Shocking Secret Revealed: Will Zillow.com Accelerate Upcoming Real Estate Collapse?

What was unimaginable just two decades ago is now a reality. The amount of local real estate data one can get with a click of their mouse is mind boggling. While this can be “net positive” when the real estate market is going up, it can quickly turn into a major nightmare when the real estate market is heading down (as we anticipate it to do over the next few years). An incredibly popular real estate website Zillow.com traffic growth rate just went parabolic, now bringing in over 70 Million unique visitors in January of 2014.

Is that good or bad?

Well, it’s not dissimilar to speculating in penny stocks and hitting refresh button on your browser every few seconds (back in the day). People are starting to watch their local real estate markets very carefully. This is a speculative mentality. While it does wonders on the way up, a lot of people will rush to sell when they see their comps going negative. I am afraid they will find very few (if any) buyers on the other side. Perhaps collapsing the real estate prices much faster than anyone anticipates. We just have to wait and see.

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Shocking Secret Revealed: Will Zillow.com Accelerate Upcoming Real Estate Collapse? Google

From our friends at Doctorhousingbubble.com

You can’t stop the internet when it comes to real estate data. Zillow is a great example of technology revolutionizing the way people view real estate. Some of you are old enough to remember when the closely guarded MLS was only accessible by your local real estate agent. Unless you were ready to do some digging, finding out what a home sold for took a bit of time. It was also hard to view a list of available homes for sale. That is no longer the case. When Zillow initially came out the housing bubble was still raging. My initial thought was that access to information would only serve to create bigger booms and deeper busts. Keep in mind that the entire housing system is still built upon the appraisal system. Basically each home is only as good as the last few sales. When a market is booming and people are now able to see the boom in real time the temptation to buy can ramp up. When the boom bursts as it did in 2008, you can also see how quickly things will reverse. Things are already slowing down and sales are dropping dramatically in some areas. Does access to data liberate us from the old model of buying and selling real estate?

The real estate information revolution

I love digging around in the housing data. Real estate by far is going to be the biggest purchase most Americans will ever make. In the past, this big buying decision was usually entrusted to those in the industry. It made sense if the only folks with access to the MLS were real estate agents. They held all the cards. Most people had no idea what homes were for sale until an agent drove them around to view target properties. Now, open houses are posted online and many people arrive agent free.

People are still irrational and that is why markets boom and bust. People had access to great information before the tech meltdown in the early 2000s. Zillow was around in 2006 yet the housing market had its first ever nationwide meltdown starting late in 2007 when data started becoming readily available to all. The housing market has become a speculative asset class that captures the attention of the masses. Entire mythologies are built around real estate. Confirmation bias is extreme in the industry even though we have witnessed 7,000,000 foreclosures since this crisis hit.

The appetite for real estate information is insatiable:

Zillow put out this chart showing the visitors to their site. Back in 2009 Zillow was getting about 5 million unique visitors per month. Today that number is up to 70 million. This is a massive number of people going to a site dedicated to real estate data.

It is important to understand what is going on behind the numbers. Appraisals are largely based on a “sales comparison approach” where recent sales are used as a basis for current pricing. This is great in a market with a high number of transactions and relatively stable price changes but what happens whensales dwindle or inventory flat out disappears? We are seeing some of this occur where some zip codes are reaching new peaks on low sales volume.

Redfin also provides some good data and we can see that sales are taking a hit in the West Coast:

Year-over-year sales in the West Coast are down 13.4 percent versus 5.9 percent nationwide. In California sales are leading the way in this year-over-year decline:

Sales in the state are down 13.7 percent year-over-year and the median home price is up 21.3 percent although this trend has stalled out for the last couple of months. Affordability in California is horrible. Only one out of three families can actually afford the median priced home. The last post was interesting and we see many young professional families with six figure incomes struggling to purchase homes in high priced areas. What is fascinating is that many of these high income households are pausing to buy because they are running the numbers. Numbers that many times are pulled from these new venues of data.

Why are these seemingly intelligent high earners balking at buying when the trend is obviously showing higher prices? I believe one of the larger ironies of having access to data is that it makes people more prone to manias and panics. The late night mantras of “real estate never goes down” or the simple minded retorts of “buying makes sense at any time” are largely lost on a tech savvy audience that can crunch the numbers and understands opportunity costs and can run the numbers on a simple Excel sheet. The days of fooling a large number of people with hollow mantras is largely gone. We can see what is going on simply by typing in a few numbers. However, it is naïve to think that greed, the fuel that sets manias ablaze is also gone.

There is a bigger complexity to the system. Can the Fed really control interest rates for a very long time? Do baby boomers have adequate retirement funds to keep them going into deep old age? With sales slowing down and prices stalling out, will speculators pullback and spook the data hungry mob into changing their tune? The news cycle feeds off of the quick headline so you have to wonder what will happen when the housing market inevitably slows down as it is. Going back to the late 1990s, we have yet to see a stable market for more than a few years. Boom and bust has been the new theme:

Boom and bust seems to be a new trait of the housing market. Access to information only seems to feed the beast or starve the giant. The fact that so many in their 20s and 30s with healthy incomes that put them in the top 10 percent of households are hesitating to buy tells you something. These people want a home but are targeting markets flooded by investors, speculators, and people simply willing to mortgage their lives for a poorly built property. There are 7,000,000 reasons why people should run the numbers carefully and think deeply about making a giant purchase.

It is fascinating to see the number of people being vocal about buying in high priced areas today. This was similar to the rhetoric we saw in 2006 and 2007. Some have sound arguments and others are merely using their own confirmation bias as a way to extrapolate their very unique circumstances onto the future. People seem to crave a social affirmation when buying. Those that are successful usually feel pressure from family, friends, or even their own internal dialogue that buying is simply the next best thing to do. Once they buy, the entire narrative usually develops on how marvelous of a decision it was. Some even mistake luck with market timing acumen. The rental parity argument makes sense with smaller down payments but when we are talking $100,000, $200,000, or even $300,000 for a down payment, this argument falls flat. An all-cash investor doesn’t have to worry about rental parity from day one. Make the down payment large enough and you are likely to arrive at rental parity no matter what. There are bigger things at play. How many can actually save this much? What about the lost opportunity cost in say the stock market? Can someone actually carry this nut 30 years forward? It is interesting to note the volume of e-mails I have gotten in the last couple of years of people asking for confirmation about a buying decision. My response? Go ahead and buy if you feel you absolutely need to! I’m not the one that will carry a $4,000, $5,000, or even $6,000 monthly nut deep into the future.

What is also interesting is the big trend in people opting to rent versus buy. Many have no choice but many that have the ability to buy are opting not to. Some would rather lease a nicer home versus stretching to buy in an overheated market that is creating a halo effect on neighboring cities.

Access to data is great but I think this coupled with the instant media analysis only accentuates the boom and bust cycle of real estate. There is a strong possibility that this year, prices will go negative year-over-year in some areas especially if the slowdown in sales continues. Then the feedback loop will reverse. We have not had a normal real estate market for more than 20 years so why do some think that after this incredible investor induced boom that somehow, we will calmly reach a new permanently high plateau? The biggest argument for higher prices is basically the “because the past had lower prices” group and the “real estate always goes up in good areas” group that largely uses anecdotal stories as a method of ignoring the growing strain on local incomes. I can get behind this rally in home prices if good jobs were plentiful and incomes were moving up in sync with real estate values instead of being driven up byinvestor speculation and Fed market manipulation. It is good to see that those in their 20s and 30s with solid household incomes are actually crunching the numbers instead of mindlessly waddling into a massive housing purchase by following some old tired mantra. Remember kids, it used to be true that “real estate never faced a nationwide price decline” until it did only a few years ago.

February 26, 2014February 26, 2014

Real Estate Collapse 2.0 Why, How & When

If you ever want to ascertain the primary psyche of the American culture, just watch 1 hour of TV, paying particularly close attention to the commercial breaks. Here is what “The Man Behind The Curtain” wants you to do. The worst part is… most people seem to comply.

First, you must go to college, get a massive student loan and get a bunch of credit cards. After you graduate, buy your girlfriend a giant diamond ring, get married and she will love you forever. Then buy a house, a new car, start a family, get a dog and drink a lot of beer. Of course, the overwhelming pressures associated with all of the above will grind you into the ground. But not to worry, our top notch pharmaceutical and medical industry got you covered. Bonner pills, ADD pills, depression pills, high blood pressure pills, surgery and who can forget ….adult diapers. And that’s your future, in a nutshell.

In all of the above, one thing stands out. There is nothing more prevailing in the American culture than the notion that any self respecting, reasonable American with half a brain should own his/her own house. If you don’t, you are viewed as a failure. Now, before I destroy that notion with a few simple calculations and tell you why the housing market is going down the drain again (yes, it’s happening right now), please allow me to destroy the notion of home ownership with some simple common sense.

Reason #1: You Will Never See Your $50-100K Cash Down Payment Again:

Let’s say you are a responsible member of society and instead of getting Interest-Only-No-Down-Payment-I-Am-Never-Going-To-Pay-It-Back Loan, you get a typical 30-Year fixed with 20% down payment. In fact, you have worked incredibly hard and saved up $50,000 – $100,000 to do just that. Congratulations. However, the stupidest think you can do next is to buy a house and get a mortgage. If you do, kiss that money goodbye. Under today’s monetary conditions you are never going to see it again.

“But Alex, my realtor is telling me that buying a house right now is an opportunity of a lifetime….if I don’t do it now, I will never be able to afford it again, recovery is here, the prices are about to go through the roof, blah, blah, blah…” – Everyone.

Well, unless your realtors name is George Soros or Warren Buffett, tell your realtor to go pound sand. What we have experienced between 1994-2007 in the real estate sector is not only atypical, but is truly once in a lifetime. More on that later, but if you are lucky enough to sell the house you buy today at a breakeven, you will still not see the down payment again. It will simply roll over into your next house. From my point of view it is a lot better to invest that money into your future as opposed to park it in an illiquid asset that is likely to lose at least 50% of its value over the next 2 decades.

Reason #2: Closing Costs, Maintenance & Property Taxes:

Finally got that house of your dreams? Great, now bend over and take it like a man. Everything in this house will break down over the next 20 years and it will cost you a boatload of money to maintain. Throw in closing costs and property taxes and you talking about real money. Realtors themselves estimate you should budget about $8,000-$12,000 annually on a $500,000 house. Sure, there is an interest deduction on your taxes, but typically (based on your family’s tax structure) the costs above are never fully recovered.

Reason #3: It’s Not An Investment:

Stop saying that your house is an investment. Just stop. It’s a debt burden, not an investment. Investments produce income and pay dividends. Your house doesn’t do either unless and until you rent it out. Yes, your house can exhibit capital appreciation, but that is not an investment either. That is more accurately defined as a speculation. What we saw during the housing boom was just that. Speculation. Household incomes didn’t go up 500% between 1994-2007, but house prices did. People who were in the real estate sector simply got lucky. Now, it’s time to ride this Cho Cho Train down.

Reason #4: Your House Is A Trap:

Got that house of your dreams in The City of Compton, California? Congratulations, you are now trapped. Even if you get a $100K job offer to wax dolphins in Fiji, you won’t be able to take it. You will be tied down and unable to sell your house at break even. Particularly over the next 2 decades and that is exactly where “Corporate/Government Interests” want you to be. They don’t want you to have the ability to move and get a better job elsewhere. They want you to be tied down, “to have roots”, to be paid less. That wouldn’t be the case if you could increase your salary 25-100% by simply picking up your things and moving across the country.

And that’s just a few of the points. I can keep going, but I think you get the point. The housing myth is just that….a carefully crafted marketing message.

Now, let’s get to the best part.

Here are the reasons why you should be mentally committed if you are even thinking about buying a house. Plus, why you should sell your house NOW if you are misfortunate enough to OWN one.

First, you must understand where we are and the cause/effect behind today’s market.

UNDERSTANDING THE HOUSING MARKET, ECONOMY, SPECULATION AND DRIVERS BEHIND BOTH.

Yes, I called for the real estate crash and credit collapse as early as 2005. While my call was a little bit early and premature, eventually it was right on the money. Now, I am saying that the housing crash is not over.

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical precedent. Real estate data going all the way back to 1890 clearly shows that the US housing market basically appreciated at the rate of inflation. Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

A QUICK HISTORY LESSON:

All of that changed in 1997 when Bill Clinton signed The Taxpayer Relief Act into law, basically allowing $250,000 in tax free capital gains in real estate. While real estate was already appreciating at a good clip at that time, that law added fire to the trend.

Later, fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (yes, even to the dead people). As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still within our financial system and will have to be worked through in the future.

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most certainly, due to higher interest rates and rising prices.

Issue #3: Interest Rates Are Going Up

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

This has been the primary trend in our blog since inception. Based on our mathematical and timing work the stock market will go through a bear market between 2014-2017. Pushing the US Economy back into a severe recession. To learn more about the upcoming bear market please Click Here and read the report. With further job losses , lower incomes and an economic contraction it would be impossible for the real estate sector to sustain any sort of a rebound. On the contrary, as the economy tanks real estate prices are bound to collapse further.

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Chinese buyers, hedge funds, banks themselves, investors, speculators, etc….. Who cares!!! Remember all those Japanese investors buying everything they could in California and Hawaii in the late 1980′s. I wonder how that turned out for them.

In one of my previous reports I have outlined how large hedge funds, including Blackstone Group, are buying tens of thousands of real estate properties across the nation. With some hedge funds and financial institutions going to the extreme and investing in the likes of plumbers and dentist to help them find and manage properties(Click Here To Read). In Las Vegas alone 70% of real estate purchases over the last year have been done by investors. If all of this doesn’t not scream out “Market Top” at you, I really don’t know what will.

On a more serious note, notice that I didn’t say Average American Family. That is the only category that we should track if we want to accurately predict the future trend in the US Real Estate market. Every other category is irrelevant over the long run. And guess what? They are not buying. See the charts above.

Issue #6: Bear Market In Real Estate (sucks people back in)

As I have said in one of my previous posts (US Real Estate At A Turning Point), this is how the bear market works. This is the stage #2 bounce, before the big decline (stage #3). The bear market tends to suck people back in, offer them perceived safety and a high return before slamming the door, ripping their head off, drinking their blood and taking all of their money. The US Real Estate market is topping in Stage #2 run up here. That is why you are seeing so many divergences. The market should turn down soon. Beware.

FUTURE OF REAL ESTATE:

Real estate is not made of Gold. There is a tremendous amount of land available in California, Florida, Nevada and all over the US. There is no housing shortage. As such, expect real estate to decline significantly in order to revert back to its natural inflation adjusted mean. It might take a few years, it might be different for various cities, but one way or another the market will get there.

HOW FAR DOWN?

Let’s do very simple math for the San Diego market. It doesn’t have to be exact for our purposes.

Setup:

San Diego Median Family Income: $61,500
As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing. That means a $1,500/monthly payment.
Median Home Price in San Diego: $425,000
Interest Rates: 30 Year Mortgage 4.35% (Rates as of 2/21/2014)

With such fundamental input variables median house value should be $300,000 -OR – A 30% DECLINE ($1,500x360month@4.72%)

What if interest rates go to 7% over the next 5 years, which can easily happen?

The fundamental value of the median house drops further to $225,000 -OR- A 47% DECLINE

Also, don’t forget that markets oftentimes overshoot to the bottom, just as they set blow off tops. In such a case I wouldn’t be surprised to see a median price of $150,000- 200K -OR- A 65%-50% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible. Here is another way to look at this. Have household incomes increased 500% over the last 20 years? Nope. They have barely moved. Therefore, real estate decline in excess of 50% would simply return the prices to their inflation adjusted base.

TIMING:

In one of my earlier reports “I Am Calling For A Real Estate Top Here“ I clearly outlined the fundamental reasons of why the real estate market has peaked and is now in the process of rolling over. I continue to believe that the nationwide real estate prices are in the process of setting in a top. Since real estate is local, it is much more difficult to identify exact tops. As such, we must go back to the stock market in order gage a better understanding of WHEN the real estate market will tank.

Typically, the stock market foreruns the actual economic recession by 6-12 months. In other words, the stock market prices break down 6-12 months before Economic Data confirms a recession. While real estate prices, in theory, should start breaking down in conjunction with the stock market, that is not always the case. As such, it would be prudent for us to say that the housing prices will start breaking down 6-9 months after the start of the bear market in stocks.

As you know, it has been my claim (based on my mathematical and timing work) that the stock market topped out on December 31st, 2013 ushering in the final leg of a cyclical bear market. If such is the case, we can safely assume that we will start seeing drops in real estate prices sometime in the summer of 2014. Once the market rolls over and confirms, we should see a significant acceleration to the downside in real estate price over the next 3 years (at least).

With that said, we already starting to see evidence that the housing has topped. Please see volume data from RedFin.com below. As always, the volume of sales is first to go. Prices tend to follow.

WHAT SHOULD YOU DO?

That part is somewhat simple. If you do not own a home and thinking about buying one…..just DON’T do it. You will save a lot of cash (and your down payment) by renting and waiting for the market to come down over the next few years.

If you already own a home the situation is a little bit tricky. Listen, I am no fool and understand that your house is a home and is important for family formation/structure. If you are happy with you home and could care less what is going on in the real estate market……stay put. However, if you are thinking about selling your home, right now would be a great time to do so.

If you own rental properties that generate positive cash flow and they are not in any way tied into the upcoming real estate decline, keep them. If you are buying investment and/or rental properties as a “speculation” in hopes of capital appreciation or a “flip” you are better off liquidating all of your positions (right now) and getting out.

CONCLUSION:

Now, I understand and agree that there are various market forces at play that make the picture a lot more complicated. Interest rates, timing, mortgage finance, cash buyers, the FED, foreign buyers, speculation, location, supply/demand, etc…. However, fundamentals will always prevail over time. Everything else is just temporary BS.

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Real Estate Collapse 2.0 Why, How & When Google

January 24, 2014January 24, 2014

Why Smart Hedge Funds Are Betting On Further Housing Collapse and Why You Should Do The Same

Bloomberg Writes: Gundlach Counting Rotting Homes Makes Subprime Bear

For Jeffrey Gundlach, the U.S. housing recovery isn’t so rosy.

The founder of $49 billion investment firm DoubleLine Capital LP is largely avoiding the subprime-mortgage bonds that jumped about 17 percent last year after home prices surged by the most since 2006, deterred by the lengthy process to sell foreclosed houses and the destruction that’s creating.

“These properties are rotting away,” Gundlach, 54, said last week on a conference call with investors, about homes stuck in foreclosure pipelines, adding that it could take six years to resolve defaulted loans made to the least creditworthy borrowers before the real-estate crash.

“The housing market is softer than people think,” Gundlach said, pointing to a slowdown in mortgage refinancing, the time it’s taking to liquidate defaulted loans and shares of homebuilders that have dropped 13 percent since reaching a high in May. D.R. Horton Inc., the largest builder by revenue, has tumbled 20 percent.

Read The Rest Of The Article Here

A great read to understand why the housing market is in a Bear Market Bounce as opposed to any sort of a sustained recovery. Well, what used to be a bounce. In a gutsy call, I called for a real estate market top on October 3rd, 2013. You can read about it here I Am Calling For A Real Estate Top Here Further, I believe my call was right on the money and we should see negative year over year numbers once October of 2014 rolls around.

No doubt, just like the stock market, the real estate market is rolling over. While I have already talked about various stages of the bounce and what awaits us in the future, I haven’t really talked about what is driving this housing recovery. There are a couple of things.

1. Cash Buyers (aka. Investors, Hedge Funds, Financials): Nationwide that number stands at around 30%. This staggering number has one driver. Too much credit. In layman’s terms, the FED floods the market with cheap credit, financials/investors take this FREE money and invest/speculate in real estate or other mortgage backed instruments. Driving the recovery and housing prices higher.

“Blackstone Group LP and Colony Capital LLC have been central to the rebound, buying more than 366,200 properties in just a few cities”. — I mean seriously, come on!!! Good luck unloading those.

2. Backlog Inventory: Financials and banks, whether directly or through mortgage backed securities are sitting on a massive stockpile of properties even though the market has rebounded. How many? The article states 1.2 Million, but I fathom the number is a lot higher due to various off balance sheet and accounting tricks the banks are playing.

The bottom line is this. Don’t confuse this “dead cat bounce” with true economic recovery. The real estate market bounce has been driven by cheap credit and speculation. Nothing more. When the steam runs out, expect the housing market to decline below 2010 lows.

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Why Smart Hedge Funds Are Betting On Further Housing Collapse and Why You Should Do The Same

January 10, 2014January 10, 2014

Warning: Real Estate Collapse Stage 3 Is Beginning To Accelerate

The Wall Street Journal Writes: Banks Cut as Mortgage Boom Ends

A sharp slowdown in mortgage refinancing is forcing banks to cut jobs, fight harder for a smaller pool of home-purchase loans and employ new tactics to drum up business.

The end of a three-decade period of falling mortgage rates has slammed the brakes on a huge wave of refinancing by U.S. households. The drop-off has deprived lenders of a key source of income at a time when the growth in loans for home purchases remains weak.

The Mortgage Bankers Association next week plans to cut its 2014 forecast for loan originations, which include loans for home purchases and refinancing. The current forecast of $1.2 trillion would represent the lowest level in 14 years. The trade group Wednesday reported that mortgage applications in the two weeks ending Jan. 3 touched a 13-year low.

Read The Rest Of The Article Here

With the 10-Year Note being just a few clicks away from 3% (up over 100% over the last 1.5 years), this should come as no surprise to anyone.

As predicted in my earlier post “I AM CALLING FOR A REAL ESTATE TOP HERE” , the real estate market is in process of rolling over. Listen, as far as I am concerned this is incredibly easy to see and I am having an increasingly difficult time understanding how most people don’t see it. This is reminiscent of me predicting the 2007-2009 collapse in the credit markets starting in 2006.

Alex Dvorkin In Early 2006: Listen guys, this credit market is about to blow up and will take the housing market, the stock market and the entire economy down with it.

Everyone Else: “Alex, why don’t you just fuck off…… You don’t know what you are talking about….. Keep this up and everyone will know you as the “Boy Who Cried Wolf”…. and my personal favorite “My 88 year old broker who has seen the Great Depression is saying NOW is the buying opportunity of a lifetime”.

Right. If you are dumb enough to buy real estate in today’s market, you will get fleeced. Big time. Those who believe real estate always goes up need to go back to as recently as about 1994 to see how people felt about the housing market. Remember something very important. Today’s higher prices have nothing to do with the fundamentals and have everything to do with the massive speculative environment in the credit market. It’s fake….its not real….it is an illusion at best that is about to blow up.

As I have said many times before, stage 3 (upcoming stage) of any bear market is the most severe. Get ready. As I have predicted, the market is already rolling over.

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Warning: Real Estate Collapse Stage 3 Is Beginning To Accelerate

January 3, 2014January 3, 2014

4 Scary Reasons You Should Run Away From Real Estate…..Right Now!

Yahoo Finance Writes: 4 Reasons You Shouldn’t Worry Over Rising Mortgage Rate

An amazing puff piece from the Real Estate Industry. Please see my comments below. Also, please note that I have called for the Real Estate top back in early October of 2013. You can see it here. I Am Calling For A Real Estate Top Here. I am still sticking to that forecast. The market is already rolling over, although, a little bit slower.

If buying a new home is on your list of goals in the New Year, don’t let talk of rising mortgage rates derail your plans just yet.

As the economy recovers, the Federal Reserve tapers, and home values rise, experts predict we are well on our way to seeing mortgage rates crack 5% in late 2014.

Rates for a 30-year fixed-rate mortgages already hit 4.69% this week, up from 4.63% the week prior, according Bankrate.com. In May, the 30-year rate was 3.52%. Fifteen-year fixed mortgages were up as well, from 3.70% last week to 3.73% this week.

But rising rates don’t necessarily spell doom for house hunters. Here are four big reasons not to worry.

1. Mortgage rates are getting higher but not drastically so.

“I don’t think there’s any reason to panic,” says Keith Gumbinger, vice president of mortgage rate tracker HSH.com. “Buying a home will be somewhat more expensive, but I don’t think it’s going to be a matter of ‘Oh, I’m losing so much ground that I have to go out and buy [a home] right now.’”

Historical context is important. A little over a decade ago, the lowest average rate for a 30-year fixed rate mortgage was around 5.24%, Gumbinger notes. It’s easy to forget that when rates fell so dramatically following the housing crash.

“Even if we do start to see 5% rates appearing in 2014, rates will absolutely remain favorable [to buyers],” he says.

When someone in the industry says “I don’t think there’s any reason to panic”, you MUST panic. While in historic terms rates are still low they are still up over 100% in the last 1.5 years. That is a huge move within a short period of time and it will take its toll. It is already happening. Don’t let anyone fool you that it doesn’t matter.

2. Housing inventory is on the rise.

Nationwide home values have soared over the last year, with year-over-year gains of 13.6%, according to the Dec. 31 S&P/Case-Shiller Home Price Indices. That marks a seven-year high and the 17th consecutive monthly increase.

But new-home construction has picked up in the last few months and is expected to ramp up more, which should help lift supply. New housing starts were up 30% year-over-year in November 2013, according to the Commerce Department. On top of that, more homeowners will likely sell this year to capitalize on rising home values, contributing to an inventory boost.

I am not sure how this positive for the housing market, but they are absolutely correct. There is too much inventory out there. Too much hidden inventory for that matter, still sitting on bank balance sheets. Eventually all of that will come to the market and drive the prices lower.

3. There will be less competition from investors.

Real estate investors were notoriously greedy in the wake of the housing crash, snatching up cheap properties and elbowing out individual home buyers before they knew what hit them. But Jed Kolko, chief economist for Trulia, predicts that competition from investors will die down now that the market is recovering.

Last year “was the year of the investor, but 2014 will be the year of the repeat home buyer,” he says.“Investors buy less as prices rise. Higher prices mean that the return on investment falls, and there’s less room for future price appreciation.”

In other words, the author wants retail buyers to come in and purchase inventory from investors before market declines. This occurs in the stock market all the time. Again, I am not sure how this is a positive for the real estate sector. It predicts its inevitable decline. Don’t be that FOOL buying from investors at or near the top.

4. Fed tapering isn’t all bad news.

All eyes are now on Janet Yellen, the incoming Federal Reserve chairman who will be charged with phasing out the bond-buying program that has helped to steady interest rates over the last five years. It will be a delicate process. If Yellen moves too quickly, investors could get spooked and send mortgage rates soaring, notes Bloomberg’s Kathleen Howley. If she moves too slowly, rates could fall and the market could get flooded with home buyers.

But there’s a silver lining, Gumbinger points out: “Mortgage rates have started to firm up again not strictly because the Fed has started to taper but because the economy has gotten better,” he says. The fact that they’re considering winding down quantitative easing is a sign that the sluggish economic recovery is at least making some headway.

You joking, right? The economy has NOT gotten better. It has gotten sicker. A distinction must be made between real economic growth and a “drunken” credit driven speculative party. What we have seen over the last few years is the later. When it comes to an end in 2014 (based on my timing work) and the bear market resumes, this will be made very clear. Again, this is a horrible position to be in for the real estate market. As I have said many times before, the 3rd leg of the real estate decline will be a severe one. Position yourself now.

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

4 Scary Reasons You Should Run Away From Real Estate…..Right Now!

November 26, 2013

WARNING: The US Real Estate Prices Are About To Decline 45-70%

I HAVE OFFICIALLY CALLED FOR A REAL ESTATE TOP ON OCTOBER 3rd, 2013. CLICK HERE TO SEE

Yes, I called it perfectly in 2006-2007 and now I am saying that it is not over.

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical precedent. Real estate data going all the way back to 1790 clearly shows that the US housing market basically appreciated at the rate of inflation. Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

A QUICK HISTORY LESSON:

Later, fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (even to the dead people). As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still in the financial system and will have to be worked through in the future.

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most likely due to higher interest rates and rising prices.

Issue #3: Interest Rates Are Going Up

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

Please read “The Long Awaited US Stock Market Decline Is Likely Here” as to why.

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Issue #6: Bear Market In Real Estate (sucks people back in)

As I have said here before (US Real Estate At A Turning Point), this is how the bear market works. This is the stage #2 bounce, before the big decline (stage #3). The bear market tends to suck people back in, offer them perceived safety and a high return before slamming the door, ripping their head off, drinking their blood and taking all of their money. The US Real Estate market is topping in Stage #2 run up here. That is why you are seeing so many divergences. The market should turn down soon. Beware.

FUTURE OF REAL ESTATE:

Real estate is not made of Gold. There is a tremendous amount of land available in California, Florida and all over the US. There is no housing shortage. As such, expect real estate to decline significantly in order to revert back to its natural inflation adjusted mean. It might take a few years, it might be different for various cities, but one way or another the market will get there.

HOW FAR DOWN?

Let’s do very simple math for the San Diego market. It doesn’t have to be exact for our purposes.

Setup:

San Diego Median Family Income: $61,500
As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing. That means a $1,500/monthly payment.
Median Home Price in San Diego: $500,000 (pushing that level again as per Trulia.com)
Interest Rates: 30 Year Mortgage 4.72% (Rates as of 9/4/2013)

With such fundamental input variables median house value should be $290,000 -OR – A 42% DECLINE ($1,500x360month@4.72%)

What if interest rates go to 7% over the next 5 years, which can easily happen?

The fundamental value of the median house drops further to $225,000 -OR- A 55% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible.

ADVICE:

Your house is not an investment. Don’t be confused. It is the place you live and raise your family. If you are happy with your house, have a fixed interest rate, can afford your monthly payments and don’t care if your house depreciates in value, I would stay put.

If you find yourself in a contrary situation……..I would consider various options.

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

WARNING: The US Real Estate Prices Are About To Decline 45-70%

November 20, 2013November 20, 2013

Housing Market…Barbarians At The Gate

Reuters Writes: Home sales fall as prices rise

WASHINGTON (Reuters) – U.S. home resales fell in October to their lowest since June due to an inventory shortage and high property prices that have dampened buying power.

The National Association of Realtors said on Wednesday that sales of previously owned homes fell 3.2 percent last month to an annual rate of 5.12 million units.

Economists polled by Reuters had expected sales to drop to a 5.13 million unit pace in October.

At the same time, the median price rose 12.8 percent in October from a year ago to $199,500. It was the 11th straight month of double-digit gains, and up from last month.

Real Estate fundamentals continue to deteriorate. Over a month ago I went out on a limb and called for the real estate market top. Here is that post and reasoning I Am Calling For A Real Estate Top Here Even though the price is still increasing in certain markets (as I have predicted), I continue to stand by my forecast.

So, what is the future of housing? To understand what’s coming we must first understand overall macroeconomic picture. Most importantly we must understand that….

A. Historically speaking the real estate market is still in a massive bubble driven by cheap credit. There is no reason for housing prices to be at this level. As my earlier valuation work showed a 50% haircut from today’s levels would bring the prices into the “normal range” of where they should be.

B. I know that many people will disagree, but your house is not an investment. It is the place you live. It could be an investment if you view it as a business and generate positive cash flow and ROI from your rental. However, that is next to impossible with today’s market prices. Essentially buying today (or over the last few years) is a speculation where you bet on asset appreciation Vs. positive cash flow. That is a huge difference.

C. The stock market and the economy will tank starting in 2014. The bear market leg will go into 2017. My mathematical timing work clearly shows that. It is now unavoidable. In such a case housing will experience its 3rd leg down. Typically, 3rd legs are much harsher than the first decline. The bottom line is, I wouldn’t be at all surprised to see a 30-50% haircut from today’s prices.

Taking an even longer view, eventually we must get to a point where real estate is not viewed as an investment. Where people feel discussed by the housing market. That will be the bottom. Today we are on the opposite side of that view.

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

November 12, 2013November 13, 2013

Warning: Real Estate Implosion Is Starting

BusinessWeek Writes: D.R. Horton CEO: Somebody Please Tell Home Buyers Rates Are Still Low

The Texas-based builder’s new home orders dropped 2 percent from the year-earlier period, which Horton Chief Executive Officer Donald Tomnitz attributed to consumers’ high sensitivity to tiny interest rate changes. “I don’t mean to date myself, but … no one around this table can remember mortgage rates being higher than 6 percent or 7 percent,” he said. “And I think one of the factors that we are dealing with, quite frankly, is most analysts, and most young buyers—especially first-time home buyers in the market today—have been accustomed to low rates for all their lives.”

The difference in sales price is only $34,096, but the 2013 buyer will end up paying about $104,000 more over the life of the loan, including an additional $64,000 or so in interest payments. That’s not an insignificant amount of cash. It’s enough to cover a bare-bones Tesla (TSLA); it’s also roughly 25 percent more than the median household income in the U.S.

Read The Rest Of The Article Here

Just as I have said many times before we are continuing to see signs that the Real Estate Market is beginning to roll over. This latest whining from D.R. Horton CEO is a clear indication of that.

A few weeks ago I went out on a limb and called for a housing market top. I gave you the exact reason why the real estate market is topping and what you should anticipate going forward. Once again, you can read the article here… I Am Calling For A Real Estate Top Here As one of the signs and as anticipated we are starting to see crazy talk from industry insiders. Even though interest rates are still historically low Mr. Tomnitz is blaming buyer perception of interest rates for slow down in his business. As if buyers are waiting for interest rates to come down again. Maybe that is the case, but I highly doubt it.

The real reason behind the slowdown is un-affordability of real estate in this country and a massive (unsustainable) speculative bubble that has been created in the sector once again. If I could, I would tell Mr. Tomnitz get ready for the 3rd leg down in the real estate market.

If history teaches us anything, it will be much more violent than the 2006-2010 decline in real estate prices.

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Warning: Real Estate Implosion Is Starting

September 12, 2013

Why The USA Housing Market Is About To Collapse

(Quick Note: Dear reader….. I can drop a substantial amount of economic and statistical data on you to support the points below. However, if past is any indicator any such economic data would put most readers to sleep within 10 second. Plus, a volume of data/analysis can be published in regards to every single point below. As such, I offer only a quick summary and my conclusion for your reference. Should you require any additional information about the thesis below, please contact me directly. )

Yes, I called it perfectly in 2006-2007 and now I am saying that it is not over.

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical precedent. Real estate data going all the way back to 1790 clearly shows that the US housing market basically appreciated at the rate of inflation. Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

A QUICK HISTORY LESSON:

Later, fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (even to the dead people). As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still in the financial system and will have to be worked through in the future.

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most likely due to higher interest rates and rising prices.

Issue #3: Interest Rates Are Going Up

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

Please read “The Long Awaited US Stock Market Decline Is Likely Here” as to why.

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Issue #6: Bear Market In Real Estate (sucks people back in)

FUTURE OF REAL ESTATE:

HOW FAR DOWN?

Let’s do very simple math for the San Diego market. It doesn’t have to be exact for our purposes.

Setup:

San Diego Median Family Income: $61,500
As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing. That means a $1,500/monthly payment.
Median Home Price in San Diego: $500,000 (pushing that level again as per Trulia.com)
Interest Rates: 30 Year Mortgage 4.72% (Rates as of 9/4/2013)

With such fundamental input variables median house value should be $290,000 -OR – A 42% DECLINE ($1,500x360month@4.72%)

What if interest rates go to 7% over the next 5 years, which can easily happen?

The fundamental value of the median house drops further to $225,000 -OR- A 55% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible.

ADVICE:

If you find yourself in a contrary situation……..I would consider various options.

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Tag: real estate collapse

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WARNING: The US Real Estate Prices Are About To Decline 45-70%

Housing Market…Barbarians At The Gate

Reuters Writes: Home sales fall as prices rise

Warning: Real Estate Implosion Is Starting

BusinessWeek Writes: D.R. Horton CEO: Somebody Please Tell Home Buyers Rates Are Still Low

Why The USA Housing Market Is About To Collapse

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Copyrights - InvestWithAlex.com - 2024