Discussion in 'Real Estate' started by Smiling JOe, May 11, 2006.
I KNEW this thread would bring our beloved SHELLY out of hiding. back.
Welcome Back Shelly, we've missed you. I enjoy your posts, they make me think.
Florida's "job creating machine" may be producing quantity but not quality jobs in line with cost of living.
Dr. Thornburg touched on this situation--although his focus was how the decline of the housing boom will shift employment out of "higher wage" jobs associated with housing (realtors, financial (brokers & such), construction) to low wage service workers (retail, food service).
The same situation is happening in the panhandle. Many of the in-place low-to-middle class have sold out during the boom and the present high cost of housing in relation to area incomes is blocking new folks from entering the market. Businesses and counties will not be able to find workers and the area will suffer as a result.
You hear very little about the problems in the panhandle because the "almighty JOE," developers and their politico lapdogs are quick to keep the problems under wraps. But other counties in Florida are much more vocal (Housing vs Income ).
To say there are more jobs is only half the story--what kind of jobs, how much they pay, and how far that pay goes toward increasing housing, insurance, fuel and other living expenses is something you'll never see in print in the panhandle. We Need Stats Like This
When all else fails and you want someone to blame, play the "Class Warfare" card...
You've made this claim many times. What is your data source?
I don't necessarily completely disagree with it out of hand, but I think there is more to the situation. What we have is an economy that in many ways is still in an infancy stage. It is transitioning from one which primarily served a transient population of tourists to one which is being asked to also support an increasing permanent population. Most of these "low quality" jobs you mention are in industries that meet tourists' demands--food service, retail, etc.
As the permanent population grows, we are slowly beginning to see more diversification in the economy. It seems more and more business service companies, office supply companies, computer retailers, web designers, contract programmers, and the like moving in. And they, in turn, are fueling demand for other job-creating services.
It also seems, based only on anecdotal evidence admittedly, that many of our new residents are entrepreneurs...not the type who sit around waiting for someone to "offer" them a job. I'm seeing a lot more independent start-ups in just the last 12 - 18 months than I saw in the previous five years combined.
As I'm sure you know, economics provides a way of snapshotting a dynamic situation. But it's easy to focus too much on the snapshot itself, rather than the flux and the forces that created, and are constantly changing, it.
I would appreciate some comments comparing the employment and economic situation in Sowal to that of Naples, Fl. Certainly a community like Naples is more upscale and expensive than living in Sowal, so where does the workforce in Naples come from ? It seems to me that 30-A is in a sense a mini-Naples as far as housing and income is concerned. So how does Naples deal with it?
You can always find some "expert" to state your case for you.
Why The Housing Bubble Won't Burst
Veteran analyst Michael Youngblood explains his unusually optimistic take on the real estate market
Cast Your Vote
Type the words "falling housing prices" into Google and more than 8 million citations pop up. Michael Youngblood's name won't be among them. Despite all the fear that single-family home prices will decline, the managing director of asset-backed securities research at Friedman Billings Ramsey & Co. in Arlington, Va., thinks residential real estate is a lot stronger than most people suspect. He bases this assessment on a new economic model he created that forecasts housing prices in 379 metropolitan statistical areas. Associate Editor Toddi Gutner spoke with Youngblood about his upbeat view and his surprising prediction that the greatest price appreciation will be coming in so-called bubble markets.
What makes you more optimistic than other housing experts? I look at two economic indicators that I think drive the housing market: the growth in employment and the growth in personal income. Getting a job or a salary increase is what motivates people to buy their own home. This is different from the data the National Association of Realtors and other organizations rely on. They are more concerned with technical indicators such as the inventory-to-sales ratio and the number of months a house is on the market. These aren't leading indicators. Instead, they move with current changes in the market, rather than predict those changes.
What You Can Buy for $500KAffordable Homes in the WestAffordable Homes in the NortheastSetting the Stage to Sell Your HomeSpicing Up an Old KitchenPrefab House Go Outside the BoxMore from BusinessWeek.com
Do you think the housing bubble argument is overblown? Absolutely. It's overblown because there is no national housing market, so there can't be a national house-price bubble. However, there are bubbles in 75 of the 379 markets I studied. A bubble exists when the ratio of the median existing house price to per capita personal income exceeds 6.8 times. This definition is based on historical data of when other markets, like Houston and Boston, had bubbles.
Where are the bubbles? Most of the bubbles exist on the East and West coasts in such markets as New York City, Los Angeles, Washington, Phoenix, Honolulu, and Tacoma, Wash. Only 12 of the 75 cities are located inland: Boulder, Colo., Coeur d'Alene, Idaho, Flagstaff, Ariz., and Las Vegas among them.
What markets are likely to show the biggest price gains and declines this year? We expect the greatest gains in Bakersfield, Calif. (43%), Fort Myers, Fla. (42%), Stockton, Calif. (39%), and Punta Gorda, Fla. (35%); the biggest declines in Harrisburg, Pa. (8%), Odessa, Tex., Roanoke, Va., and Utica, N.Y. (all 6%).
But most people think that Florida and California are overpriced. Why would markets there show the greatest gains? There is clearly speculation taking place in these areas. But bubbles can persist for very long periods of time, and it typically requires a downturn in the local economies to burst them. Then they can deflate for a long time, too. Given the expected gains in employment and income in both states, I don't expect the housing prices to fall in 2006.
How can investors play this information? Investors should not necessarily fear homebuilders who are operating in bubble markets. House prices don't plunge immediately in economic downturns the way stock prices do. There is typically a one-year lag after the local economy sees a decline in average employment and income. Thus, the homebuilder stocks may continue to perform well for a while longer.
I'm probably somewhat more optimistic than some (you know who you are), but this guy above is a little too rosy, and I don't see much evidence being presented to back up his claims--other than a reference to some economic forecasting model which he created himself.
He does make a good point that job growth and income growth are leading indicators for the real estate market, whereas the NAR-type data (trend reports and sales data) are concurrent indicators.
His statement about there not being a "national housing market" because each local market has unique characteristics doesn't really wash. That can be said to be technically true for almost any commodity (the market for BMW convertibles is different in Anniston, AL than in Atlanta, GA but that doesn't mean that national trends can't be discerned and associated parameters calculated).
His expectation of continued gains in the most overpriced regions is the equivalent of saying "yeah I know they're overpriced, but I don't expect the collapse until after the end of the year". Market timing? In real estate!? Gimme a break.
I really do tend to see a less gloomy picture than some, but I also like to see a little more solid research and data to back it up. Maybe this Youngblood guy has some, but he didn't show it in this article.
Boom may roll, but bubble won't burst
St. Petersburg Times
It's everybody's favorite topic these days: What did you pay for your house a few years ago? What did you just sell it for? Nobody's shy about giving real numbers. Everybody wants bragging rights to the killing they're making in real estate.
The big questions on everyone's mind: How long can the market go on like this? When will the bubble burst?
In the interest of making you sound smart at your next cocktail party, or as you wait for the opening kickoff, here's how David Lereah (say "le-ray"), chief economist of the National Association of Realtors, reads the tea leaves these days. Lereah, who scoffs at the notion of bursting bubbles, was in town last week to talk to the Pinellas Realtor Organization.
What's driving the white-hot housing market?
It's not just low mortgage interest rates, and it's not just people looking for somewhere other than the stock market to park their money. It's demographics, Lereah said, specifically these segments of the population:
- Boomers. The oldest of the 76-million baby boomers, born between 1946 and 1964, are entering their peak earning years and represent "the greatest economic expansion ever."
- Retirees. Thanks to good health care, older people live an average of five years longer. That means they stay in their homes five years longer, which creates a lean supply of homes for sale, hence higher prices.
- Immigrants. It takes about a generation for immigrants to fully participate in the economy, and after record immigration in the last 15 years or so, those immigrants are now ready and able to become homeowners.
- Boomer kids. They're the second-largest demographic group, and they're becoming first-time buyers.
Is this irrational exuberance?
"There's no irrational exuberance in buying a large, awkward, fixed asset," i.e., a home, Lereah said. Some of the speculators in the market may be irrationally exuberant (we'll deal with them in a minute). Some people say, "Oh, remember what happened to tech stocks a few years back, the bubble burst." Comparing a stock collapse with what some people predict is the bursting of the housing bubble "is apples and oranges," he said.
He contrasted tech stocks' overhyped rise and ignominious crash with the "healthy, prolonged expansion" of the housing market, starting with the refi boom of 1992 (when mortgages dropped to the single digit of 9 percent), followed by another refi boom the next year; the run-up in mortgage originations from $400-billion in 1991 to $4-trillion last year; and the increase in sales from 3-million in sales in 1991 to 8-million last year.
The U.S. housing market has survived mighty blows with a 2x4 in the last 10 years but has kept on ticking, indeed roaring. He enumerated the blows:
? 2001: Recession.
? Rising 30-year fixed mortgage rates, from an average 6.8 percent in 1998 to 8.3 percent in 2000. (They've dropped, of course, since then.)
? Loss of 3-million jobs from 2002 to 2003.
"The stars are aligned," Lereah said. "There's nothing irrational about it. People buy real estate because they have to. It won't end any time soon. What fuels housing is demographics and household formation."
Anything else nudging the market along?
Sure. Technology: online real estate listings and processes that reduce the search costs. Lending technology that reduces the loan application time and has reduced the cost of loan processing by $2,200 in the last few years. Smart-growth legislation that has restricted supply.
So is the bubble going to burst?
No, Lereah said. "The air might come out of the balloon, but it won't pop." He thinks price increases have been healthy, driven by demand that exceeds supply.
What else do you see out there?
Here's a wonderful term to drop around the office water cooler: "The rolling boom." When one market starts to get overheated, people shop elsewhere nearby. Lereah offered this example: Las Vegas experienced price appreciation of 52 percent from 2003 to 2004. That priced it out of the reach of many buyers, who instead went to less-expensive Reno, where prices have now increased 32 percent, while Las Vegas has backed off to an appreciation of only 12 percent this year. Similar rolling booms occurred when Boston got too expensive, so people drove an hour south to Providence; or West Palm Beach to Miami.
If the air starts to leak out of the balloon in the Fort Myers-Naples-Cape Coral area (where the median home price in the second quarter was $266,800, an increase of 45.2 percent over last year, second highest in the nation), the boom could roll to the Tampa Bay area, Lereah said.
Now, what about those speculators?
They bid prices up but they're the first ones out, Lereah said. He cited figures from Miami: 18 months ago there were 15,000 condos under construction; today, there are 75,000. "Generally housing markets are very, very healthy," Lereah said. "For specific local markets where there is lots of speculation and questionable loans," bubbles may burst. Those questionable loans include interest-only mortgages, negative-amortization loans, low-documentation loans and option ARMs.
"First-time investors are boarding this train, and they're making mistakes," he said.
So what can we expect in the next few months?
A soft landing is what you want, Lereah said. If the Fed raises interest rates slightly, that helps to gently slow a market. What keeps a boom alive is high prices, "and you want it to slow down. If we take our medicine now we'll be better off later."
What's your take on Florida?
Florida isn't San Francisco, where the median home price is $728,000, or Orange County, Calif., where it's $600,000. (The median home price in the Tampa-St. Petersburg-Clearwater area is $195,000, an increase of 23.3 percent over last year.)
"By 2040, Florida will double in population. It's the equivalent of the population of Pennsylvania and Maryland moving here," Lereah said. All those new residents will bring "trillions of dollars of wealth with them. It's a seismic shift.
"Florida will be a great market in the next 20 years. When I look at Florida, I see Las Vegas. I don't see the boom ending in Florida any time soon."
Collier County Florida (Naples) has a population of 300,000 and they all aren't rich folks. Walton County has a population of 48,000.
Separate names with a comma.