06 June 2009

How Not To Price Your Condo For Sale


Today's chuckle is brought to you buy sellers of Las Salinas condos here in Key West.

First, let's check in with the two cheapest condos for sales at this time. Unbelievably, they are both 3 bedrooms/2 bath condos listed For Sale under $200,000.

Here's the cheapest one and how it is marketed:


One of the largest units at Las Salinas, 3 beds and 2 full baths. Complex offers a swimming pool and parking. This condo is the cheapest 3 bedroom at Las Salinas!


MLS: 110936
Address: 3930 S. Roosevelt Blvd.

Unit: E-308

Original Price: $194,000

Listing Price: $194,000

Square Feet: 1221

Price Per Square Foot: $159.62

Bedrooms: 3

Bathrooms: 2

Year Built: 1991

Condo Fees: About $432 a month


Okay, so this means this unit is on what they call the third floor, really the fourth floor, when you consider first floor is covered parking spaces underneath the condos on what is called First floor.

From above, Las Salinas would look like a giant cross. There are four "wings" (I call them spokes or legs) East, South, West, North. And at the end of each leg is a "foot" maybe 5 units long.

That said, let's look at the next cheapest condo out at Las Salinas . . . and whereas the first example is simply a sale with no b.s. short sales or REO attached, this next one is a "short sale".




Why be a tenant any longer with prices this low? Enjoy the benefits of homeownership for less than monthly rent, with a 20% down payment. This 3 bedroom and 2 bath Las Salinas Condominium is located on the 3rd floor with a westerly exposure. Currently leased month to month for $1800, this property is also well suited as an investment rental property. Low monthly condo fees are $432 & include exterior building maintenance & insurance, operation of the community & extended basic cable TV. Current annual property taxes are $2456. The community offers a swimming pool, near public transportation and close to the Atlantic promenade & Smather's Beach.


MLS#:Active-Short Sale For Sale

Original Price: $239,000

Listing Price:$196,000

Address: 3930 S Roosevelt Blvd


Unit#S306

City: Key West


Area:Area 3-4

Subivision: Las Salinas

Mile Marker: 4

Days on Market: 113

Sq Ft. 1,050

Price per sq. ft: $186.67

Bedrooms: 3

Bathrooms: 2.0

Year Built: 1994

Prop Type: Condo

Taxes: $2,455.95

Tax Year: 2008

Exemptions:None

Condo Fees: $432/Monthly



Should we point out the most incredibly delicious two sentences in the description for the above "Short Sale"? What is too, too obvious to any Key West Real Estate buyer from 2008 who believed the baloney of the local NAR who was still tooting on the Fog Horn which said "There's Never Been A Better Time To Buy A Home" is this: a 20% downpayment last year on a new home purchase has already "vaporized" into thin air.


Let's run that Realtor's descriptive braindead-speak in the two opening sentences by you again:


"Why be a tenant any longer with prices this low? Enjoy the benefits of homeownership for less than monthly rent, with a 20% down payment."


To which I say, "Uh, Real Estate Marketing Dude or Dudette, I could enjoy the benefits of home ownership right now . . . for less than I pay rent . . . only if I paid 100% "CASH" on one of these overpriced condos. Right? "

Of course, let's not discuss the probability that the actual sales price of these units will fall another 20 to 50% in the next 3 to 5 years. Meaning any downpayment you make will be "upside down" soon enough. We can't suggest this heresy. That's a no-no in Sunny Day Real Estate Land. That's being doomsayer. That's being a gloomy gus. Let's forget these black crepe paper hanging pronouncements from people who have no vested interest in "talking the book" of Real Estate. Instead, let's listen to the fools who talked people into buying throughout the Bubble and the Bubble's top.

Which brings me to this next point about Real Estate "For Sale" in this one condo building, Las Salinas:


Would you expect to pay more . . . or less . . . for a condo with one fewer bedroom?

Well, there are sellers at Las Salinas with 2 bedrooms/2 bathrooms (one bedroom fewer and less square space overall) who are asking . . . and I'm not making this up . . . $224,000 to $280,000 for units which are obviously going to have to come down in price . . . BIG TIME . . . for the owner to sell.

It's like this, Folks: If I can shuffle my feet down a hallway in the same building and same wing, and one unit has an extra bedroom with two bathrooms . . . for a cheaper price (as in $28,000 to $86,000 cheaper) . . . which condo is going to sell more quickly?

How can Realtors expect to keep a straight face asking such unaffordable prices for a 2/2 condo which is much higher in price than bigger and better units in the same damn building?

Do Realtors and Sellers not understand 90% of the buyers used to be fooled with bullshit, and now it has flipped to where only 10% of possible buyers haven't learned how to suss through the same old bullshit which the NAR has been pumping out since 1996?

As always,

Carpe Diem . . .

Rock Trueblood


p.s. Don't even get me started as to why the 3/2s (the first two examples) are still not "affordable" and why they do not make any sense whatsoever in today's market meltdown. Realtors are not known for being truthful and upfront with the ignorant masses. It's much easier to obfuscate and bullshit to sell crappy deals which make no economic sense.

I will cover what is wrong with Housing all over America today in a post later this week . . . and it all boils down to one simple word:



AFFORDABILITY

05 June 2009

Business/Economic News 5 June 09

04 June 2009

How Far And Fast We've Come, How Far And Fast We've Dropped




Remembering What The Housing Bubble Start Was Like In Miami Beach

Having once lived and worked on Ocean Drive on Miami Beach in 1996, I can still vividly recall the newly renovated condos which were next door to my domicile/workplace. Work had gone on for months and months, and finally, the day arrived where a huge cloth banner was hung from the condos' roof proclaiming, "New Condos Starting at $157,000".

My boss and I toured the condos, just for fun, and what we found were beautiful 1,000 sq. foot (and above) 2 and 3 bedroom places with incredible attention to details in all rooms: the bathrooms were tiled with exquisite Roman marble on the walls, one bathroom had the newest bidets from Japan (which also had driers built in the seats), the kitchen had marble, not granite, tops. And the windows of each condo looked over the famed topless beach (800 block of Ocean Drive), so each unit also came with a decent telescope for looking at heavenly bodies.

I left Ocean Drive every Friday and drove home to Key West for a very short weekend stay. And as I came back to work on Mondays in Miami Beach, I noticed that the prices of the condos next door started quickly climbing. Every month, a newer banner was hung from the roof and it wasn't long before the sign read "New Condos Starting at $250,000".

I bring this up because this was 1996 - which is the year most Real Estate followers say was the beginning of the Real Estate Housing Bubble.



Flash Flash Forward Just A Little Bit In 1996

Sometime in 1996 I quit my job up in Miami Beach and became a full-time citizen/worker in Key West. At that time, I and my wife were renting a house downtown on Catherine Street for only $800 a month. It was really a "cottage", poorly constructed, but it sat on a prime piece of Real Estate in Key West.

In Autumn of the same year, my landlords came to me and told me they were going to sell the house. They told me they would like to offer it to us first, and at the sweet price of $127,000. As I was going through a rough patch with my wife, and she had to move back to Virginia to take care of her ailing mother who needed hospice care, it was all I could do to just make ends meet by working 12 hour days 5 or 6 days a week. I had to pass on the offer by my landlords. The house was sold to someone else. And I had to move on.

Back in 2006, the house which I once was offered for $127,000 came on the market for $600,000.

The exact same house had more than doubled in price . . . twice . . . in 10 years time. I went by the house and stood by the fence, remembering many good times I and my cats and dog and wife had spent there. While standing there, one of my old neighbors came out of his house and asked was I thinking of buying the place. I said, "Are you joking? Do you realize the market is topping, do you realize we are about to have the worst Real Estate crash since the famed 1928 Florida Real Estate Crash?"

My ex-neighbor laughed and said, "Rock, if you don't buy now, you'll be kicking yourself in the ass for years to come." And then he said the local NAR mantra which everybody in Key West was still repeating as the biggest meme ever planted in locals' brains: "Key West is a small 4 mile by 2 mile island. They aren't making any more land. Everybody up North wants to move here. Buy a house, Rock, and become a millionaire as the price will double in 3 to 5 years tops."

Well, here we are. It's 2009 and that same $600,000 home would not fetch $300,000 today, so in just three years time, that one bedroom house has lost more than 50% of its perceived 2006 value.



Another Example Of How Far We've Dropped

Key West has no beach like South Beach in Miami with long wide expanses of sand and beautiful rolling waves crashing on shore. The closet thing we have is a beach called Smather's Beach on A1A. It's about a mile down A1A from our airport.

Because there are reefs surrounding Key West, pounding surf is quieted down on Smather's shoreline. Sometimes, the ocean water is "like oil" (a fisherman's term) smooth as the surface of a lake. Because there is no surf, dying sea grass collects on the shore of Smather's and smells like rotten eggs. It's such a problem, the City has a contractor run tractors with giant rakes up and down the beach every morning. A front end loader dumps the pungent seaweed into a dumptruck. And this process happens over and over, week after week.


If you are a local you get used to the stink. I believe the seaweed is more an eyesore and turns off people from swimming in the near shore water. So most of the activity takes place on jet skis, catamarans, parasails, etc., offshore or you stay back on shore in the sand. By the way, the sand here is not natural. After every hurricane, were the sand not replenished, there would be no beach. Mother Nature takes, man replaces.

Still, Smather's Beach is a nice place to people watch. Girls and guys play volleyball. Couples are always getting married out there. Kite surfers rock and roll to and from the shoreline on windy days. And loads of people walk, run, skateboard, rollerblade, and bike the sidewalk along the seawall.

Across from Smather's Beach are one hotel and two condo developments.
One of these condos, Key West By The Sea, is now marketing a 2 bedroom, 1 bath condo for $200,000. (Just a few years ago, this condo would have fetched $500,000 to $600,000 easily.) These condos are some of the oldest on the island. They were built in the 1967. They do not have central air (notice the boxy A/Cs hanging out the front of the walls), so if you go out on your balcony, you'll do so to the hum of air conditioners cranked to full max.



Keep in mind that oceanfront condos in this building can see brilliant sunrises and beautiful sunsets. That's a big plus. This is prime "scenic view" real estate in the truest sense of the word.

But condos further back are prone to noise from planes taking off and landing at the airport. And this particular condo I'm telling you about faces the inside courtyard and its front doors face the salt ponds surrounding the airport.




Does This Sound Like A Bottom To You?

Here we are today looking at a $200,000 condo listing price (original price was $310,000 and has been on the market 149 days) just a few years after a noted Key West Realtor was quoted in the newspaper as saying, "You'll never see a Key West condo or home sell for less than $600,000 again."

And now the cheerleading Realtors are telling us the bottom is in? Does a reduction in price from $310,000 to $200,000 in just 149 days sound like a bottom to you? Sounds like seller's panic to me.

Wait, you want to see how bad it was? What if I told you this same condo was bought for $520,000 in September of 2004?

Folks, look at it like this:

Key West Realtors were dead wrong about Real Estate as the bubble blew. Do you think they cannot be wrong again?

Do you think a $200,000 listing price with condo fees approximating $400 a month is a deal when you are now aware that a tsunami of Alt-A loans, prime and especially Option ARMs are about to take millions of Americans to the woodshed where they will be foreclosed upon?

Is this really a bottom?

70% of current foreclosures in the USA are "Shadow Inventory" not even seen on any mls data sheets. These homes are burning holes in banks' off books accounting. And that's why banks are not putting all these foreclosures on the market at one time: they know if the market is flooded with foreclosures, housing prices will continue their freefall. And the last thing insolvent bankers want is to "mark to market" the real prices of assets they carry on their hidden books at great losses already.

Again I ask, "What's the rush to buy?" There's going to be so much more inventory from foreclosures coming on the market that I believe we are going to see another 20 to 40% shaved off prices of homes and condos down in Key West. And if I'm wrong, and this is a real bottom, let me ask you one more thing:

Do you think the Economy is going to rebound and housing will take off again with homeowner's equity building at breathless double digit rates year in and out?

The middle class in this country is being disassembled. Bankrupt GM, now owned mostly by US taxpayers, is laying off another 20,000 or more employees. I just googled the word "layoffs" and see Cessna, IBM, Capital Group, Trane, ABB, John Deere, Seattle Schools, Sacramento, Vermont, Lodi, Reno, University of Central Florida, Harvard University, Temple University, Stamford PD, and dozens more companies, municipalities and schools are announcing layoffs just today, June 4, 2009. Does that sound like a bottom to you?

How can people retire when they have to live off their meager life savings after being fired? And we know that middle class Americans were net spenders, not savers, during the insanity of the debt fueled Housing Bubble.

The Housing Bubble was a black swan event. We can't expect to return to normal when millions of Americans are losing their jobs, have no savings, and one in four with mortgages are upside down and sitting on negative equity in their homes. Go ahead, Realtors, tell me how people want to move to Key West. I am simply saying people want things they can no longer have. DEBT is knocking on the doors of Americans everywhere and DEBT wants to be paid for playing the piper's song during the biggest run up in Housing prices ever seen since before the Great Depression.

Wise people, don't give into the Siren Song of the vested interest types in the FIRE Economy. Instead, save your money, pay off all debts, you'll be in the catbird's seat when we hit the "real" bottom. And this ain't it.

Caveat emptor,

Rock in Key West

Business/Economic News 4 June 09

02 June 2009

01 June 2009

Note to All Key West Realtors Who Say "The Bottom Is Here" . . . Get Ready For The Next Big Drop In Prices As DEBT Becomes The Ultimate 4 Letter Word

One of my favorite Key West Realtors who blogs, Gary Thomas, is sounding like my Realtor. My Realtor feels the "bottom" is here on housing prices in the Florida Keys or that prices are "firming".

(Note to the few mainlanders looking to move to Key West: you want to books Gary's blog and read every post he makes AND you want to book the very helpful and most easy to use Key West MLS pictorial put together by Seaport Realtors. )

I respect Gary because like a great "value" stock investor, Gary is an honest Realtor who is constantly searching for real value in certain Key West properties by weighing pros and cons of every house he assesses.

If Gary thinks a house is a dog, he'll tell you. And if a nice house is in a terrible location, he speaks his mind. If the house is hiding bad construction, he'll tell you that too. But most importantly for buyers, if he thinks a house is being overlooked and is "undervalued", he has no problem building cases to buy that house on his outstanding blog.

What I am saying pointblank is if I were looking only to buy quality property in great locations at a great price, I'd listen to Gary. Unfortunately, I don't have the money required for most properties Gary spotlights. Fortunately, I know I don't have the money and I also will not stretch myself too thin to "make a deal happen."

Recently, Gary Thomas has been sounding more hopeful about housing market conditions overall. And I don't want Gary, who saw the Housing Bubble forming and talked openly about it to the derision by other greedy NAR Kool-Aid drinkers in this town, to get caught in an unforseen downswing which I feel could be as bad as the one we've just experienced over the past two years.

Not for the sake of argument, but because I feel strongly we will continue downward in pricing of homes and rents in Key West, I want to explain my views to the very few Realtors I respect on this tiny island of Key West.

Why I'm back in the Key West rental market again

Update: For the second time in just one year I am moving out of a rental because my landlord (in both cases former Key West Realtors) did not pay his mortgage payments since December of the preceding year. (See my recent post My Second Notice Of Foreclosure For A Key West Rental In The Past 12 Months )

In the case of my former landlord of two years ago, Mr. X, he took my $1800 every month which I paid like clockwork and used it to live off. He quit paying his mortgage on my rental (and my two neighbor's rentals) in December 2007. In May of 2008 I was served with papers notifying me my landlord was being foreclosed upon. So, he took $10,800 in rent money from me and never sent a penny to the bank he borrowed money from for a mortgage on his "investment" property.

In the case of my current landlord (soon to be ex-landlord) this Realtor took my $1600 I paid for rent since December 2008 and never made another mortgage payment. In May 2009 (last month) I got the obligatory knock on the door from a Monroe County sheriff telling me the place I was renting was being foreclosed upon. Last words from the sheriff, so help me, were like the words of last year's sheriff: "Don't worry about moving out immediately. We have so many foreclosures clogging up the courthouse that we won't be getting around to formally taking this place away from your landlord for another six months."

(While I'm on this topic, I personally know three people in Key West who are or were basically "squatting" in their homes, not paying their mortgages. One of these guys, a bartender who was given $700,000 Option ARM from Washington Mutual via a local mortgage broker chop shop is living in a place which will now not even fetch $200,000. He hasn't made a payment to Countrywide and its successor in over one year.

Another of the guys, a real sharp college graduate and manager of a local eatery, just finished his "squatting" in his former house. He told me his bank told him they would not negotiate a short sale unless he couldn't afford to pay his mortgage any longer. So he quit paying his mortgage, and sure enough, three months after he did, the bank started negotiating a short sale.

The third "squatter" is a Realtor/Investor I know. He hasn't made a payment in over a year on his mortgage. He's got a real sharp Boca Raton lawyer who is fighting the bank which claims ownership to his mortgage and house. This new bank cannot produce the original paperwork on the loan he originally received from Countrywide. In essence, no one knows if this bank really owns the mortgage.)

Enough digression. Okay, so I have to move again to another rental. No sweat.


Rents are falling all over Key West

We see many rentals cheaper than what we are paying now and which are as big.

Just down the hall is an exact duplicate of this condo I am currently renting and going to vacate at the end of June 2009 or mid-July 2009. Instead of $1600 a month for the 2 BR/2 BA where I currently live, the prospective landlord of the vacant 2 BR/2BA just down the hall (a female Realtor) said we could pay $1400 a month.

We passed on this "deal" because we learned this woman bought her condo for $450,000 in 2005. Doing the math and knowing that her condo fees are $440 a month, I realize she is way upside down on her mortgage. And I know from the experience of the last two rentals that real estate agents who were "masters of the universe" back when housing was hot are many of the former "owners" playing jingle mail with their keys when the pain is no longer sustainable. (Look at all the short sales today with "Realtor Owned" by the listing in the Key West MLS. It seems like Realtors drank more of their toxic NAR Kool-Aid than anyone.)

I am seeing many great rental units all over town (craigslist is loaded with units not advertised in the Key West Citizen or anywhere else on the web) at incredibly lower prices than what we are paying now.

Is it time to buy a home in Key West?

I definitely do not think so.


Making the case for another major downleg in Housing prices using data from T2 Partners graphs and charts

Please read the following T2 Partners pdf written a few weeks ago and just released on the web yesterday. I have had the pleasure of reading Whitney Tilson on Motley Fool message boards and I've read one of his books. He is one of the powers behind T2 Partners which released this fascinating fact filled look at what is about to happen with Option ARMS, Jumbo mortgage and prime borrowers of big houses with big downpayments and who bought during the last three years of the Bubble.

At this moment in time, 24% of all Americans with mortgages are "underwater" or upside down. That's one out of four Americans with mortgages now owe more than their homes are worth!

That's mind-blowing because we were told for years by the NAR that housing always was a solid asset which appreciated. (In Key West, I can't tell you how many times I heard a Realtor say with assurance that Key West Real Estate would double every 3 to 5 years because the island is only 2 by 4 and "everybody wants to move here". )

Other problems facing housing cheerleaders: Americans' credit cards are tapped out. Credit card companies are cutting lending lines. Credit card debt has skyrocketed so much along with delenquencies that Congress just stepped in and passed new laws against the usorous fees and rapacious interest rates. (Some posters on Motley Fool who were used to 11% rates and who missed their payment dates by one day reported being socked with 28% new APRs sending their minimum payments through the roof). Credit card companies are in deep trouble. Some are reporting losses, not profits.

HELOC loans are drying up. When you read this T2 presentation you will see how dependent car manufacturers were on selling cars to consumers who used HELOCs like runaway Housing ATMs. Ask anyone of the 24% of upside down borrowers whether they can get a HELOC loan today and you know the answer is "NO!"

The American Consumer is saving money for the first time in a long time by not being a conspicuous consumer. Savings rates, for the first time in years, are above normal. This is even going on with upper class people who didn't squander savings on big downpayments on mansions which are fast depreciating in price.


Even the rich are beginning to default while shadow inventory grows and is kept out of the MLS

At this very moment in Key West (according to Realty Trac), there are 17 holders of mortgages worth $1,000,000 or more who are now in default by 2 months or more. (And you don't even want to know how many borrowers with loans less than a million are ready to throw in the towel.)

This tsunami coming in "good" credit risks walking away from their money pits and turning into foreclosures is definitely going to continue the downward pressure on housing prices. The only question is how much further will prices fall?

Another point to consider is 70% of current foreclosures (not defaults which the majority of turn into foreclosures) are "shadow inventory" in the USA not even showing on MLS databases. This means banks are carrying these losses in their off book accounting, hoping they will be able to unload these losers at a good price.Unfortunately, the banks are playing a loaded craps game with taxpayers money banking their losses.


There will be no "Return to Normal" anytime soon as the Housing Bubble and Credit Bubble were not normal in the first place

In my opinion, this next downleg in housing will sail right on through the Case Shiller longterm trendline. As T2 Partners show us, Case Shiller is nearing its longterm trendline for median house prices (we are only 5-10% away) As you are about to see in this 62 page PDF from T2 Partners (see slide #51) there are numerous types of asset classes which over the recent 100 years have gone sailing right through their trendlines (or went way below "normal").

What we are going through as a country is not normal. This is one of those “Black Swan” events which not even the Best and Brightest thought ever possible.

This is the biggest financial crisis since the Great Depression and as Paul Krugman so amply points out today in his NY Times piece "Reagan Did It", this thing has been building not for just a few years of the Housing Bubble (which most experts claim went from 1997 through 2007) but since Ronald Regan deregulated S&Ls in 1982.

There is so much artificially propped up housing excess to bleed from the system, that it will take years to get rid of it all. Try unloading a property you are upside down on, and which is still unaffordable by the growing legions of the newly unemployed or the worker drones whose credit lines have been cut to shreds no matter their high FICO scores.

Also to consider: students of the Great Depression know the worst years took place following the 1929 stock market crash. It took decades for the Dow Jones to return to what used to be its "normal" median trendline.

Bear Stearns problems with derivatives based on toxic loans did not come to light until just two years ago. I firmly believe we are in the early innings of a search for a housing bottom. And then when we reach bottom, there will be no return to the insanity of "Buy Key West Real Estate, it always doubles every 3 to 5 years," as we were hearing back in the early years of this new decade. Those days are gone forever. (Especially when you discount land which will be under water due to Global Warming in just a couple of centuries.)

When you think about two other great financial storms on the horizon, credit card debt and commercial real estate implosions, one must consider the ramifications these two blow ups will have on consumers who lose jobs or credit lines they were living off, and big time developers with commercial properties that need high rents or refis to cover their insane mortgages. (And don't even get me started on insolvent governments at the state and local levels.)

Banks are cutting credit card limits on many people I personally know. I know many young people who cannot get credit cards today. Nor do they want them. This financial crisis is making even the youngest rethink loans and debt. (Just ask any recent college grad about his rapacious terms for his college loans.)

Debt has become the ultimate four letter word. Cash is king.


Commercial Real Estate begins to crack

Take a stroll down Key West's main commercial thoroughfare, Duval Street, today. Locals are all talking aabout how one vacancy after another has popped up. The vacancies are so noticeable that even the usual late to the news Key West Citizen recently gave coverage to these vacancies.

Always, the merchant couldn't meet his rent. The landlords refused to negotiate cheaper rents. (The art gallery in the Key West story hung a sign on their door saying they were moving their art from the storefront for "carpet cleaning". In actuality, they moved out over night. The Citizen missed this part of the story.)

Rents for commercial Real Estate are beginning to fall. Just today there was a news story about Starbucks Coffee demanding 25% reduction in rents from their commercial landlords. They have to. In a deflating economy, people are cutting out frivolous expenses such as $5 and $6 lattes. (And besides, McDonald’s is now offering the same cup of coffee at a better price.) There are thousands of Starbuck's across America which will soon turn the screws on their landlords. If the landlords do not meet Starbuck's demands, Starbuck's will move to cheaper digs and the landlords will regret having lost such a former great tenant.

As my friend Michael Shedlock constantly points out in his writings, America is contracting. We don't need another Taco Bell, Chicos, GM Dealership, Pizza Hut, or any other of the numerous chain stores which dot the fast emptying exburbs of this country. We are in deflationary times with wages contracting, unemployment and under-employment rising, consumer prices falling, S&P 500 earnings at 80% less than they were just one year ago, and car dealers closing by the hundreds as they are not able to give away cars with 0% down and $6,000 off.

Competition at retail is so fierce that numerous names of American iconic brands such as Sharper Image, Crazy Eddie's, Circuit City, CompUSA, Levitz Furniture, etc. have gone belly up. With all the new vacancies coming at retail, commercial developers will play the bidding war game for renters just as we are seeing in this giant condo where I live today.

And if they don't play ball with retailers, then they too might turn into ghost malls. (Check out this link to deadmalls.com on which American consumers are adding names all the time.)


I don't think all Realtors are scuzzballs

Honest Realtors in Key West are few and far between. I'm just passing on my opinion as food for thought. I really don’t want to see honest Key West Realtors to go out on a limb and pronounce a bottom is here, not when the few of them were dead right about the Housing Bubble.

I caution anyone in the Real Estate profession, especially in Florida, to look over the landscape of diminishing jobs, GM - the former largest company in the world - going bankrupt today, the shrinking middle class, the debt owed by governments and consumers. I feel buyers of properties today are like the buyers of internet stocks which lost 80 to 90% in 2000. The wish for the “cheap” stock to go back up was met by thousands of dotcom and tech bankruptcies. The real heartbreak were the people who bought heavily into Enron, Worldcom, Global Crossing, Sirius Satellite Radio, etc., after the 2000 fall. They've all been wiped out if they held on to these "sure things".

After Enron, housing was the new "sure thing." The bubble burst in housing. And the credit crisis burst just as big. Housing and credit are the fuse to the bomb which is killing trillions of dollars of wealth. This Great Recession is going to take years and years to work out, in my opinion.


Looking ahead . . .

I look for a bottom in Real Estate sometime later than T2 Partners (they are saying late 2010 or middle 2011). As much as I love Whitney Tilson's writings, I think he's not looking at this with a wide enough angle view. Nowhere does he really consider what the coming credit card blow up is about to do. Nor does he give enough ink to the coming Commercial Real Estate crash. (I think he drew wrong conclusions . . . which are not dark enough, IMO . . . from his own data too, and I will express my opinions likewise on a Motley Fool board sometime this week.)

I don't know when or where the bottom will come, but I am very sure of this: hitting bottom will not be the start of a "V" shaped recovery. I think it will be a long "L" shaped recovery. Any Realtor who thinks of a “V” recovery (meaning prices will skyrocket back to 2007 bubble top pricese) needs to drummed out of their Profession. Realtors cheerleading any positive bits of news (slowing foreclosures in December, but not acknowledging the moratorium on foreclosures for 60 days) are looking as foolish as those Realtors who cheerleaded Real Estate during the Housing Bubble's rise.

Regardless, here is an outstanding presentation on why Housing is about to suffer more losses. For those of you reading this who do not have an honest Realtor's or lender's understanding of loans, loan modifications, foreclosures, shadow inventory, etc., this 62 page pdf does a great job explaining why Option ARMs are the worst financial product to have come down the pike in this insanity called the Housing Bubble. And it also explains why this Option ARMegeddon will take down housing prices even more.

It's not Sub Prime which will do in the middle class. We have a growing pool of Option ARMs and Prime mortgages which middle class and upper middle class mortgage borrowers are now upside down.

Aerosmith needs to recut "Walk This Way" under the title "Walkaway" because that's exactly what former Upper Classs, Upper Middle Class, and Middle Class homeowners are doing today all over America. And their numbers are about to grow faster in the coming 3 years as ARMs reset.

Call me a doomsayer. I hear it all the time. I think of myself as a Realist who doesn't see the need of being "first" to call a bottom which I see as only a temporary lull at this time.

Yours truly,
Rock Trueblood

p.s. If you didn't click on the embedded link for the T2 Partners pdf report on housing and credit, here it is long form that you can copy, paste to an email, and send to your friends and loved ones:

http://moremortgagemeltdown.com/download/pdf/T2_Partners_presentation_on_the_mortgage_crisis.pdf


p.p.s. Maybe later this week I'll address some of the things which Whitney Tilson and friends are investing in. I have differing views here too.

More Business/Economic News for 1 June 09

The $125,000 "Fixer Upper Deal" In Key West

Yesterday, I called a Realtor friend and had her meet me and my girlfriend at a bank owned townhouse which is advertised in this way at the keywestmls.com website:

3/2 Townhome, priced to sell. Great renovation project. Vacant and easy to show! HomePath® Renovation Mortgage Financing Available only on homes you make your primary residence and offers these benefits: Financing to fund both your purchase and light renovation Low down payment and flexible mortgage terms (fixed-rate or adjustable-rate) Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit, state or local government, or employer


Status:Active
Original Price:$123,500
Listing
Price:$123,500
Listing Number: 110862
Property Type:Townhouse
On
Market: 18 Days
Address: 3225
Pearl Ave
Key: Key West
Mile Marker: 4
Neighborhood: New
Town
Subdivision: KW Estates
Building Style: Townhouse, A-Frame,Two
Story
Bedrooms: 3
Bathrooms: 1.1
Price Per Sq. Ft. $119.67
Square
Footage: 1,032
Lot Sq Ft: 1,719
Year Built: 1988
Taxes: $1,848
Tax
Year: 2008
Exemptions:None
Lender Owned: Yes


Before entering this REO townhouse, my Realtor friend had to stand on the steps and read a bunch of disclaimers which we (my girlfriend and I) had to agree to acknowledge.

Among the problems which the bank wants you to know:

1. The house is infested with termites.

2. We were not allowed to walk out on the upstairs balcony as it might collapse

3. Home was being sold "as is" and any problems with plumbing, wiring, air conditioning, etc., were to be problems of the new owner(s).

4. Damage to the outside of the house could result in injury. Watch your head and feet as you walked around the property.

Here is the photo of this townhouse home from the outside which the bagholder bank is asking only $123,500:

Let me explain this townhome's layout:

Each home is 1/4 of a quadplex of town homes. Looked at from above, your town home would look like a quarter slice of a pie, except the imaginary rounded edge of the pie is not all home, by the outside porch.

Before entering the home, we looked at the siding on the outside. It was dry rotted, waterlogged in areas (from recent rains, not Katrina), and filled with termites. I could easily kick holes through the siding and walls behind it.

Next, the porch is about to fall down. Some boards are warped. Others are weather beaten to a point they will soon look like the siding.

And the yard looks like Hell. There is a big above ground swimming pool, the lining torn and sun beaten, weeds growing in spots.

The entire fence around this yard is warped, missing boards in places, and so decrepit it would need to be entirely replaced.

The door opened in an off square frame. The smell of mold and termite droppings permeates throughout. Carpet on the stairs was dryrotted and had stains on every step. The kitchen floor was tilted and buckled in places. A light fixture hung so low from the ceiling that a toddler walking under it would hit their head. The cabinetry was not level as there was obviously some settling or sinking of the house.

The kitchen appliances were old and probably would not work after setting so long. (Judging by the weeds in the swimming pool outside, I'd say this house has been vacant for at least 2 years.)

We asked the Realtor how long this place had remained empty. She did not know. I told her there was no need to tour the upstairs as this was a catastrophe of a property. She agreed. However, my girlfriend wanted to see the remainder of this trainwreck and tour the bedrooms and bathroom.

Upstairs, the bedrooms were a wreck, the carpet was dryrotted, all the walls needed painting. The bathroom needed a total renovation. She said the only nice thing up there was a sort of new ceiling fan.

While my girlfriend was reporting back her observations, my Realtor friend explained just one of the huge problems one would run into trying to renovate such a sorry problem. She used the issue of termite extermination:

Keeping in mind you are one slice of a pie of a quad-plex foursome of townhomes, the proper way to exterminate would be to have all three of your neighbors agree to have their townhomes tented at the same time you tent yours. The going price would be about $3,000. However, if just one neighbor objected, you could still tent your own home for $800. The problem here is the termites in your neighbors untreated walls could come back to haunt you later after the pesticides have worn off.

After I came home, I thought about this property and shook my head.

It is a total disaster.

There's no way anyone could "renovate" this place for anything less than $75,000 . . . and what really needs to be done is for the town home to be demolished and if the owner of the land wants, build a new townhome with new materials.

Meanwhile, some bank, is offering this "deal" at $123,500. In all honesty, the bank should simply bulldoze the place and sell the land.

Anyone buying this eyesore is not getting a deal.

If you can get the bank to move down to $100,000, you're still going to lose money and your sanity as you negotiate with your new neighbors to start tenting, demolishing faulty walls, etc.

I wouldn't give the bank $50,000 for this place.

The only way I'd take this townhome would be if the bank paid me $15,000 to take it off their hands.

Then I'd spend $25,000 on demolition. Then I'd sell the land.

I cannot believe any bank in this town would be so stupid as to market this house as a "deal".

This house will suck the lifeblood out of any poor couple who is only wanting a low payment mortgage, and who think they can do a "Flip This House" renovation on the cheap. I hope no Key Wester is ignorant enough to buy something which is not livable, dangerous, and a gaping money pit which will drain away their money and sanity.

As always, buyer beware!

Rock Trueblood

p.s. As we were driving away, I watched a young couple drive up and take a flyer from the plastic box nailed to the falling down fence. I looked at that young couple and sent them a mental note: wait two or three more years, there will be plenty of great properties coming on the market as the Option ARM and Prime Borrowers go down in flames just like the Sub-Prime borrowers.

Next up: My Realtor friend believes pricing is "firming" up and that we've hit bottom. Why I totally disagree with her.


Business/Economic News for 1 June 09

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