[Captain's Log]

I was about to post this in M2M then realised the late hour.

To continue on about RE, my lease is up Mid July so decided to take a look at the alternatives are out there in inner loop Houston. Inflation & deflation has hit housing market - Loads to rent with many new landlords out there buying big houses and converting them into duplexes. The signs are every other street. From the outside you can see the quality of the place is pretty poor. Rents requested cannot be afforded by the people who have not bought by now. They are just adding to the supply. They'll be lucky.

Assuming I'd end up with a negative equity, I even toyed with idea of buying to save on payments. Fortunately my UK experience from '90 tempered me from making such a harsh decision. My SO and me, drove around to see whats on the market.

In one area - Rice Military - there was shit load of signs : mainly for sale but also for lease. I'd estimate 5-10% with more construction going up. All were town houses (aka Yuppy hutches) of < 4 years old, with no yard and less neighbourhood amenities. I could not work out if the reason they were selling was 1) to move on (flip the place) or 2) they'd realized they'd made a mistake and they were taking what they could get.

I suspect the later since the area is just off a rough main road. (If you put your hand out of your window to flick your cigarette when you pulled it in, you'd realize someone had stollen your watch. ), To me as potential buyer, the # of for sale signs just shut me out. I didn't see bargain, I saw panic.

Only 1 house, I remotely liked - an historic (1924 - that is real history for Houston) 3 bedroom in Montrose area. Within 2 minutes the Realtor asked me if price was acceptable. I'd not even got out of the 1st room before she'd said that !See here. Anyhow place was nice but IMO, very overpriced.

Looks like we'll move to an apartment complex as our current place is dating rapidly. Apartments have a high vacancy level in Houston but all are much higher rent level from when I last was in one 3 years ago. Going through the negotiations at the moment but looking like we'll get 2 months off for a 12 month lease ! Level of rent will be same as what I am paying but nicer facilities.

I feel this the better of the evils is to miss the last stages of a property boom in order to avoid purchasing at height of bust.

[Bungster]

Just thought I'd add my two cents to the conversation.

I'm out here in Santa Barbara, CA. It's a nice location but the prices are insane. How about a one bedroom condo, next to the train tracks, with no garage, no view and poor construction. What am I bid? $425K, going once, going twice... sold. Unfriging believable! Nobody thinks real estate will ever go down here. This bubble has a ways to go here.

Bung

[Grand Poopercycle]

Cap'n-A nice looking house you linked to; looks like it has some character,
especially with that porch.
Bung-When 'nobody', especially those intimately/directly involved, thinks
a bubbled(sic) assets' price can go down, danger is up to defcon 3.
Here in suburban Chicago(north/northwest suburbs), there are A LOT
of for sale signs, many of which were up during the winter(slow season
here), including a large % of 'for sale by owner' signs(need to save that
6%, I guess) and recently a few 'new price' notations added on. Also,
still a large amount of available office space in small/medium sized subur-
ban buildings, most of which are no more than 7-8 years old, and contin-
ued vacancies in strip retail centers, particularly older/smaller ones, and
in malls, even major ones(though older/smaller are worst-still some vacant
spots stemming from Monkey Wards' demise over 3 years ago).

[jr12]

Captain said:

Looks like we'll move to an apartment complex as our current place is dating rapidly. Apartments have a high vacancy level in Houston but all are much higher rent level from when I last was in one 3 years ago. Going through the negotiations at the moment but looking like we'll get 2 months off for a 12 month lease ! Level of rent will be same as what I am paying but nicer facilities.

I feel this the better of the evils is to miss the last stages of a property boom in order to avoid purchasing at height of bust.

Captain, are you a Brit living in Houston? I moved to Houston from Scotland around 4 years ago. Renting an apartment in the Westchase area, my rent has recently started to come down slightly after steadily going up for 3 years, fwiw.

[crafate]

Ive been a real estate lawyer in Houston since the late 1970s. Houston employment busted with people in the oil upsurge from 73 through 80 when the price was surely going to $100 a barrel. Real estate exploded in price and deals in that time. Subdivisions and New houses on the outskirts and around 5 million square feet of new offices just downtown. Saw the major players watch the softening when oil price dropped and rates went to 18% by Volcker in the 1980-1982 period, but the savings and loan would lend 120% of your deal including the interest you were going to repay.
However, employment statrted to die as oil went to $10 a barrel and Reagan killed the tax writeoffs. Even as interest rates dropped, the price of real estate dropped faster. Throughout Houston, suburbs on the perimeter of town became mass areas of foreclosures. I went from doing sexy acquisition and construction deals to lender workouts and fifty house foreclosures a month. It was a mess and of course the savings and loans died like flies once the REO got dropped to the balance sheets. The big banks (Texas Commerce, Allied, Bank of the Southwest) all were acquired and lost their Texas roots. Only one major bank (Frost Bank) is still considered Texas owned now.
The early 90s saw the bottom fishers start arriving and what bargains there were in Texas real estate. If you had balls, or even 20% cash, the FDIC and RTC would lend you money to take the property off their hands. The few survivors, if they were bright, bought back their own loans at a discount as long as you could paper it right. I picked up some offshore clients who came in 1995 and bought grand old empty buildings like Texaco and Humble Oil for low seven figures, mothballed them and waited for the next upcycle. It began arriving around 1998 and I noticed the banks were now lending to developers who were bankrupt in 1985. 20% equity became 10% equity became full 100% finance of deals if you had a track record. Home buyers bought million dollar homes relying on 95% jumbo loans and 2 salaries. Apartments became like mushrooms as pension funds wanted some real estate cash flow. As jobs increased they filled up at good rents and encouraged more building.
Where is Texas real estate in 2004? The top of this upcycle in my opinion. My wife and I sold our own little apartments in Montrose for a cool double of what we bought it for in 1983. Not exceptional except for the 15% cash on cash produced each year over 20 years. We paid off our mortgage even with these low rates because the money is better in our pocket. Im seeing only 4 new downtown buildings in Houston ( one of which was never occupied by Enron and has moved into new hands as a spec buidling). Big Oil has huge blocks of space at $16 a foot for sublease that they will be paying $25 a foot for the next decade. House prices are softeneing as we speak although the brokers would never admit it.
I anticipate that my wife and I will buy our retirement home and ranch in the next downturn as all the Texas real estate deflates as it did from 1982-1992. Its not fast and its not immediate but it will happen.
As for the hysteria in California, it will end badly, FNMA is now the savings and loan writ large and I expect receivership in all but name for that entity. I learned a long time ago the pols will do what they think it takes to get reelected, even if it is counterproductive to the business world and the national economy. Whatever, as the teens say. The markets cannot levitiate forever. Just make sure one of the spinning plates that crashes is not not yours.

[traderfromhell]

Housing in Monmouth County shows no sign of retreat yet. I just wonder where the hell these people get the down for houses in mid to upper 600K region. Yu could have bought the same house around here 20 yrs. ago for 25% of the current selling prices. This is gonna get really ugly in the NYC Metro area one day.

[Captain's Log]

jr12, on Jun 2 2004, 03:34 PM, said:

Captain, are you a Brit living in Houston? I moved to Houston from Scotland around 4 years ago. Renting an apartment in the Westchase area, my rent has recently started to come down slightly after steadily going up for 3 years, fwiw.

JR12 - I am indeed - A Taff. As a scot, do you ever go to the Kelvin Arms