The Housing Bubble

It’s Friday desk clearing time! “Pulte Homes Inc. on Friday slashed its profit outlook for the rest of the year. ‘There’s a lot of inventory and the market’s slowing,’ said portfolio manager Thomas Leritz. ‘Consumer sentiment is negative on housing,’ he added. ‘Every day you look at the newspaper, you read a magazine or watch TV, you see some comment about how the housing market is a bubble.’”

“A group of condominium buyers that bought into a canceled high-rise project have filed a lawsuit against developer Related Las Vegas, saying the company violated the purchase agreements. The lawsuit, filed by 16 buyers from California and Nevada, argues that Related had no right to unilaterally cancel plaintiffs’ purchase agreements.”

From the Washington Post chat. “Alexandria, Va.: My townhouse has been on the market for 40+ days. The asking price was initially $465K, then after several significant reductions, it is now $405K and I simply can’t afford to go any lower. Although I get a lot of foot traffic and good comments from realtors, I’ve had NO offers, not even low-ballers.”

“It seems that the current slowdown has everyone spooked and no one wants to buy, even when it’s a deal. I’m afraid the high ‘Day on Market’ is further scaring people away. What do I need to do to ‘roll back’ the DOM; does the listing have to be off the market for a certain amount of time before the DOM are reset in the MLS?”

“Maryann Haggerty: I don’t know the nitty-gritty on the MLS rules. I bet your agent does, though.”

And from Utah. “The housing market in the Cedar City area has skyrocketed during the past year, and residents may wonder why the home prices have gone up so high. ‘Everyone wants to live here because it’s a nice place,’ stock broker Joe Melling said. ‘People want to get out of places like Las Vegas and California.’”

“‘Seven out of 10 homes here are bought by people from California and Nevada,’ Mayor Gerald Sherratt said. ‘We’re just playing catch up to what’s happening around the country.’”

“‘In Ashland, Ore., rich people from San Francisco and other places in California bought it up and turned it into an exclusive community,’ Sherratt said. ‘The same thing could happen to Cedar City, and it could turn into just a place for the rich.’”

“Q: I’m remodeling a rental home that I plan to sell, but I’m worried that the housing market might go bust before I finish the renovations. Someone suggested I put it on the market before it’s finished, but I’m not sure this is a good idea. What do you think?-Seattle, Washington.”

“A: My advice is finish the renovation as quickly as you can (without botching it, of course) and then get that baby on the market. You’ll want to be especially careful about pricing it, though. Houses that languish on the market because they were overpriced to begin with can be difficult sell. Once buyers see the price being lowered, they figure its better off holding off to see if the price will come down further still.”

A Sacramento area television station has this report on short sales. “Lenders are reporting more home owners are defaulting on their mortgages. But before those defaults turn into foreclosure, some sellers are turning to short sales, if lenders agree.”

“Home owner Gloria Romero bought her three-bedroom home in North Sacramento last year but has to sell it. She has listed the home for $250,000 hoping to cover her mortgage balance. Thursday she received her first offer, $219,000.”

“So, Romero is turning to a short sale instead of letting the bank takeover the house. A short sale is when the lender accepts an offer that is less than the current balance. Not many lenders are accepting these negotiated transactions because it affirms the real estate market has settled from its accelerated growth that drove prices up in the first half of the decade.”

“(Realtor) Scott Williams says his office has gone from no short sales in seven years to nine such transactions in the last few months. ‘Back in the ’90s, I became the short sale guru in Sacramento and did several hundred of them,’ Williams said.”

“The realtor says he’s working with another home owner in Natomas who has to move and has received an offer of $399,000 for her home; about $60,000 less than what she owes on it. Like Romero, the home owner hopes the lender will agree to let the house sell for less than the mortgage balance.”

“Even though a short sale will become part of these homeowners’ financial history, Romero says it’s better than a foreclosure. ‘I don’t want my credit to be really ruined.’”

“There were 37 percent moremortgage defaults statewide in the first three months of this year compared to the same period last year. In Sacramento County, there were 1,140 defaults reported in the first quarter, 2006, and less than half as many, 738, last year at the same time.”

A reader sent in this article on Hawaii. “The Big Island’s real market is cooling down after experiencing some of its highest peaks in history. Between January and April, median home sales prices in West Hawaii have leveled off or declined up to $200,000, according to the Hawaii Information Service.”

“‘We’re looking at a recession,’ said Dave Lucas, a real estate agent since 1985. ‘We follow the mainland and we’re about six months to a year behind. The decline starts on the East Coast and moves west.’”

“Lucas said states that experienced ‘horrendous bubbles,’ such as Arizona, Florida and California, are now seeing a dramatic rise in for-sale inventories. He said the real estate market is influenced by radical emotional changes, primarily fear, greed and denial. Any of these unpredictable factors have the potential to shift the market in any direction, he said.”

“‘People (on the East Coast) get the first inkling of what policies are going to be,’ Lucas said. ‘Monetary policy is controlled in Washington and on Wall Street so they tend to see which way the wind is blowing first. Their markets have slowed significantly already. In the bubble areas the frenzy just tends to feed on itself until it shuts off.’”

“Richard Bell, a 25-year Kona resident, said history has taught him that West Hawaii real estate is on the decline, and price tags for homes on the market typically decrease 25 to 30 percent during these down cycles.”

“‘We’ve pretty much hit the peak,’ he said. ‘It was insane. I had my cracker-box home appraised for estate purposes and the appraiser set it at $420,000, as is.’ Bell’s home in Hillcrest has been on the market since Monday for $430,000. His wife bought the home in 1985 for $70,000.”

“‘What always happens is developers see the market jump and they overbuild,’ said Bell.”

“Unlike Lucas, 16-year Big Island Realtor Denise Nakanishi does not foresee any huge changes for the real estate market. ‘I hear people say it’s a buyers market but it’s more even for both sides,’ she said. ‘Nothing has happened to change anything except perception. Prices have receded, but they were too expensive anyway.”

“On the bright side, Lucas said West Hawaii’s growing economic base and strong construction industry supported by high-end real estate may help stabilize the real estate market. Nakanishi agrees with Lucas that a healthy construction industry will prevent any rapid declines.”

“Without these mitigating factors, West Hawaii could face a ‘hard fall,’ Lucas suggested.”

“Lucas recommends that prospective sellers should polish up their property and list the property at five percent lower than the lowest similar property on the market. ‘The bottom line is, you cannot have a vibrant, stable real estate market without jobs that pay well enough for people to purchase real estate,’ said Lucas. ‘When prices exceed the buyers’ ability to pay the mortgage then prices must come down.’”

A trio of reports on the New York housing bubble. “The moment of truth is coming sooner for New York real estate sellers, and sometimes it’s not pretty. Real estate agents are increasingly finding that sellers who hoped to make a killing on their properties need to inject their visions of profits with a dose of reality when they price their apartments, or go through the time-consuming process of marking them down.”

“‘You need to sit down and establish a relationship with the seller. They have to see that the market is in flux at the moment.’ says associate broker Eileen Richter. ‘One thing I tell them when the market gets a little soft is that I want them to be aware of the price I will take them to.’”

“For some agents, convincing sellers that it’s time to reduce a price, or that they shouldn’t ask for as much as they want in the first place, means confronting them with the cold, hard facts. If a seller really wants to sell his property, they’ll typically understand the wisdom of taking a more aggressive approach, said agent Pierre Moran. ‘I ask them: ‘you hired me to do what?’ ‘I can be Mr. Nice Guy, but you didn’t hire me to be Mr. Nice Guy.’”

“Moran is currently marketing one of just a handful of townhouses in Battery Park City, the original asking price: $3 million. Moran says original price was set by the owner against his recommendation, but it was what the seller wanted. ‘I prepared the guy up front as much as I could,’ Moran said. After two months with very little action, Moran reduced the price on the Battery Park townhouse to $2.75 million.”

“‘Will it sell for $2.6, $2.5? We’ll see,’ Moran said.”

“How prices are set and reduced are just as important as timing, brokers and agents say. If an apartment was priced at $850,000, reducing it by just $10,000 would probably be a waste of time, (broker) Jacky Teplitzky says. ‘I will not reduce it to $840,000 or $830,000. In my opinion, you are not going to get new buyers. If you reduce it in drops, it becomes a stale listing.’”

“Instead, she says she would probably take a listing that hadn’t gotten offers at $849,000 and reduce it to $799,000. ‘At the end of the day, the market is being made by the buyer, not by the seller,’ says Teplitzky.”

The Long Island Business News. “Local Realtors, in the middle of prime buying and selling season, say they’re working harder to sell 56 percent more homes than were on the market this time last year. ‘Everybody feels the change in the market,’ Mark Malsky said.”

“As the market changes, inventory is soaring as sellers attempt to cash out before buyers seize the upper hand. In April, the region’s total inventory, which includes Queens, topped more than 36,000, up 56 percent from a year ago. Suffolk homebuyers could pick from 14,951 properties, up almost 48 percent from 10,125 the year earlier. Nassau lists 10,532, up 58.6 percent from 6,641 a year ago.”

“Some buyers are holding out, convinced the much-discussed bubble is poised to pop and prices will plummet. They’re wrong, said Pearl Kamer, chief economist at the Long Island Association. ‘Prices are a little softer, but they’re not going over the cliff,’ she said. ‘Buyers have the mistaken notion that next week there’s going to be a 20 percent reduction in prices. That’s not going to happen.’”

“Sellers, however, remain enchanted by those eye-popping gains of late, and many are still holding out for what are now excessive prices.”

“The number of existing single-family houses sold in the Hudson Valley and Catskill regions year over year in April was down while prices continued to rise. According to New York State Association of Realtors spokesman Salvatore Prividera, Jr., the drop off in home sales in the local area mirrors what is going on statewide.”

“‘There is a slowdown in the number of sales, which is atypical for this time of year; usually in the spring and summer months, it’s very strong here in New York. Seasonally, the winter months tend to be slower,’ he said. ‘What you’re seeing in the Catskills and we’re seeing statewide is really a readjustment in the market.”

“Sales of existing single-family homes in April fell by 20 percent in Columbia County, by 50 percent in Delaware County, by 13 percent in Dutchess County, by 32 percent in Greene County, by 30 percent in Orange County, by three percent in Rockland County, by almost four percent in Sullivan County, by 20 percent in Ulster County and by 19 percent in Westchester County.”

The Denver Post reports on Colorado. “Prices of existing homes in the Denver and Boulder metro areas fell in the first quarter of 2006, the first time in at least 16 years. At least one expert attributes the decline to basic supply-and- demand imbalances.”

“‘People who are upside down on their mortgages are putting their houses on the market,’ said Mike Rinner, a real estate analyst in Englewood. ‘There are too many homes on the market.’”

“Soft home prices could stretch for several more months as excesses get worked out, especially in the lower end of the market, said Phil Storms, a real estate investor in Denver. ‘I would be worried about a bubble bursting if we had seen the same markets we saw in Florida,’ he said. ‘But we have had some slow markets for quite some time.’”

“If price declines continue, recent buyers who put no or little money down on their homes will find it increasingly difficult to sell them, warns mortgage broker Lou Barnes. Barnes also cited a building boom stretching along the northern Interstate 25 and E-470 corridors that is flooding the market with new homes. Those homes are undercutting the demand for existing homes, putting downward price pressure on older properties.”

“‘We are in worse foreclosure shape than Michigan is,’ Barnes said. The difference is that in Michigan, which is suffering from automotive layoffs, ‘nobody is building a lot of homes.’”

The Rocky Mountain News. “Steve McGuire, an agent who closely tracks the area housing market, said two culprits hurt home values: foreclosures and a record glut of unsold homes clogging the market. ‘I think we’re at the top of the list as far as foreclosures,’ McGuire said. ‘That is playing a big factor as far as home prices. Also, the inventory is going to continue to grow throughout this summer.’”

“He notes that last month there were more than 29,000 unsold homes in the Denver market, a record amount, and ‘now we have to be well over 30,000.’”

“Rising foreclosures and growing inventory are ‘just fueling the fire,’ McGuire said. ‘I expect that they are both going to continue to impact the market into the fall.’”

“Independent real estate broker Gary Bauer said, ‘there are some areas that will be showing negative growth.’ For example, Adams County, plagued by a large number of foreclosures, likely will see a drop in home prices, he said.”

The Florida press reacts to the new tax appraisals. “Property values in Palm Beach County have registered another record year, soaring by 21 percent over the 2005 tax roll, to $158 billion. Property Appraiser Gary Nikolits cautioned Thursday that the just-released tax roll estimate reflects last year’s property sales and appraisals. He said recent trends portend the close of an era of record-breaking real estate appreciation.”

“‘It’s the end of the rainbow,’ Nikolits said, citing rising interest rates and foreclosures.”

“Palm Beach County Administrator Bob Weisman attributes the increase to three factors: new and expensive construction, a large number of used homes sold last year, and commercial property not protected by the Save Our Homes cap.”

“Nikolits’ prediction of a drop-off came in stark contrast to his exuberance last year at this time. ‘It’s just been gangbusters all over the county,’ he said then. This time, he said: ‘We’re seeing evidence of a noticeable slowdown,’ although not of the bursting-bubble scenario. The slowdown is caused by rising mortgage rates and by overbuilding in some condo markets, he said.”

“Real estate investors may find good deals toward the end of 2006 as slow-selling condos are offered at price reductions, he said. That will draw buyers away from single-family houses, weakening house price appreciation, he said.”

“Nikolits said the greatest effect probably would be seen by condominium buyers, sellers and owners. ‘The condo market last year went nuts,’ he said. ‘Unfortunately, condos have been overbuilt. There are too many units out there with too many investor owners.’”

“Nikolits said rising interest rates would be particularly hard on speculators and others who bought property with no down payment or adjustable-rate mortgages.”

“Despite Hurricane Wilma and a year-end cool-down in the real estate market, Broward County’s tax roll grew faster than ever last year and now totals more than $157 billion. ‘Taxes are where government can really affect the cost of homeownership,’ Fort Lauderdale Mayor Jim Naugle said. ‘The mortgage gets paid off some day, but taxes are forever.’”

“The taxable value of Martin County’s real estate increased by almost 16 percent, according to a preliminary estimate released by Property Appraiser Laurel Kelly. But Kelly and other county officials warned that a recent slowdown in home sales is a sign that the once hot real estate market is cooling.”

“The commissioners also said they want to limit spending hikes, although county administrators estimated they would have an additional $16 million to spend if they maintain the current property tax rate. ‘We don’t need to spend all that,’ said Commission Chairwoman Susan Valliere. ‘I’m convinced that this is going to level off..so we need to be very frugal with our budget. The bubble will burst, I’m sure, sooner or later.’”

“More than 1,100 acres off State Road 50 in east Orange County will be put up for auction next month by a Utah investor described by the auctioneer as ‘a motivated owner.’”

“The ranch’s auction has been widely advertised, though the response so far ‘has been a little surprising,’ said William Bone, president of the National Auction Group. ‘I expected more, considering there can’t be many close-in, large parcels available in the Orlando area.’ ‘He’s a motivated investor and ready to sell,’ according to Bone. Bone’s company is handling several other sales on his behalf.”

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