Prices Are Falling Because They’re Too Freakin’ High
The Union Tribune reports from California. “Workers’ incomes stagnated last year, barely outpacing the official level of inflation, according to data released yesterday by the U.S. Census Bureau. ‘2007 was probably as good as it’s going to get for a while, and these numbers show it wasn’t very good,’ said Jean Ross, director of the California Budget Project in Sacramento.”
“San Diego’s median income dropped sharply in 2002 after the high-tech boom stalled; rebounded from 2004 through 2006, coinciding with the rise of the housing bubble; but then stalled in 2007 after the real estate market peaked.”
“Kelly Cunningham, an economist with the San Diego Institute for Policy Research, said the sluggish wage growth does not bode well for the county’s beleaguered housing market.”
“‘In the early part of this decade, home prices were rising so fast that there was no way our income could keep up, which was one reason for the price bubble,’ Cunningham said. ‘Even though home prices have fallen, we have a way to go before they get in alignment with our wages.’”
The Voice of San Diego. “Home prices in San Diego dropped again in June, reaching a point not seen since September 2003, according to the Standard & Poor’s/Case-Shiller Index released Tuesday.”
“June’s price index for resale houses fell 30 percent from the market’s peak in November 2005. The overall index logged a 24 percent decline compared to June 2007. Prices in the lowest tier have now fallen 39.5 percent from that tier’s peak in June 2006. The middle tier’s prices have fallen 31 percent since November 2005, that tier’s peak. And the top tier declined 19.9 percent from the peak in June 2006.”
“In another report released Monday, First Republic Bank calculated that San Diego luxury homes have fallen in price by the most they have in a decade. The index measures price changes in houses priced at more than $1 million, usually measuring 3,000 to 6,000 square feet and having between three and six bedrooms and bathrooms.”
“Foreclosure-related properties constitute the vast majority of houses coming on the market, said Ramsey Su, a local retired real estate broker and investor who sold bank-owned properties in the 1980s and 1990s. Su included a brief analysis in a local market newsletter he sent out Tuesday: Of the 337 new home listings entered on Aug. 21 and 22, 135 of them were bank repossessions relisted for sale, and another 82 were short sales. As such, 64.4 percent of the listings entered were bank-owned or short sales.”
“‘There seems to be no understanding of the toxic nature of this inventory,’ Su wrote. ‘An inventory dominated by lender sellers, a very motivated group of sellers, means prices will be driven down hard. Private sellers with insufficient equity who have to sell in this environment will have no option but to apply for a short sale or be foreclosed upon.’”
“‘People are saying the reason prices are falling are because of all of the foreclosures, but the foreclosures are happening because the prices are falling,’ said Chris Thornberg, founding partner at Beacon Economics and former economics professor at the University of California, Los Angeles. ‘They’ve got it backwards. The prices are falling because they’re too freakin’ high.’”
The North County Times. “One real estate agent who specializes in higher-end markets, Eric Elegado of Mira Mesa, said foreclosures in more expensive neighborhoods will push down prices further.”
“‘In Santaluz, there’s some foreclosures and short sales coming onto the market, so that will set a new price point,’ Elegado said.”
“‘This thing’s going to hit bottom some point in mid-2009, and it’s going to sit there for two years —- at least,’ said Thornberg. ‘I’ve heard people say you’re going to miss the bottom. You’ve got to be kidding. If there’s any asset market where you can’t miss the bottom, it’s housing.’”
The LA Daily News. “San Fernando Valley housing prices continued their free fall in July, plunging 29 percent as foreclosures mounted at a record pace. The median price tumbled to $453,500, down nearly $20,000 from June and a whopping $186,000 below the median in July 2007, said the San Fernando Valley Economic Research Center at California State University, Northridge.”
“At the same time, foreclosures jumped 221 percent, flooding the market with deeply discounted homes seized by lenders. Sales ticked up 5 percent.”
“‘The problem right now is we’re getting foreclosures … faster than sales are taking them off the market,’ said Daniel Blake, the center’s director and an economics professor at CSUN.”
“‘It seems to have leveled off. The erosion seems pretty much to have stabilized,’ said Jim Link, chief executive officer of the Van Nuys-based Southland Regional Association of Realtors, of the sales slide. ‘But I don’t want to paint a rosy picture and say things will be better real soon.’”
The Fresno Bee. “Fresno experienced double-digit appreciation during the real estate boom that peaked in 2005. In August of that year, an analyst for economy.com labeled Fresno the most overpriced housing market in the nation. That came three months after the Federal Deposit Insurance Corp. classified Fresno as a ‘boom’ market because values climbed 58% between 2002 and 2004.
“Experts said speculators fueled the market and helped drive up prices. But values fell, owners couldn’t refinance and thousands of houses went into default. ‘We had a great deal of speculation money,” said Patrick Prince, a real estate agent in Fresno. ‘That created inflated and unrealistic prices that our population could not afford. Prices have been going down for a year and a half.’”
“Sean O’Toole, president of Discovery Bay-based ForeclosureRadar, said a hard fall was a natural consequence. ‘If you believe in reversion to the mean, then the higher you get, the further you [fall].’”
“Real estate analysts say prices could fall some more, but they caution buyers against waiting too long to make a purchase because interest rates could rise and financing could become harder to obtain.”
“‘Trying to guess the bottom is the worst thing you can do,’ said Robin Kane, a housing analyst in Fresno. ‘You only see the bottom through the rear-view mirror.’”
The Patterson Irrigator. “Barring yet another unforeseen development, the Diablo Grande golf resort and housing development should be sold at a bankruptcy hearing Thursday. The sale, which is scheduled to be approved at 10 a.m. at the U.S. Bankruptcy Court in Sacramento, was initially supposed to take place at a hearing Aug. 19.”
“But sale negotiations were still ongoing between Diablo Grande and at least two potential buyers, so Diablo Grande attorney Michael Ahrens requested that the hearing be postponed until Thursday.”
“Ahrens said at the Aug. 19 hearing that Diablo Grande, which has taken out more than $2 million in loans to continue operating during the sale process, only has enough money on hand to make it through this week.”
“That could be bad news for residents, who rely on the water Diablo Grande has been providing by way of those loans. If a sale is not approved by the bankruptcy judge on Thursday, Diablo Grande might have no choice but to liquidate in Chapter 7 bankruptcy.”
“Diablo Grande has been for sale since at least November, when Encino-based Marcus & Millichap listed the project for $150 million. It later dropped that price to $85 million, but no sale was completed. The developer filed for Chapter 11 bankruptcy March 10.”
The Manteca Bulletin. “Three years ago not a single existing home that closed escrow in Manteca sold for under $320,000 in August. This August it is a drastically different story. Of the last 70 homes to close escrow in Manteca all but four ended up changing hands for less than $320,000.”
“That $320,000 home three years ago had 896 square feet, two bedrooms, one bathroom, no garage and a lot barely bigger than the house. The highest priced house closing escrow so far this month for under $320,000 in Manteca - $312,000 - was for 3,166 square feet with five bedrooms and three bathrooms.”
“Aggressively priced homes started hitting the market in July as many banks undercut previous price points as they went to list new foreclosures. The aggressive change in bank pricing and the growing tidal wave of accepted offers has dropped the average sales price for the year down $8,252 since July 21 reflecting the much lower selling prices.”
“That reflects a drop in the average value of $235.80 a day for the past 35 days. And that average is destined to drop even farther. There is a record 290 pending deals in Manteca with an average price of $223,330. But the real story is the pending foreclosure sales that account for 212 homes and an average selling price of $200,006.”
“Agent Jim Muthart said the ‘magic number’ that is assures a home will move quickly unless it has major structural issue or some other unusual circumstance is $170,000. That is a price at which an investor can buy the home with 20 percent down, drop some money into it and still come away the first month renting it with a $100 positive cash flow.”
“Others argue that magic number is $220,000 to $230,000 but as Muthurt pointed out homes bought in the $170,000 and under price range are the largest segment of the market seeking rentals which is $1,200 or less a month”
“As to when the market will bottom out, Muthart is fairly confident it is at the bottom or near it - at least when it comes to the lower end of the market.”
“It’s a bottom he described as a ‘bouncing up and down’ along the bottom where one home lands with a lower price while a similar home gets a bounce up from the bottom due to spirited bidding wars.”
The Bakersfield Californian. “The Southern Oaks house where David Crisp has been staying in recent months - after the once high-flying Realtor lost all of his own properties to foreclosure - fell into default Tuesday, county records show.”
“The property is owned by real estate broker David ‘Ty’ Stewart. ‘I’d like to keep it if I could,’ Stewart said, ’so I don’t have to evict a tenant who can’t pay rent.’”
“Monthly payments are $4,500, Stewart said, and the interest rate is 12.5 percent. The house is also worth $200,000 less than Stewart bought it for, he said, because of the declining market.”
“Stewart bought the house in August 2006 for $629,000, county property records show. A pair of ‘piggyback’ loans from SunTrust Mortgage Inc. provided 100-percent financing.”
“The property was listed by Crisp & Cole Real Estate, Crisp’s former company, when Stewart bought it, listing records indicate. Stewart was the listing agent.”
“‘I’m just a victim’ of the down economy ‘who’s struggling like everyone else,’ he said.”
“‘I’m just a victim’ of the down economy ‘who’s struggling like everyone else,’ he said.”
what a trooper
5.5% unemployment w most Americans biggest problem is being fat
taxme,
Well if YOU had David Crisp for a tenant maybe you’d feel differently!? LOL. Sheesh, remember early on when we theorized that much of the speculation was generated by realtors themselves? Not much question of that now.
“Real estate analysts say prices could fall some more, but they caution buyers against waiting too long to make a purchase because interest rates could rise and financing could become harder to obtain.”
SHOW me a RE agent or a member of the REIC that DOESN’T have a good THREAT handy which dribbles out of their mouths when it comes to you catching the falling knife
“Real estate analysts say prices could fall some more, but they caution buyers against waiting too long to make a purchase because interest rates could rise and financing could become harder to obtain.”
…Which will drive prices down even more, Mr. Real-a-turd anal-ysts. Waiting is the best medicine for these fools.
TAKE YOUR MEDICINE!!!
I love the sayings from their book : Interest rates are going up, don’t be priced out. Prices are going up ,don’t be priced out. The bottom is NOW, don’t wait. Real Estate only goes up. In three (five) years you’ll look back and be a genius.For downpayment assistance buy before October 1. And others.
“I’ve just a victim” “I’m just a victim”
Whiner. Doubled-down at the blackjack table with someone else’s money, and he’s a victim how again?
Loser.
“‘I’m just a victim’ of the down economy ‘who’s struggling like everyone else,’ he said.”
Some victim. No better than the kid that complains of being an orphan after shooting his parents.
“This thing’s going to hit bottom some point in mid-2009, and it’s going to sit there for two years —- at least,” said Christopher Thornberg, an economist at Beacon Economics in Los Angeles. “I’ve heard people say you’re going to miss the bottom. You’ve got to be kidding. If there’s any asset market where you can’t miss the bottom, it’s housing.”
The only reason I doubt this opinion is that the Alt-A and prime resets will not peak until 2010 or later.
“‘In Santaluz, there’s some foreclosures and short sales coming onto the market, so that will set a new price point,’ Elegado said.”
I don’t personally need or want a large home on the golf course, but if the price of said homes are hammered by future foreclosures, anything of lower perceived value will accordingly sell for still less, including right-sized homes far away from the golf green.
“This thing’s going to hit bottom some point in mid-2009, and it’s going to sit there for two years —- at least,” said Christopher Thornberg.
He had to have been misquoted here by the note scribbler. I don’t see how CT would’ve said that given his past ability to point out pitfalls in the bubble market environment.
rob
He has chosen 2009 as the bottom, which is uncharactistic of him. His past method has been to use the fudge word “at least” right in front of any number he gives, then to push out the date and price drop by larger and larger amounts as time goes on. But he seems to be sticking to this 2009 number. I think some markets (the subslimiest) will bottom out by then, but not others (the nag-am “prime” hoods).
If he is a homeowner an Alt-A or prime hood, then he may be reluctant to admit that his own environment is not immune.
Either that or he thinks those people in Alt-A/Option Arm land are bailing a lot sooner than the reset chart would predict.
I think they missed a qualifier. I’ve noticed the message Thornberg states in the videos is different than snippets. Maybe the next sentence or a later one qualified the bottom.
I’m with the consensus. We’re entering the 18 months of the fastest price drop.
Got Bless Thornberg. His income is dependent on what he says. Thankfully he’s broadcast about the bubble for a while.
Or maybe he knows about steeper price drops this winter than we’re ready to predict.
Got Popcorn?
Neil
Perhaps CT expects 40 pct YOY declines in CA SFR prices to continue until the avalanche comes to rest at the bottom. At 40 pct YOY, prices would be down by a total of (1-(.6)(.75))*100 = 55 pct by this time next year. That still strikes me as a bit on the high side for the bottom in CA prices, but perhaps if that were the nominal price decline overlaid on higher-than-reported inflation, it would pencil out?
Only if there is wage inflation, which won’t happen since that is all the Fed fights.
No wage inflation means that high inflation forces LOWER housing prices since peoples’ limited incomes are consumed by everything else rising in price.
To me, a golf course home means that you’d be living in a meteor shower.
Never undertood the logic of buying on a golf course, and I like to golf in days gone by.
A friend of mine had his window replaced enough times to finally shell out the money for an unbreakable one, and believe me, it cost (after the second time I would have bought unbreakable).
Ya just can’t make this stuff up!
Leigh
Renting on a golfcourse nearly got me slammed in the head. Just walked out of the kitchen, and a ball winged through straight to the dining room. Shattered glass everywhere. Thankfully I had just left those areas. After that, I would open the door and yell out… TAKE LESSONS!
Golf courses are not to enjoy your outdoor patio during daylight hours. So what good is it ?
A friend of mine told me about someone she knew of whose father was hit in the head by a golf ball. It left him permanently disabled and in a wheel chair.
It is insane.
If you live in “duh ‘hood” where random bullets come crashing into your house and causing injury, you pay less.
If you live on a golf course where random golf balls come crashing into your house and causing injury, you pay more.
It’s all in the marketing - the spin!
“Buy now, or be prices out forever!”
I think the Alt A recasts on neg am have pulled in the original Ivy Zellman date to peaking in 2009. There will be continuing resets and recasts for several years afterwards.
Also, I’m sure that Thornberg and others are wondering about the effect of retiring and downsizing boomers. A good number will be selling their houses or renting them out, doesn’t matter which, and should further compress the market for larger homes.
There also may be a slower increase in population and outmigration of the illegals. If that happens deflationary pressures will increase.
Christopher Thornberg “I’ve heard people say you’re going to miss the bottom. You’ve got to be kidding. If there’s any asset market where you can’t miss the bottom, it’s housing.”
yea well I have another housing expert here none other than Robin Kane realturd,
“‘Trying to guess the bottom is the worst thing you can do,’ said Robin Kane, a housing analyst in Fresno. ‘You only see the bottom through the rear-view mirror.’”
HA rear view mirror ever thought of that smart guy ?
There’s a body of opinion that those resets won’t be relevant b/c people will abandon WAY before then. It’s interesting that I’m seeing a whole new batch of “denial” clients that are “checking their options” who were in the RE bus., making 300-400k/yr. and now have virtually no income and $200k in CC debt. I’m thinking about the possibility that this thing may be forced to the bottom a whole lot sooner than the forecasts. How long it stays down is anybody’s guess. I’m thinking 7-10 yrs.
Anecdotal, Alt A walk-a-ways are baked.
Word on the street - leave now and buy cheaper home, abandon large mortgage.
Said Ivy chart for second wave is happening now, second wave. What second wave.
Home borrowers are walking, NOW.
This will end well.
Leigh
I bought a nice house in Minnesota in 1988. It’s price remained constant till I sold it in 1998. Considering all the maintenance I put into it, the Realtor made money, but I didn’t even break even.
I’m not complaining as I couldn’t have rented a comparable situation for less.
“‘This thing’s going to hit bottom some point in mid-2009, and it’s going to sit there for two years —- at least,’ said Thornberg. ‘I’ve heard people say you’re going to miss the bottom. You’ve got to be kidding. If there’s any asset market where you can’t miss the bottom, it’s housing.’”
My realtor says “Buy now or my commission is lost forever!”. Brokers in any asset class want churn and giving the impression prices are at either of the two extremes tends to generate increased sales volume.
I never bought any property and i knew this from my father…..investment property means a positive cash flow…
What happened to the other 10 million doofusses who couldn’t figure this out?
===========================
“Agent Jim Muthart said the ‘magic number’ that is assures a home will move quickly unless it has major structural issue or some other unusual circumstance is $170,000. That is a price at which an investor can buy the home with 20 percent down, drop some money into it and still come away the first month renting it with a $100 positive cash flow.”
Gee, $100 positive cash flow - a month.
All that trouble and hassle for $100 a month… Then if you have to evict the renter - negative cash flow.
Sounds kind of silly when I think about the $3,000 I make last week in the stock market when I sold a position I’d held for a week.
And I didn’t have to fix a heating system at 2am either.
Yeah, real estate is really attractive right now. Going to go out and buy the 30 houses I’d need to equal the money I made in the stock market, right now. Must hurry before the sale ends.
Hell, even at today’s low rates, you could put that $34,000 (20% down payment) into a CD and make more than $100 a month, hassle free.
This is also something I’m wrestling with. My principle residence makes me NO MONEY! It costs me every month a pretty sizeable chunk. Why NOT pay it off? My commercial property makes a pretty good monthly income above and beyond my Mtg. pymt. That’s a good thing. That makes sense. I still remember people telling me that “leveraging other people’s money to buy SFRs is sooooooooooo smart”. Really? Not so much. . . .
Be debt free…
There is a song somewhere…
Leigh
There is a special place in Stupid for people like them.
At the end of the war in Viet Nam, a young man that was drafted wrote home to his mother. He stated that “he just wanted to get home safe, earn enough money to have a small apartment and have enough left over for coffee to enjoy with himself and his friends.’
Sadly, this young man never made it home alive to his simple wants and dreams, as he was one of the last US Servicemen killed in that conflict. ( Letter’s from Viet Nam I believe)
The contrast and chasm between people’s needs, wants and dreams of today and that young soldier of long ago…. will never ceases to amaze me
Eh, I think there’s still enough people like that out here today. They just don’t get interviewed by the Media Powers That Be. And they certainly aren’t the ones buying 750K pieces of garbage and then doing the jingle mail thingy.
But I’m Mister Believe In Your Fellow Man, and my glasses get a little rosy at times.
Wife and I have this debate all the time, she thinks the vast majority of people on the planet are basically in it only for themselves, I think that there’s at least a majority of decent people out there. I just think we tend to remember the jag-bags more.
Personally, I think most people are just dumb, and that’s what makes it so difficult to understand anything outside of themselves. Mean and stupid usually go hand in hand, I’ve noticed.
Steve,
I’m in your camp about people.
Frankly, I don’t mind the world being populated entirely by people who think only of themselves — as long as they’re honest and competent about it.
As long as people give real value for the money they make, the world is made better off for everybody. Where things go south is where money stops being a store of real value, and becomes a fraud that can be manipulated, diverted, speculated, and grafted by those with the right connections.
The FIRE economy is the natural result of fiat currency and fractional-reserve banking. And it creates absolutely nothing of value. Let it burn, and maybe we can build something real among the ruins.
Is it smart to think you’re better/smarter than most others? Maybe there is a special place in Stupid for arrogant people who spend their time patting themselves on the back . . . . about how they have a special, correct vision of reality . . .
Maybe there is a special place in Stupid for arrogant people who spend their time patting themselves on the back . . . . about how they have a special, correct vision of reality
Lol, you sound like someone who leveraged up on Boston Real Estate thinking 20% appreciation was the norm and positive cash-flow was for chumps… how’s that alligator treating you?
There are many ways to measure intelligence. Chances are I’m going to come in above 90% of the population of the US in all of them. I also earn more than 90% of the population of this country… doesn’t mean I’m better than anyone else or that I won’t make mistakes in life.
What it does mean is that I was able to recognize an unsustainable bubble and protected my family from it. It means that while all the drones bought SFH at unsustainable prices because “everyone was making a killing”, I bought a cash-flow positive multi and have no worries. It means when asset deflation and the credit crunch is crushing you, I’m increasing my cash savings and investment pool by thousands every month.
Go take your anger at being part of the herd somewhere else.
Good stuff. And when the “smart people” were all buying in ‘04 and ‘05 weren’t **they** the arrogant ones? I was really dumb back then according to most. “Why don’t you buy?!? Real estate only goes up!”
I think I have a right to be just a tad smug.
Another bitter house debtor, LOL
Cash flow is old school. Investing is all about the guaranteed 20% a year appreciation.
“Real estate analysts say prices could fall some more, but they caution buyers against waiting too long to make a purchase because interest rates could rise and financing could become harder to obtain.”
But if interest rates rise and financing becomes harder to obtain, prices will fall more. What’s the hurry?
In fact, I would love nothing more than a scenario where interest-rates skyrocket, and (affordability being the only eventual sane pricing-metric) prices plummet even further and faster. Then when I buy with cash, I can get a _real_ bargain.
Oh yeah, and maybe collect a reasonable return on my savings in the meantime as well. As opposed to the negative real rates I’m getting right now.
I don’t think the Fed will stand for it.
Except when that happened in the 70s prices didn’t fall except for a very short 6 month period…, why? because inflation was rampant. Cash is evil when inflation is high.
Anyway, Bubble is deflated where I live. Just bought an investment property with 20% down that is renting for $1800 w/ mortgage/insurance/gardner/taxes at $1200/mo. People around were asking me why would I buy a house with prices falling? I said, I don’t care if the price goes to zero, this is a good ROI any way you cut it, much better than any bond I can buy.
Hmm, you paid under $200k (including the 20% down).
And it rents for $1800?
Ain’t possible where **I** live.
WAGE INFLATION may have been rampant at that time, and that is what drove higher housing prices.
As has been said before, this time around, there will be no wage inflation.
Prices on needs will increase.
Assets and the buying power of your salary will decrease.
This will lead to a long-term price drop in housing simply because nobody can afford to pay higher prices and the toxic loans are no longer an option.
The hurry is that a certain crowd can’t come to grips with working the fry machine on the night crew after making six figs hustling houses/debt.
Yep! Don’t wait too long cause once rates rise then houses will no longer need to be sold!
‘If you believe in reversion to the mean, then the higher you get, the further you [fall].’”
What else is there to believe in, butt-plug?! Oh, I’m sorry….. I guess there are other reliable housing forecast philosophies, such as “tress growing to the moon” and all. Sorry, my bad.
“‘Trying to guess the bottom is the worst thing you can do,’ said Robin Kane, a housing analyst in Fresno. ‘You only see the bottom through the rear-view mirror.’”
No, what you see in the rear-view mirror is me driving a JT up your can. The bottom, on the other hand, is something that will be with us so long that the word “appreciation” and “real estate” will stop being used in the same sentence.
Okay, here’s a sentence: I’ve developed an appreciation for reasonably priced real estate.
I’ve developed an appreciation for reasonably priced bottoms.
I have an appreciation for watching real estate agents’ income hit bottom.
If it’s so “impossible” to estimate a bottom, then why the big rush? B/c prices are so sure to shoot up? Oh… I get it now: *falling* (real) prices are impossible to predict and a bizarre, once-in-a-lifetime occurence. But *rising* prices are a sure bet and totally easy to forecast.
I wonder if Realturds own cars with only an accelerator pedal –and no brakes.
Don’t know about their cars, but their mouths definately have no brakes.
You crack me up EX…
Amazingly reporters continue to print this as if it’s a fact. I’ve seen the same statement in countless other articles. No one explains how more expensive financing won’t force the price of property down further.
It will…..
Su included a brief analysis in a local market newsletter he sent out Tuesday: Of the 337 new home listings entered on Aug. 21 and 22, 135 of them were bank repossessions relisted for sale, and another 82 were short sales. As such, 64.4 percent of the listings entered were bank-owned or short sales.”
Only 35.6% more to go. The ratio of REOs to short sales is steadily increasing. In the darkest days, that ratio will be 10:1.
Prices of houses will hit a bottom eventually of course. The price will stay on the bottom years and years. New paradigm. House prices and inflated prices since 1992. So……2008 to 16 plus more years. The roller coaster.
remember when :
Reports of *neighbor rage* if one lowered the price of one’s house ? ‘for sale’ signs pulled down and all.
not any more.
targetdrone,
Yes I DO recall. At today’s rate you’d be one tuckered out neighbor though wouldn’t you?
Here we go with Manteca again! 3 years ago every home that closed escrow in August was over 320k! Wow, how times have changed?
Manteca is a commuter community for the bay area.
Yes, it is a sh*thole.
Mike
“Agent Jim Muthart said the ‘magic number’ that is assures a home will move quickly unless it has major structural issue or some other unusual circumstance is $170,000. That is a price at which an investor can buy the home with 20 percent down, drop some money into it and still come away the first month renting it with a $100 positive cash flow.”
$100 ? Why even bother ? It’s just not worth the trouble any more with so many two bit players fighting for the same renters.
I’m pretty sure I can find $100 a month in the vending machine change slots at work.
Just $100 a month? That is one sorry Mutha…
Shut yor mouth……SHAFT…can you digg it?
Right On!
I’m just talkin bout shaft?
For the most part, I agree that $100 a month isn’t worth the time and effort and hassle of owning a rental. However, there is a tax benefit (depreciation) that makes the after-tax return more than said hundred bucks.
Ever hear of deprecation payback ?
And in this economy the 120 rule is being generous to these mouth-breathing buffoons.
120 x $1,200 = $144,000.00
And I wouldn’t be counting on that 120 rule, especially if interest rates go up and the economy goes down. I think the 100 rule is more realistic and we know what happens if rents go down. So, the good news is there is more pain for knuckle-draggers like this guy. The bad news is that I can’t personally rub it in his face when the “investment” goes bad.
We have another 25 pct drop ahead of us to get to the 120 rule in SD.
Well I’m so happy for California renters but I would really like to see the same here in DC metro. Prices close in have quadrupled in just a few years. It may have been undervalued a bit - it was one of the cheapest big cities before the boom. But tripling/quadrupuling??? And pretty much holding ?? No way do incomes around here support that increase. So, what’s going on here - anybody have any idea?
Are you talking about rents or house prices?
The most inventory was added in far out burbs, where there was cheap land available to build on. PW County has gotten hammered - 36% y-o-y decline in median with a huge volume spike to boot. Rock solid, Brady Bunch middle-class Fairfax County is down 20%, y-o-y. It is eating its way inward, same as last time. Job scene is still very good here, but the easy mortgage money is gone. Be patient, you won’t believe how bad it will get.
Unfortunately, salaries might not support a 750k middle class home, but with both spouses working in government or government contracting, you’re making easily 150k between two salaries.
Not to mention, everyone is moving here, because taxpayer $ (er, borrowing from the Chinese) is the only game in town. Employment is up in the area because of all those people needed to spy on everyone else.
I think the DC area will be one of the least hardest hit. People here are more than dumb, they’re stubborn, too.
Since when does 150k buy you a 750k house? Yeah, everybody and their dog works here but small houses are going for 1.2 M in DC metro. 1bdr condos that aren’t in a crime infested neighborhood are going for 300k. People have got to be leveraged to the hilt to afford these places. And what happens when the @#$t hits the fan. And you know at some point, it will for a percentage of the people here. Illness, divorce, etc. And defense contracting is cyclical. Growing up in CT just outside of NYC, the property values skyrocketed in the 80s. But those people were already rich and most worked in Manhatten. Sorry, I don’t see how the Federal Gov’t (which is near broke) can support such exhorbitant housing. It doesn’t make sense.
Hi Matt:
I live in the SF bay area, where the smug is so thick, you can cut it with a knife. You think DC is special? Bwwwwwwahahahaha! DC can take a back seat to my dumb and stubborn town any day of the week.
dc_renter,
Wish we in the PNW could be of more help but we’re confronting some of those issues ourselves. RE shills here love to cherry pick and focus on 2 maybe… 3 years of rampant appreciation. When in fact we’ve been ramping up since the late 80’s/early 90’s.
I imagine when a lot of those condos go “repartment” you’ll see rents and ultimately prices come down.
My sources show that the typical asking price in DC has come down about $130k, and that REO inventory is rising, even while regular inventory is decreasing.
Gumit garunteed jobs !!!
Put a substantial amount of $$ into a 4.25 one year CD at Amtrust bank in Ohio last week mainly because its my neighborhood bank and I’ve banked there for years. Than I see its on the FDIC unofficial troubled bank list. Start reading about their business model and it shows a privately held bank which has expanded aggressivey into the 18th largest mortgage originatior in the U.S. and also a lot of CRE loans. How worried should I be here - I’m thinking about taking the early withdrawal interest penalty and just paying off my mortgage and forgetting about it (which I would never do under normal circumstances but I have no idea how to discount what is going on with the FDIC -it seems debts are forever but seemingly safe assets like FDIC insured CD’s may be contingent on how things play out)…any thoughts? Thanks…
if its over 100K I’d be worried
Ditto.
If its under $100k, ride it out. Kiss any penny over $100k goodbye unless you have multiple names on the CD.
Do you have a spouse? Put the spouses name also on the CD! Relatives *who do not bank at that bank?* Put up a revokeable trust for your nephews/nieces.
Note: Relatives of ours informed us they were using our name at certain banks. We told them NO! We pointed out at one of the banks we were maxed out (well… close) and how at a few others where they wanted to use our name (in a revokable trust), we were considering moving money and our name protects our money. Harsh love? Yea. But I’m tired of them not listening to the fact we were in a huge bubble. After I put a little fear in them (of their money), suddenly they would listen a bit more.
Got Popcorn?
Neil
Take the penalty (trivial at this point). Pay off the mortgage. You can’t count on FDIC paying out 100% even on the insured accounts one year from now. If it does, it will likely be with grossly inflated dollars.
The Manteca/Merced/Modesto axis of indebtedness is something to behold…
An integral component of the Hwy 99-adjacent real estate disaster.
Axis of indebtedness. Now there’s a catchphrase to catch and hold on to.
Don’t you mean “Asses of Indebtedness”?
IAT
“My sources show that the typical asking price in DC has come down about $130k, and that REO inventory is rising, even while regular inventory is decreasing.”
Huh? My rent in an old building has increased over $200 in the last 3 years. I’m talking about the area around D.C. - about 5 miles or so. No way has the asking price declined by 130k in this area. Check your sources again.
Are you talking about rents or buy prices? I’m talking about buy prices. I don’t have a way to track rents in DC.
Here in CA, I have heard many stories of people getting mad because their rent went up. It always turns out that they hadn’t gotten a rent increase in 5+ years, then suddenly it goes up by 5%, and they’re shocked. I don’t know if that’s what happened to you or not, but I’m just saying that rents in CA are increasing at slightly less than inflation. In the Bay Area, rental prices are still less than 1/2 of what they were during the dot.bomb.
You should check around on craigslist and see whether or not your LL is charging you more than market rate.
Looking at Zillow, house prices in the Washington, DC area started to go down, then started to come back up again, then started to go back down again. Just like San Francisco. That is very annoying. All’s I can say is wait. It might be neg-am prime lending.
Wowser…
2/3rds of the new listings are the debris field of foreclosures, held by financial institutions that are all waste deep in Mariana Tranche.
How low could San Diego real estate go, really?
========================================
“Foreclosure-related properties constitute the vast majority of houses coming on the market, said Ramsey Su, a local retired real estate broker and investor who sold bank-owned properties in the 1980s and 1990s. Su included a brief analysis in a local market newsletter he sent out Tuesday: Of the 337 new home listings entered on Aug. 21 and 22, 135 of them were bank repossessions relisted for sale, and another 82 were short sales. As such, 64.4 percent of the listings entered were bank-owned or short sales.”
Eventually a bunch of banks will hijack a couple of 500KT nukes and blow up the city. They’ll blame terrorists or china or north korea.
Then they will try to collect insurance on the entire disaster.
You know, I meant this to be a joke and then I started thinking… maybe they’d try this….
You think Korea has a 500kt nuke?
I’m seeing the same thing in my area - Loudoun county VA. I started tracking the ratio of foreclosure listings vs. non-foreclosure on a weekly basis starting in Oct. 2006. Summary is:
Oct 2006: 3.8%
Mar 2007: 8.4%
Sep 2007: 13.9%
Mar 2008: 26.5%
Aug 2008: 38.1%
And that’s only bank-owned - not properties up for auction, which is about half again as much.
“$170,000. That is a price at which an investor can buy the home with 20 percent down, drop some money into it and still come away the first month renting it with a $100 positive cash flow.””
aaah..What a great investment.
Fork out $34,000
And you may get $1200 a year in cash flow.
BUT wait. Don’ t forget property taxes and maintenance.
And repairs. Not to mention vacancies and advertising to fill those vacancies.
And phone calls and complaints. And the tenants wanting a new washing machine to match the new dryer you just got because the old one in the rental unit went little adjustable feet up. Also looking at the wreckage and the horrible smells when the tenant from hell leaves. Oh boy, that was a bad experience. Good tenants that we’ve had for the last 3 years asked for a 6-month extension on their lease, though. We said, ” OH HECK YES” to them.
Well, dont write off the fact that the mortgage is being paid off.
Watch out for the land trap & moral hazard on the 7th hole…
=======================================
“That could be bad news for residents, who rely on the water Diablo Grande has been providing by way of those loans. If a sale is not approved by the bankruptcy judge on Thursday, Diablo Grande might have no choice but to liquidate in Chapter 7 bankruptcy.”
I’d be more concerned about the (under)water trap if I were a San Diego owner of a home on the fairway…
Yeah, and there’s some guy with a Joshua Tree in the rough after the 7th hole.
Uh-oh, looks like it’s ex-nnvmtgbrkr, and he’s just itchin’ to deploy that JT.
The water trap is full of alligator mortgages…
That is just wrong! I will now have this image forever burned into my brain when I go golfing. I’m going to be looking over my shoulder (and lauging) whenver I get to the 7th hole.
Tooo freakin funny!!
“Kelly Cunningham, an economist with the San Diego Institute for Policy Research, said the sluggish wage growth does not bode well for the county’s beleaguered housing market.”
a far cry from her paper in April which suggested a minor drop in area GMP. (caution 20 pg pdf.)
San Diego’s Economic Outlook for 2008 and Beyond
April 10, 2008
http://www.san.org/documents/airport_authority/advisory_committee/08Mar/SanDiegoEconomicOutlook_2008x.pdf
The other side is that she was a real estate economist prior to this nfp job.
There have been over 300 Mass Actions filed with the state of California in the last 2 years in the city limits of San Diego. I would say employment does not look good. The predominant jobs leaving (excluding financials) are biotech, pharmaceutical, aerospace and medical. Even Nissan canned 100 designers to save money and move to Detroit.
Nissan’s moving to Detroit? Oh, my. What is this world coming to?
“‘In the early part of this decade, home prices were rising so fast that there was no way our income could keep up, which was one reason for the price bubble,’ Cunningham said.”
Stagnant wages did not cause the housing bubble.
That’s truly a “pigs are flying” moment? How is Detroit better then San Diego?
Permit me to venture a guess:
Michiganders, as compared to their Western (and Southwestern) counterparts, still have a work ethic. And they tend to be friendlier and more courteous.
Let me guess: Housing for autoworkers is relatively affordable in Detroit?
Oh yep. Oh yep. Oh my, yes. Lots more affordable (read in “foreclosed on” ) housing in Detroit and its surrounds.
There have been over 300 Mass Actions filed with the state of California in the last 2 years in the city limits of San Diego. I would say employment does not look good. The predominant jobs leaving (excluding financials) are biotech, pharmaceutical, aerospace and medical. Even Nissan canned 100 designers to save money and move to Detroit.
Please tell me how you look up this data for a county.
I know anecdotally aerospace is leaving all of SoCal in Mass. But I couldn’t quantify as you just did to that number. I work off of the companies I know well. But I realize they are less than half of the SoCal aerospace employment.
Nissan must have had a tiff with California. They’ve really moved a ton of jobs out of state. Were the designers really canned or did they dislike the idea of Detroit that much?
Got Popcorn?
Neil
Neil,
What do you do for a living?
Neil,
I keep this data for every major city, county and state in the US also for every major company. I use the data to evaluate companies to purchase, companies to invest in.
Eating peanuts tonight. As you know during any good show, you should alternate peanuts and popcorn.
“Just before consumers stop doing something, they do it with a vengeance.”
Anybody in for this fear hippopotomonstrosesquippedaliophobia? And is there a perverted sense of humor from a therapist in naming it such? In fact therapist is pretty scary by itself ‘the rapist’.
More than a coincidence?
San Diego is toast, their largest private employer, SAIC, a defense contractor, is slowing packing up and moving to its DC HQ. Its already happening, I know many who have been laid off and SAIC started subleasing some of their San Diego campus buildings. I have read the CEOs memos to the employees, the writing is on the wall. Its just too hard to attract talent to the region giving the cost of housing and young, talented engineers don’t bother sticking around. Will the last trabajo out of California please turn the lights out, thanks.
>> “As to when the market will bottom out, Muthart is fairly confident it is at the bottom or near it - at least when it comes to the lower end of the market.”
Haw! You wanted a “market,” you got a “market”!
Stocks, scratch. Hous…er ho-o-o-mes, scratch. There’s food. You want to create a food market next? They’re not makin’ any more food.
–
“to make a purchase because interest rates could rise”
They have been milking this cow for years. Scaring people into buying, including making them feel insecure, is as American as…
Jas
come to papa.
“Home prices in San Diego dropped again in June, reaching a point not seen since September 2003, according to the Standard & Poor’s/Case-Shiller Index released Tuesday.”
We bears tend to have long memories. 2003 should never have happened. It was pure hysteria. 30% price appreciation in the areas I care about (in LA). There is no hope of recovery until it is undone.
But think about that a second… Zero appreciation in five years! Zero appreciation during a time of crazy inflation (see shadowstats for numbers more believable than the government’s ‘official’ numbers).
And we’re about to enter the 18 months of the greatest price decreases! Oh chortle oh Joy!
Got Popcorn?
Neil
Chortle…snort.
Leigh
So basically San Diego soon to become a ghost town rife with zombie hordes. Kewl. Need to get my Mad Maxmobile ready for zombie-huntin’!
“‘In the early part of this decade, home prices were rising so fast that there was no way our income could keep up, which was one reason for the price bubble,’ Cunningham said. ‘Even though home prices have fallen, we have a way to go before they get in alignment with our wages.’”
I’ve been kind of curious, for the sake of those who are holding on to their 2005/2006 homes, waiting for prices to bounce: is there any way to figure where, say, minimum wage should realistically be before prices recover to those highs again? Like say middle class home going for $400,000 (2006 price), minimum wage should be around ____?
I just wonder if that might put things in perspective for people who are expecting a “recovery” to those high prices some time soon.
Yes: The old rule (which still makes sense) is to spend no more than 2.5 to 3 times your gross income on a house. These days, considering run away inflation, vanishing jobs, and soon to be higher taxes, I’d spend the bottom of that range. So, let’s go with 2 to 2.5 times your income.
That means to buy an “affordable” $400,000 house in Bubble-land, you’d need to make $160,000 to $200,000 a year. Good luck with that, especially in today’s job market.
Oh, and that assumes the 20% down payment, which most people don’t have these days, as well.
In short, prices need to CRASH! for things to get back to anywhere near normal. That, or we need massive wage inflation across the board without hyperinflation following in prices. That’ll never happen, so price drops it is.
It’s never going to happen. Slums for middle class workers, here we come! Don’t ask me what they’ll do with all the unsold McMansions.
I guess min wage would have to be 2x what it is now. So that would put it at, what, like $15/hr?
I just looked up the California minimum wage. Looks like it’s up to $8! $15 or $16 an hour sounds about right. And I guess the average wage would have to go up to around $135k a year. They recently said in the Sac Bee that the average wage in Sacramento was barely over $60,000, and it’s been stagnant a few years.
Wasn’t the average wage around $30k in the 80s? I expect it could take another 20 years for wages to reach that level where $400k for a middle class house makes sense. That just has to really suck for people who bought in the bubble and are waiting “a few years” for prices to bounce back. I like to think we live in a world where honesty and hard work are rewarded. But it seems those who do the honest thing and hold on to their financial obligations are getting screwed. Ever since the tech boom, I’ve been fascinated that every so many years there’s a new way for people to lose a lot of money. I wonder what the next money black hole will be?
I wish we’d see some of that price drop here in Maryland (”Bedlam on the Bay.”) Oh, we’re down 10% or so (barring places like Baltimorgue where nobody would really want to live), but housing prices doubled to tripled during the Bubble.
The Kool-aide is still flowing here, and while many people are slowly figuring out that maybe housing prices should be related to incomes, many other still believe that $300,000 to $400,000 is an “affordable” house (median household income for the state is only about $60,000), and that “BRAC will save the housing market” since apparently infinite people will move here from other states and immediately buy a house at 5x or more their income, and so on.
I even had a guy the other day tell me that to buy a place in Maryland, I should move to more expensive county since “the incomes are higher there.” Um… okay… so, moving to a place with a higher median income increases my income?! Right… whatever!
With math “skillz” like that, it is no wonder we have a Bubble or that it will take forever to deflate.
I just want to write in to say that you should stop talking to that guy. He will drive you crazy.