Second Home Market Where ‘Line Is Being Drawn’
The New York Times has this update on the local market. “The smoke may have cleared from the last of the Memorial Day barbecues, but two months into the second quarter, many New Yorkers are still hazy about the state of the local real estate market.”
“Some concerns may be well-founded. Inventory in Manhattan is up 67 percent for May 2006 over May 2005, according to Jonathan J. Miller, of the Miller Samuel appraisal firm. Co-op inventory is up 53 percent and condominium inventory is up 87 percent, he said, adding that the condo figure is mainly attributable to new development.”
“Also, apartments are staying on the market longer. In the first quarter, the average was 138 days, according to Miller Samuel. It is now approaching 150 days, Mr. Miller estimated, adding that he thinks that a lot of the inventory is overpriced.”
“So far this quarter, which began on April 1, those most affected by the market are the people who are first-time home buyers. These would-be buyers (the kind who made up a good part of buyers in the real estate frenzy of the past few years) are often now renting instead.”
“‘There’s been a tremendous surge in people signing leases,’ Mr. Miller said. The upturn in the rental market makes sense, he said, because mortgage rates and rental demand correlate almost directly.”
“Several new luxury condominiums are selling well, though as Pamela Liebman, the CEO of the Corcoran Group said, some ‘have taken off like crazy’ while others ‘are floundering.’”
“The wild card right now, he said, is new construction, which developers seek to sell at a premium. ‘A lot of this new construction stuff is going to have a daunting time,’ (broker) Niel Binder said. Signs of scaling back seem to be manifesting themselves more in second homes and vacation rentals than in primary residences, according to Mr. Binder. ‘That’s were the line is being drawn,’ he said.”
“At a 48-unit development in the Berkshires, in Massachusetts, where he owns a condo, he said there has not been a sale all year. ‘I’m trying to sell a place,’ he said. ‘I’ve owned it for 20 years and I’m going to own it for another 10, whether I want to or not.’”
Thanks to the reader who sent in this link. IMO the second home market is the logical first wave of weakness, all over the country.
Finally, some good news out of New York. The downside is that rents are increasing. My rent just increased $150 a month. I can live with this downside. I was reading the NYTimes this morning. Lots of “just reduced” , “motivated seller” ,”bring offers will neg” ,”priced to sell”. I have had my eye on one apt in my neighborhood (UES) for 4 months. I have been watching the price. Today price was dropped 5% –not much, but a start.
Living in a second home market really makes you realize how bad things can get if the decline is as steep as many of us believe. A lot of the list prices here are just silly. The amount of inventory is huge. Yet, tomorrow we get a Rehoboth Beach house auction.
Where is the auction? I know RB well.
The nice thing is that people who have two houses when they should only have one stand to lose twice as much. I’m tired of bidding against people who can’t afford what they’re buying.
“Tired of bidding?” That implies you are losing, and you should be damn glad about it and not complaining. Be patient, you will get your chance.
DC_Too’s correct. When you think we’re close to a bottom, wait, then wait some more. The real low is YEARS away and it’ll be FAR worse than most people imagine. (”I don’t know, I can ‘imagine’ quite a bit” - Han Solo) You must wait until the pessimism is as intense as the optimism was, and there are stories in Time and Newsweek that RE will NEVER, EVER come back. THAT’S what a low looks like.
No worries, I’m losing big time with my bids, and have been for two years. My style is to lock in my money at the buy and not to expect to make money through appreciation. When I lose, I lose by a large margin, yet I only offer what I think is reasonable. I must admit I’m tired of waiting for stuff to get back to normal. This blog helps me keep my head and my principles. It’s the siren song of increases that almost gets me. I haven’t bought anything for 2 years and I’ve missed the biggest run-up I’ve ever seen. For 2 years I’ve felt that home prices were ridiculous and couldn’t get any higher. I keep getting proved wrong and that tempts me into thinking maybe I’m still wrong. What about that NHZ guy in the netherlands? He seems to imply their housing just keeps going up because of government stuff. I don’t put it past our government to keep this baby somehow propped up. In the end, I won’t buy unless it pencils way out at the price I’m offering.
It is funny that you say
“I’m losing big time with my bids, and have been for two years. My style is to lock in my money at the buy and not to expect to make money through appreciation. When I lose, I lose by a large margin, yet I only offer what I think is reasonable.”
If I did that here in San Diego I would seriously offend some realtors and sellers. There are homes for sale now for $800,000, that I would offer $550,000, and I still would not be ecstatic if they accepted the offer. My wife and I each make close to or over 6 figures a year. It would still be a stretch. IMHO real estate is in need of a huge correction.
The bad news is that everyone I know has suddenly become a real estate investor. Everyone wants me to go in on houses with them. Not going to happen.
I have no shame when it comes to insulting sellers and realtors. I admit that I feel uncomfortable, but I show my facts and figures to back up why I offer what I do. On the other hand, the areas I buy in are only about 40K out of whack, not 300K.
Even if I offered 100K low, the payment would be tough. It would not be a wise financial move. Mortgage payment would be $4,000 a month for 30 years, a lot of ups and downs can happen over 30 years. It is important to have a plan for the worsdt case scenario, especially when you cannot count on 5% appreciation for the next ten years.
Realistically 22 years with Bi-weekly payments, but still.
If you can get it to pencil out for 30K less than asking that is not bad, I would not feel bad at all. What area are you looking?
Woodburn mostly, about 25 minutes South of Portland, OR. It’s pretty cheap housing, comperatively, but it’s still way overpriced and I expect a correction - even if it’s only 30-50K.
Sorry for the Californians moving up there and speculating or retiring. But, we get the same out of towners here that do the same thing. All of the guys I work with that own a couple of homes are from out of state. Only meet a couple of locals when you go out to socialize. Wish you best of luck up in Oregon, please be patient.
The word on the street is that all housing in all of sussex co. including Lewes, Dewey, RB, Bowers has an 80% vacancy rate from Sept.-April. I’d have to believe that as evidenced by the amount of activity from 5 points south to Bowers in the off season. You could shoot a cannon down Rt1 and not hit anyone. But then again, those observations don’t seem to be reflected in the price structure proving that pricing is completely detacted from reality.
Wait just one dang minute! How does “The Lingus” know …..
“The word on the street is that all housing in all of sussex co. including Lewes, Dewey, RB, Bowers has an 80% vacancy rate from Sept.-April. I’d have to believe that as evidenced by the amount of activity from 5 points south to Bowers in the off season. You could shoot a cannon down Rt1 and not hit anyone. But then again, those observations don’t seem to be reflected in the price structure proving that pricing is completely detacted from reality.”
Does “The Lingus” own, or rent, a vacation spot (maybe even a beach house) in the area? Is “The Lingus” an on the sly …….TOURIST!!!!!!
PLEASE SAY IT AIN”T SO LINGUS.
Go Wood Chucks.
I think I recall a previous Lingus post saying he had been working on some project in the area. Believe he had been in the area for a number of months.
Mortgage Jobs Fall
Employment in the mortgage industry fell in April for the second month in a row.
Click here for more…
As some of you know by know, I am a real estate Broker in the Los Angeles area.
I am getting calls on my cell from termite companies and mailers from appraisers advertiding their business.
This area has not slowed as much as Phoenix, Mass., etc., however, I guess these people are really hurting.
Someone posted yesterday on some NOD’s and/or foreclosures in your area (Pasadena). Are you seeing this??
Start your barbecue jokes here :).
I ‘ll take an unemployed realtor, well-done please, and a down-n-out mortgage broker extra crispy. Yes, and a torched homebuilder for dessert would be wonderful, please, thank you very much.
And wash it down with a nice Chianti.
“…those most affected by the market are the people who are first-time home buyers. These would-be buyers (the kind who made up a good part of buyers in the real estate frenzy of the past few years) are often now renting instead.”
That says it all right there. The Great RE Ponzi cannot continue with some trade-up/trade-down/trade-across buyers, because this type of buyer will add one house to inventory for every house they remove - so its nothing but a wash. Like all great Ponzi/pyramid schemes that have come before, what is required for continuation of same is an ever-increasing supply of greater fools to form the expanding base of the pyramid. In RE, this can come in the form of 2nd home buyers, investors/speculators, and most importantly the increasingly elusive first-time buyer. With all three of these market participants now MIA from the scene, the base of the pyramid has vanished. We all know what happens next…
Good point. There are still some fools out there who are first-time home buyers in bubble areas. I hope they are buying something they really, really like because the best-case scenario is staying in it for 10 years or so to ride out some of the correction.
An acquaintance of mine, who was a bubble advocate through 04-05, recently purrchased a $500,000 condo in Laguna Hills. I couldn’t believe it when I heard. I think he finally caved in to his RE investor friends BS about prices never going down. I’ll feel a little sorry for him, but he should have known better.
Just some anecdotal stuff. In January one of my clients called me to discuss various tax issues, including vacation home ownership. A good part of February was spent attending to pressing tax matters, but then I started paying attention to the U.S. Housing Market. Remembering what my client had intended to do, (and to justify the fees I charge!), I called her to see where she was, and to offer my 2 cents (i.e. “Don’t buy yet!”) I reached her on her cell phone, and she was in FL at that very moment, looking at condos. Her conclusion: Lots to pick from, no sense in hurrying, “think I’ll wait until next year”. I whole-heartedly concur, Mrs. Client. Actually, what is a bit surprising in all of this is that she (and her husband) are school teachers (with GREAT state pensions in the offing, BTW) and are, by their nature, ultra-conservative with their finances. It had initially surprised me that they would even consider a second home without first disposing of their first.
some bargains will be had shortly
Are they really bargains though? It will be hard for me to tell. Even if they drop the sales price by 10% you might consider that a deal. Guess what, you just lowered the bar for everyone else.
My Grandma is selling her home for $675,000, very nice house well maintained. The house across the street from her sold for $600,000 a couple of months ago. It was a rental and it probably was not in as good of condition.
Typical Catch 22, if she sells for 675K I will be happy for her, she has owned the property for 30+ years. The moron across the street though would think that his house just went up in value by 75K in less than a year. He/she would go around and tell all of their freinds what a genius they are and how they just made 75K.
Which is how this mess got started in the first place.
I’d like to comment about foreclosures
I lived in Sacramento during the early 90s RE bust…Dec 90-Jan 97. Towards the last couple years there were Tons of FC…in fact I’d estimate 75% of all homes sold in 96 & 97 were either FC or short sales….I know because I was buying. Nice neighborhoods too. Well what happened was investors bought alot of these houses and turned around and rented them out and lower classes of people bought the rest and the neighborhoods quickly went down hill. South Natomas was a prime example. North Natomas is next. History repeats.
The neighborhoods are the biggest losers in FC cycle, and it’s coming soon to a neighborhood near you.
Mr. Binder of Bellmarc Realty pointed out that interest rates have not increased precipitously. “You can still get an excellent rate,” he said. “I remember when interest rates were 16 percent and we were doing a hell of a business.”
Yes, but what were prices like when rates were 16 percent? Who cares solely about the interest rate when purchasing something that has doubled in price over the last several years and is poised for a substantial correction?
This is the kind of “spin” that some buyers may still be falling for, but some people are obviously starting to see the light. Prices will soon begin to dip on a large scale in all the bubble zones, and then the new spin will be something about having already seen the biggest part of the correction and prices holding steady. That’s why some people continue to get sucked in on the downside - it’s so insidious.
To some extent the prices are still being propped up by speculators. The woman I know that makes $30k/year who bought two $1.8M houses in FL is now arranging the purchase of another in Vegas. I can’t figure out how she does the financing but the credit bubble is alive and well. If this is a reflection on the market then it seems that the flippers still have the leverage and buying power to go “all in”. Since there seems to be infinite leverage available to her, I can’t figure out when/how she stops buying.
Comment by Shawn
2006-06-03 07:33:57
To some extent the prices are still being propped up by speculators. The woman I know that makes $30k/year who bought two $1.8M houses in FL is now arranging the purchase of another in Vegas.
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This is a joke right?
It’s gotta be a joke or an exaggeration of some sort or she has a rather large inheritance or lottery winning’s somewhere. Even on an option-arm 1.8 mil is at least 6-7 grand a month.
It is called getting a good appraisal, and Helocing your paper gains to make your monthly payments. If she has good credit you can jump into stated Option Arm’s (Neg am’s, or the biggest scam in the financing history. Whatever you want to call them). Leveraging yourself up to your eyeballs.
The problem is that she is probably addicted, she sees herself worth a couple of thousand dollars on paper, and is hooked. She has already spent that money in her head. She won’t stop until she is broke, and is back to renting and living within her means. Sorry for the rant, coffee was strong this morning
Yea, I don’t know that’s got to be more than a good appraisal. There’s either a whole lot of fraud or I don’t have the right lenders in my rolodex.
Actually, I have a good friend who bought a condo in Walnut Creek, CA
He had no job, and a BK.
Another person who was not my friend, but I would acknowledge their existence bought a condo. This individual, had no car, no job, and was a meth addict. He lived right across from me when I lived in Long Beach. This guy then took out an HELOC, and used it to pay his mortgage. Finally, he ran out of money, he had no electricity, and it took about a year to get him out.
My point, it appears any one can get a loan for anything these days.
“The wild card right now, he said, is new construction, which developers seek to sell at a premium. ‘A lot of this new construction stuff is going to have a daunting time,’ (broker) Niel Binder said. Signs of scaling back seem to be manifesting themselves more in second homes and vacation rentals than in primary residences, according to Mr. Binder. ‘That’s were the line is being drawn,’ he said.”
“At a 48-unit development in the Berkshires, in Massachusetts, where he owns a condo, he said there has not been a sale all year. ‘I’m trying to sell a place,’ he said. ‘I’ve owned it for 20 years and I’m going to own it for another 10, whether I want to or not.’”
This is substantial. Very good news for those of us who live apart from urban centers and the nasty suburbs within a 50-100 radius of those urban centers. Albeit anecdotal, the mounting testament of the outcome of the 5 year run of stupidity and insanity is revealing itself. What makes the reality worse is fuel prices weighing upon everyone and in particular, the urban monsters who idealized a quick and cheap commute between their two shacks. I believe these city slimeballs are in the process of realizing that their vision of shangri-la in the country is just plain unaffordable and unrealistic.
Good Point. As I have said before, maintaining one house and supporting a family is an expensive proposition. I have watched this bubble build over the last 4/5 years with absolute wonderment. When I saw a 50′ X 100′ lot for sale in Rehoboth Beach for $1,500,000 2 years ago, I knew it had reached bubble proportions.
Hahhaha…. 100k/acre far far from any water is the going rate in sussex and southern kent county. And thats only if you’re buying 100 acre minimum. We’re talking places like Harrington or rather, anywhere west of Rt113.
You have to be kidding?
And that is if you can find it. The corner lot across from Kemps Liquors on RT5, at least 10 miles from anything that could be called a beach, went for 7 million for 200 acres. And the seller contingency was that the buyer had to pay for all the taxes….. That is correct….. 7 MILLION for 200 acres of field in lower Delaware.
Well, startch my shirt!
SB-starch
Absolute insanity, talk about a pyramid scheme. Everyone is going to get rich quick. If that is the way to do it, I do not want any part thank you. I will stick to me 8-6:30 work week.
In NY, one of the most out of control second home areas is the Hamptons, particularly since 9/11. The rentals are strong this year because people are rightfully afraid to buy. Meanwhile, amidst all the wannabees, some of the smart money has already left and is leaving. Prices on homes were already down 5% as of April and I’d say it’s already dropped a pint or two further. In the under $2 million band out there, people are very, very extended and the shi_ is going to be hitting the fan over the next couple of years.
For the past five years the entire Hamptons experience has been about real estate - with everyone bragging. He who laughs last.
I have elderly relatives from Westhampton who have done very nicely selling properties they bought in the 1940s. Of course, their houses were bulldozed with airplane-hangar sized structures being built for the purpose of showing off the buyer’s art collection.
As survivors of the ‘38 hurricane they just headed off for safer and greener pastures, shaking their heads in amazement and depositing millions in the bank.