Jay Butler of ASU Realty Studies issued his monthly report on the Phoenix resale market today. [Thank you L!]He states:
The local resale housing market continues its uninspiring trend. With 4,330 recorded sales in July 2007, the activity was close to June’s 4,910 recorded sales and was well below last year’s 5,545 transactions. While the current level of activity brings much needed stability, the 2007 year-to-date total of 33,510 homes is well below the 41,835 for 2006 year to date and 68,235 sales for 2005 year to date.
"Stable" in most circles indicates a market showing very little change. I find the word "declining" to be more appropriate. For those who don’t want to bother whipping out your calculators, there was a 29% drop year-over-year, and a 12% drop month-to-month. While Butler calls July’s 4,330 homes sold figure "close to June’s," this is the first double-digit MOM drop since September 2006.
While sales have seen a significant drop, the median price at $265,000 for the month of July has not seen a lot of movement. The Phoenix median price first hit $265,000 in February 2006. After rising to $267,000 in April 2006, the median has remained in the $260,000 to $265,000 range. According to Butler:
The median home price in July was $265,000 in comparison to $263,145 for June and last year’s $264,900.
So the median was up. Sort of.
Appreciation has however, remained below the rate of inflation since the summer of 2006. In addition, numerous incentives on the part of homesellers are artificially inflating the median selling price. Also remember that the median price reflects the mix of homes sold, so this figure is not necessarily indicative of "same house" appreciation, which has seen significant drops in some areas of the Valley.
Up until this month, Butler’s 2007 reports all contained the phrase:
The general expectation is that the 2007 resale housing market should be a good year, but nowhere near the records.
General expectations seem to have changed.
It makes me sick that guys like Butler and Harvard’s Nicholas Retsinas get to hide under the cloak of academia as they spew their nonsense.
Why is Butler always spinning? Who is he kowtowing to? Why doesn’t he just come out and say sales are declining, not finding “much-needed stability.” Also, if he considers a 12-percent MoM drop “close to June’s sales,” I wouldn’t trust him to run a corner grocery store, let alone advise on the RE market.
When this housing mess is over — if it ever will be — there’s a whole lot of people who deserve to never be quoted or trusted ever again. The list is long, and we will never forget the likes of Lereah, Yun, Appleton-Young, Retsinas, Butler, Swann and tons of individual RE agents and realty association officials in every locality, big or small.
Rant over.
– The Judge
Judge-
These guys could take a lesson from my father.
Dad worked for many years for one of the largest employers in the Phoenix area. He had a reputation for being honest with customers. If a project was not going as planned, he would tell them. This was often viewed as an annoying and frightening trait by his superiors, who would go to great lengths to steer customers away from him when things were not going well.
It is my understanding though that his honesty never lost him a customer. In fact, because of his reputation, there were customers that would only deal with him, because they knew that they would always get an honest answer.
There are two schools of sales, really. One is to be a snake-oil salesman. You know that people are being taken when they buy your product, but you aren’t really worried about repeat business. The other is to try and take care of your customer. You figure if you take care of the guy, he’ll come back and do business again.
The pumpers sold snake-oil. They sold how “safe” real estate was, how “it doesn’t go down,” how it was worth paying more than you can afford.
Well they’ve duped a lot of customers into foreclosure and bankruptcy. It makes it tough for these guys to be repeat customers, even if they wanted to be.
You’d think they would realize what they’ve done, and come clean to help bring some reality to the market, but it’s not happening. Apparently they will keep peddling snake-oil until the last.
Hate to say it but I doubt the government is going to let the housing market tank much further. I think pumping the money into the market last week is just the beginning.
Kaoru3232:
Speaking of the government intervening, I found some discussion on what that actually consists of.
Both of the following assertions have been taken from the comments area of the Daily Kos.
I have no idea how accurate this discussion is, though - can anybody out there confirm?
http://www.dailykos.com/story/2007/8/11/1135/74308
Assertion(1) When the Fed pumps “liquidity”, this consists of short-term-loans from the government, with terms of only fourteen days.
[If this is true then we'll be back in the same mess in about 14 days at the latest, no, because junk will still be junk then.]
Assertion 2 [this is a long one!]:
When the Federal Open Market Committee announced last week that they were leaving rates unchanged, what they really said is that they would leave their policy target for the Fed Funds rate unchanged at 5.25%. Here’s what that means:
Regulations require banks to maintain reserves (usually in the form of deposits with the Federal Reserve Bank) equal to a fixed percentage (I’m pretty sure it’s 15%) of their deposits. They’re free to loan out the rest. In the normal ebb and flow of daily banking, at the end of each day some banks end up with a little extra, and some end up a little short. The banks that are short typically borrow overnight from the banks that have extra. The funds transfer over the Federal Reserve wire transfer system, hence the name “Fed Funds.”
The rate at which banks borrow from one another is a market-clearing rate. The Fed can’t mandate it, but they can manage the liquidity in the banking system to keep the rate near where they want it. If the rate starts to drift lower than the target, the Fed can withdraw liquidity, making money a little more scarce and causing the rate to rise. If the rate drifts above the target, the Fed injects liquidity, making cash more plentiful and generally causing the rate to fall.
The Fed adjusts liquidity through its “open market” operations. Basically, to supply liquidity the Fed goes into the market to buy US Government securities, mostly Treasury bills. So no, they aren’t giving out low interest loans to big players. But they are printing money to buy Government debt.
What made yesterday’s injection so notable is that it occurred relatively late in the day, the Fed announced they were doing it (and announced the quantity), and they did it in response to a spike in the Fed Funds rate — I’ve read that Fed Funds traded as high as 6% yesterday, well above the target of 5.25%.
kaoru3232:
Other than lending money for short periods, what can the government do to help?
Do you think Bernanke wants to lower interest rates and put more air into the balloon? That would just be stupid, and prolong the situation (interest rates will have to go up one day). Mind you, they have done stupid things before, so there is always a chance they will again.
But as I’ve read elsewhere, I tend to believe that at this point the goverment knows that it has to let the speculators see the consequences of risk, and make decisions that (1) are bad for the market, or (2) are even worse for the market.
This medicine won’t taste good, but those of us that survive financially will feel better in a few years, instead of still being trapped in this chaos.
Remember: median price increases are a result of the bottom of the market (which started the bubble) disappearing, moving the median closer to the top-end sales.
Also, the Fed is stuck. Even if they want to save the housing market, lower interest rates = lower dollar = higher inflation. It’s a bind. MikeC is right.
Dan
Okay, I’d better stop hogging up space here, but John M I thought you’d be interested in this one (my apologies if you have already posted it):
[Aug 8/07]
“Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs.”…
http://www.counterpunch.org/roberts08082007.html
–Do you think Bernanke wants to lower interest rates and put more air into the balloon?–
Unfortunately, yes. I think that’s exactly what he’s going to do.
kaoru3232:
>>Unfortunately, yes. I think that’s exactly >>what he’s going to do.
If that is the case, this magical Housing Bubble ride is even farther from over than we first thought.
Anyways, here’s one of many arguments against the feds lowering interest rates: http://bonddad.blogspot.com/2007/08/why-fed-wont-lower-rates.html
ALSO, something else very interesting that I think has been largely overlooked (paraphrased from a comment on the Daily Kos):
Is China being allowed to buy into Bear-Stearns, positioning itself to buy up American real-estate on the cheap–just like the US super-rich plan to do?
Keep in mind this news comes as China and Bush trade threats about currency values and trade.[see my related link above]
http://news.yahoo.com/s/nm/20070809/bs_nm/bearstearns_citic_dc_1
So any ideas as to how the U.S. dollar and China fit into this whole drama? Does China have a vested interest in protecting the value of its sizable U.S. investments (stocks/dollars and otherwise)? If so, is China going to inadvertantly come to the rescue of the market next week, for its own greedy purposes? And finally - if China has as much of a powerhold over U.S. currency and state of affairs as some would believe, how long before people in North America start to care we are in fact owned by Asia?
Oops? Did Igor eat my post?
MikeC-
Igor is suspicious of anyone with more than one link in a comment. [Even John and I.]
He was dragging it around the dungeon, but I got it away from him.
Kaoru-
We have Japan’s example before us now. Bernanke has to be smart enough to know that even if he slashes interest rates to nothing- it won’t reinflate the bubble.
Bubbles are about perceptions- that “irrational exuberance” the drives a market beyond the fundamentals. Even if you got enough exuberance going to say increase home sales 25%- [which strikes me as unlikely] a 25% increase wouldn’t be enough to reinflate the bubble- things would just be slightly less lousy.
So far the signs from Bernanke, from Lockhart and from Bush indicate a real unwillingness to interfere in the markets. I’m really hoping they stick to their guns.
MikeC-
I remember back in the 1980s when a wealthy Japan seemed to be buying up lots of prime real estate in Hawaii, Los Angeles, New York, etc. Prices fell after that, both here and in Japan, and a lot of companies ended up burned.
The Chinese have a lot invested here- which means they could end up big losers here. My gut feeling is that we are more likely to bring them down with us than end up being owned by them.
Greetings,
My first post after reading this site for 1 year. I would like to Thank Twist, John and any other people who make this site possible. You are offering the public a tremendous service. I bought my first house back in 1999 at a firesale. The house was priced about 30% below market value at the time and is in a desirable neighborhood. I bought with a conventional loan with a low fixed rate. About one and a half years ago the wife and mother in law were pushing to sell and move to a bigger house. I looked at the market and thought hell no prices are ridiculous. That is when I started wondering how in the heck could people afford these ludicrous prices.
Let me tell you it was like peeling an onion, the more I read the more layers I found. The part that confounded me the most were the people who bought houses with these RISKY loans. When I purchased my house I was intimidated by the thought of signing a 30 year debt mortgage. I wanted to make sure I could really afford the monthly nut. I knew I had a great price on the house and it was within my means, but I was still nervous. I am utterly baffled that people would use ARM’s and interest only’s to buy houses they can’t afford.
My take currently, the FED should not do a thing to save the housing market. The government should not do a thing to save the housing market. Let the bubble correct itself, any attempts to control the bubble will only exacerbate and prolong the inevitable outcome.
My biggest concern now is the economy. I do not think the economy is as strong as the pundit’s say, more likely it is as weak as they say it is strong. I see a bumpy ride ahead and it really angers me.
I have tried to do everything right and because of irresponsible lending, bad fiscal policy from the FED and the Government and stupidity and greed of the people who signed these trash loans we are all going to pay the price.
Sorry for the rant, I am just frustrated that we are at this crossroad. It did not have to be this way and the people who created this fiasco need to be held accountable.
Regards,
Entropy
Hahaha. Stable?! I don’t think so! It’s true: Language is the first casualty of every war.
Make no mistake, this is war for those people who: a) make their living either directly or indirectly from real estate or credit and b) have overextended their finances to the brink of collapse.
Be warned! They will do and say anything to try to reinflate this bubble and save themselves.
You must remain informed to be able to separate their propaganda from the actual facts and data.
Thank goodness for blogs like this one, helping to keep its readers informed. Keep up the good work, t and JM.
PS: twist, love the new capchas. Eg: “nuclear” … perfect!
NVMike-
The new capchas are courtesy of our Admin, who was muttering something like, Housing is Doomed! DOOMED! as he changed them. : )
The credit and housing makets are distinct, thought intertwined. The worldwide cash infusions last week were for the credit markets, not housing.
I don’t think a housing bailout stands a chance in this climate.
George Bush is against it (I finally have a reason to like him again). Richard Syron publicly opposed it in the NY Times last week.
And, most importantly, the majority of the American people who are paying their mortgages using credit responsibly and controlling their spending are overwhelmingly against the idea.
Looking at the chart, July -> August has seen an uptick in sales for the past 2 years. How will Butler spin this year, when there’s a massive drop?
entropy -
Your comments mirror my own situation and gut feeling on this economic environment. Despite doing seemingly everything a fiscally responsible individual should do, we risk being derailed by macroeconomic factors beyond our control. The fact that we are responsible will allow us to weather the storm where some people may not, but it still creates new challenges nonetheless.
MikeC -
Nice find with those articles. I had always suspected we are becoming puppets of the emerging Chinese superpower, but it’s not an issue a lot of Americans are willing to look in the eye. At the very fundamental level you can see it everytime you flip over any manufactured product and see the “Made in China” sticker. The extent to which we are their lackeys is the scary part, and we are already in way too far to do anything about it.
Well there is a lot going on and Colorado Springs is tracking Phoenix pretty close when adjusted for population size difference.
I honestly don’t think Bernacke will save the housing market. He will look at it this way renters will become owners and vice versa with overall inflation dropping due to lower housing costs. The banks will crash but will be bought at the bottom by savvy investors and life will go on. This will of course be after a 3-5 year Recession,depression, or DEPRESSION. Whatever form it takes that is better than a bailout.
As for hyperinflation it may happen but will not last because everyone is in the same boat. The USA may be in the Bow and going down first but the Stern is going to join the party at the bottom. The Europeans have a housing bubble and retirement problem at least as big as ours. The Asians will not have a market for their crap.
If this thing is allowed to play out like it should maybe made in the USA will become a priority for consumers again.
I have to keep reminding myself that even if Asia, Europe, the US, and others all fall into a depression, you don’t need to be the strongest economy to have the biggest bombs.
In other words, regardless of the banter regarding which govt. or central bank organization wants to or will do what… and for what motivation they would take that action… one of the historic responses to kick start economies again are wars.
Not sure if they actually work or not, but that seems to be credited for “pulling us out of the Great Depression” of the 30’s.
I also keep reminding myself that the 4 great superpowers referenced in Daniel, Isaiah, Revelation, etc… are:
1. The Kings (plural) of Asia
2. The revived Roman empire (E.U.)
3. Russia
4. The descendants of Ishmael
(and of course, Israel, but not as a “super power” in their own strength)
No mention of the USA or anything resembling it as a free standing, autonomous economic or military super power at all.
Frankly, I’m thankful for this blog and the information that all of the very well informed and articulate contributors share!
Somedays, however, I can’t help but think that we’re all discussing how the “Captain” might choose to arrange the deck chairs on the Titanic.
Perhaps a “sister blog” named NationDoom is in order?
it is now well established that butler has no problem compromising his academic or professional integrity in order put world-class spin on truly woeful housing data.
all i can say at this point is i hope whoever these people are that have transacted in this market over the past month are not first-time buyers. first-time buyers buying into this mess are in for a lot of pain unless they are ready for a significant period in that house.
Anybody know what Jay Butler’s salary is? Because that looks like instant savings to the state to me…oh, I forgot, the public needs “interpretation” of the data.
I think somebody asked, somewhere, about why ASU would have an interest in the housing market. Easy. The more people who believe the market always goes up, the more people move here, the more kids can be on the 6-year graduation plan.
Speaking only for myself, I’d sooner hire any Iowa, Minnesota, or Wisconsin high school graduate than an ASU grad. I’m curious how ASU grads who leave the state compare salary-wise with other public universities? President Crow? Governor Napolitano?
And NVMike, no disrespect, but you have it wrong. TRUTH is the first victim of war.
Agnostic-
I don’t know Butler’s salary, but here is the information that ASU posts on him in their directory. I note that he teaches Real Estate Analysis and Real Estate Investment in the Fall, should anyone be interested. [I think I'll just keep my amateur standing, myself.]
Twist, to be fair, it does appear that there were a few “negative-bias” articles in the publications list. And, I have to admit, it’s probably a good thing that someone in the state is teaching people how to do real estate analysis - many Arizonans clearly don’t know how to do it themselves!
I am just so sick of BS positive spin, but I guess I blame the press for their lack of objectivity in this matter more than I blame an employee of an institution that relies upon growth for its continued well-being (wow, that sounds like it could cover the Repugnant as well as ASU).
Anybody think we’re going to wake up Monday to a Business section headline of “Housing Continues Decline” over a Catherine Reagor byline?
Asset Hunter -
If the EU is a superpower, then I am Genghis Khan.
Very truly yours,
Ag
Mr. Khan -
I shouldn’t have implied “is,” but rather “will be,” based on this really “Good Book” I’ve been reading.
My ways are certainly not His, but I was thinking, “What would it take for EU to become one of the superpowers eluded to?”
The quickest and simplest scenario is that the Eurodollar becomes the new trade base for oil & energy around the world.
If that happened, then it really wouldn’t matter if it was a true economic power, a military power, or a religious power.
The EU would gain significant worldly influence, and in very short order.
Hey, after all, it’s been working for the US and the US Dollar, hasn’t it!?!?!
PS: I love what you’ve done with the Mongolian BBQ restaurant theme!
Always fresh & hot, with just the right ingredients and sauces! Tasty!
Okay,
1) They’re Euros, not Eurodollars.
2) Someday, I’m not predicting when, the Euro will fly apart when the members of the EU realize that there can’t be a common currency without common political goals. I’m not saying the Euro is a worse fraud than the US Dollar, but if you analyze the British argument for staying out of the Maastricht accords, you’ll see what I’m talking about.
3) Otherwise, please continue with your rationalization. There is no mention of the USA or anything resembling the USA because, uh, the minions who wrote the books of the bible and their catholic masters were unaware of three-quarters of the world’s existence at the time.
(”I am not going to engage in this debate.”
“I am not going to engage in this debate.”
“I am not going to engage in this debate.”)
Agnostic-
If he taught the kind of analysis where a 12% MOM drop isn’t considered close, where margin of error was reported as well as methodology, I’d encourage people to sign up for his class. That is obviously not the case.
I don’t care how good an analyst you are, like a good chef, presentation is everything. I use his numbers because they are the best available to me, but I have consistently been disappointed in his reporting methods.
Twist -
I think they should just send you the numbers for you to plug into your cool little Excel graphing function and let everyone draw their own opinion…but we clearly live in a world where cheerleading is deemed necessary, and, specifically in this case, pick your daddy:
1) The State of Arizona
2) Phoenix Chamber of Commerce
3) Pulte/Centex/Lennar/Toll (oops, I almost wrote “Tool”)
4) The ASU “higher learning” monopoly
- Ag “Publish or Perish” Nostic
Agnostic-
Have you ever noticed how few graphs you actually see out there? Obviously allowing people to draw their own conclusions is not a priority of these guys. They want to spoon-feed consumers the conclusions- which is tougher to do when have enough data to see the trends.
twist (comment #31) -
Speaking of graphs, the last two weeks of foreign central banks buying treasuries vs agencies (since you last graphed the series) have been dramatic, but I’ve got no clue what it means.
John-
Just let me know when to fire up the spreadsheets again. : )
StuffingMonkey:
>>The extent to which we are [China's] lackeys is >>the scary part, and we are already in way >>too far to do anything about it.
It is better to do something about it now, however bad, than to wait and until the consequences will be twice as bad (all the while letting other countries tell the U.S. what to do because they hold so much U.S. debt).
Yes, it would hurt now to stop this mess of debt dead in its tracks. It would hurt a heck of a lot. But it would only hurt more, threaten the very survival (economic) of the U.S. even more, to wait. Think of it like a cancer - sure it hurts to go into surgery and get it taken care of, but do you think it will be any better if we sit back and wait while it grows and grows? Cause that’s all we are doing right now, and it sure ain’t going away.
By the way, get a load this recent mainstream media (CMBC) message on China and the U.S. debt/currency problem:
“A lot of people like to say, uh, scaremonger about China, right? A lot of politicians, and I know you talk about that issue all the time. I think people should be careful what they wish for on China. Ya know, if China were to revalue it’s currency or China is to start making say, toys that don’t have lead in them or food that isn’t poisonous, their costs of production are going to go up and that means prices at Wal-Mart here in the United States are going to go up too.”
http://www.crooksandliars.com/2007/08/12/cnbcs-erin-burnett-we-need-chinas-toxic-food-and-lead-coated-toys-to-keep-economy-strong/
Can you believe that crap? I suppose that “analyst” thinks I should be thanking whatever deity I worship every day for the chance to get cheap, but lead-paint-laden or poison-laden toys and food???
Un.Believable. I’m definitely sticking to the internet for my news and “analysis”. On the internet at least I have a virtually unlimited selection of news sources to choose from anytime; on the internet I am not limited to only a couple of dozen billionaire-owned networks that I am subsidizing every month to eport garbage like that!