How High Before The "Experts" See The Truth?
CNN Money reports that the highest priced areas of the US are zooming up, going against the expected slowdown scenario predicted by the NAR. "The NAR's quarterly report covers 136 metro areas. A record 66 of these have experienced double-digit jumps in home prices over the past year."
Instead of recognizing that the huge increases are signs of a bubble, the same lame reasons are trotted out. "'We simply don't have enough homes on the market to meet demand,' said David Lereah, the NAR's chief economist."
One has to wonder how high the boom has to get before the NAR will admit they are wrong? This was supposed to be the year of 'leveling off', but instead we see double digit gains in areas that were already overpriced. Here is a ranking of the cities.
17 Comments:
Buffet:
A dilly of a bearish signal.
Legendary investor Warren Buffett sold a Laguna Beach home, then cited the sale as an example of the nation's overheated real-estate markets. ...
... This is a largely risk-averse guy who's had a great knack for so-called "value investing," Wall Street lingo for bargain shopping.
Buffett's wisdom is dispensed every year at the annual meeting of the company he runs, Berkshire Hathaway of Omaha, Neb. At the most recent gathering on April 30, he discussed his home sale as part of an analysis of U.S. home prices.
According to a partial transcript of the Berkshire meeting posted on CNN's Web site, Buffett told a crowd of 20,000 fans that, "certainly at the high end of the real-estate market in some areas, you've seen extraordinary movement.
"People go crazy in economics periodically," he continued. "Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."
At the meeting, Buffett's longtime partner, Charlie Munger, even used the B-word - as in "bubble" - to size up risky markets "in places like parts of California and the suburbs of Washington, D.C."
Buffett added a recap of his sale in Laguna Beach: "It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre." ...
I am glad I ran into this great blog while researching housing related issues.
Couple questions:
a) Where can I find information about the advantage/disadvanatges of using a realtor to sell a property
b) Information about ways in which to hedge home price depreciation.
Orange County's (CA) year-over-year appreciation is only about 15%, which is nowhere near the 20-30% range it has been in for the last several years.
There was a huge jump in Orange County home prices last spring, and it's been pretty flat ever since. If things don't pick up in the next few months, look for the annual appreciation rate to drop into the single digits.
According to the California Association of Realtors, the median home price in Orange County last June was $657,930.
The median home price for March was $667,200.
This corresponds to an annualized appreciation rate of 2%.
Orange County was one of the first housing markets to boom, and therefore it should be one of the first to bust.
Here is a complete list of C.A.R. press releases.
---"'We simply don't have enough homes on the market to meet demand,' said David Lereah, the NAR's chief economist."----
In a perverse kind of way, I agree with Lereah. In many markets, like the SF Bay Area (for eg.), there isn't much for sale. Most homeowners are sitting tight because they don't want to move, and they know that if they sell they won't be able to afford to buy another home in their area. So it keeps the supply very constrained.
Where I differ with Lereah is on the demand side. I understand why there is so little supply, but why is there so much demand at these prices? Income growth? No. Population growth? No, same as always. Job growth? Definitely no. The only factors supporting demand are excessively cheap and EZ credit and sentiment (prices always go up, get in before you are priced out, etc.)
If there is a change in sentiment, the demand dries up because there is nothing fundamental about it.
And in some bubble markets (Nevada, Arizona, etc), the demand is primarily coming from speculators. That's the kind of demand that blows away in the night as soon as sentiment changes.
Anon,
a) If you are selling, you definitely need a realtor of some sort, in order to make sure that all of the legal issues are properly handled. If you are willing to hold your own open house, you might consider going with Help-U-Sell. I had a very good experience with them (your mileage may vary; it probably depends a lot on the individual realtor), but I sold into a very heated market.
My property sold *before* I held the open house. So, there was absolutely no reason for me to go with a full-service realtor. Even if you do go with a full-service realtor, I would think you could bargain for a favorable commission rate, because of the heavy competition between brokers these days.
Help-U-Sell provides all the tools you need to sell your house, including MLS listing service, if necessary, but they don't hold the open house for you.
b) Track down a copy of The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment. It's probably still in stock at your local bookstore. You can just flip to the section which tells you how you can protect yourself, and see if there is enough information there to warrant purchasing the book. As I recall, his advice was pretty sound, but it has been a while since I read the book.
I said, "If you are selling, you definitely need a realtor of some sort, in order to make sure that all of the legal issues are properly handled."
This may not be an accurate statement. Basically, I was too chicken to try selling my home myself. Help-U-Sell turned out to be a very good solution for me.
Hi, Deb
i hear you... but i think the real culprit here is the mainstream media... they have failed us once again... i just can't understand why they just refuse to challenge or even question some of these numbers or statements... especially since the very definition of existing single family home has been changed this year... and changed during such a crucial year... a transitional year... it's just so mind-boggling how many free passes have been given out... i never seen so much parroting from reporters in my life... it's simply amazing...
I have been tracking San Diego's median single family home (SFR) and all homes appreciation rate from the DQNews (DataQuick) site. These figures take in the entire county, not only the city. SFR appreciation is 17.5% year to year through March, which is down from the dizzying mid to high 20% rate of not too long ago. All homes, the appreciation rate is now down to 12% year to year from 25%. So, the market is cooling despite what the NAR says. Statistics are statistics and NAR will only quote those which put RE in the best light. We're waiting for April's numbers to come out soon. If April's numbers are flat and May's the same, appreciation in San Diego county will be at or near 0% year to year. I'm suspecting this will be the case. We've been basically flat for the last 10 months here. Don't let the NAR fool you.
Pete in SD
Business and capital spending appears heading towards recession and we have quietly had a collapse in most small cap stocks this year across so many industries. Remains to be seen how many more rate hikes Greenspan will make. I'm hoping the idiots in Washington realize what is going on and instead change some of the tax laws that have become way to favorable towards real estate and end the loose underwriting, zero down, option ARM and interest only programs. IMHO the real economy can't take another 4 quarter point hikes which tells you the said state of our real economy.
---It was the same at the top of the stock market. It seems even the journalists are not immune from irrational exuberence.---
It's human nature. Journalists are people and they write for people. And people are attracted to bright lights and commotion. Most folks like to feel part of the crowd.
Think about it. How many times have you gone out to eat and see two restaurants side by side---one with hardly anyone in it and one packed with people. Most would choose to eat in the crowded one, "It must be good. Look at all the customers!"
Now sometimes this makes sense. The crowded restaurant is good, the empty one sucks. But it's not always true. Here in San Francisco, there are a lot of restaurants that aren't very good but stay very busy. That's because people feel it must be a safe choice if everyone eats there even though the place is five or ten years past its prime. On the other hand, there are lots of small places that get no crowds yet are terrific. Go figure.
I remember a stunt in London a few years ago. Londoners are famous for their willingness to patiently queue up in long lines. These pranksters would form queues to see how many people would join in. Of course, they were waiting in line for nothing. Yet dozens of people would start lining up. They had no idea what they were standing in line for but they figured it must be good if so many others were waiting there too.
[Think about it. How many times have you gone out to eat and see two restaurants side by side---one with hardly anyone in it and one packed with people. Most would choose to eat in the crowded one, "It must be good. Look at all the customers!"]
I prefer the lunch time analogy. It seems 90% of the population just HAS to eat between 12 and 1 o'clock. If you go into any restaurant at 11:30 to 11:45 you can avoid the rush and get the same food.
Real Estate is having a lunch rush. A weekend trip. A 3 day holiday.
Just like with real estate, the lunch rush takes a while to cool down--there can be crowds as late as 1:30.
People are sheep.
-Generic
Deb, people get some strange ideas. My parents "saved" for retirement by putting a couple thousand into Amgen stock in the early-90s, then sold at the first sign of a decline. Of course, had they held that stock, it would have appreciated 10-fold by now.
I hope the sheep all abandon this real estate investment the same way.
funnymentals,
I hear what you're saying... but i really think that reporters don't write those stories because they simply can't... in publishing, there's always been a struggle between editorial and ad sales... and since, real estate and homebuilders are a major money-making category in a tough business environment, their editors won't allow them to write that hard-hitting story about the industry... mostly because... it gives these major real estate/homebuilder advertisers more ammo to negotiate, when it comes to renewing their ad plans...
---I hear what you're saying... but i really think that reporters don't write those stories because they simply can't... in publishing, there's always been a struggle between editorial and ad sales---
I worked in publishing for a long time. You are correct. It's tough for the real estate writers to report on the bubble. But that's because they usually write for the paper's "real estate section", which is essentially an advertorial section.
But now that the bubble has gone mainstream, we are seeing coverage in the news sections, not the real estate section. And the reporters who write for the news section don't generally have anything to do with the real estate section ad folks.
So you will see a weird dichotomy: bubble stories on the front page and "everything is great" stories in the real estate pages. Same paper, different views. That's how newspapers work. Of course, in smaller towns, there may not be such a Chinese wall b/w sections, so the local publisher may "kill" negative stories about real estate.
I mostly worked for big city papers where the Chinese Wall was inviolate. But I do remember working for a medium-sized suburban daily. The publisher was an old coot and his wife was a born-again Christian. The news dept ran a big front page story on a Gay Freedom Day parade in town. The publisher, at the urging of his nut-job wife, told the news dept to stop running pro-gay stories. The news staff threatened to quit and he backed down.
Deb
Did you know that the Beanie Baby actually made the inventor a billionaire.
"Did you know that the Beanie Baby actually made the inventor a billionaire."
Probably largely in part to s/he and the media creating a huge buying frenzy by making the public believe beanie babies are excellent investments, and if you don't get into the beanie baby market now, you may miss your chance!
Sounds familiar...
(on a personal note, I am a beanie baby fan and proudly own two of the cute little buggers - I plan to gift them to my future children when they graduate college as down payments on their $3,000,000 houses in Venice - if we'd only bought when they were $800,000 back in 2005...)
Ben, there is the law of gravitation. What goes up higher will fall harder.
I believe it dearly now after losing a lot in the stock market crash of 2000. I remembered at the time every stock I bought made money. I regreted I sold it because it went higher after that. There seemed to be no end as to how high my stocks could have gone, $200-$300 a share was normal. The new economy (internet) was going to be the future and there was no looking back!
I feel like it's deja-vu all over again but I firmly believe it will not last.
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