The Housing Bubble

href=”http://www.fresnobee.com/local/story/12564707p-13275303c.html” mce_href=”http://www.fresnobee.com/local/story/12564707p-13275303c.html”>Fresno Bee. “Hundreds more homeowners in the central San Joaquin Valley are in danger of losing their homes to foreclosure this year because their houses are not gaining value fast enough, a real estate tracking company says. ‘There has been a dramatic increase,’ said Bill Pfeif, a real estate agent in Fresno whom lenders use to sell distressed properties.”"He said rising interest rates combined with an abundance of homes for sale, liberal lending policies and stagnant prices have created a ‘perfect storm’ for foreclosures. ‘The table was absolutely set,’ he said. ‘There is absolutely no way it couldn’t have happened.’”

“The situation is more dire in other parts of California, where home prices are higher and where values have tumbled. In Placer and Sacramento counties, where median-home prices in June fell 6.2% and 1.3%, respectively, from last year, the number of default notices more than doubled. The number also doubled in Riverside County and nearly doubled in San Diego County.”

“‘It was a really great party, and this is the hangover,’ Pfeif said.”

The Gilroy Dispatch. “Developer Gary Walton said he thinks the time will come when so many fees are tacked on that even fewer Californians will be able to buy a pricey sun-drenched home. ‘You know, I don’t think I have to worry about it because pretty soon nobody will be able to afford to buy a house (in California),’ he said.”

“Walton explained that the continuing escalation of housing prices on homes that are already costly, will drive young people out of the state. ‘They really need to consider what Californians are making,’ he said noting that California has one of the lowest home ownership rates in the country. ‘There’s a limit, I think, to what people are willing to pay to live in California.’”

A pair of reports from Colorado. The Rocky Mountain News, “Last month was a pretty typical July for the Denver-area home market, with the record inventory of unsold homes creeping up only slightly. ‘It is pretty much the same as it has been,’ said (realtor) Jerry McGuire, in Highlands Ranch. ‘The inventory went up only 89 properties from June to 31,989, which is a new high but I would say is really pretty stable,’ he said.”

“The number of homes placed under contract fell from June, but that can be attributed to the seasonal market. The average and median, or middle, prices were down, too, which also is typical for this time of year.”

“The ever-increasing number of foreclosed homes on the market ‘is driving prices down for the average seller. If you have a fixer-up that needs work, you had better price it at what a foreclosed home is selling for, because John and Jane Doe are out there looking at foreclosures,’ (broker) Sunny Banka said.”

“Independent broker Gary Bauer said he was surprised that the average price dropped as much as it did in July, because he thought there were enough luxury homes sold last month to drive the average price higher, even though there still is not a lot of across-the-board appreciation. ‘While it is still a buyer’s market, sellers are out there,’ Bauer said.”

The Post Independent. “Garfield County, along with Mesa and Eagle counties, has been riding a roller coaster of home loan foreclosures for the past 26 years since the oil shale bust in May 1982.”

“‘I think we’re on our downturn,’ said Bob Slade, Garfield County’s chief deputy public trustee. Alpine Bank mortgage consultant Mike McAvoy disagrees. ‘I think this is going to even climb more in the next three or four years,’ he said.”

“Slade believes that currently the majority of foreclosures comes from suburban developers who have anticipated a market that simply isn’t there. ‘This year, it’s been the big development areas, the speculation areas,’ said Slade. ‘I just recently had a $10 million foreclosure on a place called Alkali Creek. Just because they can’t sell them,’ he said.”

“Another big factor in the foreclosure rate, according to McAvoy, has been how the number of 100-percent-interest loans has gone up since the late ’90s. ‘The number of exotic loans that are out, the 100-percent financing, the interest-only, the option arms and things like that where people just don’t understand or aren’t explained to what the ramifications are of that,’ said McAvoy.”

“‘These people say, ‘Well I’m at 1 percent or 4 percent.’ That isn’t even covering the interest-only portion. That creates a negative amortization, so that money is being stacked onto your principal balance, so now you owe more than the house is worth. That’s where people are getting themselves into trouble,’ said McAvoy.”

The Arizona Republic has this update from Phoenix. “Home builders had a chance to buy a prime piece of land in northeast Phoenix’s Desert Ridge development Tuesday. But sticker shock kept them on the sidelines. No builder or investor was willing to pay the Arizona State Land Department’s $150 million asking price for the 325-acre parcel of state land near the busy intersection of Loop 101 and Arizona 51.”

“For the past few years, land in Desert Ridge sparked bidding wars as home prices and sales in the area soared. But the market has changed dramatically since then. ‘The real estate market is in transition, and land sales have obviously slowed down,’ said Mark Winkleman, state land commissioner.”

“He said the Desert Ridge land was appraised at nearly $462,000 an acre early this year based on last year’s nearly record sales prices. The state agency is working now to get the 325-acre parcel reappraised based on today’s less-frenzied housing market. The prices on the parcels are bound to go down.”

“‘I am not sure appraisals mean much now because everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it,’ said Michael Lieb, a land broker who worked with Gray Development in January when it paid $33.4 million for 32 acres in Desert Ridge. It was one of several bidders at a competitive standing-room-only auction where the opening bid was upped 43 times.”

“Only a handful of home builders and real estate brokers showed up to watch the auction Tuesday. Even in June, when there were only a few bidders for two large pieces of state land in Peoria, the auction auditorium was packed. More than 50 builders, brokers and investors showed up for that auction, trying to gauge the future of the real estate market based on the bidding.”

“Home builders went on a buying spree last year when a record $7.7 billion was spent on residential land across the metropolitan area. Instead of buying land now, some home builders are trying to sell sites to other builders or are even walking away from deposits on big parcels. Analysts have begun to question the amount of land home builders bought last year and what they are going to do with it now.”

“Builders have been hurt by higher mortgage rates and deals that have fallen through when potential buyers are unable to sell their existing homes. Construction of new homes across metropolitan Phoenix is down 19 percent from last year’s record pace, according RL Brown’s Phoenix Housing Market Letter.”

Some housing bubble reports from Wall Street. “Toll Brothers cut its 2006 order forecast for the second time, calling the slowdown in housing markets ’somewhat unique’ in its largely psychological nature. The homebuilder said backlog dropped 13% and contracts signed plunged 45% from a year ago.”

“‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll. ‘Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”

“‘On certain land deals that no longer work due to today’s weaker market conditions and slower sales paces, we are willing to let options expire if we are unable to renegotiate the land purchase,’ Toll said. ‘We have seen an increase in our cancellation rates in a number of markets, including Orlando, Northern California, Palm Springs, Las Vegas, and Phoenix.’”

“Toll slashed its forecast for the number of homes it expects to sell in the year to a range of 8,600 to 8,900 from an earlier reduced forecast of 9,000 to 9,700 homes. It was the fourth time since November that Toll had cut its forecast for the number of homes it expects to sell.”

“WCI said traffic and new order activity in Florida fell ’significantly’ in the second quarter. Second-quarter earnings fell sharply as the Florida housing market slowed. Net income dropped 70 percent from the year-ago period. Revenue fell 21 percent. The company said third-quarter earnings should ‘approximate’ the second quarter, indicating a continued slowdown.”

“‘It appears that it will take several quarters for the increased new and resale real estate inventories affecting most of our markets to absorb,’ WCI said.”

“‘While traffic in the Mid-Atlantic region has been favorable, few visitors are converting to purchasers,’ said Jerry Starkey, CEO of WCI Communities said.”

“In the only mention of recent layoffs, Starkey said the company was taking steps to ‘moderate capital spending on land and land improvements, decreased the size of our workforce, are lowering other operating costs.’”

“Accredited Home Lenders Holding Co. reported Wednesday second-quarter profit edged up 4 percent, but revenue missed Wall Street projections as the sub-prime lender endured challenging market conditions. ‘We are pleased with profit and cost results in the second quarter and the first half of 2006 that presented some of the most challenging market conditions in recent memory,’ said CEO James Konrath.”

“He added that the company has faced ‘continuing intense price competition, fluctuating secondary market appetites, and higher funding costs.’”

“Mortgage giant Fannie Mae, the largest financer and guarantor of home mortgages in the country, on Wednesday informed the Securities and Exchange Commission that it would not be able to file its financial report for the second quarter on time.”

“The company did not request a five-day extension beyond the Aug. 9 due date, saying it would not meet that deadline either.”

The Palm Beach post reports from Florida. “Mortgage trouble is creating some of the biggest bargains this side of eBay, allowing buyers to snap up homes for tens of thousands of dollars less than what they might have paid just a few months ago. Notices of pending foreclosures are piling up, in what many believe to be the first wave of a trillion-dollar tsunami: The dollar volume of home loans with interest rates that will be ratcheted upward over the next several months.”

“New Palm Beach County foreclosure filings rose by 34 percent in June compared with June of last year. Clients these days are from such well-to-do areas as The Acreage and Wellington, Jeff Pashkow said. ‘They’re mostly (middle class) people who have financed it to the hilt, and there’s really not much you can do for them.’”

“From March through May of this year, the average sale price of a home in Palm Beach County sold at foreclosure was just $195,705. That’s more than $200,000 less than Palm Beach County’s median home price in June 2006, which was $405,500.”

“It’s a fraction of the $582,000 average Palm Beach County home price in May. And it is almost exactly the amount considered affordable for a worker earning the median income in West Palm Beach, according to the Florida Housing Coalition.”

“Realtor Diane Corbin cites the case of a local developer who was selling a home a week, and who is now selling a home a month. ‘It’s killing them,’ said Corbin.”

The Herald Tribune. “Jade Homes, a Sarasota-based builder with 75 houses in varying stages of construction in Sarasota, Charlotte and Manatee counties, has shut down its operations and closed its main office and six sales centers.”

“Andrew Coles said he hopes Friday’s closure will not be permanent, but added that he is meeting with his lawyers to examine options. ‘We are having to downsize because of the slowdown,’ Coles said.”

“Jade, which has built more 500 area homes since its founding in 1997, sold 123 in 2005, according to Coles. This year, Jade sold four. ‘That tells you the nature of the problem,’ Coles said.”

“Jade Homes is one of three builders that have models at a northeast Manatee County subdivision with large lots where homes are priced from the upper $500,000s to $700,000. On Tuesday, four lots there had Jade Homes’ ‘Sold’ signs on them and two Jade houses were under construction. One of those had a roof ready for a tiling crew. On the other house, the roof had been sheathed with plywood but tar paper rolls sat unattended on the roof.”

“Smaller construction-heavy communities such as North Port, Nokomis, Osprey and East Manatee will likely be hit first and hardest. North Port’s construction permitting activity speaks to that. A year ago, 300 to 400 permits were granted each month in the city. That number has shrunk to 65.”

“With thousands of homes already permitted and waiting to hit the market, the inventory surpluses will likely peak at the end of this year, said Jonathan Dienhart of Hanley Wood Market Intelligence. He remains uncertain about the long-term impact on labor. ‘The constant state of labor shortages in the industry will be assuaged,’ Dienhart said.”

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