Coaching Businesses and Life

Twice a month, I try to gather up the important real estate news I catch online. Here is a sample. Mostly they recap the news.

Barry Ritholtz over at Seeking Alpha had an interesting post recapping the Sub Prime mess, its deep reaching effects and what our favorite cheerleaders are saying at NAR. The gist is that NAR has a downward revised forecast for the eighth consecutive time, deeply effecting their credibility. My take on this is that NAR needs to take a stand once and for all and either continue to be optimistic or start reporting the news as is. If they continue to be overly optimistic only to revise in a downward way their predictions the following month, this will hurt their already embattled image. The article talks about a Thursday WSJ article entitled: The United States of Subprime where the Journal reveals how far reaching the sub prime mess has gotten. It is effecting nearly everyone at this stage. There is an interactive map, for those who wish to see.

There is also a serious look at numbers that are revealing.

“Two years ago, Residential construction was about $688B per year, while Commercial Building (non-residential) was well under $300B. Residential has now fallen about 25%, while commercial has gained over 30%. Commercial construction has picked up … the slack of residential slippage — at least in terms of GDP.

There is an element to the Residential boom not picked up by Commercial construction: The secondary effect on consumer spending. A major impact of the boom has been housing-driven consumer spending. While there is still plenty of MEW going on, it is definitely attenuating. We see revolving credit partially substituting, but that is only a temporary solution.

Back to school season was disappointing, and that typically bodes poorly for the holiday shopping season.”

Thanks Barry and Seeking Alpha.

The other article is also from Seeking Alpha on the same topic but visited by Markham Lee. Markham comes to the same conclusions, sub prime isn’t representative of only the urban low income borrower but crossed all socioeconomic levels, geographic regions, ethnic lines. Why would high income people borrow on Sub Prime? Bad business investment when they probably thought prices would continue their exorbitant climb to… nowhere, I guess.

He makes 3 valid points to consider:

“1) Assuming the Professor’s study is valid, there very well could be a delay of 2-3 years between a surge in subprime lending and a corresponding peak in the number of foreclosures. If my suspicion is correct, (that this pattern occurs in affluent areas more than in low income ones), then in some of the areas hardest hit by foreclosures, we’re actually only seeing the foreclosures from 2003-2005’s loans, and haven’t seen 2006-2008s foreclosures yet.

2) It’s quite likely that a lot of ARMs were originated to prime borrowers with prime teaser rates and subprime prime reset rates, which are currently off the radar with respect to statistics on subprime loans.

3) If you consider points #1 and #2, along with the 100s of billions of ARMs slated to reset between now and the end of 2008, it stands to reason that the housing slump could last into the next decade. “

Susan Lerner, also from Seeking Susan ends the week on a negative note. Hey, what did you expect, this is real estate news. However, stick around until the end, all is not bad.

“The sharpest U.S. housing downturn in 16 years appears to be getting worse as NAR predicted a greater-than-expected 2007 drop in existing home sales. The trade group of real estate agents now says existing home sales will drop 11% from 2006 levels to a five-year low…”

All three articles reflect the news pretty well, however things are not all that bad. After every binge comes the digestion problem. I’ve had to ask a few sellers who couldn’t handle the reality of the current market two simple questions: “How far did you think prices would climb and how did you rationalize they could sustain it?” That’s one question and obviously, no one could answer that one. There is no logical answer. The other question was a rhetorical one: “If you sell high, won’t you have to buy high?”. This is more evident if you stay in California but even with all those who moved out of state, eventually they drove the prices high out there.

So all in all, the market corrects itself and our profession has to reinvent itself. It is a great time to be an agent. If you have any questions ask me, I coach Realtors.