Here's an interesting column I came across on-line. The author is a business journalist in the mid-west, I think.
The Real Estate Bubble Pops Here
Posted by Dana Blankenhorn
A post card came in the mail, from a Keller-Williams agent. (Is it just my imagination or have they taken over the market lately?) It was about the Gary house, down the street from me.
The asking price is $334,900.
I remember the Garys, from back in the day. Nice people. Salt of the earth. He was a deacon at the church. She loved him desperately. The mantle was already filled with pictures of grandchildren when I met them, in the early 1980s. I went there regularly for block meetings. They said we were crazy to pay $49,000 for our house.
Mr. Gary passed away in the late 1990s. (God rest his soul.) She finally moved out with some of those grandchildren, a few years later.
They had gotten an unbelievable offer.
The seller this time gave her that offer, which doubled property taxes all over the block. Now they?re looking for an unbelievable profit. They might get it.
It?s ironic that FNMA (Fannie Mae) and FHMC (Freddie Mac), which were created to make housing affordable, have in the last years done just the opposite. But food is energy, and too much obesity, I guess.
The problem is that Fannie and Freddie buy anything. As a result there?s no longer any risk in mortgage lending. The banker moves the paper to the government, which turns it into a security. Everyone takes a fee. All the incentives are one-way.
So you get 40 year mortgages, you get adjustable rate mortgages, you get interest-only mortgages, you get adjustable rate interest only mortgages. These were fine for investors, who could pay off called loans, but for ordinary people it leaves you one pink slip or one rate hike away from bankruptcy.
And you?ve gotta do it. The price of housing is tied to the price of money, and the availability of loans. With the spigots turned on high, a conservative buyer has as much chance of closing as a value investor chasing Google.
We?ve had bubbles before. Some are old enough to remember 1974, the last time Atlanta housing crashed. It stayed crashed for many years. But most aren?t old enough to remember that.
So the bubble gets bigger and bigger and bigger. Prices go only one way. It ends when everyone?s in the game, when there are no more buyers, or when the price of money shoots up, as it might with this $2.50/gallon gasoline.
Until then, $335,000 for a three bedroom, two bath in Kirkwood is just the price.
Replies
96
SoWal Insider
Here's an interesting column I came across on-line. The author is a business journalist in the mid-west, I think.Prices in Indianapolis actually fell last year. "Real Estate" is a very local issue.
The Real Estate Bubble Pops Here
Posted by Dana Blankenhorn
A post card came in the mail, from a Keller-Williams agent. (Is it just my imagination or have they taken over the market lately?) It was about the Gary house, down the street from me.
The asking price is $334,900.
I remember the Garys, from back in the day. Nice people. Salt of the earth. He was a deacon at the church. She loved him desperately. The mantle was already filled with pictures of grandchildren when I met them, in the early 1980s. I went there regularly for block meetings. They said we were crazy to pay $49,000 for our house.
Mr. Gary passed away in the late 1990s. (God rest his soul.) She finally moved out with some of those grandchildren, a few years later.
They had gotten an unbelievable offer.
The seller this time gave her that offer, which doubled property taxes all over the block. Now they?re looking for an unbelievable profit. They might get it.
It?s ironic that FNMA (Fannie Mae) and FHMC (Freddie Mac), which were created to make housing affordable, have in the last years done just the opposite. But food is energy, and too much obesity, I guess.
The problem is that Fannie and Freddie buy anything. As a result there?s no longer any risk in mortgage lending. The banker moves the paper to the government, which turns it into a security. Everyone takes a fee. All the incentives are one-way.
So you get 40 year mortgages, you get adjustable rate mortgages, you get interest-only mortgages, you get adjustable rate interest only mortgages. These were fine for investors, who could pay off called loans, but for ordinary people it leaves you one pink slip or one rate hike away from bankruptcy.
And you?ve gotta do it. The price of housing is tied to the price of money, and the availability of loans. With the spigots turned on high, a conservative buyer has as much chance of closing as a value investor chasing Google.
We?ve had bubbles before. Some are old enough to remember 1974, the last time Atlanta housing crashed. It stayed crashed for many years. But most aren?t old enough to remember that.
So the bubble gets bigger and bigger and bigger. Prices go only one way. It ends when everyone?s in the game, when there are no more buyers, or when the price of money shoots up, as it might with this $2.50/gallon gasoline.
Until then, $335,000 for a three bedroom, two bath in Kirkwood is just the price.
SoWal Expert
Speaking of Bubbles, while I am not blind to the recent trends, I can see reasons why Stock Brokers would have much to gain by pushing the Real Estate Bubble into the news. They have much to gain by getting people to reinvest in stocks. Americans pulled billions out of the stock market and parked their money in real estate. Stock Brokers want your money back in their hands.
I am suprised that a television channel has not been dedicated to Real Estate valuations and speculations. I bet the ads would be costly due to the watchers. Should I sell my house today, or hope for a run up tomorrow? Maybe I will buy another home or two if prices drop next week.
I can see it now.
I am suprised that a television channel has not been dedicated to Real Estate valuations and speculations. I bet the ads would be costly due to the watchers. Should I sell my house today, or hope for a run up tomorrow? Maybe I will buy another home or two if prices drop next week.
I can see it now.
Beach Lover
The vaunted REAL ESTATE BUBBLE has now been usurped by a gas bubble. They should have left well enough alone, because when this one pops.....................
Beach Lover
There are some very interesting articles in the Wall Street journal today regarding the bubble. And, oil prices, interest rate trends, etc. all point to a bubble bursting in overheated markets.
But, unlike stock market bubble bursts, the articles say it will be much more subtle and take time to see the effects of the decrease in prices.
It is clear that prices have fallen in areas of SoWal recently. Good examples are the 3 lots on Salt Box Lane in Watersound that apparently went under contract for under $700k after some sold last year for almost $900k. That equates to about a 20% decrease in market value. I have seen some other lots for sale where folks are listing for barely 5% more than they paid last summer. But, they aren't moving because similar lots close by are priced much lower (those aren't moving either) because the owners bought a couple of years ago and have much lower basis in the property.
But, unlike stock market bubble bursts, the articles say it will be much more subtle and take time to see the effects of the decrease in prices.
It is clear that prices have fallen in areas of SoWal recently. Good examples are the 3 lots on Salt Box Lane in Watersound that apparently went under contract for under $700k after some sold last year for almost $900k. That equates to about a 20% decrease in market value. I have seen some other lots for sale where folks are listing for barely 5% more than they paid last summer. But, they aren't moving because similar lots close by are priced much lower (those aren't moving either) because the owners bought a couple of years ago and have much lower basis in the property.
Beach Comber
Can you say.... :floor:
Beach Lover
I recently read a bubble article by an "expert". He said that prices were really out of whack in California because it would cost the same to buy 7 houses in Buffalo vs. 1 in Santa Barbara. Only 7??????????????????????? Sounds like a bubble in Buffalo to me. That's comparing oranges and snowballs.
I lived in Houston until the late 80's, and went thru a big housing downturn. People often owed more on their homes than they were worth. Many people just walked away from them. Foreclosures were rampant. But Houston was a one trick pony related to the bust in the oil market. I always liked Houston because it was home.
But I can't really imagine too many people really wanting to go there on vacation, to have a second home there, to retire there or to spend the winters there, such as they do in South Walton.
Most other areas that have had bubbles had them because of a downturn in the local economy. The individual deals out here in South Walton seem to be getting snapped up pretty quick, at a price still elevated from a year ago. If buyers are waiting for prices to fall to 2004 levels, they will probably be waiting for the rest of their lives.
Kinda like the deal I'm still waiting on in Naples. From 1997. That bayfront lot for which I wouldn't pay $300,000.00 is now probably worth $2,000,000.00.
Can you imagine what this area will be like in 5-10 years? More diverse, more crowded and certainly much, much more expensive than now. If you see a deal now, you better grab it.
I lived in Houston until the late 80's, and went thru a big housing downturn. People often owed more on their homes than they were worth. Many people just walked away from them. Foreclosures were rampant. But Houston was a one trick pony related to the bust in the oil market. I always liked Houston because it was home.
But I can't really imagine too many people really wanting to go there on vacation, to have a second home there, to retire there or to spend the winters there, such as they do in South Walton.
Most other areas that have had bubbles had them because of a downturn in the local economy. The individual deals out here in South Walton seem to be getting snapped up pretty quick, at a price still elevated from a year ago. If buyers are waiting for prices to fall to 2004 levels, they will probably be waiting for the rest of their lives.
Kinda like the deal I'm still waiting on in Naples. From 1997. That bayfront lot for which I wouldn't pay $300,000.00 is now probably worth $2,000,000.00.
Can you imagine what this area will be like in 5-10 years? More diverse, more crowded and certainly much, much more expensive than now. If you see a deal now, you better grab it.
SoWal Insider
Long term for SoWal is likely to be very good, those who have built and homesteaded have a rather unobtainable status. Nice club to be in now.
Meow
Long term for SoWal is likely to be very good, those who have built and homesteaded have a rather unobtainable status. Nice club to be in now.
Could this be the newest..."haves vs. have-nots"???? Is the Save Our Homes campaign closed to new buyers moving to FL? Will we see bumper stickers that say...HOMESTEADED replace SoWal.com as the latest must have
accessory? I say NEVER!...SoWal Rules...We're no Fools!!!
Beach Lover
I recently read a bubble article by an "expert". He said that prices were really out of whack in California because it would cost the same to buy 7 houses in Buffalo vs. 1 in Santa Barbara. Only 7??????????????????????? Sounds like a bubble in Buffalo to me. That's comparing oranges and snowballs.
I lived in Houston until the late 80's, and went thru a big housing downturn. People often owed more on their homes than they were worth. Many people just walked away from them. Foreclosures were rampant. But Houston was a one trick pony related to the bust in the oil market. I always liked Houston because it was home.
But I can't really imagine too many people really wanting to go there on vacation, to have a second home there, to retire there or to spend the winters there, such as they do in South Walton.
Most other areas that have had bubbles had them because of a downturn in the local economy. The individual deals out here in South Walton seem to be getting snapped up pretty quick, at a price still elevated from a year ago. If buyers are waiting for prices to fall to 2004 levels, they will probably be waiting for the rest of their lives.
Kinda like the deal I'm still waiting on in Naples. From 1997. That bayfront lot for which I wouldn't pay $300,000.00 is now probably worth $2,000,000.00.
Can you imagine what this area will be like in 5-10 years? More diverse, more crowded and certainly much, much more expensive than now. If you see a deal now, you better grab it.
Mack,
Not sure what deals you are talking about, because the only stuff I see selling along on the eastern end of 30A are at prices that are below the prices paid for very similar properties last year. In fact, several lots in watersound sold recently at prices 20% less that lots next door sold for in 2004. There are also numerous properties on the market in Seaside, Watercolor, Watersound and Rosemary that are for sale at prices close to or lower than last summer that are not moving. The inventory on the market is overwhelming and folks continue to drop prices with no takers. In Watersound, Watercolor, Seaside and Rosemary, the inventory continues to increase each week (ie:new houses appearing on the market exceed the sales each week). And, at Alys Beach, the agents are actually calling prospects to try to "drum up business". When was the last time any of the big developments had to contact people to drum up business. Not sure how long the slow down and trend of decreasing prices will last, but in the short term, you are dead wrong. The FACTS speak for themselves.
Edited
Admin
Mack,
And, at Alys Beach, the agents are actually calling prospects to try to "drum up business".
In a recent post you said you had heard this and wanted someone to confirm. Did you get confirmation?
Though I wouldn't be surprised to hear about salespeople attempting to achieve sales. :razz:
Beach Lover
Mack,
Not sure what deals you are talking about, because the only stuff I see selling along on the eastern end of 30A are at prices that are below the prices paid for very similar properties last year. In fact, several lots in watersound sold recently at prices 20% less that lots next door sold for in 2004. There are also numerous properties on the market in Seaside, Watercolor, Watersound and Rosemary that are for sale at prices close to or lower than last summer that are not moving. The inventory on the market is overwhelming and folks continue to drop prices with no takers. In Watersound, Watercolor, Seaside and Rosemary, the inventory continues to increase each week (ie:new houses appearing on the market exceed the sales each week). And, at Alys Beach, the agents are actually calling prospects to try to "drum up business". When was the last time any of the big developments had to contact people to drum up business. Not sure how long the slow down and trend of decreasing prices will last, but in the short term, you are dead wrong. The FACTS speak for themselves.
Skier, was going to write a long reply, but have to cut it short. Large pieces of the sky have fallen in the yard. The missus says I have to clean it up. Now!
Let's talk in say.........5-10 years. Good luck til then.
Beach Lover
I agree with Smiling Joe - the media machine is out of control. If investors pull out of the real estate market, where are they supposed to put their money? Gee, I wonder... back in the stock market? Who really stands to gain from a major reallocation of investor's dollars? Where was the money before investors jumped into real estate? I would guess mostly in the stock market or on hold in cash funds or low-risk investments waiting for the market to recover. Remember WHY we pulled out of the stock market? Is the market honestly looking THAT much better now?
The media is doing everything they can (quite successfully) to get the word out to all (not just investors) to stir up panic. Example: local media (in KS) is now talking about the bubble effecting our area - pleeease! Property values here have steadily appreciated 4-7% a year for the last 20 years... now it's a bubble? Come on! By the time you factor in cost of living & increases in cost of building materials, labor, etc it sounds pretty sane to me. But now people everywhere, including the midwest, are afraid of buying in a bubble and losing the money they have invested in their homes.
If you've pulled out of real estate, where do you put your money now? I don't know about the rest of you, but I am not dumping my money back into the market - give me a reason to feel confident that it makes sense to do so and I might get back in, but at present, it doesn't look so rosey. Those 14 month cds at 4.25% are looking pretty good these days. Or if I bury it in my back yard, at least I won't LOSE anything.
Do you think any of this is going to change lending practices - 40 year mortgages, interest only loans, high debt to loan ratios? It's all part of a larger problem - overconsumption, overspending, overextending, overeating... The media (ie: advertisers/lobbyists/sponsors) has programed us to overdo everything without any concern for what's good for us, good for the environment or good for the long-term economy. It's all about somebody making big bucks. I'm sick of the ongoing daily onslaught of sales pitches, misinformation and outright lies. We are little puppets and the saddest part is that the majority of people out there don't even realize they're being manipulated. What to do? I'm awake - what now?
The media is doing everything they can (quite successfully) to get the word out to all (not just investors) to stir up panic. Example: local media (in KS) is now talking about the bubble effecting our area - pleeease! Property values here have steadily appreciated 4-7% a year for the last 20 years... now it's a bubble? Come on! By the time you factor in cost of living & increases in cost of building materials, labor, etc it sounds pretty sane to me. But now people everywhere, including the midwest, are afraid of buying in a bubble and losing the money they have invested in their homes.
If you've pulled out of real estate, where do you put your money now? I don't know about the rest of you, but I am not dumping my money back into the market - give me a reason to feel confident that it makes sense to do so and I might get back in, but at present, it doesn't look so rosey. Those 14 month cds at 4.25% are looking pretty good these days. Or if I bury it in my back yard, at least I won't LOSE anything.
Do you think any of this is going to change lending practices - 40 year mortgages, interest only loans, high debt to loan ratios? It's all part of a larger problem - overconsumption, overspending, overextending, overeating... The media (ie: advertisers/lobbyists/sponsors) has programed us to overdo everything without any concern for what's good for us, good for the environment or good for the long-term economy. It's all about somebody making big bucks. I'm sick of the ongoing daily onslaught of sales pitches, misinformation and outright lies. We are little puppets and the saddest part is that the majority of people out there don't even realize they're being manipulated. What to do? I'm awake - what now?
Admin
Why not diversify and think long term, in an attempt to achieve a 10% return on your investments?
Beach Lover
Yes, that's the model and I agree that in the long-term it generally works out. Haven't personally seen a 10% gain since the tech crash. But I could always count on my home appreciating because historically it has always done so. If I believe what the media says about the bubble and it effecting me even in Kansas, then that investment is now a risk as well. I'm all for diversification and do have money in the market, but right now putting even more than my standard allocation in every quarter doesn't make sense to me when I see my diversified portfolio of funds sitting there making next to nothing or even dropping a bit. There are lower risk options that at least have a guaranteed return.
SoWal Expert
... Those 14 month cds at 4.25% are looking pretty good these days. Or if I bury it in my back yard, at least I won't LOSE anything.
...
I know you say this in jest, and while you may not lose anything physically if you bury your money, but your buying power will definitely decrease at least 3% per year due to inflation.
Beach Lover
I know you say this in jest, and while you may not lose anything physically if you bury your money, but your buying power will definitely decrease at least 3% per year due to inflation.
Only half in jest - If my gains in the market for the year are 2%, I'm still down 1% when you factor in inflation. If I'm making 4%, then I'm gaining 1% factoring in inflation. I'm lucky I have a ways to go before retirement, but at the age where I would like to start seeing some gains before I have to shift to a more conservative investing model.
SoWal Expert
Only half in jest - If my gains in the market for the year are 2%, I'm still down 1% when you factor in inflation. If I'm making 4%, then I'm gaining 1% factoring in inflation. I'm lucky I have a ways to go before retirement, but at the age where I would like to start seeing some gains before I have to shift to a more conservative investing model.
...and on top of those low gains, you have to pay the Man.:bang:
Admin
Yes, that's the model and I agree that in the long-term it generally works out. Haven't personally seen a 10% gain since the tech crash. But I could always count on my home appreciating because historically it has always done so. If I believe what the media says about the bubble and it effecting me even in Kansas, then that investment is now a risk as well. I'm all for diversification and do have money in the market, but right now putting even more than my standard allocation in every quarter doesn't make sense to me when I see my diversified portfolio of funds sitting there making next to nothing or even dropping a bit. There are lower risk options that at least have a guaranteed return.
The interval you mention since the tech crash is short term.
Dollar cost averaging - sounds like you are on top of it.
Beach Lover
...and on top of those low gains, you have to pay the Man.:bang:
Good point. There's always that...
SoWal Expert
Good point. There's always that...
My first thought is that with any investment paying dividends or interest on an annual basis or more frequently, you pay the Man at the end of the year. However, with real estate you pay the Man after the sale unless you meet the qualifications for selling your home tax free or partially tax free, or unless you 1031 the gains.
After a little more thought of the situation, you are correct in that even with real estate, you pay the Man every year through property taxes, which makes my aforementioned statement mute.:bang:
Admin
Moral of the story: "It's good to be the man".
Though most likely immoral. :lol:
Though most likely immoral. :lol:
Beach Lover
... However, with real estate you pay the Man after the sale unless you meet the qualifications for selling your home tax free or partially tax free, or unless you 1031 the gains...
Maybe I'm just not a trusting person, but might be part of the reason for the bubble hype as well. Too many people taking advantage of those breaks. You don't have to be a million dollar investor to play the game. Works for $100k properties as well, just smaller returns. Maybe more people benefiting from those breaks than anticipated.
Have a great weekend everybody! Me and my dark cloud are going to the pool for a dose of much-needed sunshine. 11 days to SOWAL and counting...
Beach Lover
Moral of the story: "It's good to be the man".
Though most likely immoral. :lol:
I truly enjoy reading this board, Kurt. I try to pop in once a week just to see what's going on. Until today, haven't really posted any opinions - mostly a lurker. Thanks for the outlet for information and commentary.
Admin
I truly enjoy reading this board, Kurt. I try to pop in once a week just to see what's going on. Until today, haven't really posted any opinions - mostly a lurker. Thanks for the outlet for information and commentary.
:welcome:
Lurkers are boring. :lol:
Beach Lover
Mack,
Please give some actual examples of resales getting snatched up at prices comparable to homes, lots or condos that sold very nearby last year.
Also, these constant comparisons to Naples are interesting and clearly apples to oranges. The reason Naples will likely always command higher prices than SoWal is because it actually stays warm there all year long. Avg temp in January is 63 versus 52 in SoWal. Lots of rich retirees are looking for year round warmth or warmth in the winter when they migrate to south florida. It gets too cold in the winter in SoWal (with average Jan lows of 37 degrees) for many of these people. Golf is also another big draw for Naples. The golf is also much better and there are more places to play in Naples. The warmer weather makes it more pleasant to play in the winter. Along 30A, there is only one option for golf or you need to drive 15 to 20 miles to play. And, it is too cold for most people to play on many winter days in SoWal.
Naples is not for me, but I'm not a rich retiree from the Northeast. Nor do I play much golf.
My neighbor loves South Walton for the beauty, but he is investing in a condo in Naples for retirement in a few years. Not because it is more beautiful, but because it's warmer in the winter.
At some point, you need to start facing the reality of the current real estate situation in SoWal. Not that the long term won't be okay, but in the short term the market is in bad shape. Too much inventory, and not enough buyers. That WILL drive prices down.
Please give some actual examples of resales getting snatched up at prices comparable to homes, lots or condos that sold very nearby last year.
Also, these constant comparisons to Naples are interesting and clearly apples to oranges. The reason Naples will likely always command higher prices than SoWal is because it actually stays warm there all year long. Avg temp in January is 63 versus 52 in SoWal. Lots of rich retirees are looking for year round warmth or warmth in the winter when they migrate to south florida. It gets too cold in the winter in SoWal (with average Jan lows of 37 degrees) for many of these people. Golf is also another big draw for Naples. The golf is also much better and there are more places to play in Naples. The warmer weather makes it more pleasant to play in the winter. Along 30A, there is only one option for golf or you need to drive 15 to 20 miles to play. And, it is too cold for most people to play on many winter days in SoWal.
Naples is not for me, but I'm not a rich retiree from the Northeast. Nor do I play much golf.
My neighbor loves South Walton for the beauty, but he is investing in a condo in Naples for retirement in a few years. Not because it is more beautiful, but because it's warmer in the winter.
At some point, you need to start facing the reality of the current real estate situation in SoWal. Not that the long term won't be okay, but in the short term the market is in bad shape. Too much inventory, and not enough buyers. That WILL drive prices down.
Edited
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