Today’s Comp-killer comes to us from Rahway, NJ. It is a 2 bedroom, 2 full/2half bath end-unit townhome in a newer development (Riverwalk). It was purchased in July of 2006 for $450,000. The unit returned to market on 8/8/2007, at a list price of $439,000. While the fact that it returned to market at a price significantly below purchase price is interesting, the story gets more interesting when you look at the competition. A week prior, another unit in the same development was listed for sale. The unit, an interior unit, 2br, 2f/2h townhome was listed for sale on 8/1/2007 at a list price of $499,000. I’m sure when the owner of the interior-unit saw the end-unit listed at $60,000 less, they might have been upset, but there isn’t any way they could have prepared for what happened just yesterday.
MLS# 2433414 – 138# Essex Street, Rahway NJ
2 Bedrooms, 2.1 Baths
End-Unit Townhome
List Date: 8/8/2007
Original List Price: $439,000
Current Price: $379,000
DOM: 69
Purchased: 6/20/2006
Purchase Price: $450,000
Short Sale
The end-unit owner must be facing financial distress, as they’ve gotten the bank to agree to a short sale and have dropped the asking price to an incredible $379,000. The new asking price is more than $100,000 less than the competing property, just a few units away.
MLS# 2431727- 139# Essex Street, Rahway NJ
2 Bedrooms, 2.2 Baths
Interior-Unit Townhome
List Date: 8/1/2007
Original List Price: $499,000
Current Price: $499,000
DOM: 76
Purchased: 7/5/2006
Purchase Price: $434,900
A good example of the risk associated with purchasing a home in a condo or townhome development. When there are few differences between properties, they become very easy to compare, similar to commodities. Unfortunately, as a seller, it means that competition usually boils down to price, and price alone.
Keep ’em coming. This may be a more sustainable idea for a regular feature than Lowball. People taking down overpriced homes for giant discounts has lost its “shock appeal”.
However, seeing 1-2 foreclosures wreck an entire community is noteworthy…to say the least.
Borrowers get in over their heads
Posted by the Asbury Park Press on 10/14/07
BY JASON METHOD
STAFF WRITER
Loans squeeze homeowners
The Toms River couple are finding it increasingly hard to make the $3,200 monthly payments on their $327,000 mortgage, which they refinanced last year at a 9 percent interest rate. They are not sure how they are going to make this month’s installment.
One in four mortgage loans in New Jersey last year were given to subprime borrowers like the Duncans, an Asbury Park Press analysis of new federal mortgage data shows. The loans typically come with interest rates higher than the prevailing market.
The Press analysis found that in Monmouth and Ocean counties last year:
One in five home loans were granted to subprime borrowers, for a total of $3.1 billion. In 2004, about 1 in 10 loans had gone to subprime borrowers.
The income of subprime borrowers was 5 percent lower than those taking out traditional mortgages, yet the subprime borrowers took out loans that were 10 percent larger. That means subprime borrowers, already facing higher interest rates, will be further strapped to make mortgage payments, especially if their mortgage interest rates adjust upward in the coming
years.
More subprime money was lent in 2006 than the prior year. The median subprime loan of $221,000 in 2006 is up from $203,000 in 2005. A median means half borrowed more, half borrowed less.
As property values skyrocketed through the early part of the decade, many borrowers used subprime loans to help buy more expensive housing, or pay off debt. If they got into trouble on the loans, they could quickly sell the house in a hot real estate market to avoid default.
From MarketWatch:
D.R. Horton 4th Quarter Net Sales Orders 6,374 Homes Versus 10,430
D.R. Horton Inc.’s fourth-quarter net sales orders fell to 6,374 homes, or $1.3 billion, from 10,430 homes, or $2.5 billion a year ago, hurt in part by reduced mortgage availability and cautious buyers. The Fort Worth, Texas, homebuilder posted a fourth-quarter cancelation rate of 48%. The company expects the housing environment to “remain challenging.” D.R. Horton also said it will continue to focus on reducing inventory, generating cash flow and reducing outstanding debt. The company said it “significantly reduced” its homes under construction during the fourth quarter, which helped it achieve its cash flow from operations target of $1 billion for the fiscal year.
A girl I work with just recently got married. Against my advice, and other’s, she had to go out and buy a new place with her new hubby. She wound up buying a place in Cambridge Crossings in Clifton. I didn’t ask how much she spent, but similar units are listed on realtor.com for just under $400k. I did a search on Cambridge Crossing and came up with an old article from this very website. I sent her the URL to njrereport several times but I guess she didn’t take my advice and read it. All she kept saying was how nice and friendly the sellers were at the closing. I just kept my mouth shut.
https://njrereport.com/index.php/2005/09/21/cambridge-crossings-crazy-in-clifton
Love the comp killer. I agree with Clot, this may have more legs than Lowball. I have seen 2 short sales, within blocks of each other, in the past 2 weeks. One was 130k off previous asking, the other 100k off previous asking. Both will obliterate the comps, if they even sell at the new asking price.
“Voters urged to OK ballot question on $700M in ‘tax relief’”
This is a bunch of BS, they are asking everyone to pay their sales taxes to offer a rebate for homeowners. What about the renters?
I found it completelly useless telling people at work about the bubble – most people own houses and very afraid of frop in real estate values – according to one of my colleagues – “Increase in our house value is the only was we can save for retirememnt – and the fastest way as well.”
the ones who are looking to buy – in the last 2 years bought relly expensive (by their own accounts) and crappy houses and said – well we will spend 2-4 years remodeling and than sell it for profit and will buy a better one next…
I was telling them that it is a bad time and in a year or two houses will be cheaper and more selection – no avail…. Now they kind of hate me since I haven’t bought a house and can buy a house right now for about 50K cheaper or for the same price they bought theirs but in a lot better condition.
All their money going into a money pit called a starter-fixer-upper no savings and seeing house values plummet makes them ANGRY AT ME!!!
They almost seeing housing slump as MY FAULT for not buying a house…
SO no mroe real estate advice from me to anybody at work or Family members…
(couple of cousins bought a Town houses not in NJ but in other bubble areas – CA-San Diego, SEATTLE in the last 2 years…) Got their parents to take out HELOC to help with downpayment.
Interesting observation – if parents taking out HELOC to help kids with downpayment in bubble areas – IT IS LIKE GETTING TWO HOUSES UNDERWATER for the price of one :)
I think 2005 was a breaking point for many young people.(fear of being priced out forever and greed – seeing Joe-Schmoe making 100K+ just for holding a house for a year).
No matter what bubble-sites like this one were saying greed and fear would overcome everything.
all,
this comp killing has to happen otherwise there is no way prices are going to come down! this is good…the faster we do this, the better we will get out of this downturn and get back to solid appreciation again….not this speculative stuff – lets reserve that for the stock market and keep it out of the average american’s radar…this type of RE speculation is hurting the ‘innocent’ and its harder for the average american to get out of this than it is for someone playing in the stock market
jb, please keep this coming……lets get your lowball section into the main page of your blog – we should update this with ‘sold’ prices as these comp killers sell….
as always, keep up the good work…have to give an extra ‘keep up the good work’ for the live blogging yesterday – simply superb!
CAIBC
No matter what bubble-sites like this one were saying greed and fear would overcome everything.
It’s a small minority of people that actually read this stuff here. Everyone else reads it in Time magazine after its too late
TO post #9 – ask JB for site statistics on unique users…… You’d be quite surprised with numbers….
And thats just this one site…. I think no matter what mass media – like TV an News papers would say Internet Blogging becoming very powerfull communication tool.
It is small amount of people who actually post here… But number of people who reads is different and quite large I believe.
Good listing JB. It is possible that your publicity of a particular listing may actually result in seller getting an offer.
My favorite comp killers are REO vs. REO, there were two similar investment properties in my town and Wells Fargo has a policy of pricing at full price and then re-evaluating every month and lowering the price monthly till it gets sold. Using the chinese water torture technique of re-pricing. Another bank came in with a brand new REO and on day one MLS’d it with a, open house to boot at 100K below the Wells Fargo price improved price of 490K. Wells started six months ago at 580K and are now down to 490k, well it is 30-60 days to close and banks want the stuff off their bs by 12-31-07 so some banks are hitting magic time to cut prices, if they have to carry into 1-1-08 they might as well get a better price. But for now some banks have a 4-6 week period of just getting the crap off their books before houses fall more in 2008 and while they can also get the tax write off right away.
1:00 – Housing Market Index
The National Association of Home Builders and Wells Fargo bank will issue the October Housing Market Index. The index measures housing market conditions by surveying builders’ on current sales, buyer traffic through model homes, and expectations for sales during the next six months. Builders look depressed, with the September reading equaling a record low of 20 set in January, 1991. The report goes back to 1985.
The index tracking current single-family homes also sank to 20, the second lowest reading on record, from 22 in August. Expectations for the coming six months hit an all-time low of 26, after falling to 31 in the prior month. Earlier this year builders expressed a belief that the housing market would improve this year, but that has not come to fruition. Besides fewer sales, respondents are seeing fewer people visit model homes as well.
While Mr. Bernanke cautioned in his speech that “considerable strains remain” in financial markets, he also acknowledged the risk of reducing rates — a nod to concerns that such moves might encourage some investors to take even more risks.
“One must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises,” Mr. Bernanke said.
Still, he said, investors who made those risky bets in housing, through investments tied to mortgages for people with weaker credit, “have sustained significant losses” and mortgage firms that issued the loans have failed.
More fallout is expected from the housing downturn. The decline in residential construction has directly shaved three-quarters of a percentage point off economic growth for the last year and a half, Mr. Bernanke said. Tighter standards for mortgages are expected to depress construction activity further while also pushing prices lower.
The housing downturn hadn’t led to “significant spillovers” into household and business spending as of the Fed’s September meeting, Mr. Bernanke said. But he said financial markets and consumers could still take a hit. “Investors are continuing to reassess the risks they face and have not yet fully regained confidence in their ability to accurately price certain types of securities,” he said. “The ultimate implications of financial developments for the cost and availability of credit, and thus for the broader economy, remain uncertain
Ouch.
Great analysis. It’s going to get worse before it gets better.
I am familiar with this development and have seen the loction. To add to the pain, the entire development is in a major flood zone right on the banks of the Rahway River. I wouldn’t pay 300 for this one. It is a possible long-term rental property for the right price, though. It’s within walking distance to train station.
Isn’t Rahway also near a prison?
As an aside, wasn’t someone on this board predicting $40 oil? Nice call…
As Defaults Rise, Washington Worries
http://www.nytimes.com/2007/10/16/business/16lend.html
““You may not hear that much about that stuff [unless you frequent njrereport.com], because it’s not seeing the light of day,” said Evan Mitnick, a managing director at Westwood Capital, a boutique investment bank in New York.”
“Boutique” investment bank?!
Jeebus H Christ are we effed….
October 16, 2007 — IF Bronx Bomber Derek Jeter wants to keep his s3x life a secret, he should learn to tie up any post-tryst loose ends.
Our spy in the lobby of the Shore Club in Miami early Sunday morning spotted “two scantily clad women screaming at the front desk because they had spent the night at Jeter’s penthouse and were then charged for parking.”
“The girls were wearing what looked like the same clothes they wore the night before – a tight cocktail dress and a mini-skirt. They were making a huge scene because they were asked to pay for parking.
“Obviously, they’d spent the night there,” giggled the onlooker, who noted that one of the overnight guests was screaming into the phone, “After last night, he’d better [bleep]ing take care of it!”
From Fortune via CNN/Money:
Junk mortgages under the microscope
It’s getting hard to wrap your brain around subprime mortgages, Wall Street’s fancy name for junk home loans. There’s so much subprime stuff floating around – more than $1.5 trillion of loans, maybe $200 billion of losses, thousands of families facing foreclosure, umpteen politicians yapping – that it’s like the federal budget: It’s just too big to be understandable.
So let’s reduce this macro story to human scale. Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year. We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm – and this one’s pretty bad.
It was sold by Goldman Sachs (Charts, Fortune 500) – GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M.
This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust. It’s got speculators searching for quick gains in hot housing markets; it’s got loans that seem to have been made with little or no serious analysis by lenders; and finally, it’s got Wall Street, which churned out mortgage “product” because buyers wanted it. As they say on the Street, “When the ducks quack, feed them.”
Alas, almost everyone involved in this duck-feeding deal has had a foul experience. Less than 18 months after the issue was floated, a sixth of the borrowers had already defaulted on their loans. Investors who paid face value for these securities – they were looking for slightly more interest than they’d get on equivalent bonds – have suffered heavy losses.
That’s because their securities have either defaulted (for a 100% loss) or been downgraded by credit-rating agencies, which has depressed the securities’ market prices. (Check out one of these jewels on a Bloomberg machine, and the price chart looks like something falling off a cliff.)
Even Goldman may have lost money on GSAMP – but being Goldman, the firm has more than covered its losses by betting successfully that the price of junk mortgages would drop. Of course, Goldman knew a lot about this market: GSAMP was just one of 83 mortgage-backed issues totaling $44.5 billion that Goldman sold last year.
the ones who are looking to buy – in the last 2 years bought relly expensive (by their own accounts) and crappy houses and said – well we will spend 2-4 years remodeling and than sell it for profit and will buy a better one next…
I have plenty of friends in this position. Most of them were not motivated by greed or dreams of riches, but rather by fear or misunderstanding. For some, it was a matter of “just getting something”, even an overpriced shack, before the market passed them by and they could never buy.
Others justified their purchase of an overpriced POS by reasoning that at least they could build equity and weren’t “throwing money away on rent”. In a few years they could trade-up. It’s commonly accepted wisdom, but nonetheless bad advice.
Most of the people I know will not go into foreclosure. Sadly, their fate is probably less pleasant. They will spend years living paycheck to paycheck to service an oversized mortgage and growing property taxes on an undersized POS shack. They won’t even be able to sell because they will be upside down and won’t have the money to bring a check to the closing.
20. God article JB. I don’t think this was posted yet, but there is now some questioning of Goldman’s big quarter
http://money.cnn.com/2007/10/14/news/companies/goldmanearns.fortune/index.htm
Goldman was selling the stuff on one floor and shorting it on another. Nice bunch of guys.
@7
I know how you feel about discussing real estate and investing at work. I always shared my views with coworkers. Unfortuneatly for me, my boss at the time thought “risk taking = courage”. I agree with being aggressive but there needs to be a basis for taking a risk. With each risk we succeed at, the more careless we will be the next time.
http://www.newsday.com/news/local/nassau/ny-nyhome165414426oct16,0,5877633.story
LI Mortgage Scams, hundreds of homes were purchased with stolen indentities. What are these homes gonna do to comps on LI once they become REO’s.
It’s a shame!
“As an aside, wasn’t someone on this board predicting $40 oil? Nice call”
That was bi
[22],
While investors were complaining that their fund investments were valued at market the internal Goldman partners’ funds have been valued at Goldman’s model.
21 renting
I do think that there was plenty of greed to go around, but I also agree with you that my experience with family/friends was more along the lines that you describe. The “at least I’m not throwing money away on rent” fallacy is particularly pernicious. It’s interesting to google “it’s always better to own” and see how many hits you get. I was given that advice innumerable times by people whose knowledge of real estate and economics was slim, to be charitable. It was, until about a month ago, an ingrained belief in the general population, and I’m sure many still think it. Bi, for example.
I noticed the Comp Killer myself! Rahway is on my short list of towns if I stay in NJ (I will know in a couple of weeks if I get a job in Boston or not). I wouldn’t be surprised if the 390 sellers attract a lot of hostility from neighbors since NJ residents take an extraordinary amount of pride in how much their houses have appreciated. I wish I had a dollar for everyone who’s told me how much money they “made” because their house “appreciated”. My standard reply is that your house is only worth what someone else will pay, and that if you haven’t sold your house, you haven’t made a dime, so you have no business talking about profits.
More Housing news
http://www.minyanville.com/articles/Cornstock+Homes-Tousa-housing-Corus+Bank-Standard+Pacific/index/a/14486
I live in a part of P’way with 4 townhouse/condo complexes* all adjacent to one another. Asking prices have been going down slowly but hardly much is selling at all.
It’s only a matter of time before our own comp killers show up and dowwwwwwn weeee gooooo!
*birch glen, maple grove, canterbury, maple woods
Jmacdaddio,
“My standard reply is that your house is only worth what someone else will pay, and that if you haven’t sold your house, you haven’t made a dime, so you have no business talking about profits.”
I disagree. Your point of view ignores the financability of real estate.
People make a lot of $ by borrowing their home equity and deploying it into high IRR investments.
For example, I owned a POS condo that went up in value. I got a HELOC, and used the proceeds from it for a deposit on a new construction condo, which I flipped.
That POS condo was worth a lot more than its market price.
this friday will make 20 year anniversary that dow dropped 17% in singal day. watch out guys!
syncmaster,
What is the point of living in Piscataway instead of a place with similar attributes for a lower price, like Cary, N.C.?
34 GOOD ..picking up some down stocks :)
bond market apparently got the signal from bernankes speech last night: fed will keep cutting rate despite of recent oil spike, which is purely driven by fear factor.
bi (34)-
Another clear buy signal. You should congratulate yourself; every time you come here and make a prediction, I do the exact opposite thing. Frightening as it may seem, this is the only investment strategy I’ve followed for the past month.
And, it’s been a helluva month.
All disclaimers.
bi (35)-
So, oil being priced in worthless dollars has nothing to do with it?
some random observations: central jersey home inventory keeps going down since August while some premier towns (summit, short hills, westfield and etc.) up slightly. This might change if gas and heating oil prices start to move up following cruel.
People make a lot of $ by borrowing their home equity and deploying it into high IRR investments.
I’ve got some incredible stories of this going terribly wrong. I was going to post the first of these this morning, but pulled back at the last minute. Online mortgage and foreclosure data combined with MLS data make the process of identifying these and constructing a timeline very easy.
Believe it or not, I’m struggling with the moral issues of posting the details behind a tragedy online.
I’ll sum it up here.
1) Family buys a home in Morris County in 2000, price is very reasonable.
2) Cash out refi in 2002.
3) Cash out refi in 2004.
4) Major cash out refi in 2005, appears that the proceeds were put towards a purchase of a home more than double the original home.
5) Original home listed for sale, priced at over $1m.
6) String of price reductions, plenty of time on market.
7) Both homes listed for sale on the MLS.
8) Notice of default on the old home.
9) Notice of default on the new home.
10) New home goes through foreclosure, sheriff sale scheduled.
11) Notice to sell just filed on the old home.
Decided that I couldn’t post the details when I noticed the pictures of three young kids in the MLS photos of the old house.
The schadenfreude camp would have had a field day.
36#, do whatever you like – i know u have extra money to lose. but i did what i said last week, only long is pph – betting we will have first female president next year while i am not decided yet.
“Following cruel?”
BI is a genius. Light sweet cruel oil is certainly an appropriate replacement for $+86 crude oil…no?
bi
“some random observations: central jersey home inventory keeps going down since August”
(a) inventory always goes down after August
(b) I and others on this blog have repeatedly pointed out to you that inventory always goes down after August and that the relevant question is the YOY comparison, not MOM
And yet you keep popping up with the same moronic observation over and over and over again.
What’s wrong with you? Does your memory not function?
Grim,
Nice job piecing together that example.
Lots of people do stupid things with their home equity – buy flat screens for every room, make investments that erase their net worths.
But home equity is an excellent source of financing for savvy individual investors.
grim (39)-
“Believe it or not, I’m struggling with the moral issues of posting the details behind a tragedy online.”
I don’t see the moral issue. The foreclosure process in the US is an amazingly fair and efficient way of cleaning up the debris after these fiscal roadkills. Those who come in and dispose of the properties are like carrion birds; it’s a dirty task, but in the grand scheme of things, they perform a hygienic function and keep the entire ecosystem free of rot and communicable disease. Too bad the banking sector and gubmint can’t see a little of the same thing might be good for the SIV/CDO/MBS thingy. Their “bailout” reeks more of Ponzi scheme than anything that could be remotely termed “cleansing” or “hygienic”.
Worst case, foreclosure will come off a credit record after seven years. Credit can be re-established well before then.
In no way is foreclosure a good thing for anyone, but it’s not the end of life, either. As in many other things, this country affords second chances to those who run afoul of the system.
bi (40)-
Excuse me…now rushing to get short PPH.
42#, many people on this board said the inventory would spike up seasonally after labor day but it did not happen in central jersey. my guess is it is related to gas price, i still pay $2.45 cash in valera
“Their “bailout” reeks more of Ponzi scheme than anything that could be remotely termed “cleansing” or “hygienic”.”
Clot [44],
How about throw the crap into a pool, get a rating agency [large fees] to slap Triple A onto it and move these bad debts before year end audits? I thought WS was claiming that this issue was resolved, with the $20B of write offs by the various IB’s?
BC (47)-
You and I know damn well that 20B “kitchen sink” writedown was to get CNBC and the MSM off their backs. Now, the real skulduggery can resume under cover of darkness.
Only problem is, smelling & bloated bodies keep floating to the surface. Worse yet, you can’t predict when or where they’ll pop up. Very hard to suppress the story when the corpses surface in France, Germany, England or China.
For sure, the IB’s want to throw this crap away before year-end. However, it’s just like my Mom used to say: where, exactly, IS “away”?
bi (46)-
“…my guess is it is related to gas price, i still pay $2.45 cash in valera [sic]”
So, people aren’t deciding to sell their homes, because gas is $2.45 at Valero?
Someone should run a test on your brain for mad cow disease.
Pretorius,
You’re playing a dangerous game. More power to you if you can succeed at it, but I’d prefer to not use my home to make money. What you described is not much better than gambling.
This Paulson guy kills me:
http://biz.yahoo.com/ap/071016/paulson_housing.html
It wasn’t a crisis when you where cashing those GS bonus checks and stock options.
#33 “People make a lot of $ by borrowing their home equity and deploying it into high IRR investments.”
The original post talks about realized profits and you’re talking about potential profits using the concept of leveraging.
For example, if I buy 100 shares of XYZ for $5/share and sell for $7/share. I will have a realized profit of $200. It is only realized at the time of the sale. If I am bold and leverage it (e.g. margin, etc…) and make a million dollars while in possession of the stock, it doesn’t mean that the stock is worth a million and 700 dollars.
>>I have plenty of friends in this position.
not everyone is an idiot for buying the last 2 years. each situation needs to be judged independently. to boil everything down to dollars and cents is missing the big picture.
real estate will always be about location. a townhouse complex in rahway during a long sharp run up in prices is dangerous business. if you’re buying today find the best location/town first, then the best house. you can always fix the place but you can’t move it. sure you’ll pay a premium due to these factors but your downside is far more limited.
52#, i think individuals should use the same accounting as institution for their own investment – mark-to-market. if you think that way, you may avoid holding loss too long. a lot of folks think they did not lose since they did not sell.
Yes, but the big picture is that in most cases if you bought a house in the past two years, it’s worth less today than it was when you purchased.
If you had to buy or really wanted to buy, it’s your perogative, just know your house has depreciated in value.
Jmacdaddio,
If you want to live comfortably around here, then you need to take a few risks and to hustle a little bit.
By the way, lots of people told me the same things you did.
Lots of good info and news clips on the blog today…
Making comp killer a regular feature would be great. Gives distinct example of the turn in RE market.
Sad about that family who cash out refi’d and bought a $1mm plus home. It’s the collateral damage of the RE bubble exploding.
Jeter story is funny, chifi. Wish I was him.
Grim,
Nice job piecing together that example.
Lots of people do stupid things with their home equity – buy flat screens for every room, make investments that erase their net worths.
But home equity is an excellent source of financing for savvy individual investors.
BUT.. that’s only if you HAVE equity. If you don’t have at least 50% equity in your house, then you really don’t have much at all. And risking that to reap bigger rewards may just dig you into a deeper hole..
The sad part about the story above is that the family would have been in great shape if they hadn’t refi’d themselves into foreclosure. They had a beautiful house and the price paid was very reasonable.
If they hadn’t rolled the dice and cashed out equity, they’d be sitting on a considerable equity cushion.
“many people on this board said the inventory would spike up seasonally after labor day but it did not happen in central jersey. my guess is it is related to gas price”
I think this qualifies as the quote of the year, courtesy Bi.
I still like the barrel of cruel!!!
DUG is ultra-short for oil and gas which enables you to take bearish position on oil and gas in 401K. I am taking it today.
All disclaimers.
#58 # Hard Place Says:
October 16th, 2007 at 12:12 pm
“Making comp killer a regular feature would be great. Gives distinct example of the turn in RE market.”
I guess that’s true, if there are more comp killers than comp improver’s (if that’s the correct term).
Grim,
Did they use the equity cash out to redo their original home? If not then what in the world did they use the equity on? I am sorry but I can’t think of one thing that I would ever use the equity in my home on other than maybe some home improvements. We decided in this market it was better to just use cash on hand for improvements then equity. I can’t help but not feel sorry for people that take out home equity and spend it on bullsh*t (they did this multiple times in your example). What ever happened to people living below their means?
bipolar: can I take a bearish position on you? Oh wait…you already sold off…. :(
Oh no…BI has probably triggered the true start of the ‘peak oil’ crisis.
I hope everyone filled their gas tanks this morning ;)
stuw (64)-
I got your barrel of cruel, right here.
Bi, you’re so full of it. You have an option in your 401k for an ultra-short sector ETF? You actually expect us to believe that?
reech (56)-
Wil E Coyote, legs spinning in mid-air, Acme parachute failed to deploy, canyon below:
“…real estate will always be about location. a townhouse complex in rahway during a long sharp run up in prices is dangerous business. if you’re buying today find the best location/town first, then the best house. you can always fix the place but you can’t move it. sure you’ll pay a premium due to these factors but your downside is far more limited.”
71#, why not? DUG contains a lot of refinaries also. if gas price does not pick up, the refinaries got screwed. if oil goes down, all oil stocks will get killed – that is my bet.
dream (71)-
Hey, don’t all 401k’s have features that allow for insane speculation in completely-illiquid, exotic ETFs?
Somebody should call 911 and send a negotiating team to bi’s house.
Shangri-La West breaks 300K for the POS on the way down.
MLS ID# 2431264 Can someone pull the OLP to see were they started from. I’ll guess $410.
http://homes.realtor.com/search/listingdetail.aspx?ctid=26619&typ=7&sid=851d9fa978624f7db977c0aa5c609091&lid=1086435268&lsn=1&srcnt=174#Detail
Some South Jersey news, from Prudential Fox & Roach:
August Pending Home Sales Index© Shows Slowing in the Greater Philadelphia Region Real Estate Activity
After remaining steady for the previous three months, The Prudential Fox & Roach, REALTORS® HomExpert Pending Home Sales Index© showed a decrease in real estate activity throughout the Greater Philadelphia region* for August. Based on the forward-looking indicator, the region showed a 12.8 percent decrease in activity from the revised July index of 92.5 to 80.7 in August.
All five Pennsylvania counties saw more than a 10 percent decrease from July. As a whole, the five-county region fell 13.8 percent. Chester County saw the biggest swing dropping 18.4 percent decrease in August. Center City Philadelphia fell 34.1 percent after a 13.8 percent decrease the previous month. Main Line activity fell for the third consecutive month, dropping 24.9 percent.
Salem County in New Jersey was the only county in the Greater Philadelphia region to see a growth in pending homes sales activity this month, increasing 13.9 percent. Overall, the five county Southern New Jersey area dropped 10.8 percent, after showing a 5.8 percent increase last month. New Castle County in Delaware saw a 12.6 percent decrease.
…
Compared to August findings reported by the National Association of Realtors® (NAR) Pending Home Sales Index, the Greater Philadelphia region showed a slightly larger decrease than the Northeast and National indices. The NAR index showed an 8.3 percent decrease in pending sales in the Northeast and a 6.5 percent drop nationally. In July, the NAR index indicated a 12.2 percent decrease in pending sales in the Northeast and 12.2 percent decrease nationwide.
County
August Index
July Index
Percent Change
Burlington
76.5
64.3
-15.9%
Camden
79.3
78.5
-1.1%
Gloucester
96.4
87.8
-8.9%
Mercer
96.4
68.3
-22.8%
Salem
101.9
116.0
13.9%
NEW JERSEY
83.6
74.6
-10.8%
NAHB index in the gutter, more to follow.
From MarketWatch:
Home builders’ index falls to record low in October
U.S. home builders grew even more pessimistic in October, hit by a triple whammy of tight credit, abundant supply of homes for sale and falling prices.
The seasonally adjusted housing market index fell to a record low of 18 in October from 20 in September, the National Association of Home Builders reported Tuesday. It’s the lowest reading in the index since its inception in 1985.
Despite special sales incentives, “many buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,” said Brian Catalde, president of the NAHB. Home values are down 3.9% in the past year in 20 cities covered by the Case-Shiller home price index.
All three components of the home builders’ index notched record lows in October. Sentiment fell in three of four regions, with builders in the West the least optimistic. Builders in the Midwest, who had been the most pessimistic, grew slightly more hopeful in October.
At 18, the gauge indicates that just over one in six builders say business conditions are good.
The decline in the index is no surprise; economists expected a drop to 19.
Here’s your $40 oil:
http://store.caviarideas.net/aninoloil4oz.html
while i called oil peak many times, today is the day i am taking action
Sorry for the diversion but Jeter is s stud…….
Tongues in Miami are wagging over Jeter’s stint in Miami, where he was spotted Friday night dining at Nobu, then partying it up with Timbaland at Skybar. “They took over the table in the back and drank Grey Goose all night,” said a fellow reveler. “Five girls were dancing around him, but he didn’t seem interested.”
Jeter was spotted acting equally detached later that night at Set, where he was “surrounded by throngs of women five rows deep. He was hanging with a guy friend, though, and didn’t seem to take much interest in the hordes of ladies.”
Evidently, the Yankee captain likes to keep his conquests behind closed doors, because there were no Jeter sightings Saturday night.
“I heard he was staying in the penthouse at the Shore Club,” said one Miami source. “He checked in solo Friday, but nobody saw him Saturday night . . . and everyone down here talks when big names come to town. Maybe he was holed up in his suite all night?”
Jeter is notorious for his off-field plays – he’s been linked to the likes of Jessica Alba, Jessica Biel, Jordana Brewster, Mariah Carey, Scarlett Johansson, Vanessa Minnillo and Gabrielle Union. Shore Club reps had “no comment,” and a Yankee rep did not return calls
From Bloomberg:
U.S. Homebuilder Confidence Index Fell to Record Low in October
Confidence among U.S. homebuilders fell to a record low in October as declining prices and mortgage- market disruptions scared off buyers.
The National Association of Home Builders/Wells Fargo index of builder sentiment fell to 18, more than economists had forecast, from 20 in September, the Washington-based association said today. Levels lower than 50 mean most respondents view conditions as poor. The index averaged 42 last year.
Bigger discounts and sweetened incentives have yet to revive demand as buyers wait for even bigger bargains, builders said. The report underscores Federal Reserve Chairman Ben S. Bernanke’s warning yesterday that the housing slump will constrain economic growth into next year.
“The stress in the credit markets has turned a cloudy outlook to bleak,” Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “Lenders are now much more credit conscious and are cutting back on making new mortgages.”
The confidence index was forecast to drop to 19 this month, according to the median estimate of 38 economists surveyed by Bloomberg News. Projections ranged from 17 to 21.
The homebuilders’ group started tracking sentiment in 1985. The survey asks builders to characterize current sales as “good,” “fair” or “poor,” and to gauge prospective buyers’ traffic. The survey also asks participants to assess the outlook for the next six months.
The group’s measure of single-family home sales fell to 18, from 20 in September. A measure of sales expectations for the next six months held at 26, while the index of buyer traffic fell to 15 from 17.
Ugly day for RE w/ builder’s index. If this is the lowest in the 23yr history of the index, than I surmise we can reasonably expect this RE downturn to be worse than the post S&L crisis of late 80’s & early 90s.
John’s comments earlier about banks wiping their balance sheets clean of foreclosed homes is a realistic assumption. They are already starting with the marking down of MBS securities, which are more liquid than homes. Homes are less liquid so do they sell now or wait until next year? Comments? I think we’ll see a wipe the slate clean mentality. We already have the MBS issue, why not just throw in some of these impaired housing loans…
bi (81)-
And, small children are afraid:
“…while i called oil peak many times, today is the day i am taking action…”
County
August Index
July Index
Percent Change
Burlington
76.5
64.3
-15.9%
Camden
79.3
78.5
-1.1%
Gloucester
96.4
87.8
-8.9%
Mercer
96.4
68.3
-22.8%
Salem
101.9
116.0
13.9%
NEW JERSEY
83.6
74.6
-10.8%
Are those seasonally adjusted numbers? Seems like a logical drop in percentage for this time in year, if they are not seasonally adjusted.
Should be a profitable winter for those who provide winterization services for REO properties.
#77
Decrease in pending sale does not necessarily mean sale price drop. If you look at sale price in West Windsor or Hopewell of Mercer, you will be surprised at where -22.8% comes from.
oil is erasing all the gains this morning, good news for real estate.
Clotpoll Says:
October 16th, 2007 at 1:28 pm
bi (81)- And, small children are afraid:“…while i called oil peak many times, today is the day i am taking action…”
clot: “peak oil” for me was at about 15 years old, but my skin cleared up pretty nicely by 16. The girls seemed to notice.
bi Says:
October 16th, 2007 at 1:39 pm
oil is erasing all the gains this morning, good news for real estate.
biploar:
grim is erasing all of your posts from this morning, good news for the rest of us.
Could it happen again?
Commentary: Twenty years after crash, investors face many of the same fears
By MarketWatch
This October marks the 20th anniversary of the 1987 stock market crash, the biggest one-day post-war percentage drop for U.S. markets.
In a few short hours on Monday, Oct. 19, 1987, the Dow industrials gave up 508 points, or 22%, bringing an abrupt end to what had been a lively Wall Street party
• The crash came against a backdrop of inflation fears, rising oil prices, Middle East tensions and a host of other eerily familiar worry signs in Wall Street’s most notorious month, and helped cement October’s reputation as the toughest month for the markets, at least psychologically.
The only difference between 10-19-87 and 10-19-89 was at least in 1987 housing was still years from the than peak and was in pretty good shape, in 2007 housing is in the tank. Either way Friday will be a fun day if we get some shocking news on a date that already puts fear into the markets.
This is exactly what I experienced in 1991. Bought in Apple Ridge in 1986 and just barely got out with a 10K loss in ’91. Others, who sold after me, lost substantially more. And, I might add, 8 months after I had moved in, the master bath pipes burst which caused the living room ceiling to fall. Nice.
“while i called oil peak many times, today is the day i am taking action”
bi,
You are ruining a great blog. Nobody is interested in your investment ideas. If you had the b#lls to trade it, you would have already been crushed. I wish their was a bi spam filter on this site.
there.
Bi,
On what basis do you think oil has peaked (88$)?? and for how long, peaked for 2007,08…?
While there may be small fluctuations both up and down on short term scales, oil is only going up from here on out my friend.
consider the following recent production report for world oil supplies. Also consider the following:
-china’s oil use is increasing by about 9% annually
-India’s oil use is increasing by about 6% annually
-The amount of new oil found every year has been less then the increase in demand since 1979.
basic supply and demand, Supply is going down and demand is going up!
World Oil Forecast
1. World total liquids production (Fig 1) remains on a peak plateau since 2006 and is forecast to fall off this peak plateau in the middle of 2009. According to the IEA, the current peak production of 86.13 mbd occurred on July 2006 and only one year later, June 2007 total liquids production fell to an unexpectedly low 84.50 mbd. A good increase up to 85.10 mbd occurred for September 2007. As long as demand continues increasing then prices will also continue increasing.
2. Forecast world crude oil and lease condensate (C&C) production retains its 2005 peak (Fig 2). The forecast to 2100 shows declining C&C production, using a bottom up forecast to 2012 (Fig 3). The forecast to 2012 shows a 1%/yr decline rate to 2009, followed by a 4%/yr decline rate to 2012.
3. World oil discovery rates peaked in 1965 (Fig 4) and production has exceeded discovery for every year since the mid 1980s. Discoverable reserves in giant fields also peaked during the mid 1960s (Fig 5). The time lag between world peak discovery in 1965 and world peak production in 2005 of 40 years is similar to the time lag of 42 years for the USA Lower 48 (Fig 6).
4. World C&C year on year production changes to June 2007 and July 2007 (Figs 7,8) show significant declines for Mexico, North Sea and Saudi Arabia and significant increases for Russia, Azerbaijan and Angola. As Russia is likely to be on a production plateau and Saudi Arabia, Kuwait and the UAE have probably passed peak production, the world C&C production will continue to decline slowly.
5. Saudi Arabia retains its 2005 C&C peak (Fig 10), which is the same as the peak year for world C&C (Fig 2). Saudi Arabia C&C production has dropped to 8.6 mbd which is 1 mbd less than its peak in 2005. It is now almost a certainty that Saudi Arabia passed peak C&C production of 9.6 mbd in 2005 (Figs 9,10).
6. Kuwait retains its 2006 minor C&C peak (Fig 12). Kuwait C&C production has now dropped to 2.5 mbd which is less than its peak in 2006. There is a strong likelihood that Kuwait has passed its minor 2006 peak (Figs 11,12). Kuwait’s major peak was 3.3 mbd in 1972.
7. UAE retains its 2006 C&C peak (Fig 14). UAE C&C production has now dropped to 2.6 mbd which is just less than its peak in 2006. Once again, there is a strong likelihood that UAE passed its 2006 peak (Figs 13,14).
8. World natural gas plant liquids is forecast to increase due to new OPEC projects (Fig 15). World ethanol and XTL production is forecast to double by 2012 (Fig 16). World processing gains are forecast to decline slowly to 2012 (Fig 17).
94#, why u can keep talking gold every day, but i cannot talk oil for one day? because i don’t subscribe your bubble theory.
grim (87)-
Now, there’s a growth industry!
Did your broker ever teach you the “plywood close”? It’s a classic:
When you’re talking to an owner trying to FSBO his vacant home into the Fall market, you ask him if he’s bought his plywood yet.
When the owner asks what the hell you’re talking about, you tell him that if he doesn’t have his home under contract by Halloween, he might as well go to Home Depot, buy plywood, board up his windows and come back in April.
I just heard that Ice-T is coming out with a new song to be a little more P-C.
It’s no longer Cop Killer, but CoMp Killer.
He’ll be rappin about real estate rather then law enforcement.
Pretorius,
The number one rule of both investing and gambling is that you never risk money that you can’t afford to lose. If you get a hot stock tip and you cash in your house to act on it, it’s your right to do so as long as you accept that if any future event affects your ability to pay back the loan, THEY GET YOUR HOUSE. If you have enough cash to cover the loan, great, but why wouldn’t you just use that cash to invest in the first place?
I’m looking at out of state jobs and grad school opportunities because this state is full of people willing to financially cripple themselves to live here in the belief that property will always vault upward. I’d rather just go someplace where I can work, save my pennies, and enjoy life instead of devoting every spare second to finding new revenue streams.
bi (97)-
No…it’s because those long gold are making money. Those short oil are getting killed. I get the feeling you post here because you enjoy the sight of your own written word, no matter how inane it is.
Agreed with BC. You’re a troll and a spammer.
“Somebody should call 911 and send a negotiating team to bi’s house.”
Would it look something like the “hostage” scene in Blazing Saddles?
101#, why are u so sure shorting oil will lose money in next few days?
Bi # 97,
I think that the problem is that you are not backing up your argument. Point us to some data that suggests that oil is going to go down based on some sort of fundamentals.
We have discussed that gold is going up due to the rampant inflation that is starting/has been taking place in the USA. In times of high inflation and financial uncertainty gold has historically been a financial reserve on the basis that gold will never loose it primary value. prices will fluctuate over time and can fluctuate quite bit, but unlike a fiat currency, the value of gold will never go to $0.00
DUG is ultra-short for oil and gas which enables you to take bearish position on oil and gas in 401K. I am taking it today.
71#, why not? DUG contains a lot of refinaries also. if gas price does not pick up, the refinaries got screwed. if oil goes down, all oil stocks will get killed – that is my bet.
Bi…you know that “gas” isn’t referring to “gasoline”, right? In the energy industry, “gas” means “natural gas”.
BTW, gasoline isn’t the only product refineries make. Heating oil is expected to jump 22% vs. last year.
#97,
Can’t talk oil for one day? You are kidding, right? Stop talking about it and step up to the plate and take a position. Then, shut up and manage your position, nobody cares if you are debit or credit.
Clot, I thought it was the “buy the good gloves” close. “Make sure you buy the upgraded gloves when you’re wrapping the pipes…and Oh, yeah, wear a mask.”
http://www.diynetwork.com/diy/diy_kits/article/0,2019,DIY_13787_2275412,00.html
104#, i am using bob’s favorite “greed and fear” theory. current oil price run-up is based primarily on fears, not fundamentals. I agree in long run it will go up as you mentioned in 96#. but citing turkey invading iraq as a reason is ridiculous to me.
bi (108)-
The only “Turkey” here is you. And, I wish somedbody would invade your house and break your computer.
Richie (99)-
That’s Ghostface Comp Killa.
jmacdaddio,
I wouldn’t risk my house to take advantage of a hot stock tip, whatever that is. But I will use my home equity to make a real estate investments that I understand.
So where you looking to move? Why not go for the CFA? It is cheaper than grad school, you don’t need to quit your day job to do it, and then you can make enough $ to live here comfortably.
Bi # 108,
The influence of turkey on oil prices is a consequence of human emotions affecting a commodities market. In real life any action yb turkey will likely not effect real production of oil, however the traders become nervous due to a higher level of conflict in the region and start bidding up the price.
This is the same effect as gold going up during inflation. There are very strong argument that gold IS NOT a hedge against inflation, but a hedge against deflation. ultimately golds value lies in the fact that it is essentially the ultimate currency i.e
gold still represents the ultimate form of payment in the world. It’s interesting that Germany could buy materials during the war only with gold. In extremis fiat money is accepted by nobody and gold is always accepted and is the ultimate means of payment…
So people by gold during inflationary periods due to a loss of faith in the fiat money system(i.e emotion). Look at this chart
US Dollar Index vs. Gold
http://tinyurl.com/2kzf6k
the quote in 112 is by alan Greenspan
Here is a potential comp killer in Westfield.
Open House Sunday priced at $879K, the Weichert ad says “LOOKING FOR OFFERS”. An offer of 3.3% less than list price puts them back at the December 2004 price, nevermind commissions.
732 Coolidge St
Dec 04 $850,000
Aug 01 $349,900
Aug 01 $350,000 (from domania.com)
732 Coolidge was listed at $989,000 earlier this year.
#41 – Grim,
The scenario you posted was loud & clear without additional details. Sad that the kids were in the photo.
OT –
Instead of mark-to-market, I heard someone say the new phrase is “mark-to-make believe”.
I’m looking at jobs in the Boston area. Not a real estate bargain, but there are plenty of 1-BR and 2-BR condos in the 180-225k price range located in urban areas where I could live a city-like existence and not go broke in the process. The CFA is something I’m considering down the road – I seem to have an ability to take people who are utterly clueless about finance and the need to budget and save, and get them at least off the ground with realistic financial goals. I’ve got a long way to go before I could get into more complex things such as estate planning and tax sheltering, but I suppose I’ll learn that in CFA courses.
I saw a similar price drop on a much cheaper house in Scotch Plains (Grand St). It looked like it hadn’t been touched in 40 years, but it was habitable (lofty praise). Last week they reduced it from $350K to $275K and it was off GSMLS 2 days later.
savvy investors don’t need to use home equity to make an investment
Clot, Bi isn’t a troll nor spammer. He genuinely believes in the paradox of cruel oil peaking and housing inventory, and that ultra-short ETFs in his inversely appreciating 401k are a path to retirement.
jmac (117)-
Watch that tax sheltering thingy.
Here is a better comp killer in Westfield, off today’s hot sheet:
MLS# 2072056 – 705 Saint Marks
Purchased: 6/27/2005
Purchase Price: $727,000
MLS# 2416489 – 705 Saint Marks
Sold: 10/12/2007
Sale Price: $730,000
Commission: 5%
Post Commission: $693,500
Loss over 2 years of ownership? At least $33,000. Factoring additional transaction costs as well as upgrades, maintenance, and that number is likely closer to the $40-45k mark.
grim (122)-
It cannot be! Brigadoon? Never!
Not to mention the two years of throwing money away on property taxes and mortgage interest (rent).
dream (120)-
Retirement? Yeah…under a highway overpass.
Aaron,
“savvy investors don’t need to use home equity to make an investment”
At the time, my capital resources were limited to home equity, 401k, and a credit card.
Home equity was the cheapest $ available to me.
pret (126)-
Did you amp up those home-equity-fueled investments by buying on margin, to boot?
Yeah, that’s the ticket…
122#, acctually it does not matter losing 40K in 2 years factoring rent would be the same amount. besides, they have interest/mortgage deduction and they may get better deal other side also.
Can’t talk oil for one day? You are kidding, right? Stop talking about it and step up to the plate and take a position. Then, shut up and manage your position, nobody cares if you are debit or credit.
Amen
#126
pretorious– Seems to me you really just were gambling by using a HELOC to buy a preconstruction condo. The fact that you made money was luck– plenty of people who tried the same maneuver lost. How was your flip different? You describe this in terms of its IRR– how did you calculate the expected IRR of this preconstruction condo? What told you that prices would continue to go up until you sold? Again, I think it’s great that things turned out in your favor, but I do not see how this strategy amounted to shrewd investing
Assuming 20% down, PITI on that property would be near $4,500 a month.
$4,500/mo * 24 mo = $108,000
$108,000
+ 40,000 (transaction fees and losses)
=148,000
$148,000 total cost / 24 months ownership = ~$6150/mo
Are you telling me that the equivalent rent on that house would have been $6k?
grim #122
Wow, I had just started to look in Montclair, and several towns (including Brigadoon) in Union county in June of 2005. I kept thinking the next town would have a house I could afford. Ha. So we are getting back to prices I couldn’t afford 2 years ago, but the down payment has grown, and I have some patience left. Thanks for that info.
Not to mention the opportunity costs associated with the downpayment. At an estimated 20% down, we’re talking about $145k here.
At a very conservative 5%, we’re talking approximately $7000 a year lost interest income. Nearer to $15,000 over two years of ownership.
Here is another example for RE loss,
10 O Keefe Rd, Bridgewater, NJ
Purchased: Oct 05 $579,900
Sold: Jan 2007, $525,000
Loss on Sell price: $55,000
+ RE commission (5%): $26,000
+ Holding cost (it was empty at least 6 months prior to sell): $24,000 (at $4000 per month)
Total Loss: $105,000
All this talk about the CFA sparked my interest in obtaining a bit more info on the topic. I browsed to the CFA Institute’s web site to get a little more information about the curriculum, exams, and expectations. I liked what I read. I then browsed the web for average salaries for CFA, and didn’t like what I read. It seems like a lot of work for not much of a salary. 3 years of studying and testing for a mid $80K salary doesn’t seem that appealing. However I do know that these salary sites can be BS. Leading to my question…does anyone on this blog have more insight into the program and an expected outcome (if successful with completing the tests)? As for practical experience – would working in a non-investment capacity (albeit for-profit companys) count toward practical experience?
I’m up for another challenge/change-of-pace since tackling the marriage thing, and I think this may be it.
Thanks-
I am currently looking at renting a place and i went to look up the tax records on the property but they do not show up. What does this mean? I was able to located all of the surrounding homes, but not the one for rent…. I used http://www.njactb.org and the house is in landing NJ
#136 Kettle1
I think Landing falls under Roxbury for taxes.
#128 bi
Many people are negative on you and well, now its my turn. Did you just say ‘it was ok for someone to lose $40k on a real estate transaction (post #122). If you really believe that, then you are a clown.
Please dont forget the Investment Rules of the one and only WB
Warren Buffet’s Most Important Investment Rules
1. Don’t lose money.
2. Don’t forget rule number 1.
SG (134)-
I know that house, showed it a couple of times.
Whoa.
PGC,
The town isnt the problem, on the tax website its listed under Roxbury ( you are correct) but the property doesn’t show up. All of the neighboring homes do but no the one i am looking at. I was doing a very general search to makes sure i didnt over specify. I also check the other uasual sites, zilolw, etc.
I was wondering if the absence of data might mean something
In fact, I bet the other guy in Jeter’s suite in Miami was Warren Buffet !
Paulson: Subprime help needed – but no bailout
Another view of HEHEHE [53], this time from CNN.
…
Paulson also called upon Freddie Mac and Fannie Mae to work closely with private lenders to make affordable mortgage products more available and to increase funds so those in risky adjustable mortgages can refinance.
Starting in April 2007, Freddie Mac began to dedicate billions to buying refinanced mortgages designed to help troubled borrowers stay in their homes. Paulson would expand on initiatives like this.
…
Gawd I love how Government saves the political donor class @$$ while making it sound like they’re helping the little guy. Just waiting for the article that says the 417k Jumbo limits have been raised – “Now troubled families in small towns have a place to turn”…agh!
Skep-tic #130,
Most flippers who invested when and where I did lost money. The condo is in Hudson County.
I wasn’t betting on price appreciation. I wan’t looking for the fanciest project. I was searching for value. That way I’d make money in a flat market.
When I found a condo selling for a lot less than it was worth, I agreed to buy. 18 months later I closed, then a few weeks later I flipped it for a profit.
I didn’t use any of my own money, except for making the interest payments on the deposit amount. That helped me get to a high IRR.
Here’s the link to [142]
http://money.cnn.com/2007/10/16/real_estate/Paulson_leaning_on_lenders/index.htm?postversion=2007101612
And because you had to skip down to the next entry, as a bonus, here’s CNN’s hard-hitting reporting on the builders confidence report…
http://money.cnn.com/2007/10/16/news/economy/builder_confidence/index.htm?postversion=2007101613
Johnny # 142,
as i said in one of yesterdays articles…
# kettle1 Says:
October 15th, 2007 at 8:48 am
Grim Regarding #2 (http://tinyurl.com/2rjcd8)
The Subprime FHA
By JOHN BERLAU
October 15, 2007; Page A23
The push to move loans into FHA is simply a move to federally subsidize as many of the funny money loans as possible. The point is to move the loans into FHA and then let them take the hit. The Federal Gov WILL bail out the FHA. It will be a win for everyone except the tax payer. The investment banks will get to dump a large portion of their bad loans and the politicians will get to bail out there banker buddies but still be able to claim that the did not bail out banks, they only supported the FHA!
Why India Spurns China Model, Lets Rupee Ride
From WSJ:
____________________________________________
DELHI — The U.S. government regularly implores China to let its currency appreciate, but it seems to be India that is answering the call.
Both emerging Asian nations have booming economies. Yet only India has allowed its currency, the rupee, to climb sharply against the dollar, underscoring India’s willingness to adopt a market-guided approach to suppressing inflation and bolstering its new heft in the global economy.
While offering help to exporters whose products have become more expensive, India so far has avoided the heavy buying of dollars that characterizes Beijing’s monetary regime. The approach is winning kudos from Western governments and investment bankers, but sparking debate in India, where many are concerned about the potential economic threat from China.
When finance ministers from the Group of Seven industrialized nations meet in Washington this week, they are likely to add their voices to Treasury Secretary Henry Paulson’s appeals to China to let the yuan float more freely.
By contrast, when Mr. Paulson visits India later this month, he will be scouting for new business opportunities — not harping on the currency. “India’s experience shows clearly that a flexible exchange rate can be a valuable tool in restraining domestic inflation while maintaining strong growth,” said Brookly McLaughlin, a Treasury spokeswoman.
Indian authorities have sought to soften the blow of a rising rupee, unveiling a package for exporters that includes tax relief and loan credits for certain agricultural industries. The goal is to support exports without stoking inflation or disrupting Indian investments overseas. “We need to maintain a competitive exchange rate, suitably low interest rates and subdued inflation,” India’s financial secretary, D. Subba Rao, told an Organization for Economic Cooperation and Development conference last week. “Managing the impossible trinity is the biggest challenge.”
Some Indian technology companies are showing they can manage in the new climate. HCL Technologies Ltd. has shifted from business-process outsourcing to larger engineering-intensive projects, where margins are fatter, with companies like Boeing Co. By trimming costs, Infosys expanded margins in the second quarter, when net profit rose 18%, according to S. Gopalakrishnan, the company’s chief executive.
Other firms have come up with unexpected ways to exploit weaknesses in the U.S. economy. Quatrro BPO Solutions, which derives about 70% of sales from the U.S., was worried that its handling of mortgage paperwork would slow with a downturn in the U.S. housing market and a weaker dollar squeezing its customers. Instead, Chairman Raman Roy said he approached one client who agreed to outsource a new type of work to Quatrro.
“Who would’ve thought I’d be working on foreclosures?” he asks.
Such successes are likely to increase the confidence of corporate India that it can handle competition from abroad, even from China, as the currency strengthens.
__________________________________________
Not really sure. Possibles are
New Construction
Sub division
Hasn’t been assessed in years.
Reported on the wrong ID
If you make it up here, get in touch and we can meet fort a beer. I’m only a few mile away.
As far as I know, FHA is still full doc only and they don’t do any loans over 100% LTV. That rules out 97% of all funny money loans.
It’s nothing but window dressing. If they do wind up doing a refis for a sub-prime borrowers, they probably won’t be much higher of a risk than they’re already doing now.
X 147,
I should have been clearer. When i said FHA i was referring to FHA And the F MAC’s in general. I expect the Fed Gov to reduce there standards further as a back door bailout. Just my guess.
Consider that both fannie may and freddie mac are currently running deficits due to a higher default rate then what the loan interest rates cover
#128 Bimoron.
It amazes me how you keep trying to prove your stupidity. We get it.
$33K is the capital loss !! The true loss if $33K capital loss plus the cost of carry on the mortgage for 2 years (read, mortgage interest, plus property taxes, + insurance, + maintenance etc).
Th real loss is 33K plus the monthly mortgage outflow times 24 less any tax break (assuming no AMT). I am not going to waste my time explaining what AMT is.
Remember moron, owning is better than renting only when the value of your house goes up. In a declining market you are better of renting. In a stagnant market, it depends on rent vs mortgage costs. But in the declining market we are in, it is always cheaper to rent.
138#, owning a home is not a pure investment decision. it is neither a financial decision. you need to consider a lot of factors. even your favorite dr. bubbler shiller said that you need to buy if you need to buy evenat this time.
kettle (148)
I expect the Fed Gov to reduce there standards further as a back door bailout. Just my guess.
If I remember correctly, Bush’s plan was to look the other way at recent mortgage lates. I don’t know what the status of that plan is. Anything beyond that would be just plain bad lending. Bottom line, if you can’t get a loan through FHA as it currently exists, you are a terrible risk. There’s not much more they can expand their guidelines without doing lender hari-kari.
X
There’s not much more they can expand their guidelines without doing lender hari-kari.
you think that they arent willing to do this???? I would be surprised if they didnt do it in one form or another, perhaps dressing it up as some gov program
bi needs to learn math. where did he go to school. I don’t want to send my kids there
Bi,
Just a friendly question; what industry are you in?
you think that they arent willing to do this????
I guess we’ll have to see. Making over a 100% LTV loan to someone who is already behind on his current mortgage and has documented that he can’t afford the new payments would be just plain stupid. You’re guaranteed to die a slow painful death from day one.
#154
“Bi,
Just a friendly question; what industry are you in?”
Politics….he’s our current president!
“it is neither a financial decision”
[150],
Now owning a home is not a financial decision? You want to send in my mortgage [future] payments? That said, it is obvious that many are in agreement with you.
Oil futures clear record-high $88 a barrel
Another nail in the coffin for mcmansions in NJ if we get a really cold winter. Bet they will be glad they have 5,000 square feet to heat and a Yukon XL they bought with their cash out!
to all the financial genius here: here is a fun question:
1) who shared nobel prize in economy with myron scholes for his work in options pricing including establishing black-scholes equation?
2) what is the name of his father?
3) what is the name of his son?
154#, short term investment
Intersting Article
http://www.msnbc.msn.com/id/21309318/?GT1=10450
Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.
BC Bob Says:
Owning a primary home in not an investment. It is a stack of sticks that you hope doesn’t fall down before they take you out in a box. When and if I buy a trade up home I won’t be some phoney baloney telling people it is an investment. I want it cause I can afford it and it is a luxery no different from a trip to Disney, the sub-prime crowd were convinced that borrowing 200K at 10% for a crap house in a crap neighbhood and paying back around 800K over 30 years on that loan is “a investment”. It is a debt not a credit. Mr. Ponzi would be proud of all the idiots using recycled chinese money bought shit shacks and took out huge debts and were happy as a pig in shit cause on homepricecheck.com they could watch their piece of crap go up “on paper” ever day.
October 16th, 2007 at 3:45 pm
“it is neither a financial decision”
[150],
Now owning a home is not a financial decision? You want to send in my mortgage [future] payments? That said, it is obvious that many are in agreement with you.
Didn’t BI run Amaranth Advisors?
SS #135,
Doesn’t matter if your current experience counts for the CFA. Employers care that you’re taking the tests. They don’t care what CFA Institute thinks of you’re experience.
Pass the 1st test, get a finance job, and in a couple of years you’ll be making $200k in a job that counts for the CFA.
Not sure where you’re getting your salary data from, but it is wrong. Here is a better comp survey.
http://www.russellreynolds.com/pdf/thought/CFAI_comp_summary.pdf
Long Term Capital Management (LTCM) was a hedge fund located in Greenwich, Connecticut. The founders included two Nobel Prize-winning economists, Myron Scholes and Robert C. Merton. Scholes and Merton, among other things, developed along with the late Fischer Black, the Black-Scholes formula for option pricing.
Power of Leverage
requity = rassets + L(rassets – rdebt)
Risk as a result of leverage
riskequity = (L+1)riskassets
165#, u got 1). what is 2) and 3)? his father did greater work in my opinion.
http://www.mlsli.com/uniDetails.CFM?MLNum=2006900&typeprop=1&start=1&rpp=20
$150,000 home! What a beautiful house!
“Despite special sales incentives, “many buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,” said Brian Catalde, president of the NAHB.”
It’s the media’s fault!!
“bi Says:
October 16th, 2007 at 2:00 pm
101#, why are u so sure shorting oil will lose money in next few days?”
bi, the depth of your stupidity is truly astounding. Beginning when oil was at $76 on August 3, you jumped up and down for a month telling everyone that it would get to $40 soon. Now it gets to $88, and still you’re jumping up and down, but this time you REALLY MEAN IT. Where’s oil going, pal? To $40? “in the next few days”?
You’re constant idiotic posts making idiotic investment recommendations are appreciated by no one here, with the possible exception of Richard – and that’s merely another strike against you.
your
#164
It will take a hell of a lot more effort than passing the first test and getting a “finance” job to hit those median numbers. Without direct financial experience it will be hard to land that finance job making more than $70-90K even after your you pass the first test. That is not to say that I do not agree with pretorius. IF you can convince someone to take a chance on you (you will have only just passed the CFA and will likely have no real idea of what it takes to actually work in finance and would thus anyone who hires you would be taking a chance that you might just not really like the work) then you will start at the bottom. That being said, once you are in and gaining experience the sky is the limit. Tests two and three just separate those who have from those who don’t. I honestly think the hardest part is getting in, once you are in you need to work you arse off just like the rest of us to get ahead.
Also don’t froget that working in the financial control division of CSFB will not net you $500K after five years. There is front line finance and operational finance and if you want the big bucks then you want front line finance. That of course is harder to get into but can be very lucrative.
Bottom line, you will need to love it to really make the effort pay off. Make sure you do before you waste your time. Getting through all three tests is no joke. One of the smartest guys I know flagged the third test and had to take it a second time to pass. It paid off for him though as he runs a Hedge Fund right now.
Thanks for the info pret. That makes more sense.
Are you a CFA?
“When I found a condo selling for a lot less than it was worth, I agreed to buy. ”
Pretorius – how did you determine that it was worth a lot more than it was selling for?
SS, I’m doing the 3rd test in June.
If you want a good job in the New York area, then the CFA is the best qualification to have. Better than MBA, better than JD, and better than advanced degree in engineering or computer science.
Njpatient,
Lots of research. Visiting sales offices for new construction projects, going to open houses of existing units and talking to brokers, and getting info online.
so seriously, there is no job experience required to get to the point of taking and passing the first CFA test?
Most CFAs I know already have their MBA or CPA and already have financial services experience.
Ides, I passed it and I didn’t take any finance or accounting classes in college.
but if i wanted to move from IT to Finance, I could get a job paying 60k (enough to support me during the transition) after passing the first test, and work my way up from there? Is that really a realistic scenario, if one was willing to put in the work on the job and studying for the 2nd and 3rd tests?
Mike NJ – I completely understand. I am an accountant by education, have worked in the accounting/finance divisions for three different companies, and have substantial IT experience (functional and technical) to boot. I think I have a solid foundation but would obviously need to build upon it to reach the levels noted by Pret.
I do appreciate your input. Any add’l info or links to info would definitely enhance my research on this field.
Ides,
When we hire associates, we deliberately look for smart people stuck in crappy back office jobs who are looking to move into an investment role. Going thru the CFA program shows they’re hard working and have potential. Of course they still need to make it thru the interviews.
SS, accounting is the best background for the tests. Check out analystforum.com for more info.
How can I find info pertaining to the day-to-day for a typical CFA? I know they spread among a broad spectrum of job functions (banks, ins co, traders, hedgies, etc), but I’m looking to get a feel for the work (without quitting my job right now). Any recommendations?
thanks pretorius
JB:
Love your blog. However, this is a pretty irresponsible thing to post w/o really getting into short sales and comps. I do not know one qualified and respected appraiser that would use a short sale (or foreclosure, or sometimes, even an estate sale–depending on the circumstances) as a comp. To paint this picture add fuel to a fire already burning, but this is just not correct in terms of the market.
# 182
Thanks for the link! Exactly what I’m looking for.
Love your blog. However, this is a pretty irresponsible thing to post w/o really getting into short sales and comps. I do not know one qualified and respected appraiser that would use a short sale (or foreclosure, or sometimes, even an estate sale–depending on the circumstances) as a comp. To paint this picture add fuel to a fire already burning, but this is just not correct in terms of the market.
Eventually these will bring the other properties into the same market territory. You can’t say it doesn’t have an impact, might be unfair, but that’s what makes the cycle go round & round.
jmacdaddio Says:
October 16th, 2007 at 2:37 pm
I’m looking at jobs in the Boston area. Not a real estate bargain, but there are plenty of 1-BR and 2-BR condos in the 180-225k price range located in urban areas where I could live a city-like existence and not go broke in the process. The CFA is something I’m considering down the road – I seem to have an ability to take people who are utterly clueless about finance and the need to budget and save, and get them at least off the ground with realistic financial goals. I’ve got a long way to go before I could get into more complex things such as estate planning and tax sheltering, but I suppose I’ll learn that in CFA courses.
jmac: you don’t learn that in CFA classes..you learn it in CFP classes.
pretorius Says:
October 16th, 2007 at 4:48 pm
SS, I’m doing the 3rd test in June.
If you want a good job in the New York area, then the CFA is the best qualification to have. Better than MBA, better than JD, and better than advanced degree in engineering or computer science.
pret: flat out garbage…..IF you don’t have a MBA/CPA THEN a CFA is important. The problem is that if you work in research or investment banking AND you have an MBA, it is embarassing NOT to have a CFA because you basically have enough background to pass level I, and people will assume you were too lazy to pass II & III. In a world where you are always fighting against the next guy who is going to eat your lunch, you get PEER PRESSURED into the CFA, but ultimately, unless you are Investment Management or an equity/debt analyst, it is a waste. Any rigorous finance MBA will easily suffice.
Separately, you should ge the MBA because of the people you will meet. It is 10x more important than what you learn….
Note: do you interview well in a high pressure setting? If you can’t finesse the interview then 4uck the whole thing and don’t waste your time.
Chicagofinance #189,
Excellent points about the MBA, particularly the “people you meet” comment. I did an MS in real estate from NYU and the networking part is just as useful as the coursework.
I forgot to add an important advantage of the CFA compared to the degree qualifications – cost. CFA costs $100k less, and you don’t need to stop working to do the program.
Although CFA is still a niche thing compared to MBA today, CFA is growing in importance.
Who do you think has higher median comp in New York, MBAs or CFAs?
Sounds fun, I’ll be registering for the December 2008 exam as soon as registration opens up.
Worthwhile? I don’t care, collecting certs is a hobby. Like many others, it started during the dot.com boom, when the sum total of the individual characters in all of your certifications was the primary basis for determining your salary.
Why not, grim? As pretorius says, the CFA is more in demand than an MBA or JD and yet any idiot can get one. Sounds like a slam dunk to me.
JB, ever consider getting the MS in real estate from NYU?
“The big banks might like to bundle all their crummy debt and shoot the whole package into outer space. But fixing this mess won’t be quite that simple, and the markets finally agree.”
“When I read this story, I said, ‘Things are not over. … We are not out of the woods,'” says Christopher Vincent, head of fixed income at William Blair & Co. “This means more news, more noise, and more Fed rate cuts.” Vincent believes there will be three more 25 basis point rate cuts before the Fed contemplates ending this easing cycle.”
“Moody’s Investors Service last Thursday downgraded another $33.4 billion in mortgage-backed securities, noting that it now assumes losses tied to currently delinquent loans will be 40% to 50%. The ratings agency also said in a press release that it believes significant loan modifications “that might mitigate future losses are not likely to occur in the near term.”
“The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,” says Bianco.
http://www.thestreet.com/newsanalysis/banking/10384449_2.html
What does a seasoned CFA make ?
grim: don’t underrate the effort on this one….you’ll see….sucks a%%….think GMAT, but you need a 700 to pass. Doable, but you need to be focused and prepared…AND YOU NEED TO DO IT 3 SEPARATE TIMES
pretorius Says:
October 16th, 2007 at 7:10 pm
Chicagofinance #189,
Who do you think has higher median comp in New York, MBAs or CFAs?
pret: deceptive question….I put a minimum bound on the MBA….NYU is the bottom cut….I hate to sound like a snob, but really anyone will agree….there intellectual rigor and then the is just a piece of paper….I knew someone with an MBA from a well known school in NYC, but people treated it like a GED, so he had to get a CFA to show that he wasn’t a cranial clown….sucks to be him…
there IS intellectual rigor
Loads up Dave Gahan myspace page….and lauches the song Saw Something….
techno-gurgling, or something more…
http://www.myspace.com/davegahanofficial
I say….go long this one…all disclaimers….
“What does a seasoned CFA make?”
$400,000 median comp for CFA with 10 years of experience in New York, versus $240,000 for entire US. However, survey uses 2005 and 2004 bonus, so comp probably higher today.
http://www.russellreynolds.com/pdf/thought/CFAI_comp_summary.pdf
“Who do you think has higher median comp in New York, MBAs or CFAs?
pret: deceptive question”
Seemed like a straight question to me. Anyway, let’s try this one.
Who do you think has higher median comp in New York, top-25-school MBAs or CFAs?
201 pret
isn’t that a self-reporting compensation survey? Isn’t that meaningless?
I do not know one qualified and respected appraiser that would use a short sale
Why wouldn’t a short sale be counted as a comp?
I understand why a foreclosure might not be counted as they often include liens, back taxes etc. and you often don’t get to see the inside of the home, which is sometimes trashed by a disgruntled former occupant.
But why not a short sale?
pret – your survey also assumes 10 years of seniority, so not only does it use survey methodology that render it worthless, but you’re comparing apples and oranges.
“But why not a short sale?”
because the price is inconveniently low and Justin is a RE bull.
“I knew someone with an MBA from a well known school in NYC, but people treated it like a GED, so he had to get a CFA to show that he wasn’t a cranial clown….sucks to be him…”
yep
if you don’t have the chops, then yes, you’re probably better off doing something else.
APP currently has a poll up asking:
http://www.app.com/apps/pbcs.dll/frontpage
Are you planning to leave New Jersey?:
A) Before you retire;
B) When you retire;
C) Never.
The results are obviously not scientific and are subject to self-selection bias, but nonetheless interesting:
With 3204 votes
Are you planning to leave New Jersey:
A) Before you retire; 33.6%
B) When you retire; 43.3%
C) Never. 23.2%
Njpatient,
Survey results seem right to me. Do you have a more convincing survey?
209# pretorius, it is hard to tell from the survey if cfa leads to the median income level or something else. most people i know who are getting cfa either in the field or have mba. nevertheless, i think it is good idea to obtain cfa to get a better job just as going to master degree in financial engineering to be a quant we discussed other day.
I hardly ever watch TV, but I happened to catch this piece about a guy who runs a real estate blog in California. Basically, he is the grim of the San Francisco Bay Area.
He got outbid on a house a few years ago, and the place is worth half a million more today. Now he is really bitter and says he’s waiting for a 50% drop before he’ll buy.
http://abcnews.go.com/Nightline/Story?id=3731415&page=1
“Survey results seem right to me. Do you have a more convincing survey?”
It’s a self-reported survey of the effectiveness of something being sold by the people doing the survey (CFA Institute).
Self-reporting of income always skews high. People respond if they are proud of their income, and don’t respond if they’re not. I don’t have a survey, I’m merely pointing out that the one you point to is worthless.
News from California.
http://www.ocregister.com/money/price-percent-down-1894419-last-sales
The median price of an Orange County home fell 9.5 percent from the year before, dropping to $570,000. It is the first month in 2 ½ years that the median price – or the price at the midpoint of all sales – has dropped below $600,000.
That price was down $75,000, or nearly 12 percent, from the peak price of $645,000 reached in June. In the last down cycle, the drop from the peak to bottom was 16.3 percent from July 1991 to January 1996, according to DataQuick.
—
Rick Gorman gave up trying to sell an investment property in Rossmoor after failing to get a single offer in three months, even after dropping the price from $950,000 to $899,000.
“We decided there was no sense in giving it away,” said Gorman, 52, a marine surveyor. “The real estate market will come back at some period. … (We’ll) wait it out.”
—
The credit shakeup resulted in a 52 percent drop in “jumbo” loans, or loans greater than $417,000, said DataQuick analyst John Karevoll. Lenders issued 496 jumbo loans in September, down from 1,024 in August.
“It’s a huge drop, and it impacts Orange County more than other counties … because a higher portion of those loans are there,” Karevoll said. “The lenders turned the spigot off for those loans.”
—
Hahn predicted that the current slump will last two to three more years, saying it will take that long for the number of “funny money loans,” or mortgages with low teaser rates that reset to higher payments after two to three years, to work their way through the system. As more homeowners default on rising mortgage payments, rising foreclosures will continue to hold prices down, he said.
—
I think we have problem on two sides. On Low end towns, subprime borrowers won’t be able to get financing and on High end towns, Jumbo loans are not getting financing. The main question is what happens to middle towns?