Archive for the 'Real Estate Market Data' Category

Threats to Luxury Real Estate Values in Miami and Coral Gables: Part I

posted on April 13th, 2010 filed under: Real Estate Market Data, Real Estate News

The value of luxury real estate in Miami and Coral Gables faces severe headwinds in the near future.

Start with the lay of the land: the fundamental metric of months’ supply.  As noted previously, the number of homes for sale versus sold has been well above historically healthy levels.  That problem persists.  For example, there is currently a 28-month supply of homes on the market in Miami-Dade County, according to MLS data (922 homes for sale, 33 sold last month).  The picture is brighter in Coral Gables (16-month supply, 194 homes for sale, 12 sold last month), but still high.  A normal level for the luxury segment is probably about a 10- to 12-month supply (higher than the 6 months’ supply that is normal for the market as a whole, because luxury property sales move more slowly).

These numbers are improved from a year ago, but the market remains in a weakened state.

Now comes a new wave of potential mortgage troubles, and this one aims at the higher end of the real estate market, not the subprime sector.  Charts like the following have made the rounds for the last couple of years.  It shows that the subprime mortgage crisis coincided with the crescendo of rate resets that borrowers faced in 2007-08.  It also shows that a second wave of resets was scheduled to begin in late 2009 and carry into 2012, this time for supposedly higher-quality loans: prime, alt-A (i.e., between prime and subprime) and option ARM (offering flexibility in making payments).

Mortgage Reset Chart -- IMF & Credit Suisse

Chart from IMF, Assessing Risks to Global Financial Stability.

Investment managers like John Hussman have predicted a new round of economic troubles when this next wave of resets hits the real estate market and financial system.  Hussman thinks “we could quickly accumulate hundreds of billions of dollars of loan resets in the coming months, and in that case, would expect to see about 40% of those go delinquent.”

And sure enough, CNBC’s Diana Olick reported yesterday that Moody’s downgraded the credit quality of 201 tranches of residential mortgage-backed securities, composed of prime jumbo loans made by Wells Fargo in 2007-08, and another 134 tranches of the same stuff from 2006.  Moody’s based the downgrade on “rapidly deteriorating performance of these loans.”

Wells Fargo has been very active in lending to buyers of luxury homes in Miami and Coral Gables, so it would come as no shock if the recent downgrade partly reflected loan performance here in South Florida.  We’re not privy to the specific loans populating the downgraded securities, but it would be rather dangerous to assume that luxury real estate in Miami and Coral Gables is immune from broader trends.

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Buy Versus Rent in Miami and Coral Gables Real Estate

posted on April 8th, 2010 filed under: Financial Responsibility, Real Estate Market Data

Consider the following real estate theorem:

  • The cost of owning real estate is about 10% of the purchase price annually (principal + interest + taxes + insurance + maintenance)
  • Historically, people have been willing to pay a bit more to own real estate than to rent it — say, 1.2x
  • If 0.1 x purchase price = 1.2 x annual rent, then the ratio of purchase price to annual rent is normally about 12 to 1.

And indeed, before the real estate bubble, homes in Miami and Coral Gables normally listed for sale at about 12 times annual rent, maybe 14 times rent in some cases.  But during the bubble, the cost of owning property in Miami and Coral Gables routinely was double the cost of renting — prices were 20 times annual rent.

How about now?  The table below shows properties advertised both for sale and for rent in recent newspaper listings.  Not very scientific, but enough to get the lay of the land.  (During the bubble, simply consulting back issues of the Miami Herald from the ’80s and ’90s would have warned you that real estate prices in Miami and Coral Gables had become an absurdity.)

Miami and Coral Gables -- Real Estate Sale and Rental Prices

The table suggests that real estate prices in Miami and Coral Gables are back to normal only at the low end (but even there, beware the possibility of a downside overshoot).  For the wealthy, either money is no object or real estate prices in the luxury segment of the Miami and Coral Gables real estate markets have a long way to fall.  (The truth is probably somewhere in between.)

The greatest risk arguably lies in the mid-range — from about $500,000 to $2.5 million — where buyers are more likely to be working professionals than wealthy plutocrats.  The difference between 15 times rent and 12 times rent is a potential 20% decline.  The difference between 18 times rent and 12 times rent is a potential 33% decline.  Of course, incomes and rents could rise, working off the overvaluation without price declines.  But lately, incomes and rents have been as likely to fall as to rise.  Prices in this segment are still running from history.

History has a way of catching up.

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Mortgage Rates Spike — More Clouds on Horizon for Real Estate in Miami and Coral Gables?

posted on April 7th, 2010 filed under: Real Estate Market Data, Real Estate News

Well, that was fast.  Mortgage rates wasted no time going higher, as foreshadowed in recent posts on the rising 10-year Treasury yield and the end of the Federal Reserve’s mortgage backed securities purchasing program.

The Mortgage Bankers Association reported that mortgage rates jumped an eye-catching 27 basis points (0.27%) in a single week, to an average of 5.31% for the 30-year fixed.  That’s the biggest jump since rates spiked last June.

So what’s your strategy if rates keep rising?  Will you buy in order to lock in a lower payment?  In the 1970s, rates went through the roof, and property values rose the whole time.  Real estate can be a good hedge against inflation.

On the other hand, in the 2000s, rising rates sent property values into the dive that brought the financial system to its knees.  Higher rates could mean another leg down for real estate prices, especially in markets like Miami and Coral Gables where the fundamentals — oversupply combined with unfavorable pricing relative to incomes, rents and historical valuations — remain out of whack.

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Pending Homes Sales Index Rises

posted on April 7th, 2010 filed under: Real Estate Market Data

January’s dreary pending homes sales index of 90.4 gave way to a brighter index of 97.6 for February.  An index level of 100 represents the level of contract-signing activity in January 2001.  Data are seasonally adjusted.

Real estate sales activity may surge in anticipation of the April 30 final expiration of the $8,000 homebuyer tax credit.  Here in Miami and Coral Gables, property sales tend to peak a little earlier than up north anyway, so turnover could be brisk.

Of course, that begs the question what happens to property sales and values when the government’s intervention vanishes.

Index maintained by National Association of Realtors.

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Mortgage Rates to Rise?

posted on April 2nd, 2010 filed under: Real Estate Market Data, Real Estate News

Fixed-rate mortgages are most closely tied to the yield on the 10-year Treasury note.  The yield has risen sharply of late, and spiked again today after a jobs report that was not even any big surprise.  Unless the yield on the 10-year backs off, expect higher mortgage rates before long.

[iframe height=”380″ width=”400″]http://plus.cnbc.com/rssvideosearch/action/player/id/1458237689/code/cnbcplayershare[/iframe]

In the wake of Wednesday’s expiration of the Federal Reserve’s mortgage-backed securities purchase program (on top of last October’s expiration of the Fed’s Treasury purchase program), the prospect of a breakout in 10-year Treasury yields looms large for the real estate market.

Real estate in Miami and Coral Gables is already vulnerable to further declines, as home prices remain elevated relative to incomes.  Higher borrowing costs could help push prices lower unless wages rise even more than is already necessary to support prices.

* * * * *

Update 04/05/10:  Charts show near-term breakout, albeit within long-term downtrend.

Six-Month Chart (from www.barchart.com)

Six-Month Chart (from www.barchart.com)

Historical Chart (from www.multpl.com)

Historical Chart (from www.multpl.com)

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The New York City Real Estate Barometer — Sales Up, Prices Down in Manhattan

posted on April 2nd, 2010 filed under: Real Estate Market Data

Bloomberg reports that Manhattan real estate sales were up, and prices were down, in the first quarter of 2010 compared to the first quarter of 2009.  Sales doubled.  Median prices fell in all categories:

  • Studio prices fell 14%
  • 1-bedroom pricess fell 12%
  • 2-bedroom prices fell 25%
  • 3-bedroom prices fell 36%
  • 4-bedroom prices fell 28%
  • Luxury units, defined as the top 10% by price, fell 31%

The picture is brighter when comparing to the immediately preceding quarter (4Q09).  On that basis, the median price of all units rose 7.2%.  But the fourth quarter is almost always the weakest, so that may not mean much.

What’s the relevance to the Miami and Coral Gables real estate markets?  First, bubbles that were blown together have burst together, and it’s worth keeping an eye on the forest as well as the trees.  Second, Miami shares, in its own small way, the New York City economy’s dependence on financial and real estate services.  Third, hey, they don’t call it the sixth borough for nothin’.

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Case-Shiller Home Price Index Posts Another Slight Decline for Miami

posted on March 30th, 2010 filed under: Real Estate Market Data

Same story as last month as far as the Case-Shiller Home Price Index for Miami is concerned.  The index for the three-month period ending in January registered 148.32, slightly lower than the 148.66 for the period ending in December.

Miami Real Estate Photos -- Biscayne Bay, Star Island & Miami Beach 3

For anyone interested in the New York metro area, that too posted a modest decline, from 171.91 to 171.27.  S&P says New York and Washington have held up best over the whole cycle, each still 70% higher than they were in January 2000.  That’s entirely believable, as other data show New York remains dangerously overpriced.  Anecdotally, I’m familiar with a home that sold at the top of the market in a New York suburb in 2005, and it’s back on the market now — for about the same price.    Hmm, New York and DC . . . bankers and politicians . . . best real estate markets.  Naaah, I’m sure it’s just a coincidence.

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U.S. New Home Sales Stuck at Record Low in February, But Median Price Jumps

posted on March 24th, 2010 filed under: Real Estate Market Data

Sales of new homes edged down to a seasonally adjusted annual rate of 308,000 in February, basically stuck at the record low of 309,000 originally reported for January.

Consolation?  The January figure was revised to a slightly less-horrible 315,000.  And February might have been depressed more than usual by winter storms.  That could lead to a rebound in March.  Maybe February will prove to be the bottom for this particular data series.

The unadjusted monthly number rose from 22,000 new home sales in January to 24,000 new home sales in February.  Again, this could be the bottom for new home sales.  Look at the seasonality: Sales always rise into the summer and fall into the winter.  But in a boom, there are higher highs and higher lows, and in a bust, there are lower highs and lower lows.  Notice how this winter’s low is not much below the previous winter’s low.  (As always, do not confuse sales and prices — sales can pick up even as prices continue falling.)

U.S. New Home Sales -- 1990 to Feb. 2010

The median price of new homes sold rose to $220,500 in February from $207,900 in January.  The January figure was nearly the lowest for the whole down-cycle (only March 2009, at $205,100, was lower), even though one might have expected the median to rise after the $8,000 tax credit’s originally scheduled expiration in November.

The long-term chart below suggests that we’ve worked off the bubble and are back to the trendline.  But beware.  These are national data.  Your local community may be in better or worse condition.  Here in Miami and Coral Gables, prices have fallen, but remain well above the long-term trendline.

U.S. Median House Price -- 1963 to Feb. 2010

Here it is in logarithmic form, which smooths out the long-term destruction of the dollar by inflation, courtesy of the Federal Reserve.  (Disregard the log-scale numbers on the vertical axis — they don’t represent dollars amounts.)

U.S. Median House Price -- 1963 to Feb. 2010 (Logarithmic)

All data are from the Census Bureau at the U.S. Department of Commerce.

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Sales Up Marginally, Median Price Sharply Lower for Miami Real Estate in February

posted on March 23rd, 2010 filed under: Real Estate Market Data

Slightly more existing homes in the Miami metro area were sold in February than January, according to the Florida Association of Realtors.  But the median price took a significant hit.

Sales of existing single-family properties rose to 445 in February from 436 in January.

The median price is where the action was, falling from $208,100 in January to $191,100 in February.  That’s the lowest since November’s reading of $184,800.

As explained in connection with last month’s data release, the originally scheduled November 30 expiration of the $8,000 tax credit probably caused the median price to pop higher in December and January.  Now the pop has turned to a drop.

Perhaps more low-end purchases are working their way through the system before the new, extended expiration of the credit (contracts by April 30, closings by June 30).  But it’s also possible that the government engineered a dead-cat bounce in the real estate market over the past year, and that prices will take another leg down once the artificial price supports are removed.

After all, real estate prices in Miami and Coral Gables remain markedly elevated relative to the fundamentals: incomes, rents and historical property values.

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Miami Ranks As Most Troubled U.S. Real Estate Market

posted on March 18th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Oh, Lawdy, Trouble So Hard.

Miami ranks as the most troubled real estate market in the United States, says Forbes.  The honor was bestowed on the Miami metropolitan area for having, by a wide margin, the highest percentage of mortgages delinquent 90 days or more.  The number for Miami is — hold onto your hats — 28.8%.

Try to wrap your mind around that.  Think about what it means for someone to be 90 days delinquent.  That’s not just late on a single monthly payment.  That’s nonpayment for three months in a row, strongly suggesting that the borrower has no ability or intent to pay again.

This is misery.  Personal financial ruin.  Borrowers have themselves to blame, but financial institutions and real estate brokerages are equally responsible.  It was irresponsible for anyone to buy, lend money on, or advise the purchase of property at prices equal to six times the buyer’s gross income, at ownership costs twice the rental costs, and in drastic deviation from historical price trends.

Miami Real Estate Photos -- Residential Neighborhood 2

The greed and incompetence are staggering.  Next time someone preens about being a “top producer,” think what their sales “producing” did to the personal financial condition of real people.  What does it mean for someone to buy a house for $1.1 million on an income of $200,000, only to find their home sweet home worth $700,000?  What does it mean to take a $400,000 loss when your income is $200,000?  How much, and for how long, would you have to save to make up for that kind of loss?  And for what?  So some bailed-out mortgage investor can keep taking six-figure summer vacations in the Hamptons?

From Forbes:

In greater Miami, including Fort Lauderdale and West Pam Beach, one-quarter [actually, 28.8%] of mortgages are 90 days past due or worse.  In Miami proper, one-fifth of mortgages are in foreclosure or converted to REO.  Worst in the country by far.

The next-worst metro is Las Vegas, at 21.7%.  Florida fares poorly as a whole, with only one metro area under 10% in the 90-day delinquency measure.

The Forbes study is based on data from First American CoreLogic.

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