Correction Leaves ‘Last Speculators’ Stuck
Forbes reports on flippers in Florida. “Condo flippers in south Florida will tell you that they are sure, real sure, that they will sell out at a profit.”
“Robert Jenkins began speculating on real estate in hot-hot south Florida. He borrowed heavily and flipped 19 houses in Fort Lauderdale, reaping profits of $750 to $71,000 on each property and plowing two-thirds of his $300,000 in profits into still more homes. He now owns seven, worth $2.5 million and doubts a crash will happen. He vows to keep flipping, even if it does.”
“Donna Franklin owns five homes. Last year she and a partner borrowed against a Miami apartment they own and rent out to make down payments on three $400,000-plus ‘preconstruction’ condos in Fort Lauderdale. They are confident they can flip the three condos at a nice markup soon, well before construction ends, at which point they must take mortgages for the $1 million they owe developers.”
“That could be wishful thinking. The number of unsold condos for sale in and near Miami has more than doubled from a year ago to 2,232, says Miami realtor David Dweck. Some 25,000 condos are under construction in the Miami-Dade area, more than the total number of purchases in the last nine years combined.”
“Three-fourths of those are in the hands of speculators, says Jack F. McCabe. ‘The demand is artificial. Most south Florida speculators have been selling to other speculators,’ he says. ‘It works fine, until you’re the greater fool and nobody else comes along to pay that higher price.’”
“Brisk sales of new homes have helped prices stay aloft, for now; sales are running at 1.2 million houses a year, 40% more than normal. In some parts of the country the last speculators, people like Jenkins and Franklin, would be in deep quicksand.”
“A correction may already be under way. The number of half-million-dollar-plus condos up for sale in Miami is twice the number in Los Angeles, whose population is four times as large. In New York prices reportedly slipped 13% last summer. In Las Vegas several developers have canceled projects amid soaring construction costs, spurring suits.”
“Terrance and Jennifer Trott, both 26, describe themselves as ‘regular folks’ who happen to own two homes. Last July they borrowed on their four-bedroom house near Tampa to pay $200,000 for a two-story condo in a development near downtown Tampa. They listed it at $235,000 in December. Two months later they dropped the price to $217,000 and are getting some bites.”
“The Trotts together earn about $85,000 a year, and the extra $22,000 a year it costs to carry their condo is a severe drain. ‘We only go out to eat on the weekends, and it’s not every weekend,’ Terrance Trott says. If the condo doesn’t sell, they may try to rent it out, just like everyone else; but even at $1,000 a month they would be pouring cash into the property.”
“Jack McCabe, is raising a $250 million vulture fund to buy condos. Lenders are already offering him blocks of condos repossessed from distressed homeowners. ‘We’ll focus on buying million-dollar properties at 2003 prices, at 70 cents on the dollar,’ he says.”
From a Tampa Bay news channel. “Unhappy Polk County homeowners looking to unload their properties can blame England for a real estate slump. Six months ago, Four Corners residents could put up a real estate sign and could sell their home for more than they bought it for, but not now.”
“The super hot housing market has lost its steam and homeowner Carlos Gonzolez has had to lower the price on his home by $20,000. ‘It went from March to November,’ Gonzolez said. ‘You are talking about a house you got for $130,000 going for $190,000 in a five or six month period, then stops.’”
“That’s because people from Britain have been buying many vacation homes there with profits from skyrocketing real estate prices in Britain. But, the market there has gone flat. ‘The property market in the UK is very flat at the moment,’ real estate agent David Edwards said.”
“Edwards said home sales in the area are off by 50 percent partly because many British buyers are scared off by recent hurricanes. Gonzolez is hoping he hasn’t missed out on the real estate boom. ‘If you time it right, you make a lot of money,’ Gonzolez said. ‘If you wait too long then you’re stuck.’”
Not Florida! Florida is different! Lot’s of aging middle class people from up nawth are going to come down and buy all of those million dollar luxury condos! Just you wait and see! This is just a “pause”. Buyers are just taking a breath. They’ll be back. I swear.
“That’s because people from Britain have been buying many vacation homes there with profits from skyrocketing real estate prices in Britain. But, the market there has gone flat.”
The British aren’t coming? You see, children, two hundred years ago we welcomed the Brits with musket balls, today we kill’em with real estate deals. They bury just the same I suppose.
gynch
Heh heh, well if the Brits start whining about the Florida real estate collapse, we can always blame them for our stock market crash in 1929! Yes!
One of their own, Robert Fleming, invented the investment trust, which is something like a closed end fund today and which was majorly used as an object of speculation by small investors in the stock market.
In addition, Winston Churchill, who was chancellor of the exchequer around that time, at least a few years prior, wheedled the US to lower interest rates here in order to encourage more buying of the sterling. The British were having problems maintaining their gold-currency peg. As we have seen in recent years, lower interest rates can be part of the spark that sets off a speculative fire.
To add insult to injury, Churchill was touring the US at the time of the 1929 and even visited Wall Street, viewing the floor of the stock exchange in the midst of the crash.
So if any Brits start giving you a hard time about the Florida crash, you can fight back!
Not Florida! Florida is different!…Lot’s of rich Venezuelians from down south are going to come up and buy all of those million dollar luxury condos (to get away from Hugo Chavez with their $$$). At least that’s what folks around Miami keep telling me.
I found this interesting and OT. Sorry, but it really gives one another angle to look at when thinking in terms of RE prices. Both commercial and residential have gone through the roof. Companies looking at ways to compete are looking for decreased costs in both productivity and costs. RE is a huge cost to them. I am pasting this from an article I read online. This is just an excerpt.
this trend is very interesting as the real estate prices have largely ignored the fact that more and more people don’t really have the need to go to their offices as often as they used to…on the other hand if more people stay at home to do their ‘jobs’ they will need more space which would actually justify the higher real estate cost…it’s an immediate savings for the company but in the long term it needs to be factored in the cost of hiring an employee.
Agreed,
But this also does not factor in the locus portability. You don’t need to live in the Bay Area to do a Bay Area job. This is exactly what global wage arbitrage is all about… real estate prices would have downward pressure because of this.
the commercial market is not only, influenced by the forces you discussed, but rising interest rates make the cap rates that these commercial deals were inked under obsolete. who wants a 4.5% cap rate on a building when they can get a treasury yielding 4.75%. the 1031 tail that was wagging the dog will dry up as well.
I’m expecting office to condo conversions in the next 5 years.
An interesting point to this is that if I own my house I can deduct 25% of the payment for office, if I rent I can deduct the whole rental payment.
Another reason to Rent instead of own!
TNX Last: 47.75 Change: +0.45 +0.95% Volume: 0 10:04am 03/10/2006
let’s hope for 10 yrs treasury to reach 5 within 2-3 weeks..then it is gonna be fun. There is lot of money to be made in the unwinding..and i am not talking about real estate..see gold squirming at 435…down from 470.
What are your thoughts in this regard? I figured it was a concerted effort by CB’s to jawbone (in conjunction with the incremental rate raising) the CRB down. Are you of the opinion that this will somehow contain inflation or what are you implying? I’m not in this line of work and am always interested in opinions on these matters but I didn’t understand your reference to unwinding.
Hey Fellas,
Been reading the boards here for a while, from Southern California, San Gabriel Valley. It never seizes to amaze me the amount of risk that is incurred by the fever that is created by easy money. I really have no sympathy for speculators; as any investor of any kind will tell you, “Risk and profit go hand in hand”; those that succeed are those that can manage risk and calculate appropriately to make profit. All of these guys that have read some self enlightening book like, “Rich Dad, Poor Dad”; that are trying to be the next Donald Trump must realize that with that profit they look for they incur massive risk. To make money without innovation, the basic understanding of business fundementals, hard work, and ethic; and expect a static asset like a home to make money for you. I hope they get toasted for their foolishness.
I had an interesting conversation with a co-worker yesterday on a statistic that 30 somthing percent of Boomers have 25K or less in their retirement accounts, his comment was, “In California most of their retirement is in their House”. I hope as time progresses people realize that their home is an asset. It also should not be your nest-egg.
-J
Yeah - a 30-something real estate agent last year told me that she’d read “Rich Dad, Poor Dad,” that real estate investing was the way to go, and that going to college and working at a salaried job was for chumps.
>that real estate investing was the way to go, and that
>going to college and working at a salaried job was for chumps.
That is the problem with a lot (most) people that read the “Rich Dad, Poor Dad” books. The main theme is “get yourself a sound financial education, and by the way, once you do, these are some of the tools I used to make my fortune [real estate, tax laws, businesses, etc.]. Unfortunately, many people just get the message “drop your job and buy real estate”. Oh well!
Yep…the basic principle I learned when I was 20 and started investing is “Risk vs Reward”. If it seems like easy money, then it is HIGH risk. Most of these speculators don’t seem to have a grasp of this basic fact.
“We like risk; that’s how you make a lot of money.”
- Jeff Skilling, former CEO of Enron.
That is a great quote. I am going to save it.
I was personally impacted by Enron.
…one more thing, don’t get started by commenting on “being the next Trump”. If anyone actually took the time to read up on Donald Trump’s history, they would see it was his FATHER that built a fortune in Real Estate. The “Donald” is just another rich kid that was propped up and helped by his dad and he (Donald) still managed to screw up most of his investments (several BKs). Donald was most recently bailed out of a poor RE investment when his dad kicked the bucket and left his fortune to his kids. Donalds share was like $200 million. There aren’t too many of us that have access to this type of benefit in life or business. Many of the “Trump” building lately aren’t even developed by him, they pay him a royalty to associate his name with the project.
Very true. One of my favorite Trump stories was from the last downturn in the early 90’s. I read it in Allan Sloan’s column and it was hysterical.
Donald had a note coming due on one of his Atlantic City casinos and was close to $1 million short. He borrowed the money from his dad but not in the usual way. Should Donald default down the road, Fred didn’t want to be at the end of the creditor line so he bought $1 million worth of casino chips.
Presto, Donald can pay his note and Fred incurs no risk other than lost interest. This “note” was payable on demand.
Fred was a smart businessman. Donald is a smart self-promoter.
Good story!
I have another one. Back when Trump was building the Taj Mahal casino, the casinos were adorned with Egyptian like castle tops. The castle tops were made of fiberglass. The company that made them was based in a small Western Pennsylvania town called Union City. Trump declared bankruptcy. The company was never paid, and subsequently went out of business, in large thanks to the Donald.
A home is a liability not an asset.
This situation will not be rectified until all the people discussed in that article and their ilk are cleansed from the system and sent back to their worker bee jobs, where they will have to work an extra 5-10 years to pay off this nonsense in lost opportunity, if not actual money.
have to work an extra 5-10 years to pay off this nonsense
I think people will just walk away. I hope I’m wrong, but I think the taxpayer would end up paying.
If I understand how FannieMega and company work the deal is that we taxpayers have already paid. All that remains is the ugly matter of final accounting and collection. Good thing there was a company around to buy up all of that bad debt with Federal backing, but it might have been good to do the RTC thing after the bubble burst instead of before as part of the whole blow out.
Vulture Fund, I like the sound of that.
Vulture funds used to be for buying select bonds or bank debt in large chapter 11s at a big discount and then schtupping everyone else in the plan of reorganization. Not THAT different, I guess.
Jack McCabe, is raising a $250 million vulture fund to buy condos.
There are numerous layers of “greater fools”.
maybe there will be an opportunity for “vulture vulture funds”
They should be waiting until tehy can get the properties at 50 cents on the dollar (or less), not 70 cents.
For the Miami area, I agree.
Na, they did this before back in the early 80’s. They just waited, prices came crashing down, speculators were just mailing their keys to the banks and developers wanted out of half finished projects… In came the “vultures” they bought up failed condo-conversions, blocks of condo’s and even completed projects and just turned them into apartments & time shares.
Since they were buying them pretty much out of forclosure they were turning major profits as apartment rentals.
Right now South Florida has seen so many apartments turned condo that renters are screwed, businesses are screwed, fewer people can move there because they either can’t find a rental or cant afford one.
If McCabe is right, and he has 250Million ready to roll then he is going to make a killing on these places by turning them back into apartments.
it the numbers circulated here are right he is not going to make a killing … with 30% off the price and the usual price to rent ratios these investments should still be cash flow negative. And that’s with the optimistic assumption that rents will not decline in case of a severe RE downturn.
but was it this bad in the 80s in terms of appreciation and inventory? I am now getting worried about how the big guys with the big funds will possibly continue to screw people, e.g. with just a couple major players owning massive numbers of rentals in an area…
No. The runup and inventory problems are far worse now. Also, the use of exotic financing has made the current situtaion far more dangerous. In 89 i think people used ARM’s about 10% of the time vs. well over 50% now- and the majority of ARM’s are I/O’s.
IMHO what happened in the *80’s was similar to today but to a much lesser extent. The 1987 stock market crash, followed by the mini 89 crash and then the First Gulf war. Very ironic how it is mirrored buy the 2000 stock market crash and the current War on Terror. The major difference is this time it is truly a global imbalance.
If you remember, Money center banks almost went under. Citibank was saved with a cash infusion from a Saudi Prince. Hundreds of banks were insolvent and the government became owners of thousands of proporties. The S&L industry had to be bailed out and a new government agency was formed to liquidate all of the REO’s. It took YEARS to unload all of the inventory.
If you do some research you will find the deviation from the mean, and supply now dwarfs what happened in the 80’s.
I see vultures every morning, big black ones with long skinny legs, picking over the road kill.
The money in the funds is called “vulture capital”…so you can tell your friends that you are a vulture capitalist!
Starting to see some of the predictions come true- in this instance flippers stuck with units they can’t finance. First course of action will be losing the deposits. Maybe second after losing the cocky attitude.
That will move the burden onto the builder. So the flipper profit history is lighter by $20K, but the builder will now need to eat more. Still, as discussed previously the builders have considerable margin to work with, plus maybe some serious profits from the last few years.
Don’t see “disaster” in all this, but certainly major correction.
That’s a great point. Some of the novice speculators with normal middle class paychecks that took HELOCs or cash out refi’s to come up with the deposits for their flips, will never be able to get a loan when it is time to close on their “investment”. I hope the builders play hardball and keep the deposits.
Hard to say who’s good or bad (developers not that great either). I lost a lot of money in the dot com crash (as did many other people). Not sure who will lose the most in the condo flipper crash.
If this is any indication of his holdings. he is up a creek.
Site Address 2411 TARPON DR , MIRAMAR
Property Owner JENKINS,ROBERT III & NIKKE
Mailing Address 2411 W TARPON DR MIRAMAR FL 33023-4563
ID # 5141 22 05 2990
Millage 2753
Use 01
Legal Description MIRAMAR SEC 13 52-11 B LOT 13 BLK 112
Property Assessment Values
Tax Year Land Building Land Value AG Total Tax
2006 $ 78,600 $ 74,490 $ 153,090
2005 $ 78,600 $ 65,420 $ 144,020 $3,471.43
2004 $ 62,400 $ 57,850 $ 120,250 $2,981.85
Save Our
Home Value Exemptions
Type Widow(er)’s/Veteran’s/Disability Homestead Non-Exempt
$ 153,090
Sales History
Date Type Price Book Page
04/05 WD $ 192,000 39611 1074
04/98 WD $ 92,000 28225 603
10/92 QC 19964 929
08/91 QC $ 100
12/86 W $ 73,000
Some $40,000 + overvalued on this property alone.
I am familiar with this area and it is TERRIBLE (east part of Miramar…not to be mistaken by the new area west of I-75). High crime, all run down houses, very slummy… The income level of residents in this area can’t afford a 190K+ price. He must be hoping / expecting to sell to another speculator (greater fool). Any actual person that wanted to live in the house that could actually afford the mortgage, taxes (2.2%), and prop insurance, WOULD NEVER live in that area.
“Robert Jenkins began speculating on real estate in hot-hot south Florida. He borrowed heavily and flipped 19 houses in Fort Lauderdale, reaping profits of $750 to $71,000 on each property and plowing two-thirds of his $300,000 in profits into still more homes. He now owns seven, worth $2.5 million and doubts a crash will happen. He vows to keep flipping, even if it does.”
Gambler’s ruin…
Make us proud Bobbie!!
If he has been “Fliping” and rolling all those gains under the umbrella of a IRS #1031 tax deffered exchange he could be in big troble with the TAX MAN…
and why is that ?
It looks like a business and these properties are not “held for investment”. I am not a CPA, but this would be schedule C ordinary income.
‘We only go out to eat on the weekends, and it’s not every weekend,’ Terrance Trott says.
By May it’ll read:
‘We only eat on the weekends, and it’s not every weekend,’ Terrance Trott says.
Listing from phoenix.Craigslist.org. This IS the actual ad, not made up :
“Broke ! Desperate ! Dateless !! Must Sell My 19 Properties Fast !!
——————————————————————————
Reply to: hous-135194310@craigslist.org
Date: 2006-02-19, 11:11AM MST
Selling my 19 Properties Fast !! Your Dealing With An Actual Owner,, Im not an agent. Let’s Deal,, Make an offer,.,, Help Me!!!
want a date?….
I read this article about Miami … and Phoenix and San Diego and … all the condo speculation and wonder: “What is the case for this rippling through the coastal SFH markets?” In other words, what is the cause/effect of the crash of the condo market on the rest of the over priced markets?
easy. when condos become affordable, people priced out of sfr will go the condo route. it’s the substitution principle. this of course lowers demand for sfr’s, and laws of s & d kick in.
I would add that there is TONS of flipping and RE speculation down here in single family homes and townhomes too. Condos may be the preferred vehicle for speculation, and due for the most pain. But SFH aren’t immune. Case in point: Met an older lady several months back who used to carpool me to grade school many moons ago. She had gone in with a couple other people buying a pre-construction home in my neighborhood to flip upon completion. This was a full SFH, probably bought for $300,000 - $500,000 here in Palm Beach County, FL
I think another example is condos=tech stocks and sfh = blue chips….they both dropped during the crash…
i think SFHs are Intel, condos are JDSU
Does anyone know what is going on in Naples? I know some friends who were speculating like crazy and trying to get me into the condo flip game down there. Wonder what is happening now.
I was just in Naples this morning, at the zoo. I didn’t see many signs around town although this may be meaningless as to what is for sale. Driving back north on hwy 41, about 8 miles north of Naples, we saw a large SFH development going up all at once (at least a hundred homes under construction with many more possible, it was difficult to estimate the size of the project). The sign said they started in the 500’s. For the couple miles prior and after this development, nothing but fields and trailer parks and some small strip malls. In other words, jerkwater, Fla. starting at a half mil.
A large townhouse project (several hundred units) further up the road going up all at once, we couldn’t catch any price on the sign. A large (several hundred units) as we pulled into Ft Myers area. Lots of homes for sale in Ft Myers/Cape Coral area with a lot more being built. Insanity here.
I have some places in Naples (city limits) and plan to shut my eyes for 5 or 10 years. Fortunately, we bought them long ago and they cash-flow. All are West of 41.
I live here in Polk County, in Winter Haven, right below the Four Corners area.
This place down here has seen an unreal amount of construction in the last 3-4 years. Homes everywhere have doubled in price. The article this thread references is dead-on correct.
The British, Irish and Scottish have all sought after these Mexican-built crackerboxes to speculate upon; and they have bought thousands of them around Celebration, Davenport and even further south into Haines City and Winter Haven.
I have lived here 20 years and I can tell you people that there is no way that we have the number of new jobs support the number of homes that they have built. There are literally hundreds of rentals up there in the Four Corners area as a result.
I was looking at a townhouse for rent in Davenport the other day. Suncoast Builders has recently built the development…anyway, when I showed up to check out the rental, the guy I met at the unit wasn’t the owner, but was a complex manager and was employed by Suncoast.
Anyhow, when I showed up to see the spec-owned rental he quickly did a “bait and switch” and tried to SELL me another company-owned and yet-unsold townhouse unit. Didn’t even want to talk about showing me some absentee-owner English guys rental.
This guy told me that I didn’t need a FICO score, that I didn’t need to prove that I was employed and that they didn’t need to see any earnings statements…..Suncoast would sell me the townhouse and do their own fixed-rate financing…all I needed was 3,000 cash and I could have the keys to a 2/2 townhouse…..they wanted to sell me the $hitbox unit for $175,000.
Absolutely never have I been so harangued to buy anything. This twenty-something kid would not let me leave his office….he was doing everything in his power to make me buy a townhouse from him. I could clearly sense the desperation in his voice. When I got up to leave the office he followed me back to my car; and as a parting comment he mentioned that we could even get me in for less than $ 3,000 if we had to…..
This whole thing here in Polk County has gotten desperate for these speculators and it has happened almost overnight.
The bottom of the market fell out in mid-January. It will certainly end badly.
Pure comedy! Tell me more!
I despise pushy salesmen. They ruin a sale with their nonsense. I hate going to a car dealer because of all the vultures like this.
Treat people as you would like to be treated and you will have the most sales.
The lack of shame creates a lot of this garbage. If it were a small community where you had to see this guy at church or the grocery store you would not treat him as a smuck to make a sale. Just shows you how much we really care about each other these days. It’s all about the buck nowadays, sad.
Welcome to weirdo neo-con land.
OMG, that story is soo scary. TxChick57 is so right that it won’t be til the Trotts and the speculators of every ilk are ‘cleansed’ from the system that this craziness will end, and with the ’stickiness’ of a belief that this scheme can substitute for actual productive (or at least non-parasitic) work it might take a while unless the pain comes *soon* and stings like hell. Makes me sorta glad that new regulations are in place to make bankruptcy ’stickier’. I feel bad for the car-pooling older woman who bought the how-to-retire advice and will be screwed, and all the poor homeowners who felt they had to pay obscene prices to avoid being locked out forever and stretched to the point of being on the brink, but the speculators and the youngins’ who bought “rich dad poor dad” (I’d avoided peering into such books because the very title is part of the problem and the fever here!) and became flippers really do deserve whatever comes their way. I just hope to high heaven we don’t all have to pay for their folly and obnoxiousness anymore than we already have…
There are more condos under construction in Miami-Dade Co. than have been sold in the past *9* years?!
Does that mean planned to be constructed or actually digging dirt now?! THat’s sooo scary…
I also live in Winter Haven. The median price of a house here is only $170k. In Flordia, that is really reasonable. I have no doubts the speculators here will be stuck just as those in Miami or Sarasota. But if a family needs a home within a reasonable price. Polk county is still a good choice. I could not think of any other major cities that are so close to Disney, will price their homes at such a reasonable price. With a new University of South Florida being built in the near future in Polk, some young families might like it here.
I live in Orlando and the problem with polk county is the schools are absolutely terrible. Not the place for a young family. Retiree’s perhaps, grandkids would like disney. $170k is an attractive price but the commute to a job in Orlando or Tampa is too far. I drove up to Ganiseville on the turnpike today and realized I forgot how beautiful hills were.
Tell you what Ted-
Go to BuyOwner.com and see what you are getting for 170K. Not much. Also keep in mind the median household income for this county is like $37,000.
Those $ 175,000 houses were going for $ 90,000 just 3 years ago. You know it and I know it.
A decent 3/2 with a shade tree and a backyard in Winter Haven is now around $ 200,000. Freakin’ ridiculus.
Most people here with “decent” jobs work at either of the three regional hospitals, State Farm corporate offices or a few assorted pro jobs in Lakeland. If you aren’t in medicine or legal here in Polk you prolly aren’t topping 35-40K for most decent jobs.
And the other poster is right about Polk Schools. They suck. Most of the middle schools in Winter Haven are “C” graded schools ( based upon the student FCAT scores ) with the exception of the academy schools and Jewett Middle.
I work at the Research Station in Lake Alfred and the intelligensia here opt to send their kids to the private parochial schools. All Saints Academy is a reasonable option in you can shell out ~ $800.00/mo per kid.
Polk has always been and still is a low-wage agri-business county with a bunch of servant-sector jobs thrown for good measure. We have a decent snowbird population but this year they haven’t showed up in good numbers.
Yeah, $ 175,000 houses may sound cheap; but you need a decent job doing specialized service-sector tasks over in Orlando or Tampa to even rationalize those $ 1500/mo house payments.
The demographics here in Polk are mush different than in the other population centers of Florida.
By the way, here’s a list of BuyOwner homes within 15 miles of Winter Haven ranging from 150,000 to 175,000. A grand total of eleven (11) homes FSBO, most are under 2000sf, a couple are manufactured ( trailer ) houses, a couple are 2/2’s and 3-4 are shitboxes in the middle of nowhere. The school districts on all the homes except for 2 or 3 are terrible. Your kids will be seated alongside kids whose parents are in jail for dealing meth or who don’t habla englais.
http://www.buyowner.com
To get a decent home here you need to spend $ 200,000+. Three years ago you could have gotten a very nice home for $ 100,000.
Davenport? A friend of mine and work colleague was “mayor” of Davenport back in the early ’70s. The whole town was only one or two streets. I used to pass by on the way to Addison’s gun shop, out in the middle of nowhere. It’s hard to imagine that area is built-up — it’s value used to be as a shortcut from Haines City to Orlando when I-4 was jammed. Even for Osceola County, that area is, or was, the “boonies.”
Man, I know it’s bad karma to wish harm on another, but reading about these….greedy (there’s no other word) people….makes me feel weirdly great. I’ve continually bucked the opinion of MANY (including my own husband) people for many months about the real estate disaster, and I’ve just about had my fill of idiots slamming down the highway in a Hummer, with a license plate that says “Flip”. I can’t muster much sympathy for people who have no business speculating…they are harming many others by their greed and ignorance (it’s not just them who will feel the trickle down effect) and I get almost giddy when I read these stories. I’m sorry for their kids, but then again, maybe the kids will learn some hard truths and this country can maybe, eventually, get back to some basic good fundamentals, both in ethics and financial sense.
Catherine: I can’t wait to buy that Hummer at auction, do you think it will still have the “Flip ” tag on it? Or should I have it changed to “flop”
Not saying that I wouldn’t love to see them go down, too, but how can you call them greedy?
If I bought a new car for $30K and someone came up to me and offered to buy it from me for $80K, it’s not my fault for pouncing on the opportunity - and don’t even try to say you wouldn’t take the money, either.
This bubble is the BUYERS fault, not the sellers. THEY are the greedy (and stupid) ones that cannot wait patiently on the sidelines while this frenzy dies out and instead bid up the prices, forcing sensible hard-working people out of the market.
that’s just ridiculous really.
c’mon…if you were ‘flipping’ cars, you wouldn’t have bought the car and gotten offered twice the price while sitting at a stoplight, right? you’d have bought the car *because* you knew there was a sucker ready to pay you way more for it? That sucker is by definition ’stupid’, but at least some of the suckers were just looking for a ride and bought your and the other salesmen’s rhetoric that the price is the price and if you want the wheels you gotta make the deals. If you sold to a fellow flipper who already had a car and was planning on selling his, then sure…he was a “greedy” buyer for the moment, waiting his turn to be the “greedy” seller. You can only really be “greedy” at the sale-position, no?! You’re distinction doesn’t make sense to me…
Patience is a virtue, tis true, but it’s opposite isn’t “greed”, nor is greed often the motivator behind impatience.
Right now, in lots of markets, buyers are trying to patiently wait out the sellers who greedily and stupidly at once stick to prices nobody is willing to buy at. *Real* buyers as opposed to speculators don’t have any desire to ‘bid up’ prices…
cheers!
There is a big difference in the way you are thinking and why we hate the “speculators” and hope they burn. Regarding your example, If you bought something and someone offered you more, then great. However, when you bought it (the car) it was purchased at the market price or the person wouldn’t have sold it to you. There is no EXPECTATION to flip that item to someone else for an immediate profit. The intrinsic value hasn’t gone up that quickly. If you want to play in the risky game of flipping (looking for the next greater fool) then you deserve what ever is coming to you (good OR bad). The problem with the flippers is the EXPECT to make easy money and have thrown all caution to the wind. They aren’t using any financial fundamentals in their investment/gamble, just pure greedy speculation. They aren’t investors. There is a huge difference between “investing” and “speculation”.
Like I said, I hope the flippers get burned, too (because I am not one of them) but in a free market, the market price IS the intrinsic value.
Caveat emptor, I say. I still blame the buyers. Without them, there would be no market and hence no bubble. Sellers cannot create a market bubble - buyers do. Anyone paying hyperinflated prices right now is doing so because they expect prices to increase or they are just stupid. Unless someone has a gun to your head, nobody “has” to buy anything.
IT’S VERY RARE THAT SOMEONE WILL OFFER MORE THEN SOMETHING IS WORTH..GENIUS…
I’m right there with you Catherine!
Your thoughts mirrored mine Catherine
There is another old saying I use alot:
There are more fools among buyers than among sellers.
The carrying/opportunity costs on a $400,000 mortgage are about 6% a year now. That means if you buy a place to flip, but end up holding it for a year, you’ve lost $24,000 pre-tax. When you do sell it you have to pay at least 3-5% closing costs which amounts to another $20,000. Let’s not forget the costs to initially buy which is at least another 2% if not more (much more in NY).
So when all is said and done, in the type of market we are most likely in now, one requires an annual return of at least 13% to make flipping profitable.
Oh what a tangled web today’s “investors” weave.
hedge - that’s a simple but great point that bears repeating.
$400,000 house on a one year flip.
closing costs to purchase: $8,000
debt service: $24,000
prop tax $ 5,000
insurance $ 1,000
closing sell $24,000
prepayment penalty $5,000
total cost of transaction for 1 year $67,000
sell that puppy for $500k ? you have stcg of $33,000 which will send about 10k to the fed and state tax boards
that’s about $23,000 after tax profit or a 5.75% return on initial purchase price. hold it for 2 years and you zero out exactly on a $500,000 sale.
ymmv
yes, great point…but I think it also shows how prices have to be almost completely flat…better yet, show consistent declines for a while…for people to get it. As the article points out, waaay many of the current speculators are really smalltimers, for whom the *leverage* is soo attractive. They have no actual capital, and apparently from stories like HerdChemist there isn’t an end to the easy money quite yet. So long as people can make even a mere 5% return, if it’s on 400K–barely gross wage income for like a decade for some of the people currently playing flipper–they might be willing to take that risk. They need to see their fellow flippers start drowning before they’ll think twice, because afterall it’s a “real” asset that can never be worth nothing, right? Too complicated to work through all those costs for ‘owning’ it.
I am worried about the fallout from these idiots, and though I’m sure the *real* players, the long-run saavy investors will come out and scoop up all sorts of this supply, I wonder what affect that will have for the normal consumer just trying to get a place to live over the next 15 years. I mean, are there really as many places being built now as have been in FL for the last 9 years?! Talk about a potential long-term wrench thrown in the ‘normal’ workings of things…It will be *so* much better for the country if this all ended asap!
Here is the message I get from this calculation. Although I might quibble with the closing cost figure or prepayment penalty since those are not always involved or calulated at the same rate, here is what hits me when I see these flipper costs broke down as was done above;
Today there are a reported 14,000+ SFH’s UNOCCUPIED in phoenix. The supply of SFH’s equates to somewhere in the area of 445 days as of the latest sales figures. Let’s assume for the sake of this discussion that the average purchase price is 400K and the majority were bought in the 04-05 timeframe.
Now, to sell one of these homes the owner will have to AGRESSIVELY price his home RIGHT NOW. The builders (who apparently have thousands of homes in the pipeline) are going to follow these guys down in price and perhaps act to get “ahead” on the pricing. I think we can all agree that the reversion to 2004 pricing (or earlier) is going to be very rapid in this circumstance. Plus, the majority of sellers will now fall in the 200-300 days on the market category (at a minimum, starting now). To me, and just a ball park uneducated guess, this would mean a low 6 figure loss at a minimum (add closing and carrying costs plus reduced selling price). This is assuming enough buyers show up to keep the inventory moving along (which I don’t feel is a logical assumption at all). So, what I see developing in Pheonix is an all out real estate rout that will see buyers go right to the sidelines (ballooning the DOM and inventory figures), afraid that if they buy their house now it will decrease in value the following month by 5 figures. Ya know what, that is going to be a correct assumption for the next year or so! Buyer beware!
Note, the 445 days on market is not for phoenix but apparently for a couple of counties on the outskirts. I don’t know what phoenix is at for DOM. I just read a thread that puts the DOM for Phoenix considerably less at 230ish although I think they are climbing quickly.
400K house….examine a few other areas. Prop tax in South Florida (Broward) is 2.2% so make that tax figure jump up to around $10,000 (yikes). Try doing this in Texas (Houston, San Antonio…both 3%+) and your annual prop tax jumps to $12,000 + (double yikes). Some people don’t do their homework and just don’t get it.
speaking of piling on, plan on another 2 to 3,000 in hoa fees per year. that’s full bldg too.
maybe this is not completely correct; for a buyer from the Netherlands, the mortgage cost will be close to 2%/year.
I’m not sure about the UK (probably higher) but I think the foreigners have currently lower cost base because of what is going on in their own markets.
It would be rare that an international lender would accept collateral in the US (even if it is the world’s largest economy) The exchange risk alone would not allow it for most banks. I lived in Germany for a number of years and worked in finance, and I don’t know of a single bank that would accept international real collateral on a loan; at least not at prime rates.
If the EU citizen used a house equity extraction vehicle, he/she would also be paying higher rates than you are quoting.
Last year when I read that the Arizona house market increased by 39%
I thought a bunch of baby boomers must of retired to Arizona looking for the cheap housing in the sun so they could make it during retirement ,( because they didnt save for retirement ). Now that I know that it was the flipper/investors that created the false market , raising the price for the true owner occupied intended retiring person , Im grossed out , and, I hope the investor eats it .
Recent inventory count in AZ is surreal, to say the least.
I quess the investor squeezed out the first time buyer also in the housing markets by creating this false market . No wonder alot of the housing blog writer are mad as hell and cant take it anymore .
They squeezed out the trade up families too. My family is outgrowing our house, but because of the price inflation (and realtor fees) we can’t afford a bigger house. It would cost us the price of a new minivan just in mortgage broker and real estate agent fees, then add the 50k or so of new debt and it’s a real hit to the family nest egg. We’re using the garage for living space for now. I’d gladly sell my house for less than I paid for it if I could get a similar savings on a house about 20% larger. Otherwise I just put a heater and carpet in the garage and make my wife park her pride and joy outside.
Equity my rear end - increasing house prices is inflation, and inflation kills working families.
They listed it at $235,000 in December. Two months later they dropped the price to $217,000 and are getting some bites.”
They purchased this for 200k. If they sell for 217k, they will be losing substantial dollars if you
count realtor fee/original loan fees/closing costs/carrying costs…If they dont get their new asking price it get uglier…And the hogs get slaughtered.
I’m rubbing my eyes…4.77 on the 10 year??
Beautiful isn’t it? I’m throwing a party when it hits 5%!!!
http://tinyurl.com/qaybo
“Ten-year yields held near a 20-month high a day before a government report is expected to show that job growth accelerated in February. Concern that the central bank will lift borrowing costs at least twice more by July to stem inflation had led traders to push 10-year note yields to 4.8 percent on Tuesday.
“We could break above 4.80,” said David Goldman of Cantor Fitzgerald. “This higher growth rate is likely to be sustained.”
He added that 10-year yields would probably not reach 5 percent.”
from around 4.35 in mid January…
That should be “up from”
Also, my mistake…up from 4.73 since YESTERDAY. Wow, that was quite a little pop there!
wow maybe i’ll finally get above water on the RYJUX stake i bought 3 YEARS AGO…
Buwahaha…
Question to anyone?
What are your thoughts on the Japanese Central Banks move toward tighting the cheap money supply; what will this cause have as an effect on the MBS market and subsequently, the interest rates?
-J
SInce the BOJ owns I think about 15-30% of US debt, it is going to cause a dislocation in the yen/dollar/treasury markets. It will make our markets less attractive and force more yen to go back home. The BOJ, China, and other foreign banks have all cut back on their financing our debt months ago. Surprisingly by coincidence, M3 will no longer be reported as of this month so you cannot track the open repo market.
Remember, for the first time in decades, the U.S.,BOJ, & the EU are ALL raising rates at the same time. Last time this happened was the late 80’s.
Thanks for the reply, I appreciate the reply; any insight and education in trully appreciated. Do you know what the best way to track the MBS market and it’s demand?
-J
Thanks for the reply,trully appreciated; any insight and education in trully appreciated. Do you know what the best way to track the MBS market and it’s demand?
-J
JA and CH must be thinking hard about how to tip-toe away from this massive snowpack without triggering an avalanche…
When I was 26 there was no way I could have owned a four The toys will be taken away from the greedy.bedroom home. I three years out of college and living in a small one bedroom apartment saving for a new car and paying off student loans. Buying a home was the farthest thing from my mind. I was more concerned with being happy, partying, dating and having weekends free to do what I wanted.
Today, I find it unreal that two twenty-somethings with a combined income of $ 85,000 a year would have both a four bedroom McMansion and a condo in Tampa Bay.
In the 80’s when I was in my 20’s nobody in their right mind would have gotten stretched that thin playing house flippers. Most people I knew were grateful to pass muster with the bank and be into a home after microscopic examination of their finances and 20% down. Some banks used to even make young people show that they had saved the money on their own for the down payment and required six months of payments in escrow if you couldn’t come up with 20% down.
This whole thing is a mess here in Florida; and I am grateful that I am renting. I have several thousand in saving that I was going to use for a house downpayment over the last couple of years, but job uncertainty kept me from buying……..Thank God.
I have shifted my focus from home buying to boat buying. I am waiting like a vulture to pounce on a nice, newer model SeaRay or ChrisCraft weekender, approx 20-22′. There are gonna be plenty of toys around here in Central Florida at fire sale prices when those ARM’s start to reset this summer.
Look for cheap prices boats, jetskis and Harleys in abundance here in Florida in the coming months.
I’m 29, and making good money; between myself and my girlfriend what will be my finace and eventually my wife we’re into the mid triple figures. At 26, I was scraping to pay a car note(bad decision), student loans, apartment, car insurance and such; and worse yet my financial education was horrible. Even now it’s marginal at best; that’s why I will pursue an MBA to continue part of my lifes education. That’s what kills me, is those that forgo getting an education to make a quick buck. Really a monumental decision in keeping this country great in the wrong direction. Amercian entrepeneurship had to be backed by American know how, which in most cases is learned through an education.
HerdChemist , if things play out the way they should; you should be able to get a great deal on a boat. I personally dream of the day I can get a small cuddy striper in the 22′ range. But it’ll wait until I am financially stable.
-J
I’m sure your “fiance” is pleased you think she has a “fine ass!”
couldnt resist too much coffee..
HerdChemist
“I have shifted my focus from home buying to boat buying. I am waiting like a vulture to pounce on a nice, newer model SeaRay or ChrisCraft weekender, approx 20-22”
Me too, but please please do your homework the boats you listed are not that well built and are OK when new but are not good boats to buy used. I have included two links that are IMO good starting points. Read everything on the first. The boat reviews on the second link will cost you but are well worth the money.
http://yachtsurvey.com/
http://www.powerboat-reports.com/
Remember the two happiest days in a boat owner’s life…’
the day you bought it
and the day you sell it
In the 80’s when I was in my 20’s nobody in their right mind would have gotten stretched that thin playing house flippers. Most people I knew were grateful to pass muster with the bank and be into a home after microscopic examination of their finances and 20% down. Some banks used to even make young people show that they had saved the money on their own for the down payment and required six months of payments in escrow if you couldn’t come up with 20% down.
Geez, and I was thought I was the only one who could remember those days. BTW-I am lookin’ for a new HD, LOL.
I was flipping some stuff in the 80’s when I was in my 20’s. We also accumulated a number of rental properties, a second home and a 4 bedroom colonial. And no, we did not crash and burn in the 90’s when the market tanked - just buckled the seat belt and hung on.
Maybe not the Harleys. They’ll sell the Hummer instead & commute on the Harley
A friend of a friend was just getting by 3 years ago. Now, thanks to equity on his shitbox house, he bought a new gas-guzzling truck and a $65k boat. This time next year, both will be for sale - cheap.
Remember one thing he hasn’t bought them yet, he does not own them; but is indebted to them.
Has anyone ever been to Miami, Ft Lauderdale, Tampa, anywhere in Florida where you find high rise condo’s?
Living here I can tell you they are throwing up condo’s everywhere. Even the sleepy state capital of Tallahassee, there are 5 high rise condo projects planned downtown.
If you live in or are visiting florida drive down I-95 through Dade county after sun set. Look at all those condo’s with no lights on. Very creepy. One realtor was telling me a good 50% of the units in new condos are owned, just unfurnished units where the utilities and cable are not even turned on.
Its the same story in every “hot” condo market, lights are not on and no ones home.
If you drive down A1A at night you will see most of the units are dark. For a real laugh, go to http://www.condoflip.com. There are units trying to sell for over $1000/sq ft… VACANT units no less.
This site presents all 8,336 properties currently listed for sale by the local Emerald Coast Association of Realtors within 25 miles of Destin Florida. —3,127 of these properties are condos—
3,127 condos on the resale market… and cranes as far as the eye can see building more and more…
Fort Walton Beach MSA condo sales for January (includes Fort Walton Beach, Destin)
Sales
January 2006 .. 98
January 2005 .. 172
Percent Change -43%
At January 06 sales pace with current inventory… 32 months supply!!!
Same in West Palm Beach. You should see how many “Real Estate Weekend” inserts are in the Palm Beach Post. It’s page after page of “advertorial” about great new condo buildings, condo conversions, single family home developments, and more. From what I can tell, the major condo buildings approaching completion or completed: The Prado, The Whitney, One City Plaza, Monecito. Under construction: The Edge, Two City Plaza. Proposed: Opera Place, 550Q, The Prism, Icon West Palm Beach.
The list goes on and on. And that’s just the major condo buildings going up in WPB proper.
I would also point out that local converter ads are starting to sound pretty desperate. One Delray Beach ad is offering 5% broker participation and up to $20,000 in incentives. This is on units starting at $220,000 or so.
Back in the old lending days prime lenders would not loan in projects that had that high of a renter to owner ratio in a project .
If it slipped into those kind of ratios after a number of years the lender had a lower loan to value ratio by that time and would not be at risk. Back in the old days underwriters were there to protect the interests of the bank , which in turn in alot of cases protected the interest of the borrowers .
My guess is Lenders will now be backing off from lending in some Condo projects causing the higher priced lenders to be the only willing ones . The Condo builder might find himself buying down the interest rates and points in order to get out of the mess .
any one saw GMA this morning.
Talked about bubble trouble– apparently weeklong serires. may come next week also.
had barbara cochran-real estate contributor???
Focus was should you sell and wait(Bubble sit)
Instead of taking numbers, barbara went on how home is an emotional thing, raised children, dogs, forced savings,throwing money over rent etc.
interest rates will raise, 1% raise will result inj 11% incr in payment, you will not be able to afford. No talk of prices adjusting downwards to meet the income!!!!
http://abcnews.go.com/GMA/Moms/story?id=1708947&page=1
I hope they have melany the lady who manages some funds, she is from chicago. She was lot more sensible
Was that “melany” (or “melody” was it?) who did a thing like in 2003 about how it makes more sense to rent than buy now(then, 2003)?
I CAN’T BELIEVE they did a story just now on how you better buy because rates are rising!!!!!
I’m so mad…what fuckers!
That’s exactly the crap that will allow for the next pool of greater fools, and it’s gonna not be the specuvestor ones, it’ll be those like my hubby who will be scared shitless at that talk. It is sooo irrresponsible given what every single bloody Realtor now knows as well as their own names; that things are cooling cooling cooling.
I guess I should go look at the report, but it sounds awful from what you say…
cheers!
“Corcoran recommends buying now rather than waiting. The American dream never gets cheaper”
“The American dream never gets cheaper”…WTF!!! So prices didn’t go down in the early 90s?
When you have the combination of excess housing supply, glut on the market , overbuilding, flipper/investors dumping , with a tight money market , combined with higher rates ,……. that spells disaster.
I rent in a nice condo development in Ventura county.
A similar home/condo was sold in Nov for 460K. My landlady bought the one I’m in for 466 inOCt.
There is one adj to mine-listed for 490 two weeks ago. yesterday reduced to 470.
Another similar one sold for 490 in Dec.
Two others are listed for 290 , 484.5.
All 4 BR/2Ba or 3BR/2Ba- 1350 Sq ft
I visited another 2BR/1.5 BA– two weeks ago offered at 409K-myfoot! The realtor was alone reading some book. I just did not have time to hecle her a bit.
This week it is going to rain here in SOCAl. interesting to see how many open houses in our development. Sure sign of depseration, if there are any!!!
desidude,
I am looking to rent in vetura (westlake,oak park etc..)and am finding landlords wanting what I consider to still be high rents for some condos.I called about 1 this week on craigslist in Agoura hills and she wanted $2,500 for a 3/2 with garage .I asked if she would be at all flexible and she laughed and said she already was to low as several realtors have told her.Been running her ad for 2 weeks so I think she will be suprised.
Just curious what kinds of rents you are finding for condo’s that are selling in the mid 400,000?In Westalke I am finding alot of places built in the 70’s 1800-2100 for 1100-1200 sq feet.I know a great area and schools are excellent but still high.
going to college and working at a salaried job was for chumps.
Wow! a realtor said that? Last time I heard that line was in the movie “Goodfellas”.
so i get a call out of thin air yesterday from an ex employee of our company. he was offered a job in wpb, and his relative has a 2 year old never lived in sfr down there. it’s been on the market 1 year with no takers. my buddy gets to move in and be the caretaker.
he was laughing about the idea of this place actually selling because there is so much inventory right in his neighborhood.
i really love these unsolicited anecdotal stories.
I came up with the term flopper in place of flipper. So I demand royalties (OK, just kidding). To the person that stated those 26 yr old foolish couple will soon only be eating on the weekend. If we extrapolate that out by the thousands of other greedy floppers, spells bad news for Weight Watchers, Jenny Craig, etc. But a side benefit, might cure the obesity problem hitting this country when people can’t afford to eat. ha, ha.
McDonalds will come to the rescue with something to make everyone continue getting fat
Just a thought . Is everybody expecting to afford a house in your twenties. Im a baby boomer ,( I know you hate me), and I dont remember very many people being able to afford a house until they reached 30″s You had to come up with a much bigger down payment back then,( 25 years ago ). I agree that this housing market is false and crazy and greedy but it still took alot in the good old days to get a house and you had to struggle with the payment the first 5 years or so .
Just curious, I was born in 1960. Am I a ‘baby boomer’? Seriously I have never understood exactly what constitutes that title
officially it’s anyone born from 1946 to 1964
Sorry I went off line . Yes your a baby boomer
I am Booooomer also…No way I could afford my first house…I swallowed hard and signed…I needed a place to raise my family…
With that said, as hard as it was for me 30 years ago, it is much harder today…
The difference is, we had jobs back then. REAL jobs. Jobs that pay anything for the younger crowd are non-existent.
Anyone in S Fl catch the bit tonight on WPBF evening news about “Bubble-sitters”, people who sold at a profit and are renting until the market cools off?
The story presented a couple (husband a financial advisor) in suburban NY who presented good and valid reasons for selling their condo and sitting out the fall. But then at the end of the piece, the reporter is like “Analysts don’t recommend this practice.”
Oh ok, “Analysts” don’t recommend sitting out a falling market. Care to explain why?
Analysts = Realtors
The media’s primary source for real estate information.
Looks like the bubble has popped up in “Florida’s Great Northwest,” too.
Acc. to Henry Fishkind, a bigshot economist, more than 5,000 preconstruction condo buyers in Panama City alone have backed out.
Good.
http://www.bharatbhasha.com/real-estate.php/38997
I was talking with a realtor friend of mine last night, he told me of a couple of guy who bought a pre-construction home intending to flip. Well now that they’re about to go to settlement on it, the builder is already selling identical models for less. My friend said he wasn’t sure what they were going to do, hold on to it and try to rent it or sell it anyway. Looks like their flipping days are over. The only thing they’ll be flipping now are hamburgers.
http://www.novabubble.blogspot.com
Why would they close. Walk away from the deposit - don’t throw good money after bad.
so why was JOE up 2 1/2 % today?
JOE is way down since last summer: http://finance.yahoo.com/q/bc?s=JOE&t=1y&l=on&z=m&q=l&c=
If speculators are abandoning the market, as certainly seems to be the case, and people up north can no longer sell their 60s tract houses for $800,000, then who will be able to afford JOE’s Disneyfied faux-old-Florida “communities”?
They should have stayed in the paper business: people will always need paper, but they will not always need overpriced subdivisions out in the middle of nowhere.