Real Estate Crash thread

[yonskion]

maybe a Wall Street CEO is looking...looks like another banner year for bonus money!
WTF
http://bankimplode.com/blog/2008/12/...-bailout-plan/

[Benny Profane]

It wasn't just Fannie/Freddie and lying lenders.

http://www.nytimes.com/2008/12/19/bu.../19tax.html?hp

Ryan J. Wampler had never made much money selling his own homes.

Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.

And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.

The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”

By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for “fueling the mother of all housing bubbles.”

By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.

Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.

[woodstocksez]

It wasn't just Fannie/Freddie and lying lenders.

http://www.nytimes.com/2008/12/19/bu.../19tax.html?hp

Ryan J. Wampler had never made much money selling his own homes.

Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.

And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.

The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”

By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for “fueling the mother of all housing bubbles.”

By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.

Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.

I assume they're talking about the $250K/$500K exclusion. Without thinking this through at all, I really wonder how much fuel that supplied. Prior to that tax break, there was a similar one. My addled brain is forsaking me a bit, but I think you could defer gains indefinitely as long as you used the proceeds from the sale of your house to buy a new house. Or something like that. In any event, that tax break they're talking about wasn't completely new; it replaced something similar. Also, the $250K/$500K exclusion comes attached with conditions that inhibit how readily you can use the exclusion. Finally, buying and selling houses comes with some pretty hefty transaction costs that tend to restrict (relatively) rapid-fire buying and selling of homes.

Nevertheless, I'd be in favor of eliminating tax preferences for home ownership. It's not gonna happen, though.

I don't know. I think I'd lay the blame for the housing bubble initially on the wealth created during the dot-com bubble (at least around here), then, after a short break at the beginning of the decade, on the breakdown in lending standards in the middle of this decade.

[rideit]

Word on the street is that Real Estate of Jackson Hole is filing for bankruptcy....ahh, schadenfreud.

[rideit]

Just heard that REJH is closing it's doors.
too bad.
So sad.

[Core Shot]

Ha Ha [/end Nelson Muntz]

too funny that Chris johnston bought it 2 years ago, and lost $1MM this year in the deal.
All the brokers flee to other firms with their listings and REJH evaporates overnight.

The brokerage listed 70 real-estate agents on its Web page Monday. Some agents planned to move their licenses to other valley firms and continue to market property.
Real Estate of Jackson Hole President Bob Graham, who founded the company in 1972 and remains a stockholder, planned to move his real-estate team — Graham 4 — to a new firm.
“We will be back in business,” Graham said Monday afternoon. “We have made commitments to market and sell property, and none of that will change going forward.”

wow

http://www.jacksonholenews.com/article.php?art_id=4045

[Benny Profane]

Macmansions in the burbs go down.....

http://www.nytimes.com/2008/12/28/re...te/28zone.html

"Likewise, in New York State, the inventory in outlying boroughs and counties is very large compared with that of Manhattan and Brooklyn. Westchester County has the next-largest inventory to Long Island, at 18 months. Orange County’s inventory is nearly 18 months, and Rockland’s is 14.5. Mr. Otteau foresees a “structural shift” in housing demand that will come into sharper focus in the region when the overall market improves.

“Right now we are all focusing on how bad it is,” he said, “but what we are also seeing is a historic reversal of home-buying demand away from suburban and rural areas to cities and inner-ring suburbs that are more walkable than driveable.”

Mr. Otteau says the shift was partly because of higher energy prices. But the dominant reason is that the number of households with children living at home is on a persistent decline.

“In 1985,” he said, “50 percent of households had children at home. In 2000, that was down to 33 percent. Today it is 29 percent, headed to 25 percent.

“That means that 75 percent of home buyers over the next 15 years will have childless households — and within that group are empty-nester baby-boomers, or couples or singles buying a first house. And that means that three out of four home buyers will have no interest in a house in the suburbs with a good school system, which is pretty much what we’ve created over the last 50 years.”

Mr. Otteau cited a new study from Virginia Tech projecting that a nationwide surplus of 22 million suburban homes on lots larger than a sixth of an acre will be languishing on the market by 2025."

[Benny Profane]

January 26, 2009, 9:54 am
Real Estate Deals in South Florida, Bring Cash
Dawn Wotapka reports:

The housing boom fueled condo mania across South Florida, with buyers lining up to pay top dollar for waterfront views. But, now the market’s spectacular bust is fueling foreclosures and all-cash deals.

The region’s bank-owned property count soared a whopping 160% last year, according to a report by Condo Vultures LLC, which taps clerk of court and circuit court records for data. Miami-Dade, a poster child for the condo bubble, led the repossession list, with 12,059 properties returned to lenders, compared with 4,539 in 2007. Broward came in second with more than 10,000 real estate owned homes (REOs), up from 3,686 in 2007, followed by Palm Beach County’s more than 4,000 last year. In 2007, it saw 1,862 REOs.

“To understand the magnitude of the increase, consider that Broward County alone had as many REOs in 2008 as did the entire tri-county South Florida region for all of 2007,” said Peter Zalewski, a Condo Vultures principal who is also a real estate broker.

That’s turning into a pricey problem for banks, which pay at least $30,000 - $60,000 per foreclosure. The expenses include everything from property maintenance to brokers’ commissions, according to the Mortgage Bankers Association.

But there’s a silver lining for buyers in the form of “unprecedented discounts on any and all residential product along the South Florida coast,” Mr. Zalewski said. Luxury units with granite countertops and Jacuzzi baths are fetching pennies on the dollar. In Miami-Dade’s upscale Brickell Avenue neighborhood, a two-bedroom apartment that sold for $700,000 in 2006 is now going for $110,000. Similar deals are available on single family homes.

Fans of new building are also in luck. Miami ’s downtown area has 5,000 units underway or just finished. Of the 17,500 condo units built since 2003, 30 percent are empty, according to Condo Vultures. “The people who are risk takers are buying right now — all cash,” Mr. Zalewski said. Bank financing, he added, is much harder to get.

[rideit]

If you ever dreamed of having a place in the Tetons, this summer is going to be the time to pull trigger.

[RootSkier]

I fucking hope this summer is the bottom. $900 in dues due tomorrow, fucking AWESOME, since that's $900 more than I've made on any real estate deals since October. I had a pretty damn good year up until August, though. Damn. It went bad in a hurry around here.

[rideit]

Our local ageny/commission, TBOR, is such a scam. Why doesn't MLS just do agent-direct?

It's pathetic.

[Toadman]

If you ever dreamed of having a place in the Tetons, this summer is going to be the time to pull trigger.

Hmmm, do tell...

[RootSkier]

I have a Jackson based realtor buddy who did deal for $1.5M last summer, I talked to him the other day and he is doing a short sale for half that on the same property right now.

[LeeLau]

I read a piece this morning on Option ARMs that stated the subprime meltdown over the last few years was nothing compared to the Option ARM shit storm that will happen over 2009-2010.
http://www.msnbc.msn.com/id/28035238
"The first wave of home foreclosures that hit in late 2006 and early 2007 followed the resetting of subprime adjustable mortgages with two- and three-year "teaser rates" written during the height of the lending boom earlier in the decade. But pay-option ARMs — which often don't "recast" for five years — have a longer fuse. Unless defused by aggressive public and private foreclosure prevention programs, the bulk of these loans will explode to higher payments in 2009 and 2010.

The scope of the problem was highlighted in September in a study by Fitch Ratings, one of the bond rating agencies that assesses the risk of defaults on mortgage-backed investments. Of the $200 billion in option ARMs outstanding, Fitch estimates that some $29 billion will recast in 2009 and another $67 billion in 2010. That could cause delinquencies on these loans to more than double, Fitch said.

To make matters worse, only 17 percent of option ARMs written from 2004 to 2007 required full documentation. Many of the borrowers who took out these loans also took out a second mortgage, which means they likely have little or no equity in their home, according to the report. That means many could owe more than their house is worth when the loan recasts to unaffordable payments."

Throw in unemployment at 9-10% at that time and this is going to get real ugly IMO. Good time to sell if you don't have a shit load of equity and a long (10+yrs) ownership window for prices to come back to 2004-05 levels??

That is an awesome article. Truly the American financial system is ingenious.

Do you have geographical breakdowns for Option ARM resets by region? Case-Shiller indices are regional - tickers here if anyone is interested (http://en.wikipedia.org/wiki/House_price_index)

It would seem that a good shortsell would be regionally targeted?

EDIT -
I dont think the CaseShiller index is shortable unless I'm misreading the S&P summary - its just a monthly index

But there are futures on the CaseShillers which are regional

http://housingderivatives.typepad.co...fact_sheet.pdf

http://www.cme.com/files/housing_faq.pdf

Here are the regionals - see last column



Nice little tool for extracting historical data - http://paper-money.blogspot.com/2007...-tutorial.html

and also here http://www.zoyzoy.com/realestate/caseshiller.php

Note these Futs aren't exactly liquid

[RootSkier]

From that article: "In Nevada, one in every 74 homes was hit with a foreclosure filing last month."

[Platinum Pete]

Fans of new building are also in luck. Miami ’s downtown area has 5,000 units underway or just finished. Of the 17,500 condo units built since 2003, 30 percent are empty, according to Condo Vultures. “The people who are risk takers are buying right now — all cash,” Mr. Zalewski said. Bank financing, he added, is much harder to get.

Condo Vultures is an awesome name for a company that snaps up short sales.

[cramer]

im not sure where these people live with these loans. There is more houses without people than with people in my neighborhood. I guess the 10 who live on the street are going to lose their houses? geez....I took a look on the street right before mine, it was astonishing. I'll post a pic this weekend. All you can see down the whole street was real estate signs. Last weekend they had the "never before lived in houses". I guess i shouldnt be suprised. Mine was built in 03 and the neighbor next door moved into his in 06. He said noones lived in this one since he moved in. Whats crappy about that is this house was sold in 06. Whoever bought it last time probably did as investmant and just walked i guess? I probably would have too, he paid 520K. I paid less than half that.

[mock vomit]

...I had a pretty damn good year up until August, though. Damn. It went bad in a hurry around here.

That sounds familiar!!! Though luckily I've seen it pick up a little bit around these parts. Some of the increase is bargin takers snapping up the discounts... values down maybe 20 to 30 percent from their peaks on average? I ran a bunch of stats to put together graphs for my web site to show how our Beer Town market has been affected.

This first analysis is calculated by date of accepted offer, which leads the actual closings by about 30 to 60 days on average. We are just now seeing the national and local media pick up on this increase in units under contract/closing. I also ran 9 subgroups by price for the whole metro area... except for the sub $100K group, all were down signifigantly for 2008, with those above $350K or so hit the worst. Interestingly almost all groups showed a December bounce back, leaving Oct and Nov 08 as the bottom. I assume the December increase was interest rate driven? Sure hope that keeps up!!!



Then did additional individual analysis for my "home area", a group of 3 western suburbs. They all show a roll back to prices from the 2004 time frame... Here is the ratio of sold price per square foot for one of them;

[Nobody Famous]

...We are just now seeing the national and local media pick up on this increase in units under contract/closing.

The News Corp. minions at the WSJ have it as lead story today, link. Along with a nice graphic in the print edition, ... that I can' find on the interweb edition.

[skier666]

The apartment rental market in Silicon Valley has shown a slight decrease in rent. I've lowered rents just below market to keep vacancy rates extremely low. I've seen forecast presentations for the region and from what I've read its going to be tough to really kill the market in the area. There are so many hot industries in the region from major IT companies & Bio-Nano/LifeScience/Medical/WEB 3.0, & major Clean Tech, all added to a large banking and legal infrastructure, highest percentage of college grads, and proximity to venture funding to allow business to spin its wheels. And don't forget the access to a long ski season

Its definitely going to slow but I don't see prices falling like the Condos in Florida.

[mock vomit]

Hoping this doesn't keep dropping for a couple more years...

US housing slump may deepen, affect other countries: IMF

3 hours ago

WASHINGTON (AFP) — The International Monetary Fund warned Thursday that the US housing downturn may deepen and last longer than previously forecast, and the slump could spread to other countries.

In a report to the Group of 20 developed and developing countries, the IMF said that house prices in the US and other countries could continue to plunge through 2010 as unemployment rises amid the global economic slowdown.

"In the United States in particular, there is a risk of deeper and more prolonged housing correction," the Washington-based multilateral institution said.

The US housing slump, at the epicenter of the global financial crisis, in under severe pressure "as labor markets deteriorate further, mortgage financing remains restrained and foreclosures rise steeply as the 'negative equity' problem in housing spreads," it said.

"There are risks that house price declines could intensify in other advanced economies and also spread to a broader range of countries, particularly if the availability of housing finance is squeezed through adjustment in the financial sector," it said.

The report was prepared for a G20 ministerial meeting held in London on January 31 and February 1 ahead of a G20 summit in the British capital on April 2.

"House prices could continue to fall sharply through 2010, undermining recovery in financial markets and contributing to the adverse feedback loop with the real economy," the 185-nation IMF warned.

...

[corn dog]

more good news !!

from http://www.bloomberg.com/apps/news?p...7Dw&refer=home


U.S. Housing Slump Has ‘Just Begun,’ Says Forecaster Talbott



Feb. 5 (Bloomberg) -- Let’s say you own a $1 million home in Santa Barbara, California.

The house seemed like a steal when you bought it with that adjustable-rate mortgage in 2005. You still love the white beaches and those yachts bobbing up and down in the harbor.

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.

Are you going to pay the bank $1 million plus interest for your place? John R. Talbott, a former investment banker for Goldman Sachs, poses that hypothetical question in his latest book of financial prophesy, “Contagion.”

His answer: “I don’t think so,” he says. “If I’m right, then this housing decline has only just begun.”

Talbott is an oracle with a track record: His previous books predicted the collapse of both the housing bubble and the tech-stock binge before it. A friend who runs a New York steak house introduces him as Johnny Nostradamus, he says.

What sets him apart from other doomsayers is his relentless emphasis on simple arithmetic. He walks you through the numbers to show how U.S. house prices got so out of kilter with wages, rental prices and replacement values -- the cost of buying a property and building a home. (“Homes in California by 2006 were selling at three to five times what it would cost to build a similar home from scratch,” he writes.)

Five More Years

Talbott’s latest predictions are sobering. The U.S. is only halfway through the total potential decline in housing prices, he says. Home values will continue to deteriorate for four to five years, he forecasts. Adjustable-rate mortgages issued in 2004 and 2005, for example, are only now resetting for the first time, he notes.

Bankers may “try to blame the crisis on poor Americans with bad credit histories, but that is not the real cause of the housing crisis,” he says. “The greatest home-price appreciations and the homes most subject to price readjustment are in America’s wealthiest cities and its glitziest neighborhoods.”

At the end of 2008, a record 19 million U.S. homes stood empty and homeownership sank to an eight-year low as banks seized homes faster than they could sell them, the U.S. Census Bureau said this week. Almost one in six owners with mortgages owed more than their homes were worth, Zillow.com said the same day.

By the time the crash ends, Talbott predicts, homeowners will have lost as much as $10 trillion, with investors and banks worldwide losing almost $2 trillion. And just as the U.S. starts getting over a prolonged recession, the first big wave of baby boomers will retire, depriving the economy of their productivity (and high consumption), he says.

Back to 1997

So how far will the price of your home on the range fall? Citing historical data and trends, Talbott concludes that real prices should return to their average 1997 levels, adjusted for inflation. Why 1997? A 120-year historical graph shows that real home prices in the U.S. stayed relatively flat for 100 years, then began rising in 1981 and surged from 1997 to 2006.

A return to 1997 prices “would get us out of the heady, crazy days from 1997 to 2006 in which banks were lending large amounts of money under poor supervision and aggressive terms.”

How did we get into this mess? Talbott blames everyone from average Americans who caught “the greed bug” to hedge funds and credit-default swaps. The single biggest error, he says, was for U.S. citizens to allow their national politicians to take large campaign contributions from big business and Wall Street -- a theme Kevin Phillips developed in “Bad Money.”

‘No Accident’

“This crisis was no accident,” he says. It began, in Talbot’s view, because the U.S. government was “co-opted” into deregulating the financial industry. Politicians were “paid to deregulate industry,” taking billions of dollars each year in campaign contributions.

His investment advice for this prolonged recession: Hang on to cash and invest in gold or Treasury Inflation-Protected Securities, or TIPS. If he had to invest in stocks, he would put his money in China.

Living in smaller houses with their savings gutted, U.S. baby boomers will face yet another big challenge, Talbott says:

“The toughest job to get in the future will be the elderly person greeting you as you enter the local Wal-Mart.”

“Contagion: The Financial Epidemic That Is Sweeping the Global Economy . . . and How to Protect Yourself From It” is from Wiley (256 pages, $24.95, 15.99 pounds, 19.20 euros).

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)

To contact the writer on the story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: February 4, 2009 19:00 EST

[Benny Profane]

pffftttttt.......no problem. The smart, prudent Republicans just gave you and me a 15,000 tax break on a home purchase. We'll be back to the party times in a month or two. Then they'll give us a 500 tax break for a flat screen. woohoo.

[liv2ski]

Shit Corn Dog, if that dude is right, I will be working forever, as I am pretty heavily invested in real estate.
Back down to 2002 levels perhaps, but 1997 that would just crush the US economy or conversely a crushed economy could do it to housing.
That would blow.

[Benny Profane]

His investment advice for this prolonged recession: Hang on to cash and invest in gold or Treasury Inflation-Protected Securities, or TIPS. If he had to invest in stocks, he would put his money in China.

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.