The housing bubble is in its final blow off stage with the public “Flipping Houses” just as they flipped equities at the stock market peak in 2000. There are at least two recent books on flipping, and lots of real estate seminars telling people how to “cash in on the boom”. Fraud and greed are rampant and when those are combined with enormous public participation, you know the end is at hand.
The inventory of houses for sale is rising along with interest rates and warning signals are flashing red in many major US real estate markets. Let’s take a look at some of the signs of a blowoff top in the making.
Inventory rises and Pulte slashes prices
Egged on by the stratospheric prices their neighbors were asking — and getting — homeowners in Las Vegas flooded the market with “for sale” signs. The number of existing houses posted for sale on the Multiple Listing Service ballooned from about 1,400 in February to more than 16,000 by October.
Among them were never-lived-in homes offered by investors who had bought them only months before from national homebuilders — who were selling their own brand-new houses literally across the street.
In early fall one of those builders, Pulte Homes, took the extraordinary step of slashing prices by $25,000 to $180,000 on more than 20 of its Las Vegas-area developments. The move sent shock waves through the Las Vegas building industry.
Speculators abound in Florida condo market
Jack McCabe, head of McCabe Research and Consulting in Deerfield Beach, believes about 40 percent of the buyers in the condominium market to be investors, though he said that might be a conservative number.
McCabe’s surveys show 25,000 condominium units either under construction or planned in Broward, Miami-Dade and Palm Beach counties within the next 18 months. Typically, people only buy about 4,000 or 4,500 condominiums a year in the region.
”Do the math,” he said. “I think we’re looking at a 3- or 3 ½-year supply coming onto the market in 18 months.”
Cannon, the Integra analyst who is also a real estate columnist for The Herald, said the current buying and building boom could end as badly as one did in the 1980s. Back then, speculators — including many from Latin America — helped fuel high-rise construction along Miami’s Brickell Avenue.
Chicago, Phoenix, Florida
Stock market woes induce many to try flipping real estate
Flipping is the practice of buying properties for resale, an investment strategy that has become wildly popular in Chicago and across the country. Disappointed with the stock market and dazzled by double-digit property-appreciation rates, amateur investors–apparently of every income stripe–are investing in real estate in droves.
They are snapping up everything from condo conversions in Chicago suburbs to new three-bedroom ranch homes in the Arizona desert. Ordinary people, armed with bargain mortgages, pooled family savings and cashed-out home equity, are buying for investment at levels that are starting to worry economic analysts.
In some subdivisions up to 60 percent of the owners were investors, which was leaving the regular homeowners in an uncomfortable situation. The market became flooded with rentals.”
Washington, San Francisco, Florida
U.S. real estate: The next bursting bubble?
About 30 percent of condominium buyers in Washington and San Francisco and 40 percent in south Florida are obtaining mortgages for investment purposes, says Gregory Leisch, chief executive of Delta Associates, a real-estate research firm. In south Florida, median home prices are rising by as much as 29 percent annually; in southern California, 36 percent; and Las Vegas, 54 percent.
That’s a sign the market may be overheating, says Stephen Roach, chief economist at Morgan Stanley in New York.
“The latest trends in house prices and savings are disturbing,” Roach wrote in a Dec. 3 note to clients. “They underscore the distinct possibility that America’s asset economy is in the midst of yet another bubble-induced blow-off.”
Fraud Is Rampant
Mortgage Fraud Inflates Housing Bubbles
Mortgage fraud is rampant in the United States and not only are the illegal activities an immediate threat to home owners and local communities, the scourge could ultimately cause the kind of economic conditions associated with so-called “housing bubbles.”
Mortgage fraud complaints more than doubled in 2004. The Federal Bureau of Investigations received 17,127 reports of mortgage fraud in the fiscal year that ended Sept. 30, 2004, compared to only 6,936 reports in the previous fiscal year.
Nationwide, mortgage fraud is estimated to have cost businesses nearly $48 billion and consumers about $5 billion in the past five years, according to a recent study by the Federal Trade Commission.
Track the latest Mortgage Fraud News Here:
Mortgage Fraud News
California Housing Affordability Drops 5 Points
California’s Housing Affordability Index at 18 Percent in January
March 10, 2005–The percentage of households in California able to afford a median-priced home stood at 18 percent in January, a 5 percentage-point decrease compared with the same period a year ago when the Index was at 23 percent, according to a report released today by the California Association of REALTORS®.
C.A.R.’s monthly housing affordability index measures the percentage of households that can afford to purchase a median-priced home in California. C.A.R. also reports housing affordability indexes for regions and select counties within the state. The index is the most fundamental measure of housing well-being in the state.
When only 18% of the people in an entire state can afford to buy a house, you have a bubble. Some areas of the state are worse than others. Affordability in San Diego is down to 11% and Orange County is down to 12%. Over the long haul, housing prices can not rise faster than wages. We will either see housing prices fall or wages rise. The odds of wages rising with the FED attempting to cool the economy, mergers and consolidations causing numerous mass layoffs, andthe continued outsourcing of jobs to China and India are extremely small. All trends eventually revert to the mean and housing will not be different. People will be in for a shock when it happens.
Investors and second home buyers account for 36% of 2004 home sales
Investors buy more of housing market
Real estate speculators are buying at a pace that far exceeds previous estimates of their influence on the housing market, according to a first-of-its kind report the National Association of Realtors released this week. The report, based on two surveys, found that investors accounted for 23 percent of the nation’s 2004 home sale transactions and second-home buyers made an additional 13 percent of all sales transactions. Previous estimates gleaned from other databases had suggested that 8.5 percent of all 2004 sales transactions were investments.
“I am astonished,” said David Lereah, the association’s chief economist. He said the data suggest a sea change in the role of real estate in the nation’s economy.
“What we’re seeing is that real estate is no longer just a place to live. It’s a viable alternative to stocks and bonds,” Lereah said. “Sept. 11 changed real estate forever, the way people look at it. They’re nervous about stocks and bonds and they’re placing money in real estate, which has proven to be a stable and wealth-building asset.”
No! What we are seeing is the final blowoff top of a mammoth nationwide real estate bubble. “Flipping houses” is the latest “can’t lose” phenomenon. When real estate is no longer just a place to live for the masses, warning signals should be flashing in everyone’s head.
Here is an excellent article by the Wall Street Examiner on real estate values.
Don’t “Ask,” Just Sell
Most housing “experts,” including (tongue in cheek) Mr. Greenspan, see no bubble, hear no bubble, speak no bubble. They are dreadfully wrong. This is a most bubblicious housing market, and not just on a regional or even national basis. It is global. When prices do start falling, they will fall far faster and in a much more widespread manner than anyone is predicting (with perhaps Robert Prechter and a few other notables being the rare exceptions). I won’t try to tell you when this will happen, as any number of things could trigger it, but happen it will.
Today I see rising home inventories in most markets and lengthening “days to sell.” I also see falling sales and increased building starts. Can things possibly get any “better?” Don’t “ask,” just sell.
Real estate may be a “local thing” but speculation is both massive enough and pervasive enough to proclaim a “national bubble”. In fact, speculation is rampant in the US, the UK, Australia, China, and parts of Europe. It is a global phenomenon spurred on by mammoth liquidity injections by the FED in a foolish attempt to defeat the normal business cycle.
Unfortunately for the FED, housing is not in a “new paradigm” and “The Greater Fool Theory” in housing will suffer the same fate as we saw with stocks in the NazCrash of 2000. “It’s not different this time”