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Basing Decisions On Future Possibilities Is Always A Gamble

A weekend topic starting with UCLA Anderson. “Given that home equity typically represents a serious chunk of a household’s net worth, the stakes are highly consequential when contemplating selling. While some decisions to sell are driven more by non-economic factors (a job relocation, for example), for many people, timing the sale to extract maximum value is important.”

“Cornell University’s Nicolas Bottan and UCLA Anderson’s Ricardo Perez-Truglia find that the urge to get top dollar is strong enough that, even among households that have already listed a home for sale, the probability of actually pulling the trigger and making a deal declines when the prospective seller is presented with the prospect that the home’s value will continue to rise over the next 12 months.”

“Bottan and Perez-Truglia set out to create a real-world lab by contacting homeowners who had recently listed a home for sale in the spring of 2019. They sent letters to tens of thousands of homeowners containing information on local home prices. The researchers’ goal was to track the extent to which that price information impacted actual sales.”

“The researchers then tracked actual sales data over the next 28 weeks. (They sent the letters out in mid-June 2019 and tracked transaction data through year end.) Among the non-owner occupied, whose sellers would seemingly be most influenced by financial considerations, every 1 percentage point gain in the forecasted price reduced the probability of selling by nearly 4.8 percentage points.”

“Bottan and Perez-Truglia lay down real-world evidence of the causal relationship between price expectations and market behavior. But basing decisions on future possibilities is always a gamble. Just ask anyone who held on to a house or winning stock last year with the expectation it would sell for a higher price this year.”

From The Motley Fool. “While reading my real estate brokerage’s message boards, I noticed that agents were reporting home appraisals coming in low. There were rumors of appraisers never even entering properties due to COVID-19, instead of basing the appraisal on multiple listing service (MLS) photos. This is not exactly new: There are circumstances where an exterior-only or desktop appraisal is ordered. But appraisal standards appear to be greatly relaxed because of COVID-19 concerns. What effect does that have for investors?”

“During COVID-19, the Federal Housing Finance Agency (FHFA) ordered Fannie and Freddie to relax appraisal standards. (The FHFA is the government agency established after the 2008 housing crisis to regulate Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.) These relaxed standards have resulted in a mostly negative effect on home prices, making it difficult for sellers trying to sell a home, buyers trying to get a high enough loan amount approved, and investors trying to refinance loans to buy more properties or to make the numbers work on new investments. Not a pretty picture.”

“‘We have noticed that home appraisals in our area are coming in slightly lower.’ – Nathaniel Hovsepian, owner of The Expert Home Buyers, a real estate investment company in the Central Savannah River Area (Georgia and South Carolina).”

“‘The appraisals we have gotten on the houses we are buying or selling have come back, on average, 17% lower than expected during COVID-19. The real issue in the market is that there are a lot of distressed situations. Distressed homeowners who had their homes on the market are selling at discounted rates to offload the property, while homeowners in good standing are holding onto their [asking] price and not selling. Since appraisals are based on recently sold properties, the [distressed sales] are negatively affecting the value of surrounding properties.’ – Shawn Breyer, owner of Atlanta House Buyers in Georgia.”

“‘There has been a squeeze of lower appraisals for investment properties for both purchase and refinance transactions. Some lenders we have worked with in the past will not fund the purchase or refinance of investment properties at this time. – Chris McDermott, real estate broker and investor at Jax Nurses Buy Houses, a real estate investment company in Jacksonville, Florida.”

“‘I’ve had a couple of appraisals come in low during the pandemic. There were some notes on them about the changing environment due to the pandemic, which they did factor into their final number.’ – Al Wisnefske, Realtor in Wisconsin.”

“‘I’ve noticed that ever since quarantine began, home values were suddenly coming in low from appraisals. It’s not that appraisers are refusing to go inside of homes; it’s more likely that homeowners would rather not risk themselves being infected — that’s why appraisers are finding less work in these hard times. A low appraisal on a well-maintained home creates a vacuum of money. The homeowner would rather wait until the value of the home goes back up versus selling immediately. This causes the timeline for the purchase of the home to be stagnant.’ – Eugene Romberg, of We Buy Houses in Bay Area, San Francisco, California.”

“For investors who are relying on a loan, a low home appraisal can be a deal breaker, as lenders might not lend at all, or if they do, at more unfavorable terms. Low appraisals can also nix both fix-and-flip and buy-and-hold cash-buyer deals, as they could signal a bad investment and the low appraisal could be an indicator of bad times ahead.”

The Oregonian. “It’s hard to sell an unusual custom home. Look at the shiny, Aqua Star floating house at Southeast Portland’s Oregon Yacht Club marina. It’s been for sale for almost 1,000 days and the price dropped $145,000. The new asking price: $850,000.”

“The property at 14125 N.W. Germantown Road seems to have it all: 6.4 gated acres, some planted in Pinot Noir and Chardonnay grapes, and a 400-bottle wine cellar concealed in a hillside. The owners originally listed the property for $7,175,000 in 2015, soon after spending seven years and millions to create the castle, as reported in The Oregonian/OregonLive. The price is now $3.9 million.”

The Los Angeles Times in California. “It’s been a rocky road for Sylvester Stallone in La Quinta, but the movie star is trying to knock out a home sale in the resort city once more. His desert digs are back on the market for $3.35 million, or $849,000 less than his original asking price five years ago. The Oscar-nominated actor appears destined to take a loss on the property; records show he picked it up a decade ago for $4.5 million.”

This Post Has 54 Comments
  1. ‘back on the market for $3.35 million, or $849,000 less than his original asking price five years ago. The Oscar-nominated actor appears destined to take a loss on the property; records show he picked it up a decade ago for $4.5 million’

    Oh dear…

    1. Why would anybody buy real estate now, unless their goal was to incur massive losses?

    2. “The world ain’t all sunshine and rainbows. It’s a very mean and nasty place, and I don’t care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard you hit. It’s about how hard you can get hit and keep moving forward; how much you can take and keep moving forward. That’s how winning is done!”

      C’mon Rocky, you got this!

  2. ‘I’ve noticed that ever since quarantine began, home values were suddenly coming in low from appraisals. It’s not that appraisers are refusing to go inside of homes; it’s more likely that homeowners would rather not risk themselves being infected — that’s why appraisers are finding less work in these hard times. A low appraisal on a well-maintained home creates a vacuum of money. The homeowner would rather wait until the value of the home goes back up versus selling immediately’

    Go back up? But bay aryan UHS say to the moon Alice?

  3. ‘the urge to get top dollar is strong enough that, even among households that have already listed a home for sale, the probability of actually pulling the trigger and making a deal declines when the prospective seller is presented with the prospect that the home’s value will continue to rise over the next 12 months’

    Basically everybody’s speculating with borrowed money.

  4. Lincoln, CA Housing Prices Crater 10% YOY As Double Digit Declines And Mortgage Defaults Surge Across Sacramento Area

    https://www.movoto.com/rio-linda-ca/market-trends/

    As one Sacramento broker conceded, “If you’re a buyer, the broker is lying to you. I know a liar when I hear one. I’ve been lying my entire life.”

  5. “lay down real-world evidence of the cau$al relation$hip between price expectation$ and market behavior$.”

    Once ya $uddenly turn a 11 year bulli$h blind mountain corner too fa$t & realize yer off the road$ edge, plunging down into a 2,000 foot deep ravine, it matter$ knot how much expen$ive wax is on yer paint or how deluxe yer new brakes i$ or whether you only have x4 payment$ left, some thing$ quickly become:

    meaningle$$

    $ad, quite $ad.

  6. 2010 was the bottom of the market.
    If most of the homes in the Coachella Valley, Palm Springs, Rancho Mirage, Palm Desert , Cathedral City, LA Quinta, Indian Wells were to revert to 2010 prices there will be a lots of foreclosures.
    We shall see.

    1. Eye reckon that 41+ million recently unemployed folks contemplating $pending $timulus new.found monie$ on a Airbnb rental in any of those citie$ is $uddenly greatly reduced.

      Does that have any effect$ on “future” $helter.$hack price$ & availability?

    2. True, and elsewhere throughout California too…plus being that we are one of about a dozen non-recourse states expect to see LOTS of strategic defaults too if prices are cut in half again.

  7. In the last thread, P-bear asked about the famous Rothschild quote, The time to buy is when there’s blood in the streets.

    I dunno, what with all the printing and propping from the Federal Reserve, perhaps the adage needs to be updated: The time to buy is when there’s blood in the streets from stockbrokers going *splat* on the sidewalk.

    1. The time to sell is when no further increase in Fed stimulus is sufficient to make the stock market continue rising.

      It happened to Japan in the ensuing decades after 1989, and I won’t be at all surprised if we soon discover that the Fed has reached the end of the string that it has been pushing on since August 2007 or so.

      1. And the fun part will be knowing exactly where the end of that string is, and when pumping no longer works. While we’re trading quotes: “I made a fortune getting out too soon” — JP Morgan.

        1. As long as the music is playing, you’ve got to get up and dance.

          — Chuck Prince

  8. “It’s been a rocky road for Sylvester Stallone in La Quinta, but the movie star is trying to knock out a home sale in the resort city once more.”

    “The Oscar-nominated actor appears destined to take a loss on the property; records show he picked it up a decade ago for $4.5 million.”

    https://youtu.be/Jk__oAzXESc

    1. I wonder if the well to do, the ones who can afford these shacks, have seen the handwriting on the wall and are following the middle class out of Clownifornia.

  9. Got curfews?

    San Diego County
    San Diego Declares Countywide Local Emergency, Curfews Issued for Several Cities
    Several curfews for cities in the county were issued Sunday in response to the unrest
    By NBC 7 Staff
    • Published 2 hours ago
    • Updated 29 mins ago
    A protester holds a sign that reads “stop killing black people” in front of the police line during a protest in Downtown San Diego.
    NBC 7

    A protester holds a sign that reads “stop killing black people” in front of the police line during a protest in Downtown San Diego.

    San Diego County declared a countywide local emergency Sunday in response to the riots that have resulted in several vandalism reports, arson, looting and assaults and some cities issued curfews that will take effect Sunday evening.

    Protestors have held demonstrations throughout the county beginning Saturday to call for justice in the death of George Floyd, a black man who died on Monday in Minneapolis after a white police officer pressed his knee on his neck for several minutes. Floyd’s death sparked nationwide outrage that led to protests in numerous cities across the country, including a few in San Diego.

    People also protested to voice their concerns of the controversial arrest of a black man in La Mesa. In a video, a white police officer could be seen pushing the man. It is unclear what the arrest was regarding, but the incident led to the administrative leave of the officer and a special investigation.

    1. Mr Banker got caught in the crossfire of the protests.

      George Floyd
      Published 7 hours ago
      2 banks burn to ground in San Diego suburb as protests turn to violence, looting
      By Stephen Sorace | Fox News
      LAPD squad cars vandalized as police officers push back protesters near Beverly Hills

      Jeff Paul reports on aftermath of skirmish between police officers and protesters.

      The violent unrest gripping the nation spread Saturday night to a suburb of San Diego, where rioters burned two banks to the ground and looted and destroyed many other businesses.

      Peaceful protests over the killing of George Floyd in Minneapolis turned into riots as night fell on La Mesa, a suburb of about 60,000 people east of San Diego, leaving a trail of destruction.

      They torched the Chase and Union banks next door to each other, Fox 5 reported.

      1. La Mesa is an interesting choice. Had they rioted in La Jolla they would have received a lot more attention. But there is fancier looting there.

  10. “Look at the shiny, Aqua Star floating house at Southeast Portland’s Oregon Yacht Club marina. It’s been for sale for almost 1,000 days and the price dropped $145,000. The new asking price: $850,000.”

    Lemme get this straight: $850,000 for a boat? No land!?

  11. Stock market futures are…you guessed it!…up on the news of 41 million unemployed Americans, Hong Kong trade tensions, and widespread arson and looting in the streets of U.S. cities from coast to coast.

    This bull cannot be stopped!

    1. They’re back down a little bit on China pausing purchases of soybean (per m-watch). But oil is recovering.

      1. I don’t know about the stock market, but given that we recently saw oil reach a negative price for the first time in recorded history, plus more recently heard about plans for deep production cuts, I’m guessing oil has hit its low from now until whenever it goes the way of the buggy whip.

    2. “arson and looting in the streets of U.S. cities”

      Remind me never to pay property taxes in one of these cities.

      Oh, wait. I never have, and I never will…

      1. Seems like housing demand near cities may emerge from the riots and health crisis in a permanently impaired state.

      2. You’re paying property tax indirectly, in a city being affected by the protests. I guess the only way to avoid property taxes is to live full time in an RV, but even then you’re paying tax somewhere if only at a hookup or campground.

        1. +1, oxide.

          Some people here seem to think property tax increases won’t impact them if they don’t buy a home. Whatever you’re renting will suffer the same property tax increase. Do you imagine the landlord is going to eat the difference?

          1. Yes I imagine the landlord is going to eat the difference, particularly if rents fall due to the COVID-19 pandemic depression.

        2. Taxes will be paid every time you fill up the tank and every time you renew your registration.

        3. You can sell yourself any narrative you need to justify overpaying for used housing, but the fact remains that I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

          And for all the finger wagging scold replies on this thread, I’m an under-consumer.

          I pay some taxes, but my ultra frugal lifestyle means I pay alot less taxes.

          I rent less space than I can afford.
          I drive less car than I can afford.
          I already own almost every material object I will need for the rest of my life.

          Consumerism is for slaves. Don’t be one, and you’ll pay alot less taxes.

          1. And you can spin whatever rent yarn you would like. Let’s check back when you’re 65.

          2. check back when you’re 65

            I saved enough renting and underconsuming for 10 years to buy a house.

    3. We haven’t run out of stock market naysayers just yet.

      Need to Know
      Here’s why the ‘unloved but welcome’ U.S. stock market rally from March lows won’t last, Goldman says
      Published: June 1, 2020 at 7:21 a.m. ET
      By Callum Keown
      The “remarkable” upward trajectory of U.S. stocks in recent months is unlikely to last, Goldman analysts say
      Getty Images

      Brief hopes that U.S.-China trade tensions may subside appear to have been dashed.

      Investors had breathed a sigh of relief on Friday when President Donald Trump chose not to mention sanctions or tariffs at a press conference about China’s new security law in Hong Kong.

      However, Beijing is set to pause purchases of certain U.S. products, including soybeans, according to reports, sending stock futures slightly lower before the open. Traders had initially shrugged off a weekend of protests against police killings of black people.

      Optimism over the economic recovery from coronavirus, with all 50 states taking steps to reopen, has sent stocks higher in recent weeks.

      In our call of the day, Goldman Sachs analysts said the “unloved but welcome” S&P 500 (SPX, -0.39%) rally over the past two months was unlikely to persist.

  12. This Is How Deeply the Coronavirus Changed Our Behavior
    Twenty graphics that show how fear transformed human activity in 2020.
    Zoe Schneeweiss, Dan Murtaugh, and Bloomberg Economics
    May 27, 2020, 9:01 PM PDT

    In early 2020 a deadly microscopic predator sent humans into hiding and slammed the brakes on global commerce. Economic destruction like this hasn’t been seen since the Great Depression. Here we illustrate the new coronavirus’s effects on basic metrics such as gross domestic product and unemployment, the collapse in demand for fuel, the rapid adoption of telehealth, and the surge in liquor purchases. This is a new economy built on fear.

  13. invitation homes and AMH
    they are buying new homes and renting them
    how can that work even in a roaring market?

  14. Biden is babbling live from a church in Delaware.

    Something about illegal doctor students putting plastic over their bodies because they didn’t have funding.

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