The Housing Bubble

The Daily Bulletin reports from California. “If you aren’t panicking about the downturn in the housing market, you aren’t paying attention. There is a massive inventory of unsold homes on the market, causing homes to take longer to sell and forcing some sellers to become more motivated by cutting their prices.”

“Regional economist John Husing says there is ‘definitely a psychological element to the housing market. People are confused right now,’ he said. ‘They don’t know what’s happening with the market. Nobody knows anything.’”

The Valley Voice. “The price of an average Visalia area home may have fallen about $50,000 in the past year. That’s the assessment of Joe Leal, general manager for McMillin Homes. ‘Still we feel our company is in good shape’ with some 6000 to 7000 lots in the central valley we can build on, some 6 years worth of work, he says.”

“The $30,000 to 50,000 drop in house values may be conservative by some measures as there are plenty of stories of home sellers lopping $100,000 off their asking prices on some higher end homes.”

“Unlike some builders who just recently came to the party buying land at prices as high as $200,000 an acre, McMillin and other builders who have been in the marketplace for a long time are expected to have an advantage—a lower cost per acre of land purchased years ago.”

“One clear signal that builders are adjusting their expectations is virtually all of them have given up some optioned land in the area in recent months, says Brad Maaske. That includes McMillin Homes, Centex and others by their own declarations. ‘Deals just didn’t make sense at levels we had agreed to before,’ says Leal.”

The Record.net. “The median sales price for existing homes in San Joaquin County stood at $425,000 in December. By August, that sales price had slipped to $395,000, a 7 percent price decline.”

“Until recently, Marcia Ourganjian and her husband, Walter, were in the Stockton housing market, dropping out after six months of, well, much of nothing. They’d had enough would-be homebuyers come to look over their home in north Stockton and tell the couple how beautiful the place was. And the lookers would walk without ever making an offer.”

“They did get one offer: After the couple had cut their sales prices $10,000, to $435,000, someone offered $390,000 but wanted all the furnishings in the house as well. ‘I thought, ‘Are you kidding?’ Marcia Ourganjian said.”

“Marcia Ourganjian quoted her husband’s philosophy of: ‘I’m not going to give my house away.’ ‘We’re going to wait three years,’ Marcia Ourganjian said. ‘Maybe the market is going to go up. Something has got to happen.’”

From News 10. “An economic research firm actually use the word ‘crash’ to describe the forecast for several northern California markets, including Sacramento, Stockton, Vallejo, Redding, Chico, Merced and Fresno.”

“‘Prices in places like Stockton, Merced and Sacramento were pushed artificially high by investors,’ said Celia Chen, for Moody’s Economy.com. ‘And so now it’s payback time.’”

From KCRA.com. “In Stockton, developers continue to build homes. ‘There are more than triple the number of houses, existing homes on the market as were on the market two years ago,’ said Dr. John Knight of the University of the Pacific School of Business.”

“Realtor Sheri Midgley said she has already seen the change as investors have left the market. ‘We were having investors buying two or three a year, or even more than that, and then flipping, but the flippers aren’t in the market right now,’ Midgley said.”

“For Judith Zann, it also means asking less for the house she’s selling. ‘We went on the advice of our real estate agent and we dropped ours lower than everybody else,’ Zann said.”

A report from the Chicago Tribune. “Applying the word ‘crash’ to sagging real estate markets in some parts of the country, a new study predicts that in the coming year, the nation’s median home price will decline for the first time since the Depression. The encouraging news for the Chicago region, though labeled ‘highly overpriced,’ is that prices here probably bottomed out this summer, according to economist Mark Zandi, principal author of the study.”

“David Lereah, chief economist for the National Association of Realtors, disagrees with the severity of the price downturn in the report. ‘It’s possible we could go under zero, if you include prices of new homes’ along with sales data for existing homes, he said.”

“Lereah agreed that broad price declines in some regions are unavoidable. ‘I don’t think I would use the word `crash,’ he said. ‘When you use a word like that, it’s almost a self-fulfilling prophecy in the housing market. These are people’s homes. Their retirement is depending on it.’”

“But Zandi defended the use of the word and his choice of 10 percent price declines as a benchmark. ‘If you have less than 10 percent equity and your prices fall by 10 percent, you’re toast,’ he said.”‘

“Paul Kasriel, director of economic research at the Northern Trust Corp., disagreed on the Chicago outlook, saying the prices here had not stabilized. ‘Not in my neighborhood,’ he said. ‘The same houses that have been for sale for six months are still for sale. Some of them have lowered their prices, and they still haven’t sold.’”

“But Zandi sees a somewhat bright side. ‘Even though this is a very serious correction, that these [market conditions] are things we haven’t seen before, I am still arguing that the economy is going to hold together.”

“‘That’s nonsense,’ Kasriel said. ‘The housing market is an accident waiting to happen. We’re already seeing a slowdown in employment growth, and a lot of it is housing-related. We’re also seeing a slowdown in consumer spending, and that’s housing-related.’”

“‘It’s beyond me how something that has dominated the U.S. economy in the past four years and is clearly in a recession now won’t have spillover effects on the rest of the economy,’ he said.”

The Capital Times from Wisconsin. “A record number of ‘For Sale’ signs around town don’t lie. The red-hot housing market has cooled off big time, leaving nervous homeowners, frustrated real estate professionals and anxious business people all across the country.”

“Even the Madison area housing market, often viewed as bulletproof, hasn’t been immune from the downturn. The median sales price for homes sold in Dane County actually fell in August, the first time that has happened since the Realtors Association of South Central Wisconsin began compiling monthly statistics.”

“The number of homes and condos sitting unsold in the Madison area has swelled by nearly 60 percent in the past year to a record 5,347, according to the association. That does not include another 1,100 area properties listed for sale on the FSBOmadison website.”

“Marc Loy and Ron Becker bought a four-bedroom, two-bath brick home near Tenney Park for $160,000 and over the past 10 years have watched its assessed value more than double. They assumed when it came time to move on, the buyers would come knocking. But it hasn’t happened that way.”

“Their house has been on the market since July without one offer. They’ve cut $20,000 off the asking price to $329,000, and still no action. ‘Everybody told us how easy it would be sell in this neighborhood,’ said Loy. ‘Of course, those were people who had already sold their house.’”

“Loy and Becker are moving to Cincinnati in January for a job commitment and have already purchased another home there. They aren’t sure what to do if they can’t sell their Madison home soon. ‘We can’t afford to pay two mortgages,’ said Loy.”

“In Mount Horeb, Joel Kahl’s got an opportunity to buy his ‘dream home’ on wooded land from a relative in the town of Vermont. The catch is he needs to close by November. Kahl and his wife have slashed the asking price on their remodeled three-bedroom, two-bath raised ranch to $196,000, $16,000 below its assessed value. Still, no action.”

“‘I put a lot of work into this place, but it’s looking more like I won’t get my money out of it,’ said Kahl.”

“‘The big question at this point isn’t whether prices are going to fall - but how much,’ said Morris Davis, associate director at the Center for Real Estate at the UW-Madison School of Business.”

“David Simon, president of Veridian Homes, the area’s largest homebuilder, has felt the pressures. In June, the builder cut 15 percent of its work force, and announced it was reducing the number of homes it plans to build this year to 500, down from more than 600. ‘We’re certainly watching our inventory,’ Simon said.”

“‘I personally believe the correction is healthy because it tempers people’s expectations and takes irrational behavior out of the decision-making,’ said (realtor) Sheridan Glen of Madison.”

“A bigger problem, Glen said, are the large number of upscale homes for sale in the suburbs. ‘Sellers who are used to getting offers at 98 percent of their asking price are being forced to settle for prices that are discounted deeply,’ he said. ‘Right now, if you don’t have to sell, I’d recommend not selling.’”

“Tamara Kaufman may be taking that advice to heart. She’s gotten so frustrated trying to sell her three-bedroom, 1.5-bath home in Fitchburg she’s ready to take it off FSBOmadison.com. ‘It’s been on there for three months and only four people have come to look at,’ she said. ‘I may just stay here for now.’”

The Journal News reports from New York. “Fresh data from a statewide group of Realtors shows that prices for houses in Putnam County slid by double digits in August. The median price of a single-family home in Putnam fell 13.7 percent to $402,500 from $466,300 compared to August 2005, the data from the New York State Association of Realtors revealed yesterday.”

“Prices in Rockland fell 8.4 percent in August to $490,000 from $535,000 a year ago. Putnam recording the largest percentage drop. In August, the county recorded 81 sales, down from 142 in August 2005, a 43 percent drop. In Westchester, 652 homes were sold, 22.6 percent fewer than the 842 that sold a year ago.”

From Delaware Online. “The softening of the nation’s housing market is unlike any downturn seen in the past 50 years, one of nation’s top housing economists told a group of Delaware real estate agents and mortgage loan officers Wednesday. In previous falloffs, the weakening was caused by underlying economic fundamentals, said David A. Lereah, chief economist of the National Association of Realtors.”

“The downturn is caused by falling confidence among buyers who are fearful of paying too much. ‘Buyers are just not buying,’ Lereah said. ‘We need to have a correction. Prices need to come down,’ Lereah said.”

“While the nation’s housing industry has not seen annual negative price appreciation since the Great Depression in the 1930s, some individual markets could see declines of 10 percent to 20 percent. Particularly vulnerable are resort markets on the nation’s East and West coasts, he said. ‘Prices are finally coming down and that’s good news,’ he said.”

The Wall Street Journal. “The proliferation of headlines about a weakening housing market is encouraging some potential buyers to hold off until prices look like they’re near a bottom.”

“Nillani McClain has been looking at condominiums and townhouses in New Jersey with her husband. But given the recent slowdown news, the McClains are leaning toward waiting until next spring, and then looking in Manhattan, a market they had originally thought they couldn’t afford.”

“‘We are taking into consideration the option of finding something in the city and not having to move out to Jersey if prices drop considerably,’ Ms. McClain says.”

“For sellers, the real-estate news adds to their headaches. Laurie Siegel, a retired nurse in West Orange, N.J., is trying to sell a three-bedroom house so that she can buy a condo. The house was listed six weeks ago at $449,900, and Ms. Siegel hasn’t had any serious offers.”

“‘If I don’t get enough for the house, how am I going to buy the condo?’ Ms. Siegel asks. So far, she has refused to lower the price of the house. ‘I think it’s all a gamble,’ she says.”

The Asbury Park Press. “East Brunswick builder Kara Homes Inc., one of the biggest home builders in Monmouth and Ocean counties, anticipates filing for Chapter 11 bankruptcy, a company official said in a letter given to laid-off employees earlier this week.”

Home News Tribune. “Kara Homes (is) one of the state’s largest private home builders of condominiums and active-adult communities. The company terminated some personnel on Tuesday because it is ‘trying to restructure’ the payroll, said Patrick W. Turner, the general counsel for Kara.”

Myrtle Beach Online reports from South Carolina. “The buyer’s market continues on the Grand Strand as condominium sales continue to slide, making little dent in a ballooning inventory. Condo sales dropped 31 percent in third quarter 2006 to 5,003 from 7,269 in third quarter 2005, according to the MLS for Horry and Georgetown counties.”

“Real estate brokers say some condo prices are being cut, but single-family prices are holding steady. Analysts say it will take more than a year to clear out the 10,493 condos on the market. About 4,946 condos were on the market this time last year.”

“The market’s 5,291 single-family homes may take 10 months to be absorbed, said (broker) Rod Smith. About 3,305 homes were on the market this time last year. Smith said sellers are having trouble backing away from the price their home would sell for in 2005. But buyers are aware the market has softened and aren’t willing to buy at any price.”

“‘I don’t look at it as a bad market. There are just two kinds of markets, buyers markets and sellers markets,’ said market analystTom Maeser. ‘We’re just going through a correction right now.’”

The News Press in Florida. “The number of single-family permits issued in Cape Coral and unincorporated Lee County plunged in September — reaching levels not not seen for years. Builders in unincorporated Lee County, Bonita Springs and Fort Myers Beach pulled 458 permits for single-family houses in September, down 61 percent from a year ago and down 22 percent from August.”

“Real estate agent Michael Schneider-Christians in Cape Coral said the decreasing number of permits is a result of the increased inventory of homes available for purchase. ‘We do not need much new construction,’ he said. ‘People who would actually like to have a new house have one ready to go. They don’t have to wait for one to be built.’”

“Michael Reitmann, VP of the Lee Building Industry Association, said there are a lot of good deals available on existing homes, lessening the attractiveness of building new ones. ‘Right now the investors are competing with the builders to divest themselves of inventory,’ Reitmann said. ‘I think it’s going to take at least a year, year and a half.’”

“More optimistic was real estate agent Ernie Horvath, who noted ‘we’ve already received an 18 percent price reduction’ for single-family homes since the height was reached in December when the median price was at its all-time high of $322,300. In August, the median price was $264,100, according to the Florida Association of Realtors.”

“Sandra Cheney of Cape Coral said she and her husband recently experienced firsthand softening of the market. They put their lakefront Gulf-access home on the market in December for $659,000.”

“After months without even a bite, they reduced the price and finally went under contract a few days ago for $495,000. All in all, Sandra Cheney said, it’s a tough market. ‘We’re under contract, finally, finally, finally,’ she said. ‘It wasn’t a fun thing to be going through.’”

The Orlando Sentinel. “According to the Orlando Regional Realtor Association, the Orlando area’s existing-home market peaked last summer. The inventory of properties for sale, meanwhile, has ballooned from less than a two-month supply to more than 10 months.”

“‘Buyers are out there, and they’re looking at a lot of inventory,’ said Barry Carnes, broker Longwood. ‘You’re seeing a couple of [price] adjustments, at least, before some [homes] are selling.’”

“‘If you’re an investor, you’re probably not going to get great returns,’ said Stanley Smith, a professor of finance at the University of Central Florida. ‘If you’re looking to buy a home, you’re probably not going to lose much, and you may gain some.’”

The Herald Tribune. “There are three primary reasons for a Southwest Florida price decline: tightening monetary policy, rampant real estate speculation in the last three years and affordability, Moody’s economist Brian Carey said.”

“‘The speculators have left the market. They were involved in bidding up the market, by artificially increasing demand. Now they are totally shut off, and they are trying to sell what they bought,’ he said.”

“Dave and Jane Wilson have seen evidence of price declines. The two retired federal workers went heavily into residential real estate with their retirement savings in 2004-05. They are still in the game, but looking to get out of two south Sarasota condominiums in the Serenade development.”

“‘One went from $235,000 down to $210,000. The other, we paid $191,000, and I have seen them for $175,000 to $180,000,’ Dave Wilson said. They will sell the Sarasota properties when they can break even ‘and sort of get out of Florida,’ Wilson said.”

The Courier News. “Dear Mr. Berko: I’d like your thoughts on buying three condo-hotels at $625,000 each. These units recently sold for $675,000, but the developer said the units could easily be rented 30 weeks out of the year. This looks like a superb investment that would easily pay all my costs, including mortgages on the three properties. What do you think of this idea? It’s like having three second homes and it won’t cost me a dime.”

“Dear HE: I think your developer is a big fat liar. The real estate market in most parts of Florida is quaking on its foundations, and prices that have been pushed into the ozone layer by carpetbaggers and unctuous speculators may fall like tears from a tall camel’s eye. The maniacal and insane rush to build condominiums and homes in Florida has finally exceeded the unhinged hyperhysteria to buy.”

“Walk away. That developer is giving you a heck of a sales pitch and making promises that I doubt he can keep. He’s stuck with inventory that isn’t moving and it sounds like he’s getting desperate.”

The Star Bulletin reports from Hawaii. “The number of previously owned homes sold on the neighbor islands continued to plummet in September, most dramatically on Kauai, according to figures released yesterday. Median home prices on Kauai fell 12.2 percent. On Oahu, home sales fell about 20 percent in September while the median home price remained fairly steady.”

“Hawaii’s softening residential real estate market reflects a national trend, said Calvin Mobbs, president of the Realtors Association of Maui. ‘I think the market is going to continue to slow down in the single-family housing market,’ Mobbs said. ‘This is a pause that the market needs to take.’”

“In September, Maui sold half the number of homes that sold a year earlier. The story was the same for condominium sales on Maui, which dropped dramatically at a median price of $499,000, compared a median price of $405,000 last year.”

“On the Big Island and Kauai, sales also declined dramatically. Only 132 houses sold on the Big Island in September, down 43 percent from 233 sold the same month a year ago. Some 37 homes sold on Kauai in September, down 49 percent from 72 sold the same month a year ago.”

“Condominiums on the Big Island and Kauai fared no better. Only 46 condos on the Big Island were sold in September, despite a drop in the median price to $341,000. Some 126 condos sold the same month a year ago at a median price of $424,900.”

“Broker Debra Blachowiak on Kauai, said she wasn’t surprised by the dip in sales. Buyers are no longer in a hurry to snatch up properties in the face of increasing prices. ‘Buyers are holding back a little bit to see what happens,’ she said. ‘Last year, this time, and maybe a year and a half ago, it was the complete opposite. People thought, ‘If we don’t buy, prices are going to go up.’”

“There are fewer speculators, she said, and more owners looking for a home to live in. ‘I don’t expect a crash, but there are not as many speculators,’ Blachowiak said.”

The Honolulu Advertiser. “The sharpest decline in September transactions was for condominiums on the Big Island, where there were 45 sales, a 64 percent drop compared with 126 sales a year earlier. Maui transactions were hit hard, too, with a 59 percent drop in condo sales to 66 from 160, and a 50 percent drop for single-family home sales to 61 from 122 in the same period.”

“‘The number of properties sold continues to taper off impressively,’ said Terry Tolman, chief executive of the Realtors Association of Maui, which released the Maui data.”

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