Author Topic: Housing Analysis  (Read 321044 times)

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Offline eyephone

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Housing Analysis
« on: August 26, 2018, 08:45:09 AM »
“Housing tipping back to a buyer's market as sellers cut prices

Approximately 14 percent of all listings in June had undergone a price cut, that's up from a recent low of 11.7 percent at the end of 2016, according to a new report from Zillow.

Home price growth is slowing in nearly half of the 35 largest U.S. metropolitan markets.

In San Diego, 20 percent of all listings had a price cut in June, up from 12 percent a year ago. In Seattle, which continues to be the hottest market in the nation, 12 percent of all listings had a cut, the largest share in nearly four years.

In Austin, Texas, also a very strong housing market thanks to a recent influx of technology jobs, more homes are seeing price cuts as well.”

https://www.google.com/amp/s/www.cnbc.com/amp/2018/08/16/housing-tipping-back-to-a-buyers-market-as-sellers-cut-prices.html



Offline paperboyNC

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Re: Housing Analysis
« Reply #1 on: August 26, 2018, 10:39:44 AM »
It's a great thing that buyer's are putting the brakes on the willingness to pay higher prices - largely IMO because of the lack of crazy financing products that we saw in 2006.

If banks were still giving out NINJA, pick-a-pay, negative amortization teaser rate loans, that's when I'd be worried.

Example:

Buyer has the following requirements:
 - Driveway
 - Yard
 - Irvine school district
 - Newish
 
They decide on this home:
https://www.redfin.com/CA/Irvine/17-Festivo-92606/home/4628561

Their income is spotty (uber driver, own a tutoring company) so they go for an ALT-A loan where stated income counts in exchange for a higher future interest rate. They get a 1% teaser rate for the first 2 years and get an 80/20 loan for no money down.

80 loan: $879.87 interest only payment. Optional payment of $500/mo with negative amortization. Resets to 5% after 2 years ($5,768/mo)
20 loan: $1000/mo interest only payment at 4.5%

Property tax: $1,309/mo
HOA: $49/mo
Insurance: $125/mo

Total initial payment: $3,363 - not much more than they paid in the apartment

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Offline eyephone

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Re: Housing Analysis
« Reply #2 on: August 27, 2018, 02:57:06 PM »
“Bad News For The Housing Market Continues To Pile Up

I remember vividly the scene in The Big Short when a housing broker was driving the "Steve Eisman" group around California's "Inland Empire." Home prices were dropping, and the vista was littered with "for sale" signs. The broker remarked awkwardly, "the market is going through small valley right now." Successful realtors can look anyone in the eyes and present a small nuclear bomb as a box of Godiva chocolates.

The National Association of Realtors' chief "economist," Larry Yun, has been pleading for more than a year that declining existing home sales is caused by low inventory. But this is mere propaganda. I've presented a chart more than once on this site from the Fed's database (FRED) which shows that sales volume and inventory is inversely correlated.

Demand is falling because pool of potential homebuyers who can qualify for one of the Government's subprime mortgage programs has dried up like Lake Mead. This was evident in this week's existing and new home sales reports, both of which showed home sales falling month to month and year over year. Both numbers were well below the expectations of Wall Street's brain trust. Existing home inventory on an outright basis (not the highly massaged "months supply" basis) is 9% above the average inventory level in 2015 and 31% above the outright inventory for 2017. New home sales dropped "unexpectedly" from June to July despite the fact that June's original headline report was revised lower. New home sales according to the Census Bureau have declined 3 out of the last 4 months.

The Dow Jones Home Construction Index is down 22.6% since mid-January. Some homebuilder stocks are down over 30% since then. The homebuilder stocks are in a bear market based on the "20%" decree. This is a fact that is not reported at all in the mainstream media. The homebuilder stocks peaked in July 2005 and were in a tail-spin well before it became obvious to all that the mid-2000's bubble had popped. I doubt it will take 18-24 months from January 2018 before it becomes apparent to most that the housing market is in trouble.”

https://www.google.com/amp/s/seekingalpha.com/amp/article/4201996-bad-news-housing-market-continues-pile

Offline fortune11

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Re: Housing Analysis
« Reply #3 on: August 27, 2018, 05:53:46 PM »
Eyephone - I sympathize with your viewpoint but I am not worried by the usual bouncing around just yet. If # of sales stay within 10% or so of the previous year, don't see a cause for concern just yet.

There is a decent likelihood now that market will make a run towards 3000 (S&P 500) into year end and this will cause some movement among buyers that didn't get off the fence until now. 

Rates are still very very low and they will probably selloff some as we get towards 3,000 in S&P, 10y perhaps touches 3% again.  This will also cause some people to get scared of "rising rates" boogeyman again and jump in the buyer pool. 

 

Offline meccos12

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Re: Housing Analysis
« Reply #4 on: August 27, 2018, 07:00:46 PM »
Eyephone - I sympathize with your viewpoint but I am not worried by the usual bouncing around just yet. If # of sales stay within 10% or so of the previous year, don't see a cause for concern just yet.

There is a decent likelihood now that market will make a run towards 3000 (S&P 500) into year end and this will cause some movement among buyers that didn't get off the fence until now. 

Rates are still very very low and they will probably selloff some as we get towards 3,000 in S&P, 10y perhaps touches 3% again.  This will also cause some people to get scared of "rising rates" boogeyman again and jump in the buyer pool. 

 

I think by the time most people start "worrying" about housing, we will be well into a downturn.  As the article suggests,
"I doubt it will take 18-24 months from January 2018 before it becomes apparent to most that the housing market is in trouble.”
https://www.google.com/amp/s/seekingalpha.com/amp/article/4201996-bad-news-housing-market-continues-pile

Offline fortune11

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Re: Housing Analysis
« Reply #5 on: August 27, 2018, 07:32:01 PM »

I think by the time most people start "worrying" about housing, we will be well into a downturn.  As the article suggests,
"I doubt it will take 18-24 months from January 2018 before it becomes apparent to most that the housing market is in trouble.”
https://www.google.com/amp/s/seekingalpha.com/amp/article/4201996-bad-news-housing-market-continues-pile

Problem with the world "trouble" I have.  There is a billions and billions of private equity money waiting for this "trouble" to materialize which means it probably won't. I am talking of sub $1m mm homes here.  The higher end has already corrected , in NYC and elsewhere.  In that category, if your listing is not "unique" , you are already sitting around waiting for months. 

think of it as similar to market leadership change -- rotation from "momentum" to "value" stocks


Offline eyephone

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Re: Housing Analysis
« Reply #6 on: August 27, 2018, 09:43:50 PM »
“Warren Buffett Cuts Price on Laguna Beach House to $7.9 Million

Warren Buffett can’t seem to close this deal. Now, he’s lowering the price of a vacation home in California by $3.1 million to attract potential buyers and finish the sale.

The price for the Laguna Beach house, earlier set at $11 million, was cut to $7.9 million, according to Allison Olmstead, a spokeswoman for listing agent Bill Dolby.

Buffett, who resides in Omaha, Nebraska, put the home up for sale last year after more than four decades of owning the California vacation property. Luxury real estate can often sit on the market for longer due to a smaller pool of buyers, with some properties listed for $4 million or more in Orange County, California, expected to spend over a year on the market, according to data-provider Reports on Housing.”

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-08-24/warren-buffett-cuts-price-on-laguna-beach-house-to-7-9-million

It’s a flashing sign when Warren Buffet reduces the price of the house he is selling by around 28%.
« Last Edit: August 27, 2018, 10:04:35 PM by eyephone »

Offline Compressed-Village

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Re: Housing Analysis
« Reply #7 on: August 27, 2018, 10:03:48 PM »
“Warren Buffett Cuts Price on Laguna Beach House to $7.9 Million

Warren Buffett can’t seem to close this deal. Now, he’s lowering the price of a vacation home in California by $3.1 million to attract potential buyers and finish the sale.

The price for the Laguna Beach house, earlier set at $11 million, was cut to $7.9 million, according to Allison Olmstead, a spokeswoman for listing agent Bill Dolby.

Buffett, who resides in Omaha, Nebraska, put the home up for sale last year after more than four decades of owning the California vacation property. Luxury real estate can often sit on the market for longer due to a smaller pool of buyers, with some properties listed for $4 million or more in Orange County, California, expected to spend over a year on the market, according to data-provider Reports on Housing.”

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-08-24/warren-buffett-cuts-price-on-laguna-beach-house-to-7-9-million

Like I said: prices are too high  ;)

Yes and how much did he originally paid for this house?  :) I know he doesn’t need the money, would you say....,,


Offline fortune11

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Re: Housing Analysis
« Reply #8 on: August 28, 2018, 04:39:16 AM »
From the prior link in the same article on the buffet property — interesting bit at the end . I don’t think anyone is paying extra for even for  a Bette Midler home !  In this day and age celebrity ownership doesn’t really matter .

“”At the high end of the market, sales can be idiosyncratic—there’s a limited number of potential buyers, and they can be demanding. Still, other local real estate agents who work with high-end clients say it’s clear why the property hasn’t sold yet. “No one’s going to rehab a house from 1936,” says Eliisa Stowell, a realtor with Surterre Properties in nearby Corona del Mar. “It might have sentimental value to someone, but then it’s gone” when the home gets torn down to build something more modern, she says. Bill Cote, a Newport Beach-based realtor with Coldwell Banker, is more blunt: “It’s dreadfully overpriced,” he says. The Buffett name, he adds, probably doesn’t do much for buyers in the area. “If you said it was Bette Midler’s house, it might have some cachet,” Cote says.””

Offline irvinehomeowner

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Re: Housing Analysis
« Reply #9 on: August 28, 2018, 06:46:42 AM »
USC can answer this but doesn't this usually happen as we get into the fall? School has started, summer is over and many people are less inclined to buy.

Then it starts ramping up again in the spring.
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Offline eyephone

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Re: Housing Analysis
« Reply #10 on: August 28, 2018, 07:49:17 AM »
“Warren Buffett Cuts Price on Laguna Beach House to $7.9 Million

Warren Buffett can’t seem to close this deal. Now, he’s lowering the price of a vacation home in California by $3.1 million to attract potential buyers and finish the sale.

The price for the Laguna Beach house, earlier set at $11 million, was cut to $7.9 million, according to Allison Olmstead, a spokeswoman for listing agent Bill Dolby.

Buffett, who resides in Omaha, Nebraska, put the home up for sale last year after more than four decades of owning the California vacation property. Luxury real estate can often sit on the market for longer due to a smaller pool of buyers, with some properties listed for $4 million or more in Orange County, California, expected to spend over a year on the market, according to data-provider Reports on Housing.”

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-08-24/warren-buffett-cuts-price-on-laguna-beach-house-to-7-9-million

Like I said: prices are too high  ;)

Yes and how much did he originally paid for this house?  :) I know he doesn’t need the money, would you say....,,

I believe he bought it for around $150k.
It’s not about if he doesn’t need the money.

He had to reduce the price. Which will reduce his ROI. (For the max ROI crowd out there)
« Last Edit: August 28, 2018, 08:28:03 AM by eyephone »

Offline eyephone

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Re: Housing Analysis
« Reply #11 on: August 29, 2018, 07:44:52 AM »
Thanks for the data and stats @USCTrojanCPA. Having gone through the GRC and massive run-up since then, do you think the combination of these items below will signal a bigger drop AND slowdown in the market:

• limitations on/capping of SALT deductions & the IRS enforcing it on taxpayers for 2018 (probably won't see the effects until taxpayers file 2018 taxes early next year)
• beginning of the plateau of SFH (detached $1M-1.5M) prices in the summer
• less FCBs buying? (not sure if there are any stats on this buyer pool)
• rates rising maybe .25% per quarter/semiannually affecting cost of capital
• possible drop in corporate earnings and equities correction causing jobs to dip in OC/Irvine?

Anecdotally and not driven by any data analyses at all, I've just been seeing more and more price drops ($30-45K increments) on Zillow/Redfin/Realtor for the $1.1-1.4M detached SFHs. Equating to a 2-3% price decrease from list prices, but will it drop further perhaps even 5-10% (gasp!)?


Many would argue we are already seeing a slowdown.  Likely more to come.

Like I previously mentioned the music is slowing down.

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Re: Housing Analysis
« Reply #12 on: August 29, 2018, 10:38:12 AM »
No matter who owned that Emerald Bay home, it's not in the best location within that community at that price. It still has a ways to go when it comes to a rational sales price. That's not a function of the market per-se because while luxury home prices will ebb and flow with all other home prices, unique properties tend to set their own value.

My .02c
My .02c

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Offline eyephone

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Re: Housing Analysis
« Reply #13 on: August 29, 2018, 11:03:16 AM »
No matter who owned that Emerald Bay home, it's not in the best location within that community at that price. It still has a ways to go when it comes to a rational sales price. That's not a function of the market per-se because while luxury home prices will ebb and flow with all other home prices, unique properties tend to set their own value.

My .02c

Warren Buffet is the #2 Real estate broker in the US according to Bloomberg. So I think he knows what he is doing.

https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-03-29/buffett-s-home-brokerage-booms-with-the-no-1-ranking-in-sight

In my opinion, he had several options:
1. Spend money to update the place
2. Leave it at the same price
3. Rent it out
4. Donate the property to a charity
5. Reduce the price of the listing

He chose option 5.

Offline Liar Loan

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Re: Housing Analysis
« Reply #14 on: August 29, 2018, 01:28:32 PM »
Problem with the world "trouble" I have.  There is a billions and billions of private equity money waiting for this "trouble" to materialize which means it probably won't.

The thing with PE managers is they have to justify their decisions to investors.  Once the public believes the market is in a downturn, it becomes very difficult to convince jittery investors about the wisdom of catching a falling knife.

If you look at the last round of PE buying, it didn't really start until 2012.  I worked for one of the earliest funds in the REO-to-Rental space and even they were too late to the game.  All of the best deals got scooped up between 2009-2011 and it wasn't until after 2012 that PE started investing billions in the space.  By then, prices were already in a solid uptrend.

The moral of the story is PE didn't create the trend, but latched on to the already existing trend.  That's what will dictate their buy/sell actions this time around as well.

 

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