Lessons From Another Bubble
The CNNMoney website thinks the British experience could hold some clues for the US market. "Americans aren't the only ones who've gotten rich off real estate. In fact, home price gains in the United Kingdom dwarf those of the United States."
"'Every week there were stories in the paper about people making more on their property than going into the office,' said Ed Stansfield, property economist. Then, with little warning, the market cooled."
"According to the Council of Mortgage Lenders, between the first and second half of 2004, the number of such investors unable to meet their mortgage payments increased 50 percent."
"When the U.K. market was hot, lenders became increasingly lenient in their credit standards, allowing for higher debt-to-income ratios, smaller down payments and more creative financing. As of February, the number of mortgage repossession actions in the courts was at its highest level in five years, and many expect it to rise."
"What we're seeing now is the first signs of stress," said Stanfield.
16 Comments:
http://globaleconomicanalysis.blogspot.com/2005/03/its-totally-new-paradigm.html
Some of you may have see the graph at the top of this page.
Others (RE will only go up) may want to take a look
i think this is a CYA story... from a major media outlet...
Hey Melody, even more interesting, take a look at this!
http://www.10realty.com/detail.asp?id=528
Owner will pay half closing costs and give you a seven day cruise!
Sounds to me like the beginning of a weak market. I heard someone mention awhile back that before prices start to drop, owners start offering to cover closing costs and other gimmicks.
I've been very successful investing in Allied Capital since its share price was attacked by hedge funds a couple years ago. I'm mostly sold out of them now for macro reasons, though I still have a small position. I consider these guys top notch investors, and they are getting out of real estate investments right now. Here's one of their latest actions:
WASHINGTON--(BUSINESS WIRE)--May 3, 2005--Allied Capital Corporation (NYSE:ALD) announced today that it has completed the sale of its portfolio of commercial mortgage-backed securities (CMBS) and collateralized debt obligation (CDO) bonds and preferred shares to Caisse de depot et placement du Quebec (the Caisse) for cash proceeds of approximately $976 million and a net realized gain of approximately $216 million after estimated transaction and other costs of approximately $20 million. CWCapital, an affiliate of the Caisse, will be responsible for managing these assets for the Caisse, including surveillance and special servicing.
Allied Capital has also entered into a letter of intent with the Caisse regarding the remainder of Allied Capital's commercial real estate assets. Additional agreements may be reached that could involve the sale of a portion or all of these assets by the end of the second quarter of 2005.
Some interesting charts here
http://www.quamnet.com/fcgi-bin/columnists.fpl?par2=5&par3=1&par4=04&par5=05&par6=2005
see the percentage of (home sales to population)
I live in Santa Cruz County, California which is the poster boy for greedy sellers. Check this baby out. I think Uncle Jed Clampett used to live here.
http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=3&mls_number=502945&type=property&name=
[Have you noticed that on some of the for "sale by owner sites" the prices are worse than the mls sites? Would you call this greed?]
One of the old rules of real estate is that for sale by owner (FSBO) properties are always overpriced. In today's world of slimy real estate that may not be true, but it's not a surprise either.
I think the link below has you all beat. Anyone interested in a serene $265K vacation cabin in the San Fernando Valley? Check out the link below...
http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=3&mls_number=502945&type=property&name=
Makes those million dollar homes look like a bargain.
I just had an agent contact me today that we had "hired" for a week last May 2004 in San Diego. He was such a lousy person and so pushy that we fired him and told him never to call us again. I guess he must be hurting big time to call us and ask if we were planning to buy soon. My reaction...we'll buy next year sometime after the crash. He laughed and hung up on me.
anon 3:39
Don't sweat it, you will get the last laugh...
***
---think when making comparisons with the UK it is important to remember the huge difference in sheer numbers. Relatively speaking, the UK is a small place in terms of population and available land vs. the US---
A bubble is a bubble is a bubble. Yes, England is smaller than the US, but there is plenty of wide open spaces there as well as here. Something like 30% of the English population lives within 30 miles of London. Pretty concentrated.
What has transpired in England is very similar, only more so, to what has been happening here. So there is a good reason to look at their experience.
The population of England is growing, but very slowly. Why has the median home there risen 300% in value in the past 10 years while the population has only grown 6%? Surely whatever land constraints they now have were in evidence in 1996 as well.
Try as one might, there are no fundamental reasons for the home bubble in Britain. It's not about supply and demand, land constraints, massive job creation, etc. It's all about sentiment and EZ credit. Throw in a stock market crash and you have all the ingredients you need for a mania for real estate.
I mentioned this in an earlier commentary but may not have been noticed by many because it was a bit late.
A friend of mine has taken a bath on a London condo. It was a new construction delivered in late 2003. When he took possession her more or less had lost his GBP 100k downpayment on the 500k condo.
This part of the market (upper middle) has already been hit hard in London. Meanwhile the bubble has spread to rural areas like Scotland.....
Also, when people talk about population density then just remind them about Japan......
Blighty
Welcome to our world... England's bubble sounds just like ours... If we look at Englands bubble we will know what we are in for, just on a larger scale... I understand that people in England are already handing their keys over to the banks...
Looks like the Feds are right, it's not a national bubble... it's an international bubble...
Thanks for the 411 on England...
[Have you noticed that on some of the for "sale by owner sites" the prices are worse than the mls sites? Would you call this greed?]
Of course they are. I dabbled briefly in the world of commercial real estate as a broker, and I always tried to get my listings to be priced aggressively. I wanted to make a sale as fast as possible. (not necessarily the highest price) When I sold my own home (because the market is in a bubble) I sold it myself by owner. I actually kind of feel sorry for the guy who bid against himself and drove the price above asking. I'm evil, I know.
check this out people:
could burst your bubble
http://money.cnn.com/2005/05/03/real_estate/financing/boom_bust/
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