The Housing Bubble

Some reports on the housing bubble in Nevada. “The number of sales made through the Northern Nevada MLS fell to 917 in the first quarter, down 27 percent from the same period in 2005. ‘This is the sort of soft landing that everybody has been talking about,’ said (analyst) Brian Kaiser. ‘It’s finally hit the market.’”

The Reno Magazine. “Barron Caronite, engineering manager for the city of Reno, says the large number, some estimates run as high as about 6,000 units, of condominiums/town homes planned for the area could be problematic. Developers are eager, perhaps too much, to meet the demand, he says.”

“‘There is an awful lot of product in the pipeline and proposed but not that much that has hit construction,’ Caronite says. ‘I don’t know how deep the market is and..if the downtown and the river are strong enough to anchor that.’”

“Production has caught up with demand and prices are beginning to stabilize, says local real estate agent Linda Nicoll. ‘We have so many houses on the market, it’s actually leveled it out,’ says Nicoll. ‘The sales haven’t gone away, there is just more to choose from.’”

And a press release from an area realtor. “Reno Nevada homes are staying on the market longer, and longer. Over the last three months the Reno/Tahoe real estate boom of a few months ago has all but dried up. Buyers are not snapping up those million dollars homes that are offered, heck, they used to be less than half that price one year ago.”

“A lot of folks in Reno who have been trying to sell their recently re-financed [over inflated homes] are saying ‘few calls, much less buyers have come their way since last summer.’ One Reno realtor said some of his million dollar properties for sale have ‘dropped more than 25% in price since January.’”

“Many Reno residents predict that..it will leave thousands of real estate investors with properties they suddenly can’t afford. But, if there is a silver lining to this black cloud, they would have to drop the prices at auction to avoid their own financial ruin.”

“What should a house in Reno cost? Remember, a 3 bedroom home with an acre of land would cost $200,000 in Reno just a few years ago. Now the same piece of dirt is now being offered at a million dollars or more.”

“Land that was just $25,000 an acre a few months ago is now more than $100,000. Some experts blame the price explosion on uneducated buyers from San Francisco and Las Vegas. ‘They are used to paying a million for a studio’ said one Reno Nevada realtor. ‘They are the only takers these days in Reno.’”

“The number of million dollars homes for sale in Reno and Tahoe is astounding. The problem with the area is the lack of anything affordable. A huge portion of Reno Nevada News readers surveyed said, ‘Something has to be done about the lack of affordable housing.’ They are also glad to hear that prices are beginning to come down.”

Annette Haddad writes at the LA Times, “Southern California homeowners, say goodbye to your good friend: Double-digit price appreciation. For the first time in 4½ years, the region’s median home price rose less than 10% year over year, data released today showed. It was the most dramatic sign yet that the Southland’s housing market is coming to the end of its long-running boom.”

“What’s more, sales in April declined 21.3% from a year ago and were down 16% from the previous month, according to DataQuick. It was the fifth straight month of declines”

“The housing market ‘is moving in the direction we thought it would,’ said John Karevoll, DataQuick’s chief analyst. ‘It’s all part of a normal end game of the cycle.’”

“The year-over-year sales decline was the steepest since April 1995, when home purchases slowed 24.0 percent. Last month’s sales count was the lowest for any April since April 2001.”

“‘March and April have shown us that the boom phase of this cycle is behind us, so now it’s just a question of how the cycle ends,’ said Marshall Prentice, DataQuick president.”

“Orange County home sales activity hit an 11-year low in April. Just 3,276 homes sold last month, down 28 percent from a year ago. That’s the slowest April since 1995 and the sixth consecutive month that sales fell on a year-over-year basis.”

“The number of houses for sale in Bakersfield topped 3,000 in April, the most the market’s seen since the mid-1990s when the state was steeped in a recession. Roughly 3,200 houses sat on the market last month, up from about 770 at the same time last year, according to appraiser Gary Crabtree. That’s compared to about 2,480 homes for sale in 1994, shortly after the market took a drastic tumble.”

“With so many new homes built in recent years, the number for sale at any given time is also bound to be higher, Crabtree said. Existing house prices dipped about 6 percent during the winter months. Prices picked back up in the first few months of this year but have continued to fluctuate. The market has leveled off, and ‘it’s taking longer to sell,’ Crabtree said. ‘That’s no surprise.’”

“‘Looking to buy it’s great, but looking to sell it’s the pits,’ said local agent Mary Ann Mallory. Sellers are accepting offers lower than what they asked for and sometimes helping buyers with $4,000 or $5,000 in closing costs, Mallory said.”

“New construction homes are still in big demand, which is contributing to the glut of houses, said agent Chuck Dawson. ‘They’re just cranking them out as fast as they can,’ Dawson said.”

“Many new-homebuyers are moving up from existing houses that they then put on the market, he said. As older homes continue to languish on the market, the prices of new construction will likely also go down, he said.”

“Homebuilders hate to cut prices for fear of torching everyone’s property values and setting off stories about weakness in housing. But they know real estate is cooling, so they are advertising goodies galore. And now there are signs that the taboo against price-cutting is lifting.”

“In Sacramento, local builders say that at least one of the big national outfits is done playing ‘the incentive game’ and will shortly cut prices.”

Some reports on the housing bubble in New Jersey. “In New Jersey, existing home sales, which include single-family homes and condos, showed a dramatic 8.1 percent drop from January through March of this year compared with this same time period in 2005.”

“Home prices in the Newark metropolitan region, a six-county span that includes Essex, Union, Morris, Hunterdon and Sussex in New Jersey and Pike County, Pa., rose 6.5 percent in the first quarter of 2006 to $405,300. However that figure has also been on a downward trajectory since hitting a high of $446,800 in the third quarter of 2005.”

“‘The fact that there is some softening in the pace of house-price appreciation indicates that some sellers are beginning to reduce their prices,’ said (economist) Celia Chen, a positive sign since the big pop in housing prices that prevailed during the past few years was simply ‘unsustainable.’”

“It will take longer for prices to cool than sales, particularly in the juiced-up markets,’ she said. ‘House prices are still generally up from a year ago since many homeowners are still reluctant to reduce prices to match the softer demand. Instead, inventories are building up as sellers wait longer for their homes to sell.’”

“Chen said that..the national median price of a home is actually down by an annualized 4 percent; the first time that has happened in nearly 11 years.”

“‘It gets back to supply and demand,’ said Bob Moulton, residential mortgage broker based in Long Island. ‘Inventory is a lot higher than where we were a year before so there is a glut of houses available for sale. The equation calls for the softening of sales prices over time. It has to happen.’”

“In the Newark area, one analyst said the new data are a bit deceptive because they include deals that were negotiated last year. Sean T. Shallis, a real estate strategist in Jersey City, said that in newly negotiated sales, he’s noticed prices have been down. ‘What we’re seeing is a softening market,’ Shallis told The Record of Bergen County.”

“The National Association of Home Builders on Monday said builders’ confidence in May dropped to its lowest level in since mid-1995. Hovnanian, New Jersey’s largest homebuilder, on May 1 cut its earnings forecast for the fiscal second quarter. Earnings were hurt by production delays, a slowdown in sales, higher cancellations, price reductions and higher costs, the Red Bank, New Jersey-based company said.”

“Many real estate insiders say the market appears to be slowing, not crashing. Buyers who reduce their asking price can sell quickly. And the North Jersey market has some protection because of its proximity to New York City and a limited supply of housing, experts say.”

“Maureen McSpirit, a realtor in Tenafly, said buyers are being more selective and deliberative because they now have more homes to choose from. But homes that are priced right are selling, she said. ‘Many sellers are willing to drop their prices,’ McSpirit said. ‘They’re becoming more aware of the change in the market and are making adjustments to reflect that.’”

Some reports on the housing sector. “Rising interest rates, increasing costs for construction materials, and the decline in housing sales are having an impact on spending for home renovations. A broader monthly report on construction outlays indicates that renovations have declined 10 percent in the first quarter of 2006 from a year ago.”

“Although housing experts are optimistic about home improvement spending this year, a steeper-than-projected decline in house sales would raise concerns.”

“Home Depot CEO Bob Nardelli expressed disappointment about sluggish retail sales. The DIY sector has been growing strongly for years in the US as surging real estate prices and solid economic growth have encouraged spending on home improvement. But analysts fear that a slowdown in the housing market, combined with the effects of rising fuel prices and interest rates could depress sales this year.”

“ECC Capital Corp., a real estate investment trust based in Irvine, Calif., has reported a net loss of $6.4 million in the first quarter, a big improvement from the fourth-quarter results of the troubled mortgage REIT but a bigger loss than it recorded a year earlier. The company announced earlier this year that it would consolidate seven wholesale loan processing centers into three and lay off more than 440 employees.”

From Paul Muolo. “Last week when Aames Financial reported a $6 million loss for the first quarter it also revealed that it is in ‘discussions with several parties regarding a potential merger or sale’ of the company.”

“NMN reported that Impac Mortgage Holdings was considering offers. In releasing its earnings, company CEO Joseph Tomkinson said, ‘As competition has intensified, many of our competitors have relaxed their underwriting guidelines and created what we believe to be more layered risk in the market. Essentially, we are not comfortable investing in certain higher-risk mortgage products, and as a result have revised our underwriting guidelines and adjusted pricing.’ A few months back Impac rolled up its subprime unit, Novelle, into IMH.”

“The clock is ticking on legislation to create a new regulator for Fannie Mae and Freddie Mac, the Mortgage Bankers Association said last week. MBA’s chief lobbyist, Kurt Pfotenhauer, said the now-or-never point is rapidly approaching in the effort to create a new, more powerful regulator for the government-sponsored enterprises. ‘If GSE reform is going to go forward, action has to be taken soon,’ Mr. Pfotenhauer told reporters.”

“Fannie Mae said Monday that it would temporarily suspend issuing certain medium-term debt securities until May 23, the day its chief regulator will release a massive special examination into the mortgage company’s accounting and management problems. Fannie Mae said Friday that it would suspend issuing noncallable benchmark notes in May, the first time it’s elected not to issue since December 2004, but did not indicate why.”

“A slowdown in the mortgage industry has claimed Liberty Home Loan Corp. as a victim. The Tampa-based company at its peak had as many as 110 employees and six offices. MortgageDaily.com reported the closing in April and May of three large firms. Dozens of other mortgage companies are ‘teetering on which way to go,’ said Sam Garcia, editor.”

“Rising interest rates on home loans and tougher underwriting standards have put pressure on all mortgage companies, said Joseph Falk, the Miami-based legislative chairman of the National Association of Mortgage Brokers. When interest rates were falling, it was easy to hire staff and put loan officers to work because there were more customers than mortgage originators available, Falk said. But with rising rates, there are fewer customers. Nationally, new loans fell by nearly 20 percent in the first quarter of 2006.”

“‘As production falls, this leads to overcapacity of loan officers and mortgage companies,’ Falk said. ‘There are not enough loans to go around.’”

“There were 6,555 layoffs in the U.S. mortgage industry between November 2005 and April 2006, according to the trade publication National Mortgage News. ‘There are more people in the industry than the industry can support,’ said Michelle Taylor, a board member of the Gulf Coast chapter of the Mortgage Bankers Association of Florida.”

“It’s tougher for new companies, said Taylor, a 25-year veteran of the mortgage industry. ‘If you grow too soon too fast, you don’t know how to prepare for a down cycle.’”

The Florida Press reacts to the new housing numbers. “The cooling real estate market offers a bit of good news for cash-strapped home buyers: The affordability squeeze has eased slightly. But the income needed to buy a typical home is still twice what it was four years ago. The typical Palm Beach County home cost $392,900 in the first three months of the year, down from $415,800 in last year’s fourth quarter and $399,900 in the third quarter.”

“Indeed, the lull in the region’s five-year run-up in home prices may have fewer potential buyers contemplating a move out of the area, but many more still are sitting on the sideline waiting for prices to fall further. That means that, for the near future, home sellers will have to contend with a glut of properties for sale and less interest from buyers, a reality reflected in Monday’s first-quarter report, which said the number of home sales in Palm Beach County fell 32 percent from a year ago.”

“Agents say they expect sales to increase this summer compared with the past few months. ‘A resurgent market? I think that will be out much farther than the immediate future,’ said Beverly Rothstein, an agent in Coral Springs.”

“Inez Fleming, an agent in Delray Beach, said she hasn’t worked with many buyers in 2006 and said people might be waiting to see whether the region gets hit with a hurricane for the third year in a row. Fleming has three storm-weary clients selling and moving back north. ‘They just don’t want to deal with it,’ she said.”

“The median home price in South Florida, $377,000, increased 11.2 percent compared to the same period a year ago. However, the median price in the tricounty area was down from $391,200 in the fourth quarter. ‘Pressure is coming off of home prices,’ David Lereah, the NAR’s chief economist, said.”

“Sales of existing homes and condominiums on the Treasure Coast remain higher than they were a year ago, but the median price fell for the second consecutive quarter. In the Fort Pierce-Port St. Lucie area, which includes Stuart, the median sales price (of) $260,200 is down from a high of $267,500 in the third quarter of 2005.”

“Pamela Peterson-Drake, a professor in Port St. Lucie, said the market could not sustain the same levels of sales and price appreciation it had in 2004 and 2005. ‘A lot of this was speculation and there was a reliance on the greater fool theory,’ Peterson-Drake said. ‘The prices were simply too high and not a true economic value of the prices they were selling for, so people had to find a greater fool to buy a home.’”

“‘We’re seeing a flattening of sales,’ said (economist) Merle Dimbath, president of Dimbath Economics in Stuart. People that bought in the last year who are trying to load these properties might sell them for less than they paid for.’”

“The number of condominiums sold in Lee and Collier counties plunged in the first quarter of 2006. Statistics released Monday showed that 698 condos were sold with the help of a Realtor in Lee County, down 47 percent, and 784 in Naples, down 48 percent. Charlotte County’s condo market collapsed in the first quarter, with a 91 percent slide to just 17 sales.”

“Local median housing prices fell slightly from the fourth quarter of 2005 to this year’s first quarter. The median-price figures for Brevard County tend to mirror the overall national picture, where there was slippage from last year’s fourth quarter and this year’s first quarter.”

“Watching the real estate market lately has provided some anxious moments for homeowners and homebuyers. The Florida Association of Realtors reported a 5.1 percent drop in median home prices, to $222,400 in the first quarter of 2006, from $234,400 in the fourth quarter of 2005.”

“Misty Morrison, who is helping sell a home in Viera, recently reduced the asking price by $25,000 to $254,900. ‘Obviously, you have to be competitive to be able to sell it,’ Morrison said.”

“Others agree. ‘We are finally coming out of denial, and beginning to acknowledge that tough times are ahead,’ said Manuel Iraola, CEO of a real estate consultant group. ‘No one wants the bubble to burst, but the market is showing signs of fatigue, and the balance of power is shifting to the buyers.’”

The housing starts data is out. “Builders in the U.S. broke ground on the fewest homes since November 2004 as higher borrowing costs eroded demand, a government report showed. Housing starts fell 7.4 percent in April, the third straight drop, to an annual rate of 1.849 million from 1.996 million. Building permits, a sign of future construction, fell 5.4 percent to an annual rate of 1.984 million, the Commerce Department said.”

“The decline in starts ‘indicates builders are recognizing that the market is cooling,’ (researcher) Nigel Gault. ‘By the end of the year housing construction will subtract from economic growth, perhaps quite substantially.’”

“Starts fell in two of four regions. They decreased 9.7 percent in the West to an annual rate of 446,000. They rose 16 percent in the Midwest to 349,000, and fell 16 percent in the South to 863,000. Starts rose 9.1 percent in the Northeast to 191,000.”

“The number of homes under construction fell 1.6 percent last month to a 1.388 million pace from 1.411 million. Housing completions fell 6.6 percent, the biggest decline since June 2002, to an annual rate of 2.077 million. The number of housing units authorized, but not yet started, fell 0.5 percent to 232,500.”

“Slowing sales have caused inventories to pile up. The number of new homes for sale at the end of March was a record 555,000, the Commerce Department said.”

From Southern Oregon. “Four years ago, Matt Bryant says the forms were still on the foundations when buyers snapped up homes he built on speculation. Today, the owner of Riverdell Homes in Central Point says homes are nearly complete before buyers commit.”

“‘People want to see the actual finished product before they buy,’ Bryant says. ‘When the boom started, houses were sold in the first month or two.’”

“The brakes haven’t been slammed on, but the foot is definitely off the pedal for Jackson County homebuilding. Figures show building permits were issued in the first three months of this year, down 27 percent from the first quarter of 2005.”

“In Medford, 217 permits were issued through the first four months of 2005, compared to 124 this year. In Central Point, 100 permits were doled out by this time last year, and just 56 were issued this year.”

“Like most local builders, Charlie Hamilton, a Talent developer, is easing up on ’spec’ starts, begun without a buyer lined up. More importantly he says he’s keeping his houses in a desirable price range. ‘Interest rates are creeping up and there has been more product on the market, but we’re assuming things can’t go up forever,’”

“‘I think it’s a more realistic market right now,’ said Randy Jones, general manager of Mahar Homes of Medford. ‘I’m not seeing the panic, urgent-buying frenzy we’ve seen. During the past four months, we’re seeing more good end-users, not speculators buying homes to flip them for profit.’”

“The longer spec houses sit on the market during, the more builders shoulder the cost of rising mortgage rates that are now around 61/2 percent. ‘We haven’t had a problem selling our houses,’ says Mark Wickman. ‘Personally, as a builder I’m going to be careful about getting too many specs out in front of me and focus on pre-solds. I’m very debt-phobic and never get stuck way out there.’”