“There’s No Panic, But A Lot Of People Are Wondering’
The Boston Globe reports on auctions. “The developer of a new luxury condominium project in Boston’s financial district is resorting to a tactic last seen in the real estate bust of the 1990s: It’s holding an auction for the 34 remaining, unsold condominiums. ‘There’s been a stalemate between the buyers and sellers,’ said Jon Gollinger, whose firm will handle the auction. ‘We want the market to determine the value,’ he said. ‘We’re starting at a price that’s laughably low.’”
“The last time auctions were popular around Boston, the real estate market was in crisis. ‘I was around in the late ’80s and early ’90s when all that went on, and I kind of cringe. Are we doing this all over again?’ said Diane Maloney, who markets the 44-unit loft building on Broad Street.”
“The auction is a big risk for the developer. It would be financially ruinous to sell the rest of the Folio units at their minimum price, which range from 31 percent to 44 percent off the most recent asking prices. In some cases, the developer had already reduced asking prices.”
“A one-bedroom currently offered for sale at $480,000 will be sold at or above its $325,000 minimum price. ‘I wish I could’ve bought my unit for less money,’ said Christine White purchased a one-bedroom on Folio’s second floor in the ‘low $400,000s’ earlier this year.”
The Times Herald Record from New York. “Local housing prices fell slightly this spring, according to a federal report released yesterday. It provides the latest evidence that the mid-Hudson housing boom is petering out. In Orange County, the inventory of unsold homes has doubled in the past four years.”
“‘I’m seeing offers coming in $20,000, $30,000 below asking price,’ said Paula Meloi, (broker) in Port Jervis.”
The Courier Post from New Jersey. “Agent Jeff Adams in Sicklerville and Westampton, said the market is shifting to benefit buyers, especially first-timers. ‘In townhouses, we are actually seeing some prices coming down,’ he said. ‘The resale people are competing with the new homes, and builders are starting to drop their prices.’”
“In Burlington County, there are 3,849 homes for sale, up from 2,613 only three months ago. In Camden County, inventory ballooned from 2,473 to 3,617; in Gloucester, For Sale signs increased from 1,464 to 2,168.”
“‘Flippers and speculators are getting out of the market completely,’ economist Ken Fears said.”
The Hartford Courant from Connecticut. “Deep in the manicured woods beyond the Merritt Parkway, trouble is brewing. Across lower Fairfield County, for sale signs are as common as a new Lexus. On the Gold Coast the market has plummeted, with sales down by nearly 20 percent through the end of June, compared with last year. There’s no panic, but a lot of people are wondering.”
“‘The two burning questions at this moment are why are so many people trying to sell and why aren’t there more buyers?’ said (realtor) Michael Tetreau in Fairfield. ‘The problem is, following the baby-boom bubble, there is no bubble. There just aren’t as many buyers,’ said Tetreau. ‘I don’t see anything on the horizon that is going to change. We have two times as much inventory compared to a year ago.’”
“‘There certainly are some danger signs. It is possible that things will go down a lot,’ said John Clapp, a business professor at the University of Connecticut. ‘But it’s hard to see a dramatic decline in prices like in the 1980s.’”
The Union Leader from New Hampshire. “Holly Phaneuf needed to sell her condo, and fast. So she turned to one of the most popular real estate agents on the market today for a little assistance. His name is Saint Joseph. ‘My mom laughed at me and said I was a superstitious fool,’ said Phaneuf.”
“After years of rising home prices, the U.S. housing market no longer appears to favor sellers. New Hampshire’s housing market appears to be softening for the first time in close to 15 years. ‘People are getting desperate,’ said Priscilla Caza, a real estate agent in Hooksett. ‘So there are a lot of St. Josephs buried out there.’”
So how do you bury a St. Joseph statue upside in your condo?
And do your downstairs neighbors come out of their front door one day to see St Joseph’s upside-down head coming out of their ceiling?
EZ- Just use a pneumatic drill!, and some quickcrete!
I know someone who just sold her place after burying a St. Joseph statute AND accepting 20% less than her original asking price.
She didn’t spin it enough or water it in when it was planted. if she had she would have only taken a 15% bath! hehehehehehe
Speaking of condo auctions: Last Friday I received a direct-mail flyer for a company doing a no-reserve auction of 9 luxury condos here in Austin. First time I’d seen that here.
The auctions are spreading…
“No reserve.” Yeah, right. In other words they either have plumpers in the audience or they have an elaborate pre-auction process where they’ll sell you the condo and the auction is a ruse to build an interest list.
“plumpers”
good one! will be an essential feature of the post bubble “no-reserve” auctions. add to the bubblexicon.
I thought they were called “fluffers”???
You’re thinking of porno movies. But in some ways, I guess a condo auction is kinda like a porno movie.
Except it is the audience that gets… ooops family blog. Sorry.
LOL.
Please stop correcting people’s typo’s. It’s insulting and it doesn’t matter in this forum–where we all are pretty much preaching to the choir. WE all understand these are usually posted quickly in what little time we have. There just typos.
They’re just typos!
LOL…Plumpers
“A one-bedroom currently offered for sale at $480,000 will be sold at or above its $325,000 minimum price. ‘I wish I could’ve bought my unit for less money,’ said Christine White purchased a one-bedroom on Folio’s second floor in the ‘low $400,000s’ earlier this year.”
_____________________________________________________
Who is going to buy now knowing that they could be underwater next year?
Ms. White caught a falling knife.
I’m sure she was thrilled when she “saved” around 80k buying her condo (bought for low 400’s, orig. asking 480).
Let this be a lesson to all: falling home values are not necessarily a “deal” at this point in time.
Clouseau
I wonder if she thinks how the renters are going to feel about being surrounded by so many greater fools!
“On the other hand, she said, the auction, if it speeds sales, would ensure the developer doesn’t rent out unsold units. “I don’t like to be in a building with a lot of renters,” White said.”
Yet she is renting her own place!
“I wonder if she thinks how the renters are going to feel about being surrounded by so many greater fools!”
John Law — REALLY funny. LOL.
All the MSM femininst male bashers have been crowing that “WOMEN” have been the biggest purchaser participants in this 4 year RE boonswaggle.
If Ms. White, is any indication, the i-net dating services should be swamped as legions of FB golddiggers start lookin’ for a Sugar Daddy to bail their sorry azzes out.
Hillarious!
I can relate - in the development I recently moved out of, the ONLY purchasers of the severely overpriced properties
over the past 8 months have been single women. Most likely with mortgages that they really shouldn’t have signed.
(sigh…it’s so sad!)
Maybe this is where the mortgaged-out Moms stuff is coming from, this week. Naaah. Emotional buying was outlawed, courtesy of radical feminism. Must be something else.
She could have bought her unit for less money, by waiting and being patient. I am sure she meant to say “I wish I had bought my unit for less money.”
Fine grammatical distinction, but goes right to the “buy now or be priced out forever” psychology.
About a year ago, when I really wanted to buy a house but before I had done any bubble research, I thought, “I make an above-average income, but can’t buy a below-average house.” Simple logic told me I wouldn’t get priced out of the market. Thankfully, I didn’t buy.
cayo_ron - Logic used to be a common undergraduate course — required at many schools. If it were a required subject through today, there’d have been many more people like you walking away from sucker deals.
not just undergrad, but I took it in high school, as well. I guarantee most high schools do not offer such courses now.
“It woulld be financially ruinous to sell the rest of the Folio units at their minimum price, which range from 31-44 percent of the most recent asking prices.”How is the 325,000 minimum price, 31-44% of the 480,000 asking price?
oops thought it was 425,000 minimum
There goes my 20% price decline forecast out the window! Bring out your dead!
Add to that comment that the price decline is for brand-spanking new never lived in or flipped condos. The rest of the “owners” in the building are severely screwed. Just imagine resale condos!
Question, are there really that many buyers at $325k?
Yes, the current owners are screwed.
But think about this, what if condos do not sell? In this large an auction, that’s very likely. 34 units *$325k is over 10 million USD.
I’m betting only 20 or so units are “sold” during the auction.
Neil
Bring out your dead!
LMAO….
Neil — I think you’re right, but I also think that there is a sugar daddy in the back row who already has agreed to buy all remaining units at $x below the reserve price. I’ll go so far as to say that it would be extraordinary if this were not so. Ain’t no such thing as dumb luck when you’re playing at this level.
- ‘We’re starting at a price that’s laughably low.’
- Then he says, “offered for sale at $480,000 will be sold at or above its $325,000 minimum price.
WTF! They are still not in touch with reality.
‘We’re starting at a price that’s laughably low… offered for sale at $480,000 will be sold at or above its $325,000 minimum price.’
To me, these prices are still laughably high. $325k for a one bedroom POS condo? Who are they kidding? This guy needs a reality check. I hope they don’t sell a single unit. A laughably low price might be, say, $19,999. I believe that he still makes a killing selling at $325k.
Truly 19,999 is a laughably low price, because I laughed when I saw it!
My guess is that they have a deep-pockets buyer willing to pick up the residual units at $300K each. This gives them their floor. People who build these places may be optimistic and may overestimate their market, but seldom are they as foolish as the average one-unit buyer.
Let’s see if those 1BRs actually sell at $325K. They may still be laughably high.
“Deep in the manicured woods beyond the Merritt Parkway, trouble is brewing. Across lower Fairfield County, for sale signs are as common as a new Lexus. On the Gold Coast the market has plummeted, with sales down by nearly 20 percent.”
According to Business Week, the hedge funds are the big buyers of the “20″ in those toxic 80/20s, and other “exotic” mortgage-backed securities. Hedge funds are also the booming industry on the Gold Coast. They’re pricing everyone else out of the housing market, the labor market, etc. Hmmmm.
Those Hedge funds have been one of the few “growth” companies in Mass. I wonder how many 20 somethings with MBA’s and 6 digit salaries are going to find out the hard way that gravity eventually works, and that the second lien holder is hardly ever paid?
Actually if you listen to the “strategies” in some of the interviews, it never involves getting a second lien to pay. They only plan on holding and trading them for a short time. You can even flip liens.
It is exactly what the flippers are doing in RE, only that it is done with a veil of “secrecy” and making it seem mysterious and impossible to do by laymen. Unfortunaltely once the “buyers” figure out that the lien is not going to cover the investment, they will stop buying, and at said time, the hedge fund will be stuck with non-performing, or under-performing paper.
What makes it even worse is that they do not have the strucuture to get the home owner to pay, so they will sell the bad paper at cents to the dollar to the collection agencies, and let them deal with the bad paper.
By this time, the home-owner in all possiblity has filed for BK, and the paper is worthless. It is all a game of musical chairs, and I am afraid to say that the music is stopping. The sad part, is that someone stole all the chairs while no one was looking. BWAHAHAAHAHHAHAH.
the hedge fund will be stuck with non-performing, or under-performing paper.
I wonder what assumed rate of default is baked into the hedging? Anyone know for sure?
No burst in housing bubble and economy unless interest rates go substantially higher. As long as the Asians and/or Arabs are willing to finance consumption at virtually 0 real interest rates, this party can go on indefinitely.
I personally do not think that irrational, uneconomical buying can last forever, but it’s lasted far longer than I could have imagined (sub 5% long rates in a 2.5% inflation regime and 4.7% unemployment?). Perhaps Mr. Market wants to reel EVERYBODY in before unleashing a massive tsunami?
I would also add that perhaps the oil price is the canary in the coal mine?
Crashing oil prices means less petro dollars to recycle? Clearly rising oil prices has had no effect on inflation figures so it really shouldn’t matter on the way down.
good point. I think lots of people assume oil will stay high forever; but a weakened world economy could cause a significant oil price drop. Should this occur, I think interest rates must rise (as high oil prices have acted like a “tax”, sucking more money from other consumption.) Also, like you said, less recycled petro-dollars.
Should be an interesting year. I think the crisis will come out of left field and perhaps even surprise many on this blog as to the severity.
Crashing oil prices? A drop from $79 to $68 after a run from last summer’s $50 range is a crash? This is merely the volatility that one can expect from this point forward as demand exceeds supply. I’m sure the drop from $100 to $80 in the near future will also feel like a relief. Wake up. We’re the frogs sitting in a slow-boil.
And who told you rising oil prices have had no effect on inflation? That’s the most idiotic thing I have ever heard in my life. The only morons stupid enough to say something like that are employed by the government statistics offices. You must be an alien who doesn’t have to purchase food or put gas in your car. Sorry to be harsh, but statements like that simply do not cut it with me and run counter to the reality that I am living every day.
“And who told you rising oil prices have had no effect on inflation? That’s the most idiotic thing I have ever heard in my life.”
You must not get out much, or read Realtor comments in Ben’s postings. They ae far more idiotic.
However, the increase in oil prices have not had a big impact on inflation NUMBERS. But in terms of real spending, it certainly has. We’re just not publishing the numbers.
Ah ha! Oil! How does it fit in the equation?
- Israel and the USA said in April that they have about a one year window to take care of Iran’s nuclear enrichment program.
- Saudi Arabia warned that if Israel attacks Iran - plan on oil rising to $280.00 per barrel.
Iran’s just screwing with us, they probrably could care less about their nuclear enricment program; otherwise they would have done it in secret. They managed to develop multi-head torpedos and a submarine to surface missile (yes they have submarines) without anybody knowing. Who knows what they really want.
“Iran” is a straw man — a lame one, at that. Forget about Iran in your money-making decisions and you will be better off, IMO. At this moment in time, oil is not going to sink or save the housing market. Whether or not politicians want to be able to blame oil, we should not care. Ignore the distractions. Stay focused. Keep your powder dry.
We already have almost 5million homes for sale (that would be about 1 home for each 23 US households) with more under construction. Supply will sink this market if the demand side does not.
I agree with you GetStucco . The market has a huge oversupply .Now add to that all the people that want and need to sell in the next 3 years and the additional new construction coming on .Anybody for second homes ?
I’ll give you a ZIRP, and our bubble will still burst. The credit quality is too poor, the supply and demand inverted.
The only thing that could put a patch on the bubble at this moment, IMO, would be a zero-% interest, fixed rate 30-year mortgage. I asked my Egg McMuffin and it didn’t think that this is going to happen. If my breakfast sandwich says no, then for gosh sakes I say no.
“No burst in housing bubble and economy unless interest rates go substantially higher. As long as the Asians and/or Arabs are willing to finance consumption at virtually 0 real interest rates, this party can go on indefinitely.”
this statement seems a bit bizarre to me. don’t you think that sentiment has clearly changed? once you take away the essential psychology of the bubble — anticipated future gains — it’s game over. now it’s just a question of how long and how deep to the bottom.
Ya gotta watch hedgefund’s angle when interpreting his analyses. (Likewise for the rest of us, in all fairness!)
of course! which is really even more worrisome, speaking of all those “toxic 20″ parts of the 80/20 mortgages that he supervises or analyzes or buys or sells or whatever. this is getting really scary.
btw, the same applies to jonathan miller, huge (and apparently reputable)nyc appraisal firm and — who doesn’t really seem to disagree with my bearish outlook on the manhattan market, but certainly must feel TREMENDOUS pressure not to admit full face that the horses are all out of the barn and there’s no where to go but down, down, down. he said as much. but i’m sure he’s sweating bullets from a lot of different interests.
I don’t know much about micro- or macro- economics other than from what I read; but knowing something about mass-market psychology, I totally agree with Manhattanite — any economic analysis divorced from the psychology presents a distorted picture at best. It’s a bit like an engineer trying to describe a consumer product such as an iPod solely on its specifications while being oblivious to the emotional connection people have with it.
Of course it’s bizarre. So far, these folks are failing the test of being able to see the bubble they themselves are in.
Now’s the time to say it: There is no bubble! It’s already popped. The time to see the bubble was a year ago. It’s just a memory. Not we’re left with the sticky residue.
Boy is it a mess.
Sure on the outer fringes, sentiment will affect certain segments and overbuild localized regions such as Vegas and coastal Florida.
But so long as people have jobs and credit is available, what is to stop people from buying, refinancing and monetizing for a very long period of time?
You need higher rates to cause pain, point blank. This is not pain yet, not even close.
Hedge,
With all due respect, market cycles are as much about psychology as they are about fundamentals. Interest rate trends, while important, are not the best predictor of future real estate trends.
Robert Campbell
My numbers for Las Vegas are in real time, direct from the MLS. There was exactly 1 condo sale in the wholke month of August in Zip Code 89148, and over 120 are still listed. 89148 was one of the most sought after zip codes in 2005. How much more pain can the 120 listings handle before there is Panic Selling. I suspect most of the 120 listed sellers are in pain, point blank. Can you imagine how much pain they will be in by XMAS if this trend continues.
Credit has tightened substantially, and I’m seeing daily reports of job losses. It’s interesting that, while no one is “losing” there job in the RE industry, they’re surely not making any money either. Our area is about to see a plague of builder BK’s.
I think it’s pointless to examine where we are currently because, although many folks are still currently employed, the dam is about to break.
Next year, when it’s apparent that we are headlong into a recession, the Fed can go ahead a lower the rates to about zero again and it won’t do a damn thing. We can only play the debt game for so long before the old “reap what what you sow” kicks in.
http://financialsense.com/fsu/editorials/jain/2006/0904.html
definitely no burst in the bubble unless the crazy lending stops; in the end interest rates do not really matter, just look at Europe. If nobody cares if you are just lying about your income, downpayments are not required and government takes all the downside risk, no one will care about interest rates.
It will take MUCH longer for this bubble to unwind than anyone can imagine.
“definitely no burst in the bubble unless the crazy lending stops; in the end interest rates do not really matter, just look at Europe.”
i find your comment fascinating; it leads me to believe that americans and europeans may have fundamentally different sensitivities to market cycles. is it possible the americans have a deep-seated appreciation of their inevitability and europeans have come to truly think they are invulnerable to such cycles?
your posts about the european housing market are really excellent for us statesiders.
“It will take MUCH longer for this bubble to unwind than anyone can imagine.”
i agree. do you think the 10-15 yr reversion to mean (itulip.com scenario) with a dip below the mean at about year 8 or 10 is likely?
Reminds me of one of my favorite tunes, Dwight Yoakam’s “Wild Ride.”
“definitely no burst in the bubble unless the crazy lending stops; in the end interest rates do not really matter”
I disagree. What really matters is affordability, and it is gone. When the majority of people can no longer afford to buy or carry homes, the game is over. That is exactly what has happened. A homeowner can only put off the inevitable for so long through creative financing and, at some point, have to start paying the piper. We are seeing the pain now. Supply and demand fundamentals will take it from here. When you have the largest inventory of homes for sale in history, with demand drying up by the minute, the prices HAVE to drop. What? Housing is different? Nuh-uh, not gonna buy that swill…it’s curtains.
Right, and remember that the last leg propping up affordability was price appreciation, which seems to be imploding under a weight of nearly 5 million homes for sale in the US.
Gee what a relief that you have decreed this. Guess I can throw my whole bearish worldview and put positions out the window.
You wouldn’t be worrying about your bonus, would you?
For disclosure, my firm has a bearish posture across a variety of high risk instruments including short spread on crossover tranches of MBS while long CMBS, short small cap growth, long large cap value and short certain carry-trade equity markets. If anything my bonus will be screwed because the above hasn’t worked as well as I would have wanted to. So PLEEZZZ cut it with attitude.
It’s a perfectly reasonable comment. If interest rates do not rise further, there is a high probability of a soft-landing given overall corporate health.
Now I personally think US rates have to raise higher because productivity benefits are over and labor market tightness will have a substantial impact on inflation expectations going forward. Add to that the potential of a current account/dollar crisis and you have a recipe for a dollar devaluation coupled with suffocating rates.
I’ll be buying property at 20-50 cents on the dollar in 2008 with those bonuses then.
so i guess it just depends on how you define ‘burst’….
I’ll agree with one statement he’s made. What we have seen so far is not pain. It’s just light stimulation of the outer nervous system of this bubble.
In the meantime, I’m sitting on a 100% plus gain on a small cap bought less than a month ago which still has a long long way to go.
And the myopic are looking for “bargains” in residential housing at these levels! Ha!
2008 is much too early to start thinking about real bargains — there’ll likely be a lot of crap on the market at 30% off peak price, and the possibility that the development you buy into ultimately implodes from mass non-occupancy. there’ll be plenty of bargains around 2012->.
Manhattanite, I disagree. Nobody really knows when the “event” will occur. It could be 2008, it could be 2012.
The trick to successfully play this is to be patient and trust your numbers.
i feel great confidence that this board will reach a well reasoned consensus as to when and where the bottom. 2012 is just a hip-shoot. do you think an “event” is necessary to take us to the bottom? can’t we just drift down 5-10% a year for a few years and then scrape bottom for a while? you obviously know quite a bit about more this stuff than i do; i’m just following my wits and experience.
“Sure on the outer fringes, sentiment will affect certain segments and overbuild localized regions such as Vegas and coastal Florida.
But so long as people have jobs and credit is available, what is to stop people from buying, refinancing and monetizing for a very long period of time?”
… but with all due respect, these 2 statements do seem pretty divorced from an appreciation of the shear magnitude and breadth of financial iceberg what we seem to be heading into… or have already hit.
sheer (and shear) magnitude and breadth of financial iceberg. pun intended.
sub 5% long rates in a 2.5% inflation regime and 4.7% unemployment?).
InflationData.com has the current inflation rate @ 4.32%.
>>InflationData.com has the current inflation rate @ 4.32%
hd74man, that’s not the core inflation rate nor is it the breakeven inflation rate.
I’m not about to get into a tutorial on inflation rates with you either.
“I personally do not think that irrational, uneconomical buying can last forever, but it’s lasted far longer than I could have imagined”
Isnt’ that one of the major characteristics of a bubble?
Backstage: yes it is, but I was referring to the bond market where participants are supposedly more sophisticated.
Interesting but little-known fact about why condos crash harder than SFRs: When the market is hot, and few condos are on the market at any one time from a particular development, they behave more like a SFR, as there are no highly similar comps available to compete with them.
When many identical condos flood the market at the same time, they behave more like pork bellies, with the lowest priced sale leading the way down.
Don’t knock bellies. At least you can get bacon.
Not exactly; it’s more this: during a bubble, speculators want the most highly-commoditized product possible, which are condos and tract houses. These products can be fincanced, flipped and traded by reference to fact sheets rather than physical inspections. They make playing the game neat and easy.
- Having traded futures contracts for Pork Bellies and Lean Hogs I can say that the Pork Belly futures are very thinly traded and controlled by the floor traders. Like this housing market, they will mow you down if you have a weak hand (Cash reserves to weather the storms).
In Florida, condos have been bought by flippers in far greater numbers than SFRs for two simple reasons:
1. Condos are much easier and less expensive to maintain by out-of-area owners and by local fantastically-successful but too-busy-to-talk-to-you owners (read: agents);
2. They are much easier to rent. The glitch is, they will rent at far below an acceptable investor-owner rate — negative cash flow for the duration.
““A one-bedroom currently offered for sale at $480,000 will be sold at or above its $325,000 minimum price. ‘I wish I could’ve bought my unit for less money,’ said Christine White purchased a one-bedroom on Folio’s second floor in the ‘low $400,000s’ earlier this year.”
think she’ll sell for the low 400s when she decides to sell in “3-5″ years?
“A one-bedroom currently offered for sale at $480,000 will be sold at or above its $325,000 minimum price. ‘I wish I could’ve bought my unit for less money,’ said Christine White purchased a one-bedroom on Folio’s second floor in the ‘low $400,000s’ earlier this year.”
This means close to a $100K loss already on this purchase, or around 25% (No crash here - move along folks)
Also:
Am I doing the math right?
Are 34 of 44 units up for auction!? How on earth did this condo building get built? (or converted). Less than 1/4th of the units sold!
Or did they all sell, and now 75% of the owners are trying to sell at the same time?
or is my math just plain wrong.
clouseau
No, that was the first calculation I did too. You read it right - ~75% of the building is still unsold.
How would you like to be the person that just bought in the last couple of months in the 400s?
Ben cut off the sentance… the article states “Diane Maloney, president of Marketing Group of New England who markets the 44-unit loft building on Broad Street, near Folio.”
She Markets a building near this one… there 34 units for sale and 62 unitas are already sold in this building (I work around the corner from the building)
I wonder how screwed the builder is. In any normal business carrying 30% of unsold inventory is ruinous at best, specially when you need to maintain it, pay RE taxes on it, and worse yet, interest on it…
I wonder what they will do if they fail to sell all the units at a discount?
But the project could of been financed by private investor money capital .
Yes, I went back and read further and there are 62 units in the bldg.
Still, that’s whacked - more than 50%.
Open up one of your textbooks Professor Clapp:
http://tinyurl.com/e4so5
Can you see it now?
Auction action in San Diego - three condos were built last year. Went on the market approx. June 2005 with asking prices of almost a million each. No takers. Prices dropped by $75K - $150K about a month later. Still no takers. The condos finally went to auction in April of this year with the following prices achieved:
Unit One - 2 bdrm, 2 bath, 25% smaller than the others - got the top price of $761K
Unit Two and Three, 3 bdrm, 2 bath, got $631K and $670K
I’m sure the folks at Unit One feel a little chagrined because they spent $100K more for a bedroom less. Going to auction lowered the prices by 25% - 30%.
Recovering Homeowner,
Where were those auctioned off condos in San Diego?
Thanks.
Auction action in SD: Units were in University Heights - just east of Hillcrest. Nice area with lots of established homes.
“Going to auction lowered the prices by 25% - 30%.”
More accurately, going to auction revealed the market prices were 25% - 30% below the wishing price.
Everybody STOP WONDERING!..The current US Real Estate Industry is a completely “Rigged Con Game” meant to screw the potential Home Buyers for as much as they are worth and even more if they can. Everyone is in on it from the sellers, re agents, banks, Gov’t, appraisers to the local tax assessors.
Sheesh…What IN the world is there to WONDER about ?
” Everyone is in on it from the sellers, re agents, banks, Gov’t, appraisers to the local tax assessors.”
—————-
Don’t forget the insurance cos.
“Don’t forget the insurance cos.”
Ummm, why the insurance companies?
Obviously, sellers want the best price. Problem is when those in the industry (appraisers, lenders and realtors) conspire to artificially raise prices (Each makes more money) This seems to be one of the big draw-backs of the comps driven system of valuation. Just because someone overpaid for a house, all similar homes are now worth that?
Comps driven valuations are a tax ploy. It wasn’t until property tax that the information on what your neighbor paid for his house was even available. If you really think about it, why should the price of your house be public information?
It’s not in Wyoming. You can see the assessed valuation, but you can’t see the purchase price.
Yes so true . In a mania how can a market comp be accurate based on buyers in a frenzy . This is why I think the lenders/appraisers should of capped out on a yearly basis how much they would of given loan wise .
For instance ,on a 300k condo/sfr if it went up 50% in one year to 450k the lender should say “that is find but we will only lend on max 20% increase in one year ‘. That way the speculator has to put the additional money down for the speculation risk .I said this months ago .While it is true that sometimes areas are undervalued and you could get a big increase in one year like 50% to 100% it’s not the general rule . The lenders took on the risk instead of the no-down borrowers and that not good lending .
Lenders are cracking down over the last several weeks on appraisers. I found out last week that two of the appraisers I use regularly got “black-listed” with Countrywide for getting caught several times using old comps to support a higher value. Everything is getting “desk-review” appraisal when it hits the underwriters desk these days, and it seems we’re getting calls on almost every appraisal we submit.
Regardless of how loose lenders have been with their standards lately, there not going to want to “play the game” in a declining market. It sucks when you’re in the business to package and sell notes and you’re having to buy back a bunch of your deals because of over-inflated appraisals. A year and half ago lenders let anything fly on appraisals, but I think the gig is up on this game.
Oh, for the first time in a long time we got all sorts of files sitting around with value issues. Last time I remeber so many deals hitting dead ends because of value was the mid 90’s.
I just saw a fresh, legit appraisal for $950,000 accepted by a bank for authorizing no more the $720,000 purchase price. The seller is no dummy and is going to sell at $720,000.
I just saw a fresh, legit appraisal for $950,000
Legit appraisal my azz. This number was thrown out by some HS educated newbie trainee working for a $35.00 fee split for a bottom bid feeder appraisal management company, whom the lenders have abdicated liability to.
The number hitters and their trainee hacks are the only one’s left standing in the appraisal game.
Like havin’ a crooked auditor signing off on your biz books.
The game is rigged, and it’s gonna crash and burn just like the Hindenburg.
Actually it was legit - comps were 25% higher, so the 950,000 based on proven rents was used. The appraiser’s license number? 2. He has been in business for more than 50 years, and was the second licensed when the licensing regime was first established.
The bank is sensible enough to expect a couple tenants to go under within the next couple years. I am just thrilled my client is getting rid of it.
I don’t envy you guys trying to conduct business in a declining market ,I have been there done that ,glad I’m retired .
I think in the near future we will be seeing more purchase money seconds taken back by the sellers ,but all the more reason to have a conservative appraisal when that starts happening .
Wiz — part of my buying strategy involves seller-held paper, though I want mine non-recorded and very short term payoff. Many bloggers are too young to know that seller-held paper is a great way to get around the inconveniences of beady-eyed banker holdups in the buying process. Here’s to the return of a free market in housing, where a handshake and a shotgun are more important than a Hummer-payer’s commission.
getting caught several times using old comps to support a higher value.
Of course they’are usin’ “old” comp’s…when nothin’ is selling ya gotta use somethin’ to fill in the sales grid.
However, if the comp’s are legit you simply make a time adjustment and write an explanatory addendum, which is sometimes hard to do when all the appraiser has for an education is a GED certificate.
My guess is they were usin’ sales in vastly superior subdivision’s to pump the values and got caught by a reviewer.
More of this shit comin’ down the pike. Under the gun underwriters will grind the sales process down to nothin’
Also in a declining market if you don’t have recent comps ,good appraisers also look at where the current listings are at to get a idea of where the market might of fallen to .
But current listings are an upward-biased measure of market value when nothing is selling.
Get stucco ..Current listings are upward biased ,so that must be considered also . But if you see current listings 100k below the last sales and they haven’t sold yet ,that gives you a clue where the market is going if you only have outdated comps or low sales activity in a housing section .
Right now if I was a lender I would be looking at what the potential drop is in any area and lend accordingly .Also if I was a lender I would be looking at how many listings are in a area and if the percentage is to high I would be expecting further decreases in spite of some recent sales .
NNV — that is REALLY useful information for those of not in, nor connected to, the back office. Thanks.
Excellent post, nnvmtgbrkr!! Good to hear it may finally be happening.
danke from germany
“‘The two burning questions at this moment are why are so many people trying to sell and why aren’t there more buyers?’ said (realtor) Michael Tetreau in Fairfield.
Now that’s a green-wood fire. How about…the flippers that bought are all selling, and none of the flippers are buying. These 20-30-40% drops in sales are probably roughly equal to flipper involvment in each local market. When they went away, so did the volume. Of course, these drops in sales (and inventories) probably don’t include the 2-3 year spec-u-fools.Their time horizon is such that the apparent equity losses are just now coming up on the radar screen.
And now that the flippers have gone home and taken their appreciation with them, regular buyers are seeing prices drop anw will wait in the sidelines. I don’t think another y-o-y 25% drop in transaction volume is out of the question. If home values continue to drop, this will happen in about 4-6 months.
IMF warns of ‘severe global slowdown’
“The world is set to enjoy a fifth record year of high growth next year, says the International Monetary Fund, but it warns that the risks of a sharp slowdown have significantly increased.
“The IMF will say next week that the world economy is on track to grow at 5.1 per cent this year but the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US.
“’Risk to the global outlook is clearly tilted to the downside,’ the IMF said, adding, ‘there is a one-in-six chance of growth falling below 3.25 per cent in 2007.’
“The warning comes in a report to finance ministers at next week’s meeting of the G7 in Singapore.
“The report, seen by Expansión, the Financial Times’ Spanish partner paper, is based on the IMF’s World Economic Outlook, due for publication next week.
“The IMF warns slower growth could be triggered by a sharp US housing market slowdown or by surging inflationary expectations that forced central banks to raise interest rates.”
The article links to US house price growth slows
The two burning questions at this moment are why are so many people trying to sell and why aren’t there more buyers?’
For me, the two bruning questions are why would anyone buy now and how stupid will you feel if prices are 20% or more lower in a year.
Simmssays…Wackiest Ways to Lose Weight
http://www.americaninventorspot.com
There are buyers, just no more flippers, and the buyers have more inventory to pick from. You are in a more “normal” market on the Demand side while the Supply side is obviously abnormal.
If you want a real-estate crash (I do), you need both sides to be abnormal and that will occur once rates go up to about 6%+.
I think that both sides are abnormal right now, as that 30 to 40% of buyers that bought in the last couple of years were “investors” of different stripes, and now they are sellers, added to the over-abundance of construction.
There are your 2 sides becoming abnormal. Add to that that those who could have, have bought houses already, and some are stuck underwater.
Take away 40% of buyers, and most of the first time buyers, and you have your abnormality on the demand side. No need for Interest rates.
i think your analysis of rates over 6% would do it, but it is not neccesary. The reccession that is coming will also do it.
Amazing to think that we now consider 6% interest rates a death sentence to the housing market. This just proves how the entire market is sitting on a house of easy money cards.
Rob, 6%+ rates means ~4% real rates, usually the trigger for the recession.
Real Rates are about 3% right now, enough for a slowdown given the negative wealth effects from housing, but not for a recession, IMO.
HedgeFundAnalyst — do you factor in the enormous number of ARM and Option-ARM re-sets that are about to begin? In other words, isn’t the fact that re-sets going to compound (and/or confound) normal market prjections at this poinmt?
I don’t think there are as many buyers as you suggest. One of the things that buy-now-or-be-priced-out-forever-hype and loose lending standards accomplished was to wring dry the available pool buyers because everyone who could qualify for a home bought one….or two , ect (with the loose lending standards this about meant everyone) . There was so much pressure to get into real estate from family, friends, and workmates that very few of the uniformed sat this one out. I don’t think there is this boat load of fence-sitters ready to jump into the market as some suggest, but rather a well run dry of potential buyers. I think the bulk of those waiting in the wings are the vultures, most of whom lurk in places like this, which means they’re educated and they’re not going to get back into RE without seeing substantial declines. No, I think there is a supply shortage of buyers.
“supply shortage of buyers” = demand shortage
Answer to the burning questions .
Current sellers
20% 3 to 6 month flippers bagholders
40% 2 to 3 year flipper bagholders (includes second home seller flippers )
20% Long term owner selling because of need to move down or up or perceived selling because of peak .
20% FB’s who can’t afford payments who are foreclosure bound .
Interesting… I would move the numbers around a bit, but not enough to be more than academic curriosity.
What I think is interesting is we’re just begining to see people liquidate their 2nd homes. Once that happens in earnest… Look out below.
I’ve written before on how many people at my work are flipping; it absolutely amazed me to see people at 1.5X median wage owning multiple homes.
Did anyone else notice that the traditional “end of the month” listing decline was tiny? (Nationally, it shot up from 920,000 on zipreality to 950,000 and dropped to 940,000 all within 5 days.)
KIA in two posts notes that the REO inventory is taking off. Think about what the market will do when mortgage brokers are given the following choice:
A) Due to exceeding the allowed home inventory on the books, they must stop issuing new mortgages (income stream halts)
B) Do whatever it takes to sell the REO homes so that new mortgages can be written and the staff can be paid.
Gee… and people wonder when the RTC will get reformed… Hmmm…
Neil
Would be interested in how you would move the numbers around Neil because I was just making a hip-shooting guess .
Housing Wizard,
How would I move the numers?
Right now, only about:
10% seem to be 3 to 6 month flippers. I see *a lot* of the mid-term flippers. Now, these used to all be 24 to 25 month flips, but if you can’t sell…
30% 2+ year flips
30% long term owners moving for normal reasons, but a large number are cashing out
30% are people in trouble who overbought. Most are trying to exit bubble markets for non-bubbles with some equity. Unless they drop, they’re trapped.
But again, its my perspective and not based on a survey or anything. However, I see category #1 (short flips) growing (if you can believe that… scary eh?)
Neil
Tend to like your numbers Neil ,especially your take on the 30% on people in trouble that overbought .
“I’ve written before on how many people at my work are flipping; it absolutely amazed me to see people at 1.5X median wage owning multiple homes.”
I am really hoping that some good estimates of the number of folks who owned three or more homes comes out of the bubble rubble, because I personally believe the number will astonish on the upside.
If I was a lender for a buyer of an auctioned property(and I tend to be financially conservative), I would be interested in knowing not only what the buyer paid for the property, but what the next highest bid was. To me, that is the true market value for resale purposes. If the buyer defaults, the next highest bid is all I can get for it (if I’m lucky).
I really don’t think standard auctions are going to get the builders the results they desire. Of the dozen or so accounts which I actually took to sale and auctioned in August, all save one went back to the lender. That one sale went for $1.00 over the ask price. My colleagues confirm the overall lack of action and the number of files going back to the lenders. The attorney who advertised 30 properties for sale in Prince William had eight actually go to sale and all went back to the lenders. He said they were all post January, 2005 loans. Colleagues in Norfolk, Lynchburg, Danville, and Staunton confirm that investors are relatively quiet and there is very little action anywhere. Virginia Beach will probably be the second-to-last behind NOVA, but the autumn is upon us.
Meanwhile, bankruptcy filings are up and debtor’s counsel indicate that they have a lot of additional filings in the works. One told me this morning that the problem they’re facing is they can no longer get appraisals for what is owed on the property, so they can’t advise debtors to file Chapter 13 Plans. Most of the debtors who legitimately qualified for decent-sized loans, however, are still employed, so they don’t qualify for Chapter 7 either. I’m wondering if we’re going to see an increase in the PITA Chapter 11 cases.
All in all, the REO department inventories are rising rapidly. They can’t offload the properties if nobody is buying. What I thought would be a serious decline is looking more and more like a yawning chasm. I feel a serious chill, the kind which raises hackles on the back of the neck. This is a long way from being over and even the most pessimistic projections may fall far short of reality.
They can’t offload the properties if nobody is buying.
As noted by posters numerous times…there’s one hellava lot of superadequate, overbuilt properties in economically obsolecent locations.
Of course legit appraiser’s would have noted all this in their feasibility analysis with the loan officer subsequently declining financing for the project.
But oh, no…operating on the supposition that there is a sucker around every corner, it was full speed ahead.
With many now educated by Ben Blog’s and passin’ the info along at cocktail parties-there might be situations now, where buyer’s will never be found for these white elephants.
Foreclosure vultures are like normal buyers in that respect. If they sense that next year they can get properties for 70% of retail next year, why settle for 80% right now?
“‘There certainly are some danger signs. It is possible that things will go down a lot,’ said John Clapp, a business professor at the University of Connecticut. ‘But it’s hard to see a dramatic decline in prices like in the 1980s.’”
Here’s some ivory tower wisdom from a guy totally qualified for comment.
He was probably on sabbatical on some south Pacific island studying bead trading by the local Indian tribes when the market shit the bed in ‘90/’91.
LOL. Besides John Clapp is really off . During the early 80″s it was more of a dead market than a declining price market . During the 90″s turndown it was more of a price crash downturn .
How many more listings will the Intel layoff add to MLS?
Intel has about 11,000 employees in Arizona, primarily in Chandler where it operates two semiconductor-manufacturing plants. Assuming the cuts are across the board, about 1,000 relatively high-paying Arizona jobs could be lost. The average Intel worker in Arizona earns $66,000 per year in salary and bonuses.
Doesn’t Chandler have a high inventory of homes already because of all the new home tracts? We are going to have more ghost towns than we know what to do with them .
Albuquerque media says layoffs won’t affect Rio Rancho much, but doesn’t media in every affected city say that? Alb real estate has been holding up pretty well so far.
I live in Albuquerque and make 2x the average income and I can’t afford most of the houses here anymore. There will be a correction once CA and AZ start really plummeting. You would not believe the number of empty homes and desperate to rent people in the west-side manufactured communities.
Johnny — best advice from the majority of us here: rent. Buy later, or much later, or, if it suits your lifestyle, never. Owning is not *always* the very best thing.
I strongly doubt that the layoffs are evenly distributed.
Anyone know how many PHX Intel people got pink slips? I heard the average severance is around $50K, that might keep ‘em going for awhile!
My severance from Gateway was about $2K but that didn’t last long.
Intel is reducing headcount by 10% by the end of 2Q 2007. 2,000 went through the sale of a unit to Eicon. Others have already gone through normal attrition; 1,000 managers have apparently already been notified. There are 5,500 still to go. Some of that will be further attrition.
“My severance from Gateway was about $2K but that didn’t last long.”
No kidding. Ouch. Presumably, you worked for them less than 2 years?
Probably just the WARN act 60 days required, even BK companies have to pay that out, once the company is of a certain size.
this is all moving at such glacial pace, gee.
When I see reports of people offering 10% off asking prices I don’t get how any seller who isn’t absolutely mad would not take it. When is this collapse *really* gonna get started?! I know, I know, many have predictions…my question is rhetorical and intended merely to indicate frustration that there isn’t any “panic” already!
cheers all…