U.S. housing bottom to be created by foreigners?

[Grizz]

Maybe the housing bottom will be found when the U.S. dollar weakens so much against other currencies that foreigners can no longer ignore the obvious value in the struggling U.S. real estate market and buy investment and retirement homes in droves, drying up the current over abundance of properties?....I'm planning to be one of 'em. Surging loonie drives Canadians south for homes | KATU - Portland, Oregon | Local & Regional or this one with more of an international flavor TRANSPARENT REAL ESTATE (www.TransparentRE.com): US Real Estate starting to look attractive to overseas investors

 

[FIREd]

Yep, the Europeans are buying left and right in New York and Miami from what I've heard...

 

[chinaco]

One thing about Foreign purchasers of Real Estate... It pulls in foreign money for Upkeep for the long(er)-term... unless they intend to try to flip them. When the US currency situations reverses (it will happen), they have to contend with increased insurance, up-keep, and real-estate taxes. In coastal areas the insurance has to be a killer.

Plus... I hope our Gubmint is not subsidizing foreigners with cheap flood insurance. Ahh we might let the Canucks in... they are the 51st state anyway.

 

[W2R]

In coastal areas the insurance has to be a killer.

Plus... I hope our Gubmint is not subsidizing foreigners with cheap flood insurance.

Insurance in New Orleans has become pretty expensive. Insurance companies are refusing to write new policies here at any price, though they are limited by law on which existing policies they can drop. New homeowners are having to go with state sponsored insurance (much more expensive). This summer I paid $1115 for homeowners on my existing Allstate policy (not state sponsored) with a mandatory 5% deductible and no claims, and $452 for flood insurance, a total of $1567. However if someone bought my modest, median priced suburban New Orleans home, they would have to get state sponsored homeowners' insurance at about double the cost. So, they would be paying $2500/year or more for insurance with a high deductible, or maybe $3500-$4000 if they wanted a more realistic deductible or more if their credit was not sterling.

As you can imagine, this is not helping the housing slump, and it is just one more thing adding to the cost of living in an area struggling to recover.

Flood insurance is necessary and I can't imagine that foreigners or anybody else would go without government sponsored flood insurance here. I doubt it is obtainable at any price through other conventional sources. Maybe Lloyd's of London would take it on.

I hope you are right about foreigners buying up homes in the U.S.! Mine will be on the market in a year or two and homes are not exactly going like hotcakes around here. [/sarcasm]

 

[FinallyRetired]

House prices, like stock prices, are determined by the relatively small number of trades that are made in comparison with the total volume. That's why prices can be so volatile even though the underlying asset may not have changed much in inherent value.

And, as with stocks, there are "buy and hold" homeowners who have no need or desire to sell (the majority), and those who either want to sell or need to sell for relocation. The pressure on the market is growing, as sellers hold on waiting for prices to stop declining, and buyers wait for prices to go lower. I think the bottom will be reached with a flurry of activity when those who need to sell can wait no longer, and those who need or want to buy think they've gotten a bargain. That will be the blow-off bottom, and the housing market will then reset itself at lower prices, but with existing and new owners who can remain in their homes for a while. At that point I think we will see a pretty good rebound in prices, though the peak prices won't be recovered for many years.

But then, what do I know?

 

[W2R]

House prices, like stock prices, are determined by the relatively small number of trades that are made in comparison with the total volume. That's why prices can be so volatile even though the underlying asset may not have changed much in inherent value.

And, as with stocks, there are "buy and hold" homeowners who have no need or desire to sell (the majority), and those who either want to sell or need to sell for relocation. The pressure on the market is growing, as sellers hold on waiting for prices to stop declining, and buyers wait for prices to go lower. I think the bottom will be reached with a flurry of activity when those who need to sell can wait no longer, and those who need or want to buy think they've gotten a bargain. That will be the blow-off bottom, and the housing market will then reset itself at lower prices, but with existing and new owners who can remain in their homes for a while. At that point I think we will see a pretty good rebound in prices, though the peak prices won't be recovered for many years.

But then, what do I know?

Frank (my S.O.) has what I think is a cool way of dividing a more or less sinusoidal housing cycle into steps. He bases it on the number of For Sale vs For Rent signs in a certain neighborhood that he views as typical. It seems to have worked in past years. Here are his steps:

Very few For Sale or For Rent signs (about 50/50 sale/rent ratio of signs) = things are fairly stagnant.

The number of For Sale signs is increasing slowly = things are about to get ugly. (based on a sign count yesterday, we suspect New Orleans is here at present and just about to transition to the next step). People can't sell so the inventory of homes for sale increases.

The number of For Rent signs is increasing slowly = things have gotten ugly and are getting uglier. People can't sell so they are trying to rent their homes out.

The number of For Sale signs is decreasing slowly (and For Rent signs aren't increasing) = things are getting better. People are buying homes and the inventory of homes for sale is decreasing.

The number of For Rent signs is decreasing slowly (and For Sale signs aren't increasing) = yuppies/speculators are in "greater fool" mode, which usually happens before the start of the next downward cycle.

 

[Grizz]

Ahh we might let the Canucks in... they are the 51st state anyway.

Are you sure? Cuz I thought that the U.S. was the 11th province

 

[unclemick]

Uh oh - memories of 2003/my webtv days - I feel a bad joke/who makes the better beer thread coming.

heh heh heh - And I'm still on my coffee! My ancient measurement was traffic on Gause Blvd in Slidell during rush hour - as to building/selling RE in the Burbs. Last trip to New Orleans - Covington(across the Causeway) is worse if anything. North of Kansas City - the for sale signs are everywhere - and the fix and flip(new vinyl siding is the giveaway) is obvious just driving by.

 

[Nords]

Maybe the housing bottom will be found when the U.S. dollar weakens so much against other currencies that foreigners can no longer ignore the obvious value in the struggling U.S. real estate market and buy investment and retirement homes in droves, drying up the current over abundance of properties?....I'm planning to be one of 'em.

Heh, here we go again. Step right up, folks, the line forms to the right!

Remember when we sold Rockefeller Center, Pebble Beach, and most of Hawaii to Japanese investors? Even with currency exchange rates the U.S. owners (both the original sellers and the later buyers) got the best of those deals.

Meanwhile I wonder how many U.S. investors are buying foreign REITs...

 

[Grizz]

New homeowners are having to go with state sponsored insurance (much more expensive). This summer I paid $1115 for homeowners on my existing Allstate policy (not state sponsored) with a mandatory 5% deductible and no claims, and $452 for flood insurance, a total of $1567. However if someone bought my modest, median priced suburban New Orleans home, they would have to get state sponsored homeowners' insurance at about double the cost. So, they would be paying $2500/year or more for insurance with a high deductible, or maybe $3500-$4000

Yikes! what would be considered a high deductible in your area? Is this problem unique to New Orleans given its recent claims or is the insurance situation similar all along the coasts in the U.S.?

 

[unclemick]

Would be interesting to have some Florida homeowners post - inland and on either/or coast.

heh heh heh

 

[FinallyRetired]

Here's what's happening in the DC new home market. "What can I do to get you inside this shiny new home today?

Car Dealer Tactics on the New-Home Lot

Won-Ki Choi and his wife Janice had their eye on the townhouse at East Market at Fair Lakes for some time. But the $536,449 price tag was much too high for them.

Then they saw a newspaper ad from Ryland Homes: For two hours on a recent Saturday afternoon, the Calabasas, Calif.-based builder would sell 140 homes in the Washington area at a discount, through a silent auction.

The minimum bid for the 2,068-square-footFairfax County home was $429,999. Won-Ki Choi wrote his name down minutes before the auction was scheduled to end at 3 p.m. He was the only bidder.

washingtonpost.com - nation, world, technology and Washington area news and headlines

 

[Grizz]

Heh, here we go again. Step right up, folks, the line forms to the right!

Remember when we sold Rockefeller Center, Pebble Beach, and most of Hawaii to Japanese investors? Even with currency exchange rates the U.S. owners (both the original sellers and the later buyers) got the best of those deals.

I'm not familiar with what happened in those deals so I'm out of the loop on this one. I see buying in an artificially (idiotic loan writing) and temporarily devalued property market with a strong currency as a great investment in a place that I'd like to snowbird to. If I'm missing something here, please let me know because from what I can see, there's very minimal long term downside risk.

 

[W2R]

Yikes! what would be considered a high deductible in your area? Is this problem unique to New Orleans given its recent claims or is the insurance situation similar all along the coasts in the U.S.?

Well, when I wrote "high deductible" I was just thinking of 5% since that is what I am forced to take with Allstate. But really, when I think of a high deductible I think of something higher than that, maybe twice that.

I didn't have the mandatory 5% until after Katrina. Still, having observed what happened then, if I had not been forced to increase my deductible I probably would have requested it. Insurance companies mostly did not make settlements for years and if you began repairs first, you wouldn't get your money. So, since I'd want to repair what I could afford to repair during the first year, I'd rather have at least a 5% deductible or higher and "self insure" for amounts under that. As it was, I had some damage (under $5000 worth) but didn't make a claim. If you have made more than 2 claims in, um, I think it is six years, they can drop your policy. Otherwise state law has it that they can't. So, making a claim is serious business around here.

From what I have heard from others in the New Orleans area, I REALLY lucked out. My insurance is not that much higher than it was before Katrina (though the deductible is). Most locals are paying a lot more than I am. No claims, perfect payment record, stellar credit, being a long time customer, and keeping my car insurance with them as well, probably all helped. Well, plus the fact that my house has never flooded, though my neighbors' houses flooded a foot or two or four after Katrina (there but for the grace of G*d go I). I suspect that in a year or two, assuming there is no "Katrina II", Allstate will loosen up a bit and my rates and/or deductible will go down, and other insurers will do the same and will start writing new policies again. Then people will be able to afford housing more easily, so some of the backlogged housing inventory here should start to be snapped up.

I have no idea about insurance in other states.

I can complain about insurance, but my post-Katrina property taxes have been only four hundred something bucks (the Parish gave everybody a break since most people had damage and were financially strapped). This year they revert to 2005 levels so I am expecting maybe a $1200 tax bill when I get it this December. That's really not so bad, compared with the $20K taxes cited for somebody near Philadelphia in another post.

 

[lets-retire]

I fit into two categories. I currently own a house on the Gulf Coast of MS, and I recently moved from the coast of Florida. My insurance here is what I consider very high. I pay roughly $2400.00 for homeowners from USAA and wind/hail from the states wind pool. My house is approximately 10 miles inland. It is much newer and larger than the one I sold and cost less.

When I sold my house in Florida last year I was paying about $800.00 per year in all insurances. I don't know exactly how far I was from the beach, but if I stood on my roof I could see it and it only took 15 minutes from getting in the car to sitting on the beach. My guess is my house was about 5 miles from the Gulf.

When I moved here I found it very irritating that insurance companies were not writing new policies, unless you were an existing customer. That wasn't the irritating part. The part that got me was the companies were cite hurricane Katrina as the reason, but then tell the existing customer when they moved they would have to use the state pool for wind and hail. To my thinking the companies were saying we won't give you new customers insurance because of this great risk, and if we do happen to give you old customers a policy a policy we won't cover you for the great risk, that we use as the reason for not writing new customers.

 

[W2R]

When I moved here I found it very irritating that insurance companies were not writing new policies, unless you were an existing customer. That wasn't the irritating part. The part that got me was the companies were cite hurricane Katrina as the reason, but then tell the existing customer when they moved they would have to use the state pool for wind and hail. To my thinking the companies were saying we won't give you new customers insurance because of this great risk, and if we do happen to give you old customers a policy a policy we won't cover you for the great risk, that we use as the reason for not writing new customers.

Same here in Louisiana, and I don't blame you for being irritated! A friend of mine inherited his uncle's home in 2004 and got caught in that Catch-22. He had had all homeowners' and car insurance with Allstate for 30 years (but didn't happen to own a home when he inherited his uncle's home). He continued his uncle's Allstate insurance. Although his uncle had had the policy for 45 years, my friend had to get a new policy when he inherited it in 2004 since ownership had transferred, even though the last names were the same. So, since it had been less than 3 years since the new policy had begun when Katrina hit, despite no claims they discontinued his wind and hail. He had to go to the state insurance for that, at great expense, and he continued the rest of his homeowners' with Allstate. I suspect that in a couple of years or so, they may allow him back for wind and hail but I don't know that.

 

[Nords]

I'm not familiar with what happened in those deals so I'm out of the loop on this one. I see buying in an artificially (idiotic loan writing) and temporarily devalued property market with a strong currency as a great investment in a place that I'd like to snowbird to. If I'm missing something here, please let me know because from what I can see, there's very minimal long term downside risk.

In the 1980s, when the yen ruled the world, the Japanese went on a buying spree. No price too high. Loans were cheap, currency exchange rates were favorable, and in many cases competing Japanese firms were bidding against each other. Trophy properties like Rockefeller Center were especially attractive for the political & globalization impacts of being owned by "them durned furriners".

By the end of the 1990s the leverage had collapsed and they were selling off the real estate at a fraction of what they'd paid for it. In some cases the buyers were the original sellers.

There's nothing wrong with buying dollar bills for 75 cents... as long as next year's bids won't collapse to 50 cents or you can afford to hold for the very long term. I tend to be way too early to most market bargains and even I'm not ready to step into any of this.

 

[W2R]

I'm not familiar with what happened in those deals so I'm out of the loop on this one. I see buying in an artificially (idiotic loan writing) and temporarily devalued property market with a strong currency as a great investment in a place that I'd like to snowbird to. If I'm missing something here, please let me know because from what I can see, there's very minimal long term downside risk.

I would be seriously tempted to buy a condo in south Florida, if I hadn't become so hurricane-shy a couple of years ago.

What bargains!!! And here I am, with no mortgage or debt, great credit, money in the bank, and a relatively high $ job. This would be a great opportunity for most people in my position (but not for me).

 

[Delawaredave5]

The hard part is knowing when we're near bottom. The Japanese were buying commerical "trophy" stuff - very small number of transactions - I doubt they impacted overall "normal" commerical real estate.

Same now - even with weak dollar - how many Canadians and Europeans are physically going to come to USA and buy residential properties ?

I just can't see the dollar impacting pricing on residential.

In my mind, keeps coming back to affordability - some multiple of income and/or net worth has to be the "long term driver" of pricing (net of inflation and assuming "credit neutral" conditions).

We got a long way to go for affordability to approach historical norms.

 

[kcowan]

As a fellow Canuck to Grizz, I guess I would be saying:
Where are you likely to buy?
What are the prospects for those local markets?
You are limited to roughly 180 days so are you going to rent it out?
What are the prospective rental revenues compared to all these nasty costs that have been outlined here and elsewhere (insurance, taxes, utilities, property management).
Does an 18% discount (since December) make this a compelling course of action?

ISTM that the increases in some of those costs might quickly wash out that 18% discount. If you wait another year, will the 18% become 21%, while the purchase price drops as well?

 

[Grizz]

As a fellow Canuck to Grizz, I guess I would be saying:
Where are you likely to buy?
What are the prospects for those local markets?
You are limited to roughly 180 days so are you going to rent it out?
What are the prospective rental revenues compared to all these nasty costs that have been outlined here and elsewhere (insurance, taxes, utilities, property management).
Does an 18% discount (since December) make this a compelling course of action?

ISTM that the increases in some of those costs might quickly wash out that 18% discount. If you wait another year, will the 18% become 21%, while the purchase price drops as well?

Just like lots of people, I'm waiting to see some indication that a bottom has been reached. I learned in stocks that you shouldn't try to catch a falling knife. With maintenance and rentability in mind, I'll likely be looking at a waterfront condo probably in the SW States, (although I'm intrigued by, and will definitely visit SE States prior to my decision) mainly since airfare is cheap and often non-stop from Alberta. My children are still in elementary school, and snowbirding isn't going to happen for at least 7 yrs.

I expect a much less volatile and a more steady rate of appreciation in real estate will occur as a result of the current mess, and as such, so as long as rent covers the utilities, taxes, management, and condo fees, I expect to earn a good return just based on the real estate market.

A little off topic, but I can't figure out why U.S. realtors aren't advertising at all in Alberta. The economy here is red hot, and lots of people have become instant multi-millionaires with their real estate holdings shooting up often 300% and more over the last 10 yrs, and business earnings are going through the roof. Finding a decent family home that doesn't need lots of upgrading here for less than $400,000 is tough, so buying a nice $250,000 getaway house for cash in the southern states looks like a bargain.

 

[Khan]

In the 1980s, when the yen ruled the world, the Japanese went on a buying spree. No price too high. Loans were cheap, currency exchange rates were favorable, and in many cases competing Japanese firms were bidding against each other. Trophy properties like Rockefeller Center were especially attractive for the political & globalization impacts of being owned by "them durned furriners".

I vaguely recall tales of Japanese people knocking on doors in Hawaii and offering the owners huge amounts of cash for the property.

 

[Nords]

I vaguely recall tales of Japanese people knocking on doors in Hawaii and offering the owners huge amounts of cash for the property.

Yes, billionaire Genshiro Kawamoto single-handedly raised the boom to obscene levels in the late 1980s. He drove his limo up to as many as 160 private homes, knocked on the doors, offered the owners a healthy premium over their most optimistic appraisals, and then rented back to them.

Apparently he did something similar in Sacramento. Everything went bad in early 2002:
Honolulu Star-Bulletin Business
Honolulu Star-Bulletin Business

Recently it's gotten even weirder as he's [-]pissed off all the Kahala millionaire homeowners[/-] giving away low-rent housing in Kahala to needy families from around the island:
starbulletin.com | Business | /2007/05/18/

 

[Milton]

When the US currency situations reverses (it will happen) ...

Personally I would be loath to make such a definitive statement, especially in light of the ever-increasing trade and budget deficits.

If you have some inside information, please share it with the rest of us.

 

[kcowan]

With maintenance and rentability in mind, I'll likely be looking at a waterfront condo probably in the SW States, (although I'm intrigued by, and will definitely visit SE States prior to my decision) mainly since airfare is cheap and often non-stop from Alberta. My children are still in elementary school, and snowbirding isn't going to happen for at least 7 yrs...

We are looking at Mexico for an investment condo (although I consider all real estate to be a lifestyle expense). We looked at California and rejected it for many reasons. We don't like the high humidity and the risk of hurricanes in the SE. Rentals should return 5% net which is not great but it enables us to personalize the place for our extended stays (1x2mos and several other shorter trips).

We expect prices to decline some more but this is a long term action and we feel that we need to get started. We are also concerned that Canucks may cause a short-term blip in demand.