Wednesday, April 20, 2005

Miami "Bombed" By Speculation

This USAToday piece shows that they have lost their minds in Miami, and they know it. "An estimated 50 major condo projects are proposed or under construction within 50 city blocks in Miami on or near Biscayne Bay. There are so many gaping holes in the ground that downtown looks as if it has been bombed. A remarkable 69,000 condo units are currently in the permit pipeline."

"With prices at those levels, developers must inspire an irresistible urge to buy. '"They're not selling condos anymore. They're selling sex'"

"Ninety percent of Jade's buyers are foreign nationals. "'We have royalty in the building. Russians are very strong right now. They are the best: They don't negotiate price.'" That should make everyone comfortable.

"Consultant Goodkin estimates up to 70% of recent condo buyers are purchasing for speculation. 'People are betting rather than buying.' Fueling the problem is 'an absence of gatekeepers. There's a lot of liberal financing out there.' Experts also note that a new crop of aggressive but inexperienced developers has been drawn to the market by the smell of quick profit."

"'All the banks are concerned about the level of speculation. So many units have been pre-sold to speculators with small down payments, and banks know the speculators plan to resell at a profit, not live there. 'Do I think all these projects will be built? says real estate expert Lewis Goodkin of Goodkin Consulting. 'Absolutely not.'"

17 Comments:

At 7:54 AM, Blogger Nayrab said...

What is scary, is if the dollar keeps falling even more international buyers will show up. Of course the prices will keep skyrocketing to us natives.

I lived in Key Biscayne from 89-91. My uncle bought a two bedroom run of the mill house on the island for somewhere in the neighborhood of $350,000. That was in 1988. The market tanked in 1990 and when he tried to sell no one wanted it for the $380,000 asking price. It seemed like every two-three months he was lowering the price $10,000. He had bought another house in Biscayne Park, remodeled it, and wanted to retire in it. So he had to sale the house on the island in order to pay for the new house and upgrades. He didn't even get anybody looking at it.

Kind of scary how fast the market can turn. He was really fustrated at the time. I will bet the Key Biscayne house would be worth over a million in todays market.

 
At 8:00 AM, Anonymous Anonymous said...

Mortgages are down:

http://biz.yahoo.com/rb/050420/economy_mortgages.html?.v=2

 
At 8:10 AM, Blogger John Law said...

http://money.cnn.com/2005/04/20/real_estate/market_hot.reut/index.htm

 
At 8:26 AM, Anonymous BoyInTheBubble said...

You know the joke that there are only 5 fruitcakes in the world and everyone who has one regifts it every Christmas? Well, there are probably only 15 or 20 people buying condos in Miami; they're just all flipping them with each other.

 
At 8:35 AM, Blogger Sunny said...

Ben, your headline is much better than USAToday's.

BoyintheBubble, I always knew there were a lot of fruitcakes in Miami.

 
At 8:48 AM, Anonymous John Vosilla said...

I sure hope any gringos buying in downtown Miami learn to speak Spanish just in case they actually have to move into the unit they intend to flip.

 
At 9:10 AM, Anonymous Anonymous said...

And Ben Laden is not involved ! The culprit: good old greed !

 
At 9:46 AM, Anonymous will said...

What I hate about articles like this are all the psuedo-facts in them "90% of our buyers are foreign" princesses! high rollers! Top Hats & Tails! says THE DEVELOPER! Miami is cheap compared to other "world class" cities - $1000 a square foot doesn't seem cheap to me! Condos are requiring 30% down? (possibly a few 'millionaires only' ones are, but please!) One bank is tightening its lending requirments (but is it any harder to get a loan in general?) Then there is the non-facts on crime. What pointless "news."

 
At 9:56 AM, Anonymous twins said...

Something similar is happening in Minneapolis---though on a much smaller scale.

From a Star-Tribune article:

---"At least seven new condo towers of 20 stories or more are envisioned for downtown Minneapolis. At least 6,200 units could hit the downtown market in the next few years. That's more than six times the number of new condos sold in the city last year, and about 15 times the pace of sales in the years before 2004. Add in the rest of the metro area, and an "unprecedented" 11,000 condos will come to market in the next few years. And that doesn't take into account conversions of apartment buildings, which will add hundreds more units to the market. "I think we could be sitting on the edge of some problems," said George Karvel, a real estate professor at the University of St. Thomas.----

Ya betcha. My guess is that some of the demand is due to the fact that downtown Minneapolis has become more interesting as a place to live. And there are a lot of older folks in Minn who winter in Fla or AZ (snowbirds) and want to keep a place in Minn, so will sell their family home and buy a condo.

But housing of all kinds has skyrocketed in price in Minneapolis, even though the market appears to be more or less a zero-sum game---i.e., not enough new residents to support a rise in all forms of housing. In short, if condos get hot, single-family homes should suffer. That's not happening yet.

Here's some fun factoids that don't seem to jibe with the notion of skyrocketing home sales and prices:

---According to the 2000 Census, the whole Twin Cities area grew 16% over 1990, about 1.6% a year---more or less the same as it has grown since 1960. No spike in population.

---Most of that growth came in the suburbs, not in Minneapolis, though MSP grew 4.4% (reversing a long-term decline) b/w 1992-2002.

---100% of that 4.4% growth from 92-02 came from people of color and immigrants. The white population declined 14%, non-white grew 68%, hispanic grew 269%.

---Percentage of white children living at or below poverty level in Minneapolis: 10%

---Percentage of black children living at or below poverty level in Minneapolis: 50%

In short, Minneapolis is growing very slowly after years of decline. The surrounding suburbs continue to grow but at a moderate pace---no spike in growth. All of the urban growth is due to an influx of poor minorities and immigrants.

Yet housing prices have nearly tripled in the past eight years and 11,000 condos are being brought to market over the next few years even though fewer than 1,000 were sold in 2004 (during a boom year). If the condo market in Minneapolis stay hot (not likely with all that new supply), it should come at the expense of single-family homes in this low-growth zero-sum market.

http://www.startribune.com/stories/535/5351102.html

 
At 10:20 AM, Anonymous Anonymous said...

Many of you know that the Kennedy's are some of the wealthiest Americans, and also that their wealth was not diminished during the great depression because of some luck or foresight by an early Kennedy. Legend has it that just before the stock market crash of 1929, Joseph P. Kennedy decided to sell his entire stock holdings. One day prior to the crash, he went to get his shoes shined. The shoeshine was talking about all of the stock trades that he would make that day, and even offered some advice. It was this moment that Joseph realized that this had become a mania. Joseph reasoned that if a shoeshine were giving out stock tips, things had gotten out of hand, and it would soon crash. Which it did.

I learned about flipping properties from a guy working in the call center where I was a finance manager. I realized at that moment that if someone making half what I did was so interested in this as a speculative investment, it was time to get out.

 
At 10:38 AM, Anonymous lesshairnow said...

--I learned about flipping properties from a guy working in the call center where I was a finance manager. I realized at that moment that if someone making half what I did was so interested in this as a speculative investment, it was time to get out.---

I imagine that Kennedy story is apocryphal. Joe Kennedy was a sleaze par excellance and I would imagine he knew about the crash well in advance and was positioned accordingly.

But your point about the "shoe shine guy indicator" or what some people refer to as the "cab driver indicator" is well taken. A trend is either peaking or past its peak with the least informed and least able spot it and jump aboard.

I posted earlier on another topic about my "Korean barber indicator"---my 50ish Korean barber told me she was looking to flip a condo. She began trading tech stocks in 1999. That's a pretty good sign to me that we are nearing end times (not in the Biblical sense, hopefully.)

 
At 12:16 PM, Anonymous Anonymous said...

Re: Joe Kennedy

A (biased) history of the banks in the US (it was an anti-Fed video-doc) says that Joe Kennedy had a tip from either the banks or the brokerage houses or some-such that they would be tightening margin requirements in the fall, and that is why he got out in the summer.

 
At 12:45 PM, Blogger John Law said...

is Miami going to be the worst hit?

 
At 1:05 PM, Anonymous Anonymous said...

Miami with 69,000 condos planned will get hit hard, but so will Las Vegas.

I read that Las Vegas has plans for 70 high rise condo projects to be built in the next 5 years. One of the projects is being billed as the tallest residential building in the world. They say that the strip will look like Manhattan.

Donald Trump has 2 projects planned and even Michael Jordan has one planned.

 
At 1:44 PM, Blogger John Law said...

(One of the projects is being billed as the tallest residential building in the world.)

check please.

 
At 8:06 PM, Anonymous Anonymous said...

I recall a documentary that said not only did Joe Kennedy get out of the market before the crash of '29, he got short. And anytime someone tells you that short selling the market is "betting against America" or somehow unpatriotic, you should think of all the Kennedy money, since it was from short selling.

 
At 11:00 PM, Anonymous criminalinheritance said...

---Kennedy money came from short sellling---

Also bootlegging and insider trading. Pretty much the whole family's wealth is based on criminal behavior. The Bush family financial history is pretty much a carbon copy except for the bootlegging.

 

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