“Price It Right And Hope You Get Lucky”
KPIX 5 reports from California. “In March the number of houses on the market in the Bay Area jumped by more than 12,000 percent to just over 24,000. Dr. Chuck Williams, the Dean of the University of Pacific School of Business believes 2007 will mark rock bottom for the housing market.”
“‘We don’t see a bubble bursting,’ William said. ‘Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.’”
“‘The buyers are more excited now to go out there because they know they can work better terms with the sellers,’ said real estate agent Adriana Barriga. ‘Because the sellers are willing to be more down to earth and negotiate with the buyers.’”
“And in Tracy, observers say the 900 foreclosures in San Joaquin County won’t slow the market for long.”
The Sacramento Bee. “The spring home sales season is under way, and pros say this year you’ll need every trick in the book to sell your house. With nearly 11,500 homes for sale in the capital region, and hundreds, perhaps thousands, of additional homeowners considering the same, 2007 is going to be more competitive than ever for sellers.”
“‘Price it right and present it right, and hope you get lucky,’ says Yuba City broker associate Doug Bryan.”
The LA Times. “Brad Cottrell was a paramedic when a friend introduced him to the high-rolling world of sub-prime mortgage lending. Within three years of landing a job with Ownit Mortgage Solutions Inc. in Agoura Hills, his salary had tripled. His wife quit working and they bought a 3,000-square-foot house in Camarillo.”
“But late last year, defaults on risky loans began to rise. By December, Ownit was out of business, and the 35-year-old father of three was out of a job.”
“‘It was a nightmare,’ he said. ‘I felt like I got hit by a Mack truck.’”
“There’s a lot of that going on. In California, mortgage industry job losses soared 367% in the first quarter. ‘It’s only going to get tougher,’ said Cottrell, whose house is now for sale.”
“In California, the 3,679 mortgage industry jobs lost in the quarter pales compared with the 70,000 construction jobs that economists figure could disappear over the next two years.”
The Desert Local News. “The lender has repossessed developer Mayer-Luce’s ambitious Tuscan Hills development in Desert Hot Springs.”
“‘Yes, Mayer-Luce was the borrower and we have foreclosed on the property. We took back the property,’ said Jeffery Lubin, President of Scripps Investments and Loans.”
“The Tuscan Hills property is the second development Scripps has repossessed from Mayer-Luce. In Indio, Scripps took possession of the partially-built Vineyards project.”
The Valley Voice. “Tulare has some 6000 ‘paper lots’ available to build on joining Visalia with an abundant oversupply of subdivision lots. Tulare did about 550 new homes last year meaning the 6000 lots are more than a 10 year supply.”
“The upshot, it will take time to absorb the inventory, a similar sentiment in Visalia.”
The Fresno Bee. “City building permit fees will rise in June to make up a shortfall in the city fund that pays for building inspection and safety services.”
“Visalia City Council members unanimously approved the increase Monday night after learning that the city’s building-safety fund, which depends on income generated by issuing building permits to contractors for new construction, has a deficit of about $100,000.”
“A slowdown in construction activity, led chiefly by a drop in home building from record levels in 2005, is being blamed for the deficit as fewer building permits are being issued. That continues a trend that began in mid-2006.”
“In the first three months of the year, the number of permits issued for new single-family homes, and the construction value those homes represent, is off by more than 40% from the same period in 2006.”
The Union Tribune. “The Australian development company that promised two years ago to build a 21-story luxury condominium project in National City is now considering asking city officials to lend the firm up to $2 million.”
“Executives of Constellation Property Group won’t discuss why they need a loan, but city officials said the company’s financial partner, Phoenix Realty Group, wants to pull its money out of the project.”
“City officials should view the Constellation loan as an investment, said Brad Raulston, the city’s redevelopment director. ‘They’re not asking for a subsidy. This is a good risk or investment for us to take,’ Raulston said.”
“The company’s Web site describes the Centro project as ‘upbeat, urbane, unfettered, at the heart of a burgeoning community close to all amenities.’”
“In 2005, Constellation launched a marketing campaign to promote the National City project. The company opened a sales office on National City Boulevard and hosted a launch party for the project at downtown San Diego’s Hotel Solamar that featured Australian food, live music and models of the project.”
“The company placed ads in magazines and on billboards and began taking reservations through its Web site.”
The Modesto Bee. “Kenneth Spencer hadn’t planned on being a landlord. He and a partner thought they would make a tidy profit buying an older Modesto home, fixing it up, then quickly reselling. ‘But we bought at the wrong time,’ lamented Spencer, who lives in Martinez. ‘We put a lot of money and a lot of time into that house.’”
“After spending $309,000 for the Elm Avenue home in 2005, plus $80,000 more remodeling it in 2006, they haven’t been able to sell it for enough to break even. So they’re trying to rent it for $1,650 a month. Even if they get that price, they’ll still be short $1,000 a month on their mortgage payment.”
“‘It’s all about trying to survive on the mortgage right now,’ Spencer said. ‘Real estate always goes up eventually, if you can hold on long enough.’”
“Many people are trying to hold onto houses they purchased as investments by becoming landlords. That has flooded the Northern San Joaquin Valley rental market with houses, pushing down rents and forcing landlords to compete for tenants.”
“Many rental properties originally were bought by speculators who got caught in the real estate downturn, explained Paula Leffler Zagaris, whose company manages 1,500 rental houses.”
“‘They were gambling,’ Zagaris said of investors who intended to quickly sell, or ‘flip,’ houses to cash in on rising property values. ‘Anybody who did that before October 2005 was a genius and made a lot of money. But if they bought after that, they’re stuck.’”
“Marie Nunez bought a home in 2005 on Bollinger Court in Modesto. She lived there one year, then moved to a larger home. ‘We wanted to sell the (Bollinger) house, but it didn’t sell,’ Nunez sell. Now she’s trying to rent the three-bedroom house for $1,275 a month, which is about $500 less than the mortgage costs. ‘It’s been hard to rent.’”
“A nearly new, 2,300-square-foot, four-bedroom, three-bath home with a three-car garage recently rented for $1,650 a month in Riverbank. Mortgages on such homes often cost $1,000 a month more than that, said Deborah Naylor, owner of Parkside Management, which manages 300 rental houses.”
“‘Owners are just so desperate because they can’t stand to take that mortgage hit every month (without renting to cover part of their cost),’ Naylor said.”
“Often, owners ask her to seek higher rents, say $2,000 a month, but Naylor tells them, ‘We’re not miracle workers.’”
“Zagaris agreed an owner’s costs have no bearing on what they can recoup in rent. ‘We do a tremendous amount of counseling with owners about the rental market,’ said Zagaris, who added 65 homes to her client list last month.”
The latest from Rich Toscano:
‘It should be no big surprise, given recent writings here, that February was one of the worst months on record for this indicator. It will be interesting to see what it tells us in the months ahead.’
‘DataQuick’s latest snapshot of the O.C. housing market shows reluctant shoppers continuing to dominate. If late March trends hold, 2007 will have started with the slowest sales pace since 1996 as sales for the year’s first three months run 17% under last year’s opening levels. Prices continue to stagnate.’
‘With the Central Valley leading the way, 5,316 homes were lost to foreclosure sales in March in California, according to figures compiled by a Discovery Bay-based foreclosure listings and software company.’
‘The homes sold at auction last month represented a 27 percent increase from February and a 264 percent increase in the last six months, the company says. Of the $2 billion worth of properties sold in March, 4,796 went back to the lender after receiving no bids.’
‘Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise,’ says Sean O’Toole, CEO.’
12,000 percent? where’s the KPIX proofreader?
I assume they meant 12k units. Does anyone have that March data?
So would it be 100%, or 12,000 listings added in a month? That’s a heck of a big jump for one month! Is the Bay Area finally starting to crack? Many thought this would be one of the last markets to crack considering the huge numbers of immigrants, low-growth conditions througout much of the BA, and relatively strong job market. If the Bay Area starts imploding, Sacramento (my area) will become a complete waste land, if it isn’t already. Scary stuff.
What jobs? … all are goverment and retail.
We had some new jobs - all RE related. Now those will be leaving as well.
Yeah, a jump of “12,000 percent to 24,000 units” meant that there were only 20 units for sale in the entire Bay Area in February.
Send that guy (who seems to be a “It’s hit bottom! Buy now!” kind of thinker) back to school.
“In March the number of houses on the market in the Bay Area jumped by more than 12,000 percent to just over 24,000. But if buyers do in fact make their move in 2007, putting a squeeze on the housing supply, some say prices could be headed back up by January of 2008.”
Based on what ???? No one is buying at these prices. Wait for the ARMs to reset. Dumb idiots will see twice as many home for sale in 2008.
“Consider this. New home construction was down by 22 percent in 2006 and 50,000 fewer building permits were issued in California. Then, add 550,000 new residents every year.”
Hold on a minute there… we been flat on population for several years now… we DID NOT ADD nowhere near 550K per year. Infact the FED Govt would say our Population from the State is overstated by 1M … in SF Bay Area we are overstated by 150K+…
Doesnt that just contradict your first point regarding high demand will drive prices higher. Demand is down because we have fewer buyers then was predicted and more sellers.
“Byron Alvarez of the REMAX Real Estate Center, a 27-year real estate veteran, expects prices to jump by 10 percent or more in 2008.”
BAHAHAHAHA ! When are you idiots ever going to learn to stop listening to REALTORS and their nonsense.
The original article says “12%”. Obviously a transcription error.
Interesting Toscano chart. Does it imply that the default line will stay down for about six years, while prices fall, then track just above it?
And now the IRS is breathing down their necks for April taxes and the 1st property tax installment is coming due! Somehow I don’t think people will be off on those extended vacations this year.
I know I am preaching to the choir, but the central valley is hosed. The area has traditionally been affordable to due to the underlying agriculture economy. Unless you are a big farmer or rancher, you are not going to be loaded working in a job that supports farming. It was not long ago that a nice starter home could be bought in the low $100s while $200k bought a very nice home. Now, $200k gets you a 70s house in some gang infested part of Fresno with bars in the window. With that said, how can starter homes in the $250k-$350k range be justified? It’s not due to a land shortage- builders are sitting on land. Like most of you have said, it’s all wishing prices on the part of builders and homeowners.
Likewise, a $300,000+ home in Modesto? That strikes me as impossible. You can’t spend that kind of money on a home in Modesto unless you’re a Gallo.
You can’t spend that kind of money on a home in Modesto unless you’re a Gallo.
Or dinking alot of it.
Very funny, desmo.
Fresno may be hosed but I was just in the Chili’s here for lunch and people look like they are still eating REALLY WELL here. I mean, there are some seriously overweight people in this town.
You saw my family?! I was in Fresno just last week and retail and restaurants were humming- I guess the HELOCs are not tapped out yet. What’s sad is that the city has no soul- downtown is dead and looks abandoned.
Depression will do that!
rob
“I mean, there are some seriously overweight people in this town.”
They’re everywhere.
“I mean, there are some seriously overweight people in this town.”
“They’re everywhere.”
Would you rather their destructive habit be alcoholism or drug addiction, with the accompanying crime problems? At least the presence of fat people doesn’t adversely affect a neighborhood or a neighbor’s personal safety.
…AND, don’t forget the added bonus of additional abundance of low cost buffets they bring to the area!
I laughed out loud and my husband is looking at me like I’m nuts. I’ll let him read the comments.
He laughed out loud, too!
Every time I fly, the airline sticks me between two behemoths. I’m a fairly big guy (6′, 200 lbs) and hate sitting like a praying mantis so I don’t have to touch the rolls of lard spilling over onto my armrest. 90% of these whales just happen to be women.
Are they the type that feel compelled to speak across you?
“..hosed.”
It puts the lotion on its skin, or else it gets the hose again.
Sorry, that was the first thing that came to mind. By the way, I think we’re out of lotion…
“The spring home sales season is under way, and pros say this year you’ll need every trick in the book to sell your house.”
When will the idiots EVER learn that all you need to do is lower the f’n price?
http://centralcoasthousingbubble.blogspot.com/
They’re trying to convince you that their advise is worth 6%. They’re not the idiots.
They are idiots, because they haven’t quite figured out that 6% of $0=$0 - which is what they get when the house isn’t priced right.
Also, anyone who signs a contract with a Realtor(R) for 6% needs to be shot. The last property I sold in 2006, I was able to negotiate 2% for the buyer’s agent and 1% for the seller’s agent - and this was a full service brokerage.
http://centralcoasthousingbubble.blogspot.com/
Bwwwaaahhhhaaaa that day is over. If I would have been there broker I would have sent them packing and that deal packing…
Sure they are. Just because the sellers are idiots, doesn’t mean that the Realtors aren’t idiots, too.
“‘Real estate always goes up eventually, if you can hold on long enough.’”
Except when it is going down…
Amazing. We’ve only had paper money since 1913 and they think inflation is permanent and forever.
Actually we have had other paper monies in America. The old “Continentals” went to zero becoming worthless and then we had “Greenbacks” which went to zero and became worthless.
As far as thinking inflation is permanent and forever, it is under a central bank until the paper currency collapses and becomes worthless. This always happens without fail.
Amazing. Reading about the history of Greenbacks on wikipedia…
http://en.wikipedia.org/wiki/Panic_of_1873
“The railroad industry, at the time the nation’s largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry. Cooke’s firm, like many others, was invested heavily in the railroads.
“President Ulysses S. Grant’s monetary policy of contracting the money supply made matters worse. While business was expanding, the money they needed to finance it was becoming more scarce.
“Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke’s firm provided the financing. But on September 18, the firm realized it had become overextended and declared bankruptcy.”
Depression ensues, etc.
I think climber was referring specifically to asset inflation, which has periods of boom and bust. The boom and bust asset cycle is also a nice Fed fiat gift, along with the constant monetary expansion which you are describing. This is a long discussion better suited to Mish or CR’s blog but my take on it is that what we are currently experiencing isn’t monetary expansion as much as it is credit (debt) expansion. Every paper currency ends in hyperinflation but it is also true that every credit boom impodes, resulting in asset deflation. Currently we have assets deflating and the financial sphere inflating which is a very dangerous combination and is actually much worse than stagflation. The Fed will be powerless to stop the big asset bust, especially because incomes can’t grow very much in a globalized economy.
Some people theorize that the Fed could simply monitize a bunch more debt to keep asset prices high, but would this psuedo-inflation injection work without also mailing everyone a huge check and going the direct hyperinflation route? I doubt it very much due to pushing-on-a-string effect.
“especially because incomes can’t grow very much in a globalized economy.”
I wonder if that’s true, long-term. I think it IS true that incomes can’t grow much in a globalizING economy, because in the early stages of the process, there are labor-cost arbitrage opportunities, and jobs that can be shifted from high-cost regions to low-cost regions, get shifted. But in the long run, arbitrage results in equalizing, and the wage gap between rich and poor nations narrows.
And you don’t necessarily have to equalize the entire world to the living standards of the First World. For one thing, there’s the basic cost of shipping your goods from overseas — which with energy prices rising and set to go even higher, adds costs that at some point outweigh the labor (and regulatory, and litigation) advantages of sending jobs overseas. In addition, some backwaters are so unstable that you wouldn’t want to risk much capital-intensive plant there, lest the local Mugabe-type nationalize you.
Bottom line is that incomes will be stagnant in the West during the opening innings of globalization, but will be able to rise again once it gets entrenched.
Globalization isn’t forever.
Bingo!!
Globalization is the rape of other countries via the WTO and other unaccountable self-appointed bodies whose sole purpose it to override the rules of the sovereign states so a select group of pirates (ahem…I mean corporations) can loot and plunder without “those pesky laws” getting in the way.
Yep, this business model is totally sustainable and nobody will ever catch on.
Thomas,
That’s why I think “Peak Oil” could actually be a long-term blessing for America. The cost of importing goods will eventually far outweigh any labor advantages, so all those jobs will have to come right back home again.
The ‘Greenbacks’ or US Legal Tender Notes are still around.
http://www.ustreas.gov/education/faq/currency/legal-tender.html#q3
Oh, yeah, people are totally brainwashed to think inflation is just something natural that always occurs. Just like gravity.
Actually, they are not even thinking about inflation. They think that real estate always goes up in inflation-adjusted dollars, as ridiculous as that may be.
People are brainwashed into thinking inflation = higher prices.
Inflation = inflation of the money supply = inflation of the debt supply
All money is debt. Money does not exist until it is borrowed into existence - saps signing on the dotted line for a mortgage loan.
It isn’t the banks or the government that cause inflation - it is you - every time you finance a car, mortgage a house, swipe a credit card.
But the bank can’t make that loan unless they have enough reserves which comes from the Fed AFIAK
We may not see a recovery once we see the final drop. ( I say 50% and flat for many decades) The fundementals are say out of whack… we we get goverment regulations against realtors and lendors… that will keep prices further depressed for decades.
“We’re going to be sitting here 4 or 5 years from now when we’re at the peak of the up cycle saying: ‘Remember ‘06 and ‘07?’ We should have been buying everything on the market,” Alvarez said.
Funniest thing I’ve read in a while. If Alvarez really is “a 27-year real estate veteran” this is his third real estate cycle. Apparently he didn’t learn much from the first two.
Yes, he did learn something. That you can fool many of the people most of the time - and get paid while doing it…
“‘We don’t see a bubble bursting,’ William said. ‘Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.’
********
And the funny thing is, with this comment, the guy thinks he’s going to fool all five buyers in the market.
I sent this to DR WIlliams
Mr Wlliams
I read this report on the website
Quote
http://cbs5.com/local/local_story_095213933.html
“We don’t see a bubble bursting,” William said. “Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.”
Unquote
I wonder how can you say that three conditions are sufficient for ANY one to buy a home at this time.
What about affordability? Now that sub-prime is history and alt -A following it, there would be very few people who can qualify for 500000 home that is normal almost evey where in california. i.e locations where there are jobs.
With median income around 50-60K almost in any metropolitan city in California, who can borrow 500000 , ten times the income in the current conditions.
Also with home prizes doubling in most places in california inthe past 5 years, a 5 to 10 percent fall is all that is needed for people to go out and buy?
give me a break !
Just ask the fool how many properties he is buying this quarter.
I spent about ten minutes trying to find Chuck Williams’s email address so I could tell him he is making himself a laughingstock, but the University’s website doesn’t make it easy and I decided to quit wasting my time.
I spent about ten minutes trying to find Chuck Williams’s email address…
Is this the original 2 Buck Chuck?
Here’s a couple more gems from the KPIX must-have-been-edited-by-a-realtor puff piece:
“Byron Alvarez of the REMAX Real Estate Center, a 27-year real estate veteran, expects prices to jump by 10 percent or more in 2008.”
“Experts believe Northern California home prices will start to rise again over the next 18 months. Waiting for rock bottom, however, could be risky.”
********
Hmm… I know every downturn needs a few knifecatchers.
And that’s who they’re fishing for with this article, in order to jump start a moribund market in the Central Valley.
In the news video the anchor concludes with the reporter by saying, “I’m sure there’ll be busy open homes this weekend!”
And then, finally at the very end, it goes on to show a Bay Area map with five counties in which DataQuick had reported declining prices y-o-y (led by Contra Costa at more than -5%).
How busy are those open houses going to be?
Once again proving that RE “professionals” always paint a sunny day even when a hurricane is staring them straight in the face.
“Are we not men?”
Tell the media its busy … when the numbers who otherwise…
Usher in weekend gawkers….all at the same time telling them there will be multiple offers
Tell the only bidder there are multiple offers, they will need to over bid by 10%…
Collect Commisssions.
Nice scam!
Five? generous. Lets see we had that flood two winters ago and then the record heat wave of 06, then what else? Oh yeah the Freeze of 06, and… wasnt’ there one other thing? Oh yeah now we are in an absolute drought.
Yes nothing to see here keep moving people.
“‘We don’t see a bubble bursting,’ William said.
You don’t “see” air either but you know that it is there, and since the air is slowly leaking out of the bubble there will be no burst, just a steady ppzzzzzzzzz sound.
SKB
““We’re going to be sitting here 4 or 5 years from now when we’re at the peak of the up cycle saying: ‘Remember ‘06 and ‘07?’ We should have been buying everything on the market,” Alvarez said.”
Never mix PCP with work.
LOL
“‘Owners are just so desperate because they can’t stand to take that mortgage hit every month (without renting to cover part of their cost),’ Naylor said.”
LOL! Why don’t they just refinance it?
– Refinance Me –
And pull a little cash out for themselves!
They should have formed a corporation and bought the house through the corporation if they were going to flip. $1,000/mo? Even with write-offs that’s a lot of money out the door for YEARS. Time to walk away and lick one’s wounds.
Is that possible? I guess with all the no-doc loans, why wouldn’t a bank lend money to a (new) corporation with no assets…. I wonder how many of those there are out there. It would be a pretty easy decision to leave the keys on the counter in that case.
I am fairly certain that RR does not know what he/she is talking about. Probably bought a get-rich cd set from Carlton Sheets or Kiyosaki.
Well I don’t know about being entirely wrong. You can buy a sfr with a corporation. You also can make it non-recourse with bad boy contingencies. However, it’s expensive requires at the minimum 25% down and you are going to pay at least a point over current market rates. But it can be done.
Alas, the ol’ form a corporation trick almost never works. You go into the bank, they will look at the corporate assets and earnings (none), then only agree to loan the money if you personally cosign/guarantee the loan. So you are still in deep doo doo. And they would probably not give you an owner-occupied rate, it would be a commercial loan.
So here’s the question: If you’ve guaranteed a home loan, and the loan is defaulted, and you default on the guarantee, and the home is foreclosed upon, does the foreclosure show up on your record? Or just the default? And if so, is there any difference in the effect on your credit of a defaulted guarantee vs. a foreclosure?
Yes the foreclosure will show up on your record, if you personally guaranteed the loan, which in almost all cases, unless your name is Trump or Pickens or someone, the personal guarantee will apply. And Mr. Income is correct in that you can sometimes buy the prop through the corp, but trust me you will pay through the nose for the rate and the terms. It will be a “hard money” loan and these lenders know the game, they will want everything including your first born to approve the deal. It wouldn’t be worth the jumps thru the hoops that you are going to make. It wouldn’t make sense.
R.E. 101:
1. Still on the hook for the money, because you have to personally guarantee.
2. The writeoffs are the same whether inside corp/llc or not. 3. Writeoffs are secondary to cashflow and cash on cash profits.
R.E. 201:
1. Multiple properties in a corp is poor tax planning, due to taxable event when pulled out to sell.
2. R.E. generally shouldn’t be in a corp unless being held long-term and/or for estate planning purposes, but not for flipping.
3. Can achieve the same asset protection by owning r.e. personally, filing sched E and using liability insurance - as you can with an llc, and admin costs are much cheaper.
regarding 1: is it not taxable when held as a personal investment?
regarding 3: liability insurance protects your personal assets against turning upside down?
#3 always struck me as the real reason to form the corp. This way if you make a biz mistake, your personal assets are still intact and your exposure is limited.
Someone feel free to correct me on this, but I believe that one major advantage of holding RE thru a corporate entity such as an LLC is that you can transfer ownership of the RE by selling the LLC, rather than the RE itself. This tends to be a much simpler transaction and sometimes can be structured to avoid taxes. Also, since there’s no actual sale of the property, it won’t be recorded by the county, and it won’t be reassessed as it might under, say, Prop 13.
The key is to set up a LLC for every property that you buy. Selling the property is a taxable event for the LLC. Selling the LLC is a taxable event for the LLC’s owners, which may be advantageous if the owners have capital losses they can use to offset the gains from selling the LLC.
For most people, the exposure is not limited as they dont usually keep the funds separate. Trust me, in 90% of the cases, people bring us their tax info and they have comingled funds between the entity and their personal. Once you show a pattern of this, any decent lawyer can “pierce the corporate veil” so quickly the entity will just have been a waste of time. Usually entities are not the protection against personal asset loss that most people think they are. When used properly, yes, but generally no. Also in corps, you have to do a lot of work to maintain the corp status, like board meetings and resolutions to vote on just about anything you need to do. You better have you ducks in a row before you ever have to go into court, and since this costs money, generally people either dont do, or try to go the Nolo Press route and they f it up.
ChrisUSC-
The reasons corporations are used is because after flipping a certain amount of properties within a year the IRS classifies you as a dealer. Which is taxed quite differently. I think the magic number is 8 but don’t quote me on it. The conventional wisdom of why LLC’s are not used for this even although for single property entities (ie: large commercial projects) they are just fine is a matter of the LLC being a newer form of ownership and doesn’t quite have the documented case law as a Corporation.
There is no magic number for the IRS. It is based on facts and circumstances, usually argued all the way to tax court if you really want to make your case. You could flip one house and be considered professional. What you are trying to say is that is is taxed as normal income, which is taxed at your income tax rate and not at the lower cap gains rate. Generally, most people who have the means to flip probably have a higher income tax rate than the cap gains rate, so this is what youa re referring to. But understand that a copr has to pay taxes at a rate that is higher than most people’s personal income tax rate, so you are shooting yourself in the foot by putting into a C corp. Now if you put into an S corp, it is the same as owning personally, because the income flows to you personally.
“Zagaris agreed an owner’s costs have no bearing on what they can recoup in rent. ‘We do a tremendous amount of counseling with owners about the rental market,’ said Zagaris, who added 65 homes to her client list last month.”
This just kills me. I mean, what were these idiots thinking? Why would you become a landlord on a negative cashflow property? Are these “owners” really that stupid?
I’m sorry, I just do not get it. You have to have impeccible timing to get away with that kind of speculation. And there have been much better and safer investments available over the period when these wannbe landlords did this to themselves.
“Why would you become a landlord on a negative cashflow property?”
The real smart one’s bought 5 to make it up on volume.
Bwahaha….
A long-time friend who’s been a property manager in PHX for many years told me of the woman who called him from NYC a couple of years ago. She had paid $350,000 (but it was cheap compared to NYC!) for a house she HAD NEVER SEEN in a neighborhood she knew nothing about. The neighborhood was OK but a little on the other side of the tracks none the less.
She told him she would like him to manage it and that she had to get at least $2500 a month rent but would like more. She had done zero research or due diligence. He explained over and over that she would be very lucky indeed to get $1000 a month for her house. He didn’t have to refuse her business though because she was going to “find someone else.”
Even worse for them, I’d be very reluctant to rent FROM a cashflow negative land lord. I don’t want to have the roof leak, furnace out, whatever for months while they try to come up with the funds to fix it.
I don’t want a financially illiterate landlord. I’d rather pay a little more to someone who knows what they’re doing.
Also, it would suck to have your landlord foreclosed on while you are living in the place. And they will probably get desperate and spend you deposits, too.
I really am baffled by this whole “buyer’s market” crap. Housing prices are still way above fair value as determined by the P/E ratio, the median household income and historic trends. Given that homes are still selling quickly with only modest price reductions, what we have is most certainly a seller’s market on its way out. The buyer’s market will happen, but we are still several years away.
i second that.
does anyone who what happened to the RE industry 40 million ads campaign to encourage people to buy?
nick -
I heard an obnoxious radio ad the other day while driving which spoke of “the missed opportunities of equity if one waited to buy.”
I didn’t hear the NAR mentioned by name, but it wouldn’t surprise me if they were the source of funds for that piece.
Please, Fed Chairman Bernanke, put these people out of their misery.
I say: “‘Do the Volcker’; drain the liquidity cesspool!”
The “liquidity” cesspool is already draining. i.e. New Century, Fremont, Ownit, etc. Bernanke doesn’t have to do it. The market has spoken and will continue to do so if left to its own devices.
I think they went out and blew all on spring hats…. the next bubble…. womens hats
Thinker, you are dead right and hopefully you will save some people from the financial slaughterhouse. However I believe that millions of people out there would prefer to “own” than think. That is what the shills are counting on.
If by own you mean to hold the liability for a depreciating asset while sending money each month to a bank, then yes.
“She lived there one year, then moved to a larger home. ”
—————————————–
There are probably hundreds of thousands of people in the U.S. carrying 2 mortgages, which seemed prudent at the time, and could very well end up in most of them losing both houses. The 2nd, larger house doubtless has a toxic mortgage, the 1st house is a hungry alligator.
I have two former neighbors (a couple) who lived in their house for just 2.5 years. Then they decided that this area wasn’t to their liking, so they bought somewhere else.
I heard that the double-mortgage decision began pinching their finances from the git-go. What’s worse, their former residence is now in its 7th month on the market.
Ouch.
“‘It’s all about trying to survive on the mortgage right now,’ Spencer said. ‘Real estate always goes up eventually, if you can hold on long enough.’”
Another fool ready for the lesson of life. This tells you how these Realt-hores brainwashed the masses. Just go little east by Hawaii and tell those stupid Japaneese that Realestate always goes up you just have to hol on to it and get ready to be shafted by the millions who have been waiting for more than 15 years to break even. Atleast prices there are not sliding any more and stablizing at 60% below the peak value.
We in America will probably not see this long painful bleeding as we don’t have feel shame to file bankruptcy. I think our stablization will occur in 3-5 years at 60% below in the Speculative areas and 20% below in the other areas.
Real estate always goes up
….sometimes in smoke, according to that report from Texas yesterday
This downturn will last exactly as long as it takes to wash out the Spencers of the world. He doesn’t realize that until people like him capitulate, there can be no return to rising prices.
Having seen/ridden the CA crash of the early 90’s all the way down I can assure you that you WILL NOT get any capitulation from the RE neanderthals. Didn’t happen then and it won’t happen now. The best you can hope for is silence.
Remember, they all wear glasses with sun painted on the inside of the lenses so they are incapable of seeing anything else.
“And in Tracy, observers say the 900 foreclosures in San Joaquin County won’t slow the market for long.”
Yea, neither will the fact that what was left of buyers can’t get a subprime loan anymore.
Also from this Cheerleader piece…
“Byron Alvarez of the REMAX Real Estate Center, a 27-year real estate veteran, expects prices to jump by 10 percent or more in 2008.”
And it ends with:
“Experts believe Northern California home prices will start to rise again over the next 18 months. Waiting for rock bottom, however, could be risky.”
Who are these “experts”. So prices will rise again over the next 18 months. What, starting next month?
Considering the big picture, I’d say this article is just irresponsible shilling….
Gas at nearly $4 a gallon has got to be kicking the butt of those people in Tracy with a fat mortgage, Chevy Tahoe lease payment, and a daily commute to SFO.
Best business to be in, in Tracy. Bk lawyer or Divorce lawyer. That no equity house and neg personal cash flow is a killer. Where is Suzanne to help me? hehehehehehe
sitting on a park bench - drooling - feeding squirrels
The “Waiting for rock bottom could be risky” comment sounds like something direct from the NAR.
“‘We don’t see a bubble bursting,’ William said. ‘Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.’”
With statements like that, it’s unbelievable that this guys a Dean of a
business school. He sounds like a RE industry shill.
Not just any school, the University of Pacific.
Prices dropped 5-10% after an enormous run up, so what? I still can’t afford it. That is an insufficient condition.
a Dean’s main job duties include, among other things, fundraising…
enough said
Isn’t COP in Stockton? Only person worth a damn from COP that I remember was a quarterback named Flores (I forgot Eddie LeBaron sorry) who took the Raiders to the Super Bowl. Don’t remember who won that time. Oh ,and Fritz Grupe the developer of the ‘lake’ project.
I’d hate to be a student at that school, with this “Deep thinker” as Dean.
Correction: those are three OF THE FOUR conditions a buyer wants. The fourth is affordability.
Because just those three out of the four biggies means you’re almost certainly buying an asset that will lose value. If prices have declined IN THE FACE OF LOW INTEREST RATES, and there’s a tremendous amount of inventory, it means that prices are still higher than the market can bear — and therefore, by definition, prices cannot turn upwards until that ceases to be true.
Dean of a business school. Good Lord.
Ignore him… he is a lame dweeb with no real life experience.
most are
they who can’t do teach
“‘We don’t see a bubble bursting,’ William said. ‘Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.’”
Hold on a moment …
First, prices are down 10 - 20% from two years ago on comparable homes and particularly condos. This still leaves homes grossly overvalued.
Credit is getting tighter by the day making it more difficult to qualify.
Prices continue to fall, so as many have said on this blog catch a falling knife..
I will say there are a ton of homes to choose from though if you just don’t care what you spend.
We’ve already seen a drop in loan applications: “The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications fell for the third straight week, dropping 3.2 percent to 649.5 in the week ended March 30.”
http://money.cnn.com/2007/04/04/real_estate/bc.usa.economy.mortgages.reut/
Basic economics dictates that an increase in supply and and reduction of capital in the market= lower prices. I’m not sure where the voodoo economics and fuzzy math math is coming from.
Now she’s trying to rent the three-bedroom house for $1,275 a month, which is about $500 less than the mortgage costs. ‘It’s been hard to rent.’”
And just what kind of car or vacation could I get for that $500/month carrying cost going down the drain?
“After spending $309,000 for the Elm Avenue home in 2005, plus $80,000 more remodeling it in 2006, they haven’t been able to sell it for enough to break even. So they’re trying to rent it for $1,650 a month. Even if they get that price, they’ll still be short $1,000 a month on their mortgage payment.”
LMAO, this is some typical shit here in the central Valley. I know property management and $1,300 is the TOP rent! That is about 1/2 of most peoples take home here.
Who the hell REALLY makes enough money to lose $1,500/mo+ indefinatly (till it goes back up) and still pay your own bills every month? Shit I have more saved than any of my peers and this would kill me!!!
When you factor in all other cost; Taxes, upkeep, lost opprotunity cost, further drop in rentals value, vacancy, property management, time and heartache this is prolly the worst possible finincial decision I could imagine.
As by far the smartest person I know, but don’t often take my own advice, my advice would be to walk take the credit hit and get on with your lives!
All these FB trying to hang on will find it was a huge mistake. Even those that eventually break even will have lost more than know if there was a real accounting of the actual cost. If the paid $500k and sell in 10 years for $550k they will consider it break even (just to feel better), but will in fact have lost years worth of wages pursuing a miserable hobby.
Considering the number of spelling mistakes in your post, I HOPE you aren’t the smartest person you know!
LOL that was just wrong…
Maybe they are planning on walking… one they have pocketed the renter’s deposits. ;
“After spending $309,000 for the Elm Avenue home in 2005, plus $80,000 more remodeling it in 2006, they haven’t been able to sell it for enough to break even. So they’re trying to rent it for $1,650 a month. Even if they get that price, they’ll still be short $1,000 a month on their mortgage payment.”
It’ll cost them $12,000+ a year to hold the property, it sounds more like a liability than an investment.
And that excludes the property taxes, insurance, property management fee (if any), maintenance, and rental downtime between tenants.
$12,000 is a drop in the bucket. I’d venture to guess that the real cost is AT LEAST $18,000 per year (30% of revenues as Op/Ex), or $500 more per month. Property taxes on the original purchase of $300k is $250 per month alone!
I’m very, very happy to be renting right now.
I still do not understand how people can be predicting a specific bottom to the market. In Stockton, can the average family afford a $450k house? Wages need to eventually increase for housing to be supported at current levels; the toxic loans will only get you by for a few years. Eventually, people will have to start paying with “real” money at market rates. Also, the whole sub-prime issue is only beginning to break, so how can anyone make a good prediction if one of the huge variables is unknown?
The average family can’t afford a $450K house, but if you turn it into a duplex or triplex or build a shabby granny flat in back or add a lean-to or tar-paper shack and cram 10-20 people in… then it becomes viable. This is what has happened to several neighborhoods in San Diego and I think this is the future of housing in many parts of California.
Knowing Fresno, there are probably 3-4 families living in a lot of homes when you consider the large migrant population from Mexico and all of the Asian refugees.
If family has a bread-winner making $100k per year…then yes, $450k is doable….
that’s great, but median houshold income in Fresno is around $32k- not enough people around to truly afford the average sales price of around $320k.
To predict a specific bottom, I refer everyone once again to the graph posted in implode-o-meter on March 19th, showing the huge bulge of ARM resets towards the end of 2007 and a secondary bulge in 2010-11. Hence no bottom till 2012.
dingdingding ding….. we have a winner Bob, for correctly guessign whose going to occupy those beautiful new McTenemants in your area (aka IMMIGRANTS)….. you’ve won a fabulous 3 day 2 night stay in the ulta-luxurious Buttermilk Acres Motel, just outside Ridgcrest, gateway to Death Valley…..
I am not sure about other places but there is new advertisement campaign from homownershipalliance who claims to be very concerned about future homowners and advises them to take advantage of this great Buyer’s market but due to some regulation they reaveal the sponsors for this campaign. Can you guess who are the sponsors?
You guessed it right Home building association
I heard this on the radio, as well, recently.
“Buyer’s market”
Duplicitious, to say the least.
The Fresno Bee. “City building permit fees will rise in June to make up a shortfall in the city fund that pays for building inspection and safety services.”
Add yet another daggar to the housing market.
“City building permit fees will rise…”
All the while they complian about the lack of affordable housing. In my town they want year’s annual household income just to break ground.
Politicians whine about “price gouging” all the while they’re tax gouging. It’s just jackals fighting over the meat.
I loved that one too. Not selling your snake oil? Raise the price. Well, that sometimes works with college tuitions (Mt Holyoke’s applications dropped when they lowered tuition, rose when they hiked it again) … building permit fees are not a likely item for irrational mania, when sales of new homes are falling.
I went to the L.A Times website to look at the story about the former employees of New Century. They have a photo of two New Century babes who started their own “loan” business.
These two chicks should forget about the home loan industry and become a poledancing tag team. I’d gladly slip them each a $20 if they were any good. I mean, they are kind of cute and they’d make a lot more money shaking their thang.
Do they date renters? What kind of guy will the chicks go for now that all the FBs have no money left?
Give one of them a $100 and I bet you’d have a nice 30 minute “date”.
Everytime I see someone who looks just like these two, the first thing I think is….mortgage broker. Always on their cell phones gabbing about pulling together some “sweet deal”, etc.
They’re today’s equivalent of used car salesmen, zero integrity and slimy as hell.
Man, they’re “tough” to keep going in the same industry after being laid off three times.
Man, they’re “tough” to keep going in the same industry after being laid off three times.
Or Stupid.
“In March the number of houses on the market in the Bay Area jumped by more than 12,000 percent to just over 24,000.”
That was the largest percentage increase in the history of the planet.
As of last weekend MtView has a 25 day’s supply of inventory. The area is very uneven, NW Santa Clara has less inventory than in 2005. East San Jose, with poor HQ access, and South Santa Clara Co. , distance form jobs have ~ 3 mos supply.
My Company transfered from Mt View to South San Jose.
This is the second time this has happened. Seems when CEOs get rich they buy in Silversprings Country Club and Evergreen (San Jose) so their commute is shorter guess us wage earners are too poor afford San Jose.
http://www.realtor.com/FindHome/HomeListing.asp?snum=6&mlsttl=&frm=bymap&pgnum=1&mls=xmls&js=on&target=&ct=San+Jose&st=CA&sbint=&sbls=&sblo=&stype=&areaid=2000100&fid=so&vtsort=&mnsqft=&mnprice=3500000&mxprice=8000000&mnbed=0&mnbath=0&typ=1&poe=realtor&x=10&y=4&sid=0856F5FE7BC3C&snumxlid=1074942079&lnksrc=00001
From the LA Times article:
“She didn’t give up on the industry, though. The La Palma resident teamed up with a friend and colleague, Cece Sarno of Garden Grove, to start their own loan-processing outfit, CE Processing Group. Their goal is to grow so they can hire other workers who got pink slips from sub-prime lenders. They processed their first loan Tuesday.”
Good luck with that! I feel bad that they lost their jobs and all but C’MON!! They’ve been on the frontline throughout this entire lending meltdown and now they want to start their own lending outfit?
It’s like re-opening an out of business bar named “Jim’s” and re-naming it “Tim’s”.
If they’d like to process az_lender’s loans, I might give them $50 per contract. It might keep them supplied with some rarely-used staple such as baking powder. Hey, maybe we will indeed return to the days when real lenders process their own loans…! My name is so well known at the Pinal County Recorder’s office that they allowed me to use a check to pay for an in-person immediate recording. Wonder where is mister wells fargo and miz Wah Moo ?
No actually that was a smart move on their part. I know of a few other girls who have struck out on their own doing that. They are making quite a bit of money. They are starting a lending company they are processing loans. I know of one in particular who makes 800 per contract. They are worth their weight in gold if they are experienced and know what they are doing. Up or down market.
the double cleavage doesn’t hurt business either…
That’s a fact… Cleavage will always have a place in the mortgage business.
…Tulare did about 550 new homes last year meaning the 6000 lots are more than a 10 year supply…
Dang! Ten years supply? But I thought they quit making new land a long time ago!
Got 10% down?
“‘The buyers are more excited now to go out there because they know they can work better terms with the sellers,’ said real estate agent Adriana Barriga. ‘Because the sellers are willing to be more down to earth and negotiate with the buyers.’”
Do you know many “excited buyers”? I don’t.
For me, the thought of buying now is truly scary.
Also, I still see hopeful pricing (above last year’s sale price for new listings). I think most sellers are holding onto the “I’m not going to GIVE my house away!” mantra.
Many real estate agents are still pushing the “it will just take longer to sell”, but you can still get your price, line.
I think you’re completely right. Anyone who is currently qualified to buy who DIDN’T buy in 2003-2005 either had a special circumstance that kept them from buying, or they felt that the housing market wasn’t quite right.
Some folks situation may have changed, and if they buy, well, I guess volume won’t go to zero, and those who felt the market wasn’t quite right then can’t possibly feel that the market feels right now.
I wonder how tight credit will get?
“excited buyers”, yeah what a joke. The only thing which I buy with some excitement now is bonds denominated in foreign currencies.
On radio I heard AD by this clowns. They even have a section buy vs rent
http://www.homeownershipfacts.com/learn/buyOrRent/
How nice of them to cloak their intentions behind this at the upper left:
“Campaign for California Homeownership”
I wonder how much smaller they can make the print for this at the bottom:
Sponsored by CBIA - California Building Industry Association
[one nearly needs a magnifying glass for the latter part]
And this part is further entertaining:
“For example, say you live in an apartment and your rent every month is $1,000. If you multiply that number by twelve months, you would be paying $12,000 a year to live in that apartment. Now say you live in that apartment for ten years. You would then have paid $120,000 in rent money and have little to show for it because you do not own that property.”
There are places around here that have lost that much ($12,000) in value in a just a few months. I’ll keep paying my rent at 40% of a mortgage payment (using traditional financing) until they come closer together as a monthly outlay, including any tax benefits, if any.
We have a long way to go.
As I’ve told people many, many times, your either pay money to:
1) The bank and the government as an owner; or
2) The landlord and the government as a renter.
It’s not complicated. With home prices the way they are, your cost under #1 is far greater than under #2.
The gamble is that the increase in value under #1 overshadows the extra you are paying on a monthly basis. Not a good gamble at today’s basis, IMHO. The monthly payments are a certainty, the near term appreciation (in the next 5-10 years) is not.
I haven’t even mentioned upkeep and opportunity cost/erosion of your down payment as the market continues to slide…
Some quick calculatoring: I rent for $1000/mo. To buy the cheapest house in my neighborhood would cost $425k. On a 30-year loan @ 6% it looks like my interest payment would be 16.4k per year, and my monthly payment would be $2500! Where is the savings?
Oh wait, I get it. If only there were a way to lower that interest rate substantially, if only for a little while…
Seriously, at the end of the day I’m either building equity in a house, which makes it hard to move, and the equity can only be withdrawn at great expense via refi, and which is subject to price corrections on the magnitude of 10s of thousands of dollars… or I can build it in a savings account.
This is now like the movie “the sting” we are all being told its the bottom even watch a few GF’s jump in the pond filled with African Crocs.
Plenty of newbie investors will buy up foreclosures as they build their mini-Trump empires as well.
“Dr. Chuck Williams, the Dean of the University of Pacific School of Business believes 2007 will mark rock bottom for the housing market.”
Just love these business educators, not a single ounce of experience in the real world. What even better he most likely doent even recall why the BA RE crashed.
“Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose”…… (yawn)
“And if you’re a buyer those are the three conditions that you want”…. (shill)
Thank you Dr. “Ground Zero” for the opine on the housing firestorm about to hit California. UPO….. in “Gang Land” Stockton, CA? This is a pathetic RE cheerleading article.
Just take your “over leveraged in real estate” punishment like the rest Dr. Chuck, and spare us the readings from the tablets you chiseled out of your granite countertops this past week. Sacramento is toast, the BA will take a long grinding erosion of value…… but Stockton is where they’ll dump all the burnt remains.
U..O..P
What a shock.
You mean, the people making big money in subprime lending bought houses during the boom? Say it ain’t so.
Does that mean they will add to the massive dump when they are laid off and desperate? I think so.
Not to mention realtors, “prime” mortgage lenders, constructions workers, etc.
Don’t worry, unline 1990, So Cal’s economy is diversified.
Haaaaaa!
I wonder what the hurricane season is going to do this year. We had a complete dud last year, but we could have another 2005 season. With property insurance rates for a $300,000 Florida tract home nearing the $8000/yr mark, you have to wonder what the rates will be if another Katrina hits Miami.
“Price It Right And Hope You Get Lucky”
BULLSHIT!.
If you’re ‘hoping to get lucky’ then you DIDN’T ‘price it right’ to begin with.
How much more of this crap do I have to take?. All RE salespeople do is constantly spew inane and nonsensical remarks like the one above.
And that’s when they’re not outright lying or distributing false information and doctored numbers like the NAR, CAR and fellow scum routinely do.
Wanna sell your POS?. Here’s some REALISTIC advice;
Get over the fact that you paid $700K for it. You were a Sucker and you heard there was a Rally, so off you went.
NOW it’s worth $450K if you REALLY wanna sell it. Bite the bullet and take the loss before its value drops to $300K.
You f@cking greedy POS.
Dan, why don’t you tell us how you really feel? I have to admit it feels good to go off on this sh*t on occasion, especially after a few drinks.
I wish they bring back the public dunking chairs….very effective at modifying behaviour…..
Do you mean lender’s behaviour or buyer’s behaviour?.