Residential Real Estate: A Buyer’s Market
Plenty of inventory. Distressed sellers. Tight credit.
File this under DUH: If you are in the market for a house, the current real estate environment is on your side.
And buyers are taking full advantage of it:
“Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.
It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil . . .
Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.”
“Upending?” No, they are merely taking advantage of the circumstances. Its the reverse of whatsellers were doing during the upswing in the market.
On the down side of the prices, buyers are the ones who have the upper hand — and are taking full advantage. Why this is a surprise to anyone is beyond my understanding . . .
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Source:
Housing Market Slows as Buyers Get Picky
DAVID STREITFELD
NYT, June 16, 2010
http://www.nytimes.com/2010/06/17/business/economy/17slump.html
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June 17th, 2010 at 9:30 am
On another site Irecently saw another post with chart showing lumber futures and the chart was the same shape as the one above but the peak of the chart was about 6 months ago and it has fallen like a rock since indicating home builders are slowing down again due to slow sales and too much uncertainty.
I think it was on http://paul.kedrosky.com
June 17th, 2010 at 9:35 am
Very true. We just bought a house for over 100k less than the original asking price.
June 17th, 2010 at 9:39 am
Those buying now are still acquiring an asset that will decline in value for the next 8 – 12 years, IMO.
June 17th, 2010 at 9:43 am
Economic “ice age” for RE. A wave of Option ARMs coming esp in sand states. Banks are holding back on foreclosure slaes but something will spook the herd, maybe FDIC liquidations as more small/med banks NTBTF fail and then the stampede starts, 90% off bargains in Sand states, wait for your affordable waterfront villa overlooking tarballs on your beach LOL
http://blogs.palmbeachpost.com/realtime/2010/06/02/economic-ice-age-to-continue-in-real-estate-market-experts-say/
June 17th, 2010 at 9:57 am
Yet, the media is pumping out stories like the one in this link suggesting there maybe a housing shortage.
http://money.cnn.com/2010/06/15/real_estate/new_housing_bubble/
June 17th, 2010 at 10:04 am
This used to be known as “What goes around comes around”?!!
June 17th, 2010 at 10:06 am
“agents and other experts say”–from the Quote, above
Agents are “Experts” ?
http://www.thefreedictionary.com/expert
http://legal-dictionary.thefreedictionary.com/expert
“All the News, That’s Fit to Print.” (?)
http://paidcontent.org/article/419-borrell-real-estate-ad-spend-on-newspapers-to-rise-double-digits-online/
June 17th, 2010 at 10:09 am
If you want to be a real estate investor, might be a good time to buy. But for housing, in this job market, mobility is worth more as renting is more cost effective.
June 17th, 2010 at 10:11 am
@rktbrkr Says:
June 17th, 2010 at 9:43 am
Economic “ice age” for RE. A wave of Option ARMs coming esp in sand states. Banks are holding back on foreclosure slaes but something will spook the herd, maybe FDIC liquidations as more small/med banks NTBTF fail and then the stampede starts, 90% off bargains in Sand states, wait for your affordable waterfront villa overlooking tarballs on your beach LOL
———
Not only FLA…but Southeast coast resort/beach areas. The longer the spill goes on it gets into the Loop Current and GA and Carolina’s beach areas could be affected. Real estate will probably take a hit from declining value of second homes bought during the Boom and now the possible environmental threat to the beaches and marshlands disrupting the fishing and tourist interests.
None of this is good for the economy of those areas, and BP isn’t going to be taking care of beach property owners in GA and Carolinas losing value since the priority is the Gulf Coast where so many need to be immediately reimbursed (and rightly so) for their immediate and direct loses of jobs and the environmental devastation they are suffering.
June 17th, 2010 at 10:18 am
Greenshoots from Kudloworld
Philadelphia Fed Factory Index Decreased to 8 in June
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Bob Willis
June 17 (Bloomberg) — The Federal Reserve Bank of Philadelphia’s general economic index slumped to 8 in June from 21.4 the previous month. Readings above zero signal growth.
Economists forecast the index would fall to 20, according to the median of 58 projections in a Bloomberg News survey. Estimates ranged from 10 to 24.
The figures follow a report from the Labor Department today that showed consumer prices fell in May for a second month. The Labor Department also said jobless claims rose by 12,000 to 472,000 last week.
To contact the reporter responsible for this story: Bob Willis in Washington bwillis@bloomberg.net
June 17th, 2010 at 10:20 am
I don’t think it’s a buyer’s market yet. Not while there’s a ton of inventory still being kept off the market.
Housing still looks to be overpriced by 20-40%, depending on location.
June 17th, 2010 at 10:23 am
As long as you’re cool with possibly losing your 20% down over the first few years. And x2 to Dow’s point at 10:09 am about also being secure in your job/financial situation in the s/t.
June 17th, 2010 at 10:33 am
Yeah it’s a “buyer’s market” alright, which today’s buyers will realize with great clarity a few years hence when they try to sell and discover that, dang, it’s still a buyer’s market.
Trying to catch a falling knife can be tricky, even if you’ve got lots of knives to choose from.
June 17th, 2010 at 11:07 am
It is a buyer’s market. I went in and got a mortgage approved. Requirement was FICO score higher than 620. Because I think long term rates are going to stay way low, I asked for the lowest rate I could get, and it was an ARM with a rate of 3.375%. I did the math. For each $10k you borrow at that rate over 30 years, the mortgage payment is a stunningly low $57 per month even if you include property taxes, which average 1% around the country.
A buddy of mine bought a condo in Florida in the Fort Myers area for $70,000. Initially, I thought he was nuts, but he got it so he could rent out it, and with that, I was ready to recommend he be institutionalized. But then I did the math. With a 3.375% rate, that would mean $399 per month or $13.30 per day. If he rents the condo for $600 per month or a ridiculously low $20 a day, he makes a huge margin.
The other question that sprung to my mind is how do Florida hotels now compete when condos can be rented out for $20 a day at a huge profit?
June 17th, 2010 at 11:07 am
FTA:
Even the lowest home mortgage rates in decades are not doing much to invite deals.
Duh!!!!! You can’t afford a house if you don’t have a job. And with 15% or more of the working age population either unemployed, or underemployed, it is not going to get better. As others here have said, prices will likely go down further and at least stagnate for at least the next 5 years in the best case scenario.
June 17th, 2010 at 11:11 am
It is tough out there. We are selling our entry level unit in San Francisco and have been in contract twice. Buyers are asking for concessions, lower price–getting the concessions–*then* walking. It is very frustrating from a seller’s perspective.
One interesting thing we encountered has been that buyers have tons of cash on hand and have no idea what to do with it. Both buyers were set to put down 50-70K more in down payment than would be required (70K). Our most recent lead is a 100% cash buyer. I can’t imagine why you’d tie that much cash up in a single property at this point, except if you want to rent it and pretty safely net 4% yearly. Not a great return, but that pent up cash apparently wants to move… somewhere… anywhere.
June 17th, 2010 at 11:12 am
Chad:
Do you really believe the TradMed will tell you the truth? If things were really that good, why do we need NAR to tell us via commercials on TV and radio? Do you ever remember them running advertising during the boom years?
June 17th, 2010 at 11:42 am
@Ny Stock Guy Says:
June 17th, 2010 at 9:35 am
“Very true. We just bought a house for over 100k less than the original asking price.”
What is the relevance of an asking price as it relates to true value? How do you know you got a good price?
June 17th, 2010 at 11:49 am
“If you are in the market for a house, the current real estate environment is on your side.”
Unless you also have an existing home to sell in order to move into the new home. This is a 2-edged sword, for all but the wealthiest and those moving from renting to owning, or making their initial home purchase.
Falling prices will act to suppress a lot of home-buying activity, simply because it is clobbering the equity that would otherwise be used to lower the down payment required. With the amounts required as down payments rising on top of that, one can expect to see a depressed housing market for a long, long time to come. And that’s before we even begin to consider the inventory of existing unsold housing.
June 17th, 2010 at 11:57 am
Nice piece by the The Pragmatic Capitalist today, who makes a case for deflation and in the process compiles recent info on the resid. real estate mkt, i.e., weak mortgage purchase app data, lumber prices have tumbled 40% since peaking just 6 wks ago, Case-Shiller data turning negative again, NAHB data weaker than expected, and other info. It’s a short piece entitled “SORRY EUROPE, BUT WE HAVE A BIGGER PROBLEM HERE AT HOME”:
http://pragcap.com/sorry-europe
June 17th, 2010 at 12:05 pm
Just found a flier for a new condo building near me (suburban Chicago) from spring of ’06. The sheet lists available units by model and their price. There are presently 6 for sale and each listing posts the square footage, so comparisons are easy. To date: 31% price drop. Also, one unit is available at half the original price provided it’s an “all cash” deal (must be getting ready to flee the country!!!)
June 17th, 2010 at 12:12 pm
By the way, one more observation: of the 6 units presently for sale, NONE are any of the ones which were available on the original info sheet. One would think those selling were the weakest hands… maybe of the 12 originally for sale, none of them ever sold??? At the time I toured, they had a “Free Condos!!!* well almost…” financing offer, where the seller would “pay the mortgage and assessment charges for the first 18 months.”
June 17th, 2010 at 2:09 pm
JZ,
There are soooo many empty condo units in those areas finding a decent tenant for $600 a month can be challenging and being a landlord can get old quickly, very difficult from long distance. ARMsare ticking time bombs, chances of getting that rate in 5 years are about zero unless our second dip takes us to all out depression – those odds are higher
June 17th, 2010 at 4:30 pm
@JZ, Don’t forget insurance, and condo fees. Could probably do $50-75/mo. for insurance, but condo fees are a whole other story (especially when the condo has anything below full occupancy/ownership by actual fee paying owners). Then don’t forget the acquisition/disposition costs, management/vacancy fees (even if self managed), etc.
I’ve looked at quite a few markets, including a few in FL, and I haven’t seen too many opportunities to pick up property (condo or otherwise) and break even on rentals, let alone get some cashflow. And that’s even when buying at half of peak pricing or less AND using really cheap money. Maybe I haven’t looked hard enough….but like many have said – there’s no rush.
IF you can break even, and you’re comfortable with the risk, and have a long time horizon, then the value appreciation might be worth it, but too many things still seems a bit too uncertain right now.
June 17th, 2010 at 5:35 pm
“. . . buyers are the ones who have the upper hand — and are taking full advantage. Why this is a surprise to anyone is beyond my understanding . . .”
Everybody claims to love the market, right up to the time when the market goes against them. Market discipline is great, as long as it disciplines other people.
June 17th, 2010 at 9:19 pm
I would agree that real estate is prob not that interesting as an investment, unless you get a good price.
BUT T-bills certainly arent. So if you’re earning less than 1% on cash, its prob better to buy real estate and rent it out… right? Between the tax advantages and the rental income a 100% cash buy still earns more than deposits or t-bills… yes?
PLUS if you are a buyer 5/1 ARM mortgages have been hitting 3.5%. At some point this becomes very attractive versus renting in term of not only some long-term appreciation (at some point in the future) but living in a MUCH NICER place… versus renting. So is that 3.5% or is it 2.8% (20% lower?)?
But mainly… risk assets will continue to outperform. Avoid low risk assets — tbills, deposits, gold. Those are getting killed versus risk assets. (Note that SPX is flat on ytd, but up 1% on divs… this is 10x 6M bills and 20x return after tax versus bills.)