Friday, February 10, 2006

Is it a Real Estate Bubble, a Balloon, a Souffle....

As they say a rose by any other name...

It is pretty clear that the major metropolitan markets, San Diego, Dallas, Boston, Miami, NY, DC are starting to see some sharp imbalances in their real estate markets. Inventory has been building dramatically in the first six weeks of 2006, but prices remain relatively firm (DC new home inventory was up 900%). As your Economics 101 professor taught you - when supply exceeds demand prices will eventually fall, the big question is how far, how fast and how does this relate to Northern New York?

Clearly, housing prices have accelerated their appreciation in the past two years in Jefferson and Lewis Counties. Why? Logic would dictate that increase demand, with little change in supply is driving prices up. True there has been an increase in demand (it's hard to quantify without precise census data), but you can see it on Arsenal Street. More people are living here than two yrs ago. However, I would argue that access to cheap financing and aggressive lending practices is equally responsible for the latest surge in prices. Today's homebuyer would not have been in the market for a home 5 years ago.

So, nationwide we are experiencing a real estate slowdown, 2006 and 2007 represent major rate adjustment years for people with adjustable rate mortgages, the trade and budget deficits are so far out of control that interest rates have to continue going up DESPITE a weakening of our fiscal outlook, and yet there are more than 10 listings in the north country right now for land priced at over $100k/acre (one as high as $400k+/acre). That price point is one that might be acceptable in Newton, Mass or Summit, NJ, where land is scarce. The one thing I think we can all agree on is that land is not scarce in Northern NY.

Look at this lovely plot in Clayton - 0.7 acres of heaven for $250k.

In future posts, we'll address the Fort Drum expansion circa 1989 vs 2006, the problem with banks abandoning all sense of creditworthines and the macro issues facing the consumer.

Please post your comments - without dialogue the blog is not very valuable.

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