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The Double Dip's Official: Home Prices Fall to New Low


Liberty
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http://www.theatlantic.com/business/archive/2011/05/the-double-dips-official-home-prices-fall-to-new-low/238423/

 

http://cdn.theatlantic.com/static/mt/assets/business/assets_c/2011/05/clear%20capital%20home%20prices%202011-04-thumb-500x348-50007.png

 

Update: The title of this thread is the Atlantic's headline, not mine. I think they mean a double dip in the housing market, not whole economy...

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ran across this from a seekingalpha contribution - for us GreatWhiteNortherners.. ???

 

http://static.seekingalpha.com/uploads/2010/3/25/205992-126949629797884-Freddy-Hutter--TrendLines-Research_origin.png

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Liberty,

I actually came across that when i was looking at some other housing stuff.

 

I noticed the link was seekingalpha when i saved it though i didnt get it directly from Seeking Alpha. What i did do is go to that guys site trendlines.ca but i cannot find that graph there now - can only find it from the google search for it.

 

 

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For those of us in the U.S. maybe it's time to invest in real estate... I for one am actively looking to purchase rental properties (especially since I'm having a lot of trouble finding bargains in the stock market) - are there any other landlords on the board?

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For those of us in the U.S. maybe it's time to invest in real estate... I for one am actively looking to purchase rental properties (especially since I'm having a lot of trouble finding bargains in the stock market) - are there any other landlords on the board?

I AM IN COMPLETE AGREEMENT WITH YOU. I noticed recently that Avalon Bay which is a very large apt. Reit mentioned that they had been able to push through a 7% increase in lease renewals and that the percentage of tenants leaving to purchase a home was at all time lows. New home construction is at lowest levels since WW2 the decline in apt. construction has been just as sharp. Avalons stock price is pretty much at peak valuations. In the US today you can purchase properties from banks with tenants in place that produce VERY positive returns with no appreciation.  What has not changed is the formation of households {Americans are still having sex and making babies} A rental property with a decent tennant and a 30 year fixed mortgage is as good an investment as one can make unless you expect war or revolution in the USA. Real estate is a pretty crummy investment in those types of scenarios for that you just want to hold a few gold coins to bribe the border guards.

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There was more support for home buyers last year via the free government giveaway to "first-time" homebuyers.

 

Next twelve months will be interesting as it will be a more fair comparison (no-free-money vs no-free-money).  One would tend to expect the slope of decline to ease.  At least, that was the argument made last year (in reverse).

 

 

 

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There was more support for home buyers last year via the free government giveaway to "first-time" homebuyers.

 

Next twelve months will be interesting as it will be a more fair comparison (no-free-money vs no-free-money).  One would tend to expect the slope of decline to ease.  At least, that was the argument made last year (in reverse).

 

 

 

Eric I am not making ANY predictions about home prices for the next 12 or 24 months. The house could go to zero value these investments work if you have a tenant and rents stay flat. Heck I have seen deals where if you cut the rents in half you are still making double digit returns.
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My relatives just bought a place at one-third the price of what it last sold for in 2006.

 

In certain places in Florida an all-cash buyer can earn around 12-14% annual yields right now.  That is after taxes, insurance, and association fees.  Completely free option on future appreciation.  If only I knew how to be a landlord, and had the time - oh, and the cash!

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HomePath houses are available to investors w/ only 10% down and you can always hire management companies to do just about everything, from screen tenants to collect rents to evictions (if need be). 

 

Where I live (Southeast) there are opportunities to buy houses for $60K and rent them for $1,000 per month.  The returns on something like this are very solid under normal circumstances, BUT if you think inflation is on the horizon then the returns only get better.   

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HomePath houses are available to investors w/ only 10% down and you can always hire management companies to do just about everything, from screen tenants to collect rents to evictions (if need be).

 

That's true.  But I have enough leverage with my own mortgage - not very interested in taking on more, especially for something that's out of my circle.  Hiring somebody else adds another layer, reduces returns, and adds uncertainty.  Although, admittedly, I haven't looked very hard to see what those costs are.

 

Where I live (Southeast) there are opportunities to buy houses for $60K and rent them for $1,000 per month.  The returns on something like this are very solid under normal circumstances, BUT if you think inflation is on the horizon then the returns only get better.   

 

That's my observation as well (I'm in Florida).  It seems like a good opportunity to me.

 

If any board members are interested, I'd be happy to occasionally check in on their place from time to time as long as it's a short drive!  ;D

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That's my observation as well (I'm in Florida).  It seems like a good opportunity to me.

 

If any board members are interested, I'd be happy to occasionally check in on their place from time to time as long as it's a short drive!   ;D

 

Is there a difference in markets within Florida? Say Miami-Dade vs something like Naples area? Are there areas with more potential than the others?

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That's my observation as well (I'm in Florida).  It seems like a good opportunity to me.

 

If any board members are interested, I'd be happy to occasionally check in on their place from time to time as long as it's a short drive!   ;D

 

Is there a difference in markets within Florida? Say Miami-Dade vs something like Naples area? Are there areas with more potential than the others?

 

I'm not sure, to be honest.  I'm in the Tampa area, and I am seeing those after-fee, after-tax, after-insurance, 12%-14% yield deals around me.  I think the sweet spots are areas that were not relying so heavily on construction to fuel the local economy.  Such areas could still support higher rents relative to housing price since the job market wouldn't have cratered as hard as the housing market.  Anecdotally, I understand the Naples area had a higher concentration of its economy involved in the construction market than other areas of Florida, so I would be hesitant there.  Miami, Orlando - I couldn't offer much of an opinion.

 

That being said, I'm sure shrewd (and maybe not-so-shrewd!) investors could find deals all over this state.

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sorry to be overly simplistic - wont rents just come down though as landlords fight for tenants?

No very little in the way of new rental accomodation has been built during this RE crash either, vacancy rates are dropping across the board rents are going up. As I mentioned in an earlier post Avalon Bay one of the largest apt Reits in the country remarked on increasing rents at 7% in their latest lease renewals and a sharp decline in tennants moving out to become home owners. The sub-prime owners who are at the heart of both the bubble and the crash are becoming renters again and taking a few people with them. If your credit is destroyed you have no choice you rent move in with family or become homeless those are your choices pretty much. Some of the distressed properties are being purchased by owner occupiers who sat on the sidelines and can not believe their luck or wisdom. Other properties aqre being purchased by individuals for 2nd homes which they may or may not rent the rest are being bought by landlords to be rented. This is the only new stock of rental availability.  These landlords will be selling these homes in 5 to 10 years to their tennants when they have repaired their credit at elevated prices to todays prices and if they can not they will be quite happen to keep the homes with rents which will be much higher than todays rents the perfect Dhando investment.
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sorry to be overly simplistic - wont rents just come down though as landlords fight for tenants?

 

Perhaps not as much as you think, though I'm no expert.  It depends on how much extra supply was built during the boom, which is not necessarily correlated with the prices that homes were selling at during the boom.  I don't know of a great way of figuring out the magnitude of this dislocation.

 

A few years ago people were willing to receive too small a yield based on irrational exuberance, now they are passing up much higher yields based on, maybe, irrational fear.  Throughout the boom and bust there was some rental rate that landlords could demand, but these same landlords (or hypothetical landlords who simply purchased and lived in it themselves) changed their attitudes about what kind of yield they wanted.  Price action of the asset simply took over.  Construction certainly trended in the same direction as prices, but they didn't move in lockstep, and certainly not in all markets.

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sorry to be overly simplistic - wont rents just come down though as landlords fight for tenants?

No very little in the way of new rental accomodation has been built during this RE crash either, vacancy rates are dropping across the board rents are going up. As I mentioned in an earlier post Avalon Bay one of the largest apt Reits in the country remarked on increasing rents at 7% in their latest lease renewals and a sharp decline in tennants moving out to become home owners. The sub-prime owners who are at the heart of both the bubble and the crash are becoming renters again and taking a few people with them. If your credit is destroyed you have no choice you rent move in with family or become homeless those are your choices pretty much. Some of the distressed properties are being purchased by owner occupiers who sat on the sidelines and can not believe their luck or wisdom. Other properties aqre being purchased by individuals for 2nd homes which they may or may not rent the rest are being bought by landlords to be rented. This is the only new stock of rental availability.  These landlords will be selling these homes in 5 to 10 years to their tennants when they have repaired their credit at elevated prices to todays prices and if they can not they will be quite happen to keep the homes with rents which will be much higher than todays rents the perfect Dhando investment.

 

Interesting thesis. With commercial realty rents came down because new owners had lower costs and could cut rents and still make excellent returns. That what I thought would happen here, but your thesis is better. I am guessing commercial realty had excess supply and demand destruction via businesses going under. Here we similar demand and supply numbers, just a shifting of the rent vs. buy. Your thesis makes perfect sense. Thanks.

 

Realty is very powerful in the minds of people. Many of my second generation friends believe the way to wealth is to buy a house and rent it out at a lose for a number of years. Sooner or later rents will rise and the value of the home will rise and you will be wealthy. There is no talking them out of this belief.

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