April 26, 2006

Don’t Let That Twitching Zombie Fool You, Housing’s Dead

The housing bubble story of the day has to be how the media initially fumbled the new home numbers. Business Week, “Let me get this straight: Mortgage and interest rates are on the rise. Household finances are also being pinched by record gasoline prices. Yet somehow, Americans have all of a sudden decided to go out and buy a whole slew of new homes?”

“That’s what a new government report released this morning would seem to suggest. But dig a little deeper, and you’ll see what’s really going on.”

“In February, for instance, the government reported that the median price of a new home sold was just under $240,000. At that price, homebuilders found that demand was diminishing. In fact, new-home sales plunged by 10.9 percent that month.”.

“So in March, homebuilders started slashing prices. The median sales price of a newly constructed property sold in March fell 7 percent down to $224,200. And since peaking at $243,900 in October, median sales prices on new houses have tumbled 8 percent.”

“What does this mean? While demand for new homes may be up, this is clearly turning into a buyer’s market. So if you’re in the market to purchase a new home, wait. If you show some patience, chances are home sellers will be putting their properties in the discount bin.”

Inman News wasn’t fooled. “The rate of new single-family home sales in March was about 7.2 percent below the March 2005 estimate, while the supply of for-sale inventory was up about 31 percent, the U.S. Census Bureau announced today.”

From the Federal Reserve. “Most Fed districts reported cooling residential real estate markets. Home price gains, when measured on a year-over-year basis, were lower than in previous periods.”

From Reuters. “U.S. mortgage applications slid to this year’s low as demand for loans to purchase homes fell last week to the lowest level since November 2003 despite a drop in interest rates, the Mortgage Bankers Association said on Wednesday.”

“‘Slumping mortgage demand, continued build-up in inventories and the fact that prices are now beginning to level off; all this adds up to the fact that turnover is going to fall and fall sharply,’ said (economist) Richard Iley. ‘House prices had been rising much faster than the level of mortgage rates. That’s now flipping around,’ Iley said. ‘That’s a big fundamental shift in the housing market and that has to affect people’s expectations and willingness to buy.’”

“The MBA also said refinancing applications declined last week. Its seasonally adjusted index of refinancing applications fell 2.4 percent to 1,489.4, from 1,526.1 the previous week. A year earlier the index was at 2,052.5.”

And then there is this quote. “Analysts suggested that inventories are at multiyear highs, and that’s a sure sign that the market is slowing on the demand side. At this point, the country could sell new and existing homes for five-and-a-half months without adding a single new ‘For Sale’ sign. That’s a level we haven’t seen in more than seven years.”

“‘New home sales sprang back to life like a vampire in a cheap horror flick,’ said economist Bob Brusca. ‘And like that zombie in the movies, housing really is dead. Don’t let all that twitching fool you.’”




What’s The Code Word For ‘The Bubble Is Popping’?

The California press is also digesting the latest numbers. “Home-buying activity across California perked up in March but sales lagged behind the record pace of a year ago and price appreciation continued softening. Inventory is still expected to outpace the levels of the past two years.”

“Realtor Mike Somers said the supply buildup is prompting some of his sellers to reduce their asking price. For example, he initially listed an 1,800-square-foot home in Winnetka for $619,950 but didn’t get too much action. The would-be seller soon dropped the price to $599,950, then on Monday reduced it to $589,950.”

“‘The inventory is up substantially. With that much more to choose from, common sense says prices will level out a bit,’ he said.”

“‘A lot of people are just kicking the tires right now,’ said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. ‘They’re trying to figure out what’s going on with the market, whether it’s still going up or whether they should wait to buy.’”

“With prices like $682,500 in Norco, $612,500 in San Dimas, $610,000 in Upland, $570,000 in Chino Hills and $567,500 in Diamond Bar, it’s pretty clear that Southern California’s ‘affordable alternative’ is no longer as affordable. ‘Affordable housing now means the High Desert, places like Victorville and Apple Valley,’ Kyser said. ‘In Los Angeles County, it means the High Desert around Lancaster and Palmdale.’”

There is a slowdown in San Diego. “San Diego County builders took out 41 percent fewer housing permits in the first three months of the year compared with the same period last year, putting the area on track to have the lowest output of new housing in 10 years.”

“Typically, the first quarter in San Diego County represents 25 percent to 32 percent of all building permits for the year. If 2006 follows that pattern, then homes permitted for the year might fall between 8,900 and 11,400 units, the lowest since 6,868 were approved in 1996, at the end of the last real estate market downturn.”

“Besides cutting production, San Diego area builders have begun offering incentives to would-be buyers. The inducements range from pitches for free homeowner association dues until next year at Verano La Jolla to $20,000 incentives to buyers at Treviso, an attached-home community in Santee.”

“Newspaper advertisements carry tell-tale code words that signal the softening market: ’spring clearance’ (there are deals to be made), ‘immediate move-ins’ (the home is finished), and ‘4 percent broker co-op on select units’ (real estate agents are welcome). The most prevalent incentives, said one analyst, are rebates of $7,500 to $10,000.”

“When sales are brisk, it’s a lot easier to make a living in real estate. But when inventory grows, part-timers and newcomers are often the first to find another career. Veteran real estate professionals expect that many newcomers to the business will seek out easier ways to make money.”

“‘When the market is hot, agents come out of the woodwork,’ says Diana Lusk, a San Diego, Calif., real estate practitioner. ‘When the market cools down they go back to what they were doing before.’”




Speculators ‘Want To Find A Sucker’ In Chicago

The Chicago Tribune has this report on home sales. “Apparently unfazed by reports of the imminent demise of the housing market, Illinois consumers bought homes in record numbers last month. Chicago-area sales, however, were generally flat. Rising inventories of unsold homes, the nation has 39 percent more properties on the market today than a year ago, coupled with the rising costs of oil and home mortgages might tell a different story as the spring home-selling season plays out.”

“In Chicago alone the number of single-family homes on the market jumped to 6,040 as of Tuesday from 4,220 on March 31, according to data from the Multiple Listing Service of Northern Illinois.”

“‘Inventory definitely has grown way too much,’ said North Side agent Jay Michael. ‘A lot of people bought on speculation or they bought just for the sake of buying something, and now they’re selling,’ often asking unrealistically high amounts.”

“‘Thirty percent of that market are people who don’t need to sell; they just want to see if they’re going to find, well, a sucker,’ he said.”

“On Tuesday Michael was showing North Side condos to Karen Cole of Glenview, who was on the first day of her house hunt. ‘She’s looking in a saturated price range, $750,000 to $999,000. There is so much in that price range right now,’ he said.”

“Cole said she hoped the inventory would work in her favor. ‘I’m hoping that because there are a lot of condos available, the prices won’t be astronomical,’ said the North Side schoolteacher, who on Tuesday was scheduled to walk through 10 of the 14,232 condominiums on the market in the city. Of those, 3,206 have been listed for sale since March 31.”

“Glenview agent Georgia Pierini said buyers seem to realize that the market has shifted to their favor, but they are influenced by mortgage rates. ‘There’s a little bit of wonder and fear that interest rates are going to continue to rise and buyers had better get in and do something before it gets worse,’ she said. ‘But I can see that prices are starting to stabilize and not be so outrageous. We’re having more price changes now because some houses started out too high.’”




‘Let Go Of What Was And Get Used To What Is’ In Florida

The Florida press is reporting on that states housing bubble. “A deluge of homes for sale is hampering South Florida’s housing market, causing sales to slow considerably and prices to retreat from last fall’s record high. With November’s $391,100 peak a distant memory in Broward County, some analysts expect year-over-year median-price declines during the next few months.”

“More than 20,300 single-family houses, condominiums and town homes now are listed for sale in Broward. That’s a 321 percent increase over April 2005. ‘People have to let go of what was and get used to what is,’ (agent) Cathy Prenner said. ‘Any sellers who have their wits about them are adjusting prices. Fifty percent of the properties out there are still overpriced.’”

“(Broker) Douglas Rill in West Palm Beach, remains pessimistic. ‘I’d love to say it’s getting better, but I don’t think the market has hit bottom yet,’ Rill said. He points to an Acreage home for sale where the buyer recently slashed the asking price from $399,000 to $299,000 and still hasn’t received an offer.”

“Some warn that rising interest rates and a glut of homes for sale mean this slowdown could take several years to shake out. ‘This has been a housing market bubble for the last three years,’ said Gregory Miller, chief economist at SunTrust Banks. ‘Housing bubbles don’t dissipate or correct spontaneously.’”

“Sales of existing single-family homes in Volusia and Flagler counties dropped a whopping 31 percent in March. Winifred Grimshaw’s three-bedroom/three-bath condo has been on the market for several months now. She dropped the asking price Tuesday, for the second time, from $825,000 to $789,000. ‘There are so many (condos) on the market,’ said Grimshaw.”

“In Miami-Dade, the number of homes for sale has almost tripled in the past nine months. Pat Dahne, chair of the Realtor Association of Greater Miami and the Beaches, said sellers are now offering to pay association fees and even financing costs for buyers. Some sellers are now offering buyers, and agents who bring in buyers, all sorts of incentives, including Cadillacs, cruises, airline tickets and money.”

“Real estate brokers sold 45 percent fewer single-family homes in the Sarasota-Bradenton area during March than they did a year ago, the highest in the state. ‘Vacant lot sales slipped further into a deep freeze,’ Hofer said, noting that only 14 of Charlotte County-North Port’s 6,300 listings went under contract last month.”

“‘At that pace we have a 400-year supply of lots to sell, assuming no new listings,’ (agent) Dave Hofer said.”

“As of mid-April, Sarasota brokers were faced with 7,057 active listings, a level four times the 1,626 listings of early July, said (agent) Steve DuToit. At the current rate of sales, 85 per week, it would take 83 weeks to clear the decks of listings, if no new ones were started.”

“He recently started tracking a new number that provides a valuable clue that prices will go down more before they go up: 20 percent of the many homes on the market are vacant. Just those 1,471 vacant homes represent almost the total number of active listings in July.”

“‘Those folks have to make a decision. They are making mortgage payments, paying taxes, paying association fees, paying for lawn care, paying for utilities. They need to decide what to do to get that property sold or rented,’ he said.”

“The market looks very soft to (realtor) George Huhn in Venice. ‘I can tell you that the builders and developers that I know are getting extremely anxious,’ he said. ‘The resale residential market is just horrible. One gal I know has 35 listings. She had one showing last weekend. The whole weekend.’”

“There are four houses for sale within 200 yards of where I live,’ Huhn said. He is now seeing the early signs of what he describes as ‘distress selling,’ where owners who already have shaved 10 to 20 percent off their asking price are now looking at offers 10 to 20 percent below that reduced level.”




New Home Prices Down YOY, Record Inventory

The Census Bureau has new home sales numbers out. “Sales of new one-family houses in March 2006 were at a seasonally adjusted annual rate of 1,213,000. This is 13.8 percent above the revised February rate of 1,066,000, but is 7.2 percent below the March 2005 estimate of 1,307,000. The median sales price of new houses sold in March 2006 was $224,200.”

Median Prices in $:

03.05..229,3000

9.05..240,400

10.05..243,900

11.05..237,900

12.05..238,600

01.06..239,600

02.06..239,900

03.06..224,200

Inventory for sale at end of period:

03.05..441,000

07.05..459,000

08.05..477,000

09.05..491,000

10.05..492,000

11.05..508,000

12.05..515,000

01.06..526,000

02.06..536,000

03.06..553,000

“The new home sales report showed signs the housing market has slowed from peak levels. The median home price slipped 2.2 percent from a year earlier to $224,200, the first year-over-year decline since December 2003, the Commerce Department said.”

“The number of unsold homes fell to 5.5 months’ worth at the current sales pace from 6.3 months in February. The number of homes for sale at the end of March was a record 555,000. ‘I am worried about the potential for a trailing-down process that gains some momentum’ in the housing market, David Seiders, chief economist of the National Association of Home Builders, said. ‘I hope the Fed doesn’t overshoot’ on raising interest rates.”

“The strength in home sales, if it persists, could keep the economy growing faster than the Federal Reserve wants and could lead to higher interest rates than now expected. The government cautions, however, that its housing data are subject to large sampling and other statistical errors. The margin of error is so large, in fact, that the government cannot say with confidence that sales rose at all in March.”

A comparison. “New home sales increased in March to a seasonally adjusted annual rate of 1.213 million. The pace of new-home construction continued its orderly cooldown in March. Total housing starts dropped to a seasonally adjusted annual rate of 1.960 million units in March, according to figures released by the Commerce Department.”

The Dallas News. “William Quinn has been managing American Airlines Inc.’s pension funds since 1980. He now manages $48 billion in assets. ‘(The) problem is that we are building more houses than we need on a national level. Housing has the potential to slow down the economy as people realize this,’ Quinn said.”




‘It’s The Law Of Gravity’ For The Massachusetts Bubble

The Massachusetts press reacts to the March housing numbers. “Were single family home sales up or down in Massachusetts last month? That depends on who is tracking sales. According to figures released yesterday by The Warren Group of Boston, sales of detached single-family homes in Massachusetts dropped 1.5 percent last month compared with March 2005.”

“The Massachusetts Association of Realtors showed single-family home sales up 2 percent over March 2005. Both organizations showed a decline in the median sales prices of single-family homes, though the respective prices differed.”

“Warren Group CEO Timothy M. Warren Jr. said his organization’s figures are taken from the sales logged in the county registries of deeds. He downplayed the difference in numbers, saying that they show the same general trends. ‘There’s virtually no difference between what they’re showing and what we’re showing,’ he said. It was a matter of the decadelong housing boom slowing down.”

“‘I think it’s the law of gravity,’ he said. ‘Sales volumes are down after a tremendous run. Home prices have gone up since the middle 1990s every year. What goes up must come down, eventually. It’s a leveling of the market, or what Wall Street calls a correction.’”

“Experts attribute some of the market’s improvement to mild weather in January, when many buyers who closed on homes in March initially went house shopping. ‘I think this is kind of an echo effect of the warm January we had, which brought a lot of people out looking at homes,’ said John Bitner, chief economist at Boston-based Eastern Bank. ‘I think (gains) aren’t as strong as they appear.’”

“For instance, median house-sale prices actually fell last month to $344,000. That’s off 1.7 percent from March 2005 and 8.3 percent from a $375,000 peak recorded in July.”

“‘Inventory is at record highs, so buyers are taking their time,’ said David Wluka, president of the MAR. ‘They can pick among several houses so they don’t feel the pressure.’”

“The housing market in Massachusetts ’simply isn’t as strong as it is in other states,’ said (economist) Patrick Newport. ‘People are leaving for other states, and there’s less demand for housing than there is in the rest of the country,’ he said.”