12 CDs for the Price of 1!

Wednesday, December 07, 2005

"Whoosh!" That's the Sound of a Bubble Bursting

It is beginning to become impossible to find an economist that doesn't believe that the housing boom is over. Hell, even Suze Orman held a television special, "Real Estate, Part II" to announce to any and all callers that the boom is definitely all over. A parade of economist have marched through the pages of Bloomberg to say the same thing; it's over. About the only people left to disagree are realtors, who know that once a boom ends it takes a lot of time and realignment to bring it back again.

The Associated Press gets to the bottom of this trade group's tactics. "When real estate agents try to sell a home, they often zero in on the positives. It's the same tactic that the National Association of Realtors, appears to be using right now: It asserts in a new report that a healthy housing market is here to stay and prices aren't likely to decline."

"'It's sort of similar to if the Nasdaq had put out a bullish report on tech stocks in early 2000, don't you think?" Merrill Lynch chief North American economist David Rosenberg said in a note to clients.

Miami based newspapers have ceased to be a source of information as they are increasingly dependent upon real estate advertising revenue. An advertising specialist at a major daily told Miamista that in his interaction with real estate professionals it was openly acknowledged that more advertising is needed because the market is drying up and their is a lot of supply. (Note: Even Miamista realizes that articles like this will not help him attract real estate advertising dollars to the expanded Miamista blog site.)

An entry on personal finance site "Motley Fool" had an interesting take on the prevalent spin by real estate professionals on the housing market in general. "Just a few days ago, I noted how the mouthpieces for the national housing bubble had begun to change their tunes. Suddenly, the balloons that didn't exist were beginning to deflate. But not to worry, we were told it'll be a soft landing. Whew. As long as it's not a bubble."

In reality the figures for many parts of the nation, including the hottest markets for the past four years, California, already reflect a significant decline. The same is true for most coastal markets. The feds rate hikes have finally caught up with available capital causing a spike in interest rates. Here in South Florida it seems that worries about hurricanes, quality of construction, insurance price woes and the exodus of foreign buyers has compounded the nation wide problems.

This October Broward County had 561 closings, a whooping 44 percent fewer than in October 2004, according to data released Monday by the Florida Association of Realtors. The decline was 36 percent in Palm Beach County. Sales fell by an even more astounding 48 percent in Miami-Dade. This after Florida Association of Realtors swore that October was shaping into a banner month despite storms. The regional MLS, which covers St. Lucie to Miami-Dade counties, had 30,000 listings this summer. The MLS now has more than 50,000 listings. Gail Bass, an agent in Palm Beach County, said homes sold in October went under contract in August and September.

In another sign the housing prices are being affected by slow sales, October home prices in Miami-Dade and Broward were down compared to September. The Broward median price fell from $379,400 to $368,900. Miami-Dade went from $371,200 down to $366,300. The average number of days houses stayed on the market in Dade made an upturn from 48 days in July to 54 in October. And the inventory of homes on the market has grown by 70 percent from April.

Jack McCabe, a noted investment manager based in Deerfield Beach has started what is descriptively known as a vulture fund. So many want in he has doubled the minimum stake from $250,000 to $500,000 in recent weeks. The fund will target blocks of new condo units owned by investors who anxious to sell. McCabe isn't alone. Money managers believe the market is falling and investment funds are cropping up, waiting patiently to pick up the pieces.

There is now even a comodities market for real estate. The market is called "Hedgelets" and it is pegged on the Realtors Association database. It works by buying and selling purchasing options. In six cities (Chicago Los Angeles, Miami, New York, San Diego, San Francisco) that are thought to be set for some huge movement of price and capital (Las Vegas is slated to be added) you can short sell like you would if you thought pork bellies or gold was going down. Previously the only option to make money was if housing was going up. Guess where the short money is lining up? Yep, Miami.

“It's clearly a problem waiting to happen when you see these unsophisticated people get into this very risky business,” says McCabe, who has encountered everyone from taxi drivers to dentists jumping into the condo investment arena.

"Lenders are looking toward more worst-case scenarios,' says Dwight Dunton, a real-estate developer based in Arlington, Va. Some banks have stopped lending entirely in particular areas. "We are definitely slowing down and charging a lot more for it,' says Brian Harris, at UBS AG. "We are out of Las Vegas. We are very much out of Miami, and we are hesitant in New York City."

The Sun Sentinel did an interview with south Florida's 'condo king', Jorge Perez. Hereis an excerpt from the Q and A.
"Q. So, I take it you don't see a bubble burst in real estate prices that would significantly reduce housing costs."
"A. No, I didn't say that. We weren't talking about the bubble. I think a lot of the demand we have for housing now is investment demand, speculative demand, as opposed to user demand. A lot of the housing price increases are being fueled by that speculative and investment demand. There will be a time when the dominos tumble. I've been saying for the last two to three years, that as demand abates, we're going to see a correction in the market. What that correction is nobody knows. It could be from a tumbling of the market to a minor adjustment, just a breather. I think there is too much supply at levels that are economically unattainable in the market. There is no way that with the job growth, the household formation growth and the number of people coming into Florida we can support the supply that is occurring...
Now, even if there is a bust in the market, does that bust make housing affordability all of a sudden less pressing? There would have to be such an immense readjustment in pricing, which I don't see, so the affordability issue will continue to be there, even though there is a burst in the bubble."

Miami Commissioner Johnny Winton, active in property management and sales, points to numerous folks from Middle America who may still readily relocate to Miami after unloading there homes up north. "This is the first time since the first wave of Cuban immigration in 1959 and 1960 that Americans other than New Yorkers have been moving into Miami in greater numbers than have been moving out. "They're from mainstream America," he said. "That segment has found Miami." The problem is that these figures fly in the face of the city's own statistics for the past four years.

Should prices deflate precipitously as many predict there may be a silver lining. "Build 'em," Mr. Winton's advised. "If they fail, we're going to end up with affordable housing."

Links to this post:

Create a Link

<< Home