Somebody Might Buy It For Less Than It’s Worth
It’s Friday desk clearing time for this blogger. “A partner in the 46-story Trump Soho, the condo hotel that opened in April 2010 in the Hudson Square district over the objections of neighborhood preservation advocates, last week put the building on the auction block. Of the 391 units, about 90 have been sold and 42 were currently listed for sale with prices ranging from $995,000 for a 425-square-foot studio to $8.74 million for a 2,331-square-foot two-bedroom suite.”
“Sean Sweeney, director of the Soho Alliance and one of the neighborhood critics of the project, said he thought the Trump Soho was in financial trouble. ‘Trump and his shady partners have learned the hard way not to come to Soho with a dubious scheme that violates our zoning and expect the community to roll over,’ Sweeney said. ‘Trump behaved arrogantly and now his brand name is attached to a bankrupt property being sold at public auction to the highest bidder,’ he added and concluded with, ‘Soho to Trump: You’re fired!’”
“For around four years, China has been building around 1 billion square meters of housing a year, ten times the figure in the U.S. The amount needed to accommodate real owners — people moving from farms to the cities, for example — is 700 million square meters. Prices in the frothiest markets are fifty or sixty time rents. The 50 to 60 multiple is far above the level in most U.S. markets at the height of the bubble in 2006; in those heady days, a multiple of 40 was considered giant.”
“While the government’s official figures show modest declines starting late last year, those numbers are famously unreliable. A better view comes from owners trying to sell their units. Losses of 30% aren’t uncommon. In fact, many owners who paid, say, $600,000 in 2010 are furious that their landlords are now offering unsold units in the same building for $450,000.”
“As professor and mentor at the University of Chicago’s Booth School of Business, Robert Aliber observes, ‘In China, the housing boom is a far bigger source of growth than is widely recognized, and it’s totally unsustainable. China’s spurt of a 10% growth rate is likely to be history.’”
“The million-dollar view from this 28th floor corner condo at the Ritz-Carlton Hotel and Residences is beyond one of a kind. But for a very long time, no one was buying. This ‘mansion in the sky’ took 180 days to sell. And it’s far from alone. ‘I think we’re seeing already with the Ritz that there’s not a lot of demand for resale (condos) in this price range,’ says realtor John Pasalis, who has been watching this sector closely and is concerned about an oversupply of luxury condos. ‘In some ways this (the number of Ritz and Trump units now for sale) is the sign of a market that was very speculative and is reaching a point where investors are starting to realize that just because they bought (early) doesn’t mean they are going to make an easy buck.’”
“According to the National Association of Realtors, non-residents of the United States accounted for some $41 billion of real estate purchases in 2010, and as of late 2011, 23% of all international sales were to Canadians. Canadian buyers are able to finance about 70% of the purchase price from either banks or private lenders, and often use home equity lines of credit for the down payment to ‘generate cash flow with almost 100% leverage,’ says Wendy Fedoruk, a Calgary-based investor, consultant and broker.”
“‘It wasn’t an accident that Phoenix and Las Vegas had a bubble,’ says Calgary-based broker and consultant Mike Wolf. ‘People want to live there.’ After all, he points out, the weather is good and the cost of living is low. Nevada has a business-friendly climate, with no state income tax. ‘You can buy a house here and have a good life just working at McDonald’s,’ he says.”
“Ash Cutchin, owner of Ash Cutchin Real Estate Appraisals, noted that when Wingate and Associates assessed the county’s 12,000 properties last year as required by law, the Roanoke firm did not include foreclosed properties. ‘They kind of seemed to ignore foreclosures,’ said Cutchin, noting that in 2011, one-third of home sales in Hampton Roads, which includes Southampton County, were foreclosures.”
“‘They have a willing buyer and a willing seller, neither under duress,’ said Harold Wingate, president of Wingate and Associates. ‘In other words, if you put your house on the market and I offer you $50,000 less than you’re asking, you don’t have to sell it. But, if you get foreclosed on, the bank owns your house, and they don’t want to hang onto it. They want to unload it, so somebody might buy it for $100,000 less than it’s worth.’”
“A foreclosed mansion on the shores of Lake Norman is no longer the most expensive real estate listing in the area. The home took more than $22 million to build. It was previously listed at $8 million. Now it is a bargain at $5.9 million. The broker who has the listing said there’s been a lot of interest, but so far no offers, so the bank decided to make a drastic reduction in price.”
“‘We still have had long interest. But BB&T is ready to sell that property. We’d love to get it off the books,’ said Debbie Monroe, Broker with Lake Norman Realty.”
“Mitt Romney’s campaign has staged rallies at foreclosure hot spots and struggling construction companies. Tampa retirees Chris and Mary Lou Ferguson, lost $200,000 when they sold their home. ‘That’s our nest egg, gone,’ said Mary Lou Ferguson.”
“Struggling to keep her business going after the recession, Land O’Lakes homeowner Lisa Shorts tried six times to reduce the mortgage on her home before the bank finally sent her a foreclosure notice. ‘They have the capacity to take the loss,’ she told Romney. ‘Why have they not been forced to do that?’”
“Area housing experts believe the banks are purposely holding back on releasing more foreclosure properties to the market. ‘I know for sure that there is still a fair number of homes being foreclosed every day,’ Skip Murphy of The Address Realty in Redding said earlier this week. ‘And a great many more are somewhere in the pre-foreclosure limbo. I see vacant and empty homes in every local neighborhood.’”
“‘Since that inventory is mostly under government control via Fannie (Mae), Freddie (Mac), HUD, the government will solely determine 2012’s housing market,’ said Murphy, who also sits on the board of the Shasta Association of Realtors. ‘And Fannie and Freddie are the only lenders willing to offer 30-year loans. So it’s all in their court.’”
“One-third of single family home sales in King County last year were sales of distressed properties, while one-half of single family home sales in Snohomish and Pierce Counties were distressed, according to a new report from Washington Property Solutions. The median price paid for a single family home in King County in a short sale was $286,000, while the median price for bank-owned properties was $202,000.”
“However, Washington Properties Solutions CEO Richard Eastern said, ‘There’s a myth out there that you will be able to sell a short sale significantly below market value.’ Actually, ‘there is a bit of a check-and-balance process,’ Eastern said, with lenders typically basing their valuation on three active listings and three closed sales in the surrounding neighborhood. One challenge he sees is that banks do not take the listing history into account in evaluating offers on a distressed property. Eastern recently had a deal fall apart on a property that originally listed for $200,000 before dropping to $190,000. The only offer on the home in four months was for $163,000, which the lender rejected as too low, even though it was the only offer made, he said.”
“Federal Reserve Chairman Ben Bernanke has proposed one solution to help the country’s ailing housing market: ‘redeploy foreclosed homes as rental properties.’ In a white paper released earlier this month, Bernanke noted the flow of new REO homes could be ‘perhaps as high as 1 million properties per year in 2012 and 2013.’”
“Skilled and intelligent specialists, trained in neoclassical economics in leading US institutions, did not see their enormous housing bubble until it burst in front of them with horrendous consequences. What makes Australia’s ‘experts’ any more competent?”
“That Australia’s residential property market has resembled the Ponzi stage of financing for the last 11 years is nothing short of astonishing. On aggregate, net real rental income has resulted in continuing losses starting at $966 million in 2000, and peaking at $8.8 billion in 2008. Rental income has not exceeded interest costs since 2000, let alone met the costs of maintenance, rates, agent fees, and property tax.”
“As investor Jeremy Grantham has noted: ‘Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different.’”
Got a card announcing an open house in my neighborhood last weekend (yes, the card arrived Wednesday for an open house the previous Sunday.
The building is less than half a block further away from the Metro than mine. 1100 square feet, one bedroom, one and half bath. Wood floors with those low quality little parquet tiles. Looks like it doesn’t have a parking space with it. 10th floor.
Anyone want to venture a guess as to the asking price?
I’ll post the answer later.
“…the asking price?”
$250K
You don’t know the neighborhood, prof. More like $329K?
And 1100 sq ft is BIG for a 1/1.5.
If it has granite, up it to $379k.
Even that’s too low. If they ahve an open house and sending card, they’re probably still selling the dream
. Plus I forgot the Metro.
Let’s try $449K.
No granite. The kitchen counters looked like butcher block to me, but maybe just some sort of wood grained laminate. A bit less than a galley kitchen. In a real galley kitchen I expect full depth counters on both sides because they have set up a work triangle with the fridge, stove and sink. This one has regular counters on one side and half depth counters on the other with cabinets to match. Means you might actually be able to get two people to work in it, but the person on the narrow side better be ready to clean up the floor a lot. I guess that side could be used to keep small appliances (slow cooker, food processor) out and available for use. Cabinets are this shiny grey stuff. Unit does not have particularly high ceilings, and cabinets still don’t reach the top.
Hmm, if it doesn’t have granite or parking, then it’s not new. And parquet flooring is clearly dated. 1100 sq ft for only one bedroom and still no room in the kitchen? Who designs these things?!? It’s probably 70’s apartments which were converted after a cheap spruce-up. It’s not a foreclosure because who sends out cards for foreclosures?
I’ll go with $399K because of the nabe.
By the way, property tax rate is $7.53 per thousand for people. At least, that is how I read the table. I think this is a condo, not a co-op, so I’m pretty sure the personal rates (not the business rate) applies.
That is actually a reasonable tax rate. A $400,000 house would be assessed $3,012/year. That is better than CA which is 1% plus misc charges usually totaling 1.25%, so the same value in CA pays $5,000/year. Some states are around 2%, which equals $8,000/year! Ouch.
I am guessing you are in NYC, Polly and the asking price is $650/SF or $715,000.
This will be interesting…..
The property tax rate is only that low because we have a significant county level income tax.
499,000 USD.
And the answer is…..$305K.
Yes, Oxide, the building is old. I’m guessing 60’s but not cool 60’s. And ugly from the outside. And huge so just because you are inside, doesn’t mean you are anywere near your unit. Lots of older people - presumably they downsized from a house somewhere in the area. Secure building with doorman (really attended front desk as they don’t open the door). I don’t know what the monthly charges are.
I’m surprised this area has come down to even this price. A few years ago, I think that $400K would be just about right for that building, more for the nicer building with the indoor pool about two blocks away. The really fancy place further up the street used to have $500K as the asking price on a one bedroom.
Quick review of the card says that there will be an open house this Sunday as well. If I can, I’ll stop by, but I have another activity planned for Sunday, so I might not make it back in time.
Where are you Polly?
DC/MD borderline.
Chevy Chase, MD, not too far from the Friendship Heights Metro Station.
Oh man i was going to guess $1 to sneak though Price is Right style. CIBC is headed to the plinko board though, only off by $50k.
So that means you were guessing below $250K? Interesting.
What would your “not playing Price is Right” guess have been?
$305k but only because i’m psychic. (I have no idea.)
Me: “$250K”
Oxide: “I’ll go with $399K because of the nabe.”
Polly: “And the answer is…..$305K.”
Guess who is the Realtor™ in this discussion, and who is the renter (not including Polly)…
Actually, it was oxide who originally posted the link which dealt with the regulations.gov credit retention risk regulation. The one which deals with forcing lenders to take on at least some credit retention risk. That is the core issue on which the housing bubble inflated - lenders making loans that they didn’t care about having repaid.
http://thehousingbubbleblog.com/?p=6919 (search for “retention”)
Someone interested in continuing the housing bubble would not have posted such a data point here.
“According to the National Association of Realtors, non-residents of the United States accounted for some $41 billion of real estate purchases in 2010, and as of late 2011, 23% of all international sales were to Canadians. Canadian buyers are able to finance about 70% of the purchase price from either banks or private lenders, and often use home equity lines of credit for the down payment to ‘generate cash flow with almost 100% leverage,’ says Wendy Fedoruk, a Calgary-based investor, consultant and broker.”
————————————————————————————
So this trend “just kinda happened” right? BS
This is contrived between the criminals running the US and Canadian Central Banks.
Right, using home equity loans to leverage up to 100%! How can that go wrong?
Let’s face it, this shadow inventory thing is gonna be a huge disaster. Maybe millions of additional foreclosures, almost all guaranteed by the federal govt. Plus a recovery delayed for years, maybe decades.
“…almost all guaranteed by the federal govt.”
That’s the really galling part…
No. The really galling part is that 95% of the population is voting for the nation’s financial destruction and impunity for the swindlers on Wall Street.
Are you suggesting that federally guaranteeing unaffordable mortgages is not financially destructive?
The U.S. doesn’t have a central bank. We have the Federal Reserve, a privately held, wholly unaccountable entity which since its misbegotten founding in 1913 (read G. Edward Griffin’s classic, “The Creature from Jekyll Island” for the whole sordid story) has looted the productive economy and gutted the dollar for the benefit of the .01%. By the way, since Zimbabwe Ben is touting the need for more QE free (well, .25% interest) money for the banksters, for the benefit of the 99% here’s what a currency collapse looks like:
http://www.globalpost.com/dispatch/news/regions/middle-east/120126/iran-rial-trouble-tehran
Ben Franklin is certainly far more comely than whichever Ayatollah appears on the Iranian currency.
“…non-residents of the United States accounted for some $41 billion of real estate purchases in 2010, and as of late 2011, 23% of all international sales were to Canadians…”
Lawd bless the foreign infestor knife catchers…saves the U.S. economy a bundle of money on investment losses!
“‘In China, the housing boom is a far bigger source of growth than is widely recognized, and it’s totally unsustainable. China’s spurt of a 10% growth rate is likely to be history.’”
It’s gonna be history, alright — sounds like the implosion of the Chinese property bubble will dwarf the other national-level housing bubble implosions.
“Struggling to keep her business going after the recession, Land O’Lakes homeowner Lisa Shorts tried six times to reduce the mortgage on her home before the bank finally sent her a foreclosure notice. ‘They have the capacity to take the loss,’ she told Romney. ‘Why have they not been forced to do that?’”
Where does Romney stand in the battle between banks and FBers?
The banks don’t own very many of the foreclosures. Just one of many myths perpetuated by the media. Kinda like the myth that the govt can “force” contracts to be something other than what was agreed to.
Thanks for keeping it real, Ben.
The elephant in the room is that nobody is quite sure, or at least would have a hard time proving, who owns all the mortgages bundled into toxic-waste “investment vehicles,” rated AAA by bankster-complicit rating agencies, then sold to gullible and moronic “investers” and pension funds.
There is no problem at all knowing who owns them. They get their bond payments for anything that is still paying. The problem is satisfying the state laws that require original documents be reviewed and possibly produced to have a valid foreclosure.
MERs worked just fine as long as nothing foreclosed. There was never a reason for anything to foreclose as long as the price was significantly higher three months after the transaction closed. You could always sell or refinance.
“MERs worked just fine as long as nothing foreclosed.”
So did
– subprime lending (liar loans, Option ARMs, interest only ARMs, etc)
– federally guaranteed mortgages
– individual households buying 10 extra housing units as investments
– home sales to buyers whose household income would never be sufficient to pay off the mortgage
etc etc etc.
In short, many aspects of the housing bubble worked just fine so long as real estate always went up.
Of course. But the problem with MERs is the way the original paper was handled, not the way it kept track of the owners. Keeping track of the owners was necessary or they wouldn’t get paid. If they hadn’t gotten paid, people would have been forced to stop using it right away. Keeping track of the paper was expensive, so they didn’t do it even though there was a risk (trivially small when prices were going up) they would need it someday.
I’m still hoping that somewhere in the deepest darkest depths of the paperwork there is proof that the original notes were not properly put into the trusts that issued the bonds. No assets to back the asset-backed securities. But I haven’t heard it mentioned in so long. Seems like it might not have been a real issue. Still, it would have been amazing to behold.
But I haven’t heard it mentioned in so long. Seems like it might not have been a real issue.
MSM silence on a subject doesn’t necessarily mean the subject isn’t real.
Did you see Muggy’s post about the bank telling his coworker they’d lost the mortgage note?
Where does Romney stand in the battle between banks and FBers?
Didn’t he say we should just let housing hit bottom? I take that to mean let them both file bankruptcy and start over.
Everything I’ve heard Romney say was good, right outta HBB. But that’s been only in a short span of time, and I don’t know what he used to say or whether he’s flip-flopped on this one.
“Didn’t he say we should just let housing hit bottom?”
That’s one reason I would consider voting for Romney. I have a feeling he might end extend-and-pretend post haste.
Bullshiite. There is no way Mr. 1% is going to hang his banker buddies out to dry.
‘They have the capacity to take the loss,’ she told Romney. ‘Why have they not been forced to do that?’”
Statements like these stun me. Just stunning. Forget whether it can be forced on the parties. It’s the sense of entitlement. WOW.
I know a fellow who HELOC-ed in order to keep his business going.
Not only did he let the business go (he got a job in the same field), he also let his house go back to the bank (he got remarried and moved out to the wife’s place in the country).
His Tucson house has been sitting there empty for, oh, almost three years. I’ve heard it’s in foreclosure, but it isn’t exactly racing to the resale market.
“Prices in the frothiest markets are fifty or sixty time rents. The 50 to 60 multiple is far above the level in most U.S. markets at the height of the bubble in 2006; in those heady days, a multiple of 40 was considered giant”
I don’t get this.
Traditionally, the rule of thumb was 100x a monthly rent. A house that rents for $1000 a month woud be worth, somewhere in the ‘hood of $100K.
40 x rent would let you pay the house off in like 5 years, including intrest.
Are they talking a year’s rent? If so… HOLY SCHMOLY.
What do they mean 50-60x rent?
I think they are talking about 50-60 years of rent.
I’ve heard numbers like 50-60 multiple of yearly salary.
50 to 60 years of rent, but only in parts of Beijing which is the bubbliest city in China.
The paragraph about China and prices being 50-60 times rent versus 40 in US bubble markets..??
What does this mean to you? Price is 40 times annual rent? $500K sharecropper shack at $12K annual rent? I guess it has happened. talk about a lousy cap rate!!!
Not where I live, but certainly some areas of California.
“‘Since that inventory is mostly under government control via Fannie (Mae), Freddie (Mac), HUD, the government will solely determine 2012’s housing market,’ said Murphy, who also sits on the board of the Shasta Association of Realtors. ‘And Fannie and Freddie are the only lenders willing to offer 30-year loans. So it’s all in their court.’”
They could start dumping homes to allow young people to have homes at 20% of their income or less, even though that income is less itself. Or an investor who could then get a positive carry at low rents. Those young people are going to pay the nationalized mortgage debts anyway, for the rest of their lives.
Instead, they are holding inventory off the market in the hopes that some seniors will find suckers to sell to. Imposing a second loss on younger, non-owner generations.
If people aren’t buying houses, how can the government determine the market? If it’s not going to hold us at gunpoint and force us to buy, what can it do?
“If it’s not going to hold us at gunpoint and force us to buy, what can it do?” Don’t give ‘em any ideas!
This “Massive Inventory Overhang” is a big myth in my area. It is just like the idiots in 2006 who said “Housing Never Loses Value”.
Get over it everybody. The distressed market is changing and stabilizing. In the foothills above Sacramento I have been buying foreclosures and tracking the market very carefully. The two areas where I made most of my purchases are NEARLY DONE foreclosing. The pig is thru the python. Inventory is down and listed houses are getting multiple offers over asking prices.
One subdivision I track has 140 houses and 135 have foreclosed (some early ones even went twice!). The last 5 houses are stable low leverage owners. The other subdivision has 212 houses and in November 2010, 67% of the property were foreclosed, by November 2011, it was up to 78% foreclosed and sold, and the rest are not likely to go under, since the original owners paid cash or have small loans.
I put an offer in last week on a 2000 SF house for $152,000 (2005 sale price $345,000). It will rent for about $1650/mon. It was listed at $165,900 and before the owner responded to my offer, a VA offer came in for $167,000. Would you risk 30 days for a VA buyer to qualify and net you an extra $14,000? I would. (And BTW, the VA loan program has never cost the taxpayers a nickel.)
The economy is getting better here, not great, but definitely better. After the Superbowl, a lot of people are going to finally look up and say “I think I’ll go buy me a foreclosure” and guess what? There will not be enough to go around.
I am not saying prices are going to jump anytime soon. I am just saying there is a shortage of homes in the foothills above Sacramento, which indicates a healing market trending toward pricing equilibrium.
Did you think the housing bust would last forever?
Did you think the housing bust would last forever?
Nope. But some of us are in places where the drops you described have not occurred yet. Sounds like you know your area well. Other places are behind you.
“Did you think the housing bust would last forever?”
Nah…I’m thinking just another decade or so and we will be out of the woods for a few centuries, at least so far as having a housing boom and bust to surpass this one.
“…which indicates a healing market trending toward pricing equilibrium.”
Either that, or this is a knife-catcher market with investors like you heading for an unexpected blood bath in the next leg down.
You’re right PB, it is a risk. Yet, I am buying below reproduction cost and the houses all cash flow rent after paying all expenses (I don’t have management costs and do all maintenance myself, but still it is working well). “Reversion to Mean” works both ways.
My vacancy over the last 2 years is less than 1/2%. I did buy my first house a little too early and it is worth less than I paid, but it still cash flows. The rental market is very tight and good renters are quite common. My last four leases were with people short selling their homes they bought in 2005-6. They have great jobs, solid family life and plan to stay for 2-3 years until their credit repairs. I do everything I can to keep them happy and never raise rents for as long as they stay.
Interest rates are so low, each house drops $200-$400/mon in principal paydown and the tax benefits defer another $3,000-$4,000 a year in taxes.
Is is work? Yes, but it beats sitting in front of the TV all weekend watching football or playing golf. My wife has no interest and detests taking care of other people and their messes. I get a kick out of it. When I turn a house, clean it up, improve it, and the rent value increases $100/mon, I feel like what golfers must feel when they hit a hole in one!
This market is repairing and I encourage many of you to consider that and take your time to buy a good home. It is so rewarding. Every house I buy has a south facing rear yard and typically backs to open space (nature preserve). The banks can’t tell the difference between a beater home and a house with upgrades on a “premium” lot. Several of the homes I bought would have cost an extra $75,000 for the lot in 2005-2006.
You know, Ben and this blog saved me at least $250,000 because I rented a house in 2006 instead of buying a home. I was a big proponent of the housing bubble after learning what “reversion to the mean” and sub-prime financing meant. I posted a lot of stuff here and was instrumental in busting some housing fraudsters under the nom de plume of Paladin. I worked with the FBI and have a lot of stories I will tell someday. I was forecasting the housing bubble bust when everyone was telling me I was crazy. I saw the first cracks in the housing pricing in Sacramento in December 2005. It has been over six years.
Now, I am telling you the bust is over and it is a good time to get yourself a quality home for a very attactive price. You can wait a year if you want, but if everyone else is in the market, the choices get limited quickly and you have a much harder time getting the premium lot, the view home or the interiors that have the bedrooms and finishes your are looking to achieve. It is already that way in the nicer foothill areas above Sacramento. Good luck and God speed.
So you’re Paladin! Congrats, you did good work.
‘I am telling you the bust is over’
So because you have a few houses cash flowing in 2012 the bust is over? Let’s review a few things. When I started this blog the total US govt obligations were about $53 trillion. I recently saw that number estimated at over $100 trillion. The feds are guaranteeing around 90% of the loans today. That is unsustainable.
You can buy houses and cash flow in Phoenix area too, for now. But one story above estimates 1000 Phoenix area houses a week are being bought at trustee sales, many by Canadians using home equity loans. Note that these buyers have never been inside these houses. A 1000 a week; think speculation.
The global housing bubble was never about when is a good time to buy a house in one area or the other. To me it’s about the mania and everything that comes out of that. Every economist knows about the Japan bubbles. Consider that they are still in recession over 20 years later. And counting. I don’t wish for this to go on any longer than necessary, but we have a lot of economic distortions to work through, and the govt is making every effort to go in the wrong direction.
How many banks could stand on their own today? Jeebus, entire countries get downgraded every week now.
Fannie and Freddie will go away. This country is broke and can’t keep backing 90% of the loans. There are millions of houses in shadow inventory. Bernanke says above that a million more are coming in each of the next two years. I would add that isn’t counting all the defaults that will come from the 0-3% loans being made right now in a market being manipulated in every way.
I could go on, but let me just say that I’m glad you are making some money with houses. Still, IMO there is a sh*tstorm coming out of this global bubble that people will remember for a thousand years.
“Yet, I am buying below reproduction cost and the houses all cash flow rent after paying all expenses (I don’t have management costs and do all maintenance myself, but still it is working well).”
Good for you, and sorry to ‘troll test’ your earlier post.
“I worked with the FBI and have a lot of stories I will tell someday.”
Can’t wait…
Ben, I owe you a great deal for starting this blog when almost everyone else was still certain housing would and could continue appreciating at 15-20% a year. I almost bought a house for $535,000 in 2006 that would be worth about $220,000 today. (And BTW, my work with the IRS against Countrywide. for failing to provide 1099’s to their 30,000 sub prime brokers was dismissed in 2010, so I will get no whistle-blower payments to split with you)
I agree with almost everything you said above and acknowledge that Japan has been painfully tied up in knots for 2 decades. We have some similarities, yet fundamental differences, most notably a huge continent with large natural resources and a productive, inovative people.
Government and taxes have been issues since the beginning of time. Look at Shakespeare’s Richard II or Henry VIII, almost 500 years ago. Yes, we have fundamental problems and some say democracy will never have the “huevos rancheros” to dig ourselves out of this mess. Time will tell…..
When I was in high school (1971), I remember sitting down with my uncle and asking him what I should do with my life, because it seems the world was going to melt down. His answer was to go forth, use common sense and live a good productive life. If the world melted down, no one would be safe anyway.
So my point is, yes we have all these fundamental problems that are going to be hard to solve. I am willing to do that work. I believe part of that work is to now spread the news a little bit, when I see light shining thru the dark clouds, just as I tried to share the housing bubble fiasco.
I am seeing sings of recovery everywhere. It is not strong, but it is there. Think back to 2009 when we were all hunkerd down. That day is gone. So the best thing I can do now is be productive and efficient in my life and share with others ways to improve their lives and by doing so, their country.
I truly believe that the single best way to improve many peoples lives is for them to own their own home. I remember the feeling when I bought my first home. I climbed the tree in the back yard and sat there for an hour, pondering my slice of the American Pie.
So I now encourage people to get out there and make choices that are responsible and will benefit them. If they can buy a house for less than reproduction costs at historically low interest rates, that opportunity will only last for a limited time (”reversion to mean”). The U.S. is still growing, much from immigration, some from birthing, and the fact is, we will have to build new houses someday. When that happens and the new homes cost $120/SF to build, buying a house in 2012 for $80-90/SF is going to feel pretty good.
“……A 1000 a week; think speculation.”
What does a 1,000 homes/week really mean for Phoenix?
Say the population is 4,000,000 and the homeownership rate is one house per 4 people (approxmiante national average after taking out apartment homes). So Phoenix probably has 1,000,000 homes. If 1,000 homes/week foreclose that is 52,000/year. Keep in mind, these are not new homes…..so this is not added inventory, just inventory changing hands. The average homeowner sells every 7 years, so 14% a year changes hands. This implies about 140,000 sales in Phoenix. Yes, 52,000 homes trading out thru foreclosure is a lot, but I don’t think absorbing them is that big a deal.
If Phoenix grows at a rate of 1.5%, they need about 15,000 new homes to handle the population increase. I don’t know how many are being built there, but probably not many since 2008. So three years of building nothing means an extra 45,000 houses will be needed for new residents.
So while 1,000 houses/week foreclosing seems like a huge number, it really needs to be put into perspective and the reality is that this is not an overwhelming number and does not represent new supply.
“Still, IMO there is a sh*tstorm coming out of this global bubble that people will remember for a thousand years.”
The US will default on its obligations, one way or another, but this is nothing that countless other countries have done throughout history.
Paladin,
I don’t specifically remember your posts back in the day, but I remember your handle and that I thought your posts had great insight.
I’m glad that you’re turning a positive cash flow on some rentals; that’s certainly a step in the right direction towards a healthier housing market.
But just because the lower end has settled down in your market, and lots of others, definitely does not mean the toxic waste is all cleaned up by any means.
Down here in San Diego, except for the outlying areas, 250K will buy you either a smallish dated condo in a decent area, or, if you’re “lucky”, a krapshak in the hood. Of course, San Diego has always been more expensive than most of the country, but we aren’t anywhere close to pre-bubble prices.
For an older, unimproved house in a good area, you’re still looking at 450K and above. Coincidentally enough, that’s about the amount of a conforming loan, give or take.
Above that amount, the market seems to stratify quite a bit, to where every extra 20K or so seems to buy a lot more house, on up to about 900K, after which there are some really nice houses to be had.
So, my observation in my area (North SD County) is that whereas the low end may have settled down (although I don’t follow that market segment too much), the cost of entry for the mid-range is still astronomical, so that the average person making an OK income still doesn’t get that much house for their money.
I think it’s kind of like a giant game of Tetris — the lower end has to clear out before anything can be done about the coagulation in the middle. I’ve seen that middle market show signs of breaking in the past couple of years, and indeed, prices have probably come down 15-20%, but again, nowhere near where they were before the bubble.
I think it’s in this middle market (450-750 more or less for me) that we’ll see the most fallout in the next year or two. The mere cost of entry gets a very mediocre house. I think the tier between, say, a 500K house and a 550K house will continue to diminish to where maybe that 500K house is now 530. I think for this mid-market to hold, especially when interest rates go up, is just unsustainable.
Oops, meant to say “I think the tier between, say, a 500K house and a 550K house will continue to diminish to where maybe that 550K house is now 530.”
Yes DiN, San Diego is another type of problem. My son lives there and wants to buy a home this year.
PB knows the San Diego market, but I can only remember obsevring it was early to melt down, but did not drop like inland areas. It is difficult to build new housing in SD, yet a lot of people move there, many w/o jobs.
I have no idea where the market is going, but I will tell you a lot of SD companies are hiring more workers, particularly tech and health care. And a lot of trust fund babies and wealthy immigrants move there with cash. It will always be a tough place to compete for housing.
The price adjustments you illustrate ($550k to $500k) are not going to solve a lot of problems.
In the foothills above Sacramento…
The central valley from Redding to Bakersfield and the inland empire has indeed gone down the drain, but another leg down is likely due to agriculture water issues and high long-term unemployment.
The huge losses will be along the coastal areas, which have been propped up with government mortgage guarantees.
This is such a laughable piece of tripe I don’t know where to start. First off, the foothills outside of Sacramento- the whole area- is in an economic depression. Next, I have a friend in Pilot Hill who is hopelessly underwater, working for less than 1/3 his salary a few years ago, destined for foreclosure, and who knows many others in the same boat. There are innumerable properties which sit vacant, rotting away. I have another friend in Placerville who just lost his job, and has no hope of finding another which pays anywhere near what he makes now. He just bought a house less than a year ago. We are now seeing foreclosures of houses which were purchased as foreclosures. Dream on.
GB, yes there still many personal tragedies in this area. That will continue for a while and always be true to some degree. All I am saying is the the Housing Pig has worked its way thru the Bubble Python.
Owning houses today, I get to see many people’s personal stories and I have to say the majority of people I deal with are seeing improvements. The husband who has been out of werk for two years finds a temp job, then a full time job, and eventually, he will get a promotion.
We are on the mend.
Again, I am not saying housing is going to appreciate. Nothing I do in my life counts on that factor. I take outstanding care of the residents living in my properties and I get a bit of cash flow and some tax benefits. I will make my money the “old fashioned way” by paying down the mortgages.
I don’t have a pension and my income is down 80% from the peak in 2006 and down about 60% from my 10-year average. But thanks to Ben, I didn’t blow $250,000 buying a house that year. I banked it and am able to deal with this downturn from a position of strength. All I am saying now is that I am seeing a bottom. It is long, low and very wide, but the bottom is here.
Nothing I have purchased since 2009 has gone down in value, although I was very selective and some short sales took 9 months to close. In the meantime, I will get a $3,500 tax refund on $19,000 in paper losses, primarily depreciation, and I reduced my debt by over $25,000 and had about $8,000 in positive, tax sheltered cash flow. Putting all this effort into the properties to get $11,500 immediate benefit would have been laughable in 2006, but it means a lot to me in 2012 and beyond. We all have to accept the new reality eventually.
Food Stamp Nation. How’s the hope ‘n change working out for you, America?
http://news.investors.com/Article/598993/201201260805/entitlements-soar-under-president-obama.htm
yada yada yada. All this means is that people were abelt to hang on for a couple years until they went broke. Just like they did under Hoover.
In LA for business for a couple of weeks. My commute takes through some of the lower-income neighborhoods.
Nearly every fast food (pizza, Mexican, Soul, etc) restaurant proudly displays a big sign “EBT Welcome” (food stamps).
California Electronic Benefit Transfer
https://www.ebt.ca.gov/
“‘It wasn’t an accident that Phoenix and Las Vegas had a bubble,’ says Calgary-based broker and consultant Mike Wolf. ‘People want to live there.’ After all, he points out, the weather is good and the cost of living is low. Nevada has a business-friendly climate, with no state income tax. ‘You can buy a house here and have a good life just working at McDonald’s,’ he says.”
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How deep into the bubble is this guy? That last sentence is like the shoeshine boy giving Kennedy tips on stocks.
When people describe the sand states as having good weather, what they really are talking about is air conditioning.
Here in Tucson, people working at Mickey Dees aren’t exactly in the Good Life Club. More like the Barely Getting By Club.
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” — Upton Sinclair
If there is ONE things I have learned here at the HBB.
NEVER, EVER buy ANYTHING in RE with the name “TRUMP” on it.
Wait at least for the first bankruptcy…
“A partner in the 46-story Trump Soho, the condo hotel that opened in April 2010 in the Hudson Square district over the objections of neighborhood preservation advocates, last week put the building on the auction block.
NEVER, EVER buy ANYTHING in RE with the name “TRUMP” on it.
+1 If you drop your car keys near a Trump property you better kick ‘em down the street before you bend over for them.
I remember there was a Trump Tower being built in Mexico! People from So Cal lined up to reserve condos for stupid prices ($1,000,000) and mortgaged their primary homes to put 20% down, certain the value would go up astronomically.
We made some pretty rude comments about it in 2006, and sure enough around late 2008 the developer went BK. In Mexico, you don’t get your deposits back. Trump just shrugged and said “I got screwed just like all of you. We licensed our name, only got partial payment and now our name is tarnished.” Would that be the same name on all the Atlantic City casinos where the bond holders took it in the shorts a decade ago? Trump hrump.
it doesn’t make any difference what the property is selling for today!
It matters when the selling price of the median property is equal to 3x the median salary of the population in the area.
if you get a home for $156,000 and the median income in the area is $40,000 then the median income family and can not afford the $156,000 home.
And,it follows that if $1,650 times twelve is not one-third of the median income then the rents have to come down.
House prices must follow median incomes. When median incomes fall, then median home prices will fall.
You should not expect prices to rise until incomes rise!
But, of course, I have been saying the same thing for 40 years, and it still confounds me that these bubbles happen,
I suppose it is people chasing the dollar , and hoping they get out at the top. Or transferring the risk of loss to someone else, somehow!