Friday, September 30, 2011

Noodling Condos, Electric Cars and Pre-Fabs

Nood-ling (nōōd’lĭng) n. 1. Fishing for catfish using only bare hands, practiced primarily by crazy people who cannot afford proper fishing gear. 2. The intentional annoyance by bloggers who are skeptical of the news as it’s reported, as in “Noodling bureaucrats is more fun than fishing bare hand for catfish and a lot more surprising.” This is now an end of the month feature.

Condos to Apartments
The SF Business Times last week (report by J.K. Dineen) pointed to a number of condominium properties that have been recently purchased and are now converting to apartments. These projects are in Daley City, and San Bruno. The per unit purchase prices are staggering. They fall into the $420,000 to $430,000 range, per unit. While there are other sales in the region in the mid to high $200k, the idea that we have crossed the $350,000 per unit cost in areas like San Bruno and Daley City is troubling. What are high values locations further down the Peninsula (San Mateo and Palo Alto) going to get for developments both new and old? Are we seeing the start of a Bubble? See article HERE.   

Shocked into Reality
As a loyal reader, you know my interest in electric cars is considerable. While at some point in the hazy future they may have a place, right now they are more of a political and social statement than a real challenge to the hydrocarbon fueled vehicles we use today. Again we look to Canada for a brief touch of reality. Margaret Wente, writer for The Globe and Mail points out (again) the reality of this consumer product (please get over its life and world saving importance). Again she points out that for a $20,000 premium (over a comparable gas guzzler) you are not able to travel very far, are incredibly inconvenienced (that recharge thing), and you still don’t save the planet. It is a well-crafted and crisp article. See article HERE

No-Money-Down versus Foreclosure
One of my favorite economic writers is John Maudlin and his InvestorInSight.com newsletter. It is one of the best even though it will make your head spin. He pointed out last weekend that the Feds, through the USDA – (yes the Agriculture Dept.) are offering no-money-down loans for first home buyers. From John’s newsletter:
“Borrowers don’t have to be lower income; in fact they can make slightly more than the median. To qualify for the government guaranteed loans, borrowers can earn up to 115 percent of the median income for the area. Nor do they have to buy in a rural area. They can live relatively close to a major urban area or in a popular resort community, however qualifying areas were recently redrawn to comply with the program’s rural mandate.
Best of all, no down payment is needed to get financing through approved lenders, which makes the USDA program more attractive to borrowers who qualify than FHA.” (emphasis Maudlin)
And there are actually subsidies available, so that you might not need to make the entire payment. Now, you can’t use this to buy a McMansion. You have to be in a rural area, which has come to be defined as outside the city limits (except in certain areas). There are income limits. The program does attempt to help lower-income families, and I am not trying to be snarky here, but these are government-guaranteed loans (read: taxpayer-guaranteed) at 100%, being handed out in areas where in the city homes are going into foreclosure and need someone to live in them, yet right outside the city you can buy this cute new home. Which is a situation more or less guaranteed to keep home values down in the rural outskirts, yet we want first-time buyers to snap these up!
Summing this up, the government is direct competition with market’s need to rid themselves of foreclosed homes and bring stability to the home buyer market. This is, as usual, the right hand not knowing what the left is doing. Oh for the wonderful days of yesteryear. See article HERE.

BTW, Mauldlin’s newsletter is a must, it’s free and has over one million subscribers. Go HERE to find out more.
And Lastly – Pre-Fab Homes
In today’s Business section of the Contra Costa Times (California), the headline reads: Builder to open factory. Mass. – based Blu Homes to hire about 80 people (HERE). The article goes on to point to an agreement with Blue Homes (HERE) to set up a manufacturing facility on the troubled Lennar Homes Mare Island redevelopment to build pre-fabricated homes. This is not a new idea - make homes in one place, then ship and reassemble the home or structure elsewhere. Lustron in the early 1950s gave it a go, with huge government subsidies (and involvement with Joe McCarthy and payoffs), and spectacularly failed (shades of Solyndra). Blu Homes is entirely different and relies on technology and a one-on-one relationship with its buyer – much of it on-line. Forbes featured it in a September issue of its magazine (HERE). Some have even compared Blu to Apple – maybe a stretch but appearances are important as well as the press.

Pre-fab’s have their place, but in the general housing market they have been continually beaten back by home builders. Simply put, a builder can and will find trades that will work for a price that will undercut the pre-fab home on a square foot basis. But, there will always be, and thank goodness there are, manufacturers who can provide these products in the marketplace. Log homes, panel construction, shipping container conversions, stacked boxes (like Blu’s folded and unfolded idea), and others all serve the market. Remember though, that the 80 new workers at the factory on Mare Island, are half the usual crew needed to put up a small subdivision in Anywhere, USA.

BTW Blu, watch your debt or you will be placed on the stacked of other pre-fab builders such as Lustron. They all had a great idea and their debt and costs ate them alive.

Stay tuned . . . .

2 comments:

  1. Getting a no-money-down property is very dangerous financially. This is what caused the housing bubble to burst in the first place, followed by the recession. I admit, it is a very attractive offer.

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