Once in a while I take the weekend off. What really happens is that I go into a near zombie state, OD on Tivo’d HGTV, TLC, Style, Bravo, Fine Living and Travel Channel programs, while simultaneously catching up on a week’s worth of RGJ reading and numerous industry publications.
One such publication recently featured an article written by real estate guru, Walter Sanford. His 12-step process for dealing with changing conditions ended with this: "Get ready for the bottom of the market. You know what it looks like. It is when you can put 10% down on a piece of property. With a 40% expense factor, you can break even with a fully amortized loan."
What do you think? Is that really what the bottom looks like?
40 comments
The question is not what does it look like, but when. Mr. Sanford is probably correct as to what it looks like.
The question is when. As far as I can tell, many of the average homes in Reno will have to drop another 30-40 percent to be in his what category. That will take a long time. There are a number of studies out there dealing with investment bubbles. They typically take longer to deflate than inflate. That means we have years to go.
Of course, I prefer the business magazine approach. I will know it is time to buy houses when Business Week/Fortune/Etc has a cover story saying only an idiot buys a home. That will be the bottom.
SJ
I’m still trying to tune out all the “but Reno’s different” crap being spewed at me by locals.
I caught the end of an interview today. It was our local radio station and Fannie Mae. When asked how the subprime/credit mess will effect future borrowing standards, the reply was “persons applying for mortgages will be required to put down ten percent, have some reserve funds in the bank, and a decent credit score.
How unique.
Diane, you ask whether this Sanford fellow is correct when he asserts one knows when the SFR market has reached bottom when one can put 10% down on a piece of property and with a 40% expense factor, break even with a fully amortized loan? Maybe it’s just me, but I don’t understand the wordspeak. Can you please translate [remember this Sanford fellow is another one of the seemingly never ending number of motivational speakers so prevelant in your industry; one who’s heavy on “programs”]?
Locals are still saying Reno is different and immune? I thought Lindie would have killed that theory by now. I read somewhere that it’s easy to see which markets will/are being hit the hardest - simply look at what markets inflated the most in 2004-2005-2006. That would be California, Nevada, Michigan (kind of a strange one), etc. People say it’s Las Vegas that is ‘bringing Nevada down’ in foreclosures, but Las Vegas wasn’t the only city with major increases in home value in 04-06. What about those new $350,000 homes in YERINGTON? lol. Reno may be better off than Vegas right now, but it won’t be immune to those 30% home declines necessary to correct the market, IMO. I think when we hit bottom will be when prices adjust back to 2004 levels. Sorry, but equity just doesn’t double in two years when it took two decades to do the same thing previously.
You think we will be at a bottom when prices adjust back to 2004 prices? uhh, we are already at 2004 prices, and in some cases below that. Bubbles always end with prices below fair value. Look for at least 2002 prices at the bottom.
We are nowhere near 2003 prices. When I was shopping for a home in 2003, I was looking at new 1,300+ s.f. homes in Spanish Springs for $189,000. That’s right, $189,000. This was before the waiting list frenzy too. So far, I haven’t seen one new home in Spanish Springs for under $200K. Same thing for Old Northwest, when I was shopping for a home in 2003, a typical 3 bed home ran in the $160-$180 range, maybe 200K if it had nice upgrades. Now you can’t find a home up there for under $250,000. If you really think we have to divert back to 2002 prices, before this is over, we have a looooong way to go.
I’ll chime in with Smarten. Pls clarify “40% expense factor, break even with amortized loan.” Is that fancy talk for expense ratio, or ?
As for the bottom, no one will know until we can see it in our rear view mirrors, just like every bear & bull market. If you can predict the bottom, or the top, you should be having drinks with Mr. Buffet (Warren, not Jimmy).
There is a record inventory of unsold homes on the market; and close to 800 Billion dollars of adjustable rate mortgages resetting from 10/07 thru 12/08.
Reno hasn’t even started with the builder’s auction sales yet (Toll Brothers earnings report will be out on Thursday). Customer loyalty evaporates when builders need to liquidate in order to save their own butts.
L.A. times Sunday edition of R.E. ads is up to running around 40% of SFR auctions and “Builder’s Closeout Inventory Sale-all offers looked at.” Riverside and San Bernardino counties are being slammed.
Well, in my neighborhood there are houses (in foreclosure) selling for 2003 prices and lower. So I guess it just depends where you look.
I haven’t seen anything close to 2003 levels in my neighborhood, but I think If I looked hard enough I may find a couple here and there.. as far as 2002 prices I have yet to find anything.
I have to agree with big D - I have seen very few rollbacks to 2003 pricing, and those tend to be seriously messed-up properties. Not that there aren’t a smattering of them out there, or that we might be heading there.
What I do see is a clustering around Q3-Q4 2004 pricing, 15-25% off peak. Most bought with 89/20 financing. Corellation? Damn straight.
But there is an arguement that in a new development, a 2004 sale is actually a 2003 price comp, due to PAL (purchase agreement lag). And since most new homes are sold bareback and the rear landscaping is by the owner, maybe we are effectively in 2003 for some properties.
Dear Diane and Guy:
I distinctly remember both of you saying that the realtors and the people who run the NNMLS were going to clean up their act and get rid of the phony DOM manipulation. You know, the disingenuos practice of realtors taking a stale listing off the market, sitting it out for a few days, and then bringing it back as “new.”
I thought we were going to get some integrity into the system.
Well, remember 1905 Russell Pointe Cr. in Somersett that we has some discussion about a few weeks back? Shortly after our discussion, the listing disappeared from the MLS. I thought perhaps the sellers were going to take it off the market for a while. Now, as of today it’s back, listed with the same realty office, for the same price, with a new MLS number and described as “new”. This house has been on the market since at least last July.
So what happened to the new rules?
So here we are back to the same disengenous misrepresentations as before. And you wonder why realtors today are regarded as equal to used car salesmen in integrity polls. All I can say is that if realtors were subject to the same kind of regulation as brokers in the securities industry, half of them would be without a license and in jail.
Here is a link for filing an ethics complaint against a realtor, from the RSAR site. I don’t know the violation code for relisting - anyone? This may only be valid for voilations of the national code of ethics, but it is worth a shot. http://www.rsar.net/uploaded/documents/NewEthicsComplaintPackage2007.pdf
Just a question - if you had a stale fish listing, would you cover your agent’s fine to bump the listing?
So how do you reason with this gem of an article in RGJ?
They say the mortgage bottom will be in October 08, do you think it will be that soon? I think not.
Mortgage rebound predicted
ASSOCIATED PRESS
Posted: 12/4/2007
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Nevada’s economy should be so strong by 2009 that a housing shortage may be the big concern rather than the current mortgage crisis and heavy surplus of homes for sale, an economist told lawmakers Monday.
While Nevada has the highest home loan foreclosure rate in the nation, Jeremy Aguero of Las Vegas-based Applied Analysis told a legislative panel studying the state’s mortgage problems that it’s “a great fallacy” to have doubts about another economic boom in the state.
With $36 billion in megaresort construction in Las Vegas in the next few years, Aguero said the people holding jobs created by the building activity will buy up homes now on the market and probably need more.
“You won’t have enough housing stock for all the jobs in the near-term pipeline,” Aguero said later. “How many markets can you point to with a $36 billion investment in their core industry alone that have long-term housing problems? Very, very few.”
While a turnaround is on the horizon, Aguero and other economists and experts told the legislators that Nevada’s problems related to foreclosures and overbuilding are likely to get worse during 2008.
Douglas Duncan, chief economist for the Mortgage Bankers Association, predicted that the problems with Nevada’s foreclosure rate and other housing industry woes won’t bottom out until late October in 2008.
Reports have showed that about 40 percent of the foreclosures in Southern Nevada have been on owner-occupied units while the rest have been on homes or condos owned mainly by investors.
RE: “I haven’t seen anything close to 2003 levels in my neighborhood”
I have a friend with eyesight like that.
Jeremy Aguero owns a business called Applied Analysis. Applied Analysis is on retainer to the Southern Nevada Homebuilders Association. He gets paid to do “research” that shows that the housing market is strong, now, and will be forever.
Need we know any more?
I agree with RI about the listings status.
2020 Hunter Lake drive mls#70022962 was just mls#70020538. They should at least change the picture of the house so that it’s not an instant tip off.
I also agree about the pricing. In my opinion everything that is on the market for 2007 pricing is not really on the market. If I try to sell my 10 year old TV for $1000 on Craigslist is it really for sale? I know that technically it is but we all know that it’s not. I’d argue only about 3% of the MLS is really for sale, the other 97% is just taking up space.
Bailey & Dutton is still asking 2007 pricing for their Laurel Ridge development. The same for Lakemont at Canyon Pines and Granite Ridge.
When you see a listing that is priced what looks to be right it either sells quick or is a dump.
Typical house selling for 2003 prices, 5 minutes drive from Meadowood Mall.
4721 Mountain Quail
Reno NV 89502
4721 mountain quail reno nv.. .
Am I missing something here? This house was bought in 2002 for about 170k.
It recently sold for 255k. How exactly is this typical 2003 pricing?
I realize there was a run up in prices from 2002 - 2003, however it wasn’t 50% in 1 year.. Maybe im not seeing the same thing you are smart money..
perhaps you could explain why you consider this 2003 pricing?
The recent sale for $255K was not a sale. That was the bank buying back the house (foreclosure). The house is currently listed for $237K for many months, still no sale. These houses were selling for $350K in 2005. $210-$230K reflect 2003 prices. What do you think it will finally sell for?
Ahh I see smart money I didn’t realize it was a foreclosure. more than likely it will sell in the 2003 range give or take..
btw, I made a nice profit shorting homebuilders stocks a few months back, what do you think about buying up some of the mortgage industry players? Heres a few I see as good plays based off intrinsic value:
(ticker symbols)
ORI
PMI (8%) exposure to arm’s .. freezing the arm’s cant hurt:)
I know I will get a rash of s*it for mentioning stocks on here again, but as you probably know these companies valuations are a direct result of the housing market as we know it.
ps. my 700 share buy order was filled for ORI @ 14.90 (keeping some powder dry for a sympathy downtrade
4721 Mountain Quail is in Heron’s Landing, a subdivision in big hurt right now. If it was bought for about $170 in 2002, it represents a low end unit price in the development. For argument, here is the sales record for Heron’s (data from the Assessor, who excludes TDs):
2003 25 Sales
Av $221, Low $181, High $245
2004 32 Sales
Av $259, Low $190, High $375
2005 19 Sales
Av $320, Low $261, High $425
2006 8 Sales
Av $331, Low $285, High $375
2007 6 Sales
Av $279, Low $237, High $321
Given that 4721 has always been the bottom of the barrel, can I make the argument that the listing price of $337 (not showing up on the MSL by the way) is a 2003 roll-back? Nah, mid to late 2004.
Derrick AGAIN proclaims, he “made a nice profit shorting homebuilders stocks a few months back” and then asks someone who is NOT rich [”I’ll take investment advice from you when you’re rich” (i.e., a net worth of at least $5M)] “what…[they] think about buying up some of the mortgage industry players?”
Let’s have a truce Derrick. This is a real estate blog. Some of us don’t give a damn about your stocks, nor your self-described personal property investing acumen. We’re here because of real estate; not real estate “sensitive” stocks.
So how about you don’t mention stocks on this blog nor how good you are at picking them, and I won’t dis you nor your investment vehicles?
That way we can all get back to what this blog is supposed to be about.
So what do you say Derrick?
Actually smarten following “real estate sensitive stocks” is also a good way of knowing or seeing a credit crisis recovery.. which in turn could also help foresee a housing or real estate recovery.
so as you may think they have nothing to do with this blog, its quite the opposite. they have Everything to do with this blog.. it is a REAL ESTATE blog after all isn’t it?
It would only make sense that everything being discussed entails RE , ie: homebuilder sales,profits, forecasts, the mortgage industry,improving or declining market fundamentals..
These are all major market forces that will play a major role if and then the housing recovery starts to take hold..
you are more than likely correct GreenNV.. It is closer to 2004 pricing, however like smart money noted.. What do you think the house is actually going to sell for?
I would be willing to bet that after all the negotiations, sellers paying closing costs, and more I’m sure.. the final sale price will be closer to 2003 levels..
I do agree with your post though
Anyone else get invited to the Chase Holiday happening on the 12th, 4-7 at the Damonte office? Derrick, grab your dress flip flips. Smarten, your latest power tie.
Seriously, is it too much to ask that stock market replies stay on the entries where they started?
Did you see Hillary Clinton’s plan today to help with the Mortgage Crisis? It involves freezing foreclosures for 90 days, and freezing ARMs for 5 years to allow people time to switch to more stable mortgages, or get out gracefully. According to a report I saw, you have to be able to prove you can make payments and you must be living in the home you plan on receiving the rate freeze for. Do you think this will help? Hurt? Be devastating? Not make a difference? Seriously Damage? Or will it just drag out the time it will take for us to reach ‘the bottom?’
So let me see if I understand this correctly. Derrick states, “following ‘real estate sensitive stocks’ is…a good way of knowing or seeing a credit crisis RECOVERY..which in turn could also help foresee a housing or real estate RECOVERY.”
He also states that although “he made a nice profit shorting [i.e., selling] homebuilders stocks a few months back,” he’s now “buying up…mortgage industry players” because he feels they’re “good plays based off intrinsic value” and as such, point to “a housing or real estate RECOVERY.”
Mr. Murray was the first on this blog to pick-up on this trend; something I subsequently referred to as the Diane Cohn blog consumer confidence index. I then threw out for consideration whether we’re really more than 8-12 months away from the Reno SFR bottom?
Not that I would take much stock in anything Derrick has to say about real estate, to me his latest comments are evidence that at the very least, he has turned the corner and now believes the Reno SFR market bottom is within eyesight.
That now makes Mr. Murray, myself and Derrick versus the rest of you. And for those who speculate we’re years away and ask for any evidence that we’re not, I ask you to point to the same kind of evidence in support of your views. Sure you can point to a number of factors that exist TODAY. But what relevance does this have to factors some 8-12 months from now? Other than median pricing, do you really think things [like DOMs, sales/listings, NODs, etc.] can get much worse than they are now?
Barring something catastrophic, I say that in March or April of 2009 we may very well be able to look backwards and point to December 2008 or thereabouts as being the Reno SFR bottom. And when you ask me upon what facts I rely, I say Derrick!
http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html
GreenNV,
The asking price on the house at Herons Landing is $237K not 337K. That puts it at 2003 prices, not 2004. And again, what will it sell for?
Well, Bush laid out his plan to stem the subprime crisis and it’s pretty laughable. First the loan start date has to be between 2005 and July of this year, It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months, It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates, Borrowers who can’t afford the loan even at low introductory rates also will be ineligible. Of the perhaps 2 million subprime ARMS that are expected to reset through the end of 2009, only 240,000 will be eligible. If one truly believes these people should get some help out of their holes, doesn’t this sound like it would only help the 240,000 most stable people who aren’t already in trouble? How is this ‘bail out’ going to help our economy? I don’t see how.
While its not exactly a bailout for the current economy of housing, it is at least a step in the right direction. I think personally the government should of been doing this about 6 months ago.. but thats just my opinion.
Ps. PMI + 12.5%
ORI + 5%
Mike van H Why should investors and flippers be bailed out anyways? they were dumb enough to get loans they KNEW they couldn’t afford just because they wanted to flip the house and make a quick buck..
Does the government bail out people that invest and lose in the stock market? Nope.. This is no different, these people don’t deserved to be bailed out.. they deserve what they get.
However the responsible people with good credit are a different story.. the same people that have been up to date on their payments and are quality borrowers who were simply tricked or fooled into a teaser rate. These people however are MUCH more deserving of ANY help than the flippers ..
Derrick, you state “real estate sensitive stock[s]…have everything to do with this blog [because they’re]…a good way of knowing or seeing a credit crisis recovery.. which in turn c[an]…help foresee a housing or real estate recovery.”
Then you post crap [and yes Derrick, that’s exactly what it is] about how astute you are because PMI [a stock you characterized as “a good play”] and ORI [a stock you bought at $14.90] are up 12.5% and 5%, respectively.
These little tidbits have NOTHING to do with “forecasting the local real estate market” and everything to do with you rubbing your self-heaped praise upon YOURSELF in our faces. Consequently, your comments really have NOTHING to do with this blog and as such, engender flaming. Can’t you see the difference?
So STOP it already! Are you so insecure you must prove your self-worth to a bunch of cyberspace strangers who could care less? Save it for your wife or this blogger’s kid gloves come off.
I suggest you apologize; represent you won’t make this mistake again; and I’m sure we’ll extend you a second chance.
RE: “However the responsible people with good credit are a different story.”
Anyone who overextended was irresponsible. Period. End of story.
Yes, it really IS that simple.
Plenty of us acted responsibly by showing RESTRAINT and now our reward is that we get to bail out the reckless.
Wonderful.
Well I agree, I don’t think anyone should be bailed out for making a bad decision necessarily…..I guess my point is why go through all the trouble and tax dollars bailing people out if it’s only going to help MAYBE 240,000 out of 2+ million.
The comment I just posted didn’t seem to get through, so I apologize if this is a duplicate.
I agree with Mike Van H. that the current rescue plan is nothing more than a photo op for Bush, but no tax dollars are involved in this particular plan, right?
Hey Ann sometimes I forget that people’s names in Posted by: on this blog actually go to blogs. I clicked on your name by accident and really dig your blog! I’m gonna go check out Davidson’s Tea now.
RE: “but no tax dollars are involved in this particular plan, right?”
Sect. Paulson wants state and local governments to issue bonds to pay for the freeze.
Not only will the taxpayers in those cities, towns and states pay for the freeze, they’ll pay INTEREST on that money.
Mike Van H., thanks for the praise and the plug! I’m trying to build readership. I’ve been visiting your blog, too. Hope you liked Davidson’s.
Mike Z., looks like I need to look a little deeper. It’s just that the more I learn the madder I get and tune out.