….history or forecast?
The following letter to the Sea Coast Echo was written by me in June 2005 to protest plans to build high-rise condos at Bayou Caddy, MS. Hurricane Katrina undid those plans just three months later.
The thoughts and fears expressed were mostly borrowed by me, as I am not an economist. It should have been possible, however, for any vigilant person to see the dangers of what was happening in finance, housing, and condos.
While this is now in the nature of history and the condo proposals have been killed, I cannot reread this in 2010 without being aware that the near crash that happened in 2008-09 should not have come as a surprise.
Condomania – a Request for Reflection on the Part of our Officials
Change is not always progress.
I recall an incident among my close associates some years ago, in which an advisor played a healing part in a deeply entrenched problem. When it seemed to be resolving, I thanked the advisor for his help, and he said that in his many years of handling similar matters, he had observed that “over time, things change.” I felt immediately relieved, even a bit comfortable, until after a brief pause, he said, “not always for the better.”
And so, change is not always for the better. We need not imagine anything so dire as the Great Depression to make that point, although in scanning across the faces of the Board of Supervisors and the Planning and Zoning Committee, I don’t see any that would be old enough to remember it anyway.
But in recent times, we have had some real changes, not for the better. Take for example, the stock market “correction” of 1987 or the oil bust of the ‘80’s, the latter leaving New Orleans with a population reduction of 10% and 30,000 vacant and boarded-up houses. Then there was the crash of the dot-coms and the Nasdaq reductions of the ‘90’s, which still leaves many holding 60% lower values.
Many of us in Hancock County are resisting change to high density condo developments for reasons of loss of pristine natural settings, higher taxes, crowded and dangerous traffic, public costs for infrastructure, declining environment necessary to fish, shrimp, crabs, etc.
All valid reasons.
But we are also concerned about the forces that drive such development. Is it possible that we are on the thin surface of a bubble, that when popped will leave us with none of the perceived advantages and only the losses?
One need not look far for warnings. In the month of May alone, there have been numerous warnings.
Take, for example, the May 27 article in the New York Times by Paul Krugman, a highly respected columnist. Krugman makes the point that the lower interest rates that have been injected into the economy have artificially created a construction boom and higher consumer spending, “because homeowners used mortgage refinancing to go deeper into debt.” There was, he states, the assumption that when the boom ended it would not be needed any longer to bolster the economy. “We have not yet paid the price for our past excesses….An economist at Pimco, the giant bond fund, predicted that the Federal Reserve would simply replace one bubble with another….If housing prices actually started falling, we’d be looking at a very nasty scene.” He reminds us that Alan Greenspan, who once warned of “irrational exuberance” regarding the stock market, now says we have “the characteristics of bubbles” in housing.
What has all this to do with condos? Krugman points out that 23% of homes sold last year were bought for investment purposes, not as residences, and in 31% payments called for interest only financing. This gives a better picture to whom and how condos at Bayou Caddy and Clermont Harbor might be sold.
Another article in the Times, on May 21, by Edmund Andrews, quotes Greenspan about the housing market: “It’s an unsustainable underlying pattern.” He pointed to the increase in speculation in purchases, highlighting second homes. (Read: “condos.”) Andrews gives credit to the Fed for having raised short-term interest rates eight times in the last year, but points out that long-term rates have actually declined in the last year, thus giving more impetus to speculation. He states, “Greenspan has been criticized by some for failing to pre-emptively puncture the stock market bubble, which burst in March 2000, and some analysts criticize the Federal Reserve now for creating a housing bubble.” Andrews points out that “speculative activity has increased over the last year, including people buying and reselling…before construction is even completed….There has been solid data as well pointing to rapid price increase in second-home markets, reports of many more individuals buying houses and condominiums as investment rather than as places to live, and to heavy use of interest-only loans and adjustable rate mortgages that allow purchasers to buy considerably more expensive properties than would otherwise be possible. Mr. Greenspan acknowledged on Fiday that many people were ‘reaching’ to finance their purchases.”
Yet again another Times article (May 24, by Jennifer Bayot) quotes an economist as saying that “speculation rather than demographics is driving a substantial portion of sales.” Alan Greenwood “warned last week that parts of the country showed signs of “froth.”
And there are other articles and news accounts. Today’s Times-Picayune (Money section, May 29) quotes Roger Ogden, “When I get leery is when too many people are building the same kind of thing….flipping is rampant ….Many markets are overbuilt.” Julian Hertz, a large owner of commercial property, says he is “skeptical not only of the Miami market but also of the condo market in general….A sign of trouble is when so-called flipping begins in earnest. That’s when speculators buy as many units of a condo as they can and quickly sell them, or flip them…[That] is a sign that potentially damaging price bubbles have formed. And flipping has become common in Florida….When bubbles pop, many lose. And when price bubble pops in one market, it ends to spill over into others.”
Questions forcefully arise in the minds of those of us who are concerns. Officials who are representing the residents of the affected communities are charged with protecting our interests, not the interests of developers. Yet it appears to an observer that decisions are being made that are proposal driven.
Legitimate questions to be answered by our officials include the following:
Are there market surveys done by independent analysts?
Have feasibility studies been done by the potential lenders?
Have our officials demanded them?
If they have been done, why not let the public know what they say?
In addition, a May 4 letter to Mr. Pullman regarding the board’s obligation to inform the public about wetlands construction under Executive Order 11990 has not been answered. Why not?
Much of what the public knows is essentially in the form of rumors, as our officials have told us little. Our information is gleaned through a few news accounts, sometimes fed by the developers themselves. We are even now guessing at whether there will be 2,000 or 10,000 condo units.
These facts constitute an absurdity. It is up to our officials to represent their true constituents.
Russell B. Guerin
Resident, Clermont Harbor