The Housing Bubble

Holden Lewis writes for Bankrate.com. “House prices are falling in much of the country, and more than 4 million dwellings are on the market. That’s bad news for sellers, because buyers feel free to make lowball offers and then just wait. It’s a buyer’s market, but don’t despair.”

“You can increase your chances of selling your house in a reasonable time by following a few good guidelines. First, play the cards you’re dealt. A successful home sale begins before the house is listed, when you decide not to expect to make a killing.”

“‘All you can do in a falling market, if you have to sell, is have the best possible product out there at the price it should be,’ says Diane Saatchi, an agent with Corcoran Group on Long Island, N.Y. ‘Not what you wish you could get, not what the neighbor got two years ago, but at the price you should get now. That’s the reality.’”

“For many sellers, ‘the only disappointment is that their friend, six months or a year ago, got more than they’re getting,’ says Bill Christiano, a loan officer in Westchester, N.Y. ‘Ego gets in the way when they’re trying to sell. Or stubbornness, I should say.’”

“Offer incentives. Besides a low price, incentives for buyers include paying discount points to lower the mortgage rate, paying closing costs or providing flexibility about the move-in date.”

“And most important, price realistically. ‘Don’t get greedy,’ says Pam O’Connor, CEO of a network of 650 regional and independent brokers. ‘Just because it went up to some astronomical value and it went down from there, you have to be realistic that there has been moderation in the market.’”

“It takes research, often conducted by a real estate agent, to come up with a realistic asking price, and discipline to abide by it. ‘It’s not enough just to throw out a figure,’ says Mario Villena, vice president a Miami-based online real estate brokerage.”

“Using tools on sites such as HomeKeys, Zillow and Redfin, buyers can get an idea of your house’s market value. You and your agent can’t bamboozle buyers because they have so much information about comparable house values.”

“Villena suggests asking for just 3 percent to 5 percent more than you realistically expect to get. Setting an aggressive asking price attracts more prospective buyers to your door, discourages lowball offers and saves negotiating time. ‘You’ll know fairly quickly whether they’re willing to meet you or not,’ Villena says.”

“In a market where prices are falling, asking prices must fall, too, ‘which is a whole new concept for sellers right now,’ Saatchi says. For example, if the Smiths sold their house early this year for $700,000, you might have to ask just $695,000.”

“An agent has to have tact to break the news, Saatchi says: ‘When we tell our clients this, they think we are the devil.’”

The Calgary Herald reports from Canada. “It was a crazy phenomenon a few months back that garnered attention across the country. But today’s residential resale housing market has changed quite dramatically. It’s like night and day compared to the spring.”

“‘Buyers have a little bit more leverage to work with now that the market has slowed and prices are coming down,’ says realtor Desiree Wells. ‘I think buyers are having a better negotiating tool to go in there because there’s more homes to choose from. There are options out there and getting a better deal it’s higher for them now than it was in the past. We’re not seeing the multiple offers anymore.’”

“‘A lot of the buyers are really taking their time. They see the market slowing and they’re thinking if they wait another month the prices are still going to come down. With that and the influx of homes that we have on the market, of course, that pushes the prices down a little bit,’ says Wells.”

“‘The homes have appreciated so fast,’ she says. ‘Now they’re kind of wanting to cash out and maybe get into a bigger home.’”

“Total MLS combined residential sales dipped to 2,180 in September, a 13.35 per cent decrease from the previous month’s sales of 2,516 and a 17.46 per cent decrease from September 2005 (2,641). At the same time, residential combined listings were 4,783, representing a 47.17 per cent increase over September 2005 (3,250) and an 11.99 per cent increase over the 4,271 homes listed in August.”

“Kevin Clark, president of the Calgary Real Estate Board, says there is one word to describe the current Calgary housing market for prospective buyers: ‘confusing.’”

“The reason the market is ‘confusing’ right now for buyers is because of the demographics. Listings are all over the place. Some areas have more listings than others. Some price ranges have more listings than others. As of last Thursday, 38 per cent of detached homes listed on the market had reduced their list price by an average of $25,000 and 25 per cent of listed condominiums had reduced their list price by an average of $15,000.”

“‘The next six months, the last quarter of 2006 and the first quarter of 2007 will be determined by the inventory levels. It is the inventory and only the inventory that we’re watching,’ Clark said.”

“Broker Ted Zaharko says that ‘buyers have become reluctant to get involved in the frenzy that has typified the city’s market up until now.’”

“Richard Corriveau, regional economist for Canada Mortgage and Housing Corp. in Calgary, says today’s Calgary real estate market compared to six months ago is ‘night and day — a totally different marketplace. Things change very rapidly in Calgary and the resale market isn’t an exception to that rule.’”

“He says about three months ago, the local market saw the first year-over-year decline in sales in over two years and with that the market saw a $10,000 decline in average price.”

“‘That was the turning point in the marketplace,’ says Corriveau. ‘And with that, a lot of people became concerned about whether price pressures would be in a downward direction. And I think a lot of people who were postponing listing their properties, whether they be people upgrading to a new home..or speculators, they saw some concern once prices dropped that $10,000, and without risking further price collapse, they all listed their properties at the same time.’”

“He says another key defining factor is active listings, and they have increased almost three times from what they were in June and almost four times what they were earlier in the year.”

“‘This is good news for the buyer. They have tons of selection to choose from,’ says Corriveau. ‘So they won’t be engaged in any bidding wars like they were earlier in the year. They can shop around, take their time. Offers no longer have to be unconditional, which is important. Overall, a market much more in favour of the buyer — a feature that hasn’t existed for some time.’”

Several readers suggested personal finances and homes as a topic. “Yesterday, there was a thread about boomers and their spending everything they earn. I would like to know if there are many other boomers like me (tail end - born in 1962). I finally got a house in a less bubbly area and I have no desire to ‘own’ all of the toys that go with it.”

“I just want to save money, pay off the house, and live simple. My cars are paid for, have several hundred thousand saved, absolutely abhor debt to the max, etc. Are there many others like me still left, or am I abnormal because everyone should own a Hummer, boat, exotic vacations, designer clothes, etc, and have big debt to go with it?”

A reply, “I never got into owning things. Maintaining them is too much trouble. I’ve never had a balance on my credit card, paid cash for all the cars I have ever owned (kept my Volvo 240GL for 20 yrs!), never had any debt other than a mortgage (sold house last year).”

Another said, “I’m a younger boomer and to answer your question, I feel exactly as you do. I also have a lot of friends around our age who do not fit the stereotypical ‘boomer’ description. Frankly, I think that the boomer generation is simply too large and spans too many years to categorize so easily.”

“My husband and I don’t own a home right now because we just moved and current home prices just don’t pencil out for us, but we’re paying for our apartment with earnings from our savings. And yes, I mean savings, not ‘housing windfall.’ You know, money put away after years of hard work.”

And another, “I’m a relatively early boomer (1949), and I don’t spend wildly. I live in a house that I bought for a little over 1x my salary at the time, refinanced a couple of years ago into a 5% 15-year fixed with no other debt of any kind. I drive a 17-year-old car to work every day and have a ‘new’ 5-year-old car and a 10-year-old truck. We have quite a bit of savings and conservative investments; if I got laid off tomorrow, we could pay our essential expenses for many years without too much difficulty.”

One said. “I’m 1961: We penny pinch and are proud of it, (and) there are plenty like us out there. I know a couple 8 years younger than us that are 3 years away from paying off their mortgage. (That means before 35 they own their home!) These people are not heirs but work and save very carefully.”

“That being said, I know what the boomer bashers are speaking of….I see that most younger boomers DO genuflect to the $$$$$ and image pressures.”

One from Nevada. “Lately, I see many more of those H3’s crusing around town here in Reno. It seems no one wants to make due,or are on any sort of budget. The ‘I wants’ brag about buying new clothes, furniture, cars, electronics etc…. and quirp ‘how much’ their houses are going up.”

“My husband and I - we like the simple life, we believe quality is more important an quanity, with no desire to have the ‘newest’ or ‘best stuff’ on the market. The sheeple are followers, and wont change their mindset until its forced upon them.”

The LA Times. “In Los Angeles County, foreclosure activity, homes entering some stage of the process, rose 5% from July to August, to 2,107 properties. It was the third hike in three months, according to RealtyTrac. In Orange County, the rate rose 9%, to 606 properties, in the same period, while Riverside and San Bernardino counties posted a steep 52% increase, to 2,717 properties.”

The Orange County Register. “A jump in the cost of Kelly Drexel’s Huntington Harbour home forced her back to work, instead of staying at home with her daughter, now 4, she said. The Drexels paid more than $1 million for the three-bedroom house in 2004. The cost jump came from swapping an interest-only loan for a traditional fixed-rate mortgage and from a spike in property tax after remodeling their kitchen and buying a boat dock, she said.”

“Her husband, a division manager for a construction company, was set to pay 50 percent of his salary on housing, she said. She doesn’t expect a lot of sympathy but still finds the high cost of housing frustrating. ‘I know a lot of people who own a lot more home than I do who paid a lot less,’ she said.”

“Joe Huizar said he and his wife are finding it tough to pay for their two-bedroom condo in Santa Ana, which they bought in 2004 for $280,000. Huizar and his wife owe $330,000 after refinancing to pay for upgrades and other bills. They owe $15,000 on credit cards, he said. ‘It’s a struggle each month,’ he said.”

“The Huizars considered sharing the master bedroom with their two daughters and renting out the other bedroom, but nixed the idea for the girls’ security, he said. ‘I think Orange County is getting worse,’ Huizar said. ‘There are high-rises going up. They are starting at $700,000. There is nobody in Santa Ana who can afford that.’”

The Union Tribune. “When Sarah Brooks decided to get her financial house in order, that’s exactly where she began: her home. The El Cerrito woman has been pondering whether to refinance her mortgage. She’s also considering selling the house within a few years. Compounding her worry are the dozen or so homes in her neighborhood that are already for sale, and not selling.”

“‘Those houses have been for sale for months, so who knows when I’ll be able to sell mine and go for a ’step-up’ house,’ said Brooks, who bought her home in 1990. ‘I need to do something.’”

“Some homeowners have been turning equity into cash, by way of refinancings, credit lines and second mortgages. ‘We try to encourage people to look at the larger picture, do they need that pool or new kitchen, or some toy they don’t have any business buying because they can’t really afford it?’ financial planner Jon Beyrer said. ‘People who don’t want to curb consumption or instant gratification need to understand that they don’t get a free lunch by doing this.’”

“‘A lot of people got in over their heads when they bought a home in the recent past,’ financial planner John Rossitto said. ‘They took some very aggressive loans with the mindset that they’d be able to change something in their circumstances before interest rates went up.’”

“One example was a hotline caller who had taken out an equity line of credit to assist her child in buying a condo, which in turn was financed with a negative amortization loan. ‘If they sell the property they’d lose money, because trying to sell a condo right now in this market is not fun,’ Rossitto said. ‘And staying with the current loan they lose money. In her particular situation, the best thing was to hang on and refinance.’”

The Times Herald Record reports from New York. “Sure, the Orange County housing market is cooling down, but few would ever have thought it would come to this: a free vacation as an incentive for buying a home. But the addition on the sign in front of the two-story home on Route 211 West is unequivocal: ‘Vacation included.’”

“According to real estate agent Donna Ksiazek, who put the sign there, her company is offering full hotel fare for a seven-day vacation in any part of the world. It’s just one of a growing number of incentives for people to buy and sell homes.”

“If there ever was a sign that the once-hot Orange County housing market is no more, this is it. Sellers have to be patient and consider lowering the price on their homes if they want to make a sale, Ksiazek said.”

“Ksiazek said the desire of many home­owners to cash in before the market sinks further has added to the urgency of home sales, thus the need for more incentives.”

The Boston Globe. “Janelle Reagan has a nickname for her suburban side street: ‘Realtor’s Row.’ The label refers to the array of for-sale signs that mark the entry to her Katherine Heights neighborhood. Each placard peddles a different condo, all of them nearly identical to hers.”

“For Reagan, they are a constant reminder of the situation she and her husband Troy find themselves in at this stage of a soft real estate market: Their condo is just another facade in the crowd.”

“The Reagans are experiencing the wrenching consequences of being home sellers at the wrong time. They’ve had several buyers fall through, and have been forced to pull out from buying their own new dream home. They’ve packed and unpacked, explained to their children why they had to call off a move, and spent many a sleepless night talking about money.”

“‘It seems like we’ve been through every difficult scenario,’ said Janelle Reagan. ‘At this point, it’s hard to even get excited when our realtor calls to tell us she wants to show the condo.’”

“Now, interest in their condo has dropped off, there are five other units in the development on the market as well, some of which are priced below theirs. The Reagans have dropped their asking price to $195,000, 8 percent below the original list price. ‘Things have been really stressful,’ said Janelle Reagan. ‘There were many nights I didn’t sleep.’”

“Financial advisers said among the many huge emotional elements home sellers face in such times, the biggest is fear. ‘The fear of maybe having two mortgages and having to meet those payments month after month, wondering when it will end; the fear of messing up one’s credit or looking like a failure,’ said Rick Fingerman of Financial Planning Solutions.”

“Though in a different price zone, Stephen and Dianne Greenstein can relate to Reagan’s deflated spirits. The couple’s four-story waterfront home, on Nahant’s craggy coast, has been on the market for nearly a year. For all of its amenities, the three-bedroom contemporary home has yet to sell, despite a drop of $326,000 in the asking price.”

“So in August the couple elected to sell the home at auction. They hired AllynAuction Co. of Nahant and paid roughly $8,000 in marketing costs. Three bidders registered for the Sept. 24 auction. With hopes high, the Greensteins said a silent prayer as auctioneer Richard D. Allyn started the bidding at $1 million. No takers.”

“In the end, a single bid of $830,000 was offered, which the Greensteins rejected as too low. The current list price for their home: $899,000, down from $1.25 million.”

“‘I want to sell, but I’m not going to give the house away,’ said Stephen Greenstein, noting that another Nahant home, a three-bedroom, sold through AllynAuction in July for $1,050,000. ‘I’d rather wait for the right offer.’”

The Boston Herald. “Just how weak is the Boston real estate market? We got an idea yesterday. And if you’re looking to sell your home in the near future, the news isn’t good. Brand-new luxury condos downtown saw hundreds of thousands of dollars wiped off their value in the Hub’s first public real estate auction in a decade.”

“The 31 condos up for sale in the Folio building on Broad Street sold on average for 30 percent below their asking prices.Some barely fetched their minimums. Even the building’s marketing boss couldn’t hide what happened.”

“‘I think the buyers got a better value than anybody expected,’ Paul Gollinger said after the two-hour auction. ‘But we’re satisfied, very satisfied… We hadn’t had a sale in the last four months.’”

“The most expensive properties fell hardest. A $1,760,000 penthouse plunged $600,000 to just $1,140,000. A $1,600,000 three-bedroom apartment with a terrace crashed by half a million dollars, selling for less than $1.1 million.”

“Husband and wife Kevin and Daire Starr couldn’t believe their luck. They got a 1,910-square foot apartment with three bedrooms and two bathrooms for $837,000, almost $400,000 below the list price, and just $12,000 over the auction minimum.”

“Starr said the couple currently rented in Back Bay. ‘We’ve been waiting for the market froth to cool down the last couple of years before we jumped in,’ he said with a smile.”

“In total, condos listed for nearly $33 million ended up selling for $24 million.”

“You can expect the auction to put pressure on the rest of the real estate market. And it may push more sellers to negotiate on price. The big losers yesterday? The people who paid full price for the other 65 homes in the building during the last few years. Collinger said the first went up for pre-construction sale four years ago. And they all sold for the asking price.”

“Bidders ‘got a better value than we thought they’d get,’ said Jon Gollinger, whose firm, Velocity Marketing, conducted the auction on behalf of the Folio developer, Michael Rauseo. ‘But we’re satisfied,’ Gollinger said. ‘The market has spoken.’”

“Ten condos, with asking prices of $1.16 million to $1.76 million, sold for prices that were 21 percent to 36 percent below the asking prices.”

“Steve Goulas wasn’t ready to buy yesterday. Sitting amid the frenzied bidding, methodically recording each unit’s sale price, the Manhattan investment banker said he was just observing. He and two friends, Boston attorneys, want to buy a condo. They believe prices will continue to drop over the next six to nine months, he said, because so many condos are under construction.”

“Goulas had a parting comment as the auction ended: ‘I’ll see you at the next one.’”

What do you see in your housing market this weekend? More open houses? Reduced prices? Here is one from Washington, DC. “What a difference a year makes. When my husband and I bought our home in April 2005, the Washington, D.C.-area housing market was in a frenzy. We’d paraded through homes, all priced well over half a million dollars, that had cracked foundations, slanting floors, and ’slight’ flooding problems.”

“We’d been told that it was likely we’d lose bidding wars to folks willing to waive the home inspection contingency. In fact, we had lost bids on two other homes, even with escalation clauses that sometimes went thousands over asking price. The market around the area had been red hot for several years, long enough so that many of us forgot it could be any other way.”

“But sure enough, the slow down has hit, bringing with it a record inventory of homes and a sea of sellers perplexed by their misfortune.”

South Carolina. “‘Buyers are starting to look for bargains,’ said (broker) Bob Clarkson in Hilton Head. ‘Certain sellers are becoming more desperate for a sale. This is an adjustment period from the wildest housing market we’ve had here in our lifetime,’ said Clarkson.”

In Mississippi. “Builder Dee Denton says there is a slow down in construction because of a surplus of homes up for sale. ‘We have had an influx in the home-building industry of new builders starting up in this industry and putting more product out on the market,’ Denton says. She says it’s definitely a buyer’s market.”

“Some builders we talked to say they are adding special features to homes as an incentive to sell them like kitchen upgrades such as granite and stainless steel appliances. Denton says if you are planning to sell, don’t worry, just be patient, it could take a little longer.’”

The Arizona Republic. “‘I think it’s clear we’re going to continue to see an adjustment (down), but my thinking is that by the middle of next year, we ought to be at the bottom or close to it,’ said valley housing analyst RL Brown.”

“Installing basement shells in new subdivision has dropped about 30 percent, McDonald said, but the custom home market has yet to slow. ‘I have a feeling the custom home market could soften as well, a little bit,’ he said.”

From the Pioneer Press. “For years, construction companies worked on the assumption that if they built homes, buyers would come. But that no longer holds true, and nearly 3,000 new single-family homes sit empty in a cooling Twin Cities market. So, how did we go from builders feeling like they couldn’t put up homes fast enough to builders begging for buyers?”

“Part of the issue is the nature of homebuilding. ‘If you look at the overall market, builders have always speculated — that’s part of the business they’re in,’ said Todd Shipman, president of the Minneapolis Area Association of Realtors. ‘If they don’t have buildings up and ready to purchase, they don’t have a product to sell.’”

“Builders of condos and town homes often must reach a certain number of pre-sales to receive money from their lenders, said Betty Hardle (who) tracks new developments. Once that level is reached, the complex can be built and the rest of the units sold on spec.”

“For years, homes built on spec flew off the market because of an expanded buyer pool, said developer Rick Packer. ‘Everybody got used to this high-demand, low-supply environment and just started putting up stuff like there’s no tomorrow,’ Packer said. The Metropolitan Council has been projecting that 16,000 to 18,000 homes need to be built. From 2001 to 2004, builders put up 18,000 to 21,000 homes a year, according to permits.”

“‘Builders are not just going to stop building because the averages show that there is going to be an oversupply,’ researcher Mary Bujold said. ‘If their neighbor is selling homes and they are selling homes, they are going to keep building.’”

“The people most affected by the glut of spec homes are the sellers of 2- or 3-year-old houses that are near or in the same developments as empty new houses, said Shipman. ‘Now they’re (buyers) going to sell and they’re breaking even or barely breaking even,’ said Shipman.”

The Detroit Free Press. “The construction of most new commercial, industrial or residential developments would be barred in the City of Taylor for six months under a compromise reached last week.”

“Mary French, who supported the moratorium, said it would allow people struggling to sell their homes some breathing room. ‘Why build new homes when there’s a market of already established homes waiting for new people?’ said French.”

The Baltimore Sun. “Baltimore, which saw an astonishing uptick in residential real estate investing during the housing boom, is now flush with inexperienced property owners who might not have the wherewithal to deal with a no-longer-hot market. City advocates, worry now that further slowing could leave investors so financially strapped that they walk away from homes they bought.”

“City home sales to ‘non owner-occupiers,’ almost entirely investors in a market not known for vacation properties, totaled nearly 5,300 in the first half of this year. That was 62 percent of all sales, triple the share elsewhere in the state. They paled in comparison with the last six months of last year, when state records showed investors snapping up 9 of 10 homes that sold in the city, more than 8,000 in all.”

“Auctions that last year were a tumult of outbidding are now drawing circumspect buyers; some properties aren’t attracting so much as an opening bid. Rehabbers are getting pinched as homes sit on the market longer and longer. More investors are choosing to rent rather than sell, either by choice or by default.”

“No one wants to admit to losing money, but everyone seems to know about people who have.”

“Nationwide, a record 40 percent of transactions last year had non-owner-occupier buyers, according to National Association of Realtors surveys. In Baltimore, it was 80 percent, state numbers show, up from 35 percent four years earlier. Buyers surged in from across the country, particularly New York and Washington. Many homes were passed from investor to investor as longtime landlords unloaded hundreds of properties.”

“City home sales dropped 30 percent in August versus a year earlier, while the number of homes on the market nearly doubled.”

“Tracy Gosson, of a nonprofit that markets city living, is amazed and appalled at the prices investors are now trying to get for homes in some of the most troubled neighborhoods in the city ‘Oh my God!’ Gosson exclaimed as she pulled up one listing, a largely unrenovated two-story rowhouse priced just under $300,000. The investor who owns it has been trying to sell it for nearly five months.”

“She fears overreaching speculators will eventually give up, leaving neighborhoods to deal with the damage of deserted and foreclosed properties.”

“In pricey neighborhoods such as Federal Hill and Canton, lots of properties are languishing because so many hit the market at the same time. Associate broker Alyssia Essig found nearly 300 homes for sale advertised as ‘Canton’ when she checked the multiple listing service recently. That’s more than triple the number that sold in the entire ZIP code in August.”

“A pair of investors she’s working with have cut $50,000 off the asking price of their high-end Fells Point rehab, following the trend. Now they’re getting ready to list it for rent, too. their holding costs are hurting them after eight months on the market. ‘They put a lot of money into this house,’ said Essig.”

“At Alex Cooper Auctioneers Inc., which holds large real estate auctions at its Towson offices every other month, residential interest ‘has definitely leveled off,’ mainly for homes that don’t come with renters, said vice president Jon Levinson. Though the room was well filled last month with potential buyers for about 100 properties, mostly Baltimore rowhouses, almost half went unsold that day.”

“In some cases, sellers didn’t like the top bid. ‘We’re going to pass on that,’ auctioneer Paul R. Cooper said when an Upper Fells Point shell failed to get offers above $205,000.”

“Or there were no bids at all. ‘Who will open up at $25,000?’ Cooper asked, referring to a vacant East Baltimore rowhouse. ‘Any interest? No interest?’ Afterward, Cooper said he is convinced that the large number of vacant homes hurt the auction results.

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