Saturday, May 07, 2005

Speculators Hijack Condo Projects

The Arizona Republic has an article on condo conversion being done in the Phoenix area. Titled 'A light at the end of real estate tunnel', it's supposed to give the idea that some relief is coming to lower income home buyers. Guess what? Speculators are mobbing the process and jacking prices through the roof.

"Jay Butler, director of the Arizona RE Center said many converted condos in the Valley are now being bought by investors who then want to turn around and sell them for a profit. 'Every major investor is looking at Phoenix's apartment market now, trying to find a condo-conversion project,' said Brad Goff."

With buyers like these, the speculators don't have to import bubble fever.

"Angela Prestinario moved into her north Scottsdale conversion two weeks ago. She bought the three-bedroom condo last year for $210,000; now they're selling for $270,000. She wants to buy another conversion as an investment."

"'I was in shock,' said Emily Haradon. 'I made an offer the day I saw it.' Haradon said a condo like hers in her complex is on the market for $164,000, a more than 38 percent markup since she bought."

20 Comments:

At 10:16 PM, Blogger Sunny said...

Scary stuff. I cannot believe the kind of people I meet that buy a house and pick up an extra one on the side in the same neighborhood or project for "investment".

 
At 4:40 AM, Anonymous Anonymous said...

Actually, from here in Oz (=Australia, not Yellow Brick Road land) 270K for a 3-bedroom Condo sounds a pretty good price.

Mind you, I know of a little town with pretty good services about 75 minutes drive away where you can get a (REALLY basic, 1920's build) 3 bed 1 bath house on 1/5 acre block for 125K.

 
At 5:42 AM, Anonymous Anonymous said...

Sorry for slightly off topic post but just got done reading Zuckerman's rosy reading on housing market

http://www.usnews.com/usnews/opinion/articles/050516/16edit_2.htm

In this piece he states, like so many other articles I've seen, that housing prices aren't likely to crash because people can't sell their houses as fast as they can sell stock.

I think there is something amiss with this view, especially in light of all of this high-speed speculation going on (now even in the lower-end of the market as we see on this post).

Sellers are used to signing contracts in days, not weeks or months. This speculative market seems dependent on that psychology of speed. So when prices level or drop, wouldn't sellers/speculators be more likely to panic?

In other words, any stickiness on the sell side might be a catalyst to cause a crash (i.e. panicky price dropping), not a barrier...any thoughts? Thanks

 
At 5:57 AM, Anonymous Anonymous said...

"In other words, any stickiness on the sell side might be a catalyst to cause a crash (i.e. panicky price dropping), not a barrier...any thoughts?"

I agree.
If a speculator is holding a property that is not fully paid and that is NOT cash flow positive, and that can be sold for even a slight profit, then they will quickly sell to lock in the profit before it's too late.

I see a flood coming.

 
At 6:59 AM, Anonymous Anonymous said...

more doom and gloom, coming mainly from people who didn't have the huevos to take a risk and buy into the market earlier.

face it, the only risk NOW in this environment is to keep waiting- eventually you'll be priced out of the market forever.

btw- the home two doors down from me (in charlotte,NC) just sold for 390k, up from 250k just two years ago. my home is almost identical and we paid 170k 4 years ago.

it's call PROGRESS.

 
At 7:18 AM, Blogger deb said...

The fact that a homes are not as liquid as stocks is not an advantage. I saw many homes in the early 90's that would list at price slightly too high, stay on the market for months, finally reduce to a price where it sells. Then, you start the escrow process. Many, many more homes fall out of escrow for all kinds of reasons in a really bad market. Then the seller has to start over again, and the price probably has to be lowered again. Sellers could chase the market down for a year or more.

The Zuckerman article is the most inane puff piece I've seen in months. I thought most journalists were over that attitude.

 
At 9:02 AM, Anonymous Anonymous said...

Ben,

Here is a great article from San Diego for for you:

http://www.signonsandiego.com/uniontrib/20050508/news_1h08days.html

 
At 9:24 AM, Anonymous Anonymous said...

http://www.signonsandiego.com/uniontrib/20050508/news_1h08days.html

 
At 9:48 AM, Blogger John Law said...

(face it, the only risk NOW in this environment is to keep waiting- eventually you'll be priced out of the market forever.)

so if I don't buy now, I'll never be able to buy? EVER? so where will the next generations live? who is going to buy your house if you ever sell it? I think you're saying your home is worthless!

 
At 10:42 AM, Blogger Ben Jones said...

John,
That is actually the logical conclusion of the RE-never-goes-down thinking. If you take that reasoning out far enough, a permanent underclass will be formed. Myself, I wish for everyone to be able to buy a safe, affordable home at a descent rate of interest.

 
At 11:48 AM, Anonymous Anonymous said...

Ben, for 99.9999% of recorded history, humans existed in a feudal state with a tiny minority lording over the masses.

Who's to say we won't return to that, with *literally* all people born in the future unable to afford to do anything but rent?

Stranger things have happened.

 
At 11:51 AM, Anonymous Anonymous said...

tent cities/hondas

 
At 2:04 PM, Anonymous Anonymous said...

11:48 anon:

That's where we're headed, except that the people who have bought into this aren't going to be the new overclass, just the biggest dupes of the REAL overclass.

The rich love bargains, and governments love power. To achieve these things, the government lowers interest rates by pumping a ton of fiat money into the economy. Prices are bid up to insane levels, and the dupes take on a lifetime of debt, thinking they're getting rich.

When the government and their rich buddies think that the sheep are fat enough for slaughter, they hike interest rates (i.e. drain the fake money back out) and the Ponzi scheme implodes. Presto! The financial devastation leaves a sea of cheap investments for the rich to swoop in and gobble up for pennies on the dollar. Corporations get a new debtor class whose wages they can garnish in perpetuity. The government gets to increase its power over every aspect of peoples' lives by solemnly vowing to "never let this happen again". Rinse and repeat.

It's not that the rich and the government are ignorant of bubble economics. To the contrary, they understand it all too well. They don't stay on top by being stupid.

 
At 3:45 PM, Anonymous Anonymous said...

if you really think the "rich and powerful" are planning the destruction of america like that, you need to get in touch with Art Bell or some other conspiracy nuts.

Face facts. Housing has been, and always will be, a winning financial investment. In the entire history of the united states real estate has never declined on a national basis. NEVER.

200 years of past performance is good enough for me- I'm not insane enough to think that society is going to radically change and start doing something totally different than it did in the past.

In other words, real estate will continue to go up, and you chicken littles on this website will continue to get poorer and poorer relative to homeowners. Enjoy living in your car.. cuz that's about the only place you morons will be able to afford in 5 years.

 
At 5:24 PM, Anonymous Anonymous said...

"In the entire history of the united states real estate has never declined on a national basis. NEVER."

Except the early 1990s...and the 1930s...and the 1870s...

http://www.aresnet.org/ARES/pdfs/mtg97/longcycl.pdf

Way too easy.

 
At 8:49 PM, Anonymous ChrisH said...

2:04 Anon,

If we're all priced out and living in our cars in 5 years, who are you going to sell your house to?

 
At 9:51 PM, Anonymous will said...

From Zuckerman:
"Furthermore, the good job and income growth we now have should support the current market."

This is irresponsible pablum.
There is very little income growth right now.

"While hourly wages grew at a similar pace as in recent months—up 2.7% over the past year—weekly earnings got a 0.2 tenths of an hour bump up to 33.9 hours per week, the highest level of weekly hours since September 2002. This pushed weekly earnings up 3.3% over the past year, slightly above the latest inflation readings, which have been around 3% per year. These represent the first real weekly earnings gains for production, non-managerial workers in recent months."

http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict_20050506

 
At 6:23 AM, Anonymous Anonymous said...

6:59 Anon,

you crack me up... you may be a troll or a realtor or just whatever... but making 250K in 2 years in not normal... just for some perspective check this out...

my parents house:
Purchased in 1964
Purchased for: $25,000
Sold for: $425,000
Gross profit: $400,000
Timeline: 40 years

my house:
Purchased in 2002
Purchase for: $250,000
Sold for: $550,000
Gross profit: $300,000
Timeline: 2 years

Does this really make sense? 40 years vs. 2 years...

 
At 9:10 AM, Blogger goleta said...

If you adjust $25,000 with 8% annual inflation, it'd be $543,000 now. If you adjust it with 7% inflation, it'd be $374,360


So your parents actually didn't make much money or they might even lose money on the house. 40 years of RE investment barely beat the inflation.



octave:1> 25000* 1.08^40
ans = 5.4311e+05
octave:2> 25000* 1.07^40
ans = 3.7436e+05
octave:3>

 
At 10:52 AM, Blogger Thomas said...

Re: "there has never been a national real estate bust" --

Even if that were true (I'm not convinced), two questions:

1. Has there ever been a true national real estate bubble, as we're starting to see now, with even the backwater underpriced areas seeing their prices jacked up by investors flush with cash from flipping properties in the bubble markets? (I understand Salt Lake City, formerly the most undervalued area in the country with annual housing price increases in the 2% range, just saw prices shoot up 12% last year -- damned California investors!)

2. What does it take to keep a housing collapse from being "national"? If prices decline everywhere but Duluth, Minnesota, does that technically prevent the collapse from being "national"? If prices collapse everywhere significant (i.e. the coastal bubble markets where a huge chunk of the population lives), who the hell cares about Duluth?

 

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