I suppose it depends on the market, but in the parts of Sacramento that I would be willing to live in it seems not many listed properties would cash flow. I realize that Sacramento is not representative, just one bit of anecdotal something or other.
The stream of extremely bad news gives credence to the scenario of a U.S. collapse as predicted by Igor Panarin
as written in the English business and political propaganda paper The Wall St. Journal.
So a little bird tells me that Chinese New Year is going to be rather excepional this year. i.e. it will be of an extended duration and nothing (materially) is going in or out for that time. Has anyone else heard anything similar?
but we're only talking about the low end of the market at this point. theres lots of room for middle and upper end homes to fall before we get to a positive cap rate....
does anyone have any idea how much of the total mortgage debt outstanding is in the low end where investors are gathering?
Yep there has been some sells in my little part of the central valley of Cal. and then the house is repaired and put up for rent. These houses are in the 100k to 150k and not in bad areas, so you can make some money on the rent I guess.
jo6pac
FYI, I updated the Demand chart for Ventura County and added Inventory in to try and give a more accurate picture of current gap between prices of supply and purchases of demand:
First wrong thing: "when prices rise"... Nada until 2012 or later.
Second wrong thing: that most of these "investors" are not flippers. As per the loans I'm doing, most of the investors are not looking to hold but more than 1-2 years at most. That falls into the flip category.
I don't think the fix-up-and-rent business is exactly a killing! It is a lot of unpleasant work for a chance to make some money he hard way.
wally | 01.08.09 - 11:55 am |
I agree and this Isn't the bottom.
jo6pac
The race to the bottom continues.
I'm leaning towards the idea that its misguided investment.
Why? Because rental prices NEED to come down as there are more and more properties competing with each other for tenants..
So as an investor who figures they need to make 'x' (i.e. rental income that at least offsets mortgage costs) - but due to falling prices is only able to generate x-y in income.. (as rental prices fall) - their investment turns out to be (with the benefit of hindsight) not a great idea..
as with any investment - its better to buy at the bottom.. and I don't think we are there yet.
I see mild presence of speculators in the market in VC. They are using their knowledge of the market to buy low (trustee sales usually, sometimes REO) and sell at slightly under market price. Most of the deals appear all cash so I don't see them as a rash of foreclosures waiting to happen if the investors get it wrong.
An home investor by any other name is a flipper. It makes seems that the NFL team in Miami mascot is Flipper.
I actually do believe that a small percentage is in it for the cash flow. The others are buying as bottom timers and they will lose. And like Shiller says, these properties will come back on the market and push prices down again. That is exactly was an enormous oversupply ends up doing. Simple economics. Don't try to make it complex.
"So as an investor who figures they need to make 'x' (i.e. rental income that at least offsets mortgage costs) - but due to falling prices is only able to generate x-y in income.. (as rental prices fall) - their investment turns out to be (with the benefit of hindsight) not a great idea....
Gubbmint Cheese | 01.08.09 - 11:57 am | # "
Hence, Mr. Arnold has assumed some risk which justifies his current return. Sounds right-
Mr. Arnold is providing a very important service by taking unoccupied homes (ripe for further deterioration) and fixing them up enough to rent out. He's providing one of the most basic needs (shelter).
My sense is that it is hold and rent investors who will ultimately provide the price floor for many of the most savaged local housing markets. True, there's way to much excess inventory, but nothing to be done about that now.
Even if the flipper argument is valid, I don't see that it's much of a problem unless they are artificially elevating prices or encouraging the production of unneeded housing. Recent data seems to suggest this isn't happening.
These houses that are being kept off the market would simply be depressing the market further now, rather than later.
Monetary contributions have nothing to do with free speech. The First Amendment to the United States Constitution says that Congress shall make no law . . . abridging the freedom of "speech."
The problem is people believing money has due process in elections
An investor quickly becomes a speculator when the appreciation reaches a certain point. I'm sure that point is different for different investors cum speculators.
CR, doesn't that depend on whether these investors are real money or levered and if, as I assume, the latter, how they are financed? To some extent, if they are levered at all, inventory levels will be highly dependent on stable rent and vacancy levels...
"True, there's way to much excess inventory, but nothing to be done about that now.
Datahead | 01.08.09 - 11:59 am | # "
Perhaps one of Obama's stimulus jobs could be to have presently unemployed people tear down some of these properties, particularly the inefficient ones, the dilapidated one in Detroit, etc. Like junker cars that contribute much of the remaining pollution coming from autos, these need to be taken off the market permanently.
In the Sac area, we had rents go up right along side housing prices. Not as steep but it's still there. The problem is that there were no real increase in wages and once you take out the funny RE incomes, we're actually a little worse off (using MHI and CPI across the 4 counties).
So we have speculators coming in, picking up what will cashflow today, just barely. What they don't see is how they are basing ROI on good employment numbers, lingering elevated lease rates, and increased inmigration numbers.
Now that Sac is getting slammed, rents are going down, pop is heading down (it has been for 2 yrs but skyrocketing births made it appear very positive), and vacancy rates are going up as everyone doubles and triples up in rentals or heads home to mom and dad.
This is really bad.
Add to this every person I know who bought to "hold" is planning to hold until they can sell again for the 2005 price. The long term buy and hold folks are smart and have pretty much stayed away as they know the worst is coming and their cash will be king.
At the housing bottom (2010?), renting will be more expensive than buying but people will rent anyway because "buying a house is too risky". This will definitely benefit those who invested in rental properties.
I agree w/ CRs disagreement w/ the caveat that to the extent that "investors" are really "speculators" the rats will abandon the sinking ship at their first opportunity.
The only problem I have with the current cash flow valuation is that it is too optimistic. What happen to the investor you profile (Arnold)when rent start to slip further and further unless he is willing to keep a close eyes to multi-families doubling up in the future. We had that in the early and mid 90s. Would that cause further rents recrease since the supply side will be quite high?
Monetary contributions have nothing to do with free speech. The First Amendment to the United States Constitution says that Congress shall make no law . . . abridging the freedom of "speech."
There have been court decisions that disagress with your view. I also disagree with it. What's the difference between me putting a sign up in my yard, me paying for a billboard, me putting up a blog, or me cutting a check to someone else so they can do any or all of those things on my behalf?
IMO -- no difference.
The problem is people believing money has due process in elections It really doesn't matter whether you think money should be involved or not. It is, and that's never ever going to change (again, IMO). If you believe that it will never change, the only real solution is to make the money flow transparent.
how about the shrinking pool of qualified renter's?
It may work for a few months but all this will do is postpone the inevitable for a few months. And then the system will adjust it's predictions for recovery to the front half of 2010.
It was like this on the way up.....and will be on the way down.
Are today's purchaser's really flippers? Investment property purchases require greater downpayments and in most cases tougher uw scrutiny than owner occupied purchases. If today's have more equity than current owners how can they be considered weak hands? The real shadow inventory of homes is in the Mcmansions. They're overbuilt and illiquid. The only way to cashflow these properties are to convert into multi-family residences.
Nemo, this is all based on stories I hear (that are similar to the story in the Bloomberg article).
One of the key points is that investors will only buy at the low end - where the properties can cash flow.
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
stockdog42 writes:
Job losses tomorrow 700,000. Move the market or priced in?
I dunno. I'm watching the TLT. Money outta there goes somewhere. But bottom line, I'm watching spx support @ 885; if that holds, my "sense of the market" is that the job losses have been priced in.
"I agree w/ CRs disagreement w/ the caveat that to the extent that "investors" are really "speculators" the rats will abandon the sinking ship at their first opportunity.
Journeyman | 01.08.09 - 12:05 pm | # "
Perhaps we could say that investors are speculators with a business plan?
Snark aside, if we're taking the long-view in a 2-5 year severe recession/depression with massive defaltion in near term and massive inflation longer term, you have to hang on as an investor and hope that rents don't decline too rapidly (good luck) and that there is a body of people capable of paying rents at your price-point (the point where you either break-even or make money)--hard to imagine at 15%+ unemployment.
I'd say this is a tricky investment to say the least. I'm not sure I don't like the odds on the skinny grey #4 doggie at the track.
Below is an actual example of a recent WaMu loan mod with a 5-year $1 million bullet payment. This mod takes exotic lending to level I have never witnessed in my 20-years of mortgage banking. This makes a Pay Option ARM looks safe and cozy and puh-lease do not tell me this is great because it frees him up to spend money into the economy.
Banks offering and borrowers actively accepting this style loan mod will guaranty that the housing crisis stays will us for a long time to come. This borrower will lose his home in 5-years, I have no doubt. That is of course unless his house price goes up 100% AND great, low rate super jumbo money returns to the market so he can refi out of it - then again, many lenders wont even refi a loan that has had a previous loan mod done.
Property Value: $800k
Note amount: $1 million plus deferred interest
New Mod amount: $1.053 million
First TWO years rate/payment: 1% and $878
Third year rate/payment: 3% and $2633
Forth year rate/payment: 5% and $4389
FIFTH YEAR PAYMENT - THE BULLET: ALL OUTSTANDING BALANCE DUE AND PAYABLE
All rights to future predatory lending claims waived.
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama | 01.08.09 - 12:11 pmM/i> At least that would give all of the unemployed builders something to do. Sounds like a plan!
So if prices and rents continueto drop these properties no longer cash flow and can only be sold at a loss. If prices and rents stabilize or rise they cash flow and can also be sold for a gain. It's difficult to know what percentage are buying for cash flow and what percentage are buying for appreciation, and on top of that we can't say whether either group is right or wrong in their expectations. My guess is that prices and rents have further to drop with unemployment expected to rise from 8-11% depending on who is guessing and wages for those with jobs stagnating or falling.
Calculated Risk writes:
One of the key points is that investors will only buy at the low end - where the properties can cash flow.
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
what's that memory ringing in the distance ? Oh yeah, TA theory. ..... nevermind. .... please ignore the man behind the curtain.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama
very good point. In fact this is exactly what happened in Baltimore for many of the old classic victorian homes. Seven bedroom homes got sliced into 3 and 4 unit apartments. However considering that new homes are made out of pressed-cornflakes I doubt we'll see many mcmansions 10 years from now. I guess that makes them bio-friendly?
One possible scenario of this dopwnturn could be the ghettoization of Suburbia. In that case, reconfiguration of former McMansions is inevitable, and logical.
"Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama | 01.08.09 - 12:11 pm | # "
When I was little, the year that Kennedy and the riots took place in B'ham, we lives in an old Victorian home in the South Side of Birmingham, AL. It was full of large, beautiful homes that were being rented to poor folks like us, and to groups of college students. Eventually many of them were torn down and replaced with housing projects. That's sort of a parallel to the McMansions of today, except that they nicer homes intheir day, and build a lot better.
I agree with CR. It's the high priced homes that have the furthest to fall in the future. No equity, stagnant or declining incomes means that the low end housing market will stabilize long before the middle to high end. Lots of supply and limited cash to fuel demand.
As an investor whom bought a wreck of house that had been foreclosed on in 2001: If I sell now, I do not even break even. If I had sold at the top of the market I would have made a nice profit. Unfortunately between the cost of getting the place to meet city and state rental property requirements and minimizing liability AND a spate of foreclosures in the same neighborhood whom had a spate of foreclosures in 2001....it is all about break even and a tax shelter at this point.
--
If the homeownership rate is declining then we can surmise that lot of foreclosed homes are being bought by speculators who think of themselves as investors. There is one fatal flaw in their logic -- rents wouldn't fall much, or not at all.
The real surprise in housing would be double-digit declines in rents in most parts of the US some time in late 2009 or early 2010.
As an aside, most of the Scam Lovers are speculators, but think of themselves, as certifiable dopes, as investors. These dopes don't even know the definition of the term investment.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Personally, I've been thinking "...Hollywood needed new ghost towns for future movie settings", but it would be nice if President Obama is more practical.
Even if CR is right, then there are relatively few "investors" on the California coast. There really aren't many places I know of where you can buy distressed property and rent it out at anything resembling a positive cash flow. Down in the outer, grungier reaches of San Diegto metro, maybe. And maybe on the far bubbly fringes of the SF Bay area. But as Deflationary Jane said, rents in those areas are likely to fall with the economy.
Restrictive zoning in exurbia will severely limit the reconfiguration of McMansions into multi-unit homes. There's really just not enough buyers with income.
saw three customers yesterday...the first has a $1,400,000 home in Newport Beach...they are moving to Phoenix and not selling or renting their current house...he works as a manager for a large company and his job location is "
on the net" thus, they can live anywhere....
the second customer has two houses in Ladera Ranch...he is moving from one house to his rental house and is going to rent out the house he is currenly living in......per Zillow he is 25% underwater in his current house.......
the third customer is a retiree, who finally decided to sell and is resigned to losing forever that $150,000.00 he coldhave had if he had sold in '07......
I am hopeful for my moving business that the retirees start selling again as they made up a 1/3 of my business prior to the Crash.....
because so many home have been purchased by speculators/investors the Rratio of Home Sales to Professional Moves is completely out of whack........
Focus on supply and demand, people. When supply greatly outstrips demand, prices will fall. Just like with apartments, if the number of available home rentals greatly outstrips supply, rents will continue to fall making cash flow, no cash flow. Overbuilding is overbuilding. Mass overbuilding kills markets for a very long time. The majority of people will get crushed until supply and demand meet equilibrium. Better lose the contraceptives, people. And make new jobs so the situation will change eventually. Too many homes causes too many problem whether they are "rentals" or not.
Down in the outer, grungier reaches of San Diegto metro, maybe. Bob Dobbs | Homepage | 01.08.09 - 12:18 pm | #
Good point Bob. You couldnt pay me to be a landlord in National City or Logan Heights. No f'in way to dangerous for the return... One of the examples of a positive cash flow that CR gave a few months ago was Oceanside. I dont know what part of town it was actually in but theres a lot of land up there I'm not touching with a 10' pole either....
I've always found the distinction between speculators and investors to be based on whether the author wanted a perjorative term or a laudatory one. Except in the case of short selling (can't be investment, thus obviously speculation), and perhaps equities with no hard assets, no dividends and no profits, mostly I see no difference.
With real estate, transaction costs are so high (and currently available leverage is lower than the usual 20:1), that I find the notion of calling someone who puts up cash and takes possession a 'speculator' odd indeed.
this brings back another point made many and long ago as we posited the outcomes of housing decline coupled with economic melt-down. As house-holds become distressed they will consolidate, lessening total demand, increasing inventory. Two, having talent be immobile (because either you cannot sell your house, or you do not have the resources to move) will impact businesses that seek specialized talent--but cannot acquire them. This has huge implications down the road.
Restrictive zoning in exurbia will severely limit the reconfiguration of McMansions into multi-unit homes. There's really just not enough buyers with income.
That's one of ther reasons I said "if things get bad enough." Currently, no, but if things get bad enough, counties and municipalities would rather have something producing some form of income rather than sitting idle and rotting. Those zoning restrictions could quickly be reworked if the situation warranted it.
Who: The Rowan | 460 S. Spring Street | 5th + Spring Los Angeles
What: The Rowan is conducting a one-day only Grand Opening Auction. 79 Luxury Lofts are being offered in a unique simultaneous auction that allows for total transparency, no hidden reserves and ultimate buyer flexibility.
When: On February 8, 2009 at 2 pm.
Where: On the ground floor of the building.
Why: In light of the current credit issues facing the financing industry, the developers lenders have mandated that approximately 50% of the building be sold before any escrow can close. Todays financial demands are creating the opportunity to buy at historically low prices.
Thanks BH. I hadn't realized I snarked or do I just need more coffee?
The one other thing that hasn't been mentioned yet is that a community full of NOO (non owner occupied) often reverses any stabilizing affects. High turn arounds are coupled with elevated crime levels(property and personal). Remember, renters are highly mobile and have a habit of voting with their feet if they don't like your business model, no matter how good it looks on paper. Those neighborhoods can still turn on a dime so investors there can go from smart guy to penniless guy to slumlord pretty quick.
To me this seems like common sense but then I hang out with Sociology PhDs .....ymmv.
I think there are more of Shiller's 'speculators' than CR's 'investors' out there these days.
Sure, they'll rent for some cashflow, positive or negative, but that's not the point, nor is depreciation or sheltering income. Price appreciation is the goal and the houses will come back on the market whenever prices rise again.
To me this seems like common sense but then I hang out with Sociology PhDs .....ymmv. \t Deflationary Jane | \t \t \t \t01.08.09 - 12:24 pm | # DJ, where are you these days? You still in the UC system, or did you make your escape as you seemed about to?
BTW, I think Shiller and Stiglitz are being a bit self-serving by misrepresenting the real problem here:
The problems we've had in recent years aren't the speculators per se - the speculators only become a problem when empowered by easy credit or when they are protected from losses caused by risky behavior.
Humans are risk seeking and overly optimistic by nature. It's counterproductive to have national institutions that actively encourage and reward risky behavior and then blame humans for being humans.
I think we're going to spend a long time looking for culprits everywhere except in the mirror.
(I give Shiller a bit of a hard time now simply because he's tried to suggest rate cuts aren't a contributing factor to speculation despite the fact that rate cuts are the primary focus of every speculator on Wall Street and frequently result in immediate and violent responses by the market. In many cases such as 1927, 1998 and 2007 they instantly reversed the course of speculative markets.)
Until then, the moneyed interests outweigh the individual voters. Politicians will be bought and sold to the highest bidders and the people will be the serfs to the wealthy few. Nyet democracy. Viva la aristocracy.
Even if the flipper argument is valid, I don't see that it's much of a problem unless they are artificially elevating prices or encouraging the production of unneeded housing. Recent data seems to suggest this isn't happening.
These houses that are being kept off the market would simply be depressing the market further now, rather than later.
ac | 01.08.09 - 12:00 pm
Agree. Recourse for tenants who decide to rip out your 1960s copper plumbing and large guage wiring and sell it for scrap along with all your fixtures...well, yes, what you said.
Markar writes:
Investors picking up great "deals" are finding the rental market is soft and declining due to a flood of SFH for rent. A deflationary feedback loop.
Markar | 01.08.09 - 12:27 pm | #
I ran into this renting out my condo near a large university. I could only get 90% of what the market rate was before the crash. I suspect it's lower now.
Good boy CR. You not only win the biscuit but you get the whole tin.
Given the severe tightening in lending standards, one could argue that whatever is being purchased today is in strong hands.
The people I know are buying for investment cash flow or are moving up and buying McMansions at 25 to 40% under replacement cost. The latter intend to live there for at least 5 years plus.
I agree with CR. I don't think there are any flippers around anymore. Why would anyone buy to flip while the Case-Shiller index is still plummeting? Prices need to stop falling at double digit rates before they increase. Surely anyone would agree with that. House prices are not stocks. They don't turn on a dime.
Those neighborhoods can still turn on a dime so investors there can go from smart guy to penniless guy to slumlord pretty quick. Deflationary Jane | 01.08.09 - 12:24 pm | #
The inside scoop is the three teens are "home schooled" renters in an otherwise OO neighborhood who went on crime sprees during the day when most people were at work. They burglarized dozens homes over the past several months, and the police only took action when a neighbor witnessed a burglary and they were caught in the act.
Many Elk Grove neighborhoods are seeing this kind of crime, and the "investors" are so desperate for cash flow they're not screening renters at all as long as the Section 8 check clears. I don't see it getting better any time s
CR,
3 categories of buyers if you will
1) Flippers - purchase based on expected future value
2) Investors - purchase based on present value
3) Residents - purchase based on user value
As mentioned already, 'Arnold's investment is contingent on rental prices not falling too much. What is important now has almost nothing to do with strong or weak hands.
All that matters for a long time is inventory. A surplus of empty homes demands falling prices.
"The people I know are buying for investment cash flow or are moving up and buying McMansions at 25 to 40% under replacement cost."
So, what you are saying is they are buying McMansions for 25% to 40% off actually construction costs? Replacement value in my mind is the cost of construction of a new identical house these days.
100K for a unit that brings $950/month is speculation not investing. The cap rate on this is nowhere close to 10%.
one has only to do the math here. with 1 in 10 rental units vacant, these units are being added to the rental rolls. real rents will be declining.
for this rentier effect ot become positive, investors are going to have to be able to finance units -- there isn't enough cash-only to soak up the excess otherwise. so run plausible numbers on investment property 30-year fixed -- is there still healthy positive carry when rents decline 10%? 20%? that's what will determine whether these are strong hands or weak.
my view is that there probably isn't. on mr arnold's property, cheapest possible finance on 20% down (if you could get a loan) would result in a $550/mo mortgage payment. throw in taxes and maintenance, and you aren't making much carry at $950/mo. at $800, you'd be wishing to sell -- at a loss, natch.
no bottom here. strong hands that will be getting weaker.
CR is right on the money I also by good but beat up properties, repair them and the rent for cash flow. The value rise is not important to me in the long run. I pay cash and when the profit pay back then consider selling to a good renter and finance it for them. So far great return.
Until then, the moneyed interests outweigh the individual voters. Politicians will be bought and sold to the highest bidders and the people will be the serfs to the wealthy few. Nyet democracy. Viva la aristocracy. rps | 01.08.09 - 12:27 pm | #
I don't necessarily agree or disagree with your position.
I'm just being pragmatic....... attempts to drive money out of politics just drive it underground instead. I'd rather have bright light shown on it. At least then the voters can make an (more) informed decision.
sportsfan writes:
Sure, they'll rent for some cashflow, positive or negative, but that's not the point, nor is depreciation or sheltering income. Price appreciation is the goal and the houses will come back on the market whenever prices rise again.
To follow up on this, I don't think we've really had enough time to wring the "speculator mind-set" out of our psyche (present company excepted, natch). Still too much frantic scurrying, looking for the quick buck.
Only when everyone thinks buying a home is a boneheaded notion, and none of us are even posting about home prices will it be time to become an investor.
"Only when everyone thinks buying a home is a boneheaded notion, and none of us are even posting about home prices will it be time to become an investor.
blueridge"
Trust me, we will always be posting about home prices.
" new homes are made out of pressed-cornflakes " -priceless!
faux-this, engineered-that; from structural beams to cupboards to fake finishes on everything, newly built houses (esp. the ones slapped up lickity-split during the peak) are esentially disposable goods
I've done renovations, and I've built from scratch; I wouldn't touch a mc-mansion with a 10ft 2x4
Shooting by Oakland, Calif., officer sparks anger
OAKLAND, Calif. Mayor Ron Dellums urged residents to remain calm after protests turned violent in the fatal shooting of an unarmed black man by a transit police officer.
What had started as a peaceful demonstration Wednesday over the Jan. 1 shooting of Oscar Grant escalated into trouble. At least three cars were set on fire, many other automobiles were damaged, and windows were broken on some downtown stores.
Police in riot gear threw tear gas to try to break up the demonstration. At least 14 people were arrested before the unrest ebbed overnight.
Grant, 22, was killed on a Bay Area Rapid Transit station platform after officers went there amid reports about groups of men fighting on a train. He was one of a small group of men taken off the train, and officers had made him lie face down at the time he was killed. Yahoo! 404 - Page Not Found
CR,
One error in your logic. House flipping was a profitable operation, so profitable that everybody thought they could do it and did. How did that pan out in the end? What's to keep the greater fools from rushing into the "cash flow" scheme? A bubble society, is a bubble society, is a bubble society. Lead and they will follow with a great thud to follow shortly thereafter.
You won't have sound housing market until it is no longer viewed as a cash cow, a great investment for your kid's college, a way to retire 10 years early, a commodity to bundle with other commodities to be sold up, etc. You seem to suggest that only the rational, sound, investor will be entering this "cash flow" scheme. To those of you who would suggest that only financially sound investors can even get loans for this latest great hope in housing speculation? Please, this is all we've got boys. We have no other plan but to reinflate. Obama has once again made that perfectly clear as he very clearly outlines the financial horrors awaiting our Nation while offering the same tried and failed solutions only this time to an even great scale.
A ship of fools, we are all onboard with a ship of fools, what's that make us?
Buying a house is smart, Clinton and Bush got that right. The Smart way to buy a hose was not practiced. Thanks a lot guys the debt and new taxes are going to kill us!
. . . . This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
I believe the buyers will be there, but only once the prices for "higher priced homes" become more reasonably priced.
What I'm saying is that the price differential between low end and high end will narrow in the future.
FHLBs May Fall Below Capital Minimums, Moodys Says (Update3)
By Jody Shenn
Jan. 8 (Bloomberg) -- The Federal Home Loan Banks face potentially substantial losses on mortgage bonds, and in a worst-case scenario only four of the 12 would remain above regulatory capital minimums, Moodys Investors Service said.
The FHLBs, government-chartered cooperatives owned by U.S. financial companies, hold about $76.2 billion of private- label mortgage securities that may cause losses under accounting rules, the New York-based ratings firm said in a statement today. Moodys said it is unlikely to lower the systems Aaa debt ratings because of their government support.
The U.S. may decide to put some of the FHLBs, the largest U.S. borrower after the federal government, into conservatorship or force them into mergers with others, Moodys said. At issue is whether declines in the market value of the mortgage bonds, totaling $13.5 billion on Sept. 30, will be deemed other-than- temporary impairments, and how much of the losses their regulator will see as irreversible, the statement said. http://www.bloomberg.com/apps/news?pid=20601110&sid=aeB5GL6uSr3A
Note that he thinks he can get almost the same rent for the $25,000 house (without mentioning repair cost) as the one he bought for $60,000 plus the $20,000 repair cost. Using his numbers on the $80k house his mortgage payment would be about $750 plus $166 minimum for taxes and $100 (in FL) for insurance. That's $1016 plus maintenance and less vacancy. Far from being a "cash c
as I ment'd last night mods are knocking off 100-200K off original loan amount in some circumstances..It was ment'd by friend who supplies mtg brokers rmcr's, he has seen the deals....
Energy,
That officer murdered the 22 yr old unarmed kid who was being held down by other officers...
people are getting pissed at the man...
also all you ron paul bashers cause me to chuckle as he has been the only one that has told the truth for 8 years...were all goofy in some way..but not all of are honest....
OT,
I have been focusing on SPX 885 as the "break the 1st rally" support line. It should be noted that the - no snark - "dire" employment data only moved the SPX a little below 900 for a very short time.
I am a SHORT TERM trader, I call rally.
Bon Chance The Market Ticker - Entries from Wednesday, January 7. 2009
Everyone turn your back on your government, do not acknowledge them, do not speak with them, do not give them your money.
Deliver the "black spot" and remove them from good society. Their conduct demands retribution from the code.
We have got to stop looking at the creative, smart, savvy guys at the top who are able to manage and make a comfortable living off of highly speculative and financially edgy schemes and instead protect the masses that try pathetically to follow. That is who laws and sound governance is supposed to protect, the teeming masses who should have never been taught to read so that they could never have such smart ideas. The smart guy will always be able to make a go of a winning scheme and work around any laws or road blocks along the way. Economic equality and access is NOT a goal any government should pursue as capitalism is destoyed by such a policy.
Here's a Charlie Rose interview from a couple of days ago, where Stiglitz recommends using the rest of the TARP to buy bad mortgages. He also said the distribution of the first half of the TARP was a "disaster".
As an old time income property investor, the rule of thumb was that the property should sell for no more than 100 times monthly rent. That allowed generally for positive cash flow if you made a 25% down payment.
I note that the Orlando home owner has paid less than that.
We now have a floor in prices, at least in Florida.
There was a paragraph in an otherwise unrelated Bloomberg article in early November, that one RE investement outfit (it was not named) bought 30 bn worth of Miami Condos.
I have met very few people in both my professional or personal life that make money from rental properties. Very few. Who are the ones that do? People who inherit properties from family members and people with no mortgage on them.
If you purchase a property with a mortgage you have interest, taxes, insurance, and maintenance expenses. Not to mention the opportunity costs of your downpayment.
Perhaps the biggest risk is collecting the monthly payments. Do you want to carry that burden in this recessionary environment?
The cheaper the property the cheaper the rent. Why? Because there is a direct correlation between prices and jobs (income.)
I have an acquaintance that just purchased a home in San Clemente for 700k. It sold for over 1 Mil in 2006, so he thinks he is getting a good deal. He paid CASH for it, yes cash. When I asked what he could rent it for he said he THINKS about 3,500 a month. That only equates to an annual rate of return of 6%. That is before Taxes and insurance and maintenance.
The "cash-flow" theory is the golden nugget that you never get to realize. It is just another scam people use to sell properties.
Forensic Economist,
i hope you implicitly meant that floor is on a foundation that has sunk in one corner such that everything is slowly sliding to one wall
it seems not many listed properties would cash flow
Means that real estate is still overpriced - by about 25%, minimum. Median income in Sacramento is about $50k. Median house price has dropped to $220k - still way too high. And if we see real deflation, median houses will need to go less than $150k.
I like the 100xrent for rentals. I'll try to remember that.
Sorry, but I am going to have to disagree with CR. Most of the people buying homes these days are "speculators", not "investors", for the simple reason that there are STILL very few deals that pencil out with a positive cash flow.
In other words, it is exceedingly difficult to purchase properties even after the recent price declines, that will generate enough rent revenue to cover expenses (mortgages, maintenance, etc). Worse, rents are falling in most of the country making it even harder to maintain positive cash flow.
I would contend that you CAN'T be an investor if the property you purchase has a negative cash flow, and seeing as how there are precious few of these sorts of deals occuring these days we can only conclude that most purchasers are nothing more than speculators.
There was a paragraph in an otherwise unrelated Bloomberg article in early November, that one RE investement outfit (it was not named) bought 30 bn worth of Miami Condos.
I just thought, who would do such a thing.
When you can borrow with a virtually asset-less LLC from the banks that already own $30bn of Miami condos
'Humans are risk seeking and overly optimistic by nature.'
Then I must not be human. My standard answer to "is the glass half full or half empty?" is, someone stole the glass years ago and now the water just splashes on the counter and runs off to feed an established black mold colony.
I invest like a grandma. It's a point of pride.
Deflationary Jane | 01.08.09 - 12:58 pm |
I've become that way (with my 401k anyhow) after some harsh real-world experiences.
FWIW it appears that the tendency to be overly optimistic is more than perceived:
Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. It is one of several kinds of positive illusion to which people are generally susceptible.
Repost for everyone that missed it 3 categories of buyers if you will
1) Flippers - purchase based on expected future value
2) Investors - purchase based on present value
3) Residents - purchase based on user value
As mentioned already, 'Arnold's investment is contingent on rental prices not falling too much. What is important now has almost nothing to do with strong or weak hands.
All that matters for a long time is inventory. A surplus of empty homes demands falling prices.
They're probably speculators THINKING they are investors. I'm sure buying properties and renting them out is appealing to a whole lotta people now looking for income possibilities. Why not buy low, rent it out, in "x" number of years your property is paid off, and voila. Easy street.
Only there was a story on our news today about a 19 yr. old tenant who just assaulted his landlord over late rent payments.
Once they see how difficult reality is, they're going to get out of it.
A lot of sellers around me are still aiming at speculators as their target buyer.
I was just looking at a nice building, excellent location. Built in the late 1960s, but the association is extremely well-run and all common areas are in top condition. They aren't shy about charging for it. Monthly assessments are high.
I see a number of people who have a unit for sale or rent. Example: A 2BR unit, asking rent of $3000 per month. If you wanted to buy it at their asking price (20% down payment), you've got monthly costs that will come in around $6000 per month. And that assumes property taxes don't go up next year.
Who on earth could they possibly think would fall for something like this? The only possible answer is a speculator that thinks property values are going to double by 2010.
"NPR informed me this morning that the problem with antibiotic-resistant bacteria was due to this recession. Apparently retailers like Wal-Mart are offering cheap antibiotics as a way of luring people in to the store."...
Total garbage...drug resistant bacteria are appearing due to a multitude of factors including overuse of antibiotics in feedlots, unnecessary prescription of same by doctors for minor ailments like earaches, failure of patients to follow antibiotic usage instructions properly, improper sterilization of hospital equipment, and others. To point the finger at Walmart is utter garbage.
"faux-this, engineered-that; from structural beams to cupboards to fake finishes on everything, newly built houses (esp. the ones slapped up lickity-split during the peak) are esentially disposable goods"
Planned obsolesence. Every siding manufacturer, faucet maker, cabinet designer's dream...
OT - Sorry to keep OT'ing, but since I've been so "rah-rah" cheerleading EEV over the past few days, wanted to say Sold all EEV @ 50.83, having bought Monday @ 46.16.
I do NOT like this volume - declining on a pullback is bullsih. I depends now how we close.
I think it was lawyerliz that mentioned yesterday a lady she was speaking to that delivered foreclosure and eviction notices was getting scared to do her job...Liz could probably post the details, I'm sure I'm forgetting part of what she said...
I think alot of the "investors" today are the type who went to a "rich dad, poor dad" seminar on wealth building and think that getting a rental at today's prices is the way to retire at 50.
They may intend to stay in it long term, but when the alleged "cash flow" is not enough to pay for the new roof, or the midnight plumbers visits, and appreciation seems further and further off in the horizon, they may bail.
::::::::::::âMost of the houses I buy are junkers, but with a little work they become cash cows," Arnold said.
Arnold is not a flipper, and according to the real estate agents I've spoken with recently, most of the recent non-owner occupied buyers are buying for cash flow just like Arnold.
Yes, these investors will probably keep price appreciation down in the future, but I'd argue a cash flow investor is a "strong hand" and I think they will hold the property longer than Shiller expects. - CR
I agree - I know folks who do EXACTLY this - buy wrecks, fix them up a little & rent them out at a significant positive cash flow. These guys were livid w/ the flippers over the last couple years - drove prices above the point where they could cashflow... and as we saw near the end the prices got so high they couldn't even flip. One of the guys I've talked to told me he stopped buying properties all through 2005-2007... early 2008 he finally found properties sufficiently cheap that he could once again make the numbers work. He was from SW Florida.
The only thing I could see making Shiller & Stiglitz 'right' would be if job loss was so high that rents were forced even lower - pushing the recent 'investors' in to a negative cashflow situation & then they too unload - looking like flippers & speculators even if they didn't intend to follow that path.
lendingmaestro "I have met very few people in both my professional or personal life that make money from rental properties. Very few. Who are the ones that do? People who inherit properties from family members and people with no mortgage on them.
If you purchase a property with a mortgage you have interest, taxes, insurance, and maintenance expenses. Not to mention the opportunity costs of your downpayment.
Perhaps the biggest risk is collecting the monthly payments. Do you want to carry that burden in this recessionary environment?"
you speak like a man with no rental properties. I have been buying rental properties for the last 25 years. They can and do make a positive income , but did have many years of negative returns. you have to look for the long term income which most people cannot afford, especially those property owners who turn bad investments into rental properties
"The only thing I could see making Shiller & Stiglitz 'right' would be if job loss was so high that rents were forced even lower - pushing the recent 'investors' in to a negative cashflow situation & then they too unload - looking like flippers & speculators even if they didn't intend to follow that path."
Not such a hard scenario to see. Likely, in fact, in most regions still.
serf hopeinsd writes:
I think alot of the "investors" today are the type who went to a "rich dad, poor dad" seminar on wealth building and think that getting a rental at today's prices is the way to retire at 50.
They may intend to stay in it long term, but when the alleged "cash flow" is not enough to pay for the new roof, or the midnight plumbers visits, and appreciation seems further and further off in the horizon, they may bail.
My Friend, may I remind you of the wisdom expressed by P.T. Barnum.
Comrade Ramrod writes:
hey, pca. you trying to get a track record or something?
I don't mean to hijack this fine comment forum w/ my trades.
I wanted to counter the impression that I'm a good fade. I've had 3 trades - long DTO Dec. 15-22 30% profit, long SPY, Q's, EEM last week for 6-8% profit, long EEV, DUG, short SPY this week varrying profit 3-10% - all posted near real time.
But I'm also trying to provide some informed commentary and reliable T.A. on these volatile markets.
"bought an Orlando foreclosure in June for $60,000, about a third of its appraised value"
The foreclosure sale price is the market price. The problem with appraisals these days is they are wrong unless they uses 30 day or less foreclosure comps. But, of course, a foreclosure isn't a comp for an appraisal. Losers.
The first stage of housing speculation will come about with people that speculate on rental properties, for future cash flow, but getting in too early will be a massive part of the equation, because if these landlords come in too early, when demand is too weak, they will burn through too much cash and increase risk too much and then ... blah, blah blah, you all know how it ends, i.e, death, destruction, blood in the streets, screaming, crying, wailing, divorces, foreclosures, bankruptcy, unemployment, starvation, bailouts ... very sick!
ades writes:
"One of the examples of a positive cash flow that CR gave a few months ago was Oceanside. I dont know what part of town it was actually in but theres a lot of land up there I'm not touching with a 10' pole either...."
Oceanside is a sleeper, some parts have gentrified while others, such as the "Back Gate" are still notorious. Population in SD still increasing slightly (go figure). If you really want to pick on North County, I'd pick Vista, particularly the Townsite neighborhood "Jim The Realtor" memorialized in his great video. Or Valley Center.
Bonds just popped on a rumor that in about one hour it will be announced that the Fed has taken over the Atlanta FHLB portfolio and assigned it to PIMCO to manage. It's been reported that Countrywide and WaMu had borrowed tens of billions of dollars from the Atlanta FHLB.
There is a certain level of sophistication that is needed to buy distressed property, and also to recondition it for a "normal" sale. These speculators serve that purpose & ought to make some money for their efforts.
Maybe I've missed it, but isn't one reason new UE claims are lower the last couple of weeks the fact that all the offices were closed at least one day a week the last two weeks?
True enough; I replaced a kitchen faucet less than 2 years ago with a $50 replacement from HD, and it's leaking already. Serves me right.
xxxxx | 01.08.09 - 1:25 pm | #
Incidentally, SS bham is still like that. My sister lives near there and recenly got mugged by one of the project inhabitants.
Bham shoulda left the old houses there. Where I live (DC), the old victorians turned into 4-5 unit tenements when the wealthy moved away. Now the wealthy are beginning to re-inhabit the city, and turning the old victorians back into mansions again. Cant exactly do that with the projects!
"joe after the 12 pack writes:
CR is right on the money I also by good but beat up properties, repair them and the rent for cash flow. The value rise is not important to me in the long run. I pay cash and when the profit pay back then consider selling to a good renter and finance it for them. So far great return.
joe after the 12 pack | 01.08.09 - 12:38 pm | # "
OMG!! You just gave away the business plan I have used for over 25 years! Better sell (at 12% owner financed) what you still rent and retire! Of course, some VERY concerned legislator will demand that pers. residence cramdowns are allowed and at that point you have to go back to work.
"dryfly writes: I know folks who do EXACTLY this - buy wrecks, fix them up a little & rent them out at a significant positive cash flow."
I was discussing this with a friend last night. It is virtually impossible to cash flow a good return on CRE properties unless you buy them at the bottom or do all the work yourself. With commissions, TI allowances, volatile (now plunging) rents, deadbeat/BK companies, it is a losing proposition (without a 10 year leased single paying tenant).
"Bham shoulda left the old houses there. Where I live (DC), the old victorians turned into 4-5 unit tenements when the wealthy moved away. Now the wealthy are beginning to re-inhabit the city, and turning the old victorians back into mansions again. Cant exactly do that with the projects!
Casio | 01.08.09 - 1:34 pm | # "
They're doing that in Dorchester and to a lesser extent Roxbury these days.
you speak like a man with no rental properties. I have been buying rental properties for the last 25 years. They can and do make a positive income , but did have many years of negative returns. you have to look for the long term income which most people cannot afford, especially those property owners who turn bad investments into rental properties
jerry | 01.08.09 - 1:23 pm | #
Many years of negatve returns doesn't sound like a staedy stream of income to me. I'm not saying can't make money, but a lot has to go right, including price appreciation, to realize the return you were looking for.
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You can't buy something simply because it is half of what it sold for three years ago. Here is a great example. A buyer picks up a house for $260,000 in foreclosure. Two years prior a flipper paid $504,000. The buyer thought he "stole it," as boasted to me. When I asked him why he thought that, he responded that he bought it at 50 cents on the dollar. He was obviously not thinking clearly, because the original price had nothing to do with what this property was worth today. He didn't pay 50 cents on the dollar. He actually paid about $1.20 for a $1.00.
Here's how this played out . . . The buyer had to put more than $20,000 into repairs after not being able to sell it "As Is" for two months . . . plus the expense of taxes, insurance, HOA fees and maintenance for the two months. But let's go back to square one.
EU: Gazprom insists on some Russian gas monitors
European Union says Russia is insisting on some Russian gas monitors to eye Ukraine pipelines
Thursday January 8, 2009, 1:02 pm EST
Yahoo! Buzz Print BRUSSELS, Belgium (AP) -- The European Union says Gazprom is insisting that Russians be included in the monitoring mission overseeing Russian natural gas as it flows through Ukraine pipelines.
Moscow's insistence to have Russians checking the gas flow through Ukraine goes against an agreement the EU had with Kiev to limit the group to EU observers alone. Yahoo! 404 - Page Not Found
Two day-over-day declining volume supports a long here, but I would be too nervous at these levels. From 896 (day's low), the S&P could fall another 36 points and still be a "buy"...
CR,
Completely agree with your assessment. As you pointed out in the previous post is what happens in the high end since those are so far from cash-flowing positive. One of three things is going to happen:
great point CR... as a small landlord for 12 years (props. in southern Indiana, a land of eternally stagnant prices) along with two brothers who believe 67 - 80% occupancy rate is acceptable year over year - I seem to have this antiquated notion that one should shoot for around 85%, maybe I've been in Cambodia too long.
I agree with the strong hand theory v. flippers. Gold star for you, magenta for Schiller.
Obama: "For years, too many Wall Street executives made imprudent and dangerous decisions, seeking profits with too little regard for risk, too little regulatory scrutiny, and too little accountability."
"It is time to trade old habits for a new spirit of responsibility."
No, it's time to JAIL THE PERPETRATORS! How can we have a "spirit of responsibility" when the criminals are still running the show?
You want to inspire confidence in our markets? Put some bankers in jail!
Obama's plan is weak, toothless, and misdirected. How disappointing.
All you who buy and rent properties, good for you. Whatever you make is well-earned for putting up with all that it entails. Also, I'm glad SRS wasn't around when I started trading because I'd probably would be out muttering somewhere now.
What happens when interest rates turn around and head back up? What if many of these smart investors are sitting on loans that have adjustable rates, which will help burn cash?
The citizenry will be scraping for loose change...I think any tenant hoping to extract a stable source of income from their rental properties will find the coming years brutal.
People will move to complexes if they can't afford a nice home to rent.
But dont' worry once the property has to be resold at a steep discount...you can rent it out cheaper.
There's no free lunch...and for the a while at least this will be espeicially true for real estate "specuvesting"
My funds are segregated. Some are burried in curriencies as a defensive measure < gold is for suckers >. Stockdog, as I answer your question, you need to understand that I don't bet all my money in one place, but I take every bet I make very seriously. .... and one more thing - I don't lie.
If the SPX closes below 885 ? No. If the SPX for one tenth of a second drops below 885, I won't sell. My stop loss will sell for me.
No, it's time to JAIL THE PERPETRATORS! How can we have a "spirit of responsibility" when the criminals are still running the show? Speed | 01.08.09 - 1:41 pm | #
Would it not be easier to wait until they leave office?
WASHINGTON (AP) - The head of the government's $700 billion financial rescue program says the effort has made the nation's financial system more stable.
Neel Kashkari, the assistant treasury secretary in charge of the bailout program, says the effort had made remarkable progress since it was passed by Congress on Oct. 3.
Kashkari called the financial system "fundamentally more stable" than when the legislation was passed, and says the rescue program helped to stem a series of financial institution failures.
Kashkari called the financial system "fundamentally more stable" than when the legislation was passed, and says the rescue program helped to stem a series of financial institution failures.
Perhaps, but ultimately we won't know for some time.
Short-term stability is meaningless if it leads to a dollar apocalypse down the road.
Just like stabilizing the financial system after the LTCM debacle opened the gates of hell.
Mortgage Participation CertificatesFreddie Mac issues and guarantees Mortgage Participation Certificates, or PCs. PCs are securities thatrepresent undivided beneficial ownership interests in, and receive payments from, pools of one- to four-family residential mortgages that are held in trust for investors
and says the rescue program helped to stem a series of financial institution failures.
Anonymous | 01.08.09 - 1:48 pm
Yes, I'd hate to see any of those responsible regional banks take the place of the irresponsible banks. How could Congress be guaranteed their contributions and future lobbyist positions if we have these new guys running things?
Repost
translation of the recent Testimony Of Interim Assistant Secretary For Financial Stability Neel Kashkari Before The House Committee On Oversight And Government Reform, Subcommittee On Domestic Policy:
'Piacere. It is a deep and moving honor to discuss the waste mangement business with all of youze.
These are trying times for this thing of ours. Credit markets were saying 'va fa napole'. The Borgata was approaching a stage of crisis...
Let us not forget the Code of Silence. Anti-Trust violations aside... Those that go oobatz get pinched.
Our capo in his esteemed wisdom gave the crew a taste without excessive vig. There was initally discord on points and even unfortunately a necessary message job for those that had not in the past paid tribute. But that jamook Fuld got his, buon' anima.
The shylock business continues.
The necessary themes musciata are expressed by us. The cafones and poveretts, for whom the books are always closed have been told 'col tempo la foglia digelso diventa seta'
Gentleman, this Golden Age is quickly coming to an end. It is imperative upon us to complete our spring cleaning for it is possible that there might be mannagge with the tizzun. Already the fanook is getting all chiacchierone on the shy. That NY strunz. This is causing much agita I know for there could be predicates. None of us wish to be guests of the state. This is not the time to eat alone.
As for the company, the thing like stockholder's has been severely said.
It invests a lot in the stock market however and the management right of the company in the person who acquired an interest might be an amusing ..where it goes.. thing. The person who invested can ..favor of the company.. take charge as the person who has carried it out anticipates a profit suddenly for the company.
It will be nothing but the financial influence principle.
In the profit of the company, the worker is a slave in "Investor". It is too cruel.
At least, it should be said, "Employee".
The stockholder controls a business, and the company employee also rules.
It is nothing that the company is stockholder's ownership thing but the financial influence principle.
It rules the company and the society by the one with the capital and money, and ..structure of the exploitation of the capitalist.. doesn't become it ..another...
It is done in the principle that says, 'The company is defended' the thing called a dismissal when the worker is used like the slave, exploited, and it becomes unnecessary.
It does to the stockholder.
It is likely to only have to invest according to holdings so that the stockholder may save the crisis of the company if it is said stockholder's company.
Isn't the thing that should be first done good even if it is smoothly done that the dividend of the stocks is decreased when sales of the company fall in the recession?
You are sure to be allowed not to dismiss many of employees only by it. Isn't it a very natural thing that the dividend is not put out when the profit of the company disappears?The stock is the one that originally contains such a risk. It might be ..defense.. management of the stockholder of even if becoming such a situation, and be stockholders' egoisms.
It might be said that capitalists also lost a lot of properties due to this finance crisis. However, is the billionaire a half of the property?Even if 90 percent is lost, it might be luxurious occurrence still enough. Investor's property in it is original gambling called an investment and gained ..existence.. ..turning over.. Sen. There is no such money ..defense.. needing.
Employee's salary is firmly paid in the president of the small and medium-sized enterprise when the company is a tough going, and we often hear the story said that there is a person who works free of charge. It might be the one called it a manager though it might be so much a lot of fine anecdotes that not are. Even the investor should do so.
I'd be looking for ways to shoot down flippers and speculators if I were in The Obama Cab...
Housing flippers are the equivalent of financial derivative flippers and this type of ponzi and lotto mentality cancer has to be taken out of the system ASAP. There has to be a way to penalize house flippers with taxes or time-related traps. I agree with Stiglitz and this will be something to watch, i.e, allowing flippers to screw up the recovery phases!
Regular homebuyers are excluded from the foreclosure market because the rules favor professional investors and that lack of competition is driving down prices, Baker said. This is a place where the government could step in and stop housings downward spiral by encouraging a more user-friendly process.
Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz. Lenders repossessed about 850,000 properties in 2008, according to RealtyTrac.
Neighborhoods devastated by foreclosures are at a tipping point, said Mark McDermott, of Columbia, Maryland-based Enterprise Community Partners. Getting these properties into the hands of community groups, instead of speculators, will go a long way toward stopping the downward spiral.
Ben Bernanke, Feb. 28, 2008
"There will probably be some bank failures. There are some small ... banks that have heavily invested in real estate in locales where prices have fallen. Among the largest banks, the capital ratios remain good and I don't expect any serious problems among the larger banks," he said.
I hate to say it, because I'm a renter too. But the shit-pits that get rented to us because renters don't care make ME not care.
Seriously, why should I care about a property when the .Gov inspector comes by and tells me I'm lucky there hasn't been an earthquake and if there isn't one, don't be under the AC unit because it will fall on me, and same goes for the porch because it will collapse too because the roof was set cheaply and way under code.
He got fined for it by the city. I have since moved, but in every picture of the old house I see for rent on craigslist, the roof is still the same deathtrap roof, waiting to claim a victim. Same landlord charged me for 'replacing' the carpets that had cigarette burns when we moved it.
So Shiller is right either way, either they'll come back on the market and flood and make the market crash again, or they'll just crash the market because renters lower property values by being shitty people beholden to shitty landlords. (Yes yes there are exceptions to the rule)
Also, houses in 'nice' new developments are getting rented out for $2500 in my town. (Stockton, CA - yes, you've heard of it now because it's one of the foreclosure capitals, but before that it was famous for the first AK47 attack on a schoolyard. At least nowdays the gun attacks on kindergarteners are perpetuated by children stealing their parents' guns) No one in Stockton can afford this because there are no jobs that aren't Starbucks in Stockton, unless you teach at one of the colleges. This is a town of 300,000+ people, by the way, most of them poor. So that $2500 house is going to be rented out by 10 or 15 people. They are going to trash the house and ruin the neighborhood.
And if you don't believe how bad things are here, drop me an email and come visit. I now live in one of the nicer places in Stockton, a block away from university, and have first had my car stereo stolen, and then two weeks later the entire car. I now will be paying thousands of dollars just to drive my car again. I paid the taxes that pay the government assistance the thieves are probably on, and if they DO by some miracle get caught and go to jail, I'll be paying EVEN MORE money to support them while they do nothing but learn better ways to be criminals for when they're released, to come back and steal my car again.
In this country the middle class get it from both ends, the rich buying politicians and warping legislation to their needs, and the same politicians supporting a broken social welfare system. The only 'trickle-down' effect of our economy is taxes from the middle class taking care of criminals.
Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz.
A worrisome thought crossed my mind yesterday. As Congress places more and more conditions on TARP funds (e.g. executive compensation), there will come a point where the bankers say "fuck it, I want my $80M bonus. We're too big to fail." After all, it's not really the bankers' money. So we might get Enron, where losses are hidden until liquidation is the only option.
Housing flippers are the equivalent of financial derivative flippers .....doc holiday 1.8.09 | 01.08.09 - 1:57 pm | # "
Are you sure they're not the equivalent of short sellers who help provide some liquidity to the market? I'm just asking; this is not necessarily my point of view.
There has to be a way to penalize house flippers with taxes or time-related traps.
Actually market corrections do that quite handily. Problems arise when some third party provides insurance against these corrections or the resulting losses.
Then the free market mechanism that punishes poor decisions is disabled and the speculators go wild (free markets are markets where prices are free from intervention, not markets that have no regulations).
were still here, but sometimes the responses are entertaining. like a three stooges flick. a chuckle here and there.
it took about 2 seconds to eyeball those numbers and know 'that ain't a Great deal'
But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.
Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for fueling the mother of all housing bubbles.
As a fellow renter waiting to buy when the dust clears at least a little, I agree that renting sucks. I just tell myself I'm paying for the security of not owning right now. 1200 bones a month and old 2.5b/1br that will need major repairs in 5-10.
ac - well put. RacerX also touched on that - A bona-fide "speculator" in today's market is a helluva lot more suited to take that risk (not to mention she is putting major skin in the game) versus the zero-down NINA speculators of years past. That's the difference here.
and to dryfly - the difference between you and I...is that I have a fish-fry on Friday night, and YOU eat Lutefisk.
First thing for Obama to do is turn this around and kill the speculators ASAP!!!!
Perhaps the most detailed analysis of the provision has been the study by a Federal Reserve economist, Hui Shan, who did the analysis while at M.I.T. Ms. Shan looked at homeowners with significant equity gains, before and after 1997, and compared the likelihood of their selling their house. Her study covered 16 towns around Boston and took into account a host of other factors, like the general rise in home prices at the time.
Among homes that had appreciated less than $500,000, she concluded that the change caused a 17 percent increase in sales in the decade after 1997. Before the law changed, many people apparently avoided paying the tax by simply staying in their homes.
Ms. Shan also found that sales actually declined among homes with more than $500,000 of gains after the law passed. (Under the new law, couples have to pay taxes on gains above $500,000, even if they roll all those gains into a new house.) Nationwide, however, less than 5 percent of home sales over the last decade had gains of more than $500,000, according to Moodys Economy.com.
Despite the criticism, there has been little political support for trimming the tax breaks for housing. In 2005, a bipartisan panel of tax experts, which was appointed by President Bush and included Mr. Rossotti, concluded, The tax preferences that favor housing exceed what is necessary to encourage homeownership. Among other things, it recommended increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panels report.
increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panels report.
"Incidentally, SS bham is still like that. My sister lives near there and recenly got mugged by one of the project inhabitants.
....
Casio | 01.08.09 - 1:34 pm | # "
Ouch - I missed the damn roman numerals....
Before I quote it in full - I ask that you suspect, I'm being honest.....
WHEN in the chronicle of wasted time
I see descriptions of the fairest wights,
And beauty making beautiful old rime
In praise of Ladies dead and lovely Knights;
Then, in the blazon of sweet beautys best,
Of hand, of foot, of lip, of eye, of brow,
I see their antique pen would have exprest
Even such a beauty as you master now.
So all their praises are but prophecies
Of this our time, all you prefiguring;
And for they lookd but with diving eyes,
They had not skill enough to sing:
For we, which now behold these present days,
Have eyes to wonder, but lack tongues to praise.
"it took about 2 seconds to eyeball those numbers and know 'that ain't a Great deal'
Very true. At least far from a "cash cow" because there is no cash on the first one. Note that he thinks he can get almost the same rent for the $25,000 house (without mentioning repair cost) as the one he bought for $60,000 plus the $20,000 repair cost. Using his numbers on the $80k house his mortgage payment would be about $750 plus $166 minimum for taxes and $100 (in FL) for insurance. That's $1016 plus maintenance and less vacancy. Far from being a "cash cow." These financial reporters are not all that useful.
I was looking for a new project and going after flippers seems like a great new hobby. I live next to guy who intended to flip, and it has been somewhat fun seeing his failure, i.e, buying at the top and falling into a trap.
All I can do is thank God for very strong homeowner association-backed CCR's, which force this idiot to maintain his place or be fined thousands of bucks!
I assume his next step will be to rent to find cash flow for the $100,000 K he put in to the fix-ups! The only thing I like, is that he never is around...
If there are architects out there who can figure out how to turn the McMansion into a functioning multi-unit that's cost effective then they'll have work. I can't imagine how that would work, unless you got the place for free. The construction techniques and designs seem to work against conversion- better to just rent bedrooms.
All I can do is thank God for very strong homeowner association-backed CCR's, which force this idiot to maintain his place or be fined thousands of bucks! doc holiday 1.8.09 | 01.08.09 - 2:22 pm | #
If he walks from a multi hundred thousand dollar mortgage, I'm guessing he won't sweat a few dimes worth of fines.
What I know for certain is that the foreclosure numbers in Northern California have not gotten any better over the last 6-12 months. I jot down the totals for a specific zip code every few months, and they have nearly doubled in the last 9 months. The next wave of defaults and foreclosures after the last reset in Nov. is just starting to hit now, and it's worse than it was last year. I feel that it will be even worse in 2010, because the peak was 2005.
Note that foreclosures.com has taken off the nationwide and statewide totals from their web page. When they had them last, Alexis McGee was a lot heavier looking. Hahaha.
You all are assuming that Mr. Arnold as a mortgage. If he's got ten SFH properties, then it'll be difficult for him to get another mortgage. Not enough info to know if he's got a good deal, although I'd guess he's under estimating his potential vacancy rate.
My homeowners insurance in Florida is @ 1600 per year. I know people that pay much, much higher prices that live closer to the water. Some are paying 3-4K for homeowners per year.
When the ten-year is yielding 2.5 do you really think that you are going to get 10 CAPS on RRE? Or when LIBOR is currently 3.5 percent? Two years at .078?
A lot of you guys really need to stay on the housing bubble blogs.
"What happened to this blog we used to be a lot more congenial."
That's before useless know-it-alls starting showing up here after reading about a months worth of info on a general housing bubble blog and thinking they know everything.
Re: If he walks from a multi hundred thousand dollar mortgage,
I assume he has enough in the mortgage and fix-ups that walking would be insane; and if he walks, it will be picked up fast enough (I hope). I'm waiting for the rental sign any day now, or a moving van...
Re: "yeah, cause, you know... you wouldn't want to live in a country where, you know, you could invest your own personal money any way you wanted."
The housing bubble-mania is a great example of why you do want to control destructive speculation, because at some point, it becomes a pandemic like a cancer that destroys society and feeds off itself. House flippers are like drug dealers and many flippers were drug dealers laundering cash and if the FDIC and Fed doesn't connect that "hot money" cycle to fraud and black market bullshit, the entire cycle will re-boot and flippers will wreck any recovery, so why let that happen so soon?
I'm one of those investors CR refers to. I pay full cash when I buy and I only buy cheap. My last two deals were for $45,000 and $20,000. They're rented at $700 and $525 respectively. I spent less than $5,000 fixing the two up. I've got more cash sitting on the sidelines earning bugger all interest (quit equities completely in May). I intend to buy and hold more houses for cashflow. Yes, being a landlord kind of sucks, especially at this end of the market. I'm plumber, roofer, electrician, handyman. Beats the hell out of having money in CD's though. Plus, building houses right now just ain't happening.
To give an idea about what sort of tenants I'm looking at... The last guy that I almost rented to just got out of prison from a ten year stint for kidnapping, armed robbery, and misconduct involving weapons. I kind of like ex-cons because if they violate parole they get tossed back in. It gives a landlord some leverage. Trouble with this guy was that I checked his department of corrections record, and his risk ratings never improved over ten years in prison, very unusual. Most people settle in and play the game. Plus his numerous prison sex infractions kind of put me off.
If an HOA places a lien and the property subsequently gets foreclosed and sold at auction for less than the mortgage, does the HOA end up getting anything?
A McMansion in my cousin's neighborhood has recently been transformed into a house of ill repute. Seems the owner has rented the spare bedrooms to 5 former Countrywide loan officers.
America: 2.1 kids per couple and over subsidization of construction for 60 years. The bubble was bound to happen. Let's get rid of mortgage interest deduction and the cap gain exclusion and let the market decide prices.
bob mologna(Unrated) writes: \tTo give an idea about what sort of tenants I'm looking at...
even though I'm here in Cambodia I am a small landlord In Indiana who rents - along with two slacker brothers who seem to think 60 to 70% occupancy is good - to just your class of people. unlike, my kin I spent 24 years renting in Manhattan so I know most of the tricks. sure we could swap some stories!
OK I got nothing.
We are all speculators now.. especially true if you're in the stock market.
Hey CR --
Do your or Stiglitz or Shiller have anything beyond anecdotal evidence for any of these claims?
Not saying you are wrong; just curious what data the discussion is based on.
I suppose it depends on the market, but in the parts of Sacramento that I would be willing to live in it seems not many listed properties would cash flow. I realize that Sacramento is not representative, just one bit of anecdotal something or other.
From previous thread "what would you do"...
suggestion was "publically financed campaigns, personal and PAC donations illegal".
This is unworkable to begin with (it's been tried, always fails). And it's (IMO, and the opinion of others) a restriction on free speech.
The only real hope is to make the tracking of the money involved much more transparent.
The stream of extremely bad news gives credence to the scenario of a U.S. collapse as predicted by Igor Panarin
as written in the English business and political propaganda paper The Wall St. Journal.
Yours In Socialism,
Kilgore Trout
So a little bird tells me that Chinese New Year is going to be rather excepional this year. i.e. it will be of an extended duration and nothing (materially) is going in or out for that time. Has anyone else heard anything similar?
Investors because this is the bottom. CNBC talking heads told me so.
What's the difference between speculators, gamblers, and investors?
but we're only talking about the low end of the market at this point. theres lots of room for middle and upper end homes to fall before we get to a positive cap rate....
does anyone have any idea how much of the total mortgage debt outstanding is in the low end where investors are gathering?
cheers!
......
Yep there has been some sells in my little part of the central valley of Cal. and then the house is repaired and put up for rent. These houses are in the 100k to 150k and not in bad areas, so you can make some money on the rent I guess.
jo6pac
FYI, I updated the Demand chart for Ventura County and added Inventory in to try and give a more accurate picture of current gap between prices of supply and purchases of demand:
Effective Demand: More on Demand vs Inventory for Ventura County
A third of its value? So the bank got screwed, taxpayers then paid the bank for the screw job, and Mr. Arnold makes off with a killing thanks to us.
Wouldn't it just be easier if we simply paid a percentage of our tax bill directly to Mr. Arnold instead?
First wrong thing: "when prices rise"... Nada until 2012 or later.
Second wrong thing: that most of these "investors" are not flippers. As per the loans I'm doing, most of the investors are not looking to hold but more than 1-2 years at most. That falls into the flip category.
My .02 SGIP
"Wouldn't it just be easier if we simply paid a percentage of our tax bill directly to Mr. Arnold instead?
not me again | 01.08.09 - 11:52 am | # "
Who'd be managing the rental properties?
"Mr. Arnold makes off with a killing"
I don't think the fix-up-and-rent business is exactly a killing! It is a lot of unpleasant work for a chance to make some money he hard way.
I don't think the fix-up-and-rent business is exactly a killing! It is a lot of unpleasant work for a chance to make some money he hard way.
wally | 01.08.09 - 11:55 am |
I agree and this Isn't the bottom.
jo6pac
The race to the bottom continues.
OT- Anybody know what CR's credit crisis indicators are doing?
I'm leaning towards the idea that its misguided investment.
Why? Because rental prices NEED to come down as there are more and more properties competing with each other for tenants..
So as an investor who figures they need to make 'x' (i.e. rental income that at least offsets mortgage costs) - but due to falling prices is only able to generate x-y in income.. (as rental prices fall) - their investment turns out to be (with the benefit of hindsight) not a great idea..
as with any investment - its better to buy at the bottom.. and I don't think we are there yet.
I see mild presence of speculators in the market in VC. They are using their knowledge of the market to buy low (trustee sales usually, sometimes REO) and sell at slightly under market price. Most of the deals appear all cash so I don't see them as a rash of foreclosures waiting to happen if the investors get it wrong.
An home investor by any other name is a flipper. It makes seems that the NFL team in Miami mascot is Flipper.
I actually do believe that a small percentage is in it for the cash flow. The others are buying as bottom timers and they will lose. And like Shiller says, these properties will come back on the market and push prices down again. That is exactly was an enormous oversupply ends up doing. Simple economics. Don't try to make it complex.
"So as an investor who figures they need to make 'x' (i.e. rental income that at least offsets mortgage costs) - but due to falling prices is only able to generate x-y in income.. (as rental prices fall) - their investment turns out to be (with the benefit of hindsight) not a great idea....
Gubbmint Cheese | 01.08.09 - 11:57 am | # "
Hence, Mr. Arnold has assumed some risk which justifies his current return. Sounds right-
Mr. Arnold is providing a very important service by taking unoccupied homes (ripe for further deterioration) and fixing them up enough to rent out. He's providing one of the most basic needs (shelter).
My sense is that it is hold and rent investors who will ultimately provide the price floor for many of the most savaged local housing markets. True, there's way to much excess inventory, but nothing to be done about that now.
Even if the flipper argument is valid, I don't see that it's much of a problem unless they are artificially elevating prices or encouraging the production of unneeded housing. Recent data seems to suggest this isn't happening.
These houses that are being kept off the market would simply be depressing the market further now, rather than later.
"Elvis writes:
An home investor by any other name is a flipper. It makes seems that the NFL team in Miami mascot is Flipper.
Honestly, I am not drinking.
"restriction on free speech" Eric
Monetary contributions have nothing to do with free speech. The First Amendment to the United States Constitution says that Congress shall make no law . . . abridging the freedom of "speech."
The problem is people believing money has due process in elections
An investor quickly becomes a speculator when the appreciation reaches a certain point. I'm sure that point is different for different investors cum speculators.
100K for a unit that brings $950/month
is speculation not investing. The cap rate on this is nowhere close to 10%.
Remember that your cap rate should always be more than your borrowing costs, currently around 8%, otherwise
your name is Madoff or Mclowe.
CR, doesn't that depend on whether these investors are real money or levered and if, as I assume, the latter, how they are financed? To some extent, if they are levered at all, inventory levels will be highly dependent on stable rent and vacancy levels...
"True, there's way to much excess inventory, but nothing to be done about that now.
Datahead | 01.08.09 - 11:59 am | # "
Perhaps one of Obama's stimulus jobs could be to have presently unemployed people tear down some of these properties, particularly the inefficient ones, the dilapidated one in Detroit, etc. Like junker cars that contribute much of the remaining pollution coming from autos, these need to be taken off the market permanently.
I don't know, investor or speculator is like "Are you lunch or dinner?"
--bh
In the Sac area, we had rents go up right along side housing prices. Not as steep but it's still there. The problem is that there were no real increase in wages and once you take out the funny RE incomes, we're actually a little worse off (using MHI and CPI across the 4 counties).
So we have speculators coming in, picking up what will cashflow today, just barely. What they don't see is how they are basing ROI on good employment numbers, lingering elevated lease rates, and increased inmigration numbers.
Now that Sac is getting slammed, rents are going down, pop is heading down (it has been for 2 yrs but skyrocketing births made it appear very positive), and vacancy rates are going up as everyone doubles and triples up in rentals or heads home to mom and dad.
This is really bad.
Add to this every person I know who bought to "hold" is planning to hold until they can sell again for the 2005 price. The long term buy and hold folks are smart and have pretty much stayed away as they know the worst is coming and their cash will be king.
rps writes:
What's the difference between speculators, gamblers, and investors?
Ones a cunning stunt, and the other two are...,
Why don't we just label these people gambuspecvestors. I would also accept knife catchers, or dopes.
At the housing bottom (2010?), renting will be more expensive than buying but people will rent anyway because "buying a house is too risky". This will definitely benefit those who invested in rental properties.
I agree w/ CRs disagreement w/ the caveat that to the extent that "investors" are really "speculators" the rats will abandon the sinking ship at their first opportunity.
Maybe to get a floor they TARP the investor. Remove the for sale signs for, whatelse, for rent signs.
Yeah baby!!
CR,
The only problem I have with the current cash flow valuation is that it is too optimistic. What happen to the investor you profile (Arnold)when rent start to slip further and further unless he is willing to keep a close eyes to multi-families doubling up in the future. We had that in the early and mid 90s. Would that cause further rents recrease since the supply side will be quite high?
Monetary contributions have nothing to do with free speech. The First Amendment to the United States Constitution says that Congress shall make no law . . . abridging the freedom of "speech."
There have been court decisions that disagress with your view. I also disagree with it. What's the difference between me putting a sign up in my yard, me paying for a billboard, me putting up a blog, or me cutting a check to someone else so they can do any or all of those things on my behalf?
IMO -- no difference.
The problem is people believing money has due process in elections
It really doesn't matter whether you think money should be involved or not. It is, and that's never ever going to change (again, IMO). If you believe that it will never change, the only real solution is to make the money flow transparent.
how about the shrinking pool of qualified renter's?
It may work for a few months but all this will do is postpone the inevitable for a few months. And then the system will adjust it's predictions for recovery to the front half of 2010.
It was like this on the way up.....and will be on the way down.
Ciao
MS
Are today's purchaser's really flippers? Investment property purchases require greater downpayments and in most cases tougher uw scrutiny than owner occupied purchases. If today's have more equity than current owners how can they be considered weak hands? The real shadow inventory of homes is in the Mcmansions. They're overbuilt and illiquid. The only way to cashflow these properties are to convert into multi-family residences.
Nemo, this is all based on stories I hear (that are similar to the story in the Bloomberg article).
One of the key points is that investors will only buy at the low end - where the properties can cash flow.
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
best to all.
From previous thread,
stockdog42 writes:
Job losses tomorrow 700,000. Move the market or priced in?
I dunno. I'm watching the TLT. Money outta there goes somewhere. But bottom line, I'm watching spx support @ 885; if that holds, my "sense of the market" is that the job losses have been priced in.
"I agree w/ CRs disagreement w/ the caveat that to the extent that "investors" are really "speculators" the rats will abandon the sinking ship at their first opportunity.
Journeyman | 01.08.09 - 12:05 pm | # "
Perhaps we could say that investors are speculators with a business plan?
The Navy's interested in Flippers. They're awfully smart.
Google Image Result for http://www.perfectduluthday.com/elleand%20flipper.jpg
Deflationary Jane,
Well put.
Snark aside, if we're taking the long-view in a 2-5 year severe recession/depression with massive defaltion in near term and massive inflation longer term, you have to hang on as an investor and hope that rents don't decline too rapidly (good luck) and that there is a body of people capable of paying rents at your price-point (the point where you either break-even or make money)--hard to imagine at 15%+ unemployment.
I'd say this is a tricky investment to say the least. I'm not sure I don't like the odds on the skinny grey #4 doggie at the track.
--bh
What happens if your tenants lose their jobs? How much cash flow cushion do you need to survive?
sorry about the above post. 950/month
for a 80K property will give you 10% +
cap rate. My Bad.
Mr. Mortgage sez:
Mr. Mortgage’s Guide to the TRUTH! » WaMu’s New $1 million 5-year 1% Balloon Loan (mod) – $878 Per Month!
NEW WAMU LOAN MOD - THE 5-YEAR BULLET!
Below is an actual example of a recent WaMu loan mod with a 5-year $1 million bullet payment. This mod takes exotic lending to level I have never witnessed in my 20-years of mortgage banking. This makes a Pay Option ARM looks safe and cozy and puh-lease do not tell me this is great because it frees him up to spend money into the economy.
Banks offering and borrowers actively accepting this style loan mod will guaranty that the housing crisis stays will us for a long time to come. This borrower will lose his home in 5-years, I have no doubt. That is of course unless his house price goes up 100% AND great, low rate super jumbo money returns to the market so he can refi out of it - then again, many lenders wont even refi a loan that has had a previous loan mod done.
Property Value: $800k
Note amount: $1 million plus deferred interest
New Mod amount: $1.053 million
First TWO years rate/payment: 1% and $878
Third year rate/payment: 3% and $2633
Forth year rate/payment: 5% and $4389
FIFTH YEAR PAYMENT - THE BULLET: ALL OUTSTANDING BALANCE DUE AND PAYABLE
All rights to future predatory lending claims waived.
o.k. CR you addressed the concern more succintly put to Nemo. yes, higher up the chain the investor doesn't invest.
"- there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense."
Shhhhh...don't tell all those people who bought in '06-'07.
The real factor in all of this is the resets that begin flooding the system in late March. The "alt-A" train will make sure of that.
Ciao
MS
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
"MS writes:
"- there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense."
Shhhhh...don't tell all those people who bought in '06-'07."
Actually, they won't be "higher priced homes" when it comes time to sell.
MS: The real factor in all of this is the resets that begin flooding the system in late March. The "alt-A" train will make sure of that.
Conductor: ALL A-BOARD the Alt-A train is leaving...Abandon hope all ye enter here...
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama | 01.08.09 - 12:11 pmM/i> At least that would give all of the unemployed builders something to do. Sounds like a plan!
So if prices and rents continueto drop these properties no longer cash flow and can only be sold at a loss. If prices and rents stabilize or rise they cash flow and can also be sold for a gain. It's difficult to know what percentage are buying for cash flow and what percentage are buying for appreciation, and on top of that we can't say whether either group is right or wrong in their expectations. My guess is that prices and rents have further to drop with unemployment expected to rise from 8-11% depending on who is guessing and wages for those with jobs stagnating or falling.
Calculated Risk writes:
One of the key points is that investors will only buy at the low end - where the properties can cash flow.
This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
what's that memory ringing in the distance ? Oh yeah, TA theory. ..... nevermind. .... please ignore the man behind the curtain.
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama
very good point. In fact this is exactly what happened in Baltimore for many of the old classic victorian homes. Seven bedroom homes got sliced into 3 and 4 unit apartments. However considering that new homes are made out of pressed-cornflakes I doubt we'll see many mcmansions 10 years from now. I guess that makes them bio-friendly?
One possible scenario of this dopwnturn could be the ghettoization of Suburbia. In that case, reconfiguration of former McMansions is inevitable, and logical.
"Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Morocco Bama | 01.08.09 - 12:11 pm | # "
When I was little, the year that Kennedy and the riots took place in B'ham, we lives in an old Victorian home in the South Side of Birmingham, AL. It was full of large, beautiful homes that were being rented to poor folks like us, and to groups of college students. Eventually many of them were torn down and replaced with housing projects. That's sort of a parallel to the McMansions of today, except that they nicer homes intheir day, and build a lot better.
I agree with CR. It's the high priced homes that have the furthest to fall in the future. No equity, stagnant or declining incomes means that the low end housing market will stabilize long before the middle to high end. Lots of supply and limited cash to fuel demand.
As an investor whom bought a wreck of house that had been foreclosed on in 2001: If I sell now, I do not even break even. If I had sold at the top of the market I would have made a nice profit. Unfortunately between the cost of getting the place to meet city and state rental property requirements and minimizing liability AND a spate of foreclosures in the same neighborhood whom had a spate of foreclosures in 2001....it is all about break even and a tax shelter at this point.
Some days I wish I was a flipper.
--
If the homeownership rate is declining then we can surmise that lot of foreclosed homes are being bought by speculators who think of themselves as investors. There is one fatal flaw in their logic -- rents wouldn't fall much, or not at all.
The real surprise in housing would be double-digit declines in rents in most parts of the US some time in late 2009 or early 2010.
As an aside, most of the Scam Lovers are speculators, but think of themselves, as certifiable dopes, as investors. These dopes don't even know the definition of the term investment.
Jas
Unless things get really bad, and they could. Then these McMansions could be reconfigured into multi-unit.
Personally, I've been thinking "...Hollywood needed new ghost towns for future movie settings", but it would be nice if President Obama is more practical.
Even if CR is right, then there are relatively few "investors" on the California coast. There really aren't many places I know of where you can buy distressed property and rent it out at anything resembling a positive cash flow. Down in the outer, grungier reaches of San Diegto metro, maybe. And maybe on the far bubbly fringes of the SF Bay area. But as Deflationary Jane said, rents in those areas are likely to fall with the economy.
Mornin' Jas!
Restrictive zoning in exurbia will severely limit the reconfiguration of McMansions into multi-unit homes. There's really just not enough buyers with income.
.... Beaver the Mover here...
saw three customers yesterday...the first has a $1,400,000 home in Newport Beach...they are moving to Phoenix and not selling or renting their current house...he works as a manager for a large company and his job location is "
on the net" thus, they can live anywhere....
the second customer has two houses in Ladera Ranch...he is moving from one house to his rental house and is going to rent out the house he is currenly living in......per Zillow he is 25% underwater in his current house.......
the third customer is a retiree, who finally decided to sell and is resigned to losing forever that $150,000.00 he coldhave had if he had sold in '07......
I am hopeful for my moving business that the retirees start selling again as they made up a 1/3 of my business prior to the Crash.....
because so many home have been purchased by speculators/investors the Rratio of Home Sales to Professional Moves is completely out of whack........
Focus on supply and demand, people. When supply greatly outstrips demand, prices will fall. Just like with apartments, if the number of available home rentals greatly outstrips supply, rents will continue to fall making cash flow, no cash flow. Overbuilding is overbuilding. Mass overbuilding kills markets for a very long time. The majority of people will get crushed until supply and demand meet equilibrium. Better lose the contraceptives, people. And make new jobs so the situation will change eventually. Too many homes causes too many problem whether they are "rentals" or not.
Down in the outer, grungier reaches of San Diegto metro, maybe.
Bob Dobbs | Homepage | 01.08.09 - 12:18 pm | #
Good point Bob. You couldnt pay me to be a landlord in National City or Logan Heights. No f'in way to dangerous for the return... One of the examples of a positive cash flow that CR gave a few months ago was Oceanside. I dont know what part of town it was actually in but theres a lot of land up there I'm not touching with a 10' pole either....
.....
OT I maintain that the magic number is SPX 885, if that holds, the rally resumes. ... but wadda I know - not much, I assure you.
I bought my first home as a speculator in 2006.
Now I am an apartment renter.
I've always found the distinction between speculators and investors to be based on whether the author wanted a perjorative term or a laudatory one. Except in the case of short selling (can't be investment, thus obviously speculation), and perhaps equities with no hard assets, no dividends and no profits, mostly I see no difference.
With real estate, transaction costs are so high (and currently available leverage is lower than the usual 20:1), that I find the notion of calling someone who puts up cash and takes possession a 'speculator' odd indeed.
beaver,
this brings back another point made many and long ago as we posited the outcomes of housing decline coupled with economic melt-down. As house-holds become distressed they will consolidate, lessening total demand, increasing inventory. Two, having talent be immobile (because either you cannot sell your house, or you do not have the resources to move) will impact businesses that seek specialized talent--but cannot acquire them. This has huge implications down the road.
Restrictive zoning in exurbia will severely limit the reconfiguration of McMansions into multi-unit homes. There's really just not enough buyers with income.
That's one of ther reasons I said "if things get bad enough." Currently, no, but if things get bad enough, counties and municipalities would rather have something producing some form of income rather than sitting idle and rotting. Those zoning restrictions could quickly be reworked if the situation warranted it.
the plural of anecdote is data -
borrowed from Krugma
I agree w/ CR.
This opening of this building is seriously behind schedule.
One-day only Grand Opening Auction
Who: The Rowan | 460 S. Spring Street | 5th + Spring Los Angeles
What: The Rowan is conducting a one-day only Grand Opening Auction. 79 Luxury Lofts are being offered in a unique simultaneous auction that allows for total transparency, no hidden reserves and ultimate buyer flexibility.
When: On February 8, 2009 at 2 pm.
Where: On the ground floor of the building.
Why: In light of the current credit issues facing the financing industry, the developers lenders have mandated that approximately 50% of the building be sold before any escrow can close. Todays financial demands are creating the opportunity to buy at historically low prices.
Thanks BH. I hadn't realized I snarked or do I just need more coffee?
The one other thing that hasn't been mentioned yet is that a community full of NOO (non owner occupied) often reverses any stabilizing affects. High turn arounds are coupled with elevated crime levels(property and personal). Remember, renters are highly mobile and have a habit of voting with their feet if they don't like your business model, no matter how good it looks on paper. Those neighborhoods can still turn on a dime so investors there can go from smart guy to penniless guy to slumlord pretty quick.
To me this seems like common sense but then I hang out with Sociology PhDs .....ymmv.
I think there are more of Shiller's 'speculators' than CR's 'investors' out there these days.
Sure, they'll rent for some cashflow, positive or negative, but that's not the point, nor is depreciation or sheltering income. Price appreciation is the goal and the houses will come back on the market whenever prices rise again.
"ymmv"
Your Momma Makes Veal?
Investors picking up great "deals" are finding the rental market is soft and declining due to a flood of SFH for rent. A deflationary feedback loop.
To me this seems like common sense but then I hang out with Sociology PhDs .....ymmv.
\t Deflationary Jane | \t \t \t \t01.08.09 - 12:24 pm | #
DJ, where are you these days? You still in the UC system, or did you make your escape as you seemed about to?
Bob Dobbs, still slaving away at UCSC
BTW, I think Shiller and Stiglitz are being a bit self-serving by misrepresenting the real problem here:
The problems we've had in recent years aren't the speculators per se - the speculators only become a problem when empowered by easy credit or when they are protected from losses caused by risky behavior.
Humans are risk seeking and overly optimistic by nature. It's counterproductive to have national institutions that actively encourage and reward risky behavior and then blame humans for being humans.
I think we're going to spend a long time looking for culprits everywhere except in the mirror.
(I give Shiller a bit of a hard time now simply because he's tried to suggest rate cuts aren't a contributing factor to speculation despite the fact that rate cuts are the primary focus of every speculator on Wall Street and frequently result in immediate and violent responses by the market. In many cases such as 1927, 1998 and 2007 they instantly reversed the course of speculative markets.)
Eric ,
Until then, the moneyed interests outweigh the individual voters. Politicians will be bought and sold to the highest bidders and the people will be the serfs to the wealthy few. Nyet democracy. Viva la aristocracy.
Even if the flipper argument is valid, I don't see that it's much of a problem unless they are artificially elevating prices or encouraging the production of unneeded housing. Recent data seems to suggest this isn't happening.
These houses that are being kept off the market would simply be depressing the market further now, rather than later.
ac | 01.08.09 - 12:00 pm
+1
Deflationary Jane,
Agree. Recourse for tenants who decide to rip out your 1960s copper plumbing and large guage wiring and sell it for scrap along with all your fixtures...well, yes, what you said.
Flippers...hmmm...
can we cut-off their flippers, throw them back into the market, and make soup?
hitler
ok let's move o
Markar writes:
Investors picking up great "deals" are finding the rental market is soft and declining due to a flood of SFH for rent. A deflationary feedback loop.
Markar | 01.08.09 - 12:27 pm | #
I ran into this renting out my condo near a large university. I could only get 90% of what the market rate was before the crash. I suspect it's lower now.
Good boy CR. You not only win the biscuit but you get the whole tin.
Given the severe tightening in lending standards, one could argue that whatever is being purchased today is in strong hands.
The people I know are buying for investment cash flow or are moving up and buying McMansions at 25 to 40% under replacement cost. The latter intend to live there for at least 5 years plus.
NEW WAMU LOAN MOD - THE 5-YEAR BULLET!
works out to rent before the bullet- 48mths @105k in total payments = $2200/mth for an 800k house - sounds about right
I agree with CR. I don't think there are any flippers around anymore. Why would anyone buy to flip while the Case-Shiller index is still plummeting? Prices need to stop falling at double digit rates before they increase. Surely anyone would agree with that. House prices are not stocks. They don't turn on a dime.
Those neighborhoods can still turn on a dime so investors there can go from smart guy to penniless guy to slumlord pretty quick.
Deflationary Jane | 01.08.09 - 12:24 pm | #
Case in point:
Teen suspects may be linked to other Elk Grove burglaries
The inside scoop is the three teens are "home schooled" renters in an otherwise OO neighborhood who went on crime sprees during the day when most people were at work. They burglarized dozens homes over the past several months, and the police only took action when a neighbor witnessed a burglary and they were caught in the act.
Many Elk Grove neighborhoods are seeing this kind of crime, and the "investors" are so desperate for cash flow they're not screening renters at all as long as the Section 8 check clears. I don't see it getting better any time s
CR,
3 categories of buyers if you will
1) Flippers - purchase based on expected future value
2) Investors - purchase based on present value
3) Residents - purchase based on user value
As mentioned already, 'Arnold's investment is contingent on rental prices not falling too much. What is important now has almost nothing to do with strong or weak hands.
All that matters for a long time is inventory. A surplus of empty homes demands falling prices.
"The people I know are buying for investment cash flow or are moving up and buying McMansions at 25 to 40% under replacement cost."
So, what you are saying is they are buying McMansions for 25% to 40% off actually construction costs? Replacement value in my mind is the cost of construction of a new identical house these days.
to add to gubbmint cheese and imperial dh
100K for a unit that brings $950/month is speculation not investing. The cap rate on this is nowhere close to 10%.
one has only to do the math here. with 1 in 10 rental units vacant, these units are being added to the rental rolls. real rents will be declining.
for this rentier effect ot become positive, investors are going to have to be able to finance units -- there isn't enough cash-only to soak up the excess otherwise. so run plausible numbers on investment property 30-year fixed -- is there still healthy positive carry when rents decline 10%? 20%? that's what will determine whether these are strong hands or weak.
my view is that there probably isn't. on mr arnold's property, cheapest possible finance on 20% down (if you could get a loan) would result in a $550/mo mortgage payment. throw in taxes and maintenance, and you aren't making much carry at $950/mo. at $800, you'd be wishing to sell -- at a loss, natch.
no bottom here. strong hands that will be getting weaker.
CR is right on the money I also by good but beat up properties, repair them and the rent for cash flow. The value rise is not important to me in the long run. I pay cash and when the profit pay back then consider selling to a good renter and finance it for them. So far great return.
Until then, the moneyed interests outweigh the individual voters. Politicians will be bought and sold to the highest bidders and the people will be the serfs to the wealthy few. Nyet democracy. Viva la aristocracy.
rps | 01.08.09 - 12:27 pm | #
I don't necessarily agree or disagree with your position.
I'm just being pragmatic....... attempts to drive money out of politics just drive it underground instead. I'd rather have bright light shown on it. At least then the voters can make an (more) informed decision.
--
"that I find the notion of calling someone who puts up cash and takes possession a 'speculator' odd indeed."
Ralph Cramdown,
IT DEPENDS UPON WHETHER THE PERSON IS COUNTING ON PRICE APPRECIATION OR INCOME OVER SEVERAL YEARS. The later is an investor.
Jas
"Replacement value in my mind is the cost of construction of a new identical house these days.
Elvis"
Just to clarify, no other costs should be considered.
sportsfan writes:
Sure, they'll rent for some cashflow, positive or negative, but that's not the point, nor is depreciation or sheltering income. Price appreciation is the goal and the houses will come back on the market whenever prices rise again.
To follow up on this, I don't think we've really had enough time to wring the "speculator mind-set" out of our psyche (present company excepted, natch). Still too much frantic scurrying, looking for the quick buck.
Only when everyone thinks buying a home is a boneheaded notion, and none of us are even posting about home prices will it be time to become an investor.
"Only when everyone thinks buying a home is a boneheaded notion, and none of us are even posting about home prices will it be time to become an investor.
blueridge"
Trust me, we will always be posting about home prices.
" new homes are made out of pressed-cornflakes " -priceless!
faux-this, engineered-that; from structural beams to cupboards to fake finishes on everything, newly built houses (esp. the ones slapped up lickity-split during the peak) are esentially disposable goods
I've done renovations, and I've built from scratch; I wouldn't touch a mc-mansion with a 10ft 2x4
the sheeple in the subburbs are toast!!!
Shooting by Oakland, Calif., officer sparks anger
OAKLAND, Calif. Mayor Ron Dellums urged residents to remain calm after protests turned violent in the fatal shooting of an unarmed black man by a transit police officer.
What had started as a peaceful demonstration Wednesday over the Jan. 1 shooting of Oscar Grant escalated into trouble. At least three cars were set on fire, many other automobiles were damaged, and windows were broken on some downtown stores.
Police in riot gear threw tear gas to try to break up the demonstration. At least 14 people were arrested before the unrest ebbed overnight.
Grant, 22, was killed on a Bay Area Rapid Transit station platform after officers went there amid reports about groups of men fighting on a train. He was one of a small group of men taken off the train, and officers had made him lie face down at the time he was killed.
Yahoo! 404 - Page Not Found
CR,
One error in your logic. House flipping was a profitable operation, so profitable that everybody thought they could do it and did. How did that pan out in the end? What's to keep the greater fools from rushing into the "cash flow" scheme? A bubble society, is a bubble society, is a bubble society. Lead and they will follow with a great thud to follow shortly thereafter.
You won't have sound housing market until it is no longer viewed as a cash cow, a great investment for your kid's college, a way to retire 10 years early, a commodity to bundle with other commodities to be sold up, etc. You seem to suggest that only the rational, sound, investor will be entering this "cash flow" scheme. To those of you who would suggest that only financially sound investors can even get loans for this latest great hope in housing speculation? Please, this is all we've got boys. We have no other plan but to reinflate. Obama has once again made that perfectly clear as he very clearly outlines the financial horrors awaiting our Nation while offering the same tried and failed solutions only this time to an even great scale.
A ship of fools, we are all onboard with a ship of fools, what's that make us?
Buying a house is smart, Clinton and Bush got that right. The Smart way to buy a hose was not practiced. Thanks a lot guys the debt and new taxes are going to kill us!
longer than Shiller expects
That's not very long.
.
Gaius Marius,
Your inputs are incorrect. He bought it for 60,000 and put 20,000 into it which is $80,000. 20% down is $16k for a total loan of 64k.
Mortgages and Mortgage Loan Rates in the United States-- Free search for the best mortgage rates
elvis writes:
Trust me, we will always be posting about home prices.
Elvis | 01.08.09 - 12:42 pm |
Isn't that some sort of Sartre-like hell?
Bob,
I escaped to st Louis briefly. Long story short, he's there, I'm here with a nice cash settlement, and I still have 8yrs of seniority intact.
Love love love the midwest! If I had my way, I'd still be there.
ce, they had another shooting by police in Texas yesterday of an unarmed man.
Officer On Leave After Shooting Unarmed Man - Houston News Story - KPRC Houston
Sorry I just woke up from my 6 year coma. Anything interesting happen these last few years?
BTW: Bye Bye JP Morga
Raju brings down Satyam, shakes India
Asia Times Online :: South Asia news, business and economy from India and
Pakistan
Unemployed architect gives advice for a nickel
Under the Needle: Building a foundation for future work
Gee that's even lower to depression era 'hey buddy can you spare a dime
CR writes:
. . . . This is one of my concerns as foreclosure move up the price chain - there will be no natural buyers (investors) for higher priced homes because the numbers will never make sense.
I believe the buyers will be there, but only once the prices for "higher priced homes" become more reasonably priced.
What I'm saying is that the price differential between low end and high end will narrow in the future.
FHLBs May Fall Below Capital Minimums, Moodys Says (Update3)
By Jody Shenn
Jan. 8 (Bloomberg) -- The Federal Home Loan Banks face potentially substantial losses on mortgage bonds, and in a worst-case scenario only four of the 12 would remain above regulatory capital minimums, Moodys Investors Service said.
The FHLBs, government-chartered cooperatives owned by U.S. financial companies, hold about $76.2 billion of private- label mortgage securities that may cause losses under accounting rules, the New York-based ratings firm said in a statement today. Moodys said it is unlikely to lower the systems Aaa debt ratings because of their government support.
The U.S. may decide to put some of the FHLBs, the largest U.S. borrower after the federal government, into conservatorship or force them into mergers with others, Moodys said. At issue is whether declines in the market value of the mortgage bonds, totaling $13.5 billion on Sept. 30, will be deemed other-than- temporary impairments, and how much of the losses their regulator will see as irreversible, the statement said.
http://www.bloomberg.com/apps/news?pid=20601110&sid=aeB5GL6uSr3A
Note that he thinks he can get almost the same rent for the $25,000 house (without mentioning repair cost) as the one he bought for $60,000 plus the $20,000 repair cost. Using his numbers on the $80k house his mortgage payment would be about $750 plus $166 minimum for taxes and $100 (in FL) for insurance. That's $1016 plus maintenance and less vacancy. Far from being a "cash c
Well with rents decreasing 0.4% natioanlly in the last month I don't know if "investors" are really getting the deals they say they are.
OT-my bad if repost
Fannie, Freddie extend foreclosure, eviction suspension
Fannie, Freddie extend foreclosure, eviction suspension - MarketWatch
as I ment'd last night mods are knocking off 100-200K off original loan amount in some circumstances..It was ment'd by friend who supplies mtg brokers rmcr's, he has seen the deals....
Energy,
That officer murdered the 22 yr old unarmed kid who was being held down by other officers...
people are getting pissed at the man...
also all you ron paul bashers cause me to chuckle as he has been the only one that has told the truth for 8 years...were all goofy in some way..but not all of are honest....
So, if rents fall aggressively, do the "investors" become "speculators"?
One possible scenario of this dopwnturn could be the ghettoization of Suburbia.
Just like Europe!
OT,
I have been focusing on SPX 885 as the "break the 1st rally" support line. It should be noted that the - no snark - "dire" employment data only moved the SPX a little below 900 for a very short time.
I am a SHORT TERM trader, I call rally.
cd, Kristina,
This is how things started in Greece...this appears to be a particularly egregious misuse of deadly force.
Bon Chance
The Market Ticker - Entries from Wednesday, January 7. 2009
Everyone turn your back on your government, do not acknowledge them, do not speak with them, do not give them your money.
Deliver the "black spot" and remove them from good society. Their conduct demands retribution from the code.
TD Ameritrade to purchase thinkorswim for $606M
oh my...
CR, you need to revalue your ad pricing.
If that lame site is worth 606 million...
We have got to stop looking at the creative, smart, savvy guys at the top who are able to manage and make a comfortable living off of highly speculative and financially edgy schemes and instead protect the masses that try pathetically to follow. That is who laws and sound governance is supposed to protect, the teeming masses who should have never been taught to read so that they could never have such smart ideas. The smart guy will always be able to make a go of a winning scheme and work around any laws or road blocks along the way. Economic equality and access is NOT a goal any government should pursue as capitalism is destoyed by such a policy.
Here's a Charlie Rose interview from a couple of days ago, where Stiglitz recommends using the rest of the TARP to buy bad mortgages. He also said the distribution of the first half of the TARP was a "disaster".
Your inputs are incorrect. He bought it for 60,000 and put 20,000 into it which is $80,000. 20% down is $16k for a total loan of 64k.
David J. | 01.08.09 - 12:46 pm | #
thanks, david!
As an old time income property investor, the rule of thumb was that the property should sell for no more than 100 times monthly rent. That allowed generally for positive cash flow if you made a 25% down payment.
I note that the Orlando home owner has paid less than that.
We now have a floor in prices, at least in Florida.
There was a paragraph in an otherwise unrelated Bloomberg article in early November, that one RE investement outfit (it was not named) bought 30 bn worth of Miami Condos.
I just thought, who would do such a thing.
UN suspends Gaza aid operations
BBC NEWS | Middle East | UN suspends Gazan aid operation
The UN has said it is suspending aid operations in Gaza because its staff have been hit by Israeli attacks.
To clarify the spec verses invest:
The guy who either buys the property to rent for cash-flow, or for appreciation and future sale is a speculator.
The guy who buys the property to grow wacky-weed however is an investor given the space to bulb to plant ratio.
he's a genius.
I'm late to the party, but:
Nemo writes:
OK I got nothing.
Best first post by the Monkey so far.
I am a SHORT TERM trader, I call rally.
Popeye
I hope so. Gimme SPX at 950 or above, please. I will back the truck up to the SDS loading dock
Deflationary Jane writes:
I invest like a grandma. It's a point of pride.
Jane,
Each person is allowed to make his/her own choice. I invest like a pirate. Please protect your jugulars.
I have met very few people in both my professional or personal life that make money from rental properties. Very few. Who are the ones that do? People who inherit properties from family members and people with no mortgage on them.
If you purchase a property with a mortgage you have interest, taxes, insurance, and maintenance expenses. Not to mention the opportunity costs of your downpayment.
Perhaps the biggest risk is collecting the monthly payments. Do you want to carry that burden in this recessionary environment?
The cheaper the property the cheaper the rent. Why? Because there is a direct correlation between prices and jobs (income.)
I have an acquaintance that just purchased a home in San Clemente for 700k. It sold for over 1 Mil in 2006, so he thinks he is getting a good deal. He paid CASH for it, yes cash. When I asked what he could rent it for he said he THINKS about 3,500 a month. That only equates to an annual rate of return of 6%. That is before Taxes and insurance and maintenance.
The "cash-flow" theory is the golden nugget that you never get to realize. It is just another scam people use to sell properties.
Forensic Economist,
i hope you implicitly meant that floor is on a foundation that has sunk in one corner such that everything is slowly sliding to one wall
See my must-see visual breakdown of the present market
http://i215.photobucket.com/albums/cc13/steklo/200703201835.jpg
Watch the TLT - I trade high risk - you don't have to.
They will not be able to hold the properties if rents fall significantly as a result of the massive layoffs happening.
it seems not many listed properties would cash flow
Means that real estate is still overpriced - by about 25%, minimum. Median income in Sacramento is about $50k. Median house price has dropped to $220k - still way too high. And if we see real deflation, median houses will need to go less than $150k.
I like the 100xrent for rentals. I'll try to remember that.
Sorry, but I am going to have to disagree with CR. Most of the people buying homes these days are "speculators", not "investors", for the simple reason that there are STILL very few deals that pencil out with a positive cash flow.
In other words, it is exceedingly difficult to purchase properties even after the recent price declines, that will generate enough rent revenue to cover expenses (mortgages, maintenance, etc). Worse, rents are falling in most of the country making it even harder to maintain positive cash flow.
I would contend that you CAN'T be an investor if the property you purchase has a negative cash flow, and seeing as how there are precious few of these sorts of deals occuring these days we can only conclude that most purchasers are nothing more than speculators.
There was a paragraph in an otherwise unrelated Bloomberg article in early November, that one RE investement outfit (it was not named) bought 30 bn worth of Miami Condos.
I just thought, who would do such a thing.
When you can borrow with a virtually asset-less LLC from the banks that already own $30bn of Miami condos
Trust me, we will always be posting about home prices.
Elvis | 01.08.09 - 12:42 pm |
Isn't that some sort of Sartre-like hell?
blueridge | 01.08.09 - 12:46 pm | #
OMG, there really is No Exit.
'Humans are risk seeking and overly optimistic by nature.'
Then I must not be human. My standard answer to "is the glass half full or half empty?" is, someone stole the glass years ago and now the water just splashes on the counter and runs off to feed an established black mold colony.
I invest like a grandma. It's a point of pride.
Deflationary Jane | 01.08.09 - 12:58 pm |
I've become that way (with my 401k anyhow) after some harsh real-world experiences.
FWIW it appears that the tendency to be overly optimistic is more than perceived:
Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. It is one of several kinds of positive illusion to which people are generally susceptible.
Optimism bias - Wikipedia, the free encyclopedia
Repost for everyone that missed it
3 categories of buyers if you will
1) Flippers - purchase based on expected future value
2) Investors - purchase based on present value
3) Residents - purchase based on user value
As mentioned already, 'Arnold's investment is contingent on rental prices not falling too much. What is important now has almost nothing to do with strong or weak hands.
All that matters for a long time is inventory. A surplus of empty homes demands falling prices.
blackhat writes:
I don't know, investor or speculator is like "Are you lunch or dinner?"
Blackhat,
I am going to frame that. Thank you.
Being called an optimist is a compliment. Being called a speculator is an insult. Funny.
Fannie, Freddie extend foreclosure, eviction suspension
Explain to me again why people bother to pay their mortgage?
sniglet,
I agree. I think we need to call them specu-vestors just to quarentine them from the rest of the general population.
They're probably speculators THINKING they are investors. I'm sure buying properties and renting them out is appealing to a whole lotta people now looking for income possibilities. Why not buy low, rent it out, in "x" number of years your property is paid off, and voila. Easy street.
Only there was a story on our news today about a 19 yr. old tenant who just assaulted his landlord over late rent payments.
Once they see how difficult reality is, they're going to get out of it.
A lot of sellers around me are still aiming at speculators as their target buyer.
I was just looking at a nice building, excellent location. Built in the late 1960s, but the association is extremely well-run and all common areas are in top condition. They aren't shy about charging for it. Monthly assessments are high.
I see a number of people who have a unit for sale or rent. Example: A 2BR unit, asking rent of $3000 per month. If you wanted to buy it at their asking price (20% down payment), you've got monthly costs that will come in around $6000 per month. And that assumes property taxes don't go up next year.
Who on earth could they possibly think would fall for something like this? The only possible answer is a speculator that thinks property values are going to double by 2010.
"NPR informed me this morning that the problem with antibiotic-resistant bacteria was due to this recession. Apparently retailers like Wal-Mart are offering cheap antibiotics as a way of luring people in to the store."...
Total garbage...drug resistant bacteria are appearing due to a multitude of factors including overuse of antibiotics in feedlots, unnecessary prescription of same by doctors for minor ailments like earaches, failure of patients to follow antibiotic usage instructions properly, improper sterilization of hospital equipment, and others. To point the finger at Walmart is utter garbage.
"faux-this, engineered-that; from structural beams to cupboards to fake finishes on everything, newly built houses (esp. the ones slapped up lickity-split during the peak) are esentially disposable goods"
Planned obsolesence. Every siding manufacturer, faucet maker, cabinet designer's dream...
OT - Sorry to keep OT'ing, but since I've been so "rah-rah" cheerleading EEV over the past few days, wanted to say Sold all EEV @ 50.83, having bought Monday @ 46.16.
I do NOT like this volume - declining on a pullback is bullsih. I depends now how we close.
I think it was lawyerliz that mentioned yesterday a lady she was speaking to that delivered foreclosure and eviction notices was getting scared to do her job...Liz could probably post the details, I'm sure I'm forgetting part of what she said...
Small (525 sf) condos here offered at a price range of 82k to 119k. The 82k has been on the market for 3 months.
The only real hope is to make the tracking of the money involved much more transparent.
Eric | 01.08.09 - 11:51 am | #
Banning all corporate contributions is practical. It is now the law for NYC local campaigns.
It is a foolish fiction of law to equate commercial speech with individual expression.
As to the CR vs. Shiller interpretation: I think it is a mixture of both investors and speculators.
I'm sure there is some money to be made in investing, but more to be made by waiting.
I think alot of the "investors" today are the type who went to a "rich dad, poor dad" seminar on wealth building and think that getting a rental at today's prices is the way to retire at 50.
They may intend to stay in it long term, but when the alleged "cash flow" is not enough to pay for the new roof, or the midnight plumbers visits, and appreciation seems further and further off in the horizon, they may bail.
::::::::::::âMost of the houses I buy are junkers, but with a little work they become cash cows," Arnold said.
Arnold is not a flipper, and according to the real estate agents I've spoken with recently, most of the recent non-owner occupied buyers are buying for cash flow just like Arnold.
Yes, these investors will probably keep price appreciation down in the future, but I'd argue a cash flow investor is a "strong hand" and I think they will hold the property longer than Shiller expects. - CR
I agree - I know folks who do EXACTLY this - buy wrecks, fix them up a little & rent them out at a significant positive cash flow. These guys were livid w/ the flippers over the last couple years - drove prices above the point where they could cashflow... and as we saw near the end the prices got so high they couldn't even flip. One of the guys I've talked to told me he stopped buying properties all through 2005-2007... early 2008 he finally found properties sufficiently cheap that he could once again make the numbers work. He was from SW Florida.
The only thing I could see making Shiller & Stiglitz 'right' would be if job loss was so high that rents were forced even lower - pushing the recent 'investors' in to a negative cashflow situation & then they too unload - looking like flippers & speculators even if they didn't intend to follow that path.
PCA - How did your system work for you in 2008? Overall, did you run in the red or the black for the year?
Just curious.
Pent up supply
http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg
PCA is trading a 50g account 100 up.
it's scary.
hey, pca. you trying to get a track record or something?
I have to agree with CR.
Under this new WaMu program -
(WaMus New $1 million 5-year 1% Balloon Loan (mod) - $878 Per Month)
you can buy the property and rent out for positive cashflow for five years.
That's investing, right?
.
lendingmaestro "I have met very few people in both my professional or personal life that make money from rental properties. Very few. Who are the ones that do? People who inherit properties from family members and people with no mortgage on them.
If you purchase a property with a mortgage you have interest, taxes, insurance, and maintenance expenses. Not to mention the opportunity costs of your downpayment.
Perhaps the biggest risk is collecting the monthly payments. Do you want to carry that burden in this recessionary environment?"
you speak like a man with no rental properties. I have been buying rental properties for the last 25 years. They can and do make a positive income , but did have many years of negative returns. you have to look for the long term income which most people cannot afford, especially those property owners who turn bad investments into rental properties
"The only thing I could see making Shiller & Stiglitz 'right' would be if job loss was so high that rents were forced even lower - pushing the recent 'investors' in to a negative cashflow situation & then they too unload - looking like flippers & speculators even if they didn't intend to follow that path."
Not such a hard scenario to see. Likely, in fact, in most regions still.
Obama prolly got an advance peek at the Dec UE report and tipped his hand with all the recent drama queen action.
Loss of 740,ooo ?
"Planned obsolesence. Every siding manufacturer, faucet maker, cabinet designer's dream...
Casio | 01.08.09 - 1:15 pm | # "
True enough; I replaced a kitchen faucet less than 2 years ago with a $50 replacement from HD, and it's leaking already. Serves me right.
serf hopeinsd writes:
I think alot of the "investors" today are the type who went to a "rich dad, poor dad" seminar on wealth building and think that getting a rental at today's prices is the way to retire at 50.
They may intend to stay in it long term, but when the alleged "cash flow" is not enough to pay for the new roof, or the midnight plumbers visits, and appreciation seems further and further off in the horizon, they may bail.
My Friend, may I remind you of the wisdom expressed by P.T. Barnum.
dryfly writes: I know folks who do EXACTLY this - buy wrecks, fix them up a little & rent them out at a significant positive cash flow.
So do I & I'm meeting more of them every day.
Banning all corporate contributions is practical. It is now the law for NYC local campaigns.
Since when are corporations allowed to contribute to federal campaigns?
I agree with Eric, way too many loopholes to effectively prohibit. The best you can do to shine a damn bright light at the situation.
Popeye
Will a close below spx 885 cause you to go short?
Comrade Ramrod writes:
hey, pca. you trying to get a track record or something?
I don't mean to hijack this fine comment forum w/ my trades.
I wanted to counter the impression that I'm a good fade. I've had 3 trades - long DTO Dec. 15-22 30% profit, long SPY, Q's, EEM last week for 6-8% profit, long EEV, DUG, short SPY this week varrying profit 3-10% - all posted near real time.
But I'm also trying to provide some informed commentary and reliable T.A. on these volatile markets.
"bought an Orlando foreclosure in June for $60,000, about a third of its appraised value"
The foreclosure sale price is the market price. The problem with appraisals these days is they are wrong unless they uses 30 day or less foreclosure comps. But, of course, a foreclosure isn't a comp for an appraisal. Losers.
Bah Humbug!
The first stage of housing speculation will come about with people that speculate on rental properties, for future cash flow, but getting in too early will be a massive part of the equation, because if these landlords come in too early, when demand is too weak, they will burn through too much cash and increase risk too much and then ... blah, blah blah, you all know how it ends, i.e, death, destruction, blood in the streets, screaming, crying, wailing, divorces, foreclosures, bankruptcy, unemployment, starvation, bailouts ... very sick!
ades writes:
"One of the examples of a positive cash flow that CR gave a few months ago was Oceanside. I dont know what part of town it was actually in but theres a lot of land up there I'm not touching with a 10' pole either...."
Oceanside is a sleeper, some parts have gentrified while others, such as the "Back Gate" are still notorious. Population in SD still increasing slightly (go figure). If you really want to pick on North County, I'd pick Vista, particularly the Townsite neighborhood "Jim The Realtor" memorialized in his great video. Or Valley Center.
OT- CR,
Any comment on:
What is the Narrowing TED Spread Trying to Tell Us?
But I'm also trying to provide some informed commentary and reliable T.A. on these volatile markets.
Persecuted Comrade Anonymouse
Keep up the good work, PCA. Good call on EEV, dropped 5% after you called, you held and made 10%. Relaible T.A. though, I'm not sure
From King
Bonds just popped on a rumor that in about one hour it will be announced that the Fed has taken over the Atlanta FHLB portfolio and assigned it to PIMCO to manage. It's been reported that Countrywide and WaMu had borrowed tens of billions of dollars from the Atlanta FHLB.
Even if they are "speculators", so what?
There is a certain level of sophistication that is needed to buy distressed property, and also to recondition it for a "normal" sale. These speculators serve that purpose & ought to make some money for their efforts.
Maybe I've missed it, but isn't one reason new UE claims are lower the last couple of weeks the fact that all the offices were closed at least one day a week the last two weeks?
Give PCA some credit. He has the stones to put his reputation on the line everyday. And his audience has long memories, short littly umpaloopa feet.
"XXXXX wrote
True enough; I replaced a kitchen faucet less than 2 years ago with a $50 replacement from HD, and it's leaking already. Serves me right.
xxxxx | 01.08.09 - 1:25 pm | #
Incidentally, SS bham is still like that. My sister lives near there and recenly got mugged by one of the project inhabitants.
Bham shoulda left the old houses there. Where I live (DC), the old victorians turned into 4-5 unit tenements when the wealthy moved away. Now the wealthy are beginning to re-inhabit the city, and turning the old victorians back into mansions again. Cant exactly do that with the projects!
"joe after the 12 pack writes:
CR is right on the money I also by good but beat up properties, repair them and the rent for cash flow. The value rise is not important to me in the long run. I pay cash and when the profit pay back then consider selling to a good renter and finance it for them. So far great return.
joe after the 12 pack | 01.08.09 - 12:38 pm | # "
OMG!! You just gave away the business plan I have used for over 25 years! Better sell (at 12% owner financed) what you still rent and retire! Of course, some VERY concerned legislator will demand that pers. residence cramdowns are allowed and at that point you have to go back to work.
"dryfly writes: I know folks who do EXACTLY this - buy wrecks, fix them up a little & rent them out at a significant positive cash flow."
I was discussing this with a friend last night. It is virtually impossible to cash flow a good return on CRE properties unless you buy them at the bottom or do all the work yourself. With commissions, TI allowances, volatile (now plunging) rents, deadbeat/BK companies, it is a losing proposition (without a 10 year leased single paying tenant).
PCA,
If you post any more stock symbols, I'll have to post picks for the NFL again.
"Bham shoulda left the old houses there. Where I live (DC), the old victorians turned into 4-5 unit tenements when the wealthy moved away. Now the wealthy are beginning to re-inhabit the city, and turning the old victorians back into mansions again. Cant exactly do that with the projects!
Casio | 01.08.09 - 1:34 pm | # "
They're doing that in Dorchester and to a lesser extent Roxbury these days.
you speak like a man with no rental properties. I have been buying rental properties for the last 25 years. They can and do make a positive income , but did have many years of negative returns. you have to look for the long term income which most people cannot afford, especially those property owners who turn bad investments into rental properties
jerry | 01.08.09 - 1:23 pm | #
Many years of negatve returns doesn't sound like a staedy stream of income to me. I'm not saying can't make money, but a lot has to go right, including price appreciation, to realize the return you were looking for.
swan, thats a fugly rumor if true
yikes
stockdog42 writes:
Popeye
Will a close below spx 885 cause you to go short?
Stockdog,
Why did you have to ask that question several seconds after I went seriously long ?
Speaking of reputations: what happened to CSC and EHP?
Food for hungry flipper brains:
HTTP 404 - File not found
You can't buy something simply because it is half of what it sold for three years ago. Here is a great example. A buyer picks up a house for $260,000 in foreclosure. Two years prior a flipper paid $504,000. The buyer thought he "stole it," as boasted to me. When I asked him why he thought that, he responded that he bought it at 50 cents on the dollar. He was obviously not thinking clearly, because the original price had nothing to do with what this property was worth today. He didn't pay 50 cents on the dollar. He actually paid about $1.20 for a $1.00.
Here's how this played out . . . The buyer had to put more than $20,000 into repairs after not being able to sell it "As Is" for two months . . . plus the expense of taxes, insurance, HOA fees and maintenance for the two months. But let's go back to square one.
EU: Gazprom insists on some Russian gas monitors
European Union says Russia is insisting on some Russian gas monitors to eye Ukraine pipelines
Thursday January 8, 2009, 1:02 pm EST
Yahoo! Buzz Print BRUSSELS, Belgium (AP) -- The European Union says Gazprom is insisting that Russians be included in the monitoring mission overseeing Russian natural gas as it flows through Ukraine pipelines.
Moscow's insistence to have Russians checking the gas flow through Ukraine goes against an agreement the EU had with Kiev to limit the group to EU observers alone.
Yahoo! 404 - Page Not Found
Why did you have to ask that question several seconds after I went seriously long ?
Popeye | 01.08.09 - 1:36 pm | #
+1!
I'll keep my symbol posting to a minimum.
Popeye,
Two day-over-day declining volume supports a long here, but I would be too nervous at these levels. From 896 (day's low), the S&P could fall another 36 points and still be a "buy"...
Persecuted Comrade Anonymouse writes:
"But I'm also trying to provide some informed commentary and reliable T.A. on these volatile markets."
Lets hear it for PCA. Whether they're good calls (lately yes) or not, he provides details rather than just grumpy/snide conclusions.
Even if they are "speculators", so what?
Shnaps | Homepage | 01.08.09 - 1:32 pm | #
The difference is I invest... but YOU speculate.
CSC spent some time declaring his exit. EHP may still be moving. They both have shoes unfilled.
CR,
Completely agree with your assessment. As you pointed out in the previous post is what happens in the high end since those are so far from cash-flowing positive. One of three things is going to happen:
1) High-End prices decline quickly creating investment opportunities for buy/rent/hold investors.
2) High-End prices decline slowly over many years (e.g. Japan).
3) Gov't creates some new tax advantage to owning real estate to compensate for natural market forces
My guess is #2
great point CR... as a small landlord for 12 years (props. in southern Indiana, a land of eternally stagnant prices) along with two brothers who believe 67 - 80% occupancy rate is acceptable year over year - I seem to have this antiquated notion that one should shoot for around 85%, maybe I've been in Cambodia too long.
I agree with the strong hand theory v. flippers. Gold star for you, magenta for Schiller.
stones to put his reputation on the line everyday
i don't know if i should laugh or cry.
he's an anon poster.
ok...let me post my trades.
i bought 10000 shares of bac @ an avf price of 10.76. I sold 6000 at 14.85 and the reamander at 17.5 and still collected the phat dividend in dec.
blah, blah ,blah blah, blah.
Obama: "For years, too many Wall Street executives made imprudent and dangerous decisions, seeking profits with too little regard for risk, too little regulatory scrutiny, and too little accountability."
"It is time to trade old habits for a new spirit of responsibility."
No, it's time to JAIL THE PERPETRATORS! How can we have a "spirit of responsibility" when the criminals are still running the show?
You want to inspire confidence in our markets? Put some bankers in jail!
Obama's plan is weak, toothless, and misdirected. How disappointing.
All you who buy and rent properties, good for you. Whatever you make is well-earned for putting up with all that it entails. Also, I'm glad SRS wasn't around when I started trading because I'd probably would be out muttering somewhere now.
Sorry, but isn't PCA a "she," not a "he?"
What happens when interest rates turn around and head back up? What if many of these smart investors are sitting on loans that have adjustable rates, which will help burn cash?
It takes 2 to make a trade - A winner and a loser.
I'm a 'he', I've always tried to be informative and helpful w/ my trading calls, and I'm out for the afternoon.
It takes 2 to make a trade - A winner and a loser.
bearly | 01.08.09 - 1:43 pm | #
But they both think they are the 'winner'.
PCA, my apologies on the gender. I think informative and helpful people will always be appreciated. I don't do stock market trading.
pimp co at it again
Munis look good as gov't spigot stays open: Gross
Buy munis ahead of Obama bailout, Pimco's Gross says - MarketWatch
The citizenry will be scraping for loose change...I think any tenant hoping to extract a stable source of income from their rental properties will find the coming years brutal.
People will move to complexes if they can't afford a nice home to rent.
But dont' worry once the property has to be resold at a steep discount...you can rent it out cheaper.
There's no free lunch...and for the a while at least this will be espeicially true for real estate "specuvesting"
stockdog42 writes:
Popeye
Will a close below spx 885 cause you to go short?
My funds are segregated. Some are burried in curriencies as a defensive measure < gold is for suckers >. Stockdog, as I answer your question, you need to understand that I don't bet all my money in one place, but I take every bet I make very seriously. .... and one more thing - I don't lie.
If the SPX closes below 885 ? No. If the SPX for one tenth of a second drops below 885, I won't sell. My stop loss will sell for me.
Does that answer your question ?
No, it's time to JAIL THE PERPETRATORS! How can we have a "spirit of responsibility" when the criminals are still running the show?
Speed | 01.08.09 - 1:41 pm | #
Would it not be easier to wait until they leave office?
By MARTIN CRUTSINGER
WASHINGTON (AP) - The head of the government's $700 billion financial rescue program says the effort has made the nation's financial system more stable.
Neel Kashkari, the assistant treasury secretary in charge of the bailout program, says the effort had made remarkable progress since it was passed by Congress on Oct. 3.
Kashkari called the financial system "fundamentally more stable" than when the legislation was passed, and says the rescue program helped to stem a series of financial institution failures.
Kashkari called the financial system "fundamentally more stable" than when the legislation was passed, and says the rescue program helped to stem a series of financial institution failures.
Perhaps, but ultimately we won't know for some time.
Short-term stability is meaningless if it leads to a dollar apocalypse down the road.
Just like stabilizing the financial system after the LTCM debacle opened the gates of hell.
Obama's plan is weak, toothless, and misdirected. How disappointing
It was only disappointing if you expected something different.
.
FYI:
Mortgage Participation CertificatesFreddie Mac issues and guarantees Mortgage Participation Certificates, or PCs. PCs are securities thatrepresent undivided beneficial ownership interests in, and receive payments from, pools of one- to four-family residential mortgages that are held in trust for investors
http://www.freddiemac.com/mbs/docs/pcoc_122408.pdf
Offering Circular dated December 24, 2008
and says the rescue program helped to stem a series of financial institution failures.
Anonymous | 01.08.09 - 1:48 pm
Yes, I'd hate to see any of those responsible regional banks take the place of the irresponsible banks. How could Congress be guaranteed their contributions and future lobbyist positions if we have these new guys running things?
Thanks
Anonymous writes:
By MARTIN CRUTSINGER
Repost
translation of the recent Testimony Of Interim Assistant Secretary For Financial Stability Neel Kashkari Before The House Committee On Oversight And Government Reform, Subcommittee On Domestic Policy:
'Piacere. It is a deep and moving honor to discuss the waste mangement business with all of youze.
These are trying times for this thing of ours. Credit markets were saying 'va fa napole'. The Borgata was approaching a stage of crisis...
Let us not forget the Code of Silence. Anti-Trust violations aside... Those that go oobatz get pinched.
Our capo in his esteemed wisdom gave the crew a taste without excessive vig. There was initally discord on points and even unfortunately a necessary message job for those that had not in the past paid tribute. But that jamook Fuld got his, buon' anima.
The shylock business continues.
The necessary themes musciata are expressed by us. The cafones and poveretts, for whom the books are always closed have been told 'col tempo la foglia digelso diventa seta'
Gentleman, this Golden Age is quickly coming to an end. It is imperative upon us to complete our spring cleaning for it is possible that there might be mannagge with the tizzun. Already the fanook is getting all chiacchierone on the shy. That NY strunz. This is causing much agita I know for there could be predicates. None of us wish to be guests of the state. This is not the time to eat alone.
Looks like we have an Agitated Hissing Cat formation in the markets.
But whither the tail? Whither the tail, my friends.
As for the company, the thing like stockholder's has been severely said.
It invests a lot in the stock market however and the management right of the company in the person who acquired an interest might be an amusing ..where it goes.. thing. The person who invested can ..favor of the company.. take charge as the person who has carried it out anticipates a profit suddenly for the company.
It will be nothing but the financial influence principle.
In the profit of the company, the worker is a slave in "Investor". It is too cruel.
At least, it should be said, "Employee".
The stockholder controls a business, and the company employee also rules.
It is nothing that the company is stockholder's ownership thing but the financial influence principle.
It rules the company and the society by the one with the capital and money, and ..structure of the exploitation of the capitalist.. doesn't become it ..another...
It is done in the principle that says, 'The company is defended' the thing called a dismissal when the worker is used like the slave, exploited, and it becomes unnecessary.
It does to the stockholder.
It is likely to only have to invest according to holdings so that the stockholder may save the crisis of the company if it is said stockholder's company.
Isn't the thing that should be first done good even if it is smoothly done that the dividend of the stocks is decreased when sales of the company fall in the recession?
You are sure to be allowed not to dismiss many of employees only by it. Isn't it a very natural thing that the dividend is not put out when the profit of the company disappears?The stock is the one that originally contains such a risk. It might be ..defense.. management of the stockholder of even if becoming such a situation, and be stockholders' egoisms.
It might be said that capitalists also lost a lot of properties due to this finance crisis. However, is the billionaire a half of the property?Even if 90 percent is lost, it might be luxurious occurrence still enough. Investor's property in it is original gambling called an investment and gained ..existence.. ..turning over.. Sen. There is no such money ..defense.. needing.
Employee's salary is firmly paid in the president of the small and medium-sized enterprise when the company is a tough going, and we often hear the story said that there is a person who works free of charge. It might be the one called it a manager though it might be so much a lot of fine anecdotes that not are. Even the investor should do so.
Obama's plan is weak, toothless, and misdirected. How disappointing
It was only disappointing if you expected something different.
.
Broward Horne
I expected a politician who would formulate any justification to hand out money and buy the public's favor.
History says it must be so.
I'd be looking for ways to shoot down flippers and speculators if I were in The Obama Cab...
Housing flippers are the equivalent of financial derivative flippers and this type of ponzi and lotto mentality cancer has to be taken out of the system ASAP. There has to be a way to penalize house flippers with taxes or time-related traps. I agree with Stiglitz and this will be something to watch, i.e, allowing flippers to screw up the recovery phases!
Did anybody notice the Cornered Cat formation taking shape today?
There has to be a way to penalize house flippers with taxes or time-related traps.
The change away from a complete 2/5 capital gains exemption was a start. How about changing it to a longer duration or removing it completely?
And, the reast of the story>>
Bloomberg.com
Regular homebuyers are excluded from the foreclosure market because the rules favor professional investors and that lack of competition is driving down prices, Baker said. This is a place where the government could step in and stop housings downward spiral by encouraging a more user-friendly process.
Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz. Lenders repossessed about 850,000 properties in 2008, according to RealtyTrac.
Neighborhoods devastated by foreclosures are at a tipping point, said Mark McDermott, of Columbia, Maryland-based Enterprise Community Partners. Getting these properties into the hands of community groups, instead of speculators, will go a long way toward stopping the downward spiral.
ac, see my post at 1:54!
I admit I am not up to date on my TA lingo. Cornered Cat is much punchier.
Lest we forget:
Ben Bernanke, Feb. 28, 2008
"There will probably be some bank failures. There are some small ... banks that have heavily invested in real estate in locales where prices have fallen. Among the largest banks, the capital ratios remain good and I don't expect any serious problems among the larger banks," he said.
Why does this man still have a job?
Renters destroy property and neighborhoods.
I hate to say it, because I'm a renter too. But the shit-pits that get rented to us because renters don't care make ME not care.
Seriously, why should I care about a property when the .Gov inspector comes by and tells me I'm lucky there hasn't been an earthquake and if there isn't one, don't be under the AC unit because it will fall on me, and same goes for the porch because it will collapse too because the roof was set cheaply and way under code.
He got fined for it by the city. I have since moved, but in every picture of the old house I see for rent on craigslist, the roof is still the same deathtrap roof, waiting to claim a victim. Same landlord charged me for 'replacing' the carpets that had cigarette burns when we moved it.
So Shiller is right either way, either they'll come back on the market and flood and make the market crash again, or they'll just crash the market because renters lower property values by being shitty people beholden to shitty landlords. (Yes yes there are exceptions to the rule)
Also, houses in 'nice' new developments are getting rented out for $2500 in my town. (Stockton, CA - yes, you've heard of it now because it's one of the foreclosure capitals, but before that it was famous for the first AK47 attack on a schoolyard. At least nowdays the gun attacks on kindergarteners are perpetuated by children stealing their parents' guns) No one in Stockton can afford this because there are no jobs that aren't Starbucks in Stockton, unless you teach at one of the colleges. This is a town of 300,000+ people, by the way, most of them poor. So that $2500 house is going to be rented out by 10 or 15 people. They are going to trash the house and ruin the neighborhood.
And if you don't believe how bad things are here, drop me an email and come visit. I now live in one of the nicer places in Stockton, a block away from university, and have first had my car stereo stolen, and then two weeks later the entire car. I now will be paying thousands of dollars just to drive my car again. I paid the taxes that pay the government assistance the thieves are probably on, and if they DO by some miracle get caught and go to jail, I'll be paying EVEN MORE money to support them while they do nothing but learn better ways to be criminals for when they're released, to come back and steal my car again.
In this country the middle class get it from both ends, the rich buying politicians and warping legislation to their needs, and the same politicians supporting a broken social welfare system. The only 'trickle-down' effect of our economy is taxes from the middle class taking care of criminals.
imperial DH-
"My bad."
You obviously do not know anything about CAP rates or investment properties.
$950/month - $200/month taxes(non-owner occupied)- $300 insurance(hurricane)- $200 maintenance/vacancy=
$250/month net income= .0375 CAP rate on 80k investment.
Anyone here talking aboubt 10 CAPS in a ZIRP environment is obviously clueless about what is going on right now.
What happened to this blog? It is now occupied by a growing number of know-it-alls that know nothing at all.
And it used to be so productive.
Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz.
A worrisome thought crossed my mind yesterday. As Congress places more and more conditions on TARP funds (e.g. executive compensation), there will come a point where the bankers say "fuck it, I want my $80M bonus. We're too big to fail." After all, it's not really the bankers' money. So we might get Enron, where losses are hidden until liquidation is the only option.
"doc holiday 1.8.09 writes:
.....
Housing flippers are the equivalent of financial derivative flippers .....doc holiday 1.8.09 | 01.08.09 - 1:57 pm | # "
Are you sure they're not the equivalent of short sellers who help provide some liquidity to the market? I'm just asking; this is not necessarily my point of view.
Did anybody notice the Cornered Cat formation taking shape today?
PCA is dying to know. I believe he's flat, or slightly long looking for a rally. any help/color you can provide will surely help his '09 audit.
There has to be a way to penalize house flippers with taxes or time-related traps.
Actually market corrections do that quite handily. Problems arise when some third party provides insurance against these corrections or the resulting losses.
Then the free market mechanism that punishes poor decisions is disabled and the speculators go wild (free markets are markets where prices are free from intervention, not markets that have no regulations).
ac, see my post at 1:54!
I admit I am not up to date on my TA lingo. Cornered Cat is much punchier.
Gary | 01.08.09 - 2:01 pm |
Now do we bring out the catnip or the broom...
Quincy k
were still here, but sometimes the responses are entertaining. like a three stooges flick. a chuckle here and there.
it took about 2 seconds to eyeball those numbers and know 'that ain't a Great deal'
but the article is a sales tool, that's all.
mortgage interest deductions????
Tax Break May Have Helped Cause Housing Bubble
THE RECKONING; 1997 Tax Break on Home Sales May Have Helped Inflate Bubble - NY Times
But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.
Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for fueling the mother of all housing bubbles.
Now do we bring out the catnip or the broom...
ac | 01.08.09 - 2:07 pm | #
I vote for the spray bottle!
Pimpco Gross says "the future president Obama and Pimpco are on the same page"
dahh
ac writes {quoting others}:
There has to be a way to penalize house flippers with taxes or time-related traps.
Listen my children and you shall hear of the midnight ride of Paul Revere.
At what point do you penalize audacity ? That my friends is the real question.
Nick,
that was righteous...
As a fellow renter waiting to buy when the dust clears at least a little, I agree that renting sucks. I just tell myself I'm paying for the security of not owning right now. 1200 bones a month and old 2.5b/1br that will need major repairs in 5-10.
But times they are a changi
ac - well put. RacerX also touched on that - A bona-fide "speculator" in today's market is a helluva lot more suited to take that risk (not to mention she is putting major skin in the game) versus the zero-down NINA speculators of years past. That's the difference here.
and to dryfly - the difference between you and I...is that I have a fish-fry on Friday night, and YOU eat Lutefisk.
Somebody silence Bill Gross. Gets his slick tongue out of our lawmakers ears.
First thing for Obama to do is turn this around and kill the speculators ASAP!!!!
Perhaps the most detailed analysis of the provision has been the study by a Federal Reserve economist, Hui Shan, who did the analysis while at M.I.T. Ms. Shan looked at homeowners with significant equity gains, before and after 1997, and compared the likelihood of their selling their house. Her study covered 16 towns around Boston and took into account a host of other factors, like the general rise in home prices at the time.
Among homes that had appreciated less than $500,000, she concluded that the change caused a 17 percent increase in sales in the decade after 1997. Before the law changed, many people apparently avoided paying the tax by simply staying in their homes.
Ms. Shan also found that sales actually declined among homes with more than $500,000 of gains after the law passed. (Under the new law, couples have to pay taxes on gains above $500,000, even if they roll all those gains into a new house.) Nationwide, however, less than 5 percent of home sales over the last decade had gains of more than $500,000, according to Moodys Economy.com.
Despite the criticism, there has been little political support for trimming the tax breaks for housing. In 2005, a bipartisan panel of tax experts, which was appointed by President Bush and included Mr. Rossotti, concluded, The tax preferences that favor housing exceed what is necessary to encourage homeownership. Among other things, it recommended increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panels report.
At what point is AUDACIOUS brave and leading .... ad which point did audacious become a fool ?
Shakespeare's XVII'th sonnet
That's it baby:
Obama, this is for you dude:
Shakespeare's XVII'th sonnet
Read it - - and think
Gross Pimpco let slip just now that CMBS are next up to bat now that MBS have been giving a walk
This blog is just way ahead of the curve...
Saving A Squirrel By Eating One - NY Times
"Incidentally, SS bham is still like that. My sister lives near there and recenly got mugged by one of the project inhabitants.
....
Casio | 01.08.09 - 1:34 pm | # "
Sorry to hear that. I hope she's ok-
Goofus writes:
This blog is just way ahead of the curve...
squirrels are people too
First thing for Obama to do is turn this around and kill the speculators ASAP!!!!
doc holiday 1.8.09 | 01.08.09 - 2:14 pm | #
Yeah, cause, you know... you wouldn't want to live in a country where, you know, you could invest your own personal money any way you wanted.
Ouch - I missed the damn roman numerals....
Before I quote it in full - I ask that you suspect, I'm being honest.....
WHEN in the chronicle of wasted time
I see descriptions of the fairest wights,
And beauty making beautiful old rime
In praise of Ladies dead and lovely Knights;
Then, in the blazon of sweet beautys best,
Of hand, of foot, of lip, of eye, of brow,
I see their antique pen would have exprest
Even such a beauty as you master now.
So all their praises are but prophecies
Of this our time, all you prefiguring;
And for they lookd but with diving eyes,
They had not skill enough to sing:
For we, which now behold these present days,
Have eyes to wonder, but lack tongues to praise.
"it took about 2 seconds to eyeball those numbers and know 'that ain't a Great deal'
Very true. At least far from a "cash cow" because there is no cash on the first one. Note that he thinks he can get almost the same rent for the $25,000 house (without mentioning repair cost) as the one he bought for $60,000 plus the $20,000 repair cost. Using his numbers on the $80k house his mortgage payment would be about $750 plus $166 minimum for taxes and $100 (in FL) for insurance. That's $1016 plus maintenance and less vacancy. Far from being a "cash cow." These financial reporters are not all that useful.
"Perhaps the most detailed analysis of the provision has been the study by a Federal Reserve economist..."
Eric, this is the point where I stopped reading.
As for me, I lack tongues to praise.
think first.
I was looking for a new project and going after flippers seems like a great new hobby. I live next to guy who intended to flip, and it has been somewhat fun seeing his failure, i.e, buying at the top and falling into a trap.
All I can do is thank God for very strong homeowner association-backed CCR's, which force this idiot to maintain his place or be fined thousands of bucks!
I assume his next step will be to rent to find cash flow for the $100,000 K he put in to the fix-ups! The only thing I like, is that he never is around...
bill gross=Donald Trump
same father evident in wispy hair...
both con men with attitudes...
troll them in shark infested waters off farallon islands...and then we got to watch
YouTube - Shark attack
If there are architects out there who can figure out how to turn the McMansion into a functioning multi-unit that's cost effective then they'll have work. I can't imagine how that would work, unless you got the place for free. The construction techniques and designs seem to work against conversion- better to just rent bedrooms.
All I can do is thank God for very strong homeowner association-backed CCR's, which force this idiot to maintain his place or be fined thousands of bucks!
doc holiday 1.8.09 | 01.08.09 - 2:22 pm | #
If he walks from a multi hundred thousand dollar mortgage, I'm guessing he won't sweat a few dimes worth of fines.
architects out there who can figure out how to turn the McMansion into a functioning multi-unit
'at's illegal.
GP-
Where are you getting $100/month for insurance in Florida? That might be for renters insurance but not for hurricane. More like $300/month.
Also, there might even be a HOA fee.
But guys like imperial DH will buy it because he thinks it's a 10 CAP. After all, that's what the Kobayashi seminar told him.
Think first -this is a crux game we play..... frills are for fools.
What I know for certain is that the foreclosure numbers in Northern California have not gotten any better over the last 6-12 months. I jot down the totals for a specific zip code every few months, and they have nearly doubled in the last 9 months. The next wave of defaults and foreclosures after the last reset in Nov. is just starting to hit now, and it's worse than it was last year. I feel that it will be even worse in 2010, because the peak was 2005.
Note that foreclosures.com has taken off the nationwide and statewide totals from their web page. When they had them last, Alexis McGee was a lot heavier looking. Hahaha.
You all are assuming that Mr. Arnold as a mortgage. If he's got ten SFH properties, then it'll be difficult for him to get another mortgage. Not enough info to know if he's got a good deal, although I'd guess he's under estimating his potential vacancy rate.
Quincy k writes:
GP-
Where are you getting $100/month for insurance in Florida? That might be for renters insurance but not for hurricane. More like $300/month.
Renters Insurance in FLA - as low as $500/year - for a house
diving eyes or divine eyes?
My homeowners insurance in Florida is @ 1600 per year. I know people that pay much, much higher prices that live closer to the water. Some are paying 3-4K for homeowners per year.
eco-do you have link for video?
re:gross and cmbs
allstate-
I meant to say Landlord policy as opposed to renters insurance.
I am a landlord and pay about 800/year on a 270k structure wiht 1mm coverage.
If this where in Florida I would guess that my rate would be around 5-6k/year
Quincy k -
you are the know-it-all who knows nothing. Check out his original post @ imperial DH | 01.08.09 - 12:03 pm
What happened to this board we used to be a lot more congenial?
Popeye, you're sounding about three lines short of a quatrain.
LSD is not your friend.
.
Anonymous-
Great. Another know-it-all.
When the ten-year is yielding 2.5 do you really think that you are going to get 10 CAPS on RRE? Or when LIBOR is currently 3.5 percent? Two years at .078?
A lot of you guys really need to stay on the housing bubble blogs.
This is an economic blog.
Quincy k - that's right - no 10 CAPS until the 10 year is 7-10%.
A few failed auctions and we could be there very soon.
Unless Mr. FED keeps "easing"
"What happened to this blog we used to be a lot more congenial."
That's before useless know-it-alls starting showing up here after reading about a months worth of info on a general housing bubble blog and thinking they know everything.
Re: If he walks from a multi hundred thousand dollar mortgage,
I assume he has enough in the mortgage and fix-ups that walking would be insane; and if he walks, it will be picked up fast enough (I hope). I'm waiting for the rental sign any day now, or a moving van...
Interesting times-
If the 10-year gets to 7 I won't be to concerned about CAP rates. I'll be more concerned about not getting capped(shot).
Eric,
Re: "yeah, cause, you know... you wouldn't want to live in a country where, you know, you could invest your own personal money any way you wanted."
http://www.nypost.com/seven/01082009/news/politics/obama_warns_recession_could_linger_for_y_149238.htm
Oh yes it is.
OBAMA: IT'S NOT TOO LATE TO FIX THE ECONOMY - NYPOST.com
oops
cd writes:
eco-do you have link for video?
I'll find it and post it give me a half hour or so
Always a great site:
December Medians | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis
Gross on his SoulMate Obama and CMBS in the batting cage
Video - CNBC.com
I'm one of those investors CR refers to. I pay full cash when I buy and I only buy cheap. My last two deals were for $45,000 and $20,000. They're rented at $700 and $525 respectively. I spent less than $5,000 fixing the two up. I've got more cash sitting on the sidelines earning bugger all interest (quit equities completely in May). I intend to buy and hold more houses for cashflow. Yes, being a landlord kind of sucks, especially at this end of the market. I'm plumber, roofer, electrician, handyman. Beats the hell out of having money in CD's though. Plus, building houses right now just ain't happening.
To give an idea about what sort of tenants I'm looking at... The last guy that I almost rented to just got out of prison from a ten year stint for kidnapping, armed robbery, and misconduct involving weapons. I kind of like ex-cons because if they violate parole they get tossed back in. It gives a landlord some leverage. Trouble with this guy was that I checked his department of corrections record, and his risk ratings never improved over ten years in prison, very unusual. Most people settle in and play the game. Plus his numerous prison sex infractions kind of put me off.
Lets hear it for PCA. Whether they're good calls (lately yes) or not, he provides details rather than just grumpy/snide conclusions.
Comrade V |
Agreed.
architects out there who can figure out how to turn the McMansion into a functioning multi-unit
'at's illegal.
Speed | 01.08.09 - 2:25 pm | #
Foreclosures do not pay property tax. Local and state gov's have in incentive to re-zone.
If he walks from a multi hundred thousand dollar mortgage, I'm guessing he won't sweat a few dimes worth of fines.
Eric | 01.08.09 - 2:24 pm | #
But the HoA will put out a lien! Ha!
Anyone else notice the mushroom cloud ad when you enter CR's site? Nice touch.
If an HOA places a lien and the property subsequently gets foreclosed and sold at auction for less than the mortgage, does the HOA end up getting anything?
Most of these guys say they're in it for cash flow BECAUSE THEY KNOW THERE IS NO MARKET FOR THE HOMES THEY'VE BOUGHT.
Schiller is right. Once there's a cap gain to be taken, these leeches will leave the market.
A McMansion in my cousin's neighborhood has recently been transformed into a house of ill repute. Seems the owner has rented the spare bedrooms to 5 former Countrywide loan officers.
America: 2.1 kids per couple and over subsidization of construction for 60 years. The bubble was bound to happen. Let's get rid of mortgage interest deduction and the cap gain exclusion and let the market decide prices.
Let's get rid of mortgage interest deduction and the cap gain exclusion and let the market decide prices.
µÅÆŸΨ⢠| 01.08.09 - 4:09 pm | #
Oh, I WISH it were possible...
"As the U.S. housing recession enters its fourth year..."
Deny it exists until half way through 2007, then talk about it as if you called it in 2005 (when you were telling people to buy).
Who reads this s&$(t?
There are definitely fewer speculators. Let the investors buy up the homes...they have money to lose.
Black halo,
and get rid of non-recourse
bob mologna(Unrated) writes:
\tTo give an idea about what sort of tenants I'm looking at...
even though I'm here in Cambodia I am a small landlord In Indiana who rents - along with two slacker brothers who seem to think 60 to 70% occupancy is good - to just your class of people. unlike, my kin I spent 24 years renting in Manhattan so I know most of the tricks. sure we could swap some stories!