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Thursday, June 01, 2006

A Snapshot Of RE Realities In 2006

This article about the Stoneybrook division in Florida, around Venice, gives an accurate snapshot of conditions in many formerly hot markets in which major developments went up in the last two years:
In November 2004, when the first Stoneybrook homes were sold to "lucky" lottery-winning buyers, it was standing-room-only, recalled Re/Max Realtor Greg Sheller.
...
The day the music stopped was about eight months ago, and now some investor/owners are scrambling for a chair.
...
The investors, now would-be flippers, are expressing their confidence and staying power with a blizzard of for sale signs at home after home.
...
A property that US Home sold last year for $440,000 or substantially more can now be bought for about $390,000.
...
Jennifer Roemer, a Re/Max Properties agent who has two homes listed on Dancing River Drive, says her sellers would be happy to get out at $359,000 for homes they bought for about $315,000 in the first auction in 2004.
With only 250 of the planned 900 homes built, it's hard to see how things can get any better for several years. That 10-20% cut in pricing is going to put those who purchased in 2005 deep in the hole. And if an investor bought a home in 2004 and can only sell it for a $45,000 profit in 2006, between sales costs and carrying costs, they are going to take a loss. Note the individuals would be happy to get out for $360,000, so that means they are going to continue to place pricing pressures on new home sales. I would bet that some of the builder sales offices are offering similar discounts.

Similar scenarios are playing out in developments (especially condos) in Virginia, the DC area, Arizona, Nevada and hunks of California, and in various cities around the nation. Nearly all of this is caused by widespread speculation in housing. As the resets of adjustables and exotics begin to cause more problems, the downward pressures in pricing will be reinforced.


Comments:
Maybe time to go in and make some offers-especially on the condos.

I would normally shy awat from residential, but if 'immigrants' get some kind of paperwork, look for lots of them to move out of the lower end barrios and move up to decent neighborhoods.
 
MOM;

"Similar scenarios are playing out in developments (especially condos) in Virginia, the DC area, Arizona, Nevada and hunks of California, and in various cities around the nation. Nearly all of this is caused by widespread speculation in housing. As the resets of adjustables and exotics begin to cause more problems, the downward pressures in pricing will be reinforced."

Good. I've been sitting on a 700+ Credit Score, VA loan eligibility, and 20 years in the maritime industry, renting the whole time, since I did not want to buy into the Big Bandwagon as it hurtled over the cliff.

Once it crashes, there'll be some choice pickin's amid the wreckage.

As a lower-grade, lower-paid, enlisted Marine, a roomie and I would occasionally fly up to Vegas,(he was a private pilot), and it was there I learned how to beat Vegas...hit the pawnshops and used car lots...casinos are for rooms,eating,drinking and shows.

Cash in on the misfortunes of the suckers.

What would concern me is if the real estate crash gets some kind of government election-year "rescue".

One wonders if we would have had the "Drive-Thru Mortgage" phenomenon had the Feds not bailed out the Savings and Loan Industry from their shipwreck...

Regards;
 
Bilgeman, wait at least a year in most areas. You can be secure in the knowledge that your day is definitely coming and that you will reap the rewards of your financial acumen. The downward curve is accelerating right now. Furthermore, the regulators are supposed to be releasing a new mortgage risk management guidance this summer, and depending on the details, that could have a significant drag effect. The effect of Fannie Mae's and Freddie Mac's troubles haven't had time to percolate through the economy either. We will know that most of the hit has been felt when funny-money loans are much harder to get.

At that point you will be an eagerly sought-after credit customer. Right now, sad to say, the less-than-sterling customer is the target market. There is little profit in traditional mortgages and a great deal (theoretically) in the funky loans to funky borrowers. This will not end until investors refuse to buy those mortgages.

There is absolutely no way for the government to bail this out. None. The numbers involved are immense. We are talking at least a trillion dollars in mortgages that appear to be shaky by historical standards. We all need to pray that the economy remains as strong as possible.

SC&A, some areas continue to go up. Real estate, like politics, is always local. But almost any area that has seen big run ups appears to be in trouble. There is a remarkable synchronization around the countries in the high point, which was July-Oct of 2005.

I think there will be plenty of opportunities in a year or two. You haven't seen the worst yet. Latest figures are that 6 out of 10 households with more than one home have more than 2 homes! Figure that in the next two years they will probably be selling one of those, and figure in the foreclosures for the next two years plus all the new housing coming on line. 15-20% less demand, 10-15% more supply = prices trending down.

It used to be that some illegals did buy homes. Now you have to have residency, but I'm sure that some are slipping through the cracks. One thing about most of the SA immigrants is that they save money, so they are some good modest-housing prospects. But against that you have the ugly reality that in most areas it is the lower-end homes which are seeing the WORST declines. This is because the incomes of the lower third of the population are consistently dropping. I don't see a substantial boom for that segment in the works for at least five years.
 
You are absolutely correct, re SA's as savers.

Mark my words, if they get papers, they are movin' on up. For the most part, they'll make bigger down payments, will keep their credit spotless and will be more responsible consumers and shoppers.

In other words, they will come to resemble Italian, Jewish, Asian, etc., etc., immigrants.

Persdonally, I think that's a good thing.
 
MOM;

"There is absolutely no way for the government to bail this out. None. The numbers involved are immense. We are talking at least a trillion dollars in mortgages that appear to be shaky by historical standards. We all need to pray that the economy remains as strong as possible."

I hope you are right, but I seem to recall the groundswell of "We HAVE to DO something!" over the S&L bailout.

The fact that this can be pitched,(and with some truth), as hundreds of thousands of VOTERS losing their shirts, if not their homes and hearths, would seem to me that this would be ripe for demagoguery and a BIG fat RTC-style government bailout.

Which means...that the safety net gets emplaced to mitigate the consequences of foolish decisions for the most politically powerful segment that would be affected.

And so the profits are privatized and the costs are socialized, and 10 or 20 years from now, we get to clean up after the same ilk of speculative lemmings.

Y'know, Panama City is well on its' way to looking a great deal like Hong Kong.

Just sayin'
 
Bilgeman,
Remember that many of those who will go under bought their houses with interest-only mortgages, or with adjustables in an era when they could have gotten a 6-6.8% fixed-rate, and some even went the neg-am route. The ugly truth is that many of these people were speculating in the purest sense of the word.

Some did not realize it, and many got bad advice. I have some trouble reading these sob articles about people who bought a two years ago on an ARM being shocked when their payments rose, though. I'm in the business of automating the required disclosures for these types of things. They all received paper work which told them what could happen. Negative amortization is a required disclosure. Sample rate rises are a required disclosure. Balloon payments are a required disclosure.

They knew - they just thought it wouldn't happen.

Do you think the LA, TN, KS crowds with the 30 year fixed-rates are going to sympathize with the person who felt they just had to buy that second condo in San Diego with an interest-only? No. And we shouldn't bail them out.

I say, let the savers win. I'm all for providing assistance to those who got wiped out in hurricanes or other disasters. (The first time - if you rebuild the house, this time the disaster goes on your dollar.) But when you start to try to preserve people from their own dedicated foolishness, you only create more fools.

Don't forget that many people ran a profit on this bubble. Certainly banks, realtors, builders and finance companies who participated (many didn't) made big bucks. What you are talking about is the worst kind of incentive system that any government could ever devise. If you hit it right, you make tons of funny money. If you hit it wrong, you claim injury and ask for reimbursement. Every person in the US would be at the gambling tables with that kind of a guarantee.

If it comes to that, Bilgeman, I'd rather legalize 20 million immigrants who would save and invest wisely. They'll be able to buy a lot of cheap condos soon, and they'll live in them and take care of them.

I'm not meaning to be harsh here, but it is time that we woke up and took reality seriously. The banks are going to take a hit. Some of the mortgage brokers are already going out of business. The developers are now losing their deposits because they are walking away from land deals. The investors who bought some of these deals or who invested in high-return RE trusts are getting a wake-up call.

t's time to let it happen. If you don't, the next bubble will be so massive that it will trigger a massive depression.
 
MOM;

"What you are talking about is the worst kind of incentive system that any government could ever devise."

And has this not been the case with all too many of the policies that are prefaced with "Public-" over the last generation?

"Do you think the LA, TN, KS crowds with the 30 year fixed-rates are going to sympathize with the person who felt they just had to buy that second condo in San Diego with an interest-only? "

I agree with you, no, they aren't, and no they shouldn't.

But its' not going to matter how the yeomanry of LA, TN & KS feel about it, either.

Lots of candidates can afford to lose those 3 states and still win the White House...

Remember the 3 or 4 "Floods of the Century" in the Midwest in the early and mid -90's?

Folks were told to move their damned towns. No one told Californians or Floridians that...nor even New Orleanians.
Uncle Sucka vomited forth the money in lavish amounts.

And that's what will happen again.
Mark me words.
 
Uncle Sucka vomited forth the money in lavish amounts.
And that's what will happen again.
Mark me words.


"MORE BREAD!
MORE CIRCUSES!
MORE BREAD!
MORE CIRCUSES!
MORE BREAD!
MORE CIRCUSES!"

 
But this time, the money's run out. That 2.77 trillion dollar federal budget has no room in it. To grant this, you have to take public funds away from a lot of other people.

When it's not a matter of distributing bread or holding circuses any more, but a matter of redistributing the circus tickets and moving someone to the front of the bread line, abruptly a public outcry arises.
 
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