‘Is This A Boom Or Bubble?’
The Philadelphia Inquirer reports on the condo bust. “A major condominium developer put plans for his 30-story Marina View Towers on hold yesterday, complaining that a softening market has made it hard to hold prices high enough to cover rising construction costs. ‘It has suddenly become a buyers’ market,’ said developer Louis Cicalese.”
“Site preparation had started for the $119 million building next to the Benjamin Franklin Bridge overlooking the Delaware River. The decision is the strongest sign yet that the Center City residential condominium market, red-hot for two years, has cooled.”
“The DePaul Group of Blue Bell, meanwhile, said in a recent interview it would wait until January to decide when to build a second luxury condominium tower.”
“While two major developers are pressing ahead, others are becoming cautious and complaining that media coverage of whether the condo market is in a boom or a bubble is causing the problem. Tim Mahoney said yesterday he was looking for ways to ‘take some of the risks out’ of a 57-story condo skyscraper that he and partner Brook J. Lenfest have planned at 15th and Chestnut Streets.”
“Mahoney and Lenfest put the project, which has cleared all government hurdles, up for sale in June, when the market was hot and brokers were predicting it would fetch $60 million.”
“Yesterday, Mahoney said he was exploring new ways to build the tower himself, adding that it is still on the market, but that ‘I don’t think we’re going to get a number that appeals to us.’ Mahoney grumbled that media coverage pondering whether the boom would soon cool has, at least for now, produced a ’self-fulfilling prophecy.’”
“Joanne Davidow, manager of the office of the Prudential Fox & Roach real estate firm, said ‘the demand is still there’ but the market has quickly changed. ‘One minute we’re amazingly busy, then there were a lot of articles asking, ‘Is this a boom or bubble?’ I’m not surprised some are taking a step back..to see if prices will go down,’ Davidow said.”
“For now, Marina View developer Cicalese said, At times like these, he said, ‘the fact is you need to be careful.’”
‘New figures show the number of Bay State homeowners falling into foreclosure has shot up 56 percent - and more than doubled in parts of Eastern Massachusetts. Banks initiated foreclosure proceedings against 1,348 Massachusetts homes last month vs. just 866 in July 2005.’
‘Things are even worse in much of Greater Boston. Filings rose 102.4 percent in Plymouth County, 72 percent in Bristol County, 65.2 percent in Worcester County and 63.1 percent in Suffolk County. Statewide, foreclosures have risen more than 50 percent from year-earlier levels for three straight months.’
“Mahoney grumbled that media coverage pondering whether the boom would soon cool has, at least for now, produced a ’self-fulfilling prophecy.’”
Ben;…Send this guy the forclosure data you just posted along with the other data we have on the staggering condo markets across the country…
a self-fulfilling prophecy “MY ASS”….This guy is just a bandit that got caught in the down turn and now wants to blame somebody other than himself for the error in judgement….
These are the one’s that I want to see toasted…The type that think they are smarter than everyone else…
If the “boom” was justified by the fundementals and people simply buying homes to live in and not rampant speculation, how could the MSM make a downturn a self-fulfilling prohesy? Don’t people still need a place to live? Didn’t people buy within their means to pay?
(sarcasm)
I really dont buy into this high cost of materials driving prices up.
The only high cost has been people… but thats just lots of cons trying to get action off the boom so they overcharge.
Why is this a mystery for some?
Coworker who lives in expensive area got charged 2x the normal rate from a landscapper that did work for me.
Make no mistake about it… construction is full of cons trying to get ‘piece of the action’ during the boom times. Actual costs are really low…
Not landscapers, but gardeners charge what in your area for basic lawn service? (Mow, weedwhack, and blow).
I pay $60 per month for 7600 sq. ft. lot, which includes a 963 sq. ft. house, a 2-car detached garage, a 400 sq. ft. guest unit and the original 1-car garage. They also weedwhack the alley. I get service bi-weekly.
Front lawn, 100 ft. of grass-covered driveway, back yard for the main house, and yard(s) for the guest unit. Takes 3 of them about 45 minutes every other week.
Whaddaya’ think?
That sounds about average. I cut my neighbors yard (she is over 70, can’t do it herself) every 2 weeks. She said that the lawn service charged more than $100 a month.
But she is a wonderful neighbor so I do it for $10 a month (to pay for the gas).
That is a winning argument with a perma-bull.
What is a little bit of talk if the fundamentals are so strong? There shouldn’t be an impact.
However, if it is bubble, bubbles are psychological phenomena and talk is what bursts them. Watch out below!
That argument got the perma-bulls to shift tactics over at OCR.
Funny thing about the media … it was OK when the lie was the time to buy is NOW! Don’t delay! No more land!
But, since the builder himself responded to the media by investing in the condo project - he NOW feels differently.
He got caught LOOKING AT A CURVE BALL. The media smoked him! His decision to build was made when the game was already in the bottom of the 7th inning. When he finally got up to bat - the game was over! Ass-h*le.
His decision was probably made in the middle of the 4th. I’ll bet this has been in the works since ‘03. Land purchases, reguatory approval, project design, plan review, bidding…These all take time, a lot of time. Plus, now he’s got the money from the lenders and he’s got to do something with it or lose it all. He got caught with his pants down.
BUT - the MSM is not to blame. They are a lagging indicator. Info about the impending disaster was readily available to those who wanted to look.
The problem with FBs and FDs (D for developer) is the classic problems with amature investors wanting to hit a home run every time thay are at bat; not looking at risk-reward picture; putting too much $ in one game.
The inability of these investors to accept a long run of small profits punctuated by fewer and smaller losses, coupled with hoping and wishing makes than excellent candidates for fleecing.
There are times when you need to cut your losses and take your lumps. If your future is on the line emotions rule.
Stick with index funds (or not…those will get hammered, too, in the coming recession).
This guy got caught looking at a slow-pitch softball strike.
” I iz a victim of SO-CIE-TAY!!”
wonder how it compares to 1990-95 ?
1990-1995, and the 100 years prior, are covered in this chart:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Indeed. These flippers are like the boneheads in Oregon who tried to blow up a whale washed up on the beach.
http://video.google.com/videoplay?docid=5026749082260400566
When you launch something ponderous into air, you have only yourself to blame when gravity does the obvious.
The video is too funny!!!!
It is really funny, I lived in OR for a little over a year and sometimes was wondering what these people are thinking in general.
What they thought the blubber would just disappear? This bubble isn’t going to disappear. Huge chunks are going to come landing down - stand back.
Great video! Recommended viewing!
This is not a psychological phenomenon people. the hurding of buying homes was, maybe. Gotta buy…gotta flip…gotta buy…etc. The crash will not be a result of a talk of one, but rather a result of “i ain’t got no equity left to put down as a down payment’, and ‘the interest rate is too high and i can’t afford to re-purchase my own home at the same price anymore’, and ‘ There are a million homes for sale just like mine and no one is bidding on it.’ kind of talk. WAKE UP people! And look at our recent economic history, for we are doomed to repeat it. We cannot control the interest rates going up and that will ultimately be the demise of the real estate bubble, REGARDLESS of where the location is. i.e., 1987/1997 see http://www.stock-market-crash.net/housing-bubble.htm where the article notes:
“After the housing bubble pops, prices will likely plummet for at least a decade, unfortunately. Too pessimistic? Consider this: After the 1989 Japanese housing bubble, housing prices tanked for 13 straight years! The Japanese housing bubble was a similar situation to what we are currently experiencing.
Even if the housing crash isn’t nearly as drastic, it could still take at least 9 years to recover. This is precisely what occurred after 1988 as the United States housing boom ended. National housing prices finally reached previous 1988 levels in 1997!
From what we have seen, it is inevitable that we are in a housing bubble that will end in an economic crisis. The economy always finds a way to punish excess. ”
In other words, the “pigs get slaughtered”. Signing off.
And the media is creating this problem in the housing market? Give me a break, this is news! Such a huge increase in home foreclosures!! Reality doesn’t sell though …
They love the MSM for helping to run housing prices up to ridiculous levels and fueling the speculative mania , yet now blame them for the consequences of their own greed. I mean , it’s got to be somebody’s fault right?
What this guy and other sellers really mean about the MSM is that they wish they would keep the “secret” until their project or house sells.
A boom is justified by fundamentals; a bubble is not. I’ve always said the tech bubble started as a legitimate boom but metastasized into a bubble. At least it has some merit at the outset, and we got some useful companies like eBay and Google out of it.
This housing thing, on the other hand, was never anything besides pure speculation.
But we got lots of granite counter tops out of the housing bubble…
We got alot of luxury condos and ghost towns in odd places out of the bubble .Oh , how about all the employment .
It seems that some genuine pent up demand that was assisted by the interest rate hike in some places ~1991-2001. But everything thereafter was speculation. I also think that in some areas (Marin, CA) the bubble started as early as 1997-1998. But I am just an armchair economist, so I welcome more knowledgeable posts.
I cluelessly bought a home in Southern Oregon in early 2003; Zillow says I am currently sitting on ~120k in equity. My wife has been crowing about how “smart” I was to buy when I did, but I am fairly certain I will be back to “ground zero”, or worse, by late 2007. I am clearly the greatest fool to ever own my little house. In speaking with my wife, I will keep the adjective, and switch the noun. In the psychology of marriage and wealth, a careful balance of illusion and delusion the best recipe for mental health.
Speculation is part but a little bit of greed-taking advantage of “cheap money” with the low lending rate. Let’s not ignore the big pink elephant either, the recklessness of the lending institions–what with their interest only, variable rate, and adjustable loans. I can see it on NBC Dateline now….” we should sew these lending institutions who new that they were setting us up to fail. Why did this happen to me? I’ve been bamboozled! Someone has to pay for this!”
pennsylvania is the like arizona
PA is the bastard stepchild of they NYC area like arizona is the bastard stepchild of california. PA RE is dependent on people in the NYC area getting good prices on their property and putting it into PA because it’s cheaper there.
Folks from Arizonia are called ‘Zone-iees’ here in SoCa.
Do they call the Pa … ‘Phon-iees’?
“While two major developers are pressing ahead, others are becoming cautious and complaining that media coverage of whether the condo market is in a boom or a bubble is causing the problem.”
It must be the media’s fault, since it couldn’t be that they have run out of millionaires who are available and interested in filling the growing glut of new downtown McLuxury highrise condo units…
All considered, I’d rather be in Philadelphia.
Jokes aside, there is a lot of spillover from the Baltimore area to Philly too.
“Is it a boom or a bubble?”
It is a KA-BOOM!
BOOM,BOOM, KA-BOOM….!!
yo, construction costs are falling. Better quit claiming that excuse.
Are construction costs really falling? How do you know this? I’ve been wondering about this and would love to see some real data on this topic.
-mr. b
lumber was $ 460 now 288
steel is off slightly and concrete varies w local demand- labor should be on a barter basis by holloween !
Could this be because they are not building so much and don’t need as much material? I think we’ve seen this before
Singlemode fiber optic cable was obscenely proced in 1999. Now it’s cheaper that copper.
Anyone who could walk could become a ‘Systems Administrator’ in 1999 for high pay. I do believe that wages for that position have fallen.
Same game different players.
Philly area is a GREAT place to live, all the conveniences of NY without the congestion and expense. Real estate on the MainLine holding up pretty well if you’re not too greedy. The problem with the city of Philadelphia, where these condos are being built, is high wage taxes, expensive unions and terrible schools.
–>“For now, Marina View developer Cicalese said, At times like these, he said, ‘the fact is you need to be careful.’”
Hey, but the 40-ouncers are cheap and plentiful.
Philly has a beautiful old downtown, but I really wouldn’t want to live there.
I’m sure some of the suburbs are fine, but the City of Philadelphia is a horrible place to live: corrupt government, decreasing population, no parking, high taxes, crime, and very poor race relations, among other things. Our family is happy to have survived there for three years, with only one mugging at gunpoint.
$690 freaks someone out? That’s pathetic.
Probably like a 13th PITI payment each year for these folks. Which they should be making anyway. You’re right txchick, it is pathetic.
Now that everyone who is caught holding the bag is blaming the media, you can rest assured that the word is getting out to Joe Six-pack.
It is apparent that this august will be looked back upon as when the MSM finally started reporting on the bubble bursting “news” that has been going on since last fall. What a scoop! ;^p
The majority of existing owners, Joe Six-Pack included, are supposedly being “blindsided” by how fast the market is coming apart. The rest of us are a little surprised the “beginning of the end” took this long to arrive. The fact that it’s been several years overdue would lead one to the conclusion that it will be one nasty correction. Joe Six-Pack and the rest of you bag holders, is this getting your attention now?
I would define a self fulfilling prophecy as one where the occurring event is based, not on a relevant set of facts, but rather on beliefs which are created by mass hysteria and are not supported by rational fact.
What we are experiencing now is not a self fulfilling prophecy, but rather an awakening of the masses who are now finally paying attention to substantive information that had been largely overlooked previously.
“Joanne Davidow, manager of the office of the Prudential Fox & Roach real estate firm, said ‘the demand is still there’ but the market has quickly changed. ‘One minute we’re amazingly busy, then there were a lot of articles asking, ‘Is this a boom or bubble?’ I’m not suprised some are taking a stepback..to see if prices will do down,’ Davidow said.”
Waa-waa-waaaaa!! Please….go cry on someone’s shoulder who cares. No one is making hefty deposits into the National Bank of Davidow, and now it’s “hey, wait! No fair! Stop writing those articles! People are gonna think something is wrong and stop buying!”
Well…..yeah (numb nutz)….something *is* wrong. Ok…here is a bottle with a cute little wand in the liquid. Take the wand out and blow slowly into the liquid caught in the little circle. What is that big circular mass of liquid that comes out of the other side called? Well, gosh, darn it….it’s called a BUBBLE. Now go wash your face.
(These people just irritate me so.)
BayQT~
Yeah - and it’s strange reading all the disconnects… “The demand is still there” WTF? If the demand was there, product would still be leaving the shelves, no? A house is not like food, where you “have” to buy it. So the demand is NOT there. And that’s why prices are or will be falling, depending on where you are at.
Joanne Davidow should have paid attention when her own boss, Steve Storti (VP PruFoxRoach) officially called a buyers’ market, about two weeks ago: (Philadelphia Inquirer). I’m a former PFR employee; when I saw that Storti was calling it a buyers’ market, I knew the numbers had to be bad. They never go public with the bad news until they start to fear lawsuits.
In the Phila metro area, lawn signs on For Sale homes went from “Reduced”, to “New Price”, to “Price Improvement”.
In my own home search, I’ve seen properties stay on sale until they reduce price by 10%, at least…and these are homes in the $200K range, which are supposedly moving faster than more expensive homes.
As home prices in the Philadelphia area rose dramatically, I couldn’t help but wonder where all the buyers were coming from, and more importantly, who was earning that kind of money? Where were the jobs to support the salaries that could afford these homes? I was told a lot of the appreciation was due to investors coming in from NYC. One imagines that these investors will either bail or go back to NYC to invest, since that city is experiencing its own bust.
Also I’ve noticed many more single family homes with FOR RENT signs on the lawn. Evidently, sellers are holding out for their price, and renting their homes to weather the storm of declining home values. IMO all they’re doing is prolonging the agony, since they will be contributing to inventory in the rental market as inventory in the housing market increases.
In any case, I’m waiting a little while before I make any serious offers.
If I was in the RE industry, I sure wouldn’t go pissing off the media just now…
It won’t matter either way, IMO. The media is on the RE bust now as a hot item that improves ratings and circulation…there’s no holding back.
just more blame the media. forget media, what about affordability rates? with a high number of sales these last few years, don’t you think that boomers already own(two or three) pieces of “retirment” property?
A co-worker told me that her mother-in -law owns two homes in Napa, Calif. She has been using her 401K money to make the two payments for the past 6 months. They re-financed house one for a lifestype improvement and the money for a 800K 2nd home as an investment. All based on the belief that housing never goes down.
For a lifestyle improvement?! Unbelievable. I wonder what the details are what they are doing to “improve” their lifestyle? And what, pray tell, will they do for retirement if they drain their 401(k)? Oh, yeah…they will have the thousands of dollars they will reap once they sell the property! Yeah, THAT’S the ticket.
lineup….if you could give us an update on this next year, I’d be interested on how these folks see the market and their plan. Hmmm….as a matter of fact, do you know what kinds of loans they are carrying on these 2 houses? I just thought about the resetting of the ARMs.
BayQT~
I choose not to have a lifestyle. This way, I put no pressure on myself to maintain a certain standard. I also find it a lot more fun to have no debt, than to have lots of debt.
Crimminy. When she files her 1040 by 04/07, she’ll get hammered.
this week’s “The Economist” had an interesting line in their otherwise no-new-info me-too article on the US housing bubble. In it they suggest that recession isn’t the inevitable result of the popped bubble:
“Another argument of optimists is that house-price weakness in Britain and Australia, two other countries that worried bubble watchers, has proved much less damaging than many expected. Tim Bond, of Barclays Capital in London, points out that both countries’ economies performed so well after house prices peaked that their central banks found it necessary to raise interest rates again afterwards.”
Well, the housing bubble is a subset of the credit bubble. When the credit bubble blows, everything goes.
My wife and kids were playing Monopoly a few days ago. There is a rule that when you sell your house back, you only get 1/2 the price that you paid for it. Hmmmm. Maybe those 1920’s game makers knew something we don’t.
“others are becoming cautious and complaining that media coverage of whether the condo market is in a boom or a bubble is causing the problem.”
Translation: “The media is ruining it for us; no one was supposed to know what was going on in the housing market, and now we can’t find bag holders. It would be better for the housing market to be opaque, so we could fool more people into buying our overpriced inventory.”