DISCLOSURE!!!!! This is only my opinion: As many of you know, I work with many of you on this forum but enjoy offering information that I get regarding our housing market. I am in Southwest Florida, the Fort Myers / Cape Coral region.
I have been saying for the last 8 months that our housing bust / bubble is over. Several have disputed this, but I have come to assure you that we are far beyond bottom and my recommendation is to buy and hold. My personal investments are buy / rehab / flip. For overseas investors, this is difficult. I also have real estate holdings where my strategy is simply holding until whenever. No definitive timetable for them.
The Economist showed a chart of home prices relative to incomes in that article. Instead of showing that home prices are expensive, the chart shows that U.S. houses are the best deal in history (going back four decades), relative to U.S. incomes.Now, how can The Economist have an article about the continuing global housing bust… and then show a chart showing U.S. homes are the cheapest in four decades?To attempt to explain this, The Economist says, "Prices [in America] may have reached a floor, but this is no guarantee of an imminent bounce." Yes, that's correct. We can't know the future. We can't know if another 5% dip is in the cards. But c'mon…We CAN know that extraordinary value exists right now in U.S. housing. You have the chance to buy fantastic properties at possibly once-in-a-lifetime prices.So what if there's "no guarantee of an imminent bounce"? When do you get a guarantee like that in investing anyway?Another gripe I have is that the housing price-to-income ratio – The Economist's measure of value – is actually understating the opportunity. People don't buy homes based on the price of the house relative to their income. People buy homes based on the mortgage payment of that house, relative to their incomes.And right now, mortgage rates are off-the-charts low…In 1980, mortgage rates were 15%. In 1990, they were 10%. In 2000, they were 8%. Today, they are BELOW 4%. It is the greatest deal in U.S. history.Anyone who's ever bought a house knows that a 15% interest rate in 1980 is dramatically different than today's rates below 4%. Any measure of housing affordability over time that doesn't consider the mortgage payment is simply not that useful.Housing prices are the best value in history, according to The Economist's own chart… And if you include mortgage payments in your calculation instead of house prices, U.S. houses are actually a dramatically better deal.In short, now is the time to buy a house in America.Look, I get it… Times are tough. Most people either can't or won't take my advice to buy a house. But it is the right advice…I am trying to follow it myself… My right-hand man Brett Eversole has been forced to step away from his computers over and over again to go look at local properties with me.And Porter Stansberry (the founder of Stansberry & Associates and the publisher of DailyWealth) is doing the same thing I am… investing in beaten-down real estate.The reasons to buy now are incredibly simple:- U.S. home prices are more affordable than ever – by far. (Here in my home state of Florida, prices in many cases are down by half.)
- Mortgage rates are down to record-low levels, below 4%.
- You can often pay below-market prices (as banks try to unload properties, for example).
Of course, as The Economist says, there is "no guarantee of an imminent bounce."But with prices this low and with very few other great places to put your money in our zero-percent world… if you can swing it, you need to consider buying a house.If you can buy right, and hang on for a couple years, it could be the lowest-risk, highest-reward investment you ever make…CHEEVES
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeCheeves, I agree for the US resident or one that can borrow at these historically low rates.
I am personally locking up a 2.9% LOC on my personal residence. Can use it like a check book to come in and out of deals.
One thing I want to comment on and based on all the years 35 plus that I have been buying tax sale properties, developing sub divisions building homes, and of course buying courthouse step foreclosures.
there is a new Pardigm happening in the states.
Sure we had this huge bust and yes houses are far less than replacement cost in many markets and that does not include any cost of the land and the SDC's or building permits.
Whats happening now is foreclosures are Mortgage based Correct??? Tax sales see very few homes actually get sold, Lots and lots of land gets sold through tax sales ( and there are companies that make a nice living buying the odd tax sale properties all throughout the US there are certain US counties which I have mentioned before that have Millions of platted parcels and thousands go to sale every year) but very few homes unless they are Inner city war zone type stuff.
So fast forward 5 years. I would say 80% of the non owner occ homes being bought throughout the US are being bought for cash and or quasi owner financing, You have some guys selling rentals with 50% down and carry 50% as basic owner carry back. The 50% down usually pays back the seller 100% or close to of what they paid for the property in the first place and the other 50% carry back is profit. Very common say in Kansas city I see that a lot there.
So we get through our mortgage crisis, lending rates now are at all time lows with All TIME high underwriting standards. I don't know about you but the last 8 New construction homes I sold here in Oregon 7 were for cash or at least 20% down only one got an FHA 3% down loan. So this new crop of investor is paying cash, ERGO the crash in non owner occ prices as its cash and carry and there is a price point people will let go to pay cash for a property sweet spot under 100k.
How does our housing stock look in 5 years. Huge amounts of it are owned free and clear so those are not going to foreclose as there is no debt or lender. The Owner occ's that are buying today at lows with big down payments next to nothing interest rates and those loans will have a much lower % of failure than the older higher interest over value paper that is getting foreclosed today.
Builders will start to come back into the market as they do not have to compete with bank owned…. If underwriting guidelines stay the same which they probably will for some time we as a nation will have far less home owner ship and much more of life long rental population.
So these deals will not last forever the US is going to be much stronger the Foriegners are pumping billions a year into our real estate all with no debt. In my opinoin values on non owner occ will turn to cap rate values. With nicer homes having lower caps and war zone junk higher caps.
What you will then see is a whole new crop of foreclosre activity that will manifest itself into TAX SALE's.. B/C those same homes that are being let go by the millions that are management nightmares that people US and foreign are buying for these unrealistic cap rates cannot be sustained and those who paid cash for them will tire and finally just stop paying tax's and let them go. I know I personally have let about 10 homes go for tax's in the last 5 years. 5 in Detroit, 2 in memphis, 1 in Washington and 2 in CA….These were homes as a lender that In Foreclosed on and were beyond salvage. And there are mainstream lenders doing the same. This is what creates blighted boarded up blocks of homes predominatly in the upper mid west.
Cheeves whats your thought's ?
Nice to know US properties can’t get any worse! Lol.
Richard: I wouldn't necessarily say that. Some areas have some serious lingering issues, ie..Nevada..I have gone with my gut instinct lately though. Hopefully pays off big! So far so good
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeSome markets in the United States are still falling. For instance Phoenex has fallen at least 8% and is expected to fall another 8% in the next 12 months, Atlanta 9.8%and Los Vegas 6.4%. Now there is a view that what does down has to come back up. In some cases I disagree. For instance Detroit prices are 30% less than they were in 2000. However market like Phoenex will improve.
Most of my direct experience has been in Phoenix where the markets overall have been steady since 2006. So my question is are you an investor or speculator?
Nigel Kibel | Property Know How
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Nigel Kibel wrote:Some markets in the United States are still falling. For instance Phoenex has fallen at least 8% and is expected to fall another 8% in the next 12 months, Atlanta 9.8%and Los Vegas 6.4%. Now there is a view that what does down has to come back up. In some cases I disagree. For instance Detroit prices are 30% less than they were in 2000. However market like Phoenex will improve. Most of my direct experience has been in Phoenix where the markets overall have been steady since 2006. So my question is are you an investor or speculator?Nigel for my self and my clients I buy , sell hold, raise capital , a little bit of every thing.
I feel Phoenix and Las Vegas as well Florida could take another hit and price drop( Detroit don't know enough about it) . Atlanta every time we think it has reached the bottom.I see the prices drop lower again.My offers used to be in the low 30K s for some deals.Same areas I am now bidding lows $20s ..
Speculate is what all investors do.We are betting on appreciation in some markets while counting on cash flow in others..
So being an investor I speculate every day.As the USA real estate game on a hole is changing daily..
Sincerely
AlexJay,
Once again a really fascinating post. You have outdone yourself again.Alex, I can only speak second hand for LV (I don’t own anything there, my sister does) but there are solid gains occurring. She started buying houses for $30-40k 2-3 years ago and those ones are now around the $60-70k mark. Not huge gains, but decent percentage returns. The rents are stable if not trending slightly up at around $1k per month. As Jay has alluded to, there is (I think) a very solid floor in markets in those areas as everything has been bought for cash and is therefore almost impervious to immediate cost pressures.
The foreclosure market in LA has tightened a lot. The ‘professional’ flippers there a year to a year and a half ago were counting on 25% margins, now those margins have tightened to around 9%. Rule of thumb figures only, but indicative of market gains. And again, rents are increasing, from my perspective across the board.
Jay’s logic with tax liens seems a natural progression. I am very interested in almost anything he says, but this is especially interesting. You could almost foresee a widening of the ‘class’ gap based on derelict housing areas vs ‘prime zones’ – exacerbated by this rush of foreign capital into sub-prime and sub-sub prime housing.
The irony is that you can probably bet your bottom dollar that by chance someone whose retirement fund lost huge amounts in subprime had actually invested and lost money in the exact same house that the person is now investing their own ‘real’ money in today! And they will almost certainly lose out again!! Quite strange how money moves around…
lawsjs wrote:Jay, Once again a really fascinating post. You have outdone yourself again. Alex, I can only speak second hand for LV (I don't own anything there, my sister does) but there are solid gains occurring. She started buying houses for $30-40k 2-3 years ago and those ones are now around the $60-70k mark. Not huge gains, but decent percentage returns. The rents are stable if not trending slightly up at around $1k per month. As Jay has alluded to, there is (I think) a very solid floor in markets in those areas as everything has been bought for cash and is therefore almost impervious to immediate cost pressures. The foreclosure market in LA has tightened a lot. The 'professional' flippers there a year to a year and a half ago were counting on 25% margins, now those margins have tightened to around 9%. Rule of thumb figures only, but indicative of market gains. And again, rents are increasing, from my perspective across the board. Jay's logic with tax liens seems a natural progression. I am very interested in almost anything he says, but this is especially interesting. You could almost foresee a widening of the 'class' gap based on derelict housing areas vs 'prime zones' – exacerbated by this rush of foreign capital into sub-prime and sub-sub prime housing. The irony is that you can probably bet your bottom dollar that by chance someone whose retirement fund lost huge amounts in subprime had actually invested and lost money in the exact same house that the person is now investing their own 'real' money in today! And they will almost certainly lose out again!! Quite strange how money moves around…LawSJS
How are you? Yes just go back from spending a few days with Jay and seeing his operation. Looking at putting our homes and his system to work. Rather keep 200 houses then sell 200 houses.
On the other hand I know of your sister and her homes i a round about way .One of the Clients I am dealing with in Australia knows both of you very well small world.
Now for the markets Vegas I would bet on it coming back .The Casino's are packed so employment is looking better there.As for prices their I don't feel this is appreciation factor. Instead I see it as investors pushing the pricing up. Bidding up the properties or the foreign buyers influencing the numbers spread there by buying inflated prices. We deal with one Client from Arcadia California.He invest in vegas , actually $2.6 million dollar real estate portfolio.I don't see the value going up at all .I see the cash flow be a positive factor for him there right now.
As for real money that is the only money in most USA real estate markets now with limited bank funds( no loans ). Don't want to say all will lose but for most who are gambling that all rental cash flow properties are golden. There are going to be some broke people down the road. At the same time some of the smart investors who can clean up today with cash deals if purchased correctly. If all works well and appreciation factor does come back while cash flowing .They would be sitting pretty down the road…
again just my two cents
Alex
Nigel Kibel wrote:Some markets in the United States are still falling. For instance Phoenex has fallen at least 8% and is expected to fall another 8% in the next 12 months, Atlanta 9.8%and Los Vegas 6.4%. Now there is a view that what does down has to come back up. In some cases I disagree. For instance Detroit prices are 30% less than they were in 2000. However market like Phoenex will improve. Most of my direct experience has been in Phoenix where the markets overall have been steady since 2006. So my question is are you an investor or speculator?Nigel,
not sure I follow your saying in one sentance Pheniox is going to fall 8 to 16% in the next year. Then you say Pheniox has been steady since 06..
I pretty much can assure you that from 06 until today Pheniox market has depreciated 30% to 50% or better across the board.
jayhinrichs wrote:Nigel Kibel wrote:Some markets in the United States are still falling. For instance Phoenex has fallen at least 8% and is expected to fall another 8% in the next 12 months, Atlanta 9.8%and Los Vegas 6.4%. Now there is a view that what does down has to come back up. In some cases I disagree. For instance Detroit prices are 30% less than they were in 2000. However market like Phoenex will improve. Most of my direct experience has been in Phoenix where the markets overall have been steady since 2006. So my question is are you an investor or speculator?Nigel,
not sure I follow your saying in one sentance Pheniox is going to fall 8 to 16% in the next year. Then you say Pheniox has been steady since 06..
I pretty much can assure you that from 06 until today Pheniox market has depreciated 30% to 50% or better across the board.
Can't compare Detroit to any of the Sun Best towns or states completely different animal
Lawsjs,
Its is Ironic, if you think about a sub prime situation were the borrower lost the house ( of course we have to remember the sub prime borrower 99% of the time) had NO CASH into the house and just made payments.
The sub prime preditor lender ends up with the house
Sub prime borrower is now in the rental pool for the next 5 to7 years.
Sub prime lender gets taken over by the fed.
Sub prime house gets sold to investor looking for % returns that are not based on facts but performas
Some will work some will flame out and go the way of the doe doe bird.
End othe Day Some European conglomerate bought our Sub prime paper and ended up with a worthless asset.
Strange that.
jayhinrichs wrote:Lawsjs,Its is Ironic, if you think about a sub prime situation were the borrower lost the house ( of course we have to remember the sub prime borrower 99% of the time) had NO CASH into the house and just made payments.( the low income areas in most rental markets make up our sub prime….buyers…now they are all subprime renters lets all be honest here.
The sub prime preditor lender ends up with the house( along with the banks that had no idea of what they had or how to handle this situation)Still think the lenders and wall street who sold the junk paper should all be in jail)
Sub prime borrower is now in the rental pool for the next 5 to7 years.( I see them renting for more then 5 to 7 years )there credit destroyed ,no cash reserves, weaker economy, most of these people are blue collar work force .Which in most area jobs are lost..
Sub prime lender gets taken over by the fed.Great one bone head being taking over by a bunch of bones heads..Sub prime house gets sold to investor looking for % returns that are not based on facts but performas( you mean 20 % returns and 12 months rental income are not the normal ) LOL Jay you know my out look.If done right there is money to be made but it has to be done right. With that said there will be head aches and problems .As with any business just be prepared
Some will work some will flame out and go the way of the doe doe bird.End othe Day Some European conglomerate bought our Sub prime paper and ended up with a worthless asset. ( yes one head ache passed to another person) sounds like low end rental and international clients ….hence Rochester NY and other low end markets ..
Strange that.
go figure
Alex
True story here: Without naming names, I was director of a real estate brokerage owned by one of Florida's biggest construction lenders during the boom. My focus was emerging markets and by 2005 we were already pulling out of Florida. A bit too late, albeit. I'll never forget the day where the CEO came to my office and the look on his face is embedded in my mind forever. <moderator: delete language>
As I built a nice real estate portfolio for some executives, I became trusted to where they would share details about the bank's overall health. I was in the 6 a.m meetings where we were looking into our "money out". Almost every construction loan came to its 12 month term and the turnover to permanent financing was getting difficult due to lenders crimping down.
When I looked at the books and files over the course of 2 months, the first thing I saw was the obvious… For instance, the most glaring was a woman out of Long Island who was a school teacher making $53,000 per year fixed. She had 4 loans with our bank that all came to terms. Her homes were not even 75% built. Builders' fault? Who cares. Terms are terms. We granted a 6 month extension as long as her and builder agreed to pay us construction interest for those 6 months. Total amount of the 4 loans was approx $1.2 million. I simply said the obvious…."The market better not crash"
All of a sudden, it was financial panic…The bank execs realized the market was starting to soften and we were deep in the red..Too deep to do anything about it…
Long story short, our bank was taken over and shut down… Later came to light that the bank execs were using proceeds required to pay our investor to pay operating expenses instead…FRAUD. A year later, CEO hung himself in light of investigation.
Big bank took over…Tried to securitize and sell and failed… Goes with Jay saying "Big bank taken over by dumber bank"… We were just a drop in the bucket for the sub-prime fiasco, but I saw it first hand and will never forget my good friend, an investment banker with Merrill Lynch warning me to tell my execs a year in advance to go to Full Doc instead of stated/stated.
Crazy Crazy times…. Sorry, had to share the story… Thought it would interest some!
This is where my short sale business started…I assisted about 60 investors (about .00001% of our clientele) short sale their homes and to this day some of them still remain friends or clients…
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeCheeves we can share war stories. Although mine were a little more personal as I was loaning my own money. And rely on the rate and term refi to take out our hard money loan.
My apithony came as I was on a cruise ship in the mediterranian listing to US BBC… And thinking <moderator: delete language> we are in trouble.
As I owned the company and relied on my LO's to underwrite we went back through files and it was the same think you stating.
Fed ex driver in LA borrowers to buy 4 homes that he put no money down ( remember hard money was truly equity only loans if you wanted to compete) he had the nice credit score 700 plus nice stated income 75k a year. but next to no reserves. And we had a take out commitment from CW which up until then had been closing 40 to 50 refi's for us a month. We were like the titanic took us 2 months to put it in reverse but we still hit the ice berg and ended up with about 100 loans that had no refi home.
I then proceeded to spend then next year in the field working through these deals and at the end of the day owned everyone of them. This experince gave me a unique perspective as a lender then as foreclosing agent then as a lender in possession then as a rehabber then as a lender trying to sell their inventory ( which as we all know if its a lender owned asset buyers offer half) the whole market feed on itself going south.
One other closing that will always stick in my mind was one I did in Detroit when I was backing a few flippers we were doing equity shares and it was working nice we would make 40 to 50k a house.
We were at a wet closing ( buyer and Seller at same table) here comes Mr. buyer I am Mr. Seller I just happened to be in Detroit when this closing was going to happen. So being the snoop I am, I was reading his loan docs upside down then his credit report kind of slipped out of the closing package here are the stat's.
19 years old African american not that it matters but it does to some pundints who blame the AM and Hispanic market for the collapse.
Fico 560
stated income
Cash back to Buyer at closing for rehab and repairs 19k
So I am sitting there going <moderator: delete language> this is a first payment default if I ever saw one what lender in their right mind would underwrite this deal. Even as a hard money lender in those days my clients had to be 650 or so and above and prove some income.
so there is the crux of what happened in the lending world. With Atlanta, Detroit, Memphis, Rochester, and other areas as the poster child for these types of loan activies and basic loan fraud.
here was an asset we bought for 10k we did put 25k into a nice reno apprasied at 95k. buyer got 95% loan we took 35k profit as per our contract and the buyer walked like I said with 19k… that was suppose to go for future renos' ext.
My guess is it when right to the car lot bought himself a hoopty ride with 25 inchs rims a nice big screen probably never set foot in the house and the bank took it back. And some other sub prime low end investor bought it back after it got stripped for 10k and starts the cycle all over.
After that deal I told my guy I can not be party to these any more and we stopped that activity, It cost me 100k to do that as I had bought 2 more houses with this same guy and since I could not flip them I rented them there in Detroit they got trashed 1 time then I reno'd them once more only to have them trashed within a year and I finally gave up quit paying tax's and they have since been sold for tax's.
See my post on the new Paradigm… vis a vi mortgage foreclosures and tax sales in the future I bet any one a steak dinner and a bottle of the best Penfolds cab. that I am right on the money..
Get ready for the new wave of buying houses through tax sales from those who finally give up. With all these cash sales taking place in the inner city that will be the next go to investment that the guru's will pitch and sell books and tapes on.
Best
JLH
Sorry what it was meant to say is that most of my experience has been in Texas
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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I just wish i could have bought houses in cape coral in 08 for 35K agian
Kylermrice: If you bought a home in Cape Coral in 2008 for 35k, it either had defective drywall issues or was in the boonies. Cheaper is not always better. A good home in Cape Coral could have been had for about $60k to $80k. Today is about 10% higher.
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeCheevesFinancial wrote:Kylermrice: If you bought a home in Cape Coral in 2008 for 35k, it either had defective drywall issues or was in the boonies. Cheaper is not always better. A good home in Cape Coral could have been had for about $60k to $80k. Today is about 10% higher.X Cheeves
I do like Florida but never took the time to find a solid team there.So I invest for my family and close friends. I will continue to look in Florida only certain areas. Being born in NY and living in the South now.I know what Florida has to offer any body from NY ..(the real north) LOL Not NJ you would be only to get that joke. Second homes ( vacation ) or retirement homes for us in NY the true yankees.
The entry level priced 3 years ago there was $55k to 65k .I am not having much luck bidding that low any more.Short Sales still selling high $60s .So I am hoping for another drop in Florida prices. Then again I only look in North Port , Port Charlotte, Sarasota county.Again I only buyer nicer homes 12 years or newer. Not looking for huge cash flow their just hoping for appreciation 10 _ 15 years from now. I am a realist in my thought process.
Now this is a theory that hear more from the west coast real estate investor , and cash lenders. That Florida and Phoenix prices will drop again. I am not saying they are right. I am just hoping they are correct. My own real estate portfolio should include more a few homes from the North Port and Sarasota areas.( I pick there because beaches are beautiful , and my brother lives there) Visit quiet often….
Keep that crown on hand..will make my trip down that way.When it gets really cold here and still warm their.Hope all is well and have a Merry Christmas and happy New Year
talk soon
Alex
Alex: I just hope you're not from Staten Island! I can't believe you wouldn't consider NJ a "Real" place. I mean come on…Doesn't Snooki and the Jersey Shore on MTV sell NJ enough? No? How about the Real Housewives? Mob Wives? Not sure if you watch that stuff…I sure don't but you hear and read about it all the time and they are the epitome of NJ class
JUST KIDDING.Charlotte County is about 15% less than what most of Cape Coral is. With all due respect to elder folks here, Charlotte County is retirement capital.. Nice area and beautiful beaches, ie..Boca Grande
I do a lot of research on shadow inventory. That is the true indicator of what the bank has that hasn't been released or marketed. My data includes all Lis Pendens from 2008 to present, regular sales, short sales, tax sales, etc.. As of last month there are only about 1,300 homes in backlog. That is nothing. Lee County sells 1200 to 1500 homes per month on the MLS. I don't see another drop in homes under $150k..Jumbo mortgage homes, yes, probably, but not entry level. I don't care what anyone says about the national picture..all markets are different. Charlotte County has about triple that in shadow inventory.
Seriously, stop procrastinating and get down here. Meet my team and we'll celebrate new business with my private stock of Crown. And if Jay joins, I'll have something clear for him
….. Meet me once and I promise we'll be buddies for a while. Let's do this already…times ticking!CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeLord Knows I would love to come to Florida bout now, Oregon is BRRR cold this year. Although not as rainy as usual and I can see mt. Hood today from my home office window and thats always spectacular.
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