October 13, 2006

“Excess Demand Is Becoming Excess Supply”

It’s desk clearing time. “The U.S. housing market is going through a ‘fairly orderly’ adjustment process, Federal Reserve Governor Susan Bies said on Wednesday. ‘Now that many investors perceive that prices have peaked… they are trying to sell, so excess demand is becoming excess supply, we still think it’s fairly orderly’ Bies told reporters.”

“Still, Bies said she could not rule out a more disorderly correction lower in the U.S. housing sector.”

“The European Commission has warned that eurozone growth may grind to a halt early next year, dashing hopes that the world’s second-biggest economy will pick up the baton as America slows. HSBC said there was a risk that Europe would slow in tandem with the US, much as it did after the dotcom bubble burst in 2001.”

“‘If the global economy is looking for the eurozone consumer to come through, it should look again,’ said the bank’s chief economist, John Butler.”

“Centex Corp. pre-announced downbeat quarterly results that included a 28% decrease in net sales orders as well as land-write-offs. The company said it’s seeing record levels of cancellations, due largely to the inability of buyers to sell their existing homes.”

“Centex said it expects to write off between $85 million and $95 million this quarter for land options it’s walking away from. It also anticipates land-valuation adjustments of about $40 million to $45 million. ‘Despite the recent run-up in the stock since mid-July, we remain convinced that current trends are still in the early stages of a more meaningful slowdown,’ said analyst Rick Murray.”

The Times Reporter from Ohio. “Tuscarawas County home buyers are changing their ways when it comes to purchasing real estate. The average price for a house sold in July 2005 was almost $111,000. This July it dropped to $101,000. In August 2005, the average price was $109,000. It dropped to $93,000 this August.”

“The owner of the house at Gnadenhutten said the family lowered the price considerably at the end. ‘It got to be frustrating after a while,’ he said. ‘It was empty so long the insurance company was going to stop coverage.’”

The Daily Herald Tribune from Canada. “Grande Prairie’s housing market appears to be slowing down to catch its breath following a marathon spring and summer of record prices. In the spring some homes were going up in price by $10,000 a week.”

“The developer would consider it a sold house and begin work on another to maintain inventory, but the original buyer would then try to flip the property for a higher price to make money as values rose.”

“Part of what’s driving that is the double-selling of some properties. When prices began rising quickly one year ago, Kevin Vobeyda, president of the local real estate board, said many people bought homes on speculation while they were under construction. ‘Now that property has to sell twice in the same market in one year,’ Vobeyda said, adding that speculation sales have fallen off during the summer as more homes are added to the market.”

The Dallas News. “North Texas homebuilders have gotten the word about the softening housing market. Even so, they started work on more than 12,000 houses in the three months through September.”

“DR Horton reported that 40 percent of its home sales were canceled in the most recent quarter. ‘It’s more pronounced at the lower price points,’ said Ted Wilson of Dallas-based Residential Strategies. ‘In places like Lancaster, it’s running as high as 70 percent.’”

“Almost 30,000 unsold new homes were on the market in Dallas-Fort Worth last month, an increase of 14 percent from a year earlier. The number of preowned houses on the market in North Texas jumped by 13 percent last month to almost 47,000 homes.”

“‘People are thinking twice about the housing market,’ analyst Ted Wilson said. ‘They have read all the negative reports about what is happening nationally.’”

The Arizona Republic. “When Scottsdale’s Hotel Valley Ho announced it would build condominiums on top of the hotel and sell them for about $1 million apiece in December, buyers didn’t hesitate to bite. But now, half of those buyers have pulled out and the waiting list disintegrated.”

“‘There was no turning back,’ said Jesse Thompson, sales director. ‘We started building before the economic climate changed in the real estate market here.’”

“The W Scottsdale Hotel & Residences planned to open sales on 18 condos this summer, but it will hold off, said Michael Mahoney of Triyar Companies, which is building the hotel. ‘We’re very pleased not to be in the straight condominium market at this time,’ he said.”

The Daily Courier from Arizona. “Permits have dropped significantly in both Prescott Valley and in the county, however. The biggest drop is in Prescott Valley, where the number of permits fell to 23 in September.”

“Richard Parker, director of community development for the town, said , ‘That’s the lowest I’ve seen it since I’ve been here, (and) I’ve been here 10 years,’ he said.”

The Daily Bulletin from California. “San Bernardino County sales dropped 25.8 percent to 3,236, down sharply from last year, said John Karevoll, senior DataQuick analyst. ‘The market is coming down from an unnaturally high level,’ he said.”

“Christopher Thornburg, formerly a UCLA economist, believes the Southern California housing market is 30 percent overpriced. ‘One way or another, the market has to work out of this imbalance between market price and fundamental price,’ he said.”




“A Storm Brewing” In California

The Modesto Bee reports from California. “Clamorous construction sounds are fading in the Northern San Joaquin Valley as the once booming building industry slows. In Modesto, 16 building permits were issued this September compared with 60 in September 2005. ‘We look to be in the middle of a correction,’ said Steve Madison, of the Building Industry Association of Central California. ‘Obviously, we would love to be selling more houses.’”

“Buyers are harder to find now, Madison said, ’so builders are only constructing homes they have an order for’ because they don’t want to be stuck with unsold inventory. But many of region’s builders have finished or near-finished houses for sale at discounted prices or offered with incentives.”

“‘Builders are giving up (land purchase) options and contracts, leaving money on the table. That’s happening all over California,’ said consultant GregPaquin, noting that land is being returned to farmers and property brokers.”

The Sacramento Bee. “Builders with excess inventory are cutting prices or offering sales incentives. Many are contending with high rates of buyers backing out of sales contracts. About 20 percent of new homebuyers backed out of contracts during the summer, according to Hanley Wood.”

“Wells Fargo Bank CEO Officer Richard Kovacevich said he believes real estate prices statewide will stabilize by next spring. ‘Buyers ‘may be under water 10 percent for a while, but you can ride it through,’ he said.”

“The shift to a buyer’s market has prompted price cuts by several home builders. Centex Homes is advertising $50,000 cuts in Woodland, Elk Grove and Placer County. Sacramento-based JTS Communities has advertised ‘liquidation’ pricing and up to $200,000 discounts on some homes. Miami-based Lennar Homes has advertised price cuts of up to $80,000 in Antelope and Yuba and Sutter counties.”

“‘Places with high Mello-Roos fees and high homeowners association fees aren’t going to sell,’ said Kathryn Boyce, a Sacramento analyst.”

The Orange County Register. “Orange County’s home prices continued to soften last month as sellers weathered the slowest September in 14 years. It’s the third monthly decline in a row.”

“‘Even though the numbers look like things are not all that bad, we see a storm brewing,’ said Greg Norris, a project manager for the Norris Group. ‘We see a lot of foreclosures coming, we see prices dropping, we see sellers starting to get desperate.’”

“Coldwell Banker’s Mac Mackenzie said he’s not seeing any home selling for more this year than it was last year. ‘We have to reduce the prices just to get an offer, to make the home sellable,’ he said.”

The LA Times. “After 90 days, four price reductions and a couple of low-ball offers, Jose Morales withdrew his three-bedroom Riverside bungalow rather than cut his $415,000 asking price, already down from an original $486,000.”

“‘When my real estate agent told me I should drop the price again, I said ‘That’s it. We don’t have to move,’ he said.”

“‘The market hasn’t gone into that desperation mode yet, but we see it as in the earliest stage of the downward pressure on prices,” said Economist Esmael Adibi, at Chapman University in Orange.”

“He forecasts that a year from now, the supply of Southern California homes for sale could be considerably higher. That’s because ‘a good portion’ of recent home buyers with riskier adjustable-rate mortgages with a minimum payment option will find it difficult to make monthly payments or won’t have enough equity to make refinancing worthwhile, he said.”

“‘How many of this group will be able to get out of a bad situation … if they face payment shock or financial distress and will need to sell?’ Adibi asked.”

“The Contra Costa Times from California. “Solano and Contra Costa counties, where much of the Bay Area’s once-booming housing market soared in recent years, now have the third- and fourth-highest rate, respectively, of foreclosure in California. A year ago, Contra Costa County ranked 11th on the list.”

“The numbers are rising at a time when many borrowers who took out adjustable-rate loans years ago are now paying bigger mortgages after the end of introductory rates. ‘I think that’s the biggest trigger,’ said real-estate agent Earl Rozran. ‘All of a sudden, payments have jumped a couple hundred dollars.’”

“Statewide, 14,806 properties in September were in some type of foreclosure proceeding. ‘I think what we are starting to see in California is the effect of (rising) adjustable-rate mortgages. The whole state has risen pretty dramatically over the last six months,’ said Rick Sharga, VP at RealtyTrac.com.”

The North County Times. “Foreclosure activity has shown a dramatic increase in San Diego and Riverside counties, far outpacing most of California and the rest of the nation, according to a foreclosure tracking firm. San Diego County had 4,069 properties in some stage of foreclosure for the quarter that ended in September, compared with 970 properties for the same quarter in 2005, an increase of 319 percent.”

“Riverside had 4,403 such properties for the most recent quarter, versus 1,297 for the same quarter in 2005, an increase of 239 percent.”

“Alan Gin, professor of economics at the University of San Diego, blamed the trend on the region’s high cost of housing. ‘The housing prices are so much higher here that people got stretched getting into a home,’ Gin said. ‘If you got into a $600,000 home in San Diego, you’re much more likely to default than someone in a $200,000 home in Dallas.’”

“Mark Fabela, director-elect for the board of the North San Diego County Association of Realtors, said the foreclosure increases were because of dropping housing prices. When housing prices decline, some people can’t refinance their way out of high mortgages. ‘People actually overextended themselves,’ Fabela said. ‘They get to the point where they can’t make the payments.’”

The Daily News. “The state’s foreclosure activity has risen more than 40 percent over the last two months. ‘I think a lot of buyers unfortunately got into some risky loans that may not have been in their interest,’ said James Joseph, (broker) in Whittier.”

“Increased foreclosures are a product of a market slowdown, said David Reid, a licensed real estate broker and licensed contractor. The market was moving so fast for a few years that homes would sell before they went to foreclosure, he said. But now that the market has slowed, homes are not selling and are foreclosed.”

“In recent years, people had to decide within hours whether or not to buy a home, he said. ‘Maybe those who bought the homes stretched because they had to make a quick decision,’ Reid said.”

The Ventura County Star. “There is a psychological component to markets that is hard to quantify, but it can show up in statistics. In September, Ventura County’s median home price dropped 3.3 percent from a year earlier, the first decrease in more than five years.”

“Economist Bill Watkins said..the sudden drop in sales that has plagued California’s summer selling season probably has more to do with consumer mood. ‘They heard so much about a bubble that they are sitting out,’ he said.”

“Mortgage broker Tino Montelongo said ..there are many people who got used to tapping equity in their homes to get cash, but they cannot refinance because their property isn’t worth more today than when it was purchased six months or a year ago.”

“Others, Montelongo said, might have owned for a long time, refinanced several times and cashed out all their equity. ‘They overextended themselves,’ he said.”

“Watkins, a Ventura resident, said his advice is not to panic. ‘I don’t have any property for sale,’ he said.”




“Why Would I Buy Now When It May Even Go Lower?”

From the Idaho Stateman. “Slumping Treasure Valley single-family residential real-estate sales have begun to affect the area’s once-skyrocketing housing prices, according to September industry statistics released Thursday. An Intermountain MLS report for September revealed the median price of a home sold in Ada County last month was $240,000, a drop of $8,900, or 3.5 percent, since July.”

“Boise State University economics professor Don Holley said an inventory of almost 7,000 unsold homes has created a market where homeowners have to slash their asking prices to compete for buyers.”

“According to the MLS September report, 1,165 new and existing homes were sold in the Valley last month, or 37 percent fewer than the same month in 2005. Sales in Ada County were off 41 percent from a year ago, while Canyon County saw a drop of 31 percent.”

“Nampa Building Safety Director Dennis Davis said that last year was an aberration and that the market is simply returning to normal. Don Hubble, owner of Meridian-based Hubble Homes, was not convinced. ‘I think October is going to be even worse,’ said Hubble. He said he may have to cut the price of his homes up to 10 percent to generate public interest.”

“Kent Proesch, a real estate agent with Columbia Village Realty in Boise, had to take $74,000 off the price of a 2,428-square-foot, four-bedroom home he owns on the Boise Bench before he received his first offer. He didn’t hesitate to take it. ‘Right now, at $249,900, I’m just going to break even and get out what I have in the house. And I’ll be glad about it,’ Proesch said.”

“‘Land in north Meridian, which was the hottest market in Idaho, was selling for $140,000 an acre two months ago. Now it’s going for $80,000,’ Hubble said. ‘Now we have to get back to building homes that the general public can afford.’”

The Las Vegas Sun from Nevada. “With more than 20,000 homes on the MLS… buyers are in the driver’s seat and calling the shots. ‘In this market, we are competing head to head in a big way with new home inventory,’ said Linda Rheinberger, president of the Greater Las Vegas Association of Realtors.”

“Some sellers are simply pricing their homes too high, agents said. Rheinberger said those sellers would rather turn to incentives than lower the price of their home as a matter of pride. ‘They want to tell people at cocktail parties how much they made on their house,’ Rheinberger said.”

“The number of home foreclosures in Nevada has more than tripled in the past year. Chief among those being foreclosed on are investors who purchased homes about a year ago with minimal down payments and are now holding mortgages they can’t afford. Some homeowners who paid the barest, or zero, down payments now owe more than their homes are worth.”

“Since May, foreclosures in Nevada have increased 83 percent. The foreclosure rate shows no signs of slowing in Nevada with predictions it could triple again in the next six to nine months. Michael Krein, president of Nevada Real Estate Services, which handles foreclosures for banks, said the worst is yet to come. ‘This is the tip of the iceberg,’ Krein said.”

“About a third of the homes now in foreclosure were bought in 2004 and 2005 with adjustable-rate mortgages. ‘They are going to sell them for whatever they can, whether they take a loss or not,’ said Steve Schauer, a local mortgage broker. Many overstretched homeowners are trying to refinance 100 percent loans, only to be rejected because their homes’ appraised values have dropped and they don’t have the cash to make up the difference, he said.”

“The majority of properties foreclosed on are vacant, Krein said. More than 40 percent are owned by investors who bought in late 2005, hoped to turn them around for quick profits and didn’t even make a payment, he said.”

The East Valley Tribune from Arizona. “Bill Yakobovich’s ritzy north Scottsdale estate sat vacant for nearly five months before he decided to ditch his real estate agent and put the home up for auction. ‘Nobody stepped forward to give me the greenbacks,’ he said. ‘I said ‘I am not going to go through another winter. I am just going to sell it at auction.’”

“Next month his 4,500-squarefoot Desert Mountain home, which was originally listed for $2.9 million, will sell regardless of price, for no minimum bid and no reserve. ‘I’m not using the home,’ he said. ‘If the market tells me it’s worth less than I expected to get when I listed it a year ago, then that’s OK. It’s really worth it to me, just to get rid of it.’”

“And the majority of the Valley’s million-dollar home auctions are taking place in Scottsdale, said Bob Boone, the local designated broker for a company that specializes in luxury-home auctions.”

“Potential buyers can peruse home listings online and actually watch desperate homeowners slash their prices on a weekly basis, Butler said. ‘What gets into your mind is, why would I buy now when in fact it may even go lower?’ said Jay Butler, director of the Arizona Real Estate Center.”

“‘It is the complete opposite of what it was when the market was a sellers’ market,’ said Stacey Atwell, associate broker in Chandler. ‘The buyers last year were saying, why do I have to pay $20,000 above price? That’s not fair. Well, do you want it or not? Now, the same thing goes for the sellers, saying why do I have to take $20,000 less than what I have it listed for? Well, do you want to sell it or not?’”




“The New Normal” In New York

Newsday reports from New York. “The new normal of real estate, For Sale signs on every block and slipping prices, is here to stay, at least for a little while. The median price of a home in Nassau County was $480,000 last month, 4 percent, or $20,000, lower than a year ago, according to data released Thursday by the Long Island Multiple Listing Service.”

“Perhaps even more significant was the disparity between the continued increase in inventory, by about 50 percent annually, and the annual decline in the number of closed sales, 20 percent for Nassau, 24 percent for Suffolk. Gross dollar volume of closed sales is down too, 6.5 percent less than a year ago, a decline that could ripple through the economy.”

“‘Real estate has been a driving force in the Long Island economy for the past five years and, to some extent, for the last decade,’ said Pearl Kamer, chief economist of the Long Island Association. She said that the market affects spending and jobs, and a downturn could slow the economy overall.”

“It would take 13 months for the homes listed in Suffolk and Queens to sell at the current pace. Nassau has an 11 months’ supply. Many potential buyers are on the sidelines, but low interest rates may bring some new ones, said Judy Markowitz, broker in Flushing. ‘But there’s still not going to be enough buyers to absorb all the inventory.’”

“That’s especially true, Markowitz noted, because asking prices in some areas are still rising. ‘Sellers will need to negotiate if they want to be the bride rather than the bridesmaid,’ she added.”

“The problem, said buyers agent Beth Marten, is that sellers and buyers alike are following a ‘herd mentality.’ When the boom began, buyers paid whatever they could to get a house. Now, the opposite is true. But buyer be aware, said Marten: ‘There are good deals that can occur at any given moment.’”

The New York Observer. “The housing market has been nudging downward for a while now. Add one more factor: the overhaul, recommended this morning by the city housing department, of the so-called 421a tax break. Housing commissioner Shaun Donovan said in a conference call this morning that condo ‘prices would potentially go down to some degree’ in neighborhoods where the abatements would be eliminated.”

“In those neighborhoods, like Tribeca, the Financial District, Dumbo and Brooklyn Heights, prices have been inflated by about 50 percent of the value of those abatements, he said.” Just how much difference would that make? The abatements were worth $40,000 to $210,000 over their lifetimes, so prices would come down $20,000 to $105,000 just because of that one change. ‘It’s very clear that implementing these changes in a measured way over time is the right way to do this so that there is not a one-time significant impact,’ Donovan told reporters.”

“That said, Mayor Bloomberg said early this year that real estate prices were too high, so we don’t imagine he is too worried.”

The New York Sun. “Clearly the boom in the condominium market we were experiencing over the last few years and reached its peak about 12 months ago has cooled and the bloom is off the rose.”

“The vice president and regional manager at Fremont Investment & Loan, Patrick Crandall chimed in: ‘In terms of Manhattan, while its true inventories are climbing, it is really only in comparison to the frenzied absorption we have seen for the past several years. Buyers now know they have time to think and shop before making their purchase decision. I think buyers are taking longer to commit than they otherwise might, because they keep reading about an impending market decline in the papers and fear if they buy now their apartment will lose value.’”

“‘While some ill conceived, poorly located, or overpriced condominium projects will likely suffer somewhat in the marketplace, well designed, well located, and smartly conceived projects should sell nicely, though, perhaps, not as rapidly as a year ago,’ said Robert Ivanhoe.”

“‘The residential market in Hoboken, Jersey City, and Philadelphia has slowed though quality unique projects are still selling,’ the principal of Hoboken Brownstone Company, Daniel Gans, said. ‘There is a lot of product being built and until that inventory is soaked up new starts will continue to slow down.’”

“A partner at Apollo Real Estate Advisors LP, William McCahill said, ‘Once the market perceives that prices have hit the floor, demand will return, stronger than most expect. Right now the market sees a falling knife which no one wants to grasp because of fear of injury. Financing for new condo projects and conversions are beginning to dry up. Once the press stops making negative predictions on housing prices, the boomers may start to snap up available inventory,’ he said.”

“Principal at Stellar Management, Robert Rosania said, ‘It is impossible for one environment to totally avoid what every other location has felt. With so much supply coming to market, the market is ripe for a major correction.’”




“Welcome To Post-Boom” Florida

The News Press reports from Florida. “Welcome to the post-boom world of Southwest Florida real estate, where builders compete for scarce customers by offering deep discounts and upgrades such as the Lees’ pool. Home prices in Lee County have dropped sharply since December, when the median price of a single-family home peaked at an all-time high of $322,300.”

“By August, that figure had fallen to $264,100, down 7 percent from $283,600 a year earlier. In Collier County, the median price in August was $469,100, down 6 percent from $500,800 a year earlier.”

“Meanwhile, about 12,000 houses are on the market in Lee County, about three times the number from a year ago.” “As a result, incentives have proliferated. ‘That’s the first thing builders do when the market softens,’ said John McIlwain, with the Urban Land Institute. ‘They don’t want to reduce prices because it affects values and the market.’”

“‘The prices are going to start coming down, but it’s really hard for a builder to post a sign: ‘Price reduced,’ McIlwain said. ‘That sends a bad message to the buyer. People wonder a couple of things: ‘If I don’t buy, will it come down next week,’ or ‘If I buy, now, if it comes down next week will I lose value?’”

“A builder’s incentives can drastically reduce prices in a neighborhood. Real estate agent D. Michael Burke points to the Savona development in Grandezza where the average price of homes sold has dropped steadily from $668,975 in the fourth quarter of 2005 to $504,500 in the third quarter of 2006.”

“‘It’s very difficult to compete with what they’re doing,’ Burke said.”

“Sometimes a developer’s incentives are used to compete with people who are trying to resell houses in a partially built community. Not everyone in the real-estate business thinks incentives other than price are a good idea.”

“‘We have a saying in our office,’ said Rich Halpern, president of a Bonita Springs-based research firm. ‘If your builder says he’s giving you a refrigerator, go to his house and if his wife still has a refrigerator, he didn’t give you a refrigerator, you’re buying a refrigerator from him.”

The Bradenton Herald. “The market is likely returning to where it was in 2002-03, and ‘one can regard the market of 2004 and 2005 as an aberration,’ said Dale Friedley of the Manatee County Property Appraiser’s Office”

“Locally, home sales in September slid 37.2 percent from last year. Condo sales tumbled by 73.6 percent.” “‘

“It was unsustainable and I think we all knew that,’ said Jan Smith, president of Jan Smith & Company.”

“While 2002’s real estate market was a healthy one, the market became saturated with condominiums during the past four years. ‘There is not only oversaturation on the market, but condo sellers had this perception that these were solid gold and they could charge anything they wanted for them,’ said Ken Miller, sales associate.”

“It is not just the luxury market that has seen an influx of condos. The conversion of apartments to condos has flooded the more affordable market as well.”

“There were several instances in which apartment complexes aimed to go condo only to find the market flattening before they could convert. After changing the name and doing some renovations, 210 Watermark in downtown Bradenton found the market too volatile and reverted back to a rental community.”

The St Petersburg Times. “Needing millions of dollars to revive its stalled Trump Tower Tampa condominium project, developer SimDag LLC has sold off one of its chief assets: its headquarters building in downtown Tampa.”

“The sales price was $280,000 less than SimDag’s partners paid for the six-story office building in 2003, according to the Hillsborough County Property Appraisers office.”

“Developers say they’ve collected nonrefundable deposits on 80 percent of the units, but construction on the building foundation has visibly slackened.”

“‘When they broke ground two or three months ago, there were probably 30-plus people working on the site. Now some mornings I come out and the gates are locked,’ said Eric Bailey, an executive with the company for which the recently sold office building is named.”

“Finding financing for what could be a landmark tower has proved elusive as lenders scurry from the slumping housing market. Construction overruns forced SimDag to hit depositors up for millions of extra dollars last winter.”

“In August the Trump Organization announced it would wield its clout in the lending community to help SimDag negotiate a $200-million construction loan for the tower. Neither Tampa investment banker Robert Moreyra, president of Atlantic American Capital Advisors, nor SimDag chief executive Frank Dagostino returned calls from the St. Petersburg Times. Executives in Trump’s New York offices could not be reached Wednesday for comment.”




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