Thursday, May 17, 2007

Bottom over a year away

The guys at Pimco, who have been following the housing market very closely, have an update on their housing forecast. I encourage you to clink the link and read the entire story:

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well. Why? Housing inventories remain high, delinquencies and foreclosures are set to rise as homes purchased over the past few years by speculators and individuals with teaser-rate and adjustable-rate mortgages come back on to the market, affordability is low, and sentiment and risk appetite has shifted negatively. Most importantly, the availability of credit is set to take a turn for the worse as lenders tighten credit standards.

This is all great news for renters and buyers who are patient. Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the U.S. housing market as “the next NASDAQ bubble.” The NASDAQ took over 2½ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.


Realestateslasher said...

1990 - 1995 in
Bkersfield can anybody tell me what
it was like then compare to 2007

Anonymous said...

Remember this is the National bottom, the CA bottom is likely years (plural) away.

As far as what was Bakersfield like in the early '90s. Check out and click on Bakersfield. You will see that homes here never really experienced the LA run-up of the late '80s, but they did experience much of LA slowdown.

Anonymous said...

The article is extremely interesting and informative.

It begs more questions investing in real estate. Investors tend to runaway from one investment genre to the next. But there are always investments worth making in real estate, regardless of the market, you just have to find them.

I still subscribe to the philosophy of steady 4% to 6% annual appreciation when dealing with real estate. If this is the case then let us take a look at average per dollar square foot property in 1999-2000.

You could have bought a property in that time period for around $85.00-$105.00 per sg ft. If steady appreciation occurs at 4%, just above inflation, we have a price range of $108.8 to 134.4 per sq ft. for todays true value. I at this point do not think that this is unreasonable for homes in the Bakersfield area.

Obviously there is a leveling period where homes do not appreciate even in a stable market, so this would be best case scenario. Believe it or not, there are still deals out there to be had at prices below that per sq foot mark, you just have to find them.

Main thing is you have to hold on, you have to be in the black while renting, and you have to manipulate your taxes in order to truly profit.

Pimco makes great points, but steering clear of the real estate market in general is bad advice, you just have to work smarter and harder than before, which is really what investing in real estate is, not the speculation of wannabe investors.

rrastronomo said...

where can you find a home between the price range of 216-268k for 2000sq ft in baked town? acccording to your logical 4% price appreciation since 2000 before people lost their minds?

Anonymous said...

You would not believe the amount of pre-foreclosures on the market that have the exact statistics you just described.

It takes more work, but that is when investing in real estate really makes you money. I am sure everyone has heard you make money on what/when you buy, not sell. Same philosophy.

Just the other day there were 3 homes that went into default with that statistic, the lenders have not caught on yet, holding on to their foreclosures at 2004 price levels, but as the banks accumulate NOD's and REO's their credit ratings with investors will drop, their cash in reserves will suffocate their lending capability and they all will start taking offers in the pre-foreclosure stage, rather than wait till the home is lost to third party or returns to bene. Main thing is to be patient, wait for it, and act when it happens.

We have at least a couple of years before we hit bottom, then the lull, then stabilization. The deals however, are still out there. Bakersfield was recording an average of 12 to 15 NOD's everyday through the first quarter. We are up to 25-30 NOD's, it will get worse before it gets better.

Bakersfield Bubble said...

This weeks NOD list had 160+ homes on it for one week. 3 were Crisp's (his, his wife and his mom).

Anonymous said...

Gotta love it on some level.

One of the homes is down the street from my Girlfriend.

I spoke with him the other day, and he is none too happy with life. Resorting to desperate measures.

Ah well, I told him in 2001 to save his money, that this does not last forever, it is cyclical, and that people like him will contribute to its demise. Not to mention give people in real estate a bad name.

Anyhow, yeah I have been tracking the NOD and NOS for at least 8 months, and it is truly astounding the increase. I here real estate agents say it is going to rebound, and I look at them and say really, how many homes did you sell last month... 2!

I am a real estate agent, been a realtor for 8 years licensed, and a cold caller/marketing rep when I was in high school, Real Estate was never meant to be a $400,000.00 a year career, if done correctly. Too much goes on within a transaction that can be overlooked if you do not have the best interest of people in mind.

Anyhow, it is time for those who want to remain in the field to tighten their belts, although it is probably too late for some.

Bakersfield Bubble said...

"Anyhow, it is time for those who want to remain in the field to tighten their belts, although it is probably too late for some."

I know of a few that are already past the point of no return. Maybe they will learn for the next boom in 10-20 years.

Bakersfield Bubble said...

I listened to the Stan Ferguson show today and he mentioned a realtor who could not afford to buy gas. That is sad!

Although Stan claimed this is a normal market. WTF??? 100-150 NOD's per week, 17.5 months of inventory, lenders tightening credit, realtors offices shutting down, ... He needs a job in the spin dept of a politician.

Anonymous said...

"I know of a few that are already past the point of no return. Maybe they will learn for the next boom in 10-20 years."

10 to 20 years, ah come on, it will be till 2008, everything will rebound. - LOL

Again, I am a Realtor, I wish I had the same optimism as my "co-workers," and I say that loosely. It simple to see that it is not going to get better, and with groups speaking to legislation regarding increase in property tax to cover what a few real estate professionals did in order to get rich quick is not only sickening, but down right immoral. For the people who did not get into loans that were made up of erroneous information and lies, those people could be caught holding the bag. Property tax is always the thing I look at first, because it is a fixed cost, lasting forever, how many years would have to pass in order to correct what has been done?

I find that if you do the math, it is an extremely staggering number, one that most people will be extremely pissed in paying, and may contribute to delinquency of loans.