Thursday, July 28, 2005

Trapped in the Bubble

An article from today's New York Times called "Trapped in the Bubble" shows that real estate appreciation can hurt those who have ostensibly gained from increases in property values. The problem that many sellers now face is that the equity built up on existing homes does not make up for the even greater price increases that has occurred in the larger homes into which sellers would like to move.

"In the hottest markets, owners whose homes have skyrocketed in value find themselves in a frustrating paradox. They were supposed to be the lucky ones: they bought in frenzied real estate markets like New York and Los Angeles three or more years ago and have amassed hundreds of thousands of dollars on paper.

But as they try to roll that considerable equity into a bigger home, many are unpleasantly surprised to find that the cost of real estate at the higher end has outpaced their ability to buy. For homeowners who have watched the torrid housing market create wealth as if by magic, scanning the classified ads or visiting a few open houses serves as a harsh reality check.

For the Boalses, who had owned their previous apartment for just three years, the best option was a $950,000 unit that had gone unrenovated for 30 years. But since it was only slightly larger than the apartment they had just sold - and would require a mortgage nearly twice as large as their previous one - the couple decided to rent."

But many refuse to rent and instead stretch themselves with creative mortgages to afford these higher prices.

"Some buyers forge ahead, but end up taking out riskier mortgages simply to afford the monthly payments. Marie Kuranishi and her husband, Tony Guinta, sold a condo earlier this year in Playa del Rey, Calif., a suburb of Los Angeles, for $450,000, nearly twice what they had paid for it, and bought a $632,000 house in a more remote suburb. To finance the jump, they took out two interest-only loans, paying no principal for a fixed period. Even so, their mortgage payments have gone up by more than $1,000 a month."

Query whether the status quo can maintain much longer if many new owners are in the situation described above.


Trapped in the Bubble

Wednesday, July 27, 2005

Words of Wisdom from the Property Grunt

The Property Grunt is a self-described "soldier in the trenches of the Manhatan real estate war". Reacting to the June National Association of Realtors (NAR) numbers showing an all-time high in June for existing home sales, but also noting the creep in mortgage rates, the Grunt states:

"All the Grunt knows is that this a sign of the impending bust. Those of you who are first time investors eager to invest into real estate, the Grunt's recommendation is to act with extremem caution. Do not be pushed around by fast talking brokers who keep telling you that the market is only going to go up and this is the time to buy before interest rates kicks up. And even if there is a bubble that Manhattan will be unfazed. The reality is that no one knows how bad the correction will be. Unless there is a dire need to find a home because of tax or personal reasons, you should just treat real estate like a night at Scores. Look but don't touch. "

In a follow-up post the Grunt then notes:

"On a side note the Grunt recently proclaimed that the record sale of homes in June was another indication of the imminent correction. I would also add that the rapid rate of sales being closed is also indicative of the current state of mind of personnel in the real estate industry. From real estate brokers, mortgage broker, lawyers to title companies, last June’s record sales just show how concerned they are about the looming correction and they are doing everything in their power to tie loose ends. This is akin to an after Christmas sale when the stores need to clear out their inventory before for the spring. Bottomline, people know the party is about to end so they are heading to the open bar for one last blowout. So Grunt still stresses that people treat real estate like a night at Scores. Look but don’t touch. But if you find a deal that makes sense well then go for it."

Monday, July 25, 2005

Fleck on China and the Housing Bubble

One of my favorite bears/contrarians is Bill Fleckenstein. I personally subscribe to his daily market review but MSN publishes a weekly column of his under the headng Contrarian Chronicles. Last Friday Bill gave some of his thoughts on China's decision to let the Yuan float (at least to some degree) and its potential implications for housing:

"If [interest] rates trend higher over time -- which they will, all things being equal (though all things never are) -- that will definitely impact the housing market negatively. And, since the housing market, in the form of what I call the housing ATM, is the economy, it will matter to the economy and, by extension, the stock market. But the key is, over time. We just don't know how long all this will take to play out. Of course, market participants can come to conclusions and accelerate the process, or decide it's a nonevent and, in the short term, thwart the process. In fact, the conclusion of the marketplace, in the short run, will probably be more important than whatever it is that the Chinese actually do, especially given the leveraged nature of bond-market speculation. To my mind, we don't know more than we actually do know. We don't know for sure what the composition of the basket is. We don't know how fast the Chinese will try to implement the changes. We don't know long it will take for the negative consequences to unfold. Therefore, the course of action is to just be alert for clues that this change is starting to matter."

Ful story:

Friday, July 22, 2005

Is NY Housing Inventory Starting To Build Up?

Curbed passes along the following tidbit:

"Has anyone noticed that Corcoran's "newest listings" counter on their website is approaching 600, the highest it has been since I can remember. Granted that 516 West 47th Street accounts for a good percentage (about 25%) of that number but aren't new developments the norm now? Looks like those inventory numbers are finally going to shoot up, with new developments insulating the trend."

Wednesday, July 20, 2005

NY is Second Most Likely to Pop

A writer for Yahoo Finance, using data from PMI Group, a residential mortgage insurer, puts New York at number 2 on a list of overvalued cities likely to experience a real esttae price decline (what no number 1; we New Yorkers resent that). The article reads:

"2. Big Apple Bailout. Like Boston, New York City suffered through a housing slump in the '90s. But while job losses were the big problem then, now it's out-migration. "People from New York, especially baby-boomers, are moving out," says Yun. If the trend accelerates, it could cause a problem, particularly for the high end of the real estate market. Meanwhile, prices remain extremely high. The median price for existing homes in the metropolitan New York City area (which includes parts of Connecticut and New Jersey as well as Long Island and Westchester County) stood at $435,000 at the end of the first quarter of 2005, up 18% over the first quarter of 2004. PMI puts the risk of a price decline in New York City at 31% and says it's even money that prices on Long Island, where affordability is becoming a concern, will sink within two years."

Other overvalued cities were: Boston, Ft. Lauderdale, Washington, D.C. and L.A., none of which should come as a surprise to anyone following the national bubble.

2nd Quarter Report shows Price Increases in Manhattan

The new Miller Samuel report for the second quarter of 2005 posted on the Prudential Douglas Elliman site shows continued price rises in Manhattan. I am sure that realtors will tell you that it shows that there is no bubble here and that the market continues to be strong. Of course, one can see this as just further evidence of hot air going into you know what:

Sunday, July 17, 2005

Are We Beginning to Reach the Inflection Point

A couple of new articles in the past few days have focused on some formerly hot areas starting to slow down. The following Wall Street Examiner piece notes increases in inventory and more price reductions in Las Vegas, Sacramento and San Diego:

An article in today's New York Times describes the plateau in Denver, Colorado:

Can NYC be far behind? The Times piece offers differing opinions on this:

"Optimists point to Denver as a model of an adjusting real estate market. 'I think it's a good example of when a market softens, what happens,' said David Lereah, the chief economist of the National Association of Realtors, a trade association. 'You see double-digit price appreciation go down to 4 percent or even 1 percent, and then it starts coming back to a historical norm of between 4 and 6 percent. That's very healthy. That's wonderful. It beats inflation.

But many analysts take a gloomier perspective, suggesting that the most heated markets could suffer more than Denver's so-called soft landing. 'I think Denver is a best-case scenario,' said John H. Vogel Jr., adjunct professor of real estate at the Tuck School of Business at Dartmouth College. In the case of markets like Naples, Fla.; Miami; and New York, he said, 'I think you'll see dramatic price decreases because I think the prices have become artificially inflated by trading and speculation."

We will wait and see.

Saturday, July 16, 2005

Great Article on Ben Jones -- Patron Saint of Housing Bubble Blogs

Ben Jones is one of the inspirations for this blog (please see link on sidebar). While Ben focuses on the Housing Bubble as a national phenomenon (which it is), this blog will attempt to give up to date information on how the bubble is playing out in the NYC area. Still, the linked L.A. Times piece about Ben and his site makes for good reading:

Friday, July 15, 2005

Easy Al Keeps His "Hands-Off" The Punchbowl

The New York Times reports today how while the Federal Reserve Board has started some angst-ridden handwringing about so-called "froth" in the housing market, it has no real will to take action to curb the absurd lending practices that continue to throw fuel on the fire:

"First they issued new 'guidance' to banks about home-equity loans, warning against letting homeowners borrow too much against their houses. Then they expressed worry about the surge in no-money-down mortgages, interest-only loans and 'liar's loans' that require no proof of a borrower's income. The impact so far? Almost nil. "

Why you may ask? "The reason is that federal banking regulators, from the Federal Reserve to the Office of the Comptroller of the Currency, have been reluctant to back up their words with specific actions. For even as they urge caution, officials here are loath to stand in the way of new methods of extending credit."

NYTimes article below:

Thursday, July 14, 2005

Attention Bubbleheads!

You have to love this cri de couer on behalf of all potential buyers in the NYC housing market to just "stop the insanity":

"Looking to buy? WAIT! More buyers are taking to the sidelines now and when properties remain on the market too long the sellers will panic and drop the price fearing that they are holding bubble-prone property. Then, more sellers will panic when the news gets out that prices are dropping causing them to sell lower which causes another drop. Stubborn buyers will be the catalyst. Be stubborn; don't be an ass."

Wednesday, July 13, 2005


Hi all. Welcome to my newly-formed blog dedicated to discussion of the Housing Bubble in New York City. I have been following this story for a good two years now and have finally decided to start writing on this issue as it pertains specifically to NYC and its environs.

This blog will probably be somewhat low on content for the next week or two as I work on formatting, links, etc. However, I hope to have something that is worth the readers' time wthin a short time.

I think this topic will become more and more relevant as we progress into the third and fourth quarter of 2005 and the start of 2006. Please feel free to send me links to any articles that you think are relevant and I will try to include them here.

Best regards.

Peter Herman