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Who Pays $75,000 for 'Garbage'?
By Tom Dyson
October 24, 2007

"This one's a piece of garbage," said the man sitting next to me.

He pointed to the listing in his guidebook. "I saw it. They had a sign outside that said 'unsafe structure.' Fire had damaged the back, and it was in a very dangerous neighborhood..."

On Saturday, I went to a property auction in Fort Lauderdale. Banks owned these properties...

Banks hate owning real estate. For one, it ties up a bank's capital and stops them from making loans. For two, banks don't want to be in the property business. They aren't set up for it. To them, selling property is a huge hassle. So they'll do anything they can to dump property as quickly as possible.

In the real estate business, they say banks are "motivated sellers."

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The market in Fort Lauderdale is so bad these days, selling property through a realtor just doesn't work. So the banks resort to auctions. If you really want to see how bad a property market is, go to an auction. The seller (the bank) has no power over the buyer. They must sell. Therefore, the sales price at auction represents the worst-case valuation for a house...
 
On Saturday, Hudson and Marshall, the country's largest property auctioneer, offered 150 properties for bidding. The unsafe structure was the second lot of the day. Bidding started at $30,000. It sold for $75,000.

"He paid too much," said my neighbor. "That property is garbage. They see duplex in the brochure, and they think it's in a new development. But I saw it. You can't go there after dark..."

Turns out, the person sitting next to me was a realtor named Zaheer. I asked him if he was buying anything...

"I'm just dipping my feet in. I want to see what the market is like. There will be more auctions here. They're having another one in March actually. There hasn't been one since 2001, but now the market's going down... they'll have one every few months."

More on Chris Weber

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I hadn't seen any of the properties up for auction, so I couldn't judge the prices. But Zaheer could. He'd seen almost every property in the auction book and had worked in the area for 25 years...

"Lots of new businessmen here," he said. "They're paying too much still."

I talked to another professional real estate investor sitting behind me. He had also visited many of the properties in the auction guide. Plus, he had been to a similar auction in nearby Melbourne the day before.

"There were a few good bargains," he said. "But for the most part, I didn't think prices were that low."

I've looked at property values all over the country in the past year... from Detroit to Vancouver to Miami... and I even bought a house myself a few months ago. My gut feeling tells me people are holding out. Property is not a liquid investment like a stock or a bond. It takes much more effort to sell. And it's personal, too. People have emotional attachments to their properties. They'll hold on, even when they're losing money.

As my editor Brian says, "Property prices move at glacial pace."

A bombed-out shack sold for $75,000 at auction. This is not a sign of deep value. I think house prices in Fort Lauderdale are holding up because owners are holding out. They haven't faced reality yet.

In sum, I think it's much too early to invest in south Florida real estate... at least here in Fort Lauderdale. That time will come, but it's not here yet.

Good investing,

Tom

P.S. Property auctions are interesting places. They have an organist on the stage. He plays a cheesy riff every time the auctioneer sells a lot. Then, they have seven or eight floor workers. They yell like a fan at a football game every time someone makes a bid. This way the auctioneer doesn't miss anyone's signal. The auctioneer was the most interesting character. He sounded like the announcer at a horse race... on fast-forward. He spoke so fast, he couldn't breathe. As the auction progressed, his face became redder and redder...

Check out Hudson and Marshall's website. It holds property auctions all over the United States. The auctions are open to the public and free to attend.
 

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THE BEAR MARKET IN AMERICAN TRANSPORT

Yesterday, we signed off with a chart of America's largest home improvement chain, Home Depot. The Depot's weakness – along with the sinking stocks of many U.S. restaurant and retail chains – can only lead us to think the economy is in full slowdown mode. 

Today, we look at another troubling economic sign... the plunging share price of YRC Worldwide.

Based in Overland Park, Kansas, YRC is one of the country's largest trucking companies. Clothes, refrigerators, La-Z-Boys, car parts, machinery, chemicals – you name it, YRC hauls it. Weak freight demand has sent shares down 40% in the past six months.

We're not picking on YRC... Pick any big trucker – Heartland Express, Saia, Landstar, Arkansas Best, Celadon Group – and the message remains the same: The housing market's destruction is seeping into all parts of the economy. Folks are buying less "stuff," and those who transport that stuff are suffering. Wall Street can't issue sell recommendations fast enough, earnings forecasts are being missed, and the bear market in American transport is on.

YRC Worldwide

-Brian Hunt

The cost of attending college continues to climb: in-state tuition and fees at public four-year schools averaged $6,185 this year, up 6.6% from last year, says the College Board, which tracks more than 5,000 colleges and universities. The increase was slightly more than the previous year's 5.7% bump.

At private schools, tuition and fees this year average $16,640, up 5.5% from last year. Increases the previous year averaged 6.3%.

Price increases have been smallest at public two-year institutions, where tuition and fees averaged $2,361, up 4.2% from last year, vs. 3.8% the year before.

– USA TODAY

Asia's fast-growing economies have made some progress in addressing their seemingly insatiable demand for oil, but they continue to fall far short of the cuts needed to significantly reduce pressure on global supplies.

Galloping growth in Asia, led by China, was one of the key reasons global oil prices started shooting up in 2004. China's economy was racing ahead after years of relative global insignificance, ignited by a spurt in new industrial output and a wave of domestic consumption of items, from cars to air conditioners, that pushed energy demand dramatically higher.

Asian demand for oil is on track to hit 25 million barrels a day this year, an increase of 2.5% from last year, according to the International Energy Agency in Paris. World demand is set to rise a more modest 1.5% and may even decline in Europe. (The U.S. – which is on pace to consume 20.9 million barrels a day this year, up less than 1% from last year – remains the world's single largest consumer.)

Wall Street Journal

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