Wednesday July 25, 2012

What's up with housing prices?

First, a quick recap: here’s what I said on February 13, 2006:

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.

Then, on January 14, 2009, writing at Buildings and Food but in the voice of Critical Miami, I said this:

Now, listen carefully: it’s time to go shopping. Remember the factors that led to the bubble? Idiotic interest-only mortgages, gross overbuilding, and what seemed like terrifying hurricane seasons as far as the eye could see. The picture today? (1) mortgage idiotics universally recognized and being dealt with to the tune of trillions of dollars from the federal government, (2) overbuilding spectacularly finished, and (3) relatively calm winds for the last two seasons. To boot, (4) an incoming president that everyone seems to think Can Fix Things.

So here we are, another three years down the road, and time to check in and see what’s up. Heres the graph for housing inventory, which tells an interesting story:

But for an even more vivid look, check out the plot of housing prices for the last 6 years. Both are from our friends at the Department of Numbers:

Yup: housing prices dropped steadily from 2006 to 2009, at which point they began to level off. The actual bottom came in the second half of 2011, and prices have been recovering fairly sharply since. For the record, anyone who sold when I said and bought when I said really did stand to pocket between $150 and $200 thousand. But so where are we now?

We’re at a very interesting time. Florida’s unemployment rate has dropped from over 10% to 8.6% over the last half year. (Not amazing I know! But an improvement over 11.4%, which is where we were in 2010.) From where I sit in Edgewater, development appears to have started up in full force. There’s one condo at the end of my block that was recently finished and is now selling, one across from me that’s being finished up, and an empty lot behind me where construction is just starting. A response to the low inventory I realize, but just a few blocks away is Paramount Bay, a positively huge building completed in 2009 that, judging by the number of lights on at night, sits over 90% empty. Drive around Miami and you see the same everywhere: construction cranes.

This suggests that a steep rise in prices, anyway, is not forthcoming. But remember that for the time being we’re in a world where the subtleties of European international relations will determine whether the world’s economy will recover or re-crash. (As evidenced, e.g., by this random news story from the NY Times. Oh, and since you’ll ask, here’s the Times’ resident Sourpuss’ most recent missive on the European economy. Grim, kids.)

So, what the hell is going on? Why are condos being built and sitting empty when inventory is relatively low? Peep this:

Interest is particularly strong from Venezuelans and even Argentinians, [Luis Marin, vice president of TSG Realty] said, because shifting government policies in their home countries makes investing in properties there more tricky. Basically, it’s a way for the wealthy in those countries to protect against domestic political uncertainty. “The good thing about investing in South Florida, you’re investing in the first, best country,” Marin said. “You have more security fiscally; you’re not going to have trouble.”

Could it be true that South American investors are buying up Miami condos to protect their investments? Believe it or not, South America is in the middle of “an economic boom.” Meanwhile, 65% of housing sales in Miami have been all-cash transactions (that’s 77% of condo sales and 46% of house sales).

So where does all this add up? If you bought a house in 2009 or 2010, give yourself a pat on the back. Otherwise, I’d be careful right now. Officially, prices are still low. But the condo market makes me weary. And Europe could collapse at any moment, sending us into the double dip that the Sourpuss has been promising us for years, just as Romney is taking office. On the other hand, Europe has been promising to collapse for months and hasn’t (despite pretty close to the worst case scenario w.r.t. Greece). It could shore itself up through the magic of German bonds and we could be in a rosy economic picture just as Obama takes his second oath of office. See? Uncertainty.

Tags: development, economy, housing, southamerica, spain

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