The Housing Bubble

The Contra Costa Times in California. “Nicole Dalesio and her husband have been looking for a home in the Tri-Valley for more than a year. ‘You’d think we had a lot to choose from, but no,’ Dalesio of Pleasanton said. ‘And now, all of the sudden, the prices are dropping.’”

“With buyers and sellers refusing to budge, East Bay median home prices dropped or stayed put for the first time in years while sales continued to decline across the Bay Area in August. Alameda County reported a 28.2 percent drop in year-over-year sales, DataQuick reported. In Contra Costa County, sales toppled 23.5 percent. Solano County sales also dropped 34.3 percent.”

The San Francisco Chronicle. “Real estate agent Barbara Hendrickson can sense a different attitude among home buyers these days. For four weeks, she held open houses on two one-bedroom condominiums in Oakland’s Temescal neighborhood without receiving a single bid. Data released Wednesday show that her feeling has a basis in reality, as home sales in the Bay Area are slowing and prices are softening.”

“‘In Berkeley, it seems some are coming down (in price) a little bit and staying on the market a little longer,’ Oakland resident Forrest Bell said.”

“The hardest-hit real-estate market segment was new homes, whose median price fell 11.6 percent to $574,000 last month, down from $649,000 a year ago. Pulte Homes is offering a week’s free vacation and up to $99,000 in incentives to buyers at its 17 Bay Area developments.”

“‘The sales pace dropped off and our production didn’t drop off as quickly , so we found we had some inventory we didn’t want to have at the end of the year,’ said Merry Sedlak, of Pulte at its Bay Area headquarters in Pleasanton.”

The San Mateo County Times. “The housing slump continues. Bay Area home sales last month dipped to the lowest level in nine years. ‘We can say, with some certainty, price appreciation is zero and may even be slightly retracting. The market is flat and the bubble has popped,’ said economist Chris Thornberg.”

“Still, Tuesday’s move by the Fed to leave a key interest rate unchanged is an encouraging sign when it comes to the outlook for the housing market, (realtor) Earl Rozran said. That’s not the case if you ask Thornberg. ‘This is way beyond the Fed,’ he said. ‘It’s just so out of whack, it’s going to take a long time to clear out.’”

“In Santa Clara County, twenty-seven percent fewer houses changed hands in the county last month than during August last year. The trend was the same in condominiums, with sales down 31.7 percent compared with a year earlier.”

“Jeremy and Tracey Kemp toured more than a dozen homes for sale in San Jose and Santa Clara. Afterward their real estate agent heard from two of the agents listing homes they’d visited, asking about the Kemps’ interest level and letting them know the list price was negotiable.”

“‘We’re seeing more strength in our role as a buyer,’ he said. ‘They were aggressively courting people who had just been walking through.’”

The Marin Independent Journal. “Marin’s home sales volume fell from a year earlier. Total home sales, including condominiums, were down 13 percent from last year, mirroring a trend throughout the Bay Area where sales were down about 47 percent in Napa County, according to DataQuick. Marin condo sales were down 36.4 percent from August 2005. Broker Barry Crotty said condo prices fell because many first-time homebuyers are priced out of the market.”

“The Marin median condo price dropped to $546,500 last month, down from $575,000 last year and down from $555,000 in July.”

“‘So far the major trend is the sharp decrease in sales activity but I expect that prices, which are leveling off now, will decline over the next year,’ said Stephen Levy, director of the Center for the Continuing Study of the California Economy. ‘The reason is that it usually takes several months before sellers realize they are going to need to cut the price to sell,’ Levy said. ‘Over time what starts out as leveling in price can turn into a decline in price.’”

“There are more sellers than buyers lately, Levy noted. ‘Buyers see stories in the news which are correct about the market slowing so they feel they can be more selective and aggressive,’ Levy said.”

The Santa Cruz Sentinel. “Suzanne and George DeLeon found they had to drop the price on their Central Valley home and acre of land from $650,000 to less than $550,000 to lure buyers.”

“Consider the Blaine Street condos in Santa Cruz, where the city’s program helps turn renters into homeowners. The newly built complex of studio and one-bedroom units went on the market in April, with prices from $399,000 to $525,000. Five months later, six of the 13 condos have been sold, and the advertised prices are lower, from $365,000 to $499,000.”

The Daily Bulletin. “In August, the number of new and existing homes sold in San Bernardino County decreased 20.1 percent from August 2005. Ginger Jacobson, owner of High Desert Construction in Victorville, is one of builders lowering prices. She recently knocked $10,000 off a Victorville house and is slowing production of new houses.”

“She acknowledged that the phone isn’t ringing like it was last year. ‘We were getting four calls a day about houses last year. Now it’s more like four calls a week,’ she said.”

“Real-estate investor Enrique Balcazar knew a housing downturn was coming. Although the numbers don’t show decreasing home values in San Bernardino County, Balcazar said he believes they are. DataQuick’s number look back to what happened, not what is happening now, he said.”

“‘It is my general gut feeling..that come around December, you’ll see exactly what I am telling you,’ he said.”

“Broker Jason Bennecke said there is almost no recovery from asking too much when the house comes onto the market. ‘It’s like a dog chasing its tail,’ he said.”

MarketWatch reports on home loans. “Homeowners don’t fully understand the risks associated with taking on alternative mortgages that allow interest-only payments or that eat into the equity in a home, federal officials told senators. The FDIC found that exotic loans were more prevalent in the housing markets with the biggest price increases, and suggested that the loans were both a cause of and a reaction to the housing boom.”

“‘The greater availability of flexible mortgage structures probably allowed price increases to outstrip growth in incomes to a greater extent than would otherwise have been the case,” said Sandra Thompson, at the FDIC.”

“About 75% of borrowers who have a payment-option loan make only the minimum payment, said Kathryn Dick, deputy comptroller of the currency. About a fifth of home buyers owe more than their home is worth, said Sen. Paul Sarbanes.”

“Wells Fargo CEO Dick Kovacevich said Monday that the nation’s housing slowdown is a positive development. ‘We were getting into bubble territory,’ Kovacevich said. ‘As everyone knows, when a bubble bursts, the smaller the bubble, the better it is.’”

“Kovacevich said the bank has avoided controversial mortgage products such as option ARMs. ‘You’re taking risks we believe are inappropriate,’ he said of the mortgage industry.”

“Washington Mutuals COO, Steve Rotella, said that the current environment in the banking industry is ‘difficult’ and is expected to remain ‘very difficult’ on the revenue side for some time.”

“WaMu has reduced the number of mortgages it underwrites in the subprime area of the mortgage market, where borrowers have less-than-perfect credit scores. ‘You know, we’ve seen increasing delinquencies in that business in general..which is not unexpected, given the maturation of the portfolio but also the health of the market right now,’ he said.”

“WaMu has also sold ‘the vast majority,’ roughly 70%, of its option-ARM mortgages, which are considered among the most susceptible to defaults, to the secondary market. ‘So, clearly, if there were a significant, major national decline in housing, it would have an impact on us,’ Rotella said. ‘but we feel we’ve taken the actions to mitigate that.’”

From Realty Times. “Question: I read your column about false advertising and want to share my story and ask for advice. We own a home in California and a loan agent contacted us and we ended up refinancing this loan to a new loan with negative amortization with a rate of 1.45 percent.”

“After making the first two payments, we noticed that our mortgage balance was increasing by $2,000 each month. There is a prepayment penalty of 15 percent in the first year, ten percent if we refinance in year two, and five percent in year three. Can you please advise us as to how to get out of this situation?”

“Answer: Well, this is a tough one. Your letter is a perfect example of a homeowner taking out a complex mortgage program without having any idea of what it is or how it works.”

“The thing that puzzled me about your letter was that fact that you could have afforded to continue to pay the interest on your previous loan. Why did you refinance a 5.50 percent mortgage, which is well under current market rates?”

“Whether or not the loan agent completely and willfully misled you is up for question. What’s clearer is that you signed up for a loan without really knowing anything about it.”

Newsday reports on Long Island. “John Giamarino wants to pay your mortgage. The catch? You have to buy his house. In the latest incentive to hit the local real estate market, the Seaford resident and his wife are offering to make a year’s worth of mortgage payments for the buyer of another home they have in West Gilgo Beach.”

“The house has been on the market for about six months and has seen a few price reductions, real estate agent Karen Reese said. It’s now listed at $645,000. ‘People need incentives to make the move,’ said Giamarino. As homes in Giamarino’s price range glut the market, it’s no wonder he and other sellers are looking to woo homebuyers with pricey gimmicks. Some slash the price, but others throw in furniture, plasma televisions and even cars or vacations.”

“‘I think if you move into a house and you’re not struggling with payments for 12 months, it’s just another idea to help.’ he said. The concept isn’t entirely new. Indeed, Giamarino got the idea from sellers in the South, particularly in Florida, where he owns other property, he said.”

“Despite their reservations, real estate attorneys Lita Smith-Mines and Neil Garfinkel said they weren’t surprised by Giamarino’s desire to spice up his sale. ‘I have three dozen or more files that are open just from home sellers who can’t sell,’ said Smith-Mines. ‘No one is coming to see their houses.’”

The Long Island Business News. “Long Island’s residential market continued to transition from red-hot to ho-hum in August. Inventory counts..have been skyrocketing for months as owners scramble to cash out on the cooling market. Realtors have begun blaming sellers, saying they’re holding out for the eye-popping gains.”

“‘It’s slow. It’s slow. Most of the buyers are giving us the exact same story: they’re waiting until December or January. Or if we show them a property, again, the offers are coming in much, much lower,’ said Renee Weinberg, a licensed sales associate in Long Beach. ‘We need something to give us a little bit of an uplift … It hasn’t turned. It is not good.’”

The Arizona Daily Star reports from Tucson. “Some people living near The Greens at Ventana Canyon have wondered what is happening with a condo conversion that started there at the beginning of the year and doesn’t appear to have made much progress in the meantime.”

“‘My daughter and I walked through there and it was like a ghost town,’ said Angie Calderon, who lives in the adjacent complex, which has been undergoing a condo conversion of its own. ‘It looked like they had started working and then had to stop.’”

“The project is moving forward, said Anthony Contreras, for The Ryness Co., which is handling sales and marketing for Canada-based 20/20 Properties, the company that bought the 20-year-old apartments to convert them. ‘It’s definitely not a ghost town. There’s great units out there. We’re not going to have a problem selling them,’ Contreras said.”

“Though the company held a lottery drawing in March because there were more qualified buyers than units, it didn’t receive approval until mid-May to begin actual sales, a detail that may have contributed to the perceived slowdown, said Dino Paone, a mortgage lender who has dealt with several condo projects in Tucson.”

“Paone said the condo market had ‘kind of a double-whammy’ in Tucson over the last several months. ‘There’s so many choices right now for buyers. The market..won’t go back to where it’s been over the past two years. That kind of frenzy only happens every 15 years or so, he said. ‘Will it be like it was two years ago? No, it just won’t.’”

The East Valley Tribune. “Superstition Vistas, the Arizona Land Department’s much-touted grand experiment in new urbanism, is about to face its first real-world trial at a time when the market isn’t exactly clamoring for new development.”

“The recent, failed state land auction at Desert Ridge shouldn’t be interpreted as a sign that the development community will pull a noshow at the Lost Dutchman Heights sale, said Richard Hubbard, also a former deputy land commissioner.”

“The land was appraised at nearly $462,000 an acre early this year, when trust land at Desert Ridge was selling for up to $1 million an acre. The department plans to hold another auction Sept. 28, but deputy land commissioner Jamie Hogue said she isn’t expecting it to turn out any better. ‘We’re getting the perception that there’s not much interest,’ she said.”

The Arizona Republic. “Home buyers hopeful to recoup their earnest money from shuttered home builder Turner-Dunn have found themselves at the back of a long and frustrating line. Most home buyers paid $2,500 or $5,000 in earnest money. But some, like Gerald and Barbara McCurdy of Caledonia, Ill., plunked down nearly $28,000 because, they said Turner-Dunn charged them more for buying an investment home. ‘We’re just hoping it works out,’ Barbara McCurdy said. ‘But we haven’t heard from them since May.’”

“Turner-Dunn’s attorney, Alan Meda, said about 90 homes were 85 to 90 percent finished. But since construction ceased in the spring, many have deteriorated from summer heat, monsoon storms and neglect, and it’s uncertain how much work would have to be redone. ‘We’re very motivated to get these homes closed,’ Meda said.”

The Reno Gazette Journal from Nevada. “Sales of existing single-family homes in Reno-Sparks fell 41 percent in August compared with August 2005, extending the streak of double-digit, year-over-year losses by percentage in every month this year. In the greater Reno-Sparks area, the median price fell to $325,000, 10 percent below August of last year and the third consecutive year-over-year drop.”

“In Reno, the median price fell to $388,200, down 9 percent from August 2005. Sparks dropped 5 percent, to $320,000 and the North Valleys dropped 7 percent, to $265,000, in August compared with August 2005.”

“Also in the report, prices for existing condos and townhomes in the Reno area dropped 17 percent in August, to $165,100, compared with August ‘05. In July, the median for condos was $165,000. Carson City also posted a decrease in August, down 8 percent, to $309,000, compared with the same month a year ago.”

“None of this comes as a surprise to Stephen Haley, president of the Reno-Sparks Association of Realtors. ‘There is some correction going on,’ Haley said. ‘We have not had any major job layoffs, and every time we’ve seen a drop in values there has been layoffs. I don’t see that happening.’”

The Review Journal in Las Vegas. “A fundamental shift is occurring in the type of housing offered in Las Vegas, a real estate executive said. ‘Developers still reap the benefits of higher density where land values are justified, yet they can build and sell these units at $250 a square foot instead of $350 a square foot, capturing a larger percentage of the home-buying market,’ Ken Perlman said.”

“Sales of new homes have slid 37 percent from a year ago, Sullivan Group President Tim Sullivan noted. The pain isn’t going away soon. Look for reduction in prices and home builder incentives to continue well into 2007, Sullivan said.”

“Operating profit growth for home builders sank from 44 percent in 2004 and 47 percent in 2005 to an estimated negative 18 percent this year and negative 52 percent in 2007, Credit Suisse reported. How are home builders coping? Some have laid off staff, Sullivan said; others shrank their business and are now walking away from deals or renegotiating deals.”

The USA Today reports on flipping. “The vanishing act of speculators is accelerating the decline in home sales this year. That’s giving buyers a bonanza of choices. It’s also a stark reminder of the cyclical nature of real estate.”

“Short-term real estate investors are learning how hard it is to make money, any money, once For Sale signs begin hanging in yards for months. Sellers cut prices, and builders hand out swimming pools to entice hesitant buyers.”

“Jeffrey Epstein in Florida, put deposits down on a condo and a town house under construction in Miami in 2004, he never actually planned to live in them, or even buy them outright. ‘My strategy was just to put down a deposit and try to flip the contracts when they built the properties,’ says Epstein. ‘But then I ran into a couple of problems.’”

“Namely, a local real estate market with a 17-month supply of condos for sale and prices 11% below last year’s median. In June and July, Epstein had to come up with the money to close on the condo and the town house. Now, to get them off his hands, he’s offering to pay the buyers’ closing costs and homeowner’s association fees for a year.”

“‘We’re nervous about what’s going on in the market,’ says David Kloth, a doctor in Danbury, Conn., who with a lawyer put down deposits on three luxury condos in Las Vegas that will be completed in November. ‘We’ve got two months to close’ on the property, says Kloth. ‘Until we sell, who knows?’”

“‘In the home market, the investors, rather than rushing for the door, are holding onto homes imagining the market will turn around,’ says Edward Leamer, director of the UCLA Anderson Forecast.”

“It reminds him of the last real estate bust in California. ‘In the late ’80s, here in California, you couldn’t go to a cocktail party without somebody admiring their own intelligence about the latest home they just bought,’ he recalls. Then, in the ’90s, deep layoffs in the aerospace and defense industries sent the market into a tailspin. ‘What happened in California is a good lesson’ for investors. Leamer says. ‘We had speculators out of the market for at least a decade.’”

“In Las Vegas, the market was infested with real estate flippers during the recent real estate heyday. Now, in new neighborhoods in the Summerlin area of Las Vegas, about 40% of the single-family homes for sale are vacant, says Bruce Hiatt, owner of Luxury Realty Group. ‘It’s higher than we expected,’ he says.”

“Homes that were selling for $535,000 last year are going for $460,000 today. ‘It’s shocking to see, in a year’s time, the price’s ability to come down,’ Hiatt says.”

“Page Musgrove is done flipping in San Diego, where home prices are now falling and there’s nearly a nine-month supply of single-family homes for sale. ‘I don’t trust the California market anymore,’ he says.”

The Washington Times. “Hundreds of houses get auctioned off every month at the offices of Alex Cooper Auctioneers in Washington and Baltimore, where homeowners grasp at one last chance to make money off their properties. ‘I do find that there has been a greater demand from individuals who are very anxious and who can’t understand why their house has not sold,’ said VP Paul Cooper.”

“Many of his customers bought houses during the peak of the housing boom. Now they can’t keep up with the payments. ‘They borrowed too much, they paid too much,’ Mr. Cooper said.”

“Doug Goldsten, an auctioneer in the District, said his business of auctioning foreclosed homes is up 10 percent to 20 percent since the spring. ‘The banks were making loans with less equity,’ Mr. Goldsten said. ‘People got into trouble if they couldn’t sell their house right away, so they’re getting foreclosed on.’”

The Associated Press. “Now that home sales are weakening, buyers have taken a page from the sellers’ playbook, demanding everything from new appliances to no closing costs to upfront cash to get the deal done. In some cases, what they are doing is down and dirty, sellers have been asked to pay off buyer’s credit-card debt, cover costs of the buyer’s current home or even pay for the buyer’s commuting costs from the new home.”

“This kind of gamesmanship allows buyers to get the most for their money. It also reveals that the housing market’s ugly side may be here to stay.”

“Buyers throw out new demands right before they sign the deal, such as to have their credit-card debt paid off, their closing costs covered or the homes completely repainted with their choice of colors.”

“The buyers of Theresa Liddy Dolge’s Hamilton, N.J., home wanted to her to pay their apartment lease from June through August since they forgot to tell their landlord they were moving. She didn’t agree to that, despite her lawyer and realtor’s attempts to get her to do so. They also asked for her train pass and her parking spot at the train station, both of which she no longer had.”

“Granted, she made money on the deal, selling the home for $275,000, which was well above the $160,000 for which she had bought it. But the buyers’ sense of entitlement still bothered her.”

“Today’s buyers seem to have learned from yesterday’s sellers, when homeowners saw that as an opportunity to inflate their selling prices. Now buyers are watching mortgage rates move up and risky loans implode. They want to make sure they get as much as they can out of the housing market. That certainly sounds familiar.”

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