Why There Is No Housing Bubble
A reader suggested a topic on why there is no housing bubble. “HA says he can build a complete house for $55/SF, including land, permits, financing, construction costs and profit. If that was true, all these out of work builders would be building millions of houses and selling them, solving the housing cost problem. The average home in the Sacramento market is selling at about $175/SF. Even if you could find a land parcel for $75,000 (which is difficult) and built a 1500 SF house, the land portion alone equals $50/SF before you build the improvements. It is simply not true.”
A reply, “It is not very difficult to figure out that a house is made up of sticks, drywall, electric wiring, insulation, plumbing, ducts and a heating system among other things. The labor rate is $80 to $120 per day in most cases. How can anyone figure out that the cost per square foot for the above will ever reach above $55 per sq ft is beyond me? If someone pays $150 per sq ft fits the expression that there is a sucker born every minute.”
And finally, “I let someone else put in the basic infrastructure a century ago on the Reno I bought for my shop/studio/apartment. I used the old survey. My building permit was $40. The utility put in service and meters for free. My predecessor was a wannabe flipper and tore it down to the sticks literally. Steel roof, wiring and insulation surpassing code, new windows and doors, flooring, drywall, all of it including purchase price about half what HA claims. The Amish work cheap and fast and it is done right. OK, I haven’t put up any trim yet, and I won’t right now because boating season is at the doorstep.”
“When there are millions and millions of empty houses, why anyone would pay for built new at 4x cost is beyond me. Why they would pay some city $50K in permits for the privilege is a box of stupid.”
The Los Angeles Times. “Southern California is home to some of the most overpriced housing markets in the country. Three Southland regions ranked among the five most overvalued markets in the U.S. in a new report by real estate website Trulia. These are places where the housing costs have far outpaced growth in income. ‘Southern California has seen big price increases since the bottom,’ said Jed Kolko, Trulia’s chief economist, ‘without big increases in income.’”
“A number of regions across the West that saw price jumps last year as investors gorged on big inventories of foreclosures. Although incomes are growing — personal income climbed 2.8% in California last year, according to new numbers from the Commerce Department — home prices are growing faster. Prices are up 18.9% in metro Los Angeles from last January, according to S&P/Case-Shiller.”
“Those price gains have largely stopped in recent months, which could give the broader economy time to catch up with the housing market. That’s partly because interest rates have climbed, and partly because investors have pulled back, said Mark Zandi, chief economist at Moody’s Analytics. The housing recovery, he said, needs a new economic engine. ‘The job market has to continue to improve,’ Zandi said. ‘As people are more confident they can hold on to their job, they will start buying more homes.’”
“It also would help if credit eased. After the housing bust, lending standards swung too far in the opposite direction, he said, and that has hurt sales. Lending rules have been a factor even in the last few months, said David Cabot, chief executive at Berkshire Hathaway Home Services California Properties in San Diego. New mortgage rules that took effect in January gummed up some sales while brokers adapted. That may have had some effect on January and February sales.”
“But Cabot sees the spring getting off to a good start, with buyers and sellers both testing the market. ‘We think the spring season should be very healthy,’ he said.”
OK, here’s one reason there’s no bubble:
‘The housing recovery, he said, needs a new economic engine. ‘The job market has to continue to improve,’ Zandi said. ‘As people are more confident they can hold on to their job, they will start buying more homes.’
I get it, house prices have simply moved ahead of incomes, courtesy of “investors” and flippers, in anticipation of higher wages!
Which is precisely when the housing harpies invoke the managed media mantra of “wage growth will cure the problem”.
The question becomes;
“Do you really believe wages are going double or triple to meet grossly inflated asking prices of resale housing?”
Here’s your chance Jingle Mail. Give us the reasons this isn’t a bubble. One I’ve seen you mention is that there is no subprime lending. Ooops!
‘Wells Fargo edges back into subprime as U.S. mortgage market thaws’
And aren’t HAMP/HARP loans as subprime as it gets?
But wait, Zandi to the rescue!
‘It also would help if credit eased. After the housing bust, lending standards swung too far in the opposite direction, he said, and that has hurt sales.’
‘Lending rules have been a factor even in the last few months, said David Cabot, chief executive at Berkshire Hathaway Home Services California Properties in San Diego’
Indeedy-do Dave. As a matter of fact, housing prices turned on a dime when interest rates bumped up a little. And the feds just threw a few million recent buyers under the bus by lowering loan caps. Why, it’s almost like they were foaming the runway for banks all along!
‘The California Housing Finance Agency…offers down payment assistance at low interest with the CHDAP (California Homeowner Down Payment Assistance Program) to the ZIP (Zero Interest Program) which can be used to help cover the down-payment as well as your closing costs.’
‘There is also a special program just for teachers – the Extra Credit Teacher Program, or ECTP. The CHF even has three different grant programs which never have to be repaid.’
‘All of the loan programs being discussed in this article are tied to a government-insured loan such as a VA, FHA or USDA. All will require a 640+ FICO Score and a 43 to 45 percent debt-to-income ratio and require three years of tax returns. There may also be loan limits or purchase price limits. A nice feature of all of the various programs offered by the CHFA is that each program will set the fees and interest rate so you’ll never have to worry if your lender is offering you the best deal – if they are offering you the program then they must follow program guidelines – a huge benefit.’
‘One of the great benefits of a CAL-FHA loan is that in many cases a non-occupant co-signer can be on the loan and help with the qualification process. The co-signer cannot live in the home or be on title to the home – but their income, assets, credit history and liabilities will all be considered when qualifying for one of these FTHB loans/grants.
The co-signer thing is priceless. Put your mom’s house up as collateral for your mortgage.
The co-signer thing is priceless. Put your mom’s house up as collateral for your mortgage ??
Not so in a Non-Recourse state…The moms house cannot be attached…Foreclosure on the subject property is the only lender recourse…Mom’s credit may get trashed but her house is safe…
Not all loans in a non-recourse state are non-recourse. I think an example is a refinance. If Mom’s stuff isn’t collateral, what is the point of “considering her assets”?
I think an example is a refinance ??
CA-FHA are for first time home buyers…There is no refi option…Read it here;
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCcQFjAA&url=http%3A%2F%2Fwww.calhfa.ca.gov%2Fhomebuyer%2Fborrower.htm&ei=oVw4U-vZAuHOyQGz84DQBg&usg=AFQjCNHoSNxphjSWkdrVhMn6acJowZqG5Q&sig2=6omeo6wK1pvJhTu64D2dsA
I’m only saying that you can sign your rights away in most circumstances. If Mom’s stuff isn’t collateral, why “consider” it?
“Why it’s almost like they were foaming the runway for banks all along!”
(snort)
Hi Ben, I submit the real difference between the bubble of 2004-2007 and today is the credit underwriting standards are being maintained today. In 2004-2007 the banks were accepting false appraisals, stated income and NINJA loans. That is not happening today.
The people taking out loans have the ability to repay them. Sure, home values may go up and down as they always have, but most people won’t walk away if they are able to keep their payments current.
Enjoy, Jingle Male (haven’t seen jingle mail in a while)
“Hi Ben, I submit the real difference between the bubble of 2004-2007 and today is the credit underwriting standards are being maintained today.”
What about the degree of penetration by all-cash Chinese and other foreign investors now versus then. Isn’t that a major difference (esp. in SoCal and Sac)?
Jingle, all the loans today are subprime. All of them. They have just been made more respectable.
I am confident that you would quickly get flushed out of your spec houses should the price/rent numbers drop by 50%. If the Feds tire of subsidizing you, this would happen rather quickly. I am already very tired of subsidizing you.
Chinese buying up California housing
By Diana Olick
NBCNews.com
Nov 25, 2013
At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, while the customers are largely Chinese.
“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”
Yong’s phone has been ringing off the hook, with more than 5,000 new homes slated for the nearby Great Park Neighborhood. Most of the calls are from overseas, but prospective buyers are not looking solely for financial returns on the real estate.
“We are seeing a lot of Asians who are buying as an investment, but their kids are going to school here, so kids live in the home. They are looking at it more as an investment in education,” said Emile Haddad, CEO of Fivepoint Communities, developer of the Great Park Neighborhood.
That is Brian Yang’s plan. Speaking from his home in China, Yang said he purchased a home in Irvine this year, but he will wait five years, until his daughter turns 10, before moving his family to the U.S. He has several reasons for taking the leap.
“Education in America is very good and world class, so the first one is for education, and I think the second one is for the property appreciation,” explained Yang.
While American secondary schools and universities are a big draw for the majority of Chinese buyers in California, Yang, and many of his colleagues, are also concerned about China’s political instability, inflation, even pollution. They are paying all-cash for real estate in California, using it as a safe-haven for their wealth. Yang was reluctant to talk about the money, but he admitted, “I feel the same way to some extent.”
For now, Yang is renting out the four-bedroom home, and, he said, getting a 5 percent return on the investment.
While Yang purchased an older home, the new model homes at Great Park are drawing thousands of potential buyers. In fact, more than 20,000 attended the opening weekend, according to developers. The vast majority of lookers were Asian, and that fact is not lost on the builders. Hoping to cash in on this new wave of investors, they are tailoring the homes to the demand. Some are incorporating multigenerational floor plans and even Feng Shui designs.
“The imbalance of supply and demand here is really driving a lot of competition for these homes,” said Haddad.
The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount.
“The price doesn’t matter, $800,000, 1 million, 1.5. If they like it they will purchase it,” said Helen Zhang of Tarbell Realtors.
…
“…by the end of 2013 they were buying more than 42 percent of them…”
I make no claims to owning a crystal ball, but my hunch is that this development is transient and destined to end in tears for those who lose the eventual race to the exit door of the burning theater.
All-Cash Buyers Scoop Up Bay Area Real Estate
Grace Rubenstein | January 26, 2014
Here’s some quantifiable proof of how the Bay Area housing market is squeezing out the little guy: The percentage of homes going to all-cash buyers soared from 14 percent to 27 percent over the course of last year.
The national numbers are even more dramatic. All-cash buyers were snapping up 18 percent of American homes at the end of 2012; by the end of 2013 they were buying more than 42 percent of them. (Note: All-cash buyers are those who can make the purchase without taking out any loans, not necessarily those who offer up a briefcase full of Benjamins.)
Daren Blomquist is a vice president at RealtyTrac, the company that monitored and reported these numbers. He explains that all-cash buyers in the Bay Area are typically investors looking to flip houses for quick profits as home values spiral upward. In other areas of the country, where homes cost less, large investment funds also get into the action, buying houses for cash and aiming to rent them out for five years or so, then sell.
Where does that leave a regular first-time homebuyer? “Out in the cold, to a certain extent,” says Blomquist. “Given a situation where there’s multpile offers on the same property and one of them is an all-cash offer, that’s usually going to go to the top of the list.”
Here’s a look at how all-cash buying spiked in the Bay Area over the course of the year:
Blomquist says the spike clearly correlates to the moment last summer when interest rates on 30-year fixed mortgages started ticking up. “Some people who were relying on financing were priced out of the San Francisco market when interest rates went up, so that gave even more advantage to cash buyers in the market,” he explains.
Silver lining: At least California was spared from being one of the states where more than half of home sales went to all-cash buyers in December. Those were: Florida (62.5 percent), Wisconsin (59.8 percent), Alabama (55.7 percent), South Carolina (51.3 percent) and Georgia (51.3 percent).
…
‘Mortgage rates that were reduced under the government’s Home Affordable Modification Program will increase over the next few years.
A federal watchdog warns that could cause some borrowers to default on their loans.’
‘The increases will impact about 783-thousand homeowners who got mortgages as low as two-percent under the HAMP program. Modifications were fixed for five years and will now climb to five-point-four-percent.’
‘The increase will have the average homeowner paying almost 200-dollars more a month. Borrowers in expensive coastal markets could see their mortgage payments climb by as much as 17-hundred dollars.’
‘Borrowers in expensive coastal markets could see their mortgage payments climb by as much as 17-hundred dollars.’
That’ll destroy the contents of quite a few nest eggs.
Jingle, what about the $600b+ of HELOCs that were still outstanding as of 2009? 10.8 million HELOCs taken out between 05-07 are starting to roll over into repayment.
And much of this loan money was spent on… more real estate!
“During 2004 and 2005, a total of 1.43 million HELOCs were originated in California just for the purchase of homes.”
What happens to these investment properties when the owner can’t cover the interest + repayment, and the rents no longer generate positive cash flow (if they ever did)?
This is a huge pool of bubble-era loans that haven’t even begun to be addressed.
http://advisorperspectives.com/dshort/guest/Keith-Jurow-131216-HELOC-Resets.php
“The imbalance of supply and demand here is really driving a lot of competition for these homes,” said Haddad.
The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount.
“The price doesn’t matter, $800,000, 1 million, 1.5. If they like it they will purchase it,” said Helen Zhang of Tarbell Realtors.”
This is such a wonderful, healthy situation for Americans who only want an affordable place to live. Isn’t it just grand?
Whac, yes the foreign buyers are a new factor to the market, but an all cash buyer is much different from a 2006 sub-prime 105% LTV zero cash down buyer, paid to step into a house he cannot afford.
Ella58, yes the HELOCs are going to be a problem. However, they are recourse beyond the value of the house. The biggest problem will be for the borrowers, who will have to declare BK to walk. The amount of the outstanding debt is much less than the sub-prime scale of 2006-2007.
Blue, I have no government guaranteed loans. I did buy house where I live with an FHA loan (which IS government guaranteed), but I refinanced out of that when the house went up in value. FHA made over $10,000 on that loan, not including the interest. It was very profitable for them, not so much for me, which is why I paid it in full. No subsidy.
I am benefitting from low interest rates and the fed policy, but so are you. If you don’t like someone borrowing at 3.25%, I don’t know what to say, other than get over it.
If the price/rent numbers drop by 50%, many, many people will get flushed out before I. Currently, my mortgages are about 50% LTV. They started out at 75% LTV. The rents cover all costs and provide 5-7% return. All the cash flow is put into liquid investments (stocks and bonds). We have solid reserves.
I am not forecasting a boom or bust. I just made some investment decisions in 2008-2010 to buy some houses. It has been the best investment strategy of my lifetime. Could it all crater? Sure. Will it? I don’t see it as likely.
I started posting here in 2005 or 2006 because of all the mortgage fraud and real estate scammers. I was outraged. Eventually, it occurred to me there was very little I could do to stop it. I decided this bust may be a once in a decade opportunity to buy below reproduction cost, so I did. I have been lucky, no question, but I also took the risks when many on this blog told me I was an idiot. I think it is important to share how well the plan has performed. I also consider it important to hear what Whac and Ben have to offer, though I consider HA just a bunch of hot air.
How exactly am I benefiting from low interest rates?
“Whac, yes the foreign buyers are a new factor to the market, but an all cash buyer is much different from a 2006 sub-prime 105% LTV zero cash down buyer, paid to step into a house he cannot afford.”
The difference, as I see it, has to do with discretion as regards disposition of the asset.
- The 2006 sub-prime 105% LTV zero cash down buyer was a weak hand with no discretion; once the economy crashed in 2008 and he or she lost their job, making the monthly payments was not possible. Even those who didn’t lose their jobs may have later realized they had bought off more house than their cash flow could service. In either case, many of these folks lost their homes, or at least will eventually lose them when the bank gets around to foreclosing.
- Other than the all-cash investors who bought on margin (i.e. borrowed the money that was used to fund purchases — and we have absolutely no idea how many fall into this category!), the latter-day foreign investors who outbid would-be owner occupants are strong hands with discretion over the timing of disposition. However, they are also short-time owners, instead of the long-term end-user owner-occupants who traditionally comprised the great majority of U.S. residential real estate buyers. These folks will hold on as long as real estate keeps going up. Once it becomes obvious the market is turning against them, there is likely to be a race to the exits with similar consequences for future real estate prices as when subprime buyers got wiped out in the 2007-09 episode.
Whac, you have a good point regarding the margin account. We do know some foreign investors borrowed in their homeland to fund all cash purchases here.
However, I know a foreign investor who will never sell. She purchased 7 homes (with 75% financing, so not all cash) and will hold them forever for cash flow income. Keep in mind the average homeowner moves every 7-10 years. Many of the hedge funds have the same investment horizon.
Blue Skye asks: “How exactly am I benefiting from low interest rates?”
I am guessing you have a job. The Fed policies have helped lower unemployment. They have stimulated the economy. It keeps you off the bread line.
“The FedRes is good”
We heard you loud and clear J._Fraud.
“Chinese buying up Ca housing”
I have noticed a number of new chinese residents in my general area recently. I have no idea if they paid cash or financed the purchase. This area is ~ $1,200 per sq. ft.
Hordes of them are showing up. The government knows damn well what they’re doing. They flushed this country down the toilet in the name of selfish greed.
California Foreclosure Starts Skyrocket 57%
http://www.realtytrac.com/images/reportimages/california_foreclosure_starts.jpg
Why is that?
This is what happens when millions of fools are suckered into believing a house is an investment and pay 300% premiums for what is always a rapidly depreciating asset; in this case a house.
California Housing Demand Sinks, Prices Fall
http://www.centralvalleybusinesstimes.com/stories/001/?ID=25251
Yorba Linda, CA Housing Prices Dive 14% YoY; Inventory Explodes 86%
http://www.movoto.com/yorba-linda-ca/market-trends/
‘The real estate market has come full circle in some Southern California cities. DataQuick, a real estate data firm, finds that home prices in certain SoCal zip codes have surpassed their housing bubble peaks. Most of these areas are concentrated in the San Gabriel Valley and the Westside–driven largely by Asian buyers and high tech professionals, respectively.’
‘Trulia, a real estate website, recently released their rankings on the most overvalued housing markets in the nation. Los Angeles, Orange County, Riverside-San Bernardino made the top 5. Is California in the midst of another housing bubble?’
‘Guests: Richard Green, Director and Chair of the USC Lusk Center for Real Estate. Chris Thornberg, Principal, Beacon Economics.’
From the comments:
‘So we’re headed (again) to a situation where ~20% or less of people in California can afford to buy a home. We’ve got the baby boomers who will soon be downsizing and dumping their houses on the market.’
‘There is also the problem of job security - yeah, you might have a good paying job now, but how long will it last? I make 6 figures now but who knows where/what I will doing in 5-10 years - and there are people who think I’m going to jump into a 30 year mortgage?’
‘So who’s going to buy homes going forward? Rich chinese snapping up homes? Hedge/Investment funds buying up homes to rent them out (already happening…). How long before that becomes a politically untenable position?’
‘The sooner the housing market crashes & burns the sooner we can get some reality into the housing market. Repealing/reworking Prop 13 to ONLY apply to THE HOME YOU LIVE IN would be a good start.’
And another:
‘Please don’t tell me Kamala Harris needs to pass Deadbeats’ Bill of Rights 2.0.’
Repealing/reworking Prop 13 to ONLY apply to THE HOME YOU LIVE IN would be a good start ??
Ben…I ask you…Why would you want to give the county governments a whole boat load of more money AND the ability to raise property taxes “at will” circa pre-1979 ??
I didn’t say it, the guy who wrote the comment did. I don’t live in California, it’s really none of my business. It is an aspect of the current housing bubble, if there is one!
Okay…Thought it was your quote…
Please Ben don’t say “if” in regards to it being a new bubble. This bubble is as crystal clear as the last one. Prices up on mid 90’s volume with unprecedented and unsustainable intervention by the FED. QE is done in October and the FED can’t reverse course as the confidence crash and loss of credibility would bring chaos to the markets. The capital misallocation would hit overdrive and that’s exactly the reason we haven’t had a real recovery yet. The FED is throwing residential RE under the bus to save commercial paper, the dollar system and perhaps keep the S&P dive from being to sharp as people paying less for housing can contribute a little more to .corp bottom lines.
I said that in deference to the topic of the post. I really want to hear all the reasons. So far we’ve only gotten one about how sound loans are and how if people can make payments they will. Being underwater undermines that idea, as does the fact that most foreclosures are prime loans, not subprime. Plus, when house prices fall, people lose jobs, etc.
‘The sooner the housing market crashes & burns the sooner we can get some reality into the housing market. Repealing/reworking Prop 13 to ONLY apply to THE HOME YOU LIVE IN would be a good start.’
Could not agree more. Taxpayers and consumers of govt services (all of us who live in CA) are subsidizing wealthy commercial/industrial land owners and landlords who’ve owned properties for many years, and who feel no obligation to pass the savings from this subsidy to their tenants.
Chino, CA Housing Prices Sink 7% YoY; Inventory Skyrockets A Whopping 168%
http://www.movoto.com/chino-ca/market-trends/
It must be the all-cash Chinese investors?
It’s kinda like stocks. A house on a street sells for 10% more, and supposedly all the houses on the street are now “worth” 10% more. Sales are really low. It hasn’t been that difficult for the REIC to make it appear that the entire market has headed to the moon.
“A house on a street sells for 10% more, and supposedly all the houses on the street are now “worth” 10% more.”
Yet I deliver materials and send a crew to the lot next door and produce a brand new one for roughly 75% less.
Why does HA still think he can build for $50 pr sq ft?
I wish he could prove it.
I’ve proven it over and over. You just don’t like it.
How about you? Why not post a take off and estimate for just one element of an SFR?
plus land and permits
http://www.byoh.com/californiabuilding.htm
Are you sure you want to revisit that one again?
As far as your permits go;
Permit $1200
Lot Under $10k.
Still under $55/sq ft. With profit.
you’re nuts. we are not talking about northern wyoming. We are talking about CA, where jobs are.
“permit costs for some homes can be as much as $7.00 per sq. ft. and commercial buildings about $10.00 per sq.” In CA
if you buy a $10,000 lot, in northern WY,. you still probably need to bring in utils and water.
HA - seriously, what is up with your fibs?
HA, I’ll give ya $100 per sq ft. Can you build me a 2000 sq ft place in SLO? heck lets just double it to $110. Just one story please. Where do I send the plans?
People have tried that before. He tells you to provide the lot.
Oh,. Jobs only exist in that hole of a state called California? Then explain why CA is in the top 10 states running the highest unemployment rates in the US.
Just how many usernames/characters are you working on the blog these days? 4? 6?
Regardless, I told you where to send the plans and specs and you came up with another excuse not to send them. And why would you? You’re a “general contractor” so why do you need a $3 billion outfit like ours?
Recently in my neighborhood, Balto county md north side of balto city, a tear down with a 10k sq ft lot was bought by a builder for 75k. He tore down the POS and built a 3/2 house with a one car garage and sold it for 275k. I thought that price was rediculous but an idiot bought it quickly.
I don’t buy the $10k a lot meme. It’s only possible if your buying farmland and purchasing a hundred acres at a time and building a subdivision. In an already established neighborhood there is no way. It’s tough to do in Baltimore county since most of the farmland is converted to some type of resource conservation zoning. If you don’t have the right zoning then your spending a lot of money on legal fees and the site development/zoning process.
For every postage stamp lot you show me for $10k+, I’ll show you 20 1 acre lots for $2,000 each.
Show me. I just gave you an example of a 10k sq ft lot that sold for 75k in a suburban neighborhood. Give us an example of what you described in an already developed area, not farmland in the middle of nowhere.
8210 Oakleigh Rd, Parkville MD 21234
I wish he could prove it ??
Because he can’t !!…Thats why you should not banter with him about it…You don’t need to give him plans…He can just post on the board for A-typical 1500 square foot single story home..He can do the take-offs, break it down, trade by trade, labor and materials..Can’t wait to see it…
“permit costs for some homes can be as much as $7.00 per sq. ft. and commercial buildings about $10.00 per sq.” In CA ??
Avacado99…Facts confuse Ha…Your numbers are spot on as far as Silicon Valley is concerned…
‘Because he can’t’
I’ll mention this again. The company I manage bought a foreclosure, and the seller threw in the lot next door. I looked into building a house to rent on it; bid came in at $48/sq ft. I decided against it because I can buy foreclosures cheaper. I recently sold the lot for $5,000.
Some posters here have this point; what does it matter what permit fees are today? The house I’m sitting in right now is 30 years old. What were the permit fees when it was built, $500 maybe less? How much did it cost to build, $25-30,000, maybe less? Why should I pay $350,000 for it then?
bid came in at $48/sq ft ??
I would have to see the numbers Ben…Material cost may change a bit from location to location…Take California & Oregon for instance…California has a 8.5% sales tax…Oregon has none…Thats a 8.5% extra delta on materials if you buy in CaliforniaI…
I am acutely aware of what material cost are for a house…Not suggesting you did not get the Bid…Just would need to see the breakdown to be able to believe it was a viable quote…
I just did a take-off for a 2040 square foot home for lumber & siding…$42,768. including tax…Thats $20.96 per square foot for lumber only…Can’t believe lumber is that much cheaper in flagstaff…Plywood here…Plywood there…Hardy board here…Hardy board there…Its all probably pretty close other than sales tax…
“How much did it cost to build, $25-30,000, maybe less? Why should I pay $350,000 for it then?”
Has the Congress identified maintaining unaffordable housing prices as a matter of national security?
The house I’m sitting in right now is 30 years old. What were the permit fees when it was built, $500 maybe less? How much did it cost to build, $25-30,000, maybe less? Why should I pay $350,000 for it then?
With pricing being set at the margin, Ben, it seems clear that if the price of a house built today to meet marginal demand is based on today’s fees and building costs, then those are much more relevant to today’s pricing than the fees & costs 30 years ago.
The prices you mention were certainly highly relevant to housing costs 30 years ago, though, as prices were being set at the margin by builders back then as well.
“I would have to see the numbers Ben…Material cost may change a bit from location to location”
They don’t change by 300% my friend. 2%-7%.
”…Take California & Oregon for instance…California has a 8.5% sales tax…Oregon has none…Thats a 8.5% extra delta on materials if you buy in CaliforniaI…
You’re attributing a 300% delta to sales tax? I don’t believe you want to be take seriously.
”I am acutely aware of what material cost are for a house…Not suggesting you did not get the Bid…Just would need to see the breakdown to be able to believe it was a viable quote…”
No you’re “acutely aware”. Post your own take off and estimate for any discipline. Pick one and post.
”I just did a take-off for a 2040 square foot home for lumber & siding…$42,768. including tax…Thats $20.96 per square foot for lumber only…Can’t believe lumber is that much cheaper in flagstaff…Plywood here…Plywood there…Hardy board here…Hardy board there…Its all probably pretty close other than sales tax…”
Don’t co-mingle different disciplines. Post your take off for EFS labor per square. It’s a truly easy number to arrive at. Just post it and substantiate yourself. Labor only, singe story.
GO!
I can, I have, I do and I’ve posted it here. You’re too busy telling everyone to ignore when you know damn well you’ve read every last line item of that schedule of values. I’ve posted photos of our ongoing work, end product and bid estimates.
It’s time for you to put up or shut up.
“Show me. I just gave you an example of a 10k sq ft lot that sold for 75k in a suburban neighborhood. Give us an example of what you described in an already developed area, not farmland in the middle of nowhere.”
I’ve already done it. All within commuting distance to NYC, Hartford, Albany and Boston. All within established neighborhoods.
“Why should I pay $350,000 for it then?”
Cheap houses! We all want cheap houses.
Cheap houses solve every problem. No job? No sweat, you live in a cheap house. Your car breaks down? Luck for you, your house is cheap, so you have some scratch for the ride.
Cheap housing solves problems.
I wonder if the SoCal all-cash Chinese investor flood will hold up in the era of Chinese bank runs?
ft dot com
March 26, 2014 3:11 am
Central bank steps in to calm China bank run
By Simon Rabinovitch in Shanghai
Hundreds of depositors have raced to pull their cash from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread.
Coming weeks after the first true default in the Chinese bond market, the run on Jiangsu Sheyang Rural Commercial Bank is the latest sign of growing stresses in the country’s financial system.
But it has also been a localised event, contained to one farming county where lightly regulated credit co-operatives and loan guarantee companies failed this year after mismanaging funds.
More video
Worried depositors rushed to Jiangsu Sheyang Rural Commercial Bank after rumours spread that it was on the verge of collapse, according to state media. The panic first hit the bank’s branch in an industrial park on Monday. On Tuesday, big queues of depositors gathered at its branches in at least three other villages in Sheyang county, according to the Xinhua news agency.
The bank took steps to try to reassure people: photographs showed that the bank had prepared large bricklike stacks of renminbi to meet the demand for withdrawals; on the dot matrix sign outside one stricken branch, the bank promised to operate uninterrupted for 24 hours to serve people withdrawing money.
At its doors, the bank broadcast a recorded message on repeat: “Savers’ deposits are protected by law. There is no situation in which we cannot meet cash withdrawal demands. Depositors must not listen to rumours and cause unnecessary panic.”
But these measures failed to allay concerns. Crowds on Tuesday gathered in the rain outside the bank to withdraw cash.
With the panic reaching other branches of the bank, the government intervened on Wednesday. In a video posted on the local government’s website, the governor of Sheyang county promised depositors that their money was safe. Tian Weiyou, the governor, said that People’s Bank of China, the central bank, would protect depositors.
At least Rmb80m was wiped out in Sheyang county this year when credit co-operatives and loan guarantee companies closed suddenly. Local media said the bosses of these institutions, which operate without the same strict regulatory oversight as banks, had fled after racking up investment losses.
Zang Zhengzhi, chairman of Jiangsu Sheyang Rural Commercial Bank, blamed the bank run on worries sparked by these earlier collapses. “Because ordinary people here have been scammed by the credit guarantee companies, when they hear that the banks might also have problems, they come right away to pull their cash out,” he told state radio.
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Investing 3/26/2014 @ 12:10PM
Even China Investment Banks Turning Sour On Chinese Economy
China is the market everyone loves to hate. On TV and in the op-ed pages of the financial press, China is the emerging market punching bag.
“China credit problems keeps me up at night,” said Nico Marais, Head of Multi-Asset Investments at Schroders, a $435 billion asset manager in London.
It’s usually the Western finance media, always on the look out for someone who can rant and rave on China, that dishes out the bear case. On Wednesday, it was the well known China International Capital Corporation to add fuel to the fire. CICC lowered their China growth forecast to 7.3% from 7.6% earlier this year. The investment bank also cut its first quarter growth estimate to 7.3% from 7.8%.
In the short term, it is difficult for macroeconomic policies to strike a balance between readjusting the economy and maintaining growth, leading to persistent downward pressure on demand, CICC wrote in a report to clients today. As GDP growth is no longer China’s top priority, the government will not adopt full-scale monetary easing policies. Concerns over a deteriorating credit profile in the financial sector is also a cause for the Central Bank. Making money easier is not necessarily in their best interest, even though lending rates in China are generally in the low single digits. Beijing’s determination to rein in financial risk will impact investment this year, CICC said, with the negative effects already emerging.
HSBC’s preliminary manufacturing purchasing managers’ index fell to an eight-month low of 48.1 from a final reading of 48.5 in February. Manufacturing is seen contracting again in March.
Investors continue to sell out of riskier assets, of which China is a part. Emerging markets are still seen as a risk to overall global growth, according to the International Monetary Fund’s assessment this month.
But, says Barclays Capital, China’s drag on growth should not get any worse.
…
It is likely in a financial crisis that China’s corrupt 1% will be scrutinized and demonized. The problem with hiding ill gotten gains in a California house is that your ownership of it is public record.
The advantage of hiding ill gotten gains in a California house is the prospect of moving here and starting life over as a “Chinese-American” household.
Then you have to quit before your number comes up. Greedy people tend to stay at the game just a little too long.
We have plenty of examples in San Diego of Chinese families starting over in our local community.
So far in my part of OC, it is lily white. The biggest percentage of “minorities” are Hispanics, but they are a very small group. Mostly houses here and they start at $500,000.
In irvine I am aware of a great amount of Asians all over that place. I don’t see the numbers but I probably don’t hang out where they are.
No matter what color, it is natural to be suspicious of newcomers who do not speak your language and particularly have different customs. It takes a couple generations for them to assimilate.
Itis likel the Chinese will come over to California in such high numbers that they will drive the costs up way high for the long time Californians and encourage the native Californians to leave for other states. Sad, but China has the numbers. Maybe Mao would have his wish of China taking over the USA.
It is likely in a financial crisis that China’s corrupt 1% will be scrutinized and demonized.
That’s exactly what happened in the USA to the rent-seeking 1% who made out like bandits while the economy for the lowest 99% cratered.
I might be missing it, but this looks like a turning point.
Slowdown or collapse? China at the crossroads
March 28, 2014
Max Mason
Business Reporter
The rebalancing of China’s economy will not be without its hiccups, but debate is rampant about whether the easing of growth will result in a soft-landing or a fall off the cliff face.
Investors are obviously nervous, with each morsel of data creating shockwaves across global markets.
Should China manage the transition successfully, the benefits for its citizens and the rest of the world will be ample. The repercussions, should it fail, are dire.
”On the monetary side, we believe the PBoC needs to send a stronger signal of policy easing. We believe a reserve requirement ratio cut of 50 basis points in the second quarter and another 50 basis point cut in the third quarter are likely. The probability of an interest rate cut is rising as well, although it is not yet part of our base case,” Nomura research analyst Zhiwei Zhang said.
”Credit supply will also likely rise, as measured by bank loans and total social financing.”
The country has transformed itself from a nation of farmers into the world’s second largest economy, largely through the manufacturing of goods for the developed world.
But following years of economic expansion, the Chinese government faces a difficult crossroads.
…
If China’s economy craters, the UK’s banks are on the hook
By Heather Timmons @HeathaT March 26, 2014
China’s woes could mean a headache for the Bank of England. AP Photo/Lefteris Pitarakis
As concerns mount about the health of China’s economy, and particularly the possibility of a property bubble bursting and a sharp rise in bad loans, who is going to be left holding bad debt has become a looming question.
+
While China’s own state-run banks provide much of the liquidity for the country’s businesses, foreign banks have stepped up lending to China as well in recent years. They now have over $1 trillion in loans outstanding to China’s public and private companies, according to data from Switzerland’s Bank for International Settlements (BIS), which advises central banks. Of these, Hong Kong’s banks remain the most exposed to China, as Quartz recently reported, with about $446 billion (Table 3.11.3) in loans outstanding to Chinese companies and banks as of this month.
+
After Hong Kong, the UK takes the lead by far.
…
Govt ready to support cooling Chinese economy: Premier Li
Seeks to reassure jittery global investors
Reuters | Beijing
March 28, 2014 Last Updated at 10:53 IST
China’s Premier Li Keqiang sought to reassure jittery global investors that Beijing was ready to support the cooling economy, saying the government had the necessary policies in place and would push ahead with infrastructure investment.
Recent weak economic data and mounting signs of financial risks have dimmed outlook for the world’s second-largest economy, sparking talk of imminent government action or even a mini-stimulus plan to shore up growth.
“They don’t want investors and businesses to lose confidence. So obviously they want to make it clear they have the ability to step in if necessary. So I think that’s probably the main point behind it,” said Julian Evans-Pritchard, China economist at Capital Economics in Singapore.
In a speech to a meeting in China’s northeast made on Wednesday and reported by the Xinhua news agency early on Friday, Li said government has policies well prepared and would roll out targeted measures step by step to aid the economy.
“We have gathered experience from successfully battling the economic downturn last year and we have policies in store to counter economic volatility for this year,” Li said.
“We will launch relevant and forceful measures according to what we have planned in our government work report,” he said, referring to his report to China’s annual parliament session earlier this month.
Among those measures are speeding up construction of basic infrastructure, including railways, highways and water conservation projects in the central and western provinces, as well as boosting trade and cutting companies’ financing costs.
“The overall performance in the economy so far this year is relatively stable and we saw some positive changes, but we cannot neglect the increasing downward pressure and difficulties,” he said.
China’s exports unexpectedly tumbled last month and other economic data and business sentiment surveys have consistently undershot expectations, suggesting the economy’s first quarter performance was the weakest in five years.
…
“BS Reporter” — Meh!
China’s GDP growth might fall to 4%: Robert J Shapiro
Says China has created an enormous amount of credit for fundamentally inefficient state-run enterprises
BS Reporter | New Delhi
March 24, 2014 Last Updated at 18:54 IST
While India is worried about a low growth rate of 5% in 2013-14, the gross domestic product (GDP) expansion in China might be as low as 4% in the coming years, according to Robert J Shapiro, a renowned economist.
Shapiro, who has advised the likes of former US President Bill Clinton, former US Vice-President Al Gore, British Prime Minister Tony Blair, said: “One would expect that growth in China would slow to 4% over an extended period.”
He was speaking at the second edition of The Growth Net series of debates on economy and development here on Monday.
When questioned why he is so sure that China’s growth rate could decline to 4%, Shapiro said that is what all indicators suggest.
Shapiro is the chairman and co-founder of Sonecon, LLC, a private firm which provides economic advice and analysis to senior officials of the US and foreign governments as well as businesses.
Elaborating his theory, Shapiro said China has created an enormous amount of credit for fundamentally inefficient state-run enterprises, which can’t be recovered. Now it is trying what is called “soft landing”.
He said China has insulated itself from the crisis in the US and Europe, but these distortions don’t go away. “We have seen significant slowdown in China.”
China’s full-year growth in 2013 was 7.7%, which was a tad higher than market expectations for a 7.6% expansion, which would have been the slowest since 1999.
According to government data, China’s manufacturing growth fell to an eight-month low in February, mirroring further weakening in the economy. According to China’s National Bureau of Statistics, the purchasing managers’ index (PMI) plunged to 50.2, the third straight drop since November 2013.
A figure over 50 indicates expansion, while one below that shows contraction.
…
‘The state of California is bouncing back with Fresno, Bakersfield, Riverside and Oakland all reporting increases of 40% or more on the numbers of homes for sale.’
“Prices in many California markets hit record levels last year, creating opportunities for sellers,” Berkowitz told MainStreet. “Higher prices also translated into higher home values, which lifted thousands of California homeowners out of negative equity, freeing them to sell if they wished.”
‘According to realtor.com, the latest report, the following housing markets had the largest increase in housing inventory. This is great news for the Lodi and Stockton areas as they were number one in increased inventory out of 146 areas that are tracked monthly. Making the top 10 list in California for inventory increase year over year are the following:
Stockton-Lodi: 101.1 percent year-over-year
Fresno: 53.3 percent
Bakersfield: 52.1 percent
Oakland: 42.3 percent
‘which lifted thousands of California homeowners out of negative equity, freeing them to sell if they wished.”’
And after that, then what? A quiet period until the next crisis?
‘freeing them to sell if they wished’
Here’s my opinion on that by way of a question. If you want to make money on something you bought that is rising in price, do you sell it when it gets to what you paid for it? Or do you want to sell it when you think prices have peaked? And isn’t it interesting that here comes the inventory just as the public starts to get the idea that prices are weakening or falling?
“And isn’t it interesting that here comes the inventory just as the public starts to get the idea that prices are weakening or falling?”
Isn’t that exactly when you would expect inventory to swell? I see it in my own neighborhood: Investment properties undergoing thousands of dollars worth of renovation to get them ready to sell.
It isn’t going to work out well for all of them.
Moorpark, CA Housing Prices Collapse 45% YoY; Demand Freefalls To 10 year Low
http://www.movoto.com/moorpark-ca/market-trends/
http://www.zillow.com/local-info/CA-Moorpark-home-value/r_25974/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D8%26r%3D25974%26el%3D0
Bonita, CA Housing Prices Crater 21%; Inventory Skyrockets 67%
http://www.movoto.com/bonita-ca/market-trends/
Chatsworth, CA Housing Prices Slide 11%; Inventory Explodes 135%
http://www.movoto.com/chatsworth-ca/market-trends/
Chatsworth is the porn capital of USA>
Makes sense considering this;
“California Most Impoverish State In The US”
http://en.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate
(geography adjusted)
I had thought it was Van Nuys? Maybe both and…
Porn is a $12 billion industry, but profits leave the Valley.
By BETH BARRETT, Staff Writer
Posted: 06/04/07, 9:00 PM PDT
The San Fernando Valley’s adult-entertainment industry - long considered the epicenter of the business - rakes in about $1 billion annually, with more than 200 local companies jump-starting a national market worth about $12 billion a year.
In the past 15 years, the industry’s local growth has nearly quadrupled, with annual revenues now equal to the Valley’s restaurant, fast-food and bar businesses combined.
But while local pornography firms employ about 6,000 people, only a fraction of the industry’s massive profits actually trickle back to the Valley. And loopholes in city business taxes minimize the amount firms have to pay into Los Angeles’ coffers, raising questions about the industry’s contributions - economic and otherwise - to the region.
“Don’t turn up your nose,” said Jack Kyser, chief economist of the Los Angeles Economic Development Corp.
“This is creating jobs for people, a revenue stream, and though you may not personally approve, there’s a huge market out there.”
Housed in an inscrutable constellation of warehouses in Chatsworth and Van Nuys, most adult-entertainment studios, distributors and manufacturing companies operate out of the sight and consciousness of Valley residents.
The industry is dominated by small studios, each with several dozen employees, that crank out scores of movies and videos a year. And in contrast to the multimillion-dollar budgets needed for Hollywood blockbusters, most of the X-rated movies cost just $20,000 or less to make.
“Very few people make over $150,000 in this industry,” said David James, one of three partners at Vivid Entertainment Group, the Valley’s largest pornography studio, with about $100 million in sales in 2005.
In fact, the average production worker in the porn industry makes about $61,000 a year, state records show. Top female stars can earn upward of $200,000 annually for their performances, appearances and endorsements.
Porn capital
The lore of the Valley’s porn industry has long commanded national attention. Media outlets from CBS News to Forbes have put the nation’s porn capital in the Valley.
Last year, “The Colbert Report” even did a spoofing interview with Rep. Brad Sherman, D-Sherman Oaks, about the Valley’s lurid reputation.
…
Brad Sherman seems to be the perfect CONgressman for The Valley — completely oblivious to the ginormous porn industry that thrives in his CONgressional district.
in 22151 next come Hitlery and more fed hiring- sequester washed away- party on- inventory well below par of 50
Are you sure?
Arlington, VA Housing Price Crater 22% YoY
http://www.movoto.com/arlington-va/market-trends/
Two earthquakes in two weeks in SoCal, with a 5% chance they were just foreshocks to “the big one.” Bets on how long it will take the NAR to spin this as somehow bullish for housing?
http://www.latimes.com/local/lanow/la-me-ln-earthquake-residents-displaced-aftershocks-20140329,0,7512253.story#axzz2xNgY1rYe
Buy now before rates go up or the big one eats all the inventory!!
My wife was evaluating student musician performances when the earthquake struck. She mentioned that one of the students played so loudly, that she would have missed the earthquake entirely had it coincided with that student’s performance.
Notable: There were two large California earthquakes (one in NorCal and one in SoCal) in the runup to the early-1990s real estate trough.
Wait for it to happen again in the present episode!
spin this as somehow bullish for housing ??
Maybe not for housing but it sure will for the construction industry…
Two earthquakes in two weeks in SoCal, with a 5% chance they were just foreshocks to “the big one.” Bets on how long it will take the NAR to spin this as somehow bullish for housing?
Two small earthquakes _is_ bullish for housing—or at least for housing continuing to stay standing.
I’ve always thought that all small earthquakes are good earthquakes, as they release pressure that otherwise builds to a larger and more destructive earthquake.
Small earthquakes always precede and follow big earthquakes.
The trick to getting your predictions 100% correct:
1) Predict things which almost surely will eventually happen.
2) Never commit to a time frame.
LOL… Nicely done.
“Small earthquakes always precede and follow big earthquakes.”
While that may be true, in this case a small quake preceded and followed a small quake.
Stop paying someone else’s mortgage! (Denver)
“Have you ever thought of buying? It’s easier than you think! Respond to this ad for a FREE consultation!”
http://denver.craigslist.org/apa/4371791204.html
‘San Diego apartment rents have moderated from their peaks, as increased construction pushed vacancies back up near 5 percent. Downtown San Diego is a submarket that stands out for having a high vacancy rate. With its average $1,908 rental rate, downtown San Diego has a 17.3 percent vacancy rate. It means that out of 4,748 units surveyed in the submarket, 821 were found to be empty.’
‘MarketPointe reported that the San Diego Central submarket has some 6,405 units in the pipeline. While many of these are planned for downtown, many are also planned for points further north. In addition, it is unlikely that all of these will be constructed.’
‘MarketPointe reported downtown San Diego currently has 546 apartments under construction in three projects. An estimated 3,566 units in 11 projects are currently under construction countywide, with many of those projects anticipated to open in late 2014 or early 2015.’
“downtown San Diego has a 17.3 percent vacancy rate.”
Say it again.
picture says it all- combo betting parlor for chinese stock observation
http://finance.yahoo.com/news/asian-stocks-edge-higher-growing-001055523.html