Tuesday March 13, 2007

Is this the bottom?

Wow! A UF study just found that Florida’s residential housing market may be bottoming out. Before we get all exited, let’s keep in mind that this is state-wide, not specific to Miami, and that the condo market is still in mid-tank. However, Housing Tracker for Miami confirms an increase in median home sale price for the last month (+0.8%), the first positive bump in over two years. By my reading, though, the accumulation of housing inventory is accelerating in the same time period, so keep your champagne corked for the moment. Update: Sorry, the link works now. Read BB’s comment, and venture a guess — if this report is BS, then when do you think the housing market will bottom out? (Critical Miami’s prediction: another 12  –15 months.)

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  1. Jonathan    Tue Mar 13, 03:58 PM #  

    Typically the duration of a bear market is roughly proportional to the duration of the bull market that preceded it.



  2. Gus    Tue Mar 13, 05:24 PM #  

    I spent Sunday looking at single-family homes for sale in Miami Shores. There is an incredible amount of inventory on the market. The tables are starting to turn in the buyers favor. Most properties we saw had already been reduced $50k. It’s a good time to be shopping for a home.



  3. Biscayne Bystander    Tue Mar 13, 08:27 PM #  

    Alesh, your link to the South Florida Business Journal isn’t working. I read that article earlier and caution everyone as to its optimistic tone. Will there be a bounce back in the single family market? Sure, but a small one. Spring is typically a busy time of year for realtors hawking single family homes, as families like to move in this time of year (something to do with situating their kids in the school district).

    So while that might provide a cushion to free falling prices and properties moving like molasses, it ain’t no fix. With the prices of condos still falling, buyers will be hesitant about purchasing a home while condo prices keep dropping.

    Also, we haven’t begun to hit stride in the soon to be runaway foreclosure market. A 1/3 of Washington Mutual’s Home loans were done in the Subprime market. Banks and mortgage companies were criminal in the way they handed loans out to people who could barely afford the 1% let alone the adjustable rates that could have them paying a ridiculous rate hike within 2 years! As a result, South Florida is poised to take top national honors in the amount of Foreclosures per capita.

    Finally, rate hikes for Windstorm insurance are absolutely scaring people away from purchasing a single family home. Legislation that’s been passed to pacify the sticker shock to home owners is like a band-aid when we need stitches. Ultimately the FED is going to have to step in and lower interest rates, which would bring fixed mortgages rates back down to reality.

    I mean damn, this report must have come from UF students that couldn’t pass the entrance exam into MDCC! I’m sure anyone who’s been losing their asses while the market has been slow will be quick to push this article as proof of a silver lining ahead. But the truth is Agents are dying to get any news out there that could help bolster consumer confidence. Don’t believe the hype.



  4. alesh    Tue Mar 13, 09:08 PM #  

    Thanks, BB — i fixed it.

    As far as I can tell, you’re exactly correct. You’re over my head with the “FED is going to have to step in and lower interest rates” bit, but everything else sounds dead on.

    The news radio reports today were full of stories about how foreclosures are at an all-time high, and for the various reasons you allude to this effects Miami more then most places.

    See the update — when do YOU think the market will bottom out??



  5. Biscayne Bystander    Tue Mar 13, 09:21 PM #  

    Think what the government did after 9/11 to draw consumers out of hiding. They drop interest rates. Remember how cheap it was to lease or finance a car? The low interest rates is what initially set off the housing boom.

    The problem now, is they won’t just hand credit to anyone since they lost their asses with the Subprime loans. You’ll be able to get a great house, at a great rate, but your credit better warrant it.



  6. Anonymous    Wed Mar 14, 06:55 AM #  

    I have to disagree – bottoming out now? NO WAY. I have read other similar reports and heard speculation on the news that this will not be over until 2008 (at least).

    The worst about all this is that we still have to face the fact that all these houses ARE STILL WAY OVERPRICED AND EXPENSIVE.

    How have prices really been adjusted to in the last 1 to 1.5 years that we have been in this “buyers” market? My house peaked about 1.5-2 years ago at $469K (for a house I bought in 2003 for $249!)now websites likes zillow.com state its going for $409.

    So now they are telling me that peaking at an increase of 88% from 2003 and now losing value a mere 12.7% is going to cause these still ridiculous prices people are asking for to change back to buyers market?

    Think people – this will not “bottom out” until these prices are back to “affordable” levels. I am not saying that they we will ever go back to the what they were back in 2001/2002/2003, but prices are still way too high and unaffordable.

    My block alone has 7-8 houses with “for sale/for rent/for anything, lets make a deal PLEASE” signs.

    And my block has also had its first “dump” to avoid foreclosure. They couldnt handle the $8.5K property tax bill they got in november – so they dumped it by slashing $50K off market price and of course it sold – quickly. Using that as a guide, I figure that if my house went up to $469 and is now been slowly (crawling) back down to $409, and it took someone to dump it for $50K less to sell it, then I figure we need to see prices drop another 12.5% (or another 1 – 1.5 years it took it to drop that amount from my peak).

    And as far as the condo market is concerned – once all that building in downtown is finished, and the inventory of condos doubles, CONDOS ARE GOING TO TAKE A DUMP!!

    BUT (A final thought) – if this crazy idea of eliminated property taxes and increasing the sales tax goes through, PROPERTY TAXES WILL BOTTOM OUT NOW AND IT WILL GO BACK UP AGAIN.

    Think about all the people (particularly NYC) that would want to come down here? “Look, no property taxes in Florida! Lets go!”.

    Which is why I am wary of this – saving +$5K (for me) in taxes sounds great, but my common sense tells me that we will pay for it somehow.



  7. Tere    Wed Mar 14, 09:45 AM #  

    The bottoming out is inevitable, and I give it another year or so. I’m with BB, don’t believe the hype. These are the same agents, developers and mortgage people who created a frenzied atmosphere that made people believe they had to get a house NOW, pay a 200% increase over what the seller paid for it – or, like, the world would end. None of these people are going to publicly admit that it’s all caught up to us.



  8. Tere    Wed Mar 14, 09:50 AM #  

    The worst about all this is that we still have to face the fact that all these houses ARE STILL WAY OVERPRICED AND EXPENSIVE.

    Word.

    Houses drop in price from $500K to $450K and I’m supposed to be RELIEVED? I’m supposed to think, “yay, now I can buy a house!”?? No f’ing way. Between insurance rates and property taxes (not looking at what may or may not come down from Tallahassee), I can not, under any circumstance, do more than $275K – $300K for a house (and that’d be pushing me to my limit). And right now, that’s non-existent. But before this explosion, that range was a small house in the Gables. A family home in the area I currently live in (Shanendoah) was priced in the $150-$160K range back in 2001, just before the boom. These numbers are completely foreign to us now.



  9. Michael Emilio + Miami Real Estate    Wed Mar 14, 04:41 PM #  

    I don’t see a bottoming out at all in the Miami real estate market.

    Yes, homes are on the market longer than a few years back before getting sold.

    Yes, it seems almost impossible for a home being sold by owner to ever get sold without proper advertising and marketing.

    When we see prices getting “reduced” on homes, this is usually just due to a very high original listing price being due to overinflated ideas of what the home will sell for on the market – most likely caused by the recent South Florida real estate rush. The lack of market attention on that home will quickly bring the listing Realtor and homeowner to the realization of dropping the price closer to true market value.

    I do see the rental market beginning a very strong push now though.



  10. Tere    Wed Mar 14, 08:02 PM #  

    The rental market is beginning a strong push because people can’t afford to buy houses at these prices! There is a LARGE gap between what homes cost and what the average person makes. People were buying homes they couldn’t afford because of all those too-good-to-be-true mortgages, which guess what? ARE too good to be true!

    Beyond that, houses here just aren’t WORTH what people are asking. I mean, people are asking $215-225K for houses in areas with really high crime rates (i.e., Liberty City)! Please! I think people are finally realizing that they’re paying close to half a million for a 3/2, and it’s not even worth it.

    The rental market’s picking up, foreclosures are WAY up: the signs of bottoming out are there.



  11. anonymous    Thu Mar 15, 06:41 AM #  

    Regarding rentals, I have heard that since many rental properties went condo (in their greed) that the number of rentals went down considerably, causing impossible demand and of course drastic rises in rent costs.

    Can anyone confirm this? (At least someone who moved out of one place due to contract lapse or forced to move out due to condo conversion and began looking for another rental…)

    As far as this bottoming out is concerned – it seems we are in a “Mexican standoff” here. Sellers are not really lowering prices that much, and as a result buyers are not biting. Until someone blinks, things will remain status quo.

    I’m placing my bets that sellers blink first.

    TIPS FOR SELLERS:

    1) If you MUST sell (foreclosure, leaving town) then consider dropping your price an instant 10-12% and it will sell quicker.
    2) Do NOT move if its only to upgrade to a better area, bigger house. NOT NECESSARY. STAY PUT AND RIDE IT OUT.

    TIPS FOR BUYERS:

    1) WAIT WAIT WAIT
    2) If you are desperate, do not be afraid to offer 10 – 12% LESS than the asking price. Before that was called “low-balling” Not anymore! Worst thing that can happen is they can say no.
    3) DO NOT BUY A CONDO
    4) AVOID INTEREST-ONLY / ARMS – If you CANNOT AFFORD IT, THEN NO!
    5) Make ABSOLUTE certain you can afford the mortgage payment. Use any mortgage calculator on the internet BUT DO NOT FORGET TO ADD IN: a) Roughly 2% property taxes (at least for now)! b) insurance – Roughly 1%

    So for example, if you decide to cave in and buy a $350K house, your mortgage will be:

    Principal+Interest = $ 2,042.50 (30yr-fixed/5.75%)

    TAXES = $7000 (or $583.33 per month)

    Insurance = $3500 (or $291.67 per month)

    TOTAL MONTHLY PYMT = $2917.50!!!!

    And thats for a REGULAR 3/2 house/townhouse. Nothing fancy, super or luxurious.

    According to OLD calculators of what you can afford (now they don’t care), you were NOT supposed to get a payment that goes over 33% of your GROSS MONTHLY INTAKE BEFORE TAXES.

    And according to that estimate above,

    (Yearly (Monthly = $2917.50 × 3) x 12) = $105,030

    You must be making over $100K to afford it.

    Ugh.



  12. Tere    Thu Mar 15, 08:23 AM #  

    Good tips, anonymous. Glad you did the math, too, because it shows in plain numbers how ridiculous this market is. As it is, I know at least two couples who make very good livings yet are considering their options because it’s just cost too much to keep their homes. They can afford it, but I think when they look at what they pay vs. what they have, they realize it’s too much money.

    I do believe that part of the rental market push was due to how many properties went condo. We moved recently from a small building that the owner will be turning condo this year. He probably would have sold it to us at not-so-crazy price, but one of the bathrooms and the kitchen were originals from the 40’s and in pretty crappy conditions, and we didn’t think it was work paying to buy the place to then have to redo 2 rooms.

    As it is, we’re not sure what he’s going to end up doing, but he bought the property in July 2004 and is being murdered by the taxes. Between his mortgage, taxes and the fair rent he charges, he’s getting eaten alive.



 
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