The Housing Bubble

The News Tribune reports from Washington. “Home builders are advertising more incentives. ‘Price Reduced’ placards hang below ‘For Sale’ signs. And the house down the block that you’d thought would sell in a few days? It’s been on the market for a few months. For buyers, it’s great news. For sellers, now isn’t the time to mess around.”

“What happened? A rash of condominium projects and new home developments have caused a spike in Pierce County’s inventory, said Dick Beeson, a broker in Tacoma and a director with the Northwest MLS. The county currently has 6,225 homes and condos for sale, a 53 percent increase from last year at this time and the highest inventory for at least the last five years.”

“‘If you drive through Tacoma now, you’ll see a lot of ‘For Sale’ signs that you didn’t see last year,’ Beeson said. ‘It slows everything down. It means buyers are taking their time.’”

“Cathy Reed put her brick Tudor in North End Tacoma up for sale in May. In the two years she’d owned the home, Reed did a lot of work. But the competitive market forced her to pay even more attention to details, and reduce her price three times, from an asking price of $479,000 to the sale price of $399,000.”

“‘Every little detail had to be right,’ Reed said. ‘That wasn’t the way it was last year .’”

“Builders selling new homes are also offering more incentives in hopes of sealing the sale. Michael Dattilo, director of sales for Puyallup-based Premier Communities, said his company is seeing more people pulling out of agreements for new homes.”

“‘It’s either the investor that bought anticipating a bull market and great returns or the buyer having severe second thoughts,’ he said. ‘In the current market situation, there’s a lot of fear and apprehension.’ Dattilo said that comes from people relating concerns about the national real estate market and fears of a housing bubble to the local area.”

The Peninsula Daily News. “Clallam County’s real estate market, industry professionals say, feels the ripples from the rest of the country, with a few twists.”

“Sellers who ask too much for their homes may be contributing to the slowdown in the pace of sales, said Quint Boe, broker in Port Angeles. ‘If you’re priced too high, it’s not going to sell. We’ve seen a lot of price reductions on listings that were overpriced to begin with.’”

“From January to mid-September 2005, 883 homes sold in Clallam County. During that period this year, that number fell to 711, according to the MLS.”

“In the sunnier eastern part of the county, prices may lower a bit due to the building boom, said Steve Marble, VP of the Sequim Association of Realtors. ‘We don’t have a dead market. But we don’t have the robust market we had,’ said Marble. Unrealistically priced properties are the ones that may come down first. ‘The next big boom may be a few years off,’ he added.”

The Kitsap Sun. “The 439 homes sold this past August is a 10 percent drop from the 489 sold a year ago. South, Central and North Kitsap all saw double-digit percentage drops in the number of homes sold from a year ago.”

“Jo Schaefer, who has been doing appraisals since the 1970s, said houses appear to be taking a bit longer to sell than they did a year ago and that year-to-year increases seem to be down a few percentage points.”

“Associate broker Julia Carns said she’s seeing price drops. But they’re coming from sellers who were hopeful the market conditions from last year hadn’t gone away. ‘After the first of the year I noticed an increase in price reductions, but not a decrease in appreciation,’ Carns said. ‘It was just the seller expectations weren’t being met.’”

“Carns said some sellers might walk away from a sale disappointed, because they’ll make less of a profit than they thought they would.”

“Bainbridge Island is adjusting to the slower market in its own way, with the highest-end homes apparently more in demand. They are second homes for some of her buyers, Maureen Buckley said. And many are from out of state, living in those homes only part of the year. ‘We have a lot of clients from Hawaii,’ she said.”

“Surprisingly, the segment of the Bainbridge market that’s feeling the slowdown most is the lower end, she said. Bump-ups in interest rates have caused some buyer hesitation for homes selling in the $450,000 to $600,000 range, even though some of those asking prices may have been slashed.”

“‘A lot of people are just waiting the market out,’ Buckley said. She and (broker) Rod McKenzie agree that island home prices have had some of the fluff removed.”

“Major condominium construction in Winslow will add about 350 units to the island market by the end of the year. While the rush to buy them has subsided, people who bought them as investments are now putting them on the market. ‘The key now is whether they sell or not, with the slowdown,’ McKenzie said.”

“‘If there is a slow-down, says Claudia Housley, a real estate sales associate in Shelton, it’s likely just folks pausing to assess the situation due to increasing speculation of a housing bust. She says many of the buyers she sees are investors looking to cash in on a market correction. So they’re looking for bargains.”

In Business Las Vegas reports from Nevada. “While major homebuilders relinquish options and pull out of escrow on properties because of a soft new housing market, builders are already plotting strategies for where the market is heading next, according to Sullivan Real Estate Advisors. Because of the high cost of land, builders have shied away from making major purchases knowing that prices are already a factor in keeping people out of the new housing market, Ken Perlman said.”

“Las Vegas lacks the ocean and water views to make it a prominent high-rise condo market such as cities like Miami, Seattle, Chicago and Vancouver, real estate research consultant John Restrepo said. Restrepo noted that the Southern Nevada luxury condo market has 4,288 existing and prospective units in 14 projects that have gone vertical, which amounts to 6.5 percent of the 66,075 units in 119 projects that are under construction and planned.”

“Some 38 percent of the projects that have gone vertical are located in the resort corridor, and 85 percent have been purchased by second-home buyers, investors and speculators, he said.”

“Housing market researcher Dennis Smith continues to say he expects a home price decline in the valley, possibly 10 percent. Smith said there will be some ‘fairly significant price cuts’ in the existing home market in order to move some inventory; he said new home prices will fall as well.”

“‘As the market continues to cool and find the bottom, many of the owners of homes listed for sale have been unwilling to cut their prices, causing some vacant homes to sit on the market for months,’ Smith said.”

“Real estate tracker Steve Bottfeld takes aim at those who believe housing prices in the Las Vegas Valley are severely overpriced, calling such claims of national experts ‘poppycock and balderdash.’ He argued that the median price of an existing home at $329,897 is nearly 13 percent ahead of August 2005 at a time of all-time inventory and cooling demand.”

“‘Under ordinary circumstances, rising prices in the face of those two factors would not make economic sense, but this is Las Vegas and there is always more than meets the eye,’ Bottfeld said.”

From KVBC TV . “The American dream of owning a new home turned into a nightmare for one Las Vegas couple. The couple is suing the developer of Spanish View Tower Homes. They say the developer has missed construction deadlines and now they want their money back.”

“‘This project, the money, was put up, the construction was begun, the construction stopped and now there’s a lot of people that might not see their money back,’ says attorney Terry Coffing. Coffing filed a lawsuit on behalf of a couple that paid $246,000 to buy one of Spanish View’s 444 luxury units.”

“Analyst Jeremy Aguero says Spanish View is one of 135 high rise condo projects in development in Las Vegas. ‘In the third quarter of 2003, we’re looking at 2500 existing and proposed projects.’ He says the market will not support that many new condos and predicts 70 percent of those projects will never get off the ground.”

The Arizona Daily Sun. “When Shelly Denny of Phoenix put one of the two townhouses she owns in Boulder Pointe on the market three weeks ago, she knew it would take a while for it to sell. Denny is asking $309,000 for the 1,440 square-foot, three-bedroom, 21/2-bath townhome.”

“But with 237 townhouses and condos listed for sale in greater Flagstaff and sales slowing down, Denny could be in for a longer wait than she thought. ‘I believe there is a year’s worth of inventory on the market,’ said (realtor) Stephen Brighton.”

“According to statistics from the Northern Arizona Association of Realtors multiple-listing service, sales have slowed locally and are down 13 percent from the same period last year. From June through August, 86 townhomes and condos sold this year, compared to 99 last year in the greater Flagstaff area.”

“For the last year ending Aug. 30, 266 condos and townhouses have sold in greater Flagstaff, but Brighton said he believes the market has cooled considerably just as it has become flooded.”

“Denny bought the two Flagstaff townhouses as an investment opportunity. She said she decided to buy property in Flagstaff because she liked the area and said it has potential in terms of real estate investment.”

“The supply is about to increase even more and the median price come down as condos at The Arbors, an apartment conversion project, are offered for sale between $95,000 and $222,000.”

“Developers of new townhomes and condos are using several incentives to lure buyers into the market. Valerie Caro, a local real estate broker who is handling the Arbors condo conversion, said the developer’s move to set aside $500,000 down payment assistance has helped court buyers for the former apartments.”

“For sellers of existing townhomes, there are fewer incentives to offer prospective buyers. ‘They don’t have the same ammo,’ said Brighton. ‘They have to make the price compelling.’”

“A spokesperson for NAAR said the sales figures are down from last year. ‘Our condo and townhome market in Flagstaff has proved to be an interesting one,’ said Ginny Britt, spokesperson and president for NAAR. ‘We certainly seem to have more on the market as you drive through the neighborhoods.’”

Several readers suggested possible bailouts as a topic. “I think this is going to be one angle that the politicians use to try to pass some type of FB bailout: ‘These are people who want to partake of the American dream, who have every right to, who really with a bit more work and a bit more financial planning could get there in a safe way, but who are lured - even seduced - by many of these lenders to go ahead and make this commitment too early, at a point before they’re ready,’ he said.”

A reply, “We can all agree there should be no bailout. There is still the question of who should bear the most brunt of the damage: 1. The ignoramus borrower who is blinded by stupidity. 2. The conniving lender who is plotting with stupidity.”

Another said, “GREAT topic. Include thoughts on likelihood, precedent, possible mechanisms for doing so, and probable ways of preventing such an event from occurring.”

One said, “Absolutely agree this is THE main concern for most of us. Will the FBs or lenders get bailed out, how and at whose expense (think we know the answer to that one)? The lenders (and our pension/mutual/bond funds?) should be the main ones who get hosed. They **KNEW** better, whereas the FBs are often just completely ignorant and stupid. The lenders preyed on the FBs.”

“Speculators (and those who purchased more than one home in the past few years) should also not get a single cent in a bailout. AND HOW CAN WE PREVENT IT?”

A reply, “We can’t. The same well-heeled folks who brought you this bubble can buy the influence on Capitol Hill to steal the money from Joe Soccer Mom needed to keep it going.”

Another had this, “Here are my criteria and thoughts: 1. No bail out for anyone. Whether you are lender or a borrower, you made your choice to lend or borrow, now deal with it. 2. If a loan was made to a borrower with insufficient income to meet the payments for a 30 year fixed interest version in that amount at that time, then the lender should be fined the amount of the loan. All monies collected go into the Social Security general fund. The borrower still has to deal with honoring the agreement.”

“3. If a borrower is found to have misrepresented their income on a no doc loan, then they are guilty of fraud and should be prosecuted for fraud.”

“4. If an appraisal value exceeded the comps for that house and then there was a cash back situation, then all of the ‘professionals’ and the borrower should be investigated for fraud. Agents, Lenders, Brokers, Appraisers, everyone.”

“I realize that much of what I list here is simply not going to happen, but by putting it down it makes me think about it and maybe engage in some dialog with others on the pros and cons of it all.”

The Denver Post. “For retirees Patrick and Marilou Foley, a mortgage carrying a low 2 percent interest rate seemed an answer to their prayers. After failing to sell their home, the couple wanted to refinance into a smaller mortgage payment so they could rent the home out. They also needed cash to deal with mounting medical bills.”

“‘They told us we were sitting on a gold mine,’ Marilou said of the brokers at an Arapahoe County mortgage broker that provided the couple with an Option Adjustable Rate Mortgage.”

“Despite its name, the Foleys said their new mortgage left them with limited options and put them on a path to foreclosure. Two months into the new loan, the minimum payment that they thought would be around $1,000 is closer to $2,074 when property taxes and mortgage insurance are added in.”

“Taking that minimum option will add more than $1,100 a month in unpaid interest back into their loan’s principal. Once unpaid principal grows to 115 percent of the loan amount, their payments will rise sharply. ‘It is going from bad to worse,’ Marilou said. ‘I can’t eat and I can’t sleep. I am desperate.’”

“A prepayment penalty on the Foleys’ loan means the couple can’t refinance within three years absent a hefty fee. And the cash they expected to receive never materialized. But Marilou isn’t staying idle. She is talking to the Arapahoe County district attorney and trying to organize other borrowers into a class-action lawsuit.”

“Consumers bite on the low ‘teaser’ rates, only to find themselves in over their heads, said Patricia McCoy, a law professor at the University of Connecticut in Hartford and an expert on predatory lending. ‘We are in this no-man’s land of outmoded disclosure laws that are really confusing,’ she said.”

“‘Negative amortization was never explained to me,’ said Marilou Foley, who added that she would have ripped up the loan papers if she had understood that a prepayment penalty had been slipped in.”

“‘To me, it is per se unsafe to give a senior an option ARM,’ law professor McCoy said. ‘They do not have the financial ability to weather that.’”

“Ferren Rajput defended the loan his company provided the Foleys, saying it is saving the couple $800 a month from their previous mortgage arrangement. The lower monthly payments provided by option ARMs can give people on fixed incomes more flexibility, not less, he said. Washington Mutual, one of the largest mortgage lenders in the country, calls option ARMs ‘the right loan for retirement,’ he said.”

What do you see in your housing market this weekend? Here’s one from Louisiana. “‘Homeowners are looking across the street and saying, ‘Well if they got that much for their house, I’m going to sell mine too,’ said real estate agent Larry Haik in Slidell. ‘But what they don’t realize is that there are so many houses on the market that it’s turning into a buyers’ market…. Housing prices are coming down, but the average Joe doesn’t know about it.’”

“‘”It’s getting scary,’ he said about the real estate market in Slidell. ‘There’s a nationwide slump in home sales, but it’s worse here.’”

From Canada. “In Ontario, Quebec and Atlantic Canada, more reasonable sales volumes and moderate price appreciation suggests the market is gradually working its way back to more normal historical levels. ‘Gone is the sellers’ market that we have lived in for some years,’ said Phil Soper, CEO of Royal LePage Real Estate Services.”

“Rapid appreciation in Calgary’s housing market is scaring away some buyers, says a report. ‘We are now beginning to see a shift in the purchasing pace. We are seeing that buyers have become reluctant to get involved in the frenzy that has typified the city’s market up until now,’ said broker Ted Zaharko.”

“Zaharko said many buyers, and some sellers, are no longer willing to take part in the chaos of Calgary’s housing market.”

“Canadian economists are postulating that we’re in a housing boom with much time to go on. But some fear it’s becoming a bubble. In a conversation the other night, a single mother of teenagers told me she’s considering investing her entire pension fund, probably the most money she’ll ever see in her lifetime, in property.”

“She’s bought into the current mantra that buying residential property realizes greater returns with no risk attached because everyone says there’s no end to this boom.”

The Royal Gazette. “A leading realtor yesterday said she had not seen so many homes available on the Bermuda housing market in ten years as there are now. Susan Thompson has noted a ‘glut’ of condos available which has even persuaded some developers to drop their prices. It was not that people could not afford available properties, Ms Thompson said, rather it was a case of people waiting for a downward move in the market.”

“‘The inventory is the highest I have seen in ten years and a good two-thirds of what is available is in the condominium sector,’ Ms Thompson said. ‘There is a large glut of condos at this time and we have seen developers put their condos on the market at one price and a few months later, drop that price.”

The Times Herald from California. “During the current Bay Area real estate market slowdown, any edge a Realtor can find, could mean the difference between success and struggle, said Paul Winders. Winders said he was there looking at ‘what new technology I could use to differentiate myself from the others’ in this less-than-perfect real estate market.”

“The current slow market is expected to last at least a couple of years, Winders said. ‘There will be a lot of foreclosures and short sales,’ he said.”

“A short sale is when the seller owes more on his home than the home is worth and the lender agrees to accept a payoff amount of less than what’s owed on the home. In an increasingly competitive buyers’ market like Solano County, anything that helps attract a dwindling client pool is welcome, Winders said.”

The Journal News reports from New York. “Early indications from executives of Lower Hudson Valley Realtors associations show that swelling inventories continue to put pressure on housing prices. Preliminary data for Rockland County shows the median sales price dropped 8.4 percent to $490,0000 in August from $535,000 a year earlier.”

“Inventories jumped 47.7 percent to 1,594 from 1,079, while sales fell 24 percent to 165 from 217 in August 2005. Roberta Bangs, the president of the Rockland County Board of Realtors, said the drop reflects a lack of buyers for homes priced over $1 million. ‘The upper-priced homes have basically stopped dead,’ she said.”

“Homes listed at under $500,000 are driving most sales, which helped push the median lower, she said.”

“P. Gilbert Mercurio, the CEO of the Westchester County Board of Realtors said Friday that he’d taken a peek at some preliminary data. ‘I think the inventory is going to climb even more. What’s abnormal is that the sales volume isn’t keeping up with what it was.’”

“The Journal News calculated that Westchester’s months-of-inventory ratio stood at 10.4, putting it within the range of a balanced market.”

“If you count yourself among the skeptics who scoff at talk of a housing bubble, you would have found good company three years ago in one coterie of economists who set out to prove the doom-and-gloomers wrong.”

“‘We were very suspicious of that talk and thought it was a bunch of hooey,’ said Richard DeKaser, chief economist at National City Corp.”

“‘Our initial research found in 2003 that only seven metro areas appeared to be overpriced,’ DeKaser said. ‘When you took the total market value of those markets, it only accounted for about 2 percent of the housing value in the country.”

“‘As time played out, housing prices not only continued to rise but continued to rise at an accelerating pace,’ DeKaser recalled.”

“Late last month, the venture’s analysis appeared to all but sound an alarm about overvalued housing prices. The most recent estimate of valuations for the second quarter found that 79 of the 317 markets were ‘extremely overvalued and at risk for a future price correction.’ Those 79 markets also accounted for about 40 percent of the estimated value of all of the nation’s single-family homes, DeKaser said.”

“So we had to ask the economists: If circumstances led to their relocation to the New York area, knowing that the model estimates prices are overvalued by 21.7 percent, would they buy now?”

“‘If I was moving to your area and expecting to stay for a long time, I would buy a house and forget about all this,’ DeKaser said. And if he only expected to be here for three years? ‘I certainly would not buy,’ he said, ‘because I do not see a reasonable expectation for appreciation.’”

The Courier Post from New Jersey. “‘Two years ago, even my dog could have sold real estate,’” said Anthony Yula, (realtor) in Woodbury. ‘Hang a sign around his neck and get him to bark, and the house would have sold.’”

“Once super-charged, the real estate market canters along at a slower pace today.”

“New Jersey’s resale inventory was 67 percent higher in August than it was in January, Patrick O’Keefe of the New Jersey Builders Association said. ‘Selling this backlog of homes will take nine months, even if no more listings are taken,’ O’Keefe said.’

“Through August this year, 11,865 homes have sold in Burlington, Camden and Gloucester counties, and another 23,805 remain listed.”

“Cathie Galanti in Sewell, says her office has 14 percent more listings now than it did six months ago. Higher-priced homes, she notes, are slipping in value. ‘Prices are definitely not going up as quickly and homes in the range of $300,000 and above seem to to be coming down, about 7 percent within the last year,’ she said.”

“In New Jersey, Drew Fishman wonders if some customers are being scared off by national media reports. ‘I believe the biggest problem is perception, that the market is awful and that some unknown balloon has burst,’ said Fishman, who is first VP of the New Jersey Association of Realtors.”

“Tracy Harris said her buyers seem to be in a wait-and-see mode. ‘They know that the market is slowing down,’ said Harris, who hangs her license in Sewell. ‘They are seeing that sellers are cooperating more and dropping (listing) prices more than they have in the past.’”

The Naples News reports from Florida. “First came the conversions. Now come the reversions. In the past year, investors have flooded the market with apartments turned condo. While sales are moving slowly at some projects, others flopped as demand slowed. In Southwest Florida, some developers are welcoming back renters they once sent packing.”

“Now, faced with a slowing market, the 356-unit Malibu Lakes apartment complex is wooing back renters with special incentives, including a month of free rent and six months of paid utilities. Units once going for $229,900 to $399,900 are no longer for sale.”

“In May, the owners of Monterra at Bonita Springs informed residents they weren’t converting after all. ‘Don’t pack,’ a flier stated. ‘As many of you have probably heard, YES we are staying A Rental Community.’”

“‘The supply pipeline is so full that it just takes longer to sell property today and a lot of these owners of these properties had projected in their business plans that they would sell out these condo communities within three to four months, and now it is going to be more like two to three years,’ said Ann Bailey with a real estate agency.”

“Some investors who gobbled up multiple conversions in hopes of making a killing will lose money, said agent Tom Doyle. It’s already happening. There are a flood of resales on the market from recent conversions. Some are listed at less than the buyer paid for them.”

“‘You can find deals,’ Doyle said. ‘There’s no question about that.’”

“Earlier this year, Michele Flocco feared she might be forced to pack up and leave Collier County. She was given only a 10-month lease as rumors swirled that Arbour Walk might turn condo. At the time, rents were on the rise and the average occupancy rate at apartments was 99 percent.”

“With the changing housing market, she’s found a nicer condominium to rent in East Naples. She’s paying $100 less a month for a place twice as big. Her monthly rent is $1,050. ‘Because nothing is selling they are trying to rent everything,’ Flocco said. ‘It’s becoming a renter’s market again.’”

The Orlando Sentinel. “For builders, buyers and sellers, the sure-sailing housing market of recent years is moving into uncharted territory. The area’s new-home inventory grew nearly 20 percent during the quarter, and the fastest growth came in the ‘finished but vacant’ category, up 136 percent to 6,787 homes. And in another clear sign of a slowdown, the total number of homes under construction during the quarter, 16,133, was only 20 units more than a year earlier.”

“There are benefits to a pullback, said Kohn, a custom builder. For one thing, the slowdown has relieved at least some of the pressure on construction materials and subcontractor labor, both in short supply, he said. ‘The subs are now getting back on track, because they are less busy. It’s getting back to normal,’ Kohn said. ‘The market was too crazy. I’m happy with this slowdown.’”

“Nany builders are resorting to attention-grabbing offers to keep drawing enough prospective home buyers to their developments. Bob Benjamin recently paid $315,000 for a new town home near Sanford. But the real clincher, Benjamin said, was the builder’s move-in deal: $1.”

“Buyers must obtain 100 percent financing through Morrison Financial Services. ‘I’m paying a few hundred bucks more than when I was renting, but it’s worth it,’ Benjamin said. ‘I own it.’”

The St Petersburg Times. “It had to end someday. The housing mania that gripped America and the bay area for several years would begin to subside. Otherwise sane Americans who had bought overpriced homes they couldn’t possibly afford would realize the fuse on their deceptively cheap loans was burning short.”

“Those who had expected to resell before the interest rate on their mortgage began to climb, for a stupendous profit, of course, might find themselves seated before their bank’s loan officer, weeping.”

“In August, mortgage lenders filed foreclosure lawsuits against 860 property owners across Pinellas, Hillsborough and Pasco counties, a 44 percent increase over August 2005, according to statistics.”

“Kraig Braeuning, regional vice president of an Orlando company that tracks foreclosure suits, said he expects the bay area’s situation to grow worse. ‘It’s going to be a tsunami in the next year or two,’ he said. ‘There’s going to be a huge wave of foreclosures.’”

“Foreclosure lawsuits grew 48 percent in Pinellas, 46 percent in Hillsborough and 33 percent in Pasco. Few neighborhoods were spared. In Pinellas, for example, 44 of the 45 ZIP codes with more than 2,500 households each saw at least one foreclosure in August.”

“The county’s 10th-wealthiest ZIP code, Oldsmar’s 34677, had the second-worst foreclosure rate. Low-income neighborhoods tended to be hardest hit, however.” “Although most of August’s foreclosure defendants lived in their homes at the time, a substantial minority, 40.5 percent, were investors. It’s testimony to the housing market’s recent fervor that so many people thought they could profit as a speculator or landlord.”

“Tampa investor Leigh Fiske has had a rough time, too. In the past year, lenders have tried to foreclose on 10 homes he owns, nine of them in Tampa. Fiske could not be reached for comment.”

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