Condo Speculators Should ‘Lengthen Time Horizons’ In FL
The Herald Tribune has the latest on the Florida condo bubble. “Two more apartment complexes, with a total of 586 units, are being converted to condos. Six months ago, these conveniently sited complexes would have sold out in a matter of months. Like most other sectors of the real estate market, however, demand for converted condos has cooled. ”It’s definitely going slower,’ said Janice Ingenito, a mortgage originator. ‘We were doing loans right and left. But there aren’t as many buyers now.’”
“The problem, most observers agree, is that investors who poured money into real estate in the past three years are taking a wait-and-see approach. As these buyers represented anywhere from 30 percent to 50 percent of the market, their absence is being strongly felt.”
“‘We are seeing a slowdown in investor buyers,’ said Matthew Kihnke, the Chicago real estate developer. Kihnke has plenty of experience converting condos. He completed the 174-unit Brookwood apartments in Bradenton during the summer and is in the midst of converting 272 units nearby at Saddle Creek.”
“In acknowledgment of the slowdown, however, Kihnke is not using his usual team of brokers to peddle the units. (They) are tied up with the Saddle Creek conversion and admit that sales have been sluggish.”
“Veteran realtor Bill Davidson is confident his team can unload the units by the end of the year. ‘There’s no question the market has entered a period of adjustment,’ Davidson said. ‘We can’t talk about appreciation any more because we have no idea what the future will bring.’”
“Jack McCabe, Deerfield Beach-based real estate analyst, believes it may take longer for the market to turn around than many in the real estate industry may think. ‘Speculators are leaving the market, not just in Florida but all across the country,’ McCabe said. ‘What we’re left with is end users. Complexes that were selling 25 units a month are now selling two or three.’”
“‘This is not just an anomaly. It’s an absolute trend. January and February sales will be up over November and December, but they will be half as much as last year.’ McCabe believes that rather than rebounding by summer, it will take at least two years for real estate market to burn off the inventory that’s building up. ‘We’ll see sales continue to slow and inventories grow. It’s going to get a lot bloodier.’”
“Ingenito, the mortgage originator, thinks investors need to lengthen their time horizons. ‘It will take a year or more for all this inventory to be absorbed. But the market will get strong again. Baby boomers are just starting to retire.’”
McCabe believes that rather than rebounding by summer, it will take at least two years for real estate market to burn off the inventory that’s building up.
Two years is long enough to roll over most speculators and probably some of the developers as well. It was McCabe that said long ago, that condos are the last to take off and the first to crash.
“Baby boomers are just starting to retire.”
If Joe and Josephine Blow can’t sell their expensive house in Boston, why would they buy an overpriced condo in south Florida?
The much requested baby boomer may disappoint many. Leaving friends and family for a converted apartment in Florida has a metallic aftertaste. I would think that ‘investors’ are a far larger reason for the prices.
Ben Stein Article:
http://finance.yahoo.com/columnist/article/yourlife/2449
I agree with turnoutthelights - the presence of children, grandchildren, and friends will give the baby boomers far greater warmth on a cold Boston winter than any sunlight in a lonely Florida condo in a complex of other lonely old couples…
“But the market will get strong again. Baby boomers are just starting to retire.”
Yea right, Joe and Jane Sixpack baby boomer are just itchin’ to trade their spacious midwest home for a cramped Florida condo in the path of future Katrinas for only twice the price.
I have thought for the past several years that the so called boomer migration was not a permanent one. A home in FL is a trophy and when and if assets need to be sold (from their estate by their kids and grandkids, for example, or when medical bills force the issue, etc.), the FL home/condo will go first and the heirs probably won’t even care what the market is doing or how much grandad paid for it.
Snowbird is in full season right now on the east central coast of FL. If I were one, I don’t know why in the world I wouldn’t rent a spacious oceanfront home from some of these desperate landlords. Rents on oceanfront property are basically what the annual taxes are (not to speak of insurance, debt service, maintenance).
“…investors who poured money into real estate in the past three years are taking a wait-and-see approach. As these buyers represented anywhere from 30 percent to 50 percent of the market….”
“…Complexes that were selling 25 units a month are now selling two or three.’”
Where did THESE guys learn math? Seems to me that if you are only selling 10% of your pre-investor-running for the hills-amount, investors accounted for 90% of your market. EEEK!
“Ingenito, the mortgage originator, thinks investors need to lengthen their time horizons. ‘It will take a year or more for all this inventory to be absorbed. But the market will get strong again. Baby boomers are just starting to retire.’” ”
If you want a depreciating investment go ahead and take out that negative amortization loan on the 450K Miami Beach condo. Enjoy the condo fees and property taxes.
RE is not an investment in the bubble markets.
David
Bubble Meter Blog
“‘Speculators are leaving the market, not just in Florida but all across the country,’ McCabe said. ‘What we’re left with is end users. Complexes that were selling 25 units a month are now selling two or three.’”
This is the clearest statement yet of the problem. If the only people they have left to sell to are “end users”, and they are showing up at about 1/8th the rate of the speculators, that means the actual market is about 1/8th the size they planned for. Can you say GLUT, boys and girls?
old people want to retire where it’s cheap and warm, there aren’t than many places where it’s still cheap and warm.
(But the knowledgeable, experienced investors are still buying.)
the people described above are the one’s who crunch the numbers, they probably haven’t been buying much when the numbers didn’t work in their favor. the dumbies buying know are the one’s who believe in fanstasyland RE prices.
Mo Money: Wow, Ben Stein must have been just as floored as I was. How does she sleep at night with no long term plan? How many clothes can she fit in her apartment?
I second DC Condo Watcher.
A couple of weeks ago I spent the weekend with some friends in their new-build in a coastal holiday/retirement area here in Australia. About 3 hours drive from where I live, and where they have moved from.
Husband has retired (just before 55 because of employer-specific pension advantages). Wife works part time at a nursing home, but told me she is only doing so while they support their son who is studying 700 miles away.
Husband is a keen gardener (which I am assuredly not), and the house and 75% of the yard is immaculate. He will have the other 25% finished by the end of the year which is when their son graduates.
My impression is that time is already hanging heavy on their hands, and by this time next year they are going to be bored out of their skulls.
If you want to go to Florida a few weeks a year then rent.
You’ll come out way ahead cash flow wise, and when you go “back home” you’ll leave all the headaches with the owner who can’t even rent to cover the mortgage payment. Florida will become the new renters paradise for quite some time.
>>Mo Money: Wow, Ben Stein must have been just as floored as I was. How does she sleep at night with no long term plan? How many clothes can she fit in her apartment?
a friend of mine bought a fixer-upper in brentwood calif for 1.2 million,put 300k into it and it just sold in a bidding war for 2.1 mil,all the while i was laughing at him under my breath i thought he was going to get slaughtered,with the market turning and all, ifigured he was coming to the party too late…well tonight he is buying me dinner to celebrate his windfall…..i see no slowdown in los angeles only shrinking inventory and prices goung higher.i sold in spring of 2005 in the eastern san fernando valley,and the prices in my old neighborhood have climbed higher…you cant time the top but i didnt think i left 50k on the table,but i did….
Great, we are going to convert all the apt. complexes and force people to buy! I wonder how the rental market will be affected by all the conversions. Less apts for rent will likley cause increased rents for everyone. Seems like a conversion would always be sterotyped by being a conversion. Don’t really like the whole idea. This is speculation at it’s greatest form.
One of the realities of this blog is that those who visit are infinitely better informed on housing’s coming demise than the average Joe. Day in, day out I try my best to warn people that like the Chinese proverb, they’re way too far out at low tide, and this sea of debt all around them is very, very dangerous. But all I get back are quizzical looks, blank stares or outright anger. Ben Stein’s Vivian is the norm, folks. We are the odd ones.
“The problem, most observers agree, is that investors who poured money into real estate in the past three years are taking a wait-and-see approach.
As these buyers represented anywhere from 30 percent to 50 percent of the market, their absence is being strongly felt.”
Not only are those 30 to 50% of the past buyers not buying, they are also competing with them to unload their investments.
I don’t go to open house any more. If any of those sellers want me to see their homes, they have to come to my home to feed my squirrels to reserve my time to see their homes.
Regarding Frank’s experience with his friend in L.A. I don’t see the rising prices ending until either inventory gets so high that future buyers are spooked (supply and demand reason), or until the easy money gets shut off. And I don’t see the easy money going away until delinquencies really start making the banks hurt.
If a lot of these banks already packaged and sold these mortgages, does anyone have any idea when the mortgage delinquencies and eventual foreclosures will start to affect the easy availability of money?
The Super Bowl last year and years before was full of mortgage company commercials and sponsors, this year we only had 1 having mere 2 spots. Did anyone notice this trend or was it just me.
Johnlaw,
old people want to retire where it’s cheap and warm, there aren’t than many places where it’s still cheap and warm.
South Texas is cheap and warm. With the exception of SPI, there is no mad rush to build. And there are lots of snowbirds in South Texas. The difference is they are all RVers. Cheap RVing will be how these baby boomers live during retirement since they’ll only have SS income.
Wow, two years to burn off the glut of condos- I guess we’ll have to get used to the dark high rise look in Miami, Tampa, Vegas, etc., etc. — Compliments of the bubble.
And yes, I noticed the dearth of mortgage ads on the SB. Looks like even godaddy did better than RE.
This whole thing about the baby-boomers retiring in droves to FL drives me nuts. This is the only ammo the Realtors have left to use in FL. We have a local real-estate channel here in Sarasota-Bradenton that shows houses all day. I saw an ad yesterday from what I would guess is a new realtor and his ad said “Hurry up and buy!! The baby-boomers are on the way and will create a huge real estate boom over the next 20 years! The real estate bubble here isn’t even close to popping!” So wait, is he admitting that there is a bubble?? Can’t believe they get away with saying this garbage. I know numerous baby-boomers from up north that said they would never move to FL…it’s become too expensive!! In fact, I heard of more people leaving here over the past year than I ever have.
Much of the growth in Florida has been in the trades and other RE related biz due to new construction and hurricane rebuilding. We have almost 1M illegals from spanish speaking countries now and a ton of blue collar that relocated from depressed economies up north. They will have to be the drivers for any continuation of a boom in Florida as baby boomers and those older figure it all out and either become halfbacks or just go back north and fly down on Jet Blue for $69 and rent during the beautiful winter season escaping all the negatives of year round residence down here these days..
Another thing that kills me is “there is no land in florida”.
There is plenty of land!
Look at Japan, 1/3 size of California, 1/2 of population of US.
I was there and it’s crowded! Way more than Florida. And that didn’t help the prices go down for 15 years or so.
I was discussing Vancouver real estate with a friend of mine and he said “Vancouver won’t go down because of the Olympics”. Huh? Why? It’s not like people are going to live there after the Olympics, they’ll just come to compete/watch and leave.
AN ANNOUNCEMENT:
When I thought even I might be pushing it, I myself have been STUNNED by this housing market.
I predicted that by the middle of February, we’d have 14,000 homes on sale in Orange County…according to http://www.ocrealestatefinder.com.
Today- on what is only the 6th of February, and the day after the Super Bowl…the new total is…
13,958. That’s just 42 homes shy of 14,000.
I’m predicting 20,000 homes on the market by July.
Will the market grow FASTER than that?
I’m stunned, folks.
I think I just heard a loud ‘pop’, and saw sparks shoot out of the Orange County Inventory Fire.
If we keep going at this rate, prices will plummet by August.
Wow.
And it ain’t even Spring yet.
My wife’s grandparents used to live in Florida to Florida during the 70’s and early 80’s. They didn’t have a lot of money, but they were able to rent deluxe condos with a view at extremely low prices.
In almost every case, the owner of the condo was an underwater speculator who was desparate to sell. You would think that people in Florida would remember…
Frank, do you have any idea if your friend bought the fixer for below market? Was it a lot less on a $$/per sq. ft basis than the homes nearby? I would be interested to know.
Also, does anyone have good stats on the LA market (Brentwood specifically?) as far as inventory trends, sales price trends, DOM, etc. go? The LA Times won’t publish the Jan. numbers for a few weeks.
I am wondering because there are quite a few citys in OC that seem to be growing their for sale inventory a lot faster than it is being absorbed. Laguna Niguel is an example.
Here is another one. It seems like the Long Beach market has a lot of new condo towers + condo conversions coming on the market. You see ad’s for new condo complexes in the LA Times all the time. I am wondering what the folks trying to sell these places are experiencing. Any local feedback on this?
Since we’re talking SW Florida real estate it’s a good time to revisit Tom Doyle’s web site…
http://www.naplesinsider.com/CurrentReport.htm
lagunabeachinvestor wrote:
You see ad’s for new condo complexes in the LA Times all the time.
—————————————–
I see those ads too, and the ones touting the new condos in downtown LA as the greatest new way of living since sliced bread.
The thing with condos that just baffles me is why would you want to own an apartment when you can rent one?
-Greg
Brentwood may not be the best example of the bubble in L.A. Lawyers gotta live somewhere and they always make money (and will on this bubble bust too). You can count on Brentwood, Bel Aire and Beverly Hills not halving anytime soon. A lot of REAL wealth lives there (smart guys who made money on this RE cycle and didn’t do it flipping condos). Now, Van Nuys, thats another story. Still L.A. but $390,000 to start on Luxury condos (www.shermanwayvillas.com), errrr I don’t think so..get real. Look for bubbles in areas were people really couldn’t afford to buy and did anyway.
Please advise. I am selling my condo in Evanston, Il and I will be moving to Northern New Jersey. How long should I wait before buying a home?
Help????
You can count on Brentwood, Bel Aire and Beverly Hills not halving anytime soon.
__________________
Actually, I believe Beverly Hills depreciated 50% in the last bust (someone pls. correct me if I’m wrong).
Also, I remember a property my mother (RE broker/investor) and I looked at during the last bust. It was in Malibu, on the ocean side of PCH. It was a sort of compound behind a large wall, probably about an acre or more. It had one building, designed a bit like a castle, with four one-bedroom apartments, a duplex with one studio and one two-bedroom, and a SF house with 3 bed/2 bath. It looked like a “fairytale land” with beautiful big trees and greenery. All this for $1 million. We tried our darndest to get the money together, but couldn’t do it. I’ve regretted that ever since.
Point is, even the big folks can fall. They actually tend to be more in debt than the little guys, and their income is often less secure (risk-taking positions).
I have a lot of friends in my general age range (45-55) who have parents who have retired to Florida from the Midwest and East Coast.
Almost unanimously, they say they would never ever retire in Florida. They don’t like the place and they equate it with their parents and the early-bird special crowd. They won’t be moving there.
Seems like we might get a generation-skipping effect. I don’t doubt Florida will continue to grow. But I don’t think it will be because of baby boomers. The “Greatest Generation” retired to Florida, the Baby Boomers won’t. Plenty of immigrants, though, to take up the slack, I suppose.
Just because I’m not currently following Los Angeles inventory doesn’t mean I won’t.
Don’t push it.
If you trolls keep looking as obvious as you currently do…
…the entire board will start chiming in every day.
You might want to temper your attack.
None of us got successful by being stupid, on this board.
Come here and post as you like, but if you keep saying stupid things…
…we’ll ALL beat you back with numbers.
Just my two cents.
Toll Brothers cuts 2006 home delivery estimate (TOL) By Sarah Turner
LONDON (MarketWatch) — Toll Brothers (TOL) cut its 2006 home delivery estimate to between 9,200 and 9,900 homes, from a prior estimate of 9,500 to 10,200 home deliveries. The company said that new estimate includes a decline in first-quarter signed contracts of 21%, to $1.14 billion. The luxury home builder also reported that first quarter to Jan. 31 home building revenues rose 35% to approximately $1.33 billion, while its first-quarter end backlog rose 22% to approximately $5.95 billion. “Selling homes this first quarter was certainly more difficult than one year ago; we faced a particularly challenging comparison to last year,” said Chairman and CEO Robert Toll. The company also expects to report revenue of between $280 million and $300 million from mid-and high-rise urban projects during 2006 and also expects to continue to repurchase shares on an opportunistic basis.
Toll’s 1st-Quarter New Home Orders Plunge 29% as Demand Cools
Feb. 7 (Bloomberg) — Toll Brothers Inc., the largest U.S. builder of luxury houses, said orders for new homes plunged 29 percent, the first drop in almost three years, and cut its sales forecast for the year as demand weakened.
Orders for the three months ended Jan. 31 fell to 1,544 from 2,173 a year earlier, according to a preliminary tally. The value of the orders was $1.01 billion, down from $1.44 billion, the Horsham, Pennsylvania-based company said in a statement today.
Toll’s stock dropped 14 percent on Nov. 8 after it cut its sales forecast for fiscal 2006 to a range of 9,500 to 10,000 homes.
______________________________
Lets see what happens today!
There is going to be an HB massacre on Wall Street today..
grim
Northern NJ Bubble
crisp&cole,
Beat me to it!! Nice work! That should really be my contribution, though, seeing as how I’m Darth Toll.
Seriously, though, I’ve been waiting a long time for Toll to cut guidance aggressively. I’m sure their stock will get hammered today. MUAHAHAHAHA!!!
Robert Toll has been dumping shares like crazy for the last 6 mos. While he pumps the stocks, he’s been privately dumping it. A spokesman for Toll Brothers claimed that it was diversification and that any financial planner would recommend the same thing to his / her clients.
Anyone in their right mind would sell this stock, especially when they can foresee demand weakening. But why pump the stock? To get as much money for his shares when he sells it and to me that is criminal.
Looks like someone beat me to the punch with the TOL news. Yet more proof that things are going downhill fast. Incidentally, isn’t it funny how in the past few days, TOL shares started breaking down out of their multi-week trading range on rising volume?
I love how they throw in that demand appears to be picking up a bit now. I have ALWAYS said that the spring will be busier, sales-wise, than the late fall and winter. It happens in EVERY real estate cycle, even the down ones. The problem is, the increase in sales will be nowhere near as big as the increase in inventory — hence, the “spring bailout” that all these moron real estate investors were counting on won’t be strong enough to save them. My view is that the panic will really start settling in come July or August when people realize they’re still stuck holding properties they were certain they could unload in the spring.
I agree with those who dispute the effect of Baby Boomers creating demand for crappy condo’s in Florida. As I near retirement from the military (after 26 years) my wife wants as big of a house as possible to grow old in (5 bedrooms)…she says she wants room for the kids to visit and stay with grandkids, as well as plenty of room for visitors (not to mention an exercise room, home office, etc). Her father is 83 and still in the Family home (mom died there a few years ago). He would never leave the area where his friends, church, kids are. Same for most of the rest of the older folks I know. A few moved to Palm Springs to retire, but got tired of just hanging around retirees and moved back to their communities. What Florida USED to have was cheap housing and condos. Now that prices have gone WAY up, along with property insurance doubling, higher property taxes (that go along with the higher sales prices), and sky high maintenance fees, many folks will probably reconsider their options. I live in South Florida right now, and most every one of the local I meet wants to move North (North as in up to Georgia or the Carolina’s.
I’m surprised nobody has mentioned the SB Ameriquest commercial. Two people ’supposedly’ having sex on an airplane and the slogan being something like, “Ameriquest, We Won’t Judge You By First Impressions.” Thought it was funny since Ameriquest has screwed so many people.
“If a lot of these banks already packaged and sold these mortgages, does anyone have any idea when the mortgage delinquencies and eventual foreclosures will start to affect the easy availability of money?”
when the secondary market starts to tighten and banks/originators cannot sell mortgages, they’ll tighten up in a hurry.
Also, on Frank’s flipping example, would love to get an address on that one.
In my neighborhood of coastal Brevard county, FL, the flips that are moving right now have tight, tight margins. For example, one was bought for $410,000 and sold for $497,000 after significant improvements. Remember to deduct realtor commission of 6%, ordinary income taxes of approx. 30% of gain, interest and taxes during the flip, and closing costs. Assuming $20K in rehab expense, the take home profit on this one was about $12,000 which is a 2.4% return on the asset value with a whole lot of headache. Don’t think they will have a dinner celebration on that one.
I like how real estate “experts” claim baby-boomers are coming, 1/5 of that generation are moving to Florida in the next 10 yeas…
Have they all signed commitment letters?
can the speculators and real estate investors sue them if they decide Florida is too expensive, crowded & crime ridden and decided to retire in Texas, The Carolinas, Georgia, Alabama, even back to the gulf coast ?
I know an awful lot of people retiring and leaving Florida and heading towards the Carolinas, Northern Geogria, even Tennessee because people are freindly, insurence is much lower, they can have homes with some land, and lead active lifestyles.
Florida is becoming less and less desireable and more and more expensive by the day.
I have lived here all my life, yeah in the 70’s and early 80’s it was a great place to retire, cheap warm, and you could escape the traffic, crime and congestion of the big cities up north and easily afford to live off social security and pensions and sit around and play shuffle board all day.
Baby boomers are much healthier & active than the last batch of retirees they want to be more active and not sit around playing shuffle board all day.
Think about it, your going to retire in the next 5 years, would you want to live in a $450,000 1 bedroom condo or a $500,000 3/2 house in a subdivision full of renters… Or would you rather take that half million dollars and buy a couple acres (or just buy a cheaper house and keep the extra money to cover health care) and have similar weather and less hurricanes and have plenty of national parks & mountians as your playground?
Help is on the way for Florida real estate:
“Scientist predicts ‘mini Ice Age’”
http://upi.com/NewsTrack/view.php?StoryID=20060207-041447-2345r
but it won’t arrive to the middle of this century. Probably too late to bail out the current crop of speculators.
My parents are in their 60s and live in the midwest. Their house is paid for, 3000+ square feet, and they live in a country club neighborhood. I just don’t see them giving up their friends, family, and community in trade for a few nice months a year of weather. Especially given that the sale of their house would only translate to a 1 bedroom condo is South Florida.
What’s that sound? Hisssssssss…. Soon to be a woooooosh!
Crystal Thompson,
Looks like your post might have got lost in the undergrowth.
One of the regular posters here (posting name Grim, which might tell you something :)) has his own blog dedicated to Northern NJ.
http://www.nnjbubble.blogspot.com/