The End Of The Housing Bubble Rainbow In Florida
The Florida press reacts to the new tax appraisals. “Property values in Palm Beach County have registered another record year, soaring by 21 percent over the 2005 tax roll, to $158 billion. Property Appraiser Gary Nikolits cautioned Thursday that the just-released tax roll estimate reflects last year’s property sales and appraisals. He said recent trends portend the close of an era of record-breaking real estate appreciation.”
“‘It’s the end of the rainbow,’ Nikolits said, citing rising interest rates and foreclosures.”
“Palm Beach County Administrator Bob Weisman attributes the increase to three factors: new and expensive construction, a large number of used homes sold last year, and commercial property not protected by the Save Our Homes cap.”
“Nikolits’ prediction of a drop-off came in stark contrast to his exuberance last year at this time. ‘It’s just been gangbusters all over the county,’ he said then. This time, he said: ‘We’re seeing evidence of a noticeable slowdown,’ although not of the bursting-bubble scenario. The slowdown is caused by rising mortgage rates and by overbuilding in some condo markets, he said.”
“Real estate investors may find good deals toward the end of 2006 as slow-selling condos are offered at price reductions, he said. That will draw buyers away from single-family houses, weakening house price appreciation, he said.”
“Nikolits said the greatest effect probably would be seen by condominium buyers, sellers and owners. ‘The condo market last year went nuts,’ he said. ‘Unfortunately, condos have been overbuilt. There are too many units out there with too many investor owners.’”
“Nikolits said rising interest rates would be particularly hard on speculators and others who bought property with no down payment or adjustable-rate mortgages.”
“Despite Hurricane Wilma and a year-end cool-down in the real estate market, Broward County’s tax roll grew faster than ever last year and now totals more than $157 billion. ‘Taxes are where government can really affect the cost of homeownership,’ Fort Lauderdale Mayor Jim Naugle said. ‘The mortgage gets paid off some day, but taxes are forever.’”
“The taxable value of Martin County’s real estate increased by almost 16 percent, according to a preliminary estimate released by Property Appraiser Laurel Kelly. But Kelly and other county officials warned that a recent slowdown in home sales is a sign that the once hot real estate market is cooling.”
“The commissioners also said they want to limit spending hikes, although county administrators estimated they would have an additional $16 million to spend if they maintain the current property tax rate. ‘We don’t need to spend all that,’ said Commission Chairwoman Susan Valliere. ‘I’m convinced that this is going to level off..so we need to be very frugal with our budget. The bubble will burst, I’m sure, sooner or later.’”
“More than 1,100 acres off State Road 50 in east Orange County will be put up for auction next month by a Utah investor described by the auctioneer as ‘a motivated owner.’”
“The ranch’s auction has been widely advertised, though the response so far ‘has been a little surprising,’ said William Bone, president of the National Auction Group. ‘I expected more, considering there can’t be many close-in, large parcels available in the Orlando area.’ ‘He’s a motivated investor and ready to sell,’ according to Bone. Bone’s company is handling several other sales on his behalf.”
But … But they’re not making any more land. 1,000 people are moving to FL every day. This property should get snapped up for a zillion dollars! Suzanne promised me … arrrgghhhhh (insert death gurgle here)
Seriously, though, I have to tell you that it’s deader than dead down here in South FL. Same old stuff just sitting and rotting on the MLS when I do Realtor.com searches. Property across the street from me sitting on the market since December with a few asking price reductions (don’t have the exact history, but occasionally I check and see a newer list). And now, it’s hurricane season. Yippee! (though truth be told, the storms don’t usually get cranking until August for those of you who may not know.)
Ditto the “deader than dead” here in Reno/Carson/Tahoe. I’ve been a broker here for 11 years and I’ve never seen it like this.
question for you, since you’re in the biz: Are property VALUATION levels starting to retard refi/buying business? Or is all the fact we’ve had higher interest rates? I’m wondering because of this — let’s say for the sake of argument the economy slows (and today’s jobs report was ugly, no doubt about it). That would probably cause rates to dip. But would that REALLY cause mortgage lending to ramp up again? Or would flat/falling values, coupled with the fact so many people are already at or close to 100% LTV, prevent that from happening (meaning, the appraisals wouldn’t come in enough to allow lenders to close deals). This is something I’m really curious about. Thanks!
I think what your asking is can a rate drop save the housing market, and the answer is plainly no. First of all, I don’t think that will happen. Although the bond market will fluctuate over the short term with a variety economic news, I do believe long term interest rates are on their way up. But regardless, the bubble has popped and the air is escaping. I heard an interesting interview of a German economist (can’t remeber the name) who had data showing that in the past, when bubbles have burst, dropping interest rates did not save them from their fate. This whole thing is built on momentum. It was pointed out on this blog not to long ago that, until recently, rising rates really had no effect on slowing this thing down. We were still riding that “mania wave”, the greed factor. Now the sentiment has changed. We’re sliding from the greed phase into the fear phase, the only two elements that really drive the markets. Once this fear is entrenched, nothing will stop it until it plays itself out and finds it own bottom. Like in nature, the markets find a way to establish an equilibrium over time. Imbalances are never sustained.
I appreciate the thoughtful reply. thanks again …
I agree about rates vs the market. Rates dropped in the early 90s and that didn’t help the market at all. What may end up happening is you get a low rate AND a low price.
In Boynton Beach the Averigne, an apartment complex built in 1998-1999 has gone condo, fairly recently. The momentum, it seems, continues.
You mean Aventine?
I was renting there until recently. Yes, it went condo and they are NOT selling. I was told they just decided to reserve a part of the units for rentals.
I wonder what the prospective buyers of the “for sale units” think of that?
Condo conversions being turned back into rentals? But I thought all that inventory was forever being taken away from the poor renters leaving them doomed to a lifetime of 10% yearly rent hikes.
Guess not.
In Sarasota, one of the apartment complexes down the road converted a few months ago and they had a big sign outside that said ‘Luxury Condos For Sale’. I few weeks ago, the sign changed to ‘Luxury Rentals Available’.
Is it possible or likely that some apartment complexes purposely convert to condo in order to clear the decks of old tenants and then, when the place is new and clean and not selling well as condos, begin renting gain at higher rates with better-quality tenants?
Just a bizarre thought that maybe it’s the only way to skirt a rent-control law or something similar. Or, were they just testing the waters to see if they could do a quick flip?
I’ve always said the “bubble-bursting” is purely semantics and they can deny it because there is no mathemtical formula to prove it.
As I posted last week. There could be a giant translucent collapsing dome labeled “Housing Bubble” in hundred foot high letters and they’d say “we see no signs of a bubble-bursting.”
China’s government is dumber than ours…They are blaming developers for pricing people out of the market…How do you fix it?
You dont let developers build large homes…
http://news.bbc.co.uk/2/hi/business/5036336.stm
Comment by the_economist
2006-06-02 06:17:46
China’s government is dumber than ours…They are blaming developers for pricing people out of the market…How do you fix it?
You dont let developers build large homes…
http://news.bbc.co.uk/2/hi/business/5036336.stm
__________________________________________________________
….. and it should have been done here long ago.
Wrong!!…It is big government that has created this problem….I highly doubt that
legislating building size would have done anything but screw this up more.
The Chinese government is trying to dodge the real issue, which is that the government is in bed with developers to scam its citizens out of their money. And even this policy is just lip service.
From Chinadaily.com
From April 26, 2006
China’s central bank, the People’s Bank of China, says the real estate industry is absorbing too much of the country’s capital, causing government attention.
“Real estate financing is making up a bigger and bigger share of the country’s financial sector. The health of real estate financing is of critical importance to the health of the financial sector. We must pay close attention to developments in both the real estate industry and home financing sectors,” Wu Xiaoling, deputy governor of the central bank, told a seminar here on Tuesday.
Housing prices have continued to soar, despite the government’s year-long efforts to stabilize prices and this has sparked grave concern that a housing bubble might burst….
http://tinyurl.com/hapbf
It is funny that China warns of a housing bubble and The US a democratic open country issues no warnings.
It’s not odd at all. The warning is a gentle market control action, possibly to be followed up with less gentle actions.
US system prefers laissez faire, caveat emptor, etc. Although right now we have too many idiot consumers, in the long run, assuming the gov’t stays out of it, the idiots will likely get learned a harsh lesson.
So, China’s gov’t warning & our gov’ts silence is consistent with respective gov’t type.
The Economist,
I get grief for this regularly (on blogs and in person) but you’re absolutely right. Sure, the formation of GSE’s? Big factor, no doubt. Dirt cheap post 9/11 money at generational lows. Oh yeah, big time! But of equal or greater importance is the tax preferred status of RE! If folks under the age of 55 had to pay taxes on what is basically “flipping” their own house we wouldn’t be here would we! Cheap money is great, and having access to it via GSE’s is equally wonderful but when April 14th rolls around and people find out they have to give a healthy chunk of that “gain” to the gov. makes you think twice doesn’t it?
Btw, I am neither over 55 or pro tax by any means! The old system of the “one time exemption” seemed to work fine. But just look at the mess we’ve unintentionally created since 1997.
The tax law changes had little to do with the housing bubble. Investment properties & second homes are still subject to capital gains tax.
Actually, I was and will be again, a real estate “investor/speculator”…I had some
beach front condos up until the fall of last year…I had all of them in a business and used a lot of tax avoidance associated with the business, but the capital gains only applies to the residence you reside in after a couple of years. I never even thought of this as part of my real estate action…I just dont see how this plays in, when you are flipping…By the way I always thought of my properties as long term until the prices went thru the roof as well as taxes, insurance and the fact that summer rentals started falling off…So I
got rid of them…I might start again when the market bottoms out again.
Investment properties & second homes are still subject to capital gains tax.
Not if every single one of them is listed as owner occupied.
Don’t tell me it doesn’t happen.
How can we or the government tell?
“It is big government that has created this problem”
Wrong! It is the lack of proper gov’t oversight that has allowed this problem. Not ‘big gov’t.’
I thought FNM was the oversight??
Damn right. And they should tell us who we can be friends with, what to wear, and when to go to bed.
“The commissioners also said they want to limit spending hikes, although county administrators estimated they would have an additional $16 million to spend if they maintain the current property tax rate.”
How many counties around the country have already spent that money on higher salaries for police, fire, county workers, ancillary services? When housing prices drop back to where they should be, does that mean property taxes will be rolled back and services and salaries cut? And all these hot areas that saw a great influx of new families, where are you gonna get those big dollars for the new infrastructure of new schools, hospitals, fire stations, police stations, equipment, teacher salaries? I say it again, this is a tsunami of greater proportion then most realize. Think KALEIDOSCOPE people. All the pieces are there (like the facts of the housing bubble are) but turn the scope and the picture changes. People are focusing on all the pretty pictures created in their mind and only a few on the pieces that make the picture.
salinasron,
Exactly! Our Oregon Gov. is already talking about NOT distributing our “kicker checks” (rev. in excess of budget) perhaps for the next 6 years! For me it’s like $350? so it’s not that big a deal. However they are also talking about keeping the Corporate kicker checks as well. Ya think someone’s seen the canary in the coal mine perish?
True story. Last night I saw an SUV in my neighborhood with mutliple hand written signs on it reading “Pulte, Buy My Home Back!” I feel bad for people that bought new houses late last year in my neighborhood. I live in an exurban fantasy-land community in the middle of nowhere in So. Arizona.
Did a bunch of flippers buy up the development your in Desert Dweller? I’m trying to figure out why this guy is mad at Pulte .
My guess is a regular Joe who tracks house prices (in eager anticipation of an early retirement via his genius investment in his owner-occupied SFH) & feels less rich now that they’re seeling for less.
anoninCA,
Too funny! I’ve said this for years! Why learn about investing (or so much as saving for that matter)? Just buy a house, any one doesn’t much matter. Live in it for 2, 3 years tops. Take out the garbage once a week and keep the lawn “presentable” and there you have it! Tax free money for your early retirement! Who needs a 401K? Speaking of which, if you don’t “squander” that extra $150 a month on that silliness, with an IO loan we can get you additional 400 sq. ft. in your McMansion! So what’s it gonna be?
It could be quality issues. There have been massive complaints/shoddy construction issues. I have noticed on different forums lots of complaints against pulte and Kbhomes. The builders use shoddy materials and incompetent contractors and then use the home warranty and arbitration to wiggle out of responsibility for houses that are ready to fall over 1 to 2 years after construction is completed. Then again it could be a disgruntled flipper.
Probably because of the heavy incentives Pulte is now offering.
“Pulte, Buy My Home Back” - too funny !
What the heck did these home buys expect ? Clearly they don’t understand free markets ! Ironic being that they just made a huge, huge investment with DEBT, nonetheless.
Housing was supposed to be the one way ticket to riches. “No brainer”, remember ? Well, it turns out it wasn’t a “no brainer” and that it deserved some thought and analysis.
Man, these people are going to get slaughtered. It doesn’t matter what they paid for their houses or what it costs to build a new one. Until NEW buyers come into these markets, all the current owners are left holding the bag. Who is going to buy their house from them ? There are no more NEW buyers and the current home owners are all up to their necks in debt. And in the next year people are going to find out that RE is NOT a sure, or even good, investment.
Look out below.
Why doesn’t he ask the his Arizona Senator, the “Compassionate Conservative” running for president to sponsor legislation to buy his house back?
The sad thing is that this isn’t so funny (unbelievable) as it once might have been.
After a half-decade of spending spree, can you imagine the reaction of Florida politicians when the property (and sales) taxes finally level off or begin to decline. It’s easy being popular when you can spend freely.
How many counties around the country have already spent that money on higher salaries for police, fire, county workers, ancillary services? When housing prices drop back to where they should be, does that mean property taxes will be rolled back and services and salaries cut? And all these hot areas that saw a great influx of new families, where are you gonna get those big dollars for the new infrastructure of new schools, hospitals, fire stations, police stations, equipment, teacher salaries? I say it again, this is a tsunami of greater proportion then most realize. Think KALEIDOSCOPE people. All the pieces are there (like the facts of the housing bubble are) but turn the scope and the picture changes. People are focusing on all the pretty pictures created in their mind and only a few on the pieces that make the picture.
This is so true, in south florida the pay had to go up so high just to keep the firefighter and medics, most have cashed out and moved to the carolinas and other south areas, It would suck to make a truck load of money from RE and die in a car crash cause the just out of school medic freaked out,
I think what will ultimately hurt towns ans cities is they locked in to some very rich pensions and retirement plans. When we have no money but a growing pool of reitrees with rich packages…I don’t know what they are going to do. Scary.
Simmssays…would you eat this?
http://www.americaninventorspot.com
The problem is the retarded way of calculating property taxes as a percentage of the [appraised] value of the home.
A much better method would be to tax based on the the county’s budget. Your taxes would only go up if (a) the budget went up, or (b) the relative value of the house went up (i.e. your house is now a bigger slice of the pie, the pie being the total value of all homes in the area), or (c) the tax base of the county changed (i.e. more new houses, but same old budget, equals you pay a smaller proportion of the budget).
Yeah, imagine if you bought a house for 250K, it jumped up in value to 500K, you heloc’d yourself up to 500K to get the new RV and boat and SUV, and then you sold the house and didn’t have the capital gains exclusion… You’d have a sizeable capital gains tax to pay… shoot, taking away the capital gains exclusion would destroy the HELOC/etc market… or just cause people to not flip homes as they’d want to hold them more long term… hrm… I think we might be onto something.
From today’s local paper. The Bubbas that run this dump can’t believe their good fortune. The local market here is almost at a standstill but they think real estate is still “red hot”. Jeez.
http://www.gainesville.com/apps/pbcs.dll/article?AID=/20060602/LOCAL/60602018/1078