‘New’ Strategies Used To Confront Growing Inventory
The Wall Street Journal reports the ‘new rules of real estate.’ “As the spring selling season moves into high gear, the cooling housing market is upending the conventional wisdom that guided buyers and sellers during the housing boom. Some brokers are advising sellers to price their homes in the bottom 25% of comparable properties. People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out.”
“Employees who are relocating are being advised to steer clear of new subdivisions where competition from brand new construction could make reselling soon difficult.”
“Such strategies aren’t entirely new, but they had fallen from favor in many markets as home sales heated up early in the decade. In New York City, where the housing market has begun to cool, some buyers are now getting condo developers to pay city transfer taxes and certain other expenses that can total 3% to 4% of the purchase price, says (appraiser) Jeffrey Jackson.”
“Say goodbye to the days when sellers could simply look at what their neighbor’s house sold for and then list theirs for 10% more. Brokers are advising sellers to make sure their house comes across as a good value relative to other homes on the market. ‘Pricing is absolutely critical right now,’ says Rosey Koberlein, (broker) in Tucson, Ariz., where sales are off 20% so far this year.”
“David D’Ausilio, a broker-associate in Westport, Conn., is counseling his clients to price their homes in the ‘bottom 25%’ of comparable homes and to cut their asking price by 3% to 5% if the listing doesn’t generate several showings or written offers within three weeks.”
“Jill Green, a realtor in Carlsbad, Calif., a coastal community north of San Diego, has been making offers that are 1% to 5% below the low end of the seller’s price range. ‘Sellers are entertaining the offers and are taking them,’ she says.”
“Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs. Elise Owen, a program manager for a nonprofit group in Washington, recently purchased a one-bedroom condo for $178,000. The seller threw in $5,000 toward closing costs. ‘It allowed me to feel like I was on more secure ground by keeping some of my savings available’ for emergencies, Ms. Owen says.”
“In some parts of the country, such as California’s Silicon Valley, cooling is most evident in the higher end of the market, good news for homeowners looking to trade up. ‘For an extra half-million dollars, you can get quite a bit more for your money than you did before,’ says (broker) Richard Calhoun in San Jose.”
“Employers are looking for ways to ensure that homes don’t languish on the market when an employee relocates. The number of company-ordered appraisals is growing as employers seek to get the price right before a house goes on the market, says H. Cris Collie, executive VP of an association that relocate employees.”
“Going forward, Mr. Collie expects employers to more aggressively enforce policies that require transferees to price their homes close to the appraised value. He is also seeing renewed interest in ‘loss on sale’ programs, which compensate people who are relocating for losses if they sell below the purchase price. Some relocation experts also advise transferees to shy away from buying a home in a brand-new development. ‘If you’re buying in a new subdivision…you’re competing with new construction’ when you sell, notes Pam O’Connor.”
“In some new Tampa Bay, Fla. subdivisions, dozens of similar investor-owned homes are competing for buyers, says (broker) Craig Beggins. ‘If you have any way not to sell right now, don’t,’ Mr. Beggins tells investors. ‘If the neighborhood is brand new and no one is living there, my advice is to rent it if they can.’ But the decision to sell or rent can be tricky, particularly if the rental income isn’t enough to cover the mortgage and other carrying costs. Rental homes typically don’t show well, says Bob Hamrick, broker in Las Vegas, and often must be vacated and given a fresh coat of paint and new carpet before they are put back on the market.”
anyone seeing a bounce or increase in sales activity ?
like the spring fling 2000 for NASD
We are seeing significant increase in inventory added everyday. Almost 1000 properties/day. There is sales activity at the low end of the market but high-end homes (which 80% of them are) sitting for long long time.
http://chicagobubble.blogspot.com
Nope, not here, not this time…….
Yes. In my town nicer well priced homes are going under agreement. Also homes less than $400K (which is the bottom end). Some home which have sat for a while have gone under agreement, and I suspect the sold price (when it crosses MLS) will show that they took a low offer.
I’ve seen a little bit of a bounce since January in high-end (over $1M) in Altadena, CA (near Pasadena). I don’t know if the “starter” $600K homes have seen the same bounce. I’m betting that we’ll have to wait until August to be able to call a true downward trend (or flattening, or ???)
Kennebec valley, maine has become quite active over last 4 weeks, many listings that languished over winter have gone pending recently. There is even a house that has been on the mkt 18 months with no reductions but several different companies relisting, and it finally shows pending.
Bubble alive and well here it seems…….
says (broker) Craig Beggins. ‘If you have any way not to sell right now, don’t,’ Mr. Beggins tells investors. Read: ‘My RE cronies and I need to quicky unload our properties first, before prices fall further, therefore if you have any way not to sell right now, don’t.’
For those using the Kubler Ross Stages of Grief to gauge the housing bubble, we may just have our first example of Bargaining, the third stage in the model.
says (broker) Craig Beggins. ‘If you have any way not to sell right now, don’t,’ Mr. Beggins tells investors.
grim
Northern NJ Real Estate Bubble
Really sucks, doesn’t it, when you don’t get your 1500 ROI in 6 months like you were promised?
There’s a sucker born every minute.
Sounds like advice from Ken Lay.
Anecdotal empirical evidence from the Tucson market…
A lot of SOLD signs all over my neighborhood! Not scientific, but definitely very noticable. Even a flipper property sold last week down the street from me that was up for over 6 mos. Perhaps sellers are lowering prices to get deals done before the crater forms?
I guess there were a few passengers that boarded the Titanic at the final moments before its fateful departure?
A pal of mine just bought in Saddlebrooke an area north of Tucson. He got 10% off the asking price. You are right deals are being done I think on a regular basis below asking…..but…..no real price breaks yet.
Must be the soft landing we keep hearing about?
“People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out.”
– Bye, bye, real estate speculation premium.
– Hello again, net positive savings rate.
The consequence of these two changes alone might be enough to explain the inventory crash and the concurrent drop in the market price of housing.
The paradigm shift due to a collective realization that price growth has halted is a factor which could lead to a hard crash in the OC and LA areas, as a poll taken in Su 2004 showed the average LaLa Land household believed 23% YOY gains for another decade were in the works. The vaporization of the spec premium in a place like that could drive a spread the size of the Grand Canyon between bid and asked prices, and the resulting thunderclap might be louder than the eruption of Krakatoa.
http://en.wikipedia.org/wiki/Krakatoa
About new subdivisions, here in Central Florida they have been building small cities, subdivisions that have townhomes & homes, thousands of them along with their own retail centers and grocery stores. We visited one outside of Tampa (Fishhawk Ranch), I kid you not, entire rows of town homes were for sale. Litterally entire rows of 8 town homes had a for sale sign in front of every single one of them. There were streets with 5-6 homes for sale and another 3-4 inventory homes for sale by the builders.
If anyone is in Tampa, please go to Fishhawk Ranch out in Lithia and take a picture of the town homes and post them here. As far as other major developements, they are going straight down hill. Investors are trying to sell or just renting units, bringing in people who normally would not be able to live there. Its great when you go to an open house in one of these places and there are two low-riders blasting music across the street from a house 6 punk kids are renting.
The main issue with Central Florida is wages and salaries are much lower than the rest of the nation. Employers are attracted to the area because of this, not the sunny climate. Yes unemployment is very low but that is because there are a lot of people here working two jobs plus you have so many jobs created in construction, real estate, mortgage, & everything else related to new housing.
If you can get a picture of that, I’m sure that would be a great addition to the photo gallery. A dozen cookie-cutter crapboxes, a dozen cookie-cutter For Sale signs.
Have you been to Baldwin Park in Orlando (another of these Orwellian planned communities)? It’s like a ghost town. However, you won’t see any For Sale signs. I scratched my head wondering about this for a while before I found out that For Sale signs are prohibited. So the casual observer won’t see the trouble in paradise. But if you really look, especially at night when many homes are pitch black inside, you’ll notice that something is very wrong.
Baldwin is a strange thing, I think the issue there is people who bought those homes intend to keep them since its one of the nicer adresses here in town. I know 2 state representatives live there and some other elected officials live there.
Also I think that is a developement where builders really screened out flippers and investors. I don’t even think you can rent a home in there.
The condo’s however are different. Lots of those for sale and i know you can rent.
My favorite part about Baldwin park is how nearby condo conversions and old 1940’s run down “bungalows” advertise as if they are part of “Prestigous Baldwin Park”.
First, what irritates me, as someone who lives here, is the reference to this area as “Tampa Bay, Florida.” There is no such municipal entity. It’s like saying someone lives in “San Francisco Bay, California,” or “Mobile Bay, Alabama.”
Second, and slightly off-topic, the conversion of Central Florida farm and ranchland to empty, ugly, cookie-cutter subdivisions served by generic strip malls is remarkable. I am struck by how much of our food is now grown elsewhere, including oranges from Brazil and South Africa. And we have a picture of an orange on our license plates! When the price of oil makes it prohibitively expensive to purchase foreign-grown foods, we’ll miss our local agriculture more than we know. Maybe then we’ll recognize that all these sprawling “residences” are worth as much as a handful of tulips to everyone but a handful of developers and real estate hucksters. They paved paradise, and put up a parking lot.
Agreed, Tampa, New Tampa, Brandon, Ruskin, Wesley Chapel, Land-o-Lakes, St Petersburg, Clearwater, Dunedin and Wesley Chapel are all different entities.
They had a big story on the transformation of citrus groves & pastures into urban sprawl. They had a big story about a developement being planned in Yeehaw Junction, about 2 hours from anything a developer wants to build an entire city.
From what the article in the Orlando Sentinal said was ranchers and farmers are just cashing in on their land and using the profits to buy massive tracks of land in Alabama, Georgia, & Texas. They had 100-500 acres in Central Florida for their dairy farm, strawberry feilds or tomato farms and that land value skyrocketed, they sell and make 500-600% on it (since they have been there forever) just re-use the profits to almost instantly go from small time operations to massive dairy or cattle ranches.
some buyers are now getting condo developers to pay city transfer taxes and certain other expenses that can total 3% to 4% of the purchase price
This is one of the main reasons why the bellweather “median price” metric stubbornly refuses to fall. Effective sales prices are indeed falling and are undoubtedly at least 5% off their highs everywhere via these hidden discounts, homebuilder-included options free or at reduced prices, etc.
from what I am reading on this blog it looks like average NEW home prices are down nearly everywhere (and down a lot for more expensive properties in hot areas), but prices for the more ‘affordable’ existing homes are not declining (except maybe cheaper condo’s in some areas).
Up to now, it still looks very much like what happened in Europe 4-5 years ago. And there are the same doubts here regarding the ‘median price’ as published by the realtors (in fact you could probably write a book about all the manipulation that is going on with this number…).
nhz,
Are new home prices down in the Netherlands, too? In the large McMansion tracts, that is?
Just curious
GS
we have very few new ‘McMansions’ so it is not possible to give average numbers for them; probably prices for these increased a bit in the last years because of higher land cost.
Most of the new homes in NL are in the 300-500k euro range now (for perspective: a simple starter home/apartment is 150-250k depending on area, high end is above 500-750k euro depending on area).
Just after 2000, when the double-digit price increases changed into single-digit in the hot areas (Amsterdam etc.) there were serious price declines for expensive homes (which are by definition most often existing homes here). I think the average price for these expensive homes went down by about 30% in a year then; in most areas the price probably has recovered from this ‘minor crash’ by now.
outside the bubble areas it was another story because the bubble was just starting there around 2000.
Europe is a different story, the land has been owned for thousands of years. People pass down farm land and estates through generations. They are much more built out that we are because they have been developing for thousands of years.
The US & Canada are also the 4th and 2nd largest nations on earth. Pleanty of land to go around and homes & land change hands much more.
mostly not correct or not relevant: there are hardly any private land sales in Europe, most people buy from a big developer or the local government.
In the more developed EU nations, a private person cannot simply buy farm land and put a home on it, you will never get permission except maybe if you have excellent connections with certain politicians.
Yes, US and Canada have far more land but it doesn’t really matter. The Netherlands is the most dense country in the EU and even here only 11% of the land is used for cities, industry, roads etc. Several studies have shown that if we increase land available for building by 1-1.5% ot total area, there is more than enough for all future demand. And those studies were completed before the latest Dutch population numbers were published (which point to a negative growth rate in the very near future).
The problem in Europe, just like in many US areas is zoning: the government sets apart most of the land for other purposes (like farming etc.) in order to protect the huge amounts of money they and the big private developers make on land sales. Because of the ‘zoning’, building land can be over 100x more expensive than farm land in the same area.
In my area of the Netherlands there is plenty of unproductive land available; and most of the farmland is only ‘productive’ because of EEC farming subsidies - as soon as these are done away with I’m sure the farmers will want to get rid of their land at a low price.
“…as soon as these are done away with I’m sure the farmers will want to get rid of their land at a low price.”
If EEC farming subsidies are as sticky as the US variety, I would not hold my breath…
The only reason I think we won’t see here what you see now in Europe is that Americans have a tendency to do everything to the extreme - we rise high, but we fall hard, and eventually, when the fear kicks in, the herd mentality will rule as always, and even the existing home prices will decline (and I have seen many price reductions on those here in the Northeast, where new homes are the rarity).
“The only reason I think…”
Don’t forget about those vast sprawling tracts of empty McMansions.
well, we don’t have the tracts, but you would be surprised if you look around where a live: many high end (750k euro or higher) existing homes in the cities are empty and most have been for sale for years; of course, they relist every few months. That price is at least some 25x average income.
It is difficult to compare to the US; I think that these big 17/18th century merchant homes target to some extent the same type of buyer as the US McMansions. They were extremely popular in the real bubble years (partly because prices were high anyway and you could make tons of money in flipping them).
Do the owner-occupants of these merchant homes have positive cash flow?
good question
as many of them are empty I don’t see how the cash flow can be positive …
however, I guess that some owners use the home to get huge sums from the bank, which they invest in the stock market (no tax on these gains, while the mortgage is tax-deductible). As long as the stock market keeps rocketing up and home prices remain high this is kind of a huge positive cash flow.
and of coursre, nobody believes prices can decline here (last housing crash is 27 years ago …). So the owners simply wait until buyers have caught up with their expectations.
I would be surprised if what has happened in your country happens in the USA. Our past experience with RE bubbles has always led to a drop in prices in the area of the bubble, and we are less socialistic with less government interference than the Euoropean nations, although we are becoming more like them in that respect all the time.
I also expect that when our RE bubble goes it will encourage a deflation in the bubbles in many other countries but it may take some time for that to play out.
Not only that, but I am reasonably sure that, unbeknownst to their shareholders, our big HBs’ closely-held business plans include a bankruptcy phase at the end of the cycle, just after they have finished cashing in all their stock options…
our previous Dutch housing bubble (in the seventies) had a quick 1.5 year -40% crash that wiped out all the gains.
The current pan-EU bubble is much more resilient, partly because it keeps spreading. Government interference is probably a minor factor, most of the resilience comes from the easy money that is still everywhere here.
I agree that a serious deflation in the USA would probably spread to Europe and kill the bubble here as well (it’s about time). But I’m not seeing any deflation in the US yet, just look at the gold price and many other signs of the times …
California alone is the worlds 5th largest economy. Now that RE is not going up, and people can’t refi for that new SUV or out of that CC debt, I don’t see how it won’t be felt the world over.
Re: McMansions..local Sunday paper RE section touted how McMansions had now moved into the typical blue collar towns. That is one thing I noticed. Everything being built around Syracuse seems either McMansion or empty nester ranches w/2 bedrooms but a steep price tag. Haven’t seen anything in the middle being offered in new construction. What I’d like but it doesn’t exist out here is an affordable 3 bedroom ranch (1800-2000 sq ft) with a walk out basement on a piece of land my kids can actually play on. I don’t want to trade my retirement for a spacious laundry room, 1st floor office, or a work out room. Unfortunately all building (at least locally) has been geared to the pampered class.
Too bad for those who sell McMansions that one of the world’s largest blue-collar employers just offered job buybacks to all of its union workforce (105,000 GM autoworkers). I cannot see how the demand for McOpulence living environs will hold up against the gathering storm clouds of recession, but perhaps I am just missing out on all the great reasons that David Lereah uses to justify the bull case.
if I understand the news correctly these ex-GM workers get more than $ 100.000 as a downpayment for their new McOpulence. So where is the problem ?
Cash flow will be a problem going forward for unemployed GM auto workers…
On realtor.com, I queried for 3br and max of 50,000 in Syracuse. There are 129 SFR that meet the criteria. If you can’t find something you like there at an affordable price, it won’t be better anywhere else.
“Say goodbye to the days when sellers could simply look at what their neighbor’s house sold for and then list theirs for 10% more. Brokers are advising sellers to make sure their house comes across as a good value relative to other homes on the market. ‘Pricing is absolutely critical right now,’ says Rosey Koberlein, (broker) in Tucson, Ariz., where sales are off 20% so far this year.”
NEWS FLASH TO SELLERS + REALTORS:
Spring 2006 “Silver Era of Housing Boom”!
I suggest that we all witnessed the Golden Era of the Housing Boom (2001 - 2005 in most “hot” investment areas of the country). Please note witnessed: past tense..
We have now entered the Silver Era of the housing boom… and lest everyone think I have been converted and am “on the other side”- let me explain.
“The Silver Era” will be viewed (in a historical perspective of the CRASH) as the period in the cycle where SMART sellers and realtors realized the impending doom, and began to flirt with the idea of lowering expectations of price, days on market, etc…
In other words, this thing obviously has not gone down like a flaming Hindenberg (spell check??) YET, and there is still actually time to beat your neighbor to the last remaining FOOL.
Word to the Wise: If you decide to sell your home in this upcoming Spring ‘06 environment, consider a price that is actually below what “you think it should go for”. You will actually fake out one of the last fools by your home having the appearance of a “fair deal”.
YOU will have MONEY IN HAND… something alot of “investors” didn’t have after the stock market crash of 1929, the Nikkei Bubble, etc. etc.
Once this thing UNRAVELS to the Never-Before-Seen proportions that mimic other major crashes… having sold in “The Silver Era” will, in retrospect- look like a brilliant, slam dunk SUCCESS.
well said; plenty of time for this strategy.
Judging from EU experience, the Silver Era might last a few years (my estimate for most EU markets: Golden Era 5-9 years, Silver Era 3-5 years and counting).
If you go to the new investing forums, there are still plenty of newbies trying to buy property. This thing is a LONG way from over!
I came across a blog yesterday where people were comparing their debts: The blogger owed $1,500,000 (approx), another guy $2,500,000, etc. It was really shocking and scary!
“This thing is a LONG way from over!”
I respectively disagree. When the Wall Street Journal starts publishing articles suggesting precaution, the trickle-down effect of information to the dummest of the newbies is just around the corner. We are currently at the Joe Kennedy shoe-shine boy moment in this bubble implosion, as embodied by the Utah farmers who have figured out something strange is going on with the market price of their land.
LOL
Wasn’t there a link of quotes around the 1929 crash where people were making the same statements? I should print that out and look back on it after the crest becomes apparent to the press.
Here you go…I think this is what you were looking for:
http://www.gold-eagle.com/editorials_01/seymour062001.html
SoCalMtgGuy
Yeah, but even though the crash was in 1929, the bottom didn’t come until 1933. Like I said, we’ve still got a long way to go.
Try 1945. See graphs in Shiller’s Irrational Exuberance for evidence that the value of the S&P500 did not bottom out (in P/E ratio terms) until the end of WWII. That would be a sixteen-year ride to the bottom…
Here in Baltimore,where unfortunately there is no local bubble blog, we’re in a standoff for the most part, but the suckers keep coming from somewhere…I just went to see a house and liked the photos, so I got the comps ahead of time. A house w/ the exact floorplan, but with an extra bath, deck, FP and many other amenities sold for $316K in Nov. The list on this home was $343K, without any of those amenties! They got three offers at or above list the second day on the market–does nobody look at comps? I’ve lived here in Balto all my life and the stupditity of most of the people who live here never ceases to amaze me. Uneducated buyers blindly bidding drives prices up for htose who are trying to be rational and realistic.
I saw a Remax TV commercial last night that said “This is a great time to buy because there is so much inventory to chose from!” I’m actually surprised that they even admit that inventory is rising.
I’ve also seen ads from other realtors, basically saying that “you need a RE agent who has experience and who will be there through the long process of selling your home.”
Seems like these ads are counting on the extreme ignorance of viewers:
1. If inventory is rising to historic levels, that implies very large future price declines, so why buy at these prices?
2. Many (most?) RE agents out there have joined the ranks recently, so they have very little experience, and very few have experience in a falling market, so why trust their advice?
3. Any RE agent who is willing to “be there for the long haul” is not doing their job, because they are not pricing the house low enough to make the sale, so what good are they?
I saw an ad for a realtor that worked only for buyers yesterday. I thought that was kind of refreshing. They don’t have any listings and they work only in the buyers best interests.
I thought so too…the one agent around here who advertises at all and doesn’t work with sellers at all had been a lone voice of honesty about prices being too high. But in the last month his little ‘market analysis’ on realtytimes has told us that though it’s clearly still a “buyer’s market”, we need to be careful (in caps) and work with a good agent like him because some houses are actually priced correctly and in fact he just made an offer at full-price for such a house. It was then that I realized more forcefully that BUYERS AGENTS ALSO RELY ON SALES TO PAY THEIR OWN MORTGAGES, no? So, my market analysis advice would be to BE CAREFUL, a la mr. buyer’s agent’s writing style (sorry for the screaming caps…) about believing that anyone advising buying right now is acting in your best interests…
I realize now I might have read you wrong and you were being sarcastic?
cheers!
Denying the growing mountain of inventory would make them look like oblivious dolts. The Bible of Straw Man Sales Strategies suggests that they should call attention to the inventory mountain and characterize it as a sign that there has never been a better time to buy.
So right on peterbob
Below is an excerpt from an e-mail I received from a local broker trying to “win my trust and form a long-term relationship”:
“Interestingly, there were 12% more homes on the market in February than there were last year. Every month we watch to see what the summer will be like. Buyers are very aware of rising rates and are likely to come out to balance that supply.”
I responded, noting that no one really knows what the Summer will look like until about June, July, and August. The claim about buyers “coming out to balance that supply” (presumably, the growing glut of houses on the market) amused me as well — any saavy buyer is going to sit tight and wait for price reductions under the above scenario, not rush in before interest rates get even higher.
Oh what tangled webs we weave….
Has anyone seen the C21 commercial where the wife says to the hubby we can do this because the RE agent says we can and the wife looks annoyed because the hubby doesn’t look like he wants to,,, then he finally gives in….
nice way to say listen to everyone else except you own instinct
I just saw that (century21: agents of change) commercial for the first time recently! yeah, it’s sick. *change* your mind, just give in, look at the size of that garage!
What an awful ad. The advice to RE agents seems to be: work on the spouse who has NOT been reading this blog, and team up against them.
What would anyone think of Dunkin’ Dounuts ad that had a very large person at the counter, and the server leaning forward saying “You can do this! Just one more.”
Actually, I think the comment is “CAN WE do this…” which has a totally different meaning… Like we probably can’t but oh well, why not?
But either way, the commercial makes me sick!
“I saw a Remax TV commercial last night that said “This is a great time to buy because there is so much inventory to chose from!”
A good friend recently heard a piece of advice while talking with a RE analyst for one of the major national banks and shared it with me. Regarding San Diego, the advice was to wait at least 3 years to buy, and that any realtor telling you that now is a “great time to buy” is lying.
“People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out.”
Hello Wall Street Journal ! Rising home prices never did bail anyone out if wages were stagnant or they bought at a market top.
Don’t people get it? These flippers can’t rent or hold these properties for long. The mortgage payment is killing them.
That is why the buyers’ boycott of the market will be wildly successful.
boycott
One entry found for boycott.
Main Entry: boy·cott
Pronunciation: ‘boi-”kät
Function: transitive verb
Etymology: Charles C. Boycott died 1897 English land agent in Ireland who was ostracized for refusing to reduce rents
: to engage in a concerted refusal to have dealings with (as a person, store, or organization) usually to express disapproval or to force acceptance of certain conditions
Actually a boycott by buyers would be the exact thing to do. The sellers are not going to go down low enough this year to adjust for the two year false market prices .
Actually a decentralized boycott coordinated by the invisible hand of the market is already underway, as evidenced by the steadily growing mountain of inventory.
Yup, I’m a boycotting buyer on the West Coast. They are trying to sell 1200 sq ft houses in the neighborhood I live in for $330K+, on 5000 sq ft lots. These houses sold for $170-$200K 2-3 years ago. So, I figure a 30-50% price reduction may materialize in the next year or two. In the meantime, I’m renting one of these for about 1/2 what PITI would be. You have to be crazy to buy now, when rents are so inexpensive.
>I’m renting one of these for about 1/2 what PITI would be
Yup, we are doing the same on the central coast of Cali. 9 minutes from the beaches at Pismo…just wish it would stop raining…
To L,
You brought up something very important. In areas of new housing, shopping centers are being built but with no buyers what do these shopping centers look like? That is, how long can they support businesses before they too become an eyesore? What is their vacancy rate? We need to watch things in this area too. Wouldn’t want to buy later in such an area.
These ‘empty’ developments have the mark of future ghettos.
Today’s ‘empty’ developments are tommorow’s ‘affordable housing.’
Isn’t there a big market in first trust deeds (earn 12%, blah blah blah) used to finance commercial property? I wonder how that market will go if these developments don’t pan out.
Here in the densenst parts of NW DC, such as Logan & Dupont (mostly condos and rowhouses), there is a definite presence of the price stall. Formerly “hot” buildings by “famous” architects and “award-winning” designs, such as Radius, Solo Piazza have a literal mass exodus from homeowners. Lockboxes abound outside these buildings, and many of them are now becoming rentals. Becoming a rental means that prices are not going down, since the unit never actually sold for a said price. So I suspect if a unit is to be sold it will have to reflect a lower final price, but as of right now, prices are not dropping but then nothing’s selling.
Inventory builds, prices not coming down - perfect backdrop for a dramatic implosion later this year.
“Going forward, Mr. Collie expects employers to more aggressively enforce policies that require transferees to price their homes close to the appraised value. He is also seeing renewed interest in ‘loss on sale’ programs, which compensate people who are relocating for losses if they sell below the purchase price. Some relocation experts also advise transferees to shy away from buying a home in a brand-new development. ‘If you’re buying in a new subdivision…you’re competing with new construction’ when you sell, notes Pam O’Connor.”
How about advising your employees to rent for a while? Oh no, couldn’t do that!
The most important point I take away from this article is the advise to “Stay Away” from new tracts if you are a buyer…EXACTLY !!!….
Stay away from the big builders…They will crush you….Watch for the “Buy Downs” on interest rates…When you see that, the spiral down on prices will accelerate….
Good advice, scdave. If you want to live in a McMansion, give the builders a few years to sell to fools who are willing to ride the wave of discounts all the way to the bottom, unless you are so wealthy that it is worth losing a few $100K for the immediate gratification of owning a McMansion.
http://financialsense.com/fsu/editorials/jain/2006/0327.html
This weekend the question arose over the Fed being able to save the housing bubble. You’ll find some good comments in the link above.
Given that BB is a scholar who has studied the history of the Fed’s response during the great depression at greater length than maybe anyone else on the planet, the notion that he will “panic” and drop interest rates by a couple hundred basis points in an effort to rescue the housing market is truly laughable.
IMHO one of the most interesting questions I’ve seen raised on this blog is “How will the internet effect the coming RE correction? Or how will the internet make this correction different from previous ones?”. I noticed in this passage in the WSJ article…
“Overpriced homes may never even catch the eye of their intended audience. That’s because buyers and brokers increasingly rely on computers to screen listings based on price, size and other parameters when new properties come to market. Also, listings typically generate the most excitement and interest in their first few weeks on the market.”
Comments?????
the Dutch 1635 tulipmania ended within a week (that is, the first 90% down - the endplay took another few years because of fierce debates over who was responsible etc.).
that was in the time when news traveled by horse or pigeon (without avian flue though ..).
I don’t think the RE bubble will pop in a week (not even in the USA).
that issue is interesting to me too…I marvel at people who list at like 305K, since for anybody looking at houses with a realtor sending them those “flash” listings off the mls they’ve input criteria, at the very least for SF and price. I don’t know…sometimes I wonder if RE agents strategize with their clients on that point. There’s the whole psychology of 299 versus 305, but now there’s also the reality of listing parameter cut-offs.
“Also, listings typically generate the most excitement and interest in their first few weeks on the market.”
According to Realtorspeak, that is. Can you or anyone else give us some insight to this mysterious “buzz” factor which creates all the excitement and interest in the first few weeks? Because I never bought it.
Relocation is interesting as I experienced it first hand almost 2 yrs ago. First you have to have your house inspected, none of this as is crap. Radon, siding, structure, termite, roofing, paint, asbestos, appliances are all inspected. You then get a list of five appraisers and pick two. If prices are 5% apart or less they are averaged and that’s the buy out price. You have 60 days to take the offer and can list your property in the intrim for more.Not a bad deal in an up market and a super deal in a down market before new comp’s start appearing. It you take the offer when presented you are out in 24 hours.I don’t know how many companies are going to place garantees in a down market as any company should be able to attract quality people into an area with lower housing values and a good climate.
It’s not always new hires. My friends huby works for Goodyear (I think) they move about every 2-3 years. Goodyear has some type of program where they help them sell (or will buy the house if it doesn’t sell?)
Any Bay Area people see that ad on the back of the Palo Alto Daily yesterday? I was very surprised to see a full page ad from a realtor who claimed, “You’ll need more than fresh baked cookies to sell in this market.” Then the agent goes on to tell you how he can help you get your home sold.
Not only do you need fresh-baked cookies, but you also need guacomole dip!
And crack.
I wonder - does the agent mention the shortage of fools available willing to pay at least $1.5 M for 3bd, 1.5 bth, 1300 s.f., 60 year old dumps on postage stamp-sized lots?
SF Jack -
I think you mentioned working over in the East Bay. How is the Fremont market looking? I got a call from a friend last week bragging about her home value over there, also telling me I should move to Arizona if I ever want to buy a home in the West because everyone is priced out here. Blah, blah, blah. I think the botox treatments are shrinking her brain.
“I think the botox treatments are shrinking her brain.”
Yeah, same phenomena up here. I work in Emeryville - where there are condos going up to beat the band. Model traffic doesn’t seem extraordinary when I’ve been in on the weekends.
Had a recent “disagreement” at work basically about where local condos prices will be going over the next few years.
Very many, very smart people are in denial or just not have been paying attention.
But this WSJ article got some attention around here today!
“For an extra half-million dollars, you can get quite a bit more for your money than you did before”
I certainly would hope this is true! Only in California do people look at half-a-mil with a “eh…. sure.. why not? let’s spring for the extra bucks. It’s only half-a-mil, and life is short” attitude. Oh wait! I live in California! It must just be me then.
LOL I saw that too. $20, half a mil.
Six of one 1/2 dozen of another.
Now kicking in half a mil on a house gets equated with tipping the maitre’d a sawbuck for a good table. Insane.
I feel as if a lot of the attention on this site is paid to the properties that are most clearly overvalued — condos, new tract houses, ridiculously overpriced dumps in uninhabitable areas.
Maybe these are the canaries in the coal mine, and soon their woes will extend to “better” neighborhoods and properties, but maybe not. I’m interested to hear what people are seeing/experiencing in the more normal sector of the market, if rationally-priced houses in nice areas are moving or not.
For the last couple months, I’ve been tracking homes priced between $250-500k in a very nice, well-established section of north Baltimore. Inventory is actually down now from what it’s been in recent weeks (from 38 down to 30) and appropriately priced homes still go in less than a week. Yes, a couple of clearly overpriced houses have been sitting for a couple of months, but there seems to be continued strength in this market for quality homes in established neighborhoods (i.e., the kind of places anyone on this blog would actually ever buy).
It seems like the asking price is just too high. I live in a neighboorhood of 30-40 year old ranchs. It’s a safe area, and the elm school is the best in the district. For the most part the houses are well kept. However, it is basic housing. Not fancy. Asking prices for houses seem to range from 265-380, most in the 300-325 range(and the one for 265 looked from the outside like it needed a lot of work) Too much for the first time home buyer on a median income.
Here in outer N VA, last Summer, our federal government neighbor put his house on the market for $745K, a week after we sold ours (after 3 months) for $665K. (Both built at the same time, ours valued higher in taxes). Our jaws dropped.
He didn’t sell, but the FBI bought it for $720K, and resold it a month later through a real estate co. for $688K.
Duh. That’s the government for you. They have a “guaranteed buy” program if they transfer you. Lucky to be that guy. He got his price and didn’t have to pay commission.
“Has anyone seen the C21 commercial where the wife says to the hubby we can do this because the RE agent says we can and the wife looks annoyed because the hubby doesn’t look like he wants to,,, then he finally gives in….
nice way to say listen to everyone else except you own instinct”
This has got to be the worst commercial I have seen in a long time. First of all the husband and wife are unatractive slobs(maybe they want to appeal to the average guy but on a subliminal level it sure does not make RE look glamorous), then you have this wife and female agent brow beating this poor guy into over extending himself. Very sad state of affairs.
they’re advertising to the unglamorous last greater fools, who even so are trying desperately to avoid fool status but need a little “help” from their friendly realtor…you might recall, the agent said it was a “special listing”! he might get a little tonight too, and i’m sure that helps convince unattractive guys whose wives just got done being preggers for years (H: “but the kids…they’re only 1 and 3″ W: “but they’re gonna grow up!”) to just go with the flow over the cliff…
Proverbs 14:1
The wise woman builds her house, but with her own hands the foolish one tears hers down. (After spending too much, they lose it . . .)
ooh ooh ooh
just grabbed a bowl of cheerios so turned on power lunch and saw
this peter thiel of some fund manager saying housing’s gonna tank and deflecting with calm aplomb the but-it’s-no-biggie comments of the greyhaired dude (i never recall his name, but he’s so dismissive!). Expects a recession due to housing tanking thiel does. Other expectations packed in too, of course, like Dow at 8000 by Y-E and oil at 100$ a barrel and says to buy 10-year treasuries (huh? at same time as oil skyrockets?) and they end with saying “that’s peter thiel, a happy renter in SF”….cute!
Then the chick (I never remember her name) says, oh I must say, I was a little scared by his predictions…admitting that she like every other interviewer on these shows, is seriously betting on no end to RE appreciation (I honestly don’t think she was refering to the recession he’s predicted LOL!)..hopes he’s not right…it was kinda funny.
Thiel’s response to “so, people need to get more diversified then?” regarding RE, was something like “yeah, people need to stop spending all their money on a house. They need to save cash, save for their kids college, not just put all they have into their homes”…it was refreshingly unwilling to take the this-is-just-the-same-old-same-old tack on it.
But I missed the beginning of the interview…anyone see it?
That’s very interesting. And he’s a renter!
People will listen to him - PayPal co-founder, hedgefund and VC guy, along with Stanford intellectual credentials.
Nothing like finally getting a local of note to stand up and say the obvious.
Any Bay Area people see that ad on the back of the Palo Alto Daily yesterday? I was very surprised to see a full page ad from a realtor who claimed, “You’ll need more than fresh baked cookies to sell in this market.” Then the agent goes on to tell you how he can help you get your home sold.
May need to switch to ‘brownies’ to sell in this market…
“Rental homes typically don’t show well, says Bob Hamrick, broker in Las Vegas, and often must be vacated and given a fresh coat of paint and new carpet before they are put back on the market.”
Just wait until five years from now, after a large number of non-owner-occupants have held on to their rental properties for the duration of the bubble deflation and have scrimped on maintenance because they did not have to directly suffer the consequences of living in a poorly-maintained home and they did not have the cash flow to cover the ongoing costs. At this point, these rentals will have physically depreciated far more rapidly than consistently-maintained owner-occupied housing. The next few years will be a period of rapid physical deterioration in the US housing stock IMO, shining a bright light on the flawed policy of the strong push from our govt leaders to turn us all into homeowners at whatever cost in financial risk.
We will see some new subdivisions can turn into Section 8 ghettos within 5 years.
I recall an article in the last 6 months or so in the AnnArbor News about this woman who lives rent-free in high-end homes while they’re on the market. Her “job” is to decorate the place, make it seem like there’s someone actually living there so presumably it doesn’t seem like a distress-sale or something, etc. This is I think one of those new RE-related jobs!
You remind me of something interesting I saw a couple of days ago — a real estate FOR SALE sign with SOLD plastered across the top of it. The interesting part was that it was right near a main drag, and did not appear to pertain to any particular home — rather it was a sort of real estate scarecrow designed to help persuade prospective buyers with magpie brains that now is the time to buy…