Posted on 04/05/2006 11:15:28 AM PDT by ex-Texan
Half Say Burst Has Begun or Will Shortly, According to Phoenix Lending Survey Results; 93 Percent of Lenders Predict Housing Prices Will Drop 10 - 20 Percent
Northeast and West Coast Likely to Be Hardest Hit, Say Lenders
Two-thirds of lenders nationwide believe a real estate bubble currently exists in the United States - and half of them believe it has already begun to burst or will burst in the next six months, according to the results of this quarter's Phoenix Management "Lending Climate in America" Survey.
A significant 93 percent of lenders surveyed expect an anticipated housing correction to result in real estate prices declining 10 to 20 percent across the country.
"In the minds of lenders, the housing bubble has moved from 'Loch Ness monster' myth status to an economic reality that could have a significant, negative impact on the lives of many Americans," said Michael E. Jacoby, Managing Director and Shareholder of Phoenix Management Services. "A year ago, 46 percent of lenders believed we were in a housing bubble. Today, that number has climbed to 66 percent - and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20 percent."
When asked when they believed the housing bubble would burst, thirty percent of lenders said it has already begun to happen. Twenty percent predicted it would occur in the next one to six months, and 27 percent thought it would happen seven to 12 months from now. Nine percent said it would occur in 2007.
Among the 92 lenders who participated in this quarter's survey, only nine percent said they did not believe a housing bubble existed.
When asked which area of the country was likely to be most affected by a housing correction, 30 percent of respondents named the Northeast, followed closely by 27 percent who predicted the West Coast. Fourteen percent named the Southeast, and five percent, each, named: the Mid-Atlantic, the Mid-West, or said all regions will be affected equally.
Half of all lenders believe a housing correction will result in real estate prices dropping up to ten percent. Forty-three percent of lenders said the decline would be as high as 20 percent.
Despite their belief in the existence of a housing bubble, real estate was not the issue that lenders thought posed the greatest threat to the health of the U.S. economy.
When asked to select from a list of six issues that had the most potential to hurt the U.S. economy, 38 percent of lenders named the federal budget deficit. That was followed by the war in Iraq (18 percent), the trade deficit (14 percent), the sluggish job market (12 percent), low household savings rate (9 percent) and the real estate bubble (9 percent).
Overall, lenders remain wary about the future of both the economy and their customers.
For the first time in five years, they believe the short-term outlook for the economy is stronger than its long-term outlook.
"When we asked lenders how they expected the economy to perform over the next six months, they assigned it a high 'C' grade," Jacoby said. "But when we asked them how it would perform in the second half of 2006, they downgraded the economy to a low 'C.'
"Clearly, there are lingering concerns about whether the economy has fully rebounded in a meaningful way."
Lenders also reported lukewarm growth plans by customers. Twenty-two percent said their customers planned to make new capital investments. Sixteen percent, each, said their customers planned to: enter new markets, introduce new products or services; raise additional capital; or make an acquisition.
Only 14 percent of lenders said their customers planned to hire new employees.
Lenders expect loan demand to remain relatively unchanged, although 39 percent predicted international lending would increase in the next six months. They also remain on the alert for loan losses, with 65 percent predicting an increase.
When asked which industries were the most attractive to their lending institution, lenders named the same three that have topped the list for more than three years - Light Manufacturing (75 percent), Service Companies (73 percent), and Industrial Distribution (72 percent).
Start-ups/New Ventures were deemed the least attractive industry to lend to, with 65 percent naming it unattractive.
Roughly 75 percent of lenders reported plans to maintain their existing loan structures in the $1 million to more than $10 million loan size categories.
Two-thirds of lenders plan to maintain their interest rate spread and fee structures on similar credit quality loans. In the under $1 million loan category, 32 percent of respondents said they planned to increase the interest rate spread and fee structure.
Nearly all lenders expect the Fed to raise rates in the coming six months, but they predicted a smaller rate hike of a half-point or less, compared to previous quarters.
About the Survey
The Phoenix Management Services "Lending Climate in America" survey is conducted quarterly to gauge shifts in lenders' attitudes toward the economy. Ninety-two lenders from commercial banks, commercial finance companies and factors across the country were surveyed this quarter. Respondents completed a written questionnaire during January and February.
About Phoenix Management Services
Phoenix Management Services (www.phoenixmanagement.com) is an operationally-focused advisory firm, providing turnaround, crisis and interim management and investment banking services to middle market companies in transition. Since 1985, Phoenix has aggressively advocated on behalf of its clients in over 700 assignments nationwide across a variety of situations and industries.
I'm currently in offer stage of buying a condo near downtown Seattle. They listed at 368K, I offered 350K, and it looks like they are going to accept. Heard the guy works in tech, but they have to move to another state for a new job starting next month, so they are somewhat motivated to sell.
Analyzing the comps my realtor has given me. I'd say about 60% of condos/homes being sold are still getting asking price, BUT, the asking prices are more realistic of current market which has been slowly cooling since January. You see many selling for 3 to 5% below the asking price now.
I thought the asking price was just a bit high, so I offered about 5% below price.
Two years ago, sellers with time of their hands were just throwing out rediculous ask prices seeing if some desperate moron would agree. Prices are still pumped up to extremes in certain markets. The property I'm trying to buy is in a area that still has a lot of demand, so I know that even if the market continues to cool off, long term, It's going to be a good investment.
making money off internet advertising.
I just bought some goldcorp stock so I just got to say, BOOYAHH!!!!
You know, eventually certain parts of the country will run out of people able or willing to pay $750,000 for a 2 bedroom ranch.
That's not really a bubble. It's more like the occasional pocket of air rising to the top of your bathtub after an evening of Mexican food.
"The property I'm trying to buy is in a area that still has a lot of demand, so I know that even if the market continues to cool off, long term, It's going to be a good investment."
In comparison to single family detached houses, you're hitching your wagon to a lot of fees, in addition to a mortgage payment, taxes and insurance. Maybe Seattle is so built out that there's no more room for anything else that is remotely affordable and within a reasonable commute, but the fees strike me as being a potential drag on resale value.
Hey Salgak, I'm a headhunter and having a very good year. I just don't get why people say the economy is shaky blah,blah,blah. I just had friends relocate out of Virginia suburbs and they got a ton for their house allthough they paid a handsome buck too! Still made 100k from purchase price...By the way,need a good headhunter?...
"People are really up in arms about seeing their escrows jumping $200-$400 a month on average middle-middle class housing"
You can still get not-entirely-embarrassing starter houses out in the county down here for a little over $400.00 a month, and that's including principal, interest, taxes and insurance. I can't even begin to imagine $400.00 a month worth of property tax on my house to begin with, let alone an increase of that amount.
I just can't afford a decent house anywhere near the city and I'm not going to to do the 2 to 3 hour of commute time a day thing. After that past couple years, I've been priced out the house market around here. If I was married and had a duel income, it would be so much easier.
So the plan is to own the condo for about 3 to 5 years, build up some equity, and save up more for a bigger downpayment, and then step up to a house.
Condo fees do suck, but given the current market, this was my best option.
Bubbles don't burst...they just fizzle and not universally
this is primarily a residential longterm uptick
it's been going up homewise here in nashville metro since 91 more or less
and folks just keep coming
"it's been going up homewise here in nashville metro since 91 more or less"
Most of the nineties were OK my region of NC, up until the end of the decade, when the offshoring of textiles and furniture manufacturing really began to take hold. Total employment actually decreased from that point up until about two years ago. Home price appreciation slowed during that timeframe, to around 2% annually on average, but some areas were flat, and some were better than average, depending upon the employment scenario in the immediate area, as well as the scenic value (mountains and/or lakes are a plus). Appreciation since then has been 5% on average and increasing. There aren't many large textile or furniture manufacturing operations left to cut jobs, and there have been numerous new companies in diverse fields come into the area. Population growth continues at a rapid clip, and didn't slow even during our "slump" from 1999 - 2004, curiously. We're cautiously optimistic about the future here. Real estate prices are not a point of concern.
That means about 50% or more of recent buyers in California are going to be SOL. Those houses will be foreclosed. Imagine whole neighborhoods of houses for sale with most sitting vacant. Then the bubble will crash for real. It will be very nasty, very bloody indeed.
I'm talking about next near and the next extending over the next five years. People who manage to keep their homes will wake up one day and find a demand letter from their lender(s). The letter will give them about 90 days to pay the difference between what they owe and the most recent value of the house.
Then, all hell will break out.
"Then the bubble will crash for real. It will be very nasty, very bloody indeed."
You know, your replies would be more palatable if you didn't sound like Charlie Brown waiting for "The Great Pumpkin" to arrive. Why the gleeful anticipation?
What? I'm not a tinfoil-hat doom-and-gloomer? I might need to re-evaluate my self-image (and possibly use more hyphens)!
I have gleeful anticipation, given that I'm positioning myself to buy my first home. I do NOT want to pay today's extremely inflated prices. Maybe the half-million I can afford will get me a mansion instead of a middle-of-the-road townhome!
Somehow I think the banks will take them instead. Funny how that bankruptcy law just changed last year yes?
Which puts their credibility in question. Name the person harmed by a budget deficit of the proportion of GDP we have today. It just isn't that big of a deal.
These bwankers probably want a tax increase to solve the budget deficit.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.