‘Buyers Revenge Spreads’ In Florida
Some reports from Florida. “Over the past five years, South Florida has gone through the most explosive housing boom in its history. Now the big question is: Is the wild ride over? Yes, experts say. The signs are already there. Prices have wobbled in recent months, with sellers..lowering their expectations. The number of homes for sale in Miami-Dade County has nearly doubled since April.”
“There are, for instance, 15,080 units under construction in the city of Miami alone, compared with 11,241 built in the entire past 10 years. And that doesn’t even count the more than 28,000 units approved to go up in Miami. To summarize the market, developer Henry Harper scooped up the milky froth on his cappuccino at a Miami restaurant with his spoon. ‘This is now gone,’ he said.”
“‘There is severe overbuilding of condos,’ economist Hank Fishkind said. ‘People will get hurt, banks will go bankrupt.’”
“Real estate agents and home sellers throughout the Palm Beach County describe a dramatic shift from what only six months ago was a strong seller’s market. The chill came quickly. Just last year, the typical home’s value rose at a rate of nearly $1,900 a week.”
“Four months after putting their Wellington home on the market and cutting the price $40,000, John and Mary Porter are still waiting for an offer. The Porters initially asked $409,000 for their house, but they’ve cut the price to $369,000, said their real estate agent, Randy Bianchi. The Porters paid $279,000 for the house in 2004. ‘They have a beautiful home,’ Bianchi said. ‘It’s just a tragedy of timing.’”
“Indeed, the slowdown is spurring a backlash from once-beleaguered buyers, who suddenly feel free to drive hard bargains, said Mike Dooley, a broker in Hobe Sound and president of the Florida Association of Realtors. ‘We’re seeing buyers coming in and making very low offers,’ Dooley said. ‘That’s just evidence of the pendulum swing.’”
“Sellers simply roll their eyes at low-ball offers, Dooley said. But buyers suddenly have more choices, and now they enjoy the luxury of making a discounted bid without the fear of losing out to another buyer.”
“The spread of buyers’ revenge is bad news for sellers such as Brian Williams. The marriage counselor and his wife put their Lake Worth home on the market in September. Williams has not lowered his $496,000 asking price, even though offers have been scarce.”
“‘I’m disappointed that there isn’t more traffic,’ he said. “I’d consider reducing the price if houses started selling in the area at lower prices, and if people were making offers that were lower. But I haven’t seen any evidence that it’s about prices yet.’”
“Meantime, Williams cannot miss the telltale signs of a cooling market: ‘For sale’ signs are multiplying in his neighborhood. ‘There seems to be 5,000 homes for sale on Lakeside,’ Williams said, ‘and nothing’s selling, so that’s a little frustrating.’”
“A couple of blocks away, Sharon Gorman is asking $369,000 for her home. That once was a price guaranteed to attract offers, but the house has languished on the market for three months. ‘The market is full of houses right now,’ Gorman said. ‘It looks like half the county is for sale.’”
“Their agent, Bo Allen, said sellers need to get used to a new reality. The days of aggressive pricing, eager buyers and house-hungry speculators are over. ‘You’ve got a lot of investors starting to bail out,’ Allen said. ‘And you’ve got all these talking heads on TV telling people the market’s going to crash.’”
“Which begs the question: Will prices plunge, or is this slowdown just a return to normalcy? Realtors in other once-hot markets such as California and Washington, D.C. report a growing inventory of homes and more restrained buyers. ‘It is a little disconcerting to drive down some of these streets and see every other house for sale,’ said (realtor) Brad Westover in Jupiter.”
“Even if there’s no crash, area sellers will have to get used to the idea that their homes are not the gold mines they once were. Westover said one of his clients recently accepted $650,000 for a home listed for $750,000. ‘If she had not run with that offer, in all likelihood she’d still be sitting there with that property,’ Westover said. ‘For the first time in five years, people are actually taking a breath, instead of just buying.’”
Thanks to the readers who sent these links in.
“The spread of buyers’ revenge is bad news for sellers such as Brian Williams. The marriage counselor and his wife put their Lake Worth home on the market in September. Williams has not lowered his $496,000 asking price, even though offers have been scarce.”
“‘I’m disappointed that there isn’t more traffic,’ he said. “I’d consider reducing the price if houses started selling in the area at lower prices, and if people were making offers that were lower. But I haven’t seen any evidence that it’s about prices yet.’”
Sorry to tell you, Brian, but with that moronic strategy, you’ll be chasing the market to the bottom. Raw stupidity.
Makes you wonder if his stupidity will lead to his marriage needing a bit of counseling, too. Healer, heal thyself!
“The spread of buyers’ revenge is bad news for sellers such as Brian Williams. The marriage counselor and his wife put their Lake Worth home on the market in September. Williams has not lowered his $496,000 asking price, even though offers have been scarce.”
And this fool is giving other people marital advice?!!! BWHAHAHAHAHAHAHAHAHA!!!!!
bottomfisherman, that is exactly the case here in the OC, peole all around not only think that prices are not going to decline, but all the Realtors(TM) tell them that things are still appreciating also, the big story is that “international buyers” are buying up the OC and that the market will not decline because of so many foreign investors interested in the OC now that we are on the “international radar”. I guess we’ll see in a few more months.
I never knew you OC guys were under the radar.
I’d also like to point out that with a declining dollars, foreign investors will pull their money out of the US. Even if the house appreciates and the dollar depreciates, then they still lose out. If housing prices fall and the US dollar falls, then the foreign investors will get burned the worst.
Washington Post today:
At a Shoppers Food Warehouse, patrons swarmed a display of pallets stacked high with snow shovels, firewood, bags of salt and windshield washer fluid. Along a store-length wall of bottled water, offerings were picked over less than an hour after manager Danny Wigginton and his crew had replenished the shelves.
“But if you want to see an aisle that’s cleared out, go to 3,” Wigginton said. That’s the soup aisle, where one display basket after the next — normally overflowing with cellophane packs of ramen noodles — stood empty.
WOW, I guess all these people are stretched so thin with their mortgages and stagnating wages that this is the only food they can afford.
Significance?
I think he is implying that consumers are so cash strapped that they are buying Ramen Noodles. But when power goes out, the stuff doesn’t go bad.
Not sure how significant it is. I do know that back in college I had a few friends eat that stuff because it was all they could afford. Makes you wonder.
This is just normal DC goofiness faced with snow. Doesn’t mean anything in the macroeconomic sense.
Awful pretty out, though.
“Four months after putting their Wellington home on the market and cutting the price $40,000, John and Mary Porter are still waiting for an offer. The Porters initially asked $409,000 for their house, but they’ve cut the price to $369,000, said their real estate agent, Randy Bianchi. The Porters paid $279,000 for the house in 2004. ‘They have a beautiful home,’ Bianchi said. ‘It’s just a tragedy of timing.’”
Huh?? Making 32% on your house in under 2 years is a tragedy of timing??
Oh, I forgot, houses are supposed to go up 40% a year from now on in FL…you know, with the baby boomers coming and the fact land is ’scarce’……
I agree…I do not understand the point that the writer of the article is making either. Going from 279k to 369k in less than 2 years seems still very bubblicious. How can the sellers be dissappoited? And how can the writer claim that the bubble is over based on this “anecdotal evidence”.
Reductions in asking prices does not imply that prices are dropping; it only shows that the sellers were asking too much in the first place. But if they still get a whopping 30% over their purchase price in less than 2 years I cannot conclude anything else then the fact that they have done pretty pretty pretty well.
The tragedy of timing and their beautiful house. Let’s all cry for them.
List the house for $300K and maybe it will sell, and count yourselves lucky that you didn’t lose out big on your flipping investment.
It’s such a tragedy - these idiots who think that since they held on to a house for a year and a half to two years, they deserve a $100,000 windfall. Of course, that’s after they cut the price from their first ridiculous selling price. I hope these folks never get an offer on their home because they probably paid someone too much for it in 2004. When everyone came out of the ether, and the speculators high-tailed it out of there, these folks are now left holding the bag. The music has stopped for these folks, but someone already repo’d the chairs.
Yes, the ‘tragedy’ of the 32% profit in less than 2 years.
Can we have the violins start playing please.
I agree. These people bought their home to flip. If they didn’t understand their “risk appetite” going in, it’s hardly a tragedy if they make nothing on the place.
They forgot to add that they took out a HELOC and they have no more equity in the house.
The dreaded HELOC - at least they can live in the Hummer they bought with all that “equity.” They can probably sell the plasma TVs on Ebay to pay to fuel the SUV after the bank forecloses on the house. If you have to be homeless, you might as well do it in Paradise.
The story says their mortgage is 2300 per month. Isn’t that too high for 279K even assuming they put nothing down? Maybe the “equity” has already been spent.
Looks like classic market dynamics at work.
Blowoff market top last summer, on speculative frenzy.
Followed by falling transaction volume and levitating prices.
Building inventory creates competition among sellers for buyers.(builders keep building and creating more inventory).
Sellers in denial that the market is reversing.
Smart sellers will lower their prices to a level that the market will bear.
Fear starts replacing greed.
Sellers with substantial equity drop asking prices to grab scarce buyers.( creating new lower comps).
Buyers continue to dry up as the fear of falling prices kills demand.
Forced sales from thinly capitalized speculators and financially distressed sellers creates even lowers comps.
The cycle continues till theres a final capitulation of sellers, overshooting the market equilibrium price.
Everybody hates real estate ( the time to buy, maybe). Tales of woe are now the topic of conversation. When people look back at the prices being paid a couple years earlier, it it will be obvious that the prices were crazy. ( hindsite is 20/20).
My opinion: 20-30% reduction in prices over the next two years in the particulairly bubblicous areas, is easily possible.
Nicely struck, but your 20-30% drop is a bit conservative, IMO.
>>Nicely struck, but your 20-30% drop is a bit conservative
so if we have a glut of vacant and distressed condos, there will be no downward pressure on the sfr market? wrong. condos are merely the catalyst that ignite the fire.
My brother lives in Canada and has some investment properties there. The main reason he doesn’t invest in US is because of the dollar. Imagine paying say $500kCND (at 1.5 exchange rate in 2002) and buying a US property for 333k US.
Now the exchange is 1.17, and if he sells the US property for 333k, he’ll only get 390k CND. That’s 110k loss with US property staying constant in price just because of a weak US dollar.
I wonder how many foreign “investors” are doing these calculations.
The only property I own is in Canada.
“‘I’m disappointed that there isn’t more traffic,’ he said. “I’d consider reducing the price if houses started selling in the area at lower prices, and if people were making offers that were lower. But I haven’t seen any evidence that it’s about prices yet.’”
I have bad news for this chump and anyone else who has already mentally booked their big paper gains of the last couple of years: Those gains you were counting on to pay for your lattes, cheap junk from China and other toys, expensive vacations, and tradeup McMansion have already vanished into thin air. Buyers will win this stalemate for the following partial list of reasons:
1. Home prices have stopped going up, which means the speculative premium* is gone, to the tune of $100Ks.
2. Potential buyers have no reason to purchase a home if the choice is between cheap rent on a comparable property and the risk of losing net worth by purchasing an overpriced asset as the price is falling back to normalcy.
3. The Bernanke Fed only took one week to fully invert the yield curve, and lenders have no incentive to make long-term loans (e.g., home loans) if the long-term interest rate is below the short-term interest rate.
4. As this post documents, builders continue to bring on an astonishing amount of new supply considering rapidly eroding demand, and they will be able to underprice used-home sellers all the way down to the basement.
5. The rush of flippers and investulators to get out of the market ahead of “normal” sellers like this guy is another source of supply which will tend to undercut unsophisticated used-home sellers.
6. As the reality of points 1-5 sink in, the rest of the economy will succumb to the drying up of home-equity-fueled consumption spending, leading to further deterioration of demand as speculative euphoria gives way to fear and precautionary savings replaces speculation.
Good luck, sellers!
* The speculative premium is the extra amount buyers are willing to pay to capture future price gains.
That about covers it; well said.
Quote 1: “‘I’m disappointed that there isn’t more traffic,’ he said. “I’d consider reducing the price if houses started selling in the area at lower prices, and if people were making offers that were lower. But I haven’t seen any evidence that it’s about prices yet.’”
I want to scream. Even sellers acknowledge the obvious: supply is up, often way up, and demand is down. But then they come up with their pricing strategy: supply up and demand down means prices appreciating in the low single digits. And 2 + 2 = 6.
Quote 2: “Which begs the question: Will prices plunge, or is this slowdown just a return to normalcy?”
This market IS normal. It has been normal since the beginning of recorded real estate transactions and it will continue to be normal. This belief is grounded in the fact that human nature is human nature. We can study economics, history, etc and try to use that knowledge to make better decisions. We can create institutions such as the Office of Attorney General in an attempt to mitigate the impact of the basest aspects of our nature. But we still keep doing the same things over and over again.
To say that this market is returning to normalcy is like riding a roller-coaster up a steep incline and losing speed as you approach the top and proclaiming: “Whew, this roller coaster is returning to normalcy.” No. The entire roller coaster is “normal.” You just happen to be at a point where you have a couple of seconds to catch your breath prior to the next gut-wrenching drop.
It takes about 15 years to ride the US real estate market roller coaster. Don’t proclaim parts of the ride to be “normal” and other parts “abnormal”. It is what it is. The key to succeeding is recognizing where your are on the ride.
I’ve noticed that California roller coasters have much higher peaks and steeper drops than those in most other parts of the country. I guess that has to do with rich history of amusement parks out here along the CA coast.
and the fun only starts on the way down. People on the train scream with excitement only when they are falling. They just have to experience it every decade or so to feel thrill.
We just renewed our insurance for our townhouse association. Premiums are up 50% and we are located 17 feet above sea level 3 blocks from the ocean. For folks living in low lying areas, I am sure the premiums are going to be a lot higher.
I observed something intersting when I flew into Miami International airport the other day. Lot of “blue” roofs. At first, I thought these were swimming pools, but then I looked closer and saw that they were blue platic sheets put on roofs after the hurricane. So many people still have not fixed the roofs even after so many months since Wilma/Katrina have passed. I saw atleast30% of the homes had blue sheets on the roof.
We are only a few months away from the 06 hurricane season. I am willing to bet that if a hurricane hits south FL again this year, there will be significant price drop in real estate. Best example is key west. Parts of key west got flooded during the last hurricane and one house was reduced by $400K….asking was 800K+ . I am sure there will be more stories like that.
A rational market would capitalize an increase in hurricane insurance as a discount to the purchase price. An irrational market driven by fear may overshoot on the low side, as snow birds reconsider whether occasionally shovelling the driveway is preferrable to nailing on the plywood as the next Cat 5 hurricane bears down.
If those blue tarps are still there by next big hurricane there’s gonna be all kinds of blue debris flappin in the wind. How do I get into the blue tarp biz!
I saw the same thing in Broward when I was flying into Fort Lauderdale airport couple of weeks ago, blue roofs everywhere!
Every time it has rained since Wilma there were reports of roofs collapsing and people having to move out because their apartments were flooded. And this was just regular rain. Just wait till the rainy season starts.
Hey…I currently live in Broward and don’t have a blue roof, just a LOT of missing roof tiles. It should have a blue tarp on it, but hey, I don’t care, I’m a RENTER in the $700K house (at least that’s what the owner thinks it’s worth). The owner has been slow to get repairs going and it really hard to find a dependable roofer that isn’t backed up. Same goes for the screened in pool enclosure that got trashed (just a couple months after the owner paid to have it re-screened) and needs to be fixed. One of the previous posts was dead on in their statement that all these factors should be discounted on the price of these crappy homes. I don’t see too many retirees moving here in the future with all the headaches that this area presents. What keeps me smiling? Counting down the months until my job assignement is up and I can move my family out of S. Florida!
Lender’s battle plan
CEO-in-waiting Brad Morrice wants New Century Financial to become the Wal-Mart of lending.
By MATHEW PADILLA
The Orange County Register
Brad Morrice, who takes over as chief executive of New Century Financial this summer, says his company can live with lower profits.
For a publicly traded real estate investment trust, such talk might make an investor cringe.
But Morrice isn’t planning to make less money overall.
New Century is one of the largest lenders in the nation that specializes in “subprime” mortgages, loans for borrowers with spotty credit.
Competition has heated up with the biggest names in mortgages now doing subprime: Wells Fargo, Countrywide Financial and Washington Mutual.
Angelo Mozilo, head of Calabasas-based Countrywide, described competition for borrowers as “hand-to-hand combat.” Raise mortgage rates and consumers might flock to a competitor with a better deal.
New Century’s Morrice, 49, refuses to surrender customers. Instead, he wants Irvine’s New Century to become the Wal-Mart of subprime lending - earning less profit per loan but making up for that in volume.
To get there, he has slashed commissions paid to mortgage brokers and, along with Orange-based Ameriquest Mortgage, offered some of the lowest mortgage rates in the industry. He also has hired the former chief information officer of toy maker Mattel to improve New Century’s computer systems to make loans more quickly and easily
Walmart of lending, how about the Enron of lending!
It will be interesting to see what happens when the real panic sets in among sellers. They’re still in denial right now. Anyone have any experience making an extreme lowball offer and having a seller flip out? It’s much worse for sellers on the way down than for buyers on the way up. And maybe I can identify with schadenfreude a little too much, but I imagine most buyers will enjoy twisting the knife as this goes down
That is how I make my money. I lowball ‘em like crazy and sometimes a desperate seller will bite. I personally don’t care what the seller’s emotional reaction to my lowball-o-matic offer will be– Business is business.
South Florida will be in trouble, this we know.
I just hope lending restrictions are tightened for the rest of this year so that the madness of no-money-down loans is eliminated. And one can ONLY hope the builders wisen up and STOP BUILDING. If not … we’re all done.
Builders will not “wisen up”. They keep building even if they make $10 profit on the house. And many of them build even when they’re bankrupt. Builders and their bankruptcies were a prime source of business in the bankruptcy sections of many law firms 15-16 years ago.
I’ve read your posts. If I were you, I’d sell now while you still can and make some money.
Some builders need to keep building to keep their equipment and people busy. Even if they lose a small amount of money, they will keep on building as the cost of not building at all is much higher than building and selling at a loss.
“Ellen Bitton, owner of Park Avenue Mortgage Group in Palm Beach, said Palm Beach County property prices will be propped up by an influx of retirees and new residents drawn by sandy beaches and a strong job market.”
I like how these fools keep trying to reassure themselves/their market base. I have personal experience with both of the categories of people Ms. Bitton speaks of and I’d like to tell her something:
I moved here (Palm Beach Co.) in 2002 from Northern NJ with the hopes of some cheaper living and sunshine. Now that FL has caught up to NJ in terms of cost of living (but not in terms of salaries) if I were still in NJ today, I wouldn’t even think of moving to FL, beaches and sunshine be damned.
Secondly, my parents retired down here shortly after I moved (again from NJ.) It was attractive for them at the time because they sold their house in NJ for around $300k, and bought a house down here (brand new) for a little over $200k. If they had to do the same thing today, it wouldn’t have been doable for them, with the cost of their house down here now at $475k or so (add in skyrocketing insurance, general cost of living increasing, and the worry about your house blowing away and you get the picture.)
I see this same rationale for every market in the country, from overpriced condos in downtown Dallas to places in southern Oregon which have no job base at all.
Of course, this isn’t much different from the stockbrokers who reassured their clients/chumps that stocks always go up. LOL
Here ya go Ms. Bitton and those of you who think that “sandy beaches” will hold up the S Florida housing bubble.
“High pay no lure as home costs escalate”
http://tinyurl.com/e35mb
“Sunshine, ocean access and salaries near six figures fail to lure potential employees to Palm Beach County like they used to.”
Your comments are right on the mark!
Here is a clue re: Ramen
To a lot of the people who are buying now Ramen is normal food -it’s similar to what they grew up eating.
These people are supposed to be good at math and yet fail compleely when it comes to evaluating housing…..
“Four months after putting their Wellington home on the market and cutting the price $40,000, John and Mary Porter are still waiting for an offer. The Porters initially asked $409,000 for their house, but they’ve cut the price to $369,000, said their real estate agent, Randy Bianchi. The Porters paid $279,000 for the house in 2004. ‘They have a beautiful home,’ Bianchi said. ‘It’s just a tragedy of timing.’”
It used to be conventional wisdom that if you did not plan to stay in a home for 5 years, you should rent instead of buy as you would not have had time to build equity. People now expect that they will not only build enough equity in 18 months but also make $100K profit? I think they will be lucky to eventually break even on this house.
The ultimate buyers revenge/new strategy for home buying.
After we see 30% declines in prices and still have increasing inventory levels this may work.
1. Find four properties within the same price range you would seriously consider buying.
2. Tell the four sellers you WILL BUY on of these houses.
3. Now…. You want their best(lowest) and final offer on your realtor’s desk by 2:00 Sunday.( to include a family photo and perhaps a heart wrenching story about impending foreclosure)
4. Best value/Price will win the SALE!!
Sound familiar?
rewatch -
you nailed it buddy!
What about the squirrels? I’d also insist that after I buy the house, they will continue to come by and make sure the squirrels get fed.
lol that’s pretty funny. I might have to try that…in winter of 2007
“I’d consider reducing the price if houses started selling in the area at lower prices, and if people were making offers that were lower.”
In other words, I’m not capable of making a thought out decision based upon my own intelligence that would save my ass and would prefer to hide amongst the herd and wait for someone else to do it for me. I’d prefer the comfort of following the group even to the slaughterhouse rather than safely bolt for the hills by myself.
________________________________________________________
“But I haven’t seen any evidence that it’s about prices yet.”
Even though I smell smoke and everyone around me is yelling ‘FIRE’, I prefer to wait untill the flames are upon me before I consider a course of action.
Moronic.
Spot on analysis.
“Which begs the question: Will prices plunge, or is this slowdown just a return to normalcy?
RE cheerleaders purposely confuse the issue of growth rate changes versus changes in levels. Returning to “normal” only makes sense for the price of houses. Right now, they are astronomically overpriced by any measure you want to use. Real house prices will fall by either a large drop in price, or a long period of flat prices as inflation erodes the value.
If the long run housing growth rate (appreciation) is about 5% (my guess), then this includes periods of high growth along with periods of negative growth. We’ve just experienced hyper growth the past few year, on the order of 20% a year or more in some markets. Returning to “normal” means a period of negative growth rates or an even long period of zero growth rates.
To rephrase, if mild rates of house appreciation are the norm, then returning to “normalcy” after a period of tremendous positive growth entails a period of falling house prices.
“If the long run housing growth rate (appreciation) is about 5% (my guess), then this includes periods of high growth along with periods of negative growth.”
Your guess is wrong, if you mean inflation-adjusted appreciation. There is really no need to guess here, as Robert Shiller has done the careful thinking for us already. “In fact, Robert Shiller shows that over long periods, inflation adjusted U.S. home prices increased 0.4% per year from 1890–2004, and 0.7% per year from 1940–2004.”
http://en.wikipedia.org/wiki/US_property_bubble
(Ben — that wikipedia link might be worth a look. Did one of the readers here create it, by any chance?
P.S. The period from 1940-2004 was an anomaly, due to the USA’s sole-superpower status (I know the Soviets were considered a superpower as well, but let’s face it, we had them beaten hands-down from the outset of the Cold War — they incurred 20m fatalities in WWII and destruction of their infrastructure, which we did not).
People are so accustomed to making 20% a year on houses they are shocked when reality hits them. The real estate crash that is about to ensue is almost exactly like the stock market crash in 2000. Investors then felt the same “entitlement” of doubling their money in 2 years. Fear and greed drive markets- stock and real estate. I think the bell has rung folks. Now watch as everyone runs for the same exit at the same time.
http://southfloridarealestatebubble.blogspot.com/
I’ve got your blog bookmarked. I have a particular interest there both potentially for myself and for my best friend who is there and refuses to see the train heading straight for him, as he holds out for a price he can no longer get.
What about the squirrels? I’d also insist that after I buy the house, they will continue to come by and make sure the squirrels get fed.
LOL. By this time next year a lot of FB’s will probably be trapping those squirrels for their next meal. I hope the parks where they’ll be sleeping are well-stocked. I suppose they could rob birds’ nests, too.