Somebody told me today that it’s time to buy a home soon because the next housing bubble is right around the corner. Oh dears…

My sources from Wall Street are saying that we got at least 5 years to go before any significant recovery of real estate can even be considered. First time buyers, making up for nearly 30% of the buyer’s market, have been priced out and a major correction throughout the U.S. is inevitable. Even public builders like KB Homes are starting to realize what this market needs: AFFORDABLE HOUSING.

• Downsizing the American Home – CNN Money

Another article from USA Today is full of quotes that can be used to highlight the housing crisis we are facing.

While there’s still a plentiful pipeline of home buyers looking to make a deal, finding one willing to make a split-second decision to buy and pay whatever it takes to get in the door is no longer a lock, real estate agents say.

This one applies to Arcadia:

Part of the problem, Baker says, is that today’s sellers are pricing their homes based on what comparable homes went for six months ago and tacking on an extra 10%. That formula, he says, is too aggressive.

Bubble theory proponents say it will end badly, with sharp price declines and intense financial pain like that investors suffered after the tech stock bubble burst in 2000. But for that to occur, it would take a dramatic rise in interest rates or a major shock to local economies resulting in steep job losses,

Let’s see – It would take 3 things for the market to crash:

1. Rise in interest rates
2. Shock to the economy
3. Leading to… steep job losses

This article on MarketWatch covers all 3 scenarios:

1. Wall Street is betting 2 to 1 that Feds will increase rates.
2. Today, oil made its largest one-day jump ever to $139/barrel.
3. The unemployment rate is reporting its largest increase since 1975.

I am normally a very optimistic person but there is nothing to convince me that this housing and credit crisis is going to blow over anytime soon.

Here’s to a happy weekend to all you readers.

Patrick linked to an interesting article from Zillow yesterday on what homeowners believe about the housing market.

“SEATTLE, Feb. 7 /PRNewswire/ — Despite repeated highly publicized reports of a home sales slump and pricing slides, there’s a surprising amount of positive consumer sentiment — and perhaps a good measure of homeowner denial as well: Even in a negative home pricing environment, 77 percent of homeowners from around the country believe the value of their home has increased or remained the same in 2007, according to a recent Zillow.com survey conducted by Harris Interactive®.”

There’s being hopeful and then there’s just being ignorant. In the wake of all this economic turmoil, three-quarters of the homeowners surveyed still believe the value of their home has not decreased. Amazing, just amazing.

This idea of “nope, not me” mentality is more destructive than just accepting the fact that we’re going through a housing correction. Homeowners who become sellers for whatever reason continue to list their asking prices above market value. This turns away the buyers who can afford that price range and simultaneously drives away others who would otherwise be in the market for that type of property.

I’ve said this before, but I’m going to repeat myself. Your house is only worth what buyers are willing to pay for it. It’s also a function what buyers are able to pay for it – which is a derivative of what kind of loan and how big of a loan they can qualify for. We’ve documented plenty of properties here at AHB that have been on the market for weeks and months on end because it’s not priced to sell and I suspect that’s consistent with many other areas.

This is also a reason why foreclosures are significant comp killers. The banks just want to unload the REO properties off their books at whatever cost the market is willing to bear. In the meantime, wishful homeowners are hanging on to their precious asking price as the market comps pull them down lower and lower each week. Among other financial and economic reasons, this will mainly be a foreclosure led housing correction. Unfortunately for most homedebtors, they won’t believe it until it’s too late.

• See no evil
• Hear no evil
• Speak no evil

Too bad for them…it doesn’t work.

Every Friday I will provide a short list of news headlines that reflect the current state of our housing market; either locally, statewide or nationally. By looking back at these headlines we can analyze the current state of the market and project where it is heading from here.

Just in case you missed it, SavedByGrace had profiled a home that reflects how delusional people in this market currently are.

1/24/08 – Housing Slump Starts to Hit Stronger Cities (WSJ)

In California’s Orange County, around a quarter of the listings are either foreclosed properties owned by lenders or homes owned by people trying to do “short sales,” or sell for less than the amount they owe the bank…

1/28/08 – Sales of New Homes Fell by 26% in 2007 (NYT)

1/28/08 – Countrywide CEO gives up $37.5MM payoff (MarketWatch)

1/29/08 – Foreclosures up 75% in 2007 (CNN)

1/30/08 – Federal Reserves lowers federal fund rate by 0.50% – down to 3%

Despite 1.25% in interest rate cuts so far, major stock indexes ended in January with heavy losses. Home sales volume is down and foreclosures are up dramatically compared to last year. Although Bush is pushing for his stimulus plan to get the economy moving, everyone seems to have forgotten that the nation still faces an affordability problem.

We don’t need:

1. Lower interest rates
2. More cash from the government

We do need:

1. Reasonably priced homes