Wednesday, February 16, 2005

The real estate bubble

We arrived in Sarasota at exactly the wrong time. We want to buy a home here, but house/condo prices are out of control. This looks to me like a frenzy of buying, with everyone trying to make money and no one trying to buy a home. It doesn’t look like the kind of market we would want to buy a home in.

 

Consider this passage from a recent New York Times story:

“NGELINA UMANSKY, a 39-year-old spa owner from San Francisco, was visiting a  friend in Miami two weeks ago when she heard about a new condo development downtown. Hoping to find a vacation home, but worried that others were interested, too, Ms. Umansky arrived at the sales office at 8 a.m. the day after seeing some model units.”About 50 other buyers were already in line. Two hours later, a sales agent summoned her and said she had four minutes to decide which unit to buy. She acted fast, offering $350,000 for a two-bedroom, two-bathroom unit.”Ms. Umansky thinks she got a bargain; when she called on behalf of a friend less than eight hours later, she was told the asking price on a unit like hers had climbed to $380,000, a nearly 9 percent price increase.”

 

The story mentions that some condos on the market are experiencing as many as 16 price increases in a single day. Definitely a seller’s market.

 

The Times piece continues:

“The gold rush mentality has some economists concerned. Some buyers of new condos and houses are behaving like day-traders before the dot-com crash, said John Vogel Jr., a real estate professor at the Tuck School of Business at Dartmouth College. In some cases, developers are actually creating the frenzy. In central Florida, Transeastern Homes, which builds subdivisions, asks prospective buyers to put down a refundable deposit of $500 to $5,000 to reserve a time slot to buy a house that has yet to be built, sometimes without knowing more than the general location of the subdivision and a price range.”Buyers review floor plans and maps first at a Web site or in a brochure. When they arrive at the sales ‘event,’ typically at a hotel or a convention center, they spend five minutes looking at a map and choosing a home before the next buyer moves to the front of the line. Price increases - up to 16 a day- are announced over loudspeakers."People get excited and get caught up in it," said Joel Lazar, a Transeastern vice president. "Even if they weren't planning on buying a home, they convince themselves to buy a home."

 

Meanwhile, rental fees are lagging behind and seem to us to be downright cheap. So right now we’re thinking that we’d be stupid to buy into this frenzy. We’re thinking that we might rent, waiting to see if the bubble is popped, at which point prices should be a lot cheaper.

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