Post-Storms, “The Gold-Rush’ Is Over”
The Naples News reports from Florida. “Mary Mack, like many residents in Spring Creek Village, returned home after Hurricane Wilma to mangled metal and broken windows. Though most of the damage has been repaired, empty plots and rows of For Sale signs reveal the long-term impact of the storm. Many snowbirds haven’t flocked south yet, and permanent residents speculate some might never return.”
“Joanne Staupe would like to move farther north, but she pulled her For Sale sign in September after her home in Imperial Harbor sat untouched for five months. Dozens of homes have sprouted Realtor signs, often a reflection of who was hit twice and doesn’t want to try for a third.”
“‘My insurance went up, but they did renew me, which surprised me,’ said Staupe. ‘I can’t afford to stay, I can’t afford to move.’”
“A neighbor who lives behind Staupe, Steve Sallee, said he’s also looking to move but the frozen market has done him few favors. There are six For Sale signs before the first stop on Imperial Harbor Boulevard; 12 by the end of the half-mile road. Few homes are moving.”
“Sallee said his insurance tripled in the past three years, hiking to $1,200, a payment too pricey to afford. ‘We can’t do it,’ said Sallee. ‘They want the poor man out? Well, this one is leaving.’”
The Times Picayune from Louisiana. “Judy D’Alfonso thought her Slidell area home would sell within 30 days when she put it on the market. That was about three months ago. The four-bedroom, two-bathroom house was not among the approximately 10,000 Slidell homes that flooded during Hurricane Katrina last year.”
“D’Alfonso listed the house for $235,000 in mid-July, when it was widely considered a seller’s market. But after several disappointing weeks, she lowered the asking price to $229,000.”
“Before the school year started, D’Alfonso got several calls a week. As they slowed to a trickle, she began to make more improvements, painting and installing new flooring. ‘We had a lot of activity at first, a lot more than we have now,’ she said. ‘Now it’s just dead.’”
“D’Alfonso’s experience isn’t unusual in St. Tammany Parish. The market thrived amid fierce demand in the wake of Katrina, which pushed up prices and fueled strong competition among buyers. But that intensity has been fading.”
“Recent statistics indicate the market is shifting as supply begins to outstrip demand. The number of homes for sale in the parish is climbing monthly, and they are taking longer to sell. ‘The perception here with agents is the market has slowed down,’ said Sandy Sandusky, a Realtor in Mandeville. But that perception, he said, is partly the result of a letdown from the post-Katrina frenzy.”
“‘Our office, for a month after the storm, sounded like the New York Stock Exchange,’ he said. ‘It was a madhouse. Supply is probably higher than demand right now than at any time we have seen in the past 14 months,’ he said. ‘We are trending toward a buyer’s market.’”
“Katrina’s impact was more devastating on the eastern side of St. Tammany, especially in Slidell. Storm damage depleted the available housing stock, driving up demand for homes in usable condition. As a result, many houses sold for more than their appraised value, said (broker) Helene Nunez in Slidell.”
“‘We had nothing then,’ she said of the city’s post-Katrina housing stock. But over the past year, supply gradually outstripped demand. ‘Now you’ve got to really have that house in pristine, walk-in condition,’ Nunez said. ‘Buyers have options galore. We have tons of active listings in Slidell alone. The prices have come down to a more realistic level now.’ Buyers can pick and choose, she added, and ‘they are really bargain-shopping now.’”
“Nunez and other brokers say many storm-damaged homes have been repaired or renovated by homeowners as well as investors, increasing supply.”
“‘Basically, we’re building inventory,’ said Ken Levy, Latter and Blum’s Slidell branch manager. Levy cited the rising cost of homeowners insurance as another factor contributing to increasing buyer ‘resistance.’”
“According to the parish, 1,662 single-family residential building permits have been issued this year through September. Nearly 4,000 approved residential lots are in the pipeline, according to Marty Mayer, president of Stirling Properties. ‘We’re beginning to see a wave of new construction,’ he said. ‘You will start seeing the effect of new construction that began post-Katrina in the fourth quarter and in 2007.’”
“The number of houses for sale in St. Tammany has risen steadily this year since a brief surge in February. According to Prudential, it rose from 949 in March to 1,678 in August.”
“Ann Earhart was convinced her 2,800-square-foot, two-story home near Covington would sell within three months. She moved out after listing it for $499,000 in December. She has since lowered the price to $439,000. ‘It doesn’t seem to be appealing to people,’ she said.”
“Brokers and agents say the market’s broader trend is toward a balance disrupted by Katrina, though recent figures show a slowdown. ‘It’s emphasized more because we’ve been on such a wild ride,’ said (realtor) Rick Roberts in Mandeville. ‘If anything, it’s going to plateau.’”
“‘We’ve kind of returned to a normal market,’ said Margi Inman, of Coldwell Banker in Mandeville. ‘The gold rush is over,’ said Jeff Breland, president of Century 21 Investment Realty in Slidell.”
Long time readers will remember this blog posted on the speculator rush in Lousiana in detail, after Katrina. That episode can only be viewed now as a bizarre side effect of the housing bubble, IMO.
Ben, I think many folks would be interested in a thread on the
timing of the price collapse in different regions. For example, Mass. is falling
because the regulators are being agressive against mortgage fraud.
Colorado has been falling for months because they are the only state
(besides Alaska) with no state regulation of mortgage brokers.
Florida has been falling because the ‘04 and ‘05 hurricanes caused
insurance to skyrocket and those bills are now coming due (and unlike
rising home prices, are paid in real dollars each year).
This site has an outdated list of regulation state-by-state.
http://www.responsiblelending.org/issues/mortgage/statelaws.html
IMHO, the OCC guidelines will only impact depository banks. So the
LENDs and NEWs of the world will keep the easy money spigot wide
open and pick up the slack. But as state regulators begin enforcing
the OCC guidelines (how does one track this?), the flow of easy money
will effectively be closed. That is the true death blow for prices,
as it is widely agreed here that the easy money is the main contributor
to the bubble.
Ben,
Absolutely! By Labor Day of 2005 pretty much all of the country was in “noesbleed” territory for home prices. The Rolling Bubble (like some kind of 1950’s sci-fi movie) needed fresh meat, fresh victims. It took an act of God to provide the necessary catalyst for one last hurrah! Now they’ve been subjected to TWO storms! One nature driven, one greed driven and as far as I can see, equally devastating.
At first I was hesitant to post about the area hit by the storm. Then all of a sudden stories about speculators buying houses sight unseen, etc, started to pour out of LA. It may have been the emotional peak of the mania.
FREE homes and more for NOLA
120,000 getting 110 billion from taxpayers !
“120,000 getting 110 billion from taxpayers !”
Citation please? Or as usual, you’re just pulling it out of your butt.
NOLA has 120,000 residners now
and the FED ,thats you mr taxpayers , are paying 110 billion
public record
What public record? Please post. That is $900,000 per resident. Even with the corruption in Louisiana this is a hard figure to believe.
Wikipedia: http://tinyurl.com/y3v6ov
Wikipedia says $105 billion was sought as of April ‘06. But I don’t know how much of that is specific to NO vs. repairing Interstates or other things for which “don’t repair” is not an option.
New Orleans metro had around 1 to 1.2 million pre-Katrina. Jefferson Parish (Metairie to the west) has most of its 500,000 or so still there. New Orleans dropped from 450,000 to 120,000 or so…but should be back up to 200,000 by now. No one is getting $900K (except perhaps those close to the purse strings!). There are many FEMA trailers in and around the city and people repairing homes. There also are many areas that have little population living in them and would be high risk to build in as who knows what the neighborhood will become? Rich and poor areas included. Much of this money also goes to the city and includes things like repairing the Superdome.
Ben,
As someone who’s lived in LA off and on for over 35 years, I can say without question, the “Florida” parishes as they are called, rode a bubble the likes of which have never been seen. Katrina was beyond comprehension to anyone who didn’t see the aftermath for themselves. The hysteria spread to the north shore of Lake Ponch. and it’s going to take years and years for that real estate market to start making any sense. There’s one question I haven’t seen addressed by the media.
What are the fundamentals that can justify so much new construction from Slidell to Baton Rouge? Congress has, and will spend, hundreds of billions of dollars on the area…..could some of that money be fueling development as N.O. is “relocated”?
I don’t know…..maybe someone else can give some insight.
The Florida parishes east of the Miss River and North of Lake Ponchartrain WERE part of Spanish Florida until around 1810.
I meant the so-called “Florida” parishes that are now in SE La. north of the lake today.
I lived in New Orleans for a very brief time. Covington is a pit. 500K? You’ve got to be kidding.
“The three-bedroom, two-bathroom house she built sits on seven acres in the Sansouci Forest”
Yeah but, it’s on 7 acres. And she built it. A recently widowed woman builds, by herself, a two-storey house … well, that’s got to be worth the price of admission.
I lived in New Orleans for years. Covington’s a pit? I’d have loved to live in Covington! It’s not that bad, certainly not compared to much of Orleans Parish. It does have a real feel for rural Louisiana to it, though, and incomes are not that high. Well, that was 10, 20 years ago. Now it’s got a reasonably OK downtown and some bars and coffee shops you might actually linger in.
In the last decade a fair number of higher-earners have moved up there to escape the crime and mismanagement in New Orleans and the shoulder-by-shoulder housing in Jefferson Parish. That became a flood of people after Katrina.
Last time I sent much time in Covington, actually (about 3 years ago), I thought it was a decent place, really. For Louisiana. Meantime, that area’s been one of the bright spots in the housing boom for the region, but with all the McMansions going up around there and Mandeville, and the New Orleans economy on which they depend being in a never-fully-recovering mode, I’m not sure they’ll be able to maintain the means to pay for that boom.
A friend of mine, in fact, is coordinating a housing development even farther out than Covington, and he’s worried. He’s paid by the hour and not getting overtime he expected. The poject isdragging, and they are cutting the number of lots. He won’t say demand is falling, but then maybe he isn’t allowed to say that! In the meantime, a low-med income development proposed earlier this year for a couple of thousand houses at $140k each seems to have the developer(s) suddenly going quiet.
All in all, though, that whole region will need to face the fact that if someone hasn’t yet moved back after Katrina by now, then it’s unlikely that they will move back. Despite the truckloads of money being dumped on the place, I can’t see it returning to full population or employment anytime soon.
Oh, let me add:
She moved out after listing it for $499,000 in December. She has since lowered the price to $439,000. ‘It doesn’t seem to be appealing to people,’ she said.”
Much as I thought Covington was a decent place, $500k and even $439k seems damned overpriced for that town, even with acreage. Friend of mine bought a nice, high, dry acre lot in that area for $21k before Katrina.
And I imagine finding a buyer who can afford $439k in rural Louisiana is like looking for a needle in a haystack. It would be like trying to find a buyer who can afford a condo for $800k here in NoVa/DC… D’oh!
It sounds like it’s more like finding a needle in a stack of needles. Bush acted like a fool after Katrina then over-compensated and began throwing money at it. God, even I’m bashing Bush now. Does anybody in government have a brain or a backbone? They should never have rebuilt some of these areas.
You’re right, throwing money at it is exactly what they did, though the amounts they do “throw” are unpredictable and tend to get wasted. There’s not the kind of result that gives people the steady income forecast that lets them buy $500k McMansions, yet nor is there enough of a lump sum in any one pocket (er, thinking about the legal ones here) to let them buy it with cash.
I’ve got friends from there who after a few handouts and some insurance settlements have bailed out for good, seeing it as their chance to start over again, and why try again in a wrecked city when with typical skills and resumes they can start in any other city. Some are even up here in NoVa. To stay, I think.
The only thing in my mind that could approach $500K and actually be worth it would be an old plantation, completely restored, and including the land.
No, No ,…500K is perfectly reasonable. You get a job at Walmart ,and the numbers balance out. Just git one of them ‘new fangled loans…
While driving through Vacaville California, west on I80 yesterday - there was a big sign for new homes. It had originally said “from the $300K and up”. THere was a sticker pasted over that said $280K and up:”. Lots of FBers in Vacaville. THis is half way between Sac and SF. So much for California Dreamin’. LOL
I saw the same sign!! but thought it said 200K LOL
Another highway billboard observation: location was I-5 just south of Stockton. People from this region can attest that housing is the only real economy here during the past five years or so. KB is still throwing up hundreds of units and continues to grade for future home sites. In Lathrop, Lyon homes has posted a large banner that states “$100K Have It Your Way!” I wonder if that includes knocking $100K off the price? The highway is littered with homebuilder billboards, probably in the 75-80% range for all signage. Last week I saw a new one: “Losing Your House? We Have Options! Call 1-800-xxx-xxxx.” A clear indication of a turning tide?
Advertising for sign twirlers - $12 plus benefits - in Livermore. Sign of the times.
Central Valley homes will get hit again this spring and summer when gasoline prices climb. These are over priced commuter homes, with the only non-auto option the Alamont Commuter Express to San Jose.
Prices on entry level homes will continue to drop in these outlying areas first, then move in towards the major urban areas.
I just can’t understand why a sane person would buy a house given the simple back of the envelope math of renting vs. buying in 90% of the U.S.
Why in the world would you pay usually double to “own” vs. rent?
In my area, that amounts to $25,000 to $40,000 more a year to “own”. You would need the property to increase some 5- 8% a year to simply “break even” upon selling, and that is not factoring in taxes, broker commissions, upkeep, risk of hurricanes, etc. Assuming you “own” ( really the bank owns it) for 5 years, you have put out an extra $125,000 to $200,000 for the priviledge of “owning” a property.
I don’t get it.
Yes, and neither does anyone else posting on this blog with the exception of:
Susan Jacobson
LaInvestorgirl
Dan
va_investor
mrincomestream
The reason you don’t get it?
You have the ability to do simple math; and view the results with a calculating eye. RE agents are totally working on emotional response now; there is NO reason on earth to buy given those numbers (which, in my area, would actually be pretty low, its typically 3-4X the cost of rent to own a place, assuming traditional financing).
That’s the most damning number in my eyes, even more then median income = median home price. The rent to cost ratio is so screwed up, you would honestly have to believe 10-15% for the next 10 years, or have no idea how math works to buy a home given those conditions.
Or, “fall in love” with the house. A totally stupid idea to begin with!
I can’t say that I fell in love with this house. I just liked it better than the others I saw that day.
As for love? Well, there are times when I’ve felt like saying, “If this is love, then I’m filing for divorce.”
Ah, yes. Such are the joys of homeownership.
Mr. income stream is ok, a good guy.
The rest of them . . . who left the gate open to Dumbass Ranch?
Okay, I’ll give you Mr incomestream.
If any of you care to remember this past spring Mr Income stream pionted out how this would unfold, that the appraisers would be the poster boys for the politicos to hold out to the public and say, here they are, the people to blame for this mess. I for one value his comments and insight.
I think Mrincomestream is cool.
Mr. Incomestream is pretty knowledgeable and brings a lot to the table. I like his posts.
too!
Chick,
Thanks for the insight; I thought you had a little class; guess not.
The problem is simply that a lot of people are still brainwashed by tradition and not thinking for themselves. Generation upon generation, the “thing to do” was to grow up, get married and to eventually buy a house. If you were in an apartment, the goal was still to buy a house. Remember…a long time ago, there were only SFH and apartments to rent, no condominiums. Fast forward to 2000, and the fun begins. But there were still people who believed the traditional “renting is bad, buying a house is good” routine, bought the “house=ATM” deal and drove themselves into a ditch with no way out….they did not stop to figure out what was really happening, did not take a look at the move away from fundamentals, believe everything the see/hear in mainstream media, did not dig for more information, etc….they just drank the koolaid and kept on rolling.
The few of us who read/participate on blogs like Ben’s are clearer thinkers…we know (and have known for a few years) that something was dreadfully wrong.
Now it’s a painful matter of people being debriefed, deprogrammed, whatever, and that deprogramming is coming in the form of bankruptcys, defaults, etc. A very sad picture.
BayQT~
I doubt, in the absence of a major recession, home prices in major urban areas will retreat below the mid-2001 levels. Rents will gradually rise so save and buy when there is an inflection point.
BTW I bought in the Bay Area in 2001 when the monthly payment, absent taxes, was less than the rent in for my flat. Prices have more than doubled since then which is nuts but rents have gone up so why would prices fall below today’s rents.
We are all losing. I’m not sure the US economy is going to support our high standard of living. That means greater proportions of income will go to food, energy and housing (including rents). You can’t go back.
“Why in the world would you pay usually double to “own” vs. rent?” 1. My friend needed a place for her dog. That’s one expensive dog! 2. She also has the need to paint pink in her bedroom. Previously landlord said no! 3. Her family said she was a
failure, even though a college grad with good job, cause all her
brothers and sisters bought a house. 4. And she felt very alone at the water cooler at work, where all are talk was about the quick and ez money they were making. Makes perfect sense to me. And it only costs $40,000 a year.
“Why in the world would you pay usually double to “own” vs. rent?” 1. My friend needed a place for her dog.
hehehe…another reason why women have been the predominant buyer’s during the last 4 years.
Nothin’ like a warm spot for FIDO and a little pink room to set yourself up for financial calamity.
Bowser might be in trouble though…he might be sharing his can of Alpo after the master’s Neg.AM ARM resets.
“last 4 years”! Try last 50 years. It may be the husbund who’s writing the check, but real estate people know that it’s the woman of the household that you have to sell the house to.
disclaimer: This is the sort of unfair steroetype/generalization that is usually true, exceptions are…well they’re exceptions to the general rule.
The interplay of stereotypes and exceptions is important. For example, a property might appeal to a family matriarch only after gays and bohemians have thoroughly gentrified it and other nearby properties. All the players involved are free individuals, but these established social patterns are pretty well known.
I have a menagerie, 2 cats, a dog, a desert tortise, 2 turtles, 2 large aquariums and 2 iguanas. Finding a place when you have pets isn’t impossible it just takes a little bit more work.
I think that landlords who refuse to rent to people with pets probably miss out on some very good tenants. I would not automatically dismiss someone just because they had pets. People can cause more trouble and worse damage than pets. You should have seen my parents rental after it had been used as a “drop house”. Even with legal help evicting them was a nightmare and when the tenants finally moved out it still took my parents several months to regain legal possession of their own property.
If I really, really wanted to paint my rental bedroom pink I’d do it. It will only take a couple of hours, a little paint and maybe some primer to restore it to it’s original condition.
I read somewhere that people who refuse to rent to pet owners reduce their market by 65%. Serves them right. But really, you wouldn’t want to deal with people like that anyway. I know I wouldn’t.
Part of the problem with renting to pet owners, particularly dog owners, is that there are quite a few irresponsible dog owners out there. One of the big local problems here in Tucson is animal neglect. Quite a few people get dogs for protection, or to amuse the children, or some other silly reason. When the dog doesn’t turn out to be as fun as these owners think, the dog gets relegated to the outside, where it barks.
And barks.
And barks.
And barks.
And barks.
Et cetera. And so forth.
This is not a problem that is limited to renters. There are quite a few irresponsible dog owners/homeowners out there.
For more on this topic, including the effect it has on neighborhoods (and, while we’re at it, homebuying and selling), see:
http://barkingdogs.net/
Not only the barking, but I’ve lived in two rentals that absolutely stank to high heaven because of the previous tenant’s pets (cats and dogs). In one apartment, after shampooing & steam cleaning the carpet SIX times, the LL finally had to replace the carpet and padding. It was disgusting, to say the least. In the other rental (house), we lived there for four years, and, although the smell was a bit less pungent, it never left completely.
A friend of ours who was kind enough to rent out a duplex to animal owners had one tenant cut holes in all the blinds so her cat could sit on the window sill and watch the world (um, like try opening the blinds, idiot!). The other tenant (with dog) never cleaned up the dog poop in the yard, which turned into a dirt lot with weeds; and let the dog climb on/paw the screens so they were falling apart.
While I realize tenants can cause harm without the assistance of pets, there is a reason so many LLs don’t like to rent to pet owners.
Hey BigDaddy, when you figure it out, give me a call. I keep having people tell me to buy in Manhattan. Any argument I make bounces off of these dopes like bullets off of Superman. It drives me crazy.
I figure it would cost an extra $30,000 per year to own what I have in NYC. Goodbye 401k contributions. Goodbye Roth IRA contributions. Goodbye diversification in assets. Goodbye vacations. Goodbye eating out. Oh heck, goodbye quality of life. My new hobby would be praying that god is creating more suckers to allow me to cash out someday.
Another thing people forget in the NYC “rent vs. own” debate is that New York is always one Jihadist attack away from an instant 30% - 50% haircut. That frightens the crap out of me. I think I’m alone on that one. And I wasn’t even there for 9/11. Everybody else has plain forgot. Greed will do that, I guess.
Did prices drop 30% after the 9/11 attack?
So, what happened at the Paul Drake auction of those 50 properties in Naples? The one featuring 25+ properties from one Gail Dresner? I’d be curious to know if it was a bust like the auction in Oceanside, CA.
For more info on the auction, none of the houses sold, check Piggington
good info.
I got to say, the auctioneers are shooting themselves in the foot. If they continue to get a reputation of holding fake auctions, no one is going to bother.
Then when the real auctions hit, the final gavel will be horrendously low.
I didn’t find anything there about the NAPLES auction, which is what I’m wondering about. Lots of stuff about the Oceanside action, tho. It was supposed to be on the same day.
Thanx for the link to the “fake” auction. My pulse was racing reading the observations from our “blogger spy network.” I was part of the RTC auction circuit 10 years ago, and any property that had any value was sold before hand to people with inside info.
I represented some people with real money and a real desire to buy, and time after time, when we arrived at the auction site, the “good ones” were pulled from the auction, never to be seen again. Auctions are just another marketing tool to get some interest from the seminar junkie crowd.
Actually, it was Carlsbad, Ca in a development called Bressi Ranch.
I went to the Naples auction. Held online and with 450 people present. The minimum best did for houses was 35% off the Zillow.com price. The average bid was 44% off the Zillow.com price. Five lots in Cape Coral which the auctioner asked for $200,000. bids only got one $60,000. bid. Housing in the Moorings and Marco Island off 35-40%. I do not know how many met reserves or resulted in reserves being dropped but it was UGLY….if you are stuck with a house.
Don’t take Zillow estimates for homes to be gospel.
Here are the results vs. estimates of an absolute auction in Naples this weekend.
Note that the gross aggregate price was 57.3% of Zillow estimates.
There was a 10% commission (vs. a 6% regular brokerage fee).
So let’s guess the following.
Total price paid: $14,840,000 + 10% = $16,324,000
Total Zillow estimate: $25,901,000
Clearing price = 63% of Zillow estimates.
I suspect Zillow estimates were a bit high, relative to a year ago.
But it tells you to a certain degree how much prices and demand in Naples, Florida has really fallen.
And 14 of 51 properties did not sell.
http://www.housingbubblebust.com/NaplesAuction.html
Just an Observation, If I was a buyer and my only criteria was to move to a warm climate, and I happen to pick FLA….. The whole state is my pickings. I have no history and family in Tampa or Naples, I have no job I have to be close to in Miami or Key west.
Point is these are not “typical” buyers to have to deal with, in my mind, the only thing that would get me into a home IS price.
Alot of people will only buy second residences if they are cheap winter homes they can go to with cheap expenses.All these flippers that thought they were going to sell to these retired people or the snowbirds had it all wrong regarding what the bulk of these buyers are looking for .
Of course the seminar people ,(that were in bed with the home developers ) ,assured the flippers that they had a market for resale .
Yea sure, a snowbird from Canada is going to pay 100k more for a house in Florida in one years time .
Did flippers even understand who they were going to sell to at the inflated prices ? Now the builders are killing the flippers with their incentives and lower prices .
“Did flippers even understand who they were going to sell to at the inflated prices ? ”
In fact, they did.
Don’t you recall the mantra of the Florida Market……….
Everyone wants to live here. 1000 people per day moving to Florida.
The plan was to buy up all the inventory and then the newcomers would be forced to buy from the flippers. The cost of building was going up due to material demands and the cost of land was rising. The got in the ticket line and bought up the tickets to the only show in town……..they thought.
But just like scalpers when the show doesn’t “sell out”, the re-sale value is whatever you can get and will likely be a loss.
they are still trying that trick down in south florida. 1000 a day move to florida. PALM BEACH COUNTY SCHOOLS FOR THE FIRST TIME IN 30 YEARS, ARE LOSING ENROLLMENT. that means people are running away.
OT, from NYMag:
Buying, By the Numbers
Down the street from your place, another new condominium tower just sold out. Where on earth are all these people coming from? We found out.
They break down Manhattan condo purchases as 68% primary residence, 14% second home, 9% pied-a-terre, and 9% investment (which, to readers of this blog, means 68% primary residence and 32% investment).
How many claimed it was their primary residence to get the loan?
This May the Chicago Mercantile Exchange created home-price-futures markets for 10 U.S. cities, from Boston to Miami and Chicago to San Diego, plus a composite market. These markets use indexes that Karl Case and I worked 20 years to create, recently in cooperation with Standard & Poor’s and Fisery Inc. While there have been betting sites for home prices, this is the first real home-futures market since one attempt failed at the London Futures and Options Exchange in 1991. Although the volumes are still small, with about $90 million in contracts outstanding, the markets are already establishing a pattern. They have been predicting drops in home prices for all 10 cities in the 5 to 9 percent range by next August.
The markets work like this: a homeowner or anyone who feels overexposed to local home-price risk can sell futures contracts for that city. If the price index drops, the payment from the futures contract will cancel out some or all of the owner’s loss on the home. Dealing with risk in this way is known as hedging. Conversely, anyone who feels underexposed to home prices can buy in the futures market. This contract will pay if home prices go up, and represents an investment without the hassle of buying and managing property.
“These markets use indexes that Karl Case and I worked 20 years to create”
Dr Shiller is that you? If so kudos on your work exposing the bubble. My question about these housing futures is are they deep and liquid enough to have real predictive value at this point (like the more developed interest rate futures markets) or are they small enough to be subject to manipulation or distortion by big players?
If this is Dr. Shiller, I also would like to thank you for all your research on the housing/credit bubble. You’re one of our (bubble bloggers) favorite and often-quoted economists.
I have one burning question (and many of us have commented on this after watching/listening to one of your interviews)… Why aren’t you more aggressive when debating the RE shills? You most definitely have the numbers, logic and reason to back up your position, but you let them blabber on with their nonsense. Are you just letting them make fools of themselves, in retrospect?
Thank you, again, for all your work!
To get back to the subject of the post briefly - I have been curious about the joint effects of Katrina and the housing bust on coastal Mississippi. The governor estimates that we lost 72,000 residences to the storm, which will take years to replace, given the resources (like contractors) available in Mississippi. Prices jogged up after the storm and have stayed at that level for the last year. Of course, this area was not exactly “bubbletown” before the storm. Prices on new construction were around $140/sq. ft. and are now about $160-170. I know of some instances of homeowners trying to get whatever the market would bear for their houses immediately after the storm, but that seems to have stopped. It seemed to me to just be the market responding to the sudden scarcity.
Anyway, I’d be interested in any comments. I’m sure coastal Mississippi is DIFFERENT!
I would imagine that employment, wealth of long term families that are more likely to stay and rebuild and attractiveness as a retirement area will drive the value on the Miss coast. I believe prices went up due to shortage vs the first two factors (new retirees in Miss Gulf area post Katrina would need their heads examined - that will change after it stabilizes). As its built out, prices will settle according to those factors. I’d expect prices to drop. How much? Who knows? It is different there… kind of like Lakeview or the 9th Ward in New Orleans which were actually worse. Those places truly are different. The pictures on TV don’t even begin to convey the situation in person.
You’re right. It was strange when I was there recently to see the very same scenes, very same houses, as on TV and in magazines. However, what they don’t give is a full hour of driving non-stop through destruction without end, through intersections still without traffic lights, marked with stop signs on saw horses.
By my guess, prices WILL drop from some of the peaks, especially south if I-12 where insurance is ghastly expensive. A relative of mine there is seeing insurance go from $1k to $5k per year. And they are 7 feet above sea level and didn’t even flood or have major wind damage. $400+/month is a lot of money to add on to a mortgage in a place like that.
I’ve personally been recommending to friends and family there that if they at all considered selling, to do so in the frenzy. I fear it’s now probably too late.
Ms.Girl, Yes, The prices have jumped 50% after the storm, but see alot of houses sitting longer ,and longer. Most of essentil FEMA, Army Corps etc have bugged out so housing is loosening up again I expect.Anyway I expect a bit is Fl. transplant, speculators, but after the Fema money leaves what will support any more increases? There’s going to be alot of housing nationwide ,and the flippers will be stuck again. Already the 3 condos in Gulport are filling the RE guides ,and have seen sevral ads…” Buyer Must sell! ..Make offer.
……Insurance has risen, albeit, nowhere near Fl…..
Well, my thought is that there aren’t many flippers here. On my street there are new homes going up where the slabs were, they get sold shortly after completion, and families are moving in. Activity just isn’t frantic. The FEMA and other workers didn’t buy houses anyway, and I don’t think their leaving has had any effect on rent, which has jumped WAY up. Lots of people complaining about that.
What if an equal proportion of residences in San Diego or Las Vegas just disappeared? Wouldn’t that tend to reduce the price declines? Kind of “force” an equalibrium?
Looks like the Florida Flippers killed off their anual crop of Dodo Birds…Ooops “Snowbirds”. Won’t be too long before Cali and Az make them extinct.