Incentives A ‘Sure Sign’ Of Florida’s Cooling Market
The housing bubble is changing in Florida. “Like many red-hot real-estate markets in Florida, the Palm Beach market may have started to cool. The number of properties on the market spiked in the fourth quarter from a year earlier, according to Robert N. Goldstein, chairman of the Realtors Association of the Palm Beaches, who said he believes many sellers are second homeowners who have watched the value of their properties creep up and now figure they can sell and and use the profits to rent a hotel room for many years. People ‘think they’re going to cash out and reap huge gains,’ he said.”
“Experts say discounts and deals show housing market is starting to cool. If you’ve tried to buy a home in the past month and noticed more incentives than usual, you’re not alone. Several developers in Central Florida are offering discounts ranging from free homeowner association fees, no closing costs and gift cards for free furniture and appliances.”
“Real estate experts say this is a sign that the hot housing market it’s finally starting to cool off.”
“The Bard family shopped the Orlando home market for months while awaiting the sale of their house in Ohio, but the deal they recently got was too good to pass up. ‘I was bowled over,’ Brigitte Bard said.”
“The condo comes with two years of prepaid fees, cable TV and Internet access, worth $297 a month, plus appliances and $6,500 toward closing costs. Oh, and there is a $5,000 gift certificate for furniture at Rooms To Go. Builders in Central Florida are offering discounts, upgrades and everything except free toasters to would-be home buyers, a sure sign of a cooling market for new and existing houses.”
“One Lennar Corp. ad touted last week in a Valentine’s Day reference to its Orlando-area homes. That promotion offered up to $50,000 ‘to use as you choose’ by applying it to a premium homesite, a buy-down on the interest rate, closing costs or the home price itself.” “Other recent promotions by major home builders in Central Florida offer prepaid homeowner-association fees, stainless-steel appliances, granite countertops and designer lighting. ‘They are trying to goose demand,’ said Bill Mack. ‘It’s not just Orlando. It’s going on in other markets as well.’”
“Budge Huskey said he views the recent increase in home-buying ‘incentives as a ‘return to a sense of normalcy’ in markets such as Orlando. ‘I don’t think there’s an oversupply of new homes,’ he said, ‘except perhaps condominiums in some sections.’”
“Still, home builders are reaching deeper into their bag of tricks to find ‘new pools of buyers,’ he said. That includes paying higher commissions and even bonuses to real-estate agents to bring customers to their subdivisions. ‘That had all but disappeared,’ Huskey said.”
“Higher-priced homes are getting tougher to sell. ‘Builders are calling us,’ said Roger Soderstrom, owner Sotheby’s International Realty in Orlando. There are at least 500 new homes in the Orlando area priced at $500,000 and above, he said, and another 2,000 resales in that price range. ‘We can’t rely on the buyer next door to buy those homes,’ he said.”
“Other signs that builders are facing more challenges are increasing. Los Angeles-based KB Home, for example, one of the top five builders in the Orlando market, said in its annual report, filed last week, that it has seen an increase in home-order cancellations nationally in recent months.”
Thanks to the readers who sent in these links.
Can’t pass that up - even though you haven’t sold your home in Ohio, which is one of the softer markets in the country. Good luck with the two mortgages.
I live in Tampa in the “So-Ho” (South Howard Avenue) and Hyde Park district. A few blocks north of me, a developer is building townhouses named “The Brownstones of So-Ho” (original, huh?), which are three or four stories, each one room or so about the size of a one car garage, and selling for about 500 thousand. They’re on a terrible, trashy street behind a grocery store. They’re still unfinished, but some investor is already trying to unload one for nearly a million dollars, promising it will have a large flat screen television installed.
I’m not sure why he thinks he can get a million dollars when the unsold townhouses on either side and all around him are half that price. It must be a spectacular television.
Curt,
I live in South Tampa, too. Don’t the “Brownstones” also back up to the Crosstown Expressway? Too funny!
How about all the crappy $500-600K condos they’re building along Swann Ave near Henderson and Dale Mabry? These are all in trashy neighborhoods and on busy roads. Must be the granite countertops!
All these Condos will crash and burn and turn into Projects. Would suck to be an investor in that overpriced yuppi sh*thole.
As far as I can tell, Tampa is turning into one massive junky townhouse/condo escape hatch for tasteless old people and pretentious Yuppie wannabes. What about those things behind the pharmacy on South Howard? The ones that are supposed to look English because they have towerettes? They cost a fortune, but are so hideous, who could live in one without being embarrassed? I saw one a flipper was selling with a hot tub on the roof and “a view of downtown Tampa . . . ” Who would want that? Downtown Tampa looks like a Newark slum.
Also, have you noticed the names they give these places? The Windsor? The Churchill? Why not just go for “Nirvana,” and be done with it? I still say Trump Tower will never get built.
No, change that to “Queen Liz’s Ass.” The perfect name for yet another Tampa development.
I fully agree on all your points.
Those “castle” condos ($700K or so, I think) are horrific. I guess they’re desirable if you always wanted to live in the Disney World castle. I notice only one or two seem to be inhabited.
And for that one gets to pay about 17,000 a year in property tax. No yard, almost touching the street, cheap front door, hideous interior (looks like a saloon). The one across the street is equally scary, with condos three or four stories tall but about 15 feet wide, also with no yard.
Somehow, I don’t think people in Tampa or St. Petersburg have caught on that the bubble is collapsing. Flippers keep hiking prices, and fools keep paying them. I wonder how how it will take for the news to filter through.
Five years ago, you couldn’t sell a house here for a million dollars, and now everything costs that much.
Hey, have you guys checked out gtar.org for the latest Tampa area real estate stats? Jan. ‘06 fell below Jan. ‘05 for # of sales, while the median price of a 4+ bedroom SFH fell from 325K to 255K in one month. And the # of new listings went from 4012(already very high) to 5279 from Dec. 05 to Jan. 06. The crash and burn is already here.
Hey Tom–
I direct this to you since you commented on it when I posted it a few weeks ago–remember the link from Smith & Assoc. with the talking house–it was a brown dump of a block house? Anyways, when I posted it, the price was $350K, which was dropped to $324.9K around 1/13/06, and it is now listed at $299K. The owner/flipper paid $285K for it in 08/05. Margin’s getting pretty slim, huh? With the carrying costs on the place, the guy is probably already underwater. Here’s the link for a refresher, or if any other locals wanna check it out:
http://www.smithandassociates.com/property/property.asp?PRM_MLSNumber=T2131778&PRM_MlsName=midFLregional
Somebody must have put the decimal point in the wrong place. Shouldn’t that be $2,990.00? This is typical of the junk in Tampa, as is the scheduled oversized replacement house in a completely inappropriate neighborhood.
Some prices may be fallings, but in most of South Tampa you would never know it. How about telling the developers of “New Port” (or is it “Newport”) on, ugh!, Gandy, or that monstrosity supposedly going up on South Boulevard next to Gory. The developer claims that tons of older people in South Tampa are selling their houses so they can more there and pay 800,000 or whatever for no view, no lobby, and massive yearly property taxes (about 20,000 and up), and I guess wave at cars on the Crosstown Expressway, and winos wandering in from Kennedy. Of course, they CAN walk to that convenience store on the corner of Kennedy and Boulevard or that other one on Platt, so this may be a great move after all!!! They’re almost as lucky as the suckers buying condos in the building going up behind the Hyde Park movie theater, and facing the Crosstown AND a rention pond!!! How beautiful.
Bernanke agrees more rate hikes may be needed
E-mail | Print | | Disable live quotes By Rex Nutting
Last Update: 10:00 AM ET Feb 15, 2006
WASHINGTON (MarketWatch) — New Fed chief Ben Bernanke said Wednesday that more rate hikes may be needed because of the threat of higher inflation from a strong economy and higher energy prices. The message was almost identical to the Federal Open Market Committee’s last policy statement. Bernanke said the Fed has come a long way in hiking rates and removing accommodation and that further rate moves will become much more dependent on the economic data. Bernanke said economic growth remained on track despite the weak fourth-quarter GDP data.
Bernanke told the Congress that a sharp downturn in the housing market was a risk to the expansion, but said only a “modest softening” was expected.
Modest softening? Jeez, everyone’s betting the farm on what they hope will happen as opposed to what’s really revealing itself with hard data. The “reality based” community has lost another function of government, obviously.
“Budge Huskey said he views the recent increase in home-buying ‘incentives as a ‘return to a sense of normalcy’ in markets such as Orlando. ‘I don’t think there’s an oversupply of new homes,’ he said, ‘except perhaps condominiums in some sections.’”
Budge my good man, there will be an over-supply of new homes and it will get worse before it gets better. The market is nowhere near normal. Normal will be here in 2009-2010. Better get a helmet.
USA Today trumpets happily:
“Dream house, sans spouse: More women buy homes”
As if the ability to borrow large sums of money to lock in record home ownership costs, just as they are about to fall sharply, is a good thing.
In fact, this story doesn’t have a single word of caution in it. It’s as if they are clueless that there’s a real estate bubble that has just popped. Let me rephrase that, it’s obvious they are clueless.
http://www.usatoday.com/money/2006-02-14-women-houses-usat_x.htm
I’m not sure which was dumber. The article or the women quoted in the article. We’re doomed.
Last year — at the height of the bubble — the LA Times did a story on singles doubling up to buy houses. Two young actresses were featured, all giddy over “getting in before being priced out” and “not having to wait until marriage”. Gave new meaning to the phrase “out of the mouths of babes”.
Suppose you are Mr. Bard from the article above, and you just bought one of these overpriced condos. Now suppose this is one of these apartment-condo conversions, and the company which bought the complex files for bankrupcy a year from now with, say, 75% of the units still unsold. What happens to the complex? If you are Mr. Bard, are you and the other few condo owners left to fend for yourselves? Do you inherit the homeowner’s association (which was probably run by the conversion company up until this point), having to maintain all of the buildings with the little money you have? And if another company buys the foreclosed units, can they rent those units out, essentially making 75% of the place an apartment complex again?
Yes, yes, and yes. And those apt complexes have a shelf life of about 25 years. If you can control the HOA, jack the fees way up, then when owners don’t pay, foreclose on them. Then with the proceeds the HOA can pay you as the Pres. a nice “consulting” fee.
“A sharp drop in home prices and construction this year could force consumers to reign in their spending.
But Bernanke said this was not the likely scenario.
‘At this point, a leveling out or a modest softening of housing activity seems more likely that a sharp contraction,’ Bernanke said, although “significant uncertainty” remains.”
So the question is, when will Dr. Bernanke realize a sharp correction is already underway? My guess is, it’ll be too late to save housing. Hopefully not too late to save the rest of the economy.
A related question is this…how far can housing drop before it drags the rest of the economy with it?
To me, using the term “significant uncertainty” implies that Bernanke DOES know…just trying to prevent a panic. Greenspan must have taught him how to write obscure sentences like that.
OT, are a majority of sites on the internet running very slow today? I’m having trouble with this site and other message board sites, as well as my e-mail account, but other sites load up fine.
Is the Sports Illustrated Swimsuit Issue. All the young males of America are downloading images of Marisa Miller.
It’s already too late. There is nothing fundamentally that can be done at this time. The only thing Bernanke can do is throw out some doublespeak and try to calm the masses into continuing to believe in real estate. As we’ve been saying on this board for quite some time - this is going to be painful.
This alternative WSJ link puts the Palm Beach inventory increase at this:
4th Qtr, 2004-11,241
4th Qtr, 2005-20,591
Ben — I posted a link to a chart from a local real estate firm called Illustrated Properties. I don’t know what the parameters (zip codes included, etc.) of their graph are, but they show an absolute explosion of inventory in the West Palm Beach, FL market … and a 39% decline in YOY sales in January. Link:
http://www.ipre.com/trendg/images/palsld.png
My own tracking in Jupiter, just north of WPB, shows about a 190% increase in listings from June 2005, based on my Realtor.com search parameters
OTownCajun: If condo conversions don’t make enough to cover the loans and do fold, I am sure they will just go into forclosure and get sold for pennies on the dollar. If the lenders go broke and the government needs to bail them out, we may have some condo-conversions turned into goverment subsidized housing. I am sure that would do wonders for the property values when those speculators try and flip the units they bought only to find 30-40% of the units are subsidized housing.
The Crest is one I have been watching, they are selling the larger 793ft2 1 bedroom for 159,900 with incentives… there is a speculator who was selling the smaller 730ft2 model for 179,900. They put in stainless appliences, painted it & put in hardwood floors. About 5-6K of work, he just reduced it to 174,900. Check out realtor.com.
i remember the st. george on lovely revere beach. framed in a bermuda/carribean theme, it was a lovely shade of pink and speculators scooped up units at the screaming peak of the boston market in 1987. by 1991, half the units were occupied by section 8 housing occupants. needless to say, the original buyers got their clocks cleaned.
Deja vu? These were taken from the 80’s bubble recap..
It’s hardly a coincidence, all of this mania has happened once before.
Sweetening the Deals in a Soft Market
By MARK MCCAIN
Published: February 21, 1988
http://query.nytimes.com/gst/fullpage.html?res=940DEFDF143AF932A15751C0A96E948260
Taking a cue from anxious developers, Leonard D’Andrea stirred some flash into the strategy for selling his home in Stamford, Conn. Besides posting a competitive price on the two-bedroom condominium, he is offering to pay the buyer’s $160-a-month maintenance fee for six months.
”The market is very, very soft right now,” said Mr. D’Andrea, who began advertising his apartment without success last month. ”I saw the incentives that developers were offering and figured I needed to do something similar to compete against all their new product.”
Developers Offer a Garden to Sell the Kitchen Sink
By THOMAS J. LUECK
Published: May 4, 1990
http://query.nytimes.com/gst/fullpage.html?res=9C0CE4DE1031F937A35756C0A966958260
With huge inventories of unsold homes in the New York region and New England, home hunters this spring are being offered an array of offbeat incentives and promotions.
Select the right house and the sellers will throw in the cost of commuting to Manhattan for a year, or a fully landscaped English garden, or a 1984 Mercedes-Benz or an all-expenses-paid vacation to Disney World.
”Price cutting is too commonplace,” said one developer, Steve Maun. ”We are trying to be creative.”
lato1394: Thanks. Yes, I am also watching The Crest (out of morbid curiosity). I used to live there as a renter when it was called Brittany at Waterford Lakes. I moved out when it was converted to The Crest. The converters tried to sell me the two-bedroom shoe box I was renting for $225k, plus $270/month in maintenance fees. After pushing all of the renters out last summer because they were so sure the place would instantly sell out, it now pretty much looks like a ghost town. If you check out the Orange County Property Appraiser’s website, you’ll see that 80% of the place is still unsold. If the converter’s hadn’t violated several terms of the Roth Act (Florida law governing condo conversions), I might have some sympathy for them. But that coupled with their rudeness when I didn’t want to buy make me take great pleasure in seeing them tank.
OtownCajun: I stopped in there over the summer and talked to a sales rep and looked at the model just to see what they actually did to make an apartment a condo. Turns out nothing special. Sales rep was real cocky and acted like the things were selling out fast so he did not need my business. There were a ton of people there but everyone I talked to who was looking to actually live in them were dissappointed.
Every time I drive past their at night coming off the 408 the only lights I see are on that big cheesy yellow sign stating “Condo’s for sale”.
All the conversions I have been watching are pretty much ghost towns. Very few cars in the lot.
There is another one down the street called “Heritage” I have been watching. They were really nice apartments build 2 years ago. Well now the 3 bed 2 bath unit sells for $307K and the fees are over $300 a month. I told the sales rep there I could easily go down the road and buy a bigger 3bed 2bath house with a 2 car garage and minimal fees for 250-275K.
Good news is a lot of investors are desperate to find renters so you can name your rent in a lot of townhome and condo developements. I know people right now who are renting places that are listing for $1200-1300 a month and working the owners down to 900-1000 a month. Check out Avalon Park, Waterford Lakes, and all the new developements they are building on Econ. trail south of curry-ford rd.
“There is another one down the street called “Heritage” I have been watching. They were really nice apartments build 2 years ago. Well now the 3 bed 2 bath unit sells for $307K and the fees are over $300 a month. I told the sales rep there I could easily go down the road and buy a bigger 3bed 2bath house with a 2 car garage and minimal fees for 250-275K.”
That’s funny, I had a very similar experience in my apt community. Was announced that they were going condo, we had just signed a lease through Oct 06. We thought with the way RE is going there was no way we were going to buy (Palm Beach Co.) Then the apt manager came by with the price sheet: $420k for a 2/2.5 townhome! She actually said to my fiancee “Don’t laugh when you see the prices!” This was for a place that we are renting for like $1400/mo.
A couple months went by, and lo and behold in my mailbox 2 weeks ago, a notice that they are no longer converting and will remain a rental. I guess at least one developer got smart and saw the inevitable…
in the coded world of Fedspeak “significant uncertainty” = “Can we
unwind slowly instead of quickly”
I posted on my site today that the number of listings on MLS has skyrocketed. IMHO it doesn’t matter how much these builders throw in as incentives. The automobile industry did this with “factory rebates” and “employee pricing”. This did increase the volume of units sold, but at the expense of PROFITS. GM lost some 4.8 BILLION last quarter. Ford closed 13 plants and laid off 30,000 employees along with a net income that was 1.5 billion less in 2005.
The big difference in my opinion makes it much worse for the housing market is that the automobile dealers did not try and sell you a new car at prices that were 40% MORE than they were last year. Imagine buying a Ford Taurus for $40,000 just because they threw in free oil changes or new tires for the life of the car. Imagine getting a $10,000 “rebate” on a Chevy truck if the price was $60,000.
People think they are getting something for nothing when in fact they are buying an overvalued asset. Plain and simple. Everyone knows that cars are depreciating assets. No one ever thought of a house as one …. until now.
Exactly; people who bought cars with 0% financing are now sitting with negative equity in their car. I know many people who bought cars with 0% and now can’t trade them without having to fork over $$ to break even on them.
I’m surprised the american car industries are showing losses. I’d figure with all the increased construction spending, orders for work vehicles and second vehicles would be increasing. I guess people are putting too much into their homes now.
Just heard on the radio in Sarasota.
50k discount.
Upgraded Granite Counter Tops
Py Closing Costs
Free Plasma TV
Free Appliances
And a Free Hummer.
The houses in these neighborhoods are priced at 1 million for about 2800 Sq Ft with tiled roofs on a golf course.
Oh and get this… “INVESTORS WELCOME!”
Tom, How much froth do you think there is in Sarasota? It has been heavily pumped as a great place to live. How long do you think it will take to get back to “normal”?
Jim-
I’m in the Sarasota/Bradenton area and I think it will start getting interesting here very soon. I’ve been tracking homes in the $3-$400k range since last July and there has been a six-fold increase in inventory. This area has been speculator driven and I think frothy is an understatement. Talking to some people in the loan and mortgage business it sounds like the speculators have left and very few buyers are out there. I don’t know how any average person can afford a house down here. We’re going to be hard pressed to get into anything decent and our income is 3 times the average for this area. Of course all the local realtors think this is a “pause” and prices will continue in the double digits indefinitely..you know with all the baby boomers moving down…..ha!! I know several baby-boomers that will now not even come close to FL thanks to the overpriced housing….This area doesn’t need more 50-60 yr/old women driving around in their Mercedes 500sl’s with the manicured poodles in their lap…..
We had initially been planning to buy in July when our lease is up but I may hold off until the end of the year and see where things are. I think significant declines are very possible here. Oh, wait prices never go down in FL!!!
Thanks Flic, hope you’re right about possible price decline, as we would like to buy, but not get robbed. I hear the builders are still building a lot of stuff, and I’m wondering if they will either turn Sarasota into overcrowded and unliveable or just temporarily overbuilt. I sure don’t want to buy into an overpriced market in a city that may begin to decline in appeal.
Jim
Despite a spate of bad news on cancelled orders and deteriorating demand, the HB stock prices seem remarkably resilient the past couple of days. Was there some good news Ben neglected to post? Or, now that we know the CIC has the housing sector on the radar screen, do these guys get some extra plunge protection while the insiders finish diversifying their personal investment portfolios out of company stock?
Referring to all the “freebie” goodies that builders are now offering:
‘They are trying to goose demand,’ said Bill Mack.
Sounds more like: “TRYING TO SNOW buyers”.
ADVICE to potential BUYERS: Don’t Fall for this crap. It is clear evidence that the builders are scared $h!tless and if you wait another 6 months to 1 year you will clearly get a better deal (PROBABLY on the SAME HOME!!:)
My sentiments exactly! The BS incentives are just that…a lot of BS. All of the toys that they add to the pile and the window-dressing doesn’t change the price. I’d look them square in the eye and tell them: “Keep your toys. Just reduce the asking price by $100-125K and we’ll call it a deal.”
BayQT~
“The Bard family shopped the Orlando home market for months while awaiting the sale of their house in Ohio, but the deal they recently got was too good to pass up. ”
Another boob that has paid too much for a new home that is falling in value while still owning his first home that is falling in value.
Comment by sfbayqt
2006-02-15 12:03:55
My sentiments exactly! The BS incentives are just that…a lot of BS. All of the toys that they add to the pile and the window-dressing doesn’t change the price. I’d look them square in the eye and tell them: “Keep your toys. Just reduce the asking price by $100-125K and we’ll call it a deal.”
BayQT~
I quite agree too! I’m not interested in any crappy “incentives”, what interests me is the price of the home…to me, that is the bottom line. Not fancy countertops, tvs, and gawd help me, the only interest rates i’m interested in are 15 and 30 year fixed.
When you have family members that are involved in home repair and remodels, suddenly these “incentives” that the builders are pushing seem worthless. I’d take the lower priced home any day, and maybe have stuff upgraded later for mere fraction of the cost that the builder says its worth.
Last time the market was down, I bought my first starter home from a major home builder that was going bankrupt. I bought a fully loaded house for $10k under its current market value, because the builder was just so desperate to get rid of it. I imagine if people wait around long enough, deals like this will come around again too (just make sure you have a home inspector handy to go through these properties with a fine toothed comb!).
On the beach in Brevard County (east central Florida), virtually nothing above the $300s (below that is tiny or no good view) has sold and closed since the end of the year. Meanwhile, inventory rises inexorably due to the sticky pricing.