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Everyone Was Believing Real Estate Was Going To Be Worth More Tomorrow

A report from the New York Times. “Good news, New Yorkers: You may no longer need $1 million to buy a middle-of-the-road Manhattan apartment. But just barely. Lest the financially average among us get too excited, the median price only fell to $999,000, dipping below $1 million in the last quarter of 2018, according to Douglas Elliman. It was the first time the median price fell below seven figures since crossing the million-dollar listing threshold in 2015.”

“The slowdown in the city has followed patterns emerging across the United States. Sales are declining across the country, driving down prices, said Jonathan J. Miller, the real estate appraiser who prepared Douglas Elliman’s report. But the Manhattan apartment market has led the way.”

“‘The New York metro area was one of the first to really see a downshift,’ he said.”

“‘It’s a great market for buyers,’ said Hall F. Willkie, the president of Brown Harris Stevens. ‘Things are selling for less, there’s more inventory, and more people are having a hard time selling their apartments.'”

“Units that sold for stratospheric prices had a psychological effect on other sellers, who saw the prices as benchmarks to which they could aspire. That mentality took root across all levels of Manhattan’s apartment market, Mr. Miller said.”

“‘I heard so many stories about, like, a tenement fourth-floor walk-up in the Lower East Side being overpriced’ because of major luxury apartment purchases, Mr. Miller said. ‘There was like a really strange logic that sellers were using.'”

“Buyers eventually started to balk, and some properties lingered on the market, Mr. Willkie said. Once sellers began to adjust their mind-sets, prices began to fall. ‘Everyone was believing that real estate was going to be worth more tomorrow,’ Mr. Willkie said. ‘And looking at property as an investment, rather than what residential real estate is: shelter. And if you don’t make a good decision about shelter, you’re going to get wet the next time it rains.'”

From Realtor.com. “U.S. luxury home sales will follow an old cliche in 2019: What goes up must come down. ‘It’s a different world at the end of year than it was at the start of the 2018,’ said Danielle Hale, chief economist at Realtor.”

A press release on Houston Texas. “According to a housing survey at the end of 2018, eighty percent of Houston homes sold for less than their listing prices. ‘Slowdown is the right word. It is not a bubble or a crash. I think it was time for the housing market to take a breather,’ stated Raymond Campbell of Houston Home Buyers.”

A press release from Realtor.com. “The U.S. housing market showed continuing signs of cooling in many of the nation’s largest metros in December. According to realtor.com®‘s December housing report today, the largest markets saw a 10 percent increase in inventory, compared to a nationwide average of 5 percent, as time on market decelerated, listing price growth slowed and price cuts increased.”

“The steepest declines in median listing prices were felt in San Jose, Calif., and San Francisco, which were down 12 percent and 4 percent, or $130,000 and $33,000, respectively. Austin, Texas, Houston, Dallas, Nashville, Tenn., Charlotte, N.C., and Jacksonville, Fla. also saw declines. However, selling prices in some of these markets are not yet reflecting these declines.”

The Citrus County Chronicle in Florida. “Many analysts believe the housing market, which has been ‘full speed ahead’ for the last year or two, may finally be chugging to a halt. Home prices in Citrus County rose sharply last year, pricing many out of the market. There is some concern that the runaway train was getting eerily similar to the housing bust of 10 years ago.”

“There is also an expectation by some analysts that the economic bubble that Americans have been enjoying will burst and that could upset the housing market, said former RACC president C.J. Dixon. Even though he doesn’t see that happening, talk and speculation like that tend to be a self-fulfilling prophecy, he said.”

“‘If everyone thinks it’s going to happen, it will happen,’ Dixon said.”

This Post Has 84 Comments
  1. ‘Everyone was believing that real estate was going to be worth more tomorrow’

    There’s your bubble Hall.

    ‘And looking at property as an investment, rather than what residential real estate is: shelter’

    Wow, ten years or more and we are back full circle to hearing a UHS say this.

    1. Just remember that real estate always goes up, in the long run, and HODL those investment properties!

  2. ‘The steepest declines in median listing prices were felt in San Jose, Calif., and San Francisco, which were down 12 percent and 4 percent, or $130,000 and $33,000, respectively. Austin, Texas, Houston, Dallas, Nashville, Tenn., Charlotte, N.C., and Jacksonville, Fla. also saw declines’

    There’s some tables at this link – oh dear… Check out the price reduced count YOY.

    Isn’t it interesting we’re seeing these press releases hollering “prices are down, way down!”

  3. ‘Everyone was believing that real estate was going to be worth more tomorrow,’ Mr. Willkie said. ‘And looking at property as an investment, rather than what residential real estate is: shelter. And if you don’t make a good decision about shelter, you’re going to get wet the next time it rains.’”

    And I’m sure Mr. Willkie hasn’t said anything during the last 10 years to foster the misconception about housing as a sure bet, versus simply the roof over your head.

  4. I suppose I should once again expose you pukes to one of my favorite charts:

    https://goo.gl/images/Z2ouxu

    Note the beauty contained in the orange home equity line as to how it rises and falls and contrast this beauty to the rather stable blue mortgage debt line. Allow yourself to enjoy the beauty of the moments when the orange line drops below the blue line; This is the exact moment when the prosperous financial status of the home buying puke transforms to the new-and-improved status of being underwater.

    This moment is what I like to think of as my Gotcha! Moment.

    FWIW.

    1. The problem with ‘equity’ is that it’s completely disconnected from actual market price founded on input costs.

      Said another way, I can ask $50k for my 10 year old Chevy pickup but where is the buyer at that price?

      So it is with all depreciating assets like houses.

      Santa Rosa, CA Housing Prices Crater 21% YOY As Brokers Declare “You Can’t Give Away A House These Days”

      https://www.movoto.com/santa-rosa-ca/market-trends/

      1. The problem with equity is that it’s creation or destruction is determined by strangers who just happen to be buying in the same neighborhood that you live in.

        If these strangers ago crazy and bid up comparable prices then – presto! – you have equity in your house that is magically created. If these strangers decide not to pay higher prices and instead decide to only pay lower prices then the equity in your house gets destroyed.

        It is that simple (and it is that stupid).

        1. There are less costly means to accomplish the same thing at a much lower cost. Build it new, rent it, lease it, buy an option on it with residency rights.

          Simple indeed.

        2. The problem with equity is

          …that when it’s your turn to sell, you need another equally stupid stranger as a buyer.

          1. … who has access to money.

            There is no limit to the number of stupid strangers but now and then there arises a limit to the number of stupid strangers who have access to money.

          2. Actually you need an even stupider stranger, as nobody wants to catch themselves a falling knife in a crash.

    2. This chart misses one important piece. It s well known that Chinese buyers in particular pool resources within families and social networks to buy real estate. Most of the Asian “All Cash Buyers” in fact owe most or all of their funds to relatives and friends and these debts are not recorded.

      Eventually, a country full of people who make $8,000/yr will run out of money for $800k+ all cash property purchases…. 😉

      1. with respect Richard – the worst country to consider average vs medium is China. They still have 50M rich people and 100M additonal upper middle class people.

        You would be right if you consider sentiment – some are still risk takers – but others are starting to hunker down.,

        I think that irrationality will start to come down.

      2. Chinese tend to be crowd chasers from what I have seen working in high tech. Why risk a new idea and failure when you can copy one that has been a winner. Hard to see the fork in the road with that strategy.

        1. Sounds like China might be in trouble if President Trump’s crackdown on technology theft is successful.

      3. Actually you need an even stupider stranger, as nobody wants to catch themselves a falling knife in a crash.
        ————————
        “It’s worth as much as someone is willing to pay” is wrong. It’s worth as much as someone can BORROW. The equity ‘disconnect ‘ is how the “howmuchamonth” Ross can snag off their credit.

        I can ask for $50,000 for my used truck, but where are the buyers who can snag that much credit line and cover their “howmuchamonth” at that price?

  5. There’s a bull market ahead in crypto…right after we get past today’s 2%+ drop in all the major altcurrencies.

    1. I suggest you mortage everything you have and go all in.

      Remember it will be your equity that you will be cashing out. I see no reason why you should have to ever give it back.

    2. Bitcoin stuck below $4,000 but price action looking more like a bull market, says analyst
      By Aaron Hankin
      Published: Jan 3, 2019 10:16 a.m. ET
      Ether overtakes XRP to regain title of second-largest cryptocurrency


      Bitcoin, (BTCUSD, -2.78%) the world’s largest digital currency, was last changing hands at $3,896.29, down 0.9% since Wednesday at 5 p.m. Eastern Time on the Kraken crypto exchange and the value of a single coin has remained within the $3,500 – $4,000 range over the past eight trading sessions.

      Ether, (ETHUSD, -5.68%) the cryptocurrency that runs on the ethereum network, has regained its title as the second-largest digital currency. After falling more than 90% from an all-time high above $1,400, to around $80, the coin associated with crypto ventures has surged more than 80% and now accounts for 11.5% of the total market value of all coins, 0.3% more than Ripples’s XRP coin.

      Elsewhere in the altcoin trading — the market for coins other than bitcoin — Litecoin (LTCUSD, -5.79%) was off 3.3% to $31.92, XRP, (XRPUSD, -5.01%) was down 2.8% at 36 cents, and Bitcoin Cash (BCHUSD, -4.74%) had lost 2.3% to $162.70.

      Bitcoin futures have ticked lower in early trading. The Cboe Global Markets February contract (XBTG9, -2.43%) was down 0.4% at $3,790, and the CME Group February contract (BTCG9, -2.62%) was off 0.9% at $3,780.

      https://www.marketwatch.com/story/bitcoin-stuck-below-4000-but-price-action-looking-more-like-a-bull-market-says-analyst-2019-01-03

      1. How can you have a “bull market” in a Ponzi scheme? Attaching “fundamentals” to a scam is insane.

        1. “Isn’t $4000 dangerously close to the cost of production (electricity)?”

          Yes, and maybe BELOW the cost of the electricity, depending where the miner is located and who you ask…

  6. ‘The slowdown in the city has followed patterns emerging across the United States. Sales are declining across the country, driving down prices, said Jonathan J. Miller, the real estate appraiser who prepared Douglas Elliman’s report. But the Manhattan apartment market has led the way.’

    ‘The New York metro area was one of the first to really see a downshift,’ he said’

    This article may be the beginning of the MSM reconciling to reality. Mr Miller has been saying for years sellers need to ditch their “aspirational” pricing, and not just in NYC. He knows what we know, prices have been falling there since 2016. But the media hasn’t reported it. They gloss over Miami Beach, the Hamptons, Greenwich and New Canaan in the same way.

    Take any of these and apply any definition of a bubble. Overbuilding, especially of stuff locals will never be able to afford – check. Creative finance, ridiculous price increases and steep falls – check. And these ideas mentioned – real estate only goes up, not just tomorrow but the day after that and the day after, etc. And this:

    ‘‘I heard so many stories about, like, a tenement fourth-floor walk-up in the Lower East Side being overpriced’ because of major luxury apartment purchases, Mr. Miller said. ‘There was like a really strange logic that sellers were using.’

    See, if Beverly Hills is hot, why not Compton? This is all classic mania (crazy) talk.

  7. ‘Slowdown is the right word. It is not a bubble or a crash’

    ‘There is also an expectation by some analysts that the economic bubble that Americans have been enjoying will burst…talk and speculation like that tend to be a self-fulfilling prophecy…‘If everyone thinks it’s going to happen, it will happen’

    But you just said it was a bubble CJ? And another blast from the past: self-fulfilling prophecy.

  8. Read blog every day. Rarely comment. Thought i’d add some local color. Acquaintence who works for a local BIG builder that puts in subdivisions all over WA state. She does the kitchens (design etc) mentioned that she was recently told to plan for 4 kitchens a week, down from 5-8 kitchens a week that she was doing (i assume thats down from past yr projections as in begininng of 2018)
    Clark County WA based builder
    As an aside, we notice a large amount of out of state plates here, not just holiday visitors. The states i’ve seemed to notice most are California, Colorado, Texas, Idaho, roughly in order of prevalence.

    1. If she’s smart, she’ll immediately plan for 4 kitchens per MONTH. By the time they come back to her again to adjust her expectations, she should be looking for a new job. This way, she won’t suffer financially.

    2. “As an aside, we notice a large amount of out of state plates here, not just holiday visitors. The states i’ve seemed to notice most are California, Colorado, Texas, Idaho, roughly in order of prevalence.”

      It’s really weird. If you go to Idaho, you see CA, OR, TX, NV plates. If you go to NV you see CA, OR, ID, TX plates. If you go to WA you see CA, OR, TX plates. If you go to TX you see CA, NV, WA plates. Verdict: Everybody is moving everywhere.

          1. Or Vermont.

            Applications Go Live For New Vermont Program That Will Pay You To Move There
            January 03, 2019
            Fall leaves hang on a tree near the Old West Church on Oct. 9, 2013, in Calais, Vt.
            (Toby Talbot/AP)

            Vermont, the state with the third-oldest population in the country, is experimenting with a program that will pay people up to $10,000 over two years if they move there and work remotely. However, the money can only be used on moving costs, new computer equipment and co-working spaces.

    3. Given that

      would furniture shop be an early indicator of a slowdown? is there any indication from these companies

  9. ‘And looking at property as an investment, rather than what residential real estate is: shelter’

    It is not binary. Real Estate is both an investment and shelter. But like every other investment, if you buy at the top, it was a bad one.

    1. Real estate is not an “investment” in the historical sense of the word. It’s an “expense.” It is an investment of capital and labor, with the return being shelter over one’s head. Historically, the price of homes tracked inflation. When you account for maintenance and repair, interest paid, etc., they’re not keeping up with inflation.

      1. “It is an investment of capital and labor, with the return being shelter over one’s head.”

        Exactly. In other words, it’s an investment in the economic sense of a lot of work done up front to provide a long-term stream of shelter or business services.

        The Wall Street casino gambling sense of ‘real estate investment’ is a transient artifact of the mania we are collectively witnessing.

    1. The stock market was on the verge of the worst start to a year in 2 decades at the lows
      By Mark DeCambre
      Published: Jan 3, 2019 1:14 p.m. ET
      Double whammy of Apple worries and weaker-than-expected manufacturing report delivers a gut punch to markets
      Dow Jones Market Data

      Wall Street investors couldn’t part ways with 2018 rapidly enough, but it turns out that 2019 is setting up to be equally ugly to stock-market bulls.

      According to Dow Jones Market Data, at Thursday’s session lows, the Dow Jones Industrial Average (DJIA, -2.13%) and the S&P 500 index (SPX, -1.72%) were on track to post their worst start to a year since 2000.

      1. I love the depiction of bulls stampeding headlong over the edge of a cliff that accompanies this article.

        Citi’s Levkovich cuts S&P 500 target as sentiment enters panic mode
        By Sue Chang
        Published: Jan 3, 2019 2:42 p.m. ET
        Stocks have lost roughly $5 trillion in value since their 2018 peak

        Stocks are on the verge of their worst start to a new year in nearly two decades, one of the most iconic companies in the world lowered its earnings outlook and high-profile strategists are already cutting their S&P 500 targets.

        And it’s only day three into 2019.

      2. Finally I’m seeing some positive movement after 10 years of getting hammered in PMs and up to a 90% loss in some cases. JNUG (junior gold miners) doing well today; took 15% off the table. My 401k has gone up 5% in the last month, even though it’s averaged around 85% cash. I hope this pattern continues for a few more months. Thank you Apple 🙂

        On the housing side, we bought in 2012 for 735k and the comps are now 1.2-1.3M. I feel the ongoing stock market crash coupled with the SALT shock (I live in the SF Bay Area) are going to pummel house prices here starting mid-2019. Thinking of taking that ~500k tax free this Summer (if I can) and renting for the next 4 years until my youngest graduates from HS.

          1. Hence the word “here”. In my zipcode (94568) prices are yet to drop on average. Yes, some are going for below list but others are still over asking.

          2. “In my zipcode (94568) prices are yet to drop on average.”

            That’s because it was 65-degrees F today.

        1. “Thinking of taking that ~500k tax free this Summer (if I can) and renting for the next 4 years until my youngest graduates from HS.”

          Not a bad strategy I did that in 2006. Made some money but I did move around allot which isn’t free. I got lucky and bought back in 2012 at a lower price which I can afford. House instead of a townhome. I don’t know how anyone affords silicon valley anymore ?? HQ is there and I hear the stories, make 10K a month equity or you’re doing something wrong, if you don’t own 4 homes by your 40’s (age) you’re doing something wrong, blah blah, section 8 in Stockton is a no lose investment.

          let the crying began

        2. “735k and the comps are now 1.2-1.3M…taking that ~500k tax free this Summer”

          Here’s the problem with day-trading (in houses, stocks, whatever). In order to exit the Ponzi scheme you have to entice some new sucker in to take your place. Enjoy your free money.

      3. Be sure to enjoy the selection linked to the word headlong in my post above, which provides an apropos musical metaphor for the plight of the bulls. Dr. May’s guitar riffs aren’t half bad, either.

    2. How are your stock market HODLings faring on “Apple’s ‘darkest day’ in the iPhone era”? Could we please strive for an appropriate level of melodrama to capture the dire plight of Apple’s cadre of true believers?

      Apple’s ‘darkest day’ in iPhone era triggers flood of price target cuts by analysts
      By Tomi Kilgore
      Published: Jan 3, 2019 2:13 p.m. ET
      Average Wall Street price target falls to 14-month low, as some analysts slash target by $100

        1. Keep$ her eye$ on the rubber bouncing ball as it bounce $ DOWN those Wall $treet $lippery $lope $tairs!

        2. Personally I’d say it’s just picking up steam. Compare this top in all 3 major indexes to the dotcom bust on the Nasdaq back in 2000 and that’s what I think is coming for us.

          The Fed-induced Everything Bubble has enabled our 75%-consumer-driven-eCONomy to flourish, but all those borrowed dollars for homes, vehicles, furniture, vacations, and playthings eventually have to be paid back. The cost of borrowing, both on the consumer AND industrial side, will soon reveal the mass of zombies swimming naked.

          In short, we’re far more doomed than 10 years ago.
          Short it all and buy the inverse of all that’s gone up the last few years.

  10. “‘It’s a great market for buyers,’ said Hall F. Willkie, the president of Brown Harris Stevens. ‘Things are selling for less, there’s more inventory, and more people are having a hard time selling their apartments.’”

    Because everyone with a box of money and a bucket of stupid wants to catch himself a falling knife buying a $1 million apartment…

      1. Yes they do.

        “The slowdown is especially painful for U.S. automakers operating in China, which dwarfs the U.S. as the world’s largest car market. Automakers sold roughly 28 million automobiles in China in 2018, compared with about 17 million in the U.S. — the second-largest auto market.” (Quote from the article I linked above)

        1. US automakers have about a 10% share of that Chinese market though, so about 2.8 million cars total, or nowhere near what they sell in the US proper.
          The Chinese consume FAR more of their own products than they do ours. I don’t think the iphone is even in their top 10, for instance.
          Everyone thinks the tariffs are hurting our own sales to them, but the truth is it’s only a part of the problem. Most of it is organic slowing, added to our own internal slowing.
          We’re in for a lot of pain going forward. Nowhere to go but down after everything has been running on easy money for so long.

  11. Had Zillow watches on a bunch of pieces of land in Escondido, for about 500k each. Have been getting emails about 200k + price drops on them. Aspirational pricing on small patches of desert….

    1. I can’t speak to the company, but my wife had the worst insurance provided breast pump ever. There is certainly the desire for something that works well for working mothers. Trying to pump and work was horrific for her.

    1. Thanks for the share. Romney is our senator. I read the op-ed and thought it was pretty spot on considering Trump. He didn’t criticize his policies so much has his divisive nature and failure to lead.

        1. She lost a close race. Blue wave for sure, especially since Love lost in a very red Utah. My cousin in Park City worked on Ben McAdams small donor fund-raising efforts. Utah politics is evolving ever so slowly right now. Still very red, but less so. We were part of the wave of very red states that also expanded the affordable care act.

          1. Thanks, things could have been so much easier by expanding medicaid to include Dental work, and buy in for those working.

            One of the problems is we pay exorbitant amounts to fix people who did the damage to themselves. Like smoking drugs obesity. And those of us who try and eat right lose wight never smoked , or drinke to excess no DUI’s no crimianl record have to suffer with high deductibles co pays and minimal dental coverage

          1. That’s how I took it. OR the (re)creation of a new-old wing of the party with Romney as the leader.

    1. Perhaps as soon as Friday morning, when former and current Fed chairs will have a chance to comment on the recent market meltdown…

      1. To my recollection, 2000 was a most interesting year in Wall Street stock market history.

        The stock market logs worst start to a year in 2 decades
        By Mark DeCambre
        Published: Jan 3, 2019 4:20 p.m. ET
        Double whammy of Apple worries and weaker-than-expected manufacturing report delivers a gut punch to markets

        Wall Street investors couldn’t part ways with 2018 rapidly enough, but it turns out that 2019 is setting up to be equally ugly to stock-market bulls.

        According to Dow Jones Market Data, the Dow Jones Industrial Average (DJIA, -2.83%) and the S&P 500 index (SPX, -2.48%) notched their worst start to a year since 2000.

  12. “U.S. luxury home sales will follow an old cliche in 2019: What goes up must come down. ‘It’s a different world at the end of year than it was at the start of the 2018,’ said Danielle Hale, chief economist at Realtor.”

    Realtors must also follow an old cliche: Always Be Closing. Now that FOMO is all played out, realtors can play on FB panic to urge them to price aggressively to cut the losses on their underwater shacks and generate that commission check. It’s a cutthroat job, but somebody’s gotta do it.

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