Property Grunt

Tuesday, October 31, 2006

Trick of Treat: Now I am confused

As we have all heard incomes have risen. However intially it was stated that spending was restrained.

Americans’ incomes rose last month at the quickest pace since June, but consumers did not respond by rushing out to splurge as gasoline prices fell from their summer peak. Instead, they spent at about the same pace and put more money aside. As a result, the nationwide personal savings rate came the closest it has in a year and a half to climbing out of the red.

The Commerce Department reported yesterday that personal income in September increased at a seasonally adjusted annual pace of 0.5 percent, compared with 0.4 percent in August. Personal consumption spending, meanwhile, rose 0.1 percent in September after a 0.2 percent increase in August.

But another article states the exact opposite and that spending has increased.

WASHINGTON ( Reuters) - U.S. consumers, helped by bigger paychecks and lower gasoline prices, boosted their spending last month, according to a government report that may counter fears of a sharp economic slowdown.

The Commerce Department said on Monday that personal income rose by 0.5 percent in September, ahead of analysts' forecasts for a 0.3 percent gain. The August figure revised upward to 0.4 percent.

Taking out inflation and taxes, real disposable income rose at its fastest pace in a year in September at 0.8 percent, helping to pad consumer spending at a time when concerns are growing about the economic impact of the housing slump.

Who do I believe? I am going to side with the former. With the housing market dragging everything down and people are overleveraged with ARMs or interest only mortgages, people are searching underneath every couch cushion to pay everything off.

We also have to account for the frugal sector. This is the faction that have maintained an ant philosophy while watching the grasshoppers run around and play. These are the people who were saving and putting their money into to safe investments that have provided a consistent return.

And if the Democrats gain control of the House, well I wouldn't be surprised if consumer spending is further restrained.

Monday, October 30, 2006

Killing the Rooster

So I read the details of the no fee scam press conference and it is pretty much more of the same bait and switch and bulls**t. Here's the article.

Below are some points that I found interesting.

In September, the committee called 223 real estate agents who had advertised no-fee apartments on and, two popular Web sites that list classified ads.

When asked if they charged a broker's fee, 31 percent said they did, despite what their ad said. Another 4 percent said the cost was noted on the posting, in small print at the bottom. Of those with fees, 87 percent charged either one month's rent or 10 percent to 15 percent of yearly rent.

What I am wondering is that if the committe also asked if the fee is negotiable? As I have stated before even if an apartment is a no fee, the landlord is only kicking in one month up front and it is still small pickings when cut between the agent and the house. Also the manager will make their agent push the client to make up for the difference. Sometimes an agreement will be reached where the client will put up less the difference. Perhaps an alternatve is having a section stating "discounted fee" or "fee negotiable"?

To better control the online real estate market, the committee recommended that the city Department of Consumer Affairs, which regulates advertising, act as a monitor of Internet listings and check into complaints sent to Web site administrators. It also suggested that the department increase its fines for violations, which range from $50 to $500, and that it relay any findings to the state Department of State, which can revoke an agent's license.

It sounds like a great idea but there are many ways for an agent to avoid being caught. As I have stated in a previous entry, when somone calls in for an apartment it is highly unlikely they will rent that out for a variety of reasons including they may not like it after they see it and of course there is the old standby "It has already been rented." and are two of the largest rental-listing sites covering the city. About 3,000 city rental ads are posted on every month, said Carl Ferrer, the site's founder. Both he and Craig Newmark, who founded, have tried in recent years to supervise the no-fee promises themselves. Newmark said he has gone so far as to kick repeat offenders off the site. Both support the City Council's suggestions.

"We rely currently on the community and other brokers to report the bad apples," Ferrer said. His site receives 20 to 30 complaints a month about deceitful agents, he said.

This is probably the best way to deal with this situation because you have a group of dedicated individuals who are willing to take the time to protect a site and if the brokers understand that then they will either leave or abide by the rules. But there is also another important reason why this should be handled by the community.

Robert Eichner, president of the Manhattan Realtors Association, said he was shocked by the fraud the committee found.

"The magnitude is out of control," Eichner said, adding that most deceitful agents probably use the "bait and switch" technique, luring customers with a deal that's too good to be true.

He was skeptical of the consumer affairs agency's ability to control the problem.

"The spirit is good, but do they have the resources and the staff for such an undertaking?" Eichner said. "I don't know."

Eichner makes a valid point. Consumer affairs is already bombarded with complaints, there is no way in hell they have the man power and fund to consistently lay the smackdown on deceitful brokers. There is one alternative one alternative consumer affairs can utilize but it isn't pretty. It is known as "Kill the rooster to frighten the monkey."

This is a saying that originated with Chinese monkey trainers back in the days of yore. If a monkey was being uncooperative, the trainer would take a rooster and then strangle it in front of the monkey. Seeing the brutal execution of the rooster would scare the monkey into submission.

If the bait switch problems shows no sign of abating, then what could probably happen is that a rooster will be chosen amongst the brokers. Not just any rooster, but a big fat cock of the walk. They are investigated and evidence is gathered and then Consumer Affairs or some other governing body pulls an Elliot Ness and a raid is conducted against the brokerage resulting in a perp walk of handcuffed agents in front of the media and the brokerage being shut down for a couple of days.

The resulting embarrassment and loss of profits would make the rest of the brokerage community drop a load in their pants and put them into lock step formation marching towards honest ads. That is until the next round of bait and switch ads start to pop up.

Honestly, I doubt it will ever come to this because as I said before it is a question of resources and I do not see going after scume bag brokers as a high priority.

Thursday, October 26, 2006

Rental scam press conference

I got this announcement from Craig Newmark.

ADVISORY: Renters beware - One-third of ³no fee² online ads
have hidden
brokers¹ fees

October 25, 2006

Contact: John Collins
212.788.7121; 646.263.1877

Renters beware: One-third of ?no fee? online ads have hidden brokers?

CITY HALL ? One-third of ?no fee? online ads have hidden brokers? fees,
a new report to be released THURSDAY, OCTOBER 26th by the City
Oversight and Investigations Committee, chaired by Council Member Eric
Gioia. The report outlines the problem of fraudulent advertising on
Internet sites, such as and

WHAT: New report on the problem of hidden brokers? fees in online

WHERE: Red Room, City Hall

WHEN: Thursday, October 26, 2006 at 11 AM

WHO: Council Member Eric Gioia, Council Member Leroy Comrie, Council
Gale Brewer, Council Member Erik Martin-Dilan and Carl Ferrer, founder
**NOTE: Craig Newmark, founder of, will be available via
conference call after the press conference.

I could be wrong but it looks they are going to be focusing on "double dipping" in the real estate industry. Basically its the unoffical markup of rental fees. For instance, if you go for a no fee apartment and you are able to negotiate the fee down to 1 months rent, you might be getting screwed over because the broker is being a full 15% by the landlord. What is legal if the client pays a portion of the fee and the landlord pays the difference resulting in 15%. Oh what will those wacky rental agents think of next?

Wednesday, October 25, 2006

This could have been me.

When I found this on the Inman blog I almost went into shock.

Full disclosure
Quick: name a Web-based tool that anyone with a browser and Internet access can use to research the background of a loan applicant. Oh, and it's free.

If you didn't say Google, go spend a few minutes on "," the blog written by a 24-year old Web site programmer who got in over his head investing in real estate. If you haven't heard Casey Serin's story, between October 2005 and May 2006, he bought eight homes in six states using 100 percent stated income loans, getting $15,000 to $50,000 cash back on every loan, he says.

Of course, "Everything went wrong," Serin writes in his first blog entry. "The rehabs were way behind schedule and grossly over budget. I was too busy flying around the country visiting each job. No time to manage details. I couldn’t sell the houses fast enough. I managed to sell only 2 out of 8, and got stuck with the rest."

As a last resort, Serin says, he went for one more cash-at-close loan. The Sacramento, Calif. resident found a builder willing to pay his closing costs and give him $50,000 cash back at close and lease the house for 12 months. With his credit maxed out, Serin had to call around to find a loan he qualified for. "Finally I found the right program. I was barely qualifying but everything was going smooth. But then... They Googled me!"

Serin was trying to claim the house as a second home. The would-be lender found another blog where Serin talked about investing in fixer-uppers around the country and backed out. "My mortgage broker was really amazed. He has never seen them get so picky and go to such length to investigate the borrower," Serin writes.

Since then, he's sold another home and is down to five. Some have questioned whether his blog is just a publicity stunt, but USA Today verified Serin's closing documents before running a story Sunday declaring he may be "a poster child for everything that went wrong in the real estate boom."

With entries like "Will I Go to Jail for Mortgage Fraud?" Serin's blog is a fascinating read. The details of how he got in too deep are a revelation, and so far he's resisted the advice of readers to keep a few things to himself in the interest of self-preservation.

"Yes you committed mortgage fraud," one reader says. "You not only provided false and intentionally misleading information in your loan application but you also blatantly lied about occupying your investment properties to get a better rate ... For your sake, STOP telling people about this and consult an attorney immediately. Good luck."
--Matt Carter, Inman News

This freaked me out because I could have been this guy. When I initially entered the real estate field it was to become an investor but it was only after my big sister smacked some sense into me and reminded me that I knew nothing about the industry except for some books and CDs I listened to. She suggested I become an agent in order to get a feel for the industry. Worst case scenario I could walk away without incurring an serious damage to myself.

I am a bit conflicted about this guy. I admire the fact he is being honest with himself but with entries like Am I going to jail for mortgage fraud, he is asking for more trouble along with his debt of $2.2 million. He should really learn to shut the f**k up and take the advice of one his readers and get a really good lawyer. Currently the government has a serious hard on for mortgage fraud and I would not be surprised if they decide to take Casey to the bat and beat him with it.

If he is lucky he could pull a savekaryn and land himself a book deal and speaking engagements. Considering there has been a tremendous amount of resentment towards rising property values due to real estate investors flooding the market, I sense there will be others who will not be so sympathetic to his plight.

I do recommend his blog because it will teach what not to do in real estate and I will be analyzing his entries in the near future.

Casey, if you are reading this, please get a lawyer. If not for yourself then for your wife. Even if you get rid of your properties, you are nowhere near from getting out of the water.

Tuesday, October 24, 2006

Green Building Discussion

I got this email from those nutty people of Dan Klores. I thought they only worked with celebrities. Any of you who are interested in Green buildings are welcome to go.

WHAT: UTC Chairman and CEO George David and Turner Corporation Chairman
and CEO Thomas Leppert to discuss sustainable building technologies at
Green Building Council Panel

WHEN: Tuesday, October 24, 2006 5:30 * 8:00 p.m.

WHERE: International Center of Photography, 1133 Avenue of the
Americas, (corner of 6th and 43rd)



United Technologies Corp. Chairman and CEO George David will join The
Turner Corporation CEO and Chairman Thomas Leppert in a panel discussion
sponsored by the New York Chapter of the US Green Building Council at
the International Center for Photography on October 24, 2006, 5:30 *
8:00 p.m. The panelists will discuss sustainable building technologies
and the greening of corporate America, including their companies'
environmental performance guidelines.

Moderating the panel will be Robert Fox, a leading "green" architect
and the man who led the design team for the Conde Nast Building at 4
Times Square, the first high-rise office building in the U.S. to implement
clean-technology applications and sustainable principles.

UTC ( is a Fortune Global 500 company based in Hartford,
Conn., that provides a broad range of high technology products and
support services to the building systems and aerospace industries worldwide.
Turner ( is the leading general builder in
the U.S, completing $7.4 billion of building construction in 2005.

WHAT: UTC Chairman and CEO George David and Turner Corporation Chairman
and CEO Thomas Leppert to discuss sustainable building technologies at
Green Building Council Panel

WHEN: Tuesday, October 24, 2006 5:30 * 8:00 p.m.

WHERE: International Center of Photography, 1133 Avenue of the
Americas, (corner of 6th and 43rd)

Monday, October 23, 2006

Noise, Wiseguys and psycho neighbors: What New Yorkers do for their homes.

In Teri Karush Roger’s latest article, displays the levels of tolerance people have when living in New York. Issues range from noise to homicidal tenants to people who work for “the family”.

Among the stories presented I feel the three below are classic examples of what some New Yorkers go through for housing. The first story is about Pam Fica who had to deal with a psychotic landlord in a share she was living in.

People are more likely to vote with their feet when the solution begins to seem more bothersome than the problem, especially when the problem is the landlord.
Pam Fica learned this the hard way during a two-year tenancy in a town house near Washington Square in Greenwich Village.
Ms. Fica, now 29 and an agent at DJK Residential, thought she had found the perfect share in September 2004: $840 per month for a room in a sprawling four-bedroom apartment at the top of a five-story town house owned by a woman who lived downstairs — and ran the establishment more like a halfway house.
“She had a whiteboard in her apartment where she would write our names and try to jot down our comings and goings,” Ms. Fica said. The landlady, who had lived in the building since the 1940’s, also interrogated nonwhite visitors and disapproved of long-haired tenants, who might clog the plumbing, she said. (Ms. Fica wore her hair up during her initial interview with the landlady and passed inspection by accident.)
Then, there were the mandatory “team meetings” organized every few weeks in the younger women’s living room. The object was to “tear apart every problem, but she would focus on things like dirty dishes in the sink, that we had too many plants and too much furniture, causing damage to the ceiling below our apartment. And whenever we would bring up any problems with the lack of heat”—at times the temperature dropped to 50 degrees in the winter —“or the freezer, she would say, ‘That’s not my problem.’ Anytime you would challenge her on something, she would say, ‘I’m not going to renew your lease.’ ”
Ms. Fica said she shivered it out for two years because of the prime location, good roommates, cheap rent and her own low-maintenance personality.
“I think I lost sight of what normal was,” she said. “My friends started really getting concerned. ‘You don’t even realize how unusual this is,’ they said. ‘You’re being abused.’ The more I thought about it, the more I realized they had a point.

One could argue that Ms. Fica was being stupid and materialistic. But I disagree. Washington Square in Greenwich Village is a prime location especially if you are young. Why do you think NYU moved down there? Rents now in that area are upwards to about $1800-$2000 range and those are the cheap apartments. Ms. Fica was willing to deal with the insanity of this woman for the location and rent. And now that she has moved she has a normal lifestyle she has to use free beer to get her friends to come uptown.

I knew one girl from college who lived with a senior citizen for several years because of the prime location and the cheap rent. For those of you dreaming to live in Manhattan this is an extremely expensive and competitive environment when it comes to housing. So unless you have a trust fund, make at least 100k a year or mommy and daddy are willing to support you then you are going to be encountering similar situations in order to live in a prime location and keep it within you budget. I mean look what happened after Ms. Nica.

(When Ms. Fica left, she and her roommates were responsible for bringing a new candidate/victim for their landlady to vet. Their advertisement on Craigslist asked, “What is your tolerance for a crazy landlady: high, medium or low?” With affordable New York City rentals an endangered species, the ad received hundreds of responses.)

This is one of my favorites.

Ms. Sarasohn of the Corcoran Group described a couple who bought a $6.5 million duplex in an Upper East Side town house. The wife’s misgivings about not having a doorman were partly soothed when she learned that her adjoining neighbor was said to be a high-ranking member of the Mafia, whose presence on the block (and black car parked out front) were thought to ensure the area’s safety.
Her clients lived there for two years, Ms. Sarasohn said, but the wife “gradually started to really not like not having a doorman because she traveled a lot and needed luggage help, and she didn’t like it when the elevator broke, and it needed work. But the straw that finally broke for them was when they were hosting an Oscar party in the beautiful wood-paneled library and the flat-screen TV wasn’t working.”
The next day, Ms. Sarasohn said, a repairman said the TV was working fine; the only possible problem could be a wiretap on the adjoining neighbor’s lines. The reality of the situation began to sink in, and her clients decided to move that night. They eventually bought a prewar co-op in a doorman building.

Only in New York City would having an associate who works for “the family” be considered a benefit. Unfortunately, having an associate in "the family” as aneighbor only works in certain living situations. It definitely does not work if they are your next door neighbor in your building. The lack of a doorman and a wiretap messing up your tivo is the least of your problems. Remember, when “the family” decides to lay off somone they are going to give out more than a pink slip and in the family they do not give out golden parachutes, they are more likely to give out golden cement shoes. So the last place you want to be is in the crossfire if you neighbor is "called in for a meeting".

Ideally, having a “family associate” as a neighbor works if they live far away from you so not to attract unwanted attention like gunshots but are near enough to deter anyone from committing burglaries or causing any disturbances of the peace like playing loud music. Which is probably why a more suburban setting is ideal since they have their own houses. But do not mistake them as the neighborhood watch. They have their own duties to attend to.

If you live in New York long enough your going to have a story about dealing with a psycho as this poor couple demonstrates.

Reluctant to be chased from their large $3,000-a-month apartment, the couple hung on for nearly three years. They tried to feel compassion for their obviously disturbed neighbor; they tried to persuade the landlord to hire a security guard for the lobby; they tried devising an alternate way to enter and leave the building. Whenever things got out of hand, they called the police, whose sympathetic response boiled down to, “We can’t do anything until she hurts someone

The last straw materialized in the form of a sharpened stick.
On a warm fall afternoon shortly after the couple’s son, Zachary, was born in September 2004, Mr. Kaplan was carrying the baby as he and his wife approached their building, and the disturbed woman saw them coming. “She had a sharpened, jagged stick in her hand,” Mr. Kaplan said, “and she would not move out of way. I said, ‘Excuse me.’ ” The woman replied with an epithet, and Mr. Kaplan responded in kind.
“She pulled this stick and held it up to my neck,” Mr. Kaplan said. “I was terrified. I knew what she was capable of, with a baby there on my chest. Somehow or another, I spun and got past her. She did not move the stick.”

Now I know that some of you will feel that the landlord fell short of their responsibilities in terms of protecting the tenants but you have to understand the landlord can only do so much especially if the units are rent stabilized. Unless the tenant is delinquent in rent or there is evidence that the tenant committed an egregious act against the building and its tenants only at that point will landlord have the green light to take action against the tenant in question.
And even if they decide to go ahead to evict the tenant, it is a long and costly process leading to my next point. You will notice the overall theme in this article is that the solution that was widely used was simply to retreat and find another place to live. Outsiders may deem this uncharacteristic of New Yorkers in contrast to their rough non-nonsense attitude. But when you live in this city long enough you learn that sometimes discretion in the face of valor is probably your best option. It might seem passive aggressive but this a city that can tear a person apart in a day. Sometimes it is best to retreat.

I have been in situations where I have considered to move and fortunately all it took was calls to 311 and a strong sense of patience on my part to rectify the situation. Eventually my patience will wear out and the rent I am paying will no longer justify my living here. Until then I better save up.

Wednesday, October 18, 2006

Real Estate Chatter: Knights of Prosperity are looking for a hardware store

The Grunt has head on the wire that Universal productions Knights of Prosperity is looking for a hardware store to shoot a scene involving a safe. The requirements are the following.

1. It will be a shoot that takes place between 10/30/06-11/2/06 but it will probably take a day or two.
2. The space must be adequate for a production crew and their equipment.
3. Owners will be paid for their services.

Seeing that these people are based at Silvercup studios I am suprised that aren't having their set designers whip something up. But if you are interested, give Silvercup a call.

Tuesday, October 17, 2006

Well that was quick:Stuy town sold!

I am surprised this happened so quickly. I thought we were looking at least till the new year.

In what is believed to be the most expensive real estate transaction in American history, Metropolitan Life Insurance Company has agreed to sell Stuyvesant Town and Peter Cooper Village on Manhattan's East Side for $5.4 billion to an investment group led by Tishman Speyer, real estate sources told The New York Sun.

The deal is expected to net the city and state more than $100 million in tax revenues.

I feel this is the last hurrah for the real estate market. It is all going down hill from here. What I am talking about? We already are screaming down this double black diamond of a real estate market screaming "I have no brakes! I have no brakes! Get out of the f**king way!"

But what a way to end the era.

Monday, October 16, 2006

Real estate chatter: Rentals market sucks ass

The Grunt has heard on the wire that a manager of a very well known rental firm has voluntarily stepped down. Apparently the new owners of the company are compeletly clueless of how the rental market works and have been squeezing their managers to make ends meet in this goatf**k of a rental market.

So now this manager has had enough of their bulls**t and has decided to become one of the unwashed masses and go back to being a broker. There are many benefits of being a manger which include a salary and getting a percentage. But you are also the designated sphincter which means if your office isn't making any money well then as the designated sphincter you will get reamed. Apparently this manager has had one too many prostate exams and has decided to take his chances on his own. He may lose his salary but he has probably amassed enough listings to keep him afloat for a very long time.

What I find a bit alarming is that this manager helmed one of the highest closing offices this rental company. He would often go over the quota for NYT and when marketing would piss and moan about him being over the budget, he would shut them up by offering to pay for it out of his own pocket. And even when the rental season ended, he would not accept that as an excuse and demand that his agents make deals.

It had been said amongst his agents that the only way he would ever step down from being a manager was when somone called a hearse for him. So if a warhorse like this manager is leaving then the rental market must be beyond atrocious.

Friday, October 13, 2006

I love Lucy!

Remember in July when I announced that Sara Clemence, Editor of the real estate section of Forbes, was seeking a reporter to join her staff? Well, Ladies and gentlemen, I would like to introduce you to Lucy Maher.

Lucy honed her skills at Ladies Home Journal and did freelance work in real estate at the Daily News and the New York Post. This semitic starlet also did time at! Do you know how much of a badass you have to be to work at Time Life? Lunchtime at the cafeteria itself is a full contact sport when lobster rolls are the special of the day. So you have to be tough. Amd those expertly plucked eyebrows of hers just exudes her journalistic pedigree.

Now that Lucy has joined team Clemence over at Forbes Magazine, the Grunt would liked to welcome you and is looking forward to reading your work. Sara, I am putting the fishheads away. But give the word and I will come out slinigng.

An interesting fact about Lucy is that she is a former member of the Israeli Pro Wrestling Association and wrestled under the name of "The Maher-ster".

Actually, I am joking about her being a professional wrestler. But you have to admit that is a kick ass name.

Wednesday, October 11, 2006


Check the news. It has been reported that a chopper has crashed into the Bel air building by 70's and York.

Real estate invades the UFC

If you saw lat night's bout between Tito Ortiz and Ken Shamrock, you would notice that Tito leased out ad space on the front of his trunks to American Home Mortgage. It has to happen sometime. I am curious if they knew about his relationship with Jenna Jameson. Perhaps we will see Club Jenna advertising for the mortgage industry in their productions.

Saturday, October 07, 2006

Not another broker open house: Part 2

Remember my entry awhile ago Not another broker open house?

I walked by that development yesterday which is east of 1st ave on 59th street where in front of the building there were mountains of TVs, dvd players and stereoes. I assumed that these were incentives that were given to the new owners. But after inquiring why the sidewalk had become a dumping round for all things Sony, I learned that these appliances were to be installed in the apartments for they were now rentals.

It seems that the condo to rental conversion has become the rage becasue there are no buyers and the market has pretty much popped. What does surprise me is why these items are being installed into these apartments. Perhaps the owners intend to create an air of moder sophistication. I think it is a complete waste of time and money. First of all TV's, DVD players and stereos are constanly being updated so whatever they are installing now will look pretty antiquated by next year. Also people do not rent an apartment because of a tv or dvd player. They rent it because it suits their needs. The owners would have been better off just using the money for OPs because with a building that far east they are going to need the help of brokers to get them rented out.

Tuesday, October 03, 2006

Bringing sexy back?: The stock market

A recent Massey Knakal market reported they discussed the current state of the market cycle

“We are anticipating a drop in volume in sales back to the 2004 levels of 2.6% in 2006. We are also anticipating a market wide decrease in value of about 3.5%."

When a commerical brokerage group on level of Massey Knakal presents these facts, you better damn well listen. They are the Special Forces of commercial brokerage who close multi-million dollar deals like meth induced beavers in an Ikea. And although they are not screaming red alert, they are obviosuly aware that changes are underway for the investment landscape and one of those changes is occuring in the stock market.

Since last week the stock market is on the comeback trail that would make Rocky proud and has continued today.

NEW YORK (AP) -- The Dow Jones industrial average surged past its all-time trading high of 11,750.28 Tuesday, taking yet another step in its recovery from seven years of market turmoil.
The index of 30 blue chip stocks moved into uncharted territory after briefly passing its record high close of 11.722.98 on Thursday and Monday. Both records were set on Jan. 14, 2000, before the stock market began a precipitous decline caused by the dot-com bust and recession and worsened by the aftermath of terrorism and corporate scandals.

I know one person who specializes in distressed real estate who had a devil of a time finding investors for his deals during the dot com boom era because investors were getting much higher returns in the stock market. There is a distinct possibility that this scenario will return. If this trend continues the possibiltiy looms that more steam will be taken out of the real estate market as more investors transfer their money to the stock market.

Don't get me wrong. I respect the returns on a good real estate investment. But real estate is in hostile waters.Investors are starting to see it will be more difficult to get the returns they seek. Considering that playing the stock market is so much more easier and quicker to do it will not surprise me that more people will gravitate towards the market.

A commercial transaction takes a tremendous amount of time and effort to conclude. It is not uncommon for a commercial deal to take year to close. During that time other opportunities to put those funds slip away and it will be awfully for peopel to simply to commit a vast amount of money to an investment that will not yield as much as the stock market.

What do you think folks? Feel free to comment.

Tell us something we don't know

According to the New York Times in their article Across Nation, Housing Costs Rise as Burden .

Manhattan appeared to have the second highest number of male couples living together, following Los Angeles.

Our homosexuals came in second place? This is unacceptable. Next time they have to blow away the competition.

Sunday, October 01, 2006

Blood In The Water

Last week we were bombarded with a ton of news regarding the housing slow down and people screaming over ARMS and interest rate mortgages as they start to kick in.

This is an excerpt from the Financial Times.

Prices of existing homes fell for the first time in 11 years and the backlog of available homes for sale was at its highest since current measures began, underlining the significant slowdown in the housing market.
Existing-home sales slipped 0.5 per cent to an annual rate of 6.30m units in August from a level of 6.33m July, according to the National Association of Realtors. They were 12.6 per cent down on the year before

Housing inventory levels rose 1.5 per cent to a 7.5 month supply at the current sales pace, compared with 6.3 months in July, and 4.7 months at this time last year. The inventory was at its highest since since condominiums were added to the survey in 1999. Existing home sales account for about 85 per cent of the housing market. They have fallen every month since March.

Economists had expected a fall in sales to 6.2m, following a sharp 4.1 per cent decline in sales in July.

This should not be a surprise to any of us. We all expected that as interest rates began to kick up and as more inventory hit the market, buyers would begin to step back and take a breather.

Despite the evidence, there are people who are still maintaining the position that the Titanic has not hit he iceberg and that sinking feeling is just the market adjusting not the ship plummeting to the ocean floor

Blanche Evans, the author of “Bubbles, Booms, and Busts: Make Money in Any Real Estate Market," throws in her two cents over this market in a recent NYT article

That title is completely misleading. You can’t make money in any real estate market. If you are in a market where buyers aren't buying or sellers aren’t selling then you are not making any money. There are also a ton variables that are out of your control that can prevent your profits.

No. I haven’t read her book. And after hearing her advice on how to weather the storm, you will see why.

If you must move because of a job or some other reason during a buyers’ market, she recommends renting your house until the market improves.

What if you can’t rent your house out? What do you do then? What if it doesn’t appeal to clients? What if no one wants to rent. Then what do you do? Even in Manhattan which is at a historical low in rental vacancies there are apartments that are vacant due to undesirable location, undesirable rent or the rent is too high to justify the apartment.

And let’s say you do rent the apartment. Is the rent going to be enough to cover your mortgage payments? If it doesn't you stil have to cover those payments out of your own pocket. And even if it does cover your mortgage it won’t for long if you have an ARM or an interest only mortgage.

For sellers, Ms. Evans emphasizes that the most important factor is how long they have owned their home. “You may not make as much, but if you’ve owned your home for several years, you’re still going to make money,” she said.
Her advice: Don’t sell unless you have to.

Guess what genius. A lot of people have to sell. There is an massive amunt of people who took interest only loans or ARMs to buy overpriced homes. By betting on appreciation they figured they could flip their homes in the next couple of years. But with the market tanking and interest rates kicking up, these sellers are stuck in the middle.

“People who owe more than their house is worth took a risk and are paying the price of that risk,” Ms. Evans said. “Some risk and get the reward; others risk and they lose. But it’s a calculated risk, because you can buy a home with very little down. So you’re actually risking other people’s money.”

OMFUG! Yes. You are risking other people’s money. They are called lenders. But guess what? You still have to pay that money back plus interest. Calculated or not it’s a risk.

“ Stay put and improve your home,” she said. “Wait out the slump. Use the down market as an opportunity to update your house and make sure it looks good. Then when the market improves, your property will compare more favorably with others. A house is a use asset. You can live in it while it grows in value, but you have to maintain it. You can’t hold a stock certificate over your head when it rains and expect to stay dry.”

Okay. If another f**king realtor makes the argument that you can’t use a stock certificate or a bond as shelter I am going to be beat them with a chair. Stocks, bonds, real estate are in different asset classes. They have their unique strengths and weaknesses. One of the key strengths of real estate is that it is in limited supply and it is immoveable. However depending on the market it is also its greatest weakness. To use an extreme example if you have a house that is next to a toxic waste dump, no amount of sprucing is going to increase its value. However if you bought stock in a company and you find out that they have been building homes near toxic waste plants, all it takes is a keystroke or two and you can dump that stock.

“ This is all about improving your position,” Ms. Evans said. “When things are bad, they’re not bad for everybody; they may not be bad for you. That’s when you should improve your position. Buy, sell or hold. It’s a poker game.”

And a lot of these people don’t realize they are holding a dead man’s hand. There is no way to improve their position. All they can do is fold. I know the teeming millions will scream” Shut the f**k up Grunt. All you do is b***h, b***h, b***h. But if you read Bob Tedeschi’s article on interest rate mortgages you will see that I am not the crackpot that a lot of people think I am.

ARM’s have come in and out of vogue, but their latest surge began about five years ago, when the Federal Reserve Board started cutting key short-term interest rates in an effort to stimulate the economy. But now that the Fed’s focus is on reining in inflation, rates have risen steadily. The increases have caught many homeowners in a “can’t pay, can’t sell, can’t refinance” vise, in which their ARM payments are outpacing their incomes and their homes have not appreciated enough to help cover the cost of a refinanced mortgage or to allow them to sell and walk away. For them, foreclosure looms.

Bernake recently put the brakes on interest rates but don't let that lull you in a false sense of security. According to Daniel Gross if the rates don't get us then interest will.

MANY analysts believe that the Federal Reserve has stopped raising short-term rates. And in recent weeks, long-term interest rates have fallen as investors have fretted about slowing growth. But because the government continues to replace lower-yielding securities issued in the last 10 years with higher-yielding debt, the government’s interest cost is also expected to continue to grow rapidly. The Congressional Budget Office projects that the interest bill, after climbing nearly 20 percent this year, will rise 13.2 percent in 2007, to $240 billion, and more than 8 percent in 2008, to $270 billion. With each passing year, interest payments are likely to eat up a bigger chunk of total spending and crowd out other priorities.

Another indication of how bad things are going get is how the brokerage industry is weathering the storm. In a recent NY Sun article Ms. Esses of Bellmarc gives the rundown of how brokers are faring.

• Everything now is negotiated downward from the initial asking price, by a minimum of 5% to 7%.

• Prices are down at least 10% from a year ago on practically everything.

• While American buyers are hesitant and reluctant, "the Chinese and Russians are coming into the market like crazy."

• Three- and four-bedroom apartments on Fifth and Park avenues are still being quoted at $15 million and $16 million, but there are a lot more of them on the market.

• Chelsea and the West Village are the hottest areas in the market, while the Upper West Side — where prices have risen out of sight — is moving very slowly. The Hamptons have turned especially soft.

• Look for boards to become much more lenient and flexible. It's only a matter of time.

She also puts her take on a crash.

"We're in a transition stage where sellers will have to come down in price, and right now it's a waiting game to see what the buyer will do," Ms. Esses said. "Since there's only one Manhattan, I don't see a crash. But who knows?"

The article makes note of the reversal of fortune for brokers.

In recent years it's estimated that the ranks of brokers expanded nationally by more than 200,000 at new and existing real estate firms. With the housing slowdown accelerating, many more career changes are likely.

In effect, the end of the current real estate boom is also signaling the end of the seemingly nonstop national flight into the real estate brokerage business by those folks who figured such an entry was practically a guarantee of a lucrative six- or seven-figure annual income.

Jonathan Miller also throws in his two cents about the gap between buyers and sellers which he addressed in a previous Curbed entry.

Real estate appraiser Jonathan Miller, president of Miller Samuel, also cites a sharply slowing trend, with actual sales activity flat. There's a big gap between buyers and the sellers, and more realism will be required by the sellers, he said. His reasoning: swelling inventories, especially condominiums, which he notes increased nearly 6% between the end of June and the end of August. He largely attributes this to new development, which he says is adding product to the market faster than it can be absorbed.

So the game of chicken is still on. And everyday there are more casualties in the broker community.

Early in 2004, Mark Clemente left his uncle's dry-cleaning plant in Detroit to go east and, hopefully, make his fortune in real estate. Shortly thereafter, he became a broker at E&G Realty, a small firm in Newark, N.J., where he earned a respectable $195,000 in his first year.

But it has been downhill ever since. The housing slump and fierce brokerage competition led to the demise of E&G. Mr. Clemente's income collapsed, and over the past six months he has held a number of part-time jobs, including one making sandwiches at a Queens delicatessen that paid him $100 a week. "I'm going home; my real estate career is over," he said the other day.

So where does that leave the Grunt? Let's just say I have a contingency plan or two. More on that later.