‘Mismatch In Timing’ Turns Flippers To ‘Plan B’
The Wall Street Journal has this report on flippers. “Home sales have been slowing for several months, but real-estate agents in some of these formerly red-hot markets have been surprised at how suddenly market conditions have deteriorated in the past few months. But for cities like Fort Lauderdale, Fla., Phoenix and San Diego, the dropoff in sales and rising supply of homes on the market could soon put downward pressure on prices.”
“Todd Linsley, a 37-year-old investor, bought a three-bedroom house in Stuart, Fla., for about $318,000 in late 2005. His original plan was to quickly flip the property by selling it for as high as $425,000. But when he saw that the market was turning, he decided to list the home for $379,900. It’s been on the market since early January with no takers.”
“Mr. Linsley says home builders keep discounting unsold houses in the neighborhood, sometimes axing as much as $100,000 off the original asking price. He says he can’t afford to go that low. So now he’s renting his investment house out for $1,000 a month, while paying a $2,045 monthly mortgage and a $108 monthly homeowner’s association fee. ‘My Plan B was always to rent it out. I am not going to lose my shirt,’ says Mr. Linsley.”
“Some Floridians blame the media and even Wall Street for scaring people away. Mr. Linsley recalled a headline in a local paper declaring that the local housing market was overvalued. The headline type was so bold that it looked as if the nation had just declared war. ‘The media is killing the investors,’ Mr. Linsley says.”
“‘Things have slowed to a crawl,’ says Mike Morgan, a broker in Stuart, Fla. Mr. Morgan says that ‘we went three days this week with not a single showing. That’s incredible. I have 35 listings. We usually get 2-6 showings a day….I received more desperate calls from sellers than ever. One lady broke down into tears. Her husband bought two investment properties, and they are now going to lose their ‘life savings’ if they sell the homes in today’s market.’”
‘The media is killing the investors,’ Mr. Linsley says.
No.. You were too stupid and bought a $200000 property for $315000 at the top of the worst real estate bubble in 100 years. YOU were too greedy and thought that YOU could make an easy $100000 and have the NEXT sucker worry about getting stuck with an overpriced POS. But guess what? YOU are the sucker that got stuck when the music stopped playing.
Agreed. But according to Prof Shiller and the Economist Magazine this is the biggest bubble in history, not just 100 years.
“‘My Plan B was always to rent it out. I am not going to lose my shirt,’ says Mr. Linsley.”
But spending $12,000 a year until the cows come home is a great way not to lose money.
And $12500/yr assumes NO maintenance and 100% occupancy. Wait until he either can’t get a renter,(and somebody who overestimates the sale value of a property is pretty likely to overestimate the going rental rate) or some dirtbag stiffs him for a few months until either evicted or does a midnight moveout.
People may object to the schadenfreude on these blogs, but this kind of stupidity and complete ignorance of fundamentals is setting us all up for pain when the coming recession is much deeper and longer than would have been the case without this mania. All of these “investors” paying interest to loose equity are indicitive of a HUGE misallocation of future resources. The economy as a whole will be paying for this for many years to come, and at a time when the baby boomers will be wanting to retire.
All of these “investors” paying interest to loose equity are indicitive of a HUGE misallocation of future resources.
Agree. Plus a huge misallocation of current resources. Right now, there are WAY too many RE agents, lenders, and others in the RE industry. They’ve been lured in by prices that have been (artificially) high. Plus, all those “investors” who are making stupid labor/saving decisions based on their expected RE gains.
This is why bubbles are bad–people make wrong (unsustainable) decisions. I really don’t care that some people win big and some people lose big in the bubble.
This nails the reasons the Fed ought to worry about “economic imbalance” and “systemic risk” related to the huge misallocation of society’s resources into real estate…
Don’t forget the mortgage is probably adjustable. Those payments could go up in an awful big hurry the way things are looking with the bonds.
He’s in trouble, but it doesn’t look like he’s in “floating debt that you can’t afford at 2% let alone 5% trouble”. At a 100% loan, his monthly payment represents a debt service constant of 7.7%. If he put anything down, the constant goes up. Anyway, the mortgage he’s paying seems more indicative of a more traditional loan than some crazy ARM.
Amen. I have no pity for flippers. I feel sorry for the family’s that bought in the bubble areas in 04 & 05 and will be upside down soon. Life’s savings will be wiped out. Probably an increase in divorces too. Husband’s blaming wives for their nesting instincts. Wives blaming husbands for their “real estate investments” really uneducated gambling.
On the bright side, Dr Phil’s ratings will soar if he does shows on how to deal with the aftermath of the bust.
Definitely an increase in divorces.
Think about all the people that didn’t buy or flip, but papered over marital issues with the housing ATM.
Wife unhappy? Here’s some diamonds and a new kitchen! Husband unhappy? Here’s a vacation and a new Hummer! Don’t have to work so hard when the house is doing it for you.
OTOH, when equity is disappearing, retirement is fading, and there’s no new toys to appease the other half… look out! The stress of a shrinking (or negative) net worth alone will sever relationships even if all the payments can be made.
Of course, all these divorces will mean even more inventory…
You make a good point.
I’m told that sometime in distant history, single-income households were the norm.
Now, dual-income households are “now typical“.
And prices in 04 and 05 were a stretch for most dual-income households as it was.
Once trouble starts and one spouse walks, the house will be the first thing that goes (either through foreclosure or MLS).
Well, with more divorces, there will be more housing needed. Might help to find those renters. You have a 4 bedroom house that you can’t afford, you rent out a room to a divorced husband who has nowhere else to go . . .
F_ckin A.
‘The media is killing the investors,’ Mr. Linsley says.
This is reminiscent of Jeff Skilling’s testimony this week of how a media generated panic brought down Enron.
Nobody complained while the media kept trumpeting how property values were soaring, did they. Buyers could have complained that the media was distorting the true value of real estate but they didn’t.
I’d love to know the percentage of these real estate investors who were day-traders during the dot-com days.
I would think having been a day-trader would have made them more cautious. Also in my experience, real estate flippers don’t know a stock from a paper bag.
If he had been a day-trader, he would have lowered the price until it sold. A day trader knows not to convert trades into “investments”. When it is time to leave, you take what you can get.
Real estate investors® are have 100000% more penetration than day traders. Every out-of-work/under-employed artist, actor and novelist is a real estate agent in California.
“His original plan was to quickly flip the property by selling it for as high as $425,000″
So, does this sound like a real plan? I mean, real investment plans, at least in my experience, require a little more conscious effort, risk analysis, what-ifs… than simply blindly picking a number that conveniently nets $100K in 3 months.
This douchebag deserves to be an f@cked debtor, heading to BK. Deserves every bit of the fate that awaits him after his lender serves him his final notice…
Exactly, no pity for this scum!
So the flippers are going to loser their shirt, eh?
Too f***ing bad. They weren’t worried about buyers losing their shirts paying ridiculously inflated prices so long as they got theirs.
May they all rot in their “investment” houses.
…and did he complain about the “media” when they drove the bubble up?
No one is killing investors except for their own greed. Mr Linsley, you are a F*@king idiot.
Specuvestors like yourselves (Linsley) are the reason you have your tit in the ringer. If you don’t have the intellegence to play in the market, bend over and take it like a man.
Just when you think you have seen everything…Along come someone like this. Only more to come in the near future, widening our horizons on how ignorant someone can be.
“I received more desperate calls from sellers than ever. One lady broke down into tears. Her husband bought two investment properties, and they are now going to lose their ‘life savings’ if they sell the homes in today’s market.’”
Awesome.
They probably put no money down, so they probably didn’t “lose” anything exept their anticipated gains. Sweet.
They may very well lose their life savings. At best they will likely have significant negative cash flow, and whether they try to sell the 2 houses now or later they will probably have to come to the table with a huge check. It will either be that or bankruptcy.
Yes there has been greed, but there will be even more hurt and it will spread around the country like the 1918 flu epidemic. The ripple effect could even impact people on this blog.
It will be a much needed, albeit painful correction. Awesome is not a word you will use to describe this debacle in years to come, believe me.
IMHO when I read comments like “blood in the streets” and “no sympathy” - I ignore the rest of the writing. I think I am older than many writers here - whether flipper or just wanting to own a home. What rational individual wants to see anyone financially ruined. If this housing collapse becomes the economic morass that Shiller and others project, none of us will be immune to the suffering around us. There is nothing funny in foreclosure or BK, there is also nothing funny in being priced out of affordable housing because of real estate shills with outlandish statements. such as “real estate only goes up”
Remember the first trading day after 9/11? The DJIA went down 1000 points. Intellectually, I knew it was a great opportunity to make money. Emotionally — who cared, making money seemed such a small thing that day.
Intellectually I can know that the housing market is in a fundamental state of disconnect and there is likely to be a wrenching readjustment. And I can make a more shrewd housing decision as a result of that knowledge. At the same time I can laugh with schadenfreude at the flippers and sympathy for dumb-as-toast homebuyers caught up in the frenzy.
There is no way I could possibly disagree more. These people DESERVE everything they are getting and more. What you’re failing to recognize is that flippers that are cryin’ da blues when they say “we are going to lose our life savings” or; “we’re going to lose our retirement” what they actually mean is that they are going to lose their EARLY retirement. There have been several very good, well written articles about THE UNITED STATES of REAL ESTATE where we no longer produce manufacture or invevt anything. All we do anymore is slap up houses and then flip them to one another is some sort of ponzi scheme and then call it an “economy”. This had to end. For those with visions of easy money it will end badly. And no, this will not drag the rest of us down with it! I’m quite happy being a lowly renter and when the dust settles I swoop in and take my pick. This is simply Darwin at his best.
Amen my friend……Amen. At the end of the day, a tulip is a tulip.
There is no way I could possibly disagree more. These people DESERVE everything they are getting and more. What you’re failing to recognize is that flippers that are cryin’ da blues when they say “we are going to lose our life savings” or; “we’re going to lose our retirement” what they actually mean is that they are going to lose their EARLY retirement.
…For those with visions of easy money it will end badly. And no, this will not drag the rest of us down with it! I’m quite happy being a lowly renter and when the dust settles I swoop in and take my pick. This is simply Darwin at his best.
Yes, Yes & YES!!!
Where was the flipper sympathy for me when I and millions of others like me were priced out of the market due to their rampant greed & recklessness? Instead, for the last 3 years all I’ve heard is what a jealous bitter loser I am, and what an idiot that I didn’t buy 30 spec condos using 107% LTV neg-am loans like these geniuses.
Payback’s a bitch!
I want to see the flippers, stupid unqualified buyers, appraisers, RE agents, mortgage brokers, all to be phucked. It’s one thing to speculate and push of the price of gold, a bond, a tulip, or a stock. It’s quite another to artificially raise the price of shelter, a basic human necessity. Phuck them.
My hope is that the impact to the economy in general is small. I think it’ll cause a recession and maybe even a depression.
The price of shelter has hardly moved (as evidenced by rents in most areas).
I’m talking about the price of owning that shelter.
The price of owning shelter and the price of shelter are two very different things. Speculating on the future price of owning your shelter is not a basic human necessity.
Without offending anyone one may I raise a point and vent what I feel.
When 70% of household actually owns home, that by defination makes it a part of life’s need, is it not? Is it not true after getting a job finding a life partner, we all want to build a nest, where we can raise our kids, a place we can call our own. Where I can plant a rose bush or fruit tree and watch them give fruit and flower year after year. Then our memory gets tied to that place, even when the kids left, we linger on.
Is it not part of our emotional need, DENIED by the speculative activity of the samrt, greedy and shrewed?
When that circuit city salesmen could corner $2million worth of property on his 50k salary, did he not increase the price of a home for me, which at twice the income I can not afford.
What Risk did he take with 5% or 0% down. in California you can walk away from your loan, I am told.
If the buyers were qualified with their income to show their paying capablity, I would have NO PROBLEM with this real estate price escalation. Only income they could have showed is the rental from their PREVIOUS property, which actually did not cover the monthly mortgage payment for that property.
I do not think his monthly income and his monthly liability was taken into account before giving him the Fourth Loan.
That in turn made one more house less available to buyers like me, who was buying to stay and LIVE on that house. So I have to see my monthly income and what I can pay for mortage.
I agree that we ALL will be affecetd if an economic downturn to appear. And I do have sympathy for a individual family, if they are in despair and financial ruin.
But why should I have any sympathy for those SPECULATIVE CLASS OF PEOPLE as a group. Why should I wish to see they keep $500K in easymony earned over few years?
I went to unversity, it will take me 30 years to save that much money.
Why should I have good wishes for all of them.
People who Live by the sword, may die by the sword.
So some of the speculators WILL keep their $500K. Good for them. Nobody can or should take that away.
And some of them, will loose their $30 k or $100k as selliing cost, or due to the negative cash flow over 1 year. ( and for many 35-40 year old THAT Will be LIFE SAVING)
For them, too bad, the are getting EXACTLY what was DUE to their own action.
The govt (tax payer) should not come to their rescue, as the Govt. will not come out with a program to help me buy me a house. The house is $680K which was $325k in 2002.
What am I missing?
Amen –sing it brother!
So you cant raise kids in a rental home?
The WSJ purposefully put ‘life savings’ in quotes. There is considerable doubt that any savings were involved, given readily available 0% financing for housing market gambling activity.
The fools thought all the money there were going to make off of flipping those houses was their “life savings”. The option payment on their ARMs is probably the first money they have ever put towards “savings” or retirement in their life.
The callousness shown on this blog is pretty apalling. People losing their life savings because of a lapse of reason is not awesome. Life has a way of putting you on the wrong side of the tracks even when you make all the right decisions so be careful.
“The callousness shown on this blog is pretty appalling.”
Could not agree more. Some of these comments make me embarrassed to be a participant. OK, everyone throw tomatoes at me.
No tomatoes here, just reminding you that there is a lot of frustration on this blog. I, for instance, am a young guy living in Southern California of all place, and was stuck watching my chance of having the american dream.
There are also people here who may be a little upset that they “missed the boat” so to speak, on the easy money.
Finally, There are people who go by the books and still see punk kids (my age range) with a new sports car, big house, and “investment” properties because they got in at the right time with a loan they shouldn’t have qualified for in the first place.
Like it or not, the concept of fair is entwined into human DNA. When we see things that are “unfair,” whatever that may be, we get upset.
It is simple frustration.
SPLAT!
Seriously, I’m just a bitter renter who’s afraid she’ll be paying for the bad life choices made by others, in the form of government relief. That makes me a teensy bit angry.
Couldn’t disagree with you or tauceti96 more. Life is a bitch, ain’t it? Those FOOLS took a risk to a get rich quick scheme and now must pay for their greed. All of this at the expense of the ones who have sat there watching their American dream disappear in front of their eyes in less than 2-3 years (for many of us here in California). Do you really think that I have an ounce of sympathy for these FOOLS who went out to grab as many homes as they could- some who bought as many as 15 homes on a tract. Nah… rot and burn as far as I care.
Agreed, sometimes the posters on this board are overly callous. It’s the bitter backlash against the triumphalism that has been shoved in our faces by home buyers, realtors, etc. since this bubble began.
I’m glad to see my opinions about this housing bubble are just now being vindicated but I feel no need to rub people’s faces in it. Except for jerk like Mr. Linsley in the article above. Speculators with a sense of entitlement like him deserve what they get.
For every winner there are several losers. What about the losers of the real estate boom the past 5 years? You know, the hard-working people who were priced out of the market because of other peoples greed? Greed has a way of turning on people and serving them back two-fold so don’t expect anything different.
Amen. No sympathy for the greed and pride of today’s homeowners.
The market and the world is a callous place.
The sooner you reconcile the pollyanna care for everyone noise with the actual operation of the world, the sooner you will be able to deal with the cognitive dissonance between a deeply held irrational belief that doesn’t square with the larger world.
I have zero tolerance for internet morality lectures.
Why don’t you pollyanna’s give me a couple hundred grand to buy a house if you care about people so much?
Many people would like to dismiss this blog as simply a forum for the whining of a bunch of alienated renters. Some of the comments here give support to that view.
This is the only place not dominated by the Realtor propaganda machine.
If you don’t like it, get out of here.
Quite frankly I found the article hilarious. I hope we get a few more stories about these freaking morons losing their life savings.
The more people lose, the more I win. Cheaper Beamers for all!
Here is a word of caution for you, from the Bible:
“Pride goes before destruction, and a haughty spirit before a fall.”
Everytime I think about this article I laugh. This is one of the funniest things I’ve read in years.
Does Plan B stand for Plan Broke?
HFA: LOL! I totally agree with you.
Answer a fool according to his folly, or he will be wise in his own eyes.
Proverbs 26:4
Nice one! Who says the Bible has no wisdom to confer… (Hedgie, maybe you ought to talk to some of those nice Mormon missionaries. They might have something important to teach you
)
wisdom.
Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase.
Proverbs 13:11 (”Chapter 13″, eh? Appropriate.)
Cast your bread upon the waters. 7, 8 directions. In other words, DIVERSIFY your “investments”. Solomon had great investment advice. Rolling all your investment into one basket (real estate) is just - plain - foolish.
Sunset-
The actual operation of the world is that you appear to be a loser. Isn’t great that you can post on the Internet, rather than whining with a bunch of “friends” who know for sure that you’re a loser.
We have crossed swords before. If I recall correctly you were calling me names, like gay and loser.
You don’t know me and I don’t know you.
I cannot check the veracity of your comments and you cannot check mine so just stop with the morality lectures.
MJH said it more eloquently than me.
“The callousness shown by that lion eating that zebra is appalling.”
LOL. Great quote.
The specuvestors deserve whatever ill befalls them, and I’ll reserve my pity for the working poor who cannot afford housing, not for greedy fools who squandered what they had.
Like it or not, more severe ‘whining’ and desperate measures will be coming from current speculators left holding the bag. The stuff here will look mild in comparison come a year from now.
This seems unrealistic. We have one world and are really all one tribe. The reason this happened seems to have more to do with market distortion than anything else. Rates should not have been allowed to stay that low for that long. Greater regulation over borrowing practicies would have prevented much of this, and a more full disclosure of historical prices would also help. The fraud coming to light shows that more strict control over property deed transfers and identity verification is needed.
This happened because the rules by which people have been trading are flawed. The fallout will damage all of us. The flippers may deserve to fail, but we have a strong stake in wishing them a speedy and full recovery and effective learning process.
What may cause some of the seemingly callousness comments on this blog is the concern that emotial pleas such as this one will result in our tax dollars bailing these foolish people out. I’ll offer a hug, but not my paycheck.
Honestly I am pretty sick of hearing all about flipping and real estate on tv. As far as I am concerned i expressed my views and warnings to freinds and family and they still were sucked into real estate mania…
If you bought a house to live in with your family, great move, just plan on being there for a while.
If you bought a dozen homes in Orlando hoping to flip them, you would be pretty stupid to think the flipping game would go on forever. It had to stop somewhere, the media has been warning of prices platueing, you should have figure that out, that when prices peak every investor is going to come out of the wood work and sell at the same time.
I have trouble with the crying bit.
Some friends of ours were stuck buying in the frenzy. 435K for a house that was built 1.5 year before for 269K.
They kept on losing bid after bid so to get the house they bid the asking price.
Apparently the woman seller started to cry like a baby… because it meant they had priced the house too low!
Exactly. Homeowners are a powerful political group. They’ve already voted themselves tax breaks, and they’ll vote themselves bailouts when there are enough of them. Be ready for it.
It’s human nature to wish bad things on the greedy and the foolish.
Ah…
The “greedy and foolish” must surely include the venture (capital) “idiot” community out here in the SF Bay Area, circa 1996-2001.
I think the problems CREATED by these “investors/speculators” is appalling, and if they lose their shirts while playing this game, there will be no sympathy from my side. I feel bad for the real homeowners, who actually want a home to raise a family, and had to stretch themselves.
A good example is Orlando, where the condo conversions have gotten rid of most of the good apartments. Now these overpriced “condos” are sitting empty and all the leftover apartments are full. Problems like these have been caused by these greedy “investors”. Easy come easy go. You play with fire, you can get burnt.
“The callousness shown by that lion eating that zebra is appalling.”
Your comment about life putting you on the wrong side of the tracks is completely wrong. This whole bubble has been generated the inability for people to make proper decisions, and likely perpetuated by people unable to learn from prior bad decisions. By definition, if you make a decision that “puts you on the wrong side of the tracks” as you put it, then it was a bad decision. The proper response to that is to go back, re-evaluate, and note to yourself the deficiencies in your decision-making, faulty assumptions, etc. Once you have done that, you seek to avoid making that same mistake again.
It was clear to every literate American adult in 2001 the consequences of the equities bubble, yet we have a 37 year old man buying real estate to flip, assuming he is entitled to a massive gain. Multiply this idjit by 100’s of 1000’s and realize that folks like those on this blog, who LEARNED their lesson and did NOT participate in the RE mania based on making the RIGHT decision, will be expected to underwrite the idiocy of the millions of “investors”.
I agree. Our government long ago decided to adopt policies which teach its citizens to make poor decisions, with the guarantee that they will not suffer the consequences. The appalling thing about the bubble is that it encouraged so many people to go down that path; the individual tragedies are a foregone conclusion.
An example, and not “long ago”, is Fed policy from October 2001 until June 2004.
I didn’t used to feel this way, but it’s obvious now - the result of which almost all of us will be dealing with on some level for years to come.
now is the time to wish the republican congress stays so these flippers never get any bail out or sympathy.
“now is the time to wish the republican congress stays so these flippers never get any bail out or sympathy.”
Now that is some of the dumbest shit I’ve heard on this blog.
Well, it’s these folks “lapse of reason” that have doubled my property tax in two years. These folks greed is OK, but my Schadenfreude is not?
If you reflect on the fact that many people were just gambling with other peoples’ money, it seems less appalling (or does it?).
“The callousness shown on this blog is pretty apalling. People losing their life savings because of a lapse of reason is not awesome. Life has a way of putting you on the wrong side of the tracks even when you make all the right decisions so be careful.”
Don’t forget that these flippers were more than willing to make “a killing” by taking advantage of the next buyer, maybe a young family simply wanting a home to raise their children. I have no pity at all for these scum as the innocent taxpayers will likely be involved in a bailout.
I’m not embarrassed at all. I won’t even be hitting the “tip” jar when these losers are on the sidewalk dancing for booze.
OT, but (almost) funny:
Americans’ inflated expectations blamed for overspending
“One of the biggest money problems for Americans today is overspending on parakeet funerals.”
You are DEAD!! You greedy, stupid, overdebted SOB!
I will send some flowers to your funeral.
yep. “i won’t forget to put roses on your grave…”
‘The media is killing the investors,’ Mr. Linsley says.’ Someone really needs to follow this idiot. Interesting how this quote ‘investor’ wants to blame anyone or anything for his lack of investment knowledge.
‘My Plan B was always to rent it out. I am not going to lose my shirt,’ says Mr. Linsley.” No Mr. Linsley you are not loosing your shirt, you are loosing all your clothes and probably your car too.
Yes. Blame everyone but yourself. It works in the short term for countries and politicians, so why not investors?
This clown still wants $60k more then he paid for it less then 6 months ago. I really hope my tax dollars don’t go to pulling his chestnuts out of the fire.
Investor? Sounds more like a future Outvestor, as in the blue one he’ll be wearing at Walmart.
Again, these flippers, particularly the ones who do no repairs add absolutely no value to society. So it’s hard to have any sympathy.
Well, right now he’s providing subsidized housing. ; -) Soon he’ll be providing an object lesson, and maybe his grandkids will listen when he tells them about the great crash.
thats a good one
Where is Carlton Sheets to help you now??
OK everybody. Now move to “Plan B”
now he’s renting his investment house out for $1,000 a month, while paying a $2,045 monthly mortgage and a $108 monthly homeowner’s association fee. ‘My Plan B was always to rent it out. I am not going to lose my shirt,’ says Mr. Linsley.”
Only his pants Yes. Every great investor purposely loses $1,200 a month and is proud to have a cash flow negative “investment” in a declining market.
What’s plan A? Lose $3k a month indefinitely? Or lose $60k all at once?
I believe you left out taxes, insurance, and maintenance. Not to mention the costs of debt counseling and sleeping pills.
“…One lady broke down into tears. Her husband bought two investment properties, and they are now going to lose their ‘life savings’ if they sell the homes in today’s market.’…”
No pity from me.
I need some bloggers here to talk me off the ledge. I’m going thru a funk where I’m actually believing all the naysayers around me who tell me I’m an idiot to be sitting here waiting for prices to fall. I read all the articles and comments on this blog and feel empowered in my belief that, yes, prices will come down. But the market isn’t showing me that and I’m definitely in the minority around here thinking this way.
If I were married and my spouse made even just what I make (which is pretty average), I’d be able to buy. So is that what real estate has become? A prize reserved only for marrieds or super rich singles? Seems to me a single mom like me - making an average salary, with a fair amount of savings for a downpayment, zero debt, excellent FICO score - should be able to at the very least find a nice, little, 2BR townhouse. But I can’t! Note that 5, 10, 20 years ago I could have easily. But not anymore!
So I ask you all, because I TRULY value your opinions - can you talk me off this ledge? Because I’m ready to jump…
Resisting the herd is hard but it *will* pay off. Take a look at the surge of inventory around you. This is the classic sign of the end of a bubble - the moment everyone becomes a seller and there are no buyers.
Here’s another thing to think about - we are just now seeing year over year price declines. For the past 5-8 years we have been seeing nothing but huge gains, huge momentum. When this thing reverses course, it’s going to be huge momentum in the opposite direction. The spike in inventory is a tip-off that this is already occurring.
Why buy now when it will be cheaper next month? Sellers are getting desperate and they will only get more desperate as their mortgage payments rise and more properties become available.
Don’t forget the carnage over the next 18 months as the short term arms taken out in 03 and 04 reset. I can just see it now. “You mean the 2% increase means my interest rate increases 2%, not the amount of my mortgage payment”. Says Joe sixpack as his ARM payment he can barely cover at $1500 a months resets to $2k plus.
E Coaster,
Think about what your current mindset reveals. The fact that you are ready to capitulate indicates that the mania is close to an end. This is the BIGGEST BUBBLE IN HISTORY and it is not sustainable, your ability to withstand the psychological effects of the groupthink, media inspired consensus opinion will be richly rewarded if you keep your head down and keep saving.
It’s nobody’s job here to talk you down from your ledge. This is your decision, and you will bear the rewards and the consequences.
Personally, I always cheer for ledge/bridge-standers to go ahead and jump. And I’m rooting for you to buy your house. You can do it!
Wait - The economic turn is slow to develop, but the turn is here. Rising listings, fewer sales = downward price adjustment. Economics 101
There has not been a time in the last fifteen years when it makes more sense to wait and see what happens. Hell, we may have to go back to 1930 when it make less sense to buy. Don’t pull the trigger on that house purchase.
Even if prices stay flat for ten years, inflation will erode the real value. Rents will not rise quickly, so you can save a bigger downpayment.
Eastcoaster - where do you live? All real estate, like politics, is local. We can’t help you without knowing that. But I’ll tell you this - if prices have been going through the roof were you live, if the costs of buying far exceed the cost of renting and there has been a general frenzy in your location, prices will most likely come down.
It is very hard to buck the crowd, your family and friends, but you MUST learn to do so if you wish to remain solvent. And no matter how bad you want to own a house, be a grown up about it and be patient. It will be just as hard to take the plunge when EVERYONE thinks buying real estate is the stupidest thing anyone could do. That is when you buy TWO houses. Got it?
Now get off the ledge and go take piano lessons or something until this thing washes out.
Politics and RE are no longer local. People are much more mobile nowadays and there are light bulbs turning on in people’s heads saying,
“I can leave Californica and go tos the midwest, OR, UT, or NM and buy a house with cash and have plenty of money left over.”
Politics is no longer local as well. That changed with the 94 congressional elections. Newt and the gang came out with the contract with america and nationalized the elections. Repubnants always win when the issues are national. DemocRATS always win when the issues are local.
Don’t jump. Inventory up first, prices down later. As it looks things seem more likely to unravel quickly as this thing gains momentum. You’re going to look like a genius, and you’ll still have your money. The worst thing that could happen to you is if you found your man and together could resist the temtation to throw yourself into the slaughter house with the rest of this country’s homeowners. Wait this one out.
“You’re going to look like a genius, and you’ll still have your money.”
Being a contrarian is a no-win situation socially. Everyone thinks you’re an idiot when times are good, then everyone thinks you’re a genius when times are bad but hates you for it.
That sums it up quite nicely!
People thought I was nuts for not participating in the dot-com mania.
My friends all had $50K+ in the market — Cisco, Sun Microsystems, PriceLine, etc.
They got greedy, not selling when they had 200-300% profit.
They lost it all.
I lost nothing.
They don’t like to talk about it much.
Eastcoaster - the answer to your question really depends on where you live. If you live in overpriced areas (such as Washington, DC, parts of Florida and California), I’d say definately don’t buy now, price WILL drop.
But if you live in areas that haven’t seen the craziness, such as parts of the Midwest and Southeast (Carolinas, Georgia, etc), then definately go ahead and buy and go on with your life.
The midwest is in a bubble with the same problems of affordability, if the house cost 130K in 2001 and is now 230K and salaries have gone down (WMD = wicked manufacturing decline), unemployment up (in the midwest) the houses are no longer affordable. I do not know anything about the southeast, but from what I have read the same problems appear to exist in every state. Rational affordability
Patience is necessary. IF its anything like previous bubbles, it will be at least 2+ (probably 4+ years, given the sticky-on-the-downside nature of prices) before its worth buying.
I am outside of Philadelphia. While Philly itself has not made the huge headlines of bubble craziness, the area I live in (Montgomery County bordering Bucks County) has easily seen homes/condos/townhouses - all of them - double or more in price in the past 5 years. To me, that’s a problem. I don’t see why this area would be immune to corrections when western PA (Pittsburgh area) is expecting them (as per another recent blog).
I’m not fighting California-level prices here (I honestly don’t know how anyone can live out there…), but when I could have purchased a townhouse for ~ $100K-$120K 5 years ago and now can’t find one under $200+, that’s crazy. My salary hasn’t changed accordingly. (One might ask why I didn’t buy 5 years ago - I tried and lost all bidding wars. Then I got married and was planning a transfer to Florida with hubby [tried to convince him to buy a home down there before we moved as I saw prices were climbing - he wouldn't budge]. Now we’re split [not real estate related - though finances did play a big factor - namely he made twice my salary and contributed nothing towards the household].) Totally OT - sorry.
Anyway, as for rents around here I’m currently looking for another rental but do you know what I’m finding? People are asking some crazy-ass prices. I have to wonder if these are people who bought recently and are trying to cover their costs - which are too high. I tried to negotiate a condo rental price down just yesterday and the owners wouldn’t work with me. They’re asking price would get me a much larger place from another landlord. Problem is - I don’t want to spend that much money. The condo would have been a perfect fit to ride out the market storm, but not at what they were asking.
Just so darn frustrated.
The rent on the 2BR condo I mentioned above is more than Mr. Linsley’s asking for his 3BR home. Sorry, but I can’t help but wish for a horrible tenant for them. Negative? Sure. But compassion is a 2-way street and no one seems to be driving down my side of the road so…
Just wait -and you wont have to wait long. If flippers/investors cannot sell this spring hundreds of thousands of unoccupied condos,townhomes and houses will be available to rent at reduced prices to cut the owners losses (admittedly temporarily)
Not temporary. The gigantic supply overhang will eventually create downward pressure on both rents and purchase prices, as the options of renting or owning are substitutes in household utility expenditures. What does not get sold (putting downward pressure on sale prices) will either get rented out (putting downward pressure on rents) or left vacant (creating problems of rapid depreciation and vandalism risk). The next seven or so years will be a bad time to own a home, as Biblical or Karmic justice equilibrates seven or more bygone bubble years when money grew on trees.
Eastcoaster,
I am also in the east just outside NYC in an area people felt was “impervious” to decline due to great commute/ schools/downtown. I can not believe how quickly the tide is turning. Heard a woman at the park recently who put her “starter home” on the market and was shocked that there was very little or no traffic- certainly no offers…..she was talking about getting one of those St Joseph statues to bury in her backyard….she was also saying that she thought the lower end market would always be strong. I wanted to interject, don’t buy the stupid vodoo doll “LOWER YOUR PRICE!” The only thing moving in our town is the “move up” home where people use their equity to buy something bigger. People who are not currently in the market are refusing to jump in now- thus a huge rise in inventory. WAIT WAIT WAIT- we are on the cusp of the downturn. We have seen things priced much lower than comps sold last year and even with a few bids- they do not sell for as high as something similar last spring. When women at the park are talking about the downturn…you know word is getting out. Sorry to hear about your divorce and the tightwad bum of an ex…..think about how great you will feel when you wait and get a fantastic condo at 40% off current prices, take your savings and go on a trip around the world! Fill your life with more meaningful things and take a break from men and realestate!
Want to really profit from the bust? Start selling St Joseph statues!
What does “crazy-ass” mean? If a townhouse costs 250K, it will cost around $1,700 plus taxes, insurance and maintence to own it, on a monthly basis. How much can you rent a comparable townhouse for? If prevailing rents are close, go ahead and buy. If they’re significantly less, rent. It costs at least twice as much to buy as it does to rent where I live - that is outrageous by any standard.
Have there been bidding wars in recent years where you are? Has everyone and his brother been involved with and/or talking about real estate? Those are signs thinks are out of whack and will “correct.” You gotta do your own homework, and understand it will take several years for this thing to wash out.
In Orlando it means rents have been compressed to a ridiculous level for anything livable. All these crappy 1 bedroom apartments that rented for 600 or 700, now have been ‘converted’ into condo’s which don’t sell, so they are trying to rent them out to cover their mortage for around 900 or 1000 bucks. No one is renting them because a town home is only 1100 or 1200 and a house is only 1300 or 1400. But there is no longer any cheap rentals thanks to these stupid conversions.
And because of the shortage of rentals while everyone still thinks they can sell, those apartments that didn’t turn condo are jacking up rates like ‘crazy’. I just got a letter from my landlord saying that my 800 sq ft 1 bedroom apartment is raising in rent next year from 790 to 890. That’s what… 12%!?
Thank you ~ you understand “crazy ass” rent prices.
hmm, doesn’t sound right. I have a 230000 home loan at 5.50% 30 year fixed. I pay a little above 2000 per month PITI, no mello-roos (did I spell that correctly), no HOA, no PMI, 1% property tax.
Rents are starting to do that (go up a lot) in NYC, too. Seems like the landlords want to cash in somehow. The huband and I just took a 23% rent increase on our dump of an apartment. The only reason we didn’t move was because we’re planning on leaving the city in a year, anyway, and the time, trouble and expense of finding a new apartment and moving would have made the whole thing a wash, financially. We kind of hate our apartment, and sometimes it feels as though the only thing keeping my head above water is my native Yankee cheapness. I know that I’d feel a complete and utter fool if we bought (here or in the Boston area, where we’re headed next) at current prices. I’d feel like an even bigger fool if we bought at those prices with “exotic” financing. I’d rather be a renter than a fool.
But I understand your frustration. The husband and I sold our SFH in Somerville, MA ten years ago for a price that’s a half to a third of what condos in that city are going for now. It’s just not right.
let the market come to you. Start doing your research now, figure out how much you are willing to pay for a home in a particular neighborhood and wait.
Being contrarian can sometimes be lonely, but it’s very rewarding.
Like fishbones said — wait for the media feeding frenzy on those national existing-home year-over-year declines. I’m looking for that possibly in the March numbers which we’ll see in late April or the May numbers which we’ll see in late May.
Not only will that be the first time that’s ever happened since the NAR started keeping track back in like 1968, it will be the beginning of a trend — YOY declines every month for the forseeable future.
July 15 is also a day to circle on your calendar. A couple of posters have noted that that is more or less the last day to enter into a contract to buy a house to be in it by the start of the school year. That’s the very last possible hope the sellers have in 2006.
Note also that by July, mortgage rates could be another 0.5% higher than they are now. 0.25% higher for sure.
In the late fall, people who bought in the spring of 2004 and 2005 wil be seeing their teaser rates adjust to the normal rates and will already be starting to default on their 3rd payment because they never expected that they would be in the house that long.
And my HOV short will be in the mid 30’s, I hope. It’s not just people waiting to buy a house that are gnashing their teeth at the stubbornness of the market to correct.
my heart swells with pride at the sincerity and compassion the bloggers have heaped upon eastcoaster. See, we’re not just a bunch of vengeful snarky losers!
Seems like you are fairly conservative, and would most likely be looking to fix your interest rate (not go ARM). I’m the same way, and was on the same ledge.
The problem right now in any market for people like you and me is that there are still many buyers out there who are not nearly afraid enough of adjustable rate mortgage products. Therefore, many out there with your same income are willing to spend more than you on a home. It is tough to compete.
I am personally waiting for the roughly $2 Trillion of ARMs that set to adjust for the first time in 2006 and 2007 to adjust. Horror stories will come out of it, and the next thing you know, people won’t be so cavalier about taking out ARMs. Then, no matter how much supply is in your market (whether you live in Miami, or a very supply constrained market), less aggressive borrowers will lead to less aggressive prices. Then would be a better time to buy, IMHO.
At the end of the day, it is your decision. I have personally recently agreed to another 1-year extension to my lease.
If I were married and my spouse made even just what I make (which is pretty average), I’d be able to buy. So is that what real estate has become? A prize reserved only for marrieds or super rich singles? Seems to me a single mom like me - making an average salary, with a fair amount of savings for a downpayment, zero debt, excellent FICO score - should be able to at the very least find a nice, little, 2BR townhouse. But I can’t! Note that 5, 10, 20 years ago I could have easily. But not anymore!
Patience is a virture. You will be rewarded in the end!!
DO NOT LISTEN TO THE CURRENT SIREN SONG OF THE DEBT MONGERERS!!!
Values will tank 50%. It will take 3 years for all this fake equity to unwind, but it’s gonna happen.
Millions will be financially crucified.
Just go ask Sir John Templeton, if you don’t believe me.
Thank you all so much for commenting. I’m off the ledge for now! LOVE this website. (Even recently donated!)
One other thing: This may be useful to you (it was VERY useful to me on the ledge)
http://www.icsi.berkeley.edu/~nweaver/buy_v_rent.xls
My “Buy vs Rent” calculator that I made up. Everytime I put in prebubble numbers, it makes sense. Whenever I put in current numbers for my area, its loony. I use this to remind myself when I will buy.
(Of course, no warantee, etc etc etc)
eastcoaster,
consider all of the “newbie” investors who jumped into the stock market in 1999 and 2000 because it was “easy money” and a “no brainer” because the economy was in a “new paradigm” because “it’s different this time!”.
what happened to them from late 2000-2002?
Knowing exactly how you feel, take a deep breath and gather yourself. You owe it to yourself to do the research in a huge decision your about to make. Look at your local inventory numbers. See how long properties have been on the market. There are probably 1000 houses out there for every potential buyer right now. Track their price cuts. Most of all, if you plan to use an agent, find one with balls that will not give you a hard time about an offer much less than asking. Streching yourself thin will only end you up on a road to foreclosure and bankruptcy.
“One lady broke down into tears. Her husband bought two investment properties, and they are now going to lose their ‘life savings’ if they sell the homes in today’s market.’”
I have no sympathy here. I see nothing but pure stupidy and greed at work here. When the herd stampedes over a clift, there is no safe haven for those tucked in the middle.
Maybe Century 21 needs to do a followup ad to the already over-discussed “debate” ad. They have one ad were the wife emotionally manipulates the husband into a house, so now they need another about the husband foolishly gambling away their life savings on “investments”. Nesting for security may be feminine, but taking a big risk with that security is the work of a real “he-man”. Or a complete idiot.
While it would be nice if some of the outright nastiness on the blog could be toned down a bit, it is hard to be sympathetic to people who let greed overrule sense. Especially since other people will be made to suffer the consequences.
Sorry, after a decade of listening to idiots boast about their investing genius and watching fools get undeserved windfalls while the prudent fall behind, indulging in a little schadenfreude is the least we deserve.
Yes , I agree with you . The flippers ran up the prices in alot of areas , and they made it bad for everyone . Flippers are greedy , they are just hit and runners . The media should of exposed them for what they were a long time ago . The fact that the lenders helped them is the sad part .
Well said!
I went to a small college in Jensen Beach after the last overbuild/ crash in the early 80’s ( ‘81-’84 ).
You could go out on Hutchinson Island and buy spec and flipper condos on the ocean for $70,000 - $ 80,000 dollars apiece. It may sound unbelieveable, but it’s very true.
I rented a 2br/2ba oceanfront for $ 600.00 month. I split it with a roomate and we had a blast.
Hutchinson Island was a very beautiful part of Florida back then and Jensen Beach was a sleepy little beachside community.
“The media is killing the investors,’ Mr. Linsley says.”
That guy ain’t seen nothing yet.
The local media here in south Florida is nearly completely silent on the issue. Both the Sun Sentinel and the Palm Beach Post have decided to not mention the 10,000 pound pink elephant in the living room for as long as possible.
Again today on the front of the Business Page all they publish is a little NAR blurb: “Housing market near a plateau”.
Soon these complicit negligent clowns will have to start letting the Genie out of the bottle….. and then all hell will brake lose.
The NAR needs a little geography lesson. A plateau, by definition, is at the top of something and surrounded by steep cliffs. Once you’ve reached the plateau, there is only one direction to go: down. Unless, of course, it is a “permanently high plateau.” LOL.
Let’s do da math. Paid $315k. Top of the market late 2005. Been losing value at $1500/mo. Losing rent v costs $1000/mo. So esentially he wakes up every morning to find $100 missing. Expensive shirts indeed.
that’s a good one. i think you $50.
oops. you are right, about $100.
Its all Ben Jones fault for reporting the news! Death to the messenger, Hail Caesar! Kill all the Lawyers (Shakespeare) . LOL
Something doesn’t jibe right in the article - “15% of Florida homes last year were purchased by investors, the most of any state.” I thought NAR said 40% of sales last year were “second homes?” If Florida takes the prize its got to be a lot higher than 15%, unless they’re not counting buyers claiming “2nd home.” I would wager, given the no-down, easy money, spec buying exceeded 50% in South Florida last year.
Lots of people taking the plunge and buying that second home in the mountains or near the beach for themselves.
There are a lot of stories about parents buying homes for their kids to rent from them as well. Proably don’t count as “investment” homes.
They are not counting all the folks who thought they could retire as millionaires by purchasing their Florida “retirement home” twenty years in advance.
GetStucco …This is actually what alot of baby boomers did I believe in Arizona and Florida …etc…etc… I don’t know if they plan on renting them or just carrying them .Either way they were operating under the notion that real estate always goes up.
Mr. Linsley, I’d rather be your renter. He rents your declining asset at half your cost, doesn’t give a damn if you lose it in a hurricaine or HOA fees increase, as the neighborhood goes down hill he can pull up stakes and move into a nicer one, he doesn’t give a damn if interest rates increase and your mortgage goes up…..but you Mr. Linsley will have many, many a sleepless night.
I am relieved to hear these sad stories.
Releived as I sat for many years in total disbelief in what was going on and in my own ability to think.
It’s hard feeling like the world is gone insane or you are the biggest idiot on the planet.
It feesl great to say I told you so. I told you so.
Simmsays
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
“So now he’s renting his investment house out for $1,000 a month, while paying a $2,045 monthly mortgage and a $108 monthly homeowner’s association fee”.
What a dope.
The original “Flipper” from Florida was a bottlenose dolphin. All of the flippers today are more in a bottleneck - on the road to easy money.
Sung to the old TV show theme song:
They call him Flipper, Flipper, faster than lightning,
no-one you see, is dumber than he,
and we know Flipper, lives in a world full of blunders,
flying there-under, under the sea!
You’re under the sea people.
In “The Wisdom of Crowds”, there was a study which showed the feeling of selling at a loss were twice as painful as the sense of pleasure from selling at a profit.
That factoid goes a long way to explain why people held onto their pets.com stock as it went straight down. Same goes for the real estate “investor” quoted above.
We are now starting to hear the sob stories of poor investors that are loosing their shirts, pants and undergarments!. There are few stories of the priced out families that could not afford a house, because joe flopper would come in and outbid him on ever offer. Where are the stories of the families that overextended themselves in order to afford a 50 year 880 square foot POS ? Those are the real victims. No sympathy to any specuvestor that looses his/her shirt in this.
Why should there be any more sympathy for an overextended family than an investor? Both are making the exact same bet for the same reasons. I have the same amount of sympathy for both.
Some people that overextended themselves might have bought thinking that if they did not jump on the train right away, they would be left behind. They also drank the coolaid, although, they most likely wanted to have a place to call their own.
The investor willingly took an extraordinary risk. The family was blindly behaving as ordinary families do.
The case for bailing out the family is questionable. The case for bailing out the investor is absurd.
The family willingly took an extraordinary risk, the investor was behaving as other investors. The case for bailing out either is equally absurd, but that won’t stop Congress from trying.
Why is renting a place to call your own fundamentally different than owning it? I’m not suggesting that it is, but why shouldn’t it be? Let’s say you sign a 100 year lease on the property, is that place now your own? It’s high time this country take a hard look at what the American dream is, should be, and the structures that undergird this portion of the American Dream.
Whew! We realize of course that the country was founded on “The American Dream”, a chance to OWN land beneath our feet and not live as a peasant on somebody else’s land. Well, we should have a nice devastating bear market to think about where that has gotten us over the last 200+ years.
The problem is the pursuit of ownership of land at any price. Since 95%+ of us no longer make our living farming land (the basis for land=wealth) and most of us make money using mostly/only our minds, is it still the best course of action to build single family housing to be owner occupied?
Even today a decent portion of the land value differential in a city area relates to the school district a home is in, which shows the value of education and minds over land and real property.
As Hunter Thompson demonstrated, “the American dream” died a long time ago. Now we’re lying in bed with rumpled hair and bad breath, scratching ourselves.
The case for bailing out the family is questionable. The case for bailing out the investor is absurd.
There will be no way to tell the “families” from the “investors,” but you can be sure that when Congress votes on the “Mortgage debt relief” bill in 2007 they will parade a family that cannot make payments on their only property.
But what’s to say that the family didn’t over reach in hopes of using the home for retirement (for almost all Americans, the house is the ONLY asset they have in retirement).
So, since we can never know the family’s motivation for over reaching in the first place, let’s just agree that we can’t tell the difference between investors and families, and treat them all the same.
Which means NO BAILOUT!!!!!
The only thing that gets me angry about this housing bubble is the chance that my tax dollars are going to bail out idiot flippers and families who just couldn’t wait to buy a home. The thought of subsidizing idiots who bought Hummers, BMWs, and other toys makes my blood boil.
These specuvestors are not people wanting to own 1 residence for ‘x’ amount of years. These were @ssh0les that bought a second, or third property trying to cash in with someone elses money like the infomercial said. “It’s as easy as 1,2,3…”
F-em
Bluto, I don’t think over-extended families are making “bets”. We all need a place to live and we all want the best for our families. In many areas there is simply a shortage of rentals, especially house rentals. I can empathize; the NY suburbs are some of the worst areas for finding rentals.
I have 1 child and a semi-understanding wife or else I don’t think I would have been able to rent the house I am in. If I had two children and/or a not so understanding wife, I would probably have had to buy (or divorce, lol) by now. As it is, my landlord doesn’t have to renew my lease after 1 year - although I made the calculated bet that he would because home prices will be further down and these trained dogs just can’t bare to sell a house for 10% less than what they would have got the year before.
Lots of dogs can’t afford to sell for 10% less without a sizable loss. They will take the leap of faith and hold on, to eventually lose 30% or more…
I guess I see the problem being that our national policies have tied ownership of housing to high leverage and very favorable lending practices (which as a hedge fund analyst you already know is the key to wealth generation). Those policies are the problem, in my opinion. Over exenteded families have made several highly leveraged bets (and taken scant precautions for any adverse senarios typically with little capital), wether they realize it or not.
If you’re ‘overextened’ then you’re betting. You want the ‘best.’ What’s wrong with being satisfied with what you need. And having what you want when you can afford it? So many people’s lack of self discipline is sickening. What gets me is that they get vote. And most think the government is the concierge (spelling?) at the Four Seasons Hotel.
‘Comment by tauceti96
The callousness shown on this blog is pretty apalling. People losing their life savings because of a lapse of reason is not awesome. Life has a way of putting you on the wrong side of the tracks even when you make all the right decisions so be careful.
‘callousness’ …that is what these people showed (whom feelings you wish to protect) for the RE market as their greed ran amok. They were playing craps and were in a game way over their head, now they have been through the school of hard knocks and can enjoy their retirement knowing to look in both directions when crossing a freeway.
So you are saying that someone shouldn’t have any consequences for making a poor decision. Guess that means that all those investors in great companies like webvan, Global Crossings, & the like should get all their money back.
You’re an idiot.
Um….you might want to peruse what Salinasron wrote before calling him or anyone names. You are both saying the same thing.
yo, please no name-calling, especially regular members.
This is soooo great, about f-ing time all these “expert” specuvestors were caught with their trousers around their ankles. I have been waiting four years for the inevitable correction to kick in.
Am I sounding angry? - You betcha!
“Some Floridians blame the media and even Wall Street for scaring people away. Mr. Linsley recalled a headline in a local paper declaring that the local housing market was overvalued. The headline type was so bold that it looked as if the nation had just declared war.”
Yes, that’s the American way, someone HAS to be blamed for your misfortunes. Nobody was complaining when the media was writing about the 10% monthly price appreciations. But now, since the media’s articles are not in your favor all the seller’s are upset.
‘The media is killing the investors,’ Mr. Linsley says.
Umm, no, the fundamentals of economics (supply & demand) coupled with the years of pricing fundamentals are killing the investors.
-X
I’m surprised any of us have any hair left. It’s going to get to the point where we walk along the street and any bald person we see, we’ll nod knowingly at each other and ask “Housing Bubble frustration?” “yup.”
Condo prices in DC are going down, but single family house prices are going up. DC Bubble has talked about this trend before, and below are statistics from the Greater Capital Area Association of Realtors illustrate the trend.
http://dcbubble.blogspot.com/2006/04/incredible-bifurcating-market-condo.html
“Mr Maybe it’s not a d.c. bubble”,
Why don’t you post the sales volume? It’s down. The outer suburbs are hit first in a downturn, and then it slowly moves into the city. That has been the pattern in past bubble/bust cycles.
Hey look at the monkey. See the monkey? Ignore the elephant. Look at the monkey.
How about a shiny penny?
DC Bubble,
All “analysis” that I’ve read on your blog is extremely shallow and unhelpful. Your post questioning why condo developers are continuing to build despite talks of the bubble added absolutely no value…you didn’t even provide any potential argumentation as to why that might be the case, you just pose a question.
Add to that, several weeks ago, I commented on your blog on an error in your interpretation of the data you posted (regarding the cost to rent v buy in DC). You made the correction and deleted my comment, without acknowledging my input. You have no credibility and no honor as a blogger.
I think it’s hilarious that you try to drive traffic from Ben’s blog to your site. In the blog world, he is as a god compared to you…
thanks for your input mjh. correcting others’ errors is a thankless job.
if ben is a god, and I am not, what are you?
Bubble - Adding to the condo inventory is much easier than adding to the SFH inventory - think it through. Condo’s are also easier for “investors” to deal with, as what little maintence is required is provided by in-house building staff - you don’t have to climb a ladder and clear the gutters on your condo.
You’ve pointed out the SFH inventory is rising - that is a harbinger of price correction. What you also need to understand, if you are serious about what is going on, is that prices in “established” neighborhoods topped out a year ago. The “rise” in prices you are seeing reflects a surge of transactions to “marginal” neighborhoods, where row houses were snapped up in the final stage of the bubble - speculative “blow off” in Wall Street terms - the same sort of market action we saw in the last six months of the stock bubble in ‘99/00.
Prices increased dramatically in some of those places - Eckington, Brookland, etc., but went no where in Cleveland Park, or Georgetown. In a downturn, those “marginal” places will get pounded - no rational, “end using” buyer will choose the ghetto if he can afford not to. Keep the hope alive, man…
Hmmm let us think for a minute… A novel idea yes I know.
Inventory is WAY UP… sales volume is WAY down… but prices are up compared to last month. Without even seeing the numbers, I can tell you why this is. It is b/c the “well-off” are still buying the $800k+ houses. So if there aren’t any buyers in the sub-500k market that are buying, it leaves just the rich and this will give *temporary* median/mean price increases…
Look around you Mr DCBubble… Northern VA builders are cutting prices of upwards of 100k. And you honestly think there is no bubble in DC, that somehow DC is immune from the suburbs that are only 20 miles away? Please explain your logic.. Oh wait, you won’t, you’ll just post each day that there is “No bubble” then go away and not respond til the next “no bubble” post.
lmao!
Nice knowing ya DCBubble. …lmao
I don’t feel sorry for those who are going to lose money in this market nor am I angry at those investors and speculators who drove up prices. This real estate market is no different than any other mania (tech stocks, tulips etc.). Psychology drives peoples’ investments more than any fundamentals ever do. People find comfort in crowds, whether it is investing in the stock market or in real estate. If everyone is doing it, it gives people a sense that it must be a good idea. If someone’s neighbor just bought a 5000 sq ft. house with a zero down adj rate mortgage, it gives that person a justification to do something just as risky.
Social pressure and expectations play a huge part in this mania. I rent and am constantly questioned about my decision, despite the fact that I could never get a similar value if I purchased. The same people I know who lost thousands of dollars when the nasdaq crashed now tell me that real estate is the safest investment. This is nothing to get upset about, it is simply human nature. Five years from now something other than real estate will have come up as the asset “that can’t go down”. The best investment advice ever came from Joe Kennedy who said that when his shoeshine boy started giving him stock tips he dumped all of his stocks. We are at a point now where every bartender, waitress and supermarket clerk has a real estate license. We have shows like “Flip this House” and seminars on how to get rich in real estate. The end is coming it is just a question of when.
A guy I used to work with lost big bucks in the .com crash. He is now building a million dollar home in Scottsdale looking to make a profit on it. He started construction on it about a year ago. It will go on the market in the next couple of months. I think he put something like $600k into it. He hopes to sell it for $1M. More power to him if he makes out on it. All I can say is the guy is a much bigger risk taker than I’ll ever be.
AT least this person is “Doing” something more than most others. I hope he GAINS some$ for his effort.
That is much more than those who bought property unseen with 0% down or 5% down, then leaving them VACANT for months and then sell or try to sell for big profit ( In Old times this was called HOARDING! Does anyone remember that? )
Does anyone remember what HOARDING an essential and relatively controlled commodity does to its price and it’s effect?
I do not know what are the current laws against hoarding.
To get the idea:
What about the GAS STATIONS sucking out most of the supply , then closing some of their pumps (thus creating more deamnd and giving a feeling of shortage) and then selling for $5 per Gallon. (If all that sequence of event were possible. For example only. Now please check how you felt. In fact after Hurricane Ktrina, price went up in surrounding area due some proifteering, and nobody liked that).
Am I only a bitter renter?
WHY? I guess one big reason, the renters or the ones who got priced out, they are on the WRONG side of divide!
Only 30% of household do not own home nationwide. Some of them due to changing jobs etc, are not home buying candidate.
A big percentage of this 30% are not buying candidate for their financial condition. As every corner of the country will have bottom 15% who earn much less.
So at the end, a vast majority has big financial stake in rising housing price, and once risen, in the price stability.
Comapred to GAS price, Vast , if not ALL, has interest in wanting Gas price low.
That is why we heard so much of complaints after gas price increase and huge profits made by the Oil Company like Exxon Mobile. The CEOs are called and questioned, even if that is jsut to pacify the masses.
Bottom line, it is not right or wrong, it is more about which side you are in, who are the majority.
House owners are majority, are the one with$$, the renters are more moving population, much less in number, and also likely to be with less$$.
So I expect the “System” to take care of the Majority.
Hope I managed to say something coherent here!
No offence intended, you can always blame it own me being a bitter renter.
mabe the $100.00 beenie babys will come back.
Plan B is to rent it out at $1000+ a month loss. What is plan C putting your head in an oven? There was a time when you put 20% down, 30yr fixed, and the rent paid the mtg. and taxes. You were on the hook for the opportunity cost of the 20%, and maint. Your upside was appreciation and equity. That’s where value is. That is what the property is worth. This investor has no clue (just look at his sale price).
Those aren’t your only upside. Over the 30 year course of a traditional fixed loan, rents stand to rise considerably while your monthly principal and interest payments would be fixed. The effect is significant enough that a slight net negative cashflow may be supportable upon purchase, although you also have to account for the opportunity cost of your 20% down. (assume that you are paying interest on your downpayment at the interest rate that you could have gotten on it is you put it into another investment) Of course at current price/rent levels there is no way to justify these “investments’ except as pure speculation.
Someone get Mr. Linsley his real estate Darwin award.
‘Paul Zani, an investor, is trying to resell two converted units he purchased in Orlando. He bought one condo unit in November for $137,000 and had it listed for $185,000; he bought the other for $147,000 and it was listed for $195,000. But he’s been unable to resell either one. “We will probably come down on the price,” says Mr. Zani, who lives in Nashville, Tenn. Some pockets of the condo market may fare better than others.’
I suggest he change the spelling of his last name, replacing the “i” with a “y”:
Main Entry: zany
Function: adjective
Inflected Form(s): za·ni·er; -est
1 : being or having the characteristics of a zany
2 : fantastically or absurdly ludicrous
Tough to garner much sympathy for a guy who bought something in November for $137k and can’t sell it in April for $185k…
Especially when prices peaked in Oct. here
Regarding callousness, I probably sound that way. I will be sympathetic to an individual if I had contact with them. But for the group of floppers as a whole, absolutely none. As a few earlier posts, I sat in disbelief for 4 yrs watching the insanity in Northern California, and finally am happy to receiving a vindication, and an “I told you so”. I heard all of the ‘throwing money away on rent’ crap because the economics didn’t make sense to me.
As for the Mr. Linsley type, NNNOO sympathy and he could be my buffoon target for taking out my frustrations on this market. It was his kind that pushed this to the brink of insanity. As for his plan B math, the $2045 payment is probably in IO/neg am with a quick reset. By the time that adjusts, he should be naked out on the streets. Then it will be time for plan C, setting the house on fire in the middle of the night for the insurance money.
Hi from Phoenix. There are still people listening to the media that everything is just going back to normal here in the Phoenix area. There was talk on the radio this morning on my way to work from someone from the University of Arizona. Things are not really cooling, just going back to normal. The girl that I have repeatedly warned not to buy that works on my floor stopped by my office. I said “I bet you are happy you did not buy a house” She said “what are you talking about? They have been saying this is the best time to buy because of the increase in selection of houses.” I started to give her the supply and demand economics 101 talk, but decided that if she is that stupid, I am not going to try and help her. Go for it, I said!
AZ;…Nice to here from U….Is the inventory in Tucson continueing to increase ???
scdave
Yes, Tucson inventory is up over 100%. See this web site for regular updates on most major cities. Anyone buying in AZ in the next 18 months is crazy!
I went to U of A in Tucson. The traffic in Tucson is worse than here in San Diego. Only 1 main highway (the 10) and the streets are all jacked up and buses block the right lane at every other corner. It takes an hour to get accross town and they have the nerve to name the main drag “Speedway Blvd”.
Oh, my point was that I cant believe the run-up in home prices that Tucson had. Lots of Cali investors ran over there after it got too expensive here. Cali investors also bid up prices in Yuma which is hell on earth!
Americans are subjected to thousands of TV and movie dramas showing the hero getting himself into an untenable position only too escape at the last moment. The repeated message is that a person can be reckless and somehow be bailed out. In fact the unconscious message may be that you are not a man (hero) unless you take stupid risks. In life reality will pick that person up and scub him against a wall of hurt. I have no sympathy for these greedy people that speculated. The only time that you can beat speculators is when they get their margin calls and are forced to liquidate. That is how the game is played.
I was very disappointed when they signed Kiefer Sutherland up for a 3 year $40M contract. Now I have to put up with hearing that stupid show for another 3 years (my daughter is a big fan). I always hope that Jack Bauer will die so the show will finally end…
I suspect you are right; despite macho talk of being ‘risk takers’ and having the ‘guts’ or ‘balls’ to invest, people seem to perceive no real risk whatsoever in their speculation, as if the calvary will always ride to their rescue or the bomb will always be defused in the final seconds before oblivion. Reality is otherwise.
Need 2 leave….
Yah, he might have been a vulture that took advantage of the system, but the lenders caused it. It is ALWAYS those who hold the purse strings that bear the blame. Theirs was the first greed, since if they hadn’t loosened standards all in the name of their individual and collective greed, the housing bubble’s rise and fall would have been so much more softer. None of us would be here.
I’m angry with the flippers and the fools for reasons already laid out by everyone, but I HATE, or more truthfully, DESPISE the lenders.
You should love the lenders as they will be selling houses with 0 emotional attachment to them (and that will be the actual reason that prices decline).
Oh, they have had plenty of emotional attachment - it’s all been dollar signs for them, the first in a series of people seeing the dollar signs. Wait a few years when prices have fallen and they reinstitute standards that are sane. THEN there will be little emotional attachment. They will be held accountable for their objective and sound judgement in loaning the money out as much as the borrower has for paying it back.
both are equally to blame. if someone offers me a noose to put around my neck, i decline.
Not if it doesn’t look like a noose until after it is on tight you don’t
- metaphorically speaking of course.
i see it as simple darwinism - i have the gene for recognizing the noose. it’s called being cautious and considering the consequences of my actions.
i have been hearing nothing but arrogance from people who bought homes in the last few years - two haughty women i know have both bragged that “they’ve made 100K” on their homes. even though they haven’t sold them yet… i even warned one who wants to sell that she’d better do it asap. her response? “i’ve already made so much money on it, that if i lose a little it’s no big deal”. i can’t wait till she see’s how much ‘a little’ will really end up being; because she says she’s planning on selling in “about a year”.
so yeah, as for ‘callousness’ you’re damn right responsible, sane people like myself who do not GAMBLE our money away are PISSED that we can’t (or rather won’t) buy a home at the current nutty prices. prices that are as high as they are due to the likes of Mr. Linsley.
The WSJ is on a roll today. At the bottom of the first page of Section D is Jonathan Clement’s “Getting Going” column, entitled “When to Sell an Investment Property In a Cooling Market for Real Estate.”
A few highlights:
1) Columbia Business School real estate professor Chris Mayer, who recently wrote a scholarly article on how housing prices are justified by ‘fundamentals’, is quoted as saying: “I still don’t believe that we are at the beginning of the crash” (despite rather overwhelming evidence to the contrary).
2) “I’m not selling anything,” says John Schaub, author of “Building Wealth One House at a Time” and a real-estate investor in Sarasota, Fla. “But you have to be able to afford to hold your properties. Most of these people ought to sell, because they don’t have the aptitude to be a landlord and they don’t have the cash flow.”
3) Mayer’s other comments suggest he ought to think hard about his “no crash” mantra:
- “When prices start to fall, they usually continue to fall for a while,” Prof. Mayer warns. “You want to be aggressive in setting a price that allows the property to sell, rather than slowly lowering your asking price and following the market down.”
- “Remember, you can get 5% on bonds. If you’re south of 6% on a risky, idiosyncratic (real estate) investment, I don’t think that’s a smart investment, especially when the downside risk appears to be a lot greater than the upside potential.”
The irony here is that if everyone followed Clement’s and Mayer’s sage advice, a hard crash would follow in short order.
The graphic that accompanies the WSJ article on flippers ought to lay to rest any lingering beliefs that California real estate prices always go up, as the graphic for 1990-1995 again confirms that prices sometimes go down…
Comment by Arwen U.
I would think having been a day-trader would have made them more cautious. Also in my experience, real estate flippers don’t know a stock from a paper bag.
I’ve only known one day-trader, but believe me, he didn’t know a stock from a paper bag, either! I tried my possible to convince him to sell when he could still have salvaged something, but no luck. I haven’t talked to him since, but a mutual friend says he’s just ‘bought’ a couple of condos– actually fronting for some mafia-types he owes money to. (Not surprisingly, gambling is another one of his compulsions.)
I’m afraid there are going to be a lot of sudden, unexplained deaths among people like this when the merry-go-round stops. So much easier to present an innocent face to the authorities when there are no witnesses.
(Come to think of it– wonder if they did a proper autopsy on that homeless guy who bought real estate?)
Too bad– I know you’ll all hoot, but he’s actually a nice guy.
Plan D is head in the oven, when the insurance company denies the claim when they find the starter fluid and gasoline used to ignite the fire on that tinderbox house he was going to sell for $425K. One less flopper to deal with.
Let me pre-apologize for being way OT and somewhat anal, as I’m not usually a grammar-freak. I’ve seen sooo many instances where “lose” and “loose” were flipped on this blog, I actually double-checked a dictionary just to make sure I wasn’t going crazy: “…loosing money”, “loosing your shirt”. Not that I have perfect grammar, but c’mon!
lose: v.intr. - to suffer loss (losing money)
loose: v.tr. - to cast loose, detach (loosing an arrow)
Thanks for letting me rant.
My recall of the rules of English spelling is sometimes a bit loose (rhymes with noose, while lose rimes with nose, right?). Sorry about that…
No, lose also rhymes with noose, when talking about losing your shirt.
Loose is used for terms like “this belt is too loose”.
Lose rhymes with snooze.
too vs. to also and
I know someone WHO/I have a friend WHO (correct) vs. I know someone THAT/ my neighbor THAT lives down the street….. Now this error drives me crazy.
rant off
I see the lose/loose mistake as well, but people here are often dashing off a quick post while at work and don’t have time to edit and proofread. I try to remember that it is the ideas expressed that are important, not the typos.
embarassingly, I’ve just realized that I was one who comitted the lose/loose mistake. Hey, at least it wasn’t its/it’s confusion.
jim….not by a long shot are you the only one who does it. Oh well. Of course looking over anyone’s typos (me at the top of that list) is natural, but with this specific one, it seemed as if it were the rule vs. the exception. Final end of rant (for now -hehe)
I’ve thought of a silver lining in the situation. Think about what the oversupply of housing will do to increase the USA competitive position in the world. With cheaper housing wages will stay lower while the standard of living actually increases (in terms of housing). Perhaps we will learn how to manufacture things that the rest of the world actually wants at a price they can afford. Now there is a noval idea
Just think of the children. That’s a popular rallying cry anyhow, but, really, if house prices don’t come down the new college and HS graduates are screwed.
My aunt moved out of Denver to Florida so that her kids could afford to be on their own with regular jobs, then the housing bubblers took Florida prices even beyond Denver’s absurd prices. Now the kids are looking for someplace else they can afford to live.
I’m not angry, I have a decent house with land and enough savings to pay off the mortgage and walk away if necessary. This whole RE bubble thing is just another example of a bad idea gone popular. At least it didn’t involve cyanide gas and minorities or starving farmers and executing intellectuals. I just worry that if folks don’t get a good dose of common sense the next popular bad idea will resemble some of the ones that really scare me.
That’s what scares me : If the Nation could get caught up in this gold fever real estate madness …….what’s next?
“Some Floridians blame the media and even Wall Street for scaring people away. Mr. Linsley recalled a headline in a local paper declaring that the local housing market was overvalued. The headline type was so bold that it looked as if the nation had just declared war. ‘The media is killing the investors,’ Mr. Linsley says.”
As if buying homes and selling them a few months later for a 30% profit (to other people who plan to do the same thing) is just normal business activity that shouldn’t be questioned or hindered in any way.
Those who think we should have some sympathy for speculators, please read this article.
It describes something that is happening all over Florida, and all over America, thanks to the greed of those looking for a quick buck. My sympathies are with the people like the ones in this article, not the ones who threw away their savings because their greed overtook their reason.
‘The media is killing the investors,’ Mr. Linsley says.”
Let me get this right! You were the one who purchased an over valued asset thinking you could dump in on some poor suspecting soul and now you are STUCK. Too bad…….
but real-estate agents in some of these formerly red-hot markets have been surprised at how suddenly market conditions have deteriorated in the past few months.
What kind of economic condition analysis can you expect from former Mickie D order takers?
Fookin’ morons…
Would you like fries with that order?
McD’s yesterday.
Investors today.
In vests tomorrow - at fookin’ Walmart.
I think the most notable thing about this article is that it doesn’t have a quote from David Lereah.
Without offending anyone one may I raise a point and vent what I feel.
When 70% of household actually owns home, that by defination makes it a part of life’s need, is it not? Is it not true after getting a job finding a life partner, we all want to build a nest, where we can raise our kids, a place we can call our own. Where I can plant a rose bush or fruit tree and watch them give fruit and flower year after year. Then our memory gets tied to that place, even when the kids left, we linger on.
Is it not part of our emotional need, DENIED by the speculative activity of the samrt, greedy and shrewed?
When that circuit city salesmen could corner $2million worth of property on his 50k salary, did he not increase the price of a home for me, which at twice the income I can not afford.
What Risk did he take with 5% or 0% down. in California you can walk away from your loan, I am told.
If the buyers were qualified with their income to show their paying capablity, I would have NO PROBLEM with this real estate price escalation. Only income they could have showed is the rental from their PREVIOUS property, which actually did not cover the monthly mortgage payment for that property.
I do not think his monthly income and his monthly liability was taken into account before giving him the Fourth Loan.
That in turn made one more house less available to buyers like me, who was buying to stay and LIVE on that house. So I have to see my monthly income and what I can pay for mortage.
I agree that we ALL will be affecetd if an economic downturn to appear. And I do have sympathy for a individual family, if they are in despair and financial ruin.
But why should I have any sympathy for those SPECULATIVE CLASS OF PEOPLE as a group. Why should I wish to see they keep $500K in easymony earned over few years?
I went to unversity, it will take me 30 years to save that much money.
Why should I have good wishes for all of them.
People who Live by the sword, may die by the sword.
So some of the speculators WILL keep their $500K. Good for them. Nobody can or should take that away.
And some of them, will loose their $30 k or $100k as selliing cost, or due to the negative cash flow over 1 year. ( and for many 35-40 year old THAT Will be LIFE SAVING)
For them, too bad, the are getting EXACTLY what was DUE to their own action.
The govt (tax payer) should not come to their rescue, as the Govt. will not come out with a program to help me buy me a house. The house is $680K which was $325k in 2002.
What am I missing?
Strong socialist tendencies.
I have strong socialist tendencies, and I still wouldn’t bail speculators out.
I have no problem with subsidizing costly and risky ventures that benefit me (for example, scientific research and space exploration). I have no problem with subsidizing people who have fallen on unfortunate circumstances (food stamps) because who knows what may happen to me in the future …
But I have absolutely no desire to socialize the costs of people who take completely avoidable risks. If they want to rise by the free market, let them fall by the free market. The free market is a ruthlessly callous machine that does not care about the “American Dream.”
“What am I missing?”
Fear.
I think that there are some (perhaps not many, but some) who saw the stock market stagnant, bond yields at an all time low, and all of their friends making boatloads of money flipping real estate. This was a long cycle. My gut tells me that the fear of being left behind motivated some to jump in late so that their “nest egg” wouldn’t be deflated to very little because everyone else was making so much.
It’s a little bit “keeping up with the Jones’s”, so my sympathy is tempered. But for some this fear of being left behind could be a powerful motivator.
“Todd Linsley, a 37-year-old investor, bought a three-bedroom house in Stuart, Fla., for about $318,000 in late 2005.”[...]
I love the way he calls himself an “investor.” I always thought an “investor” was someone who made a living investing. He’s simply a guy who likes to live outside his means and flush money down the toilet. And when he can no longer make the payments and goes BK, you and I will pick up the slack.
I have a 100% accurate way of predicting when a bubble is ready to burst. When my mother-in-law (who’s been BK 3 times since I’ve known her, and loses every dollar she’s ever gotten her hands on in crazy investment schemes) becomes interested in something, it’s time to stay far away from it.
I remember during the dot-com craze–in fact when it was starting to tumble–she joined a “day traders parlor” where she could sit in front of a terminal and place bets, using credit card cash advances to pay for the “investments”. Buying and selling for a few days, without even knowing what she was buying and selling. She lost 10Kor so and went BK.
Then she inherited some money. After asking us to try to launder it for her (so she wouldn’t lose SSI/SSD, another scam), and we told her to “fuck off”, she met someone–god knows where–who “invested it” for her in worthless annuities. Lost it all in a few months.
Now she met a man (been married 4 times before), and talked him into buying a condo in Vegas! WIth some crazy adustable-teaser-rate-interest-only “loan”.
i’ve known people like this. the worst part is, there always seems like there’s someone there, or at least the gov’t, to bail them out.
when we start seeing REAL consequences for irrational, stupidy, and greedy behaviour, then we will see less of it. until that time, it will only continue to increase.
‘My Plan B was always to rent it out. I am not going to lose my shirt,’ says Mr. Linsley.”
Right….
http://www.novabubble.blogspot.com
Robert, that’s hilarious.
Sounds like your mother-in-law has the Midas Touch in reverse.
Didn’t the Hollies have a song by that name? “He’s King Midas, in reverse”. Sounds like a good way to avoid a scheme. The lady has to be an idiot.
There is only one thing that should give someone to buy a home. THat is, the actual ability to pay for it, without getting bailed out by gov’t, church, non-profit charity, brother-in-law, etc. WIthout being callous, but a hairdresser making $20K a yr has no business buying a $500K home. No sympathy when she can’t make the payments. As for the flippers, they can go %%(C$#A themselves all the way to the belly up court.