“A Growing Willingness To Trim Prices”
A report from the Washington Post. “For almost anyone selling a condo, 2006 was a bleak year. The first two months of 2007 have been promising, though, real estate agents across the region say. But does that mean that the worst is over for the condo market? Probably not, analysts say.”
“Gregory Leisch, CEO of the Alexandria firm Delta Associates, said the slowdown in sales activity will probably continue through the second half of 2007. There are 21,523 units under construction or being marketed, according to Delta. There are another 20,469 units planned over the next three years.”
“At the same time, sales volume has dropped as investors have fled the market. After selling more than 3,000 new condos each quarter of 2005, developers in the Washington area sold 1,629 units in the first quarter of this year. At that sales velocity, it would take about three years to get rid of that inventory, Delta’s report said.”
“‘We’re kind of at the bottom of things shaking themselves out,’ said Lisa Fowler, a researcher at George Mason University.”
“Fowler said condos took a heavy hit because so many investors bought them, then tried to unload them once the market weakened. At the same time, many developers were too far into the building process to terminate their projects. ‘You go up faster and you have farther to fall,’ Fowler said.”
“Many asking prices last year still reflected the double-digit appreciation of the early part of the decade. Now, sellers have to be more realistic, agents said.”
“‘They’re still saying my neighbor sold his for $500,000 two years ago and why can’t I sell it for that now,’ said Nelson Mendes, a loan officer in Arlington. ‘You have to educate them. You can ask for any price you want but are you going to attract buyers? Probably not.’”
“Since the real estate market softened, builders have been stuck with too many houses and too much land, in part because jittery buyers canceled contracts at a frantic pace last year. The cancellations kept coming at the beginning of this year.”
“In the Washington region, the cancellation rate for new homes hit 11.4 percent in January, up from an already high 9.3 percent at the same time last year, according to Hanley Wood.”
“The number of contract closings dropped 33.3 percent that month to 947, from 1,419 in January 2006.”
“‘There’s a growing willingness to trim prices and offer other kinds of incentives’ to lure more people to buy, said David Seiders, chief economist at the National Association of Home Builders. ‘That’s been a theme, and there’s no doubt it’s continuing.’”
“Builders are also watching the problems plaguing the mortgage industry, namely the subprime market.”
“Builders are doing more than just cutting prices or offering incentives, said Todd Vencil, a home building industry analyst at BB&T Capital Markets. They’re also ridding themselves of land. They’ve done this mostly by dropping options that gave them the right to buy land in the future in exchange for a small down payment, Vencil said.”
The Baltimore Sun. “Charles McCloud had never owned a home, but as he entered his late 50s he thought it was time to have the security and stability that would come from having a place of his own.”
“So two years ago, he bought a detached two-story house on a quiet corner in the Howard Park section of West Baltimore for $225,000, borrowing the money for the closing costs and taking out two loans, one of which had an interest rate of more than 10 percent.”
“When his original four boarders shrank to two, McCloud found himself in trouble.”
“McCloud is one of thousands of Marylanders with subprime loans who are facing, fearing or fending off foreclosure. A recent report by the Mortgage Bankers Association said that at the end of last year, one out of eight of the nearly 130,000 subprime loans in the state were delinquent.”
“‘I can’t remain here,’ says McCloud. ‘I need to make plans to go somewhere else.’”
“‘A lot of people are into a deal they shouldn’t be in,’ says Frank Fischer, a longtime counselor who is working with McCloud. ‘The slightest thing makes them fall off the margin.’”
“Plaintiff Tanya Jones and her sister Donna Jones took out a $520,000 loan from IndyMac in the fall of 2005 on a home in Brandywine in southern Prince George’s County. The loan had an initial interest rate of 1 percent and an initial monthy payment of $1,673 - but an adjustable rate provision allowed the rate to rise almost immediately, with a limit of just under 10 percent.”
“Tanya Jones says she didn’t realize at first that her monthly payments would more than double within a couple of years. ‘I make $4,000 a month before taxes,’ says Jones. ‘I can’t afford $4,000 a month [in mortgage payments] and still survive.’”
“Tanya Jones says she and her sister are about $20,000 behind in their payments. ‘If I lose this house, I don’t know what I’ll do,’ she said. ‘I’m trying every way I can not to lose it.’”
“Another Northeast Baltimore woman, Dawn Tucker, is also looking to sell her house - not because of her original mortgage but because of her decision to refinance.”
“Tucker bought a detached, two-story house in Gardenville six years ago for $89,000. Hoping to pay off some debts, she refinanced in 2005, not fully grasping that loan fees would shrink the amount of money she would receive while the higher interest rate and greater principal would raise her monthly payments by more than $300.”
“‘I thought it would be a little higher and I would only have one bill,’ she says. ‘I just dug myself in a hole.’”
“As of last week, she had not made her March mortgage payment. Tucker figures she needs to get about $150,000 for her house to break even. Houses in the neighborhood have recently sold for well above that, she says, but she’s cautious about her prospects. ‘I really want to sell,’ she says.”
“‘Because it’s a buyer’s market, who knows what I’m going to get?’ she says. ‘I’ll probably take what I can get so I don’t have to face foreclosure.’”
The News Leader from Virginia. “Because of an abundance of homes that were built but have yet to sell in Augusta County, there are lots of great deals in the housing market. But those deals may be short lived, local Realtors and planning professionals say.”
“After 27 years in the market, Staunton native Wilson Fauber has seen his share of ups and downs. Last year, however, wasn’t what Fauber would consider a year of growth. When the nation’s housing bubble burst, it rocked the local market. After years of big growth, the market turned south — but only temporarily, Fauber believes.”
“‘What we are experiencing is a market adjustment,’ Fauber explained.”
“‘Back in 2004, new construction was so strong here we were building houses as fast as we could to satisfy the demands of local buyers,’ he said. ‘But when the market began to soften there were a lot of builders who did not heed the warning. They didn’t slow down on their new starts.’”
“As the correction that was taking place in other parts of the country slipped into the Valley last year, those builders took a beating, Fauber said. ‘Since they didn’t slow down, we ended up with an oversaturation of new homes in the market. Consequently, most of the builders have had to significantly reduce the prices of their new homes.’”
“Fauber’s not kidding. New homes in the area have been discounted anywhere from $20,000 to $50,000 he said. ‘It was done out of necessity to delete this excess inventory,’ Fauber said.”
“But now that inventory is almost gone and the demand is still going to be there. Now, you’re going to start seeing prices increase.”
“‘It’s going to be one of those things where some people will be kicking themselves in six months for not getting into the market,’ said Fred Morgan, immediate past-president of the Greater Augusta Association of Realtors. ‘The demand for housing here will not fade,’ said Morgan.”
“‘One of the reasons the prices simply can not drop is because of the cost of land here,’ Fauber said. ‘Back in the ’90s, a $300,000 house came with an acre or two of land. A few years ago, that $300,000-house came on a half-acre lot. Today, that same house is being built on a lot that’s 50 feet wide.’”
“‘We’re kind of at the bottom of things shaking themselves out,’ said Lisa Fowler, a researcher at George Mason University.”
SURE! GMU’s center for Regional Analysis also predicted 20% gains for outer-lying counties in ‘06 and ‘07. They got the plus sign mixed up with the minus sign on the spreadsheet they were reading from, however.
Gary Watts (of The OC) also has a problem with omitted negative signs in his price “forecasts.”
“‘We’re kind of at the bottom of things shaking themselves out,’ said Lisa Fowler, a researcher at George Mason University.”
You really have to admire the linguistic precision of some of these academics. I’m sure Lisa really nailed it. Now we only have to figure out what the heck her statement means. What a useless quote!
GMU’s center for Regional Analysis is an embarssment to the University (especially one that is trying to transform itself into a tier-one research university).
Also, it turns out that Lisa Fowler got a scholarship from the Virginia Association of Realtors (I’m assuming she’s still a grad student):
http://policy.gmu.edu/currents/volume3/issue05/a20040504.htm
great find.
Good detective work!
This is part of a much larger problem in academia… dancing to the tune of increasingly private grants and contracts. Here at Washington State University, there is a real estate research center that is almost entirely funded by the real estate industry. The guy running the program is capable intellectually, but his livelihood depends upon continued funding from the RE industry. Hence, while the data analysis is relatively clear cut the interpretations that come with the data are consistently pro Washington RE.
For what it is worth, this is a problem in many areas: biotech and pharmaceutical companies funding medical research, fertilizer/pesticide companies funding research on fertilizers and pesticides, etc…
Even Harvard, with an endowment larger than the GDP of most countries, now has a “Center for Real Estate Studies” or some damn thing. Bought and paid for by the industry, of course. Professor Galbraith must be spinning in his grave….
That’s what happens when the states and guv’ment cut funding: they expect professors to find funding to help fund the department.
It used to be that in many fields, you could perform research and fund the grad students working in your lab (through teaching assistantships) without the need for grants. Now the universities are becoming dependent on grants, not just to fund the research, but to fund the university and departments.
Keep in mind that for every $1 in grant money (directs) that goes to the research to pay for salaries, equipment, etc., an additional 50 cents goes to the university (indirects). At one time indirects were used to pay for heat/electricity, leasing the lab space, funding the secretaries in the grants department, etc. Now its used to keep the rest of the university running (pay for paper to photocopy tests, etc.).
Not that grants are bad: I think when acquired from neutral funding agencies (NIH, NSF, etc.) and used for the right reason (funding research for the betterment of man), they are a fantastic thing. But, when the money is used to fund the university and professors are pushed to take money from shady funders with ulterior motives, then it’s a bad thing.
Boy, if you can say that NIH, NSF, et. al. are “neutral” or that they work for “the betterment of man,” all I can say is … gee, I don’t even know how to express it…
I guess that’s why we are where we are today.
Sigh.
Paul
ps. Of course the “shady funders” have motives. It is pretty transparent. But to turn a willfully blind eye to the motives of gov’t agencies?…Sigh…
paul
Here’s another story from the Washington Post about a family and a subprime loan. It’s your usual subprime victim story, but the last line is interesting:
But the next time will be different, Tim and Angela say. They’ll stay within their means. They’ll borrow more intelligently. And they already know just where to find a deal.
They’ll make an offer to another family desperate to escape foreclosure.
They’re plan next time is to buy from a greater fool. I don’t think they get it, or maybe they do?
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/24/AR2007032400460_pf.html
italics off
Yea, sure, but what will their credit rating be? Will they get back into another subprime loan?
What most of these folks don’t know is that this is probably the only time in the next 20 years that they will be homeowners.
At what point will tightening credit underwriting standards disqualify the last greater fool from buying a house he cannot afford?
I suspect we are fast approaching that point.
GetStucco, what are you seeing in San Diego? If you look at Jim the Realtors site, http://www.bubbleinfo.com/, he says sales are moving in north San Diego county?
I am curious as to what you see locally…thanks…
The median SFR list price (on ziprealty.com) is stuck at $599K since the beginning of this year. I am sure Jim and other realtor buddies will continue assuring the world that “sales are moving” as long as more than zero homes sell, but the subprime implosion will probably land pretty hard on the San Diego market this year. In a town where the median SFR list price is $600K and the median household income is around $65K, you simply cannot support those prices without liar loans and suicide loans to drive a big wedge between ability and willingness to pay.
you simply cannot support those prices without liar loans and suicide loans to drive a big wedge between ability and willingness to pay.
My wife and I have felt this to be true for some time. I refuse to borrow more than I feel I can comfortably pay, including the possibility another downturn in the software industry could result in periods of unemployment or having to accept much lower wages.
“In a town where the median SFR list price is $600K and the median household income is around $65K,”
Stucco, I haven’t gone back and dug up the article but about 2 months ago there was the list of the Top 20 most overpriced housing markets in the world.
Los Angeles was #1 at 11.4 times median income for the median price of housing. San Diego was #2 at a ratio of 10.5 times the median income. Anything over 5.1 times the median income is considered extremely overpriced. A 50% drop in price would still leave these markets extremely overpriced.
Do you think Californians have any ability to grasp what these numbers mean for the future?
Do you think Californians have any ability to grasp what these numbers mean for the future?
People in general cannot grasp large numbers. This is why lotteries are so popular. I have paid off several cars in my life, and can tell you that just paying off a $20K car loan is hard. A 600K mortgage with an interest rate that could go up and up? I cannot imagine!
I am no big fan of realtors, but Jim posts what he sees. I am amazed by the #’s of people still buying homes at all.
I am moving back to SD in June, I will be renting a one bedroom place to wait out what I think is coming.
As a side note, my girlfriend and I talked one of her friends out of buying a 450K house in SD, we felt pretty good that we had saved her…we just found out she turned around and bought a 2 bedroom condo for 400K…go figure…
Another card carrying member of the Ownership Society.
“I am no big fan of realtors, but Jim posts what he sees.”
That may be the case. But what Jim sees may exclude what is really important prospectively, which is a sudden dearth of subprime lenders and a likely future dearth of subprime buyers. Anyone who bases their opinions solely on what shows up in backward-looking real estate statistics is driving through the rear view mirror.
Actually Jim seems like a pretty straight up guy - if you read his latest post he notes closing just fell off the face of a cliff - -52% from last year - he feels it’s the result of the lending standards starting to tighten.
He just posts what he see’s happening in the market - people here tend to be ahead of the curve and see things coming down the pipe.
I will join the chorus saying that Jim-the-Realtor in North San Diego County is one of the “good guys.” If you read his blog, you’ll find he’s amazingly bearish for a guy in the REIC. He talks a lot about pricing, local area comps, how median prices are misleading, etc. He’s even been up front about problems he had selling one of his own houses recently! I would actually point *any* seller in the area to his blog because he doesn’t pull any punches about what it takes to sell in this market.
Thanks for the kind words
“Charles McCloud had never owned a home, but as he entered his late 50s he thought it was time to have the security and stability that would come from having a place of his own.”
There has got to be a reason why this fella in his “late 50’s” never owned a home - AND had no down payment, AND not even enough to cover closing costs. Never shoulda been qualified for that, er, those loans.
2007 is going to suck.
-Rent
imo 2007 is off to a fantastic start! the only part that sucks is the attempt in these pieces as painting the foreclosees as victims to something more than their laziness to read the fine print in the contracts they signed.
I’m not defending them, ignorance is no excuse, but there is no way they could understand the fine print. The average American reads at, I think, the tenth grade level. How many tenth graders could read and understand mtge documents? Again, I’m not forgiving and forgetting.
I think what is really needed is a one page fact sheet in a font no smaller than that of a paperback book.
With bullets like the following:
Line 1 - If you do not understand what you are signing, seek advice from someone that can explain it to you.
Line 2 - This is your payment now. (maybe you can afford it if it is between one and two weeks pay)
Line 3 - This is your maximum payment after the first interest rate adjustment. (you probably can’t afford it)
Line 4 - Repeat number three for each period where the rates adjusts. (you definately can’t afford it)
Line 5 - This is how much the person taking the loan application is getting paid to screw you. (check out his watch, you are paying for it)
Line 6 - The property you are buying may go up or down in value. (the real estate guy is lying to you..yes, even though he is a buyer’s broker)
Line 7 - They might not be making anymore land, but there is approximately 2,000 miles of nothing between the East coast and the West coast (this is not an insult to those not living on the coast, but let’s face it..once you get 500 miles inland from either coast, there is a whole lot of vacant land.
There should be about 10 - 15 line like this. Now, if people sign this and they still an FB, then they truly have no one to blame but themselves.
Not understanding the contract is also not an excuse. I don’t care what grade level somebody reads at, if you sign something without fully knowing what you signed, you deserve what you get.
Seriously, if you’re stupid enough to blindly agree to the largest amount of debt you’ll have in your lifetime, I have no sympathy.
A lot of people are about to graduate to the 11th grade when this whole housing mess is over.
Exactly. That’s the same solution I thought of. The U.S. is suffering from “law overload”. To do anything you need to sign a stack of documents 1 foot high. Too much law = No law at all.
The contrarian in me thinks that, given the amount of media coverage on the housing bubble, we may see a bounce in sales and prices. Heck, as early as a year ago all I would get is derision at the very suggestion that RE prices were in a bubble.
My prediction for 2007 is a short bounce in late spring and early summer as party spirits are revived a bit. Then, by the end of the year, foreclosures take the market out in the knees.
I still won’t be looking to buy until you can get a cap rate of 10 on a decent income property. Just a guess, but that might be more like 5 years out. That would be when Joe sixpack says that anybody who buys RE is a sucker because nobody ever makes money investing in RE and look at the abundance of property this great country has to offer!
Not yet in Chicago! We are still overpriced here.
Home sales plunge is a puzzle
Chicago-area home sales in the first two months of the year declined 12.1 percent from 2006, confounding analysts who were looking for the first small signs of a spring bounce but instead saw a market continuing to struggle.
The fall in Chicago seemed even more painful given that the national housing picture this year is showing some signs of life.
The results for Chicago added up to the slowest February performance since 2001, which was generally considered to mark the beginning of the housing boom.
http://www.chicagotribune.com/business/chi-0703240102mar24,0,6357852.story?coll=chi-bizfront-hed
I have to disagree. Late spring is when we’ll begin to see the effects of the subprime implosion. I’m imagining it as the survivors of a large catastrophe wandering around in total shock, with no idea what to do next.
What about all those “bargain hunters” waiting on the sidelines?
I know people older than that who’ve never owned a house. No big deal. They all hate the idea of having to take care of stuff, when they could be doing more interesting things. In New York City, MOST people have never owned a house or apartment or condo. Not owning something does not necessary indicate a bad financial record or credit score; I suspect most the buyers we’ve seen in the past ten years or so are much worse financially than many of those who’ve never taken the plunge. Your comment sounds somethink like realtorspeak: “Only losers rent.” I realize this isn’t what you intended to say, but the implication is still there.
Yes, in NYC, that is true. But a lot of those people are subsidized by a little thing called “rent control”. That’s a discussion all in itself. Rent control is just as stupid as the Dodd/Clinton/Obama type bailout we are sure to see in the near future.
The rent control laws have kept developers from building more apartments, or putting money into improvements. If you don’t believe in Dodd’s potential B.S. you should also hate rent control.
“But a lot of those people are subsidized by a little thing called “rent control”
how many?
I don’t have an exact count. I would get too pi$$ed even thinking about it. I can tell you in my personal experience. We were paying $2,200 per month a couple of years ago. Our neighbor was whining about his rent being so high. Then he said it was $1,200 per month. I almost threw him off the roof. He was mad because it was twice as much as his neighbor.
I have a co-worker that lived around the corner. His wife has had her apartment since 1970. I think she pays under $500 for an apartment that would now go for $2,500 or more. If it weren’t for this rent control B.S. the market could truly set the price. Nobody deserves that subsidy.
Did you need a specific number or is anecdotal evidence enough?
Rent control is incredibly inefficient as well: an 85 year old widow may pay $1000 per month for a 3000 s.f. 3 bedroom apartment, while a family of 4 squeezes into a 1100 s.f. 2 bedroom for $4500 per month. And they aren’t allowed to trade living spaces.
Rent control has a significant effect on the market as well, making the market rate apts. much more expensive/unaffordable. (Something like 30% of the apartments in the city are stabilized or controlled). The market rent for that 2BR would likely be $3000 or so if everything was market priced. Eliminating rent controls would make the other 70% of apts. much more affordable.
WSGeorge - great link, thanks!
Rent control in NYC was sold by the politicians as a temporary thing. It was suppose to end after the war (WW2 that is) !!!
Complete socialist taking of private property. Was supposed to be temporary, is now permanently ensconced in NYC life. Just like the freezing of the release points for Mitchell-Lama housing in NYC, this is one of the major reasons why no one has built affordable rental housing in NYC in 50 years (and thus fueled the “shortage” of “affordable” housing in NYC). No developer is willing to bet that the embedded socialist/liberal bureaucracy won’t seize their property, post-construction, no matter what the initial deal sweetner it comes with (Mitchell-Lama was tax breaks for x-years of price-control, then a proposed reversion to free-market, which has now been politicized by the residents - who all knew their day of low-cost ride was supposed to be coming to an end but are screaming bloody urder at this point in time) No one wants to pay the piper in NYC.
Let me apologize. I went back and read your letter, and your qualifiers change the meaning. Mea culpa. I’m going back to bed in hopes of waking more alert and articulate.
The apology is for geeah. For NYCityBoy, how is rent control even legal constitutionally? We don’t have it here.
“how is rent control even legal constitutionally?”
I have no idea. It is a 1930s era program that still infests this market today. It leads to corruption and unethical behavior. It also means new renters subsidize the old renters. But that is fair to all of those that benefit from this abortion of a program.
Why buy a $600,000 apartment when you can rent something similar for $500 per month? There are cases like that all around this city. This is a stunted market. That’s why it is hard to say how this plays out in NYC. I don’t believe the ending will be pretty.
Yet another tax on the young. This blog is really opening my eyes to all the BS out there that favors the elderly.
It also means new renters subsidize the old renters.
Substitute “buyer” for “renter” and you have Prop 13 in California and SOH in Florida. Are you against those too?
I’m against any non-market pricing for rents or property taxes, the latter just being another form of rent really. If you want to keep your property taxes down, elect local governments that spend less money,
Owning stuff is a pain in the rear. A house is nothing more than a box of air you get to sit in when you’re not working or traveling. My ideal lifestyle is to own nothing I can’t fit into a couple of backpacks, never staying in one place for too long. Screw this owning crap; there are too many places to go and things to see in this world.
Can’t travel with pets (my kids), so I prefer a permanent address. I can’t stand lots of THINGS, though, and am always giving stuff away. Now I have to decide whether to buy a new car, or just lease one. I know many people are horrified by leasing and think it’s a waste of money, but considering how little mileage I put on a car in year, I think it might be a better choice. Also, when one leases, the dealer provides a loaner when needed, and takes care of all the usual upkeep. I am not very successful when it comes to negotiating sensible car repairs.
Buy a used car (certified from a reputable dealer) and drive it into the ground. In your case - since you put on so few miles - that car should last you a long, long time. I cannot imagine how leasing would be a more economical way to go in this instance.
The “reputable dealer” is the problem. I figure if I have to deal with a sleazeball, better to let him pay for repairs.
As for driving a car into the ground, I’ve already done that. The problem is, the annual repairs ended up costing WAY more than just buying another car. I’ve gotten so used to renting, I thought it might work out for a vehicle, too. I wonder if all those 20 Somethings with stars in their eyes at the thought of owning palaces–even “palaces” made from cheap particle board and stucco–have any concept of the trouble and expense of maintaining them. At least with an apartment, if something breaks, I don’t have to deal with it.
Get a gently used Honda or Toyota. You’ll have to pay some for routine maintenance, but you’ll generally avoid huge headaches. Use some kind of CarFax service to make sure it’s not a rehabbed “flood” vehicle. You’ll do well on milage, too.
A Honda civic without a lot of bells and whistles (but at least a good stereo) is one of the great values in this world.
Can’t picture myself in a Honda Civic. I have a thing for regular Jeeps, but they’re getting silly, too, at old luxury car prices (30k???). With Jeeps (not the wagons), one doesn’t have to worry about them going out of style; they always look about the same.
I cannot stand dealing with car salespeople.
I’ve been driving Nissans (3) since 1988. Put gas in them, change the oil every 3,000 miles, and the things simply run!
GeorgeSalt -
Agree. Just last nite was telling someone how I miss my 1996 Altima.
Have 133K on my Sentra and decided to pimp it instead of buying a new car. For 1k in new muffler and couple new bumpers (they were destroyed by parking on NYC streets with huge SUV’s and trucks) It will still run & look like brand new car, get 30-40 mpg and I will get to laugh everytime I pull into gas station and watch some idiot pay $60 to fill his pig. Nissan (pre 2K at least) may be RICE but it is the most reliable car I ever saw. I have done everything I can to put this little put-put down. It just will not die.
I’ve worked in building and development all my life. To me, a house is just a place to sleep without the wind blowing on me. Makes no difference whether I own or rent it. I run the numbers.
of course the stupid lender knew what his income was and that the only way he could afford the payment was with 4 roomates.
give me a break
“Builders are also watching the problems plaguing the mortgage industry, namely the subprime market.”
Liar loans and suicide loans were the lifeblood of the McMansion building boom. I frankly don’t see how any analyst on Wall Street is dumb enough to believe that U.S. households will continue buying McMansions without high risk loans to let them purchase homes they can’t afford. It is all pump-and-dump from here on out to the bitter end of the McMansion craze.
Hey, I live in one of this McMansions, and I can afford it just fine.
Oh, I almost forgot, my landlord is subsidizing about 60-65% of the cost for me to live here. Hmm… Yeah, I guess at 5-6K a month, it would be a different story.
Man, my landlord is a very generous guy, he must really like me.
McMansions are great if your only paying 1/2 or less the cost for them. Once the prices drop by 50%, owning one will be great too.
I’d take one at 30% off of today’s pricing…which is probably 40 - 50 percent off peak
Mike — I am in the same situation.
I still wouldn’t take one of those monster boxes. The utilities, furnishing and cleaning would take too much time. The biggest home I would ever live in would be 2500sf
I bought a house in a decent neighborhood about 11 years ago, about 1,600 sf. I own it outright. However, since it is an older house, I am constantly replacing things; bathroom remodeling, floor refinishing, replacing windows, kitchen updates and all the other stuff that wears out over time. I have put close to $60k into the house. It’s something called depreciation. Just a guess, but perhaps it’s another thing that GFs overlook when calculating the cost of ownership, they seem to be an impetuos lot.
Another housing bubble myth.
Homes depreciate in value people, they do NOT appreciate! Land appreciates, housing depreciaties. It’s pretty easy to understand; housing has a usable life, land does not (well, not really anyway, barring a natural disaster which is exceedingly rare).
All these morons who say that housing appreciates; let them live in a 100 year old home that has not been rehabbed 5 times already (likely spending many times the original purchase price in rehabs). Then tell me housing is not a deprecating asset.
Mike - funny you’d say that. I STILL have arguments with friends about appreciation vs. depreciation.
Example: You put $1000 of carpeting in before selling.
Friends’ view: House value increases > $1000, because you did the work of upgrading.
My view: House value increases ~ $500 (and only if the old carpet was horrible). Why? Because that “new” carpet is used by the prior owner and has depreciated. If you can drop $1k on carpet before selling to me, I could do the same after buying, and I’ll get exactly the carpet I want!
My wife refuses to ever own a McMansion. She does not want to live side-by-side with “house snobs,” who consider themselves financial geniuses for having bought in San Diego before price inflation doubled the value of their homes.
Amen, Brother!
I get calls all the time for house cleaning. It seems that the cleaning for a 3000+ sq. ft. home just tends to overwhelm the double income one kid family here in SD (esp Chula Vista).
Then I get to take their abuse when I quote prices based on work comp ins.
I want a home with small bedrooms, and a living room and kitchen that opens onto a courtyard. With the weather in SD, who needs anything else?
paul
Top of the mornin’, GS.
Wifey and I are heading to the animal park this morning to check out the new tram. You should go.
2007 is going to suck.
-Rent
“‘One of the reasons the prices simply can not drop is because of the cost of land here,’ Fauber said. ‘Back in the ’90s, a $300,000 house came with an acre or two of land. A few years ago, that $300,000-house came on a half-acre lot. Today, that same house is being built on a lot that’s 50 feet wide.’”
I’ve always heard that, at least historically, most of a real estate price was the land and not the house. I’m not convinced, however, that it’s really the land that’s gone up in recent years. I think it’s been the (ridiculous) appreciation on the structure. I mean why would granite countertops and stainless steel appliances cause my land to increase 200%? Know what I’m saying?
oh, lord, Another “We are running out of Land”
Although it maybe true, the price will be determined by local demand (affortability), and the ability to get a Mortgage Loan, and even worst, the “Local Demands” ability to come up with at least a 5 % downpayment. Very little speculation will exist when these “realestate genuises” have to cough up a big chunk of their own money to “play the game”. The incredible shrinking “Home Buyer Class” will make up the demand constant in the ever increasing Supply variable that will determine the Price of Realestate from this point until the next “Mortgage Loan Golden Age”. This can take 10 to 15 years. Ouchy!
Geez
Interesting perspective..
Sort of like playing the options game..
I don’t see many people, placing a $10,000, $20,000 or larger bet on housing at this point.
True, the leverage is just like an options game. But the ramifications are much greater on society. If you buy a put and it turns against you then all you lose is the cost of the option. In this case the seller of the option gains. However, with debt, when the debtor forecloses, the seller of the debt loses because they will not be able to get the value of the loan out of the collatoral. This is bad. What it means is that lenders will become more risk averse (as they are now) and the market will dry up (as it is). The effect on the economy is much greater IMO.
Check it out, they’re running out of land in rural Virginia.
Bwahaha…
remember that guy who said prices wouldn’t go down because drywall prices were going up? I should try and find that quote.
Oh yeah, of course land never goes down.
I’m not convinced, however, that it’s really the land that’s gone up in recent years.
Yes it is the land. Look - if the cost of a house goes up 100% in 5 years, how could that possibly be due to the increased cost of building? Up 25% max, maybe.
The point you are missing, and Fauber is also missing (or more likely just lying about), is that land costs are driven by the market price of the finished house, not the other way around. I.E., if the market (i.e. FB’s) price for a house is 500K, and it costs 100K to build, the land for the lot will sell for 400K.
If the market price for the same house drops to 400K, the market price for the land will drop to 300K. And so on.
LISTEN UP HERE AND PLEASE READ AND UNDERSTAND THIS…..
IT IS THE SOLDITARY THING THAT “”EVERYBODY”" MISSES COMPLETELY!!!!!
WHAT DOES IT ACTUALLY COST TO BUILD A HOUSE “”TODAY”"
Lumber is down 40-50% ….Construction labor market is in shambles..Builders are dumping their lot inventory like there is NO tomorrow….
COME ON KNUCKLEHEADS…WAKE UP….SMELL THE STENCH OF THE OF THE DYING REAL ESTATE INDUSTRY….
I checked the 10Q filings of Toll Bros, back in 2005, and it “”cost”" them $76/sq ft to build the house only….they marked it up “”"50%”"” to $115/sq ft….throw in the lot….and you got $150/sq ft…..
Rip-off builders like down here in Florida’s NE Coast…ICI Builders, are charging $200-225/ sq ft…..OF COURSE NOBODY IS BUYING THEM, BUT THAT HADN’T STOPPED THE FROM BUILDING MORE…It’s rummored they have over 400 houses in inventory they can’t move…..I talked to private builders, and they tell me I can do a NICE house for $100-115/ sq ft…..Why should I pay some jerk $200/sq ft, cuz some idiot down the street from him bought at the peak of the market, and boozo, wants his share too!!!!
THE WHOLE MARKET IS BASED ON COMPARABLE SALES
>>>>”"”"”NOT ACTUAL COSTS TO BUILD”"”
Here in Tampa, some builders are asking 1,000 dollars a square foot for places built (or planning to be built) in horrible, industrial areas, where the land is, or should be, more or less worthless. Till recently, some were selling very well (investors, I guess).
Incidentally, the locals still haven’t grasped the concept of a bubble much less a bursting one. They all think they’re sitting on goldmines, not land mines.
I agree. Instead of waiting for people to come to their senses in the resale market, just build your own. Land prices are dropping now, so you could have your own home built the right way for far less than these a-holes are charging today.
Just remember, in this bust eventually homes will go for far less than replacement cost. But the key for me is…how well was it built? A lot of crap houses out there today. I would prefer to build it myself and have it done right, using good materials and spending extra where it matters.
“eventually homes will go for far less than replacement cost”
I don’t understand how that could happen. Seems to me like replacement cost would define the absolute bottom for prices; am I missing something?
As fas as building, I’ve considered that option, but like many (most?) people, I’m not sure I have the stomach for it. I don’t know anyone who’s tried it and hasn’t had big cost overruns. Add to that the 6-9 months of having your life on hold.
Here in Pullman, WA it costs a builder about $85/sq foot to construct a house (high end) and they charge the buyer $125/sq ft. With land at $50k/lot, you are looking at $300k for a 2000 sq ft home.
Based upon equivalent rent ($1500/mo MAX), that 2000 sq ft home should cost about $230k, so…
- Actual construction costs drop to $75/sq ft (subs and suppliers make less profit)
- Land drops 20% to $40k/lot
- Builder gets 20% gross margin instead of 40%
–> Home price is now $230k !
There is no “fundamental” reason for home building costs to continue to rise in a falling market.
“Tanya Jones says she and her sister are about $20,000 behind in their payments. ‘If I lose this house, I don’t know what I’ll do,’ she said. ‘I’m trying every way I can not to lose it.’”
She’s $20,000 behind. I guess her plan of sitting on her a$$ watching American Idol and Sex in the City reruns while eating Malomars isn’t working out. She might want to hit Plan B. Call the lender and work a short sale. You don’t own that house. It owns you.
Good one. Tell that brain-dead idiot about the real world. LOL
This is a foredrawn conclusion which will play out over and over and over, until all of the dumb borrowers have 500 FICO’s and no longer qualify for anything but a payday loan. Here in SD median income families may find themselves qualified based on income and expenses for loans of $150K or thereabouts, and having to come up with 400K in hard earned cash to purchase even a starter .. or prices could (gasp) fall to that level again. Deluded home owners may not sell at that, but at some point banks will start dumping at whatever they can get.
“Tucker bought a detached, two-story house in Gardenville six years ago for $89,000. Hoping to pay off some debts, she refinanced in 2005….”
Are we suppose to bail out people who did a refi to pay for their lifestyle?
THAT will really tick me off. She had it very easy and chose to screw it up herself. Grrrr…
I don’t see a widespread bailout. Too complicated too unravel and too hard to implement. Maybe some guaranteed loans and things like that. I don’t see a govenment funded program, where the banks agree to short sales and then the govt picks up the diff. Also, as dumb as the givt is, they know they’d only be postponing the inevitably, if an FB is that far behind, they really can’t be saved. I don’t see how the payments could be reduced that substantially. Even with a 50, 60, 70 year mtge, the payments just don’t fall enough. The only salvation is to drastically cut the interest, principal and the taxes. I just can’t see it happening.
Anything that leads to companies like Countrywide or WAMU picking up any part of the tab will be fought to the death. The lenders will not be chipping in any of the money for a bailout. They receive but they do not give. You can bet on that.
You don’t know what the “debts” are. Of course one suspects “lifestyle” items like clothes, fancy cars etc. But this could just as easily be medical debts, debts from helping pay for caregivers for a parent at the end of life, etc.
Without paying a penny, sellers who go the FSBO (for sale by owner) route can add their houses to a Multiple Listing Service in California and 19 other states via a new online realty broker, http://www.iggyshouse.com .
http://tinyurl.com/39g8hf
How has the Internet not shattered the REIC monopoly already. Realtors are glorified cab drivers. Nothing more! The people on this blog should be able to pool resources and create a better way to transact real estate. Let’s set up an LLC and cash out in the IPO. That would be sweet!
I second this. The deflation of the bubble should also put the end on the default 6% nonsense.
Stan Johnson; Interesting to note re; FSBO’s are not added to MLS inventory, which would increase the unsold homes considerably.
For units under threat of foreclosure HUD gives people the option of counseling and reduced payments for a specific period of time. It is usully one year. In over 90% of the cases they simply defer the inevitable foreclosure. Learn to deal with it as this is coming through regulated dicta. They will do anything to look good for 2008.
However, as we all know it is simply going to drag out our appointment with the gallows. We are all going to hang, just not all at once.
People who refinanced to fund their lifestyle are going to scream victim also . I get so many calls every week from lenders wanting me to take out equity . How many of these equity extractors could say no to these loan companies ? No bail outs ….These people already got a bunch of cr-p with their equity .
The bailout will be for the bankers not for the idiots who took out these loans.
Has there ever been an example in history where wealth was artificially transferred from the upper class to the lower class? I can’t think of any. The French Revolution and Bolshevik coup d’etat did almost nothing to help out the little guy. One landed class was just replaced by another at the top of the ladder. In each case the lowest classes ended up worse off.
My understanding is that Robin Hood is just a myth. But it gives the lowly hope that they can do nothing and have money rain down on them. There are a lot of FBs looking towards Sherwood Forest for their windfall. Good luck!
I believe the inflation of our currency around the time of the great depression was an artificial transfer from rich to poor.
Robin Hood = Reaganomics. That trickle down theory was a hoot. Let the rich get richer and they will give you some.
Sure they will.
US govt. does its best to implement that with the tax code and social programs.
It’s been my experience that, despite the govt., with sacrifice, hard work and perserverance you can still do well in this country. I am a firm believer that one “makes their own luck”. What I’ve noticed are a lot of people who complain about their lot but are not willing to do anything to change it.
So, despite all the complaints about the rich getting richer, what I see is that, there is still a lot more chances for upward mobility here than just about anywhere else in the world. IMO, the difference is that you have to take personal responsibility to do the foot work and find a business niche or get into a profession that will pay well then live below your means.
Bravo, well said! Rants about the injustice of the system is all good fun, but being “right” about these issues won’t improve your quality of life - hard work and frugality will. Your own behavior and choices are the only things in this world that you will have much control over; for most other things, you are merely a spectator.
I totally agree. Your statement is one of the most true ones I’ve read on this blog. I too believe you make your own luck and living below your means is the key to always having enough. Most everyone today lives way beyond their means, that is why they’re in debt over their heads.
I have yet to see a “Growing Willingness to Trim Prices” here in Suffolk County, Long Island. In fact, many homes that i have been watching for 1-2+ years on the market have dissapeared from MLS for a day or two only to return with an additional $50k added to the price. Please tell me who is buying 450k+ “starter homes” that were priced at under 200k just a few years ago?
liz
The reappear with higher prices, because the principle has gone up with rigged, partial-interest loans, and because the “owners” are trying to cover their expenses, including taxes. Each bump up in the price indicates how much farther under water the investors are.
Spelling correction: principal, not principle. Sorry.
Yeah the losers actually think their home worth is equal to the debt attached to it. Just wait for the forclosures to ramp up, it took a few years for this housing market to obtain these highs it may take a couple to see some serious lows.
I think the downward trend in the market did not start until December 2006 when the first subprime companies started going under. 12/22/06 I think the day Ownit Mortgage imploded and that to me will be the day subprime stood still and the begining of the housing market collpase.
I disagree with your assessment that it will take a while for this to unwind. Given the leverage involved (borrowers with zero skin in the game) combined with the rug being pulled out by quick tightening of lending standards, I think it will be fairly violent, relative to other downturns.
Additionally, there are 2 things worth noting that were discussed in Barron’s this weekend. Prime mortgage origination peaked in 2004 and the most popular product was the 3/1 ARM. Subprime originations peaked in 2005 and the most popular product was the 2/1 ARM. So those facing resets in 2007 are doing so with 1) higher rates, 2) reduced financing alternatives and 3) zero skin in the game.
Take a peek at some of the banks’ REO websites and you’ll see they’re brimming with inventory. I’ve peeked periodically and up until a month or so ago, I was disappointed not to find much–what a difference a month makes.
“Plaintiff Tanya Jones and her sister Donna Jones took out a $520,000 loan from IndyMac in the fall of 2005 on a home in Brandywine in southern Prince George’s County. The loan had an initial interest rate of 1 percent and an initial monthy payment of $1,673 - but an adjustable rate provision allowed the rate to rise almost immediately, with a limit of just under 10 percent
1/2 a MILLION dollars for a house in Brandywine, Maryland ?
Sheesh. I drove through that town many years ago and thought that I missed my turn and ended up in a 1930’s Appalachian Depression without the mountains.
This ISN’T a just a Housing Bubble, it’s National MASS Insanity.
And - when/if the mortgage gets to 10%, it will be the equivalent monthly payment for an $800,000 loan (if it were at a reasonable 6.5% fixed rate - although lower can be found).
And this on a house which is already well-overvalued at $520,000. That mortgage, combined with delining value, is a hell of a vise to be in. It’s a f___ing vise !!!
Not even the stock market goes “straight down”. “Corrections” are always comprised of “noisy” short-term ups and downs. It is only the long-term trend that defines the true direction.
Those most hurt by a “correction” will cheer wildly at every small uptick in numbers which favor them and subsequently declare “bottom” multiple times…being wrong every time.
Unfortunately the MSM never calls them out for being consistantly wrong and are themselves guilty of letting proven liars continue to spin yet more lies. Unfortunately there are those who believe them (the “expert” on TV told me it was ok) and consequently are adversely impacted.
I wonder what the outcome would be if the MSM reported “economic suicide” the same way it reports “bodily suicide”?
I guess there are not enough minutes in the day to even consider such a thing. I guess the solution is to create the “Fool Channel” running 24/7 identifying by name all GFs and soon to be FBs. Of course we would want to know which liar they believed and which MSM outlet facilitated the lie.
Then we could create statistics showing the most effective liar/instigator and the most effective MSM stooge….
And of course THAT would lead to the next show called “Public Execution” where NAR/Industry liars and MSM “news readers” are given a 2 minute head start (barefoot) in front of an angry mob of FBs equipped with Nike sneakers (I am assuming Nike would be a sponsor) and clubs made of stainless steel and granite (obtained from the decaying husks of unsold downtown condos).
Got MooseMunch?
I thought the media’s reporting on Barclay’s was quite comical this past week. The OC Register reported Barclay’s dropped its $900 million repurchase demand. What it failed to note is that the $900 million it wanted was a repo line of credit and Barclays took its collateral instead of cash. Given that New Century’s basic model was 1) originate a loan using a credit line to fund it, 2) sell the loan for a slight profit, and 3) back to step one, that’s the equivalent of the repo man seizing the car that you drive to work your pizza delivery job.
I think some in the media aren’t familiar with the actual business models of the companies they report on and report what they’re spoon fed, rather than actually understanding the implications of the things they’re attempting to cover.
Of course we are seeing a spring bounce now. It doesn’t matter. Keep your eye on the big picture. As long as inventory continues to grow along with foreclosures, combined with a slowing economy…all we need is time.
And time is absolutely on our side.
One thing I noticed about Northern Virginia is that inventory is climbing again. Almost 2000 new listings since 17 Feb when I began to track it.
Also, from what I hear from one friend, although there may be more showings, not too many sales. It may be the last of the subprimes who have funded, locked loans realizing it’s their last shot.
Ho hum.
In Boston, once again more denial that anything has changed off the peak 05/06 prices or very close to peak prices
Talk host/real estate lawyer/financial advisor Rick Shaffer on todays 96.9 FM weekend BEST MONEY SHOW once again damping down the idea that there is any bubble or significant correction -claiming talk focused on subprime is more an issue of “name rather than results”
In other words form over substance -just a label
He says it’s a good time to buy in any case.
From what I see here in No VA, homes/condos are not selling too well. Also don’t see prices dropping that much. I believe people are going to be viewing their homes as prisons in the not too distant future. Once the new administration gets into office, I think (pray) we’re going to see a big drop in defense spending. And if you drive around NoVa all you see is defense contractors - they’ve literally taken over all the commercial real estate. So, when that high income industry dries up (and it will), what will replace it? Real estate will continue to deflate..only people will not be able to take such a huge hit on their homes. People will either be trapped or forced into foreclosure. And D.C. will go back to being a primarily federal gov’t town - with moderate salaries. Its not going to be pretty.