‘Overreaching Speculators’ ‘Begging For Buyers’
From the Pioneer Press. “For years, construction companies worked on the assumption that if they built homes, buyers would come. But that no longer holds true, and nearly 3,000 new single-family homes sit empty in a cooling Twin Cities market. So, how did we go from builders feeling like they couldn’t put up homes fast enough to builders begging for buyers?”
“Part of the issue is the nature of homebuilding. ‘If you look at the overall market, builders have always speculated — that’s part of the business they’re in,’ said Todd Shipman, president of the Minneapolis Area Association of Realtors. ‘If they don’t have buildings up and ready to purchase, they don’t have a product to sell.’”
“Builders of condos and town homes often must reach a certain number of pre-sales to receive money from their lenders, said Betty Hardle (who) tracks new developments. Once that level is reached, the complex can be built and the rest of the units sold on spec.”
“For years, homes built on spec flew off the market because of an expanded buyer pool, said developer Rick Packer. ‘Everybody got used to this high-demand, low-supply environment and just started putting up stuff like there’s no tomorrow,’ Packer said. The Metropolitan Council has been projecting that 16,000 to 18,000 homes need to be built. From 2001 to 2004, builders put up 18,000 to 21,000 homes a year, according to permits.”
“‘Builders are not just going to stop building because the averages show that there is going to be an oversupply,’ researcher Mary Bujold said. ‘If their neighbor is selling homes and they are selling homes, they are going to keep building.’”
“The people most affected by the glut of spec homes are the sellers of 2- or 3-year-old houses that are near or in the same developments as empty new houses, said Shipman. ‘Now they’re (buyers) going to sell and they’re breaking even or barely breaking even,’ said Shipman.”
The Detroit Free Press. “The construction of most new commercial, industrial or residential developments would be barred in the City of Taylor for six months under a compromise reached last week.”
“Mary French, who supported the moratorium, said it would allow people struggling to sell their homes some breathing room. ‘Why build new homes when there’s a market of already established homes waiting for new people?’ said French.”
The Baltimore Sun. “Baltimore, which saw an astonishing uptick in residential real estate investing during the housing boom, is now flush with inexperienced property owners who might not have the wherewithal to deal with a no-longer-hot market. City advocates, worry now that further slowing could leave investors so financially strapped that they walk away from homes they bought.”
“City home sales to ‘non owner-occupiers,’ almost entirely investors in a market not known for vacation properties, totaled nearly 5,300 in the first half of this year. That was 62 percent of all sales, triple the share elsewhere in the state. They paled in comparison with the last six months of last year, when state records showed investors snapping up 9 of 10 homes that sold in the city, more than 8,000 in all.”
“Auctions that last year were a tumult of outbidding are now drawing circumspect buyers; some properties aren’t attracting so much as an opening bid. Rehabbers are getting pinched as homes sit on the market longer and longer. More investors are choosing to rent rather than sell, either by choice or by default.”
“No one wants to admit to losing money, but everyone seems to know about people who have.”
“Nationwide, a record 40 percent of transactions last year had non-owner-occupier buyers, according to National Association of Realtors surveys. In Baltimore, it was 80 percent, state numbers show, up from 35 percent four years earlier. Buyers surged in from across the country, particularly New York and Washington. Many homes were passed from investor to investor as longtime landlords unloaded hundreds of properties.”
“City home sales dropped 30 percent in August versus a year earlier, while the number of homes on the market nearly doubled.”
“Tracy Gosson, of a nonprofit that markets city living, is amazed and appalled at the prices investors are now trying to get for homes in some of the most troubled neighborhoods in the city ‘Oh my God!’ Gosson exclaimed as she pulled up one listing, a largely unrenovated two-story rowhouse priced just under $300,000. The investor who owns it has been trying to sell it for nearly five months.”
“She fears overreaching speculators will eventually give up, leaving neighborhoods to deal with the damage of deserted and foreclosed properties.”
“In pricey neighborhoods such as Federal Hill and Canton, lots of properties are languishing because so many hit the market at the same time. Associate broker Alyssia Essig found nearly 300 homes for sale advertised as ‘Canton’ when she checked the multiple listing service recently. That’s more than triple the number that sold in the entire ZIP code in August.”
“A pair of investors she’s working with have cut $50,000 off the asking price of their high-end Fells Point rehab, following the trend. Now they’re getting ready to list it for rent, too. their holding costs are hurting them after eight months on the market. ‘They put a lot of money into this house,’ said Essig.”
“At Alex Cooper Auctioneers Inc., which holds large real estate auctions at its Towson offices every other month, residential interest ‘has definitely leveled off,’ mainly for homes that don’t come with renters, said vice president Jon Levinson. Though the room was well filled last month with potential buyers for about 100 properties, mostly Baltimore rowhouses, almost half went unsold that day.”
“In some cases, sellers didn’t like the top bid. ‘We’re going to pass on that,’ auctioneer Paul R. Cooper said when an Upper Fells Point shell failed to get offers above $205,000.”
“Or there were no bids at all. ‘Who will open up at $25,000?’ Cooper asked, referring to a vacant East Baltimore rowhouse. ‘Any interest? No interest?’ Afterward, Cooper said he is convinced that the large number of vacant homes hurt the auction results.
‘Builders are not just going to stop building because the averages show that there is going to be an oversupply,’ researcher Mary Bujold said. ‘If their neighbor is selling homes and they are selling homes, they are going to keep building.’
It’s interesting to watch the slow-motion realization that there is no shortage and recent buyers over paid. Like the Nevada post yesterday, where the lady blamed developers for undercutting her price even as the ‘guru’ in Vegas tells the crowd about a land ’shortage.’
It’s not just ‘professional’ speculators either:
‘Gieber said home buyers spend a considerable amount of time and money in the first year and a half after buying a house, fixing it up and changing the paint. The record home sales of 2005 and early 2006, in other words, would boost sales in fix-up retailers for more than a year after the home-purchase transaction. Then, he said, the Mr. Fix-It phase of life comes to an end.’ ‘At the 18th month, you say, ‘To hell with it,’ Gieber said. ‘You get a beer and go sit out in a lawn chair.’”
I would venture to guess that the new homeowner spends about 5K-15K on average on dressing up the new domicile. Again, when you start following the all the money(debt) this boom has created, you start to understand the gravity of our current economic situation.
Am I the only one sane enough to buy a house that I want, instead of one that can be turned into what I want? I’ve never put any money into a house I bought. I figure with all the houses out there, there’s one I will like “as-is” and I will find it. I’ve never been disappointed although one time it took a long time - and I totally blame the realtor for never understanding what I was looking for.
Michael:
A. You’re a guy — guys hang things on the walls or put them in the center of the room, no modifications necessary;
B. Either you’re single, or there are no typical women who share your home, or you won’t get away with this.
I’m going to go with both A and B here
My wife is perfectly satisfied as well! In some ways I’m quite lucky.
I like the line, “You never finish remodeling, you just stop.”
The record home sales of 2005 and early 2006, in other words, would boost sales in fix-up retailers for more than a year after the home-purchase transaction. Then, he said, the Mr. Fix-It phase of life comes to an end.’ ‘At the 18th month, you say, ‘To hell with it,’ Gieber said. ‘You get a beer and go sit out in a lawn chair.’”
I’d better go get my husband out of the giant hole he dug in our front yard. We’re not supposed to be bettering our home anymore. At least we include beer/g&t’s and lawn chairs but that’s at the end of the day as we survey and admire our good work.
Government’s protecting the interest of flippers sickens me.
Intervention in the economy is an integral part of American econo-political system.
But, don’t worry, interventions create few winners and lots of losers. Nothing is going to save the flippers. Intervention on the parts of the losers is invariably too little too late.
Jas Jain
Just out of curiosity, who will be the few winners?
The winners will be the bankers who loaned ‘money’ that did not exist until it was borrowed and attached interest.
“You ask if you can borrow 10 dollars and I say sure…then get you to sign a contract which states I will lend you $10 for 1 year at 10% so after a year you will owe me $11 in gold or silver…Then I pull out a napkin and write $10 on it and hand it to you…
You say this is a napkin it’s not money…Then I say you are in luck because I’m a banker and all the banks accept my napkins because I accept theirs…
Now get to work because you owe me $11…in gold and silver the Judges and police accept my napkins too and will enforce the contract you signed…
That is how banking has basicly worked for 300 to 400+ years…
Now we have a debt backed by debt system so forget the gold…
Elimination of the Gold standard allows banks to create almost unlimited amounts of debt out of thin air because money has been eliminated…But consumers have a finite ability to borrow it…once the borrowing slows or stops when the maximum potential is reached…the bubble will pop…
Bankers are just accountants with two sets of books and the power to create debt out of thin air…and call it money…
It is just a monumental ponzi scheme…everyone is paying interest on something that does not exist except in their imaginations…100’s of millions of people totally duped bouncing around in a debt inflationary bubble that is going to pop violently…Without the foggest clue as to why…”
Hypertiger
The construction of most new commercial, industrial or residential developments would be barred in the City of Taylor for six months under a compromise reached last week
Well didn’t you know this was coming. But I ask you, is anything that the City of Taylor (which I’ve never heard of) does going to make any noticeable impact to the supply situation in Metro Detroit? No chance of this happening metro-wide, anywhere - there is just too much pressure from the RE industry, and its direct and indirect employees, to keep the party going.
They should stop giving permits in So Cal for 6 months. The LA Times reports today that ‘EXPERTS’ are calling for the market to do a ‘Long, grinding slowdown, not a drop off a cliff.’
These experts are like the Weather Man…they can predict the weather and totally miss it - but don’t worry because plenty of folks will tune in tomorrow for the next forcast.
I love this ….
“You in the construction business and support industries go do something else for the next 6 months or so, while I work-off my over leveraged RE position”.
Note to City of Taylor: The construction of most new commercial, industrial or residential developments WAS your economy. Now what?
….while the city of taylor becomes a ghost town as no new residents move there, and more continue to leave.
This kind of political cronyism, coupled with moronic thinking that is ruining this country. Such simplistic solutions never work the way they are intended.
Trying to manipulate the real estate market through political means is exactly why bubbles form in the first place. If businesses colluded in such ways their CEOs should (and sometimes are) sent to jail. Why is this legal for governments?
This behavior also leads to corruption, as some favored developer gets a “special” exemption to do such and such under the new rules.
Sorry about the rant, but this stuff makes my blood boil.
Oliver
Baltimore is not a nice city to even visit. Outside of the inner harbor its a pretty bleak place I think. There’s probably a good reason the tv series Homicide was based in Baltimore instead of Greenwich, CT. Of course income and crime levels are no deterrent to a “real estate investor”. I would love to see that one condition for bankrupt slumlord investors be that they must live in their investment property for 1 month per 50k they borrowed. Like a FB verion of The Super.
Totally agree, even years ago Baltimore was one of those places you do not want to do a stop over if you can avoid it.
And Edgar Allen Poe, who wrote “The Raven,” lived there for a while and is buried there. If Poe lived now, the protagonist in his poem would be a flipper, wondering when he’d be able to sell his investment properties for a profit.
“Quoth the raven, ‘Nevermore.’ “
Poe lived there but he was stoned…….I think laudenum (sp) was his drug of choice.
“in a market not known for vacation properties”
Did anyone seriously think that there were vacation homes in Baltimore?? That’s a good one.
I lived in Baltimore twice in my life, unfortunately. Apart from the Harbor and the ballfields, it’s a gloomy place to live.
Years ago, I went to a wedding reception in downtown Baltimore which ran long into the wee morning hours. The late night/early morning walk to our vehicles (around 30 of us) was sobering. The streets were crawling with drug pushers, addicts, gang bangers, and thugs; opportunists just waiting for a victim. I saw a man following another around a corner and was sure he was getting ready to rob him. It was only the second time in my life that I actually felt uncomfortable in my surroundings. We all stayed together as we carried gifts, etc. and walked each other to our vehicles. Our sheer numbers prevented anything from happening to us, but the looks on some of the thugs faces spelled trouble. I can’t imagine having to live in that sort of environment.
aw c’mon,it was the home of HL Mencken,which should explain to all why 80% of the buyers were speculators….
I was in Balt last week. Stopped at a traffic light, I overheard two obviously unemployed cream of society street guys talking. “Ya gots ta buy houses ann flipum. Dats da ony way ta makes money.”
And another “investor” is born. Friggin’ hilarious.
ROFLMAO
Mencken was the best critic, after the great one — Mark Twain, America has produced. Sadly, in the current climate we have ceased to produce great critics.
Jas Jain
Kunstler tires hard.
Man, those days are long gone for me.
He meant critics, not lunatics.
I was referring to the typo — the right typos can be great fun.
“Nationwide, a record 40 percent of transactions last year had non-owner-occupier buyers,according to National Association of Realtors surveys.”
I think prior to the real estate boom the National average was more around 8% for non-owner-occupier purchases . Is there any question on how many flippers have a house to sell ? You add to speculation buying the excess inventory of builders ,who just can’t stop building, and you will have a glut for a long time .
How stupid can these investors be to buy at the top of the market in 2005 which shows just how much people were convinced that real estate would keep going up .
Anybody that thinks that prices will start going up in 2007 because a little excess inventory will be weeded out by that time is not looking at the facts . It’s over ,alot of the bagholders are investors/flippers and the builders will sell out cheaper and get any sales possible ,(in some cases the builders are paying 9/10 % to get used real estate agents to sell their product ).
For years, homes built on spec flew off the market because of an expanded buyer pool, said developer Rick Packer. ‘Everybody got used to this high-demand, low-supply environment and just started putting up stuff like there’s no tomorrow.
Future demand was pulled in with ample help and encouragement from the low interest rate monetary policy, amplifying the peak of this RE cycle way beyond it would otherwise be. Homebuilders have cannibalized their own future, and the wholesale slaughter of flippers and stretched OO FBs is just starting. Three out of 10 houses in my newly built neighborhood in suburban Portland just went up for sale last week, adding to the several homes that have been sale for months, including a couple albatrosses still around the builder’s neck, and there are NO BUYERS LEFT.
Luckily, the builder did finish the pool and the community building. I’ve seen the value of these $240-280K houses drop by atlease $25-30K already, while I’ve paid about $6.5K in rent during the same time period.
I’m shocked at the speed with which it seems to be unfolding in AZ, NV, and the east coast reliably bubbly cyclical markets, fitting the predictions of this blog pretty much to a T (beena lurker off & on for about 9 months).
PDXrenter
sorry, I meant:
…Three out of 10 houses on a single street in my newly built neighborhood in suburban Portland just went up for sale last week, adding to the several homes that have been on sale for months…
News out of Baltimore
‘ “No one wants to admit to losing money, but everyone seems to know about people who have.”
Says it all.
So what’s the justification for Baltimore - “Hey, everybody wants to live here! There’s only one Baltimore!” Thank goodness there’s only one…
Now, take it easy on Baltimore! They’ve made great strides in their STD epidemics, so they’ve got THAT working for them too.
Maryland: STD Rates Drop in Baltimore
May 25, 2006
Gonorrhea, chlamydia, and syphilis cases in Baltimore all dropped in 2005. The good news continues a long-term trend that began in the 1990s with increased efforts to combat the city’s STD rates, which were then the nation’s worst. Since 1995, gonorrhea rates dropped 45 percent, from more than 1,000 cases per 100,000 population to 547 cases per 100,000, the Baltimore Health Department said Monday. The city aims to reduce the gonorrhea rate to fewer than 300 cases per 100,000 by 2010. The rate for positive chlamydia tests in public health and family planning clinics dropped, as did the total number of cases, after several years of increases attributed to enhanced screening and more sensitive tests. The city had 31 syphilis cases per 100,000 last year. Syphilis peaked at 101 cases per 100,000 in 1997. Officials hope to cut the adult rate to four cases per 100,000 by 2010 and to eradicate congenital syphilis altogether.
Maybe some GF flippers can pick up something else after a weekend of real estate speculating in Baltimore.
The justification for Baltimore has been “hey, DC people - it’s crazy expensive in DC - buy in Baltimore”. Now, I wonder what’s going to happen to all those rehabbed row houses when DC prices drop and people realize - ‘hey, I could get rid of this horrible commute’
There are some tracts that 7 out of 10 sellers need to sell or rent at a 50% cash flow loss . How many new buyers who want to live in a new tract will want to buy in these tracts with that many for sale and for rent signs ? The potential for foreclosures and price declines is high in tracts with this high of a % of investors .
When everybody wants out ,nobody wants in .
“the ‘guru’ in Vegas tells the crowd about a land ’shortage.” what a dork he obviously never heard of a little island called JAPAN. mmmm, lets see last time i heard they were not making any more land over there either and housing has gone DOWN for SIXTEEN years in a row.
Amen. I’ve said this to many people over the past year and everytime I get the same look back, and the same “It’s different here” attitude.
Ugh…
Last time I checked, LV was in a desert. Surrounded by nothing on either side.
Maybe I am wrong; but people really use the “no land here” excuse in Vegas? They must truly have gotten a good cup of that Kool Aid.
Remember, they’re “land-locked”! LOL!
I the area where I live has been a direct recipient of the money (equity / profit) and people (Locusts) of the Baltimore/Maryland boom. I have seen 1000’s of new Bubble Boxes built here and sold in almost all cases to the folks of the south. When this first started to happen I thought wow the jobs down their must Really, Really pay Good! Wrong! Well mostly anyway. It is common knowledge here the pay scale and cost of living is Much higher to the south. So sure there are those that can afford to buy and pay for a big house with its bubbly roof. I just could not get over the fact that it was that much more just 50 miles south of here. In York county Pa every person selling a home wants someone form Md to buy because they will get a lot better price in most cases. For generations this area has sold property (and everything else) to Marylanders for what was considered outrages sums to the local folks. So in the first few years the real reason why all these people were moving here was masked, by and large because of the common thinking that people down south have more money than sense. I don’t know if the people of the recent froth are on the 2 year bubble plan or are going to stay on forever. I do know that new Bubble home tracts have all stopped or are going at much,much slower pace this year. Which again is the influence of the Md boom (or lack of frothy sales to the south). If the transplants did not make enough off the sale of the homes to pay cash then they are faced with a Horrible commute everyday or trying to live on local wages, which if you have good job here might pay the interest & taxes on a bubble box after food and other necessities. The new experiment here is “if you take the people out of the city Can you take the city out of the people” I guess I will see in a few years.
To some extent, we’ve seen that here in central Florida — people from south Florida buying here because think we have cheap prices because they are “relatively” cheap when compared to their area. I think most of them will be sadly disappointed with the result of their “investments.”
Will we be seeing any of this on that show Flip That House or whatever it’s called?
11 Surrey Lane, Rancho Palos Verdes, CA 90275
Sold for $661,000 on Apr 29, 2005
4 br 3 ba 4,177 sqft
Lot size: 0.40 acre
Sales prices this afternoon, open house, 1,888,000.!!
Ha ha ha ha ha! Wow!!!
Truly sickening.
ROFL.
Stanley,
If you look at the house, it looks like it would sell FAST for $1.2M to $1.5M, at least (see comps on Zillow — it’s one of the largest houses and looks quite beautiful). I imagine the 2005 sale was a divorce or some kind of “family” transaction.
The last time it sold before 2005 was for $354,540 in 1983. I’m sure it’s more than doubled since then.
“So in August the couple elected to sell the home at auction. They hired AllynAuction Co. of Nahant and paid roughly $8,000 in marketing costs. Three bidders submitted bank-certified checks of $25,000 and registered for the Sept. 24 auction. With hopes high, the Greensteins said a silent prayer as auctioneer Richard D. Allyn started the bidding at $1 million. No takers.”
“In the end, a single bid of $830,000 was offered, which the Greensteins rejected as too low. The current list price for their home: $899,000, down from $1.25 million.”
And 6 months from now when they finally accept an offer below $830k, they’ll wish they’d taken the auction.
Comment by Housing Wizard
2006-10-08 06:48:31
There are some tracts that 7 out of 10 sellers need to sell or rent at a 50% cash flow loss . How many new buyers who want to live in a new tract will want to buy in these tracts with that many for sale and for rent signs ? The potential for foreclosures and price declines is high in tracts with this high of a % of investors .
When everybody wants out ,nobody wants in .
Agreed. I’m renting in a neighborhood that is now flooded with investor homes for sale (including the one that I’m in). And we’re renting at the owner’s expense, which means a 50% loss for him.
We’ve had potential real estate buyers come up to my husband while he’s doing work in his garage or unloading his work equipment in the driveway and ask, “What’s wrong with this neighborhood? Is it bad, because all the houses are for sale.”
To which we reply, “This neighborhood is full of investor homes that are 50% overpriced, that’s all. Oh yeah, we rent. When we do consider buying though, we probably will buy somewhere else, we want a home with a bigger lot, not a glorified townhome.”
Our rental home has been on the market in Vegas for over 6 months now, a SFH 1100 square feet for $250K. So far, not even on person has stopped by to even look at it. And no Las Vegas local is even going to consider it at the current asking price…3 years ago this house could have been bought for $120K, if even that.
Begging will not work as well as meaningful price reductions. Speculators need to forget the “profit” and be gald if they can get out with only moderate losses at this point. It will not get better for them. To turn around the “if you don’t buy now you’ll bever get in” BS on these guys, I would tell them “if you don’t get out now you,ll never get out”
Beggars can’t be choosers. Lower your price enough and you will find the buyers have not disappeared after all.