The Housing Bubble

It’s Friday desk clearing time. “Centex has quietly backed away from its “Westward Ho” joint-venture development project on the Las Vegas Strip, TheStreet.com has learned. C.J. Julin, VP of marketing with the division of the homebuilder that specializes in second homes and resorts says he could not disclose whether Centex made or lost money on the deal, but he did say, ‘We never lose money.’”

“‘For us..we need to make sure that things that we have in the market today, we are successful with,’ he says. Centex may have become worried about the huge spike in supply of luxury condos in Vegas. In the fourth quarter of 2005, the Las Vegas Valley, which includes the city and outer regions, had 62,600 luxury condo units already completed or under construction, which is about double the figure from a year earlier.”

The Cape Codder reports on one way to move sales. “Maria Marelli was so excited when she closed on a small condominium cottage in the far East End of Provincetown. Sure, it was only 400 square feet, but it was hers.”

“‘It was the only thing I could afford,’ said Marelli, who works three jobs. ‘And I could barely afford it. But the realtor I worked with told me I either buy this or I could forget about ever being able to buy anything.’”

“Talking about hot markets that have suddenly cooled down, real estate agent Nick Calvert, who sells homes in Virginia Beach, Va., says, ‘I have people who are waiting for homes to sell in West Palm Beach, Fort Lauderdale, New Jersey, Connecticut and Fredericksburg, Va. All of them thought their homes were going to fly (off the market).’”

The Washington Times. “Home sales slowed last month in the Washington metropolitan area, falling to 9,372. It was the slowest April in six years. Sales were down 27 percent compared to April 2005. Nearly 20,000 homes were placed on the market in April. Despite the fact that the seller’s market of 2000-2005 is now history, plenty of people are still trying to sell.”

“But, with sales down by 17 percent in Maryland and 37 percent in Virginia, new listings aren’t going to sell very soon. The change is probably due to two things: Some sellers are still reaching for the stars when they set their asking price, and buyers aren’t getting into bidding wars that push prices higher.”

The Washington Post. “Now we’re taking this topic straight to the readers, are high prices starting to affect your budget? Waldorf, Md.: Yes, this is starting to impact our budget. We are currently looking for ways to cut back.”

“We dropped full coverage insurance for liability on the car that is paid for. We are thinking about getting rid of cable or finding a cheaper way to watch TV. We are going to find a cheaper phone service. I told my husband that if this continues then we will both have to get part-time jobs.”

A reader pointed out this drop in home sales. “Home sales prices stabilized in April, but sales volume was significantly below last year’s levels, according to DataQuick. Merced County’s median price was $378,000, which was $5,500 more than March . But the sales volume was dramatically lower, down nearly two-thirds, compared with last year.”

And the Associated Press reports on the latest condo investing idea. “Three car condo developments are scheduled to open in south Florida by the end of 2007, and developers say they’ve already sold between 20 and 30 percent of the condos available.”

“Developer Kevin Buckley said condos start at $150,000 for a 620-square-foot condo for three cars and go up to $400,000 for an 1,800-square-foot condo. “(Developer) Dayna Heit said buyers also consider car condos an investment. ‘It’s a piece of real estate as well as a place to put your car,’ Heit said. ‘It’s very minimal compared to what you’re paying for the homes down here.’”

Dataquick has some more Bay Area numbers out. “Home sales in the Bay Area continued to slow as price increases dipped into the single digits for the first time in more than two years. A total of 9,745 new and resale houses and condos were sold in the nine-county region last month. That was down 13.8 percent from 11,310 for March last year, according to DataQuick. The year-over-year decline was the twelfth in a row.”

“The median price paid for a Bay Area home was $622,000 last month. The median peaked at $625,000 last November.”

“Livermore realtor Mike Perry brings a book to read at his open houses now that the traffic of potential buyers has slowed considerably from the red-hot days of the housing boom. Call it one of the hidden signs of the slowing real estate market, which last month saw the lowest level of Bay Area home sales in five years.”

“‘Open houses have been pretty quiet,’ said Perry. Nowadays, from five to seven potential buyers will visit a typical open house, compared with 15 to 20 in early 2005, Perry said. ‘I’ve seen them as low as one neighbor coming in,’ Perry said.”

“‘What’s really crippling us right now is inventory. Last year, we were in the 140 to 150 range in the Livermore area and now we are almost sitting on 400 (homes for sale). There is a lot more on the market. The ones that are selling are the ones in prime locations or have aggressive pricing.’ he said.”

“‘Appreciation has been flat for six months,’ said Chris Thornberg, senior economist with the UCLA Anderson Forecast. Thornberg said the steep drop in year-over-year sales volume is not surprising. ‘This is how a real estate bubble pops. It’s not a price pop. It’s a volume pop.’”

“Inventory is up in the San Leandro area, from about 40 homes on the market a year ago to about 150 now, (realtor) Kristle Rittenbach said. ‘Homes are sitting a little bit longer. Buyers are just taking their time deciding. The buyers know they don’t have to rush anymore,’ she said.”

“Mark Jackman of a company that funds real estate projects among other things, said the region is in a ‘cooling-off stage.’ ‘Right now, we view the Bay Area as an area of concern,’ said Jackman. He cited two factors that could drag values into negative territory: the area’s substantial residential development and rising gas prices, which may make buyers less willing to move to outlying areas that entail long commutes.”

“‘It’s not that the sky is falling,’ LePage said, ‘it’s just that the sky looks a lot different than it did a year ago.’”

“It could be people don’t want to believe the housing bonanza ending. Tom Davidoff, UC Berkeley: ‘It takes a while for people to figure out interest rates are higher than they have been for the last few years and when interest rates go up, housing affordability goes down, and that means prices have to go down too.’”

The Washington Post reports on the former Fed chief. “Confirming what home buyers suspected and real estate sales figures have indicated for months, Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. housing market was showing clear signs of cooling off.”

“Former Fed chairman Alan Greenspan echoed Bernanke’s analysis in a speech last night to the Bond Market Association in New York. ‘The boom is over. We can say that with some confidence,’ Greenspan said. But, he added, ‘there is no evidence that prices are going to collapse.’”

“‘This has been quite an extraordinary boom,’ Greenspan told a Bond Market Association dinner. Greenspan said there was a ‘high degree of froth in the system,’ and that it was clear that two things were waning: people using rising home values to pull cash out of their home equity and the turnover of home sales.”

“Analysts were divided about Bernanke’s assessment. Peter Morici, an economist at the University of Maryland, said Bernanke’s comments were ‘right on.’ Morici said he saw the rise in long-term interest rates as healthy, with the economy moving away from its dependence on the housing market and ‘hyper-consumption’ fueled by people taking out loans against their houses. ‘The housing market is going to come back to earth,’ he said.”

“Economist Dean Baker expressed concern that rising interest rates were squeezing homeowners who took out interest-only and adjustable-rate mortgages. Baker said a rising inventory of homes in the Washington region could fuel a double-digit price decline if interest rates climb higher. Condo prices could fall by as much as 30 percent, and prices of single-family homes could drop by as much as 15 percent, he said.”

And from USA Today. “Baby boomers love their real estate. So much that they’re counting on it to help them fund retirement. Since most of them haven’t saved much, they’ll probably need it. Boomers have ‘an almost insatiable desire for real estate,’ David Lereah, the NAR’s chief economist, said. They see real estate as ‘a way to build and protect a nest egg.’”

“Real estate ownership has become a key part of boomers’ retirement plans, says Alicia Munnell at Boston College. That’s largely because the national savings rate is so low, she says, and the availability of pensions is declining.”

“Unlike previous generations of retirees who tended to pay off their mortgages and live ‘rent-free’ in retirement, many boomers see their homes as money in the bank, Munnell says. Many previous retirees also chose to hang on to a house to pass down to their children. By contrast, boomers are more likely to use the equity in their homes, through home equity loans or reverse mortgages, to finance purchases or to help fund their retirements, Munnell says.”

“‘In the old days, you knew you had your house to live in when you retired,’ Munnell says. But given most boomers’ modest retirement savings, ‘You really are not going to be able to hold on to it and not touch your house. You’re going to need the money in your house.’”

Some reports on the Florida housing bubble. “Thanks to the influx of big, national homebuilders, short-term market inventory is filled to overflowing. At current move-in rates, Indian River County has a 14.5-month supply of new housing in the pipeline, a figure that Metrostudy calls ‘alarmingly high.’”

“St. Lucie County, with higher sales volumes, could face a similar glut, as its new-home communities account for nearly half of the projected supply in the six-county region stretching from Indian River to Miami-Dade.”

“The pressure to build remains relentless. Lenders expect developers to keep selling houses. Meanwhile, public officials are reluctant to say no to new projects that fit into the comprehensive plan.”

“The inventory of single-family existing homes available for purchase in the Orlando area continued its upward march in April, reaching 16,036 in anticipation of the summer selling season. Last year only 2,947 homes were listed in the area’s MLS.”

The New York Times. “Miami is in the midst of a major building explosion, one that will almost certainly bring thousands of new residents into the downtown area. Johnny L. Winton, a member of the City Commission, (said) that some 90,000 housing units were in various stages of construction citywide.”

“Mr. Winton talked about making the intersection of Biscayne Boulevard and Interstate 395 ‘the epicenter for art, entertainment, culture, jobs and living,’ a place ‘where everybody wants to be. We want to create density, to give people alternatives to getting in the car and going somewhere,’ he added. ‘This isn’t a single-family residential neighborhood area.’”

“Critics say, truly successful downtowns grow organically over time and cannot simply be created overnight.”

“Developers say the demand is there. Many of the condominiums under construction are expected to be bought up by foreigners as investments or second homes in the sun. ‘We have plenty of buyers,’ said Tibor Hollo, who is developing two towers on Brickell Avenue, which he said was the last available waterfront parcel. Since his first building opened for sale in February, Mr. Hollo said, 167 of the 787 units have sold, each at more than $1 million.”

“Dana Nottingham, of the Miami Downtown Development Authority, said: ‘In a boom market, development always outpaces planning. This place will be completely transformed.’”

And a reader sent in this tip from the Wall Street Journal, titled ‘Shaky Florida Condos.’ “There’s an interesting note out of JMP Securities documenting the coming implosion of the Florida condo market. The declines cited are startling. JMP estimates that condo sales in Florida were down 23% year-over-year in March, and homebuilder WCI Communities reported high-rise tower orders were down 71% year-over-year in the first quarter.”

“The analyst notes that this is bearish for WCI Communities and Toll Brothers. ‘From our own observations as well as conversations with local brokers and sales people, it is apparent that the Florida new condo market, and in particular Miami, is in a lot of trouble,’ JMP analysts wrote.”

The Arizona Republic reports on the housing bubble job scene. “Home builders are laying off construction superintendents, subdivision sales agents, finance specialists and other employees, a telling sign that metropolitan Phoenix’s new-home market has taken a radical turn from last year’s selling frenzy.”

“Builders are struggling with reduced demand brought on by skeptical buyers hit with higher prices and rising interest rates. The pileup of unsold houses helped push Valley home building down nearly 24 percent in March and more than 16 percent in the first quarter, following a record 2005.”

“Builders say they don’t have enough work for some of their workers. KB Home said it made across-the-board cuts at its Phoenix division this month. Fulton Homes recently laid off about 12 people, mostly superintendents or assistant superintendents. ‘If you aren’t going to build as many subdivisions as last year, you don’t need as many employees,’ said Jay Butler, at Arizona State University Polytechnic.”

“‘This is the beginning of a contraction in the home-building industry,’ Butler added. Housing is the Valley’s biggest industry. At least one of every $3 in the area’s economy is generated by housing, according to Republic research.”

“Some builders noted in recent quarterly reports that sales were declining in the Phoenix area. Beazer Homes said downturns in Arizona, California and Nevada came from moderating demand and delays in opening subdivisions. Pulte Homes told analysts that sales had slowed in the Phoenix area due to ‘limited availability’ of Pulte products, an increase in unsold houses and buyers’ uncertainty over price appreciation and longer selling times for resale homes.”

“‘Home builders are saying the Valley is going to be a good long-term market. In their speak, that means they are worried right now,’ said Barbara Allen, a Scottsdale based national housing analyst. Home builders in the Phoenix area can’t raise prices like they did last year and the market is slowing, she said.”

“She said, the market’s adjustment from last year’s speculator-driven pace is going to be ‘painful’ for home builders in the Valley.”

“Analyst RL Brown said builders are pouring fewer slabs in preparation for house framing, another indicator of slowing demand. He said the problem is cancellations of contracts, not lack of buyers. ‘They are writing new deals, but the cancellation rate is out of sight,’ he said.”

“According to the Arizona Association of Realtors, membership in the Glendale-West Maricopa Board of Realtors has surged 271 percent in the last five years, the largest increase of any Realtor association in the state.”

“Now that the market has leveled off, Roger Nelson, chief executive officer of the Glendale-West Maricopa Board of Realtors, anticipates a membership reduction as some new Realtors relent to the long hours, expensive marketing and heavy competition.”

“‘It was a feeding frenzy and a lot of people saw this as a way to make a quick buck,’ (realtor) Julieta Contreras said. ‘I knew it wasn’t going to stay that way because most things in real estate are cyclical.’”

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