“Even Declining Prices Remain Surreal’
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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Here is an update from the Reno area, by one of the more objective realtors in the area:
http://realtytimes.com/rtmcrcond/Nevada~Reno~dianecohn
I like what she says there, except that she needs to adjust her “closing paragraph” somewhat.
Land is *not* scarce in the area and it has some ways to go before jobs there can well support the current house prices.
“Reno is a hidden gem in Northern Nevada. Thirty minutes from the wonders of Lake Tahoe and surrounded by gorgeous mountain views, the area continues to attract new residents. Unemployment is low, quality of life is high, land is scarce and long term appreciation potential is significant.”
Unemployment is low, quality of life is high, land is scarce and long term appreciation potential is significant.
When will people realize that residential housing is not entitled to appreciation because it is non-productive?
Once again, the stages of grief are:
1. Denial and Isolation (2006).
2. Anger (2007 — Beware of road rage on SoCal freeways!).
3. Bargaining (2008 — Now that I am in foreclosure, what is the best way to work this out?).
4. Depression (2009 — Life as a debt slave really sucks).
5. Acceptance (2010 — At least prices aren’t falling anymore).
Possible expedited timetable -
1. Denial and Isolation (July-2006).
2. Anger (August-2006 — Beware of road rage on SoCal freeways!).
3. Bargaining (Late-2006 — Now that I am in foreclosure, what is the best way to work this out?).
4. Depression (Early-2007— Life as a debt slave really sucks).
5. Acceptance (Late 2007, early 2008 — At least prices aren’t falling anymore).
Go “expedited.” People don’t understand the psychology of tops. The next asking price has been 10% above overpriced for the last 3 years. Starting out at merely overpriced isn’t a decline, giving back last years’ is not a decline. For 80% giving back 2004 is not even a decline. Decline is not even that lower priced houses are the only ones still selling. Decline is when a “normal” transaction goes for less than thel ast transaction for the -same- not similar house.
Prices should fall through 2008 as well, and 2009 should be the first possible year prices remain flat. You must think about the exotic 3/1 Option ARMs taken out in 2005 which will reset in 2008. Don’t forget the 5/1 ARMs taken out in 2003 resetting in 2008 too. Unless people panicked a head of time in 2007, 2008 is not going to be a good year.
I like GetStucco’s timeline. Good job, Stucco.
1. Denial and Isolation (APRIL).
2. Anger (MAY— Beware of road rage on SoCal freeways!).
3. Bargaining (JUNE— Now that I am in foreclosure, what is the best way to work this out?).
4. Depression (JULY — Life as a debt slave really sucks).
5. Acceptance (AUGUST GOING FORWARD — ).
I hope you are right, but have my doubts. The wildcard which could make your timeline more accurate than mine: THE INTERNET! Thanks to the internet, the flow of information in the housing market much more closely resembles the stock market’s information flow than it did, say, in 1990, or 1929 for that matter…
“‘We are in a buyers’ market already and I think it will be that way for a few months with the way interest rates are going,’”
Yep, just for a few months, and then back to 20% YOY appreciation forever and ever.
I shook my head when I heard that comment. Like prices move that quickly with houses. We all know how emotional people get about housing and I think you will see the herd slowly moving in the opposite direction. There is a lot of momentum with housing and it will be hard to stop it as it picks up steam and gravity pulls these prices back down to earth.
Yeah, I don’t think we’ll be in a buyers’ market for a few years. First, all of the B.S. appreciation that ran up prices for the last 4 or 5 years needs to be purged from the market - after that, we’ll need to see if there is anyone interested in buying.
Last year when we put our house on the market in Austin,TX we knew we were going to lose money (listing price of 2005 was lower than our original paid price of 2002). However, I was a bit snugg thinking that I can write my loss off of my income. Boy, was I wrong! According to IRS:
http://www.irs.gov/publications/p523/ar02.html#d0e684
We can’t do that. What a surprise that was!
How come the realtors don’t tell us this when we buy homes? They keep touting the $250K gains exclusion but not the loss non-exclusion — or is that 100% exclusion: no loss is ever recognized by IRS?
It’s probably never occured to the agents, after all (sing it with me): Prices never go down!
I haven’t read the irs link. Normally capital losses can only be deducted from capital gains, not income.
So if you sold stock in one year for a $50k gain but an investment condo for a $50k loss it would be a wash.
I thought you can deduct upto $3000/yr of capital losses against income each year. And any excess can be rolled to the next year. My coworker was doing this for big dotcom stock losses. Then he sold his vacation house for a huge gain. Now he’s finally able to wipe out that capital loss excess.
I don’t know the law, but this is what I’ve been told.
Not on a personal residence. Only investment property.
Hey you can’t have it both ways! If it goes up, you don’t pay tax. Why should you get a break when it goes down?
OT rant, but these articles make me realize more and more that bubble went on for long enough for the even the average Joe to get out ahead, or at least without getting destroyed financially. Since nearly everyone could’ve give a rat’s @ss about younger 30-something folks like me who got priced out altogether the past few years, l reciprocate in kind when it’s my turn to buy - no mercy.
Oh, you didn’t save for retirement? Bummer.
California has yet another cash shortfall after the past few year’s windfall? Bummer, I’ll move before I pay more in taxes.
*sigh* okay, I feel better now.
It won’t matter - they’ll raise your taxes to bail themselves out.
Don’t like that? Bummer.
“The problem in areas like Boston and Silicon Valley is that home prices shot up so high, even declining prices aren’t attractive especially as interest rates rise.”
The only reason people have been buying over the last 2-3 years is because they believe prices will be 20% higher in 12 months. I wonder what they’ll do if they think (and see evidence that) prices will be 10% lower in 12 months? Take out a $800,000 mortgage on a starter home? Methinks not. Bye bye buyers.
Exactly right on, in my opinion. Need to bold the word ONLY, though. I know someone who bought at 500k+ dump in a slum south of I-8, surrounded by rapists and murderers. This was summer of ‘04. Would he have bought if he were SURE the price would fall? Methinks not, too. Zillow says it’s worth 580k now. Who in their right mind would pay that much to live in one of SoCal’s worst neighborhoods - knowing that you lose money every day you own it?
On a side note, my father-in-law’s place (about 2 hours outside of Tokyo) was “worth” 1.2 million back in the day. He says it’d sell for about 200 thousand today.
Thing is, I wouldn’t buy the S.D. dump even if it were 1/6th the price TODAY!
But how can this be HW? Tokyo has very limited land - apparently it is surrounded by some pesky ittle seas and oceans or something. No way homes residing on such limited real estate can have such a decline.
and speaking of Japan - take a gander at these graphs
http://ethicalhomes.com/content/why-the-economist-is-like-michael-moore/
True Japan sets some precedents we should watch out for… but Japan has a vastly different demography than the US - a decreasing population and almost no immigration
Hi Yensoy,
Good points, but if there where so relevant, then how and why did 200K real value property go to 1.2m?
Your post reminds me of a story in the Union Trib a month or two ago which highlighted a family who just “paid” something like 500K for a little house in SAN YSIDRO! There was a picture of them standing in front of it (nice bars on the windows and front door) and the story portrayed both of them as low paid blue collar workers (one was a hotel maid etc.). It blew me away because the story implied they didn’t have a down payment etc. How in the world could they do that?
Interesting day for stats here in Santa Clara County - jumped past the 3300 mark of sfh/condo inventory. Also, multiple price reductions in an area of the Los Gatos mountains that I am tracking.
Hoping there is no Spring bounce.
It seems there’s always some uptick in sales during the spring, so I can foresee the rah-rah crowd spinning it like “30% increase in sales from Jan 2006″ etc.
Sales will increase temporarily as prices come down.
It’s a game of cat and mouse with no winner.
Prices drop and inventory slighlty decreases.
Prices hold and the inventoy greatly increases.
(Motivated sellers cut prices to compete and win, others won’t be so lucky [or smart])
Prices drop again and inventory slightly decreases.
Prices hold but then inventory increases again..
… You get the idea of this cycle …
It’s probably going to be a very very slow process with some small peaks and deep valleys as we head towards this downward slope. Prices will probably over correct somewhat and then bounce back to reality. Then housing will be aligned with the fundamentals that have influenced housing prices overtime.
I wonder if it will be a very slow process. Unlike anytime in my memory, the astounding build up in inventory promises a steep drop within a few months. Not only are more existing houses for sale, the builders are still building. Here is an interesting note from a man in the lumber business:
“A note on housing: the starts and permits do not distinguish between spec (not sold) and pre-sold. At a regional conference I attended last night most all suppliers agreed builders were almost entirely building spec homes, and very few buyers were actually around. Builders like auto makers have fixed production costs and therefore can’t afford to be idle. So if you see another rosy start/permit report this week it doesn’t mean the economy is humming, it’s indicating a glut. KB Home just announced a surge in cancellation orders. Maybe some were indeed cancelled, maybe some technically never were sold in the first place.”
Don’t forget your History Lessons. When the S&L situation burst in the late 80’s, things screeched to a halt around here so rapidly people were thrown through their windshields (metaphorically speaking). And RE stayed dead in Texas for quite a few years.
There will be a Spring bust.
Lunarpark, I’ve been checking ZipRealty, and the numbers there are 2907 for Santa Clara County today. I wonder why there’s such a large discrepancy between this and MLS listings. MLS also includes “pending, continuing to show” listings, so I guess this might be a reason. In the past I have seen properties come up on MLS that were not on ZipRealty, so this might also contribute.
I see many listings that are active on mlslistings.com that are not listed on ZipRealty or that go inactive on ZipRealty but remain active on mlslistings. Yes, mlslistings.com does count the pending numbers, however if you look at the stats in most newspapers they use pending stats in their count (SF Gate for example thinking back to 2003). I’m really curious as to why some places listed on mls are not on Zip - I’ve driven by a few of these and they have for sale signs.
Bingo. Not only will sellers be chasing prices down due to market forces, but buyers will also be contending with even greater unaffordability issues as prices decline due to rates. The 10-year yield looked quite strong today.
Don’t use the typical stock (bull) market strategy of buying on the 10% dips. Keep your cash (KING) in your CD’s and MM’s and watch for ALL of the air to come out of this thing. At that point, at least here in the south bay beach cities of Los Angeles, rates in the 7-8% range won’t prevent one from buying. We’re 30-50% overvalued , and once the rush for the exits begins, this decline in prices will will be more than ’surreal’.
I just popped in on Foreclosure.com and found some nice houses in my area. One house in particular has been on the market since last summer - not the best condidtion, but a nice house in a nice neighborhood. Another even nicer house is listed for $15k less than they paid in early 2003. North Colorado has been stagnant since 2001, now it seems to be rolling over.
N Colorado isn’t a bubble area. If it weren’t for ARM, Option ARM and cash out refis we’d be in great shape here. As it is I think we’re going to suffer just as much as the coasts. There is even a $900k house in foreclosure nearby.
Check this out CA readers, here is a million dollar house: (MLS 474147 on http://www.coloproperty.com) and this one or one next door is in foreclosure.
Commanding views of the mountains and plains on a 1.9 acre lot with a private in-ground pool. 8,000 SF of finished area with 7 bedrooms and 5 baths, vaulted ceilings, hardwoods in kit and dining room. Finished basement with Rec Room and Theater Room. Inside newly painted. Up to 2 horses allowed. Pre-Inspected and recently re-landscaped. Front entrance courtyard and stairs to be refinished - weather permitting.
I gotta say, that does look like a million dollar house (or maybe I should say ‘did’, I just noticed “Construction - Wood Frame/Stucco” :D).
Even if Colorado and New Mexico homes weren’t significantly overpriced, many of the newer ones may have been second/vacation homes for out-of-state buyers now struggling to retain their primary residences. If the second homes are dumped for quick cash or go into foreclosure, people planning to move to the Southwest/Rockt Mtn. region for retirement may have some very new, very nice, very well-priced residences to choose from.
Holy crap — A local broker called Illustrated Properties just updated their West Palm Beach, FL area sales and inventory graphic for January today. Sales down 39.5% YOY. Inventory up 106%. (I can’t make out the numbers perfectly on my monitor, but that’s what it looks like) Talk about a meltdown. And remember, down here, this is the HEIGHT of tourist season. These numbers should be going through the roof. Here’s the link…
http://www.ipre.com/trendg/images/palsld.png
“‘We are in a buyers’ market already and I think it will be that way for a few months with the way interest rates are going,’ said Mark Hicks, mortgage and real estate broker/owner in San Jose.”
A few months? That’s wishful thinking!
Realtytimes has an “ask george” QA article up today. Most questions (surprise, surprise) involve problems with “investment” properties, and the rest involve ARMs.
I don’t know how to do a live link, but the address is:
http://realtytimes.com/rtcpages/20060214_askgeorge.htm
I checked out the link, great reading! The one story, reminds me of my San Diego buddy who took a cash out re-fi on his home and was dying to plow the money into “investment” property. He had his eye on a condo near Scottsdale which had an owner-occupied clause. He told me no problem since the Realtor he was working with said no one would know that he planned to rent it, “Just don’t put a sign in the window” was the realtor’s advice. I bet LOTS of these newbie investors have lied and when investigations start from loan holders and HOA’s too (who are pissed about all the rental units in their complex that aren’t supposed to be there) there will be hell to pay.
YES!!!!!!!!!!
40 new net listings today on the Bakersfield MLS. Inventory continues to grow by the day! Inventory is up 250% from a year ago.
Inventory is up 13% just in the month of February 2006.
Is this resale homes and new construction?
In the past is was only resales, however, lately I have noticed A LOT of small local builders are putting their spec homes on here. Not a good sign fo these guys. Here in the link:
http://www.bakersfieldrealtor.com/
That is what I figured. I bet new homes inventory is up even more than exiting. It seems like new homes are coming online all over town.
A few months ago I saw an graph on Bakersfield asking prices dropping significantly in the fall…have you seen anything more current than that?
I bet the new home builders will cut prices before the speculators, flippers, and the neighbor who thinks his house is worth more than everyone else’s will!
Hey, not a problem! A beautiful place like Bakersfield will see those houses snapped up in a flash.
“When expectations meet reality, reality always wins”
I don’t remember who the author of that quote is, but I think a lot of people are going to be learning that lesson the next few years.
The housing bull market lasted for almost 10 years. I guess they believe if not for the rate hike it would have continued the 20% appreciation for another 100 years.
At 20% appreciation/year, $1M home will be $82 trillion in a hundred years! At 10% appreciation/year, $1M home will be $13 billion.
So all SoCa home owners will be trillionares or billionares. With so much money they are going to make from their homes, why do Californians need to work at all?
You have summed up the psychology of the bubble.
Why work, it’s so passe, when all you have to do is buy a home enjoy the free money forever…
The real question at this point I think, is will this be a typical bursting bubble, or an unprecedented crash catalyzed by the excessive use of leverage (via excotic/subprime loans) ala the 1929 stock market crash (which IIRC was so severe due the extreme degree of leverage involved).
This is going to be “ala 1929″ event due to several precipitating issues. The U.S.A. has a huge and unsustainable budget deficit. A huge and unsustainable trade deficit. The boomers are just starting out the retirement door (social security, medicare spending). Real wages have been stagnate at best (more likely -2% yoy). So, there is absolutely nothing that is going to stop this plunge from exceeding everyones expectations. It has been reported that Real Estate was responsible (along with related activities) for 40% of 2005 GDP. If that is true, the related loss of income when this “ship sinks” will impact far more people than is imagined. I don’t suspect that anyone will feel up to taking on more debt for several years to come. This is going to be a depression bigger than 1929, IMO, for all the reasons stated above. Keep your powder dry and DON’T buy because this market is going lower than your wildest imagination.
As I understand it, 40% of GDP *growth* in 2005 (not overall gross domestic product) could have been attributed to real estate and related.
You’re right, GDP growth, I got carried away with my rant. I still stand by my comments though.
I agree with you auger-inn…What I need to figure out is where to put my cash while weathering this coming depression. I’ve got 10% in gold right now and the rest in CD’s. Will USD CD’s be a safe place? I doubt it.
The EU/ECB is playing the same tricks as US FED. Don’t expect them to give you any better “value for money”. The Euro’s also in the same boat as the USD, except it earns even lower interest.
For now, even MM and aggressive savings accounts are giving a decent rate, risk free (MMs have some minimal risk but chance of principal loss is very small). As Bernanke tightens, it’s only going to get better. Powder dry is my suggestion too.
It depends what you are going to do with those dollars and where you are going to spend them. My stash is in CD’s between 4.5 and 5.1 % right now, and it is what I call my “House Voucher/Money”. Since I plan to buy my house with U.S. dollars and the CD’s are growing while home prices are coming down, I don’t see why it matters how the dollar is holding up in the international market. If 500K ends up only being worth the equivalent of 200K purchasing power in the EU, why do I care if I can buy my house in Texas for 350K. Does this make any sense?
It does if your money in the bank keeps up with inflation. If the USD loses purchasing power relative to EUR, CAD, JPY, etc. then inflation is likely to go way up, given how much this country imports. Moving money into foreign currencies is a way to hedge this risk, though of course it increases other kinds of risk.
The boomers only think they’re out the door. They’ll actually be working until they’re 75 or 80. I have 3x the savings and 1/2 the debt of the median boomer and I won’t be able to retire until I’m at least 70.
We are in a buyers’ market already and I think it will be that way for a few months with the way interest rates are going
More like a month of months!
Inventory report :
I have been watching the inventory in Aliso Viejo, CA (OC) for the past couple of years. It is next to Laguna Beach.
(source : homeseekers.com)
until 6 months ago : 180 to 220 units for sale
4 months ago : 230 to 240 units
2 months ago : 260 or so
now : Over 300 units for the first time ever (303 today)
Hi willm,
Interesting stats. Wonder if it is possible to compare those numbers to the inventory glut during the 90’s? Number of houses for sale as a percentage of people living there would be the best indicator when compare today with then.
I’ve got a similar stat for an area near S.E. San Diego, a specific zip code in Eastlake (91915).
May 04: 11 listings
June 04: 41 listing
Feb 06: 180 listings! (grew steadily up over the last 18 months, never went down and just hit the 180 mark this week).
DC prices may be flat, but Northern Va prices are down from 552,000 in Dec to 524,000 in Jan. and YOY appreciation has slowed to about 10%, the biggest month to month and YOY declines in a long, long time, according to data just released by The Northern Virginia Association of Realtors today.
Sales are down by almost 30% YOY
And inventory has increased (drum roll…….) by 392% YOY.
Ouch…….
http://www.nvar.com/market/pressrelease/prnvjan06.html
If nobody else thanks the specuvestors for adding big dollars to the California tax base, I will. Thank you, thank you for overpaying taxes on a property you may or may not make money on. It helps my 1987-based 2% max. increase per year increase less.
Yeah, I’m sure a lot of people will be relieved that houses that were selling for 10 times the median income are now only priced 9.5 times their income.
I was pondering the idea that people believed a year or two ago that homes would appreciate at 20% a year for the next ten years, and how everyone has been assuming that they meant compounded over that time. I’ve just realized that I believe we are ascribing too complex a math comprehension in a public that can’t balance a checkbook. Not that it’s much better, but I suspect they believe in appreciation of 20% of the original price every year for ten years, such as a $250,000 home increasing $50,000 every year for the next ten years, leading to $750,000, not the $1.5 million we’ve been calculating. Anyway, that’s my thought of the day.
I live in Sillicon Valley. In the core of it - Cupertino, Sunnyvale, Mountain View, Santa Clara etc. - there is no indication of bubble bursting. Not surprising, as this will be the last area to get hit. What I am not sure about is, how late it will be and by how much.
Let me take Cupertino as an example. This is the best school district in Bay Area, and extremely sought after. If there is a YOY decline in house prices here, it will be a big deal. Even with these “surreal” prices, homes are being bought. I am an Asian immigrant, and work in IT. I am the only renter in my social circle. Most of the people I know, bought houses 5 years ago and at that time they were over 600K. These are dual income families, meaning, they earn more than 200K per year. When the prices appreciated to 900K+, they refinanced and and now have more equity. Even if the prices decline BIG TIME, at most they will loose some equity, but in no way will be forced to sell. Hence I think BA will be the least affected when the bubble bursts.
I am sure there are lot of folks with risky mortgages. But there are also lot of other folks - typically Asian immigrants - who live well within their means, earn big bucks, and just have lot of money.
Good for them. For me, even after the bubble is completely flattened, BA will be unaffordable. A drop from 900K to 800K hardly changes anything for me. And I don’t think the BA will drop significantly more than that.
I’m not Asian, but we are dual income and make about $200k a year. We save more than almost anyone I know and have zero debt. We cannot afford to buy. So who is going to be so rich as to keep buying at $800k? A home that costs that much is not “affordable” to people making $200k - the home would need to come down to $600k, especially when you consider higher interest rates. Also, Cupertino is building like crazy. Check out the city website - you will be amazed. There are thousands, yes thousands, of condos (and also SFH/townhomes) in the pipeline. The dynamics of the area are very likely to change.
What about housing quality related to price?
Here is SoCal much of the housing stock of falling apart and with all the new construction technology that value of new construction must be way above much of the crappy beach shacks people are buying down here.
Getting stuck with a brand new home, those were constructed probably by the builder, for 30 years is not so bad. The people who are really going to wake up with hangerovers are those $1 million, 70 year old beach shacks filled with mold and rotting foundations.
Maybe it’s different where you live, but in my area, most new construction isn’t built to outlast the mortgage.
Why do people assume a new house is better than an old one? I’ve certainly heard many horror stories about what’s being passed off for “construction” these days. The wife and I once lived in a house that was over 200 years old. It needed a some work, but so what? ALL houses do, and it was a fine place to live. I doubt anything from Toll or KB Homes or their brethren will hold up as well in even a tenth the time.
Good morning fellow bloggers. Just wanted to let you know, if you haven’t already seen it, that the Mortgage Bankers Association’s purchase mortgage application index plunged almost 8% in the most recent week. It’s now at its lowest level going all the way back to December 2003. More “soft landing” evidence.
Link:
http://money.cnn.com/2006/02/15/real_estate/mortgage_apps.reut/index.htm?section=money_latest
Check this out.
The condo-motel hybrid
Thanks for the post. I’ve finally found an affordable way to invest in the madness. Now, I just need to get this approved on a 0 down, option ARM w/ a real low teaser rate, so I can hold it for six months while my motel room quadruples in value. I am rich.
What a scam! I read through the article, and did the Math with my MBA/Finance cap on. Took the worst case sceanrios (IMHO most likely) that they are touting. You will be lucky if you break even, rather than rake in $20K/yr.
They claim to have 70% occupancy, but I would bet during the heat of the summer, it is more like 10%. Also, you are responsible for the upkeep of the room (Carpet, fridge etc., drapes, and I’d bet also bed etc.). Also you are expected to upgrade it yourself so it would rent for more.
Also, why would a run down motel room ever appreciate? I thought I had heard it all, but this one does take the cake.
Key West is in the throes of condoization - condotels and conversions. We’re losing our mid-level workers and managers who can no longer afford to purchase (or rent). Home prices for the smallest dump start at $499,000. Can you give me a time line on when our market will start to come back to reality?
Jo - according to the Whiskey & Gunpowder newsletter, the time is now:
First let’s tune into some commentary about Key West from Richard:
“My landlord died two weeks ago.
“There are four apartments and three rooms renting in an old decrepit building he owned.
“He had it on the market ‘for sale by owner,’ for $2.8 million.
“Last Thursday, his son came down to take care of his estate.
“The price dropped to $1.95 million.
“I know the attorney who is working with the son.
“The price will soon drop to $1.8 million.
“Across the street, a former homeowner took a similar sized house to the one I am living in. He spent hundreds of thousands to subdivide it into three condos. The cheapest was $900,000, the most expensive was $1.3 million, and the third unit went for $1.15 million.
“Those three condos were on the market for over a year. Four months ago, some guy finally bought one of the two more expensive condos. I found out yesterday that this new owner had already folded his tent. He couldn’t make the second or third payments on his new condo. He sold his condo for an immediate $400,000 loss.
“Now he doesn’t have a place to live in Key West and he still owes some lender $400,000. Wow! Shades of buying on margin in year 2000 and having the brokerage wipe out your account and calling to say, ‘Hey, you owe us more!’
“Next door, there are five condotels. They were formerly part of the great White Street Inn, which stayed fully occupied most of the year.
“Well, the White Street Inn owners wanted one grand big kill. So they closed down the nightly rentals, renovated the place into five condos, and opted for the condotel designation, which meant renters had to rent for a week. But the benefit is the new owner of the condotel had to pay no bed taxes to the city for infrastructure in return for not renting the place out nightly.
“A funny thing is happening to all of these condotels: They are not occupied more than 25% of the time. Most of the time, they are dark and vacant.
“Those units initially sold for $1.2 million.
“Two of those units are on the market now, today, for $750,000 and $800,000, respectively. We can only speculate that the sap investors who were assured ‘Key West is HOT, HOT, HOT and you’ll never have a problem keeping this place rented out,’ are now so deep underwater carrying mortgages that their sparse rentals can’t possibly cover that they were forced to drop the prices on their places to meet new realities.
“Anybody buying a house in this town at this time is trying to catch a falling guillotine.
“Wait. There’s one more statistic that news reports won’t speak about, especially if you are a REALTOR being quoted for the paper.
“I think I told you about the young respected REALTOR in Key West who last year at this time was quoted as saying, ‘You will never see another house in Key West sell for less than $600,000 again.’ His reasoning, like most of the REALTOR herd: Key West is a very tiny island, land is at a premium, real estate prices are finally catching up to ‘REALTOR vision’: Real estate will continue to double every few years.
“Last week, the newspaper resurrected his quotes. There are houses not only under the $600,000 mark, but at this moment, there are 11 houses in Key West under the $500,000 mark.
“I looked at two of them yesterday. One was a ‘cottage, 284 square feet,’ and the other was a ‘cute little condo bungalow’ of 300 square feet. These two ‘investment properties’ listed for $390,000 and $395,000, respectively. In former years, they were basically toolsheds. Those two toolsheds will be back to reality before this is all over.
“The MLS listings down here do not include ‘for sale by owner’ properties, which have sprung up everywhere in Key West. All these homeowners upside down on fast-depreciating homes are now trying to save the commissions the REALTORS would have gotten by doing it themselves.
“If you averaged in the ‘for sale by owner’ prices, the fastest falling on the island, prices have easily fallen over 25% in six months. But the MLS only averages the MLS listings. They don’t want to mess up the cartel pricing with reality. That could cause a bigger rush to the exits than what is just beginning now.
“Things are much worse in Key West real estate than the real estate cartel, i.e., REALTORS, appraisers, mortgage shop owners, builders, et al., are letting on.
“If you want to buy a Key West home, here’s what you do: Keep working. Save your money. Come down here several years from now. Buy while there is blood in the streets.
“This cartoon has just begun.”
And don’t forget about the hurricanes — most people don’t figure in the damage to homes that still have not been repaired after Wilma, nor do they think about the wind, flood and homeowner’s insurance costs, which average at more than $1,000 a month. I plan to sit back on my savings and wait it out — if I can afford the rent (with the three jobs).
To_BA_Or_Not_To_BA: The Bay Area has lost 200,000 jobs since 2000. Those jobs are never coming back, because California is business-unfriendly, and because both employee housing costs and commercial real estate costs are through the roof. Plus, there will be job losses in construction, mortgage lending, and realty very soon.
There is also the dynamic of older baby boomers looking to cash out their “primary asset” and relocate. These people will become motivated sellers once they see prices dropping, so inventory should rise once these lemmings start to run. The Bay Area will get what it deserves.
WillM: No, what takes the cake are the condos on cruise ships. That was in the news a few weeks ago. Specuvestors found a new way to be “underwater” on their investment.
OCMax,
I could go on and on about what the bay area deserves. True story- not r/e related, but a great story.
I’m an erp implementation consultant and just relocated to bay area April 2000. I go out on a sales call with the founder of the bay area consulting firm I had just joined. The prospective client we visited had good realistic requirements, a decent scope, decent timeline. When founder asked me what I thought about the opportunity, I said “all the dots connect, let’s get started on a proposal”. Founder says, “yes, all the basics are there, but I don’t think the client quite has the Marque value we are after”. Right then and there I knew the gods would not allow this to go on and “something bad” would soon occur. Bay area business leaders are the ones who are the black hats up there. The homeowners are just riding the market like everwhere else.