Whose Failure Is Flippings Flop Dont Blame Messenger
Written by Michael Lewis on November 16, 2006
By Michael Lewis
A broker in our pages last week blamed the media for the residential real estate slide. And a developer wrote to us that press warnings of a condo bust had killed the market here and driven him out of it.
Folks, don’t shoot the messenger.
The press didn’t build tens of thousands of condos, then contract with speculators who now are stuck with units — or might never close.
Unlike our developer friend, we never wrote to another newspaper that Miami’s condo bubble could never, ever burst, that prices would rise forever.
We aren’t the ones who told potential buyers that they could resell condos for 20% or 40% more in a year with only a down payment actually out of pocket.
We aren’t the ones who are still building tower after condo tower, flooding the market with housing while Multiple Listings Service sales have fallen nearly a third and some smaller brokerages are shaky.
We’re the ones who issued sober warnings in the face of what most now agree was over-optimism at best. Seven columns in this space in 2½ years warned that more than 100,000 planned Miami-Dade condos were a full decade’s supply.
If timely warnings helped slam brakes on a market that experts now admit was about 80% speculators and only 20% real residents, good. The press would have been far more culpable if we’d seen a train wreck coming and hadn’t raised a warning signal.
In a September 2004 article, as condo projects seemingly daily were announcing sellouts as soon as they hit the market, we asked, "When is a sale a sale?" Some developers said reservations alone didn’t make a sale but a 10% deposit with a signed contract did. Some mentioned 20%.
Now we ask that question with more concern because as the glut of for-sale condos grows even while more are rising, some "sold" units might never close. If a condo’s price falls more than the out-of-pocket deposit, a buyer could just walk away rather than throw more good money after bad.
Experts warn that a year from now, residential foreclosures are likely to soar. Let’s hope it doesn’t get that far.
But then, we hoped it wouldn’t get as bad as it has.
Last week, the Wall Street Journal reported that 59 would-be buyers in one abandoned Brickell condo project are suing the developer for the profits they lost in flipping unbuilt units for higher prices.
Perhaps the people they flipped to are also suing for the profits they in turn lost when they passed the units on to the next buyers at still higher prices.
Unbridled optimism and greed. That’s what fueled much of a market that saw in the city of Miami alone 9,000 new housing units in 2005, more than four times as many as in any year since the 1940s, with 14,000 more due this year and 7,000 more in 2007. Last year at this time, more than 71,000 units were in the permitting process, permitted or rising, within city limits.
We have asked for years just who the developers thought would actually live in 100,000 units priced far above what the bulk of local residents could afford. The answer — to the surprise of even some developers — seems to be that many condos weren’t sought for occupancy at all but for trading.
In the end, of course, someone will occupy every new condo. Most are good quality and all will be worth what’s paid for them and be fine investments in the long run.
But it turns out that the condos we’re still building at a record pace are going to be bargains as residences when purchased at proper prices, not bargains as trading commodities that can be flipped in a matter of months for a 20% or 40% profit. Sorry if the get-rich-quick schemes had to end with the hot air going out of the balloon.
As the air started leaking last year, those who hype the market blamed the plague of hurricanes and hired publicists to counter warnings of an end to the euphoria. This year, with hurricanes thankfully absent, the culprit is the plague of the press.
Maybe next year those who claimed the market would only go up forever will look in the mirror and see another culprit.
Meanwhile, the City of Miami and others keep on approving plans for still more massive high-rise condos.
Which means that ever more bargains loom for buyers who plan to live and enjoy where they buy rather than flip what they buy to enjoy the quick profits.