Steven R. Smith

While Retail Sales Decline, FHA House Sales Soar

Steve O, what I have seen, is in the most dynamic downward markets, the prices went right past Supportable Demand in a huge way. Some areas in my Region have seen price declines of 5-10% per month.

Some of this has to do with the increase in Crime Rates, which have not made their way to national databases yet. Nor has the Local Unemployment Rates been reported.

Imagine a city with a 25% Unemployment rate, including those that are collecting benefits and those who have used their up but are still not working; combined with a huge increase in burgularies and other property thefts.

One New Tract that I called on in central Riverside County, was giving away Burglar Alarms to new home buyers. Yikes, not good.


On Sep 05 10:12 AM Steve Owen wrote:

> The author's main point is well taken. Many multiple listing services
> do not report concessions. And, often those that do have skewed results
> because real estate agents try to hide things like personal property
> included in the sale, for various reasons. Depending on the amount
> of concessions that are typical, the market data is often over reported
> as to sale price. Whether or not we have reached bottom is debatable
> from several points, but if the example given in the story is typical
> in those areas with a lot of excess inventory, then we probably have
> not. Add to that the shadow inventory of vacant houses not actively
> on the market and rising unemployment rates. Add to that potential
> new problems coming from option ARMs and commercial real estate.
> Add to that the high probability of fraud in some markets. After
> all is said and done, the bottom for real estate in some hard-hit
> markets could quite likely be some distance further down.

While Retail Sales Decline, FHA House Sales Soar

Mark, if you did not over pay for the house you purchased, then the FHA loan program is great. And, your points are well taken. I purchased several homes that way and as you say, kept my cash in the bank for reserves.

It is a great thing to hear that your home went up in value, even if it is coming from Zillow. I have found that by tracking several homes in several markets since Zillow started in 2006; that their Zestimate may not have been what I thought the value was, but the Range that they gave, included the correct value.

On the way up, the correct value was closer to the high end of the range. On the way down, it has been toward the lower. But, then, there are 48 cities in my Region, and within the larger ones, there are areas performing vastly differently.

At the same time, the Graphs of the Price Trends have been pretty accurate, when I compare them with my own primary research in areas that I am active.

Unfortunatly, Zillow is a black box and no one can tell what it is doing to Adjust recent Sales into indicators of value. What I do notice is that they use whatever is a recent Sale, whether or not it is Similar in any major way or not.

We have a four bedroom home with a guest house, pool/spa, basement, attic, elevator, etc. When I look at what they use, from my neighborhood, it is simply anything that sold, whether or not it is similar. Once they had a 1-Bedroom cottage that was less than 25% of the size of ours, on their list of "Comps". Not good in that regard.


On Sep 04 11:56 PM markg wrote:

> I recently bought a house with 3.5% down because I can easily afford
> the payments, I have quite a bit more in IRA's, and top credit. If
> you don't have all of these you will not get a loan. My after tax
> payment is right at what my house would rent for, even with the low
> down. And according to zillow, (arguable I know so don't bother)
> my house has appreciated 8% since I bought it.
>
> I do not expect to flip this house, but live in it for many years.
> There are lots of people in the same boat that I am that are buying
> now. Frankly I don't really understand what so many people in SA
> get from being permanently bearish. The world may not end afterall.
> Get over it.

While Retail Sales Decline, FHA House Sales Soar

FHA is a lending program set up and run by the government, to help people who do not have a large down payment, be able to buy a home.

Unfortunately many buyers are preyed upon and packed into properties at prices that are inflated.

It is true that there are many related players who operate in the world of selling and lending to FHA borrowers. As well as the fact that there are many legitimate FHA deals.

Unfortunately, the FHA loan with its high ratio, is a favorite of fraudsters doing Flips. During the boom, prices went too high in many metro markets, but now that they have come done, fraudsters are active in FHA again.

As far as learning, Congress has learned that the Mortgage Insurance fund of HUD, for the FHA loans, is a great source of revenue to tap. FHA has actually made money. Who knows what will happen in the next year, they could suffer reverses.


On Sep 04 11:08 AM Soldalma wrote:

> The FHA itself is the Mafia leader, since it is lending with only
> 3.5% down. The philosopher Georges Santayana said that those who
> do not learn from the errors of the past are condemned to repeat
> them. in the case of the FHA they are not learning from the errors
> of the present.

A Sustainable Housing Rebound Is No Slam Dunk

What many are trying to call the bottom of the Housing Market, may in fact, only be a normal Seasonal Uptick. Yes, July sales volumes in a normal market, are higher than June, or May. August is the peak, then volumes decline until January, when the up cycle repeats.

Separate from the normal annual cycle, much of the up tick is helped by builders packing their deals full of Concessions from Buying Down the interest rates, to paying the closing costs, to giving free upgrades.

I have found $225,000 sales with $30,000 in Concessions that were used to prop up the Sales Price in new homes. In some sub markets in my Inland Empire Region, this is usual and customary.

Sales numbers, when not analyzed as to what they are made up, are giving a false read on recovery. Sales Prices and Market Values are not the same in the current market, there can be more than a 10% variance between the two, but then, that subject deserves a whole article, not just a comment.

Housing's the Key to Economic Recovery

What if another Crash in residential real estate was in the offing, spurred by the huge volume of current sales to buyers who had no down payment except what the government gave them, that purchased with 97% FHA loans, with help from the Sellers that was hidden from the Appraisers?

Seriously, is it possible that the Housing Market has been shored up artificially? And, what role in it has the Appraiser played?

The End (of the Recession) Is Near

The uptick in March Sales Prices might well be caused mostly by increased Concessions being packed into the Price, not an increase in value.

When Concessions {Loan Interest Rate Buy Downs, Closing Costs, Free Upgrades} are deducted from Sales Price, the Cash Equivalent Price is lower.

The End (of the Recession) Is Near

The uptick in March Sales Prices might well be caused mostly by increased Concessions being packed into the Price, not an increase in value.

When Concessions {Loan Interest Rate Buy Downs, Closing Costs, Free Upgrades} are deducted from Sales Price, the Cash Equivalent Price is lower.

The End (of the Recession) Is Near

The uptick in March Sales Prices might well be caused mostly by increased Concessions being packed into the Price, not an increase in value.

When Concessions {Loan Interest Rate Buy Downs, Closing Costs, Free Upgrades} are deducted from Sales Price, the Cash Equivalent Price is lower.

Will Housing Bottom in 2010 or 2012?

The Housing Bottom is not one but thousands of Bottoms. Within each local market, the trends vary in speed.

The faster the declines, the sooner the Bottom.

In Zip Codes that are going down 5% per Month, they will reach their Bottom sooner than those at -1% per Month.

How do you measure the Bottom in any given market is also important. The formula I use is based on Supportable Demand, which is a function of the interest rate on fixed rate loans.

Take the average house price minus the Supportable Demand price and subtract. The difference is then divided by the Change Rate. If it is -5% per Month, the Bottom might be reached this year.

What is true by virtue of how the Case/Shiller charts are done, is that this phenom will not start showing up until 2010. By then many markets will be well past their Bottom.

Market Behavior Following Consecutive Fed Rate Cuts

Excellent article. Can I have permission to print it for my Real Estate Finance students at CSUSB?