bubbleinfo.com

How did the sales prices get so low?
Did the previous owner lose a lot of money or did the bank or both?

Do we know the decision making process of the bank when accepting a short sale? Do they want to see the owner lose a lot of money too? Or are the banks playing armchair realtors (using the word in its most romantic terms) only accepting what they think is the right price for the house given the current state of the market?

If some one knows the equations the banks are using please tell me.
I want to price my offer correctly; just at the bottom side of where they (they being the bank) say "ok".

These were mostly purchases financed 100% or close. The banks took the hits. They are doing their own appraisals, and letting the listing agents chime in, and then they figure the list price. If they don't sell in the first 3-6 weeks, then they lower - usually.

$145,000 purchase, $1000/mo rent is $650/mo income plus significant depreciation against income. Those are already normal rates of return. Those investors don't care if the price goes down another 50%. They are making money. Their only fear is declining rent prices which doesn't look to be too bad with inflation and all.

The buyers aren't going to make an offer unless the list price is very attractive.

Wow... one lowball. I would have thought the market would be different than that. Very interesting.

So we're finally starting to see income properties. I didn't expect that in 2008... But its a good thing.

Got Popcorn?
Neil

Voila, 50-60% price drops from peak and the market is healthy again. I think that is to be lauded all around. Taking the unpleasant medicine is better than having the disease linger.

There is no doubt in my mind that the price drops will propagate up the food chain (although probably decreasing as they go), the only question is how slowly it will happen. From reading Jim's reports of various prospective sellers' comments, it seems like the main thing distinguishes the higher-priced property owners is a bigger financial cushion that makes ignoring reality more possible.

"$145,000 purchase, $1000/mo rent is $650/mo income plus significant depreciation against income. Those are already normal rates of return. Those investors don't care if the price goes down another 50%. They are making money."

Guess I am not quite following this. On these numbers, this is a cap rate of just under 5.4% before depreciation. On a $145,000 purchase, taxes will run about $150 per month, so these numbers then assume maintanence and insurance, etc. will only run $200 per month which is only 20% of scheduled rent. Maybe that is a bit optimistic for these older places. Assume a vacancy factor of 5-10%, and this place is capping out at significantly less than 5%, hardly a normal investor return from where I sit.

Assuming this is financed with 20% down, 30 year fixed @ 6.5%, the mortgage nut is about $733 per month, and now you are cash flow negative even if you can get $1200 per month.

We have a bit to go I think for an investor to get a normal return.

Kingside beat me to it..145K isn't a bad investment at $1000 rent, but it's going to be a struggle to get it cash flow positive right off the bat. Longterm you'll be cash flow positive, it's not easy money unless you're optomistic on vacancy and rent growth.

i know someone doing the buy and bail in N oceanside. I wonder how much of the current "demand" is this group which will only help the downward acceleration creating a lower comp and a higher price REO.

Did I mention that 21 of 22 closings were bank-owned? The other was a short sale.

There are 9 more in escrow, and eight are bank-owneds.

There are 12 actives, three are bank-owneds, and nine are short sales.

Buyers (and agents) prefer the bank-owneds.

Compare the closings to previous years:

In all of 2004 there were 38 closings, 16 in the mid-to-high $200,000s, and rest above $300,000.

In all of 2005 there were 34 closings, and only six of them were below $352,000.

In 2008 the closings were stagnant until May when sellers finally got the message and got list price down around $140-$150,000. There has been 27 closings already this year, and it'll probably get up to 40 or so total for the year. That should clear out most of those who paid in the $300,000s, now we'll get to see how many who paid in the $200,000s feel like sticking around.

If only sellers in other than Oside would get it. They still think they are going to see a hot selling season, but maybe by November they might realize it aint gonna happen.

"There are a few things to take away from this chart, some of the obvious being that the banks are getting killed..."

- one other thing I can see is that it doesn't really matter what the list price is, the market will bear what the market will bear. List it high, and you'll sit and have to lower until you hit the sweet spot. List it low, and the buyers will bid it up to what they feel is right. Very interesting. (Listing low is probably the faster route to travel)

Is there a web site where the average "jason" can see what price houses closed without having to wait for government sites?

The problem with all this is that there is a very large investor component driving these purchases. And as some have noted, the returns aren't really that attractive. Some might think they are attractive compared to the falling stock market, but what happens when the stock market turns around. These so-called real estate investments won't look so good.

If real buyers, the ones who will live in these homes aren't the driving force on stabilizing price, then I what I see here is a repeat of the past 4 years when over-exuberant speculators bid up prices based on wishful thinking.

Don't we ever learn?

Homes are not investments, they are a place to live. Period. That's what history tells us.

I'm wondering how many of the "Hermosa half-duplexes" are/were owner-occupied. Was this development mostly investor-owned rentals in the first place, or was its marketing targeted at lower-end shoulda-stayed-renter wannabe homeowners who couldn't have bought in the first place without creative financing?

So let's see,

Former renters take out big mortgages to achieve the dream of home ownership, and help achieve GWB's vision for America. These "owners" lose the houses to the lenders, who sell them to investors. These investors rent the properties out. Full circle with a lot of pain in the middle.

I can't help but think that the person who sold these same places at the peak made a killing or blundered into another over-priced home.

I also wonder what kind of cowboy is buying ghetto properties in Oceanside. Couldn't pay me to handle a rental in some of those neighborhoods. $200/month to get to post a 3-day pay or quit notice every 3 months.

What a brutal year! And the year is only half way over.