Elsewhere on Bloomberg:
Where do you think this lands? Think we let commercial real estate eat shit and sink a bunch of regional banks in the process, or another massive bailout incoming? I'm thinking ultimately RTO ends up at 65% capacity filled in these buildings which is still...
The biggest difficulty I'm seeing right now is there are a lot of building owners who take their purchase price in like 2009-2018, extrapolate 6% per year appreciation because that's what the industry tells them they're entitled to, and then utterly disregard that the 4% rate they bought with and the 8.5% prime (11.5% SBA(7a)) that's out there now do not lend themselves to similar payments. Let's say you bought a $1m building in April of 2017. You put $300k down. You're at $3600/mo ($2600/mo interest-only). You need to come up with $570k in the next two months and your calculations say your building is currently worth $1.8m. Let's say I'm negotiating to buy a building in February of 2024. I can put $300k down. That $2600/mo interest-only payment and $300k down buys me a... $650k building. Yeah. You financed $700k, I financed $350k, we have the same payment. Let's say I'm negotiating to buy your building in February of 2024. I can put $300k down. I'm now paying $12k a month ($11k interest-only). Let's instead say "fuck this shit" and put that $300k in a CD making 5.5%. If I extrapolate out to when the balloon payment would be due (10 years), I've made $200k just leaving my money in the bank. Let's now say "fukkit let's rent" and you're gonna be super eager to tie me down to whatever you can fucking get because it's good for your cap rate but I'm gonna go hollupaminnit And go "yeah, that's residential, but go check out that office vacancy rate again fucko" and keep my powder decidedly fucking dry. You bought a building seven years ago for a million dollars because it was going to be your retirement. You were going to sell it for $1.8, buy another for $1m using a 1031 exchange and live off of $100k a year until it's time to do it again. And here I am, going "payment for payment your property is worth $650k fucko" and that leaves you $70k after your balloon payment. We're over a million dollars apart. On what was, in 2017, a million dollar building. Who's gonna blink first? That's what it looks like for me.
As for blinking my guess is nobody yet. Even though the balloon loan expires the banks have been playing the extend and pretend game on distressed assets. They will modify the loan one year at a time at previous rates to prevent having to take losses. The clearing event will occur then a bunch of regional banks get liquidated for other reasons and someone acquires their assets for 20-30 cents per dollar. Then they will sell them to you for 50 and make stupid profits. It’s a slow process and it hasn’t started yet so I don’t see how we get there in less than 2 years.
I dunno. There's a bunch of shit out there that hasn't moved in 20-30 years. I'm looking at a property right now where the owner has been trying to offload it for 4 years now but they've decided they're not coming back from overseas so they dropped their ask 30%. They're at full gravy on whatever they can get and general consensus is rates aren't coming back down for 18 months. If you wanna do something else you gotta blink. I'm told that one (1) commercial sale happened in Bellevue last quarter.
25-50% of book value seems to be what a lot of CRE is worth but it’s really hard to get folks to admit that. Prices can change drastically with rates and a lot of current owners are praying for lower rates. At least till the election seems like risk of hikes is low but decent chance of a cut has fueled the hopium. Retail house prices are driving by the nesting drive so they are less in touch with reality but they will be more likely to clear with a forcing function like job cuts as there won’t be extend and pretend on the consumer side.
Maybe that's the difference. Nobody in the commercial circles thinks there's going to be a cut in the next 18 months at least. I've got a pull from a title company showing every sale and mortgage going back to 2018 within 3 miles of a property I'm looking at. They're asking $1.2m, every comp you can find says $750k. They bought for $560k in 2015.
I’m In the same boat with my actual house. We looked at a house it listed for 1.1m sold for 1.25. It’s ok… For the monthly payment on that bitch I can rent a mansion on the fucking lake in Mercer island. Of course wife wants to own build equity or whatever but how much equity are you really building at 7% interest in a declining market that hasn’t accepted higher for longer is a reality with 4%+ inflation. Seems like a loser bet but it’s probably worth a couple 100k to keep her happy.
If you follow spendy houses on Redfin or Zillow you will discover that for the past 4 months or so the $1-1.5 band is going for a 30% discount. The 1.8-up is either going or not going. The $700k band is still jumping all over but the market is paper-fucking-thin right now. I think there's a lot of stupidity Eastside from Bothell-south but I've never wanted to live there so I have a hard time caring.
That was a month ago. The 1-1.5 band went from reverse to 60 in February. Nothing was moving from nov/jan or going at/under ask. Now it’s back to 10-15% over its nuts. All for a 50-100 bps dip in rates that going to retrace in the next week or so if the fed make waves about future cuts.
I think you'll find there's a lot of bugshit ask prices out there and not a lot of sales. I've seen more than a few "are you fucking kidding me" prices over the transom lately, no doubt. Eastside fukkers seem to do a lot of "wait it didn't sell in three weeks? Pull the listing down juggle the images and relist it a week later at $10,000 off" bullshit. There's a lot of hustling going on over there; I was following this one house whose garage/MIL was about to be eaten by a river, so this fly-by-night outfit put a contingency on it, remodeled the main house, put in a bunch of sandbags and covered them with landscaping, let buyers know that the whole property wasn't going to be for sale since they had already parceled off the land into four other properties, and ran open houses every weekend hoping no one would notice that the vaunted mother-in-law dwelling was one hard rain from sailing to Factoria. It still hasn't sold and they've been trying for six months.
Must be location specific everything in LFP is selling. Even if it’s a terrible money pit and they mostly are because contractor rates for Reno are outrageous. 50k for a small bathroom is considered normal. 12k for a deck is low. https://www.redfin.com/WA/Lake-Forest-Park/15855-37th-Ave-NE-98155/home/90284 Needed structural remodel and normal remodel. With the cost of labor is 300k of work for maybe a 1.2m house not including holding costs while they do the work which are around 90k a year. They wanted 1.1 down to 960 but you can’t unfuck it for that cost. https://www.redfin.com/WA/Lake-Forest-Park/3810-NE-178th-St-98155/home/92629 Pending with 15% escalation. For basic 2br 1 bath with a basement on a large lot. https://www.redfin.com/WA/Lake-Forest-Park/16051-36th-Ave-NE-98155/home/90064 Sold in 2 days 100k over needs a a remodel. Yet less than a month ago this guy went for 50 under because the initial sale failed. https://www.redfin.com/WA/Lake-Forest-Park/17031-35th-Ave-NE-98155/home/88409 Decent house but steep slope. It’s crazy out there man. Meanwhile this guy rents for an affordable 6k a month. https://www.redfin.com/WA/Mercer-Island/4456-Ferncroft-Rd-98040/home/257056 which is less than the mortgage with 20% down for any of the above projects.
I mean let's look. Your first listing sold after four months for 15% under ask. That price represents a 15% appreciation from 2019; that's borderline normal. Your second listing is out of contract and listed for $100k more than it sold for 2 1/2 years ago. It's not gonna go for that and you know it - the reasonable price on that thing is probably $850k, which is probably what the contracted buyer offered once the inspection came back. Your third listing probably has $100k of remodel in it. It's 2600sqft in Sheridan Beach within walking distance of 3rd place books - it also doesn't stink of flip, the owners are looking for a 100% profit after 10 years of holding, which isn't unreasonable and never has been. Your fourth listing spent four months before dropping $50k and also hadn't moved for 20 years. Those guys? Those guys have my mortgage and it would make you cry if I told you what that fucker looks like. They've been in gravy since before the Great Recession and could have unloaded at any point - it's fair to say "around a million" is a durable market price for about 2000sqft around LFP. That thing on Mercer Island rents for $6k a month because ain't nobody got the nut for 20% down anymore. You'll notice he's chasing the shit out of the market - fukka started at $8250 in September and errbody went "nah." Let's wargame his universe, shall we? He bought for $1.5m at prolly a 4.45, woulda been a jumbo so they would have required like 25% down. So he's in for $375k down. His mortgage is $5700/mo. Whatta ya think. Are his PMI and utilities more or less than $300 a month? I'll bet more. That guy? He bought thirteen years ago and can't rent for what he's paying on it. Lemme just say that $6k a month rent is fucking bugshit even from a 2011 perspective and yet - we're at nope. Here this'll make you feel better. This guy went way the fuck too fast for $2.3m. Now they're trying to rent it for $7500 a month. Whattaya think - if you can't get $6k on Mercer Island can you get $7500 in Kenmore? Survey says no.
That house won’t rent for 7500, which is funny because that’s how much you would bed to break even (ish) on a 1.1-1.2 mil house. Red fin says estimated rent is 5500 and even that is high. Houses are an emotional purchase right now, the right move is probably to sell and rent unless inflation goes totally nuts then you’d get screwed
I don't know that they are. A while back someone did a calc on Twitter where they argued for a median 2 bedroom house purchased with a median mortgage before the pandemic, and a family having a baby and move into a median 3 bedroom house purchased with a median mortgage after the pandemic. That extra bedroom? doubles your mortgage. I don't care how emotional your purchase right now. We're well outside the bounds of "but I want it."
The volume is so low that we’re not out of bounds of I want it and bad financial decisions be dammed I have 2-4 years left to produce babies. A lot of tech bros in our area can come up with 200-300 down and a mortgage and as long as both people work they can hold down the 7-10k house payment too. The volumes were taking about are like 20 houses a week so 1000 annually in greater Seattle. Add that to people being dead set for one hood and you would be lucky to average a house a week. Shortages create manias and manias aren’t rational.
Most don’t, 2 days or multiple offers and 100-200 over asking. The ones that sat for that long had something seriously wrong with them and were selling at a bad time of the year. Buyers get spooked if a listing goes pending and falls through or a bad remodel took out a load being wall or 2 and the yard is encroaching into the basement. 2 years ago I saw some go for 400-500 over asking so I guess it could be worse…