The Housing Bubble

The Columbian has this update on the condo market in Washington. “With Clark County single-family home prices rocketing upward in the past 18 months, demand for condominiums and townhouses should be rising, right? But according to the MLS for Portland-Vancouver, condo and attached home sales have been remarkably steady, peaking in September with 100 units sold that month, then dropping to between 50 and 70 units sold per month this spring.”

“With contractors paying top dollar for dirt and materials, new townhouses may take several years before yielding significant returns, said Dick Riley, co-owner of a Vancouver-based appraisal firm.”

“The countywide inventory of condos and attached-wall homes for sale has risen by nearly 40 percent in the past 12 months to an all-time high. New construction, apartment conversions and sales of existing condos added up to 388 attached-home units on the market in May, up from 278 units from May 2005. The inventory of single-family homes for sale has also risen this spring as interest rates cooled demand.”

“Buyers seeking quick returns on their condo investments should prepare to hang onto the home, given cooling real estate markets and increasing supply, Riley said. ‘When you get that much inventory, you’re not going to have a lot of appreciation in the first two or three years,’ he said.”

“Owners of the 194-unit downtown Vancouvercenter announced plans in March to change the development’s dual high-rise apartment buildings to condos. That project and NorthWynd, along with 108 units being converted in the Salmon Creek area, will add more than 500 condos to the local attached housing market.”

“Some condo developers worry about the rising inventory of attached housing units. Trent Pietz said his company has sold 25 units in the 74-unit Vintage Oaks complex in Salmon Creek since converting the development eight weeks ago. But condos haven’t been selling in the company’s nearby 36-unit Running Springs complex.”

“‘We saw a couple of apartment (complex) conversions and thought, ‘Well, let’s give it a try,’ Pietz said. ‘The cost of construction has gone up so much, the rents barely cover your expenses.’”

“The company chose to convert the two projects as a way to recover costs for developing the two projects. Both complexes opened within the last 18 months. ‘We might be competing with ourselves down the street,’ said Pietz.”

The Arizona Daily Sun has this headline this morning; ‘Hot housing market starts cooling off. “Home prices in Flagstaff have remained relatively stable since last year’s massive increase, but homes are staying on the market longer as buyers take their time.”

“Statistics from NAAR show homes staying on the market an average of 65 days, almost two weeks longer than last year. The number of homes sold for the second quarter of 2006, 320 homes, is also down 17 percent from last year’s figures.”

“A perfect example of the cooling off in the local real estate market might be found in a 2,540 square-foot home in Ponderosa Trails. The owners of the home have had to reduce their asking price twice, an action unheard of last year, when real estate agents say offers on homes would come in hours after the home was listed for tens of thousands over the asking price.”

“Beth Heerding, a Realtor who is helping sell the property, said incentives and price reductions are a sign of the times, with more sellers competing for fewer prospective buyers. The owners reduced their initial asking price from $499,000 to $474,900 to better compete with other homes on the market and because the owners are moving out of the Flagstaff area.”

“Realtor Ann Heitland said in addition to asking price reductions, offers of down payment assistance or paying the closing costs are some of the incentives sellers are using to close the deal here in Flagstaff.”

“Bill Ring, a Flagstaff land use attorney who works closely with several developers, said developers are giving close scrutiny of their future developments, but no one is scrapping their plans.”

An update from the Bakersfield Californian. “The days of instant equity are over. The real estate market’s torrid pace has slackened. Interest rates are on the rise. Introductory rates for exotic loans are ending. And tens of thousands of homeowners are starting to miss mortgage payments.”

“About 530 Kern County properties entered some stage of foreclosure during the first three months of 2006, according to a recent report.”

“Local real estate companies are taking notice, said Phil Brown. Brown recently held a couple of workshops to help educate local agents. He said he expects foreclosures to keep climbing. ‘More and more folks are going to get in trouble.’”

“The recent uptick in foreclosure rates doesn’t come as a surprise for industry insiders, said Dustin Hobbs with the California Mortgage Bankers Association. ‘The party has to end at some point,’ Hobbs said. ‘It’s not catastrophic.’”

The Orange County Register. “Homeowners behind in their mortgage payments after hocking the house to pay for a major remodel or a new boat or car may be in for a rude awakening. If they previously refinanced and their lender decides to foreclose, they may not only lose their house, but the bank also may be able to go after their other financial assets including stocks, savings and their paycheck.”

“A foreclosure may mean a big tax bill from the IRS and state Franchise Tax Board for any shortfall between what the bank gets for the sale of the owner’s home and the value of the loan. ‘This is going to become a hot topic,’ predicts Bradford L. Hall, managing director of Hall & Co., CPAs in Irvine.”

“Some homeowners with little of their own money in their homes may think they will do what strapped homeowners in the ’90s did: turn over the keys to their lender if things get really bad and walk away.”

“But Hall and other financial experts warn that things may be different this time because so many people have refinanced. The difference is the recourse loan. In California, refinanced loans, second trust deeds and home equity lines of credit are generally considered recourse loans. In these cases, a lender can file suit and go after almost any of the borrower’s assets once they obtain a court judgment. ‘They can literally go after everything you have,’ Hall says.”

From the Press Express on Inland Southern California. “With home sales slowing, builders are offering incentives..to draw potential buyers to their new communities. Builder concessions began to appear in the winter and some industry experts had predicted they would melt away in the spring, which traditionally marks a resurgence of home buying.”

“But the sales decline has persisted into summer and builders are still striving to eliminate a larger inventory of unsold homes than they have seen in years.”

“A consulting service for the home building industry said in the first five months of 2006, new home sales dropped almost 50 percent in San Bernardino County and more than 29 percent in Riverside County compared to the same period in 2005.”

“As of May the two-county Inland region had 617 newly built homes still unsold and another 2600 homes under construction without pre-commitments from buyers. Patrick Duffy said that is about double the region’s inventory of unsold homes built or under construction in May, 2005.”

“At a K Hovnanian Homes condo sales office, sales consultant Sojja Cerini said incentives are very important to first-time buyers. ‘You aren’t selling the product. You are selling the payment,’ Cerini said.”

“That day, K Hovnanian was offering to pay up to $7,000 in closing costs at the Palacio De Oro condominium project where Cerini works. A $15,000 incentive package was available for a $329,000 three-bedroom condo that had just fallen out of escrow.”

“Cerini said builders generally prefer offering concessions such as upgraded flooring, cabinets and granite countertops or covering homeowner association fees for a year rather than cut home prices. ‘It is better for previous buyers,’ she said. ‘Seeing prices drop would worry them.’”

“Mike Van Daele, chairman of Van Daele Communities, said last week the Riverside builder slashed $30,000 off the price of the last 20 homes in a Menifee development. He said the company was responding to especially slow sales in southwest Riverside County caused by a loss of move-up buyers from San Diego County who have seen declines in their home equity.”

“Van Daele said incentives, other than price cutting, have not proven very effective in stimulating sales. He said they can confuse home buyers who may wonder how much value there is in giveaway upgrades that builders offer.”

“Roger Anderson, director of sales and marketing for Tanamera Residential Group, said builders that saw price discounts spur the sales of standing inventory also have begun lowering prices in new construction phases by about 5 percent.”

What do you see in your housing market this weekend? Motivated sellers? Builder incentives? Here is one from the Twin Cities. “Some metro homeowners frustrated with a slowing home sales market are using innovative incentives to attract buyers. The seller of a 1926 Tudor is offering a free car for the buyer, a trend some think will increase.”

“‘I think to get people motivated this may be the next step to getting the energy back in the market,’ says Suzanne Bates, a real estate investor.”

The Burlington Free Press, in Vermont. “For the first time in a decade, the median price of a home in Chittenden County has fallen. Higher interest rates and an exodus of investors have deflated a market where double-digit inflation has been the norm, according to a local real estate analysts.”

From Bend Oregon. “So, is Bend’s bubble heading towards a future burst? ‘It does appear and feel to me that the market is softening as expected and there will be no ‘bubble burst,’ but this will be more clear by mid-summer,’ according to DavidFoster.biz.”

“For anyone wanted to sell this year, they will need to be more careful and competitive in choosing a list price. As buyers have more homes to choose from, become more discriminating and reluctant or simply unable to afford the higher prices; people may not have to pay full price.”

The Washington Post. “The Baltimore Symphony Orchestra’s Decorators’ Show House, a 1929 Mediterranean-style mansion on almost six acres in fashionable Greenspring Valley, failed to sell at auction last week.”

“Though the house is a ‘remarkable property,’ its failure to sell didn’t shock Paul Cooper. ‘We knew we would be challenged to do it’ because about 29 properties in Baltimore County are currently listed at $2 million-plus, but only four such properties have sold in the past four months, Cooper said. ‘That’s one a month; you do the math.’”

From the topics thread. “For those interested in the Northern New Jersey market.”

June Average Sales (2003-2005): 3486

2005 Sales: 3682

2006 Sales: 2911 (Down 20.9% Year Over Year)

“June statistics for Northern VA (and all counties around D.C.) are out. The first column is 2006 and the second is 2005.”

Loudoun County, VA Median Sold Price: $ 485,000 $ 491,000..-1.22 %

Total Units Sold: 515, 994 - 48.19 %

Another had this anecdote. “Anybody besides me doing any home improvement projects right now? I’m finding contractors are actually returning phone calls now; a huge change from only a few months ago.”

The Boston Globe has this update from Massachusetts. “The decline in real estate sales, coupled with a surge in the number of available properties, is forcing some sellers into a bind. Already smitten with a new home, they must make tough decisions. Do they slash their asking price in order to unload their property quickly? Do they let their dream home slip through their fingers while they wait for the right buyer?”

“The number of condominiums on the market in the northern suburbs last week was up 46 percent over what was available at this time last year. The number of single-family homes up for sale in the region is also much higher: 2,666 last week, compared to 1,972 a year ago. But the number of homes sold is declining.”

“‘The market just came to a screeching halt,’ said Ellen Tibbetts in Danvers, who has been a realtor for 12 years. ‘I’ve gone without a pay check for six months now. It’s prompted my husband to start calling what I do ‘volunteering.’”

“The drop in sales is bad news for many of her clients, including Chris and Heidi Schrock, who own two properties: A three-bedroom ranch with in Hamilton and a cozy four-room Cape Cod-style home in neighboring Wenham. The Schrocks’ Hamilton home has been on the market since last July.”

“‘We’ve had a string of open houses since February, and multiple private showings,’ said Heidi. ‘It’s tiring. People will say they love the house, but then they’ll tell me they have 10 or 12 other listings to go to. There’s just too much inventory out there right now.’”

“The Schrocks have lowered their asking price by more than $70,000 over the past year, to $422,500. To date, they’ve had only one offer, of $476,000. But that was last fall, before the market cooled, when the Schrocks thought they could do better.”

“‘The offer came with a lot of contingencies, and at the time our home had only been on the market a few months, so it was a no-go,’ said Chris. ‘We had already purchased the Cape, and knew we could swing the mortgage payments on both properties, so we took a calculated risk,’ added Heidi. ‘Real estate is always a gamble.’”

Please post off-topic ideas, links and Craigslist finds here. This thread will be forwarded through the weekend.

A trio of housing bubble reports from Florida. “Realtor Art Broslat is concerned that there are still thousands of empty platted lots in both North Port and Port Charlotte, all owned by different people with different ideas and timetables.”

“‘The thing that concerns me is that..land prices are going up, but lot prices have dropped like a rock. That will encourage a different in-migration from the $400,000 opera-goers. In North Port, there are zones that are relatively concentrated (with homes). Then there are zones where you can drive a long way down a street and there are no houses.’”

“North Port City Commissioner Dick Lockhart said, ‘There’s hundreds of General Development houses for sale. (North Port’s) still a bedroom community, but it’s geared to catch up. Lowe’s is coming in, and of course we have Home Depot and Wal-Mart.’”

The Sun Sentinel. “The number of foreclosures is ballooning as strapped homeowners can no longer make their mortgage payments or quickly unload properties in a cooling housing market. The pace of foreclosures in South Florida seems to be accelerating. Almost a third of Florida’s 29,636 foreclosures were in South Florida in the first quarter of 2006.”

“Lawyers, financial counselors and government agencies report an explosion in such complaints as more homeowners find themselves unable to keep up with their payments.”

“‘We’ve been warning people that this is coming,’ said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington. He said more than half the loans on the books today are less than three years old, and the peak delinquency period for loans is when they are three to five years old.”

The Daytona Beach News Journal. “The condo buying frenzy of the past three years is now mostly over, developers and sales agents agree. Since January, Realtors have brokered 505 condo sales in Volusia and Flagler counties, just half the 1,010 deals they tallied in the same period of 2005.”

“According to the Florida Association of Realtors, prices stayed strong in the first quarter, with condos typically selling for about $20,000 more than the levels of a year earlier. But in April and May, the pattern reversed, with median prices falling about $40,000 below the monthly results of a year ago.”

“In some cases, short-term investors are lowering prices, worried about facing rising mortgage costs if they can’t flip properties quickly. ‘There’s been a softening of the market because investor demand has fallen off,’ said Sheriff Guindi.”

“The slowdown is occurring as developers put a growing volume of new units on the market. During 2004, more than 1,100 condominiums were added to Volusia County’s housing stock, and in 2005, nearly 2,000 more were completed. More than two dozen projects are under construction in both Volusia and Flagler counties. When finished, they’ll add another 2,800 units to the pipeline.”

“Work has halted on the Island Town Center, a 202-unit condo project slated for New Smyrna Beach’s North Causeway, and deposits were returned last month to 71 early buyers. WCI Communities, a Bonita Springs developer building hundreds of condominiums in Palm Coast’s Hammock Dunes area, told shareholders last month that orders for its condos up and down the East Coast have plunged 84 percent from last year’s level.”

“However, WCI is nearing completion of its 64-unit Tuscany project, is near the halfway mark on its 57-unit Casa Bella carriage-house project, and plans a groundbreaking later this year on its 64-unit Arezzo project.”

“Bill Roe agreed that investor demand has dropped sharply. ‘The difference between today and last year is that a lot of the investors are gone,’ Roe said. ‘The opportunity to make a fast buck isn’t there anymore so they’ve left the market. But that isn’t necessarily a bad thing. They were creating an unreal situation.’”