Real Estate Crash thread

[khakis]

hell, maybe the "love factor" is what's kept us out of more trouble than we're in (WRT people continuing to make payments on houses that are riduculously underwater...as we've discussed earlier in this thread)

[XXX-er]

Ah...thought that the love BS was just a literary liberty. WhoTF falls in love with a stupid house? It's a roof and walls to keep you and your sh1t from being rained on or stolen, whether you buy or rent. I mean I like my place and all, but...

And I don't think I've ever heard anybody rationalize falling in love (the regular kind) as a good investment.

not me but I know I am a wierdo

I think everybody in N.A. is into home ownership at any price

the average north american is into home owner ship just like they grew up with ,thats why they paid the stupid high prices to "get in while we still can!"

[ass-to-mouth]

dirt pimps win again. and again. and again. and again...

Housing Secretary: Homebuyer tax credit on the table due to 'concern' for industry
By Silla Brush - 08/29/10 09:11 AM ET

Shaun Donovan, Secretary of Housing and Urban Development, said Sunday that the housing market's July woes were "worse than expected" and that the administration may support a new homebuyer tax credit.

In an interview on CNN, Donovan said the administration is "concerned" about the path of the industry. He defended the Obama administration's record on supporting the housing market, amid new signs that the market is struggling alongside the broader economy.

Donovan did not rule out a further homebuyer tax credit to support the market. Congress passed a homebuyer tax credit to support first-time buyers. The credit has now expired.

"I think it's too early to say after one month of numbers whether the tax credit will be revived or not," Donovan said.

The administration has argued that their policies have helped stem the decline in home prices, but new numbers this week showed plunges in the sale of existing and new homes. The administration's efforts to reduce home foreclosures have also come under fire for showing limited success at permanently modifying loans.

"There is no question our policies have made a real difference. The real question is today. The July numbers were worse than expected," Donovan said. "We are concerned."

[meatdrink9]

Meatdrink: While a good primer for the novice, your areas values are likely in the lower 50% percentile. Bottom line on rental properties, a duplex gets the same good financing as a SFR where as 3-4 unit property rates are a bit higher, but units always cash flow better than 1 unit properties with the same down payment. Best financing on N/O loans typically requires 25-30% down and to get that elusive positive cash flow when looking at PITI, vacancy and repairs is required, especially in high cost areas. Most investors will need to start with a 30 year loan to get the property to cash flow (in a high cost area) in the beginning, but hopefully, over time rents go up and you can start to apply that to principle reduction to pay off the loan sooner.
For the newbies, I would save my money if a FTHB (first time home buyer) for a few more years of property price doldrums. If the world hasn't imploded in 2012 look at buying a duplex/2 on 1 with one unit O/O and the other a rental. Save your money for a few more years, then buy that nicer SFR as an O/O property to get good financing and save the duplex as a rental and your on your way.
Unlike Benny's above article, I believe RE is a great hedge against inflation and as a highly leveraged investment, can give you great returns in a normal economic cycle over the long haul. Now isn't a normal economic cycle for many of us, so be patient.

I've still got way more to write in there. Just so freaking busy right now. And I am a novice. I'm only 32 and am self taught/self made. My portfolio is good given my background, but no I'm not renting huge apartment buildings or anything like that. It's a mom and pop operation of renting homes.

I like SFRs as rentals for liquidity (Everyone needs a home, not everyone needs a multi-unit property). I also look at the cash flow not just per tax-ID, but the cash flow per tenant (person that can call me and interrupt my weekend). If a duplex cash flows $600 per month total and the SFR cash flows $400 I've got to deal with two sets of people for just another $200 in cash. I'd rather buy another SFR with $400 per month cash flow. I'm making an extra $100 per unit/tenant with the SFRs and my investment is more liquid. Also, I find you elevate your prospective tenants by renting to people who want/can afford an entire home rather than just a part of a property. There are also more conflicts when a property is shared (noise, parking, responsibilities, etc...).

[mock vomit]

dirt pimps win again. and again. and again. and again...

Just a note that they didn't enact the first one, nor consider this new one to help the dirt pimps. They are trying to forestall a horrific nation wide market crash like some parts of Cali, Arizona and Florida have already experienced.

I think you are fine to debate if these programs actually work or just delay the inevitable, and are a wise use of sparse federal funds, but the legistlation does nothing specific for agent/brokers. It does help by incentivizing BUYERS, thereby propping up BOTH the real estate market in specific AND general economy in whole. ie: most appliance purchases, furniture purchases, etc etc occur at the purchase of a new property. A 75% drop in value across the board countrywide would lead to the worst parts of the Great Depression being repeated thru EVERY sector of the economy.

Buyers and Sellers are perfectly free to sell For Sale By Owner, via Craig's List or how ever else they want. Real Estate Brokers/Agents will only survive if they actually perform a market function efficiently. Like the stock market, having someone create and manage a "marketplace" for that product is many times more efficient than one party trying to find their opposite (buyer/seller) completely on their own. (You COULD make your stock trades at garage sales... but wouldn't likely get highest and best prices for your sales, or be easy to find your preferred purchases) And along those lines, in my local market... I see a couple "help u sell" type companies making big inroads during this malaise at the expense of the traditional broker. Something that was predicted at the rise of the internet, but they couldn't/didn't really do before the "crash" and these incentive programs.

[/$.02]

[GeezerSteve]

Well, if you want to differentiate commercial real estate investing from residential, that's the key. Emotion. Millions and millions of Americans are so tied to their houses for very irrational reasons right now, and that will take a long time to work through. The commercial guys easily know when to cut and run. If they don't figure that shit out early enough, they are out of biz.

This is generally a sound observation, but:

(a) I'm seeing lots of denialists in the commercial RE biz who are hanging on (I've been doing this for 24 years), talking about "the market coming back," and otherwise generally refusing to accept that a 30-bubble burst, glut of supply, etc..

(b) The banks' extend and pretend practices are artifically propping up ostensible commercial RE values in some areas.

(c) Some foreign investors seem willing to buy US commercial RE at stupid prices.

(d) Many in the generation just getting out of college are questioning whether home ownership is such a good idea IVO high prices, work flexibility needs, etc., i.e., the next generation is getting on to what the Europeans figured out long ago.

[liv2ski]

dirt pimps win again. and again. and again. and again...

Pfffft, if you want to be pissed at someone over this huge fucking shit show, read this:

"The disgustingly rich Wall Street wheeler dealers who live in Greenwich CT and NYC and summer in the Hamptons have created nothing. Their immense wealth has been created through draining the economic system of its lifeblood. Their financial innovations have created no lasting benefit for our society. Wall Street knowingly created no documentation (liar loans) mortgage loans, Option ARM loans, and subprime loans. You do not create products that beg for fraud unless you want fraud. The packaging of these fraudulent mortgages into CDOs and CDSs by Wall Street’s crime machine benefitted Wall Street only. Those who got the loans defaulted, lost the homes, and had their credit ruined. Wall Street financiers have lured the American public into debt with easy credit and a marketing machine geared to convince the average Joe that he could live just like the rich. Simon Johnson explained the phenomena in a recent article".
http://www.zerohedge.com/article/guest-post-age-mammon

[liv2ski]

I've still got way more to write in there. Just so freaking busy right now. And I am a novice.

MD, my novice comment was not directed at you, but rather that your analysis was incomplete, addressed to your area (low prices) and would be most beneficial to a novice investor, to get them thinking about the issues they need to deal with when acquiring RE for long term ownership.
We can all throw our 2 cents in to try and help educate others in this pursuit. IMO, It is most important to address paying a price represented by a reasonable Gross Rent Multiplier. As I stated previously, GRM in excess of 14X annual rents is wacky. If you guys can buy stuff at 10X or less, long-term, I think you will be ok buying now, but I would still wait a few years, as I am certain there is another 20% haircut out there for values.

If my wife wasn't in love with our home, like MV, it would have been put on the market a year ago, as it has lost about $100k in value in the last 12 months. My duplex is almost paid off, so I am like fuck it, just keep it and not rock the boat selling it, as my wife doesn't want to, as her sister lives in one unit So ya, I hate the irrational emotion used to justify the ownership of residential property.

[Benny Profane]

Fixed this for you.

They are trying to forestall a horrific nation wide market crash like some parts of Cali, Arizona and Florida have already experienced, which would bring whatever semblance of "profitability" that the banking sector has been fantasizing about and pretending they were living in since mark to market was suspended to keep them and their lives in the hog pen greased, since they would have to deal with so much more useless crap on their books.

[Benny Profane]

extend and pretend [/I]practices are artifically propping up ostensible commercial RE values in some areas.

Your tax dollars, hard at work.

[cramer]

No you'd buy a newer car that you don't have to fix and maybe even one with a warranty, because (in general) mechanics are crooks and you will lose your ass paying someone to maintain your car for you.

Funny you mention that. I bought a mazda 3, and paid for 10 year warranty. I bought a house and pay 450 a year to warranty anything that breaks in the house. ya, thats right, 450 a year on stainless steel applicances, A/C, water heater, plumbing, washer/dryer, etc. Ive seen alot of posts about it costs so much to maintain. It costs me 55 bucks if anything breaks. Sorry, maintaining a house doesnt cost shit anymore. Pay 500 bucks a year and you dont deal with jack fucking shit.

[mcsquared]

Funny you mention that. I bought a mazda 3, and paid for 10 year warranty. I bought a house and pay 450 a year to warranty anything that breaks in the house. ya, thats right, 450 a year on stainless steel applicances, A/C, water heater, plumbing, washer/dryer, etc. Ive seen alot of posts about it costs so much to maintain. It costs me 55 bucks if anything breaks. Sorry, maintaining a house doesnt cost shit anymore. Pay 500 bucks a year and you dont deal with jack fucking shit.

This is the second or third time you have mentioned this "warranty" as an example of your financial aplomb. But you are a sucker. Home warranties are the undercoating and window etching of the housing industry. But if it keep you warm at night, more power to you.

[GiBo]

Pfffft, if you want to be pissed at someone over this huge fucking shit show, read this:

"The disgustingly rich Wall Street wheeler dealers who live in Greenwich CT and NYC and summer in the Hamptons have created nothing. Their immense wealth has been created through draining the economic system of its lifeblood. Their financial innovations have created no lasting benefit for our society. Wall Street knowingly created no documentation (liar loans) mortgage loans, Option ARM loans, and subprime loans. You do not create products that beg for fraud unless you want fraud. The packaging of these fraudulent mortgages into CDOs and CDSs by Wall Street’s crime machine benefitted Wall Street only. Those who got the loans defaulted, lost the homes, and had their credit ruined. Wall Street financiers have lured the American public into debt with easy credit and a marketing machine geared to convince the average Joe that he could live just like the rich. Simon Johnson explained the phenomena in a recent article".
http://www.zerohedge.com/article/guest-post-age-mammon

Might be a bit of hyperbole in that article, but who knows, maybe not. If even half is true...

I still hold that the people who got genuinely screwed were the people like me. I didn't buy into any bullshit. I got a divorce. I needed a house. The historical data showed that buying a house was a pretty decent deal if you needed a place to live. So I did that. I bought a very small house that I COULD AFFORD. It's these fucks who built the instruments and the fucks who used them to buy what they couldn't afford who caused my house to drop over 50% of its value- leaving me in a bind.

I've stuggled with the moral and financial choices in front of me. I've talked about it here. But I'm coming over to Benny's side. Right now I can still afford my payment and rent would only be a tiny bit less. So I have no real incentive to leave. But I'll tell you what, in three years when my ARM kicks in, if the bank doesn't work with me, I will walk with no problem whatsoever. I did what I could in good faith. It was their game and their rules and they fucked it up.

What makes me sick is the people who really didn't know better. I know people who just don't think like I do when it comes to debt. They honestly just don't fully understand it. The credit card and mortgage companies preyed on them. I've seen it. They teased them with low intro offers for cards (and these are people who have proven they can't pay on time). They sent them HELOC offers out the ying yang. "Oh, look honey, we can get that boat and RV after all!" It's truley criminal behavior if you ask me: A diliberate effort to use ingnorance and human nature to profit. But hey, that's bussiness I guess...

[GeezerSteve]

It's these fucks who built the instruments and the fucks who used them to buy what they couldn't afford who caused my house to drop over 50% of its value- leaving me in a bind.

Sorry to hear of your plight, but I think you've got it backwards. The slicing and dicing instruments and other easy loan devices resulted in bizarre housing price inflation. So, your house was likely grossly overvalued when you bought it, not the other way around. Yeah, the easy loan era also resulted in a glut of supply, which also contributes to depressed prices, but nowhere near the magnitude that the prices went up crazy double digits per year during the hype decade.

I watched it happen: pension funds, foreigners, insurance cos, etc. buying the sliced and diced paper, while the Wall Street MBA fucks skimmed enormous fees from the deal. Global denial. It was obvious (to me) that it was an unsustainable bubble, but people kept buying at absurd prices.

The crash did not surprise me. The idea that US housing values would forever and ever outpace inflation may have been conventional thinking, but it was nonetheless based on manifestly stupid logic and collective denial. For 20+ years I rejected the notion of home values outpacing inflation for numerous reasons, e.g., we're on the ass end of the baby boomer population curve, too-easy-debt-driven bubbles always eventually burst (duh), mature residential real estate markets (Japan, Western Europe) track or lag inflation, growing supply glut, etc., but every fucking time I was dismissed by The Believers as a naysaying idiot. How many times did I hear the inane "Steve, don't you know that real estate always goes up?" or "They're not making any more of the stuff."

I do feel sympathy for those who got in 2004 - 2008 after biting on the collective denial brainwashing, which included lots of pretty damn smart people. But it was just a matter of time before the bubble burst.

[beaterdit]

Might be a bit of hyperbole in that article, but who knows, maybe not. If even half is true...

I still hold that the people who got genuinely screwed were the people like me. I didn't buy into any bullshit. I got a divorce. I needed a house. The historical data showed that buying a house was a pretty decent deal if you needed a place to live. So I did that. I bought a very small house that I COULD AFFORD. It's these fucks who built the instruments and the fucks who used them to buy what they couldn't afford who caused my house to drop over 50% of its value- leaving me in a bind.

I've stuggled with the moral and financial choices in front of me. I've talked about it here. But I'm coming over to Benny's side. Right now I can still afford my payment and rent would only be a tiny bit less. So I have no real incentive to leave. But I'll tell you what, in three years when my ARM kicks in, if the bank doesn't work with me, I will walk with no problem whatsoever. I did what I could in good faith. It was their game and their rules and they fucked it up.

What makes me sick is the people who really didn't know better. I know people who just don't think like I do when it comes to debt. They honestly just don't fully understand it. The credit card and mortgage companies preyed on them. I've seen it. They teased them with low intro offers for cards (and these are people who have proven they can't pay on time). They sent them HELOC offers out the ying yang. "Oh, look honey, we can get that boat and RV after all!" It's truley criminal behavior if you ask me: A diliberate effort to use ingnorance and human nature to profit. But hey, that's bussiness I guess...

Dude I sympathize on all counts but it looks like you did buy into the bullshit. Why did you get an ARM if it was on a house that you could afford? Without knowing all the details it sounds like you got the basic, albeit slightly higher end, sub-prime loan. Now I know that divorce is financially devastating so maybe you had little choice but ARMs are nothing but HUDGE gambles. It's a classic buy now, pay later scenario just like what you're talking about in the end of your post.

If you can't afford the payment when the ARM kicks in you really shouldn't be in the house. I know that ideally you refi before that happens but there are a lot of 'ifs' in there and obviously those 'ifs' are being realized now.

Anyway, sorry about your plight, hopefully things will start to bounce back and the bank will work with you on the ARM. If they didn't I couldn't blame you for walking away but it might be a deeper hole to crawl out of financially. Maybe call the bank and try to get the ball rolling right now since you're already [close to?] underwater. The banks are still unprepared to deal with this shit and are moving very slow.

Good luck man.

[GiBo]

I kinda figured I'd get called on that.

I got an ARM because I was planning on moving before it adjusted (in fact, I'd move right now if I could). The lender was a bussiness associate/'friend'. I was insisting on a fixed, but he told me it would be a waste of money and if I ended up not moving I could just refi. He said, "Trust me. I've been in this my whole life. It will not go down in value." The fucker won't even return my calls now. I could have easily afforded the 30 year. My LTV is 245. No one will touch me now.

The funny part is, my gut saw it all coming. My intuition told me it was a house of cards. In hindsight, I should have listened to my gut and rented. But it was hard with all these industry 'experts' around me telling me I should buy. With the added pressure of wanting a 'home' for my kids, I pulled the trigger. And hey, I looked like a real smart guy for about 2 years as it steadily rose in value. Now, not so much...

[beaterdit]

Fuck that really sucks.

A lot of the 'industry experts' are scumbags who don't care who they screw for a paycheck (TimVW excluded of course ).

I've had those ARMS pushed on me in almost every home purchase I've been involved in. Frankly, the traditional 30 scares me enough, especially now, but I've managed to stay ahead so far.

Seriously, try to talk to the bank sooner than later. Not too sure what's up with those companies that say they can help get your terms modified. I've heard they're scams and can fuck your credit but it might bear looking into.

Sorry if I came off as a dick...

[Benny Profane]

http://www.ritholtz.com/blog/2010/08...bubble-market/

[skier666]

An ARM is a gamble...

In our business we assumed a loan for a commercial apartment building many years ago. The payments are way down due to the extremely low interest rates.

[GeezerSteve]

But it was hard with all these industry 'experts' around me telling me I should buy.

The term "residential real estate expert" is an oxymoron. The old saying is "real estate is where the C-students go find work."

I know two non-trustfunders/non-tech$$ guys who retired by age 40. Both of them never owned real property. They used to say: "When somebody closes on a house, they say, 'Hey congratulate me; I just became a homeowner,' but they should have said, 'Hey, feel sorry for me because I just went into deep debt for 30 years.'"

[Benny Profane]

The term "residential real estate expert" is an oxymoron. The old saying is "real estate is where the C-students go find work."

I know two non-trustfunders/non-tech$$ guys who retired by age 40. Both of them never owned real property. They used to say: "When somebody closes on a house, they say, 'Hey congratulate me; I just became a homeowner,' but they should have said, 'Hey, feel sorry for me because I just went into deep debt for 30 years.'"

The wealthiest person I know owns a reasonably sized home that he paid cash for, travels the world, and scorns the concept of "owning" a second or third home, even though he's away half the time.

[beaterdit]

An ARM is a gamble...

In our business we assumed a loan for a commercial apartment building many years ago. The payments are way down due to the extremely low interest rates.

It's true it's a gamble that sometimes pays off, if rarely. Are you guys locked in at a good rate now?

GiBo, if you're lucky rates will stay this low or close until your's kicks in.

edit: that's weird, when I posted that it was right below skier666's post, now there's a bunch of stuff in between?

[GiBo]

Naw, you didn't come across that way beaterdit.

I'm a semi-intelligent adult. I knew the risks. I just never thought in a million years I would lose that kind of value that fast. Looking back I should have bailed when the value got close to what I paid. But that shit happened FAST.

I did call the bank mulitple times. They can't help me. I don't blame them- how the hell are they going to sell a $233,000 loan on a house worth $95,000? And restructure? No way unless I stop making payments and then my credit's screwed.

Stupidest thing I did was put a bunch of money down. If I walk, that's long gone.

This crash has really fucked me good. Sure, I went in with open eyes, but it was the stuff talked about in that article that falsely inflated the market and put me in this position.

[Benny Profane]

This guy does great research. He digs in and finds the numbers, and, in this case, it isn't pretty, if you think we're bottoming out. What's most bizarre, and, I guess it's a real lesson to be found in the bubble rubble, is how the places that cratered big time are not only not bouncing back, but, actually getting worse. I made a call over a year ago that Florida was a solid buy, but, it's probably dropped another 25% overall since then. I'm stunned. How is it possible that God's waiting room isn't filling up with Boomers when a nice little three bedroom in Tampa or St Pete with a screened in pool is going for almost five figures? Who knew? Everybody is just stuck, and nobody seems to have any money.

http://seekingalpha.com/article/2262...omments_header

[XXX-er]

The term "residential real estate expert" is an oxymoron. The old saying is "real estate is where the C-students go find work."

I know two non-trustfunders/non-tech$$ guys who retired by age 40. Both of them never owned real property. They used to say: "When somebody closes on a house, they say, 'Hey congratulate me; I just became a homeowner,' but they should have said, 'Hey, feel sorry for me because I just went into deep debt for 30 years.'"

I could buy another house but I would JUST need to get a job to do it,Or I can keep renting from the roomie who has 5 houses 3 of which he can't sell ,it sure is cheap not owning a house .