This Collapse Was Based On Psychology
The Chicago Tribune reports from Illinois. “As soon as Trump International Hotel & Tower, the city’s first new-construction condo-hotel, gets a city permit to begin its phased opening, developer Donald Trump will find out for sure whether Midwesterners and others are willing to fork over megabucks to buy a pad in his luxury inn. The flamboyant salesman is aiming to ink sales at a time when the residential real estate market is plummeting and the once-hot condo-hotel trend continues to chill.”
“The project’s condo-hotel room sales took off smartly three years ago but have flattened more recently. ‘The market in Chicago is dead as a doornail right now, as is the rest of the country, other than Manhattan or Palm Beach, Fla.,’ Trump said, blaming the nationwide credit crunch. ‘But that will change…and if credit becomes available again, that will help.’”
“There has been some dramatic cratering in the condo-hotel market. ‘I know of one [condo-hotel] project in South Florida that…was supposed to have been two-thirds sold out but when it opened in July with 158 units, they had seven closings,’ said Karen Johnson, of Jones Lang LaSalle Hotels.”
“Individuals buy these units, and place them in a rental pool when they are not using them, to generate income. A Jones Lang LaSalle study found that generally these are not income-producing investments, Johnson said, adding that the potential payoff is all tied to appreciation.”
“‘So if we’re entering a period where values are going to be flat, or God forbid, declining … it’s a whole ‘nother story,’ she said.”
“‘You need to approach it with second-home economics in mind, that ‘I’ll write a lot of checks, I’ll hold it until I’m empty-nesting, and then I’ll sell it,’ she said.”
“Mark Eble, VP/Midwest for a hospitality advisory firm, ‘it still remains to be seen whether investors would’ve been better off buying T-bills or mutual funds.’”
The Business Weekly from Indiana. “Potential owners of Harrison Square condominiums were expected to begin reserving spots at prices that were in line with a failed downtown condo project. Depending on the floorplan, asking prices will range from the $150,000s to the low $300,000s, said Mike Brita of the firm handling sales at The Harrison.”
“Brita said the prices more or less were set by Atlanta-based developer Barry Real Estate Cos. and likely are fixed. They were based on what was needed to recoup construction and other costs, he said.”
“Those involved with the project are trying not to scare buyers away with the prices, Brita said. ‘This is unique,’ he said. ‘It’s something we struggled with because there was nothing to compare it to.’”
“‘I don’t think (The Harrison’s prices are) way off,’ said commercial property owner Bill Bean. ‘There is some interest out there. I just don’t know how deep the interest is.’”
The Journal Sentinel from Wisconsin. “For commercial real estate developers who are seeking financing for their projects, this holiday season doesn’t look a lot like Christmas. Developers of projects costing $100 million and higher are finding it very difficult to obtain loans, said Marty Collins, CEO at Dallas-based Gatehouse Capital Corp., which is planning a 20-story project in downtown Milwaukee’s Park East area.”
“‘That market is closed,’ Collins said.”
“Gatehouse and its local partner, Ruvin Development Inc. are pursuing plans to build a 180-room Kimpton Palomar Hotel, along with offices, 70 condominiums, retail space and a parking structure. But the project is among several proposed Milwaukee-area developments that may need to jump through higher hoops brandished by lenders.”
“Chicago-area developer Warren Barr, say the media has overstated the subprime problems, which has made it more difficult to attract condo buyers.”
“‘It makes a lot of buyers sit on the sidelines,’ Barr said.”
The Burnett County Sentinel from Wisconsin. “The number of foreclosures filed with the Burnett County Clerk of Court’s office is already at 91 for the year, with four weeks left to go. That number is up from 75 and 77 for 2006 and 2005 respectively, is up from 51 in 2004 and marks a huge jump from the 38 filed in 2002.”
“A glance at the legal section of this or any other newspaper and the reader would see several foreclosure notices posted each week. And it’s not just Burnett County.”
“‘I heard the St. Croix County Clerk of Courts office had to hire a temp just to handle all the foreclosures,’ Burnett County Clerk of Court Trudy Schmidt said.”
“‘I’ve been in the mortgage business for three and a half years and this is the worst I’ve seen it,’ Judd Danielson of Freedom Foreclosure Prevention Services in Luck said of the foreclosure market. ‘I have brokers calling me who have 35 to 40 years in the business and they are saying the same thing.’”
“‘The ARM starts at five or six percent, but then after three to five years the rate adjusts upward to 10 or 11 percent, and I’ve seen it as high as 18 percent, but the borrowers are not adjusting their income levels,’ Danielson explained. ‘A lot of these people bit off more than they could chew.’”
The Pioneer Press from Minnesota. “Homer Tompkins’ development company, Contractor Property Developers Co., has entered into a voluntary mortgage foreclosure agreement with MI Bank in Minneapolis related to 50 developed single-family lots and 129 undeveloped lots at a high-end development called Inspiration, Tompkins said.”
“The company owes the bank more than $9 million on the original loan of $14.65 million, according to documents filed this month with the Washington County recorder’s office. The lots are headed for a sheriff’s foreclosure auction in Stillwater next month, Tompkins said.”
“City officials say 28 custom homes, 15 of which are occupied, have been built at the upscale 242-acre project that opened just as the housing market began its downward slide. Home prices ranged from the upper $300,000s to $800,000.”
“Tompkins blamed the slow sales on bad timing. ‘We’re in the greatest housing slump since the Great Depression,’ he said. ‘Consumers don’t have confidence in buying houses in today’s market. There are hundreds of these (voluntary foreclosure) agreements in process. I’m just one of them.’”
“Every time Mark Gergen heard it, he wanted to scream. This time, it came from a couple who looked like perfect customers, ready to buy a new $725,000 home. They had the money. They loved the house. It was all so simple, but then…’Is it the right time? We are just now, nervously, getting off the fence,’ the woman said. ‘It’s the news. It’s all so unstable.’”
“They left. Gergen sighed. He felt powerless against the onslaught of headlines and bad news that frightened customers away. ‘It’s that consumer confidence thing,’ he said, standing in an empty kitchen.”
“As a hotshot real estate salesman, he was called in to help revive a planned $1.2 billion development, the Spirit of Brandtjen Farms in Lakeville.”
“The 15-year project, which broke ground in 2004, was supposed to build 2,100 homes. But developers watched in horror last year as the entire operation ground to a halt, with only a handful of homes purchased.”
“In 2004, no one worried about consumer confidence. The market was booming, and home sellers laughed in disbelief as buyers rushed to bid against each other, pushing prices ever higher.”
“Then the market collapsed. It had nothing to do with the usual villains - high interest rates, lost jobs or falling wages. This collapse was based on psychology.”
“Tradition called on Gergen to help sell homes. When he saw the Spirit site, the project’s biggest flaw jumped out at him. It was the homes themselves. In the go-go years, three high-end custom builders had erected model homes as a gateway to the project. They were unique farm-inspired mansions. They cost up to $925,000.”
“They were impressive. But for homebuyers, there might as well have been a flashing sign reading ‘for millionaires only.’”
“It almost was impossible to show buyers a $900,000 home, then sell them a $500,000 home they could afford, said project manager Rob Wachholz. ‘There is a limited opportunity to sell $450,000-to-$500,000 homes. And when you get to $800,000 to $900,000, you are in some pretty rarified air,’ Wachholz said.”
“Gergen toured the models with potential customers. Afterward, he asked which one they’d choose, if money were no object. The favorite - none of the above. Instead, they picked a town house.”
“‘I said: ‘You’re kidding. You just went through 10 houses for $700,000 to $950,000, and you picked this? Why?’ said Gergen. The answers: Higher ceilings and more ‘wow’ appeal. ‘That told me a lot,’ Gergen said.”
“Once Tradition realized its mistake, the backpedaling was furious. The entire company refocused on one goal: Building less expensive houses that would still fit the luxury theme of the project. It wouldn’t be easy. The lots alone cost $139,000 to $257,000.”
“‘Who wants to buy a $400,000 small house?’ asked Don Nelson, of American Classic Homes, one of the Spirit homebuilders.”
“‘I just can’t build a $500,000 home,’ sighed Cudd saleswoman Kim Holmberg at another meeting. ‘Now, $2 million homes’ - she looked dreamily into the distance - ‘I can build those all-l-l-l-l day.’”
“The houses tweaked, the prices reduced, Tradition turned to the sales force itself. After sitting alone in model homes for months, who could blame them for being depressed? Yet the veterans knew no one would buy a house from a sulking salesperson.”
“At one meeting at Spirit’s clubhouse-barn, Charles Cudd salesman Tom Griffith addressed the group: ‘We have to be incredibly positive, regardless of how negative things are.’ In case anyone missed his point, he added: ‘Positive, positive, positive!’”
“As the Parade of Homes continued, Gergen and Gergen associate Julie VanDerostyne proved adept at getting names and phone numbers from potential customers. VanDerostyne asked one woman for her e-mail address. ‘Um, I dunno,’ said the woman.”
“‘We have social events,’ VanDerostyne said. ‘Um, I dunno.’”
“‘With free wine.’ Pause. ‘OK,’ the woman said.”
‘The market in Chicago is dead as a doornail right now, as is the rest of the country, other than Manhattan or Palm Beach, Fla.,’ Trump said’
Let me guess; he is selling condos in those two places…
Start a pool. How long before Trump files for bk?
In some cases he got paid just so the developer could put his name on the thing. It’s hard to know how much skin he has in these, but I believe the Chicago one is serious for him. Plus, it’s part condotel, which IMO is little more than a ponzi scheme. Fun to watch, tho.
Doesn’t one of the “The Apprentice’s” that won on his show manage the Chicago site?
Do you really think he would put some reality TV schmuck in charge of a project like that? The apprentice guy probably gets the coffee for the real manager.
Well Jerry,
Seeing how really smart DT is, yes I do. Still wants to build condos in a down economy,let’s see gone bankrupt, casino is in trouble, hmmmm, can always blame it on his apprentice.
Actually, the Apprentice show was touted as letting the winner run the project in question. As it has turned out, that’s not quite been the case. Which you might expect.
Many of them have ended up being public relations people for Trump and/or the project, and I saw an article some time back saying that some were rather disappointed not to have the responsibility they expected.
So instead of a $250k management job, they get a $250k marketing and PR job. Not bad for most people, but some of the “winners” left really top notch jobs behind to get that, and their time acting as Trump’s water boys might feel like a stumble on their career paths. Or not. Some also have moved on from there already.
Is it that idiot woman who wrote a book last year on how to make money in real estate. A good looker, however.
Seems like these condotels are not much different than timeshares in terms of living in them. Can you live full time in one? A while back there was an email going around about how much cheaper it was to live in Motel 6’s than senior home communities and you can travel about.
The one in Celebration FL (codo/hotel) was $550/sq ft and was no bigger than a small hotel suite, like at doubletree, and you could only use it 170 days a yr.
Sales at Trump’s tower in Chicago pretty much stalled a while back when he exercised a clause in the early purchase contracts - he cancelled them all and put the units back on the market at higher prices.
One major problem with Trump’s building is that he is now asking some very high $$$/sq ft prices. There are 2 or 4 other buildings under construction in Chicago right now that are in the same price range and they are all offering better finishings/amenities. One of them even has this technology package where pretty much everything you can think of in the condo is wired up so you can control it (and schedule things to happen) from your computer. And they are asking less per square feet.
Oh, did he? Chuckle.
Munch munch munch. This is too good. I really shouldn’t take so much glee from watching the man with the beaver stapled to his head failing…
But I do.
Got popcorn?
Neil
Yes, as Brian points out there’s lots of competition for Trump in Chicago - an incredible amount within just a mile radius of the site. Everyone remember the Spire? They’ve started the foundation on that too. The only type of units lacking in that part of Chicago are affordable hotel rooms - other than that it has been maximum saturation for a long time. Many of the buildings in that area are also riddled with Section 8 - something the brochures leave out I’m sure.
I read that his friends and even family members were among those early purchasers whose contracts he cancelled so that he could put the units back on the market at a higher price.
Trump cancelled the “friends and family” sales which went to the architects, the lawyers, the agents, the interior designers. This is common in a building of this kind. The “friends” get units at a slightly cheaper price pre-construction with the belief that they’ll be able to flip them a few years later and Trump gets pre-construction sales. Everyone wins.
Trump did, as has been discussed, have the clause in the contract which gave him the right to cancel those contracts. This is usually not exercised but Trump is doing it this time. It covers just over 100 units, apparently. Several have brought lawsuits against him to enforce the contract.
Why he wants to cancel any when he has 25% of the building still to sell is beyond me.
And yes, this is a building that Trump International is actually building with their own money. It is not like some of his other developments where he simply licensed his name for the building.
Trump has an advantage over some of the other competitor buildings because it is on schedule to close on time. The hotel/condos are closing in a few months and the condos on the upper floors are to close in 2009.
None of the other competitor buildings will be ready by then. The Spire won’t be ready until 2011 or 2012.
There is a ton of Section 8 in that neighborhood? Where? This is in River North. There are few apartment buildings nearby. It is almost all condos.
Trump Tower Chicago is a symbol of what happened in the housing boom. I’m not sure how Trump will sell all of those units, without substantial price cuts.
It’s the tallest residential building to be built in the United States in over 10 years. It could become a symbol of the bust.
Aw, c’mon, Ben, I think the Bush bailout’s going to turn this whole thing around. A few months from now I envision W in a bright yellow realtor jacket, both thumbs up, with a realty sign behind him, stating: Mission Accomplished.
Well then Trump has a condotel for you!
‘You need to approach it with second-home economics in mind, that ‘I’ll write a lot of checks’
This is just awesome. Two minutes ago Chris Berman was talking about the Chicago Bears’ Devin Hester. He said, “he’s taking it to the house so much. Maybe he can rejuvenate the real estate market.” How perfect that we have a Chicago thread going. If Chris Berman knows it, then you know the secret is out.
What do you mean “if Cris Berman knows it”? The dude probably has a dozen gators he’s holding for a while eating a hole in his portfolio. Big name personalities, celebs, and sports stars weren’t exempt from imbibing in their own fair share of koolaid.
“‘Who wants to buy a $400,000 small house?’ asked Don Nelson, of American Classic Homes, one of the Spirit homebuilders.”
Nobody, try $170K 1400sqft. They’ll sell.
“‘I just can’t build a $500,000 home,’ sighed Cudd saleswoman Kim Holmberg at another meeting. ‘Now, $2 million homes’ - she looked dreamily into the distance - ‘I can build those all-l-l-l-l day.’”
Lady, do yourself a favor. Get out of the business.
I know. This is Minnesota! And $500k is a step down?
I read that to my hubby…it took a minute to sink in his brain.
Finally I said, honey, Minnesota!
Belly heaving laugh!
Leigh
I think you underestimate the money in Minnesota. There is a lot of corporate activity in St. Paul and Minneapolis. Some of the wealthy suburbs such as Edina, Wayzata, Eden Prairie, Stillwater, etc. have a lot of Honeywell, MMM, Cargill, Pillsbury executives. Unfortunately, the high-end in Minnesota is way overbuilt. The Minnesota bubble began around 1997. It will get ugly but not because the area is poor.
I know there are a lot of corporations there, including some of the biggest subprime companies. But think about the income level needed to support a $2 million house!
At least 700K a year for a 2M dollar home. How many people in MN are making that kind of money?
My guess would be, for every person with a 700K salary, there are about 20 homes for them to potentially buy (a 20X oversuppy of 2M dollar homes).
Anybody want to take that bet?
A walk down Summit Avenue in Saint Paul would show that a lot of people must have those incomes.
I’m the biggest bubble skeptic there is. But the Lakes Area in Minneapolis has had multi-million homes for years. There is some serious old money in Minnesota, like many other areas. Still, it is way ahead of itself in Minnesota. It won’t end pretty.
No one is denying that. But if builders build $2M homes “all-l-l-l day” there will be an oversupply. Just like BMW can’t sell as many 7 series sedans as Toyota sells Corollas.
I would say there is a huge oversupply of high-end in Minnesota. The state is in for some serious pain. There is a lot of money in MN but it was another place that wanted to think it was Manhattan.
There are a lot of large companies in Silicon Valley and a lot of google millionares. Median income is still only around $76K, what is it in Minn ?
Perhaps our mortgage professionals can chime in here, but… exactly how many people really finance 80+% of a multi-million dollar home? Aren’t most really high-dollar purchases made with a *lot* of cash down??
C’mon! Positive Positive Positive dammit!
How newagey is that?
$2 million bucks can only fly in so many markets (NY, Beverly Hills..). Unfortunately, it was tried in EVERY market! NO NATIONAL BUBBLE????
No wonder E-trade sold their PRIME loans (740 fico) for $.27 on the dollar.
In fact, How the hell were these Prime anyway. Just because a FICO score says so? When someone pays $2 million for a home where prices are 50% overvalued, I would say that nothing in that “market” can be funded as PRIME…
We know now they were just bad loans with zero underwriting.
Have there been any lawsuits against the rating agencies for bogus FICO scores?
Jim Chanos had a high profile short sell call on Moody’s in the summer. He’s spot on as usual.
Crispy,
I never thought about it in that way, very interesting, I think you just hit on the double jeopardy square. That is one 10,000 elephant in the room most of the so called analyst will never see, because the choose not to. The focus is on subprime and what their definition of what that is that seeing how many jumbo loans will eventually become subprime just based on value loss, and probably the unwilling desire to make the payment on some giant stucco box that feels like a prison now.
The focus is on sub-prime for a reason. It’s all the poor folks fault. They are the ones that ruined the housing, mortgage and construction industries. How dare those bottomfeeders try to buy houses. Tanman has already said it was the people that forced CW to loan to the poor. Never mind those fatcats behind the curtain, pay attention to the people at the bottom - they’re the ones ruining the economy.
now there’s a number for PRIME
wow, that makes some of the subprime worth what, 10%
Great point CC.
Ben, where would you place Bloomington, MN in the foolish lending universe? I’m starting to see that Bloomington may have been 2nd to Orange County, CA for the concentration of subprime lending organizations.
They actually were a little ahead of S California in subprime. I forget the names of the firms, but they were the epicenter of it, initially. The Socal bunch evolved out of the S&L crash.
Yup, that’s what happens when you subsidize bad practices (the S&L bailout). If you want more of something, just make it profitable for people to do it.
I believe Resmae or Rescap was the really biggie in Bloomington. I have stories of a lot of subprime lending taking place in MN in the late ’90s already.
These idiots don’t take into consideration that many people don’t want a monster house to heat, cool and worst of all clean. At least, finally, I’ve stopped hearing “it’s a great house for entertaining - lots of room for parties and guests.” If I wanted to run a hotel, I’d buy a hotel.
I’ve wondered about the inflating home size. I think the developer builds to what the current market bears, and since folks will almost always buy more house than they intended, and will usually borrow untom pain to land that dream house, builders had to offer more as buyers could borrow more. If a $250,000 home was big enough for a normal market, but the buyers for that strata of home were getting approved for $400,000 loans, the “savvy” builder went forth to make the basic $250,000 home into a $400,000 buy adding all the de regeur bubble trimmings such as more rooms and updated finishes to create the appearance of value and exclusivity.
I live in a “starter” home (quite happily) and my sister’s home, built around the same time, is about 800 square foot larger and was over twice the price. It cracks me up that despite her granite counters and jacuzzi tub, we both share the same crappy hollow doors.
it’s a great house for entertaining
Who needs it. No one is going to have money for entertaining. Pot luck dinners are making a comeback, I think.
I once spent a week with some friends in Sidcup, in England (near London). I knew houses in England are much smaller than in America, but to appreciate this difference in size you have to stay a week or so living in one. They told me that the very smallish living room had actually been enlarged at one time. I asked “where?”
It turns out the original living room was somewhat broader than a hallway leading to the bedrooms, and the “expansion” made more of a room out of this hallway.
The kitchen was just a tad bigger than a NYC apartment kitchen.
They told me their house is very typical accommodations for the working middle class in England.
I am renting a two bedroom one bath SH built in the 1960’s and I can tell you that my rental is bigger than their house. My kitchen is gigantic compared to theirs.
Got 10% down?
Guess they overpaid for the lots @ $139k and up.
“Who wants to buy a $400,000 small house?”
(Waves hand) I do, I do!
Built one for myself about 10 years ago when I decided to retire. 1600sf. Right now it’s 35 degrees out and I’m sitting here in a tee and socks, warm as toast. House is heated very nicely by the one (small, efficient,) fireplace. I close off the rooms I’m not using. In the summer, the stone floors keep it cool and the various doors and windows keep it airy and breezy. (No AC…hate the things.) Lots of hardwoods, beautiful craftsmanship, open floorplan with a huge indoor/outdoor kitchen overlooking the mountains. I tried to design this place as “green” as possible and kept gadgetry and glitz to a minimum…so, yeah, I used granite and ss and no cabinetry. It’s easy to maintain and impervious to my less-than-dainty cooking and cleaning techniques.
Although my kid is off at school now, we both had plenty of privacy as he was doing the teen thing; and if/when I have to, I could probably stand having someone else living here
with me. (Built the downstairs to be handicap accessible for when I go completely to pot.)
My family all live in either huge rambling ranch styles or 6000sf+ Mc’s, but I wouldn’t trade homes with any of them.
As more and more people cash out and retire, I honestly think there will be a market for well-built, thoughtfully-designed smaller single-family homes. Not everyone wants to live surrounded by neighbors, let alone common walls.
Here here! I love my “small” house too. I lived in a 760 sf vintage bungalow for years (even had a roommate) and thought a 1600 sf house was huge. Then one day a realtor mentioned it was a “starter” home which really burned me up. A family of four can actually live quite happily in a house this size. I’ve decided the popularity of McMansions is due to their having a childrens wing so the parents don’t ever have to see them.
My house in Sunnyvale, CA is about 1600 sq/ft. We were able, wifh a very small “solar system” to reduce the electric bill to zero. Try that in a McMansion in vegas.
Salad - Ex inlaws raised 3 boys in a 2 bd/1 bath 900 sq ft house with huge yard right off the runway in WLA. We were saying the other day that by today’s standards, it would be considered child abuse. Then again, in those days, kids played outside endlessly or were in LR w/parents - bedrooms were for sleeping.
“They were impressive. But for homebuyers, there might as well have been a flashing sign reading ‘for millionaires only.’”
Thats the way most people feel in most neighborhoods all over California.
Do millionaires really want to live in a buffed out condo? Lets make that a weekend topic. Actually privacy is the big deal.
I have thought the same thing many times.
Do the baby boomers with their millions (just stay with me) really want to move to a high rise condo on South Beach or West Palm Beach? Because, as I was told over and over by the RE people I spoke to, that’s who all these condos and homes were built for.
If I have 1M dollars to spend, the only condo I would even consider would be direct beachfront, and BIG, in a fantastic neighborhood.
These units were built for a demographic, that, imho, simply does not exist.
I was in Oak Lawn this a.m. (inner city/gay part of Dallas) and I saw some “loft condos” which I have to admit I liked a lot.
http://www.sololofts.com
They were way overpriced but I could see the appeal to younger Baby Boomers who would want a nice place to live in the inner city without being in a high rise.
Lofts are sprouting up all over the SD coast. Only ours start at 800.000 and go to 1 mill. Group parking is not cool.
http://www.nctimes.com/articles/2006/03/26/news/coastal/22_03_243_25_06.txt
Will Baby Boomers enjoy walking up and down all those stairs? Even if not an immediate concern, could it affect the desirability?
And how close is parking? I don’t want a long walk to carry groceries in.
Hey Michael - I’m your demographic - one year into having gotten rid of the last kid, but 10 years from Medicare and possible retirement. We’ve been thinking about where we want to go and what we want to do once we don’t have to care about where is good for kids for a long time. First thing we thought about was privacy - finally so the last thing I want is shared walls and a bunch of rules. We chose to buy cheap house in midwest as a home base and intend to move about as much as possible. And if the industry keeps dying, I’ll finally get my dream home - a motor home (strip all the tacky glitz crap and redo). Sure gas is expensive, but planning is the key and no hotel, airfare or restaurant fees offsets. 1st dream plan is to see all the baseball parks. 2nd trip is to start at top of east coast in May and end up in Fla in December. The idea of being stuck in one condo, no matter how nice is not appealing to this couple at all.
We are the demographig too - anywhere from 7-13 years from Medicare.
Retired early after I was disabled by a sports injury and now have to rely upon a Service Dog to carry things, move stuff about for me like compost for my gardens and help with balance when I’m dizzy from the pain,
The big house went down the road and we did the RV thing full time for over 3 years. ( Note to ‘are they crazy’: I recommend a 5th wheel with slideouts and a 1 ton pickup over a straight side RV and tow car. Much easier to park and manuver ; you don’t have to fiddle around with the tow car’s tranny to haul; and you have far more room in a 35ft 5th wheel than you do in a 40ft straight body RV.)
When we stopped travelling, we downsized in houses a LOT. ‘Downsized’ as in to 800 sq ft but the yard is huge and I’m 3 blocks from one of the top beaches on the Great Lakes in the heart of a US National Park.
I only have so much energy. The choice was take care of a large house with the cleaning and just picking up around the house or spend my time doing what I prefer - going to the beach and walking for miles on the beach, and my perennial gardens. I do not mow the lawn since pushing a mower or shifting a riding mower are not in the repertoire with the injury. The yard gets done one of 2 ways: (1) the lawn service or (2) I hook my Service Dog to a push reel mower which has been modified so he can pull it - he pulls, I walk next to him and say “slow down”, “pick it” , “left”, “right”, “back” or “halt.”
My friend’s parent’s retired a few years back and they sold their 2000+SF SFH (pretty much at the peak of the market too) and bought a condo with an ocean view in Honolulu. I tried to convince my folks to do the same.
The problem I foresee is that a house takes maintenance, and as people age and retire, that maintenance becomes more difficult to deal with. I think there is something to be said for moving into a condo in retirement.
You handle maintenance for a house the same as you would for a condo - hire someone to do it.
That’s my thought - you pay a HOA for maintenance in condos, so why not just hire maintenance for a house?
And it will cost less than condo fees. Privacy and comfort are at the top of the list as you get older. Main floor master bedroom suite; main floor laundry room; no stairs; fenced yard for the dogs; nice view to look out the window at; top quality TV and internet service available. Good medical facilities nearby. The last house we bought the real estate agent said that young families want to live in new communities because they think their children will find friends. There must be a built-in time limit on the appeal of those communities as the original children grow up and then you never get a new generation of children moving in all at the same time.
You absolutely nailed it. Single story with all you named. Also, I don’t want to live in an old folks only community, but the sounds of children all over the place doesn’t much appeal on a day to day basis anymore.
If any baby boomers even have a million, they’re going to invest it for retirement income, not put it in a house that pays no returns.
Sorry to disagree, Ghost. A paid for home is a great retirement investment - low housing cost provides excellent security. There are many, many folks the don’t play the investment game and don’t look at a roof over their heads as investment opportunity. IMHO people have been sold a nouveau riche bill of goods for retirement - Like everyone has to have every luxury, huge home, extensive international travel, open expensive businesses. Sheesh - to me retirement means time to read, time to be in nature, time to volunteer, time to take classes in subjects I’m interested in, time to visit with friends and family.
Ouro Verde-
Oh you bet privacy is a B I G deal. We sold our Garage Mahal (4,000 sq ft) in a PUD in So Ca, and privacy was a big factor. How right you are.
The compound thing was started by the stars and dealers. I admit I’d love a Martha Stewart estate. I do not visualize myself having noisy neighbors because I can rent till 2012.
We’re seeing more breakins and armed robberies in California every week. Get armed yourself, take free NRA shooting courses, and protect your families with your Glocks. In addition a dog (175 lb Rottweiler) named Butch who loves your children and wife is also a backup plan. After you waste them, drag them back accross the thresh hold so some ACLU s.o.b. won’t sue you. Oh sorry, I forgot I’m in Clownafornia with the 9th Circus. hehehehehehe
Too true. These days you have to force kids to play outside, and they simply can’t walk anywhere, no matter how close by. Do they even ride bikes anymore, or only ATVs? A neighbor was complaining about a trio of boys playing in our streets and told her I was thrilled to see them actually moving around.
“…Trump said, blaming the nationwide credit crunch. ‘But that will change…and if credit becomes available again, that will help.”
I wouldn’t hold my breath. With all the talk of government intervention in Subprime mortgages, I can’t imagine MBS investors are lining up to purchase loans anytime soon.
“This Collapse Was Based On Psychology”
In part…but let’s not forget bad lending practices…and are they doing ti all over again?
LA Times
New mortgage deals aim to spur activity
http://tinyurl.com/35zcpm
“Even banks that were not stuck with bad loans have reassessed their product lines. Here is a sampling of what they are offering now:…”
“Some lenders are still touting what are considered riskier, negative-amortization loans.
Steve Maizes, chief executive of the California office of Olympia West Mortgage, said some banks have compensated for the fall-off in business — prompted, in part, by tighter lending guidelines — by adopting loans with 1% “teaser rates.” With these loans, lenders allow borrowers to keep their payments low by paying a 1% rate for a period of time. The reality is that the loan still amortizes at, for instance, 7%, so the amount owed increases while the lower rate is paid.
“They say, ‘Hey, how would you like to pay 1% on a loan?’ ” he said. “The trick is that it’s 1% and the real payment is 7% and the borrower is incurring negative amortization — the principal owed gets bigger and the interest rate [can] vary from month to month.”
Like the 40-year mortgage, teaser rate loans aren’t new to the market. What is new is that some banks that hadn’t offered them before now do, and some that did have tweaked their offerings, he said.
Robert Weiss, president of Rockland Financial, a mortgage brokerage in Simi Valley, called these products “bad loans for most [borrowers], but if they understand it and need it because they have feast or famine” income, they could work. Since much of Hollywood works on inconsistent income flow, these loans could prove popular.”
Only one problem with the 1% loans - they cannot be sold to Fannie and Freddie. They announced back in the spring that they would only buy loans that were fully amoritized.
So that dog won’t hunt!
This is a good one.
http://www.dailyherald.com/story/?id=88254
“With free wine.”
Free wine will get you there, every time! (The free wine is the only way my wife can get me to go to the local art galleries with her.)
buy her a $2 original oil Hopper “nighthawks” on eaby
very uplifting and timely
I cannot believe my stepson just closed on the sale of his 5500 square food house in northern Wisconsin to a friend of his at a near 2005 price, and this was not through a real estate agent. A few people are still buying houses, and I wonder why. There seems to be a fast downturn in the number of buyers, but still some people will buy.
Sure, and there are future FB’s in the PP article too. We have to exhaust this pool first.
There is an endless supply of fools in that pool. As soon as the pool seems to be drained, Mother Nature adds more fools.
That saying about a sucker born every minute applies to FB’s as well. They’ll buy all the way down.
A “fool a minute” is 525,600 per year.
To keep the market from falling apart, we need a SAAR of ~5 million. In other words, a 10 year supply must be consumed anually (assuming none married each other, which seems likely). Even with upgrades, we are going to start running short of fools.
All we have to do it get the non-fools to stop and think for a minute. That’s the challenge.
Got popcorn?
Neil
So tell us Fresno, how close are your stepson and his friend?
The next question will they remain friends after this?
Good question, but at least they do not live in the same town anymore
Bet that friendship is over.
The friend’s wife liked the house a lot. He waited about six months to make up his mind.
OT my county anti tax group will be looking for programs to cut- any action so far ?
we have programs you’ve never dreamed of ,but it’s good to have examples for the pols
we are http://www.fcta.org
Now that the builders are starting to penny-pinch, I hate to think what cheap sub-standard material and shoddy workmanship is hidden behind those plaster walls. Because of the incredible building boom, you can bet your last dollar the wood they are using is “green” even though it’s been kiln treated. That means warping and termites in the future. Especially in the south west where termites are fat and happy.
It’s interesting to note what happens in a boom and bust (and this is turning out to be the mother of all busts) because the pattern never seems to change in the aftermath.
The house which I rent, in southern California, is a tract house built 40 years ago. A neighbor who was one of the original buyers, told me she remembers when the builder ran into money problems when a similar (but much smaller) bust happened back then and he was only half way through the project. There were about 100 sfh’s. A few years after he had moved on to greener pastures and the homes were all sold, cracks started to appear in the concrete slabs in some of the houses which, in turn, created cracks in the walls. Some were pretty bad. When the slabs were inspected, they found the builder had neglected (to save money) putting in rebars when the concrete was laid (concrete re-inforcement bars) so when the ground shifted or subsided a little, the concrete simply cracked without the rebar support.
Then the sewer pipes started to fail in a lot of the houses. Big expenses - but the builder was looooong gone.
Here’s a guarantee. In the next 5 years we are going to hear horror stories about shoddy construction. Not only about the fraud and deception perpertrated by realtors and brokers but by the builders who skimped and slashed costs to get rid of all the excess inventory. I was in the entertainment industry for 40 years and I’ve spent time on hundreds of movie and t.v sets and I can tell you that a lot of these new developments are only slightly better that movie sets. The facades look great but behind the facades are nothing but plaster covered plywood, glue and 6″ nails holding the sets together.
In a few years, watch for more “hearings” in Washington by “concerned politicians” who feel building standards need to be improved as the horror stories start to get headlines about home owners having to pay for shoddy building in the boom (lol).
So true. Most friends I know that bought new mcmansions (see Im not a bigot), report many horror stories such as warped walls, leaking ceiling, pipes bursting or becoming disconnected, no insulation, windows and doors with huge gaps, etc., etc. I would not buy anything post 1995. They hire illegals with no training to throw them up in a few days. Total trash product. What amazes me even more as ppl that make less than 200k were all to eaget to pay in excess of 800k for one not too long ago. Ppl talk about declining prices. Most of these just need to demolished. We are talking land value only.
Heck after selling, just prior to prices going through the roof,rented a place where the wall in the hallway (brandnewhome) warped noticeably where the plumbing was.
—–^——- but much bigger.
So, as new neighbors tell us, nothing AFTER ‘97 cause it is all built badly.
Friends who bought new build in ‘95,developement, before they closed, I viewed walls where the outlets were completely covered up, forgot to mark the spots off, and the floor boards were split and the builder was going to leave them as such, and the pool had just been finished and was filling with water, but there was a major crack in pool.
I told the ‘unclosed owner’ to NOT close until everything is fixed…… he got $20k off the price of the home.
‘aretheycrazy’ knows this particular builder ..all over the valley.
OMFG Desert - Testify my friend. Particularly here in the desert, where houses don’t have to go through cold, they are ticky tacky to the max. I’m betting it’s the same in AZ - the whole faux Southwest trend covered up a lot of bad walls with texture - big blobs of crap trowled over walls. What’s really sad is the last few years all they’ve built is OC wannabe places - Tudor looks so stupid when it’s 117 outside. All the lawns and roses and landscape that sucks the life out of the water supply. Now we have folks doing faux desert landscaping really badly. Rip out the lawn, throw down some sand and rocks, throw in a cactus or 2 and call it a day except then when you get to the back - it looks like you’ve gone to the midwest. They vomited up “communities” so fast out here they barely let the concrete cure and they all used green wood. Give me a real mid century Alexander any day.
Especially in the south west where termites are fat and happy.
My understanding is that you only get termites where there is some moisture. Other than SoCal, the SW is bone dry. Exterminators tell me that termites are unknown in Colorado.
Think of the role that shoddy construction will play in any future recovery. Sure the FB might get a rework on his/her mortgage, but fast forward to say, 2014. HBs will be lined up to build brand new homes that will meet stricter codes and include a whole another generation of new technologies (green). FBs who struggled in the meantime will be left holding a house of a vintage no one will want - and will have paid dearly for the priviledge.
so what you are saying is that housing inspectors are paid off?
“so what you are saying is that housing inspectors are paid off?”
Say it ain’t so.
Why do you think there was a new Florida building code after their big huricane? My brother was an engineer in Florida that built to the previous code and none of his projects failed. He had a look at failed structures and could see lack of code enforcement. He also refused to take a bribe and thereafter was careful to stay away from the edge of a roof when the contractor was around.
I worked for a construction defect litigation firm in the 80s and 90s and inspected many a tract housing development in SoCal. The worst homes were always built during boom times, and Palm Desert (just east of Palm Springs) was especially bad. Ironically, if it weren’t a soils issue (builder didn’t properly compact the building pad so the foundation cracked) it was usually a water intrusion problem due to no flashing around windows, shoddy roofing and poor drainage. New homes in SoCal seem fine until it rains…like a couple days ago where some areas got 3 inches in less than 24 hours. It pours so hard the rainwater rises above the sidewalk curb, and roadways are wiped out.
“As the Parade of Homes continued, Gergen and Gergen associate Julie VanDerostyne proved adept at getting names and phone numbers from potential customers. VanDerostyne asked one woman for her e-mail address. ‘Um, I dunno,’ said the woman.”
“‘We have social events,’ VanDerostyne said. ‘Um, I dunno.’”
“‘With free wine.’ Pause. ‘OK,’ the woman said.”
Reators are so clever. If I was trying to sell real estate, I would focus on the competitive pricing and free upgrades. This “associate” realizes that the best way to get ppl to the sales office is to offer them a feast of vienna sausage and cheap wine. I guess understanding the needs and wants of your client base are what sets me and her apart, and why im not in the biz.
I have a feeling she will have a huge turnout. Too bad it will mostly be those that bought in 2005 and 2006. Hope that realtor jacket is bullet proof. Good luck with your new career choice.
As with alcohol and guns, alcohol and business make a terrible mix. This offer of free drinks may be the most expensive drinks the prospective buyer will ever consume.
Ever wonder why Vegas casinos offer free drinks to their gambling customers?
This “associate” realizes that the best way to get ppl to the sales office is to offer them a feast of vienna sausage and cheap wine.
Problem is the only people coming are the ones that can’t afford to buy food anymore and they have to eat somewhere.
“The project’s condo-hotel room sales took off smartly three years ago but have flattened more recently. ‘The market in Chicago is dead as a doornail right now, as is the rest of the country, other than Manhattan or Palm Beach, Fla.,’ Trump said, blaming the nationwide credit crunch. ‘But that will change…and if credit becomes available again, that will help.’”
On the other hand, if credit does not become available again soon, then Trump will go down in flames!!! I have to go our right now and buy more popcorn, as my supply is running short…
Trump on CNBC a few months ago: as long as the Fed eases everything will be fine. Well, golden boy, the Fed has eased and is easing - so, how could there possibly be a better time for RE than right now?
BTW, Trump just raised $220 mm for his Panama Trump Tower project - he had to pay 10.6% for 7-year money - a cool 700 basis points over Treasuries. Can you say hurdle rate?
http://panamanewsblog.com/BusinessinPanama/Great_news_Trump_bonds_sell/
“Individuals buy these units, and place them in a rental pool when they are not using them, to generate income. A Jones Lang LaSalle study found that generally these are not income-producing investments, Johnson said, adding that the potential payoff is all tied to appreciation.”
With price to rent ratios we’ve had since this bubble started, it isn’t just the condo hotels that are ALL tied to appreciation. Somehow, the used house salespeople think that if prices stop falling, then people will get off the fence….. NO WAY. With flat prices, buying a house is dumb, dumb, dumb when renting is so much less expensive.
The ONLY way a house was/is a good investment at bubble prices is if was/is appreciating at 2-3x rate of inflation…. Flat prices and it is better to rent.
Declining prices? Pop, crash!
Here’s a pleasant little ditty:
http://www.informationclearinghouse.info/article18787.htm
Frightening article, somehow I think it’s all pretty much true.
Per chance, I bought a few more gold coins last week. Nothing like coin in hand, the dollar is toast.
Mo-fo of a conundrum:
If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis.
But if the dollar’s plight is half as bad as predicted, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.
But then I guess this is nothing a few more rate cuts can’t make all good again. BTW, I believe I mentioned a couple of weeks ago that the rate cut would probably be a “larger-than-expected” 1/2 point, with a “surprise” bull run on Wall Street soon to follow.
US rate cut hopes offer respite
By Michael Mackenzie in London and Geoff Dyer in Shanghai
Published: November 30 2007 20:32 | Last updated: December 1 2007 02:33
Growing expectations of a US interest rate cut within the next two weeks on Friday delivered a much needed respite to stock markets – but not enough to stem one of the worst monthly performances for global stock markets in recent years.
Stock markets in Hong Kong, Japan, Europe and London all gained on Friday on the back of a speech by Ben Bernanke, the Federal Reserve chairman, which investors took to be a clear hint the Fed would cut rates. Markets are so sure of another cut, the speculation has moved on to whether the reduction will be a quarter or half-point. In New York, the markets enjoyed an early surge although it had lost steam in afternoon trade.
http://www.ft.com/cms/s/c2cb0578-9f7b-11dc-8031-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fc2cb0578-9f7b-11dc-8031-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Yes, talk of .50 crept quite quickly into the discourse this past week. Was November’s slide a clear signal that the boyz will have none of that Halloween .25 stuff. What happens if .25 is all they get? A pre-holiday plunge? BB can’t take that chance - he has to come up with something big to keep up appearances at this all important time of year (Santa Claus rally).
Wouldn’t that be funny if interest rates go to zero and house prices still plunge.
It would mess me up in the bond department but Ive been cashing into 5’s 10’s and 20 dollar bills at quite a clip.
No guns and ammo yet.
I live in Anchorage Alaska. I just visited the Minneapolis/St Paul area for the first time and was overwhelmed by the number of high end properties I saw there. The comments on this thread have helped me put things in perspective.
In Alaska (and Hawaii and a few other places) we have a conforming loan limit of 625K, and one of the highest median incomes in the country (ranked #6 at 58K). Almost all of the new construction was built for the high end, which is now just sitting there and in some cases going into foreclosure. A lot of it is condo because there is no more available land to build in the city (hence the raison d’etre for one of the “Bridges to Nowhere”). While this stuff sits, you can do an open house and see cracks in the foundation, inappropriate condensation, and lots of other indicators that the builder cut back in the finishing stages…
Part of that mini-construction boom was funded by California speculators (anticipating an influx of new residents because of the North Slope gas pipeline that may or may not be built) and the pre-retirement folks from the baby boom moving to our state for its outdoor recreation and tax advantages. However, that market seems to have pulled back. Recent uncertainty over investment portfolios, and the uncertainty of high oil and gas are causing some foot-dragging (Alaska is one of the few areas of the country where high gas and oil prices are seen as a good thing because of the permanent fund dividend). Indeed, oil prices are trending down and some of us feel that natural gas prices might even plummet in the next few years.
The low end stuff is moving along briskly, even though it has gotten harder to get a subprime loan. Despite the higher median income, most people are not buying much above the 300K mark in this town. It makes me suspect that the income bell curve is bunched up near the median, with a thin tail in the higher end of the distribution, or bimodal in distribution with a much higher peak below the median (we have a lot of military here that doesn’t stay longer than 3-4 years)…but not sure how one could ever verify that.
Very little in this market goes below 200K anymore, even though that was the median housing price as little as 4 years ago. The cheaper homes were being built out in the adjacent MatSu valley (Alaska Country Living!) but even those have dropped off because of the relatively long commute and speculation and overbuilding in this pastoral exurb. It’s a shame, as this is one of the few areas of the state with viable farmland, and is famous for the oversized vegetables grown here during the summers.
Anyway, I hope all this isn’t too off topic, but the stagnation of higher end homes is what we are experiencing up here despite a higher conforming loan limit, interest rates at 5.85%, and a high median income. I’m watching developments in the lower 48 as a bellweather of what will happen here, but now I’m wondering if Alaska won’t itself be a bellweather of what will happen in the rest of the country.
Great post, thanks.
2006 median household income in Alaska was $59,393 as compared to US National of $48,201. $59,393 with 5% down, 6+%interest for 30 years carries about a $184,000 mortgage or a $194,000+ house.
Here is the income distribution in Alaska:
Household Amount % in Group Total
Less than $10000 4.72%
$10,000 - $14,999 5.28% 10%
$15,000 - $24,999 8.43% 18.43%
$25,000 - $34,999 9.12% 27.55%
$35,000 - $49,999 14.38% 41.93%
$50,000 - $74,999 20.28% 62.21%
$75,000 - $99,000 14.32% 76.53%
$100,000- $149,000 14.27% 90.80%
$150,000 -$199,999 5.19% 95.99%
$200,000 - up 3.10% 99.09%
(didn’t roundup through more decimal places)
Thank you Ann. Looks like the incomes are bunched around the median. I would love to know where you got your info. I couldn’t find it myself on the web.
Ummm, why isn’t my post showing up?
From Ben’s post:
This collapse was based on psychology.
——————————–
No, this collapse is based on lack of affordability, even with neg-am loans.
No way out but down.
“Chicago-area developer Warren Barr, say the media has overstated the subprime problems, which has made it more difficult to attract condo buyers.”
Sorry Warren. If anything the media has been way behind the curve on this one. Just wait until they drop the “subprime” adjective.
E-Trade’s “distress” sale this week shed some unwanted light on how bad the market is for its’ “A” borrower, first lien portfolio. They netted 350 million on a 3.5 billion portfolio. This week should be interesting.
“Chicago-area developer Warren Barr, say the media has overstated the subprime problems, which has made it more difficult to attract condo buyers.”
well, now we know that it is not the overstatement of subprime problems that is the issue because the prime loans are just as toxic.
these idiots saying there is too much press about problems forget how much press was given to the incredible runup in prices. i could barely get out of my car when i came home before the neighbor wanted to tell me his house went up by 40k this week. now it has been empty for 9 months with the brown lawn disease.
Chicago-area developer Warren Barr needs a cure for his head-in-the-rectum-itis problem.
Semantics. The mania leading inevitably to the collapse, was based on psychology.
No surprise that ppl (shpl?) would rather have the coolest looking crap townhome than a half-decent house, if the decent place makes them look “less special” than their neighbors. How could the agent quoted in the Lakeville story NOT know that???
K-Mart and Martha Stewart or The Donald and whatever he’ll shilling represent the new American Dream. Sell an impossible illusion and price it a little less than the competition. Your product is pure crap. But theirs…isn’t sexy.
My own suburb is finally hedging it’s bets on bling over practicality in RE. With the town nearly built out, the builders who have been raising McMansions for a decade here are packing it in, and I guess waiting to see if they want some part of the action on the latest “smart growth” plans from City Hall. (Previously forbidden high density housing over ground floor retail downtown, with pretty pictures of wide, bike friendly boulevards that would appear to be a real pipe dream, considering the current build-out and traffic grid.)
Housing affordable to young families is a big part of the plan. It’s a little embarrassing that this burb has aged so, demographically. Our two high schools have to bus in kids from all the (depressed) surrounding county-annexed neighborhoods, which is really starting to be a thorny issue south of the railroad tracks (literally), in terms of school scores, crime, and therefore home saleability. I guess I’ll give my civic leaders some credit for at least being willing to p*$$ off a large block of voters here, or maybe they’re betting some facts of life will become more evident before the next election…but I anticipate it’s going to be nothing but year after year of too-little-too-late.
Something tells me the Trump Towers will be as lifeless as your old houses in the Rust belt Cities. Trump isn’t exactly what I would consider a trustworthy person and I would hesitate on buying anything with his name on it. I suppose they could use the Trump Towers to house your former Mcmansion owners and people jumping on their mortgages. Prison cells with granite countertops and stainless steel refrigerators.
I suppose one of these buyers could live in the refridgerator. Hard construction and easily portable. (Mobile home of the 21st century)
An article in today’s L.A. Times about the growing chill in commercial real estate in SoCal: http://www.latimes.com/business/la-fi-crunch4dec04,0,5340581.story?coll=la-home-business
A sense of deja vu came over me as I read this article. Wasn’t it just last year that many homeowners said the same mantra that Arden Realty is saying now: “We think we will get better values next year.”