Many Would-Be Sellers Are In Denial
The Cantonrep reports from Ohio. “Nancy Niarchos and her husband bought (a) Jackson Township condo for $137,900 in 2003. They had it painted. They put on a new roof, and they installed a new kitchen counter and a backsplash. Then they realized the condo was too small. So the Niarchos bought a larger house in Jackson and put the condo on the market in November.”
“Recognizing a slow market, they asked for $139,000, just 0.8 percent more than they paid for it four years ago. Five months later, no offers. ‘I just think the market is really bad right now,’ said Nancy Niarchos, who now has two mortgages. ‘We’ve already moved. We just really want to sell it and move on.’”
“‘Buyers have such a large inventory to choose from,’ said Linda Wise, a local ReMax real estate agent. ‘It’s like a candy store.’”
“Real estate professionals say subprime borrowers are running out of time. Many got adjustable-rate mortgages. The catch: If interest rates went up, payments would significantly increase.”
“That wasn’t a big worry at a time when people were betting housing prices would always rise. Many lenders didn’t even bother to ask prospective borrowers for documentation of income. Nor did they require a down payment.”
“‘You could tell (them) you make whatever amount of money, and they would just take your word for it,’ said Jim Fox, the manager (of) Realty One’s offices in Stark and Carroll counties. ‘It was lax, and we’re paying the price.’”
“Many would-be sellers, some of whom took out big second-mortgages to fund home improvements, are in denial that their homes have not appreciated, Fox said. When real estate agents suggest a selling price, many sellers ‘look at us and tell us, ‘My gosh, that’s a terrible number,’ he said.”
“Realty One President Barbara Reynolds added, ‘There’s a feeling literally that a house should appreciate every year. It doesn’t always. It depends on supply and demand.’”
“As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
The MD Times from Indiana. “Indianapolis in the first two quarters of 2006 had the highest metro foreclosure rate in the United States, according to Realtytrac. ”
‘”Certain people were getting loans then that they can’t get now,’ said Wayne Ready of FC Tucker-Wayne Ready & Associates. ‘Indiana is in the top five or six in repossessed homes.’”
“The Midwest’s industrial-based workforce is linked to bad credit and mortgage defaults, he said. Midwestern states are among the worst-hit areas in the nation when the housing market has a slump.”
“Investors will buy properties at bargain prices from the banks before the market is on the rebound, he said, so foreclosed properties don’t lead to any slowdown overall. ‘What’s mostly selling now is those (foreclosures) and high-end homes right now,’ he said.”
The Ann Arbor News from Michigan. “Washtenaw County homeowners are facing foreclosures in record numbers, the result of a weak economy, a glutted housing market, and adjustable rate mortgages that have bit homeowners hard as interest rates jumped.”
“‘I used to do five or six foreclosures a week. Now I do 19 to 30,’ said Special Deputy Jimmy Moore, who auctions off mortgage foreclosures every week at the Washtenaw County Courthouse.”
“The Washtenaw County Clerk’s office recorded 99 deed sales of foreclosed properties in February, more than any other month in more than two years. The combined total for the first two months of 2007 increased by 117 percent from the same time in 2006.”
“Livington County has also seen a huge leap in foreclosures since 2000 when there were a total of 85. That number jumped to 280 in 2005; to 614 in 2006 (a 120 percent increase); and in the first quarter of this year, there were 243 foreclosures, county Register of Deeds Sally Reynolds said.”
“In Washtenaw County, most of the foreclosures used to come from Ypsilanti and Superior townships, Moore said. Now, Ann Arbor’s being hit just as hard, along with Chelsea, Manchester and other outlying areas. ‘That’s where all the new homes were built,’ he said.”
“‘Some people who really didn’t qualify for a loan in the first place, but a smart salesman sold them something they couldn’t afford,’ he said. ‘They don’t have any equity built in their homes and attorneys are telling people, ‘Call your mortgage company. Say the key’s inside. And walk away.’”
The Cadillac News from Michigan. “Most sellers…may be forced to accept less for their properties than they ever anticipated. ‘It’s not in someone’s best interest to sell unless they have to,’ said Shirley Schafer, broker (in) Cadillac. ‘But it’s a great time to buy.’”
“‘We probably have a three-year supply on the market of homes priced over $100,000,’ Schafer said.”
“The uncertainty of the future causes agent Sheila Richardson concern. ‘In another five years, we could be worse off,’ she said. ‘We all might be selling our homes for 50 cents on the dollar.’”
The Pantagraph from Illinois. “It’s a scary time for hundreds of thousands of American homeowners, some of whom live in your own back yard. The number of new foreclosure cases filed in McLean County during the first three months of the year has risen about 15 percent from the same time period last year.”
“Attorney Chuck Erickson in Bloomington represents banks in foreclosure cases and acts as an agent for the Intercounty Judicial Sales Corporation out of Chicago when it schedules an auction in town.”
“‘I’ve done more foreclosures in the last year than I probably have in the last several,’ Erickson said.”
The Star Tribune from Minnesota. “Spring is the time of year when Twin Cities-area home builders itch to put holes in the ground that will become someone’s American Dream. But consumers aren’t feeling so springy leading into the housing market’s prime selling season.”
“‘And lo and behold, the subprime market comes forward and just causes another issue that descends on the housing market and raises questions that we don’t need,’ said Michael Noonan, division president with Toll Brothers Inc. ‘I’d love a period without news about housing.’”
“‘It has sent a shudder through the housing and mortgage industries,’ said Noonan, who is also president of the Builders Association of the Twin Cities.”
“According to the FDIC, the amount of noncurrent real estate construction and development loans increased by $1 billion, or 15.5 percent, during the fourth quarter of 2006. That increase represented nearly a quarter of the $4.2 billion increase in all noncurrent loans and leases during that period.”
“‘When you have something that shakes the confidence of the finance markets, that’s a concern for us,’ Noonan said. ‘If access to financing or capital becomes more and more difficult, we’ll have a greater challenge selling homes.’”
“Amy Crews Cutts, deputy chief economist for mortgage funder Freddie Mac, said that although this slowdown and all the mortgage drama that has surrounded it has been painful, it was inevitable and necessary to bring the market into balance and to prevent excess price inflation or the kind of overbuilding that happened in the early 1980s.”
“She believes the market has hit bottom in terms of the number of transactions, though not necessarily in terms of prices.”
“‘That said, I don’t think the upward slope will be very strong,’ she said. ‘It’s a bad thing if you are a homebuilder or investor in homebuilding, but it’s a fabulous thing if you care about the health of the overall housing market.’”
‘Think you’re not affected by the rise in foreclosures? Think again. Foreclosures in March were up 47 percent from a year ago, according to RealtyTrac, which tracks such things. Missouri’s 2,494 foreclosures were up 61 percent from a year ago. Kansas’ 447 foreclosures were up 127 percent.’
Yes, its true! Foreclosures are increasing at a rate never before seen and in all parts of the country! If you’re not being foreclosed upon soon, you just might be priced in forever. Thats why we say that there has never been a better time to foreclose- or be foreclosed upon, than right now!
“has never been a better time to foreclose- or be foreclosed upon, than right now!”
haha that is awsome.
Lets all chip in for an add on CNN.com with that one
“It drags down whole neighborhoods,” Laws said. “No one benefits on a foreclosure.”
Except for the responsible few that have patiently been waiting for this market to get its come-uppance. It’s come-uppancing in a big way now.
Missouri, Minnesota and Indiana are getting clobbered with foreclosures. The experts were right. The housing mania was just a coastal phenomenon.
When will they start to admit that housing in many areas should have been going down in price the last few years? Globalization has changed the fundamentals to a downward bias. It was excess liquidity that hid that fact for a while. A lot people on this blog talk about buying in 2008. You are crazy to even consider it unless life dictates it (very rare situation).
Lots of people benefit by foreclosures…
1. Buyers that wait
2. Sellers agents
3. Mortgage companies get better qualified borrowers
4. Mortgage fraud gets exposed
5. Auctioneers make money
6. Foreclosure list companies
Etc.
Speculators and their contributers lose.
Nice list-format rebuttal. It’s sad for those foreclosed on but having a little sanity and reality in housing prices benefits a lot of people.
St. Louis inventory per housing-watch as of 4/23:
total: 11,627
+28.7% in past three months
+23.5% yoy (it was “slow” this time last year when inventory was nearly 25% lower)
Still complete denial however. Mention stats such as these and you’re a doomer.
In 2009, most optmist’s backs will be broken on this issue. I talked with a great friend in Orlando who made a fortune in real estate over the last 20 years…moved into commercial some time ago. Last year, he remained optmisitc about Orlando only going through a minor correction. This year, he’s quite bearish (but interestingly he exited most RE investments 2 years ago except for some commercial and his current and future (being built home). I told him, “when you tell me real estate is the crappiest investment ever, I’m coming down and we’ll go shopping!”
…
“Investors will buy properties at bargain prices from the banks before the market is on the rebound, he said, so foreclosed properties don’t lead to any slowdown overall. ‘What’s mostly selling now is those (foreclosures) and high-end homes right now,’
This statement pretty much sums up the San Diego market. People that need a mortgage are looking for the lowest price. People that have the cash don’t care what the price is they just want to live in the house they like.
Eventually all the buyers with cash will have purchased and everything will start declining.
No, no, no - some of us with cash will hold out until the prices are low, low, low… even if it takes years (it won’t).
If you have cash hand over fist buying the house you really like might make sense. But, I agree with you the real investors will buy in cash once all the speculators start getting flushed out.
“Real” investors make decisions based on financial fundamentals. Until prices come down to levels where you can pencil in a decent return on investment (without counting on any appreciation) no “investors” will be forthcoming, just speculators.
Correct. When I can buy a house or multi-unit dwelling with 20% down and the complete payment+costs+vacancy = 75% of the rental income, I’m a buyer (except for my own house that I already have). Till then….it’s just speculation, with perhaps the few investors that have the stomach for tighter margins (won’t be many of those left by 2010).
Applying that measure prices in Miami still have to come down 40-50%. Sellers are still in denial, in the meantime they have to make payments on mortgage, insurance and exorbitant property taxes. I think all those will help sellers to get back in touch with reality.
The lender thugs who didn’t do due diligence shouldn’t be allowed to get a free ride on the FB’s back. They too should lose.
I say, borrower should get “short sale” + F*d credit
Lender should lose what ever they had coming to them and write it off as a loss and learn things should return to normal.
For all those who don’t know what happens when normal is ignored watch “the lion king”
“As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
Well what’s that old line, “It takes a thief.”
Yes Realtor, I want you to steal me a home and then I will pay your commision with Chinese dog biscuits.
Right, let that owner continue to make two payments and maybe in ten or twelve years they’ll get that ‘fair’ price.
Uh, huh. So offering hard money for what I believe to be the fair market price for an asset –which the seller is under NO obligation to accept– is “stealing” now.
I guess this same line of “reasoning” is responsible for redefining lots of familiar terms in the past few years:
Debt = “wealth”
Toxic loan = “affordability product”
Fraudulent liar = “victim”
Reckless speculator = “genius investor”
Almost forgot to mention one of my favorites:
Refinance = “debt forgiveness”
Cmon, everyone knows that refinance = “liberating equity” or “eliminating debt”.
“‘They don’t have any equity built in their homes and attorneys are telling people, ‘Call your mortgage company. Say the key’s inside. And walk away.’”
Yeah baby, yeah!
http://www.youtube.com/watch?v=iAdHgwsocRM
Better still……stay in there and stop paying the mortgage until they throw you out (be prepared and put things in storage). An eye for an eye - A tooth for a tooth. You screwed me (mortgage brokers and banks) and now I’m screwing you. It costs the banks big bucks getting you out and not getting paid for months. Yes, you will go bankrupt but that’s going to happen anyway. Get over it. You’re better off living within your means.
‘Some people, … they want us to help them steal a home,’ Fox said.”
—————————————————————————-
A great idea for a new home show title: “Steal That Home!” as viewers get to watch ruthless buyers making lowball offers on homes. Maybe hire Simon Cowel away from American Idol to play the role of buyer? “That price you’re asking for is just rubbish, rubbish I tell you!”
lol you should have seen me last weekend >; )
me: This home is nice. I’m looking for a 3/2/1 just like this. I could make an offer
agent: that’s wonderful!
me: ok we’ll start at the 1997 price for this house. 1230 sqft @ $80 per, adjusted for 2% appreciation. Add in inflation per core cpi annully…. I’ll offer 227K on this house.
agent: but the seller needs 330k to break even!
me: your client bough this house in 1998 for 124K. I think I’m being very fair.
agent: well my client ran into some trouble and had to refiance several times.
me: **puts the checkbook away**
Oh, Gwynn, you are SO cold! Why is it your problem if the seller had to do multiple refis?
“Why is it your problem if the seller had to do multiple refis? ”
I think putting the checkbook away pulls gwynster OUT of making it her(?) problem. Why should the gwynster bail the FB out?
Slim was being sarcastic, methinks. Of course it’s not her problem, though the seller was really hoping it would turn into her problem.
I could party with you!
You should have said, “ok, throw in the Hummer, the Harley, the vacation home, the boat and the new trophy wife for a month or two and I’ll give you 250k.”
LOL I saw the decorating and self-respecting trophy wife would do that to a house! It was decorated in early 80’s grandmother. My guess is that the owner is retiring and leaving the state.
make that “and no self-respecting trophy wife”
great post Chillin’. Maybe I’m a bleeding heart, but on those flip shows, whenever a house that was bought for 100K is flipped the next week for $400K, I say to myself, “that would have been a great starter house for some young couple with a child just trying to live life honestly, etc.”. This would be great. This same family can jump up and down at the end and say “we got our house!”. Of course it would have to be within their means and the person selling would still get a profit (say a couple retiring to florida who had the house payed off in 1974).
agent Sheila Richardson concern. ‘In another five years, we could be worse off,’ she said. ‘We all might be selling our homes for 50 cents on the dollar.’”
Milestone: A RE agent predicting 50% haircut.
50 cents on the dollar? Get real! What about 20 cents on the dollar. Just as prices went way above all reason, I believe it is only natural for them to do the same thing on the downside in line with Newton’s law: Action and reaction are always equal and opposite.
Could be 20c on the dollar for certain McMansion neighborhoods in the middle of nowhere.
So, the Beverly Hillbillies won’t even need Hollywood? They can just shoot anywhere? Just take your camera out and you’ll see the Beverly Hillbillies all over - milking the goats in the 6-car garage, raising chickens in the music wing, Granny hanging her bloomers to dry off the 2-story portico…
actually this could be more prevalent by 2020-2030 than one would think possible today.
And the construction trucks rolled past my rural farm house all day long on Saturday, building many new subdivisons down the road. At the same time, farmers were planting corn, fertilizing the soybean fields, and the new colts played in the pasture across the road.
Have the farmers ever considered IED’s?
“The uncertainty of the future causes agent Sheila Richardson concern”…….
I despise the use of the term “uncertainty”. Where is anything, driven by human behavior, “certain”? Show me a market that’s “certain” to rise or fall and I’ll take the other side of that bet and probably be happy 90% of the time.
When everyone is “certain” of something which is, by nature, never certain, its most likely just about to “surprise” just about “everyone”, no?
“‘You could tell (them) you make whatever amount of money, and they would just take your word for it,’ said Jim Fox, the manager (of) Realty One’s offices in Stark and Carroll counties. ‘It was lax, and we’re paying the price.’”
Imagine that, folks who hired you for a job actually believed you when you gave them advice! Who would have thought?
When he says “we’re paying the price” who exactly is “we”?
“As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
Is this guy for real? Now he is the arbiter of what folks should offer for a house? I hope the folks in his community shut him down with no further business. We’ll see how happy he is to low ball after a year of fishing his dinner out of the dumpsters.
Or after fishing subpoenas out of his in-box.
Fox needs to get his head out of the hole. Buyers want the Mitch & Murray short-sales and foreclosure leads. Everything else is a waste of sales and marketing effort and money.
I’m trying to figure out what tomorrow’s existing home sales numbers for March will look like. I understand that CA is down 25% YOY. Allen County/Fort Wayne, IN is down something like 40% YOY. I wonder if March numbers will be that bad around the country and if Wall street is expecting such values. Last month the existing numbers came in high. This month, with such bad weather in the north when the sales were being written in Feb., it could be a result in the other direction.
About 4 weeks ago, someone on the blog mentioned that in his RE office in SoCal, sales were down 60% for the first 2 weeks in March. He predicted a very poor March in terms of sales, and no, I don’t believe Wall Street has a clue. If the talk isn’t about single issue multi-Billion dollar earnings or buy-outs figures, they show no interest. Which leads them to the astonished claim that they never saw it comming. The slowing death of this economy by a thousand housing cuts is simply not in their sight - the slow but building crash are like complaints heard by people living on a fault zone when the 8.0 hits - ‘but we had no warning’!
“As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
I know I’m not the only one who blows a fuse everytime I read this.
Ok, as a buyer I shouldn’t low ball per the Realtors ™. Ok, I won’t. There is a reason I’m not even on the sidelines. Heck, I made an extra trip to the car to bring our the captain’s chairs, folding trays, and a few blankets to my spectating spot.
For some reason the phrase “Penny wise pound foolish” comes to mind every time I hear about insulting the seller with a lowball. Sure, the realtor will make a few extra bucks if the sales price is a teeny bit higher. But if prices were lower, volumes would be sustained…
Not my worry. 2007 is a horrid time to buy. Credit continues to tighten. (Its still loose, but at least 1040’s are starting to be pulled. Yea, I know, just starting…)
I bet that by Fall of 2007 less than half the people will qualify for mortgages as compared to Fall 2005.
Most of the nation isn’t at the “fear” stage yet. Soon… very soon (weeks, not months). Yes… Florida, Ohio, and Michigan are there. Heck, Florida might already be in Desperation. But the nation as a whole isn’t quite yet in fear. Soon… so soon.
Got popcorn?
Neil
I like to make wishes come true. If somebody doesn’t want to be insulted by a low offer then I can guarantee them they won’t be insulted. Just wait until they get their wish of never being insulted by never getting an offer. That should make them much more happy.
If you want to get your lowball offer accepted here’s what to do…
1. Find a friend that is qualified and ready to buy.
2. If the house is “worth” around 250k have your friend submit a lowball offer of 175k.
3. The seller is then “shocked” by receiveing an offer of 175k when they expected 250k.
4. Submit your offer of 215k and the seller will treat you like a king!
This technique is the inverse of a bidding war with the price going up.
* If the seller accepts 175k have your friend try to back out of the deal and you offer 180k at the same time. The seller should let them off the hook when they see more money available.
Good advice shadash. Commit fraud - that’ll get ya into the kingdom of heaven… LOL
How is submitting an offer fraud?
shadash isn’t committing fraud, the friend might be, though…
I promise that once sellers are desperate enough they won’t care where the offer comes from just as long as there is one.
Well, they sure as H-E-doublehockeysticks didn’t care about fraud when they were buying, now did they?
What law was broken with such a strategy?
None.
As long as there is cash behind the offer, its legal.
Nothing wrong with a friend submitting a low offer. In fact, this gives me ideas. As long as the eitheroffer is honored by the buyer, its perfectly legal. In fact the friend could legally be contracted to become the buying agent of the true buyer (assuming a Realtor license).
See… homes are sold at auction. The seller could ignore both offers.
This is not fraud. Have more buyers that would actually buy… is ok. Its just starting the auction from a lower level.
What is fraud is a straw buyer trying to drive up the price. Its why I will refuse to raise my bid when informed there is another buyer. If there is… good for that person, they outbid me and the market is working correctly. If their isn’t another buyer, I’ll reinter the bid, but at a discount from my previous bid (damaged goods).
But I’m not in the market. I’m spectating.
Got popcorn?
Neil
Neil, my fuses are all about blown.
There couldn’t be anything more lame than a realtor whining about “insulting” the sellers with a lowball offer.
Let’s see…. 6% (realtor’s commission) of nothing is what, Mr. Fox?? You ain’t makin’ nothing on turning up insulted noses at ANY offer right now. Criminy. Who are these sellers…Lord and Lady Gotrocks??
Totally agree.
I’m about to post below on the questions on Bidding in today’s market. My opinion? I had a friend bid 15% below market when the market was hot; that seems a very fair bid to get things rolling. Heck, bid 20% down.
If they don’t like it? Reduce the bid another 10% and say “final offer.” Legal. Probably won’t get accepted, but this market is ready for the shake up.
Got popcorn?
Neil
The “giving it away” crap gets on my nerves also. If the buyer is paying six figures (or more in some cases), the seller are not giving anything away! The seller just isn’t getting as much as they expected. If you ask your employer for a raise and he says no, do you storm out of the office yelling, “I’m not going to work for free!” Of course not. But common sense often abandons people when they deal with real estate.
Yeah, I’ve got money saved to purchase, but I’m not going to “give it away”.
My sister-in-law got a 450K offer on her 500K wishing price. She thought about it for a day, and called bck to make a counter offer. Before she could speak, the guy tell’s her 375K, take it or leave it. She was soo mad, sooo insulted. But her real problem isn’t the offer per se, it’s that she set her original wish price so high (550k) that now the preceived loss is a huge number. This is ‘anchoring’ behavior at its best, and a real part of this post-bubble reality.
By the way, by my calculations a realistic price for this property pencils out at +/- 300K. A long way to go.
Why do people get mad at any offer?
Doesn’t everyone have the right to make any offer they please?
And everyone always has the right to decline any offer they please.
So, where’s the “insult”?
“Origin: 1560–70;
I don’t see any desperation in Florida, though my block is littered with for sale signs (very high asking prices). Maybe my neighbors havn’t gotten the memo yet.
Have you heard the phase…”quiet desperation”?
I know a couple that wouldn’t show desperation if they had a gun pointed at their heads…and they are in SO SO SO much financial trouble, that when the jig is up and the volcano does blow, it’ll be a doozy.
Quiet desperation is what I experience every morning when I look in the mirror. If I were in a single-family home, I’d be yelling my head off.
If a recession happens (and it’s 75% likely it will despite the soothing b.s from Helicopter Ben) in the next 12 months, your neighbors will get the message soon enough. Bank on it.
Neil. Everyday I see Condo’s in Las Vegas are at the capitulation stage. Starting with 1 or 2 a day, but then all the other listings
are in deep trouble. The bank REO’s are being handled by agents, and these realty clowns overpromise the banks, and underdeliver
sales. The best deals are out of state owners with vacant condo’s.
I have seen listings below 2004 purchase price, and not in foreclosure. They must have put down some $$$ and now just want out.
ahhh… I didn’t know that. If several markets enter Capitualization that will push the others further along.
Alas, a few condos does not force a market into Capitualization, it takes a sizeable fraction of the market. In my opinion Vegas is in Desperation aproaching panic.
True Capitulation of market is spectacular when it happens.
Got popcorn?
Neil
???
I replied but no post…
Anyway, I agree individual sellers are Capitulating. But a market Capitulating is far more spectacular. We’re probably in Fear in Vegas. Soon more…
2004 prices isn’t yet market Capitulation. Soon… so soon.
Got popcorn?
Neil
“…and to prevent excess price inflation or the kind of overbuilding that happened in the early 1980s.”
LOL! I think she meant stop not prevent.
Michael Noonan, division president with Toll Brothers Inc. ‘I’d love a period without news about housing.’”
I bet you would, although I seem to remember you guys had no problem with all the attention while prices were going up,up,up! Well just sit back and get a stiff drink, cause the news is going to keep on coming!
And pray that you don’t have any emails out there that can implicate you in any wrongdoing. I’m guessing the most enjoyable headlines for Toll Brothers and the rest are still in our future. There are probably a lot of emails these guys wish they could get back. They will get black-buried by the Justice Department when this really blows up. Bwahahahaha.
Hmmmm…I seem to recall Toll Brothers being the feature company mentioned in a Sunday New York Times magazine article a couple of years ago. One of the Toll brothers said that our children will be living with us until they are in their 40’s.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aST7PK5_3Ua8&refer=home
Mozilo recommends that regulators exempt subprime borrowers replacing adjustable mortgages from the guidelines.
“These people bought houses under one set of rules and the rules have changed on them mid-stream,” he said. “The simplest thing to do is to permit programs so we can refinance them.”
Oh, I bet that’s what you’d like, you over-tanned shark in an Italian suit.
Now, now, no need to go there, don’t insult the innocent - the shark, that is.
OT but would like some advice from the wise folks who post here.
Spouse and I are close to putting in an offer on a 3000sqft 5bed 3bath home on 1/3 acre lot in a very safe area with excellent schools in Central NJ.
This house was built in the mid 90s and the current owners paid about 300K back then. They are asking around 680K. We are thinking of offering 600K. We are First Time Buyers. We will put down 20% and get a 6% fixed rate mortgage. Our gross household income is about 300K base (400K including bonuses and investment income) so this home is affordable for us. Also, we have sufficient savings that we could pay cash but we don’t want to do so because we’d like to stay diversified.
3bed 2bath townhomes in this area rent for over 2K per month so we would estimate that an SFH like this should rent for about 3K per month. We calculated mortgage, insurance and property taxes would total about 4K gross per month or about 3.2K net (assuming AMT).
We are worried about overpaying but we are also worried about potential hyperinflation and we are concerned that we currently have no exposure to residential real estate, which is generally a good inflation hedge. Also borrowing half a million dollars at 6% fixed long term seems like a good financial position if hyperinflation and high interest rates do materialize.
We were surprised that buying was quite competitive with renting given the bubble over the last 6 years or so.
Any words of wisdom or advice?
“3bed 2bath townhomes in this area rent for over 2K per month ”
$2,000 x 120 = $240,000
You are paying $600,000 for a $240,000 home. New Jersey is toast. Don’t be stupid. There are better ways to diversify. They have been discussed here a million times.
Where did you get the magic number 120 from?
And why does it matter?
According to http://www.housingtracker.net/affordability/new-jersey/edison
the price to monthly rent ratio in Edison (the closest proxy I could find to Central NJ there) was 161 in 2001.
The records don’t go back further than that but the other value measures in 2001 were similar to late 90s when no-one thought there was a housing bubble in NJ.
So even if 160 is the correct multiplier, that would give a fundamental value of 3K times 160 or about 480K.
In a lower interest rate environment, rental yields will be lower too so the multiplier should expand a little.
So it’s not obvious to me that the price is WAY out of line with fundamentals.
Good luck on your closing.
Dude, you’re clueless. I’d put down the loan and back away. Login here for a few months and educate yourself.
I’ve been reading this blog for at least 2 years.
NJ is not uniformly bubblicious.
Bergen/Passaic counties are as overinflated as any market in the country - in places where we looked the median home prices are 7-9 times median household income. That’s as bad as parts of CA. However, where we looked in central NJ doesn’t seem that overpriced by comparison (prices are about 4.5 times incomes).
If Central NJ doesn’t have a bubble, tell me why from 2002-2006 the Lehigh Valley had a bubble market created by histeria from a few thousand people moving here from NJ because of prices. These fools are driving 2-5 hours a day round trip for work (without traffic, lol). Our houses started not selling in 2006 and the BIG RED “PRICE REDUCED” signs came out in hordes. Since then homes are not selling barely at all, it’s normal for houses to sit for 6 months to 1 year because the list of people that aren’t aware of the true situation, still exist. You can thank the local paper the Morning Call for that. All they print is garbage spewed from local realtors using their own calculations to come up with figures. Lehigh & Northampton counties foreclosures are up 30% from 2006 and 2006 was not pretty either. You never had as many rentals on the market for 1k-2k ever. These folks are the ones in foreclosure or close to it. These commuters obviously used ARM’s or subprime loans because foreclosures represents most of that. Along with that our locals were using their houses like ATM’s like no other time I ever saw (all my life, long enough). Everyone is driving at least 1 new 25-65k car, some too. Guess what, they are now seeing the first wave of many more to come with loans resetting. This is only the beginning of our “housing correction” lol, love those 2 words realtors were using for a while, reminds me of bush saying “mission accomplished”. Our prices in the valley will fall back to pre 2002 prices for sure, they are heading there now. If we end up in a nationwide recession, our prices might be 1998 or less. That’s the only thing that would scare me. As far as people being foreclosed on left & right, good for them. Anyone that bought after 2003 when from 02-03 you had the second year of double digit appreciation, you deserve what’s coming. It’s called the sheriff and they will and are foreclosing much more than ever before around here. Maybe that will create a need for sheriffs, any lawmen or women looking for work?
LEHIGH,
That’s very interesting - I wasn’t aware of that at all and I’m feeling very ignorant because it does seem relevant. I’m going to investigate further becoz I can’t think of any other explanation for what you’re seeing in the Lehigh Valley - it does seem to indicate that things maybe more bubbly in Central NJ than I thought.
Thanks.
Have you seen James Bednar’s blog on NJ real estate?
Check out his Lowball feature.
NJ Real Estate Report
If it is any consolation, we are facing a similar situation here in Eastern Washington (Pullman).
PITI + 1% maintenance on a $300k home comes to $2,200/mo (30 year, 10% down). Renting that same home would cost $1500k/mo, so market is certainly overpriced. But the long term data shows that housing has been overpriced for a long time here relative to renting due to extremely tight zoning for SFH.
Similarly, if I take 2000 prices (flat all through the 1990’s) and appreciate at 4%/year our current market is about 15% over that plot.
Finally, looking at available statistics, we have a very low proportion of Subprime or Alt-A mortgages here. THere is some speculation (student parents buying rentals in particular), but nothing like Bozeman, MT where I lived previously.
So if we can comfortably afford a $300k home and over the next couple of years it is likely to decline to $250-270k in real dollars, do we just bite the bullet and buy? We are planning on staying here for decades, so even though I know RE is overpriced, I’m not sure I’ll care that much about the lost $30k 25 years from now.
Similarly, if I take 2000 prices (flat all through the 1990’s) and appreciate at 4%/year our current market is about 15% over that plot.
You don’t see the contradiction in your statement? Incomes rose appreciably in the 90’s, but not in the 00’s — what makes you think there would have been *any* appreciation whatsoever under “normal” circumstances?
Prices will NOT return to their pre-boom averages, they will go BELOW them.
A friend of mine tells me that in early-1990s London (London!!), he was buying nice yuppie rental apartments for 3X RENT! (Ok, it was probably 3.85x, and he was exaggerating.)
Funny you should mention that becoz we are only FTBs in US. We bought a flat in London in 1993 for about 80 times monthly rent. Although on a fundamental valuation basis, it did not prove very profitable over the four years that we owned it. We just about broke even when you account for transaction costs and inflation. Of course, it has since quadrupled in price - missed opportunity there ….
Do you have some specific recommendations for investments that are good proxies for residential real estate in NJ?
We are already diversified in international and domestic stocks, bonds, PMs, commodities and foreign currency deposits. We just don’t have local residential real estate exposure?
Seriously, are you truly willing to make your financial decisions based on the casual gripings of some anonymous housing bears? With your considerable assets, you can afford to (and probably should) engage a more experienced financial advisor.
And NYCityboy got to it before I did — you sound like you’re just trying to justfy and rationalize a decision you’ve already made.
Not at all.
We are under pressure from two sets of overseas parents to buy.
One set are based in UK and think this house is a steal because it would cost 2-2.5 times that much in UK.
The other set are based in India and think that land and gold are the only investments worth having - India has a history of high inflation and currency devaluations.
Ironically, the Indian rupee is currently at an 8 or 9 year high against the dollar despite annual inflation of 6% during that period.
We are extremely wary of this transaction and want some good arguments to refute theirs! Any help appreciated, thanks.
Dude, you don’t HAVE to diversify into real estate. Do not be “concerned” you have no exposure to residential real estate! Be GRATEFUL!
It’s a killer when you have a family, want a great home, and there’s lots to choose from right now, with seemingly…good deals. But it’s a slam dunk you will lose money on that house, at 600K. I’d bank that extra 100K in bonuses and investment income and revisit the residential scene in a year or so.
I would agree that fundamentals make it seem somewhat overpriced. However, it is very difficult to time markets and we don’t know if we’re about to do a UK here. In UK, house prices more than tripled in the last decade but then went flat for 18 months before roaring back upwards another 10% last year! And fundamentals in UK stink - home prices there are 8.5 times incomes - much worse than the 5 times in US as a whole.
Diversification is useful because timing markets is very difficult. Not having exposure to residential real estate means not being able to benefit from the upside as well as not risking the downside and many folks without exposure missed out on the upside the last few years.
Forget it pal and stop chasing the rainbow. Stay alive till 2011!
If its comparable to renting after taxes, and you love it, buy it. you can easily afford it. Seems like a no-brainer.
I think what nycityboy is trying to say is that you shouldn’t pay more than 120 times the monthly rent for the property. I don’t think he read your post carefully, because you estimated monthly rent at $3,000, not $2,000. If you accept his 120 times monthly rent number and a rental value of $3,000 per month, that indicates a value of $360,000. I’m not sure where the 120 is coming from, but that seems very low to me for a property in a desirable area. Rent multipliers seem to vary neighborhood to neighborhood. In general, the better the neighborhood, the higher the multiplier. So without knowing that particular market, i wouldn’t want to hazard a guess at an appropriate multiplier. In my experience, the rent multiplier has never made sense for single family homes. it’s great for small income properties, but for houses, not so much.
my two cents.
For a really strong area close (2-4 miles at most) to major employment and recreation/culture, the 120x rental value number has never been achieved in the last 25 years in my experience (this for 2500-4000 sf SFH in highly sought out neighborhoods, quality areas and good locations/schools). Even at the bottom of the Austin bust.
Now, for run of the mill 3-2 ranch or starter homes 15 miles out….120x seems high.
OK, it’s OK, just take a deep breath and every time you think this is a good deal, read this blog… You’d be NUTS to do this, please don’t. Please… the pain of watching prices come tumbling down all around you will hurt…
If you’re really concerned about hyperinflation, invest in oil or gold or other currencies (or even small cap stocks). Real estate is definitely NOT where you want to be.
I know it is hard, now seeing that prices are actually dropping. But what has happened is just peanuts. Don’t take the bait. Homedebtors will increasingly become more desperate and the weaker hands will get flushed out…your income gives you more staying power than 99% of the population. Why buy today for $600K when you can in two years for $400K? You won’t find too many easier decisions in life.
“Also, we have sufficient savings that we could pay cash but we don’t want to do so because we’d like to stay diversified.”
Diversify should be done with your cash. When you diversify with 80% borrowed money your speculating dangerously.
What happens if prices go down 25%, you have to relocate and you can’t rent out for your wished asking price.
Pessimistic view? Maybe.
But you can hardly call market conditions favorable…
Do you want to live there? Are you OK with your house being a consumable like a car vs an investment like a stock? If so, buy, for the lifestyle reasons if you can afford it.
Can you deal with selling it for $300K in 2010? Or not selling it and just living in it regardless of value for a long time?
That’s a good question but I think it’s pretty unlikely that the price would drop to 300K in 2010. The current owners paid 300K in 1994 which according to the NY Times quotes on the NJ real estate bubble site was close to the bottom of the last RE cycle. So it was probably undervalued in 1994. Even assuming it was fairly valued, adjusting for inflation (as understated by the federal government http://www.westegg.com/inflation/), it should be priced at 403K today and say 415K in 2010.
Based on the above I would consider a present price of $450,000 to be “sans” bubble and therefore the bottom in the event of a return to the mean.
It’s hard to predict a bottom and what it will be precisely or even grossly. However, houses in Austin suburbs were selling for 1977 prices in 1992. That during a tech boom and 3% unemployment for most of the 80s into the 90s (a bit higher 4% in the recession).
I’d say the worst case scenario would be $300K, not the most likely. OTOH, speaking about worst case scenarios…how livable is the area if the US must ration gasoline, say 10 gallons per month per driver (”critical” occupations exempted or given some exception), in 2012 or 2015 at $10/gallon? Don’t need peak oil for this to happen….just enough po’d oil exporters tired of taking $ for oil.
I agree that it’s very difficult to predict a bottom or time a market in general.
We used to live in Austin and it’s still one of our favorite places. The figures you gave are a good cautionary tale.
However, isn’t Texas real estate a wildly different market from most of the US? I remember reading a couple of years ago that Texas and Oklahoma are the only 2 states where house prices didn’t even keep pace with inflation over the last 30 years - so I wouldn’t want to generalize too much from what happened there.
Some of the other scenarios you are hypothesizing seem a little apocalyptic which is not to say that they won’t happen, but I wouldn’t attach a very high probability to them at this time…..
WWII gas rationing….4 gallons per month was the allocation. And we were the leading producers at the time by far, not dependent on imports at all!
Not so impossible. I didn’t say the end of civilization or even the US. I don’t subscribe to the theory that we are “smarter” or “better” than the people in the 1940s or 1970s. If anything, we are more vulnerable.
The assumptions made and desirable traits looking to buy a house in the last 20 years may well not hold up too well over the next 20 years.
BTW, you are concerned about “hyperinflation” but not gasoline impacts!?! Do you think the Saudis, Venezualans (sic), Canadians, Russians, etc… will take $ for their oil under that scenario? If they don’t and demand gold, Euros, or, God help us, Rubles where $100 or $1000 buys 1 Ruble… you believe that it will be affordable and even viable to live in many current subdivisions?
So it was probably undervalued in 1994.
BWAHAHAHA!!! This boom was much bigger, so why wouldn’t it be even more undervalued (read lower-priced) at the next bottom?
Oi!Dodd!No!,
I think you make some good points. Yes, with your financial balance it isn’t unreasonable to have a leveraged hedge at 6% to provide hyperinflation protection.
However, I think if you step back a bit and think about things you might reconsider buying just now. Why? What’s the relative probability of hyperinflation occuring in the next two years versus the probability of a continuing decline in an asset category which is correcting from one of the greatest bubble debacles of all time?
The reasons why real estate is so screwed have been fully chronicled here so you must understand that supply is so out of whack with demand, in this terribly illiquid market, it isn’t about to adjust very soon. So why rush into a market that, all things considered, is very very likely to get as bad as it has ever been?
Maybe the area you’re looking is SOMEWHAT better than average but it will be affected by what goes on around it too. Maybe not to the degree of others but why bother?
I suggest you make an offer 20% lower. They’ll reject it. If things go there like they did in 1990 for a friend of mine in Newton MA (and that’s not too shabby an area) they’ll come back to you at some point with a counter. Ignore it, offer even less (as time has passed and the market has declined further). When they come back a third time you should be able to get the property for at least 30% off. At that point, you should be reasonably insulated from further price erosion.
If you don’t want to play this game, when you hold all the cards, so be it. But assume we bears are wrong. What, other than hyperinflation…the total debasement of the dollar, will drive housing prices back up?
And, if you believe the above is a real possibility, I’d suggest you talk to someone who can put you in some REAL financial disaster hedges…..far more liquid than a mortgaged house.
I’ve said this before - 20% off is what a wise person would offer in a healthy market (not a bubble), so why would you offer that in a crashing market? 20% off is just testing the waters.
Thank you Jag and Lost in Utah, that sounds like excellent advice. We’ll go ahead and lowball them and see what happens …..
No, I wasn’t saying to lowball them, just that 20% off is way too high to start…I wouldn’t buy now, IMHO.
Let me clarify what I just tried to say - I would NO way buy any house now - not under any circumstance (except maybe a really nice one for less than 100k) - what I meant was that a 20% lowball is what some people do in a good market, in a bad one I wouldn’t even buy until I was sure we were at or near the bottom. (Not sure that was much clearer…)
Lost in Utah,
That’s crystal clear, thanks.
Oi!Dodd!No!
I would Never, Ever buy a house in the Spring Buying Season.
NEVER! EVER!
As an investor, I wait for Nov, Dec, Jan…when there is less
competition. I expect this winter in New Jersey to offer you really outstanding house values, based on the foreclosure rate and the ARM resets. Desperate sellers will be available to you in Nov. Why not wait 6 months?
I would find out what the replacement cost would be. How much it would cost to build the house now, and how much to buy the land. If the bubble has already burst in your area - land prices should be the first to come down as developers bail.
Also - a 3000sq ft home is going to cost you to heat and cool, and may be very hard to resell in 10 years as energy costs go higher.
According to zillow (and their data on NJ is pretty scant), the bubble hasn’t burst here yet. We’ve been tracking published statistics on central NJ and they vary between slightly down and up a fraction with most calling it flat (to within their margin of error).
NJ State Government recently marked all RE assessments to market and they assessed the land at 330K and the buildings at 325K in 2006.
And good points about the utility costs - that applies to repairs and other maintenance to … the more house, the higher the costs.
Zillow is a joke, they just take comps and add 20% or more. It’s their magic formula.
I think you’re being a little harsh.
Zillow is showing price declines of 20-30% in some towns in New England over the last couple of years.
Their individual estimates are likely suspect but in the aggregate their trend info may not be entirely worthless.
Under no circumstances buy ANYTHING for at least 18 months. It’s almost impossible to get the exact “top” or “bottom” in stocks and real estate but this real estate mess has a looooong way to go. Also, make sure you and your spouse will be financially safe should anything like job loss, pregnancy, illness appear on the horizon. Consider all the extras like insurance and repairs, etc.
ABOVE ALL: Do NOT listen to realtors and their, “Now is a good time to buy,” b.s sales pitch. THEY ARE NOT ON YOUR SIDE. Remember, until a few months ago realtors were still telling property buyers, “Now is a good time to buy because prices can only go up.” If buyers followed their advice, they are now watching their property either decline, struggle to gain or are on the edge of the cliff. Now those same realtors are telling sellers, “You have to lower your expectations.” That probably includes the people they told to buy a few months back!
Look on realtors as shady used car salespeople. Fix that image in your brain. Shady used car dealers is all they are. Nothing more - nothing less.
If you are determined to buy then put in very LOW BALL offers. If the realtor tells you the seller probably will not accept your low ball offer it’s because the realtor wants the sale to go through even if you lose money by accepting the price. Offer very low ball and wait…… Smart people are not rushing to buy anything at the moment and the numbers of people who are prepared to buy is going to diminish drastically over the next 12 to 18 months. If some Greater Fool does pay full price - don’t worry. There will be plenty of properties to choose from in the coming 12 to 18 months. Probably better and CHEAPER than the one you are looking at. Until then - RENT on short term lease.
If you are set on buying this house, I would offer much less. When we bought a house in Maine listed at $700K, we offered $500K. Realtors told us sellers would be insulted at our low offer, but were forced by law to transmit it anyway. The sellers (who had lived there for 40 years) were not at all insulted. We ended up meeting somewhere in the middle and everybody was happy. The sellers (lovely people, going into assisted living) left us a house in perfect condition, full of art and furniture, and a garage full of tools!
Oi!Dodd!No!
Good advice, be patient. Prices still have a long way to fall in many areas. Take 3.5% as average appreciation. You said the house was about $300K in ‘95. 12 years later that’s about $450K. So 600K or 680K seems a tad bit high.
If you want to hedge against inflation there’re better ways than buying overpriced real estate. Like:
-buying realistically priced real estate, not all markets were bubble markets
- commodities, anything from pork bellies to platinum…buy what China buys is a good rule of thumb.
Ok, Oi!Dodd!No!, I’m goign to ignore some of the comments above and assume, like myself, you place a premium on living in a permanent residence. Say a $50k moving “cost”, etc.
First, have you found at least three places you would be happy with? If not, please keep looking until you do. Why? Emotional detachment while bidding.
Now, you’re going to “insult” the seller with your offer. If you do not, you’re bidding too high.
Pick a value to start with, I would bid 80% of asking, or roughly $550k for the scenario you suggested. The realtor will state its an insult and won’t present the bid to the seller, etc. That’s ok, make sure you send a letter to the address simply stating:
Dear homeowner, I have presented an offer to your Realtor ™ for your fine home. Said Realtor said the he (she?) wouldn’t show you this serious bid. Please review and consider.
Make sure the offer has an experation date. (72 to 120 hours, e.g., offer valid until 10:30pm on April 29th, 2007.)
Expect a rejection or a full price counter offer.
Reply “best and final offer” of 520k.
Expect to be shown the door.
Wait 45 days. (Sorry, there is no quick way to do this.)
Return and repeat (but this time at 85% of the asking price, but no higher than the previous $550k).
I have no problem with someone buying and leaving some money on the table. Just know you are doing that. I happen to agree a hyper inflation hedge makes some sense.
But do be aware you are going to pay $100k to $150k more than the bottom; even a bottom in a hyper inflation scenario. Does the tax advantages, space utilization, and “grounding” pay for that?
If you answer yes, I wish you the best of luck. But be ready to be *screamed at*. Be ready to be shown the door. But do be prepared to mail a letter to the seller letting them know you are a very serious discount buyer.
Also be prepared to do the same thing at multiple homes. Its finding the weak link… Or more precisely, a link willing to yeild.
I plan to buy *before* the price bottom. Why? Selection.
But my buying window doesn’t even begin to open until October of 2008. So I’ll wait… and wait… and its possible the window will shift 12 months to the right. 
Cest la vie. If you’re buying informed, you’ll be happy with your purchase.
Got popcorn?
Neil
Thanks to everyone who replied to this post.
We appreciate all the insightful commentary and the time spent to write up throughtful replies.
We have learned from y’all some more about the likely fair market value of this property, and some good tips on timing and negotiating and also about some telltale signs of market vulnerability based on neighboring markets in PA.
There is some pertinent information that we neglected to mention earlier - if we go ahead with a purchase, this will be subsidized as part of a corporate relocation so long as we buy prior to Feb 2008. The subsidy is worth around 70K over three years plus all closing costs (10-15K?) but it does leave one of us beholden to that employer for two years. It’s not clear what impact this should have on timing but definitely the advice to wait until fall seems good - both due to seasonal weakness and a likely structural decline. Finally, the most likely reason to move out would be a corporate transfer or new job. Employers (in our industries) are currently providing relocation packages that pay all home sales costs (relator fees, legal fees etc.) plus cushion potential loss of equity (anywhere from 60-100% of the actual loss) but capped at 30-50K. So if we are able to buy this place for 550K, the subsidy and relocation benefits would likely mean that we would not suffer much of a loss even if the house declined to its fair value of around 450K in a 3 year period.
Thanks again, y’all!
Dude your soooo scarry!
If you have that much cash give it till at least November of 08′ and then check out the foreclosures auctioned at the courthouse. If you feel compeled to buy just realize that when things get ugly (were not even started here!) that $600k class home may be auctioned by the banks for 100’s of thousands less! If nesting is worth that much to you do it, but I find it hard to any logic in that.
We are much worse now than in 89′. Here in Stockton, CA. in 89′ property went as high as 23 times renta ($170k home rented for $7,200, $600/mo), four years later the above property was sold for $85,000 with a $700/mo rent or 10 times rents (which is the rule of thumb). This is an example of a real nice home, but you could buy $600 rentals all over for $55k. At the very bottom here in the mid 90’s homes were selling for 8 times rents.
Rents define the real value of all real estate! Everything else is just flavored bullshit!
If the home was really that desirable at that level for you pay cash. If your not willing to pay cash (and have the ability to) and be happy it doesn’t seem you think it’s all that great a deal.
The carnage is just starting and I think you would be crazy to enter the market now that we are like Wile E. Coyote suspended in mid air after running off the cliff. If you’ll be happy as that poof of dust at the bottom of the canyon go ahead and jump!
“It’s a scary time for hundreds of thousands of American homeowners, some of whom live in your own back yard.
Now there’s an idea. Enterprising FB’s can avoid foreclosure by renting out tents in their backyards to other FB’s. Much more boot-strappy than some commie bailout.
“Indianapolis in the first two quarters of 2006 had the highest metro foreclosure rate in the United States”
I don’t want to appear racist … I was born and raised on a farm in
Muncie Indiana - but Indianapolis is 80% black and most on welfare.
Ah, how sweet for the nice middle class neighborhoods to start looking like Upper Mongolia.
Santa Clarita
City ponders overcrowded home dispute
Task force to tackle point
SANTA CLARITA - Most code-enforcement complaints to the city of Santa Clarita come from Newhall and Canyon Country, where residents grumble about seriously overcrowded houses, a study has found………
“Nancy Niarchos and her husband bought (a) Jackson Township condo for $137,900 in 2003. They had it painted. They put on a new roof, and they installed a new kitchen counter and a backsplash.
Don’t HOAs cover new roofs in a condo?! wtf? Also, I did not see anyone make fun of upgraded backsplashes yet, so I’ll put in my two cents: does not even compete with the koi pond! I think these people are wacko to mention a backsplash!
But the backsplash had a scene with grapes in it. Doesn’t that count for something?
that is SO 1990!
A 1990 backsplash would have a country pig motif — in slate blue and mauve.
LOL - both grapes and pigs would make me think I had to replace i.e., deduction from price!
Seriously, though, these are the people you can feel sorry for a bit. They weren’t trying to flip, they asked essentially the same price for the condo that they bought for 4 years ago (so they’re losing money anyway on the transaction). Their biggest mistake was to buy the house before selling the condo.
I missed the feeling sorry logic? Why should I have even a teaspoonful of sympathy. Are we too going to add on to the victimization mindset. I say, “no way” to that. We are all adults. They did something stupid now it is up to them to undo it.
Exactly!
Whatever happened to contingent offers (deal void if I can’t sell my current residence)? Did they go to the same place as common sense and lost socks?
I dunno. I’ve always been told that buying a house – with the transactions costs involved, and such – is an imprudent move if your window is less than five years. They should expect to take a loss. Or they should’ve rented.
Yeah, sh*t happens that is beyond your control, but how many people intend on staying in a condo for very long?
Steve,
While I generally have a skeptical view of the average American’s intelligence, I am still shocked at how often I read about some FB who bought another home and is now stressed because the old one hasn’t sold yet and the 2 mortgage gig is draining their bank account rapidly. People lost all common sense during this bubble and I shall not feel sympathy for those who were so reckless. How hard is it to put in a contingency? Oh that’s right, their realtor told them no worries, the old place will sell in a few days.
They made a big mistake with the contingency bit. Huge. I don’t feel sorry for them on that aspect. But if I had bought a place in 2003 I would not be expecting that 4 years later I would try to sell the house for essentially the same price and not have any offers on it. I have zero sympathy for the flippers who got stuck, these people sound like somebody who got caught in the whirlwind.
Maybe I just feel that way just because 99% of the people mentioned in the MSM regarding real estate problems lately seem like total dipsh1ts/criminals/whatever.
Nobody should EVER assume the value of a condo will go up.
In the mid 80s housing crash in Alaska (low petroleum prices and no war…), condos were so cheap that teenagers were buying them to hang out in. Yep, condos can crash brutally… BTW it is AMAZINGLY easy to put one’s head through cheaply built walls. Not that I would know from experience…
Then how DO you know (ha)…
Or they believed (but won’t admit) that holding two properties seemed like a good idea because real estate bubbles never burst. I bet they only got serious about selling (and whining) once it was clear they might lose money.
yeah, that’s possible too. I guess I just feel like feeling sorry for somebody today
Yeah, nothing wrong with some empathy for suffering people even if they’ve brought it on themselves. Thanks for reminding me.
(PS I’m NOT saying empathy is required! Strictly optional.)
Yeah, that’s what I was thinking too.
And what’s the deal with backsplashes?! People act like these are a big deal. I’ve seen online listings that list those these as features…SO WHAT!
Yeah, I don’t get that. I remodeling my entire friggin home by myself. A backsplash is a Saturday afternoon job.
You know what it is? This country doesn’t know how to make anything anymore, and they’re in awe of ‘professionals’, even if they ordinarily look down on that same guy and a club for driving around in a beat up truck. The American public has engaged in learned helplessness. Even with the Home Depot motto “You can do it, we can help”, I’d venture to guess the help part usually amounts to Home Depot craftsmen showing up at your house 3 weeks later to finish up what hubby effed up. It’s almost a running joke anymore that it’s ‘cute’ that the man of the house can’t do sh!t, and the woman of the house think’s she’s a friggin’ carpenter because she can use a laser level and install some pictures and maybe a chair rail, which would be a HUGE accomplishment that deserves multiple slaps on the back. The chair rails would definitely go in the description of the “Showcase” home when it went on the market. LOL
In Alaska (interior Alaska, especially) there is a strong tradition of building one’s own house- my wife built her first one. The only work we ever had done by professionals was the plumbing (and I regretted hiring that out- the people they sent were stoned most of the time). What is funny is that whenever we visit the lower 48 and say ‘we built our house’, everybody assumes that we meant that we hired the contractors that built it. Must be a foreign concept down there
It drives me nuts. I look at listings that have crap listed like,
“alcoves for pots!”, “double rods in the master closet!”, “built-in trash can!”, “fully upgraded faucet!”…(what the hell is a full upgraded FAUCET, for crissakes???)…then, the virtual tour pictures….I’ve seen pictures of kittens on couches, flower pots, a bottle of wine and two glasses on the counter, sunsets, and other craziness.
And how about the couple toasting each other in the big bubbly hottub…hmmm, I’m just looking for a house, dangit, but for some reason I’m all excited about this one…
I have been known to do ceramics off and on, even as an adult. I would like to do a series of tiles for a backsplash with bas-relief images of the fossils found in the Burgess Shale. Then you would always know that only people who believed in evolution would want to cook in your kitchen…
Senators urge Fed to protect subprime borrowers.
http://www.marketwatch.com/news/story/senators-urge-fed-protect-subprime/story.aspx?guid=%7B423C2F0D%2DCA54%2D4FD8%2DA1C8%2D8C67A32EEF33%7D
Protect them from what?
From renting?
Oh, the horror…. boy, those Senators are worth every penny we pay them.
…sort of like the tail wagging the dog.
Yes, and what about all those landlords with their empty rental investment properties…
” The catch: If interest rates went up, payments would significantly increase.”
“That wasn’t a big worry at a time when people were betting housing prices would always rise.
What! People were betting?
Exactly.
Many SF Bay buyers throughout the 2003 to 2006 were plainly bettors.
They were gamblers, even those who didn’t know it…
mr fox and realwhores- wait till the day befroe the listing pops and hook-up w the owner/seller and bingo another 5% saved
“As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
No statement gets my goat more. It was funny that during the boom times, it was rude to offer less than the asking price. Now that buyers have the upper edge, why would we not lowball? Sellers had their day in the sun…if they didn’t take advantage of it, that is their fault. The realtors’ job is to present my damn offer…not to tell me how to run my financial life! If they don’t like it, then I will go with another realtor.
let em spew Anthony. No Mr. Fox we don’t want to steal a home. We don’t have to steal a home. I like to equate it with being the vulture, you know, just sitting on that dead tree limb waiting for the Lions to get fat and sleepy.
If by “shudder” he meant “seizure” and by “issue” he meant “crisis” then Michael Noonan is right on the money.
“Recognizing a slow market, they asked for $139,000, just 0.8 percent more than they paid for it four years ago. Five months later, no offers. ‘I just think the market is really bad right now,’
No not really Nancy. The “market” will be right just fine. Just fine for all pre 2002 homeowners that is. LOL
“‘They don’t have any equity built in their homes and attorneys are telling people, ‘Call your mortgage company. Say the key’s inside. And walk away.’”
““The uncertainty of the future causes agent Sheila Richardson concern. ‘In another five years, we could be worse off,’ she said. ‘We all might be selling our homes for 50 cents on the dollar.’””
You guys realize we have “jingle keys” and “50 cents on the $” on the same thread? Damn that’s hardcore. Some of you HBB old timers might want to bust out some champagne or something…
Why are so many people thinking and believing that there are so many buyers sitting on the fence? It is well known that homeownership is at record highs, the vast majority of people who could buy a move up home need to SELL their home first and they are still building new homes.
We can talk about the glut of inventory. Inventory gluts will always cause a lowering of prices, no exceptions.
But regardless of what happens when prices go down to more reasonable levels, there are still more homes than people that exist to occupy them.
And didn’t the U.S. Census Bureau recently report that the homeownership vacancy rate is 2.7%, and the longterm national average is only 1.4%?
Yes.
http://www.census.gov/hhes/www/housing/hvs/qtr406/q406tab1.html
1.443 to be exact, though it was 1.413 before the current spike.
This to me is one of the true measures of the state of our housing, and is why no housing recovery will happen until this number goes way back down - like to about 1.6%, which is the 20-year average. That will take about 2 years in the best case. Only after the extra-ordinary amount of unsold inventory goes back to normal levels will prices stabilize.
Incidentally the Q1 numbers should be out within the next day or two. It’ll be interesting to see what happens. I would imagine that empty speculator-owned houses are leveling off and maybe going down even at this point, however foreclosures are currently skyrocketing so that may offset and then some.
“Why are so many people thinking and believing that there are so many buyers sitting on the fence?”
~~~~~~
Good point. And the few fence sitters I do know have houses they will need to sell elsewhere in the U.S. before they make the purchase, thus adding to inventory woes.
Is this quote serious …
“Amy Crews Cutts, deputy chief economist for mortgage funder Freddie Mac, said that although this slowdown and all the mortgage drama that has surrounded it has been painful, it was inevitable and necessary to bring the market into balance and to prevent excess price inflation or the kind of overbuilding that happened in the early 1980s.”
How exactly have we “prevented excess price inflation?” Home values recently surged at the fastest rates in years — 18.1% YOY was the fastest appreciation rate for new homes during this cycle in October 2004. You have to go back to 1988 to find a faster appreciation rate. The peak for existing single-family appreciation was 16.6% in 10/2005. Homes hadn’t appreciated that quickly since 1979. We didn’t prevent anything — we HAD extreme appreciation that was unsupported by the fundamentals.
As for overbuilding, that’s a real hoot. Right now, there are 3.748 million existing homes on the market, just shy of the multi-decade high of 3.861 million from July 2006. By comparison, a number between 2 million and 2.5 million was customary in the late 1990s and early 2000s.
New homes? Well, we had 546,000 of ‘em on the market in February, just shy of the 573,000 peak from July 2006. Never in recorded U.S. history (data goes back to 1963) did we have more than around 430,000 units on the market, and that was way back in the nasty 1970s. So we clearly haven’t “prevented” overbuilding either. These charts illustrate some of what I’m talking about:
http://interestrateroundup.blogspot.com/2007/03/some-long-term-perspective-on-home.html
You would think that with all the money Freddie Mac has available the research department would have a copy of Robert Shiller’s housing price chart which clearly shows housing prices imitating a space shuttle launch/hockey stick in recent years.
Can someone send Army Crew Cutts a pdf of the chart with kisses from HBB so she doesn’t go around embarrasing herself this way in the future.
The only thing going up is gas prices and that crooked stock market?
“The Pantagraph from Illinois. “It’s a scary time for hundreds of thousands of American homeowners, some of whom live in your own back yard.”
OMG The homeless FB are now moving into my backyard! Call the exterminator!
NIMBY - not in MY backyard (hmmm, I COULD skip having to feed the dogs for a few days, though) (Nah, I love my dogs too much)
Call me naive, but I’ve always thought that it was strange and odd to think someone would pay you to sleep in your house (their future home). I didn’t know you can make a living, living in your house!
If Central NJ doesn’t have a bubble, tell me why from 2002-2006 the Lehigh Valley had a bubble market created by histeria from a few thousand people moving here from NJ because of prices. These fools are driving 2-5 hours a day round trip for work (without traffic, lol). Our houses started not selling in 2006 and the BIG RED “PRICE REDUCED” signs came out in hordes. Since then homes are not selling barely at all, it’s normal for houses to sit for 6 months to 1 year because the list of people that aren’t aware of the true situation, still exist. You can thank the local paper the Morning Call for that. All they print is garbage spewed from local realtors using their own calculations to come up with figures. Lehigh & Northampton counties foreclosures are up 30% from 2006 and 2006 was not pretty either. You never had as many rentals on the market for 1k-2k ever. These folks are the ones in foreclosure or close to it. These commuters obviously used ARM’s or subprime loans because foreclosures represents most of that. Along with that our locals were using their houses like ATM’s like no other time I ever saw (all my life, long enough). Everyone is driving at least 1 new 25-65k car, some too. Guess what, they are now seeing the first wave of many more to come with loans resetting. This is only the beginning of our “housing correction” lol, love those 2 words realtors were using for a while, reminds me of bush saying “mission accomplished”. Our prices in the valley will fall back to pre 2002 prices for sure, they are heading there now. If we end up in a nationwide recession, our prices might be 1998 or less. That’s the only thing that would scare me. As far as people being foreclosed on left & right, good for them. Anyone that bought after 2003 when from 02-03 you had the second year of double digit appreciation, you deserve what’s coming. It’s called the sheriff and they will and are foreclosing much more than ever before around here. Maybe that will create a need for sheriffs, any lawmen or women looking for work, there might be some jobs in that area?
If Central NJ doesn’t have a bubble, tell me why from 2002-2006 the Lehigh Valley had a bubble market created by histeria from a few thousand people moving here from NJ because of prices. These fools are driving 2-5 hours a day round trip for work (without traffic, lol). Our houses started not selling in 2006 and the BIG RED “PRICE REDUCED” signs came out in hordes. Since then homes are not selling barely at all, it’s normal for houses to sit for 6 months to 1 year because the list of people that aren’t aware of the true situation, still exist. You can thank the local paper the Morning Call for that. All they print is garbage spewed from local realtors using their own calculations to come up with figures. Lehigh & Northampton counties foreclosures are up 30% from 2006 and 2006 was not pretty either. You never had as many rentals on the market for 1k-2k ever. These folks are the ones in foreclosure or close to it. These commuters obviously used ARM’s or subprime loans because foreclosures represents most of that. Along with that our locals were using their houses like ATM’s like no other time I ever saw (all my life, long enough). Everyone is driving at least 1 new 25-65k car, some too. Guess what, they are now seeing the first wave of many more to come with loans resetting. This is only the beginning of our “housing correction” lol, love those 2 words realtors were using for a while, reminds me of bush saying “mission accomplished”. Our prices in the valley will fall back to pre 2002 prices for sure, they are heading there now. If we end up in a nationwide recession, our prices might be 1998 or less. That’s the only thing that would scare me. As far as people being foreclosed on left & right, good for them. Anyone that bought after 2003 when from 02-03 you had the second year of double digit appreciation, you deserve what’s coming. It’s called the sheriff and they will and are foreclosing much more than ever before around here. Maybe that will create a need for sheriffs, any lawmen or women looking for work?
….
….
As unrealistic, said Fox, are some would-be buyers; they expect sellers to practically give their homes away. ‘Some people, … they want us to help them steal a home,’ Fox said.”
This guy is a retard. Wake up you friggen stupid realtor. Some of us value of our savings and the sacrifice required means something.
Steal! If ever house prices went down 80% then maybe steal, but houses are over inflated by 30-50% in most bubble markets.
Go to the city hall and check out the records of recent sales in the neighborhood to see the price per square foot and the recent trend.
What is the town hall appraisal of the house’s value? What was the previous one the previous time houses were appraised a few years back? What would that old number give if you just increased it by inflation? (That’s my plan for making an offer if I do get to it - ignore the latest appraisal, and use the 2003 appraisal + inflation instead.)
Owning versus renting: remember that you will have to deal with maintenance, about 1% per year (maybe less if the houe is well built, since it is semi-recent); and home improvement projects that can eat up a whole lot of money if you take advantage of ownership to modify the house and make it better suited to your taste (I sink way too much money in such projects.) The house is about 15 years old: many things are due for repair or replacement at that stage. Does the roof need a second layer of tiles? Is the heater 15 years old? There might be a bunch of major expenses coming up for the next 5 years.
Also, are you ready for the time commitment? Every time something goes a little bit wrong, having to handle it yourself is a big hassle if you have an already busy life and are not a handyman by taste.
Cost of housing = mortgage+property taxes+insurance+maintenance+utilities (bigger surface area= more costly heating)+tempting home improvement projects+time+stress…
Wow! Ann Arbor? Perfect Ann Arbor? I lived there during my high school years. I great town. If one is looking for places that are “different” you would think Ann Arbor is it. Great college town, fantastic public schools, lots of parks stuff to do, lalala blablabla. Very interesting.