The Housing Bubble

Some housing bubble reports from California. “The housing market slump in California slogged onward during June with sales falling by their biggest annual margin in nine months and the median price hitting a record $575,800, a trade group said Tuesday. It’s also the first time that sales fell under 500,000 for two consecutive months since 2001, the association said.”

“‘I don’t think there is anybody who is forecasting a significant decrease in prices. But I think that over the course of five or six months or for a year we’ll be seeing very moderate price increases or maybe even stationary,’ analyst Nimi Nattagh said.”

The Sacramento Bee. “Amid a confluence of economic factors, homes on lots smaller than 4,000 square feet have become, along with condominiums, a new standard in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties.”

“About 40 percent of new-home sales this year in the six-county region involve houses on lots smaller than 4,000 square feet, according to the a research firm. Five years ago in El Dorado, Placer, Sacramento and Yolo counties it was a mere 1.5 percent.”

“Fast-growing Natomas, north of downtown Sacramento, especially has become rife with large homes packed onto less than a 10th of an acre. Increasingly, such smaller-lot homes have become the price of admission for first-time homebuyers in the capital region.”

“‘As funny as it sounds, you can get a 3,000-square-foot home on a 4,000-square-foot lot,’ says Barry Grant, territory president of KB Homes.”

“‘It’s all about what you can afford,’ said Wil Mar, a first-time homebuyer who has only a ’strip of dirt’ behind his new home in Natomas’ Hamptons subdivision. Mar says he’s happy to be a homeowner in Sacramento. But he sometimes longs for the bigger home lots he says are selling in New Mexico. ‘Here,’ Mar said, ‘everybody is being crushed into little tiny spaces.’”

The Daily Breeze. “The statewide housing slowdown appeared evident in some South Bay cities such as Torrance, which saw 1.2 percent appreciation in June; Redondo Beach, 2.7 percent; and Gardena, 5.4 percent. Manhattan Beach saw the median price slip 0.3 percent in June.”

“John McHugh, (broker) in Hermosa Beach with his wife, Janet, said home sellers must avoid pricing a home too high. ‘We’ve found that if you price a property, you have to price it correctly or else it’ll sit on the market for a long time,’ he said.”

“Added his wife: ‘Everybody has been spoiled with an overactive market. Now that it’s a more normal market, some people are taken aback.’”

And from PBS San Diego. “Developers are enlisting sign spinners to jump start a sluggish condo market and entice potential buyers. Builders say it works, but some cities say the animated signs point to nothing but trouble.”

“Chris Christensen, President of CondoConversions.com: ‘It creates a sense of excitement for people to know that hey, there’s something going on just around the corner, just down the street. So the sign spinners are crucial to bring traffic into the individual project.”

“The City of El Cajon disagrees. James Griffin: ‘The use of a sign spinner isn’t going to stop somebody driving down the street to suddenly pull over and say ‘I’m going to buy a condo.’ You’re fixing your prices at the wrong level, maybe that’s why they’re not selling. I mean, putting 100 spinners in front of your project isn’t going to sell any condos if the price is still too high.’”

Some housing bubble reports from Wall Street and Washington. “Downward momentum in the U.S. housing market is leading some of America’s biggest mortgage lenders to launch new cost cuts and risk reduction strategies that suggest growing concern that the outlook is worsening for the $9.5 trillion home mortgage industry.”

“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”

“At New Century, one of the nation’s biggest subprime lenders, CEO Brad Morrice told Reuters the company has tightened some credit requirements as it puts ‘more thought into loans you want to make or don’t want to make.’”

The Union Tribune. “An avalanche of investors paying top dollar to buy office buildings, San Diego’s commercial real estate market may be showing signs of slowing. GreenPoint Mortgage vacated 110,000 square feet on Willow Creek Road along the I-15 corridor. And Capital One is leaving several floors in the First National Bank tower downtown.”

From MarketWatch. “Pulte Homes announced today net new home orders for the quarter were 9,455 homes, which represent declines of 30% and 29%, respectively, from prior year second-quarter results. ‘Our second quarter results reflect the changing dynamics being experienced in the homebuilding industry,’ said Richard Dugas, Jr., CEO.”

“‘The supply of homes for sale continues to increase, while greater buyer uncertainty about purchasing a home at this time is being further impacted by their inability to sell existing homes and the effect higher prices and interest rates are having on overall affordability,’ Dugas said.”

“Meritage Homes today announced second-quarter results for the period ended June 30, 2006. ‘Demand from investors and speculative buyers has decreased dramatically; inventories are up; and price concessions have increased. These conditions make it more difficult for our buyers to sell their existing homes, resulting in higher order cancellations. While gross orders for the second quarter of 2006 were down 17% compared to the previous year’s quarter, higher cancellation rates reduced net orders by 28% for the same period,’ said CEO Steven Hilton.”

“For the first time in more than a decade, home prices could start to fall around the country in coming months, the NAR said Tuesday. David Lereah, NAR’s chief economist, said he expects ‘price numbers to start deteriorating.’”

“On Thursday, the Commerce Department will report new-home sales for June, and economists such as Phillip Neuhart of Wachovia expect those figures, too, to show continuing weakness. ‘The numbers are not fully counting cancellations, which builders are reporting at a very high level,’ Neuhart said.”

From Bloomberg. “The National Association of Homebuilders ‘believes that the Federal Reserve has been relying on deficient inflation measures to rationalize the interest rate hikes that have been taking a serious toll on the housing sector,’ Joseph M. Stanton, the association’s chief lobbyist, wrote.”

“‘Ironically, much of the recent increase in `core’ consumer price inflation that the Federal Reserve is trying to control with higher interest rates is coming from a weakening housing market, which is increasing the demand for rental units. That translates into a sizeable increase in the large `owners’ equivalent rent’ components of the core inflation measures,’ Stanton said.”

“‘Fighting an increase in core inflation stemming from this component is an inappropriate use of monetary policy, since tighter policy will cause rents to rise further and put additional upward pressure on the core inflation measures,’ he argued.”

“Tens of thousands of new and existing condo units are on the market, and thousands more are under construction. In other instances, some older apartment complexes, which were to be converted to condos, will be renovated and remain on the rental market.”

“The Commerce Department reported yesterday that the number of unsold homes on the market rose to 3.725 million units, almost 40 percent more than a year earlier. ‘This implies that we are only at an early stage of home sale problems,’ economist Ken Mayland told his clients. ‘At some point along the way, prices could crack big time.’”

Some housing bubble reports from Nevada. The Review Journal, “With more than 20,000 homes on the MLS in Las Vegas, some are taking six months or longer to sell. There were 4,271 recorded resales in Clark County in June, compared with 5,767 in the same month a year ago, local firm Home Builders Research reported.. The year-to-date total of 23,305 is down 20 percent from a year ago.”

“‘The resale segment continues to be gripped by the investor hangover that is like a black cloud of inventory,’ Home Builders Research President Dennis Smith said.”

“Warren Pincus is having a hard time selling his 1,600-square-foot, two-story home in the gated Elk Ridge community in northwest Las Vegas. He’s lowered his asking price from $315,000 to $307,000 and now he’s thinking about changing real estate brokers after only two prospects have come by to look at his house in six weeks.”

“‘I suggested to my broker that we reduce the price. I’m willing to sell for less,’ Pincus said. ‘I understand it’s bad right now and I know the big builders give them dough to bring someone. How can I compete with builders offering 11 or 13 percent (commission)? You can’t. I feel helpless, but that doesn’t mean I am helpless. I’m just so frustrated. That’s the word.’”

From Barrons Online. “The latest housing numbers certainly suggest that the end is getting nearer in Las Vegas. Sales of local homes fell nearly 24% in June from the same period in 2005, while the number of listed homes rose nearly 32% from a year earlier, to a record 20,026, according to the Greater Las Vegas Association of Realtors.”

“The statistics on condominiums and townhouses are even more telling, with listings up in June nearly 83% from a year ago and sales down 22%. ‘We’ve got a dramatic increase in inventory,’ says (broker) Jack Woodcock.”

“‘We’ve got 400 to 500 houses in the $500,000 to $600,000 price range that have never been lived in and are sitting on the market for over a year.’ he said. In fact, a full 40% of all the area’s homes for resale aren’t even occupied, according to First American Title Co. That’s usually a sign of a market that has been inflated by speculative fever.”

The Nevada Appeal. “With interest rates reaching 6.8 percent for a 30-year mortgage, the frantic buying period has cooled. The cost of homes leveled off in mid-2005 and is decreasing, said Carson City Assessor Dave Dawley. The frenzy started in Carson City in 2002, peaked in 2004 and has settled into a buyer’s market.”

“‘We’re still getting people from California willing to pay higher prices,’ Dawley said.”

“The average single-family home sold for $319,000 in the second quarter, which is about 10 percent less than the first quarter, according to the Northern Nevada Regional MLS.”

“The average number of days on the market has also increased. More days on the market means there are not enough buyers and too much product, said Bob Fredlund, an agent in Carson City. ‘We’ve got a saturated market right now,’ he said. ‘A lot of people are trying to sell, and it’s going to be a tough road ahead.’”

“Fredlund said he believes not as many buyers are coming from California. Those who invested in a new property, second home or a resale got their business completed when interest rates were lower.”

The Chicago Tribune has this update from Illinois. “Increasingly finicky home buyers are putting the brakes on the Chicago real estate market, where sales of single-family homes plunged a steep 15 percent in June from the same month last year, believed to be the biggest local drop since the housing boom began in 2001.”

“June’s numbers are the latest sign that not even Chicago, which has not felt the effects of the end of a five-year national housing boom as sharply as other markets, will remain unaffected by the slowdown.”

“Analysts said the growing level of unsold homes will further depress prices in coming months and add to the slowdown in sales. Chicago agents say inventory levels are up 30 to 40 percent in some areas.”

“One of those homes on the market belongs to Irving Birkner and his wife, Jaime, who have been trying to sell their two-bedroom condo in the North Center neighborhood since April. Birkner said the couple has had numerous showings but that buyers seem more interested in newly constructed condos nearby than in their vintage unit. A few days ago the couple dropped their asking price by $10,000, to $229,900.”

“The Birkners are eager to sell because they have seen several houses that interest them, he said. ‘We could take advantage of this buyer’s market if we could just sell this house,’ Birkner said, acknowledging the irony. ‘I don’t have a degree in economics, but that pretty much seems to be the way it works.’”

“Pat Callan, a broker in Wheaton, said he expects market times to lengthen. ‘We’ll go back to the 150-day market,’ which he said was typical in the mid-1990s, before the boom.”

“He described buyers as ‘cautious’ because they know the market is cooling. As a result, price cuts are becoming somewhat routine, he said. ‘They’re easily doing $5,000 and $10,000 cuts, depending on their own personal circumstances,’ Callan said. ‘I have seen $20,000 and $30,000 cuts, just to get some activity.’”

“June sales in DuPage tumbled 17.2 percent. Other counties seeing a sales decline were DeKalb (by 20.8 percent), Will (12.3 percent), Cook (11.1 percent), Kane (6.9 percent), Lake (7.3 percent) and McHenry (less than 1 percent).”

“Grundy County was the only one of the eight where sales increased, by a significant 24.5 percent. However, the median sales price there declined by 5.2 percent, according to the Realtors. Prices also dropped by about 4.6 percent each in Kankakee and Peoria counties, which are not included in the Realtors’ Chicago data. More than a third of counties in Illinois saw prices fall in the month.”

From Chicago Business. “The downtown condo market has joined the growing ranks of slowing Chicago-area real estate markets. Sales of new homes in the city fell nearly 21% compared with the second quarter of 2005, while suburban sales slid almost 24% in the April-to-June period, according to a Schaumburg-based real estate consultancy.”

“The city’s drop-off is a dramatic change from the first quarter. The soft market has now extended into the city condo market, which accounts for nearly all the new housing construction in the city. ‘What you’ve seen in the suburbs for the last three quarters is hitting the city now,’ says Mr. Cross. ‘There is coolness now in the city market.’”

“In recent years, city housing sales have been dominated by a handful of high-rise condominium developments downtown. When one project ended, another would hit the market to keep overall sales growing. Many of those new condos were sold to speculators who hoped to sell them at a profit rather than live in them.”

The Washington Post has this update from the DC area. “In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year. The drops are significant because they mark the first time in half a decade that home prices have fallen in a 12-month span, illustrating just how much the real estate landscape has changed after five years of double-digit growth in home prices.”

“The areas with declines have some things in common: swelling numbers of houses for sale, slowing sales and lots of new houses on the market.”

“In Loudoun, nearly 5,000 properties are for sale via the MLS. That compares with 1,800 a year ago. In the District and Fairfax County, the number of unsold homes and time on the market has also increased, boosted by a large supply of condominiums.”

“The question for many local buyers and sellers is whether the small declines foreshadow big price reductions in the months ahead.’Could it be a 5 percent drop in prices? Could it be 10 percent? Whatever it is, it will be short-lived, because demand is right there on the sidelines,’ said David A. Lereah, chief economist of the NAR.”

“But others see a steeper, prolonged downturn in prices because of overbuilding in some areas, speculative buying and a run-up in prices that has outpaced affordability. Prices, they added, have actually declined more than the statistics indicate because sellers have been offering such incentives as help with closing costs.”

“Too many sellers have not accepted that their houses are not worth as much as they had thought, said economist Mark Zandi. ‘The market can’t complete its correction until that happens.’ Zandi sees Washington area home prices declining over the next six to 12 months by an average of 10 percent, with the condo market experiencing larger price drops. The good economy, he said, is ‘not enough to save the market from this housing correction.’”

“Scott and Shirley Porter of Ashburn had no choice but to cut the asking price for their townhouse, there are just too many others for sale nearby. From their back yard, they can see three for-sale signs across the street. Out front, more neighbors are selling. Around the corner, there are four more.”

“The Porters put their end-unit on the market last month for $458,000. That was right at the middle of other townhouses for sale in the neighborhood, he said. But in no time, the Porters found that their place had ended up at the top of the price scale after neighbors reduced their prices. So they lowered theirs, too, to $435,000.”

“‘It’s amazing how much the prices have come down,’ said Scott Porter. ‘You feel like you’ve missed the bus.’”

“Neighbors Sheila and Chris Boyce put their three-bedroom, 2 1/2 -bath unit up for sale in March for what they thought was a competitive $445,000. They have since reduced it to $437,000, still $42,000 more than the $395,000 they paid two years ago.”

“After costs, they would not be making nearly as much profit as they had imagined, even if they get their new price. ‘We weren’t trying to get rich on it or anything,’ said Sheila Boyce. ‘We thought it would be a lot more. Not hundreds of thousands, but at least something to put away.’”

Some housing bubble reports from Massachusetts. “Home sales in Massachusetts tumbled 16.6 percent and condominium sales declined 14.3 percent in June. As homes stay on the market longer, the supply of unsold homes is growing, putting pressure on prices.”

“‘Prices are going to go down, there’s no question about that,’ said Karl Case, a Wellesley College economics professor who specializes in the housing market. ‘The only question is how far and for how long,’ he said.”

“Real estate agents are increasingly discouraged by an unwillingness among clients to lower their listing prices to spark more sales. There were near-record numbers of active listings in Jun, 56,494 homes and condos. Many sellers are holding out for a high price to help them realize the 80 percent price appreciation that occurred in the market between 2000 and 2005.”

“‘In order for sales to begin to edge up,’ sellers ‘are going to have to face reality and adjust their pricing accordingly,’ said David Wluka, the president of the Massachusetts realtors. ‘They have to take the longer view of what the house is worth instead of looking back one or two years.’ He predicted prices ‘will continue to decline until the inventory gets eaten up.’”

“A jump in home foreclosures and yesterday’s report of yet another fall in home sales and prices is causing economists to wonder whether the fragile economic recovery might be clipped by the housing market. ‘This is not a good situation,’ said economist Fred Breimyer, referring to the housing market and its potential ripple effect on the rest of the economy.”

“‘It’s a whole new ballgame,’ said Andre Mayer, chief economic researcher for the Associated Industries of Massachusetts.”

“The economy, fuel Prices and climbing interest rates are all factors in the slower market, Mr. Wluka said. ‘I think it’s job-related,’ he said. ‘People are not going to put themselves on the line if they think they may lose their job. I’ve seen people who want to buy, but they have to sell their home first. They’re waiting because they want to do that first.’”

“MAR spokesman John J. Dulczewski declined to predict what the state’s housing market would do over the coming months, other than to say that modest declines in prices would continue until prices are more stable. ‘There’s a whole educational process going on right now, with sellers having to understand what’s been going on over the last year,’ he said.”

The Daily Item. “(Broker) Don Baker said, ‘If the house is overpriced, we tell them to go someplace else. There’s no sense in spinning your wheels,’ said Baker, who has been selling homes in Lynn since 1967.”

“According to a handful of local realtors,there’s plenty of stock to choose from right now because people tend to sell out of necessity or because of life changes, not because the market is hot or cold. But because of the large stock of homes available, realtors say buyers have been more reluctant to pull the trigger on a sale because a better offer might be right around the corner.’

The Boston Herald. “New figures show Bay State house prices have dropped for five straight months, the market’s longest losing streak in more than 13 years. In addition to declining prices, MAR also reported that the number of houses changing hands tumbled in June for the third month in a row.”

“‘You can’t keep going up forever, at some point you hit the wall,, MAR President David Wluka said. ,There comes a point where buyers say: ‘We can’t afford to buy this,’ or ‘We’re not going to pay that.’”

The Florida Press reacts to the June home sales. “Roxanne Arnold quit her job and started flipping houses. But now a three-bedroom Fort Lauderdale town house she owns has sat on the market for more than year, and things are so slow that she just got a part-time job.”

“‘Everyone that needs a home to live in has bought one, and the people that still need a home can’t afford these prices,’ she said. ‘I would not call it a buyers’ or sellers’ market, because there is no market.’”

“‘I am advising all sellers not to blink,’ said Craig Studnicky, (who) primarily sells new condos. ‘If 1,500 people a day are moving to Florida, the demand curve could catch up by fall.’”

“Condo owner Arnold is willing to wait, although not much longer. Already, she has come down from her initial asking price, and she notes owners of similar units nearby are dropping prices. ‘You can’t be greedy these days,’ she said. ‘The old market was just a freak thing. They are out of their minds if they think it will happen again.’”

The Palm Beach Post. “The zoo is not the only place to look for ostriches these days. A lot of local homeowners also have their heads in the sand, analysts say, because they refuse to believe the unprecedented five-year real estate boom is over. ‘It’s ostrich investing,’ said John Pankauski, a West Palm Beach investment lawyer. ‘There’s a difficulty admitting they made a bad choice, so they don’t deal with it.’”

“‘So many properties are highly leveraged, 90 percent to 100 percent mortgaged, or even more, especially by investor-owners holding them as third, fourth or fifth properties, prices will not free-fall until renters can no longer cover the mortgage and banks foreclose,’ said Clemmer Mayhew, a Palm Beach County Realtor. ‘Then lenders realize perhaps they loaned $360,000 on a… property actually worth only $275,000.’”

The Sun Sentinel. “Broward County’s existing single-family home sales plummeted again in June. ‘It’s a stare-down between buyers and sellers, and as time passes, the pressure’s on the seller, not the buyer,’ said housing consultant Jack McCabe.”

“Many investors are now leaving real estate. ‘We knew condos had to collapse because there was nothing there supporting it, except predominantly speculation,’ said Lewis Goodkin, a Miami-based consultant.”

“Homes sales on the Treasure Coast dropped significantly in June. ‘Prices are going to drop like a lead balloon in the coming months,’ said McCabe said. ‘I think people realize that if they wait it out a little, they’re likely to find even better deals down the road.’”

“Existing home sales in the Bradenton-Sarasota market took a 40 percent tumble in June, and the median sales price fell $10,000 from a year ago. (Realtor) Barbara Edwards said she is still seeing people choose to leave the area rather than deal with rising insurance and taxes.”

“‘We’re seeing a lot of people, whole families, moving to places like Tennessee, Georgia and North Carolina,’ Edwards said.”

“Local condominium prices continued to fall in Brevard County, the Florida Association of Realtors reported Tuesday, down 6 percent from May and down 19 percent from June 2005. The number of existing local condo sales fell to 55 in June, down 261 in June 2005.”

“Ray Wright, owner of a Satellite Beach company that buys and sells local real estate, said he began noticing an increase in local foreclosures early this year. ‘People are waiting for the market to hit bottom before they start buying again,’ Wright said.”

“More than six months into a market correction, existing single-family home prices in Naples showed a year-over-year decline in June as sellers cut prices to lure buyers. The inventory of 9,700 homes and condos on the local market has stabilized at roughly an 18-month supply.”

“Naples-area single-family homes sold for a median price of $451,000 in June, down 8 percent from June 2005’s $491,400 median.”

“The post Hurricane Charley seller’s market is over. Zooming prices made many owners resemble cartoon characters whose eyes suddenly flash with dollar signs. Those days are over. Welcome back to reality. Locally, the Punta Gorda area reported 323 sales of existing homes during June, the report stated. This represented a 34 percent drop from 490 sales during June 2005.”

“To take one example from broker Ellen McCarthy’s recent listings, an owner was asking nearly $250,000 for a rather modest two-bedroom house with a and swimming pool. After six months, the house hadn’t budged. McCarthy said she persuaded her client to come down to a more realistic $181,000. She expects to have a purchase contract within a few days.”

“Bill Dryburgh, president of the local multiple listing service, said, ‘There are buyers out there, and the buyers are savvy and smart and doing their homework on the Internet. The homes that are priced right are selling.’”

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