Origniated early 18th century in England with the South Sea Bubble.

Yup. Hope some of those guys have some pretty hefty savings accounts. You'll be locked up for a few years..

Thank God for inflation.

rjp

From Randy P's inbox - industry spam.
 

how's this for definition? Even the banks are guessing it's coming to a close.

if you dont' have equity now, figure it'll take you 2x as long to get out vs. 1 year to break even. - Equity gains are almost cut in half.

Remember, figure about 10% off the top between realtors, excise tax (?) and seller concessions to sell your property.

Economist Sees 8% Home Sales Drop
Home sales will decline by about 8% this year and housing starts will drop more than 10%, according to Diane Swonk, chief economist of Chicago-based Mesirow Financial. In the April issue of Themes on the Economy, Ms. Swonk also forecasts that home price appreciation will slow to 7% this year, down sharply from "the almost unbelievable and unsustainable" 12.8% pace of 2005. "Speculation played a much larger role than we would like [in 2005], with mortgages used for investment purposes rising to a record-breaking 12.1% of the market in the fourth quarter," Ms. Swonk said. "This leaves us worrying about the magnitude of a market correction, now that cancellations for new homes -- largely condos -- are on the rise and speculative investment appears to be cooling." Mesirow can be found on the Web at http://www.mesirowfinancial.com.

Opera, anyone?
 

Hope you have a thing for fat girls who can sing..

Lenders Now Say Housing Bubble Exists
Two-thirds of lenders nationwide believe a real estate bubble exists, and half believe it will burst within six months, according to a quarterly survey by Phoenix Management Services, Chadds Ford, Pa. A housing correction would result in a decline of 10%-20% in real estate prices across the United States, according to 93% of lenders polled in the company's Lending Climate in America Survey. "In the minds of lenders, the housing bubble has moved from 'Loch Ness monster' myth status to an economic reality that could have a significant, negative impact on the lives of many Americans," said Michael E. Jacoby, managing director and shareholder of Phoenix. "A year ago, 46% of lenders believed we were in a housing bubble. Today, that number has climbed to 66% -- and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20%." About 30% of the 92 participating lenders said the housing bubble has already begun to burst, while 20% said it would occur in the next six months, Phoenix reported. When asked which region is likely to be most affected by a housing correction, 30% named the Northeast and 27% named the West Coast. The company can be found online at http://www.phoenixmanagement.com.

EDIT:

Random thought:

One thing, when they talk about property depreciating "housing prices up to 20%", it has to be sold first for that to happen. As long as the local economy holds up, people continue to hold on, and simply sit tight you won't lose. You just will be keeping it for awhile.

Inflation, and a good robust local enonomy are your friends now..

rjp

I believe the 8% fall in home sales is grossly underestimated. NAR recently released a report for 2005 which stated 40% of existing home sales were for investment purposes or second home purchases. I believe 12% were for second homes, leaving 28% for investors. I feel the 40% mark will fall to 20% as the market tightens. 8% decline is hogwash.

Homeowners will feel the burn as rates continue their ascent. Inflation won't help us as long as wages stay flat. It really is different this time because past housing booms landed in a falling interest rate environment. This boom is sailing directly into rising rates.

I can't even keep up with all the articles at http://thehousingbubbleblog.com
Another fave is http://globaleconomicanalysis.blogspot.com/

My play on this market is put options on ETF XHB. This ETF is heavy on big name homebuilders.

I think if you live in stable but unremarkable community the prices will be pretty solid. The problem is the price of houses in the white-hot areas like the bay area and coastal southern California. Quite simply, the price of homes has outpaced the wage profile of the vast majority of homeowners. What kind of income do you need to get into a million dollar fixer-upper starter home? It's absurd. In response to the housing market rocketing beyond the "normal" families grasp, the markets have responded with equity plus loans, interest only loans and other ill advised policys. The real estate market is walking a tightrope...while keeping a dozen plates spinning in the air. At some point it will all come crashing down and the margin players will get hurt.

It's just one of the reasons I packed it in in Cally and moved back east, that and to invest in a permanent abode.

I have no intentions of selling this place, it'll be up to my wife who's likely to survive me, or our heirs if she does not.

I'm 'ere and 'ere to stay.

my home is just like my fridge and washer and dryers, durable goods. i bought in dirt cheap. if i lose some equity, who gives a crap. still better than paying rent. i got a fixed mortgage, i put down 20%. i feel sorry for the people with the big homes and two payments. one idiot i work with took his home that he bought a long time ago, cheap, and refinanced to interest only, so he can buy stuff like trucks and ski boats. now that is dumb.

One day Chicken Little was walking in the woods when -- KERPLUNK -- an acorn fell on her head
"Oh my goodness!" said Chicken Little. "The sky is falling! I must go and tell the king." ;)
Sorry, couldn't help it.

IMO Yes there is a slight bubble. Yes prices will fall a little only to rebound in a few years.
No, the sky is not falling.
If a person in So Cal had sold his house when the bubble warnings had first started circulating, he would have missed out on at least 30% appreciation on his house, maybe as high as double that (my esitmate).
Suppose the "bubble" drops prices 20% (which I doubt), he would still be ast least 10% ahead. My opinion? ride it out, but do it with fiscal reponsibility. Anyone foolish enough to get into a risky mortgage they cant afford deserves what they get.

Oh, and don't invest in financial institutions, they are going to get their hands slapped.
Oil stocks are the way to go.

Does any one really know someone who bought some real estate as a speculative venture?

Is this a rhetorical question?

I don't know them, but the folks that lived two doors down from us in Fremont sold their house (1100 sq. ft on 5000 sq. ft lot) that they'd lived in for 18 years for $540,000, and that was in fixer-upper condition. Those that bought it fixed everything and put it back on the market in less than six weeks for $630,000. It was still on the market when we left.

That was somewhat common last year, don't know what's going on now.

No, but if the bubble so obviously exists, someone should know someone who has bought speculatively. I don't and I bought last year and I bought for the long haul.

I live in San Jose and have not seen any speculative buying or flipping.

Absolutely 100% correct. I can vouch for this personally. I'm 35, work a professional job, my wife works and makes good money also. I own three Porsches but there's no way on earth we could afford a place right now. Even condos are going for $350k and up. Unless there's a major correction (as in 25% or more) I don't see how anyone can get into a place nowadays without some very creative (and dangerous) financing.

Edit: The above applies to first-time buyers like myself. If you own property, you can buy property but I'm mostly speaking of a "barrier-to-entry" that's becoming insurmountable for anyone not born into a trust fund.

Absolutely right.

Remember too that in this era of globalization many investors in really hot markets are financial investors - investors who buy solely for the anticipated appreciation (referred to in Waynes original definition).

These are often offshore investors (both individuals and funds etc) who will sell their investment at the first sign of less-than-anticipated returns. When that plug is pulled the bubble will truly burst - certainly in this town.

A person who bought an investment property with negative cash flow is speculating. A person who buys a home with monthly costs far greater than the cost to rent a similiar home, is speculating. A person who buys a home with a risky adjustable rate mortgage, or negative amortization mortgage is more than likely, speculating. Any investor buying pre-construction housing is speculating. Speculation is not evil, but it does have risks. In the past few years, these risks have been minimized or ignored, but in a free market, risks are rarely eliminated.

Dottore, I don't think so. Offshore investors don't buy into the low end market. Million dollar fixer uppers are not low end.

Jeff. There has always been a barrier to overcome for first time buyers. You do what I did. You move to where you can afford to buy and commute. You have one car, each about ten years old, and you never eat out for quite some time.

Housing prices rise and fall, but mostly rise. Betting on the come is just that.

My company is relocating us to the OC. They are subsidizing our rent for two years. At first I really wanted a house but the more I look at the situation I figure in two years the market may correct, but if it goes up I couldn’t afford it to start with. Who knows maybe I will enjoy renting, Sitting by the pool and calling maintenance to go to my townhome and change the light bulb in the kitchen. :D

yes, no, yes,yes. Most home buyers in for the long haul buy a home that costs far more than rent would take in.

The reason being is that all of CA came up to the NW and started buyng condos and houses in "Phase 1" developments.

Buy it, never move in, sit on it till the builder raises the prices, sell it.

rjp

Re: Opera, anyone?
 

Exactly. I'm not looking to sell anytime soon.

Have to agree again. . . I looked at a six-unit apartment building in Anaheim recently - asking price was $1.3M. Figure mortgage payments on the order of 1% monthly is 13,000 a month divided by six units = $2,166 a month per unit. With full occupancy.

Think you're gonna' get that in ANAHEIM?!?! Doubtful to say the least. If I want to live on-site and manage myself there goes one of the units. Now it's $2,600 a month for each unit. That ain't gonna' happen - plain and simple. And if any major maintenance work needs to be done, you're screwed.

Something simply has to give with this pricing - it's totally unsustainable as-is. I have yet to see an exception to this hypothesis.



Thanks for your advice on the down payment thing, but moving really isn't an option. Where are we going to move? I live in Long Beach now, work in Glendale. My wife works in Santa Ana. I suppose I could take a job closer to O.C. but the housing isn't going to be any less expensive out that way. . .

The people that say "just move somewhere cheaper" I fear really haven't thought that statement through because if you move somewhere cheaper, your salary is going to be less, you have to start (most likely) a new job with a new company which hurts your credit, you have to "start at the bottom" and prove yourself and all that crap that goes along with it. . . It's not so simple unfortunately. I wish I had an easy solution but I don't.

As far as simply sacrificing and saving up - a 10%-20% down payment on a half million dollar place is still $50k or so. That would literally take about 5-10 years to save up. Not so easy, especially considering I'm in my mid-30s. . . I know PLENTY of people in my situation too. . . I have no issue with saving up or sacrificing to own, but I need to know that my sacrifice will be worth something in the end. As it stands, I'm not so sure. . .

Jeff, how would the commute be from Bakersfield? ;)

I agree, this situation is unsustainable.

(PS... I just met a gentleman who LOST a bid for 6 acres of beachfront property on Oahu. His bid? 75 million!)

OK...lets come up with a percentage figure for the coming RE bubble burst....Figure what price on the RE it would take to make it affordable on a monthly basis for U to buy one of these homes...and that likely will be the percentage of decline in prices.

A Home is a Home is a Home...for decades in this country people didn't look at RE as an investment..unless it was commercial or rental. Everybody has to have a place to live

It is true that if a region did not appreciate much it won't decline very much either...the converse is also true.

By the time the media starts to tell you the Bubble is Bursting it has allready done so.

Like the Stock Market Day Trader of the 90s so it will be for the RE Speculator who looks to flip homes or uses creative financiaing ...they will have their heads handed to them..unless they have hit the cashout button on the machine allready.

And pray tell where is all that Investment Money going to go...sit on the side lines in Money Market Accounts??? Not likely , Bonds in a rising interest rate environment, Hard Assets...how much more than 1M is someone going to pay for a Hemi-Cuda.

Take a look at corporate earnings....and that will tell you where the hot money is going to go.

I've been watching the MLS listings on Ziprealty.com in the SE Florida area. Ziprealty is nice because it tracts any price reductions and the total time on the market. Since 2002 this area has seen a 20-25% appreciation in property values through August 2005. Like the majority of areas, income has not risen with the price of homes. Funny money, no-money down mortgages, and investor purchases are very active.

The listing price of these homes have remained high reflecting the median price of July 2005. However, since November 2005 the multiple listings show single or multiple price reductions. The price reductions have increased, with many price reductions occuring within the first week or two after listing. Not surprisingly the "days on the market" have increased into triple digets. What is telling is the price reductions and "sitting on teh market" occured during the most active sales months in the area. Presently, the inventory is ridiculously high.

I contacted a ziprealtor I have been talking with to inquire as to homes marked "inactive." I was told these homes have been sold. I randomly selected 25 homes that were "sold" and checked these with the county sales records. Surprisingly, I found only 1 home that had been sold. The original listing price was $449k. A remodeled SFH, 4 bd, 3 bath, pool in a nice neighborhood. Two price reductions took it down to a $399k. County sales records show the home sold for $369k after sitting on the market for 120 days. Similar homes in the same neighborhood sold in May & June 2005 within a few days at a $450k listing price. I could find no other home reported as "sold" in the county sales records that was listed on ziprealty as "inactive." The seller had to come down 20% from the listing price. So for this one home, the market did fall 20% since last June. For the other homes that did not sell but were pulled off the market, I would expect a similar decrease in price to be necessary to sell the home. It is a battle between the sellers to attract the buyers.

Over the past week I have noted a few very nice remodeled homes that were listed well below the median sales prices. It appears some sellers have wised up and gripped the reality that the June 2005 h09me prices are no longer attainable.

My take, in the SE Florida rejoin, homes will sell, but are not going to sell for more than 25% less than the June 2005 high market value. Coupled with the upcoming hurrican season, where home sales significantly slow From May - December, more home will likely be sitting longer on the market.

This is not scientific by any means, but to me is an indicator of the housing market and the "bubble has burst" in the SE Florida market.

If you see 30% appreciation & a subsequent 20% depreciation then you are 4% ahead.

If you see 30% appreciation & then the market falls 30% then you would be 9% behind.

For someone who owns & has no plans on going anywhere anytime soon these cyclical moves don't really matter at all.

This is certainly the case here. Buyers from the US, Europe and Asia have been buying newbuilding off of developers plans - before it is built. In fact I think virtually every new condo built these days is "pre-sold". A great many of these sit empty - while their owners live and work elsewhere. Walking through many new developments at night is like walking through a ghost town.

And prices for these are truly ridiculous. For a while the holy grail was $1,000 per square foot - but we are now seeing apartments sell at $1,300 and even $1,400 per square foot. Silly money by any standards - except perhaps Money Center standards.

And when those financial investors no longer see their investment appreciating at 15 or 20% per year they will pull the plug and get into pork bellies or Chinese equities or something else.

And then everything will collapse in a steaming heap.

Trust me. I'm a lawyer.

>If a person in So Cal had sold his house when the bubble warnings had first started circulating, he would have missed out on at least 30% appreciation on his house, maybe as high as double that (my esitmate).

Yep...Wayne sold his condo about 1.5 years ago and lost out on about 30% appreciation by my guesstimate. A little bitter, Wayne? :D

But he's right that we're in a bubble...it's just lasted longer than anyone ever imagined because of the weird financing. It's simply a matter of supply and demand. As long as there is buildable land (and there is still plenty in SoCal), the builders will build until supply meets demand. At that point, prices will settle out until people can afford them. NY or San Francisco are exceptions because they have no buildable land.

>Does any one really know someone who bought some real estate as a speculative venture?

Yeah...do a search for "Motion". He drives a Ferrari 360 Challenge Stradale. 'nuff said. :)

No-one I know who owns a house in North Berkeley/Albany/Kensington (for non-SF Bay folks, these are desirable residential areas in the East Bay) could afford to buy it at today's prices. We're talking $800K to $1.3MM homes owned by families with gross incomes of $100K to $200K. The way those homes sell is by families trading up from $400K to $500K homes (that currently buys you a nasty 1,200 sq ft fixer in the highest-crime areas of South Berkeley), or by families using aggressive loans. The first route breaks down when house price gains slow, and the second route will eventually be cut off when banks tighten lending standards. I've been seeing prices flatten and pull back a bit over the past year, homes staying on the market longer, selling under asking.

From what I've seen, Portland is a little better. You can still buy nice move-in 2,700 sq ft homes in nice areas all day long for $550K. But the price increases have been significant over the past few years. In the 66-home sample I studied, the average price appreciation over the past 3 years was about 15%/yr (eliminating obvious outliers that were probably bought as extreme fixers and had a lot of money dumped in them). To my eyes, this is no longer a cheap housing market, except by the inflated standards of the rest of the West Coast. Prices are still rising, as of this moment. I am told there's lots of Californians moving to Portland and bringing their home equity with them, either working for Portland companies or continuing to work their California jobs through a mix of telecommuting and physical commuting (techies, especially).

I'm in the market for a house in Portland. My expectation is that the house I eventually buy will keep rising in value for a year or so, then will roll over and decline, leaving me with a 0% +/- 10% gain/loss in 1-2 years - and I think a loss is more likely than a gain in that time period.

However, I'm planning to stay indefinitely, so my attention is more focused on getting a house/neighborhood where I can stay for a long time, and working like a dog so that my income rises.

- Oh yeah, the working bit - back to the salt mines.

Here is my situation moving from So Cal to SE Florida, well thought out IMO.

Housing
Comparible homes @ 2000 sq.ft., within 2 miles of ocean, 3 bd/2bth, 2 car garage, pool

So Cal: $1.2m
Florida: $ 325k

Savings: 75% or about $875k.

Sales Tax

OC 7.75%
Florida 6%

Savings: 1.75 % on all purchases

State Income Tax

California: 9.3%
Florida: 0

Savings: 9.3% of all earned income.


Just in tax I save 11.5% of my income by moving out of So Cal. Add another $875,000 saved on housing and you have 86.5% decrease in the cost of living. I would really have to take one heck of a paycut to come out behind. I doubt my salary or anyones would go from $100k to 13,500.

This doesn't include the benefits such as leaving overpopulated So. Cal, the worst traffic in the country, a 18% greater chance of contracting cancer based upon breathing So Cal. air, a cold, crowded and polluted ocean. Its no wonder that 400,000 California's will move out of the state this year. California has demonstrated an unprecedented emmigration level unmatched by any state.

Admittedly I haven't checked, but I'd be willing to bet my salary would be 1/3 to 1/2 of what it is here. . . What good is it when a mortgage payment (using 1% of total as a benchmark) is still twice your monthly income?

I lived in FL once and vowed never to do it again, but maybe it has changed in 15 years. . . Maybe, just MAYBE I'd consider looking at it. Then again, distant memories of torrid humidity, bugs, boring-as-hell landscape and legions of white trash types living in trailer parks are percolating to the surface of my fuzzy memories. . . Like I said, maybe it has changed in 15 years, but just for starters:

(1) They have a governor named "Jeb" (worse still, he's one of "them").
(2) 15 additional years of obnoxious New Yorkers migrating there couldn't have helped matters much.
(3) Two words: "Terri Schaivo". 'nuff said.
(4) Hurricanes. Big'uns. Lots of 'em.
(5) Even crappier construction by even more unscrupulous residential contractors than here in California. . .

I dunno. I think I'm starting to remember why I left there and ended up out here, but I'm open to suggestions I guess. . .

Actually, I bought real estate in Phoenix as long-term investments. I even bought a new pickup truck to drive there and maintain the properties. The problem arose when I saw 90% appreciation on the houses in 9 months. I changed my mind and sold them (still trying to sell one). I just got lucky.

BTW, commercial is going nutz down here also. Check this out:

http://www.cpnonline.com/cpn/article_display.jsp?vnu_content_id=1002237033

I've lived in both florida any California; about 15 years in Fl and a few more in CA. I've lived in the Riverside, LA Metro and Orange County areas. I've lived in Northern Florida, Orlando and Tampa.

I never though traffic was much better in Orlando or Tampa areas over Los Angeles. LA has multitudes of Freeways that are free to park on; Florida has a few freeways, a bunch of two-lane highways and toll roads. The freeways in CA tend to go into places in SOME thoughtful way (Assuming the enviromental impact report ever gets done and surf rider's doesn't object...) while the freeways and highways in FL go in taking into account two things in this order: What water do we have to build around and through and where is the real need. Traffic in florida CAN be as bad as California what tends to be the deciding factor is that folks live farther from work in CA and have longer commutes.

You have to ask yourself; Do you want to live in the south?

There are real differences in the Florida and southern personality than the average Californian's personality. I just wish that included the cost of living. I hate to say this but in Florida I've experience more prejudice than in California.

Two words, humidity and hurricane. Unlike the killer CA earthquake those two come round every year like my bend over physical. Seriously best of luck in FL. The few times I've been there I enjoyed visiting. :)

I like jyl's synopsis.

compared to me, motion is a super-genius. He was in the right place at the right time. Phoenix produced many motion's, but I must wonder how many total losers Phoenix is now producing. By loser, I'm thinking, buy half a dozen flip properties and watch your down payment disappear over the next 8 months. The predicted 300% cash-on-cash return has morphed into a -150% return. That's gotta hurt.

pbs, I don't know where you plan to relocate, but I recall seeing a quote from a developer in Naples, FL. I believe his words were something like "the condo market has totally collapsed." FL is going to be in major pain, and the insurance debacle is not helping, either.

Quote from posted link:
Haha, lowest cap rate ever. Wonder if those fools are patting their backs? I bet the cap rate is like 1. Hell, I'll be bold. I predict the cap rate was -4%.

Say what? Everything I've read points to a 15% gain last year here in SoCal. My neighborhood saw 20%.

Perhaps condos/townhomes lost the mojo last year, while houses kept rising?

I recall in the early 1990s California RE crash, L.A. condos were pounded much worse than houses. That was, I think, because developers were stuck with half-finished condo projects that they had to complete, and then to sell, using every trick and discount and freebie they could. And condos are fairly fungible anyway. So you're try to sell your 10 year old 2-bdrm condo in Palms, say, and two blocks down a developer was offering brand new 2-bdrm new condos for less - it all just spiraled down.

Las Vegas Foreclosures Increase Significantly in the First Quarter of 2006

RISMEDIA, April 17, 2006—The number of foreclosures in Clark County, Nevada, increased by 36 percent in the first quarter of 2006 compared to the same period in 2005, according to Default Research (www.defaultresearch.com), the rapidly growing real estate research company for foreclosure properties.

They are building condos like mad in the marina del rey and Venice areas right now. It's crazy really...

I've seen our house appreciate on paper bay about 30% since we bought it in '04 (which likely was a mistake). I'm just waiting for the bottom to fall out but I just really am skeptical that the "bottom will fall out" because there is a scarcity of single family homes these days in the area I live in. There isn't any new construction in El Segundo really...plus the ESUSD is pretty highly rated and the community itself is rather stable...I hope...I hope...

Well; we intended for the long haul but are considering a lower cost of living...