Housing Bubble ‘A Thought Process Nationwide’
The Daily News has this update from coastal North Carolina. “‘For Sale’ signs are sprouting like dandelions at homes along N.C. 210. ‘The size of the MLS book is twice the size it usually is, said (realtor) Richard Baker in Sneads Ferry. ‘The sales equation has doubled since a year ago in January. The numbers are there. We’ve got a surge of inventory, no question in my mind.’”
“This year’s property revaluation in Onslow County estimated the value of beach properties in some Topsail Island areas at close to 400 percent more than a year ago. But are the higher prices starting to scare buyers off?”
“‘There is a combination of things, first of all, if you read the national press, you constantly hear about real estate being overvalued, and they think the bubble is going to burst. It’s a thought process nationwide,’ Baker said. The media have been predicting a downward trend in the ‘housing boom’ of recent years, Baker said, thereby scaring some possible buyers away until the market becomes more stable.”
“‘People are concerned about buying at the beach,’ Baker said. ‘But because of the excellent growth and appreciation over the last few years, we had a lot of profit-seekers. When the market slowed down, they didn’t stop building.’”
“‘There are more than 400 (agents) on this sliver of beach marketing it,’ he said. ‘More agents are calling sellers up saying, ‘Hey, I can get you a million dollars.’ They call people up and paint the sky blue and the water deep and as a result we’ve got a lot of listings in the MLS.’”
“Chris Rackley, president of the Topsail Island Association of Realtors, said he thinks the reasons people are selling are age-old. ‘This island is an investment and some people are ready to cash in, while some are upgrading or downgrading,’ Rackley said. ‘There are tons of reasons.’”
And nearby, an economist had this presentation. “More than 50 people turned out for an investor seminar recently hosted by a community of luxury condominiums and townhomes in Boca Raton.”
“The featured speaker for the evening was David Lereah, chief economist for the National Association of Realtors. Lereah was quick to make his message clear: ‘You don’t need a boom for real estate to roar. The real estate boom is over but the real estate expansion is still here.’ Although homes are not selling as quickly right now, prices are still up. ‘There are no real estate bubbles, only balloons that expand and contract,” he said.’”
“He said the real estate boom was caused by factors such as lenders being able to reduce financing costs; baby boomers reaching their peak earning years and trading up or buying second, third and vacation homes.”
“‘Real estate is not an irrational investment, but speculators purchased irrationally during the boom, especially in areas like Miami. This drove prices up, and many speculators took out interest-only loans. This produced a vulnerable real estate market,’ Lereah explained. ‘In 2006, we are cleansing the market of speculation.’”
“He added that he is bullish on Florida, Arizona and Nevada because of even greater population increases. ‘The law of supply and demand works.’ All of Lereah’s real estate investments are in condominiums and townhomes because he doesn’t want to be involved in maintaining them. ‘If you’re Mr. Fix It, then it’s okay to invest in a single-family home,’ he said.”
“Lereah also pointed out that he has invested in several condominium conversions. ‘Condo conversions are good because the property is already there.’”
‘This year’s property revaluation in Onslow County estimated the value of beach properties in some Topsail Island areas at close to 400 percent more than a year ago. But are the higher prices starting to scare buyers off?’
Wow, take that Manhattan! That should scare anybody off.
“All of Lereah’s real estate investments are in condominiums and townhomes because he doesn’t want to be involved in maintaining them.”
Wouldn’t you just love to have a way to monitor the value of Liareah’s condo investment portfolio for the next few years?
And where did he find the maintenance-free condos which comprise his investment portfolio? My wife and I owned a condo for eight years, and over that time, it had to be painted, a furnace and a garage-door opener had to be replaced, and numerous other maintenance needs arose which cost money to address.
Landlords don’t do maintenence, silly. Maintence eats into profits and is therefore bad. You’d think that letting the building decay would eat into the value of the landlord’s investment, but apparently the landlord doesn’t see it that way, or at least most of the ones I’ve had.
I keep mine in 100% condition. I also have a waiting list. Off-topic, but I was at Home Depot this morning getting some goods for a little fix-up. The illegals out front were in a reverse bidding war for work with a contractor friend I know. Man, you know it’s getting rough out there when illegals are working cheaper than the illegals.
Some of us do constant maintenance. Landlording is both an investment and a job. Like any other business, you have to sink both money and time into it for it to pay off. People who try to do one but not the other, well, those people are not maximizing their returns.
It must suck to be a landlord now that prices are dropping nationwide — how are you going to cover those maintenance costs and make money off your investments?
Mine went positive a decade ago. I’m not afraid of a little 50% drop in valuation. Makes the taxes go down.
Yeah I’m not looking to make money until 2017 and that’s based on the mortgage being over, not appreciation. Until then it’s a tax dodge.
Yeah, there are a lot of inexperienced landlords out there right now. They don’t realize that the real cost is vacancy and/or legal action against deadbeat tenants. Make your place nice and find the right tenant. They’ll be happy to be there and you’ll be happy to have them.
Other soon-to-be-discovered “costs”:
1) Investment loss from owning residential property on the downslope of a mania.
2) Maintenance costs which seem a lot more expensive when you don’t have a steady stream of equity appreciation to cover them.
I posted about Lereah’s latest statements on my blog.
David
http://bubblemeter.blogspot.com
All of Lereah’s real estate investments are in condominiums and townhomes because he doesn’t want to be involved in maintaining them.
Excellent. I can’t wait until he gets his a$$ handed to him in a paper bag. Please buy more condos in Miami, Phoenix, Orlando. Don’t wait David. Buy several today, this week, and more next month. You alone can keep this market flowing upwards forever! Corner the market. You’ll be upside down and on the way to debtor’s prison before you’ll ever admit this is a bubble.
Oh wait, it’s a balloon, expanding and contracting. That’s not like a bubble at all. Huh?
Lereah explained. ‘In 2006, we are cleansing the market of speculation.’”
And your ass David, will get reamed through the next few years.
LMAO.
Lingus- Are you getting all the rain and flooding as well?
“Lereah also pointed out that he has invested in several condominium conversions. ‘Condo conversions are good because the property is already there.’”
this guy is a genius.
This is interesting because he talks about speculation like it is a bad thing, yet conversions are popular with speculators because they can be quickly done to cash in on the boom.
exactly…but the reason he cites, that ‘the property is already there’ is vague enough to maybe not obviously be about easy speculation. It can be instead about ‘known quantities’ for example. Hey, the out-of-towner can buy seeing the landscaping and parking spaces for real, see, the windows are in already, no guesswork. Why not buy 4, they’re so cute and already built, and we’re going to put in granite countertops!
Seriously, I will go to jail for you if anyone can get close enough to punch Liareah in the nose.
Talking about punching noses. Check out the Lady Punch remix which comes from the original Lady Punch video.
Los Angeles Friends In Deed
“Lereah also pointed out that he has invested in several condominium conversions. ‘Condo conversions are good because the property is already there.’”
There is something very wrong when mouth piece for NAR owns conversions and thinks we should invest in them because they are a good investment. There should be some separation between him and what he is promoting even if he tells us what he owns. Something very wrong.
Stanley, this is very true. For a business that is completely reliant on SALES, there are literally no ethical violations governing it.
It is against the law to “talk your book” in most other investments, that industry needs some sunlight shone upon it, and some bleach to clean out the infectious rot.
It’s not a bubble. It’s a balloon.
No, wait! It’s not a balloon! It’s a bird!
No, no… It’s not a bird! It’s an airplane!
It’s apparently a nitrous-oxide-filled balloon that is deflating because Liarrhea is sucking all the gas out.
In the late 1700’s, the french invented the hydrogen balloon and slow leaks were not the problem.
It’s the Hindenberg
Not sure anyone really cares, but the Hindenburg went down because the reflective coating they painted on the outside was made of what we now know of as 2 of the 3 ingredients of what NASA uses as rocket fuel. Look at the movie of it burning - it’s not exploding, it’s flames racing across the surface of the baloon.
So, maybe Liareah is the guy selling rocket fuel to homeowners and calling it paint?
NEWS FLASH!!!
Home sales down 15%-plus in once-hottest markets
By Rex Nutting
Last Update: 10:04 AM ET May 15, 2006
http://tinyurl.com/ftj52
This might be a great contrarian signal to buy homebuilder stocks! I expect them to rally 3% today on this bullish news.
Investors, don’t overlook this tidbit:
“The hot states now are New Mexico, Louisiana, Montana and Mississippi.”
Get your beachfront Mississippi or Louisiana condo fast, before hurricane season drives up the prices!
When I was at the New Orleans Jazz & Heritage Festival last month, a plane kept circling the fairgrounds towing a banner advertising condominiums. Of course, to get to the fairgrounds I had to travel through the destroyed and largely abandoned Lakeview neighborhood, which is kind of a deterrent to anyone who is using their brain.
Hey…. No brains are necessary when spending your money nowadays. It’s the new paradigm.
amazing isn’t it…they’re the hot states presumably because the cost of housing there isn’t yet such that 50% of citizen’s income goes to pay for it, right? There isn’t some influx of jobs to montana, louisiana or mississippi that I’ve missed, is there? Just some room for gouging left, no? Hey, look, there’s a place where people haven’t had to take out suicide loans to afford a house yet…make a run for it, on it! First one there reaps the most flippin action! There’s not much to be done about them ‘equity nomads’, but I can’t imagine that Louisiana and Mississippi are big destinations for them (maybe Montana or New Mexico, but I have my doubts…), but the banks just *have* to be stopped from perpetuating this horror show. I’ll bet they’re feeling reluctant to give loans for buying 5 condos in FL and AZ now, but maybe are feeling lucky about NM or TX or LA by way of contrast, at least until a clear recession starts?
This whole show is getting so hideous…
Wow! Anyone who bought Toll Brothers stock at the peak of the recent sucker’s rally (early January 2006) is already down by 36% on the year. Anyone care to buy the dips?? Or is the only source of demand for Toll Stock anymore coming from corporate share buybacks? If I were a Toll Brothers stock owner (other than top management, who have already sold enough shares to make them all richer than Croesus), I would be livid…
http://tinyurl.com/9k428
Correction — down by “only” 30% (not 36%) since early January…
More broadly, plunge protection measures seem to be losing their force against an overwhelming weight of negative fundamentals. One could get whiplash just eyeballing the zig-zags on the NASDAQ this morning…
http://tinyurl.com/fvju7
Did the charts look like this in 1987?
“buy the dips”……. remember “dollar cost averaging”? LMAO…..
What they didn’t tell you is that you always average up….. The securities industry is the most under regulated, thieving business in existence.
You must be excluding real estate. LOL.
From a cnn article today:
The report quoted NAR’s chief economist David Lereah saying, “With the supply of homes picking up very nicely in many areas of the country, pressure is coming off of home prices.”
Lereah is optimistic that the market will soon return to growth. “By the time we report second quarter data, I expect most areas will be returning to normal rates of price growth in the single-digit range.”
–
wow. denial, anyone?
I woke up in Wackyland on Monday. I can’t figure out where someone even fraudulently claiming to be an economist would pull this crap out of.
bet lieRah is short the whole group
Bet Robert Toll’s son is short Toll Brother’s stock (a la Ken Lay’s son, who was short Enron’s stock)…
The San Diego Union Tribune’s thoughts are turning to the rising level of mortgage default notices, thanks in large part to broken ARMs (used to finance 3/4 of recent purchases):
http://www.signonsandiego.com/news/business/20060515-9999-1n15default.html
P.S. You can ignore the reassurance from Ken Rosen at the bottom of the article:
“Kenneth Rosen, chairman of The Fisher Center for Real Estate and Urban Economics at the University of California Berkeley, also insists that it’s too soon to start worrying about the housing economy. The recent increase in foreclosure notices “is the first signal that goes along with a softening housing market, but it is not an alarm bell.”
If the recent rate of increase in default notices continues for the foreseeable future, then we will be above the 3000/quarter rate of the early 1990s by as soon as 18 months from now = late 2007. Hence I would suggest the sharp uptick since the late 2004 cyclical low would definitely constitute an alarm bell.
I think it would be highly optimistic to assume that the recent rate of defaults are not going to rise significantly, so I could not agree more.
Quote from the article:
While the spike doesn’t threaten most homeowners, many of whom have little or no mortgage debt, default activity has captured the attention of economists and researchers who view the San Diego region as a bellwether for national housing trends.
Excuse me? Don’t most homeowners have some to significant amounts of mortgage-related debt?
No — the rumors you have heard about homeowners using cashout home equity loans to buy hummers, boats, and camper vans are simply not true.
“The media have been predicting a downward trend in the ‘housing boom’ of recent years, Baker said, thereby scaring some possible buyers away until the market becomes more stable.”
Lareah said: ‘There are no real estate bubbles, only balloons that expand and contract,” he said.’”
Lingus asks: What can be said for liars and blamers such as these?
Has anyone else noticed that the RE balloon floaters and schills seem to be laying the blame at the doorstep of the media more often?
It’s really funny to hear Lereah blame the media when if anything else the main stream media has been repeating his lies and using his quotes. The bloggers have been the only saving grace in getting the truth out.
He is blaming them for finally pulling their collective heads out of their collective a$$es and actually putting opposing quotes for credible and knowledgeable persons. How dare they juxtapose Lereah against an economist WITHOUT a vested interest?
Blaming the media is sooo January 2006…
This guy is a real piece of work. He is the ultimate spinmister!!! I think he just wants to get his conversions finished before he admits that some kid came by with a switch blade and stabbed his balloon. Can you imagine the investigation that will come out of this debacle?
According to Lereah “the real estate boom is over but the real estate expansion is still here .”
Ok everybody this is the new buzz word ,” the real estate expansion “. Go West young man , didn’t you know there was a real estate expansion going on verses a real estate boom .
could someone help me find more information on David.
http://www.realtor.org/Research.nsf/Pages/LereahD
Velao Interactive Networks appears to be a mortgage company.
There has to be some conflict here
Velao Interactive Networks
http://www.velao.com/blueabout.html
Published on: 4/13/2003 Last Visited: 4/13/2003
Ned W. Perry, CMB - Chief Executive Officer and President In 1995, Ned led a management buyout of the East Coast division of a national retail origination company (Mortgage Service America) and then formed a national financial services company (FRMC) that included a residential mortgage origination company, a servicing operation, an affiliate services company, and an insurance brokerage firm. He served as the Chairman, CEO, and President of the combined companies which he built. His success centered in building strategic alliances with Residential Funding Corporation and GMAC Mortgage Corporation, Norwest Mortgage, Chase Mortgage, GE Mortgage, Travelers Insurance, and numerous other nationally recognized companies.
These relationships built into a top 50 non-bank mortgage lender in 1998. His leadership and vision led to a merger of FRMC and NVR Mortgage Finance, Inc., in 1999, where he served as Executive Vice President.
ARGH. He graduated from my alma mater. I’m placing a stop-payment on the donation I just sent. If this is the quality of thought . . . my balloon is deflating . . . check back later, I’m searching dilligently for additional hot air.
Remember our friends, Gary and Margaret Smith, who are both professors of economics at Pomona College who have their rent vs. buy theory on why there is no housing bubble? Well they’re at it again. They’re the couple who bought in Clairmont, Ca. For $950,000 based on their 8% appreciation prediction. Their methods have come under criticism (they only allow 1% for mantinence and repairs) from other economists but they slog on. They also have ambitions to market their ‘rent vs. buy math software’ they developed.
http://www.dailybulletin.com/business/ci_3819565
Some highlights…
SIX QUESTIONS:
State housing bubble just an illusion?
Professors find surprises in data
This week’s Six Questions guests are Gary and Margaret Smith, who are both professors of economics at Pomona College.
The two collaborated on a paper for the Brookings Panel on Economic Activity this March called “Bubble, Bubble, Where’s the Housing Bubble?”
Q: How and when did the two of you become involved in studying the housing market?
A: Margaret is a certified financial planner and integral coach and had been advising people for several years now about whether they should buy or rent. In 2003 we read several articles in the popular press about a housing bubble, but her calculations still indicated that a house is likely to be a good long-term investment - which wouldn’t be the case if there was a bubble.
We started looking at the studies behind the stories in order to understand why our conclusions were different.
Q: You posit the belief that there is no real housing bubble, yet many economists speak freely of a bubble. Why do you think so many other economists believe there is a housing bubble?
A: When we looked at other studies, we found that they essentially boiled down to, “Prices are a lot higher than they used to be; therefore they must be too high.” Almost no one was actually comparing the cost of buying a house to the cost of renting (and the occasional calculations we have seen since then all have errors).
The fundamental value of a stock is the value of the company’s dividends and earnings; the fundamental value of a house is the value of the rent you save by owning your house. There is a bubble when, as in the dot-com bubble or Beanie Baby bubble, market prices are far above fundamental values and people are buying stock or Beanie Babies not for the cash flow but because they hope to sell a short while later to an even bigger fool who will pay an even more ridiculous price.
When we collected real estate data in several different areas of the country, we found that home prices in most places are actually below fundamental values in the sense that, in the long run, it will cost a lot less to buy a house than to rent one.
In Southern California, this was also the case between 1993 and 2003; now the long-term costs of buying and renting are much closer. Our conclusion for Southern California is that, yes, home prices are much higher than they used to be; but they used to be too low. They are certainly not far above fundamental values the way dot-com stocks and Beanie Babies were.
rent =1% of price or better
rent x 120 = price
My problem with the Smith’s theory is that they do not factor in ’supply and demand ” , or “affordability “, enough in their analysis .
That’s exactly right Wiz, if 80% of a cities’ population can’t afford a median priced house then whatever home buying math Gary and Maggie want to trot out is just numbers on a spreadsheet and has no real world benefit.
Discussed in http://thehousingbubbleblog.com/?p=402 where we ripped the Smiths apart.
Type Lereah into the “name” box on this website to find details on David’s vast r/e empire…
http://www.washingtonpost.com/ac2/wp-dyn/admin/homepricereports?includePage=/jsp/hsales/html/advancedSearch.jsp
..in just the WashDC area. This site does not find properties outside that area, from what I see.
well, I’ve not been listening to Lereah’s bunk long enough to appreciate fully the levels of talking out both sides of his foaming mouth, but how in hell can he speak of and *be* someone who buys multiple condos and townhomes and conversions on the one hand, and talk about how the speculation is being ‘cleansed’ out of the market? Isn’t he actually pushing speculation? I mean, he can’t possibly *really* believe that speculation hasn’t been the biggest factor in the ‘boom’, but even with all those myriad reasons for buying recently he claims is actually behind the run-up, isn’t he going around telling people that they need to buy up RE for the appreciation potential? Or did I miss something and now he’s advocating landlording and thinking about cash-flow and maintenance costs?
It’s so outrageous that I’m truly surprised nobody has offered to go head to head with him somewhere, or did I miss such an outing?
cheers all!
The man is doing the best he can in hard job…heck he is even going above and beyond by investing in real estate in order to make a heroic attempt to keep the market. I wonder if NARs memebers truly appreciate him for everything he does. The man is really a saint.
Just like Brownie.
He’s doing a heckuva’ job!
We own some property in the Onslow area mentioned in the article and it’s about time that some common sense came into the equation. Some of these properties are literally up 10x in 4 years, with a feeding frenzy from all involved. But it is catching up with some of the nut cases - one builder who was flashing cash and buying everyone out is stuck with 5 properties on one street, with no action for months on any of the properties.
However, you should understand, the rule at Topsail beach is this: “Honey, if it doesn’t sell in a month, we just raise the price…..”. The sad thing is that this actually worked for those moving to the South from the Northeast with more money than common sense. Some people are going to realize they got handed a major bill of goods, but thought it was “such a deal” given Northeast beach prices…..
I can’t wait for the upcoming justice to be handed out. In the meantime we are going to get stuck with major tax increases….
now if he were to put his money where his mouth is - and go purchase some properties today, then i would say let him be. at least he would be showing conviction.
however, it seems he is just a coward trying to prop up values because he’s in the same boat as everybody else.
Gary and Margaret Smith analysis is bunk. They evaluate the future value of the house on appreciation of today’s price, not the historical price. Thus, no bubble can ever exist in this model.
“Condo conversions are good because the property is already there.”
That could be the dumbest statement I have ever heard.
I searched Lereah on the Wash Post website and he appears to own 2 apartments in addition to this primary residence in Fairfax Station.
One of the recent purchases April 2005 (near the peak!) was clearly a condo version. PALAZZO AT PARK CENTER LLC was the former seller. Looked it up….. converted in Jan 2006, originally built as rentals ca. 2002.
I also noticed that he published a book on investing in “Information Technology” in July 2000. This guy appears to be an excellent contrarian indicator in both word and action!
I wonder if he owns anything outside the DC area? Otherwise it’s pretty small potatoes. He probably was jealous of the mega-flippers, wrote the book and put his toe in the water at the peak. Ha-ha.
Sorry Jan 2005 conversion, he closed April 2005.
If the price trend followed condos in McLean/Tysons that I am tracking closely then Lereah would be around 15-20% in the red at this point if he sold in today’s market by my estimates.
I feel much, much better knowing that we on Ben’s incredible blog may be negatively effecting David’s bottom line.
No wonder he says such stupid crap.
He’s trying to pump and dump.
Investigation, anyone?
I am reporting that David Lereah was seen having a secret redevouz lunch with Gary “It’s in the BAG” Watts making copious notes on how to future spin all negative news coming their way. They had the Maestro there giving them the best training ever. BUBBLE CITY, here we come.
New Mexico actually has many attractive things to come and live there. A warm climate, pretty scenery, clean air, mountains, etc. Montana would be OK - not ready for the cold, but a lot of beauty there. You could lay waste to LA, and MS and I wouldn’t miss em’. CA has turned into a sewer, just go and ask Arnie “I’ll be back” Governator.