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Woe Is Housing
This article originally appeared in The Daily Capitalist.
The Case-Shiller report Tuesday wasn't news because we all know that housing prices are continuing to decline on a national basis. But, it reinforces what we are seeing.
Home prices fell to new lows in 11 cities in December, the latest sign that the weak housing sector remains a soft spot in the U.S. economy.
Across 20 major metropolitan areas, home prices fell 1% in December from November [and 4.1% YoY for Q4], according to the S&P/Case-Shiller home-price index released Tuesday. The index has declined for five consecutive months, all but erasing the gains in home prices since the recession ended in June 2009. ... Robert Shiller, the Yale University economist who co-founded the index that bears his name, said Tuesday that there remains a "substantial risk" of another 15% or 20% decline in home prices.
Their December, 2010 data shows this:
Unlike previous reports, not any of their 20 metropolitan areas had price increases:
To live up my "truth in forecasting" goal, I have consistently overestimated the housing "recovery." I have not been forecasting a recovery as much as a bottoming of the market. My prior views that the housing market has been finding a bottom were clearly wrong.
Why was I wrong? I underestimated the volume of housing that would come onto the market as a result of declining prices. I also think I underestimated the carryover effect of some of the government's (futile) efforts to stabilize the market. While it was pretty obvious that the first-time buyer credit was limited and borrowed from future sales, HARP, HAMP, and other programs also forestalled some of the declines. I believe now that consumers are seeing the inefficacy of those efforts and, with rising mortgage rates, they are more cautious about the market. Many are finding their tax credit already eaten away by price decreases.
What is my current, chastised view? I'll go along with Professor Shiller, at least on a national basis, that we are a couple years from bottom, much less recovery. On a national basis, S&P estimates that it will take 49 months to clear out the foreclosure market. I would say that lull in foreclosures is over.
Would I be buying foreclosed homes for investment today? This is a market decision. Coastal California? Yes. From my own experience and anecdotal evidence, I believe the California coast is still firming up. This trend is limited to the coastal cities of California. There is a lot of money chasing foreclosures which has prevented a free fall as in Las Vegas and South Florida. Coastal areas are notoriously difficult to build out and overproduction was limited. But as shown on the second chart, prices nationally are at Q1 2003 levels.
Las Vegas? No. South Florida? Maybe with retiring Baby Boomers plus foreign money seeking cheap deals in the Sunbelt. Location is everything as they say. If the supply was more than 12 months, I would be cautious. I would make sure in really overbuilt areas I was buying the best property location and amenities on that market. Cheap is sometimes, just, well, cheap. Be concerned about property tax increases as states look for sources of revenue. As you know, there is no substitute for good due diligence and market research.
The test for investors is: does it pencil out? That is, with a 20% down payment, a fixed interest rate 30-year PITI loan, and reasonable HOA fees with a reserve for increases, do the rents yield a 10% return? If not skip it unless you have deep pockets. It's never a simple game and there are a lot of economic factors that could make your renters go away. Oh the other hand, if you know what you are doing in your area, there are opportunities.
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"Sales of foreclosed homes fell in 2010 as the market struggled with weak demand, though they still represented more than a quarter of total sales, according to a RealtyTrac report released on Thursday.
Sales of these distressed properties also fell in the fourth quarter, hurt by continued weakness from the expiration of the homebuyer tax credit and temporary halts in foreclosure sales from several major lenders."
http://news.yahoo.com/s/nm/20110224/bs_nm/us_usa_economy_realtytrac
Funny, everyone was questioning the call on $500T in global debt; now, they continue to question the RE fall of 75%. peak to trough.
paying cash for low priced housing gets the best deals. It is now in the range where getting someone with HUD in your house pays well. Unlike poor working people, the parasites on HUD housing subsidy never miss a payment, because it is the government paying the rent.
It is simple to get a house up to HUD standards.
It is sad that slum lords now prefer renting to government parasites as opposed to poor working people.
However, poor latinos still have ethics. You can rent to them and pretty much be guaranteed they will pay the rent. At least two or three of the 8 people in the house are working.
Slow and steady works for me. I wont borrow to make a RE investment, and my tenants like that I don't try to play the impoverished Landlord. I sent notices last year to all that future rent would be greatly impacted by the Prop. Taxes. Try to keep tenants long term (6 yrs. and up) and don't trust Realtors, Banks, or the gubmint's assesment of value.
There are many opportunities to deal directly with a seller (who holds a clean title with no Note) if you truely know your market.
We sold everything in the last 5 years except our cave. Have no interest in "getting a deal".
Very wise. This is no time to play around. there are too many possible outcomes where you would get "dealt with" rather than get a deal.
Good article. Its nice when an author can get humble and admit they missed one. We all do, most just don't admit it.
we bought a foreclosure....would not do it again even though we saved 90k from previous sale price of house
reason?
24 hour inspection prior to closing house was in great shape
1 hour after closing when we took possesion, appliances were gone, looked like spagetti and nail polish war had gone on throughout the house
not one surface did not need to be painted
counter tops nail polished and kitchen cabinets damaged
holes in walls
sabotaged furnace
and zero recourse
if i bought a foreclosure, i'd need to have the closing process take place in the home, to make sure nothing was damaged
good advice...
There's a glut of appliances and fixtures on craigslist for just that reason!
Housing in the US has over 50% left to fall, if not 75+%!
Your house is a depreciating asset, no different than a used car.
"Sacrifice, sacrifice, sacrifice," to the middle class robbery, spelled r.e.c.o.v.e.r.y.
It's a fool's market to purchase any home over $.20 on the dollar - anything over is for suckers. Expect to see fools-a-plenty chime in differently with all lies spending other people's money.
Cash, and under 20 pts - remember that.
Cash +++, the rest is hedonic.
IMHO when I buy at forclosure, as in (California) courthouse steps, I receive a Trustee's Deed from the Court.
If anyone has a claim on the property, (unless it is in the form of a lien which survives foreclosure) they cannot attack the property itself because the Court action essentially cleans the Title.
NOT legal advice.
The question is whether the foreclosure is valid in the first place. If it's not, then any subsequent claims, including the Trustee's Deed, are at best questionable.
Currently this issue is working itself through the various State legal systems, and hasn't been resolved. But right now, it's not looking good for buyers.
At the very least, I'd expect Lawyers to be looking for shake down money, where it's cheaper to pay them off than it is to risk going through the Court system.
Cheese! it's all lovely Cheese! I can't believe your serious. What are you going to do with this stuff? What renter? Who's the renter going to be? Isn't this a "habit" left over from a previous reality?
The reality is that out west the demand for entry level homes remains very strong.
And may continue as long as government subsidizes home ownership and dominates the real estate market.
And why shouldn't people buy? Doesn't cost more than rent, they put a few thou down, they have a highly leveraged call on the upside plus a put if the market goes against them.
this only works in non recourse states.
That put is still quite cheap and worth the price.
I'm curious, Econophile. If you'd buy a foreclosure, would you buy a foreclosed property that had a broken chain of Title? Which, of course, are most foreclosures. That's the elephant in the room which such buyers are ignoring.
If the answer is "yes", I'd be very interested in hearing your reasoning on how such an issue isn't going to at least cost you money in the future, if not the house that you bought, since these REO's now require an addendum for you to sign which absolves the Bank. And the Title companies are moving away from providing such coverage.
I'm seriously interested here, because everyone whom I've talked to about this adopts of strategy of sticking their heads in the sand and prefers to ignore the issue.
No title insurance? No buy.
And be careful about the title insurance policy. Many new title insurance policies specifically include a "carve-out" that exempts the TI company if the property turns out to have an incomplete chain of title or other mortgage or foreclosure "errors".
Caveat emptor. There are more potholes than pavement in this stretch of road.
I don't agree.
A Trustee's Deed is the Court's Title Insurance guarantee. I reckon that's better than a Title Insurance policy.
NOT legal advice.