Housing market spot check

[haha]

This is like watching an old rerun of RetirementTrek.

honobob: To the moon, Tryan!
tryan: Captain, she's not cash-flowing anymore. We'll need negative amortization!
honobob: Hmm, I know -- we'll make it there on pure momentum. Wheeee!
tryan: Captain, we've run out of momentum. She's going down.
honobob: Down, shmown. My rear-view mirror tells me we're on a 9-11% course!

To be continued.....

But first an all NEW episode, "The Trouble with Twaddles!"

Same Batty station, same Batty time!!!!!!!!!

What a great day! Nice walk on a sunny fall day, a glass of Cabernet, and some good old-time Dory board sarcasm to ease me into my evenings activities.

Nice work, boys!

Ha

 

[Nords]

But hey, it's just a dumpy neighborhood with houses as old as ten years in a crappy town called San Diego a whopping 10 miles from the beach, who would be stupid enough to invest there?

I'm sure that eager customers are fighting their way through the local traffic (and the firebreaks) now!

 

[retire@40]

Now the question is...

Will the town assessor be just as eager to bring down the assessment value of homes as quickly as they brought them up? I know that the rate per 000 will be adjusted as well, but since a $500K home may only be worth $300, this may help bring sellers back to reality.

 

[cute fuzzy bunny]

We get prop13 here so no assessments upwards unless you sell, but the point is interesting.

While its never been plausible for me to find out about it and use it, I think there is a facility for reassessing ones taxes lower if values do drop. If we have a horrid year next year and it doesnt level out, I might get a chance to try that out.

 

[tryan]

This is like watching an old rerun of RetirementTrek.

honobob: To the moon, Tryan!
tryan: Captain, she's not cash-flowing anymore. We'll need negative amortization!
honobob: Hmm, I know -- we'll make it there on pure momentum. Wheeee!
tryan: Captain, we've run out of momentum. She's going down.
honobob: Down, shmown. My rear-view mirror tells me we're on a 9-11% course!

To be continued.....

LOL ... call it "Back to the Future". 2003 prices today is about right (maybe 2002). Best I can see, without alot of wage inflation ... we're heading back to 2000-2001 prices.

 

[honobob]

Prop 8 Reduction

We get prop13 here so no assessments upwards unless you sell, but the point is interesting.

While its never been plausible for me to find out about it and use it, I think there is a facility for reassessing ones taxes lower if values do drop. If we have a horrid year next year and it doesnt level out, I might get a chance to try that out.

It's called a Prop 8 reduction good for one year if you think your assessed value on 1/1/2008 is higher than your market value on same date. Your county could do an automatic reduction if they felt the need. Pretty lax on the documentation(it's only for one year) but do you want to admit you bought high, held low? File after 7/3/2008.

 

[FinanceGeek]

Anybody know anyone in actual foreclosure?

You bet - 2 doors down our neighbor had tried unsuccessfully to sell the house for the last 5 yrs. Finally, about 18 months ago they just took the maximum HEL and stopped paying on it. The foreclosure process ends with title going to the bank next Monday.

In this case it seems that our neighbor "sold" their house to the bank. Its in poor condition and I expect will get bulldozed eventually since the land that it sits on is fairly desirable and the house is not.

 

[mb]

We get prop13 here so no assessments upwards unless you sell, but the point is interesting.

While its never been plausible for me to find out about it and use it, I think there is a facility for reassessing ones taxes lower if values do drop. If we have a horrid year next year and it doesnt level out, I might get a chance to try that out.

We did it. Paid $310k. Six months later an identical house down the street sold for $300k. We sent the assessor a letter and they changed ours to $300k.

 

[cute fuzzy bunny]

Cool. I aint there yet. I pummeled the guy over the price so we're still a bit ahead. Same house sold for 45k more and another similar one for 75k more a few months ago. But theres three up for sale in the vicinity of what we paid and I think that they're gonna go lower.

If we go a little red I wont snivel. We made so dang much money on the last four homes that I could burn this one to the ground and still be a bit ahead.

All tax free gains too. Cant hate that too much.

 

[mb]

If we go a little red I wont snivel. We made so dang much money on the last four homes that I could burn this one to the ground and still be a bit ahead.
.

I wouldn't worry either.

We bought near the bottom in '93 but it went down another 5% or so after that.

But the market value is now between $800k and $850k but the Prop 13 value is only about $400k.

 

[twaddle]

A lot of people bought homes they couldn't afford, especially in CA. So, we've been seeing high foreclosure rates, and the expectation had been that foreclosures would dramatically increase due to upcoming ARM resets.

Some good news for the housing market today on that front:

Gov. Schwarzenegger Works with Lenders to Help Homeowners Avoid Foreclosure - Press Release by Governor Arnold Schwarzenegger

And perhaps even on a national level:

Free Preview - WSJ.com

(both from calculated risk.)

This should slow down the housing bust. Not sure what it's going to do for the banks holding the paper, though. I suppose small losses on each loan will be better than big losses on some of them.

 

[cute fuzzy bunny]

Sounds good when you read it.

Tough to tell people "Hey, so you're already in the red for $150k on a house that you've paid no principal on, but how about we all hang in there and keep making the payments, eh?"

 

[Nords]

Sounds good when you read it.
Tough to tell people "Hey, so you're already in the red for $150k on a house that you've paid no principal on, but how about we all hang in there and keep making the payments, eh?"

We'll lose a little on each transaction but by golly we'll make it up on volume!

 

[honobob]

ASP's in my old neighborhood have gone from 175 in 2002 to 250 in 2003 to 380 in 2005 to 250 in 2007.

ASP's in my new neighborhood went from 225 in 2002 to 275 in 2003 to 650 in 2005 to 480 in 2007.

So, if we're calling asking sales price market value then we'd say old neighborhood appreciated 8% compounded yearly and the new neighborhood 16%!!!

IIRC the old neighborhood was iffy and the new NBHD is established uppermiddle class.

 

[cute fuzzy bunny]

Yeah but the bloodloss aint over. But heres where the underpinnings are going to make a change. The old neighborhood homes are starting to get close again to what it'd cost to build the house with just a small premium for the land. Construction and materials costs have really risen over the last 5-7 years.

So, either labor and materials prices have to drop or homes simply cant fall that much further. Or they will and the new home builders wont be able to build and sell for what a resale goes for as resales begin getting dumped for less than their construction cost.

These are all newer homes, all under 20 years and many under 10. Obviously different rules would apply for much older, heavily used and well depreciated homes.

 

[lazygood4nothinbum]

Now the question is...

Will the town assessor be just as eager to bring down the assessment value of homes as quickly as they brought them up? I know that the rate per 000 will be adjusted as well, but since a $500K home may only be worth $300, this may help bring sellers back to reality.

no. i just lost my appeal to the value adjustment board. the experience was entirely creepy. there is no way i should have lost that argument (was trying to reduce their value by $200k, would have settled for half that). tough winning a debate when evidence to their contrary is flat out refused. i could maybe take it to court and win but not sure my court costs would equal my savings and certain i don't want the bother. i'd rather just sell.

on the sale, my asking is now down $400k from theoretical peak or more likely down $300k from the practical peak. not a single offer to date though sales are finally picking up in the area.

used to be as i'd undercut the competition they in turn would undercut me as we raced for the bottom. but since my last cut there are now even less under my price. season here just cranking up so hopefully will sell. giving realtor to mid-season before trying by owner.

all in all, the nonforeclosed house prices in south florida have dropped between 25 & 30% and they fell fast. condos are expected to fall further. builders are going bust, among the lastest being fort lauderdale's levitt & sons of levittown fame.

brother & sil are closing in on a ranch for niece's horse (& just got a wonderful baby stallion, very fun). property is foreclosed. bank has currently countered a price less than half the 2006 sale. i checked county records, it is also about $100k less than the prior 2004 sale. looks like it will sell at a 2001/2003 price. brother turning it into a breeding farm so i'll have lots of puppy horses to play with. yippee ki yo ki yay.

 

[twaddle]

So, either labor and materials prices have to drop or homes simply cant fall that much further. Or they will and the new home builders wont be able to build and sell for what a resale goes for as resales begin getting dumped for less than their construction cost.

Residential investment is falling much more quickly than home prices, so obviously the reduced demand will impact land costs, material costs, and labor costs.

At some point, houses may be seen for what they really are -- a depreciating asset required to keep the rain out. Wouldn't that be a trip?

 

[laurence]

Residential investment is falling much more quickly than home prices, so obviously the reduced demand will impact land costs, material costs, and labor costs.

At some point, houses may be seen for what they really are -- a depreciating asset required to keep the rain out. Wouldn't that be a trip?

I thought the saying was "houses depreciate, land appreciates"? They ain't making any more of it, you know! Unless the population stops growing, they'll always be more demand for a static supply.

That being said, real estate has a ways to go down. Even the most irrational pumpers (outside of this board), the real estate agents, has pushed out their forecast turnaround to mid '08, and that's probably the most ground you'll ever see them cede. Most analysts are seeing mid '09. Some markets may be ahead on this cycle, some may be behind, but '09 passes the smell test to me - with a long flat period afterwards.

 

[twaddle]

Well, you know how fond I am of comparing our current situation with Japan-1990, right?

Tokyo is one of the most land constrained markets in the world. Are you ready for the punchline? Here it comes....

 

[laurence]

Sure, but that's different!

Seriously, what about Japan overall in that period? And using your ealier analysis, how did RE in Japan compare to what was it, GDP? What were you benchmarking the trends of U.S. real estate to?

 

[dex]

The items that make Japan different from the USA are:
near zero population growth
low economic growth
aging population
Asia Times Online :: Japan News and Japanese Business and Economy

Also, I think the Japan bubble was primaritly in office buildings; not residential. properties.

 

[twaddle]

I've always benchmarked US residential real estate in terms of %GDP. We're at around 160% of GDP right now. Historically, we've been closer to 100% of GDP. That's why I predicted last year that the housing bust would wipe out around $6 trillion in wealth. We're starting to see government estimates of $2-4 trillion now, so they're getting closer to my estimate.

I'm not sure %GDP can be compared directly across countries, but here's a picture from 2005:

 

[haha]

Well, you know how fond I am of comparing our current situation with Japan-1990, right?

Tokyo is one of the most land constrained markets in the world. Are you ready for the punchline? Here it comes....

Very cool. But what is being graphed? What city? What sort of parcel? Zoning? Usage? Are these center city lots or far suburbs? Vacant lots or is this a cost inputed from selling prices of lots with houses on them?

Ha

 

[twaddle]

You don't ask for much, do you Ha?

I believe the graph comes from a Japanese government index tracking residential land in Tokyo. Full article here:

Dr. John Rutledge Blog: March 2006 Archives

 

[haha]

You don't ask for much, do you Ha?

I believe the graph comes from a Japanese government index tracking residential land in Tokyo. Full article here:

Dr. John Rutledge Blog: March 2006 Archives

Here it is, from a 2002 article.

"The Keynesian-trained macroeconomists at the BOJ, who mistakenly equate low nominal interest rates with monetary stimulus, followed their textbooks word for word right into the black hole of deflation, as shown in Chart 1, which plots the price per square meter of Tokyo residential land. From its peak at more than 500,000 yen per square meter in 1990, land prices have declined every year for the past eleven years."

So it's Tokyo, and it yen/sq. meter and it's residential. How it is measured we don't know, and we don't know if it represents the entire city. Still, it's clearly broad enough yet targeted enough to support your point quite well.

To Dex- Tokyo had a huge residential property boom in the 80s. I met a guy whose widowed Mom had become quite wealthy, just by living on her pension in a paid off tiny house in Tokyo. Later she was no longer wealthy, but still a widow living on her pension in a tiny house in Tokyo. Fortunately for her she didn't refinance to buy stocks.

Ha