patrick.net

Astrid,
I recall someone else mentioning trailers the other day and I did some research. Apparently, Prefab and manufactored home sales have been rapidly increasing. The reason is that in the case of prefab houses, the quality in some cases is just as good as something built on site. You may also find it interesting that of the majority of the homes built after the 06' quake in SF, most of those homes are prefab. Many came on a flatbed kit from Sears which could be had from 5-700 dollars.
The reason prefabs were chosen after the quake was because they were cheaper. Most families didn't have insurance, so the safest return to a home was a prefab. SF is proof that prefabs work, and what's more, they are still way cheaper than paying someone to build a home on site.
A home such as this one: http://tinyurl.com/npklt
costs around 85-95k. Not bad considering the same home would cost over 3 times this amount to build. Of course the land would be the pricey part, but if you ould find a rental lot, the costs would still be signifigantly less than buying, plus you would own the house.
On the other hand, manufactored homes are more like cars. They are more difficult to update and lose value almost immediatly. But... they can be had NEW for as little as 30k.
I think that under the economic circumstances we now face, mobile and prefab homes could be a good bet.

SQT,
The houses actually look fairly decent. Way better than the Mcmansions that you see back east. But with the degree of anonymity they all have, the prices are bound to come down hard. The only thing that might prevent this from happening is the fact they there are plans to build a high-speed rail system that connects sacremento and SF. If that's the case, then people in SF will move to Sac in masse because it will offer the ability to get to SF in less than an hour at home prices that are as much as 50% less than those in SF.

WWII,

I would like to build pre-fab when I have the money and find a place I'd be happy at for at least 10 years. I'm a glass and concrete freak. Right now pre-fab is at the forefront of the the modernist houses and as you said, they're actually better put together than site-built, especially anything site-built during the rainy season.

I would lose some customization options, but in return, I get a much cheaper product built on a predictable time frame.

I got to hark back to OO's comments on Toyko RE. I think if the prices there could crash, and by as much as they did, a large magnitude BA RE price crash is not only possible but extremely likely.

It's sort of sad that the US will likely partially inflate itself out of this hole. I like the idea of a crash so severe that nobody will ever look at a house as an investment anymore.

Btw, someone on Ben's blog just posted on this very topic! The article shows quite clearly that a rally in the stocks of "pre-fab" mfrs. runs counter-cyclical to "stick built" on site homes and has done so since the 1970's. Another indication of a market past it's peak (like we need one!)

I've had friends over the years that bought raw acreage in Central and Eastern Oregon and started by plunking down a "single wide" that was basically given to them if they would haul it off. Typically used for hunting cabins (and card playing) they upgraded over the years. A better double wide "repo"? Well, yes. Some are now nice enough that the wives will actually spend the night there and the older single wide is still used for hunting, card playing (and drinking) or is hauled off or burned on site by the FD. These folks bought the land for a song (and in many cases would still sell for a song) if not for the almost new double wide situated on the lot today.

http://tinyurl.com/msdup

NY Times story about HS dropouts attending college. Unbelievable!

DinOR,

I really think much of Oregon is suited for pre-fab and trailer type constructions. Parts are really rainy and shouldn't have stick-built. Other parts are really sparsely populated and it doesn't make sense to get a crew to build one in the middle of nowhere.

astrid,

Most Oregonians do treat mobile homes like a disposable item. All up and down the coast you'll see RE adds like, "The value is in the LAND!" Meaning that there's either an aging mobile on the property or there's a house that looks like it was used to make meth. Anyway you slice it mfr. homes make sense for a lot of us. Oh, btw we looked at a 50/50 time share at Otter Crest (on the coast) and it was very reasonably priced. 80K for a 1/2 share BUT the monthly HOA's were $450! Since we'd be lucky to spend 4 nights a month there this would be more expensive than most hotel rooms!

George,
As soon as I saw that the report about rising rents was from the NAR, I had the same exact thought: If they can't get people to buy houses, then the next best thing is to scare em'. There is really no reason to raise rent in my area. There are hundreds of houses, many that have been empty and for rent since the fall. How the expect to rent them for more money when they can't even fill them at market rate is a mystery to me.

burbed,

Perhaps. But rent has barely budged in the BA and barely kept up with inflation in many other places. A one time move is no biggie. Rent can only go up so much unless it is accompanied by wage inflation.

>Apartment rents expected to rise 5%
>Apartment rents are expected to increase 5.3% this year — about double last year’s increase — the National Association of Realtors says.

Yes, the NAR/Liar-reah cartel. Always your #1 source for unbiased, spin-free market information. Let's try using the ol' Patrick.net B.S. filter to parse these rosy assumptions, shall we...

(1) Large numbers of marginal “homeowners” who used to be renters pre-bubble and who might revert to being renters in the near future. Prognosis: possible increased future demand for rentals.

(2) Increasing rental supply from overbuilding (includes new apartment buildings as well as recently "converted" condos that will revert right back to being apartments) and large numbers of SFRs rented out by f@cked flippers who find they cannot sell for the required price.
Prognosis: greatly increasing rental supply in near future.

(3) Forclosed FBs that move away to less expensive region or move in (double & triple up) with current homeowner(s) to share expenses. If unemployment/layoffs really take off in a big way, this is sure to be a significant factor.
Prognosis: decreased rental demand.

So, our rental Supply/Demand equation works out something like this:

Rental DEMAND = those currently renting + those foreclosed on in near future - former FBs who move away or double/triple up with other FBs.

Rental SUPPLY = current rental stock + recently converted "condos" that convert back to apartments + flipper-held vacant unsold property.

Based upon the above, I see rental demand barely budging (if at all), while rental supply is sure to skyrocket. I fail to see where significant premiums can be demanded from a shrunken and not-growing pool of gainfully employed renters.

More fantasy. There are a lot of things that I worry about. Uncontrolled and spiraling rents aren't one of them. My lease ran out in March and I now rent month to month. When the lease expired I didn't hear so much as a peep from our management company! Not a peep. The local paper is flooded with brand new units just like mine (some arguably nicer) renting for $850 a month and they're sitting. Frantic and over leveraged will make flailing efforts to make rent hikes stick but when it boils down to getting some, or getting none they'll suck it up. Sorry NAR, not happening.

HARM,

So true, so true. Good points and perspectives as always! The only thing we may not have covered is the state laws that pertain to former FB's. I don't know how long it takes to evict a soon to be former FB but I'm sure they will live "rent free" as long as they possibly can. Once the lender is done bending over backwards to not take the house back and it goes into FC the bank (and the property) may not be in the best place to "re-enter" the market as a rental if it can not be sold at auction. Well I have faith that rental agencies will be standing by to alleviate the lenders pain by sprucing them up, getting a "For Rent" sign up post haste and begin screening possible tenants ASAP! There's the "growth end" of the industry for ya! Probably won't even need a realtors license.

HARM,

Your rental equation doesn't take into consideration wage inflation. Since wage inflation tends to (and increasingly more so) lags general price inflation, the equilibrium price point in a microeconomic analysis will tend to move upwards for the same supply/demand.

I am also not convinced that the rental market is a price-takers market. I think significant price power lies with landlords, some of it legitimate and some of it collusionary. Even ignoring collusion, the structure of the market is anything but a perfectly-competitive commodity market. That means, loose up, sticky down, as the suppliers capture benefit away from consumers.

I think all this is why real-estate, whether housing or rental markets, escape many common economic analyses methods. It gets complicated fast, and we're even ignoring locality differences.

the National Association of Realtors says.

I typically get all my housing related data from these guys, as they are the choice for unbiased news on housing. I then flip through National Enquirer to catch up on Elvis, Jim Morrison and Bigfoot, as they off the best source of unbiased information on their whereabouts.

$3750/mo - Lower than market rate? see this Craigslist ad:

http://tinyurl.com/pfkce

And they want to reserve half the garage for themselves? Any takers?

Surfer X,

I meant to include in my comments above just how desperate NAR must be to dredge this up. If the National Real Estate Inquirer ran a headline like: RENTS SET TO QUADRUPLE! Better Buy Now (while you still can get in) well then yeah, I could get on board with that.

Randy H,

I can't speak to the BA but what may be "different this time" is that there are so many new and untested landlords out there. Most of these guys wanted to be flippers not landlords. Right now specuvestors are under extreme pressure (IMO) in most markets. By the time they figure out they can't get a renter to cover their "monthly nut" many will be in real peril. I'll go so far as to say that given what I've seen on C/L these folks do not have a clue as to what they are about to get into. Since so many of these units are in "weak hands" I find myself more concerned with how the lenders will deal with vacancies, not specuvestors.

$3750 for that place in PA is not out of line with that segment of the rental market. Similar places in Mill Valley are going for over $4k/mo, and often with no "discount" for long-term leases. (In fact, I'm seeing discounts given to mo-to-mo renters, which might indicate a bias by landlords towards believing rents and demand are rising).

DinOR,

My cold, rational answer (which may not be entirely realistic) is that such weak "landlords" will be driven from the market in short order. I expect that many who can sell, maybe at a loss, but avoid foreclosure et. al. will be selling to shrewd investment income property landlords. These are the kind of guys who have scale and/or sophistication to manage a portfolio of homes. The remainder of the specuvestor homes should be recycled into inventory after foreclosure/short-sale/etc. I don't see many of them sitting around mismanaging a loss property for long. The real risk there is that some borderline neighborhoods (the kinds that used to be run-down, but cleaned up alot due to boom gentrification) start declining as marginal specuvestors learn how to be slumlords.

$3750/mo - Lower than market rate?

What they really mean is that its lower than their Monthly PITI.

Higher Rents -> higher CPI -> Fed must increases rates to hit their inflation target -> ARM crowd slammed -> Housing prices slammed. NAR should be careful what they wish for. "Official" 5%/year inflation would force the Fed's hand much further than they've already gone.

30 Yr fixed crowd would love this scenario too, provided they stay put.

Randy H,

I guess I really hadn't thought about it past the "point of impact" where the avg. specuvestor had/will/eventually lost his shirt. You're right, there will be unintended consequences. The neighborhoods on the "cusp" may take it on the chin. Of course Mr. Specuvestor will be on to the next big thing.

Of course Mr. Specuvestor will be on to the next big thing.

Gold anyone? I've got a great inside strategy on copper too. (lol if it weren't so true)

To all whom attended the Housing Crash Bash 2006!

Sorry I wasn't able to be there! Sounds like it was gas.

To all whom attended the Housing Crash Bash 2006!

Sorry I wasn’t able to be there! Sounds like it was gas.

DinOR, there's always next time! Everyone had a good time, evidently there was a fair amount of adult beverages consumed.

Randy, you said...

I expect that many who can sell, maybe at a loss, but avoid foreclosure et. al. will be selling to shrewd investment income property landlords.

I beg to differ, shrewd investors will not do this until:

a) rents cver costs and provide for a return on investment, or
b) the same shrewd investors figure they can hold to flip for a profit...

I don't see either of these situations happening anytime soon.

Repo'd properties will be sold to owner occupiers who think they are getting deals, all the way to the bottom, as Mike outlined so well above.

Don't try to catch the falling knife!

That being said, if it becomes affordable, some will buy and not care if it's not the bottom.

That's my own particular plan, I have no vested interest in walking around saying I outsmarted everyone and bought at the bottom.

But those shrewd investors are likely to be conspicuous in their absence - that's why the market must go down!

tsusiat,

That's pretty much my take on it. I don't visualize anyone "swooping in" to throw money at it! It may not make sense for some time. Because these guys operate on a local basis for the most part I can't see anyone stepping in (firstly) to "float" or support a falling/failing market. Even if they could support prices (to protect their existing portfolio's value) would they be able to rent them out at a level that would be anywhere near solvency, let alone profitability?

tsusiat,

I agree with all your points. I only add that a falling market means a return to "location, location, location". Shrewd investors will be buying at points "all the way down", because the ride down will be marked by different neighborhoods/localities/regions hitting support at different times. RE isn't one market so much as it's a million micro markets all influenced by some common macro variables.

As for "catching a falling knife": I'm with you. My utility break-even will be realized with merely a minor correction. I may try to exploit some timing, but I don't view my home as an investment so much as a long-term savings vehicle with significant lifestyle implications. If investments are knives, then homes (as we've defined them) are corkscrews. It still might hurt a bit to catch a falling one, but if you plan on drinking wine ... (please spare the wine-in-a-box tangent)

Randy,

corkscrew analogy is probably apt, but for wine in a box, how do you catch that plastic spout? If it's falling with the box still attached, that might hurt!

Randy H,

A return to anything resembling sanity would be welcome! Once this has pared down to location, location, location we will be able to work on price, price, price! Pricing will cure all, and when we get to a point where we've ejected the specuvestors the attractiveness of the overly generous tax preferred status of RE will begin to lose it's lustre as well. If at the end of the 2 year period (just for example) the property is still pretty much valued at what the investor paid but he can show $50 a month in positive cash flow then it makes more sense to keep it vice flip it. We need to get back to that place.

It was a warm and friendly group of people…not nearly what you’d expect of bad @ss X He is definately 37% less offensive in person.

I would say even less offensive than that, though his fiance (nice catch, btw, Mr. X) hinted he was on his good behavior ;-). Based on his online personna, I was expecting a 40ft tall fire-breathing Boomer-killing machine, but X was a surprisingly gracious and mild mannered host. The wife and I had a great time. Our only small disappointment was we never got around to crashing an open house and witnessing X perform his patented "upper-tanker".

Linda, Joe & Mr. X:
What do you think about me posting just one group photo? Would this provide too much temptation for our resident trolls?

but for wine in a box, how do you catch that plastic spout? If it’s falling with the box still attached, that might hurt!

The answer is "you don't". Who wants a box of wine? We can figure out a way to work $hitboxes into this analogy.

I hear boxes of wine in Spain are different, better.

Once drank some in Barcelona.... mmmm....

Those boxes are nicer than those other ones the locals get inland. They should therefore be able to command and be sold at a premium. I am expecting a run up in Barcelona area wine box prices in the near future, as the locals and the tourists will be happy to pay a premium for them, as the location is so much more desireable when you are drinking from them.... mmmmm.......

Once locals and tourist investors realize the untapped potential of the Barcelona wine box market, I expect a significant bounce in the market...

Sorry, that didn't work right, I thought D Lereah agreed with me on wine boxes. If anyone can kill my extra useless repetitive comment, I appreciate it... ;)

burbed,

I would suspect as much in the BA. It wasn't my intent to flaunt the $850 a month rent even though we are well below the norm for our cost of housing compared to income. The BA presents some unique challenges on all fronts and is in no way typical. However, in your case you may not need a fat inventory of flipper homes gone bad. I suspect that much of the downward pressure the BA will see is from "upgrade homes" that through the ARM Reset (and other toxic loans) become unaffordable to the current occupants. Again, I don't see a fresh pool of "bottom feeders" gobbling up homes that can only be rented for a fraction of PITI just b/c they are 5 or 10% off their 2005 peak (which btw they didn't sell at).

HARM,

Go for it. Everyone should see my handsome visage!

It’s very regional. Here in the (South) Bay Area, I’ve been keeping my eye on rents - and they’re definitely on the upward trend. Heck the graph on / reflects that as well.

first and foremost the graph on patrick.net tracks ASKING prices, and the fools are free to ask whatever they wish, getting is an entirely different matter. Look at C/L san diego, the fools are listing 2/2 condos downtown for $3700, ain't going to happen.

Another thing to remember when viewing graphs is to look at all graphs, yes the 3 bd asking rent appears to be ticking up, how about 2 and 1 bd? Seem a bit flat to me.

One way to negate the temptation to raise is to be the ideal tenant. I've replaced light bulbs in common areas, participated in spring clean ups and even done a little painting. My wife has the exterior looking like 1-800-Flowers is on her speed dial. There is no way they are going to risk running us off. Another great "trick" is when confronted with an increase explain that you were just about to negotiate a reduction. I know, sounds crazy but it works.