What’s Happening In Real Estate

  1. Analysis of Today’s Market
  2. Update On Gold
  3. Real Estate Prices In South Florida
  4. Real Estate Nationwide
  5. Yield Curve Is Still Inverted
  6. What this means to you
  7. Analysis of today’s market

As an analyst of the economy and the real estate market, one must be patient to see what unfolds and to see if one’s predictions are right or wrong. One never knows if they will be right or wrong, but they must have a sense of humility about it so that they are not blind to the reality of the marketplace.

In March of 2006, my eBook How To Prosper In the Changing Real Estate Marketplace. Protect Yourself From The Bubble Now! stated that in short order the real estate market would slow down dramatically and become a real drag on the economy. We are experiencing this slowdown currently and the economy I feel is not far from slowing down as well. History has repeatedly shown that a slow down in the real estate market and construction market has almost always led to an economic recession throughout America’s history.

Let’s look at what is happening in the following areas to see what we can gleam from them: Gold, Real Estate in South Florida, Real Estate Nationwide, Yield Curve/Economy and see what this means to you:


  1. Gold

If you have read this newsletter and/or the eBook, you know I am a big fan of investing in gold. Why? Because I believe that the US dollar is in serious financial peril. But gold has also risen against all of the world’s currencies, not just the US dollar.

Why has gold risen? Gold is a neutral form of currency, it can’t be printed by a government and thus it is a long term hedge against currency devaluation. James Burton, Chief Executive of the Gold Council, recently said: “Gold remains a very important reserve asset for central banks since it is the only reserve asset that is no one’s liability. It is thus a defense against unknown contingencies. It is a long-term inflation hedge and also a proven dollar hedge while it has good diversification properties for a central bank’s reserve asset portfolio.”

I agree with Mr. Burton 100{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b}. I believe we will even see a bubble in gold again and that is why I have invested in gold to profit from this potential bubble (Think real estate prices around the year 2002 – wouldn’t you like to have bought more real estate back then?)

I had previously recommended that you buy gold when it was between $580 and $600 an ounce. Currently, gold is trading at around $670 an ounce up more than 10{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} from the levels I recommended. However, gold has some serious technical resistance at the $670 level and if it fails to break out through that level it might go down in the short-term. If it does go down again to the $620 – $640 level, I like it at these levels as a buy. I believe that gold will go to $800 an ounce before the end of 2007.


  1. Real Estate in South Florida

Real estate in South Florida has been hit hard by this slowdown as it was one of the largest advancers during the housing boom. The combination of rising homes for sale on the market, the amazing amount of construction occurring in the area and higher interest rates have been three of the major factors of the slowdown.

For every home that sold in the South Florida area in 2006, an average of 14 did not sell according to the Multiple Listing Service (MLS) data. The number of homes available for sale on the market doubled to around 66,000, as sales slowed to their lowest level in 10 years.

Even though home prices were up for the year of 2006, the average asking price for homes in December was down about 13 percent compared to a year ago. From 2001 to 2005, the price of a single-family home in Miami-Dade increased 120 percent to $351,200. This is also similar to what happened in Broward County. The problem is that wages during that time only increased by 17.6{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in Miami-Dade, and 15.9{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in Broward, according to federal data. This is the other major factor that is contributing to the slowdown – real estate prices far outpaced incomes of potential buyers of these homes.

Another factor that helped drive the South Florida boom in prices was high growth in population in Florida. From 2002 to 2005, more than a million new residents moved to Florida and Florida also added more jobs than any other state. However, the three largest moving companies reported that 2006 was the first time in years that they had moved more people out of the state of Florida than into it. Also, school enrollment is declining which could be another sign that middle-class families are leaving.

By far though, the area of South Florida real estate that will be hit hardest is and will continue to be the condominium market. Due to their lower prices than homes, condos make financial sense in the South Florida area. However, the supply of available condos has tripled over the past year and it will get worse before it gets better. More than 11,500 new condos are expected this year and 15,000 next year with the majority of them being built in Miami.

As a result of the oversupply, asking prices for condos are down 12{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in 2006 in Miami to $532,000. And incentives are substituting for price cuts. These incentives include paying all closing costs to free upgrades and more.

The last point to think about affecting South Florida real estate is the escalating costs of property insurance and property taxes. These increasing costs are putting more downward pressure on real estate prices.

My strong belief is that we are only starting to see the slowdown of the South Florida real estate market and that prices will continue to fall. Due to the fact that many real estate investors are pulling out, where are the next wave of buyers going to come from at these current prices? Unless a serious influx of new, high paying jobs enter the South Florida area, real estate prices, just like any asset that falls out of favor after a large runup only have one way to go… down.


  1. Real Estate Nationwide

A report released last week from the National Association of Realtors showed that in the last three months of 2006 home sales fell in 40 states and median home prices dropped in nearly half of the metropolitan areas surveyed. The median price of a previously owned, single family home fell in 73 of the 149 metropolitan areas surveyed in the 4th quarter.

The National Association of Realtors report also said that the states with the biggest declines in the number of sales in October through December compared with the same period in 2005 were:

* Nevada: -36.1{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in sales

* Florida: -30.8{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in sales

* Arizona: -26.9{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in sales

* California: -21.3{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in sales

Nationally, sales declined by 10.1{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} in the 4th quarter compared with the same period a year ago. And the national median price fell to $219,300, down 2.7{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} from the 4th quarter of 2005.

Slower sales and cancellations of existing orders have caused the number of unsold homes to really increase. The supply of homes at 2006 sales rate averaged 6.4 months worth which was up from 4.4 months worth in 2005 and only 4 months worth in 2004.

Toll Brothers, Inc., the largest US luxury home builder, reported a 33{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} drop in orders during the quarter ending January 31.

Perhaps most importantly, falling home values will further decrease their use of mortgage equity withdrawal loans. In 2006, mortgage equity withdrawal accounted for 2{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} of GDP growth. Construction added 1{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} to last years GDP growth, so the importance of these factors are to the health of the US economy are enormous.

The other concern is sub-prime mortgages. Today, sub-prime mortgages amount to 25{758ef9c3a59a2e92c7282251853d55198862a407615a6e71a7a76bc80b23693b} of all mortgages, around $665 billion. Add to this the fact that approximately $1 trillion in adjustable-rate mortgages are eligible to be reset in the next two years and we will continue to see rising foreclosures. For example, foreclosures are up five times in Denver. These foreclosed homes come back onto the market and depress real estate values.