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Traders see LA/OC price falling 24.8% more
May 21st, 2008, 12:01 pm · 121 Comments · posted by Jon Lansner/O.C. Register columnist
My occasional glance at TFS Derivatives‘ weekly report on trading of home-price contracts shows that money’s being bet on further drops in regional values as measured by the S&P/Case-Shiller indexes. It’s one more projection, one backed up by somebody’s cash.
The local pain, by TFS’ math, will be steep looking at the April reading of the 10 S&P/Case-Shiller regional indexes and how recent traders’ bets translate to November 2009 pricing:
• LA/OC -24.8% (Much of that drop, an 18.5% drop by TFS math, will come by this November!)
• Vegas, -22%
• Miami, -20%
• San Francisco, -14.1%
• New York, -12.9%
• San Diego, -12.9%
• DC, -11.1%
• Chicago, -10.7%
• Denver, -9.8%
• Boston, -4.4%
These traders don’t see much of a cyclical bottom forming this bring, for sure. The 10-city composite index shows a 9.8% through November ‘09.
May 21st, 2008 at 12:15 pm
Everyone’s got an azz…. er, opinion.
May 21st, 2008 at 12:16 pm
That’s incredible. The hits just keep coming. That doesn’t suggest much of a bottom does it? Perhaps these traders know something that the bull[s] doesn’t?
May 21st, 2008 at 12:18 pm
Hmm. Whom to trust…those who put their money where there mouth is…or those who just use their mouth? Seems like an easy decision to me.
May 21st, 2008 at 12:18 pm
24% further drop in home prices makes a lot of sense to bring affordability back to 2002 levels.
With oil at $133, we’ll be lucky if the whole economy doesn’t collapse.
May 21st, 2008 at 12:26 pm
C’mon guys, who you gonna believe Case Shiller or Thoughtless? We get a little spring bump and all the bulls claim the housing crunch is over. Let’s see the 2nd and 3rd quarter sales numbers before we get too excited here. If mortgage rates go up 0.5% you just lost a large % of the potential buyers and rates won’t be going down.
May 21st, 2008 at 12:30 pm
This sounds about right, the 20% drop we already have plus another 20% gives a 40% drop……………..
The next big news will be the collapse of home prices in the expensive, exclusive areas. And that will cause the median to drop like a rock off a tall building…………..
May 21st, 2008 at 12:50 pm
You gotta love this. All the “bears” are just guys who have sold their house, or never owned a house, and they simply want prices to come down so they can get a lot for their money. Nothing wrong with that, EXCEPT when you feign concern for society as your motivation. Same for the “bulls” on the other side, They probably own and want things to settle down. EXCEPT they’re not claiming any false altruistic cause.
Come on “bears”. Come clean and we can all be friends!
May 21st, 2008 at 12:55 pm
opinions? LOL
opinions are what you find on a blog………
this is big money betting on big price drops……..
18.5% further drop?…….. it’s amazing how it agrees with all fundamental valuation calculations…..
May 21st, 2008 at 12:56 pm
VoiceofReason Says: “All the “bears” are just guys who have sold their house, or never owned a house”
Some bears just want people to stop using houses for speculation and want home prices to reflect economic fundamentals. Is that too much to ask?
May 21st, 2008 at 1:00 pm
Sort of.
May 21st, 2008 at 1:06 pm
Yes
May 21st, 2008 at 1:12 pm
I’m beginning tothink some of the perma bulls on this blog have multiple aliases that th ey use. It would not surprise me if these individuals have multiple personality disorder in real life.
May 21st, 2008 at 1:14 pm
I think you’re on to something there menaulus. How do you think this started, and what can we do about it?
May 21st, 2008 at 1:17 pm
take a look at this
“The Federal Reserve cut its forecast for economic growth in 2008 and warned of higher inflation and unemployment. But it also signaled it was unlikely to cut interest rates again soon.”
This is horrible news for the permabulls. Slow growth, higher unemployment, inflation, and interest rates is the worst thing for the housing market.
http://www.cnbc.com/id/24759910
May 21st, 2008 at 1:20 pm
Re: OC projected decline in ‘value’: “Much of that drop, an 18.5% drop by TFS math, will come by this November”
If it actually does drop another 18 percent by November, I don’t think we’ll see any more surveys where 60% of the people in OC think that their house didn’t lose value in the last year. John Q Public will, for the most part, be educated after such an event.
May 21st, 2008 at 1:22 pm
VOR: “All the “bears” are just guys who have sold their house, or never owned a house, and they simply want prices to come down so they can get a lot for their money.”
Hate to tell you but there are plenty of bears that own RE, are currently buying RE and are making money in RE.
Being a bear in a region for RE does not mean you’re not buying RE in other areas.
Where do some of you guys get your reasoning from - this blog?
Some of these traders are quite wealthy and do live in homes they own.
Please stop with the ridiculous opinions that are blatantly false.
If you trully feel that way - I call you out right now. I’ll setup the meeting - my place - bring the cash. Such stupidity is beneath everyone here, including those that made the statements.
By the way, the terms bearish and bullish are intended to characterize an investor’s position. Most people on this blog that use these terms so freely would have a hard time falling into either category.
Hell- most of the bulls here have not even bought RE in the last year. How can you be labeled a bull when you are not buying?
May 21st, 2008 at 1:24 pm
VOR: ” Same for the “bulls” on the other side, They probably own and want things to settle down”
VOR: Do you HONESTLY believe a word of what you wrote?
May 21st, 2008 at 1:27 pm
this is the equivalent of Las Vegas giving USC -20 points against some third rate team thrown into their schedule…….
come on Thoughtful…. take the opposite side of the bet…. I dare you
of course…..you may already be… ALL IN…. LOL
thoughtful….you can win the bet…. and still lose big…….. at least it’s a hedge LMAO
May 21st, 2008 at 1:32 pm
nbi says:
“Please stop with the ridiculous opinions that are blatantly false.”
Since that characterizes your whole post, maybe you should look inward grasshopper. And, maybe you shouldn’t take yourself so seriously nbi. You really need to lighten up. Calling people out in a blog and asking them to come to your house with cash is…………ah…………..ill advised. (and by ill advised, I mean laughingly ridiculous).
May 21st, 2008 at 1:47 pm
“Please stop with the ridiculous opinions that are blatantly false.”
Funny how that is never said to the “side that shall not be named”.
May 21st, 2008 at 2:36 pm
Hmmm. At the Ca Assn of Realtor’s annual trade Expo last October, the unanimous opinion of the economists panel was to hang in until 2010. I was hoping for spring of 2010, not November.
We do need to bear (no pun intended) in mind (no disrespect intended) that all this indicates is investors who use these markets are demanding huge risk compensation. The high level of current activity on the actual real estate market tends to indicate that, at February’s interest rates at least, February’s buyers liked the 25% discount off the peak that’s already built in.
The trouble is, interest rates are up from February, and look like they’ll keep rising. That’s what concerns me far more than a speculative commodities market I really don’t understant. (See “Oh-oh! We just passed a nationwide bottom!“).
Maybe Jon or economist Marcia can explain the derivitives market for November 2010 home-price contracts. My guess is it’s something like the sports book in Vegas for the 2011 super bowl.
May 21st, 2008 at 2:39 pm
RealtorDave,
Don’t worry everything will be great when the Fed Rate is 0% and conforming mortgages are at 8%.
May 21st, 2008 at 3:20 pm
RealtorDaveE Says: “The trouble is, interest rates are up from February, and look like they’ll keep rising.”
Interest rates are up? Time to buy houses. Buy now before you are priced out of the market forever.
RealtorDave, I know that you are not saying that but I love it when realtors (not you) use interest rates to their advantage. If rates are going down they say: “rates are down, best time to buy now that it is affordable”
If interest rates are going up they say: “rates are up, buy now before you are priced out of the market”
The truth is that if you have a good down payment (20% or more), you want interest rates to go up because you’ll be at a competitive advantage since most buyers don’t even have 10% down. You’ll pay less for the house and you can always refinance later one when rates come down.
May 21st, 2008 at 3:33 pm
Oops. It looks like the higher jumbo conforming limits might expire at the end of the year after all.
http://www.cnbc.com/id/24729626
This is what Steve Thomas should say in his newsletter:
Buyers, what to do?
Wait until the beginning of next year when the jumbo limit will go down to 500K pushing home prices further down.
Sellers, what to do?
Lower your asking price, sell your home, and get the heck out of the housing market before it crashes when the conforming jumbo loans go back to 500K
Of course, you’ll never hear this from Steve “Always Optimistic” Thomas.
May 21st, 2008 at 3:44 pm
“Boeing to lay off 750 SoCal workers after losing contract”
Boeing said the first 100 satellite employees will be laid off in July. The remaining 650 workers will be released in July and August
Add 750 more foreclosures to the list.
http://biz.yahoo.com/ap/080521/boeing_layoffs.html?.v=3
May 21st, 2008 at 3:44 pm
# VoiceofReason Says:
“You gotta love this. All the “bears” are just guys who have sold their house, or never owned a house, and they simply want prices to come down so they can get a lot for their money. Nothing wrong with that, EXCEPT when you feign concern for society as your motivation. Same for the “bulls” on the other side, They probably own and want things to settle down. EXCEPT they’re not claiming any false altruistic cause.
Come on “bears”. Come clean and we can all be friends!”
—-
After reading and re-reading this several times I’m starting to think there might be some correlation between the thinking that went into writing it and the thinking that believes the market is poised to ascend again soon. No linear thought process in either case.
Take this line: - “they simply want prices to come down so they can get a lot for their money. ”
So what? Why wouldn’t anyone wanting to buy want this?
That was followed by: - “Nothing wrong with that, EXCEPT when you feign concern for society as your motivation.”
Seems obvious one should have a concern for others as well as for themselves………What if you bought a house at a price that those that followed were unwilling to pay?….Perhaps most would stop buying, or buy elsewhere …..that’s not good for “society”………. which leads to an interesting thought here:
Our resident bull seems to feel that those who bought in the past are “entitled” to the false prices homes reached in the past — overvaluations, caused by speculators and others who paid more than today’s market value. Talk about a warped sense of entitlement.
Then there was this line: - “Same for the “bulls” on the other side, They probably own and want things to settle down.”
Settle down? Isn’t that what we are seeing?
This settling down is good for society. Settling of prices to a level of affordability will bring back a “normal” market where those who want to sell will find buyers able to buy.
That past craziness is gone. Done.
Loans with no investment by the buyer, made to those unable to pay, didn’t work then and won’t work now.
May 21st, 2008 at 3:46 pm
“American Airlines will lay off thousands of employees”
http://www.bizjournals.com/austin/stories/2008/05/19/daily24.html?ana=from_rss
May 21st, 2008 at 3:49 pm
“Pink slips issued to thousands of teachers”
http://www.latimes.com/news/local/los_angeles_metro/la-me-recruit10-2008may10,0,1608702.story?track=rss
May 21st, 2008 at 3:54 pm
Here we go again!
“Mortgage applications fell last week and a ratings agency slashed one homebuilder’s credit ratings to junk status”
http://biz.yahoo.com/ap/080521/homebuilders_sector_snap.html?.v=1
May 21st, 2008 at 3:56 pm
Bill, you are a total waste of oxygen. I can see you know peering over your gigantic gut googling like a mother****** for any layoff announcement. What a complete piece of sh!t you are. You disgust me. And ass, you claim 750 layoffs equals 750 foreclosures? That’s the stupidest comment ever posted here. Good luck asswipe.
May 21st, 2008 at 3:59 pm
pdu, you don’t know jack. No down loans are available today, and people are rushing in to take advantage.
May 21st, 2008 at 4:01 pm
Thoughtful,
You have been disgusting me for an entire year now and will continue to until you foreclose on your home.
These are top headlines on every news site, you imbecile.
Get off this blog and start reading the news before you lose even more brain cells!
May 21st, 2008 at 4:03 pm
Thoughtful,
This one’s especially for you!
“California’s foreclosures may be worse than originally thought”
A 20 percent drop from a peak in prices could leave as many as 14 million households in the state with negative equity.
http://www.ksby.com/global/story.asp?s=8352432
May 21st, 2008 at 4:11 pm
Hey Bill, you forgot to read your links AGAIN. It’s clear all you do is look for bad headlines, you piece of garbage.
On Boeing:
“The company said it will help the employees find jobs at other Boeing locations.
Some of the regional industry’s recent setbacks could be offset by increased business from the KC-45 tanker contract recently awarded to Northrop Grumman Corp., which the company says will create some 7,500 new aerospace jobs in California.”
Lemme see: down 750, up 7500. Oh, the tragedy.
May 21st, 2008 at 4:15 pm
And your ksby link? Lame. You don’t read any of what you post, do you? You’re pathetic. I hope some very bad things happen to you.
May 21st, 2008 at 4:15 pm
Thoughtful,
My, my…………… you’re an angry nutcase when things don’t go your way.
Are these “real” news headlines getting in the way of your brainwashing techniques in here?
I think so.
May 21st, 2008 at 4:18 pm
“Fannie CEO sees steep home-price drop’
“Fannie CEO says crisis is ‘halfway through’; sees home-price drop up to 25 percent”
http://biz.yahoo.com/ap/080520/fannie_mae_outlook.html?.v=5
May 21st, 2008 at 4:23 pm
Asswipe, they are gobbledygook. The vast majority are reports from other states. Reports of job losses that have ZERO impact on us, but are still a wet dream to you. I am sooooo going to enjoy watching the market continue to rebound. I am just glad that I don’t know what you look like because I vomit in my mouth just seeing your words and I would need to sterilize my brain if your image entered it.
May 21st, 2008 at 4:24 pm
pdu,
thank you for reading my post over and over. Your comprehension of four simple sentences is impressive. I think you missed the point though. So, go ahead and read it 50 or 60 more times, see if it comes to you, and get back to us. We’re all waiting for your in-depth interpretation.
May 21st, 2008 at 4:32 pm
Thoughtful,
You usually get angry and throw temper tantrums when you’re up against me.
First, the Boeing job losses are real.
Some, in fact very little will be relocated out of state for re-hire while the majority will be out of a job all together.
Second, the Northrop/Grumman contract will likely be eased back once the war ends and most of the job increases from that contract will absorbed by their own employees as previous contracts come to a close.
So don’t count on too many job increases in aerospace in the future.
May 21st, 2008 at 4:34 pm
Question for the bulls (seriously):
Do you consider the market to have turned if sales volume increases? As has been said before, as a buyer, I only care about price. If 10,000 houses sell, but prices drop 30%, that’s good for me. Why do you think that sales volume means prices will follow, or that increasing sales volume even matters? To me, the bottom is in price, not volume.
May 21st, 2008 at 4:36 pm
Bitter Pill Bill
May 21st, 2008 at 4:37 pm
A headline that actually says something of substance:
“UBS sells subprime assets to BlackRock for $15B
Swiss banks unloads risky positions on newly created investment”
ZURICH, Switzerland (AP) — Swiss bank UBS AG said Wednesday it sold subprime and other mortgage-based securities to a newly created investment fund run by U.S. asset manager BlackRock Inc. for $15 billion.
The securities had a nominal value of $22 billion but have been listed with a book value of $15 billion as of March, UBS said.
The sale is part of an attempt by Switzerland’s largest bank to offload risky positions that contributed to writedowns of $37.4 billion over the past nine months.
Investors have shunned mortgage-backed securities over fears too many of the loans were made to people with shaky credit who may eventually default.
The fund received a $11.25 billion loan from UBS to buy the assets. Merrill Lynch & Co. (MER, Fortune 500) has a 49% stake in New York-based BlackRock.”
May 21st, 2008 at 4:42 pm
Who is likely to participate in the CME Housing marketplace?
Builders who have an inventory of homes to sell may wish to hedge the inventory with CME
Housing futures and options.
Banks, lenders, holders of mortgage portfolios and others with housing-related risk can also use
these products for risk management. Holders of mortgage portfolios and mortgage insurers
currently hold a significant exposure to home prices, and a sustained decline in housing
combined with high loan-to-value (LTV) ratios could result in dangerous levels of mortgage
defaults. Government-sponsored entities (GSEs), agencies, and other issuers of mortgages also
would benefit from participation in these markets in order to address the risk inherent in their
portfolios. In addition, hedge funds and investment groups seeking portfolio diversification and
the possibility of profit from changing housing values can find opportunities in these products.
Finally, investors at large will find CME Housing futures and options useful to provide exposure
to a very important asset class without incurring the difficulties of actually executing real estate
transactions.
May 21st, 2008 at 4:43 pm
Thoughtful..you lack a brain to sterilize so don’t bother…when, prey tell, will this rebound be occuring? Maybe this summer? Median up 10%! no too conservative up 20%! in the next month…all the way to the moon!
Give me actual data that says conclusively that the median OC price will be higher in the next 6 months. Oh, wait you don’t like the median when it doesn’t agree with you…okay, then show me the ipoplaya type listings of all of the OC where the asking for NON-REO listing price/sales prices ratios are greater month over month or YOY…come on, show me. Come out with the hard data. Show me the data where by $/sqft the trend is going up YOY and that NON-REO homes are selling at rate that clearly puts them into a sellers market.
What I think is happening for the most part is that some capitulation has occurred and those that did lower their price made the best decesion yet…because those that raised the price in hopes of catching the spring buying wave..well, they look like fools and now out of luck.
No, what you’ll probably do is what you always do…ignore, blather or post that nasally “I don’t have to show you anything, find it yourself”…I have…it’s called reality maybe you should see it some time.
Eat that.
May 21st, 2008 at 4:45 pm
“Up against you”? Ha. You are a clown. You’ve been thrashed by every single “bull” here too many times to count. You’re full of sh!t on the Boeing story. And the American Airlines story is completely irrelevent. You really are a joke.
May 21st, 2008 at 4:46 pm
New,
I am not the most qualified to answer this, but I think it is simple. More demand (increased sales figures) will eventually lead to smaller supply, thereby driving prices up. That may take awhile, even years, because there is a lot of inventory to go through, but if there is steady demand, price increases will follow. And, it obviously beats the hell out of no sales and plummeting prices.
May 21st, 2008 at 4:50 pm
I will be happy to provide those stats to you in the near future, eat it. Not that I owe you dogsh!t, just to shut you up.
Thanks Alfalfa, for the great information on these instruments.
May 21st, 2008 at 4:52 pm
Well said, VOR.
May 21st, 2008 at 4:59 pm
Thoughtful Says:
May 21st, 2008 at 4:37 pm
A headline that actually says something of substance:
“UBS sells subprime assets to BlackRock for $15B”
You ignoramus!
Banking losses from the subprime mortgage collapse total $379 billion and you’re mumbling about $15 billion.
Small minds think small!
May 21st, 2008 at 5:02 pm
Asswipe, it’s the start of creating a market. I know that’s over you fat, bald head.
May 21st, 2008 at 5:04 pm
New, if volume continues to increase, you will find yourself on the wrong end of a negotiating advantage. It only matters what the “prices are” where YOU want to live. If you don’t care where you live, then you’re good to go.
May 21st, 2008 at 5:08 pm
You need to read Jon’s headline again.
The big money doesn’t agree with you.
In fact, hardly anyone agrees with you.
May 21st, 2008 at 5:12 pm
New to OC,
There are at least 3 bottoms: The bottom in sales activity/volume passed a few months ago (although the Fed hasn’t figured that out yet–see Jon’s prior post). As long as the banks keep foreclosing, they’ll keep the volume of closings up, because they are motivated sellers.
We probably also just passed the bottom for interest rates, and that’s what has me worried (see “Oh-oh! We just passed a nationwide bottom!“).
The bottom for price is what gets so vitorously debated on this blog. Most economists believe this price bottom will probably occur in one of the next 3 winters. However, some bulls believe it has already passed, and some bears think it will take much longer.
As you know, we all love to debate and guess about this bottom and sometimes we think we know more than we actually do. If anyone really knew exactly what was going to happen he’d be too busy making money to post on this blog, or too rich to care.
Unfortunately some of us also get overly agitated at the keypad which may, unfortunately, lead to the folks at the Register imposing time delays on posting like the big boys up the 5 in the big city. Most of the posters do appear to have some civility and a sense of humor that makes me hopeful they can learn to use more creative and less objectionable/negative ways to express themselves.
But we’d better learn to police ourselves or we’ll be back to the old days of delayed posting, which is a huge drag.
I’ve seen most if not all of the posters here convey thoughts with wit and discretion, so let’s all try to raise the civility level here a notch or two, please?
We really don’t want that delayed posting where everybody gets held up for hours for review/moderation.
Some of us are starting to behave like politicians. Or lawyers. Or (some) professional athletes. I know we can do better than that.
Thanks.
May 21st, 2008 at 5:19 pm
Hey Asswipe, the $379 billion figure you call “losses” is not losses at all. It is a number of things, mainly writedowns and reserves. Guess what the REAL losses are so far? Um, $46.9 billion.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aK4Z6C2kXs3A&refer=home
Bet you didn’t read that one either.
May 21st, 2008 at 5:20 pm
“You need to read Jon’s headline again.”
I read more than headlines, unlike you.
May 21st, 2008 at 5:25 pm
Well, clearly you mean me, RealtorDaveE. Sorry to upset the apple cart. I simply can’t stomach that guy.
May 21st, 2008 at 5:35 pm
Listen to Realtor Dave;
Your foul mouth matches