May 18, 2006

That Spring Rebound? Forget About It

Some more housing bubble news from California. “A total of 47,250 new and resale houses and condos were sold statewide last month. That’s down 13.3 percent from 54,500 for March and down 22.4 percent from a revised 60,900 for April 2005.”

The Sacramento Bee. “Through a long winter of rain and discontent, when home sales plunged nearly 30 percent from a year earlier, Sacramento-area home sellers and real estate agents yearned heartily for a spring rebound. Spring is here. That rebound? Forget about it.”

“In the most explicit sign yet of the continuing down cycle gripping home sales in the Sacramento area, median prices fell again in April in El Dorado, Placer and Sacramento counties, while home sales remained flat or fell behind those in March.”

“April showed more price cutting and still more choices as another 1,028 homes put ‘For Sale’ signs out front. It was the biggest jump in real estate listings since last August, when 1,200 houses flooded the market and signaled the impending end of the region’s five-year housing boom.”

“‘It’s a supply-and-demand market, and right now we have a lot of supply,’ said real estate agent Dennis Colar in Sacramento. ‘Buyers are looking at more things on the market and taking their time.’ Tuesday, one of Colar’s clients shaved $20,000 off his midtown Sacramento home, for sale since February. Another, Ron Rael of Novato, also cut the price on a house he’s selling south of downtown Sacramento.”

“‘The market is definitely in a funk right now,’ Rael said. He is selling to buy houses in San Antonio, he said.”

“In April, both houses were among 11,344 listed for sale in Sacramento, Placer, El Dorado and Yolo counties. That’s the most homes for sale in the region since August 1993. The record is 13,507 homes in April 1992 during the cooling cycle that followed a late-1980s housing boom.”

“Suburban home builders feel the same pressures. ‘People are out looking at projects and saying, ‘Hey, I can go buy a resale so what kind of price can you do?’ said Greg Paquin, a Folsom-based consultant for home builders.”

“Sacramento County’s median sales price fell more than $5,000 in April to $353,750. April’s price remained $18,250 below the county’s August peak of $372,000. Yolo County April’s median $420,000 price remains below its November high of $436,500.”

“El Dorado County saw the April median sales price fall slightly to $449,000. The county’s sales price remains $26,000 below its September peak of $475,000. Placer County’s median sales price fell to $472,500 in April. Sales prices remain almost $30,000 below their August peak of $502,000.”

“Sales of houses, condos, half-plexes and duplexes (excluding new construction) in Sacramento, Yolo, Placer and El Dorado counties from January through April totaled 7,162, down from 10,673 last year. It’s the first time since at least 2002 that sales dipped during the first four months of the year.”

“San Fernando Valley home sales fell for the seventh consecutive month during April and inventory ballooned 142 percent as the market continued softening, a trade group reported Wednesday. Those two factors finally took some steam out of prices with last month’s 9.4 percent gain the first single digit increase since January of 2001, said the Southland Regional Association of Realtors.”

“Last month consumers bought 926 previously owned homes, 18.6 percent fewer than a year ago. Sales have now been under the 1,000 mark every month since last October. That’s the longest period since a 20 months string of sub 1,000 transactions from September 1995 to April of 1997.”

“At month’s end there were 3,660 houses for sale across the Valley, up from 2,147 a year ago. Add condominiums and inventory totaled 4,950 properties, up 162.3 percent from a year ago.”

“‘Builders are offering a lot of incentives, and sellers are becoming more educated,’ said (realtor) Bill Velto in Upland. Velto pointed out that builders are still going ahead with projects.”

“Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. said, ‘There are still too many unrealistic sellers, but it’s pretty clear the frenzy has gone out of the market.’”




‘Changes We Haven’t Seen For A Long Time’

Dataquick has some Bay Area numbers out. “Bay Area home sales in April dropped to their lowest level in five years as prices slowly reached a new peak. A total of 8,358 new and resale houses and condos were sold in the nine-county region last month. That was down 14.2 percent from 9,745 for March, and down 25.1 percent from 11,158 for April last year, according to DataQuick.”

“Last month was the slowest April since 2001 when 7,193 homes were sold. April’s year-over-year decline in sales was the steepest since November 2001 when sales dropped 27.2 percent to 6,644 from 9,122 one year earlier.”

“‘These are strange times for forecasters and analysts. Are we heading into a market lull? Or are we seeing the beginning of a significant downturn? Many of the fundamentals for housing are at a crossroads: Inflation, interest rates, demand, household incomes, prices, and whether homes are a good investment compared to other investments. Summer is going to be interesting to say the least,’ said Marshall Prentice, DataQuick president.”

The Monterey Herald. “Inventory is up, sales have slowed and median home prices in Monterey County have slipped for two straight months. Median home prices for single-family, detached homes for March dropped 2.1 percent from the previous month, according to California Association of Realtors data.”

“The Monterey County peak median home price was $700,000 in February, but that number slipped to $685,000 in March and $670,000 in April. Sales activity in Monterey County was up by 45.2 percent over February, but showed a 25.4 percent decline from March 2005.”

“The year-to-year change varied widely by region within the county, dropping 10.3 percent in Pacific Grove, where the median home price fell from $895,000 to $802,500. San Benito County lost ground, with minus 2.4 percent figures year-to-year.”

“The number of closed sales for the quarter ending March 31 was lower than the same quarter the previous year, 563 compared with 76, and inventory continues to rise. Homes are staying on the market almost twice as long as a year ago.”

“Sandy Haney, chief executive officer of the Monterey County Association of Realtors said, ‘but it’s definitely becoming a buyer’s market.’ It’s a trend showing up in the lists they present after inspection, which are growing longer and more detailed as buyers grow more confident.”

“‘Buyers are definitely back with a vengeance,’ said Haney. ‘They were stomped on for so long.’”

“The high-end markets of Pebble Beach and Carmel have slowed. In North Salinas, there’s been a flurry of middle-class buy-ins to new home developments such as Creekbridge, which in its first phases pushed the demand for existing homes down because of all its modern amenities. New housing developments at Fort Ord in the future also are likely to soften the local market in the short term, Haney said.”

“‘We’re going to see changes we haven’t seen in this area for a long time,’ she said. ‘It’s going to be interesting to see where the housing market goes.’”

“Haney said there’s little likelihood the bottom would drop out of the real estate market. But Haney said there’s been an even greater shift in terms of what homeownership means to most buyers. ‘Homes are no longer forever,’ said Haney. ‘Now, they’re more of an investment. The real estate industry is already metamorphosing.’”




‘Housing Market Is Cooling’: Bernanke

Some housing bubble reports from Wall Street and Washington. “The housing market, after flying high for five years, has lost altitude and appears headed for a safe landing, Federal Reserve Chairman Ben Bernanke said Thursday. ‘It seems pretty clear now that the U.S. housing market is cooling,’ Bernanke said.”

“On the issue of risky home mortgages, Bernanke pointed out that the Fed has issued some guidance for lenders. ‘We’re not saying you shouldn’t make these loans. What we’re saying is that they be done the right way,’ Bernanke told the banking conference.”

“‘We do have some concerns about the non-traditional mortgage lending,’ he said. Mr Bernanke noted that some of these products had previously been the preserve of wealthier borrowers, but were being increasingly extended to lower-income buyers.”

“The Federal Reserve is less likely to suspend its interest-rate increases after a report yesterday showed consumer prices rose more than expected, according to Richmond Fed President Jeffrey Lacker. ‘The inflation outlook is at the borderline of acceptable and perhaps moving beyond,’ Lacker told reporters. ‘In circumstances like that, containing inflation has to be the primary focus.’”

“‘Core CPI is clearly running near or above the upper end of the FOMC’s comfort zone,’ former Fed governor Laurence Meyer said yesterday. ‘We now expect the committee to move to 5.25 on the funds rate’ in June.”

“A Federal Reserve economist on Thursday will say Fannie Mae and Freddie Mac help lower U.S. mortgage rates by only two basis points, below his previous estimate of seven basis points, sources said. Critics of the shareholder-owned but government-sponsored enterprises argue that they benefit in financial markets from implicit government backing, but do not pass that benefit on to homebuyers.”

“Due to Wall Street’s belief that the federal government would bail the companies out in a crisis, Fannie and Freddie can borrow at lower rates than other companies.”

“The suggestion that the companies fall short in their primary task of promoting homeownership comes as Congress considers toughening oversight after multibillion-dollar accounting problems at both Fannie Mae and Freddie Mac.”

“Hooker Furniture Corp. said it expects lower fiscal second-quarter sales than it previously forecast. ‘A softening in business at retail has dampened our expectations for the current quarter,’ said Paul Toms Jr., chairman and CEO. ‘We believe this decline has been precipitated by rising energy prices and a decrease in housing activity.’”

“Shares of Clayton Holdings Inc., which analyzes mortgage loans for mortgage-backed securities traders, fell in afternoon trading Wednesday after an analyst said the company is vulnerable to a downturn in the cooling real estate market.”

“While Jeffrey has a positive outlook for the future of the mortgage loan market, the company is exposed to a downturn. Softening real estate prices and rising interest rates pose risks not currently reflected in Clayton’s share price, Jeffrey said.”

“‘Clayton has never operated through a significant down cycle or a period marked by limited liquidity or less-ready access to the capital markets,’ analyst Andrew Jeffrey wrote. ‘It is our opinion that a financial market disruption and/or a sharp rise in interest rates over a short period of time, accompanied by declining real estate values, could cause such a disconnect.’”

“Jeffrey also cited concerns that management was hastily assembled and has not had enough time to gel and familiarize itself with the company and its market. Executives also do not have significant personal equity ownership in the company, Jeffrey said.”

“Clayton provides transaction services such as loan analysis and home value validation for traders in the market for mortgage-backed securities, especially home loans known as ‘non-conforming mortgages.’ In 2005, the company analyzed 930,000 non-conforming loans totaling more than $175 billion in principal, or 9 percent of the total non-conforming mortgage loan originiations in the period.”

“As of the end of 2005, the company was monitoring $308 billion in loans underlying mortgage-backed securities, or 19.4 percent of the total non-agency mortgage-backed security principal.”




‘Aggresive Lending’ Leaves Borrowers ‘Struggling’

Thw Wall Street Journal has this report on loan delinquencies. “Soaring housing prices and aggressive mortgage lending have saddled home buyers with ever greater levels of debt, and early signs are now emerging that more people are unable to keep up with their monthly mortgage payments. Analysts say that laxer lending standards on the part of mortgage lenders also resulted in higher debt loads, which some borrowers are now struggling to repay.”

“Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth, according to a study. That compares with 10.6% of those who took out loans in 2004.”

“An analysis by Bear Stearns found that delinquencies on loans originated in 2005 were in most cases far higher than on loans issued in previous years at the same point in their life cycle. ‘The numbers are clearly worse,’ says Gyan Sinha at Bear Stearns. The reason: Lenders were ‘able to generate a lot more volume in the face of rising rates’ by loosening lending standards, Mr. Sinha says. ‘More aggressive lending was clearly taking place,’ he says.”

“Credit Suisse found that borrowers who took out adjustable-rate mortgages in 2005 were three times as likely to be delinquent on their payments after the first year as those who took out ARMs in 2003 and 2004. The study didn’t include borrowers with option ARMs.”

“Credit Suisse also found that borrowers who were delinquent were more likely to have lower credit scores and to have taken out piggyback mortgages, which combine a mortgage with a home-equity loan or line of credit. It also found that delinquency rates were shooting up in California.”

“In another sign that some borrowers who stretched are now feeling pinched, a study by Lehman Brothers of subprime borrowers found that the increase in delinquencies is being driven by home buyers, rather than by people who are refinancing, and by those with little equity in their homes.”

“Gail Burks, president of the Nevada Fair Housing Center, says borrowers are coming into her office who are having trouble making their payments as soon as a year or two after taking out a mortgage. ‘It’s more of the newer, exotic [mortgages] where the payment has changed and they are now pretty much priced out of the loan,’ she says.”

A Fed president chimes in. “Products such as adjustable rate and no-money-down mortgages have helped boost U.S. homeownership to record levels but have increased risks by raising some buyers’ leverage, Chicago Federal Reserve President Michael Moskow said on Thursday. ‘With less equity, people have less of a cushion to withstand adverse shocks to home prices or interest rates,’ Moskow said.”

“‘Some people will soon be faced with these (adjustable rate) loans re-pricing under less favorable conditions,’ Moskow said. Many believe that U.S. home prices have little room for additional growth and are more likely to fall than to rise further, especially on the East and West Coasts and in some cities in the South and Southwest, he said.”

A television report from California. “Mechelle Sanders is a foreclosure counselor. Today she’s following up on as many as 14 leads in the Stockton area. In many cases, Sanders says foreclosure victims are former Bay Area residents who underestimated the high cost of commuting. ‘They commute, but with the prices being high in gas, they’re going back because it’s not making the difference,’ said Sanders.”

“The Westin Ranch development was the object of desire for Bay Area bargain hunters three years ago. But real estate agent Cynthia Carter says the number of homes here up for sale has quadrupled since last year. ‘The commute you can do for about a year,’ said Carter, ‘and then it becomes really hard on the body physically for people.’”

“In April of last year there were 935 homes on the market in the bedroom communities of Stockton, Tracy, Lathrop and Manteca. This April the number skyrocketed to almost 3,500, a 270% increase.”

And ABC has this video clip on ARM foreclosures in Texas and elsewhere.




Home Prices And Sales Decline In Reno Area

A reader posted this report on the Reno area. “Fewer and fewer homes are being sold in Reno-Sparks, according to the latest sales data. In April, 358 single-family existing homes were sold in the Reno metropolitan area, a 36 percent decrease from the same month in 2005. Even in the historically hot-selling spring months, the real estate market is slowing.”

“‘I thought April was going to really kick it in, and it did a little bit more than in (January and February),’ said (broker) Pat Martinez. ‘But it wasn’t as much as I thought it would be. Buyers, at least the ones I have, are really taking their time.’”

“Despite that, the Reno metropolitan area median home price is still holding relatively steady, slipping to $335,000 in April from $340,000 in March. Indeed, the median time a home stayed on the market in April was 73 days in the Reno metropolitan area, a 40 percent increase from April 2005. But in Reno, where the median sales price stood at $388,200 in April, it took a median of 81 days. Reno’s April median sales price represents a 2 percent decrease from April 2005.”

“‘Overall, it’s obvious things are definitely slowing down,’ said (analyst) Brian Kaiser. ‘Everyone expected this to happen quite a while ago, so we are just finally seeing the effects of it in the numbers.’”

“In Carson City, the median price for a single-family home was $310,000, down from $320,000 in March and a 10 percent decrease, year over year. The median price for condos in the capital fell to $160,000, down from $169,000 in March and a 10 percent decrease from April 2005.”




Condo Speculators Take ‘Silent Price Cut’ In Boston

A Boston Herald columnist writes on the housing bubble. “As reported here recently, the number of unsold condos sitting on the Boston market has doubled in the past year. Who knows when this is going to end? Is it a lull, or the slow deflating of a wild property bubble? Count me in the bubble camp.”

“You would have thought, just a few years after the zaniness of the dot-com bubble, people might have been more circumspect. No, it isn’t ‘different this time.’ It never is. That’s just what people say in a bubble.”

“When the penthouse at 51 Commonwealth Ave. went on the market two years ago, it was a symbol of the sky-high real estate market. At $14.5 million, the 7-bedroom luxury home with skyline views was the most expensive condo in Boston history.”

“Toney agent Beth Dickerson found herself fending off inquiries from the likes of The New York Times. Today, the penthouse is a symbol of a different kind of market. It’s still there. Unsold.”

“Dickerson observes that it takes time to sell a property like this. No kidding.”

“Since July 2004, the property has been off and on the market for ‘refurbishment.’ And even after the investment, the price has been cut by half a million dollars to $13,995,000. But no buyers yet.”

“That makes it just the most singular example of the rising number of properties stuck on the Boston market, as their owners drum their fingers in frustration and worry. As reported here recently, the number of unsold condos sitting on the Boston market has doubled in the past year.”

“If high prices really were simply a function of rising demand for homes, rents would have soared too. They haven’t.”

“In the case of 51 Comm. Ave, I should point out that the sellers may think they’ve only cut the price by half a million. But of course, like every other homeowner holding out, they’ve taken a bigger hit than that.”

“When you factor in inflation and lost interest, a check today is worth about 10 percent less, in real terms, than the same check two years ago. In this case, that’s a silent price cut of $1.4 million. And still it’s there.”