I went out on a limb this year by predicting a 10-20%average home price decrease. The reason for the wide range is because of all the variables in comparing different neighborhoods to one another. Some will do better, some will do worse. But overall,
I think my guesstimate of 10-20% average depreciation will be pretty close.
%

Money is made by working and getting paid.

Wealth is made by speculation in combination with one’s own evaluation and perception of what that word actually means. The U.S. has been great at doing this in a service driven, non-manufacturing economy where at the wave of a magic wand something doubles and triples in price. Hence why the rest of the world has moved on from fantasy land and our currency and economy is a joke.

Keep an eye on Puyallup. Many of those new homes sold for 250-290k will be coming back and finding a few Gems in the 170’s could happen.

Yeah, but then I’d have to live in Puyallup.

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I’m hoping to secure about 8 more of these in the next 2 years all under 190k. This 190k has skewed the comps for all other closings are above 249k.

Keep an eye on Puyallup. Many of those new homes sold for 250-290k will be coming back and finding a few Gems in the 170’s could happen.

http://www.500realty.net

I close on Friday on a 190k home. Got locked with Wells Fargo(no points) int only @ 5.855. Seller concession of 4k toward closing costs. Loan amount 152k. The home is virtually brand new in Dayton Nv. yes, it was foreclosed on from a bank out of Florida at 283k. Anyway home is flawless and all rock landscaping is done. Homes in this golf course community rent for 900-1100.

I leased optioned the home for 3 years at 1250.00. The payment is 762 plus T and Ins. About 948.00 per month.

Ray, the Nevada example doesn’t hold water in Seattle. The properties I see dual listed (rent/FS) in that rental range are listing at $225-250k, plus HOA dues often in the $150-200/mo range. Seems like most landlords include G/S/W in their rent, so there’s another $100/mo. You end up looking at getting $1250 rent but paying out $1800-2000. When you get the unit for $150k or so, the numbers make sense – as they did in your NV example.

I’ve been interviewing around quite a bit, and every group I know in just about every building I’ve visited has space problems. obviously this is due to adding people – you really should walk around more!

Keep in mind that groups can double+ up people to save money. Groups pay for their space at MS. Lots of times I’ve seen contractors crammed in when there were plenty of empty offices nearby. Crowding of FTEs could be by design. As long they put up with it, why not?

And what is the landlord’s yield on rental income after taxes?

It wouldn’t matter to me. My point was just that owning a house outright is cheaper than renting it (yourself, that is, not to someone else & being their landlord), unless house prices fall significantly.

Who am I paying to watch the home in Seattle? Are you serious? I think you need to show up to the Seattle Bubble meeting and get enligtened. I have a feeling your realtor FRIENDS are the ones WE will be buying from in the coming years!

Ray Pepper
http://www.500realty.net

And what is the landlord’s yield on rental income after taxes?

Do you have to serve up easy targets like that?

You also failed to mention, property taxes, capital gain taxes on the rental income, insurance, maintenance, cost of an empty home with no rentor for periods of time, etc, etc, etc

Ray, ya should of done what a lot of my realitor friends did [or wish they could], get out of debt now, that house you’re renting is a money pit. Also Ray, who ya paying to watch the house from Seattle?

Now, raw land makes much more sense. You realitors want us techies buying your rental houses so you guys can get out?

Since you used an exp. Let me use Real numbers on a real transaction.

I close on Friday on a 190k home. Got locked with Wells Fargo(no points) int only @ 5.855. Seller concession of 4k toward closing costs. Loan amount 152k. The home is virtually brand new in Dayton Nv. yes, it was foreclosed on from a bank out of Florida at 283k. Anyway home is flawless and all rock landscaping is done. Homes in this golf course community rent for 900-1100.

I leased optioned the home for 3 years at 1250.00. The payment is 762 plus T and Ins. About 948.00 per month. Under lease option owner/tenant fixes all problems while under the lease but since the home is new I forsee very few issues. I don’t even own the home yet and I have rented it, with 3 back-ups. It cash flows and I locked owner/tenant in at 259k. All comparables are selling at 249-269k. Owner was delighted to know their monthly payment (280.00)was going toward something and YOU know I was quite happy to have a cash flow property that may or may not sell. The extra 280.00 is non-refundable if home is NOT purchased. I credit back the buyer the 280.00 for up to 3 years as a seller concession=about 10k at the end of 3 years.

variables: home doesn’t appraise in a few years at 259k-I doubt it but I’m very willing to lower price and still make 40k instead of 60k
.
variable 2- tenant doesn’t buy. All the better. I’ve had a cash flow property for 1-3 years. So I do it again or sell it on the open mkt.
Either way____NO BRAINER but the KEY!!

**YOU MUST FIND THE GEM**

There will be many. This is NOT a time to cower. Its a time to begin looking. For the next few years the saavy investors will be buying from the investors who blew it. Educate yourself Washington!

Ray Pepper
http://www.500Realty.net

The new campus if for the Hardware and Entertainment Division, which has HORRIBLE overcrowding. The offices I’m in, have FTE’s that have been there for over 5 years doubling up. Contractors and Vendors are being trippled even quadrupled up. The feeling I have from what I have seen/heard is the majority will be goign to existing employees/contractors/vendors.

I’ve seen no FTEs doubling up in HED, in any of three buildings.

You keep stating that you think the majority will go towards new employees. My bet is that the new spaces will go to a majority of existing employees. The Millenium campus is one of the worst with over crowding(Xbox/Zune).

I’ve seen lots of empty cubicles at Millenium.

I don’t doubt there’s overcrowding some places; I haven’t personally seen any since about 1998, but I don’t go exploring either. It doesn’t really matter though, since it’s absurd to think that MS is going to go to all that expense just to make existing staff comfier, when they have thousands of open positions and a nonstop track record of blazing staff growth in the area. Their incentive is to claim that new space is for anything but room for new staff, since that helps them on salary negotiations. Likely the only way they’d go to that expense just to make existing staff comfier is if people were leaving the company en masse due to the overcrowding; I’ve seen no sign of such mass departure.

You are so right. That is why I’ve been buying ultrashort ETFs like they are going out of style. The ones I bought six months ago – SRS and SKF have been great. Shorting real estate is fun and lucrative. You can drive to work in the morning with a smile on your face as the market burns.

Mathew, You are so right, this is what I keep saying.

“Yet, as global bond holders collectively liquidate debt positions, dollars will flood back into the U.S. creating an instantaneous hyper-inflationary scenario.”

So when the bond holders all decide to suddenly sell their bonds what happens? The price of bonds goes down, interest rates go up. The bond holders lose 20-30% or more perhaps of their dollar denominated capital. The money supply drops because the value of the bonds drops. Just like so many investors in CDO’s are suddenly finding that the value of their CDO’s is considerably less than they paid for them. The high interest rates would increase the temptation to save money instead of spending it, which would help slow velocity.

I am not sure this is a hyper-inflationary scenario.

“What if the Treasury department creates enough money?”

The whole idea of the Treasury or Fed creating money out of thin air gives the wrong impression. I am not saying the money isn’t created out of thin air. I am just saying that it gives the impression that they just say “let’s create some money and they just go to the printing presses and hey presto, they are handing out new money. New money creation in the US takes willing lenders lending to willing borrowers. The problem arises when the lenders and/or borrowers are not willing. There is a point where there is no one left to lend to who wants to borrow and who can also pay it back. We passed that point and then they lent money to willing borrowers who couldn’t pay it back and now they are realizing their mistake and are not so willing to lend. Borrowers, overall, are pretty maxed out on debt. Not that there is a shortage of people who are perfectly willing to borrow money and not pay it back, but pretty soon the credit card companies are going to have to be more picky about who they loan money to, also.

There is a point in bubble creation where you just can’t go any farther, which leads to the collapse of the bubble. This giant credit bubble has already started to collapse, and I don’t really see how it can be stopped before it runs its course.

Do you work at Microsoft at all? Your statements about how much they will fill of the 7000 new office spaces with new employees sounds like you don’t.

The new campus if for the Hardware and Entertainment Division, which has HORRIBLE overcrowding. The offices I’m in, have FTE’s that have been there for over 5 years doubling up. Contractors and Vendors are being trippled even quadrupled up. The feeling I have from what I have seen/heard is the majority will be goign to existing employees/contractors/vendors.

You keep stating that you think the majority will go towards new employees. My bet is that the new spaces will go to a majority of existing employees. The Millenium campus is one of the worst with over crowding(Xbox/Zune).

At what ratio to those whom lost their ASSES?

Rents respond to supply+demand, and are hemmed in by wages.

Demand is not hemmed in by wages. If Microsoft decides to fill even half of the 7,000 employee spots they’re making/leasing on the Eastside with new employees at current wages, it’s a safe bet that rents will go up there. MS has thousands of open positions, so it’s a safe bet as well that a large percentage of those spots will be filled by new employees, and not just to make existing employees comfier.

As inventory piles up in Seattle, and more and more owners are underwater, I expect the same to happen here. Ignore the threats of “rents are going to increase!”. They may increase in the short term, but as the bubble pops, I expect rents to actually decrease as more and more owners rent their houses out as the futility of attempting to sell becomes more apparent.

Economist makes a good point above, which has been pounded home time and time again on this blog/forum. Rents respond to supply+demand, and are hemmed in by wages. Wages haven’t gone anywhere (in fact, recent studies show that they actually faded in recent years) while cost of living has gone up as expected (modulo oil scares…), with the exception of nonessential purchases, such as speculating on real estate.

The demand for rental housing isn’t going to be skyrocketing, especially in the face of recessionary times. And seattle has no shortage of supply, even if great hordes of people decide they wish to rent. I’m thinking of some wonderful condo buildings that will make great apartment complexes, here.

Agree with the comment (by eleua?) above about RE-industry types trying their darnedest to spin, market, and lie their way out of a truly "golly"ing refutation of everything they stood for during the bubble years. Housing prices are deflating. “when life gives you sh*t, make sh*t-ade” isn’t going to work here. Bubble buyers crapped their beds, and now they must lie in them.

If you buy a $200K house to rent, pay 20% down ($40K), you borrow $160K at like 6% interest, that’s about $1100/mo., unles you 15 Year it, then its like $1550/mo…..add to that cost property tax (about $150/mo) and insurance (about $40/mo). Add to that vacancy costs to get it rented (about $50-100/mo). Add to that excessive damage costs when the felon you rented turned it into a crack labratory (about $1000/mo)…..

Ohhhh….I forgot, you owe capital gains taxes on the rental income (about $400/mo). I know, the $1200/mo mortgage payment and property tax is tax deductable….lol….but we didn’t add in the roof leaks and needs replacing, etc ,etc (add another $500/mo)…..

How can you as a landlord make money being $160K in debt on a $200K home…..ya can’t!!!!

My advice, buy land.

Overseas Investors Buy Aggressively in U.S.
http://www.nytimes.com/2008/01/20/business/20invest.html?ref=business

Wrong. You don’t understand opportunity cost. If you have a paid off house which is worth, say, 500K, you could sell that house and buy a bond yielding, say, 5%. That lost income (along with taxes, etc) is what it’s costing you to hold on to that house.

Unfortunately the bond pays me only 3-something percent after taxes, and I have to apply all of that, and then some, that to renting a comparable house. You can use the CEPR Housing Cost Calculator to see that owning a house outright is cheaper than renting it, unless house prices fall significantly. (On the Eastside at least, where the price/rent ratio is a lot less.) But if prices fall significantly, there’s a greater risk that my money invested in intangible assets will vanish.

If you will take a look at my posts of “January 19th, 2008 at 10:56 am”, and “January 19th, 2008 at 9:42 pm”, you will see quite clearly that I was talking about the yield and opportunity costs for landlords.

I wasn’t talking about owner-occupied houses.

But since you brought it up, paid-up owner-occupiers have opportunity costs too. You could sell the house, buy a bond, and rent the same kind of house for 1/2 the interest you’re getting. So actually that bond does a much better job of providing shelter than owning the house does. That’s because housing has such a lousy yield now.

That’s what Bill Gross of Pimco did. But most homeowners are reluctant to sell their primary residence, even if they are bearish, for non-economic reasons (i.e. just don’t want to move). However selling a secondary residence is a lot simpler – as Warren Buffett did (California).

Here is a video of Cramer on Hardball on the imminent collapse of several mortgage insurance companies in 2-3 weeks (PMI, MGIC, MBIA and Ambac):

http://www.youtube.com/watch?v=4w-TwsvX4q4

According to Cramer, if this happens we can expect a 2000 point drop in the DJIA and the stock market may need to shut down.

The quotes you pulled from “Economist’s” 9:42 posts were spun quite eloquently.

Economist was talking about a LANDLORD selling a house that was completely paid off and then putting the proceeds in a 5% account.

Why would the LL’s children not have shelter from the rain after that? Should we assume that the LL was living under a bridge to begin with?

Wouldn’t selling that house then leave someone living in it that has a greater stake in the community rather than one of us dirt poor JBR’s?

You can put all the winks and “snappy braggart” one liners you want into your posts. It really just shows your fear. Just the fact that you (an owner of TWO homes) is here on SB says something IMHO.

The economist is the one with the calculator.

You have a talent for hypebole — “However, that bond isn’t going to do a very good job of keeping the rain off of your kid’s head now…or give them an opportunity to live close to you without going into indentured servitude when they’re grown up. Or give you a direct stake in your community, or all that other stuff that also matters, along with the bottom line. Stuff that is, as the credit card ad says, priceless.” Are you going back to that same useless over hashed arguement of renting versus buying?

I have to say you are one thick brick.

I understand opportunity cost, thank you very much.

However, that bond isn’t going to do a very good job of keeping the rain off of your kid’s head now…or give them an opportunity to live close to you without going into indentured servitude when they’re grown up. Or give you a direct stake in your community, or all that other stuff that also matters, along with the bottom line. Stuff that is, as the credit card ad says, priceless. ;)

The smart ones, anyway. The dumb ones just ride the market down.

Seems to me that the ones that are bailing now are probably the ones who bought high and are selling as things head lower. What do economists usually say about that?

Maybe all of the landlords commenting on this blog are the cause for the shrinking of the middle class.

Not truly an appropriate term for a RE bubble, but “indefinitely” is more appropriately utilized to define the stationing of U.S. armed forces in Iraq, the decline of the U.S. dollar against other currencies, the growth of the national debt, and the continuation of RE agents saying that “Real Estate Always Goes Up and Is a GREAT Investment!” ;-)

To me it would mean that there is nothing that would *stop* you from continuing to stand on your head, and therefore the length of time you could do it for is undefined.

So to say that bubbles can exist “indefinitely” implies that there is no particular force that is acting on the bubble to get rid of it. This would therefore be incorrect.

That’s my interpretation, and I’m pretty sure that’s how 95% of people would interpret it too.

What was the topic of this post? :)

Pretty much. You don’t supposed that it means they can stand on their head an infinite amount of time do you?

Hell, we’re not even sure if time is infinite. Think how disappointed you’d be if time just ended while you were busy standing on your head indefinitely.

Really? If someone says, “I can stand on my head indefinitely”, does that really mean “I can stand on my head for a limited amount of time that I can’t tell you”?

Not quite – it’s about paying the right price for a given quality. Looks like you got the right price in 2005. Congratulations. The point is can you buy for the the right price now?