Monday, November 02, 2015

We are slipping into the dark murkiness of the abyss.

I'm doing real estate today because I have like four conferences tomorrow. Today, I'm here to explain why there will be no rate hike this year and probably next. AGAIN.

Last week I told you that half of the properties in my city were back under mark down. They are relatively small price reductions, so  I don't think there is a real reason to get alarmed. I think you just have to suck it up for the next year no matter what happens. Embrace the suck. Things will get better. This is not the reason for my post today.

The interesting part right now is in the rental sector. Over the summer builders found every available plot in my town and started putting up new houses. These are small plots. One site used the be a car lot. That tells you the scope of how many new units are being built. Over all the plots - I'd guess there are maybe 200 units total. But they are spread out over all sides of town. We are a growing community, so 200 units is really not that much.

One of the more desirable sites is right down town. I'd guess that site maybe has 50 new units. I might be being generous.

Before I went out of town one of these units popped up on the rental market. Which piqued my interest because you don't buy a brand spanking new house to rent. That is your back up plan. New houses are just too expensive. Plus I'd read all these stories of the Chinese buying new places to rent out.  So I thought it was something to keep an eye on. By the time I got back, another unit popped up on the rental market. And now there is a third rental from that same development. Which is so completely unusual. You just don't buy new houses to rent out.

Plus, I cant figure out how they are making this work financially. I was curious enough that I had to stop in and talk to my property manager who is also an agent. And these people, as nice as they are - they really aren't that smart. They don't ask questions. That isn't their job. I told her flat out - I know what I paid for my rental, and I got refi'd at probably one of the lowest rates we had and I can't figure out how they are making this work. Her assumption was that maybe they'd paid cash. But honestly, that doesn't make any sense either.

Why would you put down three quarters of a million dollars in cash, to only get back slightly over 3 grand a month. Who does that?! That makes no sense at all.

The other thing is that when people buy houses - you don't want a ton of renters near you. It makes the neighborhood less desirable if it's full of renters. They take less good care of the properties eventually making the whole neighborhood cheaper.

Anyway - the first unit has been sitting for 39 days now. In May rental properties were going in basically a week. Some of the "like new" houses are sitting for around 54 days. Those newly built houses basically have no yards, but the "like new" houses rent for less and they have large yards. So it's not just those new houses that are getting a little stale.

FYI - new home sales were down 11% in the last round of data.

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