Tuesday, December 12, 2006
realtor boys -and gals- are living in a bubble...
I have seen it once, I will surely see it more than a dozen times - the real estate market flaring up and coming back down from its self-puffed high again, only to puffer up once more eventually and deflate once again afterwards! It never ceases to amaze me what people attach unrealistic value to; and the mere discrepancy between actual city appraisal and realtors' and/or home owners' attributed value of any given piece of real estate is a gem in itself too...
Real estate though is a vulnerable industry, prone to dip down at any given time for any number of reasons, chief among those if there were tons of offer and no demand whatsoever - even the most self-assured, devilish/rakish realtor could not do squat with conditions like that! For these parasites to feed off innocent people's dreams properly, there has to be some sort of equilibruum out there... And the setting must be "just right" too! A realtor's dream is to nab a few properties on land that is in close proximity to "something big" that is about to "come to town"... Opening soon: a casino! Or - the subway, finally coming to your locality! (Why be a pedestrian when you can be a subterranean - right? But I digress...)
Hence, virtually any conceivable reason on God's green earth can serve as ammo to a realtor to boost both the price *and* his commission - of course! Homes that were worth 20,000$ in the sixties are now worth 200,000$ - which can make sense... However, homes that went for 200,000$ just a few years ago now being appraised as being worth 500,000$ - now THAT is a tad too much, don't you think? And let's just not delve into the soaring prices of "brand sparkling new" condominiums that go for 500,000$ as well -or more- if they are to be found "near everything" in some relatively big town somewhere... A condo costs more than a bungalow - that, in itself, is an aberration. Just think about it; condos do *not* come with backyards or front lawns, you know...! But, yet again, I digress...
Which all brings me today to the featured article, which, in turn, generated my long-winded luminous commentary that preceded...! ;)
Real Estate Vulnerability Index (Sara Clemence)
Housing prices have risen so far and so fast, who can afford to buy anymore?
Plenty of people. Of course, those people don't live in New York. Or San Francisco. Or Miami.
As everyone knows (or should know by now), home prices have increased around the country over the last few years. In some places, they have shot up like wayward bottle rockets--and many people expect them to eventually come dropping down.
But prices alone can't tell the whole story. To get a better picture of which cities are likely to be vulnerable to a real estate decline, with the help of Economy.com, we compared incomes to home prices, factoring in interest rates.
We were surprised at the results: While it has become much more difficult to buy the median house with the median income in many cities, in others it has actually become easier, pointing to a boom taking place in pockets, rather than the nation as a whole.
That backs up what many economists, including Federal Reserve Chairman Alan Greenspan, have opined--that some areas appear more "frothy" than others and could be primed for a bust--or, more likely, a slow decline, as real estate prices tend to stagnate rather than crash.
"I think low affordability does present a risk for markets," says Celia Chen, director of housing economics at Economy.com, a research company based in West Chester, Pa. The firm supplied income, home price and affordability data going back to 1980 for 12 major metropolitan areas. "It's a condition that can't persist forever. If income streams are not sufficient to cover your housing costs, eventually demand is going to slow."
Economy.com calculates affordability using incomes, sale prices for single-family homes and composite interest rates for a 30-year mortgage. (See sidebar: "Inside Interest Only.") The resulting index shows what percentage of a median home (the one for which half the sale prices were above and half below) a family can afford with the median income. A low number means that home owners can't afford the standard home or that they must pay much more of their income toward it. A high number means the average house is easily within reach.
Five of our 12 cities had affordability indexes below 100: San Francisco, New York, Los Angeles, Miami and Boston. Some of these cities--including Boston and Los Angeles--are slightly more affordable now than they were in 1980. But in nearly every metro area, affordability has declined in the past few years.
But it's all relative. In Dallas, the median income can get you more than 200% of the median home. In Los Angeles, you can still get only 57%. In Philadelphia, the median home price more than tripled between 1980 and 2004, rising 220% from $57,570 to $184,190, which would suggest that houses would be harder to afford. But incomes rose, too, albeit not as dramatically, increasing 195% from just under $19,000 to more than $56,000.
In Miami, the affordability index hit a high of 124 in 1993, but now is down to just 75. Robert J. Shiller, a Yale University economics professor whose book Irrational Exuberance predicted the dot-com bubble, pegs Miami as a "glamour city," where people are buying because it's glitzy and trendy, making the city more vulnerable to a bust. In March, Florida-based investment firm Raymond James & Associates said that 85% of condo sales in downtown Miami might be due to investment and speculation.
"Speculation changes the normal market," says John H. Vogel, professor at the Tuck School of Business at Dartmouth College. "People are buying a half-million-dollar house not because they have the salaries to support it, but because they think next year it's going to be worth $600,000."
So does this mean we're headed for a crash? That's difficult to predict. In 2002, we dubbed the housing market a bubble and predicted its fall. Since then, home prices have gone up about 32%, according to the National Association of Realtors.
But that doesn't mean a bust is not on the horizon--at least in some places. Greenspan used the phrase "irrational exuberance" to refer to tech stocks in 1996; it took another three years for the market to tank. And when it did, it hurt.
------------------------------------
Of the major U.S. cities, it comes as no surprise that Los Angeles, San Francisco and New York are most vulnerable to a real estate bubble. Homes are priced ten times what the median income is...! Ludicrous, really...
Pleasant surprises are actually found in Texas, where both Dallas and Houston are truly reasonable... Philadelphia, Chicago and Washington D.C. are more than ok - and Boston is in the middle of the pack...
In Canada, I'd say that it is worse!
I do not want to get into the messy situation down in Mexico...!
Realtors, wherever they are, think not ahead and only focus on the "now" and the "sale that has to be made" - seldom through tactics such as, ah, "lowering the price"...? Going in that direction is often anathema to them, see? Almost as if they were betraying their profession or calling... It is a vocation to be these things: loan shark, taxman, attorney, doctor (especially in the private sector - but I can find similar hypocrites in the alleged goodie-two-shoes public healthcare system too, I assure you...), notary, realtor - it really is!
They love only the highest bidder, these chaps and dames!
These boys and gals truly are living in a bubble - one that is about to burst.
Link
Real estate though is a vulnerable industry, prone to dip down at any given time for any number of reasons, chief among those if there were tons of offer and no demand whatsoever - even the most self-assured, devilish/rakish realtor could not do squat with conditions like that! For these parasites to feed off innocent people's dreams properly, there has to be some sort of equilibruum out there... And the setting must be "just right" too! A realtor's dream is to nab a few properties on land that is in close proximity to "something big" that is about to "come to town"... Opening soon: a casino! Or - the subway, finally coming to your locality! (Why be a pedestrian when you can be a subterranean - right? But I digress...)
Hence, virtually any conceivable reason on God's green earth can serve as ammo to a realtor to boost both the price *and* his commission - of course! Homes that were worth 20,000$ in the sixties are now worth 200,000$ - which can make sense... However, homes that went for 200,000$ just a few years ago now being appraised as being worth 500,000$ - now THAT is a tad too much, don't you think? And let's just not delve into the soaring prices of "brand sparkling new" condominiums that go for 500,000$ as well -or more- if they are to be found "near everything" in some relatively big town somewhere... A condo costs more than a bungalow - that, in itself, is an aberration. Just think about it; condos do *not* come with backyards or front lawns, you know...! But, yet again, I digress...
Which all brings me today to the featured article, which, in turn, generated my long-winded luminous commentary that preceded...! ;)
Real Estate Vulnerability Index (Sara Clemence)
Housing prices have risen so far and so fast, who can afford to buy anymore?
Plenty of people. Of course, those people don't live in New York. Or San Francisco. Or Miami.
As everyone knows (or should know by now), home prices have increased around the country over the last few years. In some places, they have shot up like wayward bottle rockets--and many people expect them to eventually come dropping down.
But prices alone can't tell the whole story. To get a better picture of which cities are likely to be vulnerable to a real estate decline, with the help of Economy.com, we compared incomes to home prices, factoring in interest rates.
We were surprised at the results: While it has become much more difficult to buy the median house with the median income in many cities, in others it has actually become easier, pointing to a boom taking place in pockets, rather than the nation as a whole.
That backs up what many economists, including Federal Reserve Chairman Alan Greenspan, have opined--that some areas appear more "frothy" than others and could be primed for a bust--or, more likely, a slow decline, as real estate prices tend to stagnate rather than crash.
"I think low affordability does present a risk for markets," says Celia Chen, director of housing economics at Economy.com, a research company based in West Chester, Pa. The firm supplied income, home price and affordability data going back to 1980 for 12 major metropolitan areas. "It's a condition that can't persist forever. If income streams are not sufficient to cover your housing costs, eventually demand is going to slow."
Economy.com calculates affordability using incomes, sale prices for single-family homes and composite interest rates for a 30-year mortgage. (See sidebar: "Inside Interest Only.") The resulting index shows what percentage of a median home (the one for which half the sale prices were above and half below) a family can afford with the median income. A low number means that home owners can't afford the standard home or that they must pay much more of their income toward it. A high number means the average house is easily within reach.
Five of our 12 cities had affordability indexes below 100: San Francisco, New York, Los Angeles, Miami and Boston. Some of these cities--including Boston and Los Angeles--are slightly more affordable now than they were in 1980. But in nearly every metro area, affordability has declined in the past few years.
But it's all relative. In Dallas, the median income can get you more than 200% of the median home. In Los Angeles, you can still get only 57%. In Philadelphia, the median home price more than tripled between 1980 and 2004, rising 220% from $57,570 to $184,190, which would suggest that houses would be harder to afford. But incomes rose, too, albeit not as dramatically, increasing 195% from just under $19,000 to more than $56,000.
In Miami, the affordability index hit a high of 124 in 1993, but now is down to just 75. Robert J. Shiller, a Yale University economics professor whose book Irrational Exuberance predicted the dot-com bubble, pegs Miami as a "glamour city," where people are buying because it's glitzy and trendy, making the city more vulnerable to a bust. In March, Florida-based investment firm Raymond James & Associates said that 85% of condo sales in downtown Miami might be due to investment and speculation.
"Speculation changes the normal market," says John H. Vogel, professor at the Tuck School of Business at Dartmouth College. "People are buying a half-million-dollar house not because they have the salaries to support it, but because they think next year it's going to be worth $600,000."
So does this mean we're headed for a crash? That's difficult to predict. In 2002, we dubbed the housing market a bubble and predicted its fall. Since then, home prices have gone up about 32%, according to the National Association of Realtors.
But that doesn't mean a bust is not on the horizon--at least in some places. Greenspan used the phrase "irrational exuberance" to refer to tech stocks in 1996; it took another three years for the market to tank. And when it did, it hurt.
------------------------------------
Of the major U.S. cities, it comes as no surprise that Los Angeles, San Francisco and New York are most vulnerable to a real estate bubble. Homes are priced ten times what the median income is...! Ludicrous, really...
Pleasant surprises are actually found in Texas, where both Dallas and Houston are truly reasonable... Philadelphia, Chicago and Washington D.C. are more than ok - and Boston is in the middle of the pack...
In Canada, I'd say that it is worse!
I do not want to get into the messy situation down in Mexico...!
Realtors, wherever they are, think not ahead and only focus on the "now" and the "sale that has to be made" - seldom through tactics such as, ah, "lowering the price"...? Going in that direction is often anathema to them, see? Almost as if they were betraying their profession or calling... It is a vocation to be these things: loan shark, taxman, attorney, doctor (especially in the private sector - but I can find similar hypocrites in the alleged goodie-two-shoes public healthcare system too, I assure you...), notary, realtor - it really is!
They love only the highest bidder, these chaps and dames!
These boys and gals truly are living in a bubble - one that is about to burst.
Link
