The Housing Bubble

The housing bubble news is coming out of the southeast, fast and furious. “Investors owned a whopping 58 percent of the homes sold in Myrtle Beach in 2004, putting the Grand Strand at the top of a national list in the number of investor-owned homes. National analysts are concerned that cities with significant numbers of investor-owned homes could be in trouble if investors decide the market has peaked and unload their units.”

“The study’s data is based on 2004 numbers, the most recent that is available. ‘That’s a very high percentage,’ said (analyst) Ingo Winzer. ‘In 2005, my guess is that that was even higher. My guess is there is a surge in investor buying and that makes the market very risky. It presents the possibility that there will be price declines in the next few years.’”

“‘We have to replace that investor who wants rental income with an investor who wants a second home and appreciation,’ local analyst Tom Maeser said. ‘If we can’t find them, we’ll see a glut.’”

“That’s because condo-hotel units have reached prices that do not allow investors to turn a profit by covering their mortgages with rental income, Maeser said. ‘Everyone’ agents, developers’ seems to be talking about the more permanent-use second home type of unit versus the unit built for rental. Especially since you don’t have to be a rocket scientist to realize that you can’t cash flow a $2 million condo,’ he said.”

The Herald Tribune. “Much as they generally dislike the for-sale-by-owner method of selling a home, some licensed Realtors and agents do not always work within the MLS system, and some use FSBO tactics for their personal property. Katie Gerhardt, a professional realty appraiser who is a licensed Realtor decided to sell her home as a FSBO.”

“‘The market is really tough now,’ Gerhardt said. She has owned a house in Sarasota since buying it in a 1993 foreclosure proceeding for $38,000. Gerhardt is asking $269,000 and says she is ‘forced to sell.’”

“When she bought another home in 2004, she swapped her homestead to the new property, losing the $250,000 tax exemption on the Hawthorne home. As a result, the taxes have quadrupled from $700 to $2,800 per year.”

“(Realtor) Aida Bloomquist recently decided to sell a Southgate investment property she owns in Sarasota. She bought the 1,100 square foot property two years ago for $182,900. She is asking $264,900.”

“Bloomquist posted a FSBO sign, but after getting a media call about the property, she decided to list the house on the MLS. A Realtor as a FSBO seller might send the wrong message to consumers, she said.”

The Tampa Tribune. “Three months ago, Alex and Deena Fuertes decided to try to cash in while they still could. The couple asked $295,000 for their 2,000-square-foot Valrico home, $135,000 more than they paid two years ago, and signed a contract on a smaller pre-construction town home.”

“But the offers they’d hoped for didn’t come. They lowered the price several times, then decided to stay put. Now, the Fuerteses face losing their $10,000 deposit on the town home.”

“‘I was thinking money, money, money,’ said Alex Fuertes. ‘Now, I’m looking at it like it’s just not worth it. The market is so bad right now that everybody is trying to get something for nothing.’”

“There are now about 28,000 pre-existing homes on the market in Tampa Bay, nearly four times as many as in spring 2005.”

“As far as Alex Fuertes is concerned, buying and selling is just a matter of timing. If he were only trying to buy now, he said, he’d love the market and would low-ball sellers to get a good deal.”

“As a seller, though, he plans to stay out of real estate until it changes again. ‘We can’t complain because we could still make a pretty penny,’ Fuertes said. ‘But I didn’t want to go down that much. I know things will bounce back up in about two years, and I may sell then.’”

MarketWatch has this report. “A growing percentage of U.S. housing markets are “extremely overvalued” and are at risk of falling prices, according to a study based on government data released Monday by Global Insight and National City. In the first quarter, 71 housing markets, representing 39% of all U.S. housing, were deemed to be ‘extremely overvalued’ based on median sales prices, median income, population and historic values.”

“That’s up from 64 markets accounting for 36% of housing in the fourth quarter. In the first quarter of 2004, just 1% of housing was considered overvalued. When prices do fall from overvalued levels, they typically fall by about half the overvaluation, (economist) Richard DeKaser said. The correction usually takes three and a half years.”

“California and Florida accounted for 17 of the top 20 overvalued markets, economists at the two firms said.”

From Inman News. “The number of existing homes listed online for sale in the largest 100 metro areas in the nation grew 60 percent from May 2005 to May 2006, according to an analysis of homes listed online at the Realtor.com property-search site.”

“The survey, conducted by Corzen, a real estate research firm based in New York City, found that the inventory of homes listed in these metro areas grew from 1.3 million in May 2005 to 2.3 million in May 2006.”

“Median list prices were up 8.4 percent from May 2005 to May 2006, while ‘in some parts of the country … median asking prices showed steep declines, a clear sign of softening with the real estate market,’ Corzen announced today. List prices for existing homes dropped most in Florida, California, Massachusetts and Washington, D.C.-area suburbs in Virginia, Corzen also reported.”

“Charles Thibault, who conducted the county-by-county analysis, said, We do see significant decline in asking prices in certain counties, where the volume of available properties online has increased as much 400 percent. Thibault also reported that 75 percent of the counties in the company’s sample showed no change or increases in prices, suggesting that asking prices in overall market are not in a downward cycle … yet, he stated.”

From the Associated Press. “Low-ball bidders, persnickety buyers and cancellations are now the rule in once-hot housing markets.”

“Rising interest rates and sky-high home prices have cooled real-estate investment, ‘particularly in high-end markets in some juiced-up parts of the country where speculation was most rampant,’ said (economist) Mark Zandi.”

“Ara K. Hovnanian, CEO of homebuilder Hovnanian Enterprises Inc. said that real estate investors ‘have largely pulled out.’ ‘Investors were a bigger part of the market than many thought, including ourselves,’ said Hovnanian, whose company builds primarily in the Northeast. Would-be flippers are not only not buying new properties, they’re selling what they already own, adding to the record number of homes already on the market.”

“In suburban Philadelphia, where the inventory of unsold homes has soared, Zandi asked an agent months ago how anyone could get a mortgage for a home listed at $3.2 million. ‘They were almost snooty,’ he said. ‘The girl said, ‘People who buy these homes buy with cash.’ The house is still on the market, now listed at $2.8 million.”

“Most observers say housing prices will only slide dramatically if the Federal Reserve continues to raise interest rates. If it passes 7 percent, ‘then things get very tricky,’ Zandi said. ‘Many home owners will have trouble making payments. We’ll see significant mortgage credit problems develop.’”

“‘The higher mortgage payment may lead some overstretched owners to default on payments, adding supply to an already glutted market,’ said Mario Ricchio at Zacks Investment Research.”

Some housing bubble reports from the Twin Cities. “Twin Cities home sales for May were down from a year ago, as the housing inventory continued its record growth, the local Realtors associations reported Monday. There were 5,039 closed home sales in May in the 13-county metro area. That is down 9.3 percent from a year ago.”

“There were 5,749 pending sales in May, down 14.5 percent from 6,726 a year ago. New listings continued to soar in May, jumping 16.6 percent to 11,419.”

“Following several months of increased listings, there was a record 30,179 active listings on the market in May, up a staggering 43.4 percent from 21,048 a year ago. There were 5.39 listings for each expected home sale in June, up 71.7 percent from last year at this time.”

The Star Tribune reports on area foreclosures. “During the housing boom of the past five years, mortgage brokers flooded mailboxes and called homes offering once-exotic products. Such loans allowed people to buy more house than they could have afforded under traditional lending terms.”

“The first signs of trouble are showing. In Hennepin County, sheriff’s foreclosure sales totaled 1,042 in the first five months of 2006, up 62 percent from the same period a year ago.”

“In Minneapolis, Paul Weingarden noticed the first waves last fall. ‘My file count’s way up, and I don’t anticipate it going down anytime soon,’ said Weingarden, a lawyer. ‘A lot of these loans are adjustable-rate mortgages. Some are subprime mortgages, balloon mortgages, nothing-down mortgages. People are trying to buy more house than they can afford. And if there’s any uptick in rates, they run into problems.”

“‘Nobody ever thinks that things will go bad. Nobody thinks property values will go down,’ he said. ‘And everybody presumes their income is going to keep going up, and they’ll be able to handle anything that happens. That’s not always true.’”

“Kelly Casey and her family managed to save their Cottage Grove home from a foreclosure sale this month. But she’s not sure for how long. They swapped their 30-year fixed-rate loan for a three-year adjustable-rate mortgage with lower payments.”

“But after a rough stretch, they’re uncertain what will happen when their interest rate resets upward in February. ‘It is a good loan; it’s just that it’s an ARM, and when it’s up, I don’t know what that means,’ Casey said. ‘I don’t even understand my ARM loan like I should.’”

“Critics say lenders’ relaxed standards for loan applicants made the problem worse. No industry officials contacted would comment on whether underwriters will become stricter. But Rick Sharga, of RealtyTrac, had this to say: ‘They realize they made some bad loans, so now they’re starting to tighten up their underwriting standards.’”

“That could compound the problem, Sharga said. Now somebody who shouldn’t have had a loan, who is going into default, is not going to be able to qualify for the next loan.”

A trio of reports on housing markets that don’t get much attention. In Texas, “There was a time when multimillion-dollar oil transactions were as routine as burgers and fries. Then the boom went bust. The wheeling and dealing went away, as did the Midland Savings cafeteria and everything else in the 14-story building, and several others.”

“Now the boxy blue eyesore has a date with the wrecking ball. Midland is counting on tax dollars, creative investors and the desire of residents to live, eat and shop downtown.”

“‘No one wanted to be first. That’s what held them back for the last five years,’ said Colleen Fuglaar, a Midland High School graduate who now works for California-based RTI Properties. She and developer Robert Abbasi successfully bid $1 million for the vacant Vaughn Building, which they plan to convert to loft-style condominium units with retail space on the ground floor.”

From the Billings Gazette. “Amid talk of a plunge in real estate prices after several years of steep appreciation, a real estate agent and a local economist say that’s not likely to happen here. ‘There are probably areas of the country that have had some changes, but we certainly don’t have any busting bubbles in Cheyenne,’ said the Realtor, George Short.”

“Short, president of the Cheyenne Board of Realtors, said the local housing market has been cooling but isn’t likely to sink.”

“Dick O’Gara, director for the Wyoming Center for Business and Economic Analysis, said Cheyenne went through escalation and depreciation in housing prices in the late 1980s and early 1990s. But there is little talk of a real estate bubble in the Midwest.”

“Short said more homes are on the market now than at any time since he went to work in real estate in 1992. He said, it’s a buyer’s market. ‘When someone has 20 houses to look at versus the two or three that they’ve had in the last couple years, they’re going to look for the one that is the best deal,’ he said.”

“‘For Cheyenne and Laramie County, we’re not looking for the bubble burst to where prices will suddenly plummet 10, 15 or 20 percent in a matter of months,’ he said. ‘We’re apt to see some price declines, but they’re not going to be severe.’”

“He said sellers aren’t panicking. ‘It’s a matter of being realistic and realizing that if you have 1,200 houses for sale versus 600 houses for sale, it’s probably going to take you twice as long to sell your house,’ he said.”

The Birmingham Business Journal. “A pair of high-end residential projects are about to see whether Birmingham residents are ready to live on the southeast edge of downtown. Seaboard Yard townhouses, with units priced at more than $317,000, is beginning to market itself to buyers. And across the street, The Carroll & Green Group Inc. is about to break ground on a $5 million live-work building that will house luxury condos.”

“Developers are banking on the prediction that the area will become a residential hotspot and that property values will rise. They already are. Land prices have gone up three or four times in the three years since the developers bought their property. Land that sold for $2 to $3 per square foot in 2003 fetches $10 to $20 per square foot today.”

“The Seaboard Yard marketing team hopes potential residents will soon see the value of a $300,000-plus investment. They plan to market the property by handing out fliers and holding a cookout for Realtors to show off the just-completed model unit.”

“And the price for one of the units has been lowered to $299,000 in order to grab the attention of people searching listings in the $300,000 and less range. So far, three townhouses have sold, two to investors.”‘

“‘We’re just not getting the response we thought we’d get,” says Lauriello, blaming the sluggish response in part on the project’s being nearly a year behind schedule.”

“Developer John Lauriello says it’s a good sign that investors have purchased two of the units. ‘These are pretty prudent real estate people who feel like once that project and some other projects in the area are completed, that a year or two from now there could be a substantial amount of appreciation,’ he says.”

One homebuilder is having problems in Florida. “WCI Communities said second-quarter earnings would likely disappoint because of dismal orders at many of its high-rise condo and single-family housing communities in Florida.”

“WCI, a leading builder of traditional and tower residences, today announced order trends for the second quarter of 2006 as well as its recent share repurchase activity. The company is continuing to experience order activity well below year-ago levels, in part due to significantly lower traffic at many of its Florida communities as well as the company’s decision to delay the release of several of its towers because of softness in market demand.”

“For the first two months of the 2006 second quarter, combined homebuilding orders declined almost 50% over the same period a year ago. Traditional Homebuilding orders were down 42% vs. year-ago levels while Tower Homebuilding orders dropped 84%.”

“‘Due to slower demand and increased resale inventory on the market, the company has taken steps to slow down construction activity and capital spending until there is equilibrium between supply and demand in our markets,’ said WCI CEO Jerry Starkey. ‘While most of our Florida communities have seen sales activity below our expectations this year, we believe the historic economic and demographic drivers of the Florida homebuilding market will eventually overcome the ‘wait and see’ sentiment of many would-be consumers today.’”

“‘It appears the condo market in South Florida has come to a standstill, and we do not anticipate an increase in demand any time soon due to the current inventory glut,’ said Raymond James analyst Rick Murray. ‘We anticipate the current supply/demand imbalance will weigh on the earnings outlook for public builders for some time,’ added Murray.”

From the Herald Tribune. “Developer Harold Muxlow has specialized in offering three-bedroom, two-bath homes with a two-car garage for $189,900. The 1,861-square-foot home sells for about $102 per square foot. In Sarasota County, it is not at all uncommon for big-name builders to charge well over $200 per square foot for new residential construction.”

“The key would be selling hundreds of units, notes Muxlow, who envisions eventually moving as many as 500 in North Port. That could be a challenging short-term proposition, given how much the new home market has slowed in what is arguably the fastest-growing city in the region.”

“North Port officials had expected to permit more than 5,000 single-family homes this year, but in May issued just 74 permits. That followed only 88 in April.”

“Muxlow has felt the slowdown in the housing market. He said buyer traffic is off by as much as 80 percent. But he remains bullish about his ability to make money from his business model. ‘It’s all about volume.’ He still hopes to move 200 units this year. The profit if he does? A very cool $1.9 million.”

The Concord Monitor has this rare report on the housing market in New Hampshire. “Local real estate agents say the state’s market has remained flat this spring, a season in which sales generally pick up for the busy warm-weather selling season. Properties are staying on the market longer, some sellers are dropping prices, and buyers have more time and bargaining power, they say.”

“‘Buyers and sellers are now on an even keel,’ said Nancy Morrison, a longtime agent in Concord. ‘What we’re dealing with now is the shock from the sellers that they no longer control the market.’”

“When Liam Moquin moved to Pittsfield from Manchester a year ago, he was able to sell his home in two days. Now he’s moving to Maryland, where he has a new job and new home waiting for him. The only problem is, he hasn’t found a buyer yet for his place in Pittsfield, thanks to a cooling real estate market. ‘I’m a little concerned,’ Moquin said. ‘We had an open house last week on Saturday and Sunday, but nobody stopped by. I’ve already reduced the price.’”

“The boom is most likely over, local real estate agents agree, but it doesn’t mean the market is crashing. ‘The key is realistic pricing,’ said Barbara Ruedig, a Concord real estate agent. ‘It’s not the bullish seller’s market we had a few years ago.’”

“A year ago, it was difficult to find a house in Concord listed below $250,000, said real estate agent Brenda Perkins Anukem. A check of the listings now shows 45 houses for sale under $250,000, she said. In Concord, the average price of a home has decreased 1.1 percent, to $267,196.”

“Concord homeowner Lisa Brown has already found the house she wants to move into, but she is hesitant to put her house on the market right now. She is thinking of renting the house for a year instead to see if the market rebounds. The house is a small brick Tudor built in the 1930s. Because the house has some unique architectural features, Brown says she is not willing to drop the price below $299,900.”

“Mary Cowan, a real estate agent in Concord, said the market cooling is not something people should be very concerned about. ‘For some people who haven’t been in real estate that long, this softening is a little scary,’ she said. ‘Frankly, this is the way it used to be. Yes, sellers are going to have to really look at their pricing but properties are still going under agreement.’”