Monday February 13, 2006

Who's afraid of buying a house?

Privately, I’ve been advising home-owning friends and family thusly for the last six months or so: find a moment (and find it soon), to sell your house, put your stuff in storage and rent an apartment for a year (maybe two or three), then buy your house (or one similar) back, for a maybe $200,000 profit. It remains to be seen whether my advice is worth anything (to date, everyone has emphatically ignored it), but for the first part, housing prices are finally starting to crash.

I dropped a hint of that a few weeks ago, but nevermind; the Herald has a full on analysis, including an interactive applet, the gist of which is: the bottom’s dropping out!

Kidding: the Herald sugar-coats it. Clear, though, is that housing prices probably hit their peak near $400,000 for awhile in November 2005, and will now be heading south, abetted by (1) the fact that everybody who was looking to buy a home has bought one, (2) 2005 proved that hurricanes can be a bitch in SoFla, (3) the subsequent increase in insurance costs, (4) some of the folks who took out interest-only mortgages are going to be defaulting over the next few years, and finally (5):

There are, for instance, 15,080 [condo] units under construction in the city of Miami alone, compared with 11,241 built in the entire past 10 years. And that doesn’t even count the more than 28,000 units approved to go up in Miami.

Sooo…. if you just bought a house, congratulations: you’re living in the place of your dreams, carefree. (Just don’t obcess too much about its value.) If you just sold a house, you probably did so at exactly the right time (it might not be too late yet). If you’re thinking about buying, waiting a couple of years might make you look very smart.

This is good news to all of us Gen-Xers who have been renting, and drinking through the savings: now is the time to accumulate a five-digit savings account, so that when the price bottoms out, you’re set to take advantage of the next housing bubble. [links via Infomaniac]

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  1. Jeff D    Mon Feb 13, 11:20 AM #  

    I don’t know if it is accurate to say at this point that the bottom will drop out. True it seems that a price correction is occurring, but I do not think that prices are going to fall as sharply as people are saying. Since we are dealing with homes for sale rather than over valued stocks, there is still a tangible price tagged with the location and the physical structure. Such comparisons are made to the 2001 technology bubble burst often.

    15% – 20% annual property increases I believe are behind us now, but to think that property prices will drop to rock bottom prices; it’s just not going to happen. This might be a good thing since many of the people buying based on this were speculators who have little to offer the community since their reason for buying is purely for profit.

    Hurricanes in the 2006 year or increases in the interest rates are big wild cards as well in terms of assessing how bad this correction will be or not.

    Instead a ‘bubble burst’, I think ‘cool down’ might be more accurate.



  2. Rick    Mon Feb 13, 12:14 PM #  

    I agree with Jeff. Perhaps the proper terminology might be “market correction.” The boom days are gone, but as the article says, home values will continue to appreciate at a more reasonable rate under the current conditions.

    People are always going to be moving to Florida and since Miami-Dade and Broward have already been built out to the ‘Glades, there’s always going to be a limited supply for the demad.



  3. alesh    Mon Feb 13, 12:50 PM #  

    No way: in fact, thanks for reminding me about the speculators. the speculators are buying the overwhelming majority of the new condo units (which, as the article says, are selling very slowly even now). Of course, to a speculator, a condo is exactly like a stock.

    Add that in to #4 and #5 above, and what do you think we’re in for?



  4. john    Mon Feb 13, 02:16 PM #  

    Wow, didn’t know so many from the RE world read your site. Awesome. I wish they would have linked to their corny headshots with the creepy smiles. “Correction, blah, blah, blah…” Maybe they could get a job with the Herald. That’s right, with real estate down the Herald will have to close. Truth is speculators, low regional income, rising cost of construction materials, hurricanes (insurance), property taxes, rising interest rates, bad debt, strengthening alternative markets have all conspired to make RE fall since back in August rather than November(add condo numbers which the FAR does not). It was actually early-summer when volume started to fall for sales but prices where stable or slowly rising outside of the condo market. Prices have been falling at $15-20,000 a month, and condos even faster, quite a good clip indeed. You’ve given advice that you should have charged for Alesh.



  5. Franklin    Mon Feb 13, 02:31 PM #  

    Housing will correct. Condos will crash.



  6. mkh    Mon Feb 13, 05:23 PM #  

    I was planning to buy a house two years ago. I looked around in the market and saw low-end houses (i.e., homes I can afford) selling for over the asking price and decided to sit tight for a while. (It helps that I have an obscenely good deal on rent right now.) For the first time in many mango seasons, it looks like I made the right call.



  7. Jeff D    Mon Feb 13, 05:35 PM #  

    I am far from working within the real estate industry, just a concerned property owner in the downtown area.

    Increased building costs, taxes, interest rates are happening all over the nation so this is nothing specific to the S.Fla region. The overall cost of living is generally increasing nationwide.

    Another important item to factor in the future of S.Fla RE is the international appeal of Miami and Fort Lauderdale as a safe domestic happening spot. As I understand it, the last 20 years in this region have been understated as a result of violence primarily surrounding drugs and crime. Such items make an area less desirable to a) invest in b) possibly migrate to. This 5 year development boom has brought a lot of development and revitalization to areas that were previously derelict and in some cases down right dangerous. There will be long term impact of such efforts and enable a community to attract new residents appropriately.

    The flip side of the coin to this argument is of course local residents not being able to afford these properties, but this happens everywhere and is a separate discussion into itself.

    With a surplus of stock of houses condos, whatever, the market will certainly see a give in the asking price, however that will eventually even out. I still fail to see evidence that the housing market will crash, causing property to be significantly (+20 %) under its current market value. In 2000 S. Fla’s property evaluation was significantly undervalued, so that was a market correction in the other direction.

    I do believe that many approved condo developments will quietly go away as development companies attempt to mitigate investment risk in this area. This in my opinion can be viewed as positive as well, since it will give the area time to grow into it’s new found abundance of “sleek cool artistic lifestyle lofts for the elite” TM.



  8. Rick    Mon Feb 13, 07:41 PM #  

    I suppose if we all were so good in real estate, we all would have made our millions by now and we all would not be here writing about when the best time to invest the next time around will be.

    .



  9. john    Mon Feb 13, 08:48 PM #  

    The last thing I want to do is to turn this great website into a housing bubble blogsite. Yet…

    Latin American buyers are a funny crutch. When did Latin America STOP being a poor Third World Region? Anyway, Manuel Iraola of Homekeys and Michael Cannon of Integra both stated that Latin American buyers have been cold on the US market for quite sometime. Cannon stated that at a sales conference in Colombia all people could talk of was speculation and the coming bust in Miami. As for the lack of land, there is none (except to the point that there is also finite land in Somoa).

    There is nothing to stop anyone from developing further and further up the coast or for building vertically in sprawling South Florida. More to the point, property values are determined by the underlying strength of the economy.

    Unfortunately Overtown, Liberty City, Liberty City, Allapattah, Little Havana, Little Haiti and most of Wynwood still are just as dangerous if not more than ever and the old downtown is just as Third Worldish and vacant as ever. Most (though not all) of development occurred in healthy or already transitioning areas such as the Grove, Miami Beach, Brickell, Coral Gables, and what I like to call the far west and the dirty south. Blame that on failure of government to funnel development to the proper areas. The crash/correction is happening elsewhere but the underlying non-real estate economy will determine to what degree.

    I wish anyone with their money tied to a short term investment in the Mia market the best. I suggest looking at trying to encourage Miami to create an actual functioning economy, educational system, infrastructure and competent government if you want a greater return on your investment. A good bet would be reintergrating Mia into the US economy rather than that of our Third World neighbors. I for one cashed out already and have been steadily wasting my money and trying to avoid working hard. I blame the price of drinks…



  10. Merkin    Tue Feb 14, 10:17 AM #  

    South Florida will remain one of the hottest RE markets in the country—make that the world—for as long as the sun shines and the seas stay blue. There are very few places in the world that has what South Florida offers residents. And so long as the public understands that RE will drive our economy, and that RE depends on new development. So people need to encourage developers, not fight them. It’s good for the economy, good for the region, and good for those of us who already live here. Especially if you’re smart enough to own your own home.



  11. Manola B    Sun Feb 19, 12:49 PM #  

    Personally, I don’t see how anyone who isn’t married to a druglord can afford a condo in this city. Salary and cost of living completely mismatched.



  12. The Beautiful Life    Tue Feb 21, 01:36 PM #  

    I also have a crib in san diego…and its the same only maybe worse. we will se a correction, and I think its a good time to take a wait and see approach. Argentina anyone?



  13. MM    Thu Feb 23, 11:53 AM #  

    The current market is ridiculous. I can’t fathom how people are wasting (yes, wasting) 85% of their monthly incomes to pay mortgage, insurance, etc. Nor can I grasp how those of us who make a good living are completely unable to buy a decent home unless we’re willing to go into hock for it. When you’re left with nothing after you’ve paid your mortgage, a house becomes a liability. But who am I kidding? We’re in Miami, right, where everyone must keep up with the Joneses and one-up them while they’re at it.

    I agree, the bottom’s falling, and I’ll be there at the end to collect the spoils.