The Housing Bubble

Bob Casagrand has the latest on the San Diego housing market. “Second Quarter 2006, Single family detached and attached homes: June home sales were 2,947, down 33% from June 2005. The second quarter sales were 8,822 homes sold down 30% from the second quarter last year. As a matter of fact our second quarter sales were slightly below the fourth quarter of 2005.”

“Who would have thought that the peak April, May and June months would have lower sales than the winter/holiday months of October, November and December. The inventory on July 1 stood at 22,049, up from 20,635 a month earlier. For the past few months we have been adding inventory at a rate of about 1,500 homes per month.”

“I did a rough check on July to date (July 9) to see where it stands, I debated about putting this in this writing because the numbers are scary and they will close somewhat by the end of the month. The first 9 days of July have 303 homes sold for an average price of $559,577 and an average size of 1781 sq ft; the first 9 days of July 2005 had sales of 933 and an average price of $629,168 and an average size of 1749 sq ft.”

“Last July’s 933 sales represented 25% of the month’s sales, if that were to hold this year, well suffice it to say that would be a disaster.”

“Junes’ average price was $638,380 up 3% from last year. However, this increase is explained by the fact that the over $1 million sales represent 10% of June total sales where they were only 8.5% of last Junes’ sales. There are neighborhoods already showing price declines of the 4% to 5% region.”

“Markets can not sustain 30% declines in demand over a period of time and not have price erosion. Here is a trend to consider; sales in the fourth quarter of 2005 was down 10% from prior year, sales of the first quarter 2006 was down 20% from prior year and the second quarter of 2006 was down 30% from last year third quarter of 2006.”

“Another issue that will impact price pressures is that about 30% of our listings are vacant and heaven help the Fed continue to raise interest rates.”

From the homebuilders association. “Most major markets have now entered into a relatively mild slowdown that will stabilize conditions as levels of existing inventory are worked down, according to representatives from the industry. ‘The next two to four months will be a telling time for us,’ said Layne Marceau, chairman of the California Building Industry Association.”

“Comparing today’s predicament to one faced by car dealers every year, the association leader said that builders will be busy ‘moving’06s off the lot so we can get ’07s in.”

“The departure of speculators from the housing market and high prices are forcing builders to market completed homes more aggressively, Marceau said, creating ‘a short-term buyers market, probably the best buyers will see,’ before things return to normal.”

“Although single-family production has slowed in most parts of the state, with the most significant declines in Sacramento and the San Joaquin Valley, multifamily starts are holding up in Los Angeles, San Francisco and Orange counties, said Alan Nevin, CBIA’s chief economist, with San Diego a notable exception.”

The Idaho Stateman has this report on the local reaction to speculators. “Some homeowners associations in Meridian are looking to limit the number of rental homes in their subdivisions in an apparent backlash against outside investors snapping up Treasure Valley real estate.”

“In the past couple years, property investors from California and other states..bought homes throughout the Valley. In the first nine months of 2005, Boise ranked fourth highest in the nation for the share of home loans taken out by investors, according to LoanPerformance.”

“At least one HOA in Meridian changed its covenants to limit rentals while others are exploring fines and enforcement to force rental property upkeep.”

“Last month, homeowners in Meridian’s Mid-Town Square voted to allow only 20 percent of rentals in its small subdivision. The HOA board was concerned off-site owners might not maintain their properties to subdivision standards, said president Claudia Most.”

“‘Our real intent was to try to kind of nip it in the bud up front, rather than trying to enforce it,’ Most said. ‘What we intended to do is protect property values in the neighborhood.’”

“And one local developer simply won’t sell to investors anymore. Don Hubble said his company, one of the largest homebuilders in the county, stopped selling to outside investors about a year ago. It was an unpopular decision with investors, he said.”

“The company’s decision came at a time when the market was hot and investors were coming from around the country to buy local property.”

“Other Meridian HOAs also are looking at legal ways to limit the number of rentals said Bonnie Speas, who works for AMI property management. ‘The biggest problem I am seeing as a neighborhood manager with rental properties (is) a lot of the homeowners are out of state and they are not aware of what is happening at their property,’ Speas said.”

The Pioneer Press has this update on the Twin Cities. “With ‘For sale’ signs crowding the landscape, area home builders continue to tap the brakes on new construction. Permits for residential construction in the Twin Cities dropped a hefty 15 percent through the first six months of the year compared with the same period in 2005. The number of permits issued last month dipped to 763, down 31 percent from June 2005.”

“The downshift was expected and may continue. ‘There are still people in the marketplace but not what we’d seen in the last few years,’ said Curt Swanson, president of the Builders Association of the Twin Cities.”

“‘People are more conservative,’ said Barry White, a VP for McDonald Construction. Customers used to take out home equity loans to begin building their new home before they’d put their current home on the market. Now White estimates that one in four customers has a contingency that building won’t start until they have buyers for their existing home.”

“‘We have an oversupply of land and lots and an oversupply of homes both new and existing and something’s got to give,’ said John Lockner, a Realtor in Woodbury.”

“While permits are down, the number of planned units is off even more sharply. Fewer multifamily units, such as condos and town homes, account for the change.”

“Pulte Homes has shifted its focus to single family homes, said Mike DeVoe, a vice president. ‘We’d rather sell a $500,000 single family home than have to sell three or four town homes to achieve the same revenue objective,’ he said.”

“Buyers of these homes have the edge when negotiating for price cuts and amenities. ‘Now is the time the buyer should be out in the marketplace because they’re in the driver’s seat and they can take advantage of the incentives,’ Lockner said.”

Some housing bubble news from Wall Street. “Homebuilder KB Home said negative trends in the U.S. housing market could persist in 2007, as inventory accumulates amid higher interest rates, according to a filing with the SEC. ‘Conditions in many of the markets we serve across the U.S. have become more challenging in recent months,’ the Los Angeles-based company said.”

“‘We expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and possibly into 2007,’ the company said.”

“The company added that several of its markets ‘have been affected by a buildup of new and resale home inventories, higher interest rates and higher cancellation rates, particularly markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years.’”

“For the quarter ended May 31, KB Home, the nation’s No. 5 builder by 2005 deliveries, said net orders fell 19% from the year-ago period to 9,908 homes.”

The Fort Worth Star Telegram. “The rush to build homes in North Texas continues at a full gallop. But with interest rates and the supply of available homes on the rise, builders may face a field crowded with inventory for the last half of the year.”

“That could be a boon for buyers, as builders offer new incentives such as plasma-screen TVs and free upgrades.”

“Nobody is talking about a free fall, just a slip from last year, when 47,000 homes were built in North Texas. Realtor Mary Manry said she has noticed homes taking longer to sell and more aggressive pricing in the past six months. ‘It’s taking a little longer to move them,’ she said. ‘If you are a Realtor, you are going in and pricing that property — getting it closer to the nub.’”

“Foreclosures remain at historically high levels, as homeowners’ budgets get squeezed by..rising interest rates that are boosting the payments on adjustable-rate mortgages. ‘There is just not a reason that we see that it will go down,’ said George Roddy, (who) tracks foreclosure activity.”

A pair of reports from California. “The listing on the studio apartment at 617 Cedar Ave. boasts: ‘This is the lowest priced unit in ALL of Long Beach!’ One would expect to find no properties for sale under $300,000 in Long Beach, where the median price is $485,500.”

“In fact, there are nine properties for sale in Long Beach for under $150,000. And if you are looking for properties for under $200,000, you’ll find nearly 20 for sale. ‘A year ago you probably would have found half that many properties listed for under $300,000,’ said (realtor) Dennis Berry in Los Alamitos.”

“Berry said he’s beginning to receive more phone calls from people looking to buy and sell foreclosures and fixer-uppers.”

“Berry said that there may be more foreclosure activity ahead as interest rates rise and those with adjustable rate mortgages see their payments kicked up after an initial five-year period of paying a fixed rate. ‘2008 is when you’re going to start seeing stuff,’ Berry said.”

From Realty Times. “In San Diego some areas are still doing well and some other parts of the country are stabilizing. ‘The slowdown is not uniform throughout [San Diego] County,’ says Alan Nevin, director of economic research for Marketpointe Realty Advisors.”

“‘Resale [properties] are off 15, maybe 20 percent. It’s really a matter of there being too many listings right now, but the listings will decline over the next three to four months as people take their homes off the market,’ says Nevin.”

“He claims it is a very dependable pattern that is about to set in. ‘What happens is that you get a whole bunch of people who think their homes are worth gold and they put them up for sale for high prices and then they sit for months and months,’ explains Nevin.”

“He adds that many of these hopeful sellers were really just trying to test the waters. ‘They didn’t really want to sell anyhow. So they pull them off the market and then the market gets back into equilibrium and that’s what’s happening right now,’ he says.”

“You’ve likely heard the buzz words ‘it’s a market correction’ that we’re experiencing, and we all know that being corrected is often a hard pill to swallow. So take a big gulp and understand that if you’re putting your home up for sale you’re likely not going to get the incredibly high market prices seen in recent years.”

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