The Housing Bubble

Several readers suggested a topic on moving to another part of housing bubble country. “I really liked the thread a couple of weeks ago about what people think about living/working/raising families in other parts of the country, particularly transplanted Californians; and no I don’t mean the despised ‘equity locusts.’”

Another replied, “Why the bad rap on ‘equity locusts’ from California. Born and have lived here my entire life, and yes, I will be leaving California and moving in a couple of years and bringing my equity to Texas (wifes side of the family). I would never leave this place but over the last 20+ years the ‘non-equity locust’ from everywhere else have moved in and screwed it all up. Nobody ever mentions that! Btw sold (10/5) and rent.”

And another, “I can’t speak for all, but when I say ‘equity locust,’ I refer to Californians who liberated equity (that is, borrowed against their primary residence) to buy investment properties elsewhere, on the premise that if the price is lower than for a comparable home in Santa Barbara, then it must be undervalued.”

From Missouri. “Those ‘equity locusts’ have driven up prices EVERYWHERE. In Missouri we have had a mini-boom that is driven by people from CA moving to the hills and overpaying for property, but more power to the landowners and such for all I care. The good thing is that it will never be a huge influx like we see in Texas and Florida.”

From LA. “I feel, myself, that what gave LA its bad reputation is not the Californians who have always been here but the ones who came here from other places to lead an ‘LA lifestyle.’ I’ve met plenty of them.”

“Also, for those who have been pushed out; do people really believe that Californians want to pay higher prices on housing everywhere else? It’s like they think Californians go to Oregon and put a gun to Oregonian house sellers heads telling them ‘Raise the price of your house, Or else!’ People from other states should blame themselves and their greedy neighbors for raising the prices of their own homes because they see a Californian coming.”

A reply, “Difference between micro and macro, baby. Most people (in America) think about themselves first, others (if at all) a distant second.”

“If someone offered me $70,000 for my car (probably worth 10), I’d give it to him today. Someone comes along with 700 grand for my house, which I happen to think is worth 150k, I’d give it to him today.”

Another response, “Regarding ‘non-equity’ locusts from other parts of the country/world coming to CA. Unfair for us (Californians) to be blamed for everyone else’s woes when we’ve been dealing with the steady decline in QOL for decades due to too many moving here (and not enough resources for us to handle it!).”

The Loveland FYI . “Frank Baril works two jobs in this vibrant college town north of Yellowstone National Park but still can’t afford to buy a house. ‘It’s hard to afford anything here,’ said Bari.”

“‘A gold-rush, boomtown mentality has driven up the price of land to the point of outrageousness,’ said City Commissioner Jeff Rupp.”

“The community’s appeal includes a mountain setting, nearby outdoor recreation and the amenities of Montana State University. In the increasingly stylish downtown, high-end boutiques dot Main Street, and even an old cowboy bar got a face lift, but there are drug and hardware stores, as well.”

“Less appealing is the average annual wage. Last year it was $28,897 in Gallatin County, of which Bozeman is the seat. Based on a conventional 30-year mortgage at 6 percent interest, buying a house in Bozeman at the median $268,500 would require an annual income of $77,270.”

The Galveston Daily News has this update from the coast of Texas. “When Jay and Stacey Torres put their island home up for sale in February, they expected to cash in on a market where prices were soaring and buyers were engaging in bidding wars. ‘We expected it to fly,’ Stacey Torres said. But nearly seven months later, their Market Street house still is for sale. The couple even reduced the price from $280,000 to $265,000.”

“After a giddy market last year, when some Galveston sellers were reporting profits of more than $200,000 on sales of $640,000 homes, is the party over?”

“With hundreds of ‘For Sale’ signs on the island, there’s no denying the hangover. And there’s no denying buyers have the upper hand. ‘It’s the slowest many of us have ever seen,’ said David Bowers, a Realtor in Galveston. ‘A lot of people felt like the market was so overpriced, and a lot of people have lowered their prices.’”

“To add insult to injury, existing Galveston homes are competing with new and less expensive homes on the mainland, where builders are upping the ante, offering everything from $10,500 off the purchase price to free media rooms and appliance upgrades.”

“So is there reason for alarm? ‘I would characterize it as a cooling, not as a catastrophe,’ said D’Ann Petersen, (at) the Federal Reserve Bank of Dallas. said. ‘More people are taking a little longer to look and make decisions. They’re asking for more things, and builders are giving it to them.’”

“‘In Texas, the ready availability of land and low entry costs attract homebuilders, creating a competitive marketplace that keeps a lid on price increases,’ Petersen said.”

“Galveston has never been like the rest of Texas. While Houston prices remained relatively stable last year, island prices soared. Out-of-state speculators were buying property, site unseen, and flipping to the next buyer. At the same time, land tracts available for development on the Texas coast are becoming scarce.”

“In 2005, the median price of a home in the Galveston MLS was $162,300 compared with $99,800 in 2000, a nearly 63 percent jump, according to Texas A&M University.”

“As prices soared, so did property taxes. Then came island flight. Hundreds of residents, either hoping to cash in on soaring prices or flee soaring property taxes, hammered ‘For Sale’ signs in their lawns and waited. Some are still waiting.”

“Between Sixth and 45th streets, there are 82 homes for sale with prices more than $200,000. But only two sales are pending. Year-to-date, for the same area and price range, 14 homes have sold compared with 26 for the same period the year before, Bowers said.”

“Sales also are lagging on the once sizzling West End, where there are 328 homes priced above $200,000 for sale, with only 15 sales pending. Year-to-date, 154 homes in that price range on the West End sold, compared with 182 for the same period last year.”

“Builders continue to push ahead in Galveston County, receiving 3,148 permits for single-family homes in 2005, compared with 2,235 in 2000, a 41 percent increase. Trophy Homes, which is building in League City, is offering 6 percent discount on the base price of a home, up to $10,500 on homes with prices that start in the $120,000 range. Buyers also can choose from a variety of upgrades.”

“Sellers of older homes, or even 3-year-old homes in new subdivisions, might have to offer incentives to compete with sellers of new homes. ‘If you want to compete in the market, you’re going to have to compete not on the list price, but on the net price, after you factor in incentives,’ said Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University. ‘Or be prepared to give incentives.’”

One reader from Arizona had this comment. “My sister (roommate) told me the other day that our complex in Ahwatukee (off of Ray Road) is going to reduce rents. There are more apartments in our complex available now. This is a reversal of the notice we got 2 weeks ago which said our rents are going up.”

“Perhaps in the Chandler/Ahwatukee/Tempe area the glut of speculator houses that are now being rented out is having an effect on existing apartments. It may be too early to tell. But it’s good news. A friend of ours moved from her two bedroom apartment to a 3 bedroom house (she is renting) about 3 miles from us. She pays just about $100 more per month.”

The Arizona Republic. “More Valley homeowners are in danger of losing their homes than at any point in more than a year. Last month, 837 homeowners got notices that they were at least three months behind on their mortgage payments. Those notices mean their mortgage firms are getting ready to evict them and auction off their houses on the courthouse steps.”

“This is just the beginning. Tom Ruff of Phoenix-based data firm Information Market, which tracks the foreclosures, said that by year-end trustee sales could be climbing by 100 a month. In June, there were 776.”

“Why the increase? Thousands of people used the non-traditional mortgages last year to afford a house in the Valley, where home prices jumped nearly 50 percent. On many adjustable-rate mortgages, the monthly payment on a $250,000 loan could easily climb by more than $100 every six months.”

“Arizona incomes aren’t climbing at the same rate, and Valley housing appreciation is pretty flat. So unless homeowners win the lottery or take a second job, they don’t have a big chance of catching up on their mortgage payments.”

“Troubled metro Phoenix homeowners had been able to quickly sell, usually for a profit, until recently. The number of homes for sale across the Valley has tripled in the past year.”

“At the same time that trustee notices are climbing, canceled trustee sales, properties that are sold or mortgages that are caught up to stop the foreclosure auction, fell to their lowest level since 2001. Tim Rocho, CEO of Scottsdale-based Real Estate Fortune, said many of the homeowners in trouble are too highly leveraged to sell or refinance and get out from under their debt.”

The construction slowdown is in the news in California. “The Inland region’s economy slowed faster than that of any area in the state over the past six months, an economist who studies the area said. Economist Keitaro Matsuda in San Francisco, said local job growth had slowed mostly because of the cooling housing market. ‘Before, the Inland Empire had this tailwind from the housing market,’ he said.”

The Santa Rosa Press Democrat. “The construction industry, a major economic engine in Sonoma County, is scaling back home building as the housing market loses steam. Housing starts fell to a 10-year low in Sonoma County through the first half of this year as builders delay construction plans and cut prices.”

“The slowdown this spring and summer marks a dramatic turnaround from last fall, when builders were constructing new homes at the fastest pace in six years. ‘The velocity of sales has slowed. We haven’t put a new foundation in the ground for a couple of months,’ said George Casey, CEO of Christopherson Homes, the county’s largest home builders.”

“Overall, local construction companies have eliminated 600 jobs since the building boom peaked last October. Analysts warn there could be more job cuts ahead in the construction sector, which directly supports 14,500 jobs, or 7 percent of Sonoma County’s work force.”

“Permit drops have led to construction job losses in every housing downturn, said Ryan Ratcliff, an economist with the UCLA Anderson Forecast. ‘Usually you see permits turn and then six to nine months later you see construction employment start to turn,’ Ratcliff said.”

“In Sonoma County, construction activity began to sink three months ago. Builders pulled 841 permits to put up homes and apartments in the first six months, down 46 percent from a year ago. It was the weakest six-month pace since 1996.”

The LA Daily News. “The home-building sector received a pounding in the second quarter. And the hammering is going to continue in this quarter, too. ‘If bad news came in torrents in the first quarter, the second quarter was a tidal wave,’ analyst Steven East. ‘We believe participants in this sector will look back and say this was the quarter that reality set in for both investors and management teams.’”

“Some of this visited Calabasas-based The Ryland Group. Orders plunged 39.4 percent to 3,023 units from the like period in 2005, the second-biggest decline for the sector. Ryland CEO Chad Dreier said that selling homes is now a challenge in nearly every market. ‘While we knew that eventually there would be a slowdown in housing, this downturn happened quicker than expected,’ he said.”

“Sales declines are bigger in California. Weakness in the resale market is not going to help the new home market get out of its funk, either. ‘In the months ahead we can expect to see continued volatility in the market as many homebuyers remain on the sidelines to ensure they won’t be buying homes that could be in the middle of a downward turn in valuation,’ Hanley Wood Market Intelligence said.”

“Finally: E-mail from Happy Renter offers this observation on the observation of Jay Brinkmann, of the Mortgage Bankers Association, about the spike in foreclosure activity during the second quarter. Brinkmann: ‘There is nothing in economic fundamentals in household creation or job creation that is looking toward any kind of meltdown in housing prices. I think we are just getting back to a more normal market.’”

“Happy Renter: ‘Oh, yes! There is! Most people’s incomes aren’t going up, yet everything else that is necessary (food, gas, housing, medical) is going up.’”

What do you see in your housing market this weekend? Prices reduced? Poorly attended open houses? Here are a few observations from the topics thread. “St. Louis is all but dead, there is going to be a fairly strong pullback of prices in that market, IMO.”

“People must be getting desperate in Tampa. This morning on my way to work, I saw a van wth the following written in shoe polish on the back window: ‘Spring Hill corner lot, need to sell!! Call’ If that’s not desperation, I don’t know what is.”

“In Newton, MA where idiots are still paying 1m for 1950’s ranches and colonials. Gosh! The endless supply of GF is simply mind boggling. When will this madness end?”

“For the zip codes I follow (SD, north county), inventory has basically plateaued in July. It’s actually been going down the past few days. Not sure if it’s permanent, though, as inventory usually climbs through late September/October. I AM seeing more of the following in listing comments: ‘desperate to sell’..’priced below comps (or appraised value)’..’foreclosure imminent’..’bank/lender owned’..’will take any offer’..’owner NEEDS to sell!’”

“Definitely seeing people selling for less than 2004 prices (and some still selling for more). Remember, SD prices have basically not moved much since mid-2004 because we reached the ‘affordability ceiling’ even with exotic loans.”

From Canada. “Area real estate prices softened slightly in July, according to new statistics from the Real Estate Board of Greater Vancouver. The sale price of a benchmark single detached house in Greater Vancouver dropped $5,000 from last month to around $644,000. Total residential sales were down 25 per cent in Greater Vancouver, to 2,732 units for the month.”

From Colorado. “The number of homes for sale in the Colorado Springs area last month soared to an 18-year high as sales slowed for the third time in four months. ‘The housing market is clearly softening. There is no question it is really becoming a buyer’s market,’ said broker/owner Joe Clement. ‘We’ve got a whole bunch of homes that are not getting sold; they just aren’t getting offers.’”

“The local housing market is slowing in response to higher mortgage rates, said economist Fred Crowley. ‘I don’t know that the housing bubble is bursting, but there certainly is a leak,’ Crowley said.”

From New Hampshire. “Paul Griffin, of the New Hampshire Realtors Association, said the real estate market is slowing down a little bit. There were 163 new houses listed in one day last week on a statewide data base, said broker Jason Duval. ‘New construction has taken a bath on this and the worst sales are being reported for condos because there are so many on the market,’ Duval said.”

“Tracy Dowling found a house on Baboosic Lake Road. It has plenty of room and a big back yard, and best of all, the price had been reduced $40,000 to $289,900. With time on their side and the market turning their way; and Tracy Dowling was using the momentum to her advantage. ‘I most definitely am,’ she said.”

The Nashua Telegraph has this update from New Hampshire. “Maggie Decker put her two-bedroom, garden-style condominium on the market in February for $149,900. She has lowered the price $8,400, has offered to pay closing costs and even threw in a warranty. Six months later, her Knightsbridge Arms condo still hasn’t sold.”

“‘Last year, you could have pretty much named your price,’ said Decker, of Nashua. ‘This year, the number of houses and condos on the market is ridiculous.’”

“In Greater Nashua, 923 homes were sold between Jan. 1 and May 31. This year’s numbers are down compared with the 1,045 Greater Nashua homes sold during the same time last year, according to the New Hampshire Association of Realtors.”

“What this means is that sellers have to aggressively market their homes, local real estate agents say. ‘The problem sellers face.. they still think their home is in a market where it’s going to sell in the first two or three weeks,’ said agent Ben Mercuri.”

“It’s good news for home buyers. These days, there’s more negotiating going on. ‘What’s moving is the more affordable properties,’ (realtor) MaryBeth Gustitus said. ‘What that tells us is our buyers are shopping on value, and they’re taking longer to do it.’”

“With higher rates, buyers can afford less, and it goes back to buying the value house, Gustitus said. So if sellers want to move their property, they have to lower prices.”

“Another reason is lower demand for new housing and an overabundance of supply. As a result, buyers feel a lot more confident with the purchases they do make, Mercuri said. ‘It doesn’t have to be spontaneous,’ he said.”

“(Broker) Brian Moses in Nashua, classified the market as normal. ‘It’s not a depression or a bubble,’ he said. ‘We’ve really been tremendously spoiled over the years and the real estate market has been robust with double-digit increases. I don’t’ think it’s any reason for anyone to hit the panic button.’”

“Gustitus’ advice for sellers is to understand where their house fits in with the market. On the whole, she said the reality of prices is starting to sink in with sellers. ‘They’ve had six years of them seeing their neighbors sell at full price. That became a normal market for them. The problem is, that’s not a normal market. That was the perfect storm.’”

“Meanwhile, Nashua’s Maggie Decker is hoping she finds a buyer, and soon. She and her husband are looking forward to moving into the house they’ve already purchased in Rindge. But first, they have to sell their Knightsbridge condo.”

“‘The agents said it showed beautifully, but there was just so much on the market and our timing was just a little bit off,’ Decker said, adding that the condo would have been sold already this time last year. ‘It’s emotionally wrenching.’”

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