The Housing Bubble

It’s desk clearing time! North Carolina. “The longer Kim Tucker shopped for a home, the sweeter the offers got. Builders were willing to knock anywhere from $3,000 to $5,000 off asking prices. ‘I’m seeing more incentives than any time in the past two or three years,’ said Glenn Astolfi, of DNJ Mortgage in Cary.”

From Massachusetts. “Property foreclosures increased by more than 70 percent nationally for the first quarter of 2006 compared to that of 2005, a trend reflected in Danvers and across the North Shore. Many people yearning for a lovely, new single-family home took a walk out onto a financial limb a few years back with low, variable rate loans, a decision some say may not have been well thought out.”

“‘A lot of people didn’t look to the future,’ Dan Bennett said.”

From Virginia. “The prices of homes in Loudoun County were sharply lower in June, down nearly $50,000 on average from a month earlier. The average price for a single family home was $673,468, down 6.8 percent from a month before and 4 percent lower than in June 2005. The price for single family homes in Loudoun were at record highs of over $800,000 in December, 2005.”

From Mississippi. “In areas like Madison, overbuilding of upper-end houses costing more than $250,000 has caused an imbalance in the market. ‘In some areas, we have up to two years on the market. If somebody doesn’t stop (building), it’s going to take us two years to get it sold. Now buyers are trying to get huge deals, but the sellers aren’t seeing it quite like that,’ (realtor) Bob Maselle said.”

“‘The Jackson area I don’t think has slowed up. I was in Cincinnati last week and they say the market has died,’ Betty Lockwood said.”

From Texas. “A ‘For Sale’ sign has been posted in front of one Catamaran Drive home on Padre Island for a year. The listing price for the canal-front property, which started at $440,000, has been dropped six times and is now $389,000. ‘It’s shocking to see, in less than a year, the prices’ ability to come down and the supply to continue to rise,’ agent Cheri Sperling said. ‘I think we’ll continue to see prices tumble farther as our home sellers struggle with this record excess of unsold homes.’”

From Canada. “In Greater Vancouver, the MLS recorded 3,344 sales in September, representing a 24.7-per-cent drop from the same month a year ago. New listings in the region increased 11.4 per cent to 5,115 units. ‘Since [the market] has been very overheated, it’s quite reasonable to go back to balance,’ (economist) Tsur Somerville said. ‘The question is, are we going to stay there or keep going?’”

From Ireland. “Driving around Westport in the rain the other day, I was struck by the number of empty houses. All over Ireland, ‘ghost estates’ are enveloping many of our towns. On the day of the 2002 census, it was estimated that there were just over 140,000 houses vacant across the country. In the past five years, this figure has increased by over 50 per cent, to about 230,000.”

From Australia. “It wouldn’t be so bad if the only casualties from Sydney’s property slump were greedy investors from well-to-do suburbs who bought too many units in Ultimo. In the Fairfield-Liverpool area, where property industry professionals say house prices have been slashed by a quarter, the jobless rate has shot from 5 per cent to 11 per cent in the past year.”

“For a while, this flood of late-arriving investors prolonged the boom in the least expensive parts of Sydney. But as they retreated prices fell sharply. ‘Many of these individuals have seen a decline in the value of their investments,’ the Reserve Bank says.”

From Arizona. “Arizona State University economist Dawn McLaren was one of those people who dared use the word ‘bubble’ over the last couple of years. ‘We had a price bubble,’ McLaren said. ‘I say the market is good. The market is coming back to reality, to its fundamental value. We’re in the middle of where this thing is going to go.’”

From Washington. “Higher South Sound home inventories continue to slow the pace of sales. Active home listings have nearly doubled since September 2005, rising to 1,764 homes last month, compared with 991 last year. ‘We’ve been used to something that has been so fast-paced that this normalcy seems kind of shocking,’ said Eric Hjelm of Greene Realty Group. ‘I got home at 5 p.m. last night,’ he added, laughing.”

“Washington Mutual announced plans Wednesday to cut 140 loan processing jobs in Lynnwood by the end of the year. ‘More reductions are possible,’ said Tim McGarry, VP of corporate public relations. ‘It is true that there may be more in the future.’”

From California. “Q: We made an offer on a house subject to the sale of our property. We thought our property would sell quickly but it hasn’t sold. We’re very concerned that our purchase offer is now overpriced since values have declined.”

“A: you were smart to make a contingent offer, imagine if you bought the second house but the first one remained unsold for a year or two? You would then have two mortgage payments.”

“Private bankers warned Federal Reserve Chairman Alan Greenspan and governors in December 2002 that consumers were taking on too much debt and that the boom in housing prices was unsustainable, Fed documents made public recently showed. The documents are minutes of closed-door meetings held at the Federal Reserve Board.”

From Florida. “I am a junior in high school. The recent inflation in the housing market of South Florida concerns me and others in my community. According to the article, ‘New home buyers are either holding back or demanding cheaper prices.’ In my opinion, it is about time home buyers did so.”

The Record Searchlight reports from California. “Redding ranked 16th on a list of the top 30 U.S. metropolitan markets expected to suffer the sharpest declines in home prices. The gloomy forecast presents one of the starkest views yet of the housing slowdown that has been gathering force in recent months, but some north state real estate agents see it as a buying opportunity.”

“Redding’s median price for a home is forecast to fall by 11.8 percent. ‘That’s about right,’ Ron Largent, agent in Redding, said Thursday. He thinks prices could fall ‘another 10 percent’ from where they were a month ago before leveling out. ‘This is an excellent time for buyers,’ Largent said.”

“Home sales slowed and prices fell in Shasta County in August. The median sales price was $245,000 compared with $269,000 in July and $285,000 a year ago, according to Dataquick.”

“Some homes are likely to see sharper price declines, said veteran Redding real estate broker Rob Middleton. ‘Houses that have a bad floor plan or that are on a busy street are apt to suffer more,’ he said.”

“One reason Redding’s prices are softening is the cooling ardor of investors. A year ago, Redding led the nation in the percentage of homes sold to investors, 22 percent, according to LoanPerformance. Through May of this year, 15.4 percent of homes were bought by investors. That was still nearly double the national average of 8.9 percent.”

“The forecast of a price decline ’sounds like old news, or at least we’re right at the end of it,’ said Greg Lloyd, broker in Redding. Lloyd is also president of the Shasta Association of Realtors. ‘We probably peaked out very early this year and I would suspect we have hit the valley floor as we speak.’”

“There are about 2,000 homes now on the market in Shasta County, Largent said. Builders are cutting prices and offering incentives such as free backyard landscaping, pools, 100 percent financing and a chance to win a car.”

The Whittier Daily News. “A research firm predicts the first decline for an entire year in home prices since the Great Depression of the 1930s, but local industry officials have a more tempered view.”

“Leslie Appleton-Young, chief economist for the California Association of Realtors, said California has already weathered six year-over-year declines in its median home price, beginning in 1990 and running through 1996. ‘The biggest decline was 4.5 percent in 1993,’ she said. ‘The median price went from $197,030 to $188,240. California has had a very different experience.’”

“But Appleton-Young doesn’t believe the current transition in the market will be over quickly.”

“She said there will be a slowing economic growth because of the downturn in housing, but it won’t turn into a recession. ‘Is it possible? Sure,’ Appleton-Young said. ‘But is it probable? I don’t think so.’”

“Steve Johnson, director of Metrostudy Southern California in Riverside, said California’s housing bubble isn’t going to burst anytime soon. ‘This is not a repeat of the 1990s,’ he said. ‘That was a perfect storm because you had fires, floods, riots and a huge decline in aerospace spending combined with defense cutbacks and base closings.’”

“Robert and Marcia Mosqueda always wanted to live in Whittier. Their dream came true about nine weeks ago when then moved after living in unincorporated Los Nietos for 17 years.”

“But the move came at a price. They bought a ‘fixer-upper’ in the Whittier’s Uptown area for about $610,000. It’s given them a mortgage of about $4,500, double what they were paying, and it’s more than 30 percent of their income. ‘It’s a big sacrifice, but it’s worth it to have peace of mind,’ Marcia Mosqueda said.”

“Broker Patrick Hart said the rising prices shown in the census data may be starting to go the other way. ‘I don’t expect we’ll lose more than 20 percent,’ he predicted.”

“Still, declining prices may cause problems should there be foreclosures, he said. The Consumer Credit Counseling Services of Orange County is seeing more people coming in with financial problems, said Kelly Rogers. ‘We can’t say it’s because of housing, but the numbers are up,’ Rogers said. ‘People are starting to feel the money pinch.’”

The Orange County Register. “Orange County’s economy will keep growing next year, but not much, Wells Fargo Bank’s senior economist predicted Thursday. ‘The good news is, I think Orange County will be able to avoid a recession, but just barely,’ Scott Anderson told a group of bank guests.”

“Anderson attributed much of the economic drop-off over the next year to the housing slowdown. High prices and affordability challenges will continue to hamper the local housing market, he said. ‘I think there will be one year (of price) decline next year, but I’m not projecting any big collapse,’ Anderson said.”

“Irvine-based homebuilder Standard Pacific Corp. has notified employees that it is eliminating dozens of jobs amid reports of lagging home sales across the nation. Company officials couldn’t be reached to confirm the layoffs in at least three Southern California divisions and one in South Florida.”

“The company’s finances have been hit this year by a slowdown in new home orders and rising cancellations, fueled by a backlog of unsold homes in the existing-homes market, company officials said.”

The Las Vegas Business Press. “The Las Vegas Valley’s housing market continued its yearlong decline with 1,739 sales in September, or 41.7 percent fewer than in 2005, reports the Greater Las Vegas Association of Realtors. Home listings climbed to a record 20,815 units in September, which is 57.4 percent higher than a year ago, while condo/townhome listings skyrocketed to 5,135 units last month, 117 percent more than in 2005.”

“There were but a scant 438 condo/townhome sales in September, for a 34.5 percent drop over last year.”

The Review Journal. “Greater Las Vegas Association of Realtors president Linda Rheinberger said the statistics show continued stability in the local housing market and people should be careful not to jump to any hasty conclusions. ‘They look at sales down 17.1 percent from August and down 41.7 percent from September ‘05 and they want to jump off the bridge,’ she said.”

“Chris Biaggi, president of All Western Mortgage in Las Vegas, said he’s seeing a stabilization in appraisals as home prices have reached their true value. ‘That’s what people have waited for,’ he said. ‘It’s really become a buyer’s market. You’ve got sellers participating in closing costs and you’ve got interest rates as low as they’ve been in the last few years. We’ve had our correction.’”

The Las Vegas Sun. “The housing market slowdown has prompted builders to seek price cuts from contractors in a bid to make new homes more affordable. Contractors are playing ball because the alternative for them may mean no work.”

“With new-home closings falling four of the last five months in the valley, builders have cut back dramatically on home construction. During the last four months, new-home permits have fallen between 30 percent and 48 percent per month from 2005.”

“Mandi Lindsey, executive director of the Framing Contractors Association, said her members have gotten the message.”

“‘Some of the builders have asked and others said there is not a choice if you want to keep working on the project,’ Lindsey said. ‘They realize that the market is slowing and it is going to get worse before it gets better, and they have to adjust. I am sure they are not happy about it but they don’t think it is unreasonable given the fact what is going on, and they want to continue to work.’”

“KB Home has solicited price breaks of between 4 percent and 15 percent, said Don DelGiorno, president of KB’s Las Vegas division. ‘I think it will start bringing down some of the cost of houses as we get acclimated,’ DelGiorno said.”

The Reno Gazette Journal. “Even Lake Tahoe appears susceptible to the overall real estate market slowdown. Through the first three quarters, the number of sales of existing single-family homes around Lake Tahoe fell 41 percent, to 676 homes, compared with the first nine months in 2005.”

“‘This is second homes. This is disposable income and vacation homes,’ (realtor) Mike Young said. ‘Nobody is going to have to (be in a situation where) they paid too much and now they can’t sell it for what they paid for it. It’s just not an emotional market up here.’”

“Signs of weakening prices in the report can only be seen in the more affordable areas, such as South Shore and Truckee. Truckee, which is not included in Lake Tahoe’s overall numbers in the report, dropped 13 percent to $689,000. Incline Village’s median priced jumped 10 percent, to $1.045 million, while sales dropped 42 percent, to 125.”

The Arizona Daily Star. “Plans to build luxury homes on the 1,658 acres surrounding the Biosphere 2 property north of Tucson have been called off. Fairfield Homes, a local developer, had signed a contract to buy the tract 16 miles north in Pinal County and planned to close the deal sometime this fall.”

“But about two weeks ago, the deal was called off by ‘mutual agreement,’ said spokeswoman Terrell Lamb.”

The Mail Tribune. “After a decade of sustained price increases, lumber has tumbled dramatically in recent months. ‘Basically, the numbers are as bad as they were in the early ’80s,’ said Rob Brown, a broker in Medford.”

“He’s seen the price of Douglas Fir 2-by-4s fall to $175 per thousand board feet, down from $400 not too many months ago. At the same time, mills are paying $500 to $600 per thousand board feet for logs. ‘You do the math and it’s not real pretty,’ said Brown.”

“One of Brown’s major customers in Arizona told him that speculators who have ordered three or four homes are backing out when it comes time for the final inspection. ‘They’re losing their down payment, which is maybe $5,000,’ Brown said. ‘But they’d rather do that than get stuck with the house.’”

A mortgage fraud report from the New York Times. “On May 18, 2005, a small Indiana company bought 184 duplex homes in a down-and-out neighborhood in northeast Indianapolis for an average price of $50,000 each. The company, Land Economics, began selling the properties for $120,000 apiece to church secretaries, truckers, retirees and factory workers, sometimes as many as three a day to a single individual. As recently as September 2004, homes in this neighborhood sold in a range of $20,000 to $65,000.”

“Amid the boom, those details hardly seemed to matter. Federal investigators are still trying to sort out the scope of what some are describing as one of the largest cases of mortgage fraud in recent years. Countrywide Financial, which bought the Indianapolis loans soon after they were written, has filed a lawsuit seeking damages from Land Economics, its principals and others involved in the deals.”

“The Indianapolis situation may prove to be the most vivid example yet of how the boom in housing has provided fertile ground for mortgage fraud, industry experts and regulators say. Rising home prices served as cover for quick-flip plans and an easy hook to recruit investors.”

“And the boom created incentives for the mortgage industry not to look too closely. As the appetite for home loans soared on Main Street and Wall Street, the industry came to increasingly rely on networks of independent mortgage brokers, appraisers and other officials to keep the lending assembly line well supplied. All had incentives to minimize hold-ups.”

“‘If the deal doesn’t go through, nobody gets paid,’ said Bill Matthews, a senior vice president at the Conference of State Bank Supervisors.”

The Rocky Mountain News. “Denver-area home sales and prices were weak in September, according to reports released Thursday. In addition, the housing market may be in even worse shape than the monthly reports indicate because of the way the statistics are being collected and because of rampant fraud, a top real estate executive said.”

“‘The (real estate) industry’s biggest problem right now is loan fraud,’ said Chris Mygatt, president of the largest residential real estate company in Colorado.”

“‘We have been seeing many more homes on the market, and average prices (in most months) are going up, which does not make any economic sense,’ said independent broker Jerry McGuire.”

“Two days ago, a broker severed a listing agreement with the seller of a home priced at $850,000 because the broker suspected he was involved in a fraudulent sale. ‘For five or six months, the home received zero offers,’ Mygatt said. Out of the blue, the seller received an offer for $1.1 million, $250,000 above the asking price.”

“Mygatt suspects the buyer will pocket the $250,000 and let the house go into foreclosure. But before that happens, the home will be listed as a $1.1 million sale, helping to skew the Metrolist numbers higher, he said. He said these kinds of deals, often with lower-priced homes, are becoming increasingly common. ‘This could not work without appraisal fraud,’ Mygatt said.”

“Mygatt said he thinks about 25 percent of the near record 31,450 unsold homes on the market will ’statistically never sell’ because their mortgages are higher than their potential sale value. That means those houses eventually will end up in foreclosure, he said.

From the Gazette. “A sharp drop in home construction continued in September, putting the local housing industry on pace this year to build the lowest number of homes in nearly a decade. The slowdown is rippling through the industry, prompting some builders to lay off workers and others to add incentive packages, although they say nobody is pushing the panic button.”

“Classic Cos. has started offering discounts of 4 percent on pre-sold homes and 5 percent on its speculative inventory, an incentive that will translate to several thousand dollars, Joe Loidolt said.”

“George Hess, who’s the incoming president of the Colorado Springs Housing and Building Association board, added that speculators, buyers who purchased homes with the intent of quickly selling them, might have driven part of the building. A glut of resales on the market, August’s local used home inventory was up 35 percent from a year earlier, also is providing plenty of competition for the new home industry.”

“Super-low mortgage rates sucked all types of buyers into the marrket, many of whom might not have ordinarily bought a home. ‘Low interest rates created a situation where the market borrowed buyers from the future, and people who probably would have been buying today or tomorrow actually bought a house yesterday and the day before,’ Colorado Springs economist Dave Bamberger said.”

“Easy financing on the part of lenders also contributed to the wave of home construction, Fred Crowley, a University of Colorado at Colorado Springs economist said. ‘It wasn’t that we overbuilt,’ he said. ‘We overfinanced.’”

The Long Island Business News. “As the nation’s residential market softens, local real estate experts say the mad rush to rezone any available sliver of land to accommodate housing is over. ‘The residential market is kind of in the toilet,’ said Corporate Realty Services partner John O’Hara.”

“Long Island’s housing market is no longer hotter-than-hot. With the days of double-digit annual gains apparently over, buyers are holding back, leaving the market flooded with unsold inventory. Suffolk County is ‘going to watch it for the next few months,’ according to Planning Director Thomas Isles. ‘People are kind of taking the temperature of the chill is here, and residential rezoning is frozen.’”

“Is the developer ‘willing to put up hard dollars today in a stabilizing or falling market in pricing while construction costs are going up?’ broker Brian Lee asked. ‘Are they willing to gamble? My guess is that there are a lot of people getting cold feet in the marketplace.’”

“At the height of the residential boom, rezoning applicants hounded the department for a decision; now, ‘We’re not getting any pressure whatsoever,’ Smithtown Planning Director Frank DeRubeis said. ‘It’s sort of like standing around in the room – everybody’s looking at each other.’”

The Asbury Park Press from New Jersey. “Kara Homes Inc., one of the biggest home builders in Monmouth and Ocean counties, might be close to seeking protection from creditors under Chapter 11 of the bankruptcy law.”

“The news has left people who have houses in the pipeline with Kara Homes anxious and uncertain. Middletown resident Gina Haspilaire and her husband, Richard, have been waiting to move into their home at Cottage Gate at Navesink in Middletown since March 2005.”

“Now the couple want Kara to return their deposit, which is about $125,000, she said. The couple used money saved for their son’s college education to pay for the downpayment, figuring they would replace it with money from the sale of their existing home. ‘When we did this, my son had two more years to finish high school,’ Haspilaire said. ‘Now we can’t sell our house, and they won’t give us back the money.’”

“They don’t want the house, which is completed but without a certificate of occupancy. She said she believes the contract was voided because the home wasn’t delivered on time.”

“Frederick Young said he had a contract for a condominium at another Kara development in Morris County. After he and his wife became ill over the summer, he wanted to cancel the contract and get his $19,000 deposit back but hasn’t been able to get in touch with Kara.”

“‘This is the beginning of a very difficult market for builders and resellers alike,’ said Patrick J. O’Keefe, chief executive officer of the New Jersey Builders Association.”

The Home News Tribune. “‘Every builder I know..is in an aggressive inventory-control posture,’ O’Keefe said. ‘They are not starting projects; they are deferring projects.’”

“Earlier this week, at least some Kara Homes employees received a letter from the company notifying them that they were being laid off and stating that Kara ‘anticipates filing Chapter 11.’ Under that provision of the bankruptcy code, creditors claims are frozen by the court while the company can continue to operate as it attempts to reorganize.”

“Richard King gave a $46,000 down payment on a $461,000 three-story town house at Horizons at Birch Hill, Old Bridge last year. ‘Everybody at Kara Homes is stalling for time,’ he said. ‘Kara Homes reps have said I would get the money back, and I have gotten nothing.’”

“Another problem home builders face is land bought in 2004 and 2005 that is worth less now, said James Hughes, dean at Rutgers University. ‘That could hurt their balance sheets very significantly, if they have land that’s a lot less value than what they purchased it for,’ said Hughes, speaking about home builders in general.”

“‘The economic wild parties are often followed by prolonged hangovers,’ Hughes said. ‘Kara Homes may be having a real hangover; other private home builders may be waking up a little groggy.’”

The Star Ledger. “Not long ago, Kara Homes was riding high, scrambling to build more and more homes to meet the seemingly insatiable demand for $1 million estates and townhomes, single-family homes and adult communities. Then the housing market crashed, taking Kara along with it.”

“Industry observers said the company, one of the biggest home builders in New Jersey, was competing against even larger rivals to develop in a state where land is at a premium. Therefore, Kara was forced to pay top dollar for acreage. The company may have lost its way as it became too focused on growing bigger and bigger so quickly, industry observers said.”

“After the housing market crashed, Kara, the company was putting finishing touches on houses before buyers were found. The company attempted to move sales by dangling lucrative incentives, a recent trend in the business.”

“Despite the efforts, Kara had to lay off employees, and bills from contractors started to stack up. At one development in Edison, a carpenter who arrived to repair a bay window in a $1.25 million home got a call on his cell phone and was laid off before he could finish the job, the homeowner said.”

“There doesn’t appear to be an end in sight. ‘The big picture is the housing market continues to be oversupplied,’ said appraiser Jeffrey Otteau. ‘Unsold inventory is up by 60 percent year-to-date versus last year.’”

“Last year in New Jersey, 42,644 homes were on the market, Otteau said. Today, there are 68,281. ‘The delta there is about 26,000 additional homes unsold offered for sale,’ he said. ‘It’s a big number.’”

“‘Clearly this is a weakened real estate market,’ Otteau said. ‘It’s fair to say the entire home-building industry is feeling the strain of all this. And at this point, homebuyers are a bit apprehensive about moving forward.’”

Please post off-topic ideas, links and Craigslist finds here.

Post topic suggestions for the weekend here. Also, don’t forget to send in your housing bubble photos to:

photos@thehousingbubbleblog.com

All submissions must have ‘HBB’ in the message bar to help with sorting.