The Housing Bubble

Some housing bubble updates from California. Bakersfield, “The once-frenzied market has slowed to a crawl, and builders are going out of their way to entice buyers into their half-built neighborhoods. ‘They already own thousands of lots that they still have to use up,’ Alan Nevin, chief economist for the California Building Industry Association said.”

“Builders can’t get rid of that land at the price they want to sell it for, Nevin said, so they’ll stay. Nevin estimates that developers will build 20 percent to 25 percent fewer homes in the Central Valley next year. They’ll also stop buying up land, he said.”

“Houses are already being built, and they can’t be stop, Randy Char (of Pulte Homes) said. ‘We’d rather sell them now and ensure the sale than hold out for top dollar,’ Char said.” ‘We’re just trying to do everything we can to be aggressive,’ he said.

“In the San Francisco Bay area, adjustable mortgages of the kind Perry borrowed make up 49 percent of all refinance loans so far this year. Borrowers no longer ‘ask me what is the quickest way I can pay off my mortgage,’ said Jack Williams, the president of the California Association of Mortgage Brokers and a broker in Orange County. ‘I haven’t heard people say that for 15 years.’”

“California, which has 14 percent of the country’s housing stock, leads the nation, with 21 percent of homes purchased with adjustable-rate mortgages, and 44 percent of California borrowers have refinanced with option-ARM loans so far this year.”

“The fate of subprime borrowers, industry experts and economists say, will be closely tied to home values and the job market. ‘Everything works fine as long as there is pretty decent home price appreciation,’ said Grant Bailey, a director in Fitch Ratings’ residential mortgage-backed securities group.”

The Orange County Register. “Larry Pendleton, a financial planner by trade, already owned a modest Irvine rental..when he found apartments being sold as condominiums in Laguna Niguel for $480,000.”

“Some novel financing helped Pendleton obtain the Laguna Niguel place. He used a hybrid loan whose 6 percent payment is fixed for 10 years before payments adjust. He also opted to pay only the interest for the next decade.”

“With a renter in place, the new condo is almost break even for Pendleton after he tallies up various tax breaks. However, that math doesn’t include the roughly $100,000 he put down earning no interest. He’s counting on future appreciation, over many years, to make that move profitable. ‘Am I buying at the top?’ Pendleton asks. ‘I’m not selling soon.’”

The San Luis Obispo Tribune. “A slowdown in the market hasn’t resulted in a mass exodus of agents from the industry, local real estate professionals say. But agents and brokers acknowledge that it could be a test for salespeople who have not adjusted to the new reality.”

“‘There are too many agents for the number of transactions happening,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘There’s not enough business for everyone to be a successful full-time agent in the state of California.’”

“Stephanie Pipan, an agent for nearly four years, said she’s still picking up business but has revamped her image to attract the attention of potential clients. ‘Now, my dog and I go everywhere together,’ she said. ‘I connect with people who own dogs, cats, reptiles and fish. I can get in on that personal level.’”

“Lynn Bates was working in banking and property management when she decided to sell real estate in 2004. Bates said this summer has been challenging. ‘I’m not sure what the next couple of months are going to do,’ she said. ‘Some things will have to shift.’ Besides, Bates said, ‘I’m not really good at wearing the little cap and taking french fry orders.’”

The collapsing housing bubble in Florida is impossible to ignore. “It’s not a pretty picture over at the 550Q condo project planned for downtown West Palm Beach. The luxe condo with the artsy theme ‘is being put on hold until we can rethink market conditions,’ said Burt Minkoff, 550Q’s sales director. Blame weak sales and rising construction costs for the move.”

“‘We’re confident 550Q is a great project, but overconfident is not something we want to be,’ said Ted Przbyla, development director. ‘There’s a lot of inventory (in West Palm Beach). We felt it would be prudent to stop and see what projects are not going forward.’”

“It’s not just new construction that’s in the doldrums. Consider Mizner Court at Broken Sound, a condo conversion project in the heart of Boca Raton. Last October, developer Skip Stoltz bought the former Coral Harbor Apartments complex for a pricey $105 million. Plans were to quickly renovate the apartments and sell them as condos. You know what happened after that.”

“Of 450 units, only 67 have sold. Business remains slow, even though Stoltz is offering generous incentives toward closing costs or unit upgrades. So, like other developers sitting with unsold inventory, Stoltz is embracing apartments again.”

The Sun Sentinel. “With demand softening in South Florida and across the nation, builders and real estate firms are laying off workers, shuttering offices and selling to moneyed buyers. ‘Construction, mortgages, title insurance. We’re seeing cuts across the board,’ said economist Mark Zandi. ‘It’s going to be a long process.’”

“With cancellations up and orders down, builders have resorted to offering cars, cruises and other perks to stimulate sales. They’re also cutting staff. The trend follows what’s happening in Las Vegas, Phoenix and other formerly hot markets as builders trim fat to stay competitive. ‘In a slower business market, it made sense to cut back,’ said Steve Zenger, a WCI spokesman.”

“Anthony Trella, a consultant to home builders nationwide, said the state will continue to attract Baby Boomers and other new residents. ‘I don’t see demand going away,’ Trella said. ‘A thousand people a day are moving to Florida. Where are they all going to live? They can’t keep living with their brother-in-law.’”

The St. Petersburg Times. “The sneeze came first: Home sales in the Tampa Bay area dropped by a third from last year’s peak. For symptoms of the developing head cold, plunge into the exhibition hall at the Tampa Convention Center, where the Florida Association of Mortgage Brokers is holding its annual trade show.”

“‘A lot of people are getting laid off. They’re cutting back the whole real estate industry,’ said Julie Durkee. Cammie Aucoin of said the new buzzword in the industry is for people to dump their adjustable-rate mortgages in favor of fixed-rate mortgages. Anything to drum up more business. ‘Everything peaked out in November and December,’ Aucoin said.”

The Naples News. “‘You sell to the market,’ said Darin MacMurray, regional VP for Lennar Corp. in Collier. ‘Home prices are decreasing and land prices will follow. I think there will be a correction on land pricing.’”

“For now, buyers are benefiting from falling land and home prices in the Golden Gate Estates. Since January, prices have dropped 10 to 15 percent in the Estates, said agent Elaine Ritchie. So, for example, a house that sold for $400,000 last year is now selling for $350,000, she said.”

“Although prices are coming down, some buyers are still nervous the market will go lower and they will have overpaid. Ritchie said she’s had four buyers back out this year at the closing table. Some sellers are angry they missed last year’s frenzy, Ritchie said. ‘Homes went too high. People can’t swing it,’ Ritchie said.”

The Lowell Sun has this update from Massachusetts. “Local real-estate agents are altering their outlook, and tactics, as the Massachusetts housing market cools. ‘The key is to price the property correctly,’ said Dan Sullivan in Chelmsford. ‘The market isn’t catching up.’”

“For Coldwell Banker, the state’s largest real-estate company, this means that with the housing boom now just a memory, it’s time to drop listing prices. ‘It’s really basic Economics 101,’ said Angela Stamoulos, a Boston-based training manager for Coldwell Banker. ‘If homes have been sitting on the market for three months without selling, they’re probably overpriced.’”

“According to the Massachusetts Association of Realtors, 46,019 single-family homes were on the market in May, up 27 percent from 36,259 in May 2005; there were 22,555 condominiums up for sale, up 48 percent from May 2005.”

“Mark Callahan, broker/owner in Lowell, saw his own residence in Tyngsboro sit on the market for 118 days before it sold last month for $555,000. Callahan’s original asking price for the three-bedroom Colonial was $599,000. He said competition among sellers was fierce, about five homes in his subdivision were on the market simultaneously.”

“‘I wanted to sell my home, so I priced it aggressively,’ Callahan said. ‘Today’s buyers are cautious and expect a good price.’”

“Callahan said he does not recommend a dramatically low listing price right off the bat. ‘If you price your property at $200,000, people are going to offer $180,000,’ he said. ‘If you price your property at $180,000, they’re going to come in at $160,000.’”

“Immediately listing a property at a cut-rate price..’just gives (buyers) a bigger incentive to offer less money,’ (realtor) Brenda Beaudoin in Dracut said.”

“Stamoulos said Coldwell Banker’s strategy is fueled by a need to make a property stand out from an increasingly saturated field. ‘When there’s so much inventory, buyers become paralyzed and don’t get a perception of value,’ she said.”

“Sullivan agreed, saying that lowering prices is one of the few weapons at an agent’s disposal. ‘Location, condition and price are the main considerations,’ he said. ‘”You can’t change the location, but you can improve the conditions, and you can change the price.’”

The Boston Globe. “A buyer’s market is firmly in place in Massachusetts. The causes include: only so-so economic growth and a glut of supply, so those buyers who are in the market don’t feel the need to rush to get the last available property.”

“Like many potential home buyers, Chip Chaunamom has been watching and waiting. The Web designer has been looking for his first home in the Lowell area for more than a year. As the real estate market has cooled, he now is looking for a better deal in a single-family home. ‘There’s a lot more on the market and prices have dropped a lot,’ Chaunamom said. ‘I think I’m in a good position.’”

“Dorothy Murphy and her husband wanted to sell their home in Quincy as soon as possible. They put their three-bedroom starter home on the market at the end of March for about $310,000. By May, it was under agreement for $280,000.”

“Murphy said they could see the market shift even during the period their home was for sale, with many properties staying on the market longer. They felt lucky they were able to sell when they did. ‘By the time we got the offer, we were thinking, `Boy, we better take this,’ she said.”

“So what’s going on? David Wluka, president of MAR, said the market, and home sellers, are in the midst of a reckoning. Reality still hasn’t sunk in with sellers, Wluka said, and prices won’t drop further until many more would-be sellers realize they can’t command the elevated prices they once could. ‘The sellers are going through denial, basically,’ he said.”

What do you see in your housing market this weekend? Incentives? Growing inventories? Here are some examples from the topics thread and the web. “Tucson and Essex County, Mass. both made our annual list of the most overpriced places in the United States. In fact, Essex County, which lies north of Boston, topped off the ranking.”

“‘We saw a lot of waterfront property being bought and smaller homes being torn down and replaced by million dollar mansions during the dot-com boom,’ explains Sara Young, at the Cape Ann Chamber of Commerce. ‘Now you’ll find a lot of those homes on the market, and they aren’t selling because nobody can afford them anymore.’”

Several readers were from Austin, Texas. “Meanwhile, mini-bubble central here in Austin, TX. ‘The booming Central Texas housing market, which is well on its way to a fourth consecutive record year. Out-of-state investors continue to flock to the market, according to broker Peter Sajovich. Sajovich estimates that investors account for as many as one-third of June’s 2,980 home sales. ‘They are picking up any excess supply that we have,’ he said.”

One wasn’t pleased. “I used to live in Westlake HIlls. I loved it, but I couldn’t afford to buy anything there now. Lots are being bought up by condo developers (!) and large properties broken up to build tract-like housing. Not only are the locusts running up prices, they’re destroying the very thing that was good about the area.” Another added,

One posted this from Las Vegas. “We just report what we find out, but it was still pretty scary to hear recently that the FDIC doesn’t have ‘the historical data’ to be sure whether Las Vegas house prices are overpriced by as much as 50 percent.”"The agency quoted one econometric model that predicted the recent speculative boom could have artificially inflated house prices by that much.”

And this from California. “The population of the city of Goleta went from 30.6 thousand in 2005 to 30.3 thousand in 2006, said Watkins, a decrease of .9 percent. The population of the city of Santa Barbara also decreased during the same period, as did the populations of other coastal cities in the state, including San Francisco and Monterey.”

“‘We expect Goleta City’s population to decline…The shrinkage is a result of high home prices, changing demographics, and the lack of opportunity for young workers,’ states the report presented by UCSB economist Bill Watkins, at UCSB.”

A trio of reports on speculation in the housing market. South Carolina. “Downtown real estate is headed for a midcourse correction after an initial period of euphoric sales, developers, real estate agents and analysts say. Columbia’s downtown housing boom started with prices skyrocketing up to $750,000 for condos. But look for most prices to settle around $200,000.”

“Why the price adjustments? Skeptics say too many units have been announced and prices have been inflated by speculators. ‘Columbia is not ready for hundreds of condos starting at $300,000,’ downtown developer Tom Prioreschi said. ‘They will be lower than that.’”

“To make Columbia’s downtown housing boom work, developers have to appeal to the buyer who wants to live in the home, not just investors who want to flip them for a profit, says financier Don Tomlin. Tomlin said developers ‘have to decide if we are selling investments or residential.’”

“Prioreschi waves off the naysayers. ‘These are quality developers,’ he said. ‘They do market analysis. These are not some yokels.’”

“‘The people who will get hurt are the people who come in with the big project at the end of the market,’ Columbia City Council member Jim Papadea said. ‘But Columbia has a long, long way to go before that happens.’”

The Record Courier in Nevada. “The seller’s market in Douglas County is over. The average price of a home in Douglas County dropped significantly in recent months, from a high of $675,000 during the last quarter of 2005 to $544,600 during the first quarter of 2006.”

“Steve Bohler, a broker/owner in Minden, said home selling prices in Douglas County are significantly lower than the asking prices, which indicates to him that they’re overpriced. About four or five years ago, people moving here from California had never refinanced their homes, but that isn’t the case now, he said.”

“‘Instead of coming here with $700,000, they now have $300,000 to $400,000 cash,’ he said. ‘They want to buy a home for a couple hundred thousand and still have enough equity to retire. I hear that from a lot of people,’ he said.”

“The recent real estate boom seems to have bypassed cities like Denver and Albuquerque, N.M, but those markets are now raising some eyebrows, according to David Lereah, chief economist for the National Association of Realtors. ‘What these metros have in common is a healthy local economy and affordable housing prices,’ he said. ‘It is becoming increasingly clear that in the aftermath of the boom, households are now seeking affordable property to purchase and live in,’”

The Wichita Eagle in Kansas. “Many are surprised that the first half of 2006 set yet another record for local home sales, even as interest rates creep up and national home sales and home building slow down. If those who wanted a new home have already had a chance to buy one, who is buying these houses now? And when will it end?”

“A new group has also emerged in the past year: Wealthy out-of-town investors looking for a safe haven for their money and a little rental income.”

“But some property managers say these out-of-town investors may be too optimistic. Wichitans are reluctant to spend more than $1,500 a month in rent for anything, Debbie Thome, owner of a property management firm.”

“After annual gains of up to 30 percent, investors in California and other hot real estate markets have cashed out, earnings hundreds of thousands of dollars. Those gains are subject to heavy federal and state taxes. But the IRS allows owners to defer taxes if they buy property of equal or greater value.”

“For those who made a few hundred thousand dollars on a sale, Wichita is attractive because they can afford a nice house for $100,000 and a very nice one for $250,000. Some buy with the intent to sell later, but the slow appreciation in Wichita can come as a shock.”

“(Broker) Cindy Sundell-Guy had a customer from California buy a house and wanted to sell it six months later. The price appreciation wouldn’t cover the cost of buying the house. ‘They were shocked they couldn’t get their money out,’ she said.”

“So how long can the good times continue? Experts say that rising mortgage rates will cool the boom here, too, just as they have elsewhere. It’s just a matter of time. The number of out-of-town investors can never be that large considering they expect to rent those homes out to somebody. It could just be that Wichita isn’t different than the rest of the country, say brokers, just a little behind the times.”

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