A commentary on the bubble

[wetwilly]

Please do not forget you cannot compare property prices from last year with this year in developments with buildouts, this year that lot has 12months less time until the shovel hits the ground. The new Watercolor releases are up 8% per release with each one over surscribed, while Rivercamps keeps moving along at just under that number. By the way I hope everyone saw the front page article on Rivercamp et.al in the NY Times a week and half ago, start looking for some New Yorkers as your new buyers.

BH Rick,

You make a good point. The big developments with build out timeframes seem to be hurting on some level. People that bought 3-4 years ago (with 5 yr buildout timeframes) or people that bought a resale with a shorter buildout timeline are now trying to sell them before they have to build and are finding that the new phases of the developments have inventory that they have to move agressively (lower prices to sell quicker) and it is holding prices flat or worst case lower then the "comparable" asking market prices.

I think there are several different submarkets in the sowal area and you can not make sweeping forecasts or predictions that are accurate. There are trends, conditions, and info specific to each submarket ie houses, condos, land/lots and then their are subgroups within submarkets ie houses north of 30A, so of 30A, in big development, small developments etc. It is just not as simple to compare houses vs houses and lots vs lots especially when buildout timeframes and other factors skew the data. Areas, timelines for buildout, and other factors weigh into the buying/selling.

I'm not a real estate or investment profession/expert but this is my 2cents.

 

[Rita]

BH Rick,

You make a good point. The big developments with build out timeframes seem to be hurting on some level. People that bought 3-4 years ago (with 5 yr buildout timeframes) or people that bought a resale with a shorter buildout timeline are now trying to sell them before they have to build and are finding that the new phases of the developments have inventory that they have to move agressively (lower prices to sell quicker) and it is holding prices flat or worst case lower then the "comparable" asking market prices.

I think there are several different submarkets in the sowal area and you can not make sweeping forecasts or predictions that are accurate. There are trends, conditions, and info specific to each submarket ie houses, condos, land/lots and then their are subgroups within submarkets ie houses north of 30A, so of 30A, in big development, small developments etc. It is just not as simple to compare houses vs houses and lots vs lots especially when buildout timeframes and other factors skew the data. Areas, timelines for buildout, and other factors weigh into the buying/selling.

I'm not a real estate or investment profession/expert but this is my 2cents.

IMHO you at least are considering several more variables in your thinking, which to me makes good sense.

 

[SHELLY]

When real estate bulls speak of "housing bubbles and busts" they always point to events that proceeded bursting housing bubbles of the past (defense job or tech job losses) to defend their stance that "bubbles" are rare in the absence of such events and prices can indeed keep going up.

I think Hurricane Katrina is just such an "event" with the resulting (projected) higher gas prices and New Orleans/Casino economic crash being the catalysts which will signal the top and subsequent decline of the housing bubble in the South.

Sadly, the scores of homeless people cannot afford to move into $800,000 condos; and plans for rebuilding these areas as they once were will only succeed if they have the working class people to construct and staff these facilities. Prices will level and then decline as time constraints of investors/speculators in the Gulf Coast pre-construction will start a panic followed by the condo and building plot speculators. Panic selling will start in the area surrounding New Orleans and the Mississippi Gulf Coast which in turn will spook investors/speculators in other Southern areas setting off a domino effect as short-term investors try to lock in on to their "paper" profits before it's too late (i.e., before the fools run out). Of course, regular homeowers and those whose portfolios aren't overweight in real estate won't even notice.

 

[Smiling JOe]

With all of the damage caused by Katrina, oil and gas prices will increase sharply. For the construction industry, you should expect all materials to increase in price. With higher construction costs of building, I doubt we will see substantial drops in the housing market. If anything, prices may increase slightly, as new construction comes on the market.

 

[Bob]

When real estate bulls speak of "housing bubbles and busts" they always point to events that proceeded bursting housing bubbles of the past (defense job or tech job losses) to defend their stance that "bubbles" are rare in the absence of such events and prices can indeed keep going up.

I think Hurricane Katrina is just such an "event" with the resulting (projected) higher gas prices and New Orleans/Casino economic crash being the catalysts which will signal the top and subsequent decline of the housing bubble in the South.

Sadly, the scores of homeless people cannot afford to move into $800,000 condos; and plans for rebuilding these areas as they once were will only succeed if they have the working class people to construct and staff these facilities. Prices will level and then decline as time constraints of investors/speculators in the Gulf Coast pre-construction will start a panic followed by the condo and building plot speculators. Panic selling will start in the area surrounding New Orleans and the Mississippi Gulf Coast which in turn will spook investors/speculators in other Southern areas setting off a domino effect as short-term investors try to lock in on to their "paper" profits before it's too late (i.e., before the fools run out). Of course, regular homeowers and those whose portfolios aren't overweight in real estate won't even notice.

We had our largest runup in prices after 3 succesive hurricanes. Prices here were up 36.5 percent jun04-jun05. The only panic involved how to find a roofer. The storms actually created their own prosperity.

 

[wetwilly]

Not trying to offend anyone here but I personally find it hard to try and think about the so called "bubble" in SoWal when there is such destruction and misery related to this storm on the western gulfcoast. Don't get me wrong and everyone is wired differently but worrying about anything like my real estate position and how this is going to affect it is not at the top of my list or on the top of my mind when the folks of LA, Miss, So Fla, and lower AL are in the middle of the worst natural disaster in recorded history. Personally, everytime I start to think about how lucky we were that our beach house, beach and dunes in Seagrove were spared or how the impact of this disaster is going to have on our investment (and I start to think about it several times a day), I feel very guilty and selfish. These storms are very humbling for me and this one as I see the footage and long term implications of it have made me rethink how I look at events that happen to others. Many times in the past I would mentally isolate these events (if I am not directly affected) but in this case I am having a hard time doing that.

But if forced to think about it, my quick answer is that all will be fine as it relates to our property values because IMO there is little connection or cause and effect between the plight in NOLA and Miss and how our property values will be impacted. Again, IMO you can not easily parallel the real estate crash in Houston due to the oil industry crash or the defense or tech job drops and this event and its affect on the SoWal RE market.

As Bob indicates, the recent past of last year's Hurricanes did not slow or cause a decrease in RE values in SoWal or anywhere else in Fla or the gulfcaost but this could be a different story. Only time will tell. I am going to try not to even think about the bubble for now since it seems somewhat irrelavent at this time and selfish to worry about that when so many others do not have good shelter, food, water, or safety at this time.

Again no direspect to anyone worried about the bubble because until yesterday's events and what I have seen today in the aftermath I was fixated on it too. I'm sure over time I will go back to worrying about it again or maybe not??

I don't subscribe to the SoWal RE doomsday theory anyway. Self adjusting supply and demand is my theory and it will stay high and keep going up over time (maybe not 100% year over year compounded but still healthy). Again these are purely my opinions and thoughts. Maybe I'm in denial on this too.

 

[SHELLY]

>>I personally find it hard to try and think about the so called "bubble" in SoWal when there is such destruction and misery related to this storm on the western gulfcoast.<<

That's probably because you're a decent person--but vulture capitalists are crunching the numbers as we speak. Just like after Ivan and the other hurricanes, they are on the prowl for "run down" properties that were previously in the vacinity of the waterfront--hoping to pounce when people are most vulnerable. Some of these "scabs" learn through "info-mercial seminars" to go through obituaries and contact widows about "helping them out" by buying their properties.

But things are much different this time.

The Florida hurricanes didn't hit major metro areas and those hurricanes never produced major economic impacts felt nationwide (as with shipping and oil in New Orleans) or statewide (as with casino gambling in Mississippi).

IMO speculators are going to get spooked and start unloading inventory--and along the way hopefully those who've taken advantage of people in their greedy quest will get caught in the squeeze and loose their shirt.

As I've said before--those who own a "home" (not an investment) and aren't too fat in real estate won't notice. One who gets a sick feeling in their belly at the mention of the phrase "Housing Bubble" is more likely than not overweight in real estate.

 

[Smiling JOe]

...
But things are much different this time.

The Florida hurricanes didn't hit major metro areas and those hurricanes never produced major economic impacts felt nationwide (as with shipping and oil in New Orleans) or statewide (as with casino gambling in Mississippi).
...

I don't understand how you are tying this statement with the remainder of your statement. What is the connection?

On a separate note, I don't know where you were during the storms of 2004 that hit FL, but these storms had major economic impacts felt throughout the southeastern US. All building supplies in the Southeast skyrocketed overnight. Builders found themselves paying double the price for lumber practically overnight. Do you think that had an impact on the price of construction? Produce prices also jumped throughout the Southeast. Crops were destroyed, not just in FL, but in AL and GA, too. Some of these storms caused as much damage in North Carolina as they did in FL. Western NC was flooded, and many businesses and homes were lost. To say that the storms "never produced major economic impacts felt nationwide or statewide," is a not accurate.

 

[Beach Runner]

Joe,

If you check out the average temps during June, July, August and September, the avg highs and lows are almost exactly the same in Destin as they are in Naples. The reason the summer is so slow in Naples is because all the rich retirees go back to NY, NJ, etc during the summer. Whereas SoWal get all the younger tourists with families during the summer. It's the warmer winters and the golf that create a more favorable environment for the retirees in Naples.

Another difference between SoWal and many of the other areas that are compared to SoWal is that the lot size adn home size for most SoWal homes is tiny compared to these other places. A $5 million beachfront home in Seaside, Watercolor or Rosemary might have 3000 to 4000 square feet and be built on a lot that is 50 by 100 with another home crammed just 10 to 20 feet away. In Naples, Palm Beach, South Ponte Vedra, Hilton Head, etc. the comparably priced homes are much larger and sit on much larger and more private lots. SoWal beaches are definitely prettier in my opinion, but the homes don't compare in size, privacy, etc. The market comparisons are apples to oranges.

Yeah, but like my Buckhead hairdresser who owns an expensive salon put it, the Naples/South Florida market is like an old folks' home, and it totally turned him off when he was looking for a investment. The ambiance in SoWal is just so much more youthful and upscale.

 

[SHELLY]

>All building supplies in the Southeast skyrocketed overnight. Builders found themselves paying double the price for lumber practically overnight. Do you think that had an impact on the price of construction?<

An increase in material cost does not make it to the "speculator's/investor's" bottom line--if your theory is correct, then the "tide rises all boats" equally across the Southeast and there would be no appreciable "gains" to speak of for "speculators/investors."

>>Produce prices also jumped throughout the Southeast. Crops were destroyed, not just in FL, but in AL and GA, too<<

Crops are very elastic: Cost of OJ too high, drink apple juice; cotton too high, wear polyester....etc., etc.,

Tourism wasn't totally crippled by last year's hurricanes--that's elastic too. Some of Florida's beaches were dashed but there were still plenty of major beaches for folks to go (Miami, Ft Lauderdale, Tampa, Sarasota) and Disney was only down for a couple of days. The more adventurous folks actually discovered that there were 49 other states with stuff to do on vacation.

Granted, in 2004/2005 rebuilding after hurricanes was a major industry for Florida that replaced many of those dismal minimum wage service sector jobs. But (by the grace of God) those reconstruction jobs will end and Florida will revert to the national leader for McJobs (read "service sector") unable to support continued residential price appreciation.

On the other hand, gasoline is not an elastic commodity. One's SUV or Beamer won't go without gas in the tank. And New Orleans ports' access to the Mississippi River for moving cargo north and south through the middle of the US is key to our economy. The poor state of Mississippi relied on the casinos to provide $500,000 daily in revenue to the state and was the major employer for thousands of people living along the coast.

Regardless of what the Real Estate agents or mortgage brokers say, Florida (and coastal property in the South) is neck deep in speculative investment (especially condos & land) that has driven the prices up to unsustainable levels. Some say prices will go up forever, some say real estate prices never will fall, some say there is no bubble--and in a speculator's/investors game, to these statements I say "no it won't," "yes they will," and "yes there is." The smartest speculators will start unwinding some of their deals soon--the dumber ones won't realize what is going on until the music stops and there's no chair--just a spot that reads "The Biggest Fool"