April 29, 2006

Is There A ‘Mad Dash For The Exits’?

The New York Times has this on public awareness. “A pyramid scheme is a foolproof way to make money, until it isn’t. What is the breaking point? Probably about the time some spoilsport whispers ‘pyramid scheme,’ and there’s a mad dash for the exits.”

“Echoes of housing prices? Not exactly. Still, an almost pyramid-like frenzy has engulfed some areas in recent years, with buyers convinced that within months they will find someone who will pay even more for them.”

“If there are whispers of a ‘housing bubble’..most people still haven’t heard them. As recently as a year ago, Gallup (found) just 23 percent of Americans were even moderately familiar with the term. In the latest survey, that jumped to 40 percent.”

“24 percent now say that a bubble is likely within a year..only 7 percent expect it in their own backyard.”

And here’s some info on a pricey backyard from the Santa Maria Times. “The UCSB Economic Forecast, delivered in Santa Barbara Thursday, said that overall, the state and region’s economies are strong, and are likely to stay strong for the near future. But the Forecast Project’s 2006 report was not without a few red flags.”

“There are several unknowns, and then there is the uncertainty surrounding the national, state and local housing markets. Locally, the folks at the Forecast Project predict the housing market will remain firm. a distinct departure from recent years, when the market could only be described as meteoric.”

“The report shows a very slight movement away from a seller’s market, to one perhaps a little friendlier to buyers, but not much friendlier. Median home prices for March tumbled significantly from February figures.”

“Here in the North County, for example, the median-priced home in March was $461,700, which is down more than $18,000 from February. Countywide, the dip was even more pronounced, the March median was $750,000, down $37,500 from the previous month.”




‘Which Area Gets Hurt Least And Why?’

Several readers suggested . “Which area gets hurt least and why? Upper NYS because there’s no place to fall from the bottom? Boulder? The New Urbans like Austin? Ultra high end places like Aspen because nobody would notice a million off the top? Charlotte, Memphis types because of energy concerns?”

Another said, “It seems clear that certain areas (SD, Florida, NoVA) have begun to tank, while other areas seem OK (NYC, SF). Delayed reaction or are some areas just different?”

One added this, “A related topic…Which areas were barely affected but may still get splattered with froth as the bubble pops?”

“For example, I’m seriously looking at acreage out where my dad lives in boondocks Arizona. Land is still available for $1,000/acre. Will even this price go down? Or will a lack of RE buyers from California eventually motivate some land sellers to become desperate for a low-ball cash offer?”

One reader had an answer. “I’d say it will go back to being ’speculative land’ in the old-fashioned sense. That is, don’t buy any old rectangle of dirt unless the offer looks particularly compelling and don’t plan on selling it within 10 years.” A reader from Texas.

“The only the thing banks in Texas won’t allow a 0 down loan on is raw land (in fact some won’t loan at all). I think raw land will fall the hardest (even though they are not making any more of it).”

From Colorado, “Flippers have been buying land too and are starting to get itchy.”

“I’ve been looking for some land in Colorado; one real estate guy in Pueblo has thirty or forty listings and six or seven at least say ‘motivated seller’ or ‘just reduced’ or somesuch. I think one might have come right out and said ‘offered below owner’s cost.’ These are just over the $1,000/acre range as well, for 35-40 acres, so the sellers are almost certainly not in foreclosure, they just want to get out of an investment that ain’t going anywhere. What the heck, go for a low-ball.”

Another added, “One thing about this bubble is the true high-end areas didn’t go up anywhere near as much as the middle/lower end areas. Places such as Marin County, Greenwich/Darien CT, Winnetka/Glencoe IL, Jackson WY etc. did OK, but it was really the Baskerfields and Vegases that went completely loony. The rich actually have the means to afford (in the traditional sense) $1-2-5 million houses and they’re far more diversified across other assets. A few hundred thousand off their house is just an ordinary bad day in the market.”

One looks for value, “I think any non bubble area that has a good public school system, good colleges, universities, and hospitals, and is attracting major companies won’t burst.”

From Las Vegas. “Which area will get hurt least? Las Vegas, of course. I’m predicting another wave of hyper appreciation. Not yet, but… soon.”




‘Flood Of New Homes’ To Produce ‘Discounts’: Polk Co., Fl.

The Online Ledger has this update on Florida. “Homes aren’t selling like they used to back in the good ol’ days of mid-2005. But make no mistake, Polk County’s housing bubble isn’t bursting, it’s just losing a little air. And that can mean more competitive pricing to attract buyers.”

“‘Most of last year, new home construction was lagging the population increases so sellers of homes could ask and receive some very high prices,’ said Ben Crosby, president of the East Polk County Realtors Association. ‘That has changed and is evidenced by numerous price-reduced signs on houses.’”

“Crosby advises that Realtors should counsel their clients to review their asking prices and adjust where needed.”

“‘There is a little bit of a surplus,’ said Beverly Page, a Realtor in Lakeland. ‘I have seen some listings for investors coming down in price. Some purchased these homes last year to put on the market to sell. But the trend is that they are going down in price and are not going to make a profit like they anticipated.’”

“It has also impacted the amount of time a home remains on the market before a sale is final. ‘It is a lot longer now,’ Page said.”

“‘The flood of new homes coming on the market should offer an opportunity for new home buyers to take advantage of some discounts coming their way,’ Crosby said. Realtors say that this is just a way of the market regulating and correcting itself.”




What A Buyers Market Really Is’

Several readers are interested in what makes a ‘buyers market.’ “Can we have a thread on what a ‘buyer’s market’ really is. There seems to be a misconception going around that a ‘buyer’s market’ is when the price only goes up 5%, or maybe even if the price is flat.”

“I don’t agree. A ‘buyer’s market’ is when an asset trades beneath its intrinsic value. Just because buyer’s right now can get some small concessions from a seller that they couldn’t get a year ago doesn’t mean that it’s a ‘buyer’s market.’ In the bubble areas, prices will have to go down 40% or more for it to be a ‘buyer’s market.’”

Another added, “Exactly, this market is far from being a true buyers market.”

And another, “Substantially BELOW asset value AFTER inefficiencies and transaction costs and lost opportunity costs are subtracted. That means markets like Buffalo. Zip or Zill or Real the Buffalo area for thousands of houses for sale below the cost of demolition.”




Condo ‘Highrollers Folding’ In Las Vegas

The LA Times reports on the condo bust in Las Vegas. “In the last several months, at least seven marquee Las Vegas condo projects have either been canceled or put on hold, causing a dust storm of rumors to swirl through the city and elsewhere as investors wonder if this is a harbinger of a slowdown.”

“The reasons for the projects’ retreats don’t bode well for the larger picture: lack of buyer interest and escalating land, construction and labor costs.”

“Speculators have played a role in the current high-rise slowdown. Buyers looking to flip units for a profit, rather than make Las Vegas a first or second home, flooded the market in 2004, raising prices. Most are expected to sell the units when the projects open their doors, some as early as this summer, said (developer) Bruce Hiatt. At least 20% to 30% of the units were sold to speculators.”

“Then about six months ago, speculator interest shifted to other markets, which created a shortage of buyers for the latest Vegas projects. Rising prices and a glut of condos contributed to the exodus. ‘The market needs more first, second and third-home buyers, rather than flippers,’ Hiatt said.”

“To launch most condo and condo-hotel projects, a percentage of the units typically are pre-sold by developers to help finance the construction. The Curve ran into trouble when the developers couldn’t sell their pre-construction target of 75% of the units, said Paula James, Curve’s vice president.”

“With the sales office now dark and the well-dressed sales force gone, the company has returned deposits to the 97 buyers with a note saying sorry.”

“Without question, the change of course of the marquee players has rumors flying that investor exuberance for high-rise luxury projects is on the wane. ‘It raises everyone’s eyebrows when this happens,’ said (consultant) John Restrepo. For now, with apologies to the city’s well-known marketing slogan, real estate investors elsewhere are hoping that what happens in Vegas stays in Vegas.”