The Housing Bubble

The Boston Globe looks at another effort to spur home sales. “St. Joseph statues have long been used by sellers to help move property. Tradition has it that if you bury a statue upside down and facing the property you are trying to sell, St. Joseph will direct a buyer your way. Lately, all signs point to a real estate meltdown: Ward’s Gifts in Medford isselling 300 statues a month.”

“‘We can’t keep them in stock,’ Donald Ward Cranley said. ‘Everybody comes in here looking for them. Realtors are buying a dozen at a time.’”

“It’s the same story across the country. Statue sales are up 25 percent, according to the manufacturer. Sales have doubled over last year’s at stjosephstatue.com, a firm out of Modesto, Calif. ‘About a quarter of my sales are in Florida right now,’ said Phil Cates, owner of stjosephstatue.com. ‘The [real estate] market is getting killed there.’”

“Angele Fillion, a clerk at the St. Joseph the Worker Shrine, calls the practice akin to voodoo. ‘It’s not the statue, it’s the faith that makes it work,’ said Fillion, who said she frequently has to restrain herself from coming on too strong about the importance of prayer to troubled homeowners who enter the shop looking for the statues, and little else. ‘I can tell who they are the minute they walk in the door,’ she said. ‘They look a little embarrassed.’”

“Meanwhile, foreclosures are spiking, interest rates are rising, and thousands of homeowners and property speculators are sitting on land they can’t afford and need to unload. The result? Desperation.”

“‘I’ve had grown men come in here with tears in their eyes,’ Fillion said.”

An editorial at The Record. “It was a classic case of blaming the messenger for the message. This particular case involved a friend who believes the media caused the slowdown in the housing market.”

“‘Really? How?’ I asked. That’s all it took. My friend was chaffed about housing stories on this and that national newsmagazine. On national TV news. And in newspapers.”

“No doubt when the media begin shining a spotlight on soft sales, sliding prices and climbing inventory numbers, it changed the market dynamics. Buyers and sellers react. We in the media start pumping out stories saying sales are sliding, the inventory of homes for sale is ballooning and prices, while not necessarily falling, aren’t climbing with anything like the vigor sellers enjoyed in months past.”

“The media aren’t making this up. The raw figures come from outfits such as the California Association of Realtors, DataQuick and the Building Industry Construction Board.”

“For example, CAR’s chief economist, Leslie Appleton-Young, warned last month that the days of selling ‘as is’ real estate are gone, something every agent worth her license already knew. And Sean Snaith, of University of the Pacific, in (a) review of San Joaquin County, noted the bulging number of homes on the market, up fourfold from last year, is ‘making it harder for sellers to sell.’”

“Still, my friend was not pleased with the media. He’s especially galled about what he believes is the manipulation of the information.”

“For the record, my friend never suggested media manipulation when the housing market was booming, prices climbing in San Joaquin County from 25 percent to 40 percent per year. Those were the days of easy money. We all felt wealthy if we owned a home, safe in the knowledge, utterly false, of course, that the line on the graph runs only and forever upward.”

“The housing price run-up was something like the heady days of the late ’90s when a lot of boomers were counting our money, or at least feeling a rush every quarter when the 401(k) statement arrived. More than one person presented at my office door to explain that if they could just get five or six more years of stock market increases in the 20 percent to 25 percent range, they’d be outta here. Those folks don’t stop by so much anymore, probably because they’re still here and real busy working.”

“And likewise, sellers are sprucing up their homes because in this market, even if my friend believes otherwise, a chicken coop with peeling paint isn’t going to sell.”

The Sydney Morning Herald reports from Australia. “A three bedroomhouse in St Clair sold for just $260,000 at the weekend, down about 42 per cent from its last sale at $450,000 in 2003 in a further sign of the depressed state of the Sydney property market.”

“Only one person bid on the house in the city’s west. The mortgagee sale was forced after the owners could not meet the interest payments on the $405,000 they borrowed to buy the house at the peak of the market.”

“Auction clearance rates are hovering around 48 per cent since the recent interest rate rise, but plummeting property prices have meant many vendors are confronting negative equity, where they owe more on the property than it is worth.”

“The Herald checked 16 properties in south-western and western suburbs listed at the weekend and found 60 per cent had prices or had attracted offers at a discount to their last sale price.”

“Lethbridge Park, near Penrith, recorded the second highest fall, when a townhouse that sold for $257,000 in 2003 was resold by mortgagees for $156,500, reflecting a roughly 40 per cent fall. At Heckenberg, a four-bedroom house that sold for $330,000 in 2003 resold at $255,000 in another mortgagee sale. Four of the seven registered buyers put in bids before the Adaminaby Street house sold at an approximate 22 per cent discount to the property-boom price.”

“At Parramatta, mortagees accepted $541,500 for an unrenovated house that fetched $736,000 in 2003 when it was sold as a deceased estate. The bank lent $580,000 on its 2003 sale.”

“Even the inner-suburban areas are showing signs of depressed prices. In Lilyfield a four-bedroom house on 607 square metres last sold at $1,355,000 unrenovated in boom-time 2003. It attracted a $1,179,000 top bid after its recent renovation by its owner-builder.”

“Given it has been 16 years since the last recession, long-time estate agents fear the fate of a generation of owners who had not experienced having a loan when times were tough. St Marys agent, Michael Beatty said: ‘There was a wave of people punting on the expectation of constant price rises until well into 2004, even after the three interest rate rises of late 2003. There has been significant price deflation and many now have negative equity in their homes.’”

“‘There are some sad stories. But we have to show the sellers the comparable sales and say honestly this is where the market is realistically at,’ he said.”

The New Zealand Herald. “With an estimated $40 billion worth of fixed interest rate mortgages up for renewal this year, lenders are bracing themselves for increasing numbers of people defaulting on their mortgages in the coming months.”

“Real estate agents, usually among the first to hear about mortgages gone wrong, are already seeing it. Carey Smith, chief executive of Ray White, says there has been a 22 per cent increase in the number of mortgagee property sales over the last quarter.”

“General Finance subsidiary Cairns Lockie Mortgage Bankers says there has been a big increase in what it calls its ‘dishonour roll,’ people failing to make their monthly mortgage payments. ‘Over the past three months, the number of missed payments has doubled,’ says director James Lockie.”

“Dave Shatford, at NZ Mortgage Finance and Approved Mortgage Brokers, says some New Zealanders simply cannot sustain a mortgage. ‘We sometimes say to people, ‘there’s no point in continuing to go backwards.’”

“Lockie tells customers consolidating their debt to cut up their credit cards. ‘They cut up their store cards and come back with another $10,000 or $20,000 of debt a year later. We turned down some loans the other day, the people were spending the equity in their house and… racking up consumer debt,’ he said.”

“Shatford says it is anticipating activity in the next few months. ‘All the signs are there. Our feeling is that we are going to see a lot more,’ he says.”

“Registered valuers Seagar and Partners say they have noticed a few more properties in the sought-after suburbs of Auckland getting into trouble. Principal Chris Seagar says often the owners have been trying to sell at a price they feel they have to, but the market thinks is too high. ‘If they’d been more willing sellers they may have sold without having to go to mortgagee sale,’ he says.”

Several readers posted comments about a topic on the real estate industry. “Desperate times call for desperate measures. As the reality of the bubble popping seeps into the RE sector, desperation may result in some blatent illegalities. A SoCal RE eCONomist openly called for collusion amongst agents last week in a feeble attempt to prop up prices in his Mid Year report.”‘

“What are the ways RE may be quickening their own demise. What are the most transparent acts of desperation you are seeing/hearing/reading from RE this week? Who in the regulatory sector should be watching more closely as things unfold. What measurements are the best and how could these be standardized?”

“IMHO RE needs to be regulated in the same manner as securities. Falsification, decepetion, misrepresentation and collusive tactices are fraud and should be punished. Changing statistical measures on the fly in ways that prop up the sellers/RE side as we saw this week with the affordability index seems just plain crooked. How does a whole industry get away with this crap?”

“I am in no way suggesting that consumers are devoid of responsibility. Just looking for honesty, truth, and some semblance of ethical behavior in an industry that is showing itself to be blissfully free of all three.”

Another said, “RE actually affects many more people, and much more severely, as a majority of most people’s money is tied up in RE, not stocks. There is no doubt that these people need to be regulated if their statistics, predictions and recommendations are published in the MSM with the intent of influencing buyers’ and sellers’ decisions.” And another,

“As a ‘data’ source for MSM, REIT has shown it’s colors and needs to be regulated or replaced. As RE now moves to ‘educate’ the sellers on ‘realistic’ pricing I imagine that many sellers will take their business elsewhere hoping to get the max profit.”

“I also imagine that any attempts to introduce regulatory legistlation will be met with very stiff opposition from the RE lobby. But, as this gets increasingly uglier our esteemed representatives may start looking for scapegoats and if the choices are RE vs lenders I suspect RE will take the hit.”

One replied, “In the past, my house has always been my home, not an investment. But it seems that in the time that I’ve owned, things have changed and real estate is now an investment. If that’s true, then yes, regulation is in order. And if that’s not true, and a house is really still just a home? Then let the prices reflect that reality. Either way, a change is overdue!”

Another concurs, “I agree, for the most part residential real estate purchases were not investments in the past. People bought houses to live in. There were always some purchases for rental and cosmetic fixup and turn over for profit. But these latter I feel were a small percentage historically.”

“Something did change in this cycle and I believe it has to do primarily with how captial gains taxes on property were changed to encourage activity in the sector. Here in OC the shift was noticable 5 years ago. Real estate became about profit rather than housing families in communities.”

“I also believe that the ways that real estate is measured have always needed to be changed irregardless of the agenda of the buyer. It has always been a cryptic maze of moving numbers that agents and brokers have manipulated/skewed/slanted to CONvince buyers and sellers.”

The US News and World Report. “With home sales down by nearly a third in Florida last quarter, thousands of those who hoped to cash in on the real-estate gold rush are now facing the cold reality of working in one of the country’s most cyclical businesses. ‘Everyone’s getting out,’ Jiany Massad says of colleagues who have already traded in their real-estate licenses for jobs in the jewelry trade and Internet sales.”

“‘There’s somewhat of a time lag here, but everyone’s eventually going to feel it,’ says Jay Butler, of the Arizona Real Estate Center near Phoenix, where housing-related commerce accounts for about a third of the local economy.”

“In Florida, where in some coastal areas housing now accounts for as many as 1 in 5 jobs, the number of real-estate agents alone has increased by more than 40 percent since 2001, to 305,000. Brokers’ ranks have also surged in California, to more than half a million-about one for every home the California Association of Realtors expects to be sold this year. ‘The numbers just don’t add up,’ says Vince Malta, CAR’s president, who predicts a coming shakeout as less experienced agents find they can’t earn enough to stay in the business.”

“‘It was quick, easy money, but then rates go up and it’s over,’ says mortgage trainer Christopher Cruise, who recently visited one mortgage lending operation in Rockville, Md., that let all 71 of its loan officers go.”

A housing report from Maine Today. “The number of single-family homes for sale in Maine has hit record levels, industry figures show. More than 26,000 homes currently are on the market, compared to roughly 18,000 at this time last year, and 14,000 in 2004. Inventory has grown by more than 1,000 in just the past month.”

“This plentiful supply of homes has outpaced demand in many areas, and that is pushing down prices. In response, sellers are trimming their asking prices, and some real estate agents are becoming more creative to get their properties noticed, particularly in southern Maine.”

“An agent in Saco drew traffic to an open house, and put the home under contract, by slashing the price from $249,000 to $199,000. It’s no secret that home sales have slowed in much of the country. ‘Some sellers haven’t come to the reality that it’s a buyer’s market,’ said Realtor Cathy Manchester in Gray. ‘They’re still trying to get higher appreciations.’”

“Following appraisals from three real estate agents, Bruce Thistle in Windham listed his home last August for $259,000. He finally got it under contract this month, for $216,000. ‘A year ago, if you told me I’d sell the house for that price, I would have laughed,’ he said.”

“Thistle only had one showing during the first six months his home was for sale, even though he dropped the price $9,000 during that period. ‘I thought we’d sell it in days,’ he said. When Thistle’s listing expired in March, he switched Realtors and went with Manchester. She started the process at $240,000 and cut the price three times before finding a buyer.”

“In today’s market, (realtor) Noah Smith said, sellers need to be realistic about the condition of their homes and the asking price. That’s especially true in York County, where inventory has continued to grow in recent weeks. ‘Anyone who says the market is leveling off is in denial,’ Smith said.”

“Thinking about a condo in Center City? So are a lot of other people. But there’s trouble ahead, too, industry observers say. Rising construction costs and softening demand could deep-six many of the 2,500 condo units still in the development pipeline, especially at the luxury end of the market, where many experts see an oversupply.”

“‘Too many developers… want to build luxury from the ground up, and there’s a limit to the market,’ said Jon Orens (who) is converting 2200 Arch St. to mid-price condos.”

“The number of Center City and adjacent properties available for sale in those neighborhoods almost doubled over the last year. Just eight more existing homes priced at $1 million or more sold in the first half of this year versus the same period in 2005, 48 homes (17 condos) compared with 40 homes (13 condos), for an increase of 20 percent, even though the number of high-end homes for sale increased almost 60 percent (185 versus 116 in 2005).”

“HomExpert spokesman James Angstadt said it was difficult to pinpoint how long it took for those homes to sell. ‘Many Realtors take a million-dollar property on and off the MLS database a few times to make it appear like a fresh listing,’ Angstadt said. ‘In turn, this causes the days-on-market number to be inaccurate.’”

“Rumors are rife about condo projects or plans that have been shelved. Veteran downtown developers report being approached to take over projects. ‘Most developers are loath to ever admit they’re going to cancel a project,’ said Kevin Gillen, an economist at the University of Pennsylvania. ‘So they constantly talk about ‘how things are moving forward behind the scenes,’ when in fact they’re just waiting to see how the market shakes out before deciding whether to break ground.’”

“‘Buyers are saying, ‘I can’t wait five years. I could be dead,’ said Allan Domb, who has been contacted by developers about taking over their projects. Some city experts believe that fewer than half the condo projects proposed will be built. ‘The current psychology… is pushing a lot of potential buyers to the sidelines to wait to see what happens,’ said National Association of Realtors economist Lawrence Yun.”

What do you see in your housing market? Price Reduced? Builder incentives? Nervous flippers? Here are some accounts from around the US. From New Jersey, “For the first time in a decade, home prices in the region that includes the Shore have declined. Asbury Park residents Peter and Lauren Morris are buying a Victorian-style house in Freehold, their first home. Peter Morris said the couple got the house for ‘considerably less’ than the $379,000 asking price.”

“‘We knew that a lot of homes were for sale, but we also knew that their prices were not realistic,’ he said.”

The Twin Cities. “In an increasing number of neighborhoods, a slowdown in real estate sales has complicated life for sellers of many types of housing. But the marketing task may be especially daunting for the sellers of condo-apartments. ‘Where a frenzy of apartment overbuilding has occurred in recent years, sellers know they face intense competition for buyers,’ says Mark Nash, a real estate broker.”

“The challenge can be particularly severe if many similar units are already on the market within the same building or complex.”

From Michigan. “Bruce Brock can’t sell his house on Lakeshore Terrace in Fort Gratiot. It’s been on the market for about two years. The neighborhoods around his home are dotted with ‘for sale’ signs. Between January and April 2005, 31% of Michigan homes listed for sale sold. Through April 2006, 21% of listed homes had been sold.”

“‘You can’t get a house sold unless you keep lowering prices, and sometimes that is not possible,’ said Bob Herber, a real-estate sales associate in Port Huron. Finding a buyer is especially tough for people trying to sell their home for more than $170,000, said Cliff Schrader. ‘It’s the worst I’ve seen,’ said Schrader, who has been in business since 1983.”

The Voice of San Diego. “If this is indeed a buyer’s market why are buyers standing on the sidewalks anxiously hoping for a fire sale? Were investors passive about driving up prices in the first place? No, they were sharks who changed the market for everyone by marching up to the front doors of homes that weren’t even for sale and throwing cash around.”

“So stop being passive. Be a shark. It’s a buyer’s market. If this bubble is going to burst, let us bring out the needles.”

The Orlando Sentinel reports on the condo craze. “The unprecedented boom in condominium towers is remaking downtown Orlando’s skyline. But with fewer than half of the 30 announced projects completed or under construction, the timing, even the survival, of the rest is now in question because of rising costs and prices.”

“Those 18 unbuilt projects are competing not only with one another but with the eight towers that are being built and with sales in the four that are already open. They also have to contend with the thousands of city-center units in apartment-to-condo conversions.”

“‘At best, there could be delays,’ said Charlie Lentz, director for a national real-estate-consulting firm. ‘At worst, some projects may not be financially feasible at this time.’”

“The housing market has softened this year, and some of the downtown projects are clearly stalled. North Orange Condominiums was first proposed in late 2002 as apartments for a site just north of Colonial Drive. Yet the site remains vacant, a sales office has come and gone, and the developer couldn’t be reached for comment last week.”

The Sun Sentinel. “During the past six years, South Florida’s landscape shifted from low-slung homes to condominiums hundreds of feet high. The seemingly unstoppable juggernaut has come face-to-face with economic realities making even the most maverick developers gun-shy.”

“As supply outpaces demand, prices already are leveling off and values of newer condos could tumble by 30 percent or more by the time the market hits bottom, experts say. ‘The condo market isn’t just breaking lightly,’ Miami real estate consultant Lewis Goodkin said. ‘It’s screeching to a halt.’”

“As a result of rampant overbuilding, lenders are leery of financing condo construction, forcing developers across the region to cancel, delay or revamp projects.”

“As of June 30, almost 52,000 condo units in Palm Beach, Broward and Miami-Dade counties were either under construction or finished and still vacant, according to Metrostudy. That doesn’t include the thousands of units built in South Florida since 2000, when the housing boom started.”

“Roughly 104,000 units are planned in the coming years, although analysts doubt most of those will ever be built. ‘Things are going to get worse before they get better,’ warned economist Mark Zandi.”

“Once housing became so hot, developers started buying land in less than prime locations, Goodkin said. And it will be those condos that are most vulnerable to big price cuts, he said. ‘As we got more and more into the boom, what we found was that a lot of basics were overlooked,’ Goodkin said. ‘[Developers] started to believe their press clippings. It got out of hand.’”

“Analysts say the condo problems can be traced to short-term investors, who funneled money into real estate after taking a beating on Wall Street. That trend artificially inflated demand, driving up prices and leading developers to build more.”

“Across South Florida, not enough long-term owners bought condos, creating a glut of properties for sale as investors try to dump them. More than 11,000 units remain unoccupied in South Florida, according to Metrostudy. Investors are desperate: they’re slashing prices and tossing in plasma TVs and other perks to woo fickle buyers.”

“In Palm Beach County, for example, more than a quarter of the 379 condos at The Moorings in Lantana are for sale. One real estate listing agent said earlier this year owners were mostly investors looking to bail. Completed properties in Broward and Miami-Dade also have investor-owners trying to get out.”

“Industry observers call these high-rises with many vacancies ’see-through condos.’ ‘You can see right through the building because no one’s living there,’ Miami housing consultant Jack Winston said.”

“Certain lenders have stopped financing condo construction. Others have tightened lending practices, insisting on 60 percent or more pre-sales. Before, some lenders had no pre-sale requirements. ‘That’s going to kill a lot of projects,’ said consultant Jack McCabe.”

“Already hurt by rising costs of construction materials, developers have canceled projects, returned deposits, put land up for sale and are at risk of foreclosure. ‘I don’t know anybody who’s doing much residential now,’ said Doug McCraw, a Fort Lauderdale builder who canceled his 205-unit Brickell Point condo tower.”

“Developers and investors are trying to salvage something from the condo downturn by converting units back to apartments. More than 1,800 units in Palm Beach County converted to condos have gone back to apartments since the start of 2004, according to McCabe’s research. In Broward, 1,088 condos became apartments, while 672 condos in Miami-Dade returned to apartments.”

“‘The thing that sellers liked to say is that if you don’t buy now, someone else will,’ said Michael Cannon, managing director for Integra Realty Resources in Miami-Dade. ‘Those other people aren’t there anymore.’”

“In Palm Beach County, the 550Q condo project has been shelved. Steve Maslo had reserved a two-bedroom $800,000 condo at 550Q. Maslow is relieved the project won’t be built in such a tenuous environment. ‘It just seems like the market hasn’t yet found its equilibrium point,’ he said.”

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