patrick.net

Sort of OT, but I have to toss in a bit of news from my hometown of Shanghai. Chen Liangyu, Shanghai's party chief, has just been put into house arrest for corruption. I noticed that every report mentions his close ties to Shanghai's construction industry and how he undermined China central government's effort to temp down RE.

It'll be interesting to see where Shanghai's RE goes. I hope my mom can tear herself from Taiwan's Chen Shuibian scandal and report back on Shanghai's RE market.

Robert Schiller, just loving life on CNBC. When you're an economist this is about as much "fun" as they get to have!

Proper use of "the line" can produce major laughs! For those that might be even remotely interested it works like this;

INTERESTING! (with feigned sincerity) and a slight pause.

WRONG........ (with a curious emphasis)

but (quick and sharp)

i n t e r e s t i n g........... (trailing off like Peter Sellers as Inspector Clouseau)

There were still builders working in 1994 and they managed to scrape profits selling homes at 1/3 the current prices. The builders will build when the market lets them build and sell them for a profit.

I don't have any ready stats available, but I've read a lot of anecdotal reports on other sites that indicate builders, far from slowing down building, are actually BUILDING FASTER in order to complete already started projects and sell them ASAP before prices fall further. The difference is, these projects are not considered new "housing starts" in the statistics, because they were already started.

Also plenty of stats on Patrick's links page & Ben's site showing major home builders (KB, Lennar, Toll, Pulte, etc.) walking away from land options negotiated at the height of the bubble --along with their deposits/earnest money. Builders have NO "sticky" emotional attachment to their inventory. Any house that can be built and sold profitably (as in, the land was purchased pre or early bubble) will be sold.

I repeat: we have a long, long, looooong way to go before we are even "inventory neutral" based on population & fundamental 'housing-as-shelter' demand, much less inventory "short".

Yeah, just caught him too.

Randy H:
" Her response was “then go buy the CM house”. Clearly frustrated"

Not to mention rude, indifferent and stuffed with her own sour sense of entitlement.
It's a pity that the owner wasn't around to hear how well she's 'selling' the property to prospecitve buyers.

Sounds like she needs a right good slapping.

'housing-as-shelter'

Robert C made the observation above that nowadays when referring to your "home" you need to make the distinction that it is your 'primary' home! Lest others get confused and mistakenly think you're referring to your 2nd home or even your vacation home. (Evidently there is a distinction between 2nd and vacation home).

"Her response was “then go buy the CM house”. Clearly frustrated”

Not to mention rude, indifferent and stuffed with her own sour sense of entitlement.

I believe it's reasonable to assume that most FBs and REIC minions have moved beyond stage 1 (Denial) in the Kubler-Ross model of grieving, and have at least reached Stage 2: Anger. A few (Casey Serin) have managed to attain Stage 3: Bargaining, but they are still in the minority.

People don’t believe that prices will ever fall more than 10% or so. Thoughts? I really need some encouragement

Huh? Just last year people don't believe prices will ever rise less than 10% or so. :)

People's expectations are dynamic. Pessemism feeds pessemism.

charlie,

Yeah, I hear ya!

However, looking at "comps" is to a certain degree like driving by looking through the rearview mirror. Realtors have strategically elected to "showcase" backward looking data in an effort to troll for the last Greater Fool. As evidenced by your response it seems they're only fooling themselves.

SP,

Your story is exactly the annoying thing going on in the minds of many sellers. Of course his place is special. Just like the Orlando couple's place is special 'cause it's got a koi pond. Once the price declines currently underway are more apparent to the average seller, there will be a fear mentality that will overcome the "my place is special" sentiment. The "fear of being priced out" buyer sentiment will be replaced by the sellers' "fear of being undercut."

SQT,

I'm sorry to hear that. It's sad. My oldest sister's father-in-law was the nicest man. He saved a ton of money and they were expecting (and living like) they were going to get a substantial inheritance. With his dementia advancing daily they had to put him in a home to the tune of 5-6K per month. Although already in his late 70's he lived another 10 years and it burned through the money (and a few rental homes) before he finally passed on.

I didn't agree with our former Governor John Kitzhaber on much, but he said (as a medical professional) that at some point we have to make a decision. Are we prolonging life, or are we prolonging suffering? Kind of hard to argue with that.

austingal,

It may already be too late, meaning, there may very likely already be way too much housing stock around to get through. Today's NAR numbers (for existing homes, at least) shows all-time high inventory. Months supply is the highest its been since 1993. Add to that declining sales volume, and inventory is likely to continue to increase.

Speaking of Mass, have you been to Boston lately? There are SO many new condo projects around the halfway point of completion! There's a significant dropoff in demand, too. A high-end downtown development is holding an auction for the remaining units (more than half the total) in October, for instance. When all this stuff comes on line, it could get even uglier. Same goes for San Diego, Las Vegas, Phoenix.

Are we prolonging life, or are we prolonging suffering? Kind of hard to argue with that.

Exactly. Resources should be spent on preparing people for their next lives.

Well here's one way to beat foreclosure!

http://lasvegas.craigslist.org/rfs/212073295.html

Well, at least serious investors seem to be expecting this housing decline to have widespread economic repercussions:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAMeCYq1cp.4&refer=home

DinOR,

How many people are these clowns planning to pack in?

Decreasing new home starts is not what bubblesitters would ideally see.

austingal,

Decreasing home starts is an inevitable, predictable part of any housing bust. Builders aren't stupid crazy --not even the most reckless ones. However, as I've mentioned, this does not preclude them from continuing to build on land they have already purchased (vs. walking away from land options), and it does not preclude them from completing developements they are already in the middle of building. Actually, there is a powerful incentive for them to finish partially completed subdivisions more quickly in a falling market, as they seek to capture as much profit as possible before it disappears.

Don't be too worried by falling "new starts". This does not = "no building activity" or "no finishing partially completed developments". It's just a typical, predictable part of the bust phase of any housing cycle. There is ton of inventory already out there, and more is coming online every day. There will still be a ton of unsold inventory out there next year, and the year after. It could very well be 5-6 years or more before all of the excess is wrung out of the market, especially in the most bubbly regions.

DinOR Says:

http://lasvegas.craigslist.org/rfs/212073295.html

How would you like to be living in your "executive home" McMansion and have 4+ roommates move into your next door neighbor's place? Yikes! Besides, who in LV has roommates? Strippers/hookers?

Can you imagine what dire straights I would have to be in before I rented my home out to FOUR different parties! In Las Vegas?

Who do you hold accountable for the holes kicked in the walls? Do you perform a credit check on each "guest"? Let's see....... find 4 people in LV that are not:

Degenrate gamblers,

Strippers,

Con men,

Card sharks.

No problem.

skibum,

Took the words out of my mouth! Hadn't even thought about the neighbors! Yeah, I'll bet they'll just love it. My mother would call that "an insane asylum with a revolving door".

Ick. With the strange hours people in LV keep it would be a non-stop 24/7 rotating fuh-reek show! Then again perhaps some nice fellows from the Christian Science Reading Room will call this place home?

@DinOR,

Personally, I'd prefer renting to crack dealers --quiet, pay on time, don't complain.
http://www.theonion.com/content/node/53191

charlie

and there is an apparently endless supply of dolts who fall for this sleight of hand.

People who doesn't share your exact idea of what constitutes "the right price" may not always be "dolts". It is possible that some folks have different needs and aspirations from yours.

HARM,

I don't know how they do it! The Onion never fails to get a hardy yuck out of me one way or the other! Had I been on there "staff" I would've been tapped out long ago but somehow they just keep churning out quality material. Nathan "Buck" Cruz is certainly no exception. Thanks HARM!

HARM,
Excellent link to The Onion. One hears lots of stories about how South Central and environs are "up and coming" and how homes there are selling for 1/2 mil. I've always wondered why. Now I understand.

Yeah, maybe I was a little harsh too. I have friends in LV that lead normal lives and have normal kids, so it can be done. I'm just trying to figure out how you're going to have 4 complete and total strangers with different schedules sharing bathrooms?

I wish I could give proper credit but someone here should be taking a bow for recognizing this as a mid-implosion sign of the times. The "room mate" factor if you will.

In truth this may be a better use of a McMansion's considerable square footage than most will ever see?

@DinOR,

Actually, sub-dividing Mcmansions into multi-family rental dwellings is tremendously helpful for us JBRs, because it increases the supply of rental stock while simultaneously reducing rental demand. If that owner really does get 4 renters (one for each bedroom), that's 4 fewer renters competing with you/me, plus 4 more rental "units" on the market.

This is one reason why I never bought the "rents are going to start shooting up" bull$hit. There's a ton of hidden/latent rental stock that hasn't yet hit the market. A large % of the second/investment/vacation homes that are turning into alligators will end up being rented out when they cannot be sold at a profit. I don't think we have yet seen the peak of those inventory numbers just yet.

Many former specuvestor geniuses (such as the current poster boy, Casey Serin) will also be losing everything and soon be moving back in with their parents. Net increase in rental demand?: Zero.

http://www.nytimes.com/2006/09/24/realestate/24rental.html

Patrick (If you're reading this thread), have you put any outlier-filters into your rent price-watching statistics? I've noticed a dramatic dip here at the end of the summer. Has the snarfing algorithm changed? Perhaps:

"Hmmm... my house isn't selling at $1.4M nor is it renting at $5K/month - my base PITI costs. Maybe I'll lower the rent to $4500/month. I can afford $500/month on top of the 2% loan on my new house. Better that than taking that ridiculous lowball offer from that Randall guy..."

If you're going to be sharing bathrooms, different schedules can be a Good Thing. At 600$ a head, it seems ideal for college students. (I remember seeing some sort of university on the ride from the airport.)

The owner should install webcams in the mcmansion and then act as casting agent for "the real world - web edition." Strippers, card sharks and other colorful types welcome. Website subscription fees can be used to supplement rental income.

HARM,

Oh I quite agree. We're just now starting to see "repartments" hit the pipeline. I don't even know what to think about 2nd/investment properties! I think that comes under "if a tree fell in the forest" so it may be hard to gauge how much of that will be saleable? Or accidentally catches fire? One thing I do know is that anyone that bought into that won't be volunteering that information with JBR's.

Other than checking the "cork board" at work and Safeway is anyone aware of a way to calculate the incredible freaking waste of money, manpower and materials that went down the tubes to feed someone's vanity? My father used to kid about his "summer home". Anybody that called would get the "DinOR's Summer Home" routine.

Some are home, some are not! I know. It's bad, but he loved to kid about all the nickel millionaires and their faux castles up on the north shore.

Actually, sub-dividing Mcmansions into multi-family rental dwellings is tremendously helpful for us JBRs, because it increases the supply of rental stock while simultaneously reducing rental demand. If that owner really does get 4 renters (one for each bedroom), that’s 4 fewer renters competing with you/me, plus 4 more rental “units” on the market.

But those renters have never been competing anyway with you anyway. (You are in a totally different rental market.)

I'm sure that with as many FB's that are out there this could become it's own category on C/L.

apts
storage
weekly rates
commercial
real estate
FB needs help

@FRIFY,

One thing I noticed about that NYT article is that it makes liberal use of BS Realt-whore "statistics" that seem to be pulled from someone's ass --and of course no challenge, sources or follow-up. Case in point:

Real estate brokers estimate that a $1 million home will rent for $5,000 to $7,000 a month, depending on size, condition and location.

Lots of CA renters currently living in "million-dollar" houses right here on this blog. Do ANY of us pay "$5,000 to $7,000 a month" or even CLOSE to that absurd amount? Hell, if 5-7 grand a month were typical rent, buying right now would make sense!

A majority of the rental market nationwide is under $6,000 a month, but a handful of cities offer a fair number of rental properties at $8,000 and above — like Los Angeles, San Francisco, New York, Boston, Honolulu, Las Vegas, Miami and Washington, and their environs.

Uhhh... Mr. Cohen, I'd even go out on a limb and say a majority of rentals even in those 'prime' locations is well under "$6,000 a month". Splain to me what % of renters in Los Angeles, San Francisco, New York, Boston, Honolulu, Las Vegas, Miami and Washington can afford $8,000/month on rent? Or even make $8,000/month gross income?

I guess challenging baseless claims, conducting independent thought/research, or even asking follow-up questions to obviously biased sources is too "old school" for the NYTimes. But then again, this IS the same outfit that gave us Jayson Blair and Judith Miller.

A majority of the rental market nationwide is under $6,000 a month, but a handful of cities offer a fair number of rental properties at $8,000 and above — like Los Angeles, San Francisco, New York, Boston, Honolulu, Las Vegas, Miami and Washington, and their environs.

A majority of the rental market nationwide is under $6,000,000 a month. This statement is equally valid! :)

Lots of CA renters currently living in “million-dollar” houses right here on this blog. Do ANY of us pay “$5,000 to $7,000 a month” or even CLOSE to that absurd amount? Hell, if 5-7 grand a month were typical rent, buying right now would make sense!

A friend of mine rents a beautiful refurbished spanish style 3BR home in downtown Santa Barbara with a yard, fruit trees, washer/dryer, etc. for $2400/month. This home would probably sell for $1.5 million (or at least it would have last year). Cap rate? 1.9%.

Makes no sense, but the owners are living out of state with family for a few years and have very low property taxes. They are not FBs, though, because I think they own the property outright.

FRIFY,

LOL! I can only claim one direct case where the seller pulled their home completely off the market because of my offer. It was in Corte Madera about 2.5 months ago. From what I could tell the seller was a nice, older couple, with probably close to 100% equity. They'd added a 2nd level in the 80s, and then had moved out into a retirement community about a year ago, meanwhile having a contractor do a pretty decent job upgrading the kitchen and baths. It's been empty except for a granddaughter living there for a few months for nearly a year.

The story I got from their agent (one of the only ones that would talk to me after getting my offer) was that they'd had a couple low-balls already -- about 15%-20% below asking. Then I came in after a couple months of quiet and offered just around 40% below asking (after about 4% price reduction). They told their agent they'll just keep it and wait, and took it off the market. I appears to be empty from a drive-by (as of 2-3 weeks ago). My guess is this home won't get another for-sale sign until these folks transfer the home to a child or grand child.

HARM,

Yep, it's crazy-speak, but it should offer comfort to those struggling to pay their Mortgage: "If things get tough, I'll just rent it out at a profit and move into a smaller place!".

My rental Zillows at $850K, so my rent "should" be $4000-$6000, but instead it's $2200/month.

Hell, if 5-7 grand a month were typical rent, buying right now would make sense!

Nope - getting the hell out of this state full of crazy people would make sense. ;-) Buy in cash in Chicago, Pittsburgh, Denver...

HARM,
You're right on re: the NYT. It is shameful how much of a RE ad the whole paper has become. I posted this already in a previous thread, but check out this "article" about that hosebag Blanche Evans and her new book:

http://www.nytimes.com/2006/09/24/realestate/24books.html?ref=realestate

Can she really be saying with a straight face that the RE market is "taking a breather," or that buyers and sellers can “reposition” themselves to take advantage of the long-term upward trend in housing prices? Is she serious? I'd believe her if by "breather" she means mechanical ventilator support. And the "repositioning" she talks about must be FB's bending over to take one where the sun don't shine.

It appalls me that this "reporter" takes this crap at face value.

*******

A Soothing Voice Amid the Market’s Chicken Littles

By FRED BROCK
Published: September 24, 2006

NO WORRIES “The market is not crashing,” said Blanche Evans, the author of “Bubbles, Booms, and Busts: Make Money in Any Real Estate Market,” who sees the current housing slump as more of a breather.

But Blanche Evans, the author of “Bubbles, Booms, and Busts: Make Money in Any Real Estate Market” (McGraw-Hill, 2006), isn’t buying it. She sees the current slump as more of a breather, as well as a chance for buyers and sellers to “reposition” themselves to take advantage of the long-term upward trend in housing prices.

I’d believe her if by “breather” she means mechanical ventilator support. And the “repositioning” she talks about must be FB’s bending over to take one where the sun don’t shine.

:lol:

@austingal,

Sorry to hear about your loss, but glad your grandmother did not suffer.