June 18, 2007

It's the P/E stupid: Typical story from Florida about renting a luxury condo for pennies on the dollar as median prices crash $100,000 or 31% (so far)

For the next few years, renters will feel like the kings of the world:


1) Rent amazing homes for pennies on the dollar
2) Don't suffer the horrific depreciation during the housing meltdown
3) Save up massive cash, invest wisely, retire early
4) Have the flexibility to move anywhere in the world, taking full advantage of globalization
5) Enjoy falling rent prices, get treated like royalty by landlords and failed flippers desperate for renters

It was the P/E stupid. It will always be the P/E. And people who believed their cheerleader realtor and bought homes whose rental income could only pay their taxes and association fees made the biggest financial mistake of their lives.

Watch now as prices fall to the point that rental income covers carrying costs. And it's a long, long, long way back down.

Lee County’s burgeoning skyscraper condominium market is a renter’s paradise — but a landlord’s hell.

Experts say as increasing numbers of condo units pour into an already overflowing supply of residential real estate, renters can almost name their price for even the costliest luxury units.

Jim Simon, for example, recently moved into a condo in the 32-story High Point Place in downtown Fort Myers, where the owners of its 105 units typically paid as much as $600,000 for the convenient riverfront location.But Simon, a commercial real-estate broker, is paying only $1,350 a monthbarely enough to cover the taxes and condo association fees.

“It’s like living in the Ritz-Carlton,” Simon said. “It’s got great amenities, it’s clean, it’s safe, it’s got a beautiful view.”With only about 20 people living there, he practically has the place to himself, and with a number of similar projects under construction around downtown, he expects the good times for renters to last for awhile.

“It wouldn’t surprise me to see people get in for a little less than I’m paying,” Simon said.

The median condo resale price maxed out in February 2006 at $353,900, and by April 2007 the price had fallen to $244,100, down 31 percent, according to Florida Association of Realtors statistics.

As prices have fallen, so have rents. In late 2006 the average rent for a two-bedroom house was $940, down from an all-time high of $1,041 a year earlier, according to rental information service RealFacts.Rents have continued to fall in recent months, as well, while the inventory of dwellings for sale stays at an all-time high of about 15,000, experts say.

43 comments:

Frank@NeverColdCall.com said...

This is happening in Scottsdale with all the luxury condos that went up. The Optima Camelview condos near fashion square that sold for over a million are all over craigslist for rent for $2,000 ... lol!!!!

keith said...

Oh, don't forget these crashing rent prices will show up in the government inflation numbers as deflation, and that rental yield makes up 41% of the Consumer Price Index

So while everything else is getting more expensive, CPI will look tame

I just looked at phoenix craiglist at "optima" units and indeed these $1,000,000+ units are renting for $1500 - $2000 a month

I think the condo association fee alone is nearly $1000 a month

Amazing.

Anonymous said...

Wow...I just checked out Optoma.

It would be interesting to run an MLS check to see how many of them are listed on the MLS compared with what is listed on CL for sale and for rent.

That will give a better idea of inventory.

How many pocket listings are there?

How many have been taken off the market because this is just a "soft market" and it will "rebound soon"

Many people also seem to be advertising their units at "below builders cost". Is that referring to below the price that they originally paid or below the inflated costs that the builders have units listed at currently?

I think that you should do a thread devoted to these "pocket" listings that come on to the MLS as STI. I'm seeing it here in Seattle.

Anonymous said...

Regular 1 BR hell-hole apartments in north Scottsdale have increased 200-$300 in the last three years with more increases in sight!

Can Florida happen to Scottsdale?
I'm ready!!!!

keith said...

Last anon - don't rent apartments - that's foolish

Go to craigslist and pick yourself up a nice house or condo for less than you're paying to your apartment complex. There's thousands of vacant investor-owned homes in Phoenix/Scottsdale just desperate to find a renter

No more apartment complexes. Those days are over.

Anonymous said...

Don't knock apartment complexes so fast. Renting a house or a condo from an FB has some risks. The most obvious is they could lose the home/condo through foreclosure at any time. Then based on the lease/laws you could be out on your ass. Other thing is repairs. If you're renting a $1500 home from an FB with a $3000 mortgage, he won't have any money left over for maintenance or repairs. If your a/c dies in the middle of summer, will he have $3K to put in a new one? Will you have to wait a week or more? Yeah you can go to court and eventually get thing like that fixed, but do you want the hassle?

Assuming a moderately upscale apartment complex, you have no worries. Things get fixed, your lease is secure. If you have any issues, there is a corporation behind the apartment which is not about to run out of money.

Personally I liked the places where I lived for the social aspect. Met a lot of friends while living in an apartment complex. I was in my early 20s and so was everyone else. So I can see if you're in your 30s that might have the opposite affect.

I'm just saying there is more to consider than the monthly rent.

Anonymous said...

Subprime foreclosures hit NYC
From the New York Post: http://njrereport.com/index.php/2007/06/18/subprime-foreclosures-hit-nyc/

NYC ‘DEBT’ RECKONING

A silent crisis is ripping through many city neighborhoods as more and more homeowners are unable to pay down their subprime mortgage loans.

In Brooklyn’s Bedford-Stuyvesant, one-fifth of subprime mortgages were more than 60 days in arrears as of April - and 10 percent of all subprime loans were in foreclosure, according to data provided to The Post by First Data LoanPerformance, a mortgage-tracking firm.

Other neighborhoods taking big subprime-foreclosure hits are East New York in Brooklyn; the Arverne section of the Rockaways and parts of Jamaica, Queens; Tottenville on Staten Island; and the Olinville and Bronxdale sections of The Bronx.

And the number of subprime loans in arrears and foreclosed has risen steadily all across the city over the last year, the data shows.

In one part of Bed-Stuy, the percentage of subprime loans 60 days or more in arrears rose from 15 percent in June 2006 to 23 percent in April of this year.

Thousands of New Yorkers’ homes are endangered by subprime loans, which can carry variable interest charges of more than 10 percent.

Nobody is sure how the subprime crisis will affect the city’s homeownership rate, which, at 33.1 percent in 2005, was about half the national rate, according to New York University’s Furman Center for Real Estate and Urban Policy.

“New York’s real-estate market is fairly hot, and buildings are unlikely to sit vacant. There’s some skepticism as to whether the city is going to take a hit, or whether it’s going to be localized,” said the center’s Jenny Schuetz.

Anonymous said...

keith said....
Oh, don't forget these crashing rent prices will show up in the government inflation numbers as deflation, and that rental yield makes up 41% of the Consumer Price Index

So while everything else is getting more expensive, CPI will look tame

I just looked at phoenix craiglist at "optima" units and indeed these $1,000,000+ units are renting for $1500 - $2000 a month

I think the condo association fee alone is nearly $1000 a month

Amazing.

June 18, 2007 8:29 AM
-----------
Bingo Keith. Bweek stated it in passing & I fleshed it out in my comment (by joe) Here is the tinyurl: http://tinyurl.com/2js75l

You might want to expand upon this issue w/ a post.

FYI-apartment complexes may still be a viable option due to shear competition from the FB/fliptards turned Floplords. I.e. if enough rental demand is sopped up by all the newly minted private LLs then professional LLs will not be able to raise their rent & the renters they do get will get the benefit of both worlds, low rents + professional management!!

Anonymous said...

http://tinyurl.com/29yskm

priceless!!

Keyser Soze said...

My wife loves Fashion Square...especially that little store flogging beauty products from Provence France.
Those condos north of the mall look spooky .....and vacant!
Yikes.

Anonymous said...

"it's clean, it's safe, it's got a great view"


Well for now anyway! As more and more fliptards send in their "jingle mail" these "dark towers of financial doom" will become less and less econimically viable? I mean there's what, 20 people actually living in the building? Sure, it's great "having the place to your self" but from the most basic of business standpoints how long can that situation maintain itself?

The butn rate on fliptard's cash has got to be astounding!

DinOR

Amtex said...

Florida is a renters paradise without a doubt. We had to move from FL. to PA. 2 years ago and got lucky and made $175,000 on a house we lived in for only 2 years.

Now we are ready to return to FL. and have our choice of renting the same type house for $1700, with lawn care and pool service included.

Sometimes you just get lucky and have good timing.

Anonymous said...

Dudes, the number of busted marijuana grow houses in the past two years in Ft. Myers area would freak anyone. THE PLACE IS A DISASTER!

stuckinthecity said...

The median condo resale price maxed out in February 2006 at $353,900, and by April 2007 the price had fallen to $244,100, down 31 percent, according to Florida Association of Realtors statistics.
---

HAHAH nice.

Anonymous said...

Norco home latest marijuana bust

11:39 AM PDT on Friday, May 4, 2007

By SARAH GORDON
The Press-Enterprise

Authorities today seized 1,447 marijuana plants -- with an estimated street value of $8.5 million -- and arrested two men in an early morning raid of a Norco home.

Riverside County Sheriff's Department Jerry Franchville called the operation "sophisticated," noting that it included 70, 1000-watt heat lamps, 12 industrial sized air purifiers and a drip irrigation and water recycling system.

About $5,000 a month in stolen electricity ran through circuits rigged to bypass the meter, Franchville said.
Story continues below
Paul Alvarez / The Press-Enterprise
The exterior 415 Mount Shasta Drive in Norco where authorities busted a pot growing operation early Friday morning.

Lin Jie, 40, and Han Wan Cheng, 45, were arrested at about 2 a.m. this morning at the residence in the 400 block of Mt. Shasta Drive. They were booked into the Robert Presley Detention Center on suspicion of cultivating marijuana and other drug related charges, Franchville said.

An anonymous tip led authorities to the house, he said.

A real estate agent who sold house in mid-January said that the agent representing the two buyers said the men never planned to live in the house.

"I figured they were speculators," said real estate agent Christopher Paul. "I thought, that's a pretty interesting strategy in this market."
Story continues below
Riverside County Sheriff
Lin Jie, left, and Han Wan Cheng

Paul said the 3,200-square-foot home sold for $720,000.

Neighbors said they had wondered about the mysterious homeowners for the past few months.

"There was never anybody there," said Mario Torres, a retired neighbor who often walked by the house.

He said that he would occasionally see two cars with Texas license plates parked in front of the house and that, when the house was sold in January, the new homeowners came with a U-Haul truck in the middle of the night.
Story continues below
Riverside County Sheriff
Authorities say they seized over 1,400 marijuana plants growing inside of a Norco home early Friday.

In the past couple of days, neighbors noticed a profuse amount of water running into the storm drain in front of the house.

"We all wondered what was going on," said Torres' wife, Yvonne.

Franchville said the growers might have decided to replace the recycled irrigation water with fresh and drained the system.

The raid is the second of its kind in the region this week. On Monday, a Riverside man was arrested in connection with a similar house-based operation in the 18300 block of Van Buren Boulevard in Riverside. That operation was about half the size, with 675 plants and three-dozen heat lamps and also depended upon stolen electricity.

Several other similar busts, including one in Diamond Bar, have also been recorded this year.

--Sarah Gordon

Anonymous said...

Another pot bust in Norco

04:47 PM PDT on Tuesday, May 8, 2007

By SARAH GORDON
The Press-Enterprise

For the second time in a week, a high-value marijuana operation was uncovered in a family-oriented Norco nieghborhood.

Early Monday evening, deputies found 1,700 pounds of marajuana in cellophane-wrapped bales in the garage of a ranch-style house on Corona Avenue, said Riverside County Sheriff Sgt. Glenn Williams. The estimated value of the stash was $850,000. The drugs, ready for distribution, probably originated in Mexico, Williams said.

Three Mexican nationals were arrested at the house on charges of possession of marijuana for sale, said Sheriff's spokesman Gerald Franchville. Their names were not immediately released because the department was waiting to see if the U.S. Drug Enforcement Administration would open a separate investigation, he said.

Friday morning, 1,447 marijuana plants worth $8.5 million were seized from a Norco home a few miles away.

The cases appear unrelated, but authorities said that the suspects in both cases seemed to believe that they were operating under the cloak of anonimity.

In the most recent case, the suspects rented a home on about an acre of land, set back from the street and surrounded by horse stables, Williams said.

The indoor marijuana farm discovered last week thrived behind the shuttered windows of a two-story, five bedroom home in one of the city's newer subdivisions.

Gordon Taylor, head of the Drug Enforcement Administration office in Sacramento, said 50 similar house-based growing schemes uncovered in Northern California had also sat in new subdivisions, neighborhoods with little sense of community or history where growers apparently thought they would be unnoticed.

"There's more anonymity (in a new subdivision)...you go into a well established neighborhood, people tend to know each other," said Taylor.

But neither Norco drug house espaced the notice of neighbors, no coincidence in the community-oriented Horsetown USA, some said.

In Monday's bust, neighbors had called deputies because they saw nightime traffic and people they didn't know frequenting the house, Williams said.

In the case of Friday's indoor-farm raid, an anonymous tipster alerted deputies to operation, and many nieghbors of the house said they had been suspicious because they never saw anyone home, and noone maintained the yard.

Norco Councilwomen Kathy Azevedo said that in a city where so may share a common love of horses and country-living, its hard to remain anonymous.

"People know their neighbors here," she said. "I think anytime someone moved into the community and kept to themselves and didn't have animals, neighbors would wonder."

Reach Sarah Gordon at 951-893-2114 or sgordon@PE.com

Anonymous said...

Blaze shines light on pot
Burning house yields big pot crop
By Jannise Johnson, Staff Writer
05/06/2007

CHINO - A house fire Saturday evening led to the discovery of yet another million-dollar marijuana grow house.

Chino Valley Independent Fire District firefighters responded to the fire at 5:06 p.m. in the 4500 block of Carmen Street, Chino police Lt. Al Cheatham said.

"When they got inside, they discovered the entire upper floor is a marijuana grow house," he said.

Cheatham said there were hundreds of plants inside.

"They range from seedlings all the way to plants ready for harvest," he said.

Police could not confirm early Saturday night how many plants were found or estimate the plants' value.

"But once we're done, it's going to be in the millions," Cheatham said.

No arrests have been made, he said.

The fire caused little damage to the exterior of the two-story house.

Police obtained a search warrant shortly before 8 p.m. for the house.

The inhabitants of the house had an electrical bypass device installed so Southern California Edison could not detect the excessive amount of electricity being used.

No immediate information was available on how the fire started.

Fire officials deferred all questions about the incident to Chino police.

The incident is under investigation.

More than 10 houses in the region during the past two months have been found to have large amounts of marijuana inside.

Riverside County sheriff's deputies on Friday arrested two men and seized 1,447 marijuana plants at a house on Mount Shasta Drive in Norco.

The plants had an estimated street value of more than $8.5 million. More than $17,000 worth of electricity was stolen over a three-month period, deputies said.

Anonymous said...

4 more jailed in pot raids
Homes in Diamond Bar, High Desert are searched
04/19/2007

Four Inland Valley men were in jail Thursday after authorities raided three houses in Diamond Bar and Phelan where marijuana was allegedly being cultivated.

The arrests are the latest in a series of raids in the past two months that have netted thousands of marijuana plants being grown in houses in Chino Hills, Diamond Bar, Rowland Heights and the High Desert.

On Wednesday evening, two men were arrested as they were dismantling a marijuana farm hidden inside an upscale Diamond Bar home, narcotics officials said.

Investigators from the Los Angeles County sheriff's Narcotics Bureau served a search warrant about 5 p.m. at a four-bedroom, two-story home in the 1100 block of Seneca Place, said sheriff's Lt. James Whitten.

Inside, they found two men who were "actively dismantling" pot-growing materials and "getting ready to vacate the premises," Whitten said. "We caught them just in the nick of time."

He identified the two men as Ze Ning Peng, 41, and Ze Lin Peng, 49. They were arrested on suspicion of cultivation of marijuana and theft of electricity.

A great deal of equipment - including high-powered lights and pump systems - was recovered, as well as more than 1,500 cut stalks from marijuana plants, Whitten said.

As with the other grow-houses found in the area, the home's electrical system had been rewired to allow the farmers to steal electricity to power their equipment.

Between half a pound and a pound of marijuana was recovered from the home, Whitten added.

In Phelan, an unincorporated area southwest of Victorville, San Bernardino County sheriff's deputies arrested two Ontario men Wednesday morning when they busted two indoor marijuana-growing operations.

Dominic Luna, 42, and Aaron Martinez, 31, were booked into jail on suspicion of cultivating marijuana and theft of electricity.

The San Bernardino County sheriff's Marijuana Eradication Team served search warrants on a home in the 6800 block of Buckthorne Road, where 300 marijuana plants and sophisticated growing equipment were found, authorities said.

Deputies said they found Martinez hiding in the attic.

Eighty additional plants and more growing equipment were uncovered in a home about five miles away in the 12000 block of Atsina Road. Deputies estimated the value of those plants at $300,000.

Deputies arrested Luna at his residence.

Recent pot raids in the region

MARCH 7: $20 million in pot found in a truck on a freeway onramp in Ontario.

MARCH 14: Meth, pot and drug equipment found in a Chino Hills house.

MARCH 21: More than 2,000 marijuana plants recovered in a Diamond Bar house.

MARCH 28: 1,868 marijuana plants, worth $12 million, found in Chino Hills and Diamond Bar houses.

APRIL 4: 1,800 plants recovered from two Rowland Heights houses.

APRIL 11: More than 1,500 plants found in another Rowland Heights house.

WEDNESDAY: Three houses in Diamond Bar and Phelan where more than 1,900 marijuana plants were allegedly being cultivated were raided. Four people were arrested.

Anonymous said...

``I am about to buy my first house,' Brown wrote, ``and after looking at a few properties settled on two choices to choose between... Neither my agent, nor the listing agents warned me about grow houses, nor did they tell me they had suspicions of these two places being grow houses.

``Now I see both houses had the signs that I never noticed before — hydro tampering, vent holes cut in the drywall. It was only after I spent many hundreds of dollars on home inspections that I discovered not one but both were marijuana grow houses. And not just a couple of plants — we are talking major grow-ops.

``Both agents pleaded no knowledge or suspicion (of course). Now the homes are re-listed with a new selling agent, and no mention is made on the http://www.mls.ca website about any problems.

``If it wasn't for a home inspection, I'd have never known, and the owner would have my money ($300,000-plus worth of highly mortgaged dollars).

``I think the lists of houses should be made public, and clauses put in purchase agreements or else the city/police/etc. are just protecting the growers and encouraging these grow-ops.'

Ron said...

I love the last line in the article.

At High Point, where people paid about $600,000 per unit, he said, “I do believe in five or 10 years they’ll all be million-dollar homes. The people who hang on without mortgages, they’ll do fine.”

Yeah all million dollar homes...for sure as I suspect that all incomes are going to skyrocket with the booming economy coming based on the dollar power. What an kool aid drinking moron.

Anonymous said...

More Houses Raided in Pot Growing Operation
Written for the web by Elizabeth Bishop, Senior Internet News Producer





Police in Elk Grove Monday night raided seven more homes that had been converted into marijuana grow labs. Investigators confiscated 6,000 marijuana plants. This latest seizure makes a total of 14 homes in the past month and 10,000 plants. Two of the homes were in the Natomas area of Sacramento. The other dozen homes are in upscale areas of Elk Grove.

Gordon Taylor of the federal Drug Enforcement Administration called the operators of the grow labs "the pros from Dover."

"I oversee 34 counties. I have never seen this number of indoor grows in such a small area. This is very significant," said Taylor.

No one lived at any of the homes. The indoor operations were all similar in design and operation. The homes were neatly manicured on the outside with no visible signs of the labs through the front door or windows. Other than the entry and a front room, all other rooms and space in the house was devoted to growing pot plants. The electricity in each home had been bypassed to avoid the electrical meter, saving the operation thousands of dollars in utility bills and as well lowering suspicion over unusually high energy usage.

"One house look like it had been abandoned. The water basins (for the plants) were very dry, the house was hot. It's an extreme fire hazard," said Taylor.

Taylor declined to give a lot of details, but said the 14 houses "are all part of a single investigation." He said the set-up of the homes was almost identical in every case.

Earlier this month, five people were arrested in connection to some of the first homes raided. Philip Yu, John Hin, Christy Tan, Wei Lun Zholk and Can Hui Zhen all face federal charges of conspiracy to manufacture marijuana and manufacture of more than 1,000 marijuana plants.

"These people are coming into a family-based community, setting up factories to manufacturer marijuana," said Gordon.

The 10,000 plants seized Monday have an estimated street value of $40 million. No arrests have been made in Monday's raid.

Anonymous said...

why does everyone freak out about grow houses? hell i'd love to live next to one, wholesale prices available right next door, i'd be in heaven

help me bush said...

Bitter renters should not take advantage of courageous homeowners.

Anonymous said...

Even $1350 is insane to pay for an apartment. I don't care how many amentities it has, or how much it cost the landlord. It's a freaking apartment with neighbors to the left, to the right, below and above.

For that much I'm sure one can find a great home to rent in the area.

Anonymous said...

to the person that thinks renting from a FB is a bad idea...well...you just didn't research the LL enough. Some are solvent but have to take what they can due to competition. Sure, they'll lose money, but at least they won't lose their condo like some "30k millionaire".

Also, if the market does start to "go south" and the LL comes to you and wants to sell you have the choice of saying "no thanks...unless you want to buy me out of my lease"...aka...REFUND!

In reality, I think that it wouldn't matter either way. Bank may want you out if it goes into forclosure but a simple threat of a lawsuit will have them buying you out of your lease also.

The Thinker said...

It all comes down to *value* or price/rent. Conventional wisdom held that the purchase price of a home would be about 120 months rent. That is to say, $1,500 /month rent should get you into a $180,000 unit and an $800,000 home should command a monthly rent of $6,700.

If $1,000,000 homes are renting for only $1,500 then the price of the home is 667 months rent. WOW! That is a HORRIBLE value.

Here in Long Island, NY, things are a little better. Here, it costs about 350 months rent to buy a home.

I don't think Long Island will ever go back to 120 months rent to buy a home, but even if it only goes down to 250 months rent to buy, that's still a 30% drop in home values as compared to rent.

Anonymous said...

The CA "retirement" house I rent in WA is new and gorgeous. I figure that the rent they generate from us after paying the property management firm won't even cover their taxes.
Meanwhile we are enjoying the "retirement" house while saving near 30% of our income. That is near 30% on one income.
It makes buying a piece of crap flipped panacake house and not being able to save so much, look rather like the nightmare

Anonymous said...

No rent being paid hear!


Neighbors Say Prostitutes Using South Memphis Vacant Homes
Last Update: Jun 6, 2007 6:21 AM

Posted By: Sarah Buduson


Eyewitness News Everywhere uncovers what neighbors say is a prostitution problem in South Memphis. People who live in Westwood say prostitutes are living in three vacant houses on Don Street. They say it's making them afraid for their families' safety. Neighbors say people who live in the houses either left or passed away about a year ago.
Jimmy Myers and his daughter Jennifer Perry both live around the corner from Don Street on Ledbetter Avenue from the three vacant homes. Myers says, “We have a lot of streetwalkers coming and they move in these homes and they stay there. Their dress code is not like our dress code, okay? That's how we know their strangers or streetwalkers.”

Perry agrees with her dad. Prostitutes have picked Don Street to entertain their clients. She says, “You see the way they dress, and the way they look, and guys coming out with them, and everything outside. So that's how we know, they look like prostitutes, I'll put it that way.”

Shronda Beasley is a homeless woman who stays at one of the homes. She says neighbors are right. She says prostitutes constantly use the vacant houses. She believes ladies of the night also sometimes stay on Don Street during the day. She says, “It's a couple, not too many that goes in that house.”

Perry and Myers say this part of Westwood was once a nicer neighborhood. Perry says, “Every one around here knew everybody. It was like a family oriented neighborhood.” Now that hookers call the area home, they say they're treasured homes look more trashy. She says, “It's like it is getting worse instead of better.

Anonymous said...

I have asked this before and nobody has ever answered. Where did the 120Xrent formula come from? It seems so arbitrary, like the 2.5 median income for a house.

Anonymous said...

one smart dude. soaking a fber. lol!

Anonymous said...

Home builder index lowest since '91
Market index tumbles to 28 in June as mortgage rates, lending practices hit sales.


June 18 2007: 1:15 PM EDT
NEW YORK (Reuters) -- Sentiment among U.S. home builders slid in June to the lowest level in more than 16 years as tighter lender practices and rising mortgage rates crimped sales, the National Association of Home Builders said Monday.

The NAHB/Wells Fargo Housing Market index fell two points to 28 in June, the lowest since it hit 27 in February of 1991, the group said.

Economists had predicted the index would be unchanged from May's 30 reading, based on a Reuters survey. Readings below 50 mean more builders view market conditions as poor rather than favorable.

"It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," said NAHB Chief Economist David Seiders.

The NAHB expects home sales will erode "somewhat further," and improvement in housing starts is unlikely until early next year. Housing should be a drag on economic growth through the rest of this year, the group said.

"Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizable inventory positions," said NAHB President Brian Catalde, a home builder from El Segundo, California.

Builder confidence has fallen every month since the index reached 39 in February, before defaults and foreclosures started escalating on loans to borrowers with blemished credit.

A year ago in June the index stood at 42, versus this month's 28.

Long-term interest rates have shot up in the past few weeks as hopes of the Federal Reserve cutting rates has faded.

Inflation worries helped spur the biggest weekly spike in mortgage rates in three years last week, sending average 30-year loans to 6.74 percent, the highest in nearly a year, according to U.S. home funding company Freddie Mac (Charts, Fortune 500).

All three of the NAHB's component indexes fell in June, as they did the previous three months.

The gauge of current single-family homes sales dropped to 29 from 31, the group said. The index of sales expected in the next six months fell to 39 from 41 and the prospective buyer traffic measure declined to 21 from 22

g said...

"So while everything else is getting more expensive, CPI will look tame"

Herein lies the problem. The Fed will use the tame CPI as an excuse to lower rates. Then we'll all get eaten alive by inflation. House prices might not decline as much as 40% in nominal amounts but the end result will be the same - a big decline in real value. Except under the inflationary scenario we'll be FUCT in a lot of other ways too.

kitchenstove said...

Looks like a lot of renters are going to get their chance to have their own personal bug infestations, play loud music, and put holes and funky colors on the walls too, (as if most renters wanted to do any of that anyway and there were never any that could). Hee hee. Turn that music up loud, Dude, the building is half empty and no one will hear it. You basically have the whole place to yourself. Lol, I love it.

Bitter Renter said...

Renting an apartment has been better for me than living in a house so I will stick with apartments. Houses often have families with kids, especially rental neighborhoods, and the noise/chaos drives me nuts. The adult complex I live in now is safer, quieter and more peaceful than even the neighborhoods I lived in when I owned a house. Plus, apartments are still almost always cheaper to rent than houses. And the grounds and surroundings are often nicer. People let rental home grounds go to hell and I'm sure not into tending to one.

Another thing to consider is the landlord situation. Particularly if the owner is getting hosed, he/she will resent you and treat you like a serf. Apartment complexes owned by large management companies treat you like a valued customer. I grew up in a family that owned rental houses and saw the attitude of "getting someone else to pay your mortgage". Yes, I know that's the case in an apartment complex too, but I don't picture some arrogant wannabe land baron thinking I'm his/her chump.

HauspocalypseNow said...

Kieth is right.
Renters=kings!
take that floppers!

I sold my homes in 05 and make 3200 a month on the interst which i live on.

I save 100% of my take home pay (11k a month!) WOW.

Here is what i did and you can do it too:
1. sell real estate, pocket cash
2. quit w-2 job and go contract -prgramming- ($$$$)

Retire in 10 years instead of 25. or 5 instead of 15. you get the idea. do tha math. before when i was w-2 and had 2 rental homes i was scrapping by every month (subdising renters, paying top tax rates) now my cash flow is amazing.

The Thinker said...

I don't know where 120x rent came from, but I use it as a good example to show how things have changed.

Anonymous said...

damn , i am moving to south beach....and kick back for a while , and rent some cool pad and get me some hot chicks.......

Anonymous said...

Homeowners are patriots and renters are financial terrorists

Anonymous said...

Home buying is slowing here in Alameda, CA. Two houses went "sale pending" in an exclusive neighborhood after one open house two weeks ago. Neither have actually "sold" yet.

These homes listed at $920k & 1.15million.

Ben Franklin said...

That 120x thing is a rule-of-thumb that landlords traditionally use to determine a rental price that offers a reasonable rate of return on their investment expenses (PITI, maintenance costs, etc).

It is VERY much a rule-of-thumb; unlike bubble buyers, who were given exotic loans that allowed them to over-leverage themselves just to get into a property, renters don't enjoy skyrocketing salaries! There is a finite limit, AKA "what the market will bear", to what a landlord can charge. As we see, many landlords cannot begin to cover their monthly payments based on what a renter will pay. Look around, and you'll see there's lots of accidental renters right now....

The idea is that an investor needs to get a reasonable return for the the hassle of buying and operating a rental; otherwise, a smart investor simply could park the same downpayment (what's that, I hear some asking?) into a money market CD and bag 5.3% with no risk, no hassle, and the benefits of EZ liquidity.

Of course, the lenders changed the rules over the past 5 years, and allowed people to buy property WITHOUT a down payment; some people even scammed the lender to get money BACK (cash back at closing).

Of course, the problem is they're now committed to paying for a property that's GUARANTEED to depreciate, and now they're realizing they're basically screwed, scammed.

It was a classic Ponzi scheme: run the price up by artifically decreasing supply/increasing demand, and leave the last market participants holding the bag for buying an overpriced asset. They'll have to pay for an over-priced property they couldn't afford in the first place (even heard of liar loans?).

So who made out like a bandit? Primarily the last seller, but also the real estate agent, the mortgage broker, the builder, and in many cases, even the originator (who THOUGHT they could pass the toxic loan to others on Wall Street).

It was as if EVERYONE in the market thought the scheme could keep going on forever, with perpetual double-digit appreciation, as if no one around had EVER heard of a Ponzi scheme before.

Nice, eh?

K.W. - Southern Ca. said...

Not surprised - extremely overvalued property in that area (right next to Pasadena).

Many Chinese moved into Alameda, driving prices up in the past few years.

Anonymous said...
Home buying is slowing here in Alameda, CA. Two houses went "sale pending" in an exclusive neighborhood after one open house two weeks ago. Neither have actually "sold" yet.

These homes listed at $920k & 1.15million.

K.W. - Southern Ca. said...

Very good point.

The house debter (as Equity Lord) and renter dynamics must really be getting tense now.

Bitter Renter said...
Renting an apartment has been better for me than living in a house so I will stick with apartments. Houses often have families with kids, especially rental neighborhoods, and the noise/chaos drives me nuts. The adult complex I live in now is safer, quieter and more peaceful than even the neighborhoods I lived in when I owned a house. Plus, apartments are still almost always cheaper to rent than houses. And the grounds and surroundings are often nicer. People let rental home grounds go to hell and I'm sure not into tending to one.

Another thing to consider is the landlord situation. Particularly if the owner is getting hosed, he/she will resent you and treat you like a serf. Apartment complexes owned by large management companies treat you like a valued customer. I grew up in a family that owned rental houses and saw the attitude of "getting someone else to pay your mortgage". Yes, I know that's the case in an apartment complex too, but I don't picture some arrogant wannabe land baron thinking I'm his/her chump.

K.W. - Southern Ca. said...

Right On.

Home owners, house debters, renters ... we'll all get hit
by the housing catastrophy to
some degree.

It's pure falacy to think the
problem will stay contained to
just a certain population segment/class.


g said...
"So while everything else is getting more expensive, CPI will look tame"

Herein lies the problem. The Fed will use the tame CPI as an excuse to lower rates. Then we'll all get eaten alive by inflation. House prices might not decline as much as 40% in nominal amounts but the end result will be the same - a big decline in real value. Except under the inflationary scenario we'll be FUCT in a lot of other ways too.