IS HOUSING ALREADY DOUBLE DIPPING?
The market was ecstatic on Wednesday in anticipation of Friday’s big job’s report. But while the market rallied 2.5%+ there was a potentially far more important story than the census driven job’s report: the real estate data. While the data came in “better than expected”, primarily due to the end of the home buyers tax credit, there was an underlying red flag. As the end of Spring buying season coincided with the tax credit the buyers have literally become non-existent in the housing market. This was clear in the most recent mortgage applications data also released on Wednesday. Diana Olick at CNBC has done a fantastic job covering the housing market. She had the details yesterday:
“Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997. Yes, you can argue that a larger-than normal share of buyers today are all cash, but those are largely investors.
That means real organic buyers are exiting in droves.”
And she isn’t the only one noting the red flag. In Thursday’s missive David Rosenberg also pointed to the plummeting mortgage applications:
The good news at least is that U.S. mortgage applications for refinancing purposes rose 2.4% during the May 28th week — the fourth increase in a row and while hardly a major boom that should cause any forecast shift and it does add a bit of coinage in household pocketbooks. But the big problem is with housing demand given that the homebuyer tax credits are behind us — mortgage applications for new purchases fell 4.1% and down for four weeks running. This is where the rubber meets the road for new home sales — a fresh 13-year low.
The year-on-year trend in purchases is -34% and that is compound off a late-May 2009 trend of -20%. How bad is that? And this is with mortgage rates at 4.83%? No doubt there are scars left over from the misery of being a homebuyer following the detonation of the last bubble and attitudes towards debt and housing have been altered semi-permanently.”
Is the housing market already double dipping? That certainly appears to be the case – and exactly on cue as the government steps aside. While the mortgage applications are no guarantee of a renewed trend the warning flags are popping up all over the place. In addition to the negative seasonal trends ahead of us, we are also seeing lumber prices off 33% in the last month, continuing high historical inventories, a slew of mortgage resets in the coming years, and the biggie – the end of government intervention.
Earlier this year I detailed my outlook on housing and why I believe the real estate market is on the precipice of a double dip. I said we were likely in for further declines of 7-15% starting with the end of government stimulus:
“House prices decline 7%-15%. This is the most probable outcome in my opinion. In this scenario the private sector remains weak, labor markets rebound slowly, wage growth remains tepid, the economy grows below trend, government stimulus stops bolstering markets in 2011/2012, the economy perhaps double dips or re-recessions in 2012, and house prices ultimately succumb to the laws of supply and demand and decline another 15% or so.”
Investors are keenly focused on the potential time bomb in Europe, but housing is the domino that set the whole collapse in motion in 2007. The housing market was largely stabilized by government intervention. The consumer is likely to move in tandem with their largest asset. If we experience the 7-15% price decline over the coming 24 months that I expect we should see a retrenchment in consumer balance sheets and further tightening of the credit markets.
I have maintained that the housing stimulus was an enormous waste of money and nothing more than price fixing that would temporarily stabilize the markets. The government is about to find out why bailing out the losers ultimately works to the detriment of markets. Let’s just hope the downturn isn’t more severe than I suspect. And let’s all pray it doesn’t coincide with increasing contagion across Europe…..
The biggest problem with a double dip is that the government is not going to sit idly by. Get ready for another extension of the housing credit. And then another stimulus program, and then QE2 and QE3 by the Fed. And with each successive program, expect the effect to be weaker and weaker.
I’m afraid this will not end well.
if i wasn’t retired mostly and found TPC,…. or if i was working in the private sector,…….i would be past afraid…….
Way past…
I’m not trying to scare you guys. Just passing on what I see as reality and fact….
oooh, i don’t read these pages for paranoia,and i was even more pessimistic before i found this place.there were some “ifs” in my comment that was agreed to by lluvatar
if anyone gonna get more pessimistic it might be you listening to me.
keep em’ comin’ cullen,we are big boys,…….. i blow by outa breath 30-yr-olds everyday.
The dominoes are certainly lining up….
Hey now boatman, here’s one thirty year old for whom the double dip can’t come soon enough. Hailing from Cullen’s own DC metro since ~2004, I have watched my peers buy into this bubble for years while my wife and I to this day rent a 1 bedroom apartment. A friend of hers recently decided to walk away from a townhouse she bought at the peak of the bubble.
Although prices have come down from the ceiling, and our income has increased dramatically over the years, why should we buy now when it only looks like it has further to go down? If only the bottom could be left to fall, free from intervention, but of course this is wishful thinking with our wonderful meddling government at the ready.
So it looks like the forecast is for continued decline, with likely stopgaps of government “rescue” sprinkled throughout. Great. Maybe I’ll just rent for another 10 years and pay cash for a house when I’m 40.
I do not mean to tell a sob story here, and I certainly do not wish any sympathy for my situation, especially considering what others are and will be facing in the future. But I do have much contempt for our government’s actions in this market over the last decade+. While the focus remains on those with underwater mortgages, there has also been very real consequences to pricing out those who have saved in hopes of OWNING their owns homes, and not leasing/speculating on outlandish real estate markets with zero down ARMs.
i have mentaly put myself in your shoes many times in the last 5 years,and have said thanks quietly to whoever listens when we do that…… i have friends and nieces your age…..i have thanked my stars i have lived most my life in the good old days.
the BS real estate runup was the worst thing ever happened here n most other places.
i made some money on it but i swear i would give it back to have it never happen.most of the neat older places,restaurants,marinas around here have been bulldosed most for condos that were never built.
slip rent for my boat went 5x in 10 years.i would have to sell(give) it if i didn’t have a buddy on the water………he’s paying $20,000 a year taxes on a vacant lot w/ my boat at a little dock….no water,electricity…….ooops back to u
i am glad u have a job,… what i did-design,build repair yachts is gone……but its just as well for me.
i know DC is a special market and the NE prices are going UP.
i would carefully explore the house pricing there if i was in a position to buy if i were you.gov’t going to get BIGGER housing may have bottomed there.
HEY you could move to Ft. Myers if you can work there.
i was just talking about jogging n blowing by coughing cigarette smoking youngsters…..HEAR THAT, IB?
enjoy your youth,son…..it is usually wasted on the young n i did my share o’ pissin it away. enjoy the moment and its not about the things you have or don’t have….you will by 60 in the blink of an eye is what it has felt to me…..u will not believe how fast it goes.
good luck,
scott
Cheers, boatman. Many wise words. I am already amazed at how quickly the first 30 years have gone and I definitely don’t expect it to slow down from here. I have my health, my job (for now), my wife… Life is good. Just frustrating at times.
As for the DC market, it certainly is unique and some areas have indeed gone up over the last year. Even so, prices are still well above those of only 10 years ago. The thought of putting 20% down just to see it dissolve over the course of a few years just does not seem a worthwhile risk. Time will tell, until then the mantra continues: content to rent.
Me??? What did I do??
You smoked cigarettes to the detriment of several thousand dollars in “flash crash” losses
haha, well I also smoked cigarettes to the benefit of several thousands of dollars
besides, how many people not smoking cigarettes lost several thousands of dollars!
What’s that quote? “I feel sorry for people who don’t drink – they wake up in the morning and that’s the best they’ll feel all day”
Greater Fool is on top of this one.
You have to think the problem through as if you were a Fed official. If they let residential and commercial real estate go down, a terrible cascading wave of poop will reveal all the major banks to be insolvent and then all the Politicians and Financial Elite will be pushed aside and lose their influence.
No chance of that happening so expect everything Fool said. Housing/CRE will “stabilize”, but you’ll be paying $120 to fill up your car and dinner at the Olive Garden will cost $200.
Very sad state of affairs. I think the Feds and elite will still fail, but there’s no end to the lengths they’ll go to print money and thwart deflation.
This is why I like Mosler’s approach. You establish a payroll tax holiday.
Heck, how about a moratorium on all Federal taxation for a year or two?
How about other schemes that puts money back into the hands of the private sector? I am sure we could scheme up some really neato tricks! Like, hummmm, how about a $50K credit to businesses who hire a person. Crazy stuff like that…
So folks who have some chance of deleveraging can do so at an accelerated rate.
Or, walk away and rent. Housing prices are still way too high in many areas (but in Orlando they seem unreasonably low??). They have been propped up and that needs to end – the sooner the better.
We need to shake out the system and attain a stable equilibrium from which we then can depart. My 2 cents.
not in the bay area. house price is still insanely high that single 6-figure income family still has hard time to buy a reasonable house.
5 yr. old 4/3 homes outside warm quaint tropical ft. myers, FLORIDA, begging for $50,000……..thousands of them…..you should see the colors of the plants you can grow there……saw a 2/1 for $19,000………
my buddy just bought a 8 yr. old foreclosure 3/2 in porpoise point,st augustine,fl, you can see th water on THREE sides from the deck upstairs, he’s only 1 house off the intracoastal….for 208,000 the bank had 800,000 in it……
california has been a real estate aberation forever i been there i don’t get it.
helllloooo………
Let the housing markets go down this is part of the natural capitalist business cycle. There are peaks and valleys.When government interferes they exasperate the situation making the peaks and valleys worse!
We don’t live in communist China why do the American people tolerate government interference in real estate and stock markets?
Where are the lawsuits?
The U.S. government is acting like a neofacist government trying to control the markets.Let the markets be free of manipulation .
Stop the abuse Washington!
I think the US housing market will be troubled for a decade or more by “hidden supply”.
I really hate when people try to paint an entire market with one tiny little personal anecdote, but here goes: True story from last week…A friend and her husband wanted to buy a new house (greater Boston). They knew what they wanted and where. None of the houses listed for sale fit their criteria. They strategized and did the following: Picked out 80 houses they liked in the town, none of which were listed for sale. Drove around and distributed one page fliers to all 80 houses explaining their situation and asking the owner if they wanted to sell. Within three days they had 20 calls from the 80 owners indicating a willingness, or even stronger, to sell. They bought one of the houses that was never even on the market; at a solid discount to the listed homes.
Hate to say, but not much here. So your friends finally figured out how to buy real estate. Congratulations! They would have gotten calls even if the market was stable.
I tend to believe in the high side of your estimate there TPC. A 15-20% decline in home prices seems likely to me. Not sure there is a major bank in this country that can afford that…
off topic back to oil spill……what BP dip buyers don’t understand is,it is a $10,000 fine to disturb the sea bottom (like run aground w/aboat-even a small one)in fla. keys…..couple years back even a federal judge was handed the fine by the coast guard.
again the whole county is a US NOAA marine sanctuary….thats the FEDS–you don’t think they can get ahold of BP?……….oh and they are self insured,no one will write it.
they have LIMITED to 155 housing building permits issued a year in monroe county(the keys) and if they find florida holly on your property no one will EVER build there….no one ever….the zoning is changed to unbuildable natural habitat foever but you will pay your property taxes….if a homeowner clips ONE mangrove leaf its $10,000………….seriously and literally
exxon valdez was one tanker in one cove 20 years ago….
this won’t be-the oil comes in and thats it,clean it up…..it will be blowing back n forth and in and out for years….it will wash up on england’s shores…….i have a masters degree in meteorology i know a little about it anyway.
have you seen people with spoons and spatulas on tv picking it up?……spoons? there is no good way to clean it up.and these people are getting sick from the smell.
and all it has hit is alittle YET…it just hasn’t happened yet.
the DNR and the DEP will have BP’s head and everything else they have.we are talking about the enviromental federal government here in 2010 ….this is a different world.
right now there is a banner on the just-rented biggest building in marathon,florida keys that says “BP class action suit experts” with 10 lawyers and a whole bunch of legal assistants…..and the oil is not there yet.
BP toast.
the only natural thing worse than this would be an asteroid on the way.
i promise you these are facts, i live here.
BP is a pure gamble at this point. I don’t know why anyone would even mess with such a stock.
LOL. You answered your own question. It’s a gamble…as is ALL investing. After all, when you buy ANY stock, you’re betting that the stock price will be higher at some point in the future, right? I mean, with BILLIONS of shares of nearly every public company floating around, you weren’t really buying those few hundred shares for the OWNERSHIP value, were you?
Those folks buying BP stock this morning (or-like myself-yesterday at $29) are placing a bet. The only difference between this and buying AAPL or AMZN or JNJ or any other stock is the level of risk involved. BP at $30 is below the net asset value of the company. It’s a high-risk bet with lots of potential. It’s that simple.
Of course it is, but we all knew that was going to happen.
Fellas, expect more stimulus from us and the Chinese.
It’s gonna happen. And perhaps really not a bad thing either.
What, the whole world is going to be austere??? I don’t think so.
Can the govt really pass more stimulus at this point? Everyone thinks we’re going bankrupt!!!!!
I think so. I expect a few things.
1) Chinese stimulus and raw material buying.
2) Chinese support of debt markets as well as Fed. They’ve already said they are not going to sell assets until the economy recovers….. what the hell does that mean?? The Fed can hold toxic assets forever!! And it will by T-bills and roll them over as necessary.
3) Everyone thinks we’re going bk, but more important thing is jobs, jobs, jobs!!! Payroll exemption is a great idea and I fully expect targeted programs to be coming down in the next 3-4 months.
TPC, they are all worried about losing their jobs come Nov. They will but together extended UE (which after 2 years is an f’ing joke — 2 years tops and you can clean toilets if no job after 2 years, I’m not your momma).
They will do it piecemeal so it’s not such a huge number the dumb MSM can point to. $50B here, $95B there. Watch it happen…
well it would help if they spent those TPC notes on something other than a bullettrain between LA and Lost Wages-Vegas for harry reid.
no, TPC, we can’t go bankrupt, i have a story about an island for you, make it all clear.
Been trying to sell my house in MN for 9 months. No one even comes to look at it, let alone make offers. Same for 20 comparable houses nearby. It doesn’t matter what you do on price, there are simply no buyers. The same houses sit on the market, week after week, month after month.
Could it be, uh, the high property taxes?
That is a case in many US areas. We sold a large house in New Orleans that we paid $70 tax/year on. Another smaller place in nearby Covington, LA, we pay $900. Here in Mexico where we are now (since Katrina) we pay $50/year for a really big house.
“…there are simply no buyers. The same houses sit on the market, week after week, month after month…”
That’s what happens when jobs disappear and people realize that they have little/zero savings. Nobody moves. No jobs to move to/for. And the few people that can find work and move – they rent.
And to all the “we are not going bankrupt” folks… bad news – we are already bankrupt. We are spending our grand-children’s un-realized earnings now/today, and leaving massive debts (w/ interest) in our wake. We will never be able to go back to the 50s or the 70s or the 90s… a double-dip is way too optimistic. We are going down and staying down. Learn to grow food or repair shoes or whatever. The days of showing houses and raking in commissions are over, along with 70% of the professional service sector. Gone. We are living on borrowed time… like Wiley Coyote suspended in mid-air off the edge of the cliff… he goes down every time and so will we.
I type all of this with great sadness. But better to face the truth now. The Fed/gov’t/banks/etc. are not “in control” of anything. There is a distinct LACK of control and it’s plain to see for those already awakening from the ‘denial’ phase.
Duh. Your house is PRICED TOO HIGH. There will ALWAYS be buyers AT THE RIGHT PRICE. Obviously, yours is NOT EVEN CLOSE to the right price yet. Lower your asking price and potential buyers will show up (note that I didn’t say buyers…because you need to lower it ENOUGH to get an actual buyer).