Labor Day Cookout talk - Price declines accelerating

Well folks as we get ready for the last weekend of summer it gives us an opportunity to discuss with friends and family the favorite topic of those who bought in 2004-2007 housing!!!! See those stupid fools who bought are stuck. They are probably going to be stuck in the house they are in for at least 10 years. I think that we are likely half way there in regards to a bottom in the Baltimore region.

Take a look at the recent weeks ASKING PRICES and sellers are starting to figure out that if you want to sell you gotta be 20% below the dopes who bought in 2006 and are trying to get their money back.



Here are the peak ASKING PRICES in 2006. (hat tip housingtracker.net for the mls numbers for stats in both pictures.)



As you can see we are now 20% off peak.

20%....think about that. Being a bubblesitter, you just saved an equivalent of a downpayment.

The need to show up with your own money vs. just the banks money causes a huge shift in mentality. Now folks care about price and with rising costs of gas, food, and other consumer goods that I did not consider before, we probably have another shoe to drop.

Here is my prediction of where we need to get before prices stabilize:



This will give us a drop of around 40%. If you factor in inflation drops are over 50%, but personally I think deflation in housing is a long term trend at least till 2014 in this state because the costs of everything else are going up highter than the national average.

Now I expect the drop to speed up through end the year. We have 2 major events coming up. First, buyers disappear once football season starts and don't come back till baseball season starts. Second, on October 1st we way bye bye to down payment assistance.

On Monday I had an opportunity to take a look at the MLS database and looking at a sampling of sales in Federal Hill, Towson, Perry Hall, and Ellicott City an interesting trend appears. They days of 10%-20% rebates to the buyer after closing are the rule not the exception.

This I think is partially a Realtor tactic to keep prices appear higher and keep commissions up in a down market. The appraisers are not seeing this because the so called comps they can currently use are the high priced 100% frauds that do not reflect reality.

Here's the scam: The Realtor twists the sellers into settling at x price with a 20k kickback to the buyer. The Realtor says that if you want to sell this is a way to hit your number and the buyer can take the house. They spin it as a win/win for everyone even though it's akeen to robbing the bank(and should be illegal as the IRS successfully argued). The selling agent is also usually the buyers agent on the move up house and explans that they will get the money back on the settlement of the move up house they are trying to buy.

October 1st this round of musical chairs should end and help bring down prices even more.



With the downpayment assistance going away, the tactics will have to change. This will be painful to the current knife catchers but in the end will cause transparency and remove most of the control realtors have been using around here to engineer a slower drop. This will cause the serious sellers to price right and forget about saving face. The skewed hidden numbers to come out in the open of those who bought before 2004 will be able to undercut by another 10-20%.

The shift in mindset that housing is a way to riches is over. Easy financing is gone. Cash is becoming king. Sellers need to keep this in mind that you have no power especially if the banks start to dump the junk to clean the books up.

Right now the banks are holding the junk and only putting the cream on the MLS. This is not confined to the lower income city neighborhoods. We had a lot of subprime buyers in the inner ring burbs like Glen Burnie, Halethorpe, Rosedale, Parkville, and Woodlawn. (Although Owings Mills appears to be our current leader in the county for foreclosures.)

Subprime is a problem in the Federal Hill, Canton, and Fells Point as well, but they are actually more an ALT-A problem due to speculation.

We also had a lot of loans with supposed income of getting over market rent for a tiny bedroom. See 850 bucks a month for a 150 sq ft is not happening. We had a lot of loans written with the idea that you could get TWO roommates to help you out.

The problem however is that after a few months of this the roommate paying rent starts to wonder what the hell are they doing and start looking for a cheaper place. They don't own the property so what do they care. Again being 22 and having 2 roomates is fun. Having to do it at 30 because you overbought....yuk.


This will blow the comps away as appraisers are forced to use these new lower comps.

Have a happy and safe labor day everyone.