The Housing Bubble

A pair of reports on the fading condo boom. “David Black, a broker in Cherry Creek, recently searched the listings for a client seeking a condominium. The buyer wanted a one-bedroom unit, costing less than $150,000, in the Southeast Denver area. Black typed these criteria into his computer. ‘Six hundred came up right away,’ Black said. ‘To me, that was surprising.’”

“Welcome to Colorful Condo-rado. ‘Colorado’s inventory of unsold condos is at an all-time high,’ said Gary Bauer, an independent real-estate analyst.”

“Even amid the slump, new condos are cropping up like weeds, in fields, in urban parking lots, in former airports and military bases, and along new tollways and light-rail lines. With all these shiny, new residences, used condos are about as appealing as used condoms.”

“‘I just can’t get any showings,’ said Carol Richardson, referring to a property in south Denver. ‘Someone tried to show it last week, and they canceled before they saw it.’ For months now, nobody even wants to look at it, said Richardson, who has sold real estate since 1983.”

“Prominent Denver Realtor Ed Jalowski said he hasn’t seen a condo market like this since the savings-and-loan crisis devastated Colorado in the late 1980s. He said many condo sellers he sees owe more on their units than they are worth due to slipping values and aggressive financing.”

The St Paul Pioneer Press. “Facing oversupply, Twin Cities condo developers are halting projects, converting to rentals or delaying construction. When the developers of the new CityWalk project in Woodbury decided in February to rent the condominiums instead of sell them, manager Sally Henkel thought the move was premature.”

“But now that condo sales appear to be slowing around the Twin Cities, she is relieved that the 208 units are rentals. ‘I’m so glad they did it because (the condo market has) gotten worse,’ said Henkel.”

“Hello, Glutville. ‘Temporarily, supply has exceeded demand,’ said Mary Bujold, (who) compiles real estate data and feasibility studies. The problem is too many condos, she said. The number of condo units under development in the 13-county metro area is estimated at 10,000. That’s almost double the annual average of 5,000 to 6,000 units for the last five years, said economist Gleb Nechayev.”

“Condo developers across the metro area are halting proposed projects, converting some units into rentals or delaying construction until most of the units have sold in advance. Conversions of apartment buildings into condos also are slowing dramatically. In May, $334 million was spent on such conversions nationwide, down from an all-time high of $4 billion last September, according to Torto Wheaton Research.”

“‘My forecast is that we’ll see a lot of developers decide not to do condominiums anymore and that you’ll see the number of condo projects dwindle,’ said Jim Seabold, an agent who represents several St. Paul projects. Seabold, an agent for 19 years, doesn’t expect a condo crash like the one the Twin Cities experienced in the 1980s.”

“Real estate observers say the anticipated growth in buyers for the flood of condos, from young people buying their first homes to empty-nesters trying to downsize, just isn’t enough. And investors, who never played a big part in the boom here, have all but disappeared because the easy money is gone.”

“Now developers and sellers are looking to baby boomers who are thinking about moving into condos a few years down the line. What they’re finding is boomers who are having trouble selling their single-family homes or are holding off for lower prices, causing headaches for builders.”

“‘Some of the buyers want to adopt a wait-and-see attitude, but you can’t wait and see when you have to get the building up,’ said Bujold.”

Some housing bubble reports from California. “It’s over. For the past 10 years, the San Fernando Valley’s residential real estate market has been fascinating to watch. Those who jumped in this time last year might be getting jittery. Likewise for anyone holding a teaser rate loan with a mortgage payment that’s going to rise come adjustment day. Gravity is working again and no one knows what toll it will take.”

“Since January, 5,663 previously owned houses changed owners, according to the Van Nuys-based Southland Regional Association of Realtors. That’s a 24.6 percent drop from the same period last year. It’s also the fewest sales since the first seven months of 1993, when there were 4,754 transactions.”

“And this year is the first since 1996 that sales so far have failed to break the 1,000 mark in any month.”

“‘I’ve become a bit more pessimistic,’ said Michael Carney, at California State Polytechnic University. ‘We’ve seen a much bigger decline in sales than we have been seeing for a while. The slowdown has become more strong.’”

From San Luis Obispo. “The recent slowdown in the local housing market has brought some price reductions to homes in the $1 million-plus range. Broker Wes Burk said many people believe that the ‘longer they wait the better a deal they may get. Especially in the million-plus category, there are fewer buyers than there have been in a long time,’ said Burk, noting that there’s about eight months of unsold inventory in the city.”

“But sellers in San Luis Obispo are starting to become more realistic about their asking prices. He’s seen $50,000 price reductions on high-price listings.”

“Shasta County’s real estate bull run is over, according to area housing experts. Investor interest, in part responsible for the north state’s real estate boom the past few years, has waned, which has swelled the number of homes on the market, said (realtor) Josh Barker.”

“The glut of listings has helped shift the housing market as sellers are throwing out incentives to lure buyers. Barker noted that today there are more than 2,000 homes on the market in Shasta County, a level not seen since the mid-1990s.”

“‘I have talked to a couple of Realtors. They have said all of a sudden there are just no shoppers,’ said Wayne Gungl, Redding Building Permit Center supervisor.”

“Mike Van Bockern, foreclosure specialist in Redding, said property values are starting to stagnate, and that has scared investors. Some homes on the auction block also were financed with no-interest, no-down payment and 100-percent-financed loans.”

“Investor bidding has dropped off significantly, maybe down 50 percent from a year ago, Mike Van Bockern said. ‘You’re not having any bidding wars for it,’ he said.”

The Associated Press. “With sales stalled by a spreading slowdown, incentives are on the rise in San Diego and other big cities that saw explosive condo construction during the boom.”

“In real estate, signs of desperation can be counterproductive. Many prospective buyers are shrugging off the enticements. ‘We can wait a while and try to get the most for our money,’ said Andy Albert, who recently sold his home in Carlsbad, after knocking 10 percent off the asking price.”

“‘The only people who are buying right now are the people who really need to,’ said Peter Dennehy of a San Diego consulting firm. ‘There are a lot of people waiting on the sidelines, because they’re under the perception that they’ll get a big deal if they hold off,’ he said.”

“‘This is the first time we’ve experienced a housing recession where the oversupply is in urban units rather than single-family homes,’ said Gary London, president of a San Diego real estate consulting firm.”

“And a raft of new projects are currently under construction, threatening to exacerbate the problem. The city’s Centre City Development Corp. estimated 3,562 new condo units in 34 projects were in the works in July.”

“Developer Maisel Presley is selling condos online by dropping the price by $1,000 a day until a unit sells. A new development in upscale La Jolla is dangling zero money down programs to lure buyers. On a recent Sunday afternoon, two real estate agents sat alone in the Atria sales office. Outside, bright green sandwich boards peppered the sidewalk and a woman twirled a large arrow to grab the attention of passing drivers.”

“About half the 150 units have sold since developers converted the building from rental apartments to condos last year, said Ed Easley, (who) manages the building. ‘We’re in a market that requires incentives, and just about everybody has got some sort of a program for their buyers,’ he said.”

Readers suggested recent Federal Reserve actions as a topic. “Will the Fed eventually regret being kinder and gentler than under Volcker?”

One replied, “Maybe things will be OK. Real estate will stabilize and household debts will be manageable with falling rates, oil and energy costs will decrease, savings will increase as will employment and wages, and peace will break out. Inflation will roll along at 8-10%, but nobody will notice for another 5 or 10 years. Got patience?”

And another said, “IMHO the fed should have raised rates by 0.500% in August and the Fed Fund rate should be 6.000% by year end. The Fed is currently reporting inflation of 4.3%, if inflation were calculated today in the same method as in the Papa Bush’s tenure it is currently running in excess of 7.2%.”

“If inflation is calculated by disallowing hedonic inflation it is currently running ~10%. These inflation rates will continue to accelerate as companies and individuals are intuitively aware ‘borrow today payback with cheaper dollars tomorrow.’”

The North County Times, “After more than two years of nonstop interest rate hikes, the Federal Reserve last week finally decided to take a break. The moderation, claims the Fed, is ‘partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.’”

“The Fed is almost giddy about the ‘cooling of the housing market.’ Have home prices escalated at a rapid rate in recent years? Of course they have. Have homeowners benefited from this appreciation? Of course they have. Is it time to punish them for making the sacrifices necessary to own the home where they raise their families? According to the Fed, yes it is.”

“Let’s punish all of those homeowners who used adjustable-rate loans. Maybe if the Fed goes back to raising rates, it can put a few more families out of their houses.”

“The only thing that disappoints the Fed is the ‘lagged effects of increases in interest rates.’ It would have preferred housing activity to slow a couple of years ago rather than just recently.”

“Granted, higher rates are good news for people seeking income from their investments. CD rates have moved higher on the back of the Fed rate hikes.”

“It is time for the Federal Reserve to get out of the way and let this economy do its thing. Take the rest of the year off and then quit. We don’t need a bunch of Beltway insiders deciding the financial future of American families and businesses. I’m tired of watching the housing and stock markets wince every time the Fed issues a statement.”

“And, while you’re at it, how about coming out from behind the curtain and answering some questions about what the heck you are doing? After all, Americans pay your salaries. Why not drop the double talk and try some straight talk?”

What do you see in your housing market this weekend? Will a homebuilder let you ‘pick your payment’? Slow open houses? Here’s one from Arizona, “I live in Page, and the housing market has always been very poor here. We had our four-bedroom house on the market for 14 months recently and it never sold, not even an offer. It’s 2,200 square feet, and we were asking $190,000.”

The Union Leader. “The New Hampshire residential real estate market is a mixed bag as some areas of the state remain active, while others are experiencing a significant slowdown in sales. The largest decrease in sales prices from a year ago occurred in Strafford County, where the average price decreased from $234,898 to $211,813, or 10 percent. The Seacoast area experienced a 5 percent decrease in sales prices, going from a state high of $373,432 a year ago, to a still state leading $355,506.”

“Other areas experiencing decreasing selling prices include Manchester, down $5,400, or 2 percent from a year ago, and the North County with a decrease of $6,800 or 4 percent.”

From Pensacola, Florida. “A 30-thousand-home project that could be the largest residential development in the western Florida Panhandle’s history is being planned by ten Pensacola area investors. Peter Aluotto, Escambia County’s planning and zoning director, says the development covering more than 41-hundred acres northwest of Pensacola near the Florida-Alabama state line would be like adding a new city.”

The LA Times. “Within Los Angeles County, there are at least a dozen ZIP Codes where prices have started to falter year over year, according to DataQuick. The biggest drop was in Torrance, where the median price of existing single-family houses fell 7.4% to $560,000 in the May 1-July 31 period, DataQuick said.”

“Also showing depreciation were Agoura Hills, where the median fell 4.1% to $820,000, and Manhattan Beach, where it dipped 3.3% to $1.45 million.”

“A growing stockpile of homes for sale is putting pressure on sellers to cut their asking prices. That’s becoming evident even in downtown Los Angeles. ‘Downtown has gone into a state of paralysis because prices are starting to come down,’ said Stephen May, a veteran real estate broker who specializes in the area. The dearth of demand and rising supply prompted May to advise one client seeking to sell her condo unit to list it at just $10,000 more than what she paid a year ago.”

“Today, there are seven condo units for sale for every one sold. Last year, the ratio was 1 to 1, May said. ‘It’s glut city,’ he said.”

A pair of reports from the East Valley Tribune in Arizona. “Home buyers have the upper hand in the Valley’s real estate market for the first time since the record run-up in prices began two years ago, but industry-watchers say most are waiting to see when values will bottom out.”

“‘There’s a lot of negative information coming at them about the bubble bursting and the market falling,’ said Jan Montgomery, a realtor in Mesa. ‘Everything is all negative and they’re taking that on themselves, thinking ‘Maybe I shouldn’t do anything. I should just wait until it settles.’”

“The number of realty signs that continue to linger in neighborhoods shows the market is in transition. In the past few months, home builders are finally beginning to respond by lowering prices to get rid of inventory. Some sellers are finally starting to realize their asking prices are too high and are cutting them.”

“The numbers show buyers are indeed in the driver’s seat. ‘If you define a buyer’s market where there’s a lot of available inventory, this would be a buyer’s market,’ said Bob Rucker, CEO of Arizona Regional MLS. ‘We have 45,000 active listings now.’ Rucker’s data also shows prices are declining.”

“Most builders are doing whatever it takes to discount inventory left over when buyers cancelled as the the market began to cool and moving up to a larger home was no longer an option. In many cases, the opposite reaction is happening on the existing home market, said Valley housing analyst RL Brown.”

“‘The opposite thing is happening because the sellers are not organized and the sellers..have a basic distrust of their realtor in the sense the seller says ‘That guy is just telling me I need to lower my price because he wants an easy sale.’ Even though he’s hired this professional to market his house, he’s not following the professional’s advice. At the same time, you’ve got some of those professionals that are afraid, just plain afraid, to tell a seller the real story about the value of his house today.’”

“‘Some of them are in denial because they’ve refinanced..they took out equity loans and bought the boat, the cabin, the new car for the wife and now they’re basically upside down,’ Brown said. ‘Those guys can’t sell now. The best advice you can give to the seller of a resale home is now is the worst time you could sell unless you have to.’”

“Those that can stand pat are better off waiting until a price floor is reached, he said. ‘I don’t think we’re there yet in the resale market,’ Brown said. ‘We’ve got a lot of overpriced properties out there.’”

“Dawn McLaren, research economist at Arizona State University, says creeping interest rates won’t cool home sales.”

“‘It’s not going to stifle sales as much as it’s going to cause people with these creative financial instruments to either go bankrupt or foreclose,’ she said. ‘We’re already seeing an increase in foreclosures and an increase in bankruptcies. People with no money down, people who bought as investments who aren’t living in the house who at a certain point may say I’m just going to walk away from this. And just like back in the 1980s, it’s the banks that end up having to deal with these creative financial instruments and the losses from them.’”

“In the hot and heavy real estate run-up, many buyers weren’t thinking, McLaren said. ‘They thought the house value was going to take care of whatever interest they paid so they didn’t think about it. So now it’s time to pay the piper,’ she said.”

Some housing reports from the northeastern US. Rhode Island, “As housing inventory builds and the pace of sales slows, some local condominium developers are turning toward a market segment that was somewhat neglected during the housing boom, low- to middle-income workers, even as development continues on a number of high-end, high-profile projects.”

“‘There’s an abundance of condos on the market right now; a lot of them are [former] mills,’ Sahagian said. Rhode Island condo listings this spring jumped 76 percent from a year ago, and in the Providence metropolitan area, which includes parts of Massachusetts, more than 900 new condominium/townhouse units are under construction, and another 2,500 units are planned.”

“In Warwick last month, a Toll Brothers plan to build 395 condominiums at the former Rocky Point Amusement Park was withdrawn. Jason Witham, assistant VP of Toll Brothers’ New England division, said, ‘We elected to rethink our plan.’”

From Vermont. “Developers are moving forward with plans to build hundreds of new residences in Chittenden County despite a weakening housing market. Local real estate analysts said median home prices in Chittenden County fell for the first time in a decade.”

“There are a lot more houses in Chittenden County than there used to be. About 1,200 houses, apartments and condominiums have materialized in South Burlington since the beginning of 2000. Brian Shupe said he can’t help but worry about the viability of these projects. ‘It would be unfortunate that just as we get it right, the economy kicks the legs out from under it,’ he said. ‘There’s still a need for housing,’ he said.”

“The vacation and second-home market in Vermont is showing signs of a slowdown. In the Stowe market, (realtor) Ken Libby said he’s ’seen a 30 percent increase in inventory in the past four months.’ One day last week, there were 116 single-family homes listed for sale in the Stowe area compared to 60 homes the year before. There were 75 condos for sale compared to 35 last year at this time.”

“On the new construction end, a Ludlow builder said while he remains busy there’s no doubt that second home construction has tapered off. ‘Overall there’s been a slowdown as you can tell by the amount of building permits being issued,’ said Doug Burns, a builder of vacation homes near Okemo Mountain Resort.”

From Pennsylvania. “A year ago when Betty and Lee Castle placed a deposit on a retirement community property, they began to think how much they would ask for the Allentown house they had lived in for 30 years. They’d read about the frenzy in the real estate market, and figured it would hold.”

“Fast forward to now: Their 1800s stone farmhouse on the border of Allentown and South Whitehall Township has been on the market for four months, and two price reductions haven’t made a difference. ‘We should have sold a year ago,’ said Betty Castle.”

“The shift in the market is catching some homeowners by surprise. ‘People want to believe things are still going up,’ said Loren Keim, who has offices in Allentown and Bethlehem. ‘It will take time for people to get used to it.’”

“The sheer number of homes on the market allows buyers to be choosier. New listings soared 23 percent in the first six months of the year, compared with the same period in 2005. And last year was a record for new listings, with 13,822 homes for sale.”

“‘Everyone has seen the crazy ones sell on their block for an outrageous price. It is a little bit hard to be realistic,’ said (broker) Angela Brown in Hellertown. Many real estate agents say they have been counseling sellers to lower their expectations. Often it is a hard message for owners to hear. ‘I tell them they need to reduce the price, but they don’t want to listen to me,’ said Pete Ramos, president of the Lehigh Valley Association of Realtors in Bethlehem.”

“Economists say there is no danger the Lehigh Valley housing market will crash. But try telling that to the Castles, who are 10 weeks from closing on their new retirement home in Northampton. They don’t have a whole lot of room to negotiate on the $339,900 asking price of their farmhouse because they need the money for their retirement home.”

“Lee Castle has begun to gather information on bridge loans, in case the house does not sell before the closing of their new home. The Castles’ real estate agent, Suzanne Superka, shares their frustration. ‘I’m at my wit’s end,’ she said.”

Please post off-topic ideas, links and Craigslist finds here!