Florida Has Yet To See ‘Three Most Dangerous Words’
Some housing bubble updates from Florida. “According to Barbara Raney, North Port Building Department manager, in the fiscal year ending in September 2005 the department issued 4,114 permits for new residential housing. Raney said, ‘On the average, there are 350 permits issued each month.’”
“In March, 344 permits were authorized, but in April only 88 permits were issued. ‘They’ve stopped building,’ Raney said.”
“The recent scramble for lots In North Port by out-of-state buyers, and the county’s abandoned lot auction, have taken some land off the market. But overall, the real estate slowdown and the glut of lots that are not moving mean lower lot prices and a more favorable situation for home buyers. While investors high-tail it out of town, North Port is gradually becoming a buyers’ market.”
“According to the Palm Beach Board of Realtors, there were 31 closed sales of single-family homes between October and April, for a total sales volume of $161.89 million. For the same period the year before, there were 70 sales for a total volume of $312.2 million. Palm Beach broker John Pinson referred to ‘more and more for-sale signs’ all over the island, fewer sales through MLS and a flurry of price-reduced notices climbing the facsimile tree.”
“Speculative-buying days ‘are over’ in West Palm Beach condos, where the inventory is at an ‘all-time high,’ Pinson said. As a result, brokers see ‘developers undercutting prices on those who bought already.’”
“Earlier this month, David Lereah, chief economist for the National Association of Realtors, said the boom is winding down to an expansion, one in which 2006 is a ‘down year’ and 2007 will be up. ‘Where [Lereah] and I may differ is more on extremes. He calls ‘the bubble’ a balloon. But the next time a housing bubble slowly deflates will be the first time a housing bubble slowly deflates,’ said (economist) Joel Naroff.”
“But if a buyer has read about a slowdown and thinks he can get the unit for $750,000, ‘they’ll offer $650,000,’ he said. ‘What we haven’t seen are the three most dangerous words in real estate: low-ball offer. Not yet. When a market turns and buyers have the upper hand, we see low-ball offers,’ Naroff said.”
“Unlike Lereah, Naroff expects ’significant price cuts in some markets.’ Looking at West Palm Beach and other Southeast coastal markets, Naroff said many new condominium projects were targeted by speculators. ‘Those are areas that at first glance, run the potential for being under real pressure for the next six months,’ Naroff said.”
“The rise in foreclosures that analysts predicted would follow an easing in lending restrictions, low interest rates and creative mortgage products has emerged in metropolitan Jacksonville. The five-county metro area experienced a 39 percent increase in foreclosures over last year’s first quarter, or 3,579 foreclosures for the first three months of this year compared with 2,570 for the same period in 2005.”
“‘Part of this is also about consumer spending,’ Barry Chandler, CEO of Oceanside Bank in Jacksonville said. ‘You’ve borrowed your way into a home with all the trimmings and before you know it, there’s a big life adjustment and you’re in trouble.’”
“‘A good number of national builders have captive mortgage companies, which I suspect means a lot more creative financing programs,’ (banker) Bill Hammel said. ‘The good is it means more affordable housing, but it also means some people got into more than what they could afford.’”
“‘More money became available for risky borrowers and you only have to be in a house six months before refinancing,’ said Patrick, co-owner of First Coast Trust. ‘Banks and lenders have been doing what the government wants, getting people into homes.’”
[i]Low-ball offer?[/i]
Are you kidding? There’s nothing dangerous to anyone about an offer freely made. A seller is completely free to ignore/laugh at it and suffer the consequences.
What are [i]really[/i] the three most dangerous words in RE?
I say, “You’ve been foreclosed”.
My vote for the 3 most dangerous words:
Negative Amortization Loan
No doc loan?
Suzanne researched this.
Realestate goes Down!
David Learah says….
Real estate agent?
Florida condo conversions
Luxury condo tower.
ARM rate reset
real estate sucks
I bought my second house in Palos Verdes in 1991. My agent urged me to offer $100,000 less than the seller was asking. I didn’t want to hurt the seller’s feelings and instead got into a bidding war with another prospective buyer, ultimately buying it for $645,000. Two years later it was worth about $550,000. Live and learn.
How much is it worth now?
PV? Hmm…just up the hill from me. My guess - $2.5M?
Is the seller being greedy when he/she doesn’t want to offer ‘more house’ in exchange for my hard-earned money?
I look forward to the time when *buyers* can be offended at the “low ball” quality of a buyer’s house that he/she wants in exchange for a buyer’s hard-earned cash.
‘Banks and lenders have been doing what the government wants, getting people into homes.’
I think there needs to be a thread dedicated to this. We’re supposedly a country of free market capitalism but the mortgage market is a giant exception. Why? Why do bureaucrats put the banking system at risk just to get more people with bad credit into houses? They’re either well meaning and naïve or somebody is getting a cut somehow, maybe the Fannie Mae accounting issues are evidence of the 2nd possibility.
I don’t want people in houses if they can’t afford them . They will lose the house ,mess up the credit ,they will feel depressed for years after ,and than ,they will hog parking spaces at the market .
Fair topic, but I think that a foregone conclusion that free-market capitalism is NOT at work is wrong. The only role for government in all of this, that I would like to see, is protection from fraud by auditing and ensuring that the parties at risk know the extent of that risk. There are two groups at risk, as far as I can tell. The first includes borrowers who are not adequately informed of the likelihood and impact of rate changes on their “toxic” loans. The second group is the investors who will be burned when the loans go bad; I don’t think they should be “protected” from involvement in the loans, just that they should know the risks.
To me, at least, that is the full extent to which a government should be involved. As in, let’s have a small revival in the concept of personal responsibility for our actions.
But that’s just it , the fund/investors has no idea how high the loan risk is . The borrower of course just wanted to get in on the boom and thought real estate would always go up ,so the borrower didn’t think they had risk either . As I see it , the loans were made based on the concept that we can’t lose because” real estate always goes up “. Everyone is seeing how faulty that concept was ,as well as how unstable a high speculation market is .
But that’s just it , the fund/investors has no idea how high the loan risk is . The borrower of course just wanted to get in on the boom and thought real estate would always go up ,so the borrower didn’t think they had risk either
This, I believe, is exactly what Chip was talking about. These people have Zero excuse for having “no idea” about these types of loans. Any lender worth a damn should have, and probably did, know better. They just didn’t give a crap. I’m not excusing the MB’s who sold the borrowers on it either, but there is a point in time where you need to start taking on personal responsibility for the choices you make. I’d say taking out a half a million dollar loan for a house should make anyone stop and pause to think about what they’re doing. I have no sympathy for those who didn’t because they couldn’t bother to look beyond two years of history. Ignorance of the law is no excuse. It should be the same way for loans.
“Fair topic, but I think that a foregone conclusion that free-market capitalism is NOT at work is wrong.”
Chip –
The govt can throw a wrench into the working of the free market, but they cannot abolish market forces. As a result of numerous government interventions, including the mortgage interest deduction, the Fannie & Freddie MBS money pump, the $500K home equity capital gains exclusion, and the American Dream Downpayment Act, compounded by a pile-on effect from subprime lenders, specuvestors, McMansion builders, and everyone else who bought into the boom, housing prices were pushed above fundamental value (which is determined by the value of a house as a place to live in). Sadly, the market has overshot on the high end of the price range, even after the “value added” of all these government purchase incentives is factored in, partly due to the tendency of mom-and-pop housing market participants to confuse the one-time increase in market value due to government purchase incentive programs with a permanent increase in the rate of price appreciation. Thanks to the overshooting, we currently see the mother of all housing market corrections taking shape.
I agree — the bane of being a libertarian is that what I believe in — less government, not just the current level of government — is so difficult to achieve at any level. As for Fannie and Freddie, I think it is just criminal that they have skated for so long, relative to their incomplete financials. And if massive fraud is uncovered (”I’m shocked, I tell you, shocked!”), who will be held accountable?
At some point, when government created inflation is no longer in effect, houses will become what they once were; big assests that depreciate as they get older.
Hint: Check out the congressional lobbying activities and the money flow of campaign contributions from Fannie Mae to congress…
“Fannie’s use of contract lobbyists and its campaign contributions are also extremely aggressive. Last year it retained nearly two dozen lobbying firms and laid out $8.7 million to reach almost every interested constituency in Congress.”
http://www.washingtonpost.com/ac2/wp-dyn/A52625-2004Sep26?language=printer
I was in DC recently, and talking to lobbyists in the medical field. They talked about how they had a fair amount of clout with Congress, but then said “Of course, we’re nothing compared to the real estate lobby. We wish we had pockets as deep as theirs.”
Bad government intervention in the housing market:
1. Mortgage interest deduction (does not increase home ownership, and favors the wealthy because benefits go to people who buy expensive homes).
2. Prop 13 (’locks’ people into their existing home, driving up home prices, and creates huge inequities in taxes that neighbors pay).
3. Zoning regulation (increases price of housing by 20% or more by limiting supply).
4. House capital gains exclusion (inequitable since it lowers taxes for people who have an expensive asset).
Good example of government intervention:
1. Monitor lending practices to guard against fraud and to make sure all parties have equall access to information (well, this only works if regulators do their job).
Disagree on zoning. Without zoning you have Houston. In other words, SFH right next to strip club, next to strip mall, next to office building, next to SFH, next to condo, etc…It’s a mess.
totally disagree with Prop. 13. Locks people into their houses? No one is forced to stay in their house, and if the property tax incentive makes it more cost-effective to stay, so what? And this crazy notion that since Joe Blow paid 10X for his house means I should 10X more for my property taxes - screw that! Maybe ‘Joe’ should try staying put, fix up what he has, and help create a neighborhood of long-time residents that support and actually know each other. Then he too can have some kid complain that he isn’t paying his fair share.
Isn’t this what we have almost everywhere in America since the housing bubble? It seems as if all the mayors in the country got together and decided to suspend zoning and setback ordinances to accomodate developers. There’s no way this cancerous over-building could have happened spontaneously, and it is certainly interesting that hundreds of towns and cities previously strapped for money are suddenly rolling in property tax wealth. Since the politicians in charge use this money to pay themselves and to fund their own retirements, I don’t think suspicion is unwarranted.
Mortgage Bankers Association and NAR are a couple of the biggest PAC contributors in the country.
The Congressional low-life’s who swill from the trough will sell all of us down the financial debt rat-hole in order to placate the gluttony and aravice of these entities.
3rd paranoid possibility…banks have engineered this to ensure they own everything out right and can keep us as renting ’serfs’ to their lordship.
“Earlier this month, David Lereah, chief economist for the National Association of Realtors, said the boom is winding down to an expansion,..”
In light of rapidly evolving market conditions, let me suggest a more appropriate wording for David’s next speech:
“… the boom is turning into an implosion…”
Why do they even publish this guys words. This is pure foolishness. Enough euphemisms. This is like saying the Titanic is no longer sailing, it is becoming a submarine.
Oh yes , David Lereah and his expansion theory verses bubble with a up year for 2007 prediction . I think he meant 2017 for the up year .
i’m leaning towards a middle ground that says the boom is grinding to a halt. the implosion is on its way.
A ball thrown into the air also “grinds to a halt,” reaching a velocity of 0 before plummeting back to the ground…
Three dangerous words? How about: I can’t refinance?
Just for fun, here’s a sample of four dangerous words we may need to tell clients at closing: need money to close.
“My ARM reset”
“My equity’s negative?”
“She’s pregnant again”
ouuuch, the last one hurts more the others combined.
Yeah….especially the “Again” part….
My ARM’s broken
How about:
Lareah for President!!!!!
That would probaly improve the truth to lies ratio.
“The check bounced.”
“Bigger tax assessment?!”
“Increased condo fees?!”
and the dreaded: “…are those termites?”
“But if a buyer has read about a slowdown and thinks he can get the unit for $750,000, ‘they’ll offer $650,000,’ he said. ‘What we haven’t seen are the three most dangerous words in real estate: low-ball offer. Not yet. When a market turns and buyers have the upper hand, we see low-ball offers,’ Naroff said.”
Funny — Ben just posted an article here yesterday about Flipper Joe in Lee County who *only* received low-ball offers. I guess West Palm Beach condo owners don’t read the newspaper, so word about low-ball offers is spreading very slowly. (Visions of dimpled chad are dancing through my brain at the moment.)
OT, but it is shaping up to be another “red number day” on this page at Marketwatch.com. (Translation: The conundrum is unraveling…)
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
At least mortgage interest rates are going to go down; I guess maybe Toll Bros and other builder stocks will buck the trend, as lower interest rates are likely to spur future home sales, right?
I guess some investers don’t agree with my analysis about how lower T-bond yields will be good for HB stocks. Usually when the DJIA drops a bit, Toll Bros stock merely takes a bath. Today it is taking a black swan dive…
http://tinyurl.com/8cqwt
Toll Bros Put option, the $17.50 for Jan 2008, YKW=MW $1.30. You can control 1000 shares of Toll betting it will drop below $17.50 by Jan 2008 for only $1300. I think these boys are heading to BK court, after hiding millions off shore.
I don’t get the recent rally in long bonds. I’ve heard explanations but come on, who the hell wants to loan the government money for 30 years at 5.09%?
The first industrial revoultion caused deflation. Industrial Revolution 2.0 may do the same. Of course the entire banking system as we know it couldn’t work in a deflationary environment but that’s neither here nor there
- People who are scared that recent inflation fears are a mirage which will fade into Japan-style deflation like they have experienced from when their housing bubble imploded circa 1990 up to the present.
- People who fear the correction in commodities has a long way to go before reaching bottom.
- People who fear behind-the-scenes problems at major hedge funds will lead to financial armegeddon, at which time the insurance of risk-free Treasury bonds looks relatively attractive.
Well, the commodities market could be coming in for a “soft landing” on a “permanently high plateau.”
“Risk-free” Treasury bonds? Now that’s a 21st century oxymoron!
Deflation my ass. I’ve been waiting for the deflation to come true since oil prices collapsed in 1986.
Best argument I am aware of about why long bonds are so low is that the Asians (still) need to do something with all their dollars and don’t care what interest rate they get.
None of these arguments makes 30-yr bonds more compelling an investment than, say, MO stock, which yields about the same.
IMHO when foreclosures skyrocket the risk premium will go so high that it won’t matter much what the fed rate is.
Scariest words: R-E-O. A few of those on your block and you KNOW your new comps will be lower.
Some HB’s hitting new 52 week lows!
I think in many markets, an offer of three-times a household’s income, from a household with a similar background to those who have traditionally lived in the community, is considered a “low-ball offer.” In reality it is a high offer. Two times such an income is a low-ball offer.
I agree. Fortunately, that is virtually certain to change over the next few years.
Japan’s RE price decline lasted for 15 years straight.
Now here we are just a few months into our downswing. So what constitutes a “lowball offer”? Today’s “lowball” may look really foolish a couple of years from now.
Heck, alot of the lowballs will look silly 1 year from now. Prices have only started to edge downward. Usually the highest year for foreclosures is the third year of the loan. I personally think that the prevalance of IO loans will mean that 5 years from now we’ll still be getting lots of foreclosures from the crazy loans over the last couple of years ’cause none of the fools will have positive equity. OTOH some think that this will unwind faster since people are so overextended. Time will tell.
It’s supply and demand, and supply is likely to grow for awhile yet.
What seems like a lowball offer sufficient to insult the seller may in fact be insufficient to correct for the combined effects of subprime borrowing, speculative purchases, and appraisal fraud on driving prices to absurdly high and unsustainable levels. Better to keep your powder dry at this point in the cycle than to try to guess how far prices will fall.
I live in Central Florida and rent in the Lake Nona Area. Two almost identical houses have been up for sale in the Northlake Park area. The first was listed at $550k in November. Price was cut to $535k in early January and wound up selling for $520k in February. Almost the identical house goes up for sale in late April. (It has a bathroom in the bonus room that the house next door didn’t) The listing on the house is $618k! I went to the open house and the realtor told me this person was desperate to sell. I asked her if she was so desperate, why was the listing almost $100k higher than the almost identical house next door. The realtor looked at me as if I hit her with a pillow case of bricks. I just laughed and thanked her for her time. You want insanity? I went to another open house in the same area. The person selling the house was a realtor. It was listed for $585k (i think…my memory is slipping) back in ~Feb. Nobody has bit on this thing and the last I looked, she raised the price to $606k!!! My wife and kids will kill me but I would rather rent the rest of my life than overpay for this crap.
price = 150 times rent
always has ,always will
my mom will rent a place in FL that listed for 350k for 1200 WITH utlilies etc…… !
I’ve been through that area — you made the right call. My guess is that your rental options in that area will widen further before long.
I woke up last night in a cold sweat. Kept having dreams about ice pick wielding buyers with low ball offers!!
Low ball offers of $450k for a house listed for $550k!!! The horror!!
That house was worth $250k when I bought it!! AND I put in a koi pond!!
Oh no !!!!!!!!!!!!!!!!!!!!!!!!!!!! Help me!! Help me!! Aaaurgh!!!!
I feel your pain. I gave up even considering buying around last summer. Problem is, there are almost just as few affordable places to rent because of conversions to condos and speculators sucking everything up. Still, if you can afford it there are many nice houses for rent for 1/2 or 1/3 the price what a mortgage on them would cost. Especially around the nice developments like Lake Nona and Stonybrook.
You’ve just got to put a positive spin on this whole situation. If prices for Central Florida were ‘normal’ right now, you’d probably buy a modest house that fits the needs of you and your family. But because the price of that house is so ridiculously high, you can live in a nicer house for cheaper by renting! I’m renting one of those 500k houses right now for 1500 a month.
Yeah, I got you there on the lack of affordable rentals. I left Florida after a year of trying work down there. The prices were so out of line with salaries all I could afford was an appartment in a really dangerous neighborhood. The vacancy rate for my complext was like 0% so they could keep raising the prices. I’m sure the tables will turn but not quick enough.
There are cheap rentals here in Tampa too if you hit the streets–I found the house that I’m renting (for about 50% of the mtg. payment if I bought it) by driving around through the nice South Tampa neighborhoods. I have 50% more space than I had in my crappy Harbour Island apt. (that went condo in Jan.) and I pay $100 per month more-with a pool!
Median income in my zip is $55,000, and April’s average house price here according to the local Realtor’s association was around $500K. I smell a correction.
Take what you pay for rent and I believe you should multiply it by 200 to get the true value of the house. If the house is appraised at more than that, then the people around are paying too much and driving up the comps.
Someone please correct me if I am wrong. The number 200 still makes it look too high.
We are SLOOOOWWLY moving from denial to panic. Kinda like watching a boiling pot with the lid on it…
aint seen nothing yet, wait till the hurricanes come!
http://www.cnn.com/2006/WEATHER/05/22/2006.hurricane.season/index.html
exactly.
The funny part is that if you go to a couple of other brand new developments that are within a mile down the road, about 30% of the houses are for sale. As fast as they complete these new homes, the for sales signs are going up. (most of them of course have never been lived in.)In East Park, Mecerdes Builders has about a dozen homes that they built that they are trying to get rid of. I pay $1400 in rent for a 3 bedroom townhouse (~ 1350 square feet) which is at least cheaper than the $2200 I was paying for an 1100 sq ft. apartment up in hoboken, nj.
crazy valuations in So. Cal…
The place I rent in Solana Beach has a “zillow” value of ~1.2M. I rent for 1500/month… Owner told me a few days ago that he plans to sell in a couple of years and will give me first opportunity … LOL
O/T Yesterday I saw something new. I was in Temecula, a town about 40-50 miles North of San Diego. Temecula has an “Old Town” strip with wood sidewalks that gets a lot of weekend attention. As I was eating lunch I noticed a truck towing a trailer that had a large billboard advertising condos (starting in the mid 300s) in Penesquitos which is a town on the I-15 corridor just North of San diego.
My understanding is that many commute from this area to San Diego. I am guessing that they are trolling for sales from this area to attract buyers that have moved there for lower housing cost, only to be paying the savings in fuel costs.
Three most dangerous words
” U R F’d”
“Get out now”
“Sheriff “has arrived”
“Hello, BK Court”
“Kill the squirrels”
“Suzanne has arrived”
hurricane a coming
Bad moon rising….
Just sign here
I am so glad to see that Jville is finally mentioned as a bubble city. The Realtors in this town always say “it won’t happen here; only in South Florida”. A friend of mine and his wife bought 4 condos for over 300-800 k that are rentals. 1 which will not be completed for a year and another is a “hotel” condo and they said it is a great investment. What a joke. These (hotel condos) will fall harder than the others. I tried to tell him but he said “his wife is in the business and she knows the market” Fools. People have no clue the reason real estate went up was the access to money was so easy. I hope they (and believe BB will by force) raise rates 8-9% and watch how much of the market they really know. Rates are going higher, the federal deficit is building, inventory shooting through the roof, and other countries are diversifying their surpluses. The easy money which led to this bubble will disappear. Any they can not even see the true hurricane coming their way
Jacksonville has been a cheap city to live in because the jobs aren’t plentiful and the salaries are low. Same as Tampa. Yet they are both bubbilicious and housing is WAY out of whack for the local salaries. I love Tampa and fear what will happen to the housing market here. It will be a bloodbath.
My wise daughter and son-in-law just sold out in Tampa.
Someone please tell me who Suzanne is.
There is a commercial where a wife and hubby are arguing about buying a home. The wife wants to, hubby doesn’t. On speaker phone is “Suzanne” their realtor, who eggs on the hubby. One of the final lines is the wife saying “But Suzanne researched this, we can DO IT!” as he capitulates.
it really is a sickening commercial. Most of the folk here seethe at that, and she has become the mockery of all that is wrong in the RE machine…
Here’s the clip
http://www.slate.com/id/2139572/
Clouseau
Tried to reply earlier, it got lost;
she’s a horrible person from an ad who convinces a weak husband to go along with his mean wife and buy a house he doesn’t need.
she epitomises everything that’s wrong with RE to those of us on this board.
Here’s a link:
http://www.slate.com/id/2139572/
Thanks.
Sudden drop in open house listings around the county:
The signs were all blown off by the hurricanes :)…BWAHHAAAA…
Suzanne was some chick who did some ‘research’ for a good deal and got herself majorly F^**Ck’d. So she is the epitome of poor due diligence. The squirrels were about some lady in SF who wanted the FBer who was buying her SF condo to agree to feed the squirrels (after bidding $1M or so for some POS).
The squirrels have not been fed in years….
It’s even worse than it appears!
Susanne is the realtor in a recent Century 21 (I beleive) commercial where the wife is browbeating the husband into buying a house they cannot afford. At one point the wife tells the husband “Suzanne researched this” as if it is the stamp of approval. I haven’t seen the commercial, only heard about it here, but people were fairly revolted by it.
WArenter - thanks for more clarification than mines. Anyhow, all will agree that Suzanne is a friggin’ IDIOT.
OT- NOAA is predicting 4 major hurricanes to hit this year, although they say that the waters are not as warm this year. NASA on the other hand is saying that the waters are much warmer then last year (sound familar-housing bubble-no housing bubble).
I know, it’s only an ad but here goes my shot: Suzanne doesn’t know her ass from a hole in the ground, she doesn’t give a damn about those people and neither does that poor shmuck’s wife. All Suzanne wants is a fat commission check and that’s all Century 21 wants as well. Anyone, and I mean anyone, who takes advice like this from a Realtwhore deserves what they get. Worst three words in a dying market: “Deal fell through”.
Owner Under Water
Buyers Just Walked
Comps Are Dropping
Record Inventory Amount
Foreclosures Are Rising
2006 ARM Resets
2007 ARM Resets
Rates Are Rising
Lost My Job
Have to Move
Wish I Rented
Hummer for Sale
Oh, forgot a couple more:
Taxes in Arrears
180 Days Late
Lien on Title
Marriage fell apart
Wife got kids
so will be
Gun to Head
Barrel in Mouth
Pull the Trigger
Ended the pain
Liquidate retirement account.
Postpone Hawaii (other sunny place) retirement
We’re flat broke
(luxury item) for sale.
. . . but Suzanne researched it and I feel fine.
What defines a “Low Ball Offer”? .70 or less???
I believe in Los Angeles, the official definition of ‘low ball offer’ is any amount below the lowest number the seller is willing to “entertain”
Best definition I’ve read so far is, an offer that you are embarrassed to present. Works for me.
The three most dangerous words for Florida, IMO?
“Hurricane season again…”
Forecasters Predict Active Hurricane Season
By ABBY GOODNOUGH and ANDREW C. REVKIN
Published: May 23, 2006
MIAMI, May 22 — Government forecasters predicted Monday that 13 to 16 tropical storms would form in the Atlantic Ocean during the six-month hurricane season that begins June 1, far fewer than last year’s calamitous season but still more than usual.
http://www.nytimes.com/2006/05/23/us/23hurricane.html?hp&ex=1148356800&en=8fbfc9333222be30&ei=5094&partner=homepage