Inside the latest home-selling math of Steve Thomas at Re/Max Real Estate Services in Aliso Viejo is a gem of a notion about bank-owned property as a hot O.C. commodity.
Thomas has a curious “market time” benchmark that calculates how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals put in escrow. And guess what’s the “hottest” housing niche, by this measure of relative demand vs. supply? Properties listed as “foreclosures” in the MLS.
As of last Thursday, there were 635 properties listed by agents as “foreclosures” (typically, bank-owned houses) in escrow vs. 1,060 for sale, or a “market time” of 1.67 months. Compare that to the countywide total for all homes of 2,285 in escrow (best in 18 months) vs. 15,474 for sale, or a “market time” of 6.77 months.
Foreclosures are even hotter than the best-selling niche by price, housing under a half-million bucks where 1,244 are in escrow vs. 7,138 for sale, or a “market time” of 5.74 months. Or the hottest towns: Aliso Viejo (77 in escrow vs. 313 for sale, or a “market time” of 4.06 months); Cypress (32 in escrow vs. 136 for sale, or a “market time” of 4.25 months; or Lake Forest (74 in escrow vs. 347 for sale, or a “market time” of 4.69 months.)
Not all distressed properties are selling well, though. Short sales, where lenders agree to take less than they’re owed in a sale, are seemingly of low desirability. By Thomas’ math, 404 homes listed by agents as short sales are in escrow vs. 4,281 for sale, or a “market time” of 10.6 months. Almost 10 times the foreclosure sales/inventory pace! The catch with many “short sales” is that lenders are often fickle and slow to agree to these kind of money-losing deals for them.
Compare that to the slowest selling towns — Newport Beach (33 in escrow vs. 585 for sale, or a “market time” of 17.73 months) or Laguna Beach (15 in escrow vs. 307 for sale, or a “market time” of 20.47 months) or the county’s slowest selling price niche, homes above $4 million (10 in escrow vs. 284 for sale, or a “market time” of 28.4 months.)
For sale to in escrow ratios? Is there no end to the twisted statistics permabull relitters can invent? There is only one reason escrows are climbing; it takes longer to close escrow now than at any time in the housing bubble. The true measure is sales, as in closed. Sales are not being mentioned because sales are bad. Very bad. 1471 in Feb and on track for less than 2300 in March. With 17,000 listings that is 7+ months of inventory. Worse if you break out REOs and only look at arms length transactions.
Nano, prices are zero until somebody buys. There are so few sales of expensive properties it isn’t fair to make generalizations either way.
I noticed there’s a relation to homes that hold their value and homes that don’t sell!
I just heard that WaMu is no longer in the wholesale mortgage business. This company was a huge contributer to this massive ponzi scheme, in particular in Orange County. They also slashed their dividend to 1 cent, from 16 cents.
As you can see, this breaks me heart.
:) Let Them Eat Cake :)
Rob Dawg, every single thing you said is wrong. Escrows are way up, and not because of escrow timing either. Deal with it.
I’m going to start flipping properties. We have finally hit the bottom and now there’s money to be made on the new upswing!! Just kidding.
The “west”? LOL. That’s gotta be more relevent to us than the ORANGE COUNTY pending sales numbers (which are UP, UP, UP).
So you buy a foreclosure, think you got a good deal, prices continue to fall (and they will) , buyers remorse sets in. Don’t let yourself fall into this trap.
Gas Price will hit a new high soon. Good news is that you will be losing your job and there is no need to buy gas.
House price will continue to nosedive faster than anticipated. Watch out for media spin and the worst has yet to come.
Uh oh Jimmy…
Newport Beach - “market time” of 17.73 months
Laguna Beach - “market time” of 20.47 months
or homes above $4 million - “market time” of 28.4 months.
Beach citiies prices will be down 10-20% from today’s prices by the end of the year.
wait until this Great Recession really kicks in, then we’ll see how the beach cities do
Take a look at what this guy Steve Thomas was advicing buyers on May 07.
“It could not be a better time to be a buyer. ”
Oh, really? May 07 best time to buy? How about June 07, or July, or August, or September, or October, etc, etc. Anybody who followed his advice is now underwater.
He also said back in May last year: “The Orange County real estate market is having a tough time bouncing back from the distractions of last month’s subprime “shakeup.””
Oh, really? Would you call the subprime meltdown a “distraction”?
pending sales numbers (which are UP, UP, UP)
distressed homes for sale (which are UP, UP, UP)
scott a
sorry to hear that you lose your job.
hang in there, things will be better.
i am a registered nurse and there are more work than i can handle.
you may want to consider a career change.
good luck to you and your family.
I agree.
Foreclosed Homes are the hot item right now.
I was at my friends home in Placentia for a BBQ. His next door neighboor was foreclosed on. While sitting outside throughout the day, we saw people in and out of that house the whole day.
I think foreclosed homes are perfect right now for 1st time buyers(great opportunities).
While mover upper homes are priced very well for people looking to get into something better/bigger for a great price.
Jon
Using Steve’s fussy math if you subtract both foreclosure sales of 635 from total sales you get 1650. If you subtact total listed of 1060 from total in mls you get 14,114. 14,114 divided by 1650 = 8.55 months. Most of us know that more foreclosures on the market is a big negitive but with Steve’s fussy math he makes things look better. Fool me once and shame on you but fool me twice then shame on me.
Hey Thoughtless … what about this:
April 8 (Bloomberg) — Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years.
And This:
“This is a nightmare for the country,” said William Isaac, who was chairman of the FDIC from 1981 to 1985. Banks will “raise what capital they can, then they’ll slow down their growth and stop lending, and what should be a mild recession becomes a much more serious one.”
So, if they indeed “like money too much” as you suggest, then why-oh-why would they be forced to slow their lending due to reserve requirements?
Answer:
To be considered a “well capitalized bank” by U.S. regulators, an institution can’t have more than 10 times its capital in risk-weighted assets.
Thoughtless … it’s kinda like pulling teeth isn’t it.
:) Let Them Eat Cake :)
I guess that’s why my mailbox is full every day with offers for new credit, offers for balance transfers and credit line increases. Banks are simply being choosy right now. I guess you don’t get those?
Realtor Dave
I am also an optimist but I believe in the free market system. It is true that Steve Thomas does give facts that if properly considered give some valuable info. Jon’s way of looking at things ,based on the headlines he uses are, sorry but a little stupid.
Don’t you find it odd that foreclosures make his figures look better?
An interesting opinion that I found over at Calculated Risk, which discusses Steve Thomas’s recent data posted here on Lansner’s site.
“I’m in the biz (21 years) and have worked for a while for RE/MAX Real Estate Services in their mortgage division. Steven Thomas is very, very good with numbers and statistics. The numbers though do not take into account several key items. First, affordability - not many on OC can afford a median home. Second, tightening guidelines - no more Stated ARM’s or no down payment loans, Third, withheld from market bank owned properties. The market will be flooded over time with a vast number of REO properties that the banks hold. Fourth and finally - if this is a bottom (it isn’t), the chart is not going to reverse itself. It will run along a bottom for years to come. The numbers as presented and the environment we are in distorts Steven Thomas’s findings. They cannot be relied upon.”
A week and a half ago, I found a house that fit my criteria, and have gone into escrow. During my search I looked at 7 other properties, all of which were either short sales or REOs.
To back up for a moment, back in the mid 90’s I purchased 5 REOs. At that time, most of them had been “cleaned up” to be presentable. Some had new carpeting & paint, but none were “unpresentable.”
The 7 houses above that I looked at last 2 weeks were ALL in incredibly lousy condition, to be shown to prospective buyers. All needed paint, all needed carpeting, and ALL were represented by agents who I have never heard of. There must be some kind of bidding war to get these listings and the guy who offers the lowest fee and recommends the least amount of clean-up, obviously gets the listing. What a shame.
The kicker? ALL 7 houses already had at least 3 offers, and they were accumulating more. I’m sure that all will close escrow at no lower than list price.
The house I bought? I’m lucky to know a couple of the old school REO brokers, and one had one coming up, that was relatively clean, in relatively good condition, and that hadn’t hit the market yet. I was given “first dibs”, so to speak, and couldn’t pass it up, based on seeing the previous 7. I struck a good deal, had no competition, and am now in escrow. My agent is even providing a one year warranty, so I’m a happy camper.
My conclusion? I feel kind of sad for some of the people having to buy some of these fixer-uppers, but, I DO think they are getting a good deal, at pretty much the bottom of the market. Time will tell.
By the way, the opinion from Calculated Risk was provided by a fellow blogger in the comments section.
Many of the short sale listing prices are meaningless, without lender approval or the prospect of lender approval. Typically, the borrower is continuing to make payments so the lender isn’t in a big hurry to accept a low sale price. Speaking from experience, making offers on such deals is usually a waste of time.
The problem with the bulls here is that they are ignoring the instability of the mortgage market. In the past 18 months, every time the market has shown signs of stabilizing with buyers dipping their toes in the water, the market has quickly thrown cold water on them by tightening up credit. I don’t think this has stopped. At current prices, buyers may be willing, but not necessarily able to buy. And credit seems like it is continuing to tighten.
The real estate market is highly dependent on finance. That is why the gov’t formed the GSE’s during the depression. Even the mutlimillion dollar palaces in CdM that Jimmy talks about are not purchased with cash. So there can’t possibly be a bottom until the credit tightening cycle is over. Once that happens prices can adjust to where buyers are both willing and able to buy. I hope it happens soon, but it definitely has not happened yet.
It’s like that realtor said the other day “There’s a lot of buyers out there, their just afraid to buy” Brilliant.
There are few buyers out there. There are a some people looking to see if the prices are still lame, which they are so they don’t buy. Then there are the people who are “gobbling up” the foreclosures thinking they are getting in on a good deal before the prices skyrocket again (in 2015!!)
Eat it in OC,
Ahhh … it makes me sad too. And what about that listing price history:
May 24, 2007 — $929,000
Jul 15, 2007 — $899,000
Sep 23, 2007 — $879,000
Dec 10, 2007 — $815,000
Mar 07, 2008 — $789,000
Apr 04, 2008 — $699,000 Ain’t an April Fools Joke
So, we see a Laguna Niguel home reduced $230,000, and still no buyers. Isn’t that too bad.
The foreclosure market is hot mainly because there pricing is marked down to a real sales price. Look at the different REO web sites from lenders and you will find there pricing is 10 to 20% below other listings. Lets be honest, everyone will go for the lowest priced home to buy.
Wamu has been going on for a long time, start watching FastMoney and Crammer on CNBC. Its lets you see what is really happening in the market.
We are still looking at another year to two year hit on real estate prices. We saw it in the 70,80,90 and now 2000. Lets call it a balancing act that happens.
With the stated income loan products disappearing right and left unless you are at 75% now where a year ago we could of done a loan for 1.4 with nothing down. YES, the market has changed.
Anecdotally, in the mid 90’s (when I was upside down on a home and bearish) my gutsy buddy got what is now a stunning deal on an REO in Laguna. The thing I recall is the bank calling him over time, asking him to consider (or recommend to friends) other REO’s. The deals that got passed up then were unbelievable opportunities.
If buyers are now chasing the REO’s, and lenders are heel-dragging on short sales, it seems like stability may not be far off. I agree that credit is key, but things seem to be improving a little. Maybe we are “in the later innings” of the crisis.
Mikey I wish I could agree with you that we are in the later innings, but when I keep hearing about how many foreclosures are going on right now, there is no way I can think the market can absorb all of them when some (most?) go through all the foreclosure process.
“I noticed there’s a relation to homes that hold their value and homes that don’t sell!”
exactly Mick. it’s becoming abundantly clear by the day that doomsday is coming for these “immune beach towns”. 18-20 months of inventory? ouch!!
Thoughtful,
Guys like Mack have little credibility. How can they call the end of the credit crunch when they did not even see it coming?
Those that did see it coming (people like Peter Schiff….even Roach of Morgan Stanley) do not share Mack’s view that we are near the end of the crunch. Clearly, those in positions like Mack should have seen it coming. That they did not shows that they may be geniuses at playing the game (financial/credit/shadow banking) but they are unable to see the big picture, and see the systemic weakness in the game itself.
Only 3 weeks ago the FED had to step in to keep the whole system from imploding…and now suddenly good times are here? Not by a long shot.
These sorts of situations are preceded by periods of unusually easy credit. Much of the growth of the las 5 years was a result of this easy credit. The same self reinforcing phenomenon occured on the way up. Credit bid up assets, financial activity (with associated commissions as each leach takes his cut) results in increased income in the macro, increases in income bolster the economy (consumptions and ‘investment’ in assets, and finally, increased asset valuatoins creates more collateral to lend against. It is all a giant reflexive (Soros’ word) cycle.
Now that the sitution is reversing. Assets fall in price, credit contracts, bad debts are written off, finanancial profits drop dramatically. We have not yet even completed the feedback cycle yet. This comes when the economy in general weakens significantly due to incomes in the financial sector dropping, and consuptions dropping (or even growing less). This will then result in further drops in performance in existing debt portfolios…causing creditors to get even more cautious.
What people like Mack do not see….or are not willing to talk publicly about, is what effect weakness in the economy will have on debt assets in the portfolios. We have seen unprecedented weakness in these assets in an economy that was not even weakening yet. Calling an end to the credit crunch at the start of a recession is nuts. Credit conditions are always tightest at the end of a recession. This is going to get much worse. There will continue to be “new” writedowns for many quarters and years to come. Along the way, the bottom will be called many times. Some will be called by supposedly smart people like Mack….others will be called by people like you who really do not have much understanding of the financial system, and credit cycle dynamics. You will all be wrong…resulting in great profit for me!
“I think foreclosed homes are perfect right now for 1st time buyers(great opportunities).
While mover upper homes are priced very well for people looking to get into something better/bigger for a great price.”
you’re right in that 1st time buyers will find the most opportunities in the next year - 18 months. as for the mover uppers, since people in the move-up market, say starting with SFR’s over 700,000 are dealing with the ones who refuse to drop the price, I don’t yet have the optimism you do.
I don’t know, Jonas. I learned the other day that another friend’s son (a young cop, starting out) bought an REO condo in OC, at a price that was substantially below the prior owner’s mistake (from circa late 2005). It’s still a stretch for him, he may need a roommate in the early going, but it should work out for him. If young first time buyers are coming in, and investors are smelling opportunity, I’m in no position to say they’re wrong. There are still plenty of worries based on legitimate, objective concerns. There were some back in the mid 90’s also. It’s hard to say just when downside risk is better viewed as upside opportunity. Wish I was smart enough to know.
There is alot of credence to what people are stating here: First off: the bloodshed in the credit markets is like a backdraft at the moment - sitting, waiting for that burst of air to flame up and burn a few more souls. Although the new loan programs have hit the market, I have yet to hear that Fannie and Freddie are buying them up yet. Anyone else notice that the use of those heavily promised loans are not doing much? And of the lenders complaining of not knowing if or when Fannie or Freddie will be buying them up?
But there are good deals out there. Sighburrdood probably got a place for at least 20% below what it would have cost a year ago or so. If you take a buyer that can sit on that property for a few years even if loss of value continues - they are still fine - especially considering when rates go up. A buyer that can weather the backdraft can and in some cases should buy now.
Many seasoned investors that limit their holdings to RE are still pretty much waiting on the sidelines. Talk to the buyers that have bought recently - you’ll find that many believe the bottom is here (or wanting to believe it). My response to them: that is good - but if you find that your belief was not founded - please stand by your obligation and don’t just walk away. The sickest part of one of those conversations I had: the response from the buyer was, “are you kidding me? I’d walk away in a heart beat. So I forego buying a car for the next 3 years - who cares.”
That was exactly how it was stated. We have some sick degenerate pricks amongst us. The laws need to change and they need to change fast. This right to be able to walk away from your signed obligations is simply BS has got to end.
So with that said - what degenerate wouldn’t leverage the new pricing? This downturn is going to take twice as long than in the past. It will see ups and downs - but the regression curve will definitely have a downward slope for a few years at least.
“If young first time buyers are coming in”. I AM a young first time buyer. my S.O. and I combine for 150k in verifiable (salaried) income. I say nononononosenor to buying 1-2br REO condo in a mediocre neighborhood in 2008. I’d rather keep my money secured away accruing than buy into this disaster in the 4th inning of a 12 inning ballgame. you only get to be a 1st time homebuyer once. might as well make it count in your favor
Mikey, I still do not believe (please correct me if I’m wrong) that an investor can actually make money buying a house and renting it out because rents are too low (though they are high!). Of course, if they put enough money down, that can “work” but they faced lost opportunity of investing their money elsewhere. A friend of mine who has an investment property in Irvine is having trouble renting it out for what he got 6 mos. ago.
I hope your friend’s son does well in his new place! He should be able to afford to own something without having to get roomates.
But BP if you don’t play the game then they don’t win…don’t you see how much pain and anxiety you are causing them?
I’d be happy with the complete and utter evaporation of the fraud equity to have median prices back to late 02-03 levels (which they will and quickly). In the meantime, I research neighborhoods and track homes for right opportunity that is coming. I am not buying the Bull fear product that they are trying to sell us all the time.
It all depends on what type of REO. Lot of bank are still in the cloud, especially CW. They’re dealing with reality of 2008, but still list their REO as if it’s 2005.
Some banks, such as Wells Fargo and IndyMac are much more realistic, at least in house 700-900K. Most of these sold of 1.0-1.4 mil couple years ago.
I’ve bid on four REO houses, all in FV and HB, and have lost out on all four. All of the REO house that I looked at, and submitted offer are in 700-900K, 30% discount compared to their org price. Two of them, bank sold to offer that higher than mine (10-20K). The other two, I lost out to buyer who paid cash, and their offer was lower than mine (one by 25K). Bank love fast escrow !!!. All of my offers so far are in 92-100% of the bank asking price. I plan to put 35-45% down. I’m full doc, so qualification is not a problem.
Don’t know how the lower range and higher range REO house go. Btw, once an REO is sold in the neighborhood, it seem to bring down the comp a lot (we ran CMO and check). Not too rare to see to similar or identical house in same tract, REO list/sold for $800K. one near by list for 1-1.2 mil, and have zillion DOM !!
The rest of the house listing by owner, whether via FSBO or through realtor seem to stay on market forever. At least 1/2 of these houses are underwater or owner run out of juice. We looked at their loan record, a lot (and I mean a lot) of these folk have IO or ARM loan, and also quite a lot have Opt ARM, basically a foreclosure in waiting.
So the author of the report might be right that foreclosure house sell pretty fast in OC, but I think he (intentionally ??) miss out on the part that a lot more house are going into foreclosure, and will likely bring price down further, and make it even harder for owner to sell their houses.
This is all from my shopping experience.
20%-30% discount from the peak is not much of a deal when prices are still 40% high relative to long term fundamentals (price vs rent and price vs income). We can argue all we want about the stats…but the fact is prices have risen way out of range of price to income ratios and price to rent ratios. Prices held within a +/-20% channel of income and rents for decades (early 90s bubble notwithstanding). We will return to those long term ratios. It is 100% guaranteed. We will likely overshoot to the low side in fact.
If prices held within that range (or ratios) for 20 years….it is denial to think we can not go back there. There is simply no fundamental reason. The economic/demographic fundamenatls are not dramatically better then they were when we were priced at those ratios. If anything…they are worse….and getting more so all the time.
If you can buy at those ratios…then REOs are a buy. There may in fact be buys now….but only if you are buying at prices in line with those ratios. Buying at $500K (compared to $700K at peak) is not much of a deal if the same house can be rented for $1600/month!
If you can get a house well under 175x rent in a location you want….then it is indeed a deal. I am betting these deals are still few and far between. Where I am in N. CA, prices are still 300x rent! I have a lease at $1850 on a house that would list at $600K+. What a joke.
I have done the math….it is a big time LOSER to buy now, unless you can find a special deal. The thing is in two years it wont take a special deal to get that price. Those deals will be everywhere!
Words to remember. “The Fed Has Got Your Back”. What does this mean? The fed will take whatever action is necessary to protect the banking system. This includes both commercial, and recently, investment banks. If real estate values present a risk to the banking system, and they currently do, the fed will implement monetary policy, and even liquidity to support mortgage paper, even if it results in high inflation levels and a falling dollar. The housing crash scenario painted by so many is hard to envision as long as “The Fed Has Got Your Back”.
Hey NB, I wonder if he/she could afford to buy his own house now? If not then why not. Oh, and another thing about Fed bailouts…why would the fed need to bailout OC homes when there is obviously so much market demand (according to the bulls)?
Eat it…
I have not read any bulls speaking about tons of market demand. I see Sigh talking about high activity on REO’s (shocking) and I see Steve Thomas pretty much speaking the same thing. Foreclosure props and REO’s are receiving a ton of interest as they should.
Where I think the bulls and bears disagree is on the funds being available. I just worked a project on Maui where 80/10/10 product was available and 100% financing was available as well. Lenders are just being more choosy these days. Great time to buy? It just depends on your long term goals. The days of flipping are long gone.
dimmy..you mean the fed STABS you in the back……
an unconstitutional private banking cartel that has
devalued the currency since the day they came into existance
Bulls - Are you not aware of what is going on in our economy? You can’t predict a rise in the housing market based on the recent news. Are you just being ignorant?
Bears - There are a few deals to be had out there. Not everyone is doing a firesale but at some point, if you wanted to ever own a home, you’ll just have to make a deal right? It’s really hard to just time the market so go after something if it makes sense to you.
There are obviously some really onsided comments here and a lot of bloggers on this thing seem to just argue for the sake of arguing. There is no doubt that our economy is struggling and the main reason is because of this housing market. How can it possibly spike again anytime soon?
Truthi:
Thank you…
I have a gig lined up and the pay is good so..
God willing, it will all work out.
Just keep pushing forward,
What other option is there..?
Change careers and go into the medical field..?
I would have to go back to school = no income so..
I have a family and no having an income is realy not an option.
I just keep interviewing and showing up to play ball.
I would agree with the argument that price is still high in relative to income, and because of this, the housing market will be in a pond for a while. As the matter of fact, going through home shopping, I think house price might fall further, or stay where it is for a long time, for income to catch up.
Nevertheless, just as as with any form of investment, it’s the matter of picking. At the dog day of Nasdaq (when it’s under 2000), buying AMZN would be considered stupid, but if you did, you would make a killing in the last few years. Putting money into ARBA would wipe you out. Same with housing here.
Going out and buying a house right now, with up to extract equity in few years for your S550 or Escalate ? May as well burn your money. However, if you look into REO or distressed house, some might make financial sense.
Take in case, one of my friend just bought an REO house for $660K. Previous owner paid $810K for it in 2005. Similar house in same tract rent for $2600-3000/month. House is in good shape.
He’s putting 20% down, with 5.3% on 1st 417K, and 6.3% in 2nd 120K, he’s paying around $3000/month as well. Take 1/3 for tax credit, it make sense to buy a house. It wouldn’t make sense to pay $820K for that house, but at $660K, it’s not too bad. Like me, he has a kid coming, so having a house to settle family is not too bad. The couple pull around $200K/year, so it’s not too stress for him.
One of the reason that REO going hot, while the rest stay cold, is due to people make calculation like this. A typical REO house in Garden Grove go for $400-450K, rent there around $2K/month, if you could manage 10-20% down, then payment is same as rent, and you get tax credit.
As with dog day of any time, pick something smartly, you’ll be doing okey, else, you’ll be burned.
Needless to say, the market can’t be sustained with just REO. Either owner will have to lower price to compete with REO, or they simply let their house go back to the bank. The day of stable market still way far ahead.
Yes, I did buy some AMZN at $30 years ago, still have them now. But also bought some CMRC, and don’t know what to do with them now :-)
Scott A:
Jake is an idiot and the entire blog has seen where his character lies. I am happy to hear you have possibly found something. The good Lord will take care of you my friend. Hope to see you when I return to the OC!
Should be a couple of months.
Scotty, Scotty, Scotty, Scooooottttteeeeeeyyyy
good luck, mon. I don’t know much about the insur. field, but I’m sure it will work out.
Jonas had this to speculate about: ” I still do not believe (please correct me if I’m wrong) that an investor can actually make money buying a house and renting it out because rents are too low (though they are high!). Of course, if they put enough money down, that can “work” but they faced lost opportunity of investing their money elsewhere.”
I don’t know how it works for others, but I have a system that has worked pretty well for me. I typically put about 25% down, and I try to keep costs to a minimum. ( Buying in non-Mello/Roos tax areas, with no or low association dues.) That has continued to give me pretty close to a break even cash flow once I’ve closed escrow.
The 25% down payments I’ve used are usually acquired by pulling some equity out of older properties where the loan has gone down.
I tend to have my tenants make my entire payments, and don’t presently own a property where that isn’t the case.
As the LTV has increased, over time, I have typically refinanced
( especially this past 6 years.) to a point where the rents just cover the payments, then go do it all again.
My rents have never really gone down, although they have occasionally stayed flat for a year or two.
It may not be perfect, but it works for me.
Dood,
if that works for your keep on trucking….
but it sounds like you are setting yourself up for one nasty liquidity crisis
Sighburrdood: After reading your last post it sounds to me like you are going to be underwater in all your properties once they fall in value by 25%, no? Brilliant!
Iv’e watched my buyer pool pull back last year only to come back this year looking for deals and steals.
With all the good deals out there I always ask why not make an offer. Most of the time the reason is its simpy still to expensive and not the fear of further declines, although thats a biggie, waiting is the only option.
Latest report….
Citi may write down another $17 billion for Q1
And more for Q2 and then Q3 and then Q4 and then……. Does anyone get it yet? They thought that they had taken out the trash with all the Q4 writedowns….but in the last quarter….and whole bunch more of their portfolio turned to trash….so more write downs. More stuff will go bad in Q2…etc. Everyone sees this, and credit gets tighter. This drives prices down, which in turn causes more debt to default, which results in still more write downs.
As for the “Fed having your back”. Look how wel that worked in Japan in the 90s. RE dropped in some cases 80% when the BOJ ‘had their back’.
Finally….look at retail #s for March if you want to see what is really going on. What looks like a deal now, will look like a bad move in 1 year.
Mulligan,
Why chastise Jake?
Did you have the same moral stance when Scott was taunting renters; bragging about raising rents at will and evicting tenants that wouldn’t pay the increase?
He was warned of karma and told that the arrogance was only going to alienate others.
Don’t like to see anyone go through hard times, but sometimes things like this help to make a person better.
I have no doubt Scott is a decent person and hope he comes out of this a better person.
Scott E had this to say: “After reading your last post it sounds to me like you are going to be underwater in all your properties once they fall in value by 25%, no? Brilliant!”
Nope, that’s not what I said. I said I buy properties with 25% down - I’ve been doing that for over 30 years. I didn’t say that I refied them UP to 75% LTV, only enough to ensure a positive cash flow.
Actually, I have about a 50% LTV encumbrance, total, and besides, my tenants more than make the payments. Even if I WAS underwater, as you suggest, again, the payments are made and I have a very low vacancy factor - less than 2 weeks, per unit, per year, average.
I DO appreciate your heartfelt concern, though.
pdu:
Making a business decision to raise rents as an owner of a property is a far cry from taking joy in another losing their job. The tenant in that instance has the choice to either pay the increase or find other housing. Similarly, if your employer comes to you and says we have to cut your pay in order to keep you on, the free market society allows you to walk if you wish and seek new employment. The risk Scott A would run is losing the tenants and not being able to replace them with new ones. There is risk with every decision. But to take joy in another’s loss of income and job? Come on pdu…I know you know the difference. Karma? That would be the lack of a new tenant due to raising rents too high.
“If you take a buyer that can sit on that property for a few years even if loss of value continues - they are still fine - especially considering when rates go up.”
But wouldn’t higher interest rates put even more downward pressure on home prices? The higher the interest rate, the less buyers can pay for a residence? This assumes affordability is at the root, which I believe that even in nicer areas of OC it is.
quarmilearner: ARBA - LOL!! What about CNET or JNPR? Ah, the days.
I am not at all surpised that foreclosures are outpacing the short sales as far as going into escrow. Every story I am hearing and 2 personal transactions that I am currently involved with regarding short sales are a nightmare.
There is almost no help from the bank and Realtors I left out in the cold about how to market and at what price to sell and even accept an offer…as in not too low or else the bank won’t accept it and thus you spend 2 months running in circles. Too much detail to go into this story, but it is the cart before the horse scenario 100%.
Good luck to all those involved in short sale…patience is a must.