Peaking Real Estate Stocks

Peaking Real Estate Stocks: Housing Peaks in Fresno (and Other Places)
A Daily Reckoning Housing Paper Report
by Mike Shedlock

The Fresno Bee is reporting a surplus of listings in Fresno, Calif.:

“The number of houses for sale has climbed dramatically in recent weeks, from 1,380 in November 2004 to 2,700 last month to 3,050 today. Real estate agents say many people, sensing values are peaking, have staked ‘for-sale’ signs in their yards…

“In some cases, sellers are lowering expectations, agents said. ‘The price reductions have been amazing,’ added Paula Conner of London Properties…

“More supply means more choice, and more choice means less pressure on prices. That, in turn, will likely lead to slower price increases or even a leveling off…

“In September, only 19% of the households in Fresno County could afford a median-priced house, down from 27% a year before…

“In March 2004, Fresno’s appreciation rate was the greatest in the nation. In August, an economist at pegged it as the most overpriced real estate in the country.

“Those rates cannot be sustained, and a slowdown is welcome, said Scott Leonard, president of Guarantee Real Estate…”

“Although the real estate market appears to be slowing, homeowners should not fret. Their residences turned out to be nice investments over the past five years, and sellers who have to lower the price should still net a sizable profit…

“The California Association of REALTORS has estimated that values in Central California will climb 10-18% next year, instead of the 20%-plus homeowners experienced in the past few years.

“Leonard thinks appreciation rates in the Fresno area will be 5-7%. ‘People will have to be realistic,’ he said. Sellers ‘can’t choose a number out of the air. It won’t work..'”

Anyone notice how silly these articles sound even while admitting a top?:

  • “Although the real estate market appears to be slowing, homeowners should not fret”
  • “California will climb 10-18% next year, instead of the 20%-plus homeowners experienced in the past few years”
  • “Leonard thinks appreciation rates in the Fresno area will be 5-7%. ‘People will have to be realistic,’ he said. Sellers ‘can’t choose a number out of the air. It won’t work.'”

Peaking Real Estate Stocks: “People Will Have to Be Realistic.”

I guess that is my favorite line in the above commentary. How about a little realism from those forecasters? Something like, “Prices may fall for 3-8 straight years.”

No, instead, we see “California will climb 10-18% next year, instead of…20%.”

At any rate, please add Fresno to the list of cities that have without a doubt peaked.

Here is an incomplete list representing major markets that I am aware of:

  • New York
  • Boston
  • San Diego
  • Washington
  • Los Angeles
  • Fresno

Inquiring readers are no doubt asking, “Mish, you got any proof of that?”

Well, yes, indeed I do. Here goes:

The above chart is from Dr. Kash at Angry Bear.

Please click on the above link to see his complete thoughts, as well as a nice graph depicting what those markets may have in store for them. The interesting thing to me is how national averages seem to be holding, while some markets are clearly getting hammered. In that regard, it’s a subtle start to a housing bear market.

Who Is Next up on the List?

Peaking Real Estate Stocks: Next Up… The Sunshine State

I think Florida is a prime candidate. OK, Mish, why is Florida next?

Once again, inquiring Mish bloggers deserve solid answers. I invite everyone to Google “Florida Condos Preconstruction.” If you see what I see, then you see 40-plus pages of preconstruction offerings (10 pages at a time).

Who is buying this stuff, anyway? “Investors” or “speculators at the peak of a bubble”?

Bear in mind that there is a 10-year supply of condos (based on historical sales) coming on the market in the next 1-2 years. If there is one thing I am absolutely positive of, it is that the condo market in Florida is going to CRASH sometime in the next six months to a year.

Mish, is there any other evidence of a dramatic slowdown in Florida? Well, yes, there is. Thanks for asking. is reporting, “Lennar Looks to Revive Florida Sales”:

“Recent data show the South Florida real estate market, like much of the country, may be slowing down. Some blame the recent hurricanes, others blame the departure of speculators from the market. Either way, Lennar hopes to boost sales in its Palm Beach division by raising its commissions to outside real estate brokers, after reducing them less than a year ago.

“For its communities ranging from Boca Raton to Vero Beach, Lennar and its U.S. Home division are now offering a ‘3-4-5’ program to outside brokers.

“The program works as follows: If a broker sells one home, he gets a 3% commission; if he sells a second home, he gets a 4% commission; and if he sells a third home, he gets a 5% commission, according to a fax promoting the program that was sent to local brokers. Lennar’s local sales offices confirmed that the program allows brokers to combine the sales across any of the nine communities in Lennar’s Palm Beach division.

“The move is a swift reversal from earlier this year, when sales were fatter and Lennar dropped its commission to real estate agents from 3% to 2%.

“‘They dropped commissions from 3% to 2% a year ago. They said we don’t need realtors as much…Now that sales have dried, they didn’t just go back to 3%, they went up to 5%,’ says Mike Morgan, broker-owner of real estate brokerage firm Morgan Florida.”

Let’s finish up with some pertinent thoughts from Dr. Kash:

“Looking at individual markets, it seems that prices in some continued to boom. But those markets that were the first to experience the surge in housing prices are now clearly indicating that they’ve reached the end of the boom…

“The big question will not be answered for a while yet; however, how far will the lines in the chart above fall? Will they stabilize at 5-10%? Will they go to zero? Or will house price changes follow the pattern of previous price surges, and actually turn negative?…

“I have heard no convincing argument to suggest why the end of the house price surge this time will be any different from the last time around.”

Finally, at long last, someone is arguing, “It’s not different this time.”

Thank you, Dr. Kash,

Mike “Mish” Shedlock

P.S.: We encourage you to sign up for a FREE subscription to Whiskey & Gunpowder, written by some of the most unconventionally brilliant minds out there. Whiskey & Gunpowder helps prepare its readers by alerting them to current events on a wide variety of topics. Our writers explore how current discussions on civil liberties, world history, economic trends, and other issues affect your investment opportunities… especially in the face of unstable markets and insane circumstances. You won’t find a better source of passionate, thought-provoking debates anywhere else on the Internet.

Here are other Whiskey & Gunpowder articles about Peaking Real Estate Stocks:

Customers for Life by Mike Shedlock
Mish just sent me another article about housing. “Well, it’s not really about housing,” he said. “It’s about customers.” “Customers?” I asked. It seems Mish is looking at the mortgage origination and real estate sales businesses and wondering what brokers and loan officers are doing to get and keep customers.

Misharitaville by Mike Shedlock
Mish says it’s time for a song. Here’s a lighthearted piece about Key West from one of Mish’s many real estate contacts across the country. Mish asks no questions, answers no questions, but says, “Pull out a bottle of tequila and sing along.” Sometimes Mish is just too darned serious.

Time to Buy Foreclosures?by Mike Shedlock
Mish takes a look at another aspect of housing. Home foreclosures are rising as much as sixfold. Can you get a good deal? MSN Real Estate is suggesting now is the best time in years to buy foreclosure homes.

Looking for More on Peaking Real Estate Stocks?

Visit The Whiskey & Gunpowder Archives and you can search hundreds of unique Whiskey & Gunpowder issues and articles.

The Daily Reckoning