"Housing Fades as a Means to Build Wealth, Analysts Say" - NY Times

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

...

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.

“People shouldn’t look at a home as a way to make money because it won’t,” Mr. Baker said.

Read more in the today's NY Times.

And more from Yahoo Finance under the headline, "Now They Tell Us: Experts Say Housing Is A Lousy Investment And Always Will Be."

Don't forget to check back to Dan's Deep Creek Blog for your future updates on Deep Creek real estate.

Speaking of taking losses on property sales ..

I thought I should revisit this story from the early days of this blog. If you click through the link you will see that the property was listed as "very competitively priced" at $899,900 and a few months later the price was slashed by $100,000 so if the initial statement was in fact true I assume it really must have been a steal at that point. Well guess again, the final selling price as it turns out was $725,000 (not even counting any incentives that might have been tossed in), nearly $175,000 below the initial asking price (which the agent told us was very competitive) and about $25,000 less than the previous owners paid for the home in 2006. And that's not even counting what they paid the real estate agent to market the property to you and I as such a steal or the other hidden costs of short-term speculative real estate investments. All told they may have ended up with almost $100,000 less than they started with as a result of this "investment" in which they put down virtually none of their own money. I bet their listing agent still smiled all the way to the bank though.

The bottom line here is that people aren't just losing money on bad housing investments in Las Vegas and Miami and Phoenix and Southern California, but also on vacation homes at Deep Creek Lake. I know the real estate blogs are still trying to paint a rosy picture but I'm here to tell you the truth and sometimes the truth hurts. I did learn something though, next time I want to buy a house I know of at least one agent who I won't ask how much I should pay for any given house, unless of course I remember to consider that "competitive" to him means 25% too high for me. Buyer beware.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Doppler radar picked up on a ton of stormy housing related news yesterday ..

not to mention a nasty little hail storm that I got caught in last evening. Don't worry though I'm safe and sound and blogging away extra early this morning. Here are just a few of the news items I saw scroll across the bottom of the page yesterday or pop up on the news that wasn't about the Olympics.

Leading things off is a piece from Seeking Alpha, which is a great site for the individual investor that I have not mentioned here before but read regularly for free advice and education. The article discusses the ongoing fallout in the housing market and cites an industry source who claims 1/3 of all home buyers in the past 5 years are now "under water" on their mortgage, meaning they owe more than the house is currently worth.

CNNMoney.com has a very similar story detailing the fact that 25% of all home sales over the last year were sales in which the sellers lost money. Pretty amazing stuff there.

The Yahoo! Finance Tech Ticker has a video of an analyst discussing why he thinks there is no housing bottom in site yet. His thoughts are very similar to what I have offered here myself: lots of supply, fewer qualified buyers and prices still historically high by a number of valuation metrics and are due for an extended correction. He even says real estate agents are telling him sellers have unrealistic expectations.

Then there is Mr. Housing Bubble himself, Alan Greenspan, predicting that housing prices will stop falling in early 2009. This guy is still alive and still babbling? Doesn't he realize he's been replaced? The story was printed in the Wall Street Journal but can be accessed easily at Yahoo! Finance.

And another story from CNNMoney.com on rising defaults in the prime mortgage arena. Of course the story here is that it's not just subprime anymore and it's not just people with bad credit, but even people with previously solid credit records got in over their head it seems. Swept up in the frenzy and the euphoria you might say.

And finally, Jack M. Guttentag, also from Yahoo! Finance writes about how the down payment makes a comeback and offers a good explanation on why that is the case. He also gives some pointers on what you can do to help yourself out if you are looking to buy a home, including "save, save, save." He must be reading this blog or maybe he just has some common sense too. And not the kind one of my readers is talking about in his recent comments on this blog to former State Senator John Bambacus either.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

We are not alone .. in the UK lending has slowed to a "trickle" ..

an interesting piece from the Economist.com.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Garrett County Housing Starts Down Dramatically ..

This week's edition of the Republican Newspaper reports that the number of housing permits issued in the first half of 2008 is down 20% from the prior year. I actually took a minute to make the table you see below based on the data provided in the story and while the 20% decline from last year is rather large it pales in comparison to the nearly 50% decline in permits issued from the first half of 2004 to the first half of 2008. The good news for anyone trying to sell a home right now, however, is that builders are realizing there is a severe glut of unsold properties right now and are no longer willing to add to that glut. I discussed the unsold inventory of properties and subsequent price declines in Garrett County based on May 2008 data in a pair of earlier postings. As bad as that data was for May 2008, believe it or not June 2008 inventory was higher with sales slower, certainly suggesting that a pullback in new construction was unavoidable and necessary at the same time.



Don't forget to check back to Dan's Deep Creek Blog for future updates.

Two weeks ago I got an e-mail from someone asking for my thoughts on the housing market ..

I've known this guy and his wife for a number of years now and they've spent the last four, maybe five, years fixing up an old historic house in the city. Think this Old House but a little further south. It's been a lot of work for them, not to mention the time and cost involved, but the project is nearly complete now and all their efforts are starting to show through in form of a magnificently restored house. They both have good stable government jobs, still though they are somewhat concerned about the future of the market in their neighborhood and what this might mean for them down the road.

Here is his paraphrased question:

So, what is your current take on the housing market? Prices are all over the place in our neighborhood. The big places are still selling for a lot, but just around the corner, they can't sell.

And my response:

In my opinion, it's really hard to tell what is going to happen longer term because the big unknown is how much inflation will the government allow (cause). It's easy to say prices will be relatively flat for some time based on the current market but if they let everything else inflate eventually what you owe on your house becomes a lot less in real dollars (just as our current national debt becomes a lot less as well). So I guess I'm saying that I still expect prices in 2016 to be about where they were in 2006 as I stated at that time, but at the same time feel there is a very good chance that inflation though killing us in other ways will actually help bail people out of some of their housing related debt.

I also think there are a lot of people out there with money who can buy the big houses like yours and get financing (although I believe there is somewhat of a lag in this market) whereas the D and A's are essentially out of the game now without the cheap financing. So that is why you see higher-end houses still selling but most first-time buyers (who drive the entire food chain and eventually support the rest of the market) are out of the market because they either rushed in over the last few years or have no real money for a down payment. The other unknown is tax policy. At this point we have no idea how Obama's taxes on the rich might affect the upper end of the market or how a housing stimulus package might change things as well. At the end of the day, I think you just have to be reasonable and accept that you don't know what you don't know so that you don't get into a tight situation. I have a pretty good idea of your situation and don't think you have gone overboard so as long as you are comfortable you won't have any problems (unless you want to move in the next year or two).

As for when things might turn around, look at this chart on monthly mortgage rate resets. I think it is safe to assume that after 2012 things could improve dramatically when all these people who shouldn't be in houses in the first place stop putting downward pressure on the market when their loan resets and they have no option but to walk away or sell. Now that we know that a lot of the worst loans were made in 2006 at the peak of the madness that spike in resets looming in 2011 (when 5-year interest only ARMs issued at the peak would expire) is particularly troubling (if not alarming). Of course a policy change could push this date forward or backwards too depending on what happens. So like I said just realize that you can't know exactly how the future will look and use common sense and don't do something stupid and you will be fine.



This is very much what I have told others who have e-mailed me or called me looking for investment advice. Two days ago in talking about the bank meltdown with someone else they asked if I would be a buyer or seller of stocks on Tuesday and I said there were good buys out there and not all of these banks are going to zero. I believe Wells Fargo proved that point today, at least for now, but tomorrow is another day. And we have to remember that Wells Fargo's news wasn't that all was well and improving but more of the sort that things are bad but not as bad as some thought or as bad as at IndyMac.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Garrett County Market Update ..

Yesterday I was reading about new home sales on a national level being down by a wide margin in both number and sales price on a year-over-year basis. Buried in the data was a tidbit about the inventory of unsold homes would take over 10 months to burn through at the current pace of sales. You can probably guess that this made me curious above the inventory levels and current pace of sales in the Garrett County market, so I did some searching and found this website from the Maryland Association of Realtors which provides just such data for all of Maryland's counties.

Here's what I discovered. This time last year in Garrett County there were 514 active listings (inventory) and the monthly rate of sales for May 2007 was 31, thus Garrett County had 16.58 months of active inventory (which in itself was up significantly from 2006 and 2005). Fast forward to 2008, now the current number of active listings is 721 and the number of sales for May 2008 was 26, thus Garrett County now has 27.73 months of active inventory. This means that at the current pace of sales even if no new spec houses were built and listed for sale and no additional existing homes were listed for sale it would take 27.73 months (until approximately Labor Day 2010) to burn through the existing inventory of unsold homes/properties. Well and improving daily, indeed!

With numbers like that I wouldn't even think about making a full price offer at this point. Buyers certainly have A LOT of negotiating power though. The situation looks pretty bleak for those pre-foreclosures I'm seeing on foreclosures.com and RealtyTrac given that they have little or no chance to let the market absorb their property sale prior to going into full-blown foreclosure or being forced into a short sale or auction situation. These special situations might help a buyer get a discount while helping the seller get out from under a crushing burden of debt so in a way it's a win-win situation and definitely worth checking into if you are in the market.

Don't forget to check back to Dan's Deep Creek Blog for future Deep Creek real estate market updates.

Checking in on another "vacation" housing market ..

this from Salt Lake City which has been mentioned several times of late in comparison to the Deep Creek market in terms of the relative immunity from the housing downturn. While Mr. Yun's optimism parallels that of his predecessor, Mr. Lereah in 2006, what I find most interesting is Mr. Yun's final statement that "Five years from now 99 percent of the markets will have higher values than today." Is that a promise? That sounds an awful lot like a promise to me. If I buy a house in every market is he going to personally insure any losses I might incur in this speculative foray?

An alternate view by David Leonhardt, which suggests house prices would have to fall by 1/3 to become realigned with their historical ratio to personal income (one of those mean reverting numbers you hear about). But we all have a 99% guarantee from Mr. Yun so get out there and buy, buy, buy before it's too late. Where have we heard that before? Oh yeah, none other than Mr. Yun's precedessor again. Notice from the cover of his book that in 2005 he was predicting the boom to continue through the end of the decade. My "alternate source" pretty much sums it up in saying that "The exact path that housing prices will take over the next few years is, obviously, unknowable"! Thanks for telling us otherwise Mr. Yun, you wouldn't be doing your job if you didn't, but oddly enough we always seem to know what your forecast will be. Sunny days, cool nights. Lots of good wine making in REALTOR land.

And as an added bonus here is Mr. Yun in Michigan promising huge equity gains within two years! Pay special attention just after the 2:30 mark in the video. Where does the NAR keep finding these guys? And as to his reference a little later on to Warren Buffett, here is what Warren Buffett himself had to say a month afterwards on the credit crisis and residential real estate.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Could the credit crisis last two more years?

Contrary to something I read on a Deep Creek real estate blog last week about the credit crisis being over, today, Jack Malvey, Lehman Brothers Holdings Inc's chief global fixed-income strategist, and Richard Bernstein, chief investment strategist at Merrill Lynch & Co Inc, predict a "credit recession" that may last for 2 more years and lead to "massive consolidation" in the financial services industry. You can read more of their comments at Yahoo! Finance.

While it is completely possible that the worst is already behind us, this also suggests that now is probably not the best time to overextend yourself and go out on a limb hoping to make a speculative gain in the next 2 or 3 years. Of course, everyone must also remember that if these guys were truly fortune tellers and seers of the future their firms would not be writing down billions of dollars in losses related to bad investments in the sub-prime/housing arena.

This story from CNN/Money Magazine scrolled across my news feed at the bottom of the page while I happened to be looking. It seems the CEO of Toll Brothers thinks housing is currently in a "depression" and a recovery could be 3 years away. I suppose the sooner we get to the maximum amount of pessimism where everyone is ready to throw in the towel, the sooner we can move beyond this and start to turn things around.

Don't forget to check back to Dan's Deep Creek Blog for future updates.