‘Crazy Market’ Returning To Normal
The Baltimore Sun reports from Maryland. “The number of houses sold in the Baltimore area fell more than 25 percent in August compared with August 2005, leaving frustrated sellers with houses sitting on the market longer than expected. The area has not seen such a sharp decline in sales in any month since the MRIS began tracking data in the region in March 1999.”
“The number of sales slipped at least 19 percent in all jurisdictions, with the biggest declines, just over 30 percent, in Baltimore City and Carroll and Howard counties.”
“‘The market is returning to normal, before it became a crazy market,’ said Lisa Edleman, a real estate agent in the Baltimore area. ‘Everything can’t continue to go up by 25 percent a year. I’m not sure anybody could afford it.’”
“Economist Anirban Basu and some real estate agents said sellers are still expecting increases and refusing to negotiate, even after the market turned in buyers’ favor. ‘The housing bubble was not necessarily forming during the time of rapid appreciation in recent years,’ he said. ‘The housing bubble formed because sellers have been so slow to respond to the reality of an emerging buyer’s market. And because they have been so slow to respond, the active inventory has continued to climb and climb and climb.’”
“Stephanie Bamberger, a real estate agent who works a territory from Harford to Prince George’s counties, said, ‘Sellers are not wanting to budge, and buyers are becoming very adamant about wanting sellers to budge.’”
“She said she recently represented a couple that decided to hunt for a house over the summer when prices started coming down. ‘They wanted closing costs, they wanted a reduced price,’ she said. The couple made offers on two houses, and both sellers rejected the offers. The couple ended up buying a new house from a builder offering buyer incentives.”
“Darlene and Robert Johnson put their two-year-old, four-bedroom house in Nottingham on the market in April for $550,000, and have reduced the price to $469,900. Despite cutting the asking price, the couple hasn’t had a single offer on their home.”
“‘It’s very frustrating,’ Darlene Johnson said, adding that she sold her previous home, a townhouse in Abingdon, in a day two years ago. ‘The market is not anything like it was two years ago. This is definitely a buyer’s market, and they have quite a few to pick and choose from. I expected a couple of months, but I didn’t really expect for it to go on this long.’”
The Washington Post. “The president of the National Association of Realtors, Thomas Stevens of Vienna, admits he didn’t follow his agents’ advice when the real estate market started to cool. That, he says, is why his old house in Great Falls has now been on the market for a year at the price of $1.45 million.”
“‘What I should have done,’ confessed (Stevens), ‘was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October.’”
“Now Stevens, like so many other home sellers in the Washington area and around the nation, is waiting for a buyer in a market that has totally reversed course since a year ago. With two or three times the number of properties listed this year as last in some neighborhoods, agents are urging sellers to lower their expectations, put on their best face and offer incentives such as closing cost help.”
“But, he noted, in his defense: ‘Who knew last September how long this down trend was going to continue,’ after so many years of climbing upward?”
From the WP link:
‘They sent the letter telling me the listing was approaching a year’ and that the price needed another look, he said. ‘They’re doing their job as agents. I’m not doing my job as a seller.’
So if we had all listened to the realtors, none of this would have happened? These guys never stop with the spin.
‘Stevens does have a better excuse than most for not paying attention. He’s been on the road most of the year as head of the 1.3 million-member real estate organization, the nation’s largest trade group. And when he’s at his current home in Vienna, ‘I’ve been downtown lobbying.’
hear’s the deal Stevens- to keep your job (a cushy gig to be sure) you have to be the biggest idiot ever, = deal
- ‘What I should have done,’ confessed (Thomas Stevens), ‘was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October.’
- NO Tommy, your property would not of sold!
Now, begin reducing the price 50k per week.
I’ve been watching a listing in Chandler AZ. Paid ~$400,000 in Q4 ‘02, listed 7 months ago @ $750K, price reduced to 715K three months ago. Now another reduction down to $699K. I think it’s ‘right priced’ @ $599,000 and would sell at that price. Maybe not….I haven’t seen anyone looking @ it.
TRY 485,000
No way it’s going down that much. 4 years @ 8% puts it at ~545K and change. Was a new build in a new development. I’ll let everyone know what if finally goes for, it’ll be interesting.
No offense, but 8% is an arbitrary number, especially in Chandler Az. Keep in mind as the years go by, it’s going to get hotter and hotter in Arizona, with water supply problems. There will be a mass migration out of the Phoenix area to cooler climates up north.
This is what is so funny about the whole real estate bubble and real estate in general. Now we have everyone migrating to warmer climates. However, as ACC points out it is getting hotter and hotter in those places, putting more of strain on utilities, meaning people will want to head north to coller climates. Man, we a fickle race of creature. Damned if you, damned if you don’t.
I heard that real estate in the Arctic Circle is starting to get snatched up left and right. It will be the coolest neighborhood on the planet in a few years. They already have a TGI Fridays, Starbucks and a plan to build a Walmart on the east side. Phoenix is doomed.
Best crash quote: “Sellers are looking for last year’s prices. Buyers are looking for next year’s prices.” It is sure to get uglier.
Casa, you need to give us a bit more information before we can realistically debate what the home may “really” be worth.
I have over 20 years in Accounting / R.E. (appraising, commercial brokerage, financial projections for builders, mortgage, etc.) Please give us your resume. As AC mentioned, 8% is an arbitrary number unless you have facts / experience to back it up.
Just an FYI, I am new to AZ (Scottsdale), so I dont know AZ yet. But here is a basic calc for Chandler:
Average household income $72,642 (per city website)
This means $6053.50 per month.
At this income level, one can safely afford a total payment of $2,118.73 (at 35% Debt ratio).
Then we will assume a typical buyer with a fixed rate of 7.75%. That rate is an estimate with 100% financing - but I am probably being a bit liberal, probably a higher rate, meaning would qualify for an even lower monthly payment, but I’ll stick with that rate for now.
This would qualify this typical Chandler income-level buyer for only a home of $295,741.04 (and that’s without monthly taxes of $308 and insurnce of say $50). So even if someone with the typical income in Chandler wanted to purchase said home, they would not qualify unless they used a teaser-rate starting at about 2.75% (using your $500K sales price), and with prices falling that wouldn’t make sense as the gamble for them would be to assume that they would have enough equity before the ARM resets to sell at a profit (or) that they were going to get an extremely better income in two years or so (like graduating medical/law school, etc.).
Now again I dont know the particulars of the home in question, but one other thought. Most of the high-end investors & R.E. players I have worked for/with (and have learned from) typically base market values on what the typical household income is (or some other rule of thumb based on incomes).
I.E. if valuing an apartment building, what do the rents go for (or income-based calcs) then use a multiplier (cap rates, etc). In the case of a SFR, as others here have pointed out, we would do two calcs:
1. what do the average incomes support (i.e. prices reverting to mean or historical levels) - which is the calc I did above.
2. look at rents and see if they can cover the mortgage payment, if not then you are paying too much. At your suggested sales price of $500,000, an owner would need roughly $4,000 in rent just to cover a fixed rate mortgage and $2,600 to cover a teaser rate. I doubt seriously that anyone will pay that much in rent for the home in question.
You may argue that the prospective buyer(s) may have money to burn and not care about any of what I am mentioning. But beware, that is what got us here (economically) my friend. If people keep paying more for homes than the average household income in their area can reasonably afford, then how do they ” unload” the property to some other GF, when these buyers need to get out.
I submit to you that the home will come back to what the sellers paid for it, $400,000 or even less, if they dont sell it soon…
Wisconsin and Minnesota will be prime real estate soon enough.
“Sellers are looking for last year’s prices. Buyers are looking for next year’s prices.”
ditto
Markets always overshoot - on the way up & on the way down. Try $350,000 or maybe $300,000, only 25% below 2002 price.
4000sf w/basement single story. Far from a ‘typical’ or ‘average’ Chandler home. But it was purchased in what was considered the ‘pre-bubble’ era in Chandler, late ‘02. As far as it getting ‘warmer’ here, it’s the friggen Sonoran desert, it’s hot. This was actually one of the cooler summers and I’ve been here 9 years. We’re not running out of water any time soon, I just put 17,000 gallons in my new pool for about $150. So if they turn off the spigot tomorrow I’m good for a few years drinking chlorinated pool water. Northern California has been under drought warning for a number of years and it rains there like crazy. If you haven’t already noticed I don’t buy into the global warming thing. Newly built subdivisions back in pre bubble times, in my experience, appreciate better than resells.
I’m wondering if mebbe ‘ol Casa$Loco might be the owner of the property he’s keepin’ his eye on. Betcha he’s connected to it in some way, amigos.
I’m not the owner of the property. I do own a home in Chandler, which I intend to live in until my 30 year 5% mortgage is paid in full. I’m just telling you that that house will sell for more than 450.
why 8% per year? and who’s to say that Q4 ‘02 wasn’t already overprice by 20%?
I could just as easily i say Q4 ‘02 was 20% overpriced, so value then was really $320,000, and it should have increased at 4.5% per year since then. So my current “value” is $381K.
maybe they will chase the price all the way back down.
Don’t forget the overshooting while correcting. You may se price goin down below the fair price. can we say sub 300k?
Exactly.
Casa$Loco,
A “hypothetical” …
A couple buys a new build in Chandler in Q4 ‘02
for around $250k. They’ve lived all their lives on the
east coast, major urban ( bubble ) area. They buy
in Chandler to enjoy the winter months there, keep their
house in the east.
Q2 ‘05, one passes away suddenly. Home is listed by
Q3 ‘05 at ‘market price’. Not a looker, not an offer, not even
a passer-by at any of the three open houses since. ( No surprise
to any of us of course, but a surprise to her. )
Seller instructs realtor to mention to even passers by that
any offer would be considered. *Any offer*. But … nada.
Again, no surprise.
Now, who would guess that the seller might accept her
purchase price, and half the realtor fee, if the offer was
either cash, or as good as?
Of course she would. Q4 ‘02 price. Forget about whatever
inflation should properly be figured in. She wants out.
Her neighbor she barely knew has been nice enough to
renew the saran wrap routine over the toilets, and on and on.
Is she a rare exception in Chandler, or part of the crowd?
I have no idea. But I wonder.
There was no bubble in Chandler AZ in ‘02. The market was normal then. The Californial ‘investors’ started swarming on AZ in Q4 ‘03. There were no ‘lines’ at the subdivisions when we were looking and the builder actually accepted my lowball offer. People that bought in the last 3 years with the intention of flipping and using toxic mortgages are the ones going to get burned.
I guess a bunch of sellers are going to get letters in the mail that they better listen to their realtor ,after all look at what happened to Mr. Stevens ,(the head of the 1.3 million member RE organization ).
Is any one pi@@ed that the cheerleaders now want the same people who they convinced real estate always goes up ,and you better get in now ,to reduce the price and bring money into escrow in alot of cases .
It’s the sellers fault . Public can’t you see Mr Stevens is accepting the fact that he is a negligent seller ,(just don’t blame it on the real estate industry because were vunerable ).
This is the worst CYA ,damage control ,insulting article that I have ever seen .
You got panic buying on the way up and panic selling on the way down . Most real estate codes say in essense that you can’t induce panic buying or selling. Also realtors are not allowed to guarantee future yields either .
- ‘Everything can’t continue to go up by 25 percent a year. I’m not sure anybody could afford it.’”
- Well then, who will be able to eventually afford it?
lots of pundits like to use some lame year like 1950
go back to the 1900 and you’ll find w all the gov subsidies for housing it beets inflation by less than 1%
reversion to the mean would be ugly
“eversion to the mean would be ugly”
“Would” be, or “will” be?
Gee, Tom. Just pull the listing and re-list it a few days later. Then it will be brand new.
at least TOM is published now- as a total spin idiot
Here is what he had to say in November 2005:
‘The rise in inventory means that buyers will have a wider choice available to them, and the significant price appreciation over October last year shows that demand is still there, as markets continues to balance themselves,’ said NAR President Thomas M. Stevens from Vienna, Va. ‘Buyers know that housing is a good investment,’ said Stevens,’
The lies, er… spin is being exposed on a daily basis!
Stevens is probably pissed at Lereah for telling him that he has nothing to worry about.
From his TV appearances Stevens struck me as being very uncomfortable in his role as President of the NAR. This interview confirms it. I do not believe he will be in this job long.
Say what you will about Lereah but he does have a skill set. He is comfortable in his role as Chief Economist and effective at promoting the NAR despite the worst housing market in fifteen years. That is not to say that Lereah’s advice is not toxic as many on this blog have pointed out.
I know you guys would love this but it would not surprise me to see Lereah as the next President of the NAR.
I believe that the Real Estate Industry knows that they are vunerable to certain lawsuits based on their actions in the last 5 years and this is just a bunch of damage control to shift blame . The real estate industry has egg on their face right now .
I’m starting to see people who don’t have to sell taking their houses off the market. Zip has been holding pretty steady at ~53,500 listings.
I believe there are a huge number of sellers on the market right now who are just “fishing.” I have never seen so many POS’s for sale in my life. If something is for sale for six months, much less a year, then the owners are not serious about selling, period. If they needed to, they would have gotten it done. They are just salivating, hoping to land that greater fool. And as far as those purchasing right now, I am not sure if they realize it, but they are going to be the greatest fools of all! I have no idea why they would do such a thing! And how can these sellers even keep a straight face with the price tags they hang on their junk? On my way to the post office this morning, I was driving through a rural area in Washington and noticed a sloppy hand written for sale sign on a trailer sitting on a tiny sliver of a lot overgrown with weeds. Wishing price? $229,000!! I mean the thing is a throw away! Unfrickingbelievable. I wanted to stop and ask him how he arrived at that price. To call it a fixer would be a stretch as I am not sure mobiles are even worthy of that. The stench of greed is absolutely overwhelming right now.
Tell me about it! Just in from errands ‘meself. Drove passed a dumpy POS two bedroom rowhouse, built on a slab (no basement) with a 1970’s-era air conditioner sticking out the front window. “Nestled gently” between two public housing projects, the $475,000 “wishing price” is in my best estimate 25 times median income within a quarter mile of the shack. The place has been for sale since last November.
The District would do us all a favor in using eminent domain to bulldoze it and install a swing set or something. Good grief.
The term I learned at at marketing seminar is “retigular activator”. The minute you buy a new car, like a red Toyota, suddenly all you see driving around town is every other red Toyota. The people who have their houses listed, know their neighborhood market, the comps, and are watching their real estaste wealth slip daily as the market turns very, very ugly. They know exactly what is happening to their little corner of the world, and they distrust every one in real estate. They hate looking like a fool, so they might pull back their listing, just to avoid the “I told you so crowd”..but then they see prices going down, and pretty soon everyone will be heading for the exit, and they will relist at a new, competitve price.
Maybe the dot.com crash taught them something, but then again, maybe not
My bet is “not.” Orderly declines will be followed by panic - that is the historical model - we’ll see if it holds.
- They know exactly what is happening to their little corner of the world,
How true, how true. When they are possibly facing financial ruin, it is painful to see it all slip away.
Trust me those “fishers” are damn smart. Those sh*tboxes will be bought up by re-buidlers and tear-downs trying to DEFEND the comps in their neighborhoods while they unload their recently built properties in old neighborhoods.
Are you kidding? That is a ludicrous statement. It would be a decidedly quicker path to BK for the now cash strapped spec builders. Without Warren Buffett type money, they cannot “defend” their prices by buying up the town.
I had seen a double wide mobile home in DC area (Arlington) going for 475K as whole, or you could by just 1/2 of it for about half size. That thing was sold quickly. I bet some people could sell their outhouse or tree house for some good profit as well; there is always sucker on the shopping spree.
“‘The market is returning to normal, before it became a crazy market,’ said Lisa Edleman, a real estate agent in the Baltimore area. ‘Everything can’t continue to go up by 25 percent a year. I’m not sure anybody could afford it.’”
In five years a $300,000 home would be valued at $915,000. Gee, Lisa, I’m “not sure” either, but you might be on to something!
OT-
Here’s a new concept, instead of throwing in granite countertops and stainless steel cabinets, why not lower the price with a photovoltaic system on the house. The seller would have a much better shot at selling the POS..
Those two sellers featured in the Baltimore Sun article both purchased their homes in Feb 2005. The Johnsons bought for $348K and were asking $550K in less than 18 months, an increase of 60%, and even with the $80K price cut are still asking 35% more in just 18 months. The other couple bought in Feb 05 for $429K, borrowed $480K of that with an ARM and a secondary HELOC and are listing for $569K, an increase of about 32%. Price cuts mean nothing when they’re coming from already astronomical levels.
Baltimore is gonna take a long time to lose that sense of entitlement. I wish the writer had included the amount these people paid and when, it’s a real eye opener to see how many people are still banking on that greater fool.
Sorry, I meant “…borrowed $428K of that with an ARM…”
In Arizona, if your electricity is provided by Salt River Project, they’ll pay you $3/watt to put in a photovoltaic system, up to $30,000. There’s a $2,000 federal tax credit and $1,000 state tax credit on top of that, and the first $5,000 of system is exempt from sales tax.
If flipper’s were smart , they would have had that system installed in their homes, a definite selling point.
On one episode of Flip this/that House there was a hippy couple that wanted to add all kinds of eco-friendly stuff to the home before flipping it, ended up screwing them and they didn’t put up the solar panels at the end. This was in Sherman Oaks, I believe.
There are certain things that I would want for myself in a home, but wouldn’t count on getting the money back out when I sell. I think this is one of them.
In some parts of California, they have a tiered pricing system for electricity so that there were a number of posts here on electricity costs for some homeowner. A solar cell system for those homeowners would probably help out bigtime with power costs.
What’s the realistic cost for a solar system for a 1000 sq. ft. house? A 1400 sq. ft. house? A 2,200 sq. ft. house? What length of time for breakeven?
“‘The market is returning to normal, before it became a crazy market,’ said Lisa Edleman, a real estate agent in the Baltimore area. ‘Everything can’t continue to go up by 25 percent a year. I’m not sure anybody could afford it.’”
This makes my blood boil. I guarantee you this agent and others did not have this conversation as their clients were buying homes with 100% nothing down ARM products.
This ‘normal’ thing has to be coordinated PR. Are they willing to volunteer to go back to the ‘normal’ prices before everything went ‘crazy?’
oh my gosh Ben. You are so correct.
Hold ON!! Local realtor David Crisp said in April 2006, Bakerfield Californian “Prices will go up 25% for the next couple of years”.
- The oil has been pumped completely out of David Crisp brain … and it is now full of fermenting raisns.
Raisin brain cereal?
When you think you can sell your home for 35% more than you bought it for less than two years ago, I’d say we’re still in a seller’s market regardless of inventory and DOM, wouldn’t you?
Hold on. I can’t believe how many bears are still not seeing the reality of these price increases. They are not asking 35% more than what they paid. In the past few years people were buying $500,000 homes with about $10,000 (realistically) of their own money going into the deal. After 18 months they want $200,000 or so more for the house. That is not a 40% increase. That is a 2,000% increase in their initial investment.
This 35% increase being reference is probably more like a 1,000% increase in the money they actually have invested in the house. This is much worse than even the astute people on this blog make it out to be. These people can rot in those homes while they watch their visions of greed evaporate.
Well, I wrote 35% more than what they bought it for, but your point is clear. As I wrote above, the Boone’s put exactly $1000 of their own money into buying that $429,000 home.
So these seller/flippers are pissed that in just 18 months they cant make 200k on their 1k investment .I wouldn’t buy the house from these sellers even if they lined every square inch in gold .
We are in a market saturated with 2005 price tags and a surprising number of greater fools still buying. There are no bargains to be had right now period. I don’t care if the builders are throwing in multiple cars, upgrades, etc. we are far from “normal” prices. Until we see average 3/2 homes in places like Reno selling for $125k-$150k instead of the $375, we are not in a “buyers” market. The prices are still so out of whack it is laughable to even mention the term. The real estate train, robbed of both it’s steering and brakes, has crested the top of the hill and is pointing down the other side with the last of the GF’s holding it back from it’s nightmarish descent into the unknown.
I think what most here miss is that it isn’t just ‘greater fools’ buying — but ‘no fool like an old fools’ buying…ie, doubling, tripling down. Isn’t the statisitic 40% of homes bought in 2005 were 2nd homes or greater? I don’t think too many new fools are to be found…just the same ol’ idiots making sure they’ll really go bankrupt instead of just learning a painful lesson.
Buying on margin is always risky and that’s what these people are doing.
Au contair, City Boy. We’ve jabbered away in here about leverage many times. Most of us understand that ten grand toward a half million dollar house will wipe you out completely if it so much as hiccups the wrong way.
The market is returning to normal, before it became a crazy market
The market is briefly passing through normal as it continues its decent into an equally crazy down market.
Of course they took their house off the market , they listened to their Realtor .
What’s peculiar about these stories, are the reports about sellers refusing to budge, but the when serious sellers actually slash prices to presumably more reasonable levels, the houses largely sit anyway. I guess the question I’d ask is: are the new so called slashed prices just another facade, a farce, and still not realistic?
of course — affordability is still WAY off. Prices have a whole lot further to fall.
prices still 5-600k where I live. Haven’t noticed a drop. (91773)
You’re watching the pot. Go enjoy a hobby for a few months, then check it again.
What you are seeing is spelled out clearly in all the real estate textbooks. It does not work like the stock market, where sales volume often spikes upward while prices plummet.
In the house business, transactions fall off a cliff, plane and simple. That is why the industry has desperately tried to keep the game alive. They are toast and they know it. Agents, developers, all of them, toast.
Any buyers who can read is scared. Buyers with any kind of fiscal smarts smell blood. Both groups will wait until this thing sorts out.
And the sorting ain’t gonna be in 3 months.
Dizzy from spinning the facts, Stephens ironically failed to recognize the market whip-lashed to a screeching halt.
Ouch! That has got to hurt.
I was going to buy a house for big bucks in mid 2004, but my Realator® took me aside and said, “Curt, hold off. This is a crazy market. Wait a couple of years until it returns to normal.”
NOT!!!!!
LMAOTF
You had me there.
I posted my first comment earlier in this blog, but it is the 216th comment and it takes for ever to load it so I will repost so more people can read it.
Here it is”
I have been reading this blog these past few months and I find it very interesting reading. What I like most about this blog are the bonanza of links that illustrate what people are talking about; like the people who link to RE listings for $600k homes that sold just a few months previously for $400k. The educational level of this blog is ten times more up to date than what you would get reading the RE section of the New York Times.
I will now post my first comment in this blog, but I will keep MHT (my home town) of 50k residents in my southern state of residency anonymous because I do not want to put it on people’s radar screen for “affordable” housing and moving in here and further screwing up what is already a very screwed up traffic situation.
I have always wanted to own my own home, but I was never willing to pay what I consider to be astronomical prices. I am able to afford a conventional 20%/30yr fixed rate mortgage, but I simply refuse to pay these prices. I have watched as year after year these very old and very small cracker box homes in MHT kept moving up in price, now they are well over $100,000. I just can not see spending this much for something that would require tens of thousands of dollars just to bring it up to modern standards, and at the end of the day you still have a 1,100 sf house with unattached delapidated stand alone one car garage. And these are the lowest priced homes in good neighborhoods in MHT.
Moving up the price ladder you come across the recently built 3/2 houses with 2 car (the industry’s double speak for 1.5 car - not eberybody drives two MINIs) garages for $200k in subdivisons that are woefully inadequately accessed with narrow and dangerous two lane roads without a shoulder.
How can the salaries in MHT support these home prices? We have a UAW plant, those people make good money. But who else in MHT makes this kind of money? We have some other manufacturing in MHT - dog food factory, a detergent factory, etc… But manufacturing in MHT is very low paying. We have a “last tier” state college that is not known for anything and is only teaching kids social skills. MHT has got the ususal complement of big box retailers, and we recently added a Sam’s club. So I ask myself, are there enough Big Box store managers and UAW workers and college administrators to sustain all of this run up in prices? And who exaclty is buying up these 400k monstrosities with vaulted ceilings that cost a fortune in utilities? Is MHT a regional capitol of class action lawsuits and specialized health care so the place is swimming in lawyers and doctors?
Of course not.
Our yellow phone book has got the usual 25 pages of lawyer advertising; nothing different there for a town of 50k in America. The college professors keep warning the whole town of the coming doom of civilization if the state does not start paying them higher salaries.
I do know of a few people who commute to a large city of 500k people for good paying jobs but that is insanity. I have driven the Interstate during the rush hour between these two points and it is not fun. Maybe it is not the same bumper to bumper stop and go ordeal as it is in LA or New York or Miami, but it is bad enough for me. And besides, MHT is not really a bedroom community, there are not that many people who commute.
People in MHT are “programmed” to believe that your home will always appreciate in value, so it always makes sense to buy no matter what the price. The popular belief system is that when you sell you price it with a built in appreciation, plus 10 or 15 grand for wiggle room. The usual RE game.
People’s debt to salary ratio’s must be out of this world. All of the mass market restaurants on the main road are packed to the gills with customers on Sundays, and everybody is paying with credit cards. On weekend nights I see the college kids buying mixed drinks with credit cards. I am 20 years older and wiser than these college kids and I refuse to pay $7 or more for mixed drinks. These mixed drinks will eventually be paid for by their parents with interest and penalties for good measure, but these debt burdened home owning parents do not yet know this.
So I rent.
I rent in a smaller town that is 30 minutes away from MHT on the interstate. I pay $400/mo for a small 2/1 that is old but is in a good neighborhood. I hate the small kitcken and it’s formica countertop and the original windows and the triple track storm windows, but it is only $400/mo with a 1 year lease and after that you go month by month. The house is not “well insulated” as the owner has told me. There is SOME insulation in the attic, and the exterior walls are “well insulated” in that there are layers and layers of old paint and old siding on the walls, terminating with vinyl siding. (The stupid RE games people play.) But my point is that by renting just a short distance away on the interstate I have very affordable housing in a good neighborhood, and if the owner or local community gets me good and fed up enough then I will simply give 30 days notice and walk out of here with my credit still intact.
But you are not building up any equity! The people who tell me this are not building up any equity either, they are so busy trying to get what ever equity they have out of their home. The fact is that I AM building up equity. I have a dividend paying portfolio and my dividend income is growing by double digit rates every year. It is not now much of an income, but I will let you do the long term math. It never requires any maintenance, and It is not at all tacky without any new furniture or carpeting in it. Since it will never need any insurance, I will never have to give my social security number to low paid clerks at insurance outfits to get insurance quotes. The local school board has no idea what my portfolio is worth, and it would not matter since they have no way of taxing it. When I sell shares I pay a maximum 20% long term capital gains tax federal, and I do not need to pay an attorney to help me with the sale nor an accountant to figure out my taxes. (I can divide by 5, and I don not even have a college degree.)
If RE tanks as hard as so many bloggers here say it will, then maybe in five years or so I will buy my first home in the state and city of my choice. I will be buying it to live in it and do whatever I want as far as kitchen cabinets or bathroom fixtures or color of carpets and so forth. I will not be buying it as an investment, (although I will feel cheated if it does not keep up with inflation.) But until then, I am a much happy camper renting.
Thank you for reading my comment, and may God bless you all
Sounds like you are wise beyond your years, Happy_Renter. Keep up the good work on the long-term investments…
Jon
I really liked your post Happy renter ,wish you the best .
Id be a bit worried about having a UAW plant as the main source of big incomes in YHT. In case you missed it, the US auto industry is in downsize mode already, and it will get much worse when people realize how much of the recent car buying was with “equity” from houses.
You can have a house built — have you thought about that? From your description and your area, you should be able to buy a decent buildable lot for $20,000 and a pretty darn nice one for $35,000. Your building costs should be a *maximum* of $100 per a/c square foot ($30 for the basement), and that is for four-side brick with nice trim inside — crown molding, good-grade cabinets, good oak flooring, Corian or granite, big-mother tiled bathroom. For $200K, you should be able to build a very nice 1,500-1,600 s.f. 3 BR house, not counting the basement and including a nice but modest lot in a decent neighborhood.
If you wait a couple of years, it probably will cost you less than that.
Houses “Swamping” the market in Detroit
http://www.usatoday.com/money/economy/housing/2006-08-15-close-detroit_x.htm
I love the two houses comparison — the most expensive and the median priced versions. The cheap one looks affordable and maintainable the other looks like a money pit.
I coulda bought too in ‘04 but held off, prices went up of course and I feel lke I lost out but why buy when I can rent the same place for cheaper? Now if I could only find a real job and work off that credit card debt, to paraphare the commercial: “Wont somebody please help me?”
Anybody want to help out a fellow blogger? midi@cox.net
I don’t think anything’s returning to normal…
Our buyer’s agent told us yesterday that in Loudoun County, VA only 1 in 14 homes are selling. That means as a seller, he/she has less than 2.5% chance of selling her over priced home. Doesn’t that tell all the sellers and their agents that there’s something wrong… like maybe the asking price is too high? Well… it’s a real good time to make some real lowball offers in Loudoun…
Uh, 1/14= 7.14%, I think.
The foreclosure listings on the MLS are ratcheting up in Loudoun, Prince William, and Fairfax Counties. http://www.foreclosure.com. It’s easy to find them in the MLS by street name and price. It looks like a foolish time to buy one, but it’s interesting watching the # of foreclosures rise. Loudoun just added 5 more this weekend. Last year they were unheard of.
They’re up in Seattle too. I hadn’t been checking for the past several months but your post and link encouraged me to check.
Too wierd. I check Zip Realty all the time for certain zips. About a third of the # of homes for sale in the zips that I check are on the foreclosure list.
By that I mean: If Zip lists 90 properties in 98115, foreclosure.com lists 30 properties in 98115.
So is that hidden inventory or are third of the homes in that neighborhood in foreclosure?
Lordy, some of them were over a million dollars.
This could be a first for the nation: Tons of million dollar homes in foreclosure.
Huh? Does anyone understand this statement? Is he really saying that there was no housing bubble, but now that prices are going down there is a bubble?
What does he think the word “bubble” means? What diploma mill did he get his degree from?
He’s implying it’s an house inventory bubble instead of a house price bubble. The guy can’t make up his mind about anything and changes with the direction of the wind.
In May ‘06 , he said “It’s very comforting to know those people [from BRAC] are coming and they’re going to support home pricing,” Mr. Basu said. “Our housing price trends might become radically different from the balance of nation.”
Then about two weeks later, he said we’re headed towards a consumer-driven recession. Now he just parrots the price decline prediction in the Sun a few weeks ago from Mark Zandi from Moody’s of about 5-10% and makes absurd statements like the one above.
Bottom line is there are sooooo many people who bought in the last couple of years with nothing down, i/o’s, neg am, too good to be true teaser rates, that they are in over their heads. The debt is to great to ever be repaid and they are now stuck. Even those, who didn’t all this are stuck because they took out the HELOC for 100K and then promptly spent the entire amount, or, paid off everything and promptly went back into 100K debt and they have no savings. I have some good friends who live on Long Island and probably make more than 100K a year and have owned for awahile, so their nortgage is about 225K and they still talk like they are always broke.
The whole economy stinks to high heaven with all this debt. Doesn’t anyone save anything anymore. Is it all about getting the biggest and most expensive of everything, no matter the real value. Here in the OC, esp. in the southern part of the county, it is all about appearances. Now I know that many have lived here for 15-25 years so they are in good shape, but many are newbies and for the life of me I can’t figure out how they afford all this stuff. Okay, even if you and the wifey make 150K a year and you eat raman everyday, okay. But add the H3 and the Escalade, Hailey and Tyler (or Justin, or whatever the in name is now for boys) going to private school and all the eating out and spa trips for the missus and the sports for the misters and it doesn’t compute. Something has gotta give. I know we have talked a lot about recession on this board and I know many have called me to task for doom and gloom predictions of mass depression that will make the 30’s look like a picnic at Disneyland, but I really think that the whole house of cards (plastic ones, that is) has got to give sometime. One thing I know is that the country as a whole, personal, local, county, national, has gone way past the tipping point when it comes to debt and you can only run an economy on debt, greed, and playing the world series of poker for so long. Eventually, productive work has to be done and savings has to be made. Unfortunately, I think the worst case scenario is what we are in for. America cannot and many of us on this board will not stand for business as usual. I am not saying a revolution is in order, however, I know many are ready to leave the country for awahile or move to the more secluded parts of the country. Some are even keeping the powder dry as they say for that time.
I realize that being a bear in our society isn’t highly though of, but one must be prepared for the worst. America is never proactive, we always reactionary and this is in every aspect of the country, which is why we have the problems we have. Sorry for the rant, but I see the headlights coming and it seems that everyone who is in charge is doing nothing about the on coming debt traina.
OcDan ….I hear you and I agree with you . I just hope it doesn’t get as bad as the 30″s . I believe that some things can be done to to keep it in the mild recession realm ,but its not going to happen if everyone remains in denial .
I believe that some things can be done…
I’m all ears (actually eyes) — name them!
OK tj &the bear . Can I talk about these ideas when Ben posts a subject or topic that covers it ? I think it would be a good topic to explore . Sorry I took so long to see your post because I was gone for a while .I have been giving alot of thought lately to how a big crash could be averted .
That would be a good topic.
OCDan,,
We are in San Diego, now renting after selling 2 years ago. Once or twice a year my GF and I take a trip upto the South Coast Plaza Mall in Irvine. Even coming from SD it always seemed to us that there is so much ‘money’ on display around that mall…BMW’s, Mercedes, Escalades, etc etc, and this is just the teenagers. Something is very wrong up there. OC is in for a big crash, I have no doubts, especially now that the subprime lenders based in OC are closing/reducing thier workforce. And what was Robert Toll talking about the market picking up in a couple of quarters…based on what? Idiot! Perhaps his executive share sale plan needs to sell some shares again soon.
I agree, it’s just madness. I have to say, the neighbors here that I know, are not that way. We are a solidly middle-class place and no one seems to care about putting on airs. My s-i-l lived in a similar neighborhood, but really wanted that big “doctors house.” (Her husband is a doctor.) They are not happy. Their neighbors are petty and pretentious, and the HOA is extremely nasty. They feel trapped though, because of bubble prices and the tax situation here in Florida.
Anyhow, I, too think we’ll have another Depression.
My theme in SD is “I don’t know how people do it here.” What exactly do people do for a living that they can afford a 1 bedroom apartment for $1400 a month and still drive the new car? Better yet, what do people do where they can afford kids and pay $2000+ to rent a house (and the new car(s)….and the vacations…..and the nights out). I have no clue……and I’m an engineer!
Hi Carlsbad renter!
I have been lurking on this board for a year now and it is a great bunch of people. I am finally posting a real post, after a couple of one liners here and there. With that said.. onto my observations and personal account how people here in Cali do it.
I work in Southern California, I am a single mom, in my mid 30’s. I work in the IT field and make 120k a year since last November. Prior to that my salary the past few years ranged from 50-80k / yr. I have no debt except for my school loans. My BMW is paid off and I have a Cadillac that was passed onto me from my dad who passed away, so both cars paid in full. However, I try to live humbly and within my means. I have not taken a vacation in 8 years, since my son was born, except for a few weekend get aways, local. Carlsbad being one of them!
I live in a 1 bedroom apt. that goes for 1100.00 / mo. My son goes to a public school. I have been saving my money the last year, after I paid off my debts. I have no credit card debt whatsoever. So after paying off my debts I finally have 40k saved for a downpayment. I was so tempted to buy last year, as I heard from everyone, family friends, co-workers that now is the time to buy! However, after reading this blog faithfully I decided to wait.. and I am still waiting. I hope to buy next year, ‘2007.
I don’t know any friends of mine who are in the similar situation as I am. I do feel blessed. However, what bothers me is how I see so many of my friends living way beyond their means.
For example, I have a friend who bought a house for around 480k. He makes about 35k a year. His name is Pablo. (Yes, I am hispanic as well). Anyhow, Pablo lived in the house 2 months when he realized that he could not afford the house! This is what he told me. He said the house was too expensive and he had to rent it out. He is now living with his brother in an apt. in Van Nuys. I am not sure what kind of loan he has, but I bet it’s an ARM. I feel sorry for him, but at the same time I just don’t understand why people don’t use their common sense. I am no real estate guru whatsoever, I am just a working gal and mom.
Anyhow, so I have other friends who drive Hummers, brand new Mercedes, and brand new Beemers, all making far less than me, in the 35k - 50k a year, tops. A few have bought homes. Meanwhile I continue to live with my son in my 1 bedroom apt. renting.
So bottom line is that people are doing it alright here in Southern Cal. However, they are living way beyond their means; leased cars and living in homes they cannot afford. I do not wish any ill on anyone, however, I can say the path ahead does not look too rosey for these folks.
“My BMW is paid off”.
Suggest you start making provision for your next car now, as well as for a residence. I think some of those “brand new beemers” are going to be available as lease-end vehicles relatively cheaply in a year or two, within cash range if you can keep your savings rate up.
Even if you do a lot of your own work, BMW’s become expensive to maintain once they reach a certain age. I learned this lesson many years ago when buying parts for an R60/5 motorcycle.
ajh - I agree with you there, good advice re: ’start making provision for your next car now’. I learned the hard way when I first bought the beemer brand new in 2000 (younger and foolish). Never again will I pay another car brand new. I don’t want to take the hit. I am putting money aside now for a future car. Meanwhile I plan on running this one to the ground. Besides, I dont want a car payment and a mortgage.
oops. typo, meant “buy”, not pay
- “Darlene and Robert Johnson put their two-year-old, four-bedroom house in Nottingham on the market in April for $550,000, and have reduced the price to $469,900.
Note to Bob and Darley:
- Reduce price to 290K
What a freaking dweeb. Well, you can’t accuse him of being a shrewd manipulator.
“But, he noted, in his defense: ‘Who knew last September how long this down trend was going to continue,’ after so many years of climbing upward?”
Well, how about anybody with half a brain?
Oh man, I’m with you Joe.
Really do not understand people who, after years and years of out of sight and unreal appreciation, need more and more proof that the market’s on the way down and there is no going back.
When price reductions, selling under asking, wildly increased DOM’s first appears after a run up like the past 10 years, that’s a stumble.
And when you stumble in the midst of such a fantastical run up, YOU FALL.
All right, once again, and listen up, Chandler AZ:
We paid $99K for a 70-year-old 2.5 story 3-BR, 2BA home on 2.57 acres one and a half miles from the Chesapeake Bay in ‘89 on the Eastern Shore of MD. Sold it in 2000 for $110K and were considered lucky at that time to have been able to sell it at all. The guy who sold us our cars had his house on the market during those years, once for THREE YEARS at a stretch, took it off the market, then relisted. I have no idea how he eventually fared, but the point is that our own less than one percent per year appreciation was considered normal at the time, and this only 90 minutes from D.C.
No one has a “right” to eight percent per year appreciation. It was never that way in the past.
Let’s not forget there was wage inflation after the last bust as well. Not so sure that will be the case this time (IOW, I don’t see any reason for prices to rise at all).
…. “The whole economy stinks to high heaven with all this debt. Doesn’t anyone save anything anymore. Is it all about getting the biggest and most expensive of everything, no matter the real value. Here in the OC, esp. in the southern part of the county, it is all about appearances. Now I know that many have lived here for 15-25 years so they are in good shape, but many are newbies and for the life of me I can’t figure out how they afford all this stuff. Okay, even if you and the wifey make 150K a year and you eat raman everyday, okay. But add the H3 and the Escalade, Hailey and Tyler (or Justin, or whatever the in name is now for boys) going to private school and all the eating out and spa trips for the missus and the sports for the misters and it doesn’t compute. Something has gotta give. I know we have talked a lot about recession on this board and I know many have called me to task for doom and gloom predictions of mass depression that will make the 30’s look like a picnic at Disneyland, but I really think that the whole house of cards (plastic ones, that is) has got to give sometime…”
OC Dan.. great post! I totally agree with you. I don’t know about the orange curtain folks but they are purely into appearances and airs. (sp?) I wish I could drive a new car.. meanwhile I drive my beemer with 135k miles on it so that I can afford a reasonable mortgage in ‘2007. I am putting up this car for sale soon and just keeping one. These fancy gas guzzling hummers and tricked out MBZ’s in the OC are all over the place. And to boot people are rude as well. Oh well, I will continue to eat my beans and rice and save my money!
A recession is coming.. IMO