The Housing Bubble

The Daily News reports from California. “The inventory of homes for sale in the San Fernando Valley has more than doubled since August 2005, according to figures released Monday. ‘This isn’t a bursting bubble or sky falling,’ said John Karevoll of DataQuick. ‘It’s just the end of a real-estate cycle.”

“The stockpile of Valley homes reached 6,832 properties, compared with 3,167 this time last year. In the Santa Clarita Valley, the number of homes on the market ballooned from 1,400 to 3,600 from August 2005 to last month, said Jim Link, Southland Association of Realtors spokesman.”

“‘People are confused,’ regional economist John Husing said. ‘People feel that prices may go down, so they wait,’ Husing said. That was even more true locally, where sales in the Riverside-San Bernardino area were off 31.4 percent year-over-year.”

The Orange County Register. “O.C. broker/economist Gary ‘Up 15% in ‘06′ Watts strongly hints that the current market slowdown is largely a product of negative media coverage. ‘Newspapers are losing subscribers and television is losing viewers. Consultants have advised them that if they want to hold their viewers’ or readers’ attention, they have no alternative but to portray fearful impending events and instill anxiety in their audiences! This raw emotion will help to keep people tuning in, thus possibly preserving precious advertising dollars.’”

The Contra Costa Times. “Most Bay Area home values stagnated or dropped in August, housing analysts reported. Some say that East Contra Costa builders are artificially propping up prices with incentives.”

“‘All those incentives they’re giving away are keeping the prices up,’ said Rhene Montiel, broker in Walnut Creek. ‘With all those Mercedes, pools and cash back, they will get their asking price.’”

“Brian is a Bay Area mortgage broker. ‘Michael’ is his client. The payment on Michael’s new home is $4,200 a month, but he only earns about $4,000 a month. He was only able to get the loan because his broker used ’stated income’ to inflate his paycheck.”

“Brian (the broker) said, ‘I put on the application that he made $13,000 a month, which was unverified … That’s the definition of a stated income loan. You state the income.’”

“One broker, ‘Dennis,’ works for a mortgage company where he says a whopping 85 percent of loans are stated income. He says out of that 85 percent, they all have inflated numbers. ‘All of them, because that’s why you’re going stated.’ Dennis added.”

“But if it leads to getting their piece of the American dream, homebuyers must be happy, right? Not according to Beverly and Dwayne, two Bay Area homeowners. ‘Right now I’m living from paycheck to paycheck. I’m struggling with putting gas in my car just to get to work,’ Beverly said.”

“Their broker assured them they could afford the half-a-million-dollar price tag based on Beverly’s income as a social worker. She makes $2,750 a month. To make the deal work, the broker boosted Dwayne’s salary to an impressive $8,000 a month.”

“In truth, Dwayne is out of work and only gets a small disability check. Nevertheless, based on their inflated income, they qualified for a mortgage of $3,700 a month. That’s almost $1,000 more than Beverly’s entire paycheck. ‘I didn’t find out until the signing,’ Beverly said. ‘And I said ‘I can’t afford to pay that,’ and the realtor said, ‘Don’t worry about it, we’re gonna immediately refinance it.’”

The Marin Independent Journal. “Peter Nielsen, a Realtor (in) Southern Marin, listed a two-bedroom condo in San Rafael for sale at $469,000. The condo stayed on the market for two and a half months without an offer. After four price reductions totaling $43,000, escrow closed Sept. 11 at $426,000.”

“This is an example of sellers insisting on a price based on what they want to get from a property, rather than what the market data indicates would be an appropriate price,’ Nielsen said. “The seller had totally remodeled and wanted to realize the full value of those investments.”

“But the real estate market has shifted. With prices leveling or dropping, and the number of homes for sale climbing, buyers have more selection and better bargaining power. Some classified advertisements in the Independent Journal tell part of the story: ‘Just Reduced.’ ‘Price Reduced!’ ‘Huge Price Reduction.’ ‘New Price.’ ‘Reduced.’”

“‘The fact is that Realtors do not set price and, in the end, the sellers do not set the price, either,’ Nielsen said. ‘Buyers do, and often it takes time for sellers to accept that reality.’”

“For Nielsen, trying to sell the San Rafael condo as three others were on the market required creative marketing efforts. ‘When you turned into the entrance of the development, it was sprouting four real estate signs, which might scare people off,’ Nielsen said. ‘Where we would have eight or 10 people come through a year ago, now we had one or two on a given Sunday open house.’”

“Marin’s median condominium price fell 5 percent from last year to $546,000. Median price for all homes fell 2.3 percent. ‘It is definitely a buyer’s market, no two ways about it,’ said Jim Wilson, an analyst with JMP Securities in San Francisco. ‘This idea that prices don’t go down is nonsense.’”

The Arizona Republic reports on land sales. “A year ago, builders couldn’t buy land fast enough, no matter how much it cost. Now, Valley land has lost some of its luster with home builders in the rapidly slowing housing industry, even when the property is in one of the northeast Valley’s most desirable areas.”

“The Arizona State Land Department is calling off this week’s auctions of two prime pieces of residential land. The auctions weren’t worth the agency’s time because no builders or investors are willing to pay the appraised prices of $150 million for a parcel of more than 325 acres in Desert Ridge and $130 million for 1,276 acres in Fountain Hills.”

“Potential bidders made it clear they can’t pay what the properties are currently appraised for because they would have to charge more for houses than buyers are willing to pay.”

“When the current Desert Ridge site first went on the auction block in August, it didn’t draw a single bid. The state is in the process of having the sites reappraised. It could be next year before either site goes back on the market.”

“So far this year, home building in metro Phoenix is down 24 percent from last year’s record pace. Housing analyst RL Brown recently said new home permits could fall as low as 38,000 Valley-wide this year, down 40 percent from last year.”

“Last year’s investor-buying frenzy prompted builders to stockpile huge parcels for future growth. But this year, many of those speculators walked away from deals as the housing market slowed. Valley home builders are now offering tens of thousands of dollars in incentives to try to sell those houses, as well as others built for people who can’t sell their existing homes.”

“‘There’s a correction going on in the Valley’s housing market now, and I don’t think these parcels or many others should be auctioned this year,’ said land broker Nate Nathan.”

“‘It’s probably about as poor a time to bring a parcel of residential land as anyone could pick,’ said RL Brown. The beneficiaries of the downturn are buyers, Brown said.”

“‘It’ll give regular people an opportunity to buy houses for less money than they have seen in the last two years,’ he said.”

The Las Vegas Business Press. “Softening home sales are causing some publicly traded builders to divest land holdings to better improve their balance sheets and quarterly earnings. The consequences could be significant for the Las Vegas real estate market.”

“Nearly all of the valley’s top 20 home builders are now listed on the New York Stock Exchange. As such, many critical decisions for the Las Vegas market are being made out of state by corporate officers eager to appease shareholders. ‘National builders are walking away from land deposits,’ said Guyan Long, vice president of commercial marketing with TitleOne.”

“Builders have been under mounting pressure from analysts and investors to better their financial outlook in response to fewer home orders, rising mortgage rates and growing inventory.”

“It could be troublesome for the Las Vegas housing market. ‘Nationally, we have heard of some home builders divesting land holdings in response to softening market conditions,’ said Brian Gordon, principal with a Las Vegas-based economic research firm. ‘They’re now focusing more on homebuilding profitability as opposed to land values.’”

“Developers have had trouble finding affordable dirt in recent years due to the premium prices paid by Wall Street-backed builders. However, a flood of land deluging the market could also dilute property values.”

“‘Home builders are divesting their holdings or walking away from deposits because they recognize the land is not going to be able to put into production as soon as expected,’ said Daniel Doherty, president of the Society of Industrial & Office Realtors’ Nevada chapter. ‘Wall Street has been beating these guys up, prompting them to take it off their balance sheet.’”

“‘Wall Street sees [land] as a liability,’ said Long. ‘The question is how long are they going to carry it on the books until they build on it or sell it?’”

Some housing bubble reports from Wall Street and Washington. “Lennar Corp. warned Tuesday for the second time in a month that it would miss Wall Street forecasts and its CEO said the housing market hasn’t hit bottom. ‘The housing market has continued to deteriorate, trailing down further and faster than anticipated,’ CEO Stuart Miller said in a a statement.”

“‘Although the economy remains strong and unemployment and interest rates remain relatively low, it is not clear that the homebuilding downturn has yet found a floor,’ he added.”

“Lennar’s policy has been to start a new home as soon as one is sold, with or without first finding an intended buyer and using incentives for the sale. ‘Rather than slamming on the brakes, they’re trying to let the business wind itself down to whatever the appropriate level is over time,’ analyst Todd Vencil said. ‘They are clearly adding to the problem overall to the market in having too much inventory.’”

“CEO Miller said the company has seen its cancellation rate rise to over 30%. ‘Primary purchasers are either on the sidelines or demanding better pricing before purchasing,’ Miller said. ‘Customers in backlog are also demanding concessions or are walking from deposits.’”

“Lowe’s Cos. forecast profit for the year toward the lower end of its prior view, citing near-term pressures on consumers such as a weaker housing market. ‘We are not surprised..given the declines in the housing market continuing to accelerate,’ Wachovia analyst Peter Benedict wrote. ‘We believe there is still risk that more estimate reductions are ahead given there is no sign of the housing market reaching a bottom.’”

“Countrywide Financial Corp has confirmed that it will cut up to 10% of its ‘general and administrative’ work force in the coming months. A Countrywide spokesman confirmed..layoffs have already begun. One source told MW that the company has even canceled its regular practice of providing employees with free doughnuts on the last Friday of every month.”

“In Southern California..home builders, real estate agents and loan brokers here are starting to feel the pain. ‘Everyone is tightening their belts,’ said Irene Genders, president of the California Escrow Assn. ‘We’re expecting this to be a little while.’”

“Andy Perkins, San Diego branch manager for Orco Construction Supply, said he believed that job losses were just beginning as housing projects finish up and builders find little or no new demand. More construction equipment is coming back to his stores rather than moving to another job, Perkins said. ‘San Diego has set the trend for the business falling off the shelf’ in single-family homes, he said.”

“‘Things are clearly turning down pretty hard’ for residential real estate, said Jan Hatzius, an economist at Goldman Sachs. ‘Hatzius said the risk was that housing could see a much harder landing than now appears reasonable.”

“‘We have never seen the kind of housing boom nationally that we’ve seen over the last six or seven years,’ he said. ‘So to know what’s on the other side of the boom is very difficult.’”

“Paul Volcker, who halted a wage and price spiral as Federal Reserve chairman between 1979 and 1987, said he’s worried both about inflation and pressure on the U.S. central bank to not do anything about it.”

“‘I am a little bit more worried about inflation,’ said Volcker. ‘ I am impressed by the degree of pressure, if that is the right word, psychological pressure, political pressure, there is not to do anything about it.’”

“To bring buyers back into the market, sellers simply have to lower their prices, said David Lereah, the NAR’s chief economist. Lereah has repeatedly cut his forecast for the housing market this year and says he’s now unsure how deep the correction will turn out.”

“There’s now a 7.5-month supply of homes for sale, up 60% from last year. ‘If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out,’ Lereah said. Either way, he says, ‘It’s a buyer’s market.’”

The Florida press reacts to the new sales numbers. “‘Reality-based pricing’ has hit the Charlotte County real estate market. Market forces are slowly overwhelming the desire of many sellers to hold out for the highest possible price.”

“Kristine Wishard, president of the Punta Gorda-Port Charlotte-North Port Association of Realtors, said, ‘When one of our agents goes out to list a home,..you often have to overcome the seller’s idea of what they’d like to list their property at,’ she said. In other words: The boom is over. Get over it.”

The Herald Tribune. “For the second month in a row, the Sarasota-Bradenton market posted a double-digit drop in median sales price. ‘They are just not selling out here,’ said real estate agent Bradford Hanley as he showed off his client’s 3,500-square-foot home. Hanley has been trying to move the house since February 2005. He started at $849,000. Next he got the owner to trim to $820,000. For the last two weeks, they have been trying $799,000. ‘We had a contract. It fell through. This is my longest listing,’ Hanley said.”

“Meanwhile, to his chagrin, a couple of neighbors only a few houses away just listed their house, a comparable abode with 500 square feet more, for the same price of $799,000. ‘It’s the lowest square footage price in the neighborhood,’ said co-owner Suzie Williams.”

“Sarasota-Bradenton’s inventory levels remain seriously high, with about 9,500 homes and condos for sale. At the present clip, it would take nearly two years to sell off just the existing inventory, assuming no more homes come onto the market. So far, the listing rate has been growing at about 1,500 or so each month.”

The St Petersburg Times. “Home sales have plunged and inventories have skyrocketed, according to statistics. In the Tampa Bay area, there were more than three times as many active listings in August as there were a year ago. ‘I had one of the worst summers ever,’ said (realtor) Lisa Levison. ‘There’s no demand.’”

“‘I had a listing in Madeira Beach three blocks from the beach that we had under contract in February at $275,000 when the seller decided to take it off the market,’ she said. ‘It was relisted for $249,900 and now it’s under contract for significantly less.’”

From Florida Today. “The Brevard County real estate market didn’t show any signs of bouncing back in August. Gene Collins, president of the Melbourne Area Association of Realtors, said there currently are about 7,700 single-family homes, 2,400 condominiums and 700 townhomes listed for sale in Brevard.”

“‘By historical standards, that’s twice or three times the normal level,’ Collins said.”

“Gail MacMillan, a broker associate in Titusville, said, ‘They’re just a bit afraid of what all the people in the media are saying about the market. We’re not going back three years ago,’ she said. ‘That’s not going to happen. This area had been tremendously undervalued.’”

“‘We’ve been in business for 22 years, and we’ve seen these things come and go,’ said Colleen Barneman, president of BSS Exteriors in Melbourne. ‘I don’t think it’s been quite this slow before.’”

The Palm Beach Post. “The price of an existing home in Palm Beach County dropped for the first time in more than seven years, while the number of unsold homes has more than tripled in a year. In August, 28,182 homes were for sale. ‘There isn’t much positive to highlight,’ said Mike Larson, an analyst in Jupiter. ‘And all that occurred despite a recent downtick in interest rates and a general lack of serious hurricane activity.’”

“‘Affordability in its broadest sense is the number one concern,’ said Manuel Iraola, president of an online real estate company. ‘It is easy to buy the elephant,’ Iraola said. ‘The challenge is to feed the elephant in an environment where wages and income are not keeping up with outrageous property taxes, property insurance and overall energy costs.’”

The News Press. “With more than 12,000 homes on the market in Lee County, triple the inventory of a year ago, the number of buyers is about what it was three years ago, real estate broker Brett Ellis said. ‘We just have too many sellers and sometime we have to start eating into the inventory,’ Ellis said.”

“Real-estate agent Ernie Horvath said he thinks it will take a year for more houses to sell, as new home builders try to move their stock. ‘A lot of builders are starting to seriously discount their homes,’ Horvath said.”

The Miami Herald. “Sherri Wells put her one-bedroom waterfront condominium in Fort Lauderdale up for sale in February. Seven months and four price cuts later, she’s still waiting for a buyer. She and many other home sellers are by now all too familiar with the languid pace of South Florida’s housing market, which continued through August with no end in sight.”

“‘At first I would at least get four or five calls over a weekend,’ said Wells. ‘Now I am not getting any calls.’”

“After Wells moved out, her property tax increases for the condo were no longer capped because it was no longer her primary residence. As a result, she said her property taxes shot up from $890 a year to more than $4,000.”

“‘There is no way I could ever charge enough rent to cover what the mortgage and taxes have become,’ she said. ‘I am trying to sell as soon as I can.’”

The Sun Sentinel. “In Tequesta, in northern Palm Beach County, agent Mary Hankey has a client who held an auction Saturday to sell his two-bedroom home. The suggested opening bid was $275,000, and the list price is $450,000. Two bidders stepped forward, but negotiations continue.” “Hankey said property taxes and insurance are holding back buyers. ‘Buyers are very scared,’ Hankey said. ‘They’re almost an extinct breed right now.’”

“The number of Broward homes and condos for sale in August was nearly 39,000, a 145 percent increase over last August. Michael Kaye of Cooper City, listed his house a few months ago for $399,500 before reducing it to $387,000. He said he’s still lucky to have one showing a week.”

“‘If I were to keep lowering the price, it wouldn’t even help,’ Kaye said. ‘Right now it’s just a lack of buyers.’”

“Marilynn Obrig, a Fort Lauderdale agent said, ‘Houses that look good and are priced right are selling.’ But Delray Beach analyst David Levin said, ‘I think it’s overly optimistic to say we’ve reached equilibrium in the marketplace.’”

The Boston Herald reports on the latest numbers. “New figures confirm the Bay State is in the throes of a fierce housing downturn. Data released yesterday show Massachusetts is facing its steepest house-price drop since 1993 amid growing foreclosures and the slowest August market in more than a decade.”

“Market watchers say the latest numbers all point to a housing sector in big trouble. ‘There’s no question the market is in decline,’ said housing economist Karl Case of Wellesley College. ‘Demand has dropped, inventory is building and people’s houses aren’t selling.’”

“Warren Group CEO Tim Warren said prices are dropping because ‘buyers are tasting blood, and they’re starting to get more aggressive (about) pricing.’”

“Employment numbers already show that the construction industry, which played a huge role in propping up the economy during the recent downturn, has lost about 2,500 jobs since the start of the year and since the housing market switched from red-hot to one where sales and prices are both dropping.”

“‘We’re in for some more weakness,’ said John Bitner, economist at Eastern Bank in Boston. The surplus of homes on the market will take months to sell, he noted. One of the concerns is that consumer spending, which recently has relied on homeowners taking out home equity loans to pay for items, could decline if the housing market dips farther into the negative.”

The Boston Globe. “‘Things are not over in terms of the price declines,’ said David Iaia, a senior principal for a Lexington economics consulting firm. He said sellers will feel more pressure this fall to drop their prices. Iaia said the state’s price declines would continue in 2007 and possibly into 2008. ‘I don’t think you’ll get a good sense of the impact until next spring,’ he said.”

“‘Now you’re at the end of the major selling season, and people who’ve had their house on the market all summer and haven’t sold it are getting concerned, so there are probably more price declines coming this fall,’ he said.”

“David Wluka, president of the Massachusetts Association of Realtors, blamed soaring appreciation during the boom for making it difficult or impossible for many first-time buyers to afford a single-family house. Without them, homeowners are unable to sell when they want to trade up.”

“High prices are ‘creating a clog in the system,’ he said. ‘People trying to buy houses can’t buy until they sell houses they own, and unless they price houses they own correctly they’re not going to sell.’”

“‘I also see buyers holding back and waiting for the bottom,’ he said. Buyers ‘need to bargain hard,’ because ‘they’re in a very powerful position.’ Wluka predicted prices could stabilize this fall, if homeowners who aren’t serious enough about selling to reduce their prices take their houses off the market.”

From New Jersey. “North Jersey real estate agents say that with more houses on the market, buyers are negotiating more aggressively, and many sellers have cut their asking prices.”

“‘There have been a lot of price adjustments,’ said Robert Abbott in Ho-Ho-Kus. His office, in fact, is planning a ’sale’ Oct. 15 and 16. Sellers will be asked to lower their prices by 3 percent to 8 percent for two days only, to create a sense of urgency among buyers. The last time the office ran such a promotion was in the mid-1990s, Abbott said.”

“Rosemarie Knick said prices have leveled off over the past year, although homeowners who bought at least three years ago still have healthy gains in their home values. Knick said many sellers want to test the market by starting with a high asking price, just in case a buyer will pay it, but most sellers are willing to cut prices if they must.”

“‘Sellers are pretty realistic once they see the overall market,’ she said.”

The Hartford Courant from Connecticut. “Developers want to scrap their plan for a second condominium building in the shopping, entertainment and housing district because rising construction costs will push the prices of the second set of condos so high that they will take much longer to sell, if they sell at all, in a market that is starting to go soft.”

“Condominium builders across the country are backing out of projects and returning deposits to buyers because of an inability to sell enough units, said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania. In August, a developer canceled a plan to turn a 12-story building in Hartford owned by the city into a few dozen luxury condominiums.”

“‘It’s the wrong time to be building luxury condos,’ said Robert Wienner, a managing partner with BBS Development.”

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