A One-Shot Deal
It’s Friday desk clearing time for this blogger. “With foreclosures flooding the housing market and bringing new-home construction to a halt, KB Home has launched a new line of starter homes that are priced to compete with bank-owned properties. Travon Howell, 23, recently bought a 1,287-square-foot, three-bedroom home in KB Home’s Rancho Valencia community. The base price for his home was $129,000, and with extras the price rose to $140,000. Howell, who works at a Caterpillar dealership, said his payments should be about $770 a month. Now, instead of looking for homes, Howell said his fiancée has him looking for furniture.”
“‘There’s a 10-year warranty, and it’s brand new, so you don’t really have to worry about anything,’ he said.”
“With 3,054 trustee sale notices issued in the first three months of the year, Pima County is on pace to easily surpass the 8,956 such notices issued in 2008. Retiree Frank Carlino, 71, is facing foreclosure on his north side home after buying it for $200,000 in 2006. Saddled with a first and second mortgage that total about $1,300 a month in payments, Carlino said he can’t make his second mortgage because he’s seen a drop in his life savings of about 50 percent.”
“He had invested in mutual funds, but after they plunged in value he moved his savings to two annuities that combined pay him about $500 a month. ‘I almost lost half of what I had,’ he said. ‘I said ‘take it out and close my funds out, I can’t afford to lose anymore. I can’t take any risk with what I have left.’”
“Carlino has been trying to modify his second mortgage with Bank of America, but so far he has had little luck. ‘I am in this sort of limbo, in a sense, not knowing what is going to happen,’ he said.”
“Since sales have slowed, some of the high-end homes that were built on speculation and would have sold briskly in a stronger market are being furnished and marketed as rentals, said Susan Breitenbach, an associate broker at Corcoran. Owners are making other concessions — like extending the lease through the end of September, say, or agreeing to absorb landscaping costs. Many owners ‘are spoiled,’ she said. ‘They are not used to having to do stuff like that.’”
“The slowdown in the rental market is mirrored in the sales market, where prices have dropped to 2006 levels. Preliminary first-quarter data from Corcoran shows that median prices have declined by about 20 percent over the same period last year, said Rick Hoffman, the regional senior VP for the Corcoran Group.”
“Still, Gary Wohl, an agent at the East Hampton office of Brown Harris Stevens, said he remained optimistic that the market would pick up. ‘There’s a lot of value here right now,’ he said as he showed off a 5,000-square-foot spec house on a quiet East Hampton street whose price has been reduced to $3.7 million from nearly $4 million. But people with unrealistic expectations are bound to be disappointed, Mr. Wohl added.”
“‘It’s never going to be a fire sale out here,’ he said.”
“Home sales in the Hamptons, the New York oceanside communities favored by financiers and celebrities, plunged 67 percent in the first quarter from a year earlier. ‘We are a luxury item, and people don’t want to spend money,’ said Judi Desiderio, president of Town & Country.”
“In East Hampton Village sales fell 81 percent, also to three houses. The total value of all homes sold there was $4.1 million, a 95 percent decline. ‘Those are your iron-clad, been-there-for-over-a-hundred- years, been-used-by-the-Kennedys areas,’ said Desiderio. ‘It’s the blue-chip, best-of-the-best. I would never expect that.’”
“When the foreclosure crisis hit Las Vegas, many expected apartment-complex owners to be the beneficiaries because those out-on-the-street homeowners needed to live somewhere. But the reality is that the shadow rental market of homes and condominiums continues to put pressure on apartment-complex owners, whose vacancies are increasing. They must offer incentives and cut rents to lure tenants.”
“John Tippins, a broker with Northcap Commercial, said he’s worried about the inventory that’s about to come on line to compete against apartments. Many condominium towers are going to provide some stiff competition, he said. ‘It is not the current inventory I am worried about, but the new inventory,’ Tippins said.”
“Tippins also said competition is stiffer from homeowners as well. ‘For the first time in four to five years, you can get a three-bedroom, two-bath on the beltway market from Summerlin to Green Valley for $1,150 a month. That is pretty scary,’ Tippins said.”
“Many contracted buyers at Vantage Pointe received an e-mail last night from the developer of the largest condo building downtown, which is slated to start selling units in May. I’d spoken to Brian Stoddard, president and chief operating officer at Pointe of View, in October after I’d heard that Vantage Pointe might be rented out. He told me then: ‘That’s not something that we’ve said officially.’”
“But in this e-mail, Stoddard dropped this news: ‘Most of the new condominium projects in the downtown San Diego area have an inventory of available homes that are being leased. Although our primary objective is to continue to sell all of the homes at Vantage Pointe, the Developer also plans to implement a leasing program during the sales process. The leasing program will bring vibrancy to Vantage Pointe during the sales process.’”
“Even though a foreclosure pandemic has forced thousands of local families from their houses, apartment managers said they are struggling to keep their units rented, even in desirable communities on the coast. At the same time, pressure on landlords is delivering relief for renters. Tradition, an apartment complex in Carlsbad, has cut its asking rent for a three-bedroom apartment from $2,015 to $1,799 per month, said Kris Nelson, business manager for the complex.”
“‘Who knows where the people are going, but if people can’t pay the rent, they can’t pay the rent,’ said Nathan Cadieux, a multi-family housing analyst with a San Diego real estate firm. ‘If you’re looking for a job, why would you stay in San Diego and pay $1,200 while looking for work when you could be in Arizona looking for a job and paying just $600 per month?’”
“Realtor Kevin Moran has a second line of work where he goes out and assesses the condition of homes for lenders who may want to rework the loans. ‘I appraise and inspect over 200 homes a month, and, anecdotally, 30 to 40 percent are vacant and the lender doesn’t know it,’ he says. That means there could be a second wave of foreclosed properties hitting the market in the next five or six months.”
“But why would someone abandon a home before they’ve even been foreclosed on? Moran pointed to the house we were looking at. The debt owed was $403,000. A year ago, the bank agreed to a short sale, and the home went on the market for $230,000. The price was eventually lowered to $165,000, but the thing never sold. A couple of offers fell through. In February of this year, it was taken off the market, and the family just left.”
“‘There’s too many bad memories to walk in the front door,’ Moran says. ‘A lot of people, when you stop making the payment, there’s no joy in returning home.’ So they leave, and it takes the banks months to figure this out, and months more to put the home into foreclosure.’”
“‘Making money went out the window two years ago,’ says Joe Anfuso, CEO of private builder Florsheim Homes. ‘We’re just contributing to cash flow.’ The point is to stay alive until ‘this market turns.’”
“And he’s also dipped his toe back into buying land, participating in a joint venture to buy land once worth $120,000 a lot for $18,000.”
“According to RealtyTrac, in January, Gresham saw a high of 115 foreclosures. That’s 27 percent higher than Portland’s 84 and 64 percent more than Troutdale’s 41. A map of local foreclosures shows no community is immune. Homes are foreclosing in East County’s more affluent communities, such as Persimmon, Fairview Village and Blue Lake.”
“Fairview resident Kari Hastings is all for improving areas affected by foreclosure. The house across the street from her Fairview Village home is in foreclosure and the yard is a far cry from its former immaculate glory. When the wind blows over flowerpots on the porch, Hastings rights them. She picks up free publications piling up at the front door and retrieves mailers and trash from the yard.”
“‘It’s just unsightly,’ Hastings said. ‘You don’t want to look out your front window and see newspapers piling up.’”
“After more than a year of working with the Southwest Police Precinct and reporting to Seattle’s Department of Planning and Development, Mike Dady has grown tired of complaining about the vacant homes in his north Delridge neighborhood. Dady said the issue became a major problem after the housing boom from 2005 to 2007. During these years, he said many properties were purchased for the development of town homes or other multifamily units. Now, many of those projects are on hold and the vacant houses resting on the properties are stagnant.”
“He’s not alone in his frustration. A number of neighbors see the abandoned, run-down homes in their neighborhood as a drain on the local community. ‘It takes energy out of our neighborhood,’ said Dady. ‘It takes away the quality of life.’”
“Alaska’s foreclosure rate rose 36 percent in 2008 over the year before, the highest rate in 15 years, according to a report from state economists. The state reported a total of 1,131 foreclosures. The regions most susceptible are the areas with the highest populations - the Anchorage and Palmer recording districts.”
“The reasons for the increase in foreclosures are job losses and falling wages, a ripple effect of the Lower 48 economic downturn. Despite the large increase, however, Alaska has the third-lowest rate nationwide. ‘We are very fortunate to be here in Alaska, we have a good story to tell about our situation here compared to Ohio or Michigan,’ said Paul Kapansky, director of mortgage operations at Alaska Housing and Finance Corp. ‘The only real difference is that instead of a house being on the market for an average 30 days, houses are now selling more like 70 days.’”
“New housing construction is slowing as starts were down 63 per cent, year-over-year, in the Regina census metropolitan area in March 2009, say industry analysts. ‘The thing we have to remember here, is that we’re comparing this year’s numbers with an extremely strong 2008 — actually 2007 was pretty strong also,’ said Paul Caton, CMHC’s senior market analyst for Saskatchewan. ‘When you do that … you get some pretty sharp declines.’”
“‘There’s a lot of builders who built homes in the last couple of years for customers who were actually speculators, so they’re not actually moving into those houses,’ said Ted Reilly, sales manager for Gilroy Homes. ‘Now those houses are on the market.’”
“Caton expects housing starts in urban Saskatchewan to remain lower this year than in 2007 and 2008, settling around pre-2007 levels, which were still historically high. However, he forecasts 2010 starts to increase over 2009, just not to the same levels seen in 2007 and 2008. ‘That was a one-shot deal. They were the highest starts that we had seen, in some centres, in 30 years,’ he said. ‘We don’t expect that we’re going to see that again in the near future.’”
“John Steinfath is not giving up on his $20,000. That is how much the Englewood contractor paid to install custom mirrors and shower doors in a luxury Nokomis condo building. Steinfath spent two years seeking payment as the Harbor Villas condo project sat vacant, eventually sliding into foreclosure last month.”
“Harbor Villas will be up for auction soon, and Steinfath hopes the next owner will honor the last one’s debts. ‘I have too much invested in this to stop now,’ said Steinfath.”
“In better times, developer, Trendy & Trendy LLC owners handed out $100 bills to real estate agents to boost sales. After the real estate decline, Harbor Villas became one of the most conspicuous empty buildings on Tamiami Trail. But it is certainly not the only one.”
“Next door, another building is less than half built. The developer stopped construction with the steel support beams still exposed. The property is for sale. Up the street in Osprey, the new two-story Bay Street Village shopping center sits largely vacant.”
“To the south, at Warm Mineral Springs in North Port, another developer’s dreams for a resort and ‘Fountain of Youth Institute for Natural Healing’ ended in foreclosure earlier this year, with another owner taking over.”
“There is little money available for real estate deals these days, but Steinfath is undeterred. ‘I did the work,’ he said. ‘Somebody should pay for it.’”
“With hundreds of new luxury high-rise units on the market in Dallas, two of the newest buildings – the House and 1900 McKinney – are luring residents with deluxe features and eye-catching design. That’s important when there are fewer customers in the market. And it’s even more critical at the top levels of the Uptown housing market.”
“‘The consumer is very sophisticated on what tricks will work,’ said Dallas housing analyst Mike Puls. ‘At a half-million bucks, that’s very important.’”
“Puls estimates that while there are more than 1,000 new high-rise units on the market in Dallas, only about half are spoken for. ‘The high-rise market is probably the most overdeveloped market,’ he said.”
“Austin-based Guaranty Financial Group Inc.’s shares fell about 11 percent Thursday, after federal regulators gave its banking subsidiary six weeks to improve its financial health or potentially face a forced merger, sale or liquidation. Guaranty has more than 160 branches in Texas and California, and a portfolio of mortgages, commercial loans and other assets. The company has seen its bad loans mount amid the housing bust.”
“Guaranty, which has significant operations in Dallas and about $15 billion in assets, also said Wednesday that it would file its 2008 Form 10-K annual report late. The company is reviewing with its accountants the appropriate valuation of the mortgage-backed securities portfolio on its balance sheet. ‘It’s a good bank, but their clock is definitely ticking,’ said Dan Bass, managing director in an investment banking firm. ‘I hope they do find the capital to get through this.’”
“From Maine to Hawaii, millions of new McMansions, post-World War II bungalows, modern downtown lofts, exurban town homes and inner-city row houses sit empty. This unprecedented glut of vacant homes — one in nine homes across the USA, according to the Census Bureau — will change the real estate landscape for years.”
“‘We overproduced by 1 million new units,’ says Edward Glaeser, economist at Harvard University.”
“The nation’s housing stock increased by 8.65 million units from 2002 to 2007 — a time when the number of households in the USA increased by only 6.7 million. Even after taking into account the need to replace homes torn down or lost to fire and other disasters, there is an excess of 1.3 million units, not including vacation homes. What happens to the 14 million empty houses, condominiums and apartments and the 9.4 million that are for sale? How long will it take to absorb this massive and unprecedented oversupply of housing?”
“Susan Wynalek hasn’t witnessed the consequences of the real estate collapse firsthand — only on the news. She doesn’t see foreclosure signs or many ‘For Sale’ signs in Freehold, N.J., the affluent town in the far reaches of the New York suburbs, where she lives. ‘We bought our house 3½ years ago, and I imagine on paper we’re losing money,’ she says. ‘But we’re staying put.’”
What a week! Busy busy. These days I sometimes don’t know what town I’ll be staying in when I get up in the morning. Anyway, my thanks to those who support this blog. We have been having a new Ruskie spam problem, so there may be delays. But please check back this weekend.
Hey, folks. Happy Friday to you!
Just picked up a new client this morn. She’s a university faculty member and the principal in a startup company. And here’s what this means to you:
Earlier this year, I heard her speak at a monthly business breakfast. An important part of her presentation was how she’s financing the growth of her company. It’s being financed out of sales revenue. No loans. No venture capital.
And she’s not the first speaker who’s shared that strategy at this breakfast. Last summer, we heard from another fellow who’s doing the same thing.
I know I’m just talking about a sample size of two, but I believe that they point toward a larger trend, and that is avoiding indebtedness when growing a business.
I started the move to all cash flow growth 5 years ago and in a little over 14 months I’d paid off my debt and have since operated debt free. It was a little awkward at times and I actually had one supplier fire me as a customer because I didn’t have a charge account with them
Over a third of my competitors are now gone. The victims of debt overhead. Some of their customers are now calling me in their stead.
‘to buy land once worth $120,000 a lot for $18,000′
Using traditional ratios, this would put new houses there at under $80,000. Who’s dreaming now?
Your exactly right Ben….I wonder how much per lot Pulte is going to “book” for the 61,000 lots it took over from Centex ?? I understand they are mostly in Texas and North Carolina…
Great articles, Ben. Thanks. And enjoy your weekend, I hope you get a chance to relax and enjoy Easter!
Speaking of trustees sales, I just glanced through today’s Olympian and saw 13 or 14 of ‘em. We used to have 1 or 2. Oh, and I saw one of them was for property bought by a local county commissioner candidate. Well, a previous candidate. He dropped out of the race recently.
Thanks OG. No rest for the wicked, I’m afraid. I’ll be traveling all weekend. But have some hard-boiled eggs for me!
I shall! I will consume, lessee… 5 Easter eggs, in your honor.
I made you an Easter card. I made it from recycled beer cans, and I drank the beer out of them first, also in your honor*.
* Actually, I think I just drank the beer out of them whilst watching teevee and shouting at the little heads in there. But the NEXT can—that one I shall drink in your honor.
*diligently makes a note of it. *
Hmmm, I think I’ll have one for Ben too. Make mine a (brewed right here in Tucson) Nimbus Old Monkeyshine.
…Nimbus Old Monkeyshine
Nimbus brewery is still in business?
Yay! Good for them!
Are they still in that warehouse off Alvernon with the torn-out car seats for lounges?
Nimbus is very much still in business. And still in that warehouse.
Actually, I think I just drank the beer out of them whilst watching teevee and shouting at the little heads in there.
Oly,
If for some reason you find yourself wearing a bunny suit (with ears) this weekend, by all means please post a link to the photos.
After all, you got to see mine.
Lavi, your blog is hoot!
Yar, I like it too, lavi.
“Oly,
If for some reason you find yourself wearing a bunny suit (with ears) this weekend, by all means please post a link to the photos”
Olygal will be easy to spot in the photos. She’ll be the only 5′ 7″ pink bunny dragging the 6 pack and licking the frogs
Oly,
In our little local rag, the Daily Courier here
in Grants Pass, we had 23 NOD in two days, and
over a hundred in the previous three weeks. This
is in a town of just over 30k.
I went and looked at your Daily Courier newspaper. Man, you do have tons of notices!
I also enjoyed this gem–—‘Environmental agency offices pollute Wash. Creek’
Washington DOE staff been poopin’ in the creek!
*appalled gasp! *
“He had invested in mutual funds, but after they plunged in value he moved his savings to two annuities that combined pay him about $500 a month. ‘I almost lost half of what I had,’ he said. ‘I said ‘take it out and close my funds out, I can’t afford to lose anymore. I can’t take any risk with what I have left.’”
So to avoid the risk of furthur loss, he ties his remaining money up forever at the present arguably close to bottom point in the investment market? Jumping from the frying pan in to the fire.
You can get a better return on long-term municipal bonds than you can on annuities, the interest income on munis is tax-free, and you get your principal back in full when the munis mature…
I guess you just can’t fix economic ignorance…
Unless the said muni declares bankruptcy, something that has been super-rare but more likely to happen in the next few years.
actually, why wont a bunch of muncipalities and states need to ‘renegiotate’ their bonds in the next couple of years?
Isnt that the next step
Only way to have lost 50% was to be 100% in equities and at 71 years old, that’s nuts. Should have been 30% stock, 70% bonds and that would have kept the losses at 15%.
Wait, I’m confused about this whole concept of housing prices being based upon incomes.
Weren’t the house-builders and their realtor minions prattling on about how housing NEEDS to be expensive, and how there’s no way they could sell anything but an outhouse for under $200,000? Hmmm… funny how this works - when the toxic loans go away, so do the absurd prices! It’s almost as if the loans had something to do with those prices (duhhh…)
Of course, Maryland is thus far immune to the concept of housing prices being based on incomes, and if our Dear Leaders have their way, Bubble-land will return…
‘Bubble-land will return’
I was thinking about this this morning. I got asked by a Euro reporter recently if governments were trying to re-inflate the bubble. IMO, a quick review of history shows it can’t be done. And I hear a lot about the ‘next bubble is…’ How many have there been in our lifetimes? Or even in history? These episodes are very rare.
Regardless of whether it can be done, that doesn’t mean they won’t try.
A quick review of what the federal government did in GD1: banned privately held gold, plowed under crops, arrested retailers for not charging the approved (high) prices for goods, suing employers for reducing employee wages, etc, etc.
While these “solutions” seem crazy today, crazy “solutions” (like the ones being proposed and currently being enacted) make sense when the alternative is wiping out the debt and equity holders of financial institutions - which is the only real solution to our problems (and I realize this will be very painful) - and recapitalizing our financial industry.
Asset inflation is their ultimate goal and it seems to this point that they will try anything, however absurd, to reach it……
“I got asked by a Euro reporter recently if governments were trying to re-inflate the bubble.”
They can’t reflate to peak.
They can REFUSE to allow for the deflation that would have occurred if they had not pumped trillions.
Ben:
My prediction to end all of this and to get the world into another 25 year growth is when there is a breakthrough in making solar panels so efficient that $5000 per house will keep you off the grid for at least 9 months a year.
And $500 on the roof of a car in the AZ desert would run for FREE year round.
Think about no more imported oil…..dreamers unite!
Think about no more imported oil…..dreamers unite!
I’m with ya, man.
I’ve long felt that only technology can get us out of this mess. I’m hoping the thing that people aren’t expecting will be a massive breakthrough in energy technology.
Not sure about upcoming solar tech, but I found out that our existing solar array (in mild N. Az) puts out LESS energy during the mid-summer months due to the heat on the panels. As much as 50% less. That was a shocker.
Short answer:
Desert sun=good.
Desert heat=bad.
I imagine this problem is much more apparent in the hot desert areas.
The more I read about Industrial Wind Power, at least here in the northeast, the more of a scam I realize it is. If the government subsidies (our tax dollars) were taken out of wind and put into weatherization, infinitely more energy would be saved. In this sense, the wind subsidies are actually creating pollution.
See: http://www.bobvila.com/HowTo_Library/Green_Backlash_The_Wind_Turbine_Controversy-Green_Building-A3923.html
Also, great interactive energy (Solar, wind, etc.) map at:
http://mapserve2.nrel.gov/website/Resource_Atlas/viewer.htm
My brother (the upstate NY town planning board member) says that the business plan of the wind power companies is to sell their government tax credits to coal companies. He also thinks its a scam and it is being sold to towns in his desperate-for-industry area as good for their economy. But there are no local people who are likely to get jobs. The machines are serviced by a two man team that travels around spending a day or two at each site. As always, some prominent local people are getting fees to promote the wind companies.
They are very rare on this scale. But, how many times in history has a government worked SOOOOO hard to try to create one?
It is a legit question. I do not know.
When the tulip bubble popped, did the Dutch government throw every resource at its disposal into creating another bubble to replace it?
My only experience is with Greenspan. After the junk bond, commercial real estate and S&L bubble, we worked pretty hard. He managed to create the dotCom bubble. Then when that popped, we worked hard, and managed to create the debt bubble with its ugly off spring the hyper-consumption (age of asperation?) bubble, the housing bubble, the corporate debt bubble, the foreign owned debt bubble, etc.
With all the governments of the world working SOOOO hard to create another bubble, what are the odds they will succeed?
You bet it did. From Wikipedia:
“UCLA economics professor Earl A. Thompson argues in a 2007 paper that Garber’s explanation cannot account for the extremely swift drop in tulip bulb contract prices. The annualized rate of price decline was 99.999%, instead of the average 40% for other flowers.[43] He provides another explanation for Dutch tulip mania. The Dutch parliament was considering a decree (originally sponsored by Dutch tulip investors who had lost money because of a German setback in the Thirty Years’ War[44]) that changed the way tulip contracts functioned:
On February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price.[45]
Before this parliamentary decree, the purchaser of a tulip contract—known in modern finance as a futures contract—was legally obliged to buy the bulbs. The decree changed the nature of these contracts, so that if the current market price fell, the purchaser could opt to pay a penalty and forgo receipt of the bulb, rather than pay the full contracted price. This change in law meant that, in modern terminology, the futures contracts had been transformed into options contracts. This proposal began to be debated in the fall of 1636, and if it became clear to investors that the decree was likely to be enacted, prices probably would have risen.[46]
This decree allowed someone who purchased a contract to void the contract with a payment of only 3 1/2 percent of the contract price (or about 1/30th the contract).[47] Thus, investors bought increasingly expensive contracts. A speculator could sign a contract to purchase a tulip for 100 guilders. If the price rose above 100 guilders, the speculator would pocket the difference as profit. If the price remained low, the speculator could void the contract for only 3 1/2 guilders. Thus, a contract nominally for 100 guilders, would actually cost an investor no more than 3 1/2 guilders. In early February, as contract prices reached a peak, Dutch authorities stepped in and halted the trading of these contracts.[48]”
Sound familiar?
Next bubble is gun bubble?
Maybe gold?
Considering over 60,000 children and teens get killed in one yr. by guns.. I doubt it. No gun bubble. Kids, teens love those things.
60,000 teens? That’s more than 1,000 per week. Doesn’t sound right.
Or ammo. Huge shortages on all types, both for civilians and law enforcement agencies…
In the late 90’s we had tech stock bubble, then in half of this decade we had the housing bubble, now we have the US Treasury bond bubble (as argued by some).
People have short memories, especially when it comes to money.
“How many have there been in our lifetimes? Or even in history? These episodes are very rare.”
In the 21st Century we’ve had a NASDAQ bubble, a Beanie Baby bubble and a housing bubble. I think we will see more bubbles (but not in these three “investments”) as pop culture continues to push the idea of wealth without work and a “you deserve it” mentality.
Gold, guns, alternative energy, water, cloned pets, some trendy artist; anything could be the next bubble with profits to be made and fortunes to be lost. The question is will we be able to see it as many of us were able to see the housing bubble? My guess is probably, but we won’t know until it’s history. I doubt any of us will ever see anything as huge as this housing bubble (and OMG why can’t the average person STILL not see it?), but I think there will be lots of opportunities for us seeing people behaving stupidly.
“Beanie Baby bubble”
Lol, when I was in late high school, early college, I gave my then sweetie two of the beanie manatees as a gift. A year later we’d broken up and those suckers were going for $250 each. I was pissed!
PET ROCKS…1 yr.
Remember the endless exchanges a few years back with trolls how insisted that housing prices could never fall below “replacement” cost? As if the cost to build a home and the cost of the underlying land was incapable of falling?
“‘There’s a 10-year warranty, and it’s brand new, so you don’t really have to worry about anything,’ he said.”
This thinking is just so ignorant. If a Company offers a warranty and then goes BK, in most cases your out of luck. Americans have had a brainwashing to not think, its just ridiculous.
Company offers a warranty and then goes BK ??
Bonded Ins., covers the warranty if the developer goes BK….Many construction lenders will not make a construction loan without the bonded Ins. It may not be applicable to the big boys because they typically fund themselves through stock sales and bond financing…
Good point. It does look to me like they handle their own insurance, being as they are a big boy in the industry.
Although their Warranty page really doesnt say.
http://www.kbhome.com/Page~PageID~325.aspx
But beyond that, if the company goes BK does that not in turn create the possibility of the Insurance company following suit, especially f they are a big boy and therefore a lions share customer. My point is buying a POS House on the Rational that the Warranty will cover the problems is just not a good school of thought.
I would say it applies to most things, Cars, TV’s, Appliances, etc… The inconvenience alone makes me want to pay more for quality goods-if you can find any. It’s just the lack of thinking things through and taking the sound bite mentality. Course House prices and Stocks always go up, thats a given.
If someone here does get into a situation where their builder goes BK, you can often get the subcontractor to honor the warranty they gave to the builder. So if you do buy a new home and are worried about it, get the names of the subs that worked on your home.
I know in my case, I bought new construction and the builder had only a 1 year warranty. We had some roof problems and we found out that the sub had given the builder a 10 year warranty. The sub came out and fixed the problems.
In Texas you can’t even sue the builder, much less the subs.
Well, you can sue, but the builder can just give some “campaign” contributions to the judges handling the cases and prevail.
If you really want to stop thinking, buy a used car warranty from US Fidelis…
Highlighting economic ingorance one sales pitch at a time…
Key point from Ben’s latest post:
“‘We overproduced by 1 million new units,’ says Edward Glaeser, economist at Harvard University.”
And, given current trends — young people moving back in with the parents, families seeking renters for the spare bedroom, HBB-ers and others continuing to rent because house prices are still too high — it will be a good long while before those excess units are absorbed.
RE: KB Home has launched a new line of starter homes that are priced to compete with bank-owned properties. Travon Howell, 23, recently bought a 1,287-square-foot, three-bedroom home in KB Home’s Rancho Valencia community. The base price for his home was $129,000, and with extras the price rose to $140,000.
The affordability worm is turning.
However, too late the messenger.
This is just as the group predicted here a few years back. With diminished labor and commodities prices, the builders will do their best to undercut them the whole way down. Like sharks who have to swim to breathe, the builders have to build to breathe.
I just tried to post something, but it didn’t show up and I forgot to write in the rest of my post.
Here’s the rest of it:
He just dropped that? Really? That’s news? ‘Cause I thought everybody knew that. I thought that was old news. Like really old. Like the type of news that usually doesn’t show up in places like newspapers and news sites and the news. It sure would suck if I got e-mails where people “dropped” old news off on me like that. I’d move it to the spam box.
Actually my favorite part was where the guy claimed that leasing units in the building would “add vibrancy during the sales process.” We’ve become a nation of really bad public relations and marketing people.
“Home sales in the Hamptons, the New York oceanside communities favored by financiers and celebrities, plunged 67 percent in the first quarter from a year earlier.”
The pattern is simple.
Buyers stop buying and transactions plummet. Inventory builds. Those that need to sell, can’t. Defaults increase.
We get stories of the standoff between buyers and sellers and how each side is waiting for the other to blink.
The the foreclosures start. The banks start liquidating a few, but just those that can sell close to market. Transaction pick up a little, and prices start to creep down. Inventory continues to build, defaults increase and foreclsoures pile up.
Eventually, prices will have creeped down 10% or so from peak, and knife catchers come out. Transactions pick up, but prices really accelerate to the downside.
Then, we reach 15-20% off. Banks start to liquidate all their backlogged foreclosures. Transactions pick up more, but prices accelerate to the downside even more. Defaults and foreclosures continue to increase, but inventory shrinks as large numbers of houses disappear into “shadow inventory” of REOs.
Using Case-Shiller:
PHX peaked in mid-2006 but creeped down 1% or less a month until Sep 2007. Then, at 10% down, prices started dropping 2% a month. At 15% down, we started dropping 3% a month. We stayed about 3% a month down through the spring / summer selling season. Last fall, at >40% off peak, transactions increased significantly, and prices fell even faster, hitting 5% a month, as transactions began to actually surpass numbers seen at the peak. Of course, approacing 50% off peak, we’re still seeing new records of defaults and foreclosures…. no end in sight.
Or, LAX
Peacked 4 months after PHX. lost less than 1% a month until reaching 10% off peak. The month they broke 10% off peak, this increased to 3% a month drop and has been pretty close to that since.
Tampa… 1% a month or less until reacing 10% off peak, then 2% a month until 20% off peak, then 3% a month.
City after city it is the pretty much the same. As soon as they are far enough below peak for falling knife catchers to come into the market, transactions increase and the bottom falls out from under prices.
What does this have to do with New York?
They mega-creeped down at .1%, .5%, .3%. Even a couple really minor gains in there since peak. They then went basically flat at 10% off peak through the spring and summer last year… until fall and winter when they started booking pretty solid 1-1.5% a month drops. 5 months of that, and they are 15% off peak.
Now they report transactions are increasing, and they declare a bottom is at hand.
Clueless dolts. Transactions increasing is not a sign that the bottom has been reached. It means the bottom is falling out from under prices.
I don’t see the huge price drops in the beach cities yet. They’ve been down only 10% to 15% from their peak in 2006. I’m referring to Manhattan Beach, Hermosa Beach, Redondo Beach… The “LAX” you are referring to is probably Inglewood, Compton, Carson, Downey, Alhambra, La Puenta, Whittier…not beach cities.
Just using the Case-Shiller full metro composit.
But yes… there are far more houses in the inland empire and ghetto areas so as to dominate the index. Probably much higher sales volume too… until the beach cities break 10-15% down, knife catchers come out, volume increases, and the bottom really falls out from under the market.
That is the pattern…
Of course, the beach cities of L.A. may be different…..
AAAAAAHAHAHAHAHAHAHHHAAAARRRRRR….. Gasp… HAHAHAHAHAHA….
I’ve been following the beach cities.
Homes are down. The issue is that only the best priced 20% sell. 80%+ of the market is insane. I’m seeing 4-bedroom homes in areas for < $900k where there was no home (even a 3 bedroom) for less than $1.1M.
So have they plummeted? No.
But I would concur with a steady price drop that is accelerating.
$/ft^2 by zip
Peak February (last month of DQ data)
90275 $553 $410
90278 $603 now $358
90274 $689 now $517 (note, noisy due to some unique homes)
90503 $524, $426
90505 $560 now $454
Prices are now down past 15% off. In fact, homes lost, in $/ft^2 10% from January to February! I do not expect that trend to hold during selling season, but the homes that are selling are priced much less.
Caviat: All of torrance (excluding 90502 which had too few sales for DQ to report data), had a price INCREASE in February. But that was also due to a winter pummeling that brought out buyers.
Caviat #2: Sales so sucked in February that only 1/3rd to 1/4th of the bubble year sales occured in these zip codes. So I believe there will be a $/ft^2 recovery that will then get blown out of the water.
Thank you for sharing the pattern. Its happening in the high end areas of LA.
Got Popcorn?
Neil
ok thanks. I’m looking in zip codes 90277 (South Redondo Beach) and 90254 (Hermosa Beach). Last time I checked Manhattan Beach the lowest price for a POS with a garage was around $800,000 and that was a month ago.
Make that $600,000. At 1407 12th st in MB. Slightly east of PCH.
I’ll do 90277 and blog it. Probably next weekend (sorry, but a baby sucks up the time!).
If you want 90254… Grab the DQ data. I’m not interested in Hermosa for myself. (Just a preference.) Manhattan beach goes for quite a premium. So I’m looking elsewhere.
Got Popcorn?
Neil
Thank you Darrell…..A very concise description of market price movements!
I guess there are REO time bombs ticking everywhere in the USA. I don’t think any have gone off yet. If the PPIP (or whatever the heck the acronym is) doesn’t “work”, things could go south in a hurry….
City after city it is the pretty much the same.
A truly exciting and insightful breakdown. Thanks for that.
The article on the Dallas high rise condos is noteworthy because they have not lowered the prices a penny on those units.
Yes, the housing bubble may be popping every where else in this country, but they still think they can sell over priced condos in downtown Dallas for 2005 wish prices. I guess they think people are really going to be won over by the worlds largest elevated pool.
Its even funnier when you consider that soon to be acquired Centex is only a few blocks away.
‘Retiree Frank Carlino, 71, is facing foreclosure on his north side home after buying it for $200,000 in 2006. Saddled with a first and second mortgage that total about $1,300 a month in payments, Carlino said he can’t make his second mortgage because he’s seen a drop in his life savings of about 50 percent.”’
Mr. Carlino is the posterboy for the world of fantasy retirement schemes. Of course those 40-55 loudmouths who couldn’t resist boasting about their lofty, pie in the sky plans for an outlandish retirement during bubble years will fail to take note and hold onto their absurd sense of entitlement. Get a grip loudmouths. Your retirement will be modest at best. It will require diligence and frugality.
My inlaws have mortgages too (both sets of them), and get this one set lives in Mexico - they couldn’t even buy within their means in Mexico.
Lesson to be learned, if you don’t have you house paid off don’t bother retiring unless you want to be 75 and a part-timer at Wal-Mart.
I don’t see how we got 1 out of 9 houses empty (or 14 million) from the overproduction of 1.95 million homes. What am I missing?
there is a 18 million homes are empty figure from the census data or some such, but a huge chunk are owned for vacation and 2nd homes. They are not for rent nor for sale.
I would argue a lot of these “not for rent nor for sale” second homes were not really second homes, but rather market speculation, plain and simple. The motivation to rent out the second home was low when the appreciation clearly outweighed the carrying-costs.
I agree Prime. These wannabe used house small time salesmen and flippers got caught. They misjudged their EXTRA house’s “floorplan appeal” and real showroom costs.
Finance, insurance and taxes plus assorted holding charges… it’s killing them now. Second homes my fuzzy little butt.
Out here in the Indian Wells community, it is either 3rd or 4th homes for over 85% of the residences.
And elsewhere, lots and lots of 2nd homes. “oh, I live in Chicago-Toronto-Vancouver-Seattle-Portland-Iowa-Idaho”.
“Realtor Kevin Moran has a second line of work where he goes out and assesses the condition of homes for lenders who may want to rework the loans.”
You’ve got to be $hittin’ me…… These clueless dopes are the same crowd who has no perception of value and now doing appraisals? I’m skeptical of the lack of expertise of the appraisal community and now they’re hiring scumbag realtors? Where are the qualifications? Structural? Architectural? Mechanical systems? Site work? Do any of these clowns know anything about these disciplines? Doubtful. If they did, they wouldn’t be schlepping away at selling grossly overpriced, used houses.
“Moran”. That just about explains it. And yes, WTH do realtards have any business doing appraisals?
Nails on chalkboard moment once again.
Three years ago, I was a volunteer crew leader at a big Habitat for Humanity build here in Tucson. My crew consisted of members of the local association of realty-types.
There was one guy, nicknamed “The Hammer,” who really knew his way around framing carpentry. The guy was just plain good. I can’t help thinking that he was a carpenter before he caught the real estate bug.
But “The Hammer” was the exception. We leaders really had to keep an eye on the group. Especially after one lady split her thumb with a hammer.
We did a Habitat-for-Humanity build in Ottawa, Ontario (Cole Avenue) this summer. I was told before hand that we would be painting but I wore my utility belt anyway without any tools in it. We ended up building a porch - next time I’ll bring a hammer and a power drill.
A man at work tells the story of his daughter who lives in BC but for some unknown reason bought a house in Syracuse NY for $6000. He and another man from work drove down last week-end for a look. They enlisted the local police to accompany them on their cruise. House was abandoned and had been broken into. They walked around the house but didn’t go in because they would have had to pull off the boards. The man at work says that it’s a tear-down.
In 2006, a documentary film was released about property flipping in Buffalo, NY:
http://flippedmovie.com/
Speculators from all over the world bought property in decaying Upstate New York cities, sight unseen. I doubt very many of them made a profit.
Out here in the Indian Wells community, it is either 3rd or 4th homes for over 85% of the residences.
And elsewhere, lots and lots of 2nd homes. “oh, I live in Chicago-Toronto-Vancouver-Seattle-Portland-Iowa-Idaho”.
must be eating posts again
2 yrs ago, saw lots of those cheap houses in upstate NY on ebay.
““John Steinfath is not giving up on his $20,000. That is how much the Englewood contractor paid to install custom mirrors and shower doors in a luxury Nokomis condo building. Steinfath spent two years seeking payment as the Harbor Villas condo project sat vacant, eventually sliding into foreclosure last month.”
“Harbor Villas will be up for auction soon, and Steinfath hopes the next owner will honor the last one’s debts. ‘I have too much invested in this to stop now,’ said Steinfath.”
Good luck with that!
Somehow I doubt that the next owner will fork over 20k to someone he doesn’t actually owe money to.
File a lien against the property?
If he did not file a lien on the property, he’s a freakin idiot.
A lien would stay with the property, and _obligate_ any future owners to pay it!
If he is only “hoping”, he is way too stupid to be in business.
“Luxury” and “Nokomis” have no business being in the same sentence.
Bill in Los Angeles.
You are wrong.
Check last months CAR prices for CA’s beach cities.
One ZIP Code in Santa Barbara has a nearly $1 million reduction in median price. Some tout this as the greatest reduction (in dollar terms) in the history of mankind.
Many other beach cities show similar capitulation figures.
Median price is a poor indicator, since it is heavily biased by mix-shift (e.g. more lower-end homes being sold).
Better indicators are Case-Shiller (where they don’t break down at the level of granularity you might want, but IIRC they do publish the price-pairs they used), or RadarLogic’s price-per-square-foot data.
Otto, your homework is to report back with more convincing data.
Please see my above post on $/ft^2 (ctrl-F “Neil”). That is the best indicator since Case-Shilller does not break down by zip code.
No need for Otto to do homework, I did it for him. The beach cities are approaching a down knee in the curve. They’re about to go into capitualation.
Note: I believe the 10% price drop, in $/ft^2 was noise due to incredibly low February sales. So to see an increase in $/ft^2 for march would not surprise me (not when the drops should be accelerating to 3%/month). 10% per month is insane and not something even us bears want to see.
Darell in PHX has a great insight into how these markets plummet. He’ll be quoted by me (with due attribution).
Got Popcorn?
Neil
“developer, Trendy & Trendy LLC”
Ben -
How the heck do you get the newspapers to post the dandy names you keep making up??
DR
Textron up almost 50% on takeover rumors………
Crap. I predicted this a few months ago, right here on this blog. Their market cap at the time was a little over $1.2B……….which meant you could buy ALL of:
-Cessna Aircraft
-Bell Helicopter
-Textron Defence Systems
For the cost of certifying ONE Transport Category airplane.
Too bad I’ve been in survival mode since mid-January.
Textron lives and dies on Defense contracts…someone news must have “slipped” out.
I worked at Dalmo-Victor/Bell/Textron back in the late 1970’s. Textron was more diversified back then: Bostitch, Gorham silverware, etc. Textron sold Bostitch to Stanley and D-V to Litton years ago. Bostitch would have been their only exposure to the housing crash.
It appears that after selling off D-V, Textron changed their mind and built up another avionics company from scratch.
“But the reality is that the shadow rental market of homes and condominiums continues to put pressure on apartment-complex owners, whose vacancies are increasing. They must offer incentives and cut rents to lure tenants.”
Huh, that’s interesting. The new threat coming out of the local realtor groups here (Vancouver, Canada) is that rents are going to spike. The other, related, threat is that we will experience hyperinflation.
These 2 talking points seem to have replaced the old “we’re special and will attract retirees and rich foreigners/running out of land” arguments that were so popular.
“But in this e-mail, Stoddard dropped this news: ‘Most of the new condominium projects in the downtown San Diego area have an inventory of available homes that are being leased. Although our primary objective is to continue to sell all of the homes at Vantage Pointe, the Developer also plans to implement a leasing program during the sales process. The leasing program will bring vibrancy to Vantage Pointe during the sales process.’”
Just wait for the “owners” in that development see what the units are being rented for. Half of their mortgage + property taxes + HOA dues?? A third?? But at least they’ll have the satisfaction of not “throwing their money away on rent.”
“The leasing program will bring vibrancy to Vantage Pointe during the sales process.”
How about just lowering the selling price to the market price instead?
PIC,
I know that median price is a poor indicator, as has been debated on this blog ad nauseum. C/S only samples 20 metropolitan areas.
However, when median price drops from circa 1.7 mill down to 800k with a not too shabby sample size, it is not unreasonable to deduce that a fundamental change is taking place.
‘I appraise and inspect over 200 homes a month” I think someone is lying’ that’s over six homes a day at $300 an appraisal =60k month. The article quoted this as part time job, his full time job must be sweet..
Must be a bouncer at a stripper bar at night, just thinkin out loud.
There’s a big difference between and inspection and an appraisal. An inspection could be as cursory as driving by the property to see if it’s still standing. A true appraisal is much more detailed and time consuming.
“Tippins also said competition is stiffer from homeowners as well. ‘For the first time in four to five years, you can get a three-bedroom, two-bath on the beltway market from Summerlin to Green Valley for $1,150 a month. That is pretty scary,’ Tippins said.”
$1,150 a month, that’s still too much for Vegas.
No kidding, especially when the casino’s are bracing for impact! Lol!!
The Vegas casinos are all in basic survival mode - they’ve all done beaucoup layoffs, pay cuts and benefit cuts they don’t dare talk about. I’m told they are reaching the limit on layoffs, so I think the next shoe to drop will be huge increases in employee contributions to health care.
I got out in 2006 just as the market peaked - I have no desire to go back. Not even to my old condo complex which is now down to about 35 cents on the peak bubble dollar…
Regarding the articles on the $30,000/month or more Hamptons rentals - The New York Times sure does focus on that small set of super wealthy people. There are always articles on private schools that people are trying to get their kids into or Manhattan co-op boards, or people turning 2 ten room flats into one 15 room flat. How many people are they talking about? Its a sliver. This is why Mayor Bloomberg thought Caroline Kennedy could be handed a US Senate seat; he thought EVERYBODY believed that the “better” people should be our rulers. And what a turkey she was.
“caroline can’t catch a break” just read that in some headline.
I don’t have anything against her. However, I am so tired of supporting
someone who was the spouse of a deceased office holder, or whatever, and they truly disappoint all with their lackluster governing abilities.
What is it with lawyers anyway…why do they think they are better in office than the rest of ‘us’. Or do elected officials get their law deg after they are in office to learn how to avoid problems?
Law school prepared me to understand what the law currently is, but not how to draft legislation. The legal mind isn’t necessarily prepared to consider “unintended consequences” of proposed legislation. Having said that, a law background is probably a better background than most for service in a legislature.
Of course, the executive branch is a whole ‘nother story.
Caroline Kennedy was so bad that the governor couldn’t appoint her. He probably would have loved to just go with the flow and give it to her but her public appearances were appallingly bad. The more we learned about her, the more it seemed that she’s done very little with her wealth and status. I don’t think one person voted for Obama because Caroline Kennedy endorsed him. I was surprised to learn she’d only given about $30,000 in political contributions in her lifetime yet she sits on as much as half a billion in inherited wealth. No wonder the other NY pols went after her sense of entitlement. The whole episode was pretty offensive, IMO.
Re avoiding problems - Well, we’re living through the unintended consequences of legislation, aren’t we? That 1999 repeal of the Glass Stegall Act is blamed for a lot of the banking disaster. Lots of legal minds pored over that and they must have considered that banks would exploit it but it never occurred to anyone that facilitating grabby greedy banks might cause the near collapse of world economy.
Hey, G’day from Sydney Australia and happy Easter to Ben and the Best Housing Blog in the World. First-time poster long-time lurker:
My husband has been encouraging me to post something just b/c I’ve learned so much from so many of you through the past couple years. He says that Sydney Australia might be of interest to you even tho we so far away. So FWIW here goes.
We live in the Sydney slum - err, ’suburb’ - of Meadowbank. For the last two years I’ve been watching the apartment (”unit” or “flat”) turnover it seems pretty obvious that people here buy quick and then “flip” or rent out at exorbitant values. No-one buys to actually live here. The rents are high; there are always half-a-dozen to a dozen “For Sale” signs on my street which turn over quickly to “Sold”, only to have new ones spring up within days.
Any given weekend you’ll see heaps of unit tourists clutching papers wandering in and out of open houses. Mostly the tourist groups are Indian or Asian. And the Sale signs come and go so quick it’s hard to keep track of them.
We live in a glorified slum - garbage on the street, graffiti everywhere, loud domestics or partiers or engines at night but b/c the units are old (’60s vintage) it’s easy to block out some of the noise by closing the windows. But we’ve had to call the cops though several times now, just so we can sleep.
There is mucho development going up here. One group of concrete beehives has been completed across the river and is the subject of litigation thu people defaulting on mortgage commitments. The beehive a block away from us is fill of thousandaires asking $375-$700/week for one- to two-bedroom units. Some of those have been on the MLS for months, but construction continues. The cheaper ones (leasing $250-$300/week) get “snapped up” pretty quick. For sale they range (no word of a lie) $750K - $1MM per 3-bed, 1-bath, 1-parking unit. They buying continues but has slowed considerably in the last year. In our little cellblock, they are cramming in two and three families to rent per unit (we rent at $240/week. It’s gone up twice in the four years we’ve been here and we rent cheaper than anyone we know. It’s nasty but cheap. We earn six figures, save 50%, and regard the conditions as a trade-off to the future).
I know Ben started an international thread but quit it since it was difficult for many of us to post given the time zones. I just thought I’d throw a Sydney report on here so you’d know the Sydney bubble is alive and well. It’s beginning to deflate but the sheeple don’t really get that yet even tho unemployment is starting to shoot up. We’ll see what happens thru this year. We’re long gold & silver and looking forward to a New Global Reserve Currency by year-end. (No disrespect intended to the wonderful outspoken American posters here who point the way for many of us around the world.)
Meanwhile, the government here is attempting to prop up prices by offering $14G-$21G bribes to “first-time buyers” willing to take on mortgages of roughly 10x income at the beginning of a depression. Me and my husband seem to be alone in thinking this a dumb idea, at least in this suburb where $250K for a 3-room unit is touted “cheap”. HA! But at least the government here is bribing the GFs at the beginning of the cycle, rather than in the middle like the US did. That will make a big big difference I’m sure.
We can look forward to a long stagnant period followed by a quick histrionic fall wherein the government successfully blames “US subprime”. We’re about a year behind you guys. Of course all the corporate spin here is all about how We’re Not Like American Subprime, even as we do the same thing (give huge loans to people who have no hope of paying them back). Plus ca change. You poor dudes I bet are the government scapegoats for a LOT of countries around the world!
Just in case you were wondering if things are Down Unda: They aren’t, they’re just behind. Don’t ever move here hoping anything will be different. Not that we couldn’t use a few informed been-there Americans like yourselves to speak UP (me and my husband try but we are considered a bit Odd). But don’t do it b/c you’ll just have to put up with the same cr*p for a year longer. Don’t let anyone tell you that It’s Different Here.
Since your Housing Bubble seemed to really pop last September, I’m very much looking forward to this September here! My husband has his eye on a multi-unit deal in a small town which has been reduced to “Make An Offer”. In a year we’ll see how much of a mood they are in to unload.
Best wishes and many thanks -
Cat
Hi Cat,
I live in Canberra and the market here is even crazier than Sydney. I sold after a good look at the fundamentals in 2004, only to watch the bubble inflate even further. (* sigh *)
If the Australian RE market becomes unglued, I see it being like the UK (or Ireland, or Spain). It’s going to be WORSE than the US overall, because the price/wage levels are higher and the lenders have more leverage (NO mortgage loans are non-recourse).
I predict inflation, with the Oz $ declining even relative to a declining US currency, but I also think we’ll see a lot of misery.
What took KB Homes, and all the other builders, so long to begin producing starter homes to match low-priced bank REOs flooding the markets all over. The same thing is going on now here in Las Vegas, so that combined with attractive mortgage rates gives them a chance. Hopefully they don’t cut too many corners to keep prices low.
ike