Are There Areas Where It IS A Good Time To Buy?
Readers suggested a topic on when it is a good time to buy a house. “Are there areas where it IS a good time to buy? Here in Riverside, CA., I’m not so sure. We have put a few offers on homes, but we are offering LESS than asking, not more like most people.”
“The problem for us is nicer homes at lower prices are coming in 1 or 2 at a time and then there are multiple offers where everyone bids asking and higher. So, do we keep offering less (because we have to anyway) for these nicer homes, wait till fall/winter, or settle for less?”
“I’m just not sure it’s going to go that much lower here.”
A reply, “I suspect we have something of a dead cat bounce going on right now in some markets. Many areas of Riverside County experienced gains of 4X from 1999 to 2006 which is simply not sustainable.”
“The area remains a train wreck in slow motion, and will continue to see a very high rate of foreclosures for many years as a tsunami of ALT-A resets loom high on the horizon. Even those buying today, will most likely bolster the next wave of foreclosures going out another 5 years or so…”
Another posted, “Just talk to a friend of mine in the mist of selling her home. She got a listing agent who has been in the business for 30 years and spoke to her about a community that the listing agent was interested in buying a townhouse in.”
“The agent wanted to buy over the last few years, but felt that the price was too high…the agent then told her that the prices are now down to where she could afford it..when my friend said to her ‘So, When are you going to buy it?’”
“Listing agent response..’Oh, I will wait a little longer.’”
“Enough said…”
And another, “Last week I ran into a realtor we worked with a couple of years ago. Extremely honest guy, but my wife didn’t think he was ‘aggressive’ enough (go figure). Anyhow, he was shocked that we still hadn’t bought a home. I explained that our current rent was less than taxes, maintenance and insurance on any home we might buy… so it just didn’t make sense to buy.”
“His response: me too. It turns out that he has been here (Pullman, WA) for four years but never purchased a home because it is so much cheaper to rent!”
“When we get around to buying a home, this guy is going to be our agent.”
The Redland Daily Facts. “Local real estate agent Shirley Harry spoke about the Redlands real estate market Thursday at the Rotary Club. Harry said she believes in a 10-year market cycle.”
“She traced the performance of the Redlands market from the 1960s to the present. ‘At that time, the city of Redlands grew and grew by leaps and bounds,’ she said.”
“She said tracts ‘popped out of the ground in the early ’60s,’ because of Norton Air Force Base and the burgeoning aerospace industry.”
“But supply ‘outstripped demand’ and homes sold for half of their value, Harry said. ‘If you think this is bad now’ she said.”
“The market flattened, dropped, flattened again and rose between 1975 and 1979. In the following ’stagflation,’ interest rates spiked from about 10 percent to 22 percent. In the 1990s, the market began to recover, but Norton closed. ‘We lost a significant job base in the area, so it was a difficult time for the (Redlands) real estate market,’ Harry said.”
“In 1999 the market rebounded, bringing in what is termed the ‘bubble.’ ‘As with all bubbles in Redlands, it’ll last two years,’ maybe three, Harry said. ‘We still have a good job market. Housing is still in demand in Redlands.’”
“She gave figures for foreclosures in Redlands. This year to date, there were 26 homes foreclosed in the 92373 ZIP code and 64 in 92374. Harry then gave a rundown of homes for sale in Redlands. There are 430 on the market, down from 500 about a year ago, she said.”
“The median home price in Redlands is $349,000, nearly $100,000 more than the county median price. The average price of homes in escrow is $328,000. Price per square foot is $253.”
“‘Buyers are looking for bargains - that’s what’s causing them to buy,’ she said. She said the Redlands market is ’seeing multiple offers’ on homes.”
“The affordability rate in San Bernardino County is 37 percent right now, she said.”
“‘What you all want to know, I’m sure, is when we’ll hit bottom,’ she said. ‘The news coming from the industry is we’re getting close.’”
‘She said that the market began to soften in 2006. ‘I believe in my 10-year cycle. We’ll begin to climb out of this next year.’”
“She ended by saying that housing ‘is still a wonderful investment, but it’s a long-term investment.’”
“Harry then fielded a few questions from Rotarians, including one about speculative buying. She said there has been some speculative buying in Redlands but not much flipping. She said that greed, fear and desire drive the real estate market.”
“‘We want desire to come back to the market,’ she said.”
The Eureka Reporter. “It’s a ‘buyer’s market,’ as they say in real estate when home sales have slowed down and prices are more affordable, but with the high prices at the gas pump, people interested in buying a home can hardly afford the luxury of driving around to find which ones are for sale.”
“According to the the Humboldt Economic Index, home sales declined from April to March by 6.7 percent and median home prices fell below the $300,000 mark to $297,000.”
“The report goes on to say that changes in housing prices are consistent with other housing markets throughout the state- from Southern California, through the Central Valley and San Francisco, and says they all tell the same basic story: house appreciation was positive and growing up until around 2005, when the rate of appreciation started to fall.”
“The report states that housing prices are expected to drop even more throughout the state - 14 percent in San Francisco specifically, over the next four-and-a-half years. It cited the ‘increasing inventories on a state and national level’ as putting pressure on home prices, coupled with a rise in the national average of 30-year fixed rate mortgages to 5.97 percent in March.”
“Tom Hiller, President of Humboldt Realtors Association, said the local affordability indices for the county are at similar levels as May of 2005 and savvy investors have taken notice.”
“‘Yes, prices have softened. Interest rates remain low and income is steady, so what we’re actually seeing is numbers of buyers who can afford houses that we haven’t seen since spring of 2005,’ Hiller said.”
“Hiller said, contrary to what the Humboldt Economic Index states, that the California Association of Realtors reported a sales increase of 2.5 percent in April.”
“‘We’re starting now to see savvy buyers get into the market. Investors are starting to take advantage of the huge inventory and soft prices,’ he said. ‘But now is a good time for first time home buyers to do that too. Waiting can backfire, and then you can end up paying somebody else’s mortgage by way of rent payments.’”
“While there seems to be no end in sight to the gas crisis, Hiller said investing money in the housing market instead just might be the answer. ‘Call a realtor and they will drive you around at their expense. Once you own your house, you can stay put and enjoy it for years. You don’t have to drive anywhere - you can just walk in your backyard and smile.’”
Here’s one area where you DON’T want to buy, Sawpit, Colorado (just down the road from Telluride, so is expensive, but not very nice - from Craigslist - westslope.craigslist.org/rfs/701845573.html):
“No bank refinance buy now sell later gimicks. Want it? Make an offer. Want to rip someone off, look elsewhere - this one is guarded by an agent!”
550k for a fixer upper so bad they won’t show you the outside.
Hey, a realtor guard dog, these guys are pretty proactive!
You should have a conversation with an actual real estate agent in these “desirable” resort areas. I did recently, and of course couldn’t contain the fact that I thought despite a 5-10-15% price reduction that there was anything worth the money.
I was told that the demand remained “strong” for these high priced homes, but that buyers were just waiting to see how low the prices would go before turning out in droves (the so-called ‘pent up demand’), even starting bidding wars when prices were deemed pretty reasonable. He even told me that there were “a lot of millionaires” out there quietly buying up all of these suddenly cheap properties, so sellers didn’t want to drop prices to market, just low enough so that the uber-wealthy would think that the bottom had been reached and that they were getting a bargain.
Yup, he really said that.
“You should have a conversation with an actual real estate agent”
I’ve thought about it, but I don’t like dogbites.
St George/Washington County:
I had a conversation with a realtor yesterday.
I’m driving around with some friends to waste time waiting for the next showing of a movie after we missed the sold-out matinee of the latest Raiders (of the lost ART of Hollywood filmaking) movie.
We drove over to East Washington. This area has some huge (8000 SqFt+) homes on acre or larger lots. The area was farmland until the “bubble” hit here a couple of years ago. I hadn’t been there since I walked thru a “Parade of Homes” house a couple of years ago.
What I found in the first development were two or three homes placed haphazardly and surrounded by about 10-12 walled in acres filled with numerous empty weed infested “for sale” lots. Some of these houses had big-buck landscaping, others had none. There were about 5 of these types of developments all within an eight of a mile of each other. Very big, very faded signs marked the entrance to each one.
Some homes were being lived in, others sat empty. The last house that we checked out was about 10,000 square feet. From the outside it appeared to be more on the higher end (trim and exterior finishes) than some of the others. The weeds had overgrown the lot (up to the middle of the downstairs windows. There was an empty weed filled lot for sale next door.
As we drove by I noticed a shiny BMW with a license plate that spelled out something like “I-sale” or “wesell” parked in the enclosed turnaround (european style) five car garage area.
My friends in the car couldn’t believe how many of these 2 million or maybe 3 million dollar homes (at the peak) appeared to be in a “distressed” state.
I parked the car in front of the turn next to the house (with the BMW) to find out what to do with the remaining hour of wait before the show. One of my passengers in the back seat said “oh…oh, someone wants to talk to you”.
The BMW stopped next to us and the heavily tinted window goes down.
“Hey!, I got the key if you want to see the house” The driver said with a very big smile. “Are you interested?”
No, we’re not looking to buy, I replied. However, we were sitting here discussing what we’re going to do with all these bank-owned multi million homes around here now that the local housing market is toast.
“They’ll sell” he replied sheepishly.
“Not in our lifetime” was my simple response.
The girl sitting next to him smiled. He seemed flustered, his smile dissappeared and off they drove.
The Anasazi Indians built immense structures 1,000 years ago meant for only a few people, not too far from where we built ours…
I love making the agents squirm. I go to open houses at least every other week just to see how things are dropping in the area. When they ask what I think, I discuss the fact that it’s overpriced and the market is still way too over-heated. I love watching the smile disappear from their faces, as I take a few of the freshly baked cookies, and ask “so how are your sales trending this year? . . . do you think they would consider a 50% below list price offer?” Most just walk away without responding. The change in the look in their eyes when you discuss reality is priceless.
My first ever spam from a real estate agent - in my inbox today:
“I was wondering if you had any serious plans to be in a home in the next 4-6 weeks? I am planning this time to accommodate you if you have made a goal to get into a home by July?
If not, I will plan accordingly and let you browse the website. Always know you can ask me any questions, anytime.
Thank you very much,
Scott Yeh
REALTOR (R)
ZipRealty, Inc.
Licensed in California
scott.yeh@ziprealty.com“
A lot of the uber-wealthy became uber-wealthy because they are uber-TIGHT with a dollar. I’ve known two of these types personally. They and/or their advisors are almost always far, far more into whats going on than some (in fact, any) real estate agent. You’d be surprised just how moderately some of them live.
One was my neighbor. We all knew he was wealthy just not by how much. He had a very nice place that his folks owned and he lived there all his life. He also was a co-founder of a large corporation. And for all that he was a very nice, down-to-earth person. When he died the rumor was his total net worth was around $350mil. But you’d never think it given his life-style.
Hazard, testify!
I’ve known three or four of the type you describe. One of them owned multiple industrial sheds/buildings, and actually was so CHEAP as to do the mowing and yardwork himself (and charge the tenants through a service company!).
I have never met such a tight-arse, and although a “nice, down-to-earth person” as you describe, his tenants often complained to me about his odious and illegal activities re their tenancy.
I would hope that there was a special place in Hell reserved for people like this - they give genuine capitalists a very bad name.
Have to laugh..took a look at the updates on the Tax Delinquency list(last date to pay was on May 19th) before auction of certificates..looked up a couple of McMansion owners that I know..One in particular use to buy every gizmo or stupid car(like a hummer) as soon as it became available, wife always dripping with some diamonds or rolex…turns out they JUST paid their taxes before the deadline..tells me the one thing.. the diamonds and the rolex are probably sitting in some pawn shop or ebayer’s home right now..
Plenty of people still owning taxes that live in the McMansions..
If you ever have a chance to take a look at the NEG AM loan resets(which was the most used loan in the boom to buy the McMansions) you will see that peak is in 2010..I suspect that will be the next wave..as these people cannot PROVE REAL income verification or appraisal value for refinance..
“Tom Hiller, President of Humboldt Realtors Association, said the local affordability indices for the county are at similar levels as May of 2005 and savvy investors have taken notice.”
Savvy inverstors aren’t the only ones taking notice in Humbolt.
http://www.latimes.com/news/local/la-me-pot31-2008may31,0,2034882.story
Nice article in the LA Times. This will only bring more Socal scumbags up here, looking to make a quick buck buying rental houses and harvesting dope.
Money doesn’t grow on trees, it grows on leaves.
Dirty Harry lays down the law…
“But supply ‘outstripped demand’ and homes sold for half of their value, Harry said. ‘If you think this is bad now’ she said.”
“The market flattened, dropped, flattened again and rose between 1975 and 1979. In the following ’stagflation,’ interest rates spiked from about 10 percent to 22 percent. In the 1990s, the market began to recover, but Norton closed. ‘We lost a significant job base in the area, so it was a difficult time for the (Redlands) real estate market,’ Harry said.”
“I suspect we have something of a dead cat bounce going on right now in some markets. Many areas of Riverside County experienced gains of 4X from 1999 to 2006 which is simply not sustainable.”
A dead cat bounce may occur as a result of certain ppl that have access to cash and/or good credit lines thinking that 5-20% off after a 300% run up is a bargain. There is a limited pool of such ppl. With tougher credit standards and no or negative wage inflation, I can’t see sustained upward movement. In a reverse leverage environment, the dumb money has a limited life span. The smart money wont pay these prices.
Yeah, there seems to be certain flipper mentality. ‘Good time to buy,’ as in will make money when selling? The guys buying these foreclosures now are probably planning to flip, not hold. Should the question be, a good time to buy from a flipper? I can imagine there are people out there who have money burning a hole in their pockets and are willing to ride out the downturn. I guess as long as one is honest about the reason to purchase, there isn’t any single answer.
But as far as areas where it’s near a bottom, IMO there aren’t many. The Florida post had mention of overcorrection. That is a more probable outcome at this point. Anybody up for buying into that? Also, don’t forget that the neighborhood may go down hill as defaults pick up.
That is a more probable outcome at this point. Anybody up for buying into that?
Yes, it will overcorrect. How much? At least 10% below the inflation adjusted trend line from the last bottom.
How much more could it overcorrect?
How much popcorn do you have?
Neil
Las Vegas and Miami come to mind as far as areas that might over-correct. Already seeing decent housing in Las Vegas for under $100 psf and prices are still dropping. There was so much over-building that the rent v. own reasoning doesnt apply. For all of the property to be owned, a significant portion of the buyer’s will have to be those looking for second homes. Prices for a second home to work have to be lower than for a primary residence to work.
To explain in more detail - if you are purchasing as your primary residence, you can offset the entire amount of rent you would otherwise pay in doing the analysis of whether it’s cheaper to own. Even if you are renting out a second home, you cannot deduct the full amount of expected rent because you have to deduct for the expectation of periods in which the property will not be rented, management fees, costs associated with damage by tenants, late payments, less tax breaks, etc., etc.
Florida…have posted a few times about my 10th-grade dropout cousin, erstwhile successful rehabber-flipper. His condo in Jupiter was “sold” six weeks ago…er, make that, a contract was signed for $280K (heck, only about 25% off his 2007 asking price), but was contingent on 80% financing from a bank. The appraisal came in at $250K. Next appraisal: $266K. Buyer therefore legally justified in offering $262.8K. Cousin phoned me to ask if he should counter, or what. This is the one and only offer after 10 months on and off the market. I had some St. Augustine folks over for drinks this evening, and decided to ask them what they thought, since I am too much of an HBB uberbear. Our joint recommendation, issued 1/2 hour later: take the money and run. The St. Augustine couple are not HBB, just regular folks with their eyes open!
Don’t forget that these “great investors” who let their invesment properties go into foreclosure will not have “Debt forgivemess” as this ONLY applies to your primary home..think of all those FB in CA and FL who will receive a lovely 1099 from the bank to remind them ONCE AGAIN of their failure!
““Tom Hiller, President of Humboldt Realtors Association, said the local affordability indices for the county are at similar levels as May of 2005 and savvy investors have taken notice.”
Savvy? Maybe he doesn’t understand what that means?
Savvy: Well informed and perceptive; shrewd.
n. Practical understanding or shrewdness: a banker known for financial savvy.
Sappy: Slang. silly or foolish.
I’ve seen multiple criteria on “when to buy”, such as:
1. Price of owning is equal to or outstrips renting.
2. When you spot a home that you can afford (i.e <3x income).
3. When prices reach historic inflation adjusted levels.
4. When you spot a nice home below market value.
5. When prices are as low as they’re going to go.
Some of those arguments are from the HBB, some are from the local real estate agents. I have also heard all the arguments why renting is better than owning right now, but I don’t know when or if that will change. I totally respect anyone who never wants to own real estate, but I don’t think it should be shameful to want to buy someday either.
And, as has been mentioned many times before on this blog, the ability to go where the jobs are might become a critical factor, making everything else irrelevant.
I start with my assumption that a house is by NO means an investment. From there I can decide when it’s time for me to buy a house. 1) It’s the home of my dreams, 2) I can buy it for cash, and 3) its purchase price is no more than 1/6 of my net worth. Until then I rent. I don’t care about the criteria on whether rents are more expensive than houses. If I cannot find a house I like but am still renting, I will continue to rent.
Those of us who first owned a house in the late ’60s or so believe, I think, that 2.5x household income is a much better target than 3x. Even though the latter sounds incredibly affordable relative to bubble prices and psychology, it isn’t. If you think about 1998 as pretty much a pre-bubble year, and if you think about what salaries were then, compare house prices at that time with gasoline prices and insurance rates and food prices then — all to what they are now. Sure, flat screens are dirt-cheap now, but the stuff we need, external to just shelter-related stuff, is a lot more expensive and that forces the ratio down, not up.
The bottom is NOT in and anyone who buys now is going to get caught on the wrong side of the trade. There are so many indicators which point to the fact the this mess is not over.
My own opinion is that this will not be resolved until 2011 at least. It doesn’t take a rocket scientist to see the end of this mess - when it arrives. The builders charts like BZH, RYL, LEN, DHI are mostly heading back down - probably to re-test their lows. At that point, there could be a “dead-cat” bounce BUT that is by no means certain. I would not be surprised to see some of the big builders go belly-up.
If the economy moves further into the recession we are already in (don’t tell me there are still people who beleive Bernanke’s b.s!) even a “dead-cat bounce” might not happen or it will be weak.
Next, money. At current prices, banks are looking for a nice, fat, down payment. Few can come up with the money. Many are actually paying for their gas and mortgages with credit cards.
Next, the inventory out there is MASSIVE. The only way to clear a stagnant/stuck inventory is to lower prices. Doesn’t matter if it’s an excessive inventory of shoes, cars, socks or houses. When the inventory is cleared (or low) then it might be time to risk buying. Banks: There are going to be a lot of banks going under.
Next, incomes. Inflation is now running at about 8% to 10%. Once again, if there is anyone still believing Bernanke or Paulson or shills like Larry Kudlow, take a sample of your bath water and have it checked out at a lab. There’s something in it messing with your brain. Incomes are stuck. Companies cannot raise prices because consumers will stop buying or switch to a cheaper product.
Next, consumer debt. It’s through the roof. 30 years of excessive consumer spending (look at any credit card chart to see the ski slope which started around 1980) has to be “bled” out of the financial system. Europe and the US, Canada, etc, are waaaaaay over-levereged. Liquidity has to return.
Prices of property will trend back to 2000 prices at least AND, if economic times get worse, maybe even to the mid 1990’s. Above all, do not believe the NAR, The Fed, realtors, etc and hit the “mute” button when you have the CNBC Comedy Business Show on and they are parading the usual “financial experts” with their mostly useless opinions.
“Prices of property will trend back to 2000 prices at least AND, if economic times get worse, maybe even to the mid 1990’s. Above all, do not believe the NAR, The Fed, realtors, etc and hit the “mute” button when you have the CNBC Comedy Business Show on and they are parading the usual “financial experts” with their mostly useless opinions.”
Do you predict this will happen everywhere??? It seems like the market where I live (southern NH) is still holding strong.
Hmmm…this one is hard, because, to a certain extent prices a holding everywhere. VT still has waaay too many properties priced above $150K. CA still has waaay too many properties priced above $700K (do have that “medianish” price right??).
Unfortunately, my sister is attempting to sell her house in this market and ignored my advice to lower the price until it sells. Her emotions at this point are mixed, which I think are “typical”. Up until this point she felt lucky to have the house. Now that they want to move, she is starting to feel trapped by it but is willing to wait it out.
Once we see general panic settle in (as in “If I don’t get rid of this house this season, the price is going to continue to sink like a rock” ), I think prices will be in free fall everywhere, relative to their peaks. From my sister’s attitude, that might be a year to two away.
I totally agree with Vermontergal . The asking price in some area might not drop as much as other areas and some Realtors might tell you this particular is holding strong and price won’t drop any more further because of blah blah blah. However, the asking price could be anything the seller wanna ask now, but the actual sales might be zero or very less too.
It’s gonna take sometime to let the home owners really realize the price they’re asking is not gonna make a sale. And if they have to sell the house, eventually you will see the price drops for sure.
I’m living in Arcadia, CA, which is a very nice area. The median houses/condos in this area is around 700k while the median household income is only around 80k. Even we’re now the house price drops dramatically especially in CA, the prices in this area are still holding “strong”. My realtor told me it’s time to buy because the reality is “Arcaida is such a nice place to live, everybody wanna come here. If the price drop, there’re more people wanna move in…”. My response is : “just look at the income/housing price ratio, don’t tell me that people who can afford 700k median house here won’t move to somewhere else better. Plus, look at the inventory, if there’re so many people wanna move in, why is the inventory rate increases other than decreases?”
Those sellers are in the stage of denial. It doesn’t matter how much the asking price is, it only matters if they can make a sale at what price. The house price is determined by supply/demand. If there’s less demands, the price has to drop for sure.
Not sure what rents are in your area. Find out what the “average” rent is, then “100xthe rent” will give you a reasonable (true) valuation. Okay, let’s look at that number a little closer. Let’s take a “for instance”.
#1. Let us suppose you are buying the property as an investment. You already own your own house and you intend to rent this one out. Obviously, if your mortgage payments are $2,000 a month, you would like to get $2,000 rent plus a little extra for taxes, repairs, insurance and the possibility that your tenant will stop paying you, etc. Now, it’s very doubtful that you will find a property at current values where the income (rental payments) will cover all of the above. In other words, you (as an investor) will have to “top up” the expenses until such times (over an unknown period) rents rise, values rise and you find you have a positive investment instead of a negative investment.
#2. I’m not familiar with NH but I’ll use my area as an example. Rents around here are about $2,000 a month for a SFH. Prices have fallen but the “average” around my local streets is around $550,00 to $600,000. Do the math. 100X$2,000 is $200,000. Difference between “fair value” and current prices = $400,000. So, an investor, looking ahead and seeing that rents will zoom up, might be willing to pay $250,000 or $300,000, working on the premise that in a few years (if the investor has the money to subsidize the property) he/she will start to see a positive cash flow. Rent prices are moving but not enough to justify an investor buying at these prices. It will take years (10 to 15) for that property to become a good investment. Maybe longer. There are easier ways of making money.
#3. In my area, I figure a few things need to happen before property moves again. First, prices need to come down about 40% to 50% to the point where that $600,000 property is around $300,000 OR incomes have to double or treble in the next 10 years. Doubtful. Very, very doubtful. You can throw in a whole bunch of other stuff which are negatives. Nobody brings up the fact that a lot of “would be” buyers who jumped in on the boom, are now bankrupt. Had the boom been handled correctly (by making buyers put down 10% or 15%) and if there hadn’t been so much greed, fraud and corruption perpetrated by realtors and brokers and appraisers, these would-be homeowners could have moved into property owning and held onto the property. As it is, you can now take that very large “would like to own” segment out of the property owning picture for at least 7 to 10 years and THEN they would need 10% or 15% downpayment.
Bottom line. Now is “NOT A GOOD TIME TO BUY - NOW IS A GOOD TIME TO RENT.”
Thanks Mike looks like I need to be patient. The average rent is maybe 1300 here for a multi family house and that’s in a good area, and there are no houses on the market for 130 ha not even close to that.
Sounds like Missoula. Lots of newer 3/2 or 4/2 for rent for 1200-1300, but for sale at 220k, and I don’t think it’ll be down to 130k anytime soon. In fact, when median was 130k, rents were more like 700/mo.
Hmmm….in San Francisco you can rent an ok 2 BR (SFH) for $2500 month.
I am having trouble imagining that even at the bottom I could find a 2 BR for $250,000. That would be more like 1996 prices.
Would be nice, though.
“Do you predict this will happen everywhere??? It seems like the market where I live (southern NH) is still holding strong.”
This is why job strength is factored in. I see the job situation is still pretty good in Southern NH. People are cutting back on expenses (highways were deserted last weekend) but it seems to me that people have a lot to cut back on (shopping, SUVs, luxury vehicles, Harleys, restaurants, clothes, trips) before they run into problems paying mortgages. Foreclosures are up big on a percentage basis but I don’t think that they’re that bad on an absolute number basis. That is if there’s one foreclosure in a thousand homes and there’s two next year, that’s a 100% increase but not much overall compared to the rest of the population.
I expect gasoline to get to $7 or $8 in a few years and that could make suburban living very unattractive which could drive down housing prices in Southern NH. But as you’ve observed, prices are holding up rather well here.
I have a friend that put down a deposit on a place north of Boston (good school district). They’re going through the inspection process right now. The seller was a little too eager on accepting their offer. He knows that housing is in a bubble and I’ve shown him some of the posts here. But sometimes life doesn’t wait for bubbles to fully pop.
Hey Corpman…. I can tell from your posts you’re not familiar with the northeast. Have no doubt, the current correction will dwarf the ugly 45% price declines in the northeast back in the early 90’s. Sit tight, lose the hair trigger and enjoy the ride. Maybe talk to a couple NH natives who are >45 years old who aren’t thinking their house is going to fund their retirement and you’ll confirm just how ugly it was back then.
Thanks Exeter I will ask around see what I can find out, I will also sit back and wait.
Sat next to a nice guy from Concorde, NH on a plane trip about 10 years ago. He told me a story about how miserable the housing market, the winters, and economy in general, had become in times past. Hard to even give a house away. He was in his 60’s, had enough, and moved to AZ.
Mike, perfectly written summation of the mess.
You’re a smart guy.
“Inflation is now running at about 8% to 10%.”
Really? Based on what? Do you have any citations or any solid numbers to back this up?
Well, if he was going off of “solid” numbers, the official stats would say inflation is somewhere around 2%. But I’m guessing or friend’s numbers come from his own ledger, which exists in the real world, and it tells him inflation is off the charts. Now, if you’re a believer in the official numbers, well then I got a few things I want to sell you.
That’s the hard part - I know that I can’t trust the government’s numbers but personal finances aren’t the most accurate in measuring inflation, either.
Yes. The money draining out of my bank account.
I should also add that in europe they report inflation “reasonably” honestly as opposed to the blatant numbers manipulation practised by the US government and the Fed. They, the europeans and even those in the 51st state of the USA (the UK) openly admit that inflation is running waaaaay higher than the Mickey Mouse Fed numbers.
I believe they started inflating housing in 1995. As with every mania, prices will go below where they started, pre 1995 levels. When you add all of Mike’s comments (i agree with),they should go welllllll beyond this.
Home-Land-Security Director Larry Yun thinks it’s a good time to buy,Home-Land-Security Director Larry Yun thinks it’s a good time to buy,Home-Land-Security Director Larry Yun thinks it’s a good time to buy, Home-Land-Security Director Larry Yun thinks it’s a good time to buy,Home-Land-Security Director Larry Yun thinks it’s a good time to buy,Home-Land-Security Director Larry Yun thinks it’s a good time to buy,Home-Land-Security Director Larry Yun thinks it’s a good time to buy.
(broken record)
You do realize that there will come a time when people just use that term w/o really knowing where it originated (broken record).
In the digital world, describing Yun might be something like: data error, does not compute, data error…
‘She said that the market began to soften in 2006. ‘I believe in my 10-year cycle. We’ll begin to climb out of this next year.’
So prices might fall for three more years?
In Florida and some places where they’re already seriously seriously hurting, maybe they’ll go into negative numbers…like in Cleveland.
10-year cycle, meet your big brother; 60-year cycle
True, there are multiple cycles going on here. I think that we are approaching a trough for several cycles at the same time. A mathematical function called a “wavelet transform” can break down these cycles based on a number of economic indices, assuming an appropriate scaling function. I bet if you summed them up, you would find that this bust was actually inevitable.
“The affordability rate in San Bernardino County is 37 percent right now, she said.”
So 63% cannot afford a home and this lady expects this mess to bottom out next year? I wonder what is the percentage of people living SB county that commute to jobs in LA, OC and SD counties? With gas over $4 soon to be $5 and credit card debt up the wazzoo, I’m sure by next year those 63% will all have their 20% saved up for a down payment on a conventional 30 year fixed rate mortgage.
There really needs to be a more fundamental conversation about home ownership and the type of economy we have. More health care burden and retirement burden is being shifted onto the individual. In our modern “dynamic economy”, I have seen stats that families are expected to move approximately every 5-7 years and hold well over 20 jobs in their lifetimes. As a result, income volatility is also up. Can middle class families really afford the kind of transaction fees that currently exist every 5-7 years (even if prices are halved)? Can they afford not to immediately be able to move? What if they get laid off. . . yet again?
Corporations clearly view people as fungible.
Has anyone noticed that the most emotionally laden aspects of the American Dream (home ownership and retirement) have a host of middle men and other leeches hanging off of them? There is only so much more blood that can be squeezed form this stone. Unless you are already independently wealthy, I think it is insane for a first time homebuyer to buy anything, anywhere. You better be damn sure you are going to have that job for a long time.
Or have a couple of younger brothers and sisters close by to sell the house to in case of the job loss.
—————————————————–
You better be damn sure you are going to have that job for a long time.
The only thing certain is change.
I can see why big politicians such as Shrub are so big on having America become an “ownership” society. Having “things” means you have more responisibility than necessary - responsibility to maintain the upkeep. The more you “have,” the less freedom you have. Once you have an anchor, you are stuck in ever increasing property taxes. You have to learn to tolerate your noisy or trashy next door neighbor. You have to be passive at work and take the punches lest you want to be fired and not be able to make your mortgage payments.
It’s not a shame that we are more mobile. I have a roof over my head here in Maryland. It’s rented, but BFD. It’s not a shame nor a sign of any failure that anyone is renting.
The way to battle the push for becoming a mortgage slave is - to NOT become a mortgage slave. Pay for a house in cash and make sure beforehand that it’s your dream house. Otherwise rent. No one had a gun to anyone’s head and told them to buy a house. People who do not think for themselves always lose because other people are doing the thinking for them, and the decisions are in the second person’s best interest, not the interest of the one who refuses to think.
After owning a 5bd house with a pool renting is so relaxing and just a huge weight off my shoulders.
No more worries about plumbing, roofing, termites, actually ANYTHING. I laugh as I see the windows rust, the HOAs go up, hahahahaha. Owning a house is a pain! Taking care of a pool was really fun. And a huge yard! Oh joy! Now on my days off I can kick back and enjoy life alot more.
Try a 3bd/1 bath 100 year old fixer upper house on 1 full time and 1 part time income. *shutter* It is soooo much easier to rent. (Although I very much like Lost’s squatting plan.)
“host of middle men and other leeches” — absolutely. Thirty years ago one could make some money investing one’s own money, didn’t have to be an Expert to get a reasonable rate of return. Now “investing” is the only game left, and the only people who make money off it are those who are paid the transaction fees, and the true Experts, and the Very Lucky. Retail mortgage lending is one area fortunately still available to private investors, though one has to identify a niche that is safe and that the banks aren’t interested in. (Not so hard. The banks have had the wrong idea about what is safe.)
Can middle class families really afford the kind of transaction fees that currently exist every 5-7 years (even if prices are halved)? Can they afford not to immediately be able to move? What if they get laid off. . . yet again?
exactly
Excellent post, Red Pill.
My take is when you see REAL Auctions, with No reserve and NO shills, and a $200,000 condoze sells at $59K with one bid and it closes, they pay the mortgage tax, and you can verify the sale & price with the city.
And when properties that DO NOT go back to the auction floor due to “problems” with buyer financing.
That’s what I am looking for - real auctions,instead of the fake B.S. ones of today. It happened in the S&L bust and it’ll happen again. Just wish it would get there and done.
hey, they are just as dumb in Canada as they are here.
“But builders say demographics, immigration, government regulation and cultural change will continue to skew demand for housing toward the condominium. Housing hotspots like Calgary may have already burned themselves out in a frenzy of building and soaring prices, but Toronto’s rise as a global city will allow it to ride out any short-term weakness, they say.
“We understand there’s 75,000 people a year for the next 20 years projected to move into the city core,” says Mr. Freed.”
http://www.financialpost.com/story.html?id=552055
Toronto is nice, ethnically diverse, and Canada’s largest city…but economically and culturally more on par with Chicago than New York, though most Ontarians will argue ’til they’re blue in the face otherwise.
There is a huge growth in immigrants all across Canada, as birthrates of white Canadians has sunk to an all time low. However, the people who are moving there are generally not wealthy, have families, and are highly susceptible to relocation should the job market tank. Not exactly the ideal market for multi-zillion dollar condos catering to urban hipsters.
If you really want to hear a more stirring chorus of “We’re Different Here”, go to Canada. The only thing that I might agree with is that while they loosened credit standards, they didn’t have the same degree of lending fraud that we’ve had.
Montreal, at one point, was Canada’s answer to NYC. Financial center and one of the oldest cities, etc. I believe I read that Ottawa was placed essentially equidistant from Montreal/Toronto to settle any sparring over who got to be the capital of Canada.
On a different not, my mother is from Canada. In many sparrings with my uncle, it was pretty obvious that some Anglo-Canadians very much suffered from a “we are significantly different (and superior) from the US in ways that will become clear if we talk about them long enough.” (You’re right: we don’t have Canadian Tires *or* Tim Hortons.)
LOL - Francaphones may be many things, but they never worried about being different from their southern neighbors. It’s doesn’t surprise me that our english Canadian neighbors are good at the “We Different Here” chant - lots of practice in some quarters.
Forget Toronto! Come to Vancouver and you’ll hear it every day “we’re different here”…though it’s a little bit more subdued these days (perhaps we’re coming to the end?) The other day my landlord offered to sell me the place I’m living in. I tried not to smirk at her. Now why would I do that, when if I were to buy I’d have to pay $1400/month more a month for mortgage, strata, property tax, insurance etc. And that’s with a 20% downpayment! The rent is sure hard to beat.
“(You’re right: we don’t have Canadian Tires *or* Tim Hortons.)”
What? No Tim Hohos in the US? Incorrect. Please come to Buffalo and take a few back with ya.. They’re all over the place here.
Toronto equals Minneapolis/St. Paul with public transportation. It is no New York. It’s not even close. Sorry Toronto. I really like your city but it isn’t the Big Apple.
Most Torontonians don’t think the city is parallel to NYC; Chicago’s a much better comparable. The GTA has 5 million people: last I checked, Minneapolis/St Paul was a little smaller than that.
The quoted gentlemen are talking through their hindquarters: they’re builders and Toronto has one of the highest ratios of new condos on the continent, comparable to San Diego or Miami. It’s obvious that there’s a crash coming — all you have to do is count the cranes.
It’s been obvious that the Canadian market is just as shakey as yours: Garth Turner’s website is one of the more prominent commentators — google ‘Greater Fool”.
“The problem for us is nicer homes at lower prices are coming in 1 or 2 at a time and then there are multiple offers where everyone bids asking and higher.
Exactly what I would do if I was a lender and the Federal Reserve was subsidizing my mortgage portfolio. The Fed wants the banks to slowly sell off their bad assets much like they did when they got in trouble with Latin American loans in the late 80’s. Currently, US Banks are in a ton of trouble. On average, every .90 of cash on hand is matched against $1 of bad debt. So the Fed stepped in and allowed the Banks to borrow against these bad loans at full-face value with the “understanding” that will slowly remove the bad loans.
So if I was a bank how would I sell all my foreclosures?
I’d take all the “beaten up” properties and send them to the auction houses. I’d keep the good properties and slowly release them in the marketplace 1 or 2 at a time. Hence, the good properties stand out and retain more value. Mainly, I would take my time. Why not!
The Fed has given no date as to when they will close their “window” for the the banks. It’s hard to say when they will. I imagine this will happen when the banks are good and ready.
..I’d keep the good properties and slowly release them in the marketplace..
Sure, you would if you could.. but it costs a lot of money to hold properties.
Right now, the banks aren’t even mowing the lawns… nor do they care if crack addicts trash the place.
Local governments have yet to gear up and penalize the banks for neglecting their properties… and we’re talking hundreds of thousands, if not millions, of properties. And banks know just about nothing about property management.
So, it’s a bit too early for 1 or 2 properties to attract “multiple offers where everyone bids asking and higher”, imho.
Sure, you would if you could.. but it costs a lot of money to hold properties.
And at some point a kid will point out the details on the Emper’s snazy outfit. Slowing this down actually makes things worse.
Got Popcorn?
Neil
Speed is good as long as you’ve got a good set of brakes.
I imagine that, eventually, the lenders will discover a proper balance that allows them to maintain control over the situation.
After they figure out wtf they actually own or will certainly own, they can calculate what they are able to hold and for how long, what must be unloaded when, and how quickly they can book losses without going under.
‘But now is a good time for first time home buyers to do that too. Waiting can backfire, and then you can end up paying somebody else’s mortgage by way of rent payments.’
Humboldt is without a doubt the last holdout in the state. Most people here are adamant that home prices can’t go down, emboldened especially because they rate of drop of the median (6%) is so much less than the statewide median drop (32%). Like I’ve mentioned before, in my neighborhood, 3 of the 4 listings have sold in the past month, and only one was a foreclosure. Much of the money is coming from LA and SD, but I’m always amazed so many people would want to live in a place like this that is always cloudy, cold, windy, and depressing–with no jobs and a dangerous drug culture. Not really how I want to be spending my retirement.
Aren’t you a realtor Anthony?????
Interesting post with interesting quotes. Yes Riverside will take some time
“She ended by saying that housing ‘is still a wonderful investment, but it’s a long-term investment.’”
That’s the myth of the century. Housing is NOT an investment. You barely get a return above the inflation rate. At best, housing is a very illiquid savings account. I would not doubt that reinvested 3-month T-bills get the same annual gains over several decades. The only difference is the liquidity.
Stocks are an investment and perform much better than T-bills over the long term. Bonds are an investment and do about 2 or 3 percent higher annual gains than T-bills over the long term.
yeah, but they don’t allow cooking or sleeping in a T-bill..
Man, noone ever relays the details of these things.
Yes but at least I’m getting 1.5% on my really crappy MM. Yes I need a better money market but all the good rates are by banks I have zero trust in.
One of my MM accounts was in a sickly bank, and rates were dropping fast.. So, i opened a *checking* acct with Schwab Bank a couple months ago and moved some money.. Advertised as 3.01%… good move, no?
One (1) month later, i got my first statement.. it dropped to 2% .. i’m afraid to look and see what it is today… maybe 1.5 if i’m lucky.
But you know what they say.. low risk, low gain.
For many people buying a home was and will be one of their better financial decisions. The key is to making a smart buying decision and not getting caught up in emotions and hype.
If more people were willing to save money on a regular basis, it might be different. But we all know that is not the case, so for many millions their 30 year payment to the bank is their ticket to having something at the end of the line.
Plus they have a place to live as long as they make their mortgage payment, pay their taxes and insurance.
The suckee part of buying a home as an ‘investment’ (or using mortgage payments as a forced savings acct) is the need to borrow money to do it.
Whatever amount is borrowed, around twice that amount has to be repaid. So, there’s a 50% loss off the top of this investment.
In my mind, the justification is that you’ve gotta live somewhere anyway, and rent is going to cost around the same as mortgage payments. Half is investment and half is pissed away as rent.
But every $1,000 borrowed for 30 yrs costs $2,000.
So every $1,000 someone can accumulate and then put in as a down payment is equivlant to putting an extra $1,000 in the home-savings account. You could actually add the $1,000 you don’t have to pay in interest to a real savings account… though it’d be more profitable to make extra mortgage payments
Money not-spent by making wise choices is the same as money earned. Saving up the largest possible down payment is one of those choices, imo.
For me the trick is saving enough upfront, get a 15 yr fixed instead of a 30 and then only a purchase a place cheap enough that you can still toss 25 to 30% into the 401k.
I’m also a huge fan of making one or two extra payments a year applied directly to principle. But that means if you can’t stretch to your max DTI limit and not many people have that kind of discipline.
Your plan is good in a deflationary environment, as you pay down your debt sooner and save on interest payments. If inflation is going to go through the roof in the period over which you will repay your home, it could be better to make smaller payments up front and pay off the debt with less valuable dollars later on, as the later a payment is made, the less it might be worth in Bernanke dollars.
Good post. In an environment of falling interest rates, money saved is increasingly viewed as a liability, but that is only true if inflation runs rampant.
IMO, inflationary pressures are temporary, and we’ll see prices crash once Wall St. is allowed to crash (which Bernanke is resisting mightily with taxpayer dollars).
I think that in any deflationary environment, cash is king.
As you noted, it’s either good to have a large downpayment or make extra mortgage payments to minimize the borrowing costs. We paid extra every year we had a mortgage and eventually “extracted” the equity the old fashioned way by selling it.
What amazes me is how easily the “how much a month” club got talked into ownership “premimums” that made ownership more expensive per month than renting. I guess the promise of endless appreciation made it worth the hit to the monthly budget.
My sense in talking to people is that some now expect that owning is always more costly per month than renting. I even attempted to explain to one how you build wealth while rents were lower than owning (saving the difference between the rent/mortgage.) She assumed that it was so you could easily afford the higher mortgage costs at the end, instead of waiting for houses to come down.
For me, it’s nice and weird that I can build wealth and let someone else worry about the plumbing, lawn mowing, etc. By owning, we did all those things to save money and build wealth. In backwards universe (ie house bubble era), I let other people do our work *and* save money. Mind blowing stuff.
VTgal, it sucks that the gov’t actually is discouraging saving with low interest rates right now. They have openly admitted this by sending out $600 Walmart gift certificates, hoping we will spend our way out of this recession.
I also wanted to point out that not only did people get into trouble with over-priced homes because they expected ongoing appreciation, but many people bought them because they wanted a neighborhood that priced out the riff-raff. The funny thing is, they could have achieved the same objective by forming an HOA that only allowed mortgages from a small set of lender with a high downpayment (like 30%), and not risked the foreclosure problem that so many exclusive communities now have, which are dropping everyone’s prices.
because they wanted neighborhood that priced out the riff-raff. The funny thing is, they could have achieved the same objective by forming an HOA that only allowed mortgages from a small set of lender with a high downpayment (like 30%), and not risked the foreclosure problem that so many exclusive communities now have, which are dropping everyone’s prices.
The problem I see with that plan is that many high income families live in the same paycheck to paycheck manner as low income families. 30% down quite possibly could have excluded most of the neighborhood. They have all the trappings of wealth, but if push came to shove in an emergency, out comes Mr. Mastercard.
Part of why I like hanging out here is that I see I want to be when I grow up.
There’s lots of people here who have little use for the trappings of wealth. Instead, money is a tool that buys peace of mind and opportunities to run businesses, do good works, etc.
Right now, we’re more serious then ever about getting out of CA. If we had bought into the hype in the Davis, we’d be trapped here.
On the CME, the housing future contract for Nov, 2012 is asking 10% less than the Nov, 2008. This is for San Diego. (If a buyer bought the housing future for Nov 2012 when I last posted, they would be down around 75K) The current asking price is 146.80 When it was first listed, the price was 237 and change. So far buyers of the futures on housing have been gasping for air.
There are a lot of cities covered by the housing contracts. Not one of the
cities is pricing a bounce through Nov 2012 (last month offered.)
Fridays settlement prices San Diego
AUG08 —- UNCH 174.80
NOV12 —- UNCH 151.00
You take away the navy, and San Diego’s just a warmer Cleveland…
Hoz — I assume these contracts are quoted in nominal dollars? Inflation (possibly with and due to dollar devaluation) at a high and accelerating rate between now and 2012 could make a 10 pct nominal price decline look far worse in real purchasing power terms.
For example to hedge a current house price of $1MM in Nov 2012 it would require 7 contracts. or $739K in 2012 it is not 1:1
Also the Aug and Nov 2008 contracts are currently 10% and 15% under spot market.
Does this mean Mr Market is pricing in a 15 pct further price decline by Nov 2008? Let’s do a bit o’ math: 11-5 = 6 mos;
((1-0.15)^2-1)*100 = 28 pct annualized rate of price decline implied forecast from the futures market through this Nov???
“‘What you all want to know, I’m sure, is when we’ll hit bottom,’ she said. ‘The news coming from the industry is we’re getting close.’”
She must have meant the bottom of the rate of home price appreciation (recently down to -18 pct real price http://www.economist.com/world/na/displaystory.cfm?story_id=11453745
on a national basis for the U.S. — the most rapid rate of price decline in history).
P.S. I have been wondering whether “dropping a brick” qualifies as a double entendre in the British vernacular? An unpleasant image comes into my mind every time I read that phrase in print.
Horses are now victims of the housing collapse.
http://www.time.com/time/nation/article/0,8599,1809950,00.html?cnn=yes
The global food and fuel crisis is resulting in more than just people going hungry. Rising grain and gas prices, as well as the closure of American slaughterhouses, have contributed to a virtual stampede of horses being abandoned — some starving — and turned loose into the deserts and plains of the West to die cruel and lonesome deaths.
“It’s a growing problem. Basically, it’s the economy,” says Brent Glover, who has run Idaho’s Orphan Acres since 1975, and has found new homes for 1,600 rescued horses. “We’re getting calls constantly.” With more horses coming onto his 50-acre refuge, he is feeling the pinch of a hay bill that has risen from $28,000 to $80,000 this year, not to mention rising transportation and grain costs. “It’s a horrible mess of bad consequences,” says Colorado State University animal sciences Professor Temple Grandin. “People are turning them loose because of the decline in discretionary spending.”
No horse slaughterhouses in the U.S.? How did that happen?
Animal rights activists - you have to ship them to slaughterhouses in Canada or Mexico.
IMO, if banks continue to adhere to stricter lending standards, then prices will drop. However, loosen the reins and its away we go again.
The 6-10 times income, I read about in Europe, Japan and Aust/NZ is getting very scary when price drops should be more than what we’ve seen so far. I fear the U.S. lenders look at Europe and think, maybe, we could have a go at it again.
re: Riverside poster’s original question …. I drove around this afternoon in the Rio Vista neighborhood of Cathedral City (lower middle/working class tract homes), next to Palm Springs. Every block had three or four foreclosed homes. On one block I counted nine foreclosures. However, barely one fourth of them had bank signs (I knew they were foreclosures by their obvious state of abandonment.) What will happen to prices when the banks finally, finally unload all this ? (and of course, there will be many more going REO in the meantime.) Anyone who thinks the bottom has come in Southern California has simply not left their house in a while (maybe because of the gas prices!) I would not buy in Riverside county for at least a year. It has to get worse. It has to get a lot worse. The people who are bidding now for these slightly cheaper houses are being very foolish and will quickly disappear underwater.
“What will happen to prices when banks finally, finally unload all of this?”
What will happen to the banks when they finally, finally unload all of this from their balance sheets.
The “b” in the term “fb” will then stand for banker.
Some of the California central coast prices are getting to “not quite as outlandish as they used to be.” Some of the low end areas are 40-50% off peak if you buy a REO. Of course, the low end was the demographic most affected by the loony loan practices, so the peak prices were completely outlandish. Yeah, $650K for a 2/1 900 sq ft built in 1948 was reasonable. Interestingly some of the older SFRs are underpricing condos.
Still a ton of foreclosures and NODs coming in, though, so it’s going to go lower. And lower still if a recession hits. A lot of the central coast is second and retirement homes, and those are going to have a bigger hit from the decline in the core markets of San Diego, LA and SF.
I think that at least some areas of Riverside have come down to more reasonable prices. I sold my house in Riverside in 2005 and moved out of state (thank goodness).
2004 I bought my house for 175k.
2005 I sold my house for 225k. (50k gain in one year, nice)
2006-2007 prices spike to 390-ish, maybe some 400k+
Here’s a house with the identical layout on the same street:
Dec. 2007 they put on market for $370k
http://riverside-california.olx.com/beautiful-4-br-home-for-sale-6475-avenida-mariposa-iid-6396123
June 2008 they’ve reduced the price to $275k
http://www.movoto.com/real-estate/homes-for-sale/CA/Riverside/6475-Avenida-Mariposa-202_K07166590.htm
So, in short, five years ago I sold my house for 225. Now an identical house (but nicer) is for sale for $275. I made 50k in a year, now it’s up 50k from that in FIVE years. Prices are coming down to something more reasonable.
However, when I paid 175, similar houses had sold for 140 within the last six months of that. That means there still may be a ways to drop before coming in line with inflation. What’s inflation on $140k for six years? That’s the inflation-adjusted price of the house, and probably the bottom of the market?