‘This Isn’t A Bust, It’s A Correction’
A housing report from the New York Sun. “Soaring construction costs are putting the squeeze on the city’s private developers, real estate experts say, threatening New York’s housing boom. The president of Newmark Knight Frank Capital Group, James Kuhn, called construction costs ‘the single biggest problem in New York right now.’”
“He added that the costs will put pressure on the bigger, more ambitious, and long-term projects, including Forest City Ratner’s Atlantic Yards. ‘When it was started, we were in a very, very bullish condo market,’ Mr. Kuhn said. ‘When it gets approved, will we be in a market that justifies construction at a number where you will be able to sell units?’”
“A residential developer, Jane Gladstein, said that increasing cost and softening demand means developers have to evaluate opportunities more conservatively. ‘The buoyancy of the last several years gave a false perspective on reality,’ Ms. Gladstein said. ‘We’ve had a sobering six months.’”
“The president for the Partnership for New York City, Kathryn Wylde, said that construction costs are a problem born from the city’s recent success, and that eventually the market would correct itself as construction drops off and prices fall.”
“‘At some point there will be a collapse and a lot of suffering, and contractors and labor will be available at relatively low cost,’ Ms. Wylde said.”
The South Coast Today reports from Massachusetts. “SouthCoast sellers, like their counterparts across the state and the nation, are waiting longer to sell, and buyers are waiting longer to buy. ‘The fact is prices went up so fast so quickly, it was almost like a boom for the market. To balance itself took a while,’ said Mattaposiett Realtor Judy Perry.”
“In New Bedford, the inventory of available homes climbed from 270 in August 2005 to 374 this August, said Monica Dupre, a Realtor in Lakeville. ‘That is a huge increase in inventory,’ she said.”
“Much like the old gag line, ‘We’re not a gang, we’re a club,’ some housing experts assert, ‘This isn’t a bust, it’s a correction.’”
“Home sellers want the price climb to continue now that they have pounded ‘For Sale’ signs in front of their own homes. Simply, they want to make a killing, too, real estate sellers said. Buyers , however, got much pickier over the last 12 months, looking at two and three times the number of homes as they did a year ago in the hope prices will fall even farther, area real estate agents say.”
“‘It took a while for sellers to understand they need to reduce prices; now I am seeing bi-weekly reductions in the under $400,000 homes,’ said Ms. Perry.”
“‘Buyers are being cautious, they are taking their time and looking,’ Ms. Perry added. ‘In the past, they would look at maybe five houses. Now, 10 to 15 houses, because they think the market will come down further.’”
“‘The added value of low supply, high demand and lower interest rates fueled the prices that sellers today remember their neighbors getting a year ago,’ said Maggie Tomkiewicz of South Dartmouth, a former president of the statewide Realtors group. ‘Today the supply is high, the demand low and interest rates are higher. The added value is gone.’”
The Portsmouth Herald from New Hampshire. “The once-hot condominium market at the beach is slowing with the rest of the housing market. For sale: 200 condominiums near Hampton Beach, ranging in price from $100,000 to $750,000. Last year, 202 condos sold in Hampton at an average price of $229,334. In the second quarter of 2006, only 36 were sold.”
“Agent Hank Therriault said there are so many condominiums on the market because there have been a lot of older cottages and motels converted into condos in the last two years. There also have been new units coming onto the market. ‘They are selling — just not as fast as the owners would like to see,’ he said.”
“In Hampton, the condo boom started in early 2004 when there was an increase in condo conversions of existing properties. Therriault said it appeared that no property at Hampton Beach was too old, too derelict or too small to be turned into a condo. ”
“Condo conversions started to occur because the demand was there, Therriault said.”
“Now, the number of new condominium projects is slowing down, according to Town Planner Jamie Steffen. ‘It has slowed down somewhat in the last few months,’ Steffen said. ‘I think it has to do a lot with the economy and the fact that home sales are down.’”
“Steffen said the new trend appears to be condominium/hotel complexes, such as the new Ocean Club on Ocean Boulevard, which sold 24 of its 28 units within a few weeks. Ocean Club manager Angela Moore said investors purchase the condo units and allow management to rent out their units when they’re not using them, sharing the revenue.”
“‘It’s a lot like a timeshare, but better because the unit is yours,’ Moore said.”
‘In the past, they would look at maybe five houses. Now, 10 to 15 houses, because they think the market will come down further.’”
…Did you forget to tell me that after your prospective pigeons look at 10 to 15 overpriced homes, they get tired of looking and don’t buy anything. Does anybody, anywhere buy homes in Decemeber?
Me thinks the dot.com crash of real estate will be a one day thud, where ever seller everywhere hears the word “fire” in a crowded theatre and the fear of losing everything will create mass hysteria in cutting prices.
Your comments on the slow winter sales rate ring true.
The last time I saw so many homes for sale, with nervous sellers, going into the slow selling months of winter.
For the last few years, “buy now or be priced out forever” carried the winter market. Now? Oh, it will be brutal.
Any prediction on when the national inventory reaches 9 months of stock?
Neil
Thanksgiving
with lots of arson Holloween night
Suzzane’s research says: watch those kiddies on Halloween, they might do some tricks on all the empty properties that are so special. If you’re selling an owner-occupied place, don’t miss this chance to hand out flyers to kiddies with your treats. Their parents will inspect the candy when they get home. Also, if you’re one of the lucky ones trying to sell a vacant second home when you climbed up the next rung of the property ladder. Halloween might be a good night, to spend some time at the old place, protecting the property and handing out flyers and treats. Warm up to the visiting parents. Tell them your listing is special.
“Tell them your listing is special.”
Oh man that’s funny! Once this housing market is smashed to smithereens I hope SNL does a skit to spoof that Suzanne commercial. The ad people for Century 21 probably have no idea what a great “insider” joke that commercial has become. The image of the pissed off wife staring down her husband as he caves gets funnier with each and every bit of HBB news!
A bankruptcy lawyer could hire the same actors for an ad in a few months.
Lots of neighborhoods won’t need special effects and actors to look like a Halloween scene.
What’s great about that ad is that it nails the alpha-wife brow beating her beta-wussy husband into making a bad decision based purely on emotion (”I love this house”). I wonder if she’ll fess up to being an idiot when the ARM resets and they can’t make their payment. Probably not (”It was our decision”).
I think the fire drill will probably start sometime in late spring or summer of ‘07. Some are still hopeing the market will come back (like my landlord). Instead of cutting prices now, he took the house off the market. He may try to put it back on next year with high hopes.
I personaly think next year will be worse and a real eye opener for those remaining in denial.
‘The buoyancy of the last several years gave a false perspective on reality,
LMFAO…Now there’s an understatement!
About this downturn in housing.
I read some of the housing bubble blogs, (Ben Jones,Charles Hugh Smith,ect) and I have one question that the brain trust cheering on the collapse never want to answer.
Given that lending standards were too lax. Also, given that the coming ARM reset disaster is going to ruin a goodly number of folks.
Just WHO do these smug housing-doomers think is gonna qualify for the newly tightened 10% (or 20%) down, fixed rate loans, that they all advocate.
With a sizeable number of newly house poor, and now bankrupted Americans trying to rebuild their lives(and their credit ratings)
Who are the banks gonna loan too?
The Housing-Doomers who have sat this whole thing out? There are not enough of them, I think, to keep the mortgage & lending industries going. Are they going to become the “Flippers” that they so roundly decry now? This housing value drop is going to wipe out a good many people,not all of them the hated speculators. Again, the cards are stacked even further against the people who make this country go, while the wealthy few,get even more so.
Me — for one. I have saved, that’s right, saved, a tremendous amount of cash over the last 7 years. My wife and I qualify under any rules. Matter of fact, if there is a severe crash, I am a cash buyer with left over cash.
The Portsmouth Herald from New Hampshire. “The once-hot condominium market at the beach is slowing with the rest of the housing market. For sale: 200 condominiums near Hampton Beach, ranging in price from $100,000 to $750,000. Last year, 202 condos sold in Hampton at an average price of $229,334. In the second quarter of 2006, only 36 were sold.”
Seem’em…bad idea shitholes built in salt marshes. Cat. 4/5 ‘cane or simply rising sea levels will wash this crap out to sea.
Have fun with your property casualty insurance.
“This isn’t a bust, it’s a correction”
Correction. Scarlett Johansson, now that’s a bust!!
The search for the right moniker seems to be never-ending.
“Ocean Club manager Angela Moore said investors purchase the condo units and allow management to rent out their units when they’re not using them, sharing the revenue.”
So now there are two allegators biting at you each month.
Ouch!
“”Steffen said the new trend appears to be condominium/hotel complexes, such as the new Ocean Club on Ocean Boulevard, which sold 24 of its 28 units within a few weeks. Ocean Club manager Angela Moore said investors purchase the condo units and allow management to rent out their units when they’re not using them, sharing the revenue.” -
Just curious - why not just rent a hotel room when you’re on vacation (or business) - there is no long term liability or commitment. Also, if you want to invest in hotels, try buying the stock (Hilton, Holiday Inn, etc..), it’s a lot more diversified and safer. Time shares never made sense to me and this doesn’t either. Of all the people I know whom bought a time share, everyone complained about what a rotten deal it was. You were “forced” to go on vacation at the same location on dates that are specified for you and the rental income aspect isn’t as projected. Lots of management fees and upkeep costs. Face it folks, if a large hotel chain felt they could make good money off of rooms - why sell them? They are building a new hotel - you would think the developers would want to maximize their profits (both short term and long term).
This is the modern version of the old time share scam. Its a good idea in theory, but very few people will ever make money on it (besides the builders) and a lot will lose.
time shares resell at 30-40 cents on the buck ,tops
Agassi’s in !
I read somewhere (The Economist?) about a year ago that over the last few years a number of hotel chains have sold a lot of their properties and then leased them back with long-term leases, in order to cash out the value of the property.
“Just curious - why not just rent a hotel room when you’re on vacation (or business) - there is no long term liability or commitment”
Excellent point. If you have a condo, you have to visit there EVERY SINGLE YEAR. So much for going to different places for vacation. Not to mention that even a $35,000 condo buys you an awful lot of nice vacations at a 5 star hotel.
“‘The added value of low supply, high demand and lower interest rates fueled the prices that sellers today remember their neighbors getting a year ago,’ … ‘Today the supply is high, the demand low and interest rates are higher.’”
Nicely, simply laid out. No wonder Maggie is the FORMER president of the realtors group.
“‘At some point there will be a collapse and a lot of suffering, and contractors and labor will be available at relatively low cost,’”
And at that very point New York City and state will be broke from so much borrowing, and will cut their capital spending. The government only builds when cost over-runs are available.
Reposting…just want more eyeballs to see it….
OT, but regarding a recent thread on regulation:
3) a lot of times, DU does not require an appraisal or just needs a drive-by. wouldn’t you close a loan with no appraisal if you could?
4) a lot of times DU does not require income or asset verification. full doc price, but it behaves like stated.
5) DU does not have FICO minimums. i have seen FICOs in the high 400s get an Approval from DU.
For those who don’t know…DU is the tool Fannie Mae uses to evaluate loan applications (1003’s)…so, our government-sponsored (but not backed) entity doesn’t need appraisals and doesn’t really care about credit scores. What are their financial reporting problems again?
complete nonsense.
is there something we don’t know?
lumber’s low
concrete is high but lower than a few months back- he’s a dpsht
‘The fact is prices went up so fast so quickly, it was almost like a boom for the market. To balance itself took a while,’ said Mattaposiett Realtor Judy Perry.”
“Almost” like a boom? Almost? But it’s all balanced out now according to this realtor, and it ‘took a while’.
Yep, everything is under control now and it’s safe to jump back in the pool. Sounds about right, 5 years to run up the prices and only a year to get ‘balanced’. Sure, lady.
“it was almost like a” boondogle!
For sale: 200 condominiums near Hampton Beach, ranging in price from $100,000 to $750,000. Last year, 202 condos sold in Hampton at an average price of $229,334. In the second quarter of 2006, only 36 were sold.”
Seen’em…Bad idea, crap construction junk, built in salt marshes.
A Cat 4/5 hurricane will wash this trash right out into the sea.
And good luck securing property casualty insurance. Companies are already fleeing the Cape in hordes.
Lender’s will be big-time bag holders on this stuff.
I’ve seen these condos as well, definitely not worth the range listed. There was another condo development that just finished on Hampton Beach. They must not have made too many sales because it’s now a hotel.
If you go a little south to Salisbury, MA there are some ghetto-looking beach condos from $500k. Many of the nearby buildings are (presumably) vacant and crumbling and the developers have the balls to ask for half a million. I’d hate to see that place in a few years after the easy money sinks down the drain!
I am not condoning shoddy construction, but if a Cat 5 ever makes it as far north as a Hampton Beach, then global warming has been even worse than the scientists are predicting. North Carolina does not get Cat 5s - the water isn’t warm enough (though Hugo, a Cat 5, did hit South Carolina). Heck, the only Cat 4 NC has ever gotten is Hazel back in the 50s, and even that was borderline.
I have never, ever heard of a Cat 4 north of the Chesapeak. And Hampton Beach is New Hampshire.
Computer models say a repeat of the Hurricane of 1938, a heavy Cat. 4 which hit New England will cause damage in the hundred billion range to the Mid-Atlantic/New England coast due to the volume of coastal development.
Insurance companies are using this data to bail from markets.
So I’m not sure about the premise, that this will “never” happen, especially with rising sea levels.
Ivan was rated aClass 4. However, when I was doin’ disaster inspection work down in the FL Panhandle all the locals who had been thru Camille said it was easily a 5+.
I guess it all boils down to whether it’s YOUR property that gets flushed out to sea or not. For the guy it happens to-the storm’s a 5. To the guy who gets out unscathed, it’s a 1.
If you like bikers and white trash, then Salisbury Beach is the place to be! Come sing karaoke into a herpes covered microphone!
We were at Hampton Beach last fall during a very heavy storm. Sand was getting blown up
on the parking lots and roads from the beach and it was incredibly windy. I don’t think that there was a lot of property damage though. There was some flooding of grassy areas on the inside of the main road but I didn’t see flooded homes.
There are a lot of places to take vacations
on the Southern Maine Coast. Not sure why Hampton is so popular - maybe it’s a shorter ride for those from MA and NH. We prefer Maine. Longer ride but not as many people.
I keep seeing “bust” and “crash” in the present tense but its still not there yet. Housing prices have not come down much, especially when they doubles in price in the blue states. Maybe soon, maybe later but too many other things are doing decent(whether it’s true or just funny gov’t numbers) to keep it propped up a little while longer. A true bust would be getting alot more attention in the media. When Katie Curic opens the 6 pm news with “housing bust…” then I’ll believe its here and for real. I’d like to see a significant lowering of prices and buy my 1st home but I don’t see a crash here in NH. I’ll wait till spring to see if what happens.
“Housing prices have not come down much, ”
How can you be sure, given a three-month time lag between when deals are done and when the data picks up the prices?
Suzanne says don’t let the median house price discourage you from seeking out that special listing. While lending stadards are still lax, home buyers are getting more for their money. Hence, the median home price will stays the same, but the amentities and square footage for the same price increases. These listing are even more special per median purchase price.
This is not the first & only article that cited construction cost as a squeeze that will affect the number of new houses to be built in the future. I mentioned this on this blog before. A few bloggers here slammed my post and said construction cost was not up. One person even said steel & slum prices were down, blah blah. Here is what I see. Since construction cost is going up as cited in this article and some others in the past few months & house prices are going down, developers will not make enough money. As a result, they will build fewer houses, which will lead to lower the number of houses available in the future (say 5 to 10 years from now). Therefore, in 5 to 10 years from now, house prices may go up again due to (a) lower inventory & (b) higher rents. In the past 12 months or so, rents have been going up dramatically in some markets like Los Angeles County. I have a feeling that the higher rent will catch up with the house price. In conclusion, higher rent & higher construction cost will help reduce the severity of the housing bust.
Respectfully, you and the article are incorrect. Just dismissing people with the opposite position with “blah, blah, blah” doesn’t do any good here. Construction costs are going down as commodities fall and crews are idled but not yet flushed out of the industry. This is very chunky and uneven but still happening. Concrete is an exception caught in a natgas squeeze and Chinese long contracts. Inflation may make it look like costs are rising but in real terms no. The lower number of houses to be built makes no difference. There is a supply glut that will take years just to work off and in a downturn replacement housing goes into decline as well. And demand, household formation also goes down. You are arguing from anecdote to the general.
How much Concrete is used in Consumer housing ? All the ones I have seen are built from 4×2’s and Stucor which will impact the demand for timber.
Apparently, there is now a ‘boom’ going on in commercial building which I can see using a lot of concrete.
In conclusion, higher rent & higher construction cost will help reduce the severity of the housing bust
____________________________________________________
Have you put your theory to work - how many properties have you purchased?
Yes, I have put the theory to work to some extend that is reasonable. I got 2 rental properties going positive cash flow (not in california obviously). I have no problem raised the rent last month. This does not mean I do not believe there is going to be a bust in the housing market. It is the degree of bust is the discussion.
Agreed that rent costs will come up to meet the housing price drops, but I’m not so sure that we are looking at anything close to an equal impact.
First of all, the run-up in construction cost was clearly more a symptom of housing prices than inflationary adjustments, so that must be considered an inflated measure to be sure. This cost must come down to a more reasonable level as well. Second, rental prices have a LONG way to go to catch up to housing prices, and they are not going to meet up half-way.
I currently rent after selling my house couple of years ago, and have been monitoring the market – both rental and housing – to determine whether buying makes sense. As a result, I’ve done calculations to compare rental to housing prices, and they just don’t measure up favorably for housing prices. Case in point:
I’m being very general, but in SoCal, a 3/2, 2000sf SFR with a nice yard in a pretty nice neighborhood costs around $650K average now. Keep in mind this is at today’s prices, not 1-year ago when it was probably $50-75K higher. This house will rent for around $2500. At $650K, the total mortgage payment (30-yr, 6.25%) AFTER tax deductions will cost around $3,400. Monthly outlay before tax returns, $4,200. If the price reduces to $550K, that is about $2850/mo which, if $2500 is deemed too low for rent, we might conclude is the fair market price for rent. That is a 14% increase in rent.
Another example, a 2/2, 1100sf condo sells for around $450K these days. Rental prices are around $1700. Total mortgage payment after tax deductions is $2600. Supposing $2000 is a more reasonable rental price (that’s an 18% increase in rent), the price of the condo needs to come down to $350K.
Even at these extreme price hikes on rent, the housing prices must drop another 15-20% or more from the reductions we are witnessing already. I’m not an extremist who believes there will be 50% drops in prices that would take us back to 5 years ago, but I would say drops of 25-30% in housing prices is a reasonable expectation and would be considered a “crash”.
Agreed that rent costs will come up to meet the housing price drops, but I’m not so sure that we are looking at anything close to an equal impact.
Yes, those unemployed construction workers, real estate agents, mortgage brokers, etc. will all be bidding up the price of rentals any day now. Get real — you just can’t reasonably extrapolate end-of-boom rent increases into the future.
In my area of the Midwest QC rents DO seem to be going down. In 2004 I was complaining about the lack of under $500 per mo houses for rent, there are many now. There are very few $1000 per mo houses for rent now, unlike 2005. There are now many in the $750 to $800 per mo. range.
If construction costs are up, it is mainly because demand for construction products is up. Construction costs consist of skilled and unskilled labor, raw materials such as wood products and metals, and manufactured products. In the very short run, these inputs are somewhat fixed. In the long run, they are not constrained. Labor or energy shortages or increases in government regulation or trade barriers (tariffs on lumber, e.g.) could cause construction costs to rise. More likely, there has been an increase ion the capacity for the production of raw materials and manufactured products in response to the strong demand of recent years. I don’t see construction costs as being a significant impediment to lower housing prices.
Lumber is certainly going down, its back to about where it was in 2003 (wholesale). Check
Weekly Lumber Chart. Also, rents are determined by supply and demand and while demand may be going up some the supply is soaring at least in Phoenix and Orlando. CA may be diffferent I don’t follow it so I don’t know.
Craiglist house rentals.
3BR
Date Phoenix Orlando Raleigh
25/03 2571 610 724
02/04 2494 637 711
01/05 2572 766 908
09/06 3014 961 903
01/07 3296 1055 979
07/08 4166 1374 1186
14/08 4452 1511 1190
21/08 4846 1619 1249
28/08 5119 1749 1245
05/09 5261 1821 1220
11/09 5445 1875 1133
18/09 5746 1972 1134
25/09 5924 2021 1075
29/09 6208 2169 1058
Yes a neighbor down the street sells lumber to housing builders (large builders) He confirmed that his businees has slowed down dramitcially this year. Coincedently, his wife is a Real Estate Agent. She confirms the same about her business.
That is in the Sacramento area. Formally one of the hottest markets just a few years ago.
It is surprising how fast the market is turning!
I agree costs are going up. But the damage has already been done through so much over buliding when the cost of money was cheap. Some of the risings costs were due to the over building. Suppliers and loaborers could ask for more. And even with all the stories calling the housing market a “Bubble” and new stories talking about a housing “Bust” there is still some building going on. Maybe due to the time lag of project development to construction (a couple of years in some cases). The worst is not over yet. In fact it has only started. Wait until next year.
‘This Isn’t A Bust, It’s A Correction’
These meaningless exercises in semantics by real estate pundits are becoming tiresome. Let’s cut to the pragmatic chase:
For buyers, are the deals today likely to be any better than the deals three years from now in real terms? Looking at the statistics and other indicators from the last six to twelve months as well as the duration of the previous market trough, no. So if you are a buyer take your sweet sweet time.
For sellers, is the sales price today likely to be less than the sales price three years from now in real terms? Looking at the statistics and other indicators from the last six to twelve months as well as the duration of the previous market trough, no. So sell sooner rather than later.
Adjectives employed by real estate pundits tend to obscure rather than clarify the bottom line.
It isn’t a bust or a correction, it is a soft landing on top of Mount Everest. The plane is teetering right on the peak just like they said. Seriously, if we keep the “soft landing” expression going, we can turn it into the joke it should be.
‘there are so many condominiums on the market because there have been a lot of older cottages and motels converted into condos in the last two years. Therriault said it appeared that no property at Hampton Beach was too old, too derelict or too small to be turned into a condo. ‘
Old, derelict and small. And they wonder why the sales are off?
Suzanne says, adding a third, forth or fifth “old, derelict and small” property to your portfolio in this this buyers market is a perfect way to diversify those who have several larger 7 bedroom tract mansions. These smaller properties will add much needed beta to your to steady 20% mansion increases.
“Steffen said the new trend appears to be condominium/hotel complexes, such as the new Ocean Club on Ocean Boulevard, which sold 24 of its 28 units within a few weeks. Ocean Club manager Angela Moore said investors purchase the condo units and allow management to rent out their units when they’re not using them, sharing the revenue.”
Let me just clarify my thoughts on this idea. Usually large hotel chains including Marriott and Best Western approach REITs, very large investment firms or rich individuals (like Warren Buffet) when they need money to build. In past times, it wasn’t really normal to try to pitch your large building projects to a bunch of middle class stiffs hoping for a pool of 1% investors. That was a sign of desperation - it showed the big guys turned up their noses at the project. It can only be assumed that Warren Buffet and his peers think the hotel rooms are over priced or they would have jumped in on the action. I hope this idea filters down to the general public before too many people loose $200K in “investment” money.
The developers of condotels are still getting their money from REITs, large investment firms, etc. The condotel model simply lets the developer get all of this money back quickly by selling the units (rather than through operating revenues) and they feel that they will at least break even on operating revenues (and probably get more) vs. operating revenues from a standard hotel because of the management and other fees. Thus, it is a “win-win” for the developers and operators of the condotel. At least, according to their models, it is. The question is, how well will these actually sell? It looks like a bad proposition for the buyers of the units, though, because it is basically a like a time-share (which have usually been bad investments) only you now instead of the unit only being used by other “owners” it is used by total strangers with no care as to whether it is trashed or not. Like others have mentioned, this type of investment does not seem advantageous since it basically “forces” you to go to the same place for vacation, and for the price you’re paying you could rent some great places for decades worth of one week vacactions.
My folks watched condos crash in NH with the last downturn in Boston. First thing you dump is that seaside or ski condo in NH when the bills are due. They rented a condo for less than the mortage on the place, the owner was upside down on the loan but didn’t want to declare BK. Down the road, a condo development started at 100K, sold some, sold a few more at 120K, and then the crash. The state of NH bought the remainder for public housing at 15K. Ouch. The real losses were the places near ski slopes, water etc. Those actually on the slopes or water did eventually recover.
Yup-I can remember a 2-bedroom condo I rented for Motorcycle Week within walking distance to Weirs Blvd. could have been had for $38k in 1991.
It was a nice complex and decent unit.
Every time I’ve driven by the place for the last 14 years, I give myself a good kick in the azz at the next waterin’ hole for not buyin’.
May those days soon return.
And that may be the form that the expected government bailout will take - namely the government takes over the homes from banks and FB’s and turns them into public housing. They’ll probably give them to out-of-work realtors and illegals and such.
Kinda OT but… does anyone know what the *average* house price appreciation percentage is for Los Angeles’? Say over the last 20 years or so… TIA!
Looking at average house price appreciation over the last 20 years would be like looking at the average p.a. for gold for 20 years in 1980 or the average for the stock market for the last 20 years in 2000. Gold went up about 20X in 20 years, or about 16% compounded annually, the stock market went up about 10X, or about 13% per annum, and house prices in L.A. have probably gone up (roughly) 8X, or around 12%, in nominal dollars.
It’s meaningless. All predictions about future price changes involve predictions about politics and economics. I can think of no strong argument why (real) house prices should increase in Los Angeles again in my lifetime. The best argument would be that people will get increasing utility from being inside a house relative to other lifestyle choices so that housing can continue to increase as a per cent of total income. I expect real house prices in L.A. to be lower 20 years from now than today.
agreed… the reason I ask is for the purpose of figuring a “fair” future low-ball offer basis. Somone suggested (here?.. can’t recall) that 1997 price plus 3.5% per year compounded would be realistic. But, to be “fair”, I feel like L.A. might have historically appreciated at a slightly higher rate… Maybe longer term than 20 years. case in point… house bought in 1999 for 485k. 4% compounded is about 639k. currently for sale for 1.5 million. 639 seems a bit low
maybe not though…. hehe
I agree that 639K lowball on a 1.5 million house won’t fly! - but I don’t think trying to think in terms of what a fair price appreciation is makes much sense either. What makes the most sense is figuring out the rent vs. buy stuff, and then trying to come up with a price for all the non-financial factors that enter into the decision.
Then, finally, before buying, think: how am I going to feel if prices continue to slide another, say, 50% over the next 10 years? (a la Japan) If you have a lot of earnings power, even in a bad economy, and the cost of the house relative to the NPV of future earnings is relatively low, then no big deal. I lose 300K but I might make $3 million in the meantime. If earnings are tenuous - hooee - can definitely completely destroy you financially for the rest of your life, as we are increasingly seeing.
So what, in L.A., is a reasonable rent multiple? this house, in this ‘hood, could *maybe* rent for 5-6k…
I think sm_landlord might be the one to answer that one.
Honestly, at that rent range, I really don’t think that your “lowball” offer is that off. Here is what I base this on (please feel free to disagree).
Basically, when you buy a home, a VERY easy way to figure out the carrying cost of the property is to just take 1% of the home price; and figure that’s going to be your monthly ‘cost’ of homeownership. This take ALL the costs in account (morgage, insurance, HOA, maintence, etc). So, 600K home, you have to be prepared to pay about 6K a month to service that property.
100X rent is the “safe” bet. If you over 100X rent, your entering the danger zone. However, like this property illustrates, 200X rent is becoming common. I Zam looking as some higher end properties in S. FL right now (Palm Beach) where 300-350X rent is not uncommon. Rent a million dollar home for 3K a month. Insane, but true.
Anyway, I hope that helps a bit. But, if you think that 5K is what you would rent that place for, I would not go ANYWHERE above 700-750K for the price. Even that is getting to be “too much” in my eyes; but if you intend to stay there long term, you certainly can make it work for you.
I would wait; if your preapproved for a 700K loan…. In the next few years… Your going to be like a saint to these people.
You will be able to buy these homes at a reasonable rate again, rent what you want and wait it out. Why catch it on the way down?
Follow-up on the 3.5% (tracking real GDP) which keeps getting bandied about and is an extreme over-simplification:
People buy houses as part of a budget constraint that is based to a great extent on their incomes, so NEW house prices will roughly track real per capita increase in GDP (leaving aside issues like changes in taxes, the utility of home ownership vs. other products, etc.).
But, EXISTING houses depreciate, and only appear to “appreciate” because people pay money or labor to fix roofs, driveways, floors, paint, repair pipes, electric, plumbing, remodel, etc. Houses don’t magically appreciate!
Also long-term growth in real GDP is not 3.5%. First off, population increase in US is approx. 1%, so subtract that to get per capita growth. Even since WW II (what I call the Golden Era) growth in per capita GDP has averaged under 2%. Since the Industrial Revolution, it has averaged well under 1%.
Over and over I hear that buyers are being more picky or buyers are waiting for prices to fall: but it seems like no one is addressing that there are *fewer available buyers*. The question is, how many fewer?
“‘Buyers are being cautious, they are taking their time and looking,’ Ms. Perry added. ‘In the past, they would look at maybe five houses. Now, 10 to 15 houses, because they think the market will come down further.’”
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I love these quotes.
Hmmm, should we buy that orange house or the yellow one? How about the one with the picket fence? Let’s see…there’s the house with the pool, or do we want the one with the sandbox? Decisions, decisions.
Nope, the stalled sales have NOTHING to do with PRICE or anything. We’re all just wandering around “taking our time” trying to find exactly the right house. As soon as we come across your “very special” (obscenely overpriced) POS, we’ll be sure to whip out our checkbooks and purchase it at your full list price.
I hope most buyers understand the position they are in. For the first time in a decade or so they are the only people in the room.
From all the links I’ve seen on this site its amazing to note all the comments about open houses where sellers are lucky to get ONE interested buyer. Think about that for a minute and then put yourselves in the sellers shoes. How could that NOT be terrifying?
Buyers, if you let yourselves get talked into some measely 10% price “cut” you are crazy.
Imagine you are at an auction where you are the only person in the audience. Now, what’s the price? Basically, whatever you say it is…..and, if you go from place to place and low ball the hell out of people, yeah, you’ll “insult” many but all you need to do to get a decent price (you probably can’t be assured of any “bargain” at this point in a decline) is to say to the insulted “No problem, I’m going to do the same thing at 15 or 20 other properties like yours”.
If, for some reason you want to buy and you don’t approach this process with adequate “brutality”, just imagine how brutal you will be on yourself when you find out you grossly over paid.
Agreed, these people didn’t give a rip about anyone else when they thought they were going to make tons of cash (or) when they flipped the other houses they already made money off of.
This is business - plain and simple. Yesterday went to a few open houses in Scottsdale, AZ. I was the only person to visit the first open house. The only other person there was a neighbor of the sellers, who I recognized as being a fellow parent at my daughter’s school. The realtor was really engaged in conversation iwth him as she was obviously bored sh*tless.
We’re talking a basic ranch style 4/3 2700sqft ract home. Asking price $750K. Now you know that this home would have sold for about $275,000 just five years ago, in just about every upper middle class town in the U.S.
When the price hits about $300K then I’ll think about it, or wait for the RTC auction. And at $300K I’m being real generous, and only because it would be two blocks from daughter’s school.
and by the way, the bathroom and kitchen floors were linoleum.
That price is crazy especially for Scotssdale! Hang in there.. patience my friend.. ( I have to keep reminding myself the same thing!)
Every couple of weeks or so I do the same search on a few small towns in Southern NH. I’m interested in the area between the Merrimack Valley and the Seacoast region, as long as it’s not Derry or Londonderry. I’ve been doing this since last winter. My search results just broke the five-page mark. There was even one house that I’d consider buying.
I hope the crash takes a few more years. I wouldn’t consider buying before my children are a little older. Most of the towns we are interested in do not have public kindergarten and the private ones are upwards of $3K/yr.
GNM-Man, I think the Seacoast Region has it all over the Merrimack Valley. Nashua and environs, ugh…A bazillion traffic lights and scads of commuters on a back road system laid out in the 18th century. Plus zilch for public transport
Portsmouth north to Wakefield on 16 and north of 101 to Manchester will be the growth spot for NH for the next 20 years.
The problems on Rt. 128 in MAZZ will eventually gridlock I93 to Manchester.
posted “‘This Isn’t A Bust, It’s A Correction’”
No it’s correction during a onging Bust. Long rates dipping just the sugar need for a suckers rally. I do not think even 1-2 point drop will save the masses.
Remember the tech burst of 2000-2001?
That started off as a ‘much needed correction’ as well.
I hate that word “correction” ! That is exactly what my real estate agent told me when I asked him about 6 months ago about his opinion on the market, as I was backing off from buying a home, due to all the good info I had been reading on this blog. He said.. oh.. it is a ‘minor correction’… ummmm… looks like a bust! but.. of course everyone is being very PC these days as they have a vested interest.
“‘At some point there will be a collapse and a lot of suffering, and contractors and labor will be available at relatively low cost,’ Ms. Wylde said.”
I hope to God this happens!! I have owned a lot in Sedona for some time and was looking into building on it until I was quoted by several builders at $300.00 per Sq. Ft. I hope these guys LOOSE their Ass!