Real Estate Forecasts from CNN money

Discussion in 'Financial Cents' started by melbo, Jun 6, 2006.

  1. melbo

    melbo Hunter Gatherer Administrator Founding Member

    This is an interesting poll taken only of those worth Six Million and who also net over $300K a year:

    Affluent Americans sour on real estate
    In survey, one-third of wealthy respondents expect real estate decline during the next year.

    By Christian Zappone, staff writer
    June 6, 2006: 11:11 AM EDT

    NEW YORK ( - America's wealthiest have higher hopes for their stocks this year, but are worried about prospects for real estate, according to a survey released Tuesday.

    Nine out of 10 wealthy portfolio holders said they expect their portfolios to rise in 2006, according to the 2006 U.S. Trust Survey of Affluent Americans. On average, they expect an 8 percent return from U.S. stocks.

    Faith in the real estate market, however, was weak: Only 48 percent said they expect real estate's value to increase in the next year, down from 72 percent who thought it would in last year's survey.

    Thirty-three percent of respondents expect real estate values to decline over the next year. That number is up from 14 percent who thought that last year.

    The survey, conducted by asset manager U.S. Trust, polled Americans with annual adjusted gross income of more than $300,000 or net worth greater than $5.9 million, including real estate.

    Concerns about the economic future of the next generation topped the worries of the wealthy. Eighty-three percent of respondents listed this as their greatest concern, up 2 percentage points from the previous year.

    Alternate investment vehicles such as venture capital-, private equity-, and hedge funds make up less than 5 percent of a typical affluent investor's portfolio.

    Regarding the federal estate tax rate, 47 percent said there should be no estate tax. The majority, however, believe 18 percent would be an appropriate estate tax rate.

    Regional forcasts at the above link
  2. melbo

    melbo Hunter Gatherer Administrator Founding Member

    Then we have this from Forbes:

    Money & Investing
    A. Gary Shilling 06.19.06, 12:00 AM ET

    If you still don't believe there's a massive housing bubble that is beginning to deflate, look no further than Toll Brothers. This home builder caters to the mushrooming ranks of the well-to-do who have enough income and assets to laugh off rising interest rates and energy costs. But in the year's first fiscal quarter Toll orders fell 32% from a year earlier. The company blames the fall on cancelations by speculators.

    With dreams of huge appreciation dancing in their heads, speculators indeed drove the housing frenzy in the high end. Now that prices are flagging, they are fleeing. These investors and vacation-home buyers accounted for 40% of house sales last year, up from 36% in 2004. A lot of these investors rent out the properties. Despite low-payment interest-only mortgages, they cannot cover their cash outlays with rents, which are depressed by the proliferation of spec houses.

    This is the first nationwide housing bubble since the 1920s, and it's driven by three nationwide forces: low interest rates, loose lending practices and the desperate search for a stock substitute after the 2000--02 debacle. Previous real estate bubbles were regional, spurred by economic cycles like the rise and fall of the oil patch in the 1970s and 1980s, and southern California's aerospace leap in the late 1980s during the Reagan defense buildup, ending with the Cold War's demise.

    The speculative housing craze is crashing from its own excesses, not Federal Reserve action. Mortgage payments still are low, and lenders remain accommodative. Since the Fed started to tighten in June 2004, 30-year fixed mortgage rates first dipped from 6.3% to 5.6% in June 2005 and now sit at 6.5%.

    To reduce monthly payments lenders have extended mortgages to 45 years. In 2005's second half 25% of new fixed-rate mortgages were interest-only (meaning the payback of principal is delayed) versus 5% a year earlier. And to buoy the subprime market, the U.S. Housing & Urban Development Department has proposed that Federal Housing Authority-insured mortgages eliminate the current 3% minimum down payment. The scheme is supposed to keep housing affordable in the face of leaping prices. But they're not leaping anymore.

    None of this will be sufficient to offset the mass exit by speculators and the hesitation of builders to slash production in the face of falling sales. Sure, the biggest builders claim they build only to firm orders. But as Toll Brothers shows, cancelations are starting to be a problem for them. Moreover, this is an industry where small contractors dominate. These guys, who are often one pickup truck away from insolvency, will get slammed when spec houses don't sell or buyers cancel. The ten biggest home builders account for 25% of output, up from 10% five years ago, yet that leaves a whole bunch of small fry. Further sales drops are anticipated by the index of home builder sentiment--now at 45, down from the 72 peak last June.

    With inventories high and sales falling, the ratio of inventory to sales flow is rising. Inventories for both new and existing homes have jumped from 3.5 months in 2003 to 5.8 months and 6 months, respectively. It is reasonable to expect those ratios to climb into the 6-to-8-month range of the real-estate-troubled early 1990s.

    Already inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami. Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.

    Even a 20% price decline will be devastating for many homeowners. On average, those with mortgages have 37% equity in their abodes. Of those who borrowed or refinanced in 2005, 29% have zero or negative equity, calculates First American Real Estate Solutions.

    A house-price collapse will be far worse than the 2000--02 bear market on Wall Street and will bring a serious global recession. Half of households own stocks or mutual funds, but 69% own homes. The resulting unemployment will kill many subprime borrowers' ability to make payments. Both Toll Brothers at the high end and dr Horton in the starter market will suffer.

    It's not too late to sell home builder stocks, as I recommended in my Oct. 3, 2005 column. You can short-sell the bunch through the SPDR Homebuilders Index Fund (XHB). Building suppliers and mortgage lenders are suspect. Golden West, the king of option mortgages that permit negative amortization (that is, your principal grows), timed its recent sale to Wachovia brilliantly. Home appliance makers and do-it-yourself retailers are also vulnerable. Wait to remodel until contractors are hungry.

    A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers. Visit his homepage at

    and these charts from Hypertiger:
    homesupply_817. super_bubble_964. wave12_148. housedebt4_128.
  3. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    Think it will really happen?....

    How big an effect on us "masses" ????
  4. CRC

    CRC Survivor of Tidal Waves | RIP 7-24-2015 Moderator Emeritus Founding Member

    I don't even want to talk about Real Estate here..

    It is so many people getting out ..and those staying are dog eat dog....We have had a steady increase over the last 3 yrs of almost 300% and they predict it will stay for another 2 yrs..then level out.

    70,000 new homes going in across the bridge , and plans for more.

    and they just keep buying and buying .....

    It wasn't fun...the average couple or even single person cannot afford anything around here anymore....The condo I bought in 1998 for $52K? Just resold for $167. It is absolutely ridiculous....and that is just a 2 a 25 yr old complex....that was built for rentals...

    The new ones on the corner by me? Less than a block away??

    Starting at 1.2 million....starting!

    Yet another reason to get away from here...

    It drives me crazy....It's all investors..and a lot of people have made a lot of and sell..over and over.....

    The realtors that are left all dislike one another......The mortgage brokers are retiring at 40...

    I see it every day...

    and it scares me....
  5. melbo

    melbo Hunter Gatherer Administrator Founding Member


    I don't think it matters at all weather its the "Real Estate" bubble, the Stock bubblr or the commodity bubble...

    I think its a total economic bubble... It's operdo for a correction and when it happens... Ouch...

    I'm so prepared for the smaller stuff that I have individually vac-packed chocolate bars in cold storage... A few cases.

    I'm not at all prepared for this.
  6. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    No Worries All.... Lots of history on failed republics..... do your homework and prepare for alternative "ends"..... still got some time....

    Hey the central banks are adjusting interest rates tonight.... Japan is down another 460+.... and gold and silver are still down.... no safe havens anymore..... oh wait... the dollar is up... that's a the "go to" play..... (or at least that's what they want you to think).....

    Melbo.... you're probably alot more prepared for alot more than you think....

    Adjusting your perspective and expectations with a little dose of reality is good every once and a while.... causes you to think.... its a good metal exercise so you don't become a "deer in the headlights"......

    I'm not worried about folks like you at all....... [winkthumb]
  7. ColtCarbine

    ColtCarbine Monkey+++ Founding Member

    I guess a 50 yr. note would be convenient to keep the market going. I work with an Immigrant from Canada and he says that banks are writing 50 yr. notes there, this start here yet?
  8. CRC

    CRC Survivor of Tidal Waves | RIP 7-24-2015 Moderator Emeritus Founding Member

    Not yet...but I don't see how they are going to avoid it...It's nothing but investors right now..and they have the money..

    Makes me sad, for my daughter..she has always wanted to build a home here..and just can't afford it without being mortgaged to the hilt...

    Nothing..not one thing under 200K.....and that's including little condo's and apartments....

  9. RightHand

    RightHand Been There, Done That RIP 4/15/21 Moderator Moderator Emeritus Founding Member

    They are writing 50 yr notes here - expectation is for re-fi @ 60 mos.

    Bought my first house when I was 19 yrs old for 18K, 3K down and financed balance @ 4.25% 15 yrs. no prepay penalty. At the time, 18K was just barely within my reach and 15 yrs seemed like an eternity. Same town today, nothing available for less than 300K so the 50 yr notes look pretty good young people.
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