False Market, Developer Rents out unsold homes, Ripple Effect

[powayseller]

I’ve written before about the false supply created by the housing bubble. The building industry created perhaps one million homes for speculators, not for actually housing anybody! I can see selling stock for speculation, even lottery tickes, but when you create $500,000 – $1.5 million assets for speculation as if they were just a lottery ticket, that is a criminal waste of resources and contribution to global warming.

This article coined the term I was missing: “false market”. We’ve built millions of homes based on artificial demand, for speculators who were buying 1-4 or even 10 investment properties. As I said before, what a damn waste of resources (both talent and materials) to build houses just for speculation. That’s like manufacturing 1 million cars and putting them in a lot. What a damn waste of trees, copper, oil, human talent, cement, … The 1 million or more in the construction industry who will lose their jobs should have spent the last few years training in health care or high tech, fields which actually have prospects, instead of getting a temporary rush in construction. What a damn waste of talent!

Another thing I’ve been wondering about is how many of these resale and new homes would end up as rentals. Would builders slash the price ultra low, or just rent out their homes. In Merced, the county’s largest developer, Ranchwood Homes, is offering some new homes as rentals.

The article also reiterates the ripple effect of the housing bubble, which created housing gluts in forlorn places like Merced and Bakersfield. Speculators from bubblicious cities in So CA went by the vanload to buy real estate in lower cost areas like Merced, Phoenix, and Las Vegas, bidding up the prices there as well. Even North Dakota’s lakeside homes were bid up by Californians.
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[LookoutBelow]

Ahhhh…..As I was saying last year, "Therein lies the biggest problem" for the investor (gambler) on these silly real estate ventures…..but they kept the economy afloat for another 3 or 4 years and allowed the commodity traders to cash in on the resource futures.

Were reaching the "Critical mass" point of this cycle.

[no_such_reality]

This is why I think we’re likely to actually see rents fall.

As the vacant speculator homes come back to the real market, vacancies in the complexes will increase. Once they return above their pain point, they’ll start the cycle of 1/2 off first month’s rent. Rent a year, get December free…

Even when people are capable of paying $1300/month rent, they won’t need to. We’re seeing it in HB already, the strip of condos along PCH at the beach has so many for rent and for sale signs up, only the biggest of idiots wouldn’t walk from one to another, literally, there’s four or five for rent in the same building from different owners.

[4plexowner]

Thousands of downtown condos will end up as rentals.

This glut of condo rentals will depress rents on single family houses.

Remember that housing that isn’t bought by a homeowner WILL become a rental eventually. It might sit on the market vacant for many months but eventually it will be added to the rental stock.

The only exception I know of to this rule is the condo towers across from the Convention Center that were left vacant for about 10 years since there was no market for them.

[Anonymous]

PS, you say that there will be 1 million construction jobs lost in the real estate bust, this wouldn’t surprise me, but how did you determine this number? Last week the UT printed an article where some experts predicted 100,000 construction jobs will be lost in the next two years I believe. I think this is very optimistic but am curious where you come up with the 1 million number.

In terms of the lost jobs, I expect the majority of these jobs that will be lost are held by illegal immigrants so the primary net effect will actually be many illegals going back to Mexico which is a good thing for the country.

[powayseller]

Won’t the banks lower the prices on the foreclosed homes until they are sold? They won’t want to rent them out,will they?

Can someone explain this? There was a Poway house on Twin Peaks Rd that went to auction last week, and the realtor told me, “It was purchased by Wells Fargo 9/22/06 and listed @$655000”. What does that mean? Wells Fargo is listed as the lender on one of the NODs.

[Bugs]

If they’re looking at the public records available through the MLS it might appear that Wells purchased when in fact they foreclosed. The transfer kinda looks like a sale.

[powayseller]

That info came from the contact agent listed in foreclosure.com, so he was only giving me the info he was allowed to give, I think. Maybe it didn’t sell, and Wells Fargo continues to own it. It was “bank owned” before the auction.

[no_such_reality]

I think you’re getting some accounting double talk.

If the bank forecloses, they set a trustee sale. The trustee attempts to auction it off for as much as possible, if no one will step up and pay as much as the bank is owed on it, then the bank takes possession at the default amount. Hence, the bank owns it at $655K the amount owed on the loan. When they sell it, they’ll want as close to that as possible since otherwise they carry asset lossed forward and start to dent their earnings.

[sdduuuude]

Powayseller – I must say I really agree with you on this one. What a waste.

As you say, though – the market should reduce the price until supply = demand. But I think it will take a while.

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