The Housing Bubble

The News Press has this from Florida. “Cape Coral may have fewer construction jobs by the end of the year if the four-month decline in single family home permits continues. The city issued 251 permits in June. That’s just under half the 525 issued in March and the lowest monthly total since 218 were issued in August of 2002.”

“‘Buyers are defaulting. They don’t like the market right now. It’s the resale market. It’s down,’ said Cheryl Sczesny, sales manager for Adams Homes.”

From The Palm Beach Post. “Looking for that dream home? Try scrolling past eBay’s ‘pottery and glass’ category. Click on ‘real estate,’ enter the keyword Florida, and stand back. Midafternoon Monday, the online auction house listed 528 Florida real estate and time-share properties; about three out of every 10 on the auction block were in South Florida.”

“Plenty of South Florida sellers clearly are looking closer to home. And some are willing to sell in bulk. Boca Raton businessman Giovanni DiStadio is back on eBay this month with another offering: A total of 67 West Palm Beach condos are up for grabs for a bargain-basement price of $7.7 million; ‘only $116,000 a unit!!!’ bellows the ad.”

“With only four more hours left to bid, a Jensen Beach time share topped out at $860, less than the annual maintenance fee. And in true eBay style, early bids seldom offer much in the way of profit to anybody: The initial asking price on a Delray Beach condo was a blushingly modest 99 cents.”

From the Miami Herald. “Developer Related Group announced it passed the $1 billion sales mark at ICON Brickell, a three-tower condo and hotel project in Miami. The condo developer, the biggest in the country, reached the milestone despite what it called the ‘gloomy forecast for real estate.’”

“In the heady days of the condo boom, Related Group would sell out projects in weeks. In a recent interview, Chairman and CEO Jorge Perez wasn’t gloomy, but he wasn’t bubbly either.”

“‘What goes up must come down,’ he said. ‘You don’t have huge expansions without a period of decline or adjustment. This is `Real Estate 101.’”

A trio of reports on housing markets from the northeastern US. From Pennsylvania, “Home sales stalled in York and Adams counties in the first five months of the year. ‘It’s been flat, I’d characterize it as a high plateau,’ said Steve Snell of Realtors Association of York and Adams Counties. ‘We’re at a point where we’re staying constant at that high level. We can’t continue to grow as we have and not have some negative consequence.’”

“Jacob DeRooy, a consulting economist for the Pennsylvania Association of Realtors, sees it differently. ‘It’s evident what’s happening: We have a softening of the real estate market after five years of booming sales and booming prices,’ he said. ‘The prices of houses have been rising at a rate well above that of general inflation that could not be sustained for very much longer,’ he added.”

“The inventory, or number of homes listed, went up 73 percent from last year. But that’s not because of a slower market, Snell said, but rather because of a 43 percent increase in new listings.”

From Connecticut. “July might represent a turning point for the housing market and a good time for bargain hunters, some real estate agents said. ‘That big spring market never came,’ said realtor Jerry Dee. ‘There is a lot of inventory.’”

“The number of homes on the market has about doubled in the last year, and it’s not because more people are selling. In some cases prices are falling. In most cases, sellers might shave $10,000 to $12,000 off the price of their home to make it more attractive to the buyer. But in one case, a $449,000 home in Danbury was reduced to less than $400,000, said Don Fleming, a Realtor in New Milford.”

“‘This is a real transition point. July is a moment of truth. Sellers may face wake-up calls if they priced their house at the growth rate of previous years and they are not getting offers,’ said Fleming.”

“Dee is not sure he would call it a buyer’s market. ‘It’s an in-between market,’ he said. ‘I’m still out there every day. I have enough customers. I just have to spend more time with them.’”

The Boston Herald. “Three times hasn’t been the charm for would-be condo seller John Ryle. He’s cut the asking price on his Beacon Hill one-bedroom three times in as many months, but hasn’t gotten a single offer.”

“So this week, the 35-year-old told his real estate agent to look for potential renters in addition to buyers. ‘We just feel like maybe it’s a better idea financially to hold onto the place and see how the market looks next year,’ said Ryle, who is trading up to a Redding house.”

“Ryle isn’t alone. Real estate agents say more and more sellers who can’t line up buyers are deciding to look for tenants instead. ‘I can find a tenant to pay $1,500 a month for a one-bedroom Boston condo with my eyes closed,’ said Ryle’s agent. ‘If someone has a mortgage below $2,500 or even $3,500 a month, they can cover that through renting and move on with their lives.’”

“Sellers say receiving rent beats accepting low-ball offers or carrying two mortgages. ‘We’re thinking: ‘Why not just rent it and hold out for the real estate market to turn around?’ It always does eventually,’ Ryle said.”

Thw Wall Street Journal has this interview with Kenneth Heebner. “To get a lay of the land, we tracked down Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc.”

“WSJ: How is the housing market? Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we’re going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.”

“WSJ: What has you so concerned? Mr. Heebner: I’m worried that more people will default on their mortgages. Risky mortgages..have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic.”

“As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, ‘I’m outta here.’ You’re going to see increasing foreclosures over the next several years. As [home] prices come down, it will create a difficult environment for home builders.”

“WSJ: What data have you most worried? Mr. Heebner: We’re seeing a huge increase in inventories of unsold homes. The role of incentives in selling a home is increasing so the weakness doesn’t show up immediately in list prices. Large price declines will follow in inflated markets.”

The Arizona Republic has some reports on the housing bubble. “Following decades of growth measured mostly in new prisons and mobile homes, any cooling hitting the Pinal County home market is a matter of perspective. And from the existing homeowner’s perspective, it hurts. Home builders have recently started slashing prices and offering perks.”

“And existing residents, from the investors determined to still make big bucks to overleveraged homeowners who need to sell at a certain price, are feeling the fallout. As a result, resale-home sellers are grudgingly cutting prices by tens of thousands of dollars, and their homes are still sitting unsold for half a year.”

“Titus and Angel Metzger put the Maricopa home they bought in July 2004 on the market in January so they could move up to a bigger home in the western Pinal County city. A second real estate agent and $40,000 in gradual price cuts later, they still have a sign in front of their home and only a few lookers have stopped by.”

“When they refinanced their house into a $174,000 loan, they couldn’t have imagined 2006’s market cooling. Now, they’re in a pinch. ‘Have we had luck trying to sell? It’s not even ‘no.’ It’s a big, ‘Hell no,” Angel said. ‘I’m ready to put on a clown suit and stand on the corner and do cartwheels.’”

“Ironically, builder D.R. Horton has slashed the price of the new home they want from about $300,000 to $215,000, cheaper than the smaller, older home they’re trying to sell, and offered a $10,000 down payment if they finance through the builder’s preferred lender. ‘They wouldn’t drop the price $80,000 if they weren’t desperate,’ Angel said. ‘That tells me something.’”

“They hope to sell within the next few weeks to avoid losing their $5,000 deposit on the new home.”

“Santan-area resident Karen Marsh put her 2-year-old home on the market in April and has seen only a handful of people walk through. ‘It’s just so frustrating,’ Marsh said. ‘We finally quit doing open houses because we would have to go out for the day and no one would show up.’”

“There are six other homes for sale on Marsh’s block alone. According to a neighborhood real estate Web site, there are nearly 250 homes for sale in Marsh’s San Tan Heights development. On top of that, there are brand new homes being offered just blocks away.”

“Developer Stacey said investors in homes drove up the market. Now, he said, people are looking to buy homes they’ll really live in. ‘We’re kind of like spoiled children in a toy store, and we’re throwing a fit and stomping our feet when Mommy finally said, ‘No,” Brimhall said.”

“It doesn’t matter much to investor Dana Byron, as long as any downturn doesn’t become so frigid that he can’t find occupants for his seven rental homes. ‘For me, the thought of punching a clock for 40 hours a week until I’m 65 is annoying,’ Byron said.”

“He recommends not fretting over the little things like collecting rent that is lower than monthly mortgage payments. ‘You can’t be upset you lost $200 on a rental when you made $10,000 in equity,’ he said.”

“He said many investors and homeowners have become used to big gains and are panicking over the market unnecessarily as it tries to find normalcy. Byron said renters help build his equity and ability to hold on to properties longer so he can sell when prices are more favorable.”

“Skip Brown (with) the Coolidge Unified School District, said a slowdown might be a welcome relief for both building new schools and finding the staff to fill them. ‘I wouldn’t mind a little, let’s take a breath here,’ he said. “Everybody count to 10. And maybe our HR guy won’t jump off the building.’”

“Byron Jackson, mayor of Eloy, thinks his city might actually benefit from a downturn. ‘It’s not going to hurt Eloy,’ Jackson said. ‘Is it doom and gloom? Probably not.’”

“Jordan Rose, a development attorney, said land developers and farmers who sold an acre for $5,000 a few years ago ran up their starting prices to $80,000 an acre about nine months ago, often without doing anything to develop the land: no rezoning, no plans, no nothing. As sanity has returned, land prices have begun falling back to the $30,000 to $40,000 range, she said.”

“Developer Brimhall, who years ago bought land at prices as low as hundreds of dollars around Pinal County and south Maricopa County said they sensed a coming cooling.”

“‘People kept redefining what low (land prices) meant. To me it meant $1,500 an acre,’ Brimhall said. ‘But to guys coming off the plane, low was $50,000. They bought too close in at high prices. Depending on how long the downturn lasts, they won’t be able to hold out.’”

The Washington Post reports that thousands of condos are becoming apartments. “The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two year.”

“Among the renters is Randell Rogers, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he is renting a two-bedroom townhouse in Herndon for $1,400 a month, about half of what he thinks he would pay each month if he bought a similar townhouse for about $450,000.”

“‘It makes more sense to rent this year while values keep going down,’ Rogers said. ‘Even with the tax break, it doesn’t make sense for me. It’s just not reasonable to buy.’”

“Other affluent families are doing the same. Laura Holliday, and her husband, tired of the chores associated with homeownership, the heavy mortgage payments and the hassle of commuting each day to the District from the Mount Vernon area of Alexandria. They sold their house in July 2005 and moved to a townhouse in the Clarendon area of Arlington, where they can commute to work by Metro and have more time to spend with their two young children.”

“‘We probably won’t rent forever,’ Holliday said, ‘but for now, we are definitely enjoying renting.’”

“‘Every large developer I know is working on a project that was expected to be condo, and that they are now taking back to apartments,’ said Mark Coletta, (who) is building about a dozen projects in the Washington area. ‘That’s what everyone is doing.’”

“Stephen Muller, who is building a 183-unit project, said he began considering the shift after a well-heeled family rented a single-family house he owns, saying they did not think it was a wise time to buy. ‘I think it’s frankly smart,’ he said.”

“Coletta said he was influenced by the performance of Fairfield’s condo projects in Fair Oaks, Herndon and Germantown. ‘All are doing fine, but we’ve clearly see fatigue on the part of the consumer,’ Coletta said. ‘Traffic has dropped off, contracts have slowly declined. You see the writing on the wall at the same time apartment fundamentals are improving. It makes the business decision a pretty easy one.’”

“Developers who proceed with condo plans face a flood of competitors. There are some 26,600 condo units being marketed in the Washington region, up from about 23,100 in the same month last year. But there are some 48,000 units moving toward construction.”

“Economist Gregory Leisch said that condo developers increase the base price of units so existing owners and new buyers feel confident they are buying into a rising market, but that then they offer concessions, better appliances and upgrades, picking up part of the closing cost, so new buyers think they are getting a good deal.”

“‘It’s the old shell game,’ Leisch said. ‘You increase the price to reduce the price so after all that nonsense, the price is unchanged. Car dealers do it all the time.’”