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Tuesday, December 29, 1981

12.29.2006 - Weekend Open Thread

This is your open thread for the weekend of December 29-31, 2006. Please post random links and off-topic discussions here.

37 comments:

synthetik said...

As you might have heard, NAR Chief Economist David Lereah called the bottom of the housing market yesterday, December 28, 2006.

“It appears we’ve hit bottom,'’ David Lereah, chief economist of the Realtors’ group, said at a briefing in Washington. “The price drops are necessary to stir sales. It is working.'’

So there you have it.

Here's another quote you probably won't remember:

"Stock prices have reached what looks like a permanent high plateau..." - Irving Fisher, Professor of Economics, Yale University, Oct 15, 1929

synthetik said...

Oops, Link: http://tinyurl.com/y83day

How many false bottoms do you think we'll see on the way down? How many times do you get to call a false bottom before you get fired?

darth_s said...

Interesting article from WSJ:

http://www.realestatejournal.com/buysell/markettrends/20061214-simon.html?refresh=on

I didn’t know that the cost of renting vs. owning is Seattle is so low like that, only San Diego and San Francisco are lower! With the score of 0.45, the cost of owning is more than double the cost of renting! Also, it should be noted that the cost of owning in the calculation doesn’t include property taxes, insurance, and maintenance cost!

In the article, a first time home buyer got back in the market after the price of the house he bought was reduced from 242 K to 163K not including the 5K closing cost the builder picked up! Almost 35% hair cut. Ouch for recent buyers from this builder: 35 % under water after a year of owning the house. If they must sell today, they will loose about 35% (price reduction) + 6% (interest payment assuming IO mortgate) + 5% (commission) = 46% loss in 1 year.

House is ALWAYS a GOOD investment. I love this statement from these Realtors.

seattle_slow said...

You've got it wrong, synth. Lereah has an out. He said "It appears..."

His next quote in the very near future will be something like "While it appeared we'd hit the bottom, it is now clear we hadn't."

-slow

MisterBubble said...

That's a great sidebar, darth. I just wish the rah-rah tone of the article didn't depress me so damn much.

It continually amazes me that writers can juxtapose hard data for the insanity of the current market (i.e. it's 55% more expensive to own than to rent in Seattle), with pollyanna analysis suggesting that a 10% price cut is somehow a "deal" for "desperate" buyers. I have news for the WSJ: if it's truly that much cheaper to rent than to own, then I'm not in any hurry to buy.

Buying today in Seattle requires either extreme stupidity or the risk-tolerance of a professional poker player. Because, if it's truly 55% cheaper to rent than to own, the only way that you can rationally justify the expense of ownership is by betting that the ridiculous gains of the last 5 years are going to continue until you can cover your debt. And that's just crazy....

David said...

How abouut this flip...http://web5.co.snohomish.wa.us/propsys/asr-tr-propinq/PrpInq02-ParcelData.asp?PN=00493300800400 in Lake Stevens

cosmos said...

david - Just an FYI: The transaction your link refers to is between developers. De' flippers bought the land and pursued Snohomish County approval to divide the parcel into 25 lots. That was approved, with some conditions, in 12/05. Who knows what the whole deal involve?

Lionel said...

I don't know if any of you caught this on the Eric the Seattle Flipper blog, but it made me smile dated Dec 27):

Change #1 - No more flips

Though we (my wife and I) successfully flipped three houses in 2006, our last two have been languishing on the market for the past three months. We'll certainly sell them in Q1, but we'll take a loss on each of them. It's disappointing, but in hindsight, the reasons are pretty clear. We got into more expensive properties with weaknesses (no garage on one was a killer), and missed the heavy selling season that most likely would have mitigated our losses (though we would not have escaped them).

Kimsie said...

"it's 55% more expensive to own than to rent in Seattle)"

Actualy, the article was comparing buying an average single family home with renting an average apartment, not renting a single family home, so the difference is probably less than 55% for a single family home, but it is still considerably cheaper to rent a single family home than to buy a comparable home.

Cam said...

Cut Eric some slack. I admire his honesty. Particularly to himself.

Nice to hear a voice from in the trenches.

Lionel said...

Point taken, Cam. Eric could be a decent guy. However, living in LA, where affordibility is nil, I do find pleasure in flippers burning out, high risk mortgage brokers collapsing and realtors losing their jobs. Whether individuals can truly be blamed for this debacle (outside of giants like Greenspan), I have trouble containing my pleasure at the demise of the people who pushed this whole mess along.

MisterBubble said...

"Actually, the article was comparing buying an average single family home with renting an average apartment...so the difference is probably less than 55% for a single family home"

Yes, but they also omitted the costs of insurance, taxes and maintenance for home owners. In places like Seattle, those are significant costs.

synthetik said...

Eric needs to stop doing real estate and find a new way to generate income.

If he moves to other markets it will just make his situation more dire.

There are already milliions of other "investors" trying to find bargains. There is really no such thing anymore.

Really, the best thing Eric can do is get out of the market completely, take his lumps, and get back in at the bottom -- the real bottom, whenever that may be.

Merger Dog said...

That guy should have bought homebuilder stocks instead. Last 6 months were good. No overhead and can sell in a second.

wreckingbull said...

Yep,

Eric is admitting that the sport of flipping is now dead. The fuel for flipping was nonsensical appreciation and this fuel is now burned up.

I have to respect him if he is going to be able to get positive cash flow on new aquisitions in 2007. Rents are so comparitively low these days, it seems like an impossibility to me.

Lionel, I also understand your point of view. I think there are many of us that want nothing more than a modest place to live and ultimately build some equity. This recent crack-party has taken that away. I am not too worried though. The ball of festering twine is already starting to unravel.

betamax said...

How many false bottoms do you think we'll see on the way down?

I remember someone saying of the previous CA bust that RE types called the bottom every month for four years.

We can expect no less this time.

Lionel said...

I recall from my European class in college that one of reasons the British public was so relisient during WWII was that Churchill commanded the BBC to tell the truth, while the Germans, awash in Nazi propaganda, were devastated by the eventual disparity between the truth and the fiction Goebbels had created. While it might be a stretch to compare Lereah to Goebbels, one does wonder if the realtors would not have been better served in the long run by being more honest. They might very well require their own Marshall Plan to recover over the next decade.

meshugy said...

Flipping is definitely getting harder in some areas...but I'm seeing successful flips happen nearly every week here in Loyal Heights/Ballard. 1 month turnaround with over 100K profits. Pretty amazing.

I just checked Zwillow...they're now rating my house at an all time high of $503,432. That's up $124,432 from when I bought it in April 05. With that kind of appreciation it's no wonder people are flipping housing like crazy. That's about $62K a month in appreciation!

meshugy said...

That should 6 month turnarounds...

Lionel said...

For the flippers, meshugy, it's real money, but for buyers, especially longterm owners, it's not real, and shouldn't be thought of as such. A house down the street from where I live now in LA sold for 4.5 million a few months back. It was a reduction from 5.5 million dollar listing, but a good 2-3 million over what it would've been at the turn of the millennium. Whether it's millions or hundreds of thousands, it's just not real.

Matt said...

That's up $124,432 from when I bought it in April 05. With that kind of appreciation it's no wonder people are flipping housing like crazy. That's about $62K a month in appreciation!

er.... Dec '06 - April '05 = 14 months....

$124,432/14 = 9K/month

er.... where you getting 62K/month Euclid?

meshugy said...

Hi Matt,

Sorry I forgot a period....I meant 6.2K....

er...April 05 to Dec 06 is 20 months

so it works to $6.2K per month. That's a nice chunk of change!

synthetik said...

>so it works to $6.2K per month. That's a nice chunk of change!

Meshugy, you might as well go to vegas and put it all on black 17.

Unfortuantely for you, the odds are even WORSE that you'll hit your number when facing the worst housing depression in history.

Rots of Ruck...

Maybe if you throw a coat of paint on that box and actually report some of your supposed upgrades you could actually sell it for your zillowly-pillowy price.

Peckhammer said...

"so it works to $6.2K per month. That's a nice chunk of change!"

That's about the same return I get on my mutual fund portfolio, and I don't have to cut the grass or take out the garbage.

meshugy said...

and I don't have to cut the grass or take out the garbage.

Neither do I...Hugo does it!

seattle long term owner said...

shug,

prove a point to everyone here and sell your house...

take the 124K you got and roll it into a McMansion... since housing is on the way up, you'll get bigger appreciation with a bigger house...

Then we can all be invited to the open house...

MisterBubble said...

'shugy sez:

"I'm seeing successful flips happen nearly every week here in Loyal Heights/Ballard. 1 month turnaround with over 100K profits. Pretty amazing."

Pretty amazing that anyone takes you seriously? I agree!

Perhaps you'd like to back your assertions with some evidence? I'm sure that we'd all rather see the actual sales records for flips (i.e. "data") rather than your cutesy little "amazing" anecdotes....

Ardell DellaLoggia said...

Sorry for "intruding" but my $02 on flips. I hate working with investor types and rarely do...so no self interest here...or as little as I can muster :-)

The "fuel" for flips is not runaway appreciation. The "fuel" for flips is the buyer mentality that they won't buy what doesn't look good. A flip by definition should be as short a timeframe as possible due to carrying costs. So whomever said appreciation was the fuel..? A good flip should turn in 3 to 6 weeks...not nearly enough time to depend on appreciation as the factor.

The "flip failures" I have seen have been:

1) bought wrong property in the first place...busy location...no garage...prime examples

2) they sunk too much money into the project with granite and improvements not suited to the area...basically overimproved the property

So, find the right property and keep the cost relative to limiting factors. If you are trying to flip a split, for example. Recognize the price limitations of that style of home.

There have only been a few good flip properties in the last 90 days, and none of them have been dirt cheap. Best ones were $495,000 ish.

Happy New Year!

Going back into my exiled state...

meshugy said...

Hi Bubbles...here you go:

7041 20TH AVE NW

Bought for $407K on 4/10/2006

Sold for $569K on 11/22/06

7 month turnaround with $162K profit. Now that's how you flip a house!

Matt said...

You too can track the 'Shug's home ATM machine!!

7310 19th Ave NW, Seattle, WA 98117

According to your math, you bought it for $379,000 in April '05 but the Zillow records show it bought for...$431,200 in April '05

hmmm... what happened to the $50K?

vfsv said...

We still see some flippers even here in the Bay Area, but the preferred strategy seems to be to hold for 2 years to also avoid the taxes. After all, the laws of economics will never apply to Silicon Valley & RE never goes down. Right?

See also:
http://www.viewfromsiliconvalley.com/id282.html -and-
http://www.viewfromsiliconvalley.com/id287.html

Thanks.

MisterBubble said...

Wow...that's great, shugy! Actual data!

It's just too bad that your example is only six months shy of what you so breathlessly told us was happening "every week" in the magical land of Ballard:

"I'm seeing successful flips happen nearly every week here in Loyal Heights/Ballard. 1 month turnaround with over 100K profits."

I guess you were picking from the modest appreciation data, so as not to overplay your hand, right?

MisterBubble said...

Brilliant job, Matt! How did you manage it? A search for the price on zillow, coupled with sales dates in April '05, I presume?

For what it's worth, King county agrees with Zillow about the shugster's humble abode...$431,200 on April 22 2005.

That page is one of my new favorites on the intarweb!

meshugy said...

Hi Matt,

Because Zillow uses the county records, it is actually severely under estimating my house's value. Zillow thinks my house is 1380 sq. ft, 3 bd, 1 bath when actually it's 3 bd, 2 bath 1800 sq .ft. The previous owners completely remodeled the place and added tons of livable space. So just tack on about $50-$70K to the Zillow estimate and you'll get the market value.

synthetik said...

Shug-nite,

I'm sure your house will sell quickly with an abandoned house across the street. If the previous owner did these supposed upgrades, why aren't they listed in the county records? Where did you get this extra 500 feet? Did you dig down and create a 2nd basement?

Also, regarding Shug's "flip" that made $162K -- that's obviously total BS... I'm sure they sunk $200K in and took a 40K loss or something similar - or it's completely made up.

MisterBubble said...

Q: "Where did you get this extra 500 feet?"

A: "Zillow thinks my house is 1380 sq. ft, 3 bd, 1 bath when actually it's 3 bd, 2 bath 1800 sq .ft."

Two words: big commode.

MisterBubble said...

Well, I'm done posting for the night. Gotta turn into a pumpkin as the clock strikes midnight.

Happy new year, everyone...don't buy a new house until next year!