Bits Bucket And Craigslist Finds For February 5, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
November 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
london calling…. commercial real estate in london
plus a summary from fleckenstein
with some good info on lending standarts. ( ge subsidiary)
http://immobilienblasen.blogspot.com/
Here is a most worthwhile way to spend a few minutes. Jim
Grant takes us inside derivative side of the housing market, the mortgage backed securities. It is almost imperative that one understand this aspect of the market in order to develop an understanding of what is coming.
http://www.grantspub.com/articles/insideace/
Inside ACE Securities’ HEL Trust, Series 2005-HE5
September 8, 2006
The nation is running out of magazine covers on which to announce the coming collapse of house prices. From which fact it could be inferred that Mr. Market is running out of sellers of the statistically cheap housing stocks. Is there even one surviving bull on Toll Brothers or Countrywide Financial or New Century Financial Corp. who doesn’t know that the house-price bubble has burst?
Maybe not. But the news has strangely failed to register in the mortgage-backed securities market. For the buyers of CDOs, HEL trusts, RMBS and every other alphabetic variation on the words “mortgage debt,” the year might as well be 2004, not 2006. As far as the bond bulls seem to know, house prices are still climbing, homeowners are still painlessly extracting cash from their bricks and granite countertops, and foreclosures are just a tiny cloud in an otherwise clear blue sky. The worse the news from the home front, the closer mortgage yields seem to hug the Treasury yield curve—and the more determined the bidding by Wall Street’s asset-backed securities mills for First Franklin, Saxon Capital and the other mortgage originators lately put on the auction block. (The world returned to its desk after the Labor Day weekend to discover that Merrill Lynch had agreed to buy National City Corp.’s home-mortgage subsidiary for $1.3 billion.)
This paradox is the subject at hand. Our approach is at once bottom-up and top-down: a clinical examination of the mortgage security named in the headline as well as a review of the micro and macro forces that have contributed to its stunning overvaluation…..
It is going to be ugly!
WSJ has a short piece on bond mutual funds increasing their exposure to MBSs in search of returns higher than the 4.5% they’re getting from gov debt. it mentioned Fannie, Freddie and Ginnie as being backed by the fed. apparently it’s no longer an implicit guarantee.
Wasn’t it Warren Buffet who years ago predicted the “Derivatives of Mass Destruction”….Warren baby your once again right on the mark.
dawnal, this is fascinating. Grant looks for the highest risk RMBS pools and tranches, because insuring the principal and interest return is so cheap (2% or so) using credet default swaps (CDS). Of course, this was written in Sept. 06 and now in Feb. 07, it costs 6.5% for the same protection, which just proves Grants Sept. analysis, that CDS’ were far to cheap. This whole risk/reward analysis is often times so much “garbage in-garbage out” that the analysts lose site of main street reality: Home values are declining and have no chance of recovering for years.
I have one question: Grant says he holds $750,000,000 of high risk pieces, which he insures for 2% a year. What is his cost basis in the $750,000,000 and is he leveraged? I ask this because he “implies” he stands to gain $750,000,000, insured wtih a 2% premium. BUT, he must have paid something for the asset. So his gain is really just ROI, plus capital appreciation (due to insurance). I wonder how much?
Thanks, Dawnal.
“Synthetic CDOs are believed to be widely marketed to the trusting financial institutions of Europe and Asia.”
Wonder how long they will remain “trusting” and what happens when they turn.
“Simplicity is not the trust’s outstanding design feature.”
What a masterful understatement.
Is anyone watching the Shanghai stock exchange shake and wobble? What will the return of volatility (due to imploding subprime market and possible chinese market meltdown) do to this overleveraged world economy? Katie bar the door.
Last Throw of the Dice
http://wallstreetexaminer.com/blogs/winter/?p=396
I thought we had changed the course?
Wow.
Read this unbelievable link:
Unreal. The die is cast and we are all screwed. Stock up on canned goods, gold and shotgun shells. It ain’t gonna be pretty.
http://cryptogon.com/2006_09_03_blogarchive.html#115726846532246735
“Unreal. The die is cast and we are all screwed”
Nothing new, except maybe a new view on who may be “behind it”.
The asteroid has just hit the Yucatan, and the dinosaurs are feeling a little ‘heat’.
Nice reference to the Alvarez hypothesis, though I hope the situation at hand is not really that bad…
http://en.wikipedia.org/wiki/Alvarez_hypothesis
I like this paragraph the best:
“Just before I left, the company switched loan origination systems. The people writing these loans were pissed because they were no longer able to get loans approved for people with fraudulent social security numbers. They would actually complain because the system was telling them that the would-be borrower was using a false/fake/invalid SSN.”
Very few people know that you’re almost always better off with #4 buckshot than 00. The “odds are in your favor.”
This is from an MSN article today “In fact, my friend in the subprime business said that WMC Mortgage, a wholly owned subsidiary of General Electric (GE, news, msgs), is laying off 35% of its work force, taking a $100 million charge and cutting back on its writing of loans.
But what’s even more important, he notes: “They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer.”
It shows how the tide is a changing!!! We are in for a long drawn out housing deflationary environment.
1. Tighter lending standards
2. historical high of vacant homes
3. Toxic loans reset
As we gain more and more insight into the housing bubble I am realizing that the bottom will be lower or the time frame longer then I have predicted in the past. I now believe 09-10 in most locations.
Today’s Craigslist post from San Antonio:
I need help… bad (long post) 02/04 17:50:02
We bought a house that was built Feb 2005. We closed on the house in June and moved in July 2005. The day we moved in it rained. The next day we saw our garage flooded, we immediately contacted the builder. They have been trying to get it fixed, by installing french drains, sealing/epoxying cracks in the foundation to which none has worked. Everytime it rains, our garage floods. We finally had enough, since we have been going through this for a year and half and we told them to dig to the bottom of the foundation to see if we can find out whats causing it.
A problem what we thought was minor turned into a major problem when they dug. Come to find out the foundation company didn’t pour the footings around the house and all the rebar and stuff is exposed underneath, you can even see the sandbags that the slab is sitting on.
We have been hearing pops and cracks in the middle of the night and we finally figured out what it was. Our crown moulding in our living room is coming away from the wall/ceiling. There are also cracks popping up on our walls. They insure us that our foundation is sound, but now my cabinets in the bathrooms and kitchen are coming away from the wall.
We need help, we don’t have the funds for a lawyer but we want out of this house. It has been nothing but a headache and we’re just done with it.
What can we do???
http://forums.newyork.craigslist.org/?ID=57358899
It was Eagle Valley Homes, and they got bought out by Standard Pacific.
May I suggest a vented can of gasoline next to your water heater.
That’s a Texas DTPA claim. All they need to do is find an attorney.
The build ‘em fast and cheap in Texas. I hear about problems like this all the time. Why should and illegal migrant worker care?
Of course, nowadays they build ‘em fast and cheap everywhere, only they aren’t cheap to buy.
Yep, been mentioning that for what, two years now? Cheap crap. People love to talk about how cheap houses are in TX in the burbs but you get what you pay for. There’s no free lunch there either. I love to read about 26 year olds in Long Beach CA who think they know better and claim they can buy houses here for 70K and rent them out for 900 bucks a month. Whatever.
” love to read about 26 year olds in Long Beach CA who think they know better and claim they can buy houses here for 70K and rent them out for 900 bucks a month. Whatever.”
Long beach is a city which one should steer clear from in a RE Bubble meltdown. Some of the nastiest poverty pockets in Scal are in LB dwtn,westside, north areas and a large nasty apt slum zone immediately NE of DWTN. The trial(and rediculously light sentences) of 10 Black teenagers involved in a halloween night beating of 3 female white teens shows LB in its true light-a largely blighted city with a huge popluation of section-8’s,gang bangers, seething racial polarizations,illegals crammed in the apt slumzones North of DwTN, ect.
There are no deals for $70,000 properties anywhere in LB. Bad as LB is, unfortunately it is a ‘coastal’ harbor city which leads to vastly overappraised prices, even on derelict 2/1 80 yr old 700 sq ft craftsman clapboards listed for $400,000+.
LB is a port City, with grimy ‘edge’ districts surrounding the port and dwtn areas.
Get this. I know a 26 year old kid that bought a 1bd condo in Long Beach at 4th and Cherry. He paid only 300k for it 6 month ago. He is looking pretty scared these days as I’m sure he has seen some big price drops in his area.
Long Beach in the ’70s was a place you didn’t want to be after dark, and although it looks different and better today, well… you can put lipstick on a pig, too.
I can’t offer a lot of help besides a suggestion to find a lawyer who will work on contingency. They will only be paid if you win a suit against the builder. Now if you do win, the lawyer will take a bigger chunk than usual, but I don’t think that fighting the builder by yourself is likely to work better.
If you can find a lawyer who will write a letter to the builder on your behalf (which should not be too expensive), the builder may cave. Once lawyers are involved the builder knows they are unlikely to walk away free.
In any case, I wish you the best of luck. Your situation sounds terrible.
I wrote a letter to a major builder at one point just hinting that I would seek a lawyer. I did it in the most jovial and creative manner that I could. It was a pretty funny letter. But the point must have been made. They did exactly what I wanted and they did it fast. I had absolutely no desire to turn to some shyster but the implication worked magic. It was like holding your finger in your coat and saying it’s a gun.
this superbowl ad for gm
the robot gets fired and becomes a sign twirler…
then commits suicide
http://www.youtube.com/watch?v=3wU0×3_t0Do
sorry not working
ok try this
http://www.gm.com/company/onlygm/quality/index.html?seo=goo_gm_commitment_to_quality
tears… flowing… face… red…
Great ad. I’m one of an apparently dwindling number of loyal fans of traditional U.S.-brand vehicles. OT, but I saw that JD Powers ranked Lexus #1 in reliability and Mercury #2 (Land Rover dead last). The good news for US makers seldom seems to surface.
I saw that last night and nearly died laughing! I kept wondering who would be the first to post about it on here.
Great ad. I laughed so hard when I saw the robot twirling the sign for the condos. The housing bubble is becoming a part of pop culture. Maybe that robot can be the new mascot for the housing bubble.
Does anyone at GM think to themselves at night, “you know, we’re laying off people by the hundreds to save money and we’re bleeding cash; maybe we really shouldn’t do a commercial trying to be funny about a robot making a mistake at their job, getting canned, and then killing himself when it is happening in real life in our company every day?”
Apparently not. The unintentional comedy factor on that one, if something that serious can be said to be humorous, was off the charts.
“unintentional comedy factor on that one”
As playwrights have long understood, the masks of comedy and tragedy are inexorably linked.
it was a terrible ad
Digging the Houston Inner Loop real estate scene with the beautiful condo flippers:
http://louminatti.blogspot.com/2007/02/houston-real-estate-update.html
I went and looked at foreclosures yesterday. Go some pics for the HB photo gallery. One was kind of poignant. On the gate of this one foreclosure, there is a handwritten note from a neighbor saying that they pray every day that someone will buy it. It’s sitting there in a nice neighborhood with weeds overrunning the place, things falling off and signs in the windows saying this place is uninhabital by humans because of mold.
And a really beautiful lot was torn up to build this place.
About that handwritten note - I haven’t seen the picture, but I am noticing more and more of these “handwritten by desperate owner” signs. Look close and you’ll see they are pre-printed. Drive around the neighborhood long enough and you’ll notice the same signs.
I think the RealtWhores learned this gimmick at a seminar. In at least one instance it hasn’t worked. The “desperate” homeowner down the street from me still has their “handwritten” sign out, and it will have been there one year come May.
lol
I have a picture of one written with a red magic marker on a piece of poster board which has survived about 5 months in Texas weather
your comment txchick57 reminds me of a article I read many years ago…a man swimming not more than 10 metres from the boat docks ran into difficultly - yes, he was a poor swimmer and didn’t have a buddy to be with him - but as a local kid watched from the dock, and seemed to enjoy watching this man struggle - seconds before losing his life - the boy later on remarked that “why be upset - he shouldn’t have been out there anyway”….yep - watching someone struggle and finally reach their demise while others watch with a sense of entitlement to say “I told you so”….what comes around goes around….thats all I CAN SAY…
We can only hope what goes around comes around and takes your internet connection away.
What are you babbling about? I took pictures. I don’t care what happens.
Sorry for the misunderstanding, I was talking to the Diaper.
“a man swimming not more than 10 metres from the boat docks”
Yeah, I can see how a man dying and drowning while someone looked on is like writing about someone putting a hand-written note on a foreclosure saying “someone please buy this”.
Oh wait, what the hell are you talking about?
Diaper:
Let me clarify the differences between these two scenarios for you:
-We are not watching people DIE. We are simply watching them lose money.
-There’s nothing we can do about it.
-These people are the very same ones who have made our futures more difficult! By taking out stupid loans, building/buying stupid houses, and stupidly overpaying for them, they have driven up house prices extensively enough to turn mortgages into retirement killers.
-They have commited these sins in the hopes that SOMEONE ELSE would buy the house from them, and that SOMEONE ELSE would be the one to suffer. They did not simply make a foolish mistake, rather they lost at their own game.
So stop picking on us.
Diaper is Canadian. Might be a different thought pattern.
There is one here too just as Lou’s describes. It’s printed but handwritten. I agree that this must be a “technique” promoted in a book or seminar. Perhaps it’s supposed to indicate that this is a real deal and not just the usual rip-off.
Excerpt from Mike Whitney’s latest hardhitting piece:
US Housing Bubble Bloodbath - The Property Crash Continues
Feb 02, 2007
“The crash of the housing bubble will not be pretty. Millions of people stand to lose their homes and life savings. However, it was inevitable. The bubble created a fantasy world that could not continue. At the peak of the bubble, 160,000 people a week were buying a home, most at bubble inflated prices. The longer the bubble persists, the larger the group of people who paid way too much for their home. While it is not good that so many dreams had to be ruined, the number will be even larger if the bubble deflates slowly. So I make no apologies about hoping for the hasty demise of the bubble.”
Dean Baker, “Slow Motion Train Wreck” The American Prospect, Aug 2, 2006
“No question about it, the housing downturn is here now, and it’s big.” Jim Hamilton “New Home Sales continue to Fall”, Econbrowser Aug 25, 2006
I wonder if Alan Greenspan takes a copy of the business page along with him on the chair-lift at the Aspen, so he can read about the plummeting housing market before swooshing down the well-groomed bunny-slopes at his favorite ski resort. After all, no one played a larger role in inflating (what the “Economist” called) the “biggest equity bubble in history” than the retired Fed-master. His low interest-rate bonanza triggered a stampede of speculation in the real estate market sending prices through the stratosphere and setting the stage for the biggest economic bust in American history.
The whole catastrophe was cooked up by Sir Alan and his coterie of brandy-drooling elites at the Federal Reserve….”
Sorry…I don’t have a link.
That’s what happens when TPTB don’t attempt to identify or pop bubbles, but rush in with more and more liquidity when they start to deflate.
On a related note, I know someone who was recently laid off. He ‘owns’ three rent houses in Phoenix which he admits he cannot sell now. His solution; getting a brokers license and buying real estate in North Carolina. I didn’t bother asking how you buy houses without a job, or why North Carolina. I know how this will end and it’s not my money.
It is now past 8 am in Miami. I am sure the rich boomer crowd from the game are now stampeding the local condo offices to get in before all of the ‘rush’ now that the Big One is over. Bring on the spring selling season, and let’s sell all of those overpriced, underbuilt Miami condos. And then move north, and west fanned out all over the country. LOL
This could be a fun gathering in San Diego.
http://nreionline.com/news/MBA_conference_SanDiego/
“Millions of people stand to lose their homes and life savings”.
I hardly consider 100% financing to be someone’s “life savings”.
Lets get real here already, these over dramatic statements kill me already.
SKB
The loan isn’t but people will spend their life savings trying to save their house. It will bleed them dry up until the day the bank takes it. Even if they don’t have a savings they’ll cut back on other things (like creating a savings).
I agree. Sure there will be pain. Millions? Maybe one or two million out of what, 300 million? And those who do lose never had any life savings.
69% homeownership peak rate, 64% natural rate… that 5% alone will account for millions, and that’s not all of them.
I hardly consider 100% financing to be someone’s “life savings”.
Great point.
But their wipe out will lower their neighbors’ house values (by at least half, I predict hopefully). That will wipe them out as well, since so many people expect to use their house as a pension.
But, if the neighbors’ homes would never have soared to such unreasonable heights if not for the funny money loans, isn’t that a wash? The fact that the neighbors were counting on it does not change the fact that the assets in question were overvalued. Plenty of people were counting on pets.com and friends for retirement as well.
“…isn’t that a wash? The fact that the neighbors were counting on it does not change the fact that the assets in question were overvalued.”
You betcha. The over-valuation kept me out of the market and the correction will get me back in. I’m not a gambler by nature, so didn’t bet and didn’t lose. T.S. for those who did.
http://www.usatoday.com/money/perfi/housing/2007-02-04-renters-usat_x.htm
If the McNewspaper says so, it must be true!
Renters will dig deeper in 2007
Updated 2/4/2007 11:57 PM ET
By Noelle Knox, USA TODAY
Renters be warned: Landlords are expected to raise apartment rents for a third-straight year in 2007, forcing tenants to turn over a growing chunk of their pay and making it harder to save for a home, a report to be issued today by Marcus & Millichap finds.
With the projected rise of 5% this year, rents would be 14% higher than at the end of 2004, the report says. Over the same period, paychecks are expected to rise 4%, adjusted for inflation.
With true inflation at about 7% per year 2007 rents might have been 21% up from 2004 so the 14% needs to be put in perspective…..Of course nationwide wages are up 21% as well? Also, with the incredible excess capacity coming online this should mute rental increases in most areas going forward, but a Marcus & Millichap report on rents is like getting an NYC housing report from Barbara Corcoran.
According to major lenders as well as FNMA and FDIC, ARM products comprise over 50% of newly originated home loans in our region. So it’s not difficult to see that since half the potential buyers have lost over 30% in buying power, demand has synchronistically been reduced, and home purchase prices have been steadily re-aligning with purchaser’s ability to pay.
Actually, I’ve noticed rents peaking and backing down a bit here in Norfolk, Virginia. Perhaps the property mgmt company just hit the top, but with a ton of new condos (388 Bousch among others) built, they have a ton of competition. They even have a few of them under their property management, and no one is biting. Someone bought these condos for ~$280K+ and the rents are down to $1150ish. Add in the condo fees, taxes and insurance and yea, people are under water. The larger more expensive units don’t rent fast … I see them listed for $1500+. Just to make things interesting, I list false ads for the $1500 units for $800 on craigslist, and still don’t get that many hits. People are even being picky. They love it when I say “Sorry, it’s a fake advertisement that is there to help drive down the market.” College professors to IT workers all give me props and thanks. I’m sure condo investors see it and sob to sleep at night.
Woot. Now I see why they call you the VA Beyatch! Way to go on the fake ads.
Yeah, that’s a great idea!
Good for you!
boo hoo. I am very scared. My rent increase over the last 4 years has averaged somewhere between 1 and 2% annually. I saw a similar article about this a year ago. Tell me how rents are supposed to go up when there are so many boomer second homes that cannot sell and are competing against apartments. The USA today journalist must have 3 homes she cannot sell, so she fights back at the renters (who are laughing now) by saying “oh yeah? Well your rent will go waaaaay up!”
Bill in Phoenix
I also work near the Camelback corridor. I am trying to put a local bubble party together, are you interested in meeting at the Biltmore fashion Park?
e-mail me at kbarrett “at” CSKauto.com
AZgolfer!
My nephew won the Phx Open!
Yea!
AZgolfer!
My nephew won the Phx Open!
Yea!
Hey AZGolfer, I don’t want to sound offensive, but I revealed too much information about myself on Ben’s blog and prefer to remain anonymous. I’d most likely trust you but that’s not the point you know.
Regards!
My rent hasn’t gone up at all in over a year. $850 a month; comparable condos in the area (the converted half of my courtyard building!) are selling for $273K. My landlord flat out told me that he couldn’t charge more than $850 rent for a two bedroom in the neighborhood because no one would pay it.
Somehow the amateur developer next door thought he could sell the same rentals as condos. Well he thought wrong. He’s closed only on 5 of the 18 units thus far. It’s been 14 months since the ‘conversion’ began. My landlord’s building has no rental vacancies; The condos next door are sitting empty. Go figure!
Bill…this isn’t a personal attack … but just figure you pay $850 month to have the right to live in someone elses home…4 years … without figuring any increases …thats a nice $ 40,800 in someone elses pocket…i would have a few sniffles too that…
But he gets use of $273k that he didn’t pay for the condo for 4 years. That, plus not paying property taxes, HOA, etc. might be worth $10k a year.
plus, what is the rule? 120X monthly rent?
$850X120=$102,000 place.
Of course it would be better if he paid three times that amount to a bank in interest on a depreciating asset? You just don’t get math do you?
“without figuring any increases …thats a nice $ 40,800 in someone elses pocket”
DD, you wouldn’t be a “bitter buyer”, now would you? Didn’t you know that paying interest to the bank is “throwing your money away”?
Who would want to throw away that interest payment money, when you could spend half as much renting, and invest the other half.
…just when I thought I’d seen the last of inarticulate, math-challenged trolls….
Diaper:
You’re wrong again! Chicago guy is saving a ton of money by not paying mortgage interest (likely 2x his rent). He chooses to rent from the landlord instead of renting from the bank because IT’S CHEAPER. With payments of only $850/month, he’s probably saving like a mad man. He can buy a better condo when the market hits bottom with a huge downpayment. Maybe even pay in full with cash and forgo the interest payments entirely! He’ll come out with more money in the long run.
I rented a townhouse from May ‘98 through May ‘05; never raised my rent. Before I rented I simply asked the people in the parking lot if their rents where being raised every year. Why is it so difficult for some people to ask the other renters this simple question? Through the years I have saved lots of dough asking this simple question.
I am now in my second yearly lease in a SFH; they have not raised my rent, and I doubt that they ever will. (This landlord has had but bad luck lately - renting to deadbeats and criminals - and he wants me to stay, always asking me if everything is alright.)
Just to add my info, I got my newest lease. The apartment pays for my heat, btw. My rent went up a big whopping…. *drumroll* FIVE DOLLARS!!! Less than one half of one percent of increase. Last year? $15 (less than 1.5%). When adjusting for inflation, my rents been steadily decreasing.
I’ve never rented before (owned for 30+ years), but now am near the third year of this lease. Rent will not increase simply because there are a lot more rental units available in competition. Today’s threads document an approximately 50% increase in vacant housing in the U.S. over the 50-year norm. Only people too busy changing diapers to do the math would consider renting a bad or, much less, worsening deal.
“Over the same period, paychecks are expected to rise 4%, adjusted for inflation.”
I see a lot of people “retired on the job”, just waiting about 5 more years before they can officially retire. I’m wondering how companies are going to keep wages of skilled workers down when there aren’t as many of them. I don’t think they will be able to and I expect wages for skilled and hardworking people to rise just as high as the 7% or so inflation.
At least for IT and medicine, they are importing skilled workers from all over the world to help keep wages down. Thank you H1B.
I cannot tell you the sums of money I have made cleaning up the IT nightmares that underskilled / over educated H1Bs have created. But this is bad for the US as a whole, as scholastic interst in Computer Science is dropping rapidly. I wonder if it is, in part, to folks thinking that it is no longer necessary or useful because “someone else can do it”.
If you thought that the H1-B was great, wait until you get a load of the new H5!!
* Senators Kerry and Kennedy introduced “Amendment 187″, which contains huge increases to H-1B(40k+) and employer based green cards, and creates a new nonimmigrant visa guest worker visa for unskilled workers called an H-5.
The H-5 visa is a pathway for amnesty. The amendment contains almost identical wording to the Specter/McCain/Kennedy bill from last year’s comprehensive immigration bille (S. 2611) and the Skil Bill.
* Amendment 187 passed by a unanimous voice vote.
Jeff over at SDCIA has several all over the country he would like to rent out. There are a record number of vacant homes, eating the speculators alive. That will sure tighten up the rental market and cause rents to skyrocket. Yeah right.
MSM reporters haven’t gotten the memo yet, or they don’t want to spook the herd. The article in WSJ below does not even consider the possibility (which we know is more of a likelihood) of flippers being UNABLE TO AFFORD TO SELL their alligators. WSJ just assumes that they will cut the price and that will take care of it. They don’t know the FLOOR for the flippers’ and equity liberators’ price reductions, which is their outstanding secured debt - mortgage and HELOC- on the house.
————————-
Vacant Homes For Sale Cloud Economic Hopes
Data Pointing to Glut Are Worst in Decades; Impact of Speculators
By MICHAEL CORKERY
February 5, 2007; Page A1
Amid brightening hopes that the U.S. housing market is stabilizing, some economists are zeroing in on a piece of data that could augur badly for the consensus view: the homeowner vacancy rate.
That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.
That brought the national homeowner vacancy rate to 2.7%, up from 2.0% a year earlier. Before 2006, the number had never risen above 2.0%. Like the housing economy more broadly, the measure varies by region: The South had a homeowner vacancy rate of 3.0%, the Midwest had a rate of 2.9%, the West had a 2.4% rate and the Northeast had a rate of 2.0%.
“Amid brightening hopes that the U.S. housing market is stabilizing,”
What are the “brightening hopes” the WSJ is referring to? As for the vacancy numbers–that’s been heavily covered on this blog, and the other housing blogs. To confirm the obvious-there ain’t no news in this newspaper.
Didn’t you get the memo? This is a Goldlocks economy. All is well. Critics must shut up. Other recent memos from the WSJ include “What slowdown?” and “How war’s expense didn’t strain the economy”.
All you Ben-Aid drinkers need to get in line FAST before the Goldilocks economy bus runs you over. Booyah!
The homeowner vacancy rate may well be 2.7%, I don’t know. But that doesn’t matter. What matters is the number of houses for sale that are empty and the percentate of houses for sale that are empty. The New York Times reported several weeks ago that the number of vacancies is equal to 50% of homes listed for sale through the MLS system.
Fifty percent empty, not counting big builder/developer properties that don’t use the MLS, or FSBO.
Someone is paying PITI, heating, lawn care, etc. on over two million properties. Astounding.
“…of flippers being UNABLE TO AFFORD TO SELL their alligators.”
The biggest issue hanging over the market is that of flippers who cannot afford to either sell (because they are currently underwater) or to hang on (because of resets). That is what should be keeping central bankers awake at night, if it is not…
no savings should keep both the fed and the flippers up at night.
“With the projected rise of 5% this year”
I’ve got two rentals (and yes, we rent as well). Our rentals (SFHs) have to compete with large housing developments and flippers that have been caught with their pants down, so no, I don’t think we will be raising rents this year. We actually sent out Christmas “thank you ” baskets” to show we appreciate them.
Arroyogrande,
We have 4 rentals (and we live in a rented flipper’s house, instead of buying a larger home in 2006). The home rental market in Sacramento is very competitive. In outlying new subdivisions, you can get 4,000 sf houses for $1700/mon. In the metro areas, house rents have dropped 5% in the last 18 months. Apartment owners are employing twirlers and giving away a months free rent. Yes, this housing bubble is impacting all facets of the REIC. Rents will NOT rise for a couple of years.
They can try. I don’t have any problem renting a room from someone if my rent goes up by more than $50.
Phillygal, can I ask you some questions about W Philadelphia RE? I’m at milehigh_101@hotmail.com if you’re interested.
OK I sent you an e-mail.
I was interviewed by a local journalist for a piece on the New Jersey market. Quite an honor to be included among the very notable Les Newlands (Foxtons CEO) as well as Celia Chen (Director of Housing Economics, Moodys).
Real estate sages predict the future of the landscape:
http://njrereport.com/index.php/2007/02/05/1927/
Caveat Emptor!
jb (aka grim)
Your Lowball feature is great.
Grim — congrats. (Grim was one of the earliest regular posters on Ben’s blog.)
Congratulations, Grim!
You’re a celebrity!
Today’s Wall Street Journal (print copy) has a front page article on Vacant Houses. Finally some realization that the housing bust is going to be around for a while.
see my comment above about the reporter not mentioning that flippers will be unable to sell in the declining market; seems like WSJ wants to avoid the F-word (Foreclosure). This is the closest they come to going beyond ack’ing the possibility of minor price reductions:
Mr. Hatzius expects homeowner vacancies will slow, as builders cut back on production and owners convert their units to rentals to take advantage of rising rents. But then again, the housing market has been full of surprises.
“This whole thing has been new,” says Mr. Seiders, the National Association of Home Builders’ economist. “We’ve never seen this kind of investor activity and we’ve never seen this kind of [vacancy] resale. It’s an extra complication moving forward.”
“It’s an extra complication moving forward.” Mr. Seiders sounds exactly like a cardiologist telling his patient to go see an oncologist after the triple bypass.
Hey atleast he isn’t claiming to have the bottom in his hands every month like David Lereah does
Rex — LOL — I’m an old fart and can relate to that one 100%! It happens, too.
A couple of news items. One from the first post and another from yahoo news.
“The world returned to its desk after the Labor Day weekend to discover that Merrill Lynch had agreed to buy National City Corp.’s home-mortgage subsidiary for $1.3 billion”.
“Drops in commodity prices were fueled by a report of losses by metals-trading hedge fund Red Kite Management Ltd. The $1 billion fund lost 20 percent in the year to Jan. 24, the Wall Street Journal reported, citing an “unofficial estimate” the fund gave to one investor. Base metals have lost as much as 27 percent this year on rising inventories and slower global growth”.
So how much would National City Corp’s mortgage group be worth now? How can the supposed financial savvy people have been so wrong? How could they not know that most people could no longer afford a house? How much more damage will there be? I think it is going to get much worse.
Took a little “Spring” backpack, on Sat-Sun, here in our backyard, in Sequoia National Park, to the South Fork Grove of Giant Sequoia Trees and it was beautiful~ There were also 100,000’s of Ladybugs hanging out, a few months before they usually arrive and no snow whatsoever on south facing slopes, up to around 8,500 feet, the snow on north facing slopes (it melts last) was skimpy, at best. The “Spring” meltoff of what snow there was, was in full pressure. It was 62 degrees @ 5100 feet, on February 4th. There is a month to go before we can call a bust to the Sierra snowpack, this year…
The implications are dire~
San Francisco gets it’s water from Hetch Hetchy.
Los Angeles gets it’s water from the Feather River (no snow there, either) and from the Eastern Sierra and Colorado River.
Mix a Severe water shortage into the hangover of oh so many homes, lawns dying on every last one of them, the colors fading a bit on the for sale sign, a sign that will, in the near future, have nothing to do with the idea of buying or selling the most expensive item 99.9% of us will ever purchase, in our lifetime, but more the sign of the hopes of this generation going away.
They’d put all their eggs into one basket, their home, and it turned on them…
Mother Nature always bats last~
–
“This is the beginning of man’s TRAGEDY – for Nature is the stronger of the two. Man remains dependent on her… The fight against Nature is hopeless and yet – it will be fought out to the bitter end.” – Oswald Spengler, Man and Technics: A Contribution to a Philosophy of Life
Good one, Jas. Spengler deserves more appreciation among the philosopher. He really hasn’t got his due.
–
We agree. I have read all of Spengler in English that I could get my hands on. If you get a chance you should study (not read) Man and Technics (technology). It is short and “sweet.” Actually, it is profound.
Jas
I’ve been thinking alot about the minimal snow pack this year. Yes, we seem to be looking at a very thirsty summer. Had not imagined the look of vacant FB homes as they sizzle under the sun, looking like old west ghost towns.
Today is the first day of the “new” spring selling season (the first day after the Superbowl). Someone who is MRIS-enabled should check the inventory for major metropolitan areas by, say, Friday to see what happened.
bet today is the biggest listing monday ever-yo
Pickin’ nits — someone mentioned that the flurry doesn’t begin until Tuesday. Whatever, I’ve figured on tracking numbers Thursday-to-Thursday for a while, for no particular reason.
Last year, it seemed Thursdays were the big listing days, at least in San Diego.
Bill Fleckenstein:
“I have repeatedly made the point that there are no adults at home in the home-lending business, which is why I found it interesting reading some comments by U.S. Rep. Barney Frank. Though I wouldn’t necessarily have picked the Massachusetts Democrat as the voice of reason, in a recent edition of the San Jose Mercury News he shared this novel thought:
“You shouldn’t lend (home buyers or re-financers) more than they can afford to pay back, and you don’t lend them more than their house is worth. . . . You can’t just make a loan and then sell it (to investors, forget about it and expect no legal liability for putting people into a mortgage that never made sense for their situation).”
(The parenthetical material is Frank being paraphrased by the writer.)
Though those comments make perfect sense, and one would think that any lender with a brain would refrain from that kind of risky behavior, we also know that it’s exactly what lenders have done. As for the consequences on the other side, my guess is that we’ll see an enormous amount of lawsuits brought by folks who say that they were unsuitable candidates for the loans in the first place. (To quote a Jan. 26 New York Times headline: “Tremors at the Door: More People with Weak Credit Are Defaulting on Mortgages.”)
Given that Frank is the new chairman of the House Committee on Financial Services, it sounds to me like Congress will be receptive to their arguments — though that doesn’t mean the courts will be. In any case, it seems quite clear to me that new legislation will be enacted. Which, of course, is just another way to tighten lending standards that are already being tightened.
At some point, the amount of damage being done will rapidly accelerate. I am certain that one day, when we look back on this period — which witnessed the incredible housing-stock rally that ran from summer 2006 through early 2007, before it collapsed — and we describe it to folks who may not have seen it firsthand, they will shake their heads in disbelief, the same way that folks now look back at the Nifty 50, the stocks that propelled a doomed early-1970s bull market, and ask: How could anyone have been so naive to have believed that concept?”
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/HowHousingMaskedAWeakEconomy.aspx
From Fleck’s piece, something for the implode-o-meter?
“In fact, my friend in the subprime business said that WMC Mortgage, a wholly owned subsidiary of General Electric (GE, news, msgs), is laying off 35% of its work force, taking a $100 million charge and cutting back on its writing of loans.
But what’s even more important, he notes: “They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer.”
(Editor’s note: A WMC spokeswoman declined to comment on what she called “speculation” about layoffs and said the company is currently adjusting the types of loans it makes and its guidelines for underwriting loans. As for the charge, she said there have been more requests than usual from WMC’s investors asking that the company repurchase loans from those investors.)
Prior to the past decade’s unusual sequence of political and economic events, I never would have thought Barney Frank to be a useful prognosticator or guide in the field of residential finance. In a really strange twist, IMO, he seems now to be pretty much the right guy at the right time. Woe be unto lying appraisers in the future, and appropriately so.
I believe Barney Frank is also the one trying to get the GSEs under control.
Good for him.
Just back from another ski trip to Utah as well as visit to the relatives. Salt Lake City seems to be in that spot where Phoenix and San Diego were last spring - climbing inventory, prices stuck, investors pulling out. Not a moment too soon. Almost every block on 3rd ave (a nice historic part of town) seems to have a house for sale.
If I were to get rich in Utah, though, I’d bequick about opening a pawn shop/payday loan outfit in Eagle Mountain. It’s a brand new “new urbanism” town in the boonies packed with the Utah equivalent of white trash. For folks from So. Cal, it’s Antelope Valley only with Mormons instead of Mexicans.
http://en.wikipedia.org/wiki/Eagle_Mountain,_Utah
I dunno. Personally, I’d never bet against a Mormon in a financial matter. Like cops, they usually have “backup.” Doesn’t mean they can’t make a mistake, but that they are more likely than most to recover from one.
It would seem that the pro/con arguments regarding the housing bubble is now over. The Sunday issue of the Virginia Pilot newspaper ran a cartoon on the editorial page that had a couple hugging while gazing fondly at a SFH. The caption read “Look honey, our first foreclosure”. Nuff Said.
Nah, people are currently saying that yes, there was a bubble, but the bust is over. It’s all peaches and cream from here on in.
They are thinking “whew, we dodged that one!” Right.
and the art bubble played on.
Records expected at London art sales
http://www.ft.com/cms/s/1fe99bc2-b484-11db-b707-0000779e2340.html
Check out the Madison, WI Housing Bubble at:
http://madisonhousingbubble.blogspot.com/
Interesting retirement info:
“Nearly 28 million U.S. households–37% of the total–do not own a retirement savings account of any kind. Among the households who owned a retirement savings account of any kind as of 2001, according to a 2004 report by the Congressional Research Service, the median value of all accounts was just $27,000.”
http://answers.google.com/answers/threadview?id=721534
Did anyone catch the Chevy commercial on the superbowl where the factory robot got laid off? I was laughing my ass off because after he looks for a job in various minimum wage places, he ends up as one of those street sign wavers holding a sign that says “CONDOS” and pointing to some crappy looking development. He ends up jumping off a bridge…
I just about fell out of my chair laughing on that one.
Wan’t to read the Mortgage industry’s latest whining about tougher standards?:
http://www.mortgagenewsdaily.com/252007_Suitablity_Standards.asp
It ends with this brilliant observation: “….the report states that it is to the benefit of all parties, consumers, advocacy organizations, regulators, and mortgage lenders that borrowers obtain loans they can repay…. bla bla bla……… without destroying the market’s ability to innovate for the benefit of consumers.”
We need to write to every politician & regulatory agency we can think of. These vultures (MBA and the originators they represent) need to be smacked down.
The days of serial refinancing (due to inaffordable mortgages), are OVER!!
um…that would be “UN” affordable mortgages…
I was not expecting this for a couple of more years:
China set to become world’s champion exporter in 2008: trade body
Tuesday February 6, 2007, 4:57 am
“… COLOGNE, Germany (AFP) - China will wrest the “world’s champion exporter” title from Germany as early as 2008, the federal foreign trade body BFAI has predicted.
Already this year, China will overtake the United States as the world’s number two exporter and fight neck-and-neck with Germany for the number one position, BFAI director Gerd Herx said Monday….”
Yahoo Australia Business
http://tinyurl.com/2s9333
I had no clue that Germany, home of a mind-boggling number of unemployed, is a larger exporter (presumably $-wise) than the U.S. It is hard to believe. Are there numbers to back that up (outside Germany)?
Here’s one link.
As much as I lean more toward socialism than Darwinian capitalism (but a libertarian where private property and personal freedoms are concerned), I’m quite surprised as well, Chip.
http://internationaltrade.suite101.com/article.cfm/germany_s_trade_buddies
Hmmm…it looks like the “champion” part refers to percentage of surplus, rather than volume. Good for them, nevertheless. Surprising to me either way.
“In the new economy if you want to get rich, it’s all about ramping up the risk and using OPM, which stands for Other People’s Money. In our sophisticated economy there is little excuse for paying for anything with your own money….Budgets are for common people with JOBs - Just Over Broke. The rules are different for the rich, and they do indeed have secrets that they don’t want you to know. They’re laughing at you now as you hit the alarm and head off to work, while they sip a latte and live the good life….The central key to this concept is to use OPM. Always take out an interest-only loan where you don’t actually pay any money back. Savvy investors usually buy apartments with a deposit bond - in effect this is a deposit for a deposit.
Sure it ramps up your risk but real estate agents tell us they double every seven to 10 years, so buy as many as you can. Use the book 0 to 130 Properties in 3.5 Years as your guide.
If you buy one you’ll do OK, but if you buy 130, you’ll soon be able to get your hands on that Pacific island you’ve had your eye on….By following any or all of these rules you’ll be broke quicker than you ever thought imaginable. If you get really good at losing money, perhaps this will qualify you one last shot at financial freedom - writing your own get-rich-quick book.
Tread your own path!”
How to lose money
Scott Pape Barefoot Investor
http://tinyurl.com/2k6uly
You guys may have seen this 2 years ago when it was written, but as a young, Californian, newlywed renter who at this point has to choose between children and a house, this piece is facsinating:
The Dirt Gap: The Fundamental Cause of Red vs. Blue States
The link didn’t work:
http://www.isteve.com/2005_Dirt_Gap.htm
There is a significant underlying error in the assumptions — that there is any notable difference between either major party in this country, as, for example, might affect the economics of home ownership. I say there is very little and that the lack of difference will give you no consolation and little basis for a decision on housing. Disclosure: I belong to neither party, having quit one of them in disgust several years back.
can someone explain what this means.
Rates drop, but why?
Monday, Feb. 5
Posted 10:40 a.m. EST
WHEEE!: Long-term rates are plunging like a Demon Drop theme park ride.
Last Wednesday, just before the Fed announced that it was confident that inflation will remain under control, an important barometer of mortgage rates stood at 6.21 percent. Then it dropped after the Fed announcement, and kept falling, and this morning it is 6 percent. It has dropped almost a quarter of a percentage point since Wednesday afternoon.
This barometer is the Freddie Mac required net yield for 30-year, fixed-rate mortgages to close within 30 days. This is the yield that investors demand on the mortgages that they buy. Middlemen add a quarter of a point or more to it to arrive at the mortgage rate that you pay.
The yield on the 10-year Treasury hasn’t fallen nearly as far — from 4.88 percent early Wednesday afternoon to 4.8 percent this morning.
(http://www.bankrate.com/brm/story_content.asp?story_uid=21057&prodtype=mtg)
The explanation is in the wording farther down, that you omitted:
“Why were investors compelled to favor mortgage-backed securities over Treasuries? Here’s my guess, and it’s only a guess: Investors have less confidence in the Fed’s inflation-fighting ability than the Fed has in its own ability. In other words, investors believe inflation will remain stubbornly above the Fed’s comfort level.”
The “free” car with every new house thing has arrived in Portland, OR. Renaissance-Homes.com is offering one of those little two seater “Smart Cars” as part of their package deal in several of their Portland area developments. We seem to have been a little behind the curve here on both the rise and fall of the bubble but I think the nationwide credit crunch that’s just started is going to resynch us with the rest of the country. It’ll be interesting to see how the market here develops over the next 90 days or so.
Lets fast forward to 2008, the housing market has crashed ,and only carnage remains. Ben now is a national hero to all who rented. All responsible renters have suirreled away their down payments, and housing to this select group is now affordable. What do we buy? On the market are tons of poor quality stucco boxes on postage stamp lots, and shacks on good size lots. Will we now purchase the stucco box in the ghost trac , or try to find a older quality built house on a fair size lot. What will these areas look like then? The older quality house could also be in a teribble area now. Good quality houses in decent areas could be in short supply, and may require a premium . Will new quality housing now be built, or will they build even worse crap? I am seeing in my area there are only a few determined patient renters with good financial sense who will be enjoying popcorn with Niel. They probably will be the upper middle class in 2008. I myself think I would continue to rent in this situation for at least a few more years to see where crime and property taxes level off. How anxious are you to own if it is within your price affordability? What do you see in your crystal ball?
My wife and I (both 55 yrs young) are considering buying something in a location where we plan to eventually retire. During our remaining working years we will rent, but plan to take many (and long) trips to the eventual retirement home. We currently live in So Calif, but are looking at Wyoming and Montana as good candidates. By the way, she is originally from Vancouver, BC.
Nice landlords.
How do you like this Craigslist add? The FB is trying to rent the place out while simultaneously trying to sell it. AND they want the renter to buy their own refrigerator
http://sfbay.craigslist.org/sby/apa/272609067.html
$2000 / 3br - Cambrian Area 3 BR / 2Bath (san jose west)
——————————————————————————–
Reply to: hous-272609067@craigslist.org
Date: 2007-02-02, 7:10PM PST
Check out this nice home in the Cambrian Area. 3 Bedroom/2Bath Approx 1200 Sq Ft. Nice Yard Sprinklers on timer. 2 car garage w/opener. Large Living Room. Separate Dining Room. Washer/Dryer Hookup in garage. Sink in Garage. Nice Size backyard. Excellent friendly family oriented neighborhood. Fammatre Elementary/Ida Price Middle within walking distance. Branham High Campbell School District. Both bathrooms have showers. Central Heating/AC Contact Tel 408.264.7575 or reply to ad via e-mail. $2000/Deposit plus credit report. Application for each adult over 18. Pets ok w/additional deposit(negotiable). Owner/Agent allowed to tour house with 24 hour notice. Washer/Dryer/Refrigerator NOT provided.
bernice way at new jersey avenue google map yahoo map
cats are OK - purrr
dogs are OK - wooof
it’s NOT ok to contact this poster with services or other commercial interests
PostingID: 272609067
If someone with L.A. specific info is bored… I’m trying to *factually* rebut the points below… Can anyone point me to verifiable stats do do so? Or, ya know… just do ti for me… hehe TIA!
From a Realtor…
Should You Continue Renting or Should You Buy?
(taken from an article I just wrote for the Santa Monica Daily Press)
Several times a week someone tells me, “My friends say wait to buy because the market is going to go down this year.” I am sure these same friends were telling these same people the same thing last year. Let’s focus in on Santa Monica Condominium sales for example. Last year, when the “bubble” was bursting median sales prices went up 12.3%. The median sales price for all types of real estate in Los Angeles went up 7.3%. Yes, the number of sales went down from 8,269 in 2005 to 6,888 in Los Angeles and average days on market went up from 41 to 57 days. However, 2005 was a record year for real estate sales. The fact that the pace of sales decreased in 2006 means the market shifted from going a metaphorical 100 miles per hour, a pace that is impossible to maintain, to a more sustainable 70 miles per hour.
Let’s say for example that you didn’t listen to your friends or the media and purchased a home last year for $700,000. At the median increase in value of 7.3%, you would have enjoyed about .6% or $4,200 a month gain in equity.
Another misconception is that it is better to rent now than to own. It may be better to rent if you don’t plan on being in the same place for more than a year or two or if you just moved to Los Angeles or Santa Monica and don’t know what neighborhood will work best for you. There are also some people who can’t come up with the money every month for the mortgage, taxes and home expenses. For all the rest of you, households making a combined income of about $90,000 a year or more, it is a good business decision to buy.
Thanks to the media created “bubble” hype, and an ever increasing demand for shelter in Los Angeles, rents have increased about 12% citywide in the past year. Many rental seekers have said they see closer to a 15-20% gain on the Westside and in Santa Monica. You can buy a very nice 2br condo in a great Santa Monica neighborhood for around $700,000. This same condo will now rent for around $2,800-3,200 a month. To own it, with a 6.25% interest rate, taxes and $300 a month in dues, it will cost you approximately $4,900 a month. However, after taxes at 30% (many people pay more), your effective cost is about $3,100 a month. If you hold onto this same property for the next five years and enjoy a modest 3% or $21,000 increase in value per year, you will make over $100,000 in equity. If you sold and paid about 6% in closing costs, clearing $40,000, your effective cost of homeownership is only about $2,400, less than renting and a steal of a deal if you consider that rents will also be going up over the same period.
This Realtor’s argument is flawed, since past performance does not predict future results. Current performance, however, does in fact predict current results.
If you go to Zillow.com and search condos for sale in Los Angeles, CA, you can see a home-value chart for the particular place for sale, the neighborhood, the city, the state, etc. All the charts I looked at clearly show an outstanding period of huge increases, ending in a sharp inflection point. The state of LA home values today is represented by the downtred that follows the inflection point.
How do we know the inflection point won’t turn out to be a blip? Well, we can’t know anything with 100% certainty, but we can be relatively sure that prices will continue to drop because of the resets currently taking place on the 0% down, interest-only, pay-option ARMs that started to become common in 2001 and mostly have 5-year fixed terms. The first of those loans began to reset in 2006. Many of the folks who took on these loans have no choice but to sell because they won’t be able to pay the monthly payment once the bill starts to include the principal and the new, higher interest rate.
As the years go on, we will see more and more of those loans reset. Since the houses were bought at increasingly higher prices over the 2001-2006 time period, but wages hardly increased, we can expect the rate of for-sales/forclosures to increase EXPONENTIALLY with the rate of option ARM resests. These for-sales and foreclosures will glut the market enough to send real-estate prices down the tubes.
But that’s the worst-case scenario for home sellers. What if everyone manages to carry the difference between their mortgage and what they collect in rent indefinitely? That shold keep prices stable, right?\
Well, even if prices don’t go down, they still can’t continue going up, since folks are already stretching themselves to the limit just to make that interest-only payment each month. Affordability can’t go any lower. But in our Realtor’s calculations, we had to experience at least 3% appreciation each year (and no increases in association fees) to beat renting.
What all this means is that it would be specious to predict that real estate will behave in the future the same way that it did in the past 5 years, even though future circumstances will be dramatically different. The lack of low interest rates, the tightening of lending standards, the already sky-high prices with nowhere to go but down, the increasing number of houses entering the market, and currently decreasing prices are all indicators of a market in decline.
As far as rents are concerned, I definitely see them rising in my area. Eventually, the rents will be high enough and the sales prices will be low enough to make buying a reasonable choice. But for now, even for those of us with over $165k annual income, it’s not.
I know where I’m looking prices have dropped 7% YOY and sellers now pay the closing costs. So one year’s patience was worth 10% of the previous sales price.
Rents? Going down where I’m looking.
Affordability can’t go any lower.
Its already peaked. Monthly payments are going down.
If I’m wrong, I cannot lose. Why? My company will pull divsions out of LA and move them to lower cost states. Cest la vie.
Look at it another way:
Thus buying, per month, costs twice what renting does.
Rent: $1,800 month (no other expenses)
Buy: (same size, similar area): $5,000+ due to AMT, I’m not getting the full interest deduction.
I don’t know any renters panicing about rent increases. Where did you get the 12%? The highese increase I know of amoung my friends was me at 5%.
I know “home owners” freaking out about mortgage resets. As Big V just noted, those are really getting under way.
By June, any argument on buying will seem… odd (except for extreme low ball bids). There is a reason all of the statistically based housing blogs are bearish right now!
Oh, $700k in the westside is a condo, not a townhouse. Heck, townhomes in the south bay are usually above $800k. The cheaper ones require major work. We need to compare similar quality to similar quality.
The BBB bond market backed by MBS securities has diven too much in January for me to believe in a miracle recovery. Foreclosures are starting to cost bond holders. They’re pulling back.
Those with a down payment will do very will in two years.
Got popcorn?
Neil
Oh, have you noticed all of the “For rent” signs out around LA?
Maybe you’re going off asking rent. Negotiate a little. You’ll do better.
Jobs and people are net leaving LA. Cest la vie.
Got popcorn?
Neil
If someone with L.A. specific info is bored… I’m trying to *factually* rebut the points below… Can anyone point me to verifiable stats do do so? Or, ya know… just do it for me… hehe TIA!
From a Realtor…
Should You Continue Renting or Should You Buy?
(taken from an article I just wrote for the Santa Monica Daily Press)
Last year, when the “bubble” was bursting median sales prices went up 12.3%. The median sales price for all types of real estate in Los Angeles went up 7.3%. Yes, the number of sales went down from 8,269 in 2005 to 6,888 in Los Angeles and average days on market went up from 41 to 57 days. However, 2005 was a record year for real estate sales. The fact that the pace of sales decreased in 2006 means the market shifted from going a metaphorical 100 miles per hour, a pace that is impossible to maintain, to a more sustainable 70 miles per hour.
Let’s say for example that you didn’t listen to your friends or the media and purchased a home last year for $700,000. At the median increase in value of 7.3%, you would have enjoyed about .6% or $4,200 a month gain in equity.
Another misconception is that it is better to rent now than to own. It may be better to rent if you don’t plan on being in the same place for more than a year or two or if you just moved to Los Angeles or Santa Monica and don’t know what neighborhood will work best for you. There are also some people who can’t come up with the money every month for the mortgage, taxes and home expenses. For all the rest of you, households making a combined income of about $90,000 a year or more, it is a good business decision to buy.
Thanks to the media created “bubble” hype, and an ever increasing demand for shelter in Los Angeles, rents have increased about 12% citywide in the past year. Many rental seekers have said they see closer to a 15-20% gain on the Westside and in Santa Monica. You can buy a very nice 2br condo in a great Santa Monica neighborhood for around $700,000. This same condo will now rent for around $2,800-3,200 a month. To own it, with a 6.25% interest rate, taxes and $300 a month in dues, it will cost you approximately $4,900 a month. However, after taxes at 30% (many people pay more), your effective cost is about $3,100 a month. If you hold onto this same property for the next five years and enjoy a modest 3% or $21,000 increase in value per year, you will make over $100,000 in equity. If you sold and paid about 6% in closing costs, clearing $40,000, your effective cost of homeownership is only about $2,400, less than renting and a steal of a deal if you consider that rents will also be going up over the same period.
crap… sorry for the multipost!
Here’s a harbinger of things to come.
A RE scam artist and his wife attack a reporter in San Diego live on camera.
Show me the blood !!!
http://housingcrashtv.blogspot.com
Or how about an SFH in a residential zone advertised for “3 families and a business”? Let’s flag this one down!
http://sfbay.craigslist.org/sby/rfs/272597330.html
$980000 Beutiful house with back studio. Excellent for 3 families and a busine (san jose west)
——————————————————————————–
Reply to: sf2563@yahoo.com
Date: 2007-02-02, 6:42PM PST
3905 WILLIAMS RD
SAN JOSE 95117
Campbell (Area 15)
Detached Single Family (Class 1)
Bed/Bath: 5/3
SqFt: 2700 (Seller)
Lot: Lot: 6,500+ to 8,000 Sq Ft
Age: 75 years
Familyroom/Informal Dining Area
Separate Family Room
Eat in Kitchen
Other Rooms
Den or Study
Bedroom Descriptions
–
Shower And Tub
1 Shower over Tub
Shower
2 or More Stall Showers Other Areas
Laundry Area - Garage
Extra Storage
Partial Basement
Artist Studio
Separate Living Unit
Guest Quarters
Pantry
Fireplace Location
–
Cooling
Central Air Conditioning
Heating
Gas Heat
Central Forced Air Heat
Floor Furnace Heat Floor Covering(S)
Wall to Wall Carpeting
Hardwood Floors
Slate Floors
Amenities
220 Volts in Kitchen
220 Volts in Laundry Area
Gas Hookup in Kitchen
Gas Hookup in Laundry Area
Gas Water Heater
Satellite Dish
Cable TV Available
Ceiling Fan(s)
High Ceilings
Double Pane Windows Garage/Parking
2 or More Car Carport
Detached Parking
RV or Boat Parking
Garage-Converted
Yards/Grounds
Deck
Patio
Fenced Yard
Sprinklers - Front
Sprinklers - Rear
Automatic Sprinkler(s)
Barbecue Area
it’s ok to contact this poster with services or other commercial interests
PostingID: 272597330
test
If someone with L.A. specific info is bored… I’m trying to *factually* rebut the points below… Can anyone point me to verifiable stats do do so? Or, ya know… just do it for me… hehe TIA!
From a Realtor…
Should You Continue Renting or Should You Buy?
Let’s focus in on Santa Monica Condominium sales for example. Last year, when the “bubble” was bursting median sales prices went up 12.3%. The median sales price for all types of real estate in Los Angeles went up 7.3%. Yes, the number of sales went down from 8,269 in 2005 to 6,888 in Los Angeles and average days on market went up from 41 to 57 days. However, 2005 was a record year for real estate sales. The fact that the pace of sales decreased in 2006 means the market shifted from going a metaphorical 100 miles per hour, a pace that is impossible to maintain, to a more sustainable 70 miles per hour.
Let’s say for example that you didn’t listen to your friends or the media and purchased a home last year for $700,000. At the median increase in value of 7.3%, you would have enjoyed about .6% or $4,200 a month gain in equity.
For one, the realtor needs to look at individual properties, instead of statistics. We live in SD, but were born & raised in LA, so have seen downturns there before.
Assuming any increases in housing prices, going forward, is delusional (especially when he/she assumes this will go on, every year, for many years).
The last house I rented in LA did not see rent increases for the four years I lived there.
In our current house in San Diego, we’ve seen our rent go from $2,000 to $2,100 since 2004 — and that was written into the lease agreement, they didn’t increase it after that. Matter of fact, the LL called when they received our last check to let us know how happy they are that “their favorite tennants” are planning to stay with them a while.
It’s like realtors want to advertise their stupidity in writing.
continued… Factual rebuttal please
Another misconception is that it is better to rent now than to own. It may be better to rent if you don’t plan on being in the same place for more than a year or two or if you just moved to Los Angeles or Santa Monica and don’t know what neighborhood will work best for you. There are also some people who can’t come up with the money every month for the mortgage, taxes and home expenses. For all the rest of you, households making a combined income of about $90,000 a year or more, it is a good business decision to buy.
Thanks to the media created “bubble” hype, and an ever increasing demand for shelter in Los Angeles, rents have increased about 12% citywide in the past year. Many rental seekers have said they see closer to a 15-20% gain on the Westside and in Santa Monica. You can buy a very nice 2br condo in a great Santa Monica neighborhood for around $700,000. This same condo will now rent for around $2,800-3,200 a month. To own it, with a 6.25% interest rate, taxes and $300 a month in dues, it will cost you approximately $4,900 a month. However, after taxes at 30% (many people pay more), your effective cost is about $3,100 a month. If you hold onto this same property for the next five years and enjoy a modest 3% or $21,000 increase in value per year, you will make over $100,000 in equity. If you sold and paid about 6% in closing costs, clearing $40,000, your effective cost of homeownership is only about $2,400, less than renting and a steal of a deal if you consider that rents will also be going up over the same period.
Uhhh, you’re relying on equity again to make the analysis work. Don’t post here unless you are prepared to “show your work”. We’ve been through this aspect already several months to a year ago.
Sorry if it wasn’t clear.. This BS wasn’t mine, it was sent to me… looking for facts to rebut it. “that’s bulls##t!” didn’t cut it…
For $2700 a month you can rent a 2 bedroom 2 story “townhouse apartment” with new appliances and two parking spaces:
http://losangeles.craigslist.org/wst/apa/273904802.html
PI on a $700K loan, 20% down, 6.25% fixed rate 30-year loan would be $3448.
By your numbers above, TI + HOA (taxes, insurance, and HOA/maintenance) would be $1451.
The tax savings for the first few years of interest payments is approximately $2900 (initial monthly interest) times 30%, which is $870…and that assumes that you are already itemizing your deductions above and beyond the standard deduction. Otherwise your mortgage payment is eating up money that you would have gotten back from the standard deduction anyways.
So we have:
Monthly Principal + Interest payment: $3448
Monthly taxes + insurance + maintenance: $1451
(Maybe) income tax savings: -$870
Total monthly outlay (including POSSIBLE tax savings) : $4029.
So how is the cost of buying $3100 a month? You can’t write off the principal payment, nor the maintenance. I think you can write off the taxes, but that would not bring us down to $3100 a month.
So let’s meet in the middle…let’s say the cost of owning is $3500 a month.
So the monthly cost of owning is $3500-$2700 = $800 a month.
That’s $9600 a year.
But wait, i could take that down payment and make at least 5% a year safely. That’s $140,000 x .05, which gives us another $7000 a year.
That’s $16,600 a year.
That’s assuming no appreciation and no rent increases.
So for the next one, two, three years, it may make sense to rent rather than buy, even if you are thinking of staying in an area long term…unless you think that rents and appreciation will continue to go up. Why not wait a year or two, build up some cash reserves now, and then buy?
I firmly believe that buying makes sense in the long term for a majority of people, but I DON’T believe that “it’s always a good time to buy”.
That was a good point about the standard deduction. And good catch on that “30% of the entire bill” thing. Now I have even more reason to rent!
“That was a good point about the standard deduction”
Yup, it’s easy to over look, if don’t have a lot of other itemized deductions beyond the mortgage payment, you are using mortgage interest payments to “buy” a deduction that everyone else gets for free.
From what I remember, the standard deduction is something like $10,000 for married couples. If you are a married couple and have no other itemized deductions (charitable contributions, etc.), and you pay mortgage interest of $10,000, you are pretty much in the same boat (tax wise) as a renter. If you pay $20,000 a year in mortgage interest, you are only ’saving’ (tax-wise) on the deduction over that $10,000 (vs. renting).
(If I am getting this wrong, someone please let me know).
Thanks!, I’m stealing that if ya don’t mind…
No problem.
I guess it’s time to name Robert Toll for humanitarian of the year! It’s just too much money for him to take. Gotta leave some on the table. I can’t believe his CFO said this with a straight face.
Toll Brothers CEO Earns $29.3 Million in 2006 Compensation, Down From 2005 and 2004
PHILADELPHIA (AP) — The salary of Toll Brothers Inc. Chief Executive Robert Toll slumped along with the housing market in 2006, when he earned $29.3 million in salary, bonus and other compensation, according to a Securities and Exchange Commission filing on Monday. That’s down from $41.3 million in 2005 and $50.2 million in 2004.
ADVERTISEMENT
Toll, who has been ranked among the nation’s highest paid CEOs, took home a 2006 salary of $1.3 million, a bonus of $17.5 million in cash and stock, $10.1 million in stock options exercised and more than $400,000 in retirement benefits.
Shareholders didn’t do as well. The luxury-home builder started last year at around $40 per share but plunged to about $22 in July before closing the year at $32.23.
Shares of Horsham-based Toll Brothers fell 59 cents to $34.76 in midday trading on the New York Stock Exchange.
Joel Rassman, chief financial officer of Toll Brothers, said when Toll exercised the options in 2006, he held the shares instead of selling them. The options were close to expiring.
Also, Toll’s bonus should have been $21.5 million, but last month Toll and the company’s executive compensation committee agreed to a $4 million reduction.
“Given the slowing of the economy for homebuilding, he and the board felt it was appropriate,” Rassman said. “He has done that a few times in the past … just because it was too big a number.”
Rassman said Toll’s bonus was cut by about $12 million in 2005. Regulatory filings show that he got a bonus of $27.3 million instead of $39.1 million.
Last year, Toll Brothers reported profit of $687.2 million, or $4.17 per share, compared with $806.1 million, or $4.78 per share, in 2005. Revenue was $6.1 billion in 2006, down from $5.8 billion the previous year.
no worries, if money gets tight for Bob Toll, he can always hit up his bro for the $$$.
Bruce owns
Reedman-Toll Auto World
Looks like their cars sukk as bad as the houses…
Yahoo! User Reviews
June 17, 2006 buyer Beware
I bought a new Montrey Minivan in 2004. IT has been back to the dealership service 12 times already. There is definitely something wrong with this car. When I asked questions about the minivan, no one can answer them. ( The service department became very rude.) The dealership promised me they get me answers but I have not heard anything. They referred me to the Ford company (800#) who told me it is the dealership who should get me answers and referred me to the dealership who referred me to the 800#— catch 22.I have never been so disgusted with a new car/dealership in my life. Good buy Ford/ Reedman-Toll ,Oh I mean Good bye. (Of course I have to bring this car back for service on Thursday. Do you think they will have answers for me , or be civil towards me??)
Massive inventory jump in my Zip searches today, back above pre-thanksgiving levels. I wonder if they were all “temp-off” according to our local MLS, and were to reactivate 5 Feb. As an example, in one search Sun I had 51 houses that were exact matches and 160 that were almost matches. This AM, I log on to see 46 exact matches and 196 almost matches, a 12% and 22.5% increase in one day, but not all of them had new listing dates, which is why I think many went temp-off. But why not just relist under a new date? Hmmmm.
Oops, meant 41 exact matches on Sunday, up to 46 today. You get the picture…:)
How about this bargain in Calgary, Alberta, Canada. No bubble here !
http://www.elaineandbill.com/client_search_view.cfm?mls=3241548&type=res#
Sorry if this link has already been posted:
MBA Urges Regulators To Avoid Invoking Suitability Standards
Here’s an non-permitted room addition down in the big easy. Yes, it’s permanantly connected with a hole cut out between them and includes a rubber weather strip seal.
Boudreaux, dat’s flat ingenious!