The Housing Bubble

The Las Vegas Review Journal has this housing bubble update. “Las Vegas’ housing market picked the hottest month of the year to show its clearest signs of cooling. New home sales in July dropped 41 percent from the same month a year ago and existing home sales fell 35.1 percent as the market continues its downward slide.”

“Existing sales slid to 3,400, compared with 5,235 a year ago. The 1,808 new home closings were the fewest since April 2003 and slightly more than half of the 3,474 closings in the previous month, local research firm SalesTraq reported Wednesday. ‘I was kind of shocked when I saw 1,800 new home sales,’ SalesTraq President Larry Murphy said.”

“Murphy has challenged the housing bubble theorists every year by citing increasing prices in Las Vegas, but now admits he ‘underestimated the slowdown.’”

“Median prices of both new and existing homes climbed 3.2 percent in July. However, the new home median of $299,152 is down significantly from $337,395 in June. The median price for existing homes was $289,000, a scant $450 increase from the previous month.”

“Realtor Kurt Lehman in Las Vegas said he’s thought for some time that many of the housing experts ‘keep looking through ivory tower, rose-colored glasses.’”

“New home building permits declined 47.7 percent in July to 1,566 as builders look to reduce their standing inventory. The 515 active subdivisions in Las Vegas are up 20.6 percent from last year.”

“‘If you look at permits, they’ve been in the red (negative) for the last few months,’ Murphy said. ‘I think the builders realized that because they started cutting down on permits and started offering huge incentives and bonus commissions for Realtors. That’s why they pulled back on permits. They saw that happening.’”

“Real estate consultant Steve Bottfeld said it’s important to understand why the Las Vegas housing market performed badly in July. Most analysts point to a variety of negative economic factors. They’re right, but the impact of vertical construction in Las Vegas on housing sales, prices and especially inventory appears to be consistently underestimated, Bottfeld said.”

“‘Almost unnoticed on the canvas of the Las Vegas housing picture are nearly 38,000 high-rise and mid-rise homes in various stages of development,’ he said. Recent news that Nevada ranked among the top five states with the largest slump in housing sales during the second quarter is only part of the story here, Bottfeld said.”

The California realtors have the July numbers. “Home sales decreased 29.9 percent in July in California compared with the same period a year ago, while the median price of an existing home increased 5.1 percent, CAR reported today. ‘Today’s market is slowing as sellers maintain often unrealistic pricing expectations and buyers have more properties to choose from,’ said C.A.R. President Vince Malta.”

“‘In addition, unlike the slowdown we experienced in the 1990s, homeowners today are not under duress to sell due to job losses. The urgency that characterized the market for the last few years is now gone for all but well-priced properties,’ he said. ‘With inventory levels double that of a year ago, annual price appreciation for the state slowed from the double-digit rates we experienced throughout all of last year to single digits this year,’ he said. ‘And in some regions of the state prices are down from a year ago.’”

“‘Many markets in California are mirroring other major metropolitan areas of the nation.—a return to a more sustainable and balanced housing market compared to the frenetic pace of the past several years,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘We’ve known that double-digit appreciation would eventually change when the underlying fundamentals change, which has been the case with expanded supply and rising interest rates.’”

“In a separate report covering more localized statistics, 72 percent, or 283 out of 393 cities and communities showed an increase in their respective median home prices from a year ago. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in July 2006 was 7.5 months, compared with 2.9 months (revised) for the same period a year ago.”

From CNN. “As the real estate market slows, sellers seem willing to try anything to close a deal. ‘Incentives are all over the place,’ says Salli Kirkpatrick, founder of a Sacramento area advertising agency that works with home builders. ‘No closing costs, no payments for six months, $10,000 toward a built-in swimming pool. Things have gone berserk.’”

“One big developer will landscape the backyard and upgrade your appliances, if you’re ready to purchase one of their $439,950 homes at Rancho Cordova in California. The Associated Press reported last week that a new San Diego condo development, Atria, was giving away plasma TVs and $5,000 home renovation gift certificates.”

“David Seiders, chief economist for the National Association of Home Builders says 75 percent of the nation’s builders and developers are offering incentives.”

“‘Lenders,’ says Seiders, ‘really frown on putting a new car in the garage or sending the buyer on a trip to Vegas.’ That’s because, with many buyers putting little down and prices in some localities stagnant or even falling, buyers could wind up with very little home equity, which can violate the guidelines or rules some lenders live by.”

The Santa Cruz Sentinel. “Sales in Santa Cruz County in July were half the number of the boom period two years ago. Still, the median sales price for single family homes did not decrease. The July median was $768,750 compared to $760,000 in June.”

“Steve Noren, who has sold real estate for 30 years, speculated that the median was skewed up by people in the million-dollar bracket. ‘Last year, we had such a run on inexpensive property,’ he said.”

“Statistics from the Santa Cruz Association of Realtors show the drop in July home sales, compared to last year, was more severe for properties less than $900,000. The association figures show 104 homes under $900,000 were sold in July, compared to 144 last July. Sales above $900,000 totaled 39, compared to 42 a year ago.”

“‘No wonder the median and mean seem higher in a falling market,’ said Noren after seeing the data.”

“Noren himself is among the buyers waiting on the sidelines. ‘I’m renting a nice house for $2,000 a month,’ he said. ‘It would cost $4,000 a month to buy a house that’s not going to appreciate.’”

A housing bubble report from the Idaho Statesman. “Six months into a nationwide slowdown, the Treasure Valley’s runaway residential-housing market finally hit the wall in July, taking a dramatic downward turn, say area builders, real estate agents, mortgage brokers and economists. The July data ‘means real trouble,’ Boise economist John Church said.”

“‘There is going to be a reduction in (construction) employment,’ said Don Holley, professor of economics at Boise State University. ‘And as construction employment goes down, you’ll see lost jobs.”

“The decline is taking a toll on home sellers, too, to the benefit of some buyers. Nampa real estate agent George Tallabas said the growing inventory, coupled with a dwindling number of qualified buyers, is forcing some sellers to slash asking prices.”

“Especially hard hit have been sellers with homes priced over $250,000 and those who need to sell a house before buying a new one, he said. ‘Our agents are constantly coming in and saying, ‘I’ve got another price reduction,’ Tallabas said.”

“Nampa construction seems to be still going strong. But Tallabas said the contracts for those permits were probably written 60 days ago. With 1,033 homes for sale in Nampa alone, the true state of the Canyon County residential market will become evident in the next few months, he added.”

“‘It’s just simple economics,’ Tallabas said. ‘Contractors have over-supplied the market. And it’s going to take more than 30 days to wash all of that out.’”

“The change is most telling in Meridian, where building officials have spent the last year scrambling to keep pace with requests for residential building permits. This July’s $17 million in single-family permits was 74 percent below July 2005. ‘I think we’re going to see a correction; a significant correction,’ said Daunte Whitman, city building official.”

“Don Hubble, owner of Meridian-based Hubble Homes, blamed rising home prices on exorbitant land prices builders have been forced to pay the last few years. As prices soared, wages failed to keep pace, resulting in many potential homebuyers being priced out of the market, Hubble said. ‘So a booming market has taken a dramatic turn,’ Hubble said.”

“Trey Langford, operator of a Web site that tracks existing and proposed subdivisions in the Valley, said it’s gotten so bad some real estate agents with exclusive contracts to market subdivisions have had to go out and look for customers, when a year ago the phone never stopped ringing. ‘Some people are getting a little hungry,’ he said.”

“At The Mortgage Co. in Boise, owner Marianne Wake said some new loans are failing to close because buyers cannot sell their existing homes. ‘We’ve seen enough of that for me to be worried,’ she said.”

“Wake said the market is struggling because outside investment money has disappeared.”

“Those investment dollars aren’t likely to reappear anytime soon, said Lisa Vander, CEO of a California real-estate investment firm that has begun warning clients not to sink money into Idaho single-family housing. At those prices, investors cannot get the rents they need to pay their mortgages, she said.”

“‘The investment doesn’t pencil out for a $200,000 home, even with 20 percent down. It won’t cash flow,’ she said.”

The new home sales numbers are out. “Piling on more proof that the housing boom is over, the Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February. The inventory of unsold homes climbed to a record high.”

“The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.”

“Sales of new single family homes came in at a seasonally adjusted annual rate of 1.072 million houses, down from the revised rate of 1.12 million in June and dropping 22% from 1.367 million from a year earlier.”

“The seasonally adjusted estimate of new houses for sale at the end of July rose to the highest-ever number of 568,000 from 566,000 at the end of June..up 55% from a year earlier and the highest months’ supply since 1995. ‘One thing that concerns me is the inventory,’ says Phillip Neuhart, an economic analyst with Wachovia.”

“Anyone buying now has to ask: Is a bubble about to burst? ‘The hesitation on the part of sellers and the hesitation on the part of buyers has made for kind of a normal market,’ real estate agent Marcy Moyer told correspondent John Blackstone.”

The New York Times. “The housing market is deteriorating by the month. ‘It does feel a little scary right now,’ said Celia Chen, director of housing economics at Moody’s Economy.com. ‘I think these markets will correct. The price gains that they have seen have exceeded what can be supported by the economic and demographic fundamentals.’”

“‘Certainly, the housing market is undergoing a measurable adjustment,’ Lawrence Yun, senior economist with the Realtor association, said. The bloated inventory levels, Mr. Yun said, indicate ‘a very sudden change which I have never seen before.’”

The Boston Globe has this update from Massachusetts. “Home prices in Massachusetts fell 3.5 percent in July, the largest decline in 13 years, as the slowdown in the real estate market finally led sellers to cut their prices. That decline was the biggest since the state’s housing market was struggling in the wake of the banking woes of the early 1990s.”

“The number of condominium units sold in July tumbled by 21.4 percent, driving prices down 4.1 percent, the biggest decrease over the course of a year since December 1998.”

“‘It’s a bad year,’ said Karl Case, a Wellesley College economics professor and housing-market specialist. ‘Demand has dropped significantly, inventory is building, prices are falling, and less income is being earned. We’ve been saying it’s going to happen for so long; it’s happening. It’s going to be painful.’”

“In Massachusetts, price declines add to the confusion among buyers afraid of overpaying, said Mark Gibbons, an agent in Stoughton. ‘There’s concern they don’t want to lose any equity if they want to sell a couple years down the road,’ he said.”

“Nancy Richards, an agent in Belmont, said sellers’ attitudes have changed noticeably from last year, when they were ’still clinging to hopes’ of selling at record prices. This year, ‘they’re taking offers that are lower and are happy about it.’”

“But Newton agent Rona Fischman said many are ’still in denial.’ The steep drop in July sales ‘tells me we’re in the first year of the price declines,’ said Fischman. ‘Sellers who really have to sell are waking up and smelling the coffee. There’s more coffee coming.’”

The Bedford Minuteman. “You can’t drive through town without seeing a ‘For Sale’ or ‘Open House’ sign and they represent a statewide trend. Housing inventories are at an all-time high and homes are staying on the market longer.”

“Patricia Gartland, a realtor in Lexington and a Bedford resident, said that even communities that have had historically robust home sales have been affected by the ongoing downward shift in the market. The number of homes for sale in Bedford has more than doubled, with 116 on the market up from 57 at this time last year, Gartland said.”

“While sales continue to sag, Gartland said she is not ready to declare that the so-called ‘bubble’ has burst. ‘I don’t subscribe to the bubble theory. I do believe there has been a correction from the crazy numbers we had been seeing for the past several years,’ said Gartland, who has been in the real estate business for six years. ‘The market tends to go in two to five-year cycles, so there could be some further correction, but there’s no need to be alarmist about it.’”

“Housing prices in Bedford have declined dramatically. According to Gartland, the average price of a home in Bedford has fallen to $633,000, down from approximately $700,000 at this time last year. Gartland said that while prices may finally start to catch up with inventory, buyers should not expect a large-scale depreciation.”

“‘We’re coming off a time when the market was really hot and sellers had no trouble getting their asking price. But thing have cooled off recently and I think sellers are starting to come around and recognize that it’s a different market. So you may see prices come down a little more,’ Gartland said.”

The Herald Tribune reports from Florida. “So much for a soft landing. The median price of a single-family home sold in the Sarasota region in July dropped 11 percent from a year ago and the number of homes sold plummeted nearly 50 percent, according to numbers released Wednesday. The only area in state with a greater July-to-July decline than Sarasota was Naples, at 51 percent.”

“Inventories have gotten truly out of whack. The Sarasota MLS now lists 4,615 single-family homes for sale, versus 952 in May 2005, when sales were still going strong. ‘In all price ranges, if we didn’t list another house, it would take us 23 months to sell all the inventory in the Sarasota MLS at the current rate,’ (broker) Michael Saunders said.”

The St Petersburg Times. “July brings bad news for sellers, particularly in the Tampa Bay area where bidding battles are just a fond memory for homeowners. ‘There were a lot of speculators in the market and when you take them out, the difference is pretty dramatic,’ said Bradford Monroe, president of the Greater Tampa Association of Realtors. ‘Our inventory is four times what it was back then and the number of sales has gone down.’”

“One statistic that dramatically illustrates the change in market climate is the absorption rate, sales divided by listings, a statistic that Pinellas Realtors compile. In the single-family market, the monthly absorption rate has fallen from a peak of 59 percent in June 2005 to 9 percent last month. In the condo market, the rate peaked at 62 percent in April 2005 and fell to 5 percent last month.”

The Palm Beach Post. “Existing home sales in July continued their yearlong downward trend, plunging 44 percent in Palm Beach County and 39 percent in the Treasure Coast, year over year. The number of unsold homes in Palm Beach County also continued its yearlong trend, soaring to three times the number of homes on the market in July 2005.”

“Analyst Thomas Lawler believes sellers are going to blink first. ‘Net, the Southern Florida market is experiencing a hard fall from a meteoric rise, and there is little doubt that overall prices will move lower in most of this region through at least the next several months,’ said Lawler, a former Fannie Mae economist.”

The Sun Sentinel. “For the first time since April 2000, the median price for existing single-family homes in Broward County has fallen from the previous year. ‘What it means for homeowners is that wonderful buildup of equity is starting to erode,’ said David Levin, a housing analyst in Delray Beach.”

“He doubts the slumping market has hit bottom. And with prices falling and interest rates rising, Levin, said residents shouldn’t delay in applying for home-equity loans, which are based in large part on a home’s value. ‘It would have been better to get these loans two months ago, but now is better than tomorrow,’ Levin said.”

“Jacob and Sandy Lehtio had to reduce the price of their five-bedroom Miramar home seven times before finally striking a deal for $580,000. The Lehtios listed their home for sale in September, when the market was still hot. But they now concede their asking price, $723,000, was too high.”

“Tired of carrying two mortgages, the couple were thrilled when a buyer finally stepped forward. ‘You basically have to decide when to cut your losses,’ Sandy Lehtio said.”

The Miami Herald. “This is the South Florida housing market of today: Prices are easing, sales are plunging and the inventory of unsold homes is rising ever higher. It’s a situation that continued in July, according to existing-home sales numbers.”

“Many predict sellers will eventually cave and lower prices to meet buyers now willing to wait it out for a better deal. ‘The longer it takes for sellers to recognize the market they are in, the worse the market will become,’ said broker Manuel Iraola.”

“Selling a house has come to this: offering a new X-Type 3.0 Jaguar to find a willing buyer. For five months, Victor Peralta tried to sell his four-bedroom home in Miami Shores. Twice he lowered the price, by $150,000 in all, yet only two people stopped in to see it. Now he’s dangling the keys to a $32,000 car before buyers’ eyes. ‘I had to do something,’ said Peralta, whose house now lists for $1.075 million.”

“Peralta isn’t giving up hope. ‘The market is so bad,’ Peralta said. ‘I would have open houses and no one would show up. I hope by adding the car it works. If not, I guess I will have a new Jag.’”

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