REAL ESTATE NEWS
April 26, 2006 - Real Estate Tips
March 23 , 2006 - South Florida Hotel rates are on the rise again
June 2005 - Tougher Times For Renters
June 2005 - Best Places to be Rich - Palm Beach #2
June 2005 - Cement Shortage Could Slow Growth of New Housing
May 26, 2005 - Don't Buy Housing Bubble Propaganda
April 26, 2006 - Real Estate Tips
- Kiddie Condos are booming in College Towns all over the U.S.. Baby boomers are placing their money in affordable units close to campus especially in the South East where real estate affordability has become an oxymoron! Some of the most attractive college properties create positive cash flow, day one/dollar one! The win/win bonus round comes in when JUNIOR goes to school and you double dip on housing and income!!
- The Federal GOZONE has approved South Florida and The Gulf Coast for substantial savings in taxes and mortgage costs. Approved Real estate purchases, investments and Development may benefit from this aggressive FEDERAL program to re-build, re-develop and re-energize effected areas of the 2005 hurricane season. You will not believe HOW DEEP THIS RABBIT HOLE GOES!!!
- Syndicated Buying is sweeping through our industry and most have NO CLUE what it is or how it works! As in most cases, THE RICH ARE GETTING RICHER and the rest just look around and ask what happened??? We will be presenting more from BRIDGEPOINT VENTURES LLC whereby a builder and a consumer can STRIKE A SYMBIOTIC RELATIONSHIP toward profitability and predictable equity positioning!
- BUILD ABLE LOTS in rapid population growth areas may be the answer to your Real Estate questions. Education, Water Management, Traffic Control and Trash issues force City, County and State agencies to deny zoning variances in high growth areas. Historically, when the demand for individual lots exceeds the areas supply Appreciation occurs. The Buyers Club posts platted, approved, ready to build lots from $3000-40,000. Gated, golf course and waterfront lots that are ready to build can still be bought cheap in Florida!!!
- St. Joe Paper is moving from TREES and PAPER to Bricks and Mortar. Everything in The Florida Panhandle will change forever while St. Joe develops huge parcels of land owned from Tallahassee to Pensacola to Panama City and Back!!! You could not imagine the magnitude of this project from an international airport to culture and education, the entire region is preparing for the influx of BABY BOOMERS from all over THE WORLD!
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March 23, 2006 - South Florida Hotel rates are on the rise again
BY DOUGLAS HANKS III
dhanks@MiamiHerald.com
South Florida hotels boosted rates last month as the region continued evolving into a pricier vacation destination.
The average hotel guest paid $169 per night last month in Miami-Dade County, up $14 from February 2005, according to the latest Smith Travel Research survey. In Broward, the average rate rose 15 percent to $147.
The higher rates didn't seem to turn off travelers: Occupancy remained steady at 81 percent in Miami-Dade and 88 percent in Broward.
''Weekends, we're solid sold out,'' said Henny Schaeffer, general manager of South Beach's Astor Hotel.
But softness continued in the Florida Keys, where occupancy dropped 15 percentage points from a year ago to 74 percent. Revenue per room -- a common industry measure of profitability -- dropped 8 percent, following January's dip in bed taxes in Monroe County.
Hoteliers there blame the slowdown on continued fallout from Hurricane Wilma, which battered hotels, swamped roads and attracted national media attention.
Also, the continuing upgrade of Keys hotels and the conversion of many to upscale condo-hotels has added another hurdle to would-be Conch Republic vacations: price.
The average Keys room rented for $216 a night in February, up 9 percent from a year ago.
''I think we scared some people away with our rates,'' Chris Majchrowicz, general manager of Key West's Fairfield Inn.
In Miami-Dade, the Miami boat show traditionally boosts rates in February, and Miami Beach hotels expect a lift from this week's Winter Music Conference. The dance-music fest generally packs rooms with music-industry executives and partyers.
Miami-area hotels in February posted the second-highest average daily rates among the country's Top 25 hotel markets, second only to New York's $190 rate. The Fort Lauderdale area and the Florida Keys are not Top 25 markets.
Room revenue -- which measures occupancy levels and room rates -- grew in two of the three markets: up 10 percent in Miami-Dade to $151, up 15 percent in Broward to $147. In the Keys, it dropped to $160.
February's high season growth for the Miami area was boosted by a slight loss in room inventory as more hotels close down for renovations or convert to condominiums.
Smith Travel reported 1.5 percent fewer rooms were available last month than a year ago.
The increase also follows a January some hoteliers said was slow, possibly due to a mild winter in the Northeast.
The higher rates have helped bring in more tax dollars.
Resort taxes grew 13 percent in Miami-Dade in January over a year ago, to $7.1 million, and 19 percent, to $4.3 million, in Broward.
In Monroe, resort taxes dropped 3 percent to $1.3 million.
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Splashy design offered for West Palm waterfront A movable show pier highlights the aquatic-themed downtown of the future.
By Thomas R. Collins Palm Beach Post Staff Writer Monday, November 14, 2005
WEST PALM BEACH - Maybe coming to a waterfront near you: a moving pier lit up like a giant electric eel. Walkways that go straight out over the water to islands that never used to be there.
 A computer rendering shows an unobstructed view of the Intracoastal Waterway looking east over the fountain at the end of Clematis Street and the site of the current downtown library.
 A computer rendering shows a view looking west from the Intracoastal Waterway toward Clematis Street. A tidal pool (center) where the current library sits is one of the project's features.
Graphic: Proposed attractions
An optical illusion using a waterfall that makes it appear on Clematis Street as though the Intracoastal Waterway comes all the way up to where the library stands now.
All these things - plus more meditative paths, parks and tidal gardens than you can shake a water noodle at - are part of the picture that designers have painted for the West Palm Beach downtown waterfront of the future.
If even some of the features proposed for the project come to pass, the waterfront, long considered sadly underused, will spring to life and likely draw visitors from far and wide. It could come to define West Palm Beach in the same way that the Nancy Graham fountain and CityPlace have - a logo-worthy spot given to people-watching and spontaneous activity.
"People make their own stage when they go into these spaces," said Jane Thompson of Boston-based Thompson Design Group, a firm on the city-hired team. "It's all a human parade."
But all of this adventurous designing will require great care, the tackling of enormous engineering questions, and lots of money, some of which would be spent moving the stretch of Flagler Drive from Datura Street to North Clematis Street as much as 200 feet west in one spot to create more space next to the water.
Before he agrees to spend taxpayer money, Commissioner Ray Liberti said, he needs to be convinced features such as the movable pier will not get "stuck every week" and that "it's not going to be called 'The Commission's Boondoggle' or 'Frankel's Folly,' " a reference to Mayor Lois Frankel.
The design team, which is led by CH2M Hill, hasn't submitted cost estimates, which are expected to be turned over to the city early next year, Thompson said. The city has set aside $20 million, secured grants and hopes to sell naming rights for some of the features. The project would be built in phases over several years.
And the plans are far from final. Many of the items will be changed dramatically or eliminated, depending on how much they cost and how elected officials and the public continue to react to them.
But city commissioners and members of a resident evaluation committee embraced most of the ideas last week. And the plans will probably start cementing quickly.
The designers have broken the waterfront into three zones:
n The Waterfront Commons, from the north prong of Clematis Street south to about Datura Street , would be the main area of activity and likely the first to be built. The star of the commons would be a movable 400-foot pier capable of performing light shows that could become the waterfront's signature. Nearby, a platform next to the water could be used for performances. A bit to the west, designers have proposed a shallow pool with water levels in sync with the tides, a pavilion covered in greenery, a garden area, a small beach with real sand and two waterfalls forming a tunnel people could walk through.
Richard Staudinger, the project manager from CH2M Hill, which has offices in West Palm Beach, said the idea of the movable pier is uncommon even for his firm, which designs waterfronts worldwide.
"We're really trying to do something unique," he said.
n At South Cove, between Fern Street and the bridge at Okeechobee Boulevard , artificial reefs would be created in the Intracoastal Waterway and connected to land by walkways. The existing pathways would be transformed with heavy, exotic landscaping.
n The Family Water Science Park, from the north bridge at Quadrille Boulevard south to Second Street , would include paths through heavily landscaped areas and a fishing pond and water science park for children.
With daring ideas, though, could come intimidating risks, some say.
"The first thing that I thought of is, what would happen if there were hurricane winds coming in?" Commissioner Ike Robinson said. "Nothing is indestructible."
As for the shallow pool, Deborah Beriro, one of the committee members, said, "Is the city ultimately going to be held liable for a bunch of broken heads and necks?"
Others questioned how much contact the public would want to have with the polluted Intracoastal Waterway . After all, Commissioner Bill Moss said, "This is not a pristine northern lake between mountains."
Thompson, whose firm has designed renowned projects such as Baltimore 's Inner Harbor , said the engineering questions and making the seemingly vulnerable items hurricane-proof aren't as complicated as many people might think. Making the pier adjustable might allow it to be swiveled toward shore and anchored there in the event of a hurricane. And the hurricane solution for the walkways out to the islands might be simple: Build them so they can be easily dismantled before a storm hits, then put back together again.
"I think a lot of people are spooked by things they cannot imagine," Thompson said. That doesn't mean anything can be totally storm-proof, she said.
"There is no absolute answer," Thompson said. "Nothing in engineering is ever validated until you do the drawings."
Staudinger said the designers have been careful not to propose anything without a basis in engineering.
But the designers now await reaction from city leaders and "real, hard engineering" hasn't been completed yet, he said.
Joan Goldberg, who is coordinating the design effort for the city, said, "Storm management and safety issues in general are going to be at the top of the city's list."
Some say they're worried the plans might be too fancy.
"My feeling is, you don't need all that gingerbread," said Frank Coniglio, owner of E.R. Bradley's Saloon, which sits next to the areas to be changed. "I'm sure they could find some better places to put that money."
He said he was especially worried about changes to Flagler Drive , in part because it's already pretty now and because of the disruptions that would be caused by constructing a new stretch of road.
Patty Doherty, owner of the downtown advertising business Table 13, said she loves the plan. "I imagine people who are using it - people who are like me and people who are not like me," she said.
Commissioner Kimberly Mitchell and others have said the site needs a notable civic structure because the waterfront is so important to the city.
Some have even said the plans aren't fancy enough.
To them, Mayor Frankel, who has championed the project, said: "To me, having a light show on the Intracoastal is as 'wow' as you're gonna get, folks. I mean, we can't send you to the moon."
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Florida Is #1 In "Best States For Relocation 2005" Study
Key Biscayne, FL - Jun 2, 2005 (PRN) : "Best States for Relocation 2005", a new study released today to mark the start of the summer moving season, has identified Florida as the most popular U.S. state for interstate moves.
Although California has dominated relocation statistics since the 1930s, the Census-based study by iMovingGuide.com vaulted Florida into first place by a wide margin. California , Texas , Georgia , and North Carolina follow Florida in the top five, confirming long-term U.S. migration patterns to the Southeast and Southwest. Rounding out the top 10 are Arizona , Virginia , New York , Colorado and Pennsylvania .
Working from the premise that people "vote with their feet", the study used a complex algorithm, conceptually similar to Google's PageRankT, to measure the "votes" of more than 29 million interstate moves reported in the U.S. Census. In the study, each move is counted not only as "vote for State A", but also as "a vote for State A over State B".
"The problem with previous studies is that they predetermine the importance of each factor such as such as crime, pollution, jobs and health care," commented Jim Lane , publisher of iMovingGuide.com. "But people view these factors in different ways. For example, a young couple with small children will place more emphasis on schools than elder care, but an older couple preparing for retirement feels the opposite way."
"To solve the problem, Lane continued, "this study uses actual relocation decisions that people made, rather than making guesses about how to weigh their motivations. Whether new residents are moving to enjoy a better life, or pursue one, this study measures what they are telling us with their actual relocation decisions."
There is not always a strong correlation between large population and relocation popularity. For example, the state of Nevada is ranked #35 in total population, but was ranked #14 in the iMovingGuide.com study. Other states with striking relocation popularity include Colorado (22nd in population, 10th for relocation), North Carolina (11th and 5th), and Arizona (18th and 6th).
"With the summer moving season beginning this week," Lane said, "this study will help potential new residents focus in on great places to live. It also helps states and communities understand their positioning with potential new residents."
The study is available for free download at http://www.imovingguide.com .
iMovingGuide provides potential new residents with editorial coverage and free, one-to-one personalized relocation advice for 400 cities, primarily in the US . Established in 2001, the Guide has become a well-recognized source of in-depth relocation content and information on relocation trends.
For more information on iMovingGuide.com or the study, contact Jim Lane at 305-361-5660 or visit http://www.imovingguide.com .
Best Places 2005: Ratings by State
Rank State (Points) (Population Rank)
1 Florida (4,008) (4)
2 California (3,099) (1)
3 Texas (3,027) (2)
4 Georgia (2,657) (9)
5 North Carolina (2,369) (11)
6 Arizona (1,978) (18)
7 Virginia (1,963) (12)
8 New York (1,764) (3)
9 Colorado (1,569) (22)
10 Pennsylvania (1,544) (6)
11 Washington (1,510) (15)
12 Illinois (1,495) (5)
13 Nevada (1,406) (35)
14 Tennessee (1,402) (16)
15 Ohio (1,376) (7)
16 New Jersey (1,351) (10)
17 South Carolina (1,196) (25)
18 Michigan (1,155) (8)
19 Maryland (1,080) (19)
20 Oregon (1,066) (27)
21 Indiana (1,045) (14)
22 Missouri (990) (17)
23 Massachusetts (951) (13)
24 Alabama (917) (23)
25 Oklahoma (835) (28)
26 Kentucky (744) (26)
27 Wisconsin (701) (20)
28 Louisiana (695) (24)
29 Minnesota (676) (21)
30 Connecticut (619) (29)
31 Arkansas (615) (32)
32 Utah (608) (34)
33 Kansas (602) (33)
34 New Mexico (568) (36)
35 Mississippi (519) (31)
36 Iowa (420) (30)
37 Idaho (409) (39)
38 Hawaii (353) (42)
39 West Virginia (324) (37)
40 Nebraska (303) (38)
41 New Hampshire (290) (41)
42 District of Columbia (247) (50)
43 Montana (227) (44)
44 Delaware (222) (45)
45 Alaska (221) (47)
46 Maine (217) (40)
47 Rhode Island (200) (43)
48 Wyoming (135) (51)
49 Vermont (134) (49)
50 South Dakota (110) (46)
51 North Dakota (89) (48)
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Tougher times for renters looking for a home
With many apartment buildings being converted to condos, occupancy levels are near capacity.
BY RICHARD WESTLUND
richard.westlund@earthlink.net It took Desi Stommes more than three months to find a Kendall apartment in her price range. ''With so many apartments being turned into condominiums, it's getting harder and harder to find a place to rent in Miami ,'' she said. Stommes, 24, who works in the reservations department at Norwegian Cruise Lines, eventually found a one-bedroom at Cherry Grove Village for $795 a month. ''There just aren't many nice apartments in that price range,'' she said, ''but this is an area I like, and it's close to the expressway for me to get to work.''
Finding a suitable apartment in South Florida is getting tougher and tougher, say leasing agents and analysts. ''Right now, we're seeing occupancies in the 95 to 98 range throughout South Florida ,'' said Robert Konegen, general manager of Florida RentFinders, a Fort Lauderdale-based rental service. ''When we get listings for rent, they're gone within days.''
A February survey by Reinhold P. Wolff Economic Research, a Pompano Beach economic research firm, found a 3.6 percent vacancy rate in 38,615 Miami-Dade apartments in complexes 18 or more months old. That's a significant drop from the 5.1 percent vacancy rate of February 2004. The survey also found a 2.9 percent vacancy rate in 60,719 Broward apartments in February, compared with a 5 percent rate just 12 months prior. Since mid-2004, vacancy rates have fallen even for more expensive apartments, the survey found.
With high occupancy rates, more tenants are staying put, rather than relocating, Konegen added. ''That's fine once you have your apartment, but if you're still looking for a rental, that trend can make things tougher.'' In Palm Beach County , the market is particularly tight, Konegen said, because many contractors and workers are still repairing damage on the Treasure Coast from last fall's hurricanes.
One key reason for lower vacancy rates is that for the past three years, developers have concentrated almost exclusively on for-sale condominium projects, rather than rentals. Historically low mortgage rates and a wave of investor interest have created instant sell-outs at new condominium projects -- even those that won't be completed for two to three years.
Responding to those market forces, developers are purchasing the most attractive apartment communities and converting them to condominiums. ''There are probably at least 10,000 units that have been converted in the past few years, including many garden-style suburban communities,'' said Jay Massirman, executive vice president of CBRE/L.J. Melody South Florida Multihousing Group in Miami .
Massirman estimates there are about 500,000 apartments in Miami-Dade, Broward and Palm Beach counties in complexes with more than 100 units. Even though many owners of new condos are renting out their units individually, the net result is that thousands of apartment units have disappeared from the rental market. ''We just don't have as many rentals,'' said Linda St. Hilaire, sales associate and property manager of ERA Home Sales in Surfside.
At the same time, a steep rise in home prices over the past three years has made it more difficult for renters to buy homes.
With virtually no new rental construction, South Florida 's overall pool of apartments is beginning to age. ''What's happening is that many of the better quality apartment communities with higher rents have been converted into condominiums,'' said Keith White, president of Reinhold P. Wolff Economic Research. That's the main reason average South Florida rental rates have not increased in the past year, White said, since those units are no longer counted.
While rents have held steady at an overall average of about $1,000 a month in Miami-Dade and Broward -- concessions that were common, like a month's free rent on signing a year's lease, are disappearing.
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Best Places to Be Rich
CA (4) and FL (2) get 6 out of the top 10 slots
Aspen , Palm Beach and San Fran are top 3
Forbes.com
Sara Clemence and Vanessa Gisquet
There are plenty of perks to being rich: never having to look at price tags; having someone to do your laundry; being able to live wherever you like.
Of course, with endless choices come dilemmas. When you can have anything, how do you decide? If you can afford to live anywhere, where do you live? Do you opt for mountains or mansions? Penthouses or palm trees?
Well, when you're rich you can have it all. One of the benefits of wealth is the ability to not limit oneself to just one address. In fact, if you can live anywhere you want, you probably already do. Accord ing to a survey by the National Association of Realtors, 36% of residential sales in 2004 were second homes, with buyers undoubtedly encouraged by low interest rates. The very rich often own at least three homes--even if their main residences are not always in glamorous locations such as Aspen or Santa Barbara .
Aspen - We're not surprised this high-altitude resort town came out at the top of our list. Aspen does have just one Louis Vuitton store and less than a handful of plastic surgeons, but consider the fact that it has a population of just 6,000 and you start to see what a small and select group lives (or, more likely, has one of many vacation homes) here. Accord ing to our estimates, there is one private chef in town for every 150 residents, and Aspen was in the top ten when it came to median home price.
Palm Beach - In the 1920s, everyone who was anyone wintered in this playground for the privileged. Today, that still holds true. America 's wealthy converge on this slim barrier island for the season, a several-week-long stretch of glittering charity balls and endless parties. Palm Beach has one professional butler for about every 500 residents, which might almost seem low, and more orchestras per person than any place else on the list, which, given the indulgent lifestyle, might seem surprisingly high. And don't forget the houses: it's Mediterranean mansion central.
Those who occupy the lofty elevations of Russian Hill, Pacific Heights and Presidio Heights would surely agree that San Francisco should be high on the desirability list. The weather may be damp and fickle, but this West Coast city has far more than its fair share of good food, good shopping, culture and high society. Anyway, the days of this being a hipster heaven are long gone as today you need plenty of bucks to live here.
With a median home price of $960,000, it's no wonder Santa Barbara ranked 4th on our list. The posh coastal city also ranked in the top ten in the fine dining category. Even though there is no local Louis Vuitton store, it does boast a high percentage of personal chefs, butlers and, of course, celebrities neighbors like Oprah Winfrey. Oh yes, it's also really beautiful.
With countless events happening every night of the week, let alone every second of the day, New York is a stomping ground like no other for the very rich and famous. Be seen not at the opera, but the operas, not to mention the ballets, plays and symphonies. Didn't score as high as we expected for beauty, but that's fine--all the models roaming around town make up for it.
As long as you don't mind the crowds, Las Vegas appears to be a great place to be rich. There's plenty of high-end shopping, lots of good restaurants and a fair number of plastic surgeons to keep everyone looking good. The median home price is $266,400, about 60% less than another top-scorer, San Francisco .
If you live in Atherton or Palo Alto , you know why San Jose made it onto our list. Ranking high in luxury goods, charity and culture measures, this California city attracts the wealthy and has the services to keep them happy.
Especially for warm weather lovers, Miami is a little slice of heaven. South Beach offers an array of restaurants and nightclubs, and you are not likely to be disappointed by Coral Gables ' beautiful mansions.
Though it didn't score particularly well in the culture or charity departments, San Diego doesn't weigh in too far from the top when it comes to pricey homes. It's tough, after all, not to be swayed by a year round average temperature of 70 degrees--not to mention La Jolla 's stunning coastal views.
Denver out-scored cities like Los Angeles and Seattle to earn 10th place on our list, so it's clear that Rocky Mountain city offers much more than rustic, Western appeal. Denver came in the top ten for both the culture and charity categories. Outdoor lovers certainly can't complain: Denver apparently has more than 300 sunny days a year, the largest park system in the U.S. , and dozens of golf courses--not to mention plenty of skiing nearby.
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Lack of cement a hard problem for construction firms
Shortage could slow the growth of new housing
By Rob Reynolds
Washington correspondent
CNBC
Updated: 3:34 p.m. ET June 15, 2005
On a job site in Spokane , Wash. , workers from Champion Concrete Pumping pour the foundations of another new home - part of a housing and construction boom in this part of the Pacific Northwest .
But there's a big problem: not nearly enough cement. Fifteen percent less than last year, in fact, and demand for it is up 30 percent.
"It has definitely had an impact on out bottom line," said Champion President Dave Bertsch. "If it continues, we are going to have some layoffs, we are going to have to liquidate some equipment . it's a domino effect."
Across town, at concrete firm Spokane Rock Products, manager Steve Robinson has to ration supplies to his customers.
"We are not able to get the amount of portland cement we need to produce the Readi-Mix concrete necessary for supplying our customer demand," Robinson said. "It's impacting both the home-building market and the commercial building market - every use of concrete," he said.
The red-hot real estate market shows no sign of cooling, but a shortage of cement - a humble, but irreplaceable, material - could slow the growth of new housing.
The cement shortage is putting a crimp in construction nationwide according to homebuilders and contractors' trade associations.
"If you get into a situation where projects are going to be delayed and people are out of work, that's a significant blow to the economy," said Stephen Sandherr, CEO of the Association of General Contractors.
With the heavy construction season just getting underway, contractors in 10 U.S. states are reporting severe cement shortages: Washington , Oregon , Idaho , Nevada , Utah , Wyoming , Oklahoma , Texas , Missouri and Florida .
Behind the scarcity: heavy demand, transportation bottlenecks and a shortage of shipping. There are global factors too. Twenty-five percent of U.S. cement is imported from abroad, with Thailand one of the biggest suppliers.
But this year, Thai cement is being used to rebuild areas Southeast Asia ravaged by last December's tsunami disaster. And China is absorbing large amounts of cement for its own construction projects, including arenas for the Beijing Olympics in 2008.
Warning of increasingly dire shortages, U.S. contractors want the government to intervene. They've asked the Commerce Department to boost supplies by lifting heavy anti-dumping tariffs on cement imported from Mexico .
"We would like to see [the government] put some pressure on the domestic producers to allow, on a temporary basis, Mexican cement, and cement from other sources, to enter the United States," said Sandherr.
But the cement shortage is actually good news for U.S. cement companies like Cemex, the largest U.S. player, Lafarge North America, Florida Rock Industries and Eagle Materials notes Jack Kasprzak, managing director and research analyst with BB&T Capital Markets.
"It keeps their plants running at near 100 percent capacity and helps pass through price increases, and that benefits their earnings of course," Kasprzak said.
Still, despite the bullish outlook for U.S. cement companies, analysts warn that building materials stocks could be vulnerable later this year if residential construction slows.
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RealMoney by TheStreet.com
Don't Buy Housing Bubble Propaganda
Thursday May 26, 2005 2:04 pm ET
By Barry Ritholtz, RealMoney.com Contributor
The old saw is true: Every general fights the previous battle. And after missing the tech and telecom bubbles, the generals of the financial media are now battling more bubbles than we can count:
There are bubbles in debt, credit and interest rates. There is the oil bubble, the import bubble, the China bubble and the current account deficit bubble. In short, we have a veritable bubble in bubbles. Indeed, it is astonishing how many people who failed to either acknowledge the tech bubble in the 90s -- or at least failed to act on it -- now have no hesitation to declare real estate to be a bubble. This despite their lack of expertise or past track record in spotting bubbles on a timely fashion.
The bubble du jour though is the housing bubble. From Greenspan's testimony to CNBC's Housing special to (uh-oh) this month's Fortune magazine cover, it seems to be all anyone wants to talk about.
My position is that housing is not in a bubble -- yet. But it is an increasingly extended asset class that may be subject to a significant correction in the future. But a 25%-35% retracement is a very different situation than a bubble (recall that the Nasdaq dropped 80%), primarily because there are very different consequences for both homeowners and investors.
Not Your Grandson's Bubble
That said, comparing real estate with other true bubbles -- most especially the tech/telecom/dotcom bubble of the 1990s -- is imperfect, due to several factors.
Homes are illiquid assets that take several months to sell; stock can be liquidated instantly.
The housing market is regional, with an uneven distribution of asset appreciation: Equities are national, and even global.
Lastly, there is an intrinsic value of a house as a place where you can live; Compare this with a company whose only asset was a sock puppet -- the tulip bulb of its day -- and it's clear why a profitless, assetless, publicly traded company can go to zero. Barring an external disaster like Love Canal , houses will not.
When we compare what the key drivers are for price appreciation between these two asset classes, other crucial differences appear.
What Drives Housing Prices
We can look at three key drivers for equity price appreciation over different time lines: Longer term, it's a function of earnings. Higher profits support greater prices at historical P/E ratios. Multiple expansion and contraction occurs as a function of our next two drivers. Intermediately, macroeconomic conditions (aka the business cycle) drive the entire market. I expect the cycle, which began post-2001 recession, to end in early 2006. If that's correct, then prices will retreat as revenue and earnings slow. Over the short term, sentiment -- especially when it gets to extremes -- is a key mover.
Housing is driven by very different factors. First and foremost are mortgage rates. Something I have yet to hear the pundits opine on is that most home buyers don't care what they pay for a house. That's right, you read that correctly -- purchase price doesn't matter. What they do care about is the monthly carrying costs. For the vast majority of home purchasers, the biggest variable in that will be their mortgage rates.
The first house I owned had a $300,000 mortgage. Back when interest rates were near 10%, the monthly payment would equal $2,632.71. If a buyer today were to finance the purchase of that home for $500,000, at a 6% mortgage (and you can get lower rates today), the monthly payment is $2,997.75. That house appreciated 67%, yet the mortgage payments went up only 14%. This helps demonstrate why a big drop in mortgage rates drives prices much, much higher. And that's not counting the buyers who made larger than 10% down payments via the accumulated equity from the sale of their prior homes. (See this mortgage calculator to run your own numbers.)
The second factor is demographic trends. Here's a little-known fact: The U.S. has the fastest population-growth rate of any industrialized nation. According to NPG, the U.S. average fertility rate is currently 2.1335 births per woman -- the highest fertility rate since 1971. For comparison, the U.K. 's fertility rate is 1.7, Canada 's 1.4 and Germany 's 1.3. If this rate is maintained, the U.S. population will double every 35 years.
Further, the kids of the baby boomers -- the echo generation -- are now at home-buying age. Thanks to the intergenerational wealth transfers, they can buy bigger and more expensive homes than their parents could at the same age. Their purchases also have been impacting the housing market. (Some analysts believe that the life cycle of the boomers has been a key driver in equities also -- so on this point, there may be some parallels between the two asset classes.)
Take this organic increase in U.S. population, add to it a healthy supply of legal immigration, and that's a formula for a rising demand for housing. And, there are no warehouses stocked with homes awaiting more births and naturalized citizens.
Muy Caliente
Furthermore, the hottest price appreciation in real estate is directly correlated with population shifts within the U.S. : Las Vegas and South Florida are growing at two to three times the national rate, so it's no surprise that their home prices have been appreciating rapidly.
The third driver is speculation. In many regions, speculative activity has risen dramatically. The National Association of Realtors (NAR) reported that speculative purchases in 2004 had risen to 23%, from 16% the prior year.
However, if we define speculation as flipping a home within one year, that number drops dramatically. According to an NAR survey, "only 3% of all home buyers sell their home in a year or less." That is not exactly the picture of excess speculation.
Even if you use the 23% number, compare that with the speculative foment we saw in 1999. I would surmise that somewhere north of 80% of all stock purchases and trading were purely speculative in nature. If these two asset classes are each bubbles, then they are very, very different kinds of bubbles, hardly comparable to each other.
The last, and in my opinion, potentially most damaging factor, is the employment situation. As long as most people are gainfully employed, they will be able to service their mortgage costs. (For those of you who are buying a home you can barely afford, then let me suggest buying mortgage insurance -- just in case your main income source falters).
The biggest risk to the housing market is not just rising interest rates -- rather, it's a significant decrease in national employment. Why? It's not the leverage, but the ability to service the debt that causes problems. A potentially negative scenario is the Fed tightens too far, inducing a recession. Something else goes wrong - theoretically, China stops buying our Treasuries, and that forces the Fed to become a buyer of last resort (think Bernanke's printing press). Next thing you know, we have hyperinflation, large-scale unemployment, and a housing market off 50%.
While I don't believe this is a likely scenario, it certainly is within the realm of possibility, and it's one of the few ways I can foresee a major drop in home prices.
The most recent asset bubble saw prices drop 80% from peak to trough. That was the Nasdaq from March 2000 to October 2002, and those losses are very comparable with the Dow crash in 1929, or the Nikkei collapse in 1989.
How likely is it that real estate will suffer from similar distressed sales in the U.S. ?
In my opinion, not very. But real estate is an extended asset class, and it's likely to come in -- eventually. After the 1987 crash, many of my peers rushed out of equities (big mistake) and into New York real estate. Anything purchased between 1987-89 was underwater for the better part of the next decade. By the late '90s, they were back to break even, and since then, it's been a strong move upwards.
We shouldn't be surprised if purchasers at present prices see a similar price sequence over the next decade. As the rate cycle plays out, prices will slide. I'm looking at a slow asset depreciation of 10%-30% over the next several years as a realistic possibility.
Perhaps 2008 will be the next great entry into real estate -- assuming you are insulated from rates (i.e., paying cash). After the next market washout -- my work suggests 2006-07 will not be a period of equity outperformance -- I can foresee a gradual economic strengthening in the 2010s, with a new bull equity market beginning mid-decade (2012-15). Then the whole movie starts all over again.
But a 1999 dot-comlike bubble? I hardly think so.
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