Thursday, May 04, 2006

Fortune - Real Estate Survival Guide

From Fortune via CNN/Money:

Welcome to the dead zone

Real estate survival guide: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others.

The stories keep piling up. In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials.

The message is clear. Five years of superheated price gains rescued America from stock market collapse, put billions in consumers' pockets, and ignited a building boom that bolstered the nation's economy. (To relive the frenzy, see "Riding the Boom.") But it's over. The great housing bubble has finally started to deflate.

You won't find that news in broad national statistics or the upbeat comments from the real estate industry. Thelatest official figures, for example, show both new and existing home sales rising in March, a mixed bag on prices - and a record number of new homes on the market.



Unmaking the myths

Real estate survival guide: The sudden shift in the nation's housing markets is exploding some long-held beliefs. Here's the conventional wisdom you should ignore.

The sudden shift in the nation's housing markets is exploding some long-held beliefs. The first is that a scarcity of buildable land on the coasts keeps a cap on supply and prevents prices from falling.

But high prices inevitably work their magic, encouraging more people to sell existing homes and sparking new construction. Sure enough, prices are already tumbling in Boston, where a swarm of downtown condos is swelling the number of properties for sale and punishing the price of all housing.

A second myth is that today's big homebuilders learned their lesson in past downturns and now launch projects only when they have firm buyers lined up. But housing starts are still running at near-record levels of some two million units a year.
...
A third tenet holds that home values never drop in areas where employment is rising. But today some of the hardest-hit regions rank among the strongest job machines, notably Northern Virginia and San Diego. The reason: Young buyers filling those jobs can't afford the houses for sale. (See a gallery of markets that are due for a fall, and ones that will hold up.)



Who will be hurt most?

During the boom, condos were catnip for would-be tycoons. Now investors are bolting, developers are slashing prices, and unsold units are piling up.

The most troubled sector of the housing market, the one that will fall first and fastest, is the condominium market. Typically cheaper than houses and easier to buy, sell or rent out, condos are catnip for investors.
...
Yet even as speculators flee, developers keep throwing up condos at a breakneck pace, in part because if they have already bought the land and poured the foundation, they have no choice but to finish the project.



Hot home markets to cool down...how will your home fare?

According to the latest housing price forecasts from Fiserv Lending Solutions, a provider of mortgage and consumer lending services, Las Vegas real estate will tumble a whopping 8.2 percent in 2006, the largest predicted fall among the 379 metro areas studied.

Fiserv forecasts a significant stagnation in housing prices for the United States in 2006 -- median home prices overall will inch up only 1.5 percent this year. And many metro areas will experience drops, including some of the largest, and most expensive, ones such as New York (down 2.43 percent), Los Angeles (down 3 percent) and Washington (down 1.9 percent).

44 Comments:

Blogger Metroplexual said...

"The sudden shift in the nation's housing markets is exploding some long-held beliefs. The first is that a scarcity of buildable land on the coasts keeps a cap on supply and prevents prices from falling."

Oh and don't forget the population explosion myth.

Spin unspun in this series of articles.

5/04/2006 12:28:00 PM  
Anonymous Michelle said...

Hmm. After reading all those excerpts I was a bit stunned at how small the projected declines would be.

5/04/2006 12:28:00 PM  
Blogger Shailesh Gala said...

The projection for New York is down only 2.43 percent.

I think it would be really good to take a vote and see how much decline will happen in 2006 by all folks on this blog. My personal vote will be about 10% for 2006.

5/04/2006 12:35:00 PM  
Blogger Metroplexual said...

If you go to the gallery section our region is in the "danger zone". (Please no "Top Gun" references.)

New York-North New Jersey, NY
Average home price: $431.3
Fair value estimate: $300.8
Percent difference: 43%
Rating: Overpriced

5/04/2006 12:40:00 PM  
Blogger Shailesh Gala said...

metro: I agree that this was long standing myth propogated by RE guys. The land is available, its just what & how will things get developed is not same.

BTW: Why do you think suddenly, 2 orgs ( Brookings & RPA ) are getting attention in Trenton? McGreevy was well known for his policies in restricting development. During his time, these guys did not even get to talk to any senior officials. Do you know what is Corzine's opinion? Does he support policies to making more housing available?

5/04/2006 12:41:00 PM  
Blogger Metroplexual said...

Both of those reports say the same thing. High housing costs are driving away young talent. This is how the brain drain starts. If you read the other thread a couple weeks ago, many people were already planning a move but are somehow held here by family or another reason. But even those people will reach a breaking point. I am one of them.

Mcsleazy was known for being a tree hugger (among other things) but I don't think he was against development per se. More like against "greenfield" development. His appointment to DCA Susan Bin-Laden is decidedly pro development.

5/04/2006 12:50:00 PM  
Anonymous Anonymous said...

national builders own a majority of developable land throughout the u.s. ... they can in themselves manipulate house pricing by cutting back on construction and sit back on there land assets and continue constuction in an uptrend market again.. i am pretty surprised so many builders continue to build at such a rapid pace even as economic housing indicators are beginning to point south... every sunday in the bergen record real estate section everyone from Pulte, Kara Homes to Centex and Lenar annouce more and more new projects and upcoming developments... I analyze just about everything I can and to my best understanding... Are they delusional or is it wishful thinking on my end that these builders will be sitting on an unheard of unsold inventory????

bobby

5/04/2006 12:53:00 PM  
Anonymous Anonymous said...

these articles are far better than the rosey ones released earlier. Homefully sellers who need to sell will wake and realize 04 and days are long gone.

I will def be standing on the sidelines until atleast sept-oct.

I waited this long and def could enjoy renting for another year while I save $.

Keep it up Grim.

-Kash

5/04/2006 12:56:00 PM  
Anonymous Anonymous said...

Metroplexual said: If you go to the gallery section our region is in the "danger zone".

can you please provide a link to the section your referring to?
Thanks in advance!
bobby

5/04/2006 12:58:00 PM  
Blogger Metroplexual said...

It is a pop up javalink on the margin of the article where the smiley face houses are.

5/04/2006 01:02:00 PM  
Blogger Marinite said...

metroplexual -

I am one of those people too. The only reason why I stay in the Bay Area or even California is because of family. A day doesn't go by where I don't fantasize about leaving for some place with a lower cost of living. As soon as my mother kicks the bucket I'm outta here. And if RE prices remain high or higher my parting gift will be to drastically reduce my asking price to well below the average.

5/04/2006 01:30:00 PM  
Anonymous UnRealtor said...

Some new terminology for ®ealtors in 2006:

* "months on the market"

* "massive price drop"

* "foreclosure"

* "languishing on the market"

* "repossession"

* "bubble fallout"

5/04/2006 01:35:00 PM  
Anonymous Anonymous said...

Housing BUST......

Ba ba ba ba ba ba BOYCOTT HOUSES!

Just say "NO" to RIPOFF PRICES.

Boooooooooyaaaaaaaaa

Bob

5/04/2006 01:38:00 PM  
Anonymous jon street said...

Look at this CL ad:

"Ameriquest is closing doors and it appears that some of the loans will not be processed. If you or your clients need financing, I can help. Louviers Mortgage Corporation deals with hundreds of lenders to find the right program for your buyers.

We offer the following products:
Interest only ARMS
10, 15, 20, 30, and 40 year terms
Stated/Reduced and No document loans for self employed and even unemployed borrowers
Cash flow option arms that offer a 1% minimum payment
125% LTV second mortgages
100% financing with credit scores as low as 580

Contact me if you need any assistance!"
bad news- ameriqeust is closing
bad news- that an unemployed person can get a loan!
how the hell can any one think this can last much longer!

link:http://newyork.craigslist.org/wch/rfs/157149043.html

5/04/2006 02:53:00 PM  
Blogger REINVESTOR101 said...

From Unrealtor:

Some new terminology for ®ealtors in 2006:

* "months on the market"

* "massive price drop"

* "foreclosure"

* "languishing on the market"

* "repossession"

* "bubble fallout"

From Bob:

Housing BUST......

Ba ba ba ba ba ba BOYCOTT HOUSES!

Just say "NO" to RIPOFF PRICES.

Boooooooooyaaaaaaaaa


Now here are two people giddy with anticipation of a severe housing decline (they're going to be disappointed). They are calling for boycotts and market disruption, similar to Osama.

Surely, I'm not the only one who has a problem with these two. Who here will repudiate them?

5/04/2006 03:00:00 PM  
Blogger bubble disciple said...

"The projection for New York is down only 2.43 percent."

"I think it would be really good to take a vote and see how much decline will happen in 2006 by all folks on this blog. My personal vote will be about 10% for 2006."

I predict somewhere between 5 and 10% in 2006, with more to come in 2007.

5/04/2006 03:03:00 PM  
Anonymous Anonymous said...

Downward prices of 10% in 2006 and the real pain in 2007 of 20% + into early 2008.

5/04/2006 03:08:00 PM  
Anonymous UnRealtor said...

ReInvestor, I can't tell if you're parodying yourself, or not.

[ Cue Music ]

People who don't want to pay 100% extra for a house are now islamic terrorists? You should be ashamed for making such a comparison.

5/04/2006 03:44:00 PM  
Blogger Shailesh Gala said...

REINVESTOR101: Don't get disheartened by some comments. Its just out of excitement, not necessarily from rejection.

The trouble I find normally, is the heightened Media attention causes most to think in terms of extreme. To great extent Media has exerburated the problem by taking sides.

Actually, I think you have posted normally more geneuene posts from an Investor perspective. At present time, investing in RE is difficult proposition. I guess there may be still some areas in US where it may make sense, but NJ is probably not there.

My request to Unrealtor & Bob is even though you may have difference of opinion, try to post it in non-offensive manner. Let's here both sides of the coin.

5/04/2006 03:48:00 PM  
Anonymous UnRealtor said...

Shailesh, if my posts are "offensive" you may need a thicker skin.

But since you've made the claim, please cite a post I've made that you felt was "offensive."

5/04/2006 04:14:00 PM  
Blogger REINVESTOR101 said...

From Unrealtor

People who don't want to pay 100% extra for a house are now islamic terrorists? You should be ashamed for making such a comparison.

You're trying to twist my words around in a sleight of hand move here. I don't begrudge anyone for shopping for the best price when buying a house. What I did point out was that you and others have called several times for boycotts. This is a call for market disruption which impeds selling and buying. I noted that Osama bin Laden has called for the same thing. I didn't call you a terrorist or any other name. I'll just leave the reader to conclude by drawing comparisons.

Moreover, if real estate is "toast" as you contend, why is it necessary to call for boycotts? What real purpose does that serve? Afterall, all of you guys are claiming that there are several headwinds that will cause the markets to collapse anyway. Why not let the headwinds play out? I'll let the readers arrive at their conclusions about yours and Bob's motivations here. I've arrived at mine.

5/04/2006 04:16:00 PM  
Blogger REINVESTOR101 said...

From Unrealtor:

But since you've made the claim, please cite a post I've made that you felt was "offensive."

You've accused me of "being off my rocker" on several occasions. If you want me to dig up all the posts, I can, but there's no need for that. You know what you've said about me. I, on the other hand, have never accused you of anything save for the constant calls for boycotts you make every week.

5/04/2006 04:22:00 PM  
Anonymous Anonymous said...

Worry Flippers realtors and sellers. Lean times are a coming.

Ba ba ba ba ba ba BOYCOTT OVERPRICED $#@!BOXES.

Just say "NO" to mass ripoff.

BOOOOYYYYYYAAAAAAAAA


Bob

5/04/2006 04:29:00 PM  
Anonymous Anonymous said...

NO MAAAAAAAAAS to RIPOFF HOUSE PRICES!

Just listen to grim's facts not the BS spinmeisters who have a vested interest in this BUBBLE!

Boooooooyaaaaaaaa


Bob

5/04/2006 04:30:00 PM  
Anonymous UnRealtor said...

"What I did point out was that you and others have called several times for boycotts. This is a call for market disruption which impeds selling and buying."


Wrong -- that's precisely how free markets work: less demand means lower prices.

What purpose does boycotting over-priced houses serve?

MLS 2261656 - $300,000 price drop

MLS 2261641 - $40,000 price drop

MLS 2268702 - $50,000 price drop

MLS 2259341 - $75,000 price drop

MLS 2253723 - $50,000 price drop

MLS 2268017 - $60,000 price drop

MLS 2246790 - $55,000 price drop

MLS 2268671 - $30,000 price drop


Any questions?

People refusing to buy overpriced homes is the "headwind" and it's blowing money into the hands of prospective buyers. Which is why you are understandably upset, as a "RE Investor."

Welcome to the free market. Sounds like you're in over your head with your real estate "investments," which is unfortunate. But as an adult there are risks, as well as rewards.

Sell now while you can.

5/04/2006 04:32:00 PM  
Anonymous UnRealtor said...

From the Fortune mag article:


DANGER ZONE
New York - North New Jersey, NY

These cities also saw prices soar, but so far their overheated markets are still strong. They present a mixed picture: Chicago and Seattle are in only moderate danger, while L.A., New York, Oakland, and San Francisco are headed for a steep fall. The problem: fast-rising inventories of unsold homes. To make matters worse, builders keep pouring new units onto the market.

Average home price: $431.3
Fair value estimate: $300.8
Percent difference: 43%
Rating: Overpriced

5/04/2006 04:37:00 PM  
Anonymous UnRealtor said...

"You've accused me of "being off my rocker" on several occasions."


That was another time you were accusing people of being "unpatriotic" and "collaborating with terrorists" for wanting lower home prices.

Anyone who does that in the context of a real estate discussion, is indeed off their rocker. That's not "offensive" it's a statement of fact.

Also, is Shailesh and ReInvestor the same person?

5/04/2006 04:41:00 PM  
Blogger REINVESTOR101 said...

"Also, is Shailesh and ReInvestor the same person?"

I'm going to come back and deal with your other posts and the veracity of your data. However, I want to draw everyone's attention to this issue first.

I just noticed that you and Bob posted here within minutes of each other. That appears to be a consistent pattern on this particular string. Indeed, the question is whether or not you two are the same person.

5/04/2006 04:54:00 PM  
Blogger grim said...

Shailesh and REInvestor are not the same person.

Bob and Unrealtor are not the same person.

5/04/2006 05:03:00 PM  
Anonymous Anonymous said...

Could someone please explain how they arrived at this "fair value estimate"?

Seems to me the fair value is the price the market will bear.

SPW

5/04/2006 06:04:00 PM  
Anonymous Anonymous said...

Quiet down folks, and listen carefully to what's coming in the housing market...I can hear it, can you?

My 2 cents; if you value your money as I value mine, you will not even consider looking at houses until 2008, if you are renting, enjoy it, since your occupancy costs are probably at least 1/2 what the 2000 - 2006 "homeowner's" is.
If you happen to be long a house, sell it or make paying it off a priority.

5/04/2006 06:04:00 PM  
Blogger chicagofinance said...

grim:

If people refuse to behave, can you block their IP addresses from posting? [maybe for 24 hours]

It seems like the only appropriate way for people to have an incentive for decorum.

If not, I will threaten to post only about Depeche Mode for a week.

chicago

5/04/2006 06:13:00 PM  
Anonymous Anonymous said...

Notice how the housing bubbleheads get all defensive when house prices start going down. It's okay when they go up 100% in 5 years but when they go down it's not good.

Let it crash!

5/04/2006 06:14:00 PM  
Anonymous WillyBoy said...

In the first few comments on this thread people mentioned about how small the projected declines were. Nobody really addressed that, instead pointing to the difference between "average price" and "fair value", which was 43%. I wish someone would address that 2.43% projected decline and reconcile it with the 43% overpriced. What are they trying to say... and do you agree with it. The only thing I could figure is that someone is saying it's going to take a long time, if ever, to come down to fair value. How do you see it?

5/04/2006 08:28:00 PM  
Anonymous Anonymous said...

That's a very conservative estimate-2.3%.

They're just having a hard time reconciling to reality.

Prices all over the US will crash big time and quickly- all '04 and '05 appreciation will be gone by next winter.

And then it'll just keep on going down from there.

This whole thing has been too nuts to end up any other way.

10% is peanuts- not even '05 appreciation.

5/04/2006 09:28:00 PM  
Anonymous Anonymous said...

Even though it may be considered overprice, the market does overall remain strong in Central and Northern NJ. There are no bidding wars and things are not selling above asking, but other than for maybe a small price drop, sales are going well for the most part.

Remember, the price drops you see listed on this blog are just that - the ones which dropped in price. There are many others, however, which didn't.

5/04/2006 11:03:00 PM  
Anonymous UnRealtor said...

The Fortune article states "New York, Oakland, and San Francisco are headed for a steep fall."

"Steep fall" doesn't sound like a 2% drop to me, and the 8 houses I posted above have already dropped from 10-20%, and this is during the "spring market."

Nope, the party is definitely over.

Owners should sell now, while they still can.

5/04/2006 11:09:00 PM  
Anonymous Anonymous said...

Check out the front cover of this month's Harper magazine:

http://www.harpers.org/art/covers/2006-05_350x476.jpg

The photo shows a guy getting crushed under the weight of a house.

The cover story is titled "The New Road to Serfdom - An Illustrated Guide to the Coming Real Estate Collapse"

5/05/2006 12:51:00 AM  
Blogger minutesfromNYC said...

The message is clear

People who do not currently own a home should never be able to do so because a 2 br ranch on a busy street is worth half a mil.

5/05/2006 06:31:00 AM  
Blogger Rob Ryley said...

REinvestor writes:

"Now here are two people giddy with anticipation of a severe housing decline (they're going to be disappointed). They are calling for boycotts and market disruption, similar to Osama"

This is an idiotic comment, to be blunt about it.

There is a world of difference between desiring a decline in prices, and desiring the destruction of the U.S.

You make it sound as if FAILING to buy a house at current prices is Un-American! LOL!

Your hope for higher prices could be twisted into a desire to see young people become serfs and slaves to the bankers and current land owners. Do you want to be a slave owner? Maybe you do.

The fact remanis, signs of a top are evident in housing. Deny them all you want. In a relatively free market, prices go down as well as up.

5/05/2006 06:37:00 AM  
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