Tag Archives: financial crisis

Wayback Wednesday… How ’bout Those Housing Starts

Wednesday, 12 October 2011 08:00

Written by Lane Bailey

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Old photo of the estate Hollander Höfe (Höben)...

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Three years ago I published a little article about how housing starts were at their lowest level since 1991… There were 820,000 starts in September of 2008. And to me, that was a good thing. If there is too much inventory, making more inventory isn’t the best idea.

Well… that was three years ago. In August of 2011 (the last month with available numbers that I could find) there were 571,000 starts. And furthermore, aside from a couple of bumps, starts have been bouncing along under 600,000 starts since December of 2008. And I STILL say that it is a good thing.

Inventory is WAY more balanced than it was, even compared to just a year ago. However, values are still well below where they should be. And there are still the persistent rumors that “the banks” are going to release millions of foreclosed homes that are “in the pipeline”. Personally, I have been discounting those rumors for a few years… because the same rumors have been around for several years. For a couple of years now, there have been rumors alluding to “shadow inventory” that was 3-6 months from the market.

So, if inventory is balancing, and starts have been down for years, how could I think that they need to stay low longer? Well, it comes down to a few factors…

Pricing… It still doesn’t pay for builders to put up houses in many markets. Basically, pricing almost has to be below the cost of materials plus land in order to get the house sold.
Vacant Inventory… Even in the depths of the crash, I didn’t see as many vacant homes as I do now. I don’t have stats to back it up, but it seems like vacant inventory is surging. (BTW, I think that is actually a sign of a recovery forming…)
Buyer Fear… Despite incredibly low interest rates on mortgages and very low prices on homes (even Clark Howard is saying it might be time to move back into real estate), most buyers are still nervous.

Oddly, if you look over my market reports, I specifically refer to a couple of segments as being WELL into Seller’s Market territory. And it is hard to square these two points…. that there is an active Seller’s Markets (in some segments) AND that starts need to stay low because the market is still weak. But it comes down to averages… One city might be rocking the sales, while just up the road everything is stagnant.

Location…

Housing Start Source.

Wayback Wednesday… From the Meltdown. (lanebailey.com)
Chart of the Day: Housing Starts vs. Unemployed (craigkamman.wordpress.com)
Wayback Wednesday… Bankrupt Subdivisions… Good Deal? (lanebailey.com)
Time to be bullish US Home Builders? (part 2) (tradingfloor.com)

Wayback Wednesday… From the Meltdown.

Wednesday, 05 October 2011 08:00

Written by Lane Bailey

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Atomic bombing of Nagasaki on August 9, 1945.

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One advantage of having blogged for more than three years is that I have a LOT of posts to look back upon… and there are some really opinionated pieces lurking back there.

This one actually does push back into the early days of my blog… October 7th, 2008… as the financial systems of the country (and arguably the whole world) were on the verge of collapse.

At that time, TARP wasn’t something we talked about in the past tense. It was a brand new idea.

Honestly, at the time I thought it was what we needed to do. But now… not so sure. Of course, it is a LOT easier to make a decision when looking in the rear-view mirror than it is when looking through the windshield.

Through my connections on Active Rain, I know a particular guy that is a serious “financial wonk”. He tends to be well to the left of me on many issues, but as TARP was being debated in the public eye, he was VERY much opposed to it. He wasn’t a big fan of the alternative… but his reasoning pointed to TARP as being a long term issue…

And there is NOTHING I could say in response that had as much validity as what he was saying. But I stuck to my guns.

Now, I think he might have been right. Even using the 20/20 rear-view mirror, the best we can do is guess. We can’t know what would have happened had we taken the other path.

Here is the link again… Have you been left wondering how we’ve gotten here?

Wayback Wednesday… For First Time Home-buyers…

Wednesday, 28 September 2011 08:00

Written by Lane Bailey

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Although this home suffered only minor exterio...

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A couple of years ago I did a little three part series answering some thoughts that many first time home-buyers have. Of course, all new home-buyers don’t have all of these same thoughts during the buying process, but most have at least one or two of these. Be sure to check the original posts for more details.

Is the Market Weak?

Two years ago when I wrote the original post, the market was a lot weaker than it is now. There was a LOT more inventory, and the sales were actually a bit lower than they are now. In most of the segments where there is first-time home-buyer activity (Under $200k, mostly), absorption rates are running 4½-7 months. In that range, anything under 6 months is considered strong. So, while there is still a perception among buyers that they are in complete control, that isn’t necessarily the case.

Of course, there is still some buyer power… but it isn’t on the “best deals” (I actually mean cheapest advertised prices, which may or may not be great deals). Bank-owned properties are flying off the shelf. If you think you like it, get the offer in. If it is owned by a person rather than a corporation, there might be more leverage, but if they are pricing it in the trenches to compete with the banks, then the same rules apply.

I Need to See ALL the Options…

OK, in all honesty, this one isn’t limited to first time buyers… This is a HUGE issue for a lot of buyers. It is subsiding a little, but only because it is easier to see all of the options. But even with that going for buyers now, there are still a lot that are missing out because they just want to “look at a couple more houses”. As a Real Estate Agent, I understand. But I also HATE making the call to a prospective buyer telling them that the house we looked at last week, the one that they REALLY wanted, is under contract.

I encourage buyers to look at houses. But, at the same time, I have to remind them that when they see the house they think they want, delay can mean loss. Maybe not such a problem if it is wildly overpriced, but if the price is fair, take the shot. There might not be another chance.

I Just Found a REAL Bargain…

Ask any real estate agent and they will tell you that they have heard that line before. Every once in a while, it’s true. Usually the deal falls apart when the “little issues” start getting added up. And let me tell you about some of the little issues that I have come across…

$50,000 worth of mold remediation
$20,000 roof replacement
$15,000 AC system replacement
$45,000 in structural deficiencies
$70,000 for water damage
$100,000 in complete interior renovation (that was on a house listed for $75,000 in a neighborhood where houses without the interior issues were listed for $100,000 to $125,000)

If they don’t go sour with just a closer look at the actual costs to deal with the “little issues”, then they generally fall apart during the inspection. And for first-time home-buyers, they usually should fall apart.

There ARE some great deals in the market, but they are seldom the house advertised the lowest price. And even when they are, keep in mind that they will usually require a major infusion of cash right after closing and before they will be ready to move into. Of course, there are FHA 203k loans (and I have a mortgage broker that can hook you up with one of those) but they aren’t the magic bullet…

Working with an agent that understands more about the house than whether the drapes and carpets match is a pretty solid start. You know where to find me.

Wayback Wednesday… An Oldy, but a Moldy (lanebailey.com)

It’s About the Jobs…

Friday, 09 September 2011 08:00

Written by Lane Bailey

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selfmade image of U.S. Unemployment rate from ...

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Every time I say this, I annoy a lot of my real estate friends… Real estate is NOT the solution to the economy. It is a symptom. Nothing more.

To put it simply, People without jobs are NOT buying homes. People that are worried about their jobs are NOT buying homes. and as long as those people aren’t buying homes, people that DO want to “move up” can’t… they need to sell their current homes. As I write this, the unemployment rate is around 9%. But, the BLS also says that the “real” unemployment rate (including people that are not filing for unemployment anymore) is closer to 17%.

And while I tend not to get too political on this blog, I will make a couple of statements…

Attacking job producers, like Gibson Guitars, is NOT going ot make entrepreneurs take the risks that they need to take in order to start or expand their businesses. (If you didn’t know, they are not allowed by the government to import raw Indian Rosewood, but they ARE allowed to import the manufactured fretboards made from Indian Rosewood. In effect, the government is telling them to set up manufacturing for those parts outside of the US rather than doing it in Nashville, TN).
Attacking companies like Boeing Aerospace for expanding in ways that the union (big money contributors to the Obama campaign) doesn’t like. (If you didn’t know, the NLRB is trying to stop Boeing from opening an additional production facility in South Carolina. They have continually been hit by union strikes in Washington state, and want to have a second facility in a “Right to Work” state… one which doesn’t force union membership).
Supporting companies like GE, rewarding the CEO with a Chair on President Obama’s “Jobs Council”… as the company inks a deal on expansion and job creation… in China, but not the US. All the while, GE is holding money off-shore to avoid taxes.

The private sector WANTS to create jobs. But, with the incredible growth of deficit spending (which squeezes private lending), and the incredible growth of regulation ($1.74T in regulatory costs to businesses), and the desire to increase taxes on those same business, and the increasing costs on the horizon from ObamaCare, businesses are not willing to take the risks.

The government doesn’t create permanent jobs, except for the people that they directly hire… and the government is already too big. But they certainly have the ability to kill jobs in the private sector. And until the government stops trying to kill jobs, there won’t be a recovery in real estate…

No matter what Nancy Pelosi says about how Unemployment is a GREAT stimulus, people aren’t buying homes or cars or much else while they sit on unemployment…

Head of NLRB in spotlight in Boeing tussle (bizjournals.com)
Obama’s Boeing Union Headache (thedailybeast.com)
Gibson Guitars proves the environmental police state that wants your wood products and guns (usapartisan.com)
‘Obama is about to create anti-jobs’ (rt.com)

Wayback Wednesday… An Oldy, but a Moldy

Wednesday, 07 September 2011 08:58

Written by Lane Bailey

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Image via Wikipedia

Poor mold. People are trying to save the whales and bring back the Dodo Bird, but most everyone would be happy is mold were extinct. But it isn’t… Mold is alive and kicking, and more of a problem than ever. And it usually hangs out with some other unsavory characters, Rot and Termites (that are all followers of Moisture).

A couple of years ago I was involved with a moldy property and I learned a few things. I posted up some good information about Mold, where to find it and how big of an issue it can be. And it can be a REALLY BIG problem.

Of course, it wasn’t my first run in with the stuff. Back when I was a reasonably new real estate agent in Gwinnett County, GA, I worked with one of my investor clients on a property that had some pretty significant mold issues.

Real estate prices were crashing around it. The previous owner had custom built the house, and it was pretty obvious that either they really didn’t have “builder” experience (as opposed to “building” experience), or they ran out of money partway through the project. The whole “builder v building” experience thing is another post someday, though.

The homes was large and had wonderful high ceilings, a large garage, nice flow patterns and was well sited on the lot. But, in this luxury home in a subdivision that had homes worth as much as a million dollars, there were no crown mouldings, no granite counters and cabinets that looked like stockers from Home Depot (not knocking HD, but the house deserved at least semi-custom cabinetry).

But the basement was where our story was… It was nasty. The home had been unoccupied for at least 9 months and was loaded with mold. We knew that the HVAC was going to have to be changed… it would be cheaper than cleaning it out. But the basement was almost beyond salvation. The solution was to gut it and leave it unfinished. It had been finished, and was pretty well finished, but was going to have to be “unfinished” in order to remediate the mold problems. All of the drywall was junk… and we also knew that some of the structural wood would need to be replaced. Most importantly, we knew that it would need to spend a good long time with proper airflow.

The bank that repossessed the house had DESTROYED their collateral by turning off the power. Because the HVAC wasn’t running for those 9 months, the bank likely saved about $3000. But in saving that $3000, the value of the home likely dropped by $200,000. Not a good trade… The house should have been able to sell for $500,000, but instead barely managed to bring $300,000. Of course, the bank wasn’t real bright anyway… they turned down our offer at one point, and then lowered the price to our offer less than two weeks later.

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Tag Archives: financial crisis

Wayback Wednesday… How ’bout Those Housing Starts

Wayback Wednesday… From the Meltdown.

Wayback Wednesday… For First Time Home-buyers…

Is the Market Weak?

I Need to See ALL the Options…

I Just Found a REAL Bargain…

It’s About the Jobs…

Wayback Wednesday… An Oldy, but a Moldy

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Tag Archives: financial crisis

Wayback Wednesday… How ’bout Those Housing Starts

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