The Housing Bubble

The Union Tribune from California. “San Diego County’s housing market extended its price and sales decline last month. DataQuick reported the median sales price in September at $476,000, down $22,000 or 4.4 percent from a year ago, the largest year-over-year drop since 1993. Overall sales tumbled 35 percent from year-ago levels to 3,207 transactions, the biggest year-over-year decline since 1991.”

“Perhaps the biggest surprise came in the resale-house category, which makes up about half of the home-selling market. The September median stood at $545,000, down $5,000 from a year ago, marking the first year-over-year drop since July 1996.”

“The DataQuick figures showed an 8.1 percent drop in overall housing prices since the peak of $518,000 in November. ‘I think this is a rather ominous number,’ said Ed Leamer, director of the UCLA Anderson Forecast. ‘The news from San Diego isn’t very good.’”

“Longtime Del Mar real estate agent Chiquita Abbott said the departure of investors and speculators took much of the steam out of her coastal market. ‘The aura of the frantic is over, and that’s what I tell people,’ she said. ‘If you’ve got a house to sell, you have to adjust your price and pray someone wants it.’”

The Voice of San Diego. “The drop was the biggest dollar-amount plunge observed year-on-year by DataQuick since it started monitoring the San Diego market in 1988. ‘It is a big drop,’ said Peter Dennehy, of the Sullivan Group Realty Advisors. ‘But sales prices have even come down more than that. The median price is finally starting to come down with what we’re seeing on the street.’”

“Economist Chris Thornberg said the market will have to navigate some more tough terrain ahead. ‘All this nonsense about us already starting to see the light at the end of the tunnel, we’re not even close,’ he said.”

The Orange County Register. “The median price of an Orange County home fell for a third straight month in September, when the midpoint of all sales was $626,000, DataQuick reported today. It’s down $20,000 from the peak price of $646,000 in June.”

“DataQuick also reported that 2,664 homes sold last month, which was 34.6 percent below the number of homes sold in September 2005. It was the 10th month in a row that sales were down from last year’s levels.”

The Novato Advance. “‘Buyers..now have the advantage across the board due to the growing inventory of unsold homes,’ said Peter Neilsen, an agent (in) southern Marin.”

“The median price of a single-family home in Marin has declined as well, by about one percent from $951,000 in the third quarter of last year to $945,000 for the third quarter of 2006, according to statistics from the MLS for Marin County.”

“Steve Dickason, for Pacific Union in Novato and Greenbrae, was at a loss to explain the market slowdown, but said he expected more stability in the next year. ‘We’re not going to return to that crazy market any time soon,’ he said.’”

The Daily News. “Home sales were down 35 percent last month compared to September last year in the Santa Clarita Valley. Condominium sales fell 37 percent.”

“Santa Clarita Realtor Pam Ingram said more homes are on the market, giving buyers the advantage. ‘They’re looking for the good deals and they’re asking for below what the sellers are asking for,’ she said.”

The Press Democrat. “The housing industry, which propelled Sonoma County out of recession three years ago, is now shedding jobs as builders, mortgage brokers and real estate companies feel the impact of the slowdown.”

“The sector, which employs one in six workers in Sonoma County, lost 1,300 jobs in the three-month period ending June 30, according to a new study.”

“Sonoma County home sales have fallen hard and fast. Sales have dropped for 11 consecutive months. Prices have fallen 6.7 percent since August 2005, when the median price peaked at $619,000. ‘It took longer for the market to turn. We thought this was going to happen a couple of years ago,’ said Steve Cochrane, an analyst with Moody’s Economy.com. ‘Now that it’s turning, it’s turning faster, almost on a dime. It’s going to be painful.’”

“Overall, Cochrane said the county housing sector could lose 3,300 jobs from its peak in March. Job losses on that scale would be comparable to the previous housing downturn, when the county lost 3,800 housing-related jobs from 1990 to 1992. ‘I remember those 2½ years like they were yesterday,’ said Randy Blankenbaker, regional manager for Chase Home Mortgage, who lost five loan officers in Santa Rosa earlier this year because of a lack of business.”

The Daily Press. “One of the Victor Valley’s largest homebuilders, KB Home, has stopped building new houses in the Victor Valley and plans to lower prices to a level that brings buyers back to its communities.”

“‘We’re going to bring the market where it needs to be,’ said Rex McGuire, senior director of operations for KB Home Inland Valley. ‘And it’s not easy. It’s like turning the Titanic.’”

“He added that no new inventory would be added until the new-home inventory was brought down. ‘We’re sitting on a lot of dirt right now and it’s killing our balance sheet. We’re taking a haircut,’ he told the group of about 50 Realtors, brokers and business owners.”

“One area that is not selling in the Victor Valley is KB’s higherend luxury communities, Mc-Guire said. ‘It’s just shut down. It’s stopped,’ he said. ‘We were going full-throttle, and as soon as this market had a correction, our brakes weren’t that good. It took a little while.’”

“‘Obviously if you’re selling your home right now, it feels bad because you’re competing with 4,000 homes,’ said Caroll Yule, a broker in Victorville. ‘If you really need to sell your home, price it right. Take your 80 percent and be happy,’ she said.”

The Rocky Mountain News reports from Colorado. “Colorado on Wednesday launched the nation’s first statewide foreclosure hotline, which came out on the same day a national study said the state continues to be plagued by the highest foreclosure rate in the country.”

“The hotline is expected to help at least an estimated 40,000 homeowners in some stage of foreclosure in Colorado, said Zach Urban, program manager for Denver-based Brothers Redevelopment.”

“The attorney general’s office is going to contribute money it receives from lender Ameriquest as part of a $295 million national settlement involving predatory lending practices. The Colorado Association of Realtors is contributing $30,000, and JPMorgan Chase is kicking in $12,500, said Kathi Williams, division director of the state’s Division of Housing.”

“The $500,000 cost may seem like a large amount but could stem the tide on a problem whose impact goes beyond the 14,205 foreclosures reported through September, a 32.3 percent increase from 2005, according to the Division of Housing. ‘We’re trying to stop the bleeding,’ Williams said.”

“She said a lack of price appreciation in homes, risky creative financing such as adjustable rate mortgages and interest-only loans, slower economic growth during the past few years, predatory lending practices, and scams are contributing to rising foreclosures.”

“Urban said the cost of foreclosure is costing taxpayers. ‘We had the University of Colorado-Denver last year study the cost for us, and they found on average it costs a municipality $10,000 per home,’ he said. Williams said that in Pueblo, for example, vacant foreclosed homes were being used for meth labs.”

“Mike Rosser, a retired mortgage banking executive, said that foreclosures often cost lenders $35,000 to $50,000 on each home. ‘They also drive down property value, which means less is collected in property taxes,’ he said.”

“Two men get out of a truck in front of Border Street’s second summer foreclosure. The men work for a company hired by the bank. ‘I’m out of Wyoming’ the man says, moving quickly through the empty house. ‘They got me down here in Denver ’cause the foreclosures are so bad. There are 60 guys doing what we do in Denver and the area around here.’”

“This is the seventh or eighth house of the day, he says, ‘and we’re not done yet. We’re so far behind it’s not even funny. It’s busier now than it ever was.’”

“‘Yeah, we moved out,’ one of the sons says. ‘We couldn’t pay the bills. We’re just going to leave it to the bank. We’re done with this.’”

“Local economists have been tracking El Paso County foreclosures. They say 25 percent of all foreclosures between 2003 and last July were in zip codes 80911, 80916 and 80906. In zip code 80864, in southeastern El Paso County, almost one-third of all homes are in various phases of foreclosure.”

“UCCS economist Fred Crowley said residents of the area have higher commuting costs, and many purchased homes when variable mortgage rates were low.”

“A report said that for the second consecutive month, Greeley has the highest foreclosure rate among the 252 metropolitan areas it surveyed and Colorado continues to lead the nation in terms of the foreclosure rate. In September in Colorado, one out of every 408 homes is in some stage of foreclosure.”

Some housing bubble news from Wall Street and Washington. “U.S. new-home prices will fall this year for the first time since the 1991 recession as a glut of properties for sale forces builders to offer discounts, the National Association of Realtors said.”

“The inventory of new and existing homes for sale has swelled to record levels as the five-year U.S. housing boom comes to an end. Buyers are have a ‘wait and see attitude’ because they want to take advantage of price declines, economist David Berson said in the forecast.”

“Eighty percent of Americans believe it is difficult for most first-time buyers to afford a home, according to an AP-AOL Real Estate poll. Many people, 59 percent, believe the situation is worse now than five years ago.”

“House hunters can benefit by showing patience, some analysts said. Suresh Sreeramenen says he sees some some homes for sale in his Lake St. Louis, Mo., neighborhood sitting on the market longer than they have in the past and suggested that will shift more bargaining power to would-be buyers and away from sellers.”

“‘If I was in the market now to buy, I would be happy,’ he says. ‘But if I were trying to sell, I would be worried.’”

From Forbes. “George Wimpey PLC has blamed a spate of speculation in housing deposits for exacerbating the housing market slowdown in its US operations.”

“The company told investors that its Morrison Homes division in the US was seeing a 10 pct dip in net pricing ahead of full year results, and its US order book was 28 pct below last year by volume and 35 pct by value.”

“Wimpey’s financial director, Andrew Carr-Locke said that the increase in houses coming back onto the market had pushed up housing supply, increasing the downturn. ‘Speculators are flipping the product back on the market,’ he said. ‘I think the market underestimated the scale to which that was going on.’”

“KB Home said that it’s delaying release of its third quarter earnings results because it needs more time to complete an ongoing accounting investigation. Also, the Los Angeles based homebuilder estimated a 32% plunge in net income as the housing market weakens.”

“KB Home warned that its delay in filing the Form 10-Q could make it default on credit agreements. It expects to receive extensions to its deadlines soon, though.”

The companies filing. “As of October 10, 2006, we had $600.0 million of outstanding borrowings under our $1.5 Billion Credit Facility and $487.0 million of outstanding letters of credit, leaving us with $413.0 million of available capacity.”

“We currently anticipate that our 2006 fourth quarter will be consistent with our historical experience and, in conjunction with a planned reduction in investment in land inventory in the fourth quarter relative to the prior periods of the year, we believe..that we will have sufficient resources to meet our current business needs.”

“San Francisco Federal Reserve Bank President Janet Yellen told California Independent Bankers yesterday that a cut in California home prices is almost inevitable. ‘A significant buildup of home inventory implies that permits and starts may continue to fall and the market may not recover for several years,’ she said.”

From Dow Jones Newswires. “As the housing market slows, evidence continues to build that borrowers with less than perfect credit are struggling more this year than one or two years ago.”

“In September, Novastar Financial, a subprime lender that packages loans as bonds and sells them, released its most recent mortgage bond performance report. A bond issued in April, known as 2006-01, had 7,173 loans remaining and had 91 loans in foreclosure and 29 already real-estate owned.”

“By comparison, last year, a bond called 2005-2, issued in May of 2005 had as of October 2005 11,498 loans remaining and just 23 loans in foreclosure with 1 loan real estate owned.”

“The report ‘provided evidence that recently originated subprime loans are performing much worse’ than loans originated in earlier years, said Kevin Jackson, senior mortgage strategist with RBC Capital Markets in Chicago.”

From Yahoo. “Mortgage lenders make no bones about it: They are tougher on second-home loan applications than on primary-home loans. That said, however, the current environment for second-home lending is about as lenient as it has been in years.”

“Don’t count on your bank to take all of a home’s estimated rental income into consideration. Even for a property with a long rental history, most lenders will only consider 75% to 80% of it. Some even take 75% after netting out your costs.”

“If you don’t need the rental income to meet the mortgage industry’s ratios, you may not want to mention to your lender that you’re thinking of renting. We’re not suggesting that you lie on your mortgage application. That’s a federal offense. But if you happen to change your mind, well, that’s another story.”

“‘A lot of people go in under the guise of buying vacation property for personal use only to turn around and rent it out,’ says Keith Gumbinger, of mortgage researcher HSH Associates. “I have never heard of people getting caught.’”

The Pioneer press reports from the Twin Cities. “The housing market’s slowdown is gnawing at prices, resulting last month in the first drop in the Twin Cities’ median selling price in recent memory. ‘There’s no urgency with the buyers right now,’ said Justin Fox, a Realtor in Cottage Grove. ‘It’s like you’ll be working with one that’s really hot to buy and all of a sudden they disappear for a couple of weeks and you can’t get ahold of them.’”

“The sharp slump in sales that took hold in summer continued last month, with sales in the 13-county metro area dropping 24 percent from September 2005. Pending sales, an indicator of future sales, also have plummeted. To get houses sold, sellers are offering extravagant incentives like sports cars or even auctioning off their homes to the highest bidder.”

“That’s what John Massey is doing this weekend to sell his Minneapolis house. ‘There’s just been no movement on it at all, so we’re trying some radical stuff to at least get people to look at it,’ said Massey, who moved with his wife last year to a house near Madison, Wis.”

“Massey has slashed $100,000 off the asking price of his four-bedroom house since listing it for sale a year ago for $839,000. Homes in that price range now typically take a year to sell. Bids will start at $349,500 for Massey’s 4,200-square-foot house.”

“‘We’re at the point that it’s impossible to carry both house payments and keep any standard of living,’ said Massey, who planned to live in the Minneapolis house before business and family issues forced a move.”

“Many sellers simply aren’t sure what to do. Leslie Larson had the kitchen and bathroom remodeled before listing her Macalester-Groveland three-bedroom in February. But she just took the house off the market after listing it for sale for seven months and reducing the price $40,000, to $289,500.”

“Larson is frustrated by comments from agents who have toured the house and offered glib advice such as placing colorful hand towels in the kitchen. ‘No one can explain why this house hasn’t sold,’ she said. Larson has no doubt that the housing market has changed. ‘If we had sold this house two years ago without putting in a new kitchen and a new bathroom, we’d have made $50,000 or $60,000 more,’ she said.”

The Star Tribune. “For the first time in 14 months, the number of new listings added to the Twin Cities residential real estate market dipped in September. For the past several months, inventory levels have been rising at a double-digit pace, driving the number of homes for sale to record levels.”

“From January through September, there were nearly 90,000 new listings in the metro area, 11.3 percent more than the same period last year and more than 13,000 more listings than the five-year average.”

“What’s driving the decline in new listings? ‘I think people are tired,’ said Todd Shipman, president of the Minneapolis Area Association of Realtors. ‘In some sense, yes, the numbers are going to level out, but we have a long road ahead of us. They [sellers] know we’re in a buyer’s market, and maybe they had less success getting what they wanted; the market has shifted, and they know it,’ he said.”

The Chicago Sun Times. “It’s strange how a developer who landed in Chicago just a couple of months ago trailing clouds of public relations glory now has an acute case of shyness. Garrett Kelleher, the Irish developer who in July took financial control of the proposed 124-story building for 400 N. Lake Shore, doesn’t answer questions about the flashy project these days. Nor does his Chicago attorney, Thomas Murphy, who has acted as his spokesman.”

“Murphy refers calls to a public relations agent (a spokeswoman for a spokesman?) whose main function is to say that neither man has anything to say, and that Kelleher never liked talking to reporters anyway.”

“Such a feeling is common, of course, but it usually abates in developers when they want to spread the word that they have condos to sell. The silence can’t bode well for this project, which could turn out as one big financial miscalculation.”

“Groundbreaking had been promised by early 2007. But financially, the Calatrava contraption looks as rickety as something out of an old Erector Set.”

The Journal Sentinel from Wisconsin. “One clear sign of metro Milwaukee’s new-home sales slump: developers are raining down on the parade. ‘We used to have to beg people to host (the annual) Parade of Homes,’ said Matt Moroney, executive director of Metropolitan Builders Association. ‘Now, we’re turning people away. Developers need the show as a marketing opportunity.’”

“For the year to date, MTD data show, Milwaukee metro permits are running 24% behind last year. This September was the market’s worst-performing September in at least seven years, according to Menasha-based MTD, which tracks one- and two-family home permits in most of the metro area. ‘I’m hoping we’ve bottomed out,’ Moroney said.”

“He said builders have been reducing their inventory of speculatively built homes, which don’t have contracted buyers. Metro Milwaukee is sharing the nation’s housing market slide, following five years of boom conditions that produced what economist Michael Carliner called ‘unrealistic expectations’ among customers and contractors.”

“‘They may be over-reacting now that their expectations have been tarnished,’ said Carliner, the National Association of Home Builders’ vice president for economics. He predicted national housing sales will be down about 20% this year and shrink further in 2007.”

The Naples News reports from Florida. “Some local real estate professionals are livid. It’s bad enough that sales of single-family houses in the Naples area has dipped nearly 50 percent. An auction scheduled for Oct. 21 has some Realtors seeing red, as in the bookkeeping term for financial loss.”

“The proposed auction has tied up the real estate market for the next few weeks, some Realtors protested in early October. People have stopped buying so they can wait and see what they can pick up at the sale, at which they can bid online or at the Naples Beach Hotel & Country Club for some 45 homes.”

“Drake’s listings show the 45 upscale properties listed for a minimum of $1. Real estate professionals say it is especially obnoxious because many of the properties that will be sold on the auction block, by seller desire, not because they can’t pay the taxes, were purchased by speculators who likely attempted to manipulate the market.”

“‘The majority of investors are selling off with little or no profits. Look at the 11 homes (in Lake Park) going up for auction by an investor now,’ says longtime Naples resident real estate agent Jerry Krecicki.”

“One of the sellers who signed up for the auction has 11 properties, and probably counted on Naples’ continuing sales boon but, apparently, miscalculated, (realtor) John Turner said. Turner cited a house that listed for $569,000 on March 5, 2005. Moorings resident Marjorie Dresner bought the house on March 7, 2005, and closed on it on April 26, 2005 for $585,000, Turner said.”

“Collier County Property Appraiser Abe Skinner had the house’s appraised value listed as $450,726. Likewise, a home was listed for $625,000. Dresner bought it for $635,000 on June 10, 2005. The assessed value listed as $563,933. On Oct. 2, Dresner sold it for $564,000, Turner said.”

“‘She kept going around buying these (houses) and she was paying way too much for them,’ Turner said.”

“Dresner, who owns 26 of the 45 properties up for auction, could not be reached for comment. Dresner indicated to auctioneer Paul Drake that the Oct. 21 event is a business decision. ‘We are auctioning off everything she owns, except for her own home,’ Drake said.”

“Krecicki said when folks buy for more than the property is worth, they ultimately end up devaluing the neighborhood, he said. ‘It’s bad enough that we have a real estate market that is, as a whole, slowing down,’ Krecicki said. That kind of market manipulation is wrong, he said.”

“So much so that the Naples Area Board of Realtors wouldn’t allow Drake to include his auction properties in the organization’s multiple listing services. ‘Everyone called up complaining. Realtors are in an uproar over this,’ Krecicki said.”

“‘Nobody can deny that transactions are, arguably, down about 50 percent, and buyers are generally reluctant to make offers. They don’t want to overpay. Or they feel the market will continue to decline,’ Drake said.”

The Palm Beach Post. “Has the fat lady sung at Opera Place? A New York-based hedge fund confirmed it has contracts to buy two troubled downtown properties, including land belonging to the still-unbuilt Opera Place condo, the largest private development planned downtown since CityPlace.”

“The area has been struggling in recent months as a growing number of condo units chase a shrinking number of buyers, and CityPlace merchants complain of sagging sales behind fewer shoppers. Observers say the Opera Place deal reflects the troubled nature of the condo market, both locally and in South Florida as a whole.”

“‘West Palm Beach was caught off guard with the speed at which all these units were being developed,’ said Neil Merin, one of the area’s top brokers. ‘But it’s not an unlimited market where you could put up anything and sell it.’”

The Sun Sentinel. “Palm Beach County’s median price declined $25,400 to $386,000 in August, marking the first year-over-year drop in seven years, according to the Florida Association of Realtors. The August median for Broward County fell $24,200 to $362,800. It was the second month in a row that Broward’s median declined on an annual basis.”

“‘A lot of people are sitting and waiting,’ said Debbie Anderson, an agent in northwest Broward County. ‘I don’t blame them.’”

“Ashley Ostroff is asking $498,900 for her three-bedroom Palm Beach Gardens home even though her agent said she could get more. Ostroff has yet to field an offer. ‘Even people who are ready to buy now are waiting because of what they’re hearing in the media,’ she said.”

The Treasure Coast Palm. “Realtors could see the housing slump start to reverse course around the start of the new year, more than a year before builders see improvement. Martin County, because it has the least number of vacant homes, could be the first area on the Treasure Coast to experience a comeback.”

“An abundance of homes, which some conference speakers said would force down prices, is due in part to speculators overplaying their hands over the past couple of years. The Treasure Coast now has about a seven-month supply of vacant homes, according to Metrostudy.”

“St. Lucie County has more than 1,000 vacant homes, while there are about 600 unoccupied homes in Indian River County and 300 in Martin.”

“Brad Hunter, Metrostudy director for South Florida, said Realtors claim the housing slump should ease in three to four months, while builders say the turnaround will begin in 18 to 24 months. ‘They’re both right,’ Hunter said.”

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