Archive for March, 2009

The Harder They Fall

posted on March 17th, 2009 filed under: Real Estate News

Sales activity in the Coral Gables single-family real estate market has become extremely lopsided.  Below $450,000, there is healthy activity, with a normal 5 to 7 months’ supply of homes on the market.  (Not coincidentally, the conforming loan limit for the region is $423,750.)

From $450,000 up, sales quickly diminish.  The $450,000 to $699,000 price range shows about 20 to 30 months’ supply of homes on the market.  And for the highest-priced homes, the chance of finding a buyer is about as good as the chance of winning the Trifecta at Gulfstream.  The inventory of houses over $1.5 million is running at about 70 months’ supply, although sales recently flirted with zero.  Seventy months is stratospheric; infinite supply is more than the collapse-addled mind can handle.

Supply at the high end normally runs above supply at the low end, but not like this.

What to make of this dichotomy, this firmness at the low end and distemper at the high end?  An optimist would say that robust sales at the low end will filter up to the high end eventually.  But the great force of deleveraging will probably work its way into the high end faster than low-end buyers can work their way up to waterfront living.  Anyone who has not yet read and thought hard about Hyman Minsky and the Plankton Theory is well advised to do so, if they still have a shirt left to lose.

Perhaps the U.S. Treasury will implement a Mansion Asset Liquidity Program and take out all the sellers at their asking prices.  Absent such intervention, market forces should prevail.  The harder they fall, indeed.

Charts and more charts:








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Affordability and Responsible Borrowing

posted on March 2nd, 2009 filed under: Real Estate News

Neither a borrower nor a lender be.

The National Association of Home Builders and Wells Fargo maintain a Housing Opportunity Index that ranks 222 metro areas for affordability based on a comparison of median price to median income.  The data go back to the 1990s, before the boom.

The median price in Miami back then was $100,000, and the median income was about $40,000 — a ratio of about 2.5.  At the peak, the median price had risen to about $300,000, while the median income had risen to about $50,000 — a ratio of 6.  If the ratio now is between 4 and 5, that leaves another 30% to 50% before a return to the pre-boom ratio.

Similar problems characterize the New York metro market.  The NAHB/WF HOI data show that the New York metro now ranks as the least affordable in the nation: 222 of 222.  The median price of $500,000 is a gravity-defying 8 times the median income of $63,000.  Pre-boom, median the ratio was about 3.5, based on a median price of $170,000 and a median income of $47,000.  A return to the pre-boom ratio would require a 55% drop in prices.

Yes, rising median incomes may blunt the extent to which prices actually decline.  But just as price gains moved so much faster than incomes to the upside, price declines will be the prime mover to the downside as well.

See for yourself (MS Excel required):

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