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The Making Of A Housing Market
The decrease in nationwide inventory is an ongoing trend. Keeping supply constricted has clearly helped with pushing prices higher as demand is now competing for a smaller number of homes. A lower mortgage rate has also pushed the monthly payment amount lower thus allowing home buyers to purchase more home with stagnant income levels. The recent employment report should come as no surprise. The recent moves in the housing market are spurred on by record low interest rates and constrained inventory. Yet this should not be mistaken with an improving economy that is pushing prices higher which would be healthier. We have a limited horizon before the summer selling season comes to an end and the market is put to a bigger test in fall and winter. Looking at market data from a variety of perspectives shows that the market is far from being normal.
Orange Country Snapshot
Orange County is seeing a solid jump in sales this year. We have seen a good amount of short sales hit the market recently. If we look at MLS inventory and last month sales we have approximately two months of inventory! This is back to the days of the mania. Yet this is only part of the story. Take a look at the total Orange County market:
Short sales are a big part of the visible MLS inventory making up roughly 30 percent of all inventory. Look at how tiny the REO listings are. But take a look at the yellow foreclosure pipeline. These are homes in the foreclosure process. This figure is nearly twice the size of the non-distressed visible inventory. These are households unable (or unwilling) to pay their mortgages in an expensive county. Does that seem healthy to you? Just because banks are selectively leaking out inventory does not mean the market is healthy.
It is an interesting observation on human behavior when you examine the thought process of those buying.
“Banks can do whatever they want and I need a home to start a family.”
“These record low interest rates are making it tempting to buy.”
It is fascinating that many do thoroughly understand what is occurring. That is, the market is like a Hollywood set and is fake. It is a façade yet the financial system that proclaims “free market” capitalism all the way through is more than willing to let a command-control housing market take place. The irony of this all is that many of the programs holding up the market (i.e., FHA insured loans, GSEs MBS, etc) at their core are set to keep housing affordable for Americans.
So what you see for example in Orange County is a surge in home sales:
Price gains are seen in condos and new home sales. Prices declined a bit in resale homes. The jump in sales from last year is solid.
Foreclosure filings still occurring
In spite of home prices moving up and visible inventory going down, foreclosure filings are still occurring at an elevated level:
These are fresh filings entering the pipeline. These are filings that will go to the yellow column above. The good news is that year-over-year the number of filings has declined substantially. This is a positive for the market. At this rate we are years away from any semblance of a normal market.
What needs to be taken into context as well is the desire to modify loans and also, the jump in short sales. Banks seem to be willing to agree to short sales (if a place like Orange County has 30 percent of visible MLS inventory as short sales this is definitely a strategy that is being pursued). Short sales by definition will likely push prices lower in metrics like the Case-Shiller that look at repeat home sale.
Nationwide inventory
The trend of lower inventory is occurring on a nationwide basis:
Inventory is back to levels last seen in 2005. The strategy of leaking out inventory in a controlled fashion while leveraging low mortgage rates seems to be the ongoing plan. If you speak with many investors in the trenches their investment strategy really is dependent on the moves the banks and government make. If you truly looked at the market as being transparent and open, you would likely jump in with both hands since visible supply is low and demand is still there. Yet you are contenting with a multitude of other factors:
-If the market is healthy, why are we seeing a large number of short sales?
-If supply is so low and demand is here, why are banks restricting inventory?
Bottom line, banks are trying to maximize profits via re-writing accounting rules and using massive government bailouts to their benefit. Short sales do better than foreclosures. Constricting supply obviously will push prices higher. The Fed owns trillions of dollars in MBS and we are left with a record low mortgage rate. The market is looking for lower priced housing while the financial system is determined to do everything to keep prices inflated. Financial scandals are hitting left and right and no solid reform are ushered forward.
Moving in with mom and dad
The increase in prices and sales is a short-term trend unless the overall economy gains traction. What will be important to see play out over the next decade is how younger Americans will perceive housing. This will be a less affluent generation. Many are already massively in debt for their pursuits of a college degree. Since the recession hit, many have moved back home with parents:
2.25 million adults have moved back home for a variety of reasons since the recession hit. You wonder if this generation is willing to dive into massive debt to purchase a home simply because a mortgage rate is low. How many will qualify if they have lower wages, a bigger student debt obligation, car loans, and other forms of debt?
What is more likely is that demand for rentals in the short-term will be stronger and we are seeing this with increases in rent nationwide. You also see many of these people unable to qualify for mortgages in a tighter lending environment. The typical pattern goes:
Live at home >> go to college >> rent >> buy a home
In the past it was easier to go into the workforce as a blue collar worker and still qualify to purchase a home. Yet many Americans are now competing for lower paying service sector work so college or vocational training is the only route to a stable lifestyle and what one would consider middle class. Couple this with the massive baby boomer wave of retirements and we are certainly entering a different time.
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It happened to NYC, why not LA?
I think the LA folks are looking at the financial statements of BK localities and doing some ratio analysis to find out when their SHTF time will be (although we all know that it is now). Would be funny if LA went BK just before Villaraigosa spoke at the DNC Convention.
LA should tax hollywood at 70%. Maybe that will wake up those rich/brainless actors. Hey, it's for the good of the community. sarcasm
I have a better solution. Dissolve all city governments. None of them are needed.
Nice try! In fact, CA/LA are giving the studios tax breaks after many have left to produce films/shows in lower costs cities/states and Canada. Higher taxes for thee, but not for me!
It doesn't matter how many current employees you lay off when you're still paying for the retiree pensions and worse, the ever-rising healthcare costs for them and their spouses. And I'll likely get junked for this but it doesn't seem that union emplyees contribute enough to cover the rise in healthcare costs -- if they contribute anything at all. And the more current employees you lay off, the fewer people you have paying into the pool that pays the cost for those drawing benefits.
Then when you add accounting chicanery to the mix as some claim occurred in San Bernadino ("I dunno wha' happened, I thought we had money!")
I think they're all eyeing bankruptcy just to get out of the pension obligations.
Not all city employees were promised unfunded pensions, look at LA's numbers specifically.
The contracts made with bankers should be rescinded first. Why is always the contracts made with the people that are defaulted on ?
Iceland style
You know how you solve the health care issue? Make all susidized health care illegal, make all insurance based health care illegal. Enforce self pay healthcare for everyone. Doctors would now be competing against each other for clients. Prices would reduce, and you would have people more focused on staying healthy and eating correctly and exercising. Everytime insurance gets involved, it completely fucks pricing up.
in 1980 the hospital bill for my wife's C section was 1400$. presently on the insurance fee schedule, insurance pays 17,000$. now what changed.
certainly the procedure did not change, not the number of health care workers, nor the facility necessary, nor the expertise so whats the deal.
the thought occurred to me that the real inflation rate since the 1980's is hidden in the distortion of off-shored jobs and supply side goods. that the real inflation rate is hidden in plain view in the cost of health care. hidden due to the fact health care expenses are near impossible to offshore and must reflect domestic costs to supply.
that being a good assumption, it means the economic distortions have only led us to believe that health care is high when in fact household earning has not kept up with true inflation due to distortions in the price of STUFF produced at slave wages elsewhere in the world. granted big pharma and technology has done their part to drive up health care costs but in the case cited above, those factors are neutralized revealing something important, I think..
<<you would have people more focused on staying healthy and eating correctly and exercising>>
My doctor once told me he would lose 50% of his customers - patients if everybody ate properly, wasn't overweight, and exercised regularly.
... needless to say he doesn't recommend any of those three things, he prescribes pills and sees you in three months.
I met a Mexican welder one time who was 49 years old. He had never been to a doctor and said he had never been sick.......Hmmm.
look Jani, your doctor lies: what keeps you going back is your own insecurity about your health needs..we have been propagandized ad nausem about the latest disease and our total need for Hinsurance..if you had less fear of being sick you would be much less "sick"..everyone seems to need the safty net, when in fact, you would be better off not paying H insurance live a healthy life and stop being terrorized by the healthcare industry
Obviously your doc is a graduate of the University of Merck.
Best comment I've seen in a long time.
Yes, insurance is the problem.
Now Odumbo is gonna make it worse with Odumbocare.
Briefcase's full of hundred dollar bills run our country...
No chance of that happening.. When we had a kid, my wife had absolutely no issues and was a very easy birth for the hospital.. They forced us to stay for two days for mandatory monitoring.
They then sent us a bill for just over $ 10K and our insurance covered another $ 20K
Health care is in deep with the fraud ponzi. It will never end.. Until it suddenly does, for some unforeseen reason...
What a fucked up country.
Agreed smiler. My son had to pay 12k for a fricking baby and pay it up front to boot when they had our grand daughter. That was his portion of the insurrance bill. The system is indeed fucked up. I am not a smart investor like some of you may be but I can crunch some numbers and one word of advice for all of you. Anytime you get any procedure or visit an medical pefessional get an itemized bill and you may get some money from your insurance company to the tune of 10% of the total overcharges.
My wife had her plumbing removed some years back and the hospital overcharged us 6,600 bucks. I got 10% of that for just auditing the bill. Of course the hospital got pissed when I asked for an itemized bill as they hate to provide them to a paying customer and it is worse then pulling teeth to them. We tend to take insurance for granted and just pay our part and move on. Just like investing in my small mind saving yourself some money is always good and you can always file a grievence and stop the process of collection if they will not provide the information you need. Knowledge is power all and why take it in the ass if you feel you got screwed.
Over the years that 10% has added up to over 4k from the insurance company. If you do have the cash you may be better off paying out of your pocket for routine stuff. 50% discounts for cash in some places is nice.
Insurance, HMO, Medicare tend to pay hospitals per Dx and/or procedure for inpatient stays. Case managers for the HMOs, Medicare guidelines, and contractual agreements between insurers and hospitals limit what can be billed and what the HMOs will pay. They are expert at manipulating the terms of their contracts and / or Medicare guidelines (for Medicare HMOs) to reduce what they reimburse hospitals for. Advantra, for example, sets the bar so high on authorizing admissions, that most people with Advantra end up in hospitals on "observation" with everything billed as minor medical / outpatient or under Medicare part B. (Don't ever buy Advantra insurance-- you will get the minimum necessary healthcare). When billing people privately, hospitals bill the maximum they could possible receive-- an amount they would not get from any HMO, insurance, or Medicare. By asking for an itemized bill, you are billed by procedure rather than by Dx treatment. This should reduce your bill. You should be able to negotiate the bill further, however, though it would require inside knowledge of medical practice and what is considered general practice for every diagnosis and procedure. You are hamstrung, however, by the fact that you do not have a contract or any federal law (Medicare guideline) to serve as the basis for offering a fee below what the hospital claims that you owe. This is the problem with paying privately. You have no rights.
Did the same thing when my kids were born. Line item bill, paid cash, etc... saved thousands.
The real threat to our healthcare system is final year expenses for all the boomers. The last year of everyone's life is where you really rack up the costs. Something has to be done to cap those expenses to keep you going for a couple more months. I have seen it personally with a couple of our parents and friends parents who in their final year rang up medical bills of $200-600K. Multiply that by millions of boomers and Medicare will go bust no matter what.
easy to say until you are the one taking that last gasp of air. And its already being done. If you are over 80 and walk into the hospital with an ingrown toenail before you know it they are setting you up with hospice care and then when you are not looking a nurse will send you on your way with a double dose of morphine. Unless of course you are not using medicare and pay cash instead.
That's precisely what the health care industry depends on.. And precisely why medicare is the first and last can to be kicked.
Insurance companies capitalize on human fear. It is laughable that Americans are so scared about medical bills that they buy insurance on the copay amounts, they buy pet medical insurance and more. If you can't afford the pet meds, you do not need a pet.
When we return to the US after 14 years overseas, we shopped for health insurance the best monthly rate we could get for the family was $1400 (major medical) and it had 20% copay, restrictions on maxima and many other small print.
We thought that if we don't get seriously sick for a year we are home free. We started a med account putting in the bank 1400 per month. It has been 12 years and we have only spent 20k in medical including things that would have not been covered or it would have been copayable.
Jena,
"Orange County, California, which suffered the biggest municipal bankruptcy in U.S. history, may borrow as much as $320 million from itself to pay pension costs as its expenses for retiree benefits balloon."
http://www.bloomberg.com/news/2011-01-28/once-bankrupt-orange-county-con...
From the article: “When you think of the concept of borrowing from ourselves, we ask, ‘Why not?’” Supervisor John Moorlach, a former county treasurer, said yesterday in a telephone interview. “Who’s a better credit than yourself?”
Gee, I can think of a few people. I certainly wouldn't pick any municipality, county or state agency. Ratings agencies be damned, they ought to get theirs from the Annual Credit Report just like the rest of us.
"borrowing from yourself" is bullshit. Shows how loony tunes those people are. Freikin insane. And they're running local governments. Scary.
All city governments need to be shut down and dissolved. None of them are needed. Wipe out those pensions, dump those lazy sorry ass govt workers and retirees out on the fucking street.
Well, I may play the new trick this winter when looking at a house. Does anyone know if it is possible to get blackballed by the RE industry? Planning on coming in at or barely below asking price. Go into contract, tie the seller up for 6 weeks approx. Get a very anal inspector to show that the property needs tens of thousands in repair, and bump the price significantly down. If they don't budge, no biggy, I wait it out... I wonder how successful these people are doing this? Pro's / con's?
Sales contracts have a break clause to prevent exactly what you're wanting to do.
"Go into contract, ..."
I don't understand what you are saying. Your are "in contract" only when you have agreed to a purchase price and usually have placed ernest money into escrow. How do you think you can successfully make demands after you have agreed to their purchase price? To be legally binding, the demands have to come before the contract is signed, not after.
If you refuse to honor the contract you have signed, the seller could sue you in order to force performance of contract. More likely, they would simply sell to someone else, since you are not honoring your sales contract with them - which invalidates the contract.
Contingency clauses! Remember the old rule: "The large print giveth while the small print taketh away".
just signed a std contract which gives me 14 days to do my "home inspection" and back out of the deal if problems are found. I would lose my $150 option fee if this happened. There used to be clauses concerning property not appraising for the sales price or stuff needed to be fixed before bank will finance. Not sure if that was in this contract since it was a cash offer. The last time I played this game 22 yrs ago it worked well when done with a fixer-upper/sweat equity.
Hahahahaha, I take it the negative rating person must be a shit shack flipper and does not want to hear this... hahahahaha... too bad, coming to a house near you...
Or you could just make an insultingly low offer. Maybe that's too easy?
Been there, done that. It was awesome...
You can "try" anything. Most sellers will tell you the house is "as is", some may fix a few items on the list, others may say the house is yours at your low ball price if the bank agrees to do a short sale at that price (sellers doing short sales have no equity to save, so they don't care).
The latest trick around here (since the low end houses are mostly all gone), is price the foreclosed homes really, really low (attracts a bunch of attention when it hits the market). A house that would sell for $125K, comes on the market at $15K. You call on it, tell the broker you will make a cash, full price offer at the asking price. She then tells you the bank is reviewing the first twenty cash offers, and she already has offers over $100K. So now the house you thought you could get for $15K, is now over $100K and she is running a bidding war for it. It's like an auction only, the bank and realtor have time to play games with all the interested parties playing all the offers off each other.
"Scam that Home Buyer" will be the new TV show instead of the old, "Flip that House." I wouldn't touch a house in this market. We have no thear how many defective title closings there were between 2004 and 20011. This is in addition to all the defective bank/lender mortgages.
Been there, doen that during the house bubble in the 1980's. Cost me $68,000 in legal fees to get the title problem resolved. Instead of buying just a house, they sold me a legal mess.
I think it is only a matter of time before the USG is forced to face their solvency issue (just as the Europeans are now doing). Once this occurs, they will have to choose between what debts to guarantee. Back stopping MBS and student loan paper will be the least of their priorities once Treasury auctions fail. Therefore, I think it would be smart to step aside from housing until that moment is reached. With $1T+ in debt being added each year, I doubt that it will be more than a couple years before it happens.
When the Fed is always standing by to purchase Treasuries, there can be no failed auctions, only a failed currency.
True, but a failed currency still translates into lower bond prices which is highly deflationary for housing prices.
Nope, bond prices will be kept inflated with continuous printed cash injections into the bond market right up to the day the currency collapses.
Thats why nobody will see it coming. Financial markets look fine right up to the day the bottom drops out of the dollar.
This IS the Fed's plan. We've seen it 4 years now. Keep printing and pumping cash into financial markets to keep them inflated.
The only casualty is the currency, which is on a direct path to collapse.
Even with all of the money printing in the past 4 years, M3 has not budged. De-leveraging is alive and well. Without Federal borrowing and money printing there would be an out right credit collapse.
M2 grew by 9.5% from 5-11 to 5-12
http://www.federalreserve.gov/releases/h...
The reason why it has been growing is that consumer credit is growing, especially student loans.
http://blogs.wsj.com/economics/2012/07/0...
http://www.federalreserve.gov/releases/h...
M3 is growing slowly as yu say. I am not sure but probably due to the EU crisis and th egrab for dollars. That's why the Fed is prob swapping with the ECB; i.e., to inject money.
That's my guess.
In any case, house prices will continue to slide lower as said above an dbelow...stagnant wages, failed pension plans, and 10,000 Boomers retiring a day. The drop is more then cyclcal; it's structural and the combo will prob force house prices lower "for a generation" as one analist said.
Rest of the world doesn't give a shit about your fake manipulated M3 numbers. When everbody else drops USD as world reserve currency, that's it, game over for the dollar ...and game over for America too.
Drop the USD for what? The euro? The yuan? Spare me. They are all playing the same game. Its a fiat world!
Then explain why China is buying all that gold.
Its a bearish omen when central planners are buying. They are the ultimate trend followers.
Direct currency swaps, barter and gold (all three are already happening) There are about three stories a week here at ZH reporting these types of transactions outside the "reserve currency" realm. D-day is when oil producers and/or china demand that the gold window open again. China has bought more gold in the first six months of this year, than England has in reserves. The times are a changin.....
The USA has by far the largest reserves of gold. So when and if the gold window opens it may be in a better position than China or any other nation. Having said that, I doubt that it would ever happen because all major governments are not interested in losing their ability to devalue currencies or tax through inflation.
They claim they do have the largest deposits. Maybe all that gold belongs to other countries and has been rehypothecated over and over. Who knows?
After all the exposed fraud that is being uncovered, which has been going on for years and years, nothing is believable anymore.
No trust in the system. Thus everyone shuns dollars and other fiat money.
When the Indonesian rupia and Peruvian sol are strengthening against the dollar and the Euro, you know that something is brewing.
If you have $10k or more in savings and don't own physical gold and or silver, you must start now. It's never too late.