Posted: 11/9/2005 4:04:29 AM EDT
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linky Stocks drop as housing bubble concerns mount Associated Press NEW YORK - A negative sales forecast from home builder Toll Brothers Inc. Tuesday cast doubt on the health of the housing market and sent stocks falling after four sessions of gains. A softening in the real estate market, which had helped fuel economic growth for more than two years, could mean weaker consumer spending and a slowdown in the economy. Toll Brothers' lower sales projections fed those fears, while disappointing forecasts from auto parts maker Visteon Corp. dragged down the auto sector as well. ---------------------- linky Housing bubble springs a leak Prices on Island rise by less than 10% for the first time in 5 years as interest rates rise and listings grow BY RANDI F. MARSHALL STAFF WRITER November 9, 2005 Welcome to a new normal. For the first time in the last five years, Long Island home prices are rising by less than 10 percent annually. That's giving home sellers pause, because they can't expect huge jumps in values anymore, while buyers have some reason to rejoice, because they have more time and more choices. Nassau County's median home price was $485,000 in October, just a 7.06 percent gain from the same time last year, according to the Long Island Board of Realtors' latest data. Suffolk County's median price was $390,000 in October, an 8.64 percent rise. ------------------------- linky House builder issues warning: Investors go home By JOHN HEINZL Wednesday, November 9, 2005 Page B15Key When economic historians begin the task of identifying the point at which the U.S. housing bubble finally went pop, they might well settle on Nov. 8, 2005. Yesterday, the largest builder of luxury homes in the United States, Toll Brothers Inc., all but came out and declared the boom over. And its stock -- which has been sliding since last summer -- got positively crushed. So did just about everything else tied to the frothy housing market, from appliance makers and electronics stores to home renovations chains. On the surface, the news out of Toll seemed innocuous enough. The Horsham, Pa., company cut its estimate for new home deliveries in fiscal 2006 to a range of 9,500 to 10,200 units from a previous estimate of 10,200 to 10,600, and said the drop likely would reduce earnings growth. |
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Sure seems like a lot of sensationalism about nothing, but I guess that's what sells papers and gets people to come to your websites! I don't think housing values climbing less than 10% is anything but good, and would hardly use that to substantiate a "bubble." A luxury home manufacturer building 7% less Mansions isn't a bad thing in my opinion, either. Both of these items can be used to suggest the market isn't growing as fast. I believe everyone agrees the growth will slow down? I'm not convinced there is a bubble (if a bubble means we will see property values drop across the Country). I do think we'll see stagnated growth, isolated decreases in certain overpriced markets and we will see some loan defaults over the next several years from people who took ARMs. I don't know about you, but I'm okay with that! Black Fox |
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I think the problem lies not in the housing rather the financing of these homes. Many people including some of my friends have overextended themselves to afford homes in California. The problem is that they may have piggybacked a loan to afford that 450-500k home. Or even worse interest only home loans. That is about a 3500 house note. Just imagine if someone gets laid off where are you going to come up with that much change? I see a lot of people defaulting on their loans. This will cause the banks to lose money, which will ultimately affect the housing market by increasing the amount of unsold homes. Maybe I am wrong. I am sure someone will chime in here. Max |
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When 75% of home owners couldn't afford to buy the house that they currently live in and own, there's a bubble. Typical of bubbles, the huge price increases have been driven not by people buying homes, but by speculators making quick profits. I'm worried. The funny part is all the people absolutely insisting that there is no bubble. "The house I bought for $125K three years ago really is worth $345K today, damn't!!!" |
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So first and foremost, I'm not saying there is not a bubble - just that nothing I've seen conclusively supports it (or denies it). There's a bunch of speculation, fear and "I know a guy who..." stuff. To say that mansion sales have dropped, though, hardly proves there's a bubble. I'm not even sure it indicates it. It does indicate a slowdown, which I think is a good thing. Slowdown in appreciation and sales does not equal a bubble. I think everyone agrees we'll see a slowdown. The question is really whether we're going to see widespread price drops and/or foreclosures of any significance. maxell27 - I agree with your statement that the financing issues could cause a bubble. I definitely see California as one of those overpriced markets I mentioned (NYC, condos in FL, etc.) where a larger number of people have gotten in over their heads. Defaults and property value declines certainly seem like they could happen there. Yes, I think we will see increased defaults when the interest rates rise - particularly with people who took out ARMS. Do I think it will cause a market crash? No. How many will default? I don't think anybody has any idea. I think the capitalist system will equalize. I think we'll see people refinance to fixed rates or move to smaller houses. I think you'll see a number of investors swoop in then and pick up these houses and rent them out (to all the people who are now homeless and have horrible credit). I think the biggest risk is that the market for McMansions is going to drop. Just as an FYI - I have a $3,500 mortgage payment and I will be just fine if I lose my job. Doesn't mean everyone is as responsible as I am, but a significant mortgage doesn't automatically mean irresponsibility. I'm actually more worried about somebody who can only afford a tiny mortgage as this portion of our population typically can't afford to save and lives paycheck-to-paycheck. I'm not basing that on anything scientific, though. FightingHellfish - do you have a source for the fact that 75% of people can't afford the house they currently live in? What does that even mean and what does that have to do with a bubble? (Sorry - I guess I'm just not getting it) That just seems to suggest houses are becoming less affordable. That stinks, but that doesn't mean we have a bubble. People have existed for generations elsewhere in the world with families having to group together to afford a house. Japan commonly has multi-generational mortgages now. I'm not saying it's good, but I don't think there's any obligation in the US for housing to be affordable. Again, I think the capatalist system will adjust - houses will become smaller and built on less desirable lots until we reach equilibrium if there really is an adjustment versus a slowdown. I don't know of anyone who thinks their house has gone from $125K to $345K in 3 years. I agree - I would be very worried about people in that situation. In some cases I've seen as much as a 50% price increase over the last 3-4 years in my area. I'm going to go out on a limb and suggest your example is fictional or in one of the oversold markets I mentioned above. I do not think this is a good representation of our market. Anyway, I'm not a cheerleader for real estate and am not saying there can't be a housing bubble. I don't think we know. I'm sure there are people on both sides of this one adamant about their position who will find all sorts of data to support their preconceived notion while ignoring the rest. I think a lot of people would like to see a bubble (so they can buy a huge house cheap or enjoy the misfortune of those around them that are successful in today's market because they're not). I think a lot of websites, financial planners, newspapers and magazines are making money stirring up the speculation, though - kind of like the one listed above that supply facts that really don't support their headlines. Black Fox |
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Good stuff Black Fox – However, speaking as an Austin, TX real-estate investor for 3 past three years by night, I can tell you that there is definitely a bubble here. In fact, we’ve seen 2 consecutive years of double digit property increase. It’s the Californiacators, they simply must be stopped… they buy up everything for long-term rent control. It’s not a conspiracy, it’s fact… your mention of NYC, FL Condo’s, not to exclude others proves this right. The question is, who will the bubble effect? My guess is all the poor suckers that got $3500/month mortgages that CANT afford them… who kept trading up and up as the market increased. |