I’m not sure if it’s the holidays or what, but NOD, NOS and TD filings in Washoe County continue to drop. In fact, November’s total for NOD, NOS and TD filings was 1,196. Compare this to the peak total of 2,153 reached in August of this year; we’re now 45% off that number.
Notices of Sale have taken the biggest drop, falling 58% from their August peak. Notices of Default are off 38% from August’s high.
Click on the chart to enlarge.
Thank you to our friends at Ticor Title for this data.
Guy JohnsonA successful prior business owner, Guy brings to the table twenty-plus years of exceeding client expectations. “Listening closely to my clients is the most important step to meeting their needs,” he says. A former Chicagoan, Guy earned his MBA from the University of Illinois.
JoAnn CorrieraJoAnn Corriera is one of Reno’s top-producing real estate agents. She credits her take-charge, pioneering spirit and determination to deliver the positive solutions clients are looking for. JoAnn offers the market expertise and marketing skills that generate top results whether clients are buying or selling.
Mike McGonagleAn architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective. Yet another Chicagoan, Mike earned his MArch from Harvard University.
45 comments
Hmmm. It could be the holidays or it could be the banks are facing more scrutiny over not fixing the issues related to foreclosures, etc. Maybe stuff is just sitting on their books for now?
hmmm…starting to look like a trend here. Not necessarily a bad thing. That said, NODs are still at/above 2008 levels, with Nov 09 higher than Nov 08.
Notices of sale are noteworthy in their drop, back to Jun 08 levels. Moratoria and mortgage mods at work? What happens if/when they fail or go away?
TDs humming along above 200/month since early ‘08. That’s a problem, when you’re only selling 500 homes/month. Lots of distressed properties to lower comps for “organic” sellers.
So, the victim is showing signs of life, but is still in the ICU in very serious condition….
Wouldn’t want to be selling a property into this market, and happy to wait until the spring, earliest.
With the new laws in effect in Calif and Nev, and possibly Ariz and Florida, it doesn’t surprise me there is a fall off in these areas. It would be nice to see it continue to go down, but with over 5 million lost jobs in US and a questionable recovery in progress, I think this will prove to be an aberration.
The chart on timelines that Guy posted shows approx 125 days from NOD to NOS. So where are all the NODs going?
Moratoria and modifications are obviously at work here, as well as zombie banks avoiding ultimate foreclosure to make their books look better than they are.
Unintended consequences? Thousands of underwater, over-levered zombie renter-homeowners squatting in their Reno house. They are unable to move, unable to purchase a newer, pricier home, unable to re-fi. The “move-up” buyer is bordering on extinction. That means that the mid to high end (>$400k) will continue to experience significant price reduction, as their is no demand for the product.
Alternative? The mods fail and the renter-owners default 12 months down the road, giving birth to a brand new, much bigger wave of foreclosures in 2011.
Bottom line, these trends would be good, if they occurred in the absence of monumental govt intervention. What ever happened to allowing the market to dictate price, and allowing failure? Without these two very painful, but important factors you do not have capitalism, you have some bizarre neo-socialist-corporatism.
But let’s forget about that, NODs are trending down. Time to celebrate!
I’m with skeptical on this.
Go back for about 12 months. Take all the NODs. Subtract all the TDs and the cancellations.
There are still about 6,000 NODs unaccounted for.
There are some NODs now that were recorded 18 months ago, and nothing since. No NOS, no cancellation, nothing.
There is a black hole of NODs out there.
Does anybody know: when the lender and the borower reach an agreement on a modification, is the NOD cancelled? Or does it just stay on the record? Even though there is a mod agreement?
Could it be banks figure the easiest way out is to hold all the NOD’s they can collectively keep, with the idea that they’ll ‘let’ them out on the market as prices stabilize or improve?
I’m sorry , that’s rhetorical right?
It’s no secret anymore- the banks, with help from the federal government, are colluding to restrict and manipulate supply in order to try and establish an artificial floor in prices. It can’t work. What they’re doing is creating a FAR more massive problem down the road.
While in town for the holidays, I drove around and located countless foreclosures which are vacant but not listed on the mls. These are homes which are already bank owned, and they sit idle. Some are apparently being cared for, others not. Word is spreading that industry insiders have documentation of a massive effort to distort true inventory numbers. This will take years to play out, and will not end well as far as high prices are concerned.
Prepare for another “nobody saw this coming” event care of corrupt bankers and politicians. These people should be swinging from the gallows. Instead, they continue working against the best interests of the population as a whole.
I’m not a conspiracy theory adherent. Generally, I just don’t think that groups of people have the discipline to keep a secret.
But in this case, I cannot argue with what the Bear is saying. Something fishy is going on. Thousands of NODs have disappeared from the MLS. Mike’s article of a few months back exposed some properties that had an NOD and then sat as is for the next 18 months. Meanwhile, other properties hit the MLS and are instantaneously bought at firesale prices, before anyone has a chance to even make an offer.
Something is rotten.
Hello,
I have heard a theory that I think warrants discussion on BB and Skeptical’s point. I don’t necessarily believe it, but I think it bears mention:
Never mind TARP, the “bailout” is the fed funds rate. Essentially whats happening right now is the fed is printing money like there is no tomorrow so the banks can repair their balance sheets. You don’t need to do much work to look productive when you are borrowing at 0%. If you are aware that the hot money from wall street that funded the bubble is about to be replaced by the hot money from the fed, why would you be in a big hurry to sell those houses at “firesale” prices? You would play along with the delay because, whats the point in unloading now? The bankers are keenly aware that a supply glut will only exacerbate price declines, further damaging their balance sheets. The infamous 30K Caughlin Ranch example and others are aberrations.
Even though the 2011 dollar will not pack the punch that the 2008 dollar did, it doesn’t look like you have taken a loss if you sell for a profit in 2011 dollars. The fact that Bernanke has been so adamant about inflation not being a problem makes me think that a nice spike is right around the corner. Once inflation starts, the fed will not have the ability to put the genie back in the bottle, and we go Wiemar. Health care, artificial wage increases, and other forms of gov intervention also push us in this direction. Summers, Bernanke and crew will do what it takes to beat deflation to avoid the “Japan scenario”, even if it means turning the US into Argentina.
Sound plausible?
What we have at work right now is Keynsian economic policies trying to get us out of a recession, and those keynsian economic policies center around this stimlus program to get the government to spend money, to create jobs. The whole key to this is to get the government to SPEND money.
For those that think we should of just gone with the “classical” economic theory and once we do that and everything will be fine. You gotta be kidding me?
The underlying basis of this is wages have to be flexible and for the longest time we didn’t see any flexibility in wages now that we have industries that are in bad shape, unions, and individuals have been more willing to adjust lower wages and therefore becoming more flexible. further prices have to be flexible. With free market principles operating they WILL be more flexible, but we have unions that try to maintain wages and employment for their employees. When you have large firms controlling the industry prices are not as flexible as they would be in free-markets.
much like the depression of the 30’s the unemployment rate hit 24% and people started to wonder wether or not we had the time to wait for everything to adjust, because nobody knew how long this adjusting could take. those that suggest this is what we should of done remind me of Irving fisher!
personally I am a supporter of keynsian economics. private investment is relatively constant regardless of lower interest rates. it may increase a LITTLE bit, but lower interest rates would NOT have gotten us out of this mess. I believe we have an unstable economy, recessions will ALWAYS happen regardless. you cannot stimulate consumption, because consumption patterns are relatively stable. You can try to lower interest rates to stimulate investment but investment is determined by things other than the interest rate.. foreign trade is basically foreign trade. Stability HAS to come from the government.
It would appear I have lost the original point I intended to make!
Don’t mean to start a new flame but with your permissions, just an observation.
In my experience life swings like a pendulum.
Three years ago, and but for a couple of notable exceptions [BB, RI, Lindsay], this blog was heavily weighted in favor of positive, happy, delusional real estate posters.
Now take a look at yourselves [as exemplified by this post]? It’s even more so weighted in the exact opposite direction.
Could it just possibly be that the empirical data Guy provides us with is really the data?
As I said; just an observation.
125 days from NOD to NOT
I know someone who has made his last payment in March..still has not received an NOD from the lender..Countrywide/BofA
To inclinejj,
That’s why I wish I could have held out until this year.
The process was much more efficient when I lost my home.
smarten, you very well may be right. But, three years ago there was only a handful of bank owned properties on the market, I looked at all three of them.
That is not the case today, hence my observation that the current trend is an aberration. All the delusional and happy posters have gone, probably looking for another place to live because their delusional happy purchase is now in the hands of the bank.
The pendulum is moving back, but I think it has a ways to go yet.
The 6,000 missing NOD’s that are referenced in your post are still out there but in limbo. I’m seeing signs everyday. Sellers are just giving up. They don’t want to go through a short sale. They not only don’t want to hassle with the paperwork and the forms and the financials and the hardship letter, but if they have any little bit of cash or investments around, they don’t want to divulge it. So, they are just letting their house go, taking the NOD and waiting. I talked to a homeowner today and he can’t wait to give his house back to the bank. He wants to simplify his life. And his next door neighbor too. He (the neighbor)called me about 6 months ago about doing a short sale and has decided just to sit tight. At that time he still had a job – not anymore. Why go through the hassle of even having your home on the market – having to keep it clean and show it at a moment’s notice? And then there’s a seller in Somersett who doesn’t want to have anything to do with the bank anymore. They moved out and say “let them have it”. And another owner in AC whose house still hasn’t been foreclosed on. The owner’s been long gone and it has been scheduled for sale and been postponed three times already…but noone knows why. These homeowners have immaculate homes and have always taken pride in them, but the banking situation has just become too hard to deal with. There really is a “let it go” attitude out there. Soon the banks won’t need short sale departments because there will be no sellers that will cooperate. They will have to just accept their loss and go straight to foreclosure.
6,000 missing NODs in my book is a real head-scratcher.
We saw BLS data just last week that only a few thousand jobs were lost in Nov…yeah, right. The ’stability’ in data the govenment is bringing these past few months, as T.O.W. seems to be assured by, has been quite dubious at best in many ways. Among them, don’t forget, is the Fed is buying MBS paper and suppressing rates. Banks stopped worrying about NODs for a while as the Fed MBS buying spree is still going on, at least until 3/2010. Banks are selling mortgages to the Fed, you see, so why foreclose on them and turn a gold nugget into an immediate write-down and soon deep loss.
Another way the gov’t has been TOWs supposed stabilizing friend of late is that they decided to end mark-to-market during this mess a few months ago. Just take a wild guess the unintended consequences of such an untimely deregulation? Are insolvent banks trying to ride it out just like insolvent homeowners are trying to ride out their NOD filings? Hmmm. (For the record, I have major reservations on MTM anyway, but upending it in the middle of a crisis of confidence is certainly not a good thing.)
TALF was/is a disaster that has confused the market. TARP was at best a gross mismanagement of major taxpayer funds in order to protect a few true problems (proverbial sledge hammer to swat the fly). The Stimulus was an unmitigated and massively unregulated taxpayer-asset give-away (tonight, we get to hear Mr. Keynesian Socialist give more away, by the way.) The Fed is dangerously close to wrecking our entire system in the vein of ’stabilizing the economy’ in the face of the crisis.
TOW, you are well reasoned, but I urge you to think and explore a bit deeper into the ugly underbelly of unintended consequences wrougth forth from our government(s) policy actions during this mess. Stability is seemingly our current condition because the government wants you to think such.
Finally, to your wage and labor theories, you should note how many jobs in a standard expansionary economy are private sector jobs. When private sector employers are crowded out by government Keynesian policies, en masse they tend not to hire or raise wages. This is and will have detrimental effects on housing, and in Reno in a more pronounced way than the US average.
TOW,
Couldn’t really follow your point very well, but do I correctly perceive you are grateful for the unprecedented govt intervention and believe that some stability has returned because of the stimulus/money printing?
Before you or anyone else gets too confident that everything’s all right forever, I urge you to take a good, hard look at a variety of troubling sovereign issues that have shown themselves over the last week or two.
Greece has been downgraded and left on negative watch. Portugal has been placed on negative credit watch by at least one ratings agency.
It’s not just Europe, either. A whole bunch of government-controlled Dubai companies were downgraded by Moody’s as well. The BOJ has announced renewed stimulus and money printing.
The downgrades on cities and states in this country is picking up pace as well. Philadelphia was cut to BBB on a general obligation (GO) offering, just a step above junk. The state of Illinois was reduced a grade to A2. Moody’s is threatening to cut New York State as well. Anyone who’s read this blog more than a month knows about the woes of the states of CA and NV, among many others.
In short, debt has been shifted from individuals and corporations (both of whom are still severely burdened) to governments. Debt has not gone away. We are still in the middle of this mess, and it could get much, much worse.
Advice? Buy gold (to protect against the money printing). Vote out every incumbent. Demand lobbying and campaign finance reform. Minimize risk.
skeptical:
After tech bubble and housing bubble, gold will be the next bubble. Why? When everyone in my company’s cafeteria starts talking about buying gold I know it will be another bubble soon. There are many other ways hedging against currency or sovereign risk.
The united states will ALWAYS have a national debt. personally I wouldn’t be THAT worried about it. Especially when you consider that national debt as a percentage of GDP is LOWER today than it was at the end of world war II, the public debt was about 120 percent of GDP!!
The U.S. was not bankrupt in 1945, and it is much farther from going bankrupt today. further, the ratio in 2008 was 65%, which is the same as the level was in the mid 50’s
also, most of the national debt is internal despite what many people wish to believe. in fact close to 75% of it is internal, with 25% being external. eventhough some think that external debt is bad because it transfers money from U.S. citizens to other nations. however, having external debt isn’t necessarily undesirable. Foreign investment can supplement domestic saving. borrowing from foreign nations can also prevent the higher interest rates that would exist if the Treasury could only rely on domestic savers to purchase securities.
Last I checked there has been any meaningful increase in M1 the last 6-9 months, in-fact it has been almost nothing. Most of the bailout cash that was given to banks was never even lending back out. Transfering curency to a bank and moving deposits from one bank to another doesn’t affect the money supply.
Didn’t the government just receive 200 billion BACK from the bailout funds? I can’t recall who, but I’m sure I read that recently. I don’t see inflation as being that much of a threat, assuming the fed acts in a timely manner to reign in spending.
As far as gold, I see that as being purely speculative at this point. Buy 3 years ago? sure! buy now? No thanks. as with all speculation we know what is about to happen to gold. Don’t be fooled.
** The bailout funds given to the banks by the gov’t were more to shore up their Required reserves more than anything**
again, no real increase in M1 that last 6-9 months.
Excuse my spelling! It’s been a long night!
TOW,
I don’t believe that the general economic prospects of the U.S. in 1945 is in any way comparable to its prospects in 2009. With that kind of laissez faire attitude towards our debt, perhaps you should run for congress.
Eventually, the trillions that helicopter Ben has printed out of thin air will find their way into the economy, and then we will well and truly have trouble. I fear for my children when I consider what the economic future of this country may hold.
I am cheered by the hatred of gold exhibited by many posters. Indicates to me that we are still in the very early stages of this run. Didn’t hear too many bashing Cisco systems in 1999. Simple supply and demand dictates that if you massively increase the amount of paper, fiat currency throughout the planet, the general price of that currency goes down. It’s called currency debasement. It’s going on right now. There is no free lunch.
Let’s see if we can swing this back toward the primary topic of this blog. Massive, historic debt by nations, corporations and individuals will continue to be an overwhelming headwind to economic growth. Low to no growth means a continuation of the current employment situation. No job, no money. No job, no homebuyers.
Wait a few years for that $1M house in Montreux to claim your 50% discount….
Skeptical says “wait a few years for that $1M house in Montreux to claim your 50% discount,”
Just for giggles I did a quick zillow search for recent Montreux resales. How about,
16925 Delacrox on 10/29/09 at $756K?
16840 Delacrox on 6/30/09 at $744K?
16820 Delacrox on 2/24/09 at $740K?
16825 Delacrox on 6/24/09 at $650K?
16845 Delacrox on 9/15/09 at $628K?
16865 Delacrox on 5/15/09 at $605K?
Not that I’m a big fan of the Renaissance subdvision within Montreux but remember, several years ago some of these homes were selling for in excess of $1.5M.
Also found 5965 Cartier selling on 10/22/09 for $675K. Interesting sales price given 5925 Cartier sold for $1.077M on 10/08/09, and 5900 Cartier sold for $920K on 10/29/09.
I could also point to larger, more expensive Montreux offerings that are down in sales/listing prices around 50% or more from their highs [6420 Zermatt is currently listed for sale at $669K (MLS #90009411) and 16350 Bordeaux is currently listed for sale at $675K (MLS #90009737]. And how about 5860 Cartier [I think partial construction] selling for $120K on 11/4/09?
My point here is that if you’re a fan of Montreux; you’re contemplating a Montreux purchase; however, you’re holding out for prices to drop another 50% from here because people like Skeptical have told you to wait; IMO the odds are slim at best, whereas the current offerings are plentiful and there has already been a drop of 50% or more in pricing.
But again if we’re going to simply disregard the data…
Smarten-
You paid $1.5 million for you place if my memory serves me. I don’t recall the houses in your neighborhood selling for anywhere near $3 million dollars at the peak. So, given your latest post, how do you draw the conclusion that you bought at the bottom (and that’s assuming prices HAVE bottomed, something I don’t believe)?
I should clarify my statement. I don’t recall houses of your size in your neighborhood selling for anywhere near $3 million dollars at the peak. Feel free to discredit me.
While we’re back on the “high end” kick, I’d like to also throw out there that there has been a bubble in these property prices since the mid to late 90’s tech boom. It is my belief that, despite the governments best efforts, we’re going to blow ALL that froth off. Vacation areas will continue to get hammered. The money is just not there anymore for people to carry multiple homes. This is going to continue to drag on for years and years given how much money and effort the government is throwing at the “problem”.
Here’s a possible explanation regarding foreclosures.
http://www.nakedcapitalism.com/2009/11/bank-of-america-foreclosure-
BB, why would I want to discredit you [I’ll leave that to you yourself]?
And why do you bring up me and my particular purchase…AGAIN? Did I bring up the subject? Did I ever state my home had been purchased at a 50% discount? Did I ever state homes of our size [a measly approximate 3,500 square feet] in our neighborhood had sold for $3M at the peak of the bubble? If not, why do you throw these facts up to me as if I had? I know it irks you to no end that ANYONE would purchase ANYTHING in the current economy [and let alone be pleased with his/her decision], but there are a few of us out there.
Skeptical was the one who made a conclusion insofar as $1M Montreux properties were concerned - that they could be purchased at a 50% discount “in a few years.” All I did was demonstrate that they can already be secured at that kind of discount. Do you disagree?
And it has now been nearly 6 months since my purchase and I am still comfortable with my decision. Hey, I went skiing today - wonderful snow, beautiful blue skies and no crowds! Toured the new Ritz-Carlton Highlands Hotel [today was the grand opening]. Tonight we’re eating at the Lone Eagle Grill exercising our 25% “locals” discount. If I didn’t live here, I couldn’t do what I love to do living in a place that to me, is very special. What did you do today in Bremerton, Tacoma, somewhere else in Kitsap County or whatever, and did you love doing it? I hope that whatever it was, it was as pleasant as my day. Because if it wasn’t, my suggestion is you move. Life is short BB.
Unless you anticipate new housing will never be built; or the cost of materials is going to be a fraction of its current cost; the simple fact of the matter is it costs less to buy now then it will be tomorrow. So in my book [and I’m not the only one], if you can buy something you want to enjoy now rather than later; and the cost is less than replacement; you’re ahead of the game.
So with that said, let’s go back to my post re: Montreux. I don’t know the precise cost to construct a 3,600 square foot Montreux SFR. But I know it wasn’t $125/square foot, and I suspect it was a good amount more than $600K including the cost of the land. So if you’re a fan of Montreux; you like the housing for sale; and you can purchase it now [rather than later] for 50% less than its bubble high; my comment was don’t refrain because BB or skeptical or whomever tells you you’re a fool.
Back to the numbers:
Through today (12/9), there have been 94 TDs recorded, an average of slightly over 13/day. If this rate holds through the end of the month, we’ll see 376 TDs recorded in December, even accounting for no recordings on Christmas Day.
A sobering thought.
Smarten,
You’ve done some great research in revealing a number of properties that have recently sold at 50% reductions from peak pricing in Montreux. Thanks for that. I said to wait a few years to claim the 50% discount on the $1M house in Montreux. Maybe I was wrong, you might not have to wait so long after all.
Of course, those reductions do not prove that prices cannot go lower. On the contrary, they seem to support my point. Are you asserting that a 50% reduction guarantees a bottom? There certainly will be buyers all the way down — just like the poor chaps that got sucked into the “great price reductions” throughout the Reno/Tahoe area in 2008. That $650k house on Delacroix may go for $550k next year. And his neighbor in denial, who still thinks his $1.3M house is special and immune from the price cuts will be in for a very, very rude awakening.
You’ll note that the mid to high end in Reno has only begun to crack recently. Old Southwest price/sq.ft is still unreasonably high, for example, IMHO. Lack of move up buyers will continue to depress this price level for years to come.
The especially insidious thing about this historic price implosion in housing is that it is self-reinforcing. The neighbor forecloses; house sells at steep discount; comps adjusted throughout the neighborhood; nearby homeowners become underwater; some walk due to life events/strategic default; new foreclosure. Rinse, spin, repeat until median salaries can support supply/price of houses.
I think it’s pretty safe to assume that anyone with a mortgage or refinance in Montreux from 2003 to the present (a majority?) is seriously underwater. So, what happens to the poor schlep on Delacroix or Cartier with the Jumbo $1M ARM, due for reset next year, who sits next door to the house that just sold for $650k?
Notta good time to be that Tiger….
A little sensitive, eh Smarten? I don’t begrudge anyone for buying. If they can afford to, and it works for them, then great. However, I do have a problem when one buys a house, then screams that a bottom is in, and encourages others to jump in in a declining market. You went to great lengths to justify your purchase price, detailing the specifics. You CHOSE to make it part of the blog conversation. Given these facts, I’ve decided to re-visit your purchase over, and over, and over, and over until the market has bottomed. Don’t like it? Tough.
PS- “…Bremerton, Tacoma…”? Please….
BB - Wow. Usually people who take their own advice are given credit. For example, I’d say there is a problem when investment advisers tell their clients to do one thing and then they bet against the advice they’ve just given. That’s a problem. But it’s fine if they invest along side their clients. In this vein, if smarten thinks the market has hit bottom, and he’s acted on this, then why would he not suggest that others consider this to be the case? I just don’t understand what you’re finding objectionable.
FWIW I have no idea if IV has hit bottom or not, but in ten years I have no doubt the prices there will be higher, at least in nominal terms. As for next year, if we know how many homes in IV are under water then we should have a decent idea of how many foreclosures there will be and whether the market will be going up or down. Do we have that info?
CL - I’m sure you’re not trying to be funny but when writing about M2M you’re dangerously close to being like those who don’t want the government messing with their Medicare. At some level I think you recognize this.
TALF has been a bust. No doubt about that. But TARP has worked, and just about every economist who has looked at the effects of the stimulus has concluded that it worked to arrest the free fall, which is to say about as expected by those who argued it wasn’t large enough.
Seems to me that the underlying problem is that as we’ve gotten richer we have more and more money chasing the same investment opportunities. So we have had the stock bubble and then the tech stock bubble and then the real estate bubble. What’s next? A gold bubble?
So BB, it’s all right for someone to yell don’t buy in a rising market but it’s not all right for someone else to yell buy in a declining market? I think both of us are right.
And besides, the type of limited market I’m talking about isn’t declining anymore. I’ve said many times before, it’s a mistake to concentrate on the global market as a whole when you’re interested in but a particular segment.
And I’m not telling anyone to “jump in” to this market. All I’ve said is there are some good values out there if you know what to look for, and if you find one of them, listen to your body rather than you or anyone else on this or any other blog [isn’t that what I said insofar as that once mythical $1M Montreux house]! Now why would you have a problem with that advice BB?
And you’re wrong. I don’t have to justify anything with you nor anyone else on this blog. I shared the details of my purchase [including my thought process] for the benefit of other potential purchaser readers. I believe I also cautioned that I could very well be wrong but my eyes were wide open and I was prepared for the worst. So if it turns out I was wrong, why would you have a problem with that? And if it turns out I was right, would you be a big enough man to admit it? I guess time will tell.
Smarten-
I enjoy giving you a good ribbing about your purchase. It’s a beautiful house and you should be happy, which you indeed are. You don’t have to sell me on the merits of Tahoe- I love it. The only reason I bring your transaction up from time to time is that you have, on a number of occasions, challenged myself as well as other posters to bets on whether or not prices had bottomed in Incline Village. My position, as you well know, is that prices have NOT bottomed in Incline Village. I believe you got a decent deal for the time, but unless I’m completely missing something- I believe we will see houses such as yours selling in the under $1m range ($750k is not a stretch). That’s still a VERY expensive house. But, the land price bubble was massive, and it’s still deflating.
If I turn out to be wrong about your purchase in the long term, I will send you and your wife a gift card for a free dinner at your beloved “Lone Eagle Grill” (I’m guessing $100 is sufficient). If I’m correct, which I feel I will be, I want nothing. If you feel so inclined, you can donate $100 to the local animal shelter on my behalf. Fair?
BB and his puppies. Gotta love it… The Bear is actually a bit of a softy, if you peel back that grizzly exterior…
Thanks BB, but $100 won’t do it! Even with the 25% discount; a couple of glasses [as opposed to a bottle] of wine; and no dessert, the bill came to more than $100 [tax/tip inclusive]! But I like the way you think.
Skeptical, I actually agree with much of what you state. You ask if I am, “asserting that a 50% reduction guarantees a bottom?” My answer is absolutely not. You state, “that $650k house on Delacroix may go for $550k next year” and I agree. But it may go for $650K just as easily. Or maybe $625K. Or maybe $750K. Or even if $550K and that turns out to be the “bottom,” having purchased at $650K, I’d still be way ahead of the person who purchased at $1.3M!
The point is none of us knows the market bottom, whatever that may be defined as. And none of us knows the market bottom on Delacroix in Montreux [which may or may not mirror the “market bottom” as a whole]. And none of us will know we’ve actually reached the bottom until a good 4-6 months AFTER the fact. And even then, few on this blog will admit it - instead, they will likely come up with reasons why the data doesn’t really mean what it suggests.
Here’s what I do know: the cost to buy is less than the cost to replace; in the future, the cost to replace will be more than today’s cost to buy; mortgage interest rates are at historical lows; there’s an $8K tax credit for some of us if we buy now; and the reasonably priced inventory that some of us are interested in purchasing is dwindling [because it’s selling].
BB’s $100 would almost cover the Sunday brunch though, which is not all bad and one hell of a view.
Smarten,
I do wish you would stop talking about the cost
of materials when it comes to housing prices and value. You go on so much about this topic, anyone reading your comments would think that there is a correlation between housing costs and house prices- when in fact there is virtually no correlation at all. It’s almost as if you believe in this nebulous term some have coined “replacement value”. There is no such thing.
If you don’t believe me, take a trip to Detroit. There you will find some not unreasonable houses to be had in the $500 dollar range. The “replacement costs’ of some of these houses probably runs in the 50K range. Yet still nobody buys.
Housing prices are determined by one thing and one thing only - and that one thing is what somebody is prepared to pay for said house.
There is no such thing as “replacement costs”.
SE, I will continue to talk about “cost” and here’s why.
The cost of most everything is based upon supply and demand. Right now there’s an oversupply of housing and thus prices have been beaten down to below replacement cost. But even you know this can’t continue because if it does, there will no longer be a construction industry nor the ancillary businesses [like Home Depot and Lowes] it supports.
When the pendulum swings back to a more balanced supply of housing in relation to demand, prices will start rising for the same reasoning. When those prices rise to more than the cost to replace, new construction will resume. If prices never rise to more than the cost to replace, there will never be new construction. And if that’s what you really think is going to occur, then we’re all in for a much bumpier ride than the one we’re experiencing.
So although you may be correct in the short run, IMO to disregard the cost to replace in the long run is very short sighted.
BTW, try telling the appraisal industry that replacement cost is irrelevant. Because if it is, then what is the mortgage lending industry supposed to rely upon for security? After all according to you and others on this blog, today’s supply/demand is tomorrow’s train wreck.
Sane and Smarten,
I’ve written on this blog before that an over-reliance on replacment costs at least in my commercial property world as a method of valuation is wrong. We know this to be a volatile number in that land has very high valuation swings over time, and in boom markets high end fixtures are the norm while in lean markets lower end fixtures are the norm. How many builders today are switching to cheaper cabinets, linoleum instead of hardwood, tile instead of granite? What is an entitled piece of land worth today in NW Reno? Stead? How about 50 parcels on the cheap from a bank or FDIC REO?
Interestingly, I see this common mistake in many who cite a penchant for replacement costs as a reliable metric and that is they don’t take into account that replacement costs are variable over time, not fixed. They are not in realtor-speak “always going to go up in value”.
In the commercial space, I see fully built and TI’d office assets selling for $50-$70 psf in Silicon Valley, not many, but some. Trophy high rise offices in downtown SF financial district selling for less than $200 psf. These assets cost even in today’s dollars easily $150+ and $300+ to build, respectively. I can’t tell you how many developers I know are selling their condo units below costs today just to get rid of them.
No, reliance upon replacment costs is something to be careful of. I find it OK as one metric in normalized times, but not a very good indicator in weak or tight times.
What today’s current mis-match of ‘values’ to ‘replacement costs’ does tell me, however, is that there will be very little building of new structures for the foreseeable future, making the buyer of today’s distressed assets, at well below perceived replacement costs, all the more money. This is in part due to construction lenders’ heavy reliance upon construction costs, you know, ‘replacement costs’, in their underwriting.
I’m still using replacement costs as a metric to find my “prime” residence. Although, perhaps not in the same vein smarten and s.e. are alluding to.
I’m looking for value, as I do not feel Reno will become another Detroit, so using price/sq ft against replacement costs works for me. Only to a point though. HOA fees, taxes, etc. are also priced into the picture.
Additionally, I’m not under any gun to leave my present location and am quite happy with it. By using current costs for comparison purposes is the only way I know how to determine valuation.
The fact that a house is in southwest or Arrow Creek or some other fancy location has little to do with my feeling of value.
So, a 600K buy in Montreaux might be considered, whereas a 300K buy in southwest would not. There are a few more factors going into the decision.
I think replacement costs should be a metric, but by no means the only one.
Government interference can string out the correction over a long period of time, but it cannot prevent the correction from happening.
For a good example of how it worked in Japan’s bubble, look here. The best graph is about half way down the page, and compares the Japan and US bubbles, adjusted for inflation, with the bubbles time shifted (ours started about 15 years later than theirs).
Notice that the Japanese government was able to string out their bubble over almost 20 years. It spent 6 years going up, then 13 years going down, and ended 10% lower than where it started (adjusted for inflation).
Up through 2008, we were tracking Japan’s bubble pattern very neatly.