‘Prices Swoon’ On ‘Retreat Of Speculators’ In SW Florida
The Herald Tribune reports on the housing bubble in that part of Florida. “The Sarasota-Bradenton market had the dubious distinction of being the Florida market with the biggest decline in sales during January: a precipitous 48 percent drop when compared with the same month a year ago, more than double the state’s 19 percent decline.”
“It might be Southwest Florida’s affluence that is causing the slowdown. ‘I can tell you the buyers are here,’ said Scott Sosso. ‘The problem is with the sellers who don’t have their homes priced correctly.’ Sosso’s theory is that because so many sellers, especially in the upper end of the market, are reasonably well off, they can, and do, wait for their version of the ‘right offer.’”
“That would also explain the almost magical ability of prices to remain at record levels despite soaring inventory levels. Sarasota, for example, had roughly 1,626 listings in early July, a number that has climbed to more than 6,000 now. Deals at the newer ‘reasonable’ prices are simply not being done, Sosso said.”
“Sarasota-Bradenton saw sales of existing condominiums drop 41 percent. In Charlotte County-North Port, the condo action was far more anemic, dropping a whopping 92 percent as prices swooned 18 percent to $165,000.”
“Even Realtors who have been expecting things to improve in the region’s high season have to be thinking that it’s going to be tougher until the market sorts out its pricing and supply issues. The absorption rate of homes, or ‘weeks on hand,’ in the Sarasota County market has increased from 10.4 weeks in July to 73.3 weeks this month.”
“Like homes, condominium listings have increased considerably in the last eight months or so, rising from 1,154 in July to 3,232 now. The absorption rate for that segment of the market has gone from 14.3 weeks for condos to 62.8 weeks.”
“‘Based on the retreat of investors and or speculators and some temporary hesitancy on the part of second and third homebuyers in many of Florida’s coastal markets, you would expect to see a measurable drop in sales year over year,’ Budge Huskey, Coldwell Banker’s Sarasota-based Florida president wrote. ‘You can’t keep Florida down for long.’”
“But don’t tell that to Mark and Stacey Eve. In January, the couple felt they were ready to sell their home on Novus Street near downtown Sarasota. Unfortunately, four other homeowners on their block decided to do that, too.”
“Priced at $249,000, the Eves’ home is move-in ready and one of the lowest-priced on the street. They are perfectly willing to cooperate with real estate brokers who bring them customers. But after four weeks of fliers and advertisements, only two potential buyers have come inside to take a look.”
“The couple are having a larger home built for them in North Port that is scheduled to be ready by April. ‘My husband keeps telling me we should have moved last summer,’ said Stacey Eve, who convinced her hubby not to list it then so that they would only have to move once. ‘We are concerned about the market. We don’t want to float two mortgage payments.’”
“As in Sarasota-Bradenton, listings of single-family homes in Port Charlotte and Punta Gorda are stacking up, more than doubling from a year ago to 2,658. The trend prompted Karen Norberg, a longtime real estate broker, to predict a sharp adjustment in prices. ‘I would say the market is going to adjust itself somewhere between 10 percent to 15 percent below last year’s market. On a $500,000 house, you are talking somewhere between $50,000 and $60,000 reduced. It has to come down that amount to even be in the running to be sold.’”
SW fl SFHs hasn’t gone down since the depression = WOW
Well, don’t worry — it seems like the Florida Land Boom of the 20’s went to bust around 1926, so we probably have about three good years left to get our financial houses shored up (the Great Depression started in 1929)…
The absorption rate of homes, or ‘weeks on hand,’ in the Sarasota County market has increased from 10.4 weeks in July to 73.3 weeks this month.”
This is HUGE. To absorb all the homes it would take nearly a year and a half! This thing is unraveling faster than my most dire predictions.
In Charlotte County-North Port, the condo action was far more anemic, dropping a whopping 92 percent as prices swooned 18 percent to $165,000.”
With sales down 92%, there is no virtually no market right now.
The Mother of All Corrections is well underway.
Think stock market crash with no electronic circuit breakers or plunge protection to halt the free fall before it splatters on the hard ground below…
“We are concerned about the market. We don’t want to float two mortgage payments.”
I personally know many people in this position right now, and their complacency scares the bejeezus out of me…
Lesson is don’t buy a new house in this environment until you have sold your present one !! (that is unless you rent
Sosso’s theory is that because so many sellers, especially in the upper end of the market, are reasonably well off, they can, and do, wait for their version of the ‘right offer.
These are the people who will ruin that theory, because they have to sell after a few months of double mortgage payments.
Ben,
I haven’t seen much of the “no national bubble” because real estate is local quotes recently. With inventory going through the roof in so many locales throughout the nation, it’s hard to deny that something is afoot - even if prices aren’t declining in some areas. We all figured that it would take much longer to reach the level we’re at today. The speed of the market slowdown, along with the staggering inventory levels has got me concerned, and I don’t own any real estate. My worry is the ripple effect throughout the economy since I’m looking for work.
OT: I dropped off my rent check yesterday afternoon with my property management company - put it in the drop box. Usually, it takes a couple of days to clear the bank and show up in my MS Money online account. I checked today and they must have grabbed the check and ran it over to the bank (my bank) and cashed it. Not very scientific, and maybe I’ve got the tin-foil hat on, but they own a lot of empty RE in downtown Dallas and may be having a bit of a cashflow issue.
Tell that to the yahoos at D Magazine. Of course we know that issue was done at the behest of the local realtors, Ross Perot Jr., et al who have inventory to unload on the “Texas is a bargain” crowd coming from Clownifornia and Vegas. I wrote them a pretty snappy letter which probably has no chance of appearing in next month’s issue.
How widespread is the speculation down there in texas?
Let’s just say I’ve got some pictures for Ben’s photo blog, of stuff you couldn’t give away to locals.
The guy who propagated that myth (no national bubble…) retired on Jan 31.
okay, using “weeks” as the measurement increment for DOM has got to stop when we’re talking months and years.
the gleeful here are missing the point-ALL, but gov workers will lose in the downturn- no one here wants to discuss that
I think a lot of people here have positioned themselves for the downturn.
Note that even govmnt workers will get creamed:
1) local budgets have grown to meet the expected income from property taxes (more people hired, more benefits promised, more pay raises, better retirement, etc.)
2) people can’t pay their taxes or just walk way. Or pay their increased utilities instead of their taxes and risk being kicked out of their home by the city.
3) city will have to sell their foreclosed homes (these expenses were unbudgeted because of the previous boom years)
4) people spend less on consumption because they are house poor which means less sales tax revenues
5) income tax is down because too many mortgage brokers are laid off and all those RE agents are making little money.
6) property appraisals start to come down!
All the above means deep, deep problems for so called “secure” govmnt jobs…
I agree that the “be careful what you wish for,” scenario is at play here. Most of us believe, however that there is nothing that can be done at this point. Housing prices skyrocketed the last four or five years based on easy money, lax lending standard, toxic IO Option ARM loans, etc. I look at this as pure stupidity to willful negligence to outright fraud being perpetrated by everyone involved, from buyers, sellers, realtors, appraisers, lending institutions, etc. When you have that much garbage happening, the outcome can’t be massaged by the Fed into a soft landing. It may happen fairly quickly (months) or it may take years to materialize, but eventually this house of cards will come crashing down.
Yes it could get real ugly out there. I’m not sure really what to think of how bad this could get. I’m not hopeing for a major crash and everybody homeless. I just think we need to get back to reality here. I just want to feel there is value in something I’m signing my life away on. I just want to see a correction and get some of the excess out of this market. It would be a very healthy thing. As it is now, the longer we continue with an unstable market the more it will hurt in long run.
Don’t worry about the “everyone homeless” issue — there will be more than one home per household once the speculators have left the playing field. Lots of debt slaves and long-term renters, yes…
It’s simple really. The alternative to a crash: status quo or continued housing inflation, is a much less desirable outcome for all the reasons we’ve discussed here. It’s time for medicine. Yes, some innocent bystanders will get hurt and so it goes. Blame the people who created the problem. I’m ready, let’s get it over with.
I don’t know if I’m ready for the medicine - but, ready or not here it comes.
Does anyone know if they make a low sodium Ramen noodle soup? I’d sure hate for my blood pressure to go through the roof just because I have to eat.
Maybe it will help some to put it into historic perspective:
History will show that this crash is merely a small item on a very long list of human suffering brought on by greed and stupidity.
Hmmmm… maybe this won’t help you feel better after all.
Anyone who posts and reads here who has not prepared themselves for seven bad years has read in vain…
Flat,
And you seem to keep missing the point that government workers will be hit hardest.
50-60K on a 500k house my ass. Try 150K and we’ll talk. I wouldn’t buy anything higher than 2002 prices myself. You don’t like that, Mr. Affluent, find another mullet, if you can.
And of course, there’s fodder in there for the “dumb woman” crowd. In this case, I agree, the husband was right. Having to move twice is nothing compared with trying to dump into this market.
I agree with you. Go back to 2002 levels and maybe add it a little for historic appreciation rates. I’m amazed at young people buying 500k houses these days.
I’m amazed at an entire generation that was led to slaughter. Between credit card companies and lending institutions, they’ve given away money like it’s Crack Cocaine and now, they’re on the cusp of asking all these folks to start paying - for the rest of their lives.
What do you think the chances are of repealing this new bankruptcy law under some sort of court or political challenge. I think it’s a distinct possibility. It will be the ruination of the Republican party for years to come (and btw, for you Hillary fans, I believe she voted for it. Not sure what that says about her legal analysis ability)
If the people who take on these loans never have to pay them back then rates go up for everybody else. You may not have a problem with that but I think a lot of people do.
Not my preference but a political reality. The law may also be unconstitutional, maybe the courts will sort that out.
How would it be unconstitutional?
Violation of the 13th Amendment to the Constitution against slavery and involuntary servitude.
Involuntary servitude and indenture were abolished. It could be argued (but in my mind is pretty much a stretch) that to require persons to continue to work (a job or even a particular job) in order to pay a debt, amounts to indenture. Again, not particularly convincing, but IF there were a huge economic contraction and the legislature didn’t have the will to repeal, courts have done stranger things.
That’s pretty creative, even for a lawyer!
But the “involuntary” part? I ain’t buyin’.
But if there are enough crack addicts, won’t the govt have to make the rest of us pay for their habits?
This also shows how there’s going to be non-financial fallout from the crash–social disruptions, family breakups, etc., etc. It’s quite possible that the husband will end up blaming her for their having two mortgages…so they get divorced, and now there are two houses unsold on the market. Of course, if there are kids involved the collateral damage is even worse. And there will be those who turn to John Barleycorn for solace…
Yeah, it’s a lot more than just real estate involved.
I agree so much with this,,, families seem to run better when money is not an issue,,, throw financial issues in a relationship and the family is more likely to be divided..
–AL
of topic … 10 year breaking down today ..yields approaching 52 week highs … mortgage rates will follow ..
10 yr yeild 4.640 + 51 ticks
Oh damn — nothing like concurrently rising stock prices, bond yields, and stock prices… Something’s gotta give, and I think it starts with an “s” (look at what the bond market crash in Spring of 1987 led up to by the fall if you want historical evidence on this).
Typo: stock prices, bond yields, and gold prices…
(Is there a way to pre-edit posts that I am not aware of?)
Yea ,,, whats with gold,,, it quitly creep up over this week with not much mention on CNBC?
–AL
This might be of interest to those who want to try to profit from the downturn other than by the obvious ways (shorting lenders and homebuilders which can be quite painful - TOL, for instance is more of a technical buy than a sell right now)
A Stealthy Way to Play the Housing Slowdown
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Also by this Professor
A Stealthy Way to Play the Housing Slowdown
Mar 02, 2006 10:30 am
Past, Present and Future of Bond Markets
Feb 21, 2006 11:00 am
What the Rest of the Year May Bring Us
Feb 10, 2006 10:06 am
Good Morning, Chairman Bernanke
Feb 01, 2006 10:30 am
Bennet Sedacca
Mar 02, 2006 10:30 am
…there is more than one way to skin a cat in this business.
The land of fixed income, as we have expressed here before, is opaque, as opposed to the ‘transparent land of equities.’ Bonds, for the most part, trade in an ‘over-the-counter’ market, much like stocks did in years gone by in the Pink Sheets (now I am really dating myself). Outside of the derivatives market, one of the most complicated parts of the bond market is the land of mortgage backed securities.
Where am I going with this? It is now evident (despite Mr. Hovnanian’s proclamation last night) that the housing market IS slowing. It is slowing in resales, inventories are building - as a result of the combination of rising rates, rising prices and the basic lack of affordability that goes with it. As the whole process slows, so does the rate at which mortgages are both refinanced and mortgage applications for new homes.
The result is a slowdown in the prepayment speeds of outstanding mortgages, and hence, mortgage backed securities (MBS). As we have noted repeatedly, we are cautious on housing. As a result, we have been accumulating high coupon, ’seasoned’ MBS as it allows us to keep our higher coupons longer, hence, increasing yields. It also helps cushion our client’s portfolios against general rises in open market rates.
One thing to be careful of, is to stay away from low coupon mortgage backed securities in this scenario. If one were to own, say a 5%, 30 year GNMA pool that suddenly slowed down, its average life, or duration, would extend at the worst possible time. Rates are rising and the security is going out on the curve. This exacerbates the loss and is a sure-fire way to magnify your loss. If, on the other hand, you bought an old, seasoned 8% coupon MBS with a short to intermediate final maturity, you simply extend the high coupon, increasing the yield of your portfolio. The 5% MBS can be defined as a ‘convex’ bond while the 8% MBS is known as ‘negatively convex.’
The main point here is that there is more than one way to skin a cat in this business. In this case, you don’t have to short housing stocks to make a bet on a slowdown in housing. This is a lower-risk (albeit less sexy) way to play the slowing in housing. One last point. If the bond market were to take a tumble, that would be the time to sell the 8’s and buy the 5’s, or ‘adding convexity’ to your portfolio. We have this trade on and expect to leave it on until both the level of rates and the shape of the curve changes. Not meant to be advice, but something worth considering if you thought housing were going to slow-like we do.
Positions in various MBS
I guess it all depends on your investing time horizon, but I don’t see how any short term technical considerations can save TOL from long term fundamental realities…
Are there any public companies whose stock I can buy that will be a big part of the upcoming foreclosures? Aside from shorting homebuilders, what other stocks can you play with? Is there any way to short a house sale?
txchic, how about shorting mortgage insurers? did you ever looks into these?
Why did he say ‘negatively convex’ when he could have just said concave?
“That would also explain the almost magical ability of prices to remain at record levels despite soaring inventory levels. Sarasota, for example, had roughly 1,626 listings in early July, a number that has climbed to more than 6,000 now. Deals at the newer ‘reasonable’ prices are simply not being done, Sosso said.”
The waiting game is on for sellers, as the buyers have no reason to hurry and buy any more when headlines are warning of impending price declines. Eventually those who have to sell will lower their prices, and then the headlines will prove correct…
Florida HPI data
Updated yesterday.
Can’t wait to see this graph in updated version six months down the road…
P.S. Thanks for listening to my suggestion on the QOQ! That provides a much more coherent picture…
How come your deviations from average are always > 0?
“Sosso’s theory is that because so many sellers, especially in the upper end of the market, are reasonably well off, they can, and do, wait for their version of the ‘right offer.’”
Sosso’s theory, however warm and fuzzy it may make him feel, sucks! He’s confused financially well off with just plain old thickheaded denial.
How about this theory, painted in metaphoric fashion: the man is hanging on from falling off the cliff, and he’s down to just a fingernail digging in. With no help in sight, he’s just moments from plunging to his doom.
Stan Cross did a nice cartoon back in 1933 along the lines of that theory.
http://tinyurl.com/zw47j
Hey, construction workers, it’s even on topic!!
This is hilarious. http://tinyurl.com/r8dyv
“People are going to keep coming here from the Northeast, from Europe and from South America,” Dweck said. “When the dust settles, there’ll still be 10 percent to 12 percent annual appreciation.”
I gave up grass years ago but I’d be tempted to try the magic weed he’s smoking.
I love it when speculators are seperated from 2nd and 3rd home buyers as a class of buyer. All of these folks were speculating that prices would continue to go even higher.
I know a number of people you wouldn’t necessarily think of as speculators, who never the less bought in this market simply because they thought prices would continue going up at astronomical rates.
Now that it is becoming clear that appreciation is stalling or disappearing throughout the country, buyers of all varieties have left the market. From the folks that bought 3 or more homes, to the person interested in just one, it’s going to be tough to find a buyer now that the greatest incentive to buying the last four or five years has been taken off the table, namely insane price appreciation.
Exaclty; it’s a false distinction used to understate the true, significantly higher percentage of speculator involvement in RE markets everywhere.
What if all these people that are putting their homes on the market don’t HAVE to move, but just want to cash out and upgrade (like everyone else did last summer)? Then this isn’t that bad.
If people are just putting their house on the market to make money, that’s one thing … it’s another because you simply can’t afford it. If that were the case, wouldn’t many more people be lowering their prices to sell instantly?
I think there is a good chance that we will be in disequilibrium for a while. This is when the market clearing price of houses has fallen, but sellers don’t realize that, so they keep the asking price high, and no houses sell. This is bad for everyone-the buyer who wants to purchase at the lower price, the seller who should cut his losses, and the RE industry that gets paid on commission.
The quicker everyone “sees the finish line” of lower prices, and the quicker sellers price accordingly, the better for everyone.
Can you say “Divorce”
According to Zillow, the property is worth $229,000 (est.), they purchased the home for $117,000 in December 2001. They should have plenty of equity to work with to put towards their new home assuming they didn’t borrow against the appreciation. It will be fun to see these type of buyers holding out for higher values when there are multiple mortgage payments due. Good luck when the ARM resets kick in as well.
Could someone please explain the sudden reliance on Zillows numbers?
Every property I have checked in the so fla area has been ridiculously overvalued per zillow! And in checking their comps- they don’t even apply, as they are out of the local area.
I looked at the comps used for this property. 4 of them were within 2 blocks of the subject property. The 5th one was within .32 mile. The most recent sale was a home within one block. That home sold for $250k in September, square footage, year built were about the same. The comp had an extra bedroom. I don’t think these folks are being too riduculous compared to other sellers I’ve seen here (in FL). It depends on how much profit is enough from the sale of their home. I think it’s fair to say when they bought the home in 2001, they would have never dreamed it would go up in value so much. I think in the next couple of years there will be two types of sellers: Those with equity and those without equity.
If they are able to sell it for $234K it would be a double in 4 years and represent an 18 percent per year gain. I think that’s a bit much for them to expect.
The rule of 72 breaks down at about 9%. 4-year doubling is 19% per year.
yeeehaw! all that growing population crap in california fails to address that a BUNCH of sfr’s are occupied by aging boomers many of who are even yet self-medicating themselves into early retirement living facilities… and many of whom could sell their houses for about 50% of going rate and still make out like bandits…
Why wouldn’t everyone want to move to Florida this year?
Check out this story on 2006 storm season:
http://today.reuters.com/news/newsarticle.aspx?type=worldNews&storyid=2006-03-02T170444Z_01_N029374_RTRUKOC_0_US-WEATHER-HURRICANES.xml&rpc=22