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Archive for August, 2010
In my previous blog, I listed some examples of how respected organisations like the BBC, Irish Times and Business Week can give US housing a big thumbs up in one month and a big thumbs down just a few short weeks later.
The reason, as I mentioned, was because the looked at housing trends over a period of weeks rather than months or years. In addition to that, those particular weeks (between June-July 2010) were particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
The well publicised first time homebuyers credit expired on June 30 and so a property sale must be completed by that date if the new owner wanted to get his or her tax credit. As any economist would easily have predicted, the average for June and July was normal, but sales that would have naturally closed in July were pushed forward to June.
And so, June sales were higher than they should have been “Sharp jump!” and July sales were lower than they should have been “Record low!“
Let´s take Tampa Florida as an example (which is near our stunning Waterside at Coquina Key development).
If you look at the June (2155) and July (1486) sales for 2010, they average 1820 sales per month. Sales in June and July 2009 were 1876 and 1885 each. Sales in June and July 2008 were 1481 and 1431 each.
Nothing too exciting there - this year was same as last year and much better than 2008. The expiry of the tax credit simply meant that June and July this year are particularly bad months to examine housing trends.
The six monthly figures for Tampa are a little more useful
Feb-July 2008: 9,497 sales
Feb-July 2009: 9,651 sales
Feb-July 2010: 10,731 sales
Doesn´t exactly lend itself to dramatic headlines does it?
The national figures are even more illustrative. There were 4.58 million properties available for sale in July 2008. In July 2010 there was 3.98 million. In other words, even with record foreclosures in the past two years, there were so many people buying properties that housing inventory levels had fallen by 600,000.
Let´s look at an even longer timeframe (and I´ll stop boring you with stats after this!). Even allowing for a poor July, Annual housing sales in the USA should be approx 5 million in 2010. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years.
The point I´m trying to make is that comparisons always need to be put into perspective and useful ones are always over a longer time frame.
You don´t have to be Warren Buffett to realise that reacting to monthly movements in activity and price levels makes for exciting headlines but it is unlikely to make you rich. You´d be better off researching a few things very well, making a medium to long term plan, and then sticking with it.
That´s what Torcana do in Florida, and investors have very kindly started to thank us for it online.
Kind Regards
Colin
August is usually a quiet time of the year for newspapers and magazines and so the latest housing figures in the USA received wider attention than they usually do. Judging by the way the headlines were complied however, it would seem summer silliness isn´t quite over yet.
Consider the headlines from last week:- “US Home Sales Dropped to a 10 year low” (BBC)
- “US Homes drop to their lowest pace in 15 years” (Irish Times)
- “Sales of US Homes drop to record low” (Businessweek)
Hmmm, well no, it´s never that simple with these numbers unfortunately. If you looked for similar stories within these same reputable news organizations 4 weeks ago, you would have noticed an interesting contrast…
- “Sharp jump in US housing sales” (BBC)
- “Positive US Housing data lifts investor confidence” (Irish Times)
- “Sales of foreclosed homes are up nationwide” (Businessweek)
The above headlines might seem nonsensical when put beside each other, but the reason these respected organizations are giving US housing a big thumbs up in one month and a big thumbs down just a few short weeks later is easy to explain. They are looking at housing trends over a period of weeks rather than months or years. In addition to that, the last few weeks have been particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
View our next blog if you´d like to read more on this subject.
Regards
Colin
I hope everybody had an enjoyable summer break. I was fortunate enough to spend a few weeks in the north western coast of Spain, in a lovely Galician fishing village called Sanxenxo.
Winding down somewhere scenic and reading a few interesting books* is a great way to relax and recharge the batteries, but thank heavens for Blackberries and wireless internet connections.
Oh they have their faults, I´ll grant you that, but I´d never be able to bring the family to the coast for a few weeks without them.
Like it or not, I can see this type of “working” vacation becoming ever more popular as the years go by.
* My holiday reading
1. The Big Short, Michael Lewis
2. Race of a Lifetime, Heilemann & Halperin
3. False Economy, Alan Beattie
Kind Regards
Colin
Some positive housing market indicators taken from the Florida Realtors Association website
Florida existing home sales: Up 15%
(month-to-previous-year comparison)
Florida existing condo sales: Up 33%
(month-to-previous-year comparison)
Florida existing home median price: $143,400
Florida existing condo median price: $95,000
National existing home median price: $183,700
National (Freddie Mac) mortgage rate (all housing types): 4.44%
……………………..
Details on all of Torcana´s Florida real estate listings can be found here.
I received an excellent article on the Spanish market in my inbox today from www.globaledge.co.uk - one of the best providers of property news and opinion in the market. Anybody active in the overseas property industry should subscribe to their newsletters. Please see an extract of this article below.
…………………………..
If you think the market you’re working in is tough, spare a thought for the hard working agents on Spain’s costas.
For most of us, the one positive about a working in a smaller market is that many of our competitors have fallen by the way side and there’s less competition for each potential buyer.
Agents selling overseas property in Spain have no such luxury. Buyer volumes have fallen dramatically, but in many cases competition for business has actually increased, forcing even some of the best run agencies to close their doors.
Once we were friends…
An agent’s main competition on the Spanish coasts is now increasingly the Spanish banks, companies who used to work (more or less) happily in partnership with the industry.
Imagine this scenario: You work hard “closing” a deal. Your buyer agrees and approaches the bank for a mortgage. However the bank deliberately offers tough terms (40%+ deposits) but offers your client 100% finance on another similar property and is also prepared to discount heavily to get the property it owns off its books.
This is exactly what’s happening in Spain and it is not only putting agents out of business, it’s disrupting the whole middle market as agents who want to make a living only have two choices:
1. Target cash buyers who are in a minority but at least can be closed
2. Sell high-end properties where the competition from banks is less (the majority of bank stock is low to
mid end apartments in sub prime locations)
Tight-fisted bankers
The obvious third option is of course for an agent to work with the banks but the banks seem unwilling to allow agents to make even a meager living from the process. GlobalEdge spoke with a property agent recently who sold 26 below-market value apartments for €110,000, a €90k discount from their peak valuation. The agent was paid $500 a sale which equates to 0.45%. He worked his socks off and made €13,000 in six months.
Desperate and reactive
Although the situation is clearly terrible, it would be wrong to accuse the banks of cutting agents out through a cynical and well-thought out sales and marketing strategy.
According to a number of Globaledge contacts, banking staff have been told to get properties off their books and in many cases seem willing to accept almost any price. This is a conversation one of their contacts had with a bank manager last week:
Bank manager: You seem to like the property. It’s €100,000
Potential buyer: I’ll pay €70,000
Bank manager: [pause] …….OK
Judging by this conversation, some of the properties the banks hold may be totally worthless.
The banking industry needs to act
It is no secret that the banks are hiding huge property losses on their balance sheets. Prices are being kept artificially high (at least officially) because properties are not being put on the market.
The Spanish economy depends disproportionately on construction. The property sector and wider economy will not recover until the real estate market fully corrects.
That correction could be dramatic (if banks start dumping properties onto the market because of a rise in reservation ratios for example) or it could be slower and less painful.
A slower correction is better for everyone and for this to happen, banks and agents must work together. Banks cannot sell properties alone, they don’t have the time or expertise; and their unilateral reactive approach is not in their interests, or the interest of the wider economy.
