October 23, 2006

“A Sense The Market Is Enduring A Major Correction”

The Cincinatti Enquirer. “Home sales are slumping, prices are falling, and construction is ebbing in Greater Cincinnati and Northern Kentucky. For buyers, it means they can play harder-to-get. For builders, it means they have to work harder to sell.”

“Throughout the country, builders are starting to sound like car dealers - offering rebates, markdowns and financing. In some cases, builders are offering the cars themselves. SMI has 14 houses sitting unsold in subdivisions such as Hopeful Trails in Florence and Bristow Lakes in Independence. To spur sales, Wheatley is offering a new Chevrolet Cobalt to the buyer of a house.”

“‘If they don’t want a car, we’ll give them a morning room, an extra 12-by-14 room off the kitchen or dining room with a lot of windows and a high ceiling. It’s actually part of the house, not an aluminum structure,’ said SMI president Mark Wheatley.”

“Dan Dressman, executive VP of the Northern Kentucky Home Builders Association, said builders are offering more incentives as sales slow down. ‘They have a lot of inventory to move so they’re trying to be creative,’ he said.”

“The national use of incentives suggests the housing market downturn could be even more pronounced than has been reported. For example, Pulte Homes Inc. has recruited recent buyers to offer $500 referral discounts to prospective buyers near Austin, Texas. A Web site, iNest, offered $1,540 off homes in another Pulte development in the area.”

“The deals also aren’t limited to new-home sales. In fact, in some cases, owners of existing homes are offering their own inducements. A homeowner in Tampa, Fla., recently posted a sign in the front yard, with an offer to subsidize closing costs and pay the first few months of mortgage payments.”

“Giving cash back allows a seller to sweeten the offer without having to lower the actual stated value of the home. But economists say the practice could be inflating reported prices and distorting a market already suffering from higher mortgage rates, and a sense that the market is enduring a major correction.”

The Twin Cities Pioneer Press. “Rising foreclosures around the Twin Cities may be slamming particular neighborhoods and rattling others, but the impact of those foreclosures on the folks who made the loans or who now hold them is negligible, so far.”

“How bad would the national wave of foreclosures have to get before bond investors and other players down the chain feel real financial pain? ‘I think we’re about to find out,’ said Allen Fishbein, director of housing policy for the Consumer Federation of America.”

The Detroit Free Press. “Nearly half of Michigan homeowners are worried about the price they’d get for their house if they had to sell, according to a recent Detroit Free Press-Local 4 Michigan Poll.”

“Mark Hand, a builder and remodeler from Grand Rapids, said he has builder friends who can’t sell new houses they have built. Other friends trying to sell their own homes are also having a tough time. ‘I’m not planning on selling my home, but if I were I’d be very worried,’ Hand said Thursday. ‘For people who need to move or sell, I’m glad I’m not in their shoes, I’ll put it that way.’”

“Sales of existing single-family houses were down 14.35% in Michigan through September of this year, compared to the same period last year, according to the Michigan Association of Realtors. That drop makes 2006 the worst year since at least the 1980s.”

“Prices are down 1.6% statewide so far this year, but in some markets, such as northern Oakland and Macomb counties, sale prices on existing houses have dropped closer to 10%, the association said.”

“David Lereah, chief economist for the National Association of Realtors, blames the declines on inflated housing prices. In a recent analysis, Lereah wrote that housing prices simply got too high, cutting into affordability. ‘Sellers need to abandon unreasonable expectations about the value of their homes,’ he wrote.”

The Detroit News. “Risky from the start, a live auction of a house that started at $1 ended in a sale of $332,000, more than $40,000 less than a couple paid for it last year.”

“James and Gabriele Rudin said they knew they wouldn’t get the $389,900 they had previously sought for the 3,100 square-foot Tudor through traditional means, but hoped they’d sell it for about $350,000. The bidding never made it that high. Real estate broker Joel Ervin of Auburn Hills outlasted other bidders and bought the house for an investor in the investment division of his company.”

“More than 100 people came to the auction, many with hopes of getting the home at the end of a cul-de-sac in a manicured subdivision for a steal. But the bidding quickly escalated, going from $1 to $175,000 in one bid, knocking many hopefuls out of contention. Dozens more walked away quietly as the bidding cleared $300,000.”

“The Rudins remained hopeful as bids reached $330,000, but bidding suddenly stalled. Gabriela Rudin chewed her gum nervously as she sought a $335,000 bid. There were no takers.”

“After reminding bidders of the $390,000 appraisal on the three-bedroom house on a wooded lot, she asked for a $331,000 bid. There was a long silence before a couple met the bid, but was quickly countered by Ervin’s $332,000 offer. Another long pause followed, but not any bids.”

“‘I’m a bit disappointed for what it went for. But that’s the risk we took,’ said James Rudin. “I don’t think we would have had any better luck had we done it any other way. It’s the market.’”

“Real estate agent Bill Maliszewski said the couple got about what the market would bear in the economy. In Metro Detroit, home sales dipped 8 percent in the second quarter of this year, its biggest drop in nearly two decades.”

“‘It sold for probably what that market value was,’ Maliszewski said. He added that there was no way the Rudins were going to get what they paid for the house. ‘Not in this market.’”

“Despite their disappointment in the final selling price, the Rudins said the auction..helped them unload the home quicker than if they had let the market run its course. Plus, by auctioning the house they avoided selling any Realtor fees.”

“‘I don’t think we would have gotten more (money) and it would have been on the market at least another six months,’ James Rudin said. ‘It’s good that it’s done.’”




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173 Comments »

Comment by LIrenter
2006-10-23 13:54:30

Smart move, Rudins. Much better than the so-called “auctions” we’ve been having around here where the seller sets a reserve price and has the right to “refuse any or all bids.”

Comment by jonaskinny
2006-10-23 14:00:43

yes a true action is quite efficient. one less home on the market.

Comment by Ben Jones
2006-10-23 14:02:49

I don’t know, it was purchased as an ‘investment’. Maybe locals can tell us what a similar home rents for.

Comment by az_lender
2006-10-23 14:11:11

You’re probably right - price still too high relative to likely cash flow. But that’s how stocks move in an auction market: down just a little at a time. Hope more people will follow the Rudins’ lead.

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Comment by Michigan Born and Phoenix Bound
2006-10-23 14:35:00

Similar sized homes rent for $2000-$2500/month in the suburbs. Smaller homes rent for $1500/month (selling for $150-$200k).

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Comment by pismobear
2006-10-23 16:06:32

Happened here in Pismo ! Seller tried to auction overpriced hotel/condos. Auction fell on it’s a-s and seller stopped auction. Only sold two out of 14. Reserve prices were 50% higher then units were worth.

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Comment by Chip
2006-10-23 17:13:32

Pismo — first, savvy listing agents started digging in and requiring either reimbursement for marketing costs in any event, or a commitment to reduce the price by X every Y days. Next, I suspect, is that savvy auctioneers will begin to refuse auctions that have seemingly high reserve prices without a guaranteed (and increasing) fee for showing up.

 
Comment by jonaskinny
2006-10-23 17:21:10

i would not even go to a reserve auction… its like on ebay when you see reserve you most likely will keep looking until you find a real auction.

 
Comment by SLO Bear
2006-10-23 17:59:17

Ah yes - Dolphin Bay. I don’t believe they have sold any other units. FWIW, I called to see what I could rent one for a month - $5000 is what they wanted, which really isn’t too bad considering the location. However, I think they were trying to sell the 1200sqft units for about $2 million.

 
 
 
 
Comment by jag
2006-10-23 14:33:31

Probably a good idea to start at $1…by not putting in a bottom he insured a decent crowd….maximized the interests of the most marginal buyers.
Then again, I’d be scared to death doing what he did.

Comment by jonaskinny
2006-10-23 17:22:21

yes it gets everybody’s attention… which is the intent. I have sold a few items (ok much lower value than a home) on ebay and starting at a buck always works.

 
 
Comment by mrktMaven FL
2006-10-23 15:27:51

“Despite their disappointment in the final selling price, the Rudins said the auction..helped them unload the home quicker than if they had let the market run its course. Plus, by auctioning the house they avoided selling any Realtor fees.”

F’d sellers strike back at the REIC with auction sale! It appears the Rudin’s really despised Realtors™ and were not only determined to sell their homes but were also determined to avoid paying any stinking Realtor™ a fee. I wonder what went wrong with the wlast Wrealtor.

Comment by Louie Louie
2006-10-23 15:34:21

Im sure the neighbors arent too thrilled either with comps taking a major swing downwards…
Actual think auctions are far better then current blind bidings.
Does anyone ever truly know what the other bids are if they even exist at all ?

How in heck do we go from multiple bids to a dead market with increasing inventory and sales droping double digit?

I suspect we had more fake bids in this mania then any realtor wants to admit to.

Comment by imploder
2006-10-23 16:47:09

Soon the call shall be heard throughout “polite society”…. “Fu@k the Neighbors, Were about to lose our A$$es.”

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Comment by jonaskinny
2006-10-23 17:24:47

we are looking for the selling price of a sfr we were talked out of bidding on late last year. it probably went for more than we could have reached to but still you make an interesting point. particularly since agents know more than one way to make a buck in a hot market like buying it themselves.

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Comment by Chip
2006-10-23 16:14:59

mrktMaven — “Plus, by auctioning the house they avoided selling any Realtor fees.”

That’s the line that got me, too. Maybe they are related to the auctioneer, but all the auctions I know of charge a total commission greater than the typical 6% residential real-estate-agent one. They don’t sound like dolts, so they should know that if the auction commission is 50% to buyer and 50% to seller, the buyer already factored that into his bid.

 
 
 
Comment by OC Appraiser
2006-10-23 13:59:01

I think its funny when people try to sell their homes in this market and site that the “current list price” is below some appraised value that they had. They dont understand that if an honest appraisal came in at a certain price point previously, and they cant sell their house for that price currently, then the market is saying that the old appraisal is no longer valid. Good, honest appraisals interpret the market. But appraisal values are only good as of the “effective date” of the document (the date of inspection). After that, the market changes (either up, down, or remains stable). Many markets are currently in decline in my market area (OC, Calif), with major price reductions. If you are in the market to buy, beware the agent who states that the list price is below the last appraisal. After all, if the appraisal is a market value opinion, and the data is market driven, then why did their house not sell for that appraised value? Maybe because the value has declined since then. You are NOT getting any kind of deal. You ARE experiencing a market decline.

Comment by Chip
2006-10-23 16:17:59

OC Appraiser — thanks for your comments. Hope you will visit here frequently with anecdotes of what is happening in your market. We seem to have a couple of working appraisers as regulars, but are not flush with them.

 
Comment by jonaskinny
2006-10-23 17:27:54

i think this is the reason why people hold stocks that are under water until they rise to the price they paid because they have ‘too much to lose’ at the current market price. its all in their heads. much easier to understand a rising market than a declining one when its you holding the bag.

stick to your guns oc appraiser!

Comment by OC Appraiser
2006-10-23 18:00:25

I enjoy giving insight as to how the appraisal business ‘really” is supposed to work. I laugh when agents say that a property is worth what somebody is willing to pay for it. When in fact, a property is worth ONLY what a market is willing to pay for the product. Too often I have agents tell me that I messed up the appraisal because I didnt use a particular “comp”. When in fact, the particular sale was not a “comp”, it was just a sale that the agent thinks is a “comp”, and was not used because it was not reflective of the overall market. You see, markets are determined by “typical buyers and sellers”, not some shot in the dark sale that happened to take place with zero down, by some flipper who likes to gamble. Sure, the house might be a model match, located across the street from the subject, but the fact that it look several listings and was on the market for over what is “typical” in the market area (days on market), the sale is NOT considered to be “typical”, and one can argue that the sale may not even be an “arms-length” transaction, therefore, an honest, competent appraiser would not consider this sale a “comp”, rather just a sale that took place under “atypical” conditions. But there just arent very many competent appraisers in my market area who even come close to understanding how markets behave and why. They just fish for value on the MLS, and any sale in the general area that fits the value that they “need” is considered a “comp”. They go out, take the pictures, fill out the form, sign it with the value the broker is asking for, and presto, they made $350 bucks for an hours worth of work, and can be guaranteed to get more work. In the eyes of most brokers, loan officers and agents, these so-called appraisers are the “good ones”. Everyone else is just viewed as a “deal killer”, or “not value friendly”. I’m neither, I’m just an honest, Certified, professional real estate appraiser actually making an honest living. Well, maybe not making that great of a living since the market began to turn 18-24 months ago, but honest YES, and I understand the cyclical nature of this business, so I didnt piss away all the money I made during the boom. 20,000 appraisers in California right now, with about 6,648 of them being “trainees” and a total of about 13,000 of the having been appraising for less than 2 years. Expect a shake-out over the next couple years. But in the meantime, beware the person who claims to be an appraiser, conducting your valuation, on your largest asset. Chances are they have no idea what they are doing, and are just form-fillers with licenses.

Comment by lefantome
2006-10-23 19:22:07

I think you are making a case for a “Buyer’s Appraiser”. This could launch a new ‘hard-ball’ agent that both knows their own market, where it looks like it’s going, and what a property value not only is now, but in your opinion, will be in the future. What the hell is that worth? I’d say quite a bit. Nothing like a buddy that knows the market when you’re buying. A dozen honest ‘fruitless’ appraisals is a cheap price to pay for avoiding the potential overpaying hundreds of thousands of dollars for a home. At $350 per estimate (hopefully you’ll give a multi-appraisal discount), what is even 4k for appraisal fees? In California that’s not even 1% of the median priced home in the big city.

I could care less what the RE agents and lenders think about the value. Their reputation has been permanently damaged by this last ….. 3 years(?). I don’t need any help buying and deciding on a price in any area I have lived. But I still wouldn’t mind an appraiser as the lead agent on my team, who knows the market and will honestly (I hope) tell me what it’s worth, and IF THEY WOULD BUY IT !!! That is very valuable advice. And for the next several years, you can’t go wrong with shooting low on the estimate….. you’ll look like a genius suggesting a 50% reduction from any of the current asking prices!

I’ll hire you for nothing other than just the harassment factor ;)

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Comment by hd74man
2006-10-24 05:12:47

think you are making a case for a “Buyer’s Appraiser”.

Once word gets out in a community you are a straight shooter, know your shit, and don’t play games, you’ll get black-balled by the Realtor-whores, who will advise seller’s not to even let you in their homes. Mortgage slimes will tell client’s their underwriting staff does not recognize your work. You are not on the “approved” list.

The “valuation” game is bigger than you are.

In the end you will languish.

The corruption is now too entrenched.

 
 
Comment by jonaskinny
2006-10-23 19:32:21

this is the sad part about the whole deal ( i used to do a paper for citicorp in la in the early 90’s… same deal then but not as runaway)… you are in a no-win situation unless you work for the bank ( as a back-up appraiser on their portfolion deals ) otherwise yes you will not get as much business because you are ‘in the way’. amaizing…that many appraisers with less than 2 years under their belt… i wonder if anyone will ever tie these deals back to the appraisers… not the fraudulant deals but the runaway ones. unfortunately when the market turns good again the ‘bad’ appraisers may make up the bulk of those that could weather the down turn long enough to stick around.

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Comment by hd74man
2006-10-24 04:51:43

You ARE experiencing a market decline.

Yeah, I’d sure like to know how many “appraiser’s” are punchin’ the declining market box on their 1004’s, knowin’ the originator can’t sell the loan to Fannie.

This is why the newbie idiots over on the AppraisersForum are engaging in “debate” as to whether there is a “bubble” or not.

They’re attempting to assuage their guilt for being gutless wimps as to doing their jobs accurately and reporting the market as it is.

Tough deal to bring the wrath of hell down on your head for a crummy $125.00 fee split.

But nobody was complainin’ on the way up.

I remember in the heyday one newbie dolt sayin’ doin’ an appraisal was as easy as pickin’ up hundred dollar bills off the sidewalk.

But since the glut of unemployeed starving appraiser’s allows the lender to “shop” for his value, nobody’s gonna get the straight dope, and so the crap game continues.

The system is totally corrupt.

 
 
Comment by B\'hamster
2006-10-23 14:02:20

Re Cincinnati…This comes as no surprise. The growth in Cincinnati (and No. Ky) was incredible: according to CNN the fourth most sprawl-prone in the nation. Talk about over-built. All this, and the fact that the city had the highest percentage decline in population in the US (for which period, I do not know, but it was in the news over the summer). SW OH and No. KY had lackluster economic growth, so it’s only logical there’d be a huge inventory glut.

Comment by Sobay
2006-10-23 14:35:36

- ‘SMI has 14 houses sitting unsold in subdivisions such as Hopeful Trails …

Should it not be ‘Hopeful Trials….

 
Comment by CincyDad
2006-10-24 05:05:37

I live in the Cincy area. It has been so crazy the number of houses built in the 2 counties north of the city (Butler and Warren). The population has not grown much, just moved out of Cincy to these distant suburbs. It has created a LOT of tension in these former rural counties where the locals do not want the sprawl.

 
 
Comment by HomeBuyer
2006-10-23 14:04:48

I think it is very smart for the The Rudins to put their home on auction and made a quick sale. They lost about 14% of their investing. It might be painful now, but they will smile in the end which losing 14% only is not too bad. I am sure they will be happy to get out the market ahead of the real price falling.

Comment by gepetoh
2006-10-23 15:28:26

Actually, they only lost 14% if they outright bought the home or the home is otherwise paid for. They bought the house for $372K, so it is likely they put a down payment of something less than $100K. Taking a standard (of old anyway) 20% down, they would have “invested” $75K. $40K loss on their “investment” is over 50%.

Comment by Houstonstan
2006-10-23 16:04:22

If they lived in this for a year, take off the loss figure, the rent they would have paid if they had not purchased.

On the other hand, I don’t think the buyer got such a deal if they had to pay +10% for auction fees.

Comment by FED Up
2006-10-24 00:00:50

Don’t forget the mortgage payments they made were mostly interest plus they also had taxes and insurance.

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Comment by jonaskinny
2006-10-23 17:29:29

yep… leverage works both ways.

 
 
 
Comment by imploder
2006-10-23 14:05:11

” To spur sales, Wheatley is offering a new Chevrolet Cobalt to the buyer of a house.”

imploder say: Chevy Cobalt? Why so mean to imploder? What imploder ever to to you?

Comment by jonaskinny
2006-10-23 17:30:38

in la its a lexus or beemer, in cinci its a chevy

 
 
Comment by nnvmtgbrkr
2006-10-23 14:06:07

“Giving cash back allows a seller to sweeten the offer without having to lower the actual stated value of the home. But economists say the practice could be inflating reported prices and distorting a market already suffering from higher mortgage rates, and a sense that the market is enduring a major correction.”

….and thus prolonging the inevitable.

Comment by imploder
2006-10-23 14:24:23

I don’t get it why would a seller want this (possible fraud) why does the buyer want it (higher property tax) Now I know why the Realtor™ wants it! (more comish, higher comps for future sales)?

Comment by AE Newman
2006-10-23 15:38:40

imploder posts “Now I know why the Realtor™ wants it! (more comish, higher comps for future sales)?

Now, now did you read Susan’s remarks in past threads? I truly find your comments hard to beleive after reading her and Sammy’s go around!
Imploder I take Susan’s side. All Realors and thier lender friend are really closet “Alturists”…. I know, I know but Susan did convince me in the TRUTH…. they were doing good, for the sake of good.
You really don’t get it do you? I bet you are happy when you make some money?…..True don’t lie!
Well Susan is not happy if the bi-product of her labor is money. So she say’s neither are her Realtor friends. BUT it is the crappy low life 1% that give her Goodness a bad name. I know it’s hard to beleive but even she admited it the few the lousy 1% that like money…. Hard to beleive after reading her thread but it is true.
I can only go on my “feelings” but I would swear in the last 5 years of selling realestate Susan J. never did a deal with a “stated income loan” never sold a house she even thought for one secound the buyer would have a problem making the payment. On pain of stubbing my toe she NEVER, I repeat NEVER sold a house with a funny money ARM loan. This person puts her clients before money.
My final fact…. she lifted her self out of the world of being a reporter ….BTY award winning…. to push mighty ahead in life and yes to finally achive the status of Realtor!!!! ….Trumpets sound…. Glory be…. ye have climbed a mountian! Many have tried, many have failed…. but she is amonsts the few…. a true realtor pro! few things left in life to master.

Comment by Susan Jacobson
2006-10-23 19:32:42

Thank you for your stellar insights. I will be sure to tell my husband that I have achieved saintly status in your eyes. That will be news to him.

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Comment by AE Newman
2006-10-23 20:23:40

Susan Jacobson posts ” I will be sure to tell my husband that I have achieved saintly status in your eyes.”

I only have one eye, it is a brown eye! The same one you speak with.

 
 
 
Comment by SOMD Guy
2006-10-24 03:19:10

The big advantage is it can look like you put money down. If you buy that $200K condo for $210K with $10K going back to the buyer then you can still buy the unit with a $200K loan. The difference is now you have $10K of instant equity, the only catch is the appraisal must say the unit is worth $210K. The bank doesn’t care because as soon as the paper work is signed that loan will be packaged with others and sold. The buyer is happy because they have put 5% down, also they may have got a better interest rate, and they have a condo that will be worth $230K next year. The agent is happy because they got their commission. The seller is happy because they got their money. Everyone is happy and the game continues until there are no more suckers willing/able to pay the inflated current prices.

 
 
 
Comment by HomeBuyer
2006-10-23 14:10:10

why I cannot see my post?

Comment by AE Newman
2006-10-23 15:12:25

HomeBuyer posts “why I cannot see my post? ”

You have to drink 3 bottle’s of Jack Daniels. The go out into your back yard and bark at the moon…. then come inside you will be fine. The post will be seen and make perfect sence.

Comment by gw
2006-10-23 21:39:32

Is this one eyed Jack Daniels you speak of?

 
 
Comment by imploder
2006-10-23 15:55:33

turn screen on

 
Comment by bruin
2006-10-23 21:04:01

Probably some curse word. I used c*u*m in the latin sense once and couldn’t get the post to show up. Took forever to figure out what it was.

 
 
Comment by imploder
2006-10-23 14:11:19

“David Lereah, chief economist for the National Association of Realtors, blames the declines on inflated housing prices. In a recent analysis, Lereah wrote that housing prices simply got too high, cutting into affordability. ‘Sellers need to abandon unreasonable expectations about the value of their homes,’ he wrote.”

“All Real Estate is Lo-Cal” David’s diet in full swing now. Soon pounds will be falling off. David will need new suits that fit. imploder thinks David should frequent Yard Sales of ex realtors™. Many suits for sale as uniform already provided at Mc Donalds™.

Comment by AE Newman
2006-10-23 15:06:45

imploder posts ” Lereah wrote that housing prices simply got too high,”

Again, simpley brillant! I never did understand what was happening, but with his many year’s of higher Ed. and please, please the man is a genius…….. to able to observe what is going on and sort it out in a few consice words is remarkable…. The man is a titan!!!!
I must write this down before I forget…. da prices gots too hi now we iz screwwed, mans i hates dis whe it comez downn…i wish i gots learnd good lik da mann, whoo cud sypher dis inpormation…. dis guy shood right a bouk i wood hepp him. he coud do da brain wok add i cud rights it.

 
Comment by mrktMaven FL
2006-10-23 15:08:14

Now he says, ‘Sellers need to abandon unreasonable expectations about the value of their homes,’

Need some help deciphering this quote; coupled with recent statements, does this read like he is slowly inching in our direction? Makes me wonder what other crap is going to spew out of DaiReah’s mouth…

Comment by imploder
2006-10-23 16:58:51

I just think he works for Realtors™ and Realtors™ wont sell enough to survive until the sellers are “Broken on the Wheel” and capitulate….

Comment by OC-Jerry
2006-10-23 22:03:37

Leareah is describing last month, not the future.

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Comment by AE Newman
2006-10-23 17:02:10

posted “Makes me wonder what other crap is going to spew out of DaiReah’s mouth… ”

Rectum, mouth same thing.

Comment by bruin
2006-10-23 21:06:00

“Rectum, mouth same thing.”

Not so much.

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Comment by yogurt
2006-10-23 21:24:06

And who did they get those unreasonable expectations from, huh, Davey boy? Write any bad books lately?

 
 
Comment by Mike/a.k.a.Sage
2006-10-23 21:55:51

Does DL mean that, all those people who paid the high prices got screwed?

Comment by Mike/a.k.a.Sage
2006-10-23 21:58:41

If he came to this realization recently, he is no expert.

 
 
 
Comment by imploder
2006-10-23 14:15:08

“‘If they don’t want a car, we’ll give them a morning room, an extra 12-by-14 room off the kitchen or dining room with a lot of windows and a high ceiling. It’s actually part of the house, not an aluminum structure,’ said SMI president Mark Wheatley.”

imploder prefer “aluminum structure”. at least can’t be disassembled and taken with imploder when house worth “zero”.

Comment by moqui
2006-10-23 18:03:07

I’ve never heard of a morning room. Back in my youth, you get drunk and you pass out on the front lawn…sometimes clothed, more often in just underwear, didn’t matter. My point is they didn’t have these “morning rooms” to wake up in.
I’m guessing that is what they’re for or did I miss something???

Comment by jonaskinny
2006-10-23 21:01:42

in nc most homes come with an owner’s retreat… god knows why.

 
Comment by AE Newman
2006-10-23 21:19:03

posted ” Back in my youth, you get drunk and you pass out on the front lawn…sometimes clothed, more often in just underwear, didn’t matter. ”

Did you ever find a pile of quarters by your head?

Comment by imploder
2006-10-24 10:08:05

or pile of Realtor™ business cards, either way you know you have been scr&wed.

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Comment by imploder
2006-10-23 14:19:23

imploder make bo bo

at least can be disassembled and taken with imploder when house worth “zero”.

Comment by Barnaby33
2006-10-23 15:21:33

I think imploder mean, “boo-boo.”
Josh

Comment by imploder
2006-10-23 15:52:15

duoh!!!!

Comment by imploder
2006-10-23 17:06:44

imploder make double “bo bo”

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Comment by Catherine
2006-10-23 14:20:19

“Although some economists believe that the real estate market may be headed for bubble territory, Lereah disagrees, arguing that continued low interest rates, a healthy boomer population, and the “boomer echo” of next-generation buyers should keep the market healthy for at least the next 10 years. But he says that in order to profit from this sector you should invest now.”

That’s what Booklist wrote when his get-rich-quick book came out in 05. Dave has sure changed his tune. But let’s not forget what the mission statement of NAR is:
“The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful.”…note the purpose is for it’s MEMBERS, not the general public.

And let’s not forget that Skilling just got 24 years.

Comment by sleepless_in_seattle
2006-10-23 14:25:18

So, the NAR is looking out for the realtors, not consumers? no way, get real.

Comment by Catherine
2006-10-23 14:39:38

Shocking, I tell you, shocking.

He continues to be quoted (while on payroll w/ NAR) as the sage economist.

Comment by imploder
2006-10-23 16:50:11

Casa Blanca

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Comment by Neil
2006-10-23 18:22:08

I’m shocked I tell you, shocked!

(waiter): Your winnings sir.

Thank you.

 
 
 
 
Comment by walt526
2006-10-23 15:38:57

So which propagandist was more out of touch with reality? Bagdad Bob or Fairfax Dave?

 
Comment by walt526
2006-10-23 16:25:17

And let’s not forget that Skilling just got 24 years.

There’s a big difference between engaging in an elaborate conspiracy to defraud investors and creditors versus issuing bad advice. Lereah is either an idiot or a liar, but as far as I know he hasn’t broken any laws. Pumping up the market and offering opinions (no matter how illfounded) may be unethical, but its not illegal unless he’s doing something behind the scenes to manipulate the market.

 
Comment by San Diego RE Bear
2006-10-24 13:44:36

http://www.realtor.org/realtororg.nsf/pages/narmission

Good to keep on file for when they change it after the coming blowout.

 
 
Comment by OCDan
2006-10-23 14:22:32

Sellers still don’t get it! I don’t care if you throw in a year’s worth of mortgage payments, a new Benz, a free trip to Hawaii for a month. Your crap hole POS house is still toooooooo expensive and I will not pay for you to retire, buy a new home outright in flyover land, or fund your children’s college education. I also will not pay off all your debt for chunk you bought the last 1-2 decades. Lastly, I will not fund your over extravagant lifestyle that you now regret. Ball up and be men. You have screwed up your life and now hope someone else will pay for the error of your ways. Not a chance in this lifetime. Hey, if you lived in the house for several decades and make 100K, good for you, but I will not overpay by several 100K for your crackerbox in Compton or anywhere else! That’s how I feel and I am sticking to it, dammit!!!! Greedy bastards!

Comment by turnoutthelights
2006-10-23 14:30:38

Yeah, OC, these ‘I gave my house away at auction’ stories are going to look quaint next year. Dropping 40K on a bad flip will seem like the good old days. Wait till the house-for-auction line forms at the rear, and 50% off is a good day.

Comment by imploder
2006-10-23 14:54:37

Casey going to give away his gerbil at auction

Comment by gw
2006-10-23 21:44:06

How strange is it that Cindy married a guy named gerber ? (gerbil?) after leaving Richard?

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Comment by irvinesinglemom
2006-10-23 17:14:40

A coworker made what I found to be a fascinating and frustrating comment on Friday. She said that housing could not possibly drop by 50% because it would ruin too many people, so it would just not even be possible.

Kind of like saying, it’s such a horrible possibility that simply due to the fact of its horror, it cannot occur.

Wishful thinking, I guess. I just sold my Estee Lauder and Coach positions, put 80% of my 401k into bond fonds (vs aggressive stock funds), re-signed my lease for another year, and put my $130,000 down payment funds into an ELoan 5.70%APY 12-month CD. I am hunkered down for the recession/depression of 2007.

Comment by jonaskinny
2006-10-23 17:36:50

gosh thats alot of personal info… thanks for sharing. i wonder though about the bond funds (unless your joking about 80% of it in bonds) … may i ask how old you are? in other words how near retirement are you?

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Comment by irvinesinglemom
2006-10-23 17:58:05

I’m 36. I have been 100% invested in stocks for 11 years in my 401k but for the next few years I am doing a huge reverse course because of the economic impact I anticipate from the housing fiasco.

 
Comment by cactus
2006-10-23 18:12:13

Might work out for you, if we get a recession Bonds will do well. Meanwhile the stock market is on fire confounding me as usual.

 
Comment by irvinesinglemom
2006-10-23 18:15:35

Yeah, that just makes no sense to me whatsoever. It certainly won’t last. I give it till year-end at the latest.

 
Comment by walt526
2006-10-23 18:17:28

If you want to try to insulate yourself, why are you keeping the money in USD?

When you buy stocks, you’re placing a bet that the company will be profitable. When you buy bonds, you’re placing a bet that the company/municipality won’t go BK during the life of the bond. If/when the Greater Depression happens, its not going to wipe out profits, it will destroy companies. Not to mention the exposure that you’re leaving your investment to a falling dollar.

If you want to hedge against a major economic disaster, bonds aren’t going to offer you much protection. I’m not saying put everything into gold, but doing an 20/80 stock-bond splity isn’t sufficiently diversified, IMHO.

 
Comment by irvinesinglemom
2006-10-23 18:37:45

The problem is that this is my 401k we’re talking about. How many 401ks offer choices other than stocks and bonds? Mine certainly doesn’t!

 
Comment by jonaskinny
2006-10-23 21:06:52

Well I’m 39 and I just started 529 (college) plans for my sons. The plan automatically moves stock $ into bonds as the child gets closer to college age. It starts out at 100% stocks (aggressive positions too) and goes to 100% bonds when they leave high school. Because I want to begin taking down my retirement at about the same time they will be starting college i have decided to mirror their approach… its 100% equities for a while… zero bonds.

 
 
 
 
Comment by manraygun
2006-10-23 14:55:38

“I will not overpay by several 100K for your crackerbox in Compton or anywhere else!”

Then I guess you wouldn’t be interested in this beauty near the heart of trendy Silverlake. Less than half a million…

http://tinyurl.com/ybtlyy

Comment by OCDan
2006-10-23 15:14:59

Silverlake. You couldn’t pay me to live in that area. Smog, overcrowding, too much traffic. Sounds like a third world country to me.

Comment by manraygun
2006-10-23 15:34:48

OC doesn’t have smog, overcrowding or traffic? It must have changed a lot since I was there two weeks ago. It also has more conformist robots per capita than any place on earth.

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Comment by imploder
2006-10-23 17:18:29

OC jealous of LA. Cause, LA make OC famous, but Misha live here. Case closed.

LA sh#t hole like rock candy, tastee. OC sh#t hole…. well Sh#t hole. Like carlsbad though… is that in OC?

 
Comment by manraygun
2006-10-23 19:44:56

Okay, Imploder I admit you’re kind of amusing! But whoTF is Misha?

 
Comment by imploder
2006-10-24 09:45:33

Misha HUGE star. HUGE! Don’t you read magazines at Savon?

http://www.mischanews.com/2006/05/04/mischa-barton-leaving-the-oc/

 
 
Comment by jonaskinny
2006-10-23 17:38:52

i lived in trendy silverlake in 2000 … its a snobby slum. even the ‘lake’ is lame. you can find way better cute little houses in other parts of socal without the traffic and trash.

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Comment by manraygun
2006-10-23 19:31:13

Oh, so you moved to that other part of LA — the one without traffic and a better lake. Where is your “cute house”? Sounds nauseating.

 
Comment by jonaskinny
2006-10-23 19:38:09

i dont have a cute house, i live in a townhouse one block from redondo beach. i just dont get why so many people are excited about ‘hip’ silverlake when all it is is overpriced rentals and ‘cute little homes’. i should have put that part in quotes on the last post so you would know i was kidding.

 
Comment by manraygun
2006-10-23 20:13:58

I think Silverlake is massively overpriced as well. Though I do like the central location and, I admit, the vibe. I live in Atwater now — tricked out honda civics and a$$holes asking over 600K for fixers. This bubble can’t explode soon enough for me. Being near the beach must be nice.

 
Comment by jonaskinny
2006-10-23 21:09:09

yeah it actually is really nice… sometimes too nice… if you know what i mean. its like a prozac around here. silverlake did have something ill grant you that, but now that im here (no traffic, some of the cleanest air in la county, the beach etc.) i cant recall quite what it was :)

 
Comment by imploder
2006-10-24 09:53:57

1 Block from Redondo Beach. Please just say “Torrance”, “Hawthorne” or “Lawndale” otherwise imploder might think you are better than imploder.

 
 
 
Comment by gepetoh
2006-10-23 15:37:52

Pay for that? They should pay ME for that hole. It costs money to raze buildings!

 
 
Comment by tcm_guy
2006-10-23 16:25:57

Is there any truth to rumors that some colleges have been requiring parents to state their equity in their homes as part of the college aid application process?

Comment by imploder
2006-10-23 17:05:21

This just proves how useless University has be come…..

Learn about five programs (if so inclined) make 100k per year.. Who needs school?

Comment by jonaskinny
2006-10-23 21:11:51

i tried babblefish but they did not have hindi…

the idea was ‘you when i come for your job’ in hindi

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Comment by MD_renter
2006-10-24 03:06:58

I think you is “aap” and I is “me”. Your is something like “ture”. Job, I think you can just say “job”. That’s all I got…

 
 
Comment by bruin
2006-10-23 21:14:09

Programming languages?

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Comment by Jay_Huhman
2006-10-24 05:20:00

Yes, many private ones use Profile. State universities seem to use only FAFSA.

 
 
Comment by DAVID
2006-10-23 20:09:18

Right on OCDan. They are holding on to a dream that their house will be their savior from years of self neglect. Now it is time to pay the piper. We have a nice shopping cart here waiting for you to push around and collect cans with. Its not so bad once you get used to it.

Comment by imploder
2006-10-24 09:58:09

please stop writing this. imploder does not need competition.

 
 
 
Comment by mrktMaven FL
2006-10-23 14:49:20

“….A Web site, iNest, offered $1,540 off homes in another Pulte development in the area.”

FYI, iNest offers 1% off builders selling price…

 
Comment by GetStucco
2006-10-23 15:07:04

“How bad would the national wave of foreclosures have to get before bond investors and other players down the chain feel real financial pain? ‘I think we’re about to find out,’ said Allen Fishbein, director of housing policy for the Consumer Federation of America.”

Is he suggesting that risk premiums on risky debt (like MBS) will soon return to fashion? “Risk premiums are the new black…”

Comment by Mike_in_Fl
2006-10-23 15:25:25

I’d argue that those premiums are definitely starting to show up again — just look at LEND’s earnings warning the other day, where they cited deteriorating secondary market conditions. That’s an indication investors are stepping back a bit. Then of course, there’s the Bloomberg story elsewhere on Ben’s site about how credit default swap prices on risky mortgage bonds are surging. And if you didn’t see it, RDN (the mortgage insurer) took a pretty nasty hit on some policies in the most recent quarter. I’ve been convering this stuff at my blog, but suffice it to say we’re FINALLY seeing some tremors in the MBS market. Whether they turn into something worse remains to be seen.

http://interestrateroundup.blogspot.com

Comment by Chip
2006-10-23 16:29:40

Mike — that is where I want to be — at the bottom of the “lower high end” market, near the bottom. I just keep wondering if I’d be better off having a place built.

Comment by imploder
2006-10-23 17:12:51

I don’t know chip, sounds like your asking to be the cheese in a bologna and cheese sandwich. Hold out for better.

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Comment by Chip
2006-10-23 17:19:51

Imploder — lol — wish I could figure out your point. I thought I at least rated “ham and cheese.” Anyway, my remark was in direct reference to Mike’s blog post and the market striation therein. As for “Hold out for better,” I will listen to any and all advice that gets me there.

 
 
 
 
 
Comment by math guy
2006-10-23 15:07:21

I just found this on craigslist and thought it was appropriate what with the car givaway theme in the post.

http://sandiego.craigslist.org/car/224683217.html

Notice in the picture with the BMW “way below KBB” the house it is sitting in front of has a nice big Coldwell Banker for sale sign. Lol.

Comment by implosion
2006-10-23 15:33:07

Price is still above trade-in value for a car in “excellent” condition.

 
Comment by Chip
2006-10-23 16:32:23

Fine-looking car parked behind it. Hopefully it’s a houskeeper’s or nanny’s.

Comment by imploder
2006-10-23 16:56:03

No, reverse Joad story ‘wrath of grapes” get drunk, pile up belongings, keep driving till rents affordable, land in Oklahoma. (not a put down Mort)

 
Comment by DAVID
2006-10-23 20:18:06

No that is all on FB can afford to drive. Top Ramen taste so much better when you eat it off granite counter tops.

 
 
Comment by jonaskinny
2006-10-23 19:26:19

you must be shoping for a beemer if you found this picture with the for sale sign etc. why not just get a new home, drive the beemer away, and punt on the mortgage payments?

 
 
Comment by chunkylover63
2006-10-23 15:22:50

observations..

walnutcreek,ca
single family house:

Sold for 210k in 1999 (zillow)

listed for 679k in mid 2006
listed for 649k 2 weeks back
listed for 599k last week

2006 assed value is 240k (zillow)

how any one in right mind will buy at 599k?
It’s in a decent neighborhood, but loud noise has to knock atleast 250k

 
Comment by chunkylover63
2006-10-23 15:24:34

mkt observation..

walnutcreek,ca
single family house:

Sold for 210k in 1999 (zillow)

listed for 679k in mid 2006
listed for 649k 2 weeks back
listed for 599k last week

2006 assed value is 240k (zillow)

how any one in right mind will buy at 599k?
It’s in a decent neighborhood, but loud noise has to knock atleast 250k

 
Comment by Awaiting bubble rubble
2006-10-23 15:28:38

Another auction, another FB who overpaid for a house, another notch down for area comps. The goal of an auction is to excite one or more competitors into overbidding, and it is working so far but as they become more and more common how much longer can it work?

Comment by tcm_guy
2006-10-23 16:30:18

Multiple suckers are born every second.

 
 
Comment by atlanta
2006-10-23 15:30:20

Help me! Just talked to my fiance, he wants to buy here in Atlanta in the next couple of months. I have told him that we should wait since there may be a correction here in Atlanta. I told him if the correction should happen, I am also going to ask for closing costs, buy down of interest rate, home warranty, etc. He feels we could never get that and I am just dreaming. His relative is a realtor here in Georgia and feels we should utilize the person. I would be *&* if I give money to a realtor/family or not. I also suggest we look at shortsales/bank repo’s no sooner than October of next year. He will read the responses by all. Maybe you can convince him to wait and let the market correct itself somewhat. Convince him that we would lose some or all of our downpayment if we buy at present. He is out of state.

Comment by Chip
2006-10-23 16:42:49

Atlanta — I have been looking in that area for a year. Yesterday, an old friend there, architect and builder, said that belly-up mortgages are sprouting like mushrooms after a Spring rain. Don’t do it.

Look at it this way. Does any sane person (no agents, now) whom you know or read say that prices will increase this year? If prices will not increase, and if renting is cheaper than buying (most definitely), then why in the world would you rush into the likely biggest decision of your life to date, after getting hitched? Read Mish’s blog — Mike Shedlock — he regularly posts feedback from an Atlanta broker who has watched sales evaporate over the past year. At least two other posters here, Catherine and Army No. Va. (haven’t figured out yet if he is retired Army-Yankee or a Lee Confederate) know the Atlanta market very well. The latter will tell you that if you are looking outside the beltway, most definitely wait. If you’re rich enough to buy in Buckhead, it might matter a lot less.

Comment by Army No. Va.
2006-10-24 14:19:58

It’s the Army of Northern Virginia…earned that nickname on the Internet years ago playing Sid Mier’s Gettysburg etc… I also have done two re-enactments (Gettysburg and 1864 Grant vs Lee). And am from a long time Louisiana family.

 
 
Comment by just another boomer
2006-10-23 17:01:08

” I am also going to ask for closing costs, buy down of interest rate, home warranty, etc.”

Is that all ? In addition I’d ask for a new car , a European vacation and their firstborn as well as a percentage of their 401k’s and IRA’s . Oh yeah , can’t forget requiring the seller to provide lawn care for life and they must do it personally or the deal is dead .
Oh yeah…no brown M&Ms in the candy bowl and two unopened packs of Camels ( non filtered )..

Comment by Chip
2006-10-23 17:27:18

“just another boomer” — to be fair — Atlanta is just seeking sage advice. While I agree with you that asking for all these things, versus a simple x% reduction in price, is very counterproductive when dealing with a homeowner-seller, all she’s asking for is advice on how to tell her finacee that she thinks now is not the time to buy. She’s an innocent and didn’t claim to be proficient in the buying/offering process. Ben’s blog has an excellent history of treating newbies courteously. She didn’t come for a fight.

 
 
Comment by death_spiral
2006-10-23 18:10:49

Just let the jackass buy a house. then you can divorce his stupid ass in a couple of years.

Comment by bruin
2006-10-23 21:19:32

wow.

 
 
Comment by Michael Fink
2006-10-23 18:36:09

I hate to just take what another poster said, but Chip is SO right:

Look at it this way. Does any sane person (no agents, now) whom you know or read say that prices will increase this year? If prices will not increase, and if renting is cheaper than buying (most definitely), then why in the world would you rush into the likely biggest decision of your life

That’s all you need to know. If prices are flat (which, as Chip mentioned, is the BEST you can hope for) and renting costs less then buying (in Atlanta, I am guessing about 2/3 - 1/2 the cost of buying; you have not been hit as hard as some by the bubble, but this is a national event, so I am sure your ratio is still way out of whack) then your just throwing money away by buying.

There are some good calculators that you can use to help you with the decision; pretty much, if you ever enter “0″ as expected apprecation for any length of time, renting is ALWAYS the right decsion (in this market).

If you rent something for 1250 that would cost you 300K to buy, your saving 1250/mo (or so). Take that money, put it away, and use it to buy the same home next year (or the year after, or after that…). That’s just assuming prices are flat. If they are negative, then the numbers get really crazy. Every year that apprecation is 0%, you are coming out 15K ahead. I don’t know what kind of income range you’re in, but that’s alot of money to most people (myself included).

Best of luck!

Oh, and don’t even CONSIDER an exotic loan (interest only/negative am)!! Every realtor on earth is going to tell you my numbers are wrong, because they are going to use an exotic loan to get your monthly payment much closer to the rental cost. DON’T DO IT! You will, honestly, be gambling your finacial future on the home appreciating rapidly, interest rates decreasing/flat, and you making much more money in the next 2-5 years. ONLY look at 30 year fixed rate morgages; for a 1st time home buyer, its almost always the right product (unless you have very unusual situation). Also, if you MUST buy a home now, try to do it with no money/very little money down. That way if you do get underwater and start to get crushed by the house (need to move, can’t sell it, etc), it will be much easier to walk away. (Please, HBB regulars, do not kill me for that advice. However, I really feel that its the finacially prudent thing to do if you INSIST on buying a home in this market).

 
Comment by jonaskinny
2006-10-23 19:35:55

oh my god just tell him to talk to an agent in the area about listing his house (fake it)… they will tell him ‘you may have to discount because bla bla” that should cure him.

Comment by tj & the bear
2006-10-23 21:23:09

EXCELLENT advice!

 
 
Comment by Army No. Va.
2006-10-24 06:27:01

If you are buying a new(er) house, wait, especially if it is OTP (285). Those areas will get hit pretty hard with the possible exception of homes near the perimeter employment areas where 400-285 meet. The best areas, close to work, will still go down, but not near as bad as the McMansions in the boonies. Scarcity, location and quality will hold up better than generic new houses with infinite supply.

I’d wait …UNLESS, you have money (lots of profit from the run up) that you don’t care as much about as your lifestyle in a home that you “own”.

Also, if you are looking at vintage homes in good areas and find the “one” you want, it MAY be worth trying to chisel them down because good older homes are relatively scarce in good condition and good locations. But I’d only buy something like that for lifestyle over money considerations. I’d also just ask for closing costs and a lower price and not get into all of these wierd “incentives”.

Absolutely do NOT buy anything for investment purposes. The Confederate bonds hanging on the wall of the real estate lawyer are a better investment than real estate!

Buy like you would a car. Something you want that you will use and accept that it will depreciate. Plan to pay your mortgage down at a rate faster than 30 years. If this is not your plan…wait.

Timing may be difficult. It could be quite a few years before a “bottom” is reached. This is where lifestyle vs. money come in…your decision.

 
Comment by San Diego RE Bear
2006-10-24 14:18:06

Atlanta:

The correction is happening evidenced by huge inventories, decreasing median prices and drastically reduced YOY sales. I don’t know much about the Atlanta market, but I do suspect it has had a larger run-up than it should thanks to the Californians and other equity locusts. (”It so much cheaper here than California - it must be a good deal - who cares about the local incomes or rents?”)

I think you already know this but are having to go against your gut with a loved one. You might want to read “The Millionaire Next Door” and “The Warren Buffet Way” the first about working as partners to build wealth the second about buying underpriced, not overpriced assets. Then you might ask yourself how a future partner’s decision making will affect you and if you truly share the same values towards wealth building.

And yes, I know I’m going to get flamed for putting money ahead of a relationship. But based upon the same evidence two people came up with different conclusions - one now is the time to buy and the other now is the time to wait. Either way one party is going to be wrong. And just on a side note: Sounds like the family is applying a little pressure to buy – for whose benefit??? If they need the commission now I can guarantee you they will need it a lot more when the market does start a very obvious freefall. Either way the only thing you can control is what YOU buy/sign. Be very, very careful.

My usual disclaimer – I do not have a crystal ball and cannot guarantee the market is going to drop. But throughout recorded financial history any time the price has deviated this far away from the mean the price has come crashing back to (and often below) the mean.

 
 
Comment by MDMORTGAGEGUY
2006-10-23 15:47:09

Random thought….i hope that some of the fallout from this would be a new way for builders to sell homes. From no forward i believe the builder should purchase your home at current market value and use it as a down payment for the new home. This way the buyer doesnt have to fool around with selling the house and paying the commisions. The builder is inthe business of selling homes anyway and could go in and update/refurbish the house and re-certify it so-to-speak just like they do with cars. This would simplify the process and make buying a new home a much more appealling process.
Any thoughts people?

Comment by mad_tiger
2006-10-23 16:02:55

The builders that survive this downturn are going to be the ones that manage their risk. The biggest risk for builders is too much inventory on hand. I don’t think builders would be interested in a transaction where the net change to their inventory is zero. They’ve just traded one problem for another.

Comment by MDMORTGAGEGUY
2006-10-23 16:15:36

Good point. But, inline with which builders will survive, you have to look at which will be creative enough to jump start a market. They make 0 dollars on 0 sales. Transactions need to happen. I’m just suggesting that a new business model could help jump start sales. The thought of having to stage my home and be inconvenienced by months of showings and then timing my move with the delivery of my new home creates alot of anxiety. Using this model, all i have to do is move my stuff. Builder gets an empty house to fix/sell perhaps even turn a profit over what they paid me. Essentially the builder becomes a flipper. Treat the transaction like a car sale and just trade your old house in for a new one. I think its a dynamic that could work and should work and become the new norm.

Comment by johnfromia
2006-10-23 16:24:45

The problem is that when you trade your car in you get trade in value, not retail value. If to make it worth their while the HB’s would have to have a similar 25-40% markup, you’d be taking a heck of a hit in trading your house in. And they’d want and need a hefty markup to make it worth their while to carry all of the inventory, just like the car dealers.

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Comment by MDMORTGAGEGUY
2006-10-23 16:43:13

It could be a little different here though. You cannot really improve the value of a used car in the way that you can a home. My real life situation (though i would never buy right now). I have a thm in a grwoing area outside baltimore. Last sale in my neighborhood was 275k. So builder offers say 250k (which is all i would get from a sale of 275k after commish and such. I buy builders house at list price (the way it is done most of the time, present time excluded). Builder makes all his profit on new home (just like he always did). Builder then updates my house, painting flooring, new appliances, windows etc (this part is done at builder cost, which is a fraction of what it would cost joe-six-pack flipper). Say builder sinks in 10k on my old home and sells for 275. He wont make much on the old house but, he willhave to work twice as hard to earn my sale. essentially, builder will have to sell two homes to make his normal profit margin. If im a builder looking to get things moving, this seems like a plan that could work.

 
Comment by walt526
2006-10-23 16:46:42

Exactly. If you trade-in a car when you purchase a new one, you’re trading at least a quarter of the car’s value to save yourself the trouble of selling it yourself. If that’s just a few thousand or whatever, then a lot of people are willing to leave that money on the table. But I doubt that most people are willing to give up hundreds of thousands of dollars.

When its a hot market, buyers can easily offload the house. In a slow market, the builders not going to want to touch it unless they’re getting a hefty discount. And also I believe that there are tax issues that make it less painful for a homeowner (2 years of primary residence) to sell directly to another homeowner. I believe that additional tax liabilities might be created if an intermediary flips it. Given all that, I just don’t see where it would make sense for either party.

Also if I’m a builder, no way do I want my ability to borrow for construction of future homes to be restrained by obligations to resell properties that are taking a while to unload.

 
Comment by MDMORTGAGEGUY
2006-10-23 17:11:13

Buuuuttttt, builders need to get the market moving and need to be creative. They may not make as MUCH profit under this scenario but, still could turn A profit. This Mexican standoff that is brewing is killing them. They wouldnt have to get my house at the kind of discount you describe to make it work. RIght now im not buying their home period so, how much do they make now. So, if i buy their home and they make their 100k (or whatever the mark-up is) then, they have added 100k to the bottom line. All they have to do is break even on my home or even limit the loss. Overall they still come out ahead. Also consider. New thms in my hood cant be had for less than 400k. So take a 20 year old one like mine, update it and sell at a price point that doesnt exist here now. Think about it. I dont have the time or desire to do a new roof, windows, appliances etc. A builder could come in and do said things and market the home as “almost new”. Better in quality and asthetics than the other homes that are 20 years old in the community but at a major discount to brand new homes which are less affordable. The potential exists for the builder to profit on both ends but, he doesnt have to. Profit gets locked in immeadiately when i buy the new home. Builder just need to make sure he moves my old home somewhere near breakeven. As for a declining market, do you think builder would rather lose 20% on his half million home or my 250k townhome. I believe he is insulating his risk in this model.

 
Comment by walt526
2006-10-23 17:51:41

I have thought about it. And the more I think about it, the more untenable the idea is.

The discount would have to approach 50% before the builder would even consider it because the market is in freefall right now. The potential loss on the $250k townhouse is much more than 20% ($50k). There is a LOT of risk in what you are suggesting for not that much reward (in a down market). In a hot market, a builder might consider it for a modest discount–but the buyer is almost certainly better off just selling it himself in those circumstances.

You’re also overestimating the potential value of a refurbished home and underestimating the costs (typical flipper-mindset, although you want to see a gamble with some else’s money). And that’s not even getting into the warranty issues.

Given the choice between offering straight cash discount and hoping to get lucky on a resell to break even, I doubt there is a builder anywhere who would consider doing as you suggest. Its completely contrary to basic sound risk management (not to mention the cash flow headaches).

 
Comment by walt526
2006-10-23 18:09:58

I have thought about it. And the more I think about it, the more untenable the idea is.

The discount would have to approach 50% before the builder would even consider it because the market is in freefall right now. The potential loss on the $250k townhouse is much more than 20% ($50k). There is a LOT of risk in what you are suggesting for not that much reward (in a down market). In a hot market, a builder might consider it for a modest discount–but the buyer is almost certainly better off just selling it himself in those circumstances.

You’re also overestimating the potential value of a refurbished home and underestimating the costs (typical flipper-mindset, although you want to see a gamble with some else’s money). And that’s not even getting into the warranty issues.

Given the choice between offering straight cash discount and hoping to get lucky on a resell to break even, I doubt there is a builder anywhere who would consider doing as you suggest. Its completely contrary to basic sound risk management (not to mention the cash flow headache).

 
Comment by Vmaxer
2006-10-23 18:45:07

How about if the builders just gradually write down the value of their land. That way they can keep dropping prices and still show a profit on sale of houses in which the value of the land was reduced. This way they can keep showing profits each qtr and continue to collect their multi million dollar salaries as they liqudate their holdings and continue to line their personal bank accounts, over time. Showing a profit will provide some support for the stock, while management milks the assets for themselves. Sure the shareholders get screwed, but who cares about shareholders anyway?

 
 
 
 
Comment by Crazy G
2006-10-23 16:05:16

They already have MOBILE homes, and motor homes [on wheels];

are you suggesting, they have a drive thru to refurbish your mobile home????

Comment by MDMORTGAGEGUY
2006-10-23 16:16:46

not sure i understand your comment, perhaps my second post will clarify my thesis

 
 
Comment by luvs_footie
2006-10-23 16:15:36

This has merit in my view………builders are best placed to do upgrades on trade in stock. Would be very capital intensive to start with though.

Comment by walt526
2006-10-23 17:01:06

That’s not necessarily the case. Building something from the ground up takes a different set of expertise and personality than a tennant improvement (TI).

When my company does a design-build, everything is mapped out well ahead of actual work and will essentially be identical to previous projects. The guys who like to have a rigid plan to execute do well with these types of projects.

On a TI, you need a foreman who knows how to improvise and who won’t become a basket case when what’s on paper doesn’t match up with what’s on the drawings.

When circumstance force us to put a design-build crew on a TI or a TI crew on a design-build, the project seldom goes as smoothly as it should.

My guess is that new home builders are good within their element, but probably won’t be as effective doing TIs. Work is work, and many in residential construction will take whatever work they can get, but I’m suspicious of your assumption that a home builder will be an effective home renovator.

Also, there are a lot of warranty issues that would further eat into potential profits and be a general pain-in-the-ass. The more that I think of it, the more I’m convinced that it would be an unsuccessful strategy for a builder of any size: smaller ones are undercapitalized and larger ones have deep enough pockets (in good times) to make them a target to post-sale litigation.

 
Comment by walt526
2006-10-23 17:02:44

That’s not necessarily the case. Building something from the ground up takes a different set of expertise and personality than a tennant improvement (TI).

When my company (large Sacramento electrical contractor) does a design-build, everything is mapped out well ahead of actual work and will essentially be identical to previous projects. The guys who like to have a rigid plan to execute do well with these types of projects.

On a TI, you need a foreman who knows how to improvise and who won’t become a basket case when what’s on paper doesn’t match up with what’s on the drawings.

When circumstance force us to put a design-build crew on a TI or a TI crew on a design-build, the project seldom goes as smoothly as it should.

My guess is that new home builders are good within their element, but probably won’t be as effective doing TIs. Work is work, and many in residential construction will take whatever work they can get, but I’m suspicious of your assumption that a home builder will be an effective home renovator.

Also, there are a lot of warranty issues that would further eat into potential profits and be a general pain-in-the-ass. The more that I think of it, the more I’m convinced that it would be an unsuccessful strategy for a builder of any size: smaller ones are undercapitalized and larger ones have deep enough pockets (in good times) to make them a target to post-sale litigation.

 
 
Comment by Chip
2006-10-23 16:58:59

I think your idea is worth consideration. My personal observation: I know a number of builders, and their natures, and I think none of them would go for this. They have a very narrow view of risk and it is confined to what they develop and build. Best proof of this narrow view, I believe: look at spec homes designed by builders. The majority are awful-looking or at best, uninspired. You don’t have to pay an expensive architect anymore, you can buy excellent plans off the Net. But long ago this wasn’t possible and many got into the habit of “designing” their homes. Their plan might be OK, but the elevation often is the visage of Toulouse-Lautrec. I don’t think they’re into used-home sales and won’t be. It never worked before, to my knowledge. But worth throwing out there for comments. Thanks.

Comment by walt526
2006-10-23 18:09:18

Your developer friends are also mindful that there’s tremendous risk on the construction cost side, not just on the sales end.

I’m a purchasing agent for one of the largest electrical contractors in Sacramento. There’s a lot of volatility in material costs. Copper, which was trading for under $1/lb as recently as early 2003, has been entrenched at $3.40/lb since June (in April it topped $4/lb). This time last year it was trading for ~$1.80/lb.

Immediately following Katrina last year, PVC skyrocketed by 2.5-3x and even at those prices availability was an issue. Zinc (major component of die-cast) jumped overnight earlier this year to a point where stainless steel fittings were actually cheaper than die cast. Now nickel (major component of stainless steel) is on the rise.

Even if a builder could look at a property and with perfect certainty know exactly what needed to be done and could foresee all obstacles (and no estimator can), material costs can easily erase his contingencies and profit margin before the project gets started. Remember, the builder can’t buy a property on Friday and start major rennovations on Monday. There are permits, the title has to clear before any supplier can file a lien, etc. It could easily be 6-8 weeks for paperwork to go through IF EVERYTHING GOES WELL. In that brief period of time, material costs could be dramatically different.

No one in construction that I know of would even consider such a foolhardy endeavor unless he was getting the fixer for a discount far greater than most buyers would pay.

 
 
Comment by walt526
2006-10-23 17:52:55

I have thought about it. And the more I think about it, the more unworkable the idea is.

The discount would have to approach 50% before the builder would even consider it because the market is in freefall right now. The potential loss on the $250k townhouse is much more than 20% ($50k). There is a LOT of risk in what you are suggesting for not that much reward (in a down market). In a hot market, a builder might consider it for a modest discount–but the buyer is almost certainly better off just selling it himself in those circumstances.

You’re also overestimating the potential value of a refurbished home and underestimating the costs (typical flipper-mindset, although you want to see a gamble with some else’s money). And that’s not even getting into the warranty issues.

Given the choice between offering straight cash discount and hoping to get lucky on a resell to break even, I doubt there is a builder anywhere who would consider doing as you suggest. Its completely contrary to basic sound risk management (not to mention the cash flow headaches).

 
Comment by walt526
2006-10-23 18:10:36

I have thought about it. And the more I think about it, the more untenable the idea is.

The discount would have to approach 50% before the builder would even consider it because the market is in freefall right now. The potential loss on the $250k townhouse is much more than 20% ($50k). There is a LOT of risk in what you are suggesting for not that much reward (in a down market). In a hot market, a builder might consider it for a modest discount–but the buyer is almost certainly better off just selling it himself in those circumstances.

You’re also overestimating the potential value of a refurbished home and underestimating the costs (typical flipper-mindset, although you want to see a gamble with some else’s money). And that’s not even getting into the warranty issues.

Given the choice between offering straight cash discount and hoping to get lucky on a resell to break even, I doubt there is a builder anywhere who would consider doing as you suggest. Its completely contrary to basic sound risk management (not to mention the cash flow headachs).

Comment by MDMORTGAGEGUY
2006-10-24 06:15:50

Obviously, you have more knowledge of the building industry than i do. But, as another psoter mentioned, builders are already doing this though, i dont know the details. I still think it is workable despite your very valid points. The key point for me is that right now they are making nothing. So if they get full boat on the purchase of the new home, they make their money. All they have to do is sell my home near breakeven- WHICH IS WHAT I WOULD HAVE TO DO ON MY OWN TO BUY THEIR HOUSE. So since their whole profit is hinged on the sale of my house whether i sell it or they sell it- who do you think will be better at selling my home- me or the builder? My money is on the guy that is in the business of selling homes already. This has a secondary benefit of propping up prices for a longer period (not that i am in favor of this). I pay full boat for his and he hopefully gets full boat for mine.

 
 
Comment by jonaskinny
2006-10-23 19:43:17

builders make money on the effort of converting lots to homes… not taking on more inventory.

 
Comment by Mike/a.k.a.Sage
2006-10-23 22:40:19

Now this is what I call being creative. Use your old home as a trade in to buy a new home. Get book value on a trade-in for a new one. This may be the wave of the future for builders. Do you think the builders could actually be this creative?

Comment by CA renter
2006-10-24 03:28:57

Aren’t some builders already doing this? I believe I’ve read (here?) that builders are saying they will sell your house if you buy theirs.

Perhaps they want to sell yours first, and you’d be in some kind of transitional period between sales, but it would likely work for them.

 
 
 
Comment by Betamax
2006-10-23 15:58:14

OT: Jeffrey Skilling of Enron just sentenced to 24 yrs in jail.

So there is some justice to be had in this world after all…

Comment by crispy&cole
2006-10-23 16:24:44

Lube up Mr. Skilling!

 
Comment by crispy&cole
2006-10-23 16:28:32

How many people believe Mr. Lay is on a small island in the Pacific?

Comment by mrktMaven FL
2006-10-23 16:58:56

…drinking Mai Tais…

 
Comment by imploder
2006-10-23 17:01:18

Who cares. For a guy like him that purgatory.

 
Comment by Tortious
2006-10-23 18:50:30

He is burning in a special part of hell, waiting for his old friends Bush and Cheney.

 
 
Comment by DAVID
2006-10-23 20:20:29

Skilling new name will permanent hinge back, after a few day in the pen. Get ready all you mortgage broker crooks your turn is next. You guys will think holding your ankels will be normal after a few days.

Comment by bruin
2006-10-23 21:22:13

Thought of the day: Prison rape is rape. Not funny. Imagine it for a second.

Comment by Doug
2006-10-23 22:03:36

Who cares? That is part of the deal of breaking the law. Everyone knows it…and it is easy to avoid. Don’t break the law.

(Comments wont nest below this level)
 
 
 
 
Comment by Paul in Jax
Comment by edgewaterjohn
2006-10-24 07:08:59

Good and informative article. But this is just so outrageous - for years now I have tripped over story after story extolling the increased demand for housing brought about by BBers looking for a home away from home. NOW, they say demand’s been flat for 12 years!?!?!? Just more evidence of that the media in this country has absolutely no creditibility whatsoever - as they parroted every line the RE folks sent them and they do the same for every politician and corporation too.

What’s it like Mr. and Mrs. America - to realize your SUV driving, granite countertop owning, MBA earning life is just a big lie concocted by scumsuckers bigger and brighter than you?

That second shoe is in mid-air.

 
 
Comment by DannyHSDad
2006-10-23 19:00:48

TOUSA (TOA) or Technical Olympic USA [home builder] makes preliminary announcement:

consolidated net sales orders of 1,470 for the quarter ended September 30, 2006, a 19% decrease from the 1,821 consolidated net sales orders reported in the quarter ended September 30, 2005. Joint venture net sales orders for the third quarter of 2006 were 125, an 86% decrease from the 871 net sales orders reported in the third quarter of 2005. TOUSA’s consolidated cancellation rate was 33% for the third quarter of 2006 compared to 20% for the third quarter of 2005. TOUSA’s combined cancellation rate for the third quarter of 2006 was 44% compared to 18% for the third quarter of 2005.

The Company anticipates a pre-tax charge in the range of $35 million to $48 million for the third quarter of 2006 related to land deposit write-offs and asset impairment charges, excluding the impact of the Transeastern joint venture, based on reviews currently in process and not yet completed.

Cancellation rate is up from last year: combined rate is up more than 144% (18% vs 44%). Who’s talking hitting the bottom again?

Comment by Mike/a.k.a.Sage
2006-10-23 23:13:12

A pre-tax charge = Loss.
An asset impairment charge = Loss.
Good will = Loss.
A Loss is a Loss.
A charge-off is a Loss.
A write-down is a Loss.

How many different ways is there to say that your company has had a Loss. Maybe it’s not PC to say your company has had a Loss. Or maybe it’s been so long that they have used the word Loss, they forgot what it even means to have a Loss.

A Loss means that they Lost money. Why is it so difficult to admit to a Loss? Or maybe it’s the spelling of the word. I must admit, I sometimes have difficulty with the spelling of the word too.

 
 
Comment by Dennis
2006-10-23 22:03:00

I’m 36. I have been 100% invested in stocks for 11 years in my 401k but for the next few years I am doing a huge reverse course because of the economic impact I anticipate from the housing fiasco.

I too,live in Irvine and just today I moved a third of my investment portfolio into money market funds. I will be liquidating many of my very profitable positions in the next few sessions as I expect a major correction in this market soon.

Comment by asuwest2
2006-10-23 22:33:51

dennis-also in irv. on those mmf, make sure u check their portfolio makeup. the one for my 401 was 1/3 mtgs.

 
Comment by Grant
2006-10-24 09:25:41

If you want to put your $$ in a money market fund, choose a treasury-only MMF. The interest differential between a treasury-only and a “regular” MMF, which might have significant mortgage exposure, is very small these days, so why take on the additional risk?

 
 
Comment by Dynastar
2006-10-23 22:21:39

Heh, I love it: “Only 1 percent of real estate is sold nationally at auction, according to the National Association of Realtors. And auctioned properties run the risk of selling for less than they’re worth.

I wonder how the Detroit News thinks the value of a house is determined? Ouija board?

 
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