Market Conditions: YOY Data Shows Price Declines: Sellers Still Not Willing to “Give It Away”
Over the weekend, the Chicago Tribune reported on the Chicago area housing market using CoreLogic’s data for over 200 zip codes.
As we’ve been chattering about the last few months, it appears that the Chicago housing market has taken a turn for the worse since the beginning of this year.
“The prospects are dim in the near and medium-term,” said Sam Khater, senior economist at CoreLogic. “The bigger factor is the state of the consumer. The shadow inventory (of distressed properties) will clear. The more fundamental question is the economic security of the consumer.”
With home affordability strong and 30-year, fixed-rate mortgage interest rates at 4.8 percent last week, it remains a buyer’s market, but a lot of consumers still have a bunker mentality, said John Carlson, branch manager of Coldwell Banker’s Downers Grove office.
“My office should be like a deli counter with people taking numbers,” Carlson said. ” I would say people are in a wait-and-see mode. I think there’s a recovery path here.”
In Homer Glen, Steve Brown is waiting for that one special buyer to emerge from his or her bunker. Brown tried to sell his custom-built home last fall, but the only offer he was received was for $370,000, more than $70,000 less than his listing price for the well-appointed home with its own private pond.
Now he’s trying again, dropping the price by $6,000, to $436,500. “People are starting to inquire again,” Brown said. “I know I can sell it easily if I reduce the price to $400,000. My gut reaction is we’ve hit bottom, but I’m not willing to give it away.”
The real estate agents around the Chicagoland area see some areas of hope but they’re still realistic.
Betty Cunningham, a real estate agent in Schaumburg, doesn’t feel any more positive about the market, despite having one listing that sold in two days. “I’ve got brand new listings in Schaumburg that are rehabbed and beautiful,” said Cunningham, a Coldwell Banker agent. “I can’t get a showing. They see the area and they see it’s going down.”
“I’m not seeing price increases but I am seeing stability on the lower end,” said Gary Christensen, an agent at N.W. Village Realty Inc. in Elk Grove Village, where price declines in the 60007 ZIP code have moderated since October and in February rose 1.76 percent, according to CoreLogic.
“If the home is nice, it does move if the seller isn’t greedy,” Christensen said. “If we can price it based on where the market is, we’re OK. If we have to price it because we need a (certain) number, those don’t move.”
Within the city of Chicago, the article specifically mentions the big 20% year over year price decline in zip code 60646 which includes the tony enclaves of Edgebrook and Sauganash.
But do you think your zip code is immune?
CoreLogic’s data is made from repeat sales of homes selling for between $10,000 and $10 million.
It does NOT include multifamily residential, new construction, non-arm’s length transactions, and those corporate owned properties sold at auction. It DOES include bank owned sales and short sales.
Here’s a smattering of some of the popular zip codes. Remember, the data is year-over-year price changes.
Lakeview (60657)
- February 2011: down 12.87%
- January 2011: down 9.35%
- December 2010: down 6.28%
- November 2010: down 6.81%
- October 2010: down 8.75%
Lakeview/Wrigleyville (60613)
- February 2011: down 13.15%
- January 2011: down 14.74%
- December 2010: down 13.44%
- November 2010: down 12.32%
- October 2010: down 11.94%
Roscoe Village/North Center (60618)
- February 2011: down 12.66%
- January 2011: down 10.98%
- December 2010: down 9.63%
- November 2010: down 8.46%
- October 2010: down 8.06%
Lincoln Park (60614)
- February 2011: down 6.11%
- January 2011: down 5.51%
- December 2010: down 1.16%
- November 2010: up 0.46%
- October 2010: up 0.28%
River North/Gold Coast/Streeterville (60610)
- February 2011: down 11.57%
- January 2011: down 9.87%
- December 2010: down 8.59%
- November 2010: down 7.32%
- October 2010: down 5.76%
Uptown/Andersonville (60640)
- February 2011: down 14.42%
- January 2011: down 9.94%
- December 2010: down 5.79%
- November 2010: down 5.11%
- October 2010: down 3.89%
Bucktown (60647)
- February 2011: down 11.79%
- January 2011: down 10.14%
- December 2010: down 7.66%
- November 2010: down 5.68%
- October 2010: down 5.08%
East Village (60622)
- February 2011: down 11.79%
- January 2011: down 10.14%
- December 2010: down 7.66%
- November 2010: down 7.55%
- October 2010: down 5.68%
South Loop (60616)
- February 2011: down 13.38%
- January 2011: down 11.72%
- December 2010: down 7.43%
- November 2010: down 6.23%
- October 2010: down 4.23%
If homebuying is psychological- what do these continued price declines mean for sales in the coming months?
By zip code: Little growth in home prices [Chicago Tribune, Mary Ellen Podmolik, Apr 24, 2011]
“what do these continued price declines mean for sales in the coming months?”
It means those that kept their prices high this spring and didn’t get off what they need to are all going to start caving on one another. Get ready for that spread b/w offer prices and sales prices to come closer together, with both continuing downward.
Oh, I got no skin in this one but I look at that fulcrum crest in LP, see how easily it can be taken 2 different ways, know CC, and this should be fun today… but first, some time on the shortboard for Ze. Peace!
Again, if you want to present data in a way that is meant to scare the public, this is the perfect forum. However, if any of you have any intelligence whatsoever, you will realize that you can’t just take these generalized numbers and make any sense of it. Even within zip codes, you have to compare apples to apples. For example, in 60611, I would be interested in knowing what a 2/2 at the palmolive sold last year vs. this year – but the data for 60611 includes everything and we know that the lower end (0/1, 1/1, etc) in worse buildings are selling (to investors). This drags down all the prices. If you can’t understand that simple concept (which, obviously sabrina, HD, G, and some others can’t) then there is nothing I can do to convince you – just keep living in your moronic fantasy world of free-falling prices – but don’t you dare ask why, in 5 years, everything is so expensive. Remember, stupid people stay poor for a reason…
Cribchatterers and the seller in Homer Glen have something in common: they both think we’re at the bottom. I just love the “I’m not willing to give it away” quote. Classic stuff here. Right up there with “its a great time to buy or sell real estate” and “its different here, it really is.”
“My gut reaction is we’ve hit bottom, but I’m not willing to give it away.”
Suburbs like homer glen with high property taxes are getting smoked right now. Most city neighborhoods are looking grim as well. If your in the 1 mil plus market price drops may be small, but for everything else there is still a nice slide ahead.
I put an offer on a place on the near near west side that was about 20% above the 2000 price. We thought that accurately reflected the dramatics transformation of the area. Based on recent comps we felt we were being somewhat generous but not much. The seller refused to negotiate beyond a $5000-below-ask counteroffer. That would have put the place at 40% above 2000 pricing.
They have already dropped the price below their final offer to us.
I just love the “I’m not willing to give it away” quote.
HD would you be okay with “i cannot afford to sell it for less than I owe” instead?
Id be ok with that. But tthey why even bother putting it on the market?
I love these articles — negative news sells, right? The question is can people think for themselves? These numbers are a YOY comparison to the time that the buyers credit was being offered (both times) right? So not surprising to see this result — almost predictable. Because the end of 2010 was so dismal, if anything sells—we’ll have some nice positive numbers–right?
It is a boom time for investors (the rich are getting richer)—buying with 20-25% down and walking away with $200-$500 cash per/mo from the start. Renting their props typically before the first mortgage payment is due–often during the first week. You know what that means–next year = rent increase AND more $$ for these investors who have the guts to buy. The rich get richer–why don’t buyers (occupants) get this? During the boom—everything that could go condo did, right? So many rental buildings are now condo. Additionally, we now have a new class of renters we’ve never had before—people who have lost their homes to foreclosure/short sales. Haven’t seen too many rental buildings built — and since we aren’t manufacturing new land / the population is growing — seems like an awesome time to invest in props for some decent cash flow.
This is my first time posting on CC — I’m sure there will be a flurry of folks commenting about how the market will continue to correct down another 10% (why stop there). The good news is that investors (myself included) are going to be very wealthy from this type of chatter. Thanks!
Oh this should be a fun post, now where is my popcorn
OK – you have buyers vs sellers here – but guess what? – the sellers have the goods that the buyers want. Who do you think has the upperhand?
“it means SFHs that haven’t been rehabbed in 20 years will be lucky to get 200k, not 400-500k.”
This is Bob’s comment discussing this article from the other thread last night.
But I agree with this. We have a lot of homeowners who in the boom didn’t have to do anything to their property and it sold. Today, there is simply too much inventory and Generation X and Y both want completely renovated properties. As we’ve seen from the comments on this site about properties- if the kitchen isn’t perfect (cherry, granite, stainless steel) and the baths not upgraded (granite etc.) then the property gets ripped apart.
So the baby boomers had better have the renovated kitchen and baths to sell. Do they? I’ve seen plenty of properties in Sauganash and Edgebrook (not to mention other nabes) where nothing has been done to either and yet they’re priced at $700k or higher.
It’s no longer going to fly.
That’s why the foreclosures that are flipped sell quickly. People want “new” and to move right in. They don’t have the money to buy it and fix it up. And now credit is too tight to even get a home equity loan to do it.
“the sellers have the goods that the buyers want. Who do you think has the upperhand?”
Currently the buyers, since they have the money the sellers want and because the sellers’ goods are flooding the market compared to demand.
“You know what that means–next year = rent increase AND more $$ for these investors who have the guts to buy. The rich get richer–why don’t buyers (occupants) get this?”
Cooper: Many people aren’t buying because it’s still cheaper to rent than to buy. When it’s not- renters will buy.
Also- I love how all the landlords think they’ll just be able to jack up prices. Again, my rent went up $25 this year. Wow. Scare me now.
You can’t get blood from a stone. Gas is at $4.50 a gallon. Good luck raising rents.
“That’s why the foreclosures that are flipped sell quickly. People want “new” and to move right in. They don’t have the money to buy it and fix it up. And now credit is too tight to even get a home equity loan to do it.”
I smell a “new” way to make money……. and believe me the rich ARE going to continue to get richer off of this market. Again, just take a frickin look at what is on the market – there are NO bargains out there (and there aren’t going to be any glut of bargains coming on the market). Stop living in your fantasy land and come back to reality.
“OK – you have buyers vs sellers here – but guess what? – the sellers have the goods that the buyers want. Who do you think has the upperhand?”
I dont know my friend, all the sellers i dealt with that think that way are still trying to sell, while i have moved on to the many, many, many others that are selling and waiting for the rest sitting on the bench of the selling team waiting to get playing minutes.
btw the way i have popped to bags of corn as i feel this shall be a wonderful show today.
Oh- and they ARE building more rentals. There are 3 or 4 new rental high rises being approved downtown right now and several more were just built in the last year. Add to that the condo high rises that are going rental- and that is thousands of units downtown. Outside of downtown- many condo owners who can’t sell are renting their units. Doesn’t appear to be a supply problem in Lakeview, LP, Bucktown etc. There have been “for rent” signs on buildings in my neighborhood for weeks.
“You can’t get blood from a stone. Gas is at $4.50 a gallon. Good luck raising rents.”
Exactly – and people are still buying gas. So, if you increase rents, people will pay them. It isn’t that hard to understand. WTF is wrong with you?
“As we’ve seen from the comments on this site about properties- if the kitchen isn’t perfect (cherry, granite, stainless steel) and the baths not upgraded (granite etc.) then the property gets ripped apart.”
You should also add that recently renovated properties are not immune either. Lots of practically new kitchens only 5-ish years old, look completely tired and out-of-date (to me at least).
lol @ clio
“I smell a “new” way to make money……. and believe me the rich ARE going to continue to get richer off of this market. Again, just take a frickin look at what is on the market – there are NO bargains out there (and there aren’t going to be any glut of bargains coming on the market). Stop living in your fantasy land and come back to reality.”
There are plenty of bargains. Why aren’t you buying houses for $10,000 in Humboldt Park Clio? Because you’re scared? All talk and no action?
Those are being flipped for much, much more. Same with Logan Square and other nabes. You’re looking for “deals” in the wrong place- meanwhile others ARE making money.
I think it’s great for the flippers. It’s not that easy to re-do those old houses that haven’t had maintenance for years. It also helps the neighborhoods as they’re being ravaged by foreclosures and short sales anyway.
“Exactly – and people are still buying gas. So, if you increase rents, people will pay them. It isn’t that hard to understand. WTF is wrong with you?”
I’ll pay $25 a month. That is it. If you raise it $100 on me I will move (since that increase is more than it costs me to pay the movers.)
What don’t you get???
Investors are making out like bandits right now. Most people that can afford to rent in the GC, Streeterville, LP and certain parts of Lakeview are going to be forced to move in the next coupld of years because rents are going to sky-rocket. If the current renters are ok with that (ie moving further and further away from the green zone) then it is OK – but if there are any renters out there that want to stay in the GC, LP, LV, etc, you had better start looking now to buy – otherwise you WILL be priced out of the neighborhood – guaranteed – just ask any broker/realtor/smart person out there.
“There are plenty of bargains. Why aren’t you buying houses for $10,000 in Humboldt Park Clio? Because you’re scared? All talk and no action?”
uhhh – because nobody wants to live there. I don’t think things are going to be great for those fringe areas. I only will concentrate on the Green Zone. Believe me, in the next 10 years you will see the green zone becoming more exclusive and untouchable than ever and you will see the flocks of people who didn’t buy now fighting each other to rent in these outlying fringe areas. It isn’t that hard to figure out. Just check out the rents in 60610,60611,60614,60657.
“If the current renters are ok with that (ie moving further and further away from the green zone) then it is OK – but if there are any renters out there that want to stay in the GC, LP, LV, etc, you had better start looking now to buy – otherwise you WILL be priced out of the neighborhood – guaranteed – just ask any broker/realtor/smart person out there.”
The 2 or 3 bedroom units were $2000 to $2500 in Lakeview BEFORE the bust. They are about the same right now (for nicer quality.) How many people do you think can afford $3000 a month? Pulease.
If rents skyrocket as you say- that means CPI will skyrocket. When that skyrockets, the Fed will raise rates (probably sharply- in my opinion.) As rates rise, it gets more expensive to buy. Prices will drop further as the monthly payment will rise for most people. At that point- it may be cheaper to buy than to rent- so people who can get loans will buy.
Right now- it is MUCH cheaper to buy in the suburbs than to rent. There are great deals in the suburbs (even the inner suburbs.)
“uhhh – because nobody wants to live there. I don’t think things are going to be great for those fringe areas. I only will concentrate on the Green Zone.”
These flipped houses are selling. These investors are making $100k to $200k per house.
Just as I thought Clio. You are a “part-time” investor. Not the real deal. There are PLENTY of deals out there.
“broker/realtor/smart person”
broker==realtor==smart person? Really?
Only in the entirely fabricated mind of our resident real estate shill does this make any GD sense…
“I think it’s great for the flippers. It’s not that easy to re-do those old houses that haven’t had maintenance for years. It also helps the neighborhoods as they’re being ravaged by foreclosures and short sales anyway.”
I am actually cheering for the Rehabbers (cant call them *flippers) as they are taking the crap shack boarded up houses and making them turn key, which in turn helps the block/hood look better, helps comps, helps attract a higher level of neighbor.
i want these guys to do well so they will keep on going forward doing more.
*flipper to me is a buyer who only throws on a coat of paint, maybe new carpet and list at a higher price for a huge ROI.
By the way Clio- why didn’t you buy the 2/2 in Elm Tower? It was on the market for MONTHS. The bank kept lowering. The kitchen and baths were intact (with subzero, no less) and it had parking.
Sold for $280k or whatever it was- and someone said they’re trying to rent it for $3400 plus $300 for parking.
That seems like a no brainer to me.
There ARE deals in your zip codes. I see them every day. You’re just not looking in the right place.
“By the way Clio- why didn’t you buy the 2/2 in Elm Tower? It was on the market for MONTHS. The bank kept lowering. The kitchen and baths were intact (with subzero, no less) and it had parking.”
I told you why – it was a bad deal all around. As an investor it made no sense because of the high assm and taxes. As a buyer, it didn’t make any sense because of the high assm and taxes for what you get (better deals out there). I don’t give a fuck what someone paid for something – I look at the unit, current price and future returns. That is the problem with most people here – they are looking to the past – if they were smart, they would be looking to the future.
“By the way Clio- why didn’t you buy the 2/2 in Elm Tower? It was on the market for MONTHS. The bank kept lowering. The kitchen and baths were intact (with subzero, no less) and it had parking.”
The biggest factor with the housing market is that people are finally realizing that if you plan to live in a home for only 3-5 years, buying never makes sense (eg appreciation minus brokers’ 6% minus hassle factor) unless you’re in a boom time or you really want to paint your walls fuchsia.
The boom-times property ladder used to be 1) rent, 2) starter condo, 3) house. Now it’s 1) rent, 2) rent, 3) house. Lots of headwinds for the archetypal 2/2 condo.
ah… But no better predictor of the future, than the past. Always worked well for me. I rmember Clio many times informing us l of the all cash multiple offers for all these sub palmolive bldgs. Where is this showing up in price. Oh, it’s not!
” I don’t give a fuck what someone paid for something – I look at the unit, current price and future returns. That is the problem with most people here – they are looking to the past – if they were smart, they would be looking to the future.”
The gentleman doth protest too much.
Chill out bro, it’s only Monday. On an anonymous internet thread.
“Cooper: Many people aren’t buying because it’s still cheaper to rent than to buy. When it’s not- renters will buy.
Also- I love how all the landlords think they’ll just be able to jack up prices. Again, my rent went up $25 this year. Wow. Scare me now.
You can’t get blood from a stone. Gas is at $4.50 a gallon. Good luck raising rents.”
Still cheaper to rent? REALLY? When a condo sells for $75K — or roughly the same price as a luxury car—doesn’t something seem wildly out of balance to you? BTW — That condo with 25% down w/taxes and condo fee’s = $768/mo. Rented in one day for $1,100.
If my tenants stay—-I raise their rent minimially — just to avoid re-rental costs — that makes sense. BUT when they move–that’s when it goes up—in the above example — after renting it in one day, you think I’m going to list it again for $1100? Try $1275.
Sure–buildings are going up downtown—because people are renting and those places aren’t cheap — THAT is where you’ll find people paying $3000/mo. Oh–who are they?–the people who had purchased 2br/2baths for $500K during the boom and walked. They’ve purged themselves of debt and are now living downtown in new luxury building — making the rich, richer.
As for gas, another great example of the rich getting richer—gas co’s posting record profits today. While you will lose only $25—most people drive more. BTW–I assume the higher gas goes, the more valuable city real estate becomes and/or rents go up.
Thanks for the negative spin—those of us who are buying and getting immediate positive cash flow are loving it.
“I don’t think things are going to be great for those fringe areas. I only will concentrate on the Green Zone. Believe me, in the next 10 years you will see the green zone becoming more exclusive and untouchable than ever and you will see the flocks of people who didn’t buy now fighting each other to rent in these outlying fringe areas. It isn’t that hard to figure out. Just check out the rents in 60610,60611,60614,60657.”
clio’s right, the better areas, like the GZ and nicer suburbs, will do well.
Steve Sailer states: But there are signs that we’re becoming more of a class-based society than during the heyday of twin studies.
For example, The Nurture Assumption author Judith Rich Harris argued that children’s peers have great influence—even if parents don’t. Thus accent is determined not by a child’s parents, but by his peers between ages five and fifteen.
Of course, accent isn’t as determinative of one’s place in the world in America today as in the England of My Fair Lady. Yet peer groups really matter—and the good ones are getting more expensive. Apart from anything else, government-sponsored mass immigration means that middle class American children make up an ever-shrinking portion of the population, so the competition for desirable peers for your children is getting fiercer. Similarly, government-tolerated illegal immigration—and arguably school integration—exacerbates the stress on American parents in the lower part of society.
Regarding cost of owning vs cost of renting in the Chicagoland area, Crain’s recently published the following article:
Cost to own a home reaches record low compared to renting: http://www.chicagobusiness.com/article/20110416/ISSUE01/304169975/cost-to-own-a-home-reaches-record-low-compared-to-renting#ixzz1KXrvhKRP
“OK – you have buyers vs sellers here – but guess what? – the sellers have the goods that the buyers want. Who do you think has the upperhand?” clio
buyers dont want overpriced garbage.
BTW, I always thought South loop is zip code 60605. Isn’t 60616 near south side?
“You can’t get blood from a stone. Gas is at $4.50 a gallon. Good luck raising rents.”
Actually, rents in areas close to public transit should go UP bc of gas prices. People will be willing to pay more in rent to drive less. Who the heck wants to drive anywhere when gas is $5 a gallon? High gas prices hurts the far suburbs more than downtown.
“clio’s right, the better areas, like the GZ and nicer suburbs, will do well.”
Dan, I never disagreed with your Class Structure – Blade Runner theory, particularly since I live in it (although the good is pushing out the bad – rapidly, as well as the bad is becoming less bad). What you are suggesting though is an inverse correlation within the same asset class. Lower rate of change – no problem accepting, inverse correlation – violates my experience and not going to happen! Most of the times I have seen this, if it lasts long enough, the one that was holding up better and longer, when and if it goes, goes even faster…
“lower rate of change – no problem accepting, inverse correlation – violates my experience and not going to happen! ”
Yeah, that’s probably a more accurate way of putting it, I agree but then one could bring up the extreme example of US Housing prices over the last 20 yrs. versus Detroit’s. Inverse!
“Who the heck wants to drive anywhere when gas is $5 a gallon? High gas prices hurts the far suburbs more than downtown.”
actually it hurts all of us equally
Groove – How does expensive gas hurt equally impact the guy with a car and the guy without a car?
I agree but then one could bring up the extreme example of US Housing prices over the last 20 yrs. versus Detroit’s. Inverse!
ROFLMAO! Is there still a Detroit?
Obviously correlations within the same market will be higher than correlations to other markets. And Detroit is just not even fair to mention. If we offered it to the Canadians they would laugh their asses off.
Its not so much blade runner as it is soylent green. That’s a better description to describe the gap bw the rich and the poor.
Chris M.. You should watch movies like Food Inc and King Corn. Food is now energy price dependent. Truly scary.
We put up huge inflation numbers each of the last 2 weeks here (inflation reports weekly-obviously volatile). We were about 4% in all of 2009, 6% in 2010, and each of last 2 weeks posted over 1% each week, this was with serious appreciation vs dollar too. To be fair home prices make up a good chunk of it and are soaring so need to take out a bit, maybe running touch over 1/2% a week, mostly food and energy, still very very high.
“Groove – How does expensive gas hurt equally impact the guy with a car and the guy without a car?”
goods and services cost will increase (i.e. all consumer goods have a credit card transaction cost attached to the selling price, so if you pay cash you are subsidizing the debit card users)
the guy with the car will now take public transport effectively crowding said transport no making guy with out a cars commute less pleasant
and off topic Chris M,
dude why didnt you warn me that the clinton place was DIRECTLY ACROSS from a four story school? a modern one at that!
Ze – I’ve seen a lot of the food documentaries and I follow your point. But surely the person that walks and takes the train as their primary modes of transit are better positioned than the person that is car dependent, no?
Groove – Ah, yes, Brooks Middle School. So you went to check it out this weekend?
The thing that scares me the most as a buyer is the sheer volume of bank-held foreclosures that they are not releasing. I can understand sellers not willing to give it away… the banks certainly don’t want to do it either.
“person that walks and takes the train as their primary modes of transit are better positioned than the person that is car dependent, no?”
Complete agreement!
Chicago is one of the few great walking cities in the U.S. anyway. Biking also.
“Groove – Ah, yes, Brooks Middle School. So you went to check it out this weekend?”
Wife was took a side track on her way to oakbrook mall on friday to do a drive by. I thought she over exaggerated its size, so took a quick drive over on Saturday morning (needed to make a menards trip anyway) i didnt even get out of the car to look around the place, the monster infront 86’d the idea right away.
“but if there are any renters out there that want to stay in the GC, LP, LV, etc, you had better start looking now to buy – otherwise you WILL be priced out of the neighborhood – guaranteed”
this was exactly the mentality that was sold that convinced so many people to buy at inflated prices 2002-2007; they were told if they didn’t buy now, the 10-20% yearly increases would continue and never stop, and they’d be priced out forever.
I see it falling another 10%, but probably not more than 15% overall for most neighborhoods. This housing bubble bursting is pitting the generations against eachother and will get more and more attention in the media soon. It’s sad the IAR is “cooking their books” to try to spur buyer interest in the market. Why are these numbers so different from IAR’s?
Groove – Is your popcorn cold yet?
A little perspective for the homedeletes of the world who have absolutely no clue about homeownership:
Right now, we are approx. at a point difference in rates between the 4th quarter of 2010 and now. If you apply the depreciation tableau that’s above in, say, lakeview, everything else being equal, you are looking at a $50 difference a month.
My god. I suppose, that means, the world is coming to an end.
Headline from today:
“New home sales up, inventory at 43-1/2 year low”
It’s amazing the spin that the media can put in the headlines.
http://finance.yahoo.com/news/New-home-sales-up-inventory-rb-2165792017.html?x=0&sec=topStories&pos=main&asset=&ccode=
WHO DO YOU BELIVE?
http://finance.yahoo.com/news/New-home-sales-up-inventory-rb-2165792017.html?x=0&sec=topStories&pos=main&asset=&ccode=
wow – chukdotcom – we are on the same page!!! didn’t see your post
I don’t believe you are on the same page. I also don’t believe that anyone would take that information at face value.
Clearly that article means that this is the best time to buy since 1967. Don’t get priced out!!
“Groove – Is your popcorn cold yet?”
yeah it is, i realized it doesn’t go with OJ very well.
Who’s going to bail out all of the boomers? Hopefully there’s no more government bailouts….
“I don’t believe you are on the same page.”
Well, we are at least on similar pages. I believe the bottom is in now. But maybe not for all the same reasons. I think it is only a matter of time before inflation creeps into home prices. I think you will see a greater disconnect between the fed rates and real inflation. Fed will remain stubborn and keep rates near 0% until housing prices fly. But really it is just a function of killing the dollar and inflating away our debt. Not some huge pent up demand for housing.
Bottom line, I think this time next year, more than 50% of properties will be worth MORE than they are today. That does not mean every property will go up. Some areas are in more trouble than others. But the average price will likely be higher next year IMO.
That’s hilarious! Keep up the good work!
“Bottom line, I think this time next year, more than 50% of properties will be worth MORE than they are today.”
“That’s hilarious! Keep up the good work!”
Not nearly as hilarious as your horrible selling price predictions. Do you even understand what I wrote?
Take a look at Zimbabwe for an example of what inflation can do to prices:
http://www.newzimbabwe.com/pages/inflation21.11927.html
“At the start of 2004, a four-roomed house in Bulawayo’s western townships cost close to Zim $4 million (US $712) but the price has now increased to a whopping $30 million (US $5,357), or more. In the affluent eastern suburbs, a similar house used to cost around US $12,500, but has since trebled in price.”
Are we more like Zimbabwe, or Japan?
“Are we more like Zimbabwe, or Japan?”
Most likely Japan, but I wouldn’t put it past Bernanke to make us more like Zimbabwe. This denial of inflation is INSANE. The problem is, Bernanke wants to see wage inflation and housing inflation. Instead, he is getting the opposite. I fear he will continue down this path until he gets what he wants. Consequences be damned.
I don’t think that anyone with a single live brain cell could possibly think that house prices are going to continue to decline in the gz of chicago. That is so ridiculous it is really almost like saying that we are going to be invaded by aliens in the next few years. Seriously, how can you debate with idiots?
“The boom-times property ladder used to be 1) rent, 2) starter condo, 3) house. Now it’s 1) rent, 2) rent, 3) house. Lots of headwinds for the archetypal 2/2 condo.”
This. X 10. Going forward, there are going to be FAR fewer buyers for “transitional” properties that are not 10+ year investments.
“I fear he will continue down this path until he gets what he wants. ”
If that what it takes to keep housing up, when you get there, your money would have been better off almost anywhere else.
“If that what it takes to keep housing up, when you get there, your money would have been better off almost anywhere else.”
Well, other than cash. If your only choices are real estate vs cash right now, I would put it all in real estate.
The Zimbabwe argument in my mind has the same credibility as the “chicago will become detroit” argument.
Japan is a better example. Despite their many repeated bouts of QE they can barely produce inflation in anything other than oil or energy dependent sectors. They have a lost generation (sort of like our underemployed hipsters today), they have seriously high government debt…many similarities.
Ha, they just changed the headline:
“New home sales up, market still seen weak”
http://finance.yahoo.com/news/New-home-sales-up-inventory-rb-2165792017.html?x=0&sec=topStories&pos=main&asset=&ccode=
“If your only choices are real estate vs cash right now, I would put it all in real estate.”
Yes, cash by definition will suck too. My point being they are absolutely not reduced to just those 2 choices.
clio: “I don’t think that anyone with a single live brain cell could possibly think that house prices are going to continue to decline in the gz of chicago. That is so ridiculous it is really almost like saying that we are going to be invaded by aliens in the next few years. Seriously, how can you debate with idiots?”
You are a cartoon. A caricature comprised of the most terrible qualities of the worst huckster real estate agents.
I disagree with you. For such a seasoned, experienced and wise RE investor, you’d think you’d be able to communicate with me and others that disagree with a modicum of respect and thoughtful debate. How in the world did you become so crass and narrow minded?
“My point being they are absolutely not reduced to just those 2 choices.”
Sure. But I think people like homedelete are missing the bigger picture. They are myopically focused on housing and not the larger economic issues. They don’t understand how housing can go up, with everything being so bad. The fact is, it is all relative. Housing prices can go up, but can still badly lag behind inflation. So, even though you will have absolutely higher selling prices (500k in 2011, 510k in 2012), on a relative basis, housing may still badly lag. (Food up 20%).
“so ridiculous it is really almost like saying that we are going to be invaded by aliens in the next few years”
True. Contrary to what the zep tepi folks say, they’re not coming until 2030 at the earliest.
On an inflation adjusted basis, real estate is not a good investment historically, unless you are great at timing. 1995-2006 was a nice run. 2007-2011, not so much. I’d rather be in equities, especially for solid consumer staple type stocks, and high dividend payers at this point.
“On an inflation adjusted basis, real estate is not a good investment historically, unless you are great at timing”
uhh – you could say that about anything, genius…….
I had 4 rental showings at my condo in ELV on Saturday. 3 of them wanted it on the spot and filled out the application. All 2 checked out just fine. So I have multiple renters to choose from now. Was easy to get the $100 a month increase I wanted over last year. Also had 2 other people try to schedule a showing, told them they were too late.
Rents are going up, it’s a landlords market.
“How in the world did you become so crass and narrow minded?”
uhh – dealing with people (see I didn’t say “morons” or “idiots”) who refuse to open their eyes and see what is really happening.
“Yes, cash by definition will suck too. My point being they are absolutely not reduced to just those 2 choices.”
what do you think are the best alternatives ?
Try this flip on for size, one block west of RM:
http://www.redfin.com/IL/Chicago/4701-N-Whipple-St-60625/home/13491160
“That’s why the foreclosures that are flipped sell quickly. People want “new” and to move right in.”
Not quite chuk; I see the bigger picture and that’s why I’m so bearish on housing.
“chukdotcom on April 25th, 2011 at 11:26 am
“My point being they are absolutely not reduced to just those 2 choices.”
Sure. But I think people like homedelete are missing the bigger picture. They are myopically focused on housing and not the larger economic issues.”
I bought silver 6 months ago and gold stocks a year ago. That was a nice return compared to real estate. You won’t get rich off real estate unless you already have a lot of money, or have great timing.
My apartment rented in ELV quick, ergo, ‘Rents are going up, it’s a landlords market’.
I assume you are not a computer programmer or engineer by trade.
“#Chris on April 25th, 2011 at 11:33 am
I had 4 rental showings at my condo in ELV on Saturday. 3 of them wanted it on the spot and filled out the application. All 2 checked out just fine. So I have multiple renters to choose from now. Was easy to get the $100 a month increase I wanted over last year. Also had 2 other people try to schedule a showing, told them they were too late.
Rents are going up, it’s a landlords market.”
chuck,
I see it several ways, one is home prices which I do not like. The other is rent vs buy and yes , short of a strong negative opinion (70/30), at rent/own parity, I would always be a buyer. Unfortunately I am still negative 70/30 and see no hurry.
I honestly believe that housing will have enormous hurdles going up until it moves to a closer multiple of wages and those wages will have huge difficulties appreciating until we achieve a global balance. Remember the 3 million jobs lost last year in the US is what was created down here. Why should I pay more for an engineer in Salt Lake City than one in South Korea?
what do you think are the best alternatives ?
I learned trying to give advice on that is lose/lose 🙂 I think until a path changes one must continue to like physical assets outside of housing, but it’s high risk now. I am very pleased with most of South America still.
Overall, unless you want to kill yourself, diversification works best.
Another argument against new home owners. I don’t have any idea how someone scraps together a nice chunk of change and when they reach that point they throw it all into one asset.
I know. Completely stupid to just throw all your savings and cash flow into a depreciating asset. You are basically renting from the bank if you move every 5 years.
“I bought silver 6 months ago and gold stocks a year ago. That was a nice return compared to real estate. You won’t get rich off real estate unless you already have a lot of money, or have great timing.”
Congrats. Investing should be seen like surfing: catch a wave, ride it, then get on another when the wave has exhausted itself. Ride the larger secular-bull trends, and avoid the sectors in a downward trend.
Dennis Gartman made a comment recently about panic selling of the US Dollar:
“Panic dollar selling is setting in,” writes Gartman Letter editor and publisher Dennis Gartman. “There is no question but that the number of individuals, the number of sophisticate traders, the number of sophisticated investors, the number of central banks managing their reserve positions, corporations et al around the world are now heavily…indeed very heavily…short of the US dollar in almost nonsensical terms,” he writes. Eventually “the boat” will tip, “creating havoc as the dollar rebounds, perhaps violently.” For now, Gartman says, the trend is down “and may carry farther than any of us dream of or, worse, have nightmares of.”
The point for Housing is that some people with cash & financial assets MAY (and it’s still an “if”) choose to move some liquidity into US Housing (in GZ areas & suburbs only) as a way to get out of cash. Now this, again, supposes a two-tiered market, because those with no excess cash or financial assets cannot bid up the middle to lower submarkets absent any cash. Take the US Dollar falling, coupled with people’s paranoia about self-segregating their lives amongst a smaller and smaller acceptable first world “peer group” for themselves and more importantly their kids, and you could have enough demand for GZ property, in the best areas and school districts, with the right demographics.
A picture is worth a thousand words:
http://www.jparsons.net/housingbubble/
While prices are still slightly elevated, those looking for big declines like we have already seen are barking up the wrong tree.
Who believes this new item?: (Crain’s) — The retail real estate market continued its recovery in the first quarter, as the vacancy rate dropped below 10% for the first time since the financial market’s crash in fall 2008 and rents climbed a second straight time to a nearly two-year high.
“I don’t think that anyone with a single live brain cell could possibly think that house prices are going to continue to decline in the gz of chicago. That is so ridiculous it is really almost like saying that we are going to be invaded by aliens in the next few years. Seriously, how can you debate with idiots?”
Ok guys, this individual has shown the full degree to which he is locked-in to his particular opinion on the subject. He has just equated any further price decreases in the ‘green zone’ to aliens invading earth.
At some point there is just no point to continuing to debate someone with that kind of mindset. I believe in internet forum parlance, continuing to debate with someone like this could be considered ‘feeing the troll’.
As a potential first-time buyer who is evaluating market conditions to determine when to buy, I personally believe the real estate market in Chicago has certainly not hit bottom yet, the earliest I can see that happening is Fall 2012.
However, I’m smart enough to realise that I could be wrong. I’m curious to read forums like this to get different points of view, but ultimately I’ll continue to form my own opinion.
“Rents are going up, it’s a landlords market.”
I will be kind to my current tenant but when it is time for a new one, the rents going up another 20% or so. I will get it but I am also charging less that I should at the moment.
chukdotcom:
You’re looking at the wrong chart. Look at this one and it will explain where prices are heading.
http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-
Case-SHiller-updated.png
“I disagree with you. For such a seasoned, experienced and wise RE investor, you’d think you’d be able to communicate with me and others that disagree with a modicum of respect and thoughtful debate. How in the world did you become so crass and narrow minded?”
He got rich. I think his strategy (betting on GZ areas) is a lot safer than investing in over inflated fringe areas that only became nice when gentrifiers where pushed out of GZ.
That said RE is a difficult assest class to judge at the moment. Inflation abound, dollar weak weak weakening weaker still and what was a traditional inflation hedge is easier to question. Any asset valued in USD is diifiduclt to predict at the moment. We will always need housing–but at what cost? Will rents collapse or go up with energy and food? That is the question.
http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
different link
chukdotcom: prices must fall for volume to return to ‘healthy’ levels. Volume is anemic, especially in new home construction, and the only cure for this anemia is lower prices.
“it’s a landlord’s market”
Equity Residential Common Shares (NYSE: EQR ) hit all-time and 52-week high today. Price is very high, Yield is 2.3% which is pretty paltry imho, probably about even with GZ 2-3 flats.
“He got rich”
Fictional character, not even sure he is a he… doesn’t act it.
Cheap money chases yield, increasing the price and decreasing the yield. The paradox of cheap money is that it totally kills yield. Hence, the housewives of Japan battle the gnomes of Zurich to make a few pennies in the Forex market.
But regular homeowners aren’t looking for yield, they’re looking for a place to live. And at a price that will fit into their budget, quite sustainably, so that foreclosure rates return below the 2% or 1% rate they were for many many years pre-foreclosure crisis. And prices must fall to meet these household budgetary constraints.
People forget that investing in housing and buying a home are two different things and two different markets.
Simply because investors think they’ve reached the bottom doesn’t account for teh strained household budgets, tightened lending standards, lack of downpayments for 40% of buyers, 4,000,000 shadow inventory, etc.
“If my tenants stay—-I raise their rent minimially — just to avoid re-rental costs — that makes sense. BUT when they move–that’s when it goes up—in the above example — after renting it in one day, you think I’m going to list it again for $1100? Try $1275.”
Cooper I don’t believe a thing you say. I don’t think it’s that easy to find a condo you can get for 75k to rent out within one week for $1,100/month. Most of the landlords that post here bought during the boom times and have rents that don’t cover their cost basis.
“Yet peer groups really matter—and the good ones are getting more expensive. Apart from anything else, government-sponsored mass immigration means that middle class American children make up an ever-shrinking portion of the population, so the competition for desirable peers for your children is getting fiercer.”
There are deals in the New Trier school district vs. not many deals in most of the Green Zone. There goes your theory.
“While prices are still slightly elevated, those looking for big declines like we have already seen are barking up the wrong tree.”
It’s called overshooting the trendline, chuckdotcom. And surely with a tax credit perhaps the decline can be slowed or arrested, but I am sure glad there is a group of newly elected officials called Tea Partiers that tell those who would seek to eat from the taxpayer trough to bail them out of their own reckless financial decisions to go eat scratch.
http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
different link”
Its going back down to 70. It’s going down by another half. Clio is going to understand what bank owned means. Of course she will have long stopped posting by then.
Tomorrow Case Shiller will come out. I am predicting a value of 113 for CSINA SFH data, or a month over month decline of 2.4%.
homedelete: “chukdotcom: prices must fall for volume to return to ‘healthy’ levels. Volume is anemic, especially in new home construction, and the only cure for this anemia is lower prices.”
Volume is anemic because buyers are being told not to buy—that there will be further price reductions. If prices fall further, then we’ll continue to have more negative media stories and buyers will still be too scared to buy — like they are now. So where does it end? Seriously, why aren’t buyers buying? It is not due to affordability…
In the meantime and as I’ve previously wrote the negative media is creating a GREAT market for investors. People have to live somewhere, right? As far as I know, we’re not manufacturing new land AND the population continues to grow….
PLEASE keep up the postings about further reductions in prices—investors return will continue to go up and up and up…
“It’s called overshooting the trendline, chuckdotcom. And surely with a tax credit perhaps the decline can be slowed or arrested”
Yes, but you can overshoot the trendline with a 10% decline. 30% not necessary. And like you said, there are even artificial ways to keep it elevated until the trend line catches up.
Unless Inflation increases wages there is no reason to think it will affect housing.
Higher Interest Rates + stagnated wages + higher food/energy = lower housing prices.
If inflation does indeed hit like some of you are projecting wage increases are going to drag behind, they always do.
How many of you at your next review are going to demand a higher bump in your cost of living wage??
“different link”
Maybe I’m missing something, but (1) which subset did Shiller use/is Steve Bary using (looks like comp-20; confirm?), and (2) is Barry making *no* adjustment for inflation since 2006? Using CPI (yeah, yeah; Ze could argue that understates it) The 141.9 of Jan-11 is only 128.01 in 2006 Dollars.
“So where does it end? Seriously, why aren’t buyers buying? It is not due to affordability…”
It ends when real estate price declines overshoot the trendline and make owning such a value vs. renting that renters like me, en masse, decide that the savings from owning (all in costs of owning) are so much more than renting that they outweigh the risk of future price declines. We aren’t near there yet in most neighborhoods.
Cooper – it IS due to affordability. Your notion that housing is affordable is erroneous. Yesterday’s affordable didn’t include higher food, gas and utility prices, nor did it include student loan payments or 84 month car notes, and wages for many people are down too. Blaming it on the media reminds me of that old Chris Rock comedy routine…
“Volume is anemic because buyers are being told not to buy—that there will be further price reductions. If prices fall further, then we’ll continue to have more negative media stories and buyers will still be too scared to buy — like they are now. So where does it end? Seriously, why aren’t buyers buying? It is not due to affordability…”
“PLEASE keep up the postings about further reductions in prices—investors return will continue to go up and up and up…”
Cooper you’re really a salesperson, not an investor. If you were really an investor (I suspect you aren’t) you wouldn’t be trying to talk down how terrible the market is right now.
It’s funny when used home salespeople pretend to be wealthy investors. Even when their grammar is good they frequently make mistakes on math or present unrealistic assumptions in their scenarios as you did previously in this thread.
Go back to cold calling, Cooper.
“As a potential first-time buyer who is evaluating market conditions to determine when to buy, I personally believe the real estate market in Chicago has certainly not hit bottom yet, the earliest I can see that happening is Fall 2012. ”
You said it the best – you are a FIRST TIME HOMEBUYER – you should listen to people with more experience. How idiotic would it for you to listen to renters and non-homeowners. It is like asking a malpractice attorney how to do cardiac surgery. Bad decision on your part……
bob… Cooper is clio…
Is it like asking a cardiac surgeon how to do market analysis?
Bob: ‘Cooper you’re really a salesperson, not an investor. If you were really an investor (I suspect you aren’t) you wouldn’t be trying to talk down how terrible the market is right now.’
Seriously, how would you know? BTW, I’m both—in the last 6 months I’ve bought 2 props — want to buy 3 or so more. All under $100K. Rented the 2 within a week. They’re now positive cash by $600/mo. combined. Selling to many of my investor clients under the same scenario. Owned several during the boom, sold at the top of the market and have waited for ‘this’ market to buy again.
YES the market is REALLY REALLY REALLY bad — as you and the media report it. Keep saying/writing that—you’re going to continue to make the rest of us a decent amount of money. Thanks.
Chicago is a phenominal market — always a plentiful supply of renters. Cheap here compared to other big cities.
Keep scaring people about how bad the market is — they’ll never buy–don’t talk about affordability though…
“Is it like asking a cardiac surgeon how to do market analysis?”
ding ding ding we have a winner!
“Is it like asking a cardiac surgeon how to do market analysis?”
Don’t know any market analysts who have experience doing cardiac surgery, but do know a few docs who have econ degrees or mbas. And I’d sooner follow clio’s market advice to a t, than have any of the rest of youse digging around in my chest cavity.
“All under $100K. Rented the 2 within a week. They’re now positive cash by $600/mo.”
What LTV? What rate? What did you spend to get them code compliant?
“YES the market is REALLY REALLY REALLY bad — as you and the media report it. ”
A lot of people on this site make the mistake that we somehow affect the market. Honestly I doubt it’s true to any sort of material degree.
As far as the media: they are sensationalistic. Just as they made headlines on the way up now they’re making headlines on the way down. It’s what sells papers/clicks: making bold headlines.
The media probably does over-emphasize the degree of the downturn (except for NAR press releases which either use fraudulent data as G has shown or under-emphasize), but anyone swayed by the media when it comes to such an important life decision as when/whether to buy real estate isn’t making the most rational of decisions anyway.
“All under $100K. Rented the 2 within a week. They’re now positive cash by $600/mo.”
If you ever see the cash, ha ha….. no seriously, do provide us more details if you could.
ah go back on vacation anon… Google, a bottle of everclear, and i’d do u nice on a triple bypass.
excessive mis-use of hyphenations, caps, … ???’s
The pattern recognition is humorous….
“You said it the best – you are a FIRST TIME HOMEBUYER – you should listen to people with more experience. How idiotic would it for you to listen to renters and non-homeowners. It is like asking a malpractice attorney how to do cardiac surgery. Bad decision on your part……”
I listen to everyone who seems to have a valid opinion, including those with whom I disagree; I’m more interested in each persons reasoning behind their opinion, then I can decide for myself whether I think their reasoning has any merit.
Sometimes, professionals don’t know everything (real estate of otherwise); Sometimes inspired amateurs know something as well. This is seen every time a small start-up company overtakes a larger company, or when a market bubble is formed and ‘no one sees it coming’.
‘Bob …but anyone swayed by the media when it comes to such an important life decision as when/whether to buy real estate isn’t making the most rational of decisions anyway.”
Buying decisions are rarely rational… Let’s see a couple good media stories about the market returning to normal and watch buyers hit the streets.
How do I know this? If affordability is as good as it is now, then why aren’t buyers buying in greater numbers? Perception = reality.
I absolutely love how everyone wants to make the call on when we have hit rock bottom! “Not till fall 2012” or “Late next summer” There are so many wild guesses. FYI folks it just does not matter and it will not be absolute or general for all areas. If you are a serious buyer of RE and plan to stay in the home/condo/building that you purchase in 2011 then just buy it and stop flipping worrying about tomorrows value.
There is only one absolute way to know tomorrows true value anyway. You ould have to list the property for sale and actually close a transaction with a buyer. Otherwise you are just speculating on that value. If you are buying then plan to live in it for ten years and to put 20% or more down. If paying the monthly PITI is taking you out of your comfort zone then BACK down to a home that you can afford.
It’s pretty fricking simple people
1. Most RE will rise only slightly over the next few years. Do not buy something that you need to get out of in the short term.
2. Don’t overextend. You are setting yourself up for being forced into number 1.
3. If you buy stop reading doom and gloom stories about the RE market. It will make you second guess everything.
4. If you are over 35 then only buy if you can pay it off in 15 years. IF you can not do that DOWNSIZE the price of that home or punt.
5. Live within your means and enjoy your life and home! It will make life happier and cut out many fights with your significant other.
Good advice, jp3chicago.
“Google, a bottle of everclear, and i’d do u nice on a triple bypass.”
Do you take my insurance plan?
Google, a bottle of everclear and a trading account, I can kill your protfolio, too.
“Live within your means and enjoy your life and home! It will make life happier and cut out many fights with your significant other.”
But how does that make me happier than the Jones? If I’m not happier than my peers, and I don’t think my peers are up to me standards, how can I be happy without striving to be better off than a better class of people?
Or at least less miserable than some cracks in an internet comment thread?
“It’s pretty fricking simple people
1. Most RE will rise only slightly over the next few years. Do not buy something that you need to get out of in the short term.”
No.
“BTW, I’m both—in the last 6 months I’ve bought 2 props — want to buy 3 or so more. All under $100K. Rented the 2 within a week. They’re now positive cash by $600/mo. combined.”
Are you saying you spent upwards of 200k and and getting a return of $600 a month and you think that’s awesome? Even if it weren’t for the high risk (renter turns deadbeat, needs evicted, major damage, etc..) it would still be a rather terrible return on your money. Just stick your money in bond funds if you’re happy with that.
March Survey: Almost half of housing market is now distressed properties
http://www.calculatedriskblog.com/2011/04/march-survey-almost-half-of-housing.html
For someone to state matter of factually that “Most RE will rise only slightly over the next few years”, I’d say that opinion hasn’t been researched thoroughly and should be quantified with: “It’s my opinion”.
The only “landlord’s markets” are those GZ areas that haven’t seen too much in completed foreclosures yet. There is a lot of shadow inventory in places like LP and LV. Rent increases are a temporary situation created by the number of units currently in the foreclosure pipeline. Just wait until the still-increasing foreclosure filings in those areas become REO sales. There will be hundreds of additional REO props by YE 2012 in LP and LV alone, based on what has already been filed and the time it is taking to get them on the market. Many are currently sitting empty. When those units are finally sold (mostly to investors, as we have seen) they will increase rental inventory plus do it at a lower cost basis than for current landlords. Bye-bye rent “increases” due to constrained inventories (which are really only recoveries from recent rent declines, anyway.) Even a rented dead cat can bounce.
“For someone to state matter of factually that “Most RE will rise only slightly over the next few years”, I’d say that opinion hasn’t been researched thoroughly and should be quantified with: “It’s my opinion”.”
Unless someone provides a link to a substantiated source, I think it’s implied that it’s that persons opinion. At least, that’s what I presume; To state ‘in my opinion’ is fairly redundant.
If someone were reading this blog and taking each statement as fact unless it’s preceded by ‘in my opinion’, they would’ve been led far astray long ago…
“If someone were reading this blog and taking each statement as fact unless it’s preceded by ‘in my opinion’, they would’ve been led far astray long ago…”
In my opinion, someone who is that stupid *and* literal-minded, should be banned from the internetz.
“Bob– Are you saying you spent upwards of 200k and and getting a return of $600 a month and you think that’s awesome? Even if it weren’t for the high risk (renter turns deadbeat, needs evicted, major damage, etc..) it would still be a rather terrible return on your money. Just stick your money in bond funds if you’re happy with that.”
Nope—$25,000 (approx) down on each — used the banks money on both (financed)for the rest. So–$7200+ cash /year (after expenses) on $50K out of my pocket–not including tax benefits and appreciation (we will have it again). VERY solid rental props, can’t wait to buy more.
cooper… U r just as dishonest as clio… Oh wait, u r clio.
Cooper freely admits to using leverage to amass his mini-trump empire, so he’s not clio who magically just somehow showed up here owning a portfolio of properties none of which are, or were, leveraged or overleveraged at any time.
‘cooper… U r just as dishonest as clio… Oh wait, u r clio.’
Nope-sorry–not Clio here and not dishonest. Not sure why this has turned personal? Nothing to gain here by being dishonest–just thought I would ‘counter-point’ the sky is falling commentary found here and elsewhere.
Both examples are real and there are many others out there. Why is the equation so hard to believe? I WISH non-investor buyers would buy more, but the reality is that they (buyers)are paying attention to the negative media. Investors who are able to look at the numbers know when to buy–and that’s just what they’re doing.
yes Dan… Which w/o leverage makes clios suggested performance impossible. I had to run 5 to 1 and make other crazy assumptions to get even close.
Dan, you have very nice grammar. Take a look at thee pattern of speech. Excess hyphens, questions to support statements, same writing style… Identical arguments as seen before, rich people… Smart people…. U should see it better than me.
But ze, what is cooper an acronym for?
anon… Whitespace pattern recognition i pick up…. Acronyms i can’t do.
onesies condos never seemed like a great investment to me. Seems like a lot of work for just a little benefit. Too much downside with further depreciation, vacancies, RLTO issues, etc.
“Cooper freely admits to using leverage to amass his mini-trump empire, so he’s not clio who magically just somehow showed up here owning a portfolio of properties none of which are, or were, leveraged or overleveraged at any time.”
Huh? I showed up where? chicago? Cribchatter? The truth is, as many of you know, I made a lot of money in Boston in the 90s. I took that money and bought real estate in chicago – it really isn’t that hard to understand. Remember, there ARE people out there who have money and can buy things with cash or very large down payments (yes, even investment properties). Just ask Russ – he is actually in the business and sees what the actual down payments are!!!
Another misleading headline:
“Americans Shun Cheapest Homes in 40 Years as Ownership Fades”
http://www.businessweek.com/news/2011-04-19/americans-shun-cheapest-homes-in-40-years-as-ownership-fades.html
Another thousand words:
http://www.ritholtz.com/blog/wp-content/uploads/2011/04/Residential-Real-Estate-Relative-to-Median-Income-Rent-.png
Note, the bottom graph is 1 year old. Given the increase in rent and decrease in house prices then, I would assume we are near median there as well.
Again, for those of you that are predicting doom and gloom and no bottom in sight. You might want to understand what those charts mean.
chuck.. it’s almost exactly what HD keeps saying. Median home prices must go to about 3 times median income. I never disagreed.
“chuck.. it’s almost exactly what HD keeps saying. Median home prices must go to about 3 times median income. ”
No it doesn’t. It shows that median prices must go to about 3.5 times. Which is where we are now. 3.0 would be well below historical norms.
“Median home prices must go to about 3 times median income. I never disagreed.”
Also, there are 2 sides to that equation. The income side and the price side. Prices don’t need to go down if incomes go up. Of course the perma-bears will say that wages will go down forever, just like house prices.
Chukdotcom: In all seriousness, homes have gotten more affordable compared to a few years ago. But the problem is that because there are so few homes selling right now at these affordable prices, and so many homes listed at yet unaffordable prices, that the market has a ways down to go before the market is truly affordable as opposed to just a few homes that sell here and there.
Very generally speaking, I like the CS index. We’re at roughly 120 right now in Chicago and I see us going into the 90’s as the bottom, which implies a 25% decline from here.
When I was making precipitous price declines back in 2006, 2007, people thought I was NUTS. OUt of my mind crazy. I was called preposterous, insane, absurd, every name in the book.
And here I am again, making similar predictions and I’m still considered an outsider freak. Yet, as the bloody red corelogic map shows, the trend is clearly on my side, and not on yours.
“Of course the perma-bears will say that wages will go down forever, just like house prices.”
I think I’m most bearish wages on here, that has to do with my sentiments on global wage arbitrage. Arbitrages never stay open for a reason.
“No it doesn’t. It shows that median prices must go to about 3.5 times. Which is where we are now. 3.0 would be well below historical norms.”
Math lesson time… Fun! You use a mean to support prices in your favor but neglect the math. If a number ONLY reverts to a mean and never goes below it than by definition you just created a constantly upward shifting mean. Que beleza!
Must go above and below… Usually the more to one extreme the more it goes to the other. Ying-Yang! The universe stays balanced!
gz: yin-yang not ying yang. you’re not a taoist?
“But the problem is that because there are so few homes selling right now at these affordable prices, and so many homes listed at yet unaffordable prices”
But the market is measured by selling prices, not listing prices. Sure, lots of properties are listed too high so they aren’t selling. But if they sold at those prices, that would mean housing was skyrocketing. Can we fall 25% from some of the LISTED prices? Sure. Can we fall 25% from today’s SELLING prices? Doubt it.
“We’re at roughly 120 right now in Chicago and I see us going into the 90’s as the bottom, which implies a 25% decline from here.”
http://www.zoyzoy.com/realestate/caseshiller.php?msa=16980
I do not think there is any chance the AVERAGE Chicago property will go down 25% from here.
“When I was making precipitous price declines back in 2006, 2007, people thought I was NUTS.”
I was predicting 35% declines back then as well. But I am not predicting them now. We were both right back then. Only one of us will be right now.
“Math lesson time… Fun! You use a mean to support prices in your favor but neglect the math. If a number ONLY reverts to a mean and never goes below it than by definition you just created a constantly upward shifting mean.”
I’m not saying we can’t go below the mean, just the pricing is supported at the mean. If you buy at the mean for say 100k now, it may go to 90k. But when it reverts to mean, it will be back to 100k. Depending on your time frame, you are “safe” buying near the mean.
Chuck. You are talking to someone who likes owning real estate. I still see 100 to 90 for what it is. At 20% down it’s 50% of the equity. I also see a continued downtrend and see no reason to get in it’s way. Time is on the buyers side. I’ll agree to “much safer long term”
chukdotcom:
i can respect your view, at least you have reasoning behind your argument. The way I look at it is a supply and demand issue, above and beyond an affordability issue. Right now, volume is low and prices are still falling because supply exceeds demand. As these overpriced listings eventually come down to reality (which they will through short sales, foreclosures, deeds in lieu, bringing money to the table, fire sales to forego equity, etc) they’ll drive prices even lower. Throw in the rest of the shadow inventory and prices will drop for years to come.
I’ve seen loan mods, lots of them, where teh owners have been converted to 40 year mortgages with balloon payments at the end. Most of these people won’t live another 40 yeras and it’ll take 25 years to pay down the prinicipal before they have any equity. These are foreclosrues and short sales just postponed until some point in the future. There are millions of these out there, not including teh HAMPs modifications. MOre specifically I know someone with a home in bucktown with a million dollar mortgage who hasn’t paid since early 2008 and they’re in no danger of getting kicked out – the foreclosure case hasn’t been active since early 2010. I really think that if you understood the overwhelming enormity of the shadow inventory and the kicking the can down the road – these are all problems that will inevitably and most assuredly lead to additional price declines in future. Price declines of 25%. Heck, Edgebrook and Sag have suffered price declines of 20% in the last year alone and these are nice desirable areas! DO some research into how long it takes for the average foreclosure to work its way though the pipeline.
“I really think that if you understood the overwhelming enormity of the shadow inventory and the kicking the can down the road – these are all problems that will inevitably and most assuredly lead to additional price declines in future. ”
They have been kicking the can down the road since 1998. Dotcom bubble, etc. Who’s to say they can’t kick it again? Who knows, you may see house prices go up 25% from here, only to fall 50% down the road.
Nothing is as easy as it seems. On the way up or down.
“They have been kicking the can down the road since 1998. Dotcom bubble, etc. Who’s to say they can’t kick it again? Who knows, you may see house prices go up 25% from here, only to fall 50% down the road.”
No asset class that was a bubble has ever reflated only a few years later.
Not ever.
So I’ll take the odds and say that this one will do what all the other ones have done- and that means it will take decades to reflate.
The housing bubble was really, in fact, a credit bubble. That credit has not reflated. In fact, it is tighter than ever and due to get tighter still because of upcoming changes to FHA/Fannie/Freddie lending limits etc.
“No asset class that was a bubble has ever reflated only a few years later.
Not ever.”
Really? Ever hear of a little something called “the stock market”?
I have to agree with HD about how long it takes the foreclosures to work their way through the system. Heck, we have someone who checks in here who has been living in his bank owned condo for months and months without paying rent to anyone and there is, for now, no danger of him getting kicked out.
Similarly, I know of someone whose landlord also stopped paying on the condo nearly 2 years ago. The bank has yet to foreclose. They are paying rent to the condo association, for now. How many years will that one be sitting there- with no one paying the mortgage on it?
We have many more years of foreclosures still to come.
“Really? Ever hear of a little something called “the stock market”?”
Um…well yeah. It was the NASDAQ that was the bubble (not the Dow or the S&P 500.)
The NASDAQ went to 5132. Today’s close 2825.
11 years later.
See me about the NASDAQ in another, oh, 15 years.
I repeat. No asset class that has been in a bubble has reflated for decades. That includes silver, which just today got close to its 1981 high- 20 years later. But inflation adjusted- it is still well off those highs.
Also- no credit bubble in history has ever reflated. It continues to contract, unfortunately.
“We have many more years of foreclosures still to come.”
And? Just because the current owner can’t/won’t pay his mortgage, doesn’t mean the property will be worth less in a year.
Example.
Bob bought house for 600k.
Bob owes 550k.
House worth 400k today.
Bob walks away.
Who’s to say the bank doesn’t get 450k for it in a year or two?
Why does it HAVE to sell for a LOWER price than today?
“Um…well yeah. It was the NASDAQ that was the bubble (not the Dow or the S&P 500.)”
The nasdaq went from 1200 to 2100 in 1.5 years after the dotcom bubble burst.
The nasdaq went from 1200 to 2800 in 2 years after the credit bubble burst.
Who said anything about getting back to bubble prices? Housing market can go up 25% and still be well below bubble pricing.
You do realize that if something goes down 50%, it has to go up 100% to get to the same point, right?
So if the housing market fell 35%, it would have to go up 54% to get back to where it was.
Because real estate doesn’t necessarily have to go up?
But in all seriousness, supply and demand. The sheer number of foreclosures in the pipeline is staggering. The banks will eventually have to get around to solving this problem. Mods that are 40 year mortgages with balloon payments at the end aren’t solutions. Nor is doing nothing for 2 or 3 years and letting the homeowner live for free. These properties (short sales and foreclosures) will eventually hit the market. They’re hitting the market now and distressed properties are HALF of the market. They’re well on their way to consuming 60% or more of the market. Maybe even 75% of the market a few years from now. Yeah, there are that many foreclosures and short sales.
“Why does it HAVE to sell for a LOWER price than today?”
“They’re hitting the market now and distressed properties are HALF of the market.”
So what? Again, none of that explains why prices have to go down from here. Just because a prior owner can’t support bubble pricing doesn’t mean it HAS to go below TODAY’S pricing. See my example about “Bob”.
The supply is very high, demand is very low. Price falls.
It’s the laws of economics.
Like Bob said above, once owning becomes so cheap that it far outweighs renting then buyers will jump back in and sales volume will return. That’s why the foreclosure supply must be a drag on prices for years to come because there is no demand to buy up that supply. Sure there are multiple cash bids for the best foreclosures in teh green zone but even the highest bid is still at a severely discounted price compared to normal sales.
“The supply is very high, demand is very low. Price falls.”
But supply of foreclosed homes is not high relative to demand for houses. The number of homes in foreclosure is a fraction of the number of homes that are sold every year.
You are mixing your stats. You can’t treat all housing supply as foreclosures.
“Like Bob said above, once owning becomes so cheap that it far outweighs renting then buyers will jump back in and sales volume will return.”
Why? That hasn’t been the case in the past. Owning a home almost never “far outweighed” renting.
chukdotcom: the housing bubble was a credit bubble. It’s not going anywhere without credit. And right now, there is none.
No one has any money to be buying a condo or even a house. If the banks start requiring 20% down (as some already are) there’s no way the normal american is buying anything. That’s what made the housing bubble so unique. Suddenly, you could buy with NOTHING down.
Although- I do give kudos to the government for using the FHA to try and prop it up as long as they could with the FHA 3.5% down requirement. But even that wasn’t enough to save it and those loans are now being scaled back and are tougher to get- with more fees.
Unless you have credit expansion- housing prices are going nowhere.
chukdotcom- you should really read the books that have studied bubbles. There’s a pattern and psychology to them. The psychology towards housing has been turned (as many were saying in this thread- about people being too “negative” etc.) That’s what happens in a bust.
I’ve argued we’re not even at the worse psychology for housing yet. That’s still to come. Far too many people are still obsessed with housing. They still think it will “come back”. Parents are still encouraging their children to take all of their savings and buy into it.
At the bottom of a bust – no one encourages anyone to buy that asset class. In fact, it’s quite the opposite. You can’t give it away. I don’t think we’re there yet. But in a few years- we probably will be.
Today’s 18 year olds will probably not be all keen to buy that new condo when they get out of college in 4 to 5 years.
“But supply of foreclosed homes is not high relative to demand for houses. The number of homes in foreclosure is a fraction of the number of homes that are sold every year.
You are mixing your stats. You can’t treat all housing supply as foreclosures.”
What are you talking about? Last month it was 50% of all sales in Chicago! (that includes short sales.) That is ALL anyone wants to buy right now.
I’m waiting for the time when foreclosures/short sales are 80% or more of the market. I don’t think we’re that far off from this actually happening. In some other metro markets, it’s already 70% of all sales.
“Why? That hasn’t been the case in the past. Owning a home almost never “far outweighed” renting.”
Were you an adult in the 1990s? It was way cheaper to own in Chicago than to rent in the early 1990s.
“It’s not going anywhere without credit. And right now, there is none.”
Nonsense. There is plenty of credit available. There is no credit available to subprime borrowers. Which is good, they shouldn’t be borrowing.
“No one has any money to be buying a condo or even a house.”
More nonsense. No poor people have money. Plenty of others do.
“Unless you have credit expansion- housing prices are going nowhere.”
Again, you fail to factor in the other variables in housing prices. Namely, inflation. And no, I don’t think housing prices will keep up with inflation. But they certainly could go up due purely to inflation.
Too many homeowners are underwater. Despite Clio saying that he knows all these properties selling for more than their prior purchase price over the last 6 to 7 years- I haven’t seen many selling for more than that. Nearly everyone now is taking a loss of some kind.
The bigger question simply is- did they put enough down to avoid the short sale and/or foreclosure? (and still pay the realtor)
That’s why you’ll see these properties on the market for a year or two years- slowly reducing but still not selling (because that prices is still not the market). The finally they’ll throw in the towel and the listing becomes a short sale. But this takes years and years. Maybe the short sale sells, maybe it doesn’t.
“Were you an adult in the 1990s?”
Yes.
“It was way cheaper to own in Chicago than to rent in the early 1990s.”
Well, that was after the housing bust of 1989. Just like this is after the housing bust of 2008. And it was a great time to buy. And define “way cheaper”. 30 year mortgages were 9% in 1992.
“Again, you fail to factor in the other variables in housing prices. Namely, inflation. And no, I don’t think housing prices will keep up with inflation. But they certainly could go up due purely to inflation.”
If we have inflation, which we may have, then borrowing costs will also rise. Suddenly the $400,000 house that costs $2000 a month will now cost $3000 a month. We are a monthly payment nation. There will be fewer buyers who can afford the $3000 a month (unless the seller lowers their price to get back to $2000 a month.)
The Fed is doing everything it can to keep interest rates low to try and reflate the housing market. It has failed. The bubble was too massive. Inflation and/or the Chinese will force their hand eventually (or the bond vigilantes.) And we will see “normal” interest rates.
Generation Y has never seen even a 7% interest rates (since I believe the last time we were at those rates was about 10 years ago or so.) Imagine if they rise to that? What if they go to 10% or higher? Not out of the realm of possibility (as interest rates were over 10% from 1979 to 1992.)
Sure- we may have inflation- but it’s not going to help people trying to sell their real estate.
“Too many homeowners are underwater.”
Again, so? Let me put it in simple terms.
Let’s say Bob bought GOOG on margin at 600. Bob is forced to sell at 525. Does that mean the person buying at 525 has to sell for a lower price in the future just because Bob was a fool?
The housing market is not oblivious to the foreclosure market. The effect of all of those foreclosures is either underestimated or overestimated in today’s pricing. But it is not ignored. Prices are discounted based on those estimations.
In other words, you aren’t the only one in the world that knows about the “shadow inventory”.
As they say, we’re all subprime now.
“Nonsense. There is plenty of credit available. There is no credit available to subprime borrowers. Which is good, they shouldn’t be borrowing.”
Chicago never had a housing bust of 1989 Chuk. Chicago has been very stable over the last 30 to 40 years. In the mid-1980s it saw about 5 years of no appreciation- but never any years of falling appreciation until this housing bust. The condo market busted in the early 1980s downtown. Too much supply. That took about 15 years to get prices back to their highs in buildings like the John Hancock.
There has never been a housing bust like this one except the 1930s. Both were credit crises. Both were the result of credit contraction. There is little credit now- even for people with “good” credit. Many are having a hard time getting loans without significant downpayments.
“(Crain’s) — Chicago-area home sales fell in March compared with a year ago, when federal tax credits boosted demand.
In the nine-county Chicago region, 5,324 single-family homes and condominiums sold last month, a drop of 15.6% from the 6,309 sales in March 2010, the Illinois Assn. of Realtors said in a release Wednesday. ”
vs
“RealtyTrac has released its U.S. Foreclosure Market Report for the first quarter of the 2011 to show that foreclosure filings fell 15 percent from the last quarter of 2010 and 27 percent from the first quarter of 2010.
Yay!
Locally, however, the picture isn’t as pretty. In the Chicago area, 10,821 homes received a foreclosure filing in March, a 23 percent increase from February. Foreclosure filings include default notices, scheduled auctions and bank repossessions.”
More homes in March in the Chicago area received a foreclosure filing than sold. And over 50% of the properties that sold were distressed (short sale or foreclosure).
Just think about how this has been building for months and months and years and will continue to do so for years and years to come.
The flood of foreclosures is driving down prices and will continue to do so.
“As they say, we’re all subprime now.”
Funny, but not true. I get more 0% credit card offers now than I ever got in the past. If you have a credit score of 700 or higher, you will have no problem getting a mortgage that is in line with your income. Even with only 3.5% down.
No, you can’t buy a 1mil home on 50k salary. Nor should you be able to.
But if you make 100k, you will have no problem buying a house for 350k if your credit is intact.
Take you and Sabrina for example. Since you guys are renting, I assume your credit is intact and has not been destroyed due to foreclosure, etc. I would assume both of you would have no problem getting a mortgage now.
It’s all psychological as said in the article. Buyers know prices continue to drop. So why would you buy? It’s called deflation. That’s why the Fed fears it. No need to rush out to buy something that you assume will be cheaper next month and the month after that.
Of course you can’t time the bottom. No one can. But unless you HAVE to buy right now- what’s the hurry?
I agree with the person who said if you have the downpayment and know you’re going to live in the property for at least 10 years- then go for it. That I agree with. You have to live your life and you can’t time the market. If you’re buying with the expectation of selling in shorter than 10 years- good luck.
This is also why the 1 and 2 bedroom city condos are in deep, deep trouble. Who lives in them for 10 years? Not many people. The single family home market will continue to be stronger than the condo market.
Someone said you will now go from renter to single family home owner (and skip the condo owner altogether.) That I agree with. We’re already seeing it. Every realtor I talk to says the 2/2 market is dead.
“Many are having a hard time getting loans without significant downpayments.”
You say it like its a bad thing.
“But if you make 100k, you will have no problem buying a house for 350k if your credit is intact.
Take you and Sabrina for example. Since you guys are renting, I assume your credit is intact and has not been destroyed due to foreclosure, etc. I would assume both of you would have no problem getting a mortgage now.”
This is NOT what I’m hearing. Perhaps Russ, Gary and others on the front lines can fill us in. I’ve been hearing from realtors that even those with pristine credit are getting rejected and/or delayed- some with big downpayments.
“Many are having a hard time getting loans without significant downpayments.”
You say it like its a bad thing.”
I believe we should have 20% downpayments standard but it would crush the housing market into oblivion (even worse than it is now.) But if the baby boomers and the greatest generation could do it- why not Generation X and Y? Oh yes- cell phone bills, credit card payments and college loans.
The problem is- there are few buyers who can even save 10%. There are some still buying FHA at 3.5%- but even that is hard to scrape up for most homebuyers.
As we’ve chattered about incessantly over the last few years- for even a very successful DINK couple- it will take them 4 to 5 years to save up the downpayment on a $400k property (if it required 20% down) and that is with a big savings rate (which most don’t have.)
“Someone said you will now go from renter to single family home owner (and skip the condo owner altogether.) That I agree with. We’re already seeing it. Every realtor I talk to says the 2/2 market is dead.”
That may be. But that is a demand shift. 2/2’s may go down, but that drives up demand for SFH’s. It can be zero sum in the overall real estate picture. And it also shifts the demand for condos to rentals (vs purchasing). So, Person A will buy them and Person B will rent them. How is that much different than Person A buying them and Person A living in them?
“I’ve been hearing from realtors that even those with pristine credit are getting rejected and/or delayed- some with big downpayments.”
The only times I have heard that was when they couldn’t get the property to appraise. If they can appraise the place for 350k, they are happy to loan you 337k if you have good credit and the salary to support it.
Nope. Had nothing to do with the appraisal. I’ve been waiting on a closing going on 6 months now. Bank STILL won’t approve the loan for someone who has plenty of money and good credit.
It’s really tight out there. They’re not loaning to many people. Imagine if we didn’t have Fannie/Freddie? Wow. Crushed into oblivion. The government is backing 90% of mortgages right now.
“There are some still buying FHA at 3.5%- but even that is hard to scrape up for most homebuyers.”
Then those people shouldn’t be buying. Let’s face it, if you can’t scrape together 3.5%, then you shouldn’t be buying a 400k property. It’s pretty simple math. Take your salary. Multiply it by 3.5. That’s the price house you can afford. (100k x 3.5 = 350k). If you are making 100k, and can’t save 12.25k over a couple of years, then you have a problem, and shouldn’t be looking at a 350k property to begin with, and you need to move down to a 250k one.
“As we’ve chattered about incessantly over the last few years- for even a very successful DINK couple- it will take them 4 to 5 years to save up the downpayment on a $400k property (if it required 20% down)”
Yes, but for now, it isn’t required.
“That may be. But that is a demand shift. 2/2’s may go down, but that drives up demand for SFH’s. It can be zero sum in the overall real estate picture. And it also shifts the demand for condos to rentals (vs purchasing). So, Person A will buy them and Person B will rent them. How is that much different than Person A buying them and Person A living in them?”
Until those that currently OWN the 2/2 and want to buy the SFH are washed out of the system (through foreclosure, short sale, or they sell for a loss) there simply aren’t enough move-up buyers to buy the SFH.
Those who are renters are in the drivers seat. They have nothing to sell. They have their downpayments/saving intact. They can simply eject out to the SFH. As the years go buy and more young people rent out of college instead of buy- they too will be able to simply go directly into a SFH.
But we have many years before we’ll get there.
The move-up buyer is a problem right now (because of equity being wiped out of the previous sale). Also, the first time buyer is nearly non-existent now that the tax credit has gone away.
“I’ve been waiting on a closing going on 6 months now. Bank STILL won’t approve the loan for someone who has plenty of money and good credit.”
There must be more to it.
“Imagine if we didn’t have Fannie/Freddie? Wow. Crushed into oblivion. The government is backing 90% of mortgages right now.”
Well, that is very true. Do away with Fannie/Freddie, and the housing market will drop 90%. But its also why credit is not as tight as some would think. Fannie/Freddie will take just about anything.
Also, re the 20% down payment proposal:
“The zero risk retention requirement for loans sold to Fannie and Freddie really knocks the teeth out of this proposal,” said Jaret Seiberg, an analyst at MF Global Inc. “It means that 97% of the mortgage market will be outside the risk retention regime.”
“Until those that currently OWN the 2/2 and want to buy the SFH are washed out of the system (through foreclosure, short sale, or they sell for a loss) there simply aren’t enough move-up buyers to buy the SFH.”
Well, there is a big difference. Did they buy the 2/2 in 2006, or did they buy today? If they bought today, they may be able to happily rent it out to you or HD for years to come. Or they can sell it to clio and he can rent it, and they can buy their SFH.
Just because buyers may not purchase that interim property (condo), doesn’t mean that NO ONE will own it. Someone has to rent it out to those people. Instead of 2 people owning the property for 5 years each, maybe 1 person owns it for 10 years, and rents it to 2 diff people.
Sure- someone will buy these things if the prices get low enough.
But I think it’s funny that you believe everyone should just buy a condo today and then rent it out in a few years time when they go to buy a SFH. Who in the heck wants to deal with that? Being a landlord sucks. And with real estate stuck at zero appreciation for years to come- it’s not excatly going to build you any wealth either.
But hey- to each his own. One less person I have to compete against out there.
“But I think it’s funny that you believe everyone should just buy a condo today and then rent it out in a few years time when they go to buy a SFH.”
You misunderstood me.
Bob is an investor.
Bob buys condo.
Bob rents to Sally for 5 years. Sally buys a SFH.
Bob rents to Bill for 5 years. Bill buys a SFH.
Bob rents to Joe for 5 years. Joe buys a SFH.
So, that “solves” the short term nature of the condo owner by turning it into a long term ownership for Bob. There is no reason that condo needs to be bought and sold 3 times in 10-15 years.
“Then those people shouldn’t be buying. Let’s face it, if you can’t scrape together 3.5%, then you shouldn’t be buying a 400k property. It’s pretty simple math. ”
Chuk – this 40% of the mortgage market. 3.5% downpayment howmuchamonth is the pillar supporting 40% the market. another 1/3rd are cash investors. That leaves a small number of regular buyers with 80% mortgages and 20% down payments. When you start parsing through the data you realize how tenuous it all really is. This is not healthy.
You make a lot of sense, you believe in realistic lending, but we must be looking at different data, because we are coming to vastly different conclusions even though we have the same basic premises.
We’ll be at the bottom when foreclosures are low, move-up buyers abound, investors and cash buyers are a small part of the market, and the FHA isn’t making 40% of all loans..
“We’ll be at the bottom when foreclosures are low”
No, we will be at the top then. We bottom when foreclosures are high.
http://1.bp.blogspot.com/_pMscxxELHEg/SwVnj03y_TI/AAAAAAAAG0k/O2xmaieFdH4/s1600/MBAQ3AllPrime.jpg
“But hey- to each his own. One less person I have to compete against out there.’
Sabrina, I would disagree with your previous post. There are plenty of people that would deal with be a landlord. Their are people dying to own land, work hard, and make it profitable. Instead of posting on here they are repair drying wall, sawing pieces of wood, and repairing properties. So are you saying that you wouldn’t like to own the land? I feel that the posters on here that are accumulating land now, and not leveraging themselves much, will be better off in the long run, than all the others that are doing nothing. I have always believed that if you leverage yourself too much you’ll get screwed, and the stock market crash recently was only a result of those leveraged people out. And now it is right back to where it was. I feel a similar thing is happening in real estate. All the leveraged people will get screwed, but you have to remember that there is a larger amount of people that own their property outright. The people that own and are not over leveraged will be just fine.
High foreclosures mean it takes two years to work through that months foreclosures. Foreclosure to sale takes years so there is no way that high foreclosures mean bottom.
Why do you focus so much and foreclosures and lower end properties? I would be willing to bet that 90% of the posters on here have a college degree or better, making you what? in the top 15% of of the US population in terms of education. You starting to make me believe that education has nothing to do with earning power. Do you think that you’ll actually end up buying a foreclosed home?
“High foreclosures mean it takes two years to work through that months foreclosures. ”
And everyone knows that. And it factors into TODAY’S pricing.
“Foreclosure to sale takes years so there is no way that high foreclosures mean bottom.”
Just because the foreclosure sale hasn’t occurred, doesn’t mean the market is not aware of the foreclosure. You are confused on the way markets work. They do not happen in “real time”. They anticipate the future, and price it in ahead of time. The market will bottom long before the last foreclosure sale takes place.
I assure you, high foreclosures are seen at the bottom. Just as low foreclosures are a sign of the top. There is an inverse relationship between foreclosures and house prices.
“Do you think that you’ll actually end up buying a foreclosed home?”
A foreclosed home is not the stigma that is used to be. It is not always some run down dump that needs 500k in work. Many of today’s foreclosed properties are in pristine condition. One condo I bid on had never even been lived in in 5 years.
Given that over half of all sales are distressed sales, yeah, there’s a greater than 50% chance ill buy a distressed property.
So there is about a 50% chance that you’d buy a non-foreclosed home, and 45% of the foreclosed homes are crap, leaving you with about 5%. Good luck, you’ve got about the same chance as finishing law school, and you seem to be willing to put just as much effort here so I won’t doubt you.
“Sabrina, I would disagree with your previous post. There are plenty of people that would deal with be a landlord. Their are people dying to own land, work hard, and make it profitable. Instead of posting on here they are repair drying wall, sawing pieces of wood, and repairing properties.”
I disagree. Most people would never want to be a landlord to some 20-something renter that will put a hot frying pan on their nice expensive granite counter tops and then proceed to roller skate or whatever throughout the apartment on the nice wood floors. Nope. Most people would rather avoid all of that.
There have always been investors who have made money off of real estate. And there always will be. Some have built great fortunes. But someone buying a condo and then renting it out a couple of years later while they double down and buy another property (neither of which will appreciate more than the historical norm of 1-3%) is not the way I would choose to build wealth for someone in their 20s and 30s.
Like I said- I’m fine competing against that person because I will win every time. Who would want most of their net worth in housing for the next few years? For the scenario laid out here (and NOT the investor buyer), housing is NOT an investment. People should rent until they are sure they’ll be in the property for a long time. No harm in renting. You don’t have to pay anything to move out except the mover fees.
What we’re reallying talking about are foreclosure notices though- right?
High foreclosure notices don’t equal the bottom. But high number of actual foreclosures might.
We’re still seeing extremely high “notice” rates. Until those come through the system, it’s going to be hard to see any kind of appreciation in housing. Buyers will wait for the better deals.
“You misunderstood me.
Bob is an investor.
Bob buys condo.”
Ah- I see. The problem with this scenario is that many condo buildings won’t allow rentals (or a small percentage) so there’s no way Bob the investor is buying those.
For all the others- you’re going to need a heck of a lot of Bob the investors to rent out all the thousands of individual condos that would need to be rented under this scenario across the city. Again, if they get cheap enough and there are enough cash buyers- then perhaps.
“Ah- I see. The problem with this scenario is that many condo buildings won’t allow rentals (or a small percentage) so there’s no way Bob the investor is buying those”
Then things will change. Markets have a way of forcing change.
“For all the others- you’re going to need a heck of a lot of Bob the investors to rent out all the thousands of individual condos that would need to be rented under this scenario across the city. ”
Well, you say people will rent instead of buying a condo. How can they rent if no one owns? For every renter, there is an owner. And if there are not enough Bob’s, then prices go down, and then renters turn into buyers.
Condo associations are unlikely to change rental by-laws that will make it harder for them to sell (i.e. you can’t get FHA or government loans if rentals are above a certain amount.)
Some condo owners have to sit with their units empty until they can sell- for a much lower price than they want to usually.
It’s a mess that will take years to sort out. Condos are going to be a very difficult market for a long time.
As far as someone owning the condos- sure- someone will own them. If they get cheap enough, some buyers might jump in. But many will likely go back to rental buildings again (not individual units.) Think of all the rental buildings that were converted to condos just in Lakeview alone. Real estate investors owned those building before- and they likely will again. But, again, this will take years to unfold.
“Like Bob said above, once owning becomes so cheap that it far outweighs renting then buyers will jump back in and sales volume will return. ”
No you missed my nuance. I said once owning AND the discount from owning vs. renting becomes so cheap that it outweighs the risk of future price declines, AND the masses adopt this paradigm, will things turn. Far lower valuation threshold than you are admitting to.
Cooper added extra fuel to my fire indicating that RE is indeed emotional for the masses. Which means now that the trend isn’t the owner’s friend it means precisely what I said above.
I’ve been thinking a lot lately and Cooper added extra fuel to my bearish stance. He/she likely didn’t mean to but honestly if RE valuations are indeed emotion based AND like Ms. Corcoran said “everybody wants what everybody wants” and “nobody wants what nobody wants” then that means if the masses embodied lemming-like behavior on the way up it means the will on the way down too.
I see it all the time in equity markets.
“I agree with the person who said if you have the downpayment and know you’re going to live in the property for at least 10 years- then go for it. ”
Yeah in today’s economy and given how much foresight people have this makes total sense, Sabrina. LOL. You’re trying to quantify what short straws those who are trying to propagate transaction volume have (to keep their livelihood, well, alive) and it looks humorous. Ask people in the greater Detroit or Cleveland metropolitan area how this worked out for them over the past decade (more metropolitan areas will be added as this drags on).
“Also, there are 2 sides to that equation. The income side and the price side. Prices don’t need to go down if incomes go up. Of course the perma-bears will say that wages will go down forever, just like house prices.”
Housing has sticky prices and is a trailing indicator. Even after incomes and employment stabilize and start to rise housing will continue to fall.
“Funny, but not true. I get more 0% credit card offers now than I ever got in the past. If you have a credit score of 700 or higher, you will have no problem getting a mortgage that is in line with your income. Even with only 3.5% down.
No, you can’t buy a 1mil home on 50k salary. Nor should you be able to.
But if you make 100k, you will have no problem buying a house for 350k if your credit is intact.”
chuckdotcom: what planet are you on? Don’t you realize that the relaxation of credit standards had a one time boost to housing valuations? Don’t you realize that now that this is removed that premium has to be given back, _and then some_?
Guess what? My credit score is near 800 and my FICO is golden, my income in any given year is around six figures (some over, some under). Why should I be eager to buy?
There a million f-tards like you that paid crazy valuations because you either miscalculated the direction of the market or thought
that “RE always goes up”. You made some bad choices, chuckdotcom, and we recognize that here. And now you cling to straws and straw-men arguments to try to change perception of what is going on.
Sabrina already shot to crap your argument about the market, and Ze about trendlines. Heck I dunno why I am responding other than that you picked a wrong moniker to base your examples off of.
This Bob is laughing at your predicament because you assumed generic “Bobs” will buy RE at the first available opportunity. That doesn’t seem to be working out so well for you does it chuckdotcom? Maybe too many late night infomercials with guys in Hawaiian shirts promising you the roads to riches?
Did you laugh at all the corporate stiffs in offices under fluorescent lights while you made your life financial decisions, chuckdotcom? Asset bubbles fuel idiots like you to think you are moguls, and the subsequent bust must be devastating to the go.
It’s too bad, chuckdotcom, you didn’t study harder in college. Because maybe if you were a working stiff life would’ve worked out better for you. It rarely works out well for accidental landlords who tried to ride bubbles. You guys just aren’t good at predicting crests–which is why you were up at 2am watching that infomercial in the first place.
“Guess what? My credit score is near 800 and my FICO is golden, my income in any given year is around six figures (some over, some under). Why should I be eager to buy?”
Dunno and don’t care. But if you wanted to, you should have no problem getting a mortgage. Which was my only point.
“I am a working stiff. Although it sounds to me like you are a little jealous of those that made money the easy way.”
Yes I admit I am. And those that lost money the easy way (many of my peers) are much more jealous.
RE ownership is a high risk game. Over long enough periods of time it tends to equal out. But that’s like saying the average temperature on the surface of the moon is room temperature.
The CC’ers got me on a technicality. I amend my earlier statement to read:
“AT BEST” most RE will rise only slightly over the next few years……
The real point was to not worry about the current value after you purchase! Do you check your 401k balance every week? After getting married do you find yourself at bars still shopping for a better option to be your significant other? If you are then you answered yes then you should NOT buy RE ever!