The Housing Bubble

The California realtors have their June numbers out. “California home sales plunged 26.3 percent in June compared to last year while the median price of an existing home increased 6.2 percent, an industry trade association reported today.”

“‘Mortgage interest rates rates continued to edge up for the fifth consecutive month in June, contributing in part to a slowdown in sales,’ said C.A.R. Chief Economist Leslie Appleton-Young.”

“‘June 2006 was the first time since late 2001 that the sales pace fell below 500,000 for two consecutive months. Home sales declined 26.3 percent last month compared with June 2005.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in June 2006 was 6.2 months, compared with 2.5 months (revised) for the same period a year ago.”

“‘For the first time since November 2001, we experienced back-to-back months of single-digit price appreciation, moderated in part by increased inventory levels,’ said C.A.R. President Vince Malta.”

“In the Central Valley, the median price of a single-family home was $362,960 last month, up 2.1 percent from the previous month and up 2.6 percent from a year earlier, according to the Realtors. But Central Valley home sales dropped more sharply than the state as a whole, down 34.5 percent from June 2005.”

From the Orange County Register. “The Realtors noted today that, ‘In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 78.7 percent, or 322 out of 409 cities and communities showed an increase in their respective median home prices from a year ago.’”

“A year ago, ‘In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 97.5 percent or 396 of 406 cities and communities showed an increase in their respective median home prices from a year ago.’”

“So that’s 21.3% of the state with losses vs. 2.5% last year. Ouch!”

The Florida realtors have their June numbers out. “Rising mortgage rates, rising inventory levels, rising insurance premiums and higher energy costs impacted Florida’s housing sector in June, as the state’s housing market continued to adjust. A total of 18,089 existing single-family homes sold statewide last month, a decrease of 29 percent from the 25,552 homes sold during the previous June, according to FAR.”

“Looking to Florida’s existing condominium market, sales of existing condos also decreased in June, with a total of 5,241 condos sold statewide compared to 8,109 in June 2005 for a 35 percent decrease.”

“Sales of existing homes in Palm Beach County and the Treasure Coast posted their seventh straight monthly decline in June, emphatically breaking the boom of five bustling years of real-estate sales, according to a FAR report.”

“Sales in Palm Beach County plunged 39 percent, to 947 from 1,551 in June 2005, according to the report. In the Treasure Coast, sales declined 33 percent, to 513 from 768 in June 2005. Meanwhile, Palm Beach County inventory is up. There’s an eight-month supply of existing homes at the current sales pace, according to industry analyst Thomas Lawler.”

“Indeed, every market in the state posted double-digit sales drops last month, save for two smaller cities: Tallahassee, down 7 percent, and Jacksonville, down 3 percent, the report shows.”

“Conditions in the condo market are deteriorating faster than in the market for single-family homes. Existing-condo sales in June fell 41 percent in Palm Beach County, 50 percent in the Treasure Coast and 35 percent statewide, year over year.”

“Median home sales prices in both Lee and Collier counties dipped last month compared to June 2005. With builders cutting back on new inventory release and offering incentives to jump-start slowing sales of new homes, it has forced sellers of existing homes to bring down their expectations as well.”

“Realtors sold 57 condos last month, which is down from 109 in June 2005. Inventory levels in Lee County that had started to show just the slightest stabilization also grew last month, up to about 12,053 listings and 1,343 pending in single-family. That is a 12.97-month supply of single-family homes. There are 7,387 condos listed for sale and 591 pending in condos, a 14.17-month supply.”

“Home sales continued to fall in the double digits in Southwest Florida and prices were giving ground. Sales were down 40 percent in the Sarasota-Bradenton market in June. Homes in the Charlotte County-North Port market dropped 34 percent.”

“The median sales price of an existing home in Lee County fell in June, the first year-over-year decline in seven years, according data released today. The median sales price of an existing single-family home in Lee County was down five percent from $281,000 in June 2005. Just 891 single-family homes in Lee County were sold by Realtors in June, down 31 percent from the same period last year.”

“Collier County saw even steeper declines, with the median selling price falling 8 percent to $451,500 and sales fell 48 percent to 274. Condominium sales were also down 66 percent in Lee. Collier condominium sales fell 48 percent to just 57 sales.”

Some housing bubble reports from Wall Street and Washington. “Centex Corp., the fourth-largest U.S. home builder, on Monday said its net profit fell 31 percent and orders were off 21 percent, prompting the company to slash its forecast in another sign of the eroding U.S. housing market. ‘Centex is another confirming data point that the trends directionally are continuing to get worse,’ analyst Rick Murray said.”

“Centex followed in step with U.S. home builders who have reported falling orders and have slashed their forecasts, bemoaning the flood of unsold homes on the market, especially from speculators dumping their investments that no longer rapidly increase in value.”

“Closings fell 11 percent in the once-sizzling Southeast, where new orders tumbled 43 percent. With the order fall-off, Centex walked away from options contracts for land, writing off $36 million of options deposits.”

“‘Despite the supply driven correction occurring now, the company believes that the fundamentals driving industry demand remain strong,’ Centex said on Monday in a statement.”

“Orders fell across all markets, with the Southeast (down 43%), Mid-Atlantic (down 23%), and the West Coast (down 21%) seeing particular weakness. On the company’s conference call Tuesday, Centex management blamed speculators looking to quickly flip their homes for much of the current inventory accumulation in the U.S. housing market.”

“Centex said it is using incentives to increase sales in markets where oversupply is an issue. By also reducing overall land purchases and walking away from land option contracts in overheated markets, particularly California, the company is emphasizing cash generation and a clean balance sheet.”

“UBS analysts said Countrywide Financial turned in ‘mixed’ results, with production earnings below estimates, with lower spread income, lighter margins and higher expenses. UBS noted that management lowered its production range $400 million to $475 billion from $400 billion from $550 billion, ‘which reflects the outlook for a more competitive environment.’”

“Countrywide Financial CEO Angelo Mozilo on Tuesday said the largest U.S. mortgage lender wants to cut $500 million of costs in the next year as competition rises and mortgage production volumes are expected to decline. ‘We find redundancies and waste in certain areas of the company,’ Mozilo said. Mozilo did not specify where the cuts would come from, or how many jobs might be affected.”

From the FDIC. “Surging loan volumes and relaxed underwriting point to the possibility of rising losses in the future, according to the Summer 2006 edition of FDIC Outlook released today. ‘Despite today’s low loss rates, credit risk remains the most important long-term threat to bank earnings,’ said FDIC Chief Economist Richard A. Brown. ‘Bankers and bank regulators need to remember that rapid expansion in loan volumes often leads, over time, to declining credit quality.’”

“Perhaps the most far-reaching changes have been observed in U.S. mortgage lending, where the use of interest-only mortgages and pay-option mortgages increased dramatically in 2004 and 2005. Use of these products has led to concerns about the risks they may pose to lenders and to homeowners.”

The Massachusetts realtors have the June numbers out. “Home sales in Massachusetts tumbled 16.6 percent in June, while condominium sales declined 14.3 percent, the Massachusetts Association of Realtors reported in its monthly report today on the state’s housing market.”

“While sales were down sharply last month, prices barely budged. The median house price, $370,000 in June, is just 1 percent lower than it was a year earlier, while the median condo price, $283,500, is 1.1 percent lower than a year ago. ‘Many sellers are being short-sighted right now,’ David Wluka, president of the association, said. ‘They don’t want to admit the market has changed and their home may not be worth as much as before,’ he said.”

“The problem for sellers, he said, is that with so much unsold inventory on the market, ‘There’s little urgency on the part of today’s buyers to act.’”

“Inventory levels continued to rise for a 16 consecutive month in June, with the number of active listings of single-family properties climbing 10 percent over the past year to 56,494 homes and condos listed for sale this June.”

From the associations ‘talking points.’ “The more moderate sales pace reflects a more cautious approach to home buying on the part of consumers brought on by rising mortgage rates, which have increased a full point over the past year, rising energy prices, and a more plentiful supply of homes for sale, which has enabled buyers to take a more relaxed approach to the home search process.”

“The supply of detached single-family homes on the market rose for a 16th consecutive month in June, climbing 7.9 percent over the past year from 35,820 homes for sale in June 2005 to 38,664 this June. Inventory, as stated in months of supply, also rose steadily from 5.9 months last June to 7.6 months of supply in June 2006. A large number of sellers took their homes off the market in the last month however as listings dropped from May when there were 46,019 homes for sale.”

“The number of condominiums for sale has increased 16.1 percent in the past year, from 15,362 units last June to 17,830 in June 2006. Similar to the detached home market, condo units are not selling as quickly as they did a year ago. The average listing time for condos has risen by nearly four weeks over the past year from 66 days in June 2005 to 98 days last month.”

“The statewide median selling price for condos declined for the second time in the last three months during June. The median price of $283,500 is just 1.5 percent below the record high median selling price of $287,900 set in July 2005.”

The Boston Globe. “Foreclosure filings in Massachusetts increased 66 percent in the second quarter, according to data released yesterday, a trend that is expected to continue over the next year. That 66 percent surge in filings compares with a 30 percent rise in first-quarter filings.”

“Jeremy Shapiro, the president of ForeclosuresMass, said he was alarmed about the pace of Massachusetts’ sharp recent increases. ‘The foreclosures in Massachusetts right now are skyrocketing,’ he said. ‘`This is a problem that’s going to extend through 2007 and 2008.’”

The existing home sales numbers are out. “Sales of existing homes fell in June for the eighth time in the past 10 months while home prices edged up at the slowest pace in more than a decade, more signs that the housing market has slowed dramatically. The median price of a home sold last month was $231,000. That was up 0.9 percent from June 2005 and represented the smallest year-over-year price gain since May 1995.”

“Total existing home sales declined 1.3 percent to a seasonally adjusted annual rate1 of 6.62 million units in June from an upwardly revised level of 6.71 million May. Last month’s sales were 8.9 percent below the 7.27 million-unit pace in June 2005.”

“‘The change in price performance is directly tied to housing inventories, a year ago we had a lean supply of homes and a sellers’ market,’ David Lereah, NAR’s chief economist said. ‘Sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago.’”

“Total housing inventory levels rose 3.8 percent at the end of June to 3.73 million existing homes available for sale, which represents a 6.8-month supply at the current sales pace. By contrast, in June 2005, there was a tight 4.4-month supply on the market.”

“Existing condominium and cooperative housing sales were 14.6 percent below the 943,000-unit level in June 2005. The median existing condo price3 was $226,900 in June, down 2.1 percent from a year earlier.”

“Regionally, existing-home sales in the Midwest were 6.2 percent lower than a year ago. The median price in the Midwest was $175,000, which is 1.7 percent below June 2005. Existing-home sales in the West also were 17.1 percent lower than June 2005. The median price in the West was the same as a year ago.”

“Existing-home sales in the South were 5.5 percent below June 2005. The median existing-home price in the South was $191,000, down 0.5 percent from a year earlier. Existing-home sales in the Northeast declined 9.8 percent below a year ago. The median price in the Northeast was $298,000, up 7.2 percent from June 2005.”

“NAR President Thomas M. Stevens said opportunities have opened for home buyers. ‘People who were discouraged by the bidding wars that were so common over the last few years are finding more choices now,’ said Stevens. ‘Relative to the five-year housing boom, this year is a buyer’s market in much of the country with plentiful supply, along with interest rates which remain historically favorable, so it’s a good time to buy a home.’”

Existing home for-sale inventory, from the PDF file on the NAR press release:

2,270,000 2003

2,224,000 2004

2,678,000 Jun 2005

2,756,000 July

2,841,000 Aug

2,772,000 Sept

2,868,000 Oct

2,924,000 Nov

2,846,000 Dec

2,883,000 Jan 2006

2,985,000 Feb

3,198,000 Mar

3,415,000 Apr

3,589,000 May

3,725,000 Jun

“The 1.3 percent decline represented the third drop in a row and the eighth in the past 10 months. The inventory of unsold homes rose to a new record of 3.725 million units. Analysts believe that the growing level of unsold homes will further depress prices in coming months.”

“Lereah said he believed price weakness will continue as sellers start cutting their asking prices in the face of weaker demand and rising inventories. He said that housing continued to be a “tale of two markets” with previously hot areas experiencing declines and more modestly priced areas showing a boom.”

A pair of reports from Florida. “Southwest Florida home builders, many of whom are still finishing residences ordered last year, are bracing themselves for the day when those jobs dry up by trimming their work forces through attrition and, in a few cases, through actual layoffs.”

“‘WCI has adjusted the size of its work force to be more consistent with the current business environment,’ said Steve Zenker, a spokesman for the company. ‘As stated previously, new orders through the first part of the year have been much lower than experienced during the same period in prior years.’”

“The picture is much the same nationally, but may be more exaggerated here because of the extent of the boom in 2004-05. ‘The market is definitely slowing down,’ said Michael Carliner, an economist with the National Association of Home Builders. ‘I think the outlook is for declining employment by sometime next year, perhaps before then.’”

“Builder Lee Wetherington seemed to agree: ‘We had too many speculators. Now we’ve got to burn all that inventory off. It will be burned out easily by this coming season. That is why summer and fall of next year is when you’re going to see the uptick. That is how business works.’”

The Gainsville Sun. “Condominiums in Gainesville are going up and being sold in record numbers, particularly around the University of Florida campus. One under construction is asking for more than half a million dollars: $546,984 for a three-bedroom, three-bath unit.”

“Realtor Eric Wild said the price tags are justified on a variety of fronts. ‘The contractors aren’t getting rich; they’re not getting greedy,’ he said.”

“‘For one, it’s the quality of construction that warrants the price,’ Realtor Bonnie Seide said. ‘It’s top quality, steel and brick exterior, granite countertops in the kitchens, great security and excellent management. And the location is highly appealing to buyers who want to be in a lively downtown area.’”

“Even though occasional outdoor events could disrupt someone’s sleep ‘when you’re four stories up, it’s not disturbing,’ she said. ‘Plus, some people want that sort of noise.’”

“John Marti said the amenities make the price worth it, with ceramic tile floors, wood cabinets, granite countertops and high-speed Internet access. ‘Internet, it’s like water,’ he said. ‘You really have to have it.’”"Realtor Wild said parents, many of them alumni, see value in the long-term investment. ‘If they bought a house in this area, in a couple of years they would be stuck with an old house,’ he said. ‘These will hold their value.’”

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