The Housing Bubble

It’s Friday desk clearing time for this blogger. In Massachusetts, “The Newburyport real estate market is faring better than Essex County or the state as a whole, but homes here are staying on the market longer, creating an inventory bubble that is giving buyers more negotiating power, according to market data and real estate experts.”

“‘At the height of the dot.com boom, many of the suddenly wealthy purchased property in the waterfront villages of Essex County, often replacing modest homes with million-dollar mansions,’ the Forbes article reads. ‘But those wealthy tenants have gone the way of the economy, leaving vacant, and very expensive, homes lingering on the market.”

“Home builders are clinging to metro Atlanta’s market stability like storm-tossed sailors. Already, a flock of busy construction cranes are transforming the urban skyline with sleek, steely perches. ‘You’ve got a lot of condos coming up,’ said economist Donald Ratajczak. ‘I don’t know that we’re going to be able to absorb it without some concessions.’”

“President Federal Reserve Bank of Atlanta Mr. Guynn addressed the Council on in Atlanta. ‘I remember a longtime Fed policymaker, a veteran observer of housing cycles, used to describe the housing industry as a big group of independent thinkers. Regardless of the warning signs, he observed that each developer, builder, or lender would decide there’s room enough for one more project, his or her project, of course.”

“At the same time, dozens of others in the same business in the same markets were making the same decisions.”

The Palm Beach Post. “Mortgage broker David P. writes that, ‘The real issue is that there has been such an influx of new agents and new mortgage brokers with no financial sense..Foreclosures are inevitable in a climate of greediness that we’ve seen with overpriced listings.’”

“July was a bummer in metro Milwaukee’s home-building business, new figures show. Like most of the United States, this region is descending, painfully at times, from a five-year housing boom fueled by an easy-money borrowing climate. Those days are over. ‘We’ve got a lot of product out there, a lot of houses for sale,’ said Karen Lawrence, MasterCraft’s marketing director. ‘It’s pretty much the same for everybody around here, slow.’”

The Laramie Boomerang. “Laramie and Albany County don’t normally follow the national trend in real estate. Broker Ann Vicchy said, ‘We don’t have the ‘boom and bust’ syndrome that many of the Wyoming cities experience. She said in the past, the demand for homes has been greater than the supply, creating a sellers’ market. ‘Today, we have more properties for sale in Albany County than at any one time in the past five years.’”

From Canada. “Greater Vancouver’s housing starts climbed 32 per cent to 2,168 units in July. ‘It surpasses any other July in the history of Vancouver,’ said analyst Cameron Muir. ‘There’s no danger of an oversupply happening right now.’”

From California. “If you can’t make money in real estate in the Inland Empire, get a job. That was the message from keynote speaker John Husing. Husing set the tone for the conference with his upbeat presentation, leaving real estate and government professionals smiling.”

“San Diego County’s home prices dropped for the second straight month in July. Local home prices have not been this low since they stood at $484,000 in April last year. To Charles Jolly, president of the San Diego Association of Realtors, this all means one thing: It’s a buyer’s market. ‘You don’t have to pay full price or overpay any longer.’ he said.”

The North County Times. “One of my pet peeves against groups who benefit from today’s obscene levels of housing prices is that they assume that everybody’s family should buy (invest in) real estate now. Who do you think is behind all this? I am blaming the following entities: city building departments, state politicians, banks, mortgage lenders and, lastly, your friendly neighborhood real estate companies.”

“And these folks have the guts to talk about affordable housing and the shortage of buildable land. This is a joke!”

From The Age. “Australia’s recent house price boom is unlikely to have created real long-term wealth for the economy, a report shows. ‘A housing boom in itself does not create real long-term wealth for the economy,’ analyst Greg Canavan said. ‘While certainly many people have done well from the boom, there are just as many others who are now looking at taking on massive debt to satisfy a basic need.’”

“‘A housing boom only generates lasting wealth when deserved, that is, when population growth and rising average incomes push prices up,’ Canavan said.”

The Bulletin has this report from Oregon. “Linda Laws and her husband have been trying to sell their little 712-square-foot rental house on west Bend’s Northwest 12th Street since June. The price, after a drop from the initial listing price, is standing at $349,000, still a tidy profit on a house they bought for $135,000 in 2002, then renovated.”

“The Laws want to wheel their gains on the house and another one they own on Baltimore Avenue into an investment property they have already bought in another state. But there’s a problem: Hundreds of other people have the same idea this summer.”

“The number of homes for sale in Bend has risen 249 percent since the first of the year, overwhelming the flow of buyers that has remained strong through most of the year, but not strong enough to keep ‘For Sale’ signs from cropping up like summer dandelions.

“Buyers have plenty of choices, and some are hanging back to wait for prices to drop, broker David Foster said. Some sellers, meanwhile, are getting frustrated. ‘I think we’re at the point now where we’ll just make this thing work, and maybe take the houses off the market until the market gets better,’ Laws said Wednesday. ‘I’m not sure.’”

“Month-to-month sales volumes in the region’s priciest markets, Bend and Redmond, skidded in July from June. Bend posted 162 sales, down 32.5 percent from June. They lagged far behind the torrid pace of 2005; 41.7 percent off of July 2005’s sales in Bend, and 34 percent off in Redmond. The average listing price for homes on less than one acre on the Bend market dipped from $566,212 in June to $530,385 in July, down about 3 percent since the first of the year.”

“The regionwide average sale price dipped from $393,000 in June to $371,000 in July, Berger said, a drop of 5.6 percent in a month. ‘For that to come down to $371,000 in one month, that was a fair-sized drop, and I think we are going to see that coming down some more,’ broker Bill Berger said. ‘My take on it is that we are going to see some fairly significant price decreases for the next couple of months before we see it start to level out.’”

“Others ‘think it might take a couple of years for prices to shake out,’ (realtor) Foster said. ‘I don’t lean that direction. I think Bend is a little more special than that. But it’s really hard to say.’”

“Inventory has built rapidly in the once-tight Bend market, Berger and other market watchers say, for one key reason: Speculators are trying to bail out at the top price. Their houses are crowding a market that’s already full of the normal traffic. Bend alone had 1,322 active listings on July 31. It had 387 listings on July 31, 2005.”

“George Hale of Bend-based WoodHill Homes, said the inventory buildup is causing him to trim his production plans this year, but he’s still bullish on the long haul. WoodHill sold about 25 percent of its homes to investors in 2005, Hale said, but those buyers ‘are pretty much gone.’”

“It’s hard to tell how sellers will react to the upwelling of inventory, Foster noted. Some are selling because they have to sell. Others are just testing the waters at intentionally high prices, trying to see whether a buyer ‘with a bucket of money and a box of stupid’ will show up to pay too much.”

“Stevi Hjertstedt’s 1,427-square-foot house is listed for $309,900. The Hjert-stedts paid $185,400 for it when they bought it in 2004. As in most Bend neighborhoods, she’s competing with some investors and speculators who are also trying to get out. A bigger house one street over, bought by an Oakland, Calif., resident in 2001 for $213,746, is listed at $348,900; price reduced. Another, owned by a Bend investor, is priced at $298,000, up 68.6 percent from the $207,000 purchase price in February 2005.”

“‘When we bought two years ago, we thought it was outrageous,’ she said. ‘But when they told us what they were going to list this house for I was shocked. I said, ‘We’re stealing.’ But, you know? It’s priced appropriately for the market.’”

Some housing bubble reports from California. “Los Angeles County home prices in July rose at their slowest pace in six years while values in San Diego County continued to fall, more evidence that the Southland’s real estate market continues to slump, data released today show. Sales in Los Angeles County plunged 25%, the eighth consecutive month of declines, according to DataQuick.”

“Leading the way is San Diego County, where prices depreciated for the second straight month. San Diego’s median price fell 1.8% to $487,000 last month compared to the year-ago period, while sales dropped nearly 30%, DataQuick said.”

“Even the most bullish housing analysts and real estate agents expect the rest of Southern California to eventually follow suit. ‘The market isn’t exactly falling off a cliff but is slowing more rapidly than we’ve seen in a long time,’ said Andrew LePage, a DataQuick analyst. ‘Price growth is descending consistently but gradually,’ he added. ‘Everyone’s always said a soft landing could include minor price declines.’”

“Signaling an end to the San Fernando Valley’s real-estate boom, the median price of a home increased in July by its slimmest margin in a decade amid a lingering sales slump, a trade association reported.”

“The median price of a previously owned home rose just 1.2 percent, or $7,000, last month from the July 2005 level, said the Van Nuys-based Southland Regional Association of Realtors. And it fell $18,000, or 2.9 percent, from June’s record $625,000. Inventory has been steadily rising and at the end of July had soared an annual 127 percent, to 6,381 properties.”

“Sales have now fallen for nine straight months, plunging by 32.8 percent, to 809 transactions, in July. That’s the lowest number sold in July since the 800 total for that month in 1993. ‘I think what we need to see is the asking price in some (cases) to come down and buyers to realize it’s not a fire sale. This is not ‘92 or ‘93 when foreclosures were the norm and the bottom was dropping out of the market, (said) Jim Link, the association’s executive vice president.’

Inside Bay Area. “Stockton landed on the top 10 list of the nation’s cities with the highest foreclosure rates in the second quarter, according to a report released Wednesday. The Central Valley city was No. 8 on the list, with 1,228 homes in some stage of foreclosure.”

“The San Francisco-Oakland-San Jose region saw foreclosure rates climb 23 percent from the previous quarter. Realtors and experts blamed rising mortgage rates and a leveling off or falling of home prices for the increasing foreclosure activity. ‘If there’s a little glitch in the market and an owner loses a job, there’s no wiggle room,’ said Dave Konesky, a Realtor in Tracy. ‘Values are not rising like they were, so you can’t just go out and refinance.’”

“Konesky said the foreclosure activity is high among first-time buyers, who, he says, are not used to the expenses of home ownership like the high summer PG&E bills for air conditioning in the Central Valley.”

The Modesto Bee. “A long period of frenzied lending activity has given way to growing nervousness among people seeking new or refinanced mortgages. At Capital Pacific Mortgage, brokers are seeing consumers concerned about buying a home because it won’t grow in value as quickly as before.”

“‘With fewer people looking for homes, asking prices are more likely to stay the same, or even drop, said Capital Pacific’s Modesto branch manager, Sondra Yates. ‘Buyers don’t realize that it’s their market,’ she said.”

“People looking to refinance their mortgages are also nervous, industry experts said. Many of them bought their homes with adjustable-rate mortgages. As rates go up, they could find themselves with monthly payments they can’t afford.”

“Modesto’s Roxanne Myers is caught in a refinancing dilemma, she said. She has an adjustable-rate mortgage that’s about to go higher, so she wants to refinance. However, she also can’t afford the monthly payment on a fixed-rate mortgage, she said.”

“‘It’s scary,’ Myers said. ‘I’ll probably get another ARM that’s fixed for five years. I don’t want to sell, but that may become a reality.’”

“Because houses appreciated so fast, many people gravitated to buying and selling as a quick way to make money, mortgage brokers said. Now, real estate is returning to its status as a dependable moneymaker over the long term, they said.”

“‘You’re getting the same house cheaper than you did six to eight months ago,’ American Residential Mortgage’s Patrick Payan said. ‘Real estate has always been a long-term investment.’”

The July numbers are out for Arizona. “By now it’s obvious the traditional surge of home sales in the summer isn’t happening this year. Actually, it’s worse than that. The latest numbers on housing resales Arizona State University show that sales of single-family homes throughout the Phoenix area in July were the weakest since July 1999.”

“Broker Barry Kramer said the market is still correcting itself after last year’s investor-driven wild ride. ‘When the dust settles and after people take a deep breath, they will lose some appreciation. But we will still be better off than when we started,’ he said. ‘You have to realize that what goes up had to go down. We are in one of those cycles.’”

“The Southeast Valley has almost 17,000 homes on the market, according to the Arizona Regional Multiple Listing Service, and Realtors believe that is a record.”

“Jay Butler, director of the real estate center, had been predicting several months ago that homes should start selling better in June and July but said now he can’t predict when things will get normal. ‘Now there is nothing hot and heavy except gas prices and your blood pressure,’ he said. ‘It’s one negative thing after another. There is no real positive thing you can hang your hat on.’”

“Sellers are afraid they will sell their homes for too little, and buyers are afraid they will pay too much, he said. ‘People just aren’t as confident as they were. They don’t want to stretch themselves,’ Butler said.”

“‘We’re now beginning to see some drifting down of the median home prices not only at the county level but in some of the various localities, which..a lot of people have been waiting for,’ said Butler.”

“Median prices fell in July compared to June in every East Valley city tracked by the center except Mesa, where home sellers happily saw the median increase $2,300 to $249,900. The median price fell $60,000 in Scottsdale, $12,500 in Tempe, $5,500 in Chandler, $5,000 in Gilbert and $2,000 in Phoenix.”

“There’s nothing unusual about Mesa compared with other cities, said (broker) Jan Montgomery. ‘It could be distorted if there was a larger number of more expensive homes selling than the smaller homes,’ she said. ‘Affordable housing is a problem I know, and I can’t think of any reason that would happen (higher median price). I don’t know of any Realtors out there that are selling so great the values are going to go up.’”

“During the summer each year, the center sends people out to take a statistical sample of the number of vacant homes in Maricopa County. Based on that survey, the center reported a vacancy rate of 3 percent, or 30,200 single-family homes. Last year it was 2 percent, or 19,400 homes.”

A housing report from the Baltimore Sun. “Housing sales in the Baltimore area skidded more than 23 percent last month from July 2005 levels, and price appreciation slowed as a shift from a seller’s market to a buyer’s market took hold. That represented the biggest decline for any month since MRIS began tracking data in the region in March 1999. Sales were down by at least 20 percent in all jurisdictions.”

“Prices were reined in by the flood of new listings, housing experts said. While 6,230 additional homes went on the market in June, buyers signed contracts on 3,430 properties, swelling the total number of homes for sale to nearly 16,749.”

“Though the market in the Baltimore area has cooled, it remains healthy, said John McClain, a senior fellow at George Mason University. Other areas of the country are starting to see prices deflate. Statistics he compiled for July in the pricier metropolitan Washington area, including five counties in Maryland and 10 counties in Virginia, show the average price down 1.4 percent, compared with July 2005, he said.”

“That represented the first drop in average price in that region since the mid-1990s, he said. ‘Prices escalated so much over the last four years, there had to come a point where you begin to not have those 20 percent increases each year,’ he said. ‘People can’t afford it.’”

“With more than twice as many homes on the Baltimore market as there were last summer, sellers sought to entice buyers with incentives such as help with closing costs, reduced prices or giveaways. ‘There are a lot of houses that are sitting, so you have to get a little more creative,’ said Frank Lanham, a real estate agent in Baltimore’s Fells Point. ‘Everyone is trying to get creative and throwing certain things in to make the sale or to get people to see the property,’ Lanham said.”

“One of his clients, Danny Garrison, is hoping that throwing in ‘cool, lounge-y’ furniture, a grill and a bar on the rooftop deck of his Canton rowhouse will help it sell faster. Since the end-of-group house went on the market three months ago, Garrison has cut the price twice and is now offering it for $525,000.”

“‘We’re just trying to do everything we can to differentiate ourselves from all the inventory out there, so we came up with that idea,’ said Garrison.”

“The shift in the market has emboldened buyers to ask for concessions they would not have dreamed of last summer, when bidding wars erupted and buyers competed by offering well over the asking price. Where last summer’s buyer would handle a broken garbage disposal himself, ‘this year they want it fixed or repaired,’ said Ilene Kessler, an agent in Columbia.”

“Ilene Kessler, who is also president elect of the Maryland Association of Realtors, said sellers often still expect to sell homes for a hefty increase over last year’s prices. ‘Sellers still have not come to the realization that the market has changed,’ Kessler said.”

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A pair of reports from New York. “Home prices in July in Dutchess County returned to an upward path, but the pace of gain is generally slower than it was a year ago. ‘We’re leveling out, somewhat, but we’re not hurting by any stretch of the imagination,’ said Sandy Tambone, executive officer of the service.”

“Dutchess’ June numbers showed a drop in price compared to June 2005. Sales of attached single-family homes, including condos, townhouses and co-ops, fell 27.1 percent. The Realtors’ report for Ulster showed a 21 percent drop.”

“Anita Drake, broker-owner at in Wappingers Falls, said the housing market has become very price-sensitive. ‘Price is everything right now,’ she said. Drake said buyers are being more cautious and have more to choose from. The inventory of Dutchess homes in July 1 rose 581 to 2,154, 36.9 percent higher than a year ago and apparently a new record.”

The Daily Star. “Things have certainly changed in the housing market over the past year. ‘Last year was probably my best year on record,” said Robert Lawrence, broker-owner in Stamford. ‘This year will probably be my worst year. My charts are way down.’”

“‘We’re seeing a large decrease from last year,’ Lawrence said. ‘It’s almost an 180-degree turn.’” “More than 60 percent of the counties that report sales to multiple-listing services had a decrease in sales between June 2005 and this June. Barbara Roberts, broker-owner in Oneonta, said prices have probably dropped about 10 percent from the peak.”

“The ‘housing bubble’ hasn’t necessarily burst, at least not in this area, brokers said. ‘I don’t think there is a housing bubble (in this area),’ said Carl Cohen, broker-owner in Oneonta. ‘It really comes down to what the motivation of the seller is,’ she said. ‘If selling your home is a priority, you do what you have to do to get it sold.’”

“The balance has changed and is starting to become more level, said Salvatore Prividera Jr., spokesman for the association. ‘Certainly, the market has slowed down statewide,” Prividera said. ‘The number of sales remains very strong when you put it in a historical perspective,’ Prividera said. The housing market had started to pick up in 1995, he said.”

“Roberts said it can be difficult for sellers to adjust or adapt to the cooling prices. Lawrence said that is hard for some sellers to understand. Some sellers haven’t paid attention to what’s going on in the market, he said.”"‘They heard so-and-so got that much,’ Lawrence said. ‘They think they can get that much.’”

“It’s just not realistic for sellers to expect the same rate of return their friends were getting a year ago, he said. ‘What you want (to look at when setting a price) is what happened in the last three months,’ Lawrence said. ‘You’re dealing with the present, not the past.’”

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