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THIS IS FROM ZILLOW (ONE OF THE TOP US PROPERTY SITES) written 20 December
It’s a testament to the strangeness of the current housing market that there is such a wide diversity of opinion as to what 2011 will hold for real estate. Typically, housing appreciation floats in the range of 2-5% per year, but currently you’ll find those who believe we’re at the bottom in terms of national home values (Jim Cramer says maybe or maybe not), that next year will see an 8-10% increase in home values (John Paulson in May of this year), or that we’ll see a 20% decline in home values over the next two years (Gary Shilling).
Zillow believes that we’ll see bottom in national home values in Q2 or Q3 of 2011 (more likely the latter), that home values will fall another 5-7% nationally (in the Zillow Home Value Index) between now and then, and that we’ll experience a very long, protracted bottom before home value appreciation returns to historically normal rates. During that protracted bottom, which may last more than three years after the sustained declines in home values have stopped, home value appreciation will be lucky to keep pace with inflation (i.e., real home values may decline even though nominal home values increase by 1-2% per year). Our reasons for this forecast are spelled out in more detail in our most recent monthly data update, but a quick summary is: 1) high supply of existing home inventory on the for-sale market; 2) high supply of vacant homes; 3) high supply of shadow inventory (and more being added all the time courtesy of continuing high delinquency rates); 4) high rates of negative equity (which will spur more foreclosures); and 5) elevated unemployment rates (which will also spur foreclosures but will also reduce demand itself).
Zillow is far from alone in predicting further declines in home values. For example, the following are just a few recent market forecasts:
- On December 8, Morgan Stanley analysts released a report in which they indicated that they expect home prices in the U.S. to fall as much as 11 percent by 2012. According to Morgan Stanley’s Oliver Chang “We see the trough occurring in 2012 instead of our previous call of 2011.”
- In November, Mark Zandi of Moody’s Analytics predicted another 8% drop in home prices through the third quarter of 2011.
- In November, Fiserv, the company that creates the Case-Shiller Home Price Index, revised down its home-price projections for 2011, forecasting a 7.1% decline in home prices through the summer of 2011. According to David Stiff, the chief economist at Fiserv: “Some of the largest declines in prices will occur in markets that had strong spring and summer 2010 price increases.”
- In September, economist Gary Shilling expressed his view that real home prices would fall another 20% over the next two years before reaching their bottom.
There are a few important people who are bullish are housing right now, but these are typically sophisticated investors with a long-term perspective on housing (for example, hedge-fund billionaire John Paulson and Bill Ackman of Pershing Square Capital). Paulson recently reaffirmed his bullish take on the housing market saying, “If you don’t own a home, buy one. If you own a home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.” Importantly, however, Paulson’s take on housing has as much to do with his view on long-term mortgage rates and his prediction for double-digit inflation as it does with actual home prices. In other words, Paulson is not just betting on house prices, but also on the ability to lock in low financing now with the expectation that it will be easier to pay it back in the future because of inflation. That said, I’d be surprised if Paulson is still sticking to his May prediction that home prices will increase 8-10% next year. It’s also important to note that these investors likely have a very different time horizon than most consumers or they are constructing macroeconomic trading strategies not easily reproducible to the typical consumer. Given this longer term or more macro view, whether the bottom occurs in the fourth quarter of 2010 or the third quarter of 2011 is less material for them.
Hi everyone
I haven't written for ages, because I've been back in China getting ready for my return to Miami. I left Miami on Nov 25, and am returning on Jan 24, this time with my wife, son (a toddler) and daughter (6-month old baby). It's going to be a handful, especially as here in China we are spoiled with good 24-hour a day help, whereas in Miami we'll be squashed into some little apartment somewhere (haven't even decided where we'll be staying yet) and will have to raise our kids ourselves!!!
We will be there for 3 months in total.
Although I've been out of the US for so long, I've still been following the Miami market. It's been very easy to do so, because I made sure I got realtors there to set me up with daily automatic updates from their MLS system. So even while I've been sitting on the beach in Hainan I've been able to keep tabs on what's going on, but I have to tell you I'm not sure whether the time has come to dive in 100%.
This is unfortunate because I've been busy selling Chinese properties these past 2 months, and have now raised enough money to buy so many Single Family Homes that there's no way this 3 month trip will be long enough to spend all the money.
As an aside: It's been very easy selling Chinese properties because the market here is red hot. In fact, after selling 2 I realised it's better to wait a while before selling any more. When buyers are begging you to sell it's surely a sign that prices will still rise further.
There's only one thing that makes property investors in China a little nervous about 2011, and that is what kind of new dampening measures the government will be bringing out this year. They've promised many, ranging from interest rate increases, to much higher downpayments (they're already at 50%) to property taxes (as yet unheard of in China).
Anyway, back to US property. I've watched the Case-SHiller numbers closely, as well as the wise words of many analysts, and I'm of the opinion that prices will bottom towards the end of the year, and stay low at least through 2012. Also, my own experience (watching specific houses that were put on the market in Nov. last year, and that have been marked down each month since then, with not a buyer in sight) tells me there is a lot more downside coming.
In a subsequent post I will quote from some much more experienced people than myself, and you guys can all make your own decisions.
As yet, I have not bought any properties in Miami. I found some listing agents who were crooked enough to let me know what to bid to seal the deal, but even then (or perhaps as a result of knowing how little interest there was in these properties) I held back.
So what am I going to do this time? Well, take it as it comes, I guess. But at the very least I'll buy one property for my family to use as a vacation home, and also so that I've started building up credit history. I've been watching specific areas for long enough now that I think I have a sense of what a good bargain is, so I shall bid (but quite low) on any nice homes I see that are being sold by banks that aren't being overly greedy in their pricing. If I only land one fish, then so be it. I'll just wait another 6 months to start spending the cash I've collected. But on the other hand, if I sense that the competition has run for cover and that I'm able to pick up great deals, then I may soon be the owner of a dozen or more homes.
Of course, a lot also depends on what's happening with the foreclosure moratorium. While I was there, all the banks were pulling their REO's off the market to check the paperwork. In addition, they stopped foreclosing on homes of people in default. So this could also mean that there's not going to be a large supply of REO's out there in the first quarter.
On the other hand, perhaps they'll "dump" all those REO's that they held back between Octover and December, so maybe there'll be a glut. Time will tell…
Hi Everyone
I'm back on Hainan Island. What a culture shock. China is so gritty compared to the US, with it's neat sidewalks and well-kept lawns.
I've been missing Miami so much (not just the environment, but the buzz you get from REO hunting) that I had to hold myself back from buying plane tickets for my family for next week. But logic dictates that it's best to wait another 6 weeks. Nothing happens in the US between Thanksgiving (Nov 25) and Christmas. And it's stupid to expect the banks to be dumping tons of new REOs on the market the day after Christmas. They'll most likely only start selling REOs in greater numbers in February/March.
So my plan is to try to sell one or more properties here in China in the coming month, and then take the whole family to Miami around Jan 10. This time I shall be going on a B2 visa (instead of using the visa waiver) since that's the only way you can get a Florida drivers license, and without the license you can't insure a car (I plan to buy a cheap pick-up). Progressive (the largest insurer) will let you buy just 6 months of insurance for about $820, so long as you have a local license.
This insurance will cover you for $10,000 in car damages and $20,000 in injuries you caused to other parties. This is not that high, considering that if you really did cause injuries to someone else you'll probably be sued for millions. This is why you need to put your property in an LLC, because you will be sued for the value of whatever possessions you may have (I assume this would apply even if you were driving a rental car when you caused an accident).
Even if you buy the most expensive insurance ($2,500 for 6 months) you will only be covered for 50K of injuries caused to other parties, which is a drop in the ocean if you're being sued for 1 million bucks. According to the consultant I talked to at Progressive, there is no insurance that will cover getting sued for injuries you have caused. I assume that if you own a property and someone (your tenant, or a contractor) gets injured on location, there is also no insurance that could cover you against a million dollar law suit. Once again, best to go the LLC route.
Last night the latest Case Shiller data came out. It seems prices are still falling. In fact, prices in September fell in 18 of the 20 large cities studied. More surprising is that the rate of the fall is increasing. Here's the link:
http://www.reuters.com/article/idUSN3032407020101130?loomia_ow=t0:s0:a49:g43:r5:c0.050000:b39925678:z0My prediction is that there will be further falls in 2011. However, the amount of the decrease won't be too alarming (perhaps a total of 5%), This is very low compared to the 30% crash between 2009 and 2010.
The only reason prices won't fall drastically is simply because prices are already very low. Whenever I saw a good deal (an REO that was correctly priced and in a good area) there were tons of buyers sniffing around and making offers. They all seemed like Mom and Pop buyers, not investors. Once it becomes cheaper to buy than to rent, there'll always be enough buyers to prevent the bottom falling out of the market.
So why will prices still decrease next year? Because the inventory of REOs on the banks' books has increased dramatically in the past 3 months (due to the Foreclosure Moratorium). Yesterday I read on Reuters that banks have 25% more REOs on their books this November than they did in Nov 2009. Considering that they haven't started releasing REOs back onto the market at the same rate at which houses are being foreclosed on, that inventory will still climb higher.
All things considered, 2011 should be a great year to get great discounts.
Today is my last day in Miami. I've put in some very low offers on some houses, and am still waiting to hear back from the banks. None of these are houses that I'm "in love" with, but if I can get them at the price I offered then I got a real bargain.
I'm now only using REO listing agents when I put in offers, and if anyone bids higher than me I'm pretty sure they'll let me know. So far there haven't been any other bids on these houses, even though they're REOs. Sound strange to you? Let me use a metaphor from my own life to explain why:
When I was 30 I'd made what I considered to be a lot of money (by running a small import business in Taiwan for 3 years). I was sick of doing business, and dreamed of travel and freedom. I suddenly got it into my head that I wanted to be a commercial pilot. I put most of my money into Nasdaq stocks that had recently crashed (this was 2000) and kept aside enough money to pay for my flying lessons. A few months later I met a very beautiful 29 year-old woman. I shall call her "C" so that she can remain anonymous. We fell in love. She had just emerged from an 11 year relationship (with the only man she'd ever been with) and was traumatized by the experience: he'd dumped her and run off with his business partner, an attractive go-getter).
In my opinion, the woman that C was dumped for was not nearly as intelligent or beautiful as C. The only reasons that I could think of that C and her ex-boyfriend's relationship had failed was boredom, and different life goals. C already had her Masters in Zoology, and was working on her PHD, when she decided to go back to uni. and start a 6 year medical degree. While she was in her second year of medicine, her boyfriend, who also had a Masters in Zoology, started an Environmental Impact Company. It was doing well, and he wanted C to help him full time, but she refused, sticking to her very demanding medical degree. C's boyfriend then partnered up with the woman he was soon to run off with.
After C and I met we were together (very happily) for about 6 month, when one day I woke up to discover I'd lost all my money on the Nasdaq stocks. I no longer had enough even to finish my commercial pilots license (you have to hire aircraft by the hour, which is unbelievably expensive), Although I was in love with C (or at least knew that I COULD love her to the point of marriage) my options suddenly seemed limited. It was at this time that my sister gave me a book on the coming rise of China. Before I knew it my mind was already made up to radically alter my life. To move to China would mean leaving C. I couldn't expect her to dump her life and go with me (perhaps she would have though) and besides, I knew taking her to China with me would be a huge mistake and liability. I'd made money in Asia before (in Taiwan), could speak OK Chinese, and knew what was in store for me. Trying to take C with me would have doomed the mission to failure from the start. So instead I broke up with her, and began making plans to leave.
She took it very badly. She became a man-hater, having just been "dumped" by the only two men she'd ever been with. My explanations (which seemed so logical to myself) landed on deaf ears. She wouldn't believe that I was leaving her because of something I had to go far away to do. She believed there was something wrong with herself.
The last time I saw her was 4 years ago, and she had no husband or even boyfriend, had quit the medical degree, and was working for a multinational. She was as beautiful as ever.
The moral: even beautiful intelligent woman get passed over.
What's this got to do with buying houses in Miami?
Even good REO houses get passed over, if they've been "dumped" (IE. a pending sale fell through) or they've been "ignored" for a certain period of time.
Why would a good house get ignored?
An REO will be put on the market at a price chosen by the bank's asset manager. If he's an idiot he'll price it too high. It will then fail to attract any bids, or may attract one or two very low bids, which the asset manager will snub his nose at. It will then just sit on the MLS listing site for month after month, getting very little attention. Eventually it will get a "stigma" of being unwanted and worthless.
REO buyers are all after virgins. They pounce on anything new, so long as it's priced low. The listing agent then plays all the bidders off each other (telling the buyers that there have been multiple offers) driving the price higher than the asking price. Yet the REOs that were priced too high just sit and get ignored by all. People see Days On Site (DOM) of 60-plus and they just look the other way. But some of these houses are real steals, so long as you time it right. If the bank's been waiting for high bids for months and months while turning down any very low bids, but then just as you submit your ridiculously low bid the asset manager get's pressure from his employer to move his REOs faster, your low-ball bid might just slip through. I haven't been this lucky myself YET, but have seen a few such bids of other people get accepted this past month.
So the world of mating is very similar to the world of housing. There are some very attractive women and houses out there that would make you very happy, yet if you just run around like all the other randy buyers chasing expensive virgins you're going to have such stiff competition you may end up on the shelf yourself. Or you might get her, but end up paying way too much (models make very high maintenance girlfriends).
Another observation: in the whole month I've been here only 3 REOs came on the market in the areas I've been looking in. All 3 got snapped up immediately. This shows just how slow the REO business has become, and this is supported by the figures that came out yesterday:
(Reuters) – Sales of previously owned homes fell more than expected in October, possibly due to delayed foreclosures and overly strict lending standards, the National Association of Realtors said on Tuesday.
Sales fell 2.2 percent to a seasonally adjusted annual unit rate of 4.43 million units from September's 4.53 million unit pace, the group said. Economists polled by Reuters had expected existing home sales to fall to a 4.49 million unit pace in October. U.S. stocks added to losses after the data.
NAR chief economist Lawrence Yun said the decline in sales stems from "overly strict" lending standards which are preventing qualified borrowers from getting loans and "may be partly" due to the temporary halt of foreclosures as banks work through questions about paperwork.
Sales have fallen 25.9 percent over the past year, while median prices have fallen 0.9 percent in the past year to $170,500.
Yun said the group expects sales to total about 4.8 million units for all of 2010. He expects sales to rebound to what he considers a healthy pace of around 5.1 million by 2011.
IT SEEMS THERE'S NO RUSH. 2011 SHOULD BE A GOOD YEAR FOR REO BUYERS:
(Reuters) – The shadow supply of homes set to hit the U.S. housing market jumped more than 10 percent from a year earlier to 2.1 million units in August, suggesting prices will continue to decline, a mortgage data firm estimated on Monday.
Based on the number, it would take eight months to work through the shadow inventory, compared with five months a year ago, the firm, CoreLogic, said. Shadow inventory includes properties whose borrowers are at least 90 days delinquent or those in foreclosure or already foreclosed and not yet listed for sale.
Together with the 4.2 million homes on the market, it would take 23 months to work through supply at the current pace of sales, up from 17 months a year ago, the firm said.
Shadow inventory is seen as one of the chief threats to the fragile housing market that is showing new signs of weakening. If banks swiftly dump the homes on the market, economists fear it may renew a vicious cycle that could depress home prices to levels that would cause more defaults and foreclosures.
Adding to the problems are errors in processing tens of thousands of foreclosure cases at Bank of America Corp, the largest U.S. mortgage servicer, and other financial institutions.
The massive failure to provide proper documentation in court has resulted in delays to an already lengthy processes of repossessing homes, leading to a backlog in paperwork and repossessions as the companies fix their procedures. The banks are also facing a nationwide probe by state attorneys general.
"The weak demand for housing is significantly increasing the risk of further price declines in the housing market," Mark Fleming, CoreLogic's chief economist, said in a statement.
"This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing," he said.
What's more, buyers of distressed properties have become gun shy due to the foreclosure processing problems, according to a Campbell/Inside Mortgage Finance survey of real estate agents.
The poll found 14 percent of owner-occupant homebuyers and 6 percent of investors refused to view foreclosed properties in October. Distressed properties accounted for 44.3 percent of transactions, down from 47.5 percent in September, it said.
mojorising wrote:Thanks Steve,Most of my liquid assets are in shares. I can turn them into cash in 1 day and an EFT to my US bank account in 1 day. The local EFT to the vendor would be an additional day.
If I am paying cash for my 1st property seems like that would be fast enough.
Do you know how fast you need to come up with the cash if an offer is accepted?
I might look at gradually selling shares anyway and sending money to US account. Don't want to be forced to transact during a bad shares week or a bad currency exchange week.
Thanks again for the inspiring and motivational commentary on your experiences and good luck!
First you deposit earnest money into a title (escrow) company (this is a safe third party account, so now the money is neither in your hands or in the seller's). Earnest money can be from 1K to 10K.
After your offer has been chosen, you'll probably be asked to pay a second, and larger deposit (perhaps up to 20% of the total price).
On closing day (which can be anywhere from 1 to 6 weeks after your offer was accepted) you must come up with the total amount. It's best to make the closing date more than 4 weeks after your offer gets accepted, since that's how long it'll take you to apply for a mortgage.
TO SNOWY
REO listing agents are always a team, with one person cozying up to the banks to get more listings, and the others on the team sell the REOs (and remain anonymous from the bank, which is why one of them can be your buyer's agent, but the team head cannot).
Some may help you rent out your properties. I can't see why they wouldn't. But actually, if you're intending not to have a management company, why not just rent your properties out yourself (my forner buyer's agent only put free ads on Craig's List, and she found people quickly – on the last weekend that I was working with her she was very happy because she rented out 5 of her client's properties using Craig's List, and made $1,000 on each deal). But if you're going to use Craig's List you'll need to have someone in Miami to help with drawing up the contract, getting it signed, and handing over the keys. I'm sure your buyer's agent would assist if you gave a tip. My intuition tells me that they feel responsible to you and your property since they helped you buy it.
I was just "hanging" with my new brothers, a small group of realtors with questionable morals who happen to be listing agents for REOs.
The phone kept ringing, and each time it was about the same property: a 3 bed, 2 bath SFH in Little Haiti (not one of Miami's better suburbs, to say the least). The bank is asking 29K, but the offers have all been coming in between 30 and 35K. I've seen the pics and the property is in good condition, no work needed except installing stove, fridge etc. I enquired as to the huge interest, and this is what I heard:
New York investors (rich men who've made a fortune as slum lords) love to buy just this kind of house. They get it ready to pass Section 8 standards (which apparently isn't too difficult, so long as the house is in OK condition) and then they stick a "for rent" sign on the lawn. They will find tenants quite easily, all of whom have qualified for Section 8 (the government welfare program that pays poor people's rent for them). This kind of house can be rented out for at least $1,000 a month (perhaps 1,200). Doing the math, that's a rental return of about 30% after subtracting property tax ($150) plus some upkeep costs, hence the multiple offers this property is receiving.
Here are some more interesting calculations:
If you bought 30 of these Section 8 properties for 1 million, after 6 years your 1 mill. will have become 3 mill. and if the property price has doubled you'd have 4 mill. total.If you spent that 1 mill. buying 3 mill. of properties (because you used mortgages with 30% downpayment) you'd have to control 20 SFHs priced at around $150K each). You'd have no monthly income, since your rent will be eaten up by property tax, insurance and interest. If, after 6 years, the property price has doubled, your 1 mill will have become 4 mill.
In other words, both have the same outcome. However, if the property price doesn't rise one iota, with Section 8's your 1 mill has become 3 mill, but with the mortgage scenario your 1 mill is still about 1 mill.
But with Section 8's you're dealing with 30 tenants, in bad areas. With the mortgage scenario, you only have 20 tenants, and they should be of a better class.
But with Section 8's your rent will always be on time (because the gov. is paying) and they probably won't trash your house since they'll lose their Section 8 status.
Another advantage of Section 8's is that after 3 years you've already earned another 1 mill. cash, which you could re-invest.
So Section 8's seem like the more logical way to go.
Problem is, I don't want to be a slum lord.
Perhaps I'll just use 1 mill. to buy a 3 mill. waterfront mansion and just pray the US bubbles again. That way I'll get my 4 mill. but without ever needing to be a landlord!
If only life were so easy.
mojorising wrote:Hi Steve,Someone like you who will be on the ground and living there and managing their own proerties can obviously make the best purchase decisions and make the most cashflow. But for an investor planning to buy form overseas and rent out without being there do you think going for properties within a condo development which has an onsite building manager would be better than an buying a private house? The thought of my property standing by itself unattended with no active property manager (they don't seem to do property management with the same hands on approach as in Australia) makes me nervous. Squatters would be a worst case scenario – is that common from what you've heard?
I can't answer that, since I have no more experience as a landlord in the US than you do, except that I own dozens of rental condos in 4 different cities in China, which to my surprise do not cause more headaches than their income is worth, even though I do not use any property management companies (my wife might disagree with me on this point, since she'd probably say that she's the property manager!)
If I was in Aus right now, with a steady job and $70K cash, I'd have 2 options:
A. buy 2 condos with cash (1 bed/1 bath, about 500 square feet each), expecting to get a monthly rental return of 10% minimum, and just using an agent to help me rent it out (the agents charge you for this service, perhaps half of one month's rent). I wouldn't bother with a management company.
B. if I had the ability to come to the US for a long enough period of time, I could buy a cheap REO SFH for about 150K (IE. pay for it with a mortgage). After paying property taxes, insurance (banks demand you get insurance if you want a mortgage) and interest, you'd probably just break even each month once you've rented it out. Since you've only purchased one SFH, I'd try to manage it myself (rent it out using Craig's List, and give the tenant a discount for agreeing to look after the garden). You can also write into the contract that minor repairs must be handled by the tenant, and for major repairs he must find a contractor, but you'll pay.
You could pull off A without coming to the US (provided you have someone you trust to assist with the purchases), but for B you'd probably need to come yourself (to get the mortgage).
The advantage of A is you'll get a good solid rental income, and less can go wrong with the properties (though don't forget you'll be managing 2 condos, as opposed to 1 SFH). The advantage of B is you've purchased twice as much property (in $ terms) so you stand to gain twice as much in capital gains.
I know I haven't said anything you don't know, but just thought I'd clarify the issue for you.
I don't think there's any chance you'd have people squatting in your SFH. Squatters only move into abandoned homes that have been sitting unattended for years.
TassieJH wrote:Very philosophical guys…and interesting.
But back at the main topic of MIAMI ad(VICE) Steve how is this week progressing for on the quest for a SFH to inhabit with the family?
The tales of intrigue and skulduggery have at sitting close to our LCD screens waiting for the next episode
Keep up the great posts.
Tassie
Aha Tassie
You are most intuitive in picking up that I've been stonewalling recently (going on and on about international affairs instead of the gritty reality of Miami REO purchasing).
What have I been up to recently? That is a very good question, and unfortunately one that I cannot answer directly, so as to protect all parties concerned.
All I can say is the following: just as a listing agent for REOs is not going to advertise his services thus: "Hey, buy a property through me, because I'll do everything within my powers to make sure that you're first in line (or the ONLY one in line) to get a steal (no pun intended) from the bank", nor is the buyer going to admit he participated in such a scheme.
Go figure, as these cocky Yanks like to say.
TO CHUI
I'm a bit worried about China's property market overheating. That's not to say it might not double in prices, but even at today's levels property is unaffordable for 90% of the population.
But China is breaking a lot of records these days, and going into unchartered territory. Never before have so many Far East Asians (with their unique value system that has historically put a lot of emphasis on property values) been catapulted into the middle class at such a high rate. Ultimately, one of the following 2 things must happen:
A. Chinese (incl. Hong Kong, Taiwan, and Singapore) will redefine the levels to which property can rise, creating an island of extreme property prices in Far East Asia. This will have a trickle-down effect, making all countries near to China (geographically or economically) experience similarly property high prices.
B. China will experience a boom-bust like Japan did.
At the current levels of Chinese property, I don't think B is likely to occur. Yet if there are further rises (ie. faster than people's incomes) then a crash becomes quite probable.
Right now, I think there is about a 70% likelihood of A happening, and 30% likelihood of B. Therefore, I'm planning to sell 30% of my Chinese properties and invest that money in the US (I will do so gradually over the next 2 years, and only assuming that I get satisfactory prices for my Chinese properties).
Another factor that may slow down (or even halt) my purchase of US property will be the buying and renting out experience.
As I drive around Miami's middle-class suburbs, it is quite shocking how many abandoned homes one sees (let alone how many For Sale By Owner signs stuck in the lawns). Except for the very best suburbs (NE Coconut Grove, Brickell, South Beach to Bal Harbour) all other suburbs are riddled with homes that have had their windows boarded up. One sees this even in nice middle class suburbs, but the worse the area, the more the foreclosures.
At least in the nice suburbs it seems that the local community keeps an eye on the abandoned homes (neighbours take care of the garden, and the neighbourhood watch will board up the windows and keep an eye out to make sure homeless people don't move in). As a result, these kinds of suburbs can maintain their standards. But once you head to a less affluent area, you can see how the rot is already corroding entire neighbourhoods.
Today I saw a beautiful REO going for 36K. It is one road away from a nice area (IE. on the "border") and the house has a stunning garden. The garden was so big you could have separate areas (eg. a pool area, a trampoline area, a BBQ area, each separate from the other). The previous owner obviously loved his garden and his home (which was large and once-beautiful), but from this house westwards, things went downhill rapidly. Nobody looked after their properties, abandoned homes were common, people parked bashed-up cars outside their houses. From the look of the neighbourhood, it was once nice, but probably will never be so again.
So when you're buying in the US, it's Location Location Location.
Apart from the fear of neighbourhood deterioration, I also will be interested to see what it's like to be a landlord in the US. How expensive will maintenance of a SFH be? How easy will it be to find decent tenants (and to evict bad ones)? How much can one rent out SFH's, and what will the rental return be? How high will property taxes be, and flood and hazard insurance?
All these factors will determine the speed at which I purchase in Miami.
TO DHILLON
I didn't read Soros's Alchemy of Finance, but a few months ago I read the updated biography of Soros (I can't remember either the title or author offhand).
I think you're right about him changing directions at the drop of a hat. Probably something he learnt as a Jewish youth on the run from the Gestapo.
I think his statements (on the new geopolitical order) are more of a wake-up call to the US.
But I must agree with Soros that the speed of China's rise is becoming exponential. I remember just 5 years ago important people (eg. in the World Bank) came up with "astonishing" figures that China would overtake the US withing 50 years (in terms of the overall size of the economy). It now seeems very unlikely they won't do so in the next 15 years.
And since I'm in the mood for sharing Reuter's articles today, read the one below. It appears China is quite willing and able to use hacking to obtain sensitive political and corporate secrets from the US. The article points out that for 18 minutes last year the Chinese government had full access to sensitive US web traffic.
More alarming is that in a separate incident they hacked into Google's source code, probably for the purposes of copying it and giving it to China's version of Google (called Baidu). If Baidu can copy Google's source code, it's searching abilities will be equal to Google's. The Chinese gov. will then happily bankroll Baidu's global expansion (as they are currently doing with their top car, banking, computer, aircraft, and pharmaceutical companies).
20 years from now China will be a giant compared even to the US. It's influence and greed will spread to every corner of the globe. That's fine for greedy little countries with lots of resources and no morals (Aus, all of Africa and South America, and even part of Europe) but it's a real bummer for idealistic countries, or wannabe number ones.
Anyway, here's the article:
(Reuters) – China Telecom sent incorrect routing information last April that resulted in Internet traffic to major corporate websites and U.S. military and government sites being sent through China for 18 minutes, according to a report by a congressional advisory group.
The incident was one of several discussed by the U.S.-China Economic and Security Review Commission. Reuters obtained a copy of the draft report, which will formally be released on Wednesday.
In the hijacking incident, the Web traffic, much of which originated in the United States and was directed toward U.S. corporate and government websites, should have gone the shortest available route and not through China.
Some of the traffic was headed to sites owned by the U.S. Senate, the office of the secretary of defense, NASA and the Commerce Department, the draft said.
In all, the report said that 28 percent of all targeted phishing emails, a type of scam, originate in China. "Anecdotal reports about the success of these activities continue to surface, some with compelling links to the Chinese government," the report said.
The report also discussed the battle between Google and China, which began with Google announcing that it had been hacked and that it would no longer censor searches for Beijing. Eventually, Beijing took over the job of censorship and renewed Google's license to work in China.
The hackers reportedly got Google's source code, perhaps the most valuable computer code in the world. Cyber experts are watching Baidu, Google's competition in China, to see if it improves suddenly. Sudden improvement would indicate that Baidu was using Google code.
Google was unusual in that it announced that it had been hacked. Failure to report attacks has been a source of frustration for the FBI.
The U.S.-China Economic and Security Review Commission, which wrote the report, was set up in 2000 to advise the U.S. Congress on the economic and national security implications of the U.S.-China relationship.
IN TODAY'S NEWS
(Reuters) – Consumer inflation was subdued in October and new home building slumped to its lowest level in 1-1/2 years
In a separate report, the Commerce Department said housing starts plummeted 11.7 percent to a 519,000 annual rate from a downwardly revised 588,000 in September.
It was the weakest starts rate since 477,000 in April 2009 when the economy was still struggling with the impact of the 2007-2008 financial crisis.
Economists surveyed by Reuters had anticipated a starts rate in October of 600,000 — far higher than the actual outcome.
Homebuilders have to do serious market analysis and forecasting so as to know how many houses to start building now. This news indicates that they are very negative on the 2011 property market, which I suppose is good news for the likes of us, hoping to get good deals next year.
Here is another very interesting article (also pretty negative on the future of the US economy) on Reuter's today:
CHANGING WORLD ORDER
Soros also spoke on the changing geopolitical order, outlining his expectations for a rapid decline of the United States, equaled in speed only by the ascent of China's economy since the global economic crisis erupted.
China, he told his audience — which included Bank of Canada governors past and present and CEOs from banks and corporate giants like Research In Motion (RIM.TO) — has been unscathed by the crisis and now has a better working economy and a better working government than the United States.
The present world order is on the brink of breaking down, he said.
"There is now a rapid decline of the United States and a rapid rise of China," he said. "It is happening very quickly."
He said that China got to where it is today by looking out for its own interests, but he warned that the Asian powerhouse would have to start considering the needs of others if the new world order is to emerge intact.
"If they persist in their present course, it will lead to conflict," he said, adding that China's neighbors are already getting nervous about its rising global influence.
Below you will find a link to watch a short video clip on Bank of America's outlook on home prices (November 13, 2010)
I'll summarize: they think prices will still fall further, namely 5% nationwide. Considering that California, New York, etc. are rising, places like Las Vegas and Florida will have to fall much more than 5% to create that average figure for the whole US.
Now don't forget: Bank of America has an enormous number of REOs on their books, so they're more aware than anybody just how large the so-called "hidden inventory" is.
See for yourselves:
http://www.bloomberg.com/video/64482410/I just received an e-mail of someone asking my advice on whether he should invest in Las Vegas. Here's what I told him:
Hi
I think you can't go wrong so long as you invest in a city with high numbers of foreclosure (ie. LV, Phoenix, or anywhere in Florida). Foreclosures = forced sales. Those people didn't want to sell, but the bank has taken their property and is now selling it. This means that there are more sellers than buyers (because you have banks selling, as well as regular sellers), so the price is very low (much lower than it'd cost to build the house ).
So I repeat, you just can't go wrong.
cheers
SteveIn Miami I keep hearing the figure $200 per square foot to build a house. This means that if a house is 2,000 square feet it would cost $400,000 to build it (let alone the cost of buying the land, which in a decent area would be at least $100K). So to build such a house would need more than 500K, yet REOs of that size are going for less than 200K. Also, you can't just go and buy a piece of land in a decent area. There aren't any (which is why I'm not sure what the land value is).
Today I met with 3 different "teams" of REO listing agents. The biggest realty companies will all have their own teams dealing with the REO's given to them by the bank.
Each team I spoke to repeated the exact same information:
Right now, in Miami, there is only a fraction of the number of REOs that there were before the Foreclosure Moratorium hit the market (about 2 months ago).
In the past 3 weeks I've asked many realtors whether the Foreclosure Moratorium had affected the number of REO's coming out, and they all said no. I now believe that these people were either uninformed (since none of them were REO listing agents, just regular agents) or they were purposefully lying (so as not to scare away investors like myself, who prefer to buy only when there's an excess of REOs on the market).
The REO listing teams I spoke to today didn't lie, and nor could they, since they don't have any REOs to show my right now (at least no SFH's in the range I'm looking for).
They also all told me that they have been informed by the banks that REOs will hit the market in much greater numbers next year, perhaps around March. I shall be back here in January though, just to make sure I'm set up and ready, because I fully intend to buy at least 10 SFH's next year (in the 120-200K range). I have already told my wife to sell one of our prime Shanghai apartments to raise extra cash.
Here's some more very good advice: just figure out which areas you want to buy in, and then drive around and jot down the address of each place you see for sale (and believe me, there are many on every street). Nearly all will have a realtor's phone number on a sign stuck in the lawn outside. You can either call this number, of just do a google search later. Either way, you will be able to pinpoint which property is an REO, and then since you didn't see the property with a realtor you can get direct access to the listing agent (who'll then also be your buyer's agent). For example, if you google search an address, and it turns out to be an REO, the person who placed the ad you've found (eg. on Trulia, Zillow or Movoto) will be the REO listing agent.
I should also explain why there are always "teams" doing the REO listings. The head of the team deals with the bank, but the other 1,2 or 3 members of the team are buyer's agents, who run around trying to find buyers for a particular REO. Once the sale is completed, the bank won't realise that the buyer's agent was actually working together with the listing agent (the head of the team), so they won't figure out there was insider trading. I suspect that the entire team then splits the profits they made from the bank (ie. about 1% for being the listing agent, and 3% for being the buyer's agent).
jasperjonsson wrote:BB – So the question is: how can we identify a REO listing agent (from a buying agent)?Firstly, I should point out that I'm a perfectionist. I'm not someone who just does things on the spur of the moment (although that's exactly how I was in my 20s). I calculate risks, and (except when a market is rising rapidly) I get an idea of exactly what I want, and then can be very patient while waiting to get it (I learnt this through property investing, since it requires you to be patient enough to wait at least several years until you can cash out).
Why am I telling you this? Because I want to point out that my buying experience will probably be different from that of most other foreigners who come here on a quick purchasing trip. Since I arrived in Miami I've been on the hunt for "treasure" properties. I'm not after run-of-the-mill houses. I want ones that stand out, that have something that sets them apart from the others, and that's why I chose Dream Home 1 (waterfrontage to moor a yacht) and Dream Home 2 (good location with large plot yet very cheap). Because I'm looking for treasure, my competition will be tough. The listing agents will know that they're holding on to something special, and they have a good chance of being able to sell them themselves, instead of waiting for clients with their own buyer's agents in tow. Hence my current need and desire to team up with listing agents.
For most foreigners who come to the US to buy property, they won't be as picky as me, nor as patient. You must remember that I'm planning to live here for the first half of next year, so if I don't find my dream REOs now, I can always wait. If any readers of this blog decide to come to Miami to buy property, they will probably just look around for a week, and snap up something cheap and ordinary before their time runs out.
OK, now to answer your question. I've already found one listing agent (the guys with the 60 REOs on their books), and I found them by keeping my eyes open, and doing some private investigative work (using Google and then personally visiting their offices without any buyer's agent accompanying me). I intend to keep going on this track in the coming days.
weathjess wrote:Hi All,
I literally spent all of yesterday reading this topic from start to finish – FASCINATING!!!I am planning a trip to the US in April with the hope of buying a couple of properties myself and a couple through a SMSF.
What are people's thoughts on Atlantic City……….prices seem really good, but looking at the future – I see that they are a tourist spot with casinos etc, on the water – but as the crow flies only about a 100kms to Philadelphia and 300kms to New York.
Looking at Trulia there are a number of bottom of the market houses that have been listed for 180 days or more (in all parts of the US) – what are people's thoughts on why this is? Is it potentially falling down or in a really bad area?
Also – there has been some discussion on here regarding the taxes that are needed to be paid in the US – however, when you then transfer that money into an Aussie bank account does anyone know whether that money then gets taxed again?? Conscious of the trouble that Paul Hogan had recently with disputes over where the taxes needed to be paid. Or are people keeping the money in the US and not bringing it home?
cheers,
JessieHi Jessie
I don't know anything about Atlantic City. Perhaps someone else can answer that one.
As to some of the crazy prices you see listed on Trulia, there are a number of reason:
1. The very low ones are often placed by RealtyTrac. This company has teamed up with Trulia, and I suspect they are able to place free ads on Trulia. By placing ads for foreclosed homes at $1000, they probably attract a lot of interest, which leads to people signing up for their service (which comes at a high monthly fee, and is useless unless you're mad enough to think of buying homes at an auction, because RealtyTrac's only benefit is it's attempt to inform you of how many liens there are on a property)
2. Sometimes they are bogus posts, by agents wanting to get people to phone them, and then they'll say "Oh, that just sold, but I've got something a bit more expensive but soooo much better…"
3. Sometimes they are real ads, but the property is in an awful area
One good thing I've noticed about Trulia: it has every good listing that's out there. IE. every decent property I've gone to see was listed on Trulia.
One bad thing I've noticed: it has dozens of expired listings which the agents haven't bothered to take off, plus it has those bogus RealtyTrac ones.
Sometimes, when you've located a property you're interested in, and you're investigating the sales price history, you will see recent sales of anywhere from $100 up to about half of the current listing price. Upon further inspection (which you do through the local gov. tax websites) you will discover that these were random figures that were chosen to be put on the deed as it changed hands from the bankrupt owner to the bank during the foreclosure process. The figure has nothing to do with the actual price or value of the property.
Once again, I have to say "WHAT A DAY!"
But first let me say thanks to GARY, DHILLON and TASSIE for once again sharing valuable information in their posts above. To JASPERJONSSON, the only thing I can tell you about auctions is that I'm not going to go near them. I haven't even figured out how to buy REOs from a bank yet!
Before I tell you what a learnt today, let me tell you what happened.
Last week, while waiting to hear back about my "Dream Waterfront SFH", I went to see many other REOs for sale. Of the 2 dozen I saw, I finally found one that stood out. It was a cute little house (traditional Spanish style with gables and high ceilings) on a large property (12,000 square feet, or about 1,100 square metres) with amazing palm trees (the highest I've ever seen) and plenty of space to make an enormous swimming pool and still have plenty of lawn left over. It's in Miami Shores, which is a good area. The asking price was only 120K. This house in Sydney would probably be $1 million.
My agent tried to contact the bank's listing agent, but since they hadn't given a phone number on the MLS, all she could do was e-mail them. They didn't reply.
On Friday afternoon I learnt that I hadn't got my Dream Home, so I told my realtor to try harder to contact the agent for Dream Home No.2
By the time we tracked down the office of the listing agent, it was the weekend, and no one answered the phone.
This morning (Monday) I drove to the listing agent's office. To my surprise they are a small unknown start-up company with only 5 staff, yet they have over 60 REOs on their books. I explained to one of the agents that I wanted to put in an offer on Dream Home No.2, and he was super motivated. He told me the exact history of the sale so far (he put in a 114K offer last week Wednesday for one of his clients, but the bank rejected it, and then another realtor came to his office on Friday and put in a 120K offer, which was still awaiting the bank's response).
Alas, as I was filling out my offer form, the listing agent received an e-mail from the bank accepting the 120K offer. I was understandably pissed off, since I was offering 130K so would definitely have got it.
Now here's what I think I've figured out:
The listing agents for the REOs only get a small commission (about 1%, paid by the bank), yet the buyer's agent will get 3% (also paid by the bank). Therefore, the listing agent would ideally also like to be the buyer's agent (and get a total commission of 4%, instead of just 1%). This explains why, in the above story, the listing agent:
1. did not bother to give any phone number in the MLS listing to be contacted at (the MLS listing is the one used by all the estate agents)
2. only gave an e-mail to send offers to (this allows the listing agent to screen the offers, which they don't necessarily have to send to the bank if they don't want to)
3. does not reply to phone calls or e-mails made by buyer's agents (but I have a feeling they'd be happy to talk to a buyer directly, since they could then become the agent for that buyer).
What I think is happening is this:
The listing agent gets the REO from the bank. They put the listing on the MLS (I'm sure they have no choice in the matter, since it's probably stipulated in their contract with the bank) yet they do whatever they can to hinder the number of offers made by other buyer's agents (by not assisting people to view the house, and by not being cooperative in answering the phone or e-mails). During this stalling period, they are hoping to find a buyer whom they can represent themselves. Once they've found their own buyer, they submit this offer, and hope nobody bids higher. If somebody does, they have the option of just ignoring the bid (by not sending it to the bank) or of telling their own buyer to increase his bid so it becomes the highest.
This is what I saw today in the case of Dream House No.2. The listing agent found his own buyer willing to offer 114K. Unfortunately, the bank rejected it. While the agent was hoping that his buyer would increase a bit (maybe to asking price of 120K), unfortunately for him a buyer's agent came to the listing agent's office and submitted a 120K offer on the spot from the listing agent's computer direct to the bank.
Why did he actually come to the office? Because he knows how the system works (ie. that the listing agents are going to be uncooperative, and probably won't even send in your offer to the bank). How do I know all this took place on Friday? Because the listing agent told me with glee this morning, while filling out my new offer of 130K "Wow, that aggressive agent who came in here on Friday and forced us to submit a 120K offer is going to be REALLY pissed off when he finds out someone has outbid him, ha ha ha".
But unfortunately for both me and the listing agent, the 120K offer was accepted first thing Monday morning, before mine even went in.
What's the lesson though?
If you want to buy an REO, and you think you're going to do so by recruiting a buyer's agent to help you, it's like running a race with lead in your shoes.
The only way to go forward, as far as I can see, is to figure out how to track down every large REO listing agent in Miami. Since they're going to be your buyer's agent, they'll illegally yet happily share inside info with you, and the only reason you'll be outbid is if you're not willing to better the offer made by some outside bidder.
