‘Optimists Head For The Exits’
The Chicago Tribune reports on condos. “So far the housing slump has been marked by slowing sales. Now there are signs that rapidly falling prices could be on the way. Earlier this month a Chicago developer sold 150 condominiums in a two-hour lottery by discounting prices about 20 percent from what he would have asked last spring, an indication that industry observers say could signal widespread price reductions here and around the country.”
“‘We’re responding to a dramatically changed market,’ said Nicholas Gouletas, who plans to conduct lotteries to sell about 2,000 more units in nine other projects he is developing in Chicago, Las Vegas, Orlando and Boynton Beach, Fla. ‘Let’s admit it’s a buyer’s market and what they want is the best price they can get.’”
“Gouletas figures he will avoid the expense of 2 1/2 years of mortgage interest payments, marketing, maintenance, insurance and taxes by not struggling to sell condos against the headwinds of a slowing housing market.”
“For those anxious to assess how far the decelerating housing market will fall, a lottery sale like this could indicate a steeper decline in prices as veterans in an industry replete with optimists head for the exits to salvage profits and avoid big losses.
“The distress reflected by Gouletas’ lottery here is not an isolated incident of one unlucky project in a so-so location. In New York and Washington other developers are abandoning plans to convert big apartment buildings into condos.”
“A day after Gouletas’ lottery the nation’s largest apartment real estate investment trust closed on a $96 million deal to buy a 256-unit apartment building in suburban Washington from a developer whose condo conversion plan evaporated. The REIT plans to close soon on the $200 million purchase of a 300-unit building in New York that met the same fate.”
“Prices for these apartment buildings probably have fallen about 20 percent from their peak in the summer of 2005, said Jonathan Litt, senior real estate analyst for Citigroup Investment Research in New York. Nationwide, profits for condo developers have fallen from 50 percent to ‘20 percent for some, and for many to zero or less,’ Litt noted.”
“Chicago condo developers face some rough times ahead, Litt added. ‘This has been on the radar screen for a couple of years because developers have brought on a lot of inventory,’ he said.”
The New York Times. “As housing sales soften in some areas, rentals are beginning to look good to sellers who do not want to cut prices. Owners who have properties that might have listed for $1.5 million a year ago may now have to lower the asking price to $1.1 million to make a sale, and so they rent instead. ‘People are not willing to take the hit,’ John Pfeiffer, who handles executive relocations said.”
“‘Over the last four months, I’m seeing two things,’ said Alix Sara Prince, of Sotheby’s International Realty in Rye, N.Y. ‘Those who want to wait out and rent until the market recovers, or those who are strapped because they have to leave town and put their house up for rent.’”
“Ms. Prince says she has 13 homes available for rent at $11,000 to $35,000 a month in the three towns she serves in southern Westchester County, almost twice as much in that price range as last year. Quite a few rentals, she said, are sitting around unrented.”
“Sheldon Dubrow, who is also a builder, is not getting any bites on a $1.99 million home he owns in Brookline, Mass. Now he’s hoping that he can rent it for $8,500 a month. Dubrow put his 4,500-square-foot house on the market almost a year ago. He has lowered the price once, but still, buyers are not pouring in.”
“In June, when his real estate agent ‘talked to me about renting, I wasn’t too excited,’ Mr. Dubrow said. But his attitude has changed.”
‘Real estate brokers estimate that a $1 million home will rent for $5,000 to $7,000 a month, depending on size, condition and location. Although the rents may seem exorbitant, those people do avoid a huge down payment, and aren’t necessarily paying much more than monthly mortgage payments of, say, $10,000, on a $2 million-plus home.’
The Times reporter needs to get out more. Here in northern Arizona, a $2 or $3 million dollar home can be rented for under $2,500/month.
“Here in northern Arizona, a $2 or $3 million dollar home can be rented for under $2,500/month.”
That’s a steal! Who in their right mind would ever buy such a house there when renting is so cheap?
People who thought it would be worth $4 million in a couple of years. But actually, very few find renters. There was one 4 br pad with decks and a pool/sauna that several college age workers were going to go in on at $2,600, but they couldn’t come up with the $6,000 deposit.
I remember reading about luxury new home buyers in California that didn’t bother to rent the unit out so they could re-sell it ‘like-new’.
There’s one of these near my town. It’s occupied by at least 10-15 immigrants working on a construction job. The city has a rule that there can be no more than five unrelated occupants in any home, but I heard they don’t have any identification and the city won’t do anything about it because they can’t prove who’s related to who.
When Falls Church, VA, tried (feebly) to enforce their occupancy laws, all the restaurant owners threw a fit — “You’re harrassing my busboys!” Of course these business owners weren’t picking up the tab for any of the huge social welfare costs run up by illegals and their dependents.
Kaleefornia real estate investers would buy such houses. Their equity needs to be liberated.
I rent a 1 million $ home in Temecula Ca on 5 acres and 360 view for 1700 a month. Not to motivated to buy.
I read the article, too. Keep in mind $1m in so. Westchester Co. doesn’t buy much house. Even so, the Times reporter is still off base; I think she’s off by $1500.00 on the $1m house. Even funnier, the Times recently did a story on a couple that moved out of NYC to Bedford, NY (also so. West., near Clinton country) & were paying about $2500/mo for a beautiful SFH.
The best part of the article was about contractors that built huge blinged-out spec houses here that they now can’t unload, and are now trying to rent them to “celebrities” — as if there is an endless supply of NY Yankees & Knicks who want to rent these turkeys.
Bedford is not Rye. Those rents seem reasonable. Rememeber that decent 1BR apartments in NYC go for $4k/month. Rye is one of the nicest suburbs of NY; I’m not surprised that houses there rent for $7k a month. Actually seems like an OK deal.
Here in Sacramento there have numerous indoor pot growing busts in unlived in McMansions. Particularly in a town called Elk Grove, but I suspect that the problem is more widespread. Think about it. Rent - doesn’t cover the monthly payment. Pot Growing - Covers the payments and then some!
Elk Grove, the “fastest growing city in the nation.” There’s such a large amount of flipping going on in the neighborhoods that the pot growers probably felt quite safe from the neighbors, who change so often that none of them would find anything suspicious.
I have a friend who recently became a Realtor and she said that she was told that most of the sales to pot growers could be traced to one agent. If she’s right, then that guy is in deep trouble.
I have also heard that other areas with high flipping ratios, such as in Roseville, are also experiencing major drug busts. All I can say is thank God it’s pot, and not meth, which requires cleanup by toxic waste workers (even if you demolish!)
This would fit right into the latest episodes of Showtime’s Weeds series. To make ends meet, an unemployed houswife (Mary Louise Parker) sets up marijuana plants growing indoors in a surburban rental. However, she faces stiff competition with Armenian growers, who have set up shop in numerous rentals adjacent to hers. Hilarity ensues.
I don’t believe it for a second. I rent a $1 Million house in an expensive part of nj within normal commuting of NYC. It was built by a small local builder who had it on the market for 1.2m. In the spring of 2005 he turned down an offer of 980 thousand. My rent is Just over $3000.
I live in San Francisco - rent a SFH that zillow lists for $1.045M for $2050 month. I’m not sure that I would pay $500k for this house much less $1M. Long ways to go here in the SF Bay Area.
Yep, when the rest of the bubble blog is celebrating cheap housing, I betcha we’ll still be waiting it out. But hopefully not by long.
“‘Over the last four months, I’m seeing two things,’ said Alix Sara Prince, of Sotheby’s International Realty in Rye, N.Y. ‘Those who want to wait out and rent until the market recovers, or those who are strapped because they have to leave town and put their house up for rent.’”
I’ll wager that most of these blind optimists are banking on a recovery early next year. I’m hearing a lot of this lately in the industry, that 2007 will right the ship. Of course it’s based on nothing but unsubstantiated wishful thinking. Poor bastards…..
‘Of course it’s based on nothing but unsubstantiated wishful thinking. Poor bastards….. ‘
Reminds me of the Iraqi foreign minister’s quote…
“I triple guarantee you, there are no American soldiers in Baghdad.”
“blood-sucking bastards”
Actually that was Bagdhad Bob, Info officer/minister, not Tariq Azid, the FM.
http://www.welovetheiraqiinformationminister.com/
Ah, yes. Baghdad Bob, aka “Comical Ali”. This man would blush with shame if he had to dissemble as blatantly as his NAR counterparts.
Some gems from Comical Ali:
“There are no American infidels in Baghdad. Never!”
“My feelings - as usual - we will slaughter them all”
“Our initial assessment is that they will all die”
“I blame Al-Jazeera - they are marketing for the Americans!”
“God will roast their stomachs in hell at the hands of Iraqis.”
“They’re coming to surrender or be burned in their tanks.”
“No I am not scared, and neither should you be!”
“Be assured. Baghdad is safe, protected”
“Who are in control, they are not in control of anything - they don’t even control themselves!”
“We are not afraid of the Americans. Allah has condemned them. They are stupid. They are stupid” (dramatic pause) “and they are condemned.”
“The Americans, they always depend on a method what I call … stupid, silly. All I ask is check yourself. Do not in fact repeat their lies.”
“I can say, and I am responsible for what I am saying, that they have
started to commit suicide under the walls of Baghdad. We
will encourage them to commit more suicides quickly.”
“I can assure you that those villains will recognize, will discover in appropriate time in the future how stupid they are and how they are pretending things which have never taken place.”
“We have destroyed 2 tanks, fighter planes, 2 helicopters and their shovels - We have driven them back.”
“The authority of the civil defense … issued a warning to the civilian population not to pick up any of those pencils because they are booby traps,” he said, adding that the British and American forces were “immoral mercenaries” and “war criminals” for such behavior.
“I am not talking about the American people and the British people,” he said. “I am talking about those mercenaries. … They have started throwing those pencils, but they are not pencils, they are booby traps to kill the children.”
“We have them surrounded in their tanks”
“The American press is all about lies! All they tell is lies, lies and more lies!”
“I have detailed information about the situation…which completely proves that what they allege are illusions . . . They lie every day.”
“Lying is forbidden in Iraq. President Saddam Hussein will tolerate nothing but truthfulness as he is a man of great honor and integrity. Everyone is encouraged to speak freely of the truths evidenced in their eyes and hearts.”
I would rather listen to Baghdad Bob than Tony Snow, anyday.
“I’ll wager that most of these blind optimists are banking on a recovery early next year.”
Do you think this might be due in part to the NAR’s cheerleader-in-chief’s indefatigable optimism ( “We’ll probably see prices dip
temporarily 
below year-ago levels as the market works through a buildup in housing inventory,” David Lereah, NAR’s chief economist, said in a report released today in Washington by the real estate industry’s largest trade group.)?
http://tinyurl.com/o8lp9
I’m sure that it is. Guys like DL are doing the folks in the RE industry no favor with comments like this. Right now those who rely on RE for income or investment should circling the wagons and/or planning exist strategies that minimize the losses and potential long term economic damage. Riding out the storm don’t work here - evacuation is the survival plan.
planning exist strategies
Nice Freudian slip. I’ll bet many of them won’t exist soon, so having a strategy is prudent if they want to continue existing.
It kind of brings to mind the Katrina aftermath in NOLA: Those who failed to evacuate early were soon underwater.
this is the official line in sonoma county as well,however more people are greeting that statement with bland looks and a quiet mmmm.at least i did when the boss tossed it on the table.
“So far the housing slump has been marked by slowing sales. Now there are signs that rapidly falling prices could be on the way.”
I like that concept of rapidly falling prices. Maybe the housing market will prove more efficient on the downslope this time, given the great increase in information due to the internet. If so, perhaps it won’t be necessary for renters to wait until 2010 to confirm that they were not actually priced out forever, but rather only for the duration of mania prices.
- “Ms. Prince says she has 13 homes available for rent at $11,000 to $35,000 a month
- Now we’re talking! I was just waitng for rents to drop into the
“$17,000.00 to $20,000.00′ range!
‘Honey, pack up the house … we’re moving to NY.’
Wow — $11K to $35K a month in rent! I did not have any idea that there were so many multi-millionaires out there looking for luxury rental housing these days!!
Wow — $11K to $35K a month in rent! I did not have any idea that there were so many multi-millionaires out there looking for luxury rental housing these days!!
Perhaps some of Forbes 400 American Richest (Billionaires)?
Mrs. Prince said ‘available’, not ‘affordable’!
$35, 000/month? That’s $420,000/year. Uh, sure . . .
Don’t underestimate the breadth of the uber-wealthy in NY and its environs. The real problem with this is that anyone who can truly afford to rent a house in that price range either A) Doesn’t care about the market and will just buy one anyway, or B) will be savvy enough to know she doesn’t have to pay 20K per month to rent a (very) nice place to live.
Properties owners in that price range that “need” to sell are going to get very badly hosed - it is but one small bit of justice that they will get hosed far harder than the poor slob with the overpriced, 300K POS.
There’s just no way that the average family can “get value” out of paying more than a few hundred per night in rent. The only justification for super-high rents is super-huge places; the only reason to have a super-huge place is if you are doing some Great Gatsby thing or maybe housing a movie crew. Otherwise, you’d be spending all your time trying to occupy the house to get an effective amortization of your rent; this in turn would just be a massive waste of time which you couldn’t possibly have if you are wealthy enough to afford the place in the first place. So it just doesn’t make any sense to rent any house in Westchester or CT or anywhere for more than, say, 10K a month.
When you go past street after street of mansions (real mansions, not Mc’s) in Ponte Vedra Beach or Palm Beach or Rancho Santa Fe I like to I imagine what a “heat-tracing” of the movements of occupants inside the houses would like like. Huge swaths (I bet) of these houses go unvisited for months at a time, and most people probably live in little sections of them the same way people live in normal houses. The rest is just a place to store crap and collect dust and attract spiders.
The Japanese have a saying: small spaces concentrate the mind. Most people can live very comfortably and happily in a few rooms. Who wants to store ATVs and jet skis?
I used to live within a couple of miles of this area of Rye…these are Wall St and Corp exec type homes (I lived in the next town Rye Brook - the servants quarters
). But renting was really, really slow in this area due to people wanting to own to capture appreciation. No more…peaked in 2Q05. But not likely to fall really fast (unless there is a financial market crash) as supply is quite constrained and there is little new building possible anywhere near Rye. Rye is a high quality location with some of the best schools in the country and lots of “old” wealth that generally doesn’t move, e.g., they are married to the area due to family and their view that there is no where better to be.
Not comparable to So Cal, Vegas, AZ, So FL, etc… (Though a good number of these people also have places in So FL!).
Nevertheless, a 25% price depreciation is very possible and likely.
It’s always problematic to say, “here it’s different” but, obviously, there are a number of areas where there will never be much supply and demand will not be limited by finances. Thus, anywhere housing has become commoditized, like suburbs in AZ and VA, are going to get absolutely killed, whereas your nice SFH in Bronxville or Rye is just going to dribble down a little over time.
That being said, losing 12% on a $4 million house means losing almost half a million!
“Bronxville will dribble down?” Why? I ride Metro North through Westchester all the time. From the window of the train I see a lot of nice old $400,000 homes going for a million plus dollars. Westchester, including Bronxville, Scarsdale, Hartsdale, etc. won’t be immune from the big fall. Their runup was just as wild and I’m guessing that as NYC falls so will all of those snooty suburban places. I bet a lot of those Bronxville homes have owners that stretched like heck to get in. It’s not different here. The prices can’t be justified even in New York City.
Bronxville, Hartsdale…weaker than Rye. Old Greenwich and Rye will be some of the last holdouts for big losses in the NE (Unless Wall St crashes and burns…then they do).
Never doubt the ready supply of greater fools.
An old school friend of mine move to Hartsdale a couple of years ago. He just bought a home in the area a couple of months ago. He had no understanding of the real estate dynamics. He’s spent most of his life in various Asian countries as a diamond trader. He probably makes enough to afford the place he’s bought. But on paper, he’s certainly going to lose alot. He just has no clue. I didn’t have the heart to tell him since I didn’t hear about the purchase till after he had closed and it was too late to dissuade him from buying.
“Optimists Head for the Exits”
Now why does that headline make me think of Monty Python?
Ben is so right about the optimistic owners of $2M homes in AZ…
sitting, sitting, sitting, and not a lease in sight. I guess they figure their carrying costs will be offset by the recovery coming next year.
“We have met the enemy and they are us.”
Sounds more like GWB than FDR!
“Rent and Wait” seems to be the new mantra for homeowners who refuse to believe that they will not be receiving massive profits from selling their house. Many of them have already spent their expected gains, many of them count on the expected gains to fund retirement or college for the kids. They can’t let go of their starry eyed notions and see reality.
I have a number of relatives here in the SF Bay Area who are at this stage of denial. They couldn’t sell their property for last years price so they are plan to pull it off the market, rent for awhile and then sell when prices “go back up”.
There are two problems with this scenario. They will be bleeding money while they wait. In highly inflated markets rent will not come close to covering the mortage payment for any property bought in the last few years. And then there are insurance, taxes, fees and maintenance. The second problem is that prices may not go back up to what they were for another 20 years or more. After all, Tulip bulbs have NEVER again sold for the prices they fetched at the peak of the mania.
This country is rapidly losing the economic underpinnings for high house prices. Middle class jobs that actually produce wealth are still migrating overseas. Only people working in health care or government have a secure middle-class future in front of them. And those are non wealth producing fields thats have to be paid for by the rest of us.
Everybody has heard about the areas of the mid-west or the rust belt where the factories closed or the family farms were gobbled up by agribusiness and now houses cost $50,000. That is probably the model for the rest of the country. So good luck with the “rent and wait” strategy.
“Rent and wait” is my mantra. I’m renting while I wait for prices to come down.
I’m pretty sure people don’t realize though, that I think during tulip mania there was hyperinflation going on. am I right about this?
“I’m pretty sure people don’t realize though, that I think during tulip mania there was hyperinflation going on. am I right about this?”
Hyperinflation is really the effect of a failed fiat currency. The currency of the Tulipmania era of the early 1600’s was minted precious metals so unless the area had a huge infusion of silver and/or gold the currency wouldn’t have been debased. In addition many of the transactions were “barter” transactions that would have involved land, livestock and grains. Tulip bulbs were increasing in value not only relative to the currency but to other assets.
In short, the purchasing power of a tulip bulb was enormous at the top. Not unlike the purchasing power of a house was at our recent bubble peak. The flip side of that equation is how much “stuff” one would give up to buy a house at the peak. Think about houses in terms of loaves of bread or cases of beer. Shudder.
No, there was little to no non-tulip related inflation happening at that time. Check out the book Tulipmania for more information. It’s a good book.
“Forget market reality,” said id. “Hang on to your long-term goals,” he added. “Those bloggers don’t fully understand our needs; we needs to feel important, brilliant, successful,…”
Seller’s id
What do you mean? Are you seriously saying that homes should be priced in relation to the ability for that economy to produce wealth? Heretic!
It is not the sellers that will redefine prices in this market. It is our economy. The prices of real estate are way above what the American economy can currently justify, without more dump trucks full of debt.
“This country is rapidly losing the economic underpinnings for high house prices.”
Exactamundo - the economic underpinning for high house prices is . . . high house prices!
Speculators, floppers, FBs, option ARMs, 1% short term rates, and loose credit standards.
Only people working in health care or government have a secure middle-class future in front of them.
At least they think they do.
Health care and government. But of course, when Hillary takes over in 2008 health care and the government will be the same thing. Maybe that will be the new bubble - the health care bubble.
If any of these “prices will recover in 07″ people could give one solid reason WHY prices will recover, I’m all ears.
But to date, nobody has managed to explain how the massive housing affordability problem that the last few years have created is going to get fixed. The underlying economic issues — such as stagnant wages and high oil prices — do not appear to be poised for massive change. The most likely change point as far as I can tell is for prices to go down.
Obviously most of the folks here would agree with that, but am I missing something? Is there some economic factor that would change the macro environment enough for a different result to occur?
They will recover in ‘07 because David Lereah said so. Don’t miss out on the real estate boom!
You forgot the tag.
Next gig for David Lereach — on infomercials arguing that you too can earn thousands/month in your spare time, from home.
OK, here we go .. Gas will again be $0.99 at the pump. The Fed rate will return to 1%. Osama Bin Laden will be caught and the war on terror will end. Wages will start to rise dramatically. renters sitting out the bubble will give up and rush into the market to buy as many homes as possible, if necessary borrowing from loan sharks, gutting the current record inventory levels and causing prices of homes to skyrocket. As a result of the skyrocketing home prices, the much anticipated flood of foreclosures will never happen and we will all live happily ever after.
According the latest news, Bin Laden could be dead(again) of tyfus!
Or heart attack after getting his latest bill for his sattelite phone! -
20% drop in chicago in the 1st year it self is huge…we are off to a good start….GO (housing)BEARS!
DAH Bears. Who would win 10 mini Mike Ditkas vs. 10 DL??
Here’s a question that I haven’t seen come up on this blog: What’s the next big thing?
From 1996 to 2000, we had a big stock bubble. Easy money to be made. I did pretty well myself with MSFT and YHOO.
From 2000 to 2005, we had a big housing bubble. Easy money to be made. I did pretty well with the two condos I bought and flipped, and I have lots of equity in the home I purchased.
I’m convinced we’re at the beginning stage of some other bubble where easy money can be made, but I can’t find it yet.
Stoned –
You gotta put down the bong and read here more, dude! We only talk about the next bubble once a week, on average…
Dude, bubbles are so like, yesterday. Its all about deflation!
Deflation? You mean it actually make sense to save instead of spend? Who woulda thunk it!
What I’ve observed in my life, is that when I think something is becoming old hat, and I’m suspecting that the easy gains have been had, and I’m starting to hear about it all around me…. that’s when the trend is goign mainstream, and there will be about 3 more years of a bull market.
Stocks in 1997. Housing in 2001.
Whatever the next thing will be, maybe next time I will join the lemmings for a bit.
The next big thing? High-velocity home protection and switchgrass pellitizers, if things get really bad. The Great Depression was less than a century ago. Every excess has to be worked off by an equal or greater correction.
Oh well, my grandmother was in her twenties during the 30s depression. In the 1980’s she was predicating we will have another one. She also told me she didn’t want live through another one. The first one was too ugly.
“I’m convinced we’re at the beginning stage of some other bubble where easy money can be made, but I can’t find it yet.”
Watch:
Food(corn, rice, meat, etc.)
Wood
Candles
Waterfilters
Weapons
There are many changes to make money on a declining stock market and a declining dollar. Hedge funds and astute investors make money on the tech bubble going up and coming down. The trick is not being a permabull or a permabear.
the next thing is commodities.
Commodities already past their peak. Consumer demand will be very soft in the near future.
Oh yeah? Most commodity usage isn’t discretionary.
but all commodity speculation is.
Not easy money…but some money is seeking haven in collectible markets. My investments (speculation, really) in America’s past have done better than my investments in America’s future over the past 6 years for sure!
Lot’s of people have been killed in bubbles in these areas over the past 30-40 years or more…but some make quite a lot. OTOH, there is an enjoyment factor if you don’t get too hung up on these things as “investments”.
Yeah, I bought a bunch of old guitars back in the early 90’s, and the internal rate of return on those has been probably 15%. One I bought for $350 is now worth $2700. Only problem is, I couldn’t bear to part with any of them!
One could pay off a $1 million mortgage with about $20,000 of face value of Confederate paper money!
Have to have the right types and varieties though. Actually, some bankers in Georgia here might well prefer this…if not yet, certainly in a few more years!
One of the best indicators of economic bubbles is soaring prices in collectibles — witness art, classic cars, etc.
Commoditties?
nah, commodes & titties
Well, Stoned, since ya been doin’ so well… why are you asking us here? I know, GOLD is a bubble waiting to happen, go check out all the gold bug blogs, they’ll set you straight… and then mortgage backed securities, get them while they’re cheap… oh and how about shorts on all the asset stocks about to collapse, they are about to be the hot ticket in town… now why don’t you round out your portfolio with a few junk bonds and a couple extra condos in Florida and all that money you’ve been makin’ will sure to put you in champagne and hummer’s forever!
I would ignore the bubbles and go for the long-term investment strategy. I (and probably many others here) have set aside money to buy rentals units (hopefully in SD) when the rents will be cash flow positive. Long term RE is an excellent vehicle for building weath and I’d like to have a few dozen units when I retire. But to be cash-flow positive I have to buy when no one else wants to. That’s where the discipline kicks in.
Also, funding your equities. Yes, the markets may go down, but if you are not over 60 who cares? If you are putting money in each month you are getting more shares for each dollar spent if the price falls. Unless you believe the market will never go up (and I don’t) short term falls won’t bother you.
Live below your means, pay your house off by retirement, have a well diversified portfolio, ignore get rich schemes, don’t follow the crowd with dollar signs in your eyes, and insure properly for the unforeseeable and odds are you will be well off and (financially happy) happy. Trying to cash in on bubbles may be fun - but most of us get too emotionally involved to know when to get out. (As many of us are seeing with friends in real estate who continue to claim it’s different this time.
However, I do think a new pet rock with chia growing qualities could be a huge hit!
(Oh the crap people spend money on.)
“I’m getting a lot of $6,000 to $10,000 rental inventory this fall, which is an odd phenomenon,” she said. “Usually the busiest activity is in the late spring.”
Surprise! Surprise! Looks like a bunch of FB’s got the same bright idea after coming up snake eyes during the summer selling season. Looks like we are bearing witness to the birth of the “high end renter” myth.
Part of what drove this bubble was (I suspect) a growing feeling among home owners that they have no upward career mobility anymore… that they needed to “bet their future” on home value increases, because they sure wouldn’t see it in pay increases.
Also, about rentals. Rentals work OK in entry level housing… small bunglalows and ranchers, maybe split levels and town homes.
But nobody needs to rent a 3000 S.F. place. People that rent, tend to move around. They don’t need something that large… because the cost of moving is exhorbitant and and exhausting process to boot.
We rent a house purchased last year for $2.6 million. The owners property taxes will go to $40,000. a year. If you figure 6% for either the actual or opportunity cost of the $2.6 million the owner pays or looses $166,000. a year. Add in the property taxes and throw in a little hurricaine insurance and the place cost the owner $230,000. a year to own. I pay $55,000. a year and they cut the grass and do the pool. Lets see as a renter I live in the house and pay 1/4th what the owner pays?
Oh but he has the advantage that he will makes lots of money over the next few years. Insane.
]]”a growing feeling among home owners that they have no upward career mobility anymore… that they needed to “bet their future” on home value increases, because they sure wouldn’t see it in pay increases.”[[
Mozo, good observation.
Ahhh, Americans are waking up to the reality of the new global economy. Guess what Americans, your job can be done at a small fraction of your current wage overseas, even if you are a professional. Doctors in India examine x-rays, lawyers overseas prepare legal documents and briefs, software (my field of expertise) - Well let me put it this way, Bangalore India is bigger than Silicon Valley ever dreamed of being.
Sure there is some value in hiring locals to accomplish these tasks, but don’t expect a raise any time soon, and now don’t expect your stocks or house value to raise either, so where to turn?
GH,
You’re right that coding has turned into a global market, but I disagree that salaries will not go up here.
I argue that salaries are rising world wide for programmers, and that as the median starts pushing up against US salaries it will force US salaries up.
This outsourcing binge will ultimately be good for programmers, because it has stimulated demand. Many more people now want software, as the costs came down. Even with costs rising now, people will still want the software.
I do think India will eventually lead the industry, and be the bell weather for pricing, kind of like Brent crude in oil. Americans will have to work on smaller projects. That does not mean the work here will be boring, just we won’t be slogging out Windows 2040.
So, I predict the next 5-10 years will actually be quite good for US programmers and rather agrovating for US CEOs who have the choice of paying $150/hr to Indian programmers or $200/hr to US programmers.
Oliver
I generally disagree that our trend to outsource is good for America or it’s residents. Corporations will see short term wins, but in the long run will be forced to look overseas for talent since as demand has fallen here for technologists less will pursue technical careers. My old manager told be that if it was not nailed to the ground and for some reason HAD to be done here it was going overseas, and sure enough he was true to his word.
That said, I am not sure where we picked up the idea that we could latch onto some Corporate or Govt job and then ride it out to our retirement. We are a nation built on innovation and inventors, not corporate stooges, so it is really time to get off the corporate tit and think about going back to the beginning.
With regards to rates rising, I’m not seeing it anytime soon, and on the contrary see another big round of layoffs hitting during mid 2007 to mid 2008, as the real estate and banking industry begin to sustain losses, ironically as a result of what most on this blog hope for. Substantially lower house prices!
Sure, they will be paying $200/hr.
Problem is that the dollar is 1:1 with the Mexican peso, a Big Mac costs $200 and and oil is $2500 a barrel in dollars.
Oliver:
“I predict the next 5-10 years will actually be quite good for US programmers …”
I’m very experienced SE and I don’t see
anything that support your prediction.
“Comment by GH”
Sounds like you’ve either read or ‘channelling’ the excellent op/ed piece by George Monbiot, on the flight of jobs to India:
http://www.monbiot.com/archives/2003/10/21/the-flight-to-india/
And oliverks, who thinks globalization will be great for employment in the U.S., should send me whatever it is he’s been smoking….must be powerful stuff.
GH,
I am glad I am smoking some good stuff, I just can’t remember what it is. I agree that outsourcing, as a whole, is detrimental to workers everywhere including often the countrues where the jobs went to.
It only seems fair, that if capital can move freely that labor should move freely to. Most people would object strenuously to the later. But if labor is not allowed to move, the market seems rigged against it.
I think software is special. While the barrier to entry is low to becoming a programmer, bad ones get flushed out of the system pretty quickly. There really is a small percentage of people out of the population who can and want to code.
The problem corporate America faces, is demand for coders is rising much faster than the supply. They are running out of places to outsource the work to because we have used up most of the talent in the world.
I stand by my argument that agregrate salaries world wide are rising in software, and rising fast. This will eventually cause rates to rise here in the US. When does it happen in the US? I think 2007-2008.
I also agree with you that we don’t seem to encourage engineering in America much any more. I think this is part of a larger trend of anti-intellectualism that pervades the culture these days.
We want pretty people on TV, we want politicians with good hair, we want our religious beliefs taught in science classes, we want quick fixes for health and wealth. What we don’t want is to think.
America does have a bright future in some areas. TV and movies are growth industries. Religion is growing fast both internally and internationally. Weapons remain a strong point. Bio-tech and health technology are growing. It is not that we no longer make stuff people want.
Finally if you happen to be in the market for doing a driver on Mac OS X in the next month, we should talk. I have some work that needs to get done and it will pay pretty decently.
Oliver
Oliver:
“The problem corporate America faces, is demand for coders is rising much faster than the supply. “…
I can and i do write code( both on low and high level) and i know for sure that
there isn’t much need for experienced SEs.
We are getting seriously off housing here but the bay area is definitely picking up. Where I consult, we lost a few offers recently to other good companies (i.e. real places doing real products making real money) looking for programmers.
Pay is going up for both contract and full time work. I would not call it a boom out here, but people coming in looking for work are now either employed or have been laid off a few days or weeks ago. It is not like after the dot com bust where people were out of work for months or even years.
The other thing to remember is salaries in the dot com era got ahead of themselves. We were having to pay $150 or more an hour for so so talent without much experience.
I can understand why people don’t see the light at the end of the tunnel because it has been crappy since 2001. But I really see evidence that the market is improving out here at least.
You might say we are in a coding bust. Having India and Russia come on line swamped the market with talent. But that talent has been absorbed by now, and across the board, world wide prices for software engineering is rising, and this will lift all boats. I think America will start to experience the incoming tide in the next 5 years.
Oliver
Don’t get too pumped up over India, GH. India has its own problems. Shall I name a few? Enormous and rapidly expanding population, pollution, growing income disparity, lack of clean water, and they have their own budding housing bubble in many cities. When the U.S. economy rolls over it’s gonna take India down with it.
“Sheldon Dubrow, who is also a builder, is not getting any bites on a $1.99 million home he owns in Brookline, Mass. Now he’s hoping that he can rent it for $8,500 a month. Dubrow put his 4,500-square-foot house on the market almost a year ago. He has lowered the price once, but still, buyers are not pouring in.”
Don’t worry about buyers not pouring in; so far as I know, you only need one buyer willing to pay what your home is worth to sell it.
” you only need one buyer willing to pay what your home is worth to sell it. ”
…at a profit!
“Sheldon Dubrow, who is also a builder, is not getting any bites on a $1.99 million home he owns in Brookline, Mass. Now he’s hoping that he can rent it for $8,500 a month. Dubrow put his 4,500-square-foot house on the market almost a year ago.”
Dubrow - See PATRIOTIC BEAR above, who rents a $2.6 million house in some gorgeous place in Florida, and only pays about $4600/mo. in rent. How can a builder possibly think he can rent such a house in Boston suburbs for $8500 a month? Maybe he figured because the house is “worth” almost $2 million that the rent just has to be at least 4%, just couldn’t possibly be any less?
“Sheldon Dubrow, who is also a builder, is not getting any bites on a $1.99 million home he owns in Brookline, Mass. Now he’s hoping that he can rent it for $8,500 a month.”
He’s dead meat. The house (a piece of junk) is brand-new, so he’s probably carrying a whopping mortgage expense. $8,500/mo won’t keep his head above water.
We’re very close to heating season in New England. Temps are in the 40s at night. So
pretty soon the heating bills start to hit. I think that a lot of sellers are hoping for a mild winter.
So global warming might save the FB’s? Fire up the Escalade and let’s go for a drive.
A funny thing just happened to me while I was reading this. I started singing the old Don Henly song “Smugglers Blues” to myself, especially the part where it says “the lure of easy money has a very strong appeal”, just change the title to “Flippers Blues”. If you have ever seen the video for that song I hope it turns out better for these flippers than the smuggler. Ha,ha.
“I’m sorry it went down like this, but someone had to lose…”
I can’t remember why specifically but I have fond memories associated with that song and video.
Countrywide funded 24 percent fewer loans in August compared with a year earlier, as higher interest rates reduced demand for home purchases and refinancing.
Time to load up on Countrywide stock Monday’s opening bell.. Crammer and CNBC will be explaining to me how the bad news in real estate is good news when a company like country does 24% less loans and is laying off 100’s of it’s employees. PT Barnum ” A sucker Born Every Minute”
“You always carry weapons cause you always carry cash?’
At least the dealers had cash, these guys don’t
As a flipper I always carry bankruptcy papers in the glove box of my Hummer.
Oliver
I used to have a white Don Johnson jacket…I wore it to a wedding and everyone thought I was the hired help and kept asking me to get them a drink.
Re: High end rental market: I recall that that Bayou Capital assclown was a high end renter . . . $36,000 per month mansion rented from Trump. That is, before he was carted off to prison
This is just a pig wearing a different shade of lipstick..
Seriously, what kind of ‘average’ people can afford to rent at $8,500 per month? Thats $102,000 a year! Almost double the median income for a US worker. Added to the fact that living in a 4000 sq ft house is a bit like living in a football field, so add in heating/cooling costs..
These people are living in Cloud Cuckoo Land.
I’ve seen more and more articles in the MSM/Craigslist/Zip where the owners are ‘willing’ to rent. What happens when everyone who needs to rent has rented? With increasingly desperate owners chasing a decreasing number of renters, what’s going to happen to their ‘Plan B’?
And, it seems that the kinds of places they are trying to rent are McMansions, probably the least ‘family-friendly’ kind of housing ever made. What’s going to happen to those shoddily/cheaply/quickly built oversized shoeboxes a few years down the line?
Are we going to see these places turning into ‘Fabulous Ruins’?
Internal semi-illegal subdivisions renting out like a “quadplex”.
That Gourmet Wine Cellar becomes shlomo’s bedroom. The Media Entertainment Center with wet bar? Stuff in some cheap propane heaters and it’s a new kitchen. Yeah it might kill a few Zimbabwean immigrants with the fumes but what the hey, they aren’t paying much rent.
“Gouletas figures he still could make a 10 percent profit by cutting future carrying costs. He will avoid the expense of 2 1/2 years of mortgage interest payments, marketing, maintenance, insurance and taxes by not struggling to sell condos against the headwinds of a slowing housing market.”
So, what exactly happened here? Did he wind up selling these condos for cost? For below cost? Sure sounds like it to me.
Not necessarily . . . if he bought the land recently, sure. But anyone who bought the land for cheap, say 10 years ago, could throw up condos and still make a mint selling them at 2003 prices. More than anything else, this low-rate environment has spawned a massive transfer of wealth to those who owned property before rates fell (and sold after).
Sadly, the other end of that wealth transfer is in the negative net worth of millions of Fd buyers. Fuck the flippers, I hope they all burn; but a lot of uneducated first-time buyers have been thrown over the barrel.
We’re heading straight back to indentured servitude without the direct contract; instead, millions of young americans are now wage slaves to pay off enormous student loan and mortgage debt they cannot afford.
We are in some serious shit here.
Actually, Nick Gouletas and American Invsco are mostly in the condo conversion business. Nick is a well known developer in Chicago and has been in business a long time. He was doing moderately-priced conversions in Chicago long before the housing bubble began, and I predict that he will be in business long after it ends. He is a smart businessman.
This bubble is never going to end. The same people who file for BK next year will just wait two years and buy some more houses again. Either that or they will change identities and buy again. Money is easy, just flip a switch and voila! more money. Our money ain’t worth crappola, I might as well go borrow $2 million myself and have a good time. We’re doomed, dooomed.
Mort you are a genius! That’s the solution! Express bankruptcy with credit restored within 90 days to keep the game going.
Sort of like monopoly when you hit the GO TO JAIL space–an FB or BK can rolls the dice once a day while he is in jail. If he gets doubles he gets out a jail and keeps playing!
Alas, it’s true, smash and grab, the new world order.
there’s a guy I know who “fixed” his credit enough to buy a new car. He disputed all the bad marks on his credit history, and counted on the fact that the lenders would not verify their info in time. It worked.
What you should do is to borrow the $2 million, buy gold coins with the money, and then declare bankruptcy.
Hi Everyone,
Been a lurker and couple times poster for the past couple of weeks. I think last week on CNBC I thought I heard a report ask David Lereah why his house hadn’t sold. His reponse was that he should have listened to his real estate agent in pricing his house. Did anyone else catch that? Or do I have the wrong person.
Also, I’ve learned so much from all of you.
Thank you.
i think that was stevens the president of NAR.
And quite likely the statement was just a ploy, to be used as an anecdote by real estate professionals. For example, Dear Mr. Househeavy, I know I told you last year your house would increase in value 20%, but now instead you must actually cut its asking price 20%. Hey, don’t look at me, even zany “Even” Stevens himself made the same mistake. Hey, what are you gonna do, am I right!?”
For the 4th straight week, DQ claims Santa Clara Co. SHF median resale is $725K. In those 28 days, the claimed “through” date has only moved 9 days. This might be good time to bet on another jump down in price, maybe by next Saturday’s paper
(http://www.viewfromsiliconvalley.com/id125.html).
In addition, the y-o-y gain in Santa Clara, San Mateo & Santa Cruz Counties are each relentlessly dropping. Only Santa Clara is still above zero. Lots of related figures are published at: http://www.viewfromsiliconvalley.com/id264.html
I liked the line in the article “Prices for these apartment buildings probably have fallen about 20 percent from their peak in the summer of 2005, said Jonathan Litt, senior real estate analyst for Citigroup Investment Research in New York.
This reminds me of a question I heard a year ago. It went something like this…
What is your house worth when the last comp was down 10%, and it was 3 months ago?
When there are no buyers, what is a house worth?
What I liked in the quote (above) is the “probably have fallen” part.