The Major Cause Of Bubbles Around The World
A weekend topic starting with Bloomberg. “A decade after the U.S. housing market collapsed, Federal Reserve officials are watching rising apartment towers as the next potential asset-price bubble, which could add to the debate about the pace of interest-rate hikes this year. Fed Chair Janet Yellen cited commercial real estate prices as ‘high’ in a speech at Stanford University on Jan. 19. That message has been echoed by Governor Jerome Powell, who warned ‘low rates may lead to a reach for yield,’ as well as Boston Fed President Eric Rosengren, who cited luxury housing in his city.
“While single-family housing prices have had a gradual recovery from the mortgage bust, commercial real estate is showing signs of being overheated in markets such as New York, San Francisco and Boston. Fed officials have mostly said they plan to address potential asset price bubbles with financial supervision, rather than by raising interest rates at a faster pace than they currently expect. But such hot-spots are testing their patience.”
“The Moody’s/RCA Commercial Property Prices Indices, which cover apartment, retail, office and industrial sectors, dropped 40 percent from the start of the last recession in 2007 to the end of 2009. They’ve since more than doubled and now stand 23 percent above the pre-crisis peak. The Fed’s Beige Book of anecdotal reports, while noting healthy markets mostly, cited some worries including that New York City’s rental market has ‘weakened noticeably’ and ‘rents of larger units have declined.’”
“‘I continue to be concerned about the commercial real estate market,’ Rosengren said in response to questions on Jan. 9 in Hartford, Connecticut. ‘If you look at prices of commercial real estate, particularly multifamily properties, they have been going up very rapidly in many parts of the country.’ All around Boston luxury apartment or condos have sprung up, he said. ‘They are all very expensive properties,’ he said. ‘It varies depending where you are in the country, but I think it is certainly something we should be watching.’”
“The Fed’s concern has been building for a while. In September, Yellen pointed to Rosengren as a point person monitoring of the market. ‘Of course, we are worried that bubbles could form in the economy,’ she said at a press conference. While it’s difficult to determine a bubble in real time, ‘We are monitoring these measures of valuation and commercial real estate valuations are high.’”
“Yellen and other officials say supervision should be the first line of defense for preventing bubbles, while leaving open the possibility of using monetary policy, because it gets into all the cracks in financial markets that may be missed by regulation. ‘CRE prices have objectively gone up, and even anecdotal reports suggest some froth in that market,’ said Roberto Perli, a former senior Fed economist. Yet the repeated warnings may not have much of a policy signal. ‘Most people at the Fed still think the funds rate is not the appropriate tool to address potential financial instability issues,’ he said.”
The first of two reports from The Real Deal. “Equity Residential’s outlook on its New York rental market continues to look gloomy, with the real estate company on Wednesday bemoaning falling rents and rising concessions in the Big Apple. The real estate investment trust expects its revenues in New York to fall by 1.8 percentage points in 2017. Same-store profits had fallen by 3.1 percent in 2016. The culprit: growing supply thanks to new construction, and mediocre growth in high-paying jobs.”
“‘Financial services are contracting and tech job growth has stalled,’ the company’s COO David Santee said in the fourth-quarter 2016 earnings call, adding that most new jobs in New York are in low-paying sectors like retail and hospitality. That drives rents down and concessions up.”
“The company has budgeted $4 million for concessions in 2017 in New York – a figure no other market comes close to (it budgeted around $90,000 for Washington, D.C. and $80,000 for Seattle). ‘We are already hearing some crazy stuff like three and four months free on 12-month leases,’ Santee said, speaking of the market more broadly.”
“If you asked a real estate executive to rank property types by bubble risk, odds are they’d start with condos. Then, probably retail with its precariously high vacancy rates. Third might be the office market, where supply has surged. Way down in the bubble-risk ranking would likely be multifamily: the asset class in which, conventional wisdom goes, rents tend to rise and never crash (not even during the depths of the 2009 recession).”
“With that in mind, you’ll forgive this reporter for almost falling out of his chair when Mark Zandi, chief economist at Moody’s Analytics, picked multifamily lending as one of the two greatest near-term risks to U.S. financial institutions (along with automobile loans). And Zandi isn’t alone.”
“As early as December 2015, federal banking regulators issued a joint statement warning that banks’ increased commercial real estate and multifamily lending poses a threat to financial stability. In April 2016, Madison Realty Capital’s Michael Stoler wrote an op-ed warning that ‘trouble might be coming’ for loans backed by rental apartment buildings.”
“But lenders haven’t slowed down. Between the first and second quarter of 2016, the volume of outstanding multifamily debt in the U.S. grew by $27.6 billion to $1.09 trillion, according to the Mortgage Bankers Association. Since 2007, the dollar volume of multifamily debt held by banks, thrifts and bond investors has more than doubled. And in the trade group’s year-end survey, 92 percent of lenders said they had a ’strong or very strong appetite’ to issue new commercial and multifamily loans.”
“Banking regulations accelerate this trend. Banks doing multifamily loans need to hold less capital as an insurance against losses, making such mortgages more attractive compared to office or construction loans. Are we at risk of a multifamily mortgage bubble?”
“Bubbles can form in any asset class, but they are particularly dangerous in those perceived as unsinkable. It is precisely the multifamily market’s perceived stability and crash-resistance that should give investors pause. But just because an asset class has strong underlying demand and a track record of stability doesn’t mean it’s immune to a crisis. ‘Like all markets that get overdone, they start with good fundamentals — good logical reasons why you would invest there,’ Zandi said.”
“As of May 2016, more than 500,000 apartment units were under construction in the U.S. — almost twice the historical average and the highest total since 1985, according to CoStar. In some southeastern cities like Nashville, Charleston and Fort Myers, new construction as a share of existing inventory is precariously high. In New York, new supply is still widely regarded as lagging behind demand and nobody expects the market to hit a prolonged downturn amid strong fundamentals. But the risk is that investors overestimate the potential for future rent increases and overpay for properties.”
“Earlier this week, Madison Realty Capital filed to foreclose on an East Village apartment building after its owner, Raphael Toledano, defaulted on a $34 million loan — offering a taste of how multifamily investing can go wrong.”
“‘Many people all over the world seem to have thought that since we are running out of land in a rapidly growing world economy, the prices of houses and apartments should increase at huge rates,’ Yale economist and Nobel laureate Robert Shiller wrote in 2009, analyzing the subprime mortgage crisis. ‘That misunderstanding encouraged people to buy homes for their investment value – and thus was a major cause of the real estate bubbles around the world whose collapse fueled the current economic crisis. This misunderstanding may also contribute to an increase in home prices again, after the crisis ends.’”
I’m going to keep the comments a lot more on topic from now on. I’m deleting around 200 comments a day and it still mostly BS no one wants to read. A lot of you people need to shut up or go away.
Thanks for the energy and effort you put into this, Ben!
Hey drumminj, On my computer, using Firefox, the comments by @AltFacts automatically go to ignore. I can click to read comment but no choice to add or remove from ignore list when I right click on his name. Chrome works fine.
@ symbol have something to do with it?
I just asked on yesterdays comments so forgive the double post Ben, a few days behind in my reading.
I replied in that other thread with some questions…just email me directly please (email listed in that thread)
I could never be a member of any blog that would have me.
THANK YOU!! I have been visiting this blog for years and I am glad that the comments section is returning to to premise of this blog! ENOUGH of the Obama Bush Trump Clinton left right dribble!!
true but it does impact legislation on how real estate prices are perceived. 421a tax breaks in NYC 80/20 LOTTERY housing which means 20% of a luxury housing is made available at subsidized rents for middle income people, and yet no basic housing for people with average jobs. who need to live where there are jobs and transportation are
Yes, all these other posters with their off-topic posts need to mend their ways. (Shakes head piously).
Do you cruise at 55 MPH in a Prius in the left lane on the interstate?
No. I flip off that guy.
Big fan of the Prius owner and Tesla. It leaves more gas (cheaper) for us 1979 F150 4×4 drivers. I like lower prices on everything.
Agree despite the fact that I drive small cars own a Cruze and a Civic. The latter being much more reliable despite being older. However, I still like the lower prices since I drive a lot.
Thanks for sharing, ladies. However, allow me to point out that your car tangent has nothing to do with housing.
(Shakes head piously).
I’m grateful for all the ladies out there driving their gas stingy Priuses, as it helps reduce fuel costs on the gas powered vehicles we own.
@Raymond - Prius drivers tend to think of themselves as pious. That’s why I asked.
I was being a bit facecious about the pious head-shaking, since Ben has been deleting a goodly number of my off-topic posts. But I will try to sin no more.
Thanks, Ben!!!!!
brown-nose
[broun-nohz] Slang.
Word Origin
verb (used without object), brown-nosed, brown-nosing.
1.
to curry favor; behave obsequiously.
verb (used with object), brown-nosed, brown-nosing.
2.
to seek favors from (a person) in an obsequious manner; fawn over.
noun
3.
Also, brown-noser. a toady; sycophant.
Expand
Compare ass-kissing.
Origin of brown-nose Expand
http://www.dictionary.com/browse/brown-nose
LOL!
Thank you!
Immigration ban, visa reform will damage RE market: sources
Buyers put the brakes on US deals amid policy uncertainty
February 03, 2017 05:35PM
https://therealdeal.com/miami/2017/02/03/immigration-ban-visa-reform-will-damage-re-market-sources/
Because Yemenis, Iraqis and Iranians buy soooo much real estate.
My neighborhood is full of Indians (as in java code) and such. Even though the immigration ban isn’t about them, some of them seems to think so. I work for a Silicon Valley based tech/app company and in company meetings wacky questions come up from employees to the CEO asking if the company is going to remove all muslims and stuff based on the new president.
Mark Hanson @MrMarkHanson 20h20 hours ago
More
HOUSING: Jobs aside, MASSIVE STUDENT LOAN BUBBLE blown in past 7 yrs will keep housing depressed for a generation.
https://twitter.com/mrmarkhanson
still say the most logical way out is to treat the college degree as an asset subject to being foreclosed on in a BK.
Live your new life debt free but without a valid degree. So you can’t apply or be hired for professional jobs that require it. Colleges will be forbidden to issue transcripts with your GPA, only pass/fail i really don’t think many will take up the offer, only those who throw in the towel and give up, saying i’ll never get the job i want with that degree, so why keep paying on it.
A degree is not something you buy. A degree is something you earn, with hard work.
That “something” is knowledge which resides in your brain.
The degree is merely an acknowledgement of the fact that you have this knowledge in your brain. It’s impossible to foreclose on what a person learned.
NYchk…….while this is true government, colleges unions high end companies all require you to have a VALID 4 year degree or more to apply for the job. So let the companies decide if they want to hire a Deadbeat
If other employees found out there goes company morale… So its self limiting.
I just will never accept any total student loan bailout/forgiveness without some serious penalties.
but there are options lawyers can get rid of student loans and become paralegals again IF the law firm is ok with a deadbeat….dentist can become dental assistants lower rung jobs but debt free.
Lower rung jobs? Why? It’s not a piece of paper that makes them qualified for better jobs, it’s their training and knowledge. Take away a piece of paper, they are still qualified.
A piece of paper is nothing, if there is no training and knowledge behind it.
I can tell you exactly what would happen, if your suggestion is implemented. Nothing. People would just say in their resumes: “completed all requirements for XYZ degree, at ABC university”. They still will be considered more qualified than those who earned lesser degrees.
As for hiring deadbeats, companies already know. They always check one’s credit score, and there are plenty of jobs one cannot get if one’s a deadbeat.
that piece of paper is required for lots of jobs, without it you wont get in the front door. Try being a college professor without a degree…too many union rules prevent that from happening.
Professional associations like the Bar association have an ethics morals , and financial responsibility clauses dont want to pay your debt then give up your license to practice law too……a fair exchange
We need to burst the education bubble too, and instead of Brenie and Hillarie wanting free college why not pay to be a top notch auto mechanic or plumber…aka Mike Rowe and trade schools
i predicted at least 1/3 of colleges would close forever by the end of the decade, there is only 1 reasonable excuse for a full 4 years of school anymore, is if you must work full time and go to night school…otherwise on campus or local commuting students can be done in 2-3 years with very little time off and a lot less cost.
The reason that piece of paper is asked for is because those jobs require those qualifications, i.e. knowledge and training.
If you revoke degrees as punishment for some mass debt forgiveness, no one will pay any attention. Companies will still hire those people over those who didn’t go to school.
It’s knowledge, training, discipline, ability to learn, that the companies are after, not pieces of paper.
Lets say tomorrow you revoke all degrees. Does it mean everyone will be at the same level? No. The person who finished an engineering school will still know more that the person went to high school.
You may forbid them to say “I have a degree”, but you can’t forbid them to say “I went to N-U, I have xzy GPA, and I finished ABC program”.
“The degree is merely an acknowledgement of the fact that you have this knowledge in your brain.”
https://vimeo.com/33357634
It’s completely possible to revoke credentials. Knowledge is subordinate in this regard.
Can lobotomies be considered as a method of repossessing the degree?
LOL. Some tribes believed that one needs to eat parts of the enemy to obtain his virtues (heart for bravery, brain for wisdom).
But eating the brain of the debtor in order to repossess the degree would not only be illegal, but also medically dangerous. The cannibal tribes who practiced eating brains suffered from an incurable neuro-degenerative disease kuru.
There was an article a while back in the WSJ looking at whether having a student loan made it more or less likely for you to also have a mortgage.
The conclusion was that it didn’t…as long as you graduated.
http://blogs.wsj.com/economics/2016/04/11/student-debt-is-holding-back-millennials-not-so-fast/
“The conclusion was that it didn’t…as long as you graduated.”
And I believe Walmart cancelled its lobby greeter associate, so it’s better to cooperate and graduate.
Party’s over, real estate “investors.”
http://www.telegraph.co.uk/business/2017/02/03/unprecedented-recent-times-rents-across-uk-set-fall-year/
“The Fed targets maximum employment and 2 percent inflation, but is also concerned about ensuring financial stability and not repeating the mistakes of the last crisis, which originated in an overheated residential property market.”
Seems like the fed has expanded its mandate.
propping up asset prices to get you to pay more?
Remember in 2016 Yellen was saying she couldn’t raise rates because it might harm emerging market bonds?
‘Yet the repeated warnings may not have much of a policy signal. ‘Most people at the Fed still think the funds rate is not the appropriate tool to address potential financial instability issues,’ he said’
this is a global central bank orgy and its all interconnected. In order to keep a bid for treasuries these carry trades have to be kept intact.
Otherwise rates will skyrocket cause there will be more supply than demand without central banks.
High Asset Prices: the final frontier. These are the voyages of the Federal Reserve. Its thousand-year mission: to explore strange new debt instruments, to seek out new leverage and new debtors, to boldly enslave them like no bank before.
can someone tell me how the FED funds rate that yellen keeps talking about is even relevant?
Isnt there like 2 trillion of excess reserves?
The feds fund rate is member inter bank borrowing to meet reserve requirements.
Isnt there a ton of money there for the member banks to borrow if they need it?
Isnt the FED funds rate basically now the rate the FED has to pay the member banks as interest to keep those funds parked and not entering the economy?
I also don’t think the Fed funds rate has the effect others think it does. Somehow people have gotten the idea that the Federal Reserve controls or directly affects the rate at which banks lend to businesses and consumers.
Also, the fed stopped inflating the money supply in 2014. They have been deflating.
The major cause of bubbles around the world? One word: greed.
the fear of losing money use to help keep this in check.
The major reason for countries like the U.S. without bubbles there is no growth or growth so slow it is political suicide.
Bubbles are not a bug in the program, they are a feature. A high stock market encourages the use of margin money to buy things, high real estate prices encourage home equity loans. They encourage consumer spending, they replace the need for increased wages hence they produce record profits in an era of stagnant wages.
Eventually these loans must be repaid with interest whereas outright purchases void future risk.
That’s where bailouts and balance sheet expansion save the day.
you are so right on that one dude. We ran out of jobs for people too.
The major cause of bubbles around the world? Two words: central banking.
Amen, amen I say to you!
Bring peace in our time: end the FED. And the income (war) tax will go and with it, war.
Monetary stimulus
Let me do some math on that…
Hey, that’s like cutting the rent by 25%!
Just not in a way so your other tenants don’t get mad and want the same deal…?
—–
‘We are already hearing some crazy stuff like three and four months free on 12-month leases,’ Santee said, speaking of the market more broadly.”
About six months ago I found a report of a 12 month free offer in Houston.
‘The Moody’s/RCA Commercial Property Prices Indices, which cover apartment, retail, office and industrial sectors, dropped 40 percent from the start of the last recession in 2007 to the end of 2009. They’ve since more than doubled and now stand 23 percent above the pre-crisis peak.’
Danielle De Martino, who worked at the Federal Reserve, wrote a paper about this months ago, which I posted here. It’s actually much worse when you look at how much prices have gone up in major cities like New York and Miami. And the central bank has warned about CRE, then they didn’t do anything about it. Just like they did about bonds and biotech stocks.
‘But lenders haven’t slowed down. Between the first and second quarter of 2016, the volume of outstanding multifamily debt in the U.S. grew by $27.6 billion to $1.09 trillion, according to the Mortgage Bankers Association. Since 2007, the dollar volume of multifamily debt held by banks, thrifts and bond investors has more than doubled. And in the trade group’s year-end survey, 92 percent of lenders said they had a ’strong or very strong appetite’ to issue new commercial and multifamily loans.’
‘As of May 2016, more than 500,000 apartment units were under construction in the U.S. — almost twice the historical average and the highest total since 1985, according to CoStar. In some southeastern cities like Nashville, Charleston and Fort Myers, new construction as a share of existing inventory is precariously high.’
‘Bubbles can form in any asset class, but they are particularly dangerous in those perceived as unsinkable.’
I picked up on this whole thing listening to apartment guys on the radio two years ago. They were saying stuff like “you can’t lose. It’s never going to end.”
They’ve since more than doubled and now stand 23 percent above the pre-crisis peak.
In Elliott Wave terms you would expect it to potentially reach 38.2%.
Tech Bubble 2.0 is exceeding even Tech Bubble 1.0 in its insane valuations and fleecing of “investors.”
http://wolfstreet.com/2017/02/03/snap-ipo-not-just-toxic-financial-results-third-class-non-voting-shares/
Exactly why I think the Silicon Valley housing market is going to be the tip of the spear in any housing downturn.
Yes. It won’t be toxic loans that will take town Seattle’s housing market, it will be the tens of thousands of layoffs in the bubbletech sector. With the wildcard being the foreign investors, of which the influence cannot accurately be known.
Are you sure?
Redmond, WA Housing Prices Crater 19% YoY
http://www.movoto.com/redmond-wa/market-trends/
Yes, I’m sure. I live here. I look out my kitchen window and see the brand-new 1.5M homes that were snapped up last year.
Doubtful or there is fraud involved.
There isn’t a house on the planet that can’t be built for $200k.
The dot coms are still hiring by the thousands every month. Until that changes, housing stays very tight.
How can Snapchat, which lost $515 million last year and is seeing subscriber growth taper off, be worth $25 BILLION?!!!
Yet Old Yellen purports to see no bubbles.
http://www.telegraph.co.uk/technology/2017/02/03/snap-ipo-can-snapchat-lose-515-million-worth-25-billion/
The ghosts of pets.com are laughing…
They’re not ghosts. They’re sock puppets.
Its the next facebook bro. Its hilarious how these folks in silicon valley keep selling to stock to everyone to finance their fancy lifestyles.Some of this technology is so stupid and repetitive.
The valuations ares so ridiculous that people buying deserve to lose their money.
still cant figure out how FB makes money, with firefox and ad block the only ads are see ( which say sponsored) are in line with my feed and i always report them as sexually explicit material…hahaha
Facebook, a bulletin board system is worth gazillion dollars tells all you need to know about the bubble.
Snapchat has been very secretive about its operation so it may be even worse than the analysis think
No, because there would be severe penalties from our ever-vigilant regulators and enforcers for that sort of thing. I mean, look at all the bankers who went to jail for the massive, systemic fraud they committed that led to the 2008 financial crash.
Oh, wait….
Its NOT about Snapchat. It’s NOT about how much money they made or lost. It’s SOLELY about the largest FEES ever generated by an IPO. The fees pay the bills for the banks involved in this IPO. Goldman is at the helm. With regulations being gutted, the coast is clear for whatever the BOYZ want. The MARKET has been kept up in anticipation of the IPO.
The fees translate into upscale housing, further corporate investments, higher salaries. In theory the money trickles down. In practice it doesn’t.
It is unlikely Snap will even exist in 10 years. Everyone knows it, and so everyone, big and small, are already getting ready with visions of short selling it into oblivion and easy profits.
That pretty much guarantees the exact opposite will happen and the stock will go straight up. One short-squeeze after another, after another. Everyone will cry “insanity” as it keeps going higher. It will make the shorts look like fools — until they finally cry uncle and out of desperation, they switch and go long to try to recoup their losses. That’s the top. Then it will crater, and everyone will look like an idiot a second time.
The market makes fools out of everyone.
“Equity Residential’s outlook on its New York rental market continues to look gloomy,
Yet they want to rezone a mostly industrial section of long island city for luxury housing and office space…”affordable” housing is a joke what is severely needed is basic no frills housing no amenities just a basic 1 or 2 bedroom apartments maybe a small washer dryer no onsite health club pool, no whole paycheck but a c-town that takes wic and food stamps… etc.
why is this is this so hard, luxury pays FULL price top dollar taxes and basic gets all the tax breaks
http://queenscrap.blogspot.com/2017/02/concerns-over-lic-rezone.html
What is c-town? I guess it’s a grocery store.
“As early as December 2015, federal banking regulators issued a joint statement warning that banks’ increased commercial real estate and multifamily lending poses a threat to financial stability. In April 2016, Madison Realty Capital’s Michael Stoler wrote an op-ed warning that ‘trouble might be coming’ for loans backed by rental apartment buildings.”
Not to worry, they’ve started to offload risk from rentals onto the government via Rental-Backed-Securities.
What is an RBS? As far as I can tell, it’s debt issued by a landlord, the collateral for which are future rental payments (not the actual buildings or land).
Additionally, Fannie Mae has begun guaranteeing this debt, basically making it defacto government debt for investors.
Here’s one money quote from that article:
“We predict the increase in these type of government-guaranteed securities will grow exponentially in the coming four years, and the impact on the rental property market will be extraordinary,” added Roalstad. “We suspect these are the types of changes that the market is pricing in with its ‘Trump Rally.’ Shifting corporate risk to taxpayers has been a profitable business over the past few decades, and throughout history. We expect we will see more of this shift in the coming years.”
Rents will be going up.
Yeah, that’s how it works. Boom, then boom again.
The chain of events might be as follows:
1) Government starts guaranteeing Rental-Backed-Securities (loans backed by rental apartment buildings), which
2) Leads to easing of commercial loans for rental buildings,
3) Leads to higher prices for rental buildings,
4) Leads to landlords jacking up rents, in order to keep up with increased value (and thus increased cost of ownership) of their rental buildings,
5) Leads to over-investment in rental buildings,
6) Eventually bust.
Based on other bubbles, step 6 may take years.
5) Leads to over-investment in rental buildings,
That chain looks semi-reasonable, except your missing one key details: we already have over-investment in rental buildings in almost every major market.
Boom, then boom again
It appears that is what Shiller is saying too:
“‘That misunderstanding encouraged people to buy homes for their investment value – and thus was a major cause of the real estate bubbles … This misunderstanding may also contribute to an increase in home prices again, after the crisis ends.’”
A prediction of repetitive stupidity that came true, accelerated by stupid cheap credit.
A prediction of repetitive stupidity that came true, accelerated by stupid cheap credit.
…enabled by stupid governmental action.
His so-called “misunderstanding” should have, and would have, been cleared right up, if the government had let markets function.
But the government had let markets function, without any regulation. That’s why we got into that mess to begin with.
The delusion is strong in this one. ^^^
The delusion is strong in this one ??
Why is it always delusion when someone has a opinion contradictory to yours ??
Why…
How about because it does not align with what is already reality.
…an alternate reality based on alternative facts?
align with what is already reality ??
Align with “YOUR” reality which is always the correct one right…Because ?? Well I suppose because you think you are that smart…
Calm down dave. Ben has been posting here about rents rolling over for a while now.
Battery Park Manhattan Rental Rates Crater 6% YoY
http://www.zillow.com/battery-park-new-york-ny/home-values/
For sale: the most expensive home in America.
https://www.nytimes.com/2017/02/03/business/americas-most-expensive-house-times-two.html?_r=1
Mr. Makowsky’s 38,000-square-foot high-tech palace signifies a new level of superhome — for now. Less than 10 miles away, an even bigger home is under construction that will be listed for $500 million. Together, the two competing properties in the small, hushed Los Angeles neighborhood of Bel Air have become the Godzilla-versus-King Kong of rich real estate, rising as concrete symbols of the new class of supersize wealth and offering a window into the particular needs of today’s billionaires.
I bet every gang-banger in the greater Los Angeles area will be gleefully plugging these coordinates into their GPS for the next Purge Night fun.
Makes you wonder how large and well armed the security staff is for such a residence?
Wonder if they have a bolt hole house too when things get rough?
http://www.dailymail.co.uk/news/article-4190322/Tech-billionaires-building-boltholes-New-Zealand.html
I’m sure they have them here too, in deep flyover.
“Rather than a 12-car garage, Mr. Makowsky’s house has an “auto gallery” stocked with 12 examples of some of the rarest, fastest cars in the world, including a 1936 Mercedes that is valued at $15 million. A $1 million, five-foot-high stainless-steel representation of a Leica camera sits under a $2 million polished steel spiral staircase. Among the home’s 130 “art installations” is a chain saw featuring Rolls-Royce hood ornaments, a giant Louis Vuitton syringe, and a huge Birkin bag and stack of Louis Vuitton luggage all carved from honey onyx. Most of those pieces were designed for the house.
The four-lane bowling alley has gold- and silver-plated bowling pins and coffee tables made from Starphire ultraclear glass and aircraft engines. The movie theater has 40 reclining leather seats, and the TV downstairs, at nearly 30 feet, is believed to the largest in an American home.
The house is so loaded with monumental bling that the necessities — 12 bedrooms, 21 bathrooms, three kitchens — seem almost secondary.”
___________________________/
Sometimes I wonder if these houses, once purchased, go the way of Olympic venues when the games are over. How many times are the occupants of that house going to bowl? Or drive those cars? Or invite a group of close friends over for movie night in the 40-seat theater? A lot of amenities, including the tasteless art, will be gathering dust from day one.
You said it. Often times here in the Seattle area, you see houses of this stature simply razed (prime waterfront property), only to be replaced by a newer, larger monstrosity.
But if you think about it, this type of activity does result in the trickle-down of wealth to the hundreds of workers that demolish, build, fix, and maintain all of this stuff. So in that respect, some economic good is accomplished (not saying that it is environmentally responsible or an efficient use of resources, just that it does benefit the working class).
Is that you, Paul Krugman?
It reminds me of my smart phone. Outside of talking, texting, looking at e-mails, and taking a picture from time-to-time, I use perhaps 10% of the features, and I’m not even sure what the rest do.
Perhaps the owner of that super-house will use 10% of it. Unless his or her family is huge, I would think that the overwhelming feeling would not be pride, but loneliness and isolation.
I’m also reminded of photos of Pablo Escobar’s house, Hacienda Napoles, with its private zoo from which the hippos subsequently escaped.
Lower taxes on the wealthy creates jobs.
Who told us that? The wealthy? LOL
Catskills cabin in Bethel, New York will go to one lucky essayist. With just 200 words, you could win a lovely lakefront cabin.
If the only thing standing between you and a cozy cabin in the Catskills is a lack of cash, Andrew Bares and Kelly Lavorgna have a proposal for you: win theirs. The couple, who’ve been struggling to sell the home through more traditional channels, are now planning to offload the cabin via essay contest.
The prompt: “How would owning the lakefront dream home change your life?” Write 200 very persuasive words and pay a $149 entry fee, and the Bethel, NY house could be yours. “The reality is, somebody is going to win this house for $149,” Bares told the New York Times. Most recently, it was listed for $825,000.
Whoever wins the place will be on the hook for about $11,000 a year in property taxes, plus income taxes (since the prize would be treated as income).
The other caveat: if the contest doesn’t get 5,500 entries, all bets are off. Entrants will get $100 of their fee back, and the rest will be lost to administrative expenses.
Bares and Lavorgna got a bigger goal in mind: they’re hoping to use the essay contest to jump-start their latest business venture, an “internet platform where sellers could list homes for sale by contest.”
http://ny.curbed.com/2017/2/3/14497652/catskills-cabin-essay-contest
Bares and Lavorgna got a bigger goal in mind: they’re hoping to use the essay contest to jump-start their latest business venture, an “internet platform where sellers could list homes for sale by contest.”
Um, yeah. Sounds like a viable business model to me. And who would be the scrupulously honest and objective judges be to pick the winning essay?
I like the way you think.
I stopped at “who’s going to count the number of participants”?
So 2007
Squirrel feeding mode
Cre has gone nowhere in 10 y ears in taxpayer supported n va
https://washingtondc.craigslist.org/search/nva/apa?query=free+rent&availabilityMode=0
The reason for bubbles in the modern era? Availability and cost of debt:
• Great Depression was heavily linked to real estate.
• The real estate runup and crash (the S&L crisis) of the late 80s was linked to debt.
• The current ‘Twin Peaks’ real estate market is linked to debt, with the added twist that the repayment risk has been almost completely pushed onto governments, backed by central banks.
What about the stock market bubbles/runups? Money is cheap right now, so it makes a lot of sense to borrow to do stock buybacks, thus paying the executives right now, who are compensated partially with stocks. So this can be seen as a side effect of debt cost and availability.
There is a self-reinforcing feedback loop in investment markets. As an investment starts rising, money flows to those investments, pushing them up, attracting yet more money. Till the consensus becomes no further profit-upon-resale can be made and the money stops and the souffle collapses.
Then of course, the government can step in and start redistributing wealth towards the market participants, arresting the slide, at least for a while.
good analysis there. As long as the cheap credit is flowing the party keeps going.
Whats is real interesting is we once had a great economy based on hard work and production.
Somewhere along the the line that kind of petered out and we switched to inflating asset prices to generate growth
The real wealth seems to be going backwards.
The real estate runup and crash (the S&L crisis) of the late 80s was linked to debt ??
Kinda…But not really…Tax reform of 1986 changed the rules…It took a few years to play out but a lot of allocation of capital was driven for tax benefits and not Fundamentals….
And massive fraud.
There is a reason why 1500+ bankers went to jail under Bush the Elder….
The fraud was driven because of the tax incentives in place…All the huge front loaded deductions…The horse was the tax code…The cart was the massive lending…Tax code changed…Horse died…Cart left with nothing pulling it…Effect…Implosion..
Bank executives don’t go to jail for following the tax code.
Bank executives go to jail for fraud and theft.
Or at least they used to.
Free Jon Corzine!
Bank executives don’t go to jail for following the tax code ??
Banks following the tax code LOL….They don’t give a rats ass about the tax code…Its the owners that benefit from the tax code at the time…The lenders were looking for yield and they got it right up to when it imploded…Its apparent maybe you did not experience it first hand…I did…
CRE underwriting standards are not what they used to be. This will obviously lead to issues down the road. New products packaged as MF are actually single family homes spread out across the market and they tend to be starter homes - the level of greed and lack of concern for everyday folks is unbelievable.
Been waiting for the RE pop - I think we are close but it may take a few years.
Been waiting for the RE pop - I think we are close but it may take a few years.
With all the geopolitical black swans that are taking wing in 2017, and the Powers that Be desiring to lay Trump low, methinks this is going to be the year that it all comes crashing down.
God Bless DJT! God Bless Texas!
I’ve posted reports of near 50% loses on Miami and Manhattan condos this past month.
Yes, but it’s different this time. Suzanne’s research clearly indicates there has never been a better time to buy, anywhere.
It’s been awhile, and newer visitors to the blog may not get the reference to Suzanne. It’s been over a decade since I last watched this:
https://www.youtube.com/watch?v=20n-cD8ERgs
Didn’t that commercial air during a Super Bowl?
I dunno, but it was the most unintentionally honest ad ever.
A harpie with a galactic sense of entitlement and an unscrupulous realtor to tell her what she wants to hear. The downfall of many a hen-pecked husband who against his better judgement signed up for his own financial Waterloo.
“This listing is special, John. You can do this.”
Um, yeah. Every one of Suzanne’s listings is special. And every one of her “clients” can afford whatever mortgage she snares them into signing. The concept of fiduciary duty could find no purchase in such a barren, manipulative soul.
Nothing is more expensive than regret.
Bubba, it did. Over the years, we’ve had some doozy real-estate-related ads during the game. During the first bubble run-up, I remember one lender promising potential borrowers that it “wouldn’t look too closely,” or words to that effect, and at the time I remember thinking “shouldn’t your lender look closely to see whether a borrower has the ability to repay?” Last year it was the “push button, get mortgage” commercial from Quicken.
But condos aren’t really real estate…
And besides, we all know to buy at the dip.
:-/
“But condos aren’t really real estate…”
Slick said head ain’t really sax.
CRE underwriting standards are not what they used to be ??
CRE lending has “never” been more difficult than today…
I attended a conference a few weeks back. One theme was the general lack of construction (on commercial assets)…the noted reason was the discipline of lenders (in part because of new regulations, in part because the near-death experience of 2008/2009 is still fresh).
Not free wheeling lending on the commercial side.
Unicorns rampant on a field of greed in “It’s different this time” 2.0.
http://jessescrossroadscafe.blogspot.mx/2017/02/stocks-and-precious-metal-charts-mother.html
‘After years of rents creeping higher and higher, San Francisco is finally seeing real signs of a slowdown with several apartment listing and real-estate data companies noting lower rents and rising inventory. San Francisco rents were down 2.3 percent compared with one year ago, according to AppFolio—the biggest drop in the 20 high-population metros the property management site researched for its recent affordability report.’
‘That average rental cost has not been seen in San Francisco since April 2015, according to apartment market analysis company Axiometrics. It also found that the slowdown happened relatively quickly; the annual effective rent growth was still at 5.7 percent only one year ago. Similar slowdowns can be seen in San Jose, where the market has dropped 2.4 percent compared to a year ago, according to Axiometrics.’
‘San Francisco, on the other hand, added 3,600 new units last year, which all the researchers agree is one of the biggest contributors to the softening in the apartment market. “Supply is finally catching up with demand in the market, so rent growth is starting to slow,” said Nat Kunes, vice president of product management at AppFolio. “It took a few years extra after the recession to get to this point because during the recession construction effectively stopped as renter demand was still growing.”
‘But RentCafe’s Otet doesn’t believe the rental relief will last long. “Demand for apartment living is still particularly strong in S.F., and the high occupancy levels—measured at 95.6 percent by apartment research firm Yardi Matrix—maintain competitiveness among San Francisco’s renters,” she said.’
Note they are still thinking it can only go up. This should terrify any landlord:
‘That’s right: San Francisco rentals are now more affordable than New York, L.A. and Miami, with workers in the South Florida city needing to spend 54 percent of their incomes on rents, versus 46 percent in S.F. The affordability calculations are based on the percentage of average monthly household income put toward the average monthly apartment rent, which is currently around $3,200 for a one-bedroom in S.F.’
If my tenants were paying 50% of their income in rent, I would be looking to get out. And this is at a time when these people are getting goofy wages that can’t last!
Thanks, Ben. I can’t believe how many websites so far removed from politics have been polluted with Left/Right toxicity.
On another note, still on the fence here in No Va about buying a house. I think the massive immigration to this area along with unlimited federal hiring has made buying a house, or even renting, unaffordable for most millennials or avg earners. So many young adults are living in basements here.
Anyone think this area will ever become reasonable again?
I’ve been waiting to buy in Nova as well. I would see what the immigration bans and federal hiring freeze do long term. Theres a significant illegal central american population here, which was not banned but maybe increased controls will prevent further immigration. The freeze is only for 90 days but who knows what hiring will look like afterwards, and you have to factor in the contractors as well. During dubya, contractors enjoyed a golden era which may or may not be seen again depending on how much of the budget is allocated to the war hawks.
Novating:
I don’t know if this will help you in your thinking or not, but it does provide food for thought. A different kind of idea / approach. Does it apply to metro DC? (It’s from that website that Bubba cited earlier).
Why Intensification Will Not Solve the Housing Affordability Crisis
http://www.newgeography.com/content/005402-why-intensification-will-not-solve-housing-affordability-crisis
I’m not sure whether that would be applicable to the dc metro bc it’s definitely something to think about. Supply of condos is abundent, town homes marginally lower and starter single family homes is staggaringly low. Mcmansions are abound and those homes tend to sit on the market the longest (starting around 1.2 for a 90s era architectural disaster). As in most metro areas - it is the starter home which shot up the most.
Yes - during dubya - housing costs skyrocketed here. Want to go off on a political rant but will refrain.
While going to open houses here, have seen some Chinese who speak little or no English and heard one say –”all cash.” That has to stop.
Housing has gone up every year here. Motley Fool had an article saying housing prices have increased 50% in the last 5 years. This area has benefitted federal workers, illegal aliens, hb 1 workers and foreign investors. I’m none of these and am seething.
When will it all stop? Can it really?
Jessica - I feel your pain. I know many a life long dmv’er with great jobs and sizeable savings who are waiting or bite the bullet with crap shacks. Unfortunatley many of those end up being money pits. I’m waiting and hoping some good comes of Trumps policies. If illegals, H1Bs and contractors are reduced - we should see some better inventory.
I also think we’ve been to the same open houses, I’ve been outbid twice by all cash investors.
“When will it all stop? Can it really?”
Unless you leave the country, next stop… flyover country. With your coastal thigh-gap you’ll be hawt stuff at those tractor-pulls and church. Sell that Prius too… ‘yer in NASCAR country.
If you’ve never been to a tractor pull, you’re missing out.
Combine demolition derbies are a blast as well.
And the best seats are a fraction of what a Broadway show costs!
“If you’ve never been to a tractor pull, you’re missing out.”
I’m ready (been ready) to return to the coast. I’ve had my fill of flyover… night crawler as the gas station, etc., but I like the tractor pull eye-candy. It’s amazing how many hotties are hanging with these phat mouth-breathing slugs.
No - the problem is the elite in DC metro are living off of the taxpayers. That makes it a unique city in the USA. Prior to Dubya’s writing a blank check to all defense contractors, DC was one of the cheapest cities in the US.
Went to see a model home just built in Chantilly VA - approx 35 miles from DC and 1/2 mile from nowhere. 4 bdrm houses were selling between 650K -700K. In both showings the only other people looking were Indians.
Realtor defined chantilly,I love how they get away w stretching cities
Chantilly west?
Wait for the rifs
I live in Chantilly. Entire street is all Indians. Zillow shows realtor ads of Indian realtors that have higher sold counts than the others. The Indians that bought right near me each paid great deal more than the prior for identical house. I’ve heard they work for a few years living in flop house full of people (Dirt cheap) then have cash to buy. Their wives stay at home with the like 5 children each and cook and stuff so cost of living is cheaper.
yep, i am competing with mumbai to buy a house in usa.
Back when I visited the area in 2007, I was dismayed by the townhouses that were nowhere near a town, almost like a spaceship had set them down randomly. I’ve also never been anywhere where traffic dominated people’s discussions to a similar extent.
But I did like the “slug” phenomenon.
What would the 5% interest rates do to housing costs?
Yes, they go down from here. Panic buying always happens at the top.
But…but…the Fed assures us there is no inflation.
http://www.telegraph.co.uk/business/2017/02/02/inflation-seeps-construction-market-building-growth-slows/
I found this to be an interesting read about Houston, Texas, a city in the media spotlight this weekend because it’s the site of some big football game on Sunday.
From the piece:
“So, what’s the appeal? Even the most civically minded Houstonians will admit it’s not the weather — particularly the humid, brutal summers — or the topography, which makes a plate seem mountainous. More critical is housing prices. Per demographer Wendell Cox, housing prices in Houston, adjusted for income, are roughly one-third those of coastal California and half those in places like metropolitan New York, Boston and Seattle.
All Houston Does (Economically) is Win
http://www.newgeography.com/content/005527-all-houston-does-economically-win
Also from the piece:
Voting With Their Feet
Urbanistas may revile Houston but the metro area’s population has grown more than any other U.S. metropolis in the new millennium, up by 1.2 million between 2000 and 2010. The most recent figures show Houston’s population expanded 159,000 between 2014 and 2015, the most of any U.S. metro area.
I guess Houston is the Rodney Dangerfield of American Cities.
A great article - thanks for the post, Bubba. I had not come across that website before - very interesting stuff there.
I’m about to post a snippet from another article from the same website. See below.
“The regions with the deepest declines in housing affordability, notes William Fischel, an economist at Dartmouth College, tend to employ stringent land-use regulations, a notion recently seconded by Jason Furman, chairman of President Obama’s Council of Economic Advisors. In 1970, for example, housing costs adjusted for income were similar in coastal California and the rest of the country. Today house prices in places like San Francisco and Los Angeles are three or more times higher, when adjusted for income, than most other metropolitan areas. For most new buyers, such areas are becoming what Fischel calls “exclusionary regions” for all but the most well-heeled new buyers.
‘The biggest impact from regulation has been to diminish the supply of housing, particularly single-family homes. In a recent examination of permits across the nation from 2011 to 2014 for Forbes, we found that California regions lag well behind the national average in terms of new housing production, both multi-family and single family. Houston and Dallas-Fort Worth, areas with less draconian regulations, have issued three times as many permits per capita last year. Overall California’s rate of new permits is 2.2 per 1000 while across the Lone Star state the rate was nearly three times higher.
“In the “exclusionary regions” along both coasts, high land prices have made it all but impossible to build much of anything except luxury units. In Manhattan this has taken the form of high-rise towers that have been gobbled by the rich, including many foreigners, but this new construction has done little to make New York affordable for most residents. Between 2010 and 2015, Gotham rents increased 50 percent, while incomes for renters between ages 25 and 44 grew by just 8 percent.”
http://www.newgeography.com/content/005166-this-is-why-you-can-t-afford-a-house
An interesting website, folks. Thanks again, Bubba.
“In Manhattan, singles make up half of all households. In some central neighborhoods of major metropolitan areas such as New York, San Francisco, and Seattle, less than 10 percent of the population is made up of children under 18″
People in Manhattan that have kids move to Greenwich and Darien.
Thanks, Mac. That site is one of my regular places to look on the ‘net.
I can see why!
The geography of life has always fascinated me.
Studying the geography of behavior, money, philosophy reveals plenty to me on a very consistent basis. I am barely adequate when it comes to understanding geometrical/mathematical patterns (better than many, but still quite bad nonetheless), but when it comes to sociology, I am fairly strong. Born with it, I guess.
So in today’s market is it better to rent or buy a monk?
http://www.shanghaidaily.com/sunday/Rentamonk-shakes-up-tradition-in-Japan/shdaily.shtml
Oh dear. Chinese stocks don’t react well when the Chinese oligarchs who own these listed firms get arrested or disappear for reasons that are unclear to their bagholders, er, creditors and investors.
http://www.scmp.com/business/companies/article/2067764/stocks-linked-missing-chinese-tycoon-plunge-mystery-deepens
Interesting. The Asians seem to have a different definition of “monk” than we do in the west. Their’s sound more like ordained ministers or priests, whereas in the west a monk is usually not ordained (if his title is “Brother” then he isn’t ordained and is thus a lay person). In the west a monk spends his time divided between the clositer (praying), work (usually some task like making fruitcakes to sell to support the monastery) or in worship services chanting.
Markets are experiencing cognitive dissonance. Not to worry, though. Yellen’s got this under control.
https://dailyreckoning.com/markets-experiencing-cognitive-dissonance/
What would be the impact of a currency war on trade (and the larger economy), and on Chinese embezzlers’ ability to park their ill-gotten gains in US and Canadian real estate?
http://www.barrons.com/articles/is-china-joining-the-currency-war-1486082825
So “Raymond” do you agree with your own article particularly this key passage:
China’s national savings are excessive at 50% of GDP. Devaluing the renminbi would thus depress the already-low domestic consumption and increase the country’s already-excessive investment and reliance on exports to release the excess capacity. The point is that for surplus countries, devaluation replaces consumption demand with investment demand and trade surpluses.
If “savings” means investments in overprice leveraged boxes of air, and the leverage itself is part of said GDP, how can any logical conclusion be drawn? It’s the biggest dung heap of credit on the planet.
The CIA has China’s savings rate at 46% and the United States savings rate at 17.6%. That is why even though China’s debt is high as a portion of its GDP, its external debt on a GDP basis is less than 10% of ours. They owe the debt to themselves. It might create a game of musical chairs with someone not being able to sit down but not the implosion that most of this board thinks is imminent.
“They owe the debt to themselves.”
Not to be contentious, but I don’t think that means happy ending. I don’t believe at all that “China is contained”. However, if it were so, they don’t so much owe it to themselves as to each other. What would be the outcome of cascading defaults? Would neighbors come out on the street, agree to call it all even and have a party? I’m thinking not.
The CIA has China’s savings rate at 46% and the United States savings rate at 17.6%.
Well if the CIA says something, that settles it for me.
What did they used to say about the Soviets and their economy and their military capabilities way back when?
But…but…how can sales of Herseys kisses in China be dropping by 16% when Chinese official data indicates their economy grew at a rate of 6.5% last year?
http://www.scmp.com/business/companies/article/2067981/hershey-results-disappoint-demand-hurt-china
Maybe a Chinese competitor?
Herseys has moved to Mexico. Guess that doesn’t solve all problems.
Their plant in Canada is now a grow house. Perhaps a missed business opportunity?
Sounds like it needs new management if it cannot figure out that is needs to fit the taste buds of the local market. No wonder Chinese competitors are eating it up.
If that is the simple reason. I can tell you that machinery sales to China have imploded. Could be that they like their own shade of paint. Might not be.
Apparently, foreign firms are bailing out of China.
http://www.scmp.com/business/china-business/article/2067470/why-foreign-companies-are-shutting-shop-china
No wonder Chinese competitors are eating it up.
Most likely European chocolate purveyors. Hershey’s chocolate is and always has been rubbish.
Young people forever priced out of the housing market - heckova job, central bankers.
http://www.scmp.com/news/hong-kong/article/2067884/soaring-hong-kong-home-prices-push-first-time-buyers-property-ladder
In UAE the fact that no one can pay only makes a small dent in the construction boom:
http://www.arabianbusiness.com/delayed-payments-said-be-key-issue-facing-uae-contractors-661552.html
The season finale for “The Grand Tour” (The new Top Gear show) was filmed in Dubai.
Jeremy Clarkson joked that everyone in the audience was richer than he and his co hosts.
Of course, with oil prices where they are we all know that isn’t true. Sure, the cops drive Lamborghinis and other super cars, but those are leftovers from the “golden days”.
This combined with fuel/subsidy cuts and the introduction of VAT in January 2018
Sounds like those streets aren’t pave with gold anymore, are they? Will an income be coming soon?
Here is an article about the proposed rent control for Portland OR. The landlords are, of course, against it.
http://www.oregonlive.com/politics/index.ssf/2017/02/portlands_tina_kotek_explains.html
I think much of it is because of the California exodus.
I’m farther south in Eugene, outside of the main college area, and I don’t see any new construction happening in my neighborhood, but there’s plenty of rentals available, both houses and apartments. I made my exodus from California last summer (former CA native). I’m paying the “market price” (higher rent) in Eugene, but from a California perspective, it’s still a lot cheaper.
A couple months ago, the large corporate apartment complex I live in was purchased by an investor group. Immediately, about half of the units in my building either got evicted or left by themselves. The timing of it was sad — the eviction notices posted on people’s doors happened a couple weeks before Christmas. The rest left on their own, it seems.
Since then, they found new tenants for a couple of the units in my building. There are many other buildings in this complex but I’m not sure about those. However, the parking lots are a lot more empty all around, so I suspect the purge wasn’t unique to my building.
What I think happened, there were a lot of people paying very low rents from years’ prior that, for some reason, the original owners never increased their rent. Then, when the new investor group purchased the building — that was the end of that. No more free ride, pay up!
I think the new owners are banking on filling these units with more California exodus people with money in their pockets. But, I’m not so sure this town can support it like up in Portland. There’s not nearly as much of “tech hub” here for software, so I’m not sure where these new renters are going to come from. Time will tell.
It took 2-1/2 hours to drive 50 miles from Golden to Loveland Ski Area this morning.
I’m getting a pass at Monarch next year.
What’s your recommendation for a good Fourteener summit day-hike? Looking at Colorado for my hiking trip this year. Something challenging, but below the level of difficulty of the Maroon Bells.
Quandary, Bierstadt, Grays and Torreys in the Front Range. Most of the Sawatch 14ers are non-technical walkups.
But can you get a dog up there?
Yes. You can easily get a dog up about 40 of the 58 peaks above elevation 14,000. Longs Peak is illegal, because dogs are not allowed in Rocky Mountain National Park, but you could bring a horse, llama, or other pack animal up there.
Sorry, meant that to be tongue-in-cheek, goon—I still chuckle over that incident.
Coral Gables, FL Housing Prices Crater 15% YoY
http://www.zillow.com/coral-gables-fl/home-values/
Hello everyone,
Long time reader and recent participant. I would appreciate an educated opinion on a short synopsis below. My wife and I live in Los Angeles (Studio City, Sherman Oaks) area, have a sizeable down payment saved up, have secure jobs ($100k+ - which is not as much as it sounds in LA) and have been waiting for housing prices to either pop or at least regress to a reasonable valuation.
We just received another rent increase letter from our owner (4th increase in 5 years) and are seriously considering a change to our 1-2 year plan (Plan B). I am very skeptical of waiting indefinitely, when Trump is loosening regulations and making it easy for people to jump into the RE market. The loosing in regulations effectively negates any positive effects an increase in interest rates may have provided.
I completely understand that this will further increase the bubble and will mean that 4-6 years in the future a pop is guaranteed. We don’t have 6 years to wait (already waited 4 years). We would like to have kids in the near future and have been eyeing a house, in a good school district, around the same geographical area (maybe venture out to Encino, Tarzana, or Woodland Hills if me must).
Current variables:
Rent 1800 (after increase)
$100 for gas and power
20% of net income towards housing
do not pay property taxes, water, trash, etc.
INITIAL PLAN A:
650,000 house (IF the prices ever come back to reality - HUGE IF - currently house value 900,000)
20% down
1.25% property tax (Prop 13 in CA)
2.5% per/mo set aside for earthquake insurance, homeowners insurance, and repairs fund
$600 for water, power, gas, grass, etc, etc, expenses
No PMI
Most likely would be Tarzana / Woodland Hills area for this $
Considering a change to PLAN B:
325/350k condo or townhouse
10% down (want to leave a decent chunk of $ and continue to add savings for an opportunity for a house). Also if the market collapses after we buy, which with my luck is completely possible, I would only lose 10% in the short time, I know I don’t lose anything until I sell, and pay those ridiculous broker fees :).
2.5% per/mo set aside for earthquake insurance, homeowners insurance, and repairs
Pay PMI
Pay HOA ($400 roughly, but less than the $600 in plan A for similar expenses)
Pay property taxes
Expect to live there at least 3 - 4 years, plan to rent it out and not sell (unless the market continues to go bunkers and I can flip for a nice return). I would sell, rent, with the expectation that a pop is closer and closer.
ALSO HAVE A TAX DEDUCTION. Generally speaking the tax deduction for us would roughly offset the HOA payments we would make monthly. We are not buying strictly to reap the tax rewards, so if Trump ever goes away from the tax deduction and implements 15k per person for a standard deduction, it would not affect us at all (actually better for us).
Most likely would be Sherman Oaks, Encino, Toluca Lake, Valley Village)
Should we just keep renting and saving money for an indefinite amount of time. If housing does not go significantly (not just 10/15%) we can be priced out for a very very very long time. In the meantime burning rent money with years increases and no tax benefits.
Or should we go with PLAN A or PLAN B? If so, please provide a brief narrative of your thoughts…
Thank you everyone!!!
Plan A sounds most exciting. You lose 10% of $650,000 on the day you sign. Like any adventure, the first day expenses can be forgotten the next day. Then when the market “pops” as you anticipate you will be down another 40% conservatively. Actually, after the market drops only 10% your nestegg is gone, so you’ll walk away. You’ll have no savings but you’ll have those two kids if you have time to bring them on board. Then you will rent.
Sounds crazy, but if you think the market will turn down (again) you could aim at preserving your savings. Once you have the kids, you will likely not save again for another 30 years.
There is no time limit on how long you should wait before doing something self destructive.
Thanks for the comment…
I generally agree with you, but the devil is in the details.
What if I am able to find a short sale/pocket listing for below current market comps and closer to fair market value?
What if the $650k house is actually worth $800k in today’s comps and $550k in reality. This is CA we are talking about…I know I can get a lot more elsewhere, but due to family and job reasons we are stuck.
People flock to CA like bees to honey.
Hi Analyser. For what it’s worth, I will share my thoughts with you on Bens post tommarow. To much to post on my IPhone. Scdave
The devil is in being too close to the details.
From here, I’d say when the price is too high do not double down.
People flock to CA like bees to honey.
Uh, no https://en.wikipedia.org/wiki/California#Demographics
“People flock to CA like bees to honey.”
I guess they want to glow in the dark. I read today’s report on the little, uh, complication at Fukushima. Not good. Look at it this way: you won’t have to worry about having kids.
“Once you have the kids, you will likely not save again for another 30 years.”
I’m living proof of this wisdom, but I’m debt free; own a 3/2 spec in low-cost eastern Washington state. However, the kids college bills are eating me alive, and I’m tired of the long cold winters.
the generation before had college loans-and paid them off
“There is no time limit on how long you should wait before doing something self destructive.”
+1. Clear enough. People get used to looking at gigantic prices for housing in SoCA. They get numb to it. $650k is a preposterous amount of money to pay for a crappy depreciating asset which results in severe financial stress.
Current variables:
Rent 1800 (after increase)
INITIAL PLAN A:
650,000 house (IF the prices ever come back to reality - HUGE IF - currently house value 900,000)
20% down
Considering a change to PLAN B:
325/350k condo or townhouse
10% down
It looks like you’re comparing very different types of housing. What kind of rental are you? A house that costs $900K should be a much higher class of property than your rental. A condo for $325K may be similar to your rental, but maybe worse?
IMO, it makes sense to start with comparing apples to apples. If you can buy a similar place to what you’re renting (or what you could comfortably afford to rent) at a same or lower monthly payment (all included), then buy. If renting is significantly cheaper than buying, then wait and save more money.
No one can tell for sure where the prices will be a year from now, and 5 years from now. Could be lower, could be significantly higher. We could have higher than expected inflation, we could have a recession. No one knows.
Just don’t bite off more than you can chew, if you decide to buy. Your main concern when considering buying should not be whether the prices will fall, but how certain are you of your jobs, and your ability to find another job quickly if you lose it.
IMHO, if you are going to buy anything today, you need to fully expect to live there for 10 years. Regardless of whether it’s Plan A, or Plan B, if you can’t start with that expectation, I’d keep renting.
That said, you are ahead of my people by even doing the math. Gotta go in eyes wide open regardless.
Well, here’s the thing. You’re trying to talk yourself into it and get others to talk you into it.
Echo Park Los Angeles, CA Housing Prices Crater 14% YoY
http://www.zillow.com/echo-park-los-angeles-ca/home-values/
What if I am able to find a short sale/pocket listing for below current market comps and closer to fair market value?
Sure, cause Reaturds don’t want to earn more commission and entering data on the MLS might eat up 5 mins.
Heh, reminds me of when young men on the make used to talk about renting in Greenwich, Ct. “I think I’ll rent a carriage house (on one of the estates) and commute to the city”.
Sure. If you could find one. Otherwise, it was a dank, studio basement apartment. If you could even find that.
“Otherwise, it was a dank, studio basement apartment. If you could even find that.”
In 1981 my girlfriend and I had to go for the ” Otherwise”, it was on Bruce Park Ave abut 25 yards from the train tracks.
My sis lived in an “Otherwise” for a year, it was like a crypt. She had like one little window half of which was below ground. Actually she ended up being one of the lucky few who was able to find a little house on the grounds of an estate for an unbelievably decent rent, but it was hardly what you’d call a carriage house.
Italy is too big to bail out.
http://wolfstreet.com/2017/02/04/italy-bad-banks-to-save-financial-system-on-verge-of-collapse/
Not to worry… It’s turtles all the way down.
Why buy it when you can rent it for half the monthly cost? Buy later after prices crater for 75% less.
Here is another one praising Vancouver’s 15% foreign buyer tax as being the main reason for the recent sales declines (versus other things like stricter mortgage requirements). IMO, prices haven’t corrected all that much yet, but sales volume is down quite a bit from last year.
https://qz.com/903194/vancouver-house-prices-are-falling-as-it-gets-its-real-estate-bubble-under-control/
Vancouver’s 15% foreign-buyer tax was obviously targeted toward the Chinese buyers. The article suggests other major cities like San Francisco do the same. At the risk of sounding “political” on the blog, if San Francisco or some other US city imposed a specific tax on a specific nationality of people (even if they were foreigners), there would be even more rioting in the streets because of racism or xenomorphia. But apparently it’s OK for Canada to do it.
Did Canada impose a tax based on race?
Or did they impose a tax based on residency?
“targeted toward the Chinese buyers”
Just call it aliens.
Aliens is a stupid word.
Call it residency or citizenship. It’s important to be precise.
They are more concerned with where the money is coming from than if the aliens have resident visas.
But apparently it’s OK for Canada to do it.
It’s OK for EVERYONE else to do that. Only WE are are held to that ridiculous standard. And when we finally say “enough!” then the rest of the world loses its mind.
The globalist, gold collar crowd can go eff itself!
‘That misunderstanding encouraged people to buy homes for their investment value – and thus was a major cause of the real estate bubbles around the world whose collapse fueled the current economic crisis. This misunderstanding may also contribute to an increase in home prices again, after the crisis ends.’
Is Shiller pretending that the Fed’s housing market reflation program beginning in 2012 was not a significant factor? Or is he oblivious to what happened?
It was a quote from 2009.
Thanks for pointing that out.
One has to wonder whether Shiller and other financial economists notice the Fed’s very fat fingers in the Echo Bubble.
after todays game a for sale sign goes up in the yard.
So you’ll be plowing the profits into Snapchat, then?
I want to buy stock in the housing bubble blog.
FSBO??
Let the Realturd brotherhood, blackballing begin.
Kirkland, WA Housing Prices Crater 24% YoY
http://www.movoto.com/kirkland-wa/market-trends/
If my house is worth a million am I in the millionaires club?
Poet….. You better check your glove compartment filter.
only if you sell and move ion w HA in some ghetto area w low rent.
Well not really. Not with the way rental rates are falling fast in major cities. Sell today, rent for half the monthly cost and then buy later after prices crater for 65% less.
I made u a solid offer !
Exposed: How world leaders were duped into investing billions over manipulated global warming data.
http://www.dailymail.co.uk/sciencetech/article-4192182/World-leaders-duped-manipulated-global-warming-data.html#ixzz4XlWgDL48
nukes are the only answer
germany turned off a few and cost per kwh is 35 cents
that’s after restarting coal plants !
most in us were designed when the chevy vega was hi tech
FWIW, we’re under 10 cents/kwh here in the Centennial state,and we don’t have a single nuke plant.
From what I have read, juice is pricey in Germany because it’s taxed very heavily. European taxes are onerous, their sales tax alone averages about 20%, depending on the country, which i why European goods often cost less in the US than in Europe.
From Colorade EIA website regarding Co energy:
In 2015, electrical power came thusly:
60% Coal
22% Nat Gas
18 % renewable
Yup,t hat sounds about right. And I suspect the % of renewables will continue to grow, as it can be rather breezy here in the Centennial State.
As I mentioned a week to two ago, an old hydro plant we used was destroyed a few years ago in the big flood. It was replaced with a solar farm.
You are comparing apples to oranges - the hydro plant was NOT replaced by solar. Hydro = baseload power available 24/7.
Solar = intermittent power available in between clouds, daylight hours only, with a midday peak (if no solar tracking).
This is a big difference and alternative power supporters really, really need to do their homework on this. Without sufficient baseload powerplants, we will have a third-world electrical system.
I’m OK with alternative energy, but it will never be more than a supplement to the main power sources. My friend on a windfarm just changed out a 19,000 lb. generator last Friday, out in 22 degree weather (the 300′ tall crane costs several thousand dollars a day to be there). You wouldn’t believe how flaky these wind turbines are, especially the cheaper-made ones. The maintenance costs are very high.
The hydro plant is gone and the solar farm was built. It might be an apples to oranges comparison, but that is what was done. FWIW, it’s only a small portion of the power supplied to out little burg, the bulk is still coal, followed by natgas and wind.
Here is the news article:
http://www.reporterherald.com/news/ci_30717840/foothills-solar-project-starting-provide-loveland-power
“germany turned off a few and cost per kwh is 35 cents”
Renewable hydro-power at $0.037/kw-hr… yep, under 4-cents.
Somehow Seattle City Light manages to sell us the same hydro for significantly more per kWh… ~7c base, ~12c after exceeding some amount they decide is reasonable or a residence—up to ~6c/12c last year.
Miami, FL Housing Prices Crater 6% YoY
http://www.zillow.com/miami-fl/home-values/
Apartments are being over-built? Like the article pointed out, it depends entirely on location as usual. Now, we can look to the past for answers and guidance, BUT there are some real differences between now and say over 20 years ago.
1) Baby boomers are retiring and downsizing. I am a Boomer. I’m going to downsize when I retire, and I am actually considering the Fort Myers area including Tampa. Apartment? Condo? Small house? That all depends…
2) Millennials are said not to be buying houses like the past generations. Will this continue, or is this even accurate? I’ve no idea.
3) Internet and media communications allow potential buyers to get themselves in a HUGE about of trouble. For example, a very nice house in N. Louisiana was purchased by an investment group in California. I know this because I made a bid on this house for $145k about 10 years ago. My bid was HAUGHTILY declined. Three years later they sold it for $150k. They couldn’t understand why it wasn’t selling for $300k, since it would have been double (treble?) that in San Francisco. This house was found and bought by the investment firm because of the internet.
And so it goes,
Roidy
I’m going to downsize when I retire, and I am actually considering the Fort Myers area including Tampa. Apartment? Condo? Small house? That all depends…
The very idea of doing yard work in that climate sends shivers down my spine. I suppose that I could hire someone to do that, but the idea of a condo/apartment sounds more appealing.
Colorado,
That level of heat is what I am used to. I am from New Orleans. I’m tired of the local winters, and this is in N. Louisiana. Chicago? New York? Not really.
I’d move back to New Orleans, but there will be another Katrina at some point. Yes, bad hurricanes hit Florida, but you don’t get trapped there in a flooded bowl dependent upon a bunch of f*sticks to send rescue. It’s why I left in the first place.
What does alarm me is climate change. The science says that we are in for a hard time especially in Florida. Yes, I am a scientist. Physicist, actually. No, it isn’t a hotx.
Roidy
P.S. Actually, I want to sail to the Caribbean during the winters. Anyone have a sailboat they want to sell?
If your idea of a good time is doing yardwork in that sweltering weather, then more power to you. I don’t even like doing it in our dry summers.
Get a villa ,single level w garage and no yard work,visit co in the summer
An article from across the pond, the UK property market and how it’s all messed up. Hehe. Lots of charts and graphs.
http://www.businessinsider.com/inequality-class-britain-property-ownership-workers-income-poorer-2017-2
“There are now two distinct classes in Britain: Those who own property and those who are getting poorer”
Which bubble will pop the hardest
‘re
Cre
Student loans
Car 72,96 month loans
Looking for a 2013/14 this year
With Yellen the Felon hellbent on hurtling us down the road to Weimar 2.0, it’s nice to see states like Arizona and Utah actively encouraging their citizens to protect themselves and hedge their wealth by buying physical precious metals and real (pre-1964 US silver) money.
http://www.activistpost.com/2017/02/arizona-committee-passes-bill-support-sound-money.html
if you dont like the currency stop using it!
Carmichael, CA Rental Rates Nosedive 10% YoY
http://www.zillow.com/carmichael-ca/home-values/
Shh… the fed doesn’t like low rents.