The Housing Bubble

Some housing bubble reports from the soutwestern US. “One high-rise condo project has halted construction pending new financing and another has closed its sales center, sources said Friday. Construction of Spanish View Towers in the southwest Las Vegas Valley stopped for two weeks and should resume sometime next week when the developer closes escrow on a new loan, David Berg of Prudential Americana said.”

“A skeleton construction crew remains on the 15-acre site doing small jobs. Liens that have been filed against the project should be released next week, Berg said. ‘There will be some major lawsuits for nonperformance,’ he said. ‘It’ll be names people will recognize.’”

“Meanwhile, Vegas 888, a high-rise condo tower planned for 10 acres at Flamingo Road and Valley View Boulevard, has closed its sales center, broker Bruce Hiatt said. The Vegas 888 site, purchased for about $50 million, is reportedly up for sale.”

The AZ Star Net. “Tucson’s condo conversion craze appears to be over, as the number of condos for sale has almost doubled over last year, and some developers have postponed plans to turn apartments into condominiums.”

“Last year, some condo sales had people waiting in line, even camping out overnight to buy multiple units. This year, there were plans for dozens of condo projects with most involving conversion of apartment complexes.”

“In January, Dino Paone, president of Paone Mortgage Corp., estimated more than 2,000 new units would become available this year for sale in the Tucson area. Now he believes that number has dropped to less than 1,000. He said he’s worked with three different developers who have postponed plans to build or renovate 600 units around town.”

“‘I would say that the temperature to convert condos has cooled,’ Paone said. The days of buying a condo and flipping it for quick profit are over, Paone said.”

“In the first six months of this year, there were 2,840 condo and townhouse units listed for sale on the Tucson Association of Realtors MLS, a 74 percent increase over the 1,629 units listed during the first half of 2005.”

The Arizona Republic. “The median home price in metropolitan Phoenix is holding steady and even inching up, thanks to pricey home sales. In the wake of home sales plummeting, the uptick in the median home price may look like the housing market’s bright spot. Some homeowners may be cheered, thinking that their values are climbing. But the figure is deceptive.”

“In June, almost 40 percent of all existing homes to change hands sold for $300,000 or more. Early last year, only 25 percent of all resales cost that much. Only 14 percent of the houses to sell last month cost less than $199,000. At the beginning of 2005, before Valley home prices started their rapid ascent, 38 percent of all resales were priced below $200,000.”

“Phoenix’s relatively affordable housing for the West has enticed businesses and people to move here for the past 50 years. After last year’s 50 percent run up in home prices, economists are concerned that if people can’t move here, make the typical wage and afford the typical home, growth will slow. The average Valley income climbed less than 3 percent during the past year.”

The New York Times has this report on adjustable rate home loans. “The raising of interest rates on millions of adjustable rate mortgages over the next several years has all the makings of a classic horror story. As home prices appreciated from ridiculously high to unbelievably higher, more Americans began using mortgages that allowed them to buy more house for less of a monthly payment.”

“Next year, a large portion of those rates move up and homeowners who opted for the exotic mortgages could find their payments doubled.”

“With more homes on the market, prices could begin to fall. That reduces home equity and could force people whose loans change in 2008 and 2009 to consider selling, further accelerating the drop in prices.”

“Mortgage lenders, however, say they are not worried. Why? ‘It offers an opportunity,” said Brad Brunts, at Citi Mortgage, a unit of Citigroup. He, like others in the mortgage industry, sees the higher payments as a boost to the flagging mortgage refinancing business. Lenders will adjust about $500 billion in mortgages this year and $700 billion next year. Expect to find the mailbox stuffed with refinancing offers.”

“Anyone with a rate that will increase in the next few years ought to worry. If homeowners have an adjustable-rate mortgage, they can hope or pray that there is a recession severe enough for the Federal Reserve Board to lower interest rates. But they would also have to hope or pray that the recession was not so severe that they lost their jobs.”

“Hoping or praying is not a useful financial strategy, if only because most economists think that rates will climb a bit more and then stay steady through 2007. No one can say with any certainty whether rates will rise or fall in 2008 or 2009.”

“‘It all depends on the ability to refinance before the interest rate resets,’ said Suzanne Mistretta, senior director of Fitch Residential Mortgage, which analyzes credit risk of mortgages. ‘Most of them will get out. Hopefully, they will get out,’ she said. ‘That is the big question.’”

“Sometimes, though, homeowners may have to take more drastic steps. The lender may not be interested in refinancing a home loan when the value of the home is below the loan amount. That could happen because a homeowner took out all the equity in a previous refinancing. (Freddie Mac estimates that Americans took $556 billion out of their homes through cash-out refinancings and home equity loans since 2004.)”

“It could happen if the price of the house has fallen or if the owner has been making only the minimum payment on a payment-option loan so that the loan balance has actually grown. The best option then is probably to sell the house and scale back. Homeowners may also want to sell if they can clearly see that there is no way they can make the higher, refinanced payment.”

“In that case, it is better to act now before a few million other interest-only mortgage holders dump their homes on the market.”

Readers suggested lesser known housing markets as a bubble topic. “Possibility that the areas that will suffer the most during the pop are the areas everyone thinks there are no bubbles. In the U.S., areas like the rust belt and portions of the Midwest where fundamentals (jobs, population & real wages declining) dictate prices should have been declining, have been appreciating at a good clip due to outside speculators seeing their ‘cheap’ real estate as a gold mine.”

“When the speculators have to dump these lower priced properties to service their debt on the more prized/higher priced (read: bubbly) investment properties, it is going to crush those markets.”

Another said, “I get very amused listening to the BS about Texas being ‘undervalued.’ That’s quite interesting considering the unbelieveably high foreclosure rate. We’ll see how ‘undervalued’ it is when the rdistress sales start en masse.”

And another, “Those who think that there’s been no bubble in areas where prices haven’t risen much seem never to have considered the possibility that sans bubble they’d have fallen.”

From Fort Wayne Indiana, “To look at all the formerly vacant fields around Fort Wayne sprouting new houses, it seems unlikely that the area’s home construction companies would be going through a bit of a rough patch. But that’s the word from Fort Wayne home builders.”

“‘They left four or five homes undone,’ Dave Fuller, commissioner of the Allen County Building Department says. ‘Everybody we’ve talked to has been unsuccessful reaching them.’ Last week, a number listed for the company in Lafayette had been disconnected, and no forwarding number had been left. Fuller says unfinished homes apparently were owned by the builder, not individual buyers.”

“Excess inventory with some builders is worrisome, (builder) Lonnie Norris says. ‘I went on the MLS, and you see this guy or that guy who has 40 homes sitting, and that’s scary,’ he says. ‘It’s a little scary from a spec point of view.’”

The Toledo Blade. “The din of construction hammers faded and thousands of homes went unsold in northwest Ohio and southeast Michigan in the first half of 2006. ‘It’s tough,’ said real estate broker Jim Loss. ‘It’s all about price now,’ he added. ‘You have a small number of buyers and they have a lot to choose from.’”

“After buying the four-bedroom house two years ago for $170,000, Jim Soden invested $25,000 in improvements including landscaping and granite countertops. He said he will take a loss if he receives his asking price. ‘This market is bad,’ said Soden.”

The Journal Sentinel in Wisconsin. “Something popped right over Geoff Hogan’s longtime Oconomowoc home recently. He suspects it was a housing bubble. Maybe it was just a mini-bubble that burst in Hogan’s long-booming Waukesha County suburb of 13,000, but it has been dramatic. House hunters disappeared and the streets were peppered with ‘for sale’ signs.”

“‘There are 200 homes for sale here now - 200! Waukesha County has 3,000 for sale. Somebody asks, ‘Can you show me some homes?’ and they get a list big enough to choke a horse,’ Hogan said. He and his wife had already downsized to a second house, (and) knew what they had to do. They reduced their price. Asking price for the Hogan family homestead, a 3,500-square-foot ranch on 4.5 acres, is now $789,000, down from $899,000.”

“‘Our market has never suffered the highs and lows that the coasts suffer. We may flatten out for a while, but that’s all,’ industry veteran Kathy Mitchell said. ‘The problem is, sellers are still expecting everything to happen quickly. If it doesn’t happen in the first 30 days, they reduce the price. Well, buyers are watching for that.’”

“Some builders are saddled with ’spec homes,’ built on speculation of buyer interest that hasn’t materialized. They’re now advertising freebies to lure shoppers. ‘The middle tier, the $400,000 to $700,000 range, is spotty,’ said (bulders) association president Pete Feichtmeier. ‘There’s been a lot of product in that tier, an oversupply to some degree.’”

The Idaho Statesman. “So far this year, 19.5 percent of home loans in the area were taken out by outside investors. Investors accounted for 21 percent of all home loans in 2005; up from 11.4 percent in 2004 and 8 percent in 2003. ‘Mainly, it hit in the entry level housing market, and it really kicked in May of last year, and exploded to the end of 2005,’ said local Realtor and developer Chris Findlay.”

“Findlay said the market for investors looking to ‘flip’ properties is cooling off as prices level. ‘There is going to be a little softness. But we are not going to have this giant bubble. That’s not going to happen, real estate doesn’t work that way,’ Findlay said. ‘The Boise market is still one of the best markets in the United States.’”

What do you see in your housing market this weekend? Auctions? “Newly Remodeled Harbor Estates Home on extremely rare Single Loaded Street. Bike to Dana Point Harbor, Capo Beach and Doheny Beach.

“How about builder incentives? “In addition to the fixed four-percent over three years, Standard Pacific’s Summer Savings Program will include events offering additional buyer incentives at several of the builder’s East Bay communities, including Cortina in Oakley , Oxford Square in Tracy, Andalucia in Fairfield and Portofino in Vacaville.”

The Buffalo News. “Home sales in the Buffalo Niagara region fell 8 percent in June compared to the same month last year, as the number of homes on the market continued to rise. Miriam Treger, president of the BNAR, said prospective sellers shouldn’t ‘overreact’ to the market conditions and rush to cut their prices, unless they are facing an immediate deadline to sell.”

“‘We can create an artificial dip by overreacting,’ she said.”

From Florida. “The number of foreclosures in South Florida jumped dramatically in the first quarter of 2006, up about 3,000 (or 40 percent), when compared to the end of 2005. ‘I’m seeing foreclosures in many areas where they just weren’t prevalent before,’ said Rhonda Light, who operates in Palm Beach and Broward counties. ‘The foreclosures we’re seeing now are all over the board and in all different price ranges.’”

“The downturn in the real estate market should be a lesson to all potential investors: You should think long and hard before using creative financing, such as adjustable-rate mortgages, to purchase a home.”

A landlord like this in Dallas? “In many cases though, it’s not just the home owner, but anyone renting or leasing the home that is affected by foreclosure. The home Gwendolyn McGirt lives in is scheduled to be foreclosed in early August. ‘We have never been late on our rent, but whatever’s happened on his end, the rent hasn’t been paid and the mortgage is due and the people are harassing him now,’ said McGirt.”

From the topics thread. “San Diego inventory is already at record levels, and I’m trying to get a handle on how many (more) people have to/will have to sell. Corrections to these numbers are welcome.”

Home sales in SD ‘04 (Patrick Heald): ~52,000

Home sales in San Diego ‘05 (Bob Casagrand): ~42,000

“According to an old SD Union Trib article, 63% of buyers in SD used I/O loans in ‘04 = 32,700 homes. Some of the sales volume in ‘05 was probably resales of ‘04 flips, but that’s still a lot of of hot potatos floating around.”

The Record Online has this update from California. “These days are a good time to buy a residence, says Leslie Brewer, who has been shopping for a condominium since March. And she’s content to take her time doing so. ‘I’m hoping that prices will fall more while I’m looking,’ said Brewer, a Stockton renter who commutes to a job in Livermore.”

“Real estate agents and brokers say that those small residential units, which often are rental apartments converted into condos for sale, are just as slow moving these days as pricier single-family homes. ‘There’s very little activity in that market any more,’ said Randy Thomas, a commercial real estate broker specializing in the Northern California apartments market.”

“‘The demand is not there any longer. Prices are starting to fall and people are saying, ‘Why should I buy now when I can wait around and afford to buy a single family house?’ Thomas said.”

From the Times Standard. “Realtor Rochelle Defuentes said that last year Shelter Cove had its biggest real estate sales year ever, with around 60 homes sold and numerous lots. Most of the buyers, she said, were from out of the area and planning to retire or build a vacation home. Now many of those buyers are selling the very homes and lots they just purchased.”

“‘We have around 40 homes for sale right now and 226 lots, basically a big percentage of our entire market is up for sale,’ Defuentes said, adding that so far this year, only 10 homes have sold in Shelter Cove.”

“Along with the sudden flooded housing market, Defuentes said that the average home last year sold for around $500,000 with some fetching as high as $600,000 or $700,000. In contrast, this year many of the homes are selling in the $300,000 range.”

The LA Daily News. “Rising interest rates and a cooling housing market has made it a nail-biting time to be a homeowner. Many Southern Californians who dove into tempting zero- percent-down loans with huge variable-rate risk now realize they may have bitten off more than they can chew.”

“Like many Southern Californians trying to buy homes as prices went through the roof and lenders opened up their wallets, Bianca Garcia secured her loan through a finance company instead of a conventional lender. In 2003, she and her husband paid $173,000 for a four-bedroom, two-bath house with a three-car garage in Palmdale. Two years later and 90 days in default on her loan, Garcia was on the road to foreclosure.”

“‘We just had so much going out at the time,’ said Garcia, who is still living in her house, thanks to an arrangement she made with a mortgage investment firm. The company paid the first and second mortgages on the house, put it in a trust, and began work on repairing Garcia’s credit.”

“Still, there is only so much these firms can do. Foreclosures are on the rise, and the peak is probably still a few years out. Foreclosures in Southern California are up almost 30 percent since January by 56 percent in Riverside County, 10 percent in San Bernardino County and 16 percent in Los Angeles County.”

“‘I started the business two years ago,” said Tingting Zhang. ‘We had 90 people a day in foreclosure. As of today, the number is 295.’”

“Ideally, prospective homeowners should take time to educate themselves a bit before jumping into homeownership. ‘The mentality is, OK, you’re buying a home for, say $650,000. It’s a great price. You’re thinking you’re getting a great deal, but you’re forgetting that you are still going to be paying $5,500 with insurance and interest a month,’ said Fred Lopez, a manager at a credit-repair company in Van Nuys.”

“‘With a good credit report you could get these loans without proving income on it. We just saw someone with a 680 score, but he had a house that went into the foreclosure process. Now he’s being turned down for other houses. We see a lot of people with the monster homes and cars, and they are so in debt it is insane,’ Lopez said.”

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A pair of reports from Florida. “The residential housing market in the Pensacola Bay Area has been on a wild ride the past two years. Home prices shot up as much as 40 percent in just months. As of mid-July, buyers could choose from a record-breaking 6,500 homes in the Escambia and Santa Rosa markets.”

“With ‘new price’ stickers becoming as common as ‘for sale’ placards in some neighborhoods, some builders have started offering attractive incentives to the buyers. Veteran Realtor Alexis Bolin says she has seen significant price reductions in the past few months and believes more are on the way.”

“‘We’re definitely seeing builders with price reductions,’ Bolin said. ‘And it’s not just one builder, it’s several.’”

“‘Part of the buildup in inventory is because the investor and (speculative) buyer have pretty much left the single-family market,’ Al Muller, of Metro Market Trend said. Blaise Adams, president of First Gulf Bank, agrees, noting that at the height of the housing boom, builders would require as little as $1,000 in earnest money to take a house off the market. At that price it was easy for a speculator to walk away from a contract.”

“‘The quality of a $1,000 contract is pretty low on the scale of contracts,’ Adams said.”

“Another factor contributing to the high inventory, and drop in prices, is simple overpricing on the part of the seller. Joe Endry, of one of the largest real estate firms in the county, says of the 6,500 homes currently on the market, a large percentage are overpriced. ‘When you get right down to it, probably one-third are not really on the market given the price they are asking,’ Endry said.’”

“‘Our rule of thumb is if the listing is 10 percent over market, it probably is not going to sell, and we would discourage our agents from taking those listings,’ he said.”

“While the housing markets the urban areas of Escambia and Santa Rosa are going through this ‘adjustment,’ the situation on Pensacola Beach and along coastal areas is grim, according to (realtor) John Panzino. ‘On the beach there have been nine single family homes close since January of this year,’ Panzino said.”

“‘That’s terrible. It’s strictly a buyer’s market out there right now. There are 392 units for sale on the beach now, not counting the 92 lots for sale,’ Panzino said.”

The News Press. “Increasing numbers of Southwest Florida builders are going to the low end of the new-home market, betting that their spartan offerings will hit a sweet spot in a post-boom economy. Land is cheap, subcontractors are hungry and there’s a glut of the expensive homes that were being churned out during last year’s go-go real estate market.”

“Now some local developers are willing to accept smaller profit margins to offer homes well less than $200,000, and that’s a new phenomenon, said John McIlwain, at the Urban Land Institute. ‘It’s a natural response to a cooling market,’ McIlwain said. ‘They’re moving back to people who are buying houses to live in rather than to invest.’”

“The median price of an existing home sold with the help of a real estate agent was $286,500 in May, down 11 percent from the all-time high of $322,300 in December 2005, according to the Florida Association of Realtors. Even with the lower prices, a typical house still is out of reach for many.”

“Don Awrey hopes to sell his house in Lehigh Acres, build another one on a lot he owns next door, and perhaps ‘come out with some cash in hand.’ The dilemma, Awrey said, is that he’s not sure what he’ll get for his existing house because a glut of houses in Lehigh has sent prices down for the past few months.”

“‘I understand how a lot of speculators are going to be left holding the bag,’ he said.”

“It’s not just houses and land that are more reasonable, said (developer) Jim Morrissette. There’s no longer a shortage of subcontractors who do the nuts and bolts of building a house, he said. ‘It’s much easier to get your hands on the sub-trades now than it was even four months ago,’ Morrissette said. ‘They’re more readily available’ and willing to work for less.”