Sizing the Housing Bubble

[Texas Proud]

I was taking a look at some condos down in Galveston... way overpriced, but it seems they were being bought... so, to my surprise..

PRICED $21,000 UNDER DEVELOPER'S ASKING PRICE FOR COMPARABLE UNIT!!! Beautiful, large 1 bedroom 1 bath with ALL NEW granite countertops in kitchen and bath, 24' ceramic tile in living and dining area. Tile in bedroom as well for easy care. ALL NEW stainless appliances, new full size washer and dryer. Unit overlooks the pool and has an unobstructed view of the Gulf of Mexico. THIS UNIT HAS NEVER BEEN LIVED IN. MOVE IN NOW AND ENJOY THE SUMMER!! Owner is a licensed Real Estate Agent

Hmmm.. still way overpriced for a 750 foot place for $210K...

 

[honobob]

O'ahu median home price hits $660,000 in July

Advertiser Staff

The median price for both single-family homes and condominiums on O'ahu rose in July, although the volume of sales continued to decline, the Honolulu Board of Realtors reported today.
The median price of a single-family home rose to $660,000 from $639,000 in June and $599,000 in July 2005. The median price of a condominium rose to a record $329,000, up from $310,000 in June and $270,000 in July 2005.

"The pace of residential sales continues to ease, and median prices are being maintained," said Mary Flood, president of the Honolulu Board of Realtors.

There were 379 single-family homes sold during July, down 10 percent from 418 sales a year in the same month a year earlier. Condo sales totaled 498 in July, down 27 percent from a year earlier.

For the first seven months of 2006, sales volume is down 9 percent for single-family homes and down 13 percent for condominiums.

Reported in Honolulu Advertiser today.

Lucky you live Hawaii!

 

[wabmester]

O'ahu median home price hits $660,000 in July

And remind us, what's the median income in O'ahu?

Honobobble, the same thing is being played out in markets across the country. Sales down. Inventory way up. Prices flat. When inventory gets to about 6 months of sales or so, that's generally when you start to see price drops. You should see it sooner in new construction, since builders don't want to hold onto inventory as long.

 

[honobob]

And remind us, what's the median income in O'ahu?

Honobobble, the same thing is being played out in markets across the country.   Sales down.  Inventory way up.   Prices flat.   When inventory gets to about 6 months of sales or so, that's generally when you start to see price drops.    You should see it sooner in new construction, since builders don't want to hold onto inventory as long.

Median income rising also!  Honolulu has about the lowest unemployment in the U.S.  Honolulu's entry level inventory is not meeting DEMAND.  I think 6-7% increase YOY, especially when the last year was a record year, is pretty good.  From my experience back in January and April alot of the excess inventory was from people who who sell if they got some rediculous amount that wasn't supported by the comps.  Anything priced well is selling at record prices despite the bubble blab.  I see nothing alarming about sales slowing down after consecutive record years.  New construction between Waikiki and Downtown is going strong.  Maybe Don Ho's right in a few years...."Tiny Bubbles"  It's got a good beat and I can dance to that!

 

[wabmester]

Median income rising also!  Honolulu has about the lowest unemployment in the U.S.

I really don't know much about that market, and I'm too lazy to look it up.   But, let's say that the median household income there is $80K/year.   The median house costs $660K, so that's an income multiple of 8.25x.   The historical multiple for the US is around 3x.   So, either home prices need to get cut in half, or incomes need to more than double for things to get back to normal.

Now, it's valid to ask "why be normal?"   What's magic about an income multiple of 3x?

For that median income family to buy that median price house, they'd need to come up with a down payment $66,000.   That's a chunk of cash.   And that would give them PITI payments of nearly $5000/mo.    That's $60,000/year for a family earning $80,000/year.

Either these prices are unsustainable, or incomes are going to the moon.

 

[Sam]

Now, it's valid to ask "why be normal?"   What's magic about an income multiple of 3x?

wab,

I have been using the 3x number as the ceiling whenever I discuss house price with others.  But a lot of the people I talk to live in California and Mass.  They just shake their head and dismiss my comment as childish and unrealistic.  I find it best to keep that ratio to myself now.

 

[wabmester]

I have been using the 3x number as the ceiling whenever I discuss house price with others.  But a lot of the people I talk to live in California and Mass.  They just shake their head and dismiss my comment as childish and unrealistic.  I find it best to keep that ratio to myself now.

Well, to be fair, there are a couple of places where the historical multiple has been over 3x. For example, I think it's been closer to 5x in Silicon Valley due to stock options providing instant down payments, but even in those "rich" areas, current multiples are well above the historical mean.

 

[TargaDave]

wab,

I have been using the 3x number as the ceiling whenever I discuss house price with others. But a lot of the people I talk to live in California and Mass. They just shake their head and dismiss my comment as childish and unrealistic. I find it best to keep that ratio to myself now.

Not just CA and MA. Lot's of coastal seller denial to go around right now. I've been tracking some NC coastal waterfront closely for a few years. It's fun to watch actually. A few low ball offers coming in but sellers are just not ready to throw in the towel. Wonder how they will feel next year when the cash reserves start drying up? Brokers and RE support people that I talk to are clearly feeling the pain NOW.

 

[ShokWaveRider]

I really don't know much about that market, and I'm too lazy to look it up. But, let's say that the median household income there is $80K/year. The median house costs $660K, so that's an income multiple of 8.25x. The historical multiple for the US is around 3x. So, either home prices need to get cut in half, or incomes need to more than double for things to get back to normal.

Now, it's valid to ask "why be normal?" What's magic about an income multiple of 3x?

For that median income family to buy that median price house, they'd need to come up with a down payment $66,000. That's a chunk of cash. And that would give them PITI payments of nearly $5000/mo. That's $60,000/year for a family earning $80,000/year.

Either these prices are unsustainable, or incomes are going to the moon.

The bigger they are the harder they fall. I seem to remember last time this happened. not sure when but something like this is in the Islands past.

SWR

 

[Nords]

O'ahu median home price hits $660,000 in July

You're on your own, here, Bob, and I'm pretty sure that Stott thinks it's over too...

 

[MJ]

Out of curiosity, i've been tracking the the house I sold this past April using zillion.com. By June, it was up about 3.5%. I just checked it again. It dropped and is only up a little over 2%. Right now, the property remains unoccupied so he's losing money with his high monthly mortgage and lost income from his 25% down payment.

 

[honobob]

I seem to remember last time this happened. not sure when but something like this

SWR

Exactly!

 

[honobob]

so he's losing money

If he's up 2%+ on a say $400K house with a 25% down payment then he's up $8,000 on his $100K investment in only 3 months! If the house is empty it's because he's not working (to get it rented/used by himself) I'd say the house is doing it's job. Some people should not buy a house anytime!

 

[Rich_by_the_Bay]

Out of curiosity, i've been tracking the the house I sold this past April using zillion.com. By June, it was up about 3.5%. I just checked it again. It dropped and is only up a little over 2%. Right now, the property remains unoccupied so he's losing money with his high monthly mortgage and lost income from his 25% down payment.

Do you mean zillow.com?

 

[MJ]

Do you mean zillow.com?

Yes.

 

[MJ]

If he's up 2%+ on a say $400K house with a 25% down payment then he's up $8,000 on his $100K investment in only 3 months! If the house is empty it's because he's not working (to get it rented/used by himself) I'd say the house is doing it's job. Some people should not buy a house anytime!

The house was in NYC so your price $400k is way off. But let's say his mortgage on $300k would be $1400 a month, plus $600 in house expenses (RE tax, insurance etc.), plus $500 in lost income on $100k, so he has put out $2500 * 4 months or $10k. Granted most these expenses will be tax deductable. Looks like he may be losing money.

 

[honobob]

Looks like he may be losing money. 

I agree that if you buy property to sit empty you may not be giving Donald Trump worries.  So ya can't rent a place in NYC?  Again I think the problem is with the investor not the investment.

 

[Spanky]

I really don't know much about that market, and I'm too lazy to look it up. But, let's say that the median household income there is $80K/year. The median house costs $660K, so that's an income multiple of 8.25x. The historical multiple for the US is around 3x. So, either home prices need to get cut in half, or incomes need to more than double for things to get back to normal.

Now, it's valid to ask "why be normal?" What's magic about an income multiple of 3x?

For that median income family to buy that median price house, they'd need to come up with a down payment $66,000. That's a chunk of cash. And that would give them PITI payments of nearly $5000/mo. That's $60,000/year for a family earning $80,000/year.

Either these prices are unsustainable, or incomes are going to the moon.

The median was only $39,050 in 2005.
http://homes.point2.com/Neighborhood/US/Hawaii/Honolulu-County/Honolulu/Waikiki-Demographics.aspx

 

[veritasophia]

Any of you in LA - Orange County area know the % price decline necessary to revert to the mean? Mortgage defaults have already hit a record high (since data collection began in 1992), and there's over 6 months worth of inventory piling up. Its only the beginning. How low will prices go?

 

[IBWino]

There was an article in today's newspaper indicating that foreclosures here in Sonoma County are running at double last years rate, although they are still below historical highs.

 

[Brat]

The HNL market is not just local. Condos in particular are purchased by US and CN retirees and Pacific rim residents. To figure out what is happening in that market one must slice and dice.

 

[Nords]

The HNL market is not just local.  Condos in particular are purchased by US and CN retirees and Pacific rim residents.  To figure out what is happening in that market one must slice and dice.

Wouldn't that logic apply to just about any market?

It's either being caused by the local realtors or by those darn out-of-town absentee-landlord Internet-using investors...

 

[Brat]

My parents were HNL out-of-town retirees. I don't think that market competes for family housing, but it does distort the one/two-bedroom with view realestate.

There are a limited number of other cities/states similarly positioned. FL comes to mind.

 

[honobob]

Wouldn't that logic apply to just about any market?

It's either being caused by the local realtors or by those darn out-of-town absentee-landlord Internet-using investors...

DEFLECTION ALERT

Nords  I have it on good authority (see Ohau Craigslist Rants and Raves below) that it's the fault of the Military. But I'm not positive he's right.

listen carefully! the housing bubble has finally burst! interest rates are back up...do you know what that means?? I'm gonna pay your tax lein and kick your ass out of your house!! buahahaha, move back on base sucka!! or better yet, please RENT my house with that military housing waiver and subsidy you got there. pay my mortgage bitch! can you say parade of f o r e c l o s u r e s??

 

[lazygood4nothinbum]

The HNL market is not just local.  Condos in particular are purchased by US and CN retirees and Pacific rim residents.  To figure out what is happening in that market one must slice and dice.

interesting, i'd suspected as much but i hadn't looked at this closely before. does slicing & dicing separate the froth from the beer?

unlike many other areas of florida (including here but west of i-95), we did not have any large tracts of single family developed during the boom, but rather new condos along the beach, new townhouses infilling canal & dry lots and redevelopment of older single family homes as renovations or newly built mcmansions. we are not miami, we are not naples, we are not port st lucie.

according to realtor.com the fort lauderdale coastal area (encompassing 6 towns in the zone east of i-95, from just south of pompano beach to just north of hollywood) shows 1475 single family houses for sale but 3,168 condominium units for sale. many condos are sold to the foreign market. it seems most single family are owner occupy and many of these are long term residents.

dicing further to downtown fort lauderdale i find only 188 single family houses for sale but 608 condos and townhouses offered. and in my area just outside of downtown, i find on realtor.com 341 condos & townhouses for sale but only 175 houses for sale.

these online searches very much reflect my real life walks through town where i see many more "for sale" signs outside condo & townhome buildings, but actually very few signs on the front lawns of our houses.

most of the neighbors i have now are the very same neighbors i had 10 years ago. so i have to wonder, whenever which of you stir the bubble bubble toil & trouble cauldron, do you ever add such ingredients?

does anyone know what percentage of what market changed hands over the past five years? of that, does anyone know what percentage of those people will be in financial trouble? how small of an eye of newt does it take to topple an entire market?

"double, double. toil and trouble. fire burn and cauldron bubble."~~ shakespeare's macbeth