Real Estate - Who put on the skids? (1 Viewer)

I was just curious if others here have noticed a dramatic slow down in real estate in your local communities. I certainly have. Many of my clients who are selling their homes are telling me the traffic has nearly stopped. Agent friends are confirming this.

It is not the first slow market I've seen - I was in northern California / Bay Area in the 90s. THAT was ugly. I frankly thought the RE boom would soon fizzle out, but this slow down seems more abrupt than I expected. - at least locally. I thought my community may be insulated when it happens because of it being a moderatly affluent retirement community. It seems we are not so lucky. I am certainly glad I am not selling my home right now.

So is this confined to a local blip or are you also noticing this?

Hmmmm, perhaps a worldwide trend looming.

Central banks worldwide are raising rates.

Here in Australia Sydney house prices have eased about 10-15% in the last 6 months. Of course the really affluent areas continue to increase slightly in price.

Melbourne Australia has fallen about 15% across the board in the last 6 months.

Our real estate boom was fuelled by arsehole real estate agents who talked the market up, lied, "i've got someone else who's made an offer". You know the drill.

As a prospective home buyer I'm gonna wait for the bust. Then I can screw the agents by making really cheap offers as the banks start to forclose on mortgages.

AS Mr Mortensen put it so well during the Helms Deep seen in Lord of The rings

"Show them no mercy for they will show you none"


"No prisoners!...No prisoners!"

I am in Northern VA just outside of DC. Things have slowed down here a bit as well. Of cousrse, every year for the past 5 years things have slowed down at this time.

From what I have been able to gather, it pretty much falls in line with the following things:

1. People do not want to move during winter, uless they absolutly have to.

1.a. People do not want to move during Thanksgiving, Christmas, New years, and all the other holidays at the end of the year.

2. Parents, in general, do not want to pull their kids out of school and replant them in a different school during the school year.

3. Last May's college graduates are either at grad school or hopefully working and have already found a place to live.

4. In my particular area, military families are not hopping around as much (I think)


I expect the market to pick up around here again during the April/May time frame and be somewhat busy during the summer.... just like every other year. Gone are the days of 10 contracts overbidding your asking price on the first day of the house being on the market, but I don't think it is dead.

This area just got the "bubble" last year. And thats because the ARMY base expanded by 80 bajillion people and there aren't enough houses.

I was walking past a nice building in a trendy Chicago neighborhood (Lincoln Park) and decided to stop in to see the condos that were for sale (for an investment, not to be my residence). I knew I would have to listen to a sales pitch, but I wasn't prepared for the numbers game that followed.

The guy had a chart showing that there were only two units left, a one-bedroom and a two-bedroom (coincidentally the only two types of units in the building). From the looks of the sales office -- they didn't seem to be getting ready to close up shop -- I think there were probably many other units available but they wanted potential buyers to feel it was their last chance to get in on a great deal.

Anyway, the two-bedroom unit was offered at $750k. Construction/finish was average at best (the building is over 80 years old), but the view was nice. The sales guy said the rents for this unit were going for about $3k to $3.5k per month. Assuming 10% down, the monthly "nut" (mortgage/assessments/taxes/insurance) would be over $6k. He proceeded to work up a financial analysis of why this would be a great investment. I concluded that it only made sense if you knew the property would appreciate by 8% or more per year.

I used to think that when buying real estate as an investment, the goal was to have a positive monthly cash flow (collecting rents equal to or greater than your monthly cost of ownership). It seems to me that the majority of places for sale have a high asking price relative to the rents they can command. You're depending 100% on the appreciation of the property for the numbers to work. That combined with the latest trends -- no interest loans, 40-year mortgages, etc., I think we're looking at a bubble, at least in certain areas.

Thats the only wood grown around there (here too) so unless the builder wants to pay more for white woods like spruce grown up north, pine is all anyone will get... the market is out of control here too, really since Katrina, $250 gets you not too much...

I read a news story within the past week or so that Jan. 06 housing starts were at near record levels, and were up over Jan 05. 30 year mortgage rates are around 5.8% per the chart on the Yahoo homepage, and that's still a very low rate.

It all depends on where you live. If you live in Boston, SoCal, South Florida, etc..expect a slowdown for sure, if you havent seen one already..also, any market that has a lot of condos.

But there are other areas still thriving. I recently just sold a house for my asking price in 1 week in Gainesville, Fl. And where my family lives in Ocala, FL, people are still gobbling up land like there's no tomorrow.

It really just depends on where you live and how drastic the boom was in your area.

IMHO

You dont need positive cashflow every month for it to be a good investment.

There are 4 ways you are earning on your investment with a rental property:

1) Positive monthly cash flow (rent - mortgage payment)
2) Appreciation of the land/house
3) Tax Relief
4) Paying down your loan with no money out of your pocket (with money from renters)

Yes, its nice to have positive monthly cash flow..but its not necessary if youre in it for the long run.

Prices are being driven up to insane rates in some areas, even allowing for supply shortages, and will eventually level off or even drop a bit. Where I live houses have appreciated 20% or more a year for the past several years. The condo I bought in September 2003 for $87,000 was appraised in April 2005 at $160,000 - and that's without any of the improvements I have since made with the cash I took out when I refinanced back then. It is probably worth close to $200,000 now.

Much of the recent increase in home prices has been fueled by investors who will never live in any of the properties "flipping" them after a few months for a quick profit to other investors. So the "demand" side of the supply and demand equation is being kept artificially high. Given that there is also a genuine shortage of housing and especially rental housing in the area (with low interest rates and rising home values condo conversions make great sense - why pay rent when you can own your unit and pay less on the mortgage than you're paying to the landlord?) this has generated something of a bubble. It isn't purely investors chasing stock values based on nothing, as with the internet bubble (or the Tulip or Southseas bubbles, for that matter), but there is an element of investors selling to each other, driving up prices, keeing would-be owners out of the market and ultimately a musical chairs quality to the whole thing. At some point the music is going to stop and a bunch of investors will discover that they bought properties at the high point of the price curve that they can only sell at at loss or hang onto at break-even or a loss. (Because there won't be any investors left to sell to, and prospective buyers aren't going to pay the prices they'd have to ask to turn a profit. There will be a glut of unoccupied housing on the market, built to fill the artificial demand of the bubble, and that will help drop average property values and rents to more sustainable levels.)

This process may be starting now in your area.

Regards,

Joe

age has nothing to do with the quality of the construction. ive worked around new home construction most of my life (for the family business) and even the top quality homes, $1,000,000 and up, are built like shit, they are thrown together as quickly as possible. the house we live in is 165 years old, and if you could even FIND a builder that could do the quality of work that is in this house, it would cost you 10x as much as a comparable house, or more.

this house is for sale by my family. we took the entire thing and stripped it, restored it, and now it looks great. even though the website says it was built in 1800, but that was taken from the plymouth properties page, which only goes back to 1800. the house was actually built nearly 270 years ago.

obviously, age of the house usually has little to do with the finish (you mentioned the finish), but when i'm planning to buy a house, if it's under 75 years old, i'm going to move on to the next one.

CJ

I hear you on that. I live in an 80 year old house with 15" thick, handcarved and set stones, tile roof, all hardwood floors and plaster walls. Can you imagine what it would cost to build this now?

I personally think that the 1920's were probably the golden age for houses. New enough to have bathrooms and electric service included with the construction, but old enough to be constructed by actual craftsman. The only drawback to older houses is the electric service usually is a mess.

it's hard enough finding a subcontractor around here that hires all legal workers, nevermind a real craftsman. you couldn't get your house built again without spending a fortune.

we were replacing the kitchen in the house we're in now, and we replaced some of the trim that got banged up in the process. in a new home, i could get the trim off with a normal hammer. in this house, we had to use two guys and two large crowbars.

the downside to the house we're selling (270 years old) to the one we live in (165 years old) is the size of the upstairs ceilings in the bedrooms. they are a nice square footage, but anyone over 6'3 will hit their head on the ceiling is they stand up straight. the first floor has 9+ foot ceilings (14 feet in the kitchen), but the second floor is too low. our house has 10 foot ceilings on the first floor, 9 feet on the second. our house is built much more solid than the older one, which has hand-carved logs for support beams instead of milled lumber. you know you are in an old house when you are in the basement, you look up at the beams, and see TREES

gotta agree with you about the wiring, mark. before we replaced the panel in the house we restored, it was a total mess. the panel itself wasnt bad, just used the older style fuses. but the wiring was awful. we decided to have the panel replaced because even though it was still functionally sound, it just looks better with the new panel, even though it was fine before.

CJ

That was my previous house, built in the 1870's. While insulating in the new part of the house, I found some newspapers from the construction workers, 1892 newspapers.

yeah same here, we found really old newspapers in this house too, i forget how old they were.

CJ

Sorry, I didn't mean to imply the mediocre fit/finish was due to the house being 80 years old. What I meant was that it was showing its age in a bad way. The walls had about 20 coats of paint, resulting in that "lumpy" look. All the switchplates had been painted over numerous times. Making the paint look more like I'm used to (crisp lines along trim, etc.) would have required tearing out the walls.

Having said that, I definitely can appreciate the craftsmanship that went into houses of the past. Even some of the landscaping (or "hardscaping" as it refers to retaining walls, patios, and so on) from decades ago is amazing. I look at certain houses and marvel at how much they would cost to replicate today. The sales guy said the walls in the condo I was looking at were so thick they had a "burn rate" of 6 hours (compared to a typical burn rate of 1 hour for new construction).

Same with all the new houses going up in Australia- slapped together with pine and staples

Absolutely ratshit quality

lucky you.

I bought a townhouse in aug. 03 for 187k and would be lucky to get 170-175 for it on the market.
Of course the tax man still assessed it at 199k this year

(yes I contested, and lost)

My realtor thinks that the bottom-end of the market here in San Jose will hold up in price: only the high-end (over $2 million) homes will really drop in price this year. My small (1040 square foot) home is going to be listed around $650K when it goes on the market in April, which likely will be about the cheapest available traditional home in a liveable neighborhood in San Jose.

San Jose prices are insane.

Philip, my home is presently assessed at $168K...thanks to the voodoo of Proposition 13.