patrick.net

Is Zillow on the ropes?

Does anyone have a C-Suite contact at Zillow?

ZipperTits says

No. It isn't disingenuous because investor lending costs has to be deducted from that income.

True, one way or another, the buyer has to carry the cost of buying the house.

There are two sources of income from owning a house:

1. getting rent (or avoiding paying rent)
2. land appreciation (the building itself always falls in value over time as nature rots it away)

If the land is not appreciating, then the only income is the rent. If that rent does not cover the expenses of owning, then it's a loss.



In this case, the rental income from investing in the house is 26101 / 1619785 = 0.016, which is 1.6%

If the land is not appreciating, it's a bad investment because that's a shitty return.

Income from land appreciation is just parasitical sponging off of the need for others to be in that area for work, as Henry George documents so thoroughly in Progress and Poverty.

Parasitical sponging off of others' wages worked as long as California was growing, but now that it's not, that unearned income from owning land without doing work cannot be counted on. This is very interesting. What happens now?

Banks are going to find that most of their loans are underwater, and people who had "money in the bank" are going to find it hard to get that money back, since the bank literally doesn't have it anymore, having lent it out to borrowers who then lost it.

The Fed will probably once again buy up the bad loans by money-printing, but this is inflationary, and everyone who owns dollars will find that they are footing the bill for banks that made bad loans and borrowers who overpaid.

I suppose that inflation will buoy the house price to some degree, in effect transferring wealth from responsible savers to irresponsible buyers and lenders.

Patrick says

ZipperTits says

No. It isn't disingenuous because investor lending costs has to be deducted from that income.

True, one way or another, the buyer has to carry the cost of buying the house.

There are two sources of income from owning a house:

1. getting rent (or avoiding paying rent)
2. land appreciation (the building itself always falls in value over time as nature rots it away)

If the land is not appreciating, then the only income is the rent. If that rent does not cover the expenses of owning, then it's a loss.



In this case, the rental income from investing in the house is 26101 / 1619785 = 0.016, which is 1.6%

If the land is not appreciating, it's a bad investment because that's a shitty return.

Income from land appreciation...

What seems weird to me, is that, what if I only have $50,000 of my own $$ invested in the house via down-payment? The return is pretty good, no?

GNL says

What seems weird to me, is that, what if I only have $50,000 of my own $$ invested in the house via down-payment? The return is pretty good, no?

You're talking about leverage.

Leverage works both ways. If you bought that house for $1,619,785 and the house goes down in value by 50000 / 1619785 = 3% then your $50,000 is gone.

It's very much like buying stock on margin. You can borrow to buy stock, up to a point, and you may increase your returns that way.

Or you may increase your losses.

When you buy a house, you're also buying the risk that the price of that house will decline. The amount of risk you assume is inversely proportional to your downpayment.

A small downpayment is a big risk.

I suppose the whole game comes down to how much the Fed is going to bail out land owners and the banks at the expense of people who own dollars when land values fall.

Patrick says

It's very much like buying stock on margin.

My current house was bought on my MIL's margin account I had her set up. We're up at least $150k with no money out of pocket to purchase.

I can pretty much get any house I want in flyover country. MIL is an alcoholic now with other issues, so a bit more difficult to convince here to loan. My SIL also is currently fucking her over trying the same thing with a kitchen remodel. No new kitchen yet. $50k she borrowed. So done with family.

Lowes is at $200. Its 52 week high was $263.

It was $125 in early 2020 before the COVID pandemic crash. It likely may bottom (again) within the range of $160 to $180.

.

Patrick says

I suppose the whole game comes down to how much the Fed is going to bail out land owners and the banks at the expense of people who own dollars when land values fall.

The only thing that limits the Fed is the threat of popular revolt as inflation keeps rising.

https://finance.yahoo.com/news/housing-worst-time-to-buy-151827122.html

Yahoo Money Housing expert: ‘This might be the worst time you could buy’

https://www.barrons.com/articles/the-housing-market-is-in-recession-what-it-means-for-home-buyers-51661617521

The Housing Market Is in Recession. What It Means for Home Buyers.

https://techcrunch.com/2022/08/28/burn-baby-burn-real-estate-focused-fintech-startups-feel-the-heat/

https://kunstler.com/clusterfuck-nation/the-wild-west/

The Fed Chair, Mr. Powell, said all the parts out loud at the annual Jackson Hole banker meet-up last week: look out below, we’ve decided to take this sucker down (in the immortal words of George W. Bush), since pretending to stoke prosperity via Modern Monetary Theory only results in, duh, ruinous inflation. This raises the question, though, as to which is more politically damaging: inflation or depression? It is really only the difference between having plenty of worthless money or having no money at all.

https://www.deseret.com/utah/2022/8/26/23323488/housing-market-home-prices-house-rich-cash-poor-bubble-recession-crash

They bought at the height of the housing frenzy. Now they’re ‘house rich, cash poor’

More price drops around Santa Cruz. Now, when that beach front 3,000 sq. ft. bungalow drops to 250K, I'm buying.

Ceffer says

More price drops around Santa Cruz. Now, when that beach front 3,000 sq. ft. bungalow drops to 250K, I'm buying.

Well, if it drops as you wish for, that will be 100,000 buyers betting on this same bungalow.

ZipperTits says

fake a dirty bomb attack

The whole fake epidemic was essentially a fake dirty bomb attack already.

https://finance.yahoo.com/news/us-mortgage-lenders-starting-bankrupt-191500850.html

ZipperTits says

Cap rate is collapsing for San Jose market.

This means an investor would get more ROI just by parking their dough in t-bills than buying and renting housing here.



https://youtu.be/IZ65sM01K6U

Disclosure: All of the above should be outright false according to the PatNet Real Estate 'expert' community.

A lot of misinformation and examples being thrown around IMO.

The housing market has been on the mend and dropping, no doubt about that. Will it continue to drop? Probably. By how much? It’s anyone’s guess.

This YouTuber said he has experience in commercial real estate while he talked about single family homes and calculated them based on cap rate. Then he compared Denver, San Jose and Pittsburgh cap rates. Why didn’t he use Detroit as an example and told everyone to buy there?

Which institutions do we know who bought rentals in Denver and San Jose markets with 1.6% and 3% cap rate? I’ve seen articles where they bought in suburban markets of Atlanta, etc…. With 5-7% cap rate a few years ago.

Also, these institutions borrow at COFI rate. It’s around 1.5% at the moment while Fed fund rate is 2.5-2.75%. Even commercial banks are still lending at 3.75%-4% for 5/1 ARM. It’s because their profit margin is 2.25-2.5% above COFI. This means they don’t foresee rates to remain high within the next 5 years. Follow the money. Be objective will benefit us.

ZipperTits says

Eman says

Which institutions do we know who bought rentals in Denver and San Jose markets with 1.6% and 3% cap rate?

The ones who bought in those markets. Was fine when interest rates were low. But not now when they are high.

Let’s wait and see the default rate. You’re speculating at the moment.

Banks don’t call loans due as long as payments are made. Have you seen the rate of rent increases in some of those markets. If they can command high rents, lower chance of them defaulting on the loans.

Quit being a dick. Be objective. Look at the data. Rising rents can service higher interest rates. These institutions are playing a different game with their borrowing cost unlike the little sheeples who have to pay higher rates.

Show where I said housing prices will not decline earlier this year. CA home prices have hit the max housing affordability index, which means the top is in. The question is how much will it fall. I follow data. I don’t talk out of emotions and say wishful 💩

This just hit the inbox. 7/1 ARM is 3.65% for owner occupant. 4.35% for investment. This is the reality like it or not.

What do you think will happen if the economy hit a bump in the next few years? If history is any guidance, the Fed will cut rates to 0% again. Rates will drop to the 2%ish again. It’s time to refinance and lock in that 30-year fixed then. Voila.

https://www.reddit.com/r/RealEstate/comments/x0ruq1/no_one_showed_up_at_our_open_house/

No one showed up at our open house!

My favorite response:
Same thing happened to me. My realtor was very, very optimistic. When we lowered the price it was like magic...people all of the sudden showed interest. Not hoards of people, but more than zero. Don't be bummed out however, if you still get people bidding under your new, low price. At least you'll be selling.

zzyzzx says

https://www.reddit.com/r/RealEstate/comments/x0ruq1/no_one_showed_up_at_our_open_house/

No one showed up at our open house!

Raleigh, NC: Black or African American (Non-Hispanic): 28.1%.

https://nationalmortgageprofessional.com/news/housing-market-inflection-point

Black Knight analyst says data shows clear signs that housing-price growth “tipped from deceleration to decline” in July.

Misc says

It should be about time for the Washington establishment to start expanding opportunities for generational wealth building. Especially for the marginalized members of society. I mean the Blacks fell for it under Bush's "ownership society". Mortgage brokers fell all over themselves to put Blacks into subprime mortgages that shot up in payments after a year or so. Sure, they made these products available at the height of the housing bubble when prices were stupid, but the mortgagees had "character". After the bubble burst, and by golly the mortgage payments that doubled just weren't paid; the Blacks were worse off than they started as a percentage of them as homeowners.

Think they will fall for government help again ????

Their track record ain't the greatest.

Looks like I called this one right. Bank of America trying to help out those landlords holding rental properties in Black areas.

So Real Estate prices should crash because of higher rates...time to get the Blacks to buy. So Bank of America decides that NOW is the time to make zero down payments available to Blacks. ---- You know they're gonna fall for it again.

I called this back on July 6.

https://www.bloomberg.com/news/articles/2022-08-30/bofa-tests-no-down-payment-mortgages-for-minority-communities?srnd=premium#xj4y7vzkg

https://www.reddit.com/r/investing/comments/x130fv/what_happens_when_major_firms_start_dumping_mbs/

What happens when major firms start dumping MBS?

OpenDoor taking another bath:
https://www.redfin.com/CA/San-Marcos/1481-Beechtree-Rd-92078/home/6311329

ZipperTits says

Emwe're.
ys

Let’s wait and see the default rate. You’re speculating at the moment.

Default rate has nothing to do with what I was talking about.

Stop the bullshit.

Have you ever witnessed any lender calling the loan due when the borrower is not in default? Bank would cut or freeze the line of credit to reduce risks. Banks are in the business of lending. The last thing they want to do is to call any loan due as foreclosing can get very expensive.

I’m not BSing. I live in the trenches and breathe this stuff everyday. I underwrite many deals to get one. I share real life experience in the hope people can learn from it instead of listening to fake news from the MSM.

As I shown in the quote above, 4.25% for 30-year fixed is available for OO housing in the Bay Area, not 5.5-6% as the MSM are touting.

zzyzzx says

OpenDoor taking another bath:
https://www.redfin.com/CA/San-Marcos/1481-Beechtree-Rd-92078/home/6311329

Personally, I think Zillow, Opendoor and the likes were playing the the WallStreet game and got caught. They were playing the “price to sale” valuation to drive up their stock so they got into the acquisition biz model rather than selling leads and ads, which have much higher profit margin.

To me, the more important parameters are growth and profit margin. Retail companies have profit margin in the single digit while software companies have profit margin as high as 50-70%. Price to sale ratio doesn’t mean much IMO.

https://mynorthwest.com/3612510/50-percent-seattle-home-require-price-drop-order-sell/

Half of Seattle homes failed to sell for initial asking price in July

https://www.realtrends.com/articles/anywhere-is-the-latest-real-estate-firm-to-make-layoffs/

Anywhere is the latest real estate firm to make layoffs

It appears Anywhere Real Estate is not immune to the housing market slowdown. A spokesperson confirmed that the company underwent layoffs last Thursday, but the number of impacted employees and their departments was not disclosed.

According to the LinkedIn post of a former Anywhere employee affected by the most recent round of layoffs, a “number of Talent Acquisition and Human Resources” were affected.

RE is pretty solid outside of a few hotspots. IL is a big nothing burger. For some reason CA and FL seem like places that it just goes up. Maybe it ends, but I'm not predicting that. Places like TX, MT, ID, NV, etc seem to have some really hot spots. Those might crash and burn at some point?

Alabama and Mississippi are my picks for the next hipster hotspot. Like Austin, TX or Boisie, ID. Not sure the cities though. Montgomery, AL is a pretty clean city. Birmingham, AL is a touch rough. MS I've explored very little. Went to my cousins wedding and that was it. Been on the Gulf there. I'd like to explore Jackson, MS and surrounding burbs, those with lakes.

WookieMan says

Alabama and Mississippi are my picks for the next hipster hotspot.

Huntsville for sure

https://www.politico.com/news/2022/08/31/housing-recession-economy-00054276

We’re in a housing recession