Posted on 05/30/2023 8:05:47 AM PDT by dynachrome
Elon Musk is once again ringing the alarm on the US real-estate sector.
"Commercial real estate is melting down fast. Home values next," the Tesla and SpaceX chief tweeted on Monday.
The tech billionaire made the comment in response to a tweet by the Craft Ventures founder David Sacks, who said that a big chunk of commercial real-estate debt was due to mature soon.
Musk has previously warned that cracks could appear in property markets following turmoil in the banking sector. For example, the clean-energy pioneer said commercial real estate was "by far the most serious looming issue," and cautioned regional banks could experience a wave of defaults because of their huge exposure to the sector.
The debt-fueled industry has kept investors on edge in recent months, given that it faces a raft of headwinds. These include higher interest rates, tighter credit conditions, and work-from-home trends.
(Excerpt) Read more at markets.businessinsider.com ...
Here in Florida the homeowners insurance costs could eat up much of the reverse mortgage payouts.
Once you have a mortgage, you must maintain homeowners insurance coverage (whose price is not capped by law or contract).
The problem is, a good portion of that wealth is just illusory, and it was that way long before Biden took office. If you keep expanding the money supply, or you keep interest rates near zero for a couple decades, then it looks like everyone’s home prices just keep going up. But the value of the homes is not actually going up. And eventually there will be a correction and either the value of the currency must drop or the price of the homes must drop, until the value and the price tag are back in line again. It’s inevitable. Market manipulation is not a valid strategy for creating wealth.
Bingo. My wife and I bought our house in 1999. Paid it off in 10 years. Our plan is to stay here at least another 10 then sell it and downsize. Raised two kids and a couple of dogs here. If I sold it today, I could get 3 times what we paid for it. But I would have to pay stupid high prices somewhere else.
Like Dave Ramsey said, the new status symbol is no longer the BMW but the paid off house.
>>Hoping it goes way down so I can buy material for the new house cheaper.
Wood building materials has already plummeted quite a bit.
“Clean energy pioneer,” snort
It seems simple but the fact is that mostly commercial stuff doesn’t stay vacant because the rents are too high. It’s usually vacant because there is no viable business that wants the space. It’s a whole different market from residential renting.
If I have apartments, I just put some ads up and I’ll have the phone ringing off the hook and more applicants than I can deal with. But with commercial space, you generally need to hire brokers who go out and network and actively try to convince businesses to lease the space. If you do get calls based on just having a sign in the window, most of those calls are going to tend to be from people who can’t qualify any way.
“A house is a place to live, not an investment”
It absolutely needs to be both things.
If you don’t expect it to at least hold its value, you are making a mistake.
We are an ownership society.
People own things and control their environment and futures.
Real estate values will never go straight up forever, that’s an unrealistic expectation.
But successful people own versus just renting .
It’s not rent free. You have to pay the Government Rent ( property tax)
>>Here in Florida the homeowners insurance costs could eat up much of the reverse mortgage payouts.
Yea, Florida is a mess in that regard - between escalating insurance (property, hurricane and now the required flood ins), new rules for HOA’s forcing any buildings over a certain height to drastically raise HOA fees to cover future maintenance needs, and the frequent (even if they don’t get more frequent) natural disasters, I have had to rule it out as a retirement destination - seems only the very rich and very poor will be able to live their - the rich can afford it, the poor have nothing to lose if their rental washes away.
Last thing I want to worry about in retirement is how much my HOA fees and insurance premiums are going to go up every year with no end in sight. Its too bad, the politics are decent, and the weather is more-often-than-not pretty darn nice.
“It’s impossible for me to feel sorry for any commercial real-estate owners who just let the property sit vacant for months or years. If it’s not renting for what you want, lower your darn prices”
I’m in agreement with that.
Just as with hamburger flippers and baggers, economic reality needs to be accepted by commercial landlords and banks. Banks need to permit commercial landlords to offer rental rate reductions - the Internet has altered markets for real estate.
My house would be taxed by the school district on a year-round basis even if I left it vacant for 80 days to go on an around-the-world trip.
Government needs to be run on a rational basis and a rational amount of taxation needs to be levied and collected.
It should be borne in mind that much commercial real estate was acquired at say 1983, 1995, 2005 and 2012 pricing.
Commercial buildings are quite often owned for decades. Houses are often sold three to ten years after purchase.
Unless you’re a rehabber or landlord.
you’re wrong too. Banks don’t stop owners from offering incentives or rate reductions or anything else. It is ALL market driven. Space is getting filled if it’s in market and there is a demand. The bulk (if not all) vacant space is in crime infested, blue areas that are run by people destroying the municipality.
For anyone that thinks a landlord/owner WANTS to sit vacant, you’re utterly clueless.
“Chinese wages are 27% of U.S. wages”
I’m seeing more stuff made in India and Vietnam.
In my time in St. Paul and Minneapolis, now decades ago, the cities became immediately unsafe (and St. Paul appeared uninhabited), after 5 PM.
Some metro areas like Manhattan and the Chicago Loop were just fine after 5 PM, but haven’t been, since COVID started.
Liberal policies, coupled with lost revenue, due to remote work viability, is allowing liberal enclaves to finally destroy themselves by the mere weight of their insane, counter-productive, policies.
Finally!
Unfortunately, it now limits places I would have gone on vacation, which is the next step in accelerating their downfall.
I expect them to continue toward becoming copies of Detroit and East St. Louis.
My sister in law said, “I bought it as an invu-u-ustment!”
Total nut case.
Lumber, OSB and plywood are the least expensive materials based on volume that goes into building a house.
Yes, they are all down from their highs of a couple years ago. However, try buying doors, windows, appliances, kitchen cabinets, flooring, romex, electrical panels and LABOR.
I bought a Marvin 6’ sliding door just recently. It was $2200. Just for the door. Plus installation.
It costs around $200-$250/sq ft in many markets now to build a new home.
True, unless you plan on downsizing when you retire. You can sell the big two-story colonial house on a half acre and downsize to a small apartment to capture that equity.
Information about British problems during 2007 to 2018:
https://www.recapitalnews.com/a-wake-up-call-from-retail-covenant-breaches/
The problems seemed to mostly resolve by 2015 & 2016.
Debt yield covenants are usually by the whole property apparently, but obviously exceptions to the general ratio have to be most carefully limited.
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