The Housing Bubble

A trio of reports on the markets in the northwest. “Home sales in western Washington dropped 6.1 percent in June compared to a year ago. Brokers reported 9,413 closed home sales last month, down from 10,027 reported in June 2005. Last month’s decline is the fourth consecutive month of slower sales, according to NWMLS statistics.”

“Brokers added 14,541 new listings to the MLS database during June, boosting inventory more than 25 percent from a year ago to 29,856 properties. ‘We are starting to get into a rhythm, a beat of even-handedness between inventory and the number of prospective buyers in the market,’ said MLS director Dick Beeson.”

From Bend, Oregon. “It’s a $3.9 million home with Japanese gardens and waterfalls where ‘Park Avenue elegance blends with Ralph Lauren Western charm,’ the ad read in the Bend Bulletin. Although accustomed to such advertising, longtime Bend residents shake their heads when they see ads like this one.”

“The city issues on average 6,000 building permits a year. Barbara McAusland, who’s been active in city growth issues for several years, sees all around her failing traffic management, escalated housing costs, rampant sprawl and what she perceives to be bad planning by city officials.”

“‘We can only construct so much stuff at one time. We can’t disrupt traffic on every side of town simultaneously,’ said Tyler Deke, Bend’s Metropolitan Planning Organization manager.”

“The majority of Bend’s new population hails from California. They flock to the area primarily for its lower-priced real estate, four seasons and close proximity to recreation. In California the average median statewide price for a home earlier this year was $562,380, $200,000 more than the average median Bend home, which was $346,450 in May.”

“‘To me affordable housing is something a community thinks about 10 years before they need it, when they begin to see the prices rise,’ said Bend’s Chamber of Commerce President Mike Schmidt. ‘It should encourage developers to build smaller, more affordable units instead of going to the mega-home, which is what we’ve done here.’”

From the Mail Tribune. “Jackson County housing prices are still edging up, but sellers can’t expect to necessarily get more than what they paid for their homes a year ago. The recent slowdown in Southern Oregon real estate activity reflects the normal pace before the four-year run-up, said a long-time local real estate agent.”

“‘We had a dip from a really strong market for four years and we’re returning to a more normal pattern,’ said Rick Harris. ‘Look at the difference in interest rates (now well above 6 percent), they were still low last June and then we began hearing of a softening market in places like Southern California and Las Vegas. Those things have filtered through to our market.’”

“East Medford, which saw a nearly 2 percent decline in median price in May, stormed back with an 18 percent median gain to $329,700 in June. As appraiser Roy Wright points out, the slowing trend appears to be near the bottom with transactions down just 5 percent from last year.”

“Despite rapidly increasing inventories, more than 350 percent above the 2005 level, west Medford prices eased up 6 percent to $244,000.”

“Central Point activity remains cool with inventories nearly triple what they were in mid-2005. While activity fell nearly 45 percent, the median price of a home in the Phoenix-Talent area climbed 9.1 percent to $283,500.”

“The number of new home sales continued to decline, with the pace falling more than 41 percent. But apparently that can be attributed to the lower end of the market, because the median price for 206 new homes going through the Southern Oregon MLS system was $339,950, up nearly 16 percent. The turn-around time for those homes, however, extended nearly a month to 118 days.”

“Harris said there is a key difference between investors who bought property to flip it quickly during the rising national market and those who buy property here in preparation for retirement. ‘My sense is that a lot of the people who come here to retire stake a claim in our town while they are still working so they can afford it when they retire.’”

The Rocky Mountain News has this update from Denver. “More than 9,500 real estate foreclosures have been filed in the Denver area in the first half of the year, about 34 percent more than in the first six months of 2005. It’s on pace to be the worst year ever in terms of the number of foreclosures, topping 17,122 in 1988, though the area’s population growth since then means the total percentage of homes in foreclosure is smaller.”

“‘I do believe there is a crisis,’ said Peter Lansing, president of Universal Lending, who served on a foreclosure task force during the late 1980s. ‘We do need to do something about it. It is all of our responsibility.’”

“Experts said foreclosures are being driven by several factors: adjustable rate mortgages that are rising with interest rates; interest-only loans; houses sold to people with less than stellar credit ratings who in previous years wouldn’t have qualified for loans; programs allowing homes to be purchased with no down payment; overbuilding; the lack of new, high-paying jobs; and predatory lending and fraud.”

“Soaring foreclosures are a puzzle because the rest of the economy is doing so well, said Tom Clark, executive VP of the Metro Denver Economic Development Corp. ‘We thought the foreclosures would wash out by the end of the summer, but now with rising rates it looks like that is not going to happen until the first quarter of 2007,’ Clark said.”

“Economist Tucker Hart Adams said she has no doubt it will get worse before it gets better. She said many homeowners can’t afford to pay hundreds of dollars more per month as their adjustable rate mortgages move upward. ‘I think in the ’90s, when we had this unprecedented improving economy, we convinced ourselves the good times would never stop,’ Adams said. ‘A lot of people in Colorado just got in over their heads.’”

“Real estate broker David Binkowski in Denver, said most of the foreclosures he sees are in homes priced below the $300,000s and the owners often have refinanced out all of their equity.”

“Lansing said..’we did have a woman come in our office who wanted a reverse mortgage, and we looked at her history, and her previous lender just had her refinance, and refinance, and refinance, just to generate fees.’”

“Lansing said consumers need to educate themselves. A lot of it is common sense, he said. ‘You don’t really believe there are 1 percent mortgages, do you? But just the other day I heard an ad on the radio talking about getting a 1 percent mortgage.’”

“Some officials blamed loose lending practices and aggressive building. They said that has contributed to a record inventory of unsold homes in the metro area and slowed the appreciation rate for existing homes. ‘I have always maintained it is the lending practices,’ said Jill Voegtle, chief deputy public trustee for Denver.”

From the Gazette in Colorado Springs. “Homebuyers last month had their biggest selection of properties to choose from in 17 years. About 5,700 single-family homes were listed for sale last month, a nearly one-third increase over June 2005 and the biggest one-month supply since 5,836 in June 1989. The figure was short of the one-month record of more than 6,200 in June 1988.”

“Perhaps adding to the supply were homeowners who had bought properties with adjustable-rate mortgages, interest only mortgages and other nontraditional financing methods, said Todd McLain, a member of the Realtors Association board of directors. Many of those homeowners are seeing their adjustable rates and monthly payments soar, McLain said. As a result, some are selling rather than locking into a new, higher fixedrate mortgage, he speculated.”

“The increase in housing inventory might help push prices higher, said Marilyn Newell, another Realtors Association board member. A surplus means buyers have more choices and homes on the market must be well-kept and competitively priced, she said.”

“‘Because we don’t have as many buyers,’ Newell said, ‘they have the luxury of going with the home that is in perfect shape.’”

Some housing bubble reports from Wall Street and Washington. “U.S. Home builder M/I Homes Inc. on Tuesday said total contracts for new homes fell 35 percent and a whopping 47 percent in the-once sizzling Florida market, reflecting a deteriorating U.S. housing market.”

“‘New contracts for the quarter were negatively impacted by a combination of factors, including reduced traffic, softening demand, increased cancellation rates and higher unsold inventory levels,’ M/I Homes CEO Robert Schottenstein said. ‘As evidenced by these factors, housing conditions in most of our markets are challenging,’ he added.”

“M/I, the No. 21 U.S. home builder, was one of the first builders who report on the calendar quarter to release orders. ‘Here’s your first piece of data from the companies that report on the quarter and it doesn’t look good. It looks pretty bad,’ analyst Barbara Allen said.”

“National City Corp, the No. 8. U.S. bank, said on Monday it may sell two mortgage lending units to reduce its exposure to subprime lending as demand for home loans declines. National City also said it is mulling the sale of NationPoint, an affiliate that engages in direct-to-consumer mortgage lending.”

“‘This is a strategic review to possibly reduce National City’s presence in nonprime mortgage lending,’ spokesman Chris Kemper said.”

“The subprime unit has struggled in recent quarters, dragging down the parent company’s consumer-finance profits. By the end of last year, First Franklin’s profit margins had tumbled to their lowest level since National City bought the business. In its annual report, National City warned that the mortgage business ‘will be under margin and volume pressures’ in 2006.”

The Washington Post. “A potential financial disaster that could have shaken the housing market was averted because regulators discovered accounting failures at Fannie Mae and Freddie Mac, the new head of the agency that oversees the mortgage giants said. ‘The housing market is so important to this country,’ said Lockhart. ‘And to have it built on what turned out to be a shaky foundation could have caused significant financial problems.’”

“‘The risk has certainly been reduced by the remedial actions that the two management teams have put in place at our direction,’ Lockhart said. But it will take a number of years; two, three or more, for the two companies to get their financial houses fully in order, he cautioned.”

The Motley Fool. “How the once-mighty have fallen! These events illustrate the way in which even a seemingly impregnable competitive position can deteriorate. Fannie and Freddie enjoyed a government-sanctioned quasi-duopoly; they were able to borrow at lower cost, thanks to the market’s perception that its mortgage securities had the implicit backing of the federal government.”

“That’s not as good as actually owning a license to print money, but it’s the next best thing. However, when a private-sector organization is thought to be ‘too big to fail,’ it creates a moral hazard by skewing the relationship between business risk and reward.”

“As regulators examined the accounting violations, they found evidence of greed, mismanagement, and excessive risk-taking. They concluded that the size and leverage of the GSEs mortgage portfolios must be reduced in order to mitigate any systemic risk (a fancy way of saying that in the hypothetical event of Fannie Mae’s failure, widespread disruption in the financial markets or the economy could ensue).”

“I can’t find any competitive advantage, aside from favorable borrowing costs based on the perception of implicit government backing. There is no evidence that it has developed specific expertise that doesn’t exist elsewhere. So when the government signals that it is uncomfortable with a guarantee that it never gave, and wants to reduce the influence of the GSEs, investors must take a hard look at these companies’ business models.”

And from a press release. “A delegation from the National Association of Responsible Loan Officers (NARLO), the trade association of mortgage loan originators, visited with lawmakers in Washington, D.C., to discuss loan officer issues on June 28.”

“‘The members of the NARLO are fed up with mortgage loan fraud and the low barriers to entry into the mortgage industry,’ said Robert Skrob. ‘For NARLO members, minimum licensing standards are not acceptable. We must clean up our industry.’”

Inman News reports on the latest numbers from the Washington, DC area. “Washington, D.C., metropolitan area dropped significantly between June 2005 and June 2006, while prices maintained modest growth, according to statistics released Friday by Metropolitan Regional Information Systems Inc.”

“In Washington, D.C., home sales dropped 21.2 percent in June from a year ago. In Prince George’s County, Md., sales fell 21.5 percent year-over-year last month. Sales in Montgomery County, Md., plummeted 31 percent.”

“In Alexandria, Va., sales dropped 33.3 percent. Sales in Fairfax County, Va., sank to 1,680 in June, down 38.6 percent from 2,737 a year ago.”

The Washington Post. “The era of double-digit property assessment increases for Northern Virginia homeowners appears to be over. Government officials say a rapidly cooling housing market means residents can expect minimal growth in the value of their property this year.”

“In Fairfax County, listings of homes for sale have increased more than threefold since May 2005. ‘The period of double-digit growth in home assessments has abruptly ended,’ Fairfax County Executive Anthony H. Griffin told the Board of Supervisors.”

The Baltimore Sun. “Housing sales in the Baltimore area skidded more than 22 percent last month from June 2005 levels, the biggest drop in more than seven years. Even Baltimore City felt the impact. Listings piled up and sellers in popular areas like Fells Point and Canton took price cuts.”

“‘The market has changed to significantly more sellers,’ said (realtor) Stephanie Bamberger. ‘The buyers I’ve been working with are not as anxious to jump on properties as they’d been in the past year. There’s more hesitation and not wanting to pay the price sellers are asking.’”

“Celia Chen, director of housing economics for Moody’s Economy.com said, ‘Sales are slowing and house price appreciation is weakening. The housing market is definitely on the downside of the cycle.’”

“Home sellers increasingly are disappointed to find they need to drop their price or offer cash for closing costs to entice buyers, real estate agents said. ‘Instead of 10 houses in your neighborhood for sale, there might be 20,’ said agent Ann Mangels. ‘If it isn’t priced fairly, the place is going to sit there until the seller realizes they have to reduce it.’”

The News Leader in Staunton, Virginia. “Not long ago, the housing market in Waynesboro was a seller’s paradise. Those days are gone, area agents say. Drive around any neighborhood in the area, and one is sure to find a ‘For Sale’ sign planted in many a front yard. Drive around the same neighborhoods next week, and chances are many of those same signs will still be found.”

“(Appraiser) Bill Cason, said a 20-year cycle in the housing market has finally peaked. ‘We’re at the top of the cycle, and we’re starting a downward trend,’ he said. ‘Now, it’s going more toward a buyer’s market.’”

“With 800 new homes planned in Waynesboro, Cason predicts existing home sales will take a hit. ‘It’s going to overload the market, it’s really going to slow down,’ he said. In fact, Cason said the slowdown has already begun. ‘Our appraisal work has dropped off.’”

“One telltale sign of a slowdown is an increase in price reductions on homes already listed. ‘There are a lot of price reductions coming through, more than we’ve seen in the last two years,’ said (broker) Vonda Lacey. Lacey said anywhere from seven to 10 reductions occur daily.”

“Like Lacey, mortgage banker Vickie Painter, said higher prices and higher mortgage rates are helping put the brakes on a once-blistering market. ‘The buying power is changing,’ she said.’The bidding war is done.’”

Some housing bubble reports from the northeastern US. ” Home price declines have come to Long Island. Recent data on home sales in Nassau, Suffolk and Queens show that houses in certain communities are fetching less than they did a year ago. A Newsday analysis found median sales prices in three of the service’s zones, Huntington Town; North Hempstead and northern Oyster Bay; and northeastern Hempstead, Bethpage and Farmingdale, declined from May 2005 to May 2006.”

The Times Herald-Record in New York. “Gather the children ’round, and tell them to listen up. They’re about to become witnesses to something that hasn’t happened here since the last millennium. It’s called a buyer’s market.”

“Just a few years ago, Orange County had one of the strongest seller’s markets in the entire country. Buyers and sellers started acting like prices would keep going up indefinitely. People who think that way are hardly ever correct. That’s why it’s called a housing cycle.”

Also in New York. “Rockland’s once-hot real estate market continued to cool in the second quarter. The inventory of available homes rose to 1,607 units, nearly double the number that were listed for sale just two years ago.”

“‘We’re in a shifting market,’ said (realtor) Kevin Joyce in Pearl River. Homeowners who were once debating whether to sell have now entered the market, pushing the number of houses-for-sale higher. Rising inventory isn’t a sign that homeowners need fear that prices will soon plummet. ‘I don’t believe that there’s a bubble-bursting happening,’ Joyce said. ‘I just think there’s a realistic leveling of the marketplace for both buyers and sellers.’”

The Journal News. “While rising interest rates are slowing sales of homes in the Lower Hudson Valley, a sampling of open houses over the weekend shows how hard it is to generalize about buyer interest. When they opened the doors to potential homehunters Sunday afternoon in in Yorktown, Greenburgh and Nanuet..all three houses had had their prices lowered in recent months.”

“Real estate statistics portray a market in which buyers have more listings to pick from than a year ago and are taking more time to decide. In Rockland, the inventory of single-family houses rose by 57.2 percent at the end of the second quarter, to 1,607, the Greater Hudson Valley MLS said yesterday.”

“As Andrea O’Brien showed the first couple through the house, she kept up a monologue of its finer features. Asked about the size of the tax bill, O’Brien’s voice softened as she pointed it out on the data sheet. It’s more than $10,000.”

“Some of the visitors said they were unimpressed with the shape the house was in, given it’s half-million-dollar price tag. Carla Anderson, who owns a two-bedroom condo nearby, took a look around with her mother. Prices ‘are not coming down enough, as far as I’m concerned,’ her mother added.”

In New Jersey. “The ‘For Sale’ sign has been up for three months. But your four-bedroom colonial is just not selling. In America’s cooling housing market, it’s a story many home sellers in New Jersey can relate to these days. Housing activity is slowing across the state, and the inventory of unsold homes is expanding.”

“‘You have this standoff between buyers and sellers who tend to be as much as three-quarters of a year behind the market,’ said Jonathan Miller of a real estate appraisal firm in New York. ‘Sellers have been trained over the past five years to stick with their prices and be firm, and yet now you have buyers on the other side saying they want a deal.’”

“As of June, the supply of homes on the 12-county northern New Jersey market is 69 percent higher than it was in June 2005, climbing from 23,584 homes to 39,829, according to Jeffrey Otteau. Middlesex County saw the largest year-over-year surge in inven tory, with the supply of homes on the market climbing 99 percent.”

“Home-sales volume also is slowing in the state, declining 18 percent through May from one year ago. In northern New Jersey, the slowdown has been more marked. Comparing the first six months of 2005 with the first six months of this year, sales volume declined 20.9 percent according to the Garden State MLS.”

“Otteau also believes ‘the chorus of voices predicting this collapse and the attention they have received from the media’ are playing a big role in bringing the housing market to its current state. ‘As always, perception becomes reality,’ he said.”

From Connecticut. “Antares Real Estate wants to entice more tenants into buying their condominiums at two complexes the company recently purchased by offering to lower the purchase price, a spokesman said. ‘This is an all-out effort to make one last-ditch effort to prove to current residents that owning is better than renting,’ said Frank Marino.”

“Andrew Kleinman, who lives at Greenwich Oaks, said he sees the price reductions as a sign that Antares is not selling as many units as the firm had initially planned. ‘They’re really starting to show it by coming back and offering people lower prices,’ said Kleinman.”

“Kleinman said that Antares’ new reduced prices are still too high. ‘If you take a look and see what’s going on, there’s a lot of properties that are just sitting,’ he said. ‘Nobody wants to lose money.’”

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