Guy’s February sales report showed "equity sales" representing 26% of all sales. An equity sale is defined as basically not a short sale or REO. It includes sellers who actually have equity in their properties, or those who bring cash to the table at closing (CTT on the spreadsheet). I was able to track 85 of the 87 equity sales Guy reported:
– 7 were builder sales, just listed on the MLS.
– 15 were properties being resold after a Trustee’s Deeds to private parties (NRES, Wood is Good).
– 2 were flips after REO sales.
So at least a quarter of the "equity sales" are either tainted or are MLS aberrations. You can run your own percentages, but true organic sales are far less that 26%, and correspondingly distressed sales are higher than 74%.
Median sales price for this group was $220,000. I thought that the true organic sales might be higher.
Here’s the chart. I’m guessing on some of the equity sales as I haven’t thoroughly vetted all the loans involved, but it gets us into the ballpark.
But what really stunned me was in the "terms" column. 25 of the 85 sales were for cash (plus 28 conventional, 25 FHA, and 7 VA). CASH buyers in our distressed market. Are they lemmings or lions?
Guy and I joke about the inverse relationship between the time we put into researching a post and the number of comments received.
This one was a huge slog for me, and i hope you find it interesting enough to comment on.
billddrummer
Oh, and BTW, I won’t ever use my ‘sob story’ again, since my ‘chowderheadism’ was oviously showing.
Personal experience provides good examples of what to do or not to do. I share my stories in hopes that others don’t make the same mistakes.
If that makes me a chowderhead, I’ll have some tarter sauce.
Sully
I just hope that the detour this one took, doesn’t deter Mike from his great research. I spent about 4 hrs just on the cash sales he had already identified. I can only imagine how many hours he spent putting this together in the first place.
Free Falling
Shorting the real estate market.
There is a new book just out: The Big Short
http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231
which documents a few stories of some smart folks who made small fortunes putting their money where their mouths were and shorting the financial system when it became obvious to them that things were going to blow up because of the ridiculous sub prime loans which were being made to feed the Wall Street Ponzi machine.
While I was smart enough to know the market was at or near the top when I bought in 2005 (everyone needs a roof over his/her head and for me it was a lateral transfer), I wasn’t smart enough to recognize the magnitude of correction coming and join the renters. I took some money out of the RE market at or near the peak, but left too much in.
As you know, I think the time is now far too late to make any real coin shorting the market. From today’s WSJ, the SF Bay area median price is up 20% from Feb 2009. I think many followers of this blog recognize the lagging correlation between the Bay Area RE market and the Reno market.
http://online.wsj.com/article/SB10001424052748704207504575130020202083044.html?mod=WSJ_hps_LEFTWhatsNews
I find it odd the posters who ridicule those who have recently purchased as trying to justify their purchase by calling a bottom. It seems to me that anyone who has recently purchased has put his money where his mouth is, and only time will tell if his call was right.
Free Falling
Billddrummer – Anyone interested in the commercial RE business?
Now there is a business with opportunities to be made on the short. Not sure if anyone has access to official vacancy rates in Reno, but I don’t think there will be much pick up in occupancy any time soon and word on the street is that lease renewals are coming in around $1.00/sf, well below the $2.00 – $3.00/sf at the peak of the boom.
Ironically, I was much more prescient on the commercial implosion than the residential implosion. It seemed obvious to me that retail in Reno and Las Vegas was getting grossly overbuilt back in 2006, yet folks kept building for two more years at least.
The office implosion was less obvious because you needed to recognize the huge amount of space being leased by developers, title companies, realtors, engineers and others tied up in the business.
GreenNV
Sully, I’ll forgive just about any detour if it generates 200 comments! That is the second highest ever on RRB, trailing only the Montage post at 237. Sure, there was some idle bantering going on, but lots of good information was also imparted (and a couple brilliant one liners!).
billddrummer
To Free Falling,
I agree with you 100%, especially about the office market. With the FIRE (finance, insurance & real estate) sector decimated over the past three years, class A office space has gone begging for tenants, even at rock bottom rents and rich concessions.
I read an article today that expects the commercial office market to show signs of stabilizing this year. But then I also read an article that projected delinquencies on MBSs backed by commercial real estate to reach 25% by year end.
So who’s right?
I tend to think the higher delinquency factor will win out, driven by increased vacancies and lower property cash flows, no matter what condition the assets are in.
To my knowledge, there aren’t many MBS financed properties in Reno–most of the commercial loans here are portfolio-held by commercial banks. But I do remember seeing an industrial property on Longley Lane, fully leased, long term tenants, selling for a 13% capitalization rate–essentially half price when compared to boom-related income property values. The lender? A REIT. Possibly needed to raise cash.
skeptical
My favority one liner?
Derrick: “Why isn’t anyone paying attention to me?”
You know it’s a good thread when Derrick pops up, feels ignored, goes away, and no one even notices.
billddrummer
And further–
Colliers International here in town seems to have the best database on commercial real estate. Their website is http://www.colliersreno.com
DownButNotOut
I think it was CL (??)that made and excellent point that the commercial problem is going to go through its process much quicker than the housing downturn. Without government help the losers will be made to face the music in real time.I keep hearing from those I consider savvy that commercial REIT’s are the upcoming bet to invest in. If so, maybe recovery on the commercial side will coincide with the housing market recovery. I’m thinking both are still 2 years or so away.
DownButNotOut
BDD – can’t really have writers block for your book with the last 24 hrs of posts, huh? When are you going to let us know how it’s going?
billdddrummer
To DBNO,
Thanks for asking. I started the manuscript on March 2, and so far have written 40,000 words. The story is fairly over-the-top, but not too far-fetched. All the characters are believable. There is a character based on one of the bloggers here who is, let’s say, not going to survive to the end.
The first half takes place in Seattle; the last half here.
I’m 80% done if it were going to be a 50,000 word book, but it looks like I’ll need at least another 40,000 to do the story justice.
Still plan on typing “The End” by March 31.
And that’s how it’s going.
I’ll have to figure out a way to sneak ‘chowderhead’ into someone’s conversation.
BTW, most of these people talk to each other face to face–there’s some light texting, but no heavy duty Internet use. I think people like to read conversations.
In a way, it’s like noticing how seldom people on TV shows are actually watching TV–they’re talking to each other.
Thanks again for asking. I’ve already got a couple of ideas for my next one, thanks to many of the posters here.
Martin
Free falling makes an excellent point. From about 2003-2004, it seemed that every shopping center, strip mall, and business park was at least half filled up with realtor offices, mortgage companies, title companies, and other real estate related endeavors. The bubble’s burst has caused a substantial retraction of all those businesses and they left a lot of empty space behind.
Joe
I really hope BB isn’t done for good. I’ve enjoyed his insight for the last four years on here and also on the housingbubbleblog. Just extended our lease on our rental house until next year. I just don’t see a housing turnaround in the near future. IMO, artificially (tax credit, low interest rates) inflated unit sales for a few months doesn’t count. I am tired of this mess. A lot of people can’t even get their rotting teeth or their kids’ teeth fixed because every dime goes into their bubbled mortgage on a house they’re about to lose. FWIW, I think BB’s been right on the money with his predictions, and will likely continue to be. Thanks, BB
Waldo
I join with Polly and second her comment. This blog saved my ass back in 2006 when I came to town and was looking to buy. Back then all the bandwagon in the RGJ and the media was you can’t go wrong buying a house in Reno. The posts of RI and Gotlots and BB opened my eyes to the existence of the huge bubble in Reno. Back then, even Diane Cohn was cheerleading the market, but those guys never relented in pointing out what was happening in Reno. I thank Diane for allowing RI and BB and Gotlots to continue to post when every other realtor blog was just a shill site for the market.
I don’t know if BB will come back, but in any event I say thanks to him and RI and Gotlots (wherever you are)for opening my eyes and saving me from a colossal mistake.
DonC
DBNO says “I keep hearing from those I consider savvy that commercial REIT’s are the upcoming bet to invest in.”
My REITs from February 2009 to February 2010 just about doubled. I think the big run up may be behind us. This is not BTW a brag about investment acumen. I’ve had these since 1996 or so and I didn’t dump a bunch more cash into them last year, which in retrospect would have been a good thing to do.