Sunday, October 09, 2005

13 percent drop in Manhattan real estate prices

October 5, 2005

The Big One isn't the long-predicted California earthquake or even a hurricane named Katrina. The genuine big one will arrive with a deafening pop, the sound of the real estate bubble bursting. In the past few years there have been plenty of false sightings, but now comes something truly ominous: a 13 percent drop in Manhattan real estate prices in a mere three-month period ending October 1. As if that were not bad enough, more unsettling news of the same nature is reported in Boston, Washington and San Francisco, the places that have led the national upward zoom in real estate prices for the past several years.

The rise in real estate prices has resulted in a huge jump in unearned income for homeowners. By taking home equity loans and cashing out--that is, refinancing the mortgage--every time their houses went up in value, the millions made billions. According to Federal Reserve chairman Alan Greenspan, they made $600 billion last year on the hypothetical appreciation of their properties. That adds up to about 7 percent of their spendable, after-taxes income. That's twice as much money put into people's hands as Bush's tax cuts.

That money went into retail spending at the mall, on vacations, new cars and other forms of happy doodadderie. If house prices stop going up, the 7 percent vanishes and there must be a huge drop in retail sales, which are the single largest force keeping the prosperity balloon in the air."

Makes you wonder what the real estate market will be doing in a couple of years time...

Chris Bell


Apartment prices plunge in Auckland, New Zealand

Sep 27, 2005

The stage is set for Auckland's central city apartments to fall in value by up to 40% over the next few years with prices already falling amid an oversupply, according to a property analyst. Kieran Trass, who's also a director of investment mortgage brokers Hybrid Group says buying into Auckland's CBD apartment market now is equivalent to catching a falling knife.

Auckland's CBD apartment values are already falling because of factors including a severe oversupply, dwindling international student numbers, lack of demand from tenants and subsequently plummeting returns, Trass says. A flood of supply of apartments available to buy or rent is resulting in a 'distressed' market, he says. 'Now may look like a great time to buy into this distressed market as apartments can be bought at prices much lower than their inflated asking prices, but caution in any distressed market is wise.'

The number of apartments in the CBD has nearly doubled from that of just two years ago to over 12,000, with another 4,000 under construction and another 3,000 planned in the next few years, Trass says. He says the number of apartments on the market for sale could increase within the next 18 months to more than 5,000, or 25% of Auckland's CBD apartments.

The current oversupply is forcing down rents and sale prices, Trass says. For example, a studio apartment in central Auckland whose owners were originally getting $350 a week just over a year ago had to reduce the rent to $200 to secure a tenant for just three months. Studios of around 30 square metres which were originally being sold for around $150,000 are now only worth about $100,000, if you are lucky, he says."

Buying off-plan seems like easy money... and it is for a while. But once the market turns it's a quick way to lose a lot of money. You have just got to know where you are in the property cycle (not too late!) for your particular market when you buy apartments off-plan - or you'll just have no-one to sell on to. There are plenty of developers and property dealers still pushing apartments as a good investment so take care.

Chris Bell