Miami Vice

August 24, 2005 | 10:26 pm |

miamivice

In the Economist print edition: From Coke to Cubists [Note: Paid Subscription] the current surge in Miami condo development is characterized as leading its transformation from drug-dealers’ playground to mainstream metropolis.”

miamimap
Source: The Economist

Roughly 65,000 condos are under some stage of development.

According to a Merrill Lynch study on “Mega Metro Bubbles”, Miami was top on the list. The study analyzed income to price ratios to determine affordability. Miami housing had some of the highest appreciation rates found in the US since 2001.

With all this development, someone got the idea to start a franchise in Miami for flipping condos called, oddly enough, Condo Flipâ„¢ pat. pend. (Coming soon to an overheated market near you.)

Their slogan:
bathtub
Source: Condo Flip.

Seems a bit arrogant, doesn’t it?


Just Get – R – Done

August 23, 2005 | 11:54 pm | |

The danger of appraisal inflation is not apparent to many consumers.

The consumer begins to believe the inflated value as valid and it is validated each time the property is over-appraised. When its time to cash out, the fall from the clouds can be unforgiving.

But problems arise when the appraisal is higher than the home’s actual value. Such overvaluation can lead homeowners to overborrow. And later, when they resell, they could learn that the till they thought was full of money contains much less — or nothing at all.

At the end of the day, the homeowner just wants the job done. Herein lies the problem.

Its called “detached from reality.” The mortgage is not being done for the homeowner at all. Its being done on the lender’s behalf to assess the collateral. However, the typical lender sees the report only after it has been through the food chain.

See: The beginning of the end, or how this mess got started


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Boom as in Baby

August 23, 2005 | 10:59 pm |

housejump

Scott Reeves contends, in an article posted on Forbes.com: Don’t Believe The Hype that the booming real estate market is driven by fundamentals including low mortgage rates, increased employment and demand (note: demographics). Its not driven by investors.

Although NAR indicates that 23% of home purchases in 2004 were made by investors, Freddie Mac statistics indicate that the length of homeownership has increased from 6.5 years in the first half of 1999 to 7 years in the first half of 2004. Although this argument doesn’t reflect the recent uptick in housing prices in 2005, it could infer that the market is not being determined by runaway investors aka speculators aka flippers.

babyboom

In fact, NAR says that no more than 3% of all purchasers sell their homes in less than a year.

This is consistent with…

the cascade of baby boomers in their prime earning years who are beginning to think about retirement. Many boomers, real estate agents say, buy a second home with the intention of retiring there–but most are more than happy to sell it in a few years if plans change or if the price is right.

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Bubblicious? OMG, Give It A Rest!

August 23, 2005 | 10:00 pm | |

A humorous article was contributed for today’s NYT Op-ed Section on what else?: Bubble? What Bubble? The piece made me chuckle and stirred a lot of discussion. But now Bubble-speak has really gotten out of hand.

opedchart Source: [NYT]

The usually staid and conservative Wall Street Journal used “Bubblicious” [Warning: Paid Subscription] in an article today.

Economists believe that such bubblicious markets could see home prices fall.

And this quote linked to an another well-written article using the jargon Bubble-Metrics: Economists Handicap Housing Markets [Warning: Paid Subscription]

bubblelevel
Bubblicious? Bubble-metrics? I think we have gone from simple concern to plain giddiness.

Here are some rational thoughts of bubbleosity:
The Bubble in Bubbles


Outsourcing Codeword: AMC

August 22, 2005 | 11:41 pm | |

Ever notice how the only people who seem to be espousing outsourcing are those who gain financially? appraisal management companies themselves

As a self-proclaimed technology maven, I wonder if technology is the answer to all our problems within the appraisal process? In many ways, it can dumb it down, causing the process to drift away from its original intention. The AMC process seems to be an automated paper handling compliance machine.

Another AMC took outsourcing abroad to perform appraisal reviews.

How is it humanly possible to perform a review appraisal from another country unless the report is nothing but a compliance document and not a basis of risk analysis?

AMC’s are here to stay. Where is there middle ground between form-filling compliance automation and hand done reviews?



[Webmaster Note: This post has the highest number of “?” in any posts in this blog ;-)]


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The Gamblers Say No Bubble, But Can’t Pick Superbowl Anymore

August 22, 2005 | 11:03 pm |

David Leonhardt’s article today about Online Betters was quite good. Using the odds fleshed out by online traders, you could have:

  • Predicted the winner presidential election for all 50 states in 2004
  • 85% of recent Emmy winners
  • The current American Idol winner

The NYT article says that online gamblers see no sign of a housing bubble anytime soon…

poker

Not sure I want to rely on this as a way to get comfortable with the real estate economy but it is tempting. One could argue that the recent poker craze, is a sign of speculative environment.

Then we get into predicting presidential elections..
2004 Predicting a Bush Victory [The Formula]

Using the Superbowl…

footballillustrated This brings to mind Superbowl predictors of presidential elections called The Superbowl Effect:

2000 It’s Redskins vs. the markets in the presidential race
1996 NFL Index Predicts Super Year For Stocks


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Investors As Wild Card

August 22, 2005 | 7:54 am | |

cardhouse

Investors are the wild card of the current housing boom [Note: Subscription]. The NAR released a report last spring that said 23% of all homes purchased in 2004 were for investment and an additional 13% were vacation homes. Presumably, ratio of investors to owner occupancy will be even greater in 2005.

Here lies the problem for investors…

The rental market has taken a large hit over the past 4 years as lower mortgage rates have converted would-be renters into buyers. The free flow of capital stimulated rental development up until the past year, when it switched to condo development as prices rose rapidly. Now the increase in investor activity may drive down rents [Note: Subscription], placing more pressure for investors to sell quickly and not hold out for a higher price.

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To Muslims, Alternatives to riba

August 21, 2005 | 1:06 pm |

mosque

With a growing Muslin population in the US and interest in housing, an age-old dilemma come to the forefront. Purchasing a home with a mortgage is not religiously acceptable. This is because interest is seen as effortless profit.

Without mortgage, the purchase of a home for cash for many Muslims is not possible. In recent years, banks have come up with different solutions that are compliant under Islamic Law.

Avoiding riba or interest payments [Note: Subscription] has made home ownership difficult. One solution has been the lease-to-own model. Another way has been to form a housing coop.


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Lies, Damn Lies, And Government Statistics: Part II

August 21, 2005 | 12:07 pm | |

Go to the prequel of this post Lies, Damn Lies, And Government Statistics: Part I

And here is another post of the same topic concerning PPI Well, Maybe The Inflation Threat Is Not That Bad After All?

…After I finished my post on this topic last Friday, I came across yet another significant statistic that we should be uncomfortable with. Daniel Gross wrote an excellent article on productivity stats that suggests that the stats have even confounded Greenspan.

productivity
Source: New York Times


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Going Dutch

August 21, 2005 | 11:21 am | |

bubble

In today’s New York Times article, Professor Robert Shiller “>voices his concern about a real estate bubble. Professor Schiller is well-known for predicting the last stock market correction and possibly influencing Fed Chairman Greenspan’s use of the phrase irrational exuberance, the name of Professor Shiller’s subsequent book.

According to the article, origins of a housing bubble began with the Dutch about 400 years ago. Recently, a Dutch economist, Piet M. A. Eichholtz, a professor of Maastricht University, used Mr. Schiller’s method for converting actual sales into an index and found that the housing market saw a series of booms and busts. They found that in the long run, there was no long term trend and that prices match gains in personal income.

Mr. Shiller has a Norwegian housing index and a US Index that shows a similar pattern and is concerned that the recent run-up shows we are in a bubble.

shillerindex
Source: New York Times


To his critics, he says that housing charts generally go back to the 1970’s and stock market charts go back almost a century.


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What If?

August 21, 2005 | 12:21 am | |

You know what I am referring to…

Businessweek Online did a series of interviews with economists to see if a housing bubble exists.

While housing experts have described the current situation as either a bubble or at worst case, a boom,when a bubble bursts, the price drop tends to be gradual.

Reportedly more than 50% of the employment gains over the past five years have been related to the housing industry. So it appears to be clear, that a market correction in housing would do a lot of harm to the economy.

A study by National City Bank saw that in 1 in 5 metropolitan areas, housing outpaced income, making them more vulnerable. Fannie Mae is also concerned but says that the middle of the country is less of a concern than the coasts. Location seems to matter.

Americans are more vested in real estate than the stock market. According to the Federal Reserve, the appraised value of housing accounted for 145% of GDP while stocks and mutual funds accounted for 82%.

The Economist Magazine charted housing prices for Britain, UK and Australia. Both Australia and the UK saw far more appreciation than the US, more than double. Now price changes there have fallen below the US pace. The chart makes appreciation in the US look relatively tame.



Fannie and Freddie Now Have To Tell

August 20, 2005 | 11:48 pm | |

Its hard to imagine its finally happening, but regulations proposed in early 2005 were just finalized that make Fannie and Freddie now responsible to detect and report mortgage fraud to OFHEO [Office of Federal Housing Enterprise Oversight [Note: PDF]].

This is a first step (albeit tiny) in creating some sort of enforcement activity against mortgage fraud considering the trillions of mortgage dollars under their watch. However, I am not sure what ability they will have to undertake this responsibility.

Now its time to turn attention to state enforcement, to ensure they have adequate budgets to fight appraisal fraud.

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