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Nov. 20, 2006 - gluttony without turkey or pie / new condos in Miami, Las Vegas and Manhattan

 
my excess is bigger than your excess
That NY Times piece Sunday, Changing Course to Avert a Glut, provides some comparative data about condo development in Manhattan, Las Vegas and Miami (on the theory that we all feel better when others feel worse, I guess).
 
First some context from the US Census Bureau website about the number of people, number of households, and the breakdown of rental households against owner occupied housing, using the 2005 estimates (available on the Fact Sheet for each county or city):
 
 
population
Total households
Rental households
% renting
Households owning
% owning
Miami–Dade
2,300,000
834,800
488,681
41%
346,119
59%
Las Vegas
539,000
204,688
84,053
41%
120,635
59%
Manhattan
1,600,000
731,439
564,721
77%
166,718
23%
 
83,000 can be a much larger number than 82,000
With this context, the 83,400 condos under construction or planned in Las Vegas is a rather staggering number, much more so than the 82,486 in Miami (assuming the Times is talking about Miami and Dade County) or the 28,358 in Manhattan.
 
Talk about rolling the dice….
 
© Sandy Mattingly
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Nov. 20, 2006 - hard data is good to find / nuggets in NY Times glut aversion piece

 
condo pipeline is an issue
The NY Times piece yesterday, Changing Course to Avert a Glut, addresses macro-level questions about what may happen if all the planned condominium apartments in Manhattan are built. In the course of the article, a number of useful data nuggets are revealed.
 
coops still out-number condos by 4 to 1
According to REBNY, there are 138,000 coop apartments in Manhattan and 36,000 condos. There are just over 14,000 units in condo developments that have already broken Manhattan ground and just under 14,000 in projects still in the planning stages.
 
So if all 14,000 being built are finished off as condos, the coop to condo ratio will switch to less than 3:1. And if the ‘planning stage’ units are added as condos, the ratio will be closer to 2:1.
 
But it looks as though not all these units will be developed as condos (or, perhaps, at all).
 
“Real estate brokers are advising developers to turn some of these projects into anything other than condominiums: rental apartments, hotels or office buildings. And some major banks that lend to condo developers are cutting back on loans for proposed projects or for land that developers want to buy.”
 
details on condos not being developed
Reporter Christine Haughney cites as examples: 425 Fifth Av (an office building that was aborted as a condo due to poor sales results that will become a hotel); the Gwathmey Siegel “Design for Living” at Astor Place (where 7 of 39 units will be rentals “partly because of a complicated [unexplained] tax structure [that just popped up??] and not just [because of] the state of the condo market”; three Extell buildings that will mix condos with rentals or with hotel rooms (on Riverside Blvd, at 135 W 45 St, and at 151 E 81 St); a condo at 23rd and 3rd that may mix rentals and condos; and a mixed condo and hotel project at 53rd and Madison that Macklowe Properties will put up as an office building instead.
 
That looks like a trend to me….
 
© Sandy Mattingly
 
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Sep. 8, 2006 - and the answer is … timing the market “doesn’t work in real estate”

 
WSJ’s Stewart gets smug
Jonathan Miller started a thread on Matrix about market timing, in response to James Stewart in the Wall Street Journal expression of relief about not having to listen to more people brag about their real estate. Quoting Stewart:
 
Let’s be honest with ourselves: Aren’t you just a little glad the real-estate boom is over? No more bragging from self-congratulatory owners of property in high-priced areas. No more breathless tales of bidding wars and comparative sales.
 
Miller’s law on market timing
Miller then went right at Stewart’s thesis that buyers are on the sidelines because they are worried that prices will fall. Says Miller:
 
The problem with this mindset is knowing when the bottom is upon us. Its more like hindsight, you know after its starts to increase again. (And it was kind of like knowing when the top Its often characterized by a burst in activity. Buyers hold off as long as they can and their participation is often triggered by an unforseen significant economic condition. Market-timing [Wikipedia] doesn’t work in real estate.
 
I have always had this view, but I have been unable in many conversations to cogently explain why market timing is so difficult. (I took another shot on this Matrix thread, but I would not consider my contribution to be one of the highlights.) II tried it last month on this blog.
 
Some of the (real) highlights from the responses to Miller’s post:
 
I might be able to market-time the cost of housing, but I can’t market-time things such as losing my job, getting a new job, having a baby, terrorist attacks, parents dying, getting divorced, having a mental breakdown, or inheriting wealth.
From John K
 
While I agree that many are on the sidelines, I disagree as to why.
 
I don’t feel people are not purchasing because they fear prices MAY fall, people are not purchasing because prices have NOT fallen.
From Rich n NNJ
 
New Jersey bubble-blogger James Bednar talked about efficient market theory and real estate:
 
Market timing is a perfectly valid concept in an imperfect market, especially in those markets where information isn’t equally shared among all players (an information asymmetry exists). A single participant who receives advanced notice of information will most certainly have an advantage over the other market participants.
 
***
 
While I don’t believe it possible to “time the market” in a traditional sense, I do believe that the price of an asset will revert to it’s fundamental-driven mean when both overpriced and underpriced.
 
He then explained that if the real estate market were an efficient market, there would be no need for appraisers:
 
Why?
Because there is no need for valuation experts in an efficient market.
Why?
Because the market price is always perfect, always represents all known information. There is never any reason to doubt that the market price is the correct price at that moment in time.
 
Caveat time-or
Miller summed it up in response to Bednar:
 
With all the technology and public disclosure, real estate is still an incredibly inefficient transaction. If you are objective and immersed in the market, you can get a sense of a general direction on many occasions, but try to narrow that down to increments of a month, quarter or even a year. If you are able to do this, its really just luck.
 
I will keep this thread for future reference. 
© Sandy Mattingly 2006
 
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Aug. 12, 2006 - Timing the market when timing is everything / CNNMoney on ‘bubble-sitting’

 
They make it sound so easy
“Bubble-sitting” is the term used by CNNMoney reporter Les Christie to refer to potential buyers who anticipate that house or apartment prices will fall, so are renting in the interim. There is a lot of talk about this these days, most of it overly simplistic, in my view.
 
Sell high / buy low
No real estate market in the US is as transparent or as deep or as broad a market, with as much up-to-the-minute well-regulated data, as the stock market. Stock investors (speculators?) try to time the stock market all the time, yet few civilians succeed.
 
But Dean Baker is Bubble Sitting the real estate market, or so he says.
 
Dean Baker, an economist and co-director of the Center for Economic and Policy Research, is a bubble sitter himself, having sold his home a couple of years ago. "It is a very bad time to buy. Prices are heading down," he said.
Baker also predicts that the markets that have run up the most will suffer the worst turndowns. He compares it to the tech bubble when Nasdaq stocks rang up the biggest gains before the pop and fell the farthest from their highs after it.
How’s his timing?
But Mr. Baker illustrates the difficulty, perhaps inadvertently, “having sold his home a couple of years ago”. Since The Center for Economic and Policy Research is in Washington DC (according to its website), I assume Baker lives somewhere in the metro DC area. I don’t know that area market, but I will try to get some stats on pricing history there. For present purposes (and as an illustration) let’s assume that the DC metro area real estate market has had average price increases of 7% per year from 2003 through 2005, and stays flat beginning in 2006 until whenever this 'bubble' bursts.
 
So if Mr. Baker sold his house for a hypothetical $500,000 in early 2003, that house was worth about $610,000 in early 2006. If Mr. Baker is right that there is a bubble and that the “correction” will be between 11% and 22% (as he argues elsewhere; I will explain) that same house might be worth ‘only’ from $544,000 to $478,000 after that correction, when Mr. Baker would anticipate getting back into the market.
 
Hmmmm …. Does that work? (Let’s ignore the real life complicating factors of what he could have done with the net proceeds from the sale of the $500k house in 2003, other than paying rent with it, and the transaction costs of getting in and out.)
 
Mr. Baker has been writing articles about ‘the housing bubble’ since at least August 2002, so maybe he sold even earlier than my hypothetical date of early 2003. (About halfway through this article, Baker has a scenario involving a “big bubble" and a “little bubble”, which he equates to a range of 22% to 11% as the decline in average house prices when the big or little ‘bubble’ bursts.)
 
So my hypothetical Bubble Sitter named Baker tried to Bubble Sit beginning in early 2003 by selling a $500,000 house and hypothetically bought that same house back sometime in the future for up to a $44,000 more than he sold for, or up to a $22,000 less than he sold for (without considering transaction costs, etc). Someone else owned it when its value increased above $500,000 to its post-bubble low value. That does not sound like a terrific deal to me.
 
If he was three years off when beginning to sit…?
Of course, that is assuming my hypothetical Baker timed the market perfectly when he bought it back – right at the moment when values increased. Since he was hypothetically at least two years wrong in picking when to sell, he would have to get lucky to time it perfectly on the return, wouldn’t he?
 
If he waited too long (perhaps a quarter or two to be sure that the market trend continued), he would probably pay even more to buy back his $500,000 house.
I don’t mean to pick on Mr. Baker, especially as he told reporter Christie that most people should not try what he tried:
 
Even though he did it himself, Baker says most people should not sell in anticipation of getting back into the market at a lower price.
"I don't think people want to speculate on their homes," he says. "But if they're selling for another reason - if they're downsizing, for example, because their children have moved out - they should cash out and rent for a while."
 
Christie closes with at least some good advice, warning off people from Bubble Sitting if they have a longer term orientation.
 
The value of bubble sitting also depends on how long you intend to live in a house. If you're planning to be there for five years or more, it make sense to buy as soon as possible. Time smoothes out any price bumps - over long periods prices nearly always go up - and the tax advantages may help make it cheaper to buy than rent.
It's a different story for the short term. Then, all those buying and selling expenses means that even in flat markets, you could be underwater if you sell out after two or three years.
 
But even if you have a short term perspective, timing the market is not for the faint of heart. Remember how much gain the hypothetical Mr. Baker sold to someone else when he missed the best time to sell by at least three years.
 
© Sandy Mattingly 2006
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Sandy Mattingly is Manhattan Loft Guy; now with The Corcoran Group (http://corcoran.com/ ; but see the disclaimer at the bottom of the page), he can be reached most easily at Sandy@ManhattanLoftGuy.com or 917.902.2491, and followed on Twitter @ManhattnLoftGuy (note "mis-spelling"). After 7+ years, the blog has moved. Links here on RealTown will work for the foreseeable future, but new posts (and all the old content) has migrated to ManhattanLoftGuy.com.

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