The Housing Bubble

Inman News takes us back to California. “For months, Los Angeles-based aerospace consultant Doug Roberts has stewed over a real estate deal that went sour last November. It was bad enough that the seller first accepted but then rejected his full-price offer of $699,000 for the modest three-bedroom house near the airport, Roberts says, but even worse that the busy Realtor took three weeks to call him back to break the bad news.”

“‘I was in limbo for almost a month, not knowing whether I had a deal or not,’ Roberts says. ‘The seller was a real jerk, and the agent wasn’t any better.’”

“But Roberts’ anger turned into laughter last week, when the same Realtor he finally fired last December called to say that the previous deal with the other buyer had fallen apart and the house is now back on the market, for $50,000 less than he offered to pay last fall.”

“Despite the price reduction, Roberts isn’t biting. ‘I told the Realtor to get lost, and I told her to tell the seller the same thing,’ he says. ‘They treated me like garbage when the market was strong, but now it’s a different story that sales are tanking. A year from now, that same house is probably going to be worth $200,000 less and the agent will be working at McDonalds.’”

And from Rich Toscano. “In San Diego Magazine last year a well-known local housing analyst asserted that speculation in single-family homes is ‘essentially zero, and on condominiums it’s 10 to 20 percent, but that’s fairly normal.’”

“Given that San Diego rents are so low in comparison to home prices, non-occupying homeowners who bought in the recent past are probably losing money each month. The only plausible reason for owners to subject themselves to such repeated losses seems to be an expectation that future appreciation in either home prices or rents will make up the shortfall. These people are, without a doubt, speculating.”

“During both 2004 and 2005, 80 percent of San Diego homebuyers used adjustable rate mortgages. Consider the fact that those two years saw fixed mortgage rates lower than they’d been in two generations. Many buyers didn’t see the need to lock in low rates because they didn’t think they’d be in the mortgage for very long. Some assumed that they would sell their homes at huge profit and move to the next coach up on the housing gravy train.”

“The reasoning employed is presumably very similar to that used by standard ARM-holders. Almost half of all San Diego mortgages issued in 2004 were interest-only. Negative-amortization mortgages take the interest-only concept a step further. Once again, regardless of where they live, they are speculating.”

“Even if we ignore the outright purchasers of investment property, the bill is filled by all those over-extended borrowers who have put themselves into risky situations in the hope of commensurate rewards. There’s no shortage of housing speculation in San Diego.”

Some updates on the housing bubble in Florida. “With lawmakers ready to negotiate an already-flush budget, economists said Wednesday the state will bring in nearly $1 billion more in taxes. Senate President Tom Lee..said lawmakers should put at least part of the money in the state’s reserves. The economists said they expect smaller increases in tax revenues in the future, at least in part, because the housing market is slowing down.”

“‘We need to prepare for the cooling down of the economy that is expected in the next few years,’ Lee said.”

“Ron Rennick’s firm has been hired by Vero Beach-based Glo Investments to auction 65 acres at the Equus subdivision. A developer decided to sell them off at once after finding that sales were slow. Each lot had a previous listing price of about $599,000 but the slowdown in housing sales has affected Equus. There is no minimum bid at this event.”

“Brad Hunter, who follows housing trends on the Treasure Coast and South Florida for Metrostudy, said developers find it easier to unload parcels through a quick auction. ‘I’ve heard of more and more people doing this as a result of the slowdown in the market over the last six months,’ Hunter said. ‘I suspect that we’ll see more of these types of auctions.’”

The Herald Tribune looks at speculation. “A national study of housing sales during 2005 confirmed what many had suspected, that speculation has been rampant in the booming real estate market. Single-family home ownership records in Florida shows the same pattern, with far fewer recent new owners taking advantage of tax breaks reserved for resident homeowners, implying that they are investment properties.”

“For example, in Charlotte County, 53 percent of homes bought in 2004 did not carry the state’s homestead exemption. In Sarasota County, the figures was 44 percent; in Manatee County, 39 percent.”

“Don’t wait for financial players this year, cautions (realtor) Chad Roffers of Sarasota. ‘Speculators are completely out of the market,’ Roffers said. ‘If I had to guess I’d say 50 percent of our market comes from second-home buyers,’ he said.”

“Others might view that 40 percent figure with more trepidation. It raises questions about the potential sweep of problems should some home buyers be unable to afford to carry their new real estate acquisitions: What happens with the many investors who tapped so-called hybrid mortgages? If second-home buyers do go ‘upside down’, is there a risk that they would quickly ditch their second home to cut costs and potentially create a flood of housing stock, particularly in second-home-rich Florida?”

“Although there has been a ’sharp increase in second-home sales recently.. whether they’ll be able to keep doing so is the issue,’ Northern Trust economist Paul Kasriel said. If they have taken equity out of their first homes ‘and equity growth slows or even falls, it might inhibit their second home buying abilities,’ Kasriel added.”

The Arizona Daily Star has this update on Tucson. “The median home price in Tucson decreased by 4 percent to $218,000 last month from $227,000 in February. After frenzied sales and month-to-month price increases of $5,000 in the first half of last year, the median price appeared to stabilize at or just below the $220,000 mark.”

“The figures point to a steadier market, said Paul Olson, president of the MLS. ‘We’re seeing a really healthy market right now,’ Olson said. ‘I do know our listing inventory continues to grow and even though that is happening, our market time has been stable for three months.’”

“Last year, houses sold the same day they were listed on market, sometimes within a couple of hours of being listed. The number of homes for sale jumped to 7,577 last month from 3,493 last March, a 117 percent increase.”

And the Arizona Republic. “A Las Vegas developer with plans to build more than 20,000 homes outside Kingman has claimed the water needed for his project, leaving a shrunken supply for another builder with even bigger plans.”

“The state’s finding allows Mardian, in effect, to reserve the water he needs, removing it from the pool available for other projects. That could affect a pending application for water by Jim Rhodes, another Las Vegas builder who has outlined plans to build about 130,000 homes in northwest Mohave County.”

“At stake is a potentially lucrative piece of the southern Nevada housing market. Both developers plan to sell their subdivisions as affordable bedroom communities for workers in the Las Vegas area, which will be more easily accessible when a bridge bypassing Hoover Dam is finished in 2008.”

Some housing bubble updates from California. “Sales volumes are slowing while more homes are coming on the market. In March, 9,755 homes changed hands in L.A. County, a 10.3% decline from a year earlier, and the fifth straight month of falling sales. Prices haven’t risen more than 4% from one month to the next since last summer. In some cases, sellers are dropping their asking prices.”

“Today’s combination of prices rising more slowly, fewer sales and growing supply are typical of the first phase of a slowdown, UCLA economist Christopher Thornberg says. ‘Prices are still going up, because they always go up even when the market starts to cool,’ he says. ‘It will take six to nine months for a cooling market to start to see lower prices. It happens time after time.’”

“The housing market in California has fallen into a visible slump, and the downturn could erode economic expansion in fast-growing regions such as the East Bay, economists warned.”

“‘Things are slower than they were,’ said Ron Atkins, a realty agent in Pleasanton. ‘We have been used to a screaming hot seller’s market. But it was always unrealistic that we could have maintained that kind of blazing pace. Buyers stepped to the sidelines in the middle of 2005 and they have remained on the sidelines ever since,’ Atkins said.”

“The sizzling Central Coast housing market may finally be cooling, say some local real estate experts. David Martines, an agent in San Luis Obispo, said how quickly a home sells depends on whether it’s priced appropriately. When homes do sell, they’re going for less. ‘In not too recent times, people were getting asking (price),’ he said. ‘Now, people are making offers that are lower. They’re not paying full price. The market has to adjust to that.’”

“It’s a mixed bag elsewhere in the county, said Richard Watkins, a broker in Cayucos. ‘Los Osos has got some challenges, but that’s not a big surprise,’ Watkins said. ‘We’re seeing a fair amount of inventory build-up and price reductions.’”

“North County’s once red-hot housing market continued to chill out last month as sales fell sharply from March 2005. Inventory of unsold homes continued to swell, reaching 7,078 at the end of March, said Dennis Smith, a realtor in Carlsbad. ‘Buyers and sellers are having a stare down,’ Smith said, offering a reason for the growing supply. ‘We’ve got as many properties right now in North County as we had in the whole county at this time in 2005.’”

“March sales plunged 44 percent year over year for condos, and 20 percent for single-family houses. For the first three months of the year, single-family sales declined 19 percent and condo sales declined 33 percent.”

“Robert Campbell, an independent San Diego economist, said there is plenty of reason for concern. ‘Real estate is a highly cyclical market,’ Campbell said. ‘From this point in time, it’s only going to get worse. The good times are behind us. The money’s been made. The market only gives so much before it starts taking away.’”

“Campbell suggests the San Diego County market is out of whack because median family income is roughly half the pay it takes to buy the median-priced home, and today’s prices trigger mortgage payments generally twice what properties can command in the way of rent. ‘Eventually, all markets will come back to equilibrium,’ he said.”

Some housing bubble reports on the Twin Cities. “So much for spring fever. So far, Twin Cities homebuyers seem to be shrugging off the record number of for-sale signs sprouting up all over instead of rushing to buy. That’s not to say there were no buyers in March, 2.15 percent more than March last year. But that small increase pales next to soaring inventories.”

“The number of homes put up for sale last month around the Twin Cities shot up 23 percent to 10,821 new listings. The new crop of listings brought the total active residential home inventory in the Twin Cities to all-time high of 26,182, about 42 percent higher than this time last year.”

“In other words, soaring inventory is clearly tilting the market toward buyers, and some sellers are cutting their asking prices. ‘I don’t understand honestly why buyers aren’t knocking down our doors,’ said June Wiener, president of the St. Paul Area Association of Realtors.”

“In fact, it was the eighth consecutive month of record-setting listing activity in the 13-county metro area, giving buyers a serious edge and putting downward pressure on price increases.”

“Orv Fillbrandt, a sales agent in Edina, said he recently had a client trying to buy a new townhouse, but they couldn’t sell their current home. In an attempt to move things forward, the builder offered to reduce the price on the townhouse if the buyer would drop the price on the home by the same amount.”

“‘It’s opportunity time out there right now’ for buyers, said Todd Shipman, president of the Minneapolis Area Association of Realtors. ‘While sellers may pine for the days of multiple offers in the first week on the market, that type of market imbalance was simply unsustainable,’ said Shipman.”

“Shipman said that although sellers are having to price their houses more competitively and be willing to offer discounts to buyers, they’ll have the same opportunities when they become buyers. ‘Sellers need to level off their expectations on the sell side, but you’ll pay less on the buy side,’ he said.”

“For example, Shipman said, he showed one couple a house in Edina last fall but they passed on it at $585,000. This spring, it’s back on the market, at $540,000, and the couple is reconsidering. ‘So now they can let their listing go for less money,’ he said, ‘and still achieve the same dream and the same goal.’”

A pair of housing bubble reports from the Carolinas. “Pitt Center was overcrowded when many realtors appeared to tell Southern Shores Town Council that something needS to be done concerning the current regulations regarding temporary ‘Open House’ real estate signs. David Hoare, along with fellow realtors, told council that times have changed drastically in the real estate market in Dare County.”

“According to these realtors, recent figures suggest a slowing of real estate activity, evidenced by the fact that real estate closings were down approximately 50 percent during the first three months of 2006. The realtors also told council that real estate has become a ‘buyers market’ in Dare County and prices are falling as to amounts potential sellers can ask for their properties.”

From the Myrtle Beach Sun Times. “The number of condos for sale on the Grand Strand market has more than tripled since the first quarter last year, causing a shift toward a buyer’s market. That makes this a good time for those wanting to buy more affordable condos because they’ll have more options and some condos have seen price decreases, said (realtor) Rachel Broadhurst. ‘We’ve been calling them all and telling them to come on back,’ Broadhurst said.”

“First-quarter statistics from the MLS show 9,012 condos on the market, compared to 2,712 during the same period last year. Condo sales also have dropped 4 percent from the same period last year. A large number of hotel conversions and apartment conversions have been added to the market. The increase in listings and less demand have caused some condo prices to decrease in the past three months.”

“‘Certainly we think we’ll see good condo sales. But we’re not going to sap up this 250 percent increase [in condo listings],’ Broadhurst said. ‘Sometimes the market has to stop and take a breath because it needs to re-evaluate.’”

“Single-family home listings increased 40 percent. ‘It’s nothing to be concerned about. Last year was just a crazy, crazy year, and people have to understand that. We can’t base everything on what happened last year. It was an enigma,’ said (realtor) Tom Maeser.”

“Mark Vitner, senior economist for Wachovia in Charlotte, N.C., said many areas are seeing an increase in listings because people think the market is softening and they want to sell now. ‘Folks are realizing that the housing boom is drawing to an end,’ he said.”

“Developer Mike Kelly in Atlantic Beach said he’s concerned about a saturated condo market. He said he isn’t worried about selling out his planned 141-unit complex, but he is concerned about other developers who must sell out 400 to 500-unit towers. He said he doesn’t want speculators buying in his development. ‘That contributed to the problem, speculators running the prices up,’ he said.”