Sunday, July 31, 2005

A Dangerously Frothy Real Estate Market

New home building is apparently slowing - except for condo building in the South.

An article in the Christian Science Monitor says:

"Because the Fed is expected to continue to raise rates through the year, economists are less sanguine about housing in 2006. "That's when we will probably see some retrenchment," says Joe Abate, an economist at Lehman Brothers in New York.

In a recent report, Mr. Abate says he believes that on a national basis, housing prices are overvalued about 15 percent. Some markets he refers to as "dangerously frothy." In those areas, housing is becoming difficult for people to afford, so they are resorting to unusual mortgages that lower the monthly payment but make the overall cost of a house more expensive."

Does this mean that our own "dangerously frothy" real estate market may see some changes? Unfortunately we cannot predict that. It sure seems that the supply of downtown condos is plenty - particularly if, as is widely believed, a significant number of the contracts on the as yet unfinished condos are mostly held by speculators.

Seems like a lot of speculators own rental property in all Sarasota neighborhoods. In the spring there were many "for sale" signs. Now the same properties have "for rent" signs. Could it be that a limit has been reached in prices people are willing to pay and in the number of speculators holding properties waiting for a buyer with money? Of course this could be just a seasonal thing, but somehow I have my doubts.

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