US housing data worse than feared

General Real Estate Investing
1

What should the re investors make of this news? Is this an oportunity or time to worry?

Sales of existing homes in the US slumped a sharper-than-expected 4.1 per cent in July, the National Association of Realtors reported on Wednesday.

The data underlined the rapid pace of the slowdown in the property market and sent stocks lower amid fears over the health of the broader economy.

The number of homes sold fell to an annualised 6.33m, a drop of 4.1 per cent from June against analyst expectations of a 1 per cent decline. The supply of unsold homes rose to a record high 7.3 months of sales, up from about four months early last year.

“No region was spared from July’s softness,” said Omair Sharif, analyst at RBS Greenwich Capital. “The headline figure was well below our forecast and that of the consensus, and corroborates recent builders’ statements that the housing market cooled substantially at the start of the summer.”

The fourth consecutive monthly decline in existing home sales leaves the measure 14 per cent below its peak last June and at the lowest level since January 2004. The median sale price was less than 1 per cent higher than a year before.

US stocks fell on the news, which has potential implications for the spending power of consumers and the economy as a whole. But the Treasury market appeared to shrug off the worse-than-expected report in light summer trading, with yields briefly trading lower but ending the day slightly higher as traders took profits.

The housing slowdown is one of the factors that led the Federal Reserve’s Open Market Committee to hold interest rates steady at its meeting earlier this month. The focus is now on the Fed’s next move.

“A continued softening in the housing data – expected to sap consumer demand – should help the Fed refrain from a rate hike during the next FOMC meeting on September 20,” said economists at ING Financial Markets.

Other recent data have helped paint a gloomy picture of the US housing market. Builders’ are at their least confident in 15 years, and buyers’ confidence is also plumbing fresh lows. New home sales data are due to be released on Thursday, and are also expected to show a decline.

Fears that the housing slowdown is affecting other sectors were compounded last week when a University of Michigan survey found overall consumer confidence at its lowest since the aftermath of hurricane Katrina last year.

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CNNMoney: More signs of a housing slump

[i]Builders are reporting that they are offering incentives, such as covering closing costs and additional features on homes at no additional cost.

Builders are also reporting a rise in cancel orders for new homes, a drop in sales that would not be captured by this report that counts the number of homes with signed sales contracts.[/i]

Smells like an opportunity. :wink:

3

personally I’m waiting for rising interest rates to force all those schmucks who bought more house than they could afford on those fancy interest-only adjustable rate mortgages into foreclosure.

yep. mcwagner is a vulture preying on homeowner carrion.

4

Get that money together fellas, time to buy up all the bargains and wait for the market to turn back around as it inevitably will.

5

As part of the ABC News peice I saw, one of the couples said they had to lower their price $40,000 in order to get it sold. I didn’t catch the location, but I’m guessing California or some other over-priced place. Rising interest rates, ARM’s coming due, buyer’s market, and still the need for shelter. :smiley:

6

The sky is falling! - Prices in my area have dwindled to 5% lower than last year! Let’s see…in the last six years my home has gone up 123%, and now I’m down 5% from that - well hell, let me cash out and put everything into tech stocks now!

7

Cali? ;D

8

The sad truth of the matter is that only the ignorant are really going to get burnt. There are a whole lot of option arms floating out there and appreciation is starting to stall… watch out, a lot of people are going to have to refinance those option ARM’s and are going to find that they owe more than their home is worth.

Start looking for people that put 20% down and have an option ARM coming due… more than likely they are going to end up in a sale position, even with the 20% they put down. There is the opportunity to buy from these people at the cost of what they owe… They are going to be afraid and you can argue that “prices are falling” effectively as you will hear a lot of news about people with option ARM’s going into foreclosure.

Happy hunting.

9

I know in my market, SoFl, they are now canceling many preconstruction condo projects due to the slowing of the RE market. And the projects that are being completed or have been for at least 2yrs are all overpriced by about 100K per unit. Banks are getting harder and harder on financing condos in Fl b/c of the falling market. Last year you were lucky to see a house on the MLS for under 300K, now there are more homes on the MLS for under 300K, more like under 250K then there was 2yrs ago,. I real sign of desperate sellers. But bad thing here is all those cheap sales will start lowering the FMV of homes since comps on based off sales in the local area. So this is another way the market drops when you have 10homes in a community selling very low because they need to get out. Now I do not know about the rest of the country but with rising property taxes (Fl has created over 1.4bil in extra property tax revenue in last 2yrs) it is becoming hard to afford property taxes and homes owners insurance still has 25-75% increases each yr. They say the avg tax bill on a $300K home is $6,000 a yr and avg insurance policy if not in a flood zone is about $4,000 a yr. So 10,000 a yr or about $900 a month before you even pay the mortgage. How can anyone afford a home. Avg income for a person in FL is still under $50K a yr…

I for one, think the gov’t and insurance companies will be driving the foreclosure market in Fl to an all time high for sure. Its all about greed and the gov’t is greedy. Time for serious reform to be done.

What about your states?? how bad is it getting???

10 
 According to the Joint Center for Housing Studies at Harvard University, prices are likely to continue going up, just not as extremly as the last four years.
 They also addressed the issue of exotic mortgages; one report by this center found that the majority of borrowers will not face forclosure or bankrupcy simply due to thier debt instrument.
 They assert that the greatest threat to housing markets is severe overbuilding and/or dramatic employment losses.
 Mortgage innovations such as low-downpayment, hybrid-adjustable and interest only loans actually help to blunt the impact of higher home prices and interest rates.  By encouraging these loans, the banks get more business-they win, the government faces lower costs to cities per forclosure due to a decline in property values and lost tax revenue-they win, and the earn-and-spend types get to keep up with the Jones' buy living in a house that they can't afford (I suppose in their eyes, they win too).
 In my opinion, eventually, deteriorating affordability will stall the house prices, and I'm sure that there are markets in the United States that are overbuilt where the median price of a home is essentially unaffordable for the working class.  I would point out, though, that equity will follow equity.  People can afford more expensive homes because they were homeowners when the prices went up.
 This kind of paranoia reminds me of Y2K, and I believe that the results will be equally inconsequential.
11

Most of your new home buyers did not have equity and were 1st time home buyers. If you notice during the boom, rental apartments all went condo which created the condo conversion craze. Everything went condo, small 10unit building to 40story high rise apartment complexs. This turned into more buyers. Renters were buying for less than rent payment since they jumped on the teaser loans.

12

My last deal was an ARM person. They did a 3/1 arm and their prices jumped he full allowable 2% intrest, well mama at the home over spent on the credit cards. voila, messy situation. they wanted to sell. I asked them what they owed on the home… said i’ld offer them 5000 above that as long as no realtors. Bam they took it instantly. I gotta deal thanks to being an ARM breaker. 130,000 home for 100,900. 29,000 instant and i could make it forced to more, heck i could even rent it to them. this situation is placing a lot of deals to the people who are ready. I gotta thank those evil brokers ;D lol. giving me good profits. especially since i just rehab and roll.

13

Not to bad a deal, you got it a 80cents on the dollar. I tend to look for more equity position but maybe place needs some light rehab and bring value up or it will cashflow on a rental easily. DOnt know if you can clear over $1200 a month on rental though or if your looking to flip it for about 120K and make a small fast profit?

14

I actually just fixed it then sold it, i forced it to a comparable value of 160 and sold quick for 145.

did my normal 1031 again till i pay off another home.

15

If you keep doing 1031 exchanges you really never see your profits. I have never done one and dont think I will

16

Well my goal was to pay off a home completely. So my rent is 90% mine. taxes and insurance would be all thats left… i pay it like i lived in it…

profits come when owning outright 140,000 dollar home and having the 11 of 12 months be profit.

you see them then. get enough it really shows… and if someone is vacant… no mortgage payment to worry of… so you don’t have to 1031… I just like to… I keep more of the money instead of giving it right away to uncle sam. takes less time to accumulate without taxes.

17

There are 2 type of investors. Some want the properties paid off and then there are those that believe it should be mortgaged to at least 80% or more so you can leverage one property to buy many more properties. That is how I like to do my business. I still make money on each deal. Yes, I have a few properties with negative cashflow, but with the extra money I leveraged from them to get something else, i absorb the loss. And all businesses need some losses to balance out the taxes alittle. Which is why many people will buy raw land and just let it sit. Creates no income till sold or developed but yet always has expenses.

I just a condo that will have a negative cashflow of 500 month(I know alot) but I was able to leverage that property to buy 10 condos, all which will cashflow about 100 a month (not alot) for 2yrs b/c of the structure, still have over 20% equity after 2yrs even if market declines another 10% over that time, but also leveraged $300,000 out of the purchase to set aside and use for other deals. I actually plan on loaning about $150K of it out for private use. So really if you look at the 11 properties, I am not losing money. Sometimes you have to look down the road and see where the property is going and have a plan for buying a non-cashflowing property with it. But all I know is I bought a condo 100% financing for 310K, and was able to pocket $300K and acquire another 2.6mil worth of real estate from it leveraging 1 property. Plus I can always sell some of it now and make 20-30K per unit.

18

yrush,

It looks to me like you’re on the road to disaster. Simply buying properties will not keep you in business. Without proper cashflow, a business is doomed to fail. I can not imagine doing a deal and knowing it will have a negative cash flow. This is especially true in a declining market. My research shows that it takes on average 2 years to reach the bottom after a real estate boom. We won’t reach bottom until 2008. Then, it takes another 8-10 years before prices reach the previous high (adjusted for inflation). So, we won’t see 2006 prices again until about 2016. Moreover, the average decline in a real estate bust is 20%. So, buying highly leveraged property with negative cash flow is VERY risky with very little upside potential. If history repeats itself again, you’ll have no equity and little or no cashflow. How is that a good deal?

Mike

19

Are you saying that prices actually go down 20%? Has that ever happened before?

20

Yes, prices do actually decline in a RE bust. Do some research and find out for yourself. This same real estate boom & bust cycle happens with great regularity and the results are VERY predictable.

Mike