The Housing Bubble

The Olympian reports from Washington. “An abundance of homes on the market has turned the once white-hot seller’s market into one that is more buyer-friendly, according to South Sound real estate professionals. Home sales fell 11 percent in August, according to preliminary data released Tuesday by the Olympic MLS.”

“Higher inventory levels also meant that homes spent more time on the market. There were 1,730 active list ings, compared with 1,038 last year. The median price of a home was $259,500, compared with $262,113 in July.”

“Olympic MLS Manager Jerry Wilkins acknowledged that the housing market is stabilizing. Designated broker Steve Garrett, agrees. ‘I think it’s leveled out,’ he said. ‘There is more inventory, we’re seeing longer market times. It’s just the way things are now. Buyers are being more selective and more prudent.’”

“Another factor is the construction of new homes coming on the market that might not be reflected in the Olympic MLS data, said (broker) Jim Greene. ‘What’s happening is there is an abundance of new construction,’ Greene said. As an example of how much the market has shifted, 75 percent to 85 percent of sellers last year received multiple offers. This year it has been 5 percent to 10 percent of his business, he said.”

The Register Guard in Oregon. “The once red-hot coastal housing market, which in recent years has seen some of the biggest price increases in the county, is cooling off.”

“Steve Fandrey figured he’d have no trouble selling the three-bedroom house he bought as a rental two years ago and remodeled. Even at a price tag more than double what he paid for the place, the way houses were flipping in Florence, ‘I expected it to be gone right away,’ the Lane County sheriff’s deputy said.”

“But three months have passed since Fandrey first listed the 1,080-square-foot house at $192,000, a price that would have fetched a tidy profit, given that he bought the place for $78,000.”

“With no written offers, he’s now cut the price to $179,000. ‘I’m frustrated about it,’ Fandrey said. ‘But I keep track of what the market is doing. I’m not extremely surprised it hasn’t sold yet.’”

“Nine months ago, Florence Realtor Dale Saari scanned area listings of homes for sale and found eight, between 100 Realtors. Homes simply weren’t staying on the market. On Monday, he checked the numbers again, and saw 395 listings. Over the same time period, Saari has seen an increasing number of price reductions, anywhere from 30 to 40 per week, 56 reductions in the last week alone.”

“Wayne and Marianne Spiller know that pressure all too well. After a year of waiting and sweating, the Spillers recently dropped the sale price of their Collard Lake home to $499,000 and found a buyer. They still made a small profit, Marianne said, but only after lowering the price by $141,000. The home was appraised at $645,000.”

“‘We had two homes on the lake, and we could afford one,’ Marianne Spiller said.”

“Florence developer James Genereaux’s 106-lot Park Village project went from a 100 buyer-long waiting list a year ago to a 10-percent across-the-board price cut for new homes. Genereaux attributes the slowdown to buyers from California having trouble unloading properties there. There’s a particular glut in homes priced above $400,000, he said.”

“‘What’s important is that developers and builders don’t overpay for land and development costs,’” Genereaux said. ‘There were some people going around paying an awful lot of money for raw land. It was overheated.’”

A housing report from the Idaho Statesman. “In the Treasure Valley, the (OFHEO) report proves the housing market remains strong despite a drop in sales since the second quarter ended June 30, said Dan Givens of a Boise-based real estate firm. Not everyone views the local market so positively. George Tallabas, a veteran real estate agent in Nampa, said second-quarter data is already too old to reflect the softening local market.”

“Quoting statistics compiled by the Intermountain MLS, Tallabas said 1,247 new and existing homes were for sale Tuesday in the popular $250,000 to $350,000 price range, and they are sitting on the market an average 45 days.”

“‘That was unheard of a year ago,’ Tallabas said. And what I’m hearing from (real estate) agents is that they’re struggling, that their (sales) numbers are clearly down.’”

“Ted Martinez, a local representative to the National Homebuilders Association, predicted that housing sales will pick up again because area homes remain affordable compared with other markets. ‘What the market is doing is going through a correction, which it really needed,’ Martinez said. ‘It’s getting down to where it’s reasonable.’”

From Planet Jackson Hole in Wyoming. “For (Broker) Ron Miller, and many like him, the Jackson Hole real estate market is a cash cow, a golden goose, with an unlimited future.”

“‘In Jackson, the market doesn’t really go down,’ said (realtor) Linda Walker. Broker Ryan Olsen agrees. ‘We are immune to the up and down treads that plague many real estate markets,’ he says. ‘Our real estate market is essentially quite ‘bullet proof!’”

“‘I’ve always been amazed with this market,’ David Viehman says. Viehman compiles an in-depth look at real estate trends in the Jackson Hole area. ‘I’ve been in real estate for 25 years and I still think, ‘This is crazy. Why would anybody pay these kinds of prices?’ To make ‘those’ kinds of profit, would be the pat answer.’”

“‘This is a real active market now,’ Walker says. ‘With low inventories, buyers are getting off the fence,’ Viehman says. ‘Maybe their spouses are elbowing them and saying ‘we better get on this before it takes off.’ That feeds an urgency.’”

“Available property may be at an all-time low but ‘dirt pimps’ are flocking to real estate courses like ravens to an elk kill. ‘There are almost 700 realtors in Jackson Hole,’ Walker says. ‘That’s a lot. A lot of real estate agents have a main job because they are not selling.’ Miller wonders. “There’s only about 40 of us who do any volume. The rest of them, I don’t know how they’re making a living.’”

“Indications are a growing number of high-end properties in Jackson Hole are no longer vacation or second homes, but purely financial investments that sit empty. It is a trend noticed by one agent, Ray Elser, when he sees a ’spec home’ change hands ‘three, four, and five times before construction is ever completed.’”

“Sure, property taxes soar with each reassessment but banks keep homeowners ahead by refinancing Jacksonites into their neo-wealth status. ‘You don’t have to sell a property to realize gain,’ Miller says. ‘You can get a new appraisal and borrow against the property and then go buy more properties. And when you borrow the money back, a lot of people don’t realize when you go get an equity loan it is not a taxable event. So you’re better off pulling a million dollars out of a property, tax-free, and buying more with that.’”

“‘Real estate values will continue to increase,’ Elser says. ‘My crystal ball can only see so far,” Viehman says, “it’s a little foggy, but there doesn’t seem to be anything that’s going to change the course.’”

Some housing bubble reports from Wall Street and Washington. “U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday. ‘This year sales are slowing, homes are plentiful and sellers are negotiating,’ said David Lereah, chief economist for the real estate group. ‘Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.’”

“Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but ‘people who purchased last year with the intent of flipping are likely to get burned,’ he said.”

“‘The shift we’ve seen lately results from psychological factors with buyers on the sidelines trying to time the market,’ NAR President Thomas Stevens said in explaining the sharp shift in the group’s forecast.”

From Bloomberg. “KB Home, the sixth-largest U.S. homebuilder, and Beazer Homes USA Inc. said profit will fall short of earlier forecasts as demand wanes. ‘The housing bubble is breaking pretty hard here,’ said (analyst) Michael Bugno.”

“Beazer cut its fiscal 2006 forecast yet again on lower sales and higher contract cancellations in a weakening U.S. housing market. The company said it was selling fewer homes in the current quarter and purchases were being delayed or cancelled as buyers were unable to sell their existing homes.”

“The company also said it was aligning its overhead structure and capital spending in the wake of deteriorating business conditions. Today’s forecast cut by Beazer Homes was its third in just over four months.”

“Short-term housing investors, so-called ‘flippers,’ are exiting the market in droves and putting their properties up for sale, making for ‘an increasingly challenging housing market,’ KB Home Chief Executive Bruce Karatz said in a statement yesterday that detailed the builder’s 43 percent drop in new orders.”

“‘Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years,’ said Karatz. ‘Further intensifying the unfavorable conditions in the housing market is the weaker than expected demand for new homes.’”

“Bank of America analyst Daniel Oppenheim attributed the rise in cancellations to declining home prices and small deposits, adding that cancelations would not likely stabilize anytime soon.”

“Competition among builders to sell homes has led builders to accept smaller deposits during challenging times, worsening the industry’s woes, Oppenheim wrote. ‘We expect cancellations will remain at elevated levels as long as sequential pricing trends continue to worsen,’ Oppenheim wrote. ‘We should expect to see high levels of cancellations as long as buyers see that they could purchase a home for less today than their agreed upon contract price.’”

“Home builder Hovnanian Enterprises reported yesterday its profit sank 36 percent for the third quarter as the company struggled with higher costs, slower-paced orders and increased cancellations in a slowing real-estate market. CEO Ara Hovnanian said, ‘We are making decisions today with the assumption that current conditions will persist for the foreseeable future.’”

“(Analyst) Alex Barron said that’s the right outlook if it means the company figures the cancellation rate will remain high, home prices will drop and builders will have to keep offering costly incen tives to persuade people to buy. ‘A lot of buyers are not willing to close homes any more because they think they’re afraid they’re going to lose value,’ Barron said.”

“‘I think you’ll expect more pre-announcements, more lowering of guidance, more missing estimates, orders coming in below expectations, yada yada,’ said Barron. ‘It’s just starting. It’s only the 3rd inning of the downturn.’”

“A U.S. housing sector downturn may last for years because of excess supply and faltering consumer confidence stemming from worry over U.S. foreign policy and federal government competence, the head of nation’s largest builder of luxury homes said.”

“Robert Toll, CEO of Toll Brothers said the current slump in prices and sales volumes was more severe than the ’soft landing’ for housing predicted by some analysts. He said the market recalls the recession of the late 1980s when prices took more than three years to recover. ‘This isn’t a soft landing, it’s harder than a soft landing,’ Toll told Reuters.”

“The current downturn is mostly the result of a ’severe overhang’ in supply that Toll estimated at 15 percent to 20 percent more than the market can easily absorb. That was driven by ‘tremendous speculation’ by home buyers who never intended to occupy seeking a quick profit from a rising market, and by builders who constructed homes before securing buyers, he said.”

The Boston Globe reports on home prices. “Falling prices have created a new twist in the suburban Boston real estate market: More homes are selling for less than their assessed values. Massachusetts house prices slumped 3.5 percent in July, the biggest monthly drop since 1993, as a slowdown in sales brought about by rising interest rates created a glut of homes on the market.”

“As a result, home prices are falling below assessments, which are the estimated values communities place on homes to determine property taxes. For the past five years, most homes sold well above their assessed values because prices were rising faster than assessments, which typically are at least a year old.”

“In today’s declining market, some homes are now selling for less than the assessed value in stable communities like Newton, and in volatile markets such as Lowell. ‘Before, it was, pay no attention to that assessment. Now it’s, pay no attention to that asking price,’ said Bill Wendel, owner of a Cambridge fee-for-service brokerage firm.”

“‘Great entry-level property. Priced below assessment. WHAT A GREAT WAY TO START,’ reads a March listing for a Colonial near Newton Center priced at $499,000. Agent John Milligan’s said he hoped the advertisement ‘might just motivate someone to make a phone call.’”

“One of Sriram Nookala’s ‘primary criteria’ in his search is a house priced below its assessed value. ‘If the seller is interested in moving the house off the market, they make pretty aggressive reductions and usually those come under assessed value,’ Nookala said.”

“In the $1 million-plus housing market in Greater Boston, sales plunged 62 percent this year, according to the listing database MLS Property Information Network. The drop is making it ‘routine’ for assessments to exceed asking prices in that market, said agent Terry Mailtland, causing problems for sellers whose assessments are so high that buyers perceive a big tax bill as ‘an impediment to a sale.’”

“If house prices continue falling, assessments eventually have to follow. But ‘the taxes will always go up,’ said Richard Simmons Jr., the assessor for Belmont, a wealthy suburb northwest of Boston. City officials determine the size of the budget and assessors are free to increase the property tax rate to compensate for falling assessments.”

“‘I don’t want people to say, ‘My values are going down. My taxes are going down,’ Simmons said. ‘That’s not going to happen.’” “Diane and Richard Schmalensee view a slightly higher assessment on their home overlooking Chestnut Hill reservoir as a selling point. The house was put on the market in October for $2.95 million. In May, they dropped the price to $2.75 million, below the $2.84 million assessment.”

“‘Right after we bought this, the prices began to shoot up, and we said, `Aren’t we lucky,’ said Diane Schmalensee. With the market in decline, she realized perhaps ‘we waited a little too long’ to sell.”

The Gazette.net reports from Maryland. “It’s a lesson being learned by potential sellers all over Montgomery County. Margaret Carty figured her 5,000-square-foot home would sell quickly and profitably when it went on the market in April. But it took almost five months before Carty agreed to the first offer they received at $100,000 less than the original asking price.”

“‘Be reasonable about it,’ Carty advised would-be home sellers. ‘If you want to sell it fast, sell it low.’”

“The total number of homes listed for sale in July was one-and-a-half times more than in July 2005. For the same period, the number of settlements fell by more than a fifth. ‘A lot of people lost track as to what is normal,’ said Stephen Fuller, at George Mason University.”

“While real estate agents knew the housing market is cyclical and could not continue at the same rate, said said Frank Valentino, of Coldwell Banker Residential Mortgage, predictions of a burst housing bubble became a self-fulfilling prophecy for many potential homeowners.”

“‘The psychology of the purchaser has been somewhat negative,’ he said. ‘The market is a great deal of perception. People are saying, ‘Our decision is to not make a decision.’”

“At the same time consumer confidence was falling, a glut of houses became available. Fuller attributed it to investors panicking over the predicted burst in the housing bubble and getting out of the housing market. Said Fuller: ‘Shoppers are being more careful with what they buy. People are not going to spend more than $1 million for a house when they can spend $750,000 for an adequate replacement.’”

The Daily Times. “The real estate market currently favors buyers, according to local real estate agents. Interest rates have forced property prices down, causing owners to take a more realistic approach to the market.”

“‘The market now is back to a normal market, whereas the last few years it was high,’ said associate broker Claire McLaughlin. ‘It’s a little more in favor of buyers.’”

“To sellers who are really looking to make a large profit, it may seem like a bad time to sell, but this is where agents are saying sellers should change their perception. ‘The home seller is probably realizing the big boom of large increases is momentarily not here, it’s a little bit more realistic at this time,’ said Realtor Rosie Beauclair.”

“Beauclair said for a while the market in the area was getting out of hand. ‘It was getting a little over-inflated,’ she said. ‘Sellers have to realize we can’t sell at yesterday’s prices,’ she said. ‘That’s the way it is, I think once the sellers understand that and they’re not just out there to make a lot of money, they’re ready to be realistic about it.’”

The Globe and Mail. “Real estate agent Andrea Gaus knew the market was out of whack when the price of a typical four-bedroom house near good schools in the leafy Maryland suburbs outside Washington shot past the $1 million mark. ‘It got to the point where appreciation was so high that it priced people out of the market,’ Gaus said.”

“Increasingly nervous home sellers are slashing prices to get rid of properties before their value sinks even further. One buyer recently threatened to walk away from a signed contract on a $1.6 million house unless the seller took $100,000 off the price to reflect the drop in value since the deal was struck. The seller quickly buckled, fearing the house might be worth even less if put back on the market today.”

‘”Look how fast prices were going up. The same thing is happening on the way down,’ observed Gaus, who’s been selling homes in the Washington area for 16 years. ‘It’s a very tough market.’”

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