patrick.net

Yes it will recover but no the USA will never again be 5x the valuation of other counties. In short, housing will recover with inflation over time but nobody will be able to buy the houses until then. Pay is not inflating, so, recovery of housing prices is suspect.

Hand meet Straw...

Yes, it's the new paradigm!!

Housing needs to fall and fall it will.

Put it this way, banks will tighten lending standards long before, the banks runs out of houses to approve loans for.
Banks and the Government will get their memory back, with in 5 years, and start holding all of these people that got foreclosed and short sold houses, accountable. Those people will have higher down payments, and pay a higher interest rates. It will be a healthy balance of houses, and people dreaming to Own "Oneday", instead of this guaranteed entitlement, that we've had.

There was always a balance of stock and credit worthy people.

Don't forget banks own most of the stock. The other other large portion is owned by investors who's original intent was to flip it. In Florida anyway, most are still hocking their wares.

There's plenty of stock. This is just desperate thinking.

Just as horse and buggies went out of style so will static housing. RVs (recreational Vehicles) powered with Lithium Polymer batteries and registered tax free in Montana will be the new bubble. Also inventive ways to deduct your rent by starting a business will come into vogue. All the aging baby boomers will sell houses to simplify their lives and flood the market. If you own a house you are a target like a beached whale for taxes and assessments. Afghanistan is now reported to possess large deposits of Lithium- the new oil. I read the aid ships sent to Gaza contained prefabricated houses, imagine all the shipping containers from China built as to convert into cheap prefabricated housing structures for US consumption. I feel better now.

OK, having read the article the author is incognizant of the fact that higher construction costs, infrastructure costs, tax burdens, etc. can and will come out of the land value component of the housing good.

But there is something of a housing shortage. This nation's investment in quality multifamily construction is pitiful.

Troy says

But there is something of a housing shortage. This nation’s investment in quality multifamily construction is pitiful.

Exactly. Especially in livable areas.

"Is a housing shortage coming"

The article is quite misleading. If you think new home construction will keep at some 500K-700K annual pace for a long period of time, say 10 years, then yes, housing shortage from a macro level will be visible then.

But just as the extreme building pace from 2002-2006 did not continue, so will the slow pace we seen the past 24 months and next 24 months prospectively will not continue as well, making this article extremely misleading to the uninform.

Way too early to call. I see underconstruction currenyly to make for prior year excess.

There was a recent article in the vegas paper about how some developers are still building - and there are buyers. A friend of mine said that her coworkers still want a new house, don't trust stuff built during the bubble years.

So I ask - is it cheaper to buy a short/foreclosed sale bubble house and fix it up, or buy a new house at the lower prices? Just curious what ya'll think.

When the baby boomers start kicking it off, there will be plenty of housing.

"So I ask - is it cheaper to buy a short/foreclosed sale bubble house and fix it up, or buy a new house at the lower prices? Just curious what ya’ll think."

Ellie,

your question don't make sense as a new house, if location and size is constant will not have a lower price than an old house that needs to be fixed up. I think your question is it better to buy new or old that needs to be fixed up?

It's really too open ended to answer, but in general, I never consider any house in the under $200 a square feet range as a good candidate to fix up yourself. In that case, the fix up costs eat up way much of the house value. On the other hand, I view houses that sells in the 500+ sq ft range are great candidate to buy old and fix up yourself. In the 1000 sq ft range, it is a no brainer.

For example, two sale pending property within blocks of each other, one is old and one is new and remodeled, that is really the only difference.

http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N572253620,-N246081,-N,-A,-N23898115

http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N572253620,-N247882,-N,-A,-N23898115

One is pending at 650K and one is pending at 950K. The difference is really just the remodel which includes:

tearing down walls, (open kitchen to make the space look bigger than it really is)
hardwood floor, recessed lights and skylights, etc. (give it a modern look)
adding about 600 sq ft in-law. (add livable square ft)
numerous cosmetic magic.

It takes about 150K and three months to turn that 650K home to look exactly like the 950K home. If it was up to me I would make upstairs 2/2 instead of 2/1 and add a patio access to the yard from upstairs bedroom, those two changes would add another 50K compared to the 950K one.

Fix up is all about adding value. In San Francisco, a second bathroom can add 50K to the value and a legal in-law can add 100K-200K more. From that perspective, given that the fix-up cost is not even that high relative to value, fixing is the way to go (to the extent you can pay for it without the mortgage)

elliemae says

So I ask - is it cheaper to buy a short/foreclosed sale bubble house and fix it up, or buy a new house at the lower prices? Just curious what ya’ll think.

You gotta be as good a salesperson as the new development salesperson your dealing with.
It should be a no brainer to push them to drop their prices to close the deal. Just keep reminding them there really is a "housing bubble".

The days when homeowners can think they can add $50K of work and somehow make it worth $75-100K are over. Kaput!

SF ace says

Ellie,
your question don’t make sense as a new house, if location and size is constant will not have a lower price than an old house that needs to be fixed up. I think your question is it better to buy new or old that needs to be fixed up?

I don't know - with all that's been written about substandard materials and workmanship, is a bubble house a worse deal than your regular fixer upper?

New house. They sell for less than used houses in our city. Everything else being equal. You might find some foreclosures selling lower but its tough to get in on these and they also might have unknown issues. As it is now, most foreclosures in my area are market to fantasy so one can buy new cheaper. Only issue is you don't know when your neighborhood will be aborted and what will happen to all of those open lots. With used you can predict the future better perhaps.

New housing might even drop in price more. Material costs should collapse as demand collapses. Labor costs might collapse. Land prices will surely collapse as speculators use up their credit and counties must start taxing the rich adn stop the "false farm" and "developer" tax exemptions. Many reasons to think new houses will be much cheaper next year. Few to think the opposite. Other than homebuilders just closing shop. The efficiencies of reproducign the same house over and over may disappear. Its funny, but the lowest cost laborers who do this probably couldn't tell you how to build a plumb wall if their life depended on it.Sort of like most programmers couldn't tell you the difference between a caching algorithm and a paging algorithm and most medical personnel don't know the difference between treating symptoms with drugs and actually doing what it takes to become healthy.

-1 for demand surge. Don't see it. I see quite the opposite where I live. Many houses are available. Notwithstanding the discussion we had years ago wherein we quoted somethign like 20M vacant homes per the old census. "vacant" versus "presently on sale". These may go on sale as economy contracts. Aunt Jane's empty house won't be so empty when someone needs it. True squatters notwithstanding either.

The thought of gobbermint bulldozing new houses to insure returns for stock market investors almost makes me puke. Well, it would take MANY, MANY bulldozers! I guesstimate at least 5% of the homes in my upper middle class neighborhood are vacant and being held by investors. Likewise in my lower class neighborhood where I own a rental. I'll have to turn it over to the county this Dec if I can't find a buyer. The county taxes in Richland County are 5 month's rent; so, landlords will forfeit to the county. Bolldoze or become the largest landlord. That's the question facing Obama and each County Manager as well.

No shortage of houses. None whatsoever from what I can see.

Anecdotes from the front. As I pointed out last week, there is white flight INTO desirable areas in the Bay Area urban core. No small feat given California's demographic trends. Couple that with the fact that they ain't building many more SFH's in these areas....
At the same time, as a counter point, I was talking to a renter in my neck of the woods with two kids. He commutes into Ess Eff for work. Housing options are limited (read expensive) so he's decided to move out -- to Petaluma! He's currently in escrow, and yes, he will be commuting into the City (off hours).

The Fed will need a separate set of interest rates for the housing related economy. Otherwise when rates rise the housing market collapse completely. This may be a better way for them to manipulate markets, and yet save us all.

At this point I don't expect a significant drop. I'd love to see it, but all indications in my local area are that the market will go sideways, with prices more or less flat. I keep my eyes open, but it seems that for my own situation, I am better off continuing to rent and save. Particularly when one factors in the ridiculous taxes that are part and parcel with ownership.

The few bargains that have been out there, its been a dog-fight every single time.

Why would prices stay flat if the FED's contract with the banks just ended May 1? The Banks can finally liquidate all their shadow inventory, and they will in droves. 2-3 months from now, the banks will be competing with each other, who can liquidate their shadow inventory faster.

I think the assumption is that the banks want to, or NEED TO, dump that shadow inventory. They actually don't. The Fed has their back in every conceivable way, from free money to simply overlooking nearly any accounting gimmick they can dream up. So they might as well dole those houses out to "private equity" investor groups that can buy them up by the dozens or more, or even just let them sit there and rot until they become unsellable in some case.

This is not true. The banks do want to liquidate now, because they know that prices will be much lower, even 10 years from now. No bank wants to be stuck with these lousy assets for that long. Banks who can free up all that dead capital sooner, can go on lending that money for other more productive purposes. However, the banks could not sell the shadow inventory, up until the FED goosed up their reserves with the TARP program. Now that TARP is over, banks can go on with their liquidation program. This is already starting to happen, as you can see more and more BANK OWNED signs around your neighborhood. Some people are already starting to wake up to this "Great Scam" that the FED and the banks pulled off. The M3 has already declined 5.9% since last year, so all this money that the FED is printing will not help the deflation from continuing full steam ahead.

"A friend of mine said that her coworkers still want a new house, don’t trust stuff built during the bubble years. "

Why would a house built during the bubble and one built today be any different?

REOs set new monthly record in May:

http://www.zerohedge.com/article/realtytrac-reports-foreclosure-activity-over-300000-15th-straight-month-reos-set-new-monthly?source=patrick.net

HousingWatcher says

“A friend of mine said that her coworkers still want a new house, don’t trust stuff built during the bubble years. ”
Why would a house built during the bubble and one built today be any different?

Their reasoning is that the houses were thrown up so quickly that they're not of the same quality as others. Less insulation, plumbing problems, foundation problems, etc. They're in Vegas and, to be fair, there was so much building going on that the minimum was the rule rather than going the extra mile.

Vicente says

I think the assumption is that the banks want to, or NEED TO, dump that shadow inventory. They actually don’t. The Fed has their back in every conceivable way, from free money to simply overlooking nearly any accounting gimmick they can dream up. So they might as well dole those houses out to “private equity” investor groups that can buy them up by the dozens or more, or even just let them sit there and rot until they become unsellable in some case.

That's what's happening and is the plan, but the promise to free that up, will political candidate race platforms for years to come.

"Their reasoning is that the houses were thrown up so quickly that they’re not of the same quality as others. "

And wouldn't a house built today also be thrown up quickly with corners cut?

“A friend of mine said that her coworkers still want a new house, don’t trust stuff built during the bubble years. ”

“Their reasoning is that the houses were thrown up so quickly that they’re not of the same quality as others. ”

I dont see much of a difference on quality than vs now. The prices however are extremely skewed in the Bay Area. Actuall costs materal and labor today are still well below 200K as one can see in many parts of the CA or other states. The rest of the price are pure bubble profits dictated by marketing hype and industry norms. As such there is plenty of room for price corrections on new homes.

E-man says

322,920 foreclosure filings makes sense too. Most homes have 2 loans. Some of these foreclosure filings will be lost to short sales and trustee sales.

Same homes are falling once again to re-foreclosures. Double whammy!

@elliemae
Depends on "how" used they want. Like 2005? Or are they looking at 1995? Houses generally depreciate quickly at the start of their life (like a car) and then slow down and land values outstrip the house depreciation, giving into an increase in total value.

I wouldn't say houses are being built better now. Perhaps wages are down, perhaps building supply costs are down, but selling prices are also down so the same corners need cutting.

I would recommend used + very good inspector. Within 5-10 years, problems are going to become known. If there are problems with plumbing, walls, insulation, you'll start to see it within 5-10 years.

Gen Y will likely steer clear of housing if they have been paying attention. Oh, I forgot that that they have ADD.

ADD? you at 6. -- oops, SRY, was texting in another window. G

Perhaps the banks just are not staffed to deal with that many transactions.

maxweber1 says

Yes it will recover but no the USA will never again be 5x the valuation of other counties. In short, housing will recover with inflation over time but nobody will be able to buy the houses until then. Pay is not inflating, so, recovery of housing prices is suspect.

Unlikely. there are just too many empty houses out there already and tons of places where houses can be built if needed.

Shortage of housing in a capitalistic society is like a shortage of bubble gum, it cannot happen due to the nature of capitalism.

ChrisLA says

Unlikely. there are just too many empty houses out there already and tons of places where houses can be built if needed.
Shortage of housing in a capitalistic society is like a shortage of bubble gum, it cannot happen due to the nature of capitalism.

But we don't have true capitalism. We haven't had a free market in housing for years. Govt continues to intervene in the market by keeping interest rates low, printing money (QE), restrictive zoning, etc. However, as history has proven, numerous times in the past, this manipulation of the markets is not sustainable.

This might deserve its own thread: please feel free to do so. I am wondering how this impacts housing, including a potential shortage...

http://www.veteranstoday.com/2011/01/25/jb-campbell-foreign-trade-zones-2/

Foreign Trade Zones

They’re in all fifty states. My state, Idaho, has at least one, up in Boundary County, and a really big one is reportedly being set up right now, near Boise. 30,000 acres. The land inside these foreign trade zones is no longer American land. It’s sovereign foreign territory.

I called the Boundary County Commissioner’s office up north to get some official version, because a commissioner there named Ronald Smith is the contact man for FTZ 242. The reader can do the same thing in his or her FTZ.

Each and every one of our state governors has approved and allocated a certain amount of acres of their U.S. state land to be inhabited by Chinese communists –communists straight from China! They are to set up little towns and live here, supposedly for the purpose of producing Chinese products for sale in the U.S.A. The land the states are giving them for their little towns will be considered “foreign territory”!!! We are told that the laws of the state (in which these Chinese communists dwell) will apply to the communist Foreign Trade Zone (FTZ). Comment: If so, why are they allowed in here. Isn’t the whole set up unlawful?

There are 257 of these little communist towns to be built all over the United States. Go to this website ( http://ia.ita.doc.gov/ftzpage/letters/ftzlist-map.html ) and see the list of the states, and how many FTZ’s are to be erected in each and every state. Our nation is being peppered all over with these communist closed towns called “zones”. This brainstorm by Washington, D.C. officials was just recently discovered by alert citizens in the State of Idaho, where an FTZ is being built there, just south of Boise, Idaho, possibly 30,000 acres of Idaho is going to be used for that FTZ. Check this site quickly before it is removed.

When you get to this website, be prepared by having enough paper to print 40 pages, listing all the FTZ’s to be built over the whole United States! 257 of these FTZ’s. The excuse given for creating communist towns all over our nation is that these Chinese people will produce products for sale in the United States, and the FTZ will eliminate overseas shipping costs of the products they create.

A maquiladora or maquila is a concept often referred to an operation that involves manufacturing in a country that is not the client’s and as such has an interesting duty or tariff treatment. It normally requires a factory, that may import materials and equipment on a duty-free and tariff-free basis for assembly or manufacturing and then “re-exports” the assembled or manufactured product, sometimes back to the originating country. A maquila is also referred to as a “twin plant”, or “in-bond” industry. The principal examples of this sort of operation occur in Latin America, but also occurs in other countries in the world, that have adequate legislation. Currently about 1.3 million Mexicans are employed in maquiladoras.

A maquiladora is an FTZ. So that’s what this is, 257 maquiladoras in all fifty states. They’re designed to make the corporation a lot of money by employing poor people and keeping them poor. Kind of like Wal-Mart. Wal-Mart is Red China’s main outlet for slave-made goods.

Dixie says

I am wondering how this impacts housing, including a potential shortage…

"Foreign Trade Zones (FTZs) were created in the United States to provide special customs procedures to U.S. plants engaged in international trade-related activities. Duty-free treatment is accorded items that are processed in FTZs and then reexported, and duty payment is deferred on items until they are brought out of the FTZ for sale in the U.S. market."

http://ia.ita.doc.gov/ftzpage/tic.html

FTZs are the opposite of communist, and the wingnut chainletter you've posted is the typical crackpated bullshit this nation is stewing in.