This past Tuesday, Toll Brothers, the largest builder of luxury homes in the United States, cut its fiscal 2006 forecast for home sales, saying there has been "some softening of demand in the markets."
Could it be? Is this the beginning of the end for real estate mania? Perhaps so, as Bruce Zaro, chief technical strategist at Delta Global Advisors admits, "Rising rates are starting to take their toll." And then he said - get this - "maybe there is something to this bubble idea."
In the words of the Mogambo Guru: Hahahahaha! Of course there's something to this "bubble idea"!
Take the case of the couple The Washington Post interviewed this past week - the Edmonds. In May, they bought a three-floor townhouse under construction in a development in Alexandria, Virginia (right outside of Washington, D.C.) for $796,000. As of late, sales prices for their development are falling, and the Edmonds face the possibility of a $100,000 loss - before they even move in their couch.
Quite the change from the house speculators who were buying property in that same area not too long ago, flipping it, and making around the same in gains as the Edmonds will take in losses without ever setting foot in the house. And the Edmonds' story is not unique. Take this note that Chris Mayer, of Capital and Crisis sent our way:
"I live in Gaithersburg, Maryland, a nice leafy suburb, not far from the nation's capital.
"Recently, a slate of condos opened up for rent nearby. I sauntered over, mainly as an observer. I feel sure the people buying these things will lose money. Get this; the condo fee alone is $635 per month. No typo, that's per month. That's nearly $8,000 per year.
"You get one parking space. If you want another, that's $10,000. You want additional storage space? You can get what basically amounts to a closet.
That will set you back another $15,000. The condos themselves go for between $350,000 to $500,000. They are hideously expensive.
"Two years ago, you could get a house for that price. No longer. There are no single-family houses going for less than $575,000 in the immediate area. These prices, I should tell you, are more than 50% higher than what they were only two years ago.
"But, things may be softening at the margins. These condos have been available now for several weeks. I asked how many people have moved in. The answer: one couple."
What's the problem here? Exactly what we've been beating over our dear readers' heads almost daily: things that are unusual eventually return to normal.
And home prices this high are certainly not normal - and are definitely unsustainable. Just look at all of the would-be buyers that have been forced out of the market in the past few years. Hopefully, they'll wait it out...there are sure to be a lot of foreclosures right around the corner.
