And here's another view: Crisis far from over

After the Wall Street Journal columnist's cheery projection (see posting below), here's the ulcer-encouraging outlook from The Economist. The author assumes we're only half way through the housing bust and prices are set to fall much further, particularly in places like Florida. A key quote:

The discrepancy between supply and demand suggests that prices could fall a lot more. By historical standards there is a huge glut of unsold homes on the market. The homeowner-vacancy rate—which includes all vacant homes for sale—has soared to a record level of 2.9%, which means that there are some 1.1m “excess” houses for sale compared with the average between 1985 and 2005. Although the inventory of new homes is falling as builders have slashed their production, the supply of homes for sale is being pushed up by foreclosures even as demand from new homeowners remains weak.

Read the whole thing.

Comments

[k]

James, a while ago, you mentioned that inventory could drop rapidly (regarding months of inventory when it was at 25 in February and now below 16 locally).
Do you still believe this? Why?

[James Thorner]

The "months of inventory" statistic is fickle depending not just on total listings but also sales pace. (The simplified formula: Total # of Homes for Sale divided by Monthly Sales divided by 12). So the stat can improve in a hurry if monthly sales increase and begin chewing up the inventory. But as I wrote in a recent column, total inventory just won't go down. One home sells and another pops up in its place. It's like Whack-a-Mole. This short-sale/foreclosure business is complicating things further. We're not through purging the worst of the speculator/investors yet. I don't think inventory can improve substantially until that happens. I'm in a new nghborhood and 4 of 6 houses across the street are either rentals or foreclosure homes. One's discounted 80K and no one's buying yet.

[k]

Thanks.

"The nation's foreclosure hemorrhage slowed a bit last month, according to Foreclosures.com, down 5 percent from March. 'The sky isn't falling, and the bottom of the housing market is in sight,' says Alexis McGee, company president."
- in the mail a few minutes ago, FWIW.
I have to wonder how good his binoculars are.

[Fuzzy Bear]

We're not through purging the worst of the speculator/investors yet.

James:

Your Whack-a-Mole theory is an excellent example of what I have mentioned as the "hidden inventory" which is quite large. Just because we see a slight drop in MLS, it does not mean that the inventory is dropping.

I drove through many areas on the Northwest portion of Hillsborough county this weekend and looked at the activity in new housing and in many subdivisions. New home activity looked empty and dead this past weekend and the past couple of weekends. The secondary market in many of the subdivisions had numerous homes for sale by owner and many foreclosed homes in these neighborhoods.

[James Thorner]

I hear you, Fuzzy. My wife and I visited a couple of model centers on Mom's Day. Deads-ville. The salesman was almost on his knees. And the finished homes are all for sale, too. In these cases the homes were too expensive, in my opinion. They paid too much for land and are asking 300K plus for normal homes.

[Tino]

I looked at two pre-foreclosure homes in the past week where it appears (through public records) as though the owners have stopped paying the mortgage/taxes. For some odd reason, however, they are still pricing their homes WELL above the market and what they paid, hoping to get some equity back. These weren't even attempts at a short sale.

As a buyer, I can just wait it out and contact the bank after it goes into foreclosure. Similar bank-owned homes in the same neighborhood are being listed at about 50% of the price/sq ft, and they are not selling either. I have yet to figure out why desperate people are listing their homes at unrealistic prices.

Also, I am not sure why the listing agents decided to take on these fruitless endeavors, but when I see inventory stats in terms of months, I laugh. With these prices, they will NEVER sell them -- they will always be deeply undercut by other sellers.

[k]

"We're not through purging the worst of the speculator/investors yet."

When, in the history of real estate, has THIS ever gone away? ;)

[Fuzzy Bear]

I have yet to figure out why desperate people are listing their homes at unrealistic prices.

K. perhaps you can shed some light as to why homes are still being listed with unrealistic prices. Is it due to people not understanding the market or their belief that home prices will correct back to boom pricing?

I think many homeowners are trapped financially and need to sell at their loan amounts, even though their property values have dropped.

[k]

"I think many homeowners are trapped financially and need to sell at their loan amounts, even though their property values have dropped."

That would be the case most times. - Well said.

About 10% of expired or withdrawn prospects get passed over for either being upside down, unrealistic or both. For those need-based sellers, it's a very tough situation. I see a lot of evidence of withdrawn listings where the owners decided to tough it out, pass on the relocation promotion and pay down the upside-down condition. Some other examples include those who were clearly speculating and have since stopped.

As far as the others, it's the ye olde buy-low-sell-high "long" investment mentality. If the owner is a speculator, has the money and time to be patient, has a desireable property (it takes time for the right person to come along that HAS to have their "dream home"), conventional wisdom with regard to *historical* sales figures says they will prevail.
Again, I don't believe there will ever be a day when there are no speculators.

The other, other, other side, which you may or may not be eluding to, are the sales agents themselves. On the surface, it would go against logic to take a no-chance-in-h*ll listing. For the agent, the lifeblood is hot contacts. For newer agents (which the vast majority are in the ever-revolving pyramidal brokerage models), a listing will generate buyer clients. This is not exclusive of the pro agents - they are keenly aware of this as well. Of course, they would rather sell the property and get the commission, but building contacts doesn't hurt either.
What budding agent in their right mind would turn down a $2M listing even knowing it was overpriced? What it does is make their portfolio look good and punctuate reasonable listings their buyer clients will appreciate.
That's how it is in the luxury game especially...references and perception.