The Housing Bubble

A busy week means a long desk clearing post for this blogger. “The median price of a home on Maui dropped to $690,000 in April, $35,000 less than in March, according to the latest report from the Realtors Association of Maui. Also declining were the number of homes sold, 68 in April compared to 107 in March and 116 in April 2005.”

“Hawai’i’s housing market continued to show signs of cooling in April, with sales of previously owned homes falling by half in two Neighbor Island markets. Prices on Maui, Kaua’i and the Big Island were below records set last year and earlier this year, providing further evidence Hawai’i’s housing boom is slowing.”

“The largest decline in sales volume occurred on the Big Island where 59 condos were sold last month, a 54 percent drop from 128 a year earlier. Big Island single-family home sales declined 30 percent. The median price for Big Island single-family homes sold in April was $439,900. That was down from $449,900 in March.”

“It’s not easy to sell a house, and now there’s more tough news for sellers. The buyers’ market that started in the Midwest is now moving into cities where housing used to be hot. The glut of houses for sale in Cleveland is now a glut of houses nationwide. Agent Tim Bradford said sellers are dropping prices. ‘Probably because they’ve bought, they need to sell. They’ve already moved into other properties, and they have to get out of the house, so they have to do what they have to do, which is the adjustment of the price,’ said Bradford.”

“That’s nothing new in Cleveland. The area has been in a buyers’ market for well more than a year, and inventories right now are up almost 25 percent. That’s why realtors say if you don’t have to sell your house, don’t, hold onto it until the market levels off.”

“‘If you can’t price it to sell, you won’t be able to do it. There is too much inventory,’ said Bradford. This is something Clevelanders already know, and something sellers in hot housing cities are now learning.”

“There is a risk of a decline in prices in Northwest Arkansas in the next year or two, said Augustine Faucher, director of macroeconomics at Moody’s. ‘The concern is that [the area ] may be overbuilt,’ Faucher said. There has been a 47 percent increase in supply of homes in Northwest Arkansas in the past year, with many completed but vacant homes on the market.”

“Phil Johnson left Pittsburgh to work in Anne Arundel’s red-hot real estate market six months ago. So far, though, it has proved harder than just printing up some business cards and waiting for the phone to ring. ‘It’s a service industry. It takes a lot of hard work and dedication,’ said Mr. Johnson, a real estate agent win Severna Park.”

“And perhaps a little help from sellers who have flooded the market with more homes, and still think they can demand any price. The tide has turned: It’s a buyer’s market.”

“Milwaukee-area streets sported twice as many ‘for sale’ house signs last month as ’sold’ signs, Metro MLS reported Thursday. April produced 3,565 new listings in the four-county area, 15% more than a year earlier, as existing-home sales slid 8.5% to 1,708. So far this year, 13,094 properties have poured onto the market, 25% more than a year ago and a whopping 49% more than two years ago.”

From the UK. “Mervyn King warned on Wednesday that spiralling levels of personal debt are now ‘a potentially large social problem.’ Louise Brittan, head of insolvency at Baker Tilly, said that becoming bankrupt had become ‘a bit of a joke, frankly’ for people.”

“‘People think it’s OK not to pay off their debts,’ she said. ‘This is only going to get worse. What we have here is a cultural change.’”

“The number of single family homes and condominium-townhouses on the market in Broward County in April surged. The Realtor Association of Greater Fort Lauderdale said 8,838 single-family homes were available in April, more than triple the 2,327 homes on the market for the same month the year before.’

“April condo-townhouse inventory, at 11,490, was more than quadruple the 2,492 units available in April 2005. Single-family home sales were at 746 in April, down 1,093 homes for the same month the year before. April also saw 923 condo-townhouses sold, down 30 percent from 1,321 units for the same month the year before.”

“RAGFL President Dori Longhini said the market is changing in favor of buyers.”

“Rising interest rates, higher home prices and picky buyers cooled the Twin Cities housing market in April. The number of home sales fell sharply last month, while the inventory of metro-area homes for sale has never been higher. ‘We have a lot of inventory to choose from, low interest rates and a lot of financing options,’ said June Weiner, president of the St. Paul Area Association of Realtors. ‘Buyers are not knocking down our doors, which surprises me.’”

A pair of reports from Canada. “The Toronto housing market is showing signs of softening and a real estate analyst says that means it may have reached a plateau where bidding wars will continue for now but not for long. (Analyst) Jason Mercer says home buyers should not expect prices to drop drastically for Toronto homes as they did in the late 1980s when speculators sent the market into overdrive.”

“The latest figures suggest that housing starts in the United States peaked in January 2006, then edged down, and that decline reached Toronto in April.”

“By the end of the year, Mercer says, the market will balance out and buyers will be on a more equal footing with sellers. ‘We’re right on the cusp between a seller’s market and a balanced market,’ he said.”

“Canada’s housing agency is warning that the growing number of unsold new condominium units in downtown Montreal threatens the stability of the marketplace. The CMHC noted there are 225 finished and unoccupied condo units downtown, with another 2,200 either planned or under construction. The inventory buildup is worrisome because only 730 condos were sold in all of downtown last year.”

“‘The market is in real danger of oversaturation,’ said CMHC market analyst Paul Cardinal. ‘That was the outlook in November, when we did our 2006 forecast. We keep repeating it in the hope the builders will take note.’”

“This year, CMHC forecasts nearly as many condo units will be built across the metropolitan area (8,000) as single-family homes (8,500). That stands in stark contrast to 1990, when condo construction accounted for 13 per cent of new-home activity.”

“In central Montreal, several large projects appear to be stalled or behind schedule. Backers of Le Riopelle, a condo-hotel project originally set for delivery last November, now expect to break ground this fall. Nearby, Le Mosaique Southam, another high-end development, is similarly stalled. SLEB has run into financial problems and is reorganizing.”

“‘Everyone thinks that their project is different and that the other guy is the one at risk,’ Cardinal said. He added that local builders might be pulling back or fine-tuning their projects, but those working with foreign investment partners, and there are growing numbers of them, are less concerned with having units sit empty and unsold.”

“‘For Americans, it is nothing to put a building up without a single sale. It’s a different attitude,’ he said.”

“On the resale side, CMHC is forecasting a one-per-cent drop in sales as higher interest costs push some first-time buyers to the sidelines. The number of active listings will continue to rise, including on the condo side, where the pool of available properties is expected to jump 46 per cent.”

The Arizona press reacts to the April numbers and has some additional information. “The number of houses sold last month isn’t very encouraging. At the same time, the number of single-family homes for sale reached what could be a record of 14,782 last month in the Southeast Valley, according to the Arizona Regional Multiple Listing Service. The MLS said there were only 2,402 single-family homes sold.”

“People don’t seem to be getting the message that it’s a difficult time to sell. ‘More houses are going on the market quicker than we are selling them,’ said Trent Powell, a Mesa Realtor.”

“Powell is also optimistic. He said that during spring break sales picked up dramatically and he sold four houses in the week. ‘I just got a flood of calls, but it died right after,’ he said. ‘September will be dead. I am really hoping for summer. It is summer or bust,’ Powell said.”

“Tempe Realtor Craig Akers advises sellers to be patient, to clean up and de-clutter their houses and to be optimistic. ‘There’s lots of doom and gloom out there and I am not sure it is warranted,’ he said.”

“The median prices continue to rise, but Jay Butler said that is because people are moving up and buying more expensive houses. In Ahwatukee Foothills, for example, median prices reached $385,000. Its still too soon to tell if the market is in a swoon, said Butler. Butler said there is increasing concern about the ability of some homeowners to make mortgage payments, especially those that have used some of the more creative financing instruments.”

“‘A lot of people with home equity loans or short-term adjustables are going to see an increase in monthly payments,’ he said. ‘For a lot of these, the reason they have them is in order for them to qualify for the home so they may have been marginal people in the first place.’”

“For many buyers during the last few years, town homes and condominiums have been a better option. But sales activity followed a pattern similar to the single family home market with a decrease from 1,750 sales in March to 1,390 in April, which also was well below the 1,670 sales of April 2005.”

“A hotel on North Central Avenue in Phoenix will be knocked down to make way for condominiums in the increasingly competitive midtown market. The Holiday Inn will be razed to clear a spot for three five-story condo buildings. (Developer) Wade Kempton said he expects residents to begin moving into the planned 257 condos late next year.”

“Affordability is a key issue in metropolitan Phoenix housing in general and especially in the area’s fledgling condo market. Condos have become an alternative to the starter home. But so many condo projects aim for the affluent buyer. If the prices aren’t in the millions, many of the high-rise towers are asking for several hundred thousand dollars as the entry point, matching or exceeding prices for typical single-family homes in the Valley.”

“Some analysts think there are too many condo projects in the works, especially those on the most-expensive side of the ledger. They say the market is unproven in a city where the single-family home has been king. (Consultant) RL Brown said there will be some condo projects that will succeed as workforce housing, although ‘no one is positioning downtown condos for the workforce that needs them.”

“‘The easiest thing to do in this town is issue a press release about your high-rise condo,’ said Brown. ‘There’s nowhere near the demand for expensive downtown condos for the supply that has been proposed.’”

A pair of reports on the California housing bubble. “Has the north state real estate market tipped in the buyers’ favor? Two new homes in the Land Park subdivision in northwest Redding were discounted $70,000 this week, slashing the list price to $409,900. The reduction so surprised real estate agent Brad Garbutt that he initially thought it was a mistake.”

“‘They have scaled back prices to what they could have gotten nine months ago,’ said Garbutt, a member of the Shasta Association Realtors board. ‘There are probably going to be some starving real estate agents around.’”

“Signs of a buyer’s market are elsewhere, sales are down, about twice as many homes are listed for sale in Shasta County as a year ago and open houses are abundant; three times more are advertised in the newspaper today than in September.”

“Data Quick reported that Shasta County recorded 161 single-family home sales last month, down from 277 in April 2005. The number of homes for sale in Shasta County in recent months has wavered between 1,500 and 1,600, a level not seen since the late 1990s, when the market was mired in a recession and the average home sold for under $130,000.”

“Greg Lloyd, president of the Shasta Association of Realtors, has said a boom in construction (the city of Redding recorded a 15-year high in housing starts in 2005) helped produce a glut of housing. But Lloyd and others say more homes on the market is not a bad thing. It’s created competition. ‘On the flip side, it’s a great opportunity for buyers,’ said Garbutt.”

The San Francisco Chronicle. “In the latest sign that some of the steam is seeping out of the region’s housing market, Bay Area real estate developers are trimming prices, converting residential projects to commercial uses and, in some cases, walking away from certain properties altogether.”

“Developer Opus West last month scrapped plans to build 100 condos on the south side of Mission Creek in the sprawling Mission Bay development in San Francisco. Home builder Shea Homes recently dropped plans to build nearly 100 townhomes and live-work lofts on a 5-acre site in San Jose.”

“Lennar Corp., after beginning negotiations to develop several hundred units on a downtown block in Oakland late last year, decided in early March not to move forward.” “Other builders find they must work harder to sell the homes they have ready. Their incentives range from swanky events to straight-up cash discounts to free cars.”

“‘Much of it depends on how much inventory they have and how quickly they need to move it,’ said Joseph Perkins, president of the Home Builders Association of Northern California, noting that many large, publicly traded builders must meet quarterly sales projections.”

“Doug Krah, president of Standard Pacific’s Northern California division, is hoping to appeal to consumers’ wallets. His firm is offering packages worth as much as $75,000 in the form of discounts, incentives to brokers and upgrades. With those tactics necessary to sell homes in some developments, Krah is hesitant about laying out lofty sums for new land.”

“‘We’re just like the buyer who’s wondering whether this house is going to cost more or less this year,’ he said. ‘If they think it’s going to cost less, they don’t buy. If I think that land is going to cost less next year, I don’t buy.’”

The Boston Herald reports on a housing forecast. “Home prices in Massachusetts could fall another 3 percent this year as the market adjusts to a slow-growing state economy, according to the New England Economic Partnership conference.”

“But an easing in home prices could make Massachusetts a slightly more affordable state, helping companies to keep and attract workers who otherwise might not be able to afford housing in Massachusetts, according to (economist) Alan Clayton-Matthews. ‘It will help correct the high cost-of-living problem we have, at least to a certain extent,’ Clayton-Mattews said.”

“The peak median home-sale price for the area was $375,000, set last July. The median price has since fallen to about $344,000 through March, off 8.3 percent since July.”

And one brokerage firm is doing its part. “The Bay State’s biggest real estate agency has one message for its brokers: sell, sell, sell. Coldwell Banker, which controls a network of 3,800 agents across the state, wants brokers to lower prices to match current demand in an aggressive push to spark languid home sales.”

“Coldwell has begun routinely meeting with sellers whose homes haven’t sold after a month or so, said Mark Lippolt, a top executive. Among the items on the agenda: price reductions. Given the company’s size, the push could help reduce a huge backlog of unsold homes, though some executives also fret it could develop into a sell-at-any-price mentality.”

“Among Coldwell’s new tactics: urging brokers to take a more realistic stance on prices with home sellers, asking them to only use comparable sales from the last three months. Meanwhile, the real estate giant is now rejecting listings from some would-be home sellers if their price expectations are too high for an emerging ‘buyers’ market, said Lippolt.”

“The moves come as Coldwell’s publicly traded parent company, NRT, reports a 13 percent slide in first quarter sales in New England, California, Florida andother previous hot spots.”

“But some executives, while largely welcoming Coldwell Banker’s new approach, say the emphasis on more realistic pricing holds both promise and peril for a market in transition.”

“‘I think it helps loosen the roadblock of unsold properties if it is done in a responsible manner,’ said Sue Hawkes, who helps market high-end residential real estate projects. ‘If it’s done in a wholesale crash and burn (manner), I don’t think it benefits anyone.’”

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