Discounts “A Fact Of Life Right Now” In Florida
The Herald Tribune reports from Florida. “A Tampa Bay condominium converter bailed out of 40 units during the weekend by selling them at absolute auction. The auction raised $5.9 million through the sale of 40 units, meaning the average price was $147,500.”
“The developer had been selling the bigger units at the complex for $300,000-ish. ‘They sold at a discount,’ said Carl Carter, a spokesman for J.P. King Auction Co. ‘It is just a fact of life in the market right now.’”
“The move could be just the beginning of many multi-unit Florida auctions to come, Carter predicted. ‘Right now we are at the front end of what we think is going to be a surge in condominium auctions,’ he said.”
“‘Developers have to face the fact that they either have to get it sold or continue to pay interest and marketing costs,’ Carter said. ‘Some of these people are paying a lot in construction loans. When you’re 12 months into a three-month business plan, it starts hurting.’”
“The auction was advertised as ‘100 elegant colonial-style condominiums in a gated community, 40 selling absolute.’ That terminology provided the seller the ability to back out of any sales past the first 40, and he apparently did so.”
“‘We basically said we were going to sell 40 of these at absolute auction and another 60 with a reserve,’ Carter said. ‘If we had been getting higher prices, we would have put more on the market.’”
The Orlando Sentinel. “The Central Florida economy is expected to continue its pace of slower growth in December, according to the latest CFB Economic Index. Hampering the region’s growth in recent months has been the ongoing struggles in the building-permit category, an indication of a slowing housing market. There has been a decline or projected decline every month since June.”
“In September, the most recent month for which actual data are available, the region (was) weighed down by a 37.28 percent drop in residential building permits.”
“Realtor Ronald Cornette serves as a rental division manager in Bradenton. Q: How has the spiraling inventory level of unsold property impacted the rental market in your area?”
“A: ‘Those investors who thought they would rent their units at a rate high enough to cover expenses are shocked to find it’s impossible. Rentals over $1,800 are harder to fill regardless of the value.’”
“Q: What’s going on with prices, deposits and contract terms generally for rentals? A: ‘While sales prices have risen sharply, rental prices have not. Rental terms are about the same, as well.’”
“Q: Are you seeing a lot of owners who thought they would be flippers? Do you have to educate first time owner-landlords? A: ‘The flippers are having a hard time finding tenants at high rental rates. They may have to bite the bullet and take what they can get, even if the ink is red for now.’”
“Q: I was told by an experienced landlord that a ‘good rental’ generates 1 percent of a property’s purchase price in 1 month. Is that still possible in this market today? A: ‘The old 1 percent rule doesn’t work any more. One half of a percent is more like what we’re seeing now.’”
“Q: Are landlords surprised that the recent increase in prices for the purchase of real estate do not translate into higher rental incomes? A: ‘A skilled and sophisticated investor doesn’t expect rent to cover expense. The novice is the problem. They need to ask more questions when they buy.’”
The Miami Herald. “More troubled waters in residential real estate. This view comes from the trenches: More than 70 percent of real estate professionals in a University of Florida survey last week said it was a bad time to build condos; 46 percent said the same thing about single-family housing.”
“There’s more: Nearly half of this often-bullish group expects not just condos but also single-family home prices to drop. The number in the bearish camp has doubled in just two months.”
‘Q: I was told by an experienced landlord that a ‘good rental’ generates 1 percent of a property’s purchase price in 1 month. Is that still possible in this market today? A: ‘The old 1 percent rule doesn’t work any more. One half of a percent is more like what we’re seeing now.’
Sign me up for a cash flow negative investment in Florida! If the ‘experienced’ landlords should expect to lose money, what chance have the flippers got?
‘ In Brevard and Collier counties, groups of home and business owners have been hard at work crafting their own insurance solutions. ”Next year, I won’t have any savings,’ said Zenobia Lopez of Biscayne Gardens, who signed the Miami-Dade petition. ‘Where am I supposed to come up with $5,000 again?’
A reader sent in this blast from the past:
‘In downtown, from Brickell Avenue north to the Edgewater neighborhood, up the Miami River and down historic Coral Way, great chunks of Old Miami are fast disappearing in a cloud of dust. In its place, the New Miami — a dense, steel-and-glass forest of condo towers — is rising from the rubble.’
‘Citywide, developers are proposing more than 61,000 new condominium units — eight times the number built during the past decade. ‘You have a wave of development underway here in Miami that is unprecedented, bigger than anything, bigger than Hong Kong in the boom years of development,’ said Charles Hales, a transportation consultant.’
‘Not since the post-World War II housing boom that multiplied Miami-Dade County’s population fivefold, to more than one million people, has the region experienced anything comparable. But that took almost 20 years. ”We are building an instant city; what should take 15 years will take three,’ said Michael Cannon, a Miami real-estate analyst.’
“‘Where am I supposed to come up with $5,000 again?’”
Oh, it’s pretty simple. Don’t. And take the risk of damage to the home during the next hurricane. Self-insurance is a valid, though risky, option.
That is, unless you owe money on the home. Then the lender will make you insure it. Too bad. In that case quit whining and just sell it. Chances are you can rent it back from the buyer for less money than taxes + insurance.
“‘Where am I supposed to come up with $5,000 again?’”
You must have a job. Cut out unnecessary spending and save. In your free time, find creative things to do that don’t cost money.
You might not be cash-flow positive…but you get ‘all the appreciation’!! DUH!!
Got a new post up!
SoCalMtgGuy
http://www.housingbubblecasualty.com
SoCal — nice post — one of those that I print and give to my wife to read, to keep her stoked.
My rule of thumb is that any rental over 1/3 of 1% of the purchase price is overpriced right now. 1M dollar homes typically rent for about 3K; but you will occasionaly get jokers asking 5-6K. That’s not going to happen buddy, sorry.
Anyway 1/2 is low end market, 1/3-1/5 in the high end market is more typical in Palm Beach county right now (which is the market that live in/closely follow). The more the place costs, the higher the divisior.
Just typical rules..
1% of the purchase price per month… Blahahasldfjal.dfajdhahahaha…. Not here buddy, never going to happen, not if you bought in the last 3-4 years.
Michael — I have a line on a $1M place that might, just might, be available for $2K/mo. A deal and a half. I could rent forever at those rates, though the party won’t last quite that long.
auction results= reality
keep us posted !
tia
Only absolute auctions…
You’ll see oh so much trickery going on in auctions, if your eyes are wide open, bids from flies on the wall, that sort of thing.
$147.5K compared to 300-ish is NOT “a discount”.
It’s a fire sale.
And they got 60 left to sell!
$174.5 vs. 300 isn’t a strict comparison, but it still looks like a 35-40% haircut.
Pent-up demand, my arse. There is a lot of pent-up supply in South Florida and 2007 will be the year of panic selling. Auctions like this will be the preferred way of distributing property.
Maven — “pent-up supply” — as simple and as logical as that phrase might be, I’ve not seen it used before. I really like it.
I can just imagine how the people feel that purchased these condos
at 300,000ish…
Ole Herb looking out the window at the auction: ” Ah Marge….I think we just lost $160,000.”
No problem at all, $1,500/month for 10 years and they’ll be back on top of the world.
All they have to do is put their entire pension (provided it survives) towards the debt for 10 years and work at Wal-Mart in the meantime for food and prescription money and they’ll be fine. They may even be able to get in a little $100/game golf every labor day.
Why would anyone have to slave away at WalMart? Don’t you know that all we have to do is cut taxes and then nobody will have to work? Really… It’s true. Taxcuts are the answer for everything. Unemployed? Have a tax cut. The wife ran off with the Maytag repairman? Have a taxcut! Your daughter hangin’ out at the local crackhouse? You need a taxcut my friend. Hospital and Blue Cross tells you to buzz off when you need a triple bypass? No Problem! Here’s your taxcut!!!
That’s pretty funny.
Or you could raise taxes, hire some illegals for $4 an hour, pretend Social Security isn’t heading for bankruptcy, and suck up to unions as offshore labor kills the country.
Nice counter punch……
Maybe the time has come for a flat tax ????
I thought raising taxes was the answer for everything? “Give us all your money and well take care of everything for you.”
Ken, it apparently is the answer for everything as every taxcut, in reality is a tax increase plus interest, levied against individuals. Make no mistake, YOU owe it and you WILL pay it. You have no choice.
So let the choral keeping harping for more tax cuts for business. “It’s great for the economy”.
Here is something NOBODY has ever thought of……………(drumroll please)
HOW ABOUT WE CUT SPENDING!!!!!!
Cut guvment bureaucratic jobs, streamline guvment, return more functions to the states like the Constitution intended, cut ‘abused’ entitlement programs, and get back to the ‘basics’.
Tell people to quit asking what their country can ‘do’ for them, and ask them to be responsible individuals and take care of themselves.
Pipedream I know…
SoCalMtgGuy
http://www.housingbubblecasualty.com
here here….raising my glass to toast…I dont think we would even feel a 50% cut of worker and budget cuts.
50% reduction in workers? You don’t think you would notice? I call BS on that. Not withstatding the obsurdity of this statement in it’s scope, but what do you think these people would do? US corporations have sold America short and exported it’s manufacturing base but there are all of those high paying fast food jobs and telemarketing for everyone! But, I suppose that you will counter with hell yea let um filp burgers. You get one of these jobs and report back to me how that goes for you. Do you really think that everyone in gvt employment does nothing and gets paid like a prince? Tell you what, not all gvt workers are fluffers for congress men. I would agree that there needs to be some constraint on spending and I would start with cutting out the corporate welfare. If the free market system is so great and efficient than there should not be any need for it. What I see is that the company gets a gvt handout, CEO makes an unjustifiable salary, and as a special bonus the stock investers get to trade their stock for more because the injection of gvt money has put some value into their previously worthless stock. Where in this did the larger majority of the population get any benifit? No new job, it was farmed out to someone in india or mexico. Of course there is the Start a war, and employ the poor fighting it work program that is ever so popular. Sory for the rant, I would usually let this go, but enough is enough.
Thanks. You said it for me.
No need for tax increases. Just cut public pensions on all government levels. Tax cuts would follow.
Way to go, Robert!!! Well said.
I doubt anyone actually purchased any before the auction.
I would think I was F’d if I bought at auction and learned there were still 60 left to sell. Not a good time to buy with this substantial overhang.
Yes there were some sold quite a while before the auction! I was reading it a while back.
“Marge …. I’ve got some good news and some bad news. The good news is that I think our property tax assessments may actually be coming down. The bad news? Ah, heck, you don’t want to hear it …..”
I have an idea what it means but can someone clearify “absolute auction” for me?
An auction with no minimum opening bid - e.g. if the only bid they get is for $1, that’s what the item sells for.
It’s supposed to work that way anyway.
$1, are you nuts! I wouldn’t bid that kind of money for one of those POS condos!
I thought so. Thanks for confirming!
It means it is sold regardless of the price. Highest bidder guaranteed gets it. A reserve auction is when the seller reserves the right to not sell if the selling price is not high enough.
It sells no matter what the price.
The fact that the builder sold so many units tells me that they were low prices .I think the 300k price was for the bigger units ,so I don’t know what the builder would of sold these smaller units at in the open market .I wish I knew what the sq. footage was on the ones that sold at auction .
But anyway , this is a example of what looked like a true auction. Some of these auctions are just people testing the waters for suckers while they put high reserves on the property .I actually think this builder was smart to unload like this . The question is this….. Did a bunch of end-users or first time buyers benefit from this auction ,or was it the speculators and flippers buying up these properties ?
Also, it was a condo conversion — former apartments. Meaning, almost certainly, no garage parking. When the real condos start going at absolute auction, there should be some good deals if you can tolerate the lifestyle.
I know someone who lives there. They are older apartments with garages. Rental for one bedroom is about $800 range. Big palmetto bug problem. With taxes etc even at $80.000 would not be worth it. The real sales are not here yet.
As in big roach.
Oh , so it really wasn’t a good deal . People catching a falling knife I guess .
Say what — does every unit have a garage space? If yes, and assuming the garages aren’t brand new, that’s pretty unusual for apartments here, or at least in my half of the state.
Yes every unit has one
Yes every unit has one
I’d pay $5-10K extra for a garage space, any day. Best deal, though, is to rent an extra one from someone else in the complex. Did that once for $60/month.
I’ve been to more auctions than I care to remember and it’s quite easy to stand in the back and shill it up, even in an “absolute” auction. Totally illegal, but it happens all the time. Here’s how it works:
Say a condo/s “worth” $400k goes up for bids, the auctioneer starts the bidding low, say $50k, and a couple of shills bid back and forth and the folks that are in attendance get caught up in auction fever and the thing about an auction is that, by definition, there is only one “winner”, the underbidders all being “losers” and the shills go back and forth, until they get to whatever “magic” number the developers really had to get out of each condo.
Very few of the auctions we will be seeing over the course of the next few years will be the real deal.
Good points .
Posted in the bits bucket:
‘Construction on Pineapple Square, the $200 million collection of condos, shops and parking envisioned to transform downtown by injecting residents and retailers, is slated to begin in March, its developer said Monday. The schedule for a planned 13-story tower gelled Monday after Sarasota city commissioners voted 4-1 in favor of the mixed-use project.’
‘Simon expects Pineapple Square residents will be able to move into their units — priced from $480,000 to $1.15 million — in the fall of 2009. Residential condo association fees for the residences will ‘be competitive with others downtown’ at around $1,000 a month, Simon said.’
don’t forget: taxes 1k to 2k per month - oh, you need insurance - that will be more.
Perhaps this is different in FL, but around here, the condo association fees include the building insurance (windows, roof, walls, etc). The only thing left for the resident to purchase is essentially renter’s insurance for furniture, electronics, etc. That only runs ~$20/month.
Maybe insurance is the reason why the condo fees is so high.
No - the condo owner has to insure everything inside the condo - appliances, interior walls, flooring…
Relative to the purchase price, those condo fees are about double what you’d find on the east coast of the state.
It’s very late in the day, but I should add something I know and forgot about earlier. Condos in Florida have, or at least had when I owned one, two options related to how they hedge future repairs costs. They may either fully fund the estimated (how done, I don’t know) cost of repairs and upkeep, or they can defer most or all of that with the understanding that there will be an assessment should such be necessary. It takes a large vote of the members to make the deferral happen, but that is or was common because all the owners were eagle-eying the cash flow.
If this Tampa condo assumes the full-funding scenario, or if such is required, then the monthly condo fees would be much higher than the “normal” ones I described.
A skilled and sophisticated investor doesn’t expect rent to cover expense.
Bzzzt, wrong answer. Thanks for playing; we have some lovely parting gifts.
A skilled investor is not who bought these overprice condo’s
what does the investor expect to lose money? that is not an investor that is a moron
Incredible! I’ll have everyone know that “skilled and sophisticated” investors damned well DO expect to cover the expenses. Every serious landlord that I know does that.
I do know a couple of inadvertent landlords, though, who don’t expect to cover expenses, though they do wish they could; these are the people trying to sell their place, fail, and then rent it out for whatever they can get. Call them UNskilled and UNsophisticated. Add on unwise and unlucky as well.
By that logic, only the novice investor would make sure their rent covered the mortgage payment. And this is an expert?
More abject stupidity from real estate “experts”.
EXPERT;…..
somebody with a great deal of knowledge about, or skill, training, or experience in, a particular field or activity
You mean like expert Casey ???
Casey won’t make his mortgage payment, but he somehow he has the funds to fly 1000 miles or so to attend the latest get rich quick RE flipping seminar. When he finally goes to bankruptcy, his lenders should have a field day using his blog against him.
EXPERT…
“Some sonofabitch from out of town.” As my late father-in-law used to describe them. In other words someone who would be gone before the truth comes out.
Well. Its probably huge cash back to buyer at closing who is using the stolen IDs from people at UCLA. I mean they only lost 800,000 peoples SSNs, birth dates and other intimate details. Probably going to be a crash on the identity theft trade market from over supply.
“Probably going to be a crash on the identity theft trade market from over supply.”
Funny.
The last paragraph of the Herald Tribune article:
“The auction was held under a tent in a parking lot at the Grand Hyatt Hotel in Tampa, and generated a good crowd, Carter said. Auctioneers had more than four bidders for every unit they sold. The 171 registered bidders came from 15 different states.”
I think the sooner developers get their inventory to auction the better (for them). Prices will decline further when there are frequent auctions of numerous properties. Simple supply and demand.
A Little OT:
I thought this might be of interest to some of you. This definitely applies to Florida and most coastal regions.
“A Dream Blown Away - Climate Change Already Has a Chilling Effect on Where Americans Can Build Their Homes”
“So far, climate change has shaken the market most notably in high-value coastal areas. But if weather losses get worse, upheaval will become more common.”
“Bill Hogan, with Twiddy & Co. Realtors in Florida’s Outer Banks, says he’s now seeing ”$100,000 lots plummeting in value. I don’t know what they’re worth. Nothing is selling. Buyers are afraid to buy. All kinds of rumors are flying around — insurance companies are pulling out. The net effect is you bought property and it was in a good zone, and all of a sudden you sit there and it’s deemed to be bad. Right now people are scrambling. Getting letters from banks — ‘We have no record of your flood insurance.’ Just the kiss of death for the owner of the lot.””
Looks like the insurance companies and their insurers may do what the politicians, builders and government have not been willing to do. Make development near the coast out of reach financially for most.
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/01/AR2006120101759_pf.html
More power to them. Hurricane Ivan (2004) turned out to be a giant rush to build shiny new lugsury beachfront resort condos higher than ever. Makes me sick.
I think after the next two or three hurricanes in Florida we will find out just how many people have no insurance coverage or limited insurance coverage. IT WILL BE A MAJOR ECONOMIC DISASTER FOR STATES LIKE FLORIDA on top of all the housing and tourist problems.
I wouldn’t chaulk this up to climate change, just people wising up that something that periodically floods/erodes on a regular basis may not be the safest place to store a $1,000,000 box.
With the most recent report that the North Pole is expected to be ice-free by 2040 (yes, 2040!), many coastal properties that exist now should be under water in the not too distant future. So buy a cheaper property further inland and you might find that it is waterfront in the not too distant future.
I think you overstate the “north pole to be ice free by 2040″ ….. I believe what you’re referring to is the prediction that the northwest passage between Canada and the arctic may be substantially ice-free during the summer months in several decades’ time. It’s still climactically significant, but it’s not the “north pole to be ice free”
Also - the melting of sea ice is not as significant to rising waters as land-based melting in Greenland and Antartica (because the sea ice is largely underwater already, so it’s melting does not displace/raise oceans as much).
It’s still a big deal, of course.
Yep. Remember kids, water is denser than ice.
“Also - the melting of sea ice is not as significant to rising waters as land-based melting in Greenland and Antartica (because the sea ice is largely underwater already, so it’s melting does not displace/raise oceans as much).”
When ice that is floating melts it has NO effect on sea levels. The weight of water displaced is exactly equal to the weight of the ice.
http://www.timesonline.co.uk/article/0,,3-2499663,00.html
That’s the article I’m referring to. And this not only affects sea level, but also temperature. That ice, which some seem to think we can do without, acts as an air conditioner for the planet.
If no one wants to live on the newly overheated Florida coast, won’t they be able to move to the newly temperate Canada coast? Or is ‘global warming’ really ‘global worsening’, which will make everywhere less comfortable?
Now I’m confused. I thought that the crisis de jour was that Europe would freeze over.
Yes, well I wonder if the scientists have a prediction for hell freezing over which is exactly when most of these condos and spec homes will sell.
Applause!!! ~~~~~~~~~~
Nope, ice free. New report, out this week. Google it.
Articles like this are amusing, and illustrate the arrogance of humanity.
We’re on a rock hurtling through space at thousands of miles per hour, not in a laboratory. Climate change has been an ongoing phenomenon for millions of years, and will continue for millions of years.
A basic geology course is in order for most “journalists” and citizens.
But Al Gore told me that we can reverse global warming by simply driving a Toyota Prius!
Then again, he also claims to have invented the internet…
I read once that if the sea level rose 2 feet, the coast of Texas would pull back 150 miles.
Bearpigman…
I find it amusing that we cannot even predict the weather with any reliability for 2 weeks and we program a computer that spews “global warming for the next 100 years” and accept the computer program as fact. Why do we as a society accept any computer generated result as fact? just my quiet observation.
If you set your house on fire, it’s hard to predict if the living room or dining room will go up first. But it’s easy to predict that both will burn. Predicting big things is easier than predicting small things.
yeap, true…. not even counter-intuitive
“We’re on a rock hurtling through space at thousands of miles per hour, not in a laboratory. Climate change has been an ongoing phenomenon for millions of years, and will continue for millions of years.
A basic geology course is in order for most “journalists” and citizens.”
As is a logic course and a statistical modeling course. It is one thing to critically analyze the modelling work done by climatologists (this is a good thing). It is another to dismiss them with a straw man argument that suggests a total lack of understanding of the arguments.
Climate change has been an ongoing phenomenon for millions of years
Yes, but the current rate of change is unprecedented. Get yourself schooled before deriding the knowledge of others.
Despite what some self-styled contrarian geniuses might like to imagine, global warming is not a liberal conspiracy. Oh yah, and we actually did land men on the moon, and JFK is really dead. Elvis too.
It’s not simply an anti-American conspiracy, which is why there has been exactly as much outcry over the US auto fleet as over Chinese coal mine fires, which produce CO2 at the same rate.
“The map of their part of Carova Beach has been redrawn as a high-risk flood area by the Federal Emergency Management Agency.”
I wouldn’t call FEMA an insurance company, but the fact remains that insurance companies are pulling out because they lost big time $$$ in the last few years.
Personally, I think the southwestern US states such as AZ, NM, and TX will all benefit from the cost of living in FL, SC, etc. I have to find some hope somewhere for my area in AZ.
Where are they going to get the water for all those flocking into AZ? Phoenix developers are already snatching up water rights in northern AZ.
Don’t you get flash floods in Arizona ? But your right , I once read that Arizona has the least amount of natural disasters than any other state . But maybe the issue for Arizona is supplying water to support the growth .
We had the same thought bubblegum . The water issue really is scary in Arizona to me .
I remember 35 years ago I took a investment class and the first thing they stressed about investment was ,”Make sure you have ample water for the future .”
Lots of votes in Florida folks….Likely will determine along with Ohio which side of the table wins in 08….My bet is you will see a lot of a$$ kissing and reaching out to help all the poor folks in Florida with some goverment backed insurance subsidy….Unlike Katrina….
Really???! Not so sure…. so many, so so many other issues, economic problems… you might be right though
“There’s more: Nearly half of this often-bullish group expects not just condos but also single-family home prices to drop. The number in the bearish camp has doubled in just two months.”
They were optimistic 60 days ago?!? Imagine in another 60 days.
All of Florida is toast. Its simply priced itself out of its niche in the global economy.
Add my voice to the chorus, so what is the price of the remaining 60 units… This is going to get so ugly so fast in 2007… forget the bounce, as this will tighten mortgage lending to a degree you couldn’t imagine.
Neil
“All of Florida is toast. Its simply priced itself out of its niche in the global economy.”
Without a doubt, one of the best, maybe THE best, assessment of how Florida did itself in. Tourism here has gone completely into the crapper and not even the falling dollar will bring back tourists from abroad. There was a story on the local Tampa Bay news on how a group of small motel owners are suing the Pinellas County Tax Assessors Office over their property values. Suing, that’s what it has come to. Meanwhile, the new Florida Speaker of the House, Rubio, is shelling out hundreds of thousands of dollars for building renovations in Tallahassee and expanding his staff, paying salaries of $100,000.00 as a matter of course. Nice!
Come on, you obviously have no faith in the spring selling, I mean buying season.
“Add my voice to the chorus, so what is the price of the remaining 60 units… ”
That’s what I’m wondering. The owners apparently expect either to sell the units directly for noticeably more than the auction price per foot, or they have deep pockets and a way-too-optimistic view of when the market might turn around. When real-condo prices start matching the asking prices for conversions, these guys are done.
I guess they sold enough to get out of their cash flow problem and now they wait for the spring bounce of 2007 to inflate the prices on the remaining units .Having 40 units sold is better than zero when you try to market a project .
“A skilled and sophisticated investor doesn’t expect rent to cover expense. The novice is the problem. They need to ask more questions when they buy.”
Hahahahahaha!
Of course not! A skilled investor expects to take a bath everytime he/she invests money. That’s how you get rich. By losing lots of money. Get it?
Just like real stock investors don’t invest in companies that actually turn a profit.
Hahahaha!
‘The old 1 percent rule doesn’t work any more. One half of a percent is more like what we’re seeing now.’”
This makes sense, since the old rule was when interest rates were 12% instead of 6%.
Historically, it has not been uncommon to purchase rental property that had a small/manageable negative cash flow. In time….. rents rise, and the property value increases. It’s a loooooong term investment. But that was back in the good ol’ normal days. Buying now after this idiotic run-up in prices….. these people won’t see black ink for two decades.
‘Historically, it has not been uncommon to purchase rental property that had a small/manageable negative cash flow.’
The only RE people I personally have ever heard say this were Californians.
And that is the only real ‘eSTATE’ I know. It’s no wonder we’re running around the country thinking everything is such an investment steal. May take many years before the CA investment crowd realizes that not only was it a bad decision in CA due to the bubble price, but it wouldn’t have been a wise investment in other states without the bubble.
This is something I look forward to every year at this time. Doug Kass’ predictions for next year. (Seabreeze Partners) This is on Realmoney and I’ve excerpted the parts relating to the housing market.
3. Based on misleading government statistics, the housing market appears to stabilize in the first quarter of 2007. For a few months, those forecasting a bottom in residential real estate appear vindicated. Evidence of cracks in subprime credits are ignored, with housing-related equities soaring to new 52-week highs by March 1.
4. However, continued heavy cancellations of home contracts — which are included in the government releases on homes sold and lead to an erroneous inventory of unsold units for sale — lead to:
A dumping of homes on the market in the spring
A quantum increase in the months of unsold housing inventory
A dramatic drop in the average home selling price.
Sales of existing and new homes take another sharp leg lower as we enter what I’ve dubbed “The Great Housing Depression of 2007.”
Importantly, the financial intermediaries that source mortgage financing/origination begin to feel the financial brunt of “The Great Mortgage Bubble of 2000-06″ after years of creative but nonsensical, low or nondocumented lending behavior.
5. Foreclosures steadily rise over the course of the year to nearly 3 million homes in 2007 vs. about 1.2 million in 2006. Deep cracks in the subprime market spread to other credits in the asset-backed securities market as a lumpy and uneven period of domestic economic growth takes its toll. In a similarly abrupt and dramatic manner, credit spreads fly open and revert back to mean valuations, as previously nonchalant investors are awakened to the reality of credit risk.
6. The magnitude of the credit problems in mortgages takes its toll on the hedge fund industry, which is much more exposed to real estate than generally recognized. A handful of multibillion-dollar, derivative-playing hedge funds bite the dust in the aftermath of the housing debacle. Several California-based industrial banks fail (the West Coast is always at the leading edge of financial creativity and leverage!), and a large brokerage firm, heavily involved in fixed-income market-making and trading, faces material losses, and its debt ratings are downgraded. As the financial contagion spreads, rumors of a $10 billion-plus derivative loss at JPMorgan Chase (JPM - commentary - Cramer’s Take - Rating) (which ultimately prove to be false) spark the largest one-day percentage drop in its shares in the past 15 years.
7. In a panic, Congress announces a series of hearings on the derivative industry, and the Federal Reserve reduces the fed funds rate by 50 basis points in each of three consecutive meetings. Those efforts are too late to affect the already weakening economy as the long tail of housing begins to affect not only consumer confidence and spending but also other peripheral areas of the economy.
Eminently logical, plausible and probable.
Last year was the ’silent spring’; in ‘07 we’ll see the spring slaughtering of the lambs.
GREAT post Txchick! I think all the housing cheerleaders led by Lierah are doing we renters a favor. If the bottom is “in” every month it will keep the gubment out of it for a longer period of time. By the time they get involved, it may be more of a question of the $US & JPM than those that took out an interest only loan.
Which does what to the exchange rate, exactly? Yep, torpedoes it.
And that does what to the rate for Treasuries? Right, they go up.
So Prime goes down, Treasuries go up, and Mortgage rates, connected to Treasuries, go up too.
Which does what to the economy?
Oh dear. We’re screwed.
Palmetto,
Any hard numbers on the tourism decline so far this season? My only anecdote is the large number of vacation rentals by owner (www.vrbo.com) that still have the majority of their weeks or months available. This time last year the majority of listings had only a few vacant intervals, if any, on their calendars.
I’m still seeing a lot of plenty of award tickets available over Xmas. This is on United from ORD.
Maybe I should copy-edit what I write more often. I’m still seeing plenty of award tickets available over Xmas. This is on United from ORD, heading south.
From the rental article:
‘Q: Your position is rental division manager for Wagner Realty in Bradenton. Can you tell me how the job has changed over the last few years? A: In recent years, fewer visitors are staying more than 60 days in season. Rentals with 90-day minimum are not always filled.’
Bill — I have a guess at that:
1. Domestic tourism is or will be declining simply because it follows folks’ perception of the economy. Driving east-west across the state this weekend, we saw very few out-of-state tags relative to normal times.
2. International tourism likely is way down, except for diehard bargain hunters. The government has made airline travel such a godawful unpleasant experience that it’s only logical foreign tourists vote for easier places to visit. Would you want to come here, not even being sure that you can bring your [fill in whatever is essential or valuable to you] on board?
Bill, my information is largely anecdotal and local, based on a pair of local news reports over the past couple of weeks. I suppose I shouldn’t be making statements out of school without a link to stats to back it up, but right now, I don’t expect Florida will be publicizing those stats. Here in South Shore Tampa Bay, the word on the street is that vacation rentals are going begging and that seems to track with the ads in the little local weekly. Some of the local folks are freaking out, especially those who own property in Sun City Center that they usually rent out December through March to retired folks who come from up North. Also I’m seeing this in the small part of my business that benefits from snowbird activity. Fortunately I don’t have to depend on it, but it is still disturbing.
Palmetto — that’s pretty interesting, re your snowbird observation. Given that they virtually all are retired, I’d have thought they were the most bulletproof of the seasonal travelers.
FWIW, traffic on I-4 between Orlando and Bradenton was pretty light for December. Not sure how much of that is because there is no construction going on and three lanes or more are open all the way, for the first time ever.
Chip, any anecdotes on how the Mouse (Disney) is doing?
Palmetto — I’m ashamed to say I don’t have a useful notion of Disney business right now. To me, it’s like a neighbor with an ugly yard. After a while you just block it out of your mind. All Disney means to me is timing my drive on I-4 to avoid the morning and afternoon crush. Maybe some other Orlando posters can chime in.
Hmmm… no info on Disney. I do however monitor the University pretty closely and they are by no means slowing down the growth. They have a minature city being constructed on the campus currently, complete with 7-8 story condo towers. The stadium and medical schools are a go and there is no end to the spending or enrollment growth in sight.
O’Renter — I agree that all the UCF and Burnham stuff will re-shape SE Orlando almost as much as Disney and friends reshaped SW Orange and NW Osceola counties. It will take awhile, and it will forever screw up traffic to the beach, since the only real artery is 528 and it already is getting crowded. If I were investing in the Orlando area, anything near UCF/Lake Nona would be it. There is a poster here who lives in Lake Nona — if he can hold out for the long haul, he’ll do OK. I like to shoot at the Moss Park gun range. That will be toast, for sure.
My favorite restaurant in Florida, relative to the price, quality and variety of seafood it sells, is in Bradenton. Ate there yesterday and the day before, lunch and dinner, respectively. For the first time in the many years I have eaten there, in all seasons, the place was not crowded at either sitting. The food was just as good as usual and my wife said the prices were the same. Felt like people sense the economy is headed down, though I’m biased to assume that. Just seemed odd.
What restaurant is that, if I may ask?
Knockwurst — it’s Anna Maria Oyster Bar on Cortez, just west of Wal-Mart and the water tower.
Palmetto — we used to eat at Leverock’s and it was pretty good, but I believe they closed down a while back. Their key advantage was the view.
At any rate, Anna Maria is much, much less expensive and wow, do they cook fish perfectly. Try the unlimited fish and chips sometime. I usually go for blackened grouper or blackened rare yellowtail, but every single thing they serve is excellent.
My second choice is Barnacle Bill’s, just south of the Sarasota airport on 41; food is very good, but it too is a lot more expensive than Anna Marie.
I’d think that business at the Ellenton Outlet Mall would be an excellent indicator of the state of the local economy.
Chip, would that be Leverock’s? Anyway, I can confirm that there is a sense of the economy headed down. I do business in Ellenton, right by Bradenton, and there is a very weird feeling in the air, retail-wise. Sort of a sense of resignation.
This is great stuff from Florida folks…Thanks….
scdave, I find that I sometimes prefer local anecdotes to “official” statistics. Because of the spin happy climate of the times, the fraudulent statements put out by various industry groups and even government, I have a healthy suspicion of “official” statistics these days. It is better to rely on what you can actually see and hear, even if it is only local. If local folks can’t rent their property, that’s enough for me to know that snowbird and tourist activity is down.
I agree….
The Leverrocks closed due to Chapter 11 filings - FYI
Also - the Hidden Hills bankruptcy auction of the equestrian center near Parrish in Manatee County resulted in a big zero of acceptable bids
I don’t know, it felt the same way back in July/August but seemed to pick up Sept/Oct. My favorite hangout in north St. Pete has been going gangbusters. The WalMart in Pinellas Park is busy as ever and the local malls don’t really seem to be hurting. I’ve also talked to a lot of recruiters who say the market is better than in 1999/2000 for tech people. My boss is even having a hard time finding good help for a couple open positions we have.
I do suspect the macro economy is heading downhill but find it had to draw a conclusion based on my micro observations.
Moman,
I wonder if you aren’t seeing the decline in diners, shoppers… like we are in Bradenton, because you are in an older established area. We are in the bubble’s ground zero. Much speculation, brand new empty homes….. Every other person either sold real estate or invested in it! Many Northerners sold their homes and moved here to live off the money they made. They bought into the “real estate only goes up” rhetoric…. even the most die hard bubble denier is now embracing for tough times!
My friends in St. Pete have lived there for years, don’t plan on moving and are living as they did last year, the year before, and the year before…… As far as your boss having difficulty hiring, have him advertise here. Problem is most can’t relocate because they can’t sell their house!
We tend to eat at the Bonefish Grill in Bradenton on University Pkwy about once a month or so and last year you had at least a 90 minute wait on Fri & Sat nights. Since early this past summer, there was barely a wait at all on Fri & Sat nights, maybe 20 minutes. The first few times I thought it was a fluke but it really does feel as if things are slowing up in this area. A couple weeks ago we showed up at 7:30 on a Sat. night and were seated immediately. The FB’s and Realtors can no longer afford to eat….
“The first few times I thought it was a fluke but it really does feel as if things are slowing up in this area.”
I thought you were going to say, “The first few times I thought it was a fluke but it really was catfish.”
I would like to add to this thread. While I am “Chris in the Pacific Northwest”, I used to live in Palm Beach County & my best friend still lives there. We talk at least every week & email daily. He sez that he can going into any resturant on any day at any time without a reservation. It has never been like that before. For the first time he is enjoying the “season”. I might add that he is single and eats out often.
UAL has plenty of seats out of ORD to Florida this month. I am retired from them & checked the inventory. I expect they will sell them out, but only at reduced prices……….just like the housing inventory. :>)
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