Waiting for the Next McMansion to Drop

[AllentownJake]

Despite some tentative signs of recovery, the U.S. housing market remains vulnerable to further price drops—especially in areas where large numbers of mortgages are headed toward foreclosure over the next few years.

The Wall Street Journal's quarterly survey of housing-market data in 28 major metro areas shows sharp drops in the number of homes listed for sale across the country. But the potential supply of homes is far larger because banks are likely to acquire significant numbers of foreclosed homes in some areas, notably Las Vegas, Atlanta, Detroit, Phoenix, Miami and other parts of Florida, and Sacramento, Calif., over the next few years.

Sales of those homes may depress prices further. By contrast, metro areas with relatively low foreclosure and mortgage-delinquency rates include Boston, Denver, Minneapolis, San Francisco, Seattle, Raleigh, N.C., and Portland, Ore., making them less vulnerable.

Homeowners and potential buyers have been whipsawed by conflicting signals about the state of the market in recent months. Ulani and Mike Thiessen found the market surprisingly hot when they went shopping for their first home in Las Vegas during the summer. With the help of Kim Kelly-Reed, an agent from One Source Realty & Management, the Thiessens finally bought a foreclosed house in September for about $136,000—but only after being outbid on three other houses.

http://online.wsj.com/article/SB10001424052748703816204574487240805281318.html?mod=WSJ_hpp_LEFTTopStories

[Warpy]

1. The problem is the shadow inventory

with properties owned by banks held completely off the market in order to stop the free fall in prices in areas that were overheated and overbuilt.

I doubt they're going to bulldoze them if they can help it, so eventually those properties will hit the market. That means that there will be a buyer's market for the foreseeable future, no rebound in prices possible.

However, you have to know your market. Some places like much of the northeast corridor didn't see the bidding frenzy that created the housing bubble. Their prices are edging up. Other places simply never saw any sort of a price bubble and continue to edge down due to other factors, like the Rust Belt.

However, those formerly hot markets are likely to stay cold.

[AllentownJake]

3. The broader effect is on the balance sheets of our financial institutions

Thanks to revoking mark to market accounting and a proposal to suspend again the FASB ruling forcing companies to bring off sheet transactions back on their balance sheets, no one really knows what kind of toxic shit is sitting on the balance sheets of the banks. I was reading reports JPMorgan is currently leveraged over 30 to 1, which is about the place that Bear Stearns was in 2008 before it disappeared overnight. For these reasons it is difficult to trust any of the financial statements that are coming out of the banking industry.

[cleveramerican]

2. 13 bathrooms

I was working in a new home being built near me.
36 rooms not counting the 13 bathrooms
400 gallons of hot water storage, sized to allow 7 simultaneous showers
5 people will live there, a 50 something couple, two teenage kids and an elderly mother in law.


I have seen a lot of luxurious homes but this one is so far over the top it scares me.

[imdjh]

8. Around here we have lots of houses like that- which appear to be empty but not due to foreclosure.

We go sit and watch the boats go by on Sunday evening in St Pete Beach, and across the bay are monster houses, like Mussolini monster houses. The first thing you notice is that unlike the middle class waterfront homes, these houses have no boats, and despite having swimming pools, no people. When the sun goes down, you notice that they have few or no lights on, except for the decorative lighting. No one appears to be home.

Years ago, some of these houses were featured in an exposé of Florida as a strategic bankruptcy haven. Wealthy people would come to Florida and put all their money into these monster houses, paid for, and then file bankruptcy shielding millions of dollars of assets under Florida's homestead exemption.

[AllentownJake]

10. If the democrats ever take power in Florida

They should tax the ever living fuck out of houses like that.

[imdjh]

11. The new owners of that house will pay $85,000 per year in RE in taxes. The current owners pay $67K

[Ron Green]

13. It's really vulgar-looking, isn't it?

Designed for someone who throughout his life learned only from Television.

[imdjh]

14. For ten million, I would expect it to have a side-loading garage.

[KamaAina]

17. That's pretty much what O.J. did to get around the civil judgment

Wealthy people would come to Florida and put all their money into these monster houses, paid for, and then file bankruptcy shielding millions of dollars of assets under Florida's homestead exemption.

:eyes:

[NYC_SKP]

9. And people wonder why the Rest of the World Hates us...

That's criminal, really.

Taxes on that shit ought to make it not worth buying/building/owning.

[imdjh]

12. Don't look now- but they are building stuff like that in China.

To go with the old baronies and castles and palaces.

[Ron Green]

15. That's a much more attractive place than the Florida one, IMO.

Maybe it's the landscaping.

[Kindigger]

4. Screw McMansion people

I think the ones down the block from me in the new 'McMansion development' are moving -- there's a real estate open house & a moving truck in the driveway. Good...they can take their stupid, unleashed, pees on my bushes every morning Dalmatian with them!

[Phoebe Loosinhouse]

5. I guarantee you it will get a lot worse.

The most interesting nugget in that article was that moderately priced homes are still moving. The 8K tax credit has a lot to do with that. And, there is double demand for those homes - everyone wants them , first time buyers as well as people who would like to downsize from the white elephant McMansion. Oooops! Can't sell the McMansion unless willing to take a big hit.

The couple in the article bought their foreclosed home for 136,000K. Imagine what that does to the value of the surrounding homes? Their neighbors are sitting in their 350K homes, going "Shit!".

Did you know that appraisers are not supposed to factor in "distress" sales when they do valuations? I wonder how they will be able to avoid it with the huge inventory of homes going through foreclosure. It's not just the odd house here and there anymore, it can be significant percentages of whole neighborhoods.

[bluestateguy]

6. There is another positive side to this coin

And that is more affordable housing for middle income people. We often forget how absurdly overpriced houses were in so many markets.

[AllentownJake]

7. Wages are decreasing

and real unemployment is around 20%. For those that are working and haven't had their pay or hours reduced it will be ok.

[county worker]

16. Lot's of middle income people lost all their equity with the drop in house prices.

I had a house on the market for 2 1/2 years. I had no equity in it when it sold. I know the prices were inflated but some part of the price was real value that no longer exists. That's like losing money in a 401K if it is your major investment.

Now middle income people will have to put up with tougher income requirements, tougher credit hurdles and higher down payments.

So even if the house is lower priced it will be harder to buy if you can't save for a down payment.

As I see it nothing has really changed.

I have no down payment because of the lost equity in the house I sold. But I guess my loss is someone else's gain. Depends on your point of view.