The Second Home ‘Mule Has Died’
The Barrons article seems to be the housing bubble talk of the day. “The vacation home in Naples, Fla., hasn’t been drawing much interest from buyers, so a seller recently threw in that most modern of amenities: the $1 million price cut. That’s brought the asking price down a full 25%. ‘If you want to sell, you’ve got to go back to ‘04 prices,’ says Chip Harris, who is handling the property.”
“Naples-style discounting is starting to spread. It hit the town of Pocasset, on Massachusetts’ Cape Cod, just as retired executive Jack Reen was trying to sell his four-acre, six-bedroom beachfront home. He cut the price several times, for a total of 42% off the listing price, before striking a deal at $3.95 million.”
“While pundits debate when the bubble might burst in the primary housing market, the air already is whooshing out of parts of the second-homes market.”
“Vacationers long have been attracted to Naples’ proximity to water, the Everglades and shopping. Today, about the most visible activity in that area is the 400 or so daily additions on the MLS, and price reductions by the dozens. In the 35 years that (broker) Charles Ashby has been in the business, this is the first downturn he’s seen, even counting recessions. ‘The mule died,’ he says.”
“The area’s sales of homes costing less than $1 million declined 45% in unit volume in the first four months of this year. All along the pricey Gulf shore, builders still are tearing down old ranch houses and replacing them with two-story mansions, pushing the market toward a classic glut.”
“In a variety of other vacation hot spots, from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J. Phoenix in recent years has been overrun by property flippers from California, says (broker) Mike Messenger, in Scottsdale. But unit sales now are down by 40%-42%, and the city’s inventory of unsold homes has shot up more than five-fold, to 39,000.”
“Likewise, the number of homes for sale on the MLS for the Falmouth area of Cape Cod is up about 65% from a year ago, says Lynette Helms of the local Real Estate Associates. With numbers like that, more price cuts can’t be far behind. In fact, the Cape Cod town of Barnstable is among the first of the second-home meccas to show a decline in median prices.’
“A Wellesley, Mass.consulting firm, shows just how big a role can be played by investors. In Myrtle Beach, S.C., investors owned a full 58% of properties in 2004, the last year with available data. Though Florida communities accounted for eight of the top 10 investor-owned hot spots, Wilmington, N.C., clocked in at 38%, Las Vegas at 26%, and Honolulu at 23%. The normal level is closer to 14%.”
“Says Ingo Winzer, president of the firm: ‘This makes me very worried because it implies that the price increases have been driven more by speculators than by people who are going to hold onto these properties, and indicates to me that there’s a speculative boom.’”
“Behind all this is a fervor eerily reminiscent of the late 1990s on Wall Street. An eye-popping 64% of investors with four or more properties planned to buy another property within two years.”
“People don’t believe in the laws of supply and demand anymore,’ says Alan Skrainka, chief market strategist at Edward Jones. ‘We’re not saying it’s a bubble, but we’re saying prices are overstated and will likely correct 20% to 25% over four or five years.’”
“He rejects a notion advanced by housing bulls that shore communities in Florida and California will be protected because of the limited supply of coastline. ‘Japanese real estate and land prices went down for 15 years and Japan is an island,’ Skrainka says.”
“In Palm Beach County, inventories of unsold homes have more than tripled in the past three years, to more than 25,000. Some brokers in South Florida are reporting a quadrupling of inventories over the past year. In what some see as a sign of the times, Coldwell Banker recently closed four of its 31 offices in the Palm Beach region.”
“Tucson, Arizona could face a 33% decline in home prices. Mike Messenger, a Scottsdale, Ariz., broker, sounds considerably more glum. He says this is the first time in 16 years that the lower end of the market, always the driver for the area, has weakened. The culprits? Mainly the flippers; Messenger figures investors account for 35% to 40% of the market.”
“Las Vegas is causing concern, too. It’s ‘a classic example of an overheated market where there’s too much proposed and the reality of the absorption isn’t such that it could work in the near term,’ says developer David Wasserman.”
“The tough conditions in the second-home market are no small matter for the people who own the homes. And the so-called mass affluent, folks with investable assets of $100,000 to $1 million, will probably take the brunt of any price declines. A Chicago-based consulting firm says this group has more than one-third of its assets tied up in real estate. In general, these home owners are more vulnerable than the ultra-wealthy, both because they can ill afford to wait out a prolonged downturn and their losses can hurt if they’re forced to sell into a glut.”
Woohoo! Million-dollar price cuts for everyone!!!
That’s my favorite amenity! Keep in mind, the garbage about a second home revolution was invented to explain away the speculation that emerged in 2004. At first the NAR was shocked, but quickly re-grouped and put forth the baby-boomer/vacation home myth. Then, speculation went up to 40% in 2005. Now the lie at the heart of this trend has been exposed. Notice the word ’shortage’ wasn’t mentioned once in this article.
I would bet its closer to 50-60% speculation! I am sure the NAR #’s are not accruate!
So true. So many speculators lie on the mortgage applications so they can get financing for their “primary” residence. When the mortgage company pulls the credit report, they should notify other lenders of the new “primary” purchase.
That is the new growth business for LO’s and others.
Forensice mortgage broker research.
AZ did some of that with their property taxes.
Watch for Countrywide and others to offer this service after the bust gets going.
“He rejects a notion advanced by housing bulls that shore communities in Florida and California will be protected because of the limited supply of coastline. ‘Japanese real estate and land prices went down for 15 years and Japan is an island,’ Skrainka says.”
I love this Common sense Stuff !
Readers posted the same on this blog and others 15 months ago.
Yeah but at that time people were in denial of cycles and any item that contradicted the stupid slogans
How many more hurricanes is it going to take to make people realize shoreline living is overrated? The answer is blowing in the wind — somewher in the south Atlantic perhaps.
‘We’re not saying it’s a bubble, but we’re saying prices are overstated and will likely correct 20% to 25% over four or five years.’”
For ONCE I’d like them to define what a bubble is but just as politicians do they would probably give an answer-non-answer. At least then you could throw it back in their faces when their definition of bubble comes true.
20-25% in 4-5 years? Try 1-2 years, and clearly from some posts we are already there in many communities! Sheesh.
This is getting downright hilarious.
There are fewer cheerleaders. I can wait…hehehehe.
prices are overstated and will likely correct 20% to 25% over four or five years.
A decline of greater than 20% in a market is generally referred to as a “crash”, not a “correction”. A correction is a price decline of 10-20%
The low interest rates and the easy underwriting started the housing boom , but speculation sales in 2005 ,(being 40% of the total sales), kept the boom going . At these higher prices flippers can’t get the rent they would need to hold long term .I think the market hit the max. prices in 2003 for what the market could really bear .
A market is what a willing and able buyer will pay . Can you imagine a flipper holding a property for 5 years at a neg. cash flow of 25K a year .If you can’t hold a property long term ,your not really a able buyer . If holding a property for 5 years would BK you ,your not really a able borrower .
Since I have discovered this Blog I have been turning my attention to the bubble. It was interesting because I had assumed there was something wrong with the market, but here in north county San Diego, I felt like I was the only one what thought that way.
Based on using some data mining tools (that are the subject of the company I started about 4 months ago) I have been re-tuning a copy of it to looking at the bubble. I am starting to develop a picture that is surprisingly wide spread. What does that mean?
While Phoenix, Las Vegas, Florida, San Diego, Riverside, Sacramento are the marquee names for the bubble, I have found there to be building inventory and “out of whack” prices (backed by maxed HELOC) all over the country. That includes places like Cleveland, small towns in the Midwest, even out of the way places in Colorado.
Would there be interest in seeing some of this data?
I am worried this is like a cancer that has now spread to every area of the country, and unwinding it could be very ugly indeed. Maybe more ugly that I care to imagine. I hope that is not the case.
I agree 100%
Would like to see your data .
“Would there be interest in seeing some of this data?”
Hell Yes ! Not only that but it should be widely disseminated to once and for all debunk the spin that it’s only certain areas that are in a bubble. My take on this is that typical Party A living in say an expensive part of New York knows someone in another State (party B) that is much cheaper and based on that has been “investing” in party B area thus driving pricing up. One successfull purchase leads to another which leads to boasting to freinds and family who decide to get in on a good thing also.
Your investor suggestion rings true to me, Mo Money. But even primary housing can be impacted from people transferred or moving into the area from a bubble market.
I wouldn’t say everyone is investing the difference. It’s a huge relief for far too many to finally be into that deserved McMansion or historic Vicotorian. In this non-bubble area new construction is (relatively) cheap and easy and (from anecdotal observation) adding amenities is usually a no holds barred experience…..driving up the prices.
For those with more self control there is still the difficulty of being able to assess value in your new market. Your head is often still stuck in old market numbers/values. Besides simple overpaying, you may assign a bigger cash value to something the locals could care less about. IE I would believe a home closer to the village would have more value than further out among the farmland/woods. But many people here chose the town looking for privacy and so despite increasing gas prices, prefer to be further out.
A friend of mine, who lives in the boonies in a northern midwest state, wrote this week that he was shocked fo find the value of his home declining. I’m sure he thought he was protected from the coming bust I told him about it last year. Arm re-sets, HELOC overspending and higher-interest new loans are by no means limited to bubble areas.
I am worried this is like a cancer that has now spread to every area of the country, and unwinding it could be very ugly indeed.
But how can that be? The great and powerful AG has declared that this is just “some froth” — you know, like the kind you get on top of a milkshake. And nobody ever went bankrupt and lost everything from drinking a milkshake, right? David Lereah says it’s a “balloon”. Balloons are fun and colorful, and you see them at parties. So isn’t this really just a fun party with milkshakes?
John-
Hey John-
All this party needs is a Lereah pinata.
(My turn, my turn…pleeeease, just one whack).
Auction Heaven tried to rally the troops here to pressure Lereah to answer our questions.
HIs proposal was met with silence.
I will reiterate.
Just as this blog pressured Jon Lansner or OC Register to communicate and answer questions.
The same could be done of NAR’s shill Lereah.
You don’t think that they lurk here?
Auction Heaven tried to rally the troops here to pressure Lereah to answer our questions.
Yeah, where is Auction???
This is lke the froth you get in a beer when the keg is gone. It’s all froth, no good stuff.
Speculation is kind of like power factor.
Apparent vs real power for all those electricians out there.
The capacity of the beer mug is 12 oz, but with the head you can only get 10 oz of beer.
That is the metaphor that AG was going for. In reality you had a distracted bar tender and an almost empty keg and your 12 oz mug is 7 oz of foam.
Sigalarm-
Yes, this would be very helpful! Clearly demonstrating the widespread presence of this cancer would re-frame the bubble discussion. It would also provide a well-needed warning to those who think .. “Yeah, sure, those greedy bastards in Phoenix will implode, but here in (fill in the blank) we are just fine.”
You would be providing a public service… and I’m not kidding.
Would you give your permission for us to forward your data to our local newspapers?
Once I get things posted, it will be on the web and at that time I consider it public information to be used and re-used as much as possible. I would only ask that you credit the source.
Yes I would love to see your data
Thanks for the responses. I will try to get the data organized into a web page or several and post it up where everyone can look at it. Right now it is more of a hobby than a job, so it may be a week+ before I have it in any shape. Right now it just looks like XML.
Thanks, I would be very interested as well.
Keep us posted.
I like Prof Piggington’s slogan.
In God we trust, all others bring data.
Sounds like you are bringing data! Woo Hoo!
A small example of what “Ivy” is currently finding. This is for a small, fading city in central Illinois called Peoria (if it plays in Peoria…) . I say fading because they are barely holding their own in terms of population. The most recent census data has their population at 112,936.
Lets see what mining the MLS can find
1570 total houses on the market
204 condos on the market
Median house price is $126,900.00
Median condo price is $154,900.00
Oops… condos more expensive?
1570 houses for 112936 people is like San Diego having 30,000 houses (per capita adjustment). Sure the market is cheaper, but they seem to have quite a glut of houses.
I pick on Peoria because I have relatives who live near there. What is more fun is to take a look at Bloomington IL (home of State Farm Insurance) and compare. If Peoria has the flu, Bloomington is in the ICU. More later.
* Market data comes from the MLS, and total figures are based on what ZipCodes are within the Peoria area (MSA).
Home of the Perioa Rivermen
Fancy that. I’ve recently started doing some very small-scale, semi-manual data mining on my own mid-western community. Two zip codes, total pop. about 75,000, about 30,000 homes (2000 Census by-zip-code figures). Comparing web realty site data for May 27 against that for May 2, single-family home listings up from 330 to 362, 79 asking price reductions averaging 2.81% ($17,400), 54 homes removed from listings (sold?), 86 added, 22 relisted (?) (same address, different MLS number).
If the 54 delistings represent about one month’s sales, then the inventory is above six months, and grew by about half a month’s worth through the 25-day period. Note that the 79 price reductions on the 276 units listed on May 2 and still listed on May 27 comes to more than 28% having been reduced.
In addition, there are 609 condos/townhomes on the market, also a significant rise from May 2 (I’m not tracking the prices on these).
Wow. I was hoping my data was an anomoly. Thanks for the information.
Which small towns in the midwest? I now live in the Ozarks in a town of 4,000 people and believe it or not, there are lots of McMansions being built — they put these things up in 2 months. Given the salaries people make around here (if they have jobs) the prices of these new homes is ridiculous.
My figures are for one of the Northwest Suburbs of Chicago.
Don’t worry, be happy
Everybody loves more and more data. BTW: The reason why this cancer is so wide spread is because of the credit boom since 2000. People went crazy when they figured they could buy houses so easily.
I’m am of two minds.
1. Woo hoo, I can buy a decent place cheap as some many idiots will have destroyed so much capital that they won’t be bidding against me for my next home.
2. Yes, when this unwinds its going to be ugly. Will it be bad enough to be a scary recession?
Neil
1. Not only will there be no competing bidders, the sellers will be desperately writing you letters describing why you should buy their place and promising to come back and feed the squirrels.
2. Say it with me: De-pres-sion. Sound scary enough?
this cancer will not only spread to every area of the country, it has already spread to even the darkest corners of the financial anglosaxon empire.
The US is just a part of the worldwide credit/housing bubble; it was late to the party and has its own dynamics, but apart from that it is very similar to what happened and is happening in many other countries.
Thats very sad, I would rather if we Americans were going to make a mess in our real estate markets we confine it to our own shores.
I would be very interested, Sigalarm.
Frankly, I don’t need datamining tools to tell me what emphirical observation (mine and others) has already made manifest: that the housing bubble is toast. Ben’s site has played a singular role, of course, in serving as a catalyst for validating what most of us already suspected, and establishing a virtual community of the enlightened, so to speak, who are now armed with the information and insights needed to make sound and appropriate RE decisions rather than following the lemmings over the cliff.
Read about Ladera Ranch Home going to auction.
Interesting…. my OC watchers
Cripes ! Read deeper, somebody got into deep doo-doo and had their house seized. This is no typical foreclousure or “auction” that really isn’t if the reserve price isn’t met.
Yeah, EG&E are the ones doing the auction. I would suspect it was siezed by federal agents for some reason.
Probably Drug offense or smuggling illegals
Maybe a bad mortgage broker!?!?
Some flipper’s renter probably turned it into a meth house….
we’re saying prices are overstated and will likely correct 20% to 25% over four or five years…Japanese real estate and land prices went down for 15 years”
Snigger. Even the most pessimistic cheerleaders are in personal denial.
20 to 25 percent would be a “soft landing”.
Seattle will average anywhere from 25 to 40 percent correction and we are not quite as bubbly as CA, FL, and AZ.
These places will experience ~50 percent corrections.
A lot of folks will be flippin out.
this whole thing is like a dam collapsing that everyone said was safe. the water(inventory) got high and eroding the foundations(YOY sales, shortage of land, buy now or be priced out). now we’re just waiting for the burst of YOY price delines. then comes the rush of water and a damage assesment.
they always say people don’t have enough respect for water until they get in trouble on the ocean or feel it’s power. they’ll respect housing fundamentals by the time this is over. no more silly ideas about real estate. in fact, they’ll probably have silly ideas about why you should be afraid of real estate.
But Suzanne told me that dam was structurally sound. She researched this….
Kinda like Lake Isabella’s dam.
http://en.wikipedia.org/wiki/Isabella_Dam
http://www.ridgecrestca.com/articles/2006/05/24/news/news05.txt
Two interesting things happened this past week:
- I was talking to a guy who left his software sales job a year ago (making aroung $250K/yr) to sell RE. A year later, he’s done. “The market in northern Virginia is dead,” he told me. “It was overrun with speculators and now I’m seeing a lot of people defaulting on their loans. They bought these expensive townhouses thinking they were just going to flip them for a quick hundred grand and now they’re stuck with them.”
- The couple a few doors down from the townhouse we rent listed their unit in March (the height of the Spring selling season, right?). Between our street and the one behind ours, there were five “for sale” signs up already. About a week ago, I noticed his sign was gone and today I saw him outside so I asked him why he took it off the market (I didn’t even bother to ask if he had sold it). He said, “We had it on the market for two months and not a single person looked at it — not one!” He said they don’t need to sell, so I think he was just throwing a line out to see if any GFs would bite.
I’ve been wondering how much of the inventory we’re seeing now in the DC area is due to people “just throwing a line out to see if any GFs will bite?” I guess we’ll find out when prices start to decline and only those who have to sell will stay on the market.
I was wondering the same thing today. My guess is that there’s a fair number of people “fishing”. Here’s my hypothesis: Since prices haven’t started to decline dramatically, some folks who don’t need to sell are actually in the market, fishing for a high price, while some folks (flippers) who should be selling are not in the market, waiting and hoping for the market to come back to “normal”. As price declines begin to accelerate, however, the folks like my neighbor who don’t need to sell will exit the market (since they realize they’re not holding a winning lottery ticket), while more panicky flippers will enter the market, having abandoned their delusional hope that the market will return.
and thus, as the fishermen pull in their lines, and the true FB start to panic, the decline begins in earnest
“When threatened with a life-threatening situation, 90% of people freeze or panic…Pinpointing why and how the 10% survive is another story. They are the ones who can perceive their situation clearly; they can plan and take correct action…they share certain traits; training, experience, stoicism and a capacity for their logcal neocortex(the brains thinking part) to override the primitive amygdala portion of their brains.” -Laurence Gonzales.
Remember in the old Poisedon Adventure movie(I haven’t seen the remake) when Gene Hackman tried to get everyone to follow him? Most of the people sat around waiting to be rescued and listening to the captain until the water rushed in and they were drowning. The ensuing panic sealed their fates.
There are a lot of Gene Hackman types on this blog who have been warning people for a long time. Telling people not to listen to the Captain or Greenspan or Lareah etc. It is getting close to the time when everyone is going to be trying to climb up that Christmas tree all at once. And your banker might be trying to peel you off of it to save himself.
Excellent analogy. Darwinism is starting to assert itself.
Fishing is definitely happening in certain Seattle neighborhoods. Last summer some folks in a neighborhood with great water views sold their house for 1.2 million- bought it in ‘04 for 400K.
Since then, for the past- what is it 9 months now?- the whole neighborhood’s up for sale in the over a million range. Most have been sitting all year, but somebody could still get lucky.
Sby. from San Diego bought one a couple weeks ago- it was actually reported in the newspaper as a sign that the neighborhood is still “hot” (!)
My favorite part of the above article is that the house had to roll back to ‘04 prices to sell.
That’s my wishful target- ‘04 prices by this summer and then possibly some ‘01 deals by fall/winter.
I know it sounds extreme but I believe it’s not outside of the realm of possibility.
01….count on it.
Housing price declines don’t usually happen that fast. House prices are notoriously “sticky down”, as people live in the house and hope for better prices.
As price declines begin to accelerate, however, the folks like my neighbor who don’t need to sell will exit the market…
…only to return later!
It’s one thing to say “oh well, looks like I missed my chance to sell at top dollar”. It’s quite another to sit on the sidelines after your investment has lost a quarter of it’s value and price declines are still accelerating.
True, tj, but in my neighbor’s case, he probably doesn’t plan to sell anytime soon. He could stay planted here for the next 20 years, so he’s probably not as concerned about price declines. He just wanted to see if there was some sucker out there who was willing to stuff a few hundred grand in his pocket. Turns out there wasn’t, so he’ll probably just stick around. He bought several years ago for less than half what he was asking, so he’s a long way from being upside down.
I’m guessing, not much. Putting your house up for sale is not a frivolous decision, and you’d have to be prepared for the possibility of actually selling and then buying or renting someplace else.
OT….anyone living in the San Francisco Bay Area should tune into channel TLC for a show called Property Ladder. It’s about a flipper in Santa Monica. Problem is, she’s running out of money and her timeline is going to be longer than the 4 weeks she planned on.
And check this….she makes the word “realtor” into a 3 syllable word…real-a-tor. LOL!!! What a ditz.
BayQT~
http://tlc.discovery.com/tvlistings/episode.jsp?episode=9&cpi=54732&gid=0&channel=TLC
Just saw the intro, she expects to make $180K in 4 weeks after putting in $50K worth of renovation. Wow, the mark-up on Home depot paint and new appliances sure is steep ! I think I’ll just do that stuff myself and save $$$.
I keep seeing the comment that Japan went into a 15 year decline in RE values. The Japanese might be just a little better with a buck than many Americans. The lending terms and borrowing have been just so terribly insane that it might take 15 months to see some extreme problems here in the U.S.
It’s hard to see any result other than a collapse. It would take a hyper inflation to bail many out, but the hyper inflation, itself would be the ruin of most of those who need help (driving interest rates higher).
It’s interesting that some have thought that the problems would be restricted to those areas that saw strong advances in prices. The foolish borrowing is almost as big a problem as the rediculous prices.
It’s amazing. She’s has already screwed up her timeline, her loan for the $50K hadn’t even come through before she started demo’ing everything. She’s insisting on adding an unpermitted closet to the Master Bd, and other stuff that is/was NOT necessary. It goes on and on…she’s a piece of work. Mostly she’s prancing her D-cups around and has messed up everything. Oops! 7weeks and she’s run out of money. PLUS, her mortgage pymt is $5,600.
Yikes!
BayQT~
Mostly she’s prancing her D-cups around
What channel did you say that was?
I love those D cups. you should come to Phoenix metro… so many D cups all over… .it is mindboggling…there has been a trickle down of flipper money into D cups. I am wondering if those plastic surgeons will see a decline in biz.
D-cups….do you mean “Dixie Cups”?
Clueless in Seattle…
D-cups, huh? Well on some level, then, she’s going to make out just fine!
ROFL!!! The Learning Channel. Quick…it will be off soon. LOL!
I saw that episode about 2 hours ago here in Houston, wait unitll you here the price she is going to sell the house for. (I won’t ruin it for yall)
ok. Right now they’ve kinda got the shower installed. What a bunch of keystone cops. So far her $50k budget is at $67K and out to, I think, week 12.
HA! Did she say that she had $400 left in the bank?
BayQT~
Oh, my God! It’s been 3 months!
4 months, and a $5600 a mo. mortgage payment, a gas leak behind a new kitchen wall, and plastic tubbing used as drain lines. 100k spent so far on the work.
Saw that one a few months ago. As I recall they sort of trail off without ever telling you if she sold it. My guess is she’s still holding it.
Read about Is it this one?.
No, it doesn’t look like it. They said it was painted yellow, and it also had a very large pool, which I would think they’d mention in the listing. And I don’t recall a fence.
BayQT~
Show’s off now. Yeah, she didn’t sell it. Bought it for $750k, put in $100k and still had a gas leak and plumbing problems to correct, after 20 weeks and an asking price of $980K, she’d be lucky to come out with any cash in her pocket. They showed the lookie-loos at the open house complimenting, as well as pointing out what was wrong…but ALL of them said that the price was too high.
Awww….back to the drawing board. It sure would be nice to know the address of that place to keep an eye on what happens. But as of the end of that show, she still had a note of $5,600, and I believe a loan to pay back to friends who came to her rescue. Does anyone know if the friends actually gave her the money or was it indeed a loan?
BayQT~
I dunno, but with D-cups, someone will ALWAYS be there to come to the rescue!
Interesting observation in the LA Times today about how many renters are in LA: What’s more, though it’s a detail that’s often overlooked in a town that fetishizes homeownership, most Angelenos are renters. According to U.S. census data, more than 60% of people here rent their residences. So if prices do start to fall precipitously, there may be a lot of potential buyers on the sidelines waiting to pounce.
http://tinyurl.com/gzffm
Wes Chester:
Ben blogged this topic today.
It is in the op-ed section so I wouldn’t base my financial decision-making on that.
The desire to own a home in LA is nearly infinite. The capability to pay for one isn’t.
As the mania comes off the boil, Joe Six Pack won’t want anything to do with an asset that has lost value for several years running.
You said it.
Lax lending has allowed anyone “capable of fogging a mirror” to buy virtually anything. Anyone that didn’t buy most likely never will.
This is the editorial of the LA Times and the title, incredibly, is:
HOME SWEET HOME?
No burst in this housing bubble
The market is cooling, not collapsing.
May 27, 2006
If there is indeed that much pent-up demand then we could a second bubble. Hopefully the following will be put in place to prevent such a thing:
1) Higher interest rates
2) Less down = higher interest and higher PMI
3) P&I/Gross Mo Income
All right, my peeps! You think the bubble is only in the bubble areas? Guess again. People are up to their eyeballs in debt in the foreclosure capital of the world (the midwest) too. They flip houses, not like the big dogs in CA, but they do. They buy a new crapper Jack house they can’t really afford based on their long term expenses and then they sell it one to four years later for a 1-4% a year increase then go buy another. That may not sound like much profit but wages are low and every little bit helps pay those credit card bills, right? Prices should have been decreasing all this time due to wage stagnation but alas, they haven’t. There is inventory building all over the great state of Oklahoma and builders here are using the same tricks they are everywhere else. Damn, why doesn’t that stupid California bubble come on over and run up prices on some of the hundreds of unsold spec houses for sale here for a modest $100 per sq. ft. (lot included), I mean, come on, if the flippers are really trying to corner the market they should leave no stone unturned, right?? I read an article the other day about a guy from CA who moved here and commutes to CA three times a week by plane. He said he gets to spend more time with his family that way. Ha ha. What a great life. Jet lag three times a week. Good thing the airlines are losing money to help him out. Prices should have been dropping here for the last three years, instead the marginal I’ll live here for two years then sell my new house I can’t afford to someone stupider than me for a profit buyers keep prices going up. Over the last ten years prices have doubled but we could sure use some help making them double again, that’s for sure. Red Rover, red Rover, let them smart-ass flippers come on over. What’s the matter housing bubble? Running out of gas?
I have data (click on my name). It’s regarding North SD County, but so far there’s been similar trends throughout the country.
2006 median sales price peaked in February, and the trend downward is underway. No scientific formula or algorithms, just reporting MLS statistics that are available to lereah and the rest of them if they were willing to divulge.
Let’s tell it the way it is, so we can deal with it, instead of lying about it and doing nothing.
You’re my kind of guy… thanks
Is this accurate…. 3.5 million resale homes for sale and 565,000 new homes for sale?
In a variety of other vacation hot spots, from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J.
When did such appalling places become “vacation hot spots”???
So it’s really happening! This blog is great in every way. As A Canadian I wish I had more to offer folks here but in my own way, in fact I would like to ask people here where they think all the ’smart money’ is headed. Those sitting on real estate are starting to experience demand destruction and evaporation of capital. I hate to sound like a broken record here but I firmly believe that those ahead of the curve, those who know it is truly different this time, are trading in their fiat dollars for gold and silver bullion and coins etc. Gold and silver have doubled….wait….this isn’t true…the USD is skidding downhill and its speed is increasing…a crash is coming.
Speaking of articles in Barrons, did anyone catch this?
—————-
GoldMoney founder, in Barron’s, predicts panic in U.S. dollar
By Greg Robb
CBSMarketWach.com
Saturday, May 27, 2006
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BC043226D%
2DA6D4%2D42DE%2D903E%2D1435266B36B2%7D&siteid=mktw
WASHINGTON — Flaws in the dollar are going to move the price of
gold higher, said James Turk, the founder of Goldmoney.com, in an
interview in Barron’s magazine.
“There are problems with the dollar, and that’s being reflected in a
higher gold price,” Turk said. “I still fear we are going to see a
panic in the dollar at some point.”
Turk said the rise of protectionism in the United States has
unsettled wealthy international investors.
The price of gold is “going much higher,” and the $8,000 per ounce
forecast he made a couple of years ago is “probably as good a target
as any,” Turk said. A near-term spike to $2,000 is possible, he
added.
The price of gold will never again go below $500 an ounce, Turk
said.
The U.S. government is trying to fund the federal budget deficit
without destroying the dollar and trying to raise interest rates to
save the dollar without destroying the economy, he said.
“I don’t think they can do it,” he said.
—————————————————-
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“The price of gold will never again go below $500 an ounce, Turk said”.
ANYTIME I hear someone say NEVER with regard to money matters - stock market, R.E., whatever - I’ll reserve at least 1 oz. of caution in believing the remarks. History is ripe with people who said ‘never’ with typical human arrogance. After all, the Titanic was indestructable, ships can’t spill oil, and 3-mile island couldn’t happen.
Basically I get nervous with the ‘never’ word. Commodities may be the next place that the ’smart’ money goes for awhile, but it will likely crash too if the mania mentality transfers itself to a ‘new paradigm’ where previous laws of cause and effect need not apply.
All the hedgies are gunning gold. The macro picture is the “justification”. All gold-related equities in combined market cap are the size of one large cap company! Think small-float tech stocks in early 2000. Easy to gun in the short term. Not so easy in the long term. Not a USD fan, but do you think the Asian countries want a dollar panic? That would hurt them as much as us. The USD will likely depreciate but it is too big and too supported to panic drop like pesos, etc. The move to quoting oil in euros is a first step to the devaluation but there’s a long way to go.
“Flaws in the dollar are going to move the price of
gold higher, said James Turk, the founder of Goldmoney.com,”
nothing like unbiased cheerleading for your industry…
I also heard David Lereah say RE would only appreciate!
Seriously, a little gold is good to have, but there is a good case for deflation. It is theoretically possible that we could all be singing Bernanke’s praise in a couple years for his fiscal prudence when short term rates are at 10%. Unlikely, but possible… and that would KILL gold.
In fact here I found someone who posted the whole Barrons article on a Yahoo board on NGX. Those here who were discouraged by being priced out of nicer neighborhoods by the greedy pigs that populate the real estate indsutry should read this Barrons article in its entirty because it may not only be the most important thing you will read this year but by following Turks lead you may come out far ahead in the near future.
Here is the link
http://tinyurl.com/hjcu8
I hope it isn’t considered off topic but these are interesting times calling for new strategies, as the first one now will later be last.
This from a report on the Hamptons, which is heavily non-primary residences:
http://tinyurl.com/r79ya
“That weakness is evident in the median price trends for the towns of East
Hampton and Southampton. (Median price decrease from 2005 thru 2/28/06 of
2.35% in East Hampton Town, and a 5.02% decrease over the same period in
Southampton Town.)”
“…The East End, particularly The Hamptons (Southampton and East Hampton), is a celebrity driven real estate market where wannabes come to be near the rich and famous, and the rich come to show off their wealth”.
“…This Celebrity worshiping, which goes on in the five Towns of Eastern Long Island, is likely to be the main driver for rising property values on the East End”.
=================================
That said, it’s really far, far worse out there. As the Wannabee fools are parading in to overextend themselves into extraordinarily overpriced dumps, the smart money is quietly leaving.
What happens when the celebrities decide it’s time for a new place?
the trend change in vacation properties in the US sounds quite spectacular compared to Europe.
‘Second homes’ are still extremely hot in Europe, especially in the outer areas of and just outside the EU. The percentage of speculators is probably close to 100% there, most of them own multiple properties and double-digit yearly price increases have been a fact of life for many years.
The only exception I’m aware of are some of the Spanish costas where authorities are now trying to get a grip on widespread criminal RE activities. And probably in some expensive areas like the French coasts prices are topping out because rich buyers are no longer interested in speculating at these ridiculous price levels.
Below is an excellent article on the current challenges facing the fed:
“The Fed needs to balance the risks to the economy of a worse-than-expected housing decline versus the risks to its credibility and to the economy of an “inflation scare” in the markets.”
http://www.mellon.com/news/economicupdates.html
“One key distinction is important in evaluating the impact of risky mortgages on the economy. The percentage of recently issued mortgages where borrowers have taken on excessive risk is much higher than the percentage of outstanding mortgages that have these vulnerable characteristics. This somewhat reduces the potential negative impact of the housing decline on the broader economy.”
In plainspeak: If you are a first time home-buyer purchasing a house with little money down at today’s prices, you will get screwed;yet, the economy overall may be ok.
There is an old adage in the video game industry that it is people who have recently purchased a system/computer who buy games for it — to show it off and enjoy it. It is similar I believe for housing. It is those first-time home buyers who are doing the furniture buying and home improvement. I believe removing them will have a significant affect on the economy.
Short term traders — this is perfect cover for us to cover those housing shorts. My HOV really looked like it had a price/volume climax on Wed/Thu at least.
FOMC minutes from the last meeting, to be released on Wednesday, almost certainly will reveal explicit hand-wringing about the housing market’s decline, which has always given the HB’s a spikey 3% rise for two days or so.
I believe HOV could close its May 2 gap at $38.62 by June 6 or 7; that’s more than 10% up from its May 26 close of $33.89.
Whatever happened to the infamous Palm Springs failed flip attempt funded by the 4 LA investors? Still on the market? Any more price reductions?
I’ve wondered that myself. One was a lesbo chick, Nina Smith, who crows about her finanical genius (snicker) in her blog, Sitting Pretty (NOT!). As of early this month she still had the Palm Springs property on her hands, which at a carrying cost of $2800 a month means she and her cohorts are underwater. Can anyone provide any other details? The “gang of four” were the epitome of flipper greed.
Chekc out this F’d agent/seller…what an idiot, listed for $100K almost on the day she closed, after refi’ing into a 1% IO ARM on her other residence. This is a microcosm of this HB…
http://tinyurl.com/rjvfq
The boom has been generous for a lot a things - d-cups, collegen, tooth enamel…I had a conversation with my dentist here in the SF East Bay recently, and we talked about this. Typical enamels go for 15-20K, and that’s cash up front, no co-pay nonsense there. He’s well aware of where this money is coming from, and knows it’s going to end, probably sooner than later. This boom has fed so many industries, it’s going to be scary if it all unfolds as bad as it could be - no more plasmas, home theater, ipods for everyone including the dog, Crate & Barrel furniture, Disney cruises, Hummers, $3000 bicycles with matching outfits, imported esspresso machines, breast implants, sub zero freezers…America has gotten real fat and lazy, and the bellows from the herd when the comforts are ripped away will be deafening.
Note: I found a working link to the Barrons article and updated the link in the post.