Thursday, May 12, 2005

Stand Back Fed, The Developers Will Save Us

This CS Monitor story would have us believe that while the Fed and Washington, DC sit on their hands, it's the developers that will save us from a housing bust. "When it opens this fall, the owners of the 312 units will have a couple of pools to dip their toes in when they leave their mission-style abodes. But there is one thing they won't be able to do: sell their condos, that is, not until the developer has sold every one of the units."

"Limits on resales are just some of the ways that home-building communities, and bankers tightening standards, are trying to quell speculation in the housing market. By taking off some of the froth, they hope to keep one of the greatest real estate markets in the nation's history from becoming one of the biggest busts."

In light of today's news, this prediction looks silly. "This week, the National Association of Realtors forecast that existing home prices would rise 7.1 percent, compared with 11.7 percent last year."

The writer is all over the place, but leaves us with a quote that may mean more than the realtor knew. "'Some developers have gone to lotteries where they put your name in a hat to see who gets to purchase a home.' She recalls how she entered a client's name on such a list. 'It was eight months ago, and they were 188th on the list. They just called to see if we were still interested.'"


At 1:06 PM, Anonymous Anonymous said...

Four out of 10 Americans fear real-estate bubble
Respondents also say they're concerned about their credit, ability to pay debt.

The Orange County Register

Four out of 10 Americans think we're in a real-estate bubble that's likely to burst within three years, according to a poll released Thursday by Costa Mesa-based Experian and The Gallup Organization.

And for the second straight month, consumers appeared concerned about their credit ratings and their ability to pay their debts, survey authors said.

The monthly Experian-Gallup Personal Credit Index, launched in March, dropped from an initial "baseline" score of 100 to 82 in April, company officials said. May's survey shows only slight improvement, with a score of 86.

"We're starting to see some real concerns out there on the consumers' part about what is the prospect for the economy," said Ed Ojdana, group president of Experian Interactive.

Ojdana and Dennis Jacobe, Gallup's chief economist, said consumers likely are starting to feel squeezed by rising fuel prices and interest rates.

Most of the respondents were upbeat about the housing markets in their area: Seven out of 10 believe housing prices will continue rising, and six out of 10 don't see a real-estate bubble.

But Jacobe said it was significant that so many people think there is a housing-price bubble.

"I think most people who sort of know housing would be surprised that four out of 10 say there's a housing bubble in their market," he said. "In 2000, how many investors thought we had a bubble in the stock market?"

Interest rates aren't a major worry. Seventy-five percent of those polled expect mortgage rates to rise, but half of those respondents thought they wouldn't go up more than one percentage point.

That may be why one in five consumers planning to take out a home loan in the next six months will choose an adjustable-rate mortgage, the survey found. (registration required)

At 1:08 PM, Anonymous Anonymous said...,1299,DRMN_86_3764429,00.html

Campos: Oh, those real-estate bores
May 10, 2005

A wise man once observed that at a certain age men talk about sex and think about real estate. As housing prices rise all across the nation, that age seems to be falling.

Perhaps I'm merely getting old and cranky, but my tolerance for real estate bores is fading fast. You know these people: indeed, if you live inside one of the nation's many housing bubbles, it's difficult not to become one.


A conversation can be about the Yankees' pitching woes, or the best way to grill bratwurst, or whether Kantian deontology can be reconciled with Benthamite utilitarianism, but as soon as it's infiltrated by a real estate bore, it will rapidly degenerate into a discussion of some or all of the following topics:

How much houses in this neighborhood have appreciated. How much more (or less) they've appreciated across the road, or on the other side of town, or in Las Vegas where somebody's brother bought a five-bedroom place with a pool three years ago for $150,000 that is now worth at least a half-million.

And why 4,000 square feet feels cramped now that both kids are getting older. And why you should move from that place you've been in for five years, because did you realize that with today's rates you can afford so much more house? And how it makes sense to get an interest-only mortgage, because just imagine the equity you'll have in another five years, when you'll want to do this again.

And have you thought about the tax advantages of a second place? Etc.

The worst are the guys who, instead of satisfying their wives' lust for Corian countertops and Mexican tile, decide they're going to become the next Kirk Kerkorian, by investing in real estate.

The proliferation of these types marks a real estate bubble as surely as tons of rotting fish washing up on a beach signal a red tide. Their logic is always the same: It doesn't matter that their new investments produce no income, or actually generate negative cash flow, because when they cash out three years from now they'll have doubled their equity.

Why someone else is going to be eager to pay twice as much for an investment that has a negative return isn't a question that comes up, once real estate fever has taken hold.

Other sure signs of real estate madness are stories such as the one in the latest edition of Forbes' online magazine, bemoaning how little $1 million now buys in the nation's trendier neighborhoods. Tragically, it seems a million bucks now only gets you a two-bedroom condo in a not-so great section of Manhattan, or a rustic A-frame in the Hamptons, far from any beach or village.

Impoverished millionaires can console themselves with the thought that seven figures will still allow one to acquire a decent house in Shaker Heights, outside of (gulp) Cleveland, or in Las Vegas, where Kirk Kerkorian built an empire through canny real estate deals, and you can too.

Lurking behind all this are various disturbing statistics, such as that the median down payment of first-time homebuyers is now down to 3 percent, and that nearly half of all residential mortgages issued in California last year were in the form of interest-only loans (such loans transform peoples' houses into the equivalent of enormous credit cards equipped with Mexican tile and charming first-floor studies).

Of course sooner or later it will all come crashing down, as it always does. The good news is that, when the bubble bursts, the real estate bores can go back to describing the state of their golf games.

At 1:12 PM, Anonymous Anonymous said...

Former New York Mayor Rudy Giuliani to Meet with Real Estate Reporters from Around the Nation

Something to look forward to: "And economist Dr. John Tuccillo, who advises many of the largest real estate brokerage and home building firms will discuss "Hard Landing, Soft Landing, or No Landing, on
Sunday, June 5 at 10:15 AM."

At 1:13 PM, Anonymous Anonymous said...

When the Bubble Burst

At 1:51 PM, Anonymous Anonymous said...

folks, the end is near and indeed it WILL end in TEARS...a little patience.

At 2:03 PM, Anonymous Anonymous said...

Here's an example of a POS house that the Fall Church News Press is talking about.... "a builder's dream"

Falls Church City has some interesting condo construction. There is a new one going up called The Byron with units around the 600-700K+ mark. An earlier construction called the Broadway had condos that sold for <400k in 2003. Some idiot has one of these for sale at 729k. It's been on the market for some time. They were trying to rent it since last summer for $2500 with no takers. These units are actually high quality and very nice. Not the rental conversion type junk that dominates in this region.

At 3:13 PM, Anonymous Anonymous said...

I'm thinking more and more that we are going to get what no one wants, which is a long and drawn out stagnation of prices, the same thing we're seeing now in the stock market. Imagine if prices go nowhere in the bubble areas for the next 30 years and then, and only then, do they resume rising at 1% above the rate of inflation. No one would throw in the towel during this long stagnation, unless forced to by bankruptcy, but even there wouldn't be a big drop in prices because of all the wannabee vulture investorswho've been trained like Pavlov's dogs to "buy on the dips". Too many people salivating at the idea of swooping in and buying up property cheap when the bust comes suggests that is NOT what will happen. I can sense the readers of this blog are already getting tired of waiting for the big blow-up. Might be a much longer wait than you think guys and gals.

At 3:32 PM, Anonymous Anonymous said...

Don't worry. Unlike stocks, RE has large cost of carry: prop tax, fees, and of course, mortgage payment. You cannot just leave it in the account and wait it out.

So even slowing appreciation will have a profound effect on crowd psychology.

RE price stagnation can occur, but always only after a big drop that return it a lot more in line with rent.

At 4:15 PM, Blogger desi dude said...

I assume people who took ARM/IO for 3/5 years after extending themselves into buying home are not going to wait till their mortage payment raises after 3/5 years when the principle needs to be repaid or interest rate is adjusted.

They bought looking for appreciation in 2/3/5 years. Why would any one rent a home at 300 interest only payment. They would rather go back to their apt at 1200/1500.

At 4:15 PM, Blogger desi dude said...

I assume people who took ARM/IO for 3/5 years after extending themselves into buying home are not going to wait till their mortage payment raises after 3/5 years when the principle needs to be repaid or interest rate is adjusted.

They bought looking for appreciation in 2/3/5 years. Why would any one rent a home at 3000 pm interest only payment. They would rather go back to their apt at 1200/1500.

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

All they want is the absolute pricing power in the remaining units. They have no interest whatsoever in doing the right thing.

If things turn sour they will just cut price aggressively anyway. They have such a low cost basis that they won't care.

Remember that Pulte story in LV not so long ago?


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