The Housing Bubble

It’s Friday desk clearing time for this blogger. From Florida, “The number single-family home sales in Escambia and Santa Rosa counties dropped significantly from June to July, while median sales prices have dipped just slightly. ‘I’m noting more price reductions,’ said veteran Pensacola realtor Alexis Bolin, an outspoken critic of high home prices. ‘Reality has set in to the marketplace, and sellers are starting to realize that buyers are educated about this market, and that a lot of buyers don’t have to buy.’”

From Virginia. “Languishing ‘For Sale’ signs sitting for months in front of homes in Falls Church are not a problem for well-to-do long-time homeowners not burdened under the pressures of a ballooning adjustable rate mortgage. But for all those young families who bought into the binge, the viability of the lives they hoped to construct with in a $700,000 home will quickly vanish.”

“Morgan Stanley’s Roach calls this a ‘pull back.’ It could more readily be called ‘chaos.’”

From Wisconsin. “Dane County’s real estate market continues to cool from the frenzied pace of 2005 to what industry officials consider a more ‘traditional’ market. ‘There’s inventory out there that we’ve never seen before,’ said John Deininger, director of the RASCW. ‘The concept that it can go up every single year is naive.’”

From Illinois. “Echoing national housing trends, the Rock River Valley is turning from a sellers’ to a buyers’ market, complete with a growing supply of, and shrinking prices for, existing homes. ‘Have you heard the saying the little pig gets fat, but the fat hog gets butchered?’ asked Jim Barbagallo, president of the Rockford Area Association of Realtors. ‘People who price their homes too high hoping to cash in are seeing them sit out there.’”

From Texas. “More and more North Texas homeowners are in big trouble. Residential foreclosure postings are at record levels. More than 3,800 houses are threatened with foreclosure next month in the Dallas-Fort Worth area. ‘This is bringing back nightmares of 1988 and 1989,’ when thousands of Texas homeowners lost their properties during a regional recession, said George Roddy. ‘The average number of postings in 1989 was about 2,000 a month,’ Mr. Roddy said. ‘And that is when we saw a massive devaluation of residential properties in some areas.’”

From Arizona. “The Arizona State Land Department is reconsidering its asking price for a potentially lucrative property in Fountain Hills after a similar high-profile land auction failed to draw bidders last week.”

“‘We may have an auction, but we’re obviously analyzing the changes in the market as evidenced by (Aug. 8’s) unsuccessful (Desert Ridge) auction,’ Land Commissioner Mark Winkleman said. “We’re certainly concerned the appraised value may not reflect that current market value.’”

“Summmer’s winding down, and you may have begun toying with the idea of a second home. And so you wonder: Are you letting your heart run away from your head? Should you even be considering a vacation home? Probably not, unless you can accept that you’re no longer going to get rich quick by buying a second home.”

“Many U.S. homeowners continue to take cash out of their homes even as mortgage rates climb and home sales slip, helping to brace the economy, economists said. With existing home sales off 7 percent in the second quarter and mortgage rates climbing, some economists see the ongoing refinancing spree as the once-hot housing sector’s last gift to the nation’s economy.”

“Art museums have long rented paintings to art lovers who want the real thing on their walls, but lately, museum officials say they’ve seen a spike in demand from home sellers. At New York City’s Agora Gallery, director Angela Di Bello says she fields at least five calls and e-mails per day from inquiring real estate practitioners, up from ‘none’ a few years before. ‘I’ve been in this business 25 years, and I’ve never seen anything like it,’ she says.”

The Australian. “The economic soft landing used to be up there with the cure for cancer. It featured prominently in the rhetorical promises of policymakers but rarely in the harsh reality of a world that refused to conform to wishful thinking.”

“Now we are about to discover, with great consequence for the world, whether this run of successful soft landings can continue, or whether the US, the screaming engine of global growth for the past five years, is heading for a crash. The Federal Reserve’s decision to leave interest rates unchanged underscores the degree of uncertainty in the US economic establishment about the near future.”

“Many Americans are desperately refinancing, finding themselves with thousands of dollars less a year in disposable income than they had last year. Debt levels are sky high and the savings rate is negative.”

“(One) view might be called fatalistic realism. It accepts the proposition that, on current policies, a recession is coming, but insists that it is absolutely necessary. A recession may well simply be unavoidable. For the Fed, and the world, a recession may be the price that now needs to be paid to avert a longer-term catastrophe in the global economy.”

The Press Democrat reports from California. “Sonoma County home prices fell in July for the first time in more than four years, the latest sign that the once-booming housing market continues to slow. July’s median resale price was $595,000, down 3.3 percent from the same month a year ago, when the median stood at $615,000. It was the first year-over-year decline since February 2002.”

“In Sonoma County, home sales hit an 11-year low for the month of July and have dropped for 10 consecutive months in year-over-year comparisons. While the slowdown was anticipated since the market peaked a year ago, longtime brokers were surprised by the price drop.”

“‘I didn’t think it would go down as quickly this soon. I don’t think it’s hit bottom,’ said broker Beth Robertson in Rohnert Park.”

“To make homes stand out in an increasingly crowded market, sellers often are pricing homes at least 2 percent below what the same home could have sold for a year ago and pricing under comparable properties already sitting for sale. Sellers also are more willing to offer incentives to buyers.”

“Buyers haven’t faced such an advantageous market in a decade. Sellers still are adjusting after enjoying a run of strong sales and often soaring prices. ‘It’s a correction that was needed,’ broker Karl Bundesen said. ‘I think it’s taking some sellers a little longer to get with the program and realize the market has changed. There’s still sellers coming on the market unrealistically.’”

“‘A sense of urgency drove people into the market. Now what we have is the opposite of that,’ Coldwell Banker manager Rick Laws said. ‘And now the herding instinct is to wait and see if prices soften further.’”

From the Signal. “Despite record numbers of active listings and significant slumps in sales, local Realtors say the Santa Clarita housing market will bounce back. In July, typically the busiest month of the year, just 237 single-family homes changed hands, down 35.2 percent from July 2005. Correspondingly, inventory remained high with 1,814 single-family homes in active listings, more than triple last year’s 593.”

“‘It’s very simple,’ said (broker) Celia Gallardo in Newhall. ‘It’s now a buyer’s market.’ However, converting to a buyer’s market forces sellers to reduce prices, she said. ‘People need to realize that they are not going to get the prices they got last year,’ she said. ‘They need to come down by 20 percent.’”

The Lodi News Sentinel. “Her house has been on the market for only three weeks, but Lodi resident Trina Reese is skeptical as to whether it will actually sell. ‘Houses just aren’t selling,’ she said. ‘Last year houses down the street were selling at $650,000 within a week or two, but now it’s a buyer’s market.’”

“Paul Mertz, president of the Lodi Association of Realtors, said the market is still seeing stable housing prices, but a larger inventory. ‘Last year in July we had 133 homes on the market,’ he said. ‘Last month there were 470. This is a normal market where sellers just have to be more realistic about their expectations.’”

The LA Daily News loks at the new affordability index. “Rising prices and interest rates during the second quarter combined to drive down housing affordability across California to a record low for first-time buyers, a trade association said Thursday. The figure is seven percentage points under last year’s second-quarter level.”

“This is the first affordability index using methodology that is supposed to better reflect current market conditions. The index needed to be modified because of changes in the mortgage-finance arena. For example, the first-time buyer index is based in part on a 10 percent down payment, with the purchase financed by an adjustable-rate loan.”

“Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., agrees that this is a more accurate way to gauge affordability. But it paints the same kind of market snapshot as the old version, which was retired in January.”

“‘The news is still depressing,’ Kyser said. ‘Affordability is not going to improve. It’s going to be tough to deliver entry-level housing in Los Angeles and Orange counties.’”

Some reports from the northwestern US. “If you’re seeing more ‘FOR SALE’ signs around town, don’t panic, say local realtors: The housing market is working just fine. ‘Right now our housing prices are relatively flat,’ explained Jim Wilcox in The Dalles. ‘There’s been quite a few price reductions on the market, because things were put at too high a price in the first place. I think the market just went beyond what most people were willing to pay.’”

“For instance, said Wilcox, according to the Regional MLS in Portland, the average list price, at present, for a home in The Dalles is $253,000. The average sale price, however, is about $181,000. ‘When you have that, you’re going to get a slow-down in the market,’ Wilcox said. ‘Simple economics.’”

“‘I’ve been here since 1992 and I’ve seen houses sit for a year, easy,’ realtor Rena Hunley said. ‘Now, if it doesn’t sell within a few days we ask, ‘What’s wrong?’ Nothing’s wrong! It’s just real estate, and that’s how it goes, up and down.’”

The Bend Weekly. “Bend may be booming, but like many parts of the country the housing market seems to have hit a soft spot. It is something Aaron Callahan discovered in recent weeks. They put their new 3,400 square-foot home on the market using Craigslist.org over two weeks ago and they have yet to have any interest.”

“Callahan says his work situation has changed and he simply has to sell the house sooner rather than later. ‘I am going to try to sell it on my own for the next month and if I can’t then I am going to bring a realtor in,’ he said.”

“Working in the mortgage business, he is no stranger to how the housing market works, but after unsuccessfully trying to also sell a condo in southern California for five months, he doesn’t have a lot of time or patience.”

The Oregonian. “The Portland-area median home price (was) 2 percent lower than June’s median. That month-to-month downtick, along with rising inventories locally and nationally, has economists saying the Portland area’s housing market has seen its hottest days.”

“‘As brokers, we’re having to work really hard to educate our sellers on pricing to get them right,’ said veteran agent Kathy Hall.”

“Debora Runnion-Jessup, an agent in Clackamas, said one buyer client wanted to offer $20,000 less than the asking price for a house on the market for $480,000. ‘On a resale, that’s a big gap,’ she said. But the buyer wanted to negotiate.”

“The seller countered at $467,000, more than halfway to the offer price of $460,000. Her buyer still insisted on countering that with $465,000. The back-and-forth forced her to try to come up with reasons to try to justify the price, she said. But sometimes buyers are making offers below recent comparable sales, which can be hard to justify to the seller.”

“‘I don’t want to keep writing offers and insulting people,’ she said.”

The Columbian. “Fewer qualified buyers, new construction and overeager sellers combined in July to push the inventory of houses for sale in Clark County to a six-year high. There were nearly 4,000 houses for sale last month in Southwest Washington, which includes Clark County and a portion of Woodland.”

“‘We had a lot of investors buying homes and fixing them up to sell, so we’ve got all those on the market,’ said Phil Frederickson, a Realtor in Vancouver. ‘In addition, there’s a lot of brand new houses sitting empty out there. Some of these new homes were bought by investors to rent, and then they decided to put them on the market.’”

“‘This year, we’ve got builders coming on with new product that missed the market and we’ve got sellers reacting to last year’s market,’ said broker Scott Mikel in Vancouver. ‘We also have fewer qualified buyers than we had last year. I don’t believe (higher) interest rates have slowed the (local) market. I believe the saturation rate has slowed the market.’”

“Californians keep migrating north to Central Oregon, according to moving company figures. Nancy Lynch, an agent with United Van Lines, warned that migration patterns are cyclical. She said has seen many people returning south after a few years in Central Oregon.”

“‘We’ve had people calling us, saying: ‘Remember us? We’re so-and-so, and you helped us move up here four years ago. Well, you’re helping us move back,’ she said.”

The Reno Gazette Journal has this update from Nevada. “The amount of sales and the median price of an existing single-family home in Reno continue to fall. The median price in July for the Reno metropolitan area fell 5 percent compared with the same month in 2005, according to the University of Nevada.”

“The once red-hot housing market that has slowed in every month this year. At the same time, sales continued to slide, down 40 percent to 366 homes sold, from July 2005. And with an inventory of single-family homes of more than 5,000, the median time a home is on the market has stretched to 75 days, up 39 percent from July 2005.”

“‘The market has already corrected a solid 10 percent, and the market is poised to correct another 10 percent,’ said David Morris, broker and 29-year veteran of the Northern Nevada real estate market. ‘The market correction is very real and it is going to be very deep.’”

“He said the resale market is being pressured by the new homes market, where deep discounts and incentives have become commonplace. Morris estimates that the downturn will last about three years. ‘Prices are probably going to adjust across the board for the majority of houses a solid 20 percent,’ Morris said. ‘There will be a few that will adjust by the spring or summer of ‘07 by 30 percent, and a handful that will adjust worse than that.’”

“Realtor David Graham said that because of the market shift, buyers have changed their behavior. ‘Properties are being shown, but buyers are saying that it is too expensive,’ Graham said. ‘Buyers are being very selective today before they make an offer, and price is the determining factor.’”

“‘(The price) was much too aggressive to start with, and the market conditions are saying we can’t support that price,’ he said.”

Some housing bubble reports from the Washington, DC region. “The market for McMansions has dried up almost overnight in Hampton Roads. At one point last week, nearly a hundred homes priced from $500,000 to $700,000 vied for buyers around Nimmo Church in Virginia Beach. It could be a long wait; only 11 in that range have sold all summer. That’s bad news for the owners yoked to McMansion mortgages, and to the builders addicted to luxury homes.”

“No money down and no payments until 2007. Some restrictions apply. It sounds like a car ad, but it’s an offer for new, two- and three-bedroom condos at the Bryson at Woodland Park in Herndon. The deal also includes no closing costs.”

“The Bryson is not alone. Don’t miss ‘closeout prices’ on condos at Legato Corner in Fairfax. ‘Save up to $50,000′ on condos at Park Place in the Lorton Town Center. Get one year of free condo fees, $10,000 towards options and $5,000 towards closing costs in a ‘limited time’ offer for condos at Cameron Station in Alexandria.”

“Selling a condo is clearly much more difficult than it used to be. ‘We know it presents the greatest challenge right now in the real estate market,’ said Jill Landsman, for the Northern Virginia Association of Realtors. ‘I know a lot of Realtors are using secret weapons by putting in a lot of perks.’”

“Nearly three times as many condos are on the market today compared to last year, according the MRIS. Last month’s condo sales dropped 18 percent compared to last year. According to Lawrence Yun of the NAR, the condo market is always more susceptible to purchases by investors and speculators. ‘Now these short-term investors have left the market,’ said Yun.”

“The overwhelming problem in the market remains a disconnect between what sellers expect their homes to sell for and what the market will bear. ‘Managing sellers’ expectations is one of our biggest challenges,’ said (realtor) Amanda Wallingford.”

The Gazette in Maryland. “Homebuilders have not had to work hard to sell houses in Frederick County, until now. A previously booming industry is laying off workers, offering cheaper upgrades and advertising heavily.”

“Dan Ryan Homes, which has been in business in Frederick County for 16 years, recently laid off about 20 percent of its employees and, for the first time ever, is depending on advertising. ‘In the building industry it used to be that we were more or less order-takers. Now we are reaching out, advertising our experience and value,’ Cheryl Kostreski said.”

“Other major homebuilders are also laying off workers, said Brian Patchen, director of the Frederick County Builders Association. ‘Builders had been building at full capacity and the layoffs are obviously a reflection that they are not at full capacity anymore,’ he said. ‘They can’t afford to carry extra employees.’”

“The decline in homebuilding began in the winter, industry experts said, as interest rates climbed. The number of houses for sale in Frederick County more than quadrupled this year from last summer. In June 2005, 375 homes were on the market; this June, 1,690 homes were available.”

“‘We knew it was going to happen,’ Kostreski said. ‘It has been too pretty for too long.’ The dip is part of a natural ebb and flow of the housing industry, she said.”

The Washington Times. “It must be exhausting, trying to sell a home in a region that has suddenly become a buyer’s market to rival the slowest years of the 1990s. It has to be particularly frustrating to sellers who considered selling last year, which turned out to be the last great sales year of a six-year sales boom.”

“Last month, only 7,868 existing homes were sold in the Washington metropolitan area, a drop of 31 percent compared to July 2005. At the same time, the number of homes for sale has continued to grow. On July 31, there were 48,737 homes on the market in the area. We’ve never seen that many homes for sale in our area. Even back in July 1992, which was the slowest sales year in my records, only 36,895 home listings languished on the market.”

“Buyers had the most leverage over sellers in Prince William and Loudoun counties. Sales were down 50 percent in Prince William and 42 percent in Loudoun. (July) was the toughest month to sell a home in the District since 1997.”

“I believe area home sellers are just going to have to get used to these new market conditions because it’s not likely to change for a long time. Speaking very generally, buyer’s and seller’s markets in our area seem to last about five to eight years. It’s a cycle that has repeated since the early 1980s. If it holds true, it is possible we won’t see another seller’s market until at least 2011.”

The Long Island Business News has this update from New York. “On May 10, a Long Beach beachside colonial went on the market for a hair under $800,000. Two months later, the asking price dropped to $749,999. Last week, agent Renee Weinberg chopped another 55 grand off the four-bedroom home.”

“‘A year ago, I would have gotten 749 (thousand), no problem,’ said the sales associate, who got an offer for $525,000. ‘I said, ‘Forget it, tell them to get real,’ Weinberg said.”

“But this is residential’s new reality. After five years in the passenger’s seat, buyers have taken control of the market. Inventory is skyrocketing and shoppers are taking their sweet time as sellers drop prices, and as Weinberg can attest, buyers now scoff at asking prices.”

“That’s a change from the last few months, when there was a standoff between buyers and sellers. But in the last few weeks, said Pearl Kamer, chief economist of the Long Island Association., sellers started blinking. ‘Now suddenly you see prices begin to drop,’ Kamer added ‘[Sellers] recognize they’re going to have to do something to sell that house.’”

“A Babylon Village home, for example, languished at $459,000. When the sellers asked for $60,000 less, a buyer snapped it up. In nearby West Babylon, an owner sliced more than $40,000 off a two-story colonial that remains up for grabs. ‘Everybody who’s selling their home, no matter where you live, is dropping their price,’ said Peter Killian of Lindenhurst, who also whacked $40,000 off his price tag.”

“Desperation is apparent in some ads. ‘JUST REDUCED, OWNER WANTS ACTION,’ screams one for-sale-by-owner Web site. ‘REDUCED FOR A QUICK SALE,’ shouts another.”

“There’s a glut of inventory. In the Long Island and Queens area, 33,724 residences are available, a nearly 70 percent leap from a year ago, according to the MLS of Long Island. ‘Now we have certainly less buyers and we have a lot more listings,’ said Bob Herrick, an owner/broker in Bay Shore.”

“Real estate agents said most sellers just don’t realize that. Sellers, they said, demand the prices their neighbors got a year ago, and drop the price only when they realize that’s not possible. That’s what happened to Lindenhurst’s Killian. In December, he listed his West Lake Drive ranch at $539,000, $70,000 less than he could have gotten last year. The price seemed reasonable, he said, because he spent about $200,000 to renovate the house with a new roof and siding and a $60,000 kitchen upgrade.”

“On Father’s Day, however, he dropped the price to $499,000. ‘This year’s market dictated the price,’ Killian said. ‘I think my house is worth a lot more, but the market just doesn’t.’”

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