The Housing Bubble

Inman News reports that the consensus is growing on the housing bubble. “Seven in 10 consumers expect a housing bubble to burst in the United States in the next year, while only a small portion expect housing prices to decline 5 percent or more, according to the latest Gallup survey. Seventy-one percent of surveyed consumers said a bubble burst is likely, while 24 percent say such a housing bubble is not likely. In contrast, a much smaller number of consumers, 32 percent, expect the collapse of a housing bubble within their own area in the next year, and 65 percent say it is not likely.”

“This year, about half of all Americans, 53 percent, recognize the term ‘housing bubble’ without explanation, up from 35 percent a year ago.”

“‘When the time is extended to three years, 42 percent say such a situation is likely in their area, and 56 percent say it is not, according to the survey. In May 2005, a similar question found a slightly less pessimistic view, with 37 percent of consumers expecting a housing bubble and collapse within the next three years and 61 percent saying that was not likely.”

And from Knight Ridder. “Unsure whether to buy a home now or wait? If you wait, mortgage rates could go higher. Right now, inventories are growing and houses are sitting unsold longer.”

“‘Buyers are not having to make multiple offers. Days on market are increasing. Those are all good signs for buyers,’ said Thomas Early, a spokesman for the National Association of Exclusive Buyer Agents. ‘It means negotiating strategies change. They can be much more aggressive.’”

“Early’s group represents buyers. He thinks buyers are in the driver’s seat now and that rates won’t climb much higher. But there could be an advantage to waiting.”

“‘For consumers, it may be waiting to see how the market shakes out a bit before deciding to buy at a price that’s at the top of the market, particularly if they have to stretch to do that,’ said Allen Fishbein, of the Consumer Federation of America. The potential payoff to waiting is that rates may hold steady while the pool of available houses grows, deepening a buyer’s market.”

A pair of reports on the bubble markets in the southeast. “A report by the S.C. Association of Realtors confirms that coastal South Carolina is becoming a buyers’ market as some areas have seen sales declines. Hilton Head saw a 26 percent drop in sales and Charleston had a 3 percent decline, according to first quarter statistics.”

“The drop in sales is contributing to the shift to a buyers’ market, where customers will have respite from bidding wars. ‘Ultimately, we will see some leveling off and even a price decline, particularly in the condominium market,’ Jim Peters, CEO for the realtors said.”

“Peters said all markets across the state are experiencing an inventory buildup like Myrtle Beach. The drop in sales is contributing to the shift to a buyers’ market, where customers will have respite from bidding wars.”

“‘Ultimately, we will see some leveling off and even a price decline, particularly in the condominium market,’ he said. Some speculators may be finding it difficult to sell property right now, Peters said.”

“The number of Broward County, Florida, homes sold during March continued to decline, to 649 homes from 958 single-family homes sold for the same month the year before. The number of combined single-family and condo-townhouse sales in March dropped by a third to 1,418 from 2,122, while volume was $512.1 million, down 23 percent from $664.4 million.”

“The number of new listings for all property types in March rose 60 percent to 7,852 from 4,902. The total number of available single family homes and condominium-townhouses in Broward County more than tripled to 18,679 from 4,891 in March 2005.”

Several reports on the Census findings. “Americans are leaving the nation’s big cities in search of cheaper homes and open spaces. Nearly every large metropolitan area had more people move out than move in from 2000 to 2004, according to a report being released today by the Census Bureau.”

“(Professor) Richard Florida said smaller, wealthier households are replacing larger families in many big metropolitan areas. That drives up housing prices even as the population shrinks, chasing away even more members of the middle class. ‘Because they are bidding up prices, they are forcing some people out to the exurbs and the fringe,’ Florida said. ‘Other people are forced to make moves in response to that.’”

“The metropolitan area that attracted the most new residents was Riverside, Calif., which has been siphoning residents from Los Angeles for years. ‘When you look at housing prices in Southern California, along the beaches and coastlines, you’re able to obtain a very large home for a much lower price’ in Riverside, said Cindy Roth, president and CEO of the Greater Riverside Chambers of Commerce.”

“Massachusetts lost more residents than it attracted in recent years, at a greater rate than any other state but New York, according to Census Bureau. With an average annual exodus of 42,402 people. That amounts to a rate of 6.6 people leaving the state per 1,000, second only to New York’s rate of 9.6 residents per 1,000 during that period.”

“Demographers pointed to the region’s precipitous loss of high-tech jobs and the continued high cost of housing as factors driving Massachusetts residents elsewhere. ‘I think that’s plaguing a lot of the country, these go-go places of the late ’90s, especially those with the high-tech components and persistent high housing costs,’ said William H. Frey.”

“‘There’s much more of a consciousness now that ‘if I move to such and such a place, I can get a house or a much bigger house,’ Marc J. Perry said. ‘Those who leave a high-cost area are those who are cashing out and those who never cashed in,’ said Perry.”

“In New York City, the counties that make up the five boroughs, except for Staten Island, were also among the top 25 counties with large annual population losses. But only Brooklyn and Queens, each of which lost 55,000 annually to other states, also made the list with the highest rates of population loss.”

“Soaring prices in some Florida cities could slow or reverse the net migration there. Anecdotal evidence suggests that some retirees are moving to areas in Tennessee, Kentucky and western North Carolina that are considered safer, cheaper and less crowded. ‘We call them halfbacks,’ says Perry. ‘They move all the way down to Florida from the North and then move halfway back.’”

More housing bubble news from Wall Street. “Paris G. Reece III, MDC’s CFO, said, ‘Almost all of our markets experienced higher home order cancellations, contributing to lower net home orders per active subdivision in every market except Utah, which has continued to show strength.”

“Similar to the last three quarterly periods, net home orders received in the 2006 first quarter were lower year-over-year in Arizona. The increase in cancellations in this market, as well as in Florida and Virginia, was driven in part by what appears to be the exit of speculators from these markets, along with other factors related to higher mortgage interest rates.”

“‘In addition, an increased supply of homes available to be purchased in these three markets, as well as in Colorado, resulted in an elevated number of order cancellations from prospective homebuyers who were unable to sell their existing homes in a more competitive sales environment.’ MDC’s subsidiaries build homes under the name ‘Richmond American Homes.’”

“Home builder Ryland Group Inc. reported better-than-expected quarterly earnings on Thursday, but new orders fell sharply and the company cut its outlook. Ryland said new orders in the first quarter fell 21 percent from a year earlier, to 4,021.”

“‘People are unable to sell their existing homes for what they thought they might, and are unable to go through with their anticipated purchase of their new home,’ said analyst Rick Murray. ‘So, they end up canceling their contract.’”

The Reno Gazette Journal. “Investors say they are stunned, angry and frustrated at Las Vegas-based USA Capital, a short-term mortgage lender that filed for bankruptcy protection last week. It’s the latest in a series of private lenders who have failed in Las Vegas, including Harley Harmon Mortgage, Interstate Mortgage Group and Global Express Capital.”

“‘Unbelievable,’ investor Rich Maiorana, who invested $50,000 in a USA Capital fund. The bankruptcy filing ‘just makes them look to be terribly dishonest,’ Maiorana said. Phyllis Resler, a widow and great-grandmother has $56,000 invested with USA Capital. ‘Help,’ she said, laughing nervously. ‘I can’t earn and replace what I have at age 69. That will take a lifetime.’”

“Lenard Schwartzer, an attorney for USA Capital, told bankruptcy Judge Linda Riegle on Monday that the company continued making distributions to all of its 3,600 investors even though many borrowers stopped paying interest on their loans.”

From Origination News. “Nearly 2,000 banks and thrifts, 22% of all such institutions, have construction loans on their books that exceed 100% of total capital, and 24 banks have concentrations that exceed 500% of capital, according to A.M. Best & Co. The insurance rating agency also reported that banks in the Southeast have the highest concentrations of construction loans.”

“Over 50% of Georgia and Florida banks have construction loans that exceed total capital, while nine banks in Georgia and three in Florida have construction loans that exceed 500% of capital, the company said. ‘These two states, which had the highest numbers of banks exceeding the 100%, accounted for nearly 18% of the 1,956 banks with construction lending concentrations,’ the rating agency said.”

The Denver Post has the latest on foreclosures in Colorado. “Colorado earned a distinction in March it would rather avoid, the highest ratio of foreclosures in the country. One out of every 339 homes in the state was in some stage of foreclosure during March. ‘We look at foreclosures as a lagging indicator. It usually says something else bad has happened,’ said Rick Sharga, at RealtyTrac.”

“Home construction has outrun population growth in some counties, keeping a cap on price gains. Borrowers here also lead the nation in their reliance on adjustable-rate and interest-only mortgages. ‘We made it easy for people to buy houses and difficult for them to hold onto them,’ said Tom Clark.”

“One out of 128 homes in Adams County is in foreclosure, nearly nine times the national ratio. In Arapahoe County, one out of every 161 homes is in foreclosure, seven times the national ratio. Other counties with heavy foreclosures are Denver, Weld, Larimer, Elbert and El Paso.”

“Foreclosures, like a funnel cloud, tend to create their own downward spiral once they get started, said Lori Strange, at the Adams County Housing Authority in Commerce City. Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said. That further depresses resale prices, making it harder for sellers needing to get out to pay off their mortgages.”

“That triggers more foreclosures, more pressure on lenders to dump properties and more downward pressure on prices.”

“Peter Crosswith the Arapahoe County Housing Authority, points a finger at mortgage brokers, who are unlicensed in Colorado. ‘People are not getting the best information and the best deal for their families,’ he said. Cross said he recently counseled a couple who refinanced out of a reasonable fixed-rate traditional mortgage and into a one-year adjustable rate mortgage that they couldn’t keep up with.”

“Borrowers who bet on interest rates staying low on the advice of their mortgage brokers are paying the price for that decision, Cross said.”

From My San Antonio. “Local mortgage brokers have a warning for people already struggling to make their adjustable-rate mortgage payments: Get out of them now. ‘It’s going to double the payment,’ said Lance Bryce, branch manager with Countrywide in San Antonio. ‘They could literally see their mortgage double this year.’ And that’s just the first adjustment.”

“‘They’re going to be losing their homes,’ said (mortgage broker) Scott Thomas in San Antonio. ‘I think a lot of these people were so happy to get into a mortgage that they have no idea what kind of repercussions this will have.’”

“The adjustable-rate mortgage has been growing in popularity across Texas, where 11.3 percent of home buyers chose an ARM last year. ARMs have been especially popular in Austin, where home prices are the highest in the state and 22 percent of buyers in 2005 chose an ARM. ‘It’s tied directly to housing prices,’ said Bob Visini, of marketing for LoanPerformance. ‘The higher the housing price, the higher the incidence of these types of loans.’”

Some housing bubble reports from Florida. “Sales of existing homes in the Orlando MSA (Lake, Orange, Osceola, and Seminole counties) overall decreased for the first time since last July. Inventory rose by 1,593 homes in March. There are now 14,559 homes on the market, giving buyers the most choice they have had in years. That is because the number of newly listed homes in March 2006 rose to 7,112, up 126 percent from last March.”

“Manatee’s March figures ‘are finally verifying a softening in median price increases and continue to reflect a major reduction in the number of sales,’ said Dale Friedley of the appraiser’s office. Single-family home sales dropped 46 percent in March compared with the same month last year.”

“Housing experts still believe there is a shortage of apartments in Southwest Florida but the decision to keep apartment complexes is a start to fixing it. Because the housing market is currently falling and many condo conversions are not doing well, complexes that planned on making the switch to condos have decided to stick with leasing apartments.”

“Sandra Friedrich explained that the complex wanted to make the conversion to condos in February, but they have recently decided not to make the switch. ‘At the time there was some interest in doing a condo conversion,’ said Friedrich. ‘With the changing market conditions they’ve decided to go back to leasing.’”

“Six communities with 1,571 units, three in Broward and three in Palm Beach County, have made the switch from condo conversion sales back to rentals. Some are dubbing it ‘the great conversion reversion of 2006.’”

“‘A bank that has made a short-term loan for a converter would want to be sure the rental cash flow would cover the new, longer-term loan’s servicing,’ (banker) James Dockerty said. ‘Many conversions were bought at very high prices at a cap rate to yield 3.5 to 4 percent, and the developers may find themselves ‘upside down,’ with more loan than equity in a changing market.’”

“Clearly, word hasn’t reached Desoto County that the post-Charley real estate boom is over. The bubble burst. Real estate agencies are having weekly retirement parties. It’s over, people.”

“Look around. The ‘for sale’ signs are everywhere. See any ‘Sold’ signs?”

“Still, you’d never know the boom went bust by looking at local real estate guides. You’d think this was an investor’s paradise. Ridiculously inflated prices mean everyone is stuck where they are. Few can afford to buy a house equal to what they already own, much less a better house. On this Florida foyer, need meets greed, and neither yields.”

“Consider some recent real estate guide listings: ‘Words can’t describe,’ the ad begins. If they could, they would describe a dinky mobile home on a half-acre for $144,900. State Road 31 property, the guide says, is ‘HOT’ and you can buy an acre fronting that road for $95,000. Daily dust is free. Sooner or later, sellers are going to have to ‘get real.’”