The Housing Bubble

The Friday desk clearing starts with some international reports. “A real estate frenzy grips China’s urban areas, and one recent day saleswoman Xu Shuang faced an unruly throng when units at her luxury housing project went on the block. ‘You should have seen it. More than 1,000 people gathered outside,’ Xu said.”

“Amid flying elbows and chaos, many signed purchase agreements for anything put before them. ‘It was kind of chaotic,’ Xu said. ‘People selected their apartments in a great hurry. They didn’t give much thought to the floor or the location.’”

“The frothy market generates passions, which worry Chinese officials. Last month, the government shut down the Web site of an activist who launched a ‘Don’t Buy a House’ petition drive. Activist Zou Tao claims that urban dwellers are turning into ‘mortgage slaves’ yoked to debts for decades.”

“Buyers retain bulletproof optimism that values will only go up. ‘It’s impossible for them to go down,” said Lu Ting, a saleswoman at a massive housing complex in southwest Beijing.”

From Korea. “Banks yesterday virtually closed the door for new mortgage loan seekers after financial regulators ordered them to lower the ceiling for housing loans.”

“‘The government has increased property taxes to ease the property bubble, but that appears to have failed to stabilize the market. It is now taking stronger steps to rein in the market,’ said Ham Young-jin, a real estate consultant in Seoul.”

From California. “The status of Solano County real estate was the topic du jour Thursday. Current market conditions can be characterized by ’seven I’s,’ according to Lennar Homes VP Peter Beucke: rising interest rates, increased inventory, increased order cancellations, enhanced incentives, increased construction costs, investors selling their properties, and intense cost reduction initiatives by home builders.”

“Despite all that, Beucke said, ‘We really view Solano County as a great opportunity down the road’ it’s ideal for home buyers and businesses.’”

From Memphis. “As interest rates incline, the local home sales market still could take a beating, particularly certain segments. The question for the local housing market is this: Which will end first the home sales boom or the building boom? If its the former, the latter could find itself in darker waters than its seen in a while.”

“Developers still rapidly creating lots and just as rapidly building spec homes, might one day soon have a tougher time finding buyers. Currently, homeowners in the areas move-up market are leaving existing neighborhoods en masse, opting for empty-nester homes or larger family homes in the glut of new subdivisions still popping up throughout Shelby County and beyond.”

Inman News. “Author Steven D. Levitt shared a personal story about a home he was interested in buying in the suburban Chicago area. ‘I said to (the realtor), can you just tell me the absolute lowest price at which the homeowner is willing to sell this house for?’”

“Her response, ‘You should be ashamed of yourself. That would be a complete violation of my client relationship.’ Later, as the phone call came to an end, Levitt said the agent volunteered some information: ‘Let me just tell you one last thing. The owner of this home is willing to sell this house for less than you can possibly imagine.’”

“‘Basically, in order for that agent to put an extra $20,000 or $30,000 back in her pocket she basically stole $50,000 from her client.’”

From Realty Times. “Newspaper advertising doesn’t work, according to many Realtors, so they’ve been putting their advertising dollars elsewhere. Could falling revenues be behind recent large-scale newspaper editorial attacks on the real estate industry?”

“In recent months, the number of negative stories against the real estate industry has been staggering. Some believe it could be a power play to get more agents and/or for-sale-by-owners to buy ads. Says Denver, Colorado, broker Judith Clausen, ‘I stopped advertising in newspapers about two years ago. I figured they were after us.’”

“‘Our local papers, (Florida Today) are running articles that ‘homes are selling for too much money!,’ says Pat Argo, a Titusville, Florida broker. ‘She says, ‘I believe the papers are deliberately trying to make it harder for us, so we will consider going back to more newspaper ads, and to scare the sellers into taking less so they can say they made a difference.’”

The Florida realtors had a press conference Thursday. “Getting affordable catastrophe insurance is the biggest challenge facing nearly every segment of the housing market, the head of the state’s Realtors group said Thursday. ‘Citizens is no longer the insurer of last resort,’ said Mike Dooley, president of the Florida Association of Realtors. ‘Citizens is becoming the insurer of only resort.’”

“Against a background of local homeowners getting socked with budget-busting rate hikes or discovering their insurer has dropped them completely, Dooley called Thursday for national catastrophe insurance. The Florida Association of Realtors has passed a motion to make the issue ‘a national talking point.’”

“‘There comes a time when the free market can’t protect us,’ Dooley said. ‘We don’t have a free-market military. We pay taxes and ask the government to protect us.’”

“Florida Insurance Commissioner Kevin McCarty said: ‘I continue to believe that catastrophic losses are not an insurance problem, but an economic security problem.’”

“He also pointed out that most lenders insist the homes they finance carry disaster insurance. ‘If you can’t get insurance, they’ll go out and get it for you on the international market and you’ll have to pay whatever it costs,’ Dooley said. ‘It’s a condition of your mortgage. And if you can’t make payments, then that’s another problem because banks don’t want a whole lot of houses on their hands, especially in a market like this.’”

“As for the current market, remember that real estate is a long-term investment, Dooley advised. ‘There is no real estate bubble,’ he insisted. ‘A house..doesn’t go away. If the price falls, you still have your house.’”

“The seminar’s host agreed. ‘Be patient,’ counseled Jim Flood, regional president of HomeBanc Mortgage. ‘The last two years have been the best years in the industry. We need to be grateful for that.’”

These reports from Texas show the housing bubble is ‘relocating.’ “Austin homes continued to sell at a brisk pace in May, despite a cooling of the housing market on a national level. Sales of existing single-family homes jumped 15 percent in May as 2,260 residences changed hands. The median home price rose 8 percent from a year ago to $174,000.”

“The strengthening housing market is a result of Austin’s healthy job market as well as the cooling of home prices in other areas, said John Rosshirt, chairman of the Austin Board of Realtors. ‘You have not just the good economy, (but) you have people who are getting out of other markets,’ Rosshirt said.”

“Central Texas is also becoming popular among out-of-state investors and those looking to relocate from elsewhere, area real estate agents say. ‘Somebody living in California in a 1,400-square-foot home could sell it, take the profit and buy a mansion in Austin,’ Rosshirt said.”

“‘Now that those other major markets are cooling down and slowing down some people are saying, ‘Hey, I made $300,000 on my house the last couple of years, and I can buy this in Austin?’ said Rosshirt.”

“And that means no rest for the weary realtors. ‘I’m hoping the trend continues certainly for both buyers and sellers,’ Real estate agent Julie Woche said.”

“The closer to the center of town, the hotter home sales. But as those prices rise, the Austin Board of Realtors says activity is pushed to outlying areas including Round Rock, Buda and beyond.”

“With more than 17 condo and apartment projects planned for the downtown area, Austin continues to add up changes to the Capitol City skyline. Many of the new additions will be high-rise buildings.”

“There are currently 2,972 downtown condo and apartment units capable of housing about 5,400 residents. The projected number of units for 2009 will jump to 6,618.”

“Construction on a 360 condo tower has recently begun. It promises to deliver 432 units and stand 580 feet, taller than any building in Austin.”

From My San Antonio. “A San Antonio developer will break ground soon on the Medical Center area’s first new condo project in about 20 years. The units are selling now for $138,000 to $267,000. Once they’re finished next spring, prices are expected to jump to $167,000 to $289,000.”

“Real estate agent Diane Motz said she expects the new property to attract doctors and medical professionals. Already, she has sold 20 units to a Phoenix investor and 10 to an investor from Greece.”

“Motz noted the development’s high-end trappings such as granite countertops, stainless steel appliances, wood floors and whirlpool baths. ‘There are other things out there, but not at this level,’ she said. ‘People want something that’s an investment, and you can’t really find that there.’”

The LA Times reports on the subprime lending business. “Profit at Ameriquest Mortgage Co. and its affiliates plunged 81% last year, reflecting a brutal price war over loans to higher-risk borrowers, rising interest rates and the company’s agreement to pay $325 million to 49 states to settle allegations of predatory lending.”

“The privately held parent of Ameriquest and its sister lenders, earned $257 million in 2005, down from $1.34 billion in 2004, according to copies of its annual financial statements obtained by The Times.”

“The company says that this year it has scaled back its aggressive price cutting on loans, part of an industry battle for market share at a time of rising interest rates and slowing housing markets.”

“If anything, Ameriquest’s market share is likely to erode even more, said Robert P. Napoli, who analyzes the mortgage business. ‘They’ll be lucky if their volumes don’t fall by 90% on the retail side,’ Napoli said.”

“‘It seems like they were trying to pressure the market in hopes they would force other lenders out of business with this aggressive pricing,’ he said. ‘But we’ve been following the mortgage industry for a long time, and that strategy generally doesn’t work,’ Napoli said. ‘A company like Countrywide can lay back and just wait for [other lenders] to hit the wall, which is what looks like has happened here.’”

“Some observers saw in Ameriquest’s earnings a reflection of hard times ahead for the entire industry. ‘We are expecting some subprime lenders to go out of business this year,’ said (industry analyst) Christine Clifford. ‘The combination of a shrinking market, rising costs and lots of lawsuits is extraordinarily difficult to manage,’ she added.”

And an Idaho television station reports on exotic loans in Treasure Valley. “Homes across the Treasure Valley continue to gain worth, and more and more people are jumping into the market head first. ‘We live in a good market. We live in a market right now where property values are constantly increasing,’ said Brett Anderson, owner of Security First Mortgage.”

“Also increasing, the rise in popularity of the option adjusted-rate mortgage, also called the pay option ARM. ‘I have a couple that just bought a second home, a vacation home they never could have afforded, but on this program,’ said loan officer Ricky Catalano.”

“But this type of mortgage is still fairly new in Boise, and officials say it would only work in about six or seven places in the entire USA, and we’re one of them. ‘In this kind of appreciation world it still continues to be a good loan for a lot of people. It isn’t a loan for the weak or conservative because it is a very aggressive program,’ said Catalano.”

“In other areas of the United States, the loan is just starting to run its course and they’re seeing a sharp increase in foreclosures. ‘If they are presented with the chance to buy a little nicer home people get ahead of themselves as to what they really can afford,’ said Tom Lay, of Neighborhood Housing Services.”

Some housing bubble reports from California. “The Inland housing and construction market is slowing down, but it isn’t likely to experience the dramatic price drops of the early 1990s, a longtime Inland Empire economist said Thursday. A combination of overbuilt and overpriced housing, slowing home sales and rising interest rates will cause a construction slowdown over the next few months, said Michael Bazdarich.”

“‘It’s unclear whether there’s a housing bubble,’ Bazdarich said. New-housing permits are expected to continue to drop over the next year or two in the Inland Empire, and construction hiring should begin slowing down in coming months, Bazdarich said.”

“A local Realtor acknowledged that his colleagues are concerned about the direction of the local housing market. ‘Our inventory of available homes has tripled in the last year,’ said Gene Wunderlich, a former chairman of the Southwest Riverside County Association of Realtors. Between 500 and 700 homes a month are selling in Southwest Riverside County, down from about 1,200 sold monthly during last summer’s peak.”

The Fresno Bee. “After a decade of growth, the local housing boom appears to be slowing in 2006. Through May 31, Visalia issued 584 building permits for new single-family homes this year, shy of the torrid rate of 2005, when a record 1,450 permits were issued for new houses.”

“After two years of a red-hot real estate market in Santa Clarita, May home sales took a dive and experts on Wednesday predicted a slow summer. Realtors sold 234 single-family homes in May, down 35.4 percent from May 2005. A total of 123 condominiums sold, a 27.2 percent drop from a year ago.”

“Realtors spin the slowdown as good news for buyers who have more choices as inventory grows and homes are available longer. ‘Housing is selling, but not as quickly as a year ago,’ said Peggy Mueller, president of the association’s Santa Clarita Valley Division. ‘Frankly, I happen to like it that way because buyers and sellers have opportunities.’”

“The San Fernando Valley’s housing market remained sluggish in May with sales falling an annual 25 percent and the median price increasing by its smallest margin in 62 months.” “It was the eighth consecutive month in which sales declined from the previous year and in which sales numbered less than 1,000. The last time the latter happened was during a 20-month string that began in September 1996.”

“‘I think what we’re going to see is interest rates stay favorable and sellers negotiate a little bit more than they are now,’ said Southland Regional Association of Realtors VP Jim Link. Buyers are saying ‘Hey, things are coming down, and we can start bargaining.’”

“At the end of May there were 4,072 houses listed for sale, 130.3 percent more than a year ago. Including condos, inventory increased 145.7 percent last month.”

A pair of reports on homebuilders in Arizona. “The Valley’s slowing real estate market is giving new real estate players a chance. A Scottsdale firm purchased two prime parcels of state trust land in Peoria on Thursday. It was the only bidder for one parcel and easily beat Toll Brothers, which has spent millions in the past on state land, for the other.”

“Now some land deals in Pinal County and on the edges of the West Valley are falling through as the housing market slows and builders pull back. Darrell Sherman said his group is planning large residential projects on both parcels.”

“The auction room of the State Land Department was packed with builders and land brokers Thursday. But hardly any were there to bid on the two prime parcels of state land in Peoria. They were there trying to get an idea of whether the Valley’s slumping new-home market is poised for a rebound.”

“The state received only three bids for the parcels, just slightly more than what they were appraised at six months ago. Two of the bids were submitted by a relatively unknown developer.”

“It was a far cry from just months ago, when bidding wars among major home builders and developers pushed prices millions of dollars above the appraised value. Construction of new homes is down 18 percent from last year’s record pace. Many home builders now own too much Valley land, analysts say. They won’t be able to develop much of it for a while, so they aren’t in the market for more.”

The Arizona Daily Star. “Phoenix builder Beazer Homes has put off plans to move into the Tucson market, while other home builders are re-evaluating how to deal with a cooling local housing market.”

“The home-builder caution is in sharp contrast to housing activity over the last two years, when the price of land rose quickly and builders enjoyed waiting lists and lines of hopeful buyers leading out the door.”

“‘I really can’t comment on that at this point just because I’m not sure where it’s going to end up,’ said Rancho Sahuarita developer Bob Sharpe. He said generally that new home builders moving into the Tucson market ‘might be a little bit more distressed’ by a more volatile housing market in Maricopa County.”

“Another Beazer official, Guy Melton, said the company would not be coming here for at least the next six months.”

“Andrew Schorr, a lawyer who works with both home builders and landowners, said he has been involved in two other recent large land deals in which home builders walked away from their purchases. In one case, one builder ‘left money on the table’ because they ended the deal after a feasibility period.”

“‘They weren’t giant deals, but they weren’t little, five-acre deals either,’ with purchase prices in the millions, Schorr said.”

“Some home builders are adjusting to a cooling market in other ways, said John Bremond, president of KB Home’s Tucson division. While some builders are offering incentives like free pools and reduced interest rates, others are simply lowering prices.”

“‘I can’t really say, with certainty, what we will do in the near future,’ Bremond said. ‘There have been some price reductions in some areas.’”

“As the inventory of resale homes has increased over the last several months, sale price for some homes has dropped. In Rancho Sahuarita, for example, some KB Homes have been marked down as much as $10,000 over the last three months, Bremond said.”

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