway, just some more information for you guys to process. But this info is coming from a bearish buyer reporting "frontline" information.</blockquote>
Oh believe me, you aren't the only person that has asked that question. I keep asking myself that question as do all of my buyers, especially when you see an Irvine property go $100k over comps to a cash buyer willing to slap down over $800k. Really makes me wonder if I've done something wrong in my life not have to liquid funds of around $1m in my bank accounts since there seems to be so many of these people roaming around with that kind of cash. Maybe I need to start my own business or something....
 
All agreed on your analysis of Irvine and the lower end market. The problem is that people confuse past results and behavior with a propensity for the future to look the same without analyzing why?



Good question about the long bonds. I had much the same questions and after awhile of reading Zero Hedge, I got what was going on.

The short bonds are still being bought by foreigners.

The long bond is mostly being bought by the Federal Reserve. The dealers are buying them and then somtimes less than two weeks later the Fed is buying them from the dealers at POMO.

Also, some foreign central banks are buying them, but selling agency debt to the Federal Reserve. The central banks are just exchanging agency debt for treasuries and making it look like a purchase.

It would not suprise me if the Fed is also exchanging treasuries for devalued equities with the member banks.

Bernanke does not want the American public to see what is on the Fed's books.

Go Ron Paul and HR1207.



Bottom line, very few of the long bond is freely purchased, and the Fed is just printing money.
 
Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.
 
[quote author="awgee" date=1256850681]Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.</blockquote>


So, there's over a year and a half's worth of supply in 2-4 mil and two and a half years at 4 mil+? Geez. Maybe if you are a buyer in that category you should make extreme low-ball offers on everything even marginally acceptable and hope there's an equity seller desperate enough to take the bait.
 
[quote author="Geotpf" date=1256852669][quote author="awgee" date=1256850681]Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.</blockquote>


So, there's over a year and a half's worth of supply in 2-4 mil and two and a half years at 4 mil+? Geez. Maybe if you are a buyer in that category you should make extreme low-ball offers on everything even marginally acceptable and hope there's an equity seller desperate enough to take the bait.</blockquote>
Why?

Why not just wait?
 
[quote author="awgee" date=1256853350][quote author="Geotpf" date=1256852669][quote author="awgee" date=1256850681]Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.</blockquote>


So, there's over a year and a half's worth of supply in 2-4 mil and two and a half years at 4 mil+? Geez. Maybe if you are a buyer in that category you should make extreme low-ball offers on everything even marginally acceptable and hope there's an equity seller desperate enough to take the bait.</blockquote>
Why?

Why not just wait?</blockquote>


I'm sure many people are tired of waiting. But that's certainly an option as well, assuming prices actually go down (as opposed to most sellers continuing to price their properties at WTF prices and buyers continue to refues to pay for such, so nothing sells).



I would imagine that, in the higher price ranges, foreclosures and short sales are still rare (because even during the boom, rich people frequently paid cash or had high down payments), and those are the things driving down prices on the lower end. Does anybody know how many of those listings are REOs/short sales?
 
[quote author="awgee" date=1256850681]Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.</blockquote>


What's the average DOM and months of supply for this price range in a healthy market?



Realistically for a potential buyer, their pool of homes to choose from is much smaller. The same unrealistically priced properties just sit on the market for 1, and 2+ years, while the correctly priced properties get snatched up.



Let's look at closed sales for Newport Beach, Newport Coast, Corona del Mar, and Laguna Beach



Closed Sales

$2-$4m

Sept 09 26

Sept 05 27

$4+

Sept 09 10

Sept 05 3
 
[quote author="RoLar_USC" date=1256856909]

What's the average DOM and months of supply for this price range in a healthy market?



Realistically for a potential buyer, their pool of homes to choose from is much smaller. The same unrealistically priced properties just sit on the market for 1, and 2+ years, while the correctly priced properties get snatched up.



Let's look at closed sales for Newport Beach, Newport Coast, Corona del Mar, and Laguna Beach



Closed Sales

$2-$4m

Sept 09 26

Sept 05 27

$4+

Sept 09 10

Sept 05 3</blockquote>


Who cares about DOM. What was the price per sqft. in 05 compared to 09?



The market time for $2m-$4M in Sept 07 was 18.35 and $4M+ was 19.50. In August 08 the market time for $4M+ was 49.71. So tracking market time in that category is useless because it is too volatile and it would only be hot if it had a three month trend at 15 months, and slow if it had a three month trend of 22 months or greater.
 
[quote author="graphrix" date=1256860707][quote author="RoLar_USC" date=1256856909]

What's the average DOM and months of supply for this price range in a healthy market?



Realistically for a potential buyer, their pool of homes to choose from is much smaller. The same unrealistically priced properties just sit on the market for 1, and 2+ years, while the correctly priced properties get snatched up.



Let's look at closed sales for Newport Beach, Newport Coast, Corona del Mar, and Laguna Beach



Closed Sales

$2-$4m

Sept 09 26

Sept 05 27

$4+

Sept 09 10

Sept 05 3</blockquote>


Who cares about DOM. What was the price per sqft. in 05 compared to 09?



The market time for $2m-$4M in Sept 07 was 18.35 and $4M+ was 19.50. In August 08 the market time for $4M+ was 49.71. So tracking market time in that category is useless because it is too volatile and it would only be hot if it had a three month trend at 15 months, and slow if it had a three month trend of 22 months or greater.</blockquote>


That was basically my point. That market time in those price ranges doesn't mean much.
 
But what was the price per square foot difference from 05 to 09?



And the $2M-$4M range does have meaning, it is the $4M+ that doesn't mean much. It's the price that means something.
 
In Newport Beach, Corona del Mar, Newport Coast, and Laguna Beach



Average sales price per sq. foot from 6/1/2009 to 9/30/2009 between $2-$4m was $754.57.



Average sales price per sq. foot from 6/1/2005 to 9/30/2005 between $2-$4m was $795.23.



Average sales price per sq. foot from 6/1/2009 to 9/30/2009 $4m+ was $1116.54.



Average sales price per sq. foot from 6/1/2009 to 9/30/2009 $4m+ was $1431.70.
 
What I don't get is if demand is really high as RoLar says.



How can it be? Record unemployment and tighter credit guidelines would lead me to believe that the number of qualified buyers out there is much less than in recent years.



Or is it just relative to inventory? Are there as many buyers now as there were at peak? At the last trough?



Granted low interest rates lend to more affordability but even zero interest won't work unless you have income.



Or were there a ton of cash buyers just waiting out the bubble and are striking now? Or maybe it's all those people who stopped paying their mortgages for over a year and saved that money to have a high down payment?



Help me understand RoLar Kenobi... you are my only hope.
 
[quote author="irvine_home_owner" date=1256870124]What I don't get is if demand is really high as RoLar says.



How can it be? Record unemployment and tighter credit guidelines would lead me to believe that the number of qualified buyers out there is much less than in recent years.



Or is it just relative to inventory? Are there as many buyers now as there were at peak? At the last trough?



Granted low interest rates lend to more affordability but even zero interest won't work unless you have income.



Or were there a ton of cash buyers just waiting out the bubble and are striking now? Or maybe it's all those people who stopped paying their mortgages for over a year and saved that money to have a high down payment?



Help me understand RoLar Kenobi... you are my only hope.</blockquote>


It's not like I'm making it up, the numbers are posted everywhere. Demand is up, way up. Just look at the number of closed sales over the past 3 months, compared to the same time during 2003-2008. The same number of homes are closing as were in 2005, up a little bit from 2003 levels. You still have 85-90% of the working capable population with jobs, a large pool of the population that has been renting and waiting affordable housing, and a number of individuals looking to purchase second homes. As to where all the buyers are coming from, its purely ones speculations. But, you can't deny the numbers.
 
Everybody calm down. We are not done yet, far from it. This is just a seasonal impact. The drop will continue this winter/slow season.



See below for a comparison with 90s drop (based on months from peak).



I don't think it's realistic to assume we are done with it yet. C'mon think a little about what's going on:



Low Interest, First Time Homebuyer Credit, HAMP, etc. Whenever this is unwind (and it will) it will impact the housing market.



Hold your breath, we won't know for use until 2012.



<img src="http://i38.tinypic.com/kboaz4.png" alt="" />
 
[quote author="Geotpf" date=1256854121][quote author="awgee" date=1256853350][quote author="Geotpf" date=1256852669][quote author="awgee" date=1256850681]Steve Thomas' October 19 data:

Slice Listings Deals Time in months 2 weeks ago 1 year ago 2 years ago



$2m-$4m 698 36 19.39 20.41 22.42 25.09

$4m + 380 12 31.67 32.17 34.30 31.63











Yeah, they are just flying off the shelves.</blockquote>


So, there's over a year and a half's worth of supply in 2-4 mil and two and a half years at 4 mil+? Geez. Maybe if you are a buyer in that category you should make extreme low-ball offers on everything even marginally acceptable and hope there's an equity seller desperate enough to take the bait.</blockquote>
Why?

Why not just wait?</blockquote>


I'm sure many people are tired of waiting. </blockquote>
This is the real reason the rich get richer and the poor get poorer.
 
[quote author="USCTrojanCPA" date=1256820369]





Let me ask you about something else that has really surprised me. I'm sure you see how much debt the gov't is having to auction off to pay for all spending....why is there so much demand for that debt and why are the bid-to-cover ratios so high for that new debt? Are the big banks that got all of that free cash from the Fed/Treasury just parking it in gov't bonds?</blockquote>


A recent example from <a href="http://www.zerohedge.com/article/last-pomo-purchases-19-billion-2009-5-year-note-issuances">Zero Hedge.</a>
 
If you want to convince yourself that a 20 months supply is a healthy market, cool.



A question for you folks:

Why do you think it is that the smart money, (the over $2mil) market is not buying, and the not so smart money is buying?
 
Where did the latest uptick in prices come from? Will it last? And why or why not?

From <a href="http://www.doctorhousingbubble.com/real-homes-of-genius-culver-city-and-the-housing-stockholm-syndrome-approximately-5-percent-of-current-home-price-is-related-to-government-bailouts/">Dr. Housing Bubble</a>
 
There are very very few people with the means that will delay a home purchase decision. As a result the majority of the population is actively out hunting for "bargains" in the moderately adjusted housing market justifying the decision by telling themselves that they are taking advantage of all time low interest rates.



The fact remains however that there is a very limited pool of buyers that are able to purchase homes out of cash without first selling another property. This lack of move-up buyers, because of limited or negative equity will have dampening effect on the housing market (Hanson has written extensively on this). This is not to say that prices will come down, but it does indicate a strong potential for demand destruction in the future. In order for prices to come down we need demand destruction combined with forced supply. Forced supply is critical because homeowners will tend to avoid selling properties in down markets, thus limiting supply and maintaining price equilibrium.



The hotly debated shadow inventory becomes the supply source necessary to cause further price declines. Lacking this source of forced supply (even if it is being withheld), has and can reasonably be expected to support a higher equilibrium price point than would otherwise be the case.



For me, I am going to wait. The primary reason is not because I believe prices are going to come down further (though I believe they will), the reason is that I am unwilling to purchase a home in my price range (I just don't like any). And, if prices are likely to decline, and are far far less likely to increase in any meaningful way, time is on my side.



Meanwhile I get to relax with cash in the bank while the housing market faces the triple threat of (1) rising rates, which WILL happen once the Fed MBS purchase program expires in March (2) increasingly and persistently high unemployment (3) enormous unresolved non-performing mortgage loans (read: shadown inventory).
 
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