‘You’re In Good Shape, Unless You Bought Last Lear’
The Casa Grande Dispatch has this report from Arizona. “Residential real estate has become a lot more calm in the last year, experts say. That doesn’t mean homeowners are stuck with houses they can’t sell. It just means the time in which they can expect to sell their house will be longer, and they should expect to negotiate on an offer at less than their asking price.”
“‘Sales are off 27 percent for the whole Phoenix area, from here up to Cave Creek, but prices are up 10 percent,’ says Debbie Yost, broker in Casa Grande. ‘I would estimate that 40 percent of sales last year were investor sales.’”
“The bad news is that the number of homes on the market has mushroomed. There (is) a staggering 14-month supply of inventory. ‘Sellers are slow to react,’ Yost says. ‘They don’t want to hear that the house they bought last year isn’t worth as much as it was a few months ago. Some of them are angry.’”
“The glut of existing homes on the market this year doesn’t seem to have slowed construction of new homes. Rick Miller, planning and development director for the city of Casa Grande, says that as of mid-June, building permits for new homes were 358 ahead of the same time last year. That has Casa Grande on pace for a record 2,200 to 2,400 new home permits for 2006.”
“The number of homes for sale this year is in large measure due to the number of investor purchases made in the last couple of years. Many buyers who purchased houses a year or two ago are ready to turn a quick profit in 2006. And many resident homeowners are hoping to leverage recent price increases and trade up.”
“‘Unless you bought last year (when prices peaked), you’re probably in good shape,’ Yost says. ‘The people who are caught are the ones who pulled their equity out (with a home equity loan), or financed with an adjustable rate mortgage (ARM) or an interest-only loan. We tell people, ‘If you’re just selling your home to make a killing, you might as well take it off the market.’”
“What was a seller’s market last year has become a buyer’s market in 2006. ‘Because there’s so much inventory, there are some bargains out there,’ Yost says. ‘We’re back to a market where (in order to sell quickly) houses have to be clean, in good shape and at or under the appraised value. I don’t think this is going to be a short-term thing. People are going to have to get realistic about the price.’”
“‘The builders are major corporations, not small companies,’ Yost points out, adding that they wouldn’t keep building homes if they weren’t turning a profit. ‘A lot of the spec homes they’re selling are canceled sales where people bought last fall or winter. They’ve pocketed the (buyers’) earnest money, and they use their affiliated mortgage company that they make money on.’”
The Arizona Republic. “Realtor Adam Swaney, with R.J. Springer Homes in Maricopa County, discusses the Valley’s housing market and its future. Question: Are recent worries about the Valley’s cooling housing market justified? What is the current state of the market? Answer: The market is tempering right now, and there really is every indication that people are out there buying and selling homes. There’s a large amount of listings on the market.’”
“Q: What is a common question or concern you hear from clients? A: The most common question I get is regarding home values and whether the value will hold. My answer is: Typically, yes, it will. Typically, Phoenix has been known for having inexpensive housing, and it still exists, just a little farther out of town.’”
“Q: Do you have any other advice for buyers or sellers? A: ‘The good deals are still out there, they just aren’t in the center of town.’”
“The market is tempering right now, and there really is every indication that people are out there buying and selling homes. There’s a large amount of listings on the market.’””
The New Home Builders report that foot traffic to their model homes is down over 65%, yet this reporter tells me there are buyers out there. Another piece of crap reporting from the MSM.
- experts say… That doesn’t mean homeowners are stuck with houses they can’t sell.
See, there is nothing to worry about!
- but prices are up 10 percent,’ says Debbie Yost.
Deb knows what is really happening. But, it is obvious that poor Deb is living in another universe…on a PLANET NAMED PLUTO!
A realtor in my building (I’m renting in a Miami Beach condo so the other 10 occupied units in my 130 unit building are all realtors) told me something funny. He said that his office manager told everyone one day last month to take off stale listings overnight and relist the following day for all “stale” listings. I wonder if this is a consipiracy driven by the NAR, e.g. take listings down on Thursday night, we will count the “official” inventory, then re-add the next day. Anyone else heard of this? Am I just paranoid (likely, but has the NAR given me any reason to trust them?).
Pluto is no longer a planet
‘The builders are major corporations, not small companies,’ Yost points out, adding that they wouldn’t keep building homes if they weren’t turning a profit.
They’ll keep making a profit until prices drop back to 2000 levels. The glut could continue to grow until prices reach that point.
That’s a good point. Will builders close their doors just to maintain current prices or will they build until prices fall to break even? She even admits they have other ways to profit:
‘They’ve pocketed the (buyers’) earnest money, and they use their affiliated mortgage company that they make money on.’
They can underprice current owners and investors (who are unwilling to lower their prices fast enough or can’t due to negative equity) and still make generous profits due to the fact that home prices are still sky high. Also the large companies tend to only look one quarter into the future due the expectations of their shareholders and the structure of corporate bonuses and incentives.
However if the builders continue to pile on to the glut, several years from now we could be looking at a situation where prices are so low and so many homes are on the market that it becomes unprofitable to build for the forseeable future.
These builders that are cashing in now could be facing bankruptcy.
We have a classical principle-agent problem here, where the agent (management) has the incentive to pump up share prices and earnings for the near term to the long-term detriment of the principle(s) (share holders who are not part of top management). It looks like Enron again in some respects.
They were making a profit before 2000 so why can’t they drop prices even further? Of course I’m only talking about the big builders, Ma & Pa will be out of business or subcontacting for a big boy. Prices for labor, land, and materials will drop as the small and medium size builders drop by the wayside.
“Residential real estate has become a lot more calm in the last year, experts say.
Who are these experts?
Calm is suppossed to be good? The ultimate in calm is, “Dead”.
You too can become an EXPERT! Here is the link to Amazon;
http://www.amazon.com/gp/product/002864283X/sr=8-1/qid=1156611878/ref=pd_bbs_1/002-4809691-0064026?ie=UTF8
Youst and Miller are so far behind the curve it’s scary. Investor sales are not sales but backloaded additional inventory. And Miller should know as a civil servant responsible for accomodating development that record housing starts at this point are the developers holding a going out of business sale.
‘I would estimate that 40 percent of sales last year were investor sales.’
That hidden inventory what is haunting the Arizona market.
Those “experts” are delusional, if not worse.
I just drove all over Pinal County last week…even I was completely shocked and awed by the number of houses for sale, empty, open houses, etc. I can’t even adequately express the train wreck. Further, I spoke to a member of the P&Z in Coolidge, and there will be NO more building permits issued for “a very long time”…there is talk of lawsuits against developers that have mothballed huge tracts of land and not put up money for the promised infrastructure. That area is one of the very worse of the whole country.
These reporters are NOT asking the right people the right questions…“Residential real estate has become a lot more calm in the last year, experts say.” Good grief, that is so retarded.
jesus, it’s almost like we have to go back to the land speculation of the early 1800s as a model.
1920s Florida is good enough.
I agree with you Catherine . You can’t have 40% of the home purchases in 2005 bought by investors and have anything but a inventory glut for years to come .
The “good” thing that will come of all this is to lay to rest once and for all the myth promulgated by developers and planners in collusion that we need to build lots more housing of the dense pack variety. I warned about municipalities being on the hook for inadequate infrastructure gaurantees. Municipalities need to do a bunch of things and now. Summarized; get lean and mean. Trim staff but more important let building permits expire. I’ve never seen an extension denied. Time it is critical that they do get denied and then fined and ultimately foreclosed upon. More mean; citations for upkeep. If the water gets turned off the fire dept needs to be right there with notices. Grafitti teams need to be formed. Abandoned vechicles and living on the street need immediate attention. School attendance needs residency proof. Like i said; mean. This is about municipal survival in some cases.
Amen, brother Robert! These smallish, previously agricultural communities (ala Pinal County) have been bitchslapped by the developers and are just now realizing they’ve been…had. And, they are fighting for their survival.
How about the stupid people who bought in Queen Creek (I think thats what its called). Anyhow, there was an article a few weeks ago in the AZ Republic about how there was no room for students in the local high school (I think it was). I thought to myself, didn’t it occur to anyone that there were no schools being built yet - so where would their kids go to school? Now the kids are in the hallways, cafeteria and library, etc. People have no brains.
Albuquerque hasn’t built a new high school on its westside since 1975, even though the majority of the city’s growth has been on the west side. Currently there are 2 high schools to serve this population. Each was originally built to hold
Investor sales are not sales but backloaded additional inventory.
Brilliant. Thanks for putting it in that perspective for me; I’ll be quoting it to friends and family.
Yost says. ‘The people who are caught are the ones who pulled their equity out (with a home equity loan), or financed with an adjustable rate mortgage (ARM) or an interest-only loan. We tell people, ‘If you’re just selling your home to make a killing, you might as well take it off the market.’”
this does not make sense.
If you pulled out all your equity you probably can’t afford to make your new payments so you have to sell and if you are just trying to sell your house because of some other reason what choice do you have you. And if you have no place to go, have a good job, happy marriage, kids go to local school, grew up in area this is not a good time to sell. Duh!
There are a variety of terms I wouls use to describe the current state of things but “calm” is not one of them.
Will builders close their doors just to maintain current prices or will they build until prices fall to break even?
Point 1: All the builders would have to close their doors to end the increase in supply. This of course would be an illegal combine. And at any rate…
Point 2: Even if the supply of new houses disappeared, prices would keep falling anyway due to the exit of speculators and foreclosure sales.
Point 3: As a previous poster pointed out, builders were making money when prices were 1/2 of what they are now, so why on earth shouldn’t they keep building and selling all the way down?
Most of the homes are built by individuals or very small husband-wife businesses. They will continue to cut costs until they starve.
They cannot close their doors without going out of business permanently. They have to generate revenue and maintain a skilled staff even throughout the tough times to ensure their long term existence.
“Closing their doors” would be like saying “since there’s a shortage of food right now, I’m not going to eat for a year or so. Then I’ll gorge myself afterward to make up for it.”
Exactly. Home builders are in the business of — building homes. Almost all of them will choose the same route: Retrench, Rebuild, Reprice, and pray for better times. Few business owners can stomach being a “quitter”.
Yes, they’ve done that during previous downturns. It’s business 101: Manage your working capital in order ensure going concern.
There are so many idiots in SoCal real estate who would not have the first clue about how to run a real business yet they think they are geniuses by catching liquidity wave that good Al Greenspan started.
I am squeezed in rental, have a lot (in Scottsdale) loan expiring in March 2007 and can pull my permit from the city around that time and wait up to 6 months for the first inspection. I plan on getting the 18 months construction loan in the spring and get the bids around mid 2007. I would be worse by $1500/month (after interest tax deduction) on owing a much bigger and nicer house for long-term.
My concerns are e.g. choice of the right size of builder, possibility of inflation rising the materials even further negating the waiting ($900/month lot interest not deductibel) and that I still will be burnt on the downslope of the bubble.
Comments ?
Since you asked for open [free] comments, here’s my free response:
Have you thought about the deflation of material prices? And lower building costs as people get laidoff and will work for lower rates? As the demand lessens in the construction industry everything will become cheaper: labor, materials, and maybe even inspection fees. And interest rates will probably fall with slowing of the economy.
The only sure thing is that taxes will, inevitably, always rise. That because when govrnmnt hires people, they have harder time firing them as well as fixed future costs like the pension system. And if San Diego is of an early warning sign during the upswing of the bubble years, many other cities and counties [and states?] have unfunded pension problems, too — if the property value drops and the tax income drops, watch out below.
“Have you thought about the deflation of material prices? And lower building costs as people get laidoff and will work for lower rates? As the demand lessens in the construction industry everything will become cheaper: labor, materials,”
That’s what I am hoping to take advantage of, but I understand nobody can predict whether we will be there by mid 2007 when I really must/want/would like to start building. No builder I have previously entertained the bid with has called back inquiring for work yet..
How About…build green. Make the house something special so that it attracts press. Try to work with a non-profit organization that specializes in green building and will bring some added value to the project.
Danny sounds sharp - listen to him. And if no builders are calling you back yet, they will be shortly. Give it another 3 to six months. You might try an ad in the paper asking for bids, etc.
The ones who can manage to stay in business will build small rental properties.
“You’re in good shape unless you bought last year.”
Hmmm…apply this statement to countless other U.S. markets. So just how many people are in trouble then ??!!
I think it’s more than just people who bought last year, although they are the deepest-screwed. I think it’s people who bought in 2004 as well. Not to mention the cash-out refi morons.
(slaps head) Duh. I should have read the whole article.
“Unless you bought last year (when prices peaked), you’re probably in good shape,’ Yost says. ‘The people who are caught are the ones who pulled their equity out (with a home equity loan), or financed with an adjustable rate mortgage (ARM) or an interest-only loan. We tell people, ‘If you’re just selling your home to make a killing, you might as well take it off the market.’”
Well, well so much for the magical housing ATM. Maybe I’ll finally begin to see fewer douche bags drivng around SD in tricked out Escalades with those realtor magnet signs no the side…
Amen.
‘You’re In Good Shape, Unless You Bought Last Lear’
or refied to the hilt
or cashed out your retirment to buy housing investments
or was counting on equity for retirment in the next few years
or was counting on a refi soon to buy a boat and etc.
up next: those who bought or refied two years ago!
rinse
repeat
Ha! Now that’s funny.
We lived in the East Valley of Phoenix for about ten years from the mid-80s to the mid-90s. I remember the early-90s housing crash there very well. There were plenty of “see-through” subdivisions in Mesa.
We happened to pass through the area this July and were absolutely astounded at how far out into the Stinking Desert the homebuilders have pushed. Way, way past what used to be considered the edge of town. You’d have to drive 45 minutes to get to what was the edge of town only a few years ago.
So, picture this: fields of McMansions, cheek-by-jowl as always, surrounded by many acres of sandy desert. A half-mile on, here’s another field of them. This went on for many miles, running southeast out of the Valley. The whole thing looked preposterous. Why would you have such a tiny yard when there was obviously still plenty of Stinking Desert? It was so bad, there were big directory signs by the side of the road, with directions to each of the developments. “Turn left here for these five, keep going for these twenty.” And the signs went on for miles, like Burma-Shave signs, only much bigger.
As we drove through, mouths agape (but windows up), a serious dust storm about 2,000 feet high was brewing up. Before it arrived, you could see down the streets of the McMansion fields. Literally half to three-quarters of the homes had For Sale signs up. A street over were unfinished homes. A quarter-mile further was another field, this time of frames and shells.
Then the dust storm came and covered them all. We drove on.
Sounds like the dust storm obliterated the “Welcome to Queen Creek” sign.
I flew in and out of Sky Harbor the other day on a layover, and had a window seat both flights. I was amazed to see from above the city how many not-yet-developed subdivisions there were all over the place (where you could see the outlines of where all of the not-yet-paved roads and not-yet-built homes will be). I would invite anyone flying through Phoenix anytime soon to check it out from the sky; it’s sobering to actually see how much is being developed.
No one is going to be in good shape if we have an all out housing CRASH, as opposed to just a hard landing.
The lenders appraisal system works in reverse of how it has
how it has worked in during the boom. During the boom the lenders wanted to just loan money they did not care about value. The higher the appraisal, the more money they could get you indebted for, the better. “Whew, it appraised at the sellers asking price”. or “Whew, it appraised at my high bid?”. No kidding.
Now, let me clue you in to how the appraisal business works in reverse in an all out housing CRASH. In a crash they don’t want to lend any money out, so they go for the lowest appraisals or appraisals that are just high enough for THEM to get their money out.
Scenario: You are in trouble financially and you have to sell fast, the market has crashed. Your neighbor paid $100,000 for his house a couple of years ago and owes $97,000, he goes to the bank and says he needs an appraisal. The bank sends out an appraiser and Shazaam, it appraises for $97,000.
You on the other hand paid $80,000 for your house 10 years ago, you put in $20,000 in improvements, the usual granite counter tops etc. You also diligently paid down your mortgage to $40,000. You call up the bank and ask for an appraisal and shazaam it appraises for $40,000.
Read it and weep. The banks will not care about anything but getting their money back and a lower appraisal just increases the potential pool of buyers.
So this is just another myth, to add to the pile.
1. It is just recent buyers who will be hurt.
2. It is just people who got exotic mortgages who will be hurt.
3. It is different here.
4. There is a housing bubble, just not here in my area.
5. etc, etc, etc.
The only way to win at this game is to have your house paid off and hope nothing bad happens, marrage wise, health wise or natural disaster wise.
So the bank will massage the appraisal value down just to ensure that they get their remaining prinicipal back in slow sale market?? I’m a pretty big housing bear but thats seems rather brutal even to me. What experience do you have with this scenario?
This is a debt bubble. The lenders have had a lot of money to lend and they will lend it for just about anything as evidenced by mailboxes full of offers of loans for $30,000 plus, unsecured.
Granite countertops and the sponge painting in the bathroom that a homeowner labored on have absolutely no value to them. But they know that those things have a value to you and that you will keep paying on your note and making intererst payments, and so they will keep making money. If things go really, really bad and there are a whole lot of people walking away from their houses. The lending could dry up for real estate. Remember, the bank doesn’t want your house, they want the money back to put in another spot that will be earning them interest. If there are a couple of people in town left that qualify for a $40,000 loan and that is what is left on the mortgage, do you think they are going to appraise it at $60,000 and take another hit? For you?
Well, no not for me because I don’t have mortgage. I rent. Your point is taken though, but what you’ve described is a world of short sales and foreclosures though.
Yes, my final sentence says, “The only way to win at this game is to have your house paid off….”
On second thought, I rent too. Maybe I will change that to. “The only way to win at this game is to not play and rent”.
Cause you know what? Everybodies got to sell sometime. Unless of course you die first, but that is an unknown that is impossible for me to put into my plans.
if you are suggesting that a bank would take an intentionally under market offer in a foreclosure sale, well, the prior owner would have some recourse - a bank has to use reasonable efforts to get fair market value
I am not sure what role an appraiser would play in that at all other than to paper the sale price a bit.
Yes, it is a little bit of a brain teaser, actually both houses are now “worth”, $40,000. The banker would probably be gentler with the qualifications on a buyer willing to accept the $97,000 price, anything to get them off the hook and get a new person making those interest payments.
In a housing crash there is no such thing as “fair market value”, because there is no market. No one has cash to buy and the banks won’t loan any money to anyone for real estate anymore, unless it is to take hook another person on an exsisting loan. The banks will actually be propping up values, but only on their own housing stock.
If you had tried to tell the bank that the market value of your house in 1931 is the same as it was in 1928, I am sure they would have shown you the door.
Which brings us to today, is there anyway to determine fair market value now? Are the “comps”, of any use when nothing is selling?
“The good deals are still out there, they just aren’t in the center of town.”
Ha! Now that’s funny.
We lived in the East Valley of Phoenix for about ten years from the mid-80s to the mid-90s. I remember the early-90s housing crash there very well. There were plenty of “see-through” subdivisions in Mesa.
We happened to pass through the area this July and were absolutely astounded at how far out into the Stinking Desert the homebuilders have pushed. Way, way past what used to be considered the edge of town. You’d have to drive 45 minutes to get to what was the edge of town only a few years ago.
So, picture this: fields of McMansions, cheek-by-jowl as always, surrounded by many acres of sandy desert. A half-mile on, here’s another field of them. This went on for many miles, running southeast out of the Valley. The whole thing looked preposterous. Why would you have such a tiny yard when there was obviously still plenty of Stinking Desert? It was so bad, there were big directory signs by the side of the road, with directions to each of the developments. “Turn left here for these five, keep going for these twenty.” And the signs went on for miles, like Burma-Shave signs, only much bigger.
As we drove through, mouths agape (but windows up), a serious dust storm about 2,000 feet high was brewing up. Before it arrived, you could see down the streets of the McMansion fields. Literally half to three-quarters of the homes had For Sale signs up. A street over were unfinished homes. A quarter-mile further was another field, this time of frames and shells.
Then the dust storm came and covered them all. We drove on.
Sorry for the double-post.
Superb piece of writing, DSmith.
test
test2
Hmmm…it *thinks* it’s got my comment, because it gives me a “duplicate comment” error, but the comment doesn’t show.
The language filter is pretty sensitive. I used c*u*m in its Latin sense and couldn’t get my post to work. Look for something like this.
This is a bit off topic, but does anyone know how to purchase real-estate via IRAs? I figure in the next 4-5 years some good investment opportunities might emerge, and I would not mind getting some RE exposure
at that time.
This may not be possible to do, but I can’t find any prohibitions in IRA rules from doing this. If it is possible I need to plan for the possibility.
Any comments?
Oliver
That’s what REITs (Real Estate Investment Trusts) are for.
Talk to these guys:
http://iraplus.com/
Here’s an article from Forbes. Starts talking about this around paragraph 3 or 4.
http://tinyurl.com/lsmr9
Thank you guys. Exactly the kind of info I was looking for. I did not realize you could even take on debt (with lots of juicy tax complications;)
Oliver
Headline typo:
“Unless You Bought Last Lear”
Problem is not much that prices appreciated too much.
Problems are due to the fact that (First) many people purchased big risky mortgages that they could not and should not have afforded AND (Second) problem is people’s behavior during last 4 years, e.g. too much reckless spending/excess, tapping House ATM as a souce of income to inhance their lavish life style that otherwise could have had, and general nonchalant attitude toward accomulation of high levels of debt. On top of that you may add rampant appraisal fraud too.
On Boston’s Fox news the other night a so called real estate expert said that when buying a house don’t spend more than 25% of your monthly gross income on a mortgage. Now that’s the best advice I’ve heard yet from a so called real estate expert! The only problem is if people in Boston follow this advice their will be no sales at current price levels. Basically everybody needs to make $100K to have a roof over their head and that’s not for a very nice roof either.
OT, but AWESOME
http://paper-money.blogspot.com/2006/08/lereah-mea-culpa.html
Wow. The bubbles as a backdrop for that presentation are brilliant. I like that he obscured the bubbles with pictures for the first couple of slides. His predictions for interest rates on Treasuries look to be off already. Also, I think he is still way optimistic on the effect of interest rates on prices. I think at the current levels we are close to zero appreciation, and I think going forward that rates will need to be even lower to maintain zero appreciation. His L.A. peak-to trough data for the last bust look lower than any that I have seen. I don’t buy his data on that.
He is still a shill.
Interesting that NH is the only stable state in the country on his map. It actually isn’t. The populous parts are seeing sales declines while the unpopulated parts (or dirt cheap) are seeing expansion.
“Last Lear”? (Sorry, I just noticed it.)
any 2003 prices spotted yet ?
some early 2005 pricing here in 22151
lots of 2004 pricing in other “hot” markets
“There’s a large amount of listings on the market, but it is important to see that we’re selling as many homes now as we did a year ago. Now, around 7,000 homes sell a month in the Valley and there are about 20,000 listings. Last year, we saw a period where there were 7,000 listings and 7,000 sales.”
About 20,000 listings. . . you are clearly lying, Springer. Using conservative numbers, it is approaching 50,000 listings.
And selling as many as a year ago. Actually, the fewest number of June sales and July sales since 1999.
PEOPLE THINKING OF BUYING HOMES:
DO NOT EVEN THINK OF DOING SO UNLESS YOU ABSOLUTELY MUST. IF SO, PAY NO MORE THAN 50% OF SOMEONE’S ASKING PRICE. LOWBALL UNTIL YOU FIND SOMEONE WHO WILL TAKE THAT BID…
Have a nice day.
Right the first time. Do not even think of buying now. There is no “absolutely must”. There are rentals everywhere. Heck there are residential hotels everywhere. There are storage facilities. There is no “I must buy”, except for the GFs. Don’t be a GF.
Don’t buy stocks in August, 1929. Any stock. At any price.
Wait.
I’m just waiting for the real estate mantra of “location, location, location” to mean something again. There are some suburbs here in the Chicago area that would build a house on a grassy median and think they should get a high end price for it.