Sales remained steady through November, with overall activity off 46% from the year prior. Meanwhile, the median sales price increased slightly to $285,000. Months supply of inventory in the $500K-$1 million range is still two years, with nearly five years supply in the $1-2 million range and an infinite supply of homes over $2 million due to yet another month of zero sales. Full report.

Comments

[stjoe]

Read the article and comments at
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/

It will scare the heck out of you.

SJ

[Derrick]

Interesting article Stjoe, I especially loved this part.

"he has been short a number of mortgage-related stocks"
Diane the numbers don't look half bad I would say, overall pretty decent all considered.. So when are you going to show me around montreux? ok maybe wingfield springs instead ;)

[smarten]

Hi All -

I know this is O/T, but I could use your advice.

I've been offered another D/T investment [3 BD/2 BA, 1,645 square feet, 1.72 acre lot size, 12% interest only, 5 year term] on Plata Mesa Drive [I think it's in Sun Valley]. I don't particularly care for this area but the asserted fmv is $230K and the new first d/t investment amount would be $100K - thus a 44% LTV.

I personally think fmv is closer to $200K and if you think prices are still going down, it might be $175K in a year. But still, that's still $75K of protective equity!

It's just I don't like to invest in something I wouldn't be comfortable owning and I wouldn't be comfortable owning this property.

But in your opinion is there just so much protective equity I need not be concerned? Or should I pass? Thanks in advance for the help.

[stjoe56]

For another scary article see

Like Subprime Mortgages, Some Construction Loans Are Delinquent at

http://www.nytimes.com/2007/12/08/business/08charts.html?ref=business

[BanteringBear]

IMO, if you're not comfortable owning the property, don't do it. I'm not terribly familiar with that street, or property, or even Sun Valley, but I know the few times I was through there, it was pretty rough around the edges to put it mildly.

Raw land prices are in a freefall. Lennar just unloaded nearly 10,000 lots for around $.50 on the dollar, some of which were in NV. That's a good sign of what's ahead.

I bring this up because the property you mention is on small acreage. That's a nice sized parcel, but that's about all the property has going for it. IMO, most homes in the Sun Valley area should be well under $100k when prices bottom. Is the lot premium worth the extra $75k? I don't think so. It's desert scrub, to me. Besides, real estate is all about location. Why flirt with something you don't want to own. If it were me, I'd look for something different. JMHO.

[Derrick]

If It were me! I would seek the advice of a professional!
Sun valley is a DUMP and thats put LIGHTLY! I wouldn't touch that area!

As far as homes selling for 75k. I don't think that is at all likely. Do the math. You can't even build a house for 75k unless its a double wide trailer, or possibly a home that is VERY small with zero upgrades, while using the Cheapest building materials possible.. Not going to happen.

I realize your view on Real estate Bantering Bear and of course its ugly, But were not going to see 1950 prices (being sarcastic).

[stjoe56]

There is an interesting article about a high-end property auction in Sarasota, Fl. $200 million of trophy homes (including a number over $10 million) went on the block.

You can see the article at

http://online.barrons.com/article_print/SB119707815088217940.html
(subscription may be required).

A lot of homes did not get a single bid. Here is a quote:

"One person who analyzed the reported sales concluded that, for the properties sold "absolute," the median sales prices was just 45% of the original asking price, and that 35 properties didn't even get an acceptable opening bid and so remained unsold at the auction."

Enjoy

SJ

[smarten]

Derrick states I "[sh]ould seek the advice of a professional" before I purchase a D/T.

Didn't a "professional" bring this investment opportunity to me? Wasn't it supported by a different "professional's" certified appraisal of the fmv of the note's security? How many "professionals" does it take?

This to me is a prime example of how one can't simply look at a bunch of numbers on a piece of paper and conclude he's/she's done his/her due diligence. It's also an example of why one should NEVER invest in a pool or fund of diversified mortgages assembled, marketed and administered by so called "professionals." And it explains why I was looking for the opinions of "other" kinds of professionals - you guys. I thank you.

[Derrick]

Gee sorry smarten no need to be brash.. Just because a professional shows you an investment doesn't mean you should take his word for it, furthermore it should be someone you know and deal with personally so you KNOW your best interests are being taken care of.

You really don't need to cry about everything I say smarten.

[Derrick]

Gee sorry smarten no need to be brash.. Just because a professional shows you an investment doesn't mean you should take his word for it, furthermore it should be someone you know and deal with personally so you KNOW your best interests are being taken care of.

You really don't need to cry about everything I say smarten.

[Green NV]

All in all, the sales numbers were stronger (less weak) in November than I would have guessed. TD's actually ticked down, but I think it was because it was a short month with a 2 day holiday. TD's for the first week of December were a historical record for Washoe County - 32. But I see that Diane has 3 properties in escrow, and there are 3 houses over $1 million in contract in Somersett. There are a lot of mixed signals out there.

Has anyone given any thought to if this proposed Teaser Freezer will have any inpact here? I've run a bunch of numbers, and would be surprized if 2% of our local subprime distressed properties would be eligible for any assistance. And I think anyone eligible would be criminally stupid to accept extending what is already an impossible rate on a property still decreasing in value. It goes against everything this Midwestern boy was ever taught or stands for, but mass foreclosure looks like the only solution. Jingle mail.

- My prediction? At least 40% of all subprime loans in Washoe made in 2005-6 will end in foreclosure. This will drive down prices another 20% from todays prices, already down 20% from the peak. And this will happen fast, within the next 6 months.

- The tom-toms have banging around the net about the Alt A and Prime ARM adjustments. This could still be a major problem on the horizon, but these loan packages are generally LIBOR +2.25-2.75%, or 12 Month Treasury's plus the same margin. This will translate into a 1-1.5% point increase in the rate, far less then the average 3% rate increase facing the Subprime loans. If your stated income was true, you can probably hold out. Do but do you really want to?

- If you took and Option ARM and have been making minimum payments, start looking for a bankruptcy attorney now - waiting list's are forming.

Alan, a question for you as a rental property owner. What sort of bump in rent do you give people with a BK or TD in their recent past? I think they will become the majority of the rental pool in short order.

And you should hear me when I'm being negative!

[stjoe56]

I have to agree with Green on this. I find the proposed freeze to be nothing more than a smoke and mirror scam. While it appears to do something, it does nothing. The terms are so restrictive that very few “homeowners” will qualify and those that do would be better off not paying the mortgage for a few months, saving the money and then rent an apartment by offering to pay the first 6-12 months rent in advance.

[BanteringBear]

"I see that Diane has 3 properties in escrow, and there are 3 houses over $1 million in contract in Somersett. There are a lot of mixed signals out there."

These are equity nomads, or qualified high end buyers. These sales mean nothing as far as a "recovery" goes. While they may help skew the median higher, it's more pertinent to pay attention to the average homes.

"At least 40% of all subprime loans in Washoe made in 2005-6 will end in foreclosure. This will drive down prices another 20% from todays prices, already down 20% from the peak. And this will happen fast, within the next 6 months."

A bold prediction, and one I wouldn't totally disagree with. But, I've given up on time predictions and I believe this correction will be long and painful. As far as how low the median goes, again, the median is a faulty calculation in my estimation. Same sales are a better indication. I say the house that sold in 2000 for $150k, easily comes full circle in inflation adjusted dollars, and possibly in nominal dollars. If the economy crashes hard, we'll be talking about $40,000 homes in Sun Valley.

[stjoe56]

One of my favorite authors tells the following story:

------------
I bought a 3,000-foot condo in a luxury Miami building directly on the Bay in 1993. Three bedrooms, four baths. I bought it from a bank that had loaned $250,000 against it, only to see the owner default. Years had passed. Did I want to make an offer, my real estate agent asked? No, I said – I already had a place to live; and as a rental, it couldn’t possibly carry itself.

“Aw, c’mon – make an offer!” she said. (We had become good friends by this point, as I had bought several investment properties from her.)

“OK -- $79,000,” I said.

She recoiled before getting the joke – obviously I was joking – and reminded me that the bank, on the hook for $250,000 plus years of carrying costs, had just a few weeks earlier rejected a nearly-as-preposterous offer of $105,000.

But I held firm at $79,000 and that’s where the deal was done. The bank had had enough. Sure it was worth more – sort of. But if no one wanted to pay more right then – and no one did – that’s what the bank would have to take if it wanted to sell.

----------

The moral of the story: when times get tough, there are bargains galore!

SJ

[Reno Ignoramus]

So Diane has three properties in escrow and there are 3 houses in escrow over $1 million in Somersett. What does this info, by itself, tell us?

I would be far more interested in knowing whether these deals, assuming they close, will raise the comps (ok, a little seasonal humor), will maintain the comps, or will lower the comps. Perhaps Diane and GreenNv can share that info when these deals close?

To ask BB's question, will any one of these deals be an increase, or a decrease, from the previous sale?

While it's a helpful piece of info, it really means very little to know only about sales volume. If suddenly the number of closed deals shoots up to 350 next month, and every one of them lowers the comps, is this a sign that the bottom is near? Would 350 closed deals, a huge increase in sales volume, every one of which sends the market lower, be an indication that the market is turning?

I have said many times that the only way the market can decline is through sales. If nothing sells, how does the market drop?

[Lindie]

In the first sign that 2008 will see the turnaround of the Reno housing market, did you all see where the City of Reno has agreed to allow developers to abandon their unfinished projects?

Seems Centex, Silverstar, and West Haven have asked the City for the right to abandon their dying on the vine developments. According to the RGJ, none of these builders actually plans to abandon their projects, of course. They just asked for the right to abandon them if they should feel like it in the future. Like in a couple of weeks or so.

Yes, surely this must be a sign that the bottom is coming in 2008. Developers, famous for being able to project "years into the future" are asking for the right to walk away on their projects and not have to pay on their construction surety bonds. Yes, surely the local developers must be looking at 2008 as the year of the bottom. Yes, surely.

And isn't is going to be lovely having these half built developments all around town?

[BanteringBear]

"According to the RGJ, none of these builders actually plans to abandon their projects, of course. They just asked for the right to abandon them if they should feel like it in the future. Like in a couple of weeks or so."

LOL! Ahhh, Lindie, your dry sarcasm gets me laughing.

[NAS]

As for Centex, Silverstar, and Westhaven asking to "opt out" on their bonds caught my attention also. Interesting the local fish wrap (RGJ) shuns reporting the real R.E. market in general, but headlines a Sunday on line edition: "Reno Developers abandoning projects."

[Article written by Susan Voyles and states the full story will be in RGJ.com tomorrow]

If my information is correct, Silverstar is Montreux, West Haven took over what MDG left behind in Somersett, and not sure about Centex?

quote: "John Hester, Reno community development director, said he expects some developers to use the option." Duh!

[stjoe56]

Morgan Stanley predicts 3-year housing slump:

Home prices may see 3-year fall: M. Stanley
Thu Dec 6, 2007 3:51 PM ET

NEW YORK (Reuters) - There is a "substantial" risk that U.S. home prices will slide for the next three years or more, in a downturn that could be unlike anything seen before on a national level, Morgan Stanley said on Thursday in a report.. . .

See http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2007-12-06T205103Z_01_N06211722_RTRUKOC_0_US-REALESTATE-INDEX.xml for complete article

[Tom]

There is an article in Monday's RGJ on the municipal action taken to allow the conditioned abandonment by developers of unfinished projects, with lots to be "secured" then surety bonds released.

This is an unfortunate event for the community, and allows the escape of the bond which would otherwise complete the basic representations the builders made when their final plans were approved. The result of project abandonment is typically a crazy-quilt pattern of finished and unfinished lots, disappointing the bargained-for expectations of adjoining homeowners and giving a helter-skelter look to the affected community. Erosion control, dust control, slope maintenance, landscaping, largely falls unexpectedly and prematurely upon the homeowners' associations, and with fewer members to split the costs.

Were I an affected homeowner in such a community, I would assert that I was not a party to or bound by any such release contained in the City's action, and instead I was entitled to rely upon my reasonable expectations that the builder would complete the structural part of his new community in a reasonable time.

In California this would be a sustainable cause of action, and you could demand a jury. I think in Nevada, though, a bench officer would try such a case, and the developers might have a better chance of defending. I would be interested in reading what a Nevada real estate attorney thinks on this point.

[SkrapGuy]

Interesting article in the RGJ. Maybe the reporter has been reading this blog and decided to interview somebody besides the president of the NNMLS. I particularly liked the quote from the appraiser who predicts that 2008 will see entire developments go into foreclosure and become REO. There is, of course, the obligatory quote from Bambi at the Builders Association who says the downturn will all be over by Spring. But for the first time in a long time, the RGJ runs a story that has some semblance of balance.

[Allen Murray]

Hi GreenNV, I think you asked me above what kind of bump in rent I give to prospective tenants with bad credit. I'm not sure if a landlord can charge higher rent for people with bad credit, at least not openly. To be honest, I haven't raised my rents in 10 years, nor do I check credit I currently only have 3 rentals as I have sold them all off in the past few years. Because Nevada's landlord/tennant laws are very landlord friendly, I generally cover myself by getting a good deposit and filing for eviction and the soonest possible day. I can tell you that as a landlord, I was getting higher quality tenants before anyone with a pulse could qualify for a mortgage. The last 3-4 years has been brutal as a landlord since all the good quality tenants became buyers. I believe that is starting to change, although vacancies are up.

On a side note, I just got back from Miami Art Basel where they were hosting the biggest art show/sale in the world. There was an interesting article in the Miami Herald on Saturday about how the sales of high end art have not fallen off despite the economic downturn. Dealers were actually surprised by the high sales prices being paid by mostly American collectors despite the weak dollar and competing European collectors. As the article points out, the stock market crash of '87 wasn't felt in the art market until 2 years later in '89. So, do these high end art prices mean that the big money isn't worried about a recession, or is this due to recession lag? Only time will tell. I can tell you that I wouldn't want to be Trump right now, he seems to have about 8 major condo towers under construction near South Beach, and I think Miami is on of the worst hit markets in the nation in terms of falling prices.

On a second side note, I am thinking about building 16 condos on my property near the University similar to 8 on Center. I think there might me a niche hear for that modern loft style architecture here in Reno, especially near the University. What do you guys think about $350K for a 1000 sq. ft unit? Am I crazy??=) I figure about $3.2m to build-worth $5.6m completed. I'm looking for investors.

[BanteringBear]

"On a second side note, I am thinking about building 16 condos on my property near the University similar to 8 on Center. I think there might me a niche hear for that modern loft style architecture here in Reno, especially near the University. What do you guys think about $350K for a 1000 sq. ft unit? Am I crazy??=) I figure about $3.2m to build-worth $5.6m completed. I'm looking for investors."

That's quite possibly the most foolish plan I've ever heard of in my entire life. In the face of the biggest real estate meltdown in the history of this country, to be considering entering the weakest segment of the market (condos) at this point in time, with aspirations of prospering, is so hopelessly delusional it defies words. Moreover, building high end condos in a transient area of student housing is on par with envisioning section 8 rentals on the coast of Big Sur. Wrong location. Good luck finding investors. You'll get more laughs than cash.

[Allen Murray]

BB, I'm glad you aren't holding back, haha. I guess that's what makes me an entrepreneur and you not. 8 on Center each sold for $450K to $500K each 6 mo ago. Same architect is building 4 similar units off Wells Ave, all sold in the $400k range I believe. I think this is a special niche that is not being covered by any of the other condo units in terms of design, and I have a unique location 2 blocks from the University. Also at $350/sq. ft, I am at the very lowest end of the comps. I actually already have a line of some money, I'll keep you posted, perhaps you'll want to reserve one??? Also, if you haven't been by 8 on Center or those others under construction off Wells, go check them out, you might change your mind.

[Green NV]

Alan, I'm sure you have been following Cedar Dwellings http://www.cedardwellings.com/Cedar/Sales.html . It couldn't get any traction going, and the lot appears to be back on the market. And 8 on Center was money loser from what I've been told.

That said, you are spot on about the lack of modern dwelling alternatives in the Reno area. The market is really there if it can be delivered at a competitive price point. I am looking at building a SFR version of 8 on Second on spec (that's me digging on the west end of Mayberry) and the level of interest has been very high, even though I have been in stealth mode.