The Housing Bubble

Some housing bubble reports from California. The LA Daily News, “At this point in the San Fernando Valley’s real estate downturn, the market is rolling elevens. Sales of previously owned, single-family homes have fallen from their year-ago level for 11 consecutive months. This down-market started in October 2005 with sales under that month’s number ever since. Sales will probably be under the 1,000 level every month this year, the first time that’s happened in, yep, 11 years.”

“Potential buyers, knowing that sales are weak, are hammering away at price reductions. ‘They (buyers) won’t get back in until numbers are considered reasonable,’ said Jim Link, executive VP of the Southland Regional Association of Realtors..”

“It’s common now to drive around the Valley and see ‘price reduced’ signs on lots of for-sale signs, so buyer reticence is exerting downward pressure.”

“New home sales are down and Lancaster and Palmdale are issuing home-building permits at a slower rate, leading some officials to say that the Antelope Valley is experiencing a real-estate slowdown. Lancaster issued 63 permits in July and 94 in August, officials said.”

“Between January and July, 1,447 new homes were sold, down 46 percent from the 2,687 sold in the same period in 2005. Home builders sold 4,195 new homes in the Antelope Valley last year.”

“By comparison, when the 1980s boom peaked in 1989, about 4,900 homes were sold, a number that plummeted to 2,700 the following year. The drop signaled the start of a deep housing slump that lasted through the decade and during which home prices fell 50 percent.”

“Antelope Valley Union High School District officials are forecasting that its collection of developer fees will drop by almost half from $18 million to $10 million this school year because of a slowdown in Antelope Valley home building.”

“‘Developers come in here and pull permits. We talk to them and find out how the housing market is going,’ said Mat Havens, director of facilities, acquisition and development. ‘From what you read, houses are not selling as much. You can see that the building market and housing development is going to slow down. It’s happening already.’”

The Bakersfield Californian. “The housing market’s slowdown, and the resulting loss in jobs, could mean a painful adjustment is in store for Kern County’s economy, experts say. The construction industry has led the way in job creation over the past five years, said Cal State Bakersfield economics professor Abbas Grammy.”

“‘If you see layoffs in construction, all other industries could be affected,’ Grammy said.”

“Bakersfield home prices seem to be holding steady for now, though a correction is inevitable, said local appraiser Gary Crabtree. In the last four months, local home values have declined for three months and appreciated for one, Crabtree said.”

“If prices remain flat and interest rates go up again, some homeowners could find themselves in trouble, Crabtree said. Some 530 Kern households entered a stage of foreclosure in the first three months of 2006, a 15 percent jump from the same time last year.”

“The thousands of homebuyers who took out adjustable-rate mortgages had better be prepared to pay higher monthly payments when teaser rates end, Crabtree said. People will have to start making some hard choices about how they live their lives, he said. ‘The last time I checked, the dollar only goes so far.’”

“The Bakersfield market ground to a halt last fall. And house sales didn’t pick up as much as many had hoped in the spring. That’s when the layoffs started.”

“At its peak, Stewart Title had around 70 employees. Now, it has closer to 50. ‘It’s almost like it slowed down so fast, you just didn’t have a chance,’ MaryAnn Froehlich said.”

“Sales have been dragging for both national builders and local ones like Barbara Smith, whose custom and semicustom homes typically sell for $600,000 or more. Anything priced above $400,000. has been really, really slow to sell, Smith said.”

“An estimated 150 or more people have already dropped out of the Bakersfield Association of Realtors. Some agents are definitely struggling out there, said Scott Tobias, general manager at Watson Realty.”

The Tri Valley Herald. “There may not be a housing bubble ready to burst, but the real estate market sure appears to be venting steam in both the new home sales and resales. Home builders are offering buyers $100,000 in incentives to buy into their new subdivisions.”

“Larry Rumbeck, president of the Central Valley Association of Realtors, said the market has slowed down and it’s taking time for the median home prices to go down. He said the combination of a spike in gas prices, the disaster in Louisiana last year and the glut of houses on the market has scared investors.”

“So far this year, 799 previously owned homes have sold in the French Camp, Manteca and Lathrop area, according to numbers provided by the association. At the same time last year, 1,357 homes had sold, a drop-off of more than 41 percent.”

“In Tracy, Banta and Mountain House, the number of homes sold dropped more than 39 percent, from 2,097 last year to only 1,272 this year.”

“With older homes in establishedneighborhoods sitting on the market for upwards of a year, new home builders are getting creative. Pulte Homes, with subdivisions in Brentwood, Oakley, Mountain House and Tracy, is offering $99,000 in incentives, from a free pool to no payments for six months to free upgrades, to entice buyers. They’re even offering each home buyer a vacation for two with a destination of choice for closing before Christmas this year.”

“Ryland Homes is offering 40 percent off mortgage payments for the first year (to commemorate it’s 40th anniversary), while another developer had been offering a free Mercedes-Benz with the purchase of a home.”

The Waco Tribune reports from Texas. “Anyone thinking about selling their Waco-area home should consider one thing — it’s crowded out there. About 40 percent more homes went on the market through August of this year than during the same period last year, according to the MLS.”

“That means sellers had better make their homes ’showroom ready’ and be prepared to give a little on price, said local real estate agent Bill Gohring.”

“Through August this year, 3,127 houses were listed for sale through the local MLS. That compares with 1,867 listed during that period last year. Buyers have had their choice of 1,260 more properties. The market is theirs.”

“‘Pricing is the name of the game,’ realtor Celina Fuller said. ‘If you’re not competitive, your home probably is going to sit there.’”

“‘Homes are not selling as fast as they were,’ real estate agent Lexie Leuschner said. ‘I’ve talked to people who sold homes in the Robinson area, and it took them 12 to 14 months,’ she said. ‘It’s frustrating for sellers.’”

“John and Karen Wood have been trying since February to sell their three-story home. Recently they lowered the price from $289,900 to $274,900, hoping for more inquiries.”

“That’s not all they’re doing. The buyer of the home will also get John’s 2001 Mazda Miata convertible. ‘The market’s kind of slow in housing,’ Wood said, ’so we decided to pitch that in there to sweeten the deal.’”

“Realtor Trammell Kelly said he considers the Waco housing market active, not glutted. New home construction has boomed, he said. ‘New home sales are going out the ceiling, and that puts a lot of resells on the market,’ realtor Jim Stewart echoed.”

“The situation in Waco ‘is something we’re seeing across the state,’ said James R. Gaines, a research economist at Texas A&M University. Gaines said inventories are rising for a variety of reasons. Newly built homes may be staying on the market longer, or people who bought homes as investments when interest rates were rock bottom may now be trying to sell them, he said.”

“Or homeowners who have heard so much about the housing boom may now want to take the plunge, sell their homes and ‘move up.’ Waco has hit the seven-month inventory level, Gaines said, adding that he considers anything above a 6.5-month inventory level to be a ‘buyers’ market.”

“‘Buyers can be picky and have more choices,’ he said. ‘They’re not going to be negotiating thousands off a price, but they are in a little better bargaining position.’”

Readers suggested the topic of housing bubble accountability. “What do the bloggers here think of this topic: Accountability: How do we ensure it in the housing bubble’s bursting? Civil lawsuits? Criminal lawsuits? Tarring & feathering or other community direct action?”

“Those are the only ones that I can come up with, what are some other ideas. When I say accountability, there could be different levels. Garden variety FB. Flipper with 20 homes. Public figures in the REIC. Garden Variety RE agents & brokers. Scuzzy mortgage brokers. How will the responsible end of the community ensure that the deserving shame follows these people and the endure the consequences of their prior actions?”

A reply, “I’ve been very vocal about my stance; no lawsuits/personal accountability. Unfortunately, that means the scuzzy mortgage / appraisal folk are spared. However, their payback should be job loss (and for many, it will be - even the ethical ones if they exist).”

“Look, the information is out there for buyers/owners. To go into it half educated is just stupid. But no one’s fault but your own. I feel sorry for people who lose their jobs and then lose their homes because of it. People lose jobs every day and survive, myself included a few years back. I feel sorry for those on fixed incomes who see their tax bill overbloated due to this ridiculous housing mania.”

“I do not feel sorry for anyone who put all their financial planning/goals/dreams into their house. That’s not what a house is for.”

Another said. “The old common sense about 5-7+ years to make it worth it is gone. I live in a semi-bubbly area (50% in 5 years). I know one example first hand. Single guy, friend of mine, bought at $125k house on a $30k salary. Plans to stay there only two years. I asked him why he bought, and he said ‘I think housing is a good investment’ and ‘I’m tired of throwing away money on rent.’ Now he’s complaining about how expensive it is while I rent dirt cheap.”

The Denver Post. “Monique Armijo and her husband, Anthony, are among the many Colorado residents who managed to acquire a house without a down payment, only to see it foreclosed on a year or two later. Anthony met a real estate agent who assured the couple that shaky credit and lack of cash for a down payment were no longer barriers to homeownership. They ended up signing a loan that required them to pay off a $44,000 second mortgage in 14 months.”

“Buyers often compound their risk by combining 100 percent financing packages with interest-only loans, adjustable-rate loans that allow the borrower’s debt to grow rather than decline and loans that require no proof of income.”

“Aggressive lending practices and poor consumer education also play a role, consumer advocates say. ‘Seventy percent of the people who come in here got the wrong loan,’ said councelor Zachary Urban.”

“Lenders say they’re simply meeting customer demand for less restrictive loans. ‘There are very few people who have 5 or 10 or 20 percent cash to put down. Or if they do, who want to,’ said Colorado Mortgage Lenders Association president Chris Holbert. ‘If you want 100 percent financing, and you qualify, can they turn you down because it’s not a good idea?’”

“High-risk loans such as option-ARMs, were introduced by savings-and-loan associations in the 1980s to serve high-income borrowers. Only recently have they spread to less creditworthy consumers. Mainstream lenders and mortgage brokers say they’ve had to offer all of the alternative loans, at competitive terms, or risk losing business.”

“‘If we don’t do it, they will go down the street,’ said mortgage broker Mike Thomas in Aurora.”

“The next wave of defaults may come from option-ARMs, experts say. Louis and India Harts of east Park Hill refinanced last year into an option-ARM with a low teaser rate of 2.6 percent that quickly shot up. They’re making a minimal monthly payment of $919 on the $180,000 loan, but that doesn’t even cover the interest. Since March 2005, the principal has grown to more than $183,000.”

“The interest rate is now 8.1 percent, and according to their loan documents, can go as high as 9.95 percent. When the principal hits 115 percent of the original loan in a few years, the bank will force them to begin paying it off. ‘I don’t know how we’re going to do it,’ said Louis, a retired worker for Public Service Co. of Colorado.”

“The loan has a ‘prepayment penalty’ clause, making it difficult to sell or refinance during the first three years. When they called the lender, Countrywide Home Loans, they learned it would cost $11,000 to get out of the loan.”

“The Hartses blame their mortgage broker, Team Lending Concepts in Greenwood Village, for putting them into a loan they didn’t understand, though they admit they signed papers spelling out the terms. Team Lending president Jeff Lowrey said the loan was the best option for the Hartses because it guarantees a low payment for four to five years until they refinance again.”

“‘That type of minimum- payment option definitely helps those kinds of people,’ Lowrey said. ‘We minimized their payment so they could afford things like medical expenses and gas.’ Team Lending collected $3,900 in fees at closing and $4,200 more from the mortgage company for originating the loan. ”

“‘We are just starting to hear about ARMs,’ said Adams County trustee Jeannie Reeser. ‘That is what is going to drive foreclosures next year.’”

What do you see in your housing market this weekend? Builder incentives? “The $99,000 amount is an approximate incentive for homes available to close escrow by December 24, 2006.Vacation Getaway is limited to select locations. The prize will be forfeited if certificate is not claimed by the winner at Pulte Homes offices in Pleasanton, CA within 30 days after notification.”

From Hawaii. “‘Local Realtors observe that speculators are gone, while potential buy-and-hold customers are waiting, watching prices closely,’ according to the report. Construction is still booming, but economist Leroy Laney said people in the industry ’see emerging signs of some cooling off in the future.’”

From Illinois. “Carbondale, Illinois never participated in the housing bubble, but the current market pull back seems to be hitting it hard nonetheless. The Eatons aren’t laughing. They’ve dropped the price twice already and have yet to attract a serious offer. The Eatons originally set the price at $425,000 last year.”

“‘We had someone make an offer of $275,000,’ says Judy Eaton. ‘I didn’t even counteroffer. ‘The most I’ll come down is $10,000.’”

The Sydney Morning Herald in Australia. “This is Sydney’s cheapest unit. The one-bedroom unit in Cabramatta sold at auction last week for $95,000. In November 2003 it cost $262,500.”

“Elliott Shiner First National real-estate principal Angela Elliott said:’Everything that is selling now is selling for $40,000 to $50,000 less than it was in 2003. Properties have dropped by a good 30 per cent in value. You can pick up properties in the Mount Druitt area for $180,000 to $200,000. There are real bargains to be had, but where are the buyers?’”

The Palm Beach Post reports from Florida. “Complaints are nothing new to Ceebraid-Signal, the developer affiliated with Bocar. In addition to Bocar, home buyers have been frustrated by delays at another Boca Raton condo conversion, Eden.”

“Now it seems the wait might soon be over for some Eden buyers. Was it worth the wait? Buyers soon will find out. One thing they’re certain not to like is the view facing west. That’s where they’ll see the skeletal frame of the Eden’s second, unfinished tower.”

“Construction did start up a few weeks ago on the incomplete tower. But now progress looks slow. On many days, it appears that, once again, nothing is happening.”

The St Petersburg Times. “In the glossy marketing brochures for St. Joe Co.’s resort communities, the residents are wealthy and well-insulated from downturns in the real estate cycle. But in the real world, many owners in the developer’s second-home sanctuaries along Florida’s Panhandle are showing signs of strain.”

“Today, nearly 600 home sites, condos and newly constructed homes in St. Joe’s resort communities are up for resale. New sales by the developer, meanwhile, have slowed to a trickle or stopped entirely. Along Walton County’s Highway 30-A in WaterColor, about one-third of the community, more than 300 condos, single-family homes and vacant lots, are on the market.”

“Rather than add to the glut of properties on the market, St. Joe has quietly throttled back on new releases. Peter S. Rummell, St. Joe’s CEO, said just as the company profited from the real estate run-up of the past five years, now it must cope with the flip side of the cycle.”

“‘We are in a position where there was too much of a good thing,’ he said. ‘Now to some degree we’ve got to wait. And to some degree we’ve got to help the market correct itself.’”

“Michele Bertoldi thought he’d won the lottery when he and two partners picked up a lot at St. Joe’s RiverCamps on Crooked Creek in Bay County about 18 months ago. They paid $600,000 for the nearly 1-acre home site, then promptly put it on the market for $750,000. But Bertoldi’s lot is just one of more than 70 sites for resale, more than 40 percent of the total.”

“Across a 1,500-acre flatland of spindly pine trees and palmettos, there are fewer than a half-dozen homes in early stages of construction. More noticeable are the St. Joe-approved, tastefully discreet ‘for sale’ signs that dot the landscape like crosses in a graveyard.”

“‘This (downturn) is not a matter of diminished demand,’ Rummell said. ‘This is a matter of oversupply and overpriced (product).’”

“Monte Williams, a custom home builder from Pensacola, can’t afford to wait. His home has been on the market for nine months. Williams has cut the asking price once, by $400,000, to about $1.4-million. One offer fell through after the prospective buyer balked at how much it would cost to insure it. Two others were nixed by nervous spouses. Now the house is slated to be the first one in WaterColor to be auctioned.”

“‘The folks at WaterColor won’t like it, but there’s not much they can do about it,’ Williams said of the upscale image-keepers at St. Joe. ‘If we auction the house off at a decent number, there will be plenty more auctions at WaterColor.’”

“Some 40 miles east of Panama City at St. Joe’s WindMark Beach, director of sales Ray Markwell was waiting for a resurgence of interest. When WindMark’s first 15 lots were released in 2002, he was overwhelmed with 60 reservations. ‘I was raising prices as fast as I could,’ he said. ‘But those people were just flipping sand and the real end-users left.’”

“Today, just 10 homes have been built on 106 lots in WindMark’s first phase; half of them are for resale. More than 40 percent of the remaining lots are also back on the market.”

A housing report from the Boston Globe. “Only now, months into a soft market, are home sellers finally beginning to concede on prices, but only so much. ‘I realize this is a buyers’ market, but it’s not a seller’s suicide market,’ said Georgi May, a realtor based in Lowell.”

“Certainly it is acceptable to offer several thousand below the seller’s asking price to begin negotiations. Donna Coffin, an agent in Marlborough, said some potential buyers have come in with unrealistically low offers. ‘What they’re hearing is, go in low,’ Coffin said. ‘They think the prices are going to come down further.’”

“After buying and moving into a new home in Carlisle, Denise Galejs has been unable to sell the family’s four-bedroom home in Chelmsford, which has been on the market for several months. She has tried tempting buyers with price reductions and money toward closing costs, but finds potential buyers to have cold feet.”

“‘Sealing the deal is very hard to do,’ Galejs said. ‘I think [buyers] must be very unfocused.’”

The Philly Burbs from Pennsylvania. “If there’s any doubt in your mind that the local real estate market has slowed, ask a seller. ‘It seems like people are coming and looking, but nobody’s making an offer,’ said Terri Kiriakidi, who has been trying to sell her mother’s Warminster house since June.”

“Or a real estate agent. ‘I’ve never seen anything like this in my life,” said Herman Petrecca, a real estate agent in Warminster. ‘I’ve got a bunch of properties sitting on the market.’”

“The number of homes sold in August, 521, was off 25 percent from a year ago. And they show that the local inventory of homes for sale hit an all-time high in August of 3,565, almost double December 2004’s level of 1,814.”

“Kiriakidi recently reduced the price of her mom’s four-bedroom house from $349,900 to $309,900, to no avail. ‘Nobody’s even offering anything,’ Kiriakidi said. ‘I don’t understand.’”

“The only homeowners likely to lose money in the current market are those who bought last year and are selling now, Thompson said. ‘If they bought their home any time prior to last year, they’re still going to make money,’ (broker) Sue Thompson said. ‘But those multiple offers of the past are just that.’”

The Middletown Press from Connecticut. “Houses across the region, and the country, now are taking longer to sell. Owners are lowering their asking prices and, in many cases, still finding it difficult to coax offers from buyers. There’s been a noticeable shift, from a seller’s market to a buyer’s market, in the region, said Jim Porto, president of the Greater New Haven Association of Realtors.”

“Gus and Charlotte Kardaras can’t wait to move into the new house they finished building in Guilford last month. There’s just one problem, they have been trying since March to sell the two-story home they’ve lived in for the past 21 years and are having no luck despite cutting $25,100 off the listing price.”

“‘We’ve had very few lookers. We’ve gone weeks with no lookers,’ Gus Kardaras said. He paid $160,000 for the house when he bought it in 1985. Now he is asking $449,900.”

“Tricia Monaghan of East Haven has lowered her asking price for the 1,800-square-foot Cape she has been trying to sell since early July from $334,900 to $329,900. ‘We haven’t had one showing,’ she said. ‘We never expected that we wouldn’t even have a showing yet.’”

“Discouraged now that the spring and summer buying seasons have passed, she doesn’t expect the house she paid $145,000 for five years ago to sell until at least next spring. ‘I don’t think anybody’s looking for a house now,’ she said.”

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