Florida is On Fire
"...Florida can claim four of the top five, and eight of the top 10, metropolitan areas in the nation with the greatest home price appreciation in the first quarter of 2005..." Round and round we go, where it stops nobody knows.
posted by Sunny @ 6:02 AM
6 comments
6 Comments:
I wonder when someone will start predicting how far each of these areas is likely to fall. It would be nice to see the numbers.
People say to me, "Oh, the Yankees will still buy these places because they are rich and want to retire to Florida. Maybe. But if they want to sell their houses and cannot, that in my thinking has to dampen the demand a lot.
As is said in other blogs, when the bubble bursts, it will affect the entire country.
Sunny -- for some reason, these posts do not seem to be showing up in the post counter, so it looks like no one commented.
Anon 4:14pm, I see the number of comments posted. I am not sure why you didn't.
Anon 2:56, my prediction on how far it will fall is that prices will fall in line with rents or income generating potential of real estate. Real estate has all kinds of risks (e.g. deterioration of the asset, infrastructure problems) that are overlooked so often in this insane market. Over time those risks begin to show themselves and owners start to realize it. Those who have been a landlord longer than a year or two know what I'm talking about.
Right now, there are many artificial props to our market (easy financing, groupthink mania, other assets (stocks) lagging, foreign investment), when they go away you are left with the ability of a property to produce revenue. The premium paid over and above the present value of future potential income is the speculative part of the price, and its incredibly obvious, especially in Florida, that that premium is sometimes near 50% of the purchase price.
Sunny -- I agree with you that the true value of much of our Florida real estate should be about half of what it sells for today. Rents are dirt-cheap in some areas. When I was in business school, long ago, we were taught that residential investment properties should rent for 1% of their current market value, per month. Now I read that the currest thinking is closer to 0.75% -- that may be based on the assumption of a lower cost of borrowing money. Either way, no one pays anywhere near that much to rent in most of Florida, for homes that sell for $250-300K or more. It is much worse at the higher end, because most of the folks who can pay $2K or more per month just buy instead.
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