Will social networking make “negative cycle” more vicious?

admin July 26, 2007

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Economy.com’s Mark Zandi is no zealot, so if he is using terms like this "negative cycle" homebuyers ought to take note:

"There is a substantial risk that the mortgage market will devolve into
a self-reinforcing negative cycle," Zandi said in a release this
morning. "Mounting credit problems could beget more restrictive
underwriting standards, which would weigh heavily on the fragile
housing market as potential borrowers become unable to obtain credit,
and existing borrowers facing large payment resets are unable to
refinance. Foreclosures would mount, leading to weaker house prices,
falling homeowners’ equity and even more substantial credit problems.
The cycle repeats with more intensity and the mortgage market
corrections unravel into a crash."

Thanks to the Boston.com’s new real estate blog for posting the quote above. We discussed the same worse-case scenario yesterday with NECN, but used the word — "vicious cycle" — an economic term some might substitute for the "negative cycle" above.

My question is whether social networking and unfiltered consumer
access to real estate data make the downcycle more vicious?" Not
through lack of civility, but data transparency that allows home buyers to
make more informed decisions, putting further downward pressure on prices. To see what I mean, visit our new MLS access which allows users to easily compare asking prices to price trends and more on Zillow.com.

Here’s what we wrote two years ago about the coming negative cycle before Economy.com issued it’s warning today: From froth to foreclosures: You ain’t seen nothing
yet!"

When the market really cools, things will get worse, potentially
much worse. A recent New York Times article called the magnitude of
interest-only and adjustable rate mortgages "The Trillion-Dollar Bet" because "$1 trillion of the nation’s mortgage
debt – or about 12 percent of it – [will] switch to adjustable payments in 2007." Will foreclosures spike then?

An upcoming article in the July / August 2005 issue of The Atlantic Monthly, entitled "Countdown to a Meltdown,
speculates that the situation could become so bad that "repossession
riots" will occur in some areas. Do you think that fictitious forecast
is irresponsible fear mongering, or foreshadowing a falling market that
will make current home buyers look foolish; or worse, candidates for
foreclosure in the future?

Cross-posted in the forum of The Real Estate Cafe’s social networking site. Please join the discussion with other home buyers and sellers there.

Categories: Foreclosures, Housing forecasts, Market trends, Price trends, Real Estate Bubble, Social Networking, Timing the market

From froth to foreclosures: You ain’t seen nothing yet!

Less than a month after Fed Chairman Alan Greenspan first used the word "froth" to describe overheated housing markets, a new "f" word is stealing the headlines in Boston Globe: Foreclosures!

During the last two days, the Boston Globe has run seven stories — count em, SEVEN stories! — on foreclosures in the main and regional versions of the paper. The lead story on Saturday, June 18, 2005 — Foreclosure filings jump in Mass. as home values soar — was the fourth Boston Globe front page story on real estate in the past six weeks.

A second Associated Press story appeared on Saturday, State foreclosure filings jump 28 percent in early part of year, followed by regional versions in Sunday’s paper (see list of links below). According to the Globe:

Secretary of State William Galvin listed numerous factors in
the sharp increase in foreclosures, including high housing prices,
lenders’ willingness to give loans without a major downpayment and
people’s desires to own something priced beyond their means.

"When
you tie all these factors together … you have a recipe for disaster,"
said Galvin, whose office oversees the registries of deeds in most of
the state’s 14 counties.

Headlines in regional editions of the Boston Sunday Globe on June 19, 2005 mirrored Galvin’s comment:

admin June 19, 2005

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Real time “comps”

Link to recent press post Inman re "real time real estate."

Instead of developing a "CMA" type of report that describes sold data, I’ve
been using the "pending date" instead of the sold date.

Reason? The market is changing so much on a daily or monthly basis,
that considering "comps" may not be as accurate if the sold date is used, as
much as using the "pending date." If you develop a list of 6 houses that
sold in August to compare those sales with an offer you’re making today, then
what if the market has been in a decline since March? How much of a value
difference may there be from properties that went pending in the spring,
compared to a property on the market now?

Some, if not all of those 6 "comps" could have sold last spring. As
we know, listing agents and appraisers will often use the "comps" that best fit
the subject being appraised rather than an objective assessment of the sales
data.

So, next time you structure some type of analysis, why not use "pending
dates" instead of "sold dates" to make any comparison to a subject property
you’re trying to negotiate for on behalf of your buyer clients?

I suggested this to one of the "honest" appraises we typically use
here…he said he’s only using month old "comps" because there is an ongoing
decline in values here.

admin September 2, 2007

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Greenspan’s “Interest Rate Conundrum”

While Fed Chairman Alan Greenspan once again told Congress he does not see a national housing bubble, he repeated his warning of May 20, the day Greenspan first used the "F" word:

"…at a minimum, [there are] signs of froth in some local markets where home prices seem to have risen to unsustainable levels." Expressing his concern about interest-only loans, Greenspan added, "To the extent that some households may be employing these instruments
to purchase a home that would otherwise be unaffordable, their use is
beginning to add to the pressures in the marketplace."

According to NPR’s "All Things Considered," mortgage rates fell again today and stand at a 14 month low. In the past, Greenspan has called that "a conundrum" because "falling interest rates have [historically] signaled looming problems." Greenspan does not see that this time, according to NPR, because globalization is changing price structures, easing concerns of inflation.

Interest rates at 14 month lows may sound good to some home buyers, but not everyone agrees. According to Tom Ashbrook, host of NPR’s nationally syndicated OnPointRadio, low interest rates may "portend real shocks down the road."

admin June 9, 2005

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Wall Street “spooked” by falling housing index

Brainstorming about user generated content / video contest:
Haunted by the Housing Market

The Real Estate Cafe has maintained an excel spreadsheet comparing
housing market conditions from 2000 to 2007. The original version was
prepared for Halloween 2002, and resulted in a slideshow called,
"Haunted by the Housing Market."

As Halloween approaches this year, and NPR reported yesterday that Wall Street was "spooked
by a sharp drop in housing prices," we are thinking about sharing the
spreadsheet and inviting others to update the "Haunted by the Housing
Market" slideshow.

Better yet, what would it take to create a contest with different categories for user-generated content, like "Funniest Housing Bubble Video," "Best slideshow attached to an offer" (samples available),
etc.? We’re open to putting our content on the web so others can
"mash-up" images, statistics, quotes (both audio and text), etc.

Any good models and potential sponsors out there?

Cross-post: "Haunted by the Housing Market" originally mentioned as comment in this blog post:
Wait 2.0: Negative cycle creating marginal or mega-savings for patient homebuyers?

Use the following quotes to launch "Haunted by the Housing Market."

NPR: The closely watched S&P Case-Schiller housing index earlier this week spooked Wall Street when it showed a sharp drop in home prices — down more than 3 percent in the second quarter alone.

Karl Case, a housing economist who helped develop the 20-year-old index, says it’s the largest price decline since the inception of the index.

Economists expect total declines of about 10 percent throughout many parts of the country — and up to 25 percent in some of the formerly hottest markets.

admin August 30, 2007

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US Housing markets entering sustained decline?

Using market trends detailed in an article in the Boston Globe today entitled, US Housing market seen declining in 2006, economist Michael
Bazdarich concluded:

"…we believe housing is due for a sustained decline… The remaining questions are
how hard the fall will be and when it will begin."

Take a look at The Real Estate Cafe’s graph of 32,000 expired listings in Massachusetts below, then let us know if you think the decline has already begun and how far prices will fall. If you are housing hunting now in Greater Boston, what kind of price reductions are you seeing and do you agree that the "holiday season is an ideal time to buy?"

admin December 7, 2005

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