Forum Replies Created
-
AuthorPosts
-
Bugs
ParticipantNot so fast – you’d have to compare the datasets and adjust for their differences.
Think about this: when we’re talking about this few sales, the activity occurring in the higher price ranges has an outsized effect on the overall average.
A $900k price range can actually be dropping faster than the $600k price range and those sellers can be losing more, but because more of them are closing at these losing prices the average would still go up. Does that mean prices are increasing or even stabilizing? Of course not.
The same thing can happen in reverse. An average could decline even while prices are increasing depending on the volumes at the diferent price ranges.
November 14, 2006 at 3:01 PM in reply to: The American Dream is Alive! Prices increase 130% in 5 years… #39971ParticipantTaken as a whole, the last 5 years have been great. The last 2 years haven’t been so hot.
It’s too bad the Union-Trib doesn’t have the hair to pick 4 existing tract homes of varying price ranges in 4 different areas of the county and show the graphics of what their prices have done on a quarterly basis for the last 5 years. That would make it a lot harder for the permabulls to hide behind medians based on unbalanced datasets.
ParticipantThat was me, sorry.
ParticipantThe commercial markets did not participate in the outrageous price increases during the first few years of the current upswing. It wasn’t until about 3 years ago that some of these commercial property investors started catching the fever. These properties are still going up, but in my view they’re even more likely to take a beating than the residential markets.
Commercial properties are all about making money, and nothing but making money. There’s no sentimentality or warm & fuzzies involved. The thing is, if a buyer pays 50% more for a property than their competitor did a couple years ago, that purchase has to financially justify itself. That comes either through increased productivity and profits or through further rent/price increases. No matter what, there are limitations to what a business can pay for real property when they compete with other businesses on a national and global scale. Trees don’t grow to the sky, particularly not money trees.
The rates of return on commercial properties are already at or near the interest rates the mortgage lenders charge. That means those rates of return cannot go any lower. Unless the market rents increase the prices can’t go higher without those buyers working on a negative cash flow.
We’ve seen it already with these downtown condo projects being abandoned because the reality didn’t match the forecasts. It’s just a matter of time before a lot of these other property types follow suit. Don’t forget, the weakest link in the business world is the small business owner, so they’re the ones who will feel an economic downturn before anyone else. Whether they have purchased their property or leased space in someone else’s property, if they get starved out during an economic downturn there won’t be a replacement nearby to cover the vacancy.
ParticipantThe Union-Trib has an article today quoting Dataquack as reporting the average sale price increased in October. The article cites different volumes than reported in the MLS, which I attribute to the fact that most developers don’t use the MLS to list their homes:
SAN DIEGO – San Diego County housing prices reversed course and rose slightly last month to reach a median of $485,000, locally based DataQuick Information Systems reported Monday.
The figure was $9,000 higher than in September and the first increase since March. But it was $33,000 less than the all-time high median price of $518,000 reached last November.
ParticipantThe reduction in the number of listings is a typical seasonal reduction. It happens almost every year. The uptick in closed sales is what’s out of the oridinary. It could be an early sign of a turn around, but it can also be indicative of a bounce. Prices don’t increase on a steady basis and they also don’t decrease on a steady basis. It moves in spurts.
When the volume of sales increases or stabilizes at a unexpectedly higher rate but the average prices decrease by $26,000 some people might interpret that as being the turning point for a new upcycle. Other people might interpret it as one of several plateaus that a downcycle will move through before its over. Having seen it do just exactly that in the past, I’m inclined to go with the latter for now. Especially as I can see no reason for it being for former.
ParticipantThis unit is one of the model homes for it’s project and comes with virtually every option and upgrade that the developer offered in that project. The investor group that bought this unit also bought all the other model homes built by Lennar in Bressi Ranch. They recently tries to auction these homes off but apparently were unable to get their prices.
Having been exposed to the market already, I don’t think it’s likely that this unit will sell at this listing price.
ParticipantDid you happen to notice the difference in average sales price between these two months?
ParticipantIt’s also possible that I AM a CG with 20 years in the business, an Instructor’s Certificate to teach USPAP from the Appraiser Qualifications Board of The Appraisal Foundation and have personally developed several appraisal courses with national accreditation. That’s in addition to personally instructing courses from literally thousands of appraisers over the last 10 years.
ParticipantThe only way I can see any logic in this is if one or more of these situations applies:
The market is one of those low-dollar markets where homes are selling in the under $200k prices to begin with. At that point the loss wouldn’t be very many dollars.
The lender is a portfolio lender in a relatively small town and they’re too exposed in the community to allow foreclosure cycle to start. In essence, they think that if they don’t foreclose on the first one they might be able to avoid the chain reaction long enough for the pricing trends to recover.
The bank’s management has been listening to an economist who parrots the NAR party line and they actually think this is a short term blip rather than a long term decline.
No matter how you slice it, this is a risky move at best. It can only work for them if the soft landing occurs. And soon.
ParticipantI think some of you are forgetting that these numbers being bandied about are actual dollars – the kind you use to buy food and groceries. We’re not talking about Monopoly money that gets redistributed at the end of the game. Real greenbacks, real moula, real coin of the realm. I don’t know how else to bring this out of the abstract.
Banks are in business to make money and when they lose money they eventually go out of business, either by BK or by seizure. The feds don’t insure banks without having stringent rules in place for liquidity and “safe and sound” lending practices because in the end these banks are underwritten by the U.S. taxpayer.
In other words, if a bank or an investor writes off one of these big losses that means that someone (lender, investor, government insurance fund) is losing those dollars out of their pockets for good. You can’t “account” your way out of something like that.
I’m fairly shocked that some of you think a bank can routinely write off 6-figure losses and survive. I don’t think some of you realize how thin their margins are. How many good loans does it take to make up for a single 6-figure loss?
As for investors, they’re in the same boat. They literally can’t afford to be writing off these large losses in principal because their margins aren’t that big either.
Try to remember that the typical residential losses that contributed to the last S&L bailout were in the $20,000 – $50,000 range. Now we’re talking about losses that can already be 300% of that with the potential for losses of up to 800%+ of that by the time this is all over.
No, fuzzy math accounting is NOT going to enable these lenders and investors to subsidize the foolish decisions made by these FBs. And wishing for inflation to correct the distortion is a loser, too, because that would essentially force EVERYONE to pay for the stupidity of the few. That’s a morally bankrupt idea from beginning to end.
ParticipantCalgary evidently has what the permabulls here in San Diego wish we had. Increases in population and wages sufficient to drive the market.
Most people define the elements that comprise a bubble to include price gains occurring based on speculation and irrational exuberance; and with little or no economic foundation. If the oil business in Calgary is pumping a ton of money into their economy that’s better characterized as a reaction to an improvement in their fundamentals. Sure, there might be some speculation in there too; but even after the short timers leave town those fundamentals will remain, and so will that portion of those gains that were tied to those fundamentals. Wages and population.
ParticipantI didn’t read the article but the way I read that excerpt he was acknowledging that the flip side of irrational exuberance could include some irrational pessimism.
Without irrationality the market wouldn’t distort very far up and it wouldn’t overcorrect too far down. Yet, those peaks and valley are what comprise the long term trendlines.
I wouldn’t say the pessimism right now is irrational, but at whatever point the price structure ventures down into undervalued territory a big factor in that will be irrational pessimism.
ParticipantI’m not aware of any such opportunities right now. If you’ve been following this website you must surely be aware that real-estate related occupations are in decline at this time. Appraising is no exception.
-
AuthorPosts