The Housing Bubble

Friday desk clearing time; first from Wall Street. “Dominion Homes, Inc. closed 315 homes during the three months ended March 31, 2006 compared to 478 homes closed for the same period a year ago. Home sales conditions continue to be difficult in all of our markets. The average sales price of homes in backlog at March 31, 2006 was approximately $200,300 compared to $202,300 at March 31, 2005, reflecting more aggressive pricing of our homes.”

“The Compensation Committee of Countrywide Financial granted 13,714,540 stock appreciation rights under the Plan to various employees, including its executive officers.”

“U.S. Treasury debt prices tumbled on Friday, sending long-term yields to fresh highs. ‘The market thinks the strong payrolls report warrants a 5 percent funds rate, and possibly 5.25 percent, said Tony Crescenzi. St. Louis Federal Reserve Bank President William Poole said futures-market expectations that suggest the Fed may raise its target rate to 5.25 percent are ‘a perfectly reasonable understanding given the information that is now available.’”

“Every sensible person trying to analyze bonds and the Fed thinks that the Fed must have insights that we can’t imagine, let alone understand, and then… then…. The Fed this week released verbatim transcripts of its meetings in 2000. That fall, Greenspan and the Fed’s research director in painfully clueless language dismissed any prospect of weakness in technology, or the stock market, or the economy. Wow.”

“I had this dream that I could flip middle-class housing. One of the agents in the back beckoned me over. ‘What made you think you could find a house like that? And how many have you found?’ ‘None.’”

“‘Didn’t you wonder why? The reason is, if any of us found a house like that, we’d flip it ourselves. You’re looking for something that is too good, and the people who own this company should know better.’ All the risks I had taken, and the money I had blown through, and for what? A dream that didn’t exist; a mirage. And I had learned that it didn’t exist because my firm’s own agents had told me. Couldn’t somebody have pointed this out five months ago?”

From Arizona. “With about 13,000 homes and condos for sale in the Southeast Valley, you need all the help you can get if you’re trying to sell a home. ‘It (staging) is almost a requirement. The inventory (of homes for sale) is going up. The gap between list and sales prices is going up month by month,’ said Heather Sanders, an Ahwatukee Foothills real estate agent who stages homes.”

“Renee Hoffman, an Ahwatukee Foothills agent who has her own staging company, said the process (makes) it less likely the seller will have to reduce the price. ‘The price of staging a home is less than the first price reduction,’ Hoffman said. Julie Cowan, an agent and accredited stager in Chandler, said, ‘I think of it as hidden equity. It’s hidden beyond the clutter,’ Cowan said.”

“Real estate broker, Margot Murphy, who specializes in listing pre-foreclosure properties, said, ‘If San Diego is any indication of how homeowners have been refinancing to pull money out of their home, then any decline in home values there could create a fairly substantial market of equity-deficient properties.’ Her next stop is Sacramento, CA.”

“Homebuilders in Sacramento, Yolo, Placer, El Dorado, Sutter and Yuba counties sold 2,081 homes from January through March 2006, compared to 4,812 in the same three months last year. The decline has builders sweetening incentives, which nearly tripled from early 2005. Builders are cutting prices too.”

“Yuba County saw the sharpest percentage drop, down 92.8 percent in a year from 497 sales in first-quarter 2005 to 36 in the first three months of this year.”

“Orlando’s theme parks have been a magnet for tourists since Disney World opened its doors in 1971. At Reunion, owners have the option of putting their properties into a rental pool. The close proximity to Disney may help them find tenants, although regionally, the rental market has hit a snag. ‘Property prices have gone up but rent hasn’t,’ said Lesley Dolby of Dolby Properties in Orlando. ‘The numbers don’t work out like they used to.’”

The northern Virginia realtors have the March numbers out. Please note the files on the link are PDF’s.

The following are single family homes, inventory numbers are year over year:

Arlington County

Active listings up 274.4%, with the median down to $650,000 from the $669,154 high in 2005.

Alexandria City

Active listings up 390.3%, with the median flat and average price down.

Falls Church City

Active listings up 291.7%, and the median is higher with only one home sold under $500,000.

Fauquier County

Active listings up 204.3%, with a median at $390,000, down from $419,950 in 2005.

Fairfax County

Active listings up 496.4% with the median and average price down from the 2005 highs.

Loudoun County

Active listings up 434.7% with a year to date decrease in contracts of 23.5%, The median is down $5,000, even with triple or double digit declines in price ranges beneath $500,000.

Prince William County

Active listings up 497.2%, with a flat median price even with big declines in price ranges below $300,000.Compared to 2005, contracts are down 26.4%, year to date.

The only two condo and co-op reports were pulled up; Loudon County which saw an increase in active listings of 608.5% and a decline of year to date contracts of 21.3%. And Prince William County saw an increase in active listing of 800% and a 16.3% decline in year to date contracts.

The housing bust is over in Las Vegas, local realtors report. “Any ground lost in January and February was quickly recovered in March, the Greater Las Vegas Association of Realtors reported. The median price for 2,521 homes sold during the month was $314,950, up 1.9 percent from February and up 6.8 percent from the same month a year ago.”

“Prices had dropped for two straight months from $312,000 in December to $309,000 in February, leading some to believe the ‘bubble’ was starting to pop in Las Vegas.”

“‘Overall, we continue to see a solid housing market in Las Vegas,’ housing analyst Stephen East said, ‘but we have a higher level of caution now versus five months ago, given elevated incentives and cancellations, combined with further signs of inconsistency in pricing power.’”

“‘We have basically the correction of January and February, which are typically slower months and certainly the market has cooled off, but that’s the long and short of it; we’re just coming into our spring season,’ said Linda Rheinberger of the GLVAR.”

“The surge in sales is tempered by a more than 19 percent drop in sales from last March. The number of homes available for sale on the MLS grew 21.8 percent from a year ago to 17,385. Total dollar volume for March home sales was $957.8 million, down 13.5 percent from a year ago.”

“For many families in the Valley, home prices are out of reach. The affordable housing crisis will be addressed at a conference Thursday in Henderson. ‘It’s really bad; apartment vacancy rate is 3-4 percent, the median home has gone up to $300,000, it’s out of reach for everybody, so we’ve really got to buckle down and decide what we’re gonna do in the community,’ said Ken Lange, Nevada State Education Assistant.”

“Michael Colagioia, who wants to move to Southern Nevada from Florida, said he put his house up for sale, but the market is slow there and not many people have looked at the house.”

One homebuilder plans to help out. “Pulte Homes will break ground today on Anthem Mesquite, a 2,014-acre master plan about 80 miles north of Las Vegas in the city of Mesquite. Upon its completion, Anthem Mesquite will have 4,600 homes, including 3,400 homes in Sun City Mesquite. Several companies either planning or building communities in Mesquite. City officials estimate that as many as 14,000 new homes will come online in the next 10 years.”

More reports on the housing bubble in Washington. “Homes are coming onto the market and basically sitting there in many parts of Pierce and King counties, according to a new report released Thursday.”

“(Broker) Gideon Epistola said that while his listing board has been filling up, the sales board has been somewhat static. ‘A year ago, that wasn’t the case,’ he said.”

“Epistola had a personal experience with the shifting market. When he recently sold his home in Lakewood, he first listed it at $375,000. Three weeks later and a price reduction of $30,000, the home finally sold. On the flip side, he bought a home in University Place that had been on the market for a bit last fall. ‘We really didn’t compete against anyone,’ to get the house, he said.”

“Dick Beeson, broker in Tacoma, said that housing inventory has indeed climbed, 26 percent in Pierce County compared with last March. Most of the new listings driving up the numbers come from Spanaway and the Puyallup area, Beeson said. Pierce County’s booming condominium market continues to thrive, with listings increasing by 11 percent when compared with this time last year.”

“NWMLS members added 12,639 new listings to inventory last month, edging out the year-ago total of 11,808 new listings. With those new listings, the total inventory at month end rose to 23,533 listings. Compared to the same month a year ago, the inventory grew by 15.9 percent.”

“The largest gains from a year ago are in Thurston County (up 77.5 percent), Grays Harbor County (up 62.5 percent), Pierce County (up 26.7 percent) and Kitsap County (up 22.9 percent). Only four counties have fewer listings than a year ago: Cowlitz, King, Lewis and Kittitas.’”

“‘Traffic at open houses has been pretty decent,’ Beeson remarked. ‘People are taking a bit longer to decide,’ he acknowledged. He believes the abundance of people moving into the area will sustain demand and price appreciation ‘for some time,’ but tempers his optimism by noting, ‘So long as rates stay under 7 percent.’”

“Pending home sales in Seattle and King County fell again in March. Pending sales countywide fell 8 percent compared with the same period a year ago. The same trend held true in Seattle, with pending sales down 8.8 percent.”

“Throughout King County, listings fell 5.5 percent compared with last March. In Seattle, listings were down 6.2 percent. The drop in listings has worked in favor of some home sellers, such as Pat Garrison in Wallingford. Last month she listed the house..there were three bids from potential buyers, and it sold. ‘Realtors were representing their clients with letters and telling us why they were perfect for the house. It was just like you read about,’ Garrison said.”

The Washington Post has this report on a lending crackdown. “As the real estate market slows, some mortgage lenders are trying to prop up profits by relaxing lending standards for certain types of loans, endangering borrowers and financial institutions, a top banking regulator said yesterday.”

“John M. Reich, director of the Office of Thrift Supervision, warned that some lenders are making it too easy for unsophisticated borrowers to take on risky nontraditional mortgages that they may not fully understand. Reich said regulators are ‘closely monitoring’ the growth of loan types in which the payments can suddenly double, creating a payment shock that could force borrowers into foreclosure if housing values were to fall and could also cause financial losses for the lenders who make the loans.”

“John Dugan, comptroller of the currency, who also spoke at the meeting, echoed Reich’s concerns about the volume of commercial real estate lending. He also likened it to the lending pattern that preceded the savings and loan bailout of the early 1990s.”

“But a regulatory crackdown on the loans, known as interest-only and option mortgages, could prove problematic for some pricey real estate markets, such as the Washington area, where buyers have become increasingly dependent on such loans.”

“About two-thirds of all people who bought homes in the Washington area in 2005 used interest-only or option mortgages, many of which have adjustable interest rates, up from 2.2 percent in 2000.”

“‘These types of products have been enablers when it comes to allowing home prices to rise,’ said Christopher Cruise, a Silver Spring-based mortgage trainer who runs classes for lenders and regulators around the country. ‘Without these products, homes couldn’t be purchased. If they are taken off the market, it could precipitate a disaster of epic proportions.’”

“‘If people suddenly can’t get an interest-only loan because the feds are clamping down on how many are out there, it’ll drive the market down,’ said Thomas Shaner, executive director of the Maryland Association of Mortgage Brokers. ‘It’ll have repercussions for market values,’ because fewer people will be able to buy or people will buy less-expensive homes than they might otherwise.”

The Rocky Mountain News has the latest on the Denver housing market. “Rising foreclosures are driving the supply of unsold homes in the Denver area to near-record levels, experts agreed on Thursday. There were 27,309 unsold previously owned homes on the market in March, nearly 18 percent more than the 23,214 unsold homes a year earlier, and 5.7 percent more than February.”

“It’s likely that the record will be shattered next month, Steve McGuire said. ‘And then it likely will be broken again in May and again in June,’ he said, because that is when more homes historically hit the market.”

“Rising mortgage rates, aggressive refinancing in which owners pulled out all or most of their equity, and homes bought with no down payments are driving foreclosures, said (broker) Ed Jalowsky. ‘It’s almost been a perfect storm,’ Jalowsky said.”

“He said many buyers of homes priced under $300,000 who locked in adjustable rate mortgages within the past few years are finding their monthly payments rising by $100 or $200. ‘When they go to sell the home, they’re finding that their home is worth less than their mortgage,’ he said.”

“(Broker) Kelly Posiviata agreed that the glut of homes is being exacerbated by foreclosures hitting the market. ‘A lot more (foreclosed) homes came on the market at the end of February and the first part of March, and I think that this nonstop flood of foreclosures is just pushing up the unsold inventory,’ Posiviata said.”

“She said home buyers who took advantage of huge incentives by home builders thought they were getting great deals. But if they’ve owned their homes for only a couple of years, they’re finding that the market value is less than the sales price. Posiviata advises buyers to stay in their homes for a minimum of three years, and preferably five years, if they want to be able make a profit, she said.”

“Independent real estate analyst Gary Bauer said inventory likely is up because foreclosures are up. Instead of holding their own foreclosure sales, banks are using real-estate agents to market their properties, Bauer said. That has been the case for broker Ed Jalowski, Ameriquest Mortgage Co. has assigned him seven listings.”

“He estimates that of his 50 listings, 60 percent are repossessed homes or those being sold to avoid foreclosure.”

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