Saturday, February 20, 2010


I'm planning a trip to Disney World with the family sometime this summer so this story from Mish caught my eye.

Mish highlights the fact that Orlando real estate got creamed in January, prices were down some 15% from December. The blog article goes on to say that the reason for the decline was that 3/4 of the inventory consisted of shorts sales and foreclosures while 1/4 of the homes were your traditional sales of nice houses without credit issues.

As Mish mentions, the article from the Orlando Sentinel suggests that if you could extract out the distressed sales you'd be left with a 3% drop in prices from the previous month on "normal" houses.

GREAT! I thought things were all better? I thought we were coming out of the pit and the economy was surging?

Further in the article they interview a real estate consultant that suggests that pricing in the area will actually remain stable and since homes are more affordable we don't have to worry about the 13 months of foreclosure inventory that is "shadow inventory" meaning that these are homes that the bank owns but hasn't written them down and taken the losses. Hmmmm.

Didn't I just make a post the other day that said the following; WOULD YOU BUY THIS COMPANY?

"These steps may have had some stimulative effects in the very short run with a boost in sales in November, but ultimately we will see that intervention won't help as lenders and the government have realized that they must actually take lending standards to the level where only qualified buyers should be able to obtain financing. As standards are improved, fewer buyers will qualify and excesses in the quantity of homes available will then drive prices lower. In addition, foreclosures WILL be released from the inventory on banks balance sheets and this new supply will only add to this problem."

I love the consultants final conclusion.....

WAYNE - Our main conclusion is that prices are likely to keep steady, despite the massive shadow inventory, because the tremendous affordability we have today will create a floor for pricing. However, if the economic recovery stalls or mortgage rates spike, we’re going to see prices tumble again.

It is almost as if Wayne is trying to hedge his bets and say, "Everything will be perfect, unless the obvious and the inevitable occur, then it will be bad". Yes Wayne, you are correct! The recovery will stall and lending standards are going to be tightened, and we are going to see mortgage rates rise, therefore despite your best efforts to tell the truth, prices are going to tumble further.

Is it any wonder that I am able to rent a 3 story town home that is nicer than my home for $125 a night this summer? Yes, I'll be a few minutes away from the parks, but I am looking forward to Disney at the expense of the continuing housing meltdown.

Short and simple today. Be careful about purchasing real estate in Las Vegas, California, and Florida still. It isn't getting better no matter how many investors attempt to catch the bottom. Remember, real estate often goes down as interest rates go up, especially as financing cost increase for investors and commercial buyers.