my neck of the woods, north of NYC. I believe it is also true for other
parts of metro NY. In my opinion South Florida has also turned a
corner. I don’t have a handle on other parts of the country, but I would
be interested if others would chime in.
My thinking is that we have completed the extremes of the cycle. From
the silliness of 2006 to the 50% (average) drop in 2010 the process of
re-pricing may be completed. We shall see if this lasts. Some reasons why it might be happening and a few that make me wonder if it will continue.
-MERS problems have shut down the pipeline of distressed homes.
There was, and continues to be cash buyers of stuff being sold by the
financial players (REO). In South Florida hundreds of apartments have
been bought (paid with cash) and taken off the market. There is still a
lot of junk, but the supply of nicer properties has gotten smaller.
-In NYC the market is good. Apartments are selling faster and at
higher prices. The City has always been the driver of RE in the burbs.
With prices over 1,000 a foot in town the ‘country’ looks better at
under 500.
-There are cash buyers. Some of this is overseas money. To some
extent the 100% rise in equities has to be the source of the money. I
can imagine the conversations that took place two years ago:
“Honey, we got hammered in the stock market. If we ever
get back to “X” we are going to sell half and buy the house we always
wanted.”
The Russell 5000 is up $7 trillion in two years. Some of those X’s are being reached.
-A common theme that I’m hearing is “What's the new construction cost for this property?” The answer to this is that costs have been rising very fast of late. According to Reed Construction Data
materials cost rose in the three months ending in January rose at an
annualized rate of 5.6%. Some of the contributors: Concrete +10.9%,
metal joists 5.5%, tile +6.5%, site preparation +8.5%, fire protection,
plumbing and HVAC +19% (copper).
These are January numbers. There will be a big jump again in February/March. Everything is energy driven in construction. Want a new roof? Get it fast. Asphalt shingles are a “buy”.
Net-net there is a “cost pull” that is influencing pricing of older homes. This is exactly what Bernanke has been trying to engineer.
-I don’t know if prices are “cheap” today or not. I know they are a lot lower. Where I live we are back to 2003 levels.
-Brokers have a great selling line to prospective buyers today.
“Mortgage rates will be rising, the availability of mortgages will be
curtailed in future years due to the wind down of the GSEs. Better to
move now.” This is just brokers pushing buyers. An old game. But in
this case there is truth to it. The days of the mortgage with a “4”
handle are gone. I doubt we’ll see that again in a very long time. The
question today is, “Are they going above 6?”
Don’t read this to be some bull case for RE or the great comeback in the
US economy. It's just an observation of where I think we are in the
spring of 11'. I think residential RE is a lousy investment. Ownership
cost is twice rental. You need 5% annual appreciation just to break
even. That’s not going to happen.
Property taxes are going up all over. The cost of maintenance is way up.
Interest rates have just started to rise. In a few years they will be
much higher than today. Then there is that wild card of energy. The last
place you want to be is in a big home and $200 crude.
If I’m right about this you will see it in the foreclosure stats. The
bottom rung always has to get a lift first. Outside of the MERS issue
the Chairman of the Federal Reserve is bringing this to you. He is
responsible for almost all of the factors I mention. But in about six
months he is going to be forced to take away the punchbowl.
Have a nice day!
I can tell you that something is going on in Asia for sure. I had 2 acquaintances, one from Malaysia and one from Australia, BOTH call me in the last 24 hours telling me to BUY SILVER! I have never experienced anything like this since the Hunt brothers.
when mortgage rates go up, wont prices go down because people can afford less?
anecdotal South FL - the very high end appears much much stronger than the past couple of years by my guess bottom was last summer with some prices back to 2005 levels. the >$600 to $2m market continues weak while <$500 activity increases the lower you go.
Some data from realtytrac
http://www.realtytrac.com/trendcenter/fl-trend.html
Pablo honey, please come to Florida. Pablo? Bruce, prices here in Broward for condos are lower than when they were built 23 years ago. And not being in an FHA approved neighborhood makes it impossible to get refinanceced or sell to anyone other than a cash buyer. See:
http://www.bcpa.net/RecInfo.asp?URL_Folio=484220GJ0440
http://www.bcpa.net/RecInfo.asp?URL_Folio=484220GJ0430 http://www.bcpa.net/RecInfo.asp?URL_Folio=484220CH0160I am actively looking to buy in a midsized MN town due to a relocation. None of the nicer houses, +600k are moving at all. All the action is sub 350k. Looks like I'll try some low bids and then look to rent. I'm betting I can find a seller who will be thrilled to rent.
Moving twice would suck but sooner or later some of the sellers will be taking a haircut. Unlike the NYC area, there is still land to build and subdivisions with roads but few houses. RE is going to suck for a few more years in all but a few high population/ high desirable locations. Higher end South FLA & NYC and select areas of the west coast will attract foreign money but no where else.
real estate will fall for another 15 years
interest rates will increase as the fed floods the market with QE3-4-5
inflation will rage,, home prices will fall,, jobs will be lost we are at 22% unemployed and underemployed now
people are dreaming the inflation floats home prices , inflation destroys wealth,
food gas necessities will explode up
where is all this extra dough coming from for 20-30 percent down . credit will be non existent
as the interest rates spike up home prices will go down ,, like a bond ,, prices go down interest rates spike up ,
what are you guys smoking when it comes to homes ,
so take your cash 200,000 buy a home as it loses value good move , buy silver gold
then in 10 years buy a home with 200 oz of silver
How about instead, we have no QE (x) any further and RE falls another 25% over the next two years?
Let's just get it over with. That way, unemployment doesn't have to linger and feed on itself and we can get this country back to work.
Oh, and let's allow Wells and Citi to fail, too.
Bruce, your comments regarding construction costs are not really squaring with what's going onon the ground or even with the article you sourced from REED Construction Data. While some construction costs have gone up such as concrete reenforcement (steel) other construction costs continue to decline: "For materials not as vulnerable to geopolitical conflict or separated from the emerging nations’ effect, change has been either more moderate or in the opposite direction. For example, quarter-to-quarter concrete forming prices in the latest period were -9.3% annualized; precast concrete, -9.7%; plaster and gypsum board, -14.7%; and ceilings and acoustic treatment, -4.9%."
Here in the DC area, the new home builders are squeezing the crap out of the illegal aliens to keep their costs down. $2.80 a sheet to hang drywall when they used to get around $5.00 a sheet. The builders have a take it or leave it attitude.....they know somebody out there is hungry enough to work for those wages.
IF(?) Mortgage rates rise that will put DOWNWARD pressure on RE.
Greetings from the Great Swamp!
I just closed on three properties in South Florida, I paid less then the price the properties cost when built in the 1970's. If they drop 30% I don't care, I will hold them for years and rent them in the meantime.
EVERY single house I looked at in South Florida is damaged, EVERY house was missing at least the central A/C unit, stolen for scrap copper. The climate is not good for the drywall, so, if they sit too long without ac they need to be gutted.
Buying real estate could be a superb inflation play. Fully leveraged even better. BenShamke is on your side. The question is of course if inflation will be structural.
Inflation brings high interest rates. Not good for real estate.
October. 1982. 30 year fixed rate mortgage: 18.45%
You just confirm my point. You don't buy when rates are at 18,5%. And what do you think will happen to rents?
Last week I saw an article on a downtown SF office building that sold for 11% more than the last sale in 2007 - but I'm sure it's a one-off deal for an attractive property. The surprise to me for the past 2 years is the CRE "shadow inventory" that hasn't been forelosed, lots and lots of extensions and roll overs which could not have occurred without Fed blessing. You just know from vacancies and rental rates that the properties aren't in compliance with the loan covenants. There's still a huge bump hiding under this rug.
In the SF sub-urbs residential market the sales volume is low and prices are in the 2002-2004 range.
If you want an office building; shop around. there's a lot of them available for 50-60% of what they evaluated at in 2007.
Greetings, my uber-bright friend. It seems they may be now willing to let the Euro go. We'll see...
Best of luck to you!
:D
Far be it from me to insinuate that I know more about the market than you, Mr. kasting. But the whole idea of what you are saying seems delusional to me. But hey wth I HOPE you're right.
It's just that from where I'm standing I can see a house I once owned in Sacramento, which I bought for 167k and sold for 300k, languishing on the market for the last 9 weeks at 148k.... and there aint no takers so far. Brings a tear. I loved that house.
Oh well. My 2cents for whatever it's worth.
your two cents is worth alot; because it cites specific facts.
Twenty five 1964 george washington quarter cents is worth about $7 today, so two cents can be very valuable indeed.
I AM CHUMBADUMBA! Wibble wobble
I live in Los Angeles in the beach cities area, prices still falling steadily. LOTS of supply still coming to market. Maybe prices have stabilized in some states with foreclosure procedural problems. I don't believe we have those issues in CA. Deals are slow and purchases for cash are very common.
In Seattle it's HARD down where I am. Take a gander at these charts:
http://www.zillow.com/homedetails/9019-Dayton-Ave-N-Seattle-WA-98103/491...
http://www.zillow.com/homedetails/10516-NE-189th-St-Bothell-WA-98011/486...
Mr. Been There
http://www.youtube.com/watch?v=K4ApWNFUJ4E
"...fly with me, right into the sun...fly like a vulture..."
Texas has been pretty stable all this time. There has been a bit of overbuilding but I live in the fastest-growing county in America, so the overhang won't last long.
When you have all that prairie, it is pretty easy to build out new stuff so there is never really any squeeze on the current supply.
It's almost like none of this RE problem ever happened here.
:)
nyc today reminds me of tokyo 1989. 50% more on down side. Maybe not so bad on the lower east side. Still, I think Roubini is gonna get skewered on that 5/1 arm. The coasts need to check into reality once in a while. complete disconnect w/ 90% of the country.
IMO we're at a turning point for residential RE, not a bottom. An oddity at play is that buyers, especially first-time buyers, are now so risk-averse, many will only consider new construction completed in the past year. This is artificially inflating prices for newly-built homes at the expense of existing homes, even houses that have never been occupied. Buyers say they don't want any headaches from lack of maintenance or issues from clouded titles.
There are millions of vacant properties deteriorating with each passing month. At some point even flippers will see no possible way to salvage the value in the houses and they will have to be demolished. And this isn't limited to econo-boxes or inner city neighborhoods. We have a 4700 SF McMansion near our neighborhood sitting on a 5-acre lot. It was completed in '07 and listed at $1.2M. It's bank owned now and they are asking $499K. I doubt it will ever sell because it has serious structural problems with the foundation, the driveway is sliding down the hill, and water infiltration is causing big chunks of stucco to separate and fall off the exterior. The lot it sits on is worth over $400K, but no one wants to pay the demo cost to deal with the rotting structure.
Inflation may put a floor into housing, or rising rents.
Agreed. Not just a floor, but could begin another wave of defaults. Many people who refi'd are still underwater or have little equity and a payment that doesn't leave much budgetary wiggle room. If food and gas prices keep rising, these people start missing payments again and bankruptcies follow. Add those to the eventual rerelease of already foreclosed homes onto the market after the MERS scandal is swept under the rug resolved. Couple all of that with the inevitibility of rising long term interest rates and housing prices have a long way to fall.
live in Chicago. Real estate market here is plagued by over supply and high taxes. Anecdotal examples: friend of mine one block over from us in wicker park neighborhood was thrilled to finally off load his 3b/2ba penthouse for 20k less than he paid in 2002. All the young professionals that bought 2002 or later that want to move are completely stuck or they must take a major bath. My good friend is a remax agent and has been up to his eyeballs busy for the past 1yr+ w/ bank owned property in the suburbs. 30% of his deals are falling through before closing because of appraisals not passing muster w/ underwriting. Everyone is turning to renting. Everyone.
I think property taxes, the expectation for/uncertainty about higher property taxes and property related regulations may be playing a bigger role here in the RE market right now than is generally being appreciated.
Really liked your post. Very cool.
Get the PIMCO rate while it lasts is probably driving the sales.
Just for the record; short Dow 12225 no stop, short Spain's ESP35 10,650 (avg) no stop, short EUR/JPY 115 stop at 116.10, short AUD/USD 1.0125 stop 1.0255, long USD/CAD 0.9700 stop 0.9555.
How is this for the craziest 4X market ever? Equity markets all over the place and the EURJPY hasn't moved in a week. Neither has the AUDUSD. Just amazing.
Just sitting there, churning.
It seems kind of like that Richard Pryor joke when he was finally allowed to stay out 'til eleven-thirty and was ready to light up the town.
Standing there, leaning against the wall, he asks one of the other guys, "Hey man, let's do something. What are we waiting for?"
The guy goes, "Eleven-thirty."
You're so nice Orly, and missed you too. What do you think of that PIMCO stuff? I mean do you think B and B had a moment to talk it over and decide for us or what? Maybe another free ride with all that cash after a correction.
And then there was that Eurodollar short for 100,000 futures contracts 10 days ago or so, betting rates to rise.
The AUD employment #s were a bit odd. If AUD can't break higher on a big number for permanent jobs then what's up with that?
That EUR/JPY short has some nice looking downside to it as a range trade unless the Wicked Witch uses the electric wand on my ass again.
Maybe I am wrong on the calls but I really don't see much risk here to the upside other than a few fakes.
Love the Spanish thing. That looks really nasty and lots of exposure too. Scary.
Above all, I just love Zero Hedge. It's my church except for when I am on the rivers. I love you too, Orly.
Thanks, Ro. I do try to be nice. Since the end of last year, I have had a bit of a health scare for me personally so I have not been in the best of moods lately. But I do try to be nice, even if I can't be cheerful. It seems I have atrial fibrillation, the same as my mother and grandmother. Wish me well, please, Ro. :D
_______
My, where to start, except to say that nothing makes any sense in these markets. About the only thing that keeps me sane about it is ZeroHedge and the wonderful personalities here...yes, including Bruce Krasting. ;)
I see very little upside potential in SPX and in the AUDUSD pair, you're right about that. In fact, what is holding up the Ozzie is beyond me but I suspect it is that same magic fluff that is keeping afloat the British Pound (wink, wink...).
There has been almost no reaction on any news coming from the antipodean arena. (Always wanted to use that in a sentence, so that makes me smile...). If the pair doesn't react on employment news, then surely it would react to rate news from its neighbor, New Zealand. Nope. Nada. There was some reaction between the Oz and the kiwi but not a budge against other currencies, which is odd because one would figure that what affects New Zealand won't be long to affect Australia.
I just don't get it, to tell you the truth. And how the EuroYen can just remain suspended in mid-air while global equity markets start to tank is beyond me. Again, another complete and utter mystery. I have the downside on that pair to at least 113.020 and possibly as low as 112. But who knows, really? Nothing is acting the way it is "supposed" to and I blame the United States' Federal Reserve for manipulation of everything under the sun. How we can get back to freer and fairer markets without a lot of pain is beyond me.
Which brings me to your main question about PIMCO...
I should disclose that I have almost all of my retirement money with those guys and it is up big over the duration of the crisis. I have been very, very pleased with Bill Gross and Mohamad el-Erian, so these guys are the furthest thing from stupid. They are making these moves because they see something on the horizon that should scare the bejesus out of anyone with a retirement account or a 4X account.
The sense I get is that Bill Gross is pissed off. He is not moving my money out of spite. Rather he is moving the money because he thinks it is best for me. I think it pisses him off that he feels that he has to do this because, as an American, he can see the fiscal imprudence that is going on at the top; the mismanagement, the misplaced capital in the hands of banksters, the manipulation of global markets in commodities, equities and currencies that he and Mohamad know will not end well.
I don't believe that he has any hotline to Bernanke, though he is far chummier with the big players than I am, for sure. Is he privy to some inside information or are they telegraphing moves in order to manipulate the market? I don't think so. I just get the sense that he sees a major storm coming, which could have been avoided and he is battening down the hatches.
He may not be too happy about it because he knows my returns are going to stink over the next two years but I would say to him, "Just preserve my capital. I believe you and I see the same thing coming. Be prudent, even to the point of diminishing returns." I think he is a savvy gambler at heart and he is irritated that he now has to sit on his hands for the next couple of years or so.
I hope he has a nice hobby. I don't suppose he would be very interested in quilting!
______
Thanks for your kindness to me, everyone here at ZeroHedge. It makes me feel as though I have somewhere to go to feel warm when it is cold outside.
Best wishes for your health, Orly. You have always provided thoughtful insight and perspective. There are far worse people to be guarding your money than Bill Gross and few, in my opinion, who can do better.
barliman
Best Wishes Orly
Sounds like AF can be managed, so chin up girl.
Always a pleasure to read your stuff.
Love.
Kayman
Well I wish you well. Hopefully modern tech/drugs makes that more manageable than it used to be.
I agree with your assessment of BG and I believe he did first get into investing by reading a blackjack book called "Beat The Dealer."
He does seem to be rather caustic and outspoken given his obvious access and insider status RE: government debt markets - way more so than Buffett for instance. In his letters he makes a convincing case that we're where we are as the result of structural chances in the economy that stem from permanently exporting many manufacturing jobs starting 25 years ago and have since been lurching from one semi-orchestrated asset bubble to the next to keep the wealth illusion in place.
I suppose he is pissed about our having painted ourselves into a corner like this, although in one recent letter he seemed pretty unpleasant in general - he hates cocktail parties, no he can't get your kid a job, wah this, wah that - lighten up Bill! Maybe he should just regrow his moustache (it's pretty much the bottom of that market).
Also I wonder if he would ever feel like he should try and do something (engage more publicly in this debate) beyond discharging his fiduciary duties to his shareholders - which I think he's done an admirable job of given the circumstances.
Best.
Well, that's the same as I seem lately. Someone makes a funny about autism and I'm all over that. Then, Tyler has some misspellings in the front-page article teasers and I bitch about that...
I'm upset about my ticker. I'm not a bitch in general.
Same with Gross, I think; hates cocktail parties, etc. Once you get pissed about something, it tends to spoil the rest of your mood. Now that he will have little to do for the next eighteen to twenty-four months, maybe he will be able to say something and actually hold a public debate.
Who knows, maybe he will be recruited to run for president? He certainly can't be any worse than the candidates, declared or undeclared, that we have so far. In fact, let me kick it off right here:
We need fiscal responsibility!
We need to face up to our problems as a nation, correct them and move forward. I believe that one man can lead us to that point and turn this country around. Bill Gross for President of the Untied States!
Bill Gross for leader of a Common Sense Party.
Principles like:
1. When you spend money, spend it wisely. (Krugman is an idiot)
2. Without a value-added core (manufacturing) a country cannot be sustained.
3. Banking means financial intermediation not churning and skimming.
4. Trust is more precious than all the gold and derivatives in the world.
Yeah, Orly, you are right. I think Bill Gross could stop this ship from sinking.
Closed it all out when the Dow hit that 50 Day MA. More POMO coming maybe.
there is still the issue of the shadow inventory the banks are still holding but not listing...which appears (according to what I've read) to be substantial. that's going to have further impact on the housing market...and not to the upside.
I live in South Florida and have two relatives in the RE business, one a realtor and the other a mortgage banker with one of the TBTF banks. Neither one feels particularly optimistic about the market here. While there are3 some very flush people picking up some bargains in cash, it doesn't really make a dent in relation to the vast availability of properties. Also, unemployment in Florida is at historically high levels (in the 12% neighborhood) this does not help matters one bit.
Right now...renting is still the best way to go. There are properties I've personally looked at, brand new condos, that were on the market for sale two to three years ago for just over 1 mil, they are now asking 450K for sale...but, you can rent it for 2000-2500 per month. seems like a no brainer to me.
I don't think we've hit bottom. I think it's just a temporary slow down in the rate of decline. My gut feeling is, at least in South Fla, we've easily got another 20% downside...perhaps as much as 35%.
just my two cents.
another negative is that there are still quite a few adjustable rate mortgages to adjust upward. some have defaulted but some remain. these run down in late 2012, i believe. good new data anyone?
Manhattan is good, but The Bronx, Brooklyn, Queens, Staten Island, eehhh. As for Northern Westchester there is about a 20 month supply of houses for sale. That's alot. It's still a buyer's market.
I think NYC could easily become even more of an independent city state and see its RE appreciate to the clouds even if/as the rest of the country falls apart around it.
England is in shambles in many ways but London just cruises along above the jet stream, charging an arm and a leg for everything. It's just the place to be for all kinds of things.
When pretty much the entire top .0001% of the world's population all keep apartments in your city I'm not sure it's the best bellwether for the rest of the country. Even if the U.S. takes another huge leg down from here into an even deeper recession I don't think NYC will come anywhere near the shithole status it attained in the 1970's. It's just evolved beyond that.
Um, Bruce, I think you've overlooked the key item: jobs. The jobs being generated are, at best, low paying jobs. And people aren't getting enough hours. This needs to change, significantly, if housing is going to stabilize or turn around.
I do think this Spring is the next best chance to get out of RE. After that, I'd say we're looking at a 20% percent drop at best, nationwide. And possibly even another 50%, IMO.
And don't thing that the employment picture is not by design. There is no way to have runaway inflation without wages to pull the price cart. The Fed's mandate is price stability and employment. Those items are joined at the hip. Prevent high-paying jobs (better yet, NO job) and you prevent rises in prices for all the stuff we buy every day. This BLS BS shows lowering joblessness but an increase is the reality. It's gotta be planned that way.
There is no way to have runaway inflation without wages to pull the price cart. The Fed's
in a pigs eye
zombia had runaway inflation and you think wages exploded lol
inflation is the printing of money,, it destroys jobs ,
read a good economics text and stop with the jive
i agree. inflation can have many drivers but certainly huge monetization of ballooning government debt with little at the margin spent on truly productive assets is one way. too big to fail is a failure on many levels.
john hussman makes a pretty convincing argument that a modest rise in short term rates will give velocity to the now idle bank reserves and significantly increase price levels (and, then, interest rates further).
imo commodity price inflation is likelier to further impoverish the poorer 60% (who have less wealth than the forbes 400) than to give them better jobs. but i could be wrong.