I am in a location that has an astounding number of new and newer homes on the market, many of them with huge price tags, and the rumbling sound of price chopping is beginning to shake the floor.
If you are a GC or a subcontractor, and your primary focus these last few years has been in residential new construction, please chime in here. What I am wondering is whether buyers have the real fear of potentially going under water if they sign up at todays prices.
Replies
It used to be that buyers believed they could safely buy as far over their heads as the bank would let them because prices soared, and today's multimillion would be tomorrow's good investment. The prices were going up at such a pace that it was impossible to lose, no matter how deeply in debt you went to buy.
But, as the market softened, this promise of security and riches changed to a crap shoot. I always wondered how there could be so many people who could afford such expensive houses. The answer turned out to be that there aren't; they were grasping and trying to hold their heads above water.
So now, as these overpriced underbuilt houses get old, there's no fool left to love them anymore. And the builders who enjoyed the years of exuberance are now sitting home counting their riches, while those who got into the market late are trying desparately to hold their own.
SHG
For every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
as these overpriced underbuilt houses get old, there's no fool left to love them anymore.
Dunno, PT Barnum might would likely disagree with you.
However, I agree with you that there's likely a looming doom of potential shells out there, all appearance, but no substance. Which will leave some owner with nothing to show but a great veil of tears and heartache. (Which begs the question of what should be done about it now?)
And the builders who enjoyed the years of exuberance are now sitting home counting their riches,
Ah, but are they? Or, caught up in the current of their own making, they are just as over-extended as their customers?
Hmm, might be interesting to find out who built the houses of the execs at PH, TB, etc. . . . Occupational hazard of my occupation not being around (sorry Bubba)
Ah, but are they? Or, caught up in the current of their own making, they are just as over-extended as their customers?
I bet you're right about that. There's gonna be a bunch who thought they could get one more subdivision done, and are gonna be sweating it out with a ton of money at stake.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
You are correct to wonder how buyers can afford these new homes Take a look at this chart of inflation-adjusted incomes (1999-2005):http://tinyurl.com/kb3m3This is seriously bad news for the housing market and our economy in general.
Thought this was interesting:
The Federal Emergency Management Agency also is a factor in the latest rash of foreclosures.
FEMA's moratorium on the sale of hurricane-damaged properties within counties declared as disaster areas forced many lenders to cancel scheduled sales of real estate this summer.
The moratorium caused a huge backup through the end of last year and the first six months of this year, says LeCureux.
"This is causing an artificial reflection on homes being foreclosed," she says.
'Payment shock'
Delinquent payments at Market Street Mortgage Corp. have gone up 25 percent over last year, says Mark Cady, senior regional vice president in Houston.
"It's getting worse every year and it's only picking up," he says.
http://www.bizjournals.com/houston/stories/2006/09/04/story1.html?i=54741&b=1157342400^1339715
"It's always better to have regrets for things you've done than for things you wish you had done..........."
Its true . They locked up all FCs right after Katrina hit for evacuees. As far as I know they just sat there growing because the victims didnt use them either . It happened here. Sure did .
Tim Memphest 2006
November 18th
Doesn't surprise me. Things are tough all over. Here's some info on foreclosures in San Antonio. Every place I go there is something in the papers about foreclosures.
<!----><!----><!---->SAN ANTONIO<!----><!----> (mysanantonio.com) – Nearly 850 Bexar County residents lost their homes to foreclosure this past Tuesday. Not since 1990 had so many homes gone to auction in one month. The last time monthly foreclosure numbers reached these levels was 857 homes in December 2004 and 856 foreclosures in May 2003. <!----><!----><!---->
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For the first half of 2006, "upside-down" loans — so named because the loan amount is higher than the home value at the outset — made up 16 percent of the <!----><!---->Bexar<!----> <!---->County<!----><!----> foreclosure market, according to the Addison-based Foreclosure Listing Service Inc.<!----><!---->
<!----> <!---->
Interest rates on adjustable-rate mortgages (ARMs) are resetting at higher levels now, sometimes doubling monthly payments. "These things coupled with a tremendous increase in the cost of living have pushed many household budgets over the edge," George Roddy, president of Foreclosure Listing Service, said. <!----><!---->
<!----> <!---->
While foreclosures are on the rise, home prices are appreciating in one of the healthiest real estate markets in <!----><!---->San Antonio<!----><!---->’s history. Mortgage interest rates remain near historically low levels. Industry professionals point to loose lending requirements and risky loans common in the past few years as a main cause for foreclosure increases.<!----><!---->
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"Lenders are making riskier loans," said Jim Gaines, research economist with the <!----><!---->Real<!----> <!---->Estate<!----> <!---->Center<!----><!----> at Texas A&M. "Some of that risk is coming home to roost." Gaines also said people who never thought they could become homeowners have been able to get into the market and, for the most part, hang onto their homes. <!----><!---->
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"It's always better to have regrets for things you've done than for things you wish you had done..........."
Not a GC now, or ever a sub, but I'll chime in anyway...
The last few years saw a huge demand for housing, both new buyers and
HO's trading up. This increased demand drove prices up. Up'd prices
caused builders to build more new houses.
Higher interest rates & satiated buyers are reducing demand. Builder's
momentum and flipper's actions have created a mild over-supply, which
is really pushing downward against prices.
There's just a slightly reduced number of buyers.
There's two types of sellers: HO's and builders/flippers. HO's often
don't actually need to sell, so they'll just sit tight if prices drop.
Builders/flippers must sell, so they'll be the ones that take it on the chin as prices drop a bit and buyers pause to see if prices are going further down.
I wouldn't operate in the residential real estate market right now,
unless as a transaction enabler (eg, real estate agent). Builders
and flippers will see inventory sit on the market. Buyers for rentals
are priced-out right now. And I can only live in one house at a time.
-- Brooks
This is from a newsletter I get. It is a gloomy forcast of what to expect in the comming years.
"The housing market is in a funk," the Wall Street Journal writes. "Canthe stock market be far behind?" According to Bloomberg, new homes purchases, 15 percent of the market,dropped 4.3 percent while sales of lived-in homes dropped to the lowest inmore than two years.The National Association of Home Builders' builder confidence index, whichleads the stock market by 12 months, fell to a 15-year low in August.And Angelo Mozilo, the CEO of Countrywide, a leading mortgage lenderwarns,"I've never seen a soft-landing in 53 years, so we have a ways to gobefore this levels out."How much of a way? You get an idea from a look at the books of oneprominent lending institution - Washington Mutual: At the end of 2003, 1%of its option ARMS were negatively amortized (payments not coveringinterest charges, so the shortfall is added to principal). In 2004, thatfigure was 21%. In 2005, 47%. By loan value, it was actually 55%. And, Washington Mutual isn't alone. Hundreds of lenders are in the sameposition. They don't have to keep the borrowers aware that their debt issoaring, since Neg Am loans do not have strict disclosure rules. And theycan even book the loans as earnings. Shades of junk-bond mania. Remember that, dear reader? Just like thelumpen homeowners today, the takeover kings of the 1980s could use thecompany they planned to raid as collateral for the loan they used to raidit with. When the companies started folding, the junk kings went bellyup...or did the perp walk ala Michael Milkin.So far, of course, the housing fraudsters have managed to stay clear ofthe plank. Mortgage giant Fannie Mae paid a record $400 million fine thispast May, but managed to squeak out of criminal prosecution overprettifying its earnings. Ditto for Freddie Mac, which had its ownaccounting scandal in 2003. And the rest of the perps today happen to be thousands of middle-classhomeowners who still think the Fed will dive in and give them aget-out-of-jail-free card at the last minute. But our friend, SteveSjuggerud, thinks they shouldn't bet on it. Recalling the aftermath of the80s, Steve says real estate is just about to get much worse:"It's looking like 1990 all over again...1990 was the last time homes wereunaffordable. The confidence of homebuilders was at a record low (andabout to go lower). And the U.S. economy was starting to cool."Home prices fell hard. Nationwide, new home prices fell from around$200,000 in 1990 to around $175,000 by 1992 (in inflation-adjustedterms)."By 1993, home prices were affordable once again. Homebuyers slowly creptback into the market. Prices crept higher, and they didn't surpass the1990 highs for over a decade (in inflation-adjusted terms). "Over a dozen years have passed since new home prices bottomed backthen...enough time for people to forget real estate is not always a surething. Just ask the Japanese how bad it can get...they just lived through16 straight years of falling home prices."Sixteen years of falling home prices....But from where ever came the idea that housing would always rise? Whencethe delusion that prices always move up and up...and still further up?Looking back over the last century we find that the cost of a house...orof renting...has actually fallen.Contrary to the lumpen mythology of ever-burgeoning home prices buoyed upby a sea of credit, the reality is that over time housing has at beststayed stock still...or fallen. Although average consumer prices inAmerica have indeed risen 20 times since the beginning of the 20thcentury, which comes to a mean of about 3% a year, the prices of a numberof consumer goods - and that's all a house is, dear reader - have actuallyfallen. Yes, fallen.The Economist explains why this is so:"Over time, general inflation tends to mask changes in individual prices.Strip out the general rise, and variations are clearer. Thus the cost of ahotel room has risen since 1900 by around 300% in real terms; a telephonecall is 99.9% cheaper."First, goods or services that have benefited from large productivitygains, thanks to technological improvements and mass production, have seenlarge price falls in real terms. Telephone calls are the most strikingexample. But electricity, bicycles, cars, even eggs (thanks to batteryhens) also have fallen. In 1900 a car, then hand-made, cost over $1,000.Henry Ford's original Model-T, introduced in 1908, cost $850, but by 1924only $265: he was using an assembly line, and, in virtuous circle, wasalso selling far more cars. Over the century, the real price of a car fellby 50%."But while a Ford may have got better over the last hundred years, we doubtthat the average suburban plasterboard look-alike has. In fact, we doubtthat any of the million-dollar eyesores that have mushroomed over thelandscape in the last decade are even going to be standing in a hundredyears. Without increases in quality or productivity to sustain growth, theonly thing that could keep housing costs afloat would be high labor costsand high demand, which explain why services like medical care, hotelaccommodation and domestic help have all soared in the past 10 years.But we know that soaring house prices have not been driven by fatteningwages or real demand. No, globalization has made sure that labor issqueezed by foreign competition. Domestic wages are down. In turn, realdemand is low...unless it is artificially primed with credit, which isexactly what has happened for the last 10 years. But we know that the age of easy credit is coming to an end...bankruptciesare piling up, the consumer is running out of wind, and now, where canhousing prices go but down?Indeed, the 10-year Niagara of credit hasn't even lifted all boats evenlyaround the country. In the North and Northeast, in cities like Detroit andPittsburgh, housing is still cheap and getting cheaper in many areas, asjobs disappear. We wager that as oil prices rise and heating costs becomemore burdensome, houses in the North will get cheaper yet. And in the bubble-ridden cities of the East and West Coasts, comes a timewhen even the densest householder digs in his heels and turns down thechance to enslave himself to an overpriced shack. He looks past SanFrancisco...and sees Phoenix. Or past Miami...and sees Charlotte. Or castshis eyes to Texas. Or, he decides to rent and wait for prices to come downeven more. And when he does, the crutches get kicked out form under it and thehousing market lands on its fanny...hard.
That's gloomy, all right. But, the inside-the-beltway bunch at NAHB has been predicting a 'bublle burst' in housing for close to five years now.
The lenders have been moaning about how their market has "gone soft" for about two years now. Well, yeah, duh. There are just not that many notes out there to refinance, not any more. Also, it's tough to convince people to pay points to lower a note's monthly payment only a few dollars. But, the rest of the market runs through its swings and dips.
Now, it sure certainly looks like abad time to be investing in real estate funds--but that's not the same as people not buying and selling houses. This is a distinction I think is rarely made in DC, where things as mundane as living quarters are "handled" by one's "people" . . . Occupational hazard of my occupation not being around (sorry Bubba)
Good post Bill, even though some of it is a bit scary!
I'll bite...
My wife just took a job transfer to Sacranamento Ca and we were forced into purchasing a home in a very short time and were astounded at the varing prices. Most of these home were, in my opinion, over priced.
We were finding older homes that needed alot of work and they were in the $250 per sqft range. New homes were being priced by the builders at about the same. It seems that existing homeowners were pricing everything based on what someone else had listed for and not what was selling.
Our case in point was that we wound up purchasing a 2200 sqft new home(single story) on a "medium" Calif. sized lot. The builder was advertising these homes on the price list at $505k plus upgrades. The sales agents said that they were "very negotiable". So, we offered $440k and they took it including what they considered about $25k in "upgrades. So Basically, a new home for $200sqft.
One of the customer service guys told me that they probably won't be starting another phase for quite a while due to the sales market slowdown.
The big money has typically been in the big houses - the kind you and I see daily.
I happen to think that they are beyond the means of many of the people signing up to own them,especially in a few years when they will have maintainance on crappilly built structures.
I also happen to believe strongly that there is more demand than there is supply for modest, well built homes.
Part of the problem is the developement costs of land given local rules. That adds to the cost of a house and a modest house on expensive land has a disproportionately higher percent of the cost devoted to the lot itself.
A conundrum...
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I also happen to believe strongly that there is more demand than there is supply for modest, well built homes. >>>>>>>>>>>>
Well said! I hope for that to be more and more true. I was just saying to Katrina the other day that when we go to sell this house in a few years or less I'd like my next project to be a house smaller than the one I'm finishing now. I'd like to spend the time focusing on all the things that I know make a house a home with more focus on "less is more". Every corner inside and out should be beyond special and interesting. Something to sink into...not just walk through.
Be well
andy...
>
I also happen to believe strongly that there is more demand than there is supply for modest, well built homes
I so want to believe that. The plan is on my desk. Time lines, Material lists, every detail except for material prices and labor prices. I expect those to fluctate wildly in the next 18 months.
Problem is.............................
Part of the problem is the developement costs of land given local rules.
Fees for Permits and Connections and joining a driveway and a road and on and on and on.................................... spread out over 1500 sqft make it unreasonable.
I would have to go to about 2600 before it becomes realistic.
I can easily sign personally and make any payments i need to on the cost for up to about 1900 sqft with a fair safety cushion.
I just don't see enough margin in it to take the risk. Not even if the market was good.
People talk about wanting well built, but spend their dollars with Pulte and THP and Hovanian and..................
To me, there are two scary things in this subject.The first is the greedy twits that pick up a property, hold it for a few months, maybe clean it up, and flip it for another fifty grand. Many of them will get stuck and cry. I don't care about them, but it can make a difference if enough of them get stuck and inventories of forclosures pile up on the banks books, That will have a ripple of consequences that will make life difficult for all of us.And that is based mostly on what I read, not personal experience wjhich is what Gene was looking for and you touch on.Articles speak of how the increasing interest rates are knocking people out of the market, but also how that much of our economy is consumer based. People have been grabbing at equity in their ghomes based on the escalaed value. They use this equity to fund college educations, buy new toys and cars, new PCs and electronic gooodies, even to eat out. when the interest rates rise, they slow that spending and so the economy will slow. Slow it enough and we get a hard landing. Half of the Fed Board still favor riasing rates and argued for a raise in the last meeting, tho they voted yes to a pause. Some writes interpret that to mean we are balanced on the edge of a chasm. The other side is all the other world moneys that are doing better than the dollar lately
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While this is somewhat local, and others may not experience the same thing, I see people who are grossly overextended on the theory that the increasing value of the their homes would compensate for their spending like a drunken sailor. They bought more house (in terms of cost) then they could afford and anticipated that the value would steadily increase, thus creating an equity cushion. It was a fine concept, provided home prices continued to increase.
But the money they earned from gainful employment went into consumables, things that have no value once used. They all drive Mercedes, and go on wonderful vacations, and eat out constantly, and buy the trendiest fashions. But at the end of the day, they have nothing to show for their money, as none of their expenditures went toward capital assets. So their money was squandered. They have no savings because they needed to spend every penny showing how cool and wealthy and important they are. The only asset they have is their homes. And all was well with the world because their one asset kept increasing in value.
And then one day, the value of their one assets stopped increasing. Worse yet, it became somewhat unmarketable, as housing stock inventories piled up and the McMansion became a dubious sign of self-importance. And fear struck these people, who suddenly realized that the foundation of their lives was in jeopardy; they had spent their earnings and their one asset was no longer sufficient to protect them from their foolish lifestyle.
But that wasn't all. The context was a stock market crash of 2001, rising interest rates, structural shifts in the economy, local taxes rising astronimically, war draining the economy, terrorism protection draining the economy, outsourcing of jobs and production.
I believe we have largely outsmarted ourselves, seeking immediate gains and gratification at the expense of stable growth. There are a number of very unpleasant truths that will come to pass, and the confluence of events and attitudes will cause a significant shift in who and what America is and does. We are in for a rude awakening that the years of excess not only cannot be sustained, but will cause a massive implosion for a generation, and people are unprepared to handle it because they have never known a life when they didn't get everything they wanted and live high on the hog. I don't know that we are due for another great depression, but I do think that a major shift is coming unless an intervening force creates a new wealth source for America and we simultaneously stop taking assets that are desparately needed here and sending them overseas in a mindless frenzy of fear that has clogged our ability to see the big picture of our economy.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
Good post. I just want to add to one of your examples:
But the money they earned from gainful employment went into consumables, things that have no value once used.
Most people aren't just spending cash on consumables, but they are also incurring tremendous amounts of bad debt on consumables also.
Carrying huge credit card debt.Don't call me daughter.
true dat, Mary.
On the positive side, creation of domestic jobs is still outpacing offshoring of jobs.Unemployment was 4.9% a year ago, and the BLS reported 148,000 jobs created in August and Unemployment of 4.7%. Productivity keeps increasing as well.While these things may temper what you are saying, I appreciate your warning.I started the "Housing Downturn" thread last month. Things were booming here two years ago, but housing starts have dropped in half during each of the past two years. I'm trying to grow a contracting business while the market is in retreat...it ain't easy.
I have a lot of problems with the raw unemployment numbers. They don't relate job creation to the quality of new jobs, the pay, the growth potential, etc. Are we staffing McDonalds or Microsoft? Are we losing high paying jobs and gaining low paying jobs? We have kids entering the workforce every year, but what of the middle aged who are losing their jobs? Our society is aging, but are there jobs for people who are 65 and have another ten years of work in them?
I play poker with some guys in their mid 30s who live unbelievably flashy lives. They were making a ton of money and could not conceive of the gravy train ever ending. Ah, life was good. Then one day, one of them lost his job. Just a natural contraction. And he realized that his lifestyle left no margin for error; nothing put away for a rainy day. He finally got a new job, but it took about 8 months and the new job didn't pay anything near what the old one did. It crushed him personally to suddenly fall from grace. A nice guy, too. Cost him his wife as well, as they couldn't survive the strife. Not that one story means anything, but I did see it as symptomatic of a generation.
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
I haven't looked for anything more recent, but the last time people were complaining that we are exporting the good jobs and adding Walmart greeter positions I found this article that argued (two years ago) that more "good jobs" were being created than "lame-o jobs," or something to that effect:http://www.factcheck.org/article208.html Qualifiers: Construction job were considered "good" in the article (but are those wages erroding?)If construction really drops off, that would change the good/poor job ratio.
Does it say how they qualify a job to be 'good'? I'd think the pay would be significant factor but what about benefits and 401ks. I feel the last 2 define the quality of life.
that website's a bit political, so I take it with a grain of salt. But my personal anecdotal experience tends to make me question it somewhat.
I would accept the premise that job growth isn't limited to Walmart greeters, but my wife is a doctor of physical therapy, one of the supposed professions in great demand. But she is paid through her patient's insurance. Today, her reimbursement rates are about 60% of what they were in 1985. Sure, it's better than a Walmart greeter, but in real dollars it sucks. So, if we were to look at a PT entering the market in a new job today, it would show up as a high quality position. If we were to contrast that job with the position 20 years ago, it would stink.
So you are right when you say that it's not just minimum wage earners. But is it enough?
SHGFor every complex problem, there is a solution that is clear, simple, and wrong.
-H.L. Mencken
I'm not an economist, but BLS data on wages (inflation indexed) show them edging up slightly, overall. It would be interesting to see similar numbers for total compensation (wages with all benefits--which may not be included in BLS wage #'s).You are correct that the Annenberg folks are right-leaning. I did think some of their analysis raised a valid challenge to the widely circulated notion that "all the good jobs are leaving--only to be replaced by low quality jobs here."My job seems to be increasing in quality and compensation (though with fits and starts)...just one more anecdote...and I'm workin' like a mad fool at it too. ; )
"...don't relate job creation to the quality of new jobs, the pay, the growth potential, etc. Are we staffing McDonalds or Microsoft?"
Not enough people recognize this and the govt won't advertise it. Maybe they're keeping the blinders on thinking that if they don't see it happening it won't happen to them.
I'm kind of living the example you just described. Left my 18 yr aviation career over a year ago (decent severance & doing good now) after the majority of the work was outsorced. It's now south of the boarder, more may go to China. My guess would be that it was a 1000 jobs @ $70k/yr with good benes replaced with costs of less than half of that, probably even less.
Up until the last paragraph, that is whatI was trying to say...If you write that well this early in the morning, you must be hell on wheels by eleven o'clock. I'm still trying to clear some cobwebs...As for that last paragraph, and the fears and predictions that are entertained there, I think a lot depends on several variables. We managed to postpone the worst ( possibly making it worse in the long run) back in '91 but I'm afraid the chances you are right are better than 50%
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are you kidding? I'm spent by 9 am. Thank God for coffee.
Yeah, I've getting up 'tween four and five, ready for lunch break at teen when the crew does coffee break. All in by 2PM
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Good post.Memphest 2006
November 18th
Good thread actually
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Colorado already has the highest level of foreclosures in the nation. We think that appraisal problems are incredible. Homes for sale for less than is owed where the owner got a second mortgage (with appraisal) only a couple of years ago. The "unrealistic exhuberance" that Greenspan spoke of in the late 90s is still alive and well in many younger home buyers and older home owners.Many people who bought with ARMs are now seeing drastically higher monthly payments. I think the foreclosures will continue for quite some time.Here where it's truly rural we see folks coming in and building whopping big places that are 20-40 miles from town. And that's a small town with no jobs. I can't help but wonder what will become of those places out in the future.It all looks bright for me, though. Existing houses here are still selling for $50-75 per sqr ft here. Boomers are retiring at an ever increasing pace. Young folks are buying a home they can afford and then spending $40k on a vehicle they can't afford. Those with no foresight are putting up crap manufactured homes that need serious work in 10-15 years. Fools who buy more than they can afford will soon be selling. That's the thing about the real estate business, unlike construction you can make money in a down market by selling repos and hard luck sales. Right now there's a brisk market for new stick built. Like Mooney said, it's a cycle. Those who pay attention can always make money.Thinking of a refi to get some extra cash right now? Better tighten up and get to work.+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
Thinking of a refi to get some extra cash right now? Better tighten up and get to work.
No kidding, statistics show that +, - 70% of all the people that refi to get the extra cash to pay off CC debt are right back with the same CC debt within 2 years, and now they have the refi or second loan to pay.
Doug
A friend of mine in banking started calling them "Renters" when he was a branch manager of for a small bank.
They are destined to never "Own" their house. They just rent it from his bank.
Robert,Your friend at the bank is onto something. Home "ownership" means little if one is only a paycheck away from repossesion. There is no security in that setup.Even after a home is paid off, the homeowner still "rents" it from the city via property taxes, albeit at a much lower cost.Good times or bad times, lowering one's overall debt is a good plan for avoiding future pain. Living debt-free is a privelege worth working for, IMO.Bill
That is for sure the case, Doug.We see examples from every background. It's odd to me. You might think that a guy who's 60 wouldn't want a 100% mortgage on a home priced at twice what he could have paid for an older home he and his wife could comfortably live in. You might think that a person who knows that their job may not be permanent wouldn't want an ajustable rate mortgage for a home in a slow market. You might think that people who have only owned the place two years would be suspicious of a mortgage brokerage who promises to get you a refi based on an appraisal from their "friend, the appraiser" when the new appraisal shows the home to have increased in value by 20% in two years. (That's not to say that increases like that never happen, but not here!) We've seen all those things and many more that scare the beegeebers outta me.And I'm not bashing appraisers in general. There are some very cautious and consciencious appraisers, but those folks tell us that they don't get much business from the biggest real estate companies who advertise the most. In our small town market, most of the foreclosures we see are appraised by an out-of-town appraiser for a modular or manufactured home and land "package" through a manufactured home dealer. Lousy homes, lousy loans, lousy appaisals, slow economy... but lots of younger people don't believe us when we tell them they are better off buying an older home and gradually fixing it up. They want "luxury" and they want it now. They often wind up with crap that's not worth what they owe. It's gotta hurt to eventually find out that you made such a dumb mistake. I just hope they learn.And I know that you, Doug, already know most of what I just wrote.
: )+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
And I know that you, Doug, already know most of what I just wrote.
I dont know that I know it all but as I get older I do pick up a few things!
They want that damn "luxury" because there friends have it.
Hell, if I was selling that "luxury" house, I'd give the first one away and then wait for all the followers to come running along. You really can learn something from watching the cows!
My BIL is on the board at the bank (I believe in the town that your ex is from) and he says that once in a while they go out to the casino to eat supper, he says of the local's that are there its usually the ones that can least afford it that are bellied up to the slots. He also tells me that they're the same ones that from appearance you'd think that they had it all.
I dont know whats going to happen when shid hits the fan but I know a lot of people who are in for a big time wake up!
Doug
Edited 9/3/2006 6:13 pm ET by DougU
the appraisal thing hit a chord with me just now, tho it's been mentioned all thru this thread. I remembered something my appraiser ( the banks appraiser actually since they hired him for me) said when he was out.I just refinanced to get out of my original ARM we've had for almopst ten years to a fixed rate just about the same rate.He did the walk around, took pictures and visited with us awhile. ( He was pretty sharp. He several times called out what the measurements were without using his tape he had done it so much, and I confirmed or corrected. I think he was wrong on two measurements of the whole house.) Then as he was leaving, he stopped and asked me, "You don't need to answer this if you don't want to, but I'm wondering how much you expect this to come out at." I told him I was just re-fi-ing a hundred, that the last appraisal was for one-fifty, but that he'd probably find it to work out to closer to two fifty, tho one fifty would take care of me just fine. He breathed a sigh of relief, and said I'd be happy with his report, but that to be honest, a lot of people expeccted outrageously high valuations from him. He said that his rate to work was high and that if I had been looking for four hundred or some such, he would save me the money and not do the report because he has some integrity and won't over-value.goes along with whoever said that appraisers were aasking to get paid in cash now
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That's the sort of person that's doing what he's supposed to: protecting both the borrower and the lender from getting into a bad deal.+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
Ill quickly mention very little as to your question right now and off to work again.
lets take a 100 dollars.
The newer homes on the market now were built with high priced materials 14.00 7/16 blandex, lets say. Etc , etc.
Labor also took a jump when interest rates were low and those houses were built with high labor.
The high costs were off set by the almighty interrest rates being 5 percent .
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Today, lumber has dropped in half. 6.56 blandex , under 2.00 studs , etc etc.
Labor is geting tight and prices are dropping.
The spin off as mentioned is higher prices of used homes and the shortage there of when rates of 5 percent was common.
Right now , you could build a house cheaper than a year go so the houses that were recently built are over inflated considering bank loans are going for 10 percent .
High prices of homes based on payments of 10 percent is not gonna hunt . People have always wanted all they could buy and now its much less if they are borrowing .
Place in high fuel prices that are significantly higher than a year ago and you have your answer. The people simply dont qualify for the loans. Sorry . Or they are not willing to step down yet to what they can afford. After all their Brother or Sister got a lot bigger house for less money a year ago per month. per month per month.
This is the time of the cash buyer in purchasing and he wants a great deal or hes willing to hold his hand till he gets one. Hes not hurting. He will build now taking advantage of cheap materials and low bidders. He can mark up a small percent and slide under the prices of homes that are a year old . So in fact his house will lead the market and really thats what you have to do to be successfull in real estate continually and it not be a fluke . Thats what its gonna take to win ball games right now .
Im moving a few up for sale . If they dont sell Ill hold them and demand higher rents for the people that cant buy. Theres gonna be a bunch of them. Rental property will be the next fortune told. Its their time now. Builders have had theirs and its past.
Its always been a cycle . Ride um cowboy.
Tim
Memphest 2006
November 18th
my lumber yard is one of the big three in RI.. they have three branches..
they got hooked up with Pulte about 10 years ago (?????) which gave them tremendous buying power since they were moving vast amounts of material compared to their historical volume
Pulte has pulled in it's horns and my lumber company is hurting.. one indication being... no golf tournament this year.. i mean , what's a better economic indicator that that ?
coursee ... this is the 2d most densely populated state in the nation.. 40 miles by 60 miles with 1 million people.. but 600,000 of them live in Providence
the new house market has been driven for the past 30 years by peopel moving in from Connecticut and New York for vacation homes, and Rhode Islanders moving from their old communities around Providence into South County and Newport county for a better quality of life (????)
the south county towns have tripled in population and number of houses....
the prices that houses are selling for ( were selling for until about two years ago ) are not really falling.. but the number of sales are almost non-existent.. one reason the prices aren't falling is because of the underlying value of the rare commodity the houses are sitting on... a buildable lot with sewer ( or approved septic ) and water...
tear downs cost $400K .... so how is an existing house price going to fall ?
right now , my observation is that the desireable LOCATIONS are still selling ... ie: waterfront lots
in our subdivison , opened in the mid-80's... there are 54 lots ... about 10 waterfron, about 10 across the street water-view ... and the other 30 are just nice dry two acre lots with good percs and good wells
the original prices were $50K, $40K and $30K..... the last open waterfront lot just went on the market for $2.7 million..
if my house were not on the lot , i could sell the lot tomorrow for $300K to $400K.. and i could close within 30 days ( my opinon )
what i have seen in RI in the past 30 years , thru recession, bank failures, Credit Union closings, etc .... is that the prices don't fall .....(much)...... but the sales disappear
and the spec house owners lose their shirts unless they can recoup enough thru renting the houses out to carry the note
the other big motivator is that most of the spec homes don't have conventional mortgages.. they have construction mortgages ... and even if the owner can make the payments, they are still subject to having the note called...
when and if we get into another credit crises, these notes are going to be called.. and there will be a big wave of foreclosures... this is not your neighborhood bank anymore.. they are all faceless bankcorps with a different idea of operation
Gene... is there anything left of the properties built and abandoned around Lake Placid from the big wave of the Olympics ? i remember pictures of large condo developments with broken out windows and debris blowing around the streets ?
Mike Smith Rhode Island : Design / Build / Repair / Restore
Just getting back.
What you say is the same I think many places.
The water front lots will always be controlled by people who already have money. The cost isnt justified by earnings. It might as well be put on the auction block for millionares to bid on. The result is always the same anyway. Who will give the outlandish price ?
What you said about the loss of sales . Right again. Houses are put on and off the market but dont sell as long as they have a sugar daddy to hold them. They only lose an edge of pricing only because the owners wont sell them. Thats where people buy into remodeling them.
But lets take the unfortunate. They had a good job there but lost it . Some circumstance that the sugar daddy falls from grace . Could be medical but what ever the cause its real. The payments must be met along with the taxes and insurance . In that case they lower the price until it sells . How much depends on the area . 10 to 20 percent outta do it in a well maintained property.
Now lets take what doesnt exist for you because of the land values being high there.
They default under a Fannie Mae Mortgage which is an arm of goverment financing . They are known for setting a price that matches appraisel. Two weeks go by and they drop it and so on till it moves out of their system. At some point it will sell like it is , as is in the current condition. The condition is the key word to me and always has been. The good houses move out fast in the first or second round. Then the real fixer uppers that are solid but trashed move in the third to fourth round. Past that theres a lot of junk. If they keep going down then I have to look at the property. Someone will and it will vanish off the sites.
When there becomes an abundance of repos , the banks have them too. Seems like at those times every one has them. Repos at that time are sold well below market . About 50 to 60 percent of value. They are almost like cash sales in that they close in 30 days and some are 10 percent down. The kicker with them is to pay for them in 30 days so you either have the money or you are good enough for a bank note like a construction loan. Its not for every one .
There are many different ways for them to dispose of forclousures. Ive bought several at the court house square from the US Marshals. Known as a marshal sale . If the folks got a goverment loan they can be sold at the court house steps. The houses arent shown. They arent cleaned up. The utilities arent on . Its a pig in a polk. They are advertized in the back of a newspapaer under legal /notices. They are hard to read and dont catch much attention. You have to study it to know if its the first forclosure or the last one as banks have the first one for the loan and costs. Then they own them and its the second transaction that places them with new owners.
All those are the ones that can sell below market while everyone reads the front page of the news and the sports.
Tim Memphest 2006
November 18th
You've brought back memories of the early eighties in CO. My landlaord rented me His house when he moved because he couldn't sell it. he moved into a house he wanted to buy but couldn't until my rental sold. The lady who was renting to him couldn't buy in the place back east where she was moving, because her was strill tied to his, so she rented...an endless string of dominoe sales all stacked up because interest rates were too high for anybody to qualify for mortgages...I am just starting an addition design for a cou-ple here. During the interview, he let me know that whether this happens in 07 or 08 will depend a lot on "when certain things happen in RI" Another party has told me he is negotiating a house sale down there, so see if you can get certyain things happening down there, willya? LOL
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
lol, good one
Memphest 2006
November 18th
You could bring the missus to Tennesee ya know .
Then there wouldnt be any black kettles to tend to.
Tim Memphest 2006
November 18th
If you are talking of the 80s olympic condo properties, Mike, some of them got demo'd, but really very little. All the rest got rehabbed.
I used to believe the same about good building lots, but my confidence is wavering. Lots in my own 'hood that would have gone through bidding wars in the heydays of two years ago, have been sitting on the market now for 8 months and more.
We were interested, or feigned it, in some choice parcels in the Asheville, NC, area last spring, and now the agents are emailing and phoning, begging us to make "any" offer, this, after big asking price slashes.
Bad things actually can happen. Was it right here in this thread, or somewhere else, that someone reported that Japan has undergone 16 straight years of declining real estate prices? And here in the good old USA, but way way back, speculators with crazy bank backing drove real estate up so high in the late 1830s, that it took over 70 years for prices to return to the pre-decline levels, long after the panics could be remembered by anyone living.
Where are you at ?Memphest 2006
November 18th
Lake Placid, NY. Five hours north of NYC, a quick ride down from Montreal, and Hez could hit us with rocket fire if they were in Burlington, VT. We were, until things ground down to a crawl, a huge second home locale (new construction), for people from the huge metroplex down to the south.
The only AR scene I am familiar with is Fort Smith and upwards toward Fayetteville.
The only AR scene I am familiar with is Fort Smith and upwards toward Fayetteville.
How so?
Thats close to home for me.
If I can sell out , Im going to Fayettville area. Ive been working with a RA for a couple of weeks . I listed a house I built today. My home will be listed by spring if not sooner. I was going to ask for a fest for 2008 but now I wont be here . THats the best area around the Mid South.
Tim Memphest 2006
November 18th
I got a call today from my hometown buddy, he's a small GC in southeast Michigan about 40 miles from Detroit. Asked him whether the market there is slowing and he said no, he's busier than he's ever been in 20+ years. He does the more challenging work for clients with nice homes and has not been without work since he was about 19.
Locally, we're quite similar to Gene's area, lots of vacation homes and retirees. Dollar volume in real estate sales is about the same as last year, number of transactions is down some. Apparently the big stuff always sells, the major waterfront pieces and the mountaintops with huge views. The average stuff is sitting longer.
Here's an anecdote. My wife has a cousin in Arlington Heights, IL, a nice old suburb to the NW of the city, with its commuter-rail-station center, historic homes, and tree lined streets. It is known for its big race track, and for its good schools.
In the cousin's 'hood, where the large lots had nice homes built in the 50s through the 70s, a number of those were snapped up during the boom and razed, with huge wall-to-wall homes going up, priced at $1.8 and higher.
Now, those that were completed as spec projects, and have remained unsold, are going on the auction block.
If the settled-upon prices following the auctions are anything like the story reported in the Wall Street Journal a week ago about an auction in the DC suburbs of VA, there could be blood on the streets in Illinois, with sale prices coming in at 50 percent of those previously asked.
Play with this putting in your numbers ;
http://www.realdata.com/book/amort.html
Tim
Memphest 2006
November 18th
Gene,
In December I had my house appraised for a home equity loan. EVERY appraiser I called would only accept Cash or Certified funds. Turns out, more than a few Home Owners and potential buyers had been disappointed with the appraised value of their gem. In retaliation, they stopped payment on personal checks.
In early spring my wife and I went house shopping. In the last three weeks every builder who had our E-Mail or phone number has called or E-Mailed us to let us know that "For a limited time" they were offering: free upgrades, no closing costs or just plain price breaks.
A few weeks ago we went to see some open houses. It was our opinion that each one was fairly well overpriced. To date, only one has sold and we have heard thta it was deeply discounted off of asking price.
Some change from a year and a half ago when anything for sale in my neighborhood sold in the first wee (Often the first day) and at or above asking ( Usually above).
A friend and I used to be business partners. We keep in touch and a few months ago he called me to tell me he had a chance to do a renovation job in Jersey City. My advice was to do it and charge accordingly for it. Few people want to go there and work, so no harm in being known as one of the guys who would. Might help if it slowed down.
He laughed it off and said he had plenty of work. The shop that provided him most of his work was using three installers besides him and all were booked for two months. Why worry. As of last week, they were using him and ond part time installer.
I'm thinking that being known as the guy who would go to the city and work might be abig help in about a month or so. If in fact he was known as that guy. Too bad.
Two things scare me.
One, I was a young carpenters helper who had just spent the last two years as a roofers laborer and later as a roofer working for a company and then myself. I walked away from roofing and got a job with a guy who was known as one of the best framers around because, thats what I wanted to be. One of the best framers around.
A short while later, It all came unglued ( 87-88 time frame). I remember one of the homeowners in a development we were working in bitching about howhe had paid $375K and the guy two doors down had just paid $310K for the same thing.
I had no idea at that time the implications of builders dumping inventories at cut rate prices to get out from under them.
Two, One of the things that killed the market in the 80's was Negative Am's and ARM's and some sketchy financing.
What would have been very risky and exotic financing then, wouldn't even raise an eyebrow today. My wife and I talked to a broker and a bank and one said we can afford $450K and another said $485K. My wife and I set our own cap at $325K. I have no idea how we would handle a $450K mortgage. But we have friends who make far less than we do who are in carrying $400K or better and are always one paycheck away from being homeless. Problem is? They couldn't sell even if they wanted to. They owe 100% of the over inflated price they paid last year.
I think that's why, in my area anyway, we haven't seen huge wholesale price dropping. The owners simply can't afford to drop the prices.
I did however read just recently (CNN Money I think) about how banks are revisiting allowing some sellers to sell short rather than have the house foreclosed upon. That can't be a good sign.
On another note, I took my son to the Grand American Trap Shoot in Sparta Ill a few weeks ago. On the way home I went to visit a friend in Chicago. Between Sparta and Chicago we stopped to Visit Boss Hog at work ( He's an actual nice guy, a gracious host and I recommend anyone in the area to take the time and say high. you'll be glad you did). I asked him how his market was and his response was one that made me think. He said there wasn't much Job growth or industry or Real Estate appreciation in his area. MAybe 2% a year. " How far can things around here crash".
I built my share of McMansions...and also my share of low end housing to boot(mostly for HUD under democrats) and some after that for plain folks who wanted simple quality and a smaller home.
I always cried to my customers that the reason I still lived in a 30 year old 1800sq/ft house was that I was too busy to do one for MY family....It was a lie. The real reason was that I wanted to actually OWN my home, and I really didn't want all that space....or my kids to grow up in a place with all that space....I believe a small house makes a family closer....and sharing a bathroom with your siblings and parents teaches you something...not sure what....I'll get back to you on that.
I was stupid financially. I knew what was going to happen.....it repeats itself.
I should have built a new one every 2 years and moved up....then last year when the tremors started, I should have seriously downsized and pocketed the cash(minus taxes)
I refinanced...took a 30 year at 6.875%(25 left) down to a 15 at 5%....took no cash...that was back in 2000. Have made double payments since....I don't like debt.....stupid from a financial standpoint........I know this!
It's bad here....getting worse by the day....friends are going under, most can't shift gears from new construction to remods and additions....I never went 100% new construction..always had at least 40% remods. Now I have no new construction on the books...and I feel good......... I always felt I was building crap. Sure they had nice "features" and solid for the most part..but nothing I would go into debt to live in, that's for sure.
I agree this is gonna get ugly..REAL ugly before it gets any better, but hopefully people will learn from it. But people are shortsighted and simple so probably not.
I went through the oil boom of the mid 70's and early 80's....got out of school with a geology degree just in time to capitalize on the whole ride.....and it crashed just like this...and all those old oil boys driving the new trucks and wearing the rolex watches kept saying..."oh Lord, bring it back and next time I'll save all the money" heheheheh
With a small 4 man crew, I can still build a great quality home, 1500Sq/ft ...do it all ourselves and bring it in for less than 100K....but finding the lot is the problem...they don't exist.
Would you consider filling out your profile? Those who read are often curious to find out where "here" is.+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
Haven't filled it out since the beginning...must be over 10 years now....why wreck a good thing? Here is Canton, Ohio.