Real Estate Crash thread

[rideit]

This just in...2BR house in Driggs, $79,000. Details to come!

[panchosdad]

You mean this http://www.landofthegrand.com/index.php/brooke/mls/?

$76,900 for a three bedroom/2 bath manufactured home, on a leased lot, $125/mo. I think there's an option to buy the lot, but that's a pretty cheap lease. Never going to appreciate, but cheap housing it is.

Haven't seen prices like this in a decade.

[rideit]

Yeah, it's a 99 year lease, so this is for a realistic person just looking for a roof over their head. And you would get to live right next to Rasta Matt, BONUS!

[LeeLau]

Well, I'm seriously thinking of TIPS. Anybody have them? And, one question - they are also indexed to go down with deflation, right? So, if the economy still deflates, which is a possibility, one could lose money in the near term, right?

Gold freaks me out. Too draconian. China too. As far as I see it, it's the 21th century Detroit - the world's Rust Belt right now. And they tend to riot when times are tough.

Benny - I haveTIPs through the TIP ETF. There's a thread where Brock gave me some interesting insight into them.

They are indexed to inflation but always return par at least. Look at the Treasury site for them. Pimco has an article on them too They're not very sexy but work for some purposes

From treasury site - which is why i bought them

In the unusual event of deflation, which is a sustained fall in prices, the U.S. government guarantees repayment of principal; at maturity, investors receive the greater of the inflation-adjusted principal or the initial par amount. Interest payments on TIPS would decrease in a deflationary environment because interest payments are always based on the inflation-adjusted principal amount, which could potentially be lower than the face value of the bond in a deflationary environment.

http://www.pimco.com/LeftNav/Bond+Ba...IPS+Basics.htm



http://www.treasurydirect.gov/indiv/...ips_glance.htm

[tronacate]

In a Febraury 1 market advisory, Bob Farrell, a former chief technician at Merrill Lynch who now offers analysis as Farrell Market Associates, addresses the stone cold performance of many former market mavens. Says Farrell:
[“Many of the best investors with great long term records had their worst year ever in 2008. What has changed to make the great not so great? Was it just such a difficult crisis year that there was no place to hide? Or, are the markets failing to operate as they have in the past? What we see is some of both. We have record setting extremes in economic weakness especially where credit and leverage is involved and record extremes in market weakness and volatility. They are more challenging extremes than most of us have ever experienced before. Perhaps this should not be surprising in view of the bubble extremes on the upside that have occurred in the past decade. Technology in 2000, housing in 2006, and credit and commodities in 2007 is a combination of excesses without parallel in such a short time. No wonder even the best did poorly.

But basically we believe there are no new eras, only old eras that go to new extremes. We are in a period of secular change that should take some time to be resolved. In the interim, investor behavior should not change (governed more by emotion than reason) and extended range bound markets are likely after a low is confirmed. We have to view the current challenging events with an open mind and a cautious policy that places preservation first and return second. For the present, the best past precedents we have as guidance are the 1930s in the U.S. and 1990s-2000s in Japan. By these standards the bear market is not over.”]

Farrell offers this chart comparing the second half of 1937 and early 1938 to the current market. If the analogy holds, (and either the wave 5 or the wave 4 triangle counts will the market may, in fact, be in wave 5 and still spend several more days drifting higher in a slow developing second wave peak. This chart shows how this happened in the early part of 1938, right before the S&P tumbled into a bottom that held until 1942.

[Benny Profane]

Benny - I haveTIPs through the TIP ETF. There's a thread where Brock gave me some interesting insight into them.

They are indexed to inflation but always return par at least. Look at the Treasury site for them. Pimco has an article on them too They're not very sexy but work for some purposes

From treasury site - which is why i bought them

In the unusual event of deflation, which is a sustained fall in prices, the U.S. government guarantees repayment of principal; at maturity, investors receive the greater of the inflation-adjusted principal or the initial par amount. Interest payments on TIPS would decrease in a deflationary environment because interest payments are always based on the inflation-adjusted principal amount, which could potentially be lower than the face value of the bond in a deflationary environment.

http://www.pimco.com/LeftNav/Bond+Ba...IPS+Basics.htm



http://www.treasurydirect.gov/indiv/...ips_glance.htm

Thanks for that.

[LeeLau]

A Second Mortgage Disaster

[kokomas]

the trick with tips and deflation is to pay attention to the bond price. if it is a lot over par, then it's been around a while and contains inflation accrual that you can lose in a deflationary environment. basically the gov't pays you back $100, but if your purchase price is $140 then you have a lot at risk to deflation. the most newly issued tips bonds have the lowest amount of built up inflation accrual and thus the least amount of downside to inflation. if you hear the someone say "deflation floor" this is what they are talking about. the tips market adjusts somewhat to take this into account...so that the bonds with the lowest amount of inflation accrual to lose are bid up relative to the others.

in a fund you will not have control over these factors, but you should be aware that to the extent your fund holds the old tips bonds you can lose the difference between the bond price and par.

[cramer]

A Second Mortgage Disaster

yap, my current daycare provider and one of her friends in the neighborhood were just telling me on friday that they have these type of loans. They are both trying to negotiate with the banks. Both are trying to just get the current ammount they owe put into new loan at fixed rate. So at least they are trying to just keep their home and arent trying to just walk away from the money. I just bought the same size houses as theirs, but mine is newer for i paid less than half of what they paid. If they cant get the bank to give them new loans and get off their current ones, they are both walking. I dont blame them. If a bank cant move the same amount you owe, they arent asking to reduce loan amount, they just want the fixed rate, then id walk to. Im in the belief that they were stupid to get into these loans. But i also believe that whoever gave them their loans should be punished as well.

[iceman]

It's just planned wealth transferral, thanks to the Bushies. Essentially they made loans to these people, the loans failed, they take back the houses, get "bailed out" and at the end of the process they have the money they made on the loans while they were still good, the actual real estate itself (which will become valuable again, obviously), and the bailout money.

The rich get richer and the middle class and below just got screwed for hundreds of billions, perhaps trillions, of dollars.

Even more amusing is the "these people got in over their heads" refrain when that is EXACTLY what the banks and the politicos behind them wanted in the first place.

"So you say you want a revolution, well, you know..."

[skier666]

Then you awaken early one morning, troubled that your monthly payments will soon double. You go out to pick up your newspaper and see for-sale signs on five houses on the street. One identical to yours just sold for $500,000.

Identical Real Estate...so pre-2009

[RootSkier]

Luckily the properties we are into are cool. We have fixed rate loans and our rentals cash flow. Unfortunately, one of those rentals was how we were going to pay off some debt but of course, now there is no way it is selling anytime soon. And yeah, I make $100/month off it and it's easy to rent, but fuck me, I wish I could go back about three years and do a lot of shit differently.

/bangs head against the wall repeatedly.

[4matic]

I drive by Lathrop Ca. on the way to Kirkwood. Hundreds, maybe thousands, of mostly KB homes are empty. There is a new KMART nearby with never more than a few cars in the parking lot. I'm an advocate for tearing these homes down and starting over:

"There is also speculation that subdivision homes could be dismantled and sold for scrap now that a mini-industry for repurposed lumber and other materials has evolved over the last few years. Around the periphery of these discussions is the specter of the suburb as a ghost town patrolled by squatters and looters, as if Mad Max had come to the cul-de-sac."

http://finance.yahoo.com/family-home...Suburbia-R-I-P

[Benny Profane]

March 30, 2009
Sales of Second Homes Fall 22 Percent

By THE ASSOCIATED PRESS
Filed at 2:18 p.m. ET

WASHINGTON (AP) -- Sales of vacation and investment homes slid 22 percent last year, a sign that tough economic conditions and tight lending requirements shut out buyers, the National Association of Realtors reported Monday.

Second home sales comprised 30 percent of the entire housing market, down from a peak of 40 percent in 2005 when financing was easier.

''The vacation home market really was driven by the availability of debt,'' said Daniel Alpert, managing director of Westwood Capital LLC, a New York-based investment bank. ''Folks were able to pick up vacation homes with very little money down and substantial loans. Given the absence of mortgage money for primary homes, one can imagine that there's no mortgage money for vacation homes.''

Just 9 percent of sales last year were for vacation homes, down from 12 percent in 2007. Proportionally, investment properties held steady at 21 percent.

Wealth and age are strong factors in second home sales. Nearly half of vacation home buyers and two-fifths of investment home buyers had a household income of more than $100,000. The median age for vacation home buyers was 46, nine years older than buyers of primary homes.

Overall, second home sales dropped from about 2.09 million in 2007 to 1.63 million last year. Vacation home sales dropped 31 percent to 512,000, while sales of investment properties fell 17 percent to 1.12 million.

Deeply discounted foreclosures and homebuilders' efforts to unload inventory led median sales prices of vacation homes and investment properties to drop 23 percent and 28 percent respectively.

The median sales price of vacation homes fell to $150,000. Sales prices of investment properties dropped to $108,000.

''As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market,'' said Lawrence Yun, the Realtors group's chief economist.

On a regional basis, the South saw the highest percentage of vacation home sales, with 45 percent, followed by the West, the Northeast and the Midwest. The South also led in sales of investment properties, with 40 percent.

The report also indicated that future demand for second homes may be waning.

Asked if they were very or somewhat likely to purchase a vacation home within the next two years, 30 percent of respondents said yes. That was down from 44 percent in the previous year's survey.

The 2008 report also showed that 46 percent of investment buyers said they were likely to buy within two years, down from 57 percent the year before.

Conducted in March, the survey includes 1,924 responses.

[skier666]

I drive by Lathrop Ca. on the way to Kirkwood. Hundreds, maybe thousands, of mostly KB homes are empty. There is a new KMART nearby with never more than a few cars in the parking lot. I'm an advocate for tearing these homes down and starting over:

Funny, I think the same thing. Many of those areas will never be coming back. I heard the other day that Stockton has a 5 year surplus when factoring in population growth etc.

Silicon Valley apartment update....

Rents have dropped a bit the last couple weeks as vacancy rates slowly start to creep upward. Just using a craigslist comparison, one bedroom apartments in Santa Clara are ranging from $1190 to $1395 for comparable units.

Unless there is some major catastrophe, I don't seen the rents dropping. Its my opinion that people will continue to rent while the owning appreciation lure/speculation/benefits from the 2000's will not be coming back for a long time.

[Benny Profane]

I drive by Lathrop Ca. on the way to Kirkwood. Hundreds, maybe thousands, of mostly KB homes are empty. There is a new KMART nearby with never more than a few cars in the parking lot. I'm an advocate for tearing these homes down and starting over:

"There is also speculation that subdivision homes could be dismantled and sold for scrap now that a mini-industry for repurposed lumber and other materials has evolved over the last few years. Around the periphery of these discussions is the specter of the suburb as a ghost town patrolled by squatters and looters, as if Mad Max had come to the cul-de-sac."

WSJ

3/31/09

AFTER THE BOOM
In the Exurbs, the American Dream Is Up for Rent
By CONOR DOUGHERTY

PLANO, Ill. -- Kim and Robert Discianno had the American dream. Now, they rent a few streets away.

The Disciannos moved from Aurora, Ill., to their home here in Plano three years ago, lured to the outermost fringes of suburbs, known as the exurbs, by the promise of owning their first home. Today, their credit is shot and they no longer own, but Ms. Discianno still has a four-hour commute.

The Disciannos are among many exurban families losing their homes and their grip on the dream of home ownership. The exurbs were among the fastest growing counties during the boom -- entire civilizations built around the idea of owning real estate. With home prices falling and unemployment rising, more people are renting -- just as they had before the boom -- and turning the community into a rental economy.

Renting is one of the few ways for people to stay in the area and keep landlords afloat. It can be good for the overall economy because it promotes mobility. When the economy turns downward, renters are more willing than owners to move to a region where jobs are more plentiful.

But that same mobility can make for less stable communities and lower property values. Some observers believe the growth of rental property is the first in a series of steps that will transform today's exurbs into tomorrow's low-income housing. These communities have a low tax base made up mostly of property and sales taxes, both of which are in decline. Lawrence Summers, economic adviser to President Barack Obama, has often explained it this way: "No one in the history of the world ever washed a rented car."

What is happening on the urban fringe is similar to the urban decay that plagued cities after World War II, says Christopher B. Leinberger, a real-estate developer and visiting fellow at the Brookings Institution. "Single-family homes and townhouses in cities were broken into rental units. Now, we're seeing that phenomenon move out to the fringe."

More than three million homes have either been lost to foreclosure or a foreclosure-related sale between 2006 and 2008, according to Moody's Economy.com. And the decline in home prices and concentration of foreclosures is generally worse in outer-lying communities than in the central city or closer-in suburbs.

The tug of home ownership in the exurbs changed how much of America lives and works. These outer-lying communities further popularized the "McMansion" and turned two-hour commutes into four. People didn't necessarily prefer to move so far out, but they did so for the promise of a home, a yard and tax-deductible interest payments.

Many lower-salaried workers were able to afford their first home, while higher-paid professionals could trade up to a larger house with a big yard and a game room. About 17 million people, 5.6% of the U.S. population, lived in the exurbs in 2007, according to the Brookings Institution, compared with 14 million people in 2000.

Kendall County, about 50 miles west of Chicago, was one of the fastest growing exurbs during the boom years. The county's population about doubled during the housing boom, to some 100,000 residents in 2008 from roughly 55,000 in 2000. As people moved in, starter homes and shopping centers rose among worn barns and silos.

The residents who came over the past few years have average incomes about 20% lower than established residents, according to an analysis of Internal Revenue Service data by Kenneth Johnson, senior demographer at the University of New Hampshire's Carsey Institute. About a third of Kendall County's labor force are in management and professional jobs, compared with 41% in nearby DuPage, an established suburban county where homes cost more.

Now, as the housing bust and recession has turned the exurbs from engines of growth to economic laggards, many of these families have the worst of both worlds. They are still on the fringes but have no equity. In many cases the amenities they hoped would follow -- new shopping centers, movie theatres -- have ceased construction or opened with only a few stores. Government projects like new schools and parks have also been delayed as budgets get cut and population growth has slowed.

In the Lakewood Springs development here where the Disciannos live, "For Sale" and "For Rent" signs are everywhere. A few have driveways littered with abandoned couches and stereos, and in some cases homeowners are living next to tenants paying half the cost of a mortgage.

Couples like the Disciannos mirror the economic arc of the exurbs. With a no-money-down mortgage, the couple bought a $235,000 three-bedroom house in Plano, doubling Ms. Discianno's round-trip commute to more than four hours.

Ms. Discianno, an IT project manager for a Chicago law firm, says at first the trade-offs were worth it. At the family's apartment complex back in Aurora, Ms. Discianno says she often felt guilty about raising her two children in cramped quarters. On a few occasions, the neighbors complained when her daughter played hopscotch on a common walkway, and Ms. Discianno had to limit sleepovers to one friend for lack of space.

Their house in Plano had a back yard and nearby jungle gyms. "We could actually own something and afford it," says Ms. Discianno, who was able to pay the early payments of $1,500 a month. It was great for the kids, she says. "Friends can come see them, instead of them always going somewhere else."

As land values rose, the couple's combined mortgage and property tax payment soared, to $2,900 from $1,500. Rather than struggle with the bills, the family abandoned their home to the bank, moved out, and found a new home to rent. They didn't have to look far: The Disciannos found a smaller home in the same development for $1,500. That home was owned by investors who had hoped to sell it -- but settled on renting it instead. The new home is about the same size as the apartment they used to rent, and sleepovers are again limited to one friend per night.

Many owners were initially concerned about renters. The homeowners' association at the Lakewood Springs development has restrictions on how rental properties can be advertised. But feelings have shifted with foreclosures turning occupied homes into vacancies that are worse for the local economy.

"Overall, a community of owners versus renters is obviously going to be better," said Tim Jones, a satellite television technician, and a friend of the Disciannos. But after four years of struggling to pay his own mortgage, Mr. Jones says he has no equity to show for it. He may end up walking away from his home, he says, which may end up turning him into a renter as well.

While she still owned a home, Ms. Discianno opposed renters and voiced concerns about them at a homeowners' association meeting. "I was very against it too," she says. "It doesn't do much for property values."

[Hutch]

Might as well add some anecdotes about our local market, Park City.

There is a huge development east of town called Promontory. 5 golf courses were planned, 2 have been built (one Pete Dye, one Nicklaus). The developer, Pivotal Group, was forced into bankruptcy when it defaulted on its interest payments to Credit Suisse and other lenders.

http://www.parkrecord.com/ci_1196092...ce=most_viewed

The plan includes about 1,924 houses on land east of U.S. 40 and south of Interstate 80. More than 700 lots have been sold at Promontory and roughly 300 houses have been built or are under construction.

In my law practice, I have been involved in at least 10 disputes involving spec homes in this development. Mechanics liens, foreclosures, short sales, etc.

The developer did a great job hyping up this development, and many of the lots were bought by general contractors and real estate agents who never had any intent of living there, just to build and flip.

One house I am aware of has been on the market for 2 years and was appraised at $2,300,000 when it was completed 2 years ago. The owner is now considering a $1,000,000 offer, which would leave him owing the bank around $500,000.

There is some serious inventory in this development in the $1,000,000-plus range.

[LeeLau]

Ms. Discianno, an IT project manager for a Chicago law firm, says at first the trade-offs were worth it. At the family's apartment complex back in Aurora, Ms. Discianno says she often felt guilty about raising her two children in cramped quarters. On a few occasions, the neighbors complained when her daughter played hopscotch on a common walkway, and Ms. Discianno had to limit sleepovers to one friend for lack of space.

Telling excerpt on justifying a 4 hour commute

[Moeghoul]

Shades of what Kunstler foresees in "The Long Emergency"

[Benny Profane]

Ms. Discianno, an IT project manager for a Chicago law firm, says at first the trade-offs were worth it. At the family's apartment complex back in Aurora, Ms. Discianno says she often felt guilty about raising her two children in cramped quarters. On a few occasions, the neighbors complained when her daughter played hopscotch on a common walkway, and Ms. Discianno had to limit sleepovers to one friend for lack of space.

Telling excerpt on justifying a 4 hour commute

If you ever lived in the NYC area, you would understand it, somewhat. Allentown, PA. is filled with people whose primary earner actually commutes back and forth to NYC by bus (probably 1.5 hours one way at least) just to raise their family in an affordable home in a nice neighborhood with safe and decent schools. In other word, not Queens. I know, I know, it's sad to see, and God knows I wouldn't do it, but that is one hell of a dedicated parent to his/her family. I could imagine what that lady was escaping near Chicago.

One house I am aware of has been on the market for 2 years and was appraised at $2,300,000 when it was completed 2 years ago. The owner is now considering a $1,000,000 offer, which would leave him owing the bank around $500,000.

There is some serious inventory in this development in the $1,000,000-plus range.

Tell them I'm offering 500000. Seriously. Back in '95 I used to visit a beautiful 3500 sq ft house out there in what was then a newish MacMansion neighborhood (lost those friends in the divorce) that was worth about 280000 at the time. So, why are they a million now? Or 2.5 a year ago?

We still have a long way on the downside.

[liv2ski]

Benny, what makes you think prices should be in a 1995 price range. After all, the Stated Income and SISA loans that lead to the huge appreciation run up didn't come out until 2002.
IMO, prices really should be supported by the pre bullshit loan period which is 2002. Prices below that level have clearly way aver corrected and are a long term buy.

[cramer]

For the bottom feeders like i was, they have already leveled out here in california. Houses in the 200K range have not dropped a dime for the last 5 months. The only ones still dropping are the bigger ones 2500+ sq ft. 1800 sq ft house, 3br2ba that was built after 2002 you arent going to get under 200K unless its like stockton or something. Bay are and LA the houses are selling like hotcakes now. The bottom has hit from everything i see. Every comparable in my neighborhood sold for more than my house i bought in december and i have a bigger lot than all 4 of them and none of them had updated kitchens like mine (granite/stainless). I took my kid for a walk around my neighborhood sunday and i saw 5 new couples moving into houses, not moving out. Another 2 couples were looking at like 4 houses in the neighborhood. Its a buyers market now. Time to buy if you ever wanted to buy a house in this area, thats for sure.

[Benny Profane]

Benny, what makes you think prices should be in a 1995 price range. After all, the Stated Income and SISA loans that lead to the huge appreciation run up didn't come out until 2002.
IMO, prices really should be supported by the pre bullshit loan period which is 2002. Prices below that level have clearly way aver corrected and are a long term buy.

It wasn't just subprime, although that fed the late acceleration. It's been easy credit since Raygun, fueling our entire economy. Check this chart out:



You can see where that's going. And, I couldn't find it, but if you extended the left side of that chart out another 30 years, it would still be flat to a slight rise. It gets crazy again in the 20's and 30's, but, I think you know why that happened. I heard Schiller interviewed today after they released todays report: http://blogs.wsj.com/economics/2009/...-metro-area-7/ and he stated, again, what should be common knowledge by now but still may take years to sink in for most, that one's home as an investment is a fairly new phenomenon in our society. Certainly, the concept of a second mortgage has gone from an shameful act admitting financial difficulty before the 80's, to a quite common activity by the American homeowner to fund a profligate lifestyle. It will take some time for my father's "normal" of no debt and a sensible financial life to return to our society. That's when Park City MacMansions will be worth what a middle class person can spend on them.


edit: wow, I have to post this. I found it searching for a more complete historical chart, but, holy cow, yeah, it's that Fox / talk radio psycho Glenn Beck. If you have a strong stomach, watch it, because he does show what's happened since 1890, and, infers what could very well happen in the next two decades, but all the while Obama and FDR and socialism bashing. Seriously, I think this is the new Rush - younger, and very tuned in to a very pissed off segment of our society. Don't take him lightly.

[cramer]

i bought my house as a home to live. I was done paying someone elses ownership of a house. So i fully agree that a house isnt an investment. Its a place to call my own that i can do what i want with it.

[whatcomridaz]

WSJ

Lawrence Summers, economic adviser to President Barack Obama, has often explained it this way: "No one in the history of the world ever washed a rented car."

Lawrence Summers is a blithering idiot. There's ton's of people that wash rented cars, particularly American renters in third world countries. What a myopic view of the world, just one more example of the creme de la creme Obama surrounds himself with.