Video: Profiting from a bubble

By D.C. Correspondent
CNBC
updated 6/7/2005 4:35:31 PM ET 2005-06-07T20:35:31

Mortgage rates are still low, and banks are being ever more creative and ever more aggressive in their lending practices. Real estate speculator is the “it” job of the day, but is a housing bubble building and is it about to burst?

Florida-based real estate analyst Jack McCabe is betting on it.

While many real estate investors continue to bet on the success of South Florida’s condominium boom, McCabe is putting together groups of investors ready to buy the minute the bubbly winds shift, and he says he already has dozens of investors on board and about $10 million in capital.

McCabe’s plan is to buy out the speculators who, when the condo market turns, likely won’t have the cash to hold on to their properties and will be looking for a back door out.

“We’re getting back to economics 101 right now,” said McCabe. “We’re facing an oversupply and a shift from a seller’s market to a buyer’s market in condominiums.”

McCabe points to data that show Palm Beach County will see 10,000 new condo units in the next two and a half years, while Broward County will see 13,000. In Miami-Dade, 25,000 new units will be built by the end of 2007. These numbers show the hot Florida housing market will likely cool, reasons McCabe.

“We feel that there’s going to be a tremendous opportunity to buy these units when they are priced far below market value, hold on to them for a few years until the oversupply is absorbed, and then realize substantial gains when the appreciation returns in southeast Florida,” said McCabe.

McCabe’s investors have deeper pockets and longer time horizons than today’s small-time speculators, he says, and so they can afford to take a short-term hit and hold on to their properties for a long-term gain. McCabe also says he has heard from many more interested investors than he ever expected, including a number of overseas investors.

McCabe’s negative outlook may not necessarily be off the mark. Whether the housing market is a froth of little bubbles, or one big one, another voice from the Federal Reserve said Tuesday that home buyers should beware.

In remarks about the potential for a housing bubble to an American Bankers Association conference, Federal Reserve Governor Susan Bies said the United States has developed “an aggressive lending culture” on home mortgages that is veering toward unsound practices in some communities.

“At some point it busts,” Bies said. “We’re seeing that in some communities, particularly on the coast where there are condo projects going on,” she added.

Reuters contributed to this report.

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Data: Latest rates in the US

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Home equity type Today +/- Chart
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