‘What Will It Take To Get The Market Back To Normal?’
The St. Petersburg Times reports on one analysts’ suggestions to local homebuilders. “So what will it take to get the housing market back to normal? Yes, this housing market, where prices have skyrocketed, but where builders are now offering incentives, everything from free granite countertops to a year’s worth of homeowner association fees to help with closing costs.”
“In the Tampa Bay area, sales of existing homes in June were down 34 percent from a year ago. For new homes in this area, ‘finished, vacant inventory,’ homes ready to sell with no buyer, increased 58 percent in the second quarter of this year over last, the highest on record.”
“This market, in which we’re seeing ‘builders who build for no profit,’ according to housing analyst Brad Hunter, and in which he defined an investor as ‘a speculator who couldn’t find anybody to flip to.’”
“‘Get out of hurricane season” was Hunter’s first suggestion. ‘They won’t buy now,’ Hunter said. ‘They’ll be back in the market in December.’ What can builders do to overcome that sales resistance? Throw in a generator as an incentive, he suggested. Offer a safe room.”
“Hunter’s other suggestions for returning the market to normalcy: Address buyer anxiety. ‘People fear buying at the top of the market,’ he said. Some builders have combatted this by guaranteeing buyers that if the price drops after they sign a contract, they’ll get the lower price.”
“Use up or undercut investor inventory. Builders bemoan the rows of ‘For Sale’ signs in new subdivisions, where investors are trying to sell the homes they bought preconstruction at prices that undercut the builders but still allow a nice profit. It is proving harder to flip the properties than some of those investors expected.”
“Find the correct price. ‘And it’s lower than today’s,’ Hunter said.”
“Resume the old sales patterns. In years gone by, builders could reasonably expect to sell 10 percent of a project preconstruction, then see a nice pickup in sales after models opened. In the past few years, projects have been selling out almost before the dirt is turned. Those overheated days are gone, Hunter said.”
“Like others, he is concerned about what will happen when millions of adjustable-rate mortgages start to adjust next year. Take a typical $300,000 adjustable-rate mortgage at 4.75 percent. A buyer is now paying $1,565 in principal and interest. When the rate adjusts to 6.5 percent, that buyer will pay $1,896, an increase of 21 percent.”
“And that’s an ‘A’ borrower, with terrific credit, Hunter pointed out. A subprime borrower with blemished credit could see a mortgage adjust by a full 3 percentage points, doubling the payments when taxes and insurance are included.”
“Someone who bought only last year, who has no equity, ‘is going to find it tough to refi,’ he said. ‘That’s the amateur speculators’ story.’ He predicts rising foreclosures by 2008.”
“‘It’s time for land sellers to wake up,’ realize that the inflated prices of yesteryear are gone and price their land more realistically, Hunter said. ‘And it’s time for builders to say no’ to exaggerated land prices.”
“It’s hard to know what the ‘right price’ for a home is, ‘but builders can close in on it by offering incentives,’ Hunter said. Buyers will begin to realize that those incentives are really just a way of lowering the price of a home, ‘and pretty soon they’ll realize that this is a great time to buy.’”
The Orlando Sentinel:
‘A backlog of new-home orders in Metro Orlando contributed to a 3.2 percent increase in single-family housing starts during the second quarter, but the area’s inventory also soared as the number of built-but-vacant homes more than doubled, according to an industry survey.’
‘Signs of a slowdown were evident in the survey. New-home inventory, units under construction, finished-but-vacant units, and model homes, rose 19.7 percent compared with a year earlier. The 23,539 units represent a nine-month supply.’
‘Most of the increase was in the finished-but-vacant category, such as homes built on speculation. That category was up 136 percent as of June 30 to 6,787 units, while the number of homes under construction was up by only 20 units from a year earlier, to 16,133.’
The last I saw anything like what is happining now in Real Estate was in the late 1970’s Homes and Condominums sat un-sold and empty for a couple of Years. I would drive by this one track in San Marcos in San Diego County Daily on my way to Work as a Carpet layer it was erie like a Ghost Town. I had to take a job laying carpet for Sears Roebuck laying carpet in occupied homes real back breaking work (had to move all furniture outside to lay the carpet and move furniture back inside when finished) I ended up having 3 major back surjuries and to this day have constant pain because of the slump in the late 70’s I am telling you that this thing has major Recession written all over it…
I thought that housing analyst Brad Hunter might have at least on foot in reality and one in denial until his closing statement;
Buyers will begin to realize that those incentives are really just a way of lowering the price of a home, ‘and pretty soon they’ll realize that this is a great time to buy.’”
Those incentives are a great start at returning prices back down to affordable levels.
Is he going to get to keep his job though. I can just see the advertisers phoning the newpaper’s marketing department.
doubling the payments when taxes and insurance are included
Is that right? I would think the tax and insurance would be much higher due to higher appraisals [not all states have Prop 13 to "protect" the homeowners].
I wonder if they’ll price in the risk of arson [if not the homeowners, from their neighbors] for insurance premiums? They’ll have to survey how many HELOC/ARMed neighbors are around the insured home? Hmm…
You have a point there. I would not be suprised to see some resort to arson as a way of escaping the alligator.
is there an arson blog
Holloween’s going to be BIG
Interesting that you mention this. I have noticed a lot of fires in new residential construction in my area (Sacto.) I hope this is not part of a new trend, but I fear it may become commonplace as folks get upside down on their mortgages or builders need to buy time on unprofitable ventures.
Huh? Forgive my denseness, but if the value of the house is going down - how are they going to have a higher apprasial?
I’m HOPING that our house becomes worth less - that way, we will pay less taxes on it.
Some builders have combatted this by guaranteeing buyers that if the price drops after they sign a contract, they’ll get the lower price.”
Will Zillow go back to the previous months ‘Average Sales Price’ and adjust it down for ‘back-dated price reduction’?
I have a problem legally with the builder incentive of a price reduction if the price goes down . How does a lender handle a after the fact kick-back from a builder that reduces the price of the home ,after the fact , after the lender has already loaned on the higher amount ?This is going to far and this violates truth in lending . Does the lender get to reduce his loan amount also ?
You see ,it can’t be a one way deal in which the lender get screwed after the fact . If there are any builders offering this program ,I submit that this is a after the fact incentive that affects the sales price therefore it has the potential to be fraudlent to the lender .
It’s been pretty easy for me to continue renting with prices so inflated and nothing to hold them up long term, but these “free granite countertop” incentives have me start thinking about throwing caution to the wind and jumping in. Granite…wow.
For the more sexually active I believe some developers are giving away free dildos, but don’t quote me on this. And for the man I’m pretty sure it’s a one-foot Gucci rope for hanging over an open beam.
That’s why I see all of those flatbed trucks with granite slabs leaving the state (NH).
Can you do “it” on a granite countertop?
Commit suicide because of your toxic loan? Sure. Just don’t get blood on the hardwood floor.
“Buyers will begin to realize that those incentives are really just a way of lowering the price of a home, ‘and pretty soon they’ll realize that this is a great time to buy.’”
Screw. You. This country needs a good spankin’ to knock some sense into whoever believes this crap.
Buyers will soon begin to realize that incentives should be taken into consideration when estimating the comp price. Thanks to incentives, comparable used homes (if there is such a thing compared to a new home) will never sell at anywhere near the sticker price of the new ones, which does not include the car of $100K worth of goodies for whatever nonpecuniary discount is used to lower the real purchase price. Once used home sellers start to do what they must to compete with builder discounts, price decreases will really start rolling downhill fast, as the last greater fools will catch on to the problems with purchasing a rapidly deflating asset.
Be careful what you wish for or you might just get it.
I don’t think that the coming “spankin” will leave anyone unscathed.
I have a very large cash reserve thats says you are wrong about that. Personally, this crash can’t happen fast enough.
Amen, Brothah!
Call me a pessimist [and I have 80% of my assets -- no real estate holdings and no debt -- in money market] but I don’t know how things will play out.
Note that I’m not paranoid enough to be holding cash and metals in a bunker [and be well armed], mind you…. So I may be optimistic, afterall (grin)…
What if the Fed decides that the only to get rid of the debt problem is to hyperinflate (by accident or on purpose)? They all the homedebtors get a bonus and the cash holders get screwed. It is certainly a possibility. As a cash holder, it worries me.
The fed has ALREADY hyperinflated everything via everyone’s most expensive current/prospective asset. Now it is just a matter of whether it will let the free market bring values back in line or if it will intercede. There will be a home crash or dollar crash. The fed can’t have it both ways.
Cash? You mean FEDERAL RESERVE NOTES? There is more where those came from! At least if money grew on trees there would be a limit to how much of it they could create (and they would be cleaning up carbon dioxide in the process).
Physical cash (M0) represents of small fraction of the money supply. Less than a trillion dollars ISTR.
Great point. Most inflation is brought about by the over-liquification of the system via huge credit creation and “money-like” instrument injections (derivatives, wall-st. wildcat finance, etc.) I’ve often wondered if a hyperinflation scenario is even possible in an environment where so much bad debt is going to be written off. While I believe the Fed’s primary mission is to inflate, I believe there is a real danger of deflation when a lot of bad debt gets into the system. Perhaps Getstucco or one of the other resident economist-types could lay out some theory on this.
Extremely off-topic, but I thought everyone would get a good laugh off this one…
——————-
Driver gets 70 speeding tickets in 5 months
PHOENIX, Arizona (Reuters) - As a mortgage broker in Arizona, Francesca Cisneros is used to working with big numbers. It’s the double-digit speed limits she has trouble with.
Cisneros racked up 70 speeding tickets in the last five months, a record for the Scottsdale Police Department, police said on Friday.
Speeding cameras in Scottsdale, a suburb of Phoenix, snapped pictures of the 32-year-old woman as she tore through the sun-baked city in her Honda Civic between March 2 and July 31.
“She told arresting officers she was speeding because she seemed to be late for client meetings all the time,” Scottsdale Police Department spokesman Mark Clark told Reuters. “I guess she’s got some time management issues.”
The second-worst offender in the department’s history accumulated a mere 25 tickets, Clark said.
Police said Cisneros said she threw her speeding tickets away because she thought nothing could happen to her if she didn’t pay them.
Clark said Cisneros faces some $11,000 in fines and could have her license suspended.
It’s real easy to know what the “right price” is, and what will need to be done to return the morket to normal: price houses at historically normal affordability ratios. Until we get there, prices will continue to fall; we’ve got a long ways to go to get there, especially in Tampa Bay.
What will it take to get the market back to normal?
A professional real estate agents operation is based around one word………….”Conditioning”
when prices are rising………they condition the buyers.
When prices are falling…….they condition the sellers.
In this market of falling prices agents will pressure prices down even to the point of refusing to accept overpriced listings. They do this to survive.
Watch this process kick in over the next 12 months.
JMHO……..”I have 25 years experience in the industry”
” Take a typical $300,000 adjustable-rate mortgage at 4.75 percent. A buyer is now paying $1,565 in principal and interest. When the rate adjusts to 6.5 percent, that buyer will pay $1,896″
I’m in too lazy a mood today to look up to see if this is an interest only loan, so does any know? Seems rather low for a 15 or 30 yr fixed.
30 yr. fixed @ 4.75% payment = $1564.94
30 yr. fixed @ 6.5% payment = $1896.20
http://www.bankrate.com/brm/mortgage-calculator.asp
Note: This does not include taxes or insurance.
Sign of the times…
“Have you decided to stay put and renovate while waiting on the local market to settle down? We are currently taking on a limited number of renovation projects. Please call our office for more information.”
The above was the lead for a 1/8 page advertisement in the PensacolaNewsJournal today by a local construction company that presents itself as the “2005 Builder of the Year”.
answer- reversion to the mean
2003 prices in 07
2002 prices in 08
2001 prices in 09
2000 prices in 10
And then I might buy.
“Offer a safe room”
LOL
There will be no safe place when the real correction starts, unless the walls are made out of money!
Why are you guys so bitter? Seasoned investors know the market is in decline on most major markets. However, I should add there are markets that are still increasing. None that I would purchase in, but I have decided to keep properties in UT, and TX because I believe there is still appreciation.
I have reviewed this blog periodically for about 9 or so months and it feels as if you all are wishing the RE market crashes so you can say I told you so. You all know who you are, and there are many of you.
Anyway, I have sold off most properties I own in CA, and AZ. I am keeping two in each state for the long term. They cash flow so I am all for long term holds that will greatly benefit me in the future irrespective of where prices go in the next five years. You cannot go wrong with RE if your in it for the long haul, cash flow, have 30 year loans, and manage them yourself.
How do you manage them yourself if you are out of state. And BTW, my cash is earning 5% and I have a very nive positive cash flow every months. You can keep your declining real estate for all I care.
I manage 12 units all out of area. No problems, after firing numerous property managers.
By the way as appreciatin decreases and CDs rates increase you have a valid point on hoarding cash. My buddy is getting $500 a month on a $50k investment that is used to provide loans (construction/bridge) for investors. I put $50k in a 4 plex 2 years ago and I am only getting $250 a month back, but I am loaded on paper. LOL.
That’s not an investment thats an anchor. In order for it to be positive cash flow and a solid investment it should be making at least 200.00 a month per door.
$200 per door?!?!?!?
Are you serious, when have you been able to make $200 per door?
You ripped on me for getting $400 a month (on a duplex)in another post, and now you tell me I should make at least $200 a door for it to be a “solid investment”.
I am having my doubts about this board, you guys are all about doom and gloom.
I told you so!!
Ahhh so it’s a duplex. Ok I’ll give you that. Highly likely it’s not a SoCal duplex but a duplex is a duplex. As far as the $200.00 a door thing. I wouldn’t look at anything like that. But for a novice it’s a good start. Anything less than that is not worth looking at nevermind buying. Oh and FYI I won’t even return the call for anything less than $500.00 a door and 10 or more units . I’m looking at one now. That’s what real investors do.
Well it is a duplex in SoCal.
$500 a door, please who are you kidding? Do you realize about 5 years ago in TX you could buy for $20k a door, but yet the rents were only $400-500 a month. Same places today are $40-50k a door.
How about throughing out some real work expamples?
Where in SoCal did you buy a duplex that cash flows $400.00 per mo.. How much did you pay for it, How much did you put down.
When I speak of 500.00 per door I mean that as profit per door. Not cost per door but profit. How long did you say you’ve been investing again?
Here’s a working example it’s really not a fair example but an example nonetheless.
You mentioned you bought a 4-plex with 50k down generating 63.50 a door. Roughly 3k a year thats about a 6% return on your money. Not bad not something I would do but hey it’s a start.
In “99″ (I know not fair but hey who cares) I bought a 12 unit with $75k down generating at the time $300 per door. After repairs,cleaning it up, kicking out the drugs, repositioning it now generates $725 a door with me pulling out 125k cash in that time.
I’ll let you figure out the return on that one. BTW that’s not one of my better holdings. I really need to sell it. But hey I’m in it for the long haul.
That’s what real investors do.
How many managers would a manager manage if a manager could manage managers?
Sounds like your managing managers, not property. Completely different thing.
P.S. No wonder your cash flow is so bad, you’ve got too many overhead costs!
what is the long hual ?
15 years or more
Only if they were cashflow positive to begin with. This what so many RE investors don’t seeem to understand. You cant be cash flow positive you’ve bought in the past 2-3 years using exotic financing. Yes, if you have a substantial downpayment but then that money is tied up in non-liquid asset. The prices are too high period. They are too high for 1st buyers and they are too high for those coming from other states. Who are the greater fools who will continue to buy overvalued property then???
Good point. When I first started in RE investing I bought negative with 20% down. Sold/Exchanged and bought positive or beakeven, depending on down. Also sold to pay off seconds.
Had a various loans, even used some pay option ARMs. I have one pay option left, but on a property I am selling, after that it is all about the 30 year loan. A third of the loans are fixed and I am working on getting everything fixed.
Hate to break it to you. But your not an investor. Why in the world would you put 20% down on anything and go negative or breakeven.
It called market timing.
No, it’s called flipping flipper, and you’re about to find out what it’s like to lose your shirt!
How do you figure? You have no idea were I own property, the value, or when I bought.
Market timing….. ahhhh so your the one with the real estate crystal ball. Forgive me for doubting you I should have known.
Why are you still “working on getting everything fixed” when rates have been going up for over a year now? If all of your investments cash flow (positive), that indicates you purchased like 2003 or earlier when rates were much lower. It would have made more sense to go fixed if you were in it for the “long haul”. And you are managing your properties personally in like 4 different states or something? This all sounds a little fishy. I smell a flipper with rose colored glasses here folks! FB ALERT IN THE HOUSING BUBBLE BLOG EVERYONE!!!
For crying out load. I came in here to bring a different perspective and I am getting hammered.
Everything I said is true. I am managing property in 3 states, but have a management company taking care of the TX property that I bought this year. And yes you are right rates were lower, and fortunatley I was able to get my primary on 15 year loan at 4.75%. Other rates are low too, so I will face some issue when things correct/reset if I do not sell/exchange soon. I am in the process of doing that now.
If your beating me up this bad, I would hate to see what you guys do to the investors that bought pre-cons deals in 2005.
You are loud and clear, basically you are promoting that all real estate should be sold now becasue if you don’t you will be sunk.
We shouldn’t need to do anything. A free market correction would do it for us. And damn Bernanke if he jiggers the markets to prevent this! This bait-and-switch game of inflating one asset bubble (housing) after the other (stocks) is getting out of control. If the Fed would have showed restraint while lowering rates in the first place, a lot of the collateral damage could have been avoided. However, due to the Greenspan Put, too much of the economy’s capacity has gone towards housing, and not enough towards energy production or research. This liquidity monster will take down many honest, hard-working folk during it’s death throes. Even Real Estate investors.
You wrote: “but have a management company taking care of the TX property”
Didn’t you just told us in another message how you manage them yourself?? Why are you lying now? Or were you lying before?
RE_ONLY_GOES_UP
There are lots of opinions on this blog. And yes, the negativity grows each month as year’s worth of predictions start coming true. I’ve been calling the bubble since late ‘03 and have made a fool of by “creative investing.” So the changes in the MSM perception are a bit of a relief with the realization that my sanity is not really in question.
And I do want to see a drop. I have very high credit and a huge down payment saved, yet I WILL NOT buy a half million dollar shack and I am terrified by the debt my friends and clients are getting into trying to keep up. I suspect SD will fall about 40%. Possibly more as the price dips below the mean temporarily as it tends to do in a correction.
I see lots of foreclosure as people lose homes they should have never bought. I see (and hope for) tightening credit standards so that people are protected to some degree from their own greed. I see families fall apart as their Hummers and other toys are taken away and spouses blame each other. And hopefully, I see a return to simpler living without so much damn stuff that is destroying the environment and put things above people.
But unlike many here I think Americans will adjust and will survive. I’m not buying a bunker or a machine gun and I am taking no delight in the coming foreclosures and pain. Like many people here my heart bleeds for the people who really had no understanding of what they were getting into with the suicide financing and I’ve watched predators in the lending industry make outrageous claims as they posed as “experts.” Unfortunately, if we ever want a world where living below your means and saving is a good thing, fiscal responsibility is important to a credit score that means something, and young couples can afford a starter home without selling their newborns, this correction is vastly important.
And I’m not sure you said anything against that so I don’t really understand the troll label. Cash flow property is good. And for full disclosure, as I’ve posted numerous times, I’m an SD-CIA member and everyone I have meet at the meetings (although not on the blog) has been EXTREMELY bearish on housing. Especially the founder. And I am grateful this group has allowed me to hear Robert Campbell and various other experts speak about the declining market. (I missed this month’s meeting but last month’s foreclosure topic was also great.)
So don’t stop posting and realize that some of us (although not all I will admit) do want to hear other opinions.
So tell me if there was one loan application that you didn’t lie on to get the loans at owner occupied rates when you didn’t occupy . And did you have any quams at all about the fact that you and your investor friends drove the markets up by your short term demand that priced first time buyers and locals out of the market ? Sure its a free market system ,but you can’t tell me you didn’t cheat in one way or another to amass the amount of properties you did in that short amount of time .You just got lucky that you started the flipper game early enough that your not a minus income bagholder .Oh , by the way , Texas is starting it downturn so I don’t imagine your going to make much in the Texas market .
It’s real easy calling us doom and gloom people ,but your just looking at the real estate picture from your own little selfish perpective . You can’t see that the whole house of cards might come crashing down and your little S400 a month positive might turn to $600 negative ,or the cash you have in the bank might not be there because the bank you bank with will fold because it made loans to people like you .
I can tell by your name that you have been brainwashed and have never experienced a down-turn in your life. So go ahead and think that your a long term investor ,or be smug because you were lucky enough to sell some of your flips ,but don’t come around here calling us names . And the next time you see a homeless person on the streets consider that that might be someone who bought one of your flips during the mania .
And as far as your different perpective you came to bring to this site ,we have heard it all before . And I bet Donald Trump is your hero .
Not a single loan is an owner occupied rate. Nor did I cheat to get a loan. Fortunately the proceeds from the sales of other homes helped push my income up to qualify in the “short amount of time” that properties were aquired.
As I mentioned, I am no longer buying RE. I am selling.
You loose all cedibility if you truely believe a property will go from $400 positive to $600 negative becasue of a decline in rents. Rents would need to decline by 50% for that to happen for this particular property.
Luck, are you kidding? Did you not read my previuos post.
As far as the doom and gloom comment, you guys are all about the doom and gloom. The sky is falling and the root of all evil is the flipper investor. Were you saying the same thing during the tech boom?
RE operates on a market cycle. It goes boom, slump, recoverery, repeat. It has been this way for hundreds of years. You may also want to read Harry Dent’s books or Shiller’s they talk about it as well.
My investors friends and myself did not create the mess that is going to occur. It is inevtable that it will occur becasue the market operates in cycles. This time it will be different however, as there are many that bought homes and lied when they got the loan, or really had no business buying a home to begin with. They should have remained renters. Are you saying these peole are not part of the problem? What about the real estate professionals pushing these exoctic loans. The list goes on.
Yea, you do recognize that Wiz has been in the game since Christ was a Corporal (no offense Wiz) and your not telling him something new. You did however shine a bright light on your investor knowledge when you said rents never decrease. I would love to introduce you to about ummm lets see for sake of brevity 10 people who turned over their keys to the bank because of just that reason circa oh lets see 1990-1995 just for that same reason. Where in a lot of areas rent did just that. But nevermind you have it all figured out.
And btw if rents declined by 50% and your in the hole by $400 to $600 as wiz stated you don’t have a $400.00 a month cash flow. You are leaving out a whole lot out of the expense column.
First ,there might be so many people without jobs that you might not be able to even rent the place . Any long term real estate investor takes that risk ,nothing is a sure thing .
The people who didn’t really qualify for the homes they bought created demand and they will have to sell or go into foreclosure . Of course these buyers are part of the problem along with the speculators . Any short term demand that isn’t stable is a problem .
Speculator demand did drive up many markets , the experts will tell you that, so you and your friends did inflate the markets .(Last year in Florida there was about 40% purchases speculation driven). When someone buys 14 houses they take away 14 houses from end user buyers .Yes there are real estate cycles , but this one was the most speculation on margin one in the United States history ,with the exception of the FLORIDA HOUSING BOOM /bust OF 1926.
I’m glad you didn’t lie to get your loans ,but the easy underwriting, easy money , and exoctic loans ,(that you admitted your trying to get out of ),was a big part of the problem .
Look , I’m just suggesting to you that you might of only seen the good times and might not be aware of how bad it can get .I happen to be a homeowner who bought in 2005 , but I can’t deny the truth of this bubble that will cause alot of pain .
RE_ONLY_GOES_UP:
You must have been in a flying rage when you typed your post about this group losing credibility. You “loose” (hahaha) yours when you can’t even type with the accuracy of a sixth grader. I stopped counting at eight, did anyone else finish that? Nit-picking, yes, but we just can’t take you seriously that way. YES - you and your friends are part of the problem, if you ‘invested” after 2000, and are trying to sell now. NO - that is not the only argument that this blog is using. Look around man, all of the bloggers here know that there were MANY factors that played into this. YOU ARE NOT GIVING A NEWS FLASH TO ANYONE HERE. Are you too dense, or lazy, to figure that out?
Keep telling yourself that, Bunky. I remember a lot of stock investors who were “in it for the long haul” in 2000.
txchick,
We miss you over at the http://www.sdcia.com board.
What exatly is wrong with holding RE that cash flows? I have a CA proprty that is in mint condtion, provides about $400 a month in cash flow, has a LTV of 45% and is on a fixed 30 year loan.
Not really following your point. Please explain?
If your at 45% LTV and only posting a 400 a month cash flow. Your investment strategy is faulty. You may want to read your guru books again. Or maybe sit down with a real investor for a few days.
I know, what kind of BS is that? I guess if I wanted to take 200
Sorry, the end of the paragraph disappeared somehow.
Are you kidding?
Tell me what the problem is with that scenario?
Nothing, nothing at all. Good luck, you’ll need it.
BanteringBear,
Dude, why did you bother to start a dialog. Does it only work for you if when nobody disagrees with your opinion.
I never started of in RE thinking I was in it for the long haul. Becasause of the success, it has tunred out that is makes sense to sell/exchange highly appreciated properties into more stable markets so that I can hold for the long haul. Can you appreciate that RE invesment philoshophy?
No, unfortunately, I cannot appreciate that philosophy. It sounds to me like you are just trying to make some quick money. There is nothing wrong with that, it is just not something I have ever admired. I admire people with a passion for what they do and who have a long term plan and the resolve to execute it.
Can you state where a more stable market is ?
We bought in TX earlier this year and ouR only pre-con deal in SLC. we bought in SLC early last year after selling some CA properties.
We have no plans to buy anymore RE, at this point in time, but will be selling.
BateringBear,
To each their own.
Passion about what you do is key. We agree. Long term planning is another key aspect of what I believe will filter those that will succeed and those that will fail.
You may wish to read some books on market timing, I would recommend the following books. Timing the Real Estate Market by Robet Campbell (realestatetiming.com) and Grow Rich With the Property Cycle by Kieran Trass.
I have invested a huge amount of time and energy to identify market cycles and act upon them to make money in RE. If you want to call this a shortcut to making quick money, then that is fine.
My most recent sale sold for 90% more than my purchase after 30 months of ownership. About 18 months ago I exchanged a property for 50% more than the purchase after holding for 9 months. One of the properties I exchanged into in already up 60% and the other in up 35%.
You can call this what you want.
“Passion about what you do is key ”
What a bunch of sh-t . And who told you your property was worth so much ,the selling broker who sold it to you ?
You have passion about making quick money as most human do .
Wizard,
I recently spent 5 year working at a non-profit that serves people with developmental disabilites, I loved it and was passionate about that job. So I am not here to BS you. I am here to educate myself on other RE perspectives. And I have no problem making a buck in RE. I made more on one deal than I made working a whole freakin year at the non-profit. I worked about 1,900 hours a year at the non-profit (they made us take unpaid days off becasue there was not enough to pay us a full years salary). I owned one property for one year that I managed and “cleaned up” probably spent a total of 80 hours max managing and cleaning it up. Call me an opportunist if you must, and no Tump is not my hero. I have not even read one of his books.
OK OK , so you have been a good dude in your prior job. But thats just what the lure is for the real estate investing …..the easy money . I would just suggest to you that you view this easy money real estate cycle of the last five years as a fluke and prepare accordingly for a extreme correction .
>You can call this what you want.
Luck?
Look, I do the same thing at the Blackjack table; press my bets when I’m winning, take money off the table if it’s cold. It’s a great strategy, for me, in that it allows me to aggressively go after the good times and passively play or watch the bad times. I have no doubt that your strategy in Real Estate has worked for you. However, in semi-professional gambling, you need to keep your gambling-money separate from your life-money. When I walk into the casino, I’ve got my “what’s the worst that could happen” stop loss, and I walk when I reach. I’m worried about you, however, because you don’t seem to have a stop loss, and the worst that could happen is that you lose EVERYTHING. That’s not the risk-profile professional, be it gambling or Real Estate investing. Can you tell me, honestly and truly, that this is all play-money to you? That if the worst comes to pass, that you’ll still be safe and sound in your primary home with no bank lawyers suing you and your credit intact? If so, then please forgive me. We’re trying to look out for you, even if we’re not always tactful about it. Good luck.
If you sold your properties do you pay tax on the capital gain or 1031 exchange? Do you have trouble with the renters ?
you have to know when to hold em and know when to fold em
The would make a great song
I have sold and used proceeds to pay off seconds, and I have exchanged into properties.
I have had trouble with renters, but started selling properties that were more difficult to manage, or where in locations that were not ideal (too close to a busy street).
You seem to be rather seasoned, calculated investor, that is cool.
But realize that may recent “RE investors, yuppies, etc” were reckless (either in spending or in investing). I want to see RE to correct because I am sick of seeing people living as if they are millionars. Enough to Excess.
I want to see it correct as well. I agree with your statement. Many are reckless, but not all that have started investing over the last few years are reckless.
You guys are a little to hard core for me with all the doom and gloom. I for one know that I could sustain a decline of 35%-40% and still make ends meet. I think that will probaably happen in CA, and therefore have been selling my CA properties over the last 18 month. I have also sold one at the peak in AZ, and am selling another now.
You all need to realize that there are markets that are still increasing. Salt Lake City as an example. Also note that when the CA econmoy went in the tank in the early 90s SLC was on the greatest ride they had ever seen between 1992-1996.
RE_ONLY_GOES_UP,
I usually don’t feed the trolls but you are too tempting a morsel to pass up. This is going to be the biggest real estate crash in history, nay, the biggest economic crash in history. What we are looking at is the biggest real estate crash ever in the history of the world. Why ten years from now they’ll be giving houses away to anyone who promises to live in them and pay the taxes and insurance. I have taken a look at some of these modern day “investors”. Why a stiff breeze would knock them off their perch and there is a tsunami of epic proportions coming. Those who are in deep debt doo doo will be carried away by the flood and will end up in servitude for the rest of their lives, if they manage to stay out of prison for mortgage fraud, this is. Save your money folks, don’t tie yourself down too heavily to any location or to an onerous debt level that you cannot easily manage. You housing bulls, check the foreclosure numbers in 6 months, a year, two years, this thing is going to get ugly and then you will probably say: “yeah, I knew this was coming. Don’t say you weren’t warned. ’nuff said?
Come on now. Many of your folks came over to the San Diego Creative Investment Association board and had a field day trolling things up. It got so bad that several had to be banned.
I need more from you that just vague statement without substance. Are you up for it? I suspect RE will decline in the CA markets, you may see decrease between 25-50%. I have already seen 10% decreases in properties I have sold. I suspect this will continue despite the low unemployment in so Cal. So does this mean you sell everything and head for the hills? I think not.
Sure you will see some so Cal homes that sold for $800k in 2005 go down to $500k, or about 40%. But do you think a
I have advised all my diehard clients to get liquid on anything that was even close to being a marginal investment. Pay the taxes stash the cash and wait for the fallout. By your postings I would suggest you do the same lest you wind up like the bleeding idiot holding the tucson property on your board.
To RE_ONLY_GOES_UP,
“My advice to you is not to inquire on, or whither, but just enjoy your ice cream while it it on your plate.”
-Thorton Wilder
RE_ONLY_GOES_UP:
http://petropestlaunchpad.blogspot.com/2006/08/monetary-squeeze.html
Some light reading for you.
Thanks, just printed the 50 pge pdf file, I will read it this weekend.
You don’t seem to realize that a 800k property going down to 500K means that someone is going to loose alot of money . This doesn’t seem to bother you and I guess if its not you why should you care because your only concerned with markets that are still going up .If the California market crashes ,who do you think is going to buy your inflated Texas property ……a Texas local ,no way .
I have already come to realize that my $800k home will be worth $500k in about 5-7 years. Fortunatly I have a 15 year loan and will have it paid of in about 10 years. I can’t contol the market, but I can adapt.
Some will lose a fair amount of money, others that planned will be fine. If your from CA you might recall the last down turn in the early 90s. Things were so bad back then that I was laid-off…from the unemployment office. I suspect things will get worse, but we will all adapt and do the best that we can. Save your cash.
I do not plan to sell the TX property, as it generates about $70k a year in rents and I suspect it will continue as the baby boomer population retires and seeks resort type ammenities.
Sorry …lose not loose
Ummm you better really I mean really do some research on Texas and their housing busts.
Particularly in and around the Dallas area. Tx is not kind to real estate. It has chewed a many foreign pocket.
He’s a troll. I bet he doesn’t even own a mobile home. Don’t even bother responding.
Yeah, there’s been some trolling over there, but not by me. To be honest, I’m half realist-bear, half jealous. Only half, because I’m so young (28), and wasn’t in a position (no income, no assets) three years ago to participate. And now I know not to, although I’m renting from Real Estate investors that have been doing this for 5-10 years now.
I’ve been keeping quotes from many sites, and about 40% are from here, and 25% from there. Great ideas, and minds, on both. I learn from each.
That being said, here we have the academic doom-and-gloom, while over there we have the real thing. I hope for the best for that Tuscon guy. Here, we find out it CAN happen, there, we find out it IS happening. And not in some filtered Main Stream Media article, but first-person, embedded reporting.
But seriously, what’s with evicting a single-mother with a 3-year-old child that can’t come up with $46/month? That’s the harshest I’ve seen on either site (and I didn’t see it here - the post at SDCIA is titled “To evict or not to evict”).
not a real estate comment; but did anyone see the lou dobbs’ segment last night on that the u.s. treasury keeps 2 sets of books. as bad as you might think the current economic outlook of the u.s. government is, it’s actually much, much worse:
CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): The White House upbeat about this country’s finances.
GEORGE W. BUSH, U.S. PRESIDENT: This year’s deficit will actually come in at about $296 billion.
ROMANS: But Congressman Jim Cooper says America’s books are far worse than that.
REP. JIM COOPER, (D) TN: The president is using old-fashioned accounting, accounting that would literally be illegal for any large enterprise in America.
ROMANS: He points to a different set of numbers. A financial report he says the White House doesn’t want you to read. It’s the official audited financial statement published by the Treasury Department, using accounting required of all big public companies in this country. Cooper, a fiscally conservative Democrat, is so worried about the nation’s true finances, he’s having them published himself. The Treasury’s financial report of the United States is devastating. A 2005 deficit of $760 billion. More than double the White House numbers. America’s debts and commitments? An incredible $49 trillion. Using the treasury’s audited books, those surpluses in the later Clinton years never happened. And this country looks headed for financial disaster.
COOPER: The hidden set of books reveals that we’re borrowing fantastic sums of money from countries all over the world.
ROMANS: Why the two sets of books? The White House simply counts the money coming in and going out. But the Treasury includes future obligations, like federal pensions and healthcare costs. Add in the very real cost of Medicare and Social Security, and this government runs deficits of trillions of dollars. The White House Budget Office and the Treasury Department would not respond on camera. But said no one is hiding this second set of books.
ROMANS (on camera): No matter which accounting you believe, both of these sets of books are alarming. Either way, at this pace, before long, we’ll spend more on interest for our debts than our basic domestic needs. Lou?
hmmm, anybody else thinking argentina, circa 2002…
linda,
It can’t possibly get worse than I think it will get. I hear a lot of people on this board bragging about their money in terms of one or two million dollars. Give me a break! I’ve read quotes from billionaires who are quaking in their boots when they think about it. The last report I read had the M3 at ten trillion dollars, most of it in the hands of foreigner countries. The combined debt in this country is over fourty trillion dollars. Do you how I know all that debt isn’t going to be repaid? Because there isn’t that much money in the whole world, that’s why. Even if they did create enough money to deal with the coming crisis it won’t be worth squat when they were through. The whole system of world trade is at risk and would have already failed if the financial PTB weren’t furiously manipulating numbers so large it would make your head swim. When this thing goes down it will be big. Everyone, and I mean everyone, in the world has a stake in mortgage backed securities. It is hard wired into the system. When the panic selling starts you won’t be able to give away an MBS derivative. Hold onto your hats people, when she blows, that’s all she wrote.
Linda,
I don’t know if you’ll ever see this, because my posts are taking hours to show up, when they show up at all. But here goes anyway.
Dobbs and his producers are basically spinning for ratings, because Fox News has been beating CNN in the ratings for some time now. When CNN sold out and tried to go mainstream, they lost their audience to Fox. Larry King can’t save them, and Anderson Cooper is a pathetic joke, so Lou and his team are waving red meat in a last ditch effort to beat Fox at their own game with partisanship and audience-baiting tactics.
Now that we have that straight, Yes, the US National budget is chimera in search of an illusion, wrapped in multiple layers of bullshit. Dobbs and his team are telling some truth here, in that the US middle class is well and truely hosed. But this is crying wolf after the eating, because the deed is done, and it’s all over but the weeping.
When the unions were allowed to extort unrealistic concessions from the producers back in the ’50s and ’60s, the die was cast. Auto workers were never middle-class, that was an illusion brought on by the labor cost bubble that the unions created. Now the chickens have come home to roost, as the US automakers slide toward bankruptcy. The pension debt that was created can never be repaid, and we’re just now starting to see the consequences.
Social Security is a similar bubble. Just as Real Estate bubbles are slow to correct compared to stock bubbles, the labor cost bubble is on a much longer cycle than the RE bubble. You have to be an old fart like me to have this perspective, because the labor bubble has been building over most of me lifetime, and only started to correct about fifteen years ago. But it’s no less real, just because the intrinsic cycle time is so much longer than most people are used to thinking about.
What Dobbs is complaining about is really the necessary correction to the labor cost bubble, but written large in the US national budget due to unrealistic assumptions built into the current system back as far as the Roosevelt administration. He might as well tilt against windmills, but remember that his job is to get ratings for his network. He will not be hurting as the ship sinks, because he’ll probably get a job at Fox when CNN finally fails. Which may not be too far in the future, with the recent news of 5000 layoffs at their sister company (AOL).
{rant off}
This is going to be the biggest real estate crash in history, nay, the biggest economic crash in history. What we are looking at is the biggest real estate crash ever in the history of the world.
IMHO, totally right, but also a total waste of keystrokes on an SDCIA type. Hell, far too many bright people here at HBB still can’t come to grips with the magnitude of the problem.
I simply don’t want to think about it.. only get myself and myfamily prepared for it…
not to be a chicken little but i sold all of my stock holdings and 401K.. not i put it in inflation-pretected bonds and silver
not = now
I have no idea if or when this will post, as none of my posts have gone through for hours. Regardless, I hope to offer some perspective.
I purchased my first building in 1974, an 8-unit property in Venice, CA. I financed 100% of it, and it cash-flowed positive to the tune of about $750/month at the time. Purchase price $100,000. That’s an investment, or at least I think so, because I 1031′ed it five years later at a valuation of $250,000. I also lived in that building for a few years before I sold it.
I could never have done the same thing by buying SFHs. There’s just no long-term leverage in that sort of arrangement. Owning and renting SFHs is a mug’s game in the not-so-long run, and a certain loser in the long run. It only works on the steep upside of a bubble market, which is just too damn difficult to time properly.
Just MHO….
I am already telling friends and family, “I told you so.”
Case 1:
One friend moved to SFL 2 years ago. The only way he could afford a home was to cash out his 401-k and take an int-only option ARM. Since then the county near doubled his taxes and his home-owners insurance got cancelled. Now, with interest rates and his mortgage adjusting upward, he is ready to leave SFL. After paying a 5% realtor commission and incentives plus his 401-k tax penalties, he will be lucky to break-even.
Case 2:
Fifteen months ago another friend bought a home in a retiree community with an Int-only option ARM and neglected to read the covenants. Like my friend above he is facing the same upward taxes, insurance, and mortgage adjustments. Over and above these issues however are the damn covenants. He cannot live happily with them. As a result, he can’t wait to leave SFL either. The problem however is he faces a negative equity situation when you subtract selling costs. Like you he is hopeful things will get better, stone cold denial.
The overall mood of the people I know is to get the hell out of SFL! Its too expenxive. If you have been reading this blog carefully and paying attention to markets around the country and abroad, you would not be holding on to these assets b/c its dead money. Don’t let your past successes and your ego get in the way of making the right financial decision.
Instead, use your imagination and move on to other investment opportunities. Search out other product categories with real growth potential. In the mean time its better to get 4 or 5 percent on cash over the next 3 or 4 years than waiting 6 to 9 years to break-even again. Think about it.
“A subprime borrower with blemished credit could see a mortgage adjust by a full 3 percentage points, doubling the payments when taxes and insurance are included.”
I don’t know about you but I marked that down.
I don’t know, $1500-1800 a month for a house is cheap. I’m sure that buys you at least 1800 sq ft, 3 bdrms, yard, garage, where can you rent an 1800 sq ft apartment for that in Florida? Plus most people earn more than enough to pay that, especially since they save maybe 2-300 a month from tax benefits. Still, prices are ridiculous for a lot of houses but that is all dependant on how truthful our government has been on inflation. I doubt it has been less than 3% the past six years. Just look at the price of a car, gas, utiliites, insurance, food, and such.
Note, the current dilemma could have been avoided if Greenspan had incrementally raised rates as the bubble began to appear. Instead he lowered rates to facilitate Bush’s war in Iraq. It was purely a political decision that “postponed” the economic pain of the conflict and allowed the Bush administration to shift the cost of the war onto future generations.
Consider, also, how Greenspan paved the way for the budget-busting tax cuts (which he enthusiastically approved) and how they have increased America’s debt by $3 trillion. This is real money that American workers will eventually have to pay back in the form of taxes and a higher cost of living. This “class loyalty” is strikingly at odds with his philosophy as a young man when he said, “Deficit spending is simply a scheme for the confiscation of wealth.”
So it is. And the $3 trillion dollars that evaporated on Greenspan’s watch was in fact stolen from the American people while the Fed chief concealed the crime behind the smokescreen of low-interest rates. In the final analysis, Greenspan will be seen as a greater traitor than Bush.
one of the most shocking and unforgiveable things greenspan did was to so publicly endorse and encourage the arms. i am by no means an economic sophisticate, but, hell, even i knew those were the death knell of the real estate market. but he continues to be reverred by the society/media mavens of the dc cocktail circuit.
sm landlord: i’m well aware that cnn has devolved to a grotesque imitation of foxnews. hysteria, fear, and dumbed down content rules the airwaves; and it ain’t just dobbs. the chatterbunnies who ‘anchor’ their broadcasts have made it absolutely unwatchable, as far as i’m concerned.
Note, the current dilemma could have been avoided if Greenspan had incrementally raised rates as the bubble began to appear. Instead he lowered rates to facilitate Bush’s war in Iraq. It was purely a political decision that “postponed” the economic pain of the conflict and allowed the Bush administration to shift the cost of the war onto future generations.
Consider, also, how Greenspan paved the way for the budget-busting tax cuts (which he enthusiastically approved) and how they have increased America’s debt by $3 trillion. This is real money that American workers will eventually have to pay back in the form of taxes and a higher cost of living. This “class loyalty” is strikingly at odds with his philosophy as a young man when he said, “Deficit spending is simply a scheme for the confiscation of wealth.”
So it is. And the $3 trillion dollars that evaporated on Greenspan’s watch was in fact stolen from the American people while the Fed chief concealed the crime behind the smokescreen of low-interest rates. In the final analysis, Greenspan will be seen as a greater traitor than Bush.
My Friend put it this way: “We’are all onboard the Titanic, its just that some of us are on different decks.” I think the iceberg already hit, now we’re just waiting to sink, but the ship is still going forward. Anyone else feel this way? Or is everything just fine, R.E. can only go up, ‘move along’?
In conclusion, markets, investors and policy makers will soon wake up from the delusional dreams and the fairy tales they have been indulging into for too long and will face the five ugly realities that I described above:
1) the U.S. will experience a sharp slowdown followed by a severe recession;
2) the Fed will pause and then ease in the fall but such easing will not be able to prevent the U.S. recession;
3) after a suckers’ rally following the Fed pauses and easing, stock markets will enter into a bearish contraction phase; and other risk assets will also experience sharp drops. In 2006, cash is king;
4) the rest of the world will not decouple from the U.S. recession and there will be no “rotation” in global growth as the rest of the world will sharply slow down – after a short lag – following the U.S. recessionary lead;
5) the risk of a disorderly rebalancing of the growing global current account imbalances is increasing with serious consequences for the U.S. dollar and with the growing risk of dangerous global trade and asset protectionism.
Then, in this most volatile and dangerous macroeconomic, financial and geopolitical situation, the risk of a US recession turning into a systemic financial meltdown cannot be ruled out. There are serious similarities between the situation today and the forces that led to the stock market crash – 20% in one day – in October 1987…But the risk of a financial meltdown is a topic that deserves its own separate discussion.
It looks quite clearly that price drops are getting common in previous hot areas like San Diego and L.A. and the agents are calling them a buyer’s market! Shouldn’t they be called the fool’s market?
All I know is that loan originators are greedy M.F. and screwed all of people in the process. When the shit hits the fan they will get off scott free, because of the strong banking lobby in DC.
Last time in roughly 90-92 the consensus was that the appraisers were not licensed and if they were the appraisals will be more accurate. Nobody talks about lender pressure and it’s out there. It does not matter if it’s a sleazy mortgage company or banking institution. I have seen fake P & S, rental leases, sales prices, no money down deals, non owner occupied multifamilys which were suppose to be owner occupied etc. I am riding out 06 but 07 will be no better cause people will be forced to refi, but have no equity and with values trending downward it will be a wake up call to these poor borrowers that were fed a line of crap “Don’t worry about it you can refi latter on when the rate adjusts, (come back and see me so I can screw you some more)
You guys are crazy about all this doom and gloom…Im very optimistic about our future.
Here is how I see it playing out…
First in Iraq: The three sects will come together, join hands, dancing in circles and singing like Hari Christnas. Heck, W might even get them to convert to Christianity.
Our twin deficits: I believe the rest of the world will just forgive our debt. Its just a few trillion dollars for goodness sake. The Chinese should bow down to us for buying all that cheap crap anyway.
Our future liabilities: We can just throw this bill over the fence to either the Japs or the Chinese…They should pay for all our retirees and healthcare…They don’t know how to spend money anyway.
Housing: As we know, it only goes up…We just need the government to build a couple million homes and give them to anyone that cant afford them. And then tax cuts for everyone!!
Banking shmanking…We don’t really need those yahoos anyway. Just throw all that extra cash under the mattress.
Come on…In a few of years, you can say you heard it right here on Bens blog.
People need to separate the political from the economic. Future liabilities of the U.S. government due to Social Security and Medicare can disappear with the stroke of a pen and some very large cajones. Most likely the severity of the problem will be reduced by raising the ages of eligibility and lessening the benefits outright or stealthily through hidden inflation. Keep in mind that every other G8 country has the same problem we do only they are in worse shape due to either demographics or debt to GDP ratio or in most cases both. By far the worst problem the U.S. has to contend with in the long term is our massive merchandise trade deficit which is proving to be destablizing in a myriad of ways. The Fed lowered interest rates but it was all of the crap we bought that gave the Chinese the dollars they had to recycle somewhere-and that somewhere was in MBS which deepened and prolonged our massive housing bubble. We need to spend and import less and save and export more. Unless the fundamentals are fixed nothing else will matter because the destablizing imbalances will inflate and pop bubbles somewhere else.
How do you sell a home thats not moving? LOWER THE PRICE, GENIUSES.