The Housing Bubble

It’s Friday desk clearing time for this blogger. From Massachusetts, “Numbers just released show mortgage foreclosures are at their highest level in more than a year leaving current real estate prospects will the question of whether to rent or to buy a property. ‘We found the housing market around here was way to high,’ said Marcella Sablan, who relocated to Massachusetts from Alaska. ‘We decided that renting was a better option.’”

“Take one Brookline condo listed at $499,000. With 10 percent down plus condo fees and taxes, the monthly expenses are $3,400. You could rent a similar apartment for $1,700.”

From North Carolina. “If you head east you’ll see twice as many homes for sale this year than last in many areas. Coastal communities are seeing a huge slowdown. ‘Because prices are going to keep going up, I don’t know if you know what sheetrock is going for right now but it’s $4 a sheet more than it was last year,’ Realtor Linda Craft said. That’s why prices will likely continue to rise even as sales are expected to steadily slow down.”

“Maryland home sales declined for the 11th straight month in August. Realtors reported sales down 25.2 percent from a year earlier. Among the areas reporting the steepest declines in sales compared to a year ago were: Queen Anne’s County, down 53 percent; Baltimore, down 30.7 percent; Montgomery County, down 26.6 percent; and Prince George’s County, down 19.7 percent.”

“Active inventory at the end of August totaled 40,311 units, up 97 percent from 20,499 units a year ago.”

From Oklahoma. “Local builders and analysts report that Bartlesville is immune to the ups and downs of national trends, but that new housing sales are lagging. Builders are optimistic and are using creative marketing techniques to move the homes including incentives. A builder in Bartlesville for 50 years, Gerald Coast said, ‘People are getting hired. They are coming in from all over the country, California, overseas.’”

From Australia. “Prime Minister John Howard blames an increase in the number of people having trouble paying their mortgages on their decision to borrow too much, rather than rising interest rates. ‘It’s rather ironic that the lower the interest rates, the more people are encouraged borrow..and, as a result, some people, particularly those who deal with non-bank lenders, end up over extending themselves,’ he told parliament.”

From Louisiana. “Harmon says many of his clients are trying to refinance, despite the hefty penalties they have to pay. They want to jump from one low-interest product to another. ‘I had a guy in here the other day, and I had to explain to him that you can’t keep refinancing every two years,’ Lyle Harmon says. ‘The value of your house isn’t going to keep going up every two years, and your note isn’t going to keep going down.’”

From Illinois. “If you think you’ve been seeing more ‘For Sale’ signs in the front yards of Logan County homes lately, you’re right. About one-and-a-half times more homes have been on the market than last year, a local real estate official said this week. Logan County Board of Realtors President Cindy Pagel said she can’t explain the shift in homes for sale. ‘It does definitely show more residential listing this year than last,” said Pagel.”

“Utah’s continued increase is because of investment from out of state, said Kevin Call, the executive VP of the Utah County Association of Realtors. For now the market remains strong but times could change. Realtor Brandon said now is the time to buy while it’s a good solid market. ‘I think [the market] will go up for another six months to a year then it will probably level out or shoot way down,’ Ploehn said.”

The Odessa American from Texas. “Two men spoke out against the proposed property tax increase in a public meeting Thursday night at the Ector County Commissioners Court. ‘We really can’t afford y’all,’ Odessan Chet Bales said. The thriving local economy led to higher appraisal of homes, Judge Jerry Caddel said. ‘I don’t mind the increase, because I know the value of my house has gone up,’ he said.”

From Danielle DiMartino in Dallas. “About 3,300 homes in the D-FW area have been posted for possible sale in October, up 23 percent a year earlier. September postings were up 30 percent. ‘People have used adjustable-rate mortgages and interest-only loans,’ George Roddy said. ‘It’s a combination of factors but comes down to over-exuberant lending and borrowing practices.’”

“‘We just haven’t seen the price appreciation needed to offset the over-lending that’s taken place,’ he said. Another evolving factor is the rising value of homes coming up for foreclosure. ‘Three to four months ago we started seeing higher-dollar postings,’ Mr. Roddy said, ‘and it’s becoming an even bigger issue; there’s more to come.’”

The Rocky Mountain News reports from Colorado. “Colorado continued to lead the U.S. in the foreclosure rate in August. RealtyTrac showed 6,079 homes in Colorado are in some stage of foreclosure, more than 150 percent higher than a year ago and about 60 percent higher than July.”

“Economist Tucker Hart Adams, who said there will likely be a recession in Colorado next year, in large part because of problems in the housing market, said the reports back her pessimistic viewpoint. ‘I hope I am wrong,’ Adams said. ‘But I have never had this kind of reaction to one of my forecasts before. A lot of people are telling me that they are already seeing this in their industries.’”

“Realtor Ed Jalowsky said he is seeing more expensive homes going into foreclosure.”

“Adams predicted consumers will cut spending ’substantially’ by year’s end and throughout next year because their budgets are strained. Colorado ranks eighth among states in delinquent bill payments, and Colorado homeowners have the nation’s second-lowest level of equity in their homes.”

“She pointed out housing sales and construction are declining while the supply of homes on the market is expanding. Housing prices, she said, will fall.”

“It started two years ago. Anthony Stewart (and) his wife learned that a third child was on the way. Being self-employed, they had no health insurance. They still owe the hospital $17,000. The $17,000 landed in collections.”

“Yes, they would refinance their home, pay off the hospital debt, plus bring down their credit card debt. A banker friend steered them to a mortgage broker, who told them that despite their credit woes and low credit scores, she could get them a mortgage at a rate no higher than 7 percent. Weeks passed. And the offered rate continued to climb: 7.8 percent, 8 percent and higher.”

“Finally, at the closing table, the broker told them their new loan would be 10.8 percent, and adjustable.”

“The mortgage on his home would climb to nearly $5,000 a month now, from the $3,000 per month he’d been paying since buying the house. ‘I know, I know. But quite frankly,’ he lamented, ‘I really, really needed the cash. Worse, they made it sound like they were doing us a big favor by giving us this loan. It’s my fault. I made a huge mistake.’”

“Now, two years later, the adjustable rate mortgage is about to adjust. He figured out the monthly loan amount likely will total no less than $7,000. There is at least $100,000 equity in the house, Anthony Stewart said, confident and insistent that he is not mentally overpricing what he still owns. ‘It’s there. I just can’t access it,’ he said.”

“If only he had said ‘no’ when he sat at that table two years earlier, gotten up and just walked away. ‘You know, I was living the American dream,’ Anthony Stewart says. ‘I had savings, stocks, was living in a nice home in a very nice community, and I always paid my bills. Now, I’m wiped out.’”

Carol Lloyd writes for the San Francisco Gate. “To hear the off-the-cuff remarks of real estate agents is enough to inspire a new horror genre. ‘It’s cratering underneath my feet,’ muttered one agent after his pristinely marketed, cautiously priced listing engendered only a single, below-asking offer.”

“Another agent, whose characteristic optimism had evaporated like the sheen on a new floor after an open house, bluntly described the market as ‘flat-lined.’”

“During the boom, buyers just wanted a roof over their heads. Now it seems they want every little thing on their ‘under heaven’ wish list. But short of that, agents say, they’ll settle for that lovin’ feelin’ that only a buyers’ market can bring.”

“‘Buyers want a good deal,’ says (realtor) Carren Shagley. ‘They want to feel as if they’ve gotten something for their money.’ Who can blame them? ”

The Santa Rosa Press Democrat. “A home building company considering two big projects in Petaluma has backed out of one land purchase and negotiated a $2.35 million discount on the other. The discount stems from a slowing housing market and an estimated $1.85 million in fees.”

“On the other Centex project near the downtown Turning Basin, the company backed out of buying the property, between Copeland and Weller streets, after holding an option for 18 months. ‘It wasn’t a total surprise, but it was a shock,’ said Gina Pittler, one of the property’s owners.”

“Centex was willing to revise its plans in July but canceled those plans this month in the face of a slowing housing market and the risk involved in starting over in the approval process.”

The Sacramento Bee. “Neither Ron Rael of Novato or Kirk McKinney of Pacifica nor any of their Bay Area investor colleagues much care now for Sacramento’s languid market. ‘You got more bang for your buck a couple of years ago than you do today,’ said Poppy Stercl, a mortgage broker who lives in Rocklin. ‘It’s dropped off a lot,’ said Stercl.”

“Collectively, these sentiments have become key factors in Sacramento’s flat or falling prices and its record pileup of more than 15,000 homes for sale as summer’s big buying season comes to an end. The wave of investors and Bay Area arrivals who helped drive the region’s real estate market to what many believe were unreasonable heights has primed it now for an aftermath that no one can yet measure.”

“Some believe Sacramento is particularly vulnerable because outside forces that propelled it skyward have dissipated. In the first quarter of 2004, more than one in four houses sold in Sacramento County were to investors and second-home buyers. But at last count this summer it was closer to one in six, according to DataQuick.”

“‘A few years back you could buy a three-bedroom, two-bath for $150,000 to $170,000, rent it out for $1,200 a month and get positive cash flow,’ Rael said.”

“Altogether, investors bought more than 73,000 homes in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties between 2000 and June 2006, DataQuick reported. More than 22,000 of them were from buyers with Bay Area addresses. But those numbers are now falling greatly.”

“By early this summer, ‘flipping’ represented only 2.4 percent of sales in the capital region, while 28 percent of investor-sellers reported losing money on their deals, Ela reported. Adding to the uncertainty is the continuing inability of many locals to afford even today’s weakened prices as the market slowdown enters its second year.”

“Bay Area residents aren’t the only ones who can’t afford to take the homebuying plunge. Though prices here are still less than in the Bay Area, the median price of new homes can top $562,000. ‘The prices aren’t competitive anymore. They’re just lousy California high,’ said Stephen Levy, of the Center for the Continuing Study of the California Economy. ‘For eight, nine or 10 years, the Sacramento median price was near the national average and now it’s more than double the national average.’”

The Orlando Sentinel reports from Florida. “Exactly one year after hitting an all-time high, Orlando’s existing-home sales had their slowest August in four years last month as the area’s housing market continued losing steam at a slow but steady pace. The number of homes resold in the core Orlando market dropped nearly 34 percent compared with August 2005.”

“The market’s inventory of available properties continued to grow, surpassing 20,000 for the first time, totaling 21,077 properties, the equivalent of a 10-month supply of homes. The last time the inventory-to-sales ratio was that high was back in February 1997.”

“Sellers, increasingly thwarted by the high number of competing homes, are beginning to fret as the weeks tick by without a sale. Maria Rivera, who has been trying to sell her two-bedroom, two-bath Port Orange home for nearly a year, said Thursday that she is about to list her property with a Realtor once again, her third listing since last October.”

“‘My original price was $240,000, but now the price has been lowered to $219,000,’ she said. Rivera said she fears that rising property-insurance rates and taxes are key reasons buyers are reluctant to make offers these days.”

“A total of 2,077 homes changed hands in August through the Mid-Florida Regional MLS, compared with 3,134 a year earlier. It was the lowest total for August since 2002.”

“Newly built homes are now being added to the Realtors’ MLS in significant numbers, and that’s a new wrinkle, said Anthony Crocco, Central Florida division director for Metrostudy.”

“‘This is really something we haven’t seen before,’ Crocco said. The number of new homes being offered through Realtors is now ‘in the thousands,’ he said, as increasingly desperate investors or speculators decide to compete directly with the previously owned homes that typically comprise the Realtors’ listings.”

“The backlog of unsold homes is actually worse in coastal counties such as Brevard, Crocco said, as contracts are canceled and potential buyers walk away from their deposits.”

“Area Realtors say they are holding more weekend open houses and hustling harder than ever, particularly for sellers such as Rivera, who need to relocate and are not just testing the market with unreasonably high asking prices.”

From New York Magazine. “It’s been a funny sort of summer in the real-estate world, as the July and August doldrums have felt less like the usual quiet and more like the beginning of something bad.”

“Ask broker Lisa Wong, who admits to a little survivor guilt. Though she’s been able to buy and sell properties for a steady trickle of clients—a big difference from the deluge a year or two ago, she does admit—many of her colleagues have found themselves with more time on their hands to agonize over the flattening market. Will it get better? Or worse? ‘I’ve heard that it’s dead,’ she says.”

“Many agents say it’s September that’s make-or-break time for them. ‘It’s a litmus test for what the rest of the year will be like,’ says Christopher Mathieson, managing partner at JC DeNiro. ‘This one’s really important because we want to see if the market’s going to continue to plateau.’”

“A recent Halstead Property report showed that prices dipped 12 percent from June to July this summer; brokers say August was even more sedate. To make deals stick, ‘you have to work two or three times harder,’ says Wong. ‘You’re getting lowball offers and calls you’d never get before. For something worth $1.9 million, you’ll get an offer for $1.6, something crazy.’”

The Times Herald Record from New York. “The bottom hasn’t exactly fallen out of the Orange County housing market, but the top appears to be firmly capped. Orange County’s median sale price for single-family homes fell to $323,000 in August, down 5 percent from July and 2 percent from August 2005, according to figures released yesterday by the Orange County Association of Realtors.”

“The August report provides the latest evidence of an emerging bear market. ‘What I think actually needs to happen is for the buyers and sellers to adjust to the market,’ said OCAR CEO Ann Garti. ‘The buyers have overadjusted. They’re reading headlines; and they’re probably lowballing. And sellers have not adjusted to the market yet. They think the name of the game is still ‘higher and higher,’ which it is not.”

The Wall Street Journal. “My younger sister Melissa and her husband Joe want a three-bedroom, single-family home near us in Monmouth County, N.J. What we saw was bleak news for sellers in our region, but good news for buyers: block after block of open-house signs.”

“In fact, we were hard-pressed to find a street that didn’t have at least one home for sale, and many had more than one. What’s more, most of the 20 or so homes we visited were vacant, a sign that homeowners have moved on and are motivated to sell, or that speculators are looking to unload properties before prices go any lower. Asked why one home was vacant, one agent said frankly: ‘This was a ‘flip’ that flopped.’”

“Though some of the agents we encountered continued to promote their ‘charming’ homes as ‘a steal,’ a surprising number were more candid. ‘The owner way overpriced this home,’ said one. ‘I bet if you offered $30,000 less they’d jump at it.’”

“Another sign of a turning market: We saw very similar houses with prices all over the map, ranging from the low $200,000s to $270,000. That’s evidence that sellers aren’t sure what houses are worth these days.”

“‘They look at home-price comparisons from a year ago when there was far more demand than supply,’ says Pat Lashinsky, VP of ZipRealty. Now that there’s excess supply, he says, sellers need to be more willing to negotiate.’”

“One agent on our tour encouraged Melissa to look at homes ‘in the $270s or $280s,’ well out of her price range, and make lowball offers. We encountered a husband and wife going the ‘for sale by owner’ route, with an asking price of $315,000. While his wife pointed out the home’s features to my sister, the husband gave me a wink and whispered, ‘Don’t let that $315 scare you, we’re extremely negotiable.’”

“To get an expert’s take, I asked Robert Shiller, a Yale economics professor, for his insight on where the East Coast real-estate market may be headed. ‘We don’t know exactly what’s going to happen because we’ve just experienced the biggest housing boom this country has ever seen,’ he says. In addition to homeowners struggling to sell existing homes, construction is at near-record levels: The last time this much inventory entered the market was 1950, when builders were building suburban homes for soldiers returning from war, he says.”

“Prof. Shiller suggests that the Japanese housing bust may provide a precedent. Home prices there remained depressed for a decade before the market recovered. He says: ‘The real question is, ‘Is this the beginning of a major period of decline as we saw in Japan, or will we see a kind of sharp and sudden correction?’”

“Despite evidence of a cooling real-estate market, Melissa and Joe decided they weren’t quite ready to wade back in: They’ll take the market’s temperature again in the spring.”

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