The Housing Bubble

Slate takes a look at a television ad a brokerage firm is running. “This ad shows up at a fearful, uncertain time for real estate agents. It’s not just that the housing market seems poised for a dip. It’s that the real estate agent’s very purpose is coming into question. Enter Century 21’s new campaign, titled ‘Agents of Change.’ The initial salvo includes this spot and five others and began airing on television in March.”

“With the exception of ‘The Debate,’ the ads are basically inoffensive. As for ‘The Debate’: It’s terrifying. The problem lies in the performances. That beleaguered husband, dough-faced and weary, seems highly sympathetic as he expresses a few doubts about this major life decision. Meanwhile, the wife just knits her eyebrows at the guy like he’s unfathomably dense. Later, she jabs him with an accusatory ‘What?!’—her eyes wide and wild, her neck muscles flexed, her head twitching in disbelief at what a ninny her husband’s turned out to be.”

“The capper comes when their real estate agent, who we discover has been listening in on what should be a private and delicate moment, takes sides with the wife and thereby crumbles the husband’s defenses.”

“‘Suzanne researched this,’ says the wife in exasperation. As we’re wondering who Suzanne is, the ad cuts to an image of the couple’s kitchen telephone. ‘This listing is special, John,’ says the voice of their real estate agent over the speakerphone. ‘You guys can do this.’ The husband caves. ‘This is awesome,’ says the wife. We see a picture of the agent’s Century 21 business card.”

“I’ve gotten a few e-mails about this ad; all of them negative. One of my readers called the ad ‘creepy.’ Another felt that the wife in the spot ‘comes off as a nagging harpy.’ And a third asked me to explain ‘why a woman bullying her husband would make me want to buy a house.’”

A Dallas-Ft. Worth television station has this on the spreading housing bubble. “When homes get a little too pricey, homebuyers start looking elsewhere. At least that’s the theory behind a new housing trend called the ‘rolling boom.’ It’s a trend that’s good news for Texas—and particularly for North Texas.”

“‘This is a house in North Dallas: 5,668 square feet; 6 bedrooms, 6 baths; junior Olympic sized pool; outstanding.’ That’s how Realtor Steven Shipler described a dream house he sold in less than 30 days to a California couple. Shipler said the couple had sold their property in California and had enough equity to literally pay cash for a million dollar house.”

“California, on average, loses about 100,000 residents a year to states like Texas. The effect is what some experts call a ‘rolling boom.’”

“In fact, a thousand new people move to the Lone Star State every day. ‘The Texas market is somewhat of a secret still,’ Shipler said. ‘We’ve just tracked the trend and that trend has gone from California—the L.A. area—through Phoenix, through that market, on over to the Dallas area, and it’s a huge secret.’”

The Star Telegram reports there is no shortage to choose from. “The record pace of home construction in the Dallas-Fort Worth area has hit another milestone: more than 50,000 home starts in 12 months. But the inventory of new houses is climbing. They closed on 45,996 homes in the same period, also a record high.”

“David Brown, director of Metrostudy’s Dallas-Fort Worth region, said that many transfers are selling homes in fast-appreciating areas of the country, enabling them to buy bigger houses for relatively less money in North Texas.”

“In the short term, the inventory of finished but unsold homes is up from a year ago, to a 7.3-month supply from 6.7 months a year ago. ‘We are seeing an increase in the speculative construction,’ Brown said. ‘It’s not a major problem, but it is certainly something we are watching.’”

“Ted Wilson said the new demand hasn’t helped builders much because the builders are still being squeezed by high costs and competition. The competitive pressures to keep the prices down and the upward pressure on the cost of doing business is making the market ‘a pressure cooker,’ Wilson said, and some subcontractors have gone out of business. ‘Their margins are razor thin,’ he said. ‘It’s difficult to compete when you have 15 builders in a five-builder submarket,’ Wilson said.”

Reports from Washington to Wall Street on the housing bubble. “Once a nuisance to a handful of lenders, mortgage fraud has blossomed into one of the fastest-growing white-collar crimes in the country, putting innocent homeowners on the hook for overpriced houses and pushing up interest rates for all home loans.”

“Often the borrower is a willing accomplice. But these schemes, which the Federal Bureau of Investigation calls ‘fraud for profit’ and which account for about 80% of mortgage-fraud cases, usually require the work of an industry insider. ‘It’s hard to perpetrate fraud for profit without some kind of third-party professional being involved, whether an appraiser, loan officer, real estate broker; someone to extract the money from the lending channel,’ says (economist) Mark Fleming.”

“Local homeowners may feel another pinch: A neighborhood where some houses have falsely inflated appraisals can lead to higher tax bills for all, as happened in one Atlanta neighborhood, says Tim Doyle, of the Mortgage Bankers Association. Later comes another problem: ‘They’ll hit four or five properties in one small area, the properties will get foreclosed upon and get boarded up,’ he says. ‘That affects other people’s property values.’”

“The Mortgage Bankers Association is scrambling to make room for more attendees after initially selling out its first fraud conference, to be held in May.”

Mr. Paul Muolo has some insider info. “A task force for the Mortgage Bankers Association has taken the forceful position of opposing arbitrary caps or forced reductions on Fannie Mae and Freddie Mac’s retained portfolios. Then how come the trade group hasn’t? That’s something Countrywide Home Loans, MBA’s largest dues-paying member, would like to know. In a recent letter to MBA chief Jonathan Kempner, Countrywide CEO Angelo Mozilo, made his displeasure known, saying the trade group is making a ’significant omission’ by not taking a public position on the issue.”

“It seems as though more and more investment banking firms are demanding ‘buybacks’ on nonconforming loans they purchased. Industry executives tell us the trend started in the fourth quarter and is accelerating. The biggest problem with the loans is early defaults.”

“A Bush administration reform proposal that would allow the Federal Housing Administration to charge risk-based mortgage insurance premiums is not going down well. Over the past few years FHA has been jokingly referred to as ‘the government’s subprime program.’”

“FHA to Compete in Subprime Market. In an effort to increase homeownership opportunity for many Americans, the Department of Housing and Urban Development announced a far-reaching proposal to modernize the Federal Housing Administration (FHA) and make it an important financing option in today’s housing market.”

“While many areas of the country have reported that investor activity is down, this hasn’t stopped builders from forging on in building a steady supply of new home. Why so much builder confidence? The reason appears to fairly simple, builders can offer price cuts and incentives that existing home owners and sellers cannot.”

“If demand slows and production doesn’t, inventories pile up. Unless builders want to run their business into the ground, they build fewer houses. Something’s Gotta Give.”

“The difference between new home sales and single-family starts has reached extremes seen only a handful of times, according to Joe Carson. In all three previous instances, 1972, 1978 and 1984, starts took a tumble. Housing guru Michael Carliner at the National Association of Home Builders in Washington says says the bulging inventory of unsold homes, up 23 percent in the past year to 548,000, isn’t as burdensome as it looks. However, ‘there are things that we don’t measure that are worrisome,’ Carliner says, referring to sales cancellations. ‘Cancellations appear to be up,’ based on net sales numbers reported by large builders.”

“If housing starts don’t begin to decline soon, there will be a problem of too much inventory, he says.”

The housing market is big news in Florida. “Attendees at a little-publicized workshop in Tallahassee received a harsh storm warning this week from the head of Florida’s Office of Insurance Regulation. Insurance premiums are going nowhere but up for the foreseeable future, and there is nothing he or anybody else can do about it.”

“‘I don’t want to disillusion you in any way,’ he said, addressing the likelihood of achieving lower rates. ‘But we’re not returning anytime soon to a reversal in insurance premiums.’ McCarty rendered a stark and candid picture of..his powerlessness to contain its costs. ‘For a long time, seniors of fixed means came here when land was blissfully cheap,’ he said.”

“All panelists agreed, the proactive prevention of damage from hurricanes must ultimately become everyone’s responsibility. As McCarty pointedly observed, the only other alternative is the California solution to the problem. ‘In California,’ he explained, ‘insurance policies don’t cover earthquakes.’”

“Some bankers are concerned the flush economic times might be ending. Grand Bank CEO J. Russell Greene said the loan market is slowing and his bank’s commercial real estate lending is flat. ‘We’ve been in a very good economy that I think is seeing its slowdown,’ Greene said, adding that ‘the test of the bankers is yet to come.’”

“‘Loans are slowing down dramatically. Interest rates are rising,’ he said. ‘The cash flows of some of these companies on some of these projects are going to be strained.’”

“Despite a slowdown in sales of existing single-family homes and condominiums in Collier this season, housing starts surged in March, increasing 71 percent compared to the same month last year. As for sales of existing homes, the Florida Association of Realtors reported in late March that sales of existing single family homes in Collier were down 47 percent compared to last year’s robust resale market.”

And a Fed Govenor spoke today in Naples. “While some U.S. residential housing markets ‘have a degree of froth,’ investment activity in these regions is starting to slow, Federal Reserve Board Governor Susan Bies said on Monday. When asked by reporters after a speech to a community bankers’ group which particular markets concerned regulators, Bies said: ‘The markets where the relative growth in housing prices far outpaces the growth of basic employment and population.’”

“In her speech, Bies expressed concern about practices like ‘condo flipping,’ where condominiums under construction are bought and sold by speculators long before buildings are complete.”

Some reports on high end housing markets stalling out. “The million-dollar home used to be a rarity in Maine. Now you can find hundreds of them on the market. There are now 416 houses for sale in the state with an asking price of $1 million or more. In the past year, 196 houses have sold for more than $1 million.”

“Part of push comes from the baby-boom generation that is looking for investment opportunities and for second homes that have the potential to become year-round homes. ‘Certainly the limited discussions I’ve had suggest it’s the out-of-staters pushing this market,’ Valerie Lamont said.”

“(Broker) Matt Hiebert has noticed an upswing in pricey listings in the last few years. ‘It seemed three or four years ago, that a $300,000 house was a lot of money,’ he said. The million-dollar homes take longer to sell, Hiebert said. After all, not that many can afford a monthly mortgage of $5,000 or more.”

“The stratosphere of Greater Boston’s housing market isn’t immune to the realities of supply and demand. Wealthy buyers are driving harder bargains, thanks to a growing inventory of ultra-luxury condos, stately mansions and antique townhomes costing $4 million or more. The increased number of choices, combined with a certain lack of urgency to get a deal done, have led to steeper discounts than the rest of the market. Year over year, the area inventory for homes over $4 million is up by 70 percent.”

“The signs of growing inventory are unmistakable: There were 124 listings above $4 million in Greater Boston on Wednesday, compared to 73 for the same date last year. Rising interest rates are also creating a drag on the luxury market, although many wealthy buyers pay cash, brokers say it’s affecting perceptions of resale value.”

“‘What does affect the middle and lower ends eventually affects the upper range,’ (agent) Charles Orr said. ‘Sometimes there’s a delay, but it does get there because it’s all a part of the same food chain. So buyers are very cautious that way, and look ahead.’”

“‘It’s all about consumer confidence,’ (broker) Terry Maitland said. ‘And every person out there in a buyer’s market is going to try to take advantage of the situation. They just won’t overpay. They’re bidding very cautiously, walking away over small increments, and drawing a line in the sand.’”

“That hard-nosed approach is borne out by the difference between asking price and sale price. In the $2 million-and-over range, properties are selling at 89 percent of the original list price, a steeper discount compared to all single-family homes (94 percent) and all condos (92 percent), Orr said.”

Some housing bubble reports from New York. “For home buyers and sellers, this spring is telling a very different real estate story, one the region hasn’t seen in nearly a decade. It may be the heart of the selling season, but the frenzy of years past is gone, replaced by a far more tentative market. ‘It will tell us how the housing market will perform over the next year or so,’ said Pearl Kamer, the chief economist with the Long Island Association. ‘The spring tells it all.’”

“Far more houses are for sale now, but sellers are trying to get the prices their former neighbors got and buyers are waiting for rock-bottom prices. Nassau, Suffolk and Queens had a total of 25,156 listings in February, compared with 14,653 a year ago.”

“Sellers are listing now in an attempt to beat market declines. And buyers are being choosy. ‘You have a sense that there are two homes on nearly every block that are either for sale or coming for sale,’ said Judy Markowitz, broker in Flushing.”

“If a weaker spring is followed by an even weaker summer or fall, that may put the market on notice. And that’s when the reality check will come, said appraiser Jonathan Miller in Manhattan, because there’s seasonal ’static’ now. ‘We’re not seeing the gloom and doom at this point that had been anticipated,’ Miller added. ‘But we’ve got rising inventory, and potentially rising mortgage rates, and when you put those things together, that is not a good thing.’”

From the Times Herald Record. “The mid-Hudson building boom just got very quiet. Orange County municipalities issued 618 single-family building permits last year, fewer than half their output in 2004. Ulster County permits fell by more than 40 percent last year, and Sullivan County permits dropped by a quarter.”

“The 618 permits issued in Orange is the lowest total in records, which date back to 1987, adding to mounting evidence that the region’s once-white-hot housing market is approaching room temperature.”

“Builders who can’t sell the homes they’ve already built aren’t about to rush out and build more. ‘I just did (a) lease with an option to buy on a new construction. I haven’t done one of those in years,’ said Paula Meloi, broker/owner in Port Jervis.”