The Housing Bubble

The Arizona numbers for April are out. “The Valley housing market slowed in April, registering the lowest sales total for that month in six years, the Arizona Real Estate Center announced Thursday. The resale market slowed last month to 5,980 sales, a decrease from the 7,264 sales for March 2006 and well below last April’s 8,735 sales.”

“The report found that April 2006 was the weakest April since 2000, when only 4,870 resales were recorded. So far in 2006, there have been 23,960 recorded sales, while the 2005 year-to-date total stood at 36,060 sales at this point in 2005.”

“Jay Butler, director of center, said the Valley resale market is returning to a more normal pace, following several years of unprecedented growth. ‘And some slowing is good for the market, except for individuals trying to sell their homes right now, they would not agree,’ said Butler.”

“As for resale home prices, the median home price jumped from $194,000 in January 2005 to $260,000 in December 2005. However, since the record of $263,000 was set in September, the growth rate had been disappearing.”

“In Phoenix, resales fell from 2,490 sales to 1,890 sales. The Scottsdale resale home market declined from 695 to 460 recorded sales. The Mesa resale housing market declined from 1,070 to 660 sales. Chandler’s resale market slowed from 595 to 405 recorded sales.”

“When purchasing a home for investment or occupancy, the rapid growth in price that has been so evident in the last year is somewhat soothing to the uncertainty of the buying decision, according to Butler.”

“‘However, if home prices continue to be stable or even decline in some areas, potential buyers may be increasingly reluctant to make the purchasing decision, because future appreciation is much more uncertain,’ said Butler. ‘Further, current owners, especially investors, may want to bring homes to a good market, in order to lock any current appreciation.’”

From the Tucson realtors. “In a Real Estate market that is in the middle of a correction, it’s interesting to note that the unique nature of Tucson real estate does not follow the average up and down cycle seen in many other communities. People chose to live in Tucson because they want to. Tucson real estate retains value,’ said Paul Olson, 2006 TAR President.”

“New listings continue to appear, however this is simply giving the buyer more choice in the marketplace. Our market remains healthy,’ Olson said.”

“Pending Contracts Decreased 15.62% from 2,285 in April, 2005, to 1,928 in April, 2006. Active Listings: Increased 123.38% from 3,640 in April, 2005, to 8,131 in April, 2006.”

“New Listings: Increased 36.42% from the 2,120 listings added in April, 2005, to the 2,892 listings added during April, 2006.”

The Twin Cities realtors have some numbers out. “Home sales in the Twin Cities, Minn., area fell by double digits in April, according to three metro Twin Cities Realtor associations. Realtors reported 3,919 closed home sales last month, down 15.6 percent from a year ago when 4,645 sales were recorded.”

“New listings set an April record at 10,864 units, marking the ninth consecutive month of record new-listing activity, according to the Minneapolis Area Association of Realtors. However, new listing growth was only 4 percent higher than last April after several consecutive months of 20 percent annual growth or more.”

“‘All indicators point toward a more balanced market representing a shift in the buyer’s favor as compared to the past five years,’ said Todd Shipman, president of MAAR. ‘This is the best market for buyers we’ve seen in five years,’ said Jeff Green, President of the North Metro Realtors Association. ‘There are so many options of housing choices available right now. Size, price, location, buyers can pretty much take their picks.’”

“At the end of April there were more than 28,000 single-family units on the market, 45 percent more than a year ago.”

“For the past (bad link warning) several years, the stars have been aligned for Downtown development. ‘Records were consistently smashed,’ states a report on the Twin Cities real estate market for 2005 by the MAAR. But what goes up must come down. ‘The extreme nature of this market was unsustainable,’ the report continued.”

“Most real estate insiders admit that the Downtown market is slowing (and) that a few of the larger projects still years from construction will fall off of the pipeline, and while some say there is danger for the Downtown and greater housing market.”

“Is the market slowing? ‘Yes,’ answered Tom Melchior, a member of the Downtown Minneapolis Neighborhood Association. Melchior said the market began to slow for higher-priced condos priced more than $500,000 about a year ago. Now, the cool-down has spread to all price ranges, he said.”

“As for luxury units, Frank said Schafer Richardson understood from the start that its Phoenix on the River, priced from $400,000 to more than $3 million, would compete for a thinner market of buyers. ‘How many can afford a million-dollar unit?,’ he asked.”

“He said he also believes that big condo projects will fall off the pipeline, but said he’s not concerned. Other developers are bullish, as well, Hines Interests plans as many as 1,250 units (albeit fewer than the original 3,000-5,000 plan) at its Twinsville development.”

“Melchior said such a surplus of unsold condos could bring the market down. ‘My fear is that a number of these projects will move ahead without a high proportion of presales,’ he said. ‘The project will get built and sit there for years with a lot of vacant units,’ Melchior said. ‘The developer will have to slash prices in order to [sell] the units. Then the whole market gets hurt.’”

“Susan Bollweg, who owns a condo at Centre Village, says it appears to already be happening. She cited the MAAR report, which shows a 7.7 percent drop in Central Minneapolis (Downtown) housing prices from 2004 to 2005. Couple that with the more than 7,000 units either planned or under construction, and Bollweg fears for the value of her condo in the 30-year-old Centre Village.”

“The frenzied pace of the gold rush may be over, but most real estate observers say that Downtown will continue to attract new residents. But still there is the sheer number of units in the pipeline. According to Maxfield Research, since 2001, 3,662 units have been sold or reserved Downtown, but the number of units actually built since then has not caught up. By the end of this year, Maxfield’s Bujold projects only 2,752 units will have been completed.”

“With sales slowing, neither Melchior nor Bujold expect Downtown’s absorption rate to sustain its peak rate of more than 1,000 units per year. Bujold expects it to ‘hover around 1,000′ units per year in the near future; Melchior said a balanced market could level off at around 500 in the long run.”

“Compare that to the more than 7,000 units planned for Downtown over the next five years, and it seems something will have to give. Already, one developer, Ryan Cos., has backed off of its proposed 600-unit Superior Plating development. Tony Phelps, director of development for Ryan, cited a lack of interest by development partners due to a glutted market. ‘It will be interesting to see what happens in the next year or two,’ he said.”

“Stanton, the sage developer, agreed that the market is far from dead. ‘I’ve been in biz 44 years. I’ve seen it slow down and speed up,’ Stanton said. ‘The only way building is going to stop is if people quit having sex. Will it slow down for six months or a year sometimes? Yes. Will it stay down? It can’t.’”

Reuters reports on comments by Fannie Maes’ CEO. “In response to a question about whether Fannie Mae had identified the major accounting issues with the most dollar-impact on its restatement, CEO Daniel Mudd said, ‘Yes.’ Mudd would not comment on when Fannie Mae might report 2005 results or return to regular quarterly reporting.”

“Mudd said many external factors will also play into Fannie’s restatement process, including a report expected soon from the company’s regulator, the Office of Federal Housing Enterprise Oversight, on the company’s problems. Fannie’s CEO called the agency’s examination ‘quite comprehensive.’”

“He would not speculate about the report’s contents. ‘It’s going to be very tough. It’s going to be a bad day,’ he said.”

“Daniel Mudd told Reuters that Fannie Mae models suggest a couple of reset ’spike periods’ in the next two years, based on past originations of mortgages with adjustable rates and other features such as low initial ‘teaser rate’ periods.”

“It is still unclear what will happen to the housing market when these mortgages reset at higher rates, especially given some of the weakening in certain housing markets, such as vacation areas with a lot of investment buyers. ‘If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there’s not any incidence of appraisal fraud, it could be just fine,’ Mudd said.”

“‘If in certain geographies, some of those factors are different, there’s some appraisal fraud, or there’s an economic downturn or home prices have declined, it could be a very different scenario.’”

“‘In that case, what you’d worry about, really on a neighborhood-by-neighborhood basis, is you have a foreclosure here and you have a foreclosure there and soon you’ve got four foreclosures on the market and you’ve got plywood on the windows and that could have a very deleterious effect,’ on the market, Mudd said.”

And Fortune touches on the former CEO. “Section 304 of Sarbanes-Oxley states that claw backs would occur in cases of ‘misconduct’ but fails to spell out what constitutes misconduct or specify whose misconduct qualifies. Some CEOs, like Fannie Mae’s Franklin Raines, could still face claw backs, despite 304’s shortcomings. Fannie’s restatement is pending.”

The Union Tribune reports on the San Diego housing bubble. “San Diego County’s housing market was a quiet place last month as prices slipped in some areas and settled to an overall median of $505,000, DataQuick reported. The figure, off the all-time peak of $518,000 set in November, was only $1,000 more than in March and up just 4.3 percent from a year ago.”

“Resale houses and condos both had a dip of $5,000 in their medians from March to $555,000 and $395,000, respectively. More telling were sales totals, down 30.7 percent from April 2005 to 3,705 transactions, marking the steepest year-over-year drop since activity began sagging in mid-2004.”

“While sales were off sharply, the San Diego Association of Realtors reported a continuing surge in listings. That number stood at 18,225, which was 75 percent ahead of last year’s level. More than 35 percent of the listings carried prices that had been reduced from the original price.”

“Ross Starr, an economist at the University of California San Diego, said yesterday’s increase in short-term interest rates announced by the Federal Reserve means that buyers will be inclined to take out 30-year loans and settle for little if any appreciation for the foreseeable future.”

“‘It is shocking to say that houses are places that you live in, not places that you trade like Monopoly cards,’ Starr said, adding a caution forgotten by many in recent years: ‘It is not a universal law of nature that real estate prices go up.’”

“Kristian Cabuago hopes to spend his first night in the first home of his own, a 950-square-foot top-floor condo in the Gaslamp Quarter. It cost him $550,000 and he thinks he timed his purchase just right when he signed a sales contract earlier this year. ‘At that time the news was forecasting condos in downtown and everywhere were suffering,’ Cabuago said. ‘I thought that was a perfect time to buy.’”

“He negotiated the price down from $591,000. and considered it a bonus that his homeowner association fees will be $250. ‘For my age group, there’s no way I can lose,’ he said. ‘You can’t ask for more.’”

“As for sellers, they’re pestering their agents to schedule more open houses, advertise more to attract potential buyers and take all available steps to get their properties moving. After a few weeks, many take their agents’ advice and cut prices.”

“Peter Dennehy, who advises builders on how to position their projects, said many are boosting incentives, reducing prices and expecting it to take longer to sell out. But would-be buyers can’t sell their homes fast enough, sales manager Pat Setter said, to commit to buy at Bougainvillea Walk project in La Mesa, where all 16 homes are completed but only seven have been sold. ‘That’s our biggest issue for prospective buyers,’ she said.”

“Prices range from $583,990 to $690,990 for 1,911 to 2,093 square feet, and a project sign was recently changed to reflect lower prices, but that was because some homes offered were on less-desirable lots, Setter said. Of more than 90 ZIP codes in the county, all but nine posted median prices last month that were lower than their peaks set in the last few months, according to DataQuick.”

“Jan Havern, who is trying to sell her 3,900-square-foot house for between $900,000 and $1,050,000. The home on Vista Arroyo has been on the market 45 days with no offers submitted to date. ‘I’m as nervous as anybody else since I’m trying to sell,’ she said, adding that she and her husband have already bought a replacement home in Bend, Ore.”

“Her advice to fellow sellers: ‘They have to sit tight and maybe take a little longer,’ she said. ‘You’ve got to be realistic.’”

A housing bubble report from northern Virginia. “Grave concerns for the future of Falls Church’s City Center project are being voiced at the highest levels of City Hall, the News-Press has learned, given the precipitous collapse of the residential condominium market throughout the Washington D.C. region and the nation.”

“Land assembly and development prospects have run into serious roadblocks, as the combination of the high prices being asked for the land and the sudden downturn in the condo market has everyone involved giving pause. While critics complained that the area would become a ‘condo canyon,’ it was argued by developers and City officials that only construction of 1,000 to 1,500 high end residential condominiums in the commercially-zoned area would make it financially viable, overall.”

“However, the condo market, and the residential real estate market generally, began to cool off over the course of last summer, and began to nosedive in the fall. One developer told the News-Press that with the glut in the condo market now, prospective buyers are weighing other factors more carefully.”

“Realtors in Harrisonburg and Rockingham County sold 113 homes in March, down 14.4 percent from the same period in 2005, when 132 homes were sold. Data from the Virginia Association of Realtors also show that year-to-date sales of 276 homes have flattened to 1.5 percent growth over last year’s first quarter total of 272.”

“Real estate agents are seeing some reductions in market prices. ‘That doesn’t mean people are not getting what the house is worth,’ (broker) Michael Pugh said. ‘It means maybe they priced it too high to begin with and were expecting a windfall.’”

The Baltimore Sun. “The housing market in the Baltimore area showed broad signs of cooling in April, the first month of the crucial spring selling season, according to sales data released yesterday.”

“Year-over-year price appreciation dipped to its lowest rate in more than two years, and the average price actually fell in one county. Sales volume sagged more than 13 percent. Homes took longer to sell everywhere but in the city, and the number of homes on the market more than doubled compared with April 2005.”

“In Carroll, the average sales price dipped 2.76 percent, the first decline in any jurisdiction since 2002. In Howard County, the number of homes listed for sale jumped to 1,381, from 562 in April a year earlier.”

“Real estate agents blamed sellers who want last year’s prices in this year’s market. ‘It’s not as much a seller’s market, and buyers are beginning to negotiate prices,’ (agent) said Melvina Brown in Howard County. ‘Buyers are not coming in over the asking price; they’re coming in either at the asking price or negotiating on the price.’”

“Brown said one of her sellers got an offer on a Columbia townhouse just four days after it was listed but turned down the contract because it offered less than full price. Two more contracts have come in since that were not as good, she said. ‘We’re waiting now, and the seller is willing to make concessions,’ she said. ‘We’ve offered some money toward the closing costs but left the price the same, but we may have to look at reducing the price.’”

“‘The housing boom is over,’ said Celia Chen, director of housing economics for Moody’s. ‘We’re seeing the down side of the housing cycle.’”

A pair of reports on the Long Island housing bubble. “The days of eye-popping monthly real estate gains are now the stuff of real estate lore. Though Island housing prices remain up year over year, Suffolk battled a moderate price drop in April and Nassau remained stable. Buyers have plenty of homes to choose from: The region’s inventory skyrocketed more than 50 percent in the last year.”

“‘We’re not getting as many offers as we were,’ said Roberta Moldawsky, who specializes in the Great Neck area. ‘The buyers seem to be holding off. We’ve got a lot of inventory and things are selling slower.’”

From NewsDay. “Welcome to the new world of real estate. Doesn’t it look familiar? It’s been nearly a decade since the housing supply was this high and annual price increases were this low. Residential inventory is increasing at a record annual pace.”

“Put that together with increasing interest rates and you get the beginnings of a buyers’ market, experts said yesterday. Residential inventory rose by 65 percent over the year in Suffolk County and 76 percent in Nassau County, each reaching levels not recorded as far back as the MLS records go, to 1980.”

“And the housing supply ratio that shows how long it would take to sell out the inventory at the current pace stands at 10 months in Suffolk County and nearly nine months in Nassau, the highest levels since 1998 and 1997 respectively. In Queens, where the market is not entirely based on the MLS, and where demand is often higher, inventory rose nearly 88 percent.”

“As the real estate market’s prime selling season moves on, many are suggesting that it has been one of the slowest springs in the past six years. And that slowdown is likely to continue into the summer, experts said, pointing to the Federal Reserve’s decision to increase short-term interest rates to 5 percent yesterday. ‘We’re in a buyers’ market as soon as the Fed increases rates to 5 percent, so we’re in a buyers’ market now,’ said Martin Cantor, the chief economist with Sustainable Long Island.”

“The signs that sellers have lost the upper hand are already there, said Beth Marten, who heads a real estate agency that represents buyers. ‘Buyers are starting to negotiate and sellers are starting to give,’ Marten said. ‘The seller is starting to blink.’”

“But other agents said the home buyer is not yet in full control. ‘A correction is clearly evident,’ said Joyce Styne, (broker) in Greenvale. ‘However, there’s still time left [for sellers] to catch the ring on the carousel.’”

“Styne noted that of 60 updated listings in her region yesterday, 34 had lowered their listed prices.”

The New York Times. “In its over-the-top twist on the usual brokers’ inspection, the open-house party may be the surest sign yet that the supersonic real estate market on Long Island is spiraling back to earth. Now it is the houses that are plentiful and the buyers who are scarce, and brokers are turning to increasingly splashy marketing tactics to drum up interest.”

“So, instead of the usual noon-to-three weekday preview for agents or a Saturday open house for the public with balloons tied to a sign, Shawn Elliott staged something more like a bar mitzvah celebration for the Tall Oaks house.”