Wednesday, May 04, 2005

Next Bubble: Alabama

The experts that have been calling for the housing market to soften will be making excuses again as the bubble forges on in..Alabama? "The University of Alabama's Real Estate Research and Education Center (said that) sales of previously owned homes are up 29.4 percent from February, which saw a 15 percent increase."

"The university calls the jump 'Incredible' in light of rising mortgage rates and gas prices, and a tepid U.S. economy." Incredible indeed; the housing bubble is working its way across the globe as the real culprit, easy money, drives the frenzy.


At 5:42 PM, Blogger John Law said...

DR. FABER:   I think that obviously, as long as you have Central Banks around the world, and as long as they believe that problems can be solved by printing money, you will have a continued flow of money into the world. This money pours into the world and will of course create some kind of inflation somewhere. What the Central Banks don’t control is that once the money flows into the world, or into an economic system like the US, where does it flow once it hits the ground.

At 5:43 PM, Anonymous Anonymous said...

Nope, no national bubble here.

Yeah Right!

Wake up David Lehreah and Alan Greenspan.

At 6:34 PM, Blogger Greenlander said...

"Wake up David Lehreah and Alan Greenspan."

I actually think that David Lehreah is not quite as stupid as his quotes make him sound. I think he knows that he is spewing BS, but he's just hoping the party goes on for a little while longer because it is making him a rich man.

At 6:36 PM, Anonymous Pete said...

Man, this mania is spreading across the US like the plague did hundreds of years ago in Europe. Alabama!!! That's almost unbelievable! At least the lame excuses in San Diego were the climate, ocean and topography. What's Alabama got? Maybe reasonably priced housing, now the feeding frenzy is going to screw things up over there. Makes me wonder if there's an end in sight to this madness.

At 7:00 PM, Anonymous Anonymous said...

"What's Alabama got?"

Actually alabama got cows, horses, chickens and pigs ...

At 7:15 PM, Anonymous Anonymous said...

Alabama also has terrific Southern football, pretty girls who don't carry knives, year-round good weather and a healthy distrust of carpetbaggers. I suspect Alabama folks would prefer to be off this radar screen, simply to be left alone. Remember that sales "volume" alone means little -- only if the mean and median prices are increasing should there be concern about a bubble. Maybe some Yankee reader saw "bubba" and thought we meant "bubble."

At 9:03 PM, Blogger Sunny said...

Move along, nothing to see (in Alabama);-). Stay in L.A., NYC, the Bay, D.C...traffic, rat race, the Joneses, stressful jobs, high taxes/housing.

At 9:32 PM, Anonymous Anonymous said...

Well, if we look at the UK the bubbles are still bubbling in places like rural Scotland. Meanwhile it has imploded or flatlined in certain market segments.

Thus, as we approach the endgame it is natural that it should extend to places like Alabama.

At 10:52 PM, Anonymous Anonymous said...

Ever been to Auburn? Alabama has women who are (1) decent-looking (2) will give you the time of day and (3) aren't lesbians. Try that in San Francisco.

At 11:14 PM, Anonymous Anonymous said...

I'm in Auburn.

Agree with those three points.

Auburn also has eagles, including the one which flew over the Olympics.


At 11:43 PM, Anonymous kahunawatcher said...

Cocky stock bull (and Faux News commentator) Tobin Smith says the real estate top is in sight. Kind of surprising to hear him say it, but there you go. By the way, the blowhard calls himself The Big Kahuna. Of course, he says the real estate he has purchased is safe. But of course...

THE KAHUNA'S RANT O' THE WEEK: The Residential Real Estate Speculation Top Is Nigh -- By Tobin Smith

This might sound weird from a guy who just bought a bunch of development lots at Desert Mountain in Scottsdale, Ariz., but I can now safely say that the TOP in the consumer housing market is here.

In other words, the second derivative (the rate of change of the rate of change) is clearly within three to six months of slowing down SIGNIFICANTLY.

How do I know? From these three irrefutable data points:

1) Donald Trump was just paid $1 million to give a 45-minute talk on getting rich in real estate to 40,000 drooling wannabe millionaires at The Learning Annex. 2) Every non-business newspaper I read this week (The Washington Post, L.A. Times and San Francisco Chronicle) had at least TWO FULL-PAGE ads for seminars claiming to be able to teach me how to make $50,000 in just 90 days in residential real estate. 3) I read this Andrew Carnegie quote five times this week: “90% of all millionaires made it through real estate.” (The fact that Carnegie said this so long ago that buggy whips were a growth industry shouldn't be forgotten.)

Ladies and gents, the EASY money in residential real estate is done. Those who own their homes in areas with strong employment will do just fine -- nothing to worry about there.

But the stupid money is now on the prowl to earn “up to $50,000 in just 90 days” and all it takes is a FREE DIGITAL CAMERA -- an “$80 value”-- to get them in the door.

This cool-off is as predictable as Paris Hilton trying to become the new P. Diddy. (Seriously -- she announced her mogulship plan today.)


Ladies and gents, every top in ANY market is marked by an irrefutable signal: FREE SEMINARS.

I saw it in the early ’80s with real estate syndication seminars.

I saw the top of the real estate gold rush of 1980s -- NO MONEY DOWN was the mantra then. If you could find someone desperate enough to sell you their home by assuming their mortgage and having them take back a second, third or fourth deed on the house (the famous all-inclusive trust deed or AITD), your fortune was assured.

Too bad lenders added "due on sale" clauses to their mortgages to wipe out that fun time.

I saw it again during the late ’90s “Learn How to Make $250,000 a Year Day Trading” frenzy.

And we are seeing this irrefutable topping signal for the residential housing market today.

First off, you MUST understand that these free seminars are simply a sales lead generation system for a $2,000-$5,000 Millionaire Maker training seminar -- on tape, of course.

Second, you MUST understand that the act of buying, refurbishing and remarketing residential real estate is NOT easy. It requires a LOT of debt service and uses HUMONGOUS leverage that can easily go against you if you don’t know what you're doing. I'd compare it to day trading in a sideways or downtrending market -- it's about as easy as getting your cat to do backflips into the backyard pool.


In addition to the 100%-perfect, free-seminar indicator, I’ve observed that many old-time real estate developers in D.C., New York, San Diego and Orange County, Calif., have announced they are selling “every property they own” to huge pension plans for record prices. This the other signal.

When old-time dirt guys sell ENTIRE portfolios they have taken a LIFETIME to build, it reminds me of the developers I used to arrange financing for in the late ’80s who told me, “Toby, when the amateurs are bidding on land I KNOW I can’t make money on, it's time to pack it in … until the middle of the next DOWN cycle. You can reach me in Aspen or the beach if you need me.”

Mark your calendars six months from now and then another six months after that. Those will be the dates when the newspapers report “Home prices in much of the U.S. have leveled off significantly.”

That will be the day that the speculative home buyer with 100% financing will find out that he or she is actually UNDERWATER and will start a mild-but-growing panic.

AVOID any area in the U.S. where more than 20% of new mortgages are to non-owner occupied buyers. These are the areas where the most pain will occur.

Or, even simpler, you'd better get the hell out of your speculative home “investment” wherever the FREE SEMINAR full-page ads are running now.

Based on this theory, won’t I get crushed in my Desert Mountain golf course development lots?

No -- that's a different ballgame. With only 20 lots left in an area where 60% of the homes are owned WITHOUT a mortgage and there will NEVER, EVER be any additional lots or golf courses built (it's bordered by national and state recreation preserve lands), normal residential housing economics do not apply.

Where there is virtually unlimited, financially independent demand for a VERY limited supply of anything, prices go up. That's called "price elasticity" -- look it up.

Where there is virtually unlimited supply (i.e., the areas with 20% or more speculative ownership) and limited price elasticity (where 70% or more households can’t afford to own at today’s record low mortgage rates), there's gonna be some pain.

If you are convinced that there is still a lot of easy money to be made buying residential real estate in the hot zones of the U.S. these days … well, you have about six months to make it happen.

At 11:59 PM, Anonymous Anonymous said...

10:52 said Ever been to Auburn? Alabama has women who are (1) decent-looking (2) will give you the time of day and (3) aren't lesbians. Try that in San Francisco.

I thought this was a site about housing bubbles not for gratuitous homophobic slams at SF.

At 12:34 AM, Anonymous Anonymous said...

I thought this was a site about housing bubbles not for gratuitous homophobic slams at SF.

There's nothing homophobic about what that person wrote. Stereotypical, sure. Misogynist, arguably. But not homophobic.

At 6:39 AM, Anonymous Anonymous said...

"Based on this theory, won’t I get crushed in my Desert Mountain golf course development lots?"

He forgot another basic of real estate: Don't buy in an area that's shortly going to face a water crisis.

At 6:54 AM, Blogger deb said...

As if these all cash golf course buyers wouldn't be looking at lots all over the place, not just in his very special location.

His arguement is so very rational and then he hits us with "Based on this theory, won’t I get crushed in my Desert Mountain golf course development lots? No -- that's a different ballgame"

There will not be anywhere "safe". In the last downturn in LA, Beverly Hills was hit the absolute hardest (no, they didn't make more land there either). 50% declines.

I think the hotspots (even ones with all cash golf course buyers) carry such an emotional premium, they are prone to decline.

At 7:27 AM, Anonymous Anonymous said...

I think this guy is trying to rationalize around the fact that once an asset class becomes unpopular then it might undershoot "fair value". The bad stuff drags down the good stuff with it.

For example in the stock market a decent company like Akamai Technologies was horrendously overvalued when it IPOed in 1999 and reached some obscene market cap in the tens of billions when it tripled to 300+ in early 2000. Then it eventually went down to 50 cents by Oct, 2002. Now the company actually makes money and the trailing P/E is "only" around 30.

At 7:43 AM, Blogger realist said...

the phoenix area is being imploded with californication money bailing out of vegas looking for the next big pop. desert mountain is farther up the food chain, but once the bottom feeders are priced out of the market, the move ups will have to move out. sounds like our boy is engaging in a little pump and dump. he's hoping more bigger fools will climb desert mountain so that he can get out at the top. hommie ain't going to find them on this site.

At 7:49 AM, Blogger Melody said...

At least when you look at Alabama photos, it looks inviting. Why would anyone one to live in the desert (Las Vegas and Arizona)? Have you ever been to LV in the summer? It's like stepping out in an oven. In San Francisco, there are so many in poverty it's a sad sight to see. The outskirts of SF are nice but in the downtown area it's hard to see so many homeless people. There are a lot of homeless in Sacramento as well. I used to walk downtown and you would get harrassed by homeless at least twice a day. I used to volunteer at a shelter and when I told the homeless where to go for food, shelter, etc... they were pissed off. They wanted money for drugs. I guess I'm sounded a little depressed but are there any truly good places left? Here in OC they're shooting at cars on the freeways, people are rude on the freeways. By the time I get to my destination I thank God I made it. Why do we live this way? Not really sure.

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

My folks live near Mobile Bay, maybe 30-40 minutes from the coast. A couple weeks ago I asked Dad what the housing market was like down there.

Dad moved down there in '99 for work and is now semi-retired. He paid around $210K for new construction in a golf course development (his house is not on the course tho). He figures it's worth $260-270 now, decent appreciation and maybe a tad frothy now but not ridiculous. It's their place to live and they're past the point in life where they care about making a fast buck. If their house loses 20%, they won't feel it. (Stuff right on the golf course has gone from maybe $250-260K to the mid threes. These aren't extravagant houses, mostly young families and empty-nesters.)

BUT... closer to the coast it might as well be Miami. He tells me there are condo developments going up on the intracoastal waterway (NOT THE BEACH! Just the waterway!) where folks are buying 2brs for $600K and trying to flip them at $800K. And most of the coast is still rebuilding from Hurricane Ivan, which as I saw driving around there a few months back completely destroyed everything on the coast.

But here's the really bad part: homeowner's insurance on coastal properties carries a 40% deductible on the property's replacement value. That is, if your $800K condo blows away and costs $200K to replaceAllstate gives you $120K. FEMA covers some of the rest, but again only up to replacement value and only on primary residences (not on rental properties). You still owe the mortgage while you wait for place to get rebuilt, and of course can't collect rent until someone moves back in. And there WILL be another hurricane someday.

Alabama has its charms, but some people down there are really asking for it.

At 8:32 AM, Anonymous Rob said...


Come on now, the desert is not that bad. I don't care for Las Vegas, but there are some very attractive desert areas and you can deal with the heat very effectively with insulation, Low E windows, house orientation etc.

It's a matter of preference, I love the South, but the humidity in the summer makes me feel like I used chain lube for underarm spray.

I love the mountains, but it gets cold. Yep the weather is great here in So Cal, but your'e right, the congestion and related problems are terrible.

At 8:44 AM, Blogger Melody said...

Rob, I had to chuckle. I'm sure there are some nice sites in LV. If I were to live in LV, it would be my winter home. I had a friend move out there a few years ago when the prices were incredibly low. Now they're way too high. I live 3 miles from the beach so the weather here is mild. When it does get warm, I must admit, I sweat here more than any place I've been. I'm a native Californian. Grew up in Chula Vista, lived in Sacramento for 25 years and now in Laguna Niguel. I love how Southern OC is clean. It's probably the cleanest area I've ever lived in. I rent and that sucks. We women want to plant our roots and I just can't see putting my life on a limb to buy here right now. I'm in a 2200 sq ft home for 2700 a month. I never thought I would pay that much in rent but the house is one million duckies. I'm not sure how people can pay 1 mil mortgate, 1000 in taxes a month, hoa dues, daycare and the like and still pay the other expenses required to live. I guess I did something wrong along the way.

At 6:41 AM, Anonymous Anonymous said...

Melody -- it seems to me you are in better shape than you think. $2,700/mo doesn't seem like outrageous rent for California in a popular community and it appears you love living there. You're not paying unconscionable property taxes. Your credit will not be torpedoed as it will for those who have bought too late in the game and will have negative equity after prices drop. If your landlord pays $1,000/mo in taxes, then you are paying only $1,700/mo toward the property -- a pretty good deal, I'd think (for California).


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