Wednesday, November 22, 2006

At Least 2 More Years


From a press release by Investment U (via Yahoo Business). As we all have expected, the prospects in housing are far from rosey.

'There's a growing consensus among economic and financial experts on the rate at which the real estate bubble will deflate. It will be a slow leak, they say. But the reality is far more chilling.

Last month, former Fed Chairman Alan Greenspan said, "The worst may well be over." But the "worst" is a frightening picture: Median prices for home sales have fallen sharply year-over-year, for two straight months, according to NATIONAL ASSOCIATION OF REALTORS.

"In addition to being the largest price drops in at least 38 years," The Wall Street Journal reported, "the back-to-back declines are the first time median home prices have fallen since 1995." And the decline is hardly over.'


And how about those exotic mortgages that everyone has been using the past 3 years? How are they going to affect things?

'Those who have interest-only, or "teaser-rate," mortgages could see their monthly payments more than double.

"Interest rates will rise on about $300 billion in adjustable-rate mortgages this year alone," he said. "That figure is projected to skyrocket to more than $1 trillion in each of the next two years."'

And, we have to ask: What states will be affected the worst?

'Arizona, Nevada, Florida and California will be hit particularly hard, he said, and homeowners in these states may not see a 5% decline, as experts predict, "but could fall two or three times that number."'

Full Article

44 comments:

Anonymous said...

The October stats from the Greater Tampa Association of Realtor show the October Sales at 1,577.

http://www.mfrmls.com/StatsGTAR.php

This is the lowest October number in 4 years. The inventory has climbed to 18,029. Thats a 11.43 months supply. I know lots of sellers have pulled thier homes off the market and are waiting for Spring 2007. The Spring bounce will be in inventory levels. This is going to get ugly in 2007.

zippo said...

I can't agree more. Tampa is screwed, Orlando is screwed, Palm Beach is screwed, Miami is screwed, and Sarasota is DOUBLE screwed.

I'm still amazed though - the average joe blow still hasn't caught a hint. And the FAR keeps spewing its' propoganda - and the papers keep printing the propoganda.

Add paragraph #1 and #2 above and you get: a long, depressing, wind down of prices. Could take more than 5 years.

CRAZY G said...

STAGGARING NUMBERS FROM THE LOSS OF REVENUES, AVERAGE JOE/BLOW NEVER EVEN BEGINS TO COMPREHEND!!!!

Just for the record....take the house that I'm "RENTING"...

The Developer had to 'probably' pay somehwere near $3000 to get his building permit here in Volusia County...

When he took out the permit, he declared the valuation at $140k...
Generally 40% goes to materials, so there is a 7% consumer tax on that...$4000

Now, the townhouse gets sold for $250K.....Doc stamps on that transaction are $1781

The Landlord, took out a $200K mortgage...He paid another $712 doc stamps + $400 Intangible tax + $200 recording fee...

>>>>>""""FEES TO BUILD & BUY & MORTGAGE THIS $250K TOWNHOUSE COME TO OVER $10,000 """<<<<<

Think of the revenue that will lost to "all" the entities when/if the housing industry hits the dirt....
This "not" including all the jobs, and support services build-in to building/selling a home...

>>>"""IF/WHEN THE HOME BUILDING INDUSTRY TURNS DOWN.....THERE WILL BE TROUBLE......|||||| THERE WILL BE TEARS |||||.....""""<<<<<

AnalysisGuy said...

Today's report is out on Atlanta and it's first for AnalysisGuy. No big bubble.
Daily Home Price Analysis

CRAZY G said...

AFTER ALL IS SAID AND DONE.....

Then the owner/landlord, gets to pay a 2.5% property tax , [here in Volusia County] on the $250k townhouse... = over $6000/yr....

What's with all the 'BS' about home ownership.....
Seems to me more like 'sinkingship'

Florida is """ DONE """

CRAZY G said...

Crazy G., will go on record here, signed, sealed, dated, and delivered.....

THE HOUSING INDUSTRY, WILL NOT EVEN BEGIN TO GET BACK TO NORMAL, UNTIL, """"THE FLIPPERS HAVE VACATED THEIR POSITONS""""

When's that going to be????

>>>ASK A FLIPPER WHEN HE'S GOING TO HAVE TO SELL<<<<

CRAZY G said...

Many years ago, when I lived in frigid Wisconsin, they used to have a bet pool, to guess when the ice would go out on the Wolf River....

Maybe, Floridians, should start a bet pool, for when the last 'flipper' sells his unit, and heads up the I-75/95 corridor....

You might even get to buy it for a tax-deed....

Anonymous said...

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

CRAZY G said...

anonymous reply:

I'll park my $1M Prevost Motor home right in front of your $10M starter home, and dump my sewage on your lawn, and then drive off for fun in the sun, while you struggle to make the payments....

P.S. The money for the Prevost came from the savings I accrued on the difference of renting vs. buying....

gett reddy said...

I'm starting to see more foreclosures (I'm on the automated e-mail from realtytrac.com), but I have seen no effects of these on the overall prices.

We are in for a long one.

CRAZY G. said...

Gett Reddy reply:

When the banks are sitting on 'whole' blocks of foreclosures, and trying to move them into a 'dead' market, you'll see the effects of some price movements.....
Look to Japan, and see what they did......
16 years later, and Real Estate is """ STILL """" going ||| DOWN ||||

People think it can't happen here????

YAH!!! RIGHT!!!

America is immune to negative economic adjustments, cuz the Fed. is always going to print money, and the consumer is always going to keep on buying, and borrowing!!!!

AND WILL ALL LIVE HAPPILY EVER AFTER, IN SHANTY TOWN!!!

CRAZY G. said...

>>A view from where I sit:<<

There have been some 'silent' price reductions on some of the 'flippers' houses, that I have been following...
Mostly, it has been 'down' to a price that can get the flipper out of the transaction 'at cost'...eg]...allowing for realtor commissions, etc.....

Crazy as it may seem, this is still nowhere near the prices to actually move the quantity of house still on the market.....

This is going to take another 25-50% "" OFF "" current prices to move these suckers...

THE OVER RIDING QUESTION IS:

""WHO IS GOING TO OCCUPY ALL THESE EMPTY HOUSES??"""

Crazy's take on it:

>>>THE CONDOM CONUNDRUM!!! <<<

As long as you can't see the 'one eyed' monster, you think your NOT going to feel him either!!!!

Signed: Ben D. Over

Anonymous said...

I actually sent the letter below as an email to a realtor in Madeira Beach. She wrote up an offer for $110K on a house that was listed at $200K and I signed it and handed over ernest money.

I recommend that if you are in the market to purchase a property you use this as a form letter for your negotiations:

-----------

I gave some consideration to your advice for me to make what I think is a fair offer to Paul and Rose.

I would like to offer the sellers $110K for their house. Please tell them I am not trying to be a jerk, but I have actually put considerable thought into it, and $110K is what the property is worth to me. Please feel free to share this email with them so they can see my math.

If you want me to sign an offer contract and put up ernest money I will be happy to, but my assumption is that the sellers will wait it out to see if a better offer comes along. I honestly don't think a better offer will come along in this declining market, but I've been wrong before. Who know, maybe someone with more money than they know what to do with will come along and want to purchase a 1 bedroom house on the beach, but if they've got more money than they know what to do with they can probably afford something bigger.

Oh, and if the sellers are willing to sell the house for $110K we could close whenever they want and they could stay until May to give them some time to get their plans straight and enjoy the winter and spring in Florida before moving to Texas. If they want to wait it out for a better offer then I understand. If they get tired of waiting, please let me know. If my wife and I haven't already purchased a home then we can talk about it.

Thank you.

Sincerely,

Bryan

------------------------------------------------------

Beach House, 724 square feet, asking price $200K. Realistic rent for this property: $1100 a month.

Sellers currently pay $352 in taxes. A new buyer will pay about $3600
Amy and I would pay about $3800 in insurance (actual 2006 quote from USAA)

That’s $650 a month without a mortgage.

Mortgage Scenarios:

(We would choose not to put money down; anyway it’s an apples to apples comparison to renting with no money down, and if we were rich and paid cash we could have earned interest on that cash)

$200,000 purchase price
1st Mortgage = $985 (6.25% on 80% of $200K or $160K)
2nd Mortgage = $418 (9.5% on 20% of $200K or $40K)
Total monthly payment: $2053
Tax Deduction: $9947 interest + $3746 interest + $3600 taxes = $17,293
Monthly Tax Return: $17293 * .25 tax rate / 12 = $360
Effective monthly payment for first year: $1693
Price difference from renting: $593 or 53.9%

$180,000 purchase price
1st Mortgage = $887 (6.25% on 80% of $180K or $144K)
2nd Mortgage = $376 (9.5% on 20% of $180K or $36K)
Total Monthly Payment: $1913
Tax Deduction: $8952 interest + $3371 interest + 3600 taxes = $15923
Monthly Tax Return: $15923 * .25 tax rate / 12 = $319
Effective monthly payment for first year: $1594
Price difference from renting: $494 or 44.9%

$160,000 purchase price
1st Mortgage = $788 (6.25% on 80% of $160K or $128K)
2nd Mortgage = $334 (9.5% on 20% of $160K or $32K)
Total Monthly Payment: $1772
Tax Deduction: $7958 interest + $2997 interest + $3600 taxes = $14555
Monthly Tax Return: $14555 * .25 tax rate / 12 = $303
Effective monthly payment first year = $1469
Price difference from renting: $369 or 33.5%

$140,000 purchase price
1st Mortgage = $690 (6.25% on 80% of $140K or $112K)
2nd Mortgage = $292 (9.5% on 20% of $140K or $28K)
Total Monthly Payment: $1632
Tax Deduction $6993 interest + $2622 interest + 3600 taxes = $13215
Monthly Tax Return: $13215 * .25 tax rate /12 = $275
Effective monthly payment first year = $1357
Price difference from renting: $257 or 23.3%

$120,000 purchase price
1st Mortgage = $591 (6.25% on 80% of $120K or $96K)
2nd Mortgage = $251 (9.5% on 20% of $120K or $24K)
Total Monthly Payment: $1492
Tax Deduction: $5968 interest + $2247 interest + 3600 taxes = $11815
Monthly Tax Return: $11815 * .25 tax rate /12 = $246
Effective monthly payment first year = $1246
Price difference from renting: $146 or 13.3%

$110,000 purchase price
1st Mortgage = $542 (6.25% on 80% of $110K or $88K)
2nd Mortgage = $230 (9.5% on 20% of $110K or 22K)
Total Monthly Payment: $1422
Tax Deduction: $5471 interest + $2060 interest + $3600 taxes = $11141
Monthly Tax Return: $11141 * .25 tax rate /12 = $232
Effective monthly payment first year = $1190
Price difference from renting: $90 or 8.1%

$100,000 purchase price
1st Mortgage = $493 (6.25% on 80% of $100K or $80K)
2nd Mortgage = $203 (9.5% on 20% of $100K or $20K)
Total Monthly Payment: $1346
Tax Deduction: $4973 interest + $1773 interest + $3600 taxes = $10436
Monthly Tax Return: $10436 * .25 tax rate /12 = $217
Effective monthly payment for first year = $1129
Price difference from renting: $29 or 2.6%

The effective monthly payment increases over time as the amount of the interest deduction decreases in addition to increased taxes and insurance. Additionally, closing closts are not factored into these scenarios. Because closing costs are not included I didn't bother reducing the tax bill and deduction for it for the different purchase prices.

I tried to get it right, but it wouldn't surprise me if I made a mistake somewhere.

CRAY G said...

|||| FLORIDA HOUSING ||||

Deadly embrace to a death knell!!!!

Florida housing is in a 'death spiral'....so says the CEO of KB Homes.....

Why are people so fixated on embracing a dying fixture, of utopia...

Pursuing the unattainable, with idolitary dreams...

Trampling over their own principles, in attainment of their own MISFORTUNE!!!!

lizziebeth said...

Bryan,

Great letter! I will take your advice. Way to wake up the realtor and sellers! What's sad is that many people found out the hard way what is common knowledge now. Florida housing is unaffordable! The sellers either have to get real and lower prices or take their homes off the market. They are wasting their time and the buyers time. Good luck! I bet you get the house this time next year for your price!

CRAZY G said...

Lizzie:

I fear you are missing the point, here.....
Writing a letter or an e-mail to the U.S.S. Florida [ battle ship] is NOT going to change anything....

The whole [real] e state is going down....

TAXES, INSURANCE, HOUSING PRICES, ETC.....
Changing one component is NOT going to change the formula for disaster.....

THE USS FLORIDA IS SINKING!!!!

And nobody wants to jump off without their money!!!!

SSOOOO!!! THEY'RE ALL GOING DOWN TOGETHER!!!!

The bad news is, that the Captin has declared that anybody who jumps off will be shot!!![financially]

super supper said...

Yea, great letter. That's exactly what everyone should do, when considering a purchase - ask the question:

Could I rent an equivalent place for 3/4 (or less) of the monthly cost of owning?

If the answer is "yes", then you have one more question to ask:

Are home prices expected to decline over the next 2-3 years?

If the answer is "yes" again, then RUN (don't walk!) away. Only a complete imbecile (and believe me, there are plenty wandering around this state) would purchase a home under these conditions.

Happy belated Turkey Day to all!

CRAZY G said...

Stupid IS, as Stupid does!

Why waste your time writing a letter....
To prove what??? You know how to write???

Pick-up the telephone, and ask the listing agent "IF" the sellers are negoitable...

Why go thru all the antics of trying to prove the guy is an idiot for asking such a high price???

>>>HE DIDN'T SET THE PRICE.....THE REALTOR DID, THE COMPARATIVE ANALYSIS, AND GAVE IT TO THEM<<<<

What are you trying to prove...the listing agent is wrong???

$300 sq ft, may or may not be appropriate, I don't know...
But somebody somewhere, in the neighborhood bought or sold a house for that price in the recent past!!!!

And therefore it showed up in the comparative analysis!!!

Anonymous said...

G, you are quite presumptuous.

You would have learned more by asking questions than preaching and assuming my ignorance.

We are in agreement that prices will stagnate and/or downright fall for years to come.

Regards,
Bryan

lizziebeth said...

Bryan,

I think Crazy was just trying to make me seem ignorant. It wasn't aimed at you.

Your letter puts down in writing the facts for the idiot seller that is trying to make a killing off us the buyers with the cold, hard cash! How can they argue with your facts? No doubt the market is tanking, but too many sellers are wasting my time. Either lower your price or take your home off the market.

CRAZY G said...

Years ago there was a radio disc jockey in W. Palm...

And he ALWAYS closed his program, with a saying:

"NEVER ARGUE WITH A CRAZY PERSON"

"IF" this guy, is crazy enough to ask $200K for 725 sq ft shack [$300 sq ft], why do you try and convince him he's crazy for asking such a price???

>>>NEVER TELL ANYBODY HOW TO RUN THEIR BUSINESS!!!! IT'S HIS BUSINESS WHAT HE'S ASKING...."""NOT YOURS"""

CRAZY G said...

Repeat: Stupid IS, As Stupid Does!

SOO!! There are 2 middle unit townhouses for sale down the street..[same type of unit] seperated by apprx. 200'....
One was origanlly listed for $239K, after a couple monthe, the guy dropped his price to $219K....

The "OTHER", was/is still listed for $330K....[SAME TYPE OF UNIT]

Mind you, several are renting in here for $11-1300/mo....

SSOOO!!!! Do you think I should send her an e-mail, a letter, or just walk down there, and tell her she's stupid for asking such a high price, cuz I figured it's ONLY worth $125K based on the rental price....AND BESIDES, THE GUY IN THE NEXT BUILDING IS ASKING $110K LESS THAN SHE IS!!!!!

BOY OHH, BOY.....WOULD THAT TEE HER OFF!!!!

She'd think I was more stupid, than she IS!!!!

CRAZY G said...

Bryan:

Your figures show, a second mortgage..

With 100% financing...


>>>YOU HAVE NO BUSINESS BUYING A HOUSE<<< """STUPID, banker that will lend you the money"""

PEOPLE like you, with your financing are the cause of the problem....""NOT THE CURE""

People like you who did this last year, will be cleaned out....

>> THANK GOD <<< for economics!!!

"""MONEY ALWAYS GOES TO THOSE WHO DESERVE IT""" NOT STUPID PEOPLE LIKE YOU!!!

Meleine Lozanoq53wi3 said...

Foreclosing on your tax lien does not always mean you will get the property, especially if the property goes up for a foreclosure sale to the highest bidder. An auction of a tax lien certificate usually involves selling a certificate to claim the total taxes owed and any administrative charges and interest on the amount owed. Tax Lien Investing

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Jocelyn Batsonb1lewe said...

Foreclosing on your tax lien does not always mean you will get the property, especially if the property goes up for a foreclosure sale to the highest bidder. An auction of a tax lien certificate usually involves selling a certificate to claim the total taxes owed and any administrative charges and interest on the amount owed. Tax Lien Investing

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