Tuesday, March 01, 2005

Housing bubble II

Last time I checked, speculative buying and prices decoupled from fundamentals were sure signs of a bubble...

NYTimes: "According to LoanPerformance Inc., a San Francisco mortgage data firm, about 8.5 percent of mortgages nationwide in the first 11 months of last year were taken out by people who did not plan to live in the houses themselves, up from 5.8 percent in 2000. In some markets, that proportion is much higher: in Phoenix, more than 12 percent of mortgages were taken out by investors; in Miami, the figure is 11 percent.

The National Association of Realtors, a trade organization that represents real estate brokers, said in a study being released on Tuesday that the percentage of homes bought for investment might be as high as one-quarter of the 7.7 million sold last year.

"Americans are treating real estate as a viable alternative to stocks and bonds," said David Lereah, chief economist at the Realtors association. And some are buying at least two properties at a time."
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8 comments:

Calculated Risk said...

Steve, here is the NAR report referred to in the NYTimes story:
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/SecongHomeMktSurges05?OpenDocument

"The new study ... shows that 23 percent of all homes purchased in 2004 were for investment, while another 13 percent were vacation homes. In addition, there was a record of 2.82 million second home sales in 2004, up 16.3 percent from 2.42 million 2003. The investment-home component rose 14.4 percent to 1.80 million sales in 2004 from 1.57 million in 2003, while vacation-home sales rose 19.8 percent to 1.02 million in 2004 from 850,000 in 2003."

3:05 PM
Anonymous said...

An interesting parallel in Ireland. The Irish have grown in wealth significantly faster than other European Union members in the last 15 years, and much of Irish saving has gone to real estate. Not just in Ireland but in other European countries and further abroad.

Anne

5:23 PM
Anonymous said...

Calculated,

Please add any further interpretation that you may have.

Anne :)

12:13 PM
Anonymous said...

http://www.nytimes.com/2005/03/02/business/02prilosec.html?pagewanted=all&position=

Where Has All the Prilosec Gone?
By ALEX BERENSON

Call it the case of the disappearing Prilosec.

For a year, supplies of Prilosec OTC, a popular heartburn drug sold over the counter, have fallen far short of demand. Procter & Gamble, which markets the drug, first promised that more Prilosec would be available by December, and then by January.

But many pharmacy shelves still remain bare of the drug. Now the University of Utah, which tracks drug shortages, says the shortage of Prilosec OTC will continue until at least April.

'I have none in stock right now,' said Sandy Greco, executive vice president for purchasing and marketing at Kinray, a drug distributor that supplies 3,000 pharmacies across the Northeast. 'Zero.' Mr. Greco said he contacted Procter & Gamble every day to ask for more Prilosec OTC but rarely received any.

Procter & Gamble and its partner, AstraZeneca, a British drug company that owns the rights to Prilosec OTC, say they underestimated demand for the drug and are working to increase production and correct the shortage.

'America's frequent heartburn problem has been much more frequent than we could have ever predicted,' said Kurt Weingand, a spokesman for Procter & Gamble.

But many Wall Street analysts, consumer advocates and academic researchers who study drug costs discount that explanation and say they believe that AstraZeneca could easily meet demand for the drug if it chose.

The shortage of Prilosec has been very good for AstraZeneca's bottom line because it has increased sales of Nexium, a far more expensive prescription heartburn medicine that AstraZeneca also sells, said Michael Krensavage, a drug industry analyst at Raymond James.

Most doctors view the two drugs as essentially identical, yet the cost of Nexium is more than five times that of Prilosec OTC, about $4 a pill compared with 70 cents.

'Over-the-counter Prilosec works as well,' Mr. Krensavage said. 'It's an utter travesty for the American consumer.'

Anne

12:26 PM
Anonymous said...

http://www.federalreserve.gov/boarddocs/testimony/2005/20050302/default.htm

Alan Greenspan:

"I fear that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver. If existing promises need to be changed, those changes should be made sooner rather than later. We owe future retirees as much time as possible to adjust their plans for work, saving, and retirement spending. They need to ensure that their personal resources, along with what they expect to receive from the government, will be sufficient to meet their retirement goals."

Alan Greenspan is not coming down hard on fiscal policy, rather he is coming trampling on a generation that has been working faithfully and has a right to well earned Social Security and Medicare benefits. What a sad comment by Alan Greenspan.

Anne

12:33 PM
Anonymous said...

I am more than mildly displeased with Alan Greenspan for his dreadful meddling in fiscal polcy. Where was the Alan Greenspan who was warning us about a surplus that would gobble up Chicago? Where was "let us cut taxes and cut again," Alan Greenspan? Dreadful breaking of faith.

Anne

12:34 PM
Anonymous said...

Steve, Prilosec article is especially interesting. Any response :) ?

Anne

12:36 PM
Anonymous said...

I have often wondered about metrics such as ROI or P/E ratios in the current housing market. The flat (or declining) rents seemed to indicate a huge disparit, suggesting that singlle-family real estate investors were relying on increasing value rather than "earnings" (rent) to justify their investments.

Well, a colleague recently sent me some excellent references on these issues. The Economist ran an excellent aticle in the here. There is also a blog (here) with some intersting links and facts. I believe the blog may overstate some of the issues, but the general tenor rings true.

1:22 PM

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