It’s A Buyer’s Market, They Should Be Buying
The Journal Star reports from Illinois. “We’re not supposed to have much of a sub-prime crisis here. So an ad for a real estate auction caught my eye. ‘In a buyer’s market, YOU should be BUYING!!!’ it said. If the stony-faced buyers gathered last Wednesday are any indicator, be glad that Peoria is supposedly doing well.”
“The auction company will take the top bids to the seller. A minimum has been set. But sometimes the sellers will take less. The first house on his slate has two bedrooms, hardwood floors, one bath and a concrete block garage out back.”
“‘How much? What will you give for it?’ auctioneer Joe Cotten cajoles, and the sing-song begins. ‘How-much? How-much-will-you-give-for-it? One hundred thousand dollars? I see smiles. It’s a buyer’s market.’”
“A grin flickers here and there, but that is the last of the frivolity. Even for a first-time buyer, even for a rental property, Cotten can’t get a bid until he drops the price to $30,000. There is a brief flurry of activity. It stops at $48,000, which is less than the seller’s minimum. No sale.”
“House Two has three bedrooms and one bath, a new roof, siding and windows. Bidding stops at $15,500. ‘You can make it up in six months rent!’ Cotten pleads. No takers.”
“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”
“And so it goes. At the end of the first round of bidding, none of them sells, even at prices less than a good used car. Contacted later, Cotten says he ended up selling four of the 17 houses after some haggling in a later round of auctions. He did not think it was appropriate for him to comment much, but this was one of the worst sales he’s had in almost 30 years of business. Things have slowed.”
“‘I don’t know why people aren’t buying. Interest is good. There’s plenty to choose from out there,’ Cotten muses. ‘It’s a buyer’s market. They should be buying.’”
The Chicago Tribune from Illinois. “A new monthly report from a pair of Chicago real estate appraisers says there’s likely to be a decline in the number of houses for sale in the area this month, though one shouldn’t read too much into it.”
“Naperville appraiser Chip Wagner, who collaborates with appraiser Robert Headrick to produce the report, says that if home sellers follow traditional patterns, inventories will stabilize or decline in the next three months.”
“In the current environment, though, it probably just means that significant numbers of sellers will yank their homes off the market through the holidays.”
“The appraisers’ report offers a snapshot of how long homes stayed on the market before going under contract in the last year.”
“Homes priced $100,000 to $300,000 took 111 days to sell; Homes priced $300,000 to $500,000 took 130 days; Homes priced $500,000 to $750,000 took 148 days; Homes priced $750,000 and more took 194 days.”
“Those, of course, are the ones that went under contract; active listings (that is, on the market but unsold) were averaging 153 days, 175 days, 200 days and 242 days, respectively, as of mid-November, the appraisers said.”
The Quad City Times from Iowa. “The house on West 14th Street in Davenport has a list of owners and tenants that ends with Deutsche Bank. Foreclosed upon and sold to Deutsche Bank at a sheriff’s sale in August for $72,419, the four-bedroom home is assessed at $51,840.”
“The house is one of 49 foreclosed properties in Davenport now listed for sale, according to statistics presented Saturday at the Quad-Cities Reinvestment Coalition’s foreclosure summit. Its asking price? $11,900.”
“‘These are people who are no longer homeowners,’ said Dawn Mutum-Plies, housing director for United Neighbors (a) Davenport organization working to prevent foreclosures. ‘People are losing their homes for a nominal amount of money,’ sometimes as little as $2,000, she said.”
“So far this year, 255 houses have been foreclosed upon in Davenport, with another 13 anticipated before the end of December, statistics show. That is a nearly 100 percent increase since 2005.”
“Ninety-two of the foreclosed upon properties in Davenport have sold, statistics from the coalition shows. The average sales price per property was $25,000 below assessed value.”
The Journal Sentinel from Wisconsin. “Many hopes for a big revitalization boost for Racine have been riding on planned development that has been touted as ‘Miami meets Cape Cod,’ but there has been little movement on the project.”
“Whether the stall of Pointe Blue is just temporary or ends up being fatal should not be seen as a strike to Racine, area leaders say.”
“‘I wouldn’t pin the entire future of the city on this project and, just because it’s stalled doesn’t mean it’s headed for the skids. I’m still bullish on Racine’s future,’ said Ald. Greg Helding, who serves on the Plan Commission.”
“Pointe Blue, the ambitious condominium development planned for Racine’s lakefront, is having trouble obtaining financing, which has delayed the start of construction. Developer Scott Fergus had hoped to begin work last April on the project, which carries an estimated $120 million price tag. But difficulties among large commercial lenders have affected Fergus’ ability to secure property acquisition and construction loans for the 434-unit development, said Brian O’Connell, Racine’s city development director.”
“Helding said the hold-up on Pointe Blue is clearly a national issue and shouldn’t be seen as a reflection on Racine. ‘It’s unfortunate that a lot of upper-middle- and lower-middle-class people who have overextended themselves will potentially end up hurting a program in the city of Racine. That’s my read on the subprime problem.’”
“‘I think (the Pointe Blue delay) speaks more about the problems in the financing market than on investing in Racine,’ Helding said.”
“At Pointe Blue, 26% of the condos have been sold, according to the development’s Web site. Because of tighter credit standards, some lenders are requiring condo developers to pre-sell 40% of their units in order to obtain loans.”
“Pointe Blue condo prices range from $200,277 for a 900-square-foot unit to $995,000 for a 2,600-square-foot waterfront villa. Pointe Blue offers a mix of townhouses, villas and single-family homes, as well as units that would be in three towers.”
“Only 17% of the units planned for the towers - one with 15 stories, along with two eight-story buildings - have been sold, according to the Web site.”
“Ald. James Kaplan, whose district includes the Pointe Blue project, said he is remaining optimistic the project will move forward. ‘I think it’s such a fantastic site, almost like an unfinished diamond that just really needs refining,’ Kaplan said.”
The Wall Street Journal on Minnesota. “Nationally, there were 2.1 million vacant homes for sale in the third quarter, equal to 1.6% of all the homes in the country — a record.”
“At the end of 2006, the value of all homes in the U.S., excluding rentals, peaked at 153% of gross domestic product (or about $21 trillion), the highest level in at least six decades. By Sept. 30, that had edged down to 150% of GDP as home prices began to drop. With huge inventories of unsold homes soon to swell with foreclosed properties, that is likely to continue.”
“The downturn is particularly tough on those surrounded by foreclosed homes. Melissa Pohlman and her husband bought a renovated home in North Minneapolis’s down-at-the-heels Jordan neighborhood three years ago for $205,000. It was most recently assessed by the city at $230,000.”
“Ms. Pohlman hoped it would eventually rise to $240,000, at which point they would have enough equity to stop paying $160 a month for private mortgage insurance.”
“But hundreds of homes in the area are being foreclosed, and she doesn’t even ‘want to know’ what it is worth now. ‘You’re dealing with an already transient neighborhood and then you heap on top of that a ton of foreclosures — there are a lot of vacant homes, a lot of houses that are boarded up.’”
Of course we should be buying! If we don’t…..the terrorists will have won.
Actually, the pederasts have won.
They don’t call ‘em FBs for nothing!
Here is a link to an Arizona Zreal Estate Weekly Radio Show.
It’s very interesting to listen to the podcasts of the show in their weekly installments. These guys were big on getting people into rentals…and still are. Hosted by a realtor(originally from Prescott) and his mortgage banker side-kick. What do you think the chances are for them to interview Ben???
Listen up…
http://billiannelli.com/227812.html
“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”
America is broke, but Flyover America is busted.
you beat me by 31 seconds.
Reading this thread is surreal. If anyplace was immune to bubble mania thinking, one would assume it had to be The Heartland. It’s difficult to accept that a region known for its common sense and adherence to American core values could go down in flames.
There was no bubble, they’re just broke.
That’s the life story of my Ohio relatives. One hourly job to the next, often breaks of unemployment in between. For them even a “free” inherited house is enough financial burden with the taxes and maintenance. Few of them could afford to buy anything. They often drive salvage vehicles that they fix up themselves. The manufacturing bust of the 80’s and 90’s has left these areas destitute by urban standards. The only redeeming factor was low cost of living.
Granted, they were broke.
So what accounts for the 100% spike in foreclosures since 2005? According to the articles Ben has posted this past year, a lot of low-income folks were buying homes they couldn’t afford. Being broke had no impact on whether or not they could get a loan…remember the 15k/yr strawberry picker who bought a 400k house?
That’s the nature of a bubble.
Yes, it’s an old story. I loaned money to a relative in Ohio to buy a fourplex to operate as an income property. He lost the property, and needless to say never paid back the loan. The basic problem was that the economy sucked. I was dumb because I relied on his appraisal of the market conditions when I made the loan. This was in the seventies or early eighties as I recall.
That part of the country has always been an economic basket case, as far as I can tell. Low incomes, and unreliable incomes at that.
Actually, there was a late, 18th century farmland bubble, centered in Nebraska, I think. Prices, adjusted for inflation, have not yet returned to their previous, 100-and-something year-old highs. Sort of like Florida in the 1920’s…
“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”
Rented for $525 month, no bids at 10k? Interesting.
Peoria is the home of Caterpillar -think earthmovers, dozers etc. The other major employer is Bradley University. Biggest employer is understress from the collapse of the housing market. College kids as tenants????
Horrible ugly place with nothing but boring flat cornfields for miles. My husband grew up there. He always says that Peoria is a great place to be from - with an accent on the ‘from.’
LMAO, my mom is from peoria and she says the same exact thing, inflection on the from part and all.
Come on, it’s got a nice river and decent hills overlooking - LaSalle thought highly of the setting. Perhaps the reason it’s ugly is because Illinois overtaxes and overegulates and subsidizes sloth?
But, more on point - I’m thinking perhaps there is something like a “full level of home ownership,” just as economists have always posited a certain level of unemployment as being “full employment.” If so, it must be somewhere in the 60-65% range During the early 2000’s, U.S. (and Australia and N.Z.) rose to their highest levels of home ownership ever. So not only do we have a glut of houses, but we actually may have as many or more people who want to be renters as buyers. There may a significant decline in the demand function to go along with the enormous increase in supply.
Conclusion: undesirable houses will go to near $0, as seen from the auction data in the article, and housing starts will have to decline to way below the long-term average. Does not bode well for realtors, electricians, contractors, inspectors, etc.
But there will still be wealth in Illinois and it will come from where it originally came from - farming.
A little OT, but about 5 years ago I traveled through the rural areas of Arkansas, north of Little Rock. Quite beautiful country with lots of forests and undeveloped areas. I was suprised, though, by the number of abandoned homes we saw from the roadway. They were older, but not that old, and could be quite liveable if they had been maintained. It appeared the locals preferred to live in newer, manufactured homes. I kept wondering whether someone was still paying taxes on these abandoned old homes or whether they surrendered them to the state/county. Anyone know how this works? Clearly there is a lot of unwanted housing stock out there.
Bingo. Unless it’s something unusually creative and well-built, almost all houses attain an eventual value of zero. There is no natual appreciation of houses. They depreciate just like everything else. They rot, they become obsolete, they fall apart, they burn down. They may have some salvage value but they are just as likely to cost money to be bulldozed and hauled away.
And when the price goes from $100,000 to zero, it is never measured, never counted as a sale or loss in housing data. Thus the myth that houses appreciate as a function of incomes. People consume housing as a function of income - the amount spent on housing goes up 3-5% per year. This is NOT a measure of house price appreciation.
I was raised in and still live in this area, some of the most beautiful area of the country I’ve seen yet (although I haven’t been in our mountainous parts).
To be honest, I wouldn’t widely characterize the area as you describe. I tend to watch the local (central and north-central AR) RE market fairly closely and have for years. I also subscribe to the yearly flyer from the State which announces upcoming auctions for unpaid property tax. For the most part, large acreage gets redeemed before it goes to auction. There may be smaller, old houses like you describe.
Depending on exactly what area of the state you are talking about, there may be various reasons for not owning those properties. Perhaps they are only on a small amount of land, say 1 acre. Many people would rather live on larger acreage and given the (traditional) price of land, it’s reasonable to do so. Maybe those places aren’t really abandoned as you think they are. Also, if these places had the roadway creep up on them, they may have again become undesirable considering the attitude of locals. Who want’s to live right next to a state highway with folks drving 70+ mph when I can live 50 yards off the highway? It’s quieter, safer for the kids and there is plenty of land to be able to do so.
One thing I have thought about for a number of years, is that there is a certain class of people, found in places like we are discussing (Arkansas, all across the South, etc), who seem to value land much higher than a house. So, they might pass on the 1 acre with a house right next to a road and prefer 10-20-50 acres with only a trailer. Those people tend to get ridiculed as trailer trash, etc…and I have to admit I don’t want to live in a trailer either, as much as I would love the land. In any case, I find it ironic that their choice to buy land seems, in some absolute sense, to be more sensible than the $500k “fat girl on a barstool”. Houses depreciate. Always. Land typically stays around for a while. Houses cost money to maintain, land can be productive and generate wealth. In our stereotypes of classes of people, the hillbilly who only uses cash, drives a shitty truck and maintains his 100 acres or the yuppy trying to keep up with the joneses teaching his kids bad habits, etc; I know I have long since decided I admire the former most.
Paul, while houses may well depreciate, the land value seems to be going up over the long haul. Otherwise, it doesn’t make sense that the price of a 100 year old house is about 70 - 80% as pricey as a comparable new house in Massachusetts.
On the other hand, condos reach a value of near zero over time. I think condos should only be rented or rented out for cash flow, not bought as long-term investments to hold forever.
One other thought, I know a family who has several hundred acres in the area north of Little Rock/Conway. All of the land is in two sections on the same highway, one down the road from the other, each section split by a highway. There are at least 6 houses on this land currently (there might be a 7th…).
Two of the houses are for Grandma (she currently owns all the land) and her mother. They are right next to each other. One house used to be a rent house, I don’t know if they still rent it out or not. Until last year, one of the grandchildren recently married was living in it.
The fourth house is owned by Grandma’s only daughter and her husband. They built that place about 25 yrs ago. The fifth also used to be a rent house. My best friend (another of the grandchildren) remodeled that house and moved in ~5 years ago. I’m expecting he will build a new place further off the road in the next couple years. When he does, I would be highly surprised if that house is ever rented out. I don’t think he would want someone to live in that place given it’s proximity to the farm equipment at this point. The sixth house is only a few years old, and was built by the last grandchild. I imagine he will live there for quite some time.
I can imagine that the old rent house never gets used again and falls into disrepair. That family I’m sure has long sense recovered any cost (the land has been paid off for years) in that place. The same goes for the two houses that grandma and great-grandma live in. They don’t receive rents on those, but they have surely gotten lots of benefit from the houses over the years (at least one of those houses were built by her husband in an old-fashioned house-building like people used to do years ago).
One day she will pass on of course, and when she does, it’s not inconceivable that the landowners will choose to let the unused houses fall into disrepair. Not everyone wants to be a landlord and I’ll be my last dollar the only way they would sell those places would be if they HAVE to do it to save the farm.
So there is a case that could easily turn into several houses in disrepair which are not for sale and are still privately owned. You have to look at those things as they are, old buildings that COULD be worth something in a different situation, but not necessarily worth much in their current situation. A classic example of relative value…
In the last 10 years it seems like these FCOBS type developments have taken over and become the dominant type of new construction — “master planned communities” (here in AZ), McHouses 10 to an acre, etc. That’s what the big builders have done to maximize profits. But then sellers think they still deserve the same insanely high per-sq-ft prices even if there’s no land to go with the house. And all the granite/stainless cr*p is also used to justify prices. But that 3000+ sq ft structure with granite/stainless is just a depreciating asset, and the barstool it sits on is not worth much.
I thought CAT was doing great because like John Deere, it is one of the few US companies that makes things in the US and sells them to China.
sounds taxpayer funded to me
Quad-Cities Reinvestment Coalition’s
“‘I don’t know why people aren’t buying. Interest is good. There’s plenty to choose from out there,’ Cotten muses. ‘It’s a buyer’s market. They should be buying.’”
Seems to me they are willing to buy- might want to talk to those “sellers”
Wait a minute… hasn’t Yun been telling us for the last month that most of the country between the Rockies and the Appalacians is doing just fine?
Yes, but they had bad weather so nobody’s buying.
The NAR could save a lot of money by replacing Larry with “FunYun the Real Estate Parrot”. Hours of entertainment for the kids as FunYun squawks phrases like “it’s a buyer’s market!”, “real estate only goes up!”, and “all real estate is local!”.
You forgot “They aren’t making anymore land, and It’s a buyers market, YOU SHOULD BE BUYING!!
and the ever popular “We’ve reached the bottom”
mmmm…FunYuns
Isn’t it just possible there’s no need for some of those houses? If everybody has a car they’re happy with, then new cars sit on the lot. If everyone has a house that’s working for them, what happens to the empty ones? Do some of these places have more houses than they do people to live in them?
‘If everyone has a house that’s working for them, what happens to the empty ones?’
‘New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year.’
They have been overbuilding for years.
Did I just read that correctly? There are going to be 500,000 more homes added to the inventory? I see that this includes ‘mutifamily,’ so what fraction is apartments?
Got popcorn?
Neil
No, no, no, Ben –you’ve got it totally wrong. The builders have “learned from history”. The MSM assures me they made sure not to overbuild and cannibalize future demand this time around.
BWAAAHAHAHAHAHAHA!!!
It’s really worse than just the overbuilding. The big public builders all decided to become huge ‘land banks’ with borrowed money. This of course drove raw land through the roof, which mistakenly convinced them they should, you guessed it, buy much more. And so on.
Truth is, no one knows what this raw land is worth, because someone will now have to sit on it for many years (expensive) and will have to be compensated by an ever lower price. Nice job builders!
Raw land is like holding a burning match, unless you own it free and clear *and* the taxes are super low. The builders must have been smoking something if it took them this long to figure that out.
Are there any figures on homes/dwellings per household? I was just thinking over the weekend about all of the homes that have been built vs. population gains in various cities, states, etc. Are we not in a situation where there are simply too many houses based on the need? Taking basic economics into consideration, the only way to correct the issue is to start tearing down houses to reduce the supply and/or increase immigration to increase the number of buyers.
“Are we not in a situation where there are simply too many houses based on the need? ”
Absolutely. Wasn’t there a topic sometime last week or the week before that mentioned an area (I forgot the city/state) that has a 20-year inventory excess?
BayQT~
Hmmm…I can’t find that dang topic.
BayQT~
It was a rural county in Idaho- Jefferson county I believe.
Ahhh, thanks Brandon. I found it.
http://blog.oregonlive.com/breakingnews/2007/12/southeast_idaho_has_glut_of_hi.html
BayQT~
“Bidding starts at $10,000. No one bites. No bids at all.”
And realtors think prices will adjust down to 2004 levels. They only wish.
Potential buyers don’t want to buy houses; they want to steal houses. I don’t blame them.
Only problem with stealing a house is…
…houses are hard to tuck under the arm and run off with.
Methinks the thieves will stick to jacking smaller merchandise.
Ill bet ya those $10,000 homes were Meth labs…
so the clean up or renting liability could be a lot.
Or for $10K, could easily be turned into meth labs again.
to think most east or west coasters could sell and move to the Quad cities and be the Mayor (un-elect) and live on the vig
(sarcasm on)
Let me be the first: To Racine, WI…I’m sorry, mea maxima culpa.
There. I feel…cleansed.
(sarcasm off)
In these failed condo reports, the demand is never questioned. As if every town in the country should suddenly want ‘hip, urban living’, even if its on some lake.
Our an irrigation canal. Waterfront in Scottsdale. Okay…. the water is just a widened out bit of irrigation canal and you’re not allowed in, on or near the water. But, it is waterfront property so a 700 sqft luxury condo should go for half a million, right?
Racine indeed. I posted a few weeks back that a 45 story tower planned right next door to me - was held up because of trouble with financing. This is on a prime lakefront lot inside the City of Chicago.
Now, why should Racine think they pull this off when better located lakefront projects in prime locations cannot? I did some digital mapping in Racine in 2000 (I understand things have changed) and at that time it looked like a city on the ropes.
Lastly, a lot of these schemes depend on Chi-Town money - just as a lot of Chicago projects depend on Upper Midwestern bucks, from place like WI….so….who’s got the $$$?
My girlfriend and I go thrifting in Racine sometimes — it’s a nice town, but parts of it do seem on the ropes a little, like the archetypal ’80s Rustbelt town. Without its promximity to Chicago and Milwaukee, it’d be in much worse shape.
things in racine haven’t changed that much!
Wow….$200,000 to $900,000 condo in downtown racine???
come on… everyone gets one.
geeez…
hotairballoonguy
Lake Geneva, WI
Was it Kenosha or Racine that put in the streetcar? I applaud their effort, but its too bad things are hittin’ the skids again.
The Journal Sentinel from Wisconsin. “Many hopes for a big revitalization boost for Racine have been riding on planned development that has been touted as ‘Miami meets Cape Cod,’ but there has been little movement on the project.”
Next tout; “Developers ass meets bankers bone”.
Racine?
Uh…
Oh yeah, all of the hipsters from Kenosha are looking for new digs. They’re soooooo over Kenosha.
haha LMAO!!
‘Racine?’
I believe that the ‘Machinists Hall of Fame’ is there.
Well, that alone is worth a $900K condo… right?
“The downturn is particularly tough on those surrounded by foreclosed homes. Melissa Pohlman and her husband bought a renovated home in North Minneapolis’s down-at-the-heels Jordan neighborhood three years ago for $205,000. It was most recently assessed by the city at $230,000.”
Buying the best looking house in the worst neighborhood is a recipe for disaster, as you are hoping that the down-at-the-heels will fix their places up, too.
My parents did that in Maricopa County Phoenix when I was young. 5 years later they sold the house for much less, cause the other houses only got worse even as we improved ours. That was the last time they tried that. They next bought the worst house in a nice neighborhood and that paid off by more then doubling their house from 1995 to 2003.
Aladin, I live in one a neighborhood that’s been down for a long time, but is on it’s way back. You could even say that it’s (uh-oh, I’m going to say a bad word) gentrifying.
House across the street from me, which has undergone extensive renovation, was just sold to a middle-aged professional couple. Nice folks, but they’re busy getting unpacked, working fulltime, etc., and that hasn’t given them much time to socialize with the neighbors.
However, the property to the east of them, which has long been a rundown, dumpy kind of a place with a junk car in the front yard, is undergoing quite the transformation. The junk car has been sold to a guy who’s been over there, trying to get it running. He’s getting very close to success, which means that the car will be a goner. (Yay!)
And the lady who lives on this property just had some guys in to clean up her yard. It looks better than it has since I dunno when.
So, there’s at least one example of the down-at-the-heels getting up off their arses and doing something about their properties. And I can think of another: right next door to me. That place was kind of crummy when I moved in three years ago. It looks MUCH better now. Those people have really worked hard. (Must be something about Slim busting a gut to landscape this place…)
The auction sounds a lot like a yard sale. The buyers know you want to get rid of it and they hold out for give-away prices or else walk away knowing there will be plenty of other yard sales down the street or next week.
“In a buyer’s market, YOU should be BUYING!!!”
I agree. I’ll let you know when a buyer’s market comes around…
‘It’s a buyer’s market. They should be buying.’
I guess you guys forgot you fogot that you stole buyers from the future when you shoehorned them into homes and loans before they were really ready. They’re not buying because they already did. Now you’ll have to wait for a few years for the next wave of buyers to develop.
Land, land, land….what are land prices doing?
Trends……..
Please say DOWN!
Yes…land prices are down. but taxes are on their way through the roof. Buying land may seem cheap but its the latest falling knife.
Market psychology has changed in the Midwest. Even the “cheap” houses aren’t selling because the herd is scared.
We aren’t yet seeing it as extreme in Chicago as in Peoria, but by this time next year, sales will fall off a cliff in Chicago as parents finally tell their 23 year olds that buying that one bedroom condo might not be a good idea after all.
We saw this with the dot-com bust. It took a few years for the herd to stop buying altogether and some stocks, that became quite the bargain, still didn’t move higher for years.
still didn’t move higher for years.
People forget housing usually stays down for 18 to 30 months for the herd to gain enough courage to buy. This has a LONG way to go…
Got popcorn?
Neil
1990 to 1997 in N VA
add 2 years to get real dollars vs nominal =wow
This one might go a wee bit longer than normal
After the 1990 bottom/collapse, it took until 1998 to recover in Los Angeles. Frankly, I think we will see a period far exceeding that of the 1990/1998 recovery (8 years). There are now far more negatives in the mix than there were in 1990. For starters, there is waaaaay too much inventory.
Then there are so many FB stories out there that many would-be acceptable buyers are going to think twice before signing on the dotted line. Add to that, of course, there are the current FB’s themselves who will be very leery of jumping back into the property pool after they have cleared the 10 year bankruptcy period. “Now is a good time to buy,” ain’t gonna cut it. The realtorwhores (those who will still be around and not working table at Hamburger Hamlet) need to find a new sound bite.
Then there is the recession - the one that has already started - which might be shallow or deep but it will affect the property market. Then there is the problem of inflation with incomes not keeping up and more and more losing their health benefits and having to pay $1,000 a month for their families health insurance. McDonalds workers and WalMart workers, don’t have a lot of clout when it comes to wage and benefit demands.
Then there is the problem of negative savings in the USA and the scary credit card debt (bubble). Where are the wanna-be buyers going to get the 20% or even 10% to put down.
Nope. This mess is going to take YEARS to clean up. So much so that, to be honest, at my age I think I will have long ago gone through the bake and shake oven and my cinders will be floating in the Pacific ocean off Pt. Mugu before things are back to “normal”.
It will probably be far worse this time around!
I think house prices (adjusted for inflation) will continue to go down for at least 7 years. It will take longer than that for the credit of all the FBs to be reset to a value they might have a chance getting a loan.
Got Malox?
“…sales will fall off a cliff in Chicago as parents finally tell their 23 year olds that buying that one bedroom condo might not be a good idea after all.”
They’ve flocked here from the ‘burbs and across the Upper Midwest to work. They better hope the F.I.R.E. jobs downtown hold up or its good night Irene. Some of the neighborhoods they are building/converting condos in are a joke! Like the starting @ $180k 1 beds near McKinley Park I saw advertised last weekend. How many college wunderkind beer swillers even know where that is?
Just about every condo project here is marketed heavily to that 21-35 cohort. You’re right, it should get very interesting next year.
Like the starting @ $180k 1 beds near McKinley Park I saw advertised last weekend. How many college wunderkind beer swillers even know where that is?
Take the Orange Line towards Midway and get off at the first stop after you start seeing gang graffiti on the sides of buildings?
Yeah, and it must look particularly appealing on a day like today. (for those not from Chicago picture the bleakest, murkiest, and slushiest of days)
Imagine paying $180k there! LOL
“Yeah, and it must look particularly appealing on a day like today. (for those not from Chicago picture the bleakest, murkiest, and slushiest of days)”
And tonight, freezing rain! Whooo-hoooo!
Ya gotta admit, it keeps out the riff-raff.
Yeah, and it must look particularly appealing on a day like today. (for those not from Chicago picture the bleakest, murkiest, and slushiest of days)
It’s quite sad, because McKinley Park would be a fantastic place to raise a family if it weren’t crime/gang infested. The actual park that the neighborhood is named after is about 70 acres, has soccer fields, baseball fields, a jogging path, a fieldhouse, tennis courts, an ice skating rink in winter, etc. It’s an urban gem.
Google Map
Yeah, there’s some bad stuff down there. Some new construction pretty close to the Cook County Jail, too. (For non-Chicagoans, picture a Dickensian jailhouse that takes up an entire city block.)
Don’t forget about the brilliant real estate forays into the depths of Humboldt Park and Garfield Park, either.
And the “condo conversion” of a 1960s apartment complex right under the landing path of Midway Airport. Who would want to pay $250,000 to live there? Nearby non-converted apartments probably rent for about $400.
Don’t be talkin bad about Cook County Jail - I spent the night there once.
Me and two friends were the only white guys in the holding cell.
A good chunk of those 21-35yos have been buying those condos with the help of Mommy and Daddy’s money. But what happens to Mommy and Daddy’s money when Mommy and Daddy’s $900k Schaumburg house now only sells for $600k?
Good question.
When my ex-wife and I sold our condo in 2005, it was purchased by a 24 year-old first-time buyer with help from her daddy. I’m guessing those days are over.
“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”
Are there no real estate investors in Peoria?
It DOES seem like this one would cashflow doesn’t it? These houses must be real disasters, though.
You would think if rents are around 500$ that it would be a good investment. 10X yearly is 63K. Even if rent dropped to 250$ you could probably make out OK.
Must be more to it.
I’m guessing it’s not in the greatest part of town or needs substantial renovation.
Heating bills here can be brutal, and they might be using natural gas to pay for air conditioning too. That said, it should still cash-flow positive.
One problem with housing in the rural midwest and rust belt is it isn’t easy to sell. When you buy a house it is YOURS. But if it’s renting for $525 and it’s in decent shape I’d still pay 85x rent for it, or $45k.
I think the answer is that everybody knows its a reserve auction and everybody knows $10K or $20K or even $30K isn’t going to buy it. Why waste time bidding?
Probably needs 50 grand of work.
Jesus! I went on Zip Realty yesterday to find the Fla. listing for someone on the blog here. The realtor that was “assigned” to me by the website for S. Florida has been emailing and calling all day! It’s unbelieveable! I made no attempt to ask for any service at all.
Yikes!
Well, let him/her down gently :). Just the disappointment of losing the dream of finding a buyer might drive some to climb a tower.
My sympathies!
Now you understand why I was so happy to get away from Friday’s Economic Outlook Luncheon here in Tucson. There were hundreds of real estate agents there, and I kept as mum as possible. Why? To stay out of their clutches.
Just consider yourself lucky that no one fingered you as a potential buyer, you could have lost a limb or perhaps your life!
Reminds me of when my listing expired last December and again last March. It was non-stop calls, some as early as 7 in the morning.
I had the most evil thought. You have lots of seniors that want to talk to someone. Leave their number on one of these sites. Tell them they’ll start getting lots of calls. They can talk all they want as long as they don’t say yes to anything.
Anyone from Los Angeles? What part of the cycle are they in there? I know LA already peaked, but seems to be lagging behind San Diego, San Francisco Bay, Riverside, and Sacramento. Are people there more in denial?
We are still in denial.
Lots and lots of strong hands here.
Significant good paying jobs.
Some stuff is still moving. Basically expect people from the inland that can sell their places will be move up buyers and support the West LA area for a while. Till the job losses and outmigration become a critical mass… then it will fall and no one will remember why they wanted to live in LA.
Got another year or two.
I understand that LA is a major employment center, but isn’t San Francisco also? I am talking about all the counties surrounding SF (Alameda, Marin, San Mateo, Contra Costa, etc.) when comparing LA to SF, as SF is a city/county and LA is a wide spread county full of smaller cities.
I don’t see why LA people seem to be thinking they are different. SF Bay and LA county seem to be pretty comparable as far a abundance of higher paying jobs, being coastal and lack of buildable land.
I am perceiving an LA is different attitude or LA people are more prone to optimism and denial.
I see LA just being a lagging city in the cycle.
As an L.A. native and lifelong resident (excepting a few years) I can assure you that L.A. residents really do believe “it’s better here” and drink deep from the Kool-Aid.
Of course, most of the conditions that originally attracted people here in the first place (prior to the 1970s): inexpensive housing, low population density, good standard of living, great public schools & good weather are a distant memory. Only the “good weather” remains –and that’s mainly for the Richistani 2%ers lucky enough to live along the moderate coastal belts. The rest of us peons get to either rent or live in cheaper inland areas (Inland Empire, Palmcaster, etc.) and pay handsomely for the privilege. Nothing like 110-degree summers, or lovely perma-smog sky that alternates between gunmetal grey and turd-brown, or the perma-gridlock, or the way all this lovely free-riding “diversity” has driven down wages, jacked up taxes, and “transformed” our public education system into what it is today.
But ItsAllGood, right?
Quiet PEON!
Do you mean to say the people actually *live* east of the 405?
Tiger - average per capita and per household ncomes are SUBSTANTIALLY higher in San Francisco than LA. Contrary to popular belief, LA isn’t a high income metropolitan area.
San Francicso per household ($55,221) and per capita income ($34,556) vs. LA of $42,189 and $20,683. In terms of per capita and houseold income, LA lags some garden spots Indianapolis and Detroit MSMA.
check out the wikkipedia link
http://en.wikipedia.org/wiki/California_locations_by_per_capita_income
bubbleboi,
The incomes are closer than you are stating. You are comparing the city of San Francisco to Los Angeles County. SF is very small geographically and has about 750,000 residents. LA is a county that has about 10 million. The SF bay area has about 7 million people. The city/county of SF is more comparable to the westside of LA county demographically. It’s mostly upscale with some bad areas.
tiger - i agree - SF County vs. LA County isn’t appropriate comparison. So i expanded to include SMSA’s household figures (2000 census) and San Francisco is $62,204 vs. $45,903 for los angeles,which puts Los Angeles in line with Indianapolis ($45,548), Rockford, IL ($44,988), Green Bay Wisconsin ($46,447) and Kansas City ($46,193).
http://en.wikipedia.org/wiki/Metropolitan_statistical_areas_of_the_United_States_by_income
I am perceiving an LA is different attitude or LA people are more prone to optimism and denial.
Plastic surgery capitol ?
or buy Dr Rey’s new underwear on HSN.
you can still see the rolls above and below the underwear lines if you can still breath.
It is hard and lonely to be normal in LA.
Amen. We are just getting to vague bubble ‘awareness’ and lots of “anger” here in LA-LA-land.
I just got another theory. Housing bubbles geographically are like implosions. One factor is new housing, another is how many housing units away the new housing is from the epicenter or centaral built up/coastal areas.
Sacramento or Las Vegas have smaller populations and are surrounded by new housing units not too far from the center or downtowns. The outside or new housing prices falls as they typically do first. Those units are closer to old housing and the ripple or implosion effect sweeps through faster.
The same is happening in the SF Bay, but you have the coast, which helps buffer the “implosion” effect as it cant come in from the west.
It has started in So Cal, but since LA county and surrounding areas are much larger than the SF Bay in population and geography. The “implosion” effect is taking longer to reach central coastal parts of LA, because there is more housing stock/populations for it to flow through.
Oh the other feature is the really nice area’s in LA are all on the far west side. Basically its really hot east of the 405 so the pressure over here is high.
There tends to be the wave of people moving west at the first sight of a “bargain”… Not sure what is happening over on the East side.
I think the nice properties extend a lot farther up in the SF bay area.
So yes it its linked to the geography.
Yeah, there are more nice areas in the SF Bay and they extend farther in most directions. It also flows more naturally or evenly from ghetto to upscale, whereas in LA county it’s more choppy or block by block. There’s more of “you have to be on the right side of this or that street” in LA.
There used to be a saying in San Diego that there was no life east of the I-5. Then in the 80s, when we realized that a 1950s stuccoid shack near the coast would cost a half million and you’d need another half million to make it liveable, we started saying there was no life east of the I-15. Now, of course, you’ve got the mega McMansions in Poway and Rancho Bernardo (east of I-15) which continue being burned down through some Santa Ana version of natural selection.
I think Florida is not as far away from hitting bottom as people might think. Let me explain. Let’s say that normal home appreciation per year is 3-5%. A lot of people like Florida, or at least used to like Florida, so I’ll give them the benefit of the doubt and say 5% per year. Hypothetical me bought a home in 2001, just before the boom, for $250,000. If it would have appreciated 5% per year, it would have appreciated as follows:
2002 - $263,000
2003 - $276,000
2004 - $289,000
2005 - $304,000
2006 - $319,000
2007 - $335,000
2008 - $352,000
2009 - $370,000.
Instead, it appreciated 150% (or original purchase price x 2.5), and at the end of 2005 was “valued” at $625,000. Since that time, it has dropped 20% in value, or $125,000, down to $500,000. If it drops another 20% from that value in 2008, it will be “worth” $400,000 in 2009, not too far above where it should have been all along. Mid-2009 just seems to make sense for those two points converging (all other factors excluded).
Ello El A….
I think the 3-5% is higher than wage inflation so you should be looking at a lower number. Probably around 2% per year or so.
Things will undershoot on the way down too.
Also you are thinking that a 250K price isn’t that inflated. It is.
Probably look at ‘99 prices instead. When was the last time the meadian prices could be supported by 3X incomes?
For Denver you have to go back to the mid 90’s for prices that aren’t credit binge influenced. I was getting all kinds of stock option money then. I put quite a bit of it into real estate, paid off old loans etc. I’d say that 25% of my income was credit boom money from 93 to 00. Housing wasn’t the bubble then, but it was getting some of the runoff.
You are leaving out a lot of factors which will be needed to get this mess to “bottom out.” You can expect these homes to go back to 2000 prices and possibly lower for three simple reasons.
#1. Prices for several years have been based on fraud. They have no relationship to “fair value”.
#2. Inventory. Thousands and thousands of properties on the market and the only way to clear inventory is to lower the prices big time.
#3. Afforability. Flipping hamburgers or living off a pension doesn’t get you a $400,000 house especially with the Florida taxes the way they are AND the cost of insurance (if you can get it.)
you forgot to factor in the excess housing supply compared to previous market conditions.
Houses don’t appreciate, they depreciate. Appreciation is only possible when materials used improve with age or the area in question becomes relatively more desirable than others.
But, you say, average house prices go up as a function of nominal GDP. Paradox? No. (1) People maintain and improve old houses, replacing roofs, windows, wiring, plumbing, landscaping, etc. This is NOT appreciation. (2) Many houses never get sold, and either become obsolete or burn down, with no resale value. They aren’t counted in statistics.
It doesn’t make sense to look at the current situation in terms of some normal level of appreciation of houses in general. Interesting, moderate-sized, well-built houses with nice lots in established, safe, attractive neighborhoods will weather the downturn fairly well. The further you get from this model the worse stuff will get hurt.
And we won’t have hit bottom until people get it out of their minds that houses naturally appreciate.
I think this is only true if the houses are not architecturally significant. Some people will always prefer vintage houses from a certain historical period (Federal, Colonial, Greek Revival, Mid-Century) and these will appreciate because of their architectural significance. Certain people will choose them because (not despite of) their age.
“Houses don’t appreciate, they depreciate. Appreciation is only possible when materials used improve with age or the area in question becomes relatively more desirable than others.”
Too bad applying straight line appreciation doesn’t work. First 5% for florida is excessive, and second the value has to be supported by the income. Salaries here in So East florida have a median of 48,000. Not too many folks can afford that 400,000 house.
Supported by incomes - and SUPPLY. The market is saturated with supply, because the builders built for speculators who never intended to live in the houses. Now there are too many houses and not enough resident buyers - people who will actually live in the house - to sell to. There are so many houses they can’t even be rented - there aren’t enough renters.
That leave only one way for house prices to go - DOWN. No doubt there are some (with pie in sky HOA fees attached) that won’t sell for any price.
“The market is saturated with supply”
..it is also saturated with fear, which replaced greed..
Fear is a very powerful emotion..
I’ll throw in a bit more to mitigate against a reversion-to-mean argument
- 50 (? if I recall) year weather cycles. Historically, migration patterns track with these cycles, and believe we just came off a 50 year “quiet” period, i.e. boom. Decades ahead could be bumpy even if you don’t - ahem - “believe” in global warming.
- Global warming
- Difficulty insuring home cheaply, or at all.
- Eroding tax base - Florida isn’t famous for its well funded infrastructure in the first place, what we group under “services” may return to mean…for Haiti, say.
- and if the above is on target, for what exactly do workers retrain, after a career in RE, restaurants, tourism or doing stuff for old people?
Washington Mutual Dividend and Workers axed…. Stock goes timber…
Are they not rallying because of the ‘Rate Cut’?
I was short USD/CAD and long EUR/USD since Sunday.
Whenever there is talk of Fed Cut or some invisible strength I always go short the USD.
WAMU cuts dividend from .56 to .15
A race to cut fastest and most. Next up Citigroup and then Bank of America. Followed by the rest.
I’ve got 6 figures in CDs there. I guess I should move them.
move ‘em on out..
FYI, SalemFive Bank in MA, has FDIC and DIF. DIF is a MA only insurance fund for certain banks. It covers deposits over $100k.
Shame on you! Uninsured money in a US depository institution? In WAMU of all places (not too big to fail)? I’m disappointed. Smack yourself with a small trout.
WAMU bought the crappy little local bank I had this in and I have been too lazy to go in and take care of it. Guess I have something to do tomorrow morning.
Just put it in a brokered CD account and you don’t have to worry about it.
Hoz, please enlighten me. What is a brokered CD account?
Some items from a quick look at WAMU’s September 10-Q
9-months total loan interest income, $4,856 million
9-months capitalized Option-ARM income, 1,051 million
Home Loans, 1st Mortgage $ 97 billion
2nd Mortgage Loans 57
Multi-Family Loans 30
Construction Loans, all types 2
All Other Loans 51
Total Loans $237
Loss Allowance 2
Total Assets $330 billion
WARNING - This bust goes beyond subprime. Prime borrowers are gonna take off when they realize their house is worth about 60% of what they payed for it.
Prime is the new subprime
WARNING - This bust goes beyond subprime. Prime borrowers are gonna be leaving their homes behind when they realize their house is worth about 60% of what they paid for it.
“Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases,” Yun said at a press briefing. “Mortgage availability is improving”
http://www.msnbc.msn.com/id/22183591/
I hope Yun had the forethought to hold onto that dry cleaning business down in Torrance.
WAMU cuts dividend from .56 to .15…
..and Bank of America is liquidating an institutional money fund…
yeah, sure, it’s contained…
More:
WaMu will:
* Discontinue all remaining lending through its subprime mortgage channel;
* Close approximately 190 of 336 home loan centers and sales offices;
* Close nine Home Loans processing and Call centers;
* Eliminate approximately 2,600 Home Loans positions, or about 22 percent of its Home Loans staff;
* Eliminate approximately 550 corporate and other support positions; and
* Close WaMu Capital Corp., its institutional broker-dealer business, as well as its mortgage banker finance warehouse lending operation.
“As a result, the company now expects its fourth quarter provision for loan losses to be between $1.5 and $1.6 billion, approximately twice the level of expected fourth quarter net charge-offs.
The company currently expects its first quarter 2008 provision for loan losses to be in the range of $1.8 to $2.0 billion, reflecting an increase in provision well ahead of charge-offs, which are also expected to increase significantly during the quarter. The first quarter range reflects the company?s current view that prevailing adverse conditions in the credit and housing markets will persist through 2008.
While difficult to predict, the company also currently expects quarterly loan loss provisions through the end of 2008 to remain elevated, generally consistent with its expectation for the first quarter of 2008. The company noted that there may be some additional variation depending on the level of credit card securitization activity during any quarter. “
And this…
“Losses are mounting at Washington Mutual (WM). The Seattle-based mortgage lender set plans Monday to cut more than 3,000 jobs in a bid to reduce costs as U.S. house sales continue their free fall. WaMu is also selling $2.5 billion worth of preferred stock to shore up its capital base and slashing its dividend by 73%”
WaMu is also selling $2.5 billion worth of preferred stock to shore up its capital base and slashing its dividend by 73%..
Given their situation, the only thing preferred about their Pfd stock, is my preference to not buy it…
Things sound worse there, than even at CountryWide..
I was riding on a submarine
Got a message from the Killinger queen.
His shareholders were breaking his spine.
Mr. Dhabi didn’t waste no time!
Abu Dhabi to the rescue!
Go, Abu Dhabi! Go, Abu Dhabi!
Once upon a time, I worked for WaMu.
Pink slip made me see things askew.
Mr. Dhabi said “you need cash?”
I was high and ready to crash!
Abu Dhabi to the rescue!
Go, Abu Dhabi! Go, Abu Dhabi!
Abu Dhabi to the rescue!
Abu Dhabi to the rescue!
Abu Dhabi to the rescue!
Go, Abu Dhabi! Go, Abu Dhabi!
No. Countryside is worse. WaMu is very bad, though.
after hours trading, WAMU is taking a hit.
Is it just me, or are there other people who think that there are way too many mortgage lenders? Sort of like there are way too many real estate agents?
yes, there are.
All these lost thousands of jobs lost at WM and CountryWide and Amgen and scores of others financial institutions plus all the construction jobs that have been lost and that lying son-of-a-bitch Bernanke says we are going to avoid a recession and the Bush administration tells us their is full employment. How are we going to avoid a recession? By printing more confetti money and creating more Federal jobs the way this administration has been doing since 9/11 and thus hiding the true numbers. Actually, if the real numbers were reported instead of the government and Fed fake/manipulated numbers, it would show we are already in a recession.
Government officials are paid to lie. Do you expect the Chairman of the Fed or the Secretary of the Treasury to say “Yep, it sure looks to me that we’ll soon be in a recession.” What would that do to the Dollar and the financial markets?
Here in Arizona, we MAY already be in a recession:
http://uanews.org/node/17237
The Fed’s only choice would appear to be to inflate their way out of this mess, and hope like hell that the inflation perks up the value of housing so as to turn underwater mortgages into equity.
The only way that this can be achieved is across the board wage inflation to accommodate the price inflation.
Welcome to Zimbabwe! Got gold?
http://biz.yahoo.com/ap/071210/washington_mutual.html
Hmm, I wonder how my WAMU loan agent Hottie with the enormous rock, Mercedes SLK and designer clothes is doing today ?
Does anyone out there have a handle on real estate as an investment? It seems to me that the rug was pulled out from under both J6P investors and “professional” investors about 6 months ago. For the moment, forget about the housing issue, ie. a house that someone actually needs because they need to live in it. There are probably at least 15 million empty housing units out there and at least that many empty lots. This excess capacity represents someone’s investment strategy gone sour. And virtually every major home builder is losing money every month at a fast clip. There aren’t enough new young couple 1st time home buyers coming onto the market to even begin to create a demand.
Times have changed. The value of these “investments” has stagnated, but carrying costs (taxes, insurance, mortgage payments, condo fees, etc.) roll right along.
Beyond that, there’s something called “the time value of money.” These stagnant investments tie up funds that could have done better elswhere.
How much is it costing the economy month-by-month to just sit there? Does anyone have any idea how to quantify this? Is real estate as an investment truly dead for awhile? Have all the investors moved on to something else?
“Have all the investors moved on to something else?”
I’m all ears if anyone can beat the yields on certain dividend paying stocks like BDU’s.
“In a buyer’s market, YOU should be BUYING!!!” it said.
True enough, but the buyers will determine just when the buyer’s market begins, and it sure as hell isn’t now.
Homeowners Puzzle Over What’s Better: To Sell Or Rent Out
“Yet some people won’t rent, regardless of the cash flow. Philadelphia life insurance agent Sayes B. Block refused to rent his home before its sale.”
“”I’d rather have syphilis than tenants,” he said.”
Heeehehehe. I’m sure that tenants would rather have a Joshua tree than you as a landlord, Mr. Blockhead.
smlandlord, you would have to agree that many many people are not cut out to be landlords, despite the “glamor” of owning investment real estate…especially the current breed of “accidental landlords” with hungry alligators to feed each month.
“Vacancy reserves? Maintance? Insurance? What are those?”
There are plenty of buyers in Ontario, Canada.
Ontario home starts up 12.7 per cent in November
http://tinyurl.com/28krpr
A little behind the curve or are they just going to avoid the calamity of their southern neighbor?
Everybody knows Canadians are perfect. Since Americans have capital punishment and no universal health care and a big war machine it is clear that there can not possibly be any relevance of the American market to the Canadian one.
Canada, and especially Vancouver/Toronto are going to tank hard. Our fundamentals are as badly distorted as SoCal. We have fools lining up outside, in the cold, to buy a $500K condo that won’t be built for 2 years!
I just read the new “must-have” trend in Toronto is now 500 sq. ft. walk-in fridges and in-garage car washes in your “average” $1M home. Hah! We’ve got Socal beat for ‘tards methinks.
I’ll buy when rents match prices. Still is distance to close before we get there.
I will be rewarded for my wait and smarts.
“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”
Told you we’d have big drops. Neener Neener.