The real estate bubble is over

[cute fuzzy bunny]

It is around here, anyhow.

As of about 4-5 months ago, our house was probably worth about $425 from a purchase price of $250k three years ago. Supported by recent sales of similar properties around the neighborhood. Smaller, older homes in an adjacent area were hitting $330-350 from common sales of around $200k three years ago. Newer 2000 sq foot homes on tiny lots were selling for the high three hundreds.

As of this month, a neighbor tried to get $380 for his home, which is similar to mine, and got very few bites except for some offers in the 350 range. A couple of those older smaller homes just got reduced into the 300 area. And the new homes are "on sale! Two Days Only! (for the last three weeks)" in the low to mid 300's.

My neighbors pulled his house off the market. I think its a bad move, he already built a 'dream home' on a big piece of property he bought cheaply. Figured to sell his current place for the high 300's and move on. I think the price is going to keep going down to the low 300's, maybe high 200's.

We're really out there on the outskirts and the home values we got to were WAY out of line. For a few bucks more you could live in much nicer Sacramento area neighborhoods. For a few bucks more than that, you could get into some SF bay area neighborhoods.

Now the question is...will this effect continue to the "better" areas around here, and then to the areas "better" than those?

If nothing else, the "speculation" prices are off the table. I've actually seen a few properties in the paper that made me go "Hmmm..." instead of "yeah right!".

 

[Martha]

I have noticed dropping prices in the Minneapolis-St. Paul area. Though they are not at the hummmm level yet. But they have passed out of the "yeah right" range.

We have intended on selling our building we live in. The problem is there are two other places on our block for sale. One is a duplex which is priced a little high. The other is a huge single family home with is priced way to high. We really don't want to go on the market and have three of five places on the block for sale.

 

[retire@40]

In the Boston area they are still in the "ya, right!" zone. There is some down movement and properties are taking much longer to sell, but the prices are still outragous.

In fact, since people can't buy an entire house, they are converting 2 family homes into condos. It's too expensive for most people to buy an entire 2 family or even a single, it's too expensive to rent, so many poeple are stuck buying half a house and hoping and praying the owner of the other half won't give them any problems.

Forget buying a 2 or 3 family house for investment purposes. Even if the prices dropped by 50% you could still not make money on the rentals. And with the laws pretty much all in favor of tenants, no intelligent person is buying multi-families around here these days solely for investment.

 

[Rich_by_the_Bay]

We have intended on selling our building we live in. The problem is there are two other places on our block for sale. One is a duplex which is priced a little high. The other is a huge single family home with is priced way to high. We really don't want to go on the market and have three of five places on the block for sale.

This can cut both ways, according to my realtor wife. Depending on the market and particularly the conditions of the houses, you can get a McDonalds+Burger King effect: the latter opens for business and the former does better than before the competition.

I think it is because you have more traffic of qualified buyers than you would if you listed solo. So one strategy is to list now and be sure your house is in better shape. Just a thought

BTW: the Tampa Bay area is definitely in a mild-to-moderate "correction." It was psychotic for a while but now the prices are getting more reasonable. Not cheap, but acceptable for a "destination" type area.

 

[tryan]

retire@40 -

I am with ya ... called my realtor last week to see how the spring run was going.  She gave me the same prices she did last spring ... so it's peaking.  But no significant drop - yet.

Funny to watch people buying duplexes with complete strangers.  Or a "condo" which is nothing more than a slice of the 3 family.

Ideally I'll unload 2 or 3 more before it all comes unraveled.

 

[wabmester]

Seattle appears to be the latest hot market.

In our area, we used to see maybe a couple million dollar listings per year.    Right now, about 1/3 of the listings near me are $900K+ and I've been watching some expensive homes go pending very quickly.

Some agents have said about 60% of the buyers here are ex-Californicators.

Soon, we'll run out of equity-rich Californians, and the bubble will finally exhaust itself.

 

[perinova]

NJ area - same as Boston.
Lots of house on the market but prices are dropping only marginally. The trend started last fall.
Where there was 1 house for sale last year you might see 10 today on the market, maybe more. By the end of the summer there should be high price pressure from sellers that need to go fast.

I am renting at this time. Had been looking for houses and placing offers early 2004. Where outbidded a couple of times even once as the house was under contract. I was offering about 10% higher price as 3/4 year prior and real estate agent told prices went higher (says who? 20% increase in less than a year! no way!)
Since I have never paid ANYTHING overpriced in my life I dropped out of the market mid 2004. Price went out of line and I knew I would have lost money.

Well so far prices didn't drop back to level so I am waiting and see. Property taxes in NJ are very high anyway so I might just rent up to retirement - not sure - depends on timing - location etc.
My rent value adjusted for prop tax, deductions and maintenance etc was a wash here. Now I am better off renting.

 

[Martha]

This can cut both ways, according to my realtor wife. Depending on the market and particularly the conditions of the houses, you can get a McDonalds+Burger King effect: the latter opens for business and the former does better than before the competition.

I think it is because you have more traffic of qualified buyers than you would if you listed solo. So one strategy is to list now and be sure your house is in better shape. Just a thought

Our place is a four unit rental--we live in one of the apartments. We would try to sell as an owner occupied to squeeze out more than the cash flow would justify. Our apartment, the owners unit, it quite nice. There is a bed and breakfast next door that sold for big bucks last year.

I worry some that it looks like something is wrong with our block, with all the "for sale" signs.

 

[Nords]

Apparently a lot of your neighbors are moving to Hawaii, too.

The open house buyer's frenzies are over and listings take 30 days to sell instead of Wednesday afternoon, but they're still selling.  People were able to sell their houses without even cleaning their kitchens (yes, and worse) but now the sales process takes some professional help and some effort.  

A house a couple blocks up was going for $775K and is down to $735K.  But it's a really nice place!  

We found a 2 BR open house last week a couple streets over.  We didn't even know our neighborhood built single-family homes of that size, but apparently it was a failed attempt at attracting a starter (or downsizing) family.  Terrible condition (jammed closet doors?!?), weird homeowner repairs (drywall screws in a door molding, stove with a backsplash control panel mounted in the middle of the kitchen counter island, not against a wall, instead of a drop-in cooktop), screwy decor (mint green exterior with dark green trim).  Garage filled with junk.  Closets packed with junk.  17-year-old carpet, original bathroom fixtures.  $499K.  Nice neighborhood though!

A perimeter-lot home, probably about 35 years old by the golf course if I recognize the address, is having its first open today.  2900 sq ft, 3/2.5, pool, nice landscaping, 3-car garage.  $1.3M.  This one's gonna be on the market a while and its sale price will probably be the final determination of whether it's over.

Even if prices back off 25% our home will still be worth at least 50% more than we paid in 2000.  And our closet doors work...

 

[grumpy]

Things have slowed in the D.C. area, at least in our community. Last year the builder was raising prices about every 6 weeks. Now prices have been unchanged for 4 months. The builder is offering additional incentives too (free sun room addition, $5K decorating allowance, etc.). Homes are still selling but not quite as fast. These homes are in the $400K-$600K range. I don't know what the market is doing at the low and high ends.


Grumpy

 

[farmerEd]

Here is a story of some of the johnny-come-lately's to the RE boom...expect a lot more stories like this one:

http://www.recorder.com/Headlines/thursday_basic.htm
(about 2/3's down the page)

I'll save you the click and read...basic story is a few "investors" bought this old restaurant for $320K a few years back, put about $20K into it (basically cut down some trees as far as I can tell) and then prompty put it on the market for $610,000...the note holder just foreclosed on it and paid $200K for it at auction - 66% off the asking price and 50% off the purchase price just a few years ago...

I suspect a lot of people that didn't have a good game plan, or realistic expectations are going to be burnt by these types of "investments" - much like the dot-com bag holders that came to late to the part and stayed just a bit too long....

 

[macdaddy]

My rentals in Boston would sell for 200x the monthly rent, which seems to be a threshold of sorts. These prices were hit 18-24 months back and there hasn't been much movement since then. Some of the farther out areas will probably be hit hard, but all the Universities continue to expand and draw more students, faculty, and staff into the area. And there are more law firms and hospitals around here than I have ever seen anywhere else... I didn't really like Boston when I first moved here, but when compared to other cities in the northeast, it's a really nice place. If prices declined 15-20% I would become a buyer.

 

[retire@40]

...I didn't really like Boston when I first moved here, but when compared to other cities in the northeast, it's a really nice place.  If prices declined 15-20% I would become a buyer.

I wouldn't buy unless prices dropped at least 50%. Then again, I would not want to get into the headaches of residential rental properties with all the laws stacked against me unless I could generate a 12% rate of return on my investment.

I'd rather stick with equities, bonds, and cash for now.

 

[Maximillion]

House Prices have moved beyond the ability of the next generation of buyers, there is no way they can come up with the necessary cash for a downpayment, even if they could carry the payments.

10% Mortgages will be back, over leveraged real estate sales will be the order of the day, History has the habit of repeating itself.

Today's Low Rates have been a gift, an opportunity for people to get out of their debt, smart people are paying down, fools are extending their debt

"Neither a Borrower nor a Lender be", applied in Shakespeares time, still applys today.

 

[free4now]

I have a pretty good pulse on just what my SF Bay Area condo is worth, because there are about 300 units in my complex with the exact same floorplan, and one sells every few weeks. Local realtors send me postcards with recent sales every month or so.

For the first time in many years, I'm noticing a decline. Sales prices are down about 7-9% off the average selling price just a few months ago.

I wouldn't say the bubble is over, but it feels like we are now over the hump and heading down the other side.

 

[modlair]

In the category of contrarianism, Utah is holding or nudging up just a tad. The effect here is the post 2002 Winter Olympics thing. Real Estate had its bubble here 5 yrs ago. The following drop already happened so there was not much more room to fall.

 

[free4now]

I also notice a lot more "for sale signs" here recently... especially when I go jogging among the big homes in the hills where homes start at a million dollars.

 

[macdaddy]

I don't know what will happen one way or the other. Prices seem way too high. But I look around at my generation (mid 20s) and I see things that could keep it going. Literally everyone I know is (or plans to be) a dual income family. I don't know any couples where the wife plans to be a stay at home mom (or the husband a stay at home husband). Some may want that after they have children. But their purchases now (real estate included) will prevent that from being an option. As a child, at least half of my friends moms stayed home, and these were mostly middle/upper middle class people... dad a doctor, lawyer, businessman etc, wife stays at home with the kids. When you make the leap to both parents working, there is a lot more disposable income. Two 30 year olds each making around 80k-90k all in, that's 160k-180k per year. Plus 50k in down payment help from one set of parents, or both, and suddenly a 500k "starter home" becomes very "affordable". My parents were each one of 6 children, and couldn't expect much help from their own parents. I am one of 2. My friends are one of 1, maybe 2, and I think one friend is one of 3. Resources are much more concentrated. Anyway, this is what I have seen among my friends and the people I spend time with. Prices do seem to be too high. But there are other trends at work here beneath the surface, changing some of the fundamentals.

 

[TargaDave]

We have been looking at sound side waterfront in the Outer Banks for about 3 years. Just like FL waterfront the OBX was definitely in a full blown frenzy in spite of hurricanes, eroding beaches, skyrocketing taxes, and over burdened services. (Even with the summertime crowds the Albemarle and Pamilco Sounds remain peaceful, quiet, unique bodies of water for us water fanatics )

Huge home inventory increases since last summer. Sellers are now dominated by flippers who are trying to hold firm on price but you can tell the dam is starting to spring more leaks. We did put in a couple of (very) low ball offers that were quickly rejected. At least the brokers are coming back to earth faster than the owners, and presenting all offers. Even the inventory of mom&pop businesses for sale there are increasing monthly.

Choices have been growing by the day so we are happy to sit on the sidelines. This area is dominated by investors and second home buyers and not retirees or year-round working stiffs. Pretty easy now to see the slow downward slide coming.

 

[lazygood4nothinbum]

as i've previously posted south florida has dipped about 15% and inventory is way up but houses still sell and the market is expected to come back barring another direct hit (hurricane) this year.

after reading on this forum the mention of harry s. dent, i recently started reading "the next great bubble boom." accordingly, i guess i'm supposed to sell by 2010 (i was planning to sell by 2012 anyway).

he seems to argue two possiblities for south florida. on the one hand, because of the huge numbers of immigrants and domestic emigration into our area (we get 30,000 per year per each of 3 local counties), our prices could continue the way of new york and san francisco.

on the other hand (& in any hand, eventually), because our costs are getting so high (mortgage plus insurance plus taxes) that when his predicted bubble pops in 2010, buyers will no longer have the money to purchase our homes and so prices will crash.

he also argues that areas previously boosted by emigration will no longer receive either a next generation of home buyers nor new immigrants because costs will become prohibitive. i do not understand how costs can both crash and be prohibitive.

as i've just started reading, i don't know if he will address how the issue of generational transfer of wealth might play into bolstering prices in vacation destinations. my hope is that if this all comes crashing down, at least some inherited money coming in will give me time enough to pack.

 

[macdaddy]

I would love to see a study that ties in commodity prices to new home construction costs. I know there is a lot of copper used in each new home, and now that copper is up, to what extent does this affect costs? As China and India come on line over the new few decades, will this increase commodity prices, and consequently new home construction costs here? This is one force that could support the rise in prices. If it costs 500k to build a new starter house, then current ones won't sell for 300k, if there is a lot of demand in the market.

 

[lazygood4nothinbum]

This is one force that could support the rise in prices.   If it costs 500k to build a new starter house, then current ones won't sell for 300k, if there is a lot of demand in the market.

"since the 1950s...prices simply correlate with inflation and construction/replacement costs...but this increase is coming from rising land prices, not from rising construction costs...land prices can deflate rapidly in a slowing market" ~~dent commenting on robert shiller's book irrational exuberance.

i'd qualify that with a south florida example. most new houses here are built on whatever large tracts of land are left (and now these are in short supply). though it doesn't cost $200 per square foot to build anything but a luxury home on an infill lot (& many developers get away with less than that but call their houses luxury anyway), infrastructure costs here are high because most of these developments go in areas where previously there were no services. so those costs do help maintain the high prices of existing units.

 

[Maximillion]

I will never buy in Florida after i learned that you can get hit with a huge Property Tax increase and that you may not be able to insure your house.

better to rent.

 

[gtmeouttahere]

Today's Low Rates have been a gift, an opportunity for people to get out of their debt, smart people are paying down, fools are extending their debt.

"Neither a Borrower nor a Lender be", applied in Shakespeares time, still applys today.

I guess I'm a fool then Max.  Extending debt to obtain profit is the American dream (oh thats right, you're from Canada).  Anyway your statement is assuming and speculative to say the least and attempts to cover a broad range of people without much insight into the real issue, which is knowing how to manage your money.  Yes there are stupid ways of going into debt, but there are smart ways too.       

Gotta spend money to make money still applies today!!!

 

[perinova]

Generational transfer

Stocks can be transfered, or sold and money will be spent to boost companies profit. Not necessarily bad for the market (albeit what dent said, he also predicted the roaring 2000s didn't happen)

Real estate however is a thorny issue who needs 3 houses collecting dust and taxes? Houses will be sold and the market will tank. When? I'd like to have an idea. Most likely won't be anywhere at the same time. Working suburbia first maybe. Vacationland last?

Good arguement for promoting the amnesty (ok not really an amnisty) for illegal immigrants. They are already in here; when pardoned they will purchase properties here and that will be good for the country. They won't be replaced by the legal immigration who I think dwindled recently (well it did for foreign tech workers and students).