have their been any studies on when the home builders will run out of plots of good land to buy? gosh ... barring some massive forest fires with a huge jump in lumber prices or a recession or depression affecting the economy is the momentum really there to keep this sector one of wall streets darlings for the next few months , or years ?
Overvalue/Bubble in the real estate market is one thing. Calling for a correction/crash is another thing. For those who lived through either the Japan real estate crash and/or the Asian general collapse, you all know the turn start from a big triggering event. The supply/demand of real estate is affected by many things, immediately came to mind, - interest rate, affecting mostly real buyers - sentiment, affecting all - effective yield rate, affecting conservative investors - exchange rate, affecting the foreign investors/buyers If only one type of demand is affected, we are not likely going to see a huge downturn in real estate prices. General sentiment change is needed to turn a market from bull to bear. So, overvaluation can last very long indeed. Another issue with real-estate is its nature of bigger swing in price. Swings of 10 to 15% within a few months are seen all the time. Thus speculators of real estate markets are used to buy "dips" like that. When the "dip" becomes the sentimental change event, it can turn into 30% to 50% drop from the high in a few weeks, thus catching all those speculators by surprise. For example, the Hong Kong real estate market continuously run up for 10 years, up until year 1998. Then the correction of price has dropped to levels that was seen from 20 to 25 years ago. What happen after that is more interesting - as of today, Hong Kong's real estate has segmented and the expensive condos are back at a higher levels while the middle class family homes stand at depressed levels.
someone I know who trades but does not post on ET sent me this today ... www.rismedia.com/index.php/article/articleview/9512/1/1/ Author: Beth Bresnahan Publishing date: 03/01/05 By Mary Umberger Chicago Tribune RISMEDIA, March 2 â (KRT) â Real estate speculators are buying at a pace that far exceeds previous estimates of their influence on the housing market, according to a first-of-its kind report released Tuesday by the National Association of Realtors. Collectively, investors and second-home buyers bought more than one of every three homes sold in last year's record market, according to the NAR report. "I am astonished," said David Lereah, the NAR's chief economist, who said that the data suggest a sea change in the role of real estate in the nation's economy. "What we're seeing is that real estate is no longer just a place to live. It's a viable alternative to stocks and bonds," Lereah said. "Sept. 11 changed real estate forever, the way people look at it. They're nervous about stocks and bonds and they're placing money in real estate, which has proven to be a stable and wealth-building asset." The report, which is based on two surveys, found that investors accounted for 23 percent of the nation's 2004 home sale transactions, with second-home buyers taking an additional 13 percent of all sales transactions. Previous estimates gleaned from other databases had suggested that 8.5 percent of all 2004 sales transactions were investments. The NAR report said that such activity surged last year. Investor activity was 14 percent higher than in 2003, and second-home purchases topped the preceding year by nearly 20 percent. Federal Reserve officials and other economists have expressed concern that scorching-hot investor activity in certain markets may be artificially inflating home-appreciation rates, which could lead to collapsing prices. Fiserv CSW, a Cambridge, Mass., firm that tracks price appreciation, calculates that national home values, adjusted for inflation, have appreciated about 40 percent since 1995, with some metro areas, such as San Diego, up as much as 160 percent. "If you go back to the '80s, during that cycle, adjusted for inflation, price appreciation was 18 percent," explained David Stiff, an analyst for the firm. "In the prior boom in the 1970s it was 15 percent." He estimates that Chicago's inflation-adjusted appreciation in the last seven years is 41 percent. Lereah said he isn't nervous about price declines. "I could worry about certain investments, such as interest-only loans or negative-amortization loans--people investing purposely on strong price appreciation rather than on the returns," Lereah said. A conservative approach to investment "would be to follow the historical 4 to 6 percent price appreciation" in determining its soundness, Lereah said. "For people who aren't doing that and using interest-only loans to get into those places, I think there's a yellow flag there," Lereah said. "People have to understand the local markets and they have to do their homework." But Stiff, among others, says the investor activity is worrisome. "It's kind of alarming," said Stiff, whose firm has for the last year warned of overheating. "I presume investor activity is concentrated in some metropolitan areas, such as Southern California, Florida, Las Vegas and Phoenix. But even I am surprised that it's that high. "It's at the end of a housing cycle that you start to see people investing irrationally," Stiff said. He singled out increasingly widespread reports of homeowners cashing out equity in their principal residences to invest in properties in other markets around the country. "If anything is a sign of a price bubble, that is it." But Lereah, who is the chief forecaster for the nation's largest real estate trade association, says that, to the contrary, such investment can be a positive. "As an economist, I think that's good. The markets are actually working. Real estate is being more liquid. You could never have done that 20 years ago. Real estate was a large, tangible, awkward asset, and only moguls could do that. "It's wonderful to be able to take one equity gain and purchase real estate in another part of the country. That means the market is getting healthier, more liquid. "People are trying to paint bad pictures here, that there's too much speculation and that it's bad," Lereah said. "What's bad about taking equity wealth gains in California and using them in Florida? That's a more efficient market outcome." The NAR report characterized the typical vacation-home buyer as someone who is 55 and earned $71,000 in 2003. The typical investment-property buyer is 47 and earned $85,700, it said. The report was national in scope and did not single out investment activity in individual metropolitan areas, such as Chicago. An earlier report from Loan Performance Inc., a San Francisco housing database, estimated that 6.1 percent of the Chicago area's 2004 sales purchased by mortgages were to investors. However, investor activity may be much more intense within Chicago submarkets. Appraisal Research Counselors, a Chicago firm that tracks the downtown market, recently estimated that 25 percent of the downtown's currently sizzling new-construction sales are to investors, a trend that may be on the upswing. "Investors are back, to some degree, more than we have seen in the past 24 months," said James Kinney, president of Rubloff Residential Real Estate, which is active in the downtown market. "I'm getting calls from people who are looking to buy into the market, everywhere from Florida to Washington. They want to be first in line to buy the choice units, with the best views on the best floors. "They have money available. They've read enough about bubble stories, so they're looking at the comparable prices. They're informed shoppers. You can't say the sky is falling here for investors, because it ain't."
############ Covertability; Nice downtrend in 30 year fixed rates; as of last weeks close , it downtrended again to 5.23% PHM may have overbuilt in Las Vegas; but she may have overbought @19 homes, PHM is still nicely around 52 weeks highs. CPA mentioned recently Miami,Las Vegas hot; but prefer about 90 miles/minutes from home office, or so for occasional invest. Good read SethArb That PHM appraisal related to PHM home,PHM mortgage; may or may not necessariy ''stink'' Remember one time was applying for a comercial bank loan, and mentioned to loan officer I liked certified appraisals, but didnt like the $300/350 appraisal fee for raw land . It may sound fishy, but the bank officer mentioned he could do ''an inspection for about half that price'' & make loan . Worked out fine eventually ; however that was one local property, not 19
Very interesting post, and I agree. Two things I remember from last recession in housing. #1. There were tons of small builders that went under because they got overextened and didn't have the staying power of the large players. One "small" builder in my area went belly up with 70+ homes in one stage of constrcution or another. Pure insanity for a lender to let that much line out. Now buildersare much larger, many cover an entire region. #2 was the amount of commercial construction. Seems odd, but that was a sign of a top. One theory was that commercial projects take much longer to bring to market. Everyone saw the same thing, started planning to meet the need. Then....Voila! too many of the same kind of developments (shopping, office, strip malls, apartment etc..) hitting the market at the same time. The home builders of today are bigger and smarter when it comes to planning. Even today you don't really see that many "spec" homes. Most are still pre-sold. They have managed the inventory side very carefully and it has paid off.
excerpt from WSJ article I saw last week - Many people agonize for months before deciding to buy a house. Jonas P. Lee is more decisive: He often buys several in a day.- -This year, the 38-year-old Mr. Lee says he plans to buy more than 1,000 homes for Redbrick Partners LP, a New York firm he runs with the help of an MIT economist to invest in single-family rental property.- - he is buying in working-class neighborhoods in such cities as Baltimore, Philadelphia and Trenton. Even there, however, he is running into tough competition from people determined to cash in on America's decade-long housing boom.-
where might one get monthly historical long term median home prices for select cities / countys / states for the last 20 yrs ? why is this data hard to come by compared to stock market data?
SteveD and Convert: Steve D, I'm not sure what you're looking at when you say interest rates are at historical averages?! They're at 40 year LOWS - and how do you consider that 30 yr. mortgage rates have been at 6% for "many many years"?? the best you could do in Dec 2000 is 7 5/8% as it had come down from over 8% (I know this because that's what I got!). So either you haven't checked your information or you have no clue what you're talking about. Convert: I don't know if you're a trader or not...but as you keep posting how every homebuilder is at record highs, and making record money...these are signs of tops - NOT bottoms...and maybe you can explain why the TOL ceo keeps talking it up...but if you check insider sales...he's dumping the crap out of his own stock - do some checking and you'll be enlightened. Funny how everyone becomes an expert at tops - there's a great quote in the stock trader's almanac: "don't mistake brains with a bull market".
I too saw the article on Toll Brothers insiders dumping. In fact, Robert and Bruce Toll have been buying up through exercised options and selling them actively...some 154 Million worth. Overpriced Favorite Short: TOL by Theodore Mantle, Wednesday March 09 2005 Are insiders making more money by selling the stock of Toll Brothers (NYSE-TOL) than the company is making by selling homes? Years ago I read a great book called "Contrary Investing," by Richard Band. I recall his suggesting that one strategy for selecting stocks to short, after a top in the market, was to look for the âoverpriced favorites.â Iâve used this as one of my short-picking strategies ever since. TOL is certainly a âfavorite.â The stock has soared five-fold in the last two years from $18 to a high over $90, riding the wave of the low interest-rate home bubble. Whether itâs also âoverpricedâ is debatable. In my opinion it is, but rather than crunching numbers here, letâs just consider the recent actions (not words) of the brothers themselves. Net earnings of the entire company for the three months ending Oct 31, 2004 amounted to a total of $180 million. Insider stock sales in just the last 2 weeks totaled over $170 million. The sales of Chairman Robert Toll and Vice Chairman Bruce Toll alone totaled over $154 million. The bond market showed signs of weakness today with some technical analysts talking about a breakout higher in interest rates. The Dow also dropped more than 100 points. Because I believe that a top is in for the stock market, and that rising interest rates will hurt TOLâs earnings, Iâm taking a short position in the stock. posted Wednesday March 09, 08 43 PM ET Copyright (c) 2005 The Wall Street Examiner. All rights reserved. Terms of Use