Shares of Mack-Cali Realty Corp (US:CLI) fell 13 cents in trading today as it said it would exit the San Francisco market by selling its ownership interest in the three properties it currently has in it’s portfolio. Westcore Properties LLC, which is a private real estate investment company, will be buying two buildings, an 11 story office building and a six story office building, for $126 million. It is also selling substantially all of it’s 50 percent ownership in the Convention Plaza. This move was to focus on growth opportunities in their core northeast region according to Mack-Cali. While this is an isolated event by one REIT, it makes me wonder if, while the housing bubble is deflating in the west, whether the REITs are seeing a future where their buildings are deflating as well in the west and are moving to safer havens where the prices of real estate have not jumped up as high as in the west.
There are some dismal statistics relating to mortgages: -In 2000 0.6% of home equity loans were interest only. In 2005 the number is 32.6% -In 2005 43% of first time home buyers put no money down -15.2% of 2005 buyers owe at least 10% more than their homes are worth.
The mortgage bubble of today is similar to the junk bond bubble in the 1980's. Rising default rates were masked by by new issuance... and I believe this is happening now. The last week of August reported a decline in mortgage applications, for the first time in quite a while.
This is just some brief advice to buying a house in our current environment.
I would suggest first asking yourself why you want a house. Is it economic? Is it because you need more storage space? Do you not like the rules/noise/etc of apartments? Do you just want to because you want to be able to raise a family? Is there social pressure? You should make a list of these things, and think about them.
Secondly, regardless of if your move is economic, I would suggest looking at the economics. At the very least you should do a comparative economic estimate. With an apartment this consists of: a. rent (cost) b. utilities (cost)
With a house it consists of: a. interest paid on the loan (cost) b. utilities (cost) c. property tax (cost) d. interest you could have made on the principle you have in the house (cost) e. tax reduction on mortgage interest (benefit) f. Appreciation of house when you sell (benefit)
The most difficult to estimate amongst these is house price appreciation. I would suggest setting out 2 scenarios and thinking about what it would mean if either happened. The first scenario I would assume 3% growth per year until you sell, and the second scenario I would assume 5% declines in value for 5 years, then 1% growth until you sell. Using these 2 estimates, and knowing how much of a downpayment you want to make, compare an apartment to your 2 housing appreciation estimates if you moved in 2 years/5 years/10 years/30 years/etc. If this math seems tough send me an email or post a comment with some of your figures and I'd be glad to help.
After making this list and running through the economics you should start looking at houses. And look for houses that are EXACTLY what you want. There is a glut of inventory for sale right now and there is no reason to make exceptions. In every place in the country it is now a strong "buyers market".
Search web sites (such as HouseJockey.com of course =p ), for houses you would like to see. It is probably a good idea to get a buyers real estate agent, though that is up to you. The key here is, don't settle for anything other then a dream home. If you were shopping in 2004 or 2005 you may have had to settle, but in 2006 Q3 you can likely find exactly what you are after for sale somewhere.
After finding a house there are many ways to put in an offer, but if possible I would suggest doing these 2 things:
1. Use sites such as zillow.com, or the city assessor office, or your buyers realtor to help value a prospective house. Put an offer in slightly below this value... this is a buyers market after all. 2. Make the offer contingent on an inspection (these cost around $400). After the inspection comes through, ask that the seller fix or pay for all major things the inspector has in his or her report.
You will likely get a counter offer, and the only advice I can give on this is to remember that there is always another house for sale. Don't ever feel pressured or feel like you owe anything to anyone.
The simple fact is this: Housing prices have likely peaked but it is unclear how much they may decline over the next 2 to 5 years. All that is certain is that right now there are a lot of houses on the market, which means there are a lot of options. If you have a fixed rate mortgage you can afford, plan on living in the house for many years, and love the house that you find, then now is a fine time to be a buyer. Just make sure you understand the economics, and understand the potential downside risk as we are now at a "peak".
Northeast getting hit the worst in latest NAR data
NAR released national data today. Total number of sales is down 12.6% Y/Y, the median price is down 1.7% Y/Y, and inventory now represents a 7.5 months supply... the highest since April 1993.
From Forbes:
Most of the weakness last month was in the West, where sales fell 2.3% in August and were 22.8% below the level a year earlier. Still prices edged up 0.3% year-over year, to a median of $345,000. The biggest price decline was in the Northeast, where the median price was $271,000, down 3.9% from a year ago.
It takes me back to the post I made last June entitled "Wake up Boston! YOU ARE HERE". It was this graph:
While this isn't economically big in itself, it may indicate other similar programs will be revitalized in other high cost areas of California and the west coast.
Mayor Antonio Villaraigosa announced the revival of a program Monday to give homeless people federal vouchers that would pay most of the rent for apartments.
Villaraigosa said the program — which existed until 2004, when it encountered financial problems — could provide housing for more than 2,000 homeless. About 300 of the 2,136 vouchers will be used to help homeless living on skid row move away from that part of town.
Housing downturn only temporary, real estate agents told
Chief economist for NAR, David Lereah, gave a speach to some realtors in upstate New York today. From the AP wire (I don't believe the full speech text is available online yet):
The downturn in the nation's housing market, including the Albany, N.Y, region, was necessary and will be temporary for the most part, according to the chief economist for the National Association of Realtors.
I read this and was curious what 'temporary' means. Luckily David's speech had an answer:
He predicted a rebound in the next three to six months in most parts of the country, provided the Federal Reserve doesn't start raising interest rates again. Some areas in the South and West will take longer to recover because the boom of the past five years was much sharper than in New York and other states, he said.
Next I wondered what this kind of analysis this 3 to 6 month prediction could be based on. I don't think the speech had an answer for that though. Any thoughts? Anyone?
The number of carloads RailAmerica transported fell in August, primarily as loads of coal, lumber and forest products, intermodal and paper products declined.
The Boca Raton-based short line and regional railroad operator said its total carloads for August were 107,025, down 2,262 carloads, or 2.1 percent, from 109,287 in August 2005.
One of many industries seeing secondary effects from a cooling housing market.
MPs believe housing has a greater impact on people’s quality of life than health services or education, a new survey reveals.
The research published by the National Housing Federation showed that MPs see crime, housing, and education as the three biggest factors determining whether people enjoyed a good quality of life, followed by health, the environment and debt.
This is not too surprising, though I'm not sure why what "MP's" (members of parlament) believe is what should be driving policy. Shouldn't policy be driven by more sound academic study (and not academic study as to what is believed)?
Liz Atkins, director of strategy at the National Housing Federation, said: ‘We are glad MPs recognise the vital impact that good quality housing has on people's quality of life. With the country in the grip of an acute housing shortage, it’s vital that politicians of all parties make the case for increased investment and planning reform to speed up the delivery of affordable homes.’
NEW YORK (Reuters) - Lennar Corp. , the No. 3 U.S. homebuilder, on Friday cut its third-quarter profit forecast due to a deteriorating housing market, sending its shares down nearly 3 percent in premarket trading.
The Miami-based company is at least the third major U.S. homebuilder this week to forecast profits below analyst outlooks as the U.S. housing market cools.
Almost all of the major builders have been releasing these reports this week, and nothing looks positive. What is surprising me is that KB homes stock price dropped 5%, Lennar is dropping 3%... but why? Is there still a profit to be made buying put options (or "shorting") the builders? I didn't think so, but was wrong.
It is likely the builders are slowing down on the building now, at least. That is good for us homeowners.
This is probably the single best book in regards to buying and selling residential real estate. While the first two chapters were very basic (simple concepts as to when it is economically practical to buy a house), I was stunned with amount of information that was packed into the rest of this book. I consider myself a real estate expert, and couldn’t believe the amount of information I pulled. While I was skeptical during the first couple of chapters, it quickly became clear that June Fletcher’s top priority is the welfare of the reader, and not anything else. I did not find this to be the case with Eric Tysons House Selling for Dummies, Ilyce Glinks 50 Simple Steps to sell your home faster, or forsalebyowner.com's Complete Idiot's Guide to Selling your Own Home. I am not saying these other 3 books were made with intent to harm the reader... but they were not as bold or as honest as Fletcher when she says things like "Skip the open house... Open houses are really a way for agents to meet new customers." The book is packed full of information like this, and the others are not. For the average home seller (or flipper), the most valuable section probably lies in chapter 4 "Getting smart about Home Improvements". June is correct in her analysis of what type of market you need to be in to justify certain types of upgrades. Fletcher puts complex supply/demand elasticity problems into easy to understand terms. Besides the opening chapters being a little slow, my only other criticism is how the book is organized. There is simply no way to read this book "for the facts" or as a reference. Concepts/statistics/stories are all put together without significant enough breaks between them. This criticism may stem from my reading of the book as a reviewer, who is trying to quickly find and evaluate the advice more then a typical reader would... it is hard to judge if the typical reader would be looking for a casual education read, or just advice. If you are considering buying or selling a house, and if you are a book reader, then I would suggest buying this. If you do not normally like reading books, and would simply prefer "the facts" you may not be as satisfied with the book (though I believe this book contains the best "facts" available).
The WSJ forecasting survey, released about 20 minutes ago, showed a further decline in housing. The average prediction for 1 year from today shows an increase of 0.43%. While this is below inflation, it is at least above water.
The WSJ adds this:
The Office of Federal Housing Enterprise Oversight's home price index, upon which the economists based their predictions, has never posted an annual decline since its first calculation, in 1975. The last time that the index trailed inflation was in 1996, when home prices rose 2.6% compared to a 2.9% inflation rate.
David Wyss, chief economist for S&P is then quoted:
The most volatility will come in areas like Florida, where there are a large number of second homes and investment properties," he said. "Places like Michigan, which is seeing declining employment, will also see home prices declining.
Housing prices are just plain tough to predict. It is very rare that we see a decline in nominal prices(nationally), though the 2001-2006 price appreciation is also very rare. I think these forecasts should have confidence intervals or something.
In honor of this here are my offical predictions:
-I am 90% confident 3rd quarter GDP will change at a rate between +2.4% and +3.1%
-I am 90% confident that the OFHE (housing price) will change at a rate between -15% and +7% between now and September 1, 2007.
