“A Temporary Phenomenon Or A Real Estate Bubble”
The Orlando Sentinel reports from Florida. “New-home construction, one of the engines of Central Florida’s growth, slowed dramatically during the third quarter as builders adapted to lower demand and focused on moving unsold inventory. New-home starts in the Orlando area fell during the third quarter to 6,853, down 32 percent from the same three months last year.”
“Housing starts retreated to levels not seen since mid-2003 in the Orlando area, according to Metrostudy. The new-home inventory, 22,794 units, represented an 81/2-month supply. The category of ‘finished but vacant’ homes was up sharply from a year ago for a second straight quarter, surging 123 percent to 8,179 units.”
“Anthony Crocco, Metrostudy’s Central Florida director, said many potential buyers have ‘effectively withdrawn from the market’ as they wait to see if housing prices are going to continue to fall. ‘There is a malaise out there’ on buyers’ part, Crocco said.”
“‘We’ve had a lot of backlog’ as a result of ‘artificial demand,’ said George Glance, president of the Orlando division of KB Home. ‘There was some speculation,’ new-home purchases made by investors hoping to make a quick profit during last year’s frenzied sales activity.”
The Tallahassee Democrat. “Florida’s stagnant real-estate market slammed hard into the St. Joe Co.’s third-quarter earnings, dropping net income to dismal numbers compared with the company’s report from the same period last year.”
“‘We continue to face challenging conditions in our Florida residential markets, but particularly in St. Joe’s resort markets,’ St. Joe CEO Peter Rummell said. ‘The inventory of new and existing homes in the marketplace remains high. We continue to believe it could take until 2008 before a supply-demand balance begins to return.’”
“St. Joe’s slowdown in activity reflects broader market conditions in Florida and across the nation, Rummell said.”
The Charlotte Observer from North Carolina. “Developers in the Charleston metropolitan area have more than 135,000 homes on the drawing board or under construction, a huge increase since last year, a new analysis by The Post and Courier shows.”
“Eleven months ago, builders had 113,000 homes planned or in the works, the newspaper found. That figure quickly became obsolete as developers unveiled dozens of new projects, more than 20,000 housing units in all.”
“Put another way, it’s as though developers said they wanted to build another Mount Pleasant, in addition to the five Mount Pleasants they already had in the pipeline.”
“Still, some area officials and business leaders are seeing a slowdown in construction activity and a buildup in the inventory of homes for sale. But no one knows whether this is a temporary phenomenon or a real estate bubble.”
“Meanwhile, all bets are off if MeadWestvaco unloads its vast land holdings, as one of its top executives recently suggested the company might do. The paper industry giant owns 145,000 acres on the outskirts of the metropolitan area, two massive plugs damming up growth west of Charleston and north of Goose Creek.”
From the State in South Carolina. “Skyrocketing insurance costs are being blamed for the tanking coastal housing market that threatens to drag statewide home sales to their first year-to-year decline in six years.”
“South Carolina is on track to have its first year of declining home sales since 2000. The state showed a 3.6 percent decrease for the first three quarters of the year, compared with the same period last year.”
“Four of the regions in the state, all along the coast, reported declines. The industry is significant in South Carolina because it supports a range of other businesses. For consumers, a drop in sales could lead to lower home prices.”
“‘We’re losing some sales. I don’t know how many yet,’ said Charlie Brindel, CEO of the Coastal Carolinas Association of Realtors in Myrtle Beach, who is conducting an informal survey of Realtors to determine how many home sales they are losing because of insurance rates. ‘The price increases have been severe.’”
“‘Agents are pre-qualifying buyers for insurance before they pre-qualify them for a mortgage,’ said Nick Kremydas, chief executive of the S.C. Association of Realtors.”
“Hilton Head saw the biggest year-to-date hit, a 42 percent drop in home sales. Myrtle Beach and Beaufort also saw double-digit declines; Charleston fell more than 5 percent.”
“Realtor Todd Beckstrom speaks to Realtors groups throughout the nation, and agents in those markets are seeing sharp declines in both sales and prices. The Columbia market isn’t ‘bulletproof,’ he said.”
From Atlanta:
‘Builder Closeout auction of 58 exclusive Buckhead Condominiums & Lofts. Fifteen units will be sold absolute, regardless of price.’
“For consumers, a drop in sales could lead to lower home prices.”
I would like to know where they get all these geniuses. A plastic company in China, I suspect!
Some builders will make it through till the next bubble, those will be the ones that have little debt and land to keep their crews busy. They will run at break even just to keep the company in place. What is break even on a 1,300ft home? My guess is between $150-200k depending on land cost. If they cut price fast they will encounter enough buyers to keep the business up.
Just like 89′ at the top of that market they were building much ballywhoooed exclusive Westin Ranch housing development. They promised IT! Boasting of quarter million dollar paradise! Big 2,200+ sqft McMansions on 5,000 ft lots. At the time the price of $600/mo rental was $150k.
This large development was next to I-5 just south of Stockton, it attrackted many buyers from the bay area in the last bubble, they drove down followed the signs and bought.
The development is on the west side of I-5, on the east is the crappiest part of Stockton.
A few years (mid 90’s) later much ballywhoooed exclusive Westin Ranch housing development. Was building 1,250 sqft. 3/2/2s for $100-125k.
Had a client call me crying that they were building $100k homes across the street from her big 5br $270k home.
That builder never stopped building and made another bundle off this bubble.
HAHHAHA, In a shitty area. WTF ever happened to due diligence.
Used to tell all my buyers to visit the prospective property at 2am and just park, bet no one did. I have never bought a property without parking outside in the hood very late at night and observing, you may be suprised and save yourself some grief.
There are way too many condos being built in Buckhead and Midtown too fast and at absurd prices (> high quality close in SFHs, BTW). OTOH, there are more people that want to live close to work … just not this many this fast at these prices.
Perhaps when gasoline gets to > $5 gallon…these condos will be quite useful.
posted
“A Temporary Phenomenon Or A Real Estate Bubble”
Sorry that is wishfull thinking…. it is a bust!
“‘We’ve had a lot of backlog’ as a result of ‘artificial demand,’ said George Glance, president of the Orlando division of KB Home. ‘There was some speculation…’”
SOME speculation? It will be fun to see how much. 2007: “We had no idea there was so much speculation.” 2008: “Speculators, we now know, effectively ruined our local housing market.”
I think the next big shock will be the level to which builders drop prices to move that inventory. Bet they will be selling below cost or “appear” to be selling below cost, before long. Joe used-home seller is toast and doesn’t know it, he is just beginning to smell something burning.
I think that smell is probably the equity in his home going up in smoke.
Of course the builders can cut prices; it did not get 2X as expensive to build a home in the past 4 years; they have huge profit built into these prices. Also, they can amortize the cost across many different homes/areas. So, even if they sell one home at an “absolute loss”, they are going to pick it up somewhere else (at least at this point in the correction). The homes selling today (by builders); the land was very likely sold before the huge run-up (3-4 years ago). Homes to not just sprout up, it takes years of planning/building to put a new development together. Assuming they paid 2002 prices for land, they have huge margins for discounting.
Those who purchased last year to flip, especially a limited number of properties, do not have the same luxury. They are going to be crushed as the “big boys” start to discount more deeply (as they are starting to/need to).
One of my friends works for a builder in South Florida, and he said (back in 2004-2005) that the builders were walking away with about 40-50% profit on the homes they were selling. If this is true, they can cut prices a lot.
Speaking of smells, does the aroma of paper processing ever go away? Will the redolent fragrance wafting over lovely Charleston dissipate once new developments are on the site of the Westvaco paper plants?
In fact, it does.
Many years back, Mobile Alabama was about the stinkiest place on earth due to pulp plants there.
I believe Clean Air and Water Act impacted them.
Mobile no longer stinks, but is was terrible back some 20 years ago.
Think you are right about Clean Air Act. Papermills used to stink, but the one in Bucksport Maine became positively benign in recent years.
I remember the phrase “The aroma from Tacoma” referencing the local paper industry.
diogenes, Mobile is my hometown, I hated it when a northeast wind blew.
Panama City, Fl. has a paper mill and it smells when a easterly wind blows.
I’m downwind of a Cargill fertilizer plant. Stinks something awful when the wind blows out of the north during the winter.
Palmetto,
Just so you know, I am NORTH of the Alafia River.
So, I can get a whiff of the aroma from Gibsonton, too.
Phosphate/fertilizer plants reek nausea to Tampa town.
Just like 89′ at the top of that market they were building much ballywhoooed exclusive Westin Ranch housing development. They promised IT! Boasting of quarter million dollar paradise! Big 2,200 sqft McMansions on 5,000 ft lots, common price of $600/mo rental was $150k.
This large development was next to I-5 just south of Stockton. Attrackted many buyers from the bay area in the last bubble, they drove down followed the signs and bought.
The development is on the west side of I-5, on the east is the crappiest part of Stockton.
A few years (mid 90’s) later much ballywhoooed exclusive Westin Ranch housing development. Was building 1,250 sqft. 3/2/2s for less than $125k.
Had a client call me crying that they were building $100k homes across the street from her big 5br $270k home.
HAHHAHA, In a shitty area. WTF ever happened to due diligence.
Used to tell all my buyers to visit the prospective property at 2am and just park, bet no one did. I have never bought a property without parking outside in the hood very late at night and observing, you may be suprised and save yourself some grief.
Kara homes tried that here in Jersey. No dice!!
They were building 4k sqft mcmansions on substandard lots starting at $950k. Houses were so close together you could flush your neighbor’s toilet by accident. And the power line & tower view from the backyard is an added bonus.
Once the fever broke people started looking at the #s. $1m + $30k/yr taxes + everyday costs = ridiculous. They have been dropping prices $150-200k to no end.
Dipster - What part of New Jersey is the development you describe? Just curious.
Bergen Co. NJ, about 25 miles west on NYC. Development overlooking the junction of two minor highways in front and a valley from the rear where the main electrical distribution lines run.
Chip, I couldn’t of said it better. You are right on.
“Housing starts retreated to levels not seen since mid-2003 in the Orlando area, according to Metrostudy. The new-home inventory, 22,794 units, represented an 81/2-month supply. The category of ‘finished but vacant’ homes was up sharply from a year ago for a second straight quarter, surging 123 percent to 8,179 units.”
Yet, existing home prices increased in Orlando according to FAR. Moreover, from observing some of the home builder websites in Orlando, they are not discounting as much as I would expect at this juncture. What’s wrong with this picture?
I’ve been watching closely and noticed this too. Tampa and Orlando have not begun the median price declines like much of the rest of the state. Perhaps the rolling bubble arrived here later after beginning on the coasts. Please don’t tell me it’s different here!
A lot of ‘priced-out’ South Floridians are moving to Orlando and further North b/c of comparatively cheaper housing. Why pay 400k when you can pay 250k?
Where is this $250k home in Orlando you speak of? Probably should say “why pay $600k when you can pay $400k”.
I know at least 5 families with good paying jobs that have left Central Florida for TX, NC, SC and TN, to escape the high cost of living and, well, people from S Florida moving here.
250k is the median reported by FAR.
It’s not different in Orlando. The Florida bubble started in the Palm Beach to Dade area and then spread to the west coast of FL and north. Orlando was late to the party as was Sarasota and other areas. You will see YOY declines, just later than what we have here in Palm Beach.
Agreed, once South Florida prices start dropping some people might consider staying South rather than moving North. Orlando and place further North will lose their pull and prices will decline in those areas as well.
Agreed. Why would you move to an area for a “cheaper” house, when in fact these houses are on a percentage basis just as overvalued. So in fact, a house that is 100% overvalued in Broward is also presumably 100% overvalued in Orange county. You may not go from $400,00 to $300,000, but you may go from $250,000 to $150,000 in price.
Maybe I’m wrong , but you are trading one poison for another.
It’s not a simple as this… different areas within the same metro may experience different appreciation and depreciation rates depending on neighborhood trends, new building or lack thereof, location, schools, etc…
I would expect some areas in a major city (non-bubble) to decrease 30%-40% and others perhaps 10%-20%. It may be worse in a bubble city, except perhaps where supply is so constrained such as San Fran.
Okay, whew. Just needed to hear some logic instead of the usual rhetoric about Orlando prices never going down because of huge demand from rich internationals, boomers, tourism, etc. I’ve heard this comment about California, but has anyone else noticed how Orlando’s middleclass just seems to be slipping away? I used to think I was middle class, but can now barely afford to live here. How in the world does the median income do it?
I would consider Palm Beach County more desirable than Orlando for the “rich boomers, rich internationals, etc.” Here are our most recent stats (hope your sitting down):
1. 49 months of inventory ( yes, you read that correctly)
2. 9% YOY median price decline
3. 13.3 % median decline from median peak (11/05)
4. Continued monthly sales off 40-50% YOY
The ENTIRE Florida real estate market will get killed. The above stats are with an unemployment rate of about 4% in PBC so it cannot be blamed on job loss (the usual suspect). Florida RE was grossly inflated due to massive speculation and crazy lending. Anything to the contrary is pretty much BS. The middle class is leaving Florida. I suspect our population growth will slow or go negative if the housing/tax/insurance issues are not fixed in a timely manner. Who wants to move here and work crappy low paying jobs with insanely high housing costs? The sheeple are stupid, but not that stupid.
That’s a solid presentation Notorious. Although others might attempt, it is irrefutable.
Nice Summary Notorious. Also, that unemployment rate is bound to increase in places like Florida, CA, and other areas which have relied on construction employment/wealth.
I’m not predicting soup-lines based on just that, but tepid employment doesn’t help.
HFA and MktMaven FL,
Thanks for the kind words. Every once in awhile I come up with something intelligent!!! I agree that South FL unemployment will rise as RE industry jobs are lost. There will be some type of shakeout for sure. Palm Beach County has something like 10,000 realtors, but I doubt all call that there full-time job. The real question is will the job losses show up in the stats? Many working on construction crews are “illegal” so how (if at all) will they be counted? Our economy is service/tourism based. I would also keep an eye on how busy our restuarants, hotels, and resorts are this winter. If those industries shed jobs along with the RE industry we could be in for a bumpy ride. I don’t forsee soup-lines either and I don’t think our local economy will be hit quite like Michigan with all the auto industry problems.
Notorious D.A.P. : Ditto’s. Very well said!
I agree, I think areas like PSL (Port S. Lucie) and other “moderately” priced areas are going to get killed just like the rest of them. The reason people move to “less desirable” areas is because they are priced out of the place they really want to live. PSL is just a bedroom community for those that cannot afford Palm Beach County. Their prices have jumped like crazy too, and are going to fall just as hard. As prices fall here, more people will start to creep back down, killing the prices in the less desirable areas.
Basically, its a total s**t-storm. Prices are going to go down everywhere, it does not matter what the “basis” is for the costs.
So, basically, what everyone said above is correct, your going to see the prices drop. :0
“I don’t forsee soup-lines either and I don’t think our local economy will be hit quite like Michigan with all the auto industry problems.”
The construction industry is the automotive industry for Florida. It will take a major hit, and so will the overall Florida economy. I believe Michigan and its ‘challenges’ with the auto industry is a great example of Florida’s future challenges with its construction industry.
I should have clarified better. I agree construction has been a big driver of our economy much like the automotive industry is for Michigan. Where there is a stark difference is that our construction industry doesn’t have to deal with unions (that I know of) and it doesn’t suffer from underfunded pension plans. These type of issues just add to the problems of poor sales and certainly complicate things even more.
I agree. But, the other difference is the construction industry has a lot of little players that can’t take a very big hit financially before they go under. (Even the big builders are small compared to the auto giants.) The auto industry is basically made up of a bunch of giants that can loss money for a long time and still survive. Althought, when one goes down it will be huge.
I don’t know about that one- literally. If you look at HousingTracker, it shows 26k+ homes for sale in Orlando MSA and median prices down about 10% since Jan 1st. Conflicting numbers from RE industry? How could that happen?
I believe the HousingTracker numbers are median ‘asking’ prices for houses, while the FAR numbers are sale prices of previously owned homes. I agree though, I don’t feel very comfortable basing my decisions off numbers provided by those with vested interests. Hopefully an unbiased (partly) saviour will show up (zillow anyone?) and someday render these particular numbers and those who produce them obsolete.
Yes, they are ‘asking’ numbers, which should imply that the actual selling price is less than their median asking price. I had assumed (possibly incorrectly) that the decline of roughly 8-9% in asking price was matched by a proportional decline in actual selling prices, although that may not be the case. Times, they are a-changin’ though. Things are significantly different than they were just 10 months ago- especially when you count the inventory! Ha!
Story on St. Joe’s:
http://tinyurl.com/yjdkz9
St. Joe’s took a $13 million charge for its “exiting the homebuilding,” which reduced eps from $0.18 to $0.08. Per the discussion the other day, I think St. Joe’s may be the exception in maintaining a more prudent strategy with management actions more aligned to shareholder interestrs - the CEO owns $60 million worth of stock, and offshoots of DuPont have over $300 million.
http://www.marketwatch.com/tools/quotes/roster.asp?siteid=mktw&sid=4257&symb=JOE
The company maintains a relatively modest and unpretentious headquarters in Jacksonville.
After katrina came the high insurance rate adjustments on the coasts etc.,so you would think the builders would scale back knowing they were going to take a hit in these regions .
Also I’m perplexed how builders were given permits without cities having a reasonable basis to approve them . No low income houses or rental building permits issued in many areas for balance in cities .
Course now we have up-side down flippers in ghost town tracts offering the rentals along with vacant properties everywhere .
Everybody got caught up in the mania without a reasonable basis to support this over-building at high prices . They will look back in history and say that over-building for speculators/boomers in a mania priced out the end-user buyers .The industry is still in la la land about the lack of buyer demand .
If I were a member of the home building industry, I’d be lobbying really hard to address the insurance issue. Instead, these guys seem to think lower interest rate is the answer to all their problems. As a marketer, sometimes you need to protect the interest of your customers b/c ultimately your survival depends on them.
Maybe the solution to the insurance problem is that for a modest fee, if your home gets wiped, you get a free vacant flipper house of your choosing.
“prequalifying them for insurance before prequalifying them for a mortgage” - Yeah. The last house I bought, I bought it for cash, so was not REQUIRED to have insurance. I might have bought insurance, but every ins co wanted about 2% per year of the structure value ! — more than the property tax! Just because I was within 1000 feet of the ocean (but 80 feet above it, and not on any kind of slidable slope). Anyway guess what, I didn’t insure it at all. That’s one of the reasons I’m glad it’s sold.
Lower interest rates won’t help too much…the psychology is the driving factor now. Even at 0% interest, it would not restart the appreciation we had before. Prices for most housing needs to fall where mortgages are below rental rates. There may be some neighborhoods, close-in (or to employment), quality, good schools, that don’t fall that far. But most housing, particularly tract cookie cutter housing will fall that far.
Don’t worry, with this sort of oversupply in a few years there well be LOTS of housing priced for those with lower incomes. I’m guessing lots of older housing with five-figure pricetags.
I’d guess lots of 3-6 year old housing in 2008-11 with 5 figure price tags. This is the real junk. Less desireable locations, poor construction… etc… Or will be as it ages in many (not all) cases.
This morning on the local news there was a report about a builder that is to present a proposal for new development in Hernando County today. They are looking for zoning on a new 700 home development. Side note: I know someone who is a HVAC sub working in Hernando County currently, and he states that things have been slow lately. He has been working 3 days a week doing installations. Previously he had more work than he could possiably do. I am sure he will be happy for the work, but this is not going to help things in the long run.
“Skyrocketing insurance costs are being blamed for the tanking coastal housing market that threatens to drag statewide home sales to their first year-to-year decline in six years.”
The insurance and tax issues are affecting a lot more people than most think. Homeowners in this region are not used to these insurance prices and take pride in low taxes. From the scapegoating outlined in the above quote, I smell a backlash from what may be interpreted as ‘insurance price gouging’ by residents in this region.
Just what can they do? If they don’t want to pay market rates they can try and get the government to pick up the tab. Oh wait, they’re already trying that, and it’s my understanding that the system now costs more than they’re happy with and will still probably go bankrupt with a big storm.
If you back your customer up against a wall, they tend to change their behavior and start working against you.
Instead, most adept marketers want a customer who makes regular uninterrupted purchases or at worst grow indifferent to their product/service offering. Marketers never ever want their customer actively working against them politically or otherwise such as picketing outside their store, calling up friends, making FTC complaints, suing them in court and so on.
“Instead, most adept marketers want a customer who makes regular uninterrupted purchases or at worst grow indifferent to their product/service offering. Marketers never ever want their customer actively working against them politically or otherwise such as picketing outside their store, calling up friends, making FTC complaints, suing them in court and so on.”
Generally true, but if you can’t make a profit, why would they stay in business? As mentioned upthread, even the state insurer of last resort would go broke if a biggie hits Florida. Be careful what you wish for.
Yes, that is the new scapegoat for overpriced housing.
People love the INFLATION, but don’t want to pay the associated costs. They think they just inherited 100,000 dollars.
But, the Taxman always wants a cut. Is it worth 100k more, or isn’t it??
Lower the sales prices and the tax and insurance problems all fade away.
Diogenes — excellent points. Insurance costs will drop in more or less direct proportion to price decreases, albeit slower than people will want.
But taxes might not drop that much, because almost all of these $%#@ local governments chose to spend a huge portion of the windfall taxes they received on bulking up their staffing and infrastructure. We’ll rarely see a report about City X that socked away the windfall in a contingency account or, better, used it to reduce the tax millage. So they have gotten themselves committed to higher recurring costs that will take a long time to roll back and, in growth states, probably never will be. End result is that they will raise the millage further as increasingly-reduced sales prices and appraisals decrease their tax revenue. It’s why I’m leaving Florida.
Something for nothing. The American way.
Can you blame them? Someone with nothing is our president.
Somebody told me that their insurance company raised their rates because they installed tile flooring which the Insurance company claimed increased the value of the home . I would think that tile flooring would be less of a fire hazard and maybe they should of got a discount instead . But my point is that the insurance companies are gouging right now based on inflated prices and not true replacement costs . Has anyone noticed how the Insurance companies have so many deductible clauses in insurance policies these days that it’s a joke . You have a seperate deductible on the garage ,a seperate deductible on the block wall , you have a seperate deductible on the living structure ,seperate deductible on the personal property ,seperate deductible and costs for storm damage verses flood damage ,and on and on and all the loopholes involving cause of damage . These guys don’t want to pay claims .
Just read the fine print of your policy sometime .
The joys of capitalism.
Hey Joe, if you have something to contribute, do so. Otherwise, take your left-wing bush hate to dailykoz..
“But my point is that the insurance companies are gouging right now based on inflated prices and not true replacement costs .”
Exactly HW, I am hearing from family members and reading about people paying twice as much for less coverage with increasing deductibles. Plus, there is a lot of litigation in the pipeline from Katrina. I suspect the insurance companies are getting as much as they can while ‘the getting’ is good. They are doing themselves in, IMO; but don’t underestimate their lobbying abilities. The industry is as strong as the banking industry.
The Insurance Companies have gone to far in IMHO . While I believe that they are concerned about their risk potential in disaster prone areas ,they always made up for it by the non disaster prone areas and non-disaster periods .
Sometimes Insurance Companies can go years without a costly disaster making money hand over fist by investing .
Ok ,so finally a disaster came along like Katrina and they are liable ,so pay . No the Insurance company wants the customers to pay for Katrina because they believe they are entitle to their yields during non disaster times . Its very much like the sellers thinking they are entitle to their paper profits in real estate during the good times .
‘…insurance companies are gouging right now based on inflated prices and not true replacement costs…’
Good grief. 1st, how would the insurer know about the ‘new floor’ unless the owner told them? I call BS on this urban legend. 2nd, replacement cost is exactly that: replacement cost. Insurers are not looking at home sales, they’re looking to see how much it would cost to rebuild right now. If they are wrong in their pricing, people will go elsewhere. They have no reason to inflate replacement cost because that is what they would have to pay in the event of a loss. 4th, you must have a terrible policy, because mine only has one for the structure (all and any) and one for my contents. $500 bucks for each. Does not seem too hard to me. Finally, they don’t want to pay frivolous claims. You can buy policies with no deductible, but why? The reason is 2 fold: 1.) They would be hugely expensive because everything would be covered. By eating the first $500 bucks, the insurance only responds when you really need it; and 2.) without a deductible, there is a severe moral hazard present. The HO has no reason to be careful because everything is covered. ‘No skin in hte game’ so to speak.
Sorry for the long post, but I wanted to correct some misconceptions.
The person I was talking about had a rountine inspection after they purchased the house and the insurance company raised the rate based on new tile . Try getting earthquake insurance without the deductibles I mentioned . Again I say , no reason for many deductibles and it doesn’t cut it to say that it would be to expensive to have insurance without deductibles .As far as small deductibles go that alright but they based the deductibles on a % of the price of the total insurance on many sorts of insurance coverage .I have no misconceptions and the insurance you referred to is for the small stuff .
“The insurance and tax issues are affecting a lot more people than most think.”
The issue is that there were many more houses built than people to occupy them. This boom was not based on fundamentals, and neither were the prices, which affects your taxes and insurance. If the prices had stayed decent, so would have the insurance and taxes.
THANK YOU, smf. People seem to miss this point here in Florida.
‘The inventory of new and existing homes in the marketplace remains high. We continue to believe it could take until 2008 before a supply-demand balance begins to return.’
That would take a very hard crash landing in prices, imo. But after that, we will enter the circumspection period, which will accompany the general consensus on what a terrible idea it is to invest in second homes.
“Anthony Crocco, Metrostudy’s Central Florida director, said many potential buyers have ‘effectively withdrawn from the market’ as they wait to see if housing prices are going to continue to fall. ‘There is a malaise out there’ on buyers’ part, Crocco said.”
The buyers have been inflicted with a sudden epidemic of financial prudence.
How do they know the buyers are waiting in the wings? Do they ask Joe Smith on the street “How come you aren’t buying?” Looks to me like the first wave had the buyers moving up; then came the buyers who couldn’t get their offers accepted in the first wave because they had no cash (rescued by the toxic mortgages); then came the flippers and specs. Who’s left? The ones who truly would like a home but are totally priced out. It doesn’t matter whether a McMansion is priced down 30%, 50%…it’s still too much for these buyers. The supply is not the kind of housing needed by the buyers ‘in the wings’.
GetStucco - are you a lawyer or writer because you always have a good way with words…..at least you keep my dictionary from being unused (ha).
Neither, but I am a fan of “A Way with Words”:
http://www.kpbs.org/words/
test
In some ways I see a property tax attached to the appraised value of homes as a good tool to curb higher prices. It is obviously working in South Carolina and many other states, but in states in CA, where the tax rate is locked in on what you pay means we have a lot of older folks paying zilch on their homes while more recent buyers are paying as much as 15k a year just in taxes alone. I can almost guarantee that if California ridded itself of proposition 13, housing prices would bomb dramatically overnight.
The solution is not Prop 13 or ‘Homestead’ laws that limit tax increases to 2% a year. The solution is a law that limits total tax collection and spending to an increase of 2% a year. The idea that tax revenues should go up by 50% when house prices have a general increase of 50% is nuts, lower the millage rate and keep the tax revenue the same.
You bet. But try any kind of anti-tax legislation and you get all kinds of apparent do-gooders calling you bad names. Maine is one of a bunch of states with Taxpayer Bill of Rights on the ballot next week. Anti-TABOR forces of course include all the state/muni employee unions, and the tax-and-spend wing of the media try to beat it with ad-hominem arguments about whichever big NYC investor has helped to fund the effort. Of course they don’t make such a fuss about George Soros promoting liberal causes. Sorry to get political, you did bring up the local-tax issue.
Funny how there has been minimal coverage in the local media in Maine about the pros of TABOR.
SteelCurtain — amen, amen, amen.
Oh thank god! Someone else realizes what the real problem here is!
SOH/Prop 13 is the BEST thing that every happened to taxing authorities! Doesn’t anyone realize this? They are totally insulated from the majority. If they raised the millage to 50% of value per year, guess what? The people who vote would not care ONE BIT. Because they are locked in. Sounds like a great idea to tax the next guy. Voters are “insluated” from taxes, and therefore are totally insensitive to taxes.
Genius idea for govt; how to make the majority of voters not care about taxes? SOH/Prop 13 to the rescue!
It’s been a key motto since the 50’s in the Sunshine State:
“Don’t tax you, don’t tax me. Tax the guy behind the tree.
In other words, tax the tourist/new guy, who doesn’t have a clue. SOH has taken this theology and amplified it to a fantasticly absurd level. Simply brilliant!
I love it - makes me laugh!
SOH = Greed squared
“I can almost guarantee that if California ridded itself of proposition 13, housing prices would bomb dramatically overnight.”
Prop 13 is a very important fator that amplifies the CA boom-bust cycle. At this stage of the game, nobody in their right mind would get in, as they could lock in a much lower basis (subject to maximum 2% annual increases) by exercising patience.
“factor”…
Regarding Prop 13, if my parents transfer their Ventura County home to me , would I pay their real estate tax bill based on ‘91 price of $200,000. Would county reassess after transfer? FMV today would range from $450,000 to $550,000 depending on effect of bust.
“Housing starts retreated to levels not seen since mid-2003 in the Orlando area, according to Metrostudy. The new-home inventory, 22,794 units, represented an 81/2-month supply. The category of ‘finished but vacant’ homes was up sharply from a year ago for a second straight quarter, surging 123 percent to 8,179 units.”
Some enterprizing reporter needs to ask, ‘When was the last time that inventory surged at this level?’ in order to determine how normal or temporary this phenomenon might be. Exactly what yardstick are they using to measure it with or to what standard are they comparing it to?
Anyone else read the article on how the NAR fudged around with the september ’seasonaly adjusted’ numbers? It appears that for some unknown reason, they used a factor of 11.73 instead of 11.43 this year vs. 2005 to get the annual projected number higher than if they left the factor at 11.43.
These people have no morals whatsoever.
Where is the link?
oops.. my bad.
http://calculatedrisk.blogspot.com/2006/10/nar-adjustment.html
Sept 2005:
NSA 630,000
SAAR 7,200,000
Factor: 11.43 (divide 7,200,000 by 630,000)
Sept 2006:
NSA 527,000
SAAR 6,180,000
Factor: 11.73
SAAR decline: 14.2%
NSA decline: 16.3%
Don’t know if this applies, but: If Sept. ‘05 had lower than normal starts for the year relative to Sept./Year ratio for past years this would raise the seasonal adjustment factor for ‘06 relative to ‘05.
Major article from MSM on how the housing bust may bring down the whole economy.
Can the economy survive the housing bust?
Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune’s Jon Birger.
By Jon Birger, Fortune senior writer
November 1 2006: 9:42 AM EST
(Fortune Magazine) — Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she’s hesitant to show it to investors. It plots the National Association of Home Builders’ Housing Market index - a monthly measure of builder confidence - against the Standard & Poor’s 500 stock market index, with a one-year lag.
It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving.
Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse that came the following year. Builder confidence rebounded in November 2001 - a year ahead of the stock market upswing that began in October 2002.
http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393160/index.htm?postversion=2006110109
That’s a great find and one scary graph!
According to the article, “I don’t think the macro statistics reflect accurately what’s going on in many local markets,” says Bruce Karatz, CEO of national home-builder KB Home. In many once-hot regions, order cancellation rates are running above 40 percent, new-home sales volume has dropped 50 percent, and new-home prices are down 10 percent to 25 percent. Karatz says the current downturn is worse than any he has seen - even the early 1990s market that left so many big builders reeling.”
….worse than any he has seen - even the early 1990s market that left so many big builders reeling.
The graph is interesting but there appears to be a large divergence before 1994. What happened?
I think this correlation is pure coincidence. NAHB is an important indicator but it shows the rate of change not the absolute value. Reading of 50 means that half of the builders are optimistic and half pessimistic. On the other hand S&P is an absolute indicator so comparing two of them directly is unfounded. NAHB cannot go beyond 100, whereas S&P can rise indefinitely.
I posted on the Bits thread why this graph is meaningless. (Someone posted this article there too.)
“Eleven months ago, builders had 113,000 homes planned or in the works, the newspaper found. That figure quickly became obsolete as developers unveiled dozens of new projects, more than 20,000 housing units in all.”
I truly believe the Fed sees the problem with respiking the punchbowl at this stage of the game — Governor Kohn’s speeches indicate he saw The Picture as early as spring 2005. The fact that they steadily tightened interest rates meeting after meeting before the recent pause on clear signs of housing sector weakness suggests they were striving to reach a balance between choking off housing speculation and not choking off the rest of the economy. Nonetheless, there is a risk that many speculators (especially building industry bulls) will interpret the Fed’s demonstrated preparedness to shower the economy with liquidity at the first sign of macroeconomic weakness as cause for hope that high rates of housing price inflation will return by the time their building plans are realized. This is one way to rationalize the builders’ eagerness to add to new home inventory levels which have already shattered the previous record, according to a David Rosenberg report recently leaked here.
Besides the question of whether the Fed has the stomach to stay the course on quelling speculative fervor in the building sector, there is a wild card in terms of what other governmental or quasi-governmental entities might do to keep the speculative binge rolling. For instance, FNM’s mission is to provide affordable housing, and having a flood of excess new home inventory seems like a sure-fire way to do this. (It would be better if the kind of homes getting built vaguely matched underlying needs, though).
Futures markets have upped the likelihood of a rate cut…
——————————————————————————
Fed funds futures see rate cut more likely than not by March
By Tomi Kilgore
Last Update: 3:44 PM ET Nov 1, 2006
NEW YORK (MarketWatch) — The Federal Reserve will more likely than not lower interest rates by March 2007, according to the fed funds futures market, following the release earlier in the session of weaker-than-expected data on manufacturing and construction activity. The April fed funds futures contract rose 0.06 to 94.92, which implies a 68% chance that the Fed will cut its target on overnight rates to 5% from 5.25% by its policy setting meeting in mid-March. Late Tuesday, the odds of a rate cut by March were 44%. Earlier, the Institute of Supply Management index, a reading of manufacturing activity, was said to fall to 51.2% in October from 52.9% in September, while economists surveyed by MarketWatch had been expecting a rise to 53.2%, on average. In addition, the U.S. Commerce Department said construction spending fell 0.3% in September, vs. expectations that spending would be flat.
“Still, some area officials and business leaders are seeing a slowdown in construction activity and a buildup in the inventory of homes for sale. But no one knows whether this is a temporary phenomenon or a real estate bubble.”
Now that everyone is talking about the real estate bubble, can’t we agree there is one and just get on with life?
Dude, greenspam himself has addressed this issue:
1) there is no bubble
2) immigration is causing a shortage of housing
3) Berlin wall came down, communism collapsed therefore it makes perfect sense for housing to double or triple a decade later
4) Even though there was never a bubble, Berlin wall has not been rebuilt, and communism is not returning in a big way. The worst is behind us. The bottom is in.
So sayeth greenspam and he can’t be wrong.
Check out the Home Builders stocks, especially over the last 3 days.
I guess Crammer couldn’t contain the wave of really bad news any longer with his “strong buy” recommendation. This looks like the tanking of HB stocks that should have happened months ago based on the imput from Ben’;s Blog. I am on Pulte Puts of Jan 08. Come on down!!!
Don’t get excited unless you see them break loose to the downside out of range from the slow and mysterious uptrend which took shape since June on absolutely no good news to support it.
Ozymandias
I met a traveller from an antique land
Who said: `Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear –
“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.’
Percy Bysshe Shelley
Great, we needed some Shelley this morning. Let’s have some Milton too:
As with the force of winds and waters pent
When Mountains tremble, those two massy Pillars
With horrible convulsion to and fro
He tugg’d, he shook, till down they came, and drew
The whole roof after them with burst of thunder
Upon the heads of those who sat beneath …
Chorus: O dearly bought revenge, yet glorious!
[from Samson Agonistes]
‘With a soft housing market in Lee County, it sometimes seems like half the houses here are for rent — often at prices more reasonable than they’ve been for a long time. The News-Press is doing a story on the phenomenon and if you’ve made the decision to rent instead of buy, we’d like to hear from you.’
I made a decision to sell, not rent. Here is the readers digest version. Back in the spring of ‘04 I put 10% down on a preconstruction condo in Naples, with the idea that I’d rent it out and be close to cash flow neutral, then have a seond home when my wife and I are ready to close up shop up north. What happened is that I saw prices explode shortly after I bought in, going up 60% in 18 months, meanwhile rents countinued to crash and insurance and taxes went way up, so the rental numbers went negative by a fair amount. Although it wasn’t the original plan, I decided to bail, Had a contract back in Aug ‘05, near the peak, but the condo need to be completed and closed by Aug ‘06. A 23K investment(10%) would have netted over 100K, if the builder would have done what they said they were going to do. I immediately put this back on the market for 20K lower than the most recent comp, and I got a contract within in 2 weeks for 5K less than than. Meanwhile, every single one of the places in the development are still up for sale, plus a few. My net profit is going to be about $25K, when I close in 2 weeks. The SW Florida market is absolute toast, it’s down 20-25% + and given the inventory I see no way it won’t go down at least that much more within the year. Most people with a brain the size of a Florida grapefruit aren’t holding out for the coming “season”. By the way, although it’s not scientific I’ve seen that many homes are still listed at ‘05 peak prices. Might as well post a big “Not For Sale” sign.
“More reasonable” for the renter - a disaster for the FB specuvestor, getting swallowed by the alligator!
OT, from the Left Coast
As buyers balk, builders carry on
Big developers take long-term view, hoping slump wanes as projects end.
http://tinyurl.com/yjfvlp
“A glut of homes hitting the market amid a slump could mean bargain-basement prices.”
In comparison to last year’s prices, maybe. They’re still overpriced. Just because builders paid too much for the land and have to take less profit margin, it doesn’t mean housing a bargain. If we go back down to 2000 level, I would consider it a bargain for 2006.
Bankers object to mortgage license plan
http://tinyurl.com/yaq6bq
More misc. Left Coast stuff…
Voters to weigh in on housing gap
$1-billion bond measure to build affordable units in L.A. has the potential to affect rents, density.
http://tinyurl.com/yk4cpz
Ben,
What’s your nest guess on when we will see the HB’s discounted inventory slashing prices start to appear in comps, if ever?