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The Bubble has Burst
In the past week I have talked to a friend whose house is curretly for sale in Upland, CA ......his Realator says NOTHING IS SELLING. Nobody is even looking...
And I have talked to my Accountant in CA, she says NOTHING IS SELLING..... Looks like we are in that limbo period where values are just hanging the next step is a DOWNWARD one. Here in LV production is begining to catch up to demand...yet an acre of land ready to be built on is going for 600K to 1M..so prices here are still on the rise soCA boyz your time of coming to LV on the cheap is over. In my immediate area 3700 to 4000 sq ft houses are going from 675K to over 1M. |
It's not a loss until you sell, right trust fund boy? ;)
I'm surprised the market is already showing weakness. I expected it to happen, but not this soon. I bet Wayne's head is swollen big time. :) Now, when is this slowdown supposed to hit the Midwest and Southeast? I'm ready to pounce. Jürgen |
location, location, location. Houses are still selling fast in our neighborhood, and in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling.
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"in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling."
Is this not a sign of a weakening market? Not enough walk in traffic, lets go pound on some doors? Just a thought. |
Location is right. When realtors are going door-to-door looking for listings, it often means they have buyers waiting to purchase in that particular neighborhood. In the San Fernando Valley the demand is still ahead of the supply - i.e. prices are still going up. Location, location, location, indeed.
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Good point. Trolling for buyers would be a better indicator of a slowdown.
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Most houses here are sold before official listing. At or above asking price.
The homes above 2.5 million have slowed a bit but are still selling. |
Yeah right Tabs. Even in the CA desert (Temecula) homes are still moving quickly. Many new homes coming online this fall in North County. Looked at some model homes 2 weekends ago, 3600sq/ft, 7000sq/ft lots (small), limited views, starting at $950K and quickly going to $1.2M. Phase 4 (8 homes) sold out by lunchtime the day it was released. Next phase is expected to +$35K with no view lots.
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I still don't understand how a person of "middle income" can afford to live in CA.
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I talked to an agent/friend a few days ago. He said the listed inventory is very low here in Phoenix and many houses are selling for more than the asking price.
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I'll believe it when I see it, Tabs. In NorCal, we still have lines of people camping overnight just to get a shot at signing up for a new house, sight unseen.
In my town, the homes on our street are selling for 200-250% of purchase price, and they are only 3-4 years old. I'm not too excited personally, because I wouldn't know where to go if we sold! The people who are banking on a real estate crash (moving into smaller homes and waiting, holding off on buying rentals, etc.) are taking a huge risk for a return/savings that I think might give them 5-10% at best. 10% downward is a huge correction in housing prices. LAT article based on the Census: "California's population is expected to grow by an additional 12 million people by 2020, a 36 percent increase." Everyone wants a house. |
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Reports out laast week indicated the 'median' home price in the San Fernando Valley reached $500K last year!
My realtor friends say exactly what Tabs indicated: no shoppers for the past month, plus. Lots and lots of downward price revisions. How far prices will need to implode before buyers come back is the big question on the West side of El Lay. I'm sure this varies by area, though. One additional economic data point is that retail sales took a big dive in June, with car sales being the lowest in 6 years. There's an 'unsettled' feeling that's not showing up in the Consumer Confidence numbers... |
Its all over the board around here. I just sold a condo for $20k over comps in one day. 2 friends with a condo and high-end house are having no luck at all. Buyers are looking for realistically priced properties, because there is so much inventory. Gone are the days of tacking $50k on the price, just because you can :) Well, at least for now.
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It would appear there's a disconnect between the "man on the street" anectdotal reports and the stories published in various rags.
It's very easy for me to believe there's a certain amount of hype being generated here. Nay, say ye? Look back at the stock market bubble and the news stories of that era. |
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What's happening in my hood: House 2 years agao 500K House 2 months ago 850K-1M House today 750K-950K |
Tabs is correct. It is slowing down. Buyers are backing out because of the increase in interest rates. We know an agent who is now starting to worry, and might get back into the tech sector from where he came. He says interest rates will surely go up after the elections. No matter if Bush or Kerry's in office, Greenspan is gonna' pull the plug.
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Interest rates will go up, market momentum and sentiment is going down, and Fall will be here in 3 months (people with families tend to stop looking to move once school starts up).
Should be an interesting end of the year. |
There are a whole lot of "real estate clichés" being posted in this thread that have not been valid for decades. Interest rates may have gone up a tick, but mortgage rates are still the lowest they've been in 40 years! There is no good or bad time of the year to be buying or selling a house. The real estate business hasn't been "seasonal" since the 60s - at least not in the areas of the country considered "desirable."
And after stating those two generalizations, I would caution all to be wary of broad generalizations like "buyers are backing out because of the increase in interest rates" or "market momentum and sentiment is going down." Remember - on the internet everyone is an expert. |
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Or are you telling that to the first-time home buyer who daily is increasingly scared to pull the trigger because interest rates will go up? I believe we'll see how "seasonal" things are after Nov. 2nd. But this comes from just another internet expert... |
Well, the good thing about arguments like this is that there is eventually an answer - history will show who was right and wrong.
It will be interesting to see where the market is this winter, next year, and the year after that. |
I don't think anyone here has said the market is homogeneous, Brian.
And what you're seeing people post is largely what they've heard from people in the market. Certainly my comments came from several agents and people in the mortgage industry. Just go to themls.com and look for homes on the West side of LA, Santa Monica, Venice, etc. for under $750K. Lots of teardowns and a few WWII era cottages. 60% appreciation in 3 years is just not sustainable. |
I hate ot admit it, but our Tabs is astute and spot on. The homes in my neiborhood that used to sell in hours 4 weeks ago are now not moving at all. Nothing has sold in 2 weeks. Prices will start to drop on the ones where the sellers are impatient or in need. You know what's next.
About time. |
We like the Meyers data for new home projects. If this market goes the way previous years have gone, it will be financially influenced first (incentives before prices drop), then locational (some areas will go down faster than others), then market level (whatever price level is most influenced by rates will be affected the most)
There has been a lot of discussions about the "bubble" in/on all the real estate sites (Inman www.inman.com/ ) The conclusion thus far is no conclusion. I think refinancing at these historically low rates is ok, I'm not sure I would buy at this time. http://www.meyersgroup.com/homebuilding/homebuilding.asp |
Ahhh for the good old days, when people bought houses in order to have something to live in, OR as a rental property that would eventually pad their retirement income. When those who "churn" enter the market? Those who buy, not caring about interest paid, expecting to turn a quick profit in a few moons? Bet on it...the market will turn south soon. Early churners make money...later ones lose. Big time. Just free advice from a guy entering his 6th decade given here...so value it for the price paid, right?
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PWD - so true, so true...
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This is why the only real estate I now care to own is the piece I live on. I can sell a stock, mutual fund, or bond I own tomorrow, by picking up a phone, or a click of the mouse. Real estate? Well, that's another story...despite the old saying that "God quit making land, while he keeps making people"...in real estate, first you gotta find a buyer if you want to sell. ;) One of the happiest days in my life was when I sold real estate, bought as an investment, for more than I paid for it...after years of watching it's value plummet while it's tax burden climbed.
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Please educate me. I was a real estate broker back in New York State, and when we sold a house, it was a general although not universal practice to "pre qualify" a potential buyer. Once this was done, a range of affordability was established beyond which we would recommend against purchase. Given average indebtedness, the monthly PITI was not to exceed 35% of gross income.
So, given even today's interest rates and, say, an annual income of $120k, this would result in a monthly of $10 k, and $3,500 available for the total monthly payment. Now, assuming a mortgage of $800 k on some of the houses that have been mentioned, an interest rate of 6% and 30 years, the principal and interest alone come to $4,796. Given the rule(s) of thumb, and only guessing at the taxes and insurance, the annual income for such a property would be in excess of $200k. Are there actually that many people in that earnings range in California? Seems to me that this would put many people out of the race for home ownership. Using the example of 6% interest, then every $100,000 of mortgage for 30 years would be just pennies under $600 per month, so even a more modest mortgage of, say, $400,000 would be $2,400 not including taxes and insurance. Once again, that would require an income of $82,300. So, the question...Who in Hell is buying these homes and with what? |
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While you had a bad experience with real estate as an investment, I've had spectacular luck. Those data points and 25 cents will get you pretty much nowhere. :) |
Turbo:
From what I have been able to ascertain, right coast and left coast real estate are two totally different animals. Different mindset, different income levels, you name it. Personally, I think your end of the continent is the saner one!!! Of course I leave Long Island and Conn out of the equation. Those folks are plain nuts!! |
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My private opinion (very much 2 c worth) is that the housing markets in many parts of many countries will suffer somewhat of a correction that, if it is cause by, or coupled with, any other economic issue affecting home affordability (higher interest rates, unemployment, stagnant wages) is going to hurt the banks. Or whoever holds the mortgages - I never quite understood the whole Fanny Mae/Freddie Mac thing. Banks in NZ/Australia (they're pretty much all Aussie) have spent the last few years growing profits at a huge rate on the back of home lending. They have further earnings growth expectations from their investors, and so they are chasing more and more mortgages. Especially the "revolving" mortgages - for many people they end up becoming not much more than an interest only mortgage... |
"Especially the "revolving" mortgages - for many people they end up becoming not much more than an interest only mortgage...
__________________ Cameron Baudinet 1975 911S (in bits) 1969 911T (home, almost done ) 1973 BMW 2002tii (for racing, engine bung) Report this post to a moderator | IP: Logged 07-20-2004 03:53 AM P.T. Barnum was right.... |
Interest only mortgages are really not that much less expensive per month than a declining balance mortgage. The interest only would be in our example of 6% and $100,000 loan amount $500 a month. A declining balance mortgage for 30 years would be $600 a month. Over the course of the thirty years, the individual would have paid out $180,000 in payments and have 0 equity. The declining payment would have paid $216,000 total but own the property free and clear.
The banks being "flexible" of course works to their advantage. If the individual defaults, there is always foreclosure. Our guidelines were constructed to reduce the potential that the individual "bit off more than they could chew". |
Bob: many buyers of million dollar properties are 'trading up' from $750K properties in El Lay. But $750K properties aren't necessarily luxury homes.
Take a look at this little bitty thing on half a Venice lot (you have to enter fromt he alley) probably 60 x 45 feet. A half million bucks. http://guests.themls.com/photos_addl.cfm?mls=04-078746&p_type=0&addr=2416%20WALNUT%20AVE Down the street in a very nasty neighborhood, is a full-sized house on a 'normal' 4300 square foot lot needing total rehab for only $780K. Wacky. |
Yeah, I think the point I am making is that they encourage people to keep borrowing more (which is why the bank likes them) - in other words, they take any of the compulsory savings regime out of a mortgage.
This is fine when prices keep going up, but means that a much broader number of mortgage holders are likely to be in a difficult position if prices go south. In particular, this is an issue when the mortgage has been topped up to buy holidays, cars and big screen tvs ---> the ready availability of the cheap credit is too big a temptation for a lot of people. |
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Cam, that little place might bring $12-1400 a month.
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