Last week the Telegraph UK ran an article about the Royal Bank of Scotland’s recent red-alert to investors on the state of global credit. They are predicting a full-scale stock and credit meltdown as central banks worldwide are paralyzed by inflation. I know to some this may sound extreme, but the article make some good points, and the comment stream that follows is pretty insightful. I’m curious to know what you guys think about the current state of affairs. (And yes, you can talk about oil.)
Noah Rosenblatt over at Urban Digs, who watches Wall Street like a hawk on behalf of Manhattan real estate, is also seeing signs of deterioration.
Even ritzy Aspen, Colorado, has begun to feel the pain (minus the $36 million sale to the Russian oil tycoon, of course).
The State of the Nation’s Housing Market 2008, courtesy of the Joint Center for Housing Studies at Harvard University. The summary in a recent California Association of Realtors newsletter, courtesy of my good buddy Jeff Brown, summarizes as follows:
"HOUSING DOWNTURN SLOW TO REVERSE, BUT DEMAND EXPECTED TO CLIMB OVER NEXT DECADE. Record numbers of foreclosures, coupled with tighter lending practices, will make it more difficult for the country to recover from the current housing slowdown, but immigration growth is expected to create a demand for more homes over the next decade, according to a new study released Monday by the Joint Center for Housing Studies at Harvard University."
American Express says late payments on credit cards are on the rise (thanks, RI).
78 comments
Begging people to get on the soap box huh? Well OK then.
Most of our recent economic expansion has been as a result of a growth in credit, mostly directed at housing, but also other areas.
In the mean time in other sectors we’ve shipped economic production elsewhere without really replacing it.
Because our most recent expansion has yet to be paid for, and nothing on the horizon indicates that it will be, all of that perceive growth in wealth is likely to disappear.
It’s like maxing out your credit card after you lost your job. Eventually it catches up with you, and when it does you either get a job that can help you pay for it all quickly, or you default and loose everything.
So again, IMHO, It’s big.
We are in a full scale global economic meltdown. The greater depression scenario for the United States seems almost unavoidable at this point. Our standard of living is eroding at a rate which is alarming. Here’s a story (investigated by UK reporters) about ordinary middle class Americans who, as a result of poor housing choices and bad luck, find themselves homeless and living in their cars.
http://www.guardian.co.uk/world/2008/jun/25/usa.subprimecrisis
Funny you should mention oil. It seems as if the stucco oracle has gone into hiding yet again as another of his “predictions” has gone terribly awry. Apparently he forgot the mantra “the market can stay irrational longer than you can stay solvent”. I’m in agreement that oil will fall dramatically, but I couldn’t tell you when and what the peak price per barrel will be. Housing took longer to crack than I thought, and oil is no different.
This is why I am seriously reconsidering my intent to move into the Montage later this year. I currently have a house paid for. Do I really want to move into the Montage and take on a new mortgage when (1) my business is slowing down and (2) the value of my current house is deteriorating daily?
Add to this equation are (1) interest rates are slowly going up (what is affordable at 5.625% becomes harder at 6.5-7%), and (2) I know that the monthly condo fees will go up.
A long time ago, I learned it was better to cut your losses earlier than later. Is it better to walk away and lose my 10% deposit or risk living in a semi-empty condo during an economic meltdown.
Heck if I know.
SJ
Diane,
That article is spot on (to coin a British phrase). Getting defensive with portfolio selections is the only logical course right now.
Another thing that isn’t mentioned in the article, but is looming in the background, is the rising cost of food for the entire world, not just the U.S. For example, in the U.S., the average American spends only about 10% of his/her disposable income on food. By contrast, Brazilians pay 20%, Chinese pay 30%, and Kenyans pay 65% of their income just for food!
A lack of food begets an angry populace. An angry populace promotes instability, which provokes violence.
Civil unrest may increase if food prices remain high. And with the spike in commodity costs (oil, chemical fertilizer) food costs worldwide may stay high for years.
The U.S. is the largest food producer in the world, yet we’ve diverted 20% of corn production for ethanol, not feed. It’s now widely assumed that the ethanol ‘experiment’ has been an abject failure, as far as weaning Americans away from fossil fuel consumption.
What’s needed is to increase the supply of grain products to less developed countries, either through direct gifts or grants, so that food prices for the poorest nations can decrease to the point where citizens aren’t faced with starvation because of higher costs.
Well, this thread ought to bring out the prognosticators! I’ll try to be both brief and tedious.
IndyMac Bank’s stock is trading around .84 cents a share. A few years ago, they couldn’t get the Alt-A’s written up fast enough!! .84 cents a share??!!
We have friends in the U.K. and very little to be happy about in that part of the world.
The sky isn’t falling, but we may have to take cover for awhile. When families start making decisions to put gas in the car or food on table, who cares about making a
payment on their upside down mortgage or buying a McMansion?
ps: Diane, I think you receive large responses to your posts for a number of reasons; One being you integrate life, finances & economy existing beyond Reno city limits. Anyone who believes their lives are insulated from Global markets is naive.
NAS, those choices are already turning up, but not quite at the food-or-gas level yet.
In visiting our local county animal shelter, hoping to replace our Lab who died at age 15, we noticed a great number of owner-surrender tags on kennel doors. In inquiring of the staff, we were told that those owners repeatedly had the same reason: “Our gasoline costs are so high now that we don’t have money left for pet food.”
Knowing that it may take $35 a month to feed a large dog, that shows how closely some families have budgeted their spendable funds. Eating out, going to the amusement park, other discretionary spending will also fall into the same choice dilemma. This creates downward pressure on those businesses, in turn.
Giving up the family dog to pay for gas– that is a sad commentary on the state of our economy.
To NAS,
Good points about how intertwined we are with what happens in NY, LA, London, Shanghai, Dubai and Sao Paulo.
As far as the credit markets, I tend to think that the stigma attached to foreclosures is starting to recede, and people who are faced with either paying their mortgage or their car will opt to let the mortgage go late but keep up the car payments. Same with credit cards.
Unfortunately, the credit card companies are looking at something called ‘universal default.’ If you go delinquent on one credit item, some companies are cutting credit lines back, boosting rates to the default rate, or freezing lines altogether if that information gets reported back to them. Citibank pledged that they wouldn’t do that a year ago, but the company is looking at revoking that pledge.
It’s truly going to continue to be an interesting period in the financial history of the world.
“living in a semi-empty condo in an economic meltdown.”
The downtown condo market is imploding all across the US. People are bailing out of their deposits left and right from Miami to San Diego to Chicago to Portland. New condo towers 10% occupied in LV.
Somehow, is the idea of paying $350,000 for a 700 sq.ft. shoebox in an “urban village” losing its appeal?
But maybe it’s different here in Reno. Maybe everybody wants to live here. In a shoebox in an “urban village” at $500 sq. ft. Reno is special the realtors tell us. Reno is a hidden gem, you know, and they aren’t making any more condo towers.
stjoe, think hard.
If everyone is going to be gloom and doom crybabies then as a country we are in for some very bleak days.
But it hardly has to be that way. Just keep these things in mind and then suck it up and do something:
1. Inflation is really a problem because of oil consumption and medical costs. (Even with medical costs core inflation is moderate to low and wage inflation is non-existent).
2. Our financial problem at the federal level is due to the war in Iraq.
3. The war in Iraq is — as Alan Greespan observed — only about oil.
4. We can dramatically cut oil consumption without breaking a sweat. 2/3 of our oil consumption is for transportation, and most of that is for single cars. Not only are there plug-in hyprids and so forth due in 2010 which will dramatically cut this consumption, but there are technologies available now, like the Paulsen electric car kit, that would dramatically cut consumption for existing vehicles. When you realize that moving consumption from 10mpg to 20mpg cuts ALL consumption in half (you have to eliminate consumption entirely to get the other half), reducing consumption is not that big of a deal.
5. There are no real impediments to stopping our throwing a trillion dollars down the rat hole we call Iraq and using the savings to eliminte the addiction to oil. All we need is a little leadership. Former CIA Director James Woolsey drives a Prius which has a bumper sticker that says “Osama bin Laden hates the driver of this car”. He’s right. And the obverse is that all those F-150’s that you see driving someone to an office job should have a bumper sticker that says “Osama bin Laden loves the driver of this vehicle”. That would be right too because despite the big American flag decal in the window all that guy in the F-150 is doing is sending dollars to Saudi Arabia so they can set up radical Islamic madrassas in Pakistan.
So be patriotic. Dump the gas guzzler or figure out how to double its mileage. If you can’t afford it, demand the federal government get serious about promoting oil independence with subsidies and the removal of the goofy import tax on viable flex-fuels like ethanol from Brazil (GM cars can handle flex fuels today). Then sit back and let the economy take care of itself.
End Of Rant (Sorry but this entire situation gets my blood boiling).
Don Cooper +1
I’m with you on a lot of that Don Cooper. Personally, I need my truck. If I didn’t, I would get rid of it. To share a little, I’ve already cut my own gasoline consumption by nearly half, saving myself a little money, but there are consequences to that as well. The many day trips I would take each month, which I have now foregone, are breaking the backs of the small businesses I would patronize on those jaunts. I live in a rural area with no public transportation.
Thirty years ago was the right time to get serious about fuel efficiency, and a sound energy policy, but our “fearless leaders” missed the boat. Now it’s time to pay dearly.
We have an extraordinary situation in this country in which the government has failed it’s citizens miserably on more issues than I can even recall at one time. It starts with piss poor trade policies, bogus immigration laws, lax employment verification, and swiss cheese borders which have subsequently outsourced jobs, and driven down wages, effectively squeezing the life out of the middle class.
The rot continues into corrupt campaign finance, which produces lifelong politicians, interested only in themselves and their lobbyists. We end up with bogus tax laws, set up to facilitate poverty amongst the masses, and protect and enhance the lives of the very wealthy. And let’s not forget the crooked banking industry, and the financial sector as a whole, which preys upon the unsuspecting and unsophisticated.
The country needs an overhaul. If I had to pick one spot, it’d be campaign finance reform. We’ve got to break the stranglehold which these career pols, and their masters the lobbyists, have on power.
Where we go from here will depend on how much people want to get involved. It starts with organizing, and pressuring politicians. Good things can happen, but it’s not easy.
The State of the Nation’s Housing Market 2008, courtesy of Harvard University (jchs.harvard.edu)
Diane, that’s not from Harvard University, it’s from Nicholas Retsinas’ Joint Center for Housing Studies.
Check out who runs the show at the JCHS: http://tinyurl.com/5j4s6u
hmm, interesting thread.
the credit “tightening” won’t be felt uniformly:
a) US/UK will suffer the most. do you know anyone who still keep their *liquid* networth in dollar or pound denominated asset?
b) EU will be a wash. they suffer from high energy cost just like us, but EU’s central bank is doing a good job in strengthening their currency thus attracting investment.
c) BRICs are actually suffering from too much credit. recent estimate put the amount of hot money at $1.5T in china alone. more is flowing into B&R as we speak.
d) oil/commodity exporters, well, they’re the creditors.
none of these have much to do housing in general, or housing in reno in particular. do you know anyone who can afford a loan was denied a loan? it’s just that housing is going the way of dot com stocks. been hot, had a bubble, and the real money have moved on.
The greater depression scenario for the United States seems almost unavoidable at this point.
Care to explain why you think so?
Funny you should mention oil. It seems as if the stucco oracle has gone into hiding yet again as another of his “predictions” has gone terribly awry.
LOL.
BB - take a look at the Poulsen Hybrid. It’s intruiging since it’s basically a low cost retrofit for any vehicle using well established technologies. That’s key since doubling the gas mileage of low mileage vehicles saves far more gas than doubling the mileage of high mileage vehicles. (I’d post a link but see below). And yes, I think gas prices have hurt retail. But I think the bigger problem is that they’ve unnerved people.
Diane - I posted a link to the 2008 Joint Center for Housing report last week but it kept disappearing, I’m assuming this means we can’t post links?
In any event, the point I was trying to make when I posted the link was that the Reno area may have a problem with excess inventory but it’s not the same problem that areas like Ohio have. In these areas job losses are cutting demand AND there is overbuilding. Problems in areas like Reno are a whole lot easier to deal with.
Finally, I was wondering if anyone was as surprised by the foreclosure feature on Hotpads.com (thank you Diane for sharing this link) as I am. Sometimes it takes me a while, but I just realized that you can identify foreclosers by simply selecting the “Foreclosure” checkbox, which gives you a visual of where the foreclosures are. Very cool.
I was blown away by how many foreclosures there were in my neighborhood. I had no idea.
disagree on oil falling dramatically.
I mean at worst I think we see $100 a barrel again, but taking a look at the price action of oil vs other markets (now and historically), and you’ll see what a strong trend is in place.
It is the strongest current market out there.
The dollar sucks, bonds suck as they are practically done or should be raising rates, stocks suck due to the financial/credit/housing and inflation worries, you can only put so much into grain and livestock futures….
If there’s any global turmoil/wars/etc oil will shoot up overnight. Peace doesn’t exactly take place on a dime…
So where would you put your $$?
Yep, oil.
I was wondering if any you regular posters would like to offer/share your advice on a few listings that my wife and I have been looking at? We have already been inside these homes, so we have a pretty good idea and what we like and dislike..
Heres the list:
#80006833- No interior photos online, but this house is highly upgraded.. with a fabulous view overlooking the golf course. priced at 379k (120/sqft) problem is, 2 banks are selling this house! I’m thinking it would only be a headache to even pursue..
#80009228- this house is right down the road from the last house, priced at 350k (130/sqft). The reason we like this place is because it a private seller, therefore we feel would be MUCH easier to get a deal done and at a decent price. This house however does not have the great views of the golf course! Great floor plan though with a casita guest house thats not attached.
there a few others, but I was wondering what you guys think is the better option.
Now for a real estate question:
With all that is about to and currently going down in our world, would any of you buy a primary residence now?? (Assuming you have good credit, could qualify and afford the loan)
Some of the good SW neighborhoods are down to less than $250/sq ft for customs and low 200’s for semi-custom. The good houses still move quickly in the SW and the foreclosures/short sales are not that great anyway. For example:
Taos Ranch Ct, 5000+sq ft, 3 level with pool but they forget to mention the pool leaked and flooded the whole bottom level.
Quail Springs in Saddlehorn-very poor floor plan and very dark.
Cedar Trace Ct:strange floor plan, house not placed well on lot
Just need some sound advice from some of you experts! Aprreciate the help!
First time buyer:
—–
but they forget to mention the pool leaked and flooded the whole bottom level.
—–
Walk away as fast as you can. If they misled you about this, think of what else they are hiding.
I have a general rule: never do business with a gonif. And if you do, don’t be surprised when they screw you.
SJ
what is a gonif??
we did walk right away from that!
200-250/sqft? thats rediculous… !
Especially when you can buy a beautiful 3000 sqft+ home over looking the golfcourse in wingfield springs for 120/sq/ft or 350k
a gonif is sharp operator who works on the border of illegality or impropriety without exactly crossing the line.
When you knowingly do business with a gonif you have no one to blame except yourself when you get screwed.
SJ
would any of you buy a primary residence now??
In this town, right now? No. Maybe next year. Even if Nevada wasn’t officially in a recession, prices are trending only one way: downward.
No falling knives for me, thank you.
StJoe56-thanks for the info
Mike Z:even if you found a house you love and plan to stay in for the next 5-10 years??? not to mention the tax break compared to throwing rent away each month
No offense Derrick but I really like the SW, for us it’s convenient, schools are good, Mt Rose is close and most of our friends live around here.
first time buyer: I’d *ONLY* buy a house right now if I got a significant discount to the current ‘market’ value (not just the asking price) and I knew that 100% for sure, with out a doubt, I’d be living there for at least 10 years.
The repricing of credit is going to take a while, not to mention it will also take a while to restore the psychology towards owning a house. I haven’t even begun to mention how long or when the economy may stabilize / improve.
Over the summer, since it historically is the best time of the year to sell a house, you may see a blip or 2 upwards that will get spun as a ‘housing bottom.’ There’s just far too many cheerleaders out there.
I personally would wait at least a year and reassess, if nothing else.
what would you say is the current market value of Arrowcreek? again, this is a house that would be around 225/sq ft and it would be a home for us for 5+ years
what is prices are lower but interest rates are back above 10% in 1 or more years??
first time buyer:
First, et’s clear up the misconception that renting is “throwing money away”. Everybody needs shelter, and that’s precisely what renting provides. Furthermore, unless you are paying cash, you are “renting” money from the bank. Yes, there can be tax advantages, but only when houses are priced correctly. The rent:buy equation is so whacked that you are essentially “throwing money away” buying, not even taking into account what you will lose as prices continue to deteriorate.
While everybody waiting on the sidelines should applaud those who are buying now and taking one for the team, it’s astonishing that these buyers do so in the face of such steep declines in home prices. One literally save thousands per month by waiting. What the rush is, I haven’t the faintest.
MikeZ. To answer your question regarding the greater depression scenario, it comes down to jobs. I have lost faith in the ability of this country to create new, well-paying jobs in the short term. Things are so jacked up, I’m afraid it’s going to be years before they’re straightened out. If you pay attention to the news, which I’m sure you do (and no, not that local or national TV garbage), the numbers of people losing employment are staggering. Each and every week, tens of thousand of cuts are being announced, and mostly of the well paying variety. Where are all these people going to work? It’s getting ugly out there.
Dave, there was no greater “pricing action” or “trend” than in Reno real estate in 2005. Just as housing prices have a fundimental intrinsic value (based on rents), so to do other asset classes and commodities.
Previous performance statistics might be a good way to bet on college football, but a terrible way to value assets and commodities. Television shows like “Fast Money” with the middle-aged armchair quarter-backing financial pundits and gyrating backround graphics are entertaining for the masses and generate ratings for CNBC, but they create destructive pools of misplaced speculation and mania. The “Fast Money” set are tireless cheerleaders for oil speculation based on previous price trends.
In any event, oil one year ago was less than half of today’s valuation. It was well known last year that India and China were rising economic powers, and that the US could potentially go to war against Iran. The only fundamental supply / demand factors to have changed in the past year are(except for a 10% dollar devaluation) negative for oil fundamentals. EG 1) Domestic demand is cratering due to high fuel prices, airlines are cancelling flights, businesses are reducing deliveries. Consumers in rural and suburban areas are eliminating extra driving while urban residents are ditching their cars en mass for public transpotation.
2) The slowdown or recession in the US will soon be felt in India and China, reducing output and energy demand(or at a minimum, reducing the rate of growth) in those countries.
3) Drilling for oil off the California coast and in ANWAR, once a political impossibility, may happen as voters revolt against high fuel prices.
Oil prices will collapse, just as they did in the early 1980’s, as speculators realize that prices have rocketed far beyond the sustainable demand-based market value.
BB-what if interest rates climb above 10%, I know some people that bought back when rates were 17% yet prices were down, what’s better??
Again, I’m looking for a home not an investment that I can flip n a few years.
what is a fair price for SW-Saddlehorn, Arrowcreek area???
First time buyer…waiting…
Why do you care what’s TODAY’s fair price to purchase a Saddlehorn or Arrowcreek SFR when:
1. The vast majority of today’s listings are unfairly priced compared to mid-2005 pricing and what’s going on in the rest of Reno/Sparks; and,
2. Based upon growing inventory, future sales prices are destined to decrease?
Based upon today’s marketplace I would suggest you ask what will be a fair price 8-12 months from now?
When you can rent your Saddlehorn or Arrowhead home for 30%-40% of the comparable cost to own; and prices are destined to fall; why would you buy? If you rent, you will: become more integrated within the community in which you intend to make your semi-permanent home; be primed to monitor every new listing and sale, up close and personable; become your own expert in answering the question you pose; and when it appears, you will be able to move on a moment’s notice.
In the meantime look at all the thousands of dollars you’ll save; and, spend the time pre-qualifying for that purchase money loan you’ll need when the time is right.
And as BB states, renting is not “throwing away money” when:
1. It costs so much less to rent versus own; and,
2. Purchase prices are falling or remaining stagnant?
Go to craigslist and look. Today there are 35 Arrowcreek rental listings [and most are offered for less than $2,500/month]. Good luck!
Last summer we had to work hard to find a house to rent in Arrowcreek and I almost lost the house to three others that were willing to pay more! Now there are so many houses for rent in Arrowcreek, I’m thinking the sellers who think if I can’t sell at the price I want, I will just rent the house, are going to need to rethink that decision. First time buyer–I am in the same situation, we could buy a house now, but are so afraid we will be able to get a better house for the same amount of money next fall that we are waiting it out, UNLESS we find a good deal. I ask myself if it was a good deal in 2003, then it is probably a good deal today. I try to erase 04-06 when the houses peaked. As far as interest rates are concerned–historically when interest rates rise, housing prices decline and become more affordable. Just two cents from someone who has been watching this market for longer than I’ve wanted too.
First Time Buyer–in addition, as far as individual neighborhoods are concerned–I’ve watched Caughlin Ranch take a hit, now Saddlehorn, and do I think Arrowcreek and Montreux are going to follow? Definitely yes! That is a guess because I haven’t seen high end budge that much, but the sellers have the resources to “hold out” longer. I’ve never watched houses sit quite so long. Good luck and I’ll see you at the Arrowcreek pool with the rest of the renters!
Whether to buy or rent should usually be based on personal factors not investment strategies. Houses are more like cars in that while they are assets you use them every day. So keep in mind that first and foremost a house is a place to live.
The rent versus buy decision is of course a valid one. But when looking at Hotpads.com the rent/buy ratio for Old Southwest is between 10-12. That’s a very reasonable ratio and suggests buying would be appropriate. I’m not from Reno so I may be looking at the wrong area, or the Hotpads info may be wrong, but run the numbers yourself and see what you think the ratio is.
Finally, your question about interest rates is interesting. Yes house prices go down when rates go up, but that hardly ends the matter. How that affects you depends on your time horizon. If you expect to stay in the house for ten years or so, and you expect interest rates to go up, then a good strategy would be to buy and lock in a low term rate. You’ll be locking in low cost money, and higher interest rates means there is an expectation of higher inflation which, among other things, means higher nominal house prices in the future. (At one point my parents had a 3.5% mortgage and a money market was paying 10% — that’s quite a float).
If you wait for higher interest rates the savings on the house price ends up going to pay higher interest rates (if you can pay cash the analysis is no different since you end up foregoing the higher returns).
Of course timing is important. But the reality is that it’s very hard to call a bottom, and buying on the way down or on the way up is the same.
With all that hot air, the bottom line is that my advice would be to look at the rent/buy ratio where you want to buy. If they look good, buy. If they don’t, don’t. (In looking at Reno there seem to be some very large variaions).
future buyer:I have not seen Saddlehorn take that much of a hit. Friends of mine were price out of a house that sold for 1.3+, the foreclosures are awful. The few OK priced homes are “self-declared architects” or outdated. The homes along Mt. Rose HWY are still over-priced. What does Saddlehorn offer? Yes, it’s a lovely neighborhood with beautiful homes.
Yet for basically the same HOA, Arrowcreek has the resident’s center that will be greatly improved by the golf-course buy out plan. There will only ever be 1100 homesites, no more semi-customs are planned. A great school is outside the gates as well as a future fire station.
Galena/St James are quite an investment with the rising propane and gas prices, adding hundreds to monthly costs just for living there. Not to mention the fire danger. The older homes are still over-priced and great need of costly up-grades.
don-thanks for the advice, yes this will be our home for quite some time. My parents still live in the same home I grew up in and I hope to give my children that same sense of security.
The area I’m talking about is Southwest Reno not old SW. I will check out Hotpads, thanks.
Thanks to all for the advice, it’s a very hard and scarey decision during these times! I really appreciate experienced advice you all have to offer. We are a hard-working family and don’t want to make any major mistakes.
We already “saved” our money from the falling stock market managing to come out ahead but now where with the money??..
So, what’t a good price per square foot for a 1,300 to 1,600 sf home with a view in Somersett? I’m thinking of the $250K to $275K range. Do you think sellers will come down to this range or sit on the property hoping for better times or an unsuspecting buyer?
Thanks for your advice,
Ed
Z:even if you found a house you love and plan to stay in for the next 5-10 years???
Five to ten years out? I have no idea where I’ll be then.
I was fat, dumb and happy in New England in ‘02, having lived there my entire life, convinced I would be there for the rest of my life, when my job suddenly went away.
12 mos later, I was in Reno. Surprise!
not to mention the tax break compared to throwing rent away each month
We view rent very differently.
Mike Z- sorry about your job in New England! I can’t imagine you were ever dumb.
I can’t fine a rent/buy ratio for SW more tuned into Arrowcrrek/Saddlehorn on hotpads, maybe someone else has a better idea?
Can you explain why you view renting differently??
I feel our jobs are quite stable and I chose to move here, so I hope that helps somewhat…but you are right, you never know.
First Time Buyer–It is hard to track house values right now because zillow is still using comparables based on 07 prices. I’ve seen Saddlehorn “asking” prices decline, but I’m not looking there. There is no question that Caughlin Ranch has taken a huge hit on zillow–but that might change with gas prices high and the proximity to downtown. I track prices by what has sold versus what zillow says they are worth. Most of the Arrowcreek sold homes have been way below what zillow says they are worth and have not posted yet. There have been some houses at 3100 sq.ft. in Arrowcreek zillowed at over 750k selling for under well under 600k. It is a personal decision to buy vs. rent, but it was the best financial decision we ever made NOT to buy a house when we moved here last year and houses are selling at the same rate this year. I realize most realtors say Zillow is not the “end all”, but it’s all I’ve got, and has been an immense help! In any case–housing prices are not going up. You said previously that you are buying a home to stay for a long time, which makes a big difference. Sounds like you want to buy, so don’t second guess yourself and do what is best for your family. The “selling season” is coming to an end and I think sellers will be more likely to deal in September than May. Good Luck!
EdBear; You can find these houses right now for the price range you’re looking at. Views are not city lights, more of the mountain type.
Mostly in the Del Webb community.
Future buyer: thanks for the reply. Regarding those houses in Arrowcreek : were they semi-cusotms, like Desatoya or Granite pointe?
An interesting website that we all have access to is the Washoe County Assessor/ property appraisal. It tells you the history of the property, the quality, floor plans, etc. look under parcel summary to find all that.
Again, a lot of the 1+million $ custom homes are over-priced and need to come down but there are some decent deals to be had now. remember if you are financing, rates may go up.
First Time Buyer–I will give you some specific examples of why I think Arrowcreek will be taking a hit on Zillow once the data catches up–
I already contracted new construction this year. I *could* still walk away before closing and lose my earnest money deposit, but I’ll tell you why I won’t:
1. We love Reno, and we’re not moving away unless something disasterous happens. Family is retiring out here. And I know some of you will chuckle, but it is the best place to ride out an economic downturn we found so far! Forget it if you are in LA, NYC, Chicago, or SF. We’ve done that before, and it left scars. You couldn’t pay us to go through that again. Our other options after escaping the Bay Area were Idaho, Colorado, or Texas.
2. We bought one of the last lots in the subdivision. It is completely built out, no empty dirt lots like most of the recent construction in Reno. One of the best elementary schools in the state. FIFTEEN MINUTE COMMUTE TO WORK!! (This is coming from someone who had to commute at least 1hr in either direction for 10 yrs). If we passed this opportunity up, we’d have to wait at least 2 years to get a similar opportunity, and I have no idea if interest rates will remain as low as they are now.
3. The price we paid was one we could more than afford with traditional financing, and we couldn’t find anything resale or foreclosure that compared to the amount we were paying in terms of views, no rear neighbors, square footage, and floorplan. For personal economic disaster protection, we made sure we could afford to rent it out at a declining market rate without too much loss. Because the cost of construction labor went down, we got some construction options at half the price they were six months ago.
4. We’ve rented for approximately 10 years, waiting for the RE bubble to pop. Renting from “unintended landlords” wore us down. They are the worst: completely unprofessional, and treat their rental customers like criminals while we’re paying their mortgage and keeping their house spotless. We’re tired of playing musical chairs with housing, as that is an expense we can never recoup. Some say that is the same with buying our home, but at least I know what my mortgage payment is — and it will be lower than what we’re currently paying for rent.
So, some may laugh at me saying I’m a fool for doing what I’m doing right now, but like other first time homebuyers on this blog, I’m buying a place for my family to live in, not an investment.
As for economic stuff, I always buy when there is panic. And there is a lot of panic in the markets right now.
First Time Buyer–I accidently submitted without the examples–3365 Forest View Lane is zillowed at 762k, but sold last week for asking of 580k, Some REO’s were corner of Copper Cloud and Arrowcreek sold for low 900k and another on Nambe was way below zillow. Also, take a look at 3639 Silver Vista sale pending at an asking price of 775k zillowed over 1m. All the Via Solano’s–check out 10044 Via Solano asking 780k zillowed at 1.043m. The examples go on and on–but if under 800k is your price range there is a lot of downward spiral right now that the news will be reporting in a few months time. You can hear the air deflating from Arrowcreek as I’m writing this–zillow.com just doesn’t know it yet! Thanks for the other website–I will take a look at that too! The over 1m range is taking quite a bit longer to reduce in price, because with nothing selling there are no comparables–that is my frustration though! Hope that helps…
first time buyer, you mentioned the great tax break you get buying versus renting. Have you heard of the alternative minimum tax?
It seems like just about anyone with an income qualifys for it.
By the time you add in repairs, improvements, landscape upkeep, etc. - that tax break should not be the reason, or even near the top of the list of reasons for buying a house.
Sully — the AMT doesn’t impact a first mortgage. (Perhaps you’re thinking about a second or refi that is used for other purposes?). Also if Obama is elected, which seems just about certain, the AMT will probably die in its current form.
On the other hand questioning the value of a tax break is valid. If you have the money it just isn’t much of a break unless you have a better investment. For example, say you have $200,000 in the bank and can buy a house for #200,000. Let’s also say the loan rate and a guaranteed investment both are at 6%. If you take a loan for the $200,000 you get a tax deduction of $12,000 BUT you also have income of $12,000. You add in the $12,000 income on Schedule B and deduct the $12,000 interest payments on Schedule A. This nets to zero. Compared to buying the house it’s a wash from the tax perspective since if you just bought the house you’d have no income. In this case you’d end up at the same point but would avoid all that adding and deducting.
Future buyer-I know a granite pointe sold at asking around 900.
A Chantelaine/cour st michelle just sold for over a million
Indian summer sold in the mid 800’s
I’ve been in a lot of the house you mentioned and disagreed with the Zillow prices anyway for various reasons.
Forrest View is on Arrowcreek Parkway-no thanks
Silver vista is in a ditch
copper cloud was awful-no yard, awful interior
Are the Via Solano houses the Bella Terra ones that you have to up[grade to finish??? If so, that’s a base price for no land, very close neighbors.
Nambe-didn’t check out yet
They are selling expensive homes and will continue to do so as long as people pay. I would not but there apparently are people who will.
Nottingham Ct=asking 1.05mill, sold 1 million CASH
Another St James sold for 2 million-CASH
I also remember at least 3 cycles in So Cal, when my parents home was worth over 1 million-wow!! that 1954, 2500sq ft, 10,000 sq ft lot they bought for less than 50,000 in 1972. They also are under prop 13! So, this is just a cycle, how long things will down?? I don’t know..I know we have horrible years behind us and ahead of us but I don’t think the United States of America is doomed forever, we have bounced back before. That’s why people still come to this country.
Sully-thanks for the info, I will check that out!
My dad always said that our house is like painting the Golden Gate Bridge, “you get to one end then have to start at the other again”, but it was my home and great memories were made there in good times and bad.
For those of you are are “certain” you will be in your house for “at least 5-10 years”, I suggest you contact the hostess of this blog, Diane Cohn, and talk to her about that.
Diane is contemplating at least a $100,000 loss on the sale of her Somersett house, probably more, that she was certain she would be in for 5-10 years.
Life is, by definition, uncertain.
And also, for those of you who think that a housing market cannot decline for 10 years straight, think again. I lived in Hawaii in the 1980s and 1990s. I assure you the Oahu market declined for ten straight years. But hey, that was Hawaii. Who wants to live there? I’m sure it’s different here.
thomas v-what else was going on in Hawaii at that time?? I love to visit Hawaii but would never wnat to live there. It’s paradise for a few weeks/maybe months
People are still relocating their businesses here from all over, we have a lot to offer here. I moved from LA and would never go back…crime, pollution, higher taxes, less pay, worsening school systems, traffic, no space. It takes hours to get out of LA to ski, etc. LAX is a nightmare. NO thanks, not worth it.
Don-again thanks for the info
ThomasV: We lived through both the bloodbaths the NY and California housing markets took in the 80s and 90s. The prices always came back up after a crash; just took time. Unless Nevada turns into Michigan, chasing all the businesses away with insane taxes, I don’t see why it wouldn’t come back. I don’t think you’ll see 2005 hysteria again for at least 50 years.
Yes, it could take as long as 10 years for the market to come back. One of the many differences between Diane and us (no offense Diane!!) is that we are NOT buying at the peak of the market… I think we can all agree on that.
We’re buying on a downward trend, which is pretty much the same as buying on an upward trend, as another poster pointed out.
The problem I’m seeing in the financial markets is that interest rates are going to continue to trend upwards long term, so I agree with another poster where it is going to be a wash if we decided to wait. However, the decision to buy now and have less equity when the market comes back in 10 years? No thanks.
Other people can continue to rent for a few more years and try to time a bottom we’re a long way off from seeing, and I wish them the best of luck. We’re financially, mentally, emotionally not ready to continue playing that game any longer, and we’re also prepared in a similar fashion if the house declines in value by 25% in the short term.
But the doomsday scenario is if those houses in Arrowcreek sell for $350k. Owners selling at 75% original purchase price declines? You all really think that is going to happen?
Don, actually I wasn’t trying to compare the deduction amount for the first mortgage, as much as I was trying to say that the AMT reduces your deductions to comical amounts.
And the ongoing expenses, other than property taxes, are not deductible - period. So, by the time the mortgage and property taxes are added, the actual amount you save in taxes are washed by a good extent by ongoing expenses.
Add that to your illustration, and you probably have a net loss. The devil is in the details.
In many ways, American (and some Western European) consumers are overextended, and, like any person who is overextended, they will have to make some hard decisions. I would guess many could greatly reduce their food and gas bills (and others), especially if they opted to reduce their consumption, i.e., their choice to dine out instead of cook in, stop treating shopping as a sport, and carpool. What it requires, and what most of our beloved citizens don’t want, is the self-discipline to make the hard choices. Unfortunately, many people have come to regard many former luxury items as necessities.
Few of our citizens really know what hardship is, and most of those are former citizens of other countries.
I am confident the economy will survive. Take a good look at both sides of what’s going on before declaring doomsday. And always live below your means.
First time buyer–you don’t have to like any of the houses that sold for way below zillow-I didn’t either–but there is no getting around the fact that they ALL have an impact on your future house and it’s value. I would just be careful when buying a new house right now because the entire area is affected by the downturn. I’ve already decided to wait and see where the cards fall. We are also buying our forever house, so we want to get the most house for the money.
First time buyer is probably a troll. He/She is very knowledgable about the market - Arrowcreek in particular - and parroting standard real estate sales scripts. Seriously, which first time buyer is shopping for million dollar house in Arrowcreek?!
MikeZ, thanks for the correction, I’ll make the change.
Don, you should be able to insert links with HTML tags, but I’ll check the spam filter to see if yours maybe ended up there.
Everyone, thank you for your continued input on this thread. This is a great discussion. So if I inherited a chunk of cash tomorrow, I should put it into silver and gold, Canadian Dollars and oil (maybe)?
hmm- a troll? no my dear, we have good jobs and have saved for years. We live within our means and have minimal debt (no credit card debt) I never said we will spend a million (or near that) but I do know people that do and have.
We have been watching (almost)every single house in Arrowcreek, Saddlehorn, St James, Cross Creek and most of Galena for over 1 year. My agent says I know much more about these areas than she does. I also have friends that have bought and sold in these areas over the past 5 years so I know what they went for.
I feel as a buyer these days you HAVE to be very well informed, it’s my money and I have to be sure about what I’m getting for it and where. You also have to have insight into what parts of Reno are going to recover or maintain value and I still strongly believe the SW will do that.
That is also where again I’d like to thank the insightful and helpful comments many of the regulars make! I’ve learned a lot from you and it is very interesting to see your predictions and how everything is unfolding.
I don’t think you are a troll First Time Buyer–I just think you are looking for someone to tell you on this blog that it is a good time to buy and most of us cannot do that. There are plenty of blogs that will tell you what you want to hear. If you are at all worried about losing money on a house now is NOT the time to buy. If it is your house that you will raise your kids in and live in for at least ten years you have nothing to worry about other than maybe getting a better house if prices drop. By all means DO NOT go by what has happened to this market in the last 5 years–that was an anomaly–only look what has happened this past year. I do not believe the Reno job market can support the housing prices as they are now.
Demand for oil will continue to escalate because of the growth of China and other second world contries. Increased demand ensure that oil prices will not fall to any significant degree. To think otherwise would be to ignore the facts. Drilling in ANWAR will have no impact–if they even ever actually drill. Furthermore, look to the current administration and the the misplaced values of the political party that supported them for the wholesale deregulation of the financial industries that operated with near impunity until this crises. This crisis is at least forcing many Americans to look truthfully at what is going on around them and at least think about accountability as a national value.
First Time Buyer - I am curious if you have you been watching Montreux over the past year as closely as the other areas you mention surrounding it. (Excluding, of course, the Renaissance tract subdivision which is now bargain basement with a couple foreclosures) If so, what is your impression? Do you see prices dropping, or is Montruex “special, a hidden gem,” and immune to steep price declines as many have mentioned on this blog. So far, asking prices are not going down much, but not much is selling either this year compared to last, and some houses have been on the market for 2 plus years. Contrary to how the the Kool-aid sipping sales office inside the pearly gates likes to spin things, it would seem a necessary correction could be ahead.
At what price per sq ft. and what point in time going backwards is Montreux a fair deal? 2003 selling prices? Under $300 per sq foot? Or are these prices still too high based on what may happen over the next 12 months? Smarten, any thoughts? I know you have been lurking in Montreux as well. Any one else?
“Demand for oil will continue to escalate because of the growth of China and other second world contries. Increased demand ensure that oil prices will not fall to any significant degree. To think otherwise would be to ignore the facts.”
Interesting Myrna. Question: Why has the price of a barrel of oil risen 97% in one year, when demand has been flat?? Answer me that.
Oil is a bubble, similar to real-estate in ‘05. Sad people on here can’t see that. It won’t turn overnight, but give it six months to a year. If you want to make money, back up the truck in financial stocks, that’s where the big money will be made during the next few years. Buy now while they are depressed and very cheap.
OK, somebody please explain the pricing rationale on 577 Marsh in Old SW Reno (MLS 70014116). Very, very nice place, purchased in 2004 for $400K, listed at $680K. Not sure if the renovations were done this time around or by a previous buyer, but regardless, this price baffles me. Anyone?
Grand Wazoo:
That’s just another fantasy listing that will NEVER sell. When the dust settles, that place will go for $250k, and that’s only because of the neighborhood.
Sully, thanks for your input. Any thoughts of where the prices might go?
Thanks again,
Ed
John, I can’t answer your question re Montreux. But let me give you a similar Washoe County market to compare it to; Incline Village.
We’re now starting to see some very substantial price reductions in Incline. There’s a gorgeous Lake view home that had a $500K price drop last week; down from $2.5M. Two doors down, there was a $200K price drop today [down from $1.795M]. Last February an Incline home we looked at was offered for sale at $1.395M. A month later the price dropped to $1.295M and still no takers. The listing expired and a couple of weeks ago, it resurfaced on the MLS at $995K.
Insofar as the first two examples are concerned, still not enough for me. But give me another $200K price drop, and it will be [see below for the reasons why].
I have the same type of litmus test for Montreux. When we start seeing $250K-$500K price drops, we’ll know we’re on our way. I don’t mean to pick on Guy but he just took a $1.75M listing on Dijon Circle. Although I haven’t seen the inside of the property, when properties like these are offered at $1.3M, they’ll be enough for me.
So for BB’s benefit: you know, your conscious mind knows many things about many subjects. But your sub-conscious mind just knows!
Smarten, the price drops in my area are beginning to hit the higher end. The local paper had an article about this which said the drops had started inland and had migrated to the coast, which is another way of saying lower and higher end homes. So I think you’re probably right on that the price drops are now migrating to the higher end homes in Incline Village.
I notice that there are a couple of listings in my neighborhood at 1.6M. That’s pretty interesting because a few years ago one sold for 1.8M and the neighbors were outraged that someone could have undersold a 2.4M home by so much. Now, if the sales price ends up being 1.4M, that would be pretty fair since I believe the 2000 prices would have been in the 1.2M range.
But I suspect that with oil and food inflation and the horrible consumer confidence numbers we are going to overshoot to the downside. I also think that homes in the 1M-2M range are the most vulnerable. I think, partly because of personal knowledge, of this type of home as being bought by posers who have really stretched themselves. With more time I suspect you’ll see even more carnage in this price range than in other ranges, though the $995K house my be getting there.
The other issue I see is that a lot of these homes are very large, 3000sf - 5000sf, and the shifting tastes are towards much smaller homes. I’ll note that the celebrities are giving up the McMansions for (equally expensive) cottages, people I know who always drove a Mercedes or a BMW are now driving a Prius (and it’s not the cost of gas), and young women say they’re more impressed by men driving electric cars than sportscars. The zeitgeist seems to be changing fairly rapidly.
EdBear - its hard to say. Depends to no small extent on the swarm of earthquakes hitting the area.
Many people, myself included, have aversions to earthquakes. A small one, now and then, is no problem, but having even those coming every 1/2 hour for 3 months running would be enough to run me off. I was on top of a “under construction” overpass when the Loma Prieta hit in 1989, after all that rocking and rolling, I prefer to not be reminded of it.
Then, add the current market conditions, and you might be singing the Limbo Rock.
Here’s a must read:
http://www.lacitybeat.com/cms/story/detail/house_of_cards/7181/
From the article:
“What this adds up to…is that we are actually face to face with the results of the most massive failure of our political and economic system since the Depression. Since Ronald Reagan, we have been living in an era in which neither the meltdown of the savings and loan banks in the 1980s nor the Enron-like scandals of the Bush years has stopped the relentless advancement and protection by both parties of the ability of financial institutions to make a buck at any cost to the social good and economic fabric. Which is what you get, of course, when both parties are so dependent on massive financial contributions to get their candidates into office and when the corporate media, heavy with advertising from the FIRE sector – Finance, Insurance and Real Estate – doesn’t warn the public or investigate the egregious fudging, misrepresentation and outright fraud that underpins the subprime and looming credit card crisis.”
BB; the next article will be the Fed saying they didn’t see this coming. But, then again, we all know the Fed couldn’t see yesterday coming.
Now the credit card industry true reasons for having the bankruptcy laws changed is apparent.
Bantering Bear,
Your question “Why has the price of a barrel of oil risen 97% in one year, when demand has been flat??” can be answered with one word, “depletion.”
Bottom line, the rate of new oil production is not keeping pace with the rate of depletion from the worlds largest oil fields. For example, Indonesia (an OPEC member, is no longer an exporter of oil, but rather an importer).
Last year the UK made the same transition.
Production at Mexico’s largest oil field, Cantarell, is declining at a rate of about 16-20% a year, as is the North Sea oil fields at about 8-16%. The only country in the world projected to be able to increase production to mitigate this rate of depletion is Saudi Arabia, but there are questions as to whether they truely have the capacity.
The current oil price of $140+ is for light sweet crude, which is what the vast majority of refinerys are configured to refine. However, more and more the only crude available is heavy (thick) and heavy sour (high sulfur content), with fewer refinerys capable of refining it and higher refining costs with less refined product.
There is alot more that needs to be said, but would be best learned from a blogging website called theoildrum.com.
IMHO, we are witnessing a historic paradigm shift from cheap abundant energy to ever increasing costs for energy that will impact our standard of living in ways unimaginable only a few years ago.
We are living in interesting times.
JohnHenry:
I’m not sure where you get your information, but I’d have to bet that it’s from a source whose best interests are served by high priced oil. Your information is erroneous. The Wall Street Journal posted an article back in January documenting a study by Cambridge Energy Research Associates which surveyed data from the top 811 oil fields worldwide. What they found was that production from those fields dropped 4.5% for the year, but new oil production more than offset that.
This is the most comprehensive study to date. The whole argument about demand out pacing supply is totally bogus. Oil is in a massive speculative bubble, as is housing. Anyone who can’t see that massive amounts of money are chasing prices higher is wearing rose colored glasses. The inevitable result of this high priced oil is demand destruction which will be followed by a crash in oil prices. Don’t drink the Kool Aid.
The inevitable result of this high priced oil is demand destruction which will be followed by a crash in oil prices.
This is one of the few subjects where we disagree.
Bantering Bear,
I was curious how long it would take for CERA to be cited as a reference since they are the only organization out there stating that the world is awash in oil, that’s of course if you count the oil sands in Canada and the Shale in Colorado which are not viable alternatives given their low Energy Return on Energy Invested ratio and horrendous environmental impact.
If you wish to follow CERA’s analysis, bet the farm and short crude. That’s not to say crude could not experience a 10-20% short-term pullback (as no market’s rise is linear), but the long term trend is definitely up.
I’ve studied the issue sufficiently to feel confident that demand destruction will not be enough to cause a crash in oil prices.
Especially given the fact that one of the main culprits with regards to reduced oil exports is that exporting countries own consumption rates are increasing substantially (due to heavy subsidies, e.g. Venezuelans only pay 12 cents a gallon) while their oil production remains flat.
According to US Department of Energy’s Energy Information Agency, net exports from the world’s 44 exporting countries declined 2.24% from 2005 to 2007. I don’t think DOE is an organization interested in higher oil prices.
By the way, there’s a post on the WSJ’s Environmental Capital blog titled “Peak Oil: IEA Inches Toward the Pessimist Camp” that pretty much reiterates the things I’ve noted.
And for bragging rights I’d bet that oil hits $200 before it hits $100.
And just because someone has a different perspective doesn’t make them a Kool Aid drinker especially when the position your taking may be from Kool Aid that’s a bit more tainted.
JohnHenry,
As far as “bet[ting] the farm and short[ing] crude”, I’m not a gambler so I stay away from the stock market-especially short positions. That’s not to say I won’t buy something here and there to hold long term, but for the most part, forget about it.
I do wonder how you explain away the massive speculation in oil futures in conjunction with the spike in prices. If it quacks like a duck… As for your comment “the long term trend is definitely up”, you could make that case for anything. A very vague statement indeed.
In a world where species of plants and animals routinely go extinct before their “discovery” by us human beings, I find it laughable to suggest that we have found, let alone exhausted, the majority of our petroleum reserves. It’s incredibly naive to say the least. I don’t even believe in “Peak Oil” as it pertains to todays rate of consumption.
As for bragging rights on whether oil goes to $200 a barrel vs. $100 a barrel, I could care less. However, you show me $200 a barrel oil and I’ll show you a country on it’s knees.
Future buyer-thanks for the advice, we opted not to buy the house we made an offer on for quite a few reasons, the inspector found a few broken things that were not in the disclosures that were blatent and I guess the owners hoped would be missed. Gave us a sour taste and made us wonder what else we would discover over time. Everything happens for a reason, right???…. we’ll wait for the “right house” and continue to rent!!
See you at the pool!
John-I do not follow Montreux as closely, it’s beautiful and the houses are built very well but it still is very expensive and I’m not sure it’s the right community for us. We were in 2-3 on delacroix and cartier, the 3 bedroom has a strange floor plan and the 4 bedroom was ok but not for that price.
BB - I’m not big on speculation as the culprit for higher oil prices. This article seems about right to me. Basically inelastic demand in the short term (which means you need big price increases to get small decreases in demand) and an expectation of higher prices in the future keeping oil off the market (maybe that’s speculation of a sort).
http://online.wsj.com/article/SB121486800837317581.html?mod=opinion_main_commentaries
If we get some leasership in Washington on this issue and we start a credible program to drop demand drastically — which is more than possible with cars like the GM VOLT, the Prius, and the Poulsen Hybrid — we’ll change the expectation about the future demand for oil, more oil will be released on the market, and prices will drop.
First Time Buyer–One more thing to consider BEFORE buying in Arrowcreek that you might not know if you aren’t renting here. There is a BIG fight going on between equity golf members and homeowners regarding use of the pool and tennis vs. the golf and I believe they have even tried to block the buyout. I’ve gotten many flyers on my door. You may want to wait until the dust settles on that issue–as if you needed one more reason not to buy quite yet…Good Luck and yes I will see you at the pool.
First Time - you may want to check out this house in Montreux. I think it is bank owned now. I heard it had some poor quality construction issues as did several other Renaissance models from phase 1.
Apparently a wall caved in during a wind storm and part of the roof flew off. Still, a decent price, and could probably be had for much less assuming you get clarity on the quality issues.
$950,000
MLS# 80007363
16820 Delacroix Court