Silver™

Southern California home prices hit new highs in July for the sixth consecutive month, although signs of a real estate slowdown continued to grow, data released Monday showed.

The median price in the six-county region reached $469,000 last month, according to DataQuick Information Systems, a La Jolla-based company that tracks real estate prices. Although that was a 16.7% increase on a year-over-year basis, price growth has been hovering near that pace since the spring — after exceeding 20% nearly every month last year.

Price gains in Riverside and San Bernardino counties, the region's two hottest markets, slowed for the first time in about a year. San Diego County's increases continued to decelerate, while sales there dropped nearly 16%, the region's biggest dip.

Sales overall in the Southland fell 5.8% versus the year-ago period, according to DataQuick. Still, more than 31,000 homes were sold last month, the fourth-highest total for a July since 1988.

The latest DataQuick numbers intensified the debate over whether the region's housing market was merely easing to more normal growth or setting up for a deeper decline. The region's cooling trend is also evident in a rising supply of homes for sale, and lengthier durations needed to sell a home.

"We're just sitting here with bated breath watching the numbers coming in to try to figure out what's going on," said John Karevoll, DataQuick's chief analyst.

But, Karevoll said, the latest data do not suggest anything out of the ordinary: "This is what you would expect to see in a normal real estate cycle."

However, some real estate agents report sharper slowdowns.

Huntington Beach agent Mike Stankewich said home prices in his territory — particularly those priced above $800,000 — actually declined week over week, by around 5%, in July compared with the previous month. Plus, homes were sitting longer — in some cases for 60 days or more — without receiving any offers, he said.

"Prices are just getting beyond the reach of potential buyers, especially in the higher-end market," Stankewich said. "Many sellers still think prices will continue to go up, but buyers believe prices should be declining by now."

Data released Monday by the National Assn. of Realtors showed other U.S. markets, including Las Vegas, also experiencing price slowdown. But some locales, such as Phoenix, continued to enjoy annualized price surges as high as 47% in the second quarter.

San Diego County is undergoing the Southland's most dramatic price slowdown. It posted a record median price in July of $496,000, just a 5.1% boost compared with gains of nearly 30% in mid-2004. The median is the price at which half of all homes sold for more, half for less.

"Prices there are crossing the threshold at a much slower pace, but they're still crossing," Karevoll said.

San Bernardino County's median price rose to $328,000, but its 27.6% price growth was the first under 30% in 11 months, Karevoll said. Riverside County saw its price growth dip below 20% for the first time in about a year. The median price there rose 17.7% to $385,000 in July. Sales fell 5.8% in San Bernardino and 3.5% in Riverside.

In Orange County, the median price rose 14.5% to $601,000. But that was down 0.3% from June's median of $603,000, an all-time record. Sales rose 3.5%.

Los Angeles County's price appreciation regained some steam after dipping below 20% this spring. The median rose 20.2% to a record $488,000, DataQuick said. Sales fell 7.3%.

Ventura County's median rose 15.3% to $579,000, although that was below the area's record of $584,000 set in June. Meanwhile, sales rose 9.8%.

The Southern California housing market, Karevoll said, "is like a train that is following the same track, with some cars closer to the front and some to the back. Yet the individual cars are moving at different speeds."

Some experts blame the slowdown on reduced affordability and rising mortgage rates. Long-term mortgage rates, although lower than a decade ago, have ticked up in recent weeks and are expected to continue rising.

But these factors, along with the growing number of homes for sale, don't suggest a crash, said Patrick Veling, president of Brea-based consulting firm RealData Strategies.

"While we have more inventory, this is certainly no substantial reversal in the market," Veling said. "There has been a healthy reduction in demand, but demand is still outpacing supply."

Veling, whose company collects and analyzes data from property listing services, predicts Southland home prices will rise between 6% and 12% this year, depending on location and price range.

http://www.latimes.com/business/la-f...-home-business

Fibonacci

A lesson from our fine Brittish friends...



London House Prices Fall, Prompting Economic Slowdown (Update2)
2005-08-16 05:23 (New York)


(Updates share prices in 11th paragraph, adds inflation
report in 15th.)

By Laura Humble
Aug. 16 (Bloomberg) -- Christian Holland, a fund manager at
Cavendish Asset Management in London, set the asking price for his
three-bedroom house in the southwest of the U.K. capital at
519,000 pounds ($940,000). Four months and two price cuts later,
he's happy to accept an even lower offer.
``It's for 450,000 and I'm taking it,'' says Holland, 37, of
the single bid he's received. ``The market is dreadful.''
London house prices, which more than tripled in the 10 years
through June 2004, are falling, and they may bring a halt to the
U.K.'s economic expansion under Prime Minister Tony Blair.
Countrywide Plc, Britain's largest real estate company, has closed
offices and cut its workforce. Developers such as George Wimpey
Plc and Taylor Woodrow Plc are offering soccer tickets and
property tax payments to entice new sales.
The Bank of England, led by Governor Mervyn King, is
responsible for the slowdown, says Holger Schmieding, 47, co-head
of European economics at Bank of America Corp. in London.
``The bank hiked rates aggressively in late 2003 and early
2004 to cool down an economic boom fueled by an explosive rise in
house prices, and clearly attained that goal,'' says Schmieding.
Tomorrow, the bank releases the minutes of the Monetary
Policy Committee's Aug. 3-4 meeting, when it decided to trim the
benchmark interest rate by a quarter-point, to 4.5 percent. The
minutes may reveal the extent of any divisions among the
committee's nine members on the state of the housing market and
its impact on the U.K. economy. The bank had raised its rate five
times in the 10 months to August 2004, to 4.75 percent, the
highest in the Group of Seven industrialized nations.

Growth Slows

In the second quarter, the U.K. grew an annual 1.7 percent,
the slowest pace in 12 years. On Aug. 10, the bank projected that
Europe's second-largest economy will expand about 2 percent in
2005, less than the 2.5 percent it forecast in May. Growth will
accelerate to about 3 percent by the end of 2006, it said.
King said at a London press conference announcing the figures
that the property slowdown had contributed to weaker consumer
spending, which in turn had slowed growth.
``We have always had a link between house prices and consumer
spending and some of the slowdown in consumption undoubtedly can
be explained by lower rates of house-price inflation,'' he said.
Yesterday, the London Retail Consortium and accounting firm
KPMG International said sales in stores open at least a year in
the center of the capital dropped 8.9 percent in July following
the terrorist attacks on public transport. The retail slump in
London was larger than the 1.9 percent drop recorded for the U.K.
as a whole by the British Retail Consortium on Aug. 9.

Sales Slide

U.K. companies dependent on the housing market are feeling
the effects of the slowdown. London-based Wimpey, the U.K.'s
biggest homebuilder by market value, said on July 5 that weekly
sales in the first half slid 18 percent, blaming higher borrowing
costs. Wimpey shares have dropped 9.4 percent in the past six
months, to 395.75 pence as of 9:56 a.m. in London. The Bloomberg
Europe Home Builders Index, whose nine members are all British,
has fallen 6.7 percent in the same period.
In the 12 months through June, house prices in the capital
fell 2.4 percent, compared with a 3.7 percent gain elsewhere in
the U.K., according to figures from Edinburgh-based HBOS Plc, the
nation's largest mortgage lender. HBOS says London property values
are a leading indicator for the $6 trillion U.K. property market
as a whole.
``London tends to lead the housing market cycle,'' says HBOS
Chief Economist Martin Ellis, 44. ``Prices there tend to go up
first and more than the rest of the country when rates fall and
the opposite when they rise.''

King's Apartment

In the U.K. as a whole, the expectation that the Bank of
England would lower interest rates may have helped stabilize the
housing market last month, a report from the Royal Institution of
Chartered Surveyors showed today. U.K. house prices fell at the
slowest pace in five months in July, it said.
Still, prices may ``drop again over the coming three
months,'' after having fallen for a year, RICS said. A separate
report from the U.K. Office for National Statistics in London also
showed today that inflation reached 2.3 percent last month, the
highest since records began in 1997, damping expectations of
further rate cuts.
The value of residential dwellings accounts for 55 percent of
wealth in the U.K., or 3.2 trillion pounds, according to the ONS.
The U.K. economy has grown for 52 straight quarters as rising home
values contributed to a boost in consumer spending.

Expensive London

King, 57, has personally benefited from the London housing
boom. He purchased a two-bedroom flat in Notting Hill, west
London, in June 1989, according to the U.K. Land Registry. Since
then, average prices for properties within 300 meters of his have
jumped to almost 1 million pounds, from 320,000 pounds, according
to OurProperty.co.uk, an independent property Web site for
homebuyers that tracks U.K. house values. Gary Hunt, a Bank of
England spokesman, wouldn't comment.
London is the world's third-most-expensive city, according to
a June survey by Mercer Human Resource Consulting, based on
property costs and the price of everyday items. Only Tokyo and
Osaka, Japan, ranked higher in the survey of 144 cities.
Average house prices in London gained 215 percent in the
decade through June 2004, just before the last interest-rate
increase. In contrast, the average price in Manhattan rose 164
percent during the same period.
Homebuilders like Wimpey, who are feeling the market chill,
are offering more inducements to shift new properties. Average
prices of newly built homes in London have fallen 24 percent this
year, to 530,293 pounds in July, according to Smartnewhomes.com,
which advertises the residential properties for 85 percent of U.K.
developers.

Free Soccer Tickets

``Prices are going nowhere and homebuilders are using a whole
range of incentives to try and draw people in -- free carpets,
furniture, legal fees, deposits -- you name it,'' says Mark
Hughes, 34, a Liverpool-based Numis Securities analyst who covers
20 U.K. homebuilders.
Wimpey and Taylor Woodrow, the third-biggest U.K.
homebuilder, have joined to construct the 467-unit Vision 7
apartment complex in north London near a new stadium being built
for Arsenal, last season's winners of the English Football
Association Cup.
On the first weekend of sales, the developers offered early
purchasers a free 2006 Arsenal season ticket worth as much as
2,500 pounds. Neil Majithea, a Vision 7 salesman, says 216
apartments are still available.
``In this market, the truth is you cannot sell anything from
the mid-market upwards without incentives,'' Malcolm Harris, chief
executive of U.K. homebuilder Bovis Homes Group Plc, told analysts
on a conference call on July 14.

`Easy Mover' Deals

In advertisements in London's Evening Standard and Metro
newspapers, Wimpey is also offering an ``easy mover'' promotion at
selected developments. The company may waive mortgage-arrangement
and legal fees, pay property taxes and require only half the
normal deposit of 10 percent of the purchase price. Carly Slassor,
a Wimpey spokeswoman, declined to comment on the company's
promotions.
David Miles, chief U.K. economist at Morgan Stanley in
London, says property values in London may fall further.
``The housing market slowdown is well under way, but for
house prices, in particular, it may have a long way to go,'' says
Miles, 45. He estimates that U.K. house values will drop by 5
percent this year.
Further declines will accelerate the crisis for real estate
agents, says Harry Hill, chief executive of real-estate agency
chain Countrywide.
``Agencies are either going out of business, operating at a
loss, or having to cut costs dramatically,'' says Hill, 57.
``Volumes are down to a level that we have only seen once or twice
since World War II.''

Shuttered Offices

Countrywide on Aug. 11 said first-half net income slid 84
percent from a year earlier, to 3.2 million pounds. It has shut 33
of its almost 1,000 branches and cut 500 employees since the first
half last year, according to Hill. The company's shares have
fallen 4.8 percent in the past six months, to 339.75 pence.
Just last year, the world's most expensive home was sold in
London when steel industry billionaire Lakshmi Mittal, 55, bought
a mansion in Kensington Palace Gardens for 70 million pounds. The
most expensive house currently for sale in Britain, the seven-
bedroom north London property owned by Turkish ceramics
entrepreneur Halis Toprak, hasn't found a buyer willing to meet
its 50 million-pound price tag since it went on the market in May.
The number of homes in greater London that have been sold for
more than 1 million pounds fell 14 percent in the first quarter of
2005, compared with the same period last year, according to the
Land Registry.

More Realistic Prices

``Vendors are going to have to be more realistic about
prices,'' says Richard Donnell, 36, head of residential research
at Savills Plc in London. ``We are going to see a prolonged period
of underperformance.''
Juergen Birnbaum, 37, a London-based credit trader for HVB
Group, Germany's second-largest bank, bought his first apartment
in 1998 in the Docklands, a financial district in the southeast of
the capital, for 78,000 pounds. When he sold the property three
years later, he more than doubled his investment. He used the
money to buy two more properties, an apartment and a house in the
same area, both of which he's now struggling to sell.
The apartment hasn't found a buyer after three months on the
market, even though he's cut the price by 10,000 pounds to 285,000
pounds. The house, on sale for 250,000 pounds, has attracted an
offer of 247,500 pounds that he's going to accept.
``It's definitely noticeable that people are more cautious,''
Birnbaum says. ``I am happy to take the offer on the house. Things
may get worse down the line.''

Olympic Hopes

Amid the gloom, one area of London is defying the declining
trend. The east London area of Stratford will be the site of the
2012 Olympic Games, which were awarded to London against
bookmakers' expectations on July 6. About 9,000 new homes will be
built in the area around the proposed Olympic Park in Stratford,
according to the London Development Agency.
Real estate agent Barbara Goldsmith of Stratford Properties
says prices in the area have gone up 10 percent to 15 percent
since the Olympics announcement.
``There's no question that it has boosted the market,'' says
Goldsmith, 47. ``People can't get anything in Stratford now,
except for very high priced new apartments.''
Waiting for 2012 isn't an option for today's home sellers,
Holland says. Before finding a buyer for his Chiswick property, he
tested the rental market and was surprised to find potential
tenants trying to bargain down the price.
``I had an offer on rent that wouldn't even cover the
mortgage,'' he says. ``I have never even heard of offers on rent
before.''

zamo

They blame it to the higher borrowing costs eh? Well, the 10 year t-bill is being adjusted, as well as the Prime and Libor Rates. Interest rates from Fixed to ARMs are gonna take a hit.

http://www.bloomberg.com/markets/rates/

fdl

A significant rise in interest rates will surely have an impact on real estate values. People keep touting "supply and demand", but if/when rates go up , demand will go down (i.e the amount people are able/willing to pay will drop).

Silver™

Thankfully a "significant" rise is unlikely.



While higher rates will certainly dampen the market, it is unlikely to contribute to the "bubble popping" since the factor of supply and demand will still exist in many markets.

fdl

glad you agree sadly not everyone sees it this way.

I'd use the word "uncertain".

I agree higher rates dont necessarily mean a big crash, especially on a national level. But a slow leak can be big trouble for alot of people who arent expecting it. And that in turn is fuel for the fire.

Silver™

Who doesn't think that a significant rise in interest rates would have an impact on real estate values?

If those people exist they deserve to lose their shirts.



There are few certainties in economics, but a significant rise is still unlikely in the near term.


Most people have been in their homes for over a year and have likely realized a decent amount of appreciation, so they can give back a little of that and still be ok. The only people with anything to worry about are those who have bought recently and have little equity (ie: a first time buyer with a small down )

And with all the talk of a housing bubble in recent months I have faith that most people are, if not expecting it, aware of it.

fdl

Define near term. There have been surveys in several cities which have shown that many people are expecting double digit appreciation for the next 10 years


I think there are more than a few people with very little equity in their homes.

Hopefully you are right.

Silver™

Couple years.

Define significant rise.



Links?



There may well be, but baring some sort of major economic downturn coupled with a "significant" rise in interest rates, we will not see many markets with actual depreciation. A softening of the market is far more likely.

Silver™

zamo

zamo

This is what is gonna happen, IMO

The reason why a portion of the populaton have bought houses with "exotic" financing (including interest only and negtive amortization), is because they would have "never" afford the property with a common financing option.

We have 2 variables in place.

1.- Inflation rate is going up faster than other years (meaning that the cost of life is higher).
2.- Interest rates are going up.

If you combine both, for an owner paying back an "exotic" loan will be more difficul to fulfill such responsability.

If for some reason they can no longer keep up with the payments, guess what will happen, foreclosure. An excess of forecloresures can drive the house prices down.

So BOOM on the way

fuzzy02CLS

iTrader: (2)

Saw something on MSN's website. 50 most over inflated cities in the country. Factors were poplulation, income, & jobs. The West palm/Boca raton area was #2, the Ft lauderdale area was #7 & Miami was #11. Fresno Cal was #1.

fdl

> 2 points.



http://money.cnn.com/2004/09/17/real...y_bubble_0410/

"A survey of nearly 700 owners in Boston, Milwaukee, San Francisco and California's Orange County by Karl Case of Wellesley College and Robert Shiller of Yale finds that the average person in counting on double-digit growth each year for the next 10 years."

Doom878

Yeah we are underpaid for our houses. Average single family is like $350,000 per the housing commission. I think average salary was in the $40-50k range. Plus we have lots of minimum wage immigrants to bring down the income average.

Silver™

The chances of rates going into the 8% or higher ranges in the near term is unlikely, but possible. Although that on it's own would not likely cause a crash in real estate prices.



Shiller is making a living off predicting the crash of the real estate market, so I would honestly consider a survey conducted by him to be suspect.

Doom878

But even if rates went up, I'm sure the investors have savings to offset the losses due to higher returns.

fdl

Investors? They may want out if its gets too expensive. And what about everyone else? what about the people who dont have savings? What about people looking for a place to live, and suddenly find that its much cheaper to rent than to own? And if the market drops a little, it forces some people out of their homes, increasing supply , causing further depreciation and potentially causing a chain reaction.

I'm not saying this will happen, but this is how real estate busts work.

fuzzy02CLS

iTrader: (2)

And it's just that reason I'm renting saving my $$ & waiting.

fdl

Well, you need to do the math. I did, and while I firmly beleive there will be a decline in prices, I couldnt be certain it would be very soon. So If the decline will come in 3 years, I would rather buy now than rent for 3 years. But everyones situation (including location) is different so you need to crunch the numbers and assess the risks for yourself.

Doom878

I'm only talking about investors. I'm not referring to non-investors nor am I trying to predict the bubble from my post. I'm simply saying that investors that have savings probably won't get out as quickly as you think due to them making money in the other end anyways. They'll keep the loans probably for tax reasons anyways.

Fibonacci

Pricking a Housing Bubble, Australian Style: William Pesek Jr.
2005-08-16 21:02 (New York)


(Commentary. William Pesek Jr. is a columnist for Bloomberg
News. The opinions expressed are his own.)

By William Pesek Jr.
Aug. 17 (Bloomberg) -- Ian Macfarlane, Australia's central
bank governor, has declared victory in the fight to deflate one
of the world's more obvious housing bubbles.
That Australia had a speculative time bomb on its hands
became clear a few years back. In the last six months of 2002,
for example, Sydney house prices rose as much as 50 percent. Not
long after that, the Reserve Bank of Australia stepped up efforts
to cool things down.
Macfarlane, 59, is so confident he has succeeded that he's
even speaking in something approaching English, a rarity in the
obfuscation-happy world of central banking.
``We're not expecting to change monetary policy in the near
term,'' Macfarlane said on Aug. 12. ``And when we look further
into the future, we no longer see a clear probability of it
moving in one direction rather than the other.''
It doesn't get any clearer than that. Nor does the enviable
state of Australia's economy, which Macfarlane has taken to
calling ``nirvana.'' Think of it as the ``Goldilocks economy,''
Australian style.
What Macfarlane achieved in Asia-Pacific's fifth-largest
economy is the fabled and rarely attained soft landing after a
bout of fevered growth. Australia, in its 14th straight year of
expansion, grew 1.9 percent in the first quarter, less than
half the 4.1 percent pace in the year-earlier quarter. The laws
of economic gravity suggest that the days of rapid growth and
risk of veering into the danger zone are in the past.

Things Aren't Unraveling

Yet it's easy to forget that this nation of 20 million is in
the midst of the longest run of job growth in 10 years; its
jobless rate of 5 percent is a 29-year low. Even though some
analysts see the economy at the top of a cycle, July retail sales
rose the most in two years and August consumer confidence surged.
Things are hardly unraveling. That's especially true when
you consider how well Macfarlane handled Australia's housing
mania relative to other bubble-afflicted economies like the U.S.
Last March, Macfarlane and his colleagues at the central
bank got considerable grief for raising short-term interest rates
to a four-year high. That campaign, coupled with carefully
calibrated efforts to talk down the property market, has proved
remarkably successful.

Pricking a Bubble

Observing trends in Australian markets, it seems that many
investors too are convinced that the central bank is pulling off
a most difficult monetary balancing act, pricking an asset bubble
without devastating the economy. The Bank of Japan failed
miserably in that pursuit in the late 1980s. The Federal Reserve
didn't do much better early in this decade.
Australia's residential building approvals fell to a four-
year low in May, according to Australian Bureau of Statistics
figures.
All this is far from academic. The U.S. and the U.K., the
world's No. 1 and No. 4 economies, still arguably need to cool
property markets that have risen to uncomfortable heights.
Admittedly, the U.S. economy dwarfs Australia's, a fact that
raises the stakes for the Fed. And perhaps more than any other
economy, China is helping Australia's at both ends. Its demand is
boosting Australian growth, while cheap inflows of Chinese goods
are reducing inflation.

More Potent Polices

Australian monetary policy is proving more potent than the
U.S.'s because of the nature of its interest-rate system.
Home mortgages in Australia are typically floating- or
variable-rate and price off the central bank's overnight rate.
U.S. mortgages are often fixed and set off longer-term
securities. As such, Australia has avoided a situation where bond
yield increases aren't keeping pace with rate hikes -- the
dilemma Fed Chairman Alan Greenspan faces.
The real secret of Macfarlane's success is credibility.
Under his leadership, Australia avoided the worst of the 1997
Asian crisis. His handiwork since the mid-1990s also set the
stage for the boom that's still unfolding. It's earned Macfarlane
a Greenspan-like mystique with locals.
A high degree of credibility means traders and investors may
be quicker to heed Macfarlane's pronouncements and rate moves
than Greenspan's. That has given the central bank leeway to raise
rates less often. The Reserve Bank has tightened once this year;
the Fed has moved at its last 10 meetings.
The result is minimal fallout in Australia's asset markets.
Confidence the economy is now less vulnerable to plunging housing
prices has helped boost the S&P/ASX 200 Index more than 10
percent this year. By contrast, the Dow Jones Industrial Average
is down more than 2 percent.

Holding Its Own

It's also worth noting Australia is holding its own even
amid the dollar's 7 percent gain over the last 12 months. Neither
Macfarlane nor Treasurer Peter Costello is panicking. That's at
odds with the rest of Asia; central banks here worked frantically
in recent years to weaken currencies. Australia is an exception
to the rule. It's a sign of confidence.
Macfarlane doesn't get all the credit for Australia's
prosperity. The national budget is in surplus, keeping a lid on
interest rates. His predecessor, Bernie Fraser, experienced his
own Paul Volcker-like battle against inflation. Yet since
becoming governor in September 1996, Macfarlane's policies helped
lower 10-year bonds yields from 8 percent to 5.23 percent today.
Not only has the central bank helped drive Australia's boom
-- it's also avoiding ugly side effects like inflation or sky
rocketing asset prices. It's a feat much of the rest of the world
could learn from.

jlukja

My friend just e-mailed me this pic. It should be the official pic of this thread.

fdl

from previous page.

doopstr

Hey is that the first ever to happen in the same thread?

Silver™

Nope, it is the 2nd or 3rd in this thread

fdl

There have been a couple in this thread (its really long ), but I think this is the first from the same day.

SpeedyV6

August 19, 2005
In the Long Run, Sleep at Home and Invest in the Stock Market
By MOTOKO RICH and DAVID LEONHARDT

The housing boom of the last five years has made many homeowners feel like very, very smart investors.

As the value of real estate has skyrocketed, owners have become enamored of the wealth their homes are creating, with many concluding that real estate is now a safer and better investment than stocks. It turns out, though, that the last five years - when homes in some hot markets like Manhattan and Las Vegas have outperformed stocks - has been a highly unusual period.

In fact, by a wide margin over time, stock prices have risen more quickly than home values, even on the East and West Coasts, where home values have appreciated most.

When Marti and Ray Jacobs sold the five-bedroom colonial house in Harrington Park, N.J., where they had lived since 1970, they made what looked like a typically impressive profit. They had paid $110,000 to have the house built and sold it in July for $900,000.

But the truth is that much of the gain came from simple price inflation, the same force that has made a gallon of milk more expensive today than it was three decades ago. The Jacobses also invested tens of thousands of dollars in a new master bathroom, with marble floors, a Jacuzzi bathtub and vanity cabinets.

Add it all up, and they ended up making an inflation-adjusted profit of less than 10 percent over the 35 years.

That return does not come close to the gains of the stock market over the same period. The Standard & Poor's 500-stock index has increased almost 200 percent since 1970, even after accounting for inflation.

Yet investment advisers worry that this reality is getting lost in today's enthusiasm for houses, even as some economists say the housing market has peaked. People are buying homes purely on speculation, trading real estate almost as if it were a stock. Surveys show that a large majority of Americans consider real estate to be a safer investment than stocks.

"With how strong the real estate market has performed, there is the urge for people to chase returns," said Jeff A. Weiand, executive vice president of RTD Financial Advisors in Philadelphia. "But it's very difficult to beat the long-term historical record of stocks."

Since 1980, for example, money invested in the Standard & Poor's 500 has delivered a return of 10 percent a year on average. Including dividends, the return on the S.& P. 500 rises to 12 percent a year. Even in New York and San Francisco, homes have risen in value only about 7 percent a year over the same span.

That does not mean real estate is a bad investment. It is often an important source of wealth for families. But its main benefit is what it has always been: you can live in the house you own.

"The biggest value of the house is the shelter it provides," said Thomas Z. Lys, an accounting professor at the Kellogg School of Management at Northwestern University. "Too many people are fixated on speculation whereas most of the benefit really comes from usage."

Despite the fact that home values usually appreciate over time, most of the value of a house actually comes from the ability to use it. In this way, it is more like a car, albeit one that does not become less valuable over time, than it is like a stock. Whenever people sell one house, they must immediately pay to live elsewhere, meaning that they can never wholly cash out of a home's value.

Including the value of living in a house - that is, the rent that a family would have to pay to live in an equivalent house elsewhere - homes in New York have returned more than 15 percent a year since 1980, according to an analysis by Mr. Lys.

But only five percentage points of this return comes from sheer price appreciation, as opposed to the value of shelter. Mr. Lys accounted for property taxes, spending on renovations, interest payments and the tax deductions on those payments, and the fact that most house purchases are made with mortgages.

When the sale of a house brings in a cash windfall, homeowners tend to focus on the fact that they made a down payment that was just a fraction of their house's value, lifting their return. But many forget just how much money they spent on property taxes, a new roof and the mortgage interest.

Add to all these factors the corrosive effect of inflation, and the returns are even lower.

The Jacobses - she is an administrator for a magazine and he a lawyer - were quite pleased with the sale of their house in New Jersey. To them, it was a place to raise their two children more than it was an investment.

When the couple spent about $100,000 to redo their master bathroom, install a walk-in closet and build a deck in the mid-1980's, Mr. Jacobs recalled saying to his wife, "We'll never get the money out that we put into this, but at least we'll enjoy it for 15 years or so."

Told of the comparative returns on his house and the stock market, Mr. Jacobs said, "Of course I couldn't live in the portfolio."

Today, however, he has come to see the advantages of the stock market. The Jacobses now rent an apartment on the Upper West Side for more than $4,000 a month and have invested the proceeds from the house sale in the stock market, making it easier for them to raise cash by selling shares.

"I didn't want to take the money that we pulled out of the house and have all that money tied up in an apartment where I still have expenses of maintenance fees," Mr. Jacobs said.

But many people seem to be going in the opposite direction from the Jacobses. Eighty percent of Americans deemed real estate a safer investment than stocks in an NBC News/Wall Street Journal poll done this spring, while only 13 percent said stocks were safer.

Part of that sentiment is driven by the recent memory of the stock market collapse in 2000. Many homeowners seem to have forgotten that less than 15 years ago house prices in the Northeast and California fell, but the money they lost on technology stocks is still fresh in their minds.

Stocks are also more volatile, and their price changes can be viewed every day. "The news doesn't report to you daily that your house price might have gone up or down," Mr. Lys said. "So you think your house price is more stable than it really is because you don't observe these minute-by-minute gyrations."

Economists caution that any comparison between real estate and stocks is tricky, because real estate is typically a leveraged investment, in which a home buyer makes a down payment equal to only a fraction of a house's value and borrows to finance the rest. While it is possible to borrow money from a brokerage firm to buy stocks, most individual investors simply buy the shares outright.

When home prices are rising, the leverage from a mortgage lifts real estate returns in the short term. Someone putting down $100,000 to buy a $500,000 home can feel as if the investment doubled when told that the house is now worth $600,000.

But the power of leverage vanishes as homeowners pay off the mortgage, as the Jacobses have. Leverage also creates more short-term risk, especially for those who have stretched to afford their house.

"If the home went down by 30 percent, you'd probably be sitting with a bankruptcy attorney," said Jonathan Golub, United States equity strategist at J. P. Morgan Asset Management in New York. "If your I.B.M. stock goes down by 30 percent, no big deal. So you had $100,000, now you have $70,000. You don't declare bankruptcy; you just don't go out to the movies as much, or you retire a year later."

But such risks are hard to imagine when many markets are still enjoying double-digit percentage increases every year. The number of people buying houses they do not plan to live in has surged. There are also Internet exchanges where investors can trade yet-to-be-built condominiums or futures contracts tied to average home prices in big metropolitan areas.

But economists and investment advisers say that most of the value from real estate comes not from anything that can be captured by flipping it, but from the safety net it provides in bad times. Even if the market shifts downward, "you have a roof over your head," said Jonathan Miller, a real estate appraiser in Manhattan.

Beyond the shelter it provides, the biggest advantage of real estate might be that it protects people from their worst investment instincts. Most people do not sell their house out of frustration after a few months of declining values, as they might with a stock. Instead, they are almost forced to be long-run investors who do not try to time the market.

Harlan Larson, a retired manager of car dealerships near Minneapolis, still regrets having bought Northwest Airlines stock at $25 a share a few years ago. It is now trading at less than $5.

By comparison, he views the four-bedroom home he bought for $32,500 in 1965 - or about $200,000 in today's dollars - as a money tree. He and his wife recently listed it for $413,000. That would translate into an annual return of 1.2 percent, taking into account inflation and the cost of two new decks and an extra room.

They plan to move to Texas after it has sold. "I wish I'd bought more real estate," Mr. Larson said.
http://www.nytimes.com/2005/08/19/re...pagewanted=all

Fibonacci

Bush Panel's Proposals May Reduce Tax Advantages for Housing
2005-08-22 00:01 (New York)


By Ryan J. Donmoyer
Aug. 22 (Bloomberg) -- The status of housing as the least-
taxed investment in the U.S., which has helped fuel an eight-year
boom in real estate values, may be in jeopardy as a presidential
commission considers changes to the federal tax code.
The panel, which is headed by former Senators Connie Mack and
John Breaux and is due to report to President George W. Bush by
Sept. 30, is studying options to lower taxes on many types of
investments to meet Bush's goal of spurring savings and economic
growth. Changes to housing-related tax incentives will also be
considered, Jeffrey Kupfer, the panel's staff director, said in an
interview.
Economists say such policies would have the effect of eroding
the relative advantage housing has enjoyed over other investments
since 1997, when Congress effectively made most sales of primary
residences tax-free.
``One of the pillars of strength of the housing market is the
fact of the tax-advantaged nature of the asset,'' says Anthony
Chan, a senior economist at JPMorgan Asset Management in Columbus,
Ohio. ``To the extent that you chip away at that, you would see
housing somewhat negatively impacted.''
Fueled by both favorable tax-law changes and the lowest
interest rates in 40 years, the national median home price has
risen 69.3 percent since 1997. That year, Congress allowed
homeowners to exclude up to $500,000 in gains when they sell homes
they occupy, and eliminated rules requiring sellers to buy more
expensive homes to avoid taxes. Before that, sellers faced taxes
as high as 39.6 percent.
Suddenly, homeowners could sell highly appreciated property
and do anything they wanted with the proceeds. Taxes on the sale
of homes that aren't a primary residence also have been reduced
twice since 1997 to rates as low as 5 percent.

Empty-Nesters

The tax-free treatment of home sales made it easier for
empty-nesters like Monica Anderson to sell their homes and move to
condominiums or rented apartments.
Anderson, 61, of Tallahassee, Florida, says the tax laws
facilitated her recent decision to put the home in which she
raised three children on the market. Anderson intends to bank the
$250,000 profit and rent for a while in Washington to be closer to
a young grandchild and another due to be born this week.
The state of the tax laws ``makes it easier'' to do that,
Anderson says. ``I don't have the concerns about it. I don't have
to save all my receipts.''
The 1997 tax changes even made divorce settlements less
complicated, because estranged couples no longer face tax bills
when they divide real estate.

Generating Growth

The hot housing market has played a significant role in
generating U.S. economic growth, economists say. Bob Rasche and
Howard Wall at the Federal Reserve Bank of St. Louis estimate that
22 percent of the 2.3 million jobs created since the end of the
2001 recession were linked to housing.
The 1997 changes ``just released this tsunami of resources
and wealth in the housing market,'' says Brian Wesbury, a former
chief of staff for the congressional Joint Economic Committee and
now chief investment strategist at Claymore Advisors LLC in Lisle,
Illinois. ``I believe the tax catalyst has been essential and in
fact we would not have had the housing boom of the last five years
without the changes in 1997,'' Wesbury said in an interview.
In contrast, income from other forms of investment is taxed
at higher rates, creating the relative advantage for housing.
Investment interest is taxed at rates as high as 35 percent; the
rate on dividends was the same until it was reduced in 2003 to 15
percent.

Called Into Question

It is this relative advantage for housing that may be called
into question by the tax commission. Members have said at hearings
that they are considering a wide range of ways to stimulate
savings. The options range from cutting rates on dividends,
interest and capital gains to streamlining current tax-free
savings mechanisms for retirement, education and health care -- or
even junking the income tax in favor of a system that taxes only
consumption.
Tax commission member Bill Frenzel, a Republican former U.S.
representative from Minnesota, says panelists are wary of
recommending any changes that may pop a real-estate bubble.
``We have to be careful, because tax bills have hurt markets
in the past,'' he said in an interview. Bush, in his instructions
to the tax panel, said that it should ``recognize the importance
of homeownership'' in considering what changes to recommend.

Toughest to Tackle

The toughest issue to tackle may be the mortgage-interest
deduction, which has long been viewed as politically sacred,
former Treasury Secretary James Baker III told the panel in March.
``This is a political exercise every bit as much as it is an
economic exercise,'' he said.
David Kotok, chairman and chief investment officer at
Cumberland Advisors Inc. in Vineland, New Jersey, agrees. ``It
would take a lot of political force to get the Congress to pass a
law that interferes with the housing structure, because there are
so many millions of people who are invested in the current
system,'' he says.
Former Treasury Department economist Eugene Steuerle says he
doesn't believe that housing incentives, which are worth about
$150 billion annually, are off-limits. ``Politically, I think the
case against making changes is exaggerated,'' Steuerle, now a
senior fellow at the Urban Institute, a non-partisan research
organization based in Washington, said in an interview.

From Deduction to Credit

Linda Goold, tax counsel for the National Association of
Realtors in Washington, says it's possible the tax panel may
recommend replacing the interest deduction with a tax credit that
would be more beneficial to lower-income Americans. They usually
don't have enough deductions to justify itemizing them, a
prerequisite for taking advantage of the mortgage-interest
deduction.
While government studies show that 69 percent of Americans
own their homes, only 33.6 percent of Americans itemize
deductions, according to Internal Revenue Service data for 2003.
Changing to a tax credit would mean all homeowners with mortgages
would benefit.
``It's not as Draconian as repealing the mortgage interest
deduction would be,'' Goold says. She says her group is studying
the idea and wouldn't necessarily oppose it.
Jay Brinkmann, an economist at the Mortgage Bankers
Association in Washington, says his group is analyzing a plan to
convert the mortgage interest deduction into a credit and that it
``might be acceptable'' depending on the details.
The panel may also consider a recommendation by the
congressional Joint Committee on Taxation to repeal the deduction
for interest on home equity loans, Goold says. The panel's
recommendations may include reducing the $1 million cap on which
mortgages qualify for tax incentives, she says.

--Editors: O'Connell, Fireman, Jaroslovsky, Reichl.

Story illustration: To read the Tax Policy Center's report on
housing tax breaks, type or click
http://taxpolicycenter.org/UploadedP...scussionPaper_
21.pdf.
To graph the annual federal budget deficit/surplus, see
{FDEBTY <Index> GP <GO>}

Silver™

Rents are rising again across the country, squeezing tenants who are already coping with high gasoline prices and improving returns to landlords after a deep five-year slump.

The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many metropolitan areas that some people have decided to rent instead.

A government report yesterday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,800 in July from $219,500 in June, after having risen in the winter and spring, the Commerce Department said.

Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be a pause.

But rents have clearly changed direction, even if the increases have been relatively small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental property.

"It seems like the tide has finally turned," said Michael H. Zaransky, co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.

Rents in about 85 percent of large metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. Late in 2003, rents were falling in 85 percent of markets.

Only in the hottest markets like New York, Southern California and South Florida have average rents been rising generally.

In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived and, best of all, they got to live rent-free for two months.

By last summer, the enticements had shrunk to one month of free rent. Today, all that a new tenant receives for signing an $1,100-a-month lease are the keys to the front door.

Throughout the South, in cities like Atlanta and Charlotte, N.C., fewer apartments are empty, building managers say. Nationwide, the vacancy rate for rentals fell to 9.8 percent in the second quarter after having climbed early in 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.

Even in Northern California - where average rents dropped about 25 percent after the dot-com crash, according to RealFacts, a research firm there - prices have reversed direction. "I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who lives with her 13-year-old daughter and has been looking for a two-bedroom house in Castro Valley, about 25 miles east of San Francisco. "You're not getting what you pay for."

The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a month's free rent or a reduced security deposit, are in neighborhoods where Ms. West said she did not want to live.

In most places, the rent increases have been smaller than the ones Ms. West found - smaller in fact than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent from the spring of 2004 to this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.

Outside the San Francisco Bay Area, many of the biggest declines occurred in cities like Dallas, Denver and Memphis, where abundant land and light regulation allowed home builders to put up thousands of new houses. Rents have continued to drop in those cities over the last year. But they have begun rising in metropolitan areas including Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.

"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management in El Paso, which owns 70 properties around the country. "This will be the first year that concessions have not increased."

Some apartment owners have raised the effective rent on their apartments by cutting back on concessions while keeping the announced monthly rent roughly the same. On North Bosworth Avenue in Chicago, the rent for a two-bedroom apartment in a building near the elevated transit line has increased only slightly in the last year, but the landlord is no longer offering a free month to new tenants.

Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.

The surge in condominium conversions is also helping to push up rents by taking rental buildings off the market. Looking at weak rents and high sales prices, many owners have decided that their buildings are not worth keeping.

Still, the market remains worse for landlords and better for renters than in much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.

The number of existing homes sold in July rose 4.7 percent compared with July 2004, the National Association of Realtors said this week. But the pace of sales slowed from June to July, according to the trade group, which adjusts its numbers to account for normal seasonal variations.

"The bottom line is housing is not plunging and it's not soaring," said James O'Sullivan, an economist at the investment bank UBS. "There are signs that housing is peaking, but there is no evidence that housing is weakening sharply."

Chris R. Howard, a 28-year-old computer technician at the University of Chicago, has suffered the consequences of rising rents, but he is about to become one reason that the profits of rental companies remain weak. In the spring, the rent on the two-bedroom apartment Mr. Howard shares with his girlfriend increased to $1,000 from $975. "They didn't give any real justification," he said, "other than the rent was low and it needed to be raised."

In October, though, he plans to move to an apartment near the university that they are planning to buy. They could not afford anything in their neighborhood, Ravenswood, but their new apartment on the South Side will be almost twice as big as their current one.

Mr. Howard said they were able to buy the place because mortgage rates were still extremely low.

Carolyn Marshall, in San Francisco, and Vikas Bajaj, in New York, contributed reporting for this article.

http://www.nytimes.com/2005/08/25/re...te/25rent.html

GreenMonster

I really need to buy some rental property

Fibonacci

Thirty Years of Reasons to Fear Housing Market: Mark Gilbert
2005-08-24 19:05 (New York)


(Commentary. Mark Gilbert is a Bloomberg News columnist. The
opinions expressed are his own.)

By Mark Gilbert
Aug. 25 (Bloomberg) -- David Rosenberg, the chief economist
for North America at Merrill Lynch & Co. in New York, is
``convinced that the housing market is ripe for a price
correction.'' If he's right, 30 years of history suggests any
collapse would imperil the outlook for global economic growth.
Thomas Helbling, deputy chief of the world economic studies
division at the International Monetary Fund in Washington, tracked
the housing market histories of 14 industrialized nations for the
period from 1970 to 2002, finding 75 home-price cycles.
Bull markets typically lasted a bit less than three years,
with prices climbing by a cumulative 11 percent when adjusted for
inflation. Bear markets were about one year long and prices fell
about 6 percent, the study found.
In boom times, defined by Helbling as the top 25 percent of
periods of rising prices, prices climbed for about four years with
an average increase in house values of 32 percent. Housing market
busts also persisted for about four years, with prices declining by
an average of 27 percent.
About two-thirds of all housing market booms ended in a bust,
when booms are measured using cumulative house price gains in the
eight quarters leading to prices peaking, Helbling found. That
percentage dropped to about 40 percent when booms were calculated
from peak-to-peak instead.
In the past four years, the average price of a U.S. home
resale has climbed by almost 38 percent, according to data compiled
by the National Association of Realtors. The average price of a
single-family U.S. home surged to a record $266,100 last month, the
association said earlier this week.

After the Boom

Slumping property values can wreck an economy. ``Housing price
busts in industrial countries were associated with substantial
negative output gaps, as real gross domestic product growth
decreases noticeably,'' Helbling wrote in his study. ``On average,
the output level three years after the beginning of a housing price
bust was about 8 percent below the level that would have prevailed
with the average growth rate during the three years up to the
bust.''
The IMF economist found that the U.S. had no booms and no
busts from 1970 to 2002 based on his methodology, though he said
the analysis only covered completed cycles and would miss any bull
markets still under way since the 1990s. Helbling's definition
means a quarter of all housing-market cycles are either booms or
busts, a necessarily ``arbitrary'' classification, he wrote.

Booms Elsewhere

U.K. house prices are up 75 percent since 2001, according to
the Nationwide Building Society, the U.K.'s third-biggest mortgage
lender. In the four years to the end of 2003, Australian housing
prices gained 70 percent; they've advanced less than 3 percent
since then, according to the Australian Bureau of Statistics.
``My hunch is that the booms in Australia and the U.K. have
ended, but this is only a guess at this stage,'' said Helbling in
an e-mailed response to questions. He hasn't updated his study,
which he presented at the IMF's October 2003 conference on ``Real
Estate Indicators and Financial Stability,'' to include data for
the past four years.
Parts of the U.S. equity market indicate investors are
starting to worry about the outlook for real estate. The Standard &
Poor's 500 index of homebuilding shares has declined by almost 15
percent in the past month, paring its gain for this year to 23
percent and its 12-month climb to a bit more than 50 percent.
Government figures yesterday showed the median price of a new
home fell to $203,800 last month, the lowest since December 2003.

`Affordability Erosion'

Houses for first-time buyers are the least affordable since
the third quarter of 1989, when rising energy prices and higher
Federal Reserve interest rates last coincided with a bursting
bubble, Rosenberg wrote in a research note this week. ``New home
sales plunged 20 percent in the ensuing year as demand responded to
the affordability erosion,'' he said.
Yale University economist Robert J. Shiller, who updated his
2000 stock-market book ``Irrational Exuberance'' this year to
include a section on the housing market, says U.S. house prices may
decline by as much as 40 percent in the next generation, the New
York Times reported Aug. 21. He's gone back to the late 1800s to
show that a period of declining prices followed every boom, the
paper said.

Bursting Bubbles

``Bubbles usually end, not necessarily because of higher
interest rates, but because you eventually reach a price point
where the bids dry up,'' wrote Rosenberg at Merrill. ``When you
treat your rising home price as a bonus to be spent every year, and
that source of so-called income dries up, so does your economic
activity.''
U.S. homeowners used mortgage refinancing to suck more than
$212 billion out of their houses in the second quarter, up 25
percent from the first three months of the year, Freddie Mac said
earlier this month. Almost 75 percent of the refinancing in the
second quarter was to generate extra cash. Without that extra
source of quasi-income to sustain the world's biggest economy, the
Cassandras who see low bond yields as a harbinger of hard times to
come may yet be proved right.

--Editors: Henry, Greiff.

Story illustration: To chart average U.S. prices of a single-
family home, click on {EHSLAP <Index> GP M <GO>}. To chart the S&P
homebuilding index, click on {S5HOME <Index> GPCT D <GO>}. For a
table of indexes on the U.S. housing market, click on
{ALLX HPI <GO>}.

Silver™

Even in the soaring housing market of the past several years, condominiums have stood out as particularly hot properties, but there are early signs that the condo boom is beginning to lose its punch.

The National Association of Realtors reported this week that the inventory of condominiums and co-op apartments rose in July to 5.3 months of supply, up sharply from 4.1 months in June. It was a figure that raised eyebrows even as other data showed the housing market remains strong, with new-home sales rising to hit yet another record.

“Our view is that we are starting to see some slowing on the condo side,” said Doug Duncan, chief economist of the Mortgage Bankers Association.

To be sure, any slowdown in condo sales merely would bring the market down from a stratospheric level. The national median price for condominiums, at $219,000, has risen 54 percent over the past three years, compared with 38 percent for existing single-family homes and about 21 percent for new homes.

“The condo market has been the high flyer over the past few years, clearly outpacing single-family homes in sales and price appreciation,” said Lawrence Yun, an economist for the National Association of Realtors. “It was bound to slow down. The pace was unsustainable.”

While a slowdown may be expected, the condo sector is watched closely as a potential canary in the coal mine of a housing market reaching dangerously overheated levels in the view of some analysts. Even Fed Chairman Alan Greenspan has warned of “froth” in some local housing markets, and on Friday he reiterated his concern about economic imbalances caused in part by the housing boom.

Condos are vulnerable to any pullback in part because they traditionally attract strong interest from investors, with 30 percent or more of all units made available as rentals.

And condo towers tend to be located mainly in the big urban areas on both coasts where housing has been hottest, including California, South Florida, New York and the Washington, D.C., area.

“There are no condos in Peoria,” said Lawrence Yun, an economist for the National Association of Realtors.

(Actually, there are condos in Peoria, Ill., and plans to build more, according to an article in the Peoria Journal Star this week. But Yun's point is well-taken — condo activity is largely concentrated on the coasts where housing prices are high and land is scarce.)

There are some good fundamental reasons why the condo market has been so hot. As single-family homes have become increasingly unaffordable in many large metropolitan areas, condos represent an attractive alternative for first-time buyers who want to get a foothold in the marketplace. And for single people and couples without children, condos offer an appealing urban lifestyle, often close to core downtown areas and mass transit.

For Anne Kimber, a financial analyst for a government contractor in Washington, condo living offers “a very urban existence without living in the city.” She recently bought a one-bedroom condominium in Arlington, Va., just a few stops by subway from the Pentagon, the National Mall and downtown Washington.

“I prefer condo living,” said Kimber, 51. “They take in your packages, and you don’t have to clean the gutters.”

Kimber paid $450,000 for her one-bedroom condo when she bought in the spring, and she felt fortunate after losing bidding wars on three other properties. “The market was really, really hot when I was buying,” she said.

But since then, the market seems to have hit a plateau, with buyers more reluctant to get into bidding wars, said Thomas Meyer, president and owner of Condo 1, a brokerage in Falls Church, Va.

“It definitely seems to me that there is a slight softening in the market, although in all fairness when (the weather) gets very hot that does happen sometimes,” he said. “But we have been expecting some kind of correction for some time.”

He said the increase in prices in his region has been “astonishing,” with prices doubling over the past five years.

In San Diego, another of the nation's hottest markets, there is no sign yet of any condo sales slowdown, said Ann Throckmorton, broker with Century 21 Award. So far this year condos in San Diego County have sold in an average of 44 days at 98 percent of their listing price —figures that are about the same as last year, she said.

The key factor to watch, according to industry executives, is a flood of supply that is coming onto the market as developers scramble to cash in on the condo boom.

Last year builders started construction on 120,000 multifamily housing units intended for sale as condominiums or co-op apartments, up from 87,000 in 2003. In the first half of this year the figure was 65,000, up nearly 40 percent from last year’s pace.

“There is still a lot of momentum in terms of starts,” said Michael Carliner, an economist for the National Association of Home Builders. “There are going to be a lot more (condo units) entering the market.”

At the same time thousands of apartment units are being snapped up by developers for conversion to condos, especially in hot-market states including California and Florida. About 300 apartment complexes with nearly 80,000 units have been purchased for conversion this year alone — more than in all of 2004, according to Real Capital Analytics, which tracks the trend.

“We have seen no evidence of a slowdown,” said Dan Fasulo, director of market analysis for the firm. But he said some clients “have started to take pause” because of the growing pipeline of condominiums entering the market.

“Especially in southern Florida, where there are a lot of units in the pipeline, it’s going to be interesting how the market accepts all this supply in the next couple of years,” he said.

If condo prices flatten out, investment interest could taper off in a hurry.

“If the inventory builds up, even at a reasonably brisk sales rate that may still lead to price weakness, and that starts changing the economics of the condo market,” said Mark Obrinsky, chief economist National Multi Housing Council.

While many people buy condos as an alternative to renting, others have been drawn to the market by the rapid price appreciation, and those buyers will disappear if condo prices go flat or decline.

“There is still a view out there that a condo isn’t just a place to live, it’s also an investment product,” said Obrinsky. “So long as people view condos as a good investment there will be people willing to pay a price that is awfully high compared with just a few years ago.

http://www.msnbc.msn.com/id/9087037/

Fibonacci

Greenspan warns against optimism on homes, stocks

JACKSON, Wyo. (AP) — Federal Reserve Chairman Alan Greenspan on Friday cautioned Americans against thinking the value of their homes and other investments will only go higher, saying "history has not dealt kindly" with that kind of optimism.
Greenspan also said that bloated trade and budget deficits threaten the long-term health of the U.S. economy.

His warnings, made at a high-profile economic policy conference, came as the Fed chief and prominent economists pondered his 18 years at the central bank and the legacy he will leave. He is expected to step down in five months.

Rising house and stock prices have made many people feel more wealthy and have helped to support consumer spending, a key ingredient of the economy's good health.

Greenspan, however, said people shouldn't count on that paper wealth, which can evaporate if economic conditions deteriorate rapidly.

"What they perceive as newly abundant liquidity can readily disappear," he said. "Any onset of increased investor caution" could cause home and stock prices to drop, he noted.

A long spell of low interest rates and low risks for investors has especially encouraged investment in homes. Greenspan worried about what would happen if that climate were to change.

"History has not dealt kindly with the aftermath of protracted periods of low-risk premiums," he said.

Low interest rates have powered the booming housing market. Home sales have hit record highs four years in a row, and house prices are surging. In previous speeches, Greenspan has warned of "froth" and "speculative fervor" gripping some local housing markets.

If house prices were to fall suddenly or if interest rates were to rise rapidly, some local housing markets, homeowners and lenders could get clobbered.

"Greenspan is giving individuals ample warning that they need to take that into account," Allen Sinai, chief global economist at Decision Economics, said in an interview. "He's throwing out a yellow flag of caution.

Sinai and others believe Greenspan was strengthening his warning about the booming housing market. But they didn't think he was signaling a new concern about the development of a national housing price bubble. Instead, they said, he seemed to be stressing his oft-stated worries about bubbles in local housing markets.

"He's staying with the position he had before. There are local bubbles but no national bubble," Allan Meltzer, a Carnegie-Mellon University professor, said in an interview.

On Wall Street, the Dow Jones industrials lost 53.34 points to close at 10,397.29.

Stock prices and house prices are factors that Fed policy-makers are increasingly needing to consider when setting interest-rate policy, Greenspan said. "Our forecasts and, hence, policy are becoming increasingly driven by asset price changes," he said.

During the high-flying stock market days of the 1990s, the Fed chief in December 1996 famously questioned whether Wall Street investors were engaging in "irrational exuberance." Despite the warning, stocks continued to soar. In 2000, the stock market bubble began to rupture and wiped out trillions of dollars in paper wealth.

Maintaining economic flexibility is especially important, Greenspan said, to deal with what he called some of America's economic imbalances: the swollen account trade deficit, which surged to a record $668 billion last year, and the housing boom.

"Developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks," he said.

Teamsters President James Hoffa took issue with Greenspan's comments that trade protectionism is a threat to the economy.

"I think Alan Greenspan is wrong," Hoffa said in an interview with The Associated Press in Washington. "Teamsters unions and machinists have seen thousands and thousands of jobs go overseas that are never coming back" due to "unwise trade agreements."

Job loss, Greenspan said, should be addressed "through education and training, not by restraining the competitive forces that are so essential to overall rising standards of living of the great majority of our population."

Greenspan said that "fear of change" is behind stalled international trade negotiations and the hesitancy of Congress and the White House to "face up to the difficult choices that will be required to resolve our looming fiscal problems."

In the past, Greenspan has urgently called on policy-makers to shore up Social Security, saying a big wave of baby boomers starting to retire in 2008 will put massive strains on the system and if not fixed can imperil the overall economy.

Greenspan's remarks were to a conference, sponsored by the Federal Reserve Bank of Kansas City, called "The Greenspan Era: Lessons for the Future."

"The Greenspan era gets extraordinarily high marks," said John Taylor, professor at Stanford University. Those thoughts were echoed by many others attending the conference.

Greenspan's appearance at the annual two-day conference, which is attended by Fed policy-makers, economists, academics and central bank officials from around the world, is expected to be his last as Fed chairman.


http://www.usatoday.com/money/econom...deficits_x.htm

Fibonacci

Greenspan: End of home boom inevitable
In a speech in Wyoming, the Fed chair says surging housing cannot be sustained.
August 27, 2005: 2:34 PM EDT



JACKSON HOLE, Wyoming (Reuters) - U.S. home prices could fall as the housing boom "inevitably" slows, Federal Reserve Chairman Alan Greenspan said on Saturday as he cast doubt on central banks' ability to sway such asset values.

Greenspan offered the warning about the U.S. housing market in concluding remarks to an annual Kansas City Fed symposium, his last as Fed chairman and one focused this year on a retrospective of his 18-year tenure.

In unusually explicit terms, the central bank chief gave his reading of challenges he sees facing his still-unknown successor and laid out his own views on issues such as inflation targeting, fiscal policy and economic imbalances.

"The housing boom will inevitably simmer down," Greenspan said in the prepared remarks. "As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease."

Greenspan said while he expects continuing debate over whether the Fed could and should use its power over interest rates to try to influence prices for assets such as stocks and homes, he did not think it was feasible to do so.

"The configuration of asset prices is already an integral part of our evaluation of the large array of forces that influence financial stability and economic growth," he said.

"But given our current state of knowledge, I find it difficult to envision central banks successfully targeting asset prices any time soon."

He said he would not rule out the possibility that better knowledge of how asset prices behave could in the future affect the conduct of monetary policy.

Home prices have surged by double-digit percentages in some U.S. regions, especially along the coasts. Nationwide, average prices are up 50.5 percent over the past five years.

Benefits for broader economy
Despite the pain it will cause many Americans, Greenspan implied the slowing in home price gains could yield some benefits for the broader economy.

"The surprisingly high correlation between increases in home equity extraction and the current account deficit suggests that an end to the housing boom could induce a significant rise in the personal savings rate, a decline in imports and a corresponding improvement in the current account deficit," the Fed chief said.

Greenspan said the degree to which these changes are "wrenching" depends on whether the United States and its key trading partners maintain flexible economic policies that allow needed trade and other adjustments.

The large gap in the U.S. current account, the broadest measure of trade since it includes investment flows, has many in Congress worried.

The Fed chief has long warned that trade protectionism, including tariffs and other barriers to the global flow of goods, are a threat to world economic stability.

In what could be seen as a parting shot at those who maintain the U.S. central bank should adopt specific and openly stated targets for inflation -- similar to those at many of the world's major central banks -- Greenspan reiterated his steadfast opposition.

"I remain unpersuaded that explicit numerical inflation targets are a key characteristic that distinguishes behavior among the world's central banks," he said, adding that the Fed, and most others, already pursue price stability as a goal.

"That said, I am certain this will remain a topic of lively discussion here and at other monetary forums in years to come," said Greenspan.

While the White House has not yet chosen a successor to the 79-year-old Fed chief, at least one of those cited as a potential heir -- former Fed board governor and current Bush administration economic adviser Ben Bernanke -- is a staunch proponent of inflation targets.


http://money.cnn.com/2005/08/27/news...ex.htm?cnn=yes

zamo

http://www.sun-sentinel.com/business...ostemailedlink

Fibonacci

Nicely written, good analytics, balanced viewpoint:

http://www.mortgagebankers.org/news/...ograph_No1.pdf

Silver™

Interesting read, and damn there were lots of graphs

Silver™

Hundreds of real estate agents crowded into a condo sales center on a recent hot August morning to hear industry experts opine on the bubble myth.

It ain't happening, promised Ron Shuffield, president of Esslinger Wooten Maxwell.

Don't believe the media, warned PR pitchman Seth Gordon.

Speculators and investors are what built these cities out of swampland, added Mark Armstrong, director of Florida operations for development company Leviev Boymelgreen.

The sales agents nodded their heads in agreement. Surrounding them were models of luxury towers and views of the city, shimmering Biscayne Bay and construction cranes tending to partially built buildings.

Others, including a couple at the seminar, took issue with the numbers given out - some of which have become outdated in a matter of weeks or lacked context for the time period they covered.

Sales for single-family homes were still strong in June, but condo sales have been falling off, according to recent numbers from the Attorneys' Real Estate Council of Miami-Dade, which tapped economist Hank Fishkind to analyze the data.

For the third month in a row, the volume of new condo closings decreased, down to 1,537 units, while prices went up, to nearly $400,000. Existing condo closings were flat; so was pricing, at an average of $308,334.

Closings for new single-family homes went up to 691 units and to 3,353 for existing homes.

The speakers expressed concern about national and local media reports of a possible housing bubble.

Gordon said he took some developers over to The Miami Herald to meet with new Publisher Jesus Diaz Jr., expressing concern over negative coverage.

What's a bubble?

"The bubble is a term without a definition," Gordon said. "Some think it's a leveling of prices. Some think it's the end of civilization as we know it."

He thinks developers haven't done a good enough job explaining how the industry works, that timetables for building take about three years, and that all the units won't hit the market at once. And that in Miami, the market isn't selling just to locals, but to the world.

"Developers spend millions and millions, selling champagne dreams, naked women and naked boys and the good life with stainless-steel kitchens," he said. "But there's been really no effort at all defending the market."

The publicist's company, Gordon Reyes & Co., recently inked a deal with the Florida Real Estate Showcase, which will bring a three-day exhibit to the Coconut Grove Convention Center in November.

FRES director Maribel Alvarez said in a release that to take the showcase to the next level, organizers needed "to move to the heart of the real estate boom in Miami."

It's in Miami where many worry about the numbers of new construction.

Those numbers were debated at the Aug. 18 real estate gathering - advertised to address "Is there a bubble? Are your clients asking you about the housing bubble? Get answers you need to be able to answer their questions ... and more!"

"The 60,000 units figure is way overblown," said Shuffield, adding that talk of a bubble slows down the market.

As much as 30 percent of the market is foreign buyers, he said, and business has been strong. "I've been here 30 years and I've never seen a market like this."

Leviev Boymelgreen's Armstrong, speaking from inside the sales room of Soleil, one of his company's high-rise projects, said naysayers have been around since the founding of Miami and Miami Beach by the Tuttles and the Brickells, the Collinses and the Fishers.

Catastrophe was predicted then, he said.

"Boy, would I have liked to have invested in Miami back then," Armstrong told the audience, largely composed of people born outside Florida.

Not mentioned was the crash in the 1920s that preceded a nationwide depression. Armstrong didn't mention the glut of condos along Brickell Avenue during the real estate downswing of the 1980s, although Shuffield blamed it on the crime wave that hit Miami and the devaluation of Venezuelan currency.

Armstrong further argued that inventory numbers are misleading. Only 7,000-plus have been built, he said, without mentioning the time frame, while about 11,000 are under construction.

"That's where it stops," he said. "We have to stick to facts."

In June, city numbers showed that 7,343 units had been completed since 1995. As of August, the city's tally had risen to 9,152 units built and 14,134 more under construction.

An additional 57,392 have been approved, are in the application phase or have been proposed, but the speakers said not all those units may come to fruition.

If they did, the total would reach 80,678 for the city of Miami - equal to all the housing units counted by the 2000 Census in Fort Lauderdale.

The speakers did not include projects in Coral Gables, Sunny Isles Beach, the rest of Miami-Dade County or the rest of the region. They also did not include condo conversions under way in the tri-county area. Deerfield Beach-based McCabe Research and Consulting expects 25,860 conversion units to sell or hit the market this year.
BS and 'totally useless'

One Realtor remained unconvinced by the answers proffered.

That's BS, said Katia Smith of Classic Realty Group, after Armstrong finished speaking and Gordon rejected her request to ask a public question at the end of the session. "This was totally useless."

Her concern: too much luxury product has flooded the market, while housing that can be afforded by the working class is non-existent.

Smith said the numbers were disingenuous and didn't address the real problems facing real estate in Miami-Dade. What's the market share of high-end units selling for more than $400,000 among the units under construction, she wondered.

Another naysayer in the audience was Jack McCabe, the local conversion guru and real estate analyst.

"They didn't talk about dark towers," he said. "They didn't talk about projects that were in trouble."

Nor anything about increasing interest rates. Or the weakening euro, which, when much stronger than the dollar, spurred a buying spree from Europeans. No mention of a tightening by lenders either, he rattled off.

The market is at its pinnacle and a correction will be seen in the first half of 2006, McCabe said.

Consider: In the eight-year span from 1992 to 2000, 7,092 new units were absorbed in Miami-Dade County, McCabe said. Just one project was built in 1996.

But in 2003, that number skyrocketed to 7,210 for just one year. In 2004, 7,425 more. The total for this year may push 15,000, he said.

"Why question the visionaries, given that population has increased and we have job growth," McCabe said. "Do you honestly believe that explains a tenfold increase in sales overnight? And twentyfold in the last two years? Or do you believe a more reasonable explanation might be that 70 to 80 percent of these sales are actually driven by speculators?"

And the truth may even be closer to 90 percent speculation within pre-construction sales, realty agent Smith said. It's just the nature of the arrangement.

What remains unclear is how quickly the units will be absorbed.
An FP&L measuring stick

True absorption can be tracked by indicators like the number of electrical hook-ups by Florida Power & Light: 12,454 new connections from June 2004 to May 2005, according to Tom Dixon, 2004 chairman of the Realtors Association of Greater Miami and the Beaches.

Those numbers have been "relatively the same" over the past 20 years with slight shifts, he said. But Dixon sees a greater worry on the horizon, deeper than the debates as to whether the bubble will burst or when the market will correct itself.

"All the condos that have been started will be finished and will be sold at some point," he said. "My concern is when they stop construction, our economy is gong to be in trouble. When that slows down, it's going to have a serious trickle-down or multiplier effect. When it turns off, it's going to be like when the tourists stop coming."

The impact will hit all the companies connected to the building boom, from laborers to suppliers of carpeting, tile, windows and more.

All the units under construction will become occupied - eventually, Dixon said. "I guarantee it."

"The problem is when those units are finished," he said. "When the cranes fly away, then it's coming to an end."

http://msnbc.msn.com/id/9113699/

fdl

The problem is most times these "industry experts" are banks or other organizations with an interest in promoting the real estate market.