Tuesday, May 17, 2005

"Florida Will Be The Next California"

The St. Petersburg Times reports that around Tampa, everybody wants to be a landlord. "Of the people who bought existing homes, townhomes or condos in Hillsborough County last year, an unprecedented 40 percent didn't move into them. It was 30 percent the year before."

"'The returns have been unbelievable,' said Alan Schreier, who buys rundown houses. 'A lot of people are jumping into the business.'"

"Sammy Tuffaha has lived in Tampa Palms but coveted historic Hyde Park. But when Tuffaha shopped for a condo there, he couldn't stomach the prices. For two years, he watched the market and stewed. This year, Tuffaha concluded that prices will keep climbing. 'It's at least double what I would have been willing to pay two years ago,' Tuffaha said. His faith in the market extends to New Tampa. Tuffaha is keeping his house there, seeking a tenant."

"Wanda Vann of Cheval also is becoming a first-time landlord. She paid $132,000 four years ago for a home in Cheval West. She couldn't bear to part with it. As for being a landlord, she said, 'I'm getting a little brave."

"Linda Nowicke a real estate agent, entered the business after moving here in 1998 from Michigan, where she owned a day spa. 'I help people all the time with investment properties. They've been burned by the stock market, and they're looking for places to protect assets.' In the process, Nowicke began buying investment houses for herself. Nowicke prefers houses she can see. 'My firm opinion of this market is, it's crazy.'"

"Wayne Spencer noticed movers loading a van in the driveway of a doctor's home. Spencer bought the house with his fiancee. He said, "I believe Florida will be the next California."

25 Comments:

At 4:41 PM, Anonymous Anonymous said...

http://news.yahoo.com/s/nm/20050517/od_nm/fed_schools_dc

At least these kids get it :). They could probably do the job better than AG anyway.

 
At 4:45 PM, Anonymous Anonymous said...

He said, "I believe Florida will be the next California."

God help us!

 
At 4:58 PM, Anonymous Anonymous said...

I live in Florida -- the people who are buying inexpensive housing (less than $100K) may well be able to skate by renting out these properties to incoming workers. Above that, they may wind up with negative cash flow. Above $250K, they'd better have assets in the background, because they could lose a lot -- there is not much of a market year-round for rental of expensive properties north of the Palm Beach to Ft. Meyers latitude.

 
At 5:02 PM, Anonymous condomaniac said...

***

Florida the next California? Wishful thinking. Forgetting this current mania, there have been some very fundamentally sound economic reasons why California has risen to its level of prominence.

California has been the progenitor of a great many economic trends in the U.S.---technology, biotech, entertainment, agribusiness, viticulture, to name just a few. These industries have changed the world. For most of the past century, it has attracted smart, entrepreneurial people who have found it a hospitable place for new ideas.

An important component of California's success has been its strong universities, such as Berkeley, Stanford, UCLA, USC, UC San Francisco, which have attracted some of the best and brightest from all over the world.

IMO, the only thing that California and Florida have in common is decent weather. Florida is dumbbell-land. Higher education there is subpar, to be charitable. It's primary contribution to our culture is likely the invention of the early-bird dinner. Aside from its supposed position as the "gateway" to Latin America, there is no "there" there in Florida.

Whether California's future will be as bright as its past is open to conjecture. But the thought that Florida will ever exhibit the same economic and cultural leadership that California has is a pipe dream.

 
At 5:30 PM, Anonymous Anonymous said...

"Florida's...primary contribution to our culture is likely the invention of the early-bird dinner."

Hey, after a hard day of condo searching an early-bird is a welcome sight.

P.S. Obviously condomaniac is not neither a snook nor tarpon fisherman.

 
At 6:00 PM, Blogger Frank said...

As a current Southwest Florida resident, I can not wait for this bubble to burst. The prices here are so unrealistic and just screams BUBBLE!!

 
At 6:20 PM, Anonymous Anonymous said...

to 5:02 from 4:58:

Florida is a top retirement destination. To my knowledge, California is not. Totally different markets. You cannot imagine how inexpensively you can dine on really good food, night after night, in the Sarasota-to-Tarpon Springs strip, for example.

Floridians do not care in the least what Californians have, what they have done, or what they think of themselves. Nonetheless, the bubble-burst will affect us a lot, just not as much as it will you folks. That part is just mathematics.

 
At 6:41 PM, Anonymous John Vosilla said...

"there is not much of a market year-round for rental of expensive properties north of the Palm Beach to Ft. Meyers latitude.'

I didn't know there was much of a high end year round rental market in South Florida. Lots of those now $500k condos rent for up to $4500 in season for maybe four months but then remains empty. or you can rent for perhaps $1300 year round if lucky. In either case there is very little left over after HOA dues and RE taxes.

 
At 6:55 PM, Anonymous powerpuffgirl said...

"Florida the next California? Wishful thinking. Forgetting this current mania, there have been some very fundamentally sound economic reasons why California has risen to its level of prominence."

I think you are totally missing the point here. California is experiencing a housing boom of epic proportions and most of it has nothing to do with anything other than fear and greed. Having been a lifelong resident of California, I can think of 2 things that are awful for every one great thing you mentioned in your post (rampant illegal immigration and associated cultural and crime burdens, terrible budget woes, highest taxes anywhere, unfriendly business climate, terrible commute times, totally litigous society, highest health care premiums, highest auto premiums, highest gas prices, and on and on and on, not to mention a horrific housing bubble.)

Should California RE be more expensive than some other parts of the country? Maybe. But that's not what the housing bubble is about. I think you need to re-read some of the OC posts or maybe check out the 3-part Daily Reckoning article on the financial contagion known as "Affluenza" sweeping through California:

http://dailyreckoning.com/RudeAwake/Articles/RA050505.html

 
At 6:56 PM, Anonymous John Vosilla said...

"IMO, the only thing that California and Florida have in common is decent weather"

Much of Florida for 5-6 months is humidity hell and not pleasant at all unless you are into water sports or the beach but since many come from the northeast and don't know any better it seems like heaven especially in the winter. California to me has the incredible weather for almost any activity year round.

I hear it said often that Florida will be the next California. All the pimps making that quote are totally naive or brainwashed by the recent boom here. If anything this boom attracts a lot more of the lower end and less educated due to the tons of jobs in the RE industry and tourism. Florida is down near the bottom in education and it's ranking of Fourtune 1000 companies for being the fourth most populated state is abysmal.

http://www.fortune.com/fortune/fortune500/articles/0,15114,1049377,00.html?promoid=yahoo

 
At 6:58 PM, Anonymous powerpuffgirl said...

I forgot to mention:

Worst K-12 public education system in the country (or 49th out of 50.)

 
At 7:04 PM, Anonymous John Vosilla said...

"Should California RE be more expensive than some other parts of the country? Maybe"

Just my opinion but prices in California are reasonable compared to other hot bubble markets and I beleive they are all proportionately way overpriced today. The heartland is inexpensive. The cities of Houston and Dallas are way underpriced relative to say Miami, NYC, Vegas or LA. Actually places like Vegas and Orlando could have an even bigger percentage drop in single family than LA or San Diego due to unlimited land and more overbuilding this cycle.

 
At 7:36 PM, Anonymous Anonymous said...

The cities of Houston and Dallas are way underpriced relative to say Miami, NYC, Vegas or LA.

What part of Dallas are you looking at? While it's true that overall pricing in Dallas may be underpriced compared to NYC or LA, there are plenty of overpriced bubble areas, too that have experienced huge appreciation over the last couple of years. I live here and have been watching the prices escalate over the last 5 or 6 years at a very rapid pace.

 
At 8:04 PM, Anonymous condomaniac said...

(Obviously condomaniac is not neither a snook nor tarpon fisherman.)

You got me pegged. But there must be lots of schnooks in Florida given how many speculators are fishing for greater fools down there. Happy angling!

 
At 8:13 PM, Anonymous notmykindoftown said...

>>>>

Ran across this anti-Florida rant in a discussion of real estate on the Wallstreetexaminer site:

"Florida's economy has always been driven by the same thing. The weather. That drives the retirement and tourism industries. That's never going to change, but the boom/bust cycle isn't going to change either.

The idea that Miami is anything like New York [or California] is a joke. Miami is one of the most disgusting urban pits I have ever seen in my life. Outside of a couple of small pockets like the Grove, and the Beach, there's no urban streetlife there whatsoever, just mile after mile of endless ugly urban sprawl.

Many people want to be there because it's warm year round, and it has a nice beach, not because of business, unless you are trading with Latin America. The downtown central business district is like a deserted concrete wasteland. There are no people on the street even at lunch time. It's bizarre. I hate the place. To me, it's not even a real city. Places like New York, Montreal, Boston, Philly, San Francisco, Chicago and Baltimore are cities. Miami is not a city. It's a collection of ugly streets and buildings where virtually no one wants to be if they don't have to.

Miami Beach is exciting, but it's just a big tourist trap, just as it always has been. Outside of restaurants, bars and hotels, there are no businesses there. It's economy is a derivative leveraged on the world economy. When the world does well, the Beach does extra well. But when things go bad, the collapse will hit there twice as hard. There is no way the market can absorb all these units within a feasible time period without the benefit of massive speculation. Natural population growth and inmigration won't do it.

Oh, and did I mention that Miami has the highest rate of violent crime in the US?

I've lived in South Florida for over 17 years. There's no sense of "place" here. Just a homogeneous sameness that goes on for mile after mile after mile of flat, straight, endless, six lane arteries arranged in a grid.

People who are infatuated with Miami are actually talking about Miami Beach, which is a separate municipality. There, it's all about the beach and showing off your money. Pretty shallow. Culture? What's that? Being seen courtside at a Heat game?

Miami Dade County has a population of well over 2 million and has a grand total of three institutions of higher learning, two of which no one ever heard of. One is the University of Miami, the other two are FIU and Barry. Ever heard of them? The city I came from which is half the size of Dade County, has, just within the city limits, 11 universities and colleges I can think of just off the top of my head, not to mention 5 medical schools. That doesn't include another 9 or ten colleges in the suburbs.

Once my wife and I went to the "art museum" in Fort Lauderdale. Their main exhibit was an exhibition on lawns. Yes, you read that right. L-A-W-N-S. Two thirds of the "art museum" was devoted to samples of different types of lawns, and a documentary history of lawns in America.

Don't even ask me about the Swimming Hall of Fame.

South Florida is a vast cultural wasteland."

 
At 8:21 PM, Anonymous Anonymous said...

[Once my wife and I went to the "art museum" in Fort Lauderdale. Their main exhibit was an exhibition on lawns. Yes, you read that right. L-A-W-N-S. Two thirds of the "art museum" was devoted to samples of different types of lawns, and a documentary history of lawns in America.

Don't even ask me about the Swimming Hall of Fame.

South Florida is a vast cultural wasteland."]

How is that unique for the art world? I once saw a pile of red yard lava on display in the San Francisco MOMA (Museum of Modern Art). Nearby a common office florescent light was on the wall...as a display...

 
At 8:24 PM, Anonymous Anonymous said...

treasuries yield gap (between short term T bills and long term T notes) is dangerously close, it might even reverse so long term rates are CHEAPER than short which indicates almost certain recession...but also means that refi boom will start meaning people with ARMS and I/O's will switch to cheaper fixed rates...did Greenspan thought of a "perfect crime" and only us on the fence will get hurt and remain renters?

 
At 8:30 PM, Anonymous golanheights said...

(means that refi boom will start meaning people with ARMS and I/O's will switch to cheaper fixed rates...did Greenspan thought of a "perfect crime" and only us on the fence will get hurt and remain renters?)

The housing bubble will deflate whether interest rates rise, fall or stay the same.

Back during the last boom/bust cycle in Calif, the bust years were 91-95. Mortgage rates were actually declining during those years. Yet it didn't keep the boom from busting. When home prices are falling, they could lower the interest rates to 0% and people still wouldn't be interested in buying homes. It's all about sentiment.

When the sentiment is bubbly (like now), it doesn't matter how absurd the numbers are, buyers still buy. But when sentiment turns pessimistic, buyers disappear. Same way with stocks. People were exuberant in 1999 and willing to pay $300 a share for money-losing companies. But in 2002, when many stocks were absurdly cheap, confidence was shaken and most people had lost interest.

 
At 8:50 PM, Blogger goleta said...

The Florida boom might have something do with "girls gone wild" or other spring break videos? That kind of videos tend to spread all over the world and attract tons of Europeans, even Russians there. Didn't they say it on TV that Russians are the best RE buyers in Florida and they don't even try to bargain?

 
At 8:58 PM, Anonymous Bazooka said...

anon 8:24

Great post - it got me thinking for a while. In the end, I can't believe that AG would actually WANT an inverted yield curve. As you pointed out, that always spells recession (or worse in this case?) and this would be very bearish for most industries, including RE. In other words: somebody that just got laid off isn't going to be looking to trade-up or refi or anything other than sell.

 
At 9:02 PM, Anonymous jargon jed said...

(Didn't they say it on TV that Russians are the best RE buyers in Florida and they don't even try to bargain?)

They often pay cash too. In more plain-spoken times, buyers like these were known as criminals or mafioso. Today, however, they are known as savvy foreign investors.

 
At 9:14 PM, Anonymous Anonymous said...

"somebody that just got laid off isn't going to be looking to trade-up or refi"

A lot of the comments here don't address the fact that refi-ing may not be so easy in the future. If things pop and banks are sitting with a lot of bad loans you can be sure they'll get much tighter with the lending standards. We could be back to a 20% down payment required to buy RE.

 
At 7:32 AM, Anonymous Rob said...

Good point Anon 9:14, in order for AG to commit the "perfect crime" he will, along with the inverted yield curve, somehow control the appraisal value of the homes that apply for 30yr refi.

We already have the 0 down, Interest only, unstated income loans. How about no appraisal loans for unlimited amounts.

 
At 11:10 AM, Blogger Thomas said...

Goleta and Jargon Jed:

I'm a little thin in my understanding of how exchange rates affect foreign RE purchases. As I understand it, a weak dollar compared to, say, the euro means that American dollar-denominated assets are cheap compared to euro-denominated assets, encouraging euro holders to buy. For example, if the dollar were to go from parity to the euro to a 2:1 exchange, then in euro terms, the American asset just became 50% cheaper to the European investor.

But if the dollar declines further against the euro, then hasn't the European investor lost money? Let's say that after the European buys his Miami Beach property for $400,000 -- or E200,000 -- the dollar declines further from 2:1 to the euro to 4:1. (I'm using exaggerated figures for simplicity of calculation; I don't expect that kind of exchange rate anytime soon.) Even if the American property value doesn't decline, its value to the European is now E100,000. He's lost half his investment, measured in terms of his own currency. (And assuming he still lives in the eurozone, he's likely to have most of his expenses -- certainly his taxes, which are huge -- denominated in euros, so effectively he's lost a big chunk of purchasing power.)

Assuming that China allows the yuan to float or actively revalues it against the dollar, wouldn't that have a similar effect? A stronger yuan means a relatively weaker dollar. Wouldn't that have the effect of instantly reducing the real value of any Chinese investors' American assets by the amount of the revaluation?

 
At 1:40 PM, Anonymous Anonymous said...

Hey condomman, You make sure you keep all your highly educated snobby friend in cal. We don't want people like you here. We are all stupid in florida, but i've been retired here since i was 26. I would put money on it that you are still sitting in that cubicle every day. So i wonder who is smarter? hehe

 

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