Speculators ‘Got Burned At The End’ In Florida
The Florida Press reacts to the May numbers. “Local sales of existing single-family homes and condominiums in May continued their double-digit downward spiral for the fifth straight month, the Florida Association of Realtors said Tuesday. ”
“‘When prices have been artificially increased by speculators flipping units back and forth, always at a higher price, that works fine until you reach the end of the ‘greater fool theory,’ when there’s nobody out there to pay a higher price than you paid,’ said real estate consultant Jack McCabe. ‘We reached that point at the start of 2006,’ McCabe said.”
“‘Thirty percent of the market is investors, and they got burned at the end,’ said Mike Dooley, president of the Florida Association of Realtors. ‘It takes a lot for their properties to be absorbed.’”
The Miami Herald. “Fewer homes are selling, as reflected in the numbers released Tuesday. The result: a ballooning number of homes with ‘for sale’ signs across South Florida. The big question now is just when the stalemate will end and where the market will then go.”
“‘This is probably the precursor to prices finally starting to come down and sales activity picking up again,’ said (broker) Pat Dahne in Coral Gables. She predicts prices for single-family homes will drop early next year and spark renewed buying, but the condo market will take longer to recover.”
From Florida Today. “Kevin Manuel, who is in the process of moving to Brevard County from the Cleveland area after taking a new job, said he is proceeding slowly as he shops for a home. ‘All the people I’ve talked to are extremely motivated, ‘price negotiable,’ Manuel said. ‘Week to week, I see the prices dropping.’”
“The news was bleak for condominium sales in Brevard. Sales fell 76 percent for the year, with 60 sales in May, compared with 246 in May 2005. The median sales price for condos fell 11 percent to $196,700 in May, from $220,000 a year earlier.”
The Naples News. “Some agents, such as Naples Area Board of Realtors President Jo Carter, said she’s telling people if they don’t need to sell right now, then don’t do it. On the flip side, she said, she’s letting buyers know they have a lot more opportunities now.”
“MLS numbers show the average price of all Naples-area homes and condos peaked at $794,353 in April and have declined to $682,443 in June, Carter said.”
“(Broker) Joe Ballarino said the number of people getting into the real estate business appears to have leveled off. ‘There’s just not enough money to go around,’ Ballarino said.”
From Daytona Beach. “The ever-rising prices for existing houses in the Volusia-Flagler market are little comfort for Florence Flint. The Ormond Beach resident has been trying to sell her house in Lake Walden Cove since May 25. ‘I don’t think the Realtors here know how to go after customers now. They are not assertive enough,’ she said.”
“Sales of existing condominiums locally also fell in May, down 64 percent to 73 units, compared to 200 in 2005. The median sales prices of condo units also dropped to $222,500, compared to $266,700 in May 2005.”
The News Press. “The number of homes sold in Lee County plunged 24 percent as the inventory of houses on the market hit a record high. ‘I think you’re going to see a little bit of coming down in the market in Fort Myers. It can only boom so long,’ said Gordon Burnam, who is closing this week on a new home in south Fort Myers.”
The Sun Sentinel. “South Florida’s housing market continued its yearlong slump in May. ‘They’re seeing prices reduced and they say, `Maybe it’s just as well that I wait a few more months and see how good the deals get,’ West Palm Beach analyst Brad Hunter said.”
“The market was bound to cool as prices rose to unsustainable levels, analysts said. They also cited rising mortgage rates, insurance prices and property taxes, as well as a glut of homes for sale. Sean Robertson and his wife decided to rent. ‘That’s going to be better for us,’ he said. ‘I didn’t want to get stuck with outrageous rates for insurance and property taxes. And I’d like to see the market soften a little bit more.’”
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
What’s amazing is that this absurd comment was printed
by a respectable newspaper only about 15 months ago.
Imagine the situation 15 months from now.
The statement was a quote, and the title of the article provides more than a hint of doubt!
It’s also the same “respectable” newspaper that ran a serious piece last year about how renters remain renters because they are not as emotionally mature as owners.
I don’t remember that.
July 31, 2005
Fear of Committing?
By TERI KARUSH ROGERS
ON the diving board of dashed hopes and denial paces an unhappy figure: the would-be buyer who shops for years but resists taking the plunge.
Like timid bathers, some just need time to acclimate to the chilly reality of what their money can’t buy. That process can take some time. Eventually, though, after long and careful looking, they do take the leap.
But others never do. They focus on flaws and high prices as a way of rationalizing an underlying inability to commit to real estate.
“There are so many levels to this situation,” said Dr. Ann S. Maloney, an Upper East Side psychiatrist who recognizes the routine guises of denial. “A lot of people will say they are afraid of losing their investment. The classic is, ‘We’re looking for a perfect place.’ The next one is, ‘We’re waiting for what we can afford.’ ”
Such thinking, if prolonged and paired with the inability to make a decision one way or the other, can signal what’s known as an obsessional personality. Obsessives, Dr. Maloney explained, adeptly bury their feelings beneath an avalanche of thoughts.
“Most really high-functioning professionals are not overtly anxious because they’ve sublimated it into very productive lives,” she said. But for some, when it comes to real estate, she added: “They overthink it. They’re managing their anxiety. An obsessional is caught up with doing the right or wrong thing, meaning they’re really caught up in whether it’s the perfect time to buy, whether it’s the right apartment or wrong apartment.”
John C. Prince, a senior vice president at Prudential Douglas Elliman, worked with one couple for three years in their search for a three-bedroom apartment priced from $1 million to $2 million. The pair agonized over ascending prices. “They would send you articles from every sort of newspaper saying the bubble was bursting,” Mr. Prince said. “They spent far too long analyzing every market issue.” Once, after a half-dozen visits to an apartment, the couple was banned by the seller’s broker.
“The head ruled every decision and didn’t give way to the heart, so they never fell in love with anything,” Mr. Prince said. “It was always too much of a cold decision to make.”
A fear of unsound investments, when it gums up the gears of decision-making, can obscure unmet needs.
Sometimes, Dr. Maloney said, “it’s really about a need for deprivation,” connected to unmet desires in early childhood. “They will perpetuate it in their lives in whatever they do - in relationships, work, purchases, possessions,” she said. “It’s not about having or getting what you want, it’s getting to be angry about not having it. It’s about punishing the parent who didn’t give it to them.”
While brokers aren’t usually privy to their clients’ psychological skeletons, they do say that people who experience sudden financial success can have a hard time spending, much like a Depression-raised grandparent who continues to hoard tin foil.
Beverly Feingold, a vice president at Halstead Property, recalled the couple she worked with for six years, after the income of the husband, a lawyer in his 50’s, skyrocketed unexpectedly. Still, Ms. Feingold said, “They could never quite afford what they thought they wanted.” Her wake-up call came when she showed them exactly what they asked for: a pretty, prewar classic five on the Upper East Side in their price range.
“If this apartment were two floors higher, this would be it,” the lawyer assured Ms. Feingold, who, two weeks later, located exactly that in the same building.
“I took him to see it and he found something else wrong with it, and that’s when I realized he was never going to buy,” she said, attributing it to “the fear of losing the position they never really expected to have.”
A different group of would-be buyers worries less about holding on than about closing off options. “They’re stuck in ambivalence,” Dr. Maloney said, “a developmental stage that’s usually mastered in adolescence. If you make this choice, you cannot make the other one.”
Brokers say they typically encounter this shopper in one of two guises: the perennial bachelor and “the single woman who has never married, who is afraid to commit to an apartment, because she’s afraid if she somehow commits to a studio or one-bedroom then she’s never going to get married,” said Julie Friedman, a senior associate broker at Bellmarc Realty.
More heartbreaking for brokers, perhaps, are the 40-something bachelors with more money to spend but who are as reluctant to promise themselves to an apartment as they are to a mate.
“I have people who’ve come into me at 40 years old, and, oops, they forgot to get married and have kids,” said Maryellyn Duane, an Upper East Side psychologist. “And their story seems to be they can’t find the right mate, but that’s not reality. They’ve done things to prevent relationships from working out or gotten anxious when someone gets close.”
Lauren Cangiano, a senior vice president at Halstead, described the never-married, 40-ish lawyer she worked with for two and a half years. While living in an Upper East Side one-bedroom rental, he looked at hundreds of neighborhood apartments for a two-bedroom, prewar dwelling. “He always felt the properties were overpriced,” Ms. Cangiano said. He lobbed several lowball offers that had little chance of being accepted (a common practice among would-be buyers). “He increased his price but he still had the mentality that everything is overpriced,” she said.
After two years, he worked up the courage to bid over the asking price for a 96th Street two-bedroom near Park Avenue. He lost. When last heard from, he was half-heartedly trolling the Dumbo neighborhood of Brooklyn for a condo, though he had doubled his price range to $1.2 million, “My sense is that he will always be a day late and a dollar short,” Ms. Cangiano said. “If we got him into the psychiatrist’s chair, he would probably work out some issues, and we could probably find him a wife.”
Some would-be buyers are more haunted by what other people think. They fear being the dupe who bought at the top or the owner of an unenviable apartment.
“People either have to have the greatest place or they wind up having nothing,” said Dr. Duane, the psychologist, who labeled it narcissistic thinking. “You’re either a hero or a zero.”
Into this paradigm falls the rent-controlled tenant who can afford better. “We have clients in rent-controlled apartments who don’t have dishwashers, and the washer and dryer are in the basement with one dangling light bulb,” said Ms. Friedman of Bellmarc. “They’re living in a slum but no matter what we find, they can’t break with that cheap rent.”
Dianna L. Lake, another Bellmarc agent, recalled the 30-ish technology salesman, earning $300,000 to $400,000 a year, who sought a two-bedroom prewar for $1 million to $1.2 million, but would consider only distinguished buildings inhabited by his peers.
“He wanted to see a particular building in the worst way, a prewar prestigious building on the West Side, and finally something came up in his price range,” said Ms. Lake, whose client’s height outstripped his aspirations. “He was too tall for the apartment. He couldn’t fit under the bathroom doorjamb. I did show him other apartments in his price range, and I think because none of his friends lived in those buildings, he couldn’t commit to them even though they seemed to be perfect.”
Other perpetual shoppers may be in thrall to a childhood real estate trauma. “A lot of people in therapy say their whole life got screwed up by their parents’ moving,” Dr. Duane said. “They often go back to, the move was a pivotal part in ruining their lives.” As a result, she said, “There’s a whole category of the population who just avoid allowing themselves to be comfortable and finding the right niche for themselves.”
Some brokers say couples conflict is a deal staller.
Arlyne Blitz, a vice president with the Corcoran Group, pointed to situations where a husband wants a one-bedroom apartment, envisioning a move to the suburbs after the first child arrives, while his wife wants a two-bedroom. “She is a little frightened that she’ll have children and be secluded in the suburbs,” Ms. Blitz said. “They may end up buying, but they may be at odds for a while before they really come to terms.”
Or they may never agree. Ms. Friedman of Bellmarc said her clients have included “couples who are married but afraid to commit to a purchase, because I think in the deep recesses of their mind, they know they’re going to split.”
“If they commit,” she said, “it’s just one more issue to deal with in divorce court when they split up the property.”
She described one set of clients that she and her brother, Lewis Friedman, a Bellmarc senior vice president, worked with for two years: “He loves prewar and high ceilings and she loves new condos filled with glass and sunlight and terraces. When the husband comes in and says he wants to buy the apartment and is strong and passionate about buying it, I think he knows the wife hates it. Or he walks in and denounces it as the worst architecture they’ve ever seen in their lifetime, and they have a huge fight, and they each e-mail me separately with their own reasons. I know they are looking for a reason not to commit because they are just going to have to detangle it.”
Like other brokers who choose not to cut the apron strings, Ms. Friedman said that her relationship to the couple has tilted from business to social. “There’s a difference between spending your time and wasting your time,” she said. But most brokers dispatch die-hard commitment-phobes back into the concrete underbrush.
“Browsing is a term for animals in the forest who are just nibbling at buds,” said Will Brownell, a broker at Bellmarc and historical writer with a Ph.D. in history, who traced the word browse to brouz, an old French word for buds and shoots. “Such creatures are a bloody nuisance, in someone’s woods or someone’s real estate, because they really get in the way and they really impede normal growth.”
There is hope for those who recognize themselves here. Breaking the cycle “is about understanding the pattern, recognizing the familiarity,” Dr. Maloney said.
“Of course, none of this is bad, as long as it doesn’t keep you from getting what you want,” she added. “We’re all nuts. It’s just a question of what particular way we’re nuts and to what degree.”
the article isn’t totally what you said. 2 and 1/2 years to look for a house? another person 6 years? surely there are some renters that fit the mold.
I’d say the article is exactly what he said: A way for the newspaper to say that if you haven’t bought a house, you’ve got mental problems!
they don’t talk about regular joes.
“the would-be buyer who shops for years but resists taking the plunge.”
“Local sales of existing single-family homes and condominiums in May continued their double-digit downward spiral for the fifth straight month, the Florida Association of Realtors said Tuesday. ”
Nice to see this stated in an article. Here in MD we’ve had eight straight months of saels declines, 6 in a row with double digit drops percentage-wise, and a 126% increase in inventory. Yet you’ll never hear the MAR say what the FAR has said, ever, and the Sun mentioned the 7 straight months of sales declines down in paragraph 8 when they reported the April numbers, but didn’t mention it once when discussing the May numbers earlier this month. MD, like DC, simply thinks itself immune from slowdown. The level of denial here continues to astound me.
Is it just me, or is Ben having to do more portmanteau posts lately? Interesting trend, if it is one… too much media coverage for one poor blog!
After looking up portmaneau (thanks), I would have to agree.
The challenge of sifting through the national Housing Bubble news and keeping the blog readable and national must be a significant challenge for Ben.
“‘Thirty percent of the market is investors, and they got burned at the end,’
“that works fine until you reach the end of the ‘greater fool theory,’ when there’s nobody out there to pay a higher price than you paid,’”
A few comments:
1) it’s not just flippers who got burned, it’s also end users (i.e. homeowners/homedebtors)
2) I believe we are FAR from from “the end”
3) Many people assume that a lot of recent sellers/flippers were the last winner just BEFORE the greatest fool, and that they got away like a bandit. I’m not so sure there were many “big winners”
I personally believe that RE has been like a casino. Where people continually plow their winnings back into the game again and again, until it’s all gone.
How many people truly cashed out of RE, and did something non-RE related with their “winnings”? How many flippers who made a $100k profit on a house didn’t use that to just buy somewhere else (becoming a fool again)? How many homeowners truly cashed out of their homes and didn’t buy again in the same overpriced, or different overpriced area?
I would bet that the number of “winners” of the RE game is actually very low. I think that most people transferred yesterday’s winnings into today’s/tomorrow’s losers, becoming “greatest fools” themselves again.
Clouseau
To elaborate on point #3:
Take Joe Flipper. He buys a precon in Phoenix and sells before it’s built making $100k. What does he do? Does he stop and thank the Lord for his good fortune? NO. He is now a RE mogul. Encouraged by his RE prowess, he takes that $100k, and buys 5 more properties using neg am loans. One in the same development, one bought from a different flipper in a development next door, one as a condo in Florida, one as a SFH in San Antonio, and he also buys a new home for himself in Phoenix to live in. He went from “Big Winner!” to “Greatest Fool” x 5.
Now let’s Take Mary Homeowner. She bought her shanty in 1991 in Los Angeles for $250k. She sold last year for $500k! Wow! She now has a $250k tax free profit! Does she stop there and move to Kansas? No. She takes that $250k profit, and uses it on a downpayment for a $1.25 Million shanty in Santa Monica (because she needs to “move up” in life). She went from “Big Winner” to “Greatest Fool with a $1 million mortgage”.
We all think that it’s grandma Ethel who bought in 1945 for $50k who sells for $800,000 and takes her profit to Des Moines buying a place for $50k again… but I’d argue that’s the rarity.
“Encouraged by his RE prowess, he takes that $100k, and buys 5 more properties using neg am loans… ”
That very same premise was the basis of a radio commercial
that was run many times here in Orange County, Ca. on
97.1 KLSX.. Except he “made” $2mm.. Wonder how he’s
doing now?
I sold my house in the OC for $720K and moved to Minnesota —- granted I’m still “at risk” of a downturn but I bought a single family home in an established city near legitimate business with diverse industries. In OC most of the wealth has been real estate and real estate related job creation.
So, did I take chips off the table? Yes, for the most part and I’ve set aside a decent amount (actually invested in BEARX and short kbh/cfc) waiting for the air to deflate.
So, it can be done
of course, how do you think so many people bought second homes. Funny money.
There will be some winners. Some cahed out at the end of 2004 put the money in the bank and got themselves a shabby one bedroom apartment and have been sitting there since.
“There will be some winners. ”
Yes, I agree that there will be some. (I posted as much myself). I just personally believe that “some” means few, and not many.
In fact, I personally cashed out of my San Diego (Mission Hills Neighborhood, near to Hillcrest) In March 2005, and that money sits split in an HSBC and Emigrant DIrect account. So I was a “winner” who didn’t funnel my winnings back to RE
But I also have a home in Mpls that I bought 3 years ago, so I’m the “greatest fool” here, but luckily my mortgage is just under 6% of my gross income, so very affordable to me, but I still paid 3x what the previous owners paid for the home in 1997. (gentrified neighborhood)
Clouseau
House Inspector Clouseau,
Obviously you don’t make the big bucks for nothing! Why someone hasn’t said this before I have no idea. The reality is that even in a “normal housing market” a builder’s/investor’s “home run” is in the NEXT deal! The money is ALWAYS in the “next deal”. So many of these people are self deluded it’s just unreal. Not long back Ben posted an article where the general contractor stiffed the sub and by the very next payday the sub was UNABLE to make payroll! Talk about a ponzi!
Clouseau,
Yeah I can agree there may have been a few “winners” but most of these people operated from the “cheap seats” the upper mezzanine if you will. They were not “courtside” so to speak. They were selling at retail (and then some) but at the end of the day they were BUYING at retail also! Most were doing one deal at a time (if they were lucky) as we’re now hearing the horror stories of hair stylists that have 18 properties and NO clue as to what to do with them. The guys that walked away with the most in my mind were the mortgage brokers. They had no skin in the game and it was all mark-up! If a loan fell through, well then it fell through just go on to the next FB. Many of these guys HAD to believe in the bubble and are probably now finding themselves overleveraged and a victim of their own BS.
DinOR,
Great point.
So it’s like the buyers/sellers are the gamblers (a few come away with a little at the end of the day, but only after putting up some significant risk). The mortgage brokers, bankers, and rest of the RE “machine” is the casino. Except that this casino doesn’t have any risk!
Clouseau
I think the mortgage brokers are in deep too. Based on the materialism of this country, they probably bought fancy cars, boats, second homes, bigger homes….. People in this country do not save! Sad fact.
A friend of mine in the mortgage business didn’t see this coming! She felt that the adjustable and interest only loans were smart business. Setting themselves up for future business when their clients needed to refinance. Hmmmm, wonder how that’s working for them?????????
Right on the mark I think. Hence all the equity locust mini bubbles.
I agree that very few people cashed out. The vast majority of people “moved up” or bought second properties.
Its like the dot com of the late 1990s. It was an opportunity to make a great amount of money. But to do that you had to sell and take profits. That was easy to do even right up to the end. But the problem with speculators is that they don’t see the game for what it is. They think it is real and they keep buying, even on the way down.
Even today I wonder who the heck is buying a house. The press is full of stories about the bubble and massive inventories. Why would someone buy a house when they know the market has just come off its peak ? Fools !
There were plenty of winners - mortgage brokers, RE agents, banks. Of course, they’re all quickly becoming “losers,” but they were the cartel that enjoyed real income over those crazy bubble years (not just “funny money” that got plowed back into another overinflated home).
I agree with you and have said so many times. There are the Mark Cubans of this bubble (Robert Toll among others) and the smart money, who got out and stayed out while the getting was good in 2004 and last year. Then there’s the idiots who spent the phantom equity on consumer junk or leveraged it thinking they were RE “investors.” Bull market geniuses they call them in my biz.
But shit always rolls downhill, doesn’t it, and the money always winds up in the same hands. Wash, rinse and repeat. These things seem to take about a generation to play out so the next bunch of bagholders is probably in high school right now.
AHHHH! But the cream always rises to the top!
That’s an interesting analogy.
But I have a friend in the sewage treatment business.
He tells me something very different always rises to the top…..and is always getting in the way of daily operations.
So, it’s really a matter of perspective!
I agree with my friend.
Some people did win–and some are going to be winners.
People I consider winners - People who owned their homes in rapidly appreciating areas for a number of years with little debt, and sold, downsized to a cheaper area with no debt and lots of cash in their pockets. Think of soon to be (or recently) retired folks who sold the family home and moved to smaller, more inexpensive digs.
Yes, their new home may depreciate, but they have no mortgage, no ARM resets, but they took the permanent winfall with their old home and instead of plowing all the profits back into RE, they kept the cash.
I know a few people who have done this.
I consider the soon-to-be winners (in the next couple of years) to be anyone that is going to be buying a brand-new built condo unit or single family home after the forclosures. Without the boom, these units would have never been built (construction costs, etc.), without a bust, these soon to be winners could have never afforded such a home, even in normal times.
That’s what I did. Sold my place when I got word I was going to be laid off at a job in South Florida. I walked away with more than twice what I paid for the place 4 years earlier. I moved to a much cheaper area and paid cash for a place and took a year off. While prices may come down, I’m not planning on going anywhere at this point and I can live very cheaply and sock away what I’d be paying for rent or a mortgage into my retirement.
Even if not a lot, RE industry will make sure you do. I have seen more and more ads for REVERSE MORTGAGES. That will take care of all those retirees who did not properly save. Yes indeed, it is completely insane.
http://tinyurl.com/eucbe
Is this the next wave coming to America? Or has this already been the norm here, and was the impetus for our new BK laws? Shove as much credit down their throat as they can handle, and then when they can’t make the payments, make them debt slaves. Debt = prosperity in America, somehow…when will the bills actually come due?
ppl will all drink kool-aid together when their last $ is squeezed out. How else can you justify such rampant foolishness?
OT…
Comstock Homebuilding down 4% after lower analyst view
By John Spence
Last Update: 10:19 AM ET Jun 28, 2006
BOSTON (MarketWatch) — Shares of Comstock Homebuilding Cos.
(Last: 5.51-0.26-4.49%) fell more than 4% to $5.51 in morning trade Wednesday after Banc of America Securities analyst Daniel Oppenheim lowered his target price and earnings estimates for the company and others in the builder group. “We see major headwinds ahead for Comstock given its significant exposure to Washington, D.C., where pricing and traffic trends to continue to deteriorate,” Oppenheim said in a research note. The broader sector also traded lower as the Dow Jones U.S. Home Construction Index was off more than 1% in early dealings.
“South Florida’s housing market continued its yearlong slump in May. ‘They’re seeing prices reduced and they say, `Maybe it’s just as well that I wait a few more months and see how good the deals get,’ West Palm Beach analyst Brad Hunter said.”
This statement is absurd. The deals are not going to good until the prices return to pre 2000 levels. If potential home buyers would simply look at historical house pricing……..
In addition to speculation ““They also cited rising mortgage rates, insurance prices and property taxes, as well as a glut of homes for sale.”
Okay, which of these didn’t they know about last year? The only two things not mentioned; loose lending and this morning’s rant too many realtors in a broken industry.
These people are beginning to act like Big 3 union autoworkers in 1975. They blamed inflation, they blamed the govt, they blamed oil prices; in short everything except themselves. In retrospect we realize it was their greed, their resistance to inovation/technology, their unwillingness to trim workforce, their refusal to train up, that did them and the industry irrevocable harm.
Sound familiar? History may not repeat but it rhymes. Rant off.
no, actually their excuses are true.
Big 3 union autoworkers
Yeah, everything’s always the fault of organised labour. Management in their corporate suites, flying to and from meetings in their corporate jets, could compete with anybody if only those pesky unions could be eliminated. Now the excuse-du-jour is the pension entitlements that management agreed to to keep the peace for all those years.
For a completely different view, read “The Reckoning” by David Halberstam.
I read an article recently which stated that the top 2 dozen executives at Toyota combined got less than Rich Wagoner last year. (It didn’t say whether that was Toyota US or the parent, but it doesn’t really matter, does it?)
It’s amazing that Mike Dooley , the President of the Florida Ass. of Realtors ,is being so honest about the speculator factor in the Florida market . I don’t know what Mr. Dooleys game is .
Nobody seems to be concerned about the locals in Florida being priced out of the market and the overall affordability index going down in Florida .
Modern day flippers did not add or improve areas ,but they simply ran up the prices with intent to leave . Why the lenders went along with this without requiring 30% down payment from this investor demand is beyond me .Lenders use to make flippers prove they were going to occupy the property ,or they demanded more down
payment . A flipper is a far greater credit risk because when people get in trouble they always let the investment property go first .
If I was a lender today , in these areas where you got flippers coming in , I would demand proof of intent to owner occupy (such as a sales contract on the regular residence ),or I would require 20/30% down . I would require a greater down payment on a second residence ,( greater risk because people let the second residence go if they get in trouble rather than the primary residence ).
Flipper demand is a situation of a “final flipper bagholder” and it screws up any market and results in great credit risk . Good % of time a flipper bagholder can’t or won’t even take care of the property, so look what happens to the neighborhoods .Currently we have a bunch of ghost towns .
Now the flippers don’t want to pay the Casino for their gambling .
Sorry , you play , you pay . i would also say , now is a time that people should be very careful when they buy a property in that people get very weird when they get desperate and they want to pass the buck to someone else .
“Save Our Homes has caused sales to drop,” said Dooley, of the Realtors’ association. The 1992 constitutional amendment caps the amount a homesteaded property’s taxable value can increase each year at the lesser of 3 percent or the state’s consumer price index.
“Folks say, ‘I can’t sell my house because when I buy something else my tax bill is going to be three times what it is now,’” Dooley said.
As I recall the objective of “Save Our Homes” was to prevent a situation where long term residents would get pushed out of their homes due to a significant increase in property tax resulting from sharp increases in the assessed property value or rate. Since the value of houses in Florida has sky rocketed in the last three years due to speculators and flippers, I bet there are a good number of long term residents and people on fixed incomes that are very thankful for “Save Our Homes”. Of course Mr. Dooley being a transaction oriented kinda guy is hostile to that which does not facilitate the deal and has completely inverted the character of a STATE CONSITIONAL AMENDMENT from that which brings a clear benefit to homeowners to that which is a threat to homeowners.
Thank you Mr. Dooley for pointing out another reason for the decrease in sales (transaction) volume. We knew it couldn’t be that houses are way overpriced and unaffordable. That’s Mr. Dooley’s game. What a jerk.
I think this lady quoted in the article hit the nail on the head for most of the realtors, especially the new-bies. A year ago they didn’t have time for you unless you had check in hand. NNNNOOOWWWW Florence Flint. The Ormond Beach resident has been trying to sell her house in Lake Walden Cove since May 25. ‘I don’t think the Realtors here know how to go after customers now. They are not assertive enough,’ she said.”
The most “assertive” thing that can be done is to lower the price. If the realtor suggests a lower price and Florence Flint doesn’t approve, then it’s her problem, not the realtor’s.
I have to disagree. I don’t care if your the most agressive, most skilled, most experience RE agent on the planet if there is no one around willing or able to pay way, way, way over value it’s not gonna make a bit of difference.
What about “Tony” the realtor’s tactics…”I’se gonna break both of youse legs if you don’t buy this here house.” I think that might work in some areas.
Heard on the air this am that Florida has the highest RE vacancy rate in the nation. How does that compute with the Arizona market?
Wizard. You don’t need proof to occupy, you just need to say that they have to take possession (recorded loan) of the property and cannot put it up for resale for 90 days. This would put the breaks on real fast.
Needs to be longer than 90 days IMHO.
The biggest problem facing realtors isn’t stagnant or declining prices- the biggest problem facing realtors is the decline in the number of sales. Realtors would be more than happy if prices declined by 30 percent provided sales increased by the same amount.
Realtors have been getting full price plus from idjit desperate buyers. Now we see trimmed margins, fewer junk fees, more selling expenses, etc. A 30% sales decline is probably a 50% income hit to the individual agent. And that’s on average. It means a lot of agents seeing 100% reductions as the core agents stop throwing them bones. Those core agents are hurt less for now but they will soon find themselves with big offices and no co-agents to help pay the rent. I’ll pay a grand or so plus real expenses for my next agent to process the paperwork but no way is a percentage going to be an acceptable fee structure for any house purchase of mine.
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NY Times is fishwrap - totally beholden to RE interests - just completing their own big tower in midtown. They’ve been rah,rah,rah all the way up for all their compassionate rich libs who have priced the working class out of every nabe in NYC. They recently did a full color spread in Sunday magazine touting Bushwick as the next hot area for “artists” & “investors” - now the 300K crack houses there will be million dollar crack houses. Don’t ask me where the artists are getting this money from, I thought they were starving????
Sorry - had problems with post - was meant to be posted in response to Octal77 in top post
“The median sales prices of condo units also dropped to $222,500, compared to $266,700 in May 2005”
That’s about a 20% year-over-year decline in median sales price. That happened sooner than I thought it would. Did we not have a thread a while back about when people thought we’d see the first significant yoy declines in median price. I’d say that a 20% drop qualifies …
I agree with you, Clouseau. Probably a good bit of the speculation was fueled by Internal Revenue Code Sec. 1031 tax deferral. I’ve been the QI on a few local transactions, and the preference is almost always to rollover into the next deal.
One thing many of us on this blog sometimes forget is the level of ignorance of the “average” homebuyer. I talk to people everyday who are extremely bright, intelligent and successful business people but who have no clue what’s going on in the RE market. They blindly believe the NAR crap about now being a “good time to buy” or any of the talking points they heard from their favorite Realtor. Many know that interest rates have gone up but don’t know why. Others interpret the regional “medium price” increases as proof that real estate has only gone up but don’t understand whats driving the medium.
I’m continually amazed at the lengths someone will go to shop for a new plasma TV or a deal on gas but blindly plunk down $000’s of dollars on depreciating real estate.
at least half of the mortgage brokers and real estate agents i know bought into the idea that real estate only goes up.i know 3 mortgage brokers in sonoma county that bought last summer with 100% financing and 5 year I/O loans.most of these people have been around for a while,and if you talk to them,they are confident that the market will recover this summer.i have heard the same from a well respected cpa,and an attorney who is also a broker.these are not stupid people,however they all refuse to acknowledge reality,and i have had comments made to me about “you can damage the market with talk like that” to which i respond that i do not lie for money,and my comments are not powerful enough to change reality…..or i’d catch more trout.do not underestimate the pyschological underpinnings of this bubble.i intend to be a little more careful about who i talk to about it because i don’t want to be run over by a realtor who just went broke.
It’s hard to believe that people in the related fields are so blind. I have an attorney acquaintance who bought a fixer in Sonoma for 750k last fall, after we discussed the falling market, and she read the blog. She’s been investing in RE for years. I assumed that she paid mostly cash, maybe I am wrong.
True story:
At a bbq this weekend on Long Island - very good friend & a bunch of his friends and a couple of neighbors. I am very happy to hear my friend has refi’d his last ARM refi into a fixed 30 yr. & told his wife they have to stop spending and start saving. I have warned him what’s coming via this blog. They have lived off the ATM for past 5 years.
Talk gets around to a yacht for sale in his area. A 32 footer for 40K, everyone who knows boats talking about what a good deal it is. It gets asked why the guy is selling it “he’s in trouble, has been borrowing a lot on his house and needs cash.” The guy lives a couple of houses down - it has been extensively remodeled and is on the market for 1.5M in area of 800-900K (overpriced – used to be 300K) homes. Talk turns to what he will get for it – one guy says he gets 1.1M, one guy says “it’s perfect, everything new, granite, etc…” he’ll find someone” …you get the picture. Every cliché is mentioned (Only so many homes on the water, RE only goes up, it has dream kitchen, some wife will say she wants it)
I say, yeah, but what about that price? Isn’t that a little greedy? I start to talk about the slowdown in sales, inventory build and the chance he may not sell it at all. All the young guys are quiet. One starts telling me about some lots he just bought in South Carolina coast to develop (I feel bad – this guy has two beautiful kids with him, I hope it works out for their sake) and how RE always goes up over time. I agree but interject that you have to buy at the right time and now may not be it. I get a shrug and a “nah, this can’t miss, my buddy made lots of money down there”.
The old-timer from next door gives me the high sign and we talk on the side. He says “I think you may be right” He says to look at all the for sale signs. He’s been there 30 years and never saw anything like it. Except at the last downturn. Says that the 1.5M house has been on market for months now and no nibbles. Tells me the guy is up to his neck in debt and is really getting nervous. I tell him I am lucky I sold my apartment and am waiting out market to see where it goes before jumping in. He is a captain and tells me stories about the super-rich he has piloted for and how they don’t feel the pain during these things, but all the young people like the 1.5M guy who try to keep up appearances get burned. Old timer owns his house outright – lets me know he thinks things are going to be bad on LI for a while.
It felt like I was living out all the scenarios on this blog in one night. These people are all attorneys & successful business people.
Thanks for sharing your story.
Lisa Dutcher Herendeen, a Melbourne-based real estate investor, said this is a good market for buyers.
“It is, in fact, a very good time to buy real estate,” Herendeen said. “Sellers have made their money. They have equity with
which to negotiate. That does not mean that they need to drop their prices 20 percent, or certainly not 55 percent, but that there are bargaining opportunities at the selling table.”
When you open any book on Real Estate investing, the first things you are told about are RE cycles and the importance of timing in making purchases. What is the plan here, can Lisa really make money in this part of the RE cycle?
Lisa’s plan is that she has some overpriced properties she wants to unload. I wonder how many properties Lisa is buying. Probably none.
I like the title of the post… Speculators Got Burned.
Guess what ? The burning hasn’t started yet. As a matter of fact, the fire is just starting to build. A 20% year over year decline in condo prices ain’t nothing compared to what is coming. Just wait until fall hits and people are still holding their listings and inventory climbs and climbs.
I’ll predict something: there will be a shortage of realtors. Yep. There won’t be enough people on the ground to find buyers for all the houses that need selling ASAP.
Stick around, folks. This is going to get interesting.
Postscript: I love the lady that says the media should stop saying negative things about the market. Yep, that will fix everything.
I sure hope none of those Florida bagholders lied on their mortgage applications, that would be awkward.
Good point. Any investor who defaults on a mortgage better be damn sure he was truthful on the application. What seemed like a little white lie to him/her is really bank fraud. Check the fine print.
I bet 80% lied on the loan application . This will come back to haunt the flippers .
I hope these people get royally screwed. These greedy aholes don’t care that other people are left out, having no way to buy a home. This is the dark side of capitalism, the “every man for himself” attitude that hurts so many in this country.
As I read story after story of “investor” heartbreak, I won’t be shedding any tears.
Screw them. They represent what is wrong with this country.
My sentiments exactly and that gets me branded as a “bitter renter” and “having an anger managment problem.” LOL, guess there’s no bear market in psychobabble but I guess anyone turning on the television would know that.
OT question about Zillow weirdness.
Now and then, for kicks, I check the house I rent and others in the neighborhood. I checked today and found that my rental, along with the rest of this part of town, has allegedly increased in value by about $19,000 in the past week.
Bear in mind that these houses are crackerboxes built in the 1940s and 1950s, and that sales in this town have declined every month since last October while inventory has been piling up like nobody’s business and properties are now sitting on the market for months and there are “reduced!” signs everywhere. (It seems like the entire Florida panhandle is for sale now but little is moving.)
It’s just not plausible that houses here jumped in value by about 15% in a week.
So what’s going on here? Is Zillow reliable at all? I’m beginning to suspect that it isn’t.
I don’t use Zillow to get the market value of a property . Right now Zillow has my property 35K overpriced . Also Zillow keeps going up and down in what it thinks the value is . I use Zillow to get property information and some recent comps . Sometimes I like to look at the graphs Zillow provides .I also like to find out how much somebody paid for a property 5 /6 years ago ,and how long the current sellers has owned the property etc.
I believe Zillow uses a square footage appraisal approach within a 2 mile radius of subject property .
>>>I believe Zillow uses a square footage appraisal approach within a 2 mile radius of subject property .
Yeah, I think you and Tommy are right. My neighborhood is very modest, but there are waterfront homes in the millions only four blocks from here, some of which are on the market. That would definitely be enough to pump the allaged values up.
Zillow uses comps to determine value. With so few houses being sold a few sales can have a big impact on neighboring properties. One of your neighbors may have sold their house to some sucker for an inflated price.
Yes ,Zillow uses the market comp approach along with a average square footage cost on those comps . I take the comps they provide and come up with my own figures on current value .
“Some agents, such as Naples Area Board of Realtors President Jo Carter, said she’s telling people if they don’t need to sell right now, then don’t do it. On the flip side, she said, she’s letting buyers know they have a lot more opportunities now.”
Trying to shift the supply and demand curves all by herself. You have to give her credit.
“MLS numbers show the average price of all Naples-area homes and condos peaked at $794,353 in April and have declined to $682,443 in June, Carter said.”
Gee, that’s not much.
For the best part, though, you have to read the article.
Carter attended a ceremony Tuesday to welcome more than 60 new Realtors to the Naples board.
“It’s amazing to me they keep joining,” Carter said, adding that Naples has more than 5,000 real estate agents.
The census in 2000 put the population of Naples at 20,976. What are they doing with 5,000 realtors?