The Housing Bubble

The Arizona Republic has this editorial. “News flash: The law of gravity wasn’t suspended in the Valley. In last year’s sizzling real estate market, home prices and sales kept going up. At least one of four sales was to a speculator. Prices skyrocketed 55 percent in 2005.”

“And now, an astonishing number of people are startled to find that the law of gravity still applies to the Phoenix area. They’re stunned that prices are leveling off. Amazed that houses take nine weeks to sell instead of flying off the market in three. For some, the market came down with a loud bang.”

“Those who treated the Valley’s housing market like a casino, buying homes sight unseen and expecting to cash in a big winner every time, deserve no pity if their gamble isn’t paying off.”

“Average buyers..got caught in the middle. But some of them, too, have been caught up in a risky round of flipping property, letting greed overcome good sense. Good sense was also missing among homeowners who rushed to tap equity and will owe more than their houses are worth if prices decline.”

“The truly sad tales are home buyers left in the lurch by construction companies that stop projects in midstream. It may be a cold comfort for buyers left holding the bag, but at least the state Department of Real Estate and the Registrar of Contractors are investigating Turner-Dunn.”

“The boom-bust cycle is so much a part of the Arizona landscape, and real-estate history has repeated itself so often, that it’s unlikely any lessons will sink in.”

“But here are a few things we should learn: The definition of a good market depends on your point of view. The run-up in prices last year was great for people in the real estate business and buyers who could cash in. But it jacked up the price of housing in a place where affordable rents and mortgages used to offset relatively low wages.”

“Two years ago, the typical metro Valley household had more than enough income, 114 percent, to buy the average existing house. Now, that household earns just 84 percent of the amount needed for an average home.”

“The innate value of our housing market wasn’t driving prices here. Favorable interest rates, low returns on other investments and demographic changes have fed a wave of speculation in places like Dublin, London and Singapore, according to Jay Butler, at Arizona State University. The next time around won’t be different.”

The Orange County Register has this update from California. “A proposal to build a 573-unit development overlooking the freeway has been withdrawn because of rising construction costs and pressure from the city, the developer said. Shea Homes had proposed four buildings, including a 24-story residential tower, for an 8-acre lot overlooking the Santa Ana Freeway on Fourth Street.”

“But Shea withdrew its project because of rising construction costs, said Brian Riggs, Shea’s urban community development manager. Riggs also said Shea was under pressure to build higher than the company had wanted.”

From the Southland realtors. “A total of 919 single-family homes changed owners during June, down 25.9 percent from a the total of 1,240 reported in June 2005. Similarly, condominium sales fell 30.1 percent to 316 transactions compared to the 452 sales reported 12 months earlier.”

“What’s happening is a bit of payback time, said Jim Link, the Association’s executive vice president. For the past four years sellers controlled sales and dictated terms, often forcing buyers to decide on the spot. At long last, buyers again have some options. Most sellers, if they heed wise counsel from a Realtor, have already adjusted their list price to the new market conditions.”

“Inventory has grown from virtually zero listings of last year, the number of homes listed for sale bolsters the notion that the market has hit a point of balance between buyers and sellers. The inventory of active listings increased to 6,376 during June. That was up 161.8 percent from year ago levels.”

The Union Tribune. “A class-action lawsuit filed this week claims that nearly 400 buyers of converted condos at a huge La Jolla Village complex were defrauded by the developer, which advertised the units as larger than they actually are. Attorneys representing home buyers at the widely advertised Villa Vicenza development are seeking refunds for the owners.”

“Potential losses to buyers of the one-and two-bedroom condos range from $18,000 to roughly $92,000, estimates Patrick Catalano, one of two lawyers representing the homeowners. ‘People who bought were looking to sell these in a couple years with appreciation, and now they have to represent to buyers a lower square footage, and they’ll get a loss in appreciation for their units,’ Catalano said.”

“Sales at Villa Vicenza, which was built as a rental complex in 1987 before being converted to condos a year ago, are winding down. A second phase of 267 units is remaining as a rental complex for the immediate future, although plans could change, said officials.”

“Brian Duchman, a regional manager for Crescent Heights, said late yesterday that square footage of units, in general, can vary widely, depending on how the measurements are made. That doesn’t mollify Angeli Parane, who said she’s worried she’ll lose money on the one-bedroom condo she purchased in September.”

“She paid $343,000 for the fourth-floor, upgraded condo, which she is now renting out. ‘I’m trying to make this an investment, and now when I sell it later, I’ll have to sell it at a lower price,’ said Parane. ‘I feel like I’m being defrauded.’”

Some housing bubble reports from Wall Street and Washington. “Ratings agencies would have to give Fannie Mae and Freddie Mac additional scrutiny under a proposal that lawmakers will consider on Wednesday. One amendment would require ratings agencies to publicly disclose any work they do for one of the government-sponsored enterprises.”

“Another would compel the agencies to judge each enterprise’s risk as if the government would not bail it out in the case of a default.”

“Ohio Attorney General Jim Petro brought suit against Fannie Mae on Friday in the latest of several legal actions against the nation’s largest secondary market lender. The class-action lawsuit was filed on behalf of the Ohio’s public pension funds and other Fannie Mae stockholders and charged that Fannie Mae Corporation and its top executives ‘manipulated earnings in a fraudulent scheme to deceive investors about (its) true financial state.’”

“Two groups of stockholders have also sued Fannie Mae in the last few weeks, and if previous state government originated lawsuits, such as..against tobacco companies, expect to see many other states follow Ohio’s lead.”

“U.S. mortgage applications last week sank to their lowest level in over four years, an industry trade group said on Wednesday, further evidence that the once robust U.S. housing market is weakening.”

“Drew Matus, senior financial economist at Lehman Brothers, said that while the indexes are volatile on a weekly basis, they point to a sector that is softening. ‘The data suggest that the housing market is cooling and it’s cooling pretty substantially,’ he said.”

“In the second quarter of 2006, 88 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac’s quarterly refinance review.”

“This percentage is up from the first quarter of 2006, when the share of refinanced loans that took cash out was a revised 86 percent, and is the highest since the second quarter of 1990.”

“‘This quarter we saw $81.0 billion cashed out, up from a revised $74.1 billion cashed out in the first quarter of 2006,’ said Amy Crews Cutts, Freddie Mac deputy chief economist.”

“‘Borrowers are reacting to both incentives to cash out home equity through refinance and incentives to change their mortgage as they hit an interest rate adjustment. Freddie Mac estimates that $500 billion in first lien mortgages will adjust this year and another $650 billion in second liens will see at least one rate change this year, said Frank Nothaft, Freddie Mac chief economist.”

“Pending home sales, a leading indicator for the housing sector, have risen for the last two months, according to the National Association of Realtors. The index, based on contracts signed in June, is 9.6 percent below June 2005.”

“The Fed meets Aug. 8 to consider whether the slowdown and 17 straight interest-rate increases will be enough to curb inflation pressures.”

“‘Slower increases in house prices could put a crimp in consumer spending,’ Federal Reserve Bank of San Francisco President Janet Yellen said. ‘While I expect the housing situation to have only moderating effects on economic activity going forward, I should note that we can’t ignore the risks of more unpleasant scenarios developing.’”

The Chicago Tribune has this update from Illinois. “Tom and Sandi Gollinger really, really, really want to sell their Naperville home. They point out to prospective buyers that the century-old house has several goodies. And, oh, yes: There’s the Hummer.”

“All this could be yours, if the price is right. In this case, it’s somewhere around the Gollingers’ $1.475 million asking price. ‘We have to be creative in these times,’ said Sandi Gollinger.”

“Inventories of homes for sale have exploded, and it’s increasingly clear that sellers, particularly in the upper brackets, which were the first to feel the drag of the slowing market, need to do something to stand out. ‘The times, they are a-changin’,’ said David Hanna, CEO of Prudential Preferred Properties in Chicago.”

“The Gollingers’ isn’t the only automotive incentive in the Chicago real estate market. A Hinsdale seller is dangling one as a reward to the real estate agent who produces a signed contract. ‘I’ve got the cuter car,’ said Hinsdale agent Jaime Adams. ‘It’s a Mini Cooper convertible. Pick your color.’”

“‘Reaction has been super-duper,’ she said. But it hasn’t sold the house. ‘I thought I would be beating them off with a stick,’ she said. But there have been no offers, and they’re going to extend the car promo, which expired on Monday. ‘It’s a tough one. The buyers just aren’t out there.’”

“In Naperville, for example, the Gollingers have plenty of competition, according to appraiser Chip Wagner. He said that in the past 12 months, 28 homes there have sold in their price range. Currently, there are 89 on the market, a 30.2-month supply.”

“‘It’s frustrating to people,’ said Hinsdale agent Tina Porterfield, who said that in her experience, incentives aren’t particularly effective. They can attract attention, she said, but it’s usually the price that gets the sale.”

“On Jan. 23, Glen Ellyn agent Beth Gorz listed a home in that western suburb for $797,000. The house is still for sale, down to $739,000. On Tuesday, she sent out a mailing to agents offering a week’s stay for four in a beachfront condo in Maui. ‘Being creative is worth the try,’ Gorz said. ‘I’ve been selling for 16 years, and this is one of the more challenged markets I’ve worked in.’”

The News Press has this from Florida. “For the first time in 16 years, Susan Bellina, a prominent Bonita Beach Realtor, doesn’t have a closing in sight. Up and down Hickory Boulevard, houses are for sale. Lots of them. ‘I’ve been with Susie for six years and this is the most I’ve seen in any area,’ said Christi Bacon, real estate assistant.”

“On both sides of this tony two-mile stretch of road, some 26 homes are up for sale. Bacon said a drastic change has taken place. ‘Two years ago we couldn’t keep a property up for sale longer than a week,’ Bacon said. ‘This is the first time in 16 years where she (Bellina) doesn’t have a closing lined up.’”

“According to Wes Brodersen, president of the Bonita Springs Board of Realtors, there is a variety of reasons why so many homes are for sale. ‘We were invaded by investors who raised the prices and then left,’ he said.”

“John Dolan put the bay-side home at 26435 Hickory Blvd. up for sale last year. The four-bedroom, 4-1/2 bathroom house went up for sale last year. Their asking price was $1.8 million.”

“‘We took it off the market for a couple of months and recently put it back up,’ said Dolan, who is now seeking $1.6 million. Dolan said he believes the housing market will get worse before it gets better. ‘My insurance is going to be cancelled in October,’ he said.”

“‘This is happening everywhere. The rising cost of insurance is playing a huge role in this,’ he said. ‘We’re either going to have to downsize our home or maybe even leave the state.’”

The residential real estate market is soft throughout Lee County. For the first time in seven years, the median price of an existing home sold with the help of a Realtor was lower in June than it was a year earlier, $268,000 compared to $281,000 in June 2005.”

“Meanwhile, the number of homes for sale in the county has risen dramatically over the past year to more than 12,000, about three times what it was a year ago.”

From Florida Today. “Condominium sales tumbled 79 percent in Brevard County last month compared with June 2005, the Realtors organization reported. And the median sales price slumped from $229,500 to $185,000.”

“‘I can tell you that the condominium market is over-saturated right now,’ Ken Ward, a director at Towne Realty on Merritt Island, told Melbourne officials recently. ‘A lot of the projects that have been brought before you, most likely you’re going to hear back (from the developers) again, because they’re not going to get built.’”

“‘It’s not like you’re building single-family, one-story homes where you can come out and, after three homes, you can stop,’ Ward said.”

“The Brevard County residential housing market now lists about 7,000 properties, including roughly 2,300 condominiums and 600 townhouses, said Gene Collins, president of the Melbourne Area Association of Realtors. Collins said the market is softening, in part, because quick-turn investors are looking elsewhere.”

“‘The flippers were in there pretty early (in 2004), particularly in the beachside areas. It was a great business, but I think those people are really out of the market now,’ he said.”

“In recent months, local and out-of-county developers have submitted documents to City Hall detailing 10 future housing towers in downtown Melbourne. The towers would contain at least 1,028 condominiums, suites and townhouses.”

The Times Union has this update from New York. “For-sale signs are sprouting in front of more homes, and staying longer, as the Capital Region’s fiery-hot real estate market cools. Sales dropped 4 percent in June, and the association predicts 2006 sales will eventually fall 7 percent below 2005’s record mark.”

“‘I see fewer buyers now than I have in months past,’ said Karen Thomas, in Saratoga Springs. Buyers who are out shopping have more breathing room, there are fewer bidding wars and some prices have come down, real estate agents said.”

“More sellers are jumping in, too, trying to get a piece of the market before it loses more sizzle. The number of new listings jumped 20 percent in June, and was up 15 percent for the first half of the year. The conditions make for the closest thing to a buyer’s market in years.”

“Greater Capital Region Association of Realtors, which tracks sales over an 11-county region, was careful not to spook anyone. In a statement, the association’s president, John McNamara, said both buyers and sellers would be busy. And he said houses in every price range are on the market.’

The Poughkeepsie Journal. “New-home construction is showing some softness lately compared with the last few banner years in the mid-Hudson Valley. One-family homes contracted for in the first half of this year in Dutchess County, (were) down 20 percent from last year’s pace. June had 42 deals, down 41.6 percent from last June’s 72.”

“‘Our traffic is not great but the people who are out there are more serious,’ (realtor) said Tom LaPerch. ‘You’ve got to position yourself correctly in terms of spec homes,’ LaPerch said. ‘Do we have the same pace we had three years ago? Absolutely not,’ LaPerch said.”

“LaPerch said some builders may have paid too much for vacant land they bought during the boom. ‘That’s where the difficulty lies. If you overpaid for land, you’re having a tough time selling right now,’ he said.”

The New York Daily News. “Those fat Wall Street bonuses haven’t found their way to the Hamptons. The number of homes sold in the recreation zone of the rich and famous fell to 958 during the first half of the year, down 21%, according to a report.”

“All the talk of the bubble bursting, coupled with rising interest rates, had Wall Streeters sitting on the sidelines waiting for prices to go down. But sellers are continuing to hold firm on price. Instead of buying homes, the big-money guys decided to take some of their bonus bonanza and plow it into rentals.”

“‘We’ve seen the best rental market in five years,’ said Rick Hoffman, regional vice president of Corcoran’s East End offices.”

“Broker Lawrence Porter said investment bankers are putting their money elsewhere. ‘This is a correction,’ Porter said.”

“He noted ‘a record number of houses on the market in the outer hamlets and north of the highway’ areas farther away from the multimillion-dollar oceanfront properties. ‘We used to have 15 houses on the market,’ Porter said. ‘Now we have 65 to 70.’”

“Hoffman is seeing a glut of homes priced between $1 million to $3 million, with inventory up 60%.”

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