John Mitchell, US Bank’s western region economist, thinks that Northern Nevada’s economy is poised for growth, despite the current housing slump. Perhaps that’s why the builders keep on building? read
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John Mitchell, US Bank’s western region economist, thinks that Northern Nevada’s economy is poised for growth, despite the current housing slump. Perhaps that’s why the builders keep on building? read
gotlots
Is there anybody reading this blog who can recall when a bank economist ever, ever suggested that the future was not rosy?
Bank’s make their money by making loans. People are less inclined to go into debt if they think the future may be uncertain. Mr. Mitchell’s employer has a very vested interest in convincing people that the future is not at all uncertain—that it is terrific. The most a bank economist will ever do, when he really has his doubts, is to say that “in the long term” the future is great. Recall that the great economist Keynes (who never worked for a bank) reminded us that in the long term “we will all be dead.”
When Mr. Mitchell goes to Seattle, he tell the people there that the economic future in Seattle looks very good. When he goes to Portland, he tells the people there that the economic future in Portland looks very good. When he goes to Bozeman, he tells the people there that the economic future in Bozeman looks very good. Also in Salt Lake, and Boise, and Phoenix. At least “in the long run.” Got to keep that loan volume up.
The builders continue to build because they have no other viable economic alternative. What are they going to do? Go out of business? They are building on land that is bought and paid for. Much of this land was bought at 2000 prices. They are building with the huge profits that they earned in 2002-2004. And now, the costs of construction are going down. The price of lumber and related materials is down substantially from a year ago. Their subcontractors, who are told profit margins are down, are made to work for less. The builders will build out and build out, adding yet more and more to the current 1000s of new houses on the market. Almost none of which appear in the MLS.
The builders are already inflicting serious damage on the resale market with their nominal price reductions and their never ending incentives. See now where the Fallen Leaf condos are offering the opportunity to get in a raffle to win a new condo for free?
The builders still have paid for land to build on. They will build on. And eventually they will break on price when they end up holding more inventory than Wal-Mart. When the builders break on price, the resale market will be devastated.
If one seeks to lock in declining value on a house in Reno, there has never been a better time to buy. There are now enough examples of this over the past 12 months. But if one thinks we have arrived at the bottom, go ahead and buy now! If one wants to stake his future on Mr. Mitchell from US Bank, go ahead and buy now!
Reno Ignoramus
It is understandable why realtors selling used houses wish the builders would just leave town and take all their unsold new houses with them.
The builders will continue to build until their profit margins are reduced to zero. There are car dealerships, when the backlot is bulging with unsold cars and trucks, that will sell a vehicle for a $200 profit. Why not? It reduces the flooring expense and moves inventory. While the numbers are not carved as fine in the housing industry, the principle is the same.
The reality is that the builders can continue to build until their profits reach the equivalent of $200 a car. The banner once in a lifetime years of 2001-2004 are gone, and with them those staggering profits for the builders. But build on they will, albeit at smaller margins, inflicting severe pain on the resale market in the process.
Perry
Today’s Wall Street Journal. “More Home Loans Go Sour”.
Agencies that counsel homeowners with mortgage problems say that many borrowers are running into problems because of the terms of their loans, not their personal circumstances. “It’s mostly people with adjustables” who are having trouble paying their loans, says Pam Canada, executive director of the NeighborWorks HomeOwnership Center in Sacramento, Calif.
Get an adjustable as the future is great.
gotlots
Perry:
Not just any adjustable. Go out and get a nothing down, interest only, negative amortization option ARM. Since we are apparently about to return to the days of 15-20% annual appreciation, why put any of your own skin in the game, and what difference does it make if you can’t pay the loan off when it resets? You are just going to sell your $500K house for $650K in five days a year later anyway, right?
Lindie
And Perry, don’t worry about what you pay for a house. It doesn’t matter. For surely some Greater Fool will come along and pay you 20% more than you paid, and that Fool need not worry, because some even Greater Fool will come along and pay him 20% more than he paid, into infinity, yes?
Paul
Lindie’s comment is on the mark. I know an Arabian horse breeder who sells his yearling colts on such a theory. In actuality, these are horses which have only limited true intrinsic value on their own, but have speculative value considering what a `Greater Fool’ would pay to own one to hopefully produce more to sell to the next guy. Problem is only a very, very few Arabian colts mature to be worthy sires, and like houses, none has an appreciation guaranty.
gotlots
MARKET DETERIORATION UPDATE
A Del Webb Sierra Canyon resale has now fallen through the $300K level. Check out MLS # 60020863. Just reduced to $299,000.
This is a perfect example of what we have been posting about today. Del Webb builds on, and on, and on, in Sierra Canyon. Putting the hurt on the resales.
Good thing somebody didn’t buy this house last week for $329K. Once again the bubble sitters are right.
If one seeks to lock in declining value on a house in reno, there has never been a better time to buy.
Lindie
Re Sierra Canyon, there are dozens of resale houses in the MLS and Del Webb has multi-dozens under construction. Why in the world would anybody buy there now?
That is going to be a train wreck.
Wazzup
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Reno Ignoramus
I hear the train a comin’; it’s roll’n round the bend,
And I ain’t seen the sunshine since I don’t know when…”
Perry
Paid $316,964 7/22/05. Out of state California owner.
Perry
Sorry, in regard to MLS # 60020863
gotlots
Thanks for the info Perry. So if the owner of MLS # 60020863 gets 97% of asking, that is $290,000. If he incurs selling costs of 5%, he is down to $275,500. That puts him $41,500 underwater.
He has owned the house for 15 months. If he got a nothing down, I/O loan at, say, 5.5%, his monthly interest payment has been $1450 a month. Add to that, say, $300 a month for taxes and insurance. Total monthly nut has been $1750. For 15 months = $26,250.
$41,500 + $26,250 = $67,750.00 upside down, and still counting.
What a great flip this has been. (You can tell it’s a flip by the telltale “never been lived in”).
Comps Falling. Winter coming. More flippers getting desperate.
If one seeks to lock in declining value on a house in Reno, there has never been a better time to buy.
Grand Wazoo
How does one get access to the raw Reno MLS listings online, without going through the RGJ site? For example, the “price reduced” flag seems to be missing from the MLS listings viewed via RGJ.com. I’d also like to be able to search by street name, or at least zip code.
Same question goes for foreclosures?
Anyone? Anyone? Bueller?
Perry
Hey Wazoo,
You can look on Diane’s website for the listings. http://www.dianecohn.com/
Click on search the MLS. She uses IDX which a bunch of realtors use in this town. You can search by street name, MLS#, area, whatever.
Grand Wazoo
Perry – the Grand Wazoo says thanks!!
NVMojo
Gee whiz! What industry is moving to Reno to cause such great news? Gold mining? HAHA!!!