The Housing Bubble

Even in Oregon, the familiar signs of a slowing market are apparent. “Builders are easing back on the record-breaking rate of new home construction in some of Oregon’s hottest real estate markets. Take Medford: The city issued roughly a third of the permits for new single-family houses last month as a year ago.”

“‘And that’s good. Because this market was overheated,’ said (builder) Randy Jones of Medford.”

“Statewide, anecdotal evidence from title companies suggests that builders aren’t recording as many new lots, said Scott Barrie, government and political affairs director of the Oregon Home Builders Association. ‘It could signal a shortage of lots for the future, and it could mean a slowdown for the future,’ he said.”

“In Bend, nobody is slamming on the brakes yet, though builders apparently have started easing off the accelerator. While the number of permits issued by the city jumped 42 percent in the first 10 months of fiscal 2004-05 from the previous year, they have grown by just 3 percent so far this fiscal year.”

“At one point last year, Bend was approving about 10 times the number of new single-family homes than was San Diego, a city twice its size.”

“In both Bend and Medford, builders cite the lack of availability of bare dirt as a limit on new construction, though rising interest rates and cooling housing markets also play a part.”

“Jones estimated that new home construction is down 30 percent from last year across the Rogue Valley. That corresponds with statistics from Jackson County showing home permits down nearly 25 percent so far this year.”

“‘We’re actually finishing a few houses before they sell,’ said Jones, whose company builds high-end homes and residential subdivisions. ‘That hasn’t happened in a couple of years.’ The same is true in Central Oregon, Tim Knopp, director of the Central Oregon Builders Association said.

“The number of homes sold has dropped for 13 months in Jackson County, said Medford appraiser Roy Wright, who compiles monthly real estate statistics. Countywide, housing inventories, the number of homes for sale at any time, are up about 169 percent.”

“‘The home sales start dropping off first, and then it takes awhile before the construction people get wise,’ Wright said. ‘Once the inventory starts getting down to a reasonable amount, then you’ll start to see the building go back up.’”

“Outside of Bend in rural Deschutes County, the building boom continues. It’s the same for Hood River County, where permits were double what they were for the first four months of last year. ‘They are still building every place they can put a house,’ said Kim Salvesen, board member of the Mid Columbia Association of Realtors.”

The Times Argus has this update on Vermont. “After five years of record climbs, Vermont’s housing market appears to be leveling off. Properties are starting to spend more time on the market, for one thing.”

“The additional housing stock has allowed buyers to be a little choosier, according to Kathleen Sweeten, executive VP of the Vermont Real Estate Information Network. ‘What a difference a year can make. Buyers don’t have to rush in and make an offer now. They can be more selective.’ Her opinion was borne out in conversations with Realtors around the state.”

“Realtor Jim Watson said the impact of the additional housing stock is easy to see in Rutland, where the average time for a home to sell last year was 90 days. Now, a home spends an average of 150 days on the market, he said. ‘For every buyer, we now have more inventory sitting in that price range,’ he said.”

“That change has helped shift the balance of power away from sellers who have had all the advantage in recent years. ‘It’s more of a neutral market,’ he said. ‘It was a seller’s market until last July, but it was crazy, it couldn’t be sustained. The change came in July; all of a sudden, we knew what the value of properties was again.’”

“Pricing properties has been an imprecise science for Watson and other real estate agents, because sellers have been able to name their price for years now. Now, some sellers are having a hard time giving up their high expectations, some agents said.”

“‘People have a very inflated idea of what their properties are worth now because everything has been so high-priced the last few years,’ said (broker) Carol Ellison in Barre. ‘I’ve done assessments recently where people have seen ads of what other people are asking and they expect a lot more,’ she said. ‘But a lot of the people who are asking more are the ones whose property is just sitting on the market now.’”

“She said, ‘The market has been so inflated that now that it’s stabilizing, it’s difficult to price property. I’ve never had a more difficult time pricing property. Call me in July. Right now, it’s in a state of flux.’”

The Arizona Republic has a couple of notes on the Phoenix housing bubble. “Home buyers are waffling as much over Sen. John McCain’s house as he is over running for president. The north-central Phoenix home has been on the market for seven months. So far, no takers.”

“The price on the 11,000-square-foot mansion was cut by a half-million dollars to $3.75 million earlier this year.”

“The high-end housing market isn’t slowing as much as the rest of the Valley’s home market so far. More than 800 houses across metropolitan Phoenix have sold for $1 million or more so far this year.”

“During 2005, about 1,800 sales of houses worth at least $1 million last year sold, according to the Arizona Regional MLS. In all of 2004, there were nearly 1,000 million-dollar home sales Valley-wide.”

“Real estate analyst RL Brown has gone code red on the Valley’s housing market. In his May newsletter released last week, Brown changed the background on his forecast from yellow to red. Yellow stood for caution.”

“Brown has done the color codes signaling his take on the market for the past few years. He has never gone red before.”

“Brown said the red signals the housing ‘market continues to deteriorate. Hopefully that condition and color will be short-lived.’”

The Wall Street Journal reports on efforts to sell the glut of condos. “At a party in Fort Lauderdale last month, guests in clingy cocktail dresses grooved on stage with singer Wyclef Jean. A week later, in Las Vegas, party-goers attended a reception hosted by actress Pamela Anderson. Last Tuesday night, a half dozen invited guests attended an exclusive Manhattan screening with the movie’s star, actress Meryl Streep.”

“The latest dispatches from the Hollywood glamour circuit? No, it’s real-estate developers wooing real-estate brokers and potential buyers of high-end condominiums. The growing glut of expensive condos is pushing high-performing real-estate brokers and deep-pocketed potential buyers by supplying them with coveted party invitations.”

“Developers hope to reduce the backlog of high-priced luxury condominiums before rival developers can flood the slowing sales market with even more new properties.”

“Last year the Icon Las Vegas condo development hosted a party on the planned condominium site that featured white tigers, fire-eaters and chocolate fountains. It wasn’t enough. That project died. Brokers who have been through the vicissitudes of the real-estate cycle say they’ve never been catered to quite like this before, but they are already getting a bit jaded.”

“In Fort Lauderdale, Las Vegas and Manhattan, an estimated 167,600 luxury units are due to hit the market in coming months. In all three markets, party budgets are going wild. Some event planners working for South Florida developers say their clients have tripled their spending as condo sales have begun to slow in recent months.”

“Developers say the parties are a bargain considering the prices of the condos, and they generate far better returns than dropping the prices of units does.”

The Miami Herald. “When many of Florida’s leading developers want to know what to build, ‘they ask Goodkin.’ As real estate prices jumped to new heights and South Florida development boomed, Lew Goodkin has become a cautionary voice, asserting that the market, and particularly the condominium market, is dangerously overheated because of speculators and investors. He’s warned that prices are inflated because too many purported buyers are actually flippers.”

“The veteran analyst is so convinced that he’s now advising clients who are pooling money to form so-called vulture funds. The aim: Buy land and condo units at depressed values to taking advantage of a tanking condo market.”

“Q: You have seen up and down cycles in the South Florida real estate market during your career, what happened in this latest boom cycle?”

“A: What happened is that real estate became an investment vehicle as opposed to shelter. There was speculation in some projects where more than 60, 70, 80 percent of the ‘buyers’ were speculators. Many of my clients were shocked by all the speculation.”

“Q: What will be the result of all this speculation you say has occurred in the condo market?”

“A: For the most part, multifamily is in the process of taking a big hit. It will be more than 10 percent in terms of price declines. The reason is that so much of the condo market sales were not based on real users. And if it’s not affordable to user demand, the demand will be so off that it will have to be reflected in significantly lower prices.”

“You can’t have something like this when there is not true demand, a run-up in prices like this will come back to haunt you.”

“Q: What about those who say the South Florida’s real estate market is different from other parts of the country? The fact South Florida draws buyers from Latin America or Europe.”

“A: I believe we have all of those things. But the punch-line is that is not what created this boom. What, did everyone just discover Florida in the last 15 minutes? South Americans buying in South Florida is something new? Florida has always had this appeal. There will be many people ready taking advantage of lower values when it surfaces, and it will.”

A television station in Hawaii reports it’s a renters market. “It’s been awhile since renters in Hawaii had anything to look forward to. High prices and strong demand had people scrambling for less-than-perfect places. But property owners say that’s changing in renters’ favor.”

“There’s been a definite change recently in the overall rental market. Fewer renters are knocking on the door, and landlords are having to try harder make a deal. Rentals used to be snapped up in a day or two. ‘I thought you put an ad in the paper and then that’s it, you’re done,’ said landlord Helen Rapoza. ‘You know, you do one ad and everybody lines up at your door and you’re done. OK, it’s not quite like that.’”

“Rapoza has been trying to rent a spacious 1-bedroom with a view near Punchbowl for weeks. Last year landlords had dozens of applicants with the first ad, not this year.”

“‘I think we entered the rental market right at the time that things started changing,’ Rapoza said. ‘I think basic economics, supply and demand. Supply and demand affects everything, so that has to be part of it.’”

“The number of rental listings in classified ads or popular online web sites is up between 30 and 40 percent. That puts some power back in renters’ hands.”

“‘I think there’s more negotiating than there used to be,’ Rapoza said. ‘Before it was, ‘This is our rent. This is what you get, period.’”

“Deals of one kind or another are popping up to lure applicants, from lower security deposits to newer appliances. ‘I’ve heard it to include utilities, and I’ve heard pets, pets is a big on,’ she said. Pets are OK here at Helen’s place… small ones, please.”

“‘We want to be good landlords and we just want to be able to help somebody out,’ she said. ‘We do want to cover our bills, that would be nice.’”

“That means $1,800 dollars here. ‘If it works, great, if it doesn’t work, well you know, you’ll see it on the market. We’ll sell it,’ she said. ‘Life is just an adventure, and you move on… or move in. Move in! Please, move in!’”