Is there a housing bubble brewing downtown?

[mikeyjd]

Proceed with care -- housing bubble will pop

Mike Thomas

February 6, 2005

Mow the lawn. Wash the windows. Stick those real estate signs in your front yard before it's too late.

The housing bubble is about to burst!

We have only enough rich people in this town to fill Baldwin Park, Winter Park and Thornton Park.

And yet real estate is booming everywhere. The downtown condo towers are rising like corn in Kansas.

Prices have been skyrocketing. Wages have been stagnant. This does not compute. The time for correction is upon us. We are in a state of irrational exuberance.

Lenders are throwing money out the windows. No money down? No problem. Balloon mortgage payment? Who thinks two years ahead anymore?

Don't worry that the house costs more than you think it's worth. Soon enough it will be worth that price and much more. Come on, surely you know somebody who bought a house and flipped it in a year, doubling his money. Jump on the gravy train.

And the great thing is that when you get some equity in the house, you can leverage that to get in even more debt with a home equity loan.

This is the kind of group psychosis that led to the dot-com bubble.

Easy money is evil.

For the past three years, our economy has been based on housing prices that may or may not be legitimate. I sure hope it's the former. But if it's the latter, guess what happens?

Prices will plunge and people will owe more on their houses than the houses are worth.

This is when the economy goes bye-bye. But surely that can't happen in Central Florida. We have growth. We have demand.

Houses are not dot-com stocks. Houses are concrete. People need houses to live.

Cross your fingers and hope it's true. But trust me on this. The glory days are gone. If you are looking to buy real estate for the purposes of making a killing, that day has past.

Orlando economist Hank Fishkind has the numbers. Prices have been flat instead of escalating. Sales have been off their peaks. Rising interest rates are spoiling the party. Even the downtown condo boom might be on shaky ground.

"The problem for downtown is that there is a market that is no longer expanding and a lot of new supply," says Fishkind. "There is some irrational exuberance."

That's putting it mildly. It seems massive downtown condo towers are announced with more regularity than Walgreens openings.

There are now eight projects under way or on the drawing board.

It is too much too fast.

Fishkind thinks some of these condos might never get built and that others might end up in bank ownership. Hold off, stay tuned and be patient. Good deals might be in the offing.

But should Orlando be throwing any more incentives at condo developers?

The good news is that there never seems to be a glut of good homes in good neighborhoods. But do not buy a house based on what you think it will be worth someday. Do not leverage yourself to the hilt based on some inflated value.

Buy the old-fashioned way. Don't think of a house as Fort Knox. Think of it as a home. Then pay off your credit card bills and you should be fine if the big POP ever does hit.

__________________________________________________________________

I am a new member, but I have been reading these forums for a couple of months now and I thought this might spark a debate and I am interested to see people's opinions on this. Seeing the prices of the new condo developments downtown, is there really enough money in Orlando to sustain these developments, or is the city setting itself up for a bust a couple of years down the line? Just interested in people's opinions and looking forward to posting on the board.

[sunshine]

In Asia (not sure about Europe), buying a condo is cheaper than buying a house. In America, it is opposite. Maybe someday it will become that way here. About the burst, I am not economists, but I dont think it will burst maybe for another 10 years. Anyhow, I dont have the money to buy anything yet, so it will be good for me if it burst in a few years, but I really dont think it will happend so soon. The same thing had been said about Miami for a long time and look at them now. 50+ far more taller towers than anything that Orlando proposed are being built and almost all of them are sold out. Population growth in Orlando will be in the leading pack for awhile, someone will come and buy it.

Plus, another reason is that Miami is getting too expensive to invest, European and latin American will start to invest in central florida. Snowbird that likes Disney but also like an urban living environment will buy them. Latin influence is getting heavier in Orlando, latin radio channel is popping up. Someday, we will be like Miami that u need to know Spanish to go everywhere.

[Dale]

I think it's been quite a while since Mike Thomas wrote something I agreed with.

[Hisma]

I agree with sunshine in that if you think there's a bubble, look at Miami. Miami has lower average income than Orlando yet is exploding with condos. Orlando is also growing faster percentage-wise. I think the city can retain the growth, but soon it's gonna have to start targeting the middle class.

[mikeyjd]

I agree with sunshine in that if you think there's a bubble, look at Miami.  Miami has lower average income than Orlando yet is exploding with condos.  Orlando is also growing faster percentage-wise.  I think the city can retain the growth, but soon it's gonna have to start targeting the middle class.

<{POST_SNAPBACK}>

That is pretty much in line with what I thought. I guess it is just that the higher end of the condo market is leading the pack, and the more moderately priced condos will follow as momentum builds. I just hope we see all these exciting projects built as it will be incredible for the city.

[sunshine]

Orlando has three condo conversion proejcts have reasonable price for middle class if I remembered it right. CityView supposed to have reasonable price too.

[prahaboheme]

Orlando has three condo conversion proejcts have reasonable price for middle class if I remembered it right. CityView supposed to have reasonable price too.

<{POST_SNAPBACK}>

I think if there is a condo burst that wont necessarily mean growth will spot. More apartments downtown wouldn't necessarily be a bad thing either. Once we get condos in there, i'd like to see other kinds of growth as well, retail, restaurant, office, cultural, etc. All of these things play off each other and help make things sustainable so that the market isn't so fragile.

[Jaybee]

Interesting question...

I see a few things driving the condo boom:

1. Baby boomers who are retiring their suburban empty nests for downtown living.

2. DINKs (Dual-Income No Kids) in their 20's and 30's, who don't want to live out in the suburbs where the commutes are getting worse; or would prefer not to locate in the inner-ring of suburbs that are now worse off. After all, Pine Hills was once a nice new subdivision.

3. The low dollar is getting more foreigners interested in speculating in the Central Florida area, since real estate is relatively cheap and their foreign currency goes a long way here. If they don't visit, they can rent out their place. There are entire subdivision that are being marketed to the Brits (See web-sites like http://www.webdzigns.co.uk/click-4-sun/cli...php?cfs=257995)

4. Thronton Park types now finding Orlando a friendly community.

5. The bar-crawl types.

6. Students that brave the Downtown.

7. The Urban pioneer homesteader, who wants to raise their kids in the City, without the problems of suburbia.

While Las Vegas has seen a run in prices and a bust last year (35% drop in prices in a month), this was mostly a function of Californian's retiring to the desert and running up the prices with an incredible amount of inflation. Suddenly everyone asked, why are we paying so much to live out in the middle of the desert? The bubble burst there. The question for the U.S. is, will this Las Vegas pheonom be contained? So far, California has not seen the bubble burst. My townhome there, which just sold for $655K in October, now goes for $700K. Until it does, I'd expect Florida real estate prices to soar, especially decent, close-in housing considering the lack of transportation resources that there are here in the region. That includes downtown condos.

[Brickell]

If the 3 hurricanes didn't kill the Orlando's boom then I don't think anything will.

Even as interest rates rise, I think the downtown boom in Orlando, Miami, Tampa etc are safe. They're "new" neighborhoods that people want to buy into. This may be at the expense of inner ring suburbs, but that's just the ebb and flow of economics.

[prahaboheme]

I agree with Brickell. Things are looking good for the whole state of Florida.

[Rick 2]

This Slantinel writer is nuts; There is so much pent-up demand for the VAST majority of Florida property that we will see increases, albeit maybe not the same double digit returns like the last 4 or 5 years, at least until every baby-boomer in America retires.

Now, the downtown condo market might be a little more iffy, because a condo supply glut could foul up those who are heavily invested in downtown and speculating on high end condos elsewhere. In the late 70s and early 80s a lot of condo-style development ran through the metro area and there was significant over-supply and a deal could be obtained for those with paitence.

[Sambone]

Speaking of Hurricanes!!

I got first hand knowledge...we moved from a house to a loft in the TPC in between Charley and Francis... We felt very secure...Lights never even flickered once in the loft.

Plus the hurricane prep only took me 5 minutes compared to hours at the house. Another nice convenience to living in an urban dwelling.

[sunshine]

u prolly have underground cable system

[GRS328]

Now, the downtown condo market might be a little more iffy, because a condo supply glut could foul up those who are heavily invested in downtown and speculating on high end condos elsewhere. In the late 70s and early 80s a lot of condo-style development ran through the metro area and there was significant over-supply and a deal could be obtained for those with paitence.

<{POST_SNAPBACK}>

While this is true of the late 70's/early 80's real estate crash, the difference between then and now is that there was excessive "speculation." Precautions are taken today to prevent this from happening again, mostly in the form of pre-solds required, and diversification of pre-solds (not just to investors looking to flip). This is the only way I don't see some of these condos ever going up - as the Sentinel writer implied he thinks might happen - is in the event the developers can't secure enough pre-solds to justify construction. Based on the response to The Plaza and the VUE (i think), it doesn't seem like they are having too difficult a time securing pre-solds.

The question in mind becomes, will there be enough retail (and even office) downtown to satisfy such an influx of residents? I'm afraid of an imbalance. I could be dead wrong though. Would love to hear others opinions.

[scheffler]

If you earn 40,000 a year in that will buy you a 350 sq. ft. studio in Boston (200k). Move to the immediate suburbs and that becomes a 500 sq. ft. one bed. So maybe its not soo bad in Orlando after all.... Watch out for all the Massholes, they are coming to a town near you!

[I-275westcoastflorida]

Well all of florida is basically seeing the housing prices rise so its harder for the middle class to buy and the hi-rises are expensive because they are expensive to build so they add more $$$ to it. Thats why im trying to move back to Tampa now while its slightly affordable because soon it wont be