‘New Homes Offered Below Cost’ In Florida
The Sun Herald has this update on some Florida housing markets. “As the 2006 high season ends, local builders, investors and real estate salespeople with unsold homes, are still counting on retiring Northern baby boomers to reenergize the local housing market. Some local Realtors say the market is simply shifting back down to its traditional level. Others insist it was as if someone had thrown up a concrete wall last October.”
“A specialist in the sale of lots, Arthur W. Broslat reports that at the end of March there were 14,382 lots listed by the Punta Gorda, Port Charlotte and North Port MLS. Broslat adds that just 212 lot sales closed in March, 2006, while 1,204 lots were sold in Punta Gorda, Port Charlotte and North Port in March of last year.”
“There currently are 1,085 active lot listings in South Gulf Cove and in the past week six contracts have been signed, after ‘large price reductions,’ Broslat notes.”
“There also is a glut of new homes on the market, apparently holding back sales of older homes. ‘There are roughly 1,100 new houses listed by the MLS today, compared to almost none at this time last year,’ Broslat says. He also notes that the largest home builders, and even some of the smaller ones, do not list their unsold new homes on the MLS. So Broslat believes the number of new homes for sale is probably substantially higher.”
“Broslat also reports that many of those new homes, often called ’speck’ homes in the industry, are now being offered well below what it would cost to build the same dwelling today.”
An editorial in the same paper. “It has become a buyers market. That means people who are buying are a little more cautious and will no longer just throw thousands of dollars at a $70,000 house priced at $150,000. There have been cases where the homeowner has called and harangued an agent, wondering why the agent has not sold a home. In some cases, the seller has bounced from agent to agent looking for the right person to sell his overpriced home.”
“One broker at a nationally known real estate agency advises a homeowner to deal with a national real estate firm. The logic here is they are more established and have national recognition. I fail to see where that comes into play when you are dealing with an irate homeowner wanting to unload an overpriced home.”
“For the agent: Don’t paint an unrealistic picture, be honest in the pricing, follow your instincts if you sense a troublesome seller that maybe you should pass up, have a list of comparable prices and pictures of homes at different price levels to show the prospective home seller what he’s up against. I’ll add that now is the time for all real estate agents, either with a national organization or a local one, to work together for everyone’s benefit.”
There was this too:
‘During the first quarter of 2006, a total of 830 lot sales closed, compared to 2,611 lot sales in the first quarter of 2005,’ Broslat continues. But add in the 2,000-plus North Port lots sold by auction by Sarasota county and the city because the owners failed to pay taxes, and lot sales in the first quarter of 2006 totaled 2,900.’
” He also notes that the largest home builders, and even some of the smaller ones, do not list their unsold new homes on the MLS. So Broslat believes the number of new homes for sale is probably substantially higher.”
As the tide goes out we will see who was swimming naked ”
Warren Buffet~
I’m looking for some data. Can anyone tell me, preferably with a hyperlink, how many NEW residences were built in the State of Florida between ‘00 and ‘06? An annual breakdown would be optimal, but even an average for the relevant time period would be quite welcome.
‘As the 2006 high season ends, many sellers who were in denial will resort to panic sales this summer.’
Keepeth thy powder dry maties…
So, are we looking at 18 months for the bottom, or, because of all the ARMs coming due next year, will it take over two years to crash?
my prediction is no crash and 5-10 years before we have a bottom; maybe a bit faster in the US thanks to the higher percentage of speculators.
There is still NO change in the global glut of easy money; as long as crazy lending continues worldwide there will be no serious decline in the average sales price.
However, there are some signs that some lenders in the US could be getting a bit nervous, so who knows …
nhz…I think your right , it’s going to be slower than I thought going down . They are still advertising 125% equity loans that are available .This is going to be a slow grind .
I agree for the most part NHZ. I think areas like Phoenix, Vegas, and Florida could “crash”. These areas seem to have the highest levels ofspeculation. Other areas like California (except SD condos), the Northeast, and DC might not “crash” but would see ample declines. I guess it really depends on how one defines “crash”. Condo markets all over the US are quite vulnerable.
My point is it will take a long time to see a bottom. I really wouldn’t consider buying almost anywhere until 2009-2010. It will take some time to suck up all the liquidity as the ECB and Japan I believe are just starting to tighten their monetary policies. We are in uncharted territory so many scenarios are quite plausible, except the soft landing. Hopefully, as things unfold through 2006 and 2007 we’ll start to get a clearer picture of just how ugly things will get.
Agreed….high spec. areas will go first ,but the flippers will hold on longer than they should .
They always do
yes, much depends on the definition of ‘crash’. After the extreme runup in the most speculative areas/segment, a -30% correction within a year would not surprise me (we had something similar in London, Amsterdam etc. 4-5 years ago), but then we are still at the elevated 2004 US pricelevel. For the average homeowner, that is not relevant.
Both the ECB and BOJ are not really tightening; in Japan it is only an announcement, and in Europe the small ECB rate hikes have barely influenced mortgage rates. Trichet now strongly suggests the ECB is done after the next 0.25% hike this summer, so all this tightening looks like nothing more than a cover in case inflation gets out of hand later this year (’we did everything we could to stop it’).
Again, in Europe - after 10-15 years of often stellar gains - the housing/credit bubble is still expanding, and there is no sign of panic with the public, the lenders, the authorities, whatever.
nhz, I respect your point of view, but I’m not sure that it’s accurate to predict how the North American market will react by directly extrapolating from the Euro market.
As you’ve said elsewhere, political interests over there are actively propping up the housing bubble; I don’t believe that the same situation exists this side of the pond.
Betamax: I think the political interests are not much different in the EU and US.
On both sides, the Real Estate game is what keeps the economy going, and on both sides politicians and central bankers choose to keep interest rates artificially low and go deeper into debt every year. On both sides there are many government institutions (like Fanny and Freddy) and tax laws (like HMD, tax free gains on home sales etc.) to subsidize the housing bubble.
the major difference between US and EU in my opinion is the dynamics in the US market: more speculators, in general less government intervention - so maybe the bubble will evolve faster there.
The fact that real estate is illiquid could drag this out forever. It will be drawn out much longer than a stock market crash due to the stock markets being muchmore liquid.
I think it’s very hard to predict the “madness of crowds.” Assuming for argument’s sake that housing prices revert to their long term mean, who’s to say it will happen over the course of one year or seven?
Here are two potential problems that could seriously spook investors…
1) Come mid-summer, year of year appreciation will probably dip into negative territory. If it happens, it will be the first time, in nominal terms, that prices have declined year on year. That will get a lot of press and disabuse the public once and for all of the notion that “housing prices always go up.”
2. A sudden fall in the dollar. We have an astoundingly high current account deficit. To combat this, Congress is actively pressing the Chinese to allow the Yuan to rise against the dollar. But a diminishment in the flow of foreign funds to the U.S. would raise the cost of money and thereby drive up interest rates. And if you bumped interest rates by a percentage point or two, you’d see the number of buyers evaporate as quickly as investor carrying costs rose.
If you are talking about peak to trough new home starts when housing begins to slow, the average takes 24 months. This comes from stats going back to 1959. Some cycles were 50-60 months. Personally, I believe this is the largest bubble ever, so we are in uncharted territory.
I think that sales pace could drop off precipitously in many markets, which in some markets, with lots of investors, etc. could cause panic selling, foreclosures, and erratic pricing.
However, once the weak hands have shaken out, and people have gotten to a stabilized point (which could take a year or two as ARMs begin to adjust), meaning that they can make their mortgage payments, either from renting, or just cutting back on discretionary spending, etc.
At that point, in my opinion, it goes into a slow slide for a number of years, most people have homes to live in, and don’t NEED to sell (or NEED to buy, for that matter). Without the prospect of massive appreciation, people don’t push to get into homes, and the rent vs. buy analysis carries much more weight.
IMHO, there will be a volitile period for high inventory areas in the next 18-24 months, and then either price stagnation, or slight price decreases over the next several years.
OT: Have the March sales/inventory/median price numbers been published for Florida yet? Just curious. I doubt we have gotten any spring rally. Thanks.
Here you go: http://media.living.net/releases/Mar06Sales.htm
Single family home sales down 22%, condos down 23%. Prices are, however, up slightly.
Prices are lagging. Sales down and inventory up are the key. Lower prices will follow.
I hope so–I would like to be able to buy a place eventually. Prices have doubled here in the past five years, but incomes certainly haven’t.
Good article here about the local condo market. Their sales were up 125% for March, but prices are sliding:
http://www.sunherald.com/mld/sunherald/business/14409077.htm
South Okaloosa is going to take a pretty long time to slide significantly on the single family side. Except for a couple parts of Destin, there wasn’t much single family flipping in 03-05 south of I-10, and there are a lot of people who would rather wait for the alleged BRAC boom rather than sell at less than their price now, and are either going to stay put as-is or can rent out the property for a couple hundred bucks more than PITI each month.
North Okaloosa, I don’t care if they’ve now got a Publix and a Lowe’s, Crestview is still essentially rural Alabama.
South Santa Rosa seems to be softening up nicely, but the traffic on US 98 is only going to get worse and you’re lucky to find a property there more than 15′ above mean sea level.
yes, prices will follow but it can take a long time. In some EU countries, this pattern of more inventory, less sales and ever higher prices has continued for several years already.
I guess prices will keep rising until the credit spigots are severely tightened; and we are not there yet, not at all.
If Bernanke decides to lower rates later this year and let the dollar drop, all bets are off.
I agreee that the credit/lending bubble needs to go first. If BB cuts rates, the dollar could tank, sending the yield on the 10 year (and mortgage rates) soaring. I am not so sure cutting short term rates will affect the long end. It could just add steepness. I think our FF rate goes to 5.5% and then their is a pause, however, I don’t think the tightening is done. I think the FED might save a few bullets for 2007. If they cut rates, its because the economy is cooked. Cutting rates could send the wrong message. Just a thought. Who really knows at this point.
My understanding though in the EU (and I could be mistaken) is that highly leveraged purchases are less common than in the US. Anyone have any specific knowledge to support my understanding?
highly leveraged: how about mortgages at 10-20x income?
no problem in the UK or Netherlands if you shop around a little …
125% I/O loan with no downpayment (actually, that’s minus 25% downpayment in my book)? No problem either.
100% I/O loan with 5% downpayment for properties in foreign countries (e.g. Turkey)? No problem in the Netherlands.
And I think there is more mortgage fraud in Europe (UK, Netherlands, Spain to name a few) at this moment.
OK, wait a minute here. A mortgage at 20x income? Let’s see — a person making the equivalent of $30,000 yr can get a mortgage of $600,000? Care to tell us how the payments work? If the borrower pays zero% interest (a totally free loan) and pays principal over 30 years, then they are paying $20,000 per year and living on $10,000 and apparently there are no income taxes there if you borrow enough money. Is that correct? And who is subsidizing the interest if there is no income tax?
In Cape Coral FL,at current sales pace, their inventory extends 18 mo. to 2 years and new construction adding 25 to 30 new units per day. Sounds like a car dealer flooring models and if that don’t spell trouble what does?
I just saw the U.S. consumer confidence report. Talk about a disconnect!!!!!!!!!!!!!!
Contrary predictor?
It’s just a sruvey of 5000 households. If it’s done by phone then maybe sarcasm is lost in the data.
“Hello sir, do you think that the economy is improving?”
“Oh yeah, the economy is doing just great” Insert sarcasm here.
Don’t forget that a majority of Americans still think their home prices are going up. I am sure a good fraction of these folks think they can retire early and this is a cause for optimism.
March’s existing homes report is out on the realtor.org page. Median is unchanged from last month, but they’re doing something funky with the numbers. Median is 218,000. Wasn’t it 210,000 when reported last month? The bubble’s peak - Summer 2005 - has been adjusted upwards as well, closer to 230,000 than 220,000.
Your right …I’ve seen different numbers also . What’s going on ?
I’m trying to make sense of the NAR numbers as we post.
The little ‘p’ against the March numbers stands for ‘preliminary’.
The little ‘r’ against the February number stands for ‘revised’.
That said, 210K to 218K is quite a revision.
From the second article:
“Englewood is still a hot spot. Just remember, if something doesn’t sell today, it will tomorrow.”
And tomorrow is another day!
Of course, if you price it at the peak price, it might take 10 or more years for it to sell. I had to see where Englewood is on the map. What is uniquely desirable about that place? It looks like just another place for old people to go to die. Median age was 63 in the 2000 census.
“many of those new homes … are now being offered well below what it would cost to build the same dwelling today”
that doesn’t say much because most of the cost is in a bubble as well. These homes were built on land that was much cheaper when the developers purchased it. Also the materials that were used and the labour part are far more expensive at the moment because of the housing boom (at least, that is how it works in Europe, don’t know if the wages in the building industry in US are in a bubble as well?).
The cost to build these dwellings might be significantly lower in 1-2 years.
“Also the materials that were used and the labour part are far more expensive at the moment because of the housing boom (at least, that is how it works in Europe, don’t know if the wages in the building industry in US are in a bubble as well?)”
Same here. Actually, we’ve had about 3 cancelled condo projects here in Victoria due to labour shortages and cost overruns. Big holes and foundations are what is left remaining on those sites.
I wish every reader of the bubble blogs would take the time to write an editorial like that to their local papers when their local governments inevitably start blathering about housing subsidies.
Take the over priced listing. They’ll reduce their price later and you can sell it. Agree with them. Don’t argue or you’ll lose the listing. Tell them how smart they are. Get the listing for at least 6 months so that in 90 days with no offers the price reduction can be meaningful. Who cares that they are wasting time and money. All you want to do is eventually sell it and get a commission.
>those new homes — often called “speck” homes in the industry
I had to chuckle at this…I thought that “spec” homes were homes built on speculation…and that “speck” homes were the crumbs thrown off when building McMansions.
What’s the inventory of EMPTY homes. I think this is an important number.
Heres a good link concerning the fact that many outsiders pay a premium here in Orlando to have lakefront views in front of “fake lakes” - LOL !!
Cut and paste : http://ap.polkonline.com/pstories/state/fl/20060425/3811747.shtml
Enjoy !
Many people moving to Florida fall for this, though only the most witless natives would. The simplest way to know if you are looking at property on a real lake is to ask its name and then find it on a map. No name on a map, it’s not a lake, at least not a natural or spring-fed one. “A retention pond by any other name…”
I guess that for those of us that live in Maryland, a state without a single natural lake, (all lakes are man-made) it seems like an unimportant distinction.
Since when have you been able to buy a home for $70K in Florida? 1990?
Good point. The $70K ones have wheels.