Wednesday, June 15, 2005

The Last, Best Hope For Prosperity, Part III: A Tale of Two Markets


We have plenty of evidence there’s a large amount of speculative activity going on in the real estate markets. The issue is where.

Like the Internet Bubble of 1998-2000, the real estate speculation is concentrated in certain markets—Las Vegas being the most visible, but also Phoenix, Austin, and anything near water, on either coast.

The best example of this tale of two markets comes from one reader, who tells of how lousy the housing market appears to be in her home area of suburban St. Louis—with “New Price” (real estate-eze for "Lower") signs sprouting up outside stale homes for sale…

Meanwhile, on the Carolina coast, a piece of land she purchased two years ago went up something less than 50% the first year…and more than doubled in the last twelve months.

There was a time in 1999 and 2000 that you couldn’t pay enough for a money-losing internet stock, and you couldn’t give away a highly profitable monopolistic newspaper stock, because newspapers were part of the “dead-tree press” that was going to be made obsolete by those internet companies.

In fact, one newspaper chain—Central Newspapers—put itself up for sale precisely because the Trustees that controlled the voting shares of the company, had decided the internet represented precisely the threat to the business that was the sole reason the Trust could allow a sale of the company, and Gannett bought it for a huge price.

(Ironically, now that the newspaper stocks have all recovered from those “dead-tree press” fears, the newspapers are in fact being driven slowly out of business by the internet.)

There was a lot of value outside the dot-com “space” in those years, just as there are housing markets unaffected by the speculators crowding the tables at Vegas, Phoenix, Atherton, Charlestown, West Palm and other real estate casinos.

When raw land in a sweltering environment with mosquitoes the size of small dogs goes up 50% in one year and then doubles the next …that is 1999-2000 dot-com blow-off type stuff.

Keep your wits about you even while Time Magazine encourages others lose theirs.


Jeff Matthews
I Am Not Making This Up



The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

7 comments:

tr8der said...

The Vegas market is widely viewed as one of the most speculative, and it scares the crap out of me too, the Cosmopolitan a new strip highrise between the Bellagio and Monte Carlo sold something like 90% of it's units before they even had a sign up!! On the other hand I think Vegas could get even crazier. If you're a CA resident in your late 50s early 60s, you have sizeable savings and investments, good income, and 1 mil+ in home equity, why wouldn't you flee the tax heavy state and set up your primary residence in NV?

tahoe kid said...

CNBC just ran a segment on the "$10 million 'spec' house" in Silicon Valley. That means a contractor builds the house and offers it for sale for $10 million. As the contractor said, "It's a really good deal because people are putting $20 million to $30 million to fix up a house around here." WARNING: This is in Atherton, CA which is the most expensive housing zip code in the US per the reporter. Home to many CEO's from Silicon Valley. So the message is there's speculation and then there's SPECULATION.

Jamie Sidey said...

I'm not sure that Austin is really a major center of speculative real estate activity. There are certainly some high-rise condos that are going for stupid prices, but in general the market is pretty reasonable. I bought a new townhouse in December, and I could rent it for more than it costs me (i.e. rent > (mortgage payment + HOA fee + property tax + rent tax) ). That seems to be true of most of the homeowners I have spoken with here, and it indicated to me that either my townhouse was priced about right, or there is "irrational exuberance" in both the owners and renters markets...

As for the high-rise condos... yes, those are probably selling for a lot more than they should, and I wouldn't pay anything like those prices.

bubbles said...

I've lived in Vegas for over 10 years now and its been really remarkable to see this town grow. I have to agree with tr8der, for CA people this market is cheap and we are seeing many, many Cally people move here, plus you have all the snowbirds who from high tax states that are retiring here. But, if I had to guess, we are closer to the end than the beginning. To be quite honest you'd be a fool to buy here now, because the rents are so cheap. Rents are falling daily as these RE investors try to find tenants who can pay some of the expenses. I talk to a lot of people here and most are completely clueless about the risks or don't realize that this market cannot continue on its white hot tear or they just think I'm an idiot. I'm planning on some day buying a condo here, but until the air comes out of this bubble, I'll gladly pass my time writing rent checks. Another note about speculative madness here, apartment complexes are now being turned into condos!

bubbles said...

I've lived in Vegas for over 10 years now and its been really remarkable to see this town grow. I have to agree with tr8der, for CA people this market is cheap and we are seeing many, many Cally people move here, plus you have all the snowbirds from high tax states that are retiring here. But, if I had to guess, we are closer to the end than the beginning. To be quite honest you'd be a fool to buy here now, because the rents are so cheap. Rents are falling daily as these RE investors try to find tenants who can pay some of the expenses. I talk to a lot of people here and most are completely clueless about the risks or don't realize that this market cannot continue on its white hot tear or they just think I'm an idiot. I'm planning on some day buying a condo here, but until the air comes out of this bubble, I'll gladly pass my time writing rent checks. Another note about speculative madness here, apartment complexes are now being turned into condos!

BelowTheCrowd said...

Overheard chatter between two recent college grades on Southwest between Oakland and LAX this afternoon:

"As soon as I get a job I'm going to buy a condo or two back home. I checked with a mortgage guy and he said I can't be turned down once I get a job. Anything you buy in south Florida has got to appreciate."

I remember when kids like this were NOT looking for jobs, because they had already made 50K+ by daytrading through their senior years, and didn't see any reason they'd ever need to work for anybody else.

-btc

Real Estate Expert said...

In the year prior to Hurricane Wilma, which ripped through south Florida in October, 2005, 64 homes had new owners at the Boca Country Club. If you're interested in windwood home, a snapshot of the present may show the Housing Bubble has already popped. Read more ...