The Housing Bubble

It’s desk clearing time for this blogger. From Florida, “The latest sign that the air is leaking out of the bubble: Condos are being marketed by guys standing at busy intersections holding sandwich boards touting properties for sale. Aren’t sandwich boards supposed to be for furniture liquidation sales, tax-return preparers and, uh, sandwich shops?”

“And remember when the mere whisper of condos for sale drew long lines of eager buyers with deposit checks in hand?”

“South Florida’s Broward County residential real estate sales continued to fall by double digits in May, as for-sale inventory soared from a year ago, according to statistics provided by the Realtor Association of Greater Fort Lauderdale.”

“The huge increase in inventory has been a major factor in the region’s sales slowdown, as 9,537 single-family homes were available in May, an increase of almost 300 percent from last year’s figure of 2,412 available homes. The condominium-townhouse inventory reached 12,297 units in May, up 383 percent compared to May 2005 when the market had 2,547 units available.”

The New York Sun. “It was inevitable, some housing industry watchers say: After a five-year period during which the value of many homes in the Hamptons ballooned anywhere from 30% to more than 120%, economic reality seems to be catching up with New York’s most prestigious summer playground.”

“‘I’ve never seen so many houses on the market since we’ve been here,’ says Marcia Wolf, who has owned a beach home in Westhampton since 1979. ‘We see a lot of homes for sale and never did they seem to sit so long,’ Norman Wolf says.”

“Edward Meagher says he received calls from the brokers representing two sellers, both of whom told him the owners were now willing to renegotiate. ‘I’m not going to do it,’ he says, ‘because the asking prices are way too excessive.’ He contends that is the case with most homes on the market in the Hamptons. Even the brokers will privately tell you so, he says.”

“Most sellers, he argues, have their heads in the clouds, ignoring such real-world realities as rising mortgage rates, the fact the stock market is no longer appreciating every single day, and that not every buyer works on Wall Street and gets a $10 million bonus each year.”

The Idaho Stateman. “Jayo Construction has begun demolition work on a $75 million development that will add up to 106 new condominium units to downtown Boise. Area development experts say the boom in downtown condominium construction is being fueled by aging baby boomers who are increasingly abandoning the suburbs for downtown living. ”

From Billings, Montana. “The HPI for Billings shows that houses appreciated a total of 47 percent in the last five years. Maybe I missed it, but I didn’t see wages up 50 percent in that time. These levels of appreciation cannot be sustained, plain and simple.”

“In Billings, total for-sale inventory is up big time, from 760 in January 2005 to 1,300 this month. Dust off some classic economic principles, and all signs point toward falling prices. In real terms (adjusted for inflation), we just had a price decline. Maybe it’s just a blip or, just maybe, we’re seeing the first signs of a downturn.”

“No amount of grant money can take care of this problem. I believe that the market will correct itself eventually and we’ll all realize, once again, that housing is cyclical and huge run-ups cannot be sustained.”

From Realty Times. “When it comes to pricing your house when you’re ready to sell it, keep in mind you must sell in the market you’re in today. It doesn’t matter what your former neighbor got six months ago.”

“In the DC area, there are stories from the field on how sellers are defending their prices as if their lives depended on it. Bringing it down the $20,000 or $40,000 to sell the property seems, well, just not fair.”

“What’s even scarier are the agents who are defending their prices in a correcting market. They’ll be the first to let you know, ‘It won’t sell for what the seller’s asking,’ but they’re too afraid to tell the seller the sobering news. They’ve just now entered a market where prices have to be corrected, dropped; improved, as it were.”

“Keep in mind, the market is the market. Work with the market you’re in, not in the market you wish it would be.”

A pair of reports from California. “Sonoma County has the greatest supply of homes for sale in a decade, with a profusion of front lawn for-sale signs that illustrates the housing market slowdown. The sales total for May was the lowest in five years, helping push inventories to 2,008 homes compared with 893 homes a year ago.”

“The market slowdown has resulted in a leveling of prices. The county’s median price of $603,000 was up 1.3 percent from a year ago but down from a peak of $619,000 last summer. Many buyers, recognizing the market peaked last summer, are wary about paying too much and are backing away from making hasty purchases.”

“With twice as many homes to choose from compared to a year ago, buyers are taking their time and that puts pressure on sellers to lower prices, improve their homes and make other concessions, agents said. ‘You didn’t see that over the last few years. And as a seller they need to adjust to where the market is,’ (realtor) Rick Laws said.”

The Merced Sun Star. “Merced’s housing market is significantly overvalued and teetering on the edge of a downturn, according to a new study. ‘Even though I can’t tell you where prices are going soon, I can say that the risk of prices declining within the next three years is very high,’ said National City Chief Economist Richard DeKaser.”

“When prices dip, they’ll probably sink about 35 percent to 40 percent over a period of three years, said DeKaser. Local real estate leaders say that decline is already under way. ‘It’s already been happening, definitely,’ said Ray Rodriguez, president of the Merced County Association of Realtors.”

“Rodriguez said he first saw prices going down last fall, but he thinks the market should turn around soon. ‘I would say in our area, with what we’ve got going on, I think things will change around within the next three months,’ said Rodriguez.”

“Buyers seem to disagree. Developers and real estate agents alike have been forced to slash prices lately. Ranchwood Homes dropped the base price on new homes at its Summit Meadow subdivision in Beachwood this week from $324,900 to $314,900, said sales representative Patty Camacho.”

“‘Almost every [listing] that I have has been reduced,’ said real estate agent Mary Gamel. Gamel said she recently reduced the asking price on a McSwain house from $795,000 to $759,000 and dropped a Brimmer Road house from $355,000 to $345,000.”

“That’s bad news for out-of-town investors who flocked to Merced looking to buy and then ‘flip’ houses for a quick return. ‘To those people, I would strongly caution against buying at this time,’ said DeKaser.”

“The speculators seem to have gotten the message, said Mayor Ellie Wooten, who sells real estate when she’s not sitting on the City Council. ‘For a while there it was like a feeding frenzy and I don’t see that happening now,’ said Wooten. ‘You don’t see a lot of speculators now. They’re aware of what’s going on.’”

“Real estate remains a good investment, Rodriguez said. ‘I don’t think the bottom is going to fall out and prices will go much lower,’ said Rodriguez. ‘Over the long run, they’re going to go up. It’s hard to see how it can happen, but they’ve been going up since the beginning of time.’”

Some housing bubble reports from Arizona. “The 43 building projects under way in Tempe outnumber the city’s 40 square miles. It’s a building boom coming primarily in the shape of condominiums. Valley-wide, developers may be overly optimistic about how many people want to live in new high-rise and loft condos. More than 8,000 condo units are planned or under construction. Market watchers say less than a quarter of all the planned projects will actually go up.”

“‘It’s our lack of supply that creates the demand that other areas don’t have,’ broker Tom Tokoph said. ‘You can argue five years from now, when all these buildings are in, there will be a glut.’”

“There are no fewer than eight large-scale condo complexes in the works in Tempe’s core. And there are dozens of others, one as large as 742 units, popping up around the outskirts of downtown and on the shores of Tempe Town Lake.”

“Developers are delaying or dumping plans to convert some Phoenix-area apartment complexes into condominiums. A year after they pulled more than 7,000 apartments off the market, condo converters are finding that buyers in many areas are not interested in paying top dollar for a refurbished rental unit.”

“Apartment experts say some developers got carried away in conversion mania, overpaid for buildings and now must run them as rentals rather than selling fast and getting out.”

“The condo-reversion trend has hit in other areas where too many condos were built too quickly. The turn in the Phoenix market demonstrates how quickly trends come and go in the area’s volatile housing business and the inherent hazards for investors.”

“Developers count on selling some of the conversions to people who already lease the apartments. Yet some of these residents find the prices too high. A woman moving out of the Hawthorne Condominiums said when the complex went condo, she rejected the proposed sales price of $230,000.”

“She said she was a former real estate agent in California and was leery of condo conversions. ‘I’ve been on the downside of a market before,’ she said.”

“There is a twist to how conversions are affecting the rental market. Experts say a lot of the buyers were investors who now have dumped them back on the market as rentals. 27,000 apartments have been announced as conversions since 2004 and estimated that half went to investors, with 70 percent in some projects.”

“‘The condo-conversion market has not been driven by the end user, Joe and Betty Home Buyer,’ he said. Reid Butler, a Valley apartment and condo developer, said a lot of the investor units aren’t reselling.”

“‘Many investors bought five to 10 units in a condo-conversion project and need to hold them for a year so they don’t have to pay capital gains,’ Pete TeKampe, an apartment specialist said. ‘So now, they are hiring management firms and renting them.’”

“Terry Feinberg, president of the Arizona Multihousing Association, said some (investors) couldn’t rent them for as much as they need to cover the monthly mortgage payments. He wonders if those condos are headed for foreclosure.”

“Feinberg believes there were too many unsophisticated investors snapping up condos. He compared their behavior to tech investors in the 2000 stock market. ‘Why did so many people lose money in 2000 when the dot-coms crashed?’ he asked. ‘The investor behavior is the same. Some people get in at the end of a trend. They have bad timing.’”

The Gazzette.Net reports on spec home sales in Maryland. “The buyers of the custom-built home in the Village of Martin’s Additions will receive an added bonus for their roughly $2 million purchase, a fully loaded Acura SUV, with a three-year lease paid in full. For Chevy Chase builder Noel Fisher, who bought the lot and built the house, the promotion is a sign of the times.”

“‘Obviously with the market a little bit slower than it’s been in the recent past, I was trying to come up with an incentive to get a potential homeowner to come in and look at the house,’ Fisher said.”

“With a large inventory of speculatively built houses available in the southern part of Montgomery County, the formerly red-hot real estate market has seen the mercury move a tad closer to lukewarm, say builders and real estate agents. As a result, builders with speculative houses on the market are coming up with creative ideas to woo the suddenly more discriminating buyers.”

“‘There are 65 houses right now in Bethesda-Chevy Chase above the price of $2 million,’ said Jane Fairweather, a Bethesda Realtor. ‘And 51 percent are spec houses, empty, brand-new, accruing-interest-every-month spec houses. There’s huge choice, with very few buyers right now.’”

“‘As custom spec builders we got a little bit spoiled with the way things were a year ago,’ Fisher said. ‘We definitely have to do what we have to do to get people in there and get an edge over our competition.’”

“As for offering a new car to a prospective buyer, it’s a nice gimmick, but not likely to be a major selling point, Fairweather said. ‘Rarely can you entice somebody with an Acura who’s going to pay $2 million-plus on a house,’ she said. ‘If you want to give them a Rolls, you want to give them a Mercedes, OK. What it does do for the builder is it gets him noticed.’”

“With a possible decline in speculative building, Fairweather foresees a corresponding reduction in the number of houses being torn down and replaced. The result could be new opportunities for young first-time homebuyers, as well as retirees on fixed incomes, in communities that have lost most of their affordable housing in recent years.”

“‘Their prices will go down,’ Fairweather said of the older homes, ‘because an end-user isn’t going to pay top dollar, which I think is a good thing. All this stuff goes in cycles anyway.’”

The Reno Gazette Journal has this report from Nevada. “For the first time since the housing boom began, Reno, Sparks and the North Valleys showed year-to-year declines in the median price, according to the latest sales data. And the resale value for existing homes in Reno showed a second consecutive month of declines in May.”

“Donna and Robert Kizer of Sparks have been trying to sell their three-bedroom Springland Drive home for three weeks and haven’t been encouraged by the limited traffic. ‘It’s only been three weeks, but there’s just been nothing,’ Donna Kizer.”

“Robert Kizer is waiting to take a job in Anchorage and every day the house goes unsold is another day the Kizers take money out of their savings. ‘It’s really scary what’s happening here,’ Donna Kizer said. ‘The market’s flooded. You drive down the street and there’s like three houses on every street.’”

“A glut of homes for sale have taken its toll on the once-booming local real estate market, said Nancy Fennell, president of the largest residential real estate firm in Northern Nevada. ‘We’re looking at parts of our market with seven months to over a year in inventory,’ Fennell said.”

“But sellers seem to be adjusting to the ‘buyer’s’ market. The listing price for existing homes fell, year over year, in May in all three areas, the first time this year that has happened.”

“The declines surprised Brian Kaiser, analyst at the University of Nevada, Reno. ‘I wasn’t predicting a drop,’ he said. ‘I know over the last couple months we knew it was slowing dramatically. I would have guessed intuitively, based on the rest of the economy, that (increases) would have stayed in the single digits, maybe 2 or 3 percent.’”

“‘But given the astronomical rate of increase that we saw in previous years, this sort of adjustment isn’t that shocking,’ he said.”

The Wall Street Journal reports on the ‘McMansion glut.’ “The golden age of McMansions may be coming to an end. These oversized homes fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut.”

“Mickey and Jane Finn put their five-bedroom, 6,200-square-foot home in Leesburg, Va., on the market in April, but already they’ve cut the price to $899,900 from $1.1 million. Now, they’ve decided to put it up for auction. Down the street in their leafy subdivision, two similar-sized houses are also on the market, and around the corner, five more have for-sale signs.”

“The Finns, who paid $692,000 for the new house in 2002, recently retired and, with their two children grown, they’re eager to move to a place half the size. ‘We don’t need this big a house anymore — if we ever did,’ says Mr. Finn.”

“Since February, Kris and Ray Victory have been trying to sell their five-bedroom house in Brookville, N.Y.. The couple raised three children in the 8,000-square-foot home, but they say younger families seem turned off by its $1,000-a-month utility bills and $25,000 annual taxes. ‘Buyers tell us it’s too big,’ says Mrs. Victory. The couple recently shaved $200,000 off the $2.35 million price.”

“Already, the McMansion oversupply is acute in places like Loudoun County, Va. In the fast-growing area northwest of Washington, D.C., thousands of hulking, red-brick colonials sprouted over the past 10 years on quarter-acre lots that had been carved from farmland and woods. In May, 4,719 houses were for sale, more than three times the year-earlier level.”

“The number of sales dropped 39% to 484 in the month, and the number of days a home remained on the market lengthened to 70 from 14. ‘Sellers are dying out there,’ says local real-estate broker Michele Stash.”

“In Phoenix, David and Mary Mumme are selling their 4,938-square-foot house, partly because their oldest son is heading to college and partly because maintaining the house and yard takes about eight hours a week. They’re asking $1.8 million, about three times what they paid for it six years ago, because they saw nearby houses sell quickly for about $2 million last year.”

“But even though the house has 12-foot ceilings, marble countertops and skylights in the closets, no one has made an offer during the month it’s been on the market.”

“John and Barbara Fiore, both 54, had to slice $50,000 off their $900,000 price to move their 5,500-square-foot house in Warwick, N.Y. Ms. Fiore says she worried that no one would want her six-bedroom home while it sat on the market all last year, because today’s families are smaller. (The eventual buyer was a married doctor with three young children.)”

“The delay in selling ‘was scary,’ says Mrs. Fiore. The Fiores, who built the house 14 years ago, now live in a three-bedroom house nearby that’s less than half the size.”

“In one Loudoun subdivision, Tom Green, put his five-bedroom house on the market six months ago for $1 million so he and his wife could downsize to a $592,000 townhouse nearby. But his home had to compete with 38 others for sale in the neighborhood with four or more bedrooms. His 5,600-square-foot, five-bedroom house, which he bought new for $515,000 in 2000, didn’t get a nibble for months.”

“Finally, a relocating California family agreed to buy it if the Greens would..slash the price to $820,000. The Greens complied. The buyers say they were emboldened to make their demands when they saw how much the market had cooled since April 2005.”

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