Florida Housing Bubble Meets ‘Price Reality Check’
The Canadian National Post looks at the Florida housing bubble. “The U.S. housing market has endured a boom of historic proportions over the past few years. Adjusted for inflation, real price increases have been the highest on record. Jorge Perez, whose Related Group has ridden the recent U.S. property boom perhaps faster and further than any other developer, knows the market has cooled.”
“‘There has been a great amount of construction, some overbuilding,’ concedes Mr. Perez. ‘The media [have] on a daily basis told prospective buyers the bubble is going to burst,’ he says. ‘I think people are taking a much more measured look at real estate. So our universe has shrunk. Speculators have almost dropped out of the market and sales have slowed down.’”
“Where developers in the Sunshine State once held lavish sales launch parties every bit as raucous as the high-tech frenzy, they’re now throwing incentives at buyers. Where buyers camped out for days, they are now selling at auction. And where investors once turned to housing after their equity portfolios melted, they’re now walking away from deposits.”
“‘The mortgage market today is bigger than the government bond market; housing is valued at double the level of household equities on the household balance sheet,’ David Rosenberg, chief economist for Merrill Lynch says. ‘Never before has housing come to permeate the economic and social fabric to the extent that it does today.’”
“Harry Rodstein says the market has turned on a dime. Sales at his condo conversion in Sarasota have ground to a halt. Conversions are apartment buildings converted to condos, the latest real estate fad to hit the state. ‘What I’ve seen is that sales, particularly in condo conversions, have fallen off the end of the table,’ he says.”
“He blames the retreat on excessive media coverage of the bubble and a U.S. Federal Reserve that does not know when to let up with interest rate hikes.”
“Mr. Rodstein neglected to mention one crucial factor, oversupply. Across the United States, there are 3.5 million single-family homes and condo units up for sale, a record, and up 30% from a year ago. In Miami-Dade County alone, there are 25,000 condos under construction and another 25,000 that have already got their financing and are likely to go forward. In addition, 50,000 more have been announced.”
“In the whole period from 1995 to 2004, only 9,079 units were built in Miami Dade.”
“‘It was like a gold rush,’ says Mike Morgan on a tour of a slapped-together-looking development of US$260,000 to US$300,000 homes and townhomes, wedged between a trailer park, drainage ditch and the highway.’I was doing an open house for the townhomes we had listed there and these four elderly ladies told me they bought four of them. They said: ‘We drove up from Miami and Ft. Lauderdale, we got off the I-95 and this was the first thing we found.’ They bought four.’”
“The garages are so tiny Mr. Morgan can’t fit his truck in and there’s no room to park on the street because the driveways are jammed together. There are ‘For Sale’ signs on every block and many homes are obviously empty, without curtains on the windows. Mr. Morgan says people wouldn’t ask him the questions they normally ask when looking for real estate, such as details about the location, amenities and taxes.”
“‘They would only be concerned whether it was pre-construction,’ says Mr. Morgan. ‘Pre-construction became the buzzword, like dot-com. They only wanted pre-construction. I’d say I’ve got these units that were already built and they’d give a good income stream, but they’d say, ‘No, no, I want to flip the contract before I close.’”
“Many flippers are now walking away from their deposits or trying to wiggle out of their contracts, using shoddy workmanship as a loophole. Mr. Morgan says he now has 43 investors who are walking away from deposits of US$35,000 to US$80,000.”
“Recently, three new homes at an exclusive golf community in St. Lucie West, were sold by auction. Jeff Banack an investment salesman, picked up a two-bedroom home for US$235,000 plus the 10% buyer’s premium. Al Deleeuw, a builder from Detroit, had two similar houses for sale on the same street for US$350,000 and US$345,000. Mr. Deleeuw says he thought the price was right because he’s had price agreements on both, but they fell through.”
“At the auction, the auctioneer adds: ‘We are the price reality check.’”
This article is worth reading in full, if you have the time.
Great article Ben . So much for the Canada snowbirds saving Florida .
Ben getting the Canadian scoop once again! Kudos to the hardest working man in the bubblesphere!
I’m glad i was persistent with the wife telling her that it was not a good idea to buy (2005). Finally i convinced her not to buy and to just rent for awhile. Now after showing her this blog, she is glad and thankful! Let the melee begin……
That is a remarkable comment by David Rosenberg. The mortgage market is bigger than the government bond market. Staggering!
Small wonder that Fannie Mae’s share price gets plunge protection, and that the NYSE waives the rule that says companies which do not produce financials will be delisted.
Oh well, whats a little financial shenanigans amongst theives.
The interesting thing about comparing housing to the bond market is that the bond market bubble burst this week. For the longest time 10 and 30 year treasuries sat at 4.5% yields. We had a big inversion in the yield curve. Not any more. The 20 year is sitting at 5.2% and the 30 at 5.30+% and they are moving higher on a daily basis.
The party is over for low bond yields. The bidding has been light at the bond auctions and it will only get worse as investors realize the US economy is hooped.
Hang on, this is going to get very interesting.
I love how people are walking away from their deposits. They have finally come to their senses.
http://www.bloomberg.com/markets/rates/
The long run is here, and the conundrum is dead.
tweedle dee. BONDS!
Your comments are way off the mark. Bonds are “OFF” but they had already priced in a 50bp move from the March 29th FED. meeting. Prior to yesterdays 30 tic drop bonds traded near their Early April lows. You have the current yields correct buy the direction wrong.
The next 6 point move is UP in price and down in yields..
Large speculators have large shorts, commercial hedgers largest longs in years.. market oversold and diverging! And as many posts on this page are discussing housing and homeowners are imploding….oops there goes the economy!
And as much as I don’t think the US treasury market is safe long term between here and the bottom of the recession there is going to be a Treasury rally flight to quality….for liquidity, and becasue they (people like me) have NO ALTERNATIVE.
Mortgages - read posts above in this blog -illiquid.
Coprorates…no consistant credit quality available & illiquid.
stocks - you must be kidding, on average they trade like April -2000. where investors ignore the fundamentals and many are at a blistering 30-60 times P/E..while others are being punished one by one.
AS for me thanks, I went long Friday afternoon the gap down and failure to push lower (88-10 & 88-01 hoping to buy 87-(16-20)early next week!
Going against the crowd in a counter trend advance. Smart guy, inspired.
On 60 minutes the other evening, they did a piece about Sallie Mae. The defaulted notes we’re paid by the gov’t. A Sallie subsidiary then acquired the collection rights on the non performing loan, they would receive another 20% for what ever they could collect on the outstanding balance.
If Fannie has this “can’t fail” structure, do you think that could be the reason their price is always holding around 50…even with rumors of a reinstatement?
It kinda sounds like the dreaded bail-out is already happening either by PPT or the exemption from filing?
I know just enough about this to be pissed off at Fannie…nothing more.
If you really want to get pissed off, think about all the senior executives walking away with our money. Either crooked bonuses or fat retirement packages.
you are catching on Peter!
“‘The media [have] on a daily basis told prospective buyers the bubble is going to burst,’ he says. ‘I think people are taking a much more measured look at real estate. So our universe has shrunk. Speculators have almost dropped out of the market and sales have slowed down.’”
A few blogs and crank commentators (Shiller, Dean Baker) have steadfastly maintained the bubble would burst. The media only piled on yesterday, when the mountain of evidence of a real estate crash in progress became too obvious to ignore without failing the red face test.
“You will find the truth is often unpopular and the contest between agreeable fancy and disagreeable fact is unequal. For in the vernacular, we Americans are suckers for good news.” Adlai Stevenson
Also liked the comment about the media being at fault.
Talk about flipper’s being short term . These investors only wanted pre-construction contracts so they could flip them before the condo/house even closed escrow . No wonder builders kept raising the prices .
Or the Fed:
“He blames the retreat on excessive media coverage of the bubble and a U.S. Federal Reserve that does not know when to let up with interest rate hikes.”
What he fails to realize is that the Fed funds rate is still 150bp below where it was when AG pushed the panic button. Rates were at 6.5%. 5% is still historically low, and accomodative. Ten years ago, in the face of an inflation threat, we’d see rates jacked up to 6.5-8.0%.
The Fed is far from having fixed the excess-liquidity problem. In fact, Bernanke is now letting another bubble develop, this time in commodities. So we had a stock market bubble, a real estate bubble, and now a commodities bubble.
What you really had was a false low in the commodity sector because Rubin’s (clinton admin) strong dollar policy was based on central banks selling gold into the market to keep that inflation indicator artificially low and hence inflation expectations remained low. Go back and adjust ANY commodity for CPI (which also is being manipulated lower thanks to the Boskin commission) and you will see that the CRB is STILL below that adjusted index. There isn’t a bubble YET in commodities, they have a LONG way to run before getting to that stage. THAT is what is going to cause BB to lose sleep at night. He can’t control supply of commodities, he can only try to control the price rise through the use of derivatives and short selling tactics. China upset that supply/demand applecart and now we are seeing the results of this artificial suppression. This will blow up at some point for sure!
I respectfully disagree, auger-inn. I think that a bubble is definitely forming, it just may not be close to popping yet. A bubble is a psychological phenomenon more than a measure of real or nominal price levels. In other words, it’s the rate of change in price and the reasons behind it that make it a bubble, not the price relative to a point in time in the past. Look at the chart for GLD. It’s gone parabolic, and that’s always a bad omen. I’ve never seen anything go parabolic and then just level off; rather the chart winds up looking like a needle, with just as steep a drop-off following the peak.
I think Warren Buffet put it well when he said that bubbles form because of strong fundamentals, then the speculation comes in and soon the speculation becomes dominant. There are good fundamental reasons for gold, copper, and other commodities to rise, just not this fast. People are buying it in anticipation that prices will go higher, just like they did with real estate and Broadcom shares. When yesterday’s condo flipper is now talking about his GLD shares, you know it’s time to start worrying.
Will gold go higher? Probably, and perhaps a lot higher. However, it is almost certain that most speculators will hang on too long and get burned in the sudden reversal, just like in the 80’s (I knew a guy who lost a bundle).
great post, well said!
I hear so many people talk about “parabolic” and I have to wonder if most of them really know what they are talking about. Why do you think gold has gone parabolic? What fundamental analysis are you basing this on?
I would agree with that sentiment if I were listening to folks bragging about their commodity portfolios going up. The folks here are definitely ahead of the general population in real estate and it doesn’t surprise me to find that some of them are ahead of the next great bubble, which at some point WILL be in commodities. Therefore, I discount the occasional blogger who is bragging about his metal gains.
However, almost no one I personally know is even remotely aware of gold or silver as an investment vehicle. Sure, more and more press is being devoted to this but still it is hardly a blip on the radar screen of the general public.
I do believe we are going to see a correction in these commodities and metals, just like everything else these won’t go up in a straight line (imo).
That being said, until you convince me that the FED will stop the infusion of liquidity into the system, I will believe that the prices will continue upward reflecting this (with the usual corrections). With regard to ANYTHING that was artificially suppressed, what would a chart look like after the suppression is overcome by market forces? This area of my argument goes into the “tin hat” category of speculation. You either have done research about why this contention is being made OR you are not going to believe this, period. The topic is too conspiratorial for anyone to just accept without some measure of due diligence AND a leap of faith. You may go to http://www.gata.org or subscribe to http://www.lemetropolecafe.com, read the Chevereux Credit Agnicole report (well respected large investment house in France, 56 pages though), read the “not fair, not free” report from Sprott Asset management (large investment brokerage house in Canada) in order to gain some insight on why the move in the gold chart MAY not have precedent when trying to interpret it. I won’t go further here because I’m not looking for converts and I accept that people will choose to believe this wouldn’t have been done by the Central banks.
With regard to the speculators in the 80’s who were burned. It will happen again, things are not different this time around. That being said, I don’t see the same situation with regard to BB pulling a Volcher given the Real estate and political ramifications (20% then, moaning over 1/4pt raises,5% now), the savings rate (10% or so then vs -1% now) or the federal deficit levels (don’t even need to post a number for that).
I’m probably wrong and it wouldn’t be the first time, but the trend is up and for reasons different than just speculators piling on. Show me uncontained euphoria and I will change my mind. Just my $.02.
Not in the public conscious, auger-inn? Look at this article in the Chicago Tribune. This is definitely mainstream news. In fact, I’ll bet we’re just weeks away from a Time Magazine cover with a guy hugging a gold bar and the words “Gold Fever!” splashed across the cover. Then you’ll know it’s really close to the top.
claudia, with regard to your comment:
I hear so many people talk about “parabolic” and I have to wonder if most of them really know what they are talking about. Why do you think gold has gone parabolic? What fundamental analysis are you basing this on?
I’m talking about the rate of increase in price - that has gone parabolic, “fundamentals” notwithstanding. All you have to do is look at the chart I posted. You don’t need to do any fundamental analysis to see the parabolic rise. However, you hit the nail on the head with your point about fundamental analysis — how do you do it with gold? I have no idea, and I haven’t heard anyone explain it. When I hear people say, “Gold’s still cheap at these prices,” I ask, “Cheap compared to what? What’s the fair market value and how did you arrive at it?” Or when they say, “Gold’s going to go up a lot further,” I ask, “How much further? When will it be too expensive?” I get blank stares. Even the “experts” who say things like, “We think gold may get to $1,200 an ounce” never offer any explanation of where that number came from (they can tell you why they think it will go up, but no clue as to how high it will go).
My opinion - hedge funds are behind this run-up. They’re desperately chasing returns (so desperately that they are now investing in movies!). They’re using extreme leverage and when they finally decide to unwind their positions (or go bust), the correction will be very sharp and sudden.
John, When my cab driver starts talking about drill results and metallurgy then I’ll believe we are in a bubble. One newspaper article from Chicago Trib doesn’t do it for me.
You may well be right but I’m going with my rationale stated earlier.
Here are a couple of links you might read for further edification of my stance.
http://www.financialsense.com/editorials/phillips/2006/0513.html
http://www.321gold.com/editorials/casey/casey051506.html
I hope they post OK for you.
Thanks for the links, auger-inn. I think commodities are in the “wall of worry” stage described in the second article, on their way to mania. I believe gold and other commodities are risky for a few reasons:
- Speculation is readily apparent. As Buffet said, it begins with fundamentals, then the speculators come in, and soon speculation is dominant.
- I believe hedge funds are driving the price of all commodities up. Hedge funds have rivers of cash in search of high yield, and yesterday’s strategies (like convertible arbitrage) don’t work anymore. The only game in town for hedge funds right now is commodities.
- The run-up in metals prices is based on a lot of speculation about central banks adding to their gold reserves, inflation getting out of control, and continued conflict between the U.S. and Iran. If none of these things materialize, gold will likely plummet.
- I still can’t find a credible valuation method for gold. Everyone says, “Gold should go higher because of X, Y, and Z” but how much higher? Where do you sell? With stocks, I can come up with a rough fair-market valuation by discounting future cash flows to present value. Sure, there’s some uncertainty, but you can adjust for it. With gold, what’s the right value? All I’ve read are a bunch of wild-ass guesses between $800 and $2500 with no formula to explain how they got there.
Parabolic refers to the shape of the chart of a market. A slow build up, steeper rise and then straight up. Gold definitely looks parabolic. Just look at the chart. The key is too what degree.
We are very close to a top here. The major gold stocks are not confirming the rise in gold to new multi year highs. The commoditites boom can not be sustained with a housing fall. Housings demise will kill the wealth affect and consumer demand will plumet. At some stage they will decline together into general deflation. At that stage the Fed will try to reinflate. We will be like Japan in 1990 without an outside market (USA for Japan) to export too.
It amazes me that so many of you, that recognize the instability of housing prices, can make the jump to speculating on commodities. They are close to the same game and are connected at the hip.
This is a time too keep what you have not make money. Some gold is OK as a safety net but thats about it.
It amazes me that so many of you, that recognize the instability of housing prices, can make the jump to speculating on commodities. They are close to the same game and are connected at the hip.
Amen, brother. How can you shake your head in disbelief at the insanity of the housing market and then turn around and plow your nest egg into commodities speculation?
First off, I’m not sure hedge funds are in commodities in a big way. Maybe recently, but if you’ve read performance stats on hedge funds for the past year or so, they haven’t done well - implying that they weren’t heavy in commodities over the past. That may have changed and they’re the principal driver of the trend now, I don’t know.
The part of the commodity story that is not emphasized is that there has been a chronic under investment in commodities over the past several decades, in favor of dot con stocks and residential real estate. Not one refinery, nuclear plant, nothing. Oil and natural gas usage is up but processing capacity is down - this affects the extraction costs of other minerals needed for industry as well, and drives people to look to other forms of energy (cane sugar in Brazil for example, corn in the US). So commodities isn’t just about gold.
Gold/silver is time tested; we’re in a world of governments that made too many promises and have every incentive in the world to print their currencies like mad. If you think there’s a bubble in commodities, I invite you to short them - those of us who have done our homework are always happy for donations.
I know crap about gold…but just wanted to add to this discussion that gold was the highlight topic for the yahoo ‘buzzlog’ write-up some time last week or so…you know, the thing that most often lists ‘ashlee simpson nose job’ and ’silent birth’ as the most-searched-for or greatest-percent-increase terms? To me, that’s bigger than a story in the trib.
That, combined with not knowing/understanding what drives need for gold as a consumable commodity, makes me want to avoid it. But wish I had bought some in the last couple yars to sell some of it about now!
Commodities that have some clear and important actual use I could see playing with happily, but I’ll have to leave that for a time when I have some play money available…
amoney, go to Google and type “hedge funds” gold, then go to the news tab. More than 600 articles. Hedge funds are into commodities in a huge way, and largely for the reasons you cite — the traditional hedge fund strategies (like the carry trade) don’t work anymore and they need big returns. Here’s an excerpt from an Australian paper, the Herald Sun (note that one analyst agrees with your point about underinvestment, but still thinks the market is being overcome by speculation):
National Australia Bank analyst Gerard Burg said the level of metals prices was worrying, with no justification for the increases.
He said price rises were based on speculation, fuelled by concerns about supply constraints.
Angus MacMillan, minerals strategist at London-based Bache Financial, said: “It is becoming a very dangerous situation. The further up it goes, the more dramatic the reaction will be.”
Independent analyst Peter Strachan, the author of StockAnalysis, said the resources sector was suffering from a lack of investment in exploration and infrastructure.
“It’s really come home to roost,” he said.
But he warned the current boom could have disastrous consequences and would not rule out a crash on the scale of the October 1987 sharemarket meltdown.
“The markets for these commodities are now very strongly in the hands of hedge funds and speculative funds,” he said.
“I think it will all end in tears.”
“He blames the retreat on excessive media coverage of the bubble and a U.S. Federal Reserve that does not know when to let up with interest rate hikes.”
Mr. Rodstein is pissed off because he’s not getting a “Greenspan put” from the Fed. This is what needs to end more than anything else.
Yes and “The truth is the truth until the day of reckoning.” William Shakespeare.
Comment by JungleJim
2006-05-13 05:57:01
Todays Sarasota Herald Tribune RE section (5-13-06):April numbers have just been released, and for the Sarasota housing market, they are not good.
They show that after a bit of a recovery in March, real estate sales retreated in April.
The good news is that the number of new listings on the Sarasota MLS declined, which would be really good news for sellers had the rate of sales (the absorption rate) increased. It didn’t.
The 309 houses that sold in April represented just 5.4 percent of the 5,708 houses on the market, according to statistics released in RE/MAX Properties Realtor John Lafabregue’s “Power Marketing” report. Just 5.16 percent (180) of the 3,485 condos on the market sold.
In March, 6.2 percent of houses and 6.3 percent of condos sold. After 351 houses and 211 condos sold in March, just 309 and 180 did in April.
There were 1,171 new house listings and 250 new condo listings in April; in March, the numbers were 1,497 houses and 751 condos, respectively.
Perhaps this means that investors who can’t sell their properties are taking them off the market and trying to rent them instead. Good news for renters, and for sellers who really have to sell: less competition.
When asked to describe the market, one Realtor said “shucks.” Or something that rhymes with that. He called the market’s malaise a “perfect storm” — climbing mortgage rates, investors leaving the market, and long-time owners who don’t want to give up their Save Our Homes property-tax protection. It all equals fewer buyers.
Ho Ho, This is great !!! The same people who were hailed as savy financial geniuses for the last few years really do look like idiots now don’t they?
Hey, when the market is going up 50% a year every body looks like a genius.
True. True.
When the RE tanks 50% per year I guess we can say these guys look like MORONS!!!!! Don’t really understand what will happen but RE has done a total 180. I’m loving every minute. I’ve suffered for so long and finally we are coming back to reality.
Here is my prediction for the so called “bubble markets”. I think for the rest of 2006 inventories will continue to build and interest rates will continue to rise slowly as inflation becomes more apparent, however I dont think prices will come down much this year. In 2007 I think more desperation will set in as well as general acceptance that this “housing boom” was a farce and a mania that can not be sustained, in the 2nd half of the year prices will really start to fall, foreclosures will rise as well. 2008, RE crash, I think it will be hard to sell a home for what is owed on it, people will be walking away from homes, foreclosures very high. Also some banks as well as Fannie and Freddie and alot of mortgage companies will be in trouble. Save your money, I think there will be alot of great deals to be had in 2008. Most of all, be patient!, dont be fooled into thinking it is a buyers market now, it will get much better, do not buy until current prices have fallen 40-50% off of current levels(unless you live in a normal market where you can get a nice home, in a nice area for 2-3 times your yearly income, ie. Texas,Midwest, most southern cites), good luck.
Crazy in the OC,
Agree with your prediction, but think it may go on even longer.
I would definitely advise future buyers to wait until prices are AT LEAST 40% off peak. Just be patient and let your savings/investments build up. In the meantime, think of all the money you are saving while renting. Also, you have the flexibility to move anywhere you want should there be a recession/depression. That’s a luxury few new buyers will be able to enjoy.
“‘The mortgage market today is bigger than the government bond market; housing is valued at double the level of household equities on the household balance sheet,’ David Rosenberg, chief economist for Merrill Lynch says. ‘Never before has housing come to permeate the economic and social fabric to the extent that it does today.’”
Here is a stock chart which provides a hint as to whether the situation described by Mr. Rosenberg is destined to continue indefinitely:
http://tinyurl.com/rv5ed
Now that is impressive, if not frightening.
“Jacqueline Thorpe travelled to Florida’s east coast and found the mood souring faster than in Silicon Valley in the spring of 2000.”
Uh-oh…
HERE’S YOUR SIGN ! In the Fort Myers/Cape Coral area signs are up all over, the drop is about 20% and moving fast, new areas look like ghost towns, Investors wanted signs are on all the main roads, and open house signs sit with no lookers. construction jobs are being filled by immigrant workers at half the pay.Its not looking good. Where are all the dumb boomers with no common sense and tons of money ?
“Florida’s condo king, the Trump of the south, the largest developer of multi-family dwellings in the United States, is under no illusions about the property market that appears to be softening right beneath his stylishly shod feet. Mr. Perez has about 14,000 units in 19 buildings worth US$8-billion either under construction or about to be started, most in South Florida.”
The tsunami tide has receded, and Mr. Perez was caught swimming naked.
If I was a lender to Mr Perez, I would be trying to get his passport away from him. This guy has GOT to be thinking about “gettin outa dodge” with what he is seeing. This guy can’t be that stupid.
Unemployment and inflation expected to rise… don’t worry, everything’s fine…
18 months? 30%? Try 6 months for 30% shuttered and ultimately 70%.
Your Lips to Gods Ears!!
It should ultimately be 70%. The number of mortgage broker licenses tripled since the year 2000, and that doesn’t count the people who went to work for “mortgage lenders” which do not require a license in Florida to originate loans.
“Only time will tell whether prices will correct with a slow leak, a bang or even re-accelerate after a brief pause.”
Hmm… I wonder if those Miami condo prices will heat up again this summer? Maybe it is not too late to invest in one, just in case?
“But as Canada gears up for another brisk homebuying season, U.S. figures show a sudden weakening since the end of last year.”
No condo bubble in Canada, eh?
http://www.canada.com/montrealgazette/news/business/story.html?id=784ce62d-558b-44c2-bbdd-1c9c8c3190a9&k=79973
“I wonder if those Miami condo prices will heat up again this summer?”
GS, did you see this quote from Mike Morgan over at Mish’s blog? (Google “mish” and “global”.)
“Let’s not forget the 70,000 units being built in Miami with just a 2,500 a year absorption rate…. Naples numbers are even worse.”
Hmm, 28 year inventory … Is that a “buyers’ market” or “no market”?
And to think that that there was only a little FROTH in certain markets. More like a tsunami!
And this tsunami has swept pretty far inland (Des Moines, Iowa; Fayetteville, Arkansas; Cleveland, Ohio; Toronto, Quebec). I am wondering whether the Biblical story of the Great Flood might be a more fitting metaphor, as tsunamis only devastate the coasts.
’I was doing an open house for the townhomes we had listed there and these four elderly ladies told me they bought four of them. They said: ‘We drove up from Miami and Ft. Lauderdale, we got off the I-95 and this was the first thing we found.’ They bought four.’”
I was laughing until I came across this. Now I feel like crying.
Right….. As if these little old ladies have time to make the money back that’s going down the drain . Dont you know, “Real
estate always goes up !” Didn’t the NAR assure everyone that real estate is a sure bet ?
There is a tragedy that will be repeated millions of times. Its not just the flippers and realtors who are suffering. Hard-working and honest people who believed in lies will now be destroyed.
They believed in greed, not lies. The lies were just a confirmation of their excessive greed.
“Honesty pays, but it does not pay enough for some people”. -Hubbard.
I don’t think the little old ladies had a care in the world for that they were going to make some young struggling couple overpay for their property and then not be able to retire themselves.
Yea your right, I guess little old ladies can be blinded by greed to.
“For his part, Mr. Perez forecasts a secondary boom once the excess disappears.
“We’re confident that we have produced so much product that we have delivered, or [are] ready to deliver, [and] our financial position is so strong we will be able to weather any downturn in the market,” he says.”
Just like the dot com bust. Investors in denial. Lots of people bought on the way down thinking it was a temporary blip. The thing about bubbles is that once investors are shocked by seeing that it is not a sure thing, they run away. They never come back. And I think people are now seeing that it is a bubble, no doubt about it.
How would you like to be the people that paid $350K for the same house that just sold for $235K ? Buyers using comps aren’t going to pay more than $250K now. Congratulations, Mr. Owner. You just lost $100K. Good luck refinancing that mortgage if they use comps to determine value ! I hope you a) don’t have an ARM coming due in the next year and b) you have more than $100K of equity in your home otherwise it ain’t going to be pretty.
That will be the next story we start hearing about. People being declined refis due to lack of equity or comps or lack of income now that the mortgage companies will be looking closer at the real situation.
WOW, relentlessly honest in telling what is REALLY happening, unlike U.S. reporting, where they temper everything they say and you finish the article with no clearer understanding of where the market is than you did before - or RE shills who continue to say what a good time it is to buy!!
A few points/questions
1. Has anyone seen an article in a U.S. paper written as honestly as this (esp. in FL since this is the focus)? Kind of brings back the discussions on articles not being written to avoid angering the RE advertisers….
2. Even with this article, the connection between the housing bubble and the larger umbrella credit bubble- which is truly the story- still doesn’t seem to be hitting the consciousness of Americans. This is where, IMHO, the realization of what a perfect storm this really is.
3. Since many of these initial job losses in the economy are in RE and are commission jobs, are these people still eligible for unemployment benefits, and if not doesn’t that skew the unemployment numbers? Just wondering
“… honest in telling what is REALLY happening, unlike U.S. reporting, …”
Except for slipping in the line that suggests that Canada is immune from the bubble. (”“But as Canada gears up for another brisk homebuying season, U.S. figures show a sudden weakening since the end of last year.”)
Anyone who has visited Vancouver in the past year would tell you their skyline is similarly punctuated by myriad newly-constructed high rise condos as one sees in San Diego or Miami, and one of Ben’s posts yesterday suggests similar issues for Toronto and Montreal. That about covers it, as Canada only has three cities.
Oh, we’re getting our turn. Don’t you worry about that. Just a delay, that’s all.
Think Texas, early-mid 1980s. Because when the oil market crashes (only a matter of time), so will Canadian real estate. Sorry to sound so confident in my prediction, but it just seems inevitable…
Ottawa prices went up only 1% in 2005.
http://www.homesinottawa.com/report/mlssales.htm
Ottawa seems to be leading the rest of Canada by a couple of years. They were at 7.7% annual price growth in 2004 and then 1% in 2005. Our nation’s capital has lost a lot of good jobs in last few years, I hear. Outside of Alberta and BC, I understand most areas are currently similar to 7.7% and will probably be similar to 1% next year…and so on. For BC, it will be identical to the US crash in the next couple of years. I plan to move to Vancouver by 2008 and get a nice home for a low price.
I’m curious to how the “Olympics 2010 make us different” is going to pan out in Vancouver area. And in my own (Victoria) area as they seem to believe it’s a good thing for us as well.
I’d argue that it will stretch out the decline over a longer period of time. Seller’s will try and hold on just a little bit longer thinking that the 2010 games will bail them out. Get themselves into worse financial condition that they can’t ever hope to dig out of. Though I suppose, whether you owe 500k or 1million doesn’t really matter if you can’t pay.
Answering my own question with an internet search…. looks like unless you paid privately for the insurance, you can’t get unemployment benefits if you are self employed or work by commission, although individual states may have different rules.
That means there will be a big increase in unemployed people and the government will still say how rosy things are. The bottom is going to drop out and the goodspeak Orwellian Govt. will be telling us how great things are going. How long will they be able to hide this?
Polestar,
**Very** good point! I had forgotten that they might not be covered. You’re right, the govt’s numbers will continue to show how rosy our economy looks. Still can’t figure out how they believe their BS figures. Anyone in touch with real people can see JOBS with good wages and benefits are on the decline. This is all the average Joe cares about. GDP, CPI…BS in, BS out. Govt numbers don’t matter at all to the average worker.
The media everywhere tend to be more dispassionate when reporting on someone else’s country (ranting moonbats on the editorial pages of the UK papers excepted).
This guy isn’t bad (for a realtor) in his SD market status blurbs:
http://realtytimes.com/rtmktc/report.htm?open&link=http://mktc.realtytimes.com/mktc/conditionsviewjs/California~San_Diego~bobcasagrand?open&pID=rt1
On the other hand, this b**** is getting on my nerves:
http://realtytimes.com/rtmktc/report.htm?open&link=http://mktc.realtytimes.com/mktc/conditionsviewjs/California~San_Diego~rimahakooz?open&pID=rt1
At least Bob is advising caution
Rima Hakooz, RE consultant… and self serving. Her advise is not worth the cost of the paper it is written on.
Something to understand about Realty Times market condition reports: the contributers subscribe to RT’s newletter program which they use to tout their services to prospective buyers and sellers. Do you really think anyone is going to say the market is in the crapper?
“He blames the retreat on excessive media coverage of the bubble and a U.S. Federal Reserve that does not know when to let up with interest rate hikes.”
Sorry HARRY! Unfortunately the media has to tell the truth even if it does ruin your financial bonanza and the fed is there to serve the country not to make sure your RE keep doubleing every years.
You know there are going to be many people like Harry in the years ahead blaming every one else that thier stupid RE gamble’s did not pay off. What an ass this guy is!
Obituary of Mr. Common Sense
Today we mourn the passing of an old friend, by the name of Common Sense. Common Sense lived a long life but died recently in the United States. No one really knows how old he was, since his birth records were long ago lost in bureaucratic red tape.
He selflessly devoted his life to service in schools, hospitals, homes, and factories, helping folks get jobs done without fanfare and foolishness.
For decades, petty rules, silly laws, and frivolous lawsuits held no power over Common Sense. He was credited with cultivating such valued lessons as to know when to come in out of the rain, why the early bird gets the worm, and that life isn’t always fair.
Common Sense lived by simple, sound financial policies (don’t spend more than you earn), reliable parenting strategies (the adults are in charge, not the kids), and it’s okay to come in second. A veteran of the Industrial Revolution, the Great Depression, and the Technological Revolution, Common Sense survived cultural and educational trends including body piercing, whole language, and “new math.” But his health declined when he became infected with the “If-it-only-helps-one-person-it’s-worth-it” virus.
In recent decades his waning strength proved no match for the ravages of well intentioned but overbearing regulations. He watched in pain as good people became ruled by self-seeking lawyers. His health rapidly deteriorated when schools endlessly implemented zero tolerance policies.
Reports of a six-year-old boy charged with $exual harassment for kissing a classmate, a teen suspended for taking a swig of mouthwash after lunch, and a teacher fired for reprimanding an unruly student only worsened his condition. It declined even further when schools had to get parental consent to administer aspirin to a student but could not inform the parent when a female student was pregnant or wanted an abortion.
Then, when people, too stupid to realize that a steaming cup of coffee was hot, were awarded a huge settlement Common Sense threw in the towel.
Finally, Common Sense lost his will to live as the Ten Commandments became contraband, churches became businesses, criminals received better treatment than victims, and federal judges stuck their noses in everything from the child rearing to professional sports.
As the end neared, Common Sense drifted in and out of logic but was kept informed of developments regarding questionable regulations such as those for low flow toilets, rocking chairs, and stepladders.
Common Sense was preceded in death by his parents, Truth and Trust; his wife, Discretion; his daughter, Responsibility; and his son, Reason. He is survived by two stepbrothers: My Rights, and Ima Whiner. Not many attended his funeral because so few realized he was gone.
Hear, hear!
State Farm 71% increase and cancellation of nearly 1500 condo master policies are going to make the situation in Florida even more interesting.
http://tboblogs.com/index.php/newswire/comments/state_farm_plans_to_raise_rates
‘An estimated 25% to 50% of all U.S. jobs have been connected to the housing industry in recent years, but jobs are not the only thing at stake.
Consumers have used the rising value of their homes to tap equity and fund spending in a way unknown a decade ago. A slump in prices could turn that tap off, causing a sharp slowdown in the economy, which could sideswipe Canada.
“This is the first cycle that you could actually instantaneously crystallize the rise in the notional price of a home and use it for current consumption,” says David Rosenberg, chief North American economist for Merrill Lynch & Co.’
Bingo! This is exactly why there is no need for a jobs recession to precede a housing crash this time around; all we need is a prospective buyers’ strike punctuated by an inventory crash and falling home prices.. As the debt-financied home equity ATM subsequently shuts down, the symbiosis which fueled the bubble will spontaneously implode.
The simultaneous loss of demand for construction work, mortgage lending,
home sales, home remodeling, and retail will all add up to a jobs recession, and this will all accelerate the RE price decline, as nobody will want to buy or lend when widespread layoffs are calling into question the ability to keep making mortgage payments. This would be a good time to buy for anyone with the means and/or the courage.
I agree. It will collapse under its own weight, much like the dot.com bubble.
Why the stigma associated with Auctions?
In Australia Auction is a very common method of sale in both good times and bad. It is usually considered the way to get the best price for a property, but is not always used as agents charge more for sale by ‘auction’ than by ‘private treaty’, which is more like a regular sale. Agents usually spend more $$ on marketing for Auction and pass the cost on to the seller.
Also, a very common gauge of market conditions is the weekly ‘Auction clearance rate’, which is the proportion of properties auctioned each Satruday which meet or exceed their reserve prices. http://www.smh.com.au/news/national/rate-rise-fails-to-deter-buyers/2006/05/06/1146335964678.html
It is a mystery to me why Auctions aren’t more mainstream here. Will this change?
“It is a mystery to me why Auctions aren’t more mainstream here. Will this change?”
I have three theories on this:
1) Ignorance — most Americans don’t realize that it might be cheaper in some market conditions (like when prices are dropping quickly) to sell by auction than to try to guess the right list price and hold out for months while no buyers are forthcoming.
2) Risk — sale by auction creates the risk that the buyer who would be willing to pay the most for the seller’s home is not a participant in the auction. Only through using the MLS, FSBO, or some other long-term marketing strategy can the seller be assured to get exposure to buyers with the highest potential offer prices. (Steven Levitt did empirical work which offers evidence on this — maybe discussed in Freakonomics? — but Chicago-area realtors who sold their own homes listed at a higher price, kept their homes on the market for longer, and sold for more than when they sold comparable homes for their clients.)
3) RE industry interests — The NAR and the RE industry generally have a vested interest in maintaining the status quo, which provides a steady stream of commissions through arms-length sales handled by Realtors (TM). It is not clear how the beneficiaries of the current RE industry structure could hold on to their market power if auctions became a popular alternative to using a Realtor (TM) to sell homes.
Has anybody in Tampa noticed that the townhouses being built on South Howard called (pretentiously) the Brownstones of Soho appear to have only one small room per floor, and tiny one car garages? I wonder if one can actually get a car in and out of those garages, given the tiny amount of wiggle room in the common driveway. Has anyone inquired?
Till reading the article used for this thread, I never thought about it. Since everything is torn up, there is no way to actually run a test. Supposedly these ridiculous townhouses are going to be stretched north across the Sweetbay supermarket parking lot. I guess there must be an awful lot of wealthy, albeit stupid, Yuppies who want to live on a grocery store parking lot and live in what amount to expensive narrow little towers with weird facades cemented on.
Yes, the floorplans are ridiculous, small rooms and poorly designed with stairs crammed on one side for the 4 levels. I also thought the weird facades looked strange. The balcony on the top overlooks the beautiful airconditioners and other crap on the roofs of the restaurants across the street.
There is no bubble in Canada. It’s perfectly normal for prices to double in 4 years, for people to pay 80% of their income for housing, yadah yadah. It’s buy now or be priced out forever, full tilt. We are in MAJOR denial out in Vancouver, probably similar to Seattle.
My BIL is a vancouver “investor”. I keep telling him what’s going on in Miami, lots of inventory, 80% of buildings are for sale, etc, but he doesn’t believe that will happen in Vancouver because everybody wants to Vancouver and because of the Olympics. Oh well, I tried to warn him.
Atlanta had an Olympics too.
I like the comment on denial. It’s incredible how certain people in Vancouver are that real estate will continue to appreciate at double digit rates of return to 2010 and beyond. They perceive no risk at all. Factoring in the current CDN$ exchange rate to the US$, Vancouver might be the worst bubble city in Canada and the US.
No argument here. I could make a strong case for us being the bubbliest - Robert Shiller called us the most bubbly city in the world!
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
In orlando inventory was 3,000 last may, 10,000 in Jan, and now 17,000 and still growing 1-2k a month…..the historical average is 5,000-7,000
Sounds like Orlando is suffering from a greater fool shortage that will support lower prices indefinitely.
The real numbers here are much higher. Your data is MLS only. FSBO”S, discount real estate companies, and 800 brokers make the number close to 45,000, minimum. Throw in a few thousand new houses that are off radar. Also, note that the builders are specing out a feww hundred a day without buyers. Build or die is the mantra here. They’ll be toast in a year.
Today’s mantra: “Build or die.”
Tomorrow’s mantra: “Sell or die.”
Day after tomorrow’s mantra: “Sell and die.”
The only way to support the current RE prices, is to create more and better paying jobs. I dont see this happening anytime in the near future. I am still in disbelief about how stupid these people are about their purchasing power.The other problem I see is everyone is predicting either the bubble will land softly or crash, quite frankly we are in uncharted territory right now, we have no idea what will happen. On the average, most people I see everyday dont have the money for these high priced homes, so who are these people buying all this RE? Did I miss something …? where is this money coming from…? How will it get paid back…?
Everyone is acting on the universal assumption that they will have the option to sell five years out if they run into problems with paying off those pricy mortgages. The ubiquity of this assumption coupled with the painful reality that many took out bigger loans than they will ever be able to repay virtually guarantee an inventory crash up the road. And apparently, we have already travelled some distance up the road…
That is the blind spot in most of these people’s plans.
And THAT assumption, is the sand in the KY!
OK here in Tampa. Just a year ago it seemed that everyone was in court with the builders to keep their preconstuction pricing. For example they had contracts for a certain price say $500,000 and the sales prices of same houses went up to $800,000 and cost materials skyrockets so builders were trying to get out of the contracts to make more profits. THIS year same characters are going before the judges, only now the buyers are trying to get out of the contracts and the builders are trying to hold them to it. The judges must be doing a double take.
This is rather like watching a pop fly soar high above the infield in a baseball game. Blink your eyes at the wrong time, and the ball which was rocketing upwards is suddenly plummeting back to earth.
“Many flippers are now walking away from their deposits or trying to wiggle out of their contracts, using shoddy workmanship as a loophole.
This will be very common in the bubble areas IMO because other attempts to get out of obligations will fail. It was tried with varying degrees of success in San Diego in the early 1990s. In reality, most of the stuff built is crap and shoddily constructed but when people can flip them out for 10-50% short term, nobody cares. It’s like nobody cared that the companies under those dotcom stocks they were buying had no revenues and no earings. They had eyeballs!
You mention yet another reason why the crash will be worse than most mainstream commentators recognize — the tendency for builders to cut corners on quality when a boom lures them into building at a frenzied pace. When the dust settles on the boom, and buyers have many choices and time on their hands to make careful comparisons, then all the shoddy construction quality issues will weigh heavily on the prices of recently constructed tract McMansions and condo towers.
You’re not kidding about quality of construction. My wife and I bought a new house in Southeast FL (to actually live in because we needed more space for a growing family) — contract in April 2003, completion in November 2004. We got a 1-year “fix anything” warranty with the house, and I have to guess we needed various subs to come out 20-30 times over the course of that year. Faucets that didn’t work. A pipe not capped off in the wall (so water just flowed in between the drywall. Cracked tile. Loose hurricane shutter bolts. Incorrectly capped off AC drainage pan pipe (which caused the unit to leak in our garage closet, requiring a complete rebuilding of that closet’s drywall and baseboards), a broken compresser unit on a brand new AC. Improperly installed closet doors. Need I go on? The bottom line is, during this boom, the builders hired anyone with a pulse and rushed everything. None of these fixes cost us a cent (just lots of aggravation and forced days at home supervising the work) but they just go to show what a mess things are down here.
I think the next big hurricane will “fix” most of those shoddy construction problems in coastal FLA.
and during a hot market inspections are waived anyways
“They had eyeballs!”
Oh, man that brings back memories. Ya know, I’m not sure that American really learned everything they could from that experience. It came and went pretty quickly. I remember going for lunches where all anyone talked about was “eyeballs”. And now it is flipping. Or at least it was.
Here in FL just heard on the radio. “Buyers here are having to pay for the new government mandated hurricane regulations out of their own pockets after closing”.
The Merrill Lynch study found non-traditional mortgage products accounted for 60% of loans last year in California, the hottest market in the United States.
“That’s really bizarre,” says Mr. Shaffer at Prestige Mortgage. “When you think about it, you should be fixing at historically low rates.”
Mr. Shaffer is obviously unsophisticated.
Or a liar.
I think this thing is going to pick up steam very very quickly. If the market can suddenly cool in a matter of months, think about how a few more months are going to change things. Some of you are going too long for predicting the true aftermath, I say early/mid 2007, only because some people are going to get soaked this Fall/Winter.
I really think we will see and hear moaning and twitching of the body and little wailing. As loud as they touted the boom the quieter they will simply scurry away. When the GSE’s get heartburn, lookout below. I think i heard a burp already.