The Housing Bubble

The Friday desk clearing starts with this news. “Single-family housing starts have declined 27.2 percent for the first five months of the year compared to the first five months of 2005, according to a report by the California Building Industry Association, and starts were 22.4 percent lower in May 2006 than in May 2005.”

“‘Most other markets are holding steady in multifamily units, with the exception of San Diego County, where development has declined markedly, predominantly because of a near-total cutback in downtown high-rise development,’ CBIA Chief Economist Alan Nevin said.”

A quote of the week from the Palm Beach Post. “‘I was driving some clients around downtown West Palm Beach, and they asked, ‘What’s that crane for?’ I said, ‘It’s a condo.’ ‘And what’s that crane for?’ ‘It’s another condo.’ Finally, I said, ‘Look, every crane you see is a condo, so stop asking.’” -Neil Merin.”

The Houston Chronicle. “New home starts are on track to hit 50,000 units for the first time ever in the Houston area. ‘This year’s shaping up to be better than last,’ Mike Inselmann, president of Metrostudy. Inselmann downplayed the effect of rising interest rates, noting that consumers who believe the values of their homes will continue to rise will find a way to hold on to their homes.”

“‘I am concerned, but I’m not overly concerned,’ he said. Rising rates may also mean more foreclosures, especially for those who opted for adjustable-rate mortgages when rates were falling. Foreclosures have doubled in the Houston area in the past two to three years, he noted.”

The Weekly reports, ‘Atlanta homes for sale exceeds 90,000.’ “The billboard campaign lets everyone know how many homes are for sale in MLS and FMLS. The total number of homes for sale in MLS and FMLS has never been available to the general public before now.”

The Atlanta Journal Constitution. “Midtown’s condo construction frenzy has current residents worried about a possible market glut that would depress prices and sales among existing units. ‘You have a lot of people buying who are really interested in living in the building,’ said developer Conor McNally.”

“Real estate developers are building still more condos as American businessmen and foreigners jet in from overseas to snap up Montreal condominiums. Meanwhile, the more telling number is the number of unsold new condos, it continues to increase, from just over 500 in 2001 to a whopping 2,000 unoccupied units this year.”

A rare report from Lebanon. “Lately it seems there are more cranes than buildings rising from Beirut’s skyline, and Gulf investors continue to funnel oil revenues into mega-construction projects in the Beirut Central District.”

“Some analysts have questioned whether the real-estate boom is in fact a bubble. But Solidere general manager, Mounir Douaidy shrugs off this notion. ‘What’s happening in the Gulf is a bubble, but what’s happening in Solidere is steady growth,’ he said.”

And from the Pine Journal. “The northeastern Minnesota housing bubble is on the brink of popping. Anyone who’s bought a house, sold a house or has been involved in the real estate business in the past six years has seen house prices skyrocket.”

“If we’re going to bring the market back down to where it should be, don’t be afraid to make an offer that’s a tad below ‘too little.’ A lot of folks will say, ‘You don’t want to insult the seller, make your offer fair.’ But what about the seller insulting the buyer by asking for far more than it’s worth?”

“And if the seller is ‘insulted’ by the offer, the worst that can happen is you don’t buy the house, and move on to the next one. Any home buyer has to be realistic. But you certainly don’t deserve to pay a mint either. The bursting of the Northland’s real estate bubble will truly create a buyer’s market. Spend wisely.”

The Frederick News Post has this from Virginia. “Worried Fredericksburg-area homeowners may start calling Ken Scruggs if the Federal Reserve raises rates. The (mortgage broker) in Fredericksburg said people with adjustable-rate mortgages, or ARMs, are getting anxious to lock in a fixed-interest rate.”

“‘We’re seeing people coming in now out of fear,’ he said. ‘They’d rather refinance now than take a chance that [interest rates] will reach 9 [percent] or 10 percent in a few years.’”

“An increase of just a few percentage points can make a huge difference in mortgage payments. A monthly payment of $1,500 on a $500,000 ARM, for example, doubles to $3,000 when interest rates climb from 3 to 6 percent. ‘There are not a lot of people who can come up with $3,000 a month,’ Scruggs said.”

“Some residents are struggling to hold onto their houses. The number of foreclosures in the Fredericksburg region has climbed from 19 in the first quarter of 2005 to 80 during the same time period this year.”

“Stafford and Spotsylvania counties had the most foreclosures locally. The number jumped from 10 in the first quarter of 2005 to 36 in the first quarter of 2006 in Spotsylvania, and from 3 to 29 during the same time frames in Stafford. Those also are among the fastest growing counties in Virginia and the country, which means that more people have been taking out mortgages on houses, second homes and investment properties, pointed out Mike Fratantoni, senior economist for the Mortgage Bankers Association.”

“The handful of foreclosures that Ron Davis, CEO of Virginia Heartland Bank, has seen, for example, involved people who had bought property with the intent to sell, but got stuck with unanticipated mortgage payments when the real estate boom started to stall.”

“‘Between the fourth quarter of 2005 and the first quarter of 2006, there was an increase of $300 billion in mortgage debt outstanding nationally,’ he said. ‘It’s a $9 trillion dollar market that’s been growing at a double-digit rate.’”

“That’s small comfort, however, for the people who wind up coming to Deanna Hathaway for advice. She’s an attorney for Boleman Law Firm in Richmond, which specializes in bankruptcies and foreclosures. One of the first steps they tend to take is to pay off their debts by tapping into their house’s equity or refinancing, Hathaway said. Mortgage lenders have come out with a number of new loans that can make this attractive.”

“‘Anyone considering refinancing should come in with a long-range financial plan rather than in a panic,’ Scruggs warned. ‘They shouldn’t refinance just because they want to buy a pickup. That catches up with you.’”

A pair of reports from Florida, starting in Polk County. “Only one feature of The Ledger’s Polk Business Barometer, new housing permits, is heading south. But although building permits issued in May fell 27.4 percent to 637 single-family homes, the decline appears to be a temporary blip in an otherwise growing industry.”

“‘If you look at building permit numbers over the years, last year was driven by investor frenzy, the expectation that home prices would go up 30 percent a year every year,’ said Mike Hickman, a Lakeland home contractor. ‘All that (the May decline) tells me is that the get-richquick speculators have left the market.’”

And the Palm Beach Post found a couple of condo bubble contrarians. “Amid what many call a glut of condos in West Palm Beach, two developers are spending big to put up even more units. Co-owner Pasquale Renzi said he hopes to build 600 to 800 units on the property, which is just north of another condo project, The Whitney.”

“Premier’s Bradley Deckelbaum said he plans 170 units on the site, which is between two other planned condos, Barcelona Square and Prism.”

“One real estate expert was incredulous that developers are still betting on a market that many consider already overbuilt. The city of West Palm Beach says 5,200 condo units are planned or under construction in the city. Jack McCabe puts the number at 6,600 units.”

“‘A very large oversupply is going to hit the market,’ McCabe said. ‘There just isn’t anything to justify the volume of units that are currently under way, let alone any new units being announced.’”

“Both developers said they’ve found a niche in the market, although they have different strategies. Premier Developers is aiming for the high end of the market, Deckelbaum said. ‘Our project, I’m sure everyone says this, is a little different from what’s already out there,’ Deckelbaum said. ‘We build condominiums as primary homes. It’s not your typical investor and second-home project.’”

“Renzi’s units, on the other hand, will be smaller and priced from $300,000 for a one-bedroom unit to nearly $1 million for a three-bedroom unit, which Renzi called the ‘affordable’ end of the market.”

“Renzi bought the property from residential developer Kenco Communities. Kenco’s broker in the sale, Neil Merin, predicted Renzi will begin building as the glut eases. ‘We’re overbuilt,’ Merin said. ‘We have an inventory that needs to be absorbed. By the time (Renzi) gets ready to build, it’ll be three to four years, so he’ll probably do all right.’”

“‘I don’t think there’s a glut,’ Renzi said. ‘But this is the time when people are getting scared, so it’s a good time to get in.’”

The Arizona Republic has these updates on the Phoenix area. “West Valley home prices have held relatively steady since the end of 2005, but resale homes are lingering on the market longer as developers try to unload their inventory of new homes using deep discounts and other incentives.”

“In the fourth quarter of 2005, the average resale home in Surprise’s 85374 ZIP code sat on the market for only 11 days before being snapped up. But in the first quarter of 2006, homes in that same area remained on the market for 50 days on average. That’s more than a 350 percent increase, the steepest jump among all ZIP codes in the Valley.”

“With the downturn in the housing market, speculators and home buyers are canceling their reservations, pushing developers to give enormous incentives and Realtors a bigger slice of the pie.”

“David Nichols, a Surprise real estate broker, says the sharpest increases are occurring in communities where the greatest number of new homes is being built, places such as Surprise, Mesa and Gilbert. ‘This is just a minor hiccup that has received a lot of sensationalism,’ he said. ‘It’s too bad.’”

“Worried about declining home values in the Valley? If you live in central Phoenix, north Scottsdale and patches of the East or West Valley, you don’t need to fret. In other pockets around metropolitan Phoenix, the average price of an existing home dropped 6, 7, even 12 percent from the fourth quarter of 2005 to the first quarter of this year.”

“‘The Valley’s housing market is going to be dicey for a while, and it’s best to track it by neighborhood,’ said Terry Turk, president of Sun American Mortgage of Mesa. ‘I don’t think we are at the bottom of the market, but it shouldn’t be a dramatic drop from here.’”

“(Broker) John Foltz said home prices in established Valley neighborhoods should be stable, but newer areas on the perimeter, such as Queen Creek and the far West Valley, are likely to struggle as new homes continue to go up. Part of Glendale in the West Valley saw a 7 percent dip. The average price of a home on the southeastern edge of Mesa dropped 12 percent.”

“‘It’s possible that home prices will drop 5 to 10 percent overall,’ said Jay Butler, director of the Arizona Real Estate Center at Arizona State University Polytechnic.”

“Declines should be pretty painless to most homeowners, unless they bought last year during the peak, have tapped all the equity in their homes or are trying to sell. Home prices in most of those neighborhoods shot up more than 100 percent in the past five years.”

A rare housing bubble report from North Carolina. “The morning after the big real estate boom is roughest in places like Carolina Beach where speculation pushed some prices up close to 100 percent over two years. But the giddiness of 2005 is a memory in a lot of places.”

“May marked the fourth month in a row that the number of homes sold declined from the same time last year, according to the Wilmington Regional Association of Realtors, which covers New Hanover and parts of Pender and Brunswick counties.”

“Last summer, real estate on Carolina Beach was so hot resident Vick Gore said he could mow his lawn and a Realtor would approach and offer to list his second-row home. Now the search is for buyers. Nearly 800 Carolina Beach properties are on the market, many of them new construction like the duplexes surrounding Gore’s 70-year-old cottage, one of them with a ‘reduced price’ sign in the front yard.”

“‘There’s nothing happening down here,’ Gore said, adding that another of his properties near Snow’s Cut has attracted barely a serious nibble in the six months since he put a sign on it.”

“From January to March this year, median price for an existing single family home in the county dropped to $198,000 from $235,000, according to a data-collection company.”

“Broker Martie Rice expects more decreases in prices on Pleasure Island, a boon for the person looking to keep the property for two or three years and use it. ‘Someone can get a terrific value on a really nice home,’ she said. ‘Just don’t plan to make a profit on it in the next 12 months.’”

“(Realtor) Justin Donaton in Carolina Beach said..people who bought before last year might not be able to sell for all they hoped, but they probably still can make money, he said.”

“It’s trickier if you bought last year. ‘Good properties and fair prices are going to sell,’ he said. ‘A fair price probably isn’t last July or August’s prices.’”

Please post weekend topic suggestions here.