Another article of caution regarding real estate and development.....

The Economy | Housing decline: How 'temporary'?
By Andrew Cassel
Inquirer Columnist

You know the boom is over when even the brokers start predicting lower prices. That was true of the stock-market bubble in 2001, and it's true now, as the air comes out of housing.

Yesterday, the National Association of Realtors issued its sales forecast for the rest of this year, saying an "inventory and price imbalance" will likely cause home prices to fall below the levels of a year ago.

Of course, the drop will be only temporary, the brokers' group says, just until "the market works through a buildup in housing inventory."

Anyone who didn't buy a house last year in hopes of "flipping" it for a quick profit should be fine, they assure us. And perhaps they're right.

But as long as "temporary" lasts, we could be in for a bumpy ride.

Other forecasters are less sanguine than the Realtors. Global Insight, the economics firm with offices in Eddystone, found prices falling even in parts of the country where housing has been relatively tame.

...When a gain isn't a gain

But isn't a 2.6 percent increase still an increase? Not necessarily. Houses don't behave like stocks; when the market cools, publicly reported prices are the last thing to change.

First, sales volume slows down. Then sellers start offering "incentives" - discounted add-ons, flexible payment terms or subsidized mortgage deals. The real price can be falling for months before it shows up in anyone's statistics.

That means it could be a while before we know the size of this "correction." And the extent of the fallout - political as well as economic - is anyone's guess.

Some of it may already be starting. In Philadelphia, for example, some developers are shelving or bailing out of projects for fear that the market is becoming saturated with upscale condos and townhouses.

...Home builders clean up

But the abatements have brought one undeniable benefit: bigger profits for home builders in the city.

This is not a secret to anyone in the real estate business: Taxes and other ownership costs are "capitalized" - rolled into the sales price of a house. Buyers paid more for properties with tax abatements than they would have paid without them.

How much more? That's the really interesting part. The authors of the builders' report estimate that each year without real estate taxes adds 2.5 percent to the price of a home or condo. A home with a 10-year tax abatement has been selling for roughly 25 percent more than a comparable home without one.

So have builders simply been getting the money that homeowners would otherwise have paid the city in taxes? Yes - and that's not all....[read entire article HERE]