Friday, February 17, 2006

Canaries of Real Estate?

The NY Times has a new piece on Condo speculation today:

Farewell, Condo Cash-Outs

Over the last few years, real estate speculators looking to make a quick gain also snapped up preconstruction condos in Chicago, Miami and San Diego. With prices rising by more than 20 percent a year, short-term buyers figured that by the time the condos were ready to occupy, they could sell them without ever moving in, clearing thousands of dollars in profits.

But as more speculators look to cash out in recently hot condo markets around the country, some economists say they could put even more downward pressure on prices in those buildings where for-sale listings are swelling. In Miami, at the Jade Residences at Brickell Bay, more than 20 percent of the building's 352 units are on the market. In San Diego, about a third of the 96 units in the Alicante, a condominium that opened last fall, are listed for sale and sellers are already starting to cut asking prices.

In Donald Trump's luxury condos at 120 Riverside Boulevard in Manhattan, owners of more than one-fifth of the building's 250 units are currently marketing their apartments. With so much inventory, said Ilan Bracha, a broker with Prudential Douglas Elliman in New York, "the buyers are coming in, checking the best views and then they negotiate. This is the reality."
...
As those speculators flood the market, he said, they will put pressure on other sellers to cut prices, too. "A rising or sinking tide affects all boats," Mr. Nordby said.

Still, a sell-off in speculative condos is unlikely to start a widespread housing crash, because condos were more overbuilt than single-family homes during the recent boom, said Joseph Gyourko, professor of real estate and finance at the Wharton School of the University of Pennsylvania. But weakness in the condo market, he said, "is a consistent indicator that the great boom has really ended."

----

It's been said that the condo market represents the proverbial canary-in-the-coal-mine for the residential real estate market. Looking back in history it seems that weakness in the condo markets in Boston and the NY Metro area foreshadowed the decline of the housing markets shortly thereafter.

What do you think?

16 Comments:

Blogger chaoticchild said...

Grim,

I agree that crush of condo market will drive down everything else in NY Metro area. Co-op prices, SFH in LI, Westchester and NNJ.

2/17/2006 10:12:00 AM  
Blogger grim said...

On the economic front, the PPI (Producer Price Index) and Core PPI numbers came in at double analyst estimates.

Wholesale inflation hits year high

Why do we care you ask? Because when prices increase on the producer side, this generates pressures to pass those prices to the consumer. And when that happens, you have inflation. Show do you fight inflation? Raising rates is a good start.

Judging from the activity on the bond market this morning, these numbers were not a surprise, and were likely inline with what the market expected. You can be sure Dr. Bernanke, at this moment, is mulling over these numbers in his head.

This will all likely manifest as higher mortgage rates in the upcoming weeks and months. It is very likely that the movement in rates we're seeing is going to put a significant damper on the first quarter existing home sales numbers.

grim

2/17/2006 10:14:00 AM  
Anonymous Anonymous said...

OH MY GOD !!! BUY NOW BEFORE INTEREST RATES GO UP!!!

Put zero down, and remember you may be paying more but the low interest rates make up for it!!! And if you are underwater , just leave the property!!!

How much you want to bet that is the next rally cry in the housing market.

Mark my words
1. Speculators out ( We see that now)
2. Interest rates up ( we will see the rates at 7% by EOY )
3. Inventory up ( Spring will see a spike and with new home construction hitting hard we will see the time increase to 12 months to sell property)
4. Prices down alitttle ( sellers will want more money and the boomers and those leaving for warmer climates will resist, but the investor types paying the tax and other expenses will start first a little bit )
5. Foreclosures glut the market - with all the articles you will see the banks go right into selling directly and taking the losses. they will plan legal action against the third party brokers but these LLCs will go off scott free, therefore bonds will stink
6. 30% decrease in price - Mid 2007.

CDF

2/17/2006 10:50:00 AM  
Anonymous Anonymous said...

We are looking at pads in DC and NYC after selling our NWDC SFH for a tidy profit. We are now sitting and will sit until these idiots have reality so far up the wazoo that it's coming out their ears.

2/17/2006 11:16:00 AM  
Blogger The Jerkstore said...

For avid NYT ad-reader: is anyone else as supremely irritated as I am by ads with a) no pictures ("Pictures coming soon!") b) pictures of the building lobby or a disembodied view from a dirty window or c) pictures taken with a disposable camera and scanned in, showing a filthy, million dollar stinkhole the owner had no interest in tidying up? On curbed one guy had pics of his FSBO loft in the village and the pics were utterly spectacular. It was everything that today's realtor is not: helpful, clear, enticing, etc etc

2/17/2006 12:14:00 PM  
Anonymous Anonymous said...

Boy did you get at what irritates me.. The STUPID realtors take the worst pictures. To show a bedroom they take a picture of a bed! To show a living room they take photos of sofas. Why pay a realtor commission to do something you can do better yourself! How do you insert photos? There's one I'd love to share

2/17/2006 12:35:00 PM  
Blogger grim said...

Have the pictures really changed that dramatically in the past 4 years? I don't think so. I think we're becoming more cogniscient of the lack of any value in this market.

Two years ago you probably didn't even need a picture to sell a home in a week. Bad picture? Who cares. The buyers came and the properties sold.

Now?

Boy-o-boy does it look like buyers are starting to get very picky.

Laughing over these pictures is just one part of the huge psychological shift that is going on right now in the minds of consumers.

grim

2/17/2006 01:03:00 PM  
Anonymous Anonymous said...

Co-op prices collapsed in the early 1990's. Noone would buy'em. people were stuck with them for 10+ years just to breakeven.

Good luck dummies.

2/17/2006 01:52:00 PM  
Anonymous Anonymous said...

Here's a shady move by Burgdorff -- this home is located in the middle of Short Hills, and priced at $650K:

http://www.realtor.com/Prop/1055565397

It's a dog of a house -- a teardown -- except the lot is tiny, so it's not worth tearing down, and it's on a very busy street.

So it was listed as the proper address (Short Hills) for 2 weeks, and they apparently didn't get any bites, so changed the town to "Millburn" and the zip code as well, so it comes up in the Millburn listings, which are generally much cheaper than homes in Short Hills.

Shady... to actually change the zip code on the listing?!?

2/17/2006 01:52:00 PM  
Blogger Rob Ryley said...

Grim wrote:

"Why do we care you ask? Because when prices increase on the producer side, this generates pressures to pass those prices to the consumer. And when that happens, you have inflation. Show do you fight inflation? Raising rates is a good start."

I agree with Mike Shedlock (http://globaleconomicanalysis.blogspot.com).

Inflation, in the sense of rapid money supply is real, but in the sense of a rise in the price level (ignoring all of the problems entailed in measuring it), I don't see it.

We might get a quarter here and there where some "inflation" indicators pop up, but the key is being able to pass on the costs to the consumer.

Wages have not gone up much, and unemployment is artificially low due to the "participation rate".

http://tinyurl.com/8oyzc

""There has never been an expansion cycle in the past 45 years in which the participation rate (those actually in the labor force as a percent of those that could be in the labor force) trended lower save for the current one. Had the labor participation rate risen in a normal cyclical fashion, today’s unemployment rate would be considerably higher"

People are strapped for cash, as the negative savings rate shows.
Add in the fact that companies are trying to pass on more and more of the health care cost burden, attempting to pass on costs would kill demand.

Should companies attempt to pass on costs, I suspect a decrease in demand from consumers, especially if the Fed tightens credit.

This is really a no win situation for the Fed, the stock market, and the economy.

Allow inflation--kill bonds, high interest rates, after drop in the dollar, credit contracts, housing busts, increased unemployment, sharp recession.

Fight inflation--tighten credit, reduce consumer spending, deflate/pop housing bubble, increased unemployment, sharp recession.

2/17/2006 03:51:00 PM  
Anonymous Anonymous said...

inflation through the PPI is a joke. Of course prices are going up... the real culprit is the fed printing money. by making the dollar worth less and less the fed is pushing inflation through the roof. Another thought, what happens if the fed raises rates to "fight inflation"? They make the debt more expensive to service on all fronts, which affects the capex spending from corps, which reduces demand for things, with lower demand for things there is less demand for people to make things. All the things are make in China... China buys the most treasuries and is funding the low mortgage rate environment and consumer gluttony. How does the fed stop that from happening? inflate the currency and throw more money into the machine to keep it from stopping... there by creating MORE inflation in their attempt to FIGHT inflation. Whew!

2/17/2006 04:06:00 PM  
Blogger grim said...

Just tried to keep it simple.. I've been accused of wearing a tinfoil hat before.

But I agree with both of you.

grim

2/17/2006 04:33:00 PM  
Blogger The Jerkstore said...

NYT Most-Emailed articles today
1. Farewell, Condo Cash-Outs

'Nuff said.

2/17/2006 05:02:00 PM  
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