Watch"Move-up buyers are a key segment of the housing market but they have been missing since the crash, and they’re still missing from some parts of the region.
“I haven’t seen a single move-up buyer this year,” said Bryce Ellsworth of Windermere Ellsworth & Associates in Brentwood. That’s because the eastern part of Contra Costa County is still driven by investors and first-time homebuyers, he said."
Is there a single quote that explains the disfunction of the current real estate market any better?
I’ve worked with a few, but they are certainly few and far between.
From The Contra Costa Times, referencing the latest Dataquick report.
http://www.contracostatimes.com/real-estate-news/ci_21776708/bay-area-home-prices-jump-september
http://bayarearealestatetrends.com/2012/10/17/bay-area-median-home-price-highest-in-four-years/
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Los Angeles, CA
There are move down buyers out there.
(sell big home and buy condo, or relo to cheaper area)
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gregpfielding says
The reason is simple.......
*
How can anyone possibly "move up" when they can't get out of their current underwater house... it takes approximately 15% equity to move up when you factor in all the costs, down payments, commissions, etc...
Based on this chart... how many people still HAVE 15% equity left??
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Redwood City, CA
Investors are grabbing everything right now, in a big last minute purchasing push.
There are probably first time home buyers in there, but they're definitely not getting many properties. It's all about the investor right now.
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pkennedy says
I say it's all about the idiot because in the end that is who is going to eat this fiasco.
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Remember if you don't see the sucker in the game? The sucker is YOU!
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Madison, WI
Tell me about it, I basically moved into a zero bedroom, besides my one attempt at upsizing, it's been downsize full speed ahead. The sucker to eat all this is anyone that lives in the U.S., the government or printing press, er I mean fellow taxpayer has your back, no worries for most people, bankruptcy is an option as well, it's just to easy.
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Call it Crazy says
THAT is what is so astonishing to me that they are trying in these dangerous and volatile conditions to pump and dump again. GOOD LUCK!
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Reader says
It's the American Dream.... to be a debt slave!!!
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Exactly!
1)Underwater owners have just put off their dream of cashing out from the next sucker.
2)Banks care less to foreclose or short sell cuz they got tons of $$ from Ben.
3)Govt. has complete control over interest rates,not banks - main condition set by Govt. before shipping out $$ bills to the banks.
Yep, let the suckers rally go on....only loosers are the underwater owners.
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Dublin, CA
bubblesitter says
What about all the bay area apartment complex renters whose rents went up about 30% in the last 2 years? What the fuck did they win?
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Dublin, CA
Call it Crazy says
A part of my "american dream" is to eventually be mortgage free and rent free. That is the ultimate nirvana.
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Move up buyers are taking the elevator to the roof and jumping off.
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Los Angeles, CA
dublin hillz says
Ahhh, but Taxes, Insurance, and Maintenance will build a Hell in Heaven's despite.
Unless by "nirvana" you mean death. . . .
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San Antonio, TX
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Could it be the buyers has finally realized what liers Realtors are and no longer trust them?
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jvolstad says
They've realized that prices will crater 65%.
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I wouldn't characterize moving to Brentwood as moving up. Moving big, moving out, but hardly moving up. If you already live in 2000 sq feet Antioch, why the hell do you want to move up to 3,000 sq ft Brentwood (That's considering so many home owners there are in default so there are essentially no candidate for move-up).
Big house is not a prime house. People move-up because of location, not size. There are plenty of move-up buyer in Hillsborough, Palo Alto, Los Gatos. It may be different if you are a U-pick farmer.
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SFace says
Of course you wouldn't, not for you, with your American Express black. But for others who march to a different tune, maybe.
It's the United States of America, pal. A place that's more diverse than just The Fortress.
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dublin hillz says
Okay, landlords and owners always win. Does that make you happy?
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Danville, CA
gregpfielding's website
jvolstad says
Yes. I'm sure that's it.
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Danville, CA
gregpfielding's website
PockyClipsNow says
Definitely. Some people are taking advantage of the recent bump in prices and getting out.
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Ross, CA
There are move up buyers, but they are the ones at the top of the economic food chain. Moving from a 2 million to a 5 million dollar "home".
Everyone else is staying put.
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Redwood City, CA
Reader says
What fiasco? Investors are paying 100% all cash for these places. No loans, no borrowing. 100% cash.
They are doing this because it's the only way for them to get the deals. If they even MENTION the word "loan", the seller will simply move onto the next investor holding his big bag of cash.
The investors are willing to put down 100% cash because these properties are just MINTING money left and right. Not breaking even, not an appreciation play, they're making more than the stock market would ever give them. They aren't holding these for 1 year and hoping for an appreciation play, they're holding them as they would a long term stock. The numbers in todays market are insane. Why go to the stock market where 7% is the average, when you can easily do a 12% CAP rate return on housing? Who cares if it drops over the years, the 12-20% CAP rate is amazing.
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gregpfielding says
@Greg,
A veteran RE investor called me yesterday and asked me to help him pick up a property at the steps for his son, who just graduated from a medical school. He shared some insights based on his 40 years of experience. He said the housing market typically moves up for 3 to 7 years before declining. The two last years typically the frothiest.
With that said, this appears to be the 1st up year of the bull real estate cycle. Therefore, we will likely have at least 2 more years of up market before we go down again. Although most of the good deals are gone, he believes buying now still makes sense because the odds are in your favor based on history.
So take it with a grain of salt. I'm in no position to argue with a 60 something year old veteran investor.
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PockyClipsNow says
Pocky,
Based on my above post, your recent purchase might turn out to be a very good move.
Good luck to you. :)
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E-man says
That's based on my understanding as well. When the same folks who defaulted in 2007-2010 are in position to buy homes again, and assuredly they will in the medium future, that is time for investors to sell. Tentatively, that would be sometimes in 2014-2017.
I don't see anyone meaningful getting out now.
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Los Angeles, CA
E-man says
thanks!
I too am a veteran of real estate. Been working in or watching it since high school.
Coastal CA real estate has huge jumps up and down but the ship turn slowly. The trends last mulitple years up then same down.
I was waiting for a sign the next up cycle would happen. Well they yoy price increases are the final straw - probably gonna be nothing but upwards prices at least until ben takes his foot off the gas (he said 3 more year of foot on gas) so I buy. Sell when you can get a fat tax free profit is the plan.
I'm wondering when investors will 'stop buying rentals' and i guess it will happen when prices increase to crush the cap rates down. That might be a few years off.
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Danville, CA
gregpfielding's website
E-man says
E-man, I think that guy is naive to compare this real estate environment to anything that's happened before.
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San Jose, CA
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gregpfielding says
@Greg,
I'm not in any position to determine whether or not it is naive. This is the first RE cycle that I'm going through with some sort of knowledge. I became obsess with RE since 2000, but it was never make sense to buy in the Bay Area to rent out until 2009 till now. Fortunately, I sat out through the whole bubble.
I have been compiling data going back to the mid 80's to compare the buy/rent ratio, and it appears that the last 3 to 4 years has the best buy/rent ratio in almost 30 years.
I remember in the early 90's, college students couldn't find a job here after graduation so some had to take a job oversea, my cousin included. @Troy also thought that was the end for America too, and he moved to Japan. When Troy came back, we're well into the next housing bubble.
I understand that there are reasons to be skeptical about the housing recovery. Honestly I don't know which way the market will break, but I'm not going to argue with history.
Greg, do you know Sean O'Toole of Foreclosureradar, or talk to him often? If yes, can you share Sean's take on the housing recovery....... or not...... To me, the guy is really on top of his game. :)
Thx.
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Boulder Creek, CA
SFace says
Well, except the big boys.
http://www.reuters.com/article/2012/10/17/us-foreclosed-hedgefunds-idUSBRE89G1TE20121017
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Danville, CA
gregpfielding's website
E-man says
I do know Sean. He is an active investor at the courthouse steps, picking up only the best buy-and-hold, lower-end properties (last I heard anyways).
He is very skeptical of the economic recovery, but I think he accepts that the current housing market is so manipulated it doesn't really matter.
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San Jose, CA
gregpfielding says
This prediction is based on the man experience. Unfortunately also shows lack of science behind his prediction.
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San Ramon, CA
My husband is a move up buyer. He went from Taco Bell to Chipotle.
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Nothing wrong with buying a place to live in or having a business with a positive cash flow. Though I am not rich enough like you to spread the risks around enough properties so for little folks like me it means REITs make more since.E-man says
Recent history my friend.
I pasted this from http://feeds.feedburner.com/John_Mauldin_Outside_The_Box
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B.A.C.A.H. says
Given your age and your conservatism with your lifestyle and your money, I bet you have a lot more money to invest in real estate than me if you choose to. You're not giving yourself enough credit. I only have $350k to work with since the mortgage meltdown so I cannot buy a lot of properties at the same time. It's a lot of juggling and financing in between to keep the money rotating. I gave up a lot of good deals in between due to the lack of working capital.
This year alone, I gave up 2 deals that were $55k & $100k below FMV because I didn't have the money & credit to close these deals. I gave one deal to a relative & one deal to a disgraceful investor. That investor will never get another deal from me. He picked up the property with $100k equity & short changed for over $3k. Hahaha. Now I know how to deal with a Chinese investor next time.
I have one deal that's about $80k-$90k below FMV just hit me today. People would fight all over it if it hit the market. I have to take on a partner because I don't have enough money & credit to close it by myself at this time. PK might not be up for the task so I'm going with an AAPL employee.
I have a lot of paper gain, but not money. Only if I had $1M to work with, I would have made money hand over fist. So sad. :(
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Oakland, CA
""I haven't seen a single move-up buyer this year," said Bryce Ellsworth of Windermere Ellsworth & Associates in Brentwood. That's because the eastern part of Contra Costa County is still driven by investors and first-time homebuyers, he said."
Greg, to be completely fair, Brentwood is the bottom of the barrel when it comes to Bay Area real estate. You saying that "move-up" buying is down may mean something. An agent who works Brentwood and surrounding areas is dealing with first time buyers and investors.
In order to "move up" to Brentwood, you would have to start off homeless or living in a dumpster behind Safeway.
I am not sure how "move-up" buyer is being defined exactly?
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BayArea,
I am a local Bay Area kid, livelong resident. (Are you?) I have been working for three decades in the Trenches (and office cubes) of "Tech".
That said, I know lotsa people for whom Brentwood would be a move up, at least inside of their own minds and inside of their own sets of values. But then, I am not a Snobby we're-better-(and smarter and thinner and prettier and wealthier and Cooler and Hipper)-than-you-kind-of-BayArean. Such attitudes like that are a lot of the reason our region is at the moment on the losing end of The Culture Wars.
That's my handle, Bay Arean, Cool And Hip. Only it stinks so much I gotta acronymize it.
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Brentwood is not bad. A colleague of mine bought a horse proeprty there. Killer commute-but ok if you can work from for a bunch of days a week. He bought in 2002-so prices were not that bad.
The worst thing is Tracy. I remember looking in Tracy just before 2000. A 10 acre horse poroperty, with guest house, fencing, pastures, areana all for under 300k. Then the boom hit and they built suburbia there and a bunch of people I know bought McMansions there for 650k+. I think they are worth 250K+ now. Still too much if you ask me.
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San Jose, CA
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gregpfielding says
Both you & Sean are skeptical of the economic recovery. Sean acknowledged that the current housing market is manipulated, and he accepts it for what it is. What makes you think that the manipulation will change in the near future? What catalyst do you see or guess that will change the housing supply in the near future?
As I mentioned above, I don't have the expertise like others so I let the numbers, history, and other RE veterans guiding me through this journey. If it's the wrong bet, I will lose around $100k-$150k. If it's the right bet, I will make several mil. Given the odds, I'm taking my chances with RE instead of sticking the money in my IRA. If SHTF, my IRA is going into the toilet anyways.
Life is precious. It's a journey that we only have one shot at it. I'm trying to make the most of it & have fun at the same time. So wish me luck. :)
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BACAH,
John Maudin is a perma-bear, and Harry Dent has been wrong so many times I don't even know where to start. If an individual followed these two guys' investment advice, s/he would have been broke by now. Their track record is horrific. Thanks for sharing though.
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E-man,
Maybe you didn't read Mauldin's stuff very closely. I would not call him a perma bear, not even a bear. What he writes about the future of the USA is optimistic, about our demographics compared to the rest of the world and how a collapse in the dollar will allow conditions for a Renaissance in our Economy. He is also sipping (not guzzling) the coolaide on possible breakthroughs in molecular medicine.
Moreover, if you read his editorials carefully, you will notice that he does not make predictions. Instead, he forwards the predictions of others.
If you read Mauldin's blogs, then his book will be a waste of time (and money if you bought it). Because his book says the same thing as his blog (and the blog is continuously up to date), and the optimist in him saying how folks can come out of what he called the "Endgame" relatively unscathed compared to others. A good read in the book however is that there is a chapter telling how he got into the business he is in. Mauldin is not an economist. Immediately in my way of thinking, not being an "expert" gives him more credibility to me than an all the Nobel Economic Laureates with their Quantisms. Mauldin got his self-start very much like you did, boots on the ground in the school of hard knocks. It takes an optimist to build a business like that.
Another clue that Mauldin is not a pessimist/permabear: he and his spouse have a rather large brood of kids, including adopted ones. It takes an optimist to "elect" to do that.