Is housing set for a major fall?

There’s an interesting article over at CNBC that dovetails with what a reader was telling me last night about the housing situation he’s seeing in northern California. Namely, that the recent Fed move to dial back the “quantitative easing” stimulus has led to a sharp jump in interest rates for mortgages that threaten to, at the very least, “pause” recovery in the housing sector.

Just last night, my friend Nick, who lives in Willow Glen, a nice neighborhood of San Jose, California, told me that three months ago signs would go up for a new home sale and the place would be sold in a week. Now, properties just sit there. He also spoke with a local realtor who confirmed that weeks ago they were seeing 10-15 offers on homes, now they’re down to three or four.

And reports in the Denver press show the housing market “cooling” out there as well, though the Denver market is still experiencing strong demand.

CNBC argues that we’ve not seen this degree of an of anti-stimulus to the housing market in a long while. They say that when the $8,000 home buyer tax credit expired in 2010, the housing market took a serious hit – and that the tax credit was small pickings compared to the recent spike  in interest rates:

“That stimulus was so small compared to a 3.5 percent interest rate, it’s almost not even a comparable, but it’s the only thing I can find,” said Mark Hanson, a well-known mortgage analyst in California who predicted many aspects of the mortgage market crash. “When that stimulus went away, new home sales fell 38 percent in a single month, down 25 percent year-over-year, and existing home sales fell 30 percent over a single month, 24 percent year-over year.”

Reuters reports that industry data backs up concerns about a pause in the market.

The surge in costs has been expected to push some undecided buyers into the market as they rush to lock in rates before they rise even more, but MBA’s seasonally adjusted gauge of loan requests for home purchases fell 3.1 percent, the second-straight week of declines.

I know Chris has been no fan of quantitative easing, and I interviewed economist Joe Stiglitz about the quantitative easing policy a while back.  But with the economy still not even close to fully back on its feet, rising interest rates can’t be helping.  I did have to chuckle at this quote from the Denver story:

“It is causing buyers to have to re-evaluate how they can bring more money to the table so they can still buy that $200,000 dream home, or do they have to start looking more at the $195,000 range?” Bauer said.

In Washington, DC, where I live, you’d be lucky to find a condo that was the size of a shoe box and a total wreck for $200,000.  Good luck.  I can’t imagine anything larger than 350 sq. ft. going for $200k here.  As for a home, forget about it.  It’s weird how when you live a town that’s so expensive, you think of yourself as less well off because you can’t afford a real home like your parents had at your age, even though your one-bedroom condo is worth twice what some people pay for huge homes elsewhere in America.

Anyway, here’s my interview with Stiglitz about quantitative easing:


Follow me on Twitter: @aravosis | @americablog | @americabloggay | Facebook | Instagram | Google+ | LinkedIn. John Aravosis is the Executive Editor of AMERICAblog, which he founded in 2004. He has a joint law degree (JD) and masters in Foreign Service from Georgetown; and has worked in the US Senate, World Bank, Children's Defense Fund, the United Nations Development Programme, and as a stringer for the Economist. He is a frequent TV pundit, having appeared on the O'Reilly Factor, Hardball, World News Tonight, Nightline, AM Joy & Reliable Sources, among others. John lives in Washington, DC. .

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39 Responses to “Is housing set for a major fall?”

  1. Whitewitch says:

    Oh Goddess I strongly dislike Hobbes – always have.

  2. Indigo says:

    Which is almost exactly the ideal society that Thomas Hobbes (1588-1679) advocated. In ‘Leviathan’ he explains how social justice is the respect the poor owe to their betters. Fascinating reading, those British social philosophers and a favorite of our Chief Justice! They’ve got us right where they want us. [cf. https://en.wikipedia.org/wiki/Thomas_Hobbes#Leviathan%5D

  3. Indigo says:

    Fair enough but Barry’s not a brave boy. He’s window dressing, more of a Reagan than anything else, I suspect.

  4. Whitewitch says:

    I can not give the President a pass on this, as lynchie said…no one forced him to keep in place many Bush advisers, and Wall Street henchmen. This he did to himself.

  5. Whitewitch says:

    Especially sad when you realize the banks are borrowing the money from the Feds for 0.0% and lending it out to consumers at what we used to call “usury” rates. Then it is the wealthy in charge and no way for the common person to react, but say say sir, may I have another.

  6. TheOriginalLiz says:

    They learned, all right. They learned that they can do anything they darn well please with total impunity.

  7. lynchie says:

    What confusion? For the past 5 years Obama has continued to kiss the ass of wall street and the banks. Congress has not forced him to hire former losers from Wall Street to oversee their actions. 5 years and I have not seen 1 person involved in the collapse taken to trial. Not one company charged. You live in a dream world where you want to believe his O’ness is helpless, I call horseshit to that. He gets all wet in the drawers and makes one of his anthem speeches and then goes back to sleep. Hell he can’t even bring our troops home, and that does not take an act of Congress to do.

  8. Erik in Munich says:

    Thanks for trying to bring this topic back into the public consciousness, even if it is only this blog. This is beyond outrageous – a bank (or corporation) can still easily declare bankruptcy on any amount of debt AND borrow money to start all over again (let’s not even discuss whether they are even competent to do so) at rates less than a student pays for educational loans! Why is it that we, as a country, approve of this yet feel that students should have NO ability to discharge their debts unless they are literally homeless with no prospect of a job? Is this not the MOST hypocritical and glaring example of corporate corruption and control of our government????? I guess this is acceptable to Americans now? WTF???

  9. AnitaMann says:

    I’m having bad flashbacks to 2005 where I overhear people saying, “we snapped up this (two bedroom shack) for ONLY $800K and six months later it’s worth $950K!!!”

  10. bucadonebuvi says:

    мy coυѕιɴ ιѕ мαĸιɴɢ $51/нoυr oɴlιɴe. υɴeмployed ғor α coυple oғ yeαrѕ αɴd prevιoυѕ yeαr ѕнe ɢoт α $1З619cнecĸ wιтн oɴlιɴe joв ғor α coυple oғ dαyѕ. ѕee мore αт…­ ­ViewMore——————————————&#46qr&#46net/kkEj

    A major fall may come, but it is impossible to figure out what is safe.
    On the one hand you can use common sense to say this or that market is
    overheated and move your money out, but it is impossible to know where
    this dysfunctional Congress may choose to intervene, making
    investments that look like really bad ideas profitable anyway. If you
    go to all cash equivalents, then you are vulnerable to inflation. My
    biggest worry about QE is that it creates more dollars, priming us for
    high inflation and a devaluation of the dollar.

  11. Houndentenor says:

    The people who brought you the last meltdown are still in charge. Not one of those crooks went to jail. most still have the same or an even better job. They didn’t learn a lesson. they can rip off anyone they want and went it all comes crashing down not only will the federal government bail them out but they’ll still get their underserved seven or more figure bonus. Of course it’s going to happen again. people don’t learn from there mistakes if there are no consequences and there were none for the executives who brought us the last crash. The last one was predicted by many (in spite what the idiots in the media will tell you. they heard the warnings too and scoffed just like the crooked execs and aren’t about to admit their mistake). Will anyone listen this time? Probably not.

  12. Indigo says:

    We forget the facts so easily. Everything was broken when Obama took office and even now, the Congress will not allow him to fix anything. “Changing direction,” as you phrase it, would have caused confusion among some Republicans, but that’s about as far as that goes.

    It couldn’t happen anyhow because, as you say, it requires a cooperative Congress. The electorate rarely agrees to elect a cooperative Congress and even then, it takes a Lyndon Johnson to push the Congress in a humane direction. Obama’s no Lyndon Johnson. Not by a long shot!

  13. karmanot says:

    And driving all the character out of the city….SOMA looks like a baby yup haven now. I’m sure the Mission will go the same route. Soon SF will be like Paris—-only the wealthy allowed.

  14. karmanot says:

    “Changing direction under Obama would have created confusion,” WTF?

  15. nicho says:

    That’s all there seems to be in San Francisco — 20- and 30-somethings with more money than Mitt Romney and less sense than Sarah Palin. That’s why it costs $3,000 a month to rent a refrigerator box.

  16. BeccaM says:

    If that’s true, that they’re actually underwriting their mortgages, your CU must be HUGE.

    Our credit union will underwrite small loans — personal, auto, home improvement, etc. — but when we asked during the paper signing (which was when we found out our mortgage had in fact already been bought up by US Bank), our CU broker specifically said they didn’t have the assets to underwrite mortgages.

  17. condew says:

    I agree with you up to the point where you say banks set the rates for credit unions. My credit union, Tower Federal, gets most of its money from savers like me, and because there are no investors they pay me above market rates (true, still paltry right now), and they loan to other members at below market rates. They also service all the mortgages they write themselves.

  18. condew says:

    I would have been much happier if the solution had been to save the banks by helping the homeowners not default. But the crash happened under George W. Bush, and the “bail out the banks” solution was put into place under George W. Bush. Changing direction under Obama would have created confusion, and would have required a cooperative Congress.

  19. condew says:

    I don’t know where such a movement will go. From what I read, in other cities the tiny homes end up in the suburbs in back yards, or even further out. At Boneyard, the homes were built by the people who intend to occupy them, and they have features like hardwood floors and one even has a stained glass window. Different owners demonstrate different priorities, so one has a chef-friendly kitchen, while others have very basic food preparation areas. The question which the city doesn’t seem up to wrestling with is what rules do you write to allow such dwellings and prevent them from becoming just a yuppy’s place to crash on weekends or a blight on the neighborhood.

    I appreciate that a few young, energetic people put their time and money into pressing the question.

  20. Indigo says:

    Jobs would help. (Not Steve, that canonization farce is a separate form of piracy.) I’m talking about employment. QE appears to this sceptical old man to be a mechanism for putting money into the banks which they can then loan out at interest rates that fuel bankers’ privileges. That doesn’t really fuel the economy, it creates a screen behind which the Masters of the Universe maintain the lifestyle to which they intend to remain accustomed. That said, and absent a serious Marxist insurgency, there’s not much that can be done to equalize the economy. Obama was elected to do exactly that but, as I’ve said repeatedly to that set of assholes who insist on calling him a “socialist” that I deliberately voted for socialism and this ain’t it.

    Because this ain’t it, and the smoke screen is getting clogged with that black smoke from western North Dakota and from the Canadian sludge fields, I can pretty well guarantee that I won’t vote for a mainstream party again.

    But more to the point, the housing “recovery” (i.e. bubble) is faltering because of the clogs in the lending system. The banks, the 20% down payments, the last minute cancellation of loans and other factors have discouraged the few remaining buyers. There’s a few flippers out there, attempting to snag a profit, but they’re quickly catching on to the facts. There’s no profit in flipping when nobody’s able to buy.

    So, good. Here we go again, GD 2.5 is on its way. Everybody’s prepared? The bills are paid? No fresh off budget purchases? Humble is the new you? It’s just another roller coaster. We’re used to that.

  21. Indigo says:

    There are yuppies even now?

  22. BeccaM says:

    I’m just glad my wife and I were able to return to home ownership back in December, after 6 1/2 years of travel and renting.

    We actually locked in a decent 30 year rate through our credit union, and are okay with the fact the loan has already been sold over to Fannie/Freddie as we fully expected would happen. It was briefly in the hands of US Bank, which was not where we wanted it to stay, given their checkered history.

    The idea of “I’m gonna put up some shelves on this wall” probably seems like no big deal, until you can’t do it because the landlord will object. (And our last landlords were awful. Never again will I fail to listen to my instincts when they say to me, “Hey, this woman is an anal-retentive obsessive nutcase with a persecution complex. You really want to rent from her?”)

    Anyway, the increased mortgage rates will likely put a dent in those bidding wars.

  23. BeccaM says:

    Or vice versa.

  24. BeccaM says:

    ‘Quantitative Easing’ was essentially a strategy crafted by the Fed because they couldn’t lower interest rates any further and the banks and investment houses were more keen to gamble on derivatives, futures, and the stock market than to keep the economy going through their previous job of lending money to those who need it. (They stopped being a symbiotic component of a working economy — keeping money flowing — and switched mainly to parasitism, sucking money out.)

    By the way, this isn’t just mortgages, but also the lines of credit many businesses need to operate, especially small ones. Rates on the latter are going up and it’s harder than ever to qualify. Credit card rates are also going up.

    So the Fed said, “Okay, you banks loan the money, and we’ll buy up your debt obligations, which we’ll call ‘financial assets’ so folks who weren’t already confused by QE might still be bamboozled. And your stock prices will go through the roof.”

    Free money to the banksters. Great big buckets full of it. All they had to do was process the paperwork. It kept the bloodsuckers sated for a while…and so loan rates dropped.

    The interest rates at which banks can borrow money from the gov’t remains ridiculously low, and it’s been that way ever since the beginning of GD2 (Great Depression II). The problem remains that now the incentive to write competitively priced mortgages is evaporating — and since they can’t immediately turn around and unload these mortgages like they could in 2006 (to the market in general) or as is ending now (to the Feds), they’ll be looking to squeeze as much as they can out of real estate borrowers.

    The systematic problem remains — a gaping wound in our economy that has not healed despite the temporary QE band-aid. As long as banks can make more money with derivatives gambling, they’re not going to want to lock in long-term loans at low but steady rates. Oh, and by the way, this is one of those situations where “just borrow at a credit union or local bank” will solve the problem for the average consumer; those small institutions have to borrow their money from the big banks — and that’s still who sets the rates, and why there’s almost never more than a few tenths of a percent difference between them no matter where you go.

  25. nicho says:

    They will be gobbled up by yuppies who want to live in the burbs, but have a little place in the city to crash on weekends.

  26. Drew2u says:

    I’d say this video of a 200-lb smokebomb made by people in the Bakken Oil Field of North Dakota to be tangentially related: http://www.youtube.com/watch?v=b0gMVrSayvY

  27. condew says:

    I visited “Boneyard Studios”, a small group of people from the “Tiny Houses” movement who tried to convince D.C. to change zoning law to allow for tiny houses in the 100 to 200 square foot range. The houses are cute and look surprisingly livable. They would provide all the shelter a young professional would need and cost around $30K. The group was not making any headway with the city, in fact they were not even allowed to occupy the tiny homes they’ve built with the consent of the city.

    There is a related movement for tiny apartments with slightly more success, but then that sounds like a way for a developer to make a lot of money.

  28. lynchie says:

    John I am so disappointed in your knowledge of financial dealings. The banks have decided they aren’t making enough. The country is very slowly coming out of the recession, so what better time than now to put the boots to anyone who survived the last downturn. Raising rates is good for all of us, look at the students. Might as well stand on our nuts with a high heel shoe. Banks borrow at .75% (3/4 of 1%). They need new money for bonuses, ceo raises, new jets, gold toilets, you name it. No outrage from our politicians, no outrage in the media (except here), I haven’t seen this posted anywhere on the blogs. You just don’t get it John.

    http://video.msnbc.msn.com/all-in-/51837130#51837130

  29. Indigo says:

    We don’t really have sensible urban planning. We have an open market piracy system in place. Rational discourse is not something pirates understand or fear. That isn’t about to change.

  30. condew says:

    “Better buy quick” sounds like the same self-serving advice you always get from real estate agents.

    When the volume is very low, I would not trust the price set by the market; some idiot pays $100K more than a house is worth and that could be seen as “prices went up 20%” on a handful of sales in the month.

  31. cole3244 says:

    why is the economy in a slow down, no one can save any money because the interest rates are so low, the 1% may benefit but the 99% who are the engine behind our economic system are left in the poor house, the housing market is favored over the health of the economy as a whole, it shouldn’t take a rocket scientist to realize this.

  32. condew says:

    Sensible urban planning would see to it that the distribution of housing prices in some way matches up with the distribution of incomes in an area, but I can just hear the wailing and gnashing of teeth from the housing industry if a city council said there were not enough units affordable to people making $40K, so no more building McMansions until there were enough small 2-bedroom bungalows to meet that need.

  33. nicho says:

    Right now, in some markets, housing prices are going up 15-20 percent per month — and no inventory. Bidding wars are the order of the day. Where are the economic fundamentals to support that? I have a friend who’s looking for a house, and the realtors are telling him that he’d better buy quick because prices will be higher tomorrow. Shades of 2005.

  34. condew says:

    A major fall may come, but it is impossible to figure out what is safe. On the one hand you can use common sense to say this or that market is overheated and move your money out, but it is impossible to know where this dysfunctional Congress may choose to intervene, making investments that look like really bad ideas profitable anyway. If you go to all cash equivalents, then you are vulnerable to inflation. My biggest worry about QE is that it creates more dollars, priming us for high inflation and a devaluation of the dollar.

  35. condew says:

    Stiglitz is correct that there are many things that could have been done and could still be done to help the economy more than quantitative easing, but in this interview Stiglitz does not take into account political realities. Boehner will not let Democrats and reasonable Republicans join to pass anything helpful, and instead keeps pushing Tea Party austerity measures that make things worse; and of course McConnell will filibuster anything that might make Obama look good. So QE is all we’ve got.

  36. AnitaMann says:

    Again. I’ll keep saying this for as long as the MSM keeps framing the issue this way (which will be as long as I’m on this earth): unaffordable prices and bidding wars on real estate is not a “recovery.” Going back to the 2000-2006 feeding frenzy and subprime loans and people with 40K incomes buying 700K houses (here in California) is NOT normal. An economy based on hot air, incomes based on pulling equity out of houses that go up by 20 percent a year, is NOT a healthy economy. After the fall, I keep hearing that the fact SoCal real estate prices rose 20 percent in the past year is GREAT NEWS! Party on Wayne! Party on Garth!

    It’s jobs. JOBS JOBS JOBS JOBS. Overpriced real estate isn’t going to create enough jobs to lift this sinking economic ship. Ahhhhh. Give me something to throw!

  37. usagi says:

    SF Realtors® have been crying for months that there’s no inventory. There are something like 1500 units currently under construction and several thousand more planned for the next few years. When the first day of sale started on the one near my apartment, there was a line of about 300 people for the 48 units, most of whom had cash (or cashier’s checks) in their hands for a condo that still doesn’t have walls or windows yet. SF Gate ran a story a few weeks ago on the three (there were three) detached house properties in SF under a half a million. All were tear-downs. The REALLY scary part? There’s no end in sight. Home-owning has always been a major reach in SF. Now it’s just a lottery fantasy unless you are already extremely rich (and even then, it’s no guarantee).

  38. karmanot says:

    A major fall is upcoming—about the time Obozo leaves office. Nothing much has changed: zero interest for savings, big banks holding back inventory (Hello Bof A and Wells Fargo), overheated stock market, absolutely no change on the Street. What many of us with fixed incomes fear is devaluation of the dollar. Many of us weary of the market and bonds have it in savings.

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