My Predictions: July 5, 2007

1. When will the housing slump end in FL and in the US? (sarcasm: Lawrence Yun can forecast this globally )

2. In your opinion, what will the median price of a home be in the US and FL at the time when the market hits the bottom?

3. Will the country go into a recession by the end of the year?

I'm curious about how everyone would answer these questions, as well!!! The answers are time stamped, so we can look back and say, "Yep, NYCF was completely wrong!" or vice-versa.

I'm not a RE pro, but here's my answers, based on my kajillion hours of research (and gut feeling) so far:

1. When will the housing slump end in FL and in the US?

Answer: There'll be spikes both statewide and nationwide, but the bottom won't happen in FL until at least 2009 (or probably later). That doesn't mean I'm willing to wait that long to buy a house. If I (or anyone, for that matter) find a house that matches what I'm looking for at the right price, I'll buy it. Nationwide, the US as a whole will recover quicker, with the exceptions of states like CA, FL and AZ. That being said, with the upcoming reset of ARMs, the sluggish economy and current stagflation, the nation won't recover until at least 2009, too.

2. In your opinion, what will the median price of a home be in the US and FL at the time when the market hits the bottom?

Answer: The median household income for Florida (based on a 3 year avgerage, ironically during the housing boom years of 2003-05) was $42,079. According to Century 21, you can afford a home equal in value to between two and three times your gross income. So if the median Florida salary is $42k, then they can afford a home that's worth between $84k and $126k.

This answer ties into question 1:
This slump will continue until people can afford homes!!!

The FL median for home prices probably won't drop that low, but should end up somewhere around $140-$160k when it bottoms. The US median should be a little lower.

3. Will the country go into a recession by the end of the year?

Answer: This answer ties into question 2. If people overspent on housing, then there's less money to spend in the economy. Factor in the people with $42k household incomes that are tied into ARM's right now. If we were to go into a recession, the most likely time would be the 1st two quarters of next year, as the slump continues to wear on consumer confidence and the housing market. It could be earlier (but I doubt it) and it could be later (more likely).

NOW'S THE TIME TO BUY!!!

Why do you think just about every real estate agent tells you, "NOW"S the time to buy!!!" ???

Here's an intersting statistic:

The total dollar volume for residential sales in Hillsborough County year to date is: $1,072,751,028
2006 YTD = $1,680,712,457

YTD difference = $607,961,429
times 6% commission = $36,477,685.74

Realtors are making $36,477,685.74 less in commissions this year versus last year's YTD numbers.

That's just in Hillsborough County!!!

Tell me they're not feeling the crunch.

But now's the time to buy.....

Housing Slump Predictions

Here's my shot at prognosticating the housing slump. If anyone else cares to give it a shot, let it rip!

QUESTIONS

1. Will the housing slump see the "bottom" by the end of December 2007 or has it not arrived? Predict the "bottom" arrival.

2. How do you think the new home and existing home inventories will fare by the end of December 2007?

3. Will existing home owners remain firm in their asking prices or will they start dropping their prices a little bit more?

4. Will the economy fare better or will be still be heading toward a recession?

5. Where will the interest rates go? Up, down or remain the same?

ANSWERS

1. The bottom is no where in sight, IMO. The earliest sign of the "bottom" might be March 2008, but if inventories continue to climb, it'll be much later. Of course, according to the NAR's Lawrence Yun and David Lereah, the bottom hit in 5/2006 and has hit every month since then! LOL

2. There may be a small spike in overall sales in July and perhaps August, but nothing dramatic. More likely than not, the houses will continue to accumulate with the addition of failed ARMS and existing home owners being stubborn in their asking price, further bloating the market.

3. New home builders will continue to offer great deals, but existing home owners will still remain fairly firm in their asking price but are starting to crumble, knowing that not many people are going to be thinking about buying a house with Thanksgiving and Christmas around the corner.

4. The Fed will eventually have to step in if the slump continues. There's a graph that indicates that after every housing boom, there is a recession. It's only a matter of time.

5. Interest rates will continue to climb through the summer, but as mentioned, the Fed will need to step in and drop the rates to increase the sales of homes to prevent the economy from going into an inevitable recession.

That's how I see it. The writing is on the wall for those who read it. I may be completely wrong, but I'd bet against it if I were a betting man.

OH MY GOD...WE'VE HIT THE BOTTOM.......AGAIN!!!!

It's amazing how many times we've hit the "bottom"!!!!!

5/25/06 “This may be the bottom. It appears May is a little better.” David Lereah

7/25/06 "I hope we are hitting bottom," said David Lereah, chief economist for the NAR, which is predicting sales of about 6.60 million this year.

10/25/06 "The worst is behind us as far as a market correction," David Lereah, the NAR's chief economist, said in a statement.

12/28/06 ``It appears we've hit bottom,'' David Lereah, chief economist of the Realtors' group, said at a briefing in Washington.

12/29/06 "Maybe we've hit bottom," Lereah said. "I'll need another month before I can get comfortable with that statement."

1/25/07 David Lereah, chief economist for the Realtors, said that even with the December setback, he still believes that sales of existing homes have hit bottom and will start to gradually improve.

2/1/07 It's unlikely interest rates are going back down in the short term and housing economists are calling for a bottom, but the most important consideration is that other buyers may start driving the market again.

2/7/07 David Lereah, NAR's chief economist, is looking for a steady rise in existing-home sales. "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008," he said.

2/15/07 David Lereah, NAR’s chief economist, said it appears the fourth quarter was the bottom for the current housing cycle. “This information confirms 2006 was the year of contraction, and hopefully the fourth quarter was the bottom of this current business cycle,” he said.

4/26/07 Treasury Secretary Henry Paulson delivered an upbeat assessment of the slumping real estate market on Friday saying, "All the signs I look at" show "the housing market is at or near the bottom.”

5/24/06 Gary Bigg, an economist at Bank of America, said it looked increasingly likely "that sales bottomed last quarter" and were set to improve.

5/25/07 “We may look back and realize that April was the lowpoint,” Yun said. “Our forecast is that, by the second half of the year, existing home sales will pick up and prices will come around by late this year or early next year.”

5/25/07 David Seiders, chief economist for the National Association of Home Builders, said on Friday, "Most of the decline is likely behind us, but we probably have till later in the year to see fundamental stabilization or any improvement in housing starts ."

5/25/07 "The housing market seems to be bottoming out. The worst is clearly behind us in terms of the decline in home sales and construction activity," said Mark Vitner, senior economists with Wachovia Securities in Charlotte, North Carolina.

5/25/07 Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is ``at or near the bottom.''

5/25/07 Indraneel Karlekar, senior vice president of UBS realty, said, the market is "near the bottom" with some "stabilization in the deterioration in home prices" expected later this year. “

5/25/07 Wells Fargo economist Scott Anderson wrote in a research note., “On balance, this report supports our view that home sales are nearing a bottom,” he wrote, “and the adjustments in the housing market going forward are going to be centered more on home price declines than in further declines in sales and starts.”

INTERPRETATION: Everyone sees a recession in the near future and these people of power are trying to influence the public into buying NOW, because we've hit the "bottom".

THE TRUTH: THE NAR doesn't want the finger pointed at them when people place blame on an impending recession. Their logic is to try to convince the public that the housing boom is back and running strong.

THE VARIABLES: They didn't take into account that most of the people who still want to buy homes, wanted to buy homes several years ago, but were intelligent enough to see the end of the housing boom. The suckers who bought at the end of the boom don't have any leverage in their listing price.

Email to Lawrence Yun, NRA Senior Economist

Hi to everyone checking out my blog. Just like you, I'm fed up with the current price demands of existing and new homes. While I can understand how some people are forced to sell their homes at a higher price, due to what they paid for their home at the end of the boom, I'm 100% against the people who are still trying to get 2005 prices on a home they bought 5 or more years ago for half of what they're asking...IN A BUYERS MARKET!!!

The housing market is in a recession, yet many in the business won't acknowledge the word "recession". On May 24, 2007, the Commerce Department reported sales of new single-family homes jumped by 16.2% from the previous month. The next day's headlines read: "New Home Sales Soar". What wasn't mentioned was the fact that sales dropped significantly from the previous year's total, which was a bad year as well.

Lawrence Yun, the National Association of Realtors Senior Economist, is one of the people that misleads the public by twisting the numbers around to justify the current state of the housing economy. Yun won't admit to a recession, but states the market is in a "correction" period.

That prompted me to write a letter to Dr. Yun to explain the REAL reasons why people aren't buying existing homes right now:

Dear Dr. Yun,

Thank you for taking the time to read my letter. I would like to present the potential homebuyers view of how WE see the market. I can appreciate your optimism regarding the impending future of home sales by anticipating a rebound in sales by the last quarter of 2007. As a potential home buyer, I also share an optimism that the prices will correct themselves to pre-boom levels. I’m not alone in this belief.

I have been watching the market closely since the housing boom. The NAR seems to justify the housing slump by blaming the tightening of lending standards, the weather, bad press, etc, without considering the possibility that the housing market is severely overpriced.

I recently spoke with a Realtor who tried to justify why houses were still selling higher than Just Market Value (the price that a house should sell in a competitive market). She told me I should compare the selling prices of houses in the areas I'm looking that have sold within the past 6 months to get an idea of what to expect to pay for a house in that neighborhood.I tried comparing a few local areas of interest in the Riverview/Brandon area and there are only a few that are starting to compare at Just Market Value, which is too high to begin with, in my opinion. You’ve also alluded to encouraging factors, such as wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months. Similar to trying to “comp” a house within the last 6 months, the 24 month job statistic doesn’t hold water, especially after unemployment benefits rose by 311,000 last week. 24 months ago, there was still a housing boom, yet you used favorable numbers to justify your stance.

As consumers, we notice the little things. The headline for Thursday was “New Home Sales Soar”. Of course, the Commerce Department didn't mention how the sales have dropped 10.9% from a year ago and how the numbers from a year ago were bad to begin with.

It would be interesting to see a demographic regarding the level of education of potential home buyers. My wife and I both have Master’s degrees and are willing to do the infinite research required to determine the right time to buy a house. Now is not that time. Despite our education, we earn less than $100k per year combined and cannot afford to spend over a quarter million on a house. As you know, it’s much cheaper to rent until the existing home sales fall to acceptable levels.

You recently mentioned, "The existing market is generally much more stable, while new homes are a little more pricey," Now that new homes are dropping their prices, existing homes will have to follow suit. I would much rather buy an existing home versus a new home, but the new home prices are beginning to make it very tempting to consider, especially with many new homes having upgrades and warranties.

NEWSFLASH!!! Until the seller’s “greatly inflated perception of what their home is worth” becomes more realistic, the housing slump will continue for a long time and time is on the buyer’s side. You may justify the decline in the housing market any way you’d like to Dr. Yun, but the bottom line in today’s market is price.

I recently read an article that stated, "The under-pricing game is now over. You are free to bid far lower than the asking price. You might be pleasantly surprised to find out how desperate the sellers are.

"In contrast, we were told by our realtor that we should not underbid because it may insult the seller. I'm insulted by the sellers that are still trying to get June 2005 prices on a house when it's supposedly a buyer's market!!!

The rules have changed. One cannot compare prices in an area within the last 6 months, because the most recent month is the most telling statement of what a house is worth in that particular area. And each month, that number continues to drop.

There's no sign in the near future that this will end anytime soon. Economist Gary Shilling forecasts a drop of 40 to 50 percent in home prices in overpriced areas such as CA and FL. While that may not be good news for the realty business, it's wonderful news for us. This downward spiral is predicted to last at least 5 to 10 years, similar to previous housing slumps.

I don’t expect a drop of “40 to 50 percent” but I do anticipate around 30 percent. If you “took 150 steps forward”, how many steps back would a 30% decrease be? (EDITED NOTE: this was a reference to Yun's article "Making a Correction" on the NAR webpage in which Yun stated there was a "150 percent price increase during the boom. Let’s see, that is 150 steps forward and 12 steps backwards (in reference to the small decline in existing home prices)." Yun is minimalizing the price decrease and justifying the post-boom prices. Here's the link: NAR: Research: Real Estate Insights: Chief Economist's Commentary )

My wife and I are in no hurry to buy an over-priced house, especially when prices are continuing to fall while the market is over-flooded with unsold houses. There will be plenty of opportunity to buy a house at a fair price for many years to come.

The NAR must surely realize the grave possibility of a recession, led by slumping home sales. That’s why you HAVE to be an optimist. The NAR doesn’t want to be the reason why the country went into a recession. The hole has been dug by greed, and is getting deeper. They say there’s a sucker in every game. If you don’t know who the sucker is, then it’s you.

It’s not me in the housing game, despite every Realtor trying to tell me, “Now’s the time to buy!!!” This will be their last chance, for a long time, for them to make the hefty commission on an over-priced home. They also have sales quotas and goals to achieve. Of course, in their mind, now is the time to buy. Have you ever heard a Realtor say, “Now ISN”T the time to buy”?

I sincerely respect your optimism, as I am sure you can empathize with my optimism as well. Perhaps each person’s expectations will meet somewhere in the middle, although neither one of us is hoping for that to happen.I’d appreciate your thoughts or comments on this letter.

Sincerely,
NYCF
Potential Homeowner

If Dr. Yun responds to my email, I'll post that as well.
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