My Own Off-Topic Post
Chuck Ponzi December 29th, 2007
What would be so wrong with fiscal and monetary responsibility? Is living within your means so out of fashion that our country cannot do the same? Please, support Ron Paul for president in 2008.
Archive for December, 2007
Happy Birthday Socal I
Chuck Ponzi December 21st, 2007
This post and future ones like it are dedicated to those homes that have been waiting for a buyer for close to a year. This is my little corner of schadenfreude over overpriced homes. Because, when it comes down to it, a house will sit on the market for a year for only one reason, the price is not right for its defects.
The gem that we have today is a classic pepto bismol house in San Clemente. Perched on the southernmost tip of Orange County, where the koolaid flows freely and the only thing that disturbs the cool ocean breezes is the flattening housing market coming to a screeching halt in late 2005. Some sellers and their agents failed to realize what was happening and decided to wait out the “dance along the bottom” by retaining their high priced house. I estimate that when this listing was taken in December 2006, it would have sold within days at $825K. At this point in the market, I estimate it would take 3 months if listed at $699K and execute somewhere in the $650K range if marketed well. This is why chasing down the market is a bad idea. The home is 2 stories with almost 2200 sq feet. And, with an initial listing date of 12/10/2006, it is now 376 days on the market.
Note to self: Showing a rear shot as the initial image is a bad marketing idea.
Not only does this house have a crazy color to it, but you are greeted at the listing by a shot of the rear of the house. Is this really its most redeeming quality? A buyer might ask themselves… if this is the best I can expect, what am I in for?
If you own this home, why would you allow your agent to introduce the listing with this image? People are expecting to see either 1. the front of the house, or 2. The view. People are buying one of these things. Either of them is to impress their friends. If you can’t impress your friends with the rear view, then impress them with the initial drive-up. If both of these are crappy, then at least get a shot of your granite countertops and cherry cabinets. If all else fails, use your agent’s image. This listing screams “crappy house”. The price screams “I’m a big shot”. When these two cause cognitive dissonance in your target, you’re sure to NOT sell the house.
If this hasn’t wetted your appetite, consider the following picture:
It might be useful to consider that the caption on this picture is “There’s room for a table in this Kitchen!”.
You don’t say.
I guess you COULD call that a table, but it seem so lonely there with that single chair. And, frankly, if there’s only room in the kitchen for this table, where is my family going to sit.
Which comes to my next point. How much would you be willing to pay for a home where only I could eat in the kitchen?
Well, the market has spoken according to the price reductions:
Price Reduced: 02/20/07 — $875,000 to $845,000
Price Reduced: 05/21/07 — $845,000 to $835,000
Price Reduced: 07/25/07 — $835,000 to $825,000
Price Reduced: 08/31/07 — $825,000 to $799,000
Price Reduced: 10/02/07 — $799,000 to $789,000
Price Reduced: 11/07/07 — $789,000 to $779,000
So, with now more than a year on the market, and nearly $100K lighter, you’d expect this to just fly off the shelf, right? Consider for a moment that in San Clemente, you can also get a 2700 square foot house built in 2001 for the same price in Rancho San Clemente (also no Mello-roos) Or, you can get a 2800 square foot detatched condo on the golf course for 80K less. You could also get a 2400 sq foot house in the capo section of Dana Point for $115K less. These are just current values available during Christmas time. So, what will values look like next year when the mortgage meltdown reaches fever pitch?
There’s also the issue of the road noise:
I hear that road noise sounds like the ocean and that you get used to it. I can attest that when I lived by a road about this size that I never got used to it and can’t imagine how you could ever get the roar of engines out of your mind while sleeping.
You might ask what the best part of this listing is? After all, it is priced about 100K above current market values, backs to a noisy road, and has attempted to chase the market down for more than a year, what could be scaring buyers away?
The listing says it all:
Submit all offers on this home that is a cosmetic fixer.
Tell me, why would someone want to pay filet prices for hamburger?
Either way you look at it. Happy Birthday, Socal.
At What Point Criminal?
Chuck Ponzi December 18th, 2007
With a quick read through of the Yahoo news the other day, you’ll find out that a real estate trade group (NAR) is actually predicting a rosier 2008 than previously (as if something had improved over the past few months). Indeed, things have considerably worsened, as is evidenced by San Diego’s more than 12 months of inventory along with price per square foot down almost 20%.
I also provided an example in my own neighborhood, a supposedly impenetrable fortress of prices in South Orange County. The featured property is now currently listed at 584,900, 21% off of its last purchase price (27% of it’s current asking price, or in other words, would have to appreciate 27% to reach it’s last price, or about 5 years of average SoCal appreciation).
We have erased 5 years of gains in the last 2. No wonder we are seeing more and more disinformation from the group that we are about to highlight. Is it any wonder that the happy talk comes from none other than our favorite pinata, the National Association of Realtors. How anyone would take them seriously after so many botch-jobs, is beyond me. One can only take so much stupidity before disgust sets in.
Nevertheless, it’ll be nice if someone later takes them to task for their intentional misleading. As a side note, I remember a recent article that stated that the real estate industry should form a self-regulating group and the NAR was proposed as the starting point… ha ha ha. Consider the following from their glowing 2008 forecast:
Nevertheless, the Realtors group’s chief economist, Lawrence Yun, gave a positive outlook for job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook.
“Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases,” Yun said at a press briefing. “Mortgage availability is improving.”
In my mind’s eye, I can see Nelson pointing, and laughing his scornful Ha Ha.
I was trying some way to find a positive spin on Yun’s comments, but I have failed. I cannot imagine a group that cares less about their general perception over self-induced delusion.
I only wonder at what point those kinds of thoughts should be considered criminal. Serial bottom-calling by trade groups is not allowed in other free markets, causing investor losses. Why should it be tolerated in the NAR? Perhaps the RICO act could be extended enough into this kind of activity. It’d be good to see Lawrence Yun or David Lereah take a perp walk for those they injured.
So Much for Skyrocketing Rents
Chuck Ponzi December 5th, 2007
As long as there has been talk of the housing bubble popping, there has been talk of rents skyrocketing to meet the falling prices. This is all part of the “buy now or priced out forever” tack that infected any discussions with potential homebuyers from about 2003 to 2007.
I clearly debunked this myth (and drew criticism from Robert Coté, now RobDawg of exurbannation.blogspot.com fame) back in my “John Doe” days early on in the nether regions of 2006. To understand the point of difference between Rob and I, he argued that rents were more driven by costs to the landlord while I argued it was purely a housing stock supply/demand curve. Clearly, I believe I won that argument.
A recent article from PE.com expands on that notion and comes to the same conclusion that I did… I believe we have massively overbuilt for the prices being entertained. Only the raging California economy has bolstered the rents here (they have risen quite robustly in the past 10 years), and the weaking credit markets will put downward pressure on rents (or at least stagnating them). This is not just wishful thinking on my part as I’m a renter, it’s real out there, having been able to pay the same rent for the past 3 years. The fact that this article is set in the Inland Empire, doesn’t negate the validity of the argument, it only provides us insight into the future of more central areas.
There are so many Inland homes for sale, that even if no more come on the market, it will take more than two years to sell the houses available, according to the California Association of Realtors.
That’s just the beginning, for those considering renting out their homes, it also looks bad.
“People who can’t sell their homes have two choices,” said John Denver, owner of Perris-based John Denver Realty. “They can stop payments and let them go back to the bank or rent them out.”
Most will take a financial loss as landlords, he said, because the monthly mortgage payments are greater than the rent they can get. Bill Santoro, owner of 1st Rate Rentals, a rental management company with properties throughout most of Riverside County, said the monthly shortfall averages $500. Denver said he is seeing some landlords taking monthly losses of as much as $1,000.
“It is a good time to be a renter and a lousy time to become a landlord,” said Denver. He said in the past six months, the average time it takes to rent out a house in Perris has lengthened from two or three weeks to two months. Rents have fallen about 5 percent. He said the average monthly rent has slipped to $1,100 in Perris.
This imbalance is caused because not only has the housing market weakened, so has the job market. Most notably in Orange County, the center of the universe in the now almost entirely imploded subprime mortgage lending environment. The now defunct employers were formerly the who’s who of local businesses. Even Option One (the subprime arm of H&R Block) had hoped to seal the already pre-implosion deal sale to Cerberus which unraveled this week amid the decision to simply shut down and lay everyone off. And to imagine that the original deal was for more than $1Billion. What was once an asset is now a liability.
The same could be said about owning a property. It’s very likely that housing prices will slam back to 2002-2003 pricing levels before the end of 2008, much faster than I had previously believed possible. In fact, I would argue that the problems of the local housing market are so bad and visible, you can nearly taste it in every neighborhood. They all have a house or two or three or dozen that cannot sell at the prices offered. Watch for the special series on this type of house.
In other comments at that time, I stated:
However, just as importantly, the shortage of construction labor has increased construction costs about 25% in the past 5 years. Hardly huge, but I believe after you see an easing of building due to overbuilding in the US, we will have substantially cheaper construction costs due to cheaper inputs (materials and labor).
My last post stated as a quote from Fortune Magazine:
The cost of construction has gone down around 35%, from $85 to $54 per square foot. “Developers can now sell their houses for at least 20% less than a year ago and still make decent margins,” says Phillips.
That’s deflation defined. It would be good to read through a previous post about inflation.
Then it happens.
The bubble pops. It becomes self evident that the prices moves were irrational, and it painfully returns to it’s longer-term trend. Bubbles are not price inflation, they are driven by inflation. The only way that bubbles can form is by a single enabling forces: monetary inflation. Instead of the money chasing a fixed set of goods and inflating their prices, humans instead choose to purchase assets. That’s not inflation. It may look like it, but it’s only temporary, not systemic.
Before you begin to think that I am a current FED apologist, consider what I believe to be the root of financial bubbles… monetary inflation. That is controlled by the Federal Reserve.
With all of that ground covered… if we are experiencing inflation, why are labor costs coming down? If we are experiencing deflation, why are metals prices going up? The answer is simple. The world has too much productive capacity and too much money. One’s deflationary, the other’s inflationary. Like giant gods battling each other, noone can be sure of the eventual winner, but we can be sure of the losers, non-dieties. The common man in the US will have to eventually match the quality of life of the common man elsewhere in the world if we develop a global economy (arguably already here).
Are rents going up? In the long run. In the long run we are all dead.
