July 19, 2006

A ‘Countdown To Zero’ In Orange County

The Orange County Register reports that home sellers are facing ‘hard choices.’ “It’s not pretty, but homesellers are closing deals by whatever means necessary. They’re asking for less money, paying closing costs for buyers or stepping up their marketing amid an eighth straight month of sluggish sales in June.”

“The rate of appreciation has decreased each month since February’s 11 percent. It will keep dropping ‘kind of like a countdown’ to zero by fall or early winter, said DataQuick analyst Andrew LePage. Orange County’s median could dip slightly late this year, as San Diego’s did last month, he said.”

“The median home price has increased so much that many buyers are sitting on the sidelines. Mortgage and insurance payments add up to about $5,000 monthly for median-priced homes. Buyers also are pausing because of fear prices will drop after they make a purchase, brokers say. Or some may be waiting because they think they’ll get a better deal.”

“None of this is good news for sellers. And it gets worse. The number of sales last month plummeted 26.3 percent from a year ago to 3,608 homes, the slowest June sales pace in a decade. Yet there are more than twice as many sellers today, there were about 15,000 homes on the market at the end of June. The buyer pool, meanwhile, is drying up, say some brokers and sellers.”

“Alan Partch cut $40,000 off his asking price for a one-bedroom condo on Pacific Coast Highway in Huntington Beach. He still hasn’t found a buyer for the 719-square-foot unit, plus a closet and loft, at $457,777. If he doesn’t find a buyer by August, he listed the condo in February, Partch said he’ll take it off the market.”

“Richard Brock, of Westminster, knocked $20,000 off a two-bedroom house in La Mirada, but that hasn’t been enough to attract a buyer at $579,900. He needs to sell the investment property soon, which he bought in February for $550,000 and immediately put back on the market, he said. He’s pumped nearly $20,000 worth of improvements into the house while it’s been listed, Brock said.”

“‘Whether or not I come out ahead, I don’t know,’ Brock said. ‘It’s not a good situation for me.’” “There are signs more homeowners are under financial stress. Lenders last month mailed 462 notices of default to borrowers who had missed several mortgage payments, a 90 percent jump from a year ago.”

“Some sellers are reacting by paying up to $10,000 of a buyer’s closing costs, said (realtor) Dick Lobin in Huntington Beach. Sellers are more willing to negotiate on price and concessions, he said. And nowadays sellers are making deals to less qualified buyers, he said.”

“Things could get rougher from here, Lobin said. Sales volume, which has been down around 30 percent over the past few months, could drop an additional 10 percent, he said.”




California Is Reaching ‘The End Of A Real Estate Cycle’

Some housing bubble reports from California. “Home sales in the Bay Area continued to slow last month as prices reached new highs. Prices increased at their slowest pace in more than three years. A total of 9,892 new and resale houses and condos were sold in the nine-county region last month. That was down 24.0 percent from 13,014 for June last year, according to DataQuick Information Systems.”

“‘The Bay Area’s market is reaching the end of a real estate cycle, it looks like prices could flatten out sometime this fall. What happens after that is anyone’s guess,’ said Marshall Prentice, DataQuick president.”

“Home sales in the East Bay plunged in June compared with the year before, and the downturn was the largest annual decline since sales began to droop 18 months ago. Even worse, sales plummeted at a faster rate than the Bay Area overall. Sales fell 27 percent in Alameda County and an even steeper 28 percent in Contra Costa County.”

“Ryan and Susannah Maddox have been trying to sell their house in Loma Linda since March. At listing time, the couple realized this was a different market than when they put a deposit on their house in April 2004. ‘We knew the market was slowing, but we were hoping it would not take this long to sell,’ Susannah Maddox said.”

“A UCLA economist said the combination of rapidly falling home sales and diminishing home-price appreciation is the behavior of ‘a classic bubble.’ He predicts home-price appreciation will flatten out, and there might not be true appreciation again until 2011.”

“‘The soft-landing people are full of nonsense,’ said Christopher Thornberg, senior economist at UCLA. ‘This is a classic bubble. And unit sales are falling faster than in past bubbles. Next year will be critical from the standpoint of how the consumer will react to not having ‘a house cash machine’ that can be tapped for spending thanks to rapidly appreciating value. ‘A major pullback in consumer spending could get ugly very quickly,’ he said.”

“Second-quarter sales of new homes in San Joaquin County were down by 40 percent from a year ago. Builders have reported that aggressive discounting sales and some price cuts in the first half of the year to generate sales.”

“A rising supply of unsold homes is helping to put downward pressure on prices. One local MLS that covers metropolitan Los Angeles sent a letter to its broker-clients this month saying it had more homes listed than at any time in its history, about 13,000 properties.”

“‘It’s definitely a buyer’s market, but there are plenty of scared buyers too,’ said John Rygiol, a Seal Beach-based agent who works exclusively with home buyers. ‘That’s the really weird thing right now, the uncertainty. Buyers are hesitant to buy because they think prices will drop.’”

“Sales have declined three consecutive months in Riverside County and six consecutive months in San Bernardino County. Economist Chris Thornberg argued that an extended holding pattern for would create tremendous pain for the real estate industry. ‘The builders and mortgage brokers and real estate agents will take a hit,’ he said. Thornberg said Southern California home prices are easily 40 percent overvalued and it will take about six years for incomes and other economic factors to catch up.”

“Consultant Steve Johnson said a sales slowdown shows that consumers are confused about whether this is a good time to buy. ‘They are being very cautious,’ Johnson said. Johnson said the frenzy of home purchasing over the last several years also may have ’stolen demand from the future’ while pricing many out of the market. Johnson said builders ‘are in for a significant period of adjustment over the next 18 months. We have the wrong products built in the wrong locations and at the wrong price for this market.’”

“For the first time since the late 1990s, median sales prices for homes in Placer and Sacramento counties dipped below the previous year’s levels. Real estate agents attributed Placer County’s bigger drop to price cuts on higher-end homes and a rash of condo conversions in Rocklin and Roseville.”

“‘This is showing all the earmarks of a real estate cycle that’s reaching its end,’ explained DataQuick analyst John Karevoll. ‘The big question: Is it going to reach its end with a splat or reach the end with a relatively soft landing?’”

In San Diego. “Brokerage firm Marcus & Millichap holds that in San Diego County, 25 percent to 40 percent of condos under development or apartments that were converted into condos will return to the rental marketplace over the next 18 months, spokeswoman Stacey Corso said. She said the forecast also applies to Las Vegas, Phoenix, Washington, D.C., and much of Florida. ‘It is already beginning to happen,’ said Kent Williams.”

“Real-estate consultant Gary London said the condo conversion market had made ‘a major shift.’ ‘It is froth, with distressed properties, with condo conversion maps with no chance of selling at the prices they need to sell to be made whole,’ he said.”




US Housing Market ‘Continues To Unravel’

Housing news from Wall Street and Washington. “U.S. homebuilders started work on fewer homes in June as higher mortgage rates discouraged buyers. Would-be homebuyers are moving to the sidelines, dissuaded by the highest mortgage rates in four years and prices that are still above year-ago levels.”

“Starts of single- family homes fell 6.5 percent in June to a 1.486 million-unit rate. Starts fell in every region except the Midwest. They fell 12 percent in the Northeast to 170,000, 4 percent in the South to 911,000 and 10 percent in the West to 460,000.”

“The number of homes under construction fell 1.2 percent in June to a 1.381 million pace, the lowest since October. Housing completions rose 6.4 percent to an annual rate of 2.017 million. The number of housing units authorized, but not yet started, rose 1.6 percent to 233,000.”

“Home builder Ryland Group Inc. said early Wednesday that second-quarter net income fell 9% from the year-ago period and lowered its 2006 profit outlook for the second time as the U.S. housing market continues to unravel.”

“Gross profit margins on home sales in the quarter averaged 23.2%, down from 24.5% a year earlier. The drop was primarily due to $20 million of inventory write-downs and increased sales discounts.”

“For the quarter, new orders for homes fell 39% to 3,023 units, with the dollar value dropping 40% to $890.8 million. The company’s backlog at quarter end was valued at $2.5 billion, an 18% decrease from a year earlier.”

“Downey Financial Corp. reported that net income for the second quarter of 2006 (was) down 22.7% from the year-ago second quarter. The decline in net income between second quarters primarily reflected: A $40.2 million decline in net gains on sales of loans and mortgage-backed securities..A $6.1 million increase in provision for credit losses.”

“During the current quarter, California residential real estate markets continued to show signs of slower sales and flattening home values. In addition, the amount of negative amortization associated with option ARM loans continued to increase and may result in certain borrowers reaching their limit of negative amortization permitted under the terms of their loan, thereby resulting in an increase in their minimum monthly loan payment and the potential for higher delinquencies.”

“As of July 31, 2005, Downey operated 173 branches, of which 169 were in California and 4 were in Arizona.”

From the Fed chairman. “As I have noted, the anticipated moderation in economic growth now seems to be under way, although the recent erratic growth pattern complicates this assessment. That moderation appears most evident in the household sector.”

“Outlays for residential construction, which have been at very high levels in recent years, rose further in the first quarter. More recently, however, the market for residential real estate has been cooling, as can be seen in the slowing of new and existing home sales and housing starts.”

“Some of the recent softening in housing starts may have resulted from the unusually favorable weather during the first quarter of the year, which pulled forward construction activity, but the slowing of the housing market appears to be more broad-based than can be explained by that factor alone.”

“Home prices, which have climbed at double-digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. These developments in the housing market are not particularly surprising, as the sustained run-up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes.”




‘Trend Emerging Of Motivated And Realistic Sellers’

A trio of reports on the Florida housing bubble. The Motley Fool. “Crane-counting. That’s a new game that I play with my family as we drive through downtown Miami. There are so many high-rise condominium buildings sprouting up, most of them in inexplicable places far removed from the beaches and nightlife hubs, that the one who guesses the highest number of construction cranes always winds up winning.”

“Last week, I rented a home just two minutes from the entrance to Disney World. You know it’s not a good sign when a new development is trying to sell its second phase of new homes in a community where the number of ‘For Sale’ signs and real estate agent-led open houses is exceeding the number of houses that were delivered just months ago.”

“Just down the street from the Kissimmee build-out, run-down motor lodges that failed miserably as hotels are trying to reposition themselves as condo hotels. The problem is that they’re trying to sell studio efficiencies for $125,000 or more in areas that struggled to fill rooms for $30-$40 a night in the past.”

“Did I mention that my wife and I paid less than that for a cozy three-bedroom villa with room to spare in a lively resort community just a few years ago?”

The Naples Insider. “To me the most notable event in the local real estate market is the number of of misguided sellers with outrageous pricing, and the number of listing agents accepting such listings as the normal course of doing business. Within most communities, you can have very similar properties with list prices up to 25% apart. Sure, such things as the view and other differentiators can account for some of the price difference, but not the extent of most differences.”

“For a condo with the exact same floor plan, the difference in list price between the low and the high end is 33%. The middle and highest priced units would need gold pouring out of the faucets to have a buyer consider a purchase.”

“The original list prices were often greater than highest price ever paid within the community. A belief by sellers and their listing agents that prices were escalating, while in fact they were decreasing.”

“The number of homes available for sale during July 2006 is in the 9,000 range. This is double the amount available for sale in previous years. and would suggest that Naples will be a buyers market for many years to come. A significant number of those homes are priced out of the market and can not really be taken seriously as a home, that is in good faith for sale.”

“There has been a trend emerging of motivated and realistic sellers. Some sellers have reduced pricing from an outrageous amount to just an absurd price. But others have reduced prices to year 2004 levels. A major reduction off of peak selling prices.”

“Let’s examine the group of homes that closed during the 10 day period ending July 18, 2006. Nearly all homes in this group had significant reductions off of the original list price, and some had significant reductions off the most recent asking price. In most cases it is probably a combination of the buyer getting a good deal, and the seller coming off a ridiculous asking price.”

The Bradenton Herald. “Few workers make the six-figure income needed to afford a median-priced home in Manatee and Sarasota counties, an affordable-housing coalition said Tuesday. A person needs to make at least $109,248 a year to afford a home at December’s median sales price of $322,700, the Florida Housing Coalition said.”

“Even construction managers, the two-county region’s top-paying occupation in the coalition report, don’t make enough to be able to completely mortgage a median-priced home.”




‘This Time, Things Will Be Different’

Some housing bubble reports from the northeastern US. “Rising federal interest rates combined with growing concern among the nation’s lenders over how much supply Jersey City’s Downtown can handle has some experts and local officials predicting a significant slowdown in the city’s bullish residential market.”

“The apparent shift in momentum comes at a time when Jersey City planning officials are bracing for upwards of 20,000 new units in the Downtown region alone over the next decade, and it’s now unclear whether the city will hit that target as the market emerges from its borrower-friendly epoch.”

“The perception of a flooded market has already slowed down one major Downtown project, mega mogul Donald Trump recently told The Jersey Journal the second phase of his Trump Jersey City project ‘may or may not get built, depending on market conditions.’”

“The attorney for Metro Homes, James McCann, defended a postponement of a payment to the city saying that the lenders for the project have become jittery about the prospects of selling out the second of two towers.”

“‘The banks are a little more skeptical of condo developments, because of the supply,’ said Dave Barry, of Applied Development. ‘Developers are now being asked to put more money up front because of the rate increase, and they are asking whether it’s worth it,’ Barry said.”

“In the first solid sign the housing market has turned south, home sales in Philadelphia, South Jersey and Delaware fell in the first six months of 2006 compared to a year ago for the first time in about a decade.”

“‘The market feels very slow right now,’ said Steve Storti, senior VP of marketing for Prudential. ‘I have every expectation that this will continue at least until the end of this year.’ He said the housing market started to falter last winter and the downturn accelerated beginning in April.”

“‘People will now sell their house before they buy another one,’ he said. ‘Previously, people were buying a house before selling their house because they thought it would sell right away.’”

“South Jersey took the hardest hit, down nearly 8 percent in sales. The number of days on market for Pennsylvania homes rose by 59 percent.”

The Philadelphia Inquirer. “Seem like old times? It might if you remember the late 1980s, says regional economist Jim Diffley. According to Diffley, the real estate run-up since 2000 has been dramatically more pronounced in the Northeast, Florida and California than in the Midwest or southern American heartland.”

“If that rings an ominous bell, it should. The boom of the mid- to late 1980s was followed by a bust that took its biggest toll on the same bicoastal set of states and metro regions, Diffley said.”

“As a reminder, he dug out some regional house-price statistics from that era that most real estate salespeople would prefer to forget: In Boston, average home prices fell 11 percent between 1989 and 1991. Northern New Jersey fell even more, 14 percent, in the same period.”

“The trend took a little longer to reach the West Coast, but it lasted longer when it did. San Francisco home prices dropped 11 percent between 1990 and 1994. Los Angeles’ average house plummeted 21 percent from ‘91 to ‘95.”

“Philadelphia’s price drop back then wasn’t as pronounced, mainly because our gains in the mid-1980s weren’t as large either. Houses stayed roughly flat here through about 1996. But this time around, we’re in the thick of it. Average home prices were less than $150,000 in 2000; today they’re closer to $300,000.”

“And like the bicoastal bubble two decades ago, this one is likely to end, fizzing if it doesn’t bust. Already, the data indicate that both new construction and home sales are coming off their previous breakneck pace. It’s not hard at all to imagine the squeeze on those who stretched to buy their dream homes using ultra-low teaser-rate mortgages, once rates adjust back to market levels.”

“As we saw in 1989, moreover, borrowers’ troubles eventually spread to the lenders. Hundreds of savings and loans failed back then, putting the entire economy at risk. But Diffley isn’t saying it’s 1989 all over again. ‘It’s not going to happen again,’ he told me. ‘What was happening in ‘89 and ‘90 was a lot different than what we see today.’”




Bits Bucket And Craigslist Finds For July 19, 2006

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