Friday Fountain Photo

posted on October 15th, 2010 filed under: Fountains

Fountain at 99 Alhambra Plaza (median between Douglas Rd. and Galiano St.):

Coral Gables Real Estate Photos -- Fountain at Alhambra Plaza Median -- 99 Alhambra Plz (1)

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The Great Godot of Inflation

posted on October 14th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

The previous post reported the current outlook of hedge fund manager Kyle Bass, who made a fortune off the recent collapse of the financial-realty complex.  Essentially, Bass sees hyperinflation in America’s future, like what happened in Zimbabwe.  At the same time, Bass sees median real estate prices staying flat at best for several more years, and high-end real estate prices heading lower.

Anyone see a contradiction in that?  Would real estate sputter along if hyperinflation took hold?  Hardly.  Real estate is a classic inflation hedge.  Property prices will skyrocket if hyperinflation develops, just like in Zimbabwe, where property prices increased at an annual rate of 5,000% during that country’s hyperinflation.

About the only thing confirming the hyperinflation thesis is the price of gold and other precious metals.  But that could well be a fad that will end in tears just like every other bubble that sucked in money from the weakest among us before popping.  The gold-bug advertising littering all media right now could signal that the end is near.

The last time gold shot to the moon (in 1979-80), inflation was already soaring into the double-digits, eventually exceeding 14% year over year.  Are we experiencing anything like that now?

U.S. Inflation -- CPI (YoY) -- Chart

Likewise, the last time gold shot to the moon, wages were leaping ahead in a desperate struggle to keep pace with inflation.  Now?  We’ve just finished the latest gap down in a 30-year, secular downtrend of wage and salary disinflation (i.e., lower and lower inflation).

Wages and Salaries Inflation -- Annualized -- BLS ECI

So far, the inflation crowd has been waiting for Godot.

Maybe someday the Fed will spur some inflation.  But there’s no clear evidence of that yet.  And until then, we’re sticking to our story.  Real estate in Miami and Coral Gables generally remains overpriced relative to the fundamentals: incomes, rents, historical values, and (in the upper price ranges) months’ supply.  Buyers have time on their side.

In other words, we agree with the Kyle Bass who sees real estate prices flat to down for several more years before a new phase of rising prices, not the Kyle Bass who sees hyperinflation.

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Insight on Real Estate and Inflation from Hedge Fund Manager Kyle Bass

posted on October 8th, 2010 filed under: Real Estate News

Kyle Bass was one of the hedge fund managers who correctly predicted — and mightily profited from — the housing bust.  He’s now predicting hyperinflation as a result of the Federal Reserve’s wild creation of new money (that “quantitative easing” stuff you heard about on the news lately).

  • The challenge for investors is where to put your money if we as a nation are losing control of our monetary base and monetary policy, which he believes is starting to happen.
  • We have a monetary base of $2 trillion and the Fed is talking about printing another $1 trillion.
  • The Fed is experimenting and they admit they do not know what they’re doing.

On the subject of real estate, Bass cites data from 28 housing busts in developed countries since 1970, and estimates that we’re about three years away from a housing recovery.  Peak to trough, the decline in median prices has taken about six years on average, with the bulk of the decline occurring in the first four years.  If the housing bust started in late 2006, we’re mostly done with the price declines in the moderate price range.

But there’s so much inventory that, even if prices don’t go down much more, they’re not going to go up for about three years, because there will be continual supply as yesteryear’s failed buyers get washed out.  In real estate markets like Miami and Coral Gables, where it still costs much more to own than to rent, Bass’s timeline would suggest there’s no urgency to hop from renting back to owning.

Bass sees a more troubled picture for the high end, where he thinks prices are still coming down.  Prices could thus continue falling for luxury real estate in Miami and Coral Gables.

That’s pretty much the opinion that’s been offered here time and again (and again and again and again and again and again and again).  Glad to be in such good company.

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Friday Fountain Photo

posted on October 8th, 2010 filed under: Fountains

Fountain at entrance to Brickell neighborhood in downtown Miami:

Miami Real Estate Photos -- Fountain -- Brickell Ave.

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Pending Home Sales Index Up Moderately, Still Low

posted on October 5th, 2010 filed under: Real Estate Market Data

The Pending Home Sales Index from the National Association of Realtors rose moderately for August 2010, but remain historically low.  The chart below shows the seasonally-adjusted annual rate (SAAR).

Pending Home Sales Index (NAR) -- August 2010 -- Chart, Graph

The depressed level of sales is obviously a result of the $8,000 government handout, which borrowed sales from the future.  But it is constructive that sales continue to advance off the low established in June.  If the government refrains from additional short-term incentives, future gains would be organic and credible.

Sales are counted as pending when contracts are signed.  A level of 100 corresponds to the average volume of contract signings in the year 2001.  The NAR notes that 2001 was the first of four consecutive record-breaking years of home sales — a disclaimer that seeks to excuse recent poor performance put the current numbers in perspective.

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Q2 Review: Closed Sales in Coral Gables Real Estate, Zip Code 33146

posted on October 4th, 2010 filed under: Properties in Focus, Real Estate Market Data

The table below reports closed sales of single-family homes in zip code 33146, Coral Gables, FL.  Recently closed sales are the principal guide to current property values in a local real estate market.

Coral Gables Real Estate -- Closed Sales -- Single-Family Homes -- Zip Code 33146 -- 2Q10Because The Real Estate Fountain focuses on mid-range to luxury properties, the table excludes sales of smaller homes on smaller lots.

6311 Leonardo St.

6311 Leonardo St.

Data are from tax records, and thus are not limited to MLS transactions.

6505 Caballero Blvd.

6505 Caballero Blvd.

Data are believed accurate but not warranted.

4949 San Amaro Ct.

4949 San Amaro Ct.

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Friday Fountain Photo

posted on October 1st, 2010 filed under: Fountains

Photo of fountain in yard of private home in north Coral Gables.

Coral Gables Real Estate Photos -- Private Fountain -- North Gables

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Beware Half-Baked Cost Analyses When Buying Real Estate

posted on September 29th, 2010 filed under: Financial Responsibility, Real Estate News

It’s a PITI that people don’t know better.  Your payments on a home include Principal, Interest, Taxes and Insurance.  Yet often one or more of these — usually taxes, insurance or both — is conveniently omitted in pitching how attractive home ownership supposedly is.

For example, the Miami Herald runs an article every now and then titled “What Can You Get for $. . . .”, with a different arbitrary price point each time.  The article presents about five properties for sale at about that price point in Miami, Miami Beach, Coral Gables and surrounding real estate markets.  An introductory paragraph says how much your mortgage payment will be, but notes that taxes and insurance are not included.  Estimated taxes are listed separately in the information for each property.  The cost of insurance is stated nowhere.

Miami Real Estate -- Herald -- What Can You Get Series

If you’re not careful, you might think that the cost of ownership is basically the cost of the Principal and Interest portion that’s stated very precisely.  In the latest installment, the Herald asks What Can You Get for $647,000.  Readers are told that “[m]onthly mortgage payments (not including taxes or insurance) would be $2,561.”  Such precision.  So little meaning.

For the first property listed in the $647,000 article, taxes are estimated to be $14,163.  It’s not a big house, but insurance will surely cost thousands more.  (Would it really be so hard for a reporter to get an insurance quotation for each property before running a story?)  The monthly payment is probably more like $4,500, not $2,500.  Think that makes a difference to your budget?

Oh, and don’t forget maintenance.

As a rule of thumb, you would do well to regard the true cost of ownership as about 10% of the purchase price — o.k., maybe 9% in these days of extraordinarily low interest rates.  Why so much?  Currently, you can figure that the Principal and Interest payment is about 5%, Taxes are about 2%, and Insurance is usually about 1% to 1.5% (depending on the storm-resistance characteristics of the house).  Maintenance will add about 1% on average over time, once you take into account the intermittent big jobs (roof, paint, pavement, etc.).  Yes, you get a tax deduction for the interest and property taxes, but that’s only a benefit to the extent it exceeds the standard deduction you can get anyway.

In the example from the Herald, the reporter assumes a hefty 20% downpayment, compressing the Principal and Interest payment to about 4.7% of the purchase price.  The estimated taxes amount to another 2.2%.  So you’re at 6.9% before insurance and maintenance.  You might come in a little under 9% of the purchase price, but only if you put that 20% down.

Don’t be fooled.  Do the math.

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Cash Is King in Miami and Coral Gables Real Estate

posted on September 28th, 2010 filed under: Financial Responsibility, Real Estate Market Data

Looking to buy a house in Miami or Coral Gables?  Great!  How much will you need as a downpayment?  Why, 100%, of course!

Cash deals are not normal in real estate — not in Miami or Coral Gables, or anywhere else for that matter.  But these are not normal times.

All-cash deals have become a stupefying 60% of all single-family home sales in the Miami and Coral Gables area.

Miami and Coral Gables Real Estate -- Cash Deals -- Percent of All TransactionsFor luxury homes selling for more than $2.5 million in Miami and Coral Gables, the share of cash deals has reached 72.8%.  But you expect a high proportion of cash deals (o.k., not that high) from people who are truly wealthy.

The really amazing numbers are in the price ranges where you know people ordinarily borrow to buy.  For 63% of deals below $425k to be cash, or 53.9% of deals between $700k and $1 million to be cash, is flabbergasting.  Who knew everybody had so much cash lying around?

Are investors replacing failed would-be homeowners and suddenly deciding to become landlords in Miami and Coral Gables?  Or did this many people see it all coming, sell their houses near the peak and rent for a couple of years, so they can come back in now with cash?  A recent post showed how rentals rose dramatically and appear to have peaked.  But it’s hard to believe that so many people timed it all so well.  We’re talking 60% of sales.

Whatever the explanation, what happens next?  As economist Herbert Stein famously said: “If something cannot go on forever, it will stop.”

Certainly cash deals cannot continue to make up 60% of all transactions in the Miami and Coral Gables real estate market.  And indeed, the degree to which the percentage this year exceeds the percentage in 2009 is less than the degree to which the percentage in 2009 exceeded the percentage in 2008.  The second derivative is slowing.

As the cash buyers fade, what happens next?

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Friday Fountain Photo

posted on September 24th, 2010 filed under: Fountains

Fountain at Four Ambassadors condo, Brickell Bay Drive, in the Brickell neighborhood of downtown Miami.

Miami Real Estate Photos -- Fountain at Four Ambassadors Condo Condominium -- Brickell Bay Dr.

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