CNN (oh we love CNN) is reporting that home prices have experienced the worst drop in 37 years, and the pace of sales has fallen short of forecasts by experts.

The report showed that the median price of a new home sold in October plunged 13 percent from year-earlier levels to $217,800. It was most severe year-over-year drop since September 1970, when the median price was only $22,600, or less than the cost of a typical new car purchase today.

Thirteen percent may seem like big drop, however when compared to the exponential increases in values we’ve seen over the past several years, we can see why the sales volume still fell far short of the forecasts. That measly thirteen percent drop still keeps most prices out of reach of the typical buyer, especially with the limited availability of subprime and other nontraditional mortgages.

Thursday’s report is only the latest sign of weakness in the housing market. On Wednesday, a separate report by the National Association of Realtors reported the weakest sales of existing homes on record despite the largest drop in prices ever.

Well now that we’ve seen the worst price drop in 37 years and the weakest sales of existing homes on record, we must be at or near the bottom!

Real Estate | 3 Comments »

After a well needed break, the KoolAidMan is back! During the time off, he’s been disconnected from the markets and the media, however upon returning it seems that not much has changed. Housing values haven’t rebounded yet, and the markets are still jittery.

Instead of linking to a top story about home values dropping again, we found a nice piece at Marketwatch reminding us of some old expressions that are very applicable to the realtors, home buyers, sellers, and lenders who sparked this mess that we’re in.

What goes up must come down. One reason people did this is that home prices were rising faster than personal incomes for a number of years, but that could not go on forever, as we know now.

We know now, and we could have known this back when the mania was at its prime. Most people involved chose to ignore reality and decided to speculate instead. We’re going to guess that there’s a handful of people who knew this and were able to cash out while they could, but there are millions of handfuls of people who are left holding the bag right now.

You can’t make a silk purse from a sow’s ear (or kiss a frog and turn it into a prince). These securities were based on loans of questionable quality that, when bundled together, somehow were blessed with AAA ratings by the debt-rating agencies.

There is no such thing as a free lunch. It boggles the mind how many money managers, investors and just about everyone else thought these securities could be rated almost as high as supersafe U.S. Treasurys — without any added risk. No wonder people from all corners of the planet, from sophisticated hedge funds and banks to the proverbial man or woman on the street, put chunks of money into these mortgage-backed issues.

We’ll be listening for any news on investigations into the ratings agencies as this mess unfolds. It’s difficult to predict what will happen because there are so many things going on behind the scenes that average Joe Investor doesn’t know, but we’re not in the game of making predictions here. We’d rather drink our Kool-Aid and believe that everything is OK!

Stay tuned, for later this week we’ll be covering holiday retail sales and consumer spending. We’re sure to see some interesting statistics in the coming days!

Financial Market, Investing, Economy, Stock Market, Real Estate | No Comments »

The San Francisco Chronicle ran an article about how the increasing number of foreclosures are affecting entire communities.

“The losses (from foreclosures) are extending to neighbors and to entire communities,” said Martin Eakes, chief executive of the Durham, N.C., Center for Responsible Lending, which released the survey on Tuesday. “The spillover effect is disturbing because we’ve only just begun to see the foreclosures.”

Based on federal home loan data, the group said 22,000 homeowners around the nine-county Bay Area who took out subprime loans in 2005 and 2006 face home repossessions. Those foreclosures could depress the values of hundreds of thousands of neighboring homes by $11.6 billion.

“Foreclosures aren’t causing prices to fall - it’s a symptom of the whole thing unraveling,” Thornberg said. “If you had no foreclosures at all, prices were still going to fall. (Foreclosures) may accelerate the process, but it’s a process that has to happen one way or another because when you look at (home) prices relative to income, it’s completely insane.”

Real Estate | No Comments »

Marketwatch has an article that highlights some things going on with California’s economy that suggest the state may be in recession.

“California seems to be sliding into recession,” wrote Jan Hatzius, chief economist for Goldman Sachs, in a research note earlier this week. Hatzius based his appraisal on the sharp increase in the unemployment rate in the state from 4.7% in November 2006 to 5.6% in September 2007.

How many of those newly unemployed recently lost jobs that were related to housing? That includes mortgage lending, real estate appraisal, real estate agents, and construction. Of those newly unemployed, how many have massive mortgages themselves and instead of saving any profit they earned over the past few years spent it on shiny toys and lavish vacations?

“California is in for at least another year of economic doldrums,” said UCLA economist Ryan Ratcliff in his latest forecast published in September. But California will not sink into a recession unless a second source of weakness develops, or the housing market worsens more than expected, Ratcliff said.

Ah, here we have another economic expert predicting that things will turn around in a year. Pay attention to the last part of what he said - the part about everything being OK as long as the housing market doesn’t worsen more than expected. How much more of a downturn is expected? With mortgage lending standards tightening every day, major banks writing off massive amounts in losses, and home [asking] prices still astronomically higher than what typical buyers can support, it’s difficult to see how things can get get better any time soon.

The state of California isn’t taking any chances. Gov. Arnold Schwarzenegger has ordered state agencies to plan for a 10% cutback in their budgets for next year, figuring that tax receipts could fall significantly along with home prices.

Again, real estate seems to be the problem again. With lower transaction prices, and current owners likely to argue for lower value assessments, the state is expecting lower tax revenue and is acting to reduce budgets to avoid problems. Is 10% enough to be safe?

A few years ago and up until a few months ago, this was predicted by many bloggers and independent authors, yet they were dismissed by the experts as being overly negative doom-and-gloomers. Did they know something the experts did not? Key fundamentals were ignored and instead the Kool-Aid was going around.

Kool-Aid, Economy, Real Estate | 1 Comment »