The latest edition of Forbes magazine ranks the nation’s wealthiest zip codes expected to experience the largest decline in house values this year. According to the article some zip codes are on track to fall 15% to 25%. The top ten include:
1. Incline Village-Crystal Bay, Nev.
2. New Vernon, N.J.
3. Alpine, N.J.
4. Sagaponack, N.Y.
5. Amagansett, N.Y.
6. Bridgehampton, N.Y.
7. Ross, Calif.
8. Old Westbury, N.Y.
9. Santa Barbara, Calif.
10. Southampton, N.
Source: Forbes, Stephanie Fitch and Matthew Woolsey (07/13/2009)
Read the article here: America’s Most Troubled Luxury Neighborhoods
BanteringBear
I read this article the other day. There’s not much meat at all. I think Forbes is a joke, but I do find it entertaining that Incline Village made the number one spot. I also wonder how Smarten might feel if/when comparable homes to his recent purchase are selling for nearly half of what he paid.
DownButNotOut
Unfortunate timing for Smarten followers that this came out now – BB’s correct in the aspect that comparable’s may not be worth in 6 months or a year what was paid today, but on the other hand it’s doesn’t speak to the value Smarten has received by finding the place he calls home. Not everyone is fortunate to buy at the bottom, even though we’d like to. These Forbes places historically have been the most valuable RE in the country, (I grew up in Marin next to Ross)so it makes sense it will go down last, if at all, but I suspect Smarten and buyers like him will realize over a 10 year period that increase back and then some – in the form of this is still desirable property.
smarten
Thanks for everyone’s concern –
But I’m no more worried [than worry I’ve already shared] than I was before my wife and I went into this purchase. BB’s right; there’s very little meat to the story.
The story’s premise is misguided because IV has NOT “held up nicely” this last year while the rest of the country has slumped. Those in the know are well aware of the many foreclosures and short sales that have similarly plagued other areas of the country. But by and large, most of these sales have been what I would refer to as crap. I and others have reported that although the median sales price may not have dropped much in IV, the value one gets for that price he/she pays has increased dramatically. I have also reported that the price my wife and I paid was 55% of the original asking price for our home [a dramatic drop from something that has purportedly “held up nicely”], and that the cost to construct was more even assuming the land was thrown in for free. Yes prices for similar homes can and may in fact drop lower but realistically, how much lower? 5%? 10%? Anyone that thinks a once $2.7M IV home is going to drop in value to below $1M is as delusional as the seller of a $1M home who is asking $2.7M.
I would caution everyone in my wife’s and my former shoes; you need to know your market and micro market intimately because one shoe just doesn’t fit all. IMO there’s nothing for sale in IV, in the price range we paid, that is even remotely close in value. For truly comparable properties, current asking prices would have to drop by a good 25% or more just to match what we paid. So even if that happens, our home will be “on par” with the market rather than 20% under as some pundits have suggested.
But there’s a more fundamental reason why I am not worried. This purchase was NOT an investment; it was our LAST home. If my wife and I couldn’t be thorouly excited about the prospect, we had no business buying it.
Tom asked sometime ago why IV? IMO, IV is one of the most wonderful places in the world and my wife and I have traveled all over it so we have some perspective. I cannot over emphasize how lucky we feel whenever we drive home from California [like this evening after a leisurely lakeside dinner at Garwoods in Carnelian Bay], meandering around Crystal Bay and seeing the snow capped mountains [in winter] glistening upon the Lake. Every single time I keep looking for that illusory billboard [if TRPA allowed billboards (which it thankfully doesn’t)] that would say “if you lived here you’d be home.” And now that we’re living in what I consider a very special home [one that took us 2 years to find and then at the right price] in a very special place; I’m sorry, you just can’t put a price tag on something like this. RI told a story about this sometime back; the older man that didn’t want to spend the rest of his life regretting the things he never did. Stated differently, purchasing a home ISN’T always about the purchase.
If you feel the way I describe about the place where you live in the house you occupy spending your day doing whatever it is you do, then you know exactly what I mean. If you don’t, I hope all of you eventually get there because it’s a place which really has little to do with median sales prices, DOM, absorption rates, price/square foot, etc., etc.
No, Forbes has it so very wrong when it comes to IV!
smarten
As a follow up to my comments above, listen to what Don Kanare [Lakeshore Realty] reported yesterday concerning IV sales: “Closing at $1.55M [yesterday] is the stunningly remodeled lakefront condo at #18 Crystal Shores East. It’s only 1440 ft.² and was built in 1963, but this three-bedroom, three bath Panoramic Lake view property shows…the intrinsic value of owning your own piece of heaven…At the opposite end of the spectrum selling at around $450,000 is the four bedroom, two bath, 1750 ft.² home at 508 Jensen Cir. This kind of demonstrates the difference in property values between owning a basic single family residence in the Woods subdivision versus a lakefront condo that’s about 17% smaller.”
As I said, one size shoe doesn’t fit all!
Paul
Guy, I think Forbes might be on to something. One of the biggest problems with Incline, from an investment standpoint, is the gap between rents and value.
One can find dozens of 850k – 1.2 million dollar homes here on the long term rental market for around 2k per month. Granted, homes in a resort areas have never generated the same kind of cash-on-cash return as more pedestrian residential investments. But the gap in monthly cost between renting and buying remains staggering and historically unprecidented.
The next shoe to drop in Incline, in my opinion, is that the arrangement by which Incline property owners have claimed that their beaches are private, could be declared illegal by the federal courts.
IVGID, the governmental agency that has title to the beaches, doesn’t pay any property taxes on them on the theory that they are tax-exempt because the’re owned by a public agency. IVGID then turns around and says that the public isn’t welcome and that the beaches are for Incline property owners only. This practice is currently the subject of two federal lawsuits pending in Reno.
Further, rents rents have been dropping here and are BELOW their 1999-2000 levels.
smarten
Paul makes the observation that the spread between the cost to rent/own in IV is out-of-whack and staggering. I agree. He suggests prices have to come down to lower the spread between the two. I disagree.
The spread between the cost to rent/own in IV has been out-of-whack for many, many years just the way it is in the San Francisco Bay Area [and many, many other metropolitan areas across the country]. The difference in IV now is that:
1. Those who own second homes are having a very difficult time vacation renting them because the demand for short term vacation rentals is way, way down [because of the economy];
2. Those who are trying to sell for delusional pricing can no longer in essence vacation rent them [and expect any kind of economic return], again, because of the economy;
3. So both groups of “landlords” have opted for the long term rental market which has created a glut because there just aren’t that many long term rental renters in our little community, let alone those willing/able to pay $2K/month [a price point our good friend Derrick (aka Baby whatever) asserts is crazy] or more!
I have previously reported that for sometime there have been quite a few very, very nice SFRs available for rent at a fraction of the cost to own. My favorite [which my wife wouldn’t let me rent as an alternative to buying] is a very high end 8K square foot home on two levels with a commanding Lake view which was on the market at $5.25M; is currently on the market at $4.25M; and I could have rented for $6K/month (remember, the property taxes alone on this puppy are in excess of $2K/month)].
But I do not think any of these factors have much of an affect on FMV. Just look at the San Francisco Bay Area; you’ve been able to rent quality residential housing for a fraction of the cost to own for decades. Yet that hasn’t stopped the steady increase in pricing [way, way before the most recent bubble].
As to Paul’s comments regarding IV’s private beaches, I agree. IMO it’s disingenuous to play the “public” card, and then deny access to the public. But notwithstanding, I don’t think private beaches contribute measurably to IV residential property values.
BanteringBear
Smarten-
You are really starting to sound like a shill for IV housing. It’s great that you are happy with your purchase, but you are going to fantastic lengths to justify your decision, and to try to paint a picture of IV real estate that is, IMO, pure fantasy. You make comments such as:
“Anyone that thinks a once $2.7M IV home is going to drop in value to below $1M is as delusional as the seller of a $1M home who is asking $2.7M.”
You’re asserting that your home was, at one time, worth $2.7M, and that, my friend, is delusional. $2.7M was a pie in the sky asking price that some bubble era builder dreamed up as he was cashing fictitious profits in his warped mind. I’ve seen pictures of your house. It’s a nice house. It’s no $2.7M house. Never was.
I deal in reality, and the reality is, if you go back into the 90’s, you will see houses such as yours selling for well under $1M. We are currently in an economic depression, and a period of massive deflation in both assets and wages, and it’s quite probable that housing prices are going right back to what they were in the 90’s, nominally. I’ve seen bank owned houses in Reno and other markets selling at 1990’s prices, already.
To understand where IV prices are going, one has to look where demand comes from. It is largely a second home market. Those who purchase second homes in the Tahoe area are, for the most part, millionaires who can afford to. The number of millionaires has shrunk by 15% in just the past 12 months, and shows no signs of slowing. As these people bleed money, they are desperate to sell assets. They will do so at fire sale prices, or lose them. They have no choice. They’ve been hanging on these last several years, hoping for a “turnaround” which isn’t coming. We’ve seen the defaults creeping into the higher end properties, and that’s a trend sure to continue. Prices will continue to deteriorate, for the second home markets are, and will remain, the weakest in the country.
DownButNot Out
Two different views (BB/Smarten). I tend to agree with BB’s reasoning on the dropping further of IV prices (aaaaak)and with Smartens assertions he’s not in it to make money and you can’t put a price on home sweet home. It’s the subtle explanations justifying buying right in IV makes good financial sense that I can’t get behind.
‘No, Forbes has it so very wrong when it comes to IV!’may not be a correct statement, we’ll see.
Guy Johnson
The Tahoe Bonanza ran a story on the Forbes ranking:
http://www.tahoebonanza.com/article/20090708/NEWS/907089994/1061&ParentProfile=1050
Local Realtors say the ranking is undeserved.
Paul
I disagree with Smarten that the rent / own spread is comparable to the Bay Area. While I can’t point to a formal study, the following case illustrates the difference between the two markets.
My neighbor here in Incline owns a 2100 Sq.ft. home in Marin County worth around 1.2M He found a well qualified high-income tenant with good credit at 4k/month rent very shortly on craigslist. The same home in Incline would maybe get $1,800 mo after months of vacancy. My neighbor’s Marin home might fetch 900k in a similarly desireable neighborhood in IV.
So the point is that cap rates are LOWER in Incline than in the most desireable parts of Marin, and this makes no sense to me. Marin has a huge base of high-income, high-skill professionals that want to live there. Incline is a second-home market. As BB points out, second-homes are the first to go when times get tough. Many second-home owners only use their property 4-6 weeks a years so many of them could rent short term for their vacation and dump their properties, resulting in a huge savings.
Also, Incline lacks many of the ammenities demanded by wealthy full-time residents: The schools here are not particularly well regarded (many residents ship their kids down to Galena HS). Good restaurants are hard to come by and virtually any cultural activity requires a trip down to Reno.
RubiconBay
Mr. Smarten I understand that now that you have made the plunge you need to rationalize it mostly to yourself and to others as well. Understandable. But if you think that you bought a $2.7 million house for $1.45 million, you are as delusional as you suggest some others may be.
Tell you what…..I have a 1999 Subaru with 165,000 miles that I had for sale for $55,000 as recently as a couple of months ago. But the market has gone down a bit, so I will now sell it to you for $25,000. Then you can tell yourself and everybody else how you just bought a $55,000 car for $25,000, and what a smokin’ deal you got.
HomewoodBound
RubiconBay,
I think my company paved your driveway back in ’84 or so. If correct, glad to hear you still around.If I’m wrong, please forgive me.
Ralston
From $2.7 million to $1.45 million. Have all IV houses lost 45% of their “value”, or is there perhaps something wrong with one of the numbers here?
GratefulD_420
– So what happens to the property taxes on homes like Smarten’s ?
I’ve seen some homes that are starting to come into my purchase range, however the taxes are 2 to 3 times higher than I planned when estimating my top range.
What are the remedies? How certain can one estimate the change before purchase & how fast can it get done?
For example I’m looking at a foreclosure that is now listed at $450 k with taxes @ $7,700 / year.
I think in the past a house around $450k was 1/2 that in taxes?
Tom
Grateful, I wouldn’t count on being able to have that assessment adjusted and the taxes reduced to correspond to your purchase price at $450k. I have talked to county assessor’s staff members up there regarding similar situtations. Your purchase price would be just one factor considered in an appeal. Other factors are comparable property valuations in the area, and they are looking primarily at their notion of land values plus improvement replacement costs, not FMV sales comps the way we would prefer to argue such a case. Three such situations I have looked at in the Reno area have involved possibly 10% to 12% reductions in the actual tax, IF you can prove the case. One good point is that some areas are going through regional reappraisal and that will automatically generate reductions, but again not substantial, in my opinion. There is understandable financial pressure not to cut into revenue flow, so it isn’t easy to win a dramatic reduction. At least the deputy assessors in your area are readily accessible and polite, and are willing to talk to people and discuss valuation issues. That isn’t always the case in other states.
inclinejj
From $2.7 million to $1.45 million. Have all IV houses lost 45% of their “value”, or is there perhaps something wrong with one of the numbers here?
Well the Central Valley and parts of the Bay Area have lost 50% of value..The 2nd home owners in the area have 2 or 3 or 5 or 6 mortgage payments to make each month..When the monthly mortgage nut becomes too big, they have to either try to sell, not good in a down market or try to get rid of the mortgage and the 2nd home and rental property get let go first..
If you are buying a home, not an investment piece of property or a turn and burn you buy when you buy and you sell when you sell..Your not looking to make a quick fast buck or two..
Smarten, wanted to buy a home he did his homework and bought the home he wanted..Could he have got a better deal had he waited..possibly but no one knows..Not even the so called experts know how long this down cycle will last..
I am in the same boat as Smarten, I am looking to puchase a home in the area..As I drive around and look at the market..What is for sale there is a lot of over priced junk on the market..
As did Smarten, I have my ducks in a row and am waiting for the house I want to come on the market..
Have I missed a few properties sure, should I have bought a couple properties that came on the market, probably, will I get a better deal by being patient and waiting..Who the hell knows???
The Wall Street so called geniuses and wonder boys that got us into this mess have no better clue then we do!!!!
Ralston
Yes it is true that houses in Merced and Bakersfield have lost 50% of value. And it is also true that houses in the outer reaches of the Bay Area like Dublin are down that much. But surely we are not comparing elite IV to Merced are we? I’m with BB and others here….no way was this house ever worth $2.7 million, except in the deluded and distorted mind of the bubble intoxicated former owner and his equally deluded realtor.
CommercialLender
I spent the July 4th week in Tahoe Donner (usally Incline, but wanted a change). Wife and I went to ~15 open houses on Sunday and drove by another maybe 20 in our estimated range for a 2nd home. In the 3 hours of open home tours, we saw NOT ONE other person touring. Zip, nadda. We even noticed a realtor open a house starting at 4pm that day to “catch the outgoing traffic” she expected, but that just was not there (me excepted).
Our rough anecdotal estimation is homes that were $750-850K 18 mos to 2 years ago are now low $500Ks, and in that range there are dozens if not hundreds listed, (many more shadow inventory I’m sure from banks).
I think they need to come down ANOTHER 20% from here. The 2nd home market is in free fall in my estimation, but the siren song is strong. I’m considering some lowball offers to pick one up, then hold for 15-20 years as the place we’ll raise our kids often throughout each year. Am I crazy not to wait? Maybe just restless to get the house, get it toys-ready with skis, boat, snowmobile, etc. and actually start enjoying it rather than always sitting the sidelines (for 4 yrs now). Someone talk some sense back into me!!
****
And, BTW, at least 2 of the homes we spoke to Realtors about were short sales. While not a big representative sample, one of them had 2 offers but the seller rejected them after finding out she’d have a 1099 tax issue (she’d rather let it go REO). The other was some cheeseball contractor (by virtue of his very crappy renovations) who ‘needs’ to sell for his loan balance (100% guarantee he won’t come anywhere close, thus REO for him is assured). My point is I just don’t understand why any Realtor at this point in the cycle would take any listing today without fully vetting their seller’s motivations and financing/financial capabilities. Absolutely sure to be a waste of their time and money.
Phil
IV is still one of the most beautiful places I have ever seen.
Many houses are homes first and not investments.
I buy a new car and it loses half it’s value in a year or two. Sounds like a bad investment as well.
Smarten enjoy your new home. And yes if you waited you may have found a better buy. But you can enjoy it now. Life does not last forever!
billddrummer
I’m with Phil,
Since smarten clearly bought the house for his own enjoyment, and not as a potential investment, let him be.
He doesn’t care what the ‘value’ of the property does after he purchases it. The value to him is far greater as a residence than speculating about whether waiting would have saved some money.
Perhaps he wouldn’t have had a chance to purchase it at all if he had waited.
And that would have been more costly than the perceived loss of value resulting from buying now.
And to CL,
Perhaps I will get an opportunity to live in the mountains after all. I long ago decided that I wanted to live either at Tahoe Donner or North Lake, but felt like I was permanently shut out of the markets because of the prices.
If there are truly few buyers in the current price ranges, then another 20% haircut (along with a 20% rise in my income) could bring me back to the table.
By then my foreclosure won’t be as onerous a drag on my credit, either.
Sully
Tom, you are quite right about the taxes. The only problem is they are not doing what they claim. A house built in 2005 is taxed higher than a similar house built in 2002 or 1999. Of course, they have a reason for that, the 3% limit. Still, I think they are stonewalling because of the dire need for tax money here. If there was a class action law suit, like the one in Incline, I think they would be required to assess properties on a similar scale, instead of the one they are using now.
smarten
Paul, you misread my comments re: the cost to rent/own in IV. I never said it was “comparable” to the Bay Area. What I did say was that it was just as “out of whack” as it has been in the Bay Area for over three decades.
I can’t authoritatively comment on Marin County residential rents. But I can insofar as Silicon Valley residential rents are concerned. A nice $1.5M-$1.8M 4 BD/3 BA SFR in Los Gatos or Saratoga will generate the owner somewhere in the neighborhood of $2,800-$3,200/month. A comparable IV SFR rental will generate the owner only somewhat less [somewhere in the neighborhood of $2,300-2,800/month].
In both cases the cost to rent versus own is substantially lower. But like I said, it has been substantially lower for decades in the South San Francisco Bay Area [I don’t go that far back in IV, but it has been the same here for the last 3 years I’ve lived on Lake Tahoe’s North Shore].
Just like sales prices in the Bay Area are not going to drop because the cost to rent is so much cheaper, neither are sales prices in IV.
I’m NOT saying sales prices in IV won’t drop in the future [although you have to define what prices/where?]. But what I am saying is that they won’t drop because the cost to rent is appreciably less than the cost to own. In both localities, people don’t buy SFRs with the intent of renting them out for cash flow because it makes no economic sense!
smarten
Okay BB, I’ll respond.
First, thanks for the civility of your comments – a marked change from a year ago and I for one recognize AND appreciate it! See, we can have an intelligent back and forth without name calling. Your New Years’ Resolution seems to be paying off and if you don’t mind me saying so, I think you’re a better man for it.
NOW, I NEVER said our home was worth $2.7M…EVER! What I did say is that when it first came on the market in 2007, the original asking price was $2.7M; an institutional lender had given the owner a $1.44M construction loan based upon an as complete appraisal which supported a 50% LTV; and, the home was priced comparatively to other over/delusionally priced IV homes at the time.
But what were the asking prices of ANY Reno/Sparks SFR back in 2007? Weren’t they ALL just as delusional? We oftentimes talk here of sales prices that were originally listed for $x.00, and that are now listed for $y.00. Our purpose is to show how much asking prices have declined. And that was the only point I was trying to make.
I’m not trying to justify ANYTHING BB. With all due respect, I don’t require your approval to do anything. Only because I think of some on this blog as “family,” have I decided to share. For over two years my wife and I have seen EVERY SFR that has come on the market priced at under $2.75M. We generally go on the agents’ tour each Tuesday morning. We have cataloged our own data for sales/listings by price, area, price/square foot, DOM, etc., etc.
In no way am I saying you don’t know real estate because I think you’re a very astute observer – but please give me the same amount of respect. It’s one thing being an arm chair quarter-back watching from hundreds of miles away. And it’s another actually living it. Since my wife and I have lived it, I think you should cut me a little bit of slack. I think my wife and I know the IV SFR market about as well if not better than 99% of all the agents out there and I’m not bashful about telling them.
So when I tell you there’s NOTHING for sale at under $1.8M that remotely compares to what we purchased, please defer to someone who might know a bit more about what he’s talking about. Are there a ton of SFR listings available at under $1.8M? Absolutely. But most are what I have characterized as delusionally overpriced crap.
Over the last year or more my wife and I have been able to identify most of the IV SFRs whose owners have gotten into trouble well before the rest of the world learned what we knew. We even maintained a list of those properties with the details that led us to that conclusion [such as numbers (and amounts) of outstanding deeds of trust; property taxes in arrears; ownership identity; craigslist listings; NODs; etc., etc.].
One by one we saw EACH ONE sell [most of the time we couldn’t do much about them because we didn’t have the money (in excess of $2M) to make it happen]. Our home was the LAST one on our list and when the seller dropped his asking price from $1.9M to $1.62M, that was all the confirmation we required [and as it turned out (because there was no NOD nor other record indication), the seller had stopped making payments on his construction first loan at about the same time he dropped his asking price].
Since we went into contract what has come on the market? There have only been two other reasonably priced IV SFRs we’d consider. But NEITHER is up to my wife’s and my requirements so who cares? And besides, BOTH gone into escrow.
Now the number of IV SFR listings is about to top the all time high and I can confidently state that at under $1.7M, there’s NOTHING we’d consider [unless prices dropped a lot further]. Between $1.7M-$2.1M, there are a couple of SFRs we’d consider [if we could afford them] but compared to what we purchased, we’ll stay pat.
The most recent property to go into escrow [this week] that we’d consider purchasing [587 Tyner], was listed at $2.6M; way out of our league. Other than that, nothing.
My wife and I follow IV NODs and NOS’. But for one that sold at trustee’s sale the same day our home closed escrow [one which BTW we made a short sale offer on (for $300K MORE than it ended up selling for at trustee’s sale – it was a hell of a bargain)], there’s NOTHING in the pipeline.
So if you want to sit back and speculate that maybe something similar will come available for sale in the future and at a lower price [“smarten overpaid”], you [or anyone else] go ahead. No owner worth his/her salt would voluntarily put his/her SFR up for sale in this market and if he/she did, don’t you think he/she would have ALREADY done so?
So in no way am I attempting to “justify” anything BB. These are the facts, and this was our thought process. When an opportunity presents itself, you have to make the decision to act on it. If you’re not capable of making that decision; or you’re “afraid;” or you’re always looking for something better [or cheaper]; you become paralyzed and interestingly, attempt to justify why you DIDN’T act on the opportunity [sound familiar?].
So if IV SFR prices decline further in the months ahead, I would be shocked if something comparable came up for sale at the same [let alone a lower sales price than what we paid] for the reasons that I’ve outlined.
Now I can’t tell you what is going to happen to the economy nor IV SFR real estate a year from now. But I can tell you that given the opportunity to secure a bird in the hand now, both my wife and I feel far more comfortable than waiting for the possibility sometime in the future of two in the bush.
Now on top of all of this:
1. Our landlord let us break our lease without penalty;
2. A lender actually agreed to give us a purchase money loan [and at a reasonable price]; and,
3. We’ll qualify for the first time homebuyers’ tax credit.
For us, maybe the “perfect storm.”
One final observation. When you state IV SFR prices are going to decline in the months or years ahead, I have to ask you precisely what prices? If you’re talking about a house like ours I’d have to say not likely [because there’s very, very little out there in our price range]. If you’re talking about 90% of the stuff currently out there, I say SO WHAT? Since we wouldn’t even consider purchasing it, why do we care what it sells for or how many DOM it occupies? IV isn’t Spanish Springs where one or more developers have constructed hundreds of homes that for all intents and purposes are identical. Most IV homes are unique, different and varied which makes direct comparison a bit more challenging.
But like I said earlier; do you love where you live? Do you love the house you’re living in [is housing even that important to you]? Do you love doing whatever it is you do during the day? If you answer to any of these questions is no, how can you say that someone whose answers are yes has made a mistake?
Guy Johnson
Excellent post, smarten!
BanteringBear
Smarten-
Thanks for the compliment, I guess. Honestly, I think some heated exchanges are healthy once in a while, even if there are a few errant insults thrown around. This country is turning into a bunch of PC wimps, scared to speak out, who are therefore getting their just desserts in the form of horrific government. If people would stand up and call these SOB’s out, and colorfully, we’d get a lot better representation. We could learn something from the British.
You said:
“Anyone that thinks a once $2.7M IV home is going to drop in value to below $1M is as delusional as the seller of a $1M home who is asking $2.7M.”
You followed up with:
“NOW, I NEVER said our home was worth $2.7M…EVER!”
So, then, what $2.7M home were you talking about? Was this just an arbitrary number? If so, you should pick a different number for your hypothesis, because it’s a little too coincidental and confusing as it pertains to your purchase and stance.
Further:
“…an institutional lender had given the owner a $1.44M construction loan based upon an as complete appraisal which supported a 50% LTV; and, the home was priced comparatively to other over/delusionally priced IV homes at the time.”
This means nothing, as far as I am concerned. Past appraisals, construction costs, all of these were were based upon fantasy prices in a fantastical time. Passe.
I’d agree, Smarten, that you’re very abreast of the for sale market in IV, but you make the common mistake that most knife catchers do of comparing asking/sold prices to the market peak, rather than basing them on closed sales prior to the bubble. Furthermore, you discount the deflationary environment we are in, the economic carnage taking place, and the effect if will have on prices going forward.
I could absolutely care less where asking prices are in IV. It’s irrelevant. What I believe in, long term, are fundamentals. Incomes and wealth will determine FMV, and we’re not there yet. We’re in a situation where a few people, like yourself, are coming out of the woodwork to buy the dips. You should be thanked for taking one for the team. It’s sales like yours which help drive prices down, but I believe you’re quite impressionable to think that much better deals will not be had.
You paid $431 per square foot. This is in no way remarkably inexpensive. Furthermore, your assertion that this is less than the cost of construction with a land cost of zero is asinine. If any honest builders out there want to weigh in on this, I welcome it, but unless you’ve got some fancy materials which were imported from out of the country, you’re mistaken. Also, construction costs are falling. Remember the deflation I keep bringing up?
As I’ve stated before, houses in Reno and other areas are already selling for 1990’s prices. That will include IV in due time. To understand how hard any area will crash, one only need look at how inflated it became. IV saw as much price inflation as anywhere, and for all of the same reasons as other markets. To assert that it will not be subject to the same market forces on the way down is more delusional than words can describe. There is absolutely zero justification for such. If anything, being a second home market, things could turn out worse. There is a reason for it’s number one position on Forbes list.
CommercialLender
BB,
Who cares?! He bought the house as much for family reasons and got the very best deal he could get at the time he bought the house. I don’t recall him ever opining that the house value won’t fall over the short term, rather that he and his wife are accepting of that because a) they got a good relative deal in today’s market, b) went in eyes-wide-open, c) wanted his wife to be happy, d) stayed within their economic means, and e) reasonably know they’ll stay in the house for the long term.
You make some good points, but let’s not browbeat a guy who made a well thought out, very well studied buying decision. In fact, he should be commended for having the patience, financial wherwithal, and studied intelligence to make the very best decision he could. I share your feelings, as most here do, that we loathe the ones who bought on a whim, did not do due diligence, twisted the system, allowed themselves to be duped, bought far beyond their means, and are now causing the economic mess we are in. Smarten is not in that camp, as is plainly obvious to all.
Sure, I personally think we have another 2 years to fall, but I say good for him and further agree with IJJ (?) who said Smarten should offer his services as a consultant.
You defended Diane’s detractors saying “don’t insult the host on her own blog”, or paraphrase to that effect, during her short sale process. Well then, by the same token Smarten has been fantastic to share with all of us very personal information that, let’s admit, we’ve all learned something from regardless of whether we’d have done the same. Let’s be gracious and say “attaboy” to Smarten and leave it at that.
BanteringBear
CommercialLender-
I am not insulting Smarten, but rather engaging in a civilized debate regarding IV house prices. It appears you’ve become the latest in a long, long list of readers who have taken issue with me, and have gone one step further in an attempt to coach me on how I should post. The mere idea of such is hysterically absurd. You can continue to complain until the cows come home, but I will continue to post whatever the hell I want, when I want, with absolutely zero regard to your wishes. Is that clear enough for you?
Reno Ignoramus
Sorry to interrupt this discussion about Smarten’s house…..but do you all remember when Mike posted about the Belsera develpoment?
Well, MLS # 90001138 is 5250 Bellazza Ct. Purchased for $869,817 on 2/1/06. Now listed for $400K as a short sale. By my calculations, that is pretty darn near a 55% reduction in price.
I wonder how many houses there are in Reno purchased for $800K-$900K in 2005 and 2006 that today might sell for $400K?
I wonder how many of the owners of those houses are the least bit willing to acknowledge this reality?
Grand Wazoo
Something else to consider – is it my lack of searching skillz or have all the listings for the Palladio completely disappeared from the MLS?
Guy Johnson
Grand Wazoo, I believe the problem might be that your search parameters may need to be updated to specify the new downtown MLS area. A couple months ago the Reno/Sparks Association of REALTORS® implemented a few changes to Reno’s MLS Areas. One of those changes was the creation of a new “Reno-Downtown Core” area (MLS area #116).
I posted about these changes in May. See:
https://renorealtyblog.wpengine.com/2009/05/reno-mls-area-changes.html
I performed a quick search of our MLS and found sixteen Active Palladio listings. You can check out these listings here:
http://NNRMLS.fnismls.com/publink/default.aspx?GUID=8aeb2341-6261-4959-afb4-2fcb6380dd1d&Report=Yes
Let me know if you would like to purchase one (or more). 😉
DownButNot Out
BB ‘I am not insulting Smarten, but rather engaging in a civilized debate regarding IV house prices’
Very true and I for one appreciate the new you. Happy New Year.
Martin
Guy, if I search on “all Reno” and then “condominiums”, none of the Palladio condos appear. Does that method not work anymore?
Reno Ignoramus
For the first 10 days of July, there have been 138 TDs recorded. This is on pace to exceed last months total of 358.
There have been 210 NOS. This is pretty much right on pace with last month’s 689.
But here’s the interesting one. There have been only 138 NODs recorded so far. This projects out to end up WAY below last month’s 951. I’m not sure why the sudden drastic drop in NODs. For example, last month, between June 1 and June 10, there were 333 NODs. So, something is going on.
I have commeted a couple of times about the commencement of the foreclosure mediation program that began on July 1, which I believe may well bring about a whole array of unintended consequences. Hard to know if that has anything to do with the sudden big decrease in NODs. But something seems to be happening here.
Sully
Regarding the Palladio and the list Guy found: it seems this building would be better suited in Manhattan under the Trump name then in Reno. HOA fees must include free air travel! 🙂
Grand Wazoo
I was searching for Palladio units using the street name “Sierra”, as the address of the building is 50 N Sierra. That used to work just fine but no more.
Martin
I think when the MLS added the new downtown area, perhaps the IDX version didn’t pick up the change? It seems the new area does not appear on the IDX version and neither do any of the listings catergorized in that area. There appears to be no way to find downtown condos now.
smarten
Thanks for the comments BB. I have NOT taken them [nor any others for that matter] as insulting. And I don’t think CL’s comments were insulting to anyone [or you].
I am off my discussion of our home purchase – no sense beating a dead horse. Except for one. I have a good friend who is a contractor/developer and has been one for over 30 years. Several years ago he shared with me that high end construction costs in the Bay Area were going for as much as $1K/square foot. Now I’m not saying our home’s construction is that “high end,” but it’s close. And I understand IV is not the Bay Area and construction costs have come “down” [whatever that means] in the last year or two. But the last time I went into Home Depot to purchase a 3-way Decora dimmer switch, the cost was STILL $25!
Also I would suggest that when you’re calculating cost/square foot, you need to include improvements like a garage which are not included in living square footage, and the cost of entitlements/permits/etc. In our case we had two separate appraisals; both used the replacement cost, in part, to support their conclusions; and, both came up with numbers that exceeded our purchase price.
In any event as I’ve commented before, there’s been a change [recently] in IV sales activity. An agent I know shared with me this morning that in the last two weeks, she has had to properties go into escrow. True they’re at the lower end [I think one was even a REO], but sales activity is up which means former would be buyers are becoming actual ones.
MikeZ
IV, top of the troubled list? Agagagaga.
I was treated to a ridiculous lecture, from a Tahoe resident one blanket over at Nevada Beach this past Fourth who overhead my discussion with friends … he explained how IV real estate was still rock solid, maybe even rising!
I actually laughed out loud. And then I apologized because it was rude. What a dope.
big baby
why apologize mikez? you were just being your typical scumbag self anyways right?
inclinejj
My wife and I follow IV NODs and NOS’. But for one that sold at trustee’s sale the same day our home closed escrow [one which BTW we made a short sale offer on (for $300K MORE than it ended up selling for at trustee’s sale – it was a hell of a bargain)], there’s NOTHING in the pipeline.
*The only other person who follows the market as closely as I do is Smarten and his wife..I have been a little lax being down in the Bay Area having some projects going on..But just about every house in the area that goes into NOD or sale we talk about and kick around..Ouch!! I was sniffing around the house he was talking about ..In the price range it sold at the trustees sale someone got a hell of a bargin..off the top of my head it was about..$225 to $250 a square foot..That house can not be rebuilt today for that price..Excellent deal..I just bought a property down the coast that only comes up once in a lifetime..20 acres from Highway 1 to the high tide line..Being I have worked with the Coastal Commission before and have an excellent working relationship with them I think the planning and entitlement process will probably take about 3 years to get finished..On the IV house I was looking to call the lender and make an all cash quick close offer if they took the house back..I will congratulate the buyer who purchased this house..I have a source where I can borrow long term fixed rate money for 4% interest. But the old term, don’t ever spread your self too thin!!!!
So if you want to sit back and speculate that maybe something similar will come available for sale in the future and at a lower price [”smarten overpaid”], you [or anyone else] go ahead. No owner worth his/her salt would voluntarily put his/her SFR up for sale in this market and if he/she did, don’t you think he/she would have ALREADY done so?
You can also speculate if the Mega Bucks or the big spin or the lotto ticket will be the big winner..No one knows how long this cycle will run..My own guess is 2012 before we see some mustard seeds
Sure, I personally think we have another 2 years to fall, but I say good for him and further agree with IJJ (?) who said Smarten should offer his services as a consultant.
***I have said this all along..The Realtors in Incline Village want to hit the slopes when it snows..hike when its nice and when it is sunny and warm go to the beach to tan..IV has a few that are hard working but the old rule applies 10% of the RE agents sell 90% of the properties..
I am seeing these sellers chasing the market down..The only people who are selling are people who have to..Divorce, foreclosure, bankruptcy, and probate sales..Case in point..My Mom & Dad’s neighbors listed the house for $789k about 18 months ago..Divorce situation. Husband is making the payments, wife doesn’t want the house..So they are now chasing the market down to $599k. Problem is he needs $590k and will not do a short sale..He applied for a short sale and the bank said you have money in the bank you pay the shortage!! Now there is the next low comp for the neighborhood..Another buddy of mine is trying to sell his house for $750k he paid $815k 3 years ago at the very top of the RE boom market..Why did the RE agent take the listing..To get another listing the next town offer..For some reason they priced that home at the right price and they received a good offer 18 days later..Well, a house spitting distance..8 houses down the street just sold at foreclosure sale for $392,000. Welcome to your next low comp!!!!!
You defended Diane’s detractors saying “don’t insult the host on her own blog”, or paraphrase to that effect, during her short sale process. Well then, by the same token Smarten has been fantastic to share with all of us very personal information that, let’s admit, we’ve all learned something from regardless of whether we’d have done the same. Let’s be gracious and say “attaboy” to Smarten and leave it at that.
** Well, I have beat this before..Diane and her husband could have stopped making payments a while ago and had a nice lump sum of cash in the bank account right now..
I am off my discussion of our home purchase – no sense beating a dead horse. Except for one. I have a good friend who is a contractor/developer and has been one for over 30 years. Several years ago he shared with me that high end construction costs in the Bay Area were going for as much as $1K/square foot. Now I’m not saying our home’s construction is that “high end,” but it’s close. And I understand IV is not the Bay Area and construction costs have come “down” [whatever that means] in the last year or two. But the last time I went into Home Depot to purchase a 3-way Decora dimmer switch, the cost was STILL $25!
** Well back in 2005-2007 any contractor could bid any price and get the job..I know many contractors who went out and bid jobs so high they where hoping not to get called back..Easy money, endless supply of equity money was being splurged on home improvment, home building and repairs and remodels. I saw houses for sale for over $1000 a square foot that I just shook my head at..I just went up and did a couple property inspections on a couple houses sold for $1.7 during the high priced bubble..these houses where asking a price of $629.63 a square foot..I told the owner that the appliances and fixtures where “mid range”. The owner of the two properties went bat Chit crazy on me saying..Then why did the houses comand $1.7 million? I said well all the other crappy shoddy construction was selling for the same price range back then..Now I see the same thing in IV, Builders who do “mid-range” fixtures and want high end prices!!!
Also I would suggest that when you’re calculating cost/square foot, you need to include improvements like a garage which are not included in living square footage, and the cost of entitlements/permits/etc. In our case we had two separate appraisals; both used the replacement cost, in part, to support their conclusions; and, both came up with numbers that exceeded our purchase price.
**Of course it costs money to build the garages so the price of the garage gets added in..The price of the lot, construction of the house, and garage is all factored into determining the price to reproduce the house!! It is right on the appraisal
billddrummer
To smarten,
Good point about the cost/s.f. including all the improvements, not just the living space. I remember years ago that the cost to construct on a custom lot used to be about 2:1–for every 1,000 spent on the lot, about 2,000 was spent on the improvements.
As home prices exceeded rationality, that statistic went out the window, and some ‘custom’ homes were being bid out at FOUR TIMES the cost of the lot.
If only we had seen the decoupling of that relationship early on!!
I believe that prices are beginning to show signs of rationality in the custom market (notwithstanding the beachfront dodo).
Bargains for those who waited til now. Unrelenting pain for those who bought in 2006.
Guy Johnson
another response to the Forbes’ list…
http://www.tahoebonanza.com/article/20090716/NEWS/907169991/1021