The Housing Bubble

The Santa Cruz Sentinel has this update from California. “June’s median home prices were up $10,500 over May. Still, the $760,000 median price for a single family home did not beat November’s record of $789,250, as reported by number cruncher Gary Gangnes. February’s recent low was $709,000.”

“Supply continues to grow, too, according to Gangnes’ numbers, with 62 percent more homes on the market than were for sale a year ago.”

“‘If you have something special it’s not going to be sitting around, but it’s not going to be going over the asking price,’ said broker Gregg Camp. Camp said he doesn’t see sellers flooding the market. Instead, ‘there’s fewer buyers than there were.’”

“Single family home sales were down 14 percent compared to June 2005. That is the lowest number of sales in June in four years. The number of sales of condominiums and townhouses in June was down 38 percent from last year and a 10-year low for that month.”

“The number of condominiums and townhouses listed is about 2.5 times larger than one year ago. The unsold inventory index is the highest it has been in more than nine years.”

And the Voice of San Diego had a look at the latest numbers. “It’s been nearly 10 years since the median sales price of homes in San Diego dropped year-on-year.”

“‘There’s an awful lot of people out there who just don’t feel as rich these days,’ said John Karevoll, an analyst with DataQuick. ‘Over the past five years, most San Diego homeowners have made more money owning their home than they’ve made at work.’”

“Analysts said the price drop has to be a concern to one particular group of people: the majority of people in San Diego who bought homes in the last couple of years using so-called ‘creative financing.’ Last year, close to 80 percent of new home purchases were made using interest-only or negative-amortization loans.”

“Anyone who bought in the last couple of years banking that their property will increase in value substantially should be concerned by these figures, Karevoll said. He said if that turns out to be a large chunk of new homeowners in San Diego and elsewhere, and if home prices continue to fall, there could be serious repercussions for the economy.”

“Add price decreases to the large number of exotic loans out and mix in any sort of additional stress on incomes, and Karevoll said the results could be disastrous for California and elsewhere. ‘There could be a bloodbath,’ he said.”

“Peter Dennehy, of Sullivan Group Real Estate Advisors said the drop in median prices is merely due to sellers getting real about the fact they’re in a buyer’s market. There are currently 22,890 homes listed for sale in San Diego, according to real estate brokers ZipRealty. Dennehy said sellers are starting to realize that if they want to sell their home, they’ll have to drop their price.”

The Lewisboro Ledger has this report from Connecticut. “With inventory up and house prices leveling off this year, the local real estate market is swinging inexorably in favor of buyers. Sellers are growing increasingly uneasy, wondering exactly how long it will take for their ‘For Sale’ signs to be retired.”

“Many have seen their original, often overly optimistic, asking prices whittled away with the passing months and are now reducing their financial expectations. The anxiety level is on the rise.”

“Realtor Ken Sobel (said), ‘one of the most important things I can do for my clients is to help them set the right asking price for their home,’ he said. ‘There is a kind of disconnect. I try even harder to make my clients aware of the new market realities.’”

“Mr. Sobel said that he presents plenty of figures..to his clients, but still meets resistance at setting an asking price many of them deem as ‘too low.’ ‘At the beginning of 2006, the perception was that this was going to be another big year, but it has not materialized,’ he said.”

“Mr. Sobel said his hours as a ‘price counselor’ have increased since last year.”

“‘A lot of them want to price their homes on anecdotal evidence and neighborhood gossip, but hard numbers tell the real story,’ he said. Although many sellers still insist in ‘trying out’ an unrealistically high asking price, Mr. Sobel counsels against it. ‘Home inventory is up sharply. Your home sits there and you end up reducing the price anyway.’”

“Jackie Ruby, agreed with Mr. Sobel and added, ‘Sellers have to realize that the market has changed and buyers are not jumping at any one particular piece of property,’ she said. ‘There are plenty of beautiful properties for sale and buyers can pick and choose.’ As far as setting the proper asking price is concerned, Ms. Ruby said: ‘Six weeks, tops, at the original asking price is all that I recommend. After that, with no offers, the price must be dropped.’”

“Ms. Ruby said with a few truly stubborn sellers, she would ‘try out’ a too-high asking price for two weeks only. ‘After that, it’s really over,’ she added. ‘If they insist on keeping the same unrealistic price, I will politely steer them somewhere else.’”

“The price reductions that come over time do not have to be steep, but Ms. Ruby said that sometimes they are inevitable, given the large number of unsold homes on the market. ‘I now see myself as a counselor, adviser and unofficial financial planner, in addition to my usual role,’ she said. ‘Sometimes my clients don’t want to hear what their house is really worth in this market. But, as Realtors, we don’t make it up. The numbers are the numbers. They tell the truth and determine the ultimate selling price.’”

“Sales associate Ed Cantine told The Ledger that the Lewisboro market peaked about 18 months ago. ‘The market is very slow now,’ he said. ‘In fact, it’s the slowest that I have seen it in many years. And it cuts across all price ranges. Inventory is twice, maybe three times greater, and proper pricing has become absolutely paramount.’”

“Mr. Cantine said buyers withdrew last spring and that sellers have been forced to make price reductions as inventory swelled. ‘Some houses have been reduced multiple times and are still unsold,’ he said. ‘If you want to sell your home, you have to adjust to the new realities of the current marketplace.’”

“‘If a reasonable offer comes along I advise my clients to seriously entertain it. You might be able to negotiate upward and you don’t want to let a serious buyer just walk away. If you do, you can end up with an unsold house that stays on the market for many more months to come,’ he said.”

Some housing bubble reports from Florida. “Housing prices in Palm Beach County are so high that 90 percent of the workforce can’t afford to buy the median-priced home. An obvious solution, raising wages, isn’t practical, business leaders said.”

“Jennifer Vacco, human resources manager for Lockheed Martin in Riviera Beach, has hired nearly 200 people in the past 18 months, but it’s the ones who got away she can’t stop thinking about. ‘Every time, it was the cost of housing,’ she said, speaking of engineering recruits scared away by Palm Beach County’s home prices. ‘And these were professional jobs paying $70,000 a year.’”

The Naples News. “‘From April through June, our permit applications have increased significantly. We are up 60 percent over the same period last year,’ said Collier County Building Director Bill Hammond.”

The St Petersburg Times. “In the clearest indication yet that the housing boom in Hernando County has come to an end, the inventory of unsold homes has climbed to nearly 3,760, nearly five times the number a year ago.”

“‘It came to a screeching halt,’ said Jack Gavish, a Brooksville real estate broker. Many real estate offices in the county are selling about half as many homes each month as they were last year, he said. ‘I’ve had a brand-spanking new home on the market for 30 days for $149,000 and that concerns me,’ Gavish said.”

“County Commission Chairwoman Diane Rowden said the declining market might be a sign the county should rethink the number of approvals it has issued for the construction of new subdivisions. ‘Most of it, as I see it, are speculative rezonings,’ she said.”

The Marco Island Sun Times. “Since there is no federal regulation governing marketing or promises of guarantees of spectacular returns, many investors and homeowners alike are really starting to feel the sting of higher ownership costs associated with the rapid deflation of the real estate ‘bubble.’”

“One local investor tells the story of how he was ‘guaranteed’ by a salesperson that he could sell a property he was considering buying in 12 months for a tidy 30 to 40 percent profit.”

“Nearly 18 months later, that ‘guaranteed return’ sits empty with no prospects in sight. In fact, this particular investor doesn’t feel as though he could even recover the initial investment he made to begin with.”

“Nobody likes it when we look the ‘Sacred Cow’ square in the eyes and dare to consider that Marco Island residential real estate could do anything but go straight up. The story may not always be as drastic as the retired banker friend of the family, who owned a direct access waterfront lot back in the early 1980’s for almost six years and sold it for a 25 percent loss.”

The Arizona Republic reports on the June housing numbers. “The Valley’s resale housing market took a hard fall in June, its worst performance for the month since 2000 and clear evidence that buyers sat out the start of the crucial summer selling season. The number of homes for sale and the time it takes to sell them keeps increasing, outpacing even more ‘normal’ years of 2003 and 2004, and the monthly selling reports look dismal.”

“‘It was a lot weaker than I thought it would be,’ said Jay Butler, head of the Real Estate Center. ‘I see a lot of for-sale signs staying up. I’m seeing homes that are on their third agent. Homes are getting initial drive-by activity from buyers, then nothing.’”

“Home builders have been blaming the local resale market for some of their troubles, saying that their buyers are canceling deals because they can’t get what they want for their existing homes. Now, resale experts are saying that builders are messing up their market by dumping so many built-but-not-sold homes on the market with outsize buying incentives.”

“‘There are (resale) homes out there selling for more than the brand-new home is selling for, and it’s in nicer shape and they’re offering the pool,’ said (realtor) Margie O’Campo de Castillo in Phoenix. ‘Who could say no to that? It’s going to be this way until the builders take these incentives back.’”

“(Realtor) Bill Ryan in Chandler said resale prices are down 15 to 20 percent in some areas compared with last year as the market has made ‘dramatic adjustments’ in the past 60 to 90 days. ‘There is so much property on the market that it is a very strong buyers market. It has done a 180 turn to what it was a year ago.’ he said.”

The East Valley Tribune. “It was June swoon for home sellers. Sales of existing homes in the Valley fell sharply last month, prompting an Arizona State University residential real estate expert to suggest it may be an initial sign that the market is growing weaker.”

“‘If we make it through August without a real big pickup, things really slow in the resale market after August. People don’t want to get into the holiday season looking for homes,’ Jay Butler said.”

“Despite misgivings among some experts that apartments converted into condos might not sell, they have been selling fairly well in Ahwatukee Foothills. But because converted condos sell cheaper than condos built as condos, the conversions may be dragging down median condo prices there.”

“The median prices for condos fell to $193,990 from $256,250. Butler said the decrease in condo prices could be because of the glut of converted apartments, which tend to be cheaper than units built as condos.”

“Scottsdale’s sales of existing homes continued to slow, dropping 13 percent from May to June. Scottsdale Realtor David Lewis said, ‘I’m seeing prices coming down 3 or 4 percent. Those are the properties that are moving. Buyers are reluctant to pull the trigger, wondering if prices or interest rates will drop, said Lewis.”

The LA Times reports on the San Diego numbers. “San Diego County kicked off California’s housing boom six years ago with dramatic price rises. Now it’s the first major California real estate market to see its median home price fall below year-earlier levels, according to data released Wednesday. Los Angeles County, saw home prices in June rise at their slowest year-over-year rate since 2001.”

“‘Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does,’ said Raphael Bostic, an economist and professor at USC. ‘Does it mean that we will see massive declines and loss of values in these markets? No.’”

“Nonetheless, sellers such as Michael Pines are nervous. The professional real estate investor listed his Encinitas ocean-view home for sale at $1.3 million two weeks ago. But believing that the current downward trend will continue, he figures he may have to lower the San Diego County home’s price soon to close a deal.”

“In many ways, San Diego County has been ground zero for a nationwide debate about whether the housing market is in a speculative bubble. Over the last year, the county has exhibited many classic signs of a topped-out market.”

“It adds up to a change in the market that is giving prospective buyers the advantage, local real estate professionals say. Parham Firouzi, a La Jolla-based agent, said sellers were finding it harder to get their asking prices. Buyers, he said, ‘know what they want and what they are willing to pay.’”

“‘You know it’s a buyer’s market when your asking price doesn’t mean anything,’ he said.”

“San Diego County in particular has been an important and lucrative market for the mortgage industry’s peddling of unconventional loans. ‘People are realizing that they will have more mortgage than value in their house, and that’s making some hesitate,’ said William Hinck, a senior mortgage consultant in San Diego.”

The North County Times. “Economist Jack Kyser blamed part of the San Diego area’s housing woes on a rush to develop high-rise condominiums in downtown San Diego. ‘You have speculators. Are they going to be able to hold onto those units? Or they might have to sell them at a loss,’ said Kyser. ‘They’re out on a limb,’ he said. ‘Some are overleveraged using variable rate mortgages. And interest rates are going up.’”

The Union Tribune. “‘We are seeing an increase of inventories to normal levels, but it has dramatically changed the psychology of the market,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘There is excess steam in the market created by three to four years of very rapid price appreciation,’ she said.”

“Pat and Sandra Daugherty have been trying to sell their Fletcher Hills home since February with no luck, despite lowering the price by more than $50,000. Currently out of work and eager to move to Colorado or Texas for a new job, Pat Daugherty fears he and his wife might lose money on the 2,000-square-foot home they bought two years ago for $540,000.”

“They’ve put roughly $75,000 in improvements into the house and have an asking price ranging from $635,000 to $675,000. ‘At this point, we’re willing to take a loss,’ said Daugherty. ‘We really need to get this off our back so we can get on with it. I’m obviously frustrated because we worked so long and hard on this, but sooner or later the prices had to back down.’”

“Dyann Reilly has been struggling to sell her two-story, 2,010-square-foot downtown condo for a year while she lives in a one-story downtown unit that is more comfortable for her. She originally listed the condo she bought four years ago for $630,000 at $1.2 million but has since lowered the asking price to $900,000.”

“‘I think people who come downtown want a view, and I don’t have one,’ said Reilly. ‘I also think there are too many condos available.’”

“The segment of the housing market showing the biggest drop last month was new home sales, which saw prices decline 8 percent. That was influenced, in part, by a weakening demand for condo conversions. ‘Sales have slowed, concessions have increased, and prices have dropped fairly significantly,’ said Paul Kerr, a local condo converter. ‘Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don’t necessarily believe that’s going to happen.’”

A pair of reports on slower housing markets. “Just take a look out the window as you’re driving around the Twin Cities and you will likely see an abundance of ‘for sale’ signs, just like the one that stands in front of John Burke and Heid Erdrich’s St. Paul house.”

“‘Of course I’m terrified, because a year ago houses like this sold fast, very fast, and it was competitive,’ says Erdrich. Two or three years ago, she says, all the houses on their block that went on the market sold even before the ‘for sale’ signs went up. Their home has been on the market for only a couple of weeks.”

“Minnesota’s metro area real estate scene has decidedly shifted from a seller’s to a buyer’s market. New MLS numbers compiled by the North Metro Realtors Association show a nearly 17 percent drop in home sales in June of this year compared to June of 2005.”

“Christopher Galler, VP of the Minnesota Association of Realtors, says people shopping for homes are finding 30 to 40 percent more properties for sale in 2006 than 2005. ‘We’re just in a cycle. For the last five years we’ve been running properties basically on sale, meaning that the interest was lower than most people had seen in most of their lifetimes,’ says Galler. ‘So what it does is allow people to purchase more property than they may have naturally purchased before.’”

“Annisa Jones, the marketing manager for Centex Homes, Minnesota’s largest home builder, says while her company is not giving away cars, it has several promotions aimed at luring business. There’s a drawing for $50,000 in down-payment money and ‘instant-win’ gas cards. And there are drawings for the chance to throw out the first pitch at a Minnesota Twins game.”

“Centex has also recently began offering a ‘down payment assistance’ program, in which the builder pays a nonprofit organization to ‘gift’ down payment cash to certain Centex buyers.”

“Jones, like many of her real estate industry counterparts, prefers to call the slowdown a ‘normalization of the real estate market.’ ‘We’re not worried about it,’ says Jones.”

From Madison, Wisconsin. “As the weather heats up, industry experts say the housing market is cooling down. So much, in fact, some home builders and Realtors are finding themselves lowering prices just to get the homes sold.”

“The building in Dane County never seems to stop. But Realtors are getting more and more worried about filling those homes. ‘About October, we had a slight, normal slowdown, and then it shut off completely,’ said Andy Lindgren, Realtor in Sun Prairie.”

“Lindgren also says, with continuous building, buyers have a lot more choices. ‘They realize that instead of one or two properties that fit their needs that they need to act on very quickly, there may be 15 or 20.’”

“‘The market has been absolutely out of control,’ said Chad Wuebben, President of the Madison Area Builders Association. ‘Things are just finally coming back to a more normal pace right now.’”

“But industry experts say it’s still a good time to buy a home, with all the choices out there. It’s not, however, a good time to be a seller. ‘If they purchased their house a year or two ago, they can’t really expect to do much more than break even at this point,’ said Lindgren.”