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9-2-05 Is There a Housing Bubble in Oconee County, Georgia and the United States?

For the last several years, I have observed “row houses”, on small lots, along GA 316 in Gwinnett and Barrow Counties. Oconee did not have much of that until sewer service and MPDs came to the county. Now they are springing up in many places, some rural “boondocks” in my lifetime.

AVOC

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August 27, 2005

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Is There a Housing Bubble in Oconee County, Georgia & the United States?

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By Wendell Dawson, Editor, AVOC, Inc

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For some of us of “senior status”, spiraling prices for land and housing has caused some head scratching.   Will it last?   Is it a long-term thing?There are many opinions out there.One can also look to life’s experiences and historic trends.

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Some of us remember previous booms and busts- 1974 (President Ford’s Tax Credits Helped kick-start the industry), the late 70’s, mid-eighties etc.In my first two decades of law practice, I did a lot of legal work for developers and builders.   In 1974, I remember several builders “went under”.We helped some of them liquidate.   Later slow downs caught up with some more builders who have been long gone.

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One thing I learned about a downturn is that the strong can survive and benefit from the “fire sale” prices of the over committed.In other words, “the rich get richer”.   However, overextended persons become casualties and a source of cheap purchases by the ones with money.

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Long-term I have seen land and housing prices trend upward.That will continue into the indefinite future.   In earlier downtowns, we saw prices stabilize and many houses not selling for a significant period.In 1974 and later recessions, some developments were bought by someone else and frequently the initial plan was changed to appeal to a new market.

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In recent years, I have observed that many house sales are encouraged by the IRS Tax Exclusion for sale of a residence.   Persons owning and occupying a residence for two of the previous five years qualify for Income Tax Exclusion of up to $ 500,000 Capital Gain for couples and $ 250,000 for individuals.   This is one of the few opportunities for receiving significant tax-free income for the average person.Persons, including builders, can remodel, add, and then sell after two years for a greatly increased price with the attendant profit.

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In Oconee County, in recent years, the pricing has been impacted by the County’s ill-advised decision (in 2002) to allow sewer capacity for residential development.The relatively small amount of capacity owned by the county was quickly “bought up” by well-to-do developers and the “rush” was on with MPDs, small lots and long sewer force mains running in different directions.   As some of this new type housing (for Oconee) sells, prices of other land and developments are influenced by this phenomenon.However, sewer capacity is not easily obtained- no magic wands- and one wonders if there will be buyers if the sewer capacity is over committed.

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Another long-term negative for “fast-growth” periods and places is the over population of schools and the strain on personnel and budgets to keep up.   Another limiting factor is the overloading of narrow, curvy rural roads not built for high volume urban and suburban traffic.

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Other infrastructure and operational needs (public works, fire stations, firefighters, courts, law enforcement etc) will cause taxes to escalate in spite of the growth in the Tax Digest and ever-increasing sales tax revenue.Service needs & costs of government escalate faster it seems.

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Such development comes in waves.In the 50’s plus, the boom was in DeKalb County.In the 70-80’s, it was Cobb.In recent years, it was Gwinnett and Douglas counties.Even more recent development pressures “jumped out” to outer counties like Forsyth, Cherokee, Bartow, Henry, Fayette, Walton, Barrow and Oconee County.

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For the last several years, I have observed “row houses”, on small lots, along GA 316 in Gwinnett and Barrow Counties.   Oconee did not have much of that until sewer service and MPDs came to the county.Now they are springing up in many places, some rural “boondocks” in my lifetime.   Not only is our local skyline changing, we are getting more crowded schools, roads and other facilities.

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The “wave” continues as folks sell land in Oconee, Barrow, Newton etc and buy in Oglethorpe, Madison County, Greene, Morgan and other counties further from Atlanta.   The development wave will not stop there.As more and more folks come, those counties will become urbanized.Their budgets will be strained and the developers will then move on somewhere else.

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In my last couple of years as Oconee Commission Chair, I wondered what some of our upscale subdivisions and homes would look like in 30 or more years.   Will it cycle as younger buyers seek out the new in other areas?Will it leave slums as has happened in many inner cities?Will older areas of Athens, Atlanta etc become the “new booms”?It seems to be happening already.

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Gridlock along GA 316 and I 20 will have a restricting effect on commuters to the Atlanta area.As schools and local roads reach and exceed capacity, the market will react.

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Some say, “you can’t stop progress”.   Some folks differ on how to define “progress” and quality of life.    Some ‘progress’ makes a lot of money for some folks but causes grief for others.One thing for sure, the present Oconee County and Housing Boom will not exist for ever.Economics and history support that truth.Life is full of change!


8-28-05 Bubble Warnings & Stock Market Declines in Housing
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FOX NEWS

http://www.foxnews.com/story/0,2933,167141,00.html 

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August 28, 2005

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Can You Identify a Housing Bubble?

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By Gail Buckner, CFP

Dear Friends,


Just as it was impossible to pick up a newspaper or magazine in late 1999 that didn't have a story about over-priced tech stocks, so it is today when it comes to residential real estate. As Yale economist Robert Shiller sees it, talk ’positive on the upside and negative on the downside” both creates and destroys financial bubbles.

That's not to say there is universal agreement that real estate prices are, in fact, headed for the kind of collapse the stock market experienced, where $ trillions in value was erased.

It depends on whom you talk to.

What’s not in dispute is that the housing prices have been on a tear for at least the past five years, posting record gains in the past two. To be sure, not all areas of the country have seen the 31 percent appreciation experienced in Nevada or the 19 percent jump in home prices Arizona homeowners saw over a 12-month period. According to the Office of Federal Housing Enterprise Oversight, Texas, Colorado, Ohio, Oklahoma, and Indiana were among the states that had the smallest increases…..


FOX NEWS

http://www.foxnews.com/story/0,2933,167183,00.html

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August 26, 2005

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Home Builder, Real Estate Stocks Hammered by Greenspan Comments

Reuters

NEW YORK - Shares of home builders and real estate companies fell broadly Friday after Federal Reserve Chairman Alan Greenspan warned that buying power fueled by rising prices for assets such as homes could disappear if investors turn cautious.

The Dow Jones U.S. home construction index slid by as much as 2 percent to its lowest level in more than two months. The Morgan Stanley Capital Index of U.S. REITs, a broad measure of REIT stocks, fell 1.2 percent.


8-16-05 Lots of Houses For Sale In Newton

The Covington News

http://www.covnews.com/show_story.php?storyID=3374

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August 14, 2005     Buyer’s market


County’s residential inventory at peak levels

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By Bill Spangler

It’s a buyers market, right now, for people looking for homes in Newton County.

Every Realtor The Covington News polled said the inventory is at a peak.


So, what’s the problem?

Well, if the local economy continues at current levels there may not be one.

But don’t bet the farm on it.

People aren’t prone to make a big purchase like a new home while facing the possibility of being downsized.


And downsizing is still policy in many corporations.

Then, too, another round of layoffs is expected at Delta.


Don’t Realtors think this could portend a coming slump in home sales?

Not Nancy Johnson, president of the East Metro Board of Realtors.


On Friday she told The News that people nowadays know to expect downsizing, and plan their lives accordingly. As far as any future Delta layoffs, “Delta people are prepared. If they don’t relocate, they’ll use their skills and talents creating their own businesses,” she said. “I’m looking at I-20. There are new businesses all along here.”

The high price of gas

Others find it hard to be so optimistic.

Take the economic matter of rising fuel costs, for example.


“H
igh gasoline prices are going to discourage people who want to live here and commute to Atlanta,” Covington Mayor Sam Ramsey said. “And gas prices keep going up.”

Ramsey has another concern, “Covington and Newton County both have to look at how they will maintain or expand their level of police, fire and other services while paying more and more for gasoline.”

Quality of life matters

Such services come under the heading of quality of life, something Newton County and Covington uses to draw new residents.


8-21-05 Economic News - Home sale trends raise concerns

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The Covington News

http://www.covnews.com/show_story.php?storyID=3428

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August 21, 2005
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Home sale trends raise concerns; auto deal expiring
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By Bill Spangler
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Economists are crediting two very successful marketing plans for helping put the sluggish dollar into motion.

Both deal with America’s top big ticket items, homes and automobiles.

One, however, has lenders a little edgy.

The other apparently has run its course and will end soon.

Zero down payment, 100 percent financing of home mortgages has a lot of Newton County residents living in houses they couldn’t otherwise afford.

It has also been lucrative for realtors and lenders.


At the same time, financial institutions are warning, this may be the first step down a road littered with default.

In fact, “the number of residential foreclosures is up in heavy growth counties like Newton, Rockdale and Henry,” said Peoples Bank Vice President Fred Vick. However, he quickly added, “So are home sales.”


The primary prospects for a zero down mortgage are first-time home buyers.

Unfortunately, they are the ones who may be most susceptible to getting in over their heads, financially.

Lending institutions know that, and try to minimize the chance of default through painstaking qualification of loan applicants.


Expect the zero down, 100 percent mortgage to be around for a while.

“It has been one of the key engines in getting the economy going,”said Vick.


8-24-05 New Home Sales Set Record in July

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The Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2005/08/24/AR2005082400437_pf.html

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August 24, 2005

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New-Home Sales Hit Record High in July

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By JEANNINE AVERSA,  Associated Press

WASHINGTON -- Sales of new homes shot up to a record high in July, while U.S. factories saw orders for costly manufactured goods drop by the largest amount in 18 months.

The mixed-message reports released Wednesday by the Commerce Department dramatized the vibrancy of the housing market and also the occasionally erratic pace of recovery from the 2001 recession in manufacturing.

Taken together, though, the reports still pointed to an economy that is moving ahead at a decent clip.

New-home sales in July soared to a seasonally adjusted annual rate of 1.41 million units. That represented a 6.5 percent increase from June's pace of 1.32 million units, which had been the previous record.

In the department's second report, new bookings to U.S. factories for "durable" goods _ big-ticket items expected to last at least three years _ declined by 4.9 percent in July from the previous month.

It marked the biggest drop since January 2004, when durable-goods orders fell by 5.7 percent……..


8-27-05 U. S. Heading for Housing Crash According to Greenspan
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TIMES ONLINE

http://business.timesonline.co.uk/article/0,,16849-1752866,00.html

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August 27, 2005

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US heading for house price crash, Greenspan tells buyers
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By Graham Searjeant, Financial Editor

WALL STREET shuddered yesterday after Alan Greenspan, the United States’ central banker, warned American homebuyers that they risk a crash if they continue to drive property prices higher.

He said that the US house-price spiral had become an economic imbalance, threatening stability like the country's trade gap or its budget deficit.

In a pre-retirement speech to fellow central bankers at Jackson Hole, Wyoming, Mr Greenspan said that people were investing in houses as if they were a one-way bet, not allowing for the risk of price falls. He said "history had not dealt kindly" with investors who kept ignoring risks.

The Federal Reserve Chairman’s warning, his strongest yet, sent share prices falling on Wall Street, at one point knocking 66 points off the Dow Jones industrial average. By the close the Dow had recovered to 10,397.30, down 53.30 points.

Traders said that Mr Greenspan's comments were reminiscent of his 1996 inveighing against "irrational exuberance" on the stock market, for fear that a crash there would hit consumers and push the economy into recession.When the share price bubble finally burst, Mr Greenspan cut Federal interest rates to 1 per cent, triggering the flood of cheap loans for housing. He fears that rate increases set in train as the economy recovered could throw the housing market into reverse.....

On traditional tests, about a third of US local homes markets are now markedly overpriced. Over the past five years, the average US house price has risen by 50 per cent, half the rate of increase in UK prices in the five years to summer 2004. However, prices have risen more sharply in favoured areas, such as New York, and more than doubled in a few cities, such as San Diego.


FOR OTHER OPINIONS, SEE:

8-26-05 No Real Estate Bubble

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Yahoo! FINANCE

http://biz.yahoo.com/prnews/050819/laf020.html?.v=23

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Friday August 19, 2005

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Real estate bubble ready to burst?

Real Estate and Finance Radio experts Norm and Mike say 'no.'

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LAGUNA NIGUEL, Calif. Norm Bour and Mike Roberts, hosts of The Real Estate and Finance Show with Norm and Mike, one of the most popular and respected real estate talk Shows in Southern California, recently added four new stations and are now heard coast to coast .........

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Norm Bour and Mike Roberts each have 25 years experience in real estate, Financial Planning, lending, estate planning and money management, and hold regular workshops on "Five (5) Unique and Proven Ways to Profit in Real Estate," Norm and Mike are determined to teach homeowners to think "like a bank," and manage their money the way that banks do, by working on money efficiency and less waste.

Probably the most common question they get on the Radio Show is "What's happening with Real Estate prices?" One of the advantages that the guys have is that they get REAL stories from all parts of the country, so they have a good handle on prices, supply and demand and whether the growth is REAL or speculative.Their conclusion? Slow devaluation in some, but not all markets, strong stability in others, but there will NOT be an "overnight" drop of any significance in prices. For interviews or more information, visit www.normandmike.com.


8-27-05 Is there a Real Estate Bubble?

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CORANTE

http://www.corante.com/mooreslore/archives/2005/08/15/the_real_estate_bubble_pops_here.php

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August 15, 2005

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The Real Estate Bubble Pops Here

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Posted by Dana Blankenhorn

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......It's ironic that FNMA (Fannie Mae) and FHMC (Freddie Mac), which were created to make housing affordable, have in the last years done just the opposite.   But food is energy, and too much obesity, I guess.

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The problem is that Fannie and Freddie buy anything. As a result there's no longer any risk in mortgage lending. The banker moves the paper to the government, which turns it into a security. Everyone takes a fee. All the incentives are one-way.............

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We had bubbles before. Some are old enough to remember 1974, the last time Atlanta housing crashed. It stayed crashed for many years. But most aren't old enough to remember that.

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So the bubble gets bigger and bigger and bigger. Prices go only one way. It ends when everyone's in the game, when there are no more buyers, or when the price of money shoots up, as it might with this $ 2.50/gallon gasoline........

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Dana Blankenhorn has been a business journalist for over 25 years and has covered the online world professionally since 1985. He founded the "Interactive Age Daily" for CMP Media, and has written for the Chicago Tribune, Advertising Age, and dozens of other publications over the years.


8-26-05 Real Estate Cannot Keep Doubling Every Five Years

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San Francisco Chronicle

             SF.Gate.Com

http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/08/14/INGN3E5T5F1.DTL

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Sunday, August 14, 2005

REAL ESTATE: Watching the bubble
Flipping houses bound to flop
Homes won't serve as ATMs forever

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Michael Abrahams

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While they may watch "Flip That House" (Discovery Home) or "Flip This House" (A&E) on television, even the most euphoric home builders and real estate agents must recognize that housing prices cannot keep doubling every five years as they are today.

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What is less obvious is how it will all end. Will prices simply level out and provide even more leveraged homeowners a comfortable exit? Or will prices decline abruptly and foreclosure rates rise sharply? .....

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However, the housing bubble is not just a Bay Area, let alone a U.S., phenomenon. Housing prices have been appreciating worldwide across markets of widely varying demographics, economic growth and location. Prices in South Africa, Hong Kong, France and New Zealand have been rising more quickly over the past year than in the United States.

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This boom has been heavily dependent on record low interest rates and, in the United States, a growing ability of borrowers to leverage their income. ..........

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The first phase of the housing bubble was driven by declining interest rates, which dramatically lowered the cost of financing a home. We are in the midst of a second phase of the mortgage boom. Although rates this year and last have been generally higher than in 2003, we have seen a resurgence of refinancings and home purchases. Borrowers have enthusiastically latched onto "new" types of mortgages that enhance their buying power at some cost and risk.

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Homeowners once looked forward to their mortgage-burning party where they celebrated their mortgage being paid off and their new debt-free status. Now, many view their home as a financial asset capable of generating cash. They have no intention of owning it free and clear. No longer concerned about paying off the mortgage, borrowers now seek to minimize the size of their monthly payment.......

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The risks of interest-only loans are significant. With the same level of income, borrowers are incurring much more debt. Furthermore, many contemporary interest-only loans pay no principal and have a fixed rate of interest for the first three to five years, at which point they become a floating-rate amortizing loan.....

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We appear to be repeating history: Interest-only loans were the dominant home finance instrument before the Depression. Sharply declining property values, coupled with the fact that the principle was never paiddown, contributed to widespread foreclosures in the 1930s. That led to the introduction of the amortizing loan, in which the principle is paid off during the life of the loan.

Banking regulators are becoming increasingly uneasy with interest-only loans.......

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How will it end? Regulatory dissatisfaction with interest-only mortgages, rising interest rates and the financial inability of consumers to incur any more debt, or service existing debt at higher interest rates, may combine to end the housing party more rapidly than many expect.

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With consumers taking on record levels of variable-rate debt, many homeowners may find paying their debt, let alone increasing it to finance a more expensive house, difficult or impossible. In addition, a growing number of investors -- in place of owner/occupiers -- raises the risk of a more rapid price decline.


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