May 13, 2006

‘Every Agent Is Getting Ridiculous Lowball Offers’: Phoenix

The Arizona Republic reports that news of the housing bust is echoing off the hills around Phoenix. “Home sales are plunging in metropolitan Phoenix, even as record numbers of people decide to put their houses on the market. For now, the median sales price is holding firm. But with the number of for-sale signs dotting yards across the Valley, no one expects that to last.”

“‘Buyers think, ‘Why should I buy today? It will be less expensive in a month or three weeks.’ Every listing agent I talk to is getting ridiculous lowball offers,’ said Diane Watson, an agent in north Scottsdale.”

“Through the first four months of 2006, the number of existing houses sold in the Valley is down 46 percent from last year and 12 percent from the same time in ‘04. Last month, there were 38,206 homes for sale, a record high. Agents say they are seeing more prices being cut, and there is the persistent question of whether the crucial summer selling season will be strong enough to rescue the year.”

“Neil Brooks, an agent in the north Valley, said the clock is ticking on resales in metropolitan Phoenix. He expects a 10 to 15 percent price reduction Valley-wide if summer selling doesn’t chop inventory. ‘The next 60 days are crucial for Arizona real estate,’ he said.”

“(Broker) Jim Sexton in Phoenix, said job growth and rising population are still in place. He doesn’t expect a price collapse. ‘The market is far from falling apart,’ he said. ‘You’re going to talk about real estate falling in a lot of other markets before you start talking about it here.’”

“(Broker) Margaret Dixon thinks prices could drop 10 to 15 percent in areas hit hardest by speculators. Typically, she said, outlying neighborhoods would “adjust first and adjust the most.” She said areas closer to jobs and transportation are less susceptible to corrections.”

“Erin Middleton and her husband have been trying to sell their house in Cave Creek for about a month. They tried selling it themselves, then hired an agent. Several people have walked through, but no one has gotten serious, even though they spent $8,000 on new paint, carpeting, kitchen appliances and countertops.”

“They dropped the price Monday to $429,000 from $435,000 and are second-guessing their decision not to list the house last year when demand was strong. ‘You can’t sell regardless of the price,’ she said. ‘Nobody’s looking. The market’s not where it used to be.’”




Buyers Determined To ‘Turn Back The Clock’ In California

Some housing bubble news from California. The LA Times, “Guy and Karen Vidal are experiencing something new as they try to sell the small Craftsman house they own in Silver Lake. Since listing it at $699,000 two months ago, they’ve reduced the price twice, first to $679,000 and then to $659,000 a couple of weeks later.”

“The problem for the Vidals is that after several years of frenzied bidding, buyers are also determined to turn back the clock. ‘Buyers don’t have that panicked feeling: ‘If I don’t buy before the post goes up, I’ll get into multiple offers and lose out,’ said (RE offcie manager) Ron Tornell. In his area, Tornell said, there were roughly 900 houses and condominiums on the market at the beginning of May, up about 25% from last year.”

“The people the Vidals bought from acquired the house in October for $400,000, turning a quick profit of $125,000 before agents’ fees and taxes. Guy Vidal says they spent more than $60,000 to restore the Craftsman. The Vidals’ agent, Lyn Bradford, believes it would have sold quickly a year ago. ‘People are taking their time; there’s a lot of fence-sitting going on,’ Bradford said. ‘There’s no doubt the market feels flat.’”

“‘As soon as we bought it,’ Guy Vidal said, ‘the market changed.’”

“Another recent buyer who has seen the market change is Matthew Zevin, who lives in San Diego’s Carmel Valley neighborhood. Sometime last fall, however, Zevin noticed a pronounced slowing. ‘It was drastic,’ he said. ‘There was suddenly a lot more inventory, and with more inventory, prices started dropping.’”

“The Zevins paid $1.5 million in November for a 3,800-square-foot house. Coincidentally, they had bid $100,000 more for this same house in July. The sellers had rejected that offer, which was contingent on the sale of the Zevins’ home. ‘If we were buying it today,’ Zevin said, ‘we’d pay even less.’”

A San Diego realtor. “This is getting awfully repetitive, inventory continues to climb and demand continues to fall. As of this writing inventory is 19,380 homes.”

“If you remember March Pending sales were 3,176 which I thought would bring April in around 3,000, down 27% from April 05. However, April sales were 2,570, down 38% from April 05’s 4,136 sold homes. One could make a case for increasing downward percentages. For the past 8 months each month has had an increase in the percentage decline in market sales.”

“The decline in sales is across the board. The under $500,000 sales are down by 44%, the $500,000 to $800,000 sales are down by 35% and the over $800,000 sales are down by 24% from last year.”

“All the incentives being offered in the marketplace hide, a bit, what is happening to prices. If the market decline continues in the 30% to 40% region and inventories remain above 6 months these pricing levels can not be sustained. In order to take advantage of this market, Sellers need to have marketing programs that stimulate demand for their home.”

The Sacramento Bee reports on some incentives. “Looks like the real estate market really is cooling off. To the point where one luxury home seller in a neighborhood full of Kings and politicians is offering buyers a free Mercedes and a year of massages.”

“The once-hot housing market has ‘normalized,’ says selling agent Jade Phung. To sell pricey homes, realtors have to ’step up their game,’ she says. In this case, the owners are throwing in their 2004 Mercedes E320 and an existing contract with a masseur who gives monthly massages at the home’s pool-side cabana.”




‘What Would You Do If You Were The Fed Chair’?

Several readers suggested the Fed chairmans predicament as a topic. Highlights: “I hear a lot about how Ben Bernanke is doing it all wrong. IMO: he has the third hardest job in America right now. It’s easy to criticize. How about this: What would YOU do if you were the Fed Chair?”

“Do you go slow and steady with the 0.25% raises? Do you hit the market with a 0.5% raise to show them you mean business? Do you do a little pause, and assess the results of the previous 16 rate hikes. Or do you do something different, like Bitch Slap David Lereah and chief of NAR research Suzanne? It’s easy to criticize. Time to put up.”

A reply,”How did we get to the point were we are playing word and guessing games with unelected leaders. Do we run our own housholds like this? ‘Gee Honey, I INTEND to put enough money in the checking account to cover our bills, but I MIGHT pause if my paycheck bounces?’”

One says take your medicine.”I’d do what ever it takes to send this country, and world, into the healing recession that it needs, and should have gone thru after 2001. We would have been well on the way to recovery had not Mr Greenspan decided to flood the world with liquidity and drop the rates to zero. All he gave us was a short reprieve and created a monster of a bubble.”

Another said, “I agree;…Recessions always have significant casualties but my fear is that if we don’t support the dollar (Higher rates) we could see a complete meltdown of our economy/country? Depression?”

Another has a quote. “I like the quote in Milton Friedman’s book ‘The Fed has given its heart not to controlling the quantity of money, which it can do, but to controlling interest rates, something it does not have the power to do. The result has been failure on both fronts: wide swings in both money and interest rates. These swings, too, have had an inflationary bias…the Fed has been much quicker to correct a swing toward a low rate of monetary growth than to correct a swing toward a high rate of monetary growth.’”

“‘The financial public, too, believes that the Fed can control interest rates, and that belief has spread to the Treasury and Congress.’”

“The Fed needs to put the brakes on the money supply, which I guess it is actually doing; there was a link posted a couple of time a month or so ago to a story about how the Fed is beginning to put pressure on Banks to slow lending.”

One notes Greenspans role, “Bernanke is in an impossible position, not of his creation. Greenspan’s liquidity pumping over the years has created a series of ever-larger asset bubbles. I doubt that they can be deflated without serious pain, especially in the US. But activist central banking has been the problem and is not the solution. Bernanke should return to targeted money supply growth (target growth of M1) rather than targeted rates, let rates fall where they may, and fortify his building.”

Another sees a bigger picture, “I’d even argue it’s not Greenspan’s creation either. The freakishly high and accelerating productivity we’re seeing is deflationary. Greenspan was right in his description of a ‘new economy’ he was just early.”

“The Fed is losing its grip because they’re running out of options to combat these enormous deflationary pressures. Rates were at all time lows for a reason. I’d argue they’re already too high.”

“Most people are using old broken linear models which, when you plug in our current numbers, scream inflation. They’re hiding the M3 because most people will mistakenly panic if they see how high it is. So they have to create enough liquidity to combat deflation while preventing a dollar crash from mistaken investors who aren’t wondering about the productivity connundrum.”

“The problem with housing is that even with rates at zero there is no way to make people buy. Prices will drop until they’re re-attached to fundamentals. The problem for the economy is that even with an exploding M3 the money isn’t raising median wages. Businesses are raking in huge profits but consumers have to rack up debt to buy products. That may be the ‘pushing a string’ problem from a different perspective.”

And one is more laissez faire. “As for what I should do were I wearing his dress? Well, I would correct the crime of un-backing our dollars with actual gold by linking the fed fund rate to the price of gold. Then I would go surfing and let the market regulate itself.”




‘Mortgage Roulette’ Has Homeowners ‘Coming Up Short’

The Rocky Mountain News has this update on Colorado. “Thousands of Denver homeowners gambled on adjustable rate mortgage loans three years ago. Now those bets are coming up short. These homeowners are facing the hard truth that their ARM mortgage payments are going up several hundred dollars more each month.”

“‘In a sense, they were really playing Russian roulette,’ said (broker) Ed Jalowsky in Denver. ‘Russian roulette is a form of gambling, and that’s what they were doing, they were gambling.’”

“The Denver area may be hit particularly hard because homeowners in Colorado on average have little equity in their homes. In Colorado, 28.5 percent of homeowners have 5 percent or less equity in their homes, and 47 percent have 15 percent or less equity.”

“This year is on track to eclipse 2005 as the second worst ever for foreclosures. Last year, more than 14,000 Denver-area homeowners defaulted on mortgages. Increasingly, people who locked in three-year ARMs with rates in the 4 percent range are finding loan rates rising by 50 percent or more.”

“Next, the downward spiral begins: They can’t afford the higher payment, they can’t sell their homes for a profit, or they can’t refinance because they have little or no equity in their houses or they’re precluded from refinancing because of pre-payment penalties.’

“‘People were still riding the euphoria of the late ’90s (three years ago), when they thought housing prices were just going to keep going up quickly.’ So they locked in adjustable rate mortgages that had fixed below-market rates for three, five and seven years, Jalowsky said. Jalowsky estimates that 75 percent to 80 percent of homeowners defaulting on their mortgages in the Denver area took out ARMs in recent years.”

“Jalowsky is listing a home for one client who is going to see his monthly mortgage payment rise by $1,000 on June 1, when his ARM adjusts.”

“(Realtor) Brian Bartlett agrees. ‘It is absolutely mortgage roulette,’ Bartlett said. ‘”Either buyers were not informed by the mortgage broker or all they chose to hear was the answer to the following question: What is my initial monthly payment? When you combine ARMs, 100 percent financing, negative amortization, seller-paid closing costs, rising rates, falling prices, rising inventory and a continuing sluggish Denver economy, you have a recipe for 1987 to 1990 revisited.’”

“Even worse, thousands of homeowners chose so-called ‘option ARMs.’ ‘The option ARM is the temptress,’ said (mortgage broker) Pete Lansing. He wasn’t a big fan of option ARMs two years ago, when they were popular, and he lost business to other companies that pushed them. Now, he said, he is getting phone calls from people who want to refinance out of option ARMs into fixed-rate mortgages.”

“‘Usually, they’re pretty short conversations, because they can’t do it because of stiff pre-payment penalties,’ Lansing said. Now, people are wondering why they didn’t lock in fixed rates at 40-year lows around 5.5 percent. ‘One of the issues I hear over and over again from the people is that they now feel really stupid,’ Lansing said.”

“Dan Jester, a spokesman for Moody’s, said the Denver area is in decent shape because it didn’t see the huge run-up in prices that other areas have seen, so it’s unlikely to experience the big crashes that could occur on the coasts. ‘If you were Orange County, (Calif.), I’d be a lot more concerned,’ Jester said.”

“Lansing said it is too harsh to say homeowners who took out risky ARMs several years ago were playing Russian roulette. Rather, he said many of the borrowers had been lulled by years of low or falling rates and probably didn’t fully understand the risks. ‘Life happens,’ Lansing said. ‘Now they are paying the piper.’”




Florida Housing Bubble Meets ‘Price Reality Check’

The Canadian National Post looks at the Florida housing bubble. “The U.S. housing market has endured a boom of historic proportions over the past few years. Adjusted for inflation, real price increases have been the highest on record. Jorge Perez, whose Related Group has ridden the recent U.S. property boom perhaps faster and further than any other developer, knows the market has cooled.”

“‘There has been a great amount of construction, some overbuilding,’ concedes Mr. Perez. ‘The media [have] on a daily basis told prospective buyers the bubble is going to burst,’ he says. ‘I think people are taking a much more measured look at real estate. So our universe has shrunk. Speculators have almost dropped out of the market and sales have slowed down.’”

“Where developers in the Sunshine State once held lavish sales launch parties every bit as raucous as the high-tech frenzy, they’re now throwing incentives at buyers. Where buyers camped out for days, they are now selling at auction. And where investors once turned to housing after their equity portfolios melted, they’re now walking away from deposits.”

“‘The mortgage market today is bigger than the government bond market; housing is valued at double the level of household equities on the household balance sheet,’ David Rosenberg, chief economist for Merrill Lynch says. ‘Never before has housing come to permeate the economic and social fabric to the extent that it does today.’”

“Harry Rodstein says the market has turned on a dime. Sales at his condo conversion in Sarasota have ground to a halt. Conversions are apartment buildings converted to condos, the latest real estate fad to hit the state. ‘What I’ve seen is that sales, particularly in condo conversions, have fallen off the end of the table,’ he says.”

“He blames the retreat on excessive media coverage of the bubble and a U.S. Federal Reserve that does not know when to let up with interest rate hikes.”

“Mr. Rodstein neglected to mention one crucial factor, oversupply. Across the United States, there are 3.5 million single-family homes and condo units up for sale, a record, and up 30% from a year ago. In Miami-Dade County alone, there are 25,000 condos under construction and another 25,000 that have already got their financing and are likely to go forward. In addition, 50,000 more have been announced.”

“In the whole period from 1995 to 2004, only 9,079 units were built in Miami Dade.”

“‘It was like a gold rush,’ says Mike Morgan on a tour of a slapped-together-looking development of US$260,000 to US$300,000 homes and townhomes, wedged between a trailer park, drainage ditch and the highway.’I was doing an open house for the townhomes we had listed there and these four elderly ladies told me they bought four of them. They said: ‘We drove up from Miami and Ft. Lauderdale, we got off the I-95 and this was the first thing we found.’ They bought four.’”

“The garages are so tiny Mr. Morgan can’t fit his truck in and there’s no room to park on the street because the driveways are jammed together. There are ‘For Sale’ signs on every block and many homes are obviously empty, without curtains on the windows. Mr. Morgan says people wouldn’t ask him the questions they normally ask when looking for real estate, such as details about the location, amenities and taxes.”

“‘They would only be concerned whether it was pre-construction,’ says Mr. Morgan. ‘Pre-construction became the buzzword, like dot-com. They only wanted pre-construction. I’d say I’ve got these units that were already built and they’d give a good income stream, but they’d say, ‘No, no, I want to flip the contract before I close.’”

“Many flippers are now walking away from their deposits or trying to wiggle out of their contracts, using shoddy workmanship as a loophole. Mr. Morgan says he now has 43 investors who are walking away from deposits of US$35,000 to US$80,000.”

“Recently, three new homes at an exclusive golf community in St. Lucie West, were sold by auction. Jeff Banack an investment salesman, picked up a two-bedroom home for US$235,000 plus the 10% buyer’s premium. Al Deleeuw, a builder from Detroit, had two similar houses for sale on the same street for US$350,000 and US$345,000. Mr. Deleeuw says he thought the price was right because he’s had price agreements on both, but they fell through.”

“At the auction, the auctioneer adds: ‘We are the price reality check.’”