The Housing Bubble

Some housing bubble updates on California. “Petaluma is making national news again, this time, for its high housing prices. According to a New York Times article, the Santa Rosa-Petaluma area is the third least affordable region nationwide. ‘I think that we’re much more affordable than people give us credit for,’ said (broker) Marsha Harris.”

“The problem in the past, she said, has been the low inventory of available homes, which drove up prices. But while there are often only about 125 or so homes for sale in Petaluma, she said, there are now about 185 homes on the market.”

The Union Tribune. “Sign spinners won’t be allowed on city streets any time soon, despite pleas from condo converters who say they are a valuable advertising tool. Members of the task force argued that sign spinners and other types of temporary signs were especially needed now because home sales were flattening.”

From Long Beach. “A residential open house for downtown is an interesting feat considering only one project is complete and the event comes amid rising uncertainty about the housing market. One of the developments is visionary and calls for construction of 1,300 units in towers 55 and 45 stories tall. Another project is a rising mass of iron and concrete.”

“Are these developers just bullish on downtown Long Beach real estate, or are they trying to make sales before a possible falloff in the residential market?”

“Some real estate agents agree the number of condos being built downtown may be hampering sales of existing units, but the sponsors of the open house say the area is well-positioned to continue its residential boom. ‘Whether you are talking about downtown Long Beach or Southern California, I think there is a housing shortage,’ said Kraig Kojian, president of the Downtown Long Beach Associates.”

“Kojian acknowledged developers may have the ulterior motive of trying to beat a residential sales downturn that is now making itself apparent and to stay ahead of rising construction costs.”

“Some real estate agents are concerned about the number of condos coming onto downtown’s market in the next few years. The DLBA open house is showcasing 2,300 units, and another 3,000 or more units in downtown are expected to come on the market in that time period.”

“An anticipated glut may be combining with a slowdown in the residential market to quash interest in existing condos, said (realtor) Richard Daskam. ‘We are seeing a lot of resale condos on the market right now,’ said Daskam, adding that listings are beginning to sit for longer periods with ‘a lot of dropped prices.’”

“There are 275 condos listed for sale in the downtown area more than half of the 557 condos listed throughout the city. That’s roughly twice as many as last year at this time, Daskam said. Sellers of million-dollar-plus condos are experiencing particularly sluggish sales, Daskam said.”

“For example, a top-floor unit in Harbor Place Tower on Seaside Way in downtown has been on the market for more than 230 days with a listing price of $1.9 million, down from its $2.3 million original listing.”

“In fact, there are more than 20 condos listed in downtown for between $1 million and $2 million, and half of those have been on the market 90 days or more, according to the MLS.”

The Dallas News reports the boom is running out of steam. “Has the North Texas housing market finally turned down? It’s too early to say, but April’s 13 percent drop in pre-owned home sales from a year ago should catch folks’ attention.”

“April’s decline was the biggest year-over-year slide in local home sales in more than two years, and follows a 4 percent decline in March. ‘For two months in a row it’s negative,’ said Jim Gaines, an economist with Texas A&M University’s Real Estate Center. ‘You are maybe beginning to see a bit of a trend.’”

“A close look at housing statistics from the North Texas Real Estate Information System shows that the decline is coming in sales of homes priced below $140,000. ‘Those are the entry-level people,’ Mr. Gaines said. ‘A 1 percent change in the interest rates can change the number of households that can participate in the market.’”

“Real estate agents also say the market varies significantly by neighborhood, and the statistics back them up. In April, pre-owned home sales dropped more than 25 percent in moderately priced neighborhoods in areas including Cedar Hill, Lancaster, Mesquite, Oak Cliff, Richardson and Allen. But double-digit sales increases were recorded in more expensive neighborhoods in DeSoto, Northeast Dallas and Far North Dallas.”

“In April, 6,898 pre-owned homes were sold, down from 8,052 in March. The number of single-family homes for sale in the area was up about 2 percent last month to 44,371 listings. That equals about a seven-month supply of housing on the market. And that doesn’t count all of the more than 9,000 new homes for sale in the area.”

“A record number of new homes is available in the area, and big builders have been discounting houses and offering incentives to lure buyers from the pre-owned home market. ‘There’s no question about that,’ said Ted Wilson with Residential Strategies. ‘The big builders have the speculative inventory on the ground right now, and discounting is going on.’”

The Mail Tribune has this update on southern Oregon. “As more and more ‘For Sale’ signs sprout up along with May flowers, Jackson County homebuyers are displaying temerity unseen in recent years. For every four houses on the market this time last year, there are 11 for sale today. In west Medford, nearly four times as many homes are for sale than the same time last year, while Central Point and east Medford have three times as many on the market.”

“The growing number of houses on the market comes even as several high-end residential developments take shape. ‘Buyers are asking for more as they feel the power of the pendulum swing to their side,’ says (agent) Ron Galbreath. ‘They’re asking for more for repairs, carpet and appliance allowances, and help on closing costs and down payments.’”

“The tug of war has led to reduced prices and lengthy market times. April had 168 completed transactions, down from 321 in April 2005. ‘We’ve gone from where realtors were order takers, could take a house and wonder three days later why it hadn’t sold, to 80 days on the market with price reductions,’ Galbreath says.”

“That trend will likely continue. Citing Southern Oregon MLS figures, (broker) Bill Allen points to White City, where there were 12 residences listed in mid-April 2005 and 115, including new construction, last month. ‘That right there should tell you it’s a buyer’s market,’ Allen says. ‘I think the median is higher because there are fewer buyers in the lower range right now.’”

“The sheer volume of listings has taken house-hunting from a 100-meter dash into a marathon. One recently completed deal for a Bailey Avenue residence illustrates his point. Two months passed from the first time the eventual buyer made her first offer on the 1,580-square-foot house. ‘In between her first and second offer, her agent told me she looked at 37 houses,’ Galbreath says. ‘She had seen so many houses that she didn’t remember the first time she had seen it.’”

“On Monday, the SOMLS site showed 25 new listings in the previous 24 hours, reduced prices on 25 others, eight sales and 12 pending sales. Two price increases were logged as well.”

“‘If a house is priced wrong or something is wrong with it,’ Allen says. ‘Usually, the only thing you can do in real estate is adjust the price. If a house is still on the market after 30 days, then you’re going to be making price adjustments. Then somewhere around 60 days you’ll make another price adjustment. That’s the historical norm.’”

The FOMC minutes are out. “The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent. Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”

“The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.”

“The quarter point hike brings rates to the highest level in more than five years. Banks will respond by increasing the prime rate to 8%. The prime is the base rate for many credit cards, and consumer and business loans. Other rates, such as those on variable-rate credit cards and home equity lines of credit, likely will continue to rise.”

“In the statement announcing Wednesday’s rate increase, the Fed ..added another phrase in the latest statement saying that ‘the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.’”

“Mortgage applications in the U.S. fell last week by the most since February as higher borrowing costs slowed purchases and pushed refinancing to its lowest level this year. The average rate on a 30-year fixed mortgage rose from 6.57 percent a week earlier. At last week’s average rate, the monthly principal and interest costs for each $100,000 of a loan would be $639. A year ago, when the average rate was 5.77 percent, the payment was $585.”

“‘The housing slowdown is a story that’s evolving as we speak, and it will probably get worse in the second half,’ said (economist) Chris Rupkey ‘The cost of credit is moving up. Home prices have increased so much it is scaring people away. There’s sticker shock.’” To be updated.

A housing bubble report on New Jersey. “Last spring, Michael Segal put his Teaneck home on the market for $600,000, an asking price selected with the help of his Realtor. Buyers showed interest, but Segal said he decided it wasn’t time to sell. This spring, the four-bedroom colonial is up for sale again. The asking price: $529,000; $19,000 above his current’s agent’s recommendation.”

“What changed? North Jersey’s real estate boom, it appears, has gone flat. ‘They come. They see. They love. They like,’ said Segal, who put his house back on the market about two months ago. ‘But they don’t buy.’”

“Springtime is here, and ‘open house’ and ‘for sale’ signs are everywhere. ‘Sellers and the buyers are at a standoff,’ said James Collins, an agent in Alpine/Closter. ‘The sellers think their home is worth more than what fair market value is. The purchasers are thinking there’s a big real estate bubble that’s going to burst. So they’re … wanting to wait and see.’”

“The standoff means the supply of homes on the market is building. In Bergen County, there was a five-month inventory of homes as of March 31. By comparison, there was a three-month inventory at the same time last year. Inventory is also building up in Morris, Passaic, and Hudson counties.”

“More recent data from the New Jersey MLS show the trend is accelerating. On April 30, there were 6,268 home listings for Bergen County homes, 52 percent more than on April 30 of last year. But 26 percent fewer Bergen County homes sold last month than in April of 2005.”

“The increased supply is helping to prevent the sort of price appreciation that was common from the late 1990s through last year. The average Bergen County sales price was $539,245 last month, about 1 percent below the average price in April 2005.”

“The boom is ‘over, and we’re into a cycle that’s going to last three years with high levels of inventory and a slow pace of sales,’ said (appraiser) Jeffrey Otteau.”

“‘Buyers just don’t seem to be making moves,’ (realtor) Art Tassaro said. ‘Where it used to take a month to sell a house, the same house is taking several months and several price changes.’ He noted that last Wednesday 49 single-family homes sold in Bergen County, but 233 single-family homes were added to the MLS.”

“Barbara Weismann, also a realtor in Cresskill, said many properties languish on the market because they’re overpriced. ‘Price controls everything. If a property is not the best, price is the only cure,’ she said.”

“Meanwhile, Segal said that if he doesn’t find a buyer soon, he will take his house off the market. But he will do whatever it takes to sell it next spring because that’s when his wife plans to retire. Segal and his wife want to downsize and retire in a condo, probably in Hudson County.”

“‘I hope that next year maybe things will go better,’ Segal said. ‘I still believe that the market will come back.’”

The Palm Beach Post reports on issues facing preconstruction condo buyers. “Here are some of the things we’re hearing from new condo owners who bought pre-construction condos. Lessons learned? Number One: Know what you’re buying.”

“Did you know ‘decorator ready’ means partly unfinished, as in, no flooring?”

“Number Two: Don’t be intimidated by those builder-friendly contracts, you know, the ones with all the terms construed toward the developer. One West Palm Beach condo owner says he was forced to close on his units before they were fully finished. But due to the contract ‘that we were stupid enough to sign,’ he had to close or face penalties.”

“Now this same condo owner is dealing with issues that might very well end up in lawsuit. It might have been avoided in the front end. ‘My attorney is ready to kill me,’ this owner says.”

“Number Three: Beware the dreaded Temporary Certificate of Occupancy. You might not be able to do anything about this one, but at least know it’s out there. West Palm Beach, for one, issues buildings a TCO on a floor-by-floor basis, rather than waiting until the whole building is finished.”

“So those folks who were the first to move into 610 Clematis last December have had to put up with workers flowing in and out of the building for months to finish upper floors and common areas.”

“Go ahead and kick yourself if you want to, but it won’t do any good now. Everyone was caught up in the real estate gold rush, and you didn’t want to be the only one left behind, did you? Besides, everyone knew that if you gave developers any reason not to do business with you, there were 20 people in line behind you, ready to sign with no questions asked.”

The Boston Globe reports on rising defaults in the state. “Foreclosure filings against Massachusetts homeowners increased 30 percent in the first three months of 2006 and have doubled in the past three years, as homeowners in one of the nation’s most expensive real estate markets struggle to cope with high prices and rising interest rates.”

“Rising interest rates and a softening real estate market have put a squeeze on homeowners who sometimes can’t make the higher payments on adjustable-rate mortgages or refinance their loans to lower their payments.”

“‘These are numbers everybody should be paying attention to,’ said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. ‘There are things that could happen like further increases in interest rates and or more serious decreases in [house] values that can make this a lot worse than it is now, and it’s pretty bad right now.’”

“In the first three months of the year, lenders filed notices against 3,762 Massachusetts borrowers who were at least 30 days delinquent on their mortgage payments. That is more than double the 1,858 filings in the first quarter of 2003, when the housing market was booming.”

“‘We have seen a real increase in numbers of foreclosures in Boston,’ Mayor Thomas M. Menino said yesterday, noting that the city has recorded 58 foreclosures so far this year, almost as many as the 60 filed for all of 2005. ‘The sky isn’t falling yet, but it’s really a cause for concern.’”

“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”

“Rates on these loans are fixed for one, three, or five years and then begin to float. Often that floating rate is based on the prime lending rate, which has increased to 7.75 percent, from just 4 percent a year ago. The stagnant real estate market compounds the problem. With housing prices stabilizing or falling, the refinancing option is not available.”

“‘The forces behind the erosion in the quality of credit are powerful and numerous,’ said economist Mark Zandi. Zandi said it is especially troublesome to see foreclosures on the rise ‘at a time when the job market is very strong,’ he said.”

“Mortgage problems are cropping up in a variety of loans, association data show. High-rate subprime loans exploded during the housing boom and have among the highest delinquency rates: 12.6 percent were past due at the end of last year in Massachusetts, up from 10.4 percent a year ago.”

“Yet, Massachusetts’ delinquency rates are below those in other parts of the country, such as Florida, where real estate speculation is widespread.”

“Douglas Duncan, chief economist for the Mortgage Bankers Association, predicted delinquency rates will continue to rise. US mortgages had a record volume in 2003, and most loans become delinquent in their first three to five years, he said. ‘You’re going to continue to see delinquencies rise in Massachusetts for the same reason as the rest of the country,’ he said.”