December 28, 2005

Oh, denial... "Experts" say "no bubble here"



I'm seeing "experts" (usually with a vested interest in the bubble continuing) saying there's no bubble, well, except for some areas that are gonna blow.

See my post yesterday about bubble qualities - DENIAL was the final proof. Well, we're there.

Bad news for the "there's no bubble here" crowd - when it crashes in Phoenix, when it tumbles in San Diego, when Boston's meltdown gets ugly, every city will feel the pain. Why? Mentality. People in Cleveland will see what's going on elsewhere and in the back of their minds, they'll be just a little nervous buying that new condo.

And consumers nationwide will pull back, worried their market may be next.

Denver Post 12/28:
The Denver market's growth is slow and sustainable, unlike skyrocketing markets in Phoenix and San Diego that are likely to crash as mortgage rates rise and the economy slows.

"I think it says the housing market hasn't collapsed, but it's a sluggish market, particularly in terms of prices," said Tucker Hart Adams, a regional economist with U.S. Bank in Denver. "I think the parts of the country that are seeing these double-digit increases are just headed for problems down the road."

AP 12/27:
The head of one of the nation's largest home ownership service providers says home sales may slow down next year as supply catches up with demand. But HomeServices of America president and CEO Ron Peltier says there is no real estate bubble.

Peltier acknowledged in an interview with CNBC that some markets -- such as Las Vegas, Miami, New York and southern California -- are "overheated." But he says prices in most markets should rise in the low single digits in 2006.

UPI 12/25:
Richard A. Smith, chief executive of the soon-to-be-independent real estate services division of the Cendant Corp., says there is no U.S. housing bubble.

However, Smith did acknowledge regional housing bubbles, such as the savings and loan bubble in Texas and the bubble in Southern California.

Palm Beach Post 12/26
Some 73 percent of well-to-do Floridians expect double-digit increases in the value of their homes over the next five years, while only 5 percent expect a decrease in home values.

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ECOBUILDER said...

CNN Money:
Mortgage applications at 3-1/2 year low

http://money.cnn.com/2005/12/28/real_estate/mortgage_applications.reut/index.htm

ECOBUILDER said...

http://www.truecontrarian.com/

U.S. REAL ESTATE: LOOK FOR THE FIRST TRUE NATIONWIDE COLLAPSE OF U. S. REAL ESTATE IN ITS HISTORY (December 26, 2005): U.S. housing prices in many markets have more than doubled in the past five years, even as U.S. rents have only moved up with inflation. In spite of this fact, a fairly substantial number of financial analysts are not expecting a significant decline in real estate valuations because "it has never happened before on a nationwide scale". What these folks always fail to consider is that there have never been interest-rate-only mortgages and negative-amortization mortgages before, either, in any part of the world, at any time in its history. Japan had the closest thing, with 100-year mortgages in the late 1980s; its real estate thereafter declined 60% nationwide (collapsing even more in some previously "hot" neighborhoods). Just today, at a nearby realtor's office, I saw a sign in huge letters: "40-Year Mortgages!", as though they were a sure path to wealth. Caveat emptor! One third of all mortgages in 2005 were of the negative amortization variety, meaning that buyers' total mortgage debt increases each month, rather than decreasing, as was formerly the case back in the "old days" (meaning before 2003!). Touts for mortgage companies such as Countrywide Financial frequently boast about how their innovative products are making it possible for anyone to buy the house of their dreams. They're absolutely correct--which is exactly why the housing market is so dangerous. Already, inventory in the U.S. is at a 20-year high nationwide, and at a 30-year high in many cities, while new home prices have been falling for several months--4% just in the past month, according to this week's offical government data. It's just a matter of one year, two at the most, before "60 Minutes" runs a segment on how honest, sincere, working-class Americans were misled by devious, greedy mortgage brokers into getting a negative-amortization loan, and how they have therefore been led to the brink of bankruptcy. Also expect this kind of media coverage of the real estate collapse by the end of 2006: "Denver's real estate market is down 15% in the past year; Las Vegas is down 20%; Phoenix, an incredible drop of 30%. Will your town be next?" The accompanying photos will, of course, show residential blocks with a "For Sale" sign on more than half of the lawns, with a few aerial shots of large condominium projects--ideally, with a few key elements that are obviously not completely constructed--in foreclosure.

xSparta said...

There is a lot of spin out in the media. The Realtors, bankers and builders have been trying to squash the Bubble Theory for months. However, because of these blogs and studies by independent organizations, the word is out!

PMI (Private Mortgage Insurance) did a study a few months ago and published a list of cities in Florida and their over evaluations. PMI has no axe to grind either way. Overpricing raged from 20 to 80 %for places like Tampa, Miami, Naples. I beleive Naples came in at 89% overvalued. This is truly hard to beleive, but possible.

Far cry from forecasts from Realtors, Bankers and Builders.

Lets keep score and see who is right and who is wrong!

mtnrunner2 said...

I'm amazed at how many economists and government agencies deny the extent of the bubble. The UCLA Anderson Forecast and San Diego County Assessor maintain that prices will stay flat or rise only slightly or go down at most by 5%. Even the PMI report was slightly off the mark: they claim San Diego has a 53% chance of a decline in the next 2 years, and is 22% overvalued. The actual number should be 35 - 50%. I'm in escrow on my house and have looked at rental houses over the past 45 days, and am amazed how long they stay on the market, with frequent price reductions. Anyone with a pulse has qualified for a mortgage, so it's harder to find renters. Rental houses are down to $1/sq ft in the Poway area. Few people that I try to educate actually believe me. One family sold their business for a rental home in Palm Springs, took a HELOC to buy a home in Phoenix, and is moving into that while they rent their Poway home which they couldn't sell this summer despite 3 price reductions. No offers, so they pulled it off the market, with the comment, "We're not going to eat all that equity loss". So on to purchase more real estate.

Albrt said...

I lived for many years in the rust belt. Now I live in Phoenix. No doubt the housing market is different. But folks who say prices won't decline in the "non-bubble" markets are seriously deluded.

NEWS-FLASH: If local prices weren't rising during several years of insanely low interest rates, it's a sign that not very many people who can afford to buy a house want to buy one in your area. Once the interest rate stimulus has been removed, prices WILL decline.

It's true that people in the "non-bubble" markets don't have to worry as much about speculators withdrawing from the market. That factor is more than offset by poor local economic fundamentals that kept housing prices depressed during the boom years. Meanwhile, home builders kept increasing supply.

Prices in many of the "non-bubble" markets will fall quickly because they don't have large numbers of professional twenty-somethings waiting in the wings to buy as soon as prices go down ten percent.

Even if prices don't fall as far in the "non-bubble" markets, the pain will be at least as great. The economies in these areas are already stressed, and folks who bought two or three years ago don't have the famous "equity cushion" from appreciation.

Good luck to everybody - we'll need it.

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. Noise does not sell well. Let the Realtor� and buyer talk, free of disturbances. Background "soft playing" music is okay, but the wrong sounds will turn buyers off. Noisy children and animals are roadblocks to a contract � and traffic, trains, and planes must be dealt with honestly, if they are part of the deal. Go here for more ideas.

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