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If you’re buying a single-family home or condominium, plan to live in it long term because the days of making fast cash in real estate are over, industry experts said.

“Everybody can’t be Donald Trump,” said Henry Fishkind, an Orlando economist who spoke at an Urban Land Institute seminar at the Seminole Hard Rock Hotel & Casino in Hollywood. “I’d be cautious right now.”

Fishkind and other analysts agree that the housing sector has peaked and predicted problems for the condominium markets in West Palm Beach and Miami, where thousands of units are expected in the next few years.

The condo market in Fort Lauderdale is in better shape, mostly because of restrictions on supply imposed by the city, analysts said.

In Miami-Dade, more than 71,500 units are built or planned, Miami real estate consultant Jack Winston said, adding that only 9,100 units were completed countywide in the past 10 years. He did not release figures for Broward or Palm Beach counties.

Some small banks will be in trouble because they’ve loaned money to condo developers who won’t follow through on building plans as the market softens, analysts said Friday. They think falling land prices are inevitable during the next year.

Likewise, real estate speculators will take hits if supply continues to outpace demand, hurting their ability to resell or rent units. Already, agents are reporting price reductions in some condo resales.

“Miami is ground zero for the housing bubble,” Winston said. “It’s going to be severe in Miami, and it’s going to be problematic in West Palm. We’ve built too many units compared to the projections for real users.”

More than 6,000 units are coming to West Palm Beach, mostly in the downtown corridor, officials have said. But unlike Miami, West Palm can’t count on a large contingent of international buyers to scoop up condos, Winston said.

Developers point to the growing numbers of young professionals who want to live in downtown condos, Winston said. “The problem is, while they are an emerging market … they can’t afford the product,” he said.

Mortgage rates could climb above 7 percent this year—which would be enough to slow housing growth but not enough to cause markets to crash, Fishkind said.

Converting apartments to condos was one of the industry’s hottest trends in 2005, but it will slow somewhat throughout South Florida this year, Deerfield Beach consultant Jack McCabe said. As a result, condo converters will head to other areas, such as Tampa, Orlando and Jacksonville.

The cost and scarcity of building supplies, particularly cement, will continue to affect development for a third consecutive year in 2006, said Ken Simonson, chief economist for the Associated General Contractors of America.

Simonson is more optimistic about the national housing market than other experts, saying he expects no more than a minor decline of 1 to 3 percent in 2006.

by Jim Crawford

Over the past few years in many of our markets, as listing agents and buyer’s agents, we’ve become spoiled with quick sales from limited choices of little or no listing inventory.

Sales closed with little or no objections, and multiple offers. Inspections and appraisals were routinely waived, and on each property there were multiple offers. Even the garbage listings that we’d once turn our noses up at … listed, and somehow sold. Seasoned agents who were veteran of softer markets were dumbfounded as listings they rejected … sold with other agents, and prices climbed even higher still. Perhaps buying a home further out in the suburbs is the solution to our problems? Sound familiar? Low rates, strong buyer demand, and short supplies of listing inventory set the stage for a perfect stupid real estate storm.

Burgeoning real estate ranks, anxious buyers and sellers, plus loads of new agents with little or no experience buoyed this exuberance with closed home sales of questionable value. Little or no advice was offered to clients because everyone was caught up in the frenzy of the real estate moment. Gee, what was everyone thinking?

It’s like a game of musical chairs—only it applies to your real estate. It all works okay until the music stops. Are there any buyers for your home? Are they willing to pay you more than you paid for it? The problem with this scenario is that buying or selling real estate impulsively without qualifying the product. I really believe the old steadfast real estate axiom, “Location, location, location,” was abandoned during this time!

We must never forget that location has many practical applications to value. Location applies to demand areas for commute, best schools, shopping, and most of all where there will be a strong market demand for the property. So without a great location, a purchaser may end up with real estate of questionable value. The true test of what you purchased is always in the resale of that property, and the greater the demand, the greater the price.

In a rising market, everyone was a real estate expert. In the past few years, ranks of real estate agents swelled across the country, and since many agents never bought or sold anything, how could they advise their clients? The 45 hours of real estate pre-license course really does not qualify anyone to advise a client. So, products weren’t qualified for future needs or worth, and no one questioned the impulse purchase.

It did not matter that the property was located two hours from the city, but the terms stunning views, panoramic vistas, and great mountain lakefront sold the properties. Insatiable purchasers, would be investors, unsophisticated speculators, and unyielding home sellers fueled the market conditions by not having any solid plan for the purchase or sale other than the belief that prices must continue to go higher because the home and its surroundings looked so beautiful! I guess this can be called either stupidity or innate greed! But can prices go still higher, and will they? If answered objectively, it depends on what you purchased, and where it’s located.

To those that are only familiar with a rising market, the only answer would be, “Yes!” Please keep in mind that even a broken clock is right twice a day! But if the answer is, “No,” then we must ask ourselves what will sell and why? We must qualify the product.

Among the items that should be considered are: price of the property, condition, location and demand! What properties will hold their price if the market changes? If the markets do change, what’s the best property to hold for a long term? What properties will have the best chance to appreciate in value? We must be able to answer the “Whys?” We must keep in mind there are always external pressures to real estate. Stuff happens!

Interest rates rise, energy costs can increase without warning, layoffs of local employers can occur, and before you know it … affordability has crept beyond the reach of consumers, and the euphoria finally gives way to reason and common sense prevails once again! So what qualifies a good property or a smart purchase? The answer is a back to real estate 101 basics. Location, location, location!

To keep it fundamentally simple, it is easier if we think of qualifying as a grading system! As we assist a buyer as a buyer’s agent, we must be advising them of the assets and liabilities of the properties we show. If we are acting on the behalf of a seller we should be advising them of the realities of the market, and how they can best obtain the best price, and most favorable sales terms.

If we do not, we are not real estate professionals, and we are just order takers. So what is the real value in a property? How it the value determined? Keep in mind we are discussing a changing real estate market, and not talking about a real estate bubble; we are discussing a shift in sentiment of consumers. During this phase, buyers as a whole are cautiously rethinking their own needs. Consumers will take a time out to sort out their own needs versus wants. Rising fuels costs, heating bills, longer commute times, all translate into a need for practicality, and perhaps a better location. The real reason for a market change may be a longing to return to core values, and increase a quality of life rather than choosing the impractical and an ostentatious home. A smaller, older home closer in may be a lot more practical.

True value may be defined as the utility the property offers. Maybe it would be great to walk to church, have good schools for the children, nearby shopping, or be able to ride a bike to work if one wants to! Think about it. Location offers a life with an epicenter, as opposed to schizophrenia of the suburbs. Is there value in that?

As real estate agents and professionals, we need to be more proactive with home buyers. Qualifying the real estate in question as if we are grading a diamond should be part of our routine. What value is perceived in the property? What are the pluses and minuses? What surrounds the property? What is it near? What are the school districts? Are they good schools, mediocre or sought after? Is the property in question ideal for a short or reasonable commute? Is the property convenient to shopping, recreation, dining, mass transit, and offer desired amenities? Is the value of the property reasonably priced compared to the perceived valued offered?

For a moment, think about all the new homes being constructed in the suburbs At first glance they are perfect! They offer new schools, perhaps some over crowding, lower school scores and fewer choices in curriculum because it has not been totally defined or established in the newer schools. Homes in these brand new swim tennis communities may offer more bang for the buck, but offer only limited choices for shopping, and in reality have longer commute times due to road construction delays as infrastructure is brought to the new communities.

Initially the attraction of the smell of new paint, carpet, granite countertops and lower taxes, gives way to a reality check brought on by the stress of daily living. Higher commuting costs, marginal or mediocre education opportunities, long tedious commutes, and more wear and tear on the car. Conversely, closer in, there are older homes with bigger yards, many may even need some updating and paint!

They may be located in an area where there are established neighborhoods, houses of worship, good schools, accessible highways, mass transit, and shopping, and only 5-10 minutes from your job.

In a buying frenzy, the impulse would be to buy the new home without weighing out all the other factors. It is reality versus fantasy time. The true worth of any new home is the resale of it! If we go into an in depth analysis when we buy or sell, experience shows us we have not too much reason for concern. Good school districts will always be sought after; everyone wants a nice neighborhood, and a commute that is short enough that you can enjoy your home when you return home at the end of the day.

In short, a good choice in real estate will always be about location, location, and location.

MIAMI — For eight years, Rob Quinlivan has lived in his version of paradise — a 40-foot power boat docked in a public marina.

It’s a life that’s given him adventure, freedom and a way to experience the best of South Florida without the soaring prices of its red-hot real estate market.

“Where else can you get living on a waterfront property, you know, some of the best climates in the world?” asked the 60-year-old manufacturing engineer.

But Quinlivan’s slip fees have jumped $200 a month in the past two years to $700, and he and other boaters are finding out the hard way that the real estate boom isn’t limited to dry land.

Public places to dock are getting harder to come by as developers buy up marinas to convert them into private slips for luxury condominiums in popular areas such as Florida and California.

According to the Boat Owners Association of the United States, the pressures of development are a real concern for the nation’s estimated 13,000 public marinas, 11,000 of which are “mom-and-pop” family-owned operations.

“These owners have put a lot of sweat equity into their facilities. They’re getting up there in years and a developer comes along and offers them a big check, and it’s attractive,” said Scott Croft, a spokesman for the Alexandria, Va.-based association.

The real-estate boom in prime waterfront areas has been accompanied by a surge in boat ownership.

There were 12.78 million boats registered in the United States in 2004, the most recent Coast Guard figures available, down slightly from a peak of 12.87 million in 2001.

But top-ranked Florida’s registrations rose 79,900 during the same time, and third-ranked California’s climbed 61,700 last year alone, according to state data.

Pineda Point Marina in Melbourne on Florida’s central Atlantic coast has witnessed the boom since the family owned business started about 15 years ago.

The marina’s 100 slips are always full, and manager Scott Jordan said developers have casually asked his father, the owner, about selling.

“I’m not saying that we’re going to stay here no matter what,” he said. “If someone was to come around and offered the kind of money that was a ridiculously high price …”

He said rising insurance rates and property taxes that accompany the real estate boom also have made the marina less profitable.

Property taxes alone jumped 28 percent last year, from $11,713 annually to more than $15,000.

Florida’s Fish and Wildlife Conservation Commission, a state agency that handles boating access, is concerned about the marina situation and is awaiting the results of a study that will gauge the exact number of facilities lost to development.

“There is, at this point, little that we can do,” said commission spokesman Willie Puz. “Because it’s private property, we can’t regulate it.”

Lawmakers plan to introduce a bill in the Florida Legislature this year that would encourage local governments to preserve public marinas, Florida Association of Counties spokeswoman Kriss Vallese said.

Some counties also are taking steps to keep marinas open — Palm Beach County recently approved $15 million to preserve one of its marinas.

Developers say the shortage of marina space is simply another part of the real estate boom.

“In a state like Florida, we have people moving into the state and one of the main draws is the water.

“That’s a diminishing percentage of land as opposed to the number of people coming in.

“The one thing we can’t grow is beachfront,” said Jim Cohen, a principal with Boca Developers.

He said developers also are providing a service by modernizing some public marinas that have fallen into disrepair.

His company, based in Deerfield Beach, also has set aside about 10 percent of the marina space at one of its properties for public use.

But for some boaters, that isn’t enough. Jim Edwards, 39, originally from Florence, Ala., lives on his 41-foot sailboat with his girlfriend and travels around the Caribbean and Gulf of Mexico.

Since leaving land 10 years ago, he said he has seen Florida change from an affordable place for boaters.

“It’s a place for the wealthy who have the money to enjoy the waterfront,” Edwards said.

“If you don’t have, you know, a big boat and a lot of money, they don’t really want you.”

Analysts have been nervously writing year-end epitaphs for real estate for the last couple years, but the sector has kept outperforming the overall market. Despite worries that real estate funds are due for a breather after six strong years, smart investors are likely to hang on.

Real estate stocks do not move in lockstep with the rest of the market, and that makes them good portfolio diversifiers, said Dan McNeela, senior analyst with fund-tracker Morningstar Inc. Another point in their favor is that a significant portion of their total return comes from dividends.

It’s become common for investors to plunk 5 percent, 10 percent, or even more, of their equity portfolio in real estate funds. But rising valuations have led McNeela and other analysts to recommend cutting back to the lower end of that range, although industry fundamentals seem to be improving by some measures.

“We’re cautious, considering how well real estate funds have performed since the beginning of 2000,” McNeela said. “As much as some of the fundamentals look to be improving in real estate sub-sectors – for example, we’ve had sustained job growth, and that leads to greater demand for office and apartment space – we think price appreciation has largely outstripped the rate of change.”

Last year, the NAREIT Equity REIT Index, tracked by the National Association of Real Estate Investment Trusts, surged 12.2 percent, compared to a ho-hum 4.9 percent return for the Standard & Poor’s 500. That follows a period of strong gains that had analysts fretting about the sector’s outlook as early as two years ago, after REITs posted an astonishing 37 percent return for 2003. Concerns intensified as the economy picked up steam and the Federal Reserve tightened interest rates, but REITs surged 31 percent in 2004. The same issues were cited at the beginning of 2005, and while their performance cooled in comparison to the previous two years, REITs still managed to outperform most segments of the market.

It’s easy to capture investors’ attention with these short-term numbers, said Michael Grupe, NAREIT’s vice president and director of research, but they do not reflect the whole story. In fact, REITs have outperformed the S&P 500 over 10-, 15- and 30-year periods, as well, albeit by a less dramatic margin – about 2 percentage points a year.

“It’s very, very difficult to try to outguess what the market is going to do,” Grupe said. “The best strategy is to earn market returns and to diversify your portfolio.”

Anchorage home values have been surging upward for the last five years, and at least one local Realtor sees more growth ahead.

But strong as home appreciation seems, it pales to that of many other cities around the United States, said Niel Thomas, an associate broker with Coldwell Banker Fortune in Anchorage.

“Those of us in the business hear fewer and fewer people express sticker shock about the price of our houses,” he said. “Our market is just not seen as terribly expensive compared to other parts of the country.”

Anchorage’s average home sales price has grown by 11 percent annually in recent years, with many other cities showing something like 30 percent growth, he said.

Next year’s local home market should look much like last year, when the average home sold for about $290,000, not counting December, for which full sales data was not available, Thomas said during an Anchorage Board of Realtors luncheon.

An average home price of $400,000 is common in other cities today, Thomas said.
Many are wondering if home prices nationally are overheated, whether the bubble is about to burst. But Thomas said in a follow-up interview Thursday he doesn’t see that happening in Anchorage. That’s more likely in other cities where home prices have gone up much faster, he said.

Here are a few other remarks from the Board of Realtors luncheon:

—If local home values keep growing at the rates seen since 2000, Thomas figures the average Anchorage home could sell for about $400,000 in five years.

—Some people think a real estate license is a ticket to riches, but data Thomas said he acquired from the Alaska Multiple Listing Service, a trade association of real estate professionals, shows that a relative few make big bucks in home sales. According to the data, 16 MLS members—the association has 1,173 members—reported handling transactions involving 10 million or more in properties last year. On average, the typical agent earned $56,000 in commissions last year, before deducting the brokerage company’s cut and the agent’s own business expenses, he estimated.

Mark Edwards, an economist and director of the state Office of Economic Development, said Alaska’s economic climate seems to support the idea that home values keep rising.
One factor, he said, is the lack of available land for new home building in Anchorage.

“We are surrounded by water on two sides and a large mountain range on another side,” he said.

The other big factor is that the local economy has been growing modestly but steadily and is increasingly diversified, Edwards said. And Alaska’s population is growing.

U.S. Census Bureau figures show that home ownership is a growing trend here, Edwards added. In 1984, about 58 percent of census respondents reported owning their own home. In 2004, the figure was 67 percent.

(Comtex Business Via Thomson Dialog NewsEdge)Jan 13, 2006 (Inman News Features via COMTEX)—After a mid-week pop-up in long-term rates, they are back down, mortgages again approaching 6 percent.

The pop-up was a form of boredom: after three weeks near 4.35 percent, unable to move lower, the 10-year T-note wandered upward. The threat of breaking out of the top of a sub-4.5 percent range reversed today on three forces, in approximate order of importance: good inflation news, suspiciously weak-side economic data, and money moving to Treasurys for safety (Iran…).

This morning’s producer price data were terrific: the December core rate rose only .1 percent, year-over-year only 1.7 percent, and in a declining trend.

There are some healthy data: new claims for unemployment insurance are holding low, the job market overall in its best shape since 2000. And, mortgage applications have recovered from a holiday slowdown.

However, the preponderance of other data is moving toward the slowdown side.

December retail sales came in slightly below the .9 percent overall forecast at .7 percent, but ex-auto sales (inflated by desperate Detroit giveaways) the remainder was a slim .2 percent gain. Many analysts point to energy costs—the first hit from spectacular heating bills—but the huge cumulative rate hike from the Fed may be more important.

Two more indications of slowdown ahead are lagging reports from last fall—some stuff takes forever to gather and collate. To a bond trader, “last fall” is as important as the French Revolution; however, the significance of consumer credit and home-equity-line-of-credit (HELOC) usage trump delay. We learned this week that consumer credit contracted in October and November in the first back-to-back decline since 1992 (a recession then-about). We also learned that new HELOC volume dropped in the July-September quarter, and the only significant increase was in the “finance company” category, the typical provider to lower-credit borrowers.

It’s early, and the slip in consumer credit demand last year may be Hurricane-related, gasoline-related, or some other transient event. However, it was also the interval in which Fed hikes began to bite, taking HELOCs above 7 percent.

The slowdown-indicating “inversion” over the holidays dissolved last week, but is back in different form this week. In order, 2-, 3-, 5- and 10-year T-note yields today are: 4.34 percent, 4.29 percent, 4.29 percent and 4.36 percent. A “dish” like that in the middle of the yield curve is just as indicative of slowdown ahead as 10s under 2s.

Iraq has been a slow-motion corrosive, not moving markets since the invasion in ‘03. Developments around Iran before this long weekend are pushing some money to Treasurys for safety. Iran is coiling to jump the nuclear fence, and several long-term unknowns are now short-term. Will Russia and China join the United States and Europe to bring pressure to bear? If so, will it work? If not, might Israel pre-empt (with or without new leadership)? What if the U.S. and Europe are on their own?

Two weeks ago Russia choked-off Europe’s gas tap, a point lost on no one. China was last active in world affairs 500 years ago; though it does appear to have put the kibosh on North Korea, next door, it seems to see the rest of the world as no more than unruly customers and suppliers (Iran!).

Mutual trade is the route to mutual riches, as Holland, England, Spain and Portugal discovered at the same time that China withdrew inward. Global trade cannot be conducted without security, the absolute pre-requisite, and I hope that Mr. Putin and the collective in Beijing are giving that concept a thought.

Taking pleasure by flexing muscles of empires past, and at the sight of Europe in decline, and at America bogged down and over-extended…that is one thing. The stability of a trading system, and the world, is another.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.