The Housing Bubble

Some housing bubble reports from Arizona. “Metropolitan Phoenix’s new-home market has slowed drastically from last year’s record pace. People who signed contracts to buy homes are canceling deals as they discover they can’t sell their existing home for what they had hoped.”

From the East Valley Tribune. “So far in 2006 new home permits in Maricopa and Pinal counties are down more than 17 percent from 2005. New home closings are down more than 6 percent compared with the red-hot real estate market last year.”

“‘We’re at that point in the marketplace where it’s not correcting itself,’ said RL Brown. Brown said too few builders responded to price resistance that began about a year ago. ‘We have builders who have been slow to react to a change in the marketplace and that’s not something that should be surprising because these guys made a lot of money,’ Brown said.”

“‘For them to suddenly have to take a different posture in a different marketplace is a difficult thing. They’ve got to explain away how come their velocity is down, how come their margins are down, how come they have inventory and what their plans are. They have to explain that away to those corporate bosses who live somewhere else and don’t care about anything but the bottom line,’ Brown said.”

“The industry was also surprised by the large numbers of contract cancellations that have occurred, Brown said. ‘It’s a function of cold feet, which is natural and probably we should have anticipated it at least to a higher degree than we did,’ he said.”

“In his consultations with builders, Brown suggests everything from lowering prices to blowing out inventory to offering more incentives to those under contract and waiting for their homes to be built. ‘That’s precisely where this marketplace in new housing is going to be very quickly unless suddenly there’s a change and the inventory starts self-liquidating. I don’t think that’s going to be the case.’”

“Significant layoffs in production, marketing and even management have started in the industry, Brown said.”

“Stubborn builders and homeowners have meant the median prices of homes have not dipped in the cooling market, Brown said. But he expects that to change. ‘For somebody that’s an entrepreneur to be faced with lowering his price, that’s a tough deal, and the homebuilders are very much egomaniac entrepreneurs,’ he said.”

The Kingman Daily Miner. “Empty homes on the market and closed office doors does not necessarily equal bankruptcy. Partners of Linn Construction are splitting assets and not going out of business, as some rumors speculate.”

“Linn Construction has eliminated 10 permanent positions and delayed construction of the next phase of Walleck Ranch, according to Ron Linn. Linn said he is weathering a downturn by cutting overhead and not building inventory.”

“‘This thing got so crazy this last year, that people were selling houses making a $100,000, on average trying to make $60,000, they’re going to have to come off that. And the builder that doesn’t discount, if it makes it look like I’m going bust because I would discount, that’s wrong too. It just needs to get back to a normal deal,’ he said.”

The Arizona Daily Star reports one economist thinks some perspective is called for. “The first of the month is a few days away, which means many of us are already making mental notes to make our mortgage and car payments. But forget about those and other bills for a moment and think about this: We’re living in good times.”

“University of Arizona economist Marshall Vest agrees that these are good times. ‘I think the increased standard of living is a story that rings true across the economic spectrum,’ Vest said. ‘Even people at the lower income levels, they’re doing quite well compared with the life those folks had 100 years ago..50 years ago.’”

“There are still problems, of course. The Star’s Joseph Barrios reported earlier this month that home foreclosures in Pima County were up 27 percent in the first three months of 2006.”

“‘Even people who are living paycheck to paycheck to paycheck, they’re doing it while driving a car. They have a cell phone and probably own their home,’ Vest said.”

And a letter writer agreed. “All of us who live in greater Phoenix know what a wonderful place this is. Why then are you printing so many negative articles about our real estate market? Yes, of course, profits are down over last year. That was an unrealistic year.”

“Quit printing articles that are negative about the Phoenix real-estate market. Let’s have some positive news on this subject for a change.”

The Massachusetts realtors have the May numbers out. “Sales of detached single-family homes fell for a second consecutive month in May from the same month a year earlier, declining a modest 2.9 percent to 4,055 homes sold in May 2006. Sales have decreased for seven of the last eight months compared to the same period one year ago.”

“The supply of detached single-family homes on the market rose for a 15th consecutive month in May, climbing 26.9 percent over the past year from 36,259 homes for sale in May 2005 to 46,019 this May. Inventory, as stated in months of supply, also rose steadily from 8.7 months last May to 11.3 months of supply in May 2006.”

“Not surprisingly, with the spring market at it’s peak, listings are up from April as well, when there were 42,667 listings available for sale.”

“The number of condominiums for sale has increased 47.5 percent in the past year, from 15,287 units last May to 22,555 in May 2006. The median price of $286,000 is just 0.7 percent below the record high median selling price of $287,900 set in July 2005.”

“The statewide median selling price for detached homes declined a modest 1.2 percent over the past year to $352,700, from $357,000 in March 2005. Although this marks the fifth consecutive month that the median price has been flat or decreased modestly from the same month one year earlier, there is little evidence to suggest that significant price declines will occur in the Bay State housing market.”

“The more moderate sales pace reflects a more cautious approach to home buying on the part of consumers brought on by rising mortgage rates, rising energy prices, and a sharp increase in inventory levels, which has enabled buyers to take a more relaxed approach to the home search process than in prior months when supply levels were tighter.”

“Speculation about a housing ‘bubble’ in the local market also has prompted some buyers to put off their home search or turn instead to the rental market, and that’s led to some softening in demand.”

The Lowell Sun. “Lowell’s vaunted condo market has slipped a bit, according to Warren Group numbers. Sixty-seven condos were sold in the city in May, down 25 percent from 89 in May 2005 , for the year, 240 condos had been sold through May, as opposed to 348 in 2005. The median price dropped from $209,900 to $195,000 over the year.”

The Cape Cod Times. “Sales of single-family homes and condos in the Bay State declined last month. However, sales slid a little more dramatically on the Cape. Sales of single-family homes were down about 16 percent. Sales of Cape condos sank just over 24 percent, going from 149 in May 2005 to 113 last month. The median condo sale price went from $255,000 in May 2005 to $250,000 last month.”

“Meanwhile, Nantucket sale prices took a hit. The median single-family home sale price was $850,000 last month, down 37.50 percent from $1.36 million in May 2005.”

“Looking ahead, Warren CEO Tim Warren expects the condo and house markets to continue weakening slightly throughout 2006, and likely through 2007 as well. ‘I think things are going to slow down, and people just need to get used to that,’ he said.”

The Boston Globe. “Real estate agents said house price declines in Massachusetts indicate sellers are realizing that years of rapid price appreciation are over, and they are becoming more willing to lower asking prices because there are so many homes on the market.”

“‘They’re listening to us now,’ said (broker) William Wolfe in Wilmington. ‘They’re not saying, ‘Let’s try a higher price.’ We’re telling them there’s a lot of competition out there.’”

“May was the final month of the crucial spring selling season, and real estate specialists predicted it will take months for the housing market to work through the surplus of properties now on the market. ‘We’re going to have large inventories and longer times on the market for another year or maybe two years,’ Warren said. ‘When there are fewer sales, you’re going to see the prices start to drop.’”

The California realtors have the May numbers out. “The median price of an existing home in California increased 8 percent in May and sales decreased 21.1 percent compared with the same period a year ago, CAR reported today. ‘The median price of a home continued to increase in May, but at a more sustainable 8 percent rate,’ said C.A.R. President Vince Malta. ‘This is the first time since November 2001 that the median price did not increase by double digits.’”

“Statewide home resale activity decreased 21.1 percent from the 618,920 sales pace recorded in May 2005. ‘Year-to-date sales are down 19.5 percent,’ said C.A.R. Chief Economist Leslie Appleton-Young.”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in May 2006 was 5.9 months, compared with 2.7 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.”

From the Desert Sun. “Coachella Valley market continues to move in favor of buyers, although sales counts in May were 19.7 lower than a year ago, with a total of 1,131 properties sold. Rocio Flores, a real estate agent in Indio, said valley resale homes are competing not only with each other, but increasingly with new-construction houses being offered up with significant pricing incentives, free upgrades and other lures.”

“David Richer of Palm Desert, who moved to the valley from Los Angeles just over two years ago..(has) been renting while he tracks local real estate patterns and decides when to jump in as a buyer. He recently saw brand-new, 3,000-square-foot homes in a posh La Quinta subdivision, going for $700,000 a few months ago but now being offered at around $530,000.”

“Richer has a hunch that prices at all levels could be changing significantly in the coming year, especially as some current owners feel stretched by rising monthly payments on their adjustable-rate loans. ‘I think a lot of people got into this market in a panic, thinking they’d never have another chance to buy,’ Richer said.”

The Daily Breeze. “In May, the numbers were practically screaming as the inventory of homes for sale in the South Bay beach cities nearly tripled from a year earlier.”

“‘I’ve been through a few of these cycles and I would expect this adjustment to last for a while, until prices get real again, however long that takes. I’m thinking years,’ said Manhattan Beach real estate broker Jim Gallagher. ‘But I think we’re going to be in this market for a while. This new, emerging market.’”

The Florida realtors have the May numbers out. “With mortgage rates still ticking upwards, Florida’s housing sector in May continued to adjust to changing market conditions, including a greater inventory of homes available for sale in many areas. A total of 18,680 existing single-family homes sold statewide last month, a decrease of 24 percent from the 24,523 homes sold during the previous May, according to FAR.”

“Sales of existing condos also decreased in May, with a total of 5,725 condos sold statewide compared to 8,337 in May 2005 for a 31 percent decline.”

“The number of Lee County homes sold plunged 24 percent in May from a year ago. In Collier County, the number of homes sold dropped 40 percent to 313. Charlotte County’s home sales dropped 15 percent to 398.”

The Herald Tribune. “In the Charlotte County-North Port market, prices dropped about 2 percent, from $216,200 to $211,500. In the Sarasota-Bradenton market, home sales dropped 32 percent.”

The Naples News. “‘Overall “everything is still status quo, still pretty slow (in Naples),’ Mike Timmerman of Hanley Wood Market Intelligence said. Some of the larger developers have seen declines in sales lately. ‘The decline..is worrisome for different reasons,’ Kitty Green of the Bonita Bay Group told the Daily News. ‘Traffic is prospective buyers and is essential for builders.’”

“Because of the glut of housing, some of the larger housing developers, such as WCI and The Ronto Group, are delaying housing projects so as to not flood the market and significantly lower home prices.”

The Sun Sentinel. “‘There’s no question home sales are slowing,’ Doug Duncan, chief economist of the Mortgage Bankers Association, said. ‘We’ve got a big buildup in inventory out there.’”

“Home builders have responded by increasing incentives. WCI Communities Inc., the Bonita Springs builder with many projects in South Florida, is handing out lifetime country club memberships and two-year luxury-car leases.”

The Palm Beach Post. “Florida foreclosure filings jumped by 6 percent from April to May. ‘ The numbers for St. Lucie County were even more grim. And in Palm Beach County last month, one of every 561 households faced a new foreclosure action.”

“‘Unfortunately, this is not a blip,’ said Jack McCabe, president of McCabe Research and Consulting in Delray Beach, which months ago warned of coming foreclosure problems. ‘It is going to be a trend for quite a period of time.’”

“The uptick in foreclosure activity is linked in part to the popularity of ‘exotic’ mortgages. As the flexible interest rates of such loans reset, though, payments and overall debt can balloon.”

“‘You just can’t have a median income of $58,000 to $60,000 and live in a $400,000 house,’ said David Levin, a Delray Beach real estate consultant. ‘It just doesn’t work. You don’t need a Ph.D. to understand that $2 will not allow you to afford $3.’ But, he added, ‘people wanted to believe.’”

The realtors association has the May numbers out. “Sales of existing homes experienced a minor decline in May with home prices rising near normal rates, according to the National Association of Realtors. Total existing-home sales eased 1.2 percent to a seasonally adjusted annual rate1 of 6.67 million units in May from a pace of 6.75 million in April, and were 6.6 percent below the 7.14 million-unit level in May 2005.”

“David Lereah, NAR’s chief economist, said conditions are mixed around the country. ‘There’s now a clear pattern of slower home-sales activity in many higher cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth,’ he said. ‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’”

“Total housing inventory levels rose 5.5 percent at the end of May to 3.60 million existing homes available for sale. Existing condominium and cooperative housing sales were 6.6 percent below the 912,000-unit pace in May 2005. The median existing condo price3 was $229,300 in May, up 1.9 percent from a year earlier.”

Looking at the PDF file from the link, here are the regional YOY sales percentages: Northeast,down 2.9%. Midwest, down 2.6%. South, down 2%. West, down 11.5%. The US as a whole, down 4.3%.

Inventory of existing homes:

2,556,000 May 2005

2,678,000 June

2,756,000 July

2,841,000 Aug.

2,772,000 Sept.

2,868,000 Oct.

2,924,000 Nov.

2,846,000 Dec.

2,883,000 Jan. 2006

2,985,000 Feb.

3,198,000 Mar.

3,415,000 April

3,604,000 May

That’s a 5.5% increase over the last month, a 41% increase over the same month last year and a 51% increase in YOY months supply.

The Philadelphia Inquirer has this update. “Observers of the Shore market say, as higher interest rates are beginning to dampen sales, and condo construction, mostly involving investors, adds to a growing surplus of properties. ‘Whenever interest rates rise, the second-home market is the first one to take the hit,’ said (mortgage broker) Fred Glick.”

“‘”It’s the condo and lower end of the Shore market that’s taking a hit,’ said broker Paul Leiser. ‘These are the buyers who depend on lower interest rates to balance two mortgages, and with rising interest rates, they can’t do it. We’ve sold fewer units, but our dollar volume in the first quarter was higher than it was in the first quarter of 2005, Leiser said. It’s the million-dollar-house purchases that push up the medians.’”

“In Ocean City, the scene of numerous teardowns and massive development since the mid-1990s, there were more than 1,700 listings on the Ocean City MLS. ‘They’re saying that Ocean City is overbuilt by two years,’ broker Jerome DiPentino said. ‘That may be conservative.’”

“Jay Lamont, who has studied and owned real estate in Ocean City for about 40 years, said, ‘I have never seen anything even close to this debacle. Many legitimate and qualified buyers are waiting for fall, for the lender REO [real-estate-owned] listings and foreclosure sales on failed developer loans.’”

“Weekly sales reported to the Ocean City MLS are 80 percent to 90 percent lower than they were in spring 2005, with seven or eight sales a week, he said.”

“What’s going on? ‘The short-term investors at the Shore were in the condo market primarily, and they’re the ones pulling out,’ said (economist) Mark Zandi. ‘They don’t buy multimillion-dollar homes.’”

“Oversupply also seems to be a problem elsewhere in Cape May County. (Broker) Paul Schlimme in Cherry Hill, said that between Jan. 1 and May 31 there were 189 listings on the Avalon MLS, with about nine houses selling per month. ‘That means there is a 21-month supply in Avalon, and it is getting worse,’ Schlimme said.”

“The Wildwoods, too, were a draw for investors, who razed motels and filled empty tracts with condos. But with for-sale signs sprouting and interest apparently tailing off, that boom could be over, local market experts say.”

“In Ocean City, Lamont said, ‘open houses are held each weekend, sometimes as many as eight per block on Asbury Avenue, with almost no legitimate buyer traffic showing up even to use the bathrooms.’”