The Housing Bubble

The Oregonian has this update on Portland. “The Portland-area housing market has decisively cooled, resulting in a July median home price decline that bucks the three-year trend of relentlessly rising values. Adding to the changing housing picture, the inventory of houses for sale rose in July to 3.5 months’ supply, up from 2.6 months in June. That was the Portland area’s highest inventory figure for a summer month in three years.”

“‘We’re at the tipping point,’ said Mark McMullen, senior economist with Moody’s Economy.com. ‘The end is here for the housing boom and the median price.’ Less affordability is gradually biting into demand, and demand is falling by almost any measure,’ said McMullen, who is a part-time Portland resident.”

“The new market realities have frustrated sellers, such as Reid Biggs and his wife, Linda, who are hoping to sell their Hawthorne-area bungalow and downsize. Biggs said he spent $150,000 on second-floor renovations six years ago and is annoyed that homes with cosmetic fixes sold for more than $500,000 in last year’s overheated housing market.”

“The couple listed the house for $499,000 in late May and have lowered it to $469,000 since. ‘I won’t go one dime lower than what I’m at now; I’ve put way too much money into it to lose it,’ said Biggs. ‘If you do it with quality, then you should be able to get your money back.’”

“‘We’re probably settling into single-digit appreciation now rather than the double-digit appreciation we’ve had,’ said Tom Potiowsky, the state economist. ‘But this does open the possibility that we could have some mild declines in prices for the rest of the year.’”

“Available listings as of Aug. 1 totaled 9,555, up 68.9 percent from a year ago. ‘That’s a big number,’ said Portland economist Jerry Johnson.”

“For months, offers have been coming in below the asking price..because buyers and some real estate agents feel they can try to buy low, said Brian Bellairs, an agent in Beaverton and Tigard. ‘They feel that because the market is soft, it gives them carte blanche to do whatever they want,’ Bellairs said. ‘Sellers are having to work hard to put offers together.’”

“Sellers who would have blown off an offer $20,000 below a $600,000 asking price, are now relieved just to have a serious buyer to negotiate with, he said. Sellers will have an even tougher time this fall, Bellairs said.”

“While buyers may find more houses to choose from than a few months ago, they’re also anxious about overpaying, said agent Peggy Hoag. About six weeks ago, buyers for six houses she was selling withdrew offers that had been accepted by the seller, Hoag said. ‘It’s bizarre,’ Hoag said. ‘They got skittish and went sideways. They hadn’t even done the inspections yet.’”

From Oregon Public Broadcasting. “Drive around neighborhoods in Bend and Redmond, and you see lots of ‘For Sale’ signs. Real estate agent Kim Warner says there are a lot more than usual.”

“‘I think in Bend alone for single-family homes, we’ve got about 1,350 active listings right now, which has to be more than 3 times what we would normally have had over the previous few years,’ Warner says, ‘A lot of that is because of the amount of new construction.’”

“Kim Warner parks his pickup in front of a new place in West Bend priced at $545,000. ‘And you can see that recently, they reduced the price $50,000,’ Warner says, ‘That’s becoming relatively common. People are having to get more competitive with their asking price.’”

“Financial advisor Bill Valentine says some borrowers will have to sell or face foreclosure. He says that’s because they took out unorthodox loans that ultimately they couldn’t afford.”

“‘As some of these chickens come home to roost, I think there’ll be an unnatural amount of supply put on the market and that’ll put pressure on everything,’ Valentine says, ‘And as a derivative market, as people have less equity to bring into our state, our home prices are going to fall.’”

“Valentine says his talk of falling prices drew harsh criticism a few months ago. But he says his critics are quieter now.”

Dataquick has some numbers out today in California. “Home sales in the Bay Area slowed to their lowest level in ten years as prices increased at their slowest pace since spring 2003. A total of 7,941 new and resale houses and condos were sold in the nine-county region last month. That was down 19.1 percent from 9,892 for June, and down 30.8 percent from 11,470 for July last year, according to DataQuick.”

“Last month was the slowest July since 1996 when 7,682 homes were sold. The average July sales count since 1988 is 9,158.”

“‘One of the questions being asked is how much future activity was drawn into the present in 2004 and 2005 when interest rates were at their lowest levels in decades. How much of today’s demand has already been met?’ said Marshall Prentice, DataQuick president.”

“The median price paid for a Bay Area home was $627,000 last month. That was down 2.6 percent from June’s record $644,000, and up 3.5 percent from $606,000 for July a year ago. The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $3,106 in July. That was down from $3,183 in June, and up from $2,653 for July a year ago.”

“Adjusted for inflation, mortgage payments are 22 percent higher than they were at the peak of the prior cycle sixteen years ago.”

“Sales fell 41.2 percent in Solano County, 40.1 percent in Sonoma County, 34.6 percent in Alameda County, 29.9 percent in Marin County, 29.7 percent in Santa Clara County, 28.8 percent in Napa County, 26.9 percent in Contra Costa County, 23.9 percent in San Francisco and 16.6 percent in San Mateo County from July 2005 to July 2006.”

The LA Times. “Southern California home sales fell to their lowest level in nine years last month as price appreciation continued to decelerate, data showed. Forecasting the extent of a decline is vexing to even the most veteran of housing stalwarts.”

“‘I don’t know how soft the landing’s going to be,’ Eli Broad, Los Angeles philanthropist and founder of giant builder KB Home, told Bloomberg. ‘I think we’re in for a period of a year or two years where housing prices are going to go down or stay stable, but certainly not go up.’”

“By some measures, the inventory of resale homes and condos in Los Angeles and Orange counties doubled in the last year to 39,000. Meanwhile, homes are taking longer to sell. Those factors are starting to weigh on prices.”

“In Rancho Cucamonga, most of Brock Hubry’s prospective buyers are well aware that appreciation is slowing. Yet the real estate agent makes sure they know just the same. ‘When I’m talking to them, I tell them if they’re planning to sell in the next two years that they may not make a profit,’ Hubry said.”

“Jennie and David Garcia are testing the housing market again. This time the Yucaipa couple are asking significantly less for their five-bedroom Yucaipa home. Their house didn’t sell after a four-month effort ending in July. The Garcias don’t want to lock in some of that appreciation on their Yucaipa house in the past two years. ‘We are afraid the market is going to go lower,’ Jennie Garcia said.”

“In March, they listed their home with a real-estate agent for $509,000. ‘The first week we had four or five lookers. After that there was nothing. It was pretty bad,’ she said.”

“Last week they decided to make another stab at trying to sell the house, this time on their own. The asking price is now $468,000. Two people showed up at an open house over the weekend. ‘Better than nothing,’ she said.”

“‘We are not near the bottom,’ said economist Christopher Thornberg, a senior economist at UCLA. ‘Anybody who bought a home in the last year and was hoping for appreciation to bail them out is in for a rude awakening,’ he said.”

“Orange County’s home price juggernaut slowed last month, with Southern California’s second-biggest sales declines and the region’s second-smallest price gains. July’s median home price slipped $7,000 from June’s, receding to $639,000, according to market tracker DataQuick.”

“Real estate professionals say prices finally are succumbing to reduced demand partly because of higher mortgage rates, fewer can afford a home and those who could afford one have already bought.”

“Dean Zibas, owner of a San Clemente appraisal service, said he’s seeing more homes sold after making price reductions and more homes selling for less than the recent sales of comparable properties. Mac Mackenzie, the top-producing Coldwell BankerRealtor, said he’s starting to see homes that sold for $650,000 last summer now going for around $590,000.”

“‘We’re seeing pretty substantial price reductions,’ the Irvine agent said. His advice to homeowners: sell now or ride it out for four or five years. ‘It’s not a seller’s market anymore,’ he said.”

“Bob Chapman, past president of the Newport Beach Association of Realtors, said buyers and sellers appear to be adjusting to the new realities. ‘The market is finding itself,’ he said. ‘It’s not the Disneyland-high price it was before, but it is fair-market value.’”

“With the number of homes offered for sale bumping up to 16,004 , some buyers and sellers are still at loggerheads. Two homesellers asserted that they’re not moving until someone pays their rock-bottom asking prices. ‘It’s probably not a good time to put it on the market,’ Beverly Huffman said of her San Juan Capistrano home, now listed at $729,000. But, she added, ‘I’ve got time, so it doesn’t matter. I could stay here the rest of my natural life.’”

“Bob Lang, a longtime real estate broker, i’s waiting out the market. ‘It’s going to take a while, but I think prices are going to come down,’ said Lang, renting an Irvine apartment since selling his condo in September. ‘I’m definitely looking for THE deal.’”

The Washington Times has this report from DC. “Home sales are plummeting at double-digit rates in the Washington area, the National Association of Realtors reported. Markets in Virginia that enjoyed the most rapid appreciation during the boom, are now experiencing a faster decline and tougher adjustment than slower-to-bloom markets.”

“Virginia home sales plunged 23.9 percent in the spring quarter, compared with a year earlier, the association said, while Maryland and D.C. sales fell by 16.5 percent and 15.6 percent, respectively. The sales decline in Virginia put it in the same league as California, Florida and Arizona, where the biggest run-ups occurred.”

“The fall has been steepest in the condominium market, where investors and first-time buyers have a large presence. Scattered metropolitan areas and resorts with overbuilt condo markets are seeing outright price drops, including the District (and) Virginia Beach.”

“‘The U.S. housing market is entrenched in a slowdown,’ said analyst Ryan Sweet. ‘So far, all indications are that the housing market is slowing in an orderly fashion,’ Mr. Sweet said, ‘but we are still early in the housing slowdown.’”The Daily Press. “Only two cities in the country saw a greater increase in home prices than Hampton Roads from the second quarter of 2005 to the same period in 2006. The statistics come even as many real estate agents in the area have said for months that the market has slowed. There are also thousands more homes for sale right now than at most times in the past two years.”

“‘Yes we went up very fast. We peaked. In the meantime there will be people dropping prices, there will be bargains to be found,’ said Donn Irby, past president of the Hampton Roads Association of Realtors. ‘The frenzy is gone. That’s over,’ said Perry Pilgrim, president of the Virginia Peninsula Association of Realtors.”

“One caveat: A more zeroed-in look at the numbers does show a potential slowing-down. Statistics specifically for the month of June, showed that home prices only climbed 8 percent from June 2005 to June 2006, according to the Virginia Association of Realtors. That marked the first time since 2003 that Hampton Roads did not see double-digit price growth in a 12-month span.”

The Fauquier Citizen. “For various reasons (a greater inventory of homes, higher interest rates and higher gas prices, for example), the residential real estate market recently has favored buyers rather than sellers, according to local Realtors.”

“‘This is a very normal process,’ veteran Realtor Joe Allen said of the housing slowdown. ‘I’ve been through this three times.’”

“He believes some properties are priced 15-20 percent ‘too high,’ largely because homeowners want what their neighbors got a dozen months ago. ‘It’s understandable they want last year’s prices,’ Allen said, but also unrealistic.”

“Jim and Cheryl Warner put their home on the market last October. The Warrenton couple wanted $509,000 for the place, which includes three bedrooms, three -and-a-half bathrooms and a finished basement. They knew putting their home up for sale in the fall probably would produce little buyer response.”

“But the Warners thought they’d get at least a few inquiries. As it turned out, only one person came by the place in five months. After talking with their Realtor, the Warners dropped the asking price to $450,000 for their Brenda Court home.”

“That generated a ‘fair amount of traffic,’ (about six visits) but no offers, Warner admitted. About a month ago, the couple cut the price to $435,000, or $12,600 less than the county commissioner of revenue values the home for tax purposes.”

“The price reductions trouble the Warners because ‘any time you drop your price, it’s pure equity you’re losing,’ he said. ‘We can’t go any lower, (because) we’re turning around and buying into (an expensive) market just like this one.’”

“A decade ago, the Warners paid $158,000 for the two-story, 2,600-square-foot home.”

“Despite the hardship, Cheryl Warner will continue to commute until the right buyer knocks on their door. ‘We can do that, but it’s putting a strain on our family that we don’t want to continue with,’ her husband said. ‘The waiting comes with a price. We had no idea it would take this long.’”

Some housing bubble reports from Florida. The Palm Beach Post, “Sales of existing single-family homes in Palm Beach County posted the biggest second-quarter decline in the state as one of the hottest real estate markets in the nation continued to cool down, a Florida Association of Realtors report shows.”

“Indeed, home sales dropped in all 20 markets in Florida, with all but two posting double-digit slides compared with the same quarter a year ago.”

“Condominium sales in Palm Beach County plunged deeper than single-family home sales, with a 44 percent drop in the second quarter compared with second-quarter sales in 2005. Treasure Coast condo sales fell 41 percent over the same year-over-year period.”

“‘Flippers are not buying property now, but they are the ones holding a large part of the inventory,’ said Jim Sahnger, of Palm Beach Financial Network. ‘Those buying homes today are primarily for their principal residence, and they are offering fair prices, but that’s still in excess of what property sold for last year.’”

“‘Properties have not been on the market long enough to force downward pressure on prices,’ said (broker) Chappy Adams. ‘Unless a seller really, really needs to sell, they will try it out for a while at the price they were used to over the last six months.’”

“The Florida Association of Realtors in Orlando said the state’s housing market overall was following the national trend. The ‘declining strength of the domestic economy’ is ‘a stiff wind in the face of the existing real estate market,’ said David Scott, a University of Central Florida finance professor.”

“Sales of houses and condos slipped during the second quarter of the year in Collier County. The number of houses sold in the county last quarter was down 44 percent from the second quarter of 2005. Condo sales decreased by 53 percent during the second quarter this year compared to last year.”

“Sales of existing homes in the Sarasota-Bradenton market fell 39 percent during the second quarter. Sales were down 28 percent in the Charlotte County-North Port market. in Southwest Florida, condo sales dropped 46 percent in the Sarasota-Bradenton market during the quarter. Condo sales in the Charlotte County-North Port market dropped 96 percent.”

“Home sales fell by 23 percent in Miami-Dade county. Sales are slowing because of a glut of properties on the market. The rapid price escalation during the past five years has prevented many people from buying homes. Rising insurance premiums and property taxes also are hurting potential buyers.”

“Some sellers are getting desperate, lowering asking prices and offering perks to buyers and their agents.”

From Florida Today. “Second-quarter home sales in Brevard dropped 28 percent compared to the second quarter of 2005. Second-quarter condominium sales fell 78 percent. Local real estate officials say properties are taking longer to sell, and inventories continue to grow.”

“(Broker) Nicholas Rahal in Rockledge, predicts future housing reports will show the median housing price dropping. ‘Selling prices are dropping,’ of some properties, Rahal said. ‘There’s no question about it.’ Every day, Rahal reviews the latest MLS offerings in Brevard, and he notices dozens of downward price adjustments on types of homes.”

“J.R. Fuller, broker in Melbourne, agrees that some prices are down, but they’re falling from what he and others have called an artificially high perch. ‘We haven’t really dropped prices,’ Fuller said. ‘But we’re returning to reality.’”

An update from the Boston Globe. “Home sales across the state fell nearly 11 percent in the second quarter as the real estate market slowed, with Cape Cod, central Massachusetts, and the Northeast and Southeast corners of the state experiencing the sharpest declines. The price of single-family homes also dropped. The drop was largest in central Massachusetts, where prices were down 3.3 percent.”

“Condominium sales also slowed in the quarter: Sales fell 8 percent in Greater Boston and 34 percent on Cape Cod. ‘We’re going through a correction’ on Cape Cod, said Thomas Dillon, a Hyannis agent. ‘We went through five years of insane growth.’”

“Barnstable County experienced the single largest increase in foreclosure filings in Massachusetts, 78 percent. ‘A lot of people who bought in ‘04 or ‘05 bought doing 100 percent financing with interest-only loans,’ Dillon said. ‘I think a lot of them didn’t understand what they were doing, your payment was $999 and all of a sudden it’s $2,999.’”

The Standard Times. “A glut of single-family houses for sale is causing a ‘correction’ in the once hot SouthCoast real estate market, dropping prices from record highs and producing patient buyers. ‘For Sale’ signs are sprouting in front lawns of both condominiums and single-family houses in record numbers.”

“‘This spring, the number of single-family properties for sale across the state reached a new all-time high,’ the Realtor group reported. ‘Over the past year, the inventory of detached homes and condos on the market rose steadily by 27 percent, from a monthly average of 49,931 listings in the second quarter of 2005 to 63,433 in the same quarter this year.’”

“Prices are dipping for house rentals, both seasonal and yearly leases, Jocelyn daLuz, a Realtor in Mattapoisett said. ‘We are seeing houses that rented for $1,700 a month a year ago now renting for $1,500 a month,’ Mrs. daLuz said.”

The Boston Herald. “‘We’ve seen a lot of shyness on the market,’ said Jay McHugh, broker in Brookline. Whereas house-hunters attending open houses previously would follow up for a second showing or an offer, they’re now sitting tight.”

“‘It’s almost like they’re afraid to make a decision in fear of learning that their seller was prepared to drop (the price) if they had not made an offer,’ McHugh said.”

The Telegraph. “Pompea Halliday is helping her brother sell his three-bedroom ranch on Wallace Avenue in Auburn. ‘We have had at least 12 people come and look at the house,’ she said. ‘No one is interested enough to make a bid yet, but I didn’t expect that so soon. If it has the right price, it will sell. If it doesn’t, it won’t,’ she said. ‘I look at this as a normal market rather than a declining market. It was excessive, to say the least, in the past.’”

From News Day. “The downturn is coming. Long Island’s housing market is heading for annual price declines, probably in the next few months, experts said. The market is ‘going to turn down, but it’s not going to be dramatic,’ said Emmett Laffey, chief executive of Century 21, with 16 offices regionwide.”

“In the first half of this year, residential inventory on Long Island doubled that of a year earlier, Laffey said. ‘When you have double the inventory, prices will soften,’ he added.”

“Experts said this market has not begun to mimic the downturn of the late 1980s and early 1990s, when prices plummeted. The difference? ‘There’s no panic,’ said Linda Bonarelli, a broker in Huntington. ‘And there’s no reason to panic.’”

“The market between $600,000 and $1.2 million is ‘just flooded with homes,’ allowing for potential price declines, Laffey added. And that leaves buyers in control. Said Martin Cantor, economist for a Garden City advocacy group: ‘I think sellers shouldn’t panic..but buyers are holding the ace in the hole.’”

From Business Week. “The housing market turned in one of its worst performances in years. ‘There’s a lot more merchandise and tremendous amounts of price reductions,’ says Phyllis Haber, a realtor on New York’s Long Island. ‘It’s crazy. It’s like someone waved a wand and everything changed.’”

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