help me understand...
- Thread starter Smiling JOe
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simply put, the market rules and says you are wrong.
Ah, the good 'ole days. When there was correlation between rents and sales prices. When the average dentist from Atlanta with 2 1/2 kids could afford his little piece of paradise without a 40-yr IO loan. When $250K sounded like a small fortune for a two bedroom condo. But I digress.
I would agree that we won't see $120K prices ever again. But I was looking around in the SoWal market back in 2003 with a measly $200K to spend, and there were options available at that time, albeit limited ... Cassine Gardens, Beaside Condos, Legends of something-or-other, Beachwood, Carribean Condos, Emerald Heights (?), lots of townhouses and condos in Sandestin, and even more in Destin ... I don't think that it is completely out of the relm of possibility that, if the the landing is harder rather than softer, these properties revert back to sub-$250K.
There may be hope for the common man after all.
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You are correct. They can build them with those upgrades, but the problem is that they cannot sell entry level homes at $300K, so I wonder just how long it will be before the builders realize this and decide to make cuts in other ways, such as cutting these upgrades.
Businessweek Article: Are Seller's Incentives Masking True Price Deline?
The way they're "cutting the upgrades" is to offer them for "free" so they don't have to lower the price of the house. Problem is, the people who jump at these "freebies" (GCT, SS, cars, plasma TV) are paying property taxes based on the "freebies." Buyers who are impressed by "shiny trinkets" have already been suckered into overpaying...what's left are the wiser, hard-core, pre-approved, end-user buyers in no hurry to buy into a declining market. They'll be the buyers who stand toe-to-toe with the builders and say, "Here's my final offer for the house with all the 'bling' included, take it, or leave it." <Hands over business card with price on back, turns and walks toward marble-inlay foyer>
FROM LAST SATURDAY'S NEW YORK TIMES:
“The reason the Realtors’ data has never showed an outright decline” before, he said, “might be that they’re not measuring the effective price.”
Lawrence Yun, a senior economist with the Realtors group, said that in markets where inventories had been rising rapidly — like the Northeast and California — incentives could well equal 3 percent of house values. But he estimated that the national number was smaller, because homes sales were continuing to rise in roughly a third of markets around the country.
The typical incentive package from a home builder consists of upgrades to the house — granite countertops instead of humdrum tiles, stainless-steel refrigerators and stoves instead of plain white models and wood blinds instead of plastic. At the extremes, some have thrown in $30,000 swimming pools.
Buyers who demand discounts often get them in the form of excused closing costs or low interest rate loans made by builder-affiliated mortgage companies.
On the west coast of Florida, builders are advertising incentives like upgraded countertops, interest rate promotions and cash rebates totaling $40,000, or 6.6 percent to 8 percent of the sales price, on homes that sell for $500,000 to $600,000, said John Dew, a real estate agent in Naples.
Builders tend to choose discounts because they worry that reductions in the list price would send a clear signal that the market is in trouble, potentially angering previous buyers and emboldening future customers.
“They already sold the same product to the guy next door and if they reduce the price he is going to scream,” Mr. Dew said. He added that many builders were also offering agents bonuses worth tens of thousands of dollars in finders’ fees for bringing in buyers.
In effect, the incentives have become a quiet way to cut the price of houses without further damaging the market. Sellers “don’t want to create this environment of fear in the market that prices are going down, so you should wait to buy,” said Dean Baker, co-director of the Center for Economic Policy Research in Washington, who believes that prices will fall in coming years.
Incentives are often most substantial on homes built on speculation before a sales contract has been signed, or on properties that buyers have walked away from after signing a contract. Big builders report that cancellation rates are running as high as a third of new sales, compared with about 20 percent or less a year ago.
Pulte Homes, for instance, was recently offering unspecified incentives totaling as much as $10,000 on homes in a Connecticut development to buyers who were willing to move in before school started. In the spring, Centex Homes ran a “24-hour sale” in Southern California where buyers who agreed to purchase within the day could get a $100,000 discount. It ran a similar offer for a $60,000 discount in Atlanta.
Lenders are also wary of incentives. Lenders do not want to finance transactions where the sales price exceeds the true value of the home. Fannie Mae, the large buyer of mortgages, requires disclosure of perks and it caps them on a sliding scale from 2 percent to 9 percent of selling prices, depending on whether buyers will live in the home and based on the size of the down payment. The concerns of lenders will eventually limit the size of incentives in home sales, said Anthony Hsieh, president of LendingTree.com, the Web loan site. Many buyers may also balk because their property taxes will be based on the sales price listed on the contract.
Eventually, buyers will realize “there is no free lunch,” he said. “There is a reason it’s being given away.”
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Entry-level Seattle Condo McNugget: The moda condos, set to break ground in October, promise "New York-style living," with units as small as 296 square feet that start at $149,950. All of the condos will have such luxury touches as appliances with stainless-steel finishes, granite or limestone countertops, floors finished with cherry or walnut and tile bathrooms.
They're so small....
The front door and back door are on the same hinge
The mice are hunchback
You can't order a large pizza
You stick your key in the lock and pop out the window on the far wall
You have to step out in the hall to change your mind
And my favorite video of all time: [ame="http://www.youtube.com/watch?v=ssktODChnEY&mode=related&search="]YouTube - Condo[/ame]
They're so small....
The front door and back door are on the same hinge
The mice are hunchback
You can't order a large pizza
You stick your key in the lock and pop out the window on the far wall
You have to step out in the hall to change your mind
And my favorite video of all time: [ame="http://www.youtube.com/watch?v=ssktODChnEY&mode=related&search="]YouTube - Condo[/ame]
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The problem is that if you cut theses few upgrades the asking price is only down a few percent say to $350k. At that price the deal doesn't seem so good on a "stripped" house. It is almost impossible to build a starter house in this financial climate. The problem with the cost of housing doesn't lie with the evil builder, it is primarily the artificially inflated cost of land and also impacted by the greed of suppliers/manufacturers IMO.
There was more than enough greed to go around including the RE industry, banking, government, suppliers, developers, contractors and, yes, investulators. The perfect storm.
I hear you, but the asking price on entry level around here starts around $275K, so we may be talking about getting that price closer to $250K list, without the additions. That becomes a whole different ballgame.