patrick.net

The Professor says

A lot of people are hoping for that change. My research in Co Co and Alameda County has shown rental price going up and inventory going down.

San Francisco Bay area and NYC rents have gone up largely because companies in these areas are the primary beneficiaries of the loose money policy: tech and financial firms. Also REO sales did not out number foreclosures and new delinquincies until the 2nd half of 2012, approximating a change from net reduction of habitable houses to (soon to be) a net increase. It takes time for the late 2012 REO's to be fixed up and marketed properly.

Maybe as more of these "previously not available to first-time homebuyers or renters due to defects in the house making it non-habitable, into something that is now available to the first-time home buyers and renters alike" will make rents come down.

I'm counting on the increasing supply, and making appropriate provisions. Whether nominal rents actually come down despite government money printing, that depends on how much money they print. I'm guess a 60% chance of actually seeing a nominal rent decline for a couple years, to the tune of 10-25% depending on market segment, similar to what happened between 2001 and 2003.

SJ says

Yes those Chindians with suitcases full of cash are driving out new first time home buyers from the RBA. I would need to make 500k plus to buy a decent home in the RBA radius of 100 miles!

Mostly dirty money if you ask me. Either from illegal child manufacturing overseas, or from white collar crime. So much for the American dream. The real honest people are chumps.

RentingForHalfTheCost says

Mostly dirty money if you ask me. Either from illegal child manufacturing overseas, or from white collar crime. So much for the American dream. The real honest people are chumps.

Most likely not. Depending on the market segment. The multi-million dollar single family market segment may involve some overseas official corruption money. The $500k range is attainable by the middle class over there working for American companies or even American embassies. A 1000 sqft condo in Shanghai or Shenzhen costs more than $500k USD. The typical new middle class there makes $20-30k USD a year but can save or pay $15-25k USD mortgage per person, more than double that for a working couple living together (i.e. as much as $50k a year in savings or mortgage payment, after needing only $10k a year to pay for everything else as a young couple living reasonably good middle class life), because they have very little taxes to pay and the cost of living besides mortgage there are very low; the house price to rent ratio there is somewhere between 500:1 to 1000:1. Obviously they expect double-digit annual salary increase to continue there, a belief that I think will be proven sadly mistaken. There are over 60 million people over there fitting that profile or making more. If the bilateral trade really can't balance in the years to come, selling houses, condos and timeshares as vacation homes to them may well help repatriating dollars . . . but for now sucking the even richer among foreigners into buying into the over-priced segment might burn the money faster.

thomaswong.1986 says

Reality says

IMHO, the Chinese buying in really expensive neighborhoods are making the same mistake that the Japanese made buying top CA and NYC properties in the late 80's and early 90's. Even 50% cash down can still be foreclosed, like how Mitsubishi lost every cent it spent on buying the Rockerfeller Center, and then some. Mercedes paid $80B for Chrysler, and a few years later had to pay to give it away!

Sorry R, no one every heard of it... i tried telling some the same 10 years ago..

all you get is blank faces.. they never heard of Japanese buying RE in NYC or

down in Monterey and getting taken to the cleaners...

LOL. Yup, most people have to learn their own lessons, the hard way, unfortunately . . . but very fortunate for Americans looking for a cushy retirement after consuming more than producing all life. It's a mystery why Mercedes still sells cars for dollars after giving what amounted to 2,000,000 brand new Mercedes cars to Americans for free! It's like their entire sales over two decades or more, not just profit but they had to pay for all the steel etc. out of their own pockets for the gift. Yet, the foreigners still do, both Europeans and Asians. We are just lucky, I guess.

Reality says

The net effect of investors is driving down rent and purchase price for habitable houses, as their action increase supply of habitable houses.

I have been in the business of fixing properties since I was in high school in 1968. I worked for one Real Estate company who owned tons of cheap stuff. Over the years i worked for some investors who only bought foreclosures, and our job was to make them bank financable. It was a pretty sweet gig.

We've done everything. Rot is one of my specialties. It's cheap, and easy to do, but people freak out at the sight of moisture ants.

I can attest that what you are saying is true. Many, many of these new investors are reaping profits today that are only adding to the housing supply. When you add in the new focus builders have for apartments it should add up to a ready supply of housing.

The other thing is that home buyers, or potential home buyers must be well aware that the job they have is tenious at best. Several people here in Seattle are on five year contracts for those high paying tech jobs. Many are willing to relocate if the price is right.

I kind of see renting as an alternative to buying if your job opportunities are greater when you are mobile.

Reality says

The typical new middle class there makes $20-30k USD a year but can save or pay $15-25k USD mortgage per person, more than double that for a working couple living together

Hard to accumulate 500K at that salary. If you don't have 500k to put down in the RBA then you are stuck buying a sugar shack and fighting hard to keep the rodents from stealing your groceries. A million here doesn't get you squat.

RentingForHalfTheCost says

Reality says

The typical new middle class there makes $20-30k USD a year but can save or pay $15-25k USD mortgage per person, more than double that for a working couple living together

Hard to accumulate 500K at that salary. If you don't have 500k to put down in the RBA then you are stuck buying a sugar shack and fighting hard to keep the rodents from stealing your groceries. A million here doesn't get you squat.

Don't forget to double that for married couples. If there are 30 million or more families capable of saving $50k or more a year, it only stands to reason that tens of thousands, if not hundreds of thousands, can save $500k or more a year. A few thousands of them showing up here is enough to result in what you see.

Also, let's keep down the hyperboles. The house that you are living in probably is worth less than $1M, and would take less than $300k down payment to make a very strong bid. There's no point trying to convince people that you are living in a rodent-infested house that ain't squat.

Forgot the more important source of legit cash among foreign buyers: when their own condos in Brazil, Russia, India and China are worth 1/4 to 1/2 million US Dollars each, having risen by 10 fold in the last decade, many of them can come up with half a mil, a mil or even a mil and half just by selling several of their own condos that they had bought for a total of $100k or so a decade ago.

Reality says

$50k cash now plus labor of 3-4 people over 6 months is probably worth more than
$200k borrowed at 3.5% over 30 years

Sorry, but a bathroom remodel and new fake-wood flooring does not cost $200k. Not even if you repaint the walls and vacuum the indoor/outdoor carpet before I move in. There's a reason houses like this sit when other flips that are more reasonably priced go pending in 5 days.

Reality says

it's the only way that the price discovery process can proceed efficiently

It's actually quite *inefficient*, since these house sit much longer. There's only one reason two flipper houses on my block have been sitting for 60+ days without selling, and it ain't because the thrice-a-week open houses weren't handing out enough popcorn and bouncy castle rides.

Philistine says

Reality says

$50k cash now plus labor of 3-4 people over 6 months is probably worth more than

$200k borrowed at 3.5% over 30 years

Sorry, but a bathroom remodel and new fake-wood flooring does not cost $200k. Not even if you repaint the walls and vacuum the indoor/outdoor carpet before I move in. There's a reason houses like this sit when other flips that are more reasonably priced go pending in 5 days.

Goes to show that buyers having the right of choice among several sellers is a good thing. Sellers asks too much, it doesn't get sold, just like any other goods or service.

Philistine says

it's the only way that the price discovery process can proceed efficiently

It's actually quite *inefficient*, since these house sit much longer. There's only one reason two flipper houses on my block have been sitting for 60+ days without selling, and it ain't because the thrice-a-week open houses weren't handing out enough popcorn and bouncy castle rides.

So why didn't you buy the houses several months ago when they were non-habitable, put in mahogney floors and then try to sell them at the same prices that you bought them? The point you are making makes about as much sense as accusing the local grocery store of pricing too high causing their food sitting on the shelves unsold.

Personally I don't flip houses, but if someone else wants to take the risk for a short term gain, I don't mind buying them out at a low price if and when they fail. The house would be in better shape than how the previous home borrower left it and how the bank maintained the house.

For some reason I'm liking Realty today, he's making a lot of sense.

In Spain, if you bought in after 1998 and sold before 2007 you quadrupled your investment.

Brazil ditto only a little later, and still selling today, Peru ditto, Mexico even has a little housing boom. Many Asian markets are good, and look at Vancouver BC for God's sakes.

The other thing is about the amount of flips that aren't really turning, but do add to the supply of housing. A couple of years ago it was a joke at the foreclosure auctions the number of repeats coming through. People bought, fixed, couldn't sell so sent them back to the bank that was stupid enough to lend on them.

More often hard money lenders ended up reselling failed projects.

;-) Thanks for the reminder to stay within the bounds of a friendly debate, 'cuz one never knows when two may agree on a different set of topics on a different day.

you just never know.

robertoaribas says

so what do you have to point to this made up contention?

It was referred to as flopping, it was pretty big news in the last two years.

robertoaribas says

that isn't happening at all. EVER.

You should explore outside of the Phoenix market place.

robertoaribas says

I guess that explains why both rents and prices have been increasing nationwide for the past 1 to 2 years

You are a Real estate sales person without a doubt. The trend is called an equilibrium and you have noticed it in your own market place. It's coming to a reality near you, very soon.

Prices, and rents are increasing because of equalibrium. Six years ago was the Real estate market crash so when you compare to that everything looks like it is moving up, but it's actually equalizing.

Get some working knowledge about Real Estate before you spout off about how smart you are. You are in the same place now as millions of investors had been thousands of times before. There is nothing to see in you pontifications Charlatin Sheets.

robertoaribas says

Reality says

The net effect of investors is driving down rent and purchase price for habitable houses, as their action increase supply of habitable houses.

I guess that explains why both rents and prices have been increasing nationwide for the past 1 to 2 years...

I guess, if you don't like reality, name yourself reality and make up your own!!!!

Do you always confuse correlation with causality like this?

Do you think rent and purchase price higher now than a year ago is because this winter we had much more snow fall across the country than the previous winter?

Do you not realize your own action is making previously non-habitable houses into habitable houses?

Whether that new supply translate into nominal price decline depends on how demand change at the same. However, if investors like yourself have not made previously non-habitable houses into habitable ones, rents and purchase prices would certainly be higher.

Homes in bay area are still unaffordable to 90% of single folks who do not make 500k a year salaries. I've been here 2 years and make good income but cannot see paying 75% of my salary to a home. Still way cheaper to rent an apartment than buy a condo here in bay area.

robertoaribas says

Reality says

Do you think rent and purchase price higher now than a year ago is because this winter we had much more snow fall across the country than the previous winter?

So.... when rent and price don't due what you expect... it is because of snow? Hey we had one day of snow in Phoenix, I guess that is why our prices are up 30%!!!

You sure it wasn't the meteor over Russia that has caused the EXACT OPPOSITE of what you say should happen, to happen?

That's exactly what I was asking you! Are you so dumb as to think snow is the reason why price went up this year? Do you think firefighters showing up at the house is the reason why houses burn down? Fire truck showing up and house burning down are two well correlated events. That's exactly the sort of confusing correlation with causality that you were engaging in by claiming investors fixing up FHA UI properties causing price to increase.

robertoaribas says

dipstick, the homes I buy may have been ugly, but they absolutely were inhabited. So, you get one more home as a rental or for sale, and one more family looking for a place to live... It's a wash.

Were the houses previously borrowable for a first time home borrower with near-zero down payment? If it did not qualify to borrow for those zero-down loans, then it was not part of the supply available to the typical first time home borrowers nowadays. Were the houses previously occupied just before you bought them? Probably not, then it was not part of the rent supply either. Your fixing them up makes them available for rent or purchasing by first time home borrowers. That's turning non-qualfied supply into qualified supply.

Besides, rents have gone up, so your claim that this process is causing rents to drop, isn't even happening at all.
So how much energy do I need to expend to disprove the cause of something which isn't even happening?

Downward price pressure exerted by one party in the market does not mean immediate price drop. It's like during Hurricane Sandy, someone brings gasoline from Upstate NY to sell in NYC at even $10 a gallon has the effect of putting downward price pressure on the local gasoline price, simply because it is valid supply purchased by people otherwise would have to bid up gasoline price from some one else.

What do you teach? Wholesale Airheads? Do you not think home builders cause prices to be lower than otherwise would be even during the housing bubble before the crash? Do you not understand basic economic supply and demand?

robertoaribas says

And, you manage to not answer anything I actually said, since obviously real analysis is too difficult for you.

What didn't I answer for you there? What kind of further insight do you need?

robertoaribas says

So how much energy do I need to expend to disprove the cause of something which isn't even happening?

The point is you haven't proved any cause, at all.

All you are saying is that buying today is a worse decision than it was a year ago.

You claiming taking on $200K in debt to save some rent money makes no sense.

30%? Wow, let me get a plane ticket to Phoenix Arizona!

We better start buying, buying, buying in Phoenix or be priced out forever!

Can you recommend a good Real Estate agent, maybe somebody that works part time as a teacher?

SJ says

Homes in bay area are still unaffordable to 90% of single folks who do not make 500k a year salaries. I've been here 2 years and make good income but cannot see paying 75% of my salary to a home. Still way cheaper to rent an apartment than buy a condo here in bay area.

Bingo! The only people buying in the Bay Area are investors or HOA 3.5% downers. The median household income in San Jose is about $78,000 but the average house is 500K plus. A 100K down payment is out of reach for most people that live here. If rent goes up so does the ability to save money and the instability of the market continues to rise without 20% down payments.

"Good advice for first-timers carrying student debt: Check out FHA."

lolllllllllllllll

The Professor says

I hope you only do that here on Patnet to vent your frustrations

...but not excluding nitwit , idiot , dipstick and so on ...mathmatical genius has proven to have unlimited human relationship skills beneficial to the goodness of humanity

http://www.youtube.com/embed/O4ne13Zft9Q&feature=youtube_gdata_player

robertoaribas says

Screw it. I think I'll delete my profile. The A-holes on here should have to buy a book to learn what I think. I've been right all along, I've made over a million dollars being right, it has been ALL based on mathematical analysis of the market, and frankly, I've been ridiculously generous to share my ideas in this forum, with too many idiots biting at my ankles all along. Enjoy this post, it is my last on here. Those that care to read me know where my blog is.

That is the funniest thing I have ever read. Like you are the first one to discover market timing. I also have been right every step of the way, own property, and have owned a lot of property, but I know it's over for the rest of my economic viability.

You followed a simple business plan that has made you another millionaire in the world of many millionaires. Now what?

Will you devote your life to building your portfolio, or brag about how smart you were, way back when, like a high school football star?

You've got nothing that most of haven't seen, or done a hundred times.

You should try to learn something, because learning is the Real Estate business.

The way I look at it, my job could get sent to India tomorrow and if I dropped my cash on real estate here and had to move across the country, then I'd be screwed. One guy at work left because he was unable to sell his home in the midwest after trying to relocate to the bay area. I figure save and invest few million than buy property in cheaper area works for me.

robertoaribas says

Enjoy this post, it is my last on here.

Don't be like that, Rob...

robertoaribas says

2. What argument do we have above? "prices and rents are dropping because of flippers adding supply." Prices aren't dropping, EVERY indicator shows this. So wtf? how polite does one have to be when faced with bizzarro world arguments?

That's not at all the debate that we are having in this particular thread. The debate is about whether first time home buyers are being outbid by investors (a hypothesis presented to explain why the percentage of first time home buyers are down, please read the thread title and the first few posts). My contention is that investors and first time home buyers are not likely competing for the same house (in the same condition) because the typical first time home buyer relies on zero-down government subsidized loans, which disqualify them from many houses with defects. If the investor were to compete against first-time home buyers for non-defect houses, the first-time home buyers are so well armed with government subsidized loans that the rational investor can not hope to win such a bidding war. The investors fixing up houses with defects actually increase supply of habitable housing and houses that the zero-down loans would qualify. That certainly puts a downward pressure on both rent and house prices. Whether that downward pressure translates into actual price drop depends on the demand situation, and was not part of the discussion. Whether that supply will bring down prices in the future is a prospective statement, and everyone has different opinions about the future, and mine was presented as a probabilistic forecast in one of my previous posts. 60:40 is not exactly a very strong bias one way or the other.

3. Homes that rent for TWICE a current mortgage are called "bad investment" by david and reality, and others. Just today I rented my last purchase for $86,000 (+8K in remodel) for $1100 a month, even though it isn't finished being fixes. taxes are 900 a year and insurance is 750, do your own damn math.... Sorry, if they wish to write things that stupid, they deserve to be called stupid.

Our shared investment sensibility also prevents us from offering bids on such a house to $150k or even $200k, like a typical first time home buyer would be able to do with government subsidized financing. So what's preventing the frist time home buyers snatching such houses ahead of us? Most likely:

1. The house, due to its condition, is considered "Uninsurable" under government loan insurance policies. i.e. the typical first time home buyers wouldn't be able to buy such a house without fixing it first. So in this case, you and I are not at all competing against the typical first time home buyers.

2. The local market is so full of people with broken credit records from the foreclosure wave a few years ago, there simply aren't enough first-time home buyers in the market. In that case, you as an investor is making vacant house into good livable houses that can offer a better value to prospect tenants than they can get from other landlords. If you offer the house at $1100/mo rent, it would have to be a better deal than their previous landlord and better than other landlords they are also looking at . . . in other words, you are providing a service to buyers of housing service, and putting a downward pressure on the rental price, which is highly beneficial to renters.

Yes, you are looking 10+% rental yield on capital, a percentage that is more than double the current borrowing cost. However, that is not at all "double the PITI on a comparable house" . . . because the PITI on a repaired house would be comparable to the rent; otherwise the renter is not likely to rent from you. The baker selling bread at 3x the cost of flour should not be mis-characterisized as making 200% profit in a few hours outbidding hungry people from buying flour!

robertoaribas says

5. Screw it. I think I'll delete my profile. . . frankly, I've been ridiculously generous to share my ideas in this forum, with too many idiots biting at my ankles all along. Enjoy this post, it is my last on here. Those that care to read me know where my blog is.

There is no need to under-value your own social value to the Phoenix community in buying up and fixing those houses, either. Just because you are profitable, doesn't mean you are taking it at the expense of would-be first time home buyers. On the contrary, you are repairing and maintaining houses so the typical first time home buyers can buy from you with their near-zero down loans or rent from you while repairing their credit history then buying from you in a few years. The houses would be left empty and become more dilapidated if investors like you don't buy them and fix them up, and the rents would also be higher if those houses stay empty. The first-time home buyers simply can not borrow against them as is, before repair is done; otherwise they'd have outbid the investor already.

SJ says

The way I look at it, my job could get sent to India tomorrow

Here in Seattle we have a lot of new arrivals for Amazon in particular. Many of those people are leaving houses behind either for short sales, or rentals.

Not too many people will just leave a house in foreclosure, because that has become a really drawn out process.

Which brings in our whoafully inadequate rental market which is in the process of being built up.

The stories about other Real Estate markets just don't live up to the hype in the National press.

Yes, I think job security is a big driving force in Real Estate. Some of the best jobs we have to offer here in Seattle are on five year contracts.

Boeing, today is very precarious if military spending cuts take out a part of the defense contracts they have.

Re: it's a wonderful life

IMHO, the real problem with Pottersville is market concentration, not renting house vs. renting money per se. Even as I landlord, I would support local ordinance that would ban concentration of ownership, such as a cap of owning no more than 10% of all houses in the same zipcode by any one individual, one company or related parties (unless the zipcode itself is brand new in the middle of nowhere and only has a handful of houses).

The competitiveness of modern rental market is reflected by the ridiculously low sub-5% or even sub-3% rental yield on houses during the housing bubble and perhaps even now in some parts of the country like NYC and SFBA. Such ridiculously low rent fee is due to rental market price competition driving owners into treating the house as zero-cost or negative-cost capital (i.e. guaranteed capital appreciation in the future), only collecting enough rent to pay tax, insurance, repairs and vacancy. The landlords wouldn't be doing that if not for competitive pressure from other landlords.

Plus if the continual budget cuts take place that will eliminate more government jobs besides private sector jobs. I'll just save and move to cheaper place once I have enough nest egg.

This is an interesting article about first time home owners that were students, and are now burdened with student loans.

I've always been aware of the debt aspect, but never really thought about it in terms of robbing the housing market of first time home buyers.

http://www.cnbc.com/id/100513344