‘No Secrets, It’s A Buyers Market’ In Sacramento
The Sacramento Bee has this update on the California housing bubble. “As Sacramento’s housing slowdown continues and more existing homes sprout ‘For Sale’ signs, home builders are ramping up the deals. What started late last year with free granite countertops now has escalated at places like Antelope’s Winncrest Homes, where upgraded carpets, kitchen cabinets and lighting are in the offing.”
“Beazer Homes is promising $20,000 to $65,000 off. Some Centex Homes buyers can get a $125,000 price break. KB Homes has run ads offering $1,000 gift cards for buying in Yuba City, Natomas and Woodland. Pacific West Cos. hands out $10 gas cards for touring condos in Elk Grove and West Sacramento.”
“‘We’re going to look at every objection and we’re going to overcome that objection,’ said Vince Brennan, at D.R. Horton’s Sacramento division. ‘No secrets,’ he said, ‘it’s a buyer’s market.’”
“Greg Gross of Metrostudy say Sacramento-area builders are competing with a glut of resale homes at the same time they’re seeing more canceled contracts for houses already started. Meanwhile, they continue to build, even after selling 2,371 fewer homes during the first four months of 2006 than in the same period in 2005.”
“Greg Paquin estimates 20 percent of the region’s new homes are ’standing inventory,’ finished houses without buyers. Many come with $40,000 to $80,000 worth of buyer incentives. ‘The builders don’t want to carry it so they will make incentives to get it off the books,’ Paquin said.”
“In some ways, builders have begun imitating car dealers, advertising 48-hour ‘House Hunts’ at KB Homes, ‘Zero Days’ at Meritage Homes and the ‘biggest new home sale in the history of D.R. Horton.’ Others quietly send cards to ’special guests’ with offers of backyard landscaping and no closing costs.”
“The shift testifies to both fierce corporate competition among the nation’s biggest publicly traded builders and to the region’s growing accumulation of resale homes.”
“There, too, real estate agents and sellers are testing incentives. In El Dorado Hills, Don and Suzi Garofano are offering a new $35,800 Jaguar automobile as enticement to buy their $1.67 million home on 10 acres overlooking Folsom Lake. ‘You gotta be real creative,’ Don Garofano said.”
“As May began, new-home builders were competing with 11,344 existing homes for sale in El Dorado, Placer, Sacramento and Yolo counties. That’s expected to climb another 1,000 homes when numbers for the entire month are released next week. ‘We put up 900 more signs in May than we took down,’ said Jim Eggleston, who installs more than 90 percent of the region’s For Sale signs.”
“Another 1,000 homes on the market would rival the 12,361 homes for sale in June 1993. The record is 13,507 in April 1992, according to a Sacramento researcher.”
“These competitive factors have driven home builders in Sacramento to marathon flexibility. ‘Some buyers want it off options. Some want it off the sales price. Some need help with closing costs,’ said Pautsch of Centex, which builds as many as 900 homes in the region each year. ‘We’re very flexible on that.’”
“‘It may be they don’t have money for a down payment,’ said D.R Horton’s Brennan. ‘We have 100 percent financing. We can incentivize on closing costs. If they can’t qualify, we have a homebuyers club for credit repair. If they can’t afford the payment, we bought like $84 million at 4.85 percent and can use that as needed. If that’s the problem they have, we can use our concession money for lower interest rates.’”
“Texas-based Horton, the nation’s most productive home builder, sold 1,021 homes in the Sacramento area last year out of a nationwide stock of 51,000. Despite the backlog of unsold homes, the company aims to boost production 20 percent in the region this year.”
“‘We have our business plan and we’re keeping pace,’ Brennan said. ‘If we slowed down our building, we would have to abandon our goals.’”
Thanks to the reader who sent this link in.
‘We have our business plan and we’re keeping pace,’ Brennan said. ‘If we slowed down our building, we would have to abandon our goals.’
This is exactly what the public builders have been saying all along. That there will be a slowdown and they will build even more straight through. This is how they explain away things like having no cash, mounting inventory, etc. If they back off, Wall Street will realize the game is over and pull funding.
Build until they go BUST!
I drive buy a condo complex in Sacramento on my way to work and noticed there are seven for sale signs in front and one for rent sign. All the signs have been there for several months, including the for rent sign. I guess the person who is trying to rent their condo has not heard that the rental market is in a huge rebound and their condo should have multiple rent offers. Yeah right!!!! I bet that there are more than seven units for sell since most of the realtors are represented and having two signs with the same realtor on it would be a waste.
PHOENIX MLS (Maricopa+Pinal counties) - 49,048 for sale SFH!!!!!!
This is an increase of 4,500 home listings since May 10th or just 1 month ago. Phoenix could pass 50,000 by next week. Ground zero of the bubble & in a royal HELL HOLE!!!
This comment says it all. It truly is the “money quote.” The “damn the torpedoes — full speed ahead!” attitude is going to help turn a bad market into a horrid one. Existing home sellers will be competing against more and more new homes on which the builders are cutting prices. Down go comps, up go foreclosures, defaults, etc. Un-freaking-believable.
turn a bad market into a horrid one
Or, for a buyer, turn a good market into a fabulous one.
I agree with this for the public builders, however most homes in the US are built by individual builders. In my area, we don’t have the Hortons, Pulte’s, or Toll’s. All of the home builders are 1-5 person small businesses. I asked one of those builders if he was scared of the housing market. His response was that he made his living by building houses. No houses, no groceries. So, he intended to continue to build as long as the market allowed. He admitted his profit was down and he had to carry them longer and make more concessions, but he was just trying to find a little niche market or offer something that was marketable. He said this was the first year he has not been able to buy a new work truck (bad for the local GMC dealer, too).
I think this is the reason the housing market will hold for a while. Everybody is going to hold on to whatever they can as long as possible. The big builders will be able to hold out a lot longer than the mom-and-pop builders.
“I think this is the reason the housing market will hold for a while.”
I agree with all you said except this! If all the small builders continue to build like the the large ones, why would the “market hold for a while”? You are right that the major builders are just about 25% of the market+/-. I also live in an area where there are no major builders & the small guys just continue to build & build because that is what they do for a living.
The small builders will continue to cut costs and find little niches the big builders can’t touch. Some of those guys might even go back to work instead of driving around and talking on their cell phones all day. Prices in my area are holding steady, but there are some deals out there that are still attractive to people looking for a roof.
Yes, they’ll keep right on building. BTW, that was the case in Japan, too, during its long real estate decline. As construction wages and the land and materials costs drop (and the builders resign themselves to lower profit margins), the prices of new homes will drop below those of the bubble years, and anyone wanting or needing to sell (or try to refinance) a home bought during the bubble is going to be in a painful situation.
Can anyone here give an informed comment on how much it actually costs per square foot to build condos in major metropolitan areas?
JM;….This has been discussed on Ben’s Blog before…..The answer is, for a number of reasons, it is VERY, VERY expensive in comparison to a SFR….30% more per square foot. likely more…
“I think this is the reason the housing market will hold for a while. Everybody is going to hold on to whatever they can as long as possible. The big builders will be able to hold out a lot longer than the mom-and-pop builders.”
I think this is the reason a hard landing is in the works — all these builders are planning to “hold on” and “build through the slowdown,” despite the evident glut of new and used houses already on the market, and the evident drop in demand. This is a classic recipe for an economic crash, as the incentives faced by individual market participants (builders building more into a downturn, and buyers becoming more precautious) add up to the economic equivalent of a very bad trainwreck in the aggregate.
Maybe that’s where all the buyers are going. There is no hard data, but all signs point to a very large glut of new homes to go with the resale glut. Sacramento is seeing a huge drop in resale pending over the last month or so; perhaps the buyers are going where the market is more flexible.
Max
“This is exactly what the public builders have been saying all along. That there will be a slowdown and they will build even more straight through. This is how they explain away things like having no cash, mounting inventory, etc. If they back off, Wall Street will realize the game is over and pull funding.”
We’ve talked about this a lot before. While the homebuilders are offering incentives and dropping prices, the homes they are building are still profitable *at the current pricing*. So why would they stop building ? In the current accounting rules, every time they build a house they record it as an asset at the current market price. It counts as revenue. It will, of course, backfire when their inventory gets marked down. That should happen any quarter now…
The thing about housing is that the input costs only generally rise at the rate of inflation. Thus even though the prices are falling, houses are still profitable, so homebuilders keep cranking them out. They will crank out more and more homes until it isn’t profitable and that will only be when prices are back down to the inputs costs plus a bit of profit, which will be pre 1999 prices.
Aggressive homebuilders are what make the housing bubble unsustainable.
“In the current accounting rules, every time they build a house they record it as an asset at the current market price. It counts as revenue. It will, of course, backfire when their inventory gets marked down. That should happen any quarter now…”
I think this is spot on. The accounting rules are very backward-looking, and provide incentives for the builders to speed up as they approach the brick wall, in order to book more revenues…
I’m no accountant, but I’m not sure I agree with this statement…
“In the current accounting rules, every time they build a house they record it as an asset at the current market price. It counts as revenue. It will, of course, backfire when their inventory gets marked down. That should happen any quarter now…”
An “asset” on a company’s balance sheet does not = “revenue” on their income statement. Revenues are realized when an item is sold, not when an item is produced (in this case a house).
I would think that once a house is built, it would show up on their balance sheet as “Current Inventory” (assuming they plan on selling within one year), an asset. At the end of the current accounting cycle, Cost Of Goods Sold (the cost to build that house) would show up on the Income Statement, however, the price of the house would not show up as Revenue until it is actually sold.
Am I missing something on this?
This sort of reminds me of the movie “Trading Places” at the end when the Duke brothers are selling into a glut of Orange Juice.
They are trying this in my town. Several realtors have full page ads offering new cars with the home purchase. Ad should read “Buy two depreciating assets with a toxic loan”
Good one. Together with the loan it becomes “Buy THREE depreciating assets”.
Back in college, I used a student loan to buy a used car (better interest rate at the time). At no point did I feel like I was getting a free car. Why the heck do people think that a car is free, when they’re just taking out a home loan to pay for it? This is, in fact what is happening, is it not? The house sale price is essentially reduced by the cost of the car - but doing it this way doesn’t screw the comps for the dipshits who bought a house from the company the week before.
Can anyone explain why Centex (CTX) gained $1.64 on Friday?
http://www.google.com/finance?q=CTX
The bull case on wall st. for the homebuilders is that once they stop building homes, they will generate huge amounts of cash as they’re trading around book value and the value of land on their books is well below market value.
However, if they end up spending that cash to build new, unsalable homes, then they’re kind of screwed. Inventory builds, then gets written down.
Can anyone explain why Centex (CTX) gained $1.64 on Friday?
A number of home builder stocks (TOL, MTH, CTX etc.) bounced back along with the overall market. These stocks have been more oversold than any other sector and Friday was a continuation of a typical technical bounce.
Note that even with that gain on Friday, CTX was still lower than it was a week before. Nothing fundamental has changed and these stocks are still under severe selling pressure. Most will be trading under their stated book values when all is said and done.
“These stocks have been more oversold than any other sector and Friday was a continuation of a typical technical bounce.”
Can anyone explain what is meant by “oversold?” I see this term thrown around loosely by Wall Street analysts who seem to be hinting that “now is the time to buy the dip,” since stocks which have recently declined in price always go up in price over the long run (except for, maybe, pets.com).
But does it have anything to do with the relationship between the price of a stock and fundamentals? I have to doubt it, because the major Wall Street builders have not corrected enough since February 06 to reflect overwhelming evidence of steadily eroding fundamentals for the industry since then. Further, we all know that builders like Toll Brothers have used share buybacks to artificially prop up their stock price, and we all know how well that strategy eventually worked out for Enron.
But does it have anything to do with the relationship between the price of a stock and fundamentals?
Why does a stock’s price have to do anything with fundamentals? It’s not like you’ll see a penny of their profits anyway. As someone said “blue chips are a lot like baseball cards”. You just collect them, hoping somebody will pay a higher price down the road.
“Oversold” and “Overbought” are strictly interpretations of technical indicators - they have everything to do with market action and very little, if anything, to do with fundamentals.
Oversold means a stock has a rising RSI after a sell-off, or sometimes that the price has fallen below the bottom Bollinger band of it’s price action.
Pardon my punctuation, that should have been “its”, not “it’s”.
Reasons for the short-term fluctuations are numerous. For one, these stocks are heavily shorted, and that creates a short-term support. The trend however seems to be down for the whole year. You are going to see a lot of down-down-up movements, since the bears are out.
Bottom Fishing ???
“There, too, real estate agents and sellers are testing incentives. In El Dorado Hills, Don and Suzi Garofano are offering a new $35,800 Jaguar automobile as enticement to buy their $1.67 million home on 10 acres overlooking Folsom Lake. ‘You gotta be real creative,’ Don Garofano said.”
Gee Don that $35,800 jag is the economy model,what will the neighbors think. To live in a $1.6 M house you gotta throw in the top of the line model. But wait, take another 800K off the price of the house and you might have a deal.
WOW, I can get a brand new $35K Jaguar if I am willing to sign away my life (wife/child/retirement/parents/brother/sister/cousins, etc) to buy a $1.67M POS home. I had better hurry. Wow, my payment will only be $2000 with their creative loan? Where do I sign??????
I’m waiting for the “Two for One” sales.
On an earlier thread a poster wrote that he had basically been offered that if he paid up front in a (pre-construction, hence the deal and risk) midwest condo development.
Good one Curt….
As the builders drop price/throw in incentives, the floppers are going to be headed to the graveyard. We could buy stocks on those companies that cater to the dead. There will be a lot of hearts stopping at the ARM resets, and inability to sell their HELOCd crappy house that is already cracking at the foundation 2 yrs later.
OT: Went to SJ yesterday and took my son to the large mall there. It was around lunch time and the parking lot was full. As we walked through the mall very, very few shoppers where shopping or walking around. When we got to the food court it was packed and we couldn’t get a seat to sit in to eat our food. Usually people are shopping till they drop.
Hey, was that Stevens Creek mall?
Salinas;…Yeah, I see the same thing too…I think its like a walk in the park for a lot of people…Almost a social event…You check out the people, you check out the consumers goods, you have lunch and go home…
“Greg Paquin estimates 20 percent of the region’s new homes are ’standing inventory,’ finished houses without buyers. Many come with $40,000 to $80,000 worth of buyer incentives. ‘The builders don’t want to carry it so they will make incentives to get it off the books,’ Paquin said.”
Translation: These homes were built with borrowed money at a floating rate, and those rates are rising. The proverbial screws are being tightened, and as the months pass by the profit margin steadily erodes.
2 leave CA: “crappy house that is already cracking at the foundation 2 yrs later.”
This is so true. My house in BK,CA that I sold was 27 years old and hardly had a crack anywhere and where there were they were very small. My BIL(buying across town) within 5 yrs had two inch wide cracks running down his wall some 10 feet and cracks in his driveway.
The latest craze has been to ceramic tile all the floors yet BK gets a lot of ground movement and all these floor tile will be cracking and have to be carpeted over. I am waiting to see what happens to granite counters on the west side of town with possible settling.
I wonder how a good-hearted homebuyer is supposed to know about these defects? Because I don’t know anything about build quality, am I supposed to hire someone to tell me? I thought it mainly applied to evaluating existing homes, not the new ones.
It would be equivalent to having to take the new car you want to buy to your mechanic buddy so that he tells you what’s wrong with it. Unbelievable that they sell houses like that.
Anybody that buys a house without having it thoroughly inspected by a professional person- not an unregulated, matchbook cover trained, home inspector- is looking for a bruising. Not only should you have the house inspected, but you should be checking out the neighborhood, the land and the local government. I just saved a buyer over $5,000 in the cost of sidewalk improvements by knowing that a local improvement was being formed. My client was able to negotiate the entire cost away in the price of the home. A matchbook inspector wouldn’t have even known about or mentioned this. Imagine the surprise of buying a new home and getting a $5,000 bill for improvements before you even move in. New homes should be as thoroughly inspected as old ones.
Max, that it was !
I’m sure the sellers raised the price of the house to cover the stinking car . How about I buy the car and you throw in the house on the deal ? I hope buyers are coming out of the fog that they have been in for 4 years .
ROFL. I like the idea - buy a car, get a house free.
Unlurking myself. Question about a house in Sacramento. It is located on Sandburg Dr. Purchased last summer for $617K. Approx 1700 sq ft. Any guesses as to what the value will be when prices bottom out? How low will it go? I’m on the East Coast and not familiar with that area.
Justine,
A Zillow.com search will probably give you a guesstimate of what’s happening on that street. Just plug in the street name, state and city and check out what pops up. At first glance, it doesn’t look like there is much there even over the $600k mark…mostly $350 - 570k range, with a sprinkling of $600-700-800k (wishful thinkers).
Just take a peek and look around the neighbor. If you have a specific address, plug it in. Zillow is not the Bible for comparables, as there are some errors, but it will give you an idea on the area.
http://www.zillow.com/
BayQT~
I like to look at the 2003 comps under the property detail section on Zillow because that tells me where the market is going.
Unbelievable but the house I sold for $79,000 in 2000, which is across the street from section 8 apartments (roach motel) where crime is high, and in an industrial area is valued at $268,000. That house was where I lived with my family from 1968 to 1985. Yes, it’s Fresno. All other neighboring houses are valued similarly. I would not offer $79,000 for that same house today. The owner did make slight improvements, I have to admit. I don’t know how objective Zillow is. Just curious.
Justine,
I don’t know what your time frame is, but if possible, I’d be patient in looking to buy in Sac. Noone knows when or where the bottom will be, but realizing that housing goes in cycles (a few years worth), the bottom will not be in the next few months.
Most real estate “bulls” spent the winter promoting a Spring Rebound, which hasn’t occured. Summer will be no better. Wait til fall and see what happens when people who hoped they would get out “this” spring and summer are still holding onto their properties.
As both sfbayqt and housing wizzard discussed, Zillow is a pretty decent site, as long as you take into consideration that 1) comps are old news, and 2) in a flat to down cycle, they may be overly optimistic.
I’d keep an eye on that neighborhood over the next few weeks, months, etc (depending on your time frame) and see what happens.
James;….Are you in Sac ???
“We’re going to look at every objection and we’re going to overcome that objection”
OMG. That line is right out of the used car salesman’s playbook!
Max, because we were under relocation and sold our house to the relocation company we had to jump through hoops that the normal seller didn’t have to. While most people were buying houses (bidding up) ‘as is’, we had to have a radon inspection, siding inspection, structual engineer inspection, inspection for lead paint and asbestos, termite inspection, two separate appraisals, sprinkler inspection and appliance inspection, and ? Each was a separate company doing the inspections.
Some of us have expressed the view that it is more of a renter’s market than a buyer’s market, as assuming the risk of losing 30% or so of the purchase price over the next several years seems rather imprudent. But the lead article in today’s Personal Finance Money & Investing section of the Wall Street Journal begs to differ:
——————————————————————————–
How to Survive Soaring Rents
They’re Rising at a Fast Clip; But Markets Vary Widely; Disappearnace of the Freebies
by Ruth Simon
It’s no longer a renter’s market.
For years, rents have been flat or falling in cities nationwide — a result of the booming home-sales market, which transformed scores of renters into owners. But as the housing market cools, rentals are once again in demand, liberating landlords in many markets to raise rents at the fasteest pace in years. They’re also cutting back on the goodies that previously helped lure tenants, such as a free month’s rent or a free DVD player.
While renters have had an easy ride for years, the current bout of rent increases could prove to be a jolt for many Americans, from seniors looking to downsize to recent grads looking for their own place. Average effective rents — or what tenants pay after taking concessions into account — are expected to rise 3% this year, according to Reis Inc., a real-estate research firm. Rents began picking up last year after several years of softness. As recently as 2002, rents fell 1%.
Undsoweiter…
———————————————————————————
Thank you, Ruth Simon, for yet another article which is open testament to the woeful financial ignorance of the current group of WSJ’s financial journalists. There are just a few problems with the thesis of this article:
1) It implicitly assumes that a 3% rent increase this year will translate into 3%-or-more rent increases forever.
2) It ignores recent evidence that market prices are falling at more than a 4% annual rate in many markets formerly referred to as frothy. Which would be a smarter financial move: Buying a home now for $600K and watching it’s value drop by 4% over the next year, or renting a similar home now for $2200/mo and incurring a 3% rent increase next year? (Hint: In the first case, you lose $24,000 dollars in one year, which would cover most of the next year’s rent, even with a 3% increase.)
3) It ignores the supply glut, which will eventually weigh down both rents and purchase prices, once the dust settles on the inventory correction which is currently underway in the purchase market.
4) It ignores the many very bluntly worded recent messages from the Fed that they are more worried about inflation risk than about the risk of a slowdown. Guess what happens to rents if inflation stays under control, home prices go down, and the economy slows down?
5) In past housing slowdowns, both rents and purchase prices have fall fallen, as renting and owning are substitutes in consumption. I guess Ruth Simon thinks that this time is different?
Check out this article about a Manhattan neighborhood http://tinyurl.com/zdtq8
I wonder how long the consuming binge on borrowed money will last? These big chain stores won’t have a chance in hell to survive.
http://money.cnn.com/2006/06/06/retirement/risk_index/index.htm
I’m thinking if 43% of working age households aren’t prepared for retirement we will be seeing a 10 + year period of decreased consumption that will effect everybody.
Retirement? We are going to see years of decreased comsumption just because people can’t use their home as an ATM.
Lastly, they assumed retirees would annuitize savings, and tap their housing wealth through a reverse mortgage. Neither practice is common, but the CRR made the assumptions since both are ways to maximize how far one’s resources can stretch.
CRR researchers did not, however, factor in the costs of a potential health care crisis for two reasons: the increase in healthcare costs is hard to predict and only a percentage of households will experience a catastrophic health situation that will throw off finances considerably.
So they made a positive adjustments (in spite of the lack of practical support) to their scenario, but refused to consider negative adjustments that are right on everybody’s minds? What a load of ****. I suspect the 43% is closer to 70%.
Karen
That’s such a given in my mind I don’t even bring it up for debate.
Max.
I’ll take the over on that 70% number.
a percentage????
Does that mean 1%? Does it mean 20% 50% 80%. Maybe I’m too cynical, but when ever I hear a percentage, or a fraction I always wonder what fraction or what percentage.
I agree, I bought a condo in Southern California in 1989 and rented it out. When the bottom dropped out of the market in 1990 rents did not increase. In fact I had to lower the rent $50 bucks. My mortgage/monthly condo fee to rent ratio was dead even. I could not raise rents until 1996. That was seven years. However, I did not lose money, unlike today where the mortgage to rent ratio is just out of whack. This housing market is going to take a dump. Realtors are so lame they come up with these simple coin phrases and do not look at the real picture. Rents may increase and if they do, people will add more room mates. I guess realtors actually think if somebody rents out a two bedroom condo that only two people will live there.
GetStucco,
I’m seeing more and more of these articles touting huge rises in rent, but I see no evidence whatsoever in my part of the country - Dallas. We’ve got so much more housing than we need and they are building like there is no tomorrow. It seems that the boys and girls on the other end of the real estate market (landlords) are calling their friends in the media and floating this “rising rent” garbage in a feeble attempt to try to get the herd thinking rents are going up. If the folks I rent from decided to raise my rent anything, I’d tell them thanks, but no thanks and shag it on down the road. It’s just another example of the media’s complicity in real estate extortion - this time on the rental end.
Ya know, raising rents are just wishful thinking on the parts of landlords who are paying $500 a month on their “investment”. A way to hold off the crash, and keeping investers, the few who can afford the $500 a month bleeding, from selling (and lower prices even more) Lastly a way to talk young people into buying a house they can’t afford. IMHO, nothing more than spin.
Good retort (your 5 points). I don’t mind rental increases. At my current apartment complex, we’ve had rent increases. My sister says she heard it’s 20 to 25%. We won’t know until our lease is up for renewal this Fall. My half of the rent on our 2 bedroom luxury apartment in Ahwatukee (part of Phoenix) is $470. I noticed the type of people who replaced the former tenants are very quiet. This complex has changed radically in the last 4 months. Families with young kids are gone. Young people who blare their rap “music” at non-mortal hours are gone. That is what I like about rent increases. I seriously doubt if we will get 20% annual increases. This is a one time deal and it will probably go up 4% per year after that. Plus the Phoenix supply is growing very fast, about 48,000 homes on the market now. We may even see our rent decrease in ‘07 because of competition from houses for rent!My sister is getting ideas about renting. Her friend moved into a 3 bedroom house a couple miles away and is renting it. She has more space and is paying maybe $1100 per month.
‘Families with young kids are gone. Young people who blare their rap “music” at non-mortal hours are gone. That is what I like about rent increases. I seriously doubt if we will get 20% annual increases.’
Excellent point! There is a nonmarket value in higher rents, as the riff-raff that you would rather not have as neighbors gets priced out of the market. Who could have foreseen a regentrification trend in rental housing?
Just renewed my lease for two years on a 2800Sqft house in a gated community in Moraga CA, with excellent schools. I locked in 1% per year increase.
“Just renewed my lease for two years on a 2800Sqft house in a gated community in Moraga CA, with excellent schools. I locked in 1% per year increase.”
You got yourself a great deal. Congratulations!
I’ve been lurking on this site for awhile and I agree with the majority of posters here that housing is going down, and sharply. One apt. bldg. I own was refinanced three years ago. For the past six months, I’ve seen the monthly commercial mortgage payment go up continually, relentlessly - to the point where principal is hardly being paid down. And this is for a loan that had favorable terms for a commercial landlord borrower. I can’t imagine what these homebuilders - corporate and small-timers - are facing now. I can deal with this mortgage because it constitutes a small portion of the overall equity (although apt. blg. prices are totally out of whack these days too), but this is small pain compared to the other loans shackling these developers and homeowners. No surprise the market freaked out this week.
Here’s why hedgefundanalyst and garcap never want it to end. Will either of them recognize they are in their own bubble? Their comments seem strangely similar to those of the OC homeowners of 2005:
http://www.vanityfair.com/features/general/articles/060606fege03
Thanks for the link txchick, great read.
I have some bad news for hedgefundanalyst: Your new Fed chairman is playing for the other team (the one that is working behind the scenes to pass the costs of rebalancing the economy and ending the conundrum on to the gambling sector). As the saying goes, “Don’t fight the Fed.”
That story is so reminiscent of the Silly Valley scene before the tech stock crash, that I have to believe that Greenwich is going to fall harder than most other bubble zone. Like Realtors (TM), the crowding of new entrants into their sector has reduced the average return to hedge fund managing, making it increasingly difficult for them to earn returns that pay a return in excess of the 2% management fee.
Good point stucco….
Yep, Businessweek had a couple of articles on culture of risk and hedge funds.
They work until they don’t.
I didn’t remember that Scholes was part of LTCM and his Black-Sholes formula was part of the debacle.
As a long time criminal lawyer I can’t believe how much this Sacramento home builder sounds like the many Meth dealers I have dealt with over the years. Meth users and dealers will keep the cycle going no matter what the consequences and in the end they always say, “That’s my story and I’m sticking to it. “‘We have our business plan and we’re keeping pace,’ Brennan said.” Meth dealers also say, “If I quit selling I won’t be able to get high. Sounds alot like Mr. Brennan saying. ‘If we slowed down our building, we would have to abandon our goals.’” I don’t know if this is a valid analogy but it seems like housing has almost become a drug. Scary.
How ironic: I’ve signed up at Sacbee last week and few days later on Thursday, I got an email from them an ad for Centex with 125k off. I thought I put in my zip or mail address during the registration so I don’t know why they bothered to send it to me other than for entertainment value….
I don’t know how people afford to live in Cali now. I lived in Sac. about 5 1/2 years ago, and now currently live outside Ogden in a town called Roy. It’s family oriented here (and no I’m not mormon) and the houses are cheap. My house is 1900sf with a huge yard and less than 6 yrs old it cost us $140,000 and our closing costs were covered. I can’t see moving back to Sac. and paying those outrageous prices. We bought our house about a year ago, and prices are about the same still. Home builders here are willing to give incentives, but they won’t cost you like they would in Cali. Happy to have a $900 fixed mortgage payment.