Thursday, May 19, 2005

Too Much Speculation In Dallas?

Ms. DiMartino at Dallas News explains that speculation is booming in Dallas. "To say that local prices won't fall simply because they've risen more elsewhere is equally naïve. In fact, a lack of appreciation in a market like Dallas can be downright toxic, especially if new supply continues to flood the market."

"Too often, local readers e-mail that they can't get their 1- or 2-year-old home appraised for what they paid. All the while, new developments keep popping up as fast and as far as the eye can see. Teardowns are occurring at a pace last seen just before the late 1980s crash."

"'There is an enormous demand for investment real estate,' Joe Milkes said. 'As a result, prices are getting pushed up.' It's becoming more common to see a single buyer gobble up a dozen homes at a time at new developments. Add a bit of speculation to the supply and demand and you get a partial explanation for why local foreclosures remain so much higher than the rest of the country, and why it's dangerous to assume that there's no downside risk in local home prices."

9 Comments:

At 8:45 AM, Anonymous Anonymous said...

This is an awesome and invaluable blog! Here's an update on the Orlando area:

http://www.orlandosentinel.com/news/custom/growth/orl-asechomes19051905may19,0,7220616.story?coll=orl-home-promo

"The Orlando Regional Realtor Association reported that April sales in the four-county metro area -- Orange, Seminole, Osceola and Lake counties -- fell 4.6 percent from the same month a year ago. The biggest decline was in Lake, where sales were off 11.4 percent. Sales in Orange dropped 2.2 percent; in Seminole, they fell 6.6 percent; and in Osceola, they dropped 1.6 percent."

 
At 8:48 AM, Anonymous Anonymous said...

Ben, what do you think of this take?:

http://money.cnn.com/2005/05/19/real_estate/re2005_schmubble_0506/

The self-proclaimed "Gravedancer" (ahem) says "I'm 63. I've been in the business 40 years. I've heard about all kinds of "housing bubbles," and I ain't seen one yet."

 
At 8:56 AM, Anonymous nostradamus said...

(It's becoming more common to see a single buyer gobble up a dozen homes at a time at new developments.)

Maybe i'm crazy, but I can't imagine a riskier "investment" than to buy 12 tract homes in Dallas in hopes of flipping them. I can almost understand speculating in a high-growth, fast-appreciating market. But Dallas is oversupplied and not appreciating. Maybe these speculators figure they're onto something and that Dallas is the next market to "pop". Fat chance.

Just read on another site about Marshall Reddick Seminars, a SoCal RE "guru" who (for a big fee) will find you "investment" properties to flip. He claims he has "contacts" with inside info that will get you in on the ground floor of great opportunities all over USA.

One student wrote that he was flown to Idaho (along with other students) to inspect a new housing development. The homes weren't scheduled to be completed until Sept. By the time the trip was over, all 40 homes had been snapped up by SoCal speculators.

These "investors" planned to rent out the homes until they could flip them. Turns out that the rent in that part of Idaho won't come close to covering the expenses of ownership. So neg cash flow all around. Yet the students aren't worried because Reddick says they will appreciate bigtime.

It will be interesting come Sept when all 40 homes in this new Idaho neighborhood all go up for rent or sale simultaneously---all owned by hopeful SoCal flippers.

UFB.

Sounds like Reddick is the guy making out here. My guess is that he gets a finder's fee for every purchase his planeload of speculators make. Kind of of like a RE sheepdog---corraling the sheep for the developers.

 
At 9:24 AM, Blogger deb said...

8:48 Anon,

"Over the next 10 years we're going to add a million new households" according to Sam Zell. This is his justification for the continuing demand. Yet according to NAR stats, new home starts for March were at a 1.837 MILLION ANNUAL RATE. At that rate we would add over 18 million units in a decade.

What am I missing?

 
At 9:30 AM, Anonymous Anonymous said...

Re: Sam Zell - Gravedancer with selective memory

Guess he can't remember this CNN Street Sweep conversation he had in April 2000:

"SAM ZELL, CHAIRMAN, EQUITY OFFICE PROPERTIES TRUST: Thank you, Jan.

HOPKINS: So what's going on with technology stocks?

ZELL: Well, I don't know what's going on with technology stocks, but I think that there is a -- a similarity to what happened to the real estate industry in the '80s. During the '80s, we overallocated capital to the real estate industry, and we distorted the economy, with the result being that every building built from 1985 to 1989 ended up being worth less when it was finished than what it cost.

And I think that in the same manner, the current tech environment represents a frenzy and a bubble very similar to the overallocation and distortions of the '80s in real estate, that we're seeing in the techs arena here in the early part of the 21st century."

 
At 10:09 AM, Anonymous Anonymous said...

9:30, great catch!!

 
At 10:16 AM, Anonymous Anonymous said...

Thank you. This took me all of 2 minutes to find. I wish CNN had done the same before they published this.

 
At 11:08 AM, Anonymous Anonymous said...

About speculating in Dallas:

I'm not privy to the area, but an overall point I'd like to make. Just as some cities are experiencing totally different appreciation rates than others, so are some neighborhoods within the same city. It's all about how you define your micro-economy comparison groups.

 
At 1:19 PM, Anonymous John Vosilla said...

There may be a bubble in Dallas/Ft Worth due to overbuilding but certainly not in the prices.



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MLS ID#: 10283347
$114,900
3 Bed, 2.5 Bath
2,318 Sq. Ft.
0.14 Acres

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2.5 total bath(s)
2 total full bath(s)
1 total half bath(s)
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Fireplace(s)
Fireplace features: Wood burning
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Exterior construction: Brick
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