The Housing Bubble

The California realtors report on August home sales. “Home sales decreased 30.1 percent in August in California compared with the same period a year ago. ‘We experienced the greatest year-to-year sales decline last month since August 1982, when sales fell 30.4 percent,’ said C.A.R. President Vince Malta. ‘This is another indication that we’re in the initial stages of a long-anticipated adjustment in the market. Some sellers are still clinging to price expectations that are no longer valid in today’s market,’ he said.”

“‘Although the median price in the state and in several regions hit an all-time record in August, we expect softer prices toward the end of the year,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘The median price typically peaks somewhere between June and August before declining toward the end of the year. Some areas of the state already have experienced year-to-year declines for more than two months.’”

The Orange County Register. “House prices in Orange County showed an annual decrease for the first time in a decade, the CAR reported today. The median price of an existing single-family detached house here was $698,080 in August. That’s 2.5 percent below the house-price median of $716,300 reported for August 2005.”

“The last annual price drop reported by the state association was in July 1996, at the height of the housing bust that gripped the region in the early 1990s.”

From KGO-TV. “Bay Area homes sales are slowing down. The latest real estate trends show sales down by nearly 25 percent from August of last year. About 9,000 homes and condominiums sold in the Bay Area last month, that’s the lowest number since 1997. It is also a significant drop off from peak sales of 12,500 in 2003.”

“In eight of the nine Bay Area counties, prices haven’t fluctuated more than a point or two in the last year. San Mateo home prices really took a hit last month, dropping nearly seven percent. Dan Newland, Alameda Home Seller: ‘Well it certainly is a different market than it was even three months ago.’”

The Union Tribune follows up on condo conversions. “A year ago, it was not uncommon for three or four conversion projects to go before the council at any given meeting. The council approved all but one of the 105 projects proposed since 2000.”

“The slowdown comes as the inventory is piling up. Of the 1,231 apartments that have been converted in El Cajon, about 500 are on the market, twice as many as a year ago, said Ron Pennock, chairman of the East County Construction Council.”

“Robert Pinnegar, of the San Diego County Apartment Association, said conversions countywide have all but stopped. ‘A lot of the stuff that’s been approved this year around the region, it’s not going to be converted anytime soon,’ Pinnegar said.”

“During the peak of the conversion trend, De Los Rios at the Center for Social Advocacy said she received as many as 100 phone calls a month from upset and confused renters. The calls have dwindled to 10 or fewer a month, she said. Most are renters who receive an initial notice that their apartment is to be converted, but who months later see nothing happening.”

“‘That’s the clue to me that more of the projects are on hold,’ De Los Rios said.”

The Voice of San Diego. “The heated market inspired a lot of novices to jump onto the landlord scene. And those people often had little, if any, understanding of what might happen if the market stopped appreciating so dramatically. One of their biggest considerations is cash flow, they weigh their mortgage and other expenses for the property against how much they expect to charge in rent. So landlords who bought properties last year could find themselves in trouble.”

“Notices of default in the county, notices sent to property owners who’ve missed at least one mortgage payment, have increased 250 percent since last August, according to the County Records Service. And, for some, that statistic is enough to convince them that the rental market will be impacted dramatically in the short term.”

“‘There’s a lot of people in negative cash flow, who reached pretty far in trying to take advantage of this market,’ said Dan Holbrook, president of a mortgage brokerage and real estate investment firm in Carlsbad. ‘If we’re cruising along at 110 miles an hour and we hit a bump in the road, we’ll go careening off to the side.’”

“Bob Pinnegar, of the San Diego County Apartment Assoc., said it’s those who bought condo conversions in the last few years who will have the most potential for trouble. ‘The last ones to the party are the ones who’ll get hurt.’”

“Howard Boehm, of San Diego Professional Property Managers, agreed with Pinnegar. ‘The people who purchased in the last year,..that were just jumping on the bandwagon, a lot of them have extended themselves far beyond what they should have,’ he said.”

The Masssachusetts realtors have this August report. “Sales of single-family homes and condominiums declined in Massachusetts for a fifth consecutive month in August compared to the same period a year ago, while downward pressure continued to be applied to selling prices due to softening demand and a steady gain in the supply of unsold homes, according to data issued today by the Massachusetts Association of Realtors.”

“In the detached single-family home market, sales fell 21.6 percent, from 5,395 homes sold in August 2005 to 4,229 this August. Last month’s sales total is the lowest August home sales volume in over a decade, dating back to August 1995. Additionally, condo sales decreased 18.5 percent in the past year.”

“‘The market has lost some steam simply because many buyers are waiting to see if prices will go lower, while sellers have been reluctant to adjust prices and, in many instances, are choosing to delay their home search until they have been able to reach agreement on the sale of their own home,’ said MAR President David Wluka.”

“Indicative of these market realities, the report found that inventory levels continued to increase in August, from year ago levels. The number of residential listings rose 20 percent over the past 12 months, from 53,877 homes and condos on the market in August 2005 to 64,735 homes and condos for sale this past August.”

“‘Until supply and demand are in better balance, we will continue to see modest price corrections,’ stated Wluka.”

“Indeed, with the inventory of homes and condos for sale still near record levels and properties staying on the market longer this year, downward pressure on prices continued to intensify last month. Across the state, the median selling price for detached single-family homes declined 6.1 percent in August, from a record high median of $375,000 in August 2005 to $352,000 last month. It’s the largest annual price decline since January 1993.”

“Separately, in the condo market, the median selling price slid 3.3 percent in the past year, from $287,500 last August to $278,000 in August 2006.”

“We’re now in the midst of the strongest buyer’s market since the late 90s,’ Wluka noted. ‘Up until the last several weeks there’s been little reason to act with a sense of urgency, but with mortgage rates back below 7 percent, sellers more readily willing to adjust prices, and inventory still plentiful, buyers would do well to jump in the market and negotiate hard.’”

From the talking points. “Single-family home sales have now decreased in the Bay State for 10 of the last 11 months compared to the same period a year earlier. The slower sales pace reflects the fact that many buyers are attempting to ‘time the market,’ waiting for the right moment to buy. Many continue to hold out for lower prices, believing a larger market correction may come.”

“The supply of single-family homes on the market rose for an 18th consecutive month in August. Inventory, as stated in months of supply, also rose from 7 months last August to 10.4 months of supply in August 2006.”

“The number of condos for sale has increased 28.4 percent in the past year, from 16,211 units last August to 20,807 in August 2006. Inventory, as stated in months of supply, also has risen in the past year, climbing to 9.9 months of supply this August from 6.3 months of supply in August 2005.”

“The median home price has declined for seven consecutive months, the longest such period since prices fell for 13 straight months from March 1992-March 1993.”

From the Warren Group. “The Massachusetts housing market slumped again in August as the number of single-family home sales fell by 19.8 percent and the median home sale price dropped by 8 percent, according to a report released today by The Warren Group.”

“‘The August numbers show that the market slowdown is taking hold and shows no sign that it is going to turn around anytime soon,’ said CEO Timothy Warren Jr. ‘We are clearly going through a market correction that is long overdue, considering the 10 years of unbridled sales and price increases Massachusetts has experienced.’”

“‘In the long run this may be healthy for the Massachusetts economy, making its housing more affordable and the pricing more competitive with other areas of the country. This could help the Commonwealth attract new jobs and retain its existing employment base,’ he said.”

The Florida realtors have the August numbers out. “Mirroring a national pattern, Florida’s housing sector continued to show signs of adjustment in August as many markets reported higher inventory levels of homes available for sale and a slowing pace of sales as buyers weighed more options. A total of 14,736 existing single-family homes sold statewide last month, a decrease of 34 percent from the previous August, according to the Florida Association of Realtors.”

“Looking to Florida’s existing condominium market, sales of existing condos also decreased in August, with a total of 4,375 condos sold statewide for a 41 percent decrease, according to FAR.”

The Herald Tribune. “Sellers are blinking in their standoff with buyers. Home prices fell 11 percent during August in the Sarasota-Bradenton market while dropping 6 percent in Charlotte County-North Port. The median sales price for a home in August was $309,700 compared with $347,400 in Sarasota-Bradenton during the same month last year.”

“In Charlotte County-North Port, the median was $210,300, down from $223,500 during the same time last year. Volume was down 28 percent in Sarasota-Bradenton, from 1,062 homes sold in August 2005 to 765 last month.”

The Sun Sentinel. “South Florida’s already-soft housing market weakened further in August. The median price of an existing single-family home in Palm Beach County was $386,000, down 6 percent from the $411,400 of last August, FAR said Monday.”

“Sales in the county plummeted 50 percent, the biggest drop in the state.”

“Broward County’s median price also fell 6 percent, dropping to $362,800 from last August’s $387,000. Sales in Broward declined 27 percent.”

The News Press. “Sales and prices for existing homes in Lee County were down 29 percent in August from a year ago. The number of homes dropped from 968 to 691 and the median price fell 7 percent from $283,600 to $264,100.”

“In Collier County, the number of homes dropped 45 percent from 472 to 259 and the median price fell 6 percent from $500,800 to $469,100. Charlotte County had a drop of 30 percent in sales from 365 to 256, and the median price was off 6 percent from $223,500 to $210,300.”

The Naples News. “Condo sales in Collier dipped 66 percent last month compared to August 2005. Sales of condos in Lee dropped 64 percent, from 280 to 100. Prices of condos in Lee are down 15 percent compared to last year.”

“Though agents and developers have grown accustomed to the frenetic pace of sales since 2002, the present slower rate of multifamily transactions in Southwest Florida may actually be healthy, according to local and national experts.”

“Even local industry insiders, whose income is tied to the flow and not the ebb of the market, agree that Southwest Florida’s rolling boil of a real estate market had to slow to a simmer for sustained health.”

“‘It had to stop,’ Michael Saunders, president and founder of the region’s largest and most prominent real estate brokerage firm, said of the current state of the market. ‘History is repeating itself. This is not a new market. Warren Buffett and Bill Gates couldn’t afford it here if we had 30 percent increases each and every year.’”

“‘Sarasota is on the map now, especially with baby boomers. And now, this is a more normal market. We need to take the past three years off the table when evaluating what healthy really is,’ said Saunders.”

The Miami Herald. “Last year the home builder Lennar brought in $13.9 billion in revenue, making it Miami-Dade’s biggest company. But now, the real estate frenzy that propelled Lennar’s growth has cooled. Lennar has stopped hiring, and in recent months outlined its way forward in the uncertain market. The aim is to position itself for growth when the market picks up, but the strategy has drawn some criticism.”

“Lennar’s response: Keep building. CEO Stuart Miller plans to ‘keep the conveyor belt running’ and finish building new homes in projects already underway. He also plans to offer sales incentives and slash prices to get the homes sold.”

“It’s an approach shared by several home builders, such as Centex in Dallas and D.R. Horton in Fort Worth. The pressure is on. KB Homes CEO Bruce Karatz said Thursday price concessions and incentives by other builders have ‘required us to do the same in some cases.’”

“For Lennar, Miller says he’d rather have cash now, even if there’s less of it, than sit on a house and hope it’ll sell for a better price down the road. ‘With liquidity we live to see another day,’ said Miller. Of course, that strategy also eats away at profits.”

The realtors trade group has the August numbers out. “Median sales prices of existing homes fell from year-ago levels in August for the first time in 11 years and just the sixth time in the past 38 years, the National Association of Realtors said Monday. Sales have fallen five months in a row and in nine of the past 12 months.”

“The median price of an existing home fell 1.7% year-over-year to $225,000. It’s the first time since April 1995 that median prices have fallen on a year-over-year basis. It’s the second largest decline in the 38-year history of the realtors’ survey, exceeded only by a 2.1% drop in November 1990.”

“‘The price correction is a welcome development,’ said David Lereah, chief economist for the realtors group. ‘The price drop has stopped the bleeding,’ Lereah said. ‘Sales have hit bottom,’ he said. ‘Sellers are finally getting it.’ Lereah expects prices to continue to drop for the rest of the year, which would keep sales from falling further.”

“Inventories of unsold homes rose 1.5% to 3.92 million, a 7.5-month supply at the August sales pace, the most since April 1993.”

“NAR President Thomas M. Stevens, said sellers need to price to current market conditions if they want to sell within a reasonable amount of time. In some areas home sellers are not making sufficient adjustments in their listing price, so their homes are staying on the market and contributing to the build up in inventory, said Stevens.”

“‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”

“‘The housing bubble has burst and housing is in full retreat,’ said Steven Wood, president of Insight Economic. ‘What was a sellers’ market has become a buyers’ market. The housing correction still has a long way to run.’”

“‘How long we can sustain consumption on the basis of what we have sustained it in the last several years: by taking money out of your house,’ Joseph Stiglitz, Columbia University economics and Nobel laureate, said.”

From MarketWatch. “Higher inflation remains a bigger risk for the economy than a sharp slowdown of growth, said Richard Fisher, the president of the Dallas Fed bank on Monday. ‘I continue to fret more about inflation than I do about growth,’ Fisher said.”

“Fisher dismissed the benign August PPI report released last week as unreliable. The best gauges of inflationary pressures ‘are not yet comforting,’ he said.”

“Fisher’s remarks lacked that sense of concern. He noted housing was undergoing a ’serious correction..In a few local housing markets, especially in the coastal areas..home prices have peaked and are beginning to decline.’”

“But he also said third-quarter growth would be only a touch below the 3 percent annualized pace of the previous three months, while highlighting factors supporting the economy. ‘We are fortunate that the rest of the economy is healthy and robust.’”

The Lowell Sun reports from Massachusetts. “More and more local sellers are having to bite the bullet and accept offers below their property’s valuation. ‘It’s not a statement of the accuracy of the assessment so much as which way the prices are heading,’ said Middlesex North Register of Deeds Richard Howe Jr. ‘Obviously, they’re heading down.’”

“In the months of May through August of 2005, 9.2 percent, went for less than their assessed value. During the same time period this year, 19.9 percent, went for less than their assessed value. Chelmsford Assessor Frank Reen has seen an even more dramatic trend in his town. He reported that 39 percent of residential sales in 2006 have been for less than assessed value.”

“Howe said there are plenty of indicators that the local market is on the decline. His registry covers Billerica, Carlisle, Chelmsford, Dracut, Dunstable, Tewksbury, Tyngsboro, Westford and Wilmington. ‘You can drive through any neighborhood and see all the for-sale signs (or) look at housing lingering on the market for a longer period of time,’ Howe said.”

The Staten Island Advance from New York. “Buyers are finding themselves solidly in the driver’s seat for the first time in a long time, experts say. Home sales dropped 16 percent and housing inventory rose 25 percent, according to figures from the Staten Island Board of Realtors. A ranch that last year might have sold for $525,000 could sell today for $450,000.”

“Realtor Tom Maira said he advises sellers to be realistic in a changed market. He said one couple insisted on listing their house at $600,000 when the house was worth closer to $530,000. They ended up dropping the price by $50,000 and the house is still on the market. Maira said he released them from the exclusive listing when they declined to cut the price further.”

“‘The buyers know in their gut what the house is really worth,’ said Maira.”

“Inventory has grown on the South Shore and there are more deals to be had, according to Realtor Patrick Gallagher in Annadale. ‘Buyers are definitely holding back,’ said Gallagher. ‘It’s like they are sitting on the fence waiting for the price to come down.’”

The New York Magazine. “The seller’s market has finally started to turn into a buyer’s market—or at least the beginning of one. According to a report by appraisal firm Miller Samuel, the number of sales last spring—traditionally the busiest season—were down 14.8 percent from the year before.”

“Those who bought at the exuberant height of the market—are wondering if now is the time to cash out and take cover in a rental. Some sellers are watching weeks turn into months. Some, in a hurry to unload, are slashing prices twice and three times.”

“Buyers, meanwhile, are wondering if there will be even better deals in six months. Alyssa Gelper, a lawyer who abandoned her search for a two-bedroom, two-bathroom apartment last spring (’I didn’t want to be the last sucker to buy high before the market tanked’), has decided the waters are safe to wade in.”

“In a very short time, the rules of the real-estate game have changed dramatically—and buyers are more in control than they have been in a while. ‘They’re taking their time, and they’re not afraid to make an opening offer that’s 10 to 15 percent off the asking price,’ says Corcoran’s John Gasdaska.”

“The supply of new condos for sale has more than doubled in the past two years, notes appraiser Jonathan Miller. What’s more, some 24,000 units have been approved to go on the market by the end of 2006, an astonishing number considering that altogether only about 15,000 condos, co-ops, and townhouses are sold in any given year—20,000 at the market’s peak, according to Jeffrey Jackson of MMJ Appraisals.”

“High-profile projects like Downtown by Starck, Bryant Park Tower, 99 Gold, and Schaefer Landing are giving discounts, and other condo developers are bailing out before they even break ground. Last week, it was reported that the developers of 485 Fifth, a new designer condo going up at Bryant Park, were essentially abandoning the project because half the units remain unsold, at over $1,000 a square foot.”

“The growing list of casualties includes Williamsburg’s 55 Berry (which is now turning rental) and 133 Greenwich (they’ve put the land up for sale). The glut is affecting everyone in the market, whether they’re trafficking in new stock or a prewar.”

“Carol Candiano’s already moved to the West Twenties while her Upper East Side one-bedroom awaits a buyer at $425,000. ‘We had someone lowball the apartment and offer $340,000. I told my broker to tell him to get lost,’ she says. ‘Just because the market’s a little soft doesn’t mean I’m going to have a fire sale. If I have to, I’ll rent it out. I refuse to be desperate.’”

“Cookie-cutter condo buildings constructed in the eighties may offer bargains, if you don’t care about bells and whistles. Units in these buildings can have a hard time measuring up to apartments in the shinier, sexier tower next door, so their sellers will have to compete on price. ‘In last year’s world, you were getting very little discount,’ maybe 5 percent, if that, says appraiser Jeffrey Jackson. ‘In today’s market, that discount could be as much as 10 to 20 percent.’”

“‘Developers don’t want to make it look like they’re negotiating on the price,’ says Dolly Lenz, vice chairman of Prudential Douglas Elliman Real Estate. Still, a bargain is a bargain—and that’s a word we haven’t heard in a long time.”

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