housing optimism

[Myth465]

living at home with Mom or renting a room in the back of a house is going to get old, but it must be good for the banks to have that extra cash flow going to the existing mortgages.

 

So yes, it's a macro thing.  When will people get jobs?  And when they do if they can't make a 20% down payment, they will want to rent.  That will put pressure on rents -- perhaps investors will buy houses and rent them out to them. 

 

People do it because they have to (I hope lol).

 

I think you are right. Booomers will buy Condos and new construction perhaps on the cheap.

 

Tell your 7 year old to man up.

[ubuy2wron]

The baby boomers will want to buy new construction when they downsize -- they don't want to be renovating and/or fixing.  That's Del Webb's argument (a PulteGroup subsidiary).

Eric, I have seen a ton of anectodal evidence of this in Vancouver sell the old family home and down size to a new build condo. I have started to do some due dilligence on a Canadian reverse mortg. co which I believe will have a pretty large tail wind for the next decade and should be relatively immune to a real estate crash in Canada are there any US co's operating in this space?

[ERICOPOLY]

living at home with Mom or renting a room in the back of a house is going to get old, but it must be good for the banks to have that extra cash flow going to the existing mortgages.

 

So yes, it's a macro thing.  When will people get jobs?  And when they do if they can't make a 20% down payment, they will want to rent.  That will put pressure on rents -- perhaps investors will buy houses and rent them out to them. 

 

People do it because they have to (I hope lol).

 

 

You're right.  It's just... what comes first, the chicken or the egg.

 

A man formerly employed in construction is standing in a line in a government office waiting for unemployment relief.  He is chatting with others in line.  Oh what did you do?  Well I was a realtor.  And you?  I was a mortgage underwriter.  You?  I delivered materials to job sites.  You?  I worked at Shaw, before they laid me off in the building bust.  You?  I was a building inspector.

 

This doesn't even begin to mention all the people who spend less just because they are scared by all the "For Sale" signs growing like weeds in their community.  A good deal of those people are going to have the same incomes as before, some even have raises, but they feel like they need to prepare for the never ending decline of the economy, so they save instead of spend.

 

Is there any study done on what percentage of the unemployed are victims of the falloff in construction?  The worm is going to turn... then you are going to have job growth.  Job growth leads to home sales.  People who find new jobs from construction of new homes... those people in turn will put demand on more new homes.  It feeds on itself going forward, just as it has fed on itself in reverse.  Some of the worst places in the country in real estate are where the employment picture depended the heaviest on construction during the boom.

 

Somewhere I saw it written that each housing unit constructed creates 3 jobs.  I don't know if that's 3 full time jobs for the whole year, or just for part of the year while the house is being built.  But if construction is 1,000,000 units below equilibrium, it stands to reason that we're talking about 3,000,000 jobs.  That would be 38% of the total number of jobs lost in this recession -- and they are highly likely to come roaring back at some point.  That "roaring back" part, even if it happens slowly, will just be a parade of relief-bringing newspaper headlines.

 

A bright spot:  my 7 yr 4.75% I/O mortgage reset to 3% this month.  Now I pay 37% less interest (for however long this lasts).

[Myth465]

” He also spoke about how his view on housing has changed recently, saying that, “We’ve seen a major financial shock and it’s the kind of thing that could change public attitudes for a long time.”

 

http://www.gurufocus.com/news.php?id=127488

 

I like Robert Shiller for some reason. All the behavioral economist are so humble.

 

Also we have several themes going on here, to recap My thoughts are listed below.

 

Single Family Home that one plans to live in for 30 years - Probably a great time to buy. Very personal decision. The thought of living somewhere for 3-5 years brings me sadness.

 

Investment property - Decent but will have to deal with the headaches of RE for a not so great unlever return.

 

Housing Direct Bets (Carpet, Home Building, and other related services) - Essentially a macro bet on US Growth and recovery. Will make money but when and whats it look like annualized. Would rather hold cash, and wait. I  think there are easier macro bets to make inmo. Housing has too many variables and too many vested parties all pushing different directions.

[ERICOPOLY]

Okay, let's see something positive from your scenario:

 

Doubling up should at least lead to fewer defaults for the roof that everyone is crammed under.

 

Let's say homes aren't built at a higher pace for the next few years.  The people who will have the "Room for Rent" ads in the paper are the ones who need the money the most, and they'll get the tenants they sorely need.  Thus, perhaps the distressed sales dry up faster than the pessimists think.

 

You rent the room for $300 a month.  That's a 10% raise over the $36,000 per year you earn in your job.  And you don't report it on your taxes (you probably should, but people in distress will just keep it under the table).

 

[opihiman2]

 

 

every aspect of the U.S system is a benefit to the home buyer compared to Canada other than realty taxes where you get harder in most parts of the country.

 

So my question is why is a house on a small lake in Canada worth more than one on the ocean in California? pricing is wrong somewhere...my

thought is Canada is in a bubble...having said that Vancouver has been in bubble for 20 years...it is just excepted that you will pay$800k for a bungalow...

and never lose!! sound familiar?

I am in Scottsdale next week to look at firesales...I will post on it later.

 

Dazel.

 

My wife and I were looking at houses in Trail, BC.  It was ridiculous.  The houses in a small town of maybe 30,000 people were going for the cost of homes in coastal California.  I also think Canada is in a housing bubble.

 

Another thing I'm seeing is people talk about buying vs. renting.  When I was talking about housing being fairly valued, I was looking at a buy vs rent calculation over 30 years.  Buying a house or condo comes out a little bit better than renting over a 30 year period.  Although, there are big assumptions with that such as the rate of inflation and rent increases.  I don't see it as much of a value proposition.  It's definitely not a lifestyle one if you plan on moving around.

[Guest bengrahamofthenorth]

Seems the house price to income ratio has diverged in Canada.

 

http://www.hardcorevalue.com/2011/03/canadian-real-estate-bubble.html

 

Interesting post on Urbana (URB.A) too.

[Ross812]

This is a pretty relevant post to me because I just bought a condo a couple of months ago. The way I looked at it is what is an apartment going to cost you compared to the monthly payment on a mortgage? In my case buying was about 150 dollars cheaper a month than renting. Over a 5 year period this is nearly 10000. I bought into a nice area and believe I bought the place for 10% under what I can sell it for today. I really don't see a lot of risk in buying if you are patient and find a place at the right price. With the condition of the realestate market those deals are plentiful. If the choice is to rent or buy and buying is significantly cheaper and the area you are considering is a good mature market then I think it makes sense to buy.

[SharperDingaan]

" So my question is why is a house on a small lake in Canada worth more than one on the ocean in California? pricing is wrong somewhere...my"

 

Earthquakes. That beachfront property could vanish into the ocean, & the cliffside property could well fall off that cliff. Total write-off if it occurrs, & lots of TV coverage to prove that it can/will occurr.

 

State of California finances. If taxation doubles because they need the money, you cant pick up your house & go someplace else. Increase the cost of ownership, & you're carrying a smaller mortgage. Add in Canadas free health care as you age, & a generally lower cost of living (fewer restaurants, shows, etc.) .... & the numbers start to rapidly change.

 

Vacancy/foreclosures,etc. Maybe 1 in 5 houses on your block ? or neighbourhoods in your city? Pack everyone together & it's noticeable - plus the guy breaking in doesn't have to walk far to the next one. If the next house is on the other side of the lake .... its a lot more work.

 

Potential + live vs visit. Eye of the beholder, but you can always add another/better house around that lake ... not so much if there's allready a house there. Yes, the pricing may be off a little, but its really telling you just how bad a shape California is in.

 

If you think that it may take a long while for California to come back, shovelling the snow off your rock doesn't look so bad.

 

SD

 

 

 

[Smazz]

Well not really a reason but:

 

Canadas employment situation thanks to it being a Petro/Mining Economy

 

Toronto and Vancouver being Canadas New York and Chicago (those areas demand continue to outstrip supply)

 

Canadas interest rates are predominantly always lower than those in the States.

 

Some pretty damn good Real Estate salesman telling, especially new buyers" its a always a good time to buy

 

Probably not restricted to Canada but when developers build mass housing communities they are able allocate short mortgages to new buyers most of which would not get a mortgage the conventional way.

That is it in a nutshell. In addition, Most of Canadas population is along the US border in On so you get the majority of homeowners chasing those locals.

[turar]

To me it seems there's just much less of "livable/desirable" space in Canada, despite its overall geographical vastness. Just driving across the border from WA state into BC, you go from pretty sparsely populated rural area into a dense suburban area. Haven't been myself, but I bet it's same picture around Ontario/NY border, etc.

[ubuy2wron]

Well not really a reason but:

 

Canadas employment situation thanks to it being a Petro/Mining Economy

 

Toronto and Vancouver being Canadas New York and Chicago (those areas demand continue to outstrip supply)

 

Canadas interest rates are predominantly always lower than those in the States.

 

Some pretty damn good Real Estate salesman telling, especially new buyers" its a always a good time to buy

 

Probably not restricted to Canada but when developers build mass housing communities they are able allocate short mortgages to new buyers most of which would not get a mortgage the conventional way.

That is it in a nutshell. In addition, Most of Canadas population is along the US border in On so you get the majority of homeowners chasing those locals.

 

Smazz I will argue with you over the Canadas interest rates predominately lower than the US. The negative spread has been a relatively recent phenomen. The  US bubble was certainly caused by the abandonment of any credit standards in the US. It was perfectly rational for all of the players to play under the US rules. Everyone was part of the problem . Canadas bubble which I believe is more modest is because we have been slighly more prudent. Credit standards were not completely done away with..

  Doing away with non recourse loans is the surest cure for ensuring these problems do not occur in the future.

[ERICOPOLY]

  Doing away with non recourse loans is the surest cure for ensuring these problems do not occur in the future.

 

Florida is in the top 3 states for "strategic" defaulters -- aka: jingle mail.

 

Florida does not have non-recourse loans -- they are full-recourse in Florida.

 

 

[ubuy2wron]

  Doing away with non recourse loans is the surest cure for ensuring these problems do not occur in the future.

 

Florida is in the top 3 states for "strategic" defaulters -- aka: jingle mail.

 

Florida does not have non-recourse loans -- they are full-recourse in Florida.

 

I do not quite understand I understood Florida to be a state were your personal residence was creditor proof, ie you could be bancrupt but they could not take ur house away if u had clear title. I plead ignorance on what states are non- recourse however given the size of Florida 2nd or 3 largest state by population I suspect it would have its share of foreclosures. What possible strategy could there be in a "strategic default" if your creditor are going to ask you to make good. Is it because you could throw some equity into another home and then some how protect it from your 1st creditor?

 

 

[ERICOPOLY]

Nevada is also recourse -- I believe it is also among the three with the highest strategic defaulters.

 

Or at least it was until October 2009.

 

http://nogglelaw.com/2008/09/nevada-prohibits-deficiency-judgments-on-foreclosed-homes-for-loans-made-after-october-1-2009/

 

Nevada has significantly changed the law of foreclosure by prohibiting lenders from suing borrowers on residential mortgages for deficiency judgments on mortgages made on or after October 1, 2009. Prior to the change Nevada was a full recourse state meaning that any mortgage lender could sue any mortgage borrower for a deficiency judgment regardless of the type of property. The lender has six months from the date of the trustee’s sale to file a law suite to collect the deficiency.

 

The new law is not retroactive. All mortgages dating prior to October 1, 2009 continue as full recourse mortgages.

[ERICOPOLY]

Actually, in Nevada if you go through a short sale the lenders have 6 years to file against you.

But they only have 6 months to go after you if you walk away.

 

http://www.lasvegasrealestatehome.com/blog/las-vegas-homeowners-who-strategically-default-about-to-see-stiff-penalties.html

In other words... some states do not allow lenders to pursue deficiency judgements from strategic defaulters. Nevada allows up to six months for the first loan... six years for secondary loans for homeowners who signed loan documents prior to 10/01/2009. For Nevada Short Sales - Up to Six Years to pursue a deficiency judgement for homeowners who signed loan documents prior to 10/01/2009. This currently Encourages Las Vegas Homeowners to Strategically Default and not even attempt to work with their servicer and do a Nevada short sale. Studies show that homeowners who do a short sale, have a higher dollar amount returned to the investors that own the loan then foreclosures. See my report on Loan Servicer Time Frames to Perform a Short Sale that was performed by Deutsche Bank.

[ERICOPOLY]

There you go.

 

A house sells for $100 million in Los Altos Hills, CA:

 

http://www.sfgate.com/cgi-bin/blogs/ontheblock/detail?entry_id=86119

 

I grew up in Los Altos Hills!

 

[opihiman2]

Here's an excellent synopsis of the current housing market from the Daily Ticker:

 

http://finance.yahoo.com/blogs/daily-ticker/housing-market-sucks-could-years-correct-20110324-080754-787.html;_ylt=AgeY4lIF7LHno_QWiYu4KQgp2YdG;_ylu=X3oDMTBvcjdhcDRsBHBvcwM2BHNlYwNNZWRpYUJsb2dJbmRleA--;_ylg=X3oDMTFjN2RjMHJ2BGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHB0A3NlY3Rpb25zBHRlc3QD;_ylv=3#more-350

 

It echos my sentiments, especially in regards to the blip in housing prices a year ago and the new found optimism that followed.

[Myth465]

Excellent post, this is How I feel.

 

 

[snailslug]

If I lived in the United States, I would seriously consider starting a residential property investment partnership.  But unfortunately because I live in Canada, the cost, convenience and time required to do so from here is not feasible, as there would be considerable on-site due diligence and travel required.  But for you U.S.-based managers...you could do quite well paying distressed prices on residential real estate right now.  Cheers!

 

If you were to do this, what would your approach to property management be?  I agree that the fundamentals / financials are extremely attractive, but residential property management in particular is extremely annoying, and I'm not aware of any residential property management firms on a regional or national scale that take care of all the tenant and property management issues, unlike in commercial real estate, where this is possible. 

 

I'd be interested in doing this, but I want to spend my time thinking about the investment merits, not dealing with contractors to fix a place up.

[ubuy2wron]

If I lived in the United States, I would seriously consider starting a residential property investment partnership.  But unfortunately because I live in Canada, the cost, convenience and time required to do so from here is not feasible, as there would be considerable on-site due diligence and travel required.  But for you U.S.-based managers...you could do quite well paying distressed prices on residential real estate right now.  Cheers!

 

If you were to do this, what would your approach to property management be?  I agree that the fundamentals / financials are extremely attractive, but residential property management in particular is extremely annoying, and I'm not aware of any residential property management firms on a regional or national scale that take care of all the tenant and property management issues, unlike in commercial real estate, where this is possible. 

 

I'd be interested in doing this, but I want to spend my time thinking about the investment merits, not dealing with contractors to fix a place up.

 

 

There are thousands and thousands of small property managers across the U.S. many who wear two hats they also operate as real estate agents. It would be difficult but not impossible to find local property managers who could manage a local portfolio of res RE.