The Housing Bubble

The Gilroy Dispatch finds the ’sellers paradise’ is over. “The housing market in recent years has been a seller’s paradise. But the market has started to swing the other way, real estate agents say. ‘We are no longer in a state where the second you see it you must put in an offer. Buyers can take their time,’ said Edwin Resuello, president of the Santa Clara County Association of Realtors.”

“With more inventory on the market, sellers are starting to lower home prices to stay competitive, real estate agents said. Buyers have even started to negotiate with sellers on the asking price, which hadn’t been the case in the recent past, Resuello said.”

“In May, 276 homes were up for sale in Gilroy compared to 149 in the same month last year.”

“‘This feels like a normal market. It might be weighted more toward the buyer, but (homes do) stay on the market longer in a normal market,’ Filice said. ‘But we’ve forgotten what a normal market is like.’”

“‘Agent Sheila White agreed that sellers are no longer controlling the market. ‘Last year, if you put (a home) on the market you would get attention very quickly,’ White said. ‘But that’s not happening anymore.’”

Inside Bay Area. “In the first five months of the year, East Bay multifamily housing starts increased by 40.3 percent to 1,522, up from 1,085 during the same period last year. However, Alan Nevin, chief economist for the California Building Industry Association, noted that the increase represents only a couple of big projects in Oakland.”

“Meanwhile, 2,217 single-family permits were taken out in the East Bay during the first five months, a 22.5 percent decline from the same time a year ago. ‘It’s sort of peanuts. The single-family (construction) has slowed down darn near everywhere,’ Nevin said.”

“Call it another sign of the cooling housing market. As interest rates have risen, home sales have declined and home prices have appreciated at a slower rate.’There was too much inventory out there, and it will take another three months to reduce that inventory’ before builders will start putting up houses again, he said.”

The LA Daily News. “So far this year, 52,780 housing permits have been issued by local government agencies across California, down 18.9 percent from a year ago. ‘I wouldn’t call it a strong year,’ said Alan Nevin.”

“In the Los Angeles area, multifamily permit activity, condominiums and apartments, increased an annual 31.6 percent, to 6,478 units. ‘L.A. is doing very well in multifamily. It’s the strongest in California,’ Nevin said. ‘The market is really hungry for condominiums,’ he said.”

“Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said that activity locally could cool toward the end of this year. ‘I think a lot of people were expecting home building to sort of be in step with the resale housing market. But there is a lot of stuff in the pipeline,’ he said.”

Several readers suggested a topic on the housing bubble exodus. “I would be interested to hear from people who left California for the midwest and if they are happy with the decision to move or plan to move back once prices improve.”

Another added, “An overall topic of people who left CA and went somewhere else would be interesting. I left CA 6 months ago, now live in the Ozarks.”

And another, “How about some discussion of the ideas where large businesses in places like LA are relocating and selling their buildings for housing. Also Magjic Mountain selling out to developers. If the businesses and entertainment places sell out to housing, at what point would people not have any work, places to go for entertainment, or afford all of the new available housing.”

A business decision. “My brother moved his business from Anaheim to the midwest because of the cost of warehouse space. In Anaheim the warehouse rent was $7K/month, in the midwest he could buy a larger warehouse for $100K. Since his business is all mail-order and his employees were also willing to move, it was an easy decision despite his never living or working anywhere but the LA area.”

One went to Georgia. “I moved from Mission Viejo California to Ringgold Georgia where the entire county has a population of 55,000. Best move I ever made!”

And Arizona, “Best move i ever made. Kingman AZ. No gang bangers, just a few meth labs.”

Another asks for opinions, “I’m about to leave California for the midwest. I would be interested to hear from other people who have done the same.”

The Salinas Californian. “A decade ago, Mark Scarr said, his moving company had 10 families coming into the Salinas area for every five going out. Now, the opposite is true, said Scarr.”

“Average home prices are out of reach for 91 percent of the county’s residents, according to a report released by a group that promotes fewer restrictions on growth. ‘Young people that are wanting to find housing are finding it increasingly difficult,’ said Tom Carvey.”

“Scarr said his clients moving out of Salinas are mainly retirees whose home values have appreciated dramatically, so they can sell here and buy something nicer out of state. Jerry and Edrie Goldstein have their Maple Park home on the market and plan to move to Texas to live closer to their grandchildren. ‘We are not fleeing, and we are not trying to cash out our home,” said Jerry Goldstein.”

“They are asking $1.175 million for their five-bedroom home after buying it in 1998 for about $370,000, Jerry Goldstein said. He said they added a second story to the house and a host of other improvements. Goldstein said they plan to move to a nice neighborhood in the Dallas area, where a house similar to their Salinas home would cost about 40 percent less.”

“Compared with 2002, the county now has twice as many homes listed for sale. ‘Salinas definitely has a lot more properties on the market,’ said Jean Manner Schwimmer, a Realtor in Salinas.”

“(Property manager) Jan Leasure said rental vacancy rates have also been high, from 5 to 7 percent, for the past five years. ‘The rental market has been affected by the fact that there has been a mass exodus from the coast of California to the inland areas and other western states,’ she said.”

The Wall Street Journal has this report on home pricing strategies. “Now that the market has grown uncertain, homeowners are at more of a loss when deciding what price tag to put on their property. Some sellers are experimenting with non-traditional strategies for setting prices.”

“When Eleanor and Simon Golledge put their Bradbury, Calif., home on the market in April. Instead of naming a price, the Golledges (who are selling the home without an agent) settled on an asking range. On a for-sale-by-owner Web site, they say they will ‘entertain offers’ from $1.198 million to $1.298 million.”

“It almost worked. The couple, who paid $770,000 for the house two years ago, has received three offers near or below the low end of the range. They accepted the highest, for $1.2 million, but it fell through on a seller’s contingency. They’re hoping for another offer that’s closer to their high number.”

“Two weeks ago, Rita and Daniel Davis put their three-bedroom Craftsman bungalow in Minneapolis on the market for $284,900. A week later, the price tag was $279,900. Cutting the price is common practice,- just not so quickly. The fast drop wasn’t due to unfamiliarity with the market. Before they listed their house, the couple had visited seven others for sale nearby. They discovered that many were similar to theirs, and worse, there was something for sale on every block.”

“By cutting their price within days, the couple hopes to send a message that they’re flexible. ‘We’re between a rock and a hard place,’ says Ms. Davis.”

“In February, Jonathan Hinkle put his five-bedroom home in Lansdowne, Va., on the market for $1.35 million. He purposely set it high and cut the number by $50,000 a few weeks later, and continued dropping it by $50,000 every few weeks until it reached $1.05 million. Mr. Hinkle, who bought the house two years ago, says that’s close to the lowest price at which he can afford to sell.”

“He says he didn’t get any serious shoppers until the price fell to $1.1 million. However, all were lured away by nearby builders, who recently began underwriting closing costs, buying down mortgage rates and giving away such things as $500 gasoline cards and three years’ worth of paid electric bills.”

“Cincinnati professor John Bryan tried to price his home carefully. He bought a new five-bedroom home in January. He finally set the price at $324,000. He received one contract, for $307,000, but that fell through. He has just lowered the price to $299,900, even though he may lose money on the deal after closing costs and commissions. (He bought at $250,000 in 1998 and added $56,000 in renovations.) He hopes the new price will bring his listing to the attention of a new group of Internet shoppers.”

“Mr. Bryan says he is disappointed that he had to drop the price so low, but he thought it was the best solution. ‘I’m trying to break a psychological barrier,’ he says.”

What are your housing market predictions at the mid-year point of 2006? Call any market; local, regional or global. This thread will be forwarded through the holiday weekend.

Or this from the topics thread. “How about: Mortgage Rate Predictions For January 1st, 2007.”

A reply, “I’m already giving myself a little pat on the back for the prediction of a 7% 30yr rate by July. All of my LO’s thought I was crazy last winter. I think we’ll hover between 7.0%-7.5% for remainder of the year, but cracking 8% wouldn’t surprise me.”

Another said, “Why does this matter? Doesn’t everyone buy with I/O ARMs these days? In fact, other than the super-rich, can anyone in California coastal communities conceivably buy with a 30yr fixed?”

An answer, “Excellent point, but where it’s at at any given time does seem to have it’s psychological effect. I agree with you, though. One of my LO’s made a comment the other day about the 30yr, and my response was to ask her when was the last time she did a 30yr fixed purchase. She just kind of stared at me a few moment.”