‘Builders Have Gone Crazy With Incentives’
The Las Vegas Review Journal has the June numbers. “The number of homes for sale in Las Vegas topped 20,000 in June, an all-time high and up 32 percent from the same month a year ago, the Greater Las Vegas Association of Realtors reported Thursday. Climbing inventory, as well as a flattening of median prices, has caused great concern among local and national housing analysts.”
“Another 4,630 condominium and townhomes are listed for sale, an 82.7 percent increase from a year ago. Single-family home sales decreased 1.1 percent from May and nearly 24 percent from a year ago. Condos and townhome sales slid 22 percent to 592.”
“‘I actually thought the stats would be worse because home builders have gone crazy with their incentives,’ said Linda Rheinberger, president of the Realtors association. She said Beazer Homes was ‘bribing’ brokers with commissions of 11 percent to 13 percent on standing inventory.”
“(Researcher) Dennis Smith said a lot of the condos and townhomes that have come up for sale are apartment conversions that have been held by investors for a 12-month period to get capital gains treatment and have never been inhabited.”
“Larry Murphy, president of SalesTraq, said the big story is the number of incentives being offered by builders, including paying higher broker commissions, putting in free upgrades and paying for closing costs. ‘The list is getting longer every day, and for the last two months incentives are getting bigger,’ he said.”
“The FDIC noted that home prices in Las Vegas, Reno and Carson City appear overvalued in the context of economic fundamentals. ‘Las Vegas multifamily vacancies could rise if the converted condominium units return to the rental pool because of rising interest rates,’ the FDIC said.”
“The agency implied that higher interest rates could cause owners to sell or to lose their condos in foreclosures.”
“Add the lengthening inventory of unsold homes, and the big drop in existing home sales in May, and the outlook for banks seems none too rosy. Colonial Bank President Mark Daigle thinks a little weakening wouldn’t hurt because the housing frenzy of recent years was ‘frankly unsustainable.’ ‘The opportunity to take a breather wouldn’t be a bad thing,’ he added.”
“Nevada State Bank President Bill Martin said he could count 14 climbing cranes. He, too, had noticed ‘a little softness in our pipeline.’”
“Wells Fargo Senior Economist Scott Anderson noted that the rapid run-up in prices means that the exodus from California will slow because the equity gains and comparative advantage of moving here for cheaper housing has narrowed.”
“Anderson said the local drop in first-quarter sales was nearly double the national average. ‘And a good part of it is that speculators have left the market and that has brought prices down faster than the national average,’ he said.”
“She said Beazer Homes was ‘bribing’ brokers with commissions of 11 percent to 13 percent on standing inventory.”
Prices have a long way to fall if Beazer is paying 13% commissions. It sounds like they are pushing on a string.
Now this is the kind of thing that just pisses me off. Buyers, wake your dumb-asses up! If you are reading this blog right now and you’re one of those that just has to go out and buy a home, the least you can do is educate yourself to insure you’re not getting extremely screwed, instead of just screwed. These guys were only offering 2% at best a year ago. So, whose pocket should that extra 10% be going into, yours or the realtors? If they try to hide this commission from you, then look at the HUD1 at closing. It’ll be there, and if it is, then scream like a spoiled brat until you get the 10% reduction you’re entitled to.
You tell them nnvmtgbrkr! Buyers need to get smart or they will get screwed. Those commissions are looking very tasty to a hungary agent who has not had a paycheck lately. They should be be able to talk up the Beazer homes if they are a good salesperson.
thank you nnvmtgbrkr, have learned a lot from posts like yours. will someday be a first-time home buyer (when it makes sense to buy) and refuse to be anyone’s GF.
These guys were only offering 2% at best a year ago. So, whose pocket should that extra 10% be going into, yours or the realtors? If they try to hide this commission from you, then look at the HUD1 at closing.
Need Help here!!
For new first time buyer, who needs the protection most, can some expert please comments on the TRICKS the RE consortium can play upon the clue less buyer.
As the sellers become desperate the TRICKs will become more common….IMHO.
Soon to come. 0% financing like with cars. What a crazy world!
The two rules of engineering - water flows downhill and never push on a string.
They are bribing the wrong crowd. At this point, there are too many realtors for the number of sales, and not enough buyers. So if the builders want to maximize their profits, they should offer the incentive to the buyers. The only reason I can think of for not doing so is that it might become a bit more obvious that prices had fallen by 13% if it went directly to the buyer. I suggest giving away new cars, or other nonpecuniary goodies…
I think the realtors will pass on parts of their commissions to the buyers.
One other reason that Beazer might prefer to put 13% into the broker’s pocket rather than the homeowners: They may be attempting to avoid tipping off used home sellers how far prices have actually fallen by not reflecting the 13% in the sale price, thereby keeping the official comps at a level where used home sellers will not be able to compete. I don’t believe this makes much sense, as used home sellers will generally not drop their prices below what they owe the bank anyway (and those who cash-out financed owe quite a bit).
And if the official comps did fall, wouldn’t that affect the ‘mark to market’ of their remaining inventory?
I wonder how Beazer likes having the whistle blown on them by a realtor.
Funny how the press conveniently ignores the role of massive incentives when they cite evidence that the slowdown is mild because the rate of newn home sales has not fallen off by much.
From the Nevada Appeal:
‘Holderman said the market is down in the Carson City area by nearly 20 percent, which has caused home sellers who put their homes on the market after September to lower prices.’
‘Most Realtors I speak to indicate that listings are selling only after price reductions from the high 2005 levels,’ he said. ‘Many of the developers we have spoken to are now offering incentives to sell their new-home inventory.’
Actually, I would say 10% down from 2005 highs, and now we’re moving below that. Sellers who were smart did their 5%-10% reductions at the beginning of the year moved their homes. Now, the ones who’ve capitulated and dropped 10% are finding out they missed the train as new sellers have already moved below that. It’s a classic chasing the market down cycle here.
Now, the pricey stuff is sticking stubborn, but not selling. The wealthy folks haven’t bled enough to cry “Uncle” yet, but the walls are cracking. That pricey stuff has been supported by Cailifornia transplants, and like the article said, that source has all but dried up. What’s amazing is all these local builders thought this stream of Californians coming in willing to suck up 750K-1mil homes would never end. I know of one builder who is sitting on 5 homes, that are priced over a million, that are just sitting with no interest other than locals stopping by to admire the fine craftsmanship. I also know several industry folk who thought this gravy train woulkd never end and bought one of these over priced homes. The $5000+ payment is now kicking their ass royal. Something will snap soon in this sector as well. You can feel it. I swear the fear is perceptable.
I have been paying attention to the Reno/Tahoe/Carson City market for over a year now, and as recently as 4 or 5 months ago, there were barely any homes under 250k and most of those were hardly habitable in my opinion. Now, more and more listings showing up in the 249k range. I truly believe that those homes will be in the 170k range really soon. These are the same homes that were 300k literally months ago. Having grown up in Reno and moved away, I know first hand that wages are extremely low. Sure, there are always savvy professionals and business owners doing quite fine, but median income is paltry. Casino workers don’t make didly and are not even unionized. Last time I checked, minimum wage was still $5.15 per hour. Crash and burn Reno.
“…commissions of 11 percent to 13 percent on standing inventory.”
And the HBs are still making money at that. RE as an institution must die.
The sellers of existing homes are toast. They will need to really reduce prices to compete with the HB’s. Hard to compete with a multibillion dollar corporation.
Hmmmm, I’m a broker I’ve got a client who wants to buy. I can get 3% with the other agency for the house to the left. I can get 6% for the house I’ve got listed for the seller I represent or I can get 13% with a builder who is desperate, professional and able to cut and offer incentives and can accept almost any conditions that come as long as there is a deposit. … Decisions… Decisions. What do I chose? Wrong all you cynical bubbleheads! Wrong! I choose the 6% because I have a legal obligation to my client(s). Oh, and the check is in the mail.
“‘I actually thought the stats would be worse because home builders have gone crazy with their incentives,’ said Linda Rheinberger, president of the Realtors association. She said Beazer Homes was ‘bribing’ brokers with commissions of 11 percent to 13 percent on standing inventory.”
Holy Toledo! The builders are getting desperate with such high commissions. How about lowering the price? They don’t want to do that since it might trigger lawsuits. Hope the agents are rebating some of that back to the few buyers out there.
I noted here in San Ramon, CA (suburb east of SF, CA) that Centex had started a new subdivision and lowered the prices there. Not sure if the homes are the same quality as the more expensive ones. But this is one way to lower prices without being too obvious.
Norcal Ray,
I’m in Dublin, CA. And speaking of lowering prices…..There are at least a couple of condo conversions here, one very close to me. It’s called Village Park, but before April 2005 it was Cross Creek Apartments. In April the prices started at $440k…quickly went to $460k, then all the way to $530 or $540k. NOW….there are at least 5 on the market (well, they have been popping on the market here and there lately)…the lowest is at $489k, highest is $500k…all are 3 bedroom.
So what’s happening? People are trying to get out with whatever they can ’cause they realized that they 1) couldn’t handle the stupid mortgage for a bandaged apartment with granite counter tops, or 2) they couldn’t find a GF to neither buy nor rent. Even the ones that bought at $440k won’t do that well if they sell at $489k. And let’s hope they didn’t do a HELOC along the way.
Sheesh….sheople, please, just get out your calculators and do a little math why don’t ya.
BayQT~
sfbayqt,
yes those condo conversions are real ripoffs. Worse than buying a brand new condo. Turning old apartments into condos is like you said a comestic fixup. Notice the inventory really increasing strongly the last 3 months in the Valley (and the Bay Area) and some $ 50K price cuts in San Ramon and Danville on listings that have been sitting for months. Looks like it will get ugly this fall or winter at the latest.
Hey, I’m moving to Dublin in 4 weeks; I assume I’ll be able to afford a house in about 250 years if I save 30% of my earnings
oh, a little softening in the ol’ pipeline is never a good thing. I imagine.
yeah - kinda like diarrhea of the wallet… so to speak…
LET THESE DOGS EAT THEIR MORGAGES!! HOLDING FOR 1 YEAR TO GET LTCG WILL BE THEIR DEATH SENTENCE. STUPID GREEDY MORONS.
LV_Landlord - Where are you?
Probably in a bar with DC broker slamming down drinks to help them pass the day.
Relegated to just being a reader these days…….oh, and a drinker.
she is doing lap dances at the palamino for xtra cash flow
I heard she had been participating on another blog under a new name. But, of course, that’s her prerogative. Things may have changed considerably for her in LV since she last graced the blog with her presence.
Note to LV_Landlord: Hey, it’s ok to come back and chat. Whatever is happening in your part of the world could help others who are straddling the fence. If you do, I can’t say that you won’t get ribbed, but it won’t last forever. (Right guys and gals!?) Ok…no one answered.
But think about coming back.
BayQT~
If the market was truly what people like LV Landlord believed it to be, you’d see 10 of her on this blog right now chatting away.
We have a show on cable run by some of the local RE establishment types. They run pictures of houses for sale, describing the outstanding features of each as they go. Eventually they get to the part of the show where they interview families who have bought brand new houses in this sub-division or that. Young dads & moms with children, single women with children, always with children. They have these young dads, moms, even the dang kids, pimping new houses like they were selling dang widgets at the flea market or something. They are all sooo clueless. They just happened to stumble in to the model home open house and signed whatever papers were put in front of them and think they are smart enough to recommend this builder or that builder based on the crown molding or bathroom fixtures, or whatever. (you know new is better than used don’t you?) These houses are made out of sticks and styrofoam exterior wallboard, foundations built on pure red clay lots, overpriced POS(s) where half the house square footage is the garage. I reiterate, these people are so clueless you can read it on their faces and they actually think that anyone is going listen to their advice? I wonder how much they got off the price of their house for appearing on tv in this way and what they will all do when they have to stop playing musical houses because that magical “guaranteed” 2-3% a year appreciation goes away and they all have to file BK because they never had any money to begin with and they financed more house than they should have ever bought in the first place because it increased the leverage on their appreciation by the narrowest of margins. One of these days all these sheeple are going to find out the hard way that they aren’t smart like they thought they were but rather they benefitted from the dumbing down of America and the debauchment of the dollar and when the squeeze is on that crown molded crapbox they loved so much is going to spit them out like a bad loogie. The end. (rant off)
Mort, what u drinking this afternoon man? Can’t wait to join u in a few hours.
I know it, I’ve been on a tear haven’t I? I must have a beer, I mean burr in my saddle or something. Oh well, it’s Friday and so maybe I’ll get back to my usual, ahem, good natured self.
Mix two jiggers vitriol with one jigger vinegar, pour in juice of one lemon, salt, whiskey and gunpowder to taste. I call it the corrosive, explosive, psuedo sourpuss with a twist.
Just in the past week homes for sale have stabilized or gone down just a nudge. Does anyone know the reason for this? Are people pulling homes off the market? Listings expire? Not relisting? Sales increased?
Nontheless, I see the inventory issue getting worse as we move into the second half of the year. I anticipate it will be a full blown assault after a few more rate hikes and going into the much slower fall and winter selling seasons.
Predictions anyone? Will rents continue to go up? Will we end up with a glut of rental housing? Will we see new home sales with incentives cannibalize existing home sales as builders drop prices to compete with F@cked borrowers?
i think a lot of listing expired at the end of 2Qtr - june 30 - that happened on mls long island and now they’re climbing back up again, relisting.
things are definitely going to get a whole lot worse..
“Anderson said the local drop in first-quarter sales was nearly double the national average. ‘And a good part of it is that speculators have left the market and that has brought prices down faster than the national average,’ he said.”
We’ve seen too many quotes that say “the speculators have left the market”. The problem is, not only have they not left the market, but now they are sellers!
Good. Hope they make crash the prices at least 40%.
Escrow funnies:
Normally saved for once a week, but here’s a gem that merit’s why many people are, for lack of a better term, flat out stupid:
A screaming refinance client last week is back. Today, complained that the payoff of two car loans were short. How did they find out? Drum roll please…….THE CAR DEALERSHIP where they just bought a spanking brand new car, told them they were short roughly $3k after payoff checks were received from escrow (the borrowers gave us their last statements after we had to practically do magic tricks to get them to comply with the lenders instructions to pay off these loans as a condition of the new loan). And they come bitching to escrow over their own absurd foolishness. We cut them a check for nearly $50K after their cash back refinance and payoffs! IT’S GONE. NADA. No More. Zippo. How long did it take? Just a few days of money burning the pocket.
Loan officer calls my wife apologizing, saying, “unbelievable, we did the refi to help them pay off debt and this is what they did.”
America’s finest….. America’s finest, surrounding us every day.
It sounds a lot like Enron.
Enron tried to “merge” with Dynergy for $4B with the crown jewel pipeline as collateral.
Guess how long the $4B lasted….2 weeks.
What was next? BK baby!
What was the new car?
C’mon S-crow. You’ve just gotta tell us it’s an Escalade :D.
For the last 5 years, any property owner in a bubble area with poor financial skills has not suffered any financial setbacks and has even got to enjoy the “good life” with refi’s and HELOC’s. Unfortunately, those days have come to an end. Moving forward, poor financials decisions will cause some pain and suffering. The education of a speculator begins for those that don’t know much and the tution fees will be high.
They came crying back to the escrow agent?
I had to read that five times, trying to get my head around what they just did. Let me see if I have this straight, because I am still gasping.
1. They went to a lender and sucked the last dollar of equity out of their home, while promising to use some of the proceeds to pay off some outstanding car loans.
2. You, the escrow agent, had to twist their arms to comply with the conditions of the loan. You ended up prying the auto loan statements from their grasping paws, so that you could send the payoff amounts to the auto lender for for their TWO EXISTING CARS, which are NOW PAID FOR.
3. You cut them a check for almost $50K in cash.
4. They tried to buy YET ANOTHER CAR and discovered that they were $3000 short of a down payment?
5. They came back to you, the escrow agent, screaming “YOU”RE BEING MEAN TO ME!!!”?
WTF? Your client must have spent the cash proceeds on an outpatient lobotomy.
$3000 short of a down payment? On another car?
That’s like friends of mine, many years ago, who I tried to help out with some advice after the husband told me he couldn’t re-register his car because he couldn’t afford to fix the faults and get it past the annual inspection.
After checking their outstanding accounts/credit card/car loan situation (they rented), I suggested a debt consolidation loan. Response: “Oh, we’ve already done that twice, that’s another payment we make every month.” I could only suggest bankruptcy, or the husband getting a third job.
I’m all for individual responsibility, but there comes a point where some people simply shouldn’t be allowed unregulated access to credit.
“America’s finest….. America’s finest, surrounding us every day.”
When I get really bearish, I look at the people all around me and it is frightening. People just go about their lives, rarely taking a moment to look at their lives in its totality and the way the world is. I want to yell, WAKE UP.
Simmssays…Favorite Childhood Toys
http://www.americaninventorspot.com/favorite_retro_toys