I received an email yesterday from a colleague at Chase International. This agent had been taking a look at the re-sale markets in Montreux and ArrowCreek, and thought I might be interested in her findings. I was, and asked if I may post her email on this blog and she replied, “I would be flattered.”
In fact, because I was going to post her numbers, she confirmed them this morning. This agent’s email follows…
It’s happening… Montreux is now in the thick of our housing recession. Remember there are only 201 homes in Montreux:
33 are on the market – 17% of all homes
7 are short sales (although 1 says “yes-other” with no explanation)
1 bank owned
That equates to 24.2% of the listings as distressed! (price range from $1,075,000 – $1,499,000; the bank owned is $999,999, so essentially all are $1 mil+)
4 are in escrow (3 are shorts)
However ArrowCreek still has it beat (sort of):
56 active listings – approximately 6% of all homes
12 are short sales
7 are bank owned (although 1 says “yes-other”)
That equals 34% of the listings as distressed
However, of the 16 listings over $1 mil, only 1 is distressed and
Another statistic that is interesting:
of 201 homes in Montreux, 8 are distressed, or 4%
of 852 homes in ArrowCreek, 19 are distressed, or 2.2%
So, in that respect, Montreux is in worse shape. (I need to confirm the exact number of homes in each, but I think I‘m close)
[Update – Here are the confirmed numbers:
Montreux:
201 SFRs
234 vacant SFR parcels
ArrowCreek:
852 SFRs
205 Vacant SFR parcels]
Free Falling
Guy,
Interesting. It would seem that Montreux owners want out, but have not yet capitulated and adjusted list prices to current market realities. By chance could you add Somersett numbers to this analysis? It seems that the sellers capitulated some time ago in Somersett, so I’m curious how it stacks up today on these measures.
Roland
If the mortgage balance on a house exceeds the value of the house makes the house “distressed”, how can you know what percentage of houses in any neighborhhod are distressed?
All you can know is what percenatge of houses that ARE FOR SALE are distressed.
I personally know about 6 people who owe more on their mortgage than their house is worth, but the house is not for sale. They don’t show up anywhere, but they are clearly as “distressed” as people trying to make a short sale.
GreenNV
I look at the new listings on a daily basis, and a lot of the Montreux and ArrowCreek and Saddlehorn ones are listed for less than the loan balance, but not as short sales. Are the sellers planning to make up the loss at closing? Or are they not telling their listing agent the their true financial status?
I’m curious if a buyer has legal recourse if they make an offer on a “standard” sale, and it turns out to be a short sale subject to lender hell. I’m pretty sure the realtors on both sides have disclaimers to protect them in the billion pages of documents you have to sign (as well as against tsunamis, thermonuclear war, locust plagues, etc.), but does the seller have any liability in not disclosing their position? Just wondering.
Walter
2.2% of the houses in Arrowcreek are distressed?
Ho Ho, that’s a good one.
That’s really funny Guy.
skeptical
Put me in Walter’s camp.
These numbers for Montreux and Arrowcreek are much more optimistic than I would have guessed. When 75% of all properties in Nevada are underwater, I think it’s crazy to say that Arrowcreek and Montreux have so few impaired sellers.
I think the picture is uglier than the stated numbers Guy relays. I think the picture will get much uglier before this is through.
CommercialLender
Hmmm, GreenNV, good one. Anyone?
If someone only “makes an offer” as you wrote, then I don’t know about any legal recourse. I rather suspect, however, that more than a few Realtors ‘accidentally’ forget to disclose that fact in their listings.
On the other hand, if a seller accepts an offer but does not say it is subject to the lender’s rights, then seems to me the seller would be in deep water. Doesn’t the standard contract show he’d have to deliver the title free of any cloud and doesn’t he by law have to disclose material issues with the house? But what about disclosing anything material about his mortgage?
I suspect he’d a) have to sell at that contract price which would mean he’d have to cover or arrange to be forgiven the mortgage shortfall, b) figure another way to reject the contract to get out of it, or c) default on the contract.
If a) and knowing the sale would happen quickly, the lender would not likely forgive anything, if he could even get their attention in time for the sale to close. If b), well, that likely happens more often than anyone cares to admit. If c), the seller would likely get sued for specific performance (lawyers, correct me) and I suppose the buyer would win, that is if the seller had any money left to collect on or to cover the lender’s short outstanding debt.
MikeZ
I’m curious if a buyer has legal recourse if they make an offer on a “standard” sale, and it turns out to be a short sale subject to lender hell.
In the role of a buyer, I would fully expect MY agent would do the legwork necessary to verify whether or not the sale would require lender approval.
smarten
Mike –
You’re asking a question we’ve dealt with on this blog in the past.
It’s my position that a listing IS an offer to sell upon the terms/conditions stated [others I know contend a listing is nothing more than an invitation to consider offers whether/not they match the terms/conditions of the listing]. Therefore if you as a buyer submit an offer that meets each and every one of those terms/conditions, the contract is complete!
The problem is few offers are identical to the terms/conditions stated in a listing. So unless a seller agrees to a buyer’s offer that is less than the mortgages against the property; and the seller does not make his/her acceptance contingent upon his/her lienholders agreeing to take less than is owed; I don’t think there is any liability.
And from my experience [and I’ve seen a good amount of this], it is the agent who is the last to know. So it’s generally not deception on the listing agent’s part. It’s stupidity!
Horatio
2.2% Guy?
You taking up comedy these days?
Walter
Free Falling:
Speaking of Somersett, 1905 Russell Pointe just got reduced. Again. Now down to $385K. Sold new orginally for $766K, plus another $100K in interior improvements and landscaping. So now about a 55% decline.
I don’t know how anybody can say this market has stabilized when houses like this one in Somersett are still falling in price. This house is no dump. It is actually quite nice. Look at the pictures in the listing.
How low will they go?
MikeZ
[Walter] Speaking of Somersett, 1905 Russell Pointe just got reduced. Again. Now down to $385K. Sold new orginally for $766K, plus another $100K in interior improvements and landscaping
?? Zillow says $737K sale price (Oct ’05) and a pending sale at $420K.
Someone’s numbers are wrong.
Sully
Wow, picky are we?
The county records the house on 10/2005 at 736,500.
Add the 100K in extras, adjust for inflation and the total price was 933,600 in 2010 dollars. The MLS has the house – Price Reduced (short sale) at 385,000.
So, yeah Walter was wrong as the value dropped by almost 59% in todays dollar. 🙂
Guy Johnson
I’m pretty sure you guys are just joking, but for clarification, the number of “distressed” properties quoted in the post above is OF CURRENT ACTIVE LISTED PROPERTIES FOR SALE, and not ALL properties.
Raymond
Walter,
When this house sells, finally, in the 300s, (for 55%-60% off of initial price plus improvements) it will be above the median, of course, and contribute to a “rising median”. And then some here on this blog will say “see, the median is rising, thus proving the market has bottomed.” Totally ignoring the FACT this house, and hundreds of others like it, has been steadily declining in price for the last year.
neophyte
So Guy,
What is a typical percentage of distressed properties for CURRENT ACTIVE LISTED PROPERTIES FOR SALE?
– in Reno
– in the US
Don’t know much, but it seemed to me that some of the soubts regarding relatively low numbers of distressed properties in Arrowcreek and Montreux were warranted.
So, please, enlighten us.
Carney
neophyte,
In Somersett, the neighborhood of the house on Russell Pointe, distressed sales make up about 50% of all listings.
This is further evidence of the fact that the market has bottomed.
(Yea, right.)
Indeed
For Somersett it is more than 50%. There are 109 listings and 57 are either a short sale or an REO.
52% to be precise.
How can anybody possibly say that prices have bottomed in a neighborhood where 52% of all listings are distressed?
Guy Johnson
neophyte,
In Reno-Sparks (MLS #100) the are presently 4,348 Active (Residential) listings. Of those,
473 are bank-owned
186 Fannie-owned, Freddie-owned, or HUD homes
2,162 are short sales
25 are subject to court approval (i.e. estate sales)
15 are being sold be relocation companies
1,489 have no special conditions or circumstances associated with them
Depending on what one includes in his definition of “distressed” you’ll see that about 65% of the Active listings are bank-owned, corporate-owned, or short sales – categories we typically include under the “distressed” label.
I don’t have the numbers for the US.
Guy Johnson
Btw, I would suggest comparing the Reno-Sparks-wide 65% distressed-listings number to ArrowCreek’s 34% and Montreux’s 24% mentioned in the top-level post.
Disregard the 2.2% and 4% numbers given in the post.
Kiley
IF I may expand on Indeed’s question in light of Guy’s comment:
How can anybody posssibly say that prices have bottomed in a city where 65% of all listings are distressed??
neophyte
Guy,
Thanks for the clarification and added stats.
Your stats infer that Montreux and Arrowcreek are substantially healthier than the rest of Reno.
So, I don’t understand your contact’s dour remarks on them for one. And for two, it seems to me the real picture is probably much worse. After all, who can afford $15k in property taxes these days, let alone the prices (and assoc mortgages) that the delusionary sellers are still demanding?
MikeZ
If the mortgage balance on a house exceeds the value of the house makes the house “distressed”
That makes the home underwater, not distressed.
Kalifornian
are any good news shared on this blog? sounds like a non-stop doomsday to me…
skeptical
Kali,
It’s a housiing depression. You want someone to blow sunshine up your butt, turn on cnbc.
Keystone
Hey MikeZ,
Instead of word picking about “distressed” and “underwater”, why don’t you respond to the best question asked in this thread:
“How can anybody possibly say that prices have bottomed in a city where 65% of all listings are distressed?”
GratefulD_420
…hey there Keystone… what are you saying?
According to Smarten there is one piece of Data that we have ALL agreed is the #1 piece of data. The median is stable and we have hit the bottom.
Even though the median or psf… doesn’t include
land
location
quality
even forget that if you look at different set of median price data within Washoe that the median IS falling…(Q2’09=$260k, Q2’10=$212k)
http://www.rgj.com/article/20100814/BIZ/100814028/1071
Forget that the listed sales prices keeps falling..
forget about increasing inventory (supply & demand theories are worthless!)
http://www.housingtracker.net/asking-prices/reno-nevada/
Forget that unemployment in Reno is catastophic…
that completely has nothing to do with improving housing market…
http://www.deptofnumbers.com/unemployment/nevada/reno/
none of that matters… if you say otherwise I will deflamate you for what you are… just a permabear with his eyes closed to a set of data that proves me right… we are at the bottom for a year.
Sleezy
I’m still waiting for mikez’s response to Raymond’s post…
Well mike???
Kalifornian
the question is – from the investments standpoint – who’s better off: someone buying 1 property in Cali for $499K or one who buys 3 properties in Reno for that money?
Sully
Kali; for a 3 – 1 purchase CA would win out, because you would be buying 3 in the North Valleys or Stead areas. However, 2 – 1 might be better here. This would be for a long time frame. One stickler is that Reno hasn’t ever had a bubble like this one and CA has had a few and a tendency to come back in a big way. I have been dwelling on that question for two decades and really haven’t been able to pinpoint the answer – mainly because the area I’m comparing to is 2 1/2 years ahead of Reno. So, by the time I figure out what I should have done, its too late. 🙂
smarten
Don’t mean to pick on Indeed when he/she asks “how…anybody…can…possibly say that prices have bottomed in a neighborhood where 52% of all listings are distressed,” but who ever said this? Indeed’s question reminds me of the argument re: who pays federal income taxes? What we hear in the media is that some 50% or so of all citizens pay no federal income taxes whatsoever. Yet whenever this fact is thrust upon the ultra liberal/progressive, his/her response envariably is that everyone pays plenty of taxes. We hear that there are sales taxes, property taxes, city taxes, vehicle taxes, etc. and even those who pay no income taxes pay plenty of the former. Although this statement may be accurate, that WASN’T the statement [i.e., NO ONE said anything about those latter taxes – we were talking about federal income taxes].
When I talk about a market “bottom” or “stability,” it is always in the context of the market as a WHOLE [rather than any particular neighborhood or price strata], and as measured by a particular data set [like median sales price, PPSF, etc.]. In response people like Indeed and Walter ask how can prices be stable when a particular house in a particular neighborhood [here Somersett] is priced at 41% of its previous bubble high asking price? The answer is simple if you listen: we’re not talking about any particular neighborhood; we’re not talking about asking prices; and, we’re talking about the overall median sales price [i.e., a different answer to a different question].
Then we hear from people like Raymond who observe that “when [a particular]…house sells…in the $300Ks, (for 55%-60% off of initial price plus improvements) it will be above the median…and contribute to a ‘rising median.’ And then some here on this blog will say ‘see, the median is rising, thus proving the market [as opposed to the market as measured by the median sales price] has bottomed’ totally ignoring the FACT this house, and hundreds of others like it, ha[ve] been steadily declining in price for the last year.”
Since Raymond is correct in his observation, I again ask the question how exactly should we measure the Reno/Sparks residential real estate market if not by data such as median sales price, PPSF, DOM, unit sales, etc? Whenever I’ve asked this question in the past, the only response I’ve received is something along the lines of “I’ll know it when I see it” [what I call the pornography response].
For some years Guy has been tracking the Reno/Sparks residential sales market using data such as number of listings, number of sales, median sales price, etc. I have asked, and will again ask, if this data is not an effective means of tracking the Reno/Sparks residential sales market as a whole, then what other objective data is? And if there is none, then why should Guy continue to go through the effort he does each month?
smarten
Sorry but one additional point.
I suspect that the moment Guy’s data exhibits falling unit sales, PPSF, median sales price, pending sales and increased inventory and DOM, the permabears will seize upon this data to assert that the residential sales market as a whole is tanking. But as long as the data suggests something else, we hear it’s irrelevant for the reasons asserted.
You can’t have it both ways guys.
Sully
smarthen, in a sense you’re saying the same thing you are complaining about. The data Guy collects is valuable, however each person may use it in a different way. I’ve said over and over this market, as a whole, has not stabilized and wont until the high end comes in line with the rest.
It doesn’t mean I am not using the data. When you adjust the median price since 1998 for inflation, using 1998 as the base year, you find the current median is actually below 1998 levels.
Further research, using different metrics, combined with this info (hopefully) will help me make a well thought out decision.
There are many reasons for buying as there are for waiting. Everyone has to come to their own terms.
As an off the wall example: Brainless Ben said at the Jackson Hole meeting that the current direction of the economy is worse than expected. I think was was exactly what was to be expected and don’t feel I was the only one that thought that way.
I was using the same data he was, so my gut feeling overrides his PhD in stupidity. However, others may feel differently – that part of this country is still free. Not sure Congress wont try to change it, but for now we can still think for ourselves.
Kalifornian
I’m looking to buy 2 SFRs in NW (89523) for under $350K total and hope to rent out each for $1100-1200/mo. Is it more or less realistic expectation?
Sully
Kali; the rent range is currently realistic. Not sure what you can get in the price range. However, to get those rents you need something decent not a dump.
MikeZ
Don’t mean to pick on Indeed when he/she asks “how…anybody…can…possibly say that prices have bottomed in a neighborhood where 52% of all listings are distressed,” but who ever said this?
I don’t know how to say this nicely … It should be obvious by now that a few contributors here have a VERY difficult time reading for comprehension.
You’re a saint, smarten, for even entertaining the idea that people like Derrick can be reasoned with.
I think you’re wasting your time, but good luck!
MikeZ
[Sully “Brainless Ben” “my gut feeling overrides his PhD in stupidity.” “that part of this country is still free.” “Not sure Congress wont try to change it, but for now we can still think for ourselves.”
Is this a joke … or is that the real Sully we see coming to the surface now?!
The Sully above is quite different from the Sully we’ve all been seeing and interacting with for the last year or so.
Kalifornian
Thanks, Sully,
I was thinking a couple of $160-170K SFRs in Northgate area could be good rentals. Yet, unemployment in Reno is high – so where do those existing/potential tenants work?
Sully
Kali, unemployment and underemployment. A lot of people are still on reduced work week. Maybe you can import them from CA. 🙂
GratefulD_420
Kalifornian –
If your for real..you should hire Guy. He can tell you all about the Rental market… and what you could expect to get in certain areas, for specific size, quality. Then he can help you get the homes. If he can’t or won’t he can set you up with someone who could. Goodluck.
Kalifornian
I was hoping to get advice from this forum, w/o RE personalities involved. I know for sure people like Guy et al will be very helpful. However, I thought of getting advice from you permabears and skeptics, before proceeding.
MikeZ
Kalifornian, your questions are too vague. How can anyone advise you on home purchases when all you offer is the general area and approximate price?!
If you post the MLS #s, you’ll probably get much more feedback.
smarten
Okay Kali –
I’ll jump in.
First, there are a glut or rentals in Reno/Sparks. In fact a quick search on craigslist limited to just those priced between $1,100-$1,200/month reveals ONE THOUSAND. Thus your ability to rent anything as a landlord is going to be “challenging.” And the only way your rental will rent compared to the other guy’s is if yours is cheaper [meaning even less rent for you].
Second, how are you going to pay for these SFRs? Assuming it will involve purchase money mortgages, good luck! You had better be a stellar borrower who either has a boat load of proven income, likely to continue for the next five years, that you can document. Or you had better have a steady job where you can show W-2 income.
Even assuming you can qualify for a mortgage [or two], since these purchases will be new rentals with no proven rental history, most lenders I know are going to require a rent survey [which will cost an additional $175 or so and likely conclude that the $1,100-$1,200/month you’re expecting to realize will more likely be $900-$1,000/month. Then your lender is going to discount this number by 25% [for a vacancy factor]. Then your lender is going to deduct mortgage, property tax and insurance costs which when everything is said and done will likely result in negative cash flow. In other words, you’d better have a boat load of income to cover the negative cash flow from your rental purchases.
Third, your interest rate for a non-occupied mortgage will probably be between .5%-.75% more than for a comparable owner-occupied mortgage. And, the down payment requirement will likely be 10% more [compared to an owner-occupied mortgage] as well.
Fourth, are you going to be an absentee landlord? Assuming the answer is yes, you’d better factor in another 8% to 10% of negative cash flow for professional management.
And remember, we haven’t even discussed maintenance/repairs and improvement costs.
Fifth, in the short run [several years] there will likely be no appreciation in value. And because of costs of resale, the value of your purchases will have to increase by a good 8%-9% just for you to break even [not including your negative cash flow].
So big money down payments; difficulty in qualifying for a mortgage [or two]; negative cash flow; no appreciation in value; a renter’s rental market; high vacancy rates [because of the competition]; so why jump in?
Now if you’re looking for a primary residence in Reno/Sparks, that’s a different story. But for investment/cash flow purposes, I’d think long and hard before I contemplated taking on what you’re proposing.
Kalifornian
Okay, that’s a good feedback. I do have good cash reserves that I thought of spending on buying Reno rentals w/o going into debt — but if so much negative feedback here from Mr/Ms. smarten I’d have to take my cash elsewhere.
smarten
Kali –
Recommendation for your cash.
Invest in deeds of trust through a reputable hard money lender. These aren’t for the faint of heart, but you can realize monthly income in the 10% or greater range. Your investment is evidenced by a promissory note [typically with a term of five years or less] secured by a mortgage against someone’s real property [typically a house or condo]. Obviously first deeds of trust are less risky than junior ones, and you have more “control” if you’re the only investor [versus investing with others and then “fractionalizing” your position]. And you need to make sure that there’s sufficient equity in the security should you have to foreclose [I try to invest in deeds of trust against properties I would want to own should they go bad because your remedy is typically foreclosure]. But if you have a competent broker to watch out for you, they can be safe investment plays in real estate. Just a suggestion.
Sully
Kali, another good place for your cash is under your mattress. 🙂
Benny
The only way to protect yourself from the historic currency debasement currently underway fron the fed?
GOLD
The debts can never be repaid. Implode the value of the currency and destroy our standard of living and the debt value collapses with it. This is the course that has been chosen.
How to protect the value of your assets?
GOLD
Kalifornian
actually, keeping cash under the mattress 😉 might be a bit more secure as compared to keeping it in the banks which can collapse any time, and good luck shaking FDIC for your money, or so I’m afraid.
w/o turning this RE blog into argument over best investments out there, I should mention I don’t see GOLD as a panacea. Countries like Russia can always dump tons of gold onto the market and thus devalue it.
MikeZ
re: Gold
Gold, like tulips and trinkets that came before, is only valuable as long as people want it. And it’s only worth what people are willing to pay.
Aside from the limited commercial uses for its unique physical properties, gold has no intrinsic value: you can’t live in it, you can’t drive it, heat or cool with it, you can’t eat or drink it.
If I have 100 lbs of gold and you have 100 lbs of food, which one of us eats?
All of this, IMO.
Gold is a fine hedge against inflation, in this economy, but if the economy collapses, it could very well collapse with it.
Kalifornian
I looked into Trust Deeds investing – pretty risky and many pitfalls.
Sully
Wow, I didn’t realize gold was only worth what people are willing to pay, I guess houses, cars and stocks are worth more than people are willing to pay! 🙂