Wonder If This Had Anything To Do With The RE Crisis?

Look at the Fed Funds rate since 2000. It sure seems to track the national housing bubble well. Now, I don't want to be Al Gore-like and assume this correlation. I wander what will happen to housing prices when the Fed starts raising rates this year? It is astounding to me that RE prices are this low with mortgage rates so LOW!

Mr. Bubble

More Data for the High-End

Thank you to one real estate agent who puts out this data. I'm not going to name her so all the other agents don't hate on her. But, here's the map of Austin and the land as I suppose the MLS system classifies it. (Remember, I'm not a real estate professional. I'm just a buyer trying to understand how things work)

So the premise for this blog is that the high end areas are suffering from financial devastation to the buyers of these homes. They can't get jumbo loans, their investment porfolios are decimated, their businesses are suffering, and they can't sell their homes in places like California because they are under water.

Months of supply on the market for homes over $800,000:

                 4th Q
Area 1B    14.4
Area 8E    10.5
Area 8W   15.8
Area W     12.6
Area LN    42.9
Area LS     25.0
Area RN    17.1

These DOM numbers did decrease in the 4th quarter but I don't think it's because lots of homes sold in these price ranges. I think it's because homes were taken off the market and rented or are now being marketed as "pocket listings". There's some guy on Craigslist trying to rent out high end homes really cheaply if you have nice furniture and will leave right away if they sell it. I really don't understand these agents. Instead of telling these high end owners to lower prices and sell now, they tell them to move in tenants and wait for the recovery, which may not come soon at the high end.

Anyway, from 1-3 years of supply? Come on! Your prices are in the tank. Lower them and stop carrying this property people.

December home sales down nearly 17 percent - UH OH

This can't be good for high end prices in Austin. Especially with Texas unemployment rising (and expected to continue rising)

This YOY drop is in spite of massive federal intervention to prop up real estate markets. Yikes!  This is consistent with my theory that Texas didn't avoid the recession. It merely lagged the coasts by 18 months. Real estate prices will continue to fall...

-Mr. Bubble



December home sales down nearly 17 percent - Yahoo! Finance

Home sales plunge nearly 17 percent in December after tax credit deadline extended

By Alan Zibel, AP Real Estate Writer , On Monday January 25, 2010, 10:40 am EST

WASHINGTON (AP) -- Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.
The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.

...

Property Sold Outside of the MLS - A Bad Thing

So I've been poking around Austin to buy a property for the last few months. First, I'm frustrated by the fact that Austin has this "non-disclosure" rule whereby sales are not reported and available to buyers. Well, at least realtors can get you MLS sales data right?

Well, there are two things wrong with MLS sales data:

1. It's self reported. That means you are depending on realtors to voluntarily report the prices. They have some fairly powerful incentives not to report the right number which makes me suspicious. (In California where I live all sales are recorded under penalty of perjury at the county recorder. So, even if you sell it to your brother the market knows the price)

2. Lots of people are trying to sell real property without listing it in the MLS. This includes builders and the big realtors. This didn't make sense to me until today. The reason they give is that they don't want to disturb their tenants (by getting the highest price available?) with all those pesky buyers coming around.

Of those two, #2 bothers me the most. In fact, some of the condo buildings downtown don't want to put any of their real prices in the MLS and if you do buy one for less than the publicly listed price, they make you sign a gag clause as part of sale.  Now that smacks of market manipulation.

I personally experienced a similar thing with the builders of new homes further out. They will advertise the base price of a home in the MLS and then throw in 100k in upgrades so they don't have to advertise a fully equipped home at the real prices. I'm not sure what they end up putting in the MLS since they aren't advertising a specific home. My guess is nothing.

I also think that they are trying to sell homes in high end areas like Barton Creek as "pocket listings" as well. I've run into several realtors who mention, in hushed tones, that they can show me this or that property which isn't listed and get me a "great deal". This sale, presumably at a lower price, would be hidden from future buyers allowing future sellers to sell to suckers who believe the MLS data. (Go look at see how few sales there are in Barton Creek. That's evidence that sales at 2010's admittedly lower prices are being concealed)

Folks, this a deliberate attempt by the real estate industry to AVOID SETTING NEW COMPS in a falling market. It is an attempt to withhold valuable market information from buyers in order to protect builders and existing homeowners from falling prices. I am convinced of this.

Unfortunately, all of this self serving protectionist behavior serves to decrease investment in Texas real estate.

Chicago firm makes high bid for bankrupt Hill Country Galleria

So, the Hill Country Galleria just sold for $75m. The BANK LOAN WAS  $195m! That is a major bubble in my book. So how can residential property be completely insulated from that kind of decline? Especially out in Lakeway/Bee Caves. Spanish Oaks anyone?

-Mr. Bubble

Chicago firm makes high bid for bankrupt Hill Country Galleria

A Chicago real estate firm was the high bidder in a bankruptcy auction for the Hill Country Galleria in Bee Cave and has put the mall under contract.

REIT Management & Research LLC offered $75 million for the mall, according to Eric Taube, the attorney for Hill Country Galleria LP, the partnership that owns the 2-year-old mall.

The auction was held Jan. 15 at Taube's...

Cool Time Lapse Photography of the new W

Given the falling prices downtown, you have to wonder whether this is a good thing for existing condo owners. By my math, increasing supply lowers prices even further. Better mark your units down and move them now current sellers. This baby is coming online in December...

-Mr. Bubble

The Effects of Incentives

You know what's strange about government incentives like the $8000 tax credit and low mortgage rates due to government purchase of the loans from banks? It seems to me that if you give all the home buyers an extra $8000 that prices of the homes they can buy will go up $8000. And after that incentive expires and buyers don't have the $8000, prices will fall by 8000? By my math that's a wash.

It's the same with low interest rates. If people could borrow less, prices would fall so they wouldn't have to borrow as much. The payment would be the same but the goverment wouldn't have to get involved.

I think I'll just wait till rates rise and the incentive are gone. Then I'll buy at the new lower house prices.

-Mr. Bubble

Housing thaw ahead?

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Federal mortgage insurer to tighten lending standards

Another ominous sign for potential borrowers and sellers...

- Mr. Bubble

Federal mortgage insurer to tighten lending standards

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Foreclosures- 2010 worse than 2009

Here are the stats...

"Foreclosure filings were reported on more than 2.8 million properties in 2009, up 21 percent from the previous year and 120 percent from 2007, according to RealtyTrac. With nearly 10 percent of mortgages now delinquent--which is also a new record--even more homeowners appear headed for foreclosure this year. "A massive supply of delinquent loans continues to loom over the housing market," ..."

Strategic Defaults and the Foreclosure Crisis - Yahoo! Finance

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Treasury Delay on Bank Home-Equity Debt Imperils Housing Pickup - Bloomberg.com

Estimated 3 million US foreclosures in 2010...more than 20% of us mortgages currently under water. I know the theory is that Austin ducked all of this but... markets and wealth are interconnected. People moving to the area have less equity to spend. Banks are weaker and can/will lend less.

- Mr. Bubble

Treasury Delay on Bank Home-Equity Debt Imperils Housing Pickup - Bloomberg.com

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Forclosures, Rising Rates, Weak Jobs, no HAMP

This is some seriously good spin. The Statesman says that the seasonally adjusted rate of foreclosure is accelerating, but only by 2% and that's good news. (This is after a massive government intervetion too.)What it means is that we are getting off into a rate of foreclosure that is higher than last year! As an aside, I think I heard on KLBJ that Austin foreclosures were up 78% YOY at the end of 2009.

What really concerns me is this: the HAFA disclosure. This refers to some HAMP machinations that basically will require banks who took the 8k tax credit to offer easy exits to borrowers who are behind in their payments. THAT will mean lots of short sales and Deed in Lieu's...which will mean lots of banks pushing inventory, especially high end inventory, into the Austin market.

- Mr. Bubble


Foreclosures show signs of easing
Central Texas Business Digest- statesman.com

Austin-area foreclosures show signs of easing

Austin-area foreclosure postings rose just 2 percent for the February auction from a year earlier, the smallest increase in months.

According to Foreclosure Listing Service Inc., 1,286 properties were posted for the Feb. 2 auction, up from 1,261 a year earlier. It was the lowest level in five months.

Postings were up 32 percent in Travis County from a year earlier and up 13 percent in Williamson County. They fell 7 percent in Hays County and 31 percent in Bastrop.

George Roddy Sr., president of Foreclosure Listing Service, said the trend was encouraging, but cautioned that "a change for one month does not establish a new trend. We will just have to wait and see what happens next month."

Let the Debate Begin

First of all, for you commenters below, I know you guys are pros. In fact, I listen to your show. I listen because I think you're smart guys and straight shooters. I do think, however, that I have seen a glimmer of your future though as someone living in SoCal on the coast.

The bubble of which I speak is at your high end. 500k and up. I really can't get those stats yet but I have been out there kickin the tires with Paul.  Let's take downtown for example where you had all those rich Californians buying high end condos. There's tons of inventory over 500k sitting, and sitting, and sitting. I took the list prices from Zillow for downtown here. Now that is a disturbing trend that looks frigheningly like San Diego's condo market. (You can't tell from they chart but the period is from mid 2008 through the end of 2009)

Median List Price

More Austin Home Values

Now, I'd love to have sales prices rather than list prices but I think they make my case either way.

Let's take Lakeway, where I made all of my offers. I'm serious, you can hear crickets around those homes selling for more than 500k. Here are the list prices trends there from mid 2008.

Median List Price / sq. ft.

More Lakeway Home Values

YIKES! That's list prices per square foot. Don't catch a falling knife they say in the stock investing business.

Now finally let's take the area that I really want to be in because I'm a golfer and I can play at Barton Creek. It's hard to tell much from the data below. My guess is that sales are few and far between in this area. I think BC is a lot like Solana Beach, where I live. People are wealthy enough to avoid selling so buyers and sellers are far apart,  therefore there are not many sales. Look how eratic the graph is.

Median List Price

More Barton Creek Home Values

If you pros want to chime in with some better data on I'll gladly post it. What I need is 7 years of data by zip for SALES, not listings,  on a rolling 12 month basis to take out seasonality.

Just for giggles here's Westlake per sq ft. Hmmmm.

Median List Price / sq. ft.

More West Lake Hills Home Values

That 8k from the gubment may be helping the average Austin home buyer, but it ain't doin much for the wealthy home buyer who still can't get a loan done (Appriasals?), whose business is struggling, and whose stock portfolio hasn't recovered.

Inaugural Post- Why I created this blog

Well, I'm actually a Californian who went to UT and grew up in Texas. I recently decided to buy a place in Austin, a place I love dearly. So, the first thing I did was go to my favorite website, zillow.com. For those of you who don't know, Zillow provides lots of great information about individual properties and most importantly, sales data! Zillow actually uses an algorithm to estimate home values. (called a Zestimate) I've used it lots in other states and it provides useful information. I recently sold a place in CA and it was within 2% of the Zestimate...this was in a very volatile period of prices too.

Low-and-behold, there were no Zestimates for Austin. Hmm. It turns out that realtors in Austin hate losing control of the information and won't give it to Zillow. They hide behind this story of protecting client confidentiality. (Though they will give you the information if you ask for it?)

Anyway, I did locate a very helpful realtor, Paul Smith of Prudential, via Zillow and spent the next month looking at dozens of properties. My impression of the market was that, in the 400k plus market, 80% of the listings were above the market price. Many properties have been sitting on the market for over 2 years.

Now why would sellers think they can sell their homes at a 2007 price when we know prices have fallen considerably. Why would realtors take these listings? Are the realtors afraid to tell clients that prices have fallen? Are realtors afraid to establish new comps in some neighborhoods?

You can see here that prices are falling precipitously now. So, the question is, will they fall further?

Here's my theory as I wrote to my realtor today:

"I know you don't agree but I think Austin did have a significant run up in prices from 04-07 that was related to what went on nationally. I also think that, like here, your prices will fall back to the 04 level as the economy continues to stagnate, rates rise, government incentives are withdrawn, and bank foreclosures flood your market. I primarily talking about the 600k and up market."

Oh, by the way, I made an offer to a bank on a property in Lakeway that was a foreclosure. Despite that fact that this house had been on the market for a YEAR, they declined. On another trip I made an offer to a builder (Ryland Homes) that ended 17k apart at the last minute. That was in Lakeway too.

So that's it. This blog will serve to witness my theory and hopefully coax the real estate industry to be more transparent and honest about prices. In the end, price is everything.