Real Estate Crash thread

[Conundrum]

Only buy insurance if you can't afford to lose something. Or, if you borrow to buy things.

[dunfree]

Insurance is betting against yourself. You'll only come out ahead if you have more than an average amount of unpredicted bad shit happening to you, or if you can take a cash payout and fix the situation cheaper yourself.

That said, it would take a bunch of annual premiums to equal the cost of one deer or tree jumping into my way at highway speed, so I keep paying them.

Sent from my SM-G892A using TGR Forums mobile app

every time you pay for insurance you are betting that something might happen and the company is betting it won’t.

[rideit]

Or, like the concept of ‘the house always wins’, they are betting that the totality of payouts annually is dwarfed by the revenue, so that an individual payout is just CODB.

Which is just another way of saying the same thing, with a little more nuance.

[Conundrum]

Yeah, and most insurance companies have total amounts of insurance they'll write in any one area so they are hedging heavily even with wildfire risk. A local company here got burned (sorry for the pun) by the Paradise fires and were financially downgraded which severely impacted their business. Their fund manager had to take some big risks to get reserves back up to A rating. Luckily for them it worked. Took a couple years to recoup. They no longer write much in high brush fire score areas.

The house rarely loses.

[dan_pdx]

Or, like the concept of ‘the house always wins’, they are betting that the totality of payouts annually is dwarfed by the revenue, so that an individual payout is just CODB.

Which is just another way of saying the same thing, with a little more nuance.

And they can invest the premium revenue until they need to payout - like playing the market with someone else's money. https://www.fool.com/investing/2019/...-a-52-yea.aspx

[yeahman]

In all my years, I've never carried more than liability insurance on any of my cars, and it's worked out. Even now with four cars in the family, and two teenage girls, still no collision insurance. We had one fender bender we had to pay for which was about $2,500, but that's a pittance compared to all the money I've saved. Of course it helps if you never pay more than ten grand for a vehicle.

[schuss]

Yeah, and most insurance companies have total amounts of insurance they'll write in any one area so they are hedging heavily even with wildfire risk. A local company here got burned (sorry for the pun) by the Paradise fires and were financially downgraded which severely impacted their business. Their fund manager had to take some big risks to get reserves back up to A rating. Luckily for them it worked. Took a couple years to recoup. They no longer write much in high brush fire score areas.

The house rarely loses.

They're losing in Florida plenty. I think 5 insurers down already this year?
Most run pretty close, as best of market profit via combined ratio is still only like 8-10%.
Many of the big houses lost tons this quarter with auto repair costs + inflation.

Around costs: insurance is the exchange of a consistent cost for a much more variable inconsistent one.

As far as coverage maps - geocode maxes are absolutely a thing, but many get squeezed as if you choose not to write, the state may tell you to pound sand on non-wildfire business. This many are getting much more aggressive on standards and sensors to reduce loss. Just as telling people to cover their car with a hailstorm inbound pays off on both sides, saying "turn on your sprinklers and GTFO" is a decent wildfire hedge if you can move people 6-12 hrs earlier.
Most hilarious coverage map from an overage standpoint is Manhattan, as the loss exposure there is bonkers for most.

[Conundrum]

They're losing in Florida plenty. I think 5 insurers down already this year?
Most run pretty close, as best of market profit via combined ratio is still only like 8-10%.
Many of the big houses lost tons this quarter with auto repair costs + inflation.

.

This is true. Been hearing it a ton. But there's been plenty of up quarters/years too. It's a pretty quick news cycle though. 8-10% combined ratio isn't a terrible margin that most insurers will probably be happy with. And combined ratio is operating profit, not investment profit (dunfree is not a complete troll with the float comments).

Add in that a number of mid-market insurers buy reinsurance that caps their losses and the cost can be built into the expense part of the combined ratio, they can control the combined ratio fairly effectively if their actuary is worth a few duckets.

A lot of the cat losses we are seeing are flowing the the big dogs...hmmm, back to the real estate crash thread. Overall cost of homeownership is inflating everywhere. The insurance piece certainly isn't going down because the house doesn't lose. Sure, it will ebb/flow and people will buy from different insurers but it will all get more expensive depending on what your risk is.

[neufox47]

No.
You need to be insured for 80% of replacement cost. It’s a legal scam. But rarely enforced.

Core Shot does not know what he is talking about (despite being corrected here multiple times on this exact issue). What he is talking about is co-insurance. It is rare for co-insurance to be a provision of a homeowner policy. Your policy will explicitly state that co-insurance applies and the % you must be insured to. If you do not have sufficient insurance then you are insuring part of your loss.

I.e. you insured a building at $1,000,000 but it’s actual value is $2,000,000 and you have a co-insurance requirement of 80%. You have a $100,000 loss, they will only pay $62,500 of it.

Edit - I see conundrum and others beat me to it. The reason for coinsurance is that a property is much more likely to have a $500,000 loss if it’s total replacement cost is $2M than if it is $1M.

[neufox47]

It's more nuanced/insurance nerdy than this. Most, not all policies, have a coinsurance clause that will list the xx%. This only comes into play for a partial loss.

I’m curious, what type of policy doesn’t list the % and clause yet has an enforceable co-insurance penalty? Closest thing I’ve ever seen to that is in UK written policies with their assessment of “average”, but even that is stated (albeit in a way that almost no laymen would ever find or understand).

[4matic]

There’s several very large apt. complexes open/opening near me.

“a massive amount of new supply is flooding the market, with roughly 420,000 new apartment units expected to be completed this year, according to RentCafe. The last time completions passed 400,000 was in 1972. Much of that new inventory is in New York City, as well as in the Sunbelt region.”

[4matic]

The inventory of new homes for sale rose to its highest level since April 2008 last month.

At July's sales pace, there was 10.9 months of supply, up from 5.7 months in January.

Since 1963, this figure has been higher only a few times:
-Aug '08-Mar '09
-Sep '81
-Apr '80

[yeahman]

Zillow tells me my home value dropped 4% in the past 30 days.

[Kevo]

Zillow doesn't have an estimate for me, but I believe that my home value has dropped by roughly 30% since April based on comps. In April a mediocre SFH in my neighborhood sold in a few days for $1.2mm. There are now a few SFH not moving at less than $900k.

Somehow some half duplexes within city limits are still moving at $750kish.

Local inventory is growing but it doesn't seem like anyone is desperate to sell yet. Certainly no one is buying mediocre $1.2MM houses here like they were in early Q2.

I think prices could easily come down much more if rates remain the same and inventory continues to grow.

The new builds at $500 per square foot are definitely underwater compared to inventory of existing homes.

[dan_pdx]

The new builds at $500 per square foot are definitely underwater compared to inventory of existing homes.

Interesting, are builders going to get a kick in the nuts again?

Related: it's hard for me to imagine the builder for this local spec house is going to get anything close to what he's asking: https://www.redfin.com/WA/Spokane/14...home/177493258

[Toadman]

The inventory of new homes for sale rose to its highest level since April 2008 last month.

At July's sales pace, there was 10.9 months of supply, up from 5.7 months in January.

Since 1963, this figure has been higher only a few times:
-Aug '08-Mar '09
-Sep '81
-Apr '80

Seeing the same thing here. What used to be 2 weeks worth of inventory is now 2 months.

Also, lots of new apts. coming on line. Starting to see some of the housing developments slow down. Pahlisch Homes, which is the big player in Central Oregon is starting to slow down on the builds and housing starts. Last thing you want is another 2008-'09 scenario.

[skaredshtles]

Zillow tells me my home value dropped 4% in the past 30 days.

This is about what I'm seeing for our 'hood.

[Kevo]

Interesting, are builders going to get a kick in the nuts again?

Related: it's hard for me to imagine the builder for this local spec house is going to get anything close to what he's asking: https://www.redfin.com/WA/Spokane/14...home/177493258

The houses being built in my neighborhood had buyers under contract before they started. I bet the new owners are a bit worried seeing existing homes sitting for a couple hundred thousand less than they are paying to build.

Other builders are definitely at risk in my opinion. Houses hitting the market now and over the next several months were built with materials purchased when prices were at all time highs.

That Spokane house would be worth at least $1.2MM if you plopped it into Leavenworth or Whitefish. Spokane though...

Also, why go through all the trouble of building what appears to be a nice house and use a plastic shower pan in one of the bathrooms? Why do people make those kind of decisions?

[Supermoon]

This is about what I'm seeing for our 'hood.

Is that seasonally adjusted? Values go down once school starts lots of times

[skaredshtles]

Is that seasonally adjusted? Values go down once school starts lots of times

Last couple years have seen mid-summer dips, but nothing prior to that... so maybe?

[Conundrum]

I’m curious, what type of policy doesn’t list the % and clause yet has an enforceable co-insurance penalty? Closest thing I’ve ever seen to that is in UK written policies with their assessment of “average”, but even that is stated (albeit in a way that almost no laymen would ever find or understand).

By "not all", I was referring to agreed value. I only work in the commercial space and use those occasionally depending on the owner and the property.

[Core Shot]

I’m so glad a Persian that moved to Australia to build overpriced homes was able to explain that homes are overpriced

[dunfree]

I’m so glad a Persian that moved to Australia to build overpriced homes was able to explain that homes are overpriced

it’s not like your racist dumbass would listen to an abo.

[fastfred]

big difference between a brand new 500 plus sq ft house that is pimp and a beater twenty or fifteen year old house

but in real estate circa 2021 and 2007 it's all about comps sq ft pricing and garbage metrics
the reality is a piece of shit house that needs updating hasn't been maintained isn't worth dick unless you throw in prime location but thats it

[panchosdad]

You'll be pleased to learn this problem isn't just limited to the US: Construction firms are collapsing after a loss-making boom, and 'massive greed' is to blame

"Who is to blame? All of us" is so spot on.