‘We’re About One-Third Of Our Way Through This Mess’
Paul Muolo kicks off a look at housing bubble news from Washington and Wall Street. “In a brief interview with National Mortgage News last week, Countrywide CEO Angelo Mozilo predicted that the industry’s correction will last at least another two years. He believes that significant consolidation is now underway. Another executive told us that ‘we’re about one-third of our way through this mess.’ Profit margins continue to be tight in both the prime and subprime sectors.”
“When the going gets tough the tough start exercising their stock options. Fannie Mae directors Ann McLaughlin Korologos and Joe Pickett in early May each exercised stock options valued at $126,250.”
“Both are current board members and served under former chairman Franklin Raines. Mr. Raines, Mr. Pickett and Ms. Korologos, and other executives and directors (past and present), are defendants in a shareholder lawsuit that accuses them of turning a blind eye to the company’s accounting woes because they were involved in ‘mutually beneficial relationships’ with the GSE. The plaintiffs charge the group did not operate as independent directors. Fannie Mae is trying to get the lawsuit dismissed.”
“The Enron convictions were big news this past week and mortgage executives are starting to wonder if criminal charges might be brought in the Fannie Mae case. The Office of Federal Housing Enterprise Oversight and Securities and Exchange Commission formally accused the company and its former top executives of fraud.”
“Of primary interest to criminal investigators are the 1998 bonus payments. One industry veteran who has worked on fraud cases told us that breaking the rules to make money is a ‘criminal act’ and adding that ‘people go to prison for that.’ (Millions of dollars in bonuses were paid that year.) The obvious question in the Fannie case is who was responsible for bending the accounting rules and what did they do, and when.”
Bill Fleckenstein writes about the next big scandal. “‘Make money risk-free!’ That’s usually a costly come-on, as ordinary folks know. But corporate chieftains who sit on their stash of stock options have found a way to turn this unattainable fantasy into reality. The public..outrage will only intensify when folks who’ve speculated in the housing market start to feel the real pain, which will bring about the next big scandal: fraudulent appraisals and bogus financing schemes.”
And the NAR has their latest sales tactic out. “Apartment rents are expected to increase 5.3% this year - about double last year’s increase, the National Association of Realtors says.”
“When the housing market was at its blazing peak, many investors who owned apartment buildings kicked out tenants and sold the units as condos. One out of three apartment buildings sold last year were converted into condos for sale. That took 191,400 apartments off the market, according to the NAR. In addition, the number of new apartment buildings under construction is down this year.”
Inman is going along. “As the housing market cools down in many areas, rental housing is heating up, with rents rising and the amount of available rental housing dropping, experts say.”
“There are two reasons rents have gone up so much in Southern California, Conway said, one of which is interest rates. ‘First of all, now that the housing market is cooling and interest rates are moving up, more people are choosing to live in apartments,’ Delores Conway, director of the Casden Real Estate Economics Forecast said.”
“‘Demand for apartments has gone up as the adjustable mortgage rates everyone was using to try to qualify for mortgage loans are going up. Now lenders are tightening qualifying criteria as well and adjustable-rate mortgages are moving up. They are almost up with fixed-rate loans,’ the director said.”
“Hence, there is more demand for apartments now, Conway said. ‘The second thing is more interesting. Because the housing market has been white-hot and there have been so many condo conversions, the supply of apartments actually went down and the demand went up,’ Conway said.”
For the $1,400 spent in Orange County, CA, one can rent a mansion in Arizona. And the rents here haven’t gone up one dime through the crazy run-up of the last couple of years.
Home rents are dropping in this area of Southern California while corporate apartment rents are hot. Something doesn’t make sense.
Neil
The NAR is a marketing machine. This week it’s rents. Last week it was commercial RE. They have a lot of money, so coordinated media campaigns are to be expected.
My thoughts exactly !
They also coordinated puff pieces on the lifestyles of the rich and famous RE agents and the analogy to Y2K this weekend.
NAR’s selling tactic, the paragragh began..!
Another failed plan!
They’re not making more
landpeople. Simple supply and demand. Rents may go up a little due to less supply (conversions), and may go up even further since flippers will rent @ a loss (and renters will get much more bang proportionally for the buck). Rents, like home prices are sticky to. Even more so?In areas where there are many second home purchases, and speculators buying for a flip I think rents will not be able to be pushed higher because these places are already vacant, and the number of rentals is increasing therefore giving the renter more choice and less of a need to feel forced into a higher price.
Yeah why would they, with all the vacant “rentals” subsidized by the so-called “speculators”.
1/3 of the way there?!?!?!?!?
We have barely STARTED!!! You still have about 1.75 trillion dollars worth of ARMs to adjust between now and the end of 2007.
If you just want to look at 2006/2007 time frame, only about 12.5% of the $2 trillion in ARMs have adjusted.
Some will be able to refi….many more will not. If they couldn’t afford the property with rates in the 4’s and 5’s, what makes you think they can afford it in the 6’s to 8’s???? Not to mention, many people have pre-pay penalties that will eat up 10-20k of their ‘equity’.
We are barely a few months into this thing.
YAWN!
SoCalMtgGuy
http://www.housingbubblecasualty.com
But if they only care about the payment for the short-term tease?
Seems to me like rents have to come down or at least not go up. I predict that many of those empty condos and houses will become rentals. After foreclosure, lots more section 8 housing. That was my experience in Houston in the 80’s anyway. Local observation on the Big Island east side is huge and growing inventory, few shoppers, falling rents.
e-mail me if Lanikai goes to below 500k
‘One industry veteran who has worked on fraud cases told us that breaking the rules to make money is a ‘criminal act’ and adding that ‘people go to prison for that.’
Someone email congress with that.
DOJ… are you reading this?
Precisely! It is why I can not understand the reluctance of public officials to go after this nonsense.
Something is terribly wrong when the Board of Directors can exercize options when for 2 plus years they seemed unable to file a 10Q!
I agree. No options should be alllowed to be exercised until accurate financial statements are filed.
OT: Rents in West Palm Beach have gone up. We have seen a ton of condo conversions, many which will fail and revert back to apartments over the coming years. Speculator condo/houses will keep hitting the market so our supply should be OK. Another reason for rent increase here is due to the hurricane damage. As insurance premiums go up, so will the rent. My rent went up 5.5% from $909 to $959. It would cost $1500 or more per month to own my apartment. I’ll deal with the 5% increase thank you very much.
Hey Notorious,
when your lease is up you will probably be looking at a decrease in rent. There should be some bargains out there. According to Realtor.com, there are 2,599 rental properties on the mls for West Palm. That doesn’t include apartment complexes and soon to be flippers rental properties. There are over 12,000 homes for sale. I’m sure some of those sellers will try and rent since nobody is buying. Just be grateful you are in a position to watch the market crumble.
Rents up 5%?…., BFD. Let ‘em go up 25%+ and renting will still make more sense in most areas. Where I’m renting right now (after selling last fall) I figure my rent could go up another $600 per month (which is in my case about a 50% increase) and I would still be making out over buying. Nice try NAR!
My thought exactly. I will gladly pay another $100 a month vs. paying double the amount I am paying in rent to own while watching the value plummet.
Nice try NAR.. when all else fails, scare people into buying.
“There are two reasons rents have gone up so much in Southern California, Conway said, one of which is interest rates. ‘First of all, now that the housing market is cooling and interest rates are moving up, more people are choosing to live in apartments,’ Delores Conway, director of the Casden Real Estate Economics Forecast said.”
We’re at 100% occupancy - just rented out the last vacancies at market.
Where are your properties located?
Santa Monica, CA
Although we have draconian rent control, we can rent vacant units at market. Several units have become vacant because the former tenants bought condos recently. Since there have been quite a few buildings converted to condos, and no new apartments built since rent control went into effect in 1979, the apartment rental market is tight.
Santa Monica is nice, be thankful for all of the condo conversions.
Draconian?? Your being very kind.
“BLAH” You’re
Correct that before WeRent goes into a tizzy
Be aware all, WeRent is always watching, waiting to pounce. That apostrophe you neglected, that ‘i’ before ‘e’, or the Holy Grail, the ‘your/you’re’ fiasco. Mind your spelling and grammar accordingly or suffer the embarrassment of being chastised in front of the class. The day WeRent stops correcting our sloppy efforts will be a sad day indeed.
I’m sure that rent control and affordable housing laws have significantly discouraged apartment construction in Santa Monica. However, “no new apartments built” is a slight exaggeration.
1,995 units in multifamily housing were built in Santa Monica between FY94/95 and FY03/04, and several hundred more units are under construction. That includes some condos, but mostly apartments.
http://santa-monica.org/cityclerk/council/information_items/2005/Prop%20R.pdf
my condolenscences to LL in SM and WEHO - now that I am older, I can appreciate the extra issues you all have. But if you are a renter, nothing like getting a choice apt for less than half of the inflated going rates!!!! It sure saved my bacon when I did not make great cash…
I don’t understand the logic on this one.
People want to live near wholefoods, movie theatres, restaurants, starbucks, easy transportation, etc. Where are those workers going to live if the rents rise up to $2,000K a month for a one bedroom?
Also, government obligations for retirees, veterans, and others go up if rents go up because rent is part of inflation-unlike the cost of owning. Is the government going to allow that? How are they going to pay?
In the D.C. area, rents have risen about 3% a year for the past 5 years. Oh no! now they will rise 5% more..that’s $50 dollars a month more..what to do?
Just pile in more people into that 1 bedroom. There’s a stat that I’m sure I’m misquoting, but it’s from that excellent Christopher Thornburg lecture… something like 20% of all households in LA have, on average, more than one person per room. I.e., in a 1 bedroom apartment, that means there’s 3 or more people; in a 2 bedroom apartment, 5 or more.
Perhaps they’ll eventually take rents out of the CPI figures (or whatever they use to calculate these figures).
His lecture was excellent. But I’m talking about the 20 somethings that communicate well at Starbucks, restaurants, Wholefoods etc.
They can’t afford 2K a month and they’ll move. And if that happens there goes the culture and benefits of urban/exurb living most people were looking for.
Not to worry!
The government won’t get that data in their numbers! By last report inflation is “well contained” @ 3.3% YOY…OR rents will be $ dollar adjusted to 2006 dollars! ;>)
Of course even second graders know better!
darn… and I needed one for the summer!
Here in the OC, local publications like the PennySaver and OC Register classifieds are advertising tons of rentals so I find it hard to believe that prices will be going up. If anything, prices should be coming down since the volume of rentals on the market have been steadily increasing.
Agreed.
My neck of the woods points to stable rents. Prices seem to be sticky to the downside, but there are plenty of places to rent for $2500/month. Besides, I have anecdotally heard that they local job market isn’t that great, so it might not be “heading up” anytime soon. Besides, what kind of income does a person need to spend $3000/month on a rental. What about $6000/month to make the typical South OC home cash-flow positive?
Rent on $1000 place goes up 5%. Net cost per yer: $600.
Purchase same place for $200K. Price drops 5% in one year. Net cost: $10,000.
Door number 1 please!
Exactly, the supply of appartments to rent will go back up once they convert the condo conversions back into appartments.
Exactly.
To report this fairly, you need to compare the % increase in rents with the % increase in mortgage payments.
So a 7% increase on a $1,600 rent adds $112 to your month rent. So what. That is still much, much cheaper than ponying up for a $500K+ mortgage. In fact, according to the article:
this tells me “renting is the biggest no brainer in the world” for the foreseeable future…
Just like the radio ad for RE loans, Funny!
The headline says - “1/3 through” - LMAO. No f’n way. I say we are a long way away from getting thorugh this mess!
I was gonna say, I think we’re only in the bottom of the first inning. The game is definitely underway, though.
Funny how the very people who could not see the MESS coming, then denied it 3 months ago!
Now have the crystal ball to see the end!
Sounds like Wall Street….they normally call 10-15 bottoms before finally getting it right! But just like the headline they never see the tops.
Oh yes I forgot tops are only temporary 1yrs, 5yrs or 7 yrs and counting???…
“1/3 through” ????
WTF, it’s the top of the 1st inning…long-long way to go.
Agree. Have these clowns even acknowledged there is a problem??? I say the starting lineups were just announced and the visiting team in on deck waiting for the first pitch. Once Liar-ereah annouces YOY declines the ball game will begin!
I too agree that this correction isn’t 1/3rd over. We’re at 1/3rd of the way to recognizing there is an oversupply.
I’ll say we’re 1/3rd over when its the start of panic selling. Then we’ll have foreclosures and the start of panic selling season #2 and then the 2nd wave of foreclosures…
I remember the early 1990’s well. This slide is going to make that one look rosy. We haven’t even started layoffs in any significant numbers and the housing and other capital markets are unstable. Sheesh.
Neil
i believe he was referring to the 400,000 bodies that need to be removed from the mortgage industry. angelo is my hero.
KInda like falling from a 30 story building.. sure the first 10 stories are the easiest.. it’s the LAST 10 that matters.
1/3- Buildup of inventory from speculators and flippers leaving
2/3- Buildup of inventory from ARMs adjusting/foreclosures
3/3- Buildup of inventory from Fed tightening lending standards
4/3- Finally, a decline in prices
5/3- Taxpayer bailout of Fannie Mae & Subprime lenders
6/3- People losing jobs from collapse of finance and homebuilding industry… more buildup of inventory.
7/3- General Recession/Depression of American economy = even fewer buyers
8/3- Global recession, no more foreign investment in Treasuries
9/3- Other things I haven’t thought of
10/3- Back to the fundamentals
9/3….a Fed chariman who is a life long college porfessor….
Now a Treasury secretary that majored in literature, but worked for the wright team! Goldman
What next Hillary?
“The public..outrage will only intensify when folks who’ve speculated in the housing market start to feel the real pain, which will bring about the next big scandal: fraudulent appraisals and bogus financing schemes.”
Does my heart good to finally see this in print. BB knows what happened in Japan and is trying not to raise FF rate higher to accelerate the downside to housing. The only thing that BB and the gov have to slow the slide is to expose the fraud and head into the court room. Bottom line though is that they still don’t get it…..people can’t afford these housing prices even if they were reduced 50%…the good side is that the majority hurt will be the speculator and investor….
I’ve noticed that rents are going up here in Riverside, CA only because so many “new” or newer homes are currently for rent. These homes are all much larger than the older homes and are in new communities. I think that overall, the cost per square foot of house is about the same. I don’t think this actually too relevent though. Just my view.
Angela
That’s a great point. Here in Arizona, flippers are trying to rent out brand new $500,000 McMansions for $1,200-$1,300/mo. What would the rent per sq ft work out to?
Also, this may have an effect on the older homes since they feel if another home is renting for $XXXX, then mine should rent for $XXXX. Again, JMHO.
Angela
True, but this works boths ways. When I was looking for a SFH rental late last year, I found a bunch of dumpy garage conversions and backyard “cottages” for $2400+. It looked pretty obvious that nearly all these places had been newly bought/flipped and folks were trying to cover the mortgage. No thanks.
The place I ended up renting was a nicer place for much less. Owner had bought in the 60s, mortgage was paid off, and dropped the price to get a better selection of tenants. She is thrilled at the amount she can charge, while the other guys are hurting if they don’t get top dollar.
As long as there’s older owners, there’s only so much rents can be pushed up.
Yep, you are very correct. The rental market is bifurcated into the recently LL dreamers and the longtime LLs who bought low.
Just let the dreamers avoid the reality of tenants and get squeezed.
Yeah that’s my situation. Landlord is older lady with paid off mort and is thrilled to get a deceeent rent which is still half of what local stuck flippers “need” to get.
I can’t believe the hype that NAR is allowed to spew. Just like the go-go/raw-raw stock promoters during the dot com boom. Remember those guys ? I wonder if the NAR are secretly sending emails to each other saying that certain markets are going to collapse, just as some analysts were doing about companies just before the crash ?
Well,
Who should muzzle them? Most of folks on this blog seem to be libertarian or freemarketeers. This is what you get without any regulation. Business always knows best! NAR is just another voice for the people. Enjoy.
The People who should muzzle them are the Fourth Estate, i.e. the media, by asking them serious hard questions about the bunk statements they are making and holding their feet to the fire when their “predictions” turn out to be hype. Yeah like that will happen!
There is no 4th estate anymore. That was back in the day when the press was full of muckrakers. They are all dead. The press is nothing more than an Infotainment center now, filled with one or two gems among a whole lot of houseplants masquerading as journalists. The Infotainment Industrial Complex is nothing more than a great big fat multi-modal PR newswire.
Athena..the lemmings, can’t handle the truth”
Comment by Mr Fester
2006-05-30 12:40:29
Well,
Who should muzzle them? Most of folks on this blog seem to be libertarian or freemarketeers. This is what you get without any regulation. Business always knows best! NAR is just another voice for the people. Enjoy.
______________________________________________________
Exactly….. We’re seeing the end result of unbridled capitalism, graft and thievery.
Franklin Raines was a big part of it. Both parties shamelessly pander to big business and not one politician in Congress and/or the White House in the last 25 years can be held unaccountable.
Dennis Kucinich and Ron Paul
2 guys from opposite ends of the spectrum….you “they are all the same” A$$holes make me sick…quit talking about it and DO somethting about it…..you can vote, you can join a party and make your voice heard…….freaking DO it.
Democracy is a G– Da– Particapatory activity.
And sitting around whining about stuff is nothing but mental masturbation….you dont like your city council, you dont like your congressman……find somebody you like and help them or do it your freaking self….you get the government you deserve and WE deserve the mentally challenged W cause nobody wants to work for it and he was offering the FREE LUNCH an extension of St. Ronnie Ray-Gun’s FREE LUNCH.
9-11 changed everything and what did our leaders ask us to do…..GO SHOPPING then we re-elected the jaggoff and you people are shocked at what is happening?
It seems to me that this group believes that NAR talking heads should be taken out behind the barn and horse-whipped. Throw the rascals out and make room for another set of rascals.
But they/we also believe that the rules that make markets transparent should be applied not just to securities, but to the investments these ass clowns are pushing, namely REALESTATE. Real estate does NOT always go up.
Comment by LaLawyer
2006-05-30 13:33:39
It seems to me that this group believes that NAR talking heads should be taken out behind the barn and horse-whipped. Throw the rascals out and make room for another set of rascals.
But they/we also believe that the rules that make markets transparent should be applied not just to securities, but to the investments these ass clowns are pushing, namely REALESTATE. Real estate does NOT always go up.
___________________________________________________
Contrary to perma-bulls(hit) and wall street apologists, the securities biz is still like the wild west. There isn’t nearly enough oversight…. yet.
I agree that transparency is critical, and that means more than some bimbo in a bikini pushing condos.
I do like the bullwhip idea too, until Dave Lareah’s swollen A2#$! becomes a balloon and followed by an expansion!!
And a few lashes for Greenspan too for good measure.
Here in RHode Island new lease for my 2 bed room apt remains the same as last year. A lot of empty apts around. Big sign up bonus!
fallout- what else do see in RI
I have a relative that needs to sell an old house in EG
Where do these idiots come from? Economists or not, they are a bunch of farce. With home ownership at around 70%, the highest in years, and with thousands of condos and houses added to the available pool of dwellings over the past several years, there is very little pressure from the renting demand relative to the supplied dwellings to significantly increase the rent above the rate of inflation. Furthermore, the majority of the RE speculators place their holdings on the market for rent while they are waiting to flip. Therefore, just because an apartment is converted into a condo, does not mean that it is taken off the rental market. We really need some law enforcement in this naked “pump-and-dump” manipulation by the RE industry. The majority of their members are RE flippers.
With home ownership at around 70%, the highest in years
More like homedebtorship at around 70%. Home equity is quite low by historical standards. Even during the late 70’s, the equity was much higher.
“The majority of their members are RE flippers.”
For that reason among others, I can hardly wait for the crash to play out all the way down to the bottom.
Just a heads up, today’s stock market selloff appears to be housing related:
“Leading the decline Tuesday were financials and construction. The AMEX Securities Broker/Dealer Index and the Dow Jones Home Construction Index both fell over 2 percent.”
(http://money.cnn.com/2006/05/30/markets/markets_newyork/index.htm)
We maybe seeing the beginning of the comorbid interaction between housing, employment, and the economy in general.
I don’t see any bottom to the stock market yet. The sell off is going to continue tomorrow.
Even worse, nor does Kramer ! He just said the C work on his show. CASH. He opened the show without recommending a stock ! I sold the last of my stocks today. Get ready for a stock market crash.
I definitely think the housing market is feeding into the stock market. The only sector that is still up is the commodities. Everything else is getting hit. People see the interest and oil hammering the consumer, but wait until they see reduced new house building hit the commodities. That will really trigger a sell off.
Kramer’s a reliable contrarian indicator. I guess this means now is a good time to load up on stocks.
commodities will be up for a long time.
Where do you think those commodities are going ? To China. What for ? To build stuff that Americans are buying ! Why ? Because they felt rich because of their house !
It takes about 300 pounds of copper to build a house. Just think how much less copper we are going to need when this housing foolishness stops.
If Cramer is saying cash its getting time to buy.
You should have a good feeling about what you buy.
Recently I bought a bunch of MSFT shares when it sunk to 22.5, an 18 P/E. I felt lucky to be able to buy a growth stock that owns a market. I’ve done the research and I know a lot of new products are hitting the market in the next year.
I would have the opposite feeling buying a house right now. I would feel like a sucker.
I’m not buying a damn thing unless I feel good about it.
What NAR is trying to get people to do is to buy on FEAR. And that’ s B.S.
“What the NAR is doing is trying to get people to buy on FEAR. And that’s BS.”
Yes, but it has worked so WELL for them the past 10 years. **Buy or you’ll be priced out forever!** Now THAT was a scary thought! It worked like magic.
What’s interesting is that they’re cutting back on that line. hmmm…. is this an admission that we may no longer be “priced out forever” if we don’t buy now?
That line had great emotional appeal and catapulted a lot of people into signing on the dotted line just cuz they were scared out of their wits.
It’s not working anymore so now they’ve had to come up with a totally new angle: one that appeals to your reason. I think the logic they are going after is something like this: Well, houses may be terribly overpriced, and it’s true we don’t know where the prices are going, they may go down. BUT, if rents are going UP then it MAY still make sense to buy now.
This new tactic is a pretty clear indication that they all know the market is tanking.
These NAR people are brilliant criminals. Most criminals are pretty brilliant- til they’re caught.
I am SO glad to hear that people are discussing Fannie Mae in the same breath as Enron. That is the BEST news today.
“I felt lucky to be able to buy a growth stock that owns a market.”
I have some bad news for you: MSFT is a mature stock, not a growth stock
Interesting thoughts about MSFT. When I am forced to upgrade OSs I will migrate XP to Linux (will work great for my needs) and when I finally have to upgrade my machine it will be to a MAC. As it stands now the only commercial application that I am using on my HTPC is XP, everything else is freeware or open source.
I suspect that your MSFT play will workout just fine, but there is a growing group of users that don’t need or want MSFTs intrusion into our lives.
jms
I work in the software industry and run Ubuntu. But, MSFT has plans much bigger than the OS and will make some serious cash. I could be wrong.
My point was I felt great buying what I think will be a good investment. If I were to buy a house right now I would feel very different.
Ubuntu blah long live Gentoo. LOL j/k
jms969
When apple switched to intel chips the hackers quickly figured out how to rum MAC OS on off the shelf machines. My brother just built a kick-ass machine for $300.
Johnson and Johnson is trading at about $60/share with a 16.5 P/E and a 2.5 % yield
My two cents:
Although they will survive, many of those companies will get cheaper during a crash (MSFT, J&J). Warren Buffet considers stocks with 15+ P/E to be expensive… Our stock indexes are higher than historical norms… so 19 P/E, though seeming cheap now after the dot com bubble, will seem expensive a few years from now…
My rent went up a whopping 1.4% last year and I pay more than the average in my complex. My complex (not bad for the area at all), was offering a free month’s rent to fill up some vacancies. While I doubt they would raise my rent next year more than a similar minor amount, my rent would have to go up over 86 percent to bring it inline with buying the same unit. The only way I see rents going up significantly is if suddenly a massive number of homeowners were foreclosed upon and they had to look for a place to rent…..
I’m hoping that in that case landlords would prefer me with my 800 credit score to the young couple with an unseasoned bk and foreclosure. Perhaps they won’t raise my rent, in any case, I’ll hope to be activly househunting by then.
From the article:
No one needs to tell Rosa Shephard. The $1,600 rent she pays for a two-bedroom apartment in Laguna Beach, Calif., will rise by $100 a month this Friday. It’s a 6.3% increase, and Shephard’s salary as an administrative assistant isn’t rising as much, so she’s trying to find a cheaper place to live. “I’m trying to find a one-bedroom for $1,200,” says Shephard, 53. “It just doesn’t exist.”
I totally don’t know if this is true, because I don’t live there, but according to realtor.com there appear to be many units for rent.
http://tinyurl.com/mms3b
Also, $100 a month is a huge problem? I dunno, maybe it is.
Here are stats for the three big counties in Northern VA. I noticed that rental inventory is lower in Fairfax, which is closer in and more expensive to purchase. More rentals are coming on the market every day as home don’t sell and sellers put them back on the rental market.
Rental Inventory
March 2005
Prince William — 360
Fairfax ———— 1211
Loudoun ———- 296
May 2006
Prince William — 533
Fairfax ———— 1012
Loudoun ———- 403
It is pretty easy math for a LL to work out.
Raise the rent by just under what it would cost to move and take your chances with vacancies.
Rents are included in CPI so go ahead and raise rents and watch interest rates keep ticking upwards.
Find a good absentee landlord who hates vacancies worse than he/she loves an incremental $50-$100/mo.
Help the LL do the math on vacancies and negotiate.
Well I guess you could commute from Laguna WOODS to Laguna BEACH but try looking at rentals in Laguna BEACH for $1,200 1brs.
Laguna Woods = Leisure World (Seizure World) an over 55 community. At 53 years old Rosa is to much of a spring chicked to Rent in LW
Sorry - was scrolling through results of search on “Laguna Beach” CA at realtor.com and picked one without being careful. Realtor.com isn’t very precise - perhaps there’s a better search engine for that area of CA.
I couldn’t help but wonder what an administrative assistant makes for salary in Laguna Beach that makes a $1600/mo rental acceptable. Man, does anyone think of their future? She probably has to move because the extra hundred dollar increase means she’ll no longer be able to afford the box of Wheaties she sustains herself with.
Laguna Beach is probably the single most expensive rental market in Orange County. Why an administrative assistant (i.e., secretary) think she should be able to afford to rent there is utterly beyond me. I’m paying less rent than she is, and I live in San Francisco. In a 2-bedroom apartment, no less.
Crap, if I don’t buy a house now, I will be priced out of the rental market permanently…
Good one Hubrispie! Isn’t the NAR brilliant? They always know just how to scare the living daylights out of you.
Here in Albuquerque there have been eight full columns in Sunday’s classifieds of houses for rent for over a year now, this does not include apartments.
“Apartment rents are expected to increase 5.3% this year - about double last year’s increase, the National Association of Realtors says.”
Five-point-three percent — get the smelling salts!!! Let me know when rents go up 30% in a year, like home prices did in NoVA and some other metro areas.
Not only that, 5.3% just might turn out to be LESS than the overall rate of inflation.
Come to think of it, that’ll be my prediction: for all of 2006, rents will rise less than the rate of whatever the Bureau of Labor Statistics tells us the overall CPI is.
My landlord tried to raise my rent by about 30% because “property taxes might be going up.” I said goodbye.
Where? Good for you. Did you find a better rental?
We also decided to move. We’ll pay $50 more a month but gain 2 more full baths, 5 more closets, a finished basement, a deck, one more bedroom, way nicer and fenced yard, and a better commute/closer to stores.
Good. I’ve done that and so have half the people I know who rent. It’s going to be absolutely necessary to take a stand about that now. Crap, why support high house prices by paying higher rent? that is just what the NAR WANTS you to do.
First they run up the price of a home and next the price of renting, all in an effort to keep housing out of reach. Enough.
It can be a pain to move I know. But every person I know who did that found a BETTER place to live.
And a couple of us got rent REDUCTIONS when we gave notice. So who is scared now?
Rent now or be priced out forever!
Rents are very firm in NYC. Good luck finding a nice 1 BR for less than $3k/month in Manhattan. I heard recently that occupancy rates in NYC are now about 97%.
Huh? I just searched craigslist for no-fee 1BR apartments in Manhattan under $2200. I got 1356 results, the majority of them posted in the last two weeks. Now some of the are in Harlem or wherever, but there are hundreds in the UES and UWS too. Looks like you have your pick on the UES for around $2000.
Well, depends on how we define “nice” . Remember that there are a lot of really crappy rentals in NYC (walk-ups, bathrooms just off the kitchen, no light, noisy, SMALL). Want a quiet, bright 800 sq ft apartment in Manhattan in an elevator building? You’re looking at $3k.
OK, but I’ll bet I could find something I’m comfortable with for closer to $2k than $3k. (This is somewhat relevant to me right now, because I live in a highrise in Chicago now and am job searching in NYC among other places.)
It seems the 2brs in the “socially acceptable” neighborhoods start around $2500, and there are nice 2brs up at $3k.
As a separate issue, I’d love to hear first-hand experience from someone who own or rented in Manhattan in the 1970s (My family lived in Fairfield County CT at the time; dad worked in NYC). Everyone always wants to live in New York, really?
You could find a nice one bedroom over $2000 in some neighborhoods in Manhattan. Median rent for a one bedroom is $2600; however if you are willing to live farther from the subway or in the UES, then you can get something nice for around $2000. Median rent on a 2 bedroom is $3600. Again, UES is cheaper (median in UES is prob around $2900).Two bedrooms below $2600 tend to be converted and not true 2 bedrooms ( in my experience) or the buildings are disgusting. The stuff on craigs list (in my experience) is usually terrible. Unless you luck out, realtors have better acess to the nice apts around here and they charge 10% of one years rent. A racket pure and simple.
OK, thanks. My sister recently moved away from nyc, and that jibes with what she’s told me.
Here in Reno, the number of rentals seems pretty flat, and rents (for apartments) are up about 5-8%, according to the local rag.
“Hence, there is more demand for apartments now, Conway said. ‘The second thing is more interesting. Because the housing market has been white-hot and there have been so many condo conversions, the supply of apartments actually went down and the demand went up,’ Conway said.”
Well, it sure is reassuring to know that so many new homes are under construction, and so many used homes are locked up in the growing mountain of for-sale inventory. Because once the supply glut ultimately inundates both the rental and the owner-occupied markets, then rents and purchase prices will both fall, just like the last time the real estate market crashed (in the early 1990s). I guess the NAR has conveniently forgotten what happened last time, though…
Realtors KNOW this crash will be much worse than the 90’s. That’s why they’re going to pull every trick in the book out and then some to try to slow it down.
I’ve never heard so much Realtor Noise in my life.
Have you noticed they’ve pretty much quit running those “Realtors are ethical people ” ads on TV tho? They were pretty hot for a few weeks there last winter.
I guess they finally figured out that nothing makes a person appear more morally bankrupt than running around blabbing all the time about how ethical you are.
I’ve found that even in high-rent areas like SD, rent is negotiable if you have the income and good credit. When they send you a rental increase, take your 30day notice and personally hand to the manager and tell them you found such and such deal (one month free, lower rent, whatever). If you’ve been a good renter I think they will almost always work with you. At one time in UTC I was paying about $400 under the “going” rate by using this tactic. I’m afraid most people just pay the rack rate or accept rent increases without even objecting.
I forgot to mention the BS encountered every single time when calling about a new apartment “Well, we only have one of those left….” or “well we don’t have any right now, but we may have one in xxxx around the time you’re interested in moving”..
How does the fact that interest rates are rising increase the demand for rental units? Yes, it lowers the demand for purchases, but that does not increase the demand for rentals. It would merely mean that not as many people are leaving their rentals (to become purchasers), but it does not address where the added demand comes from. Presumably, an increase in demand could come from population increases and former homeowners selling their property and choosing to rent. But with sales down dramatically, it does not seem that their is a big rush of people selling and becoming renters. So, is the supposed increased demand coming from increased population?
Here in Hampton Roads (Southeastern Virginia (Newport News, Hampton, Chesapeake, Suffolk, Virginia Beach, Norfolk, Portsmouth Virginia) my rent went up. I talked them down to a 5% increase instead of like 10%. There is a recent article in the Daily Press that there is a total lack of rentals and rents are going up. Taxes and selling prices are putting the squeeze, plus you have all these new flippers trying to rent their investment for higher amounts. This makes the pre-existing landlords anxious to raise their rates.
The interesting thing is today I saw one of the condos in downtown Norfolk for rent for $1600. I believe the unit was for sale between $320k and $400k. So that definitly doesn’t work out.
Also there does seem to be a large number of rentals availible. I’d imagine the upper end has plenty of supply, and the lower end is a battle ground. The average household income in our region is down from 2001 when adjusted for inflation. I believe it is around $60K. Yet the median asking prices are way up there. And there are some large job losses in the pipeline (Ford plant which was one of the better paying places of employment outside of gov’t contractors). Once gov’t slows down their spending it could have some huge effects. Plus I believe we are loosing a carrier (5000+ people), and the Oceana base has an uncertain future.
They say the region has gained residents, so perhaps the money is coming from people cashing out of more expensive markets. I’ve known some people to cash out of this market and move to rural VA and South Carolina.
Whatever the case may be. Renters pay in real money, while “home owners” can use funny money. So there is only so much that landlords can get.
Also, having rented a house from a idiot turned investor, it was bad. The guy didn’t do a single thing to keep up his property, and it got nasty at the end. He had no cash reserves to pay for things that broke (but was sure to show off lame cars he was financing ??). Not good.
I do have lots of fun trolling craigslist. I take no pause in emailing sellers to tell them their places are overpriced, and giving them my view as to why they need to start cutting the prices or get stuck.
Some of them get really mad.
Hello Folks
Below are some numbers courtesy of some MLS data mining from “Operation Ivy”. Please note that in some cases they might be different than Zip, or other sources. Ivy is still in the process of learning what is what. There is a lot of additional data behind this, such as the price spread / count by type, average prices, etc. I am hoping to put up a web site where Ivy can post the results on a weekly basis for tracking purposes.
(part one) —————————-
Market: Alberquerque, NM
Homes on MLS: 2,683
Median Asking Price: $275,000.00
Total Asking Price (all homes): $980,074,370.00
Census(2000) Median Price: 125,017.60
Market: Austin, TX
Homes on MLS: 10,422
Median Asking Price: $200,000.00
Total Asking Price (all homes): $3,416,830,307.00
Census(2000) Median Price: $160,074.40
Market: Bakersfield, CA
Homes on MLS: 5,688
Median Asking Price: $325,000.00
Total Asking Price (all homes): $2,138,552,452.00
Census(2000) Median Price: $87,260.00
Market: Bend, OR
Homes on MLS: 1,656
Median Asking Price: $449,900.00
Total Asking Price (all homes): $1,046,790,721.00
Census(2000) Median Price: $145,500.00
Market: Billings, MT
Homes on MLS: 887
Median Asking Price: $215,000.00
Total Asking Price (all homes): $242,716,850.00
Census(2000) Median Price: $129,057.00
Market: Birmingham, AL
Homes on MLS: 8,583
Median Asking Price: $185,000.00
Total Asking Price (all homes): $2,092,813,836.00
Census(2000) Median Price: $83,525.00
Bloomington, IL
Homes on MLS: 878
Median Asking Price: $174,900.00
Total Asking Price (all homes): $192,511,946.00
Census(2000) Median Price: $116,500.00
Boise, ID
Homes on MLS: 4,119
Median Asking Price: $269,950.00
Total Asking Price (all homes): $1,427,724,561.00
Census(2000) Median Price: $125,767.00
Boston. MA
Homes on MLS: 22,643
Median Asking Price: $450,000.00
Total Asking Price (all homes): $13,713,678,559.00
Census(2000) Median Price: $253,514.00
Buffalo, NY
Homes on MLS: 4,029
Median Asking Price: $119,900.00
Total Asking Price (all homes): $653,675,380.00
Census(2000) Median Price: $95,925.90
Casper, WY
Homes on MLS: 237
Median Asking Price: $215,500.00
Total Asking Price (all homes): $64,078,279.00
Census(2000) Median Price: $109,434.00
(part two) —————————-
Cincinnati, OH
Homes on MLS: 17,731
Median Asking Price: $174,900.00
Total Asking Price (all homes): $4,269,694,259.00
Census(2000) Median Price: $118,311.00
Cleveland, OH
Homes on MLS: 16,029
Median Asking Price: $164,900.00
Total Asking Price (all homes): $3,675,640,945.00
Census(2000) Median Price: $80,264.30
Denver, CO
Homes on MLS: 20,818
Median Asking Price: $269,500.00
Total Asking Price (all homes): $8,184,036,404.00
Census(2000) Median Price: $177,453.70
Des Moines, IA
Homes on MLS: 4,178
Median Asking Price: $197,900.00
Total Asking Price (all homes): $962,234,820.00
Census(2000) Median Price: $84,091.00
Fresno, CA
Homes on MLS: 3,766
Median Asking Price: $339,500.00
Total Asking Price (all homes): $1,584,615,744.00
Census(2000) Median Price: $76,481.20
Grand Rapids, MI
Homes on MLS: 7,952
Median Asking Price: $154,900.00
Total Asking Price (all homes): $1,616,003,871.00
Census(2000) Median Price: $120,100.00
Indianapolis, IN
Homes on MLS: 16,251
Median Asking Price: $144,900.00
Total Asking Price (all homes): $3,407,601,491.00
Census(2000) Median Price: $97,102.70
Kansas City, MO
Homes on MLS: 20,803
Median Asking Price: $179,900.00
Total Asking Price (all homes): $4,634,131,937.00
Census(2000) Median Price: $95,839.00
Las Vegas
Homes on MLS: 17,728
Median Asking Price: $369,000.00
Total Asking Price (all homes): $8,632,558,933.00
Census(2000) Median Price: $145,255.60
Madison, WI
Homes on MLS: 4,117
Median Asking Price: $259,000.00
Total Asking Price (all homes): $1,296,884,571.00
Census(2000) Median Price: $132,192.00
Memphis, TN
Homes on MLS: 10,852
Median Asking Price: $172,500.00
Total Asking Price (all homes): $2,382,905,393.00
Census(2000) Median Price: $77,342.90
Miami, FL
Homes on MLS: 35,248
Median Asking Price: $465,777.00
Total Asking Price (all homes): $28,678,543,256.00
Census(2000) Median Price: $120,100.00
(part three) —————————-
Minneapolis, MN
Homes on MLS: 20,891
Median Asking Price: $279,900.00
Total Asking Price (all homes): $7,832,246,774.00
Census(2000) Median Price: $151,641.20
Norfolk, VA
Homes on MLS: 5,617
Median Asking Price: $395,000.00
Total Asking Price (all homes): $2,913,430,806.00
Census(2000) Median Price: $110,123.00
Oklahoma City, OK
Homes on MLS: 8,017
Median Asking Price: $163,500.00
Total Asking Price (all homes): $1,642,292,747.00
Census(2000) Median Price: $71,132.50
Omaha, NE
Homes on MLS: 5,651
Median Asking Price: $179,000.00
Total Asking Price (all homes): $1,242,195,100.00
Census(2000) Median Price: $111,900.00
Orlando, FL
Homes on MLS: 16,321
Median Asking Price: $342,900.00
Total Asking Price (all homes): $7,301,948,462.00
Census(2000) Median Price: $105,873.30
Peoria, IL
Homes on MLS: 2,104
Median Asking Price: $135,000.00
Total Asking Price (all homes): $361,203,887.00
Census(2000) Median Price: $85,400
Phoenix, AZ
Homes on MLS: 32,395 (43,487 if you include condos)
Median Asking Price: $341,990.00
Total Asking Price (all homes): $15,871,248,001.00
Census(2000) Median Price: $115,485.00
Portland, OR
Homes on MLS: 9,092
Median Asking Price: $369,900.00
Total Asking Price (all homes): $4,377,750,985.00
Census(2000) Median Price: $183,578.20
Raleigh, NC
Homes on MLS: 6,661
Median Asking Price: $235,000.00
Total Asking Price (all homes): $2,099,195,888.00
Census(2000) Median Price: $174,735.70
Reno, NV
Homes on MLS: 4,110
Median Asking Price: $419,900.00
Total Asking Price (all homes): $2,604,675,286.00
Census(2000) Median Price: $116,311.10
Richmond, VA
Homes on MLS: 6,231
Median Asking Price: $299,950.00
Total Asking Price (all homes): $2,224,318,092.00
Census(2000) Median Price: $97,045.00
Sacramento, CA
Homes on MLS: 14,762
Median Asking Price: $458,000.00
Total Asking Price (all homes): $8,413,355,502.00
Census(2000) Median Price: $122,010.70
Salt Lake City, UT
Homes on MLS: 2,992
Median Asking Price: $389,000.00
Total Asking Price (all homes): $2,398,811,883.00
Census(2000) Median Price: $145,195.70
San Diego, CA
Homes on MLS: 20,699
Median Asking Price: $640,000.00
Total Asking Price (all homes): $11,082,368,291.00
Census(2000) Median Price: $244,816.70
** please feel free to use, discredit or enjoy as you wish. Thanks Ben for letting me post this up here.
Ben OT:
Just saw an updated article on China. Looks like their govt. is taking more steps to cool speculation by requiring 30% downpayments and taxing speculators who resell within 5 years of purchase……
http://english.people.com.cn/200605/30/eng20060530_269629.html
Now why is it that China can be smart and implement something like that but we can’t. It is a shame.
they can write a law tonight and have it in effect since last week. how about that for a *federal* government.
I heard about that last night and thought, Lord, are they smart or what? They are going to put the brakes on the phenomenon BEFORE it sweeps through the whole country and turns into wholesale disaster .
Can you imagine if the US had done sthg similar while the bubbble was only forming in the coastal cities several years back? Instead they let lending go lax, changed the capital gains tax on RE and let the bubble grow to insane proprtions on the coasts and finally infect every nook and cranny of this country the past couple years.
The Chinese have probably watched our bubble grow without stopping, sees where it is leading us and learned from our mistakes.
The Chinese know what’s up and if the powers that be don’t wake up in America we are going to end up making knick knacks for them at depressed wages.
the big difference is, here politician follows the dictates of the rich and corporations, in china the politician are the rich and owns the corporations.
They were also too slow… They were too late to stop their own bubble in Shanghai, and it popped earlier this year. These type of laws will probably come into effect AFTER the bubble here crashes, too…
http://tinyurl.com/oy6xf
Just throwing in my own observation. A client of mine, before she died, contracted to buy a condo in Venice, FL. The daughter insisted on following through on the sale, but couldn’t attend the closing, so I flew down. This plan has almost 200 units, and I saw very few signs of life when I drove through. I just got a letter from the condo association, reminding everybody that NO sales or rentals can be done without the association’s approval. Apparently, the problem must be rampant.
The condo I owned in Naples was very similiar to this, no more than three of the 48 units could be rented at one time. Also when buying this condo I had to be approved by the board.
How the heck does it work that the condo board gets to approve or disapprove the sale of your unit ? What if the condo board says no to every offer below what they think they should sell for, in order to preserve the illusion of their property value ? The owner could ride the market all the way down until a majority of owners all want to sell at once ! Wow.
I will never, ever, ever buy a condo.
are these conditions even enforceable? i thought you are the one paying the bank for the property and not the association?
Here is something to ponder… if rent is going up 5.3%, what impetus is there for houses to go up any more than that ? I mean, isn’t the value of a house its equivalent rent ? And what is more equivalent than rent itself ? This, of course, assumes that the houses rented for a fair return on their investment in the first place. Which they don’t. The NAR is actually shooting itself in the foot with this statement, but I doubt very many people will realize it.
This whole rent increase argument is moronic. The number of total people seeking housing and the number of total units available for housing doesn’t change when apartments are converted to condos. Supply doesn’t change and demand doesn’t change.
But when an apartment is converted to a condo, it becomes burdened with a large mortgage plus HOA fee, for a much higher price per sqft than if it were financed as an apartment. So in fact supply *does* change, as the unit can no longer be placed on the market at a competitive price with respect to a properly financed rental unit.
Of course, these differences wil balance out in the long run (through owner bankruptcies, foreclosure, or inflation), but in the long run, well…you know the old saying….
I don’t agree. Rent is a function of supply and demand, not owner’s costs. People will rent at a loss rather than not renting at a bigger loss. They won’t charge more because they can’t.
agreed. and never confuse asking price with selling price.
The public..outrage will only intensify when folks who’ve speculated in the housing market start to feel the real pain, which will bring about the next big scandal: fraudulent appraisals and bogus financing schemes.”
Sure glad my name isn’t on “thousands” (remember CA Ron?) of FNMA 1004’s when the witchhunt for the rubber stamper rackeetering appraisers begin.
These low-lifes are the dudes who greased the skids for the L/O rip-off L/O con artists.
Then again-not a whole lot of buyers were complaining at the time.
A roll of used toilet paper has more worth than the regulatory oversight coming which has come from the National Appraisal Standards Board in DC..
Bunch of ivory tower do-nothin’s without a clue of what’s been going down on the street.
Interestingly enough-there wasn’t a whole lot of appraisal fraud back in the ‘90/’91 bust.
However, once the FEDS established a poorly conceived licensing process-well, you’ all will get to see the wreckage. Anything will be destroyed in this country once the lemming masses discover it.
Anyone have any idea what percentage rent is in the CPI calculations? I assume that it has to be rather large, since people spend a portion of their income on rent. So, if rent does increase at 5%, it seems like that should make the CPI shoot up, and leave BB with little choice but to continue hiking rates (since they said future rate hikes would be driven by incoming data, which has to include the core CPI). As the rates continue to climb, it should place more and more pressure on FBs with ARMs and HELs, thereby accelerating the pace of foreclosures, and help to trigger price declines (or at least fewer sales) as buyers will not be able to afford as much with higher interest rates.
http://www.bls.gov/cpi/cpifact6.htm
“Shelter” is 31.5% of the CPI. This includes “lodging away from home” at 2.5% and some various other small stuff, so what we non-goverment folks think of as “housing” would come in around 28%.
Thanks for the info. So, assuming that all other costs remained exactly equal, a 5% increase in rent would equate to about a 1.4% rise in the CPI. Now, since the price of other items in the CPI are increasing, it seems likely that the CPI should be increasing at greater than the 1-2% inflation target that BB has announced. So, the Fed can say whatever it wants about how there are a myriad of factors, but if CPI remains over 2% for May (it was over 2% for April), then it would seem that they would not really have much of a choice but to increase the FF rate, or else risk looking soft on inflation (and risk an inflation spiral as inflation expectations increase). I can’t stand inflation, but if by rearing its ugly head for a little while, thereby forcing the Fed to raise rates to fight it,) inflation can help to really crash the housing prices back to reality, I’ll tolerate it for a few months.
you’d be well advised to start getting used to inflation, because that could well be the only tool the fed has against a total economic collapse.
Rent = 5.83% of CPI and Owners’ Equivalent Rent (OER) = 23.44%. OER is far and away the largest CPI component and is calculated in some sort of convoluted fashion by the government. Up until the early 80’s the government simply measured the change in the asset price of homes in the shelter component of CPI, treating a home like any other consumer good. Imagine what CPI would look like today if the government still used the old method!
Some people do imagine…and they invest in gold
This is the REAL upside of the whole “rents are rising” thing. It gives the Fed a great excuse to raise interest rates.
At this point, I’m game for any excuse they want to throw out there.
Remember that the CPI uses the principle of substituion. That’s why home payments are a smaller part of it than rents… renting “substitutes” for purchasing.
Therefore, if rents increase, watch for subsitution in the CPI basket to keep inflation from appearing too badly. Move in with friends, sleep in car, public storage, doghouse, etc…
You know, even the NAR logic is stupid. If 191,400 rental units are converted to condos, that has zero effect on the demand for rental properties. If people bought those 191,400 units to live in, then the net reduction in rental units is matched by the net reduction in renters. If people bought those 191,400 as investments, then there will be no impact on rental unit availability. Condo conversions don’t impact the housing supply, period.
Yes - chronologically, we are about 1/3 through - 1/3 through will be 1-1-07 - with a bottom at 1-1-09. BUT *monetarily* we are not even close to being 1/3 through. Declines will ACCELERATE.
the stupidity of the lies coming from nar is appalling,1/3 through this? good god.any one who works in real estate and has a lick of sense knows this is the biggest bubble in california,and us history.talk about killing your brand !nar is going to be burned toast pdq.
OT- Can someone please give me an answer to this, how can a person not make a payment for 6months and still live in the house, without it being reposessed?