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SD Realtor
ParticipantI forgot the name of one… Glen Gary Glen Ross I think. I saw it a long long time ago… anyone seen it?
Coffee is for closers!
August 27, 2006 at 11:45 PM in reply to: Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms #33622ParticipantPS your points are well taken but again there is a variance right. I rent right now, pay 2400 a month, AND I pay for the gardner. Things vary right? I guess my base point will be that we agree to disagree.
Okay so a negative return is not realized until the asset is released correct? So the person purchasing the rental doesn’t lose anything until the home is sold correct? As a prudent investor that person would also have built in the assumption that the market would continue to depreciate. Again this wasn’t a purchase made by a first time landlord, or someone jumping in for a quick hit. This is someone who wanted to enjoy the tax benefits of a rental property owner who wanted to get a positive cash flow.
To me the correlation of rent to purchase price doesn’t make sense today because the price of housing makes no sense. Surely rental rate increases have not come close to matching home appreciation rates correct? So I personally don’t see a crash in the rental market that you are forecasting. Maybe it will happen, who knows?
My tenants are a military physicians assistant, a software engineer, and a nurse. Anyways I still feel that even with the continuing depreciation of the market, that personally the stock of potential tenants will be okay.
Anyways like I said, I agree to disagree. Your points are well taken and I guess we will see what will happen. I do believe the market will have a good ways to go before all of this happens.
ParticipantPS I think they are value added pieces of data that give further evidence of in our case a heavily depreciating market. If I am a seller and I know that there are 100 homes on the market in my zip, but that last month 10 of them sold that is useful. However if I know that 10 sold and 25 more dropped off the market entirely that would potentially encourage me to price my home even more aggressively.
Yes as you also stated, c/e/w numbers go down in an appreciating market and rise in a depreciating market. What has me concerned as I said is a 15x increase from the low in the data I presented. The trend also shows no sign of weakening.
Again, I use it to show potential sellers more data. It may not be useful in any ratios, as you are indicating.
Cancelled – you are no longer under contract with the broker.
Withdrawn – you are still under contract with the broker but not active on the MLS.
August 27, 2006 at 9:42 PM in reply to: Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms #33593ParticipantOkay PS so here goes nothing. I cannot refute your points to well with regards to the availability of renters but the raw numbers I can at least play with. So okay here we go…
We had a 500k home that has depreciated to 320k. So it is on the shy side of 40% depreciated. Now if you put down a 100k and finance the rest. Now lets say we get a 10 year 7%interest only loan that converts to a libor. (not a great loan but you do enjoy 10 years of fixed rate) Your payment would be 1283 a month. Now throw in 3500 a year property tax and 500 bucks for insurance. Throw in another 50 bucks a month for maintenance. So we are at 4600 a year or about 380 a month for other costs. So that is 1660 a month to maintain the home. So I need to haul in 2260 to make a positive cash flow of 7200 a year or 7.2% on my 100k correct?
Now some people are luckier then others with vacancy. I guess I have been lucky. That is mostly due to the tenants I have been blessed with. Those that have left gave me plenty of noticed and my vacancy time was measure in days not weeks as I advertised and showed my homes long before my tenants left. I would agree with you that this is not the norm. However savy landlords know that the key to rentals is the quality of tenant you get. That is another story for another post.
Now I know this is a stretch but I am just trying to illustrate a point that it could happen. I think that more prudent investors are much more insightful then to be swayed by the mass psychology out there. This is actually what seperates successful people from the pack wouldn’t you say? Also I would not classify speculators and savy investors in the same bundle. I think that the savy investors left real estate a few years ago but once the numbers work out, they will be back. Same with the bubble sitters. Personally I hope to hit the bottom but realistically it probably will not happen. If I can get within 10-15% I will be thrilled though. However my purchase will be made because it will be a primary residence.
As for how many people have 100k to put down on a place. Well I actually believe there is tremendous wealth out there although it is concentrated in fewer people then it used to be. However I have known several people who bought homes for investment as a small group, maybe 2 or 3 of them. Your point is correct though that 100k is more then the usual downpayment. My point is however, that this is not an investment John Do will make. Nor is it for Jo firsttime buyer. This is for Freda seasoned investor who is a smart prudent investor.
Finally the crux is the rental rates. This is uncharted ground for me. It is somewhat of a paradox is it not? If people are not buying then more people are renting right? If rental demand is up won’t that prop rental rates up? Okay if they do not rent then they buy correct? I guess to me, the only thing that decreases rents is a drop in rental demand.
So I know my numbers are approximate but again, my point is to illustrate that at some point, the cash flow can be found. It WILL vary with LOCATION and it WILL be affected by rental rates. I am not saying it will stop the downturn but I think once smart money starts to jump in, that will be a very important point to note. People will start to make money. I cannot quantify when that will be…but when it happens I will post!
ParticipantFor sure JES. Actually, (as a guess) the correlation should be proportional right? As the inventory levels have rose, we should see in the absence of increased sales, that these 3 classifications should run up as well. In fact they will track inventory very well as long as sales stay flat. If inventory rises and sales decline these classes will continue to ramp up. I think the Inventory/Sold is the most telling ratio.
Note again though that these are lagging indicators. In the thread of the previous post, Powayseller had some very good ideas about the ratios she liked and I agreed with her. I think she will find a good way to utilize these points as well.
The ones I use the most when I am trying to show potential sellers the depth of the market conditions are the ones above, the actives to pending ratio, and the months inventory.
August 27, 2006 at 6:46 PM in reply to: Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms #33578ParticipantSdjd I do agree with what you are saying. Will post later tonite… number 1 toddler is fed and number 2 infant is just waking up… Mom is giving me the look so I have to shut off the laptop… darn….
Participantjepsd NAILED IT!!
The amount of money that the real estate industry pumps into the UT is STAGGERING. Some the statements made by this guy are outright lies, or total manipulations of data.
I mean come on, even DQ stated year over year sales down by nearly 30% so this guys statements about sales are a crock.
Here is a tiny snippet about ads… My wife advertises her biz with the UT, a tiny advertisement maybe 1/6 of a page 8 times a month. This runs about 3k per month. Now think about how much real estate advertising, NOT TO MENTION entire sections of the UT devoted to housing and your head spins with the revenue they get.
August 27, 2006 at 5:41 PM in reply to: Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms #33571ParticipantPS I would have to agree with you as well. I think 07 and 08 will see equivalent or more drops then we have seen here in 06.
However I am still somewhat bothered by the fact that at “some point” prior to the 50% drop, there will be a positive cash flow potential for investors due to higher rental costs. Doesn’t it seem logical to think that? Say there is a home that is 500k but can return 7% assuming you put 20% down once it gets to 320k. Assume this rate also was valid after your property tax and other fees to maintain the property. Wouldn’t an astute person start to buy properties at that point? Even with the bottom still not reached, you still have shook out more of the risk and now have more upside so while most people would say I am gonna wait, some will not and they will park the money and take the 7%. Yes they will experience some depreciation but the lionshare will have been digested already.
So again, I think some zip codes could have maybe even MORE then 50% depreciation but others will not.
Also I do believe some zips this year have already seen as much as 20% depending on location and housing type.
Not a bad start.
ParticipantThat is a really good question…
When I get my comps, I only pull them off of the MLS. So a short sale that was basically agreed to by the lender would indeed affect the comps. Similarly I just represented a buyer and he bought an bank owned property for 70k under comps so that was on the MLS as well, (note the bank used a realtor) so in general as long as the home made it to the MLS it would indeed make it in the comps that at least most of us Realtors use. As for appraisers, I am not sure how many other sources besides the MLS that they use for the comps they generate.
ParticipantHi guys –
Careful for sure… On commissions, here in California when you establish a contract with the listing agent your contract states both what you will pay the listing agent, AND what you will offer as a commission to a buyers agent.
1 – All commissions are negotiable by law. When you do sign that contract you can in fact tell your listing agent, okay if YOU OR ANY AGENT IN YOUR COMPANY represents the buyer, I want to pay LESS then what I would offer a buyers agent from an outside company. YOU CAN DO THAT and some large firms will indeed agree to do that. Most all of the smaller independents will.
2 – As texguy pointed out the DRE law is very clear. What I said was if you choose to represent yourself, you can negotiate with the Sellers agent, or the seller, to REDUCE the price by the intended buyers agent commission, if you were to represent yourself. (which again I am not a big fan of)
Daniel –
At the bottom of all MLS listings the co-op offered to the buyer is disclosed. However this is only seen when an agent logs in with thier username. If the listings are emailed out this information is distilled out. Also as recently as a year ago most of the developers here in SD would not talk to Realtors. Now most all of them are BEGGING us to bring buyers over. They do however make us accompany our buyers.
One of the biggest mistakes (IMO) that people make is not using a Realtor when they work with new developments. In general the private contracts you sign when you work with the developers are amongst the most one sided I have seen. The people who further mire themselves down by working with the preferred lenders of the developers in order to get some closing costs paid for may indeed be hurting themselves in the long run by not shopping for better financing from the other 10 billion sources to finance a home. The smart person will use a Realtor to get the new home, then use the rebate from the Realtor to pay for the closing costs. I can assure you the Realtor will be much more discriminating regarding that purchase contract then the homebuyer would be. This is TRIPLE TRUE with condo conversions. Also no the price the developer charges does not go up if you bring in your own Realtor.
ParticipantJWM I heard him today as well… However I could not listen to long as I can only take him in small doses. I caught a part of it where this guy in Coronado couldn’t get his 1.2M place to appraise.
ParticipantPS I could not have said it better myself. I was treading lightly on my post so as not to seem to bias. However EVERYTHING you said was very true.
August 25, 2006 at 10:48 PM in reply to: Looking for honest suggestions and strategies for selling a condo in this tough market #33354ParticipantPS – Recall the equation for months of inventory. Take a sample period of time that is reflective of the current market, then find a monthly rate, then divide number of actives by that rate. So this method gives you a linear representation. However comparing that number to the actual number of pendings lets you check to see if this current market correlates well to the linear average.
The ratio of actives to pendings is 3 pendings and 52 actives. YIKES!! However taking a quick look at the MLS we see a total of 26 sales in the past 6 months. So that is 26/6 or 4.33 sales per month. So the correlation is not bad.
Yes I agree PS that not all escrows make it to solds so that is an important consideration. I just think that the months of inventory is a stat that could hide things so I like to bolster it with current statuses. The thing that the months of inventory hides is the fact that expireds, cancelled, and withdrawns that have dropped off the market ARE NOT ACCOUNTED FOR! So if you look at the current ratio of 3 pendings to 52 actives, at that rate it would take around 18 months to sell out! If you factor in that some pendings will never make it to solds it gets worse…
Participantzk I agree with you. Right now IMO what is hurting the market is psychology, (on top of way overpriced property) Rates are low, the 10 year has been dripping more and more, yet sales are down. I do believe there are more people on the sidelines then we all think. I know several people who are simply biding their time right now. Also I do believe that once properties become profitable for investors, to rent, not to flip, I do think people will buy them. It does seem like some funky equilibrium is attainable though doesn’t it? Say we hit a spot where prices have depreciated say 30%. So at that point we may start to hit some positive cash flow spots for certain properties. However I think there will still be a slow market with alot of inventory. So the rental market may stay somewhat robust, due to alot of buyer on the sidelines but there also may be more investors looking to put money into the market. Again though, I think zk repeated what we all know, the psychology is going to drive the market to a certain point… my point is that at some point smart money will start to enter the market.
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