The Housing Bubble

Readers suggested a topic on international housing markets. “What countries outside America should someone consider for living? I have enough money to buy a house, but am so disgusted by the current situation in America that I don’t want to buy here, in the foreseeable future.”

“Canada is the obvious choice because of proximity and similarity. I vacationed in a pleasant small city in Brazil a few years ago, and the people of Thailand were quite friendly when I spent some time there, pre-tsunami. So if you didn’t have to work full-time…where would you go?”

One had a short list. “New Zealand, Australia, Deutschland.”

Another had this, “Read something about the making of lord of the rings, and how a lot of the geeks who stayed behind after the project was finished.”

One had more detail. “New Zealand is a paradise, and anybody who has spent a bit of time down there, can see it with their own eyes and the film crews would have had ample time to see for themselves…”

“Once the real estate bubble there goes away, (no different than here, prices up 300% vs 10 years ago) my wife and I are looking to buy a small place somewhere in a little mountain town in the Southern Alps of the South Island.”

“New Zealanders are in my opinion, the friendliest people i’ve ever met and crime is laughable, compared to here in the states.”

“Anytime from now to late February is a great time to be there. Their summer is just starting in earnest, now. We wouldn’t be buying a place there to live full-time, just chasing the perenial summer, that’s all.”

“We like NZ for reasons altogether different from income. It feels to us, like stepping back into the 1960’s, life as we remember it, simpler, friendlier, a lost innocence we can reclaim, with just a 13 hour plane trip from L.A.”

One points out the restrictions. “Best first check the taxes in these places, whether on property, income or other assets. Also check details of permanent residence. Thailand, for example, requires you to leave the country every 90 or 180 days, as I recall — not a deal-killer, necessarily, but a nuisance unless you live close to a border.”

One looks at the local economy. “Just remember the local per capita GDP in NZ is nothing like the US. Some folks from my school finished up in NZ, and at a reunion a few years back several commented about the difference even between NZ and Australia.”

“If you’re thinking of coming to Australia itself, it gets a lot harder after 45.”

One looks elsewhere. “I’m strongly considering South America. If one can handle the security concerns, there are good jobs to be had. The search is on….”

And another looks north. “I’m trying to move to Canada right now. The coasts have reasonable winters, and I like their more laid-back approach to things. Vancouver is my favorite, but unfortunately everyone wants to live there so it is rather overpriced… at the moment.”

The Associated Press reports from Pennsylvania. “After years of gains, the Pennsylvania real estate market decelerated in earnest this year as buyers balked at paying ballooning home prices and speculators left the market. A growing economy, low mortgage rates and new types of loans had fueled a decade-long housing boom, but declining affordability has put a dent in the market, especially in eastern Pennsylvania.”

“When Tim Schieber bought a luxury town home a year ago without first selling his house, he didn’t think it would be hard to find a buyer for the Bucks County stone farmhouse. But it would take 15 months, a $190,000 price cut, $16,000 worth of remodeling and a new real estate agent before the Schiebers were able to sell their 3,600-square-foot home near Doylestown.”

“‘The days when you put a house on the market and it sells (right away) - those days are gone,’ said the business owner. ‘We just sat back and it got really tough.’”

“‘There’s no more flipping,’ said Austin Jaffe, chairman of the real estate department at Penn State University. ‘It’s not the same psychology that you build a house and by the time you’re done with it, it’s time to flip it and do your next deal. There is no bubble bursting here,’ Jaffe said.”

“The hot demand for homes in northeastern Pennsylvania had been partly fueled by buyers who were shut out of the more expensive New Jersey and New York markets. ‘People are willing to travel, to commute a great distance in order to get cheaper housing. That has bolstered the northern part of Pennsylvania,’ said Celia Chen, director of housing economics at Moody’s Economy.com.”

“One of the most expensive markets in the state remains downtown Philadelphia, even though prices have fallen 10 percent to 15 percent this year. Overall, downtown seems to be recovering from its slump, when ‘real estate people were slitting their wrists,’ said (broker) Allan Domb.”

“Prudential Fox & Roach, whose firm handled the Schieber home sale, said buyers have been returning to the market in the past month, attracted by lowered home prices. ‘The buyers are coming back,’ said Alan Reburn, VP at Prudential in Devon.”

“Still, it took some creative marketing to get a sale for the Schiebers. The realtor put the house on a historical homes tour. It sold for $650,000, far below the family’s original $840,000 asking price.”

The Toledo Blade from Ohio. “When Ben Konop decided he wanted to live downtown, the single lawyer was able to bag a roomy two-bedroom condominium for under $150,000 last year. Mr. Konop paid $300 less than the original purchaser had three years previously when the warehouse was newly converted.”

“He recognizes that, given the volatility of the downtown market, he may not recoup his purchase price when he sells. ‘I didn’t buy it for investment purposes,’ Mr. Konop said. ‘I realized I was something of an urban pioneer down here. But I think the condo has the potential to be a good investment.’”

“Like residential resale markets elsewhere in Toledo and in most areas of the country, downtown could hardly be characterized as red hot.”

“A small sampling by The Blade of recent sales of downtown condos and lofts found that they brought an average of 6 percent more than the original purchase price. But one downtown seller, who spoke on the condition he wasn’t identified, said profits can be illusory. Official records suggest he made $8,000 on his sale. But he said he lost money because of upgrades and other expenses he put into the unit when he bought it new.”

“The downtown area has about 200 condos and lofts in complexes and scattered sites, said Kathy Steingraber, executive director of the Toledo Warehouse District Association. Although that number is not large, it is up considerably from 2000 when few such units had been built.”

“Trent Thompson has been trying for eight months to sell his one-bedroom 1,600-square-foot unit at River West Townhomes on South St. Clair Street. Although he and wife are disappointed, they don’t blame the downtown market.”

“‘A lot of people are sitting on houses for eight months throughout Toledo,’ he said. The two-year-old unit s listed at $198,000. They bought it two years ago for $195,000.”

“Agent Cherie Posadny agreed that, like real estate elsewhere, the downtown resale market is hurting. One owner accepted $145,000 for a unit he bought new for $154,000.”

“‘People who buy are thrilled about living downtown. I think we have so many available condos with unsold units at the Bartley Lofts project. We don’t have enough buyers who are looking to live in an urban setting,’ she said.”

Readers suggested a topic surrounding Wall Street bonuses and New York real estate. “Slightly off topic, and thinking out loud: I just do not understand where those tremendous Wall Street earnings are coming from, which cause all those record bonuses???”

A reply, “If you don’t understand where they are coming from, there is some chance that they are coming from your and my pockets…”

Another said, “The Amish finally dug up their coffee cans and open a Scott trade account via the local library.”

One had this question. “Whats Fair and Reasonable? Here in NYC how many people can really afford $2000+ a month in rent all by themselves? Yet they do because they own almost nothing. Or they have a roomate and ’share’ a one bedroom apartment.”

“Realistically, How many people really do make $75K+ a year to ‘afford’ that $2000+ month payment?”

“Another NEW condo building here in Long Island City on the east river overlooking Manahatan just put up a big Now Renting banner.”

“The first buliding a few years ago were selling for $60-90K yes that redicuolus low price in NYC…….the catch……..you knew there was one……….It was built on almost all borrowed money so the monthly maintence fee was over $2000 per month !!!!”

“I am also starting to see a few Commercial buildings in LIC, have Large space available and for rent signs they were not there just 2-3 months ago.”

A reply, “That is great. We will be looking for new digs in April and May. Our current building is full of snot-nosed twenty-somethings that act like spoiled teenagers. I can tell you how most of them afford their rent, ‘Mommy & Daddy.’ I want a crash just so the youngsters might learn some humility and manners.”

Another said, “That new rental in LIC is now offering 1 month free rent. OOH, well now it is only $2180 a month for 700sq feet of stainless steel granite bliss.’

The New York Times. “In recent weeks, immense riches have been rained upon the top bankers and traders. After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million.”

“The Manhattan real estate market, for example, had softened; sales of apartments fell 17 percent in the third quarter this year compared with a year ago, according to the Corcoran Group.”

“Then came bonus day. Last week, Michele Kleier, president of Gumley Haft Kleier, received a call from a hedge fund manager in his late 30s. He had spent $6 million on an apartment two years ago and, with his bonus, wanted to upgrade. His new price range? ‘Not more than $20 million.’”

“The morning Goldman Sachs announced record fourth-quarter and 2006 earnings, Lloyd C. Blankfein, CEO, implored his employees to avoid excess. ‘As stewards of the firm’s reputation, I ask each of you to remember that our actions, inside and outside of the office, reflect on Goldman Sachs. Even a perception of arrogance hurts all of us,’ he said.”

“At cocktail parties, comparisons to 1999 abound. That year marked the height of the technology boom and the eve of a painful crash. ‘It feels a little bit like the top,’ said another banker.”

“Not everyone on Wall Street is getting multimillion-dollar bonuses. The average managing director, who stands at the top of Wall Street’s hierarchical food chain, but far from rock-star status, will be getting $1 million to $3 million, which will likely be stashed in savings as memories of the 2001 bear market remain fresh.”

“‘I’m putting it in the bank because I know next year I could be out of a job,’ said one managing director at a leading bank.”

“For hedge fund traders and managers, markets were rough in the spring and summer, and some did not make gains until stocks rallied this fall. ‘It was a terrible year,’ said one young hedge fund professional. ‘I am going to the movies with my bonus. By myself.’”

The Herald Tribune reports from Florida. “Associate Realtor Rick Greene traded e-mail messages last week with staff writer Michael Braga about the current reality in the real estate and insurance industries in Southwest Florida.”

“Q: What has been happening to real estate sales and prices over the past six months? What has been driving these trends? A: Over the last few years, there was quite an abundance of press attention to the rising real estate prices, and speculation as to when that ‘bubble’ would burst. The media has focused on that decline and speculated as to how low the market could go.”

“‘In enabling a self-fulfilling prophecy, those who read the papers, in depending on that viewpoint, have decided to remain on the sidelines to see just how low low is.’”

“Q: When are we going to climb out of this trough? A:Unfortunately for the sellers, because of the glut of properties on the market, prices may continue to be at their current lows for some time.’”

“‘However, this is a good time for buyers, prices are down to 2003 and 2004 levels, and some buyers are desperate to unload properties that are camouflaged by the sheer numbers in competition. The early bird gets the worm. If the media got behind that idea, the marketplace would see some quick changes upward.’”

The Sun Sentinel. “Every year at this time, the South Florida Sun-Sentinel polls real estate industry professionals who are experts in different segments of the local real estate market. Here are their responses:”

“David Levin, a real estate industry consultant based in Delray Beach: ‘People with a vested interest in promoting real estate transactions will use anything they can to claim that ‘now’ is a good time to buy and/or sell. Despite this, sales volume for 2007 will remain at current levels. As sellers and buyers continue their ‘Mexican Standoff,’ prices will erode approximately 5 to 10 percent further.’”

“‘Inventory levels will increase before backing down in the latter part of the year as disenchanted sellers take properties from the market and buyers selectively buy properties that actually meet investment criteria or can be carried by income.’”

“David Dweck, a real estate agent in Coral Springs: “The resale market will hit bottom in 2007, and it will remain a buyers’ and renters’ market. Foreclosures will continue to increase to perhaps record levels from Miami-Dade through Port St. Lucie. Many real estate agents and title companies will be history since the party is over. Finally, investors will be in a great position to buy at prices significantly below market.’”

The Palm Beach Post. “The existing-home sales report for November from the Florida Association of Realtors comes out Thursday and real estate watchers will be, well, watching to see if prices continue to tumble.”

“For an early look, here’s what Illustrated Properties’ evaluation of local MLS sales for the month shows. The inventory of homes on the market rose to more than 22,000, down from August’s peak of nearly 29,000, but still in record territory. By comparison, there were half as many homes on the market a year ago, IPRE says.”

“Sales remained in the basement last month with 628 closings, the lowest level in more than a year.”

“Yes, home prices are falling, but there’s a not-so-thin line between making an offer that reflects this reality and insulting the seller. ‘We are amazed at some of the crazy (low) offers people put through on homes that have been marketed at a reasonable price,’ says Realtor Randy Bianchi in West Palm Beach. ‘It almost becomes insulting,’ he says.”

“Actually, Bianchi is too polite to say that some offers are insulting.”

“Case in point: Bianchi has a condo in West Palm Beach listed for $170,000, a reasonable asking price, he says, for an end unit with many upgrades and a great view. The last two sales (within the past 45 days, he points out, not last year) were for that much or more.”

“‘We got an offer of $145,000 with 95 percent LTV (loan-to-value),’ he says. ‘Come on! If it were cash, I might understand. But financed? I think buyers are assuming that all sellers overprice homes, or they’re not listening to their agents or nobody is doing their homework.’”

“Or all three.”

What do you see in your local housing market this holiday weekend? Builder incentives? Relisted properties? Anecdotes?

How about cheaper land? “During the real-estate boom and recent slowdown, the focus has been almost entirely on the price of homes. But land prices have taken an even wilder ride.”

“Residential lot prices in or near many metro areas across the country, including Boston, Washington, D.C., and Naples, Fla., have plummeted in the past year, some as much as 29 percent.”

“Big landowners are feeling the pain, too. According to Chicago-based Grubb & Ellis, the median price of parcels averaging between 40 and 94 acres is $162,000 per acre year-to-date, 28 percent below the 2004 price.”

“In Boston, in the throes of its weakest housing market since the early ’90s, the price of a lot fell 24.5 percent in the third quarter, while home prices fell 9.8 percent. In Naples, Fla., which was recently overrun and then abandoned by speculators, lot prices plummeted 28.7 percent in the same period, while home prices dropped 5.7 percent.”

Any construction changes? “Oklahoma City, Edmond, Midwest City, Moore and Norman issued 5,080 single-family building permits through November, a drop of 13.4 percent.’

“The slowdown and increasing inventory, almost a six-month supply of homes on the market compared with a four-month supply at the first of 2006, has some builders offering extras and incentives to buyers, partly to help sell homes, partly to keep from having to reduce prices, home-building executive Dave Osborn said. But some builders are dropping prices, said Osborn, president of Heartland Homes in Oklahoma City.”

“Cutting prices ’sends a bad message to both existing and potential homeowners,’ Vernon McKown, co-owner and president of sales for Ideal Homes in Norman said. ‘We try to show loyalty to the people that show loyalty to us. That means we do our best to protect the investment and trust our customers place with us. We don’t drop prices because it literally takes equity away from people who already live in our communities.’”

“‘Not to mention, if a customer builds a home, then a few months later the builder slashes prices for their neighbor, it really makes them feel like they were taken advantage of and can leave a bad taste in their mouth.’”

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