Toll Brothers Exec Says No Housing Bubble Joel Rassman, the chief financial officer at Toll Brothers Inc., says that the imbalance of supply and demand favors more growth for home builders. “We’ve seen consistent growth in the price of homes and the profitability of the public home building companies,” Rassman said. “This isn’t surprising when you have a shortage in the market. If you have fewer houses than people who need them, then prices will rise until you get equilibrium. We have not yet seen that equilibrium, so house prices continue to rise.” He said that annual production is now about 1.8 million annually, compared to 2 million in the 1950s and 1960s and 1.8 million in the 1970s, even though the country has grown by 40 million families since the 1970s. Also, of the 1.8 million homes being produced, about 300,000-400,000 are second homes. There aren’t enough primary homes being built mostly as a result of regulation, he said. By putting into place anti-speculative language and clauses in their sales contracts in markets where home prices are being pushed higher by speculation, Rassman said that large home builders are turning away people who are simply looking to flip their homes in the short term for high profits. (www.realestatejournal.com)
RealEstateJournal (Wall Street Journal) (6/9/05); John Spence, Marketwatch [Return to top]
NAR Economist Remains Optimistic on Real Estate Market David Lereah, chief economist for the National Association of Realtors®, told real estate agents in North New Jersey that there will continue to be “oomph” in real estate for the balance of this decade, even as annual home price appreciation nationally slows to an annual rate of about 4%. In the state’s Bergen and Passaic counties, prices of existing single-family homes rose 18% from the first quarter of 2004 to the first quarter of this year, to a median of $448,100. Prices have more than doubled since 1999. Lereah predicted that mortgage rates would rise to 6.5% next year, which would still be cheap by historic standards, and he added that beyond low interest rates, the spending power of baby boomers has been a significant demand factor as they spend plenty of money on McMansions and second homes. Second homes accounted for 36% of the existing homes sold last year, he said. In addition, Lereah said, buying a house has become a lot easier, thanks to new types of mortgages and technology that allows for faster loan approvals. “Property has become more liquid,” he said. “It’s no longer that awkward, large asset that people are afraid to purchase. It used to be like going to the dentist’s office.” (www.bergen.com)
Bergen Record (6/6/05); Beth Bresnahan [Return to top]
Weapons in the Bidding War To separate themselves from the competition, bidders for homes in Washington, D.C.’s hot housing market are throwing in extras such as a case of wine, a two-week stay at a Cape Cod beach house, a seven-day cruise in the Bahamas and season tickets to the National Symphony Orchestra. But the area’s real estate agents say that money talks the loudest. When Nicole and Bryan Kustner bid for a house in Potomac, Md. this spring, they agreed to a contract clause that escalated their offer $140,000 above the $825,000 asking price; threw in a big downpayment and a large deposit; and wrote a very nice letter. “The thing that slam-dunked the Kustner’s offer,” according to their agent, Jason Volat, was an agreement to let the sellers stay in the house for two months for free. Cash incentives in successful contracts include generous escalator clauses, where the buyer promises to pay $2,000, $5,000 or whatever above any other offers. Broker David Ridley said that he has heard recently of “unlimited escalation addendums” where there is no ceiling and the bids keep going up until somebody cries uncle. Some buyers are offering six or seven months of free rent to sellers. (www.washingtonpost.com)
Washington Post (6/11/05); Sandra Fleishman [Return to top]
Speculation Grows That the Frothy Condo Market Is Nearing Its Peak In direct response to the wave of new construction and condo conversions taking place in Southern Florida, one lender, Bank Atlantic, has decided that it will at least temporarily stop funding new condo construction in that area, according to Jack McCabe, CEO of McCabe Research and Consulting. Also, developers are beginning to include clauses in contracts that prevent condo buyers from flipping the units for resale before the projects are completely sold out. Between now and 2007, there are 10,000 new condo units scheduled for delivery in Palm Beach County, 13,000 in Broward County, 25,000 in Miami-Dade and another 60,000 have been announced or are in the early planning stages throughout the region. Condo prices have ranged from $300-$1,200 per square foot, he said. Paying 20%-35% premiums over and above what long-term rental operators can afford, condo converters are swallowing up existing apartment complexes, he said, and the craze is not just limited to Florida. Transwestern Commercial Services reports that of $2.07 billion worth of Class-A multifamily transactions in the Washington, D.C. metro area last year, 51% of the investors were condo converters. Archstone-Smith sold a 158-unit property in Alexandria, Va. last December for $29 million, or $272 per square foot. Condo sales began in May at an average retail price of $480 per square foot and generated a reservation list of more than 5,000 names. (www.nreionline.com)
National Real Estate Investor (6/11/05); Matt Valley [Return to top]
Waiting for the Bubble to Burst Jack McCabe of McCabe Research and Consulting in Deefield Beach, Fla. is putting together pools of investor capital to acquire new and converted condominium units purchased by speculators when they lose their shirts trying to resell at ever-inflating prices. McCabe says that he now has commitments for $10 million from large and small investors who expect to be able to acquire units and entire projects at deflated prices in 2006 and 2007. McCabe’s limited-liability companies are grouping up to 25 investors and they have minimum share requirements of anywhere from $30,000-$50,000 at the low end to $1 million at the top. Acquisition strategies will include holding and managing properties for an extended period or shorter-term ownership followed by profitable resales when the market beings to recover. “We think there will be very attractive opportunities” beginning in the first quarter of 2006, he says. (www.washingtonpost.com)
Washington Post (6/4/05); Kenneth R. Harney [Return to top]
Don’t Lose a Sale by a Nose House odors — a blend of your personal scent, your pets, the foods you prefer and the cleanliness of your possessions — can make a house harder to sell and significantly reduce the asking price. In an informal survey, the aroma of cooking, and particularly baking, topped the scents that are associated with home — particularly bread, chocolate chip cookies, brownies and apple pie. A roast in the oven was a turn-on for most. Fish is not on the list. Almost as popular as food aromas were fresh flowers, pine, oranges, lemons, grass, cedar and laundry dried outside on the line. With the exception of lemon furniture polish, the scents have to be natural. Dislikes included stale cigarette smoke; pet odors, particularly cat urine and wet dogs; dirty laundry; shoes; stale sweat; and bathroom odors. “Fresh and clean, clean and fresh. The vocabulary is very limited,” said Carol Berning, who researches scents for Procter & Gamble. According to Berning, real estate agents say that “when people go looking at a home…they want to think of themselves living there. So what they don’t want are odors that come from other people’s families — dogs, cats, babies…negatives. Like onions and sauerkraut…We call it scent soup.” (www.washingtonpost.com)
Washington Post (6/11/05); Stephanie Cavanaugh [Return to top]
Growth Blueprint Must Be Balanced for Housing The blueprint for growth that Snohomish County, Wash. is putting forth to accommodate 300,000 new residents who are expected to move into the area in the next 25 years relies on infill housing to an “unrealistic” extent, according to Donna Shirey, of Shirey Contracting in Issaquah and the president of the Master Builders Association of King and Snohomish Counties. “The preferred alternative calls for only a modest expansion of the urban-growth area, adding a mere three square miles,” Shirey writes. “Currently, less than one-tenth of Snohomish County is designated as an urban-growth area. In other words, the preferred alternative envisions accommodating a 50% increase in our population by expanding the urban-growth area by less than one half of one percent of the county’s total land area. What is more, two-thirds of this land would be designated for commercial and industrial uses, not housing. Such a modest increase in new land available for housing would drive up home prices and require a significant number of new homes to be built in or adjacent to existing neighborhoods.” (www.seattletimes.com)
Seattle Times (6/8/05); Donna Shirey [Return to top]
Interest-Only Mortgages Raise the Stakes in Real Estate UCLA economics professor Edward Leamer warns that when California’s housing market adjusts, “it’s going to be painful” for borrowers who have been financing their purchases with interest only loans. “Borrowers are getting in over their heads, and lenders are too,” he said. With some of the nation’s highest housing prices, California has become ground zero for interest-only loans. In the San Francisco Bay area, more than half of all home buyers have used this financing since the end of 2003, according to LoanPerformance. But with home prices surging, the loans have been a boon for home buyers so far. For instance, anyone who bought a $475,900 median-priced existing single-family home in San Francisco in 2001 and has seen its value climb 45% since then could be sitting on a $213,300 gain in home equity. Chris Economou was able to buy a one-bedroom condominium in San Francisco for $435,000 a year ago, thanks to an interest only loan that saves him about $1,000 a month in payments over a conventional, 30-year loan. The value of the property has increased by $80,000 since he made his purchase. (www.sfgate.com)
San Francisco Chronicle (6/7/05); Michael Liedtke, Associated Press [Return to top] |
