The Housing Bubble

Some housing bubble reports on California. “Brookfield Homes said late Thursday net new orders for the second quarter totaled 255 units, down 49% from the same period last year. Brookfield said the decline in new orders continues to be primarily in the San Diego/Riverside, Calif., areas and Washington D.C. markets.”

“The decline results from an overall more competitive market environment as resale inventories increase and potential homebuyers take a wait-and-see approach, the company said.”

The Fresno Bee. “‘We have a glut because [property] is not moving as fast,’ said Amie Sterios, who in January sold a 12,000-square-foot house on Van Ness extension for $3.69 million after dropping the price from $4.39 million.”

“‘If we close 80% of what we did last year, we’ll be fortunate,’ Fresno builder Gary McDonald said. ‘We could sell more homes if they could sell theirs,’ he said.”

From a press release. “Having completed all the planning and permitting necessary to convert a former Chevron property in the heart of San Diego’s trendy Gaslamp Quarter into an architecturally striking 26-story condominium tower with 200 units, regional developer TC Holdings is now turning to auctioneer Inland Real Estate Auctions to auction the development opportunity to someone else.”

“‘More and more, as the market changes, developers are seeking ways to share the risk and reward of significant developments in red-hot markets like San Diego and Chicago,’ said Frank Diliberto. ‘In the last 18 months, the number of permit-ready development projects that have been referred to us for auction has substantially increased.’”

From the Valley Voice. “Visalia and Tulare home builders continue a torrid home building pace in mid-2006 while the number of unsold homes on the market continues to grow. Something’s got to give here but it’s not clear when it will.”

“As of July 1, there were 1,801 active listings in the MLS that includes both Visalia and the town of Tulare. That’s up from 1,690 on June 1, 2006; 1,005 in November of 2005; and 437 in July 2005.”

“But builders of new homes don’t appear to be adjusting their pace here despite a slowdown in building activity nationwide. So far this year, Visalia has permitted 737 homes, about the pace they did in all 2005 when permits for 1,450 homes were pulled, a record year. ‘We don’t see any end to it,’ says the city’s top building official Dennis Lehman.”

“If the city is buoyant, existing homeowners trying to sell their houses are not. Realtor Brad Maaske says his office is seeing fewer qualified buyers looking for homes. ‘The speculators are gone,’ he says, leaving available buyers to come from the local markets in a town with only limited job growth prospects.”

“A report done by Icenhower Real Estate pointed to a key insight into what is happening in Visalia: competition in new homes and the volume of product ‘has driven down prices for both new houses and existing homes’ with the coming of a score of new big home builders to the local market.”

Inman News reports on the continuing speculation in housing. “Economist Mark Dotzour said he gave a presentation earlier this year to a group of Texas mortgage professionals in which he asked how many of them had recently closed a mortgage loan for a California resident, about 75 percent raised their hands in response.”

“‘This is quite a deluge. It’s quite widespread,’ Dotzour said of the influx of California buyers to the Texas market. ‘We’re starting to see a pretty significant migration of California people not only buying property for investment but moving here to live.’”

“Several communities in Texas appear to be ripe for a boom as the national housing market winds down from its formerly feverish pace, he noted. Odessa and Midland led in home-price appreciation in the fourth quarter 2005, Dotzour said; Odessa had 15 percent year-over-year price growth for the quarter. Real estate markets in El Paso, San Antonio, Wichita Falls, Corpus Christi, Tyler and Brownsville, among others, are also on the upswing.”

“Mary Manry, broker in Fort Worth, Texas, said, ‘We see a big influx of California investors,’ Manry said, noting that Californians can buy a lot more house in Texas for a lot less than they could in their own state. ‘I think we will see the benefits of a lot of these overheated markets coming this direction.’”

“North Carolina is seeing an influx from Florida and other Eastern states, said Renee Hentschel, an associate broker in Hickory, N.C. ‘Sales have doubled for me, personally. A lot of that is due to a lot of folks from Florida. They’re cashing out on the homes they bought, taking the equity, and coming here. They’re actually getting more house for their money,’ she said.”

“Sharon Lyons, broker in Carolina Beach, N.C., said that properties in her market area dramatically appreciated in a short period of time last year, and she attributes the surge to increased interest by people from other states. Sales have slowed in the area this year, though, falling 24 percent in Wilmington in May compared to May 2006.”

“Trela Bird, a Realtor in Midvale, Utah, said the Greater Salt Lake City began to boom last year. ‘We’re seeing a lot (of buyers) from California, and a little bit from some of the East Coast states, some from Texas, Arizona and Nevada. I think the news has gone out, we’re number four in job growth right now and prices compared to a lot of places are still reasonable,’ Bird said.”

“‘We get people from California (who say), ‘Oh, wow. We can get twice the house for half the price,’ she said. Buyers from out of state seem most interested in new and newer homes, she said.”

A pair of reports on markets in the Nevada area. “The Lake Tahoe home market continued its slowdown through the first six months of 2006, according to a report released by a Incline Village-based real estate firm. Through the first half of this year, the amount of existing single-family homes sold fell 41 percent from the first half of 2005, to 404 units, for the combined East Shore, South Shore, Tahoe City and Incline Village areas.”

“Homes of more than $1 million have fallen 16 percent, to 106, through the first half of this year compared with the same period of 2005. Sales of less than $1 million have dropped to 298 so far in ‘06, down 46 percent from ‘05, according to the report.”

“Lake Tahoe condominium units sold, on 140, is down 37 percent through the first six months of last year. ‘I don’t think we need to be concerned until we see the median and average prices starting to drop drastically,’ Sue Lowe, VP for Chase Intl. said. ‘We are going back to our typical market. We have more inventory and a longer period of time to sell your home.’”

The USA Today. “Real estate looks like one of the biggest gambles in Las Vegas. About 60% of home buyers from January to March took out high-risk loans that give them the option of paying only the interest or even less each month, according to LoanPerformance.”

“The number of condos listed for sale is up 67% from last year. And a dozen projects are under construction or have recently been completed. ‘The condo market, there are your investors; that’s the whole story of the market,’ says Dennis Smith of Home Builders Research, a data firm.”

“At least five condo projects have been canceled in recent months. Sales of single-family homes were off 17% in May. And with a 7½-month supply, it’s definitely a buyer’s market.”

The NAR has the pending sales numbers. “The Pending Home Sales Index,* based on contracts signed in May, was 10.1 percent lower than May 2005. David Lereah, NAR’s chief economist, said the index appears to be moderating.”

“‘The slight change in pending home sales indicates the market is beginning to level out,’ Lereah said. ‘This is consistent with our forecast, which is showing a soft landing for the housing sector. We are entering the second phase of the transition period from the housing boom, in which sellers are becoming more realistic about their expectations, sales are stabilizing and annual home price appreciation is returning to historic norms.’”

“Regionally, the PHSI in the South was 7.3 percent lower than May 2005. In the Northeast, the index was 7.8 percent below a year ago. The index in the Midwest was 13.6 percent lower than May 2005. The index in the West was 12.9 percent below a year earlier.”

A New York television station looks at why borrowing rates are higher. “Mortgage broker Ellen Bitton wants you to remember that even with the recent rise in mortgage rates, they are still lower than they were five years ago.”

“Luther and Nellie Davis have been following the Fed announcements for a year and a half. Construction on their new home took longer than they expected, so they paid money to lock in the interest rate for nine months. ‘And then after that we paid another $75 to lock in another rate for another six or nine months, and then we gave up locking in rates,’ says Luther.”

“So much for hurrying to beat the rate hikes. And does it really matter? ‘The love affair with real estate and the mortgage business doesn’t end just because interest rates go up or go down. It doesn’t start or finish just because of where interest rates are,’ says Bitton. You can always re-finance.”

Some reports from New York. “A sharp drop in the average price of Manhattan condominiums could revive concerns that the luxury condo boom, which has been seen around the five boroughs at an increasing rate since 2002, could result in a glut of apartments or developers rethinking their pricing expectations.”

“Appraiser Jonathan Miller said some of the apartments now coming on the market are suffering from bad timing. If they had been completed over a year ago, they would have appreciated more quickly. Now, he said, higher mortgage rates have lowered demand and buyers are taking their time. ‘Mortgage rates were what created the frenzy, and mortgage rates are what ended the boom,’ Mr. Miller said.”

“His analysis shows that the overall inventory of listed Manhattan apartments is up more than 50% versus last year. ‘Sixty percent of condos in inventory right now are from new development,’ Mr. Miller said. The average price of condominiums, which represent the vast majority of the new housing stock entering the market, decreased between 7.4% and 17% since a year ago.”

“Last year, there were more than 31,000 residential building permits issued citywide, and more than 8,000 in Manhattan, the most since 1988, when records were first kept by the city’s department of buildings. Through March of this year, that building trend has continued, and Manhattan is on pace to exceed last year’s totals.”

“An economist for Brown Harris Stevens, Gregory Heym said developers of new apartments are typically slow to publicly report when prices need to be trimmed down, but he said there is ’some concern that some of the projects will be able to get the prices they need.’”

“Messrs. Heym and Miller said that so far the decrease in prices of new condos is less than had been feared, and they are looking to see if the downward trend continues next quarter. ‘In this transition period there is more inconsistency,’ Mr. Miller said. ‘It is the transition from a housing boom to a period of modest to flat growth.’”

“The inventory of condominiums, which recently have accounted for nearly all new development in the city, soared 93.5 percent from last year, while the inventory of co-operative apartments increased 30.8 percent. ‘I wouldn’t want to see the inventory go up too much more,’ Dottie Herman, Prudential Douglas Elliman’s CEO said.” ”

“‘The Wall Street bonus money exaggerated price growth, because at the same time you had rising inventory,’ Miller says. The second quarter had the highest inventory level since 1999, when Miller began tracking sales. The decline in sales activity was the worst in three years, he says.”

“The growing inventory is due to a tug-of-war between many sellers and buyers who are having trouble converging on prices. ‘I’m struck by how many buyers are waiting on the sideline,’ Miller says. ‘There are buyers, they’re just not pulling the trigger.’”

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