Timely topic as I am selling a house in Oklahoma and buying one here in Georgia. I just got the new issue of Money and it is the real estate guide for 2005. Two great articles about housing.
http://money.cnn.com/2005/05/19/real_estate/re2005_schmubble_0506/index.htm
Zell: No bubble here
Sam Zell, the nation’s biggest landlord, has a message for real estate worrywarts: Relax.
May 19, 2005: 11:33 AM EDT
By Gerri Willis, MONEY Magazine
NEW YORK (MONEY Magazine) - Q. Your companies own more apartments and offices than anyone. And you’ve been nicknamed “the Gravedancer” for your ability to correctly read the boom-and-bust cycles in real estate. So if anyone knows the answer to this question, it’s you: Is the bubble about to burst?
A. I’m 63. I’ve been in the business 40 years. I’ve heard about all kinds of “housing bubbles,” and I ain’t seen one yet.
There’ve been short periods when single-family-housing prices fell, but the number of examples of that are really small. A bubble by definition goes poof – the way so many tech stocks did in 2000 – and there’s no value left.
Housing prices, though, are always connected to fundamentals, like the amount of buildable land. A house has intrinsic value.
Q. But U.S. home prices are up about 40 percent in three years. How can this not be a bubble?
A. Econ 101: Prices have gone up because the demand has been much greater than the supply. The country is producing all it can in terms of supply, but what you see is more demand. Over the next 10 years we’re going to add a million new households; much of that’s due to immigration. There are lifestyle influences on demand too.
Over the past 25 years, for example, marriage has been delayed eight to 10 years. It used to be Harry and Sally would graduate college and get married. Now everybody gets married late. Instead of Harry and Sally owning one house in exurbia, you now have two people buying. And think about the longevity of the boomers; they continue to buy.
Q. Is there anything you’re worried about?
A. I do think we’re likely to see the growth of housing prices slow in the next five years, compared with the past five. We’ve had a significant uptick in prices, fueled by low interest rates. But it looks like we’ll see higher rates over the next five years, so demand will go down and you’ll see slower growth in pricing.
Q. How bad could it get?
A. Worst-case scenario? A flat housing market. Look, all I can tell you is we’re the largest owner of apartments in the U.S. and among the largest converters of apartments to condos. If there was a danger of a bubble, would we be in this business? I’ve never been accused of being a Pollyanna; I am the Gravedancer.
Americans don’t understand that we have the cheapest housing in the world. London and Tokyo are more expensive than New York. Why do you think everyone is going to South Florida from Europe? It’s because prices here are cheap compared with there.
http://money.cnn.com/2005/02/08/real_estate/bubble_debate/index.htm
Will housing prices pop?
Experts debate whether the housing market is an overinflated bubble or a strong seller’s market.
February 9, 2005: 8:06 AM EST
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - Is the real estate market a dangerously overvalued bubble that needs to pop sooner than later, or is the market for homes strong enough that prices can and will keep rising?
Both answers were argued at a forum on the state of the real estate market Tuesday, along with the middle ground that the market is more or less valued just right in its current form.
The forum was sponsored by Demos, a public advocacy group that concentrates on questions of economic opportunity, among other issues. While the group has put out its own papers posing worries about the current debt levels among the middle class, its panel presented a wide range of views on the state of the real estate market.
Arguing that the real estate market is a bubble certain to pop, probably sooner than later, was Dean Baker, co-director of the Center for Economic Policy Research, a Washington think tank. He presented data showing that while housing prices generally tracked close to the overall inflation rate for nearly 40 years starting in the mid-1950s, home values have grown about 40 percent in real terms since 1995.
He said that’s the kind of rapid rise that is not justified by the fundamentals. He compared it to the late-1990s stock market bubble and in the Japanese real estate market in the 1980s before prices there collapsed.
“There’s a speculative mentality of people thinking housing prices will only go up,” he said. “That’s not the real world.”
Baker’s position was challenged by Jonathan McCarthy, a senior economist with the Federal Reserve of New York, as well as Barbara Corcoran, founder of the Corcoran Group, a leading New York real estate firm.
McCarthy argued that issues such as home improvements and income growth have helped support some of the basic fundamentals of the market. The home improvements have increased the underlying value of the homes more than simple home price data would not capture, he said, and the combination of income growth and low interest rates have increased the affordability of homes even faster than home prices have climbed.
“If there’s a bubble, prices have been bid up beyond the underlying fundamentals, and buyers have done so in the expectation that prices will continue to rise,” he said. “Rapid price increases are not sufficient to say that there is a bubble out there.”
McCarthy did not dispute that there were some markets where housing prices have outstripped fundamentals, but he said that they are mostly along the eastern seaboard north from Washington D.C., as well as along the West Coast. “These areas will always tend to be more volatile,” he said. “But on a national scope there’s probably no housing bubble.”
Corcoran challenged McCarthy’s view that places like New York may be in a housing bubble. She confessed that as a real estate agent her view is biased. “I can’t afford to be open minded,” she admitted to laughter of the crowd.
She pointed to a few key numbers she sees that suggest even a supposed bubble market like New York City is in much stronger shape than before housing prices collapsed here, with the 1987 stock market crash.
“Today, seven out of 10 listings here are selling at or above the asking price,” she said. “In 1987, before the stock market crash, it was three out of 10. When I compare the number of listings over the last year, it’s down 40 percent from the previous year. This is a hell of a seller’s market.”
“I would not be the least surprised if prices go up 25 percent in the next year, even if people out there think I’m smoking dope,” she added. “There’s too short a supply, too many buyers.”