Real Estate - do we still have holdouts?

[ladelfina]

beh.. you might think so.. sure, places like HI or Manhattan or beach zones will almost always command higher prices overall, but that doesn't necessarily mean they can keep running way ahead of the pack forever.. they need someplace for the teachers, policemen, gardeners and restaurant workers to live, and at some point rich people won't want to spend a million bucks on a skeezy condo, even if it is in Hawaii.

The RE boom has been happening in Australia, Spain, Eastern Europe, crappy areas of Vancouver.. I imagine because people want somewhere 'solid' to put their money (often called the 'flight to quality'). There's a UK/Australian idiom, "safe as houses"!! They may want to re-visit that.. the bust there may well dwarf that of the US:

Between the first quarter of 1997 and the first quarter of 2007, house prices rose by 214%. This was the third highest among 20 countries covered by The Economist. It contrasts with a rise of 135% in America up to its peak in 2006.

Britain's economy | The bust begins | Economist.com

 

[honobob]

Residential rentals selling for a record of almost $600,000 per unit!!

Edgewater's $115M price shatters records - San Francisco Business Times:

Record setting price for trophy office building
Foreign investors scooping up District real estate - Washington Business Journal:


Commercial real estate doing fine!!
Sale prices up despite down economy - Orlando Business Journal:

Here's the view from the condo.

So we're bailing out a few NEW home builders that sold tons for record prices but have to sell their overstock for less (but still above costs) because they overbuilt.

So, if I'm to believe the experts here that say the commercial market collapses 6 months after the residential market then the residential market hasn't collapsed yet or the commercial market is different this time

I made an offer of over $600,000 on a one bedroom condo last week in SF, barely 8% under list, and didn't even get a counter. I gotta stop listening to crying wolves.

 

[CuppaJoe]

....
I made an offer of over $600,000 on a one bedroom condo last week in SF, barely 8% under list....

Congrats! HonoBob.

Wonder if that explains why my landlord still hasn't rented that micro-one bedroom/w view at $2,795/mo. I would think anyone who could afford that would instead be looking at condos.

Keep us posted.

 

[lazygood4nothinbum]

here in south florida, one of the worst current markets in the country, the sky is falling, the sky is falling according to anyone trying to sell or anyone with plenty of for sales signs around them. a friend of mine is panicking about the low prices of resales in his area. so i checked them out, getting the actual sold-for prices on zillow and then checking county records for previous sales to get long term appreciation rates. yes, the sky does seem to be falling a bit, but what's raining down, mostly, looks like profits.

in my friend's area, which has too much for sale to be comfortable, i picked at random five houses and looked at their sales dating back to the 1960s. what i found are the following appreciation rates through to their 2007/2008 sales: 5.46, 6.58, 6.09, & 6.09%. and these are the houses selling to the bottom feeders. a house i looked at has sold five times since 2002. it's 2008 sale is down 20% from its peak 2005 bubble price.

then i looked at my area. the house behind me scared me when it sold. the old man had gotten alzheimer's and the wife wanted out quick. they sold in a month for a lowball price of $210k. i was in shock. i thought for sure the sky was falling. but then after looking at my friend's area to see if the sky was falling there, i checked out mine. turns out the scary house behind me, the comp i thought would sink me, had actually, since 1999, appreciated annually at 14.93%. the sky is falling! here are other long term appreciation rates based on recent sales i found in my area: 7.95, 9.72, 7.38, 8.24 & 7.92%. included in research i also found a spec house which sold three times since 2002, the 2008 sale being a similar 20.22% down from it's peak 2005 bubble price. i also found the sale of one of the minimansions which sprung up a few blocks away, having sold in 2003 for $700k, it got $1,150,000 in 12/2007, a sky falling 11.22%.

but even with all that good news, it still sucks when no one will by your house.

 

[Texas Proud]

Lazy.... and Hono if you care to listen....

The sky IS falling... on the people who thought their house was worth a lot more than it really is... or the people who bought in the last year or two or three...

YES, long term housing can be very good in some areas.... not so good in others (like Houston)....

BUT, saying I got a 7% annual gain when if I sold 3 years ago I would have gotten say 12% or 15% means I AM LOSING over the last 3 years... who cares what I made over the previous X years... it is a mark to market world... if my stocks go down tomorrow, I lost money... if they go up... I made money.. I don't have to sell to have gained or lost... same with houses... if your house was worth $500 3 years ago (when you only paid $100 for it)... but now it is only worth $350... well, you lost $150... from the high... still ahead, but still 'lost' over the last few years...

Are there exceptions... YES.. of course there always will be... but to think that real estate is NOT in a BIG slump right now.... well, you have to be smoking something that is not legal....

(I wonder if I am going to get my second warning on this one....)... still don't think I did anything wrong on my first!!!

 

[Marquette]

Welp, we sold our townhouse... or at least, it'll sell on the 23rd unless the buyer disappears between now and then (we're through the 10-day waiting period, inspection, appraisal, etc).

We bought in 2002 for $262k. We sold for $260k. The most a townhouse in our little development went for was $280k. Townhouses were overbuilt in the twin cities metro area though, so that's still pretty darn good.

We were looking for a house to rent. About 90% of them had been on the market but the owner got tired of not getting any offers and so decided to try and rent instead. And, about 80% of them were owned by Realtors.

 

[kcowan]

...i picked at random five houses and looked at their sales dating back to the 1960s. what i found are the following appreciation rates through to their 2007/2008 sales: 5.46, 6.58, 6.09, & 6.09%. and these are the houses selling to the bottom feeders. a house i looked at has sold five times since 2002. it's 2008 sale is down 20% from its peak 2005 bubble price...

Good comparison. I am surprised that the appreciation rates have been so low. I guess we need to deduct the 6% sales commission and other selling costs to determine the real returns. Considering that south Florida is one of the hot markets historically, I wonder if renting would have been a better choice?

 

[tryan]

The unit I have on the market has been reduced to a price where it can be rented at a positive cashflow - with good credit - a slight negative cashflow with fair credit.

Don't plan to reduce it anymore. Easier to just stick a body in the unit and collect the rents. Rents are holding strong. But buyers are lured to REOs.

P.S. Hono, $600k for a 1 bedroom !! Dude, how much blood can you replace in a month?

 

[honobob]

Wonder if that explains why my landlord still hasn't rented that micro-one bedroom/w view at $2,795/mo. I would think anyone who could afford that would instead be looking at condos.

No, with $120,000 down you're still looking at Piti + HOA's of $4,000 a month range. So you're $1200 a month shy counting on $5,500 a month appreciation over time to be ahead.

 

[honobob]

Good comparison. I am surprised that the appreciation rates have been so low. I guess we need to deduct the 6% sales commission and other selling costs to determine the real returns.

Keith, don't confuse appreciation rates with returns. The appreciation rate has nothing to do with the expenses or leverage whereas the return has everything to do with expenses and leverage. You're more apt to see returns in the 20-30% range if leveraged properly.

 

[kcowan]

Good point. I suppose RE is one of the few investments that the average person does with leverage.

 

[Delawaredave5]

This discussion is kind of like looking at individual stocks and assessing the overall stock market. There's a wide range of "winners and losers" in stocks -- resulting in an average and standard deviation of returns.

One difference with RE is it is more of an "imperfect" market -- so I do believe with effort you can uncover/develop an advantage and "make a deal" -- unlike public stocks where millions have same information.

I can't pick with confidence a "winner stock" and I am equally convinced I cannot pick a "winner property" -- so I buy index stocks and REITS.

I always thought RE appreciated at "inflation plus 2%" on the average.

I think Bernstein categorizes RE as a 7-8% investment return with a standard deviation of 3% (wrote this down somewhere but can't find....)

 

[lazygood4nothinbum]

the sky is falling according to anyone trying to sell ... it still sucks when no one will buy your house.

Lazy.... and Hono if you care to listen....

The sky IS falling... on the people who thought their house was worth a lot more than it really is...

yer preaching to the choir who not only retired into the bubble but who hasn't been able to sell the house i was counting on to help fund retirement. even still, i'll be fine. as i had more than i needed for retirement, it is still affordable even with these huge losses. nothing a few adventurous years in thailand won't solve. i needed something to do all day anyway.

though it seems the sky has already fallen for many of us, i realize that anyone who bought during the bubble yet who could not afford their purchase are not walking on clouds which seem to still support me. maybe the sky hasn't fallen though, but that they were just walking with their heads in the clouds. maybe it is just that the clouds have lifted.

Good comparison. I am surprised that the appreciation rates have been so low. I guess we need to deduct the 6% sales commission and other selling costs to determine the real returns. Considering that south Florida is one of the hot markets historically, I wonder if renting would have been a better choice?

the appreciation rates depend a lot on area. over time and even during the bubble, my area appreciated more than my friend's because i bought when this neighborhood was cracktown. his area was always more stable so never had anywhere to go whereas mine developed into a thriving, pedestrian-friendly gayberry rfd, replete with sidewalk cafe's and a highly successful night life even out of season. from his house you have to drive to go anywhere and pay for parking. so he's always here even though his house is there. just coming back from a bike ride yesterday i saw him at the intersection near my house, heading to the bars.

as to rents, i have to discount the inherited house hugely as i still want it sold. so any renter would have 45 days to vacate should i ever get a sales contract signed. we are probably down 40% on rents the house might otherwise command (assuming we can even find someone to take the deal). i'm considering renting the dock separate from the house to make up some of the difference. meanwhile, i would love to not own any property now and to be just renting. though i'm also considering selling out here and purchasing a foreclosure in a cheaper area that i can easily & safely close up and take off for a few years.

if the sky has fallen, it sure ain't manna. this bubble has left a bad taste with me.

 

[CuppaJoe]

TexasProud, IMO, you are right on the money, again today.

Paul Terhorst in Cashing In On The American Dream, 1988, wrote about S.F. condos as an example of how we can play with the numbers: he said something along the lines of, "if you bought a S.F. condo in 1981, you have a white elephant."

Not sure if the sky is falling in S.F. yet but I put my nose in the air this morning and it got wet! Fog’s in. It will be interesting to see what happens over the next few months and years. I mean interesting in the sense of "may you live in interesting times." So many factors: Silicon Valley effect, possibility of losing rent control on June 4. Who will be here to make your lattes?

Tryan, I believe $600,000+ for that condo (if it’s the one from the view Hono shows) is a steal, at least it would have been a couple of years ago.

 

[kcowan]

US Housing Bubble has some more corrections ahead...

...if the sky has fallen, it sure ain't manna. this bubble has left a bad taste with me.

Maybe you are just ahead of the pack?

US Housing Bubble has some more corrections ahead...

The paper I wrote in 2005 on the US Housing Bubble did not anticipate that the bubble would be much bigger than expected and that the recovery time would be much longer than ever before. So the question becomes "How long and how bad?"

Well no one has a crystal ball, but here is a good chart from The Bureau of Economic Analysis:

First to explain the chart.

The x-axis is the number of quarters following the bursting of the housing bubble. The y-axis is the retrenchment in prices from the peak. Each line represents a previous bubble. Note the red line which is the current one. So will it be like the 73 crash, in which case the worst is over, or could it be as bad as the 79 bubble, in which case prices need to drop 45% and we will not get there for another 8 quarters or 2 years!

There are a couple of factors that suggest that this will be the worst housing bust in history. The first is that the easy credit environment of the last 5 years is unprecedented. That is what spurred on the housing bubble to new peaks not anticipated in my analysis above.

We just need to look at the level of defaults resulting in foreclosures:

and this makes that aweful bubble bursting from 1979 look like mere child's play! Have we ever seen the mighty falling all around us before? Warren Buffet's Berkshire Hathaway had a profit decline of 38% (out of 64%) totally because of bad mortgages. When the Oracle of Omaha gets caught in this web of deceit, you can count on the fact that this is unprecedented!

But let's return to basics for a minute. Sure times were good and people got carried away. But fundamentally we need to see if people can afford these homes. Then we see the other frightening statistic. They can't! In fact, we are still just approaching the prices where there will be stability in the housing markets.

So we would unlikely be at the end of the decline (unless incomes suddenly rise) and we will likely see an over-correction somewhat like in 1991 because momentum can't be stopped. And to put that chart in perspective, if we overshoot down to 2.5, it means that if the family income is $80,000, you can on average buy a house that costs $200,000!

 

[honobob]

Four years in the making and yet the total of all residential property in the United States is down barely 3% and there are record sales in many markets. Commercial property is just fine and the problem is that "people that bought 2-3 years ago can't refi to buy a Hummer.

Com'on guys. Surely we can trash the economy better than this so EVERYONE receives their fair share of the pain.

Four years and yet no documented sale below prior sales price, only 9-16% YOY gains. I know we can do better than this.


http://www.early-retirement.org/forums/f28/dangerous-real-estate-example-14665.html


TexasProud This is (was) the owner of the BOA tower in SF. He must know something about Texas! Probably smoking something illegal......Cubans!!

Shorenstein buys tower in Houston's Galleria - San Francisco Business Times:

 

[eridanus]

Four years and yet no documented sale below prior sales price, only 9-16% YOY gains. I know we can do better than this.

Detroit much?

 

[Texas Proud]

TexasProud This is (was) the owner of the BOA tower in SF. He must know something about Texas! Probably smoking something illegal......Cubans!!

It doesn't say how much they paid... but yes, commercial RE is selling well in Houston...

Good one though.... I do know someone who does smoke Cubans...

Or is that someone who does smoking Cubans!!!! (ut oh... probably a no no here)....

 

[Texas Proud]

I would say that all those repos that are happening are being sold at a price LESS than they were bought...

I am waiting to buy a house that the owner was in for years and I am not going to pay the loan amount... his wife is being a A$$ and is refusing to sign.... so I get to wait for the bank to repo... if it every gets around to it...

 

[DangerMouse]

Four years in the making and yet the total of all residential property in the United States is down barely 3% and there are record sales in many markets. Commercial property is just fine and the problem is that "people that bought 2-3 years ago can't refi to buy a Hummer.

Com'on guys. Surely we can trash the economy better than this so EVERYONE receives their fair share of the pain.

Four years and yet no documented sale below prior sales price, only 9-16% YOY gains. I know we can do better than this.

Maybe there is no documented case because they are unable to sell due to the market.

To say that real estate is only down barely 3% over the past 4 years is just ridiculous, it is a generalisation which does not apply to all property. I know people that I work with who purchased properties 3 years ago and whilst there are 3 people who would like to sell they can not, because what they would get would be less than what they paid, so I am not certain how that equates to 9-16% YOY gains.

As has been pointed out time and again on this topic it is all about location, location, location. Here in San Diego it all went up too far too fast, fueled by the belief that there was only one direction prices could go and there are now a lot of people hurting. The people I know who are effected are all professionals and are unlikely to be going into foreclosure, but I know they are all hoping that they don't lose their jobs and that the market turns soon.

 

[honobob]

Maybe there is no documented case because they are unable to sell due to the market.

To say that real estate is only down barely 3% over the past 4 years is just ridiculous, it is a generalisation which does not apply to all property. I know people that I work with who purchased properties 3 years ago and whilst there are 3 people who would like to sell they can not, because what they would get would be less than what they paid, so I am not certain how that equates to 9-16% YOY gains.

"That's a steeper drop than throughout the nation, where all homes are down 3 percent year-over-year, Zillow said."

Free4 now, when I read the article you referenced yesterday in the Chronicle this statement stuck out!! If ALL homes are down just 3% YOY why are we talking bubble/credit crunch/ bailout/30% drops?

I'm thinking someones gonna make out on this faux crisis.




Again, the 3% is not my figure. And the 9-16% YOY gains are based on actual resales posted here by me addresses provided. Sell your doom and gloom to those that are in the market to buy.


TexasProud
Teacher Retirement System of Texas to invest $262M in Miss. REIT - Austin Business Journal:

 

[tryan]

kcowan, I remember when you linked your paper before (~2005 ... thanks!). When was the last time the red line (in Variable Troughs) was updated?

I think we've got a year or 2 before a real bottom is found. Basing this on the prices being bid at REO auctions. Still toooo much liquidity out there.

Tryan, I believe $600,000+ for that condo (if it’s the one from the view Hono shows) is a steal, at least it would have been a couple of years ago.

hmmm, only if the owner can get ~$6k/mo for rent. Otherwise, keep your day job to subsidize your tenants housing. And if prices stop increasing .... your STUCK (in your day job with a large negative cash flow).

No thanks!

 

[kcowan]

kcowan, I remember when you linked your paper before (~2005 ... thanks!). When was the last time the red line (in Variable Troughs) was updated?

I think we've got a year or 2 before a real bottom is found. Basing this on the prices being bid at REO auctions. Still toooo much liquidity out there.

That would be following the 79 cycle (more or less). The paper was published May 2, 2008 and the charts are current as of the end of 1Q2008.

 

[honobob]

Tryan, I believe $600,000+ for that condo (if it’s the one from the view Hono shows) is a steal, at least it would have been a couple of years ago.

Actually the 2006 and 2007 sales were in the upper $600's. They're asking in the mid (and not budging) and I offered in the low. I think the demand is there but the uncertainty of the economy and all the naysaying headlines is bringing the market here to a slowdown. I'm looking for a deal but I'll probably regret holding out since I'm sure the prices will zoom again once this mortgage mess gets sorted out.

On the financing side I'm preapproved by several companies and BOA even had an appraiser call me to do an appraisal and I had to tell him I didn't even have a contract yet!

 

[CuppaJoe]

Hono, I'm sensing some mixed messages in your posts. Are you saying that S.F. is an exception to the rule and that, perhaps, "the rule" is wrong. Now are you saying there is a slowdown in S.F. because of uncertainty/emotion/negative news coverage? Is your "holdout" status gone? Considering this is the post-Enron, post-WMD age, I might be in the choir on this one. Would be interesting to start a new thread.