Housing Correction “Will Continue To Progress”
The Review Journal reports from Nevada. “By Fortune Magazine’s reckoning, Las Vegas in the next two years will turn in the second-worst housing performance in the nation. ‘Las Vegas was one of the most frothy markets in (in 2004 and 2005), and a lot of that price appreciation was due to speculation,’ economist Charmaine Buskas said. ‘There were a lot of second-home purchases for investment purposes. With weak demand fundamentals going forward, we expect the correction in the housing market will continue to progress.’”
“Local real estate analysts don’t discount Fortune’s predictions out of hand. ‘Anything is possible,’ said Larry Murphy, president of SalesTraq. Murphy said he’s especially wary of the amount of inventory sitting on the MLS. The service had 17,834 listings in December, a 33.3 percent increase over the number of listings posted in December 2005.”
“And Murphy’s research found that 44 percent of those homes for sale are vacant, likely because they’re investor-owned. ‘We still have a much-higher-than-normal number of investors holding vacant homes,’ Murphy said. ‘Prices could go down in 2007, and if we were going to ascribe one reason to (a decline), it would probably be the number of vacant listings.’”
The Arizona Republic. “More than 800 people registered for the Urban Land Institute’s real estate trends conference, going on today in downtown Phoenix.”
“One of the big questions on people’s minds is what’s next for Phoenix housing. A panel that included a top land broker and some building executives agree one one thing: There’s more pain ahead before the market bottoms.”
“‘What we saw (in the boom), we’ll never see again in our lifetimes,’ said Steve Hilton, CEO of Scottsdale-based Meritage Homes.”
“The consensus was that the new-home market, struggling to shake off the hangover of the 2004-05 housing frenzy, wouldn’t hit bottom until spring or summer as builders tried to get rid of unsold homes and adjusted their land inventories.”
“Boom-time increases in some parts of the area persuaded builders to load up on land and employees. Now, they are laying off people and either getting rid of land or revaluing it while looking for other ways to reduce costs in a time of falling sales.”
“‘All of the builders have done significant cutting,’ said Mark Upton, executive VP of Engle Homes parent TOUSA.”
“The greatly reduced number of new-home permits will hurt the construction side of the economy, affecting jobs, economists at the conference said.”
The Phoenix Business Journal. “Speaking at the conference Tuesday, Douglas Poutasse, chief investment strategist at AEW Capital Management LP out of Boston, and Elliott Pollack, president of Elliott D. Pollack & Co. in Scottsdale, said not only will it take awhile to whittle down an overabundant housing inventory, but affordability issues also could haunt the metro area.”
“‘In 2003 Phoenix housing affordability was equal to Dallas. Today Phoenix housing affordability is equal to Boston,’ Poutasse said.”
“A twist on the correcting single-family housing market, is that the construction industry could take a hit. Pollack said that for every 10,000 houses built, 15,000 direct and 17,000 indirect jobs are created. ‘The worst in the housing market is yet to occur,’ he said. As Poutasse put it, ‘We still have an awful lot of housing.’”
The Casa Grande Dispatch. “The debate on what is ‘affordable’ housing arose again Thursday night during the Planning and Zoning Commission’s regular monthly meeting when Ryland Homes came forward with a proposal to cut the sizes and construction costs of homes in part of the Carlton Commons subdivision.”
“When questioned, he put the possible price of the smallest home, 954 square feet on a 40-foot by 60-foot lot - at around $150,000. Affordable for Casa Grande, where wages are much lower than the Phoenix Valley? No one seems to know.”
“Less than five years ago, below $100,000 was considered ‘affordable’ in a new home being built in Casa Grande. You don’t find any today.”
“Ryland sees $150,000 for a house just a little bigger than an apartment as affordable. Other developers have come before the commission touting their ‘affordable’ housing in ranges of $170,000, $180,000, $185,000 (which that developer called ‘eminently affordable, we believe’) and $190,000.”
“A Casa Grande resident making $36,000 a year wanting to buy a $150,000 home on a 30-year loan at 6 percent interest, one mortgage calculator estimates, might qualify for a $95,000 loan. That assumes a very lowball minimum of monthly expenses in the example of $250 for a car payment and $110 for taxes and insurance. No calculation is made for possible points, loan costs and closing expenses, all of which would take away from the $95,000.”
“Another mortgage calculator shows the monthly payment on a 30-year, fixed-rate $150,000 mortgage at 6 percent being $899.33.”
“‘So this is going to be sort of like an apartment on steroids, right?’ asked commission Chairman Timothy Lee. ‘Because 954 square feet is an apartment, and the apartments right across the way there go all the way up to about 1,200 square feet.’”
“For Ryland Homes, it’s a matter of competition and a glut of new homes on the market in the same category as originally proposed for Carlton Commons. ‘The original square footages are very saturated in the market, according to our research. This would create an opportunity to move into a home,’ the spokesman said.”
“Other areas of town have empty homes in the higher ranges that aren’t being sold, Commission member Tina Cramp said, ’so I’m really hoping that you strongly look at that. I think that these will go very well in what we’re looking to accomplish as far as affordable, as long they are affordable according to Casa Grande standards,’ said Cramp.”
“‘Affordable housing isn’t $100,000 for the average family of four. It is not affordable, and so I’m not going to sit here and allow developers to tell me that this is affordable housing when they skinny something up, and then tell us that they’ve downgrading the materials and now we’re talking about affordable housing at $150,000. That’s ridiculous; it’s just simply ridiculous,’ Chairman Lee added, ‘Affordable to me is when Del Webb is giving $110,000 off a house in Phoenix. That’s affordable.’”
Some of the comments at the bottom of the first Republic link are interesting.
Here’s an update on one Tucson contractor:
‘The Tucson couple who owned a defunct remodeling company that abandoned more than 65 jobs when it closed in November have filed for personal bankruptcy protection. The Arizona Registrar of Contractors has received more than five dozen complaints from Albrite customers seeking more than $700,000 in compensation for jobs Albrite either didn’t finish or never started, said Geri Meade, Southern Arizona regional manager for the Arizona Registrar of Contractors.’
‘The recovery fund administered by the Registrar of Contractors can dispense a maximum of $200,000 in payments per contractor of up to $30,000 per customer. Unofficial records from the IRS indicate that the Joyces’ company has federal tax liens totalling $303,850 for at least four years of unpaid taxes. In addition, the Pima County Recorder’s Office Web site lists two state tax liens for undisclosed amounts.’
Yup, as guessed here, that contractor’s creditors are hosed.
Gee, I wonder if this couple use to offer to pay everybody’s Mello Roos if you’d give them a remodeling contract?
anybody watching the chicago merchantile exchange’s housing futures numbers?
http://housingrdc.cme.com/index.html
No, I cannot see them without registering. What did you watch?
How the hell are builders already going bust? I thought they learned from the last bust?
You’ve gotta be kidding. Shoot, a lot of these are the same gang that went belly up in 1990, just with new company names.
LOL
And THAT’S what they learned: get the money out before the company goes Tango Uniform.
Now we finally are getting a clear view of the new business model: Do your best to keep up the appearance that all is well until the day you go belly-up. (Actually, this sounds a lot like the Enron business model…)
‘unofficial records from the IRS indicate that the Joyces’ company has federal tax liens totalling $303,850 for at least four years of unpaid taxes.”
I didn’t know the IRS would let a business go so long without jumping down on them with both feet.
I used to reconstruct tax returns for people going back up to 5 year. These guys were almost always in construction.
I would bet this was after an extensive audit. I am sure they denied all their BOGUS expenses - typical contractor ones include writing off ski boat, wifes boobs, NeckCar excursions, and other non-business expenses…
For some reason unknown to me, the contracting field seems to attract the reckless types that can’t seem to control themselves. hence, we always see them with all the toys you mention, and later on when times get lean they go out with a bang as well.
If you’ve ever had work done on your home you know a lot of these people are complete flakes. They cannot hold a real job so they go into construction. Not all, but a lot like this.
There was a old, old joke about what you would do if you found a million dollars. I forget what the first two would do, but the contractor said “If I found a million dollars, I guess I would just keep contracting til it was all gone.”
Same goes for most industrial contractors with big equipment. I’ve known two that have had spectacular rises (tons of money, many employees, and spent the money recklessly) — and they had spectacular flame-outs and complete bankruptcies.
Industry/construction is boom/bust by nature. Those who are most aggressive and oblivious to downturns can get key contracts and projects early on and ride the wave up. They are also too stupid to envision anything else and are usually ramping up when everything else is ramping down.
Business model 101. Lie and hide. Take the money and run. “Après moi le déluge.” business model. “South Sea Bubble” model. John Law and Louis the XV almost invented it. But you Americans I must admit. The US perfected the system to a fine art with such gusto. A summum of inventivity and distinguishment. ENRON is the envy of the world. Quite a feast in advacement for human finance. Transform a debt into an asset. Transform a loss to a profit. It’s like making wine from water and walking on the waters ! ENRON was misunderstood like Jesus !
Negative growth in action.
There was a great deal of discussion about what is affordable and what is not. It depends on what financing terms are used. I have heard it argued in California the houses are affordable because someone can afford the payment on a negative amortization loan with a teaser rate. One the other hand, if you assume a 30 year conventional mortgage, nothing is affordable (2% was the last measure I saw). If the discussion is standardized using the same financing terms, affordability is easy to measure, and for most markets right now, impossible to attain.
IrvineRenter:
Not only the 30 year conventional payment, but 10% or 20% down? CA prices wouldn’t hold up for 20 minutes.
Right now in Irvine, a starter home is $600,000. This same home can be rented for $2,500.
The interest alone is $3,000 a month. A conventional mortgage payment would be $3,600. At a minimum Add $100 for HOA, $500 for taxes, and $100 for insurance, and your looking at $4,300 a month.
On the peninsula, you can rent a home that would sell for 2x that for about $3k per month.
Best reason in the world to be renting.
Isn’t it crazy. The high end properties seem to be even worse. I saw a flyer recently were a house was offered for sale for $1,250,000 or for lease for $3,500.
I live on the Penninsula, and was just chatting with a friend of my landlord. He was saying that the guy is about a $1000 cash flow negative per month. He does have the resources to keep it going for a few years though.
They had both sold houses in SF at about the same time. The first one built 7 houses in Oregon and the other bought a couple of multi-units in “high rent” areas to the south of SF.
Funny, the other place I was looking to rent (2 bdrm) was selling for $750K and renting for $1450/month. When I was at the rental agents place, it had previously been listed at $1700.
The numbers here make absolutely no sense without the appreciation kicker.
“Right now in Irvine, a starter home is $600,000. This same home can be rented for $2,500.
The interest alone is $3,000 a month. A conventional mortgage payment would be $3,600. At a minimum Add $100 for HOA, $500 for taxes, and $100 for insurance, and your looking at $4,300 a month.”
The rent would need to be cheaper.
Assume a world in which the value of the house remains constant — doesn’t go up or down.
The actual cost of owning is: (3000 + 100 + 500 + 100) x 12 = $44,000/yr, subtract federal income tax benefit (3000 + 500) x 12 = 42,000; 42,000 less married standard deduction amount 10,300 = 31,700, multiplied by 28% tax rate) = 8,875, net annual cost to own is 35,524. Net cost to rent is ….
Oops. Doesn’t work. Renting is cheaper. AND, no ridiculous transaction costs.
You got that right. The way they are pricing these “affordable” homes everywhere indicate to me that they believe neg am loans are normal and everyone supposed to be using them. It’s amazing to me how people are getting away with this.
They’re updating the affordable housing guidelines in Hawaii. I imagine that the updates will allow more developers to fool the locals into believing that they’re getting a good deal.
There is a condo development here that is offerring 63 of their units as ‘affordable’ at a price range of $275,000 to $375,000 for 1 or 2 bedroom units.
Great! Now the average hotel/bank worker making $35k/yr can go pick one up on a traditional loan right? Wrong! This is ridiculous!
“They’re updating the affordable housing guidelines in Hawaii. I imagine that the updates will allow more developers to fool the locals into believing that they’re getting a good deal.”
Guess who will update the guidelines? The real estate people. There is no such thing as affordable in Hawaii based on the people’s income. Prices are driven by investors mostly from out-of-state or foreign country and cheered on by the realtors.
BTW the condo you mentioned, it is not completed yet and many units are already being listed for sale. Another greater fool will buy those units of course. The madness continues but eventually stops.
Aloha
My idea of “affordable” for a family earning around $65K would be around $200K. That is the MAX this hypothetical family should pay.
We must always remember…the traditional affordability calculations (20% down, 28/33% DTI ratios, etc.) were created when most people had more stable jobs, employers covered healthcare and pension costs, and workers could count on their wages rising over time. Also, the Baby Boomers were forming families into the 90s, so they were buying their **primary** homes. Therefore, there was usually a pool of buyers who had progressively better educations, jobs, and sheer numbers which caused housing prices to go up. THIS IS NO LONGER THE CASE!!!
When calculating affordability in present (and future?) times, we need to be even more conservative, IMHO. People need to save more now than ever before!
Very good point. But I think the $200k is too high for $65,000. At most, I would say 2 and a half times the income, making $162,000 for a house. And yes, that is with more stable jobs (before many of the world’s communist countries started practicing capitalism, thus causing jobs of ours to be outsourced). Last night a young engineer told me that he and his wife have 3 weeks to decide whether to go ahead and sign the purchase agreement on a $500,000 house in Goodyear (west of Phoenix). His own job is in jeopardy, he thinks. I did not advise him. I think he will make the right decision and walk away from his deposit. He and his wife will stay in their existing home, I hope. He is one of those engineers who do the minimum work and not go the extra mile. Sad to say. He’s a nice guy but this world is more competitive and you have to be sharp, decisive, adaptable, and enthusiastic to take on this more difficult world head on.
“We must always remember…the traditional affordability calculations (20% down, 28/33% DTI ratios, etc.) were created when most people had more stable jobs, employers covered healthcare and pension costs, and workers could count on their wages rising over time.”
Very well put. This point cannot be stressed enough, as despite the rosy scenarios the gov’t and MSM try to peddle, wages just aren’t keeping up for this society as a whole.
Gee. They are just coming to the conclusion that the average person making $36,000 cannot afford a property costing $150,000 when the interest rate is 6%. Bearing in mind that a $150,000 property resembles a rabbit hutch where even the rabbit wouldn’t be very happy, that kind of narrows the field of “affordability”. I’m shocked.
On another note, I was in my bank yesterday (Washington Mutual) and a young couple were seated at a desk while a bank employee explained the details of a mortgage application they had filled in. I ALMOST wanted to wait outside the bank for them to come out and say, “If you’re thinking of buying now - don’t do it. Wait until 2008 at least.” Of course, I didn’t. They looked like they were over 21.
Your trip to the bank sheds a little light on who is still buying. The young and impressionable (stupid). Unfortunately, thanks to the MSM, real estate is still perceived to be a great investment. Until we see families losing homes left and right, and an end to these suicide loans, the bubble marches on.
Bantering Bear,
Not true. I’m seeing plenty of dumba$$ Boomers still buying. In fact, I would argue they are the majority still buying, as most young people are completely priced out, regardless of whether the loan is toxic or not. Boomers who haven’t saved diligently all their lives flock to RE as a futile attempt to make up for lost time due to their own ignorance. Just like with Pets.com, many of them will end up even poorer than before this started.
Bingo! The boomers ignore the catch-up previsions in 401k and IRA laws. That would be too hard and require patience. They go with the high-risk real estate because “when you ain’t got nothin’ you got nothin’ to lose”. It’s really frightening and sad at the same time.
Anthony. I should have been more clear. I didn’t mean to insinuate that they are the “only” ones buying. I thought his statement sheds light on who the first time buyers in this market are. As far as boomers, don’t get me started. They are drinking the Kool-Aid like it’s prune juice. Hope they enjoy their homeless retirement.
Sounds like my specuvestor parents, who just returned from buying property in Phoenix, this after picking up a “bargain” house in Oahu for 1.4 million. They plan to rent it out. Of course, the development only allows rentals by the month, so they have not been able to rent it out for normal vacations. Hmmm, puzzling. But two other houses nearby appraised for 400k more, so they “made” 400k at closing!
I have stopped trying. In their words, they are “going for it”, as they have no savings… I am mentally pricing in an in-law suite when we get our next house (with 3 kids, already want 5 bedrooms.)
Would love to go back to CA, but not in the cards at current prices. naperville illinois sounds good. 5 bedrooms, great schools, 3.5 baths, 475k. Wait a bit (over 1k listings…) and we’ll do ok.
Thank God we live overseas right now. Staff are cheaper than the car payment. Would be screwed at home.
I completely understand your frustration.
You’ve got to be kidding. Just bought property in Phoenix and Hawaii? Talk about late to the party. How does feeding a property cash every month constitute an investment? Boy this stuff is weird.
How does feeding a property cash every month constitute an investment? Boy this stuff is weird.
They’re still in the 2005 paradigm where one somehow “got wealthy” by going into debt by a half million or two.
The Baby Boomers are trying to recoup their loss on the NASDAQ bubble? You could call these baby boomers: EVANESCENT BUBBLE CHASERS.
When you see a baby boomer chasing an asset class, you can be almost sure that the bust is coming real soon. They smoked too much pot. It shows. I thought it was a myth, but it’s true. How else can you explain that when the baby boomers show up, everythings goes wacko and weirdo ? Maybe it’s the coke or the meth mixed with it ? “And this is the end.” ?
Its all just greed really. You know the saying, pigs get fat and hogs get slaughtered? There are too many hogs among the baby boomers.
I’m in my 20s and renting, and I’m doing my part to keep my friends from doing something stupid. I have sent tons of links to folks my age that I know want to buy. I also figure if we all wait together, we’ll all get a better deal in the end. If they buy anyway, at least they did so with an education. Oh, and many of the links provide some hope to those had given up on ever owning.
Screw ‘em, they can learn the hard way. Or maybe they are making decent money, you never know.
Making decent money maybe, but about to lose a whole lot on their new “investment”.
Some personal observations from Washington County, (St George)Utah. One of the married couples that I talked out of buying last year started looking at homes this month against my advice. They have found a home that they love and they are signing papers tomorrow.
While moving money around at my Bank yesterday I got into a conversation with someone in the mortgage dept. She believes that the market has corrected and that this will be a “year of healing”. I also found out that our annual “Parade of Homes” in Feburary will feature another large grouping of homes (20+) in the $600,000.00 - MillionPlus range. About half of the homes from last year are still for sale.
Someone bought a house in town next to my wife’s cousins last month. Home was on the market for two weeks, sold for full asking price.
My next door neighbor, an acre away, sold his house 2 weeks ago for over $400,000.00. Older, very small house with no heating or air, needs work. The couple who bought it live in Salt Lake and are going to use it as a second home.
I read an article on the front page of our paper, The Spectrum, this morning concerning declining enrollment in our local secondary schools. The assistant superintendent of secondary education Marshall Topham gave a couple of reasons for the decline. “Topham also believed that the construction industry played into the decline”. “The building boom is in hard times in this county, construction families have left the community”.
A county full of vacant homes is very bullish. Where do I sign.
Down here with your blood said Mephistophèles.
Steadykat
Not surprised to see this happening. If you have ever traded the stock market then you know all about support and resistance and dip buying. Simply put, prices have dropped so the naive are being told by “interested parties” with “hidden agendas”, like realtors and mortgage brokers and the Fed, that the bottom is in.
It isn’t.
The property market is large and not a company stock so there will be variances depending on the location. Utah is not California, etc, but the end result anywhere of support, resistance and dip buying are always the same. Just smaller or greater.
The totally naive are dip buyers. Especially in a downturn. They go on gut feeling and fake information or take advice from “financial experts” that the market has dropped far enough, so they jump in and buy, convinced they have chosen the right moment and, if the price doesn’t go up - it will at least stay where it is. Bad thinking. A very high percentage of dip buyers in a bust (as in the tech bust) get stuck because the dip is only the start of a larger decline.
Of course, with a stock you can get out. Not so easy with a house. If the price goes up, and then the price drops to where you bought on the “dip”, if you want to sell, your costs (realtors fees, points you paid, etc) will eat you alive.
Where property is concerned, the best way to judge is support and resistance and ignore dips because property isn’t liquid enough. Especially when there are large inventories.
Because of the very fast, momentum driven run-up in prices during 03, 04, 05, caused by speculator momentum buying before the decline set in, there is very little ‘Strong Support” during those years because prices just went straight up without falling back and establishing support and, of course, there was virtually NO resistance. It’s just a matter of prices breaking support or hitting resistance - falling back to support, etc.
At the moment, we could be heading into a fake and very weak support area where a few unaware people start to dip buy, convinced it’s the bottom when, in fact, it is only a dip.
Spring will either prove a bust because property will hit resistance and drop again (resistance arrived in late 05 for many overpriced areas) or a boom (if prices go up and break through 05 price resistance).
Now, if the prices drop and break through the weak/fake support (as in people buying NOW) then prices will drop below that support to the next support level which may (or may not) hold. If it does hold, prices will likely go up to what WAS PREVIOUS SUPPORT and is now resistance.
My personal opinion is, this is just the start of a serious downturn with support and resistance coming into play all the way down. I suspect prices will drop to 2001 or 2002 prices eventually. Could take 2 or 3 years or more depending on a few things including a possible recession which would REALLY be a fly in the ointment.
The other things which have to be taken into consideration are fundamentals. In the case of property, they are NOT good. Affordability is top of the list. Prices are waaaaay out of whack in comparison to earnings. Mortgages are also a bad area. The interest only sub-prime suckers might not have dried up but the funding pool (of money) is drying up VERY FAST as lenders get worried about sub-prime borrowers who have a nasty habit of walking away from their financial obligations. Also, personal debt. We have incredible personal debt problems at the moment. A lot of people are living right on the financial edge of disaster and have become credit junkies. We are a “MUST HAVE IT NOW!” society. Last and by no means least, the massive (and I mean massive) build up of unsold inventory and, worse, more inventory being added every day by builders who are fullfilling contracts signed over a year or two ago.
Not a pretty picture with far more - Repeat - FAR MORE negatives than positives.
Mike:
You’ve obviously got some experience with the stock market. I’ve got a little money in it, but nothing too much. However, I admit that I really don’t know that much about the technical aspects of investing (resistance, support, etc.). Do you (or any other investors) have any recommendations for any good reading on this topic (looking for entry-level books, not those that assume too much investor knowledge)? TIA
“Elliott Wave Principle” by Frost and Prechter. You either believe it or you don’t. I personally have made more money off the concept than anything else.
WaitinginOC
I’ve come to the conclusion that 99.9% of these guys who write books on investing, make more money out of books than they do investing and I’ve read a lot of them. If I were to be brutal, I would say, if you don’t have a lot of money, put your money into a good mutual fund.
Whatever you do, DO NOT try day trading. Something like 95% of people who attempt day trading lose their money and I should know because I tried it and lost money.
The US stock market is one of the most corrupt entities in the world. The guys who run the brokerage firms (like Bush’s treasury secretary Paulson) don’t walk off with $60 million and more in bonus payouts because they are great stock pickers. They make it thru stock manipulation and inside info.
I use charts daily and weekly, with signals that I’ve developed over the course of a decade. I tried Prechter’s Elliot Wave Principle but it didn’t work for me.
Don’t invest in single stocks. Either diversify or put your money into an ETF like the QQQQ’s or the SPY. Again, there is so much corruption in the stock market, if you just trade a single stock you’ve a good chance of being taken to the cleaners. You have to invest in safety in numbers. The QQQQ’s for instance, have 100 stocks which are weighted according to importance.
I probably shouldn’t tell you this but at 1 pm PST, there is a program where a guy called Bob Brinker gives advice. He once cost me a LOT of money with a bad call but, truth is, he’s pretty good at giving advice. Unfortunately, he’s a typical right wing Bush following ass*ole and is inclined to wave the flag a lot but if you can get past that his advice is pretty good.
That was 1 pm on saturdays and sundays.
Mike: Thanks for the advice. And, no I don’t plan on day trading. I know I will get slaughtered there. My money is in mutual funds because I don’t have the time or expertise to actively manage it. The reason I was asking about books for investing was really just becase I want to learn about some of the technical aspects of trading that people talk about (like resistance and support - I get the basic notion, but have no idea how people come up with the levels). I don’t want the information in order to actively trade; I just like acquiring knowledge and this is an area where I am weak and would like to learn more. Doubt I’d ever use the knowledge, but it’s still good to have.
Nice summary.
You are dead on correct about “support” and “resistance”….
From 2003 thru 2005 there was never a condition that would test the support for housing prices; and as you mentioned, no resistance to the rapid, speculative driven acceleration in prices.
This thing is gonna crash HARD.
It worries me. It really does.
When the dam breaks I am afraid that even the good people who worked and saved and didn’t lead a consumptive lifestyle will get washed away along with the maggot superconsumers.
A severe recession/ Greater Depression will be horrible if it visits our society at this point in history……but I am concerned that this will be the ONLY way that we can wipe the slate clean and revalue our society, our lives and even our currency.
“Also, personal debt. We have incredible personal debt problems at the moment. A lot of people are living right on the financial edge of disaster and have become credit junkies.”
Very true. I see it all around. Except, of course, in my and my wife’s budgeting. We saved 64% of our take-home last month - a new record! I guess it helps that…
We Rent!
“Apparently Stephen Church at Piscataqua of Research could use some too, as I gather from reading his report “The Consumer Crunch: December, 2006 Update.” He agrees that “The slowdown in household mortgage debt flow SHOULD lead to a recession - BUT the Federal Reserve is determined to prevent one.”
He goes on to say that things are worse than just a lousy $300 billion gone missing, as “The latest economic statistics show that consumers depended on new debt for 90% of their cash flow during 2006. In 2005, 88% of new consumer cash flow came from debt.”
And sure enough, I think that the preliminary effects of this reported $300 billion slowdown in mortgage equity withdrawal seems to be showing up, as he reports that “M-2 mortgage-related accounts have been near 0% growth on a year-over-year basis since the end of September. M-2, itself, has declined to under 5% growth on a year-over-year basis. ”
He further says that “We are experiencing a monthly cash flow pattern that implies consumer debt service levels have become too high,” which means to me that nobody has enough money to make the monthly payments on anything new, because every drop of income is being used to service the existing debt, and I am now reduced to stealing money from the employee pension fund and/or my wife’s purse.”
(The Mogambo GURU sums it up nicely.)
If I get caught at this blatant theft, then I hope I get the same punishment as Franklin Raines and those other guys at Fannie Mae, who are merely being asked to give back part of the bonus money they arranged to “earn” by being so corrupt that Fannie Mae’s books are in such undecipherable disarray that they should, by the rules of the NYSE, be de-listed, but are allowed an exception to the rules because Fannie Mae is so freaking huge that it is, literally, “too big to fail.” (ENRON NUMBER II)
I trade stocks as well, so I fully understand your analysis of support and resistance; however, from my observations of the housing market, there really is no resistance only buyer exhaustion. I tend to see two levels of support: the price level where rents equal mortgage payments, and the price level where rents provide a positive cashflow and support a return on investment. The reason I don’t believe there is any resistance is because home sellers do not tend to be motivated by profit targets or getting out at breakeven. The reason I believe true support only rests at the price points I describe above is because there are no other points where the math is apparent to all market participants. At higher price levels you need to price in appreciation and growth which is purely a guessing game. Market participants have different estimates and therefore they do not coalesce around any particular number which would be required for significant support.
Just my opinion.
irvinerenter
Isn’t exhaustion the same or very similar to resistance? In stocks, buyers decide that prices are too high. Mo-mo has fizzled out. That sound like exhaustion
I also trade stocks and I agree with Irvinerenter. I see the same two levels he’s seeing and I don’t see any correlation to stocks. Also, with a house, there is no such thing as an automatic stop. You might want to sell your house when you are 10% underwater, but you have to find a buyer.
Regarding resistance…how about “affordability” even with the most toxic mortgages.
One of the reasons I’m 100% convinced housing prices were affected by the credit bubble is because we see resistance across the nation, at about the same price levels. Before the bubble, you’d see premium prices for certain locations (San Diego was more expensive than Phoenix, for instance); however, the bubble seems to have flattened out the differences because prices were rising based on what kinds of mortgages people could “qualify” for.
Looks to me like there is general resistance at the $500K-$600K levels. Those areas which hit this price point first (like San Diego) slowed down the earliest — right at this price point.
Lo and behold, when prices in other areas hit the $500K-$600K range, their markets stopped appreciating as well.
Anyway, just a thought…
I agree with you on the support levels/where the market can bottom out. The problem is that with the boom-driven oversupply of housing, rents are likely to come down.
Excellent post re market behavior. I’m a landlord in mid-Wilshire waiting for an opportunity to purchase more apartment buildings (been waiting awhile, and expect to wait a couple more years), but this market has defied all TRADITIONAL approaches to real estate investment. It’s been all about appreciation, appreciation, ad nauseum. Not until recently have the MSM started talking about that other thing that should make real estate worth investing in, but has been completely non-existent for the past couple years which is positive cash-flow. What the hell is the point buying a condo, a duplex, three-plex or larger multifamily complex if your cap rate (in short, the return on investment) is 2-3% under the best conditions. And believe me, the best conditions never stay that way for long even if you manage your properties yourself: evictions, housing inspection issues, increased water/sewage fees, tenant issues, etc…the list goes on and on, and if you have an outside property management company, then wow, you must really like putting KY jelly where the sun don’t shine. Compare that with putting that money into a 6-month CD (that in this reverse polarity market is paying the highest return) and earning anywhere between 4.5 to 5% with none of the above concerns.
The real, long-term real estate investor has been biding his or her time, taking care of their positive cash-flow cows, and saving a good part of their incomes to pick up properties that overweening amateurs had no business acquiring in the first place.
I totally agree. These investors will be the ones who call the bottom.
It’s been all about appreciation, appreciation, ad nauseum.
Sounds like the stock market.
It’s momentum. Pure and simple. a few start buying, the ball starts rolling, more people jump in, the ball rolls faster, people think they are missing out on the “opportunity of a lifetime” and start jumping in feet first. The ball has really gained momentum by now and suddenly the Joe Sixpacks start diving into the momentum pool because he figures he can retire in five years with his profits. As usual, the smart money got in early and the naive got in too late. Then, suddenly, people start looking at each other with expressions which say, “Somethings wrong here.” That happened, or started to happen, around the third or fourth quarter of 05. Now the Mexican stand off begins. The smart money starts getting out - fast. Selling below average because they have plenty of margin. Joe Sixpack however, is unsure and confused but the clowns on CNBC and other money programs parade all the shills out, like David Learah, to convince Joe Sixpack that this is just a pause before the real rally, “And prices can only go up.”
Everyone needs to get one simple fact under their belt. NOT ONE OF THESE BOOMS HAS ENDED WELL IN HUNDREDS OF YEARS. Some who got in were lucky. I knew a guy in the tech boom who made millions investing in WCOM and JDSU and FLEX and INTC a few others and then he got out. However, here’s the clincher, he didn’t get out because he was smart. He got out because he figured he had made enough to last him (at age 40) for the rest of his life. He cashed in his chips and went to live in Thailand. It’s almost 100% certain that had he stayed in the tech boom, he would have eventually gone bust.
The truth is clean, but it’s unsentimentally hard. To the nonbelievers, it’s about as painful as holy water splattered on denizens from the underworld. Unfortunately, many of these neophyte landlords I occasionally come across have never experienced a downturn, like, say after the riots in the early 90’s. If they survived that time (and many landlords did not), then they will be able the endure what is to come, but I doubt most of them will or can. They have no idea what is about to come.
Mike, did you get your TA from the back of Cheerios box?
Heck, in California there are hundreds of thousands of people making in the $50k range who have bought $500k+ houses. The Arizona numbers seem trifling in comparison.
Of course the reality is that they’ll all get slaughtered in the end.
“And Murphy’s research found that 44 percent of those homes for sale are vacant, likely because they’re investor-owned.”
That is an incredible number. A ten percent vacancy rate in the rental industry is a bear market for landlords - falling rents.
Every time I think I’ve seen it all I click on this website and am even more shocked than I was yesterday. And to think this is just a “brief, normal, corrective phase.” My arse.
“Every time I think I’ve seen it all I click on this website and am even more shocked than I was yesterday. And to think this is just a “brief, normal, corrective phase.” My arse. ”
My thoughts exactly. In addition, I had the exact same feelings during the dot com bubble 7 years ago. I am sorry but there are red flags going up all over the place with these stories and history will repeat again.
Count me in as well. The red flags are huge and I guess people are just choosing to ignore them. Ben has found some really amazing articles the past couple of months, and yes, they do seem to get more bizarre with each passing day. 44% vacancy! I had to email that one off to my buddy because it is staggering. Sub-prime lenders falling left and right, builders buying out Mello Roos assessments, johnny-come-lately “investors” with 28 single family properties operating at negative cash flow, Casey Serin, etc. How this all adds up to a soft landing is beyond me. I add it all up and see market devastation.
I am really surprised by the staying power of these investors. I would have thought they would be burning the furniture for heat right now. I suppose the loose lending has enabled this through refi’s. But at a certain point, we have just got to see these coming through the foreclosure pipeline. I know the foreclosure numbers are up, but when you have 44% of homes for sale which are vacant, how are these people feeding their alligators? This is just mind blowing.
$100K cash back at closing lasts a couple of years
I am still trying to understand how a vacancy rate is calculated. Suppose I have two houses, and I occupy each of them seasonally but never simultaneously. Is either of them counted as “vacant”? Does one of them suddenly become “vacant” if I put it on the market? Is “vacant” a synonym for “unfurnished”? (In the last case, a certain number of McMansions in suburban Phila could be counted as “vacant” even though people are living in them. Can’t afford furniture.)
Affordable is 3-4X income, dep. on where you live. Affordable is a 30-year, 6% fixed with 20% down, although 15-year, 6% fixed with more down would be a great way to go. At 6% fixed, you pay $600/month on the loan and interest. Not overly bad, if the house is 150K and you pyt 33% down. However, if these jackholes are going to build even worse crap because they can’t afford to sell at these prices, good luck. All of us here better go very long on Home Depot and Lowes because a lot fools are going to need a lot of home repair. How sad that in just 5-10 short years, builders can no longer build quality homes for 150K, or to go a little higher, 200K. These guys are incredible!
Dan - Not to quibble, but some nutty professor at UT Austin did a study on affordability and came up with a stunning number. Basically, the household income multiple at which the likelihood of financial trouble - foreclosure, bankruptcy, etc. - drops like a stone on a linear graph is 2.52.
Yes, all you REIC types reading this read that right. 2.52 times household income is the ultimate affordability gauge.
I bought a 150K 2723 sqft house in 2003 financed at 5% interest on a 15 year loan, and I pay an extra 100+ into capital each month (I hate paying interest … even so I’d be paying 225K for the freaking thing) … and that year I cleared 84K. I hate debt, I hate having a Damocles sword over my head … never had to get into debt since 98 (when the almost paid off truck was rolled by the wife) … ever since then all cash all the time …
Turned out to be perfect … I got laid off along with 8500 others in Charlotte NC in winter 04 and I spent the next 8 months marginally employed at best. Didnt come close to missing a payment touch wood cos it was low enough that unemployment covered it.
2.52 is high IMHO, I’d put it under 2, 5% and 15 years are also too much, if there was a 0% 1 year loan I’d have tried that :-))
Cool.
Cow_tipping
Even before I went through the steep learning curve of this blog, 2.5 times income was perfect in my mind. More makes me jittery.
So you’re saying all that imploder can currently afford is a “pup tent”…
I was thinking about a treehouse for myself and my dog…
Or, he can keep on renting…
People have got to learn how to prioritize their finances and decide how much they can spend on housing and not get themselves into a bind. A ratio of 1 to 2 or 2.5 would be just simply fantastic, but it would all depend on the household’s spending habits. My mother was a seamstress making $30K a year (including overtime) and bought a home in inner-city Los Angeles for $145K during the early nineties (with a 20% down saved over six years). That’s a ratio of 1 to 4.3 - seems high, but she was able to raise a family of six kids and an unemployed father in that house with that income through the 90s. We did not receive any other financial assistance at the time. (My father, after immigrating to the US became a lifetime university student.) And we didn’t starve, and we had shoes to wear. Not the greatest, but they lace up. Point is, the house was relatively expensive, but it was still the right move for my family, since my parents knew how to manage their money. Now, the kids are doing great, and the house is almost paid off - and the home is valued at 400k (for now).
…since my parents knew how to manage their money.
———————-
This, I believe, is the key to your mother’s success. From my perspective, it seems many immigrants (generalizing here, but bear with me) are **much** better at handling their money than their U.S.-born counterparts.
It does seem to be cultural, though. Certain cultures, probably because they’ve lived through harder times, are better at saving than others. Some cultures are even worse than Americans.
I bought a 150K 2723 sqft house in 2003 Thats roughly $55 per sqft. Are you sure you didn’t mean 1973?
he did good.
Bought in 2003, very well built/custom home, good sized lot, $66 sq/ft. Still owe $43 a sq/ft on it though. Give it 9 years…
Somehow that number, 2.5X income, sounds a little low to me. Even back 30 years ago people used to stretch a little to get the home they wanted, 3X-4X income, but that was always a contract on a fixed mortgage. When you were young you expected your income to grow and inflation to eat away at the payment so in a few years the stretched payment would become more managable.
Of course no one back in those days would have dreamed of taking the risks today’s borrowers jump at the chance to sign up for — 8X dual income isn’t unusual and that’s for Int-Only on an ARM which has no inflation protection. Totally insane.
In CA, we pine for the “good ‘ole” days of 8X HH income. Try more like 10-12X.
If you don’t have kids, you can probably afford a good deal more, especially in Los Angeles where if you actually care about your offspring you put them in expensive private school. The wife and I are waiting to find something around 4x income (i.e., 500K)–good god, the prices can’t come down soon enough on the West side.
Again, we have to consider an individuals income bracket and lifestyle, etc. before determining affordability. If someone is making $40k per year and has two children, a $120k house may be too much. If someone is earning $300k per year with no children and is thrifty beyond words, then they could probably go 5 or 6 times their income easy. With higher incomes, come higher levels of discretionary funds which can be put towards houses, etc.
2.52 seems logical to me. If you wan’t to contribute 15% to retirement, fund 529 plans, have a life, and not have debt up to your eyeballs.
You’re kidding, right? http://www.efficientfrontier.com/ef/103/hell4.htm
HARM, That Bernstein read is quite good. I like the summary - “If you want to retire early, what matters is not how much you save, but how much more than everyone else you save”
He’s probably right. Luckily, almost no one saves enough, so hopefully they’ll all be working to support MY retirement. Assuming I have one and Medicare & SS are still solvent….
I have saved more than $1. That puts me ahead of most of my cohorts.
This is the predicament I find myself in. I try to enjoy life within reason, am not a spendthrift, put money into my IRA and savings each month, etc. Add in all the other little bills and there is no way in hell we can afford a home despite a six figure gross.
In order for people in CA and many other locales, to buy a home they must be living the life portrayed in HARM’s link. That means enjoying life by spending every single penny on a mortgage. Retirement fund? College fund? Emergency savings? No way. This is a house of cards just begging to be knocked down.
yes, I would not personally go over 2X income - ever. This means NOBODY has any business in a 300,000 unless they are in the upper 5% or so of HH income. Now how many homes are over 300? Like 80% or something? Wow, everyone is truly fvcked….
When I see 9 X I fall off my chair!
Yes, all you REIC types reading this read that right. 2.52 times household income is the ultimate affordability gauge.
—————————
I definitely agree with you on this, DC Too.
What happened to the affordabilty rule of 2.5-3 x income, 30y/20%/fixed? Actually, more like just 2.5x now, since the 3x upside was made up when taxes were lower than they are now, and when med expenses were not so high.
Not to quibble with any of you. My theory is less debt, BETTER! ou all know me well enough, by now. I was just using some numbers where you will always pay a little more for living there. Heck, 3X income is 33% on housing, which is a lot. If you earn 3,600/month, that would be 1200/month on housing, which is a 200K mortgage, still a large hunk of change.
I am with you. I have almost no debt (I have 9 payments left on a zero percent interest car loan). I have no credit cards. I am not paying any interest to anyone (maybe indirectly through rent). I don’t have any friends who can make the same claim; in fact, even excluding mortgage interest, I don’t know anyone with no debt.
I had someone tell me the other day that I might be facing higher interest rates when I finally decide to buy a home because I don’t have and use a credit card. Does anyone know if that is true?
It’s possible. I have no idea what makes up the algorithms credit reporting agencies use to arrive at credit scores but paying debts on time and amount of credit afforded are buried in there somewhere…
It’s sort of true; there is a certain amount of “ramp-up” time to establish credit, regardless of assets or income. Credit reporting agencies don’t like it when people materialize out of nowhere and suddenly want credit, after years of zero transactions. But this is easy, even trivial, to get around if you have even 1 credit card. Just pay for everything with the card instead of cash, and pay off the card every month. Given the vast array of rewards cards and the inherent protections of a credit card, it’s crazy not to use one, as long as you can actually pay it off every month.
Moreover, showing a certain “velocity” of money can actually improve your score a bit, since it shows that you know how to manage your cash flow, even if it doesn’t reduce your overall debt. Carrying a $5k balance on a single card for 12 months doesn’t look as good as carrying that balance on 1 card for 6 months and then transferring it to a new card, even though the amount of debt is the same. The transfer will be recorded as a “paid in full” event.
Thank you for your replies.
I have such an aversion to using credit cards, and once the check card was invented, I saw even less need for one. I may have to break down and get one if it is going to save me a bit on a mortgage rate. It feels like there is something wrong with the system when I can show years of bank records with no bounced checks and no late utility payments, etc., and I am treated like a credit risk.
You don’t need to carry balances on your credit card to build up a good credit record. Just buy things with a credit card (things you would have bought anyway) and pay off the full balance every month.
or just pull a report with your score. In the mid 700’s? don’t worry about it.
make sure to get a card that gives cash back. you can even MAKE MONEY using your credit card if you pay the balance off every month. I get a 1% discount from Discover for each purchase.
I get a 1% discount from Discover for each purchase. discover has no grace for purchases. Not worth it.
Debit card vs Credit card
I’ve got to disagree with that. I will *not* use a debit card for any reason. I charge EVERYTHING on my Visa…..pay it off every month…..and invest the float. There’s nothing like using the bank’s money AND making a profit while doing it…..great feeling.
Exactly right. Live the month interest free on Visa’s dime. Even if you pay the balance every month as I do the month-end amount shows up as the CC balance, at least that’s the way it appears on my credit report…
Last month bank sent me cash advance checks to lure me into putting a balance on my “0″ balance card. I paid my rent with one of the checks, timing the payment so the money wouldn’t appear on a statement til the billing cycle after next.
Naturally, intending to pay in full when it does come due.
But I hadn’t thought about just charging all my purchases on CC rather than using debit card, as I have been doing.
Tx, Dan and AZ_BP you guys are smart.
(But I would probably pay late, even if in full, and that would defeat the purpose.)
There’s nothing like using the bank’s money AND making a profit while doing it
Actually, the price of whatever you buy, is marked up to cover the bank’s cost. The bank charges it to the merchant, and the merchant jacks up the price to cover it.
In that way, if you pay cash, you are overpaying, unless there is a cash discount.
I know, it sucks - but that’s how it is. Unless there is a discount for paying with cash, you lose by paying in cash.
And in case you wonder why there is no discount for cash payment, the answer is simple and obvious - the credit industry got a law passed that makes it illegal to add a surcharge to credit card purchases alone. So everyone pays the surcharge. The Fed law expired in 1984, but CA, CO, CT, FL, KS, MA, ME, NY, OK, and TX have state laws in vogue.
It is legal to give a discount to cash purchases, but who wants to give up free profit ? ( the words discount and surcharge are w.r.t posted price)
http://www.creditinfocenter.com/cards/crcd_buy.shtml#Question6
“Last month bank sent me cash advance checks to lure me into putting a balance on my “0″ balance card. I paid my rent with one of the checks, timing the payment so the money wouldn’t appear on a statement til the billing cycle after next.”
That’s an EXCELLENT idea. I’ll make sure to do that next time, and rack up a bunch of mileage points to boot.
Get a sponsored card, and while you are paying all your bills on the Visa and establishing credit, earn airline or cruise line or hotel points or some other freebie.
I get a 1% discount from Discover for each purchase. discover has no grace for purchases. Not worth it.
This is extremely false. I have had a Discover card since 1999, and I use it and pay it off every month. I have never paid a nickel of interest. It has the same one-month grace period as any other credit card.
cash advances, including those checks, start tracking interest the second they are used- no monthly grace period. In addition to which there is often a ’service charge’ tacked on to any such transaction.
Comment by ronin
2007-01-11 04:11:31
cash advances, including those checks, start tracking interest the second they are used- no monthly grace period. In addition to which there is often a ’service charge’ tacked on to any such transaction
…the fly in the ointment!
I’m usually not compulsive when it comes to math and numbers, but if the interest and service charges linked to chex is less than the interest that my savings accrue, i’m still going to use the chex.
I hate CCs…only Comcast (the evil empire) is worse.
Be very careful with those checks the credit card companies sent out. I used one as a float and got a 3% charge on the amount of the check! Why? Well, in the small print on one of their notification mailers (not the check themselves but a separate mailing from the check) they tell you about the 3% fee. Personally, I probably could have taken it to court but for $25 who’s going to bother?
Also, last time I called I was told there was a $10 fee to pay by (automated) phone! Now I mail the bills in. Money grubbing a-holes. This is Chase BTW. I have been extremely unhappy with them and if you have a choice do not use them. So why do I? Easy - the 140,000 airline miles I lose if I cancel the card. Will use up most next year (hopefully) in a trip to New Zealand to visit a friend. But if I didn’t have that I would have cancelled long ago.
Well in addition to taxes and h/c costs, I think too you have all the frivolous consumer items that people “need.” With two car payments, credit cards, plasma tv’s, dining out, all the latest toys, children, … I think it will easily need to be in the 2x range. The thing that sucks is that these people don’t really seem any happier. But it’s all they know. I read that the 25-34 year old age group has a negative savings rate of 16%. NEGATIVE.
We personally can live in the 4x range, although that will decrease to 2-3x this year as income increases (we took a few months off last summer and relocated). But we also have one car (paid off), rarely eat out, and spend time doing cheap activities, like volunteering, outdoor activities (and not without all the pricey gear), library, the occasional matinee, or college theatre.
If my age group has an average savings rate of NEGATIVE 16%, there must be some of them digging extra-deep holes, because I have a savings rate of… holy cow, 28%. Most of that is 401k/post-tax “you never see it, you can’t touch it without going through hella lotta trouble.” That’s the only way to go if you’re young and, in the not too distant past, a spendthrift.
For anyone saying that we have hit bottom in CA, I refer you to exhibit A.
Look what a cool $1M will buy you in a marginal Westside neighborhood of LA….
http://www.georgechungrealtors.com/Listings/2137%20glencoe.htm
Is that a fvcking joke? Very funny.
“THE SECOND UNIT HAS BEEN BUILT AFTER 1980 (BUYER TO INVESTIGATE).”
Translation: Bootleg second unit
You spelled it wrong, the following was on the web page:
> (BUYER TO ININVESTIGATE)
The agent’s attention to detail is on display!
Check out the other listings on his web site. F@@king joke is right!
Yeah, try this one out:
http://www.georgechungrealtors.com/Listings/9001%20Avalon.htm
That’s right. 14 MILLION DOLLARS!!!
oh come on, you can’t blame a guy for trying…
9001 Avalon. Sweet. About 1 mile from the corner of Florence and Normandie, were the LA Riots started. Remember, where the trucker got pulled from his truck….
Nothing kills the California Dreamin’ more than Georeg Chung. I think nothing has value anymore. Hard work? No. Honesty? No. Has the borrower forgotten they are slave to the lender?
Unf-ingbelievable, they are the master turd polishers out in California. Some of his listing look like squatters huts.
George Chung is “Mr Mar Vista” He’s been selling for like 50 years and his photo is 20 years out of date. I know a couple of people who bought from him early in this run up. LMAO
Oh my god, my wife and I have BEEN in this house!
This place was on the market about six-twelve months ago. George Chung himself was there at a Sunday open house. We were wrinkling our noses at the place (it smelled of old person) and Chung asked us what we thought it needed in terms of renovation to get us into it. Without missing a beat, I told him, “Well, I would level this place past the foundation, salt the earth, and move on.” He wasn’t too happy that I said that in front of a group of GFs.
I know someone who got some of his renovations…. bubble gum and bondo
Geez. Cheap shoddy construction, living in boxes that are marketed as “homes.” It makes me cringe to imagine myself living in that trash. And to pay $7,000 per month payments! I’m glad I’m renting. When I go back to Los Angeles on another software engineering contract, I know exactly where I will be living. There is a luxury apartment I rented for 3 years a mile and a half from the beach and kind of like an oasis amidst houses/condos that sell for 2 and a half times what they should sell for.
imploder, Mar Vista is one of the reasons I’m leaving LA. When houses there sell for 900K, a mill, it is absolutely time to leave. It’s as if the people who set the prices at consession stands in movie theaters have been allowed to set house prices. 5 bucks for a coke, sure, 900K for a POS in Mar Vista.
Faux wood panelling AND a stone fireplace half-wall in the middle of one room. As Napoleon Dynamite would say, “Sweet!” LOL
LOL.
What a dump. No garage. Rent all the rooms out and set tents up in the front yard for extra income!
Makes me long for Most Overvalued site. This PoS will sell for what it’s worth in 2008 - $120K.
You may be overly optimistic (2008=$120K), but a prediction like yours adds the right dimension to the “affordability” question. Personally I could “afford” many hundreds of thousands if I thought my “investment” were safe, but obviously it wouldn’t be. It’s the probable depreciation of all these POSs (PsOS?) that should be self-perpetuating once it becomes truly apparent.
AZ_Lender, it’s getting late on this thread ( and a good one at that), but I gotta ask, what the hell ever happened to value? I, too, could afford (really afford) a house in my neck of the woods substantially more expensive than the median (currently about 460K, down 12% or so). But what do I get for my money? A modest row house, built for and occupied by working class people, until about 4 years ago? WTF? 1,000 square feet, with a simple front porch, on which I am greeted by wino panhandlers, that sells for 350 times a month’s rent?
Goodness Gracious and little fishes, as my Grandmother used to say. No, thank you.
…appreciate the grammatical correction. Perhaps we should all take note.
Oh no, this is 100% real. And they think that the interests rates are to blame for the downturn (which I still attest has not yet even started on the Westside of LA except for slightly rising inventory levels).
My favorite point is that if you read the listing closely, they are calling this unit a duplex because the “GARAGE HAS BEEN CONVERTED INTO A STUDIO WITH BATHROOM W/O PERMIT ( THIS GARAGE CAN BE USED AS AN EXTRA UNIT)”. LOL!!!
My goodness the main house is a box. Nice sloped front yard for some miniature golf, since the kids won’t have enough room for catch with mom/dad or fetch with the dog. Some jackhole will buy, nevertheless, keeping the CA market out of whack for yet another day!
Just a side note here concerning realtors claims about people who retire wanting to buy 3000 and 4000 sq ft. McMansions. We keep hearing from places like Florida and Arizona and Vegas that retirees will come and buy these bigger houses. Wrong, and the location is of no consequence.
Here’s the answer which I posed to several of my quite well off, retired or getting ready to retire, middle class friends. 99%, including myself and my wife, have NO interest in McMansions. Zip. Zero. Nada. I’m retired (several years) and I certainly do not want to spend my remaining years maintaining a McMansion.
Additionaly, I don’t want a house cleaner (I hate the word maid) arriving every week and disturbing me. Been there - done that when I was working. Added to that I don’t want to pay the taxes on a McMansion. Added to that I don’t want to pay the insurance on a McMansion. Added to that I don’t want to pay for a gardener. Added to that I don’t want to pay the heating or air conditioning on a McMansion. 1,500 sq. ft. is plenty. Personally, I prefer a house because condo living is a pain in the a**. If anyone wants me to list those pains I would be happy to oblige but they are numerous. Bottom line is, most people who retire are not interested in McMansions. End of story.
Amen, as a single male in my 40’s I had enough of cleaning a 2 story and extra rooms that I only went into when I cleaned them. Only family’s with kids need that much space.
And those families better have major cash too!
Nearly without exception, people move to SMALLER places after they retire. Lower property taxes, lower utility bills, less maintenance. My folks’ current house is about a quarter to a fifth the square footage of what they raised two sisters and me in, and they are typical.
We must be twins. I agree wholeheartedly!
What are you guys talking about??? In my neighborhood of “McMansions”, most buyers are retired. The others are generally professionals with school age children. Now granted, since I live in TX, most of these retirees are from out of state and paying cash for these houses. Their proceeds from selling modest homes in IL, CA, etc. pay for these homes completely. I think I am in the minority actually having a mortgage.
They will be facing shock ‘n awe from property taxes and the summer heat.
Yep I am that guy from Cal, but I decided to look at the property tax before I signed and I said “Oh Sh$T”!!!
If they bought after selling in California, they might have been caught up in “shock and awe” situation. A case of “Look, honey! We can buy a McMansion in Texas with less than a quarter of that $700,000 we got for our condo sh*tbox in Los Angeles! In fact, we can buy 3 or even 4 McMansions!”
The novelty will probably wear off. My post only applied to retired people. If you are a professional with kids (been there - done that) or you have to entertain (been there - done that and don’t have to do it anymore thank God) then that’s okay but once most people hit retirement, taking care of property ain’t on the top of their priority list.
There are many seniors in their 70s and 80s living alone in their 2500 SF McMansion out here in the Antelope Valley. I personally know of one who does not even go upstairs.
Actually I think the tax code is responsible for this. You can live in a house for two years then sell it and keep the profits tax free. You can do this over and over again (as of now). For those who sold houses for cash in California, they rolled the money into another house so they could make some more tax free profit. I doubt very seriously that a lot of them thought they would be stuck with these McMansions further on down the road.
The reason old people live in McMansions in California and Florida is because of Prop 13 and “Save Our Homes.” If you bought the house years ago, you have a very low, locked-in property tax rate. It makes no sense to sell to move somewhere smaller because the taxes will eat you alive. Our next door neighbor is one of those. She is paying $500 a year on a house that was appraised at over $1,000,000.
The reason old people live in McMansions in California and Florida is because of Prop 13 and “Save Our Homes.”
————————————-
Nope. The real reason older people stay in their homes is because **these are THEIR homes**. Most of them have family & friends in the area, and are very comfortable living in their established communities.
Prop 13 is the BEST thing that happened to CA prop taxes. Buyers **choose** to pay the high taxes because they **choose** to buy at high prices. If buyers didn’t buy because the prop taxes were too high, the home prices would drop until the taxes were reasonable again. Long-time residents should not have speculators and newbies coming in and determining what their property taxes should be. CA is a very volatile market, and needed stability WRT prop taxes.
BTW, I’m young-ish and a renter, but can see beyond my own needs to determine what makes sense or not. I do not believe anyone has to move out so that I can move in. Their place, their right to live there. If I don’t like it, I can leave.
“Under certain conditions, persons aged 55 and older, or severely disabled persons of any age may transfer the Proposition 13 factored base year value of their principal residence to a residence acquired or built as its replacement (ref. Prop 60 & Prop 90, R&T 69.5).”
http://www.assessor.saccounty.net/general-information/prop13/prop13-base-year.html
Mike, I agree on every point you make.
‘There were a lot of second-home purchases for investment purposes. With weak demand fundamentals going forward, we expect the correction in the housing market will continue to progress.’”
“weak demand fundamentals” means there’s nobody left to sell them to. So much for “investment purposes”….
Oh and the builder you bought that extra house from? He just lowered the price by 75k to make sure who ever is left BUYS FROM HIM.
‘Las Vegas was one of the most frothy markets in (in 2004 and 2005), and a lot of that price appreciation was due to speculation,’
Turns out that not only Florida’s market runup was largely driven by speculation, but Las Vegas’ as well? What a bizarre coincidence!
Great, now you tell me. I thought it was because Vegas was special, and everyone wants to live there, and they’re not making any more land.
Vegas, I don’t believe it. Next you’ll tell me Pheonix and Southern California price rises were do to speculators.
(sarcasm off)
I cannot believe how many investment homes there are in the $1.5M to $4.0M range! Twelve new homes under construction in a very desirable south bay location. (Ocean views, good schools, etc.) Eleven remain unsold. The roofs are on. Half have drywall…
This could be interesting…
Got popcorn?
Neil
My Pop, who earned a BS degree in business and never made
more than $30K - $40K his whole life, bought our home for
about 75K. With a family, cars, groceries, taxes, Christmas,
lawn mowers, taxes, college, vacations to dirty beaches and
cheap hotels, taxes, and clothing he barely made it.
Now, aside from the time he lived in, there is nothing different
about the dollars he earned and the relative affordability those
dollars gave him. It ain’t rocket science; and any economist that
says otherwise is guilty of muddying the issue in order to keep his
job.
So, I honestly believe that for a nice, charming couple in their early
twenties who would like to start out in life in the Phoenix area;
and who are almost guaranteed to earn less than $50K their
entire lives, I’d say that 85K is about all they can afford.
The builders can afford to build for this amount and less. The
reason they don’t or won’t is because they’ve got McMansions to
pay for themselves. So, in my opinion, the whole McMansion-
Generation-Greed crowd needs to take a flying rest, and needs to
shut their mouths about what the working poor in Phoenix can
afford.
Amen brother! The reason we have to sit and wait on the sidelines is because the Toll brothers want a 16K sq. ft. mansion with maids and cleaners and gardeners. It is the whole I have to keep moving up the ladder mentality. Who will pay for that existence. Well, those fools who buy Toll McMansions for 1 million with only 100K salaries, that’s who, for starters. If everyone would just live within their means, a lot of this mess would be cleaned up in a hurry. Of course, what the FED does is another problem, but if we, as families and individuals, just paid cash or paid off the CCs in FULL EACH MONTH, a lot of this supersize mentality would disappear. However, with creadit still available to some of these nutsos, it will take awhile longer. BE patient!
It’s pretty shocking that the current real estate professionals and mortgage lenders would take that same young couple you speak of and put them into a 250K property instead of a 85k loan . The behavior of the REIC in recent years is so shocking to me regarding the disregard for these borrowers lives . I’m sure the young people looked at these professionals as mentors but they turned out to be snakes .
Who was it yesterday that said it would take a couple weeks to hit 50K in inventory in Phoenix? Sorry, your prediction missed the mark. Take a look at the MLS and you’ll see you’ve hit the 50K, and now it’s “straight to the moon”.
“straight to the moon”
You forgot to add “Alice” as in “Straight to the moon, Alice” (While winding fist clenched arm)
Nice to have a little stock ready for the spring bounce…..hehehe
I just checked Zip Reality and you are right. 50,075 and counting. I said yesterday that it would take until next week to break 50K. I guess I was wrong about that. Does anyone want to guess how long it will take to reach 60K? I predict before the end of January.
Yikes….. now you’re going all in. I’ll say April.
Sounds optimistic (or pessimistic, depending on your point of view). By the end of January we could surpass the peak of 54,000 and change hit in mid November , though. Looks like about +300 houses per day over the last week or so.
75k by June!!!
Hey Crispy,
“75k by June!!!”
Is that inventory or selling price………
rotfl
The question is, will we see 100k in 2007?
I predict we will by June 2008… but will Pheonix do it this calander year?
Got popcorn?
Neil
I think the Realtors will play with the MLS numbers before that happens. I checked one zip yesterday and it had 548 listed, then today it had 429 listed. That is some fishy drop.
Possibly… but maybe they’ll be in too much shock to stop the count. Zip hasn’t exactly played by their rules…
Neil
“Pollack said that for every 10,000 houses built, 15,000 direct and 17,000 indirect jobs are created. ”
Ratio of 2.2 jobs/house. At peak housing starts were 2.1 million, historical lows after past bubbles have been 0.9 million starts for a delta of 1.2 million. When I do that math I come up with 2.64 million jobs lost, peak to valley. Ouch.
Great! We can just keep building houses until the entire country is covered under one big roof. Then we can start over by tearing down the “older” stuff and build anew. Great cycle. Is this what the once proud American manufacturing/industrial economic complex/power that got us through WWII is now only capable of. If so, we are royally screwed!
- “Ratio of 2.2 jobs/house. ”
Would that not be 3.2?
OOOOPS!
New jobs loss figure, let’s see… carry the 1….
3.84 million.
More food for bears……………..
http://www.forbes.com/guruinsights/2007/01/10/recession-commodities-housing-pf-guru-in_gs_0110soapbox_inl.html
But with deflation and the resulting drop in commodities (lumber, oil, and copper), gold should plummet too, especially as the USD strengthens as is proposed.
It is difficult to know what to make out of sometimes conflicting signs. All I know for sure is the housing market is toast, despite what the NAR or CAR want to admit to, and that a recession or depression is “in the bag.” Oil, gold, and other commodities may also take a big hit as global liquidity takes a hit from a collapsing housing market. In other words, there are just too many fools with too much (borrowed) money running around the world these days.
This is what I have been saying for months. Deflation is everywhere. I held Gold and Silver for 5 years but this is not an inflationary environment anymore. Deflation will be tough for metals and a lot of other areas. I would get out of them. Actually, if you are looking to buy real estate with your cash, holding cash may not be a bad idea because real estate is dropping,giving cash more buying power. And who has cash????
Not many people.
JMHO. And I could be wrong BIG TIME.
Gary Shilling has been predicting approximately the same thing for about three years. He is right on housing, but has been ahead of the curve for a long time. Based on your post today, I am not selling foreign currency holdings just yet.
From the WSJ. Half of these places were totally new names to me.
Twelve Tempting Locations
For Vacation-Home Buys
By Lauren Baier Kim
The recent softening in the U.S. real-estate market after years of double-digit percentage growth in home prices may make it scarier than ever to buy a vacation home.
Some regions are scary because, even with the recent dip, they seem prohibitively expensive. Elsewhere, buyers may have understandable fears that places that seem affordable will only become more so as prices continue to fall.
The editors at RealEstateJournal.com set out to identify potential vacation-home deals that would assuage the most nervous Nellies. We looked for appealing locales across the U.S. where prices rose at a rate well below the national average of 84.3% between the second quarter of 1996 and the second quarter of 2006, and have above-average employment outlooks according to data from Economy.com.
After working with Mike Sklarz, head of global research at New City Corp., a real-estate merchant banking and investment management firm based in Tokyo, to crunch the numbers, RealEstateJournal then investigated the areas further, looking at things like the availability and selection of vacation residences, and proximity to recreational and cultural offerings.
Here’s our list of 12 tempting locales:
Bath/Beaufort County, N.C.
Blairsville, Ga.
Clarksville, Va.
Cloudcroft, N.M.
Dadeville, Ala.
Driggs, Idaho
Eureka Springs, Ark.
Heber City, Utah
Helen, Ga.
Jemez Springs, N.M.
South Padre Island, Texas
Steamboat Springs, Colo.
See snapshots of these areas, including details like vacation-home prices, local attractions, the rental market, data on past housing prices and projected employment growth.
Read how RealEstateJournal and Mr. Sklarz came up with the list in the methodology.
Also this week, June Fletcher will take a look at what community and home factors to consider when making a vacation-home purchase, Jane Hodges will share three money-saving ways to get into a vacation property, Lauren Baier Kim will look at high-altitude mountain retreats and Sheree Curry will profile a couple who sold their Vermont ski and summer retreat at the full asking price.
http://www.realestatejournal.com/buysell/regionalnews/20061109-kim.html
Twelve new bubbles for the specuvestors to inflate.
Rather than trying to buy a vacation home out in BFE, why not just wait for the coming implosion and buy at a discount in a location you actually want to visit? What is the obssession with second homes? I sincerely doubt they are worth the time, money, and headaches. Personally I can’t imagine the idea of going to the same place year after year after year. I think people here have shown how one is better off financially by just taking a regular vacation in a decent hotel. When you leave someone else cleans up the mess, and next year you are free to check out some place new!
I totally agree. My wife was trying to talk me in to a second home in Las Vegas. I told her that we could go stay at the Bellagio once a month and still come out ahead of trying to maintain a second home there.
“Rather than trying to buy a vacation home out in BFE, why not just wait for the coming implosion and buy at a discount in a location you actually want to visit?”
And the same goes for buying a house in general. At this point in time, why not quit looking for the bargain cities or towns? When all is said and done, one will be able to buy the home of their choice in the place they really want to be.
I prefer spending one week at my Hawaii timeshare ($12,000 total cost, $300 annual dues) than to have a $300,000 (and up) vacation home that sits vacant 50 weeks out of the year.
Jemez Springs, NM - as a vacation destination? Now that’s really funny.
Don’t know about Cloudcroft, NM. Maybe misstrial can shed some light on that.
I stopped off in Cloudcroft once. It’s up in the mountains at high elevation, has a rustic feel that seems more like Canada than New Mexico. Nice enough place but as I recall it’s tiny and presumably snowbound half the year. I’m sure they have plenty of hotel rooms and B&B’s if one really feels the need to visit more than once in a lifetime. But buying there? Why?
In 1999, I scratch built a good quality 2500 sq. ft., 4bdrm/2.5B dormered antique Cape w/ 2-car garage & full basement on 3 acres with 80 mature apple tree’s and views to Mt. Washington for $208k.
These rip-off builder’s with their 945SF garbage quality Krackerjack boxes thrown up in the desert for $150k need to go take a flyin’ f*ck.
Agreed, 100%.
And I just love all the ass hats in the papers who are bragging about what a great deal now that it’s a “buyers market.” If you have any common sense you will know that the $20K upgrades you got from the builder are really only worth $5K. An honest architect or builder will tell you that buying upgrades from builders are never a good deal. Not to mention their total lack of quality control and home designs nothing short of architectural abortions.
“In 1999, I scratch built a good quality 2500 sq. ft., 4bdrm/2.5B dormered antique Cape w/ 2-car garage & full basement on 3 acres with 80 mature apple tree’s and views to Mt. Washington for $208k”.
Very nice. I hope you hung on to it. I saw some approx 2 acre lots in Bethel, Maine that didn’t have Mt. Washington views but had great views of the Mahoosucs. They were about $79,000 two years ago and I just saw the one we liked listed for something like $130,000. I sent an inquiry to the listing brokerage asking if this was the same lot I had seen for $79 and have yet to hear back. It’s almost like they know I know it wasn’t worth the $79 and am now inquiring wtf it is now up in price - and substantially. When I saw it was $79, I’d thought it should have been no more than $40.
Im my opinion, the Bethel area is WAY overbuuilt and they are in for some sizable declines in price. This snowless winter hasn’t helped either.
I’m not a condo person and am more of a 100 acre person. That said, if the condos at Sunday River collapse as I think they will, I’ll buy one. I know someone who is convinced 2BR condos will be obtainable for $20,000 at Sunday River when we really hit bottom.
Chairman Lee just earned my respect. He used a bunch of really obvious statements to berate a builder who should already know the facts. If a builder wants a break because they are building “affordable housing,” the housing needs to be affordable. And, at least here, the politician is smart enough to know what affordable means, and is wise enough to state the (obvious) facts so nobody gets any illusions about coming back and trying to convince him affordable means a liar loan and future foreclosure.
We could use Chairman Lee down here in Pima County, AZ. We’re a little short of governing types who can do math and draw conclusions from their computations.
anybody seen this? its the chicago mercantile exchanges real estate futures based on the case-schiller numbers. interesting to see where the open market sees prices going. L.A. from 272 in feb to 258 in november. i think we’ll see those numbers move down, but not ready to put my money where my mouth is.
http://housingrdc.cme.com/index.html
I was waiting for a customary Kalifornia thread
Just another example of a FB in Ventura County
>>176 ENSENADA AVE, Thousand Oaks, CA 91320**
>>http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=0610973&page=2&property_type=SFR&mls=mls_so_cal&cKey=v648c375&source=VCCMLS
>>
>>current list price is $595,000 Listing Date: 08/23/06
>>Price Reduced: 09/08/06 — $795,000 to $749,000
>>Price Reduced: 09/16/06 — $749,000 to $729,000
>>
>>Zillow says
>>(http://www.zillow.com/Charts.htm?chartDuration=10years&zpid=16484994)
>>Sale History & Tax Info Sale History
>>04/13/2006: $735,000
>>
>>Why did it come down from 729 to 595 K
Watch this property suddenly get sold for $800K — the tell tale mortgage fraud indicator. This seems to be a tacit advertisement that they’ll give back $200K in kickback fraud. Soon the bait will be swallowed, only problem is the public will be on the hook
Hmmm… where would I rather live - Boston, or Phoenix?
rotfl
I don’t think it was absolute affordability but fraction that could afford a place.
Personally, I’d take Boston too… but not until about 2010.
Neil
testing
This is just absurb how many vacant houses there are out there .The
insurance companies can deny claims if they find out that a vacant status on a home was not declared .
I’m just so discusted with how the lenders just funded this speculation frenzy . When is the media going to expose the situation for what it is ……Massive Loan Fraud .
test
……..tinyurl.com/yesl3h
……..tinyurl.com/y7yknx
……..tinyurl.com/yb5bh7
I checked out this one………
tinyurl.com/yesl3h
hahaha………what a load of horse sh*t.
Those buying right now are just more cannon fodder.
Sad but true.
could have saved $800 for the seminar and spent 15 minutes on ben’s blog.
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