The Housing Bubble

The California realtors have their February numbers out. “Existing-home sales dropped significantly in California in February, falling 15.5 percent from the same period a year ago, as inventory levels climbed and median prices continued to escalate, an industry trade group reported today. Meanwhile, the February 2006 median price of an existing home in the state decreased 2.9 percent compared with January’s $551,300 median price.”

“‘Unsold inventory rose again in February to a 6.7 month supply, one of the highest inventory levels in several years,’ said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. CAR also released the following regional sales and price comparisons for February: Santa Clara sales dropped 15.3 percent year-to-year. Sales in Santa Cruz County dropped 23.6 percent year-to-year but were up 0.9 percent from January, while the median price declined 2.5 percent to $712,000 from February 2005.”

“Monterey County sales dropped 16 percent year-to-year but rose 18.3 percent from January. San Francisco Bay Area sales dropped 12.3 percent year-to-year.”

The state’s builders think the solution is more construction. “‘We may be producing some of America’s best college graduates, but we’re exporting them to states where owning a home is more than just a fantasy,’ said Alan Nevin, chief economist at the California Building Industry Association. The state’s 57 percent homeownership rate, the second lowest behind New York, lags far behind the national average of nearly 70 percent.”

“Metropolitan Sacramento needs 62,619 more homes than the thousands already planned to bring the region’s homeownership rate up to the national average, a statewide home-builder trade group said Wednesday. The report..is the latest move in the ongoing battle between the home-building industry and environmentalists and citizens groups weary of what they say is relentless growth.”

“Builders say their suggestion is aimed at easing the sticker shock of California and capital-area home prices by increasing the housing supply. ‘Today, there’s more than a $300,000 difference between home pricing nationally and in California,’ said CBIA Chief Economist Alan Nevin. At least half the extra homes suggested by the CBIA could come from converting apartments to for-sale condominiums, Nevin said.”

Rich Toscano questions the demand side. “It is the rallying cry of the San Diego housing bull: ‘Everyone wants to live here.’ The crux of the argument is this: data be damned; San Diego’s pleasant climate and general desirability will ward off any potential decline in home prices. There are some problems with the “everyone-wants-to-live-here” school of housing analysis. After all, the weather was awfully nice back in 2000. Yet the median San Diego home price has doubled since that time. Has it really gotten that much more pleasant in the past six years?”

“The theory also begs a more practical question. If everyone wants to live here, why are so many people moving away? San Diego County’s population fell between July 2004 and July 2005. The population decrease should have come as no surprise. For the past five years there has been a very clear trend in declining population growth.”

“The primary reason for the out-migration couldn’t be more clear. Homes are simply too expensive in comparison to incomes. And as housing has become pricier, more and more people have left. San Diego is indeed a great place to live, but nowhere on earth is so wonderful that people will pay any price to buy a home there.”

“While the desire to live here may be an unlimited quantity, the means to live here is not. This exodus is a natural result of the housing bubble, and is one of the factors ensuring that housing will one day be affordable again.”

The Florida realtors have their February numbers out. “Rising inventory levels and still-low mortgage rates continued to affect Florida’s housing market, which is adjusting to a better balance between buyers and sellers following a five-year run of record-pace sales. Statewide, sales of single-family existing homes totaled 13,539 in February compared to 16,916 homes a year ago, for a 20 percent decrease.”

“Sales of existing condominiums in Florida also decreased last month, with a total of 4,342 condos sold statewide compared to 5,643 in February 2005 for a 23 percent decline.”

“South Florida home prices wobbled in February. Prices for existing single-family homes in Miami-Dade were up 19 percent on a year-to-year basis but continued to drop on a month-to-month basis, for the third consecutive month. The median price of a single-family home in Miami-Dade now stands at $368,700.”

“Similarly, Broward single-family home prices were up compared to February last year but down compared to the previous month. A median priced single-family home is now $360,800, in January it was $370,500.”

“In recent months the inventory of homes for sale has increased dramatically. Some say this is a so-called soft landing from the markets record highs. Others worry the market, particularly South Florida’s condo market, is cooling and poised for price declines.” The associations November numbers show the Miami SFH median at $381,600.

And this link has some tables at the bottom from which the following was drawn. YOY Percentage sales volume declines:

SFH/Condos

-24%, -50%..Daytona Beach

-25%, -27%..Fort Lauderdale

-9%, -44%..Fort Myers-Cape Coral

+6%, -38%..Fort Pierce-Port St. Lucie

-21%, -48%..Fort Walton Beach

-6%, +35%..Gainesville

-1%, na….Jacksonville

-11%, -38%..Lakeland-Winter Haven

-36%, -64%..Melbourne-Titusville-Palm Bay

-21%, -20%..Miami

-47%, -50%..Naples

-3%, na….Ocala

-16%, +95%..Orlando

-32%, -56%..Panama City

-20%, +8%..Pensacola

-16%, -90%..Punta Gorda

-42%, -44%..Sarasota-Bradenton

+11%, -35%..Tallahassee

-29%, -10%..Tampa-St. Petersburg-Clearwater

-22%, -14%..West Palm Beach-Boca Raton

A couple of reports on the GSE’s. “”Fannie Mae, the largest U.S. home funding company, on Thursday said that its mortgage portfolio shrank by annualized 7.2 percent in February after declining 3.1 percent in January. The retained mortgage holdings ended last month at $720.8 billion, as the portfolio extended the shrinking pattern seen each month but one dating back through all of last year.”

“Fannie Mae’s mortgage holdings slid by an annualized 19.6 percent last year. The company has been downsizing its portfolio because mortgage assets have been costly and there has been increased competition from other investors. Also, the company had been raising capital to meet regulatory requirements due to accounting problems that will spur an estimated $11 billion earnings restatement.”

And Reuters reports that even the Chinese don’t like a government subsidy for lenders. “China has no desire to create Freddie Mac or Fannie Mae style government sponsored enterprises (GSEs) to help develop its mortgage market, a former regulator of the two U.S. home funding companies said on Thursday.”

“Armando Falcon, formerly a director of the Office of Federal Housing Enterprise Oversight in the U.S., said he met with senior officials from the People’s Bank of China, the Chinese central bank, in January. ‘The Chinese are adamant about having private sector mortgage lenders that are not reliant on government subsidies,’ the former regulator of the two U.S. government sponsored enterprises (GSE) told a bond conference in Italy.”

“Falcon said Freddie and Fannie were created during the Depression in the 1930s, and Americans are still living with their unintended consequences. ‘The unintended consequences are their portfolios create systemic risk to the financial system,’ Falcon told Reuters.”

“Falcon said there is tension for Freddie and Fannie because they are shareholder owned companies with government charters. The charters require them to boost home ownership by keeping mortgage money flowing. To do this, they buy mortgages from underwriters, giving lenders money to make more loans. They pool these mortgages into securities for sale to investors, and keep some in their investment portfolios.”

“‘My advice to governments around the world is to try and promote private sector mortgage lending not reliant on government subsidies,’ Falcon said.”

The Michigan Live site reports on why inventory levels are so important. “Oakland County homebuyers are taking their new-found negotiating power to the bank, winning concessions, from furniture to money for roof repairs, as the inventory of homes on the selling block increases. Savvy buyers, knowing that more properties are on the market and sales generally are slow, are taking full advantage to get more bang for their home-buying buck.”

“But agents are stuck in the middle as sellers slowly accept the county’s changing market. ‘Sellers are not realistic about what they can sell their houses for,’ said Chris Shoemaker, president-elect of the North Oakland County Board of Realtors. ‘We have a lot more supply than demand and our supply is overpriced.’”

“Oakland County residential sales in 2005, including condominiums, dropped to 16,452, compared to 17,808 in 2004. Meanwhile, Oakland County listings grew to 54,855 for all of 2005, according to Realcomp. The year before, 51,504 houses and condos were listed.”

“‘If you look at the increase of properties on the market, it is a great time to buy,’ said Karen Kage. ‘The ones that are selling are the ones that are priced right.’ Coupled with a growing inventory of ‘For Sale’ signs in Oakland County, the year-over-year statistical changes create the perception that the market is declining faster than statistics show, Kage said.”

“‘There are more properties on the market,’ she said, ’so people are saying, ‘Look, they aren’t selling.’”

“But homes are selling, in large part thanks to concessions. Those allowances include financial concessions, such as money from the seller so the buyer can fix a home’s roof, for example. Concessions also have included throwing in personal property, such as furniture. If that’s what it takes to get a buyer for a listing, concessions will continue, agents said.”

“Realtors point to lenders as one of the driving forces behind the upswing in concessions. Tony Nuckolls said his company is not pushing concessions on buyers, but mortgage brokers are advising on a case-by-case basis. ‘Some buyers may need some extra help,’ Nuckolls said. ‘We let them know about the opportunities of seller concessions.’”

“The media spotlight on Michigan’s struggling economy and the housing market is a signal to buyers that they can call the shots on deals. Buyers also are making offers significantly lower than asking prices, Shoemaker said. With the large supply of homes, buyers know they can push because sellers want to sell, she said; they also know that some houses are overpriced for the current market.”

“One Shoemaker listing at $379,900 had a buyer offer $327,000. Sellers, too, are more willing to negotiate because they know there is a glut of homes on the market, Shoemaker said. ‘People are aware of what’s happening,’ she said. ‘You can’t help but feel the fear.’”

The Illinois realtors have some numbers out. “Single-family home sales were up 4.4 percent in February, while total home sales (which include single-family and condominiums) were up 1.8 percent to 9,936 homes sold, compared to 9,759 homes sold in February 2005. The Illinois median home price in February was $190,000, up 2.2 percent from $185,900 a year earlier.”

“‘As we readjust from a robust seller’s market to one that is more balanced for buyers and sellers, consumers should seek professional counsel from a realtor regarding competitive pricing of the home, how to best show the home, current market conditions and negotiations,’ (broker) Stan Sieron in Belleville.”

“In the Chicagoland Primary Metropolitan Statistical Area (PMSA), single-family home sales totaled 3,890 in February 2006, up 0.1 percent from 3,888 home sales in the same month last year. The median single-family home price for the Chicagoland PMSA was $255,000, up 8.1 percent from $236,000 in February 2005.”

Checking the statistics from the associations website,, the following is the Chicago single family median prices:

Feb. 05..$236,000

Mar. 05..$249,000

Apr. 05..$254,000

May. 05..$260,300

Jun. 05..$279,000

Jul. 05..$273,000

Aug. 05..$279,900

Sep. 05..$207,000* (typo?)

Oct. 05..$265,000

Nov. 05..$267,000

Dec. 05..$264,561

Jan. 06..$261,000

Feb, 06..$255,000

The existing home sales data for February is out. “Existing-home rose in February following five months of decline, indicating a stabilization is taking place in the market, according to the NAR. Total existing-home sales ncreased 5.2 percent to a seasonally adjusted annual rate1 of 6.91 million units in February from an upwardly revised pace of 6.57 million in January, but were 0.3 percent below a 6.93 million-unit level in February 2005.”

“David Lereah, NAR’s chief economist, said mild weather appears to be responsible for some of the gain. ‘Weather conditions across much of the country were unseasonably mild in January and likely were a factor in higher levels of buyer activity, which boosted sales that closed in February,’ he said. ‘Higher interest rates had been tapping the breaks, notably in higher-cost housing markets since mortgage interest rates trended up last fall.’”

“NAR President Thomas M. Stevens from Vienna, Va., said comparisons with market performance over the last five years distort what people should expect from housing as an investment. ‘Housing is simply returning to a normal market, where annual home prices will rise a little faster than the overall rate of inflation,’ said Stevens.”

“Total housing inventory levels rose 5.2 percent at the end of February to 3.03 million existing homes available for sale.”

“Lereah said sales activity at present was really a ‘tale of two cities’ with some of the hottest markets showing declines while some medium priced markets still posting strong sales gains. He said that sales were down by double-digit levels in such hot sales markets as Phoenix, Fort Lauderdale and San Diego. He said, by contrast, sales were up by double-digit amounts in aeas such as Indianapolis, Albuquerque and Houston.

“The boost in sales in February was likely due to warmer than usual weather in January, when sales that were closed in February were initiated, the realtors said. On a less positive note, the supply of unsold homes also rose 5.2% in February to 3.03 million, close to the all-time record of 3.04 million in 1986.”"

Looking at the PDF file on the linked page, the national median is $209,000, down from $220,000 in August 2005. In the west it’s $306,000, down from $327,000 last August. In the south, the median is $182,000, down from $189,000 in October. In the midwest, it was at $160,000, off from $176,000 in August, and the northeast was at a high of $263,000 from $250,000 this month last year. Sales by region were as follows, all YOY: NE up 2.6%. MW up 1.9%. South up 3.1%, and the west was down 10.6%.

Inventory is up 30.2% year over year and months supply is up 32.5%. February’s nationwide median was the fourth straight monthly decline.

A pair of reports on the Florida housing bubble. “The Orlando area’s existing-home sales set another record in February, with prices leveling off but buyers and sellers still signing contracts at a brisk pace, defying predictions of a slowdown. The number of homes for sale in the Orlando area, 12,966, was at record levels. February’s inventory was more than triple the number from a year ago, which contributed to the ongoing flattening of the median sales price.”

“‘There is more of a balance now,’ the Orlando Regional Realtor Association president Beverly Pindling said, between buyers and sellers, but ‘we are leaning towards a buyer’s market. If rates continue to rise, Pindling said, ‘you will see fewer buyers,’ and that’s one reason some sellers are placing their homes for sale now, rather than take a chance that more home buyers will be forced out of the market.”

“People may take less [for their home] than they were expecting,’ to close the deal, Pindling said. Often, she said, they have to trim their asking price because they need the sale to complete their own home purchase.”

“February’s existing-homes sales for the nation are scheduled to be released today by the National Association of Realtors.”

“The signs of change are popping up all over Southwest Florida, but those looking to move or upgrade their current house are having a hard time selling. Last year, sellers had 4 or 5 buyers for every home, now they’re lucky to get just one. Many real estate agents don’t see the odds changing anytime soon, so they are changing the way they sell.”

“‘The real estate agent thought it would be sold by January, but that didn’t happen,’ said Ron Conrad. Now Conrad keeps making improvements and checking the condition of his home. Despite the efforts, he still can’t reel in a buyer. ‘We reduced it by $45,000,’ said Conrad. His house is on the water. Now other sellers are stressing too.”

“‘It used to be that the buyer would come to you, now you’ve got to bring your property to the buyer,’ said realtor Brett Ellis. ‘We are spending, just the Ellis Team alone, between $60,000 and $70,000 a month,’ said Ellis.”

“Many local real estate agents who don’t use techniques similar to the Ellis Team’s are reporting a 25 to 60 percent drop in sales from this time last year to now. ‘She did try really hard,’ said Conrad. But not hard enough. The ‘For Sale’ sign still sits in the front yard.”

“The downturn in the housing market isn’t just in Lee County. Real estate offices in Collier County report sales are down between 25 and 50 percent. Some agents say it’s the toughest they’ve ever had it. Agents in Charlotte County are struggling as well. Sales are slumping about fifty percent in some areas.”

From the Wall Street Journal. “Housing bargains are hard to come by in the Fort Lauderdale region. But as sales began to fall late last year, many brokers say this tropical seller’s paradise may be hitting a cool spot. Brokers note softening investor interest in the area and increasingly common price reductions on listings.”

“‘A year ago I could sell something in a half hour with a phone call to an investor,’ said Jeanette Nogosanti who owns Oceanique Realty in Pompano Beach, Fl. ‘Now those investors have houses they want to sell.’”