Bracing For ‘Dramatic Drops’ In Florida
The Orlando Sentinel reports from Florida. “Rising land costs have some developers of vacation homes in the Walt Disney World area focusing more on condos and town homes to entice buyers with lower prices. The market clearly has cooled, but single-family vacation home prices are still high enough that the rents owners can get pale in relation to their mortgage-carrying costs, according to several developers.”
“The answer for many, they say, is a lower initial investment. ‘Rental income hasn’t kept pace anywhere near buying costs,’ (developer) Garrett Kenny said.”
“Kenny is developing a vacation-home condo project near ChampionsGate and said most of the sales were completed before the market slowed sharply. ‘The market from the U.K. has really slowed down,’ Kenny said. ‘You have to be priced right these days.’”
The Sun Sentinel. “After years of handing out millions in incentives to downtown developers, Hollywood officials think they are poised to see profitable returns. But first they needed to borrow $20.5 million.”
“Driving the refinance package are delays in completing most of the proposed downtown redevelopment projects. ‘A couple years ago we stood here and we expected a number of those projects would already be generating those tax dollars,’ said Bryan Cahan, agency finance director. ‘But because of the [housing] market, some of those projects have taken a bit longer.’”
“Some criticize city leaders for previously promising so much to developers without any guarantees of success. ‘If all of this doesn’t work or all of this collapses, what’s going to happen?’ activist Howard Sher said.”
“Earlier this year, the developer of Young Circle Commons, one of the largest downtown projects, said he might have to scale back its size after his bid to obtain a nearby private property through eminent domain failed. The developer of SoHo Lofts also has asked for more incentives, citing rising construction costs.”
“And the developer who at one time planned to bring a condo project featuring a theater and charter school to Young Circle is on the verge of defaulting on a $5.2 million loan the CRA gave him, officials announced last month.”
The St Petersburg Times. “Most Floridians, actually, most Americans, have the vast majority of their personal worth tied up in their homes. So when that value stops growing, starts to look vulnerable or even starts shrinking, people need to turn off the TV and focus.”
“According to one particular type of market analysis conducted by Economy.com, a belt of Gulf Coast metro areas from Sarasota in the north to Naples in the south better brace for some dramatic drops in housing prices. It’s only natural since these are the same speculative-investing, hot-spot cities that enjoyed surreal runups in home prices in the past five years.”
“A neighbor wasted no time in telling us her family had had it with the squirrelly economics and hurricane threats of Florida. Her husband traveled west to scour parts of Colorado for a better housing market. I wish them well but they may have missed the window of escape. Selling out now could take some time and a painful financial toll.”
The Marco Island Sun Times. “According to Marv Needles, the construction aspect of the company will soon stop its building operations. ‘I’m not taking any more business,’ he said. ‘I haven’t been since June.’”
“Needles said there were several factors that led to the decision to phase out the construction part of his business. ‘It’s very difficult to keep a reasonable handle on costs in today’s market,’ Needles said. ‘Most customers aren’t willing to sign a contract that’s open-ended with the price, so it becomes kind of difficult to do business.’”
A Motley Fool. “My wife and I are Realtors and associate brokers who live and work north of Atlanta. The Atlanta Board of Realtors held a luncheon, when I learned that our guest speaker would be David Lereah, chief economist with the National Association of Realtors.”
“We would have a chance to chat with him over lunch before he spoke to our group. It seems he had just spoken yesterday to a Realtor group in south Florida and he told us the mood there was pretty grim. He told us that their business is off 60% from last year.”
“Lereah’s bottom line is that by next year most markets, including here in Atlanta, will be much more back to normal. Pockets of weakness will remain in California, south Florida, and some of the east coast resort areas like Hilton Head. But for most of us, better days are ahead. Is he right? My crystal ball lies irretrievably shattered on the floor. I have no idea.”
“In our personal business, we are still stuck at twelve transactions year to date. Over the past five years, we have averaged twenty five deals a year, so, we are obviously deep in the hole.”
‘SARASOTA COUNTY — Pocketbook issues like housing, taxes and jobs are growing concerns for residents, according to a new survey commissioned by the county. Rising home insurance costs were cited as the “greatest stress” on family finances by 24 percent of the poll’s respondents. Property taxes were second at 18 percent, then gas prices at 15 percent, and health care costs and personal debt at 6 percent each.’
‘Rising property taxes and skyrocketing insurance rates are putting a squeeze on apartment owners who can’t raise rents enough to compensate for the cost increases, she said. ‘You can only pass along just so much; otherwise, you price yourself right out of the market,’ Wentzel said. ‘You’re in a Catch-22.’
‘Missing from this year’s survey is a question that was featured in each of the previous eight years: Would you say as a place to live, Sarasota County is better now than it was five years ago, or would you say it is worse or about the same? Last year, most people thought the county had become a worse place to live. That was a first.’
‘Removing the question seemed a little shady to Bill Earl, chairman of Citizens for Sensible Growth. ‘You might get the answer you don’t want, so you phrase your questions differently,’ said Earl, who was ‘amazed’ the county would eliminate the question after eight years.’
‘I guess sometimes officials get nervous,’ University of South Florida political science professor Susan MacManus, who oversees the annual poll, said of the county’s decision to not ask the question. There probably was no need, though, since last year’s poll could have been an aberration. After all, seven previous polls showed that most people thought the county was becoming a better place to live, she noted.’
Nice example of poor sampling design. You could write a case study with that one. Why would’nt you want to know what your residents are really contemplating? Mining the truth is a necessary step in augmenting your product offering and keeping pace with market trends. If you don’t, it’s like putting you head in the sand and giving control to other market forces.
I work in education. A lot of the ‘answers’ or at least the data stream point in directions administration have no intention of going. Whether politics, prior commitments or personal bent, the future always lives in the shade of the past - and nothing grows well in the shade.
Lot’s of things grow well in the shade, that’s why they created the Sunshine Act — to stop a certain kind of growth.
This sort of garbage is so common we forget how dangerous it is to a free society.
I am a scientist. One of the best things about my field is certainly NOT the pay, but the fact that anything you develop and propose to publish is thrown to the wolves first. I have had some of my good work trashed, to be sure, but I have felt that much more competent when it is published on it merits in a hostile, but hopefully semi-objective system.
Blatant deception (i.e., I will publish only what makes my business, administration,etc. look good) is the rule of the day in real estate, and their proxies in local, state, and national government are all in collusion. That is why I am so anti-W. Past republicans have valued science and truth. It has been a point of bipartisan concensus. With this group of bozos, all science raw ore is to be mined for half-truths to feed the spin machine. And it was not just to get elected. The spin has been full-tilt for 6 years, so the public has no trust (other than the blind trust of hyperpartisan Talk Radio addicts). We cannot hope to elect leaders who can govern, if every level of public servant is in the business of providing “public services” that massage public opinion.
Totally agree with you. I used to be a scientist; now I work for industry. What is called “a lie” in science is called “alignment of key players” in industry. Free market extremists often argue that the free market provides the same rigorous tests that experiment and peer review provide in science, but it does not. If it is profitable to delude your customers, then delusion will prevail in the marketplace. We discuss the details of mass delusion daily on this forum.
It has become fashionable to try to run government like a business. I don’t think people fully realize the consequences of this idea. Business only has one goal: to make money for its investors. Ideally, government should have more goals than that.
“It has become fashionable to try to run government like a business.”
You bring up a good point Annata. Most folks think a business model is better than a bureaucratic model, probably true to a point. But business, particularly sales, requires a masterful use of deception to influence consumption and speculation that runs counter to the public need for truth from its public servants.
I know I alway believed that business types were savvy and fiscally skilled, but this latest run with corporate dominance of all branches of government has proven to me that business folks are not necessarily good at governance.
“It has become fashionable to try to run government like a business.”
“A capitalist will sell you the rope to hang him” - Lenin
Right now the Chinese are selling the US the rope to hang itself. A mountain of debt to buy the crap at Walmart.
The fundamental purpose of government is collective security, and that cannot be run along profit principles. Someone will always sell you out for their own personal advantage.
Or better said, the Chinese are buying the US debt which will be the rope which they use to hang the US.
annata,
Couldn’t agree with you more. Although a “free market” sounds good in theory, there is no way to avoid corruption unless you have fairly restrictive regulations.
Yesterday, some of us were discussin socialized medicine. I know many people who received better care and had access to better medicines in countries with socialized healthcare. Why? Because the FDA is run by (former or current) board members of large pharmaceutical companies (and others who profit from healthcare). The goal in US healthcare is profit.
With socialized medicine, the goal is better health at the lowest cost — since “the people” are paying for it, and the system is not controlled (at least in theory) by those who stand to profit from it. They seek to maximize everyone’s health for the betterment of society (healthy people are more productive).
Just MHO.
This reminds me of the on-time delivery statistics that the Chicago Main Post Office (in the old building, at W. Van Buren) used to post on a big board at the Harrison street employee’s entrance. For many years, they showed very high on time deliveries on various Chicago zip codes in the very high 90’s. This was done so management could get their mutliple cash incentive awards all year round like clockwork, (presumably) for a job well done. But then in the mid to late 1990’s the Postmaster General in Washington, DC hired a big eight accounting firm to get to the truth about on-time delivery with seeded mail (on a nationwide basis), and all of these local statistics in Chicago where blown away. No Postal manager in Chicago was fired, and nobody was ever forced to give back their cash incentive awards. Their reward was to continue to manage (and screw up) one department or another (there are many in the Chicago Main Post Office) until retirement.
I think this article is overly optimistic. I own 20 acres of land that’s physically adjacent to Walt Disney World, on which we’re building 1 house (that I’m going to live in!)
Across the street is a development of about 40 SFH built by pulte in 2004. 15 of them are listed in MLS now, and at current wishing prices, some of the flippers are going to be losing.
There was supposed to be a Ryland townhouse complex (”Oasis Cove”) going up further down the street–on land Disney sold a couple of years ago at the peak–and so far there’s nothing being built and Ryland removed mention of “Oasis Cove” from the website.
I think the realtors are fooling themselves into thinking that real people are buying here for “vacation homes.” It’s just flippers who are rapidly disapearing.
“It’s only natural since these are the same speculative-investing, hot-spot cities that enjoyed surreal runups in home prices in the past five years.”
Sureal. Is somebody assembling a dictionary? I still love the implicit denial in that apparently only the hot spots are at risk. The people in Flyover County, USA are in denial if they think they will only go down a little because they went up a little. What’s with that? Sureal.
Why? You think the prices should have been dropping but flat-lined and so they will drop now? So why do you think they should have been dropping?
These areas remained constant through the last bubble when places in CA dropped by 25-50%. What’s different this time?
The last drop in CA was in the 1990’s - long after the rust belt had been outsourced etc. The fundamentals in areas like the Midwest (outside cities like Chicago) haven’t changed in decades.
Just curious to understand what fundamental changes you’ve observed in flyover country.
Thanks.
I believe the international credit bubble jumpstarted India’s grassroots capitalism and China’s corporatism also fueled the US Asset bubble. In the US it was expressed disproportionately as housing for a bunch of reasons. An international process isn’t going to pass over or concentrate in specific regions unless there are special circumstances. Thus we have Buffalo/Rochester and Bakersfield/Fresno at the opposite extremes. Look at Rochester and tell me why Flyover County, USA is different.
next year he can say” I meant reversion to the mean”
“Lereah’s bottom line is that by next year most markets, including here in Atlanta, will be much more back to normal.
LIErah
No, no, no! You’ve got it all wrong! Here’s what J.P. Morgan said this morning about the home builders:
“We believe key leading fundamentals are either beginning to stabilize or are on the cusp of recovering over the next few quarters, and historical performance trends point to a longer-term positive move,” the broker said. In particular, J.P. Morgan said inventories — which it believes were the leading driver of the market’s recent downturn — are beginning to stabilize and should drive a market recovery.” — Marketwatch
Coincides perfectly with last week’s statements by Bernanke, Greenspan, Vice Chairman Kohl, et. al. Great minds arriving at the truth independently — what else could it be? LOL
Fools grasping for the only straw left that could support their ideology.
Fear. The old line about ‘things are in the saddle, and riding mankind’ are close now. Many political and economic decisions are coming back to haunt the powers, and fear of the consequences is real.
Big business has successfully and succinctly managed to cut off the hands that feed them. Acting in concert, they have beaten down the American workers to a point where they can no longer effectively afford to buy consumer products.
Complete and total debt saturation upon the American consumer has been achieved. Through stagnant wages, and the humiliation of wage cuts and loss of benefits imposed upon American workers, the consumer is no longer able to feed big business through consumer spending.
The expansion of credit and the appreciation of home equity has allowed the consumer to hang on, despite their low wages, but no more. Look at airline employees, the most humiliated workers in America, going home at the end year and telling their families how much less they make now than they did in the past. Yes, the big boys really know how to beat down the little guy. But now the chicken are coming home to roost.
Congratulations big business, you’ve achieved nothing.
Mike,
I like how you put that. I think that is why our multinationals are going overseas and fighting for “free trade”. It’s not only to save on wages, but to access their markets. As our standard of living falls, theirs will likely rise, creating billions of wanna-be consumers who see rising wages and QOL.
IMHO, the American consumer is beginning to be absolutely inconsequential. The corporations know this and are seeking out other markets. We are toast.
The problem with the it will turnaround story is that it assumes interest rates are going to stay where they are. Yes, all else equal, if the 10 year can stay where it is at forever, then housing will have a soft-landing.
But the underlying economy is still quite strong. The global economy is also strong. Inflation pressures have abated only slightly and once the pressure from housing comes off, interest rates will be set to move up again, especially as the Japanese and Europeans raise.
Remember the two big components of inflation are not energy and food, but rather, labor and housing (rental) costs, both of which are now increasing at worrisome clips.
At this point, it’s a wait and see situation. If housing does have a soft-landing though, homeowners will have gotten their free lunch.
So for now, buy equities and risk in general. It’s worth it when global real interest rates hover below 2%. But watch out for the inflation boogeyman which I expect to rear its ugly head in the summer of 2007, not too unlike the summer of 1987.
“There is no such thing as a free lunch.” And this is no exception. If interest rates go down, the dollar will implode; if they go up, the economy will implode. If they stay the same, at least one of these events will occur.
It would take quite a bit for the dollar to “implode” contrary to the crap one hears out there. US real rates remain the highest among Europe and Japan and as long as that continues, the US Dollar will rally - especially against the Euro which is seriously overvalued.
And in the context of the homeowner, if interest rates fall, it helps them, because they are debt holders. So in effect, there is a free lunch for homeowners.
Now my thesis, if you even read it, was that interest rates are too low. If they were to remain low, there would be a free lunch for HOMEOWNERS.
But because there is no such thing as a free lunch, the logical conclusion is that interest rates HAVE to rise further, slowing down the economy and killing debt holders.
US real rates are high only if you believe the ridiculously “adjusted” CPI numbers. If you calculate real rates with a CPI of 7% or higher, which is the minimum the CPI would be without the “adjustments”, then real rates are seriously negative.
Hope that helps.
I’ll remember that when I hop into my Audi A6 leased for $550/month.
Cars, and many other major consumer goods (i.e., things you buy every 5 years), have had deflationary pricing for years. Food, transportation, housing, heating, and now rent (i.e, the things you buy all the time) have been rising at an alarming rate. Inflation isn’t a universal thing across all categories.
If rates rise further debt holders (as in bond investors) will get killed. The actual debtors (homeowners)will be happy. Assuming of course they have fixed rates. I agree that rates are too low and have nowhere to go but up over the longer term.
USD needs higher rates than say Euro to maintain its stability, because of the USD surplus due to account deficits. There is no currency exchange surplus of either Euro or Yen, that’s why their rates are much lower.
Interest rates can be high in the USA verses other nations and have the dollar drop. Rates in Russia and Argentina were very high verses the other currencies just before those currencies cratered. Then they went through the roof.
We will eventually see a run on GNM and FNM paper just like a good old 1930’s bank run. A run on these mortgage instruments will cause massive sales of dollars. These debt instruments will force higher than normal interest rates on dollar debt.
The US economy will be weak and yet interest rates will rise. This is because the USA is a massive debtor nation. The masses do not see that the King has no clothing yet.
Look to Russia in 1998 and Argentina in 2001 as the model of what our debts will bring us.
If they stay the same, at least one of these events will occur.
Why?
Because there are only two endings to a great inflation: hyperinflation or depression. The only remaining questions are which of these we will get, and when.
http://www.itulip.com/forums/showthread.php?t=417
That’s a good read. I agree with much of his scenario. And he’s a coin guy too!!
“If they stay the same, at least one of these events will occur.”
I agree with this statement as it implies a shades of gray approach - pretty dark shades though. The FED has generated an enormous amount of money, aka inflation whether the CPI shows this or not. The only thing we need for the inflation to become “CPI official” is an increase in wages, which may be around the corner if the FED does nothing with the short term rates. Won’t investor capital from RE bubble, and the unused credit capacity of lenders find its way back to businesses, and eventually wages?
Could the following play out over the next 3-4 years?
25%-40% declines in RE values
20% increases in wages
What happened after the early 90’s bust? I think as long as capital has somewhere reasonably productive (and safe) to go, it won’t be too excruciating for the economy as a whole. My econ history kinda sucks, but that’s wasn’t true in 1929 (right?), stock market and RE bubble happened simultaneously - money had no where to go after that but under the matress.
With that being said, I still think the short term pain for the average Joe SixPack will be fairly acute for the next 24-36 months.
I disagree with the 20% increase in wages supposition. They may have been possible in the 70’s but now globalization and wage-labor arbitrage is the name of the game. The U.S. labor cost structure is already way out of whack with respect to the rest of the world, which is why outsourcing is so prevalent. Why would any company give their employees a 20% raise when they can send the same job overseas for much less. I even read that some loan officer jobs are being sent to India. I think we can expect the trends of the past few years to continue - namely stagnant wage growth except for celebrities, pro atheletes, and CEO’s.
Well Miami RE cratered in 1926, several years before the stock market crash.
I don’t buy the argument ‘lowering interest rates will save the demand side of the housing market.’ Yes, it contributed to the market’s rapid expansion by stimulating real and fictional demand and yes lowering interest rates will dampen the balance sheet impact on some current home owners, lenders, developers, builders, and other supplier types.
However, the market is over supplied and overbought; as a result, the only way to correct the excess capacity is to slow the rate of production and let the market clear. There is a demand or rather an absorption limit in every market and we have already surpassed it in the housing market. Who are you going to sell to next?
Of course lowering interest rates saves the demand side of the equation. At a lower interest rate, the rent-equivalent hurdle for owning a home becomes lower. Homes become more profitable as “investments” and during a low interest rate regime, money always chases yield.
Now of course this is an “all else equal” statement. Usually low interest rates are met with macro headwinds stemming from layoffs, reduced wages, etc, which also play a part in housing valuation.
However, today we are in a unique situation of absurdly low interest rates coupled with an economy that is boiling. Unemployment is under 5%, wages are rising at their fastest in 7 years, and oil is much below its price of a year ago.
Housing alone cannot send the economy into a recession. It must be coupled with restrictive monetary policy which causes job losses across multiple sectors. I think you will get that inflationary scare, eventually, the question is when…summer of 2007 seems as good a guess as any.
It appears to me that this is only true when there is a lowering of interest rates, not when they are consistently lower. What we have seen in this market is that the prices have adjusted to make up for the low interest rates, making rent cheaper. Therefore, it appears that interest rates become irrelevant once they stabilize.
Now, I could imagine that this analysis would be correct if people paid cash for rental properties (thus making the price/interest ratio significant). But who does that?
The flaw in your demand side analysis is that it’s based on the assumption that expectations of increasing property values will and still persist and as a result *investors* will magically return and push the demand curve further rightward beyond 2005’s level. Investors accounted for 30+ percent of 2005’s demand.
That was a temporary phenomenon b/c *investors* are slowly and painfully learning that (1) their actions have larger financials consequences than they initially thought such as higher taxes, insurance, mortgage pmts and so on and (2) there are no greater fools willing to buy and absorb these investor stimulated financial burdens. Investors are now left holding the bag and quickly realizing they are indeed the GFs.
Perhaps I should frame the argument this way. Suppose there are 100 individual household units living on an island and every household needs just one unit of housing. We could assume their is a need for a maximum of 100 housing units, the limit of demand. Assuming interest rates were lowered to zero and everyone bought a unit, who else is left to buy?
HFA says, “Of course lowering interest rates saves the demand side of the equation.” I too believe in pump priming; however, unlike you I recognize it does’nt always provide the result you expect.
Lowering interest rates did not help the S&Ls during the 80’s as all the regulators anticipated; it did not help the Japanese stock and asset bubbles as the Japanese gov’t anticpated; and, it certainly did nothing for the dotComs as some investors anticipated. When markets detach from fundamentals like these and the housing market did, pump priming serves only to alleviate the pain but it can’t fix the underlying problems that caused the pain in the first place. These manic type markets take a long time to self-correct.
“Housing alone cannot send the economy into a recession. ”
Why? Look at any strip mall near you - see a mortgage broker? RE Agent? Title company? I do. Imagine all those storefronts empty.
Go ahead, prove me wrong.
The other argument against a lower interest rate saving the housing bubble is that it overlooks the psychological aspect of ALL bubbles (in “Irrational Exuberance”). All bubbbles have historically ended with a bang - none of them has ended with a whimper. So, why should this bubble be different?
They’ve solved that little problem here in Florida: they’ve made homes built before 2001 worthless with the homeowner’s insurance weapon. Only ‘new’ homes are insurable at a low cost, and the ante will be upped as time progresses. By 2010, only homes built after 2005 will be easily insurable.
What this means is - if you want to live in Florida, you have to buy from a builder.
westcoast, I’ve run into this myself, when I was asking my insurance agency about conditions under which I could get homeowners insurance. Unreal. The older Florida homes are in actuality much better in terms of construction. This sort of thing makes me sick to my stomach.
One of the things people make a mistake on is that present interest rates are not that high historically, in fact I don’t think that raising interest rates are what caused the slowdown so dropping them won’t save it. A bigger cause of what caused the bubble is lowering of lending standards and what caused the end of the bubble is the lack of affordability even with crazy lending practices. However since lending standards have become so loose the old standards of what damage minor changes in the economy or in personal finances could do have changed.
There is always a chance that anyone could fall of the edge of a financial cliff but now the chance is much higher. A person with a
Thirty year loan with 20% down is like being 20 inches from a cliff, in pretty stable territory where they can shift their feet in case of bad financial winds
Thirty year loan with 10% down is like being 10 inches from a cliff
ARM loan holders are like being with their toes at the edge of the cliff
Option Arm loan holders are like being with only their heals on the cliff and their feet hanging over the edge so that any little breeze can push them over the edge. This could be a little increase in interest rates, a major sickness, a job layoff, a increase in taxes, HOA fees, insurance, etc. With investors it could simply be that there is no appreciation going on with their home “investment” since many of these investors have been standing closest to the edge and have counted on appreciation to make their investment make sense.
So because the country in general has now moved so much closer to the edge of the cliff, the old ideas of what can cause a downturn must also change
Good analogy, except that Option ARM holders are like someone who has already fallen off the cliff but hasn’t hit the bottom yet, and is hoping to land on a mattress that someone will have to drag into place for them. They have no chance whatsoever of survival other than further ridiculous increases in their phantom “equity” due to the bubble, which has already started deflating.
I think that I would say that many of the option ARM idiots are leaning into the wind. It’s not so much that an unfavorable wind will blow them over, but any decrease in the wind (housing appreciation in this analogy) will cause them to fall.
I’ve come around to that outlook too at least for now. I got my ass kicked shorting in 2003.
Can somebody check what year it is? My headlines today are
1. $1.65B buyout of a profitless company,
2. “Vaulting the Wall of Worry” on thestreet.com
3. North Korea sets off at least a verbal nuke, and stocks go up.
My PDA says 2006, but my headline watch says 1998. Help out a confused guy.
“But the underlying economy is still quite strong. The global economy is also strong.”
I hear this from talkingheads on TV, websites, newspapers.
ANy data to support this. are peple having more to spend, earning more, are they saving more……
or is it just, companies are profitable (forgetthe share buy backs), awash with cash (see above) , GDP is growing…..
I dont get it. “what it means to ordinary person when you say economy is quite strong” is just that employment is very low(forget about the way it is calculated! now)
enquiring minds want to know
I’m not going to enterain idiotic and utterly moronic statements especially from people who don’t even do this for a living but constantly play Monday morning quarterback.
However, to tell me what we’re in a major slowdown or recession when capacity utilization and unit labor costs as well as employment have not even budged is completely asinine.
The upside risk is inflation. You get inflation when the economy is too strong. It’s not complicated.
If bond yields remain low in the context of a strong economy, you have to buy risky assets. I’ve said this for nearly 2 years now while morons like those who argue with the FACTS tell me I’m wrong.
It’s a housing led soft-patch. Rates have to go much higher to cause the pain you guys are expecting. I expect it too, I don’t know why there is so much vitriole for somebody with the same view. But the fact is that ALL ELSE EQUAL, at these level of rates, you get a soft-landing.
Unfortunately I have to get back to work.
I agree right now we are in a housing led soft-patch and it remains to be seen if the economy lands soft or suffers a recession. I have leaned towards recession, but I could be wrong (it has been known to happen). If I am right, it might not be until late 2007 or 2008.
My question to HFA is this: If the overall economy lands soft, could certain RE markets (Florida) still get killed? I live in West Palm Beach, FL and we are in complete meltdown in my opinion. Foreclosures are mounting and the inventory is roughly 2 years with more in the pipeline. Add in the tax and insurance issues and we have big problems here. We have low unemployment but Florida has never been know for a great jobs as the bulk of the economy is service/tourism based which historically are not high paying jobs. Ifyou want to make $15/hour you go go hog wild here. Our RE gains were driven by speculators and goofy mortgages. In my eyes, Florida will crash no matter what as there is such a disconnect between wages and home prices in addition to the rent/own ratio being out-of-whack. Curious as to your thoughts on Florida and other RE markets. Thanks.
Notorious DAP,
Housing is a commodity like anything else. So supply and demand is what will determine the price. I’ve read something like a 2-3 year inventory in West Palm so the short answer is yes, it will fall hard.
But I don’t think it overshoots like in the early 90’s under current conditions which is what a lot of people on this blog are expecting/hoping.
Now for the record, I don’t think current conditions (low rates relative to the strength of the economy and underlying inflation pressures) are sustainable. So yes, I personally think West Palm crashes hard, but ONLY if you see the Fed raise rates to greater than 6%, thereby causing pain in other sectors of the economy and globally.
I think inflation rears its head again by next spring.
Housing is a commodity like anything else. So supply and demand is what will determine the price.
I want every realtor to write that on the blackboard 100 times.
It’s so simple that people have trouble understanding it.
Thanks. I agree with your assesment of WPB. Prices are currently about 15-20% off the peak already. While I can’t see a return to 1998 prices, I certainly think we could return to 2002 prices as the “spec premium” of 2003-2005 will be worked off. This will be more than enough to screw many people here who have the voodoo mortgages. All bets are off if the FF rate gets to 6%.
Notorious,
As I am sure you know, I am also a WPB housing market victim.
I would tend to agree that we are heading back to 2002, not 1999. But, if that happens, you have to factor in what else is going to happen. All the speculative purchases are going to be way, way underwater. They are going to walk away, as they will never be able to rent it for enough to cover the carrying costs. More and more property will flood on the market, with new, lower comps being set every month. Its like dominos; once it gets rolling, its very hard to stop.
That’s just my opinion of it; I don’t see how we can go 20-30% under peak and not have a collapse that gets us back to “affordable to the median income”. As I do not expect median income to rise significantly, I see no option but for prices to revert to 1999-2000 levels.
I see prices all over the board now. My condo is for sale at 280K, identical unit just sold about 2 weeks ago for 199K. That just shows that the market is crazy right now, people have properties listed that are 20-30% off the comp sales, in both directions. Its very hard, though all the inventory/relistings/crooked agents, to find out what’s really happening.
My opinion, we are watching a total meltdown happen around us. And its going to get very, very ugly. It already is, ride though any newer development; I have seen blocks with 80% of the homes of the block for sale at one time. That’s pretty da*n ugly!
Mike,
I do know you are a victim like me. We need to meet up for beers. I agree with a lot of what you say. Once this thing gets going, it will be tough to stop. I have said many times that FL will be Ground Zero for the bust.
prices will drop because they keep building. if they build in nw pbc, north of the acreage, they are talking about other 100,000 people. i say keep building. the more they building and the less buyers, more options and guess who is holding the bag!
So…..
given the bulk of our economy is consumer driven and given “consumers” (thats you and I) are on average going into debt on a monthly basis to consume, and given as a basic fact property prices are no longer rising in almost all areas HELOC’s will be drying up, and given basic living costs are rising far faster than wages, and given housing in bubble areas has priced virtually ALL local residents out of the market, and given the ONLY way to “buy” a home today is to do so using an Option loan which will become completely unnafordable after two to five years, how exactly in your “expert” opinion does all this end well?
“Unfortunately I have to get back to work.”
It is always unfortunate for the planet as a whole when someone in the hedge fund (parasite) “industry” gets back to work.
Oh come now, hedge fund analysts aren’t the devil - they’re just mutual fund managers who get to play with more toys (options, shorting, etc.) I think it’s a pretty sweet gig. What is the typical payoff - 20% of the profits and 2% of the account? No one forces people invest with a hedge fund. If rich dopes want to pay enormous upfront fees for a possible larger than normal gain that’s their decision
Here’s my simple argument on soft landing vs. hard landing
“The Trend is Your Friend”
Give me one little clue as to what will break the downward trend, and I’ll settle for soft landing. If you think you are going to turn this battleship around 180 degrees in a couple of months, you are in dreamland.
How many hedge funds are long on oil? A 25% crash in the price has already occurred. I would like to know who the next blowup will be. Can you say Wealth Destruction?
[i]Comment by desi dude
2006-10-10 06:38:52
“But the underlying economy is still quite strong. The global economy is also strong.”
I hear this from talkingheads on TV, websites, newspapers.
ANy data to support this. are peple having more to spend, earning more, are they saving more……
or is it just, companies are profitable (forgetthe share buy backs), awash with cash (see above) , GDP is growing…..
I dont get it. “what it means to ordinary person when you say economy is quite strong” is just that employment is very low(forget about the way it is calculated! now)
enquiring minds want to know [/i]
And you’ve nailed the same question that haunts most of us who have no choice but to work 40+hours a week. Isn’t it strange that we all are asking the same question? The ones that don’t want you to ask are the same twisted individuals who maintain the constant drumbeat of “The economy is on fire!.”
The next time you hear a market creep wailing how great the economy is, you’ll be comforted in knowing he’s not talking to you or the general public. Rather, he speaks directly to and about an privleged and elitist club….. that you will never ever be a part of. They will tell than you can if “you just work a little harder, you too will be rich like us.”
It’s a lie my friend.
Thank you, Captain. These Emperors have no clothes. Not only that, they have very little worth to society, since they contribute nothing, not even employment, unless you count the handful of mathematical gamers and administrative peons they employ. Sheesh, imagine thinking getting into an Audi leased for $500.00 a month is cause for satisfaction.
Almost invariably when I get cut off in traffic by someone zipping in and out of lanes with no signal , they’re driving an Audi. It’s intriquing really :-).
Just out of curiosity:
What if a guy manages his own dividend paying portfolio and lives of his cap gains and dividends without having a regular job (although he is of working age and healthy), does this qualify him for an Emperor stature (with no clothes)?
Sorry to go OT again (and I am not a hedge fund analyst or in financial services of any kind) but the “this job doesn’t contribute anything to society” is a bit of a crock. You can say that about a lot of jobs depending on your point of view. I would argue that litigation lawyers and most politicians add nothing to our society. I’m not saying that hedge funds are “noble” or anything like that but they are providing a service that rich people voluntarily sign up for.
Thanks Grant. I’ve left demeaning somebody because of their job to those who are insecure about themselves, decisions, or position in life. I used to do that in college to bouncers or janitors, so immature, and I ask Jesus for forgiveness everyday because of it.
I work hard at what I do and I love what I do.
I have a daughter and another child on the way. I love my wife. Inevitably its always the people who are jealous of these facets of my life who seek to minimize its worth.
Well, lemme splain it to yoo, Looocy, WTF does a hedge fund produce? Sure, it is an investment service, the purpose of which is to extract or transfer wealth from the productive sector to the non-productive sector. And I never thought it would be possible to insult litigation lawyers and politicians, but you’ve just done it. Having said that, litigation lawyers and politicians provide excellent support (mere lackeys) in helping these parasitic wealth transfer systems known as hedge funds survive. Go find a book called “When Genius Failed”. These parasites have the system gamed in such a way, they get a bailout from the international banking system. Meriwether should probably have been castrated with a dull hoe for his shenanigans, instead, he was so far into the system that letting his enterprise, Long Term Capital Management, implode, would supposedly have brought down the international economy. So he got the bailout that hundreds of thousands of everyday people with their mortgage and credit card debt will never get, thanks to the politicians and their BK laws. And guess what entities are heavily invested in these toxic ARM/IO loans? Hedge Funds! What a surprise!
hedgefund:
I can see why you’d ask the Lord for forgiveness about dissing janitors; but you shouldn’t sweat it over the bouncers…
(they should be begging forgiveness for thinking that the whole world besides them are wusses…)
HFA,
Don’t sweat it. I am actually working with a recruiter to try and find a job working for a hedge fund in NYC. I like the fact you can use different strategies than traditional mutual funds can use. Not all hedge funds are bad like LTCM or Amaranth just like not all lawyers are bad. I am sure there were traditional mutual funds that bombed when the tech bubble burst. Unfortunately, it only takes 1 bad apple to ruin the barrell. It sounds like you got your priorities straight, which is probably a rarity in this country anymore. Congrats on the child on the way.
Notorious, I’m in need of a Jr. Analyst early next year as I am branching off to start my own fund of funds. I don’t know your level but if you’re still posting at that time and still looking to be in the industry, you should send me your resume.
This kind of macroeconomic spin will not cut the mustard in a real-world environment where people are having the kind of experiences chronicled in detail on boards like this one. Still, it’s amusing to watch the Wall Street types spin, twist, turn, and contort while they desparately try to obscure what’s inevitably coming.
You can make money on short term views like that. The trick is being there to bail out when you need to.
True — but I’d much rather be short than long the builders at today’s prices.
The underlying economy is weak. The majority of workers earn less money today in real dollars, than they did 5 years ago. Now add on the debt load that is double and you start to understand the reality of the situation. How you get the economy is strong out this is crazy.
Yeah, Mike, HFA is definitely high on Wall Street Weed.
Read about the Personal Consumption Expenditure (PCE) rate? It’s basically the classic CPI. Deflate GDP growth by the PCE and POOF! it disappears. Yes, that’s right, vanishes. Strong economy my ass.
Regarding HFA, always remember the saying “It is impossible to convince a man of something if his livelihood depends upon not believing it”.
The “vacation home” phenomenon that was talked about in the MSM and even the business press last year was really part of the “investment home” surge. Florida is an especially bad place to own a vacation home. With no state income tax, property taxes are high and increases are not capped if you’re a non-resident. Furthermore, annual insurance premiums are now running as high as 2% of the insured amount in coastal areas.
Since it’s where I moved from, I watch the Sarasota listings on realtor.com. A house in our old neighborhood of the same size, but with a pool, tile roof, and larger yard, was recently reduced. The asking price is now 10% below our selling price (May 2005). That represents probably a 20% haircut from what they could have gotten last year.
you hit it right at the top=sweet
my dad can’t give his home on a canal away
I agree with your observation that the vacation home phenomena was really a type of feel good investment scheme. People liked the idea of owning multiple real estate holdings - even if they could not practically service the debt. So, they hoped to rent the places out to get relief from the mortgage costs. At the same time, these people could feel rich by claiming “I own a little place in Colorado” or “We spent some time this month at our second home in Florida”. The sad thing is these people had no idea how expensive it is to be an absentee landlord. Especially in a resort town where you get your rents only seasonally. The property management fees will kill you and the local service people (electricians, plumbers, etc…) have no mercy for what they consider rich carpet baggers.
There are so many people out there right now paying hundreds of dollars a month to keep a vacation rental “underwater” financially. I expect we’ll see a huge turnover in these properties in the next few years.
Since we were always putting money into relatively safe investments, I never felt that our remaining cash flow could support a second, vacation property. My wife was always peeved at this attitude, as many of our friends and relatives had second homes somewhere. Now the chickens have come home to roost. We’re not sweating retirement, while many of them are.
Absolutely. If you’re smart to own one home, you’re smarter to own two or three. Folks took the monthly negative cash flow in exchange for the giddy appreciation we saw over the past few years. Take that off the table and you just have negative cash flow. And lots of ARM resets. Yes, I think we’ll see lots of these 2nd properties come on the market, which will really slam the “feeder” markets that benefited from CA and FL equity money.
Since those feeder markets are my primary areas of interest, I await with great anticipation.
I completely agree–I think the 2nd-home trend that we’ve seen really represents a ton of hidden inventory. When depreciation is well entrenched, many of those owners will not want to hold in the neg-cash-flow/neg-appreciation market. More inventory to come in 07 is my expectation.
“At the same time, these people could feel rich by claiming “I own a little place in Colorado” or “We spent some time this month at our second home in Florida”.
Nope - these people could feel better than you - which is why they bring up their second “home” at every opportunity. Feeling “rich” had nothing to do with it. Feeling superior? Everything!
It is not sad they had no idea how expensive it is to be an absentee landlord - it’s called justice. Petty, worthless people who deserve what’s coming - a future of poverty.
- ‘The asking price is now 10% below our selling price (May 2005). ‘
So, the probable selling price today is another 20% lower.
Interesting, but I don’t think the fall of Orlando in terms of RE is too exciting. For this past few years of runup, this was speculator territory, so declines are to be expected. I’m watching the areas with hyper price appreciation but with mostly homeowner occupied homes / second homes, like most of the big cities here in CA.
We already heard yesterday that you don’t care what’s happening in Florida, only in California. So don’t read the thread. How hard is it to figure out which ones are about LA?
lol
Second that.
That was smart; giving corporate welfare to developers to overdevelop and destroy communities. This is what happens when people elect corrupt officials, which Florida is famous for. They were no doubt receiving campaign contributions from these developers.
But I thought growth paid for itself? It’s just common-sense, supply-side economics (you moron).
As I have been predicting, the toxic ARM resets are/will have a dramatic effect on housing prices. Here is an article that over 1/4 of the nation’s foreclosures are in Fl, mostly due to the resets starting to hit.
http://tampabay.bizjournals.com/tampabay/stories/2006/10/09/daily10.html
We are now beginning to enter the exhaustion phase. I suspect early 2007 we will see the capitulation phase start.
What we have here is a classic stalemate. Any self respecting buyer is fully aware of where prices are trending as is the seller. At this point things get real quiet. I don’t see myself as a vulture but I am keenly aware of a home or two that fit my eye… I’m in no hurry.
I already own a home in the Tampa Bay area that we bought in 1997. When my husband retires we’d like to move a little south, somewhere between Naples and Sarasota. I don’t see myself as a vulture either, but I couldn’t help but notice the last time we drove to Boca Grande that they sure are building a lot of homes for someone like me.
I’d like to do some serious looking into communities down there in late 2008, and I guess, learn about REOs.
That’s the problem they are building all over the country for people like you and there is only a limited number of people like you. It’s like they all got a report which said “There will be X number of retirees in the next couple of years and they all want a X type of house” So in each bubble retirement part of the country they are building X number of X type retirement houses without realizing that this adds up to 10 times X number of houses.
‘Most customers aren’t willing to sign a contract that’s open-ended with the price, so it becomes kind of difficult to do business.’
“MOST”? I hope he means none.
I know it will probably take a few years for property to reach bottom (2008 or 2009) but I sure will miss the bubble when it’s gone. First thing I do in the morning, is log onto this blog. It’s the start of my comedy “rush” for the day, reading the comments made by David Learah, brokers and realtors using used car sales techniques. I start cracking up as I read the current analysis of the housing market by the financial gangsters of Wall Street. A.K.A as brokers. It’s a constant stream of sound bites which would make a Hollywood publicity hack proud. Hilarious stuff, infused with George W. Bush Iraq style quotes like, “Things are improving and the future for Iraq (housing) looks bright.” As we all know, Bush’s hype is now more than a little threadbare. Or, David Learah using a page out of Bush’s hype manual, “By this time next year, housing (Iraq) will be stable”. Who needs Jay Leno or David Letterman when these guys have such great comedy routines.
http://davidlereahwatch.blogspot.com
Yeah! “The insurgency is in it’s last throes” and “they’ll welcome us with flowers and love letters for bringing them democracy.”
Another Fed governor joins the Chorus Line. Today from London:
“Fisher also says that the housing slump won’t overpower the economy.” — Briefing.com
Sounds like there’s absolutely, positively no question whatsoever in the mind of any responsible person in a position of authority: the housing sector’s gonna be JUST FINE. Whew — what a relief .
They need to let Danielle out of her cage.
Danielle DiMartino?
Yeah, she’s at the Dallas fed now.
Maybe it’s my California Snobbiness, but I never understood the appeal of Florida, everytime I go there, I can’t wait to return, ans supposedly this is where all the old folks of the East Coast want to retire to? I was very confused. I can at least understand a lot of the western states (to about Colorado, Wyoming) but I never got Florida.
“Maybe it’s my California Snobbiness, but I never understood the appeal of Florida”
Oh, God, how I WISH there were more Californians like you.
Seriously, please, where were you when all the Californicator specuvestors were crawling all over Florida, outnumbering the cucarachas, during the boom? Please, PLEASE, tell them how much Florida sucks, although I think they are beginning to find out. Florida always gets even.
Haha, staying away from that hideous humid weather you have there. I know people freak out about their earthquakes, but at least their so unpredictable there’s not much sense worrying about them, in Florida, it’s like you have a whole “earthquake” season…Every year. Who really wants to go through that. And the humidity, ick I can barely stand to go outside in the summer out there.
All that said, some Californians probably came to Florida and were like it’s sunny like California, and it’s cheaper then Cali! What a deal. Cough, Cough.
Better do something about that cough, LA smog and all that.
I don’t worry about the Californians. The ones I know complain nonstop about FL and ultimately move back to CA. I worry more about the new Yorkers who move here and try to change the entire culture and image of the state into a current day NY.
FL has a lot of good points. Weather, taxes, and beaches being the plusses and wages, costs, and proximity being the minuses. Due to the hurricanes and geographical location, FL will never be home to a large number of corportations and will continue to suffer as businesses flee due to storms and the pricing out effect.
IMO it revolves around a few things:
(1) generally excellent air quality, due to being on a peninsula
(2) really warm temperatures, allowing shorts to be worn most of the year and even year-round in south Florida
(3) great beaches and warm ocean water
(4) proximity to the states on the East Coast - obviously not an appeal for Westerners
Florida has a lot going against it, and CA has a lot going for it, but those are biggies for me and some of areas it rates above CA for me. I’m not saying one is better than the other, so I don’t want to get in an argument about it, just pointing out some reasons people love FL. The biggest negative is the lack of mountains. If there was a volcanic mountain about 6000′ where Lake Okeechobee was - then it would be paradise.
I think you missed an important one Paul.
It USED to be affordable too.
Oh no, I don’t doubt that there are many great reasons to live in Florida, from my brief experiences on the east coast, the one thing you can say about Florida is that it’s better than the rest of it. Washington DC for example is terribly uncomfortable.
It’s a matter of comparisons I guess, the beaches in Florida are nice too (I don’t know what the waves off the Atlantic are like though compared to Pacific coast waves.) Just the big issue moving east for a westerner is the drastic change in humidity, which, while Phoenix is hot at least its not humid.
You don’t undertsand Florida?? Red State vs. Blue State.
That says in all.
Florida is the red tide state.
Grew up in California. I went to USC. I lived in Newport Beach for 20 years. The population kept increasing. The Mexicans kept sneaking in. Who in their right mind would live in Southern California now days? The LA river is concrete, the beaches polluted, and its is a desert with 15 million people. I will take Florida any day. At least there are a few places in Flroida that nature (and mosquitos) have not been paved as in Southern California.
Listen folks, I’m a bit sympathetic to hedgefundanalyst. You always want to question your assumptions and remember that the world only ends once and the timing on that is uncertain. You can get hurt shorting homebuilder stocks just as you can get hurt being long. The comment from Galbraith (?) that the market can stay irrational longer than you can stay solvent cuts both ways. It could well be that the hb stock rally is just a dead cat bounce on the way lower with value buyers picking them up at around book value, which has worked in the past. But being short in a big way is certainly not something I’d feel comfortable with. That’s just the inverse of the gambling the FBs were doing in the boom with their suicide loans. The big lesson for me of this whole mess is that leverage can kill. If you own a home or a stock free and clear you can survive a downturn. If you’re very leveraged it takes a much smaller decline to wipe you out.
I’d use the term “pragmatic” toward what he says. Whether we like it or not, the hedge funds are the primary drivers of the market now (my livelihood) so while I think it’s bogus as hell, we’ve all got to eat.
I have to say as time goes on, I find Shakespeares’ word in Hamlet spoking by Polonius more and more useful “neither borrowner nor lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.”
Polonius was a fearful windbag who wound up being stabbed through a curtain he was hiding behind.
Oh, manray, you just made my day!
So, you’re basically saying that HFA can remain irrational longer than we can stay solvent?
Pockets of weakness will remain
Whats this guy smoking
(Could the following play out over the next 3-4 years? 25%-40% declines in RE values, 20% increases in wages. What happened after the early 90’s bust? I think as long as capital has somewhere reasonably productive (and safe) to go, it won’t be too excruciating for the economy as a whole.)
That’s about what happened during the 1990s bust. If it works out that way, 2007 may be a flat to negative year, but the economy will survive.
I’d call that a “soft landing,” an ideal scenario for the economy, housing affordability and the quality of life. Those who use the term “soft landing,” however, expect something MUCH softer, which ain’t gonna happen. But I don’t think the “save up the Alpo to eat later” scenario will happen either. We just have to get back to reality (not the NAR version).
Comparing the 1990s bust to the current situation is akin to comparing Mt. St. Helens to Krakatoa. Prepare accordingly.
Keep in mind a lot of second-home owners are stealth investors. You can get a FNMA-conforming second-home loan at a rate not much higher than that for a principal residence & for much less than an investor rate.
see http://loan.yahoo.com/m/second1.html
The last paragraph is particularly telling:
“If you don’t need the rental income to meet the mortgage industry’s ratios, you may not want to mention to your lender that you’re thinking of renting. We’re not suggesting that you lie on your mortgage application. That’s a federal offense. But if you happen to change your mind, well, that’s another story. “A lot of people go in under the guise of buying vacation property for personal use only to turn around and rent it out,” says Keith Gumbinger, of mortgage researcher HSH Associates. ‘I have never heard of people getting caught.’”
Some heavy winking & nodding going on.
Keep in mind a lot of second-home owners are stealth investors. Not to mention quite a few are “unintentional speculators.” What’s that? They bought their retirement home 1 to 3 years ago so that they wouldn’t be priced out of the market. Now, with home prices declining, they will probably have to work a few more years. But some won’t. That results in both markets take a hit (assuming a large enough distro of people owning in both markets, which we can in this crazy market…).
Oh, I don’t mean sensible retirement planning/purchasing. A large number of my coworkers bought up property around a lake to retire together. The land was cheap and until they build its taxed/insured as farm land, so their “alligators” are only eating about $150 to $250/month. Slowly members of the group are retiring and building. Even those that retire in 2008 will still get enough for their “working home” to build around that lake, so they will be ok. But that only puts more homes on the market where I want to buy!
Neil
“Maybe it’s my California Snobbiness, but I never understood the appeal of Florida”
A whole lot of us say the same thing about California. Last summer we visited family in Orange County. Gotta say the daily struggle just to get by on a middle class income was depressing with the crackerbox houses, insane commutes, and mediocre schools. We live the life of luxury and leisure here in Texas by comparison.
Sure if you can afford to live next to the ocean in Sausalito, Santa Barbara, or San Juan Capistrano, Malibu, or La Jolla I expect life is pretty pleasant. As it probably is in places like Saint-Tropez, Cannes, Sanremo, Portofino, or Capri if you have the money.
Thank you. You also forgot about the crushing third-world sea of “documentation-challenged” humanity that surrounds you at every turn, constantly demanding their “rights”, which usually translates as “access to your wallet”.
Good post, HARM, although Florida has become prone to the same situation. Welcome to corporate globalization and the end of the rule of law. Rome is again on the delcine.
“Maybe it’s my California Snobbiness, but I never understood the appeal of Florida”
A whole lot of us say the same thing about California. Last summer we visited family in Orange County. Gotta say the daily struggle just to get by on a middle class income was depressing with the crackerbox houses, insane commutes, and mediocre schools. We live the life of luxury and leisure here in Texas by comparison.
Sure if you can afford to live next to the ocean in Sausalito, Santa Barbara, or San Juan Capistrano, Malibu, or La Jolla I expect life is pretty pleasant. As it probably is in places like Saint-Tropez, Cannes, Sanremo, Portofino, or Capri if you have the money. But that’s a rarified few.
That was one great post.
Yep, great post. By the way, where are all these really drippingly pseudo-superior posters coming from, all of a sudden? I think it is a sign that the bust is really upon us, that they are crawling out from under their rocks.
Sigh, I hate to reply to my own posts, but I kind of miss the good old days when these a$$hats were too pre-occupied pumping and dumping to bother with a blog like this.
Psuedo-Superior? Moi? I don’t get the hostility. I’m just agreeing with a lot of the other points that Florida RE seems wildly inflated by claims of Florida being the next most wonderful spot in the world. Florida’s a good state, no problems with it, but I’m just saying I don’t understand the real estate craze that got underway there.
More or less, I’m just saying what Moman said in reply to my comment, it doesn’t surprise me that most california refugees return from Florida, it’s too humid, and tropical. Strangely, I think Californians have come to appreciate living in the desert. (I know I’m one of them).
Joel, thanks for the explanation and I get it. Actually, that pseudo superior comment doesn’t apply so much to you as it does to some others I’ve seen lately.
Just about every location in this country has something unique to offer and it would be very boring if every place was the same. I can understand why people might not like Florida and frankly, I wish far fewer people did. But we did get a huge influx of what we call the Californicator specuvestors who, after they vultured up the California RE Market, spread their financial infection to Florida. It was a form of rape, IMHO. They weren’t interested in the state or the lifestyle, just what they could extract financially and consequently, many long time residents are suffering here now because of that. When I compare it to rape, I’m not kidding, because the attitude is much the same. After taking what they want, by force if necessary (legal, in this case) they pull out and then make degrading comments about the rapee. However, Florida has given some of the last-one-in greater fool Californicators a good dose of the financial clap to remember her by, courtesy of the Californicators who pulled out earlier.
Well I can report to you that I know one area of Florida that is going to get an “additional” 10% haircut starting tomorrow and that is the Ft Myers/Cape Coral area.
I just met with a couple that are in up to their eyeballs in leveraged RE in that area. To the tune of about 4 mil, spread around in a couple of canal homes, condo towers on the beach, etc. Anyway, they want out of the pain and since they asked I gave them the ole “price 10% below most recent comps (and stay there) formula.
Just a great couple that drank the koolaid that apparently is still being served. The guy was telling me how he is now being told that the area would rebound in 24 months. I asked him whether those same folks called the downturn? If not, why was he giving those people any credibility now that they have been proven idiots? Anyway, after going through the insurance, property tax, interest rate, maintenance, hurricanes and holding cost arguments, he said he’d be calling his realtor asap. What a bummer for these guys and yes, they know that is of there own doing. Live by the sword of leverage, die by the sword.
At any rate, look out below!!!!
Greedy effers. I hope they go down in flames. Sick to death of watching prices for vacant land there and what was once affordable homes go through the roof.
Augur-inn,
nice post, thanks.
Cape Coral started out as a land scam. They would boat you in from Ft. Myers, take you to a place called the rose gardens where you would watch a dolphin show while you got drunk. The next step was easy. Sell you a block house on fill dirt and close the deal before you sobered up! Unfortunately now the tables have turned. Cape Coral which was once a retirement community is on the verge of destruction. Unfortunately construction and medical are the only source of income for the new mortage holders. Retirees are moving away in droves due to the high cost of living there. Well that should take care of the medical end. While the construction related jobs either directly or indirectly are really starting to show a strain. This area is going to drop dramatically in population which will not help the empty homes we have already. Anybody know any CEOs that are willing to buy land at a 100,000.00 an acre for multiples to put in major industrial or corporate projects that arent dependant on construction? I did’nt think so! This coast can’t survive on tourism anymore. Unlike the East coast we don’t have three major sea ports or railways. Mercantile can’t survive without paychecks or some other source of income. All we seem to have is a lot of empty houses and unemployed construction workers. Oh and I forgot to mention the investors who turned out to be the greater fools.
danke
“Selling out now could take some time and a painful financial toll.” My home tripled in value over 10+ years. I believe its nominal value is actually 2x purchase price, rather than 3x. If I sell at 2x purchase price, even after taking cash out for renovations, I will still have made a nice profit + equity. If I buy a move-up house with the proceeds, it will cost me less to move-up in a corrected market than it does today in a bubble market. Where is the financial pain? The pain is only for short-term owners (always a bad idea), people who used house as ATM, and idiots who think that paper gains are real. Would I rather sell at 3x purchase price? Sure, and I’d rather look like a supermodel and earn $5 billion dollars a year. I don’t. It doesn’t hurt; it’s just not as lovely as fantasy land.
Yup, plenty of us will be whistfully wondering whether we should have cashed out at the peak, not desprately trying to make our mortgage payments. One factor in my decision in not selling was my feeling that I will never see sub-5% (15 yr fixed) mortgage rates again. I suspect that a majority of homeowners will see paper gains eliminated with no actual pain involved.
Tracy, the pain hits medium term buyers as well. You can thank the TI in PITI. Wind it back to 1999… now factor in TI.
We’re gonna party like it’s 1999*
*Void in Florida
Actually, we’re partying like it’s 1929.