South Florida--Ground Zero of the Housing Bust:
Palm Beach County has an amazing forty-nine months worth of housing inventory for sale.
In August, WCI Communities, a luxury builder with much of its business in South Florida, reported that net condo sales were down 88% from a year earlier. (I think there's been an even worse report since then, but I can't find a link.)
Wow!
But perhaps not too surprising for South Florida, perhaps the most speculator-dominated market in the country, and the birthplace of "condoflip.com" in the Summer of 2005, which I presciently called a "sign of the housing apocalypse."
Makes sense. Home values have skyrocketed in the near past in several places, but rents didn't match. In the long run, house prices must go down, rents up, or both.
NYC probably won't have as much of a correction. The FL and NV corrections (and VA) are largely because those states let people build new houses. All the new construction is helping push down the prices. NYC and SF make it much harder to build, so the prices are less likely to go down. (That explains why rents are jumping so fast in SF too.)
But then I look at what's happening around me in my own neighborhood (which I guess I would describe a sort of a second tier neighborhood in San Francisco) where a 2 BR condo sold a few weeks ago for $1.1M and closed escrow in 14 days (asking price was $999K). A 3br house sold for $1.85M last week. (That house listed for $1.6M)
So, yes the overall numbers tell of a slow down - but it seems that when you have small scale bidding wars going on, that the numbers might not tell the whole picture.
Sorry, by SF I meant San Francisco, not South Florida. South Florida rents are, I believe MUCH cheaper. Mid Florida rents are about 1/3 that amount.
I did a check check on Craiglist and it showed that the following availability for 2br apts:
392 -<$1500
393 -$1500-2500
310 -$2500-3500
121 -$3500-4500
208 -$4500-5500
63 -$5500-6500
All unscientific, of course, but it seems that there are still plenty of apts avail for under $3K a month.
Or that 'the ten percent who don't get the message' are still with us.
I am astounded that you could have foreseen such an eventuality! I, like everybody else in America, believed that prices would go up exponentially, forever.
It's worth realizing that even smart people who knew that the dot-com boom was destined to become a bust were in the stock market. As long as you weren't the one left standing when the music stopped, there was plenty of dough to be made.
I believe your friend is mistaken. As a homeowner in Tampa since 2000, the law has been unchanged. Property taxes are calculated based on annual valuations. However, if you are a resident you may claim a homestead exemption that, in effect, limits your increases to a maximum of 3% a year. As non-residents cannot apply for this, their property taxes are adjusted to full market annually.
This is good news for owner-occupied homes and not-so-good news for renters.
I can say that anyone moving into my building today, would kill for the rent that I am currently paying, and my lease began in October of 2005. I would guess that in that time frame the delta in rental rates is probably close to 20%.
I would expect the demand for rentals and the demand for purchases to be inversely related in the short term such that purchase price stagnation / decline would coincide with a tighter rental market until we approach some equilibrium based on the fundamental asset value.
This tends to drive up Rent.
Will you be so good as to tell us when the residential real estate market has hit bottom and is about to start back up, in order that your readers may buy in at that time?
If one believes a stock is going to decline in value, they can "short" the stock and if they were right, then they will make money on their bet. Because there are not the same opportunities to "short" residential real estate, it is considerably more difficult to bet that residential real estate values will fall and profit if right. The best most of us can do in such circumstances is to get out of the way and avoid losses.
Even if you're right that prices are stable, they are still down, because sellers are having to pay closing costs and do repairs after inspections, which they didn't do last year. Also. what do you mean by 2005 prices? 1/05 prices were 10-15% less than 8/05 prices. My own sense is that prices in Arlington are now somewhere between 9/04 and 2/05 prices, depending on neighborhood.
Which experts? All experts? Citations please.
Of course, I still get all my investment advice from law school professors.
Here's the general idea:
1. Some asset price rises precipitously
2. Actual experts notice a bubble.
3. Ridiculous media reports that of a "new economy" resulting in asset prices rising forever!
4. David Berstein notices a bubble.
5. Profit!
6. Profit!
7. Profit!
8. ???
9. Bubble deflates.
10. David Bernstein pats himself on the back.
Did I miss anything?
This just yesterday:
Sales of homes in Virginia slid nearly 27 percent in September, marking the largest percentage drop this year -- and the 13th consecutive month of slower sales.
The median price, with half the houses selling for more and half for less, fell 9 percent to $199,975, according to figures released yesterday by the Virginia Association of Realtors.
Sales and prices for new and existing homes are compared with those from September 2005.
The Richmond area took a hit as well, with sales of all homes down 15 percent last month compared with September 2005.
Nationally, sales of existing homes dropped for the sixth consecutive month. The decline was 14.2 percent in September from the same month a year ago, according to figures released yesterday by the National Association of Realtors.
The national median price was $220,000, down 2.2 percent from $225,000 a year ago.
For the year, Virginia home sales are down nearly 19 percent. Richmond results are 3 percent lower.
Slower sales this year come after five record-breaking years in the housing market.
"We continue to remind consumers that comparing this year's numbers to last year's extraordinary market isn't a fair comparison," said Kit Hale, president of the Virginia Association of Realtors.
Still, "there is no doubt that consumers are more cautious and taking their time in making a purchase decision," Hale said. "We're also hearing that sellers are waiting until their homes are sold before purchasing another in order to avoid placing a contingent contract."
Only two of 24 metropolitan areas in Virginia reported increases in sales in September compared with the same month a year ago: Williamsburg, up 10.8 percent; and South Central, up 7.5 percent.
South Central is made up of Amelia, Brunswick, Buckingham, Charlotte, Cumberland, Lunenburg, Nottoway, Prince Edward and a portion of Mecklenburg counties.
Wes Atiyeh, president of the Richmond Association of Realtors, said he was surprised that sales here fell as much as they did.
"They may be down 15 percent, but that doesn't mean they've tanked," Atiyeh said. "We're still in a good market."
More houses are on the market, he said. "But things are still selling."
The average days a Richmond-area home stayed on the market was 48 last month, up from 35 in September 2005.
The average price here was $264,147 in September, up from $240,701 a year ago. The median price, which is considered a better indicator, is unavailable for the Richmond area.
The market here is stable compared with Northern Virginia, where sales fell 35 percent in September, Atiyeh said. "Northern Virginia increased so fast that the only way it can go is down."
There the median price fell to $445,000 in September from $480,00 a year ago.
I was merely pointing out that your continued harping on the housing bubble is leading you to be the object of derision in social circles in which you presumably would not want that to occur (i.e. the lunches at Tony Cheng's).
I strongly disagree with your reference to my tone as bitter, but that is of course your perogative. My objection is to your repetitive posts which lower the discourse.
In the end, neither you nor I are real estate experts. I limit my claims to things I factually observe, while you extent yours to speculation about the effect the 'mix' of housing supply is having on price trends, as well as extrapolations to the housing prices in all of Arlington. I leave it to others to decide which is more 'pathetic.'
From what I see, Bernstein didn't even mention Arlington, just Northern Virginia in general, until you brought it up. How do you interpret that as him extrapolating observations to "all of Arlington"? Even the most hardened real estate bear generally doesn't think prices will plunge in every zip code during a bust--but that fact doesn't disprove the notion of a bubble, any more than the success of a few assorted tech stocks would disprove the notion of a stock bubble in the last decade.
And the reason I focus so much a few zip codes is that Professor Bernstein has made no secret of wanting to buy a house in 22201, 22203 or 22207 but is waiting for prices to fall. So it is appropriate to look at how SFH prices are actually doing in those locations.
Professor Bernstein, I appreciate your walking back the vitrol you expressed above.
Nick
Ah...that makes more sense. However, since the housing market prices were rising so fast wouldn't that force many non-residents to sell their properties because of escalating taxes? And that would contribute to the large pool of existing homes for sale? Also, in the short term this would raise revenue, but as many out of towners sell their stakes - this would cause tax revenue to flatten. And with a large market correction rela estate tax revenues are going to plummet.
Seems like bad law contributing to a deeper valley.
I'm not certain what all the logic behind this tax law is but the 3% value is pretty telling--it's the average long term inflation rate. Essentially, this law appears to protect homeowners from rapid changes in housing values. Florida attracts retirees who live on fixed incomes; this law keeps housing costs stable for such persons. It also keeps rising values from forcing poorer homeowners out of gentrified areas. Both of these have some public policy value. As a majority of residences are resident-occupied, this tends to level out tax revenues over a window of time (if the average period of ownership is 5 years, that'd be the window.)
Homeowners who's taxes increase quickly because the resale value of their homes increase quickly will sell at a presumed profit to avoid the higher costs and relocate to an area where costs are lower. If the new area is in Florida, we have a net zero effect on the number of available homes in that area, though it might tend to skew the distribution to pricier homes. (This may also tend to drive some amount of rural redevelopment, highway congestion, etc. )
Part of the issue is how people with second (or more still) homes affect local economies. I have no data on what percentage of the total they represent though I imagine it to be relatively small. Without question they represent fewer people than resident renters.
Of more importance these days is the cost of homeowner's insurance, which has increased at an alarming rate. My monthly payment increased $200/mo in the last 2 years as a result. Insurance has increased in cost at a higher rate compared to the increase in the medium home price in Florida. It affects all residents, not just those in the coastal cities, primarily due to sinkholes and hurricanes.
Nope, and for the very good reason that while demand for stock in the "dot.bombs" could go to zero (the bubble could indeed burst) demand for housing will not go to zero (the bubble can only deflate down to true market levels).