The Housing Bubble

The California realtors have the April numbers out. “Existing home sales decreased 21.4 percent compared with the same period a year ago, the California Association of Realtors reported today. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in April 2006 was 5.6 months, compared with 2.4 months (revised) for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 84.5 percent, or 339 out of 401 cities and communities showed an increase in their respective median home prices from a year ago.”

“In Los Angeles, sales were down 12.8 percent from a year ago. In Orange County, sales were down 11.4 percent in the month and 33.2 percent in the year. In Riverside/San Bernadino, sales were down 12.9 percent in the month and 23 percent in the year.”

The Desert Sun. “The Coachella Valley housing market in April continued in its ’soft landing’ pattern of the past several months. The 1,009 homes sold was down 30.3 percent from a year ago, according to DataQuick. While still showing more energy than some other Southern California markets, unsold inventory in the valley, currently at 7,497 properties, is well up from year-ago levels.”

“‘Sellers have to be flexible, but buyers still have to be realistic,’ said Greg Berkemer, executive VP of the California Desert Association of Realtors. ‘I’m not sure people realize how much of an equilibrium we’re seeing here.’”

“Contributing to the unsold list, he said, are properties entering the MLS that were previously listed only as for sale by owner; houses being put on the MLS by new-home developers; and homes being listed by investors who weren’t able to ‘flip’ them as quickly as they had hoped.”

“The current situation is frustrating to investors like Cathedral City resident Wayne Biswurm. ‘As an investor, I’m not really happy about the situation right now,’ Biswurm said. ‘There’s too much supply and not enough demand.’”

“The valley and all Southern California regions saw annual drops in their property sales counts. Ventura County sales were down more than 41 percent from a year ago, and the Southland as a whole was down more than 21 percent.”

The Massachusetts realtors have the April numbers out. “Housing demand continued to ease across the Bay State last month as rising mortgage rates, higher energy prices, and a steady increase in the inventory on unsold homes led to a slower sales pace for single-family homes and condominiums in April, according to a report released today by the Massachusetts Association of Realtors.”

“Sales of detached single-family homes fell to their lowest April level in five years, declining 9.9 percent over the past year from 3,628 homes sold in April 2005 to 3,268 this past April, while condo sales decreased 10.3 percent over year ago levels.”

“The more deliberate approach on the part of buyers is evident from the larger inventory level and longer listing time witnessed this April. Over the past year, the number of detached single-family homes and condominiums listed for sale has increased by 38.6 percent, from 47,066 properties on the market in April 2005 to 65,232 this April.”

From the Talking Points. “The 3,268 homes sold last month is the lowest April sales total in five years, dating back to April 2001 when 3,217 detached homes were sold. Historically, however, April 2006 ranks as the tenth busiest on record for home sales during the month of April, an indication that sales activity has merely returned to more normal levels.”

“The 5 percent decline in home sales between March and April is unexpected and is further evidence of today’s strong buyer’s market, in which buyers are exhaustively searching the market for the right property and refusing to spend beyond their budget.”

“The last time sales fell from March to April in Massachusetts was more than a decade ago, in 1995, when sales declined 23.3 percent from March to April, following the implementation of strict, new Title 5 septic regulations.”

“The supply of detached single-family homes on the market rose for a 14th consecutive month in April, climbing 30.4 percent over the past year from 32,710 homes for sale in April 2005 to 42,667 this March. Inventory, as stated in months of supply, also rose steadily from 9 months last April to 13.1 months of supply in April 2006.”

“The number of condos for sale has increased 57.2 percent in the past year, from 14,356 units last April to 22,565 in April 2006. Inventory, as stated in months of supply has risen, climbing to 13.4 months of supply this past April from 7.6 months of supply in April 2005. In addition, condo listings have increased 9.8 percent from March when there were 20,549 condo units on the market and 11.9 months of supply.”

“With demand for condos easing last month, the statewide median selling price for condominiums declined for the first time 88 months in April, sliding 2.5 percent to $268,000 from $275,000 in April 2005. The last decrease in condo prices on a year-to-year basis was in December 1998. The median price of $268,000 is down 6.9 percent from the record high median selling price of $287,900 set in July 2005.”

“‘The rapid price appreciation of recent years has given way to a period of relative price stability, which is good for buyers since it will allow incomes to catch up with home prices and help offset the recent rise in mortgage rates,’ said MAR President David Wluka. ‘Today, pricing is more important than ever. Homes priced right are selling, while those that are overpriced are not,’ he said.”

“Talk of a housing ‘bubble’ in the local market also prompted some buyers to stop house-hunting all together until just a few weeks ago, and that’s led to some softening in demand.”

Some housing bubble news from Wall Street and Washington. “Ryland Group Inc. became the second home builder this week to lower its 2006 profit forecast, and analysts tracking the sector expect more negative pre-announcements as the housing market cools. The Calabasas, Calif., company late Wednesday reported that second-quarter home sales are running 35% lower than last year’s.”

“This is the second time Ryland has reduced its profit outlook for 2006. ‘We do not expect Ryland to be alone in announcing sharp declines in orders and [we] expect more preannouncements in the coming weeks,’ wrote analyst Daniel Oppenheim. ‘It appears to us that Ryland’s business strategy of holding the line on pricing at the expense of volume in order to protect margins is leading to [worse-than-expected order declines] in today’s more competitive environment,’ said (analyst) Carl Reichardt.”

“Analyst Gregory Gieber noted Ryland is the first builder to guide to a year-over-year decline in per-share earnings for 2006. The company’s second-quarter earnings estimate is less than what its backlog of homes awaiting construction would indicate, ’suggesting that Ryland has seen a surge in cancellations,’ said Gieber.”

“Three of the scariest words in economics used to be ‘inverted yield curve.’ The inversion early Wednesday was different than the inversion that occurred late last year and early this year, when the 10-year Treasury yield fell below the yield on shorter-term Treasury securities.”

“Wednesday’s inversion came as the 10-year yield fell briefly below the fed funds rate, the Fed’s short-term rate target, currently 5 percent. It was the first time that’s happened since April 2001, the last time the country was in a recession.”

“Under scrutiny for questionable accounting practices beginning in 2004, mortgage giant Fannie Mae quietly tried to turn the tables on its federal watchdog by flexing its lobbying muscle and enlisting congressional allies to fire back at investigators, according to a report.”

“In particular, the lending giant won help from Sen. Kit Bond. Twice in 2004, Bond did the company’s bidding by asking the Department of Housing and Urban Development’s inspector general to investigate the Office of Federal Housing Enterprise Oversight, the HUD agency that was investigating Fannie Mae at the time.”

“The revelations about Bond’s involvement in the issue were tucked into a 340-page report Fannie Mae’s federal regulator released Tuesday before announcing that the lending giant would pay $400 million in fines.”

“‘I think the company at the highest levels thought that the HUD Inspector General’s report would discredit or show the lack of objectivity in the OFHEO report in September or at least the preliminary report,’ Duane Duncan, Fannie Mae’s top lobbyist, told investigators, the report said.”

“OFHEO investigators found on Fannie Mae computers a draft that was nearly identical to the Bond letter but was dated two weeks before the actual letter was sent, according to the report. Duncan confirmed in testimony that Bond’s letter was sent at Fannie Mae’s request.”

“Washington Mutual will lay off about 550 workers this summer at its regional operations center in Baymeadows. The local layoffs weren’t the only ones announced Tuesday. ‘We also announced 850 additional jobs [will be cut] for the same unit for a facility north of Seattle,’ Nova Barnett said.”

From the Associated Press. “The median price of homes sold in April rose 4.2 percent from April 2005. That represented the smallest year-over-year price gain since September 2001. Sales of condominiums fell 2.7 percent to an annual rate of 839,000 units.”

“The sales price for condominiums fell by 0.2 percent, the first year-over-year price drop since the spring of 1995.”

“For April, the total number of unsold homes hit a new record of 3.38 million units. ‘Inventory levels are simply out of sight,’ said Joel Naroff, chief economist at a private consulting firm. ‘Something has got to give and that is likely to be prices.’”

The Florida realtors have the April numbers out. “Housing sales plummeted last month compared to the previous April, according to numbers today from the Florida Association of Realtors.”

“A total of 16,392 existing single-family homes sold statewide last month, a decrease of 31 percent from the 23,844 homes that changed hands during the previous April, according to FAR. Looking to Florida’s existing condominium market, sales of existing condos also decreased in April, with a total of 5,556 condos sold statewide compared to 8,775 in April 2005 for a 37 percent decline.”

“Among the state’s larger markets, the Orlando area reported 2,491 existing homes sold last month compared to 3,375 homes sold in April 2005 for a decrease of 26 percent.”

“The median price of an existing single-family home sold last month by a Realtor in Collier County was $503,500, down from March, when the median sales price was $505,800. The number of housing sales fell sharply last month compared to last year. The Realtor association said there were 274 single-family home sales, which is down 45 percent from last April.”

“In Lee County, sales of single-family homes dropped 28 percent year over year. Condo sales in Lee County dropped 59 percent.”

“South Florida’s housing rut continues. Palm Beach County’s April median of $386,500 is down nearly 2 percent from January, while Broward’s median of $360,600 fell nearly 3 percent. Miami-Dade County’s median price of $374,500 also fell slightly since the beginning of the year.”

“Meanwhile, home sales plummeted across South Florida in April compared to April 2005. Sales fell 43 percent in Palm Beach County, 37 percent in Broward and 31 percent in Miami-Dade. Sales of existing condominiums dropped 50 percent in Palm Beach County.”

“Broward’s condo sales fell 37 percent. Condo sales in Miami-Dade fell 25 percent.”

The realtors association has the April numbers out. “Total existing-home sales, including single-family, townhomes, condominiums and co-ops, slipped 2.0 percent to a seasonally adjusted annual rate1 of 6.76 million units in April from a downwardly revised level of 6.90 million in March, and were 5.7 percent below the 7.17 million-unit pace in April 2005.”

“‘Right now, the numbers we are seeing are soft-landing numbers,’ Lereah said. However, he said the housing industry was closely watching the growing inventory of homes for sale. There were a record 3.38 million homes for sale in April.”

“Existing home sales were down in the four regions of the U.S. Demand fell 3.7% in the Midwest, 1.4% in the West, 1.9% in the South, and 0.8% in the Northeast.”

“The housing market peaked in August, said David Lereah, chief economist for the real estate group. ‘This may be the bottom. It appears May is a little better.’”

“Half of the country is cooling and half is heating up, Lereah said. Florida, California and Arizona are cooling, with inventories building up and prices beginning to fall. On the other hand, markets in Texas, the Carolinas, Ohio, Utah and New Mexico are gaining momentum.”

“Lereah continued to predict a soft landing for housing, but cautioned that the market is at a ‘delicate juncture.’ His group is closely watching inventories in the rapidly cooling markets.”

“Condo sales fell 2.7% in April to a seasonally adjusted annual rate of 839,000. Sales of single-family homes dropped 2% to 5.92 million annualized.”

“‘Existing owners in many cases are not willing to accept sizable reductions in their asking prices,’ Lynn Reaser, economist at Bank of America. ‘It depends on the particular set of circumstances but in this cycle we could see more of a price adjustment take place later this summer and into the fall.’”

“Federal Reserve policy makers are expecting a gradual cooling in the housing market to help relieve inflationary pressures, which may allow them to stop raising interest rates. ‘It was critical to get the housing market slower to get some froth out of the economy, and it appears that is happening,’ Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto.”

From the NARs’ PDF file; US resale inventory: in millions.

2.270..2003

2.224..2004

2.474..Apr. 2005

2.556..May 2005

2.678..June 2005

2.756..July 2005

2.841..Aug. 2005

2.772..Sept. 2005

2.868..Oct. 2005

2.924..Nov. 2005

2.846..Dec 2005

2.883..Jan. 2006

2.985..Feb. 2006

3.198..Mar. 2006

3.383..Apr. 2006

The press reacts to the latest housing data. “The market for new housing showed a mild uptick last month, the government said Wednesday, but most analysts said they aren’t buying any signs of improvement. Their main concern: The inventory of new homes sitting on the market rose to a record high.”

“‘The inventory is the more important thing,’ said Scott Anderson, senior economist at Wells Fargo & Co. ‘We are looking at it as a leading indicator, which tends to suggest building will slow as we go forward. We think the market is cooling down.’”

“‘If you look at the trend, housing demand is definitely weakening,” said Paul Kasriel, (economist) at Northern Trust Co. ‘At the same time, supply continues to grow. That is not a good situation for home builders and home sellers. There is an index of home builder stocks that peaked in July 2005 and is plumbing new lows. It’s happening because of this excess supply of new housing.’”

“Sales are slowing in the Chicago area, which has been the most robust market in the region, analysts said. Contracts for new suburban houses are down anywhere from 12 percent to 25 percent compared with a year earlier, and there has been a corresponding rise in incentives to get more buyers into sales offices, according to local analysts.”

“‘We had thought the incentives toward the end of last year would end,’ said Tracy Cross, president of a real estate analysis firm based in Schaumburg. In the key spring selling months of February, March and April, incentives usually drop off, Cross noted, but not this year. ‘The incentives are still there. That’s unprecedented,’ he said.”

“‘There just doesn’t seem to be any urgency to buy,’ said Phil Walters, for Cambridge Homes, a division of D.R. Horton Inc. ‘There are a lot of deals out there and buyers are shopping around a little. It has hurt the industry as a whole,’ he said.”

“Peter Schiff, president of a brokerage firm, said sales of new homes are coming at the expense of existing home sales as buyers respond to aggressive incentive offers builders are using to move unsold homes. Once existing homeowners realize they will have to lower their asking price to make a sale, he said, this could cause a sharp drop in sales prices.”

From NBC News. “In the first three months of this year, a record number of homes were for sale in Massachusetts. That helped newlyweds Elizabeth and Joseph DelGuidice get a 1,300 square foot home in Plymouth. ‘Being patient and watching and waiting saved us over $30,000,’ says Elizabeth.”

“Bidding wars are being replaced by price cuts. ZipRealty reports the following sale price reductions: 28 percent of the homes in Los Angeles County, 35 percent in Miami, 38 percent in Phoenix, 43 percent in Boston. As the housing bubble loses some air in these markets, the balance of power is at long last shifting to the buyer.”

“Why? Along with mortgage rates, in once hot markets, the number of homes for sale is on the rise. ZipRealty reports the following increases compared to one year ago: 166 percent more in Los Angeles County, 266 percent more in the Miami area, 394 percent more in Phoenix.”

“It was a blistering 97 degrees in Phoenix on Wednesday, but for home sellers here, there’s a distinct chill. Bob and Barbara Grey bought a suburban home with a waterfall, swimming pool and a putting green, but still haven’t sold their old house. It’s been on the market 126 days.”

“‘Nobody’s even negotiated a terrible price, that we would say ‘are you kidding?’ says Bob. ‘I don’t even have that.’”