The Housing Bubble

It’s Friday desk clearing time! The Philadelphia Inquirer, “Local boosters can call it a lull, or a pause, or anything else that sounds soothing. The fact remains that the Great Housing Boom of the early 21st century is over. This isn’t simply a local phenomenon, and it’s not confined to a few formerly ‘hot’ markets on the coasts. The biggest drop last month took place in the Midwest, where housing starts fell a full 12.2 percent. Who knew there was a bubble in Toledo?”

The Toledo Blade. “‘Business and housing starts pretty much [stink] right now,’ said Jim Eloff, owner of Kayo Lumber in Lambertville. ‘There’s an overproduction,’ he explained. ‘The mills are exceeding the consumption and the market pretty much makes them cut prices to try to sell it.’”

“‘Housing has just fallen off a precipice,’ said Mark Zandi, chief economist at Moody’s Economy.com.”

From Atlantic City, New Jersey. “The U.S. real estate market is showing another sign of heading south, while this region remains reluctant to follow. Economist Richard Perniciaro at Atlantic Cape Community College said, ‘The people who are buying are people who have been coming here all their lives and they didn’t look anywhere else. So we have a pretty sure flow of demand. People just want to be here,’ he said. ‘They’ve planned for 10 years to buy into here.’”

The Orlando Sentinel. “The real-estate agents, mortgage brokers and land investors are correct. A lot of poor saps are getting hammered by property taxes this year. And elected officials are spending like sailors on shore leave with American Express Platinum cards.”

“But until recently these same agents, brokers and investors were too busy uncorking Dom Perignon and lighting cigars with $20 bills to take notice. Then the bubble burst, leaving the market with wildly inflated property values, higher assessments and brutal tax bills.”

From Belgium. “The boom in the Belgian housing market has past its peak, a new report indicated. ‘Due to the very favourable mortgage conditions, buyers bought larger houses or in more expensive locations,’ ERA Belgium director Iain Cook said. But that does not mean that a row house with three bedrooms has also increased so much in price.”

“Unfortunately, sellers have not realised this, Cook said. It means that more and more houses are being put up for sale at an exaggerated price and are therefore difficult to sell.”

From Australia. “Welcome to the dark side of the housing boom. The question is, why have we borrowed so much more today? See the point? We took the benefit of lower interest rates and used it to achieve little more than a doubling in the price of homes.”

From New Zealand. “A slowdown in sales of higher priced houses has put a stop to rising prices in the city’s residential property market. The median selling price slipped $9000 in August at Mount Maunganui and Papamoa, and across the harbour the fall was even bigger, more than $12,000. ‘If you scratch under the surface at the moment there’s nothing much happening,’ said John O’Donnell, principal of LJ Hooker Mount Maunganui.”

“‘Life is not as exciting as some people would like. There are no great trends in the marketplace and prices are definitely not going up,’ he said.”

The National Post in Canada. “Royal Bank of Canada singled out the Vancouver market as ‘unsustainable,’ based on the fact the current median household income in the city of $54,912 means a typical family would have to shell out 72.8% of their pre-tax income to meet all the expenses of owning an average two-storey home.”

The New York Sun. “Money manager James Melcher adds that most people believe higher short-term interest rates, increased minimum monthly repayment levels for credit card debt, higher energy prices, the inability of households overburdened with debts to refinance homes in a declining market, the fact that wage earners have had no increase in inflation-adjusted earnings over the past several years, and a variety of other seriously negative factors will only slow consumer spending a fraction of a percent.’”

“‘We suspect that most of them also believe in Santa Claus and the Tooth Fairy,’ he quips.”

The Dallas News. “During the early 1990s, the dirtiest word in the North Texas real estate market was condominium. That’s because thousands of homeowners lost their shirts when the local condo market went bust. Many owners wound up owing two or three times what their homes were worth when property values plunged.”

“One condo deal that’s not going ahead is developer Craig Hall’s planned tower in downtown’s Arts District. Hall decided to wait for the next real estate boom cycle, however long that might take. Hall’s site will soon be in the shadow of construction of the new performing arts center. ‘When those new buildings open, we will be an eyesore and we feel bad about that,’ he said.”

From CNN Money. “When Casey Young and his wife Jaime Ballanco put their Orlando house on the market back in March, they had no clue that the property would not sell. ‘It was a foregone conclusion that we would sell it very quickly,’ says Young.”

“Young and Ballanco have a particularly vexing problem having just contracted to buy a new house. The new house cost $562,000 so they were really counting on profits from the old place to help.”

“They re-priced the house, lowering it to $369,000 and then to $349,000. They’ve had open houses that nobody attended; run advertisements that elicited no responses. In all its months on the market, the house has drawn only two lookers.”

“The couple are increasingly feeling the stress. They have to make a decision soon about whether to go ahead with the purchase and hope they’ll sell the old house, or give up the new place and lose their $28,000 deposit. ‘I absolutely need the profit from my old home to afford the new one,’ says Young. ‘Even with rental income from one of the homes, there’s no way I can afford both mortgages at the same time.’”

The Bulletin reports from Oregon. “Joel and Julie Cohen bought their three-bedroom home in southwest Bend two years ago, thinking that, in a couple of years, they would sell and move up. Two years later is now.”

“The problem is, there are more than 1,400 single-family homes for sale in Bend this month, according to the Central Oregon MLS. The market, to be generous, has gone flat.”

“So the Cohens opted to try something different. They put their house up for auction last week. Using a round-robin method, they plastered the newspaper and their neighborhood with $3,500 worth of ads, held a two-day open house and collected bids.”

“The open house drew 200 people and 28 bids, two of them serious. Everything worked except the most important part, the house didn’t sell. No one would meet the $375,000 reserve price. The lone bidder who said he or she would pay it backed out at the last minute ‘to see where the market goes from here,’ Julie Cohen said.”

“‘It’s kind of a general reflection on what the market is doing right now,’ Cohen said. ‘It seems like it’s such a buyers’ market, people are getting cold feet. To tell you the truth,’ she said, ‘it was kind of disappointing.’”

“The Cohens’ attempt merged them with a small but growing trend, as sellers in a broad range of cities look for ways to distinguish their houses amid the rising glut of inventory. Nationwide housing inventories have risen to more than a seven-month backlog, according to David Lereah, the NAR’ chief economist. The abrupt slowdown in sales prompted Lereah to openly call for price reductions this month.”

“David Staley, a Bend property investor, and his wife took the least-expensive approach when they offered a northeast Bend rental house for an auction sale in August. They didn’t get a great price for it, $211,000. The speed of the sale outweighed getting a price that was ‘quite a bit below what I think the house was probably worth.’”

“‘I’m not sure I’d use it (an auction) again,’ Staley said. ‘If you’re trying to get the best price for your house, it probably isn’t the best way to go. But we got it sold, and that’s all that was important to us.’”

“The Cohens, meanwhile, are planning to fall back to ‘Plan B or Plan C,’ Julie Cohen said. They have already bought a bigger house in northeast Bend. But, they see little point in listing it for sale the traditional way, especially since there are five other homes in the neighborhood for sale right now.”

“So, she said, they may put it up for a lease-option rental until things loosen up. They’re not alone.”

“George Cappony, a sales coach who worked with the Cohens, said markets have softened dramatically across the country, quickly turning last year’s sellers’ market into a buyer-dominated field. But most sellers have not yet faced up to that reality.”

“‘I think that sellers are standing like a deer in a Wisconsin road in the middle of the night, and around the corner are headlights,’ Cappony said. ‘Right now, I think it’s a go-cart coming down the road. Tomorrow, it’s gonna be a semi.’”

The Associated Press reports on California. “Greg Sterbens thought his 3-bedroom, 2.5-bath home on a cul-de-sac in wine country was a great deal when he hung up a ‘For Sale’ sign two months ago. List price: $685,000. After a month without offers, Sterbens lowered the price to $660,000. Earlier this month, he reduced the price to $639,000, making it the cheapest house per square foot in his Sonoma County neighborhood.”

“‘We have to be competitive, and we can’t be greedy,’ said Sterbens, who is having a home built in Redding. ‘It seems like people are afraid to buy now. They don’t know where the bottom is.’ Real estate agents and economists say Sterbens, and thousands of other sellers, may have to consider further reductions.”

“Fresh data show that California’s market is not immune, and may be on the cusp of a long-feared correction. ‘I could see some continuing declines at least over the next 12 months,’ said economist Stephen Levy,. ‘Typically sellers begin to lower their prices, and that’s when you worry that the bottom could drop out. We still haven’t reached that point, but I don’t see how the economy can continue with these prices.’”

“The median price last month in San Mateo County was $721,000, down from $773,000 a year ago. The median home price in Marin County last month was $803,000, down from $822,000 in August 2005. San Diego and Alameda counties also saw prices decline.”

“‘We’ve got sellers out there who have not adjusted to the new reality,’ said (realtor) Carla Giustino. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000.”

“Broker David Schubb persuaded a client last week to lower the price on a home in the San Francisco suburb of Walnut Creek. ‘We were exploring interest rate buy-downs, making the buyers’ payments, even throwing in a new car,’ said Schubb, who has been selling real estate for 37 years. Schubb said he’s offering incentives he hasn’t used since the stagnant 1970s. ‘I’m not a genius who invented this stuff, it’s what we used to have to do all the time,’ Schubb said.”

“The only upside is that many California towns have turned from unaffordable hamlets to buyers’ markets.”

The Fresno Bee. “A large supply of properties for sale continued to put pressure on prices, according to figures released Thursday. A total of 1,265 new and existing houses were sold in August in Fresno County, down 21.2% from August 2005, DataQuick reported.”

“Joan Jolly, president of the Fresno Association of Realtors, acknowledged a tough market. More than 3,500 single-family homes are for sale in Fresno and Clovis alone, which is causing sellers to lower prices. ‘The $300,000 to $350,000 price range is the one that has a ton of stuff on the market,’ she said. ‘Some have been reduced to sell.’”

The Press Enterprise. “Rates for 30-year mortgage rates dropped this week to the lowest level in six months, but the break for homebuyers may not be enough to buoy sagging sales in San Bernardino and Riverside counties, according to some real estate agents, mortgage lenders and a university economist.”

“‘It is going to help. But it is not going to make a significant change in the housing outlook,’ said Esmael Adibi, at Chapman University. ‘The interest rates have not gone down enough to make a difference because the (prices of) houses are still too high,’ said Diana Nieves, an agent who covers Corona and Riverside.”

“Real estate agents said despite lower interest rates and price reductions offered by more builders and private sellers, prospective home buyers are sitting on the fence, waiting for something more dramatic to stir them to buy.”

“‘A lot of buyers are saying they will wait until November or December until the sellers are desperate. Some think the economy is really going to get bad,’ said Yvette Plautz, an agent in Eastvale.”

A Idaho Statesman report from the Idaho Stateman. “Price slashing and builder concessions to buyers are becoming commonplace in the Treasure Valley. The triggers have been a triple-digit jump in inventory numbers and runaway home-price appreciation rates during the last 18 months.”

“In the last six weeks, Kent Proesch has slashed more than $70,000 from his initial asking price of $324,000 in hopes of creating interest in a 2,428-square-foot, four-bedroom home he owns on the Boise Bench. ‘If I had a good agent, he probably would have told me to price it at $279,000,’ joked Proesch, who has been a Treasure Valley real estate agent since 1976.”

“‘It’s not doomsday,’ said Proesch, who declined to say what he paid for the house he bought in February from his aunt’s estate. The home was assessed for $162,200 earlier this year.”

“Elsewhere, agent Marilyn Van Dorne said the owners of a 2,969-square-foot, four-bedroom, 31/2-bath home in a gated community in the affluent Highland Ridge area of North Boise have shaved $44,000 off their original asking price of $739,000. The house remains on the market.”

“Intermountain MLS statistics show that Treasure Valley home sales were down 25 percent this August from the same month a year ago. ‘That’s incredibly steep in my experience,’ said Ken Simonson, chief economist for the Associated General Contractors of America.”

“‘It’s obvious that the national slowdown has been worse than some of us wise-guy economists expected,’ he said.”

“52 building permits were issued in Meridian, the fewest since January 2002 and 79 percent fewer than the 251 permits authorized in January, when the city was the hottest real estate market in Idaho. 56 permits were issued in Boise, 42 percent less than the same month a year ago. The inventory of available homes in the Valley stood at 4,863 on Sept. 17, a 173 percent increase since the start of the year.”

“‘Sales are simply coming back to normal,’ said Don Holley, professor of economics at Boise State University. ‘The underlying economy in the Valley remains strong, and there is nothing to suggest that it’s going to collapse.’ But Holley said that as the housing market slows, construction industry employment will, too. Potentially hundreds of additional jobs created at the height of the building boom are likely to disappear, he said.”

“As home sales have slowed, Treasure Valley homebuilders are offering concessions unheard of in 2005. Hubble Homes in Meridian, is willing to listen to offers on homes it’s carrying in inventory, something that wouldn’t have happened a year ago. ‘Last year we wouldn’t have accepted anything less than full price,’ said owner Don Hubble.”

“Most agents also are warning clients that if their homes haven’t sold by predetermined times, it will be time to think about cutting prices, she said. ‘People are used to houses flying off the market,’ Van Dorne said. ‘That’s not the reality now. Now there’s a lot of inventory out there.’”

“Some industry experts say some benefits may be emerging. Michelle Plaschka, a (banker) for emerging markets in Nampa, said fewer sales will put the brakes on runaway home-appreciation rates.”

“Landowners who were able to demand $150,000 an acre for vacant land at the height of the boom will have to bring down their asking prices, Hubble said. ‘I’ve already seen lots prices come down $20,000, and to my knowledge they still haven’t sold,’ Hubble said. ‘So I think some good is going to come out of this slowdown.’”

A housing report from the Boston Herald. “More than a year after home prices peaked, the Bay State housing sector is entering what experts predict will be its second straight soft autumn market. Buyer’s broker Gary Dwyer recently took a house hunter out to look at Allston condos and lined up some 20 units to show her, five times what he would have found just two autumns ago.”

“‘It really is like night and day,’ said Dwyer. ‘A couple of years ago, a buyer with a similar price point might have only had three or four good prospects to look at.’”

“Experts expect tough going for sellers this autumn. ‘I don’t think we’re at the end of the correction yet,’ said David Wluka, president of the Massachusetts Association of Realtors. Of course, bad times for sellers mean good times for buyers. Wluka said first-time purchasers and others who don’t have to sell before buying ‘are the most-powerful consumers out there. People in that position can drive very hard bargains.’”

“Both the volume of homes available for purchase and the time they sit on the market are up sharply since the last strong autumn in 2004. MLS Property Information Network currently lists some 47,600 Bay State houses and condos for sale, nearly double the 24,200 available in September 2004.”

“Dwyer estimates that of the nearly two-dozen Allston condos he and his client checked out, ‘probably 18 were overpriced or in very poor condition given their price point.’ One exception: Unit 10, which lists for $189,000, down from an original $199,000.”

“Dwyer also favors Unit E309 at a loft complex that opened last year. Listed at $419,000 (down from an original $459,000). He added that a savvy buyer can probably haggle the price down a bit more.”

“South Shore buyer’s agent Georgia Taft Pye likes Unit 3 at Ocean Woods Drive in Duxbury (that) has been on the market for more than five months and currently lists for $479,900, down from an original $529,900.”

“Buyers agent Ronn Huth of Hamilton likes homes that list for less than their tax-assessment value, something that never happened in the boom years. ‘For years, we were accustomed to seeing properties sell for a good $100,000 above the tax-assessed value - but not now,’ he said.”

“Huth favors Wenham’s 32 Mayflower Drive listed at $549,900, $13,500 under its tax assessment. The home has been on the market for more than eight months, and the owner has knocked the price down by nearly $70,000. Huth also favors Beverly’s 35 Taft Ave., which lists at $419,000, down $80,000 from the price it originally hit the market at a year ago.”

“Newton buyer’s agent Barry Nystedt likes homes where sellers have cut asking prices 10 percent or more and properties have sat unsold for at least 100 days. One such house in popular Newtonville currently lists for $579,000, down from an original $639,000.”

“Nystedt likes the five-bedroom house in Auburndale because of its big price cut ($849,000 today from the original $1.2 million) and long time on the market (more than six months).”

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