A housing graveyard made up of 7,000,000 foreclosures: The longer term consequences of 7 million foreclosures that started with the 2006 peak in housing.
There is little bragging that goes on when a poor financial decision is made. You rarely hear about the person that invested a sizeable portion of their retirement account into AOL at the peak or going all in on Enron. The same applies to housing. We are seeing chatter reflect that of 2005, 2006, and 2007. Justifications are different but some people seem to feel they bought at the “perfect†time. Just for the sake of curiosity I ran the numbers of total foreclosures since the crisis began with the housing peak in 2006. In total, 7 million Americans have been served with the bitter taste of foreclosure. On the flipside, since we know that roughly 30 percent of all purchases have gone to investors and Wall Street, we can say that probably over this same period 2,000,000 homes are now in the hands of some sort of investors (i.e., big money, small money, foreign money, and second homes). You also have to wonder how many of these people that lost their homes in foreclosure are itching to get back on the horse and buy again. Credit standards are fairly tough for getting a loan today even though rates are low. And those with the credit and income are battling it out in flippervilles where “all cash†is dominating the scene. There are likely some permanent structural changes that are a result of a stunning 7 million foreclosures.
The 7 million club
From reading the mainstream press all you hear are glorious signs of housing resurrection! Come one come all into the house of real estate where the almighty Fed will allow no harm to occur. Just sign and pray and the next thing you know you’ll be the next Donald Trump. The flipping, rehabbing, and housing shows are once again filling the space on a cable station near you. The perception of the Fed being this almighty protector of housing makes a bit of sense but where was the Fed in 2007? Last time I checked the Fed came into existence in 1913, over 100 years ago. Frankly, the Fed on their list of priorities has: to keep member banks afloat, keep financials steady, a deep attempt to protect the bond market, and more importantly keep interest rates low on our massive $17+ trillion national debt that will never be paid back. Housing is low on the list of priorities especially with many of the foreclosures now shifting to “stronger†hands.
You wouldn’t know it but since the peak in 2006 we have witnessed 7 million foreclosures:
Even in 2013 we had 1.4 million properties with notice of defaults, scheduled auctions, and full on REOs taken on. Early in the crisis these stories were common since they were a novelty to the press. Now however, many of these properties are shifting over to large investors pushing inventory up. A clear consequence of this is a large pool of potential buyers that are unable to buy. 7 million households now have a marred credit history. In many hot metro areas given the 2013 jump in prices to get the best rates you will need good credit. Contrary to nonsense being spouted you actually need a solid income to compete in any high priced metro area. Plus, we are assuming this foreclosed club is even interested in buying again. Many are opting to go the renting route.
The assumption is that the market is being driven up organically by regular households and that is not the case:
Source:Â Wells Fargo
The number of first time buyers is pathetic because household formation is weak and many young Americans are living at home with mom and dad. Forget about buying, they are having a tough time paying higher rents to the new feudal landlords. You would expect with the rapid rise in prices that existing home sales are off the charts but they are not. For most people in the perpetual serf demographic, a mortgage is necessary to buy but look at requests for mortgages via applications:
We are back to levels last seen nearly 20 years ago! Only difference is that we have 50,000,000 more people today walking the streets of the U.S. of A. than we did back then. Since access to middle class living is getting tougher thanks to weak income growth, more people are opting to rent:
We continue to add a large number of renting households. For the 7 million foreclosed souls, credit destruction might force their hand but many might have gotten a healthy vaccine from the “real estate only goes up†mantra. We have new folks taking their chance at housing roulette with placing a massive bet on red and many diving in with ARMs to stretch their budgets to the fullest potential. Some luck out but only if their timing aligns with bigger macro events. They then back fill the narrative to justify their behavior. Confirmation bias! It might come as a shock that many things that happen to you, good or bad may have nothing personal to do with your decisions. I’m sure we have some aspiring Trumps in Greece or Liberia but the environment isn’t setup for mad real estate speculation. You also had many that escaped the last crash by tiniest of margins. Say someone that made that last fabulous flip in Compton, Pacoima, Palmdale, Las Vegas, or any market that is eons away from the peak. Where they masterful timers? Unlikely. They lucked out. The massive bubble forgave their sins. But it doesn’t forgive all. The beauty of this QE juiced market is the Fed has turned us all into speculators whether we admit it or not. By default you are playing this game whether you want to or not. Cautious and have your money in a safe bank or CD? Inflation is eroding your purchasing power. Thinking of buying? This might be a turning point:
Gains are stalling out largely because investors are slowly stepping back and households are still trying to gain their footing in this new economy. Those 7 million foreclosures are massive and those people walk amongst us. It is unlikely that we will hear their horror stories in mass. Even in the crash days of 2007 through 2012 (the trough) you were hard pressed to see people discuss this openly. Yet the confirmation bias going on right now is frothy and does remind us of 2006 and 2007.
Want to see some of this insanity in action? A commenter pointed this gem out:
2125 VALLEJO St
Los Angeles, CA 90031
4 beds, 3 baths (listed at 3,500 square feet)
The house is currently listed at $598,000. But let us look at the sales and listing history here:
They actually tried selling this place for $695,000! The last sale price was $219,000 in 2013 which tells us some major rehab work went on here. But $476,000 worth of work? Come on now. Even the sellers don’t believe this and that is why they have dropped the price nearly $100,000. Thankfully Google gives us a bit of a glimmer of the home pre-makeup and Photoshop filters:
People are pulling figures out of thin air here especially with that $695,000. The schools in this area are sub-par so factor in tens of thousands of dollars to send the kid(s) to private school. This home qualifies for a Real Home of Genius Award. In the game of musical chairs, there can only be one winner. It is about timing. There are many signs showing a tipping point is occurring. Unlike stocks, real estate turns around like a large cargo ship, slowly and surely.
While we may not hear much on those 7 million foreclosures, rest assured that many Americans are no longer in the camp that believes the Fed can do everything and anything to keep prices up. For the big players, real estate is merely one tiny piece of their portfolio like owning a Rembrandt or fine jewelry. Most of their wealth is in stocks and bonds. Ironically Wall Street owning rental property is going to put them face to face with the proletariat and will soon come to realize that you can only raise rents based on local area incomes. Try cash-flowing a property in Santa Monica or Pasadena at these rates. Even flippers are starting to enter pricing purgatory one bad flip at a time. At least someone will get a new granite countertop sarcophagus home built in the 1800s with hardwoods floors!
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143 Responses to “A housing graveyard made up of 7,000,000 foreclosures: The longer term consequences of 7 million foreclosures that started with the 2006 peak in housing.”
It’s crazy here in nor cal. Now I’m seriously contemplating moving to another tech hub. Any suggestions?
@ SV
There are plenty of top 10 Cities for tech geeks you can find on google. And yes LA is on this top 10 list.
http://www.cio.com/special/slideshows/top_10_cities_for_tech_jobs/
This link is interesting – rents rise faster in tech cities than others and you guessed it – LA is on the top 10 list of tech hubs.
http://www.reuters.com/article/2014/02/06/us-usa-housing-techhubs-prices-idUSBREA1507E20140206
….Rents are rising faster in U.S. tech hubs than in the rest of the country, Trulia said in a report released Thursday. In January, it said, rents rose 3.3 percent in the nation’s 100 biggest metropolitan areas in January, but they rose by an average of 5.7 percent in the 10 biggest tech hubs. The report blamed the high prices on factors ranging from the lack of new-housing construction in many tech centers to the technology industry’s presence in areas that commanded top dollar even before the current technology boom.Landlords ask one-third more in rent for a typical two-bedroom unit in a tech hub compared with other big metro areas, the report said – $2,053, on average, compared with $1,504 in other metropolitan areas…..
QE abyss-the first article you quote from is really about the top 10 cities with tye total number of tech jobs (however defined); not the concentration of jobs (% of the overall market). Of course by raw numbers its mostly going to be the biggest cities in the US (and it is) because they have the biggest populations. Your second article lists 10 cities in the last paragraph, 3 of them in CA I believe, none of which is LA.
FTB has a point. SoCal population 17.5MM, tech jobs 172K. Dallas-Ft Worth population 7MM, tech jobs 176K. SF Bay area population 7MM, tech jobs 225K
Rents are not rising in SoCal anymore. I work in financial services and we have been actively cutting rent in the 323 and 310 area codes since last summer. Declining rents in SoCal are probably not going to show up in any statistics since vacancy turn over is significantly lower than historical levels.
You could move to Bangalore or Hsinchu.
Home price / income ratio in Banglore is about 8:1
and
Hsinchu is about 6:1
Move to Loudon Country, Virginia. Wealthiest county in the USA. LOTS of high tech.
Proletariat, huh? 🙂 A little too much Karl Marx, old doctor?
I see you have also adopted his view of the economy.
“and will soon come to realize that you can only raise rents based on local area incomes”
Pricing of rent, just as everything else is based only on supply and demand, and nothing else. When building has been depressed over the last 5 years (below the normal depletion) supply is short, and demand went higher based on population growth.
One of my tenants is buying a house, and vacating my property (he was a good tenant, too), and i have realized i was at least $300 under market, as i marked it up $300, and got 60 calls in the first day of craigslist ad. Good times 😉
Hey crack head, I bet your favorite Koooool-Aid flavor is Pollyanna Peach. Why don’t you raise your rent 3000 dollars? It is always about supply and demand until the market crashes then it’s all about where’s my bailout? You really need to get a clown suit to go along with your clown act you shill…
it’s always about supply and demand.. market up or down…
i bought my properties before the last collapse, and there were 3 years I did not raise my rents.
Aside from that.. You seem angry. Ran out of crack?
Angry? Not at all. Are you not a shill? Your babble smells of shill to me. The get rich quick via real estate is so 2005… Why would you come on this site and state one of the oldest tired shill overused mantras? You think you are the first to say it is all about supply and demand and I could raise my rent blah blah blah? At least Tim Jaylor entertains… You are pretty tired hence the need of a clown suit to go along with your sorry clown act…
Where did I ever write any of the things you say? Crack got you delusional?
Not ever sure why I bother responding
1) did I ever say real estate is get rich quick? I bought my first property in 1999, I was cash flow even for 3-4 years if I can recall correctly. Now, 15 years later it’s a nice supplemental income. It is “rich”? No. Is it quick? No.but it sure feels good
2) rent IS supply and demand. Clearly as building of new units has slowed the rents have been climbing, even as income has been steady
I don’t advise anything to anyone. Own/rent/invest.. All the same to me.. But my only regret is I did not buy more RE over the last 4 years
Mik – I believe that you are a shill. So my question is why would you comment on a site called Doctor Housing Bubble? You surely do not believe that we are in a housing bubble. What would someone like you have to gain by making superficial comments? I am always up for listening to various points of view and some commenters have actually affected my view. You believe in some strange concept called supply and demand. What is demand? What is supply? These concepts are thrown around by folks who have no understanding of the principle and the massive short comings of the theory. Your comment is so silly to me “Pricing of rent, just as everything else is based only on supply and demand, and nothing else.” That is like me saying that weather is based on the spinning of the earth and nothing else. Blert turned me on to the work of economist Steve Keen who mathematically disproves the theory of supply and demand. I disagree often with blert but he actually brings something to the table with is rambling rants. There is much more than the number of housing units and the number of residents that determine price in the aggregate “housing marketâ€. Your simplistic view does not really add much to the discussion on this site. So, again what is the point of your comment?
“One of my tenants is buying a house, and vacating my property (he was a good tenant, too), and i have realized i was at least $300 under market, as i marked it up $300, and got 60 calls in the first day of craigslist ad.†So this is your proof that “Pricing of rent, just as everything else is based only on supply and demand, and nothing else.” That really doesn’t refute that rents are dependent on income. Like I said, I disagree vehemently with many commenters and sometimes with Doctor Housing Bubble himself but I believe the majority of folks add to the discussion unlike yourself.
Haha,
Good one Mik. Doc is right about this one. Seems like while you may have a horse in the race, you are the one wearing the blinders.
One of the most interesting things about the low interest rates is that it will, in a few years, lead to overbuilding and an oversupply of rentals. Why? Because move up buyers won’t sell their old property and will try to rent it out. That will solve your supply problem. Also, population growth is very slow.
Expect both the housing and the rental bubbles to slowly deflate over the next decade or so. Stagnant wages = stagnant housing and rental markets.
Is it possible that we will get to overbuild state at some point again? Sure..
I just don’t see it, i am looking at housing starts, and it’s just not there..
Besides, I own singe family homes, and housing starts for those have been miserable for years.
I don’t expect to be able to hike rent every year.. rental market goes up.. and down.. and up.. and down.. meanwhile my properties are getting paid off (the first one I bought in 1999 on 15 years mortgage and will be paid for in July).
“I don’t expect to be able to hike rent every year.. rental market goes up.. and down.. and up.. and down.. ” It is kinda funny when a shill tries to sound reasonable… So what is your point? We should all go out and buy “investment” properties? Is that your belief? So is it a good time to buy RE as an “investment”? Find a property that is up for sale and run the numbers and show us how it is a great investment… Otherwise, find a clown suit to go with your tired act…
Mik,
I am sure like most landlords, you are smart, diligent and put in a ton of sweat equity in what you do. And, you will always make a reasonable profit. I just don’t think it can significantly decouple from the rest of the economy.
I do have a question for you though. What do you think of all these institutional buyers who are gonna be renting out to people? Do you think a company can do what you can do at a profit or does it take a landlord who is personally involved to make a decent return?
Mik the nitwit troll states the first property he bought back in 1999 with a 15 year loan will be paid off in July. Oh and he also states he wishes he could have bought even more property the past few years.
Now that REALLY smells like bullshit and this guy is nothing but a shill troll. Here’s why.
http://www.fedprimerate.com/mortgage_rates.htm
As you can see from the historical mortgage rates chart, mortgage rates on the 15 year were over 7% back in 1999. Around 7.25% in June/July. No doubt this troll will reply that he somehow got some magical special rate at half of what was prime back then, but the fact of the matter is, if this clown was for real, his 15 year mortgage would be at the very least 7%+.
Now, what savvy RE rental investor, particularly one who stated I WISH I COULD BUY EVEN MORE PROPERTIES THE PAST FEW YEARS, would NOT have cash out refi’d that property to pull massive amounts of equity from that 10-15 year run up, at a rate at the very most HALF of the original mortgage rate, and used that cash to buy more properties while at the same time massively cutting his payment?
The 15 year has been sub 3.5% since August 2011, and was sub 3% for an entire year from June 2012 – May 2013. Yet this shitheel is talking about paying off his 15 year mortgage and wishing he had mo’ money to buy mo’ property. Any retard with such sentiments would have put their money where their mouth is and leveraged up.
THIS BOZO IS TOTAL BULLSHIT, AND THE ONLY PROPERTY HE HAS IS HIS CLOWN HOUSE.
@Ak
I have no experience running a huge rental operation, however I can see pluses and minuses.
Of course, as an owner i have more personal relationships with my tenants, i am able to handle “issues” a little more efficient, etc.
However, larger real estate holding companies (if managed correctly) can have substantial cost advantages (finding, screening tenants, repairs, “turns”). Bottom line if managed correctly, I don’t see any real issues with that business model.
@haters (What?) and whatever other nicknames you want to come up with.
In 1999 my first mortgage was at 7.75% interest @ 30 years. I put 20% down.
I have refinance it twice since. Last time it was 5 year ARM back in 2004 or something like that, however when the ARM reset, it kept getting lower, last 3 or 4 years i have been paying reset rate at 2.5%.
After year one (or two), i can’t recall, i have been keeping my payments such that I would pay it off in 15 years.
I did buy 2 more properties 3 years ago, right in the same area, however I was too scared to leverage myself more, and this is what I regret.
The new properties have been cash flowing since day one, which is pretty insane.
As to why i posted on this blog.
1) I like reading gloom and doom.. gives me perspective from another side
2) You amuse me.
Hey Mik – I use my own handle or include (AKA What?) in the name and couldn’t give a flying fuck what interest rate you pay. In my mind you are a non-contributor that takes up space. It is your right to troll any blog you wish and it is my right to call you out as a troll that neither entertains nor adds to the conversation…
I have been beating the drum for years regarding supply and demand for desirable parts of socal. These areas only have so much available housing or rentals and many more people who are willing to pay the price to live there. Couple this with the Fed, gov, PTB policy for the last five years and pricing for these areas become super sticky.
Hopefully Jim Taylor is correct and we have a big tank coming soon. If I can pick up a 3/2 SFR in Redondo (beach close) starting with a 5 handle price, I will be all over that like the proverbial hobo on a ham sandwich. I keep telling the bears on this blog, you will have LOTS of competition if/when prices go down.
I respectfully disagree with your view of increased competition as prices drop. In the trough of 2010ish, before all the investors came out to play in 2013, I saw plenty of decent, well-priced/”affordable” properties sit on the market for 1, 2 or even 3 years. These were properties in prime “sticky” areas like West Hollywood and San Francisco, and were priced significantly below bubble prices, but NO ONE was interested, at pretty much any price.
A lot of last year’s rush into property was because prices were going up and buyers expected even more appreciation, but when prices start to go down, how many people are going to compete with each other to go into debt to catch a falling knife? Like the stock market, as soon as housing begins to look “unsafe,” I believe there will be a shortage of buyers rather than a surplus.
LB – what supply and what demand are you talking about? I remember when there was a huge demand for BMW 2002’s and there was a limited supply because the car had been replaced by Dfresh’s favorite ride the 320i. It was very hard to find one in good shape and the cost to get one went through the roof. Then all of a sudden the love affair with the car died and you could pick one up for pennies on the dollar. Is this the kind of supply and demand you are talking about?
@What?: What supply and demand am I talking about? There are only X number of properties in socal prime areas. People who want to live in those areas (whether they can afford it or not) is >>>>>>>>X. There is your economic and math lesson for the day. Anybody who refutes this simple logic doesn’t get it.
I’m not sure what the BMW 2002 analogy has to do with socal prime RE. 99.99% of cars are depreciating assets. I’m still kicking myself for not buying a Ford GT a few years ago. Without a doubt, one of the coolest cars of all time and prices are skyrocketing…supply and demand 101.
Actually Lord B its not just a basic question of typical supply vs demand in the market no matter how many time you shout it from the rooftops or think you’re teaching us a lesson. My hunch is your in your 50s or later based on your comments (are there any bulls on here in their 20s or 30s, btw?!) which means you’ve entered the land of stubborn/set in your ways, but how you see it as a “real” supply/demand curve is beyond me. Its not a “free”market” or even close thereto today; its a manipulated one NEVER seen in the history of the US before-take a look at how long rates have been this low (and then add in all the other goodies we’ve done to support price levels). Whether its housing, stocks, collectible cars or art, the demand is artificial/boosted by the fact that many people (especially those with money) are avoiding holding cash/currency due to the artificially low savings rate and fear of devaluation of currency. So when people are choosing assets classes, one of the most popular ones (cash/currency) is largely being ignored….but money needs to go somewhere and it is-physical assets Adding artificially cheap loans to the mix used to purchases stocks (check the margin debt levels-even cnbc is getting nervous), houses, etc even skews things even further as people make irrational decisions with free money (even smart people do this as the proof is that CEOs expand cap x or buy other companies typically at the wrong time). Will there always be demand for houses by the beach in nice weather-absolutely (i’ll assume the coast stays clean). Thanks for the lesson Einstein. At these prices however or greater (especially as interest rates rise or QE gets tapered)-no fcking way, IMO. Wait til cash (or gold) are king again or buying momentum goes negative instead of positive. Then we’ll see about how real your supply/demand curve is and therefore pricing is.
Curiously LordB, what line of work are you in? You seem so confident in the security of your future income from your job that I’m very curious what this profession is.
FTB – thanks for responding on this one. I am pretty tired of making the same case over and over again. This time is different. Not really. Like I said a many times before, the things the Fed has done is only delaying the inevitable not removing the inevibility…
Every physical object a human creates, be it a SFR or a BMW, is a depreciating asset. Price increases on depreciating assets should always be suspect.
Some of the stickiness is the fact that we think of housing as not having a ‘substitute good’ available to divert demand. But that’s never been entirely true (Miami also has nice weather and beaches, and housing at a fraction of the price, as does Tijuana).
And it’s even less true when you consider that some of our demand for current housing stock is largely cultural. The boomers (and moreso their offspring) grew up with a WASPy, boomerish SFH ideal, and so to a point they’re willing to pay a premium, even leveraging themselves dangerously.
But at some price point that ideal moves out of reach. If you look at the PacNW, for example, increasingly you see SFH being filled not by traditional households, but by either non-family organizations (4 20-somethings packed into a 3BR) or extended family organizations, particularly among non-WASPy groups, who see no objection to using a 3BR for 10-15 people because it takes your uncle, your grandma’s social security, and your third cousin to pay the rent.
These types of groups are better tailored financially towards paying current rent prices (there’s more supply of people who can band together to each chip in $500 than single-family units who can shell out $2000/mo plus utilities on their own). Bulls will use them to demonstrate that, hey, demand exists!, but the reality is that they demonstrate there is a price point at which people will inevitably change their behavior and seek alternatives or even substitute goods.
What?: regarding derpeciating assets. Yes, the pile of lumber and drywall depreciates over time and will need to be eventually replaced. The dirt which will always be there is what commands the vast majority of a home’s value here in coastal CA. It’s supply and demand 101. The rich are getting richer (and likely will be going forward). These people are only interested in living or owning in certain locations…and coastal CA will always be on that list. End of story!
“Every physical object a human creates, be it a SFR or a BMW, is a depreciating asset. Price increases on depreciating assets should always be suspect.”
I don’t necessarily agree with this blanket statement, but it seems important to point out that most appreciation in Real Estate is in land values not the SFH built on top of it.
The houses built on top of the land definitely depreciates, but it’s the land below
LordB: you are correct in that a home’s value is really its land so city centers (aka job centers), select high-end commutable/close-in suburbs as families with kids may not want city centers and coasts should be worth the most. The IE? If you love it; great. Home value protection? No way unless jobs come that way. On a sidenote, I deal with attorneys making between approx. $150k-$300k looking for new jobs in their 20s and 30s and most people now want to relocate to Seattle, Denver, San Francisco/Silicon Valley, Austin, Dallas and Houston. Then I hear NYC, Boston, DC, LA and Miami secondarily. The current trend is a cheaper, smaller city than NYC/DC/LA that has some tech usually or just SF/SV because its the mecca of tech still. Most of these people feel poor and think NYC/LA are too expensive so if they think these places are too expensive, I’m not sure where all the future demand is at ever increasing price levels. Does the .1% want to own that many houses bc NYC/LA/SF are starting to price out the top 1-2% (that want kids) too. You keep saying people want coastal property so it has to keep going up, but thats just not true at any price…or me and a lot of other people on this blog would buy some as we can afford it. I still would love to know what line of business you’re in LordB to understand your comments better.
LB “It’s supply and demand 101.†Have you even taken an economics 101 class? And I don’t mean home economics where you learn to sew and cook… I studied both math and economics as a major in my college years. It is strange how you want to teach me how “locals†think or give me math or economics lessons. I think I will stick with PHD’s on econ or math and locals on how locals think.
Yes the dirt does not depreciate but my comment was very specific. What part of “Every physical object a human creates†is the dirt under a SFR? The question is what has changed with the dirt that makes its useful value change so dramatically economically speaking. This is a discussion that is actually held in econ 101 classes. This is where modern classical econ falls apart because they believe that there is no such thing as asset bubbles. These are the same folks that can’t explain the “financial collapse†or ever predict with their “supply and demand†models the next crisis. If you spend a little time researching the theory you might change your tune as I did…
FTB, I have never once said prices in coastal CA will just keep going up forever. I am surprised of the rally we have had for the last 2 or so years. Yes, it is highly manipulated…remember all my “the Fed will likely outlast you” comments. None of this takes away from the supply and demand issues that have been present in desirable parts of socal for decades. We all agree the rich are getting richer. The rich want to live in certain areas for a variety of reasons. This tells me that these areas will survive the next storm quite well. To scratch your itch, I am in the consulting business (nothing to do with RE, mostly technical).
What?, everything made by man’s hands is a depreciating asset? Likely true 99.9999% of the time. However, every once in a while we have original Rembrandts and 427 Cobras grace our presence. Supply and demand sets the price. Housing is no different, if you want the trophy property in the most desirable location you better be willing to pay the price.
LB – “every once in a while we have original Rembrandts and 427 Cobras grace our presence.†These are really examples of asset bubble most likely fueled by growing debt. As much as it pains me to say this about what I believe to be a work of art (I am talking about the 427 not the Rembrandt) it is just an old car and not really that great of a car. Now I need to go take a shower and go to confession because feel like I just insulted my own child… “Supply and demand sets the price.†I hate to sound like our friend blert, but you need to check out Steve Keen. He mathematically and logically shows that supply and demand do not set price, that the supply cure does not exist and the demand curve is not a downward sloping straight line.
My son just moved to north of Austin where many of the cheaper houses were bought by Cali people back in 2004-2010. The area is flooded with new houses and giant apartment complexes so rents are plunging. Whatever the landlord quotes you can be sure to get that house for 10-20% less or an apartment with 3-6 months free rent. You have to be aggressive just as the landlords are and BE SURE TO READ YOUR LEASE. You can bargain stuff in your lease also to make it more favorable to YOU instead of the landlord.
German daddy-I see a lot of building all over austin. I think I saw 6 cranes downtown a month ago or so. I also see a lot of building north of austin by 2222/620. Is that where you mean curiously? I think that should certainly put a damper on rents and home prices, however I haven’t heard of this collapse in prices like you’re talking about….yet. CA people still seem to be flocking here from what I can see and they bring money. The negative of the austin market seems to be houses last on the market significantly longer on average than LA. So if you want to sell your house, it could take 6+ months easy. Also, houses are priced above market here slightly but most are closer to 5%, maybe 10%; whereas in LA you (currently) need to bid more than the asking price on many homes to have a chance of winning (against an all cash bid) a decent house. I do think housing is overpriced here currently and will crash. However I wouldn’t expect austin to be the first place to fall/leading indicator. I think its Vegas baby. Maybe Phoenix or so cal. Then more dominoes fall.
I own rental property in the suburb north of Austin and just raised rent 4% and am told it’s too low. I see no evidence of single family home rents plunging. Perhaps the apartment complexes have overbuilt.
…. Rental “pricing” is based on INCOME AVAILABILITY … and so are mortgages.
The only reason why we had the Mortgage Bubble that exploded in 2008 was because ordinary people were “conned” into believing that their Interest only (negative amortization loans) with “Tiny payments” could be refinanced after the “3-year RESET period” — They were LIED to — and these are ordinary folks who for their whole life have been “led by the hand” from one financial scam to another — they just never learn, and then they file bankruptcies (wonder why ??).
Secondly – our friends in the Mortgage industry found a way to create the LIAR-Loan and everyone signed up for Stated-Income loans or worse the Mortgage Broker helped the Buyer create fake W-2 Forms and phony Income Verification.
Then the mortgage company sold the phony loans to FHA,VA,Fannie,Freddie and etc.
JPMorgan Chase just settled a “whistle blower” lawsuit for $600 million and the whistle blower just scored a $60-million BOUNTY-reward. ( I guess that guy can buy any house he wants …. right ? ).
Your right. Rent is based on supply and demand. However despite glut or scarcity, demand for SFH rentals must match local incomes of the folks who can afford the rental.
@ RentaLurker
Or they spend more of their money on rent, and less on other things.
Rent is not an “optional” expense. If you don’t have enough supply, even as demand curve stays the same prices will rise.
“If you don’t have enough supply, even as demand curve stays the same prices will rise.†So many bad assumptions…
“…based only on supply and demand, and nothing else”
Really? If I put on my house on sale for 5 millions, how is that price related to _anything at all_?
I don’t have to sell so I choose what ever price I want and demand or supply is irrelevant: My house, my price.
Supply and demand work only when there’s real competition and sellers _have to sell at any price_ in order to survive.
It’s very rare for a house owner to have a mandatory sale, so prices won’t go down at all: Sales just stop.
As has happened.
That home is a prime example of a benefit to the neighborhood due to an investor. Rather than asking if the 476k mark up is worth it, you have to understand the bigger picture of this unit.
It was bought from the city as a boarded up home that was unavailable, per the description. At the selling price of 219k, there needed to be extensive work: roof repair, complete overhaul of the exterior and interior, and termite mitigation. No average person would touch this unless they saw great benefit, and would be bringing down the appeal of that street and hurt housing prices.
I commend the investor to take a risk on the home in its terrible condition and turn it into a wonderful inhabitable property.
The property was listed at market and is unreasonable to sell for listing price. You need to realize that the 437k goes to pay for fixing and a persons time invested into the project. Finding a deal like this is a dime a dozen, they dont come often, especially in a competitive city like LA.
Finally, for you new people getting jealous of his gains, its really not that much when you think about it. Heres a simple break out:
598k Selling Price
(35k) Commission at 6%
(15k) Escrow Fees at 2~3%
(5k) Transfer Taxes
(200k) Labor and Materials
323k Net Income
(31k) 323 – 219 * .3 ST Tax
292 Take Home from Sale
292 – 219 = 73k Take Home
73k would be my estimate of take home complete take home pay.
This home flip is not insanity as the author points out, it is merely arbitrage. Someone found a unique unit that NO ONE wanted to touch and bought it for a steal and fixed it up. You need skills and experience to successfully complete a project like this one. If the unit was in turn key condition, it would have sold for barely less than current asking in 2013.
Doc, they’re starting to get getting desperate, you can always smell it when they start shovelin’ their piles over on this side. It’s beginning to reek like old times in here.
If flips generally tended to go that way…the flipper pays cash buys a wreck that wouldn’t finance anyway, does quality work, then puts it on the market at a reasonable price…that would be a good thing for buyers and neighborhoods. But where I live in northern Calif. that is NOT the way it typically goes…instead they buy a house that maybe needs some updating and/or minor repairs but would finance and in the process shut out buyers with less than 100% cash…then they do a quicky remodel and paint job with cheap materials and shoddy workmanship, strew bark all over the front and back yards, then put it back on the market with a $100K markup sometimes in as little as a month or so. BTW, this also means most reputable banks won’t finance the flip as the seller has owned it for too short a period which says a lot in itself….but there are some shady finance and title companies that specialize in these deals and pay kickbacks to the flippers and flippers often attempt to force buyers to use these providers. I learned a lot when I wasted a year trying to buy in 2011/2012…
I’m going with bluto on this one. Like bankers, i guess flippers also feel like they are doing gdd’s work (because like most people they refuse to look at themselves for who they are). All the flips I saw personally (of course there were others) were in good neighborhoods and didn’t need a flipper. The flipper was a leach who found a way (using all cash) to basically steal all the profit out of the home like a vacuum. In fact, these were perfect homes for a family to buy a little cheaper and then fix up themselves with people they trusted to their own tastes. Instead, the family lost with 20% down to an all cash bid by a flipper who hides whatever real damage he can and does some cosmetic changes-I mean flippers only do this for money/profit, no and cutting corners only helps profits last time I checked (basically the incentives are there to NOT to a great job; just do a good enough job). So now the family not only overpays for the fixes, but he doesnt know the quality of the fixes or what was covered up. Inspections are great (I liked larocca in southern cali), but its hard to see everything behind walls regardless of the inspector. Maybe instead of church, we should all just thank our local flipper on sundays instead.
@ Bluto I was an active buyer here LA in latter half of 2012. Here is what I experienced after looking at dozens of homes.
The flipper had an inside track to foreclosures through connections with the banks. The homes were purchased, probably all cash and then shortly after close of escrow the contractor would show up and carry out one or more of the following: new electrical, new plumbing, new cheap windows, new cheap laminate flooring, new fixtures, appliances, etc. Then about 60-90 days later returns to market for a major increase in price. I am not sure if there was a minimum time frame to hold the property before flipping but some were back on the market through a local listing agent 2 months later and some sat empty for a year (even though remodeled). As a life long resident of LA and first time buyer, I saw the merits of new plumbing and new wiring but the thought of buying a flipped house (exp. some with cheap, shlocky remodels) was a total turnoff and with some basic research, it was not hard to tell which homes were flippers. I ended up purchasing a home from the original builder and owner of a midcentury home. That to me was more important than a new home depot bathroom and kitchen.
Saint Speculate – Patron Saint of Bubble Market Developers and Investors alike.
So not only did the developer take on risk, he also is doing good by raising values in distressed neighborhoods. Must sleep well at night. Real American heroes – Mr. Crack House rescuer Flipper.
And yet another moron shill from the peanut gallery pipes up. Listen here, “REO Observer”, while I break you down.
1.) You state the property was listed “at market”. If it was listed “at market” IT WOULD HAVE SOLD. Obviously, the flipper was overly optimistic in his/her pricing, and continues to price the property too high BECAUSE IT HASN’T GONE PENDING LET ALONE SOLD.
2.) No buyer should give a flying fuck what the $437K goes toward. Oh really it goes to the flippers time, effort, and cost flipping the property? Well then I guess I should revise my offer price upward based on that information – hahahaha NOPE. You honestly think that a buyer should care about the personal circumstances of the seller particularly a flipper?
3.) You say finding a deal like this “is a dime a dozen, they don’t come often…” so which is it – the phrase dime a dozen means it is very common and easy, then you contradict that by saying they don’t come often.
4.) As for being jealous of his/her “gains”, hahaha for that to happen, the flipper would actually have to HAVE GAINS – and until (if) that property is sold, HE HAS NO GAINS BUT RATHER A HUGE PILE OF LIABILITIES, COSTS, EXPENSES.
And there’s the simple break out for you – this flipper has dropped his ask by close to $100K and still hasn’t had any bites. That great “deal” that flipper got and sunk some serious coin into isn’t looking so great after all…maybe if it wasn’t well into the barrio a block away from one of the busiest industrial freeways on the planet. $600K for that?!? BWAHAHAHAHA!!!
“(200k) Labor and Materials”?
Random number from the sleeve: You could build a set of houses with that amount and I’m sure a flipper isn’t doing that. Let’s correct it to 70k and we see flipper took home 200k. About the same as the purchase price was. That’s profitable.
No flipper would settle to measly 70k on a major job.
70k buys you 10 guys working 2 months (without materials) and if the work on this isn’t done in a month i’m surprised.
Beware The Ides of March ………….
et tu brute
So now it’s March, 2014 specifically Jim? Or is the tanking not related to the Ides?
You can only respond to this thread using quotes from Shakespeare…
A fool thinks himself to be wise, but a wise man knows himself to be a fool.
“Hell is empty and all the devils are here.”
Its no longer a housing market anymore, peoples emotions (buyers) and the sellers & investors out there are getting very greedy at the moment.
I checked Zillow and the Zestimate was $598,000 with a $12,000 drop in the last 30 days, and it shows a rent Zestimate of $2223.00, the taxes on Zillow are wrong, they should be $622/month not the $289 they have stated so with $120,000 down your looking at $3000+/- a month nut.
This home is just 5 homes away from the 5 freeway, you can probably see it if you were standing in the front yard.
For $3000 a month you can find somewhere nice to rent and keep your hard earned $120,000 for a home that you really like in a neighborhood that you really would love to live in.
Doesn’t that make sense?
As far as the guy raising the rent $300/month and getting 60 calls from the craigslist, good for you and make the most of it, it will change at some point….it always does.
Housing To Tank Hard in 2014!!
Jim did you notice that your twin is now using caps properly? Hmmm why would someone pretend to be you? I guess imitation is the best flattery… I would prefer to be me anytime as I am cool with me. But not everyone is cool with themselves hence they need to pretend to be someone else. It is kinda sad really…
He almost got it right, but I normally use more !!! points and sometimes throw in a ~ or @ symbol as well. But I must admit they almost have it down 🙂
Maybe not this year but by 2016 certainly.
Also note that this “Jim Taylor” used a capital I in Jim -> JIm…or is that a lowercase L?
In either case, do NOT beware the Ides of March (although there is a Friday the 13th this week!) and Housing to NOT Tank Hard in 2014!!!!!
I am a bear and I have to side with Jim Taylors alter ego… I guess we really are running out of bears…
… The home prices went up “too fast and too soon” even for the so-called “investors”, there’s no justification for paying those prices. These can’t be real investors; because investors are bottom-fishers and they know money is made when you buy “things” …. since you can’t always control what selling price you eventually will get, when you dump the damn property and hopefully some poor sucker will stupidly step up and sign his life away on a mortgage that can’t be repaid. That’s why some of these current sales prices paid by these so-called investors are far too high … many of them will NOT even break-even.
Home prices are about AFFORDABILITY and INCOME availability.
Just when the stupid-money starts buying that’s when smart-money starts selling.
I bought a investment house in 2002 in fly-over state Kansas. Small 3bd….lower income area.
This was sort of at the beginning of the bubble. I saw the price of house go from $55k in 2002 to $75k in 2007. Now I would be lucky to sell it at $42k to 45k. I used to be able to rent it for $700 in 2002. Then dropped rent to $650 in 2006 even as the house was rising in value (+$20k). Then a drop to $600 in 2010. Now I dropped it to $550 this year.
My cash flow of rent – mortgage payment is now at -$10 per month. That does not include maintenance and repairs. I went from a plus $150/month cash flow to -$10/month over the past 12 years.
Time to dump this property or will it ever get back to even 2002 prices. I would say it is sitting at 1998 prices.
Zillow’s zestimate is $47k and Zestimate rent is $660-$700.
Crazy but the unemployment rate in this metro area is 9% but the state of Kansas is 4.9%. Go figure
It never pays to buy a rental property in a deteriorating neighborhood no matter how cheap it seems at the time. This might mean the whole town, if the town is one that just lost its only major employer, in an area that is depopulating rapidly.
Trouble is, how to tell if the “marginal” area the property you’re considering is on its way up, or on its way down. It can be a very hard call. While some small towns are losing business and population rapidly, other neglected towns that were almost deserted 50 years ago are experiencing major revivals. Here in Chicago, all the inner-city neighborhoods that were blighted slag heaps 30 years ago, that you couldn’t even drive through in the daytime and have totally horrible building stock- lots of crummy frame “A-frame” houses and other intrinsically ugly buildings, and a lot of small, worn out commercial stock- are now extensively gentrified and fetching prices that would make even an Angelino’s eyes glaze over, while some outer nabes that 25 years ago were extremely prime and have gorgeous housing stock with great architecture and are in good condition, are getting a little ragged around the edges and their properties are selling for “bargain” prices.
… Wow — do complete homes even exist for $75k ? Is this a mobile home ?
Hi Everyone,
Long time reader and lurker, but I seldom post anything. What are your collective thoughts about these Rent-Backed Securities now being cooked up by WallStreet to offload the rental risks to large suckers (i.e. investors)? See, for example, the following link http://www.bloomberg.com/news/2013-11-08/american-homes-4-rent-to-tap-new-market-for-rental-backed-bonds.html.
Does this smell too much like the effluence of 2005-2007 coming back?
I’m wondering if anyone else is considering shorting American Homes 4 Rent (AMH) or SBY, or ARPI. I think that Blackstone is also doing this as well, but they are a bit more diversified and might make it out okay.
My working thesis is this: They’ve mis-interpreted cap rates from single family homes. Their income will not show significant gains from their current losses. Eventually, the ebullience of this “innovative” financial venture will become obviously flawed (of course, only after several of these firms are destroyed). Until then, I expect to see many financial experiments in developing new ways to monetize rental streams.
I’m not sure about timing, but I am convinced that this will end much like the sub-prime mortgage lenders. I would really like to read through the prospectus of some of these Rent-Backed securities to determine: (a) what vacancy rates will lead to defaults,(b) what are the expected vacancy rates anticipated going forward, © what percent of the actual home cost is expected to be eaten up with management fees, maintenance, etc.
Basically, I think that SFH rentals are not going to scale up like apartments/multi-unit housing and wall street’s latest great idea will end up like all of the other great ideas: financial ruin.
On the bright side, for those of us who are interested in due diligence, we might be looking at the next “Big Short.”
Very Best to all and I very much value the conversations here by the community!
“What are your collective thoughts about these Rent-Backed Securities now being cooked up by WallStreet to offload the rental risks to large suckers (i.e. investors)? “
Always was the plan. Call it MBS/CDO 2.0. These guys are one trick ponies…
“I’m wondering if anyone else is considering shorting American Homes 4 Rent (AMH) or SBY, or ARPI“
“Markets can remain irrational longer than you can remain solvent.†So unless you have a way to short over the long term and have deep pockets, I would rethink your plan.
“I’m not sure about timing, but I am convinced that this will end much like the sub-prime mortgage lenders.â€
Quote of the week…
“On the bright side, for those of us who are interested in due diligence, we might be looking at the next “Big Short.â€â€
Yes I read the book as well but you need to remember that these guys had to create their own investment to “short†the MBS market. They were so afraid that the CDS would not pay that they sold them before the whole thing fell apart if I remember the book correctly…
What?
Thanks for the comments. I totally agree with you that actually shorting the piles of garbage is beyond the pale for most of us “unconnected” here.
I was thinking more or less, well-timed out of the money Puts that would allow us to capitalize upon unanticipated, binary events… (i.e, when these companies finally kick it and no one saw it coming).
I love that quote, though, about the irrationality of markets vs. solvency… a true classic.
Full Disclosure, I’m planning to buy some out of the money puts on AMH for the longest duration that I can purchase (I think that Sept. 2014 is the longest out). Little upfront capital at risk, but large, outsized gains to be had if our thesis plays out within this timeframe : ).
Again, it’s always a pleasure reading the comments and insights here!
http://www.invitationhomes.com/qualification-requirements/
An experienced SFH landlord would tell you that 2.5x gross income is asking for trouble.
This securitized SFH rental thing is an experiment.
Anon,
Thanks for that link, and I completely agree. For $2500.00/month rent, they only expect a gross income of $5,000.00/mo? That seems very, very dangerous to me.
DSD, last year I went and looked at some of Blackstone’s properties in L.A. to get a first-hand perspective. A couple of them had been left a mess by the previous tenants and I wasn’t impressed. They use local RE agents to list and show. An agent in an out of state metro that I work with told me that he partnered with Blackstone for a while both on the purchase and rent side – they were constantly changing parameters and a general pain to deal with. He eventually stopped working with them because of it.
I get the sense that they are mostly winging it.
That tells you maybe two things:
1. Incomes aren’t high for that area/market
2. Rent needed to cover their nut is too high for the market
How do you find a prospectus? I want to know what happens when the rents stop flowing, the RBS stops paying dividends, and the RBS becomes worthless, who owns the underlying real-estate. I bet it is not the “investor” sho bought the RBS. I have searched the web, and this post is one of the things I found, I have not found an answer to the question.
7 million times an average family of 4 and you have close to 30 million. Add in a circle of friends and relatives and you have a much larger share of the population that are aware of the dangers of real estate investing. The young people believe in renting for job purposes. Places that have a high rental population have lower unemployment rates, according to a recent report. People who are chained to their home, have higher unemployment.
The large amount of “Wall Street ” investing may be new. But it will end like all new schemes. The people at the start of the Ponzi will make the money. The people who buy the founders offloads are the suckers and will be left holding the bag. These schemes have been going on for many years. The names change, but not the basic idea. Sit back and watch it happen.
I remember my grandmother telling me stories about how landlords lost their shirts during the Great Depression. I guess this time it’ll be different…
Thanks for this. It’s sad that the media and housing industry constantly points back to 2005-06 as the benchmark for which housing prices need to return (or in some cases have already surpassed).
That period was goosed by irresponsible Fed low interest policy and the issuance of mortgages that had no business being made other than to sell to Fannie Mae.
Now with even more irresponsible Fed policy with zero interest rates and QE we are getting close to home prices’ former glory. But the sale volume isn’t there. It’s a price recovery only.
Follow the flip!
http://www.redfin.com/CA/Inglewood/5009-W-98th-St-90301/home/6456105
5.5% discount from 2006 and airline terminal adjacent! You’ll be able to honestly say “I can see my house from here” on that LAX approach. Imagine coming home every day to the tantalizing aroma of jet fuel and diesel.
As REObserver states, “That home is a prime example of a benefit to the neighborhood due to an investor” and “I commend the investor to take a risk on the home in its terrible condition and turn it into a wonderful inhabitable property.”
Thank goodness we have spec-, oops I mean investors who care so much about the communities they serve. Now someone will be able to get the flight path home of their dreams with fresh paint, new floors, granite countertops, and new fixtures.
Your LAX house is only $359k. But this LAX house — in Playa del Rey — is $819k – http://www.redfin.com/CA/Los-Angeles/7526-W-90th-St-90045/home/6632837
Who would pay $819,000 to live only a few blocks from an LAX runway?
I also love it when realtors describe a house as “conveniently close to freeway access.”
I guess these houses are “conveniently close to LAX.”
Oops. It’s only NEAR Playa del Rey. It’s actually in Westchester.
$333/sq. ft. in Inglewood?! That’s pretty damn optimistic. The average income in that neighbor-“hood” is probably $45k/yr. Good luck.
No, but that’s a prime area now, didn’t you know? Incomes don’t matter, it’s all about golden Chinese dripping with gold buying places like this, money be damned. If your rent is higher than this you should definitely buy because even though it sounds ridiculous now, you’ll regret it later.
I like where it says quote:
View: Catalina
hahahahahahahahaha
Riding down the wave.
http://www.redfin.com/CA/Los-Angeles/8516-Cadillac-Ave-90034/unit-3/home/6786153
Who wouldn’t want to live between two gas stations? I love how strategically placed the plants are on the balcony to hide the Mobil marquee from the dining room view. How great would it be to have other people’s garages right beneath your living space? Waking up to the sound of shopping carts being wheeled down the alley right outside of your bedroom window – what a California dream!
That’s hilarious…not only do you get to be right next to the gas stations and super busy La Cienega, you are right next to the 10 Freeway. At least they weren’t lying about that “easy freeway access”.
But “minutes from all of the south bay”?!? Gimme a break. Even with no traffic it would take you at least 15-20 minutes to get to El Segundo or Manhattan Beach, the closest of the south bay. MUCH longer to get further south.
From “A Tale of Two Cities” – Charles Dickens
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”
Meanwhile according to this Bloomberg article “California Beats U.S. in Millionaires, Food-Stamp Users”
http://www.bloomberg.com/news/2014-03-07/brown-s-california-outpaces-u-s-in-millionaires-and-food.html
On the one hand, Governor Moonbeam gets to look like a “rational centralist” re: debt reduction and unemployment gains given he’s got a heavily Democratic Legislature by the tail. On the other hand there are growing deficit line-items printed in invisible ink, and Moonbeam dropped his black light in the bong water.
The middle class is being squeezed in CA by a ramping dependency class and sociopathic 0.1% class. This is a 30 year trend that has another 30 years or so left in it.
But, looking at the Republican side, you’ve got a Goldman Balls guy and Koch-Bros minion.
Nice choices. Obvious result? More Moonbeams. Why? Better for “business.”
There is one overarching economic trend today that affects all….global capitalism.
In the U.S., there is one “party,” the collective 0.1%. Like a a narcissistic parent, the 0.1% ignores its “responsible” middle class off-spring while lavishing attention on the delinquent and the over-achieving one. It does not fear the middle class nor care for it, because it always does what its told. The 0.1% use the Dems to grow and enable the dependency class and the 0.1% use the GOP to keep the flow of wealth drying up at the gates of the 10%, effectively, the foot soldiers of the 0.1%.
The collective 0.1% does NOT understand the concept of “enough.” They want more and more and more, and their paranoia about not having access to more (or by another 0.1% taking his largess) feeds its sociopathic, insatiable id. Exhibit “A” the disconnect between productivity gains by American workers and median income.
What we’re seeing in Ukraine is the first real piece of evidence that there is an emerging global 0.1% that will exert its will (shake branches of the financial markets) in order to keep the peace/cash flow.
This emerging global 0.1% has only begun to influence all maters of global events.
Resulting SoCal RE by-products?
* virtual elimination of move-up buyers in LA
* steady decline of ownership rates until it flatlines
* feudalism (much discussed)
* quick-rising “alpha neighborhoods” (e.g., Culver City) whose price of admission is not metered to local incomes but to available wealth of the 10%
* displacement of LAUSD schools for charter schools to service the 10% in the alpha neighborhoods
* virtual elimination of a remodeling trend outside of flippers and home-owners in super-prime areas
* Neighborhoods inhabited by shrinking middle class and/or poor do not gentrify, even as “alpha neighborhoods” solidify within a stone’s throw (read Lawndale/Redondo Beach)
The elephant in the room are builders and new home starts. During the last bubble buyers were lined up to compete for any box with windows here in Las Vegas. Today with several hundred thousand homes in some stage of foreclosure for half a decade, builders are barely squeaking out their builder costs even after the 30%+ increase last year. this is what happens when you have a completely manipulated market. If we had had reality and followed rule of law after the last theft, people would have kept their home and in bankruptcy judges would have been able to lower their principal balance to current market value and we would not have had a recession. Instead the Fed created special programs just for investors, large institutional investors so that they could profit from the cheap housing after the crash. God forbid the average American was able to profit after the crash and possibly recoup. The Federal Reserve is just a bank a private central bank, they’re supposed mission of keeping jobs healthy and inflation low is really not their primary focus. Obviously. unfortunately we have to keep the charade going or we will have the most massive crash in world history, those are our choices.
This LV RE agent has some very pithy information on your market. There are some honest ones out there.
http://www.youtube.com/watch?v=meXoZXgrMTc
Sales are down by nearly 25% and inventory is double YoY. Not good.
I’m in Las Vegas, too, and have been watching his monthly videos. A few local realtors are agreeing with him but some say his numbers are off and he’ll be eating crow soon.
It’s not pleasant seeing the estimates of my rental go up steadily. I’m afraid my LL will sell the place out from under me (he’s an accidental LL.)
Like California, Nevada has AB 284 and SB 321 keeping the farce going.
I see a ton of rental construction in Orange County going on right now. The area, especially the south end where I live, has been mostly single family and condos. Now there are huge rental projects, like this one just completed.
Mike
I hear ya on the massive apt complex building. The REIT and Downtown LA gentrification loft, condo, and apt towers are going gangbusters. I am changing sectors in commercial, and I have leads for 70+ projects in DTLA. A few Mix-Use, pages of residential builders, and some venue building and redevelopment. I have days worth of due diligence. MetroLink to DTLA is 10 minutes from our home. I wonder how many hipster professionals there are? Those kind of rent are nose bleed high.
In East Ventura County the REITs have built swank apts. They have to make a % low-income units. If I was paying market rate, I’d be pissed.
Sorry, but hipster and professional are mutually exclusive. Most hipsters can’t afford DTLA rents, most professionals don’t want to live there. Last time I was there I saw a lot of parental money floating kiddies to go to fashion school down there. But hey, if you can make a buck out of it, more power to ya.
Oh and also, a lot of people say that LA has not increased housing inventory. Look at DTLA, thousands of new units. 10 years ago, very few building for residential, now many many.. Tons of new multi-family housing all over the city.
A see a ton of McMansion construction north of Montana Ave., in both Santa Monica and Brentwood. Every few blocks, there’s another McMansion going up.
Based on Zillow estimates, some of these new houses should be in the $5-10 million range.
I saw a tear-down that was going for $2.6 million, just for the land value.
Just as a side note, and it probably doesn’t apply to the example shown, but I’ve noticed that most pricing histories online won’t reflect a range in pricing. So if a property is listed at 645-695 the listing price will only populate in the history reports as 695. Not that it matters much because it’s not the point of the article but I just thought I would throw it out there.
Even a nice new dolled up flip house has to receive an appraisal and sometimes even two. If the report comes in at value and a buyer is willing to pay $100k more than the listing next door it just goes to show that there really is an ass for every seat.
Economics aside I truly do have to believe that there would be a lot more dilapidated houses out there if an investor wasn’t willing to acquire and shine them up. I think the problem occurs when everyone comes in and thinks they’ll make their yearly income off one deal because of a seminar they attended. Yet when their hard money loan starts to eat away at their profit and they resort to raising prices just because and the property doesn’t move…that’s when their problems really start.
It’s my first post, sorry for making it a long one!
I know someone in their fifth year living mortgage-payment free in the hills above Reno. Nobody wants to buy the place, and the man and his new wife aren’t bothering to pay. I know the ex-wife who now has nothing, and she says she will never buy again and I believe her. I was just told by my mortgage broker that instead of 3.5 15-year loan of $400K they will give me 4.25 20-year because I don’t take a lot of money out of my business (self-employed). Pointing out that my accountant tells me to leave as much money in the business as I can, broker says I know but insect-thinking is all mortgage processors know how to do. Anyway, will begin looking next month north San Diego County where the breathtaking rise in prices last year has come to a complete halt and I see a prospect listed for $559 that I think could be bought for about $470. Housing not quite tanking hard, but you can actually hear some of the air farting out, at least in north SD county…which is a good thing for me.
My God! A $600K asking medium size house in LINCOLN HEIGHTS!!! A block or two from I5. What are they asking in Highland Park? That’s where I grew up; west of the Arroyo, it’s pretty much a slum. I see people calling what I’d call Lincoln Heights real estate Montecito Heights on Trulia. Caveat emptor.
Finally someone who is seeing what I am seeing… A must read for all those who believe it is different this time. Yes it is from the gloom and doom site but I believe this is right on.
http://www.zerohedge.com/news/2014-03-09/guest-post-understanding-why-it-feels-different-time
What? are you and ZH talking about? This has been the most distrusted, criticized, non-maniacal bull market in US equities in history!
It only seems like the last few months we’ve been hearing outrageous “bull market only half over” shillage (nothing like 2000, though), but that always happens near the end of a bull market.
Our booms and busts have obscured the fact that the CAGR for S&P since 1995 is roughly 7%…right in-line with historical.
Are we near the end? Of course. Just like at historical S&P chart…three major peaks. We will get that 10% correction this year to signal the end for this bull, but I think we’ll end they roughly unchanged.
what?-you seem to have taken this stance the past week or so of being the only bear left on here. The bull chorus has grown stronger, but it seems to be that the bears are still plentiful here, albeit growing more frustrated waiting for a downturn. I actually disagree with the “everyone is a bull” concept. I just think the bears aren’t playing the game for the most part and are doing their best to ignore the whole increase in stocks and housing bc they think its artificial/its frustrating to think one is losing on “easy” money to be made. I like zerohedge, but just like cnbc, they have an agenda and I read them with the same questioning eye I do the MSM.
Dfresh and FTB I did qualify the article as being from the Gloom and Doom site. I disagree that we have a large number of vocal bears on MSM. I admit that I do not watch any TV but what little I see/hear from CNBC/NPR is pretty much cheerleading the “recovery” and points to the stock market and the housing market as proof of this “slow recovery”. The point I was making by posting the Gloom and Doom article is the recognition that there is a complete decoupling of the S&P/Dow from the rest of reality. I made this comment a few days ago when I noticed the world had truly lost all sense of reality by the invasion of Ukraine along with a downward revision of GDP along with poor employment number, etc. etc. and what did the “market†do on all this good news? New all-time highs. I what some of what these guys are smoking…
People on this blog keep referring to the 06 real estate prices as bubble. However, the LA coastal cities, as well as some OC beach cities, have selling prices higher than the last 06 peak. These high prices are occurring even though mortgage debt is difficult to obtain. This means the 06 real estate prices in coastal cities were not a bubble. They are real. And the temporary price drop several years ago was the buying opportunity of a lifetime. It is likely the coastal prices will continue to rise. People in some beach cities are wishing for an opportunity to get a home at an 06 price.
jt, since 06 we’ve had 8 years of inflation and today’s mortgage rates about 1.5% lower. It should be no surprise that the beach cities are at or near peak pricing. The weak hands are long gone, all replaced by real players. Some of these areas will NEVER return to any semblance of affordability (Santa Monica, Manhattan Beach, Newport, La Jolla, etc). My advice is to get into a neighboring city that is or two steps behind the bellwethers…ride their coattails.
NEVER! Famous last words…
It’s easy to make a claim when the operative word “affordable” is subjective.
No, not true. There are many areas that were once considered nice areas, but then fell into disrepair. It usually happens when the next generation has neither the desire or ability to buy into an area. Santa Monica was a ghetto in the 80’s.
“Santa Monica was a ghetto in the 80′s.” People think I am crazy when I tell them that I grew up in the hood (20th and Pico) in the late 60’s to the mid 70’s. It was a sea of gangs graveyard crips, 14th street, pee wees, etc. I don’t recognize the place now and can’t afford to live there anymore. I am glad that the old neighborhood has improved but now everyone thinks it was always like this…
If you are buying near the beach you likely have some income or wealth as home prices (although inflated) aren’t cheap. People with money/income have actually not had any trouble getting mortgages the past few years. In fact, if you have income, its been quite easy to get a loan (jumbo or interest only) with 20% down as evidenced by me and every friend I know that got a mortgage from 2010-2013 (no one I now purchased in 2014). The only issue for these people has been losing to all cash bids.
Yeah, right…the coastal troll is back, oh joy! The coastal prices won’t be the only thing that continues to rise…hope when that sea level rises and washes the coastal properties away, the owners won’t be crying too much. One way or another, they’ll be underwater, BWAHAHAHAHAHA!!!
So why are you wasting your time here amongst all of us idiots? Get out there and start buying or you’ll be priced out forever.
No one can predict the future, it’s irrational to assume we all can plan away all our fears. But all I know is that LA is a huge desirable city not even on the top ten of expensive cities in the world. So I’m not sure where we go from here but down doesn’t seem to be inline with the trends of other large metro cities, Tokyo, New York, London, Sydney etc etc etc etc…why would it EVER be cheap to own property here? Sometimes I’m glad I didn’t have grand parents to influence me into believing some 50s economic ideal. The past is the past, this is a Brave New World and the rich will get richer and the rest of us have to get creative.
Most of the world’s most powerful cities are powerful because they are the finance centers of that country. San Fran/Silicon valley are different bc thats the tech capital of the US/world. LA’s main strength is that its the main port for asia entering the US. However, it just doesnt have a lot of high paying jobs compared to other cities, IMO as well as stated in recent articles. Its sunny climate and proximity of the beach keep it chugging and will continue to do so to some degree, but its going to need to a lot of changes to take that next step and make it more business friendly unless you want to rely on the snapchats of the world. Its hard to keep growing as a city if all you offer is $11 retail jobs.
Recent annual British survey finds that two of the world’s most prestigious research institutions are in SoCal…CalTech and UCLA. Subjective survey, yes, but quoted in WSJ, LA Times, NY Times, etc.
In fact, CA has 4 of the Top 10 in the survey.
UCLA is the most applied-to University in the USA.
Think this has nothing to do with the long-term prospects for SoCal? Go ahead.
L.A. also gets tons of free advertising each year from Hollywood. All those films and TV shows set in L.A. keep convincing new batches of people worldwide that L.A. is THE place to be, so they’ll keep coming here, rich and poor alike.
Dfresh-you could show me 50 articles saying UCLA or USC or whatever is a top school, but I can tell you that NO ONE in the entire northeast considers ANY California university good besides stanford. No parent is dying to have their kid get into these schools. The northeast is old and has schools established in the 1700s. There is something called an ivy league, then schools like MIT as well as all these little great, prestigious liberal arts colleges like williams, etc. UCLA is applied to bc Cali is the most populous state in the country and has great weather and sports teams-not bc of its academics. You need to get a little off of stats and reports and get out more/learn the word on the street.
Sorry, I forgot berkeley, which gets academic respect in the northeast as well. Liberal-yes, but thats a different subject/neither here nor there. People still consider it prestigious.
Haters going to hate…
Sorry to bother you with such things like facts and figures and reports. Are you sure all of you moved here from NY? Seems your elitist NE bent still resides in some dank, dark corner of the living breathing organism that is your “alive” NYC.
Fact is, CalTech (ahem…SoCal) is the most prestigious university in America (2011 report):
# # #
California Institute of Technology is the only U.S. college to meet these three criteria: It admits fewer than 15% of its applicants, one-quarter of its new students score better than 1,550 on the SAT’s 1,600-point scale and three-quarters of those same newcomers score better than 1,450.
# # #
And, if you think that our tremendous universities in SoCal have nothing to do with the desirability of the area….go ahead.
Dfresh-my bad on caltech…but no fcking way its considered the number one school in the nation if you ask people sending their kids to college where they want their kid to graduate from. If you think thats the case bc some stupid third party told you that; go with it. Its always going to be princeton, yale, harvard, columbia, stanford, chicago, MIT, brown, etc. at the top for those in the northeast. And then your michigan, duke, unc chapel hill, upenn, dartmouth, etc and lots of small liberal arts colleges like smith, williams, etc. I have never heard people on the east coast say UCLA or USC is an academic institution they are hoping their kid gets into it. Also, I deal with attorneys from all over the country and its almost always CA natives that went to UCLA or USC undergrad. Stanford or Berkeley is different/more from anywhere. Maybe lots of people from the midwest go to UCLA/USC? But not from the northeast. Go call random numbers starting with 212 or 917 and ask them to list the top 10 colleges and get back to me. I admit Caltech was not known to me. See, dfresh. I can admit things. Learn to yourself. Like how rating a college is not based on facts (like math); its subjective. You must have a rock for a brain to start off a sentence with “Fact is, CalTech (ahem…SoCal) is the most prestigious university in America (2011 report).” Thats like saying fact is nobu has the best sushi. I can show you plenty of reports (like the one used by EVERY student that shows caltech as 10 actually, not 1), but none are “facts.” Also, I know from being in this business of credentials that national ranking reports are a little bs as they like to make lots of places feel good/toss in local favorites. Like University of Minnesota having the 19th highest rated law school in the country or alabama having the 21st. Maybe that works in minnesota or alabama but try convincing a hiring employer from NY that the minnesota or alabama degree is better than one from local fordham (ranked 38th). Maybe too much CA sun for ya or maybe not enough bc you need to move away from the internet at times and go real world.
And no Dfresh, Im not elitist. My family was broke so I went to a state school for undergrad that I assume was worse than UCLA or USC. The question was not about me. It was also not about what you or CA residents think of CA schools. The question was about what people in the northeast in general think of CA universities. I think others from the northeast would agree with my comments…just give em time to respond.
I’m gonna hate myself for chiming in here, but as a Caltech alum I guess I have to…
“Prestigious” is one of those utterly subjective and largely meaningless terms. Various organizations (notably US News and World Report) conduct rankings of colleges based on various criteria, subjective and otherwise, and come up with a list that typically includes the usual suspects: The Ivies, MIT and Caltech, and Stanford and Cal and a few others to round out the top end. And sure enough Caltech places fist in these rankings every few years.
Yay. Go Tech. But almost entirely irrelevant to SoCal real estate prices (except in the hyperlocal Pasadena market). Caltech has under 1000 undergrads and a similarly small grad school. I don’t care how many Nobel Laureates they crank out – an institution that small is not going to have a macro effect on regional property values.
My point has nothing to do with what inbred Winklevoss’ think about Stanford, UCB, UCLA, CalTech…the point is that SoCal is a global destination for many reasons…one of which is the strong Universities, in particular the relatively inexpensive UC system. I realize nobody here believes that rich Chinese look to repatriate their largesses outside of Communist China into real estate in the USA, with SoCal being one destination; but, hypothetically, if that were to be the case, one reason this educuation-obsessed ethnic group may want to bring their kids to SoCal is to attend some of the most GLOBALLY respected Universities, or at least part of an incredible, global brand (yes, a subjective word, “brand”), being the UC System.
P.S., Nice jabs at mentioning USC in the same breath as UCLA. Noted.
Back in 1979, I was accepted into both NYU and UCLA. I chose NYU, because I lived in New York and wanted to be close to friends and family. In retrospect, I wish I had gone to UCLA.
First time home buyers got royally screwed 2003-2008. No surprise they are not looking to buy and know full well the second con is in full swing. Appraisers secretly performed drive by’s and never completed full inspections. Homebuyers never knew this unless they went back and did some research, and/or managed to gain access to the lock box audit log. Pictures were stripped directly off the MLS by appraisers, comparables were grossly inflated, yet they still managed to select two very important destabilizing trends “Over supply of homes, Declining market” Many even commented further price declines in progress and expected to continue. Underwriting (even at extremely conservative financial institutions) overlooked all these declining trends and didn’t question how LTV ratios would look like in 3-6-9-24 months.
Who is liable – Lender (underwriters) or the appraisers? Do they still have a mechanism to collude with AMC’s and control the home value of entire neighborhoods?
Another “idiot” (ranked 4th best hedge fund manager of all time, fwiw) saying the stock market is in for a doozy. Pretty sure Soros made a public bet recently shorting the market (although maybe it was part of a hedge). Some would think when stocks go down, the wealth effect does to, and even that top 1% thinks twice about overpaying for a home. Their brain wakes up and remembers that money comes and it can vanish quickly too (it all aint hand $200k to your advisor and its $500k in 5 years). psychology be a bitch. People aren’t just like, well I just took a beating in stocks, so lets buy some real estate (as it goes down). They regroup. They move to cash. They freeze.
http://www.cnbc.com/id/101479544
The method of operation of the
“recovery” illusion is this:
http://www.multiurl.com/la/Manipulated_Inventory_Raises_Prices_Cuts_Entry_Supply
and kicking the can down the road:
Should’ve been non-recourse
for those who were unqualified
but knowingly welcome and who
put down 5/10%; and, it should’ve
been skin in the game for the banks.
http://www.businessinsider.com/californias-foreclosure-starts-hit-seven-year-low-2013-2
The huge improvement in the state’s foreclosure market has been attributed to the California Homeowner Bill of Rights which became a law on January 1, 2013
http://pages.citebite.com/f2w8k3y4j9knv
http://www.thestreet.com/story/11987502/1/government-modification-program-has-high-re-default-rate-watchdog-says.html
I’m curious at what point the bears on this page will be satisfied and want to buy. Perhaps they will just keep waiting forever as life passes them by?
At the point where coastal SoCal drops to be affordable by $55k a year income residents, everyone in this state is in a world of hurt. I would venture a guess that if a Black Swan event happens, the bears on this page won’t be able to buy either.
But I suppose sitting around hoping for disaster is at least entertaining?
Eric the Der-your first sentence starts off like a valid point/question. I can’t answer for everyone, but I’d say many people here would be happy with 15-30% off. Of course there are outliers that would be happy to buy at today’s prices and others that want more than 30%.
But then you decide to be a dick who wants to please himself rather than add value or ask a question….on a website called doctorhousingbubble.com. I wonder what kind of nerd with a million websites to choose from about all types of subjects, including ones pro-housing, walks onto such a site to post such a comment. Also what kind of moron thinks life just passes by for renters? That comment is just beyond idiotic. if you just repeated it once to yourself first before posting you probably would have realized how stupid it is. And most importantly, as we seem to have to go over this every month or so, who the fck on this board says coastal property is going to be affordable for people making $55k? If you make $55k, coastal CA property should be the last thing on your mind. If you’re young, save and rent or live with mama bc if coastal property is affordable to you, that coast has problems. if you’re not young try and get a new job, new skills (both of which are very hard) or a new affordable location to live….or find someone with more money and marry them.
@ FTB
I meant no offense, but if I did offend you, then I apologize.
I have been following this blog for several years, and I have been on both sides of the debate as the situation on the ground changes. Which is my point – the situation changes but yet I don’t see many people on here assimilate new data and change their decision points. I see dogmatic views from the bulls and the bears, which I think adds little to the discussion. If I can break down the groups present:
1 People who are in the industry or are drinking kool aid. Nothing is changing their minds. “They’re not making any more land.”
2 People who want to buy to lock in housing costs, regardless of what the market does over the next 10 years. “Home is shelter and I’m not moving.”
3 People who don’t feel comfortable buying due to their current situation – financial, emotional, etc. “The market is whack right now, but it may improve someday. I will wait.”
4 People who never, ever will buy. Period. Totally negative. “Housing is always a bad idea. In all instances. I would buy a beach house for a dollar. Maybe.”
I’m curious to see if group #4 really believes that way, or what it would take to turn thought into action. Groups 1, 2, 3 already have taken action or have some criteria when they WILL take action.
“Life passing us by” applies to anything we want out of life that we don’t pursue. If we are waiting for the 100% on anything, aside from death and taxes, it’s not going to happen. Group 3 can sit in this category, possibly group 4.
I bear no ill will towards renters. We are ALL renters. Try not paying your property taxes for a while. You NEVER own your land, free and clear. Ever.
I am a bear and really don’t plan to buy unless it is financial advantageous. Long list of qualifiers that I won’t bore you with.
“At the point where coastal SoCal drops to be affordable by $55k a year income residents, everyone in this state is in a world of hurt. I would venture a guess that if a Black Swan event happens, the bears on this page won’t be able to buy either.”
I completely agree with your statement but I could be wrong…
I suppose I’m a reformed bear, in that I believe housing is very overvalued, yet have come to believe it will stay that way because the market has been fixed at every point it can be fixed. I doubt I will buy, but I’m fine with renting because I think it is the best choice in these circumstances, and in my circumstances particularly. It may be otherwise for other people.
I do think my reasons not to buy are valid, and may apply to others. I don’t see myself as someone who “needs” to buy. I see myself as someone who can choose to buy. In general, I don’t choose to enter into financial agreements with or buy from entities I don’t trust. Like What?, I will buy when I feel it is financially advantageous to me. Finally, I don’t see my income as being particularly permanent or stable in this economic environment. A bank would probably see it differently, but they don’t have my best interests in mind. I am probably more cautious than most, but I’m happy taking that stance.
I’m a native, and feel like I have a good sense of the ups and downs of LA real estate. I also have a sense of the inventory and its problems. I find the valuations of local homes laughable, although laughable in a sad way. It is interesting to watch.
Do you also go to restaurants and tell the other diners how stupid they are for not ordering the same dish as you?
That’s how ridiculous and pointless it is to go on a housing bubble site and troll against the current.
No. I am not trolling. I am too old for such tomfoolery. Please see my response above.
“But I suppose sitting around hoping for disaster is at least entertaining?”
If that’s not trolling, then what is?
An honest question. Is it entertaining?
Are you the Erik who deliberately gave the land(aka Greenland) a more appealing name than “Iceland” in order to lure potential settlers? Erik explained, “people would be attracted to go there if it had a favorable name”. He knew that the success of any settlement in Greenland would need the support of as many people as possible. His salesmanship proved successful, as many people (especially “those Vikings living on poor land in Iceland” and those that had suffered a “recent famine”) became convinced that Greenland held great opportunity. It turned out to be a disaster due to the lies of that Erik real estate developer. I have been looking for him ever since.
People have been doing real estate fraud for centuries.
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You also left out the the second disclaimer:
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Brilliant!
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50 million people walking the streets??? That statement says it all, sure some have fallen on hard times but even at the height of the housing collapse 93% of all people made their payments on time or have paid in full houses.
As I have stated over and over till you see boarded up car dealers block after block, fast food chains falling like flies, most grocery stores no longer open, many gas stations out of business, Las Vegas hotels open 9 to 9 closed Sunday’s, NY, Chicago, LA, business districts with no daily traffic or hustle and bustle, then my friend in any era in anytime capitalist countries have financial issues and downturns all come back to life.
If you don’t buy what I have said then Karl Marx was right all along, capitalism is a pyramid scheme which pancakes the middle class, problem with that theory at any one time there really isn’t a middle class in capitalism. We have a consent shift between have and have not’s. Many folks in a lifetime go from penthouse, to basement, back to penthouse?
Little “r†– did you notice that someone else used your handle? I called the poor guy out as being a shill/troll.
BTW – don’t you have an open house to get to?
This isn’t capitalism Robert….. hasn’t been for many a year.
“Landlords, like all other men, love to reap where they never sowed,†Karl Marx once famously said.
Any house in San Gabriel Valley that we have offered- has multiple offers above asking price, including cash offers. For example, a house was listed $689k- 11 offers, now price up to 740k or more. Another house was listed at $650k, sold at $720k. It’s insane here.
>>Founders of Bankrupt SoCal Real Estate Investment Firm Indicted in Wide-Ranging Scheme That Led to More Than $110 in Losses
U.S. Attorney’s Office February 05, 2014
SANTA ANA, CA—The owners of a now-defunct Southern California real estate investment firm were arrested today for allegedly perpetrating a Ponzi scheme that ended with the bankruptcy of their company and caused private investors and banks collectively to lose well over $110 million when the scheme collapsed. <<<
link: http://www.fbi.gov/losangeles/press-releases/2014/founders-of-bankrupt-socal-real-estate-investment-firm-indicted-in-wide-ranging-scheme-that-led-to-more-than-110-in-losses
Makes you wonder how so many people malinvesting over the years, story after story of people losing out on boom-world speculative schemes… including people personally into property at high prices… and banks throwing money at everything and anything… the system keeps standing up. Perhaps it does by manipulating House Price Inflation to even more preposterous levels again…. creating a new normal via investment companies buying up loads financed with new bank debt… keeping older people protected… and sticking it all onto younger people/non owning savers.
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