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Omens of the coming Real Estate Bubble?

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By Bob Hoffman

Florida Dec 28th 2005 (Political Gateway) - Back in May of this year (2005) I wrote a column about the housing bubble. My prediction was ‘after the new bankruptcy laws go into effect, it will start to burst.’ Was I right?

First let me say, I am a Real Estate and Mortgage Broker here in South Florida and hopefully know what I am talking about. This 'bubble bursting' will mostly apply to novice investors, families that 'had to buy' due to relocation, and the bad credit lenders. Most seasoned investors and 'A paper' lenders will ride this out easily.

Editor's note : the original article can be found here http://www.politicalgateway.com/news/read.html?id=3721

I had said, 'Once the new laws go into effect, only the destitute will be able to walk away from their bills in bankruptcy. Others will have to pay or make arrangements to pay. This seemed to be perfect for creditors and lenders who just let everyone go wild with crazy interest only mortgages and insanely low adjustable rate mortgages.' This means you will either be foreclosed on, forced to sell for what you owe, and you will still owe any debt left over on it. The lenders no longer fear you walking away from a bad loan and that has been a subtle under current in this crazy loan market.

The only problem, I had mentioned in my previous article, is the I/O and ARM mortgages all have a fixed term for a few years and then start ‘adjusting’ yearly or even monthly. And this rate almost always goes up and usually 2% to 3% the very first month of the year the loan is set to adjust. That means a 5% ARM would be fixed at 5% for two years, the first month of the third year it could go as high as 8%, almost doubling your monthly payments. Most second mortgages are ARM and have a over all cap of up to 18%! You may want to look at the fine print of your loans again.

You can see what will happen. You will need to refinance when the rates adjust, quickly. Unfortunately the rates are back to the 2002 levels already and climbing. Fixed loan rates are high enough that a refinance will make many not be able to afford the monthly payments. Many may have to sell causing a huge inventory to appear. This makes it a buyer's market and prices will drop considerably, or so I predict.

editors note: you can see the internet archive of this story here

Some signs that this is coming true:

1) According to CNN Money, real estate inventories have hit their highest point in more than 19 years

2) The numbers follow a report last week showing that new home sales posted their biggest drop in over a decade, falling 11 percent from October.

3) In south Florida, where the market is hot and where I work, single-family existing home sales dropped 48 percent in Miami-Dade and 44 percent in Broward compared to the same period a year ago, according to figures released by the Florida Association of Realtors. Prices were still up from a year ago, but declined -- by more than $10,000 in Broward -- from September

4) CNN Money reports today “Sixty-five of the nation's 299 biggest real estate markets, representing 38 percent of all housing, are severely overpriced and subject to possible price corrections.”

5) In Phoenix Ariz, a super hot Real Estate market, over 30% of all homes selling on the market are owned by investors. That means they are getting out in droves and when the speculators (investors) leave, it is a sign.

6) According to Bloomberg -- "The number of mortgage applications filed last week fell to the lowest level in more than three years, more evidence the U.S. housing market is stumbling."

Since Oct 1st when the bankruptcy laws have officially changed, home prices have continued to drop in most markets or to stagnate. Yes, there are homes that will sell high due to new home projects, new condos, and upgrades, but the vast majority of sellers are sitting there wondering why their home has not sold for three months. The reason is over pricing. CNN Money showed a great graph of the over priced areas in the US. The graph shows the difference between what the home should be worth and what the selling prices are in the areas.

Here is some of that data. You will notice that 15 different metro areas in FLorida are in the list of extremely over priced metro areas and all 15 had grown more over priced during the last quarter.

My advice, if you are not a seasoned investor and your mortages are ARMS and I/O's because you could not afford a normal mortgage, I say 'sell as fast as you can, for whatever price you can get now' or you may be in trouble.

Metro area --- % over/under-valued

Naples, FL +84%
Merced, CA +77%
Salinas, CA +75%
Port St. Lucie, FL +72%
Stockton, CA +72%
Madera, CA +70%
Santa Barbara, CA +70%
Modesto, CA +67%
Napa, CA +65%
Riverside, CA +65%
Medford, OR +64%
Sacramento, CA +61%
Atlantic City, NJ +59%
Chico, CA +59%
Fresno, CA +58%
West Palm Beach, FL +57%
Redding, CA +56%
Santa Rosa, CA +56%
Bend, OR +56%
Sarasota, FL +56%
Miami, FL +55%
Oxnard, CA +55%
Vero Beach, FL +54%
Los Angeles, CA +54%
Fort Lauderdale, FL +53%
Vallejo, CA +53%
San Luis Obispo, CA +53%
Cape Coral, FL +52%
Bakersfield, CA +51%
Palm Bay, FL +49%
Barnstable Town, MA +48%
Oakland, CA +47%
Ocean City, NJ +47%
Prescott, AZ +46%
Panama City, FL +46%
San Diego, CA +46%
Visalia, CA +45%
San Jose, CA +44%
Deltona, FL +44%
Santa Cruz, CA +44%
Santa Ana, CA +44%
Bellingham, WA +43%
Fort Walton Beach, FL +43%
Nassau-Suffolk, NY +43%
Poughkeepsie, NY +39%
Reno, NV +38%
Las Vegas, NV +38%
Kingston, NY +38%
Washington, DC-VA-MD-WV +37%
Bethesda, MD +36%
Providence, RI-MA +35%
San Francisco, CA +35%
St. George, UT +35%
Ocala, FL +35%
Phoenix, AZ +35%
Portland, OR-WA +35%
Eugene, OR +34%
Tampa, FL +34%
Pensacola, FL +33%
Orlando, FL +33%
Grand Junction, CO +31%
Honolulu, HI +31%
Edison, NJ +31%
Duluth, MN-WI +31%
Jacksonville, FL +31%
Virginia Beach, VA-NC +29%
Worcester, MA +29%
Portland, ME +29%
Flagstaff, AZ +29%
Essex County, MA +28%
Baltimore, MD +28%
Charlottesville, VA +28%
Charleston, WV +28%
Tucson, AZ +27%
Newark, NJ-PA +27%
New York, NY-NJ +27%
Monroe, MI +26%
Bay City, MI +26%
Flint, MI +26%
Olympia, WA +26%
Wilmington, NC +25%
Tacoma, WA +25%
Salem, OR +25%
Minneapolis, MN-WI +24%
Asheville, NC +24%
Seattle, WA +24%
Mount Vernon, WA +24%
Jackson, MI +24%
Longview, WA +24%
Lakeland, FL +23%
Brunswick, GA +23%
Gainesville, FL +23%
Manchester, NH +23%
Bremerton, WA +22%
Tallahassee, FL +22%
Holland, MI +22%
Niles, MI +21%
Savannah, GA +21%
Santa Fe, NM +21%
Chicago, IL +21%



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