Taking Away The Kool-Aid Bowl
The Herald Tribune reports from Florida. “Are you feeling confident? It would seem so, judging by the data released late last month by the University of Florida’s Bureau of Economic and Business Research. ‘It’s worth noting that perceptions of current buying conditions are at a post-recession high of 93. The last time it reached this level was April of 2007, when it was 97. This was the beginning of the collapse in the housing market,’ said UF survey director Chris McCarty.”
“McCarty said that the housing market has been helped by lower interest rates, but there has been so little building that pent-up demand has become considerable. ‘Recent buyers have good credit scores and typically put 20 percent down on their homes. This means that we will not see the massive foreclosures that led to the last recession,’ McCarty predicted. ‘The Fed has seen the economy through dangerous economic times, but the economy is now operating normally. There was nothing normal about 2008.’”
The Bradenton Times. “With more than 55,000 homes in foreclosure sitting vacant, Florida has more than the next five states combined, according to RealtyTrac. While home sales and average prices have seen modest gains, much of the ‘good news’ includes sales by hedge funds and other investment groups that have been buying and selling homes in the state, with some properties changing hands several times, without an owner or renter taking occupancy.”
Investors Business Daily. “With no more than beautiful renderings to go on, buyers are signing up for a bunch of new luxury condominiums planned in and around Manhattan, as well as condo-popular cities Miami and San Francisco. Many are two years from completion. Buyers often sign contracts before ground is broken, recalling the frenzy of last decade’s boom years. ‘Unlike the last boom where projects appealed to the masses, this latest boom is targeting high-end buyers,’ said Condo Vultures principal Peter Zalewski.”
“Of scores planned, 24 towers with more than 3,400 units are under way in South Florida, he says. Amid limited resale inventory, Condo Vultures estimates that beyond South Florida’s 141 proposed towers touting nearly 18,800 units, another 20,000 new condos will be unveiled by October — the vast majority in Miami-Dade County.”
CBS Miami. “Condo king Jorge Perez said on national television recently that he would be collecting 100% deposits on new condos he is building in South Florida. On Tuesday. his company, the Related Group, backtracked on that policy saying the deposits are more like 50% to 80%. Still, all the deals are cash and business is booming.”
“Carlos Rosso, in charge of Related’s condominium division, smiles as he confirms he is indeed sold out. ‘They see it as a savings account. A little piggy bank. They are giving money and in two three years they are going to have a brand new apartment in Miami.’ Rosso said.”
“Rosso believes the days of 20% down for condos are gone. Banks are not interested in taking on the risk. Once the market becomes saturated with condos again demand for loans may return. The buyers investing in cash condos right now are expected to rent the units once the take them from the developer. The idea is the return rates will be better than traditional stocks and CD’s. When that changes, flips will likely follow.”
The Tampa Bay Times. “Eight big investors from New York, California and beyond have led an unprecedented land rush, gobbling up 4,000 local homes since early last year with more than $560 million in cash, a Tampa Bay Times analysis has found. When Steven Howe, an aluminum contractor, moved into one of Blackstone’s nearly 300 Pinellas County homes, he saw what he called a ‘nightmare’: Haphazard electrical wirings, a leaky roof, an attic devoid of insulation and a front door he couldn’t lock.”
“When he complained, he said, Blackstone’s Invitation Homes quickly dispatched contractors he thought were unlicensed, and whom he refused to let inside. Within weeks, he said, the firm had sent out licensed contractors to fix up the home, but he worried the same problem was happening elsewhere on a massive scale. ‘If they’re doing this to me,’ Howe said, ‘what are they doing to people who have no knowledge of construction?’”
“In one Valrico subdivision, Josette Paresi recalled when her next-door neighbors moved out in the middle of the night, leaving their yellow cookie-cutter home abandoned for months. In January, when American Homes 4 Rent bought the home for $250,000, Paresi expected the new owners would finally cut the overgrown lawn, clean the pool and fix a falling-down fence. But after four months, the home has only sunk further into disrepair. The buyers were thousands of miles away, in Malibu, Calif.”
“The firm, a brainchild of billionaire Public Storage founder B. Wayne Hughes, did not return messages or emails this week seeking comment. ‘It’s horrible. They bought a lot of properties and now they’re being irresponsible about it,’ Paresi said.”
“As home prices in the region climb and inventory dries up, the nation’s largest mortgage lenders are gambling on the future of the housing recovery, a Herald-Tribune analysis shows. Banking giants from Wells Fargo to Fannie Mae are routinely paying top dollar on the auction steps to hold onto their own distressed properties, outbidding cash offers and paying well above assessed value, according to a review of thousands of Southwest Florida auction purchases. They are speculating that the properties will appreciate even more in the next couple of years.”
“In some cases, lenders this year have bid up to 600 percent more than a property’s worth to retain foreclosures — one of the primary reasons the acquisition costs for competing real estate investors also has spiked in recent months. In the 12 months ending June 1, 4,865 foreclosures were auctioned in Sarasota and Manatee counties. Lenders outbid third-parties to keep 3,754, or 77 percent.”
“Most industry analysts attribute the change in direction to the so-called ‘Blackstone effect.’ ‘Why sell for pennies on the dollar to Blackstone, when they can do it themselves now,’ said Joe Adamaitis, president of the Gulf Coast Mortgage Bankers Association. ‘Blackstone set the market, and now banks are taking advantage of the opportunity. They now have all of the top variables to control the market.’”
“Industry analysts fear that the trend could suffocate short sale and loan modification approvals for delinquent borrowers. ‘These homes are going for more on auction than they could ever get on retail,’ said Matt Weidner, a St. Petersburg foreclosure attorney. ‘The banks can control prices and inventory, and trickle these properties onto the market at their own pace.’”
Palmetto Bay News. “Checks earmarked for thousands of Florida foreclosure victims are finally in the process of being sent out and hundreds of millions of additional dollars more are being earmarked for new housing programs statewide. Yet there is a growing debate about where most of the money is going and if foreclosure victims are really getting their fair share.”
“Weston foreclosure defense attorney Roy Oppenheim said millions will be going to the courts, and will actually help speed up future foreclosures statewide. ‘A lot of money is going to the court administrative process to speed the foreclosure process up even more… to fund the rocket dockets. It’s a complete and utter joke… for people illegally losing their home and for the destruction of the legal system.’”
The Orlando Sentinel. “Since the beginning of last year, the median price of existing-home sales in the core Orlando market has increased 37 percent. But mortgage rates have suddenly shot up. ‘We do think that, as rates go higher, there will be additional affordability issues,’ said Brad Hunter, a Florida-based economist for MetroStudy Inc. ‘Everyone is getting nervous now as the Fed is taking away the Kool-Aid bowl soon,’ he said.”
“‘I think the major equity players, like Blackstone [Group], that brought volume purchases to the real estate industry will retreat from the purchase of individual homes,’ said Owen Beitsch, senior principal of Real Estate Research Consultants Inc. of Orlando. ‘This asset class is simply much too management intensive, and the spread between cost and return is decreasing.’”
“And even though mortgage lenders stand to earn more money with higher rates of return on their loans, borrowers would not find it easier to qualify for home loans should interest rates keep rising, said Rob Nunziata, president of Orlando-based FBC Mortgage LLC. ‘With some of the new regulations taking effect soon, such as QM — qualified mortgage — I think you will see lenders actually tighten guidelines as opposed loosen them,’ he said.”
this was posted in the bit bucket today:
‘Jingle Male’
‘I just sold a house for $124,000 more than I paid for it in 2010. The rent paid the mortgage payment, all expenses and provided a nice cash flow for 37 months. Properly used debt is a fantastic tool for buying below reproduction cost in a housing bust. I bought for $296,000 and obtained a mortgage for $222,000 (75%). I invested $80,000 and netted $178,000 when all was said and done at close of escrow yesterday.’
So we’re back to this, eh? Let me ask, what was produced? What work was done? Who borrowed how much to buy this house?
I am aware of a house that is closing in a couple of days here in Flagstaff at about $300k. Between the buyer and seller, there will be $27,000 in closing costs. The use house salesmen and brokers will split another $18,000. It was on the market for one day. Now, some people are probably having a very good month. They might buy a new car, or take a vacation.
But ultimately, nothing was produced. It’s just selling each other houses. It looks like activity, but to the extent that it’s based on debt and the idea that house prices will keep going up, it’s a dangerous trap for the entire economy.
And BTW, jingle mail was lamenting the slowdown in Sacramento here the other day. How many more houses do you own, and how much debt have you accumulated?
Working hard, creating something and saving is for suckers
It has been for 30+ years. I know way too many people from SoCal who bought when it was cheap, sold when it was high and moved out here. Many were able to pay cash for a much nice house and had hundreds of thousands left in the bank.
Why things are screwed up, in a nutshell.
The incentives/tax policy (cheap money, no capital gains taxes on sales of primary residences) favor house flipping and financial games.
We don’t make anything here, no matter how cheap the labor, because why risk a significant investment for a 3-5% return, when you can flip houses/stocks/currencies with other peoples money, and make double that? And if things go bad, someone else will be the bagholder.
“And is things go bad, someone else will be the bagholder.”
That’s my favorite part of the deal.
“And is things go bad, someone else will be the bagholder.”
But there are no bagholders, only victims.
“but to the extent that it’s based on debt and the idea that house prices will keep going up, it’s a dangerous trap for the entire economy”
“And if things go bad, someone else will be the bagholder.”
JM put $74,000 down. If something went bad, it’s definitely possible that someone else might get dinged, but JM would be the biggest bagholder of all. Lots of others are financing 100%, but JM is putting a lot of his own money at risk, and I think that’s important to note only for this particular situation. I think when we go after someone like him, we’re going after the wrong guy. The real culprits are those who hope to profit with no investment of either money or time. He invested both.
I think Ben is talking about the fact that the market is such that people are making money simply by selling homes back and forth to one another, and how people somehow view that as “healthy”.
“Healthy” in my opinion is having enough supply of homes on the market, a non-Fed affected interest rate and proper underwriting of mortgages (so buyers are truly qualified), so that demand is properly curtailed, and the profit is taken out of this speculative trading activity.
I had a similar exchange with one of the shills a week or so ago who pontificated that, “A sale is a sale”. People who actually believe that are either so cognitively 2-dimensional that they can’t think the process through or they have huffed too much of their own ether. Either way, that behavior just underscores the fact that Bubble 2.0 is also on its way to implosion. Whether magical thinking or ignorance of fundamentals, neither is a basis for sound decision making and a lasting outcome.
As for ‘Jingle Male’ or any of the other shills out there thumping their chests and hooting about their success, I call BS. Show me an address and a sale on record or STFU. Not one of these mouths has showed a single concrete piece of evidence regarding their ‘empire’. Why don’t they share so that we can all Oooooh and Ahhhh ? C’mon- anyone who was actually successful wouldn’t have time or an inclination to troll on a blog. They’d be out selling, making money. Why try to incite the competition? It reeks of weenieism and desperation.
“show me an address and a sale on record”
Exactly.
The reality?
It doesn’t exist. It’s fantasy.
Jingle Mail is not Palladin. He is a fraud, which makes him the anti-Palladin. The fraud says he owns houses. The fraud says he made a truckload of money.
The same could be said for any sales job…what does a salesman “create” other than commissions for themselves and revenue for their boss (the seller)?
The underlying activity that I’m paying attention to is homebuilding. The goal is to have sufficient supply of homes on the market to give slack in the market to minimize speculation.
There is a fine line between building too much for the fundamental demand, and so little that supply is overcome by demand and speculative bubbles are formed. Since there is a lag time between wanting to build something, and actually having something for sale, you end up with real estate cycles. And yes, in some markets, the response by supply is rapid, in other markets, it’s quite slow. Usually the difference is government involvement.
So, too much is built, prices fall, building slows/stops, as prices fall, demand comes back into the market, prices begin to rise, but unless you start development early enough to meet that growing demand, speculative bubbles form, which gives false signals to producers of homes…and they overbuild, eventually causing prices to fall again as supply dwarfs demand.
The last cycle had supercharged “demand” in the part of the cycle where prices were rising because free money was given to everyone with a pulse (via the wonders of securitization), and so the speculative bubble went on for longer, and overbuilding was greater than prior cycles.
However, on the down part of the cycle, building fell to historic low levels…but population continued to grow, essentially creating new potential buyers for the overbuilt homes of the prior cycle, and starting to create demand for the next wave of building.
Even without population growth, there needs to be replacement of obsolete structures (I’m talking about fixing/maintaining/replacing shelter that invariably will DETERIORATE over time). However, with population growth, there needs to be additional shelter constructed.
People like to point to the relatively high vacancy rate as a reason there should be no new homes built…however, as the article above notes, that vacant shelter is not evenly spread throughout the US. If you have massive numbers of empty homes in Florida, and so it is decided that you shouldn’t build any more homes in Sacramento, you end up with speculative trading activities in Sacramento as there isn’t enough slack in the system to have a functioning market.
California is not a properly functioning market because there is a fundamental supply shortage (rooftops vs. bodies), and a broken approval process to create more supply fast enough to keep speculative bubbles from forming.
Florida and NV are not properly functioning markets because homes are stuck in the foreclosure process and not finding their way onto the market.
Want to see how a market should work? Look to Texas. Plenty of housing construction going on, plenty of supply of homes, no speculative fever except in places where there are supply restrictions based on government involvement (I’m looking at you, Austin). There were more muted price swings, less speculation, and housing is generally thought of as (gasp) shelter.
‘no speculative fever except in places where there are supply restrictions based on government involvement’
Like Houston? And why are there so many foreclosures in Texas? Why are there so many new houses being financed with 0% down?
The price bubble was less pronounced in TX, foreclosures are less than other places, and 0% purchases are FAR less than they were during the bubble.
‘0% purchases are FAR less than they were during the bubble’
Prices are at all time highs in Dallas, among others. There’s no past tense on the housing bubble.
From January 2000 to January 2007 according to Case Shiller, the following home price increases occurred:
Phoenix: Up 120%
LA: Up 169%
San Diego: Up 137%
SF: Up 112%
Denver: Up 36%
DC: Up 139%
Miami: Up 179%
Tampa: Up 129%
Atlanta: Up 33%
Chicago: Up 68%
Boston: Up 68%
Detroit: Up 18%
Minneapolis: Up 68%
Charlotte: Up 29%
Las Vegas: Up 131%
New York: Up 113%
Cleveland: Up 19%
Portland: Up 80%
Dallas: Up 23%
Seattle: Up 84%
Why did Dallas only go up only about the same as Detroit and Cleveland? It wasn’t poor job growth. It was the ease at which new supply was added, and knowledge of the investment community that cheap supply could be added at any moment.
Where are prices now?
25% higher than they were in January 2000, and yes, at approximately peak values.
However, a 25% increase in nominal prices over 13 years is not a price bubble. That’s barely keeping up with inflation.
Blog Liar,
That’s not “inflation”. That’s called price fixing and fraud(kind of like you)….
“From January 2000 to January 2007 according to Case Shiller, the following home price increases occurred:
Phoenix: Up 120%
LA: Up 169%
San Diego: Up 137%
SF: Up 112%
…
Where are prices now?
25% higher than they were in January 2000, and yes, at approximately peak values.
However, a 25% increase in nominal prices over 13 years is not a price bubble. That’s barely keeping up with inflation.”
Housing prices have reached what looks like a permanently high plateau.
Good job cutting up my whole comment to try to make me look like a fool. In the meantime critical thinking has gone out the window.
I was being criticized for noting that Dallas has avoided the mania, and, as I surmised, in large part because they can add supply quickly…and people know it. Homes have been considered shelter there and not a speculative investment.
So Ben disputed that, noting that the bubble is still going on in Dallas, which is at peak home prices…the implication of which is that home prices are completely out of control in Dallas like other rebubbled markets…and so I brought in data from Case Shiller to show my point.
The “25% higher” was for Dallas only, not the others. The others were clearly a bubble, and some have regained bubble or very close to regained bubble territory.
In 13 years, Dallas prices according to Case Shiller have risen by 25% nominally. That is less than 2% per year home price growth.
Does anyone have anything constructive to say?
Can anyone (Ben, Whac, HA, or others) admit that Dallas didn’t have anywhere close to the price bubble that took place elsewhere? If it in fact did NOT (as the Case Shiller data shows), does anyone have an alternate theory to mine (namely that no supply shortages and knowledge that cheap supply could flood the market at any time keeps speculators away)?
Or would you prefer to call me names in order to draw attention away from the data?
And why is inventory going up just about everywhere?
Fewer people are underwater, and CAN sell. I’ve heard that inventory is increasing, but haven’t seen any good data on it. Redfin shows listings by market (but they are only in a few markets, not national), and in those markets, the best I’ve seen is flat inventory levels. Do you have a good data source showing listings over time?
Candidly, the best evidence that I will see that inventory has increased to a healthy level is home price increases start to taper off considerably. I’ve been hoping to see this in Phoenix, which was an early market to start construction in earnest again, but prices still seem to be going up just as fast as ever.
Let’s also remember that Jingle Bail said that he was buying these houses as long term rentals when in fact he knew he was nothing but a speculator praying for rapid price appreciation. He is a practiced liar, and I do not believe his numbers for a moment. He is likely cutting bait on these houses because they are cash flow negative, and bleeding him dry.
Or maybe he saw the unexpected appreciation and decided to change plans?
No, his rental yield was so small a 10 year treasury made more.
Before or after the big crash?
I know a guy who has invested in a pool of rental homes. The expectation was that he would collect rents for a long time and eventually sell.
He’s collecting rents just fine, and is matching his plan on the yield on his cost.
However, home prices going up rapidly are essentially driving down the yield as calculated based on the MARKET price of the homes. So, he is thinking that he might sell the portfolio rather than keep it.
His decision is based on selling at a lower yield than he bought to seek out a higher yield elsewhere.
In round numbers, if you bought at a 7% yield (what was about right in So Cal), and prices rose 40%, the market is now pricing that home at a 5% yield. If you sell at that higher price, and pay your tax, and invest in a different kind of real estate asset (industrial/retail, etc.) at a 7% or 7.5% yield, you are significantly better off than simply keeping the asset that is trading at a 5% yield.
A 5% rental yield on homes is not historically out of whack for So Cal, a 7% rental yield was the outlier. The decision to sell and move the capital elsewhere is completely logical.
Here’s the thing about selling a house for profit. That’s all well and good, but you could also make money by keeping the house and reaping the rental profits. If Jingle Mail is smart, he will save his profits and buy more houses after the next crash. Eventually, housing bubbles will stop happening. If he is relying soley on price appreciation, then he will get burned in the end. If he has a good rental return, then he’s good.
BTW, the annual returns from Ben’s REIG (of which I am an investor) are higher than Jingle Mail’s annual returns, and Ben hasn’t sold a single asset.
Are there details on this somewhere?
You would have to contact Ben directly about that. He has asked me to be careful not to break any laws by disclosing TMI on his blog. He had to delete one of my comments once.
Don’t forget bankers will rake in interest for 30 years.
“It’s just selling each other houses.”
Wasn’t it an economy based on just selling each other houses that led to financial Armageddon in Fall 2008?
Perhaps it is different this time.
“Are you feeling confident?”
Went to the ATM this morning………a receipt was left by the last user.
Time: 3:09am
Withdraw amount: $40
Balance remaining: $2.09
And the bank will charge a $5 fee for withdrawing the $40, which isn’t covered by the $2.09, so they will assess another fee of $100. $105 dollar profit for the bank for returning someone’s $40. Hypothetical of course.
“Hypothetical, of course.”
Damn, just as it was getting interesting.
“Balance remaining: $2.09″
As Jeff Spicoli said…..
Righteous bucks!
Housing Prices Tumble 5.7% In Trendy SF Bay Area Enclaves
http://picpaste.com/pics/b9d42ef12b4520b212c5bec1975d701c.1372251016.png
I see why you cherry-picked one spot to show a decline. Wow, is SF ever soaring in sales price. Unbelievable increases.
http://www.zillow.com/local-info/CA-San-Francisco-home-value/r_20330/#metric=mt%3D19%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D20330%252C417523%26el%3D0
Krusty The Realtor,
Housing demand in SF fell 10% in a single month.
A wise man once said;
“I can ask $40k for my 10 year old Honda Civic…. but where are the buyers?”
I posted sale prices, not asking prices.
Demand is collapsing at your sale prices.
Someone made a point the other day (on the internet) that I thought was interesting. We all know that a huge percentage of sales recently have been from flippers who put substantial funds into renovations, etc. They are selling at higher prices and we can see that, but we don’t know how much of the increase is due to improvements of the house. That’s just a thing to consider.
During bubble 1.0 there was an irrational amount of demand for these fix and flip houses because so many people both wanted (HGTV influence) and could ‘afford’ them (cheap money/low lending standards influence). I’m not so sure that’s going to be the case now. There will always be a certain number of end buyers who want and can afford pergranisteel, but I’m doubtful there will be anywhere near enough to absorb the flip inventory.
Not to mention what might happen when all that granite goes out of style.
I always loved the HGTV show with flippers:
Renovated bathroom with new tile and vanity. Invested $1000. Added value to the house $3000.
And the list would go on and on.
Not one improvement with less than 100% ROI
Housing Prices Crater 11% In Exclusive Los Angeles Neighborhoods
http://picpaste.com/pics/15b0288c9a4ed6710dfd98adbfae729c.1372250662.png
http://www.zillow.com/local-info/CA-Los-Angeles-home-value/r_12447/#metric=mt%3D19%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D12447%26el%3D0
LA as a whole is going crazily up in sales prices too. Wow. The line is almost vertical.
Krusty The Realtor….
Sales have collapsed in LA. Why do you think that is Krusty The Realtor?
“Sales have collapsed in LA. Why do you think that is”
Too few sellers?
With 4 million empty, excess and defaulted houses in the state of California alone, there is plenty of supply.
“there is plenty of supply.”
Not claiming otherwise. But if they’re not for sale….
Inventory is increasing in Los Angeles:
http://www.movoto.com/statistics/ca/los-angeles.htm#city=&time=5Y&metric=Inventory&type=0
“Inventory is increasing in Los Angeles:
http://www.movoto.com/statistics/ca/los-angeles.htm#city=&time=5Y&metric=Inventory&type=0 ”
You must be doing a comedy bit. I mean, OK, inventory has been rising since March, and is now back to Nov. of 2012 levels. Super Did you look at the whole graph? It tells of a clear drop in inventory from Jan. of ‘09 onward.
Of course, if the prices stay up (how likely is that?), then that graph might just continue the upward trajectory. Until then, it’s an anomalous blip.
How many of those 4.4 MILLION excess empty houses in California are in LA county alone?
Pete:
Inventory has been going down every month for years now. To see it suddenly on the rise (like everywhere) is a deviation from the trend. A reversal, even.
“With 4 million empty, excess and defaulted houses in the state of California alone, there is plenty of supply.”
How come Chris Thornberg is utterly clueless about those millions of empty homes?
P.S. SHOESHINE BOY MOMENT #4,985!!!
A zombie housing development comes back to life
Homebuilders are bringing back to life subdivisions they mothballed after the housing bubble burst. The planning map for Desert Crest, a 44-house development in Lancaster, CA.
by David Weinberg
Marketplace for Tuesday, July 9, 2013
At the height of the housing boom, residential developments were springing up at an incredible pace. But when the bubble burst, many of those developments came to a screeching halt. That left a bunch of big empty plots of land just sitting there like ghost towns without buildings. Until now. Sometimes referred to as “zombie” developments, these barren patches of land are being reanimated as the housing market recovers.
A lot of these “zombie” developments are in California, which in many ways was ground zero for the subprime housing disaster. The state received close to half of all subprime cash that flowed into the real estate market.
…
Of all the developments Johnson and Wells had on the books, only one survived — Desert Crest, a small plot of desert in Lancaster, about 70 miles north of Los Angeles.
The day I visited Desert Crest it was 111 degrees. A hot wind blew through a row of brightly colored flags advertising green homes of the future. But there were no houses yet — just a single yellow fire hydrant sticking out of the dirt and a cinder block wall with a huge pile of tumbleweeds leaning against it. On the horizon, Antelope Valley State Prison shimmered in the heat.
The only sounds were the wind and the air conditioner of a trailer that doubles as Johnson’s sales office. Except for the occasional piece of graffiti, this plot of land has looked like this for the last seven years. But that is about to change. Within a few weeks huge machines will be laying down asphalt and pouring foundations.
The reanimation of this development started about two years ago when Johnson and Wells met with the private investors funding the project. After sitting on the land for five years, they decided the market had picked up enough to break ground. And their strategy was to build energy efficient homes.
“We decided to really go green. It’s the wave of the future and we thought at the time we might be a little too advanced for people,” says Johnson.
Desert Crest will have 44 homes starting in the low 300s, with standard features like solar panels and tankless hot water heaters. “The way the market is going now, I can’t see us having any inventory in three months,” says Johnson.
There’s a good chance that this time around Johnson’s plan will pay off. California is in the midst of a housing shortage.
“Ninety-eight percent of units that have been foreclosed on in California are already in the hands of a new owner,” Thornberg said. “We don’t have enough housing, haven’t in a long time.”
Part of the problem is that there’s been hardly any residential construction over the last seven years. Meanwhile the population has grown steadily, credit standards are loosening, and unemployment in California is dropping faster than the rest of the country. All of that means the state is poised for another construction boom.
“Inventory has been going down every month for years now. To see it suddenly on the rise (like everywhere) is a deviation from the trend. A reversal, even.”
It’s on the rise because potential sellers see a window of opportunity. You see it as the reversal of a trend. The only thing that could continue that reversal would be higher, or at least steady but inflated home prices. I suppose if this goes on long enough, some homeowners might give in and dive into the seller pool, but not enough to make inventory skyrocket.
“…Desert Crest will have 44 homes starting in the low 300s, with standard features like solar panels and tankless hot water heaters….”
And what are they planning to use for water in those tankless heaters? I’ve never seen a drought like this in CA.
“How come Chris Thornberg is utterly clueless about those millions of empty homes?”
Because his income depends on him not understanding.
“How come Chris Thornberg is utterly clueless about those millions of empty homes?”
Because the 4.4 million empty homes in California is a completely made up number that you will only hear from one person…our very own “Housing Analyst”.
Thornberg understands the same math that I’ve posted here repeatedly. When you look at the population of California, and compare it to the physical number of housing units, there are not enough housing units for the population.
If you calculate the ratio of people/housing unit (rental or home), CA is either the highest or second highest in the country. The other state vying for that title is Utah (insert big Mormon family joke here). California is currently building way less than we should, which has been the case for a long time.
Wrong again liar…..
It seems you and thornberg read from the same liar sheet.
You have an equity stake in the direction of housing prices. For this reason, you lie.
Now how much did you pay for that rapidly depreciating dump you got suckered on?
Phoenix Rental Rates Continue To Slide Lower
http://picpaste.com/pics/3c07144ab0230a1bdf71ea5290074bc2.1372170444.png
Given the massive numbers of empty rentals in Phoenix, expect rental rates to continue to erode.
“And never forget…… A single family residence is never an investment. Houses depreciate resulting in loss.”
Rental Rates Sink 15% In Trendy Los Angeles County Community
http://picpaste.com/pics/77c7a063bd59e9bcf30c0fda7f0a9158.1372253292.png
Los Angeles Housing Demand Slides 9% Lower
http://picpaste.com/pics/1cbd384047be7ad6ba32dbe3121eb8a0.1372252889.png
Sacramento County Housing Demand Craters 6%
http://picpaste.com/pics/ec05ef929ddc121d6175e69d78544ad5.1372251417.png
It’s time for a little bubble poppin’, Gangnam style.
ECONOMY
WSJ’s David Wessel explains.
July 8, 2013, 11:04 p.m. ET
Central Bankers Hone Tools to Pop Bubbles
By DAVID WESSEL and ALEX FRANGOS
CONNECT
The new fad in central banking is something called macroprudential policy: targeting controls at particular areas of concern, such as raising minimum down-payment rules for home mortgages.
In Seoul’s upscale Gangnam neighborhood, made famous by pop star Psy’s viral music video, government curbs on real-estate lending froze a market in which home prices had been rising as fast as 25% a year.
In Toronto, housing prices reversed their rapid rise and fell for five months after the government changed rules to effectively increase monthly payments on new loans.
But in Tel Aviv, home prices kept right on climbing—up 11% over the past year for a three-bedroom apartment—even after the central bank boosted minimum down payments and made mortgage lending less attractive to banks.
Central bankers everywhere else are watching these experiments closely, among them Ben Bernanke, chairman of the U.S. Federal Reserve. He and his counterparts around the world, seared by the worst financial crisis in 75 years, are searching for ways to halt borrowing binges before they morph into bubbles, and to push lenders to shore up their defenses before the next crisis arrives.
Lifting interest rates to discourage borrowing has long been considered a blunt but effective weapon. But that isn’t a step central banks are eager to take when inflation is low or unemployment is high—as they are in many places now.
So some central bankers are experimenting with targeting only pockets of financial excess. Because financial bubbles so often involve real estate—and because that sector was at the center of the last crisis—many are focusing on ways to control booms in housing prices by curbing mortgage lending.
That’s not the only focus: Indonesia last year outlawed zero-down payment loans for motorcycles, for example, and South Korea has imposed levies to discourage banks from short-term dollar borrowing.
Thus far, the results trickling in from around the world are distinctly mixed. In some places, the experiments are producing the desired effects, while in others, they aren’t.
The point of the new tools is to protect the entire financial system and economy, so economists refer to them as macroprudential. That distinguishes them from microprudential, which describes traditional oversight to assure safety and soundness of individual banks.
At the moment, such concerns are largely hypothetical for the U.S., Europe and Japan. Their central banks, for now, are trying to encourage more lending. But the Fed’s pledge to keep interest rates low for a long time—as long as unemployment remains high and inflation low—has already fueled the return of some of the types of risky lending that preceded the 2008 crisis.
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Well, that’s great. Someone at UF is on the record as saying that the economy is “now operating normally.” Did the fact that the Fed is creating money and lending it out in unprecedented quantities to politically-connected entities at ZIRP, where it then is used for purposes of speculation, even enter his mind? How can this be normal under any possible definition of the word?
I saw that it was Kafka’s birthday last week. He would have appreciated this cast of characters. The “condo king.” Good God.
And remember folks….. houses depreciate… just like a car.
Why would you pay more for a used up 20 year old house than a new house?
My 1971 Shelby Cobra has gone up in value every year…
And 200 million other cars depreciated. Just like 130 million houses did.
You own an AC Cobra?! Why am I doubtful….
But they will pay extra for a 120 yr old house. Funny that way. Ever been to a historic house tour? Quite the display of conspicuous housing consumption.
It’s said that there’s never been an economic recovery without a rebound in real estate. And for investors desperate for any sign of a housing rebound, the past year has been a tonic.
The housing-recovery myth
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You’ve read the headlines: This is a great time to be a home buyer.
Interest rates are still near historic lows. Real-estate prices have edged up, but only slightly when compared with the long-term trend. Some markets — such as San Jose, Calif.; Las Vegas; and Phoenix — possibly are overheating.
That’s the good news. The bad: Very few homeowners are seeing the benefits.
In other words, the housing recovery is bogus.
http://www.marketwatch.com/story/the-housing-recovery-myth-2013-07-09?siteid=yhoof2
So you are thinking that the demand and increases in Las Vegas over the last year and bidding wars that are going on now is another bubble? (Of course it is) The question of course is when does the music stop and who gets left holding the bag?
We know who gets left holding the bag. Beyond waging war, the most important purpose of government has become the transfer of private risks and losses to the public.
I was thinking the other day that my entire neighborhood is nothing more than a series of commissions for realtors.
Inventory in Las Vegas has been increasing for a year:
http://www.movoto.com/statistics/nv/las-vegas.htm#city=&time=5Y&metric=Inventory&type=0
I wish they had longer timeframes to look at…what is a “normal” level of inventory? 10k? Or 5k? Or ???
I also wish they had a longer data set. The 5-year data set is, however, long enough for us to see a reversal of the trend. IMO, that’s what tells you most.
The inventory hit 3,900 in February of this year, only to go back down again. Now it’s a whopping 4,000. I’m not yet ready to declare a reversal of the trend.
Personally, I’d like to see that level reach 5,000 within a few months to declare a reversal of the trend. While inventory recently started to rise, the overall level is still very low.
Look at other markets:
SF: Not even an uptick yet
LA: Stronger argument for reversal of trend here (a few months of increases in inventory)
SD: Much stronger argument for trend reversal here
Riverside: Not even an uptick
Sacramento: Slow trend upward
Regardless of whether there has been an uptick or not, all these markets appear to still have VERY low inventory.
There are 4.4 MILLION excess, empty and defaulted properties in the state of California alone.
“Low inventory”? Seriously?
“The question of course is when does the music stop and who gets left holding the bag?”
There are no bagholders, only victims.
It is unfortunate that the lending institutions are also specuvestors in the very same assets they lend for. I seem to recall some old timers thinking this is not a good idea.
Mr. Smithereens is against income tax AND tariffs. Imagine that.
‘Congressional action on the U.S. tax code could dramatically alter one of its sacred cows: the mortgage interest deduction. And the change could come in 2013. House Ways and Means Committee Chairman Dave Camp (R-Mich) held tax reform hearings in April to eliminate loopholes. He said he’s “carefully looking into revising” the popular provision that many in the real estate business consider crucial to the industry.’
‘In his paper, Fisher states that in 2012, 77 percent of the benefits from the mortgage interest deduction went to homeowners with incomes above $100,000. Close to half of homeowners with mortgages-mostly lower and middle-income families-received no benefit from the deduction, according to Fisher. ‘You can make the case for the deduction, but it really does promote home ownership for mostly upper income levels,” said Mark Goldman, a real estate professor at San Diego State University. “And I’ve never had a deal happen or not happen because of the deduction,” added Goldman, who is also a real estate broker.’
http://finance.yahoo.com/news/mortgage-interest-deduction-could-change-184107592.html
So long MID. Nice knowing you.
Only about 30 percent of eligible taxpayers actually use the mortgage interest deduction each year.
Wonder what percent of taxpayers use the 401K deduction?
Sayonara, MID, AKA “WELFARE FOR THE WEALTHY.”
Who’s buying rapidly depreciating houses?
dumb. borrowed. money.