The Housing Bubble

The Review Journal reports on the July numbers from Las Vegas. “The number of single-family homes for sale on the Multiple Listing Service in Las Vegas climbed 1.2 percent to 20,273 in July from the previous month, the Greater Las Vegas Association of Realtors reported. The inventory is up 33.6 percent from a year ago.”

“Sales dipped below 2,000 for only the third time since January 2005. They’re down 21 percent from June and 38.4 percent from a year ago. The median price of homes sold in July was $310,000, down from $315,000 in June. The price increased 1 percent from a year ago. Condos and townhomes have also experienced increasing inventory and declining prices. The median sales price in July was down 1.7 percent from June.”

“‘It’s not any better in California,’ said Dennis Smith, president of Home Builders Research. ‘I don’t see any reason for an upward tendency. We need to see lower rates in both adjustable and fixed rates to help people qualify for these houses. We need a reversal of the trend to see more consumer confidence.’”

“GLVAR President Linda Rheinberger said he sees the market as an educational opportunity for sellers. ‘If people are not motivated to sell, or are not realistic in their expectations, we recommend that they wait until market conditions change before marketing and listing their property,’ she said.”

The LV Business Press. “Many home builders are now offering incentives to dispose of a standing inventory by paying closing costs and giving free upgrades. Such incentives aren’t necessarily reflected in the final sale price.”

“Condos and townhomes, meanwhile, saw similar softening in July with only 505 sales, which is 14.7 percent fewer than the previous month, and a 27.5 percent drop from last year, reported GLVAR.”

“Rising mortgage rates, reduced sales and increased foreclosures are forcing Las Vegas Valley home builders to revise earnings forecasts. Pulte Homes, the fourth largest builder in Southern Nevada, cut its forecast and said second-quarter profits would be down from its previous forecast.”

“A record number of foreclosures have resulted in six months’ worth of housing inventory in the valley. Nevada ranked among the nation’s top 10 foreclosure markets in the second quarter. The state had one foreclosure per every 248 households, which is a 94.6 percent increase over 2005.”

“Adjustable interest rate loans, negative amortizing and 100 percent financed mortgages were being offered by lenders during Southern Nevada’s housing boom because of the market’s high rates of appreciation. Rapid pricing escalations led many lenders to offer creative loans to investors and speculators. A market slowdown, however, is now causing some loans to default.”

“Roughly 8,000 homes currently available in Southern Nevada remain vacant, and another 2,000 are being sublet, according to Applied Analysis. It has since placed additional pressure on owners to sell given loan costs with rising interest rates and increased property taxes.”

Some reports from the northwestern US. “Home sales in western Washington fell for the fifth straight month in July. Brokers reported 8,496 sales last month, down 15 percent from a year earlier. Realtors report that the consistently rising inventory has been a major factor in the sales slowdown.”

“Area-wide there are about 9,000 more listings now than at this time a year ago, NWMLS reported. Five counties (Island, Kitsap, Pierce, Skagit and Thurston) reported inventory increases of 50 percent of more from 12 months ago. At month-end, NWMLS brokers represented 31,910 active listings of single-family homes and condominiums, up 39.7 percent from a year ago. In June there were 29,856 active listings on the market.”

The Seattle Times. “Home sellers spoiled by three years of record or near-record sales may have to lower their expectations. If the Puget Sound area’s July home-sales numbers are any indication, homes might sit on the market longer.”

“Sellers need to take care to keep their homes reasonably priced because buyers know the market is changing, said Michael Tenore. ‘You can see the national trend is happening here to a lesser degree,’ Tenore said.”

“A slower market does have some benefit. ‘You may find that it’s less competitive,’ he said. ‘Maybe you don’t have to do a pre-inspection or waive certain contingencies. In general, there’s a little bit less pressure.’”

“Many first time home buyers in Seattle and King County are looking at condominiums as a way of getting their foot in the door of the real estate market. Developers are responding to the needs of first-time buyers, with more moderately priced condos located closer to jobs.”

“‘We recognize that there are a lot of higher-end high-rises and saw that the market might become saturated,’ said Doug Daley, pCEO of Harbor Properties. ‘It is hard to tell how long this cycle will last,’ said Daley. ‘We have seen the market flatten in some parts of the United States; we haven’t seen it happen here yet.’”

The Olympian. “Thurston County home sales continue to show signs of slowing as the South Sound housing market crossed into uncharted price territory last month. ‘It’s a good market, but the fever is gone,’ said real estate agent Eric Hjelm. ‘I don’t know if it will stay at that level,’ he said about the $300,000 figure.”

“Inventory levels also continued to increase in July, rising to 1,633, up from 1,031 last year. South Sound real estate professionals say there has been a noticeable shift in the market. ‘The ratio of buyers to sellers has drastically flipped from the past,’ said Chad Roraback, a real estate agent in Lacey.”

“‘The buyers haven’t left the market; there is just so much more to choose from,’ he said.”

“In Seattle’s hot real estate market a growing number of people are losing their homes in foreclosure. In Washington state the foreclosure rate is up nearly 30 percent over last year.”

“Why are more people losing their homes? Experts say interest only and adjustable rate loans are enticing buyers into trouble. ‘So they can get into their dream house when maybe they should have waited a few years when their income went up and not taken these risks,’ said lender representative Karen Gibbon.”

Some housing bubble news from Wall Street. “Technical Olympic USA, Inc…reported combined net sales orders of 2,117 for the second quarter of 2006, a 34% decrease from the 3,185 reported in the second quarter of 2005. During the quarter, the Company began implementing efforts to reduce its staffing levels to better align its cost structure with anticipated reduced levels of activities and softening market conditions.”

“‘Currently, conditions in most of our markets are different than those experienced during 2005; a year we believe represented unsustainable levels of activity. Current business conditions are characterized by increased inventories of new and existing homes, higher incentives, increased cancellation rates, lower traffic levels, increased competition among builders and a lack of buyer urgency,’ said Antonio B. Mon, CEO.”

“For the quarter ended June 30, 2006, Anworth Mortgage Asset Corp. announced today an unaudited net loss to common stockholders of $12.9 million. This net loss included the loss of approximately $10 million from the sale of approximately $400 million in agency mortgage-backed securities.”

“Lloyd McAdams, Anworth’s CEO, stated, ‘The interest expense on our repurchase agreement financing has continued to increase almost in step with increases in the Federal Funds rate.’”

From Countrywide Financial. “The second quarter of 2006 was characterized by both rising interest rates and a relatively flat yield curve. The amount of total U.S. mortgage originations nationally declined 9% when compared to the second quarter of 2005.”

“Our adjustable rate loan production has decreased in the quarter ended June 30, 2005 to 47% in the current quarter, reflecting the decreased relative attractiveness of these loans compared to fixed-rate loans as the yield curve flattens. The trend is also reflected in our pay-option loan production. Approximately 72% of the pay-option arms originated in the quarter ended June 30, 2006 were retained in our Bank’s investment loan portfolio.”

“Pay-option..borrowers may be less able to pay the increased amounts and, therefore, more likely to default on the loan, than a borrower using a more traditional monthly-amortizing loan. Substantially all of the pay-option loans we originate are underwritten based on ‘reduced documentation’ standards whereby the loan applicant’s income is not fully documented.”

From Broker Universe. “During the height of the stock market boom, now-retired Federal Reserve Board chairman Alan Greenspan said investors were acting with ‘irrational exuberance.’ The results of a recent survey of approximately 500 mortgage brokers might have some industry observers accusing participants of having irrational exuberance.”

“The survey found that over 63% of the respondents said they were optimistic about their business prospects for 2006, while just 13% claimed to be pessimistic. But being that mortgage brokers are salespeople, it would be natural for them to have a positive outlook, especially as many of them have never faced a down market before.”

“Almost 70% of the brokers said they believe their clients understand the mortgage product they are receiving, but a significant minority, 30%, said the consumer did not. When broken down by region, respondents from the West Coast have a more pessimistic response.”

“In what might be the most telling sign of irrational exuberance in the mortgage broker business can be seen in the number of participants. In 1998, Wholesale Access estimated there were 36,000 mortgage brokerages. Based on the responses to the survey, Wholesale Access estimates there were still 53,000 mortgage brokers in the country for 2005.”

“Soon there will be a decline in the number of brokers. A good, well-thought-out business plan may be the difference in being a successful mortgage brokerage and being a statistic.”

The Times Dispatch has this update from Virginia. “The frenzy is over. Put a house on the market today and you are looking at 60 to 90 days for a sale, real-estate agents say. That’s if the house is priced right, and if you live in the Richmond area. Northern Virginia has taken a hit in housing sales. So has Hampton Roads. Prices are falling in the priciest markets, such as Dulles and Northern Virginia, but are still rising in Richmond and other areas.”

“Houses in all price ranges are staying on the market longer than they did a year ago, and there are more to choose from. About 6,500 houses are for sale on the Richmond MLS, compared with 2,800 houses last July. ‘We’ve had a wonderful run for three to five years,’ said appraiser Pat Turner in Richmond. ‘Now, even aggressively priced houses are not moving fast,’ he said.”

“Multiple offers? No contingencies? Not so much anymore. ‘Houses are not selling within hours, and they are not selling for more than what they were listed for,’ said agent Smitty Smith.”

“Kevin Allocca, an agent in Henrico County, said the market has changed. ‘Instead of having three buyers for every nice listing, there’s only one,’ Allocca said.”

“Just how much has the market cooled? ‘Big time,’ said agent Ken Storey. ‘Every Realtor says the same thing. ‘The market has slowed down since the end of April.’”

“‘The days are over of seeing what the last home sold for in the neighborhood and adding $10,000 to the price of your home,’ Storey said.”

“Sales in Virginia toppled nearly 19 percent in June over the same month a year ago. Year-to-date, sales fell 15 percent over the first six months of 2005. ‘Builders are beginning to build fewer houses on speculation, said Eddie Goode, president of the Home Building Association of Richmond. ‘We have been building at an accelerated pace for 10 years,’ Goode said. ‘This is a healthy correction. It should lead to more years of sustainable growth.’”

“Dean Cobb, an agent in Sandston, said the pace had to slow. ‘The housing market can’t keep getting bigger and bigger.’”

The St Petersburg Times has this report from Florida. “Coming off an unusually weak summer sales season, many Tampa Bay area home sellers are confronting a market reality they’ve dreaded: They’ll have to cut prices. With an average of nine homes on the market for every buyer, the biggest supply and demand imbalance in years, prices are suffering.”

“In Pinellas County, sales prices of single-family homes dipped from $252,000 in June 2005 to $238,000 in June 2006, a decline of 5.5 percent. The market hasn’t given back so much since the 1990s. ‘Price reduced’ on ‘For Sale’ signs have become as common as mildew on mailboxes.”

“Another sign of deflation emerged in the condominium category. Regionally, condo prices dipped about 3 percent from May to June, from $178,000 to $172,000.”

“Builders have resisted outright price cuts, but KB Home, the nation’s fifth largest, was among the first to break ranks by slicing prices $10,000 across the board in one of its Pasco subdivisions. Buyers who signed contracts at the previous higher price are allowed to rewrite their contracts at the lower price.”

“KB Home’s Cara Kane said the company spurns the incentives used by other builders as ‘temporary discounts.’ ‘With our lower prices we’ve been seeing good traffic. Some of the other builders might not be,’ Kane said.”

“It’s no mystery what’s pressuring prices: Home listings have exploded as sales have softened. Many listings are from investors who bought during the boom and fueled what builders viewed as a freakish market last year. Total listings in Pinellas, Hillsborough and Pasco have hovered around 35,000 as monthly sales struggle to break 4,000.”

“The price cuts are nailing some investors who entered late in the game. They face the prospect of breaking even on their homes, or worse. Many have turned to renting as a desperate expedient. ‘We’re getting calls, ‘We can’t sell them. Please lease them,’ said central Pasco Realtor Pam Koenig, who pulled listings for 130 properties chasing renters in Land O’Lakes alone.”

“Realtors like Jim Knetsch think the market has yet to hit bottom. With the current glut, those who want their home noticed slice the price. ‘Every time this year we thought the market might have found its footing, it was a dead-cat bounce and the market fell further,’ Knetsch said.”

“‘It’s kinda scary,’ Ellenn Poyssick, 41, an investor seller, said as she showed (realtor) Shane Whitlatch a home in St. Petersburg that she and her husband fixed up. She and her husband have renovated eight houses and always sold them on their own. But recently, one of the homes in Tampa’s Seminole Heights didn’t get a single showing in four months. ‘I was so desperate, I went ahead and leased it,’ she said.”

“A condo-shopping couple from Atlanta whom Whitlatch was helping suddenly has hundreds to choose from, and more every day. Pinellas County sellers alone placed 31,740 condos on the market in the first five months of this year, up from 9,055 the same time last year. Home buyers faced a similar abundance: 45,677 homes this year compared with 17,563 homes last year.”

“In June 2005, 60 percent of all homes listed on the market sold. This year, just 10 percent of all homes listed on the market sold in June. The real estate decline in the Tampa Bay area is seen across Florida.”

“‘There’s a bit of anxiety in the market,’ said Brad Hunter, a housing analyst in West Palm Beach. ‘Fewer people are buying because they are afraid that they’ll make a mistake if they buy at the wrong time and then the market goes down. And a lot of buyers are saying, ‘Why don’t I wait until the price gets better?’”

From Bloomberg. “Locals call Naples the ‘bubble city,’ with home prices that have surged 140 percent since 2001. That’s making it tough for employers. ‘We have a workforce housing problem of acute proportions,’ said Edward Morton, (who) operates hospitals employing more than 4,000 people. ‘It is a crisis that will only get worse.’”

“Simone Gartner, who lived in Naples 36 years, sold her duplex residence, which had doubled in value to $310,000, in 2004. She rented a condo and moved in with friends before relocating to Kernersville, North Carolina, in June. ‘I’m tired of the expensiveness,’ said Gartner, who now pays monthly rent of $650.”

“The value of new residential and commercial construction was down $100 million in the first half of 2006, Volusia County reported Monday. Sue Darden, director of the builders association, said, ‘There’s a softening in the market,’ acknowledging builders are a little concerned.”

“‘How we’ve done business is changing,’ she said. ‘People are adjusting their business plans and their expectations.’ Darden said she wouldn’t say the bubble has burst. ‘No, not in Florida. The world still wants to move to Florida,’ she said.”

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