Posted on 08/24/2005 7:00:47 AM PDT by thinking4me
Short View: House party finally over?
By Stephen Schurr Tue Aug 23, 3:25 PM ET
Is the US housing market partying like it's 1989, the peak of the previous housing boom? No, say mortgage industry officials. Those who see a housing bubble agree: this time, they say, it's much worse.
"Prices have been increasing more quickly than is customary," writes the Mortgage Bankers Association in the sanguinary tone that runs through the white paper it published on Tuesday. The report addresses risk factors in the housing market, but offers offsetting "risk mitigants", including a healthy economy with strong consumer spending; a well-capitalised banking system; and an alignment of incentives among mortgage borrowers, lenders and investors.
While the housing market may cool - and US existing home sales for July did ease 2.6 per cent - there is no bubble, the MBA concludes.
However, those who think we are in a bubble take exception. "The MBA putting out a bullish report on the housing market is like the Nasdaq putting out a bullish report on equities in 1999," says David Rosenberg, Merrill Lynch's chief US economist and a leading voice among the housing-bubble Cassandras.
Mr Rosenberg finds some similarities to 1989, chief among them that affordability for first-time buyers has fallen to levels last seen in the third quarter of that year. In the following 12 months - which was also a period of rising interest rates and surging energy prices - new home sales fell 20 per cent.
The differences are more troubling. Interest rates were at 10 per cent back in 1989 and a declining rate environment helped restore affordability to the market - unlike today. To restore affordability, one of two things must happen: salaries must go through the roof to catch up with rising prices, or house prices must come down.
However, there is a more frightening distinction. The home itself has become a liquid asset that can be tapped to boost consumer spending. As the Center for Economic and Policy Research notes, the housing market has created more than $5,000bn in "bubble wealth", equivalent to $70,000 for the average family of four.
In other words, the risks in the housing market this time are not about consumer confidence, but consumer spending.
Dito, I second that.
"Every mania in financial history has been liquidity driven. You can go back to the South Sea Bubble or tulips in Holland. As long as the money is coming in, everything is fine. " - Raymond DeVoe, Dec. 11, 1995
Now that the savings rate in america is about zero and that the US dollars is now worth 5 cents only... WHAT IS IT GOING TO HAPPEN NEXT? US housing bubble: the deep end... more
I think the problem is that many people don't have any DISPOSABLE income!
I think there is a bubble, but it will be most problematic in historically overpriced areas like New England coastal areas and the Pacific Coast. Midwestern locales will probably see more of a "soft landing" or even just a stagnation as opposed to an actual drop in real estate.
The idea that the bubble headed masses may consume or otherwise misuse the wealth generated by their private property is indeed frightening. More government seizures seem to be warranted.
I know a couple who decided to invest in RE here in Orlando. They camped out on the sidewalk on the night before the developer opened the office for sales. When they got in, the developer told them that if they wanted to buy the house, they'd have to buy a bunch of extras that this couple did not want. The developer told them that if they didn't agree to the extras, they'd sell it to the next guy in line.
They ended up buying the extras. They told me that the houses started at $450,000, and they bought two of them--one low end house and one high end house. They financed it thru interest only loans.
Personally, I think that is crazy. They are planning to rent the houses out until they appreciate. I question whether either of those things is going to happen. They are in a high-end market that doesn't have that many buyers, not to mention renters.
The government itself considers interest on savings "unearned income". I don't know about anybody else, but I earn every penny I make on interest savings. It ain't easy.
The fact is, the definition of wealth is completely driven by demand. Oil constituted no wealth prior to the internal combustion engine; whales constitute almost no wealth since. If people see their houses as sources of wealth, then they are. The "goldbug" view of sources of intrinsic wealth would have made you poor over the last 30 years.
I agree to a point---but "high end" is certainly not $400,000 anymore. We just built a new 1-story (finished basement) in a good area, and it will come in at nearly $400,000. In our region of south Dayton, $1.2 m. is "lower-high-end." (The same house, of course, in CA would be a $3m house).
I live in Akron and at least to me, a $400,000 house is quite adequate!!!
Personally, I agree, but we just walked through "homarama," and those are $1.2 million homes---a little steep for me, but I could see myself in a house with 23' ceilings and an in-home "movie room" complete with "sensurround" chairs :)
In a regular market ,yes, demand drives the value of a product. However these people are borrowing money to use as a vehicle of investment not spending their own money. It has never been a good idea to take out a loan to invest - in the stock market, etc. After the stock market crashed people just turned to real estate as the next way to build wealth. They view it as an investment only - not an asset because the bank really is the owner.
The average house here in Orlando is in the low $200s. Mind you, the $450,000 homes we're talking about are not particularly extravagent. Three or four bedrooms, maybe 2500 square feet. Convenient location, but no yard.
Even if you're only paying 6% interest, that's gotta add up to about $27,000 a year, so you're looking for a renter who will pay more than that. You're basically looking for a renter who will pay $3,000 a month or more just to break even.
And that's for the cheap house. You need to find someone who will pay even more for the expensive one. So you've gotta find two renters in that income category. Most people who are in that income category don't want to rent, though.
LOL...I'd love a 3400 square foot 1.5 story on 3 acres...with a 30 X 20 greenhouse (I'm a gardener as well as a Freeper...)...apple and peach trees...a swimming pool...but since I didn't have a million bucks last time I checked I'll settle for my 1100 square foot Cape Cod on 3/4 acre.
Tue Aug 23, 2005 12:32 PM ET
CHICAGO, Aug 23 (Reuters) - The median price of existing homes sold in Florida in July rose 33 percent even as sales slowed 8 percent, the Florida Association of Realtors said on Tuesday.
The statewide media price rose to $252,300 from $190,300 last year, according to the association. In 2000, the median price was $119,600. Nationally, the median sales price for existing single-family homes was $218,600 in June, up 14.5 percent from a year ago.
A total of 21,669 existing single-family homes changed hands in Florida last month, compared with 23,646 last year.
David Scott, professor of finance at the University of Central Florida, said the slowing sales will ease pressure on the rising sales prices.
Other factors that lead him to believe the rise in Florida prices will begin a "gentle leveling off" include higher inflation rates, rising gasoline prices, increasing short-term interest rates and wage rates that aren't rising as fast as inflation.
Among the state's larger metropolitan areas, Jacksonville saw sales last month rise 7 percent, while the median price rose 20 percent, according to the association. Tampa-St. Petersburg-Clearwater saw sales rise 1 percent and the median price surge 30 percent.
Sales in Fort Myers-Cape Coral last month were flat, but the median price rose 44 percent, the association said.
Metro areas posting sales declines last month included Fort Lauderdale and Sarasota-Bradenton (both down 28 percent), Orlando (off 19 percent), West Palm Beach-Boca Raton (down 16 percent), Daytona Beach (off 6 percent) and Miami (down 2 percent), the association said. Nevertheless, each of those regions saw the media prices of homes sold rise, with increases ranging from 26 percent in West Palm Beach-Boca Raton to 45 percent in Orlando.
Question: do you have an idea of how much it costs to RUN a $1.2 m. house---I'm talking, groundskeepers, cable, Orkin, Chemlawn, phone, and housekeeping?
A LOT...
Housing prices in Manatee County are through the roof.
The latest Multiple List Service search shows only seven homes listed under $200,000. The hot housing market has its pros and cons. But businesses said they're having a hard time keeping their cool.
"The word I've been using is crisis," Manatee County Chamber of Commerce President Bob Bartz said.
"They're just not able to find housing," hospital spokesperson Stephanie Glasser said. "People who work in the city can't afford to live in the city," Palmetto Mayor Larry Bustle said.
The high prices mean prospective employees are no longer simply sold on the sunshine.
"We've made offers, but they were turned down because of of the housing," Glasser said.
"We've had one manufacturer say they were expanding to North Carolina because of the problem," Bartz said.
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http://www.baynews9.com/content/9/2005/8/23/114644.html
http://www.smartmoney.com/theeconomy/index.cfm?story=20050823
---snip---
Economists and oil analysts say the booming housing market will also drive demand for home heating oil. "You've got bigger homes — and more homes," says John Felmy, chief economist at the American Petroleum Institute, a trade group in Washington, D.C. "Even with people who are purchasing second homes, they are going to have to heat them to some degree."
Marshall Steeves, an energy analyst at Refco Group, a New York brokerage firm, says the housing market has created "a lot more square footage out there to be heated." Although newer houses tend to have more efficient heating systems, he says, demand for home heating oil "has risen as a result of the aggrandizement.
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Potential perfect stormis brewing this winter....
FYI.
A friend of mine (sort of) likes to boast that he's worth 150,000 because his house is worth close to that. He soesn't seem to get the face that if he sold it all he has is the money but now where to live. I think he's crazy. I'm also pretty sure his house wouldn't bring in 100K if he sold it.
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