Gary Watts….’in the bag’
It looks like Gary ‘in the bag’ Watts is at it again with another real estate outlook. It is for 2006/2007, but at this time, there are NO predictions for 2007. Lets get down to business and look at some of the highlights of this latest report…
Here is Gary’s predictions for how 2006 will end:
——-
How Will This Year End?
1. As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.
2. Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.
3. Appreciation should continue to rise in the fall, compared to last year when prices actually dropped.
4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.
——-
Lets take a look at numero uno. Ok, so mortgage rates are declining a BIT, there is no way they will return to the levels of 2003 and 2004. Rates dropping half a point is not enough to force buyers to ‘get off the fence’ and buy homes that are still overpriced. I am not a highly acclaimed real estate agent, but I believe the stabilization period is many months, if not years away. We have yet to see any REAL sort of correction at this time. BUT, we are seeing huge increases in inventory which is the first step towards lower prices. See this report from the CAR (California Association of Realtors) and see for yourself that the sales pace is off just over 30% from the same time last year, and we all know that inventories are way up as well.
So, with the sales pace slowing drastically, and inventories steadily increasing, how do we get stabilization or even appreciation?
We are almost in October, so fall is just around the corner. I have yet to see anything that leads me to believe that the sale of homes will start rising this fall, or that inventories will decline. There is ONE thing that could make both of those things happen and THAT is a REDUCTION IN PRICES. And I am talking about REAL reductions in prices. Not 10-15k here or there on 500k+ properties.
I am sure there will be a ‘median’ number somewhere that will show some incremental appreciation in California. But based on the report above, I don’t think 1.6% increases are what many people need, or are counting on. Meager appreciation like that doesn’t buy new BMW’s, Hummers, or kitchen remodels…much less give that ‘I’m getting rich’ peace of mind that so many people have become accustomed. Not to mention the fact that ‘appreciation’ has been the major selling point from RE agents, mortgage brokers, and all the real estate seminar guru’s out there. I don’t know how many times I heard brokers tell people that if they ever get into trouble, they can just refinance…no problem.
I don’t know for sure, but I think the holidays will be a bit different at Fashion Island and South Coast Plaza the next Christmas season or two. There IS a lot of money in Orange County, but there are even more people trying to live like they have more money than they really do. Lately, this money has come from the house of ATM. It will be interesting to see how or even ‘if’ the slowing appreciation in housing will affect the upcoming shopping season. 1.6% appreciation is the equivalent to having a $40 withdrawal limit at an ATM in Las Vegas…it’s better than nothing…but it doesn’t help very much.
One other quick thing I would like to point out: unless I missed something, how can somebody address the real estate market without any mention to the exotic loans that are making much of this possible? I guess the financing isn’t that important when things only go up…silly me.
I will counter his comments about the media and more in further posts this week.
Stay tuned…
SoCalMtgGuy
September 27th, 2006 02:15
Hmm. Solid fundamentals drive home prices ever skywards. But, nothing more than some naysaying causes a crash.
I used to think that cheerleaders like Gary Watts were basically optimists of the ‘glass half full’ variety. But it’s becoming hard to ignore the fact that a lot of these ‘experts’ are merely simpletons. Or worse, self serving cynics of the Henry Blodgett variety.
I’m not sure which is more scary. Probably the second.
September 27th, 2006 06:22
This guy Watts is out of his tree!
I gotta be honest, I’ve never heard of him before. Who is he?
September 27th, 2006 06:30
SoCalMtgGuy-
This is OT, but can you determine exactly what kind of loan someone took out based on the following details (the loan was made last month):
Lender: BANK OF AMERICA NA
Type of Mortgage: UNKNOWN; ADJUSTABLE RATE
Loan Amount: $ 1,555,000
Rate: 6.37 %
Term: 9/1/2036
Any info would be greatly appreciated. Thanks.
September 27th, 2006 07:01
Pop,
From that info, not much to be able to tell. It is an adjustable rate mortgage. It doesn’t let us know the LTV, type of loan, or other important information.
Some might look at a 1.55 million dollar loan and think they are maxed out on a property…or it could be a 1.55 million dollar loan on a 7 million dollar property.
I wish there was more info available.
SoCalMtgGuy
September 27th, 2006 07:42
I know the property sold for over $2 million, the exact amount I’m not sure. Based on the rate of 6.37% last month, is there any way of knowing/speculating if it is likely an option ARM or regular ARM, or interest only ARM? I’m just curious how much they’re spending per month on the payments. Thanks!
September 27th, 2006 09:53
supposedly you can get that info by going to the county assessor’s or county recorder’s office
September 27th, 2006 09:54
Pop,
Like SoCal said, there is no way to know what type of loan it is based on the information provided. However, if you are trying to figure out what this guy’s monthly nut is, you can estimate it.
The rate is fairly high for an ARM, so it could be credit or income verification issues.
If the loan is fully amortized, the payment is $9665.
If it is interest only, the payment is $8228
If it is a neg-am, option payment, it will be somewhere south of those numbers.
Of course, that is based on current rates, if it adjusts higher, the payment will increase.
September 27th, 2006 10:14
theorist…
I think you are missing the point…the house has NOT closed yet.
They start the process at the SAME time with 2 different properties. Each ’side’ of the transaction is unaware that there is another side…aka another property trying to be bought. They try to plan both closing to happen at the same time.
Does this make more sense?
SoCalMtgGuy
September 27th, 2006 12:50
“It will be interesting to see how or even ‘if’ the slowing appreciation in housing will affect the upcoming shopping season.”
I believe nothing short of bankruptcy is going to slow American’s addiction for shopping/spending.
September 27th, 2006 13:11
Sales of homes should start to rise by the fall
They don’t call it “fall” for nothing!
September 27th, 2006 14:57
Anon,
I disagree. Americans tend to cut back in the least painful ways first, such as the luxuries. They reduce expensive meals out, and high end purchases. Consumer spending is typically a function of wage growth. We have seen stagnant wage growth amidst high consumer spending growth in recent years. I seems clear that the housing bubble/wealth factor has been the catalyst.
September 27th, 2006 15:16
4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.
Translation..
We will probably end the year with double digit losses in homes with even larger losses in condos.
September 27th, 2006 18:28
“Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.”
You can still get a loan for 500k if you can fog a mirror, but the last of the suckers, or the greatest fools are the only ones left, and their numbers are shrinking.
I am thinking that by end of summer 2007 will be when EVERYONE realizes that the emperor had no clothes.
September 27th, 2006 22:45
the bubble burst was the lead story one the front page of the la times yesterday. yeah, i know no one reads the paper anymore, but if you count the people who glance at page one in 7-Eleven or bend over a coinbox to read a headline, A LOT of people saw that. it’s going to make a difference.
September 28th, 2006 10:44
In response to watchoutbelow (#14), people tend to take in information which supports their belief system. If someone believes that real estate only goes up, then he/she wouldn’t pay any attention to some stupid newspaper article. We all tend to either disregard things that don’t fit into our picture of the universe or attach ourselves to things that do. Hence my slavish devotion to this blog.
Don’t think the newspaper is going to have much influence. Just keep watching the inventory increases and lengths of time on the market.
September 28th, 2006 12:11
“As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.”
If this were true, then why have mortgage applications declined since mortgage rates started dropping in July?
And what possible reason does he provide for price stabilization happening so soon?
The worst part of this is that there will people who believe this guy.
September 28th, 2006 12:40
Am I the only one that is drawing parallels between the statements of the real estate hypesters to that of the dot.com “experts” of 1999-2000?
On that analogy, do we all remember all the aggregious transactions that were going on behind the scenes in regards to the tech bubble? Analysts at investment banking entities pumping the stock that their firm was under-writing. Now, in 2006, information is beginning to seep out pertaining to the practices of the loan industry mortgage brokers working in nice collusion with realtors.
If only PT Barnum was still alive today. He would be laughing his head off.
September 28th, 2006 13:10
Hitler said it best “If your gonna tell a lie, tell a BIG one - people will then believe it”.
Gary’s been preaching his message for over 10 years now and is loathe to admit that price declines are possible.
September 28th, 2006 13:24
1.6% appreciation is equivalent of a decline when you factor in inflation of 3-4%.
-Chris
September 28th, 2006 18:11
Great San Diego Housing Flip site
http://thisoldhouseflip.blogspot.com
September 29th, 2006 10:22
Lies and more lies. The L.A. times published an article today showing that from a select sample of 100 stated income loans, 60 people overstated their income by 50% or more!
I think this and many blogs have been uncovering the truth and sounding a siren call way in advance of the mainstream media publishing these stories.
Gary Watts is only trying to keep the spin going as long as he can. However, as much as many despise David Lereah on the housing circuit he is now singing a different tune. Maybe not the most sincere person but he’s smart enough to recognize the trend and where it will be heading.
http://drhousingbubble.blogspot.com/
September 29th, 2006 11:20
TresSher:
You are right that people are constantly looking for confirmation of their beliefs. But there IS such a thing as public opinion. think of it like an election: 40 percent of us are democrats, 40 percent are republicans, and 20 percent are the swing-vote. same with real estate. and those people who aren’t sure it’s a bubble but who aren’t sure that it’s not will be affected by seeing it on the front page like that. even in l.a. enough people read the paper (or at least glance at page one) for it to have an effect. many, many people will think: well, i saw it in the paper, it must be so. Hope you don’t just ignore my response because it doesn’t support your beliefs.
September 29th, 2006 12:51
This could bring FB’s much closer to the edge:
http://www.baltimoresun.com/business/realestate/bal-bz.re.harney29sep29,0,7701442.story?track=mostemailedlink
September 30th, 2006 15:11
I need some of what Gary is smoking. That must be some good shiet
October 1st, 2006 13:41
SoCalMtgGuy:
I’d like to get your take on this pair of articles in Today’s Seattle times. The first points out that the Puget Sound market may be proving more stable than others due to the lower than average % of speculative flipping (http://seattletimes.nwsource.com/html/realestate/2003281771_flipping01.html).
Also, in this Q&A column, the business columnist downplays the impact of teaser loans on the Puget Sound market in short term (http://seattletimes.nwsource.com/html/realestate/2003281774_homeforum01.html). I trust your balanced views on bubble related issues (unlike many of the screaming macacas who main objective is the schadenfreude of those who have made bad decisions.
Seattle Eric
October 1st, 2006 22:58
seattle eric:
why would you use a racially charge word like “macacas” given what’s going on in virginia? that is even more offensive than your investment views. also, if you’re going to use a big word like schadenfreude, at least look it up so you can use it correctly next time.
and finally, give it up, dude. the clock is ticking toward your financial ruin. i can’t wait till something goes wrong with the bathroom of one of your buffalo slums and you have to start making that relaxing seattle-to-buffalo commute on a monthly basis. did you really sit down one day and say to youself: how can i become financially secure? i know, i’ll buy a few dives in a run-down rust belt city more than 2,000 miles away!
you are going to be one unsympathetic flameout.
October 2nd, 2006 07:39
Yeesh:
Haha. You made my point for me! Let’s see..
1) Screeching blather
2) Hiding behind anonymity
3) Oblivious to irony
4) Reveling in the bad fortune of others
You are truly a trained monkey, sticking to the script. ha.
October 2nd, 2006 08:36
Seattle Eric,
Your four points are excellent! You should have been a professor! (I mean, if you weren’t so busy wasting what’s left of the inheritance you’ve been living off of all these years on investment properties IN BUFFALO!)
You’re right. I hide behind anonymity. That’s all about to change. Are you ready: L.A. Bob. Wow, it feels good to bravely shed my anonymity like you did! Thanks for showing me the way.
Sorry, I didn’t realize your racism, stupidity and monumental acts of denial were “ironic” — now that I’ve been alerted to your keen sense of wit and sarcasm, I’ll have to watch for the nuances in your future posts so I don’t make the same mistake again.
And finally, as for “reveling in the bad fortune of others” — you are wrong. It’s not others, just “other” — and you’re it pal.
Sincerely,
Yeesh.
P.S. — Of course I’m a trained monkey, that’s why you used the racial slur “macaca” against me, isn’t it?
October 2nd, 2006 14:33
There’s not bad fortune here, pal.
October 2nd, 2006 15:15
Check out how the lending standards changed on FRIDAY!!!
This will definitely help the bubble POP!
http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060929/attachment1.pdf
:-)
I can’t wait ’til all the homes in escrow TODAY will fall out of escrow this month!!!
hhahahha
October 5th, 2006 19:50
Great post from Gregg Swan, a very articulate and witty broker and blogger in Phoenix…Pounce on it, boys.
********************
HousingPanic, a particularly vitriolic BubbleBlog — which is saying something — asks:
Realistically, how overvalued are Phoenix home prices?
Obviously, I consider this a profoundly silly question, but to lurk among the BubbleBloggers and their seething commentariat is to acquire an education in a slice of America invisible from this side of the sewer gratings. Notwithstanding the idiotic economic analysis, which is really no worse than the static-market fallacies paraded as profundities in the pages of the Arizona Republic, these sites — and not just HousingPanic — are infested with a cult-like fever to inflict suffering — at second hand, to be sure — on people who are in fact guilty of nothing except failing to have drunk the BubbleBlogger KoolAde.
That’s all one. I don’t care. The whole of the last century was dominated by the bad behavior of viciously angry wretches, but look where it got them. The BubbleBloggers will someday bawl balefully in private, but they will never, ever admit that they have been very publicly very foolish. You will know and I will know and in the secret chambers of their hearts they will know they were wrong all along. But as long as you don’t hold your breath waiting for that contrite admission of error, you should be fine.
Here’s where I do start to care. Whenever the subject of Phoenix comes up in a BubbleBlog, the assembled Brown Shirts pile on, for whatever reason. This is their perfect right — even though I think they’re wrong. I love this place. I came here for three months in 1988, and I could not wait to get back. The first time I set foot here, on March 13, 1988, I knew I was home. We moved here for good on April 1, 1991, and I cannot imagine living happily anywhere else. Our relocation page is my extended love letter to the Phoenix area, warts and all. I’ve been writing lovingly about this place since the day I got here, and I’ll keep it up at least until the day before I die here.
Which brings me back to HousingPanic’s question. We keep our own home sales price statistics, so we have no doubt that values are down from their high in December. How much? Right now, about 4%. Could they go lower? Certainly. Will they drop by the huge amounts HousingPanic and his flying monkeys seem to yearn for? This seems very unlikely.
What seems much more likely is that Phoenix will recover from the hangover of last year’s buying binge and get back to a steady rate of growth — historically 6% a year. The reason this should happen is very simple: Population growth.
Metropolitan Phoenix is a unique real estate market. While other cities experience static — or even negative — population change, The Valley of the Sun routinely adds 100,000 new residents every year. There is no reason to think this will stop — not now and not soon. The carrying capacity of Greater Phoenix is eight million souls, about 266% our present population. We will hit that number — but not until 2040 or after.
A significant proportion of those people will want to live indoors, which evidently is such a flimsy idea that it cannot penetrate the skull of a BubbleBlogger. Ah, well, it takes all kinds — although the lord alone knows why it should.
http://www.bloodhoundrealty.com/BloodhoundBlog/
October 11th, 2006 11:10
LOS ANGELES (Sept. 25) – Home sales decreased 30.1 percent in August in California compared with the same period a year ago, while the median price of an existing home increased 1.6 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.
Why are sales decreasing but the median price of a home continues to increase? Any thoughts?
November 28th, 2006 01:30
If you’re a homeowner, the recent drop in interest rates has opened up the possibility of big savings on your monthly payments. Rates have dropped in recent weeks and the expectation is that they will remain steady for a few more weeks, creating a money-saving opportunity for homeowners as well as those looking for new homes. mutual fund and money
September 5th, 2007 20:07
Phoenix Mortgage Broker…
Here is a quote I like, “I have noticed that the people who come…