The Housing Bubble

The Northwest realtors have the August numbers out. “Northwest MLS figures show the volume of active listings stood at 33,316 at the end of August, up from the year-ago inventory of 23,260 properties. The selection includes 29,404 single family homes and 3,912 condominiums. MLS members added 14,077 new listings to inventory during August.”

“In Pierce County, the ‘biggest story is the multitude of choices buyers are enjoying,’ according to NWMLS director Dick Beeson. ‘Many buyers feel empowered and are waiting to see if prices will start to fall,’ observed Beeson. ‘While we aren’t coasting yet, the market has shifted from fourth gear into third gear,’ Beeson commented, adding, ‘It’s an excellent time for well priced properties, but overpriced means overlooked in today’s market.’”

“Buyers bonuses, price reduced, chance to win $25,000, are these signs that Western Washington is becoming a buyer’s market? ‘I would say it is a buyer’s market with a very strong seller’s influence,’ said realtor T.C. Hyatt.”

“In general sellers aren’t bombarded with buyers like they may have been last year. ‘You’re not going to have eight people that day trying to buy it to bid up the price,’ said Hyatt.”

“Some real-estate brokers are pointing to the sun as the reason it was a slower August. It was an exceptionally warm and dry month. Real estate experts expect that rain in the forecast will start to bring an increase in sales.”

“The Puget Sound area’s housing market is still stronger than most in the country, but signs of slowing are clear. The inventory of homes and condos for sale continued to rise throughout King, Snohomish, Pierce and Kitsap counties, as it has since the beginning of the year.”

“With more choices, buyers aren’t rushing to plunk down earnest money as they were last year, said Mike Skahen, broker in North Seattle. ‘At some point they have to take a little bit of a rest. Even though we have a lot of buyers out there, they’re running out of money,’ he said.”

“Seattle home prices fell last month from their July level and posted the lowest year-to-year increase in 18 months, according to new statistics. Prices have dipped month to month several times in the past year, but the year-to-year increase was the first in the single digits since April 2005 and the lowest since February 2005.”

“Talk of a housing bubble has prompted some prospective buyers to wait. ‘I’m a firm believer that there’s a bubble nationally and there’s a bubble in Seattle as well,’ recent New York City-transplant John Bitzer said Sunday after looking at a $1.05 million Seward Park home. ‘I think that prices are going to fall quite substantially,’ he said, adding that he planned to wait.”

“‘Price reduced’ signs have become a more prominent feature of the Seattle landscape in recent weeks. A half-mile from the home Bitzer toured, the owners of a house that has been on the market for more than three months cut their asking price from $989,000 to $895,000, and agent Carole Alexander was telling all comers to make an offer.”

“Back in the Seward Park house where Bitzer espoused his bubble theory, agent Carolyn Mollot expressed her own caution about the market. ‘I told my own daughter to wait a little bit,’ she said.”

The Associated Press reports on Poland. “House and apartment prices in Warsaw and other leading Polish cities have spiraled upward, a boom driven by low interest-rate mortgages, housing shortages and foreign speculators snapping up real estate as investments.”

“‘The demand is generally driven by local people but there are buyers from Spain, the U.K. and Ireland buying new constructions in bulk; 10, 20 or 30 apartments and sometimes even more,’ said Bogumil Rutkowski, a manager at a real estate agency in Warsaw. ‘We’ve had a boom since the second half of 2003, but it’s just been accelerating more and more lately.’”

“‘The foreign speculators are pushing the bar up for normal buyers,’ said Andrzej Halesiak, an economic researcher who has studied the issue. Some of the difficulty is offset by easily available low-interest loans, but most house and apartment hunters these days still grumble.”

The Guardian. “First-time buyers risk over-stretching their finances by borrowing 3.24 times their income to buy their homes, the highest amount ever, it was announced today.”

“The figures for July, published by the Council of Mortgage Lenders, follow a stark warning from Citizens Advice that 770,000 buyers in Britain had defaulted on their mortgage, and that 13% of 21- to 24-year-old homeowners had missed at least one mortgage payment in the past year.”

The Sydney Morning Herald from Australia. “Falling property prices are always bad news for home owners, especially when they result in your home being worth less than you paid for it. When negative equity coincides with rising interest rates and record levels of household debt, as it does now, many households could find themselves in real trouble.”

“David Bell says that in the past clients who got into financial bother with their credit cards or had trouble meeting their mortgage repayments could always sell their house as a last resort. ‘There’s a fundamental difference now, house values have dropped and people simply can’t sell their home,’ says Bell, who is a counsellor in south-west Sydney.”

“Solicitor Katherine Lane agrees that negative equity is pushing more people over the financial precipice. ‘The difference this time is that we all carry a lot more debt; it’s a powder keg,’ she says.”

“The Herald reported a case last month where a house at St Clair, in Sydney’s west, sold for $260,000, 42 per cent less than its previous sale price at $450,000 in 2003. This was a mortgagee sale after the owners could not meet the interest payments on the $405,000 they borrowed to buy the house. There was just one bidder on the day.”

“Carolyn Bond, of the Victorian Consumer Credit Legal Service, reports a marked increase in calls from people facing court action to sell their house. Bond says fringe lenders are often to blame. Typically, these non-bank lenders provide short-term, interest-only loans which appeal to desperate borrowers unable to get credit elsewhere. Bond says many defaulters end up having their house sold within six months. ‘If they couldn’t pay their previous mortgage it’s unlikely they will be able to afford this one,’ she says.”

“According to Australian Property Monitors, house prices have fallen by an average of 10 per cent since the market peak in 2003-04. There is wide variation, though, across the country and even within cities.”

The Australian. “In the US and down suburban streets colourful political posters are popping up on front lawns. But there’s something else competing for attention as you drive by: ‘For Sale’ signs. Lots of them.”

“The US housing bubble has started to deflate and Australia’s experience is a leading indicator. The headlines in newspapers across the US, filled with anxious quotes from buyers who bought at the top of the market, could be Sydney or Melbourne a year ago.”

“Properties are staying on the market longer. Sellers are dropping their prices. The hot markets in metro areas up and down the west and east coasts, where home prices regularly fetch more than $US1 million ($1.33 million), are not just shaving tens of thousands of dollars off the price, but hundreds of thousands.”

“It’s worth remembering the US housing market has been one of the engines of the US and the world economy in recent years. Americans have used their houses as an alternative bank, effectively extending their mortgage to take advantage of the ever-increasing value of their homes.”

“The contagion that follows a US housing bust are easy to understand: if there’s less demand for Chinese goods, that in turn means less demand from the Chinese for Australia’s raw materials. ‘One of the things that might make it more difficult in the US, than in Australia, is that just as Australia’s housing market was sinking it got a big lift with China and the demand for commodities,’ adds economist Mark Zandi.”

“‘The underlying economy in America might not be as strong with the same sources of growth to replace housing,’ he said.”

“There is likely to be some belt-tightening. And if petrol prices stay high, it means the US consumer consumption model, which has helped underwrite global growth since the collapse of the dotcom technology bubble in 2000, is looking decidedly wan.”

Some national reports on the housing bubble. “Housing prices are expected to continue to have a limited fall throughout 2006, according to the National Association of Realtors. ‘After five years of outstanding growth, the housing market is undergoing a period of adjustment and becoming more and more of a balanced market between buyers and sellers,’ says Thomas Stevens, president of NAR, in testimony Wednesday before the U.S. Senate Subcommittee.”

“‘We were seeing home prices and mortgage debt servicing cost-to-income ratios increase to unhealthy levels in some housing markets, which precipitate an adjustment,’ says Mr. Stevens.”

“The National Association of Home Builders told Congress today that the current downswing in home sales and housing production following the record housing boom of 2004-2005 is expected to bottom out around the middle of next year.”

“Testifying before the Senate Subcommittees, NAHB Chief Economist David Seiders said..the record housing starts and sales of the past two years were well above levels supportable by demographics and other fundamental demand factors, and were fueled to a great extent by investors and speculators seeking to make a quick profit and through the surge of unconventional ARMs.”

“‘In retrospect, it was the finance and price-driven acceleration of buying for homeownership and for investment that drove housing market activity into unsustainable territory during the boom,’ he said.”

From Business Week. “In the summer of 2005, the Phoenix real estate market was experiencing what local brokers call a ‘feeding frenzy.’ A year later, the city is feeling the effects of a housing hangover.”

“‘I’ve been here 17 years, and I don’t think I’ve ever seen the inventory levels as high as today,’ says Robert Rucker of the Arizona Regional MLS. Phoenix’s housing inventory has in fact nearly quadrupled over a 12-month period, from 11,656 in July, 2005, to 42,449 homes last July, according to ZipRealty.”

“‘Not only has the inventory increased threefold, but the amount of buyers on the market is less than half of what it was last year,’ notes (realtor) Ron Fillion in Miami. Fillion believes the city will retain a high inventory in proportion to its population for at least the next two years.”

“ZipRealty has tracked the (Las Vegas) market as growing by about 150% over the past six months, hitting a record high of 21,662 homes for sale in July. Linda Rheinberger, Greater Las Vegas Association of Realtors’s president, has advocated several strategies to sellers that could help bring the market back to equilibrium.”

“‘We’re encouraging people who aren’t motivated to sell to delist and place a tenant in their property,’ she says. But the most effective selling catalyst, in Rheinberger’s mind, is always the simplest: ‘Prices are always going to be the main consideration in any marketplace.’”

From CNN Money. “With real estate markets slowing and mortgage rates well above levels of recent years, times are getting tougher for homeowners, the number of homes entering into some stage of foreclosure is surging.”

“In August, 115,292 properties entered into foreclosure, according to RealtyTrac. That was 24 percent above the level in July and 53 percent higher than a year earlier. Florida, had more than 16,533 properties in foreclosure in August. That led all states and was 50 percent higher than in July and 62 percent higher than in August 2005.”

“California foreclosures are increasing at an even faster annual rate, up 160 percent since last year to 12,506. And the formerly red-hot Nevada market recorded a spike of 24 percent compared with July and a whopping 255 percent increase from August 2005.”

“RealtyTrac’s Rick Sharga says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period. ‘Usually, foreclosures are a lagging [market] indicator,’ he says. ‘But we’ve never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year.’”

“‘The real wild card is the nature of the loans themselves. Historically, ARMs were underwritten pretty conservatively. There has been a loosening of standards with lower credit worthiness and smaller down payments,’ Sharga says”

Thw Wall Street Journal. “Home sales have plunged over the past year in many areas where prices had soared over the preceding five years, notably in California, Florida, Arizona, Massachusetts and the Washington, D.C., area. Many potential buyers are waiting for prices to come down further.”

“Sellers gradually seem to be realizing that they will have to lower prices, says Patrick Lashinsky, at ZipRealty. ‘There’s finally some realism getting into the picture.’”

“Ivy Zelman, a housing analyst at Credit Suisse Group, estimates that prices of newly built homes in San Diego, Sacramento, Calif., Phoenix, northern Virginia and southwest Florida already are down as much as 10% to 15% from a year ago. That estimate includes ‘concessions’ from builders, which are disguised price cuts. But Ms. Zelman still sees more price declines ahead.”

“‘We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop,’ she says.”

The Union Tribune reports on the Dataquick numbers. “San Diego County’s residential real estate market continued to cool last month, with overall prices down 2.2 percent from August 2005. It was the third straight month of year-over-year price declines, DataQuick reported. It also was the slowest August in terms of sales volume since 1997.”

“August was also the 26th consecutive month in which the total number of homes sold fell on a year-over-year basis. The year-over-year decline in total sales last month was 31.8 percent, the biggest for any month in 11 years.”

“G.U. Krueger, an Irvine-based economist who specializes in housing issues, said buyers seem unwilling to pay asking prices, while sellers are reluctant to lower their expectations. ‘We are in this tug of war between sellers and buyers, which is keeping home prices relatively stable, even though they are declining,’ he said.”

“Skip Wilkinson, who lives in Temecula, knows all about the stalemate. He says the decision not to sell his retired father’s home in Clairemont a year ago, when the market was soaring, is costing him dearly. Few potential buyers have shown an interest since it went on the market in April. The initial asking price was $599,000.”

“‘I reduced it to $550,000 about two months ago. Still, there is no one looking at it. I have had maybe seven people in six months. I expected it to keep going up,’ he said of the housing market. ‘It didn’t.’ On Monday, Wilkinson slashed the price to $499,000.”

“DataQuick reported that resale condominium sales volumes were down almost 39 percent countywide from August 2005. Economists say downtown San Diego’s condominiums are vulnerable to price drops because of the high number of speculators in the market. The number of resale condo sales downtown dropped from 83 in August 2005 to 42 last month.”

“New downtown housing, which consists of condos, dropped from a median of $654,000 to $495,000 during the same period. There were only 31 units sold in August of this year compared with 160 a year earlier

“Kathy Butler, a longtime real estate agent, recently began marketing Skip Wilkinson’s home. She says many sellers are having a hard time accepting declining prices. Like Wilkinson, they are ‘chasing the market down.’ By the time they realize their price is too high, the market has fallen further.”

“David Berson, chief economist for mortgage giant Fannie Mae, said he is having the same problem. He has had to adjust his national projections downward.”

“‘The actual numbers keep coming in weaker than we expected,’ Berson said. ‘The leading indicators of housing activity continue to point downward. Purchase applications from the weekly Mortgage Bankers Association survey continue to edge down. The National Association of Home Builders’ confidence index is at the lowest level since early 1991, when we were going into a recession.’”

“Butler said real estate agents and sellers should brace themselves for the possibility of a long downward trend. California’s home market tends to run in cycles, she said. ‘The cycles last for years, not for months.’ Butler said. ‘We need to realistically figure this will go on for a while.’”

“Gary Kent, an agent who works with Butler, said he tells home buyers that the days of buying and selling properties quickly for fast profits are over for the near future. ‘I am advising my clients not to buy now if you are planning to resell in a year or two, because you probably won’t make any money.’”

Some housing reports from the Twin Cities. “The housing market in the Twin Cities continued to cool in August, with the number of sales in the metro area dropping by 27.2 percent compared to a year ago. Trends in listings, sales and home prices also signaled that the market will continue to favor buyers, according to reports from Realtors’ organizations.”

“The Minneapolis Area Association of Realtors said that, in September, it expects there will be 8.12 homes on the market for every buyer. In the metro area, the number of closings in August dropped 27.2 percent compared to the same period last year. More dramatic declines occurred in Anoka and Sherburne counties, which saw decreases of 33 and 22 percent, respectively.”

“Pending sales also dropped by 23.2 percent in August compared to a year ago. ‘We still have more listings on the market right now than we’ve ever had,’ said Jeff Green, president of the North Metro Realtors Association. ‘But it appears that some sellers are deciding to wait a little longer before putting their home up for sale.’”

The Star Tribune. “When Debbie Tufts put her Eden Prairie house on the market in February, she figured she’d easily net $30,000 on the sale. Never did she imagine that, after three markdowns, she’d sell it for less than she owed and have to write a $4,000 check at the closing last week.”

“‘It’s just a waiting game,’ she said. ‘It’s a vicious cycle that you get trapped in and you don’t know what to do.’”

“Buyers, (realtor) Sheri Fine said, ‘feel like they have bargaining power and feel that they can do whatever they want.’”

“Although prices are flat and sellers are having to slash prices, sales are still relatively strong. Closed sales so far this year are down about 7.3 percent compared with the five-year average, a decline of about 3,000 transactions. But that’s no consolation to Ken Iverson, who is trying to sell a $599,900 house in Menomonie, Wis.”

“Like other sellers, he has resorted to incentives to help draw attention to his house. He’s offering to give a brand-new fuel-efficient car and free gas for a year to encourage prospects from the Twin Cities. He said his 5,800-square-foot house, which has granite countertops and hardwood finishes throughout, is being sacrificed in an effort to downsize.”

“‘I think we just really need to consider any offers,’ Iverson said. ‘We’re willing to negotiate.’”

“‘Two years ago it was fun,’ agent Jaso Simonson said of the current market. ‘If a house was worth $180,000, you’d put it on the market for $199,000 and an offer would come in at $192,000. Now, if you think it’s worth $180,000, you’d put it on the market at $179,900 and just pray for an offer.’”

“The market is recovering from a new-construction binge that has left builders trying to unload unsold inventory. During August, there was a seven-month supply of previously owned homes, compared with a more than nine-month supply of new houses. The inventory glut is creating opportunities that buyers haven’t enjoyed since the late 1990s.”

“Tufts, the Minneapolis woman who recently sold her house at a loss, is trolling the market with her agent in search of a duplex or fixer-upper that could be had at a bargain price. ‘Money seems to be the only thing that talks now,’ Tufts said. ‘Because the price cuts are getting pretty aggressive.’”

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