The most important and thorough article on the bursting of the housing bubble since "In Come the Waves" first predicted it. I'm tempted to end the blog here, but then again, there's still so much more to come, so we'll stick around.
The rush for the exits is speeding up in the hot spots. All those second home wonderlands - Naples, Vegas, Phoenix, Tampa, Miami, Colorado, ...? They're so screwed it's tough to even put into words. Panicked speculators and greedy boomers are trying to get out at any price now and its going to get so, so bloody.
The easiest home to sell is the second one they say. We're seeing it in real time now. Dot-condo is here.
Here's some highlights from the Barrons article on the bubble - I recommend the full read and picking up the magazine to show your kids one day
"If you want to sell, you've got to go back to '04 prices," says Chip Harris of Coldwell Banker Previews International, which is handling the property.
The market for second homes could use a second wind. After a long string of double-digit annual price increases, a number of second-home meccas across the country are suddenly suffering from plunging sales volume and burgeoning inventories of unsold homes.
Though the official figures on sales prices have yet to reflect the current round of cuts, interviews with real- estate pros and others strongly suggest that the averages are deteriorating in a number of key markets. Just look at green and hilly Litchfield, Conn., about a two-hour drive from New York City. It was a magnet for Wall Streeters during the past five years, and prices climbed accordingly. But in the past 10 months, prices in the lower end of Litchfield's market -- homes of $300,000 to $600,000 -- are down 12%-14%, and volume is falling at the next level up, says Stephen Drezen of the local Portfolio Properties Group.
IT'S ALL A BIG CHANGE from the seemingly endless rises in prices. For more than a decade, baby boomers have been flocking to the second-homes market and lifting prices, just as they'd earlier lifted the market for primary residences
While pundits debate when the bubble might burst in the primary-housing market, the air already is whooshing out of parts of the second-homes market.
With mortgage rates rising and home-price appreciation slowing or vanishing, buyers in Naples have pulled back in a big way.
The Naples experience is being repeated, to one degree or another, in a variety of other vacation hot spots -- from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J. Phoenix in recent years has been overrun by property flippers from California, says Mike Messenger, president of Russ Lyon Realty in Scottsdale. But unit sales now are down by 40%-42%, and the city's inventory of unsold homes has shot up more than five-fold, to 39,000.
For starters, many second homes have been sold not to serious vacationers but to speculative investors hoping to cash on the national real-estate craze. How else to explain why six out of 10 second-home owners surveyed by the Realtors group own two or more homes in addition to their main residences?
The danger is that if enough of those investors decide the market has peaked, they could trigger a selling frenzy throughout the second-homes market. That, in turn, could add to the pressures in the main housing market. After all, second homes now account for a full 40% of all homes sold in America.
Says Ingo Winzer, president of The Local Market Monitor: "This makes me very worried because it implies that the price increases have been driven more by speculators than by people who are going to hold onto these properties, and indicates to me that there's a speculative boom."
BUT THOSE HIGH ROLLERS COULD LOSE THEIR nerve quickly if prices continue to weaken.
"People don't believe in the laws of supply and demand anymore," says Alan Skrainka, chief market strategist at Edward Jones. "We're not saying it's a bubble, but we're saying prices are overstated and will likely correct 20% to 25% over four or five years."
Mike Messenger, the Scottsdale, Ariz., broker, sounds considerably more glum. He says this is the first time in 16 years that the lower end of the market -- always the driver for the area -- has weakened. The culprits? Mainly the flippers; Messenger figures investors account for 35% to 40% of the market
May 28, 2006
Barrons Cover Story "The Big Glut" - announcing the end of the housing bubble and the housing crash underway
Posted by blogger at 5/28/2006