Just a few random items for weekend fun!
– Halfway through the month, TD/NOS/NOD stands at 118/327/548. April’s totals were 191/769/931. Filings tend to pick up as a month goes on. It looks like TDs are on an upswing again, but nowhere near their peak of last fall. NOSs are on January’s pace, and will probably top out at over the record of 770 set in March. NODs are exploding, and I think they will end the month somewhere north of 1200, 30% up from last month’s record of 931. Not a great sign of a stabilizing market.
– The majority of closed units at the Belvedere are now in some level of default. The building keeps getting yanked from it’s TD date. GSR now has about 20 TDs recorded, and a couple more units go into default every week. If someone could PLEASE explain to me how the GSR’s business model made any sense to anyone, I would be much obliged.
– There was a comment this week that Toll Brothers had closed all their sales office around here. I stopped by their new models at Sonterra in Somersett, and sure enough, there is a sign up that saying "Sales are temporarily suspended at this community. We are open for sale at Dorado at Damonte Ranch. Please visit that community or call 775-852-3331 for further information." Wow. When it is cheaper to close down 4 of your 5 sales offices and not have a prayer of a sale than to at least staff them says a lot. I suspect that their product mix is about to be seriously downgraded to meet the market. I have heard about some of their projects where the street-front elevations remain the same to preserve consistency, but the depth of the homes have been cut in half. It is sort of a Hollywood back lot look.
– Altmann-Ott had remained pretty much unscathed in this mess, until they received a NOD this week on their Pinnacles development. The first phase was 45 homes, and 2 sold (APNs 518-481-08 and 09). How would you like to be propping up that HOA?
– Hey Waterstone Attached Homes resident – the trustee’s sale is scheduled for June 3 at 10 AM on the courthouse steps. It is TS # NV0233585, and you can check the progress and results by entering that number on this site. Good luck. I think you will be safe, and might want to try to renegotiate your rent downwards while this is all going on.
– And what’s an update without a Montage report? 26 units of 380 closed so far, though none in the last 11 days. 18 filings to cancel purchase agreements have been filed to date, including 4 since the Montage closed its last unit. TICOR, who is handling the closings on behalf of the Monty has filed an interpleader lawsuit, basically saying "we’re holding the units, there are disputes, and we don’t know what the heck to do about it". In the mean time, the Montage is now sending notifications to contract holders who have chosen not to close (80% or so is my rough guess) , indicating that they will start proceedings to recapture the deposits in 20 days. This is all really a side show to the owner/lender’s descent into to purgatory. Corus Bank is seemingly on life support (thanks bondstevebond for the initial link). There is some interesting speculation that buyers who have closed may be bought out at a profit as a convenience to the new owners, if a vulture fund buys the Montage and needs to dismantle the HOA. Curious times, indeed.
– The Montage isn’t Corus’ only local deal – the are underwriting Barone Tanamera in the South Meadows. Fleur de Lis is sinking, quite literally, according to the filings, and the rest of the project has seen significant "price erosion". Kevin, we haven’t heard from you in a long time – what’s happening with the project?
Hope that’s enough to generate some interesting observations from ‘yall over the weekend. Let me know it there are other things you would like to see me dive into. As professor Harold Hill once sang, "Idle hands are the Devil’s playground , and that’s TROUBLE!".
smarten
That was my point John. Montreux is equivalent to the higher end of IV [at least for comparison purposes]. The lower end of IV is equivalent to lower end Somersett/Spanish Springs. The aggressively priced REOs in Somersett/Spanish Springs are getting snapped up. Similarly priced distress properties in Montreux are also starting to move. So in this respect I see these different portions of Washoe Cunty moving in tandemn.
And I believe my observations re: IV can be transferred over the hill to Reno. Are there a whole lot of delusionally priced properties in both areas? Absolutely. But the aggressively priced stuff at either end of the price spectrum is getting systematically picked off. And I think you’re going to see this trend magnify as word gets out jumbo financing is finally beginning to loosen up.
I keep thinking of that Renaissance REO on Delacroix [in Montreux] I commented upon several months ago. It should be closing any day at what I expect will be under $600K. It will then set the bar for the other Rennaisance homes for sale and IMO, represents good value at the higher end of Reno’s SFR market.
I think that three or four months from now when things become clearer to the masses, although the median sales price may not have risen, you’re going to look back at the nicer well priced stuff that’s getting scooped up right now and wished you had moved sooner rather than later because what you can buy for $X.00 tomorrow might not be as nice as what you can buy for the same price today [something I definitely think is going to be the case in IV].
But as I said, just my opinion; don’t get so hung up on the numbers; and keep your eyes open.
john
Smarten – I agree with you on both points. The homes that offer value in both areas, Montreux and IV, even if they are over 1 mil., are moving now after large reductions and for good reason. These are both highly desirable areas that have been way overpriced for a long time, meaning there are people who have been sitting on the sidelines for a long time. And yes, a Renaissance for $600k is a phenomenal deal, especially considering that one sold last year for $1.6, believe it or not. These homes are not like the most in Montreux quality wise, but for $600k they are very nice and have killer views and are much nicer in my opinion than similar in Somersett or Arrowcreek due to their location. Blanket statements such as “now is a stupid time to buy any house” and “what a fool for paying 2 mil. for an 8k sq foot house in Montreux” are simply that. They ignore the finer, case by case details of buying a high end house in a premium neighborhood. Plus, the higher end seller usually can buy some time to ride out the storm due to deeper pockets. Finding one who can’t is not all that easy, but when you do, it may not be wise to walk away just because you think tomorrow’s deal will always be better than today’s.
BanteringBear
It seems that the same people keep showing up to parrot the same old homes selling = good deal = healthy market. What kind of logic is this? It takes closed sales for a market to move down in price. Does that mean that those properties which set the new prices are a good value, just because they paid substantially less than the previous buyer? Hell no!
We also keep hearing that these high end areas are chalk full of wealthy people who can “ride out” massive equity losses. I thought we already buried that foolish ‘but this are is special’ garbage, proven false by so many examples of high end foreclosures. It appears as if certain people swept away with “Montreux” and the like see life through rose-colored glasses. An entertaining sight, indeed.
Corina
One of the things that has always amused me about this blog is how the same 2 or 3 people like to talk about the very expensive end of the housing spectrum, and then make a half baked extrapolation that what happens there must be happening at all price points in the market.
So a couple houses have sold at Montreux? So?
So a few wealthy people are buying at Incline. So?
We are talking about what amounts to around 0.3% of the Washoe County housing market. What is happening in the 0.3% far upper end of the market is absolutely irrelevant to the 99.7% of buyers of more typical and ordinary means.
Maybe somebody will come along and pay $36 million for that Tahoe lake front estate. Should we all then conclude that surely nobody who is paying $36 million is a Fool and the only logical conclusion we all can reach is that the bottom is in?
Sorry, I’m not buying it. Somehow a projected 1000 NODs this month just seems to matter more to me.
Carney
Just today, May 18, there were 71 NODs recorded in Washoe County.
However, just ignore that fact.
The fact that some well off person put an offer in on a house at Incline Village is the only fact that matters. Because surely any well off person who puts an offer in on a house at Incline Village cannot be a Fool, and surely the market must be at bottom.
Ralston
As for Incline Village: “Well, it’s different here. Everybody wants to live here. And you know they aern’t making any more Lake Tahoe land. So you better buy now or get priced out forever.”
Chase Nation realtors
2004-2008
Smarten
2009
homebuyer2009
Wow. a lot of comments regarding this blog. I will tell you that I have been renting in Reno for the past 4 years after being back east for 10 years. Our move back was at the peak of the bubble and we knew that the market was out of control. So we continued to rent. Although we wanted to purchase, it was clear everything, and I mean everything was way overpriced. Because of our desire to buy, I have been reading this blog for a couple of years. I would see this blog as just one of the tools a potential buyer would use to educate themselves on the Reno RE market. It comes down to educating yourself. As previous posters said, just read through the rants, egos, and sales pitches, and you have a very professional, educated discussion on the market. Because of this blog and many other sources, including my Realtor, We lowballed a REO with confidence that it was the right move. We got our asking price, a very very low interest and $8,000 tax credit. Timing the market to bottom will be impossible. We just have to do what’s best for ourselves. If you can walk away from a purchase and feel good about it, then that makes it a great time to buy. Thanks to all you posters for sharing your comments, knowledge and research. I close on May 29th and after that time, I really don’t care what happens to the Reno RE market other then to say I hope it gets better for the sake of those directly effected by it for their livelihoods.
GratefulD_420
WOW Smarten! I know you have shown your colors before… but my goodness you are really coming out of the closet with this one.
“The lower end of IV is equivalent to lower end Somersett/Spanish Springs…..So in this respect I see these different portions of Washoe Cunty moving in tandemn…And I believe my observations re: IV can be transferred over the hill to Reno.”
Hahaha. If you believe this to be true… then I hoped you bought alot of BOA & Wells Fargo today, along with Mr. Buffet. LOL!
Ralston… that is funny.
Homebuyer2009… I hope you live by what you say.. and never care… and never read this blog again… because… these statements repeated (purpetrated) by realtors time&time again, really get me going.
“If you can walk away from a purchase and feel good about it, then that makes it a great time to buy.” – Homebuyer2009
This sentiment is ridiculous when you are $10k in debt, $20k.. maybe $50k…. maybe $100k …maybe $200. I
GratefulD_420
WOW Smarten! I know you have shown your colors before… but my goodness you are really coming out of the closet with this one.
“The lower end of IV is equivalent to lower end Somersett/Spanish Springs…..So in this respect I see these different portions of Washoe County moving in tandemn…And I believe my observations re: IV can be transferred over the hill to Reno.”
Hahaha. If you believe this to be true… then I hoped you bought alot of BOA & Wells Fargo today, along with Mr. Buffet. LOL!
Ralston… that is funny stuff.
Homebuyer2009… I hope you live by what you say.. and never care…never read the news and never read this blog again… because… these statements repeated (purpetrated) by realtors time&time again, really get me going.
“If you can walk away from a purchase and feel good about it, then that makes it a great time to buy.” – Homebuyer2009
cue..sunshine, white picket fence, young girl skipping down the tree lined street
This sentiment is ridiculous when you are $10k in debt, $20k.. maybe $50k…. maybe $100k …maybe $200K. There are many short sale & foreclosure examples out there now. There will be more.
Smarten, John…We can go through the core facts again…2nd half IMF resets, record amounts of unemployment, no sign of a healthy industry (especially in Reno), record defaults looming, record shawdow inventories building for months and months.
One thing I have learned during this entire RE cycle is it moves real slow. Always slower than you think. Its a cravass the size of a grand canyon… moving at mules speed. Timing the bottom of this thing will be easy as pie. The only single thing that will force my hand at this point is inflation. This can move much, much faster. It may be awhile but I have come to the conclusion that inflation will take off well before we hit a bottom in housing… and therfore that will be my driving force to make my purchase.
homebuyer2009
To Greatful_D and for that matter, anyone who has a vested interest in the Reno RE market. My closing sentiments were not intended to insult anyone, and if I did, I apoligize. I simply meant that I personnally will no longer have a reason to be so focused on the RE market. It really would not matter if I am ’10k…200k’ in debt (upside down) going forward. I hope to live in our new home for many many years. And as for me and my situation, it was a great time to buy.
daily
homebuyer2009:
Congratulations. Enjoy your home.
BanteringBear
homebuyer2009 posted:
“It really would not matter if I am ‘10k…200k’ in debt (upside down) going forward. I hope to live in our new home for many many years. And as for me and my situation, it was a great time to buy.”
Surely this is an all cash sale, right? I mean, somebody with such an absolute disregard for money must be rolling in the dough, with no need whatsoever for one of those pesky things we call jobs…
smarten
homebuyer2009, I agree w/your comments.
You need to be a contrarian and nurture a very thick skin for this blog!
Are mortgage resets and 1,000s of NODs important in assessing the market as a whole? Sure. But I suggest it would be a mistake to have data tunnel vision. Within those numbers there are many individual stories that may resonate with you.
If you’re a first time homebuyer, you could give a rat’s behind about what’s happening in Montreux because it’s out of your league. But if you’re someone like Tom, you could care less what’s going on in 99% of the Reno-Sparks real estate market. If you work for wages in Reno, you’re never going to consider living full time in Incline Village because it’s geographically undesireable. But if you’re a “rich Californian” retiree who is not wed to a place to live because of a job, Reno-Sparks isn’t your only option.
The point here is that if in a vacuum we’re all potential buyers, presumably we’re looking for “deals” in our particular strata and our particular geographical portion of the marketplace. If we zero in on that particular strata, although the rest of the market may be interesting to watch academically for many of the reasons we share on this blog, in the real world do we really, really care?
2-1/2 years ago when I started getting serious about buying, the local real estate market was whacky. Nothing was fairly priced and because of the run up in pricing, the things I was interested in buying were selling for my price comfort zone times two-and-a-half! I, like some of you, refused to buy into this hype [plus I couldn’t afford it] and chose to become a renter.
But prices in the segment of the market I have been studying have been coming down – not everywhere, but at least somewhere. 1-1/2 years ago I made the observation that at least in Incline Village, things that were selling for $2M [to pick a number] had to come down in price to $1.5M [things selling for $1.5M had to come down in price to $1M; and things selling for $1M had to come down in price to $750K] before it made sense, IMO, to consider a purchase. Well not only has this happened, but in a number of instances, prices have come down even further! So although my price comfort zone remains pretty much the same, the quality of what I can buy today compared to two years ago has increased measurably!
And I submit the SAME thing has happend in Reno-Sparks!
Also let’s look at the mortgage market. Two years ago I opined that 30 year fixed rate mortgages should get down to 4.75% and I was hoping for 4.5%. Although I was scoffed at by some, look at what has happened!
At the same time some of you may recall my complaint that if you were shopping for a jumbo mortgage, it was all but impossible to find because of what [we didn’t know at the time] turned out to be the complete melt down of our banking system. I stated it was unreasonable to expect any recovery in the housing market until money loosened up and people could actually get mortgages. Again, look at what has happened!
If you’re in this blog to criticize others, or to look to others like you’re a genius because you called the market bottom [yes, 1-1/2 years ago I called the bottom on January 11, 2009 but it was for “FUN” and I was in it for other reasons], keep doing what you’re doing. But if you’re a REAL homebuyer like homebuyer2009; you can find something to buy as a “home” that you’re truly excited about; you can seriously upgrade your standard of housing because of what has happened in the marketplace; you can secure a mortgage at the lowest rate we’ve seen in our lifetimes [remember when some on this blog emphatically stated that never, never, never would long term mortgage rates get into the 4%’s?]; and you can get a $8K tax credit to boot; you have a recipe that I personally haven’t seen in the marketplace in quite a few number of years.
Now, will prices [in a vacuum] continue to go down? Maybe. But maybe not. Will you likely have many more quality purchase options at your feet if you just wait longer? Maybe. But maybe not. Will mortgage interest rates get any lower? Likely not. In the long run are we in for stable pricing or hyper-inflation? I personally think there’s no way to avoid hyper inflation.
In the real estate world hyper-inflation means that materials cost more. It means that wages have to rise. It means that you can kiss off low cost mortgages. It also means that houses don’t sell because few are willing to pay higher prices with higher cost mortgage money. This is what I see in store for all of us.
So if you can lock in your dream home today rather than constantly looking for greener pastures just over the next hill, I say do it! I’ve asked this question before and I will ask it again. If you wanted to purchase one of those Renaissance [in Montreux] homes that were selling for $1.6M 1-1/2 years ago; you have your choice of several today that you can purchase for under $600K; and you believe overall prices are going to continue dropping for all the reasons we hear on this blog; exactly how low does a Renaissance home have to get before you decide it’s time to act? On the other hand, what are the odds you’re going to guess WRONG by continuing to sit on the sidelines [especially if you require a mortgage and you’re unsure where rates/terms will be a year from now]? And even if you guess right, realistically, how much lower in pricing do you think homes in Renaissance are going to get? Sure, that $1M Arrowcreek home may come down in price to $600K and with it, bring down the Reno-Sparks median sales price. But do you really care because you have your heart set on Renaissance?
Sorry to keep going on-and-on, but let’s go one step further. Let’s say you really, really wanted that $2M Montreux home rather than “crappy” Renaissance. But it was totally, totally out of your league. But now because of what is happening in Renaissance, you can find that $2M Montreux home for $1.05M. Are you going to hold off because people on this blog think nothing in Montreux should be selling for more than $1M?
Again, these are just my opinions and I believe everyone needs to do what’s right for them. Cheers to all!
DownButNotOut
Good comeback HB2009.
BTW I agree w/ Smarten – I didn’t read him to say the market was necessarily going up,NOD’s down, not making any more land, WF stock taking off or it is even a healthy market – only that there are SOME high end homes that are being purchased what might be looked at in hindsight in a few months as good values.Makes sense to me that this could very well be the case.
Reno Ignoramus
“…still the man hears what he wants to hear and disregards the rest, hmmmm…”
“The Boxer”
Paul Simon
Those who are predisposed to buy will find data and reasons to buy. Those who are predisposed not to buy will find data and reasons not to buy.
One of life’s great aspects is how five different people can look at the same thing and interpret it eight different ways.
CommercialLender
HB2009 – sounds like you are in the perfect place to buy a home: prices are way down, you spent several years storing up cash (via renting) to put down on the home, spent tons of time doing your due diligence including via this blog, secured great low priced long term financing, a buyer credit, got a distressed low ball REO priced aggressively, presumably are comfortable with your income for the near and long term, and have a similar long term hold horizon on the asset. That’s a perfect set of circumstances. Sure, the prices may and probably will continue to decline, but as long as you can make your payments, you’ll be fine with your long term horizon.
So, why do the others here lambaste him for this? The only rationale seems to be the prices will continue downward, but that same logic would result in never buying a car or anything else for that matter. He’s clearly stated at this point further prices declines are not his worry.
*****
Smarten – I submit that hyperinflation does NOT necessary mean wages/incomes will scream higher, at least not immmediately. Hyperinflation rears its ugly head (Zimbabwe, Germany 1920’s, et.al.) first in painful lifestyle areas such as increased cost of goods, loss of disposable income, loss of savings, drastic reduction in non-essential consupmtion, likely high interest rates, etc. Wages and overall income would only start to increase in response to the already present hyperinflation situation.
This is why, in my opinion, housing and big ticket items will not immediately go up and may even stagnate in the first stages of hyperinflation. The effect would be a deflation in real terms of those assets because the buyer market would simply evaporate as buyers struggle to buy essential goods and otherwise stay put in whatever housing they currently own. Renters would be squeezed fairly quickly, though.
Homebuyer2010-11
Ones opinion..Low interest rates only artificially and temporally adjust home Values…Your still buying into a dying market, Ending up trapped with negative equity…Cash buyers {well cash buyers are smart} they’ll be waiting… Flooding foreclosure Inventory appears to be unstoppable now, This combined with job losses ect. will only drive prices lower..Probably lower than every wish-fulls exspectations..Potintial buyers that have waited/rented this long, may as well wait a bit longer..Seems like there will be plenty of homes to choose from in the near future..
Intrest rates aside, Medium home prices are still out of reach for new realistic medium wages…The deal buyers think there getting now, May not be such a deal in six months..Renting to me is the only thing that does make since…. will be wait-en out the die-hards
3niner
Many comments here about the possible influence of this blog. As has been pointed out, it is unreasonable to believe that it has a significant effect on local prices, supply and demand take care of that. The key word here is “significant”, everything has some effect.
More importantly, the information ripple effect (through realtors, other blogs, the newspaper, the university) can be affecting market efficiency.
Right now, the local real estate market is extremely inefficient, asking prices for comparable properties can easily vary by a factor of 2, within some market segments. Obviously, most prospective buyers are only going to consider those properties which are more attractively priced.
As accurate information spreads throughout the market the numbers of both buyers and sellers, with realistic expectations, will tend to increase. This is already happening, as is evidenced by increasing volume.
This blog may be speeding this process. There is still a long way to go, however. The local real estate market is still far from an efficient one.
The matter of calling a market bottom is a tricky one. Different segments of the market will bottom at different times, just as we saw with the peak. Right now, there are properties where the asking price compares to the prices of 20 to 30 years ago. Even if these are not market bottom prices for these properties, prospective (qualified) buyers are protected by the fundamental value of the property. (It’s difficult for an owner to get into trouble when he can easily rent out his property for a positive cash flow.)
The point is that many of the deals taking place right now, really do make sense. As time goes on, there will be larger numbers of deals that make sense. What’s important is not the date of the market bottom, but whether your particular deal made sense.
billddrummer
To CommercialLender,
I believe your take on hyperinflation is correct, but for a different reason.
Capacity utilization has languished through this recession, and until the utilization slack is taken up, there won’t be a justifiction to raise prices in any industry, whether it’s basic manufacturing, wholesaling, most service oriented businesses, or retail. And with no incentive for employers to raise prices, there won’t be a simultaneous cry for wage increases from workers.
There’s anecdotal evidence that health care providers are seeing fewer patients because people are putting off going to the doctor, whether insured or not. This in turn makes the idea that a health care provider will raise prices more remote, since there’s a risk that higher fees will result in even less patient traffic.
I do agree with you that hyperinflation is a real possibilty, but it may take years until the general economy gets back to 85% utilization again.
So the money the Fed has printed won’t in and of itself cause inflation until capacity utilization rises significantly.
But after that happens, watch out!
GratefulD_420
Unfortunately Smarten, I’m not a real buyer, I’m just a wanna be buyer. If the market was near stable when I wanted to buy 2 years ago I would have bought what I could afford. If the market was stable today I would buy what I could afford. Unfortuntely, I cannot risk my families financial well being. If the down side risk was just 5%..that would be one thing. however the downside risk here in this market is much, much higher. To say otherwise is naive.
Fortunately I did not listen to some weak nostalgic sales pitches, using physc 101 (yeah, those made by you) to push me against my better judgement.
you say it is a matter of “opinion,” and I whole heartedly beg to differ when realtors and “others” tell customer as trusted professionals that, “This is a great time to buy,” like its no big deal. how is your conscious? You always appear to be nice and polite as you walk someone down the slippery path, calling others negative and such.
It is not sane to willingly put yourself in upside down debtedness of $20k, $35k, $100k that you cannot pay it at will. What happens when life happens? Medical, loss of employment, or just a desire to change sides of town.. or move out of state. You cannot, you are trapped. You cannot leave to pursue a craeer or dreams elsewhere…Trapped to slave for the bank’s greed and the realtors slight. awesome. awesome.
smarten
GratefulD_420, there are no guarantees in life. If you’re only willing to purchase a home upon the condition that it forever increases in value, then IMO you SHOULDN’T buy. Be a renter for the rest of your life because as you say, you cannot afford to risk upside down indebtedness of as little as $20K; and you’re unwilling to box yourself into what you label a “trap.”
In fact I say to anyone who’s reading this blog: if you cannot afford the risk of potentially losing $20K of equity in ANY home, then what you’re really saying is that you cannot afford home ownership. So you’re really not a home owner wannabe – you’re a wannabe with guarantees!
Worried Guy
I thought real estate always went up in the long term?…So who is worrying about $20K?…Oh how the once mighty debt bubble inflationary mirage has fallen…You know what’s next..
Welcome to Deflation Nation
GratefulD_420
So unfortunate Smarten that you take the easy way out. Take one part of a sentence and run with it ($20k, $25k, $100k).
#1 – Smarten has 1’st ridiculed me as not being a “Real” homebuyer.
#2 – Smarten now ridicules that the risk of being upside down makes me a “Renter” for life as if such a thing is a stigma that will send me running.
Smarten has now lowered to nothing but name calling & belittling of those who disagree with his statements.
Sorry that I ever engaged you in conversation. If I truly believed that you had decent intentions I would take the time to revoke your incorrect conclusions. Good luck with your perpetrations onto others. I hope it works out for you.
BanteringBear
Smarten-
You are completely out of touch with ordinary people, IMO. You represent the elitist 1%, and are living in your own bubble as far as I’m concerned. The number of people who can easily take a $20k hit to their equity or net worth is paltry. This is why I believe that banks need to require a minimum of 20% down. This protects the banks as well as the buyers in the event of a job loss or any other financial hardship which might force a sale of the home.
smarten
BB, I don’t call labeling someone who already calls him/herself a homeowner “wannabe” as really being a “wannabe w/conditions” to be “name calling” nor “elitist.”
If the potential for a $20K loss on a home purchase at the median sales price would be financially devastating to a would be homebuyer, then I’m sorry; maybe he/she shouldn’t become a homebuyer. Isn’t this [every Tom, Dick and Harry buying something he/she couldn’t afford with the assistance of a liar loan?] the exact mindset that got us into the housing mess we’re trying to dig out of?
And BTW, when you make a home purchase at fmv in a normal market, you’ve INSTANTLY lost 8%-9% of the equity in your home because if you had to turn around and sell it tomorrow; and you could get the same price that you paid; your costs of sale [which would have to come from somewhere] would total 8%-9% of the sales price.
This reality has nothing to do w/a bank requiring a minimum 20% down payment because the hypothetical $20K [or 8%-9%] hit in equity is STILL a possibility [how is the buyer “protected” if he/she places a 20% down payment ($40K) on a median priced SFR? A $20K loss in equity still amounts to a $20K loss].
IMO people have to stop EXPECTING real estate is always going to go up in value – especially in the short run. They have to plan for the long term [because owning your own home is generally a long term proposition which means you ARE “trapped” to a certain extent] rather than short term gratification. If the potential of a 10% drop in one’s home’s equity becomes a deal breaker insofar as the decision as to whether/not to become a homeowner, maybe one should not become a homeowner.
I fear what you have here are homebuyer wannabes who ONLY are willing to commit to homeownership when in their minds, there’s very little downside risk because someone else [maybe even on this blog] has told them that the market has “stabilized” [and prices have increased specifically because of that stabilization resulting in another $20K or more “loss in potential equity”], or we’ve reached a housing bottom.
So if you want to [name] call me an “elitist” [and BTW, I don’t take your comments as being name calling per se], knock yourself out.
3niner
BB and Smarten each make some good points. It’s interesting that people who wouldn’t even think of buying stocks on margin, will blithely buy real estate on margin, at levels of 90% or more.
This, in spite of the fact that real estate is the riskier investment. Real estate is a much less liquid investment (it’s harder to get out from under quickly, if things start to go South), the transaction costs are much higher (approaching 10%), and it’s harder to diversify ($30,000 might be a down payment on a single house, but could allow an investor to buy stock in multiple companies).
The fact is that many bubble buyers were in trouble as soon as they made their purchase, and could only get out of trouble by having the value of their property rise quickly. This was a situation which had to collapse, it was only a matter of when.
It’s not surprising that there were plenty of fools willing to put themselves in this situation, but the actions of the government, pressuring lenders to enable this behavior, and rewarding them when they did, were downright criminal. Of course there’s plenty of blame left over for the lenders themselves, too.
BanteringBear
Smarten-
We certainly agree that many, many people should not even be considering buying a home let alone following through with the purchase. What still passes for a “qualified buyer” these days is frightening to say the least. This minimal to zero down payment nonsense is just that- nonsense. It seems that lenders and the government are having a hard time putting down the pipe. It’s unfortunate. I do not believe we will see a balanced, healthy market until people are required to have substantial skin in the game. It’s this easy money sloshing around which is the poison, and we need to get away from it. I’m in favor of minimum requirement of 20%. Of course, that’d be very bad for home prices, and the PTB doesn’t want to hear of that.
smarten
I agree w/your last comments BB.
However, “a balanced, healthy market” as a whole isn’t a pre-requisite to finding something nice that works for you at a substantial reduction in price from its bubble high. And my initial point was really nothing more than I’m sensing, at least in IV, that the nice, reasonably price stuff IS going into escrow.
BTW, you know I’m in escrow on something I’ve found. My hopeful lender is requiring a minimum 30% down payment. Now this may be because I’m seeking a jumbo loan. But I’ll gladly scrape up the money from somewhere [which I knew would be required right from the start] if I’m fortunate enough to qualify for this level of purchase money financing given the current mortgage marketplace.
Horatio
30% down sounds just about right. Imagine if everybody who bought a house between 2001-2007 had to put 30% down, or even 20% down. Why, the only people who would have bought would have been people that actually could have afforded the house. Why, people would have had to actually invest some of their own skin in the purchase. Why, people would not have been able to go out and bid up the prices of houses with somebody else’s money.
What a quaint notion all these things were in the Greatest Bubble in History.
BanteringBear
Congratulations, Smarten. I’m glad you found something you like, at a price you can afford, and that you and your wife are happy with. It sure sounds like you’re a low credit risk. I don’t have a problem with people purchasing houses, and spreading their glee. But I do take issue when they use their purchase decision to portend that housing has bottomed (I’m not insinuating you are, though it sure seems as if the Kool-Aid has been flowing through your veins lately), and that it’s a great time for everyone to buy. As far as “reasonably priced”, well that’s subjective to be sure. But, good luck to you. I hope that, should you find your 30% “equity” has evaporated within a year or two, you’re not left wishing you’d waited. Again, congrats Smarten.
DownButNotOut
BB- Curious. It sounds like you feel the market hasn’t bottomed saying ‘I hope that, should you find your 30% “equity” has evaporated within a year or two’
– agreed – but do you believe that you’ll (or the blog in general) be able to see the bottom when it is happening, as opposed to say one month after, or 3-4 months after? I’ve always thought we’d see it months afterwords but maybe not.
DownButNotOut
Completing my train of thought in respect to Smartens comments – if a bottom was in the near future – you decide what near means – wouldn’t the higher end ‘deals’ possibly be the first sign of this? Coupled with multiple offers on the ‘quality’ low end houses and one might presume the first indications of the market rebound may be coming about.
We’re seeing here in the County I live in a trend similar to IV, but then the demographics are very similar.
Reno Ignoramus
Hey Bear,
Remember a while ago when I posted that there was a Smithridge condo on the market for $61,500 and I noted that I had sold a Smithridge condo for exactly that same amount 30 years ago in 1979? And you then commented that this was perhaps the first property we had seen here that had NO gain, in nominal dollars, over a 30 year period?
Well, Smithridge continues to tank with amazing speed. There is now one on the market for $54,900. Which is $7,000 less than I sold for 30 years ago. In 1979.
Smithridge condos are now almost 75% off of 2005 bubble highs.
Do I hear 80%??
3niner
Let me paraphrase Horatio here. Before the bubble, a 30% down payment on a $200,000 home would have been $60,000. At the bubble peak, the $200,000 home would have been priced at $400,000, and $60,000 would have only been 15%.
Larger percent down payments don’t sound so unreasonable when the prices don’t go crazy.
BanteringBear
Hi, RI. Yes, I will always remember your post. It was, IMO, the most sobering evidence of the carnage at hand in the Reno real estate market. Smithridge is suffering a double whammy of tanking local prices, and a deteriorating neighborhood with little hope of gentrification. From what I understand, that’s gang banger central. Not a good place to park one’s money. Glad you sold in sunnier times.
smarten
Thanks for your well wishes BB.
I agree w/RI’s observation that, “those who are predisposed to buy will find data and reasons to buy[, and] those who are predisposed not to buy will find data and reasons not to buy.” I guess I now fall into the former.
I also agree w/BB’s observation that, “it sure seems as if the Kool-Aid has been flowing through [my] veins lately.” For about 4-6 weeks to be exact, and probably because of RI’s quoted comments.
I disagree w/BB’s attributing to me the statement “that it’s a great time for everyone to buy.” I never made nor intended to make such a statement.
For many of us [especially those predisposed not to buy], it’s not a great time to buy. For those looking to buy at the bottom end of the market [where prices have already dropped by 45% or more], it may be a great time to buy [especially if you’re predisposed]. For those looking to buy at the upper end of the market, it may be starting to become a good time to buy [again if you’re predisposed, patient and selective].
Cheers!
Paul
Smarten, are you able to update us on your Incline escrow as yet?
smarten
Paul –
Thanks for asking. Because you/others may have an interest in the process we’re going through, I’ll go into a bit of detail.
Because we knew jumbo mortgage qualification would be nearly as challenging as actually finding something we were comfortable w/purchasing [and at a price we were comfortable paying], we applied to THIRTEEN [that’s right, 13] potential mortgage lenders. Everything from mainstream lender direct, credit union, mortgage broker, hard money lender and loan shark. We were summarily rejected by four [primarily because the ONLY income their guidelines will consider is that subject to taxation (even though in our case our income legally NOT subject to taxation is almost the same)]. Never heard anything, one way or the other [can you believe?] from three. Received favorable “indications” from three but because of their rates/terms, we placed them on the back burner [and did not follow through w/formal applications]. We are now down to three.
The first is Wells Fargo Bank [“WFB”]. We’ve been approved income and credit wise [having received written pre-approval]; the appraisal came back Thursday [at our purchase price]; and because of the holiday weekend, we’ve been told we’ll receive a formal, written mortgage commitment Tuesday morning. At that point we’ll waive our financing contingency [COE is supposed to take place in late June (we have a 60 day COE period)].
Although the mortgage rates/terms w/WFB are acceptable, they’re not the best in the marketplace so we’re continuing to pursue our remaining two options; CitiMortgage and Pentagon Federal Credit Union [“Penfed”]. CitiMortgage and Penfed both offer 4.5% 5/1 ARM mortgages [in fact, Penfed offers a 5/5 ARM (the only source for this mortgage we’ve discovered)]. WFB’s 5/1 ARM is priced at 5.375% [all of these rates are w/no points]. WFB has dropped its 30 year fixed rate jumbo mortgage rate to 6.375% w/no points, and 6.125% w/3/4 of a point. Penfed offers a 5.625% 30 year fixed rate jumbo mortgage w/1 point. Although we’re leaning towards these fixed rate options because of my views on hyper-inflation/future long term mortgage rates [after all historically, how can one complain about a 6.375% 30 year fixed rate mortgage?], we want our other two applications to pan out to see if we have any choices.
I haven’t spoken much about the house per se, but I can say, it is new construction and our contract price is about 55% of what the home was originally listed for sale at about 1-1/2 years ago. Now could it go down another 30% in value within the next year as BB posits? I guess it’s a possibility, but in our view, extremely unlikely. In fact the reason I have Kool-Aid running through my veins BB, is because this quality of home couldn’t be replicated for even 40% more than we’re paying; and for this and other reasons I’ve commented upon, I feel we’ve hit the bottom of the IV SFR market insofar as this particular [i.e., our] price range is concerned.
Because the builder ran out of money before he completed construction, we’re left w/a disagreement insofar as a bunch of minor construction issues are concerned. Once we come to an agreement [which I’m confident we will], we’ll be in a position to close.
BTW, our landlords have been nice enough to prematurely release us from our lease w/o penalty. So to return the favor, if any of you out there are interested in a quality, low elevation, Lake view, 3,000 square foot IV SFR at the very fair rent of $2,600/month [Tom?], drop me an e-mail.
SkrapGuy
Smarten, would you mind telling us what percent down WFB is requiring for a 6.375% 30 year fixed?
Thanks.
smarten
SkrapGuy –
WFB will go to a maximum 70% LTV whether it’s their 30 year fixed rate or 5/1 ARM mortgage product. Again, these are for jumbo mortgages in Washoe County [over $417K]. I suspect the numbers may be and interest rates ARE different for comparable conforming loan amounts.
Hope this helps.
SkrapGuy
Thanks smarten for the info. Now I suppose that BB will suggest that since WFB requires a 30% cushion, that WFB isn’t betting that the price depreciation is over either.
30% down. Documentation required to qualify. No negative amortization. It sure as hell isn’t 2005, is it?
Paul
Smarten – is the 70 % LTV for full doc or stated income?
smarten
Paul –
Not only full doc – but full, full, full doc.
An example:
Even though our IRA retirement accounts are NOT a source of cash flow/income sufficient to repay a mortgage, Penfed asked us for copies of our statements.
When we supplied the face pages of statements for each account [the ones that summarized our positions (in mutual funds) and their value], unbelievably we were told that wasn’t enough! Penfed wanted EVERY page, incuding the preprinted generic garbage that appears on everyones’ statements.
A year ago I was reporting that it was all but impossible to secured jumbo mortgage approval at a reasonable cost regardless of your finances/credit. Although that has now changed, NOT unless you can document everything; and I mean everything!
Martin
I have to chuckle a bit how some people (not Smarten as I suspect he remembers the old days) are soooo exasperated at what they have to provide to get a loan now. Welcome back to the past. The first mortgage I ever applied for was for the whopping sum of $38,500. I had to provide 3 months of pay stubs, a letter from my employer that my continued employment prospects were good, six months of bank statements so the lender could verify no part of my downpayment was a gift, 3 years of tax returns, and three months of the most recent utility statements to verify that I really had been living where I said I was. Then I had to wait about two weeks to find out if I qualified.
Just imagine if this procedure had never changed. We would not be looking at thousands and thousands of REOs on the market today and to come.
DonC
smarten – Hope your loan came through as expected. Sounds like you’ve gotten a house you like. Congratulations!