Friday, March 03, 2006

The times are changing....

Whoooopsieee! Looks like the media is starting to catch a 'whiff' of this bubble leaking some air. The realtors for the most part are in denial. It is as if they are walking downwind in a cow pasture, but they won't admit something 'stinks' until they step in it! Right now, all the realtors are trying to rationalize that things don't smell at all, and if you put on enough cologne, things smell just great! The thing is, most people are sheep, not pigs. Sheep follow the heard, pigs wallow in crap.

Let's look a some of the information that is STARTING to come out of the media. It won't take long for the sheep to take notice...the 'bubble' word propping up in more and more headlines. Let's be honest, most people don't read the whole article. I forgot the statistics I read a while ago, but most people scan the headlines and the first paragraph, and read on an 8th grade level. I'm not too worried about the 'average joe' pondering the inverted yield curve, supply & demand, inflation, "medium" home prices, etc. They will be focusing on words like bubble and bursting.

You have to hate it when the New York Times starts running a story titled: Don't Fear the Bubble that Bursts. Uh oh...please don't talk about the past. After all, its different this time....right?

You have to like it when the local ABC news channel runs a story: "Central Valley Housing Bubble Ready to Burst?". Here is the FIRST sentence that most will read:

"The Valley housing boom is over, with home prices in some neighborhoods dropping $50,000 in just the past two months."

You can just hear it now. "Aw sh*t Ethel, our house is going down in value!".

Don't worry those of you on the East Coast, there is a bit of news for you as well! This little paper called the Boston Herald had an article titled "Roof Collapses on Housing Boom". No, it is not something you can just take out a HELOC to repair. Here are the first 3 sentences:

Massachusetts house sales plummeted 21 percent last month, stoking fears that the housing bubble may have burst and could send shock waves across the economy. It was the biggest year-over-year sales drop in almost 11 years - as Realtors recorded the slowest January since 1996. What’s more, one of the worst fears of homeowners appears to be coming true: House values have dropped nearly 8 percent since August.

Let's take a tour down South and see whats going on in West Palm "RE never goes down" Beach. Home sales, prices continue downward slide is what is going on. The first sentence:

Maybe the housing bubble hasn't burst, but it's losing air fast.

Imagine you are on a completely full 737 cruising along at altitude when you feel uneasy that something happened. The Captain comes over the speaker and says "We are not going to crash, but we are losing altitude fast". What do you think most people are going to do??

I know, I know...not the best comparison, but you get the point. Here is more from the story: The median price of an existing home sold in Palm Beach County in January fell to $393,700, well below the November peak of $421,500 and the first time the typical home has sold for less than $400,000 since July.

I do want to pause to let people know that I found an honest RE agent. Check out this quote from the same article: "Palm Beach County has a mini-blood bath going," said David Dweck, a Boca Raton real estate agent and investor who heads the Boca Real Estate Investment Club.

I'm not a professional PR guy, but I think that the term 'blood bath' probably doesn't have a positive connotation with most people.

Along the same lines a bit further south, we have The Boom is Gone: Home Sales fall 36% In Broward. First sentence: South Florida's five-year housing boom is over. Need I say more?

I'm sorry (not really) for being a smart-ass. I just can't believe that with all of the information out there, that people STILL think real estate only goes up!! You would think that after the 'irrational exuberance' of the stock market bubble of 5-6 years ago that everybody saw so painfully clear when it was over....that we wouldn't be running into another bubble so soon.

These articles are just the tip of the iceberg. Since about a third of the houses were bought as 'investments', people are counting on appreciation and making easy money. As you can see, once people realize the party is over, watch demand start to 'dry-up'. Once people realize they can't make 10k a month on a condo conversion, or by painting a house and cutting the grass, they will stop doing it. The problem is that there is going to be quite a large supply of homes, and not near as much demand for them.

I happened to catch an episode of "Flip that House" this past weekend. The guy bought a house in LA for $360k. Put $75k into the remodel. I'll admit, the house had a LOT of problems, and the guy did a great job fixing things properly and not cutting corners. There are 2 problems. The first one is that more time should have been spent inspecting the house before purchasing it. If that had been done, the $25k that was budgeted wouldn't have grown to $75k. That extra $50k was a 'surprise' that really eats into the profitability. The second is that in the end, the RE agent said the house was 'worth' $480,000. If you take the $435,000 invested then you are looking at a 'profit' of $45,000. But remember, that is before the transaction costs of purchasing the home, the carrying costs until it sells (mortgage/taxes/etc.), and the costs of selling the home. It took 12 weeks to do the remodel. By the time the transaction costs are figured in, I don't think there is much of that $45,000 left over, even IF it sold at $480k.

Check out the section of Forums that deals with the Craigslist/Classified-Ad FB's. Spend a few minutes there. I'm serious...do it. There are waaaaay to many FB's out there for one blogger to handle. Besides, I think it adds credibility when you see it listed in the 'real world'. I'm not kidding when I say there is a LOT of good information in the forums.

That is all for now. I have some good stories to share with you next week...stay tuned!

I look forward to the comments and feedback!
---
I am going to keep making my posts over here, but most of the comments are happening at the new site. Go to...
www.housingbubblecasualty.com
or
www.anotherf@ckedborrower.com

...if you would like to see more comments and activity. Don't forgot to check out the activity in the FORUMS!

SoCalMtgGuy

5 Comments:

Anonymous Anonymous said...

The NYT article does not deny a bubble, just that for the majority of people it would not affect their lives.

3/03/2006 12:00 PM  
Blogger SoCalMtgGuy said...

I know.

But the point is that 'bubble' is showing up in a LOT more headlines...and not in the fashion that is has been, as in "there is no bubble".

The mentality is starting to shift. When people realize that buying condos and houses isn't the 'easy road to riches' that is has been...watch what happens to the demand.

Thanks for stopping by...

SoCalMtgGuy

3/03/2006 3:37 PM  
Blogger road hog courier said...

i have read all the mainstream media reports and housing bubble blogs. From all the reports there appears to be a big drop-off in sales and sharp increases in inventory both from last month and YoY in many regions. There is still a great deal of denial out there : most of the interviewed realters and RePundits are STILL saying something like" there appears to be a softening of Re Activity but prices still remain strong "or" we expect prices to increase 5-7% this year even in a softening RE Market". Everything that the MSM sources such as business week or MSM Money says about the Re Market is BALONEY!!!

3/03/2006 4:42 PM  
Blogger Ol' Bubba said...

Just a quick note... I live in West Palm Beach and have the Palm Beach Post delivered daily. The article that you referenced WAS THE LEAD ARTICLE ON PAGE ONE!!!!

The headline read "Home sales, prices continue to slide". At the top of page one of the paper (Page One of the Main Section!) there was a big box showing the Palm Beach County median home price of $421,500 in November 2005 and $393,700 for today (the paper was published March 1). It also listed the stats for the homes on the market: 8,000 for January 2005 and 20,000 for March 2006.

I never thought I would see an article like this on the top of the front page of the Palm Beach Post.

3/03/2006 5:29 PM  
Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

Another great post.

3/08/2013 7:38 PM  

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