Haven't First-Time Homebuyers Heard of Roubini?

Somebody forgot to tell first-time homebuyers that the nation’s housing market is in permanent black-swan mode. From today’s Boston Globe:

A growing number of first-time buyers are jumping into the housing market this spring because of falling prices, historically low mortgage rates, and an $8,000 federal tax credit.

"Houses that were not previously within the grasp of first-time home buyers" are now attractive to them, said Thomas Gleason, executive director of the Massachusetts Housing Finance Agency, the state's affordable housing bank. "There is a lot of pent-up demand."

While real estate brokers said it is too early to know whether the market is rebounding, there are indications that qualified buyers are finally deciding to get off the sidelines. . . .

The picture of a housing market still in free-fall this is not. Across the country in Orange County Calif., meanwhile, housing economist Mark Schniepp sounds more than a little hopeful:

Home sales sharply higher (to their highest levels since October of 2005). Prices appear to be stabilizing in some areas; overall, prices during February were not off as sharply as they had been. For the state, off only 2.2 percent from January. We appear to be at bottom in prices or nearly at the bottom; it is a regional issue now.

Two anecdotes do not a trend make, of course. But from the looks of the market’s reaction to the Wells quarter this morning, a lot of investors seem to still believe the housing market and attendant lending environment are going to get a whole lot worse before they get better. Based on more and more evidence, the time may have finally arrived to take the other side of that bet. . . .

Comments

[Can'tSpotAB...:]

Here's the view in my area:

Most seller's still clinging to 2005 prices, no inventory moving.

LOTS of shadow inventory on the sidelines.

I guess your first time homebuyers have not heard of Meredith Whitney either.

Apr 13 08:37 AM

[walters:]

Matt- there were more than a few people telling buyers in 2005-2007 that they were buying into a bubble; they just didn't listen or preferred the advice of pimps. Something similar may be happening now with your buyers but the deleveraging process will take its course.

Apr 13 08:49 AM

[highwaytose...:]

Massachusetts household income is just around 50k. The higher paying jobs are in medical and financial service sectors. The average house should be less than 200k. The banks are being aided by the TARP thefts to hold up asset prices. I've seen 400k condos go for 40k ... Middle innings at best...despite what the NAR and MBA want you to think.. So if you are the average citizen of the Commonwealth with the 8k printed to bail out this unproductive sector if you can find 2400 sq ft houses under 200k then the markets work...My experience we are not even close... Tag this with the jobs and sector rotation Roubini is right.

Apr 13 09:24 AM

[Allan Frain:]

It is not surprizing that 1st time buyers are jumping in. For years they were crowded out by speculators armed with easy money, so there is certainly a segment of pent-up demand.

This does not mean that they are buying at a bottom. They might also get a surprize visit from the taxing agents of States and municipalities in a world of hurt.

Apr 13 10:50 AM

[John Wake:]

The housing market will bottom out long before the banking industry.

When housing improves, sure the banks can make some money on new loans but that income will be a drop in the bucket compared to the losses hanging over their heads from those 2005-2007 loans with huge negative equity. Years from now that homeowner will retire or lose his job or get divorced or have a kid and will move out. And when that happens, the banks will end up forgiving tons of debt in a short sale or will foreclose and lose a ton of money that way.

Don't tie the housing industry to the banking industry.

Apr 13 11:25 AM

[Socialism c...:]

Same here. I've been watching a grouping of the same listings for several months. One...count it...ONE...listing finally dropped in asking price two weeks ago!! The rest are persisting in the same bubble price, and are apparently content to just list forever at the same price. The housing market has NOT capitulated yet. There is MUCH MORE FALLOUT yet to come!


On Apr 13 08:37 AM Can'tSpotABubble? wrote:

> Here's the view in my area:
>
> Most seller's still clinging to 2005 prices, no inventory moving.
>
>
> LOTS of shadow inventory on the sidelines.
>
> I guess your first time homebuyers have not heard of Meredith Whitney
> either.

Apr 13 01:02 PM

[Brad Bergamini:]

I love good news.
This is happening in Prescott Arizona Also..

Apr 13 01:36 PM

[deviljmg:]

Just because sellers are leaving list prices unchanged doesn't mean that they actually expect to get them. But in many instances figuring they will get a significantly haircut offer regardless of where they put the listing price it may make sense to not lower them preemptively.

But generally I find the commentary here refreshing - it suggests that the bears will stay bearish far too long as the bulls did a few years ago. I expect that Mayo, Whitney and Roubini will all fall in that camp too.

Apr 13 03:27 PM

[HardwoodFlo...:]

Well, if you don't have to sell in this market why would you? Isn't that what tripped up that market anyway- speculating on housing. There was a time people bought a house to live in- not just to flip and make money on.

First, housing is regional and even more than that- regional within the regionality. Take the Boston thing for example- South Boston is not Cambridge. In Cambridge house prices have not come down at all- I but that's not the same for South Boston. So what’s the point- Housing will recover but the recovery will look like housing did in the distant past (pre '05).

There is pent up demand (after 3 yrs of a housing down cycle). It is showing up first in the numbers of people seeping-up the deals. This will continue for some time. Banks have huge FHA loan backlogs right now and the numbers of sales for cheap houses will continue to impress.

The hard part is that people cannot get a JUMBO right now- or if you can it takes months. Banks don't want to write JUMBOs and there are two other components to that: 1) people who don't have to sell aren't and 2) people want a deal and the high end still has to come down to meet that felling like "wow, I just got this $1.5 Million house for $1 million!"

Until then prices, average prices, will continue to fall. The truth is we are working our way into a very unique situation. Housing starts are 25% of the sustainable 1.5 Million Units for single families. It's a huge deficit that is and has been run in housing. The back side is going to be interesting because there is going to be- believe it or not, significant shortfall. Then, because so many companies like Weyerhauser, LP and the rest have cut back so far on production there is going to be a serious shortfall of building materials which is going to jack new construction costs (I'm talking 12 months from now). This will help support housing sales because right now houses are selling "below replacement cost".

The country has worked itself into a very interesting quagmire down the road. But in order to see that road your perspective has to be longer than 3 months. The facts remain the same: 50% of people in this country don't have a mortgage & of the other 50%- 75% have been in their house 10 years or more. 91.5% of the people in this country are working. Housing has to increase to a production rate of 1.5 Million units to get back to sustainable- right now we are, and have been, at 400,000.

I think we will all look back at this and think, man, the last legs of this thing were like Y2K. People telling us to buy gold, stockpile guns and get ready for social unrest. CNN investing $5MM in a set for the "financial crisis" and employing 12 "experts" to jawbone into 15 minutes of fame yakking about the same stuff.

Apr 13 03:32 PM

[Tony Petroski:]

I think the sales activity is starting to turn up. The $8000 rebate is serving as a down payment. That means that many are once again getting into houses with no down payment/equity. On the other hand, it should help to firm up prices on the low end.

Apr 13 05:38 PM

[inthemoney:]

> 91.5% of the people in this country are working.
Wrong, make it more like 60%, reseach something called "labor force participation rate".

Apr 14 01:03 AM

[HardwoodFlo...:]

inthemoney- you're right, I mean 30% of the people in this country work for a Federal, State, County or someother quasi gvernment agency.

Apr 14 09:57 AM