Let The Housing Bubble Pay For Itself
A look at how confusing issues become in a housing bubble. From Florida, “What a difference a year makes. A year ago, organizers of the Spring Parade of Homes of Brevard were working with a frenzied real estate market. One year later, the most commonly used word to describe the new-home market is ’slow.’”
“The market needs to absorb the excess of inventory now listed for sale, a result of the frenetic building pace of the past few years. ‘The big boxes went nuts,’ builder Jim Mellone said of large, production builders.”
“Investors bought up homes and flipped them for quick profit while they could. Now that the market has slowed, many of those investors are unloading their holdings and flooding the market with new homes for sale. ‘Everybody and his brother was an investor,’ (developer) Andy Barber said.”
The Sun Sentinel reports on the affordable housing focus. “Following a simple lesson in citrus economics could solve Palm Beach County’s affordable-housing squeeze, according to developers planning a new town on a Loxahatchee orange grove. Building more houses, (developer) Nat Roberts proposes 10,000 of them, in a variety of sizes and styles creates more affordable alternatives for buyers, he said.”
“‘You have to address the basic issue of supply or you will forever be chasing this problem,’ Roberts said. Developers planning 10,000 homes on former cow pastures at the Vavrus Ranch on Northlake Boulevard offer a similar supply-and-demand sales pitch.”
“Instead of creating an immediate supply that could limit prices, developers build when demand allows them to make the most, said Jaimie Ross. ‘We have heard it a million times,’ Ross said about the supply-and-demand argument. ‘It is a ridiculous notion. The homes will be priced at whatever the market will bear.’”
“Commissioner Burt Aaronson proposes building 4,000 homes, twice as many as once planned, on the county’s Mecca Farms property and reserving half of them for affordable housing. ‘That’s the way to be serious about affordable housing. Move forward in big chunks,’ Aaronson said.”
But a Commentary in the Orlando Sentinel takes a different view. “In 2004, BuilderOnline reported the Villages retirement community (had) gross company revenues of $948 million and profits of $141 million, a 42 percent increase over 2003. With all his money and connections and influence, why would company president H. Gary Morse need $4.5 million from you and me? Ask state Rep. Hugh Gibson and Sen. Carey Baker. They filed bills seeking money to widen County Road 466A.”
“Developers talk a big game about how growth pays for itself. It was a lie when they started spouting that line in South Florida decades ago, and it’s an even bigger lie today.”
“This minuscule $4.5 million is just an illustration. Growth does not pay for itself, does it, Senator Baker? ‘There’s just no way when you have high growth,’ Baker said. ‘There is a short-term infrastructure problem.’”
“So why shouldn’t the likes of Morse pay the total cost of his development’s infrastructure needs, long or short? ‘Well, the state is funding new road projects every day,’ the Baker explained. And you thought we should snag some of that cash? Baker chuckled. ‘A little, anyway.’”
“When asked whether taxpayers should spend millions so developers can keep building, Gibson, said, ‘I don’t know.’”
“When a developer sells 4,000 homes annually, more people mysteriously appear on the roads, and they tend to get jammed. That does not mean taxpayers should fix the problem. It’s time that this state started making the developer lies come true. Growth should pay for itself. Legislators should enforce it. It should start with this road.”
From the first linK
‘His company locked in the price of the land three years ago, so it’s passing that savings on to the buyer. He expects the discount to amount to about $8,000 to $10,000 per house. Morris is hoping the idea catches on.’
Second article in two days that has a developer using his lower buy-in price to undercut his competitors.
The hurricane season is around the corner. If this year the winds are strong, the housing market is going to be blown away too. People are really nervous in South Florida.
Don’t fire til you see the whites of their eyes!
People are nervous throughout the Gulf Coast.
I’m in Palm Beach county in south florida where materialism reigns. There is a boat load of inventory and there was even a special section in the Palm Beach Post dedicated to “Open Houses”. Also, massive building still occurring here with new home communities and condos going up like crazy.
Now wait a minute. The buyers of those new houses will paying property taxes far in excess of the cost of widening that road, in perpetuity. Why shouldn’t the government invest in roads and other infrastructure? It’s probably a better investment than where 90% of taxpayer dollars are spent, as it will return bucketloads of tax income.
And the extra supply of homes will certainly help to drive prices down
Ah yes, socialism for the rich and free enterprise for everyone else. OF COURSE the developers should incur co$t$!
Maybe it should be split 50/50 between developer and the state or county . All I know is all the streets are crowded these days almost everywhere in California so that tells me that new road projects have not been keeping up .
We pay almost 30cent per gal state road tax plus sales tax on top of that in California. If they would put the Army on the border and deport ALL the illegals NO PROBLEMA on Traffic.
For those of you reading from out of state, regular gas price per gallon at the corner station is drum roll please, $2.71. Premium, add another .20-.30 cents. keep HELOCing those SUV’s.
I Yi Yi!
I would love to have $2.71 gallon for regular. It’s running $3.45 gal for regular (add 20 -30 cents for premium) in Santa Barbara this week. We just filled the better half’s VW Passat for a little over $42 bucks! SUV’s are probably coming in at $75 - 80 a TANK.
Here in the PRC (People’s Republic of CA) we don’t use gas tax and DMV registration fees to do silly things like maintaining our roads/freeways or building new ones. We use it for “free” handouts for people who cut in line to get here so that already profitable businesses can pay them tax-free below-market wages. That way, these people can go downtown and demonstrate their eternal gratitude and loyalty to dumb-ass taxpayers here by waving the flag of their home countries on television.
Sounds perfectly reasonable, no?
■ “The next time a housing bubble gently deflates will be the first time a housing bubble gently deflates. The housing market has been held in by continued low mortgage rates, which have allowed households to use the imaginative mortgage products to purchase homes they really cannot afford. As rates rise, more people will be priced out of the markets. This is likely one of the reasons for the falloff in demand (for new homes).”
— Joel Naroff, chief economist, Commerce Bancorp, March 27
The development interests own state and local government, so this kind of thing happens all the time in Florida.
A few years back, the state moved a scenic highway, at taxpayer expense, so that St. Joe Company could put up more beach houses. The local commission that approved the move (without announcing the meeting for public participation) just happened to be headed by a St. Joe executive.
Florida really is a banana republic. The things that go on here would make people in Louisiana recoil in horror.
“Investors bought up homes and flipped them for quick profit while they could. Now that the market has slowed, many of those investors are unloading their holdings and flooding the market with new homes for sale. ‘Everybody and his brother was an investor,’ (developer) Andy Barber said.”
How many flippers actually flipped successfully? I was always amazed that flippers could find sane, solvent, souls who were willing to buy resale properties at 60% markups, within twelve months of the original purchase. If I were a builder or agent it might suite my best interests to perpetuate the myth of easy killings for ‘investors’. I think that the vast majority of flippers have been left holding a bag full of financial misery. Pyramid schemes operate in a similar manner; initial tales of easy money, followed by a dawning realisation that the easy money was you.
Now it’s Tax Time. Recapturing depreciation at ordinary income rates sucks. Flipped two condos last year six months too early could have made another 50k;held them one year for cap gain,rented to offset some neg cash flow, Made 300+, guess beggars can’t be choosers. 1031′d one into a superior investment. Will hold it for a long time. The widow Pismobear will get a stepped up basis.
Alot of those flips were from realtors also . Whenever I buy a place I try to find out as much as I can about the seller ,how long he has owned the property etc. etc. Apparently in some of these projects 80 to 90% of the original buyers were flippers . Some flipped to flippers . How can you get a accurate appraisal in a project when it has this kind of history behind it ?
How can you get a accurate appraisal in a project when it has this kind of history behind it ?
An honest appraiser who know’s his shite could tell you in a minute what’s hype and what’s real.
But of course most of them have been run out business
It’s the hacks in the hip pockets of the lenders who rubber stamp the number, who have rigged the game.
Lenders hiring the dishonest are to blame for the collapse to come. Of course they could give a rat’s azz, ’cause all the paper’s been sold to China, Japan or some US pension fund.
Read about History’s Hidden Engine.
This video shows how our economy reacts. Ben, you will really like this
It looks like Prechter has been reading Schiller.
Thanx Melody — long, but I anyways found it interesting — just possibly because it reinforces many of my opinions
(Rant, off topic…)
I know all the roads have been getting more crowded in the 20 years I’ve lived here (Northern California), and I’m not even asking for more roadway. I just want the potholes and cracks in the road to be patched up. They finally started to do that, but they miss many and new ones arise more than the ones fixed. I was really thankful for this one crack-hole getting fixed. It grew to 5′ long, 1′ wide and 8″ deep. I almost got in two wrecks because of it.
The punk kids/gangs here are getting worse and are making the roadways dangerous. Yesterday two 14 year old jaywalkers cross my path without a care in the world. They are lucky I slammed my brakes. Today on the freeway, two cars were socializing to the extreme. They were side by side, getting close, opening their doors on each other at 40MPH.
Enjoy!
It is amazing to me that California has problems balancing its books when the tax rolls are flush with fat property tax valuations. If they can’t fill in the potholes now, imagine what it will be like 2 years from now when tax revenues are far less.
California should be more progressive and do what Texas does. Sell your roads to overseas corporations and operate them as private toll roads. It is the Texas Way.
California doesn’t have a revenue problem, it has a spending problem.
No Kidding…..To much Goverment Pork…We have the same problem that GM has….Way to fat with promises and garuntee’s….
Our (defecit) spending is mandated by the vast combination of Propositions &c passed over the years. Most declare spending to increase at the previous year’s amount of spending plus the rate of inflation whether that corresponds to increased tax revenues or not. Plus, the required percentages (a certain amount for schools, etc.) for spending add up to more than 100%.
Here is the perfect gift to give for the “Friends don’t let friends buy real estate” blogger.
House Poor : Pumped Up Prices, Rising Rates, and Mortgages on Steroids: How to Survive the Coming Housing Crisis (Hardcover)
by June Fletcher
(Growth should pay for itself. Legislators should enforce it. It should start with this road.”)
*gasp*
Thy developer should put on Mello Roos bonds plus 20% more profit. Let the sheeple/buyers pay for it or the lenders when they foreclose the IO/negArms. That will teach them!!!
The cover story of the current Business Week magazine is about the housing market and some lively reader comments are starting to pile up at:
http://www.businessweek.com/magazine/content/06_15/b3979601.htm
However, the last comment is from NARREIA and I plan to challenge what this REALTOR just commented!
Good article…thanks for sharing
State and local government in Florida are owned by the development interests, so this kind of thing happens every day. For example, the state recently paid to move a scenic highway so that St. Joe Company could put up some more beach houses. The planning commission that approved that move (without allowing public comment and participation) just happened to be a JOE executive. That’s the way we do things in Florida, which is much more a banana republic than a democracy. Honestly, people in Louisiana would recoil in horror at the things that are done here.
For example, the state is about to pump more than $1 billion in subsidies into “developing” one of the largest stretches of pristine wilderness left in the eastern U.S. Business as usual in Jeb country.
http://www.babcockranch.org/
That should read: The planning commission that approved that move (without allowing public comment and participation) just happened to be headed bya JOE executive.
that’s nothing compared to what happens elsewhere in the world.
we had some interesting articles in the papers recently about what has been going on at the Spanish costas near Marbella, where RE has been booming for many years (with 15-25% gains every year) thanks mostly to the extremely corrupt lord mayor of Marbella, Gill, who was sole emperor in his own real estate playground.
After Gill was removed from power some years ago, a criminal investigation was started into what was going on there. After a few years some of the first results are out: government officials (especially high ranking ones like several lord mayers etc.) collected at least 2 billion (!!) euro in bribes (including luxury homes, expensive cars, jewelry).
Many high ranking officials and real estate brokers and lawyers(especially some high profile guys/girls from the Netherlands, of course …) are involved in the fraud. And all this is just the tip of the iceberg.
Apropos to my earlier comments about foreigners participating in this bubble which would seem to fly in the face of their cultural mores:
http://tinyurl.com/oa2c4
I’ll wait ’til hell freezes over before I buy from a flipper.
I find the whole concept of flipping one’s way to instant riches nauseating. Beyond the greed and sloth that drives people to do this, implicit is the fact that someone always gets hurt. Flippers add zero value to our society and deserve to be burnt badly. What ever happened to working for a living and thrift?
Of course they say the same thing about day traders in the stock market, but at least we provide liquidity to the system, which is not as important today as it was in 2002. Although in 2002, there weren’t many day traders still alive :). That’s why when someone asks me what I do for a living, I say, “I’m an unproductive leech.” LOL
Flippers couldn’t pull their game off with the mortgage industry racketeering.
How low does that put the loan originators?
What ever happened to working for a living and thrift?
Was thinking about that yesterday. We’re one of two in my neighborhood of about 40 homes that manually mow, rake and pick up sticks from our own acre yard. One neighbor who never talks to us felt compelled to stop her vehicle, stick her head out the window and declare,”man you are a working fool!” Guess they don’t know what to do with a neighbor who doesn’t need the $5000 mower or a yard workers contract to feel complete.
How would you know?
When hell freezes over I will be too busy skiing to give the time of day to a flipper. So I will wait till pigs fly out my bum.
Hmmm is your blog having a hiccup?
Read about California Mortgages and Construction Loans.
Different California mortgage and loan companies to keep your eye on.
You always find the great information Melody . Thanks
You’re very welcome
” couple wanted to lower the monthly payment on their two mortgages and were looking to refinance. A loan officer told them he could save them $200 to $300 a month, and they went ahead with the refinance. They ended up with two mortgages, a first for $133,000 at 10.5% interest and a second for $10,000 at 21.7%. This gave them a total monthly payment of $1,501 – $125 more than before. Their new first mortgage also included almost $10,000 in fees. They had very good credit and when they looked into refinancing in order to receive a better interest rate, they found out that both of their loans had prepayment penalties which required that if they refinanced within the first five years of the loan, they would have to pay a penalty of six months interest – more than $7,000. Despite their good credit, they are now stuck in these high interest rates. Mainstream lenders will not refinance them, because between their loan amounts and the prepayment penalties, their new loan would have to be for more than their house is worth.”
So many people have done this and they trusted the lender….it’s raining houses for all!!
Amazing - don’t people read what they sign - at least know the interest rate and payment before signing the papers. I have absolutely no sympathy. Stupids.
This has happened to several people I know when they went to refinance with supposedly reputable lenders. They got a verbal agreement up front on the terms, only to show up at closing to find completely different details (ARM vs fixed, higher interest rate) in the loan docs. In each case they were told, ‘take it or leave it’, so they walked. Interestingly, every time the paperwork was presented first to the wife, as if the lenders assume the stupid woman won’t bother to check the paperwork before signing.
Makes me wonder how many people didn’t read the docs and didn’t realize they’d been baited-and-switched, or who for some insane reason felt they had to take it.
Like sheep to slaughter.
Think I’m goin’ into a new business…mortgage advisor…
Classic example of people who shouldn’t be buying homes. This is what you get when you don’t read the fine print.
Mortgage scumbags.
Sorry to say, but Illiteracy is greater than what you think. I work with one person who is unable to read and yet rakes in 90K a year. Go figure!
Alcatel Agrees to Buy Lucent, Plans 8,800 Job Cuts
I feel unemployment will go up. I’m seeing alot more people with the rapid response program and orientations on provided employment services lately than ever before in the last 15 years.
Time will tell.
“I feel unemployment will go up.” Melody, have you noticed how many union entities are striking? We’ve got 3 in our little media circle. People going months w/o contracts….but also have noticed UAW is union in many of these situations. Wonder if they’re feeling the need to tout their relevance or if the average blue collar doesn’t have any more to give.
That is: wondering if UAW union is feeling need to tout its relevance not the workers themselves. Sorry if that across wrong. I just read last night the union has been hemorraging members hence my comment.
I’ve wondered for a couple of years what’s holding the job market up. I suspect it’s the extra cash being pumped into the system by HELOC’ers and the FED. I expect a landslide of job losses this year. The companies that have announced layoffs in the coming years amount to 10’s of thousands. I do recall Dell announcing it was hiring 15,000, but those jobs were in India.
BUYING TIP:
You can assume that any houses listed “as is” are on their last legs.
“Back in the day” when I bought my first house (1979) that wasn’t really a bad thing…you *knew* that there were problems, and knew that there was work to be done. And at that time, it was the best way to get a house. In my case, my husband (ex, now) was an electrician and had an army of friends in the trades (carpenters, plumbers, etc), so we did well.
NOW, “as is” is really different in that the property costs you an arm and a leg and will STILL cost you an arm and a leg once you get in. On top of that, the voodoo mortgage will screw you if you are not careful. It’s a big mess.
BayQT~
Big mistake to assume the major cost of infrastructure is roads. It’s the schools, extra fire and police and medical that break the coffers.
Housing has never, and will never, pay for itself. The drain is not only on roads, but schools, hospitals, jails, water and wastewater treatment, code enforcement, courts, environmental problems, crime, you name it.
OT, but on Craig’s List I was just called an idiot by this guy:
http://forums.houston.craigslist.org/?act=su&handle=rand
The link is invalid Lou… atleast on my end
I’m sure The Donald is his mentor!
Anyone post this yet? Front page, USA Today, April 3rd:
Rising Rates Sink Homeowners
http://www.usatoday.com/
http://www.usatoday.com/money/perfi/housing/2006-04-03-arms-cover-usat_x.htm
“For 45 years, Robert and Lorraine Brown have lived in their ranch-style home in Florissant, Mo. One of their four children was even born there. But for the past eight months, the couple have been locked in a sleep-wrecking race to keep up with their rising mortgage bills. They’ve switched to cheaper phone service, cut back on groceries and sometimes put off ordering medicine.
When they refinanced their home two years ago to pay off some bills, Robert, now 78, was working as a deliveryman. But his employer went out of business last April. Now he and Lorraine, 72, a retired nurse, are both seeking work. The rate on their mortgage has jumped from 7% to 10.5%.”…..
BayQT~
Wow. He refinanced at age 76; which means he was still paying on that house 2 years ago. I’m sure the kids will thank them for Mom & Dad’s sound financial planning.
A chart tracking inflation in house prices relative to rents from 1953 to present. Kinda makes ya ponder.
http://www.king5.com/sharedcontent/dws/img/02-06/0206homeprices.jpg
Enjoyed the rent/house cost graph. Did you notice the 25 year trough before ‘85. Yikes!
You’ll like this one then Upstater;
http://www.dallasfed.org/research/swe/2005/images/swe0505b_c8.gif
In the last year, after several years of relatively stable rents, the landlords here in NYC are trying to “correct” the rent/own imbalance by forcing rents up to match the inflated condo prices. Which will clearly further encourage anyone thinking of leaving the city (like myself and the wife) to do so.
Per the original topic, It’s been reported that the New York state legislature just approved $33 million for road improvements for the benefit of Bruce Ratner’s stadium mega-project, which itself hasn’t even been officially approved yet. By the time it’s done, it’s supposed to include 4000 condo units, mostly high-end (some reserved for “affordable” to make the project qualify for tax abatements and other subsidies).
Looks like the currently oversupply of houses is just going to get worse:
http://www.msnbc.msn.com/id/12132380/from/RS.1/
WASHINGTON - Construction spending rose to a record level in February as home building hit an all-time high despite a weakening in home sales, the government said Monday.