Friday, October 07, 2005

Key Talking Point for Bubbleheads

Here are some key Bubblehead talking points:

  • There has been tremendous home price appreciation in the past 5 years in the bubble markets. Las Vegas Metro area 96%, Miami Metro Area 107%, Los Angelos Area 115% ( OFHEO Report September 1, 2005)

  • The housing boom IS a speculative episode. The speculative boom will inevitably turn into a bust. Significant prices will occur in the bubble markets.

  • About a third of home purchases in 2005 were either for investment or bought as second homes.

  • There is no shortage of housing units. There were about 2.2 million housing units constructed last year ( US Census Bureau) and about 1.6 million are need to house a growing population and 300,00 are need to replace existing stocks that becomes uninhabitable. That leaves an extra 300,000 units.

  • Inventory is rapidly increasing in the bubble markets. A significant number of home sellers have already lowered expectations in the bubble markets.

  • Realtors who have not been blinded by this mania, now, know that the boom is over. ( The question for them is will it be a soft landing or hard landing.)


  1. On top of all that, look at what you actually get for the money.

    I walked past some townhouses in downtown Silver Spring the other day. These townhouses went up in 1999. They originally sold at around 300K (I think), but I've seen them listed near 600K now.

    They look nice enough from the front. They're across the street from the metro.


    There is a huge bus station on the opposite intersection. Teenagers walking past your front door, yelling obscenities, all the time. Silver Spring is getting better, but it wasn't that nice 6 years ago. What makes you think it will be 30 years from now? When I walked past, there was a huge dead rat on the sidewalk.

    I don't know... for 600K, I would want no screaming teenagers a few inches from my windows, no dead rats on my doorstep, no huge bus station across the street. But that's just me.

  2. they sold for the upper 200's. My friend owns one. One person in the Single Family Home area of the neighborhood told him not to buy there.

  3. I used to live in Texas. It's hilarious to compare what you can get there to in the DC area. In Dallas or Houston, 200K buys you a beautiful, recent (2000+), all-brick house on a 1/4 acre lot, maybe with a pool- in a good neighborhood.

    Here, I have not even SEEN a new house made with all brick or all stone. The best you can hope for is brick front with vinyl sides. The older houses look very nice from the outside (often all brick), but need a lot of work inside.

    Now I'd rather live in the DC area than in Texas, but I will probably wait until prices get down into a more reasonable range-- or just keep renting.

    I think the best evidence of the bubble is the extremely low quality of the homes compared to the price you pay.

  4. Yeah, when the first signs went up they said upper 200s. I didn't know if any actually sold for that price or not. They are nice... but I'm not sure they are even worth that much. They are certainly not worth 500 or 600.

  5. David. The housing boom comes and goes, but there will always be repos.

    We just got eleven new listings for repossessed homes from Fannie Mae, Freddie Mac and Centex. Eleven new listings in the last three days. Wow.

    When you consider that, according to NAR, the average realtor will list and sell six homes a year, is it any wonder why I work with repos?

    One of them is in the new subdivision right across the stree from my office. I can see it through the window behind my desk. 2-story, 2200+ sf, 4-bed, 3-bath, 2-car garage, brick home built in 2004. The county appraisal records value this home at a little over $176,000. I have no idea what the buyer paid for it. But starting prices for a 1600 sf, 3-bed, 2-bath home in this subdivision are in the high $180,000s.

    When they started building this subdivision last year, I thought to myself, these people are all going to go broke. Small lots, large houses, very little yard. The homes are so close together, it looks like a subdivision planned in San Francisco.

    It has begun. I'm expecting a flood of repos over the coming months.

  6. Here is the latest news on the Stalled DC Market
    September drop biggest in a decade
    By Chris Sicks
    Published October 21, 2005
    The Washington-area real estate market continued to cool in September. Home sales were down 12 percent compared to September 2004 -- the largest monthly drop in a decade.
    Only 9,287 existing homes were sold in the region last month, compared to 10,611 last September. Historically speaking, it is quite impressive to sell 9,300 homes in a single month. No September did that prior to 2003.
    But, coming so soon after a record-breaking spring market, it is a shock to see home sales fall so sharply. Sales were down throughout the region, with only two counties posting a rise in sales. Charles County was up 10 percent, and Anne Arundel was up 12 percent in September.
    The largest drop occurred in what had been the hottest portion of the metropolitan area: Northern Virginia. The jurisdictions of Fairfax County, Arlington County and the city of Alexandria were down 27 percent last month.
    Sales also dropped sharply in the popular communities of Loudoun, Prince William and Stafford.
    The number of houses on the market in Northern Virginia is the highest it has been since 1999. Investors are starting to sense that prices aren't rising anymore and are unloading their properties.
    This isn't limited to condos either. Many builders and homeowners treat single family homes as an investment and are looking to cash out now, before the market really begins to collapse. Realtors are advising potential sellers to list far below what they were hoping to get.

    The rising interest rates will accelerate the sell-off, the mortgages that people are able to qualify for will get smaller and smaller, fewer and fewer investors (and homeowners)will be able to qualify for mortgages. In addition, very few investors took out 30 year mortgages to buy these properties. Many more will be forced to sell when their mortgages balloon. With all this additional supply, prices will naturally drop.