Sam Zell's take on housing: nearing "equilibrium''
Sam Zell is far from perfect. His decision to go from real estate mogul to media titan has been nothing short of disastrous.
Instead of saving the newspaper business, Zell helped drive the once-proud Tribune Co. into bankruptcy.
But as a real estate guy, Zell knows his stuff. He built twin office and residential empires under the Equity Office and Equity Residential names, and then managed to reap billions when he sold long before the bubble burst.
So Zell’s take on the current housing market is both timely and interesting.
Zell tells Bloomberg Television the nation’s housing market is nearing “equilibrium,’’ citing declining prices that are making homes more affordable and eating into inventory.
Zell even predicts the oversupply of homes will be back in line by the end of the summer.He also takes a jab at the get-rich-fast culture that dominated the real estate market during the boom.
"We never would have gotten into the position we're in today if everybody was focusing on where they wanted to live and what was a good value for living as opposed to what they could buy it and flip it for," Zell tells Bloomberg.
Zell’s remarks come amid other signs the nation’s real estate market may be finally thawing.
There was yesterday’s report that new home sales were up slightly, not as much as Wall Street expected, but up nonetheless.
Existing home sales, while still down year over year, are starting to show improvement on a month to month basis as well.
Equilibrium? We’ll see, but it sure beats the alternative.
Comment
Permalink
Email
As reported by CNN Money, at the Milken Institute Global Conference 2005 in LA, Sam Zell said, "The housing bubble has been created more by the business press than reality," You can't have a crash without oversupply."
In conclusion, Sam Zell and the other executives pegged the southwestern U.S. and Florida as best real estate buys.
Some more FACTS to chew on:
- One in every eight Americans is now late on a payment or in foreclosure
- Half the loans now in foreclosure are held by prime borrowers
- Massachusetts is number 7 in the country for the highest percentage of mortgages in foreclosure
Hardly the makings of equilibrium.
John,
Neither of the FACTS you mentioned has any bearing on whether the market is nearing equilibrium or not - the number of foreclosures is part of the supply of homes, and you are only looking at that side.
Unless you also look at the demand side also, you statement is devoid of meaning in the context of this article.
OK, HBX:
Data from April, which is indicative of just about every month for the past 3 odd years:
- Median April home prices down 13.1% YOY
- Sales volume in April down 14.5% YOY
Bottom line, demand is down. Good enough for you?
This assumes housing supply and demand are both fully transparent, but they are not. This particularly applies to supply.
With horrendous declines in valuation (now having battered even many areas not particularly "bubbly"), motivated sellers are mostly those forced to the wall by circumstances. Others simply hold their property off the market rather than sell into the teeth of a vicious bear. There are no remaining flippers to speak of, only a few "bargain hunters" who remain undaunted optimists about "the long term" (rest of their lives, perhaps).
Price discovery will continue (downward) until supply discovery (upward) is fully exhausted. Don't hold your breath until that eventual "equilibrium" actually arrives.
the government and main stream media will continue to argue that a bottom has been reached, a turnaround is starting, blah, blah, blah. Give this as much credence as "real estate never goes down, it's a great time to buy etc." We are headed much, much lower in terms of home prices. The bottom line is the asset class as a whole became enormously over-valued and needs to reveert to the mean, which is a long way off. It is really just a confidence game at this point, get people to "believe" so they will part with their money, that will be the focus of government and media for the next several years.
The numbers simply do not back up Zell's comments.
Take a look at Fannie Maes portfolio. All the metrics are getting worse at a rapid clip. This doesn't gibe at ALL with equilibrium.
A lot of the bounce is investor driven currently. Outside of a few areas, Price/income and Price/Rent ratios still exceed traditional norms. Demand wise, people should look at the real economy in places that have gotten cheap like the Inland Empire, Cape Coral, and California Central Valley - the economy to justify that level of development in those areas simply doesn't exist.
Affordability was up primarily as a result of historically low interest rates. Those rates are climbing dramatically, and unless foreign central banks stop worrying about us monetizing the debt (a very real fear on their part) those rates will continue to climb.
The majority of foreclosures now are on prime mortgages. So less demand from higher rates, end of the spring market (bet the press will ignore those cyclical numbers... ) and great supply = falling prices. Something would have to get better to actually achieve equilibrium...
MA Market will not see bottom till sometime in 2010. MA may be behind in recovery then other states because we started the slide later then other states. Also asking prices do not correspond to the average incomes. Until this equilibrium is reached MA will not see strong and broad recovery.
If your house has already been foreclosed . I wouldn't bet it .. on Zell's dreams !
This blogger might want to review your comment before posting it.
Recent Posts
browse this blog
by categoryINside Boston.com