First Time I've Seen "horror" And "real Estate&quot

[SusanJBear]

appear in the same noun phrase!

 

Real Estate Horror Stories - CNN

 

I've also been rereading recent newsletter commentary on real estate, I wrote a quick summary here if anybody is interested:

 

Real Estate Commentary Summary

[TGakaTheBigHurt]

My understanding is that the market has not peaked in NY metro area yet.

 

Probably peaks in 2Q when stock market puts in its low for '03 coincident with low point in mortgage rates.

 

The pricing power that builders in this area continue to have up to this point is really amazing.

[Flaming Turds]

Nice article you put together Ms. Bear.

 

"To those who say real estate can never decline, not so! Hawaii real estate declined in the 1990's, Japanese and Hong Kong real estate prices are down substantially from their highs, Texas went through a devastating collapse when oil prices collapsed, Los Angeles real estate collapsed in 1889, Florida land values collapsed in 1926, Chicago in the 1840's, and so forth."

 

I would like to add that here in San Diego they were still crying about their underwater property in 1998! Now it is like the Men in Black erased their memories of it ever happening. Most the homes here have doubled since! Only 25% of folks can afford the payments on a median priced home and a housing emergency has been declared. However, prices have started to begin moving back just slightly and that is the big sign. The trend has changed.

 

With no more refi money how do we import all our resources? San Diego will be bankrupt. Homes would need a 50% haircut before they reach a level I would be interested in and even then Im not sure its worth it considering the burden the region will be under. Oh well, it was nice while it lasted.

 

 

From the Foldvary link: "George's theory attempted to resolve the paradox of idle labor and capital in the depths of a depression. The reason the market was not clearing was that labor and capital were cut off from the necessary natural opportunities offered by land."

 

This is something worth some thought. Consider the rents that a local start up business has to pay. Add on top of that taxes and local red tape and its not even worth getting out of bed for a small mom and pop. The only thing supporting this madness in real estate has been the stock and bond markets. I am going to go take pictures of the new Nokia 'campus' soon and put them on my site so people can see where their nokia 'investment' went. They literally moved a mountain to build it. Just down the street Gateway chose land that was flat already but Nokia wanted the freeway visibility so they razed a mountain and built an enormous building to make all those cell phones that no one is going to want. Meanwhile the rest of us are deprived of the 'natural opportunities offered by land' and will be deprived for quite some time while the power brokers cling to their fading wealth. A tour through the ruins of Detroit is all one needs to see what this process leaves behind.

[Guest Guest]

No doubt we will continue to see some specific cases of housing prices continuing to climb, just as some stocks hit new highs even though the market indices topped in early 2000.

 

My own layman's guess: I expect that "value" investing will hit real estate just like stocks, if it hasn't already. I anticipate the pricier stuff to start declining in my own neck of the woods (south of LAX) very shortly, if it hasn't already. The lower end stuff, that normally gets bought to be torn down, might get bought to be lived in, since it is still relatively cheaper. Pricey stuff comes down and cheaper stuff gets driven up.

[SusanJBear]

Oops, that mystery guest was me, sorry!

 

Meant to add, everybody should read the Foldvary link. It's a thoroughly researched piece of work.

[General Nonsense]

I suspect the NYC bubble is about to burst with the 18% increase in propety taxes and mention in this mornings papers that the City income tax is also likely to increase. The tax burden of living in NYC is already far beyond ridculous. I understand it is the highest in the country, with city and state income taxes and an 8.25 % sales tax.

Add to that the high taxes and real estate cost are past through to residents in the form of higher priced goods.

 

There is also a strong belief that New Yorkers pay a so-called "Mob tax" based upon organized crime having control of certain industries, eg. garbage hauling, trucking etc in the area. When I first moved to the city I found the idea of the Mob tax a little hard to swallow, but I did wonder why you could only find Boars Head products at exorbitant prices at all the delis and grocery stores--$12.00 dollars a pound for turkey breast i not unusual--I thought hey somebody sell a good but cheaper brand could make a killing. Then I read in the papers of the gangland slaying of a reputed mob capo, shot in the back of his head while sitting in his car. His day job? Owner of a Boar's Head deli products distributorship.

 

In any event the local economy is weakening what with the continuning lay offs on Wall Street and the thin bonuses they will be recieving, business are looking to cut costs and raising taxes on already expensive real estate is likely to cause more businesses to move all or some part of thier operations out of the city. It is beginning to look like a return to the seventies, with rising taxes and declining services leading to a mass migration.

[Fartpolio Manager]

Sorry Susan... E-wavers been calling for R.E. to tank for some time now... I guess they base their projection on the R.E. stocks... that is an extremely thin analysis that does not hold water, as witnessed by the failure of their prognostications to become reality.... This R.E. market isn't finished until interest rates go UP... Having said that, I live in one of those coastal palaces myself, I go to open houses every weekend, fat lady has not sung... We've finished our outside painting and now we're getting the inside painted... I think there's about 6 month window ahead at least... I don't disagree with the RE bubble premise, but this thin analysis offered by stock experts don't cut it... JMO

[megabear]

Great summary of Real Estate Susan J.; thanks. Here in Kansas, I watch the number of upper-end houses for rent with interest. We sold 3 1/2 years ago (a little early) and have been renting ever since. At the time we sold there were maybe 3 or 4 houses for lease in the 1,800 - 3,800 bracket. Now, there are probably a hundered available. (And that is 100 in the winter time, traditionally a time people do not want to move and screw up the Holidays or pull the kids from school). I believe these houses are all coming on the market because the owners have given up on selling them. In fact, that is exactly what happened to the house we are currently in. The owner had it listed way too high and refused to move the price to a reasonable level. At the end of our current lease, which is up in May 1st, I intend to tell the owner we'll stay for a 25% reduction in rent. He won't like it, but frankly we pay a lot of $$ to lease this property and there is virtually no market for $500,000 up houses right now; especially ones that are old and need work. He'd have to take at least $100,000 off this place (and fix it up) to have any possibility of moving it.

IMO, the days of la la land pricing in Kansas are over.

[Guest yobob1]

From the Foldvary link:

 

The peak of the real estate cycle is characterized by a high volume of real estate transfers (Hoyt, 1933, p. 396) and the high tide of speculation by subdivision. The real-estate cycle peak can be defined as the interval between the peak of real estate prices and of the value of construction. By that time, the supply of new houses outstrips the number of new residents or occupants. Karl Pribam (1940, p. 65) points out that in the latter stages of a boom, rentals fail to adjust themselves to costs, rendering building activity unprofitable. Since land prices are slow to move downward, they contribute to the break of the building boom. William Newman (1935, p. 18), echoing George, wrote that "Excessive land values, reached after the boom has continued for some time, are eventually found to have no counterpart in increased earnings, and therefore contribute to the break of the building boom."

 

They seem to be describing where I live. There are so many new hot to trot subdivisions lying around vacant right now it's hard to imagine where they are gong to find enough suckers to buy the damn lots let alone build on them. I drive about 4 miles to work now, after moving. In those 4 miles there are 3 large vacant subdivisions that have been created in the last 90 days. Fences up, utilities in and paved roads with lots of little For Sale signs dotting the curbs.

 

Rental supply so far exceeds demand that rents are falling for most properties. Our little local paper is showing the extremes reached over the last few years. 3 years ago the number of rentals offered in the classifieds was about 20% of the number of help wanted ads. Today it isjust the opposite. Pages of rentals offered, and half a page of help wanted. There are getting to be more and more new houses offered on a rental or lease/purchase basis. And to cap it all off the trustee sales (foreclosure) notices keep increasing, now running about 12 pages per week. In addition we are getting into the (for this market) higher end houses pretty heavily now. Many notices are on properties in the $150,000 range now versus a year ago when most were clustered in the 60K to 80K range.

 

Thanks for the post Susan J.