Bits Bucket And Craigslist Finds For July 24, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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“Property in their portfolios: New data show investors’ growing clout in O.C. housing.”, by Jonathan Lansner, Orange County Register columnist, 23Jul06. What are these people smoking?
Larry Pendleton is one of those small-fry investors dabbling in the property game.
1st;…It ain’t a friggen Game…2nd;…Nobody Dabbles in real estate unless you are a Moron….Lastly;…The insinuation that this guy is a “Small Fry Game Dabbler” is a crock of crap….If he did not have the purpose to by this place for his boomerang daughter this purchase makes absolutely no sence…
and the article says he’s a financial planner…WOW…it’s kind of like seeing a doctor smoking behind his office
He also says “I have faith in California”….WOW…and I have faith in leprechauns and unicorns….give me some of what he’s smoking!
Faith based investing is a sure fire recipe for the ass pounding coming his way.
If he was my financial advisor I would be running for the hills.
The other thing that Jon Lansner misses in the article is the moral hazard of declaring the RE to be owner occupied to get a lower interest rate.
So the count of investors in OC is depressed in my opinion.
Hey having faith based foriegn and fiscal policies is working great for the US, why should this guy be any different….oh wait they aren’t working great????
1989 anyone know the % of folks employed in RE type biz?
2005 was 9.8%
could give hit to the level of the downturn as you can bet 20% unemployment in this sector is an easy bet
Not quite sure. But check this out:
http://tinyurl.com/gw5e2
David
Bubble Meter Blog
http://www.sun-sentinel.com/news/local/southflorida/sfl-fenroll24jul24,0,5046653.story?coll=sfla-home-headlines
School enrollment drops across Florida; educators left puzzled
can we say housing?
Huh, I guess those 1000 per day arriving in Florida are all over school age.
Given the inflated price of housing in much of Florida, “all over school age” would not be a surprise. Anyone with sense and a family would check the price of housing before moving there, and if you need a place big enough for a few kids, you probably aren’t going to find a salary that can pay for it.
This is often the case anywhere that housing is disproportionally overpriced. All things equal, childless couples or singles tend to have more disposable income to throw around, some of which they can direct towards the overpriced house payments in Floirda; families are less likely to be able to do that.
I worked in south Florida one summer while I was in college. It was a lot of fun for a 21-year-old male, but I wouldn’t call it family friendly regardless of home prices.
Kids cost enough without having to pay a fortune for a place to live.
Who would willingly send their kids to FL public schools, anyway?
My sentiments exactly, unless you want your kid exposed to street gangs, rock cocaine salepeople and pedophiles. They sure had all three in the PBC public schools when I lived there.
like “cators” everywhere they’ll ask for more money
Orlandos’ homicide rate on track to break record…So they have that to look foward to also..
http://www.breitbart.com/news/2006/07/22/D8J13Q880.html
Ben,
I’m sure you’ve been sent this article several times already, but it would appear to deserve the full treatment.
http://tinyurl.com/n8wvn
I’m an East coast builder and I think this info may be interesting as an indication of what existing homes bought at the peak may have to compete with when selling.
I’m doing a small addition for a friend with a couple of foster kids. they are on a tight budget so I’m doing all the work myself with an extra hand hired when needed to try and keep costs down. So far it looks like I’m on target to finish at $70 to $80 per sq ft.
Granted it doesn’t have a kitchen or bathrooms to bump up the price but on the flip side it is only 600 sq ft and a lot of costs that normally get spread out over more sq ft get priced into less and even things out a littel.
For example, I had to install a separate heating system that would normally get spread out over 1500 + sq ft and add $2.50 to the sq ft price but is now adding $ 6.60 to the sq ft price.
Regardless, even if I bumped it up to $100 per sq ft, it’s still going to put pressure on anything built in the last few at $150-$200 per let alone any type of $500 + per sq ft condo we read about.
why biz moves south- building for under 100 a sq
man 07 is going to sck
Do you think the small builders, working at say $60-$80 a sq ft, and building affordable and normal sized homes will feel this bubble as bad as the McMansion deevelopers?
Well, by definition small builders aren’t sitting on an inventory of land they overpaid for, so as long as their lifestyles didn’t inflate alongside the housing bubble they’ll do fine.
Keep in mind in the above example I haven’t added the typical 10-15% profit as I’m doing this for a friend. But I’m making a nice cash paycheck and it shows you what can be done when a builder cuts back to bare bones.
And this is with materials still high. Wait tll the reduced demand starts lowering material prices.
Wait tll the reduced demand starts lowering material prices.
Any guesses how much more $$/sqft will be lowered by materials in the next few years?
Thanks for your post, it is interesting to say the least.
JP. In the last few years I have been running bigger projects where someone else was paying the material tab. This is one of the first smaller jobs I’ve done where ths cash is out of my pocket and I was super surprised by how much materials had gone up. I used to figure concrete at $60 a yard including tax and fibermesh - which is a reinforcing additive. This job it was $95 a yard.
Any reversion back to the mean is going to kill anybody trying to sell an ‘03-06′ built house as new will be cheaper.
lumber came down to 278 $ ,but any chance on concrete and steel?
waaahoo
you started an interesting topic which Ben should devote a separate heading: what will be the fate of the small and custom builders once resale home prices start to push on new construction prices ? (for now the opposite seems to happen).
Your real-life experience adds a coloration to this bag of questions. Do you see any new willigness to compromise on the price from some trades or they are not “getting it” yet ?
Wish I would have you here in AZ, I started with architect 2 years ago, had a builder promising $130-150/sft, then the appreciation took a record 50% per year and of course construction prices followed - now at $250 and I am priced out and my 4.75% lot loan is expiring in March. I hope they will be more carnage out there so I can start slowly the project…
I posted this a week or so back but I recently got quotes for an interior painting job. All three guys are good painters.
Painter 1: $14,000
Painter 2: $11,500
Painter 3: $ 5,000
Painter 2 called me back about a week or two ago asking about the job and offered to work with me on the price.
Both of these things haven’t happened for a few years. So yeah I say they are starting to get it.
No time right now but contact me thru yahoo and I’ll give you what advice I can re building cheaply.
$60K (=80K Oz$) for a 600sf extension?
I wish you were in business in my town in Australia.
In Palm Beach county, friends of ours were quoted $300,000 for a 1000 square foot extension! That’s the problem for those of us that live and work here, you can’t move within the area because you’ll get killed in taxes, and the cost of adding to a house is crazy. Of course that was six months ago, the contractors may be more willing to deal now that things are slowing down.
Don’t worry about the Fed getting tough - Worry instead about all the things the Fed got wrong after the dot.com bust.
“…I’m sure that lots of unusual business practices have gone on that we have no knowledge of. Just as we didn’t find out about Enron, WorldCom, options-backdating, etc. until the tide went out, we have yet to discover what borderline, if not outright criminal, behavior occurred in the housing mania.
When the stock market begins to connect the dots and that recession looms, all hell is going to break loose. Exactly when that occurs, I do not know, but it’s coming…”
My WAG, I’d bet at least half of all loans in the last 5 years have some degree of borderline to outright fraud built in. I caught a radio show in Phoenix yesterday, and a call-in described how she and her husband bought a rental house and had their “daughter as the borrower and title holder” to qualify as owner-occupied. The host, a financial expert and attorney, didn’t question the fraud and ignored it entirely.
I wonder how old the daughter is and if she knew about it. I guess identity theft is okay if it’s using your kids.
Every pre construction flip on Craigslist that I looked up in the country records showed “owner occupied”. I have probably looked up a dozen or so of these, mostly in Queen Creek and not a one showed anything but “owner occupied”.
Where is AZ’s state controller they should be all over this!
http://tinyurl.com/rc9zj
I’m curious as to everyone’s opinion regarding this timely (cough cough) series from the Baltimore Sun regarding the coming housing crunch. They basically took projected job growth and overlaid it on projected building, and have come to the conclusion that the Balto area will literally run out of houses. We’ve seen a recent rash of “affordability panic” stories about how our housing costs will continue to rise, blah blah blah. The conspiracy theorist in me questions the timing of all these articles, but I think the intent is good, to try and make people aware that MD has zero smart growth and planning for all these “jobs” that are coming. But projecting a housing shortfall 25 years down the line is stretching it a bit–a lot could happen between then and now.
Classic SmUG NURBist lies to push higher density and Smart Growth agendas. The TROGs and PEVERTS are always looking for any tiny datum to justify their intrusive social engineering forays. In this case the recent 22% drop in building permits 2005 over 2000 portends a crunch. What they don’t tell is all the dozen other factors that work against that single bit in isolation.
Please explain SmUG, NURBist, TROGs, and PERVERTS.
I’ve only heard of BANANAs!
Click through RC’s name to his own blog, and all will be revealed :).
BANANAs and the related term NIMBY are used by the planning elite to describe people who would describe themselves as conservation minded and involved in local affairs.
There is a short term prediction that is wrong because it does not take into account the economic cycle and likely downturn, but that does not provide any evidence for an agenda as you describe. In the past we just built suburbs and exhurbs willy nilly and then said “golly, all the land near the city is gone”, and now people actually put some thought into land use. If you have better solutions then people might entertain them, but just being against does not help solve the problem. Entirely outside of the bubble there are huge supply and demand imbalances such as in the bay area where basic housing units typically cost a quarter million or more before any bubble action. You look so closely at the bubble you have ignored common complains of urbain dwellers, the realities of urban growth, and you imagine available and desirable land for development that does not exist.
http://sfbay.craigslist.org/eby/rfs/185317872.html
I wanted to post an update on the contractors home that was on the market for $750k. (Asking was actually $769k. That is VERY high for this area. Average home around here sells for $250-$350k and usually is 2500 to 3500 sq ft)
I thought it would be sitting a while. But last week there was a sold sign on it after being on the market about 8 weeks. The buzz is that it was purchased by a young (20s) married couple and its their first home. Rumor was they were from CA or NJ. I was hoping for their sake its purchased with trust fund money as I can’t imagine how you buy that type of home for close to asking without even bringing any equity forward. The taxes are listed as over $13k/yr but that could go up after the sale of course. Basing on its size relative to my home, their heat/electric bill should easily top $500/month but then again I don’t air condition and I don’t have 10 foot ceilings. Heat/electric and taxes alone: $1650+/month. Now tack on that $769k mortgage. Qu’est que se “leveraged”?
It is a trophy home but its downhill at the end of the street—never good during those NY ice storms and its back yard is on display to any driving down the street behind them. Unless you like your blinds down all day, the house is a fishbowl. I’ll be counting the months till that “For Sale” sign goes back up.
Post a Pic….I want to see what 750K buys you in a 300K neighborhood…..
SC Dave-
Can’t send link w/o identifying town. I’ll have to move photos over to my own page and post those soon. But check out CNYhomes.com and pull up these near-by towns….ie Manlius, Baldwinsville….you’ll be amazed. Manlius is on the best places to live in America list although some of us would roll our eyes at that. Underground, its kind of known for its “take no prisoners” consumerism. Both towns have excellent school systems, 15-20 min commutes. 2nd page of these listings have tax info although general wisdom is that these will go up w/new purchase price.
An article about a developer in Orlando who bull-dozed hundreds of mature oaks ,and claimed ignorance….
” I mad a big boo boo, and don’t want to go back to my IT job ”
http://tinyurl.com/f3k87
There’s nothing acceptable about what he did. This happens all over Florida all the time.
In Royal Palm Beach, Minto Communities bulldozed hundreds of protected cypress trees to clear for Madision Green a few years ago. They blamed subcontractor, subcontractor blamed Minto, both paid fines, trees were gone and Minto made a bundle of money building mini McMansions on zero lot line properties.
http://www.thestreet.com/_htmlrmd/video/executiveinterviews/10298720.html
Ow. Watching that guy, you could tell he wanted to go into a rant about mortgage brokers (not lenders) and i/o loans!
A big “boo-boo”? Ugh.
Re-Refinancing, and Putting Off Mortgage Pain
By VIKAS BAJAJ and RON NIXON
Published: July 23, 2006
…“Some people would say I am a little crazy,” acknowledged R. Lance Perry, 42, of Danville, Calif., one of the new breed of people refinancing their mortgages. But faced with a sharp increase in his monthly payments and a need to take cash out of his home, he refinanced earlier this year to keep his payments the same.
By the time the rate goes up, he figures, his income will have increased enough to cover the higher payments, he will have refinanced again or he will have moved.
…“They get another two- or three-year hybrid with a low introductory rate to keep payments down,” said Frank E. Nothaft, a vice president and chief economist at Freddie Mac, the mortgage buyer. “They’re trying to put it off forever, which is O.K. as long as interest rates are low. But when they start to spike, then it’s going to be more problematic.”
For now, this mini-refinancing boom is assuaging fears that rising interest rates and higher monthly payments would drive some borrowers into foreclosure or force them to scale back sharply on other spending. As a result, consumer spending may hold up better than some economists had thought…”
Nice article from the New York Times
http://tinyurl.com/kothr
What about the likely pre-payment penalty he had to pay on the old loan to make the new loan go back down to the teaser rates along with the loan costs . It all adds up .As far as I’m concerned the mortgage business is trying to scare people into new adjustables or IO loans that are only fixed for 5/ 10 years while they are not really offering these people the real fixed notes .
Yes. I’ve been wondering (and worrying) about these longer-term hybrid ARMs. This could extend the length of the downturn. Their hope seems to be that they will win this waiting game, forcing RE bears into the market out of pure impatience and a desire to “move on” with life.
I, for one, will not go for it. We will rent for as long as it takes, even if it’s for a lifetime. We buyers need to take a stand. Don’t let them win (and force us into overpriced housing with exotic loans of our own).
Home-Equity Loans Show Signs of Stabilizing
By Tony Crescenzi
RealMoney.com Contributor
7/24/2006 11:14 AM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10298793.html
The Federal Reserve reported late Friday that home equity loans stood at $429.7 billion in the week ended July 12, once again holding above the 11-month low set three months ago following a steady decline dating back to last September.
The data suggest that home-related borrowing might be stabilizing after a steady decline. When combined with recent data on mortgage applications and the most recent decline in long-term interest rates, the housing situation does not appear to be as bleak as many believe.
Despite the recent steadying, home equity lending has trended much weaker over the past year than the previous year, when it increased by about $100 billion. The contraction removes a key stimulus for the economy — the so-called housing ATM. With sales having peaked and mortgage equity withdrawals (MEW) having declined, some housing-related slowing in the economy is likely. This should provide the Fed with additional justification for ending its interest rate hikes.
An interesting counterargument to those who expect the reduction in MEW to weaken the economy is evidence that suggests the recent surge in MEW was offset by a sharp decline in withdrawals from financial assets, historically a top source of funding for personal consumption. As a result, any decrease in MEW in the period ahead could well be made up by withdrawals from financial assets, such as certificates of deposits, stocks, bonds, etc. What kind of impact do you expect from the housing market on the U.S. economy?
Just a guess, but once the consumer starts eating into their CDs, stocks, bonds, etc…, it will be to either a) pay down their debt or b) pay living expenses due to a loss of job or some personal crisis. I really doubt that the average consumer will sell off assets to purchase that new car, a vacation or the big screen TV. But I may be giving them too much credit…the thought of going into debt to buy consumer goods is anathema to me. But my thinking is pretty “old school”.
They will be selling consumer goods to pay for their ‘assets’ else they will lose their ‘asses’.
I’ve already seen fire sales for SUVs. Pickups, computers, plasma tvs, boats, campers, and designer furniture is just around the corner. Hopefully next year I can pick up a newer 4×4 Chevy for dirt cheap, just like I did this year.
Appraisers Petition
Concerned Real Estate Appraisers from across America
Submit the attached petition (Which was posted on appraisersforum.com):
…The concern of this petition has to do with our “independent judgment” in performing real estate appraisals. We, the undersigned, represent a large number of licensed and certified real estate appraisers in the United States, who seek your assistance in solving a problem facing us on a daily basis. Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value.
This pressure comes in many forms and includes the following:
* the withholding of business if we refuse to inflate values,
* the withholding of business if we refuse to guarantee a predetermined value,
* the withholding of business if we refuse to ignore deficiencies in the property,
* refusing to pay for an appraisal that does not give them what they want,
* black listing honest appraisers in order to use “rubber stamp” appraisers, etc. …
http://tinyurl.com/gmzef
Is it me or do the existing home sales increase in June seem fishy. I mean dang all we here about is home sales decline in some major metro areas, but when the national number comes out there is an increase. Things are just not adding up. I think the NAR is full of it.
Seasonally adjusted, aka, lying.
seasonally adjusted ….”spiced up”
Recod heat again in Sacramento today. 109 plus, depends where you are it could be higher. Happy house hunting. I hope all the ARM borrowers are not going to deprive themselves of a little A/C in order to stay in that tight budget they set for themselves when they fell for the lies that they need to buy now or there out for ever.
Hoz,
“one of the new breed of people refinancing their mortgages”
That’s the game starting to be played here. They’re telling people to refi into a I/O 5 or 10 yr and by that time home prices will be higher or they’ll be making more money. Anything to keep the game going, but ignoring termination of employment, divorce, medical expenses, continuing cc debt, etc.
Lulling myself to sleep over this problem:
Many on this blog discuss rent vs. buy equations. I live in Los Angeles area and rents have been increasing 7% last year. Which means, without factoring in anything else, the gap is closing.
BUT, interest rates have been rising too. So the cost of borrowing money, and thus the cost of ownership has been increasing. As interest rates rise, more defaults, higher rates, more defaults . . .
The rental rates are rising. Some on this blog have argued for dropping rents, but I’ve only been seeing this in areas that have tons of inventory (Phoenix, S. Florida, maybe San Diego).
My head is spinning, but here’s the question:
Do we have a fundemental imbalance that can only be cured by a drop in interest rates. I don’t see on in the near future . . . can’t imagine the circumstances that would make this happen.
Any thoughts? Have I just confused myself further?
Rents will continue upwards for a short time and then trend downwards as owned houses come onto the market as rentals. Some local areas may always have high(er) rents but these are rectified/moderated by an increase in resedential building if there is profit to be made.
As housing prices retreat (fall), and rents rise (short term), they will both begin to move in tandem downwards to a new equilibrium regardless of interest rate changes. If the Fed drops the rate, it will be worse because it might provide a temporary price floor for the rents and housing prices to fall until the inventory is again saturated at that level, but the long term trend will still hold (drop in prices).
The only cure for the fundamental inbalance is a 30-50% increase in salaries. You can effectively guess the chance of that happening. The best outcome is to let the market correct itself without outside manipulation.
Darn, I mean ‘residential’, not ‘resedential’. (bangs head on desk)
Hang in there….I torture the English language when I post and most of the blog lets me slide…Thanks…
Actually, you torture us with your use of the English language!
Just kidding, of course. Better to get the message out, especially when on a rant, than to worry about perfection.
Yield Curve Suggests Fed Stoppage
By Tony Crescenzi
RealMoney.com Contributor
7/24/2006 3:41 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10298905.html
The yield curve continues to behave in a way that suggests the need for further interest-rate hikes has fallen sharply. In particular, the yield spread between three-month T-bills and 10-year T-notes, the spread found in most studies to have the best correlation with future economic activity, remains inverted, at negative 4 basis points (T-bills are yielding more than 10-year notes). That is just two basis points away from a five-and-a-half-year high. The inversion, which tends to only occur during times of economic weakness, strongly suggests that the bond market sees any future interest-rate hikes as unnecessary.
My Reeltor Helped Me Into America!
from UTUBE
“When I decided to buy a home the reeeltor helped me across the border.”
cute
http://tinyurl.com/eoaod
also Firebugs McMansion Service video
(IMHO this is quite likely)
http://tinyurl.com/zasef
LOL!!!!!!! Thanks.
Federal housing allowance anyone?
http://www.federaltimes.com/index.php?S=1970027
http://www.federaltimes.com/index.php?S=1970030
smells like federal subsidization which, interesting enough, smells just like sh*t.
I was listening to NPR, recently, about the pawn shop business. Apparently, it’s way up. They interviewed a couple of shop owners, and they said that it has been incredibly busy for them, with most people pawning, not buying. When asked what they thought was causing this, their response was that it wasn’t the lack of income that forced people to bring items in, but the lack of savings.
this is amazing. found this on Craiglist. A lender will help you raise your credit score.
http://seattle.craigslist.org/see/rfs/185790277.html
Removed
dang it. They were probably scam. Touting as a lender and will help borrowers increase their credit score hence lower borrowing cost. didn’t elaborate the method. I thought it was strange for a lender to offer such advice.
Anecdotes from (near) Sacramento, CA.
For perspective: I work in a building that has four mortgage offices in it — two mortgage only companies’ residential sales offices; one big name bank’s sales office (I believe they are mainly residential); and a big time ‘financial services’ company’s commerical mortgage office. I make small talk with the loan officers and various assistants/support staff. Now, I’ve been paying attention to how well things are going for them, because my dad was a loan officer during the boom years of the eighties (got out before it all went belly up, thank god) and he flat out forbade me from buying last year when I was considering it. In the last month alone, I have witnessed or discussed:
— One custom Harley Davidson motorcycle with a for sale sign on it (could be a FB’s, but I think I’ve seen the owner going into one of the mortgage only offices regularly). Coworker is a Harley afficianado, she estimates $15K invested in the bike (more if he isn’t a DIY guy). Asking price? $7500.
— A loan officer on her cell phone saying on 7/11 that “apps were way down and I don’t know if we’ll be able to make it.” From the rest of the conversation, it sounded like she was talking about visiting someone.
— A significant increase in chain smokers.
— A woman saying how she was going to have to go after her ex for back support; she’s “been able to make it the last couple of years, but things are tight.”
— Some hushed conversations about the foreclosure lists.
— A guy who has been having a month long argument via cell phone (tangent: why do people on cell phones not realize their shouted arguments aren’t private?) about having to watch their money. Assuming the conversation is with a wife or S.O. of some sort.
— A few significant vehicle downgrades (trendy cars turning into practical ones).
— On Friday, a loan officer asked if I worked for my employer (claims administrator) and when I said yes, she asked what the work entailed and if it was difficult to get into.
But there’s no bubble, really! It’s just a bad month!
I know from a trustworthy source, that the very highest levels of the sales structure at a large mortgage lender, are quite aware of the dropoff in applications. But they still view it as temporary… they’re saying that sellers will cut prices before the month is out, and that buyers will get off the fence before school season starts. Business plans will ultimately hold… yadda yadda.
I suspect this is a common assumption across the industry. Hunker down, and assume we’re just in a rough spot.
So…. if the great pumpkin does not appear, watch out in September. There will be a different awareness, sliding down the traditional slow period of autumn. What it will mean, I’m not sure. But CUTS in some fashion, would be a logical response to business needs.
How much of this very same thing is probably going on in construction, in retail, in tourism? I bet businesses up and down the economic ladder are getting antsy and hoping the rest of the year “does not look like June/July”.
Ah, yes, the glamorous life of the real estate “investor”
http://dallas.craigslist.org/wan/185972009.html
wonder why this master of the universe doesn’t just hire an attorney