The January 2009 Case Shiller housing price data was just released this morning. For the real truth on housing price trends, ignore everything (eternal cheerleading) from the NAR and MLS and go to the only source of REAL, UNBIASED and OBJECTIVE housing price data. Here is a compiled snapshot of the results, and as expected, the price declines continued in January.
The word “repartment” is not in the dictionary yet, but I have a feeling it will be soon. The term refers to a developer who buys an apartment complex with the intention of converting the units to condos. After dismal or no sales, the developer rightfully panics and re-converts the units to rentals.
The eastside’s newest complex to repartment is Woodinville Village. Here is a write-up from Puget Sound Business Journal from April 2008.
Developers have put the cork back in the $200 million wine-themed Woodinville Village after two of its four winery tenants have backed out and initial financing efforts failed.
…The firm recently sent an e-mail notifying dozens of Woodinville Village’s prospective condo buyers that construction would be delayed — again. Many had eagerly signed up within the first 48 hours of the project’s initial offering last summer, (Geldpress comment: VERY DOUBTFUL!) and they expected construction to start this spring on the proposed mixed-use development that will include wineries, a boutique hotel, shops, restaurants, offices, a grocery, spa and 260 residential units when completed.
The original sale prices of the condos were so astronomical it’s not worth even mentioning. The developers brought new meaning to the term “Above and Beyond”, but it referred to the prices and not the quality. In the end, they never (substantially) broke ground on the new development, but they did convert the first phase of the adjacent rental untis purchased – “The Villas” – to condos. Those never sold, and now the repartment of those units is official. Here is a snapshot of the latest e-mail from the developer.
Some older Woodinville Village websites are still active: (for now)
The Villas (formerly Woodinville Village) may have started the eastside repartment trend, but they will certainly not be the last. On my recent unscientific tour of eastside condo developments, the common theme was a combination of construction complete and less than 20% sold.
Jonathan Jarvis put together an excellent animated video explaining all aspects of the credit crisis, and essentially pinpointing the start of it to Alan Greenspan’s error of jacking down interest rates after 911. Thank you Jonathan for a great video! Be sure to check out the Crisis of Credit website, and buy some “Sub-Prime” t-shirts.
Part 1 of the Crisis of Credit Visualized. (7.5 minutes)
Part 2 of the Crisis of Credit Visualized. (3.5 minutes)
The December Case Shiller data was released today. Unlike the NWMLS and NAR fraudulent “eternal real estate cheerleader” numbers, the Case Shiller values are based on ACTUAL RESALE VALUES and OBJECTIVE MEASURES. Lets first recap the phony numbers as reported by the Northwest Multiple Listing Service (NWMLS) for the December period.
When the NWMLS reported the Seattle area December data, they said:
The median price for a Seattle area house that sold in December was $436,750, up just over 5 percent from November…The median house price in King county was $403,500, up just over 2 percent from November…The median condo price in Seattle was $321,500, the highest since March, up 6 percent from November.
Now lets look at the ACTUAL DATA from the Case Shiller report, as shown in the graph below.
Results:
Seattle home prices DOWN 13.4% year over year and DOWN 3.6% month over month.
NWMLS wrongly reported that Seattle home prices were UP in December month over month.
Regarding the rest of the nation, not one city in the Case Shiller index reported a halt in home price declines.
The CNBC House of Cards 2 hour documentary is airing all week. Set up your TIVO to record one of them, and watch it at your leisure for an informative and highly entertaining view of stupidity in action. Or, check this link to watch some of the segments directly on the CNBC website.
Here’s what looks like a CNBC produced 8 minute trailer of House of Cards on youtube.
For first time home buyers, or for anyone considering the purchase of a new home, the list of requirements below may just save you from what could be a very costly mistake. The list below is quite different than one from the perspective of the realtors or bankers, but rest assured it is the right list to follow if you don’t want to lose money!
There are no current national or large bank mortgage foreclosure moratoriums in place. These temporary measures do nothing but skew the statistics in a futile attempt to artificially raise the market prices of homes.
The total monthly cost of ownership must be a maximum of 5% larger than the cost of renting a near equivalent place. Regardless of what financing and down payment is actually used, the monthly cost of ownership should be calculated separately assuming a ZERO DOWN loan, with a 30 year fixed MARKET interest rate (NOT TEASER). Include principal and interest payments, real estate taxes, insurance, association dues, and special charges (i.e. flood insurance) in the monthly cost of ownership. Also see the Geldpress Rent vs Buy calculator.
The Case Shiller index in your area must show a flat or positive trend from the latest available data point to that of 3 months prior. Case Shiller housing price data are the only ones worth viewing, because it is OBJECTIVE. Any data coming from the MLS or NAR is subjective and biased! As of today, Case Shiller data is available through November 2008. To consider buying a home in the Seattle area, compare the November data point for Seattle (166.23) with that of the August data point for Seattle (175.24). The trend is still negative, so it is not the time to buy in Seattle (or most parts of the country).
Not in the Requirements to Buy a Home:
Inventory numbers showing a flat or negative trend. While it is interesting to look at the trend in “months of supply” data, there is to much manipulation to trust the data. Developers are intentionally de-listing properties to keep the supply numbers low. Banks are intentionally holding back REO properties so as not to flood the market. Delinquent home “owners” are not being foreclosed on in a timely fashion. Stick with the 3 requirements above and you will be fine when purchasing a home under these conditions. Note, however, that MAS and I disagree on using inventories when trying to pick a bottom in real estate.
The recent profile of “Mr. Microsoft” and his decision to walk away from his mortgage generated quite a stir. Some were supportive, while others were vehement and angry. The Mr. Microsoft story was a story profiling one individual, but perhaps there is a Mr. Microsoft in a neighborhood or city near you. Perhaps there are hundreds and thousands of Mr. Microsoft’s all over this country, working hard, and eager to buy a slice of the American dream.
The average employee at Microsoft has a 4 year degree in engineering, computer science or other highly employable field. Many have masters or doctorate degrees. Most of them worked very hard to obtain their degrees and they feel a sense of entitlement from their hard work. It’s not a sense of entitlement in the ordinary sense, but one of expecting a comfortable lfestyle and the ability to buy a modest place to live and call home. Outside of Microsoft, other engineers, scientists and doctors from companies everywhere feel the same way. The median household income in the United States is only $46,326, accorindg to the Census Bureau. In many cases, the educated “Mr Microsoft’s” that hold degrees and work in corporate America earn twice that amount or more. The homes they want are not the McMansions that the media mistakingly cites as the cause of the foreclosure flood. They just want a modest home, similar to what they may have grown up in, or in many cases even smaller:
1000 – 1500 square feet
2 bedroom and 2 baths
Built within the last 15 years to reduce maintenance costs
The list above are not the requirements for a McMansion!. The list of requirements above is very modest, but the prices in major metropolitan areas and up and down both costs for homes meeting that list are simply not affordable, to anyone with an average Mr Microsoft salary (excluding Bill Gates of course). Rather than using the intelligence they are so fond of, the Mr Microsoft’s of the world ignored reason and reality (the reality that RENTING IS CHEAPER THAN OWNING), and enabled the con artists of the world (bankers, mortgage brokers, real estate agents, appraisers) to sucker them into one of the worst financial decisions they have ever made. And that horrible decision has only two possible outcomes:
Write it off, and walk away and leave the mess to the con artist bankers (and unfortunately the taxpayers)
Continue to throw good money after bad on a depreciating asset
The Mr Microsoft in Redmond chose to recognize his mistake and walk away. What will the thousands of other Mr Microsfts in the country do? It’s a difficult decision to make, but it may be even more important than the initial purchase decision. Read this story for another view on somebody else struggling with this very decision.
Home prices continue to plummet across the nation. Lending standards are finally APPROACHING (not there yet!) reasonable levels. Prices will not stop declining until the monthly cost of ownership equals the monthly cost of renting. We have a long way to go. Now is not the time to buy.
This house likely went on the market in Redmond even before the announced Microsoft layoffs.
It’s listed on Zillow for $584,900, but was last sold in January of 2008 for $717,192. That’s an 18.5% price decline in just a little over 1 year. Just stop and wonder what kind of price declines there will be 1 year from now, with thousands of additional layoffs, more salary cuts, missing speculators, tighter lending standards, and (hopefully) smarter consumers…
The Geldpress team attended the first Seattle Condo Tour last year, where desperate high rise condo developers showcase their unsold properties for lavish prices. From my perspective, it was just a futile attempt to lure in the last batch of rich Seattle morons. And for the morons that didn’t have the $800,000+ for those tiny studio and 1 bedroom condos (still under construction), there was no problem. The developers would happily etch another notch in the “Sold” list for just a tiny deposit or even a signature. But those “Sold” condominiums often come right back on the market as cancelled sales when the “buyers” don’t get approved financing, or back out due to massive price declines ahead of completion.
If you don’t believe that developers would list properties as “Sold” without a down payment, take a look at MGM’s project – Las Vegas City Center.
In a note to clients, Daswani said MGM has sold 55 percent of the condo units to date, but has received only 20 percent of the deposits. The analyst cautioned that if the units’ prices fall about 15 percent to 20 percent from current levels that the project will turn out to be a loss for MGM.
Geldpress comment: Consider it done! 15-20% price declines are absolutely going to happen at a MINIMUM. For a gambling metropolis that thrives on minimum wage incomes, it’s impossible to justify the insane pricing at City Center. Also note that they reported selling 55 percent of the condos, and 80% of those reported “sales” were based on nothing more than a signature and a handshake!
The article also notes:
MGM Mirage may see a default rate of 20 percent to 30 percent on its CityCenter condominium units and faces the possibility of some asset sales, an analyst said Tuesday as he started the casino operator with a “Sell” rating.
Geldpress comment: MGM is toast in the likes of “Countrywide toast”, “Bear Sterns Toast”, “Lehman Brothers Toast”, and “Rye Toast”. And despite future desperate pleas from the mayor of Las Vegas and governor of Nevada, MGM will NOT be declared “To big to fail”. As for trading MGM, it’s to late. The easy money was shorting MGM when it dipped below $40 last summer, and then dipped below $30 last Fall. At these levels ($6.12 at last glance), there are no shares to borrow for shorting, and the options premium on the PUT side is to exorbitant to even bother. Good Bye MGM. Thanks for the memories!
The latest Case Shiller index values through November 2008 were released on January 27th. Despite the continual cheerleading from the National Association of Realtors (NAR), housing prices continued on their downward paths.
The Case Shiller index values are the only objective housing measure worth looking at. The view below is a quick snapshot showing the following:
Peak Month and Value - The case shiller index values were 100 at the January 2000 reference month. A value of 155.04 signifies that prices were 55.04% more expensive for the month listed.
Last Value – Data currently available only through Novembe 2008.
Peak Decline – Percentage decline from the peak month and value listed.
M-M Decline – Percentage decline from October 2008 to November 2008.
Y-Y Decline - Percentage decline from November 2007 to November 2008.
Meanwhile, the NAR continues its desperate attempt to re-inflate the bubble. Their methods are two-fold:
Ignore the data and present misleading data to unsuspecting potential home buyers. Their latest report states that “Sales jumped 6.5% in December”. Next thing they will tell us is that their weight increased 2,000% (since childbirth!). Read the NAR reports carefully before buying a new home.
Beg congress to punish responsible taxpayers by bailing out irresponsible lenders, builders, and home speculators. Beg congress to give your tax money to first time home buyers. Beg congress to do everything possible to PREVENT market forces from working in an efficient manner. Their latest statement is here:
NAR expressed support for Chairman Barney Frank’s, D-Mass., proposal, H.R. 384, the TARP Reform and Accountability Act, introduced last week. This bill contains key components of NAR’s Housing Stimulus Plan, including enacting a mortgage buy-down program to reduce interest rates below prevailing rates, increasing foreclosure prevention and mitigation efforts, and providing needed liquidity to the residential and commercial mortgage markets to ensure that financing is available. “We also applaud the chairman’s efforts to strengthen accountability and increase transparency in the use of TARP funds,” McMillan said.
The information on this site is provided for discussion and entertainment purposes only, and are not investing recommendations. Under no circumstances does any information on this site represent a recommendation to buy or sell securities. There are no accuracy guarantees for any of the information on this site. Any securities listed in options education posts are purely arbitrary examples. Trading can be dangerous and you can lose money! Take Responsibility for your own Trades!
