McMansion Tear-Downs No More.
The real estate market collapse dilemma is stark nationwide but especially in the flattened sandy and warm states of CA, NV, AZ, FL. The McMansions built over the last decade or so are not moving -- in fact, they are still cliff-diving in price; and I will speaking to James Hagerty, WSJ, on Sunday 25 to learn if there is an estimate for how long the McMansion market will drift and deteriorate. The related challenge is, how do you sell older houses if you can no longer do tear-downs in order to build new McMansions?
California Dilemma.
Calculated Risk's Jim the Realtor walks through Rancho Sante Fe to illustrate the McMansion dilemma for the California market. Jim says that Rancho Sante Fe is "the frozen turndra of real esate," where prices are frozen at 2006. He says that nothing is moving even at that range. That REO agents are coming to town and throwing the foreclosed homes on the market without the "appointment only" restriction. He heads to a "blockbuster." "Two acres, pleasurable experience... REO, bank owned." The mansion, 4600 square feet, was built in 1965. It is not luxurious by McMansion standards. During the hot bubble years, this house would have been a tear-dwon, because of the lot. The older the house, the better the lot. The best lots are houses built in the 1950s. The next best is this 60s lot. "Why would you tear this down?" Jim asks. "...Only two bedrooms upstairs, donwstairs you got a couple more.... " Two acres with a modest pool and landscaping for good privacy. "You don't see near the horses you used to, in Rancho Sante Fe. Again, Jim asks, "Do you tear this house down?" Then the well known, "Nothing money won't fix. Here's the problem, those power lines." The video pans the overhanging power lines. Still, the price is aggressive (under $2 million); the bank is motivated; the house may move in a market that is not moving. Do you tear it down because it is non-lavish?
McMansion REOs.
What puzzles is what happened to the people who owned these now foreclosed McMansions? Did they lose their jobs? Were they speculators? Where do they live now? In low-end houses. They were foreclosed. Their equity was nuked. The Hagerty piece in the Journal presents that the low-end of the market has been hot all summer, with multiple bids for properties. Goldman Sachs argues that this heat was a product of the Fed subsidy adding about 5% to house prices. Also, that the Fed steroids will not last and that market prices will decline up to 10% more in 2010, even at the low end. The McMansions will continue to stick out as unsolved. There is a fresh argument I see routinely now that the market for 4000 plus square foot houses will not get hot again in a lifetime, or perhaps not until 2030, which ever comes first. A sidebar development is that the national vacancy rate for apartments is the highest in a quarter century at 7.3% and climbing -- perhaps because McMansion REOs are being converted to apartments by the enterprising possessors.
As to the apartment vacancy rates, I can testify to that here in the Inland Empire of Southern Califonia - which as you know has a real estate market that has been absolutely decimated. The streets of our city are littered with FOR SALE and FOR RENT signs. We live in a very nice complex owned by a large REIT. It was built in 1985 and has been recently remodeled with new paint and re-paved parking and roads, and the individual units have brand new appliances and new carpeting. My wife and I are in a 1300 sq ft 2 bed 2 1/2 bath townhouse. We are paying $1600/month right now. The two units near us had been vacant for the past 3 months after two very short term tenants moved out - one of whom apparently vamoosed after an eviction notice was posted. We learned that the folks next to us were able to get in here a week ago paying $1390/mo rent, and got a $500 concession upon move-in. When we moved here in 2003 we were paying $1400/month and no move-in concession and had to have a $2000 deposit. Our lease is up in April, and we are going to ask for a substantial reduction in our rent or else we are moving. But we are afraid to rent a house because of the nightmare scenario of the owner abandoning his mortgage and us getting a 30-day eviction notice from the bank.
I was fully expecting to see some changes after having been six months away. But everything seemed just the same as it had been before I left. No profusion of 'For Sale' or 'For Rent' signs; nothing to indicate that the rats were leaving. Yards continued to be well kept. One of our neighbors just got a new roof.
There are a few shops (mostly high-end men's clothing) along the main street that have closed, but you wouldn't necessarily know it. The Chamber of Commerce has decorated the store windows of the unfortunates to make it seem that these shops too are open. There's an office building that's slated to be converted to luxury apartments that's been dormant in mid-process for close to two years now. At the same time, there's a fight developing about putting in additional low-income housing.
There's a bank branch that closed in the center of town. There are so many banks left here (including the one where I opened my very first savings account with five dollars in quarters), I might not even have noticed; but they took their digital time/temperature display with them when they left. I always gave it a glance when I happened to be up that way.
Last Thursday was “Lady’s Night Out” (in town). Most shops stayed open beyond closing and were offering women gifts and coupons. At first I thought it was Halloween already when I saw all the ladies with their handsome Fifth Avenue style shopping bags. Then I realized that the kid’s time was yet to come. It was a huge success in terms of creating buzz, same as the street fair was two weeks ago; the antique car show the week before that, and Halloween night will be next week. Whether or not it’ll be enough to give a boost to our shrinking tax base is another matter. But at least, they’re still trying.
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Peter, Peter, Peter,
Come to the breakfast program at Calvary or the Pantry program at St. Teresa's -- you'll see a change
Help if you can.
And heres the villain:
When you check the sales history of homes for sale in Rancho and for that matter
every where else where everyone is scratching the financial sector of the cranium , we find
"sold " price tags that reflect an answer if you look with objectivity
If you don't want to look with objectivity then carry on with all the maze like smoke screens that serve up confusion with a side order of desperate subliminal marketing.
Very simply: a) The example home of fore sale 2009 is 2,500,00
b) It sold in 2006 for 3,900,00
c) It also sold in 2003 for 1,550,00
This is a ratio example of the subject of aforementioned discussion.
Heres the real question, Why is there an illogical and damaging tone to the neccesary and unavoidable strive in reality balance in keeping with , the only thing that matters, demand? Of course all the vendors will "try" to get inflated prices back but the in balance the economy won't allow it nor should it.
Lets start a new phrase...."Reality Balance" If everyone or all the institutions
feel its time to liquidate , then so be it. A start would be to seriously consider the abandonment of "public fore sale signs" If a buyer is interested let him consult a
realtor or the like to search for new home. For sale signs are serving only the negative ambience of your neighbourhood. Lastly, California, if you want a speedy recovery think of this...
When a house is sold in a reasonable economy, it should be possible to "re-sell"
in 2-4 months maximum. Therefore the only thing that can cause this today is if the present day pricing drops right across the board at very least 60%
So.....there you have it, in one short letter your dreaded but at least understood, "bottom" Oh, and try to avoid all the fancey political science smoke screens there usually grounded in self serving momentums either being popularity , or industry
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