.jpg?1305035296)
Everybody would like me to tell them how to get an expensive house on the cheap. OK. But how are we going to determine what a house is worth in the first place, so we’ll know how much we’re fleecing the seller out of? Newspaper articles? Housing apocalypse peddlers on the Internet? Realtors? Barney Frank? Tarot card readers?
I'm sorry. I didn't mean to toss innocent mystics in with all those disreputable people. But the cheerleaders of doom can’t help you.
I know exactly what your house is worth. That is to say, I can tell you within a few dollars what it costs to build or rebuild it. That was my job for a long time, unlike your typical housing scribe. But you can figure it out for yourself if you own a house already. Go get your Home insurance binder. It's probably got a list of what you're paying insurance against, and looks something like this:
1: Dwelling
2: Other Structure
3: Personal Property
4: Loss of Use
5: Liability
6: Medical
The dwelling number tells you what the insurance company estimates it would cost to rebuild the shambles of your house if Democrats retake the House of Representatives a tornado/earthquake/firestorm flattens it. According to my insurance company, it would take $293,000 to rebuild my house.
Interesting, that. I bought my house for $24,044, but apparently I'd have to shell out two hundred seventy-five large to replace it, or more precisely, the insurance company would. That's seems like a lot, you say. You're not the only one that said that.
The insurance company refused to insure my house. More accurately, a bunch of insurance companies sequentially refused to insure the house, because they couldn't believe that anyone could buy a house that cheaply if it was worth anything. Eventually, the insurance broker said they found an insurer for us. Lloyd's of London. I wish I was joking, but I'm not. You’re all going to learn very hard lessons about insurance, of all types, that’s really cheap but no one will sell you. I’m just ahead of the curve.
Of course, if my house burns down, the insurance company isn't going to pay to return the nicotine-stained wallpaper from 1953, peppered with a billion picturehook holes and a hundred water stains, that we currently have in the foyer. They are insuring the house to replace old crappy stuff with new stuff. So we have to subtract the components of the dwelling that aren't up to snuff on the house. My house is a horror, but it really doesn't require $275,000 in work. If I dumped a tenth of that into it, it would be quite livable, even for normal people, not just for my strange family. I knew that, so I bought it.
The value of dirt can change wildly,
mostly due to politicians running amok.
The difference between what it costs to build your house, and what it cost to buy your house, is simply subtracting for how much of the useful life of its components that is used up, then adding the value of the dirt underneath it. Where that dirt is located changes the price, and the value of that dirt can change wildly, mostly due to politicians running amok.
The value of my house, as estimated by the insurance company, has to assume that my house is right down the street from a gold-plated lifetime-guaranteed job for whoever owns it (it isn’t) and the town is presided over by the most benevolent and frugal of administrations. The paper mills are the only employers of note around here in Maine, and they only have two settings at this point: Not Hiring, and Closed Down Forever. I’m not looking for a job, so the house is worth more to me than a pulper. As far as the plot your house sits on, in most cases, it’s best to take Walter Sobchak’s advice and mark it zero. You can’t rely on government to keep your property valuable. Just the opposite, as often as not.
Let’s see if we can find some actual information about housing prices in the newspaper. According to a widely circulated article from the The Associated Press, Realty Trac is estimating that 1.2 million homes are going to be “repossessed” in 2011, a bit more than 2010’s enormous million home “loss”. Like all media types, they extrapolate that this will cause houses to be cheap nearly forever.
There was never any reason
for anyone to move to Las Vegas
The author is a fool and uses words that have different meanings interchangeably, like lost, repossessed, foreclosed, reclaimed, so it’s a chore to sort out any useful information. This part though seemed unambiguous:
More than half of the country's foreclosure activity came out of five states in 2010: California, Florida, Arizona, Illinois and Michigan. Together, these states recorded almost 1.5 million households receiving a filing, despite year-over-year decreases in California, Florida and Arizona.
The article goes on to note that in Nevada, 11 percent (!) of all the houses in the state were in some stage of foreclosure in 2010. Why this is surprising is a surprise to me. There was never any reason for anyone to move to Las Vegas, never mind millions of anyones.
But hang on. If five states had 1.5 million foreclosures in 2010, and those states account for 50 percent of the nation’s total, then there should be 3 million foreclosures, total. But in the fourth paragraph, they said there were 1 million foreclosures nationally in 2010. The headline refers to “One Million Americans, “ which indicates every house only has one occupant. Sheesh.
Let’s figure out what’s going on.
This is giving me a popsicle headache. I compounded the mistake of trying to make sense of the article by reading the comments after the article, which I can’t recommend, as reading them is likely to jackplane fifteen points off your IQ. It was interesting to learn Sarah Palin shot Kennedy, and George Bush faked the moon landings, but the real estate information wasn’t as trenchant. Let’s figure out what’s going on.
How many single-family houses are going to be foreclosed upon in 2011? Let’s use Realty Trac’s 1.25 million. Sounds bad. How many new single-family houses will be added to the housing stock this year? According to the most recent numbers from the National Census Bureau, fewer than 300,000 new, single-family houses were completed in 2010. Let’s use that for a rule of thumb for 2011. If 1.25 million houses are put back in circulation due to foreclosure (they won’t be, at least not for a good, long while; some still have people living in them, and others are essentially destroyed, see: Detroit), and 300,000 new houses are added, won’t that swamp the real estate market? Won’t free houses be offered to anyone that will take one?
That’s the conclusion everyone’s peddling, in the articles and in the message boards. I’m not buying it. I’m buying houses, remember?
Let’s do our own research. How many households are added to the population each year? The US Census should have the best info available, as they have the power to have you arrested for fibbing, so let’s use their numbers. About 400,000 in 2009. That’s way down from years before it, as you would expect in an endlessly jobless recession, but still exceeds how many new houses were built to contemporaneously expand the housing stock.
Just a few years ago, the economy supported, and people were able to build and sell, over 1.6 million new houses in a year. So it’s not like the economy has never been able to handle a million and a half houses coming on line in a year, and the market wouldn’t care what mixture of housing starts and rehabbed foreclosures feeds the pent up demand for houses.
A “foreclosed house” is not a house. The jots and tittles have to be filled in by the lawyers and clerks –who owes and owns what, what’s required to call the house complete and safe for habitation -- just like you do before you dig the cellar hole. It is only a potential house. Think of them as housing starts for future years, because the vast majority of them won’t be ready to be sold for years. And since practically no one is building any new houses, and household creation plugs along, unspectacular but inexorable, those foreclosed houses are not going to be sold for peanuts in the future, because they’re going to represent the only game in town. Buy them or rent them, they’re going to cost you real money.
Rents are already skyrocketing; wait until
a million people a year are dumped into it.
Banks, especially big, national banks, are not realtors. They’re not property managers. They have nothing in place to handle owning and selling the property they have on their hands. They will never use a retail approach to unloading them. They will sell them in huge blocks to investors, unload them on the government –who will unload them on favored investors -- or demolish them. These investors will be risking a great deal by buying real estate, and they’re going to demand an enormous return on that investment. They are going to make the most rapacious developers that built the houses in the first place look like Pollyanna.
The people who are currently living in the foreclosed houses “rent-free” while the bank’s lawyer scratches his head in front of a judge saying: “I know that deed is around here somewhere” are actually doing the bank a favor. They are of no use to the bank as paying customers anymore, and the bank has already written them off, but they will serve as a kind of disreputable housesitter for a year, maybe two, saving the bank from paying someone to mow the lawn or otherwise look after the place. By then the banks will have their foreclosure ducks in a row, and out in the street they’ll go, and into the now nascent, but soon to be gigantic foreclosure machine the house will go.
The squatters that snickered at the banks for years will not be able to get a mortgage, and will enter the rental market in droves. Rents are already skyrocketing; wait until a million people a year who used to live rent-free in bank-owned properties are dumped into it.
The cost of renting a place to live rose sharply last year: The average rental price rose almost 12% in 2010 while the average price of homes for sale dropped about 10%, according to data from HotPads.com, a website that lists homes for rent and sale.
Rents hit a national average of $1,319 by December, up from $1,181 in January 2010, according to HotPads.com. The figures were calculated from a sample of one million active rental prices on the website. (Marketwatch)
$1319 a month is more than you need to purchase the median priced United States home, which is $178,000, even if you don’t have much of a down payment and your credit is shaky.
The average selling price of an existing house has risen nationwide for the last three quarters of 2010. It rose for four straight quarters in the Northeast (where I bought a house exactly four quarters ago). Don’t make me warn you again. Buy a cheap house, fix it, and live in it. You’re waiting for a cataclysm to appear in the windshield, and it’s in the rear-view mirror.
That’s Antifreeze In My Foreclosed House’s Toilet. I Think. Yikes
