‘If No One Is Willing To Pay It, Then It’s Just A Dream’
Some housing bubble reports from California. The LA Daily News, “The inventory of unsold new homes in Southern California soared to its highest level since 1990 by the end of the second quarter, and construction activity has dropped dramatically as builders adjust to the slowing market.”
“At the end of June, there were 16,595 new houses and condominiums for sale from Santa Barbara County to San Diego County (excluding Imperial County), up 171 percent from the end of July 2005.”
“In Los Angeles County, the unsold new home inventory rocketed an annual 375 percent, to 1,975 properties at the end of June. That’s the most since 2,054 new homes were on the market at the end of 1995. The most distress, however, is in San Diego County, where a record 6,927 properties were on the market at the end of June.”
“Southern California now accounts for 3 percent of the unsold new home inventory in the U.S. and 14 percent in the West. ‘There is no question in my mind there’s a number of indicators showing a large unexpected decrease in the demand for housing,’ said Michael Carney at California State Polytechnic University, Pomona. It’s happening in lots of other places, too, he said.”
The Desert Sun. “Joining the rest of Southern California, the Coachella Valley continued its housing market cool-down of the past several months, with the July sales count of 795 properties down 36.4 percent from a year ago. It also marked the first time in 2006 that the valley’s monthly median dipped below $400,000.”
“The last time that occurred was December 2005, when the median was also $390,000. Since hitting a peak price of $418,500 in February, the local median has generally trended downward.”
“The valley’s unsold inventory as of Monday was 7,261, more than twice the level of a year ago.”
The Long Beach Press Telegram. “We’re in a housing slump, if you look at the latest data. It may be the sellers themselves who are partially to blame. The problem is, many sellers haven’t realized that it’s a seller’s market no more, real estate agents say. Consultant Rose Voss’ message: in an emerging buyer’s market such as this, the home needs to come with a reasonable price tag if you want it sold anytime soon.”
“‘The problem is more inventory is on the market than it was three months ago,’ she said. There are nearly four times as many single family-homes and condos in the Lakewood, Signal Hill and Long Beach area than there were a year ago. There are about 2,300 homes currently for sale, compared with about 600 listings at this time a year ago.”
“A continuing plunge in enrollment is cited as the basis of a plan to sell or lease four school campuses in the San Juan Unified School District in Sacramento County. At the heart of the proposal is a drop in enrollment for the district as the district’s population ages and families with school-age children opt for other districts where housing costs less, school officials say.”
“Investors who once hoped to make a quick buck on rising home prices are now pulling back from Sonoma County’s housing market, according to a study issued Tuesday. Almost half of the Sonoma County sellers who flipped their homes in the second quarter lost money.”
“The flipping of homes in California declined to its lowest level in more than three years, according to a company that offers information on real estate sales trends. Investors are apparently pulling back, and ‘chances for a quick turnaround and profit are diminishing’.”
“During the second quarter, 2.4 percent of the existing homes that sold statewide had been owned for six months or less. That was down from 3.2 percent for the first three months of this year and down from 3.5 percent for last year’s second quarter.”
From Realty Times. “As of 8/28/06 over 1370 homes for sale in Murrieta. It really is a BUYER’s market. If you like the home, but think it’s over priced..just write the offer for what you think it’s worth. And don’t worry about hurting their feelings. They want to sell their home. It’s been sitting there because it’s overpriced (or has a transformer in the back yard…)”
“There is a lot of truth to the saying that Buyers determine the selling price of a home, not the Sellers. Sellers can set an asking price, but if no one is willing to pay it, then it is just a dream.”
“Southern California now accounts for 3 percent of the unsold new home inventory in the U.S.” - then again, it also accounts for well over 5% of the population. I’m surprised the inventory isn’t higher.
We’re not a Blue State, for nothing. Damn jobs, damn affordability, we are so righteous in the eyes of Gaia no catastrophe will ever befall the Golden State. The earth loves us and hates you.
12%
Census sez:
2005 California population = 36,132,147
2005 USA population = 296,410,404
This is just for So Cal…not all of CA, hence the 5%.
Wishing Price®. Now everyone owes me a dollar.
Now here is the true CRUX if the problem..
President Bush last year claimed, ” today more Americans are home owners than ever before. 80% of all Amercia, I believe, the government claimed..
WE have over built 700,000 units at least over the last 3 years. Using a units built versus NEW home formations i.e. people (formula).
Housing is unaffordable. Lowest affordibility in 50 years.
OF the 20% of Americans (legal or illlegal) that don’t own !What % of these family units that haven’t bought can qualify to buy?
As Barrons reported 10% of all homes in America have ZERO equity!
Approx 35% all new mortgage borrowings were zero down loans in 2005. {Higher in Fla and Cali.}
Now for the $640,000 {dollar debasement) question —–
Who do the 80% home owners sell to? And is it possible to stay 100-160% above long term trend without any buyers?
Answer: the banksters…& NO!
Wow, if that 80% number is true you really should be scared. But I won’t focus on the %20 who did not buy, I would focus on the 20% who did buy. Historically only %60 owned their houses in America, which I argue is unproductive, so if that jumped to 80% how did those extra 20% suddenly achieve this?
Oliver
It’s a hair under 70%. Higher than usual but not quite 80%.
Home Ownership Rates, All Households:
1970 64
1980 65.5
1990 64.1
1995 65.1
1999 66.9
2000 67.5
2001 68
2002 68.3
2003 68.6
2004 69.2
2005 69
2006 (Q2) 68.7
http://www.census.gov/hhes/www/housing/hvs/historic/index.html
Thanks Backstage. It is always good to put data underneath statements. An interesting experiment would be to apply a low pass filter to the data, and see if the recent peak looks to be statisitically significant.
Oliver
President Bush says lots of things that are untrue. If it comes out of his mouth I would bet on something other than what he says to be true. 1/2 the time he is lying 1/2 the time he doesnt have any idea what he is talking about. I am not sure what scares me more..
Maybe they made up a new formula for homeownership, just like the unemployment, CPI etc. They left out the people who can’t afford to buy a house, and all of a sudden the number soared to 80% (or would that be 150%?).
Yep, a dollar.
MUHU MUHUHAHAHAHAHA! (pinky finger to corner of mouth, Dr. Evil style)
Sorry…. just had to get that out of my system.
Awesome news for bubble heads! A writer for Forbes Magazine has Predicted AT LEAST 20% nationwide median price declines!!
article at http://www.realestatedecline.com
Murrieta is a dump! I’ve worked in the area for over 5 years. Nothing but crappy built homes. All those idiots who moved out there to own a 4,000 sq.ft home. will get what coming to them. I’ll tell you, that in a couple years, most of those people will be praying for brush fires to burn those tracts to the ground.
In fact, in two years, or less, I bet I’ll be able to buy a 4,000 sq ft home in Murrieta for under 150K
No you won’t. Get real. $30/sf is far below depression era prices for the copper, fixtures, lumber and recyled concrete. Before those McMansions got to you they’ll go to salvage crews.
Oh?
My bet is the copper prices will drop faster than a speeding bullet!
When “debt” is tight! money for commodities will be tighter.
The price of copper will implode, we are less than a year from the Chinese Olympics! Ther will be no support Sliver fell from 48 to $3.50 in a just a few short years…copper will fall faster!
Don’t get hung up in the minutae. I said “depression era” prices. I accounted for the commodities bubble popping along with the housing pustule. Copper aall but crashed today. I just put my money where my mouth is with a Dec Lumber contract.
It’s just that $30/sf is so very low that the dollar could not sustain that economy, everything would collapse. The internet wouldn’t be around to record my being wrong so I’m comfortable saying things cannot get that low.
Not sure why — probably the vin — but sometimes Robert reminds me of Yancy Derringer.
That should sort out the young’ns, for sure.
“housing pustule”
Har! Good one; appropriately descriptive.
“…..but sometimes Robert reminds me of Yancy Derringer.”
Wow, Chip…I haven’t heard name Yancy Derringer in YEARS! (for folks who are not old enough to know, it was an old TV series character. )
Looking for you to call someone a “Sugarfoot” in a minute.
BayQT~
“$30/sq ft”…a 2500 sq ft home for $75,000…in MA that would be late sixty’s or ealry seventy’s pricing…
With all due respect, I just don’t think that is remotely possible, likely or probable…
I will go for $100 SQ Ft in San Diego county. That is what I bought the current place for in ‘97, and it seems about fair given all the positives for the area.
NO, the new homes are now utilizing PVC plastic tubing!
Are those 20 or 40 amp PVC tubes running to the electrical outlets?
I think, Robert, a $30/sq. ft. house would not have copper, or steel, or toilets, or sinks. The proud new owner would have to reinstall them. The previous owner ripped them out for salvage prior to sending in ‘jingle mail.’
You forgot the wood. There’s an awful lot of firewood in a 2,500 sq. ft. McMansion.
Depends entirely on how much inventory the lenders hold, how tight $$$$ gets, the number of qualified bidders that still have an appetite and what regulatory pressure lenders are under to clear out inventory. I agree it sounds low but IMO anything is possible. In the heyday of the RTC there were inside transactions with preferred buyers that went for unreal prices. A lot of people got filthy rich in the wake of all that misery.
Including Ca senator feinstein’s husband, BLUME, who picked up some S&L or so in Oregon and made $97 million. By the way, he is a trader, and has deals with the ChiComs for years. Didn’t know that, you libs, did you.
i thought he was a republican.
What about Simon, Keating, and all the other Republican S&L Robber Barons?
Uhhhh…where do I sign up for that?
Get some investors together and try to get a relationship going with Lenders, so you’re in their Rolodex, when the flood gates blow open and their inventories exceed their ability to dump through their normal already swamped channels…
If things really hit the fan, you won’t need to be an insider to get a good deal.
First bad assumption, there is copper and concrete in the typical McMansion. There is plenty of cheap granite however. The lumber is typically crap and will fall like a log.
$30 per square foot is still not really cheap and way above where it should be. I expect houses to eventually sell in bubble areas for under $20 a square-foot.
Oliver
No disrespect Oliver but that is really way too low. Let’s be realistic. Although I have never seen any of these homes you are speaking of.
Funny you should ask. I was looking at used Chrysler Crossfires (BTW a great little car, if you can live with $300 tires and $150 oil changes) the other day. This took me to a housing development in the SF bay area. As far as I could tell, the folks living there, who happened to work for the developer, were the only people who lived there.
I was shocked at the quality of these $1M+ dollar homes. I mean absolutely shocked. The trusses were so skinny and the exposed wood was of unbelievably bad quality, that I was amazed they could make it though inspection.
The interior could only be described as a dry wall monsters. Yes there were the granite counters in the 3 bathrooms and the kitchen. To be honest the master bedroom was probably bigger than my current house.
I will note that in the model house, which being nosy I also checked out, they did have a very nice trash can in the bathroom. I mean it really stood out as a nice piece. Cost $185. While it outshone the rest of the house, I passed. There was something slightly ironic that the nicest thing about the house was the trash can.
The really sad thing about this story, is I suspect these folks were selling their Crossfire because they could not afford their house. They were selling a piece of art (I know many people would not consider a car a piece of art, but I think mechanical items can quality for this designation) to hold on to a large but crappy house.
Oliver
Oliver- When I was a kid, I used to refer to our neighbor’s E-type Jag as “driveway sculpture”.
Oliver , I agree with you. It may not be likely but is certainly possible to see median home values drop by the amounts you cited. After quadrupling in 5 years time in many areas , a 50 % drop is not really even that corrective. See NASDAQ. Japan has seen over 60% drops from the peaks , no? More in some areas. To say it can’t happen here is akin to the ‘it’s different this time’ realtor-speak. England as noted has stabilized . though my undertsanding is that this is being partially aided by massive buying from foreign investors and speculators , will they come to Scottsdale too? Who knows. Maybe the immigrant will be our savior? Australia’s bust was tempered by a massive bull market in the commodities , a significant boost to their economy . Guess something could come up to soften the blow here. Anywho , my guess is that they will try like the dickens to prolong the inevitable, and cease raising rates here in the US for a fair period in order to mount a massive push to get these hammerheads to refi into fixed mortgages, and cushion the damage to the economy from that end , until resuming increases to battle the inflation that should inevitably come home to roost after such a period of massive money expansion as we’ve seen over close to 20 years now.
So you anticipate a 90%+ drop in pricing in SD, LA, SF?
A 60%+ drop nationally?
Backstage,
That is a good question, and the answer is murky in the cases of houses. Back in the old days, bankers had a little cartel going. They required 20% down and no more debt than 3x income.
Well that is all out the window now. So we coming off an amazing 25 year bull market in bonds, loose lending standards, a shift from price to monthly payment, a movement from fix to ARMs and more exotic loans, and Asian central banks prepared to buy our paper for above market prices. It is hard to know what may happen from here.
I hold up England as an example. The housing market is clearly more out of whack there, than it is here. Last year it looked ready for a fall, but then turned again this year and started to head up.
On the other-hand the Japanese went from unbelievable prices in the early 90’s to 1970’s nominal prices today! Germany has experienced close to 10 years of decreasing real estate prices.
So I think there is a >0 chance that prices could fall that much. But I also think there is a decent chance we could zoom up higher before a correction.
Would I buy residential RE now? NO! Would I be prepared to bet that it won’t go higher next year? No.
I will bet that at some point in the future you will be able to buy real estate in real terms at 1993 prices. The problem is I can’t tell you when. So it is a bet only I can win
Oliver
However, Oliver, I completely agree with Lee in Irvine. The only way you could get me to buy in Murietta would be at $25/foot.
Oliver,
The UK is bad, but I’m doubtful it is as bad as the US - we haven’t had the massive speculative development and flippers you have.
I have put three graphs on Flickr - http://www.flickr.com/photos/loafer123/sets/72157594259554400/show/
which show the stats - I would be interested to see comparable charts for the US if anyone has them…
Regards,
Loafer
Here are some data graphs for Sacramento CA, and you are correct, England is less imbalanced than Sacramento (Sac is a top 10 bubble market in U.S.)
http://mysite.verizon.net/vodkajim/housingbubble/sacramento.html
& this one
http://www.housedata.info/CA/Sacramento.Arden.Arcade.Roseville/
and then check out the graphs at the bottom of this site
http://sacramentohousingbubble.blogspot.com/
The themes are all the same. Housing is very overpriced based on costs, rental value, and average income needed to support the prices.
Rockin and Loafer thanks for pointing out the data. I think the most striking thing about the UK data is the affordability index. It looks much more reasonable than what has happened in the US even though house prices have gone up pretty significantly.
Obviously interest rates have dropped in both countries helping to raise prices, but I am guessing real wages have been going up in the UK and not been stagnant like they have been here. Is that true?
Oliver
I haven’t looked for the data, but my guess is you are right, notably the bringing in of a minimum wage, which influences the buying power of households, often through the second earner.
We have a pretty good economy over here, for the time being.
Regards,
Loafer
Keep on dreaming and you may get to live in a trailer. That’s the last time I recall they were going for in the early to mid 80’s.
Cote– demand, or lack thereof, will push Murrieta prices through any sort of floor that we could possibly imagine. There is no big industry in Murrieta/Temecula/IE. It’s all commuters coming into the city (or some heading down to San Diego, I imagine). All of those communities are based upon the assumption that people are willing to spend a quarter of their day in their car. As soon as the core commuters move out of Murrieta, all of the TGI Fridays employees, kindergarten teachers, and hot tub dealers will be screwed ten ways from Sunday.
To put it this way: there are plenty of cars that sell for less than the amount you could get by stripping the wiring, ECU components, etc. It can also happen with tract houses.
I built my two story 2100 sq ft home a year ago for $35.00 sq ft with all copper pipes. BTW- Most all new homes in So Cal from year 2000 on use plastic flexible PEX tubing for plumbing.
In the last down cycle 1997, I bought a 1500 sqft home in Lake Arrowhead less than two minutes from the lake on a great lot for $62,500. It was bank owned. It was newly remodeled and had all new copper plumbing with new carpet and tile.
Any appraiser worth his salt would have noted your comments in his appraisal report.
This coming bust will contains legions of projects subject to the most horric economic obsolescences all overlooked and not reported by crooked appraisers.
This is one of the reasons this collapse will make ‘90/’91 so insignificant…If you can call a FED bail-out of 500bil insignificant.
What the hell are you talking about.. It’s what the market will accept not dollar for dollar cost. I have used $25 a S.F. It’s shortsighted to just say it’s the appraisers fault. Next time you look @ a Hud Statement look at the fees and see who gets paid the least.. All those other fees are the crooks Geezz
Quick question..are you saying that you have used $25/sq ft in actual appraisals? If so, where?
When I sold my house last October the appraiser needed to borrow my tape measure, he forgot his.
will get what coming to them.
Sadly, that’s not what happens. You and I will be forced to bail out the greedy thoughtless people that created the bubble. That’s what happened during the dot-com crash, the S&L fiasco, and Enron, and that’s what will happen here.
These folks will just declare BK, while our prices and taxes will be raised to pay for their greed.
Not exactly. We won’t pay any more than we’re paying for Iraq or Katrina or… Just piling on the already unrestrained national debt. I agree however that we will pay at some point when the dollar collapses and it won’t be pretty. We will inflate out way out of debt while the dollar goes the way of the earlier version of the Peso… or Ruble.
again, these flippers/investors/speculators will not be bailed out, they may get some housing assistance, but that’s it. it will be the financial institutions.
With respect to all that has been said about this, does anyone have data about where house prices were after the Great Depression (or whatever period was the greatest US deflationary one, for house prices) relative to before-and-after prices? My point is to determine if prices at the nadir were below the replacement cost at any time. It’s not logical that such would be true if any construction at all were ongoing, but I’d be interested in knowing the anomalies and the general differential.
When I look at housing costs today, whether building from scratch or already-built, I’m baffled at how high they are relative to my own income and to prices six or eight years ago. The holy grail for me is the cost per finished square foot that I should want to pay near the end of the ongoing decline.
The new york times has a inflation adjusted graph showing RE since 1890 in the US. 83% of the appreciation has been since 1997
Got a link to that?
Here ya go:
http://tinyurl.com/zptel
Operation — thanks. My question, distilled: after adjusting for inflation, does anyone think that the cost-per-square foot for a used house, after the bust, will be significantly below the cost of building a new house of the same quality?
For a period of time, yes. Excess supply, or actually non-existent demand, will ensure that. In the meantime, there will be no new residential construction, because existing homes will be so much cheaper. But ultimately the economy improves, the surplus is absorbed, prices rise, and the cycle begins anew.
Wicked cool graph Operation
Oliver
In 1992-95 you could buy homes for less than reproduction costs. In many areas of the country, you could buy homes and have positive cash flow from day one, after vacancy factors and all expenses. You did not get “positive leverage” (ie, your cash flow yield on your down payment did not exceed the interest rate on your debt), but you made money from day one.
Lineup/Operation,
That is one of the most useful pieces of information ever posted on this blog. It indicates that prices are 99% above inflation, which is their real value. This supports a common claim on this blog that prices should drop 40 - 60%. Great Post.
According to what I’ve read, the appreciation in real estate leading up to the depression was primarily in farmland…which declined 30% in the crash.
As a resident of Temecula, I both agree and disagree with your statement. This area has been vastly overbuilt and the quality of life here has definitely taken a turn for the worse in the last couple of years.
However, the schools here in the right neighborhoods are better than private educations in most cities, and it is not a bad place to bring up kids (at least through middle school).
By the same respect, if I didn’t have a good paying job close to my house, I don’t know why I would be here. The area has no real social character, and there isn’t a lot to do without driving somewhere else. For me, it is convenient, since I like the desert and golf. I spend a lot of my free time out on the Jeep trails in the Anza Borrego Desert and at the many excellent local golf courses.
For my kids, I make sure to take them to places where they can experience something besides the tract home suburb/strip mall that is the Temecula Valley as often as I can.
I just read a post on craigslist with some guy arguing that interest only loans are fine as long as they aren’t adjustable rate. My friend at work asked me why I was laughing, and after telling him about the post he had a blank look. So I’m basically going to sent him the following to try to illustrate why interest only loans are usually bad.
For reference, the guy on craigslist’s argument was basically (paraphrasing) “if you can just make a modest 3.5% return in appreciation, after 15 years your house will have increased in value 67%”. I will reply:
This is an absolutely true statement IF appreciation averages 3.5% for 15 years, and IF you do not sell for 15 years. The reason so many people are going to be hurt by these loans is becuase by hanging on to “IF’s”, they are speculating, and there are a multitude of scenarios where you CAN’T HANG ON, and will get burned by the law of averages.
First of all, what happens IF after 15 years, appreciation has only been 15% total instead of 67% ? “Oh”, you say. “That’s fine, I will just sell and happily take 15k for every 100k I borrowed.” Great, so now after 15 years, you have 60k in the bank, and you’re ready to buy the house you will retire in… with another 30 year mortgage? So say you buy at 30, 15 years from now, you are 45, and you have to take out a new 30 year mortgage to buy the house you *really* want. I guess you better not plan on having any “happy golden years”. Meanwhile, your 60k in future dollars is worth about 30k in today’s dollars due to inflation. This is the “soft landing” that all the experts are trying to pawn off on you to convince you to pay interest to them on these huge loans for the next 15 years.
Take scenario 2: Suppose OVER TIME the market does average 3.5%, but over the next 5 years, it DROPS just 10-15%. Well, you better hope you don’t have a construction, or real estate related job that is downsized, or have to take a pay cut. You better REALLY PRAY that nothing happens that would force you to sell during that time. Otherwise, you are out on the street with no place to live, and you OWE 40-60k in addittion to any rent you have to pay. But nothing bad ever happens, right?
The point is, an interest only loan, CAN BE ok, but it should make sense for you. Typically, doctors and lawyers get those loans just out of school, before the big bucks kick in. So don’t be CONNED by a loan officer trying to make a commission off of you, and getting you into a bigger loan than you can afford. They just want a bigger commission. How long has money been lent on housing? Did everybody who came before us just NOT REALIZE how great interest only loans are?
Finally, ask yourself this. When would I like to stop paying for the house I live in? How cool would it be if you DIDN’T HAVE TO PAY rent or a mortgage. That extra 2k per month would be in your pocket. With an interest only loan, it will NEVER happen. With a 30 year amortization, you have a set plan and 30 years from now, you won’t pay rent or a mortgage any longer.
This is an absolutely true statement IF appreciation averages 3.5% for 15 years, and IF you do not sell for 15 years. The reason so many people are going to be hurt by these loans is becuase by hanging on to “IF’s”, they are speculating, and there are a multitude of scenarios where you CAN’T HANG ON, and will get burned by the law of averages.
The most famous last words I always heard as an appraiser…
“We plan to be in this house forever…”
2 years later I get a call from a divorce lawyer asking for a value update.
Forever in this day and age ususally maxes out @ 7 years.
Typically, doctors and lawyers get those loans just out of school, before the big bucks kick in.
Actually, an i/o loan only makes sense for the exact OPPOSITE situation—you have enough $$$ to purchase the house outright (for cash), but aren’t 100% sure you want to commit. So you buy the house with an i/o mortgage for a few years (in effect, renting it!) and then when you’re sure, you either buy it or pay enough toward it to get a conforming mortgage w/no PMI etc, (assuming rates are still low enough that this makes sense, otherwise you simply buy it outright.)
In five years, after your house has increased in value at 20% (G.Watts) per year compounded, you get a 30 fixed, crank out enough for that trip to Europe, and his and hers Hummers, as well as Mitzies first year at Mills, you settle down to the good life. ‘While you’re up, get me a Grants’.
Another alternative scenario for an IO loan: you bank the principal that would normally go towards a conventional loan and earn a rate of return greater than the prevailing interest rate on your note less the mortage interest tax deduction. This scenario works well when you have investment options that have safety of principal, liquidity, and rate of return, as well as the equity/income to absorb a downturn in the market. In an appreciating market this scenario works exceedingly well given you have an appreciation asset and leverage of capital/arbitrage in your favor, even with the high transaction costs associated with real estate. Not so much in a down market.
In terms of speculating, you only speculate what you can afford to lose, regardless of the market you speculate in. For high net worth/high income individuals this type of financial scenario works well given the risks.
The problem is that too many middle/low income borrowers use this type of loan to qualify for a house they otherwise couldn’t afford. A house to them is not and should not be an investment vehicle as they cannot afford the risks should something go awry.
Personally, I would rather have many options available to me as far as mortgages go and choose the one that meets my needs than have a one size fits all approach. Having said that, I also know that the majority of MB’s out there pushed these products on the wrong people because of greed. Many people didn’t educate themselves on the risks of these types of loans so the blame doesn’t rest with just the MB’s.
My 2 cents.
INterest_math — nice post. Don’t recall seeing yuou post here before, but I like very much your ability to quantify the buy-sell decision crtieria. Will look forward to seeing more of your stuff.
Murrieta IS a dump - icky.
“And don’t worry about hurting their feelings. They want to sell their home. It’s been sitting there because it’s overpriced (or has a transformer in the back yard…)”
Fell off my chair laughing at this one….
Oh man, don’t get me started on this. The freakin’ public road right of way including the freakin’ 4 foot sidewalks, landscape strip (your responsibility) and curb cuts and sight lines and all and still they gotta slap a fake freakin’ ROCK cover over a secondary cable access in your front yard where it is so ugly even the garden gnomes won’t go near it.
In Seattle and central Washington, the artificial rock facing guys are hiring extra help b/c they can’t keep up with the orders for the stuff on new houses and renovations…
This sudden switch from a sellers market to a buyers market is infantile, nonsense. The market is the market, it was driven for a while by a gullible, sentimental attitude. That zeitgeist has gone, there isn’t a watered down version in the wings ready to jump in now that the market has turned. I’d call the present market sentiment not a buyers market but a value market.
“it was driven for a while by a gullible, sentimental attitude. That zeitgeist has gone,”
No unfortunately it isn’t. This came to mind after this weekends social function I attended.
What if all the equity locust come home… What will happen to this market.
That’s a big if. I would imagine that sane investors for example will be seeking yields at self financing plus 3% +to reflect sector risk. I doubt that most markets are within 30 -50% of this benchmark currently.
They can’t. They will never be able to sell their houses in Reno, Ashland, Bend, Boise, Phoenix, Salt Lake City, Austin, Dallas, Albuquerque, Las Vegas, Boulder, Denver, and on and on and on… They are stuck, save for the few who are so wealthy that they did not even need the equity to begin with.
Yep, that’s been my point for awhile now. It’s gonna be tough on the ol psyche to see California come down while stuck in one of these secondary hellholes and faced with the choicke of either being forced to stay or giving back the bubble profits selling at a big loss. What’s a bull market genius, master of the universe to do? Of course! Sue someone!
I dunno, I had an encounter this weekend that would dispute that. While I agree that the pro’s will continue to wait and some won’t partcipate because they won’t be able to sell the out of state property. There’s a whole different beast waiting in the curtains. Who think that the upcomng foreclosures are a boon to their pockets. Compound that with the willingness of a lot of folks trying to save credit ratings. I don’t know, like I said before it’s going to be ugly. I really don’t think we have seen the beginning of the horror.
Man, I would love some more details on your weekend conversation.
It sounds like it was pretty deeply troubling.
Yup-The man sure has got religion all of a sudden.
Sunset-
It was deeply troubling, it’s funny that hd74man mentions religion. Because if I didn’t know any better. I would have thought I was at a Billy Graham Festival during revival and instead of worshipping God these folks were worshipping at the temple of the single family home. It was weird, it was over the top and honestly quite frankly it was frightening.
The function started off well everybody went through the cursory how do you do’s and then someone mentioned real estate and the room buzzed I kid you not for the next hour and a half and everyone was talking real estate.
Now listen not to be a braggard or anything but real estate has done well by me. I live well, I travel well, and money is not a sleepless night concern. But my holdings came at a price which almost cost me things that are more important than money much to the chagrin of family members and friends. Who quite honestly were pissed when I walked away from the corporate world. It also came from hard and stressfull work. Because of that I’m a lot friendlier towards real estate in general then some here. I’m fully aware of the bubble, I’m also aware that prices are going to drop faster and much further than some anticipate or are willing to concede. On top of that I’m a firm believer in buying anything you buy as far as real estate is concerned right and prefer castration over using a single family residence for any form of real estate investing. If all in the cash flow is negative literally one penny it’s not an investment property as far as I’m concerned.
Some of the stuff I heard was purely remarkable in it’s stupidity.
One guy in his 60’s refi’s his house to about 90% LTV from what I could gather after having it paid off to invest in Vegas. Bought 15 properties rehabbed them now trying to sell them can’t move them. I suggested he drop them 5% below the last comp. What were his words laughingly, “I don’t want to give them away”.
Talked to another guy bought 6 in Phoenix, 3 in Texas don’t remember the city, Under contract for 4 more in SLC. I ask how much you making per door. 50 to 100 bucks. Me: What happens if you have a vacancy for a couple months during the winter season in SLC. Him: Blank stare, mumbles I hadn’t thought about that and walks away.
Woman refi’s her primary, high ltv, option arm loan takes the cash and buys another home in an upscale area high ltv, option arm loan. Rents out the first home tenants stop paying after 9 months in on the lease she’s in the process of evicting them. First arm resets in Jan. but she’s barely hanging on paying 2 notes but guess what second arm adjusts in March. Me: You need to let the first one go back to the bank and focus on holding on to the second. Her: But I’ll ruin my credit. Me: Could you excuse me for a sec….
Another woman just returned from Phoenix bought 7 properties in Phoenix the prior week 3 pre-construction.
Me: Wow!! Her: Yep, isnt it great Me: Yea it sure is.
Another gentleman real smart guy had a plan. He used $250k in credit card debt (yes 250 thousand) plus 180k heloc on his primary to buy and rehab his houses. Vegas, Tucson, Denver and Atlanta. The income from these properties were supposedly going to be used to reduce the credit card debt. Wanted to know if I could give him some advice on how to eliminate the management companies so he could increase his cash flow position. Me: Blank f****** stare. I was scared to speak.
Then I had another guy, I don’t know if he was on some sort of substance or what. I guess someone had told him I was a broker/investor. He walked up to me in what I can best describe as a Jim Jones disciple standing in line for his cup of kool-aid trance and said there was nothing in this world better than real estate and how he was thankful he had the opportunity and foresight to buy his properties in Florida. I was stunned before I could escape we were joined by other kool-aid drinkers. Conversation turned to current foreclosure activity in California. Turns out this little group and a few others whose presence I was spared had formed an LLC to start knocking doors and buying defaults and if they didnt get them before the steps they would buy directly from the banks. Funded via heloc’s, refi’s and american express. Me: Bad idea wait a year, equity is fools gold right now, see who winds up holding the bag ie: lenders or secondary market, better deals might be had by buying defaulting first trust deeds etc. etc. During the conversation one of the kool-aid drinkers turns red in the face looks at me and angrily spews that they are working with some R.E. guru who’s very successful and with his guidance they have “helped” about 10 families avoid foreclosure and with the increase in activity they expect to “assist” many more. Me: Who?? Him: (R.E. Guru, sorry forgot the name). Hell, the last time we were at his seminar he had about 2,500 people there and about 400 signed up to be mentored by him. Me: Well, I wish you and them good luck.
I get real estate conversations all the time at social functions. They annoy me but I tolerate them because after all it’s what I do. Usually at functions like this I might get hit with 2 or 3 not this time. These bothered me for the simple fact these folks were either bs’ing me or really didn’t realize how in over their head they really were were. Had no clue about the current market or what was coming. I think this is bigger than the dotcom fiasco. The money being tossed out there and the avenues used to secure it is insane. People who you would think have no reason to be involved are in it up to their necks. You woud have thought I was at a real estate centric or industry function. But this function wasn’t even in the same solar system to anything related to real estate. It actually was scary beyond numbers and sense. I had no idea just how sheeple like people have become if this sampling was any indication. It really hard to comprehend it was almost cult-like when the conversation turned to real estate. I say almost because I have no point of reference never being involved in a cult myself.
The agents that were there all less than 7 years in the game. Clueless. I was talking to someone last week and they said there were about 800 people trying to pass the R.E. Exam. If those 10 agents are any indication of what’s coming down the pipe or what’s already here. Then yea, some changes need to be made more regulations or whatever. When I dealt with the Tweedle Dee’s / Tweedle Dum’s of the world. I spoke from personal experience when dealing with folks. If I didn’t know I didn’t know. If you were unhappy with that answer then by all means find another agent. But I never made off the cuff aSShat statements some of the stuff flowing from their mouths was incredible. I countered some of it, earned some evil glances, but eventually I got tired,found the bar, grabbed a drink, a corner and watched the circus.
I had no idea how truly bad it was. You would think people would be retreating from the market. From what I got in conversation with a lot of these people are that they are going to continue to engage at any cost. Unbelievable I had no idea.
Ben, you need to elevate this to a full post.
Wow! To use your own words, blank f****** stare… I guess if real estate money making semiars with the likes of Don Trump, Bill Walsh and Mike Ditka are can very convincing. Most folks I know with equity in their homes are happy to be lock in at around 5% and to have gotten in when they did.
Wow. What a great contrarian indicator. Mrincomstream, you have to keep track of these people if you can. When the last one has thrown in the towel you know it is a good time to buy.
That was the best post I have ever read on this board.
Period.
Can we type that in GOLD and attach it to a building somewhere?
(Still here, just lurking, soon to become very, very verbose.)
As nightmarish as your party experience was, it confirms what we all know is the reality of real estate investing in 2006. There are a lot of stupid people who are spending money which isn’t theirs in ever more creative ways, all in search of the “American Dream.” Unfortunately, the American Dream has become making lots of money without doing any real work, creating anything of value or providing a needed service. It is a spiritually empty and ultimately depressing way to spend one’s time. I recommend new friends, mr. incomestream.
I ran into some guys a couple of months ago who put together a real estate investement group. The head of the group was a long-time FedEx pilot with more money than sense. He was pushing a series of residential real estate developments, of which the primary was a massive residential development in El Centro. El Centro!!! I have driven through there many times, and I can tell you, there is absolutely nothing redeeming about the area.
The other major development they were pushing was a high-end development at the north end of Lake Elsinore. After looking over their pro forma, it became obvious that they had left out many of the development costs (entitlements). Their projected per sq ft profits were grossly inflated based on these oversights.
Apparenly, they had done a small deal with a more savy developer and decided that they didn’t need the expertiese since it was all so obvious and struck out on their own. I don’t know what happened with their investment, but I’m sure they jumped in far enough to lose a ton of money.
Effing pilots think they are rocket scientists or brain surgeons.
From your description it does sound like a religious meeting allright.
But its clearly the kind of religion where you hold hands and dance around a gold calf.
Well, of course these sorts of real estate seminars pre-select for these types of fools. The stupid will ALWAYS be with us. The difference is that for the last few years a significant number of these fools have actually MADE money. Under normal circumstances lenders act as some sort of brake on this sort of overleveraged stupidity.
danke/thanks
Brilliant post. Like you, I am just amazed that this foolishness is STILL going on.
I hope these foolish pinhead wannabe specuvestors hop into the foreclosure game and soon. They will burn at the stake. It will be satisfying to watch their cash and credit annihilated by a collection of overpriced albatrosses purchased on the steps of the courthouse.
MR. IS
Thanks for informative post!
I am not that social of a guy either.
If this is a value market, what will the market be in 18 months?
No crystal ball required on this one.
After the Labor Day Massacre, I will call it The Panic Market. No motivated buyers, hard to qualify loans, and rates adjusting for existing mortgages. The perfect storm!
As famous economist John Kenneth Galbraith writes in his book “A Short History of Financial Euphoria”:
“Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang.”
Amen to that.
It is amazing how great a description Galbraith provided of both the tech stock bubble and the housing bubble, especially since his book was finished before either bubble had started to inflate.
Actually, those descriptions by Galbraith would work equally well for tulips in 17th century Netherlands, or England’s South Sea bubble in the early 18th century.
Didn’t the old Einsten quote go something like: “Only two things are infinite: the universe and human stupidity, and I’m not so sure about the universe.”
“This market is great and continues to prove out daily it’s the right time for you to buy or sell real estate.”
I nominate Mr. Durlester for some kind of award; what to call it I can’t quite grasp. While he comes the closest to being a normal human being and a savvy RE market observer with his “sellers can set an asking price, but if no one is willing to pay it, then it is just a dream” comment, he still cannot help but lapse into that old saw of “if the price is right, it is always a good time to buy or sell”. This is a theme you see spewed by most of these hacks who bother to take the time to write these blurbs on realtytimes.
The ONLY reason it could “always” be a good time to buy or sell RE is as long as the 6% RE commission paradigm holds up. RE agents will sell you a front row ticket to your own torture and execution as long as they get their 6% blood money.
I double and triple hope that this RE bust not only whacks the market right back to where it should be, and then some, but also whacks the whole RE agent 6% commission scam into the trash bucket along with the travel agents and everyone else the internet is managing to “right size”.
This mentality is ingrained in most Realtwhores and I believe it stems from the fact that most of them (even the older ones) have never seen a full-fledged RE bubble like this one. Yes, there have been localized mini-booms over the years but nothing like this and you’ve got to go to the history books on foreign countries to even find a rough equivalent.
Therefore, they just don’t have the necessary reference points to draw the correct conclusions. They keep seeing everything as if these were just localized market booms and react accordingly, never stopping to ponder that all of this “froth” was synchronized in a way that was unnatural and far more sinister in nature.
they’re lying, and they know they’re lying.
You apparently have a higher opinion of Realtwhores than I do
You can only lie if you know what the truth is and I frankly don’t think most of them are smart enough to understand that this isn’t your daddy’s RE market.
Bubble and bust on par with the early ‘01 NASD. There was a lot of insanity and leverage at work then too with buying on margin. I will concede that more leverage is used in the RE bubble but the floor will be higher because the utility of a house is a lot higher than Stamps.com shares. That and member banks were not in trouble so no uncle SAM to the rescue. Just my opinion.
No, I think it’s more stupidity than lying, although I don’t give either one the moral high ground. People in general have little or no acumen or suitability for the profession they happen to choose - most cops are lousy detectives, most teachers aren’t particularly intelligent, and most real estate agents don’t understand markets.
In fact they are not even particularly interested in national trends or economics or even numbers in general. I’ve talked to RE agents in NC and TN in the last year or so who were totally unaware that there were huge price appreciations going on in Va. and Fla. During the run-up in Va., which was most extreme from 2003 to mid-2005, I heard agents who were right in the middle of the market consistently underestimating the appreciation that was going on. So it kind of stands to reason that they are going to completely fail to appreciate the decline, either.
Most people are just out of it.
“Most people are just out of it”
Exactly
Which is why the human race is doomed!
It’s really true. I know a real estate agent, around 40 years old…and she doesn’t really seem to take much interest in economics or national events or anything that may effect the market. She has her whole life invested in real estate. She’s a realtor, she purchased a home in the last year and another one two years ago….everything hinges on the market. She refined the last purchase three times.
She is not a bad gal…she is friendly and considerate but willfully unwilling to look at reality.
A lopt of these agents were true believers. You will be astounded to know, if it later it is revealed, how many agents bought speculative properties in the past few years simply because “it always goes up.” I watch all of the (increasing number of) properties for sale near me and many, many of the owners are the RE pros themselves. For better or worse, they seem to have practiced what they preached — so far, I’ve seen no evidence to the contrary.
Too bad those RE agents didn’t act like the “smart” crack dealers — sell it, but don’t smoke it.
Sounds like the classic line from Scarface: “Lesson #2: don’t get high on your own supply”
[Lesson #1: Never underestimate the other guy's greed]
Case in point. I work with a woman who is a part-time real estate agent. She just acted as the buying agent for a new home for her daughter and son-in-law. You would think she is in tune enough with the market to keep from strapping her own progeny to a mill stone, but no! She thinks she has set her daughter on the way to endless equity gains and real wealth.
Her other business is in a ponzi makeup sales scam.
I forgot to mention how she was gushing on and on about how some of the other ponzi scammers were making up to $100K per month selling cosmetics. She actually believed the BS they were feeding her!
Still so many clueless sellers. We know someone who was told by more than one realtor that they wouldn’t take the listing unless it was priced below all the other homes for sale in their neighborhood. So what are they doing? They’re putting it up FSBO at a price that’s a little above the median!
I suspect maybe they’ve been living beyond their means the last six years with repeated cash-out refinancing, and now need to get that price to break even.
It’s not just recent buyers with suicide mortgages who are staring into the abyss.
Still so many clueless sellers.
Yes. And their Realtors® too. They actually have the gall to put a PRICE REDUCED sign out on the lawn. Reduction? $5,000 on $340,000. Amazingly dimwitted.
Actually, in a perverse way, it makes sense. $5,000 is real money, and an amount most people can grasp. It looks like alot because frankly it is, and a 5K reduction of anything has the feel of ‘a deal’. That it’s tagged to a massive sale price is not the point, as what really matters is the size of your monthly payment. Or so a realtor tells me.
5k doesn’t stimulate anyone, not even on a 80k double-wide in Shit Springs.
I have watched a house for sale in my old neighborhood that has been on the market for about a full year now. Started at 749K ….. 729K …..699K….. 649K, and sat at this price for the last 3 months. This week it’s back on the new ‘hot listings’ at 675K.
All I can assume is:
(a) The seller wants the benefit from the recent and slight interest rate decline.
(b) The last 3 months saw another 26K extracted from their paper equity.
Bill — I’ve seen a lot of this in my area — sellers not wanting to accept their agent’s advice and deciding to go it alone because, well, this is what my house is worth and I’m not going to be suckered by some real estate agent who wants to make a fast commission by selling my place below market value.
This might be the stimulus for David Lereah’s PowerPoint presentation that is getting Monica Lewinsky-like circulation on the Net. The market has turned, we cannot gin up any more numbers to contradict that — if you want commissions, get your sellers to understand that they will not, now or for the most part ever, get for their property what they would have gotten one year ago.
California accounts for 5% of the population, but only 1 of that 5% are good white collar jobs that can even think about affording. We still have 3% of the inventory!
Galbraith stated it correctly. Suddenly everyone slaps their head and says “Pets.com” is not worth ANYTHING - nor is a house in Rialto. I paid HOW MUCH?!
So what we see now is that every single time a news program or the major newspapers run a “possible trouble in the housing market” segment/article - it’s analogous to screaming “Fire!” in a crowded theatre.
Sellers, or wannabe sellers, are rushing to the exits. To wit, some realtors(tm) think inventory will spike again in September when “everyone” returns and settles in from their summer vacations.
Labor Day Massacre. Are there really any qualified buyers left???
Well, there are a few of us. Stubborn, skeptical, housing bubble blog-reading potential buyers. (So maybe we don’t count as “qualified” in this market — over-qualified perhaps?)
The exits are starting to get crowded. The herd is starting it’s turn, problem is the barn is on fire and in the other direction awaits the cliff.
The crushing injuries are going to be significant, in addition to the outright trampling deaths.
Is anyone an actuary or a true number cruncher here?
If so, plug in the Numbers…. EOY: -30% on price????
“It may be the sellers themselves who are partially to blame”
I thought it was the media. No, wait! It’s the picky buyers.
Everyone but the RE industry.
I say: “It was the bloggers!!”
Crap — is it confession time already? OK. It was me.
How much would you guys front me if I singlehandedly crashed the market by buying, right now? Given my luck recently, that would guarantee a 70% drop overnight. And probably a major earthquake/fire/flood/locust swarm in the neighborhood I bought in.
‘The problem is more inventory is on the market than it was three months ago’
BZZZZZZ! Wrong! The problem is that you’ve run out of GFs. Everyone who would buy has bought (except renters on this blog), and those who would like to buy can’t afford it, are scared about price crashes, or the toxic mortgages they would need to get into the game.
UGH.
One fact often overlooked when discussion how far it could fall:
If a home appreciates 50% during a bubble….say goes from 1 mil to 1.5…that’s a 50% increase.
But in the crash, it only has to drop 33% to be back where we started– 1.5 back to 1 mil is a 33% drop.
So when people say it only corrected 33 percent in the early 90’s bubble– it erased 50% appreciation…..
not to mention inflation.
You mean it erased 100% of the appreciation!
Remember though, when you submit your lowball offer, that many areas appreciated 200 to 300 percent in the last five to six years. So the million dollar house was 350 to 500K five years ago.
The point being, there is absolutely nothing wrong with offering half or less of what some of these people are asking.
Jonas — Ric has it pegged, though at the extreme end. What many of us look for is a return to prices, in your market of choice, that properties sold for in, say, 1999. The year might vary, but most posters here seem to agree that 1997 to 2001 are the most likely boundaries.
If you have access to the property/tax records of your desired ‘hood, you can determine those prices quickly. Where I live, the place I sold for $500K in mid-2005 was worth about $170K in 1999. I venture that most people do not believe prices can fall that much (inflation-adjusted, to $230K or so). I think it is possible and have bet the farm on it.
You’re not going to see prices drop to 1999 levels. Never happen. You’ll see 40% tops and that’s in the most bublicious markets. Look for 20-25 in the mid bubble markets and 10% national drops.
I don’t know about RE bubbles, but the standard with stock bubbles, is %80 from peak to troff.
Two recent example are Japan Nikkei from 1991 to 2004 and the more dramatic NASDAQ 2001 and 2003 crash.
There are examples of many bubbles crashing harder than this 80% number, but it is still a decent benchmark.
I am not sure where your 40% number is coming from. Any data?
Oliver
Hope you won’t “bet your life” on it.
Absolutely happened in Temecula in the early 90’s.
Temecula. But not San Diego. I wish otherwise but don’t expect it.
that would be a cool metric
lowest ball offers accepted
It’s been sitting there because it’s overpriced (or has a transformer in the back yard…)”
With underwriting tightened, good luck gettin’ the property with the transformer in the backyard financed.
Junk properties with major obsolescences will be another casualty of this bust.
And guess whose a major holder of this crap…You the taxpayer via the mortgage guarantee of FHA/HUD and the VA.
They take the absolute garbage.
The market caught a lot of people off guard. Not us, though.
Real life up-to-date everyday anecdotes for all of you to enjoy:
1. My realtor friend just unloaded his boat and second home in Lake Havasu..guess times are gettin’ tough. When I asked him, just for fun, what he thought of the SoCal market, he replied, “Oh, prices will go down a little but the interest rates are going up so it all evens out. Now is the time to buy. By the way, my wife is a loan officer, we can do all the work for you.”
2. After hearing about the bubble in the mainstream media, another friend recently backed out on a new home contract in Desert Springs. He is out the deposit, but is thankful he did. He says the seller keeps calling every week with sweeter offers for him to get back in the deal (free upgrades, lower price, etc). He is waiting at least a year.
3. Meantime, the house next door still sits empty since the owner bought a bigger house 8 months ago and thought he could sell this one lickity split. 8 months later it is off the market without a buyer in sight. He’s not sure what to do. Must be tough carrying two mortgages. It’s also nice having a ghost house next door where I can park my extra cars.
Now is the time to buy. By the way, my wife is a loan officer, we can do all the work for you.”
“And my brother-in-law is the appraiser who is in the office adjacent to my wife…He’ll get whatever number you need…or else my wife will see that he doesn’t eat next week.
“. . . so it all evens out.” The arrogance of stupidity, meaning, Don’t even think about coming up to me a real estate agent and thinking you can convince me that you are ever going to buy significantly cheaper.
ok…let’s say rates were to skyrocket and homes prices crashed, but you end up with the same mtge pmt (if one at all for all us cash hoarders)..anyway, in that scenario, you would end up with a much smaller principal balance (which could be paid down sooner)…fine with me, let rates skyrocket and prices plummet…(who do I make the check out to?)
I’ll see your one vacant house and raise you three. Both next door homes are vacant and their neighbors have for sale signs on the yard. It’s going to be UGLY in my neighborhood.
Real Estate’s Crash Landing (audio)
http://www.howestreet.com/goldradio/index.php/mediaplayer?audio_id=412
I am reminded that Dataquick always reported that there was little or no flipping in California. Month and month they said that. Apparently, that was a bald faced lie.
If you mean Desert Hot Springs(DHS) lots of ghost(ly) houses with no neighbors, plenty of parking too. Talk about a run-up in a poor area. My friend lives there and bought a house for around 125, which he now tells me is worth over 250. Yikes I hate to see where prices there go and how quickly they will get there.
Josh
If you can’t sell, call NINA and her friends!!! hehehehehehehe
Is it bad form to post a link to another blog? I just had to share this article by Sheldon Liber.
http://ebay.bloggingstocks.com/2006/08/29/housing-truth-from-main-street/
Sheldon is in some serious denial.
He got beat down on that blog.
For the guy to go on like that now requires a serious disconnect. I put in my .02
He’s raising up a straw man. I don’t think that most people would say that price declines have to approach 80% to characterize the market as a bubble. I for one certainly don’t think that 80% declines will be common or representative. Maybe extreme markets like condos in Naples or SFH S***boxes in Compton. Most would say that 25%-35% declines indicated that a bubble had existed.
He’s raising up a straw man.
And he’s using his own house of straw to build it, citing the Wharton study as a rebuttal to a downturn. LOL.
And now for the good news………..hehehe
http://www.forbes.com/business/2006/08/28/housing-crash-bubble-in_ags_0828soapbox_inl.html
I know someone in Loudon county that has dropped the price 10% from 2005 prices and it’s still not sold. Double digit price drops are almost certain in many parts of Northern Va.
I live in Fairlington in southern Arlington. And that is what I am seeing as well around here. Lots of FS signs, no buyers.
I like the area, but I will be damned if I pay $400K for a condo that is worth at most half of that. Bring on the collapse, I’m here to pick up the pieces when the dust settles and the fat lady sings.
Hey Poshboy,
I’m renting in Courthouse (northern va) but am interested in maybe buying in Fairlington at some point — if prices drop significantly - like 50%. What’s it like over there?
Poshboy - I follow the Farlington area and clarendon models that went for $440K are now being listed at $390K. That’s a 11% drop and I think inventory is beginning to tick upwards again.
Nobody buys anything here on Long Island either, unless it’s discounted at least $50K. (Same here)
It isn’t just the coasts.
This house is down the street from me in China Spring TX (suburb NW of Waco). It sat for a year on the market at $385,000 then finally the owners abandoned it to forclosure and the bank now has it up for $313,500. It is a pretty nice house with beautiful views, nice patios, and a pool. It’s just not brand new and Texas buyers in that price range around here seem to want to custom build their own new houses rather than buy a “used” one.
http://www.realtor.com/Prop/1059109414
That is one thing I don’t understand about these mega huge houses. Even if you discount the mass appreciation and had the house at a market value that most people on this site would agree on, if you had that kind of money, would you want to buy someone else’s home, or would you just build your own from scratch so you could have everything the way you want?
The majority of net-worth millionaires buy resale homes, get great deals, keep them for at least a decade, and owe very little on them. Many also buy used cars, so that somebody else has already taken the loss that occurs when a new car is driven off the lot.
The realtors that say it’ll be a wash because of higher interest rates are so full of it. I’ve done the math.
The longer I wait, the bigger my downpayment. I’m gonna ride this until I can go from 30yr to 15yr. Show me the math now, F’d realtor.
Totally agree..see my earlier post.@.2006-08-29 16:51:31
You know what’s really sad about all this? It’s that this is exposing how blatantly greedy, self serving and often outright despicably low so many people are. The builders, the flippers, the mortgage brokers, the realtors, the appraisers, the home inspectors. Everybody! As long as I get mine, I don’t care who I trample, who I sucker, who I deceive, who I ruin. I got my Biemer, and to he!! with you.
Anyone on this thread that was here 1 year ago in July and August?
Today’s news was predicted quite precisely about 1 year ago, quite amazing. I wish I had saved the old posts!
BJR
I will no longer look to the biased (and blatantly dishonest) so called ‘main stream media’ for my news. I have found the collective wisdom and accountability of the posts, on blogs such as this, trump the timeliness and accuracy of any MSM outlet.
I was here
Me too!
The presience of the blog is pretty amazing.
I miss some of the older posters that have gone by the wayside.
Yeah, where’s good ol’ Auction Heaven been hiding??
Yeah — where are LV_Landlord and BeaConst these days?
How about Chromatic Dispersion? DC Broker? Semper Fubar? Joe Schmoe? And your favorite, Hedge Fund Analyst? Also MIA these days - Deb?
Yeah, BeaConst could always be goaded into some inane banter. I kind of miss the RE bulls who posted here, they added some head in the sand perspective to the convesation.
Ditto…me too. I’m not the brightest guy in the world, but this is all working out how I predicted back in spring of 04. Not sure if I’m considered old (46), but this all seemed so obvious to me…all of it.
Here is one of the old blog posts I found with the help of google
—————————————————————————
Wednesday, May 25, 2005
HBs’ Stock Up Double Digits In 10 Days
Many of this blogs’ readers are watching for the top in the US housing market. This chart of the homebuilders KB Homes and Toll Brothers exhibits the kind of ‘blow-off’ action one would expect to cap a multi-year mania. Notice the move from May 13th to date.
posted by Ben Jones @ 6:00 PM 1 comments
1 Comments:
At 11:04 PM, Escape from DC said…
Here’s a link to the same chart, but laid out linear and over a longer period. Looks like Nasdaq 2000.
http://finance.yahoo.com/q/bc?s=TOL&t=5y&l=off&z=m&q=l&c=kbh
I was here and I agree with your assessment, the collective wisdom on this blog predicted October would be the turn around month and that it would be clear to all by the end of this summer. I haven’t been able to perceive a similar collective sentiment as to when this could all settle out, how long it will last, price drops, etc. But I think it is too early to tell.
It is too early to tell, but David Lereah’s own powerpoint presentation suggests it will take a minimum of four years from when prices started dropping (September 2005?) for prices to hit a bottom, and then at least three more to get back to the same nominal level, and this is by far the best-case scenario, where housing prices start going back up again after a four-year slide.
I was here, too.
Picked my moniker in September, by the way.
Funny how quickly things change, eh?
I was here as well.
There’s so much bubble news now versus a year ago that it’s hard to keep up with it all!
http://www.presstelegram.com/business/ci_4248035
“At 400 square feet, a single-family residence at 3516 E. 15th Street is the smallest house for sale in Long Beach, according to the Multiple Listing Service. The asking price on this “cottage style home” is $314,999. The one-bedroom, one-bathroom home, which was just listed, has no air conditioning and no heating. However, the electrical, plumbing and carpeting are all new, and it sits on a 1,125-square-foot lot.”
Sorry Folks!! Move on! That part Of LB dosen’t pass the Beruit test. Is competing with Scentral for density of Gang graffiti per sq kilometer. This area is called rose park and lies south of Signal hill from pch all way to 7th and runs from Altantic/alamitios av east all way to REdondo beach. Serious gang infestations, poverty, section 8, LB crips, junkies, dealers all here. And small shoebox 80-yr old clapbords on teenie little lots. I saw a similar size home near 10th and cherry 500sq ft 2000 sq lot no garage seller did cheap quick remodel with quick paint job and was listingg for $400.000 two monthes ago.
Problem with realtors selling ijn this area of LB is they never tell you the overall locational aspects, the trend of the neighborhood,ect. Really need to do homework if you want to buy in LB as there are large areas of LB which are descending to the Compton Level.
“descending”
Puhleeze try already there or past the Compton level if that’s possible.
Translation:
Ain’t nobody wanna buy no house no more. Cabiche?
Wait a second! Rose Park is pretty nice now. For the last ten years a lot of gay community has moved and made the homes very very nice and historical. The streets are lovely and there is a lovely park.
True, there are outlanding areas to the North and West that are troublesome but you are really tarnishing a whole area. I don’t think it’s accurate.
Seth Jayson, from the Motely Fool, is great as usual.
http://tinyurl.com/ldhea
No Housing Bust Here!
By Seth Jayson (TMF Bent)
August 29, 2006
Look away, if you can.
File this under car wreck, as in, you don’t really want to see it, but you cannot look away.
Jayson did a great job of restating the points some of us have brought up here in language that any motley old fool can understand. He drove his message home frighteningly well in the last couple of paragraphs. $350 jeans???
“If the amount of consumer spending that arose from fictional home equity is as large as some predict, the American consumer is going to have a lot less dough to blow on $600 backpacks, $350 jeans, $3,000 flat-screen TVs and the like. Let’s just say that, as much as I’m a fan of Best Buy (NYSE: BBY), I’m not sure I’d be buying shares right now.
If you think I’m overreacting, take a look around. My fears and suspicions are a dose of sunshine compared to what some others foresee. If NYU economics professor Nouriel Roubini is correct — and his reasoning looks pretty sound — the coming bust will trigger a pretty hefty recession. This would be a recession that would make the tech bust look like good times.”
‘American consumer is going to have a lot less dough to blow on $600 backpacks, $350 jeans, $3,000 flat-screen TVs”
I am not trying to be naive or a smart a** but I thought he was using these numbers in an exaggerated fashion to drive home the point, as no one would spend that kind of money on those products. Then again I was floored to find out that people lease Suburbans and other high end vehicles for $750/month + with a hefty down payment. Maybe I am in a different world. I value safety and security over wants.
jckirlan,
Yes, you are in a different world…. weirdo.
Home Buyer Tip: If you’re planning to buy a house in the future, amuse yourself until then by working out the monthly fall in price of the house you will eventually own.
For example, if the house you want to eventually buy would currently be priced around $300,000 and prices are declining in your area by, say, 0.5% per month, then your Future Home is getting $1,500 cheaper each month.
Rinse and repeat. Y M M V.
“In Los Angeles County, the unsold new home inventory rocketed an annual 375 percent, to 1,975 properties at the end of June. That’s the most since 2,054 new homes were on the market at the end of 1995. The most distress, however, is in San Diego County, where a record 6,927 properties were on the market at the end of June.”
I’m confused. Is this record high inventory part of the homebuilder’s newer, better business plan? And should I take the large inventory as a sign that the housing market is strong, and that their stock prices are currently undervalued?
This ‘rocketing’ inventory are the 20 something year old RE ‘gurus’ trying to unload their 4 rental properties purchased with I/O Neg-am loans and zero down. They must have finally found this blog.
P.S. SD ziprealty = 23,450 used homes. Add that to 6,927 new ones, and you see that San Diego has at least 30,377 vacant homes, before factoring in Craig’s listings, FSBOs, REOs and a hidden inventory of flipper-owned homes whose cash-flow-negative owners have to decide whether to sell now or wait for prices to stop falling.
How about this: Of the 53,433 house for sale in the Phoenix area (according to zip) 22,000 have had a price reduction. That’s incredible!
SD Zip shows 40.5% w/price reduced — comparable to PHX (although my calculator says PHX is higher at 41.17%).
Nevertheless, the Sacramento-based association said the industry is still on track to bring 180,000 units to market this year.
Alan Nevin, the association’s chief economist, is not alarmed by the current inventory levels even though that’s how the years-long residential real estate slump started in the early 1990s.
“The numbers are high compared to where they were a couple of years ago but they really aren’t bad at all,” he said.
——————————————————————————–
OMG — 180,000 new units to market this year??? Where are they going to find enough greater fools to dump this new inventory, which may well push California to the all-time record level before falling prices bring the market back into equilibrium?
Nevin’s remarks bring to mind a favorite Vonnegut passage:
——————————————————————————–
On the eighth day, the forty-year-old hobo said to Billy, “This ain’t bad. I can be comfortable anywhere.”
“You can?” said Billy.
On the ninth day, the hobo died. So it goes. His last words were, “You think this is bad? This ain’t bad.”
– Kurt Vonnegut, Slaughterhouse-Five
http://www.vehhttp://evo-south.com/ttp://evo-south.com/rodow
“In Los Angeles County, the unsold new home inventory rocketed an annual 375 percent, to 1,975 properties at the end of June. That’s the most since 2,054 new homes were on the market at the end of 1995. The most distress, however, is in San Diego County, where a record 6,927 properties were on the market at the end of June”
Sounds like they are only discussing the detached SFH”s new housing inventory!. IN the area of DWTN LA and just to the west ther has to be around several hundred new condos that have just come on market. The one i posted a link to, verodowntown.com, has 197 high-end lofts available, or soon to be available(priced in the mid-$300,000’s). Not a particularly great area, corner Lucas and Wilshire. LA is doing quite a bit of teardowns and new construction of condos, lofts,schools and commercial hi-rises in the BUnker hill area from the 110 west to Lucas and spreading west along Wilshire.
The EVo is still only half completed(evo-south.com) on Hope and 11th. Touted as “constructed with union pension funds” on the fence signs. Then there is the 7-story Grand lofts at 330 w 11th st.
These areas are within walking distance from the dtwn and also near the dwtn metro stations. But they do have beggars and trashy streets: what they refer to as an eclectic urban environment.
“In Los Angeles County, the unsold new home inventory rocketed an annual 375 percent, to 1,975 properties at the end of June.”
1974 of those are in my neighborhood, it seems. I don’t think it’s possible to drive through Manhattan Beach, via any road, without running into a lot under construction.
“The flipping of homes in California declined to its lowest level in more than three years, according to a company that offers information on real estate sales trends. Investors are apparently pulling back, and ‘chances for a quick turnaround and profit are diminishing’.”
Chances for a quick short sale and bankruptcy are augmenting.
I recently had a conversation with an online financial journalist, who writes for one of the major news websites. Says there is no bubble here in So. Cal., only in AZ, NV and FL where there’s been flipping. Says no way no how will anyone here in this desirable area ever reduce their list price below 1M. Too many buyers waiting in the wings, the area is just too great. Couldn’t convince him otherwise…
I wonder how many FB’s and industry types lurk here…
Damn! 170 comments!
Ben, It’s really turned around from Feburaru ‘05. Simply amazing.
After all the reading I’ve done on this blog, I think i dererve an honorary RE license.
I’ve said it before, and I’ll say it again: Many thanks, Ben.
I want to believe there’s a downturn in pricing in LA but in the lower level of the market (the 500 - 600K homes) the houses we’ve been looking at are selling within a week, only the dogs are sitting on the market.