The Housing Bubble

The Press Democrat reports on one housing market in California. “Across Sonoma County, homes are staying on the market five and six weeks and supplies have more than doubled over the past year. More buyers have stepped back from high prices and rising interest rates. ‘A lot of sellers are being faced with the reality that buyers are cognizant of what prices are and that there’s a lot more to choose from,’ said Ron Wareham, broker in Santa Rosa.”

“Inventories have grown at the fastest rate in southwest Santa Rosa, east Petaluma and Windsor, according to the latest Press Democrat sales report. ”

“The supply of homes for sale continues to grow because new listings come on the market faster than homes sell. There were 1,571 homes on the market at the end of April, compared with 766 a year ago. Last month’s total equates to a 4.1-month supply compared with a 1.5-month supply a year ago.”

“Pricing is more important and negotiating is increasingly common. ‘What we’re going through now is a necessary adjustment with slowing sales and some downward adjustment in prices. I’d say right now it’s just going through a nominal adjustment,’ said Scott Stevens, an agent who has sold homes in the county the past 18 years.”

“Wherever buyers look, what they want is value, and that means homes in good condition at competitive prices. Those factors were less important during the recent three-year run of record sales and price increases.”

“Lots and lots of interested buyers have looked over a home on Wieling Way in Petaluma since it went on the market a month ago. But none have made any offers. A year ago, buyers were bidding up prices and homes usually sold in a couple of weeks. But things have changed. Today, homes are staying on the market longer, even attractive ones like the house on Wieling Way.”

“‘It’s had a tremendous amount of traffic. The feedback has all been positive,’ said Kathy Gomes-Feickert, the agent with the Petaluma listing. ‘They’re taking a little more time to do some shopping. There’s been more inventory than probably we need at this point.’”

“‘In the Windsor market, for quite a few years it was put it on the market and wait for the phone to ring,’ said (agent) Rob Zielske. ‘My time to accepted offer was two weeks. Now it’s over 45 days.’”

“The rate of price increases has slowed considerably in many of the county’s submarkets. Prices even went lower in a few areas during April. For instance, the same Windsor home that sold for $689,000 a year ago likely would go for about $630,000 now, Zielske said.”

Some reports on the questionable condo craze. “As the condo market cools, year-over-year sales of existing condos and co-ops were down 2% in March, some developers are trying a new tactic to entice buyers. Taking a cue from the boom in hotel condos, where developers combine residential units with hotel rooms, they are signing on big-name restaurants and chefs, opening trendy bars and building clubs on the property.”

“Putting nightclubs and restaurants in condos could have some drawbacks. Diners and clubgoers won’t be able to access the residential floors, but crowds and rowdy drinkers could get in the way of a good night’s sleep.”

“Ownership doesn’t always have its privileges. Vegas 888 plans to offer residents full access to its clubs, but some properties are reserving the right to enforce a tight velvet rope. Condo owners may pay $4 million, but letting them all into the club could hurt the rep. ‘We have disclaimers saying there’s no guarantee that you’re going to be able to get in,’ co-owner Kevin Venger says.”

“While all eyes have been focused on the downtown Chicago condominium market, condo construction has been booming in the suburbs as well. For the year ended March 31, there were 19,000 permits for multifamily homes issued in the 14-county area, compared with 11,500 permits in the year ended March 31, 2005.”

“The Metrostudy survey indicates there are 55,000 condominium units in planning and zoning stages in the 14-county region. The proposed units represent a four-year supply. Analysts have expressed fears that builders are putting up too many homes, and that orders are not keeping up.”

“About 5,400 people now live in downtown Austin, about one-third of them in seven new condominium and apartment projects built in the past five years. There are at least 16 more residential projects in the pipeline, which are expected to add about 7,400 more residents to downtown.”

“There also are a growing number of transplants from the East and West coasts, especially California. Buyers from California account for about 15 percent of residential sales in and around downtown, said Kevin Burns.”

“In 2002, Glynn and Renata Turquand sold their house in Clarksville with a yard and garden and moved with their 6-month-old daughter to a 10th floor unit in the Nokonah, which was one of downtown Austin’s first condominium towers. Yet as much as the couple likes downtown living, the lifestyle may be temporary, he said. When their daughter reaches kindergarten age, his wife will push for a traditional house. ‘Five years from now, she’ll get what she wants,’ he said.”

“Despite all the downtown projects in the pipeline, Todd Camp said he isn’t worried about a glut causing his condominium to lose value. ‘So many people are coming to Austin that I’m not concerned at all about depreciation,’ said Camp.”

“Not everyone, though, is happy about the changes taking place downtown. ‘It was hidden and tucked away when I moved here, quaint and peaceful,’ said Susan Speyer. But now, with a 22-story condominium tower and a hotel slated to rise next door, she says it’s time to sell. ‘That’s not why I moved here,’ she said. ‘It’s not quaint seclusion anymore.’”

From Tucson, Arizona. “Still deciding whether to buy (a condo conversion) is 12-year resident Herb Michaelson. He said he’s satisfied with his ground-floor unit, ‘but when I think of condo, I think of something with amenities, like a doorman. You get the advantage of a good location, but it’s still more an apartment than a condo.’”

“Location may be crucial to the survival of a conversion product, said housing industry analyst John Strobeck. With an abundance of homes on the market, he said only the Catalina Foothills is sustaining buyer interest. ‘The others are falling flat on their face, right now,’ he said. ‘Selling conversions in this market is going to be tough.’”

“(Commercial broker) Art Wadlund said the purchase and conversion of apartments is, more or less, over in Tucson. ‘This was a one-year phenomenon,’ Wadlund said. ‘Everything that was going to be purchased for conversion has already been bought.’”

“With 10,000 to 11,000 new homes sold in Tucson in a year, Wadlund said it will take two or three years to sell all of the condo units that are now available. ‘This is a cyclical business, so whether it’s two year, five years or 20 years, the time for this kind of thing will come around again, eventually.’”

What do you see in your housing market this weekend? Motivated sellers? Open houses? Builder incentives? “This weekend only, you can take advantage of ultra savings on hundreds of inventory homes in Virginia, Maryland, Delaware, New Jersey / New York!”

“Arora Hills in Clarksburg, Montgomery Co. Original price: $ 845,127, 72 Hour Sales Event Price: $744,990 Savings of $100,137. Paynter’s Mill, Near Historic Lewes in Sussex Co. Original price: $529,378, 72 Hour Sales Event Price $479,378, Savings of $50,000. Lansdowne on the Potomac. Original price: $1,089,990, 72 Hour Sales Event Price: $939,990, Savings of $150,000.”

Readers shared dozens of observations in the topics thread. Highlights, “I saw an open house sign yesterday at 5:00pm.”

“I saw at least 6 open house signs, yesterday at lunch hour between Belmont Shore and Downtown Long Beach. Probably broker open houses but there were a lot! There are condos buildings with maybe 12 units with 5-6 for sale signs out front on my daily commute.”

“Signs of slow-down topics: 1. Locally, I’m seeing construction slow down or stop entirely. Except for bulk earthwork, that is still being done. 2. Here’s a quote from my listing realtor, when I asked him why I didn’t see many open houses last week: ‘Open houses are becoming obsolete. With the growth of the internet in the real estate world, people have a lot of information at their fingertips and see no need to go out on Sunday afternoons to look.’ Is the open house obsolete?”

“In my Rhode Island surburbs, the local weekly newspaper posts real estate closings. Last year at this time we saw about a half-dozen per week. This year: two weeks ago: 4. Last week: 0. This week: 0. Quite a trend!!”

“Realtors getting very snarky here lately. Have had to have very pointed conversations with them to put them in their place. I smell fear!”

“There are several sites that have slowed down or stopped all together within 6 miles of my home. It is quite a turn of events. Some of these projects stopped at the state where they were grading the lots, some of them the buildings are half complete, and have not been worked on in about 2 months. This is both residential and commercial buildings. I hope they at least finish them.”

“While driving around my metro area, I’ve noticed something I wonder if people are seeing elsewhere. In established neighborhoods, things look pretty normal and everything is nicely kept up. Almost no homes for sale. Neighborhoods that have gone up in the past ten years or less (i.e., younger families)… for sale signs everywhere.”

“Seeing the same thing here in Madison, WI. Established neighborhoods look normal. Newer ones have an inordinate number of for sale signs.”

“We live in North County San Diego, and the newer developments definitely seem to have more turnover. Anecdote: when we were doing ‘bubble monitoring’ in one new development in 2004, I asked the salesperson some questions about the loans offered by the homebuilder financing arm. When asked what the 30 yr FRM rate was, he just stared at me blankly and said, ‘Gee, I have no idea. Haven’t seen anyone use one of those in months.’ Again…this was mid-2004, hot, hot selling season; and nobody was using these loans. How much are these places going to hurt?”

“In my Reno neighborhood (the subdivision is about six years old), between 5-10% of the houses are for sale at any one time. I know of only one house that has been foreclosed upon.”

“Phoenix is firmly in the 46,000 camp at 46,292 (zip). I see a trend; the records fight the increase until each Friday, and then they cross into the next thousand grouping. Phoenix is clipping along at about a 1,000 increase/week.”

“It’s the same pattern here in Northern Virginia. Realtors like to list starting Wednesday and accelerating toward the end of the week. Then there is a peak on Saturday, and then some contracts over the weekend take down the numbers a little. But not enough not to make a higher high the following weekend. It has been this way *every single week* since I started keeping track January 1, 2006.”

“I’ve also been following Ashburn, VA a little bit. It’s in Loudoun County, VA, which has been one of the fastest-growing counties in the U.S. in the last five years. 45% of the total listings have now been reduced. About two months ago, that number was about 35%.”

Readers are looking for new ways to describe the housing bubble. “WE NEED NEW CLICHES!”

“I recently suggested: ….death spiral.

Betamax replied with: I like the term ‘cascade failure,’ but death spiral works too.

I did my best Steve Martin with:

Alternative: Heterodyned Hell Hole?

Technical: Event Horizon?

Literature: Restaurant at the End of the Universe? Death on Denial?

Musical: Highway to HELOC? Saved by Zero?

Political: Giant Sucking Sound?

“There’s a lot more talented people out there. We need more catch phrases.”

Another said, “A name for the category of sellers who refuse to see the obvious fact that nobody wants to pay their ridiculous price:”

‘Not-giving-it-awayers’

“They are adamant that their price is right, and if the agent would just advertise more, they’d probably find the buyer.”

“P.S. I could spend a million dollars on advertising every week, but if the price ain’t right, it isn’t going to sell.”

And another replied, “I’ve been using the term ‘bubble bitch’ instead of FB’er as I feel that the mental image of a underwater borrower with some bankers popsicle buried up his backside for the next 20 years (and every day is another thrust) more fully describes that situation (and it rhymes).”

Some reports on construction employment in California. “Construction hiring in San Diego bucked a statewide trend that saw a loss of 8,300 construction jobs in April from one month earlier. That comes on the heels of a loss of 9,400 construction jobs in March.”

“‘I suspect we’re going to lose a couple hundred thousand construction jobs over the next two years,’ said Christopher Thornberg, an economist with the UCLA Anderson Forecast. ‘The housing market is clearly braking right now. I think 200,000 might be conservative.’”

“Statewide unemployment rose a tenth of a point to 4.9 percent in April, while total payrolls fell by 2,600, the Employment Development Department said Friday. The month before, California lost 10,800 jobs, ending a streak of nine straight monthly job gains.”

“The Sacramento area defied the state trends. Unemployment fell a tenth of a point in April to 4.6 percent, as the region added 3,000 jobs despite a fairly weak showing from the construction industry.”

“Howard Roth, the state’s chief economist, acknowledged that the housing market is slowing, and it’s likely that California will see a dropoff in the construction industry regardless of the weather. Roth and others said they believe other industries will compensate for the slowdown in construction.”

“State officials blamed at least some of the two-month decline on rain. But that explanation did not quell concerns that the end of the housing boom was slowing California’s economy and could eventually spell trouble for the state government’s ambitious spending plans.”

“Economists said it was too early to tell whether California was an outlier or on the leading edge of a broader housinginduced economic slowdown. The state led the nation’s housing boom five years ago, so it wouldn’t be surprising if it led a housing downturn as well.

“Friday’s jobless report left little doubt that the exuberance in housing is ending. On the heels of a 20% drop in home-building permits in the first quarter, the state’s construction sector shed jobs in April, leading five sectors that reported losses.”

“Most economists had anticipated that job growth would begin slowing as rising interest rates and high prices cooled the housing market. But the declines came as a surprise. ‘Most of us thought that the minus 13,400 [in March] was a blip,’ said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.”

“‘What we’re looking at now is two months of small job losses,’ he said. ‘It’s unexpected. If any part of it is real, it’s a very serious signal. I think we’re into a slowing economy because people are getting more cautious in spending,’ he said. ‘They are facing higher interest rates. They are facing higher energy prices…. We’re moving into some head winds.’”

“In Southern California, the locales that saw the greatest job growth in the home construction boom are keenly feeling its falloff, said Lisa Grobar, an economist at Cal State Long Beach. In Riverside, San Bernardino and Ventura counties, construction employment grew less than 3% in April on a year-over-year basis, down from more than 9% a year earlier, she said. Orange County’s building job growth dropped to 3.5% in April from 7.3% a year earlier.”

In Business Las Vegas reports on the housing bubble. “With the number of single-family houses listed for sale reaching an all-time high, the way real estate agents conduct their business will have to change, those in the industry said. In April 2006, the number of single-family houses listed for sale in the MLS reached 18,467. That compares to early 2004 when there were 4,000 or fewer houses on the market at any given time.”

“Of the 18,467 listings in April, about 17,000 were active listings, meaning the balance were contingent or pending sales, said Linda Rheinberger, president of the Greater Las Vegas Association of Realtors. ‘We do have to sell differently; not so much at a discounted price, but giving similar incentives as homebuilders are giving, or contributing to closing costs,’ she said.”

“Real estate agents also need to be cognizant of the new-home inventory, which real estate expert Larry Murphy puts at about 4,000 houses and condos and another estimated 6,000 converted condos. ‘Whenever a market changes you have to educate sellers to the realities of the marketplace,’ he said. ‘Their mindset is still last year.’”

“The reason for the large amount of resale inventory is in part because of investors unloading properties they bought in 2004 and 2005, said Dennis Smith, president of Home Builders Research Inc. ‘We’re still in that overhang, or hangover, period of the investors,’ he said.”

“The area’s transient population along with people hoping to cash in equity to move up or move out also are factors, Smith said. Another reason for the increase in inventory is an increase in foreclosures and defaults, a category that was almost nonexistent two years ago, (broker) Mike West said.”

“The change in the market’s inventory levels and the volume of sales may be a shock to some agents who only have experienced the Las Vegas housing market at its peak, Smith said. ‘There’s going to be years where income levels are extremely high and then there’s going to be extremely low years,’ he said.”