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Saturday, January 02, 1982

01.02.2007 - Tuesday Open Thread

This is your open thread for Tuesday, January 2, 2007. Please post random links and off-topic discussions here.

24 comments:

tacoland said...

01/02/07 - Home builder Lennar warns on earnings. Home builder sees no sign of market recovery, cuts fourth quarter earnings target again; write downs and asset revaluations will cause net loss.

Tim,Vic and Mr.B said...

Stuart Miller, President and CEO states..., "Market conditions continued to weaken throughout the fourth quarter and we have not yet seen tangible evidence of a market recovery. While we are hopeful that low interest rates, strong employment and a healthy economy will help stimulate a recovery in 2007, we have continued to focus on strengthening our balance sheet by delivering our backlog, selling inventory aggressively and renegotiating our land positions. We ended the 2006 fiscal year with zero outstanding on our $2.7 billion revolving credit facility and over $600 million of cash on the balance sheet.

"Given the steep decline in many of our markets, we are completing our asset-by-asset review and will adjust asset balances to reflect fair value in the current market environment. Accordingly, we expect to record pretax impairment charges of $400 million to $500 million."

Tim,Vic and Mr.B said...

From the Puget Sound Business Journal..."First, the big worry: housing. Economists generally agree that the state's housing market will continue to slow throughout 2007, especially in the Puget Sound region, and a precipitous decline could drag down consumer spending, slow the construction industry and dampen economic growth."

Regarding Washington, according to Keitaro Matsuda, senior economist for Union Bank of California in San Francisco
"From an economic standpoint, housing remains the biggest question mark facing the state, as it appears the state is still in the early stage of a housing downturn.

While the national housing slowdown has finally hit Washington -- in King, Pierce and Snohomish counties, the Northwest Multiple Listing Service has reported falling home sales, rising inventories, and slowing home-price appreciation throughout the second half of 2006 -- homes in core Puget Sound areas are still logging double-digit price appreciation.

Matsuda said this indicates that the housing market in the Puget Sound region and throughout the state is a long way from hitting bottom."

"It will still take a while before things start to really slow down," Matsuda said.

Oooh all the different blathering on which way it will go. As a person who wants to get his wife in a house, I love hearing what all of you guys have to say and can only hope the homes here will become more affordable. I keep telling myself to be patient as I sit here with my fingers crossed that things will be more affordable. There seems to be a lot of confidence here that a decrease in prices will happen, (except for Shugs posts). But I ahve noticed in the last few months, the number of posts waining a bit. Does one interpret that as a sign that the meme is fading? Who can say? So many questions and so little answers. Where is that crystal ball?

Lionel said...

I really do believe prices in Seattle will fall once there's some traction on this story nationally. The vast majority of people still seem unaware even here in LA about the bubble. Last Sunday's LA Times had an article about this group of 20-something RE agents who had made millions in the last few years and well, aren't they cute. It's highly reminscent of the stories about old ladies making millions in their stock clubs just before the tech stock bust. I'll be frank: I'm not thrilled that this bust will happen; as I've talked about the bubble with my own friends and relatives, I've uncovered people who I thought would've been immune to ARMs and IOs who, in fact, have themselves in very precarious places. This will bring a lot of pain to people I know who were not trying to make a ton of money, but were only trying to buy before "they were priced out forever." In LA and Seattle, all this will end badly.

Lake Hills Renter said...

Someone commented in another post that I can't find about waning comments here. I can't speak for everyone, but for me there's been several reasons lately -- holidays, 7 day power outage, other interests. My interest in the housing market is more for curiousity right now, since I'm not planning to buy for a while. Things have pretty much stagnated on the eastside so it's just a waiting game now. Everything seems poised based on the spring season, and there's nothing to do until then but wait. So I wait.

MisterBubble said...

"But I ahve noticed in the last few months, the number of posts waining a bit. Does one interpret that as a sign that the meme is fading?"

Nah. It's two things:

1) Tim disabled anonymous comments a couple of months ago.

2) It's winter. There are very few interesting things going on in the world of real estate.

Commenting will pick up now that the holidays are over. Give it time....

synthetik said...

Need your help:

I have a friend in the Greenlake area who owns a 2bd condo. He purchased the unit for around $200K and comparables are going for around $275-300K or more.

He's got a second mortgage for $45K (paid off his credit cards during a divorce), plus an additional $20K in more credit card debt. Yikes.

I've convinced him that he needs to sell his house NOW. He said "but shouldnt' we wait until Spring?"

My opinion is that if he waits, a) the market will soften more b) he'll have hundreds of competitors during spring.

Even if he sells for $275K, after selling costs he still may be a tad underwater so he's thinking of doing FSBO.

My advice was to get it fixed up and on the market ASAP and also to use a realtor -- pay whatever it costs to make it happen.

He's agreed, now we just need to find a good realtor that won't screw him around. One that understands we should list the unit under the market rate so it sells quickly.

Can anyone recommend a trustworthy realtor for my friend? We'll probably be listing his condo in about 30 days.

Tim,Vic and Mr.B said...

I know Two VERY trustworthy realtors, Carol Carr at 206-910-4929 and unerstands the market very very well and where it may go.
the other is Danny Horowitz at 360-710-5070. Very honest, crunches numbers really well and methodical. Each is extremely scrupulous, and honest. I trust both of them...period.

FinanceGuru said...

synthetik - My advice to you (and many of the others on this board) are like Chicken Little "The Sky is Falling" statements and scaring others into the mantra that owning is not wise. It would be much better to go over several options such as:
A) Refinance the loan, as over the long run (7+ years) real estate is a wise choice…if he is thinking of living there for many more years. Could also get the condo appraised near the 300K mark and not refi for the whole amount unless nessisary (provide some cussion if the market does decline).
B) Sell the condo, yet do so in a rational way as not to just dump it ASAP and get out. By selling at a slight discount it would spark interest and possibly attract several buyers. Allow some time as this market is starting to slow not stagnate.
"Even if he sells for $275K, after selling costs he still may be a tad underwater..." In reality he is not underwater, just used the property appreciation to pay off credit card debt of 65K. From the sounds of it he probably bought the place about 2 - 3 years ago and will be selling for a 37.5% to 50% profit from where he bought it (if with cash). If he took out a mortgage (most likely) this Rate of Return would be significantly higher. If he put down 10% the profit return (not counting expenses) would be 375% (37.5% profit /10% down)...taking mortgage pmts above the differential between the cost of renting/owning and loan orig cost and it could be an estimated 200% Return on Capital, not too bad! Overall he should consider all his options and talk with several different people to get their take on the situation.

BTW: Tim,Vic and Mr.B - I was wondering, what do your Real Estate friends think about our current market? Would be nice to know what they are seeing in the marketplace or where its headed if you can.

Tim,Vic and Mr.B said...

Finance,
In talking with them, they both see a slow-down, but both are doing quite well. they agree that though prices may fall, sales may slow down, it opens unique opportunities for Real Estate Sales people. I firmly believe, through experience of buying and selling, that the sales people who are successful, even in down markets, are those that simply return phone calls. Of course that isn't the whole picture, but you wouldn't believe the difference it makes, even if you don't have good news...return the dang call. I don't care how long that house you have listed has been on the market, how much of a pain it is to unload, when the seller calls for an update, after an open, or a showing, (which they shouldn't have to call you) call 'em back. If you make that your mantra, the referals will difinately be made. I can't tell you how many people will not recomend an agent, because they never called the client back.

I am not an agent, not involved in realestate right now, but went through the sell-off in So. Cal. It was a frustrating experience. And I didn't even get the worst of it. I sold my house for 3 times what I paid for it, so I came out fine, but the experience was still unpleasant.

Back to your question, both are telling me to be patient and watch what happens after the first of the year. there are a lot of un-answered questions on whre this will go.

My take is this; once a meme starts forming, no matter how good the fundamentals are, not the media, not the government,not anything, can turn it to go the other way. the mass thought process takes a while to turn. Hence the rise in prices, whether it be the stock market or housing prices, even when the fundamentals were bad, and the following slide down even if the fundamentals may be good.

As in stocks, it doesn't really matter how good or bad a company is doing, it matters how well or how bad people THINK it is doing.

synthetik said...

financeguru:

I wasn't looking for advice on the market - simply to find a "good" realtor for my friend. If he tries to sell it himself it'll never sell - not in this market.

This is his one chance to sell and pay off his debts. Jumping into another loan would be suicide.

My friend makes about $50k a year and after we're done he'll have another $900 a month - and be debt free.

I wouldn't want to own any US assets right now, especially real estate.

www.prudentbear.com (the prospectus is a good place to start)

Tim said...

Synthetic-

Contact me and I'll be happy to provide you with a couple names.
(tim@legacyescrow.net)

I've recommended people before publicly and all it did was create a firestorm of "why didn't you give them my name" responses from those we work with. Hope you understand. And, if your friend needs help with closing the transaction, (refi or sale), let us know.

- Tim Kane

MisterBubble said...

"If he took out a mortgage (most likely) this Rate of Return would be significantly higher. If he put down 10% the profit return (not counting expenses) would be 375% (37.5% profit /10% down)...taking mortgage pmts above the differential between the cost of renting/owning and loan orig cost and it could be an estimated 200% Return on Capital, not too bad!"

Thank you, Captain Obvious. In case you hadn't noticed, synthetik's friend is aware of the appreciation on his property -- that's why he wants to sell.

Do they teach reading comprehension at the Seattle U. MBA program?

Synthetik: I knew an agent named Jim Olney a few years ago. He does a lot of work up on Phinney Ridge, and I always found him to be a trustworthy fellow. You might want to look him up.

FinanceGuru said...

synthetik - A good place for your friend to start since he wants to do it FSBO would be on http://seattle.craigslist.org and Zillow.com. They both are free to post real estate ads and might be able to sell quicker especially if it is priced to sell.

Mr. Bubble - I was trying to combine several points together. Also trying to point out that people that have been in real estate over the past few years have made a killing. I doubt the RE market is going to tank like all the RE Bears are predicting.

The only thing that will cause a RE crash in Seattle would be a terrorist strike in America (God forbid) or several large companies laying off massive amounts of people. Aside from that the market will most likely slow to single digit appreciation.

On this board I do sense a bit of resentment for the profits others have made in Real Estate. However, I do think the market will slow quite a bit, just not into negative territory.

seattle long term owner said...

financeguru

please enlighten us on how you came about your opinion...

I for one currently own and would love if the market held it's ground...

I'm just trying to stimulate conversation here... actual facts would be helpful...

MisterBubble said...

"On this board I do sense a bit of resentment for the profits others have made in Real Estate"

Oh, boo hoo, guru.

I don't resent your "profits." I resent your inane speculations whenever you present them as arguments.

You "doubt" the market will tank? Great. You have an opinion. And as the old saying goes: opinions are like assholes. Everybody has one.

synthetik said...

Thanks for the help guys.

It turns out my friend refinanced less than a year ago anyway - out of an interest only loan! I think he's pretty much out of options as far as financing goes (although I'm sure you could come up with something 'creative')

We did consider CL but I think the MLS is the way to go on this one.

We're painting the entire house (including the ceiling!), installing new carpet and new stainless appliances.

He thinks each room should have an "accent" wall. Personally, I think all the walls should be white; I mean, how do you know if people are going to dig the color you chose? (not to mention it's 100x harder to paint edges)

Does anyone know how we can find comps that have sold in the area? I'm sure Meshugy does.... Shug? You are the comp. man... how do I look up comparables that have sold in the area?

FinanceGuru said...

Sorry guys I knew you would jump all over me for not posting references...yet posted on 2 articles from the WSJ, MSN, and the PI over the past several days with many different professionals (economists, financial experts and Real Estate professors at WSU, which has been accurate in calling a slump in other parts of the country over the past few years and expects Seattle to stay moderately strong).

http://online.wsj.com/article/SB116718612051760179-search.html?KEYWORDS=seattle+real+estate&COLLECTION=wsjie/6month

http://realestate.msn.com/buying/Articlebankrate.aspx?cp-documentid=421682

The WSJ article mentions that Seattle is one of the strongest markets for commercial and residential (in the WSJ RE section) real estate and expects them to continue to do so. Also the Seattle market was about 2 years late to the hot RE market and most articles that I have read mention that we have a few more years of single digit appreciation before this market is over saturated (more supply than demand).

Overall there are still many CA people migrating El Norte, strong job growth (BA, MSFT, SBUX, AMZN, Bio-Tech, Technology, Nordstrom, Costco, and of course Paul Allen creating jobs at his Vulcan [his own little city]), and the extremely over restrictive CAO (Critical Area Ordinance) policy which restricts land development of land (decreases supply of land, thus increases the demand for dirt). Realistically the market in Seattle will slow, yet most likely will not crash (or a small chance it will severely decline like many people want…which would put many of us all out of jobs in a recession). Even if the market has a few years of close to zero appreciation most people will be able to deal with their mortgages and reduce spending.

If you compare RE prices of Seattle to comparable costal cities our size throughout the nation, our real estate prices are fairly priced (read it on forbes online). Just read around Forbes.com, they have some good articles with positive and negative takes on the market…cant find it right now cause I gotta run, yet will find it for you all later.

Geon said...

I though most the the RE seach site gave comps nowadays. I know on JL Scott, you look at a property and just below the pic you can click on "view properties sold" and it give you what sold near that particular property, price and specs. Throw out what not comp.

Redfin will show you also sold prop sin a particular zip code. It works. Maybe not professiaon, but hey...;)

Geon said...

Sorry about all the typos.

Financeguru,

Hey, Seattle is different! OK ;0

FinanceGuru said...

geon - Its all good, we all have typos...thats why its a blog. Unless a typo really skews the point a person is making or explaining, doesnt really matter much as long we we understand what a post means.

B said...

Financeguru, I'm not aware if you've posted this before, but how much skin do you have in this game? What is the summed purchase price of all your real estate holdings?

Seattle Eric said...

synth -

I'll be happy to run some comps using the MLS. I don't want to be your friend's agent, I just want to help you help him.

Email me at seattle dot eric at gmail dot com

FinanceGuru said...

B - That is a very good question about my stake in the Real Estate game. Currently I own a 1 bedroom condo right behind the Seattle Convention center (5 to 10 minute walk to downtown Seattle) which appreciated approximately 27K [from comps in my area] last year (from when I put money down in June). One reason I bought so close to Downtown is the conviencence factor and properties tend to hold their value better the closer to a city core you are.

I also think the residential real estate market will slow dramatically (mid to low single digit appreciation), yet will not enter negative territory. However, I decided to hedge myself last January by shifting my stock portfolio to sectors and industries of the economy that tend to do well in a recession or residential real estate slowdown. Ironically, the Seattle Market still appreciated over the past year and my conservative contrarian stock portfolio return (after fees) was 21.48% (which beat the S&P 500). Also my risky segregated (smaller %) portion of my portfolio (in a different account) only returned 28.77% (it was up to 73.5% in mid-May 2006 [May and June were not happy months for my risky portfolio]).

My advise to those that think the Seattle market will tank is to buy stocks and companies that excell in a residential real estate downturn and a recession. Put your money where your mouth is. That way if you are correct you will be rewarded for your predictions. There are always people that can see into the future well, yet never profit off of it. My prediction is that 2007 will be a very volitile year and returns will be all over the board for most investments. Making money will not be as easy this year…if you want results you will have to do your investment HW. Good luck to you all in 2007, let the race begin.