Sunday, January 3, 2010

"A Bottom In Real Estate?"

While I'm not sure by any means, I DO think so.

Most folks that I know in the real estate biz think that we are headed for a lower leg downward.  I, and the very extensive staff at Marko's Take, unanimously and respectfully, disagree.

For one thing, any opinion to be so unanimously accepted is very rarely correct.  Secondly, the very nature of the panic selling is another tipoff that the bottom just MIGHT be in.

There also exists historical precedent.   In the 1970's, a period of "stagflation", Califonian real estate went bonkers!  And, despite the sky high interest rates prevailing!

There is also this factor called inflation.  It's now creeping higher and will undoubtedly affect housing prices upward also.

According to the Wall St. Journal, in an article titled "Redefault Rate Decreases For Restructured Mortgages" (, the rate of redefault has dropped significantly.  The report referenced covers the top 13 mortgage service providers and represents 64% of all outstanding mortgages!  I find this little nugget OUTSTANDING!

The National Association of Realtors has also weighed in.  Its reports indicate that sales rose 7.4% from October to November to a seasonally adjusted rate of 6.54 million - the highest rate since February, 2007! 
Furthermore, sales were 44% above their trough from the November 2008 low!

The California Association Of Realtors just released ITS statistics.   Single-family home sales inreased by 4.7% to a seasonally-adjusted rate of more than 500,000 units.  The state-wide median price rose 2.4% to $304,000.  Unsold inventory fell to 4.5 months, down from 7.1 months in November, 2008.

So, while a bottom in real estate is too early to be verified, all the "signs" indicate that something good is taking place.

Tomorrow we'll unravel the mysterious world of Hedge Funds. 

Marko's Take


  1. Sorry, can't agree. I think the more likely scenario is, with 25% of all mortgaged first residences under water or at zero equity, there's a false supply constraint (because those no-equity owners who can't or won't do a short sale and aren't in default, simply cannot sell at these levels). So, there has been bargain hunting amongst foreclosed and short-sale properties, plus a near total cessation for about 2 years of speculative new home building. This has helped soak up SOME of the excess supply, but I can think of at least three big negatives that could push this puppy down the toilet:

    1 - ANY meaningful rise in interest rates WILL trigger a new wave of defaults and foreclosures - and it doesn't really matter which part of the yield curve moves. HELOCs are mostly tied to Prime, 3- and 5- year ARMs to 1 year T or LIBOR, and other ARMs to 10 year LIBOR. Bottom line - borrowers just able to make payments now (where we seem to have settled) - are TOAST when we get a 150-300bp shock to rates - which seems HIGHLY likely given the massive unending monetary stimulus.

    2 - It's very hard to get a mortgage loan without excellent credit and a substantial (20%+) cash downpayment. The would-be buyers (importantly, including many of those who want to trade DOWN out of their zero equity properties) have seen their credit scores AND balance sheets HAMMERED by income loss, property value loss, financial asset losses, and rising real total tax burdens. There is a dearth of willing and able buyers and this won't end absent some big new intervention by the GSEs (Freddie/Fannie/Ginnie etc). AND, those programs are VERY unlikely to - No, WILL NOT - cover jumbo loans and high value properties, so the worst off underwater owners (absolute dollar wise) will get no relief.

    3 - The rent/buy economics STILL don't favor purchases in most markets - perhaps because some underwater owners are choosing to rent the place for whatever they can, rather than default or sell at a loss. This suggests to me that because many sellers CAN'T or WON'T sell at the actual bid price it would take to clear the market today, any robustness in existing home sales prices is overstated and/or the result of a dead cat bounce.

    Debate away!

  2. Rich:


    During the Great Depression, interest rates remained at 0, during the lion's share. In addition, the very country we live in can't AFFORD to raise rates! WHY? Because owe so much damn money, the interest is going to kill the budget and the deficit!

    The piece was on PRICE, not availability of relief! So, I'm puzzled as to how that factors into the equation. Sorry about that, Chief!, as Maxwell Smart might say.

    While owners may or not CURRENTLY be able to sell in most cases. I know very many that HAVE.
    Furthermore, the ability to sell which you speak of is current! And, as both know, it may very well change.

    Anyhoo, you made a wonderful, and excellent comment!

    Call me sometime so we can catch up!



  3. What about the next round of expected mortgage defaults from those tempting loans of several years back which rates are scheduled to adjust up in early 2010? I heard these problems were coming first quarter of 2010.

  4. And considering the banks and Fannie have not foreclosed on all the deadbeat homes. In fact, some are counting them as assests.

  5. Cathy:

    By the time the resets occurs inflation will push up prices. Yes, some more default may occur, but at higher levels!

    Thanks for the comment!

  6. Jose:

    Great comment, too! Most banks haven't a clue as to the value of their asset or liabilities!


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