Friday, July 6, 2018

Real Estate Market

I had a sense that the expensive spec houses that builders have built recently in the neighborhood were not selling, but I just checked on Zillow and confirmed it. I assume they thought these would find buyers before construction was complete, but they have been sitting finished for many months unsold. Did they overshoot the mark on pricing? Or maybe got caught by the interest rate increases? (Mortgage rates are up >100 bps since mid to late 2016.) So now the developers are doing price reductions, which is a change to the post-recovery tempo. I think it will be an interesting sign if they do not move this inventory by fall.


ADL said...

Do keep us inhformed, if you're so inclined.

CP said...

Still don't seem to be selling. I'm hearing about this in other markets as well.

League of Women Voters said...

They were fed up with Seattle’s home bidding wars. They were only in their late 20s but had already lost two battles and were ready to renew with their landlord. Then, in May, their agent called.

Suddenly, Redfin’s Shoshana Godwin told the couple, sellers were getting jumpy, even here in the hottest of markets. Homes that should have vanished in days were sitting on the market for weeks. There was a three-bedroom fixer-upper just north of the city going for $550,000, down from more than $600,000. They made the leap in early June and had closed by the end of the month, for list price.

The U.S. housing market -- particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas -- appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.

CP said...

“June sales were down in these markets by double-digits and inventory was up also by double-digits,” he said of the West Coast cities. “The trend is continuing in July and reports are now coming in from Washington, D.C.; Boston; Virginia and parts of Chicago as well that homes there are getting harder to sell.”

CP said...

Two months later, the houses I was talking about still aren't selling.

There's one builder (who seems like a mom-and-pop) who tore down two houses and built much bigger ones.

First one has been finished and for sale since June. After a month he lowered the price $50k, now he is doing weekly $1,000 price reductions (!).

My math on what he paid for the lot and construction cost per sf (especially in this overheated construction market) is that he actually does not have a lot of room to come down.

Meanwhile, the second house is framing.

I'll bet he didn't think he'd be writing checks for construction of the second one without having sold the first one.

CP said...

Still hasn't sold!

CP said...

Still not selling.

Since listing, they have done six $1k price reductions, a $10.00 price reduction (SAD!), and two ~$75k price reductions.

I am now confident that he's going to lose money on both of these.

Classic baby boomer boner. Invest two million and have a headache managing two construction projects. If he's lucky he'll lose only $100k combined.

Meanwhile, he could have been in t-bills earning 2.3%!

I think when interest rates normalize these houses will be worth about 60% of cost, so he has the opportunity to lose hundreds of thousands more if he wants to ride them to the bottom instead of taking the current loss.

CP said...

I think the takeaway here is that low interest rates have led to a gigantic misallocation of wealth into single family residential real estate. (Among many other things of course.)

These places are juicy tax targets for retired public workers. Operating costs scale with size. (And it's amazing how poor the construction quality is for $200-$300/sf late cycle McMansion builds.)

CP said...

These eventually did sell - they seem to have been turned into Airbnbs.