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Sometimes it helps to keep an eye on what’s going on in other countries to help you understand where you are in your home market. This thread is for any news from the US housing market, and comparisons with Spain.
First up, the Case-Shiller index (20-city composite) reveals that US house prices are back to where they were in late 2002. Question is, will they go any lower? From the graph it looks like the big fall is over, but what do I know.
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@dartboy wrote:
i have just returned from florida and you can by a 3bed 2 bath villa with a pool for $129’000 less than a 15 minute drive to the disney parks so if the fall is to be similar in spain,simillar properties within 15 mins of the coast will be around the 100euro mark
Sorry to say but going by that fall in price it should be much cheaper in Spain since the average income is much lower than in the US.
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Much information about the US property situation, with references to plenty of US newspapers can be found at
http://thehousingbubbleblog.com/index.html
That site has been running for about 7-8 years now.
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@dartboy wrote:
i have just returned from florida and you can by a 3bed 2 bath villa with a pool for $129’000 less than a 15 minute drive to the disney parks so if the fall is to be similar in spain,simillar properties within 15 mins of the coast will be around the 100euro mark
Yes, I have seen a 5 bedroom for that too…not in places where I would want to buy though. They tend to be on faceless bleak urbanisations built during the property boom. Don’t know the disney area well but from what I have seen they look pretty grim.
The location. location ones have dropped too but not as drastic. I think this is what will happen in Spain, the ones built 15 mins from the coast with few facilities, overpriced from the start will drop the most.
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Here is a real statistic – even though it is just one. I recently sold my 2 bed apartment in an upmarket urbanisation just 5 mins drive from beach at a 33% reduction on original buying price, we purchased 2004 – the location was good and urb was well finished. When visiting my solicitor while in spain she quoted drops in some areas of Torrevieja of 70%.
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According to Fitch, the rating agency Spanish property will fall a further 35% across the board, falls of this figure to run through 2013 as unemployment rises even further and then bottom through 2014 as a modest recovery begins.
Seems about right to my eye. Of course these falls are almost entirely dependent on how much the banks will reduce the stock of repossessed property.
In the States Freddy and Fanny and most banks slashed their stocks drastically right from the start. They were realistic.
In Spain it’s been painfully slow because no one wanted or had the balls to face the true extent of the unfolding catastrophe. -
Interesting article in this week’s Economist (subscription only)
American property
The great realtor rip-offI didn’t realise that the average commission in the US is 6pc (3pc to listing agent, 3pc to buyer’s agent). 5pc in Spain seems reasonable in comparison (but still expensive compared to 2-3pc in the UK).
Best of all, the comments to the article, which I will reprint here because, after all, TE didn’t pay to write them 🙂
totalastronomy 3 hours 20 mins ago
In France (where I own property) the fees of the immobilier (agent) start at about 8%, declining to about 6.5% for more expensive property. Cities such as Nice are crammed with an over-supply of immobiliers who survive on a small number of sales a year. It’s all rather inefficient, and ripe for new entrants to the market to make an impactRecommend
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98.6 May 6th, 11:53
Alternatively, could this be because the US culturally does not haggle / negotiate with most transactions? In many other cultures, negotiating a price is a daily event.Recommend
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Deborah Pernice Knefel May 5th, 21:46
Each transaction includes not only the realtor fees. The mortgage broker, escrow and title fees all factor in. Realtors should be weighing in here to explain all they do to earn these fees. Many times one transaction follows months of marketing, home tours/open houses, working with escrow co., title co., mortgage co., home inspections, local government. What do they all have in common: govt created red tape. Morgage broker sorts through the fnma, fhlmc or other bank loan reqts, inspector needed to assure property compliance with govt regs, etc. . .etc. . .Recommend
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objectivityisthehighestgoal in reply to Deborah Pernice Knefel May 6th, 06:45
Yes, blame it on the government which you continually lobby to put aside court decisions. Blame it on the banks without which 3/4 of your transactions would never see the light of day. Blame it on the title companies that protect the buyers from your over-eagerness to get a deal. Don’t mention that in NY a lwayer is legally required for every transaction and does most of this for you and charges, again, the client. You have little legal risk.None of these justify the simple fact that all of us in business go through these hassles, but we don’t expect someone to pay us 6% of an enormous transaction for what is not an equivalent level of service.
In America, if I want to buy $1M worth of real estate through a real estate trust, it costs me $4 with my brokerage. If I want to buy $1M worth of real estate through a real estate holding, it costs me $60,000 with an average agent. You can talk till you are blue in the face about how different these transactions are, but the simple fact is that they are not remotely different enough to justify that gap.
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beedubs May 5th, 16:51
Let’s compare realtors to stock brokers, since we are talking about professionals who deal with the public’s largest assets. If a stock broker’s only advice is ‘buy and hold’ forever, dollar cost avg, with no positive performance when compared to the broad avg’s, then what is he/she worth? Nothing, in my opinion, better off to manage yourself with cheap index funds. But what if there is good planning about how to convert money to a quality lifestyle, with appropriate allocation based on life cycle, etc, and impressive gains when compared to the avg? Hedge funds charge up to 20% of gains annually. Are they worth it? I’d say yes. As for realtors, a bad one isn’t worth anything, other than to open a bunch of doors or take a couple photos. But what if an agent (and there are a lot of good ones), can help a seller prepare a house for market, help price it appropriately (most important), screen out unqualified buyers, and help a seller make a hard decision to take or reject a given offer? Isn’t it valuable to have someone involved who is relatively objective, knows the market, and sees homes selling everyday? Why is the assumption automatically that realtors are only self-serving? Good realtors can have good careers in other industries. The article seems very shallow and one-sided for such a reputable publication.Recommend
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objectivityisthehighestgoal in reply to beedubs May 5th, 21:10
Utter nonsense. But spoken like a true real estate agent, which you are. I could poke holes in every argument of every sentence, and maybe if I get the time, I will. But for now, I have to earn an honest living, not one that is funded by a cartel, which is what the real estate industry is in America.Recommend
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beedubs in reply to objectivityisthehighestgoal May 6th, 00:31
Poke holes all you want, but my preference would be to hear your vision of a better way for people to buy and sell real estate? And exactly what do you mean that the industry is a cartel, as the shallow author suggests? I am an agent, and have been involved in residential real estate for over 10 yrs. I made no attempt to hide that. I’ve worked in multiple markets and the dominant companies ususally do hold high, non-negotiable commission rates. But there is a vast and competing market of agents and other providers that offer sellers many options, under the ‘going rate’. What, sir or madam, is your noble profession that is more honest than mine?Recommend
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Bellweather May 5th, 04:16
I believe the main reason the American public is still paying 6% real estate commissions is a confusion regarding the two different functions that fee covers. In the U.S., for the most part, when you sign up with a broker to sell your house and agree to a 6% commission you are really agreeing to pay two different commissions at the closing.The first is a 3% commission (the “listing commission”) paid to the broker (the listing broker) you signed up with, covering the typical listing functions: supplying signage, electronic lockboxes, and photos; entering your house into the local MLS (Realtor database) and onto about a dozen or so useful web sites; helping you to understand and respond to offers that come in; taking the final contract to the closing company; it also covers showing your house to potential buyers so you do not have to ever deal directly with the public and holding open houses).
The other commission is a 3% commission paid to the broker who sells your house (the “selling commission”). The selling functions it reimburses for are showing the house to the buyer; arranging financing for the buyer; arranging for the various house inspections, and for the appraisal and the survey. This selling commission amount is what is being advertised by the listing broker in MLS as compensation for another broker’s showing and selling the property to a buyer; for making the sale.
There is a slight overlap in functions since the listing broker is ensuring showings of the house to buyers, so in some cases the same broker/office ends up acting as both the listing broker and the selling broker. This is a special case that would lend itself to a lower overall commission for the seller to pay.
The listing commission amount is a private matter between the seller and the listing broker. It is a federal crime for another broker to ask what amount the listing broker is being paid. Any discussion by brokers (at different offices) about what they are being paid as listing brokers is considered evidence of price fixing. It is also considered as evidence of price fixing for a broker to say to the public that any listing commission amount is standard or customary; even more serious to say that paying less would result in your house being blackballed.
The real mystery is why the listing commission of 3% is so common, given that it is not being discussed among brokers and not being represented to the public as standard or customary. What is troubling to federal regulators like the FTC and the DOJ is that there has been no savings to the public by the new technology (digital cameras, web advertising, online public record databases, online MLSs to upload the listing to directly), which has made it far less time consuming to list a house. As the article points out it is still time consuming to show houses, which is the selling and not the listing function.
There are local, full-service brokers in all metropolitan areas who charge less than a 3% listing commission. Many of these brokers will perform the same listing function for a flat fee paid up front of less than a thousand dollars. The interesting question is why the public has not put all of the listings with these brokers. Most sellers when asked say they feel reluctant to pay less than 3% until most people are not paying that much, admitting that is a Catch-22.
Many discussions of this issue in the press are not helpful since they generally equate 6% with “full service” since that is a “full commission” and the articles stigmatize any broker charging less as “discount”. That language feeds into the price fixing. There is no rational reason that all listing functions cannot be performed profitably by knowledgeable brokers for well under 3%. If the market were truly competitive the brokers charging less would dominate their markets overnight and no one would be stuck paying two three percent commissions. Sadly, if the public had been able to see through the rip-off of paying 3% to the listing broker we would not have had the real estate bubble. Another discussion.
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objectivityisthehighestgoal in reply to Bellweather May 5th, 21:17
All excellent points. In NYC I stood my ground and eventually found an energetic young broker whose family only does real estate for their livelihood. He did the entire process for 3%, and he was excellent. I had tried the so-called “full-service” brokers, and as the commentator said, all they were was “full-commission.” They did less and offered less. Some of them were true idiots. 90% were garbage and would have had a hell of time in a regular job. And the irony is, in the end, this 3% fellow got me a higher selling price *before* commissions than the others even wanted to list my place for. In realtors, you do *not* get what you pay for.Recommend
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bozzi May 4th, 18:00
In the state of Texas, it is illegal for the final sales price of a home to be publicized: the real estate folks want to keep that information to themselves. Despite this, several web sites have sprung up showing this information as well as (gasp!) the pricing history and time on the market. We are all waiting for these sites to be shut down, or at least, to have the Texas information deleted.Recommend
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grinnell in reply to bozzi 3 hours 10 mins ago
Seriously? Wow! How in the world do appraisers figure comps, then?Recommend
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Walker Rowe May 4th, 01:38
Realtors have been sued for price fixing in northern Virginia and elsewhere but as you say the price is still fixed.Recommend
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JbvsjZvL6u May 4th, 01:22
There is no lower life form than a real estate broker except maybe a politician. Your call.Recommend
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objectivityisthehighestgoal in reply to JbvsjZvL6u May 5th, 21:20
I’ll go with the real estate broker. TI work in the finance industry, and I thought they were the lowest life-form — somehting you’d only see when you rolled away a slimy rock in the woods near a bog. Then I had to sell my father’s place, and I met real estate agents. Way below both politician and financial types. Truly the bottom.Recommend
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nino01 May 4th, 01:09
Yes, Realtors are very expensive in USA. More than anywhere in the world. I gues the reasons for this are:
1) They are well organized and the data bases is their property.
2) You do not buy and sell a house every week or even year. So it is very difficult to do on your own.You are always afraid of doing something wrong.
3) they do a good job , even if expensive, They are generally honest. I know this by experience.
4) it is difficult to get in their business, such as setting up a data base of properties , to sell it around. I tried this in my country (Chile), but beating the mafia proved very hard. Here the comission is about 2 to 4%.
Unless the goverment gets involved there is no way.
And it provide a lot of jobs.Recommend
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objectivityisthehighestgoal in reply to nino01 May 5th, 21:27
These would be good points, except they are mostly incorrect. I live in America and have just had extensive experience with this.1. They are extraordinarily disorganized and use public databases which are not their property.
2. This is generally true but just serves to obfuscate the lousy jobs these people do.
3. They do not do a good job and are some of the most dishonest people I have ever met. In NYC, one of the largest brokerages has daily meetings of the troops where they openly tell their agents not to do business with anyone offering a discount, which is a felony.
4. It is the easiest thing in the world to get in their business, it requires no college degree, no special training, no special aptitude. That’s why the ranks are swollen with recently divorced spouses who have never worked in years, people who do it as a second or third job, and general incompetents.The real estate community is the largest lobbyist in the U.S. in terms of dollars and blocks enforcement of every action to curtail their anti-trust abuses.
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TokyoAndy May 4th, 00:42
in my personal experience:
realtors in Italy are cheap and decent
realtors in London are not cheap and not good
realtors in Tokyo are cheap and give you a service worthy of a king
realtors in Vancouver are not cheap but fair serviceworst of all by far realtors in Sydney: they cost a fortune, you need to beg them to get anything and treat you like the beggar your are
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BethKara80 May 3rd, 19:41
Let’s not forget Realtors spend the majority of their time working for free – showing homes for months to people who never buy, appraising homes just because people are curious, and paying to advertise homes that end up being pulled off the market… just to name a few. After Realtor fees, continuing education training, health insurance, and an awful market, many Realtors are lucky to break even.
No, I am not a Realtor but I have worked in and out of the industry for years. There’s a lot of bad eggs out there that ruin it for the hard-working, ethical Realtors. With the education requirements tightening, I think we will see a positive shift in the quality of agents.Recommend
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Albertican in reply to BethKara80 May 3rd, 22:39
But then why are their cuts twice as big as in Britain?I know that most realtors are good people that work hard and often have an extremely difficult time making it in the industry. But in my opinion that’s because in North America there are way too many of them. People see it as an easy and relatively interesting way to make money and jump in. Then, as the article says, they’re left with a few deals a year that barely cover the cost of living.
What special skills or knowledge are really necessary for buying or selling a house? Everyone knows the basics of what they value and how to complete a major financial interaction, and in this day and age the more specific data on neighbourhoods (crime, school, average income etc) should be easily accessible to anyone wanting to sell or buy a house on their own. At some point people are going to catch on to this and realtors are either going to have to start providing more value for money or become obsolete.
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guest-wnwjmww May 3rd, 18:32
It is mostly about everyone involved, sooner or later, making easy money.
Most people don’t want to admit to their assumption of inflation for houses. It has been many American’s scheme of getting-rich-without-work. If you bring up the issue, people act like you insulted their grandmother.
The inflation assumption is so deeply ingrained that we don’t even notice phrases like “real estate is coming back” or “good news for home prices.” Do we talk about auto prices coming back or food prices coming back? No, because these are not opportunities for easy money.
Now, the younger generation cant start a good career to buy a home or pay off debts. Any reports you hear about housing prices comming back are fed to the press by the culpable industry and are both lacking in facts and suspiciously motivated.Recommend
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Naughty Bits May 3rd, 16:18
I think another reason why realtors are able to extract fat commissions is because the industry is still people-centric. Unlike insurance brokers or travel agents, which sell you a product that you really do not see in person at their office (insurance is a contract; you don’t physically see your destination when you buy a plane ticket, etc), realtors sell the house by physically showing the house, talking up the main selling points as clients are viewing and going through the negotiation process. These are very hard to replace with the internet.The way the industry is set up is a bit like an elite club; it’s not what you know, but who you know. Connections and networks are the heart of this business and this very human characteristic is very hard to replace with technology.
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grinnell May 3rd, 16:03
Property, health care, and higher education are three areas that seem to attract parasites like fish attract lamprey eels. Interestingly, all three are highly inefficient and at least two have experienced high inflation in costs over the years. -
I didn’t realise that the average commission in the US is 6pc (3pc to listing agent, 3pc to buyer’s agent). 5pc in Spain seems reasonable in comparison (but still expensive compared to 2-3pc in the UK).
First, I believe that fees based upon a percent of the sale price is a ridiculous model and a rip-off.
Comparing agents in the US to those in Spain is impossible. While in Barcelona I have encountered a few agents who seem knowledgeable, so many others have been unprofessional, cancelling appointments, etc that they are not worth anything at all.
Worse, there appears to be a ‘retail model’ emerging: Larger real estate firms have created ‘templates’ for agents who are very young and recent immigrants to work from. I’m sure that the commissions go the the firm with centimos on the euro going to these young agents. I’ve encountered this in Barcelona about 5 times now, especially with one firm with a name that begins with a “T”.
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In Sweden you ofcourse try to charge as much as you can but more than often the end provision is around 1-3% in the bigger cities and 5-10% in cheaper areas “or a fixed sum of about 3k euros”. Competition has brought it down to this level. You also have no other fees since we don’t use notaries or lawyers “The real estate agent is a guarded title and most banks don’t deal with properties not going through one”. They sort of do the work of the lawyers and the notary. You have no stamp taxes on apartments which makes it quite viable to own for shorter periods of times. Transaction costs in most countries are way higher than this.
In euros the costs would be something like this
Apartments = 4k euros
Houses = 5-6k eurosCosts are only for the seller.
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We’ve sold lots of UK properties and have never had to pay an agent more than 1.5% commission although some try to ask for 1.75-2%. I think this is one of the factors for the UK’s more lively property markets and of course the undersupply in the UK.
Transaction costs have to be factored in to buying and selling. 🙄
I really think there is much better value for money though in America, much better and larger properties for a lot less but they have restricted access unless you have a job an American can’t fill.
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Virtually impossible to get a permanent visa now. Even if you buy a business you have to jump through fire to get it renewed every 5 years. I reckon if the US brought out a retirement visa all the surplus houses in Florida would be bought by Brits 😆 ….and I would be lazing around my swimming pool overlooking Naples Bay 😀
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I think we spoke on Naples before katy, it’s one of our favourite places, fantastic beach and fishing pier, restaurants, air con mall, smart shops and access to Marco, Sanibel/Captiva etc. Very moneyed area and full of shiny Banks down Tamiami trail. We would definitely have bought there or San Diego if the US relaxed it’s rules on living there more permanently. 🙄
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Got to wax lyrical about Naples katy, sorry to bore others. We used to stay in an unpretentious little hotel near 3rd and 5th, short stroll to beach, great value, very friendly staff, it’s now gone for redevelopment. Apparently some of the tanned fishermen on the pier could be locals from the old country Italy and elsewhere, and you could also be rubbing shoulders with the CEO of General Motors and other billionaires also fishing there in their vests and shorts, everyone looked the same rich or poor, they were all happy and brown. Mind you, the wealthy ones did own huge houses along the beach, one we knew was sold for 20 million dollars and that was 10 years ago or so.
There was a lovely shopping area called Venetian Bay we’d go to with water all around. We seriously looked at a 5 bed detached house with pool on Marco Island which was brand new and 260k dollars.
Very laid back lifestyle, clean, great weather, I wish 8)
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Some interesting quotes from “A Decade of Volatility: Demographics, Debt, and Deflation”, by Harry S. Dent, Jr., author of The Great Crash Ahead and editor of Boom & Bust, talking about US property, but with implications worldwide.
There is simply no way the Fed can win the battle it’s currently waging against deflation, because there are 76 million Baby Boomers who increasingly want to save, not spend. Old people don’t buy houses!
At the top of the housing boom in recent years, we had the typical upper-middle-class family living in a 4,000-square-foot McMansion. About ten years from now, what will they do? They’ll downsize to a 2,000-square-foot townhouse. What do they need all those bedrooms for? The kids are gone. They don’t visit anymore. Ten years after that, where are they? They’re in 200-square-foot nursing home. Ten years later, where are they? They’re in a 20-square-foot grave plot.
To watch a video version of this presentation by Harry Dent,
please click on the following link:
http://survive-prosper.com/A-Decade-of-Volatility/ -
@mgspain wrote:
We could apply a similar thinking to Spain, as many people have a main home and then a holiday home the retirees will add to the housing glut be trying to free up cash by selling the second home to fund retirement. It will probably be very messy for at least a decade.
Agreed, but it will also mean opportunities for those who are building for changing needs / tastes.
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