The Housing Bubble

The Union Tribune reports from California. “San Diego County figures from DataQuick indicated a downturn trend in prices. The median price last month for newly built houses and condos and condo conversions locally was $413,500, down 17 percent from a year earlier, with analysts speculating that much of this change was the result of an increase in lower-priced condo conversions.”

“On sales, DataQuick said San Diego County’s new-housing total was 885 transactions last month, 37.5 percent lower than in September 2005.”

The Press Enterprise. “Inland economist John Husing said homebuyers won’t become active again until they are convinced it is a good time to buy. ‘What the market is facing is a buyers strike, and until buyers see prices come down they probably are going to stay on strike,’ Husing said.”

The Contra Costa Times. “Solano County homes stayed on the market longer than those in any other Bay Area county, according to a report released by Prudential California Realty. Single-family, detached active listings went up 43 percent in the county.”

“Scott Kucirek, general manager of Prudential California Realty, said the trend is fed by sellers refusing to budge on prices. ‘Competitive sellers need to lower prices or risk missing the sale,’ he said.”

The San Francisco Chronicle. “Some economists said the state’s housing market is likely to deteriorate further before it recovers. ‘We haven’t seen the bottom yet, and we won’t see bottom until 2007,’ said econmist Christopher Thornberg. ‘We have a big issue on our hands.’”

“‘You’ve got sellers who are slow to accept the new market realities and buyers that are just kind of waiting for a market that I don’t think they’re going to see,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors.”"

The Daily Bulletin. “Regional economist Jack Kyser of the L.A. County Economic Development Corp. noted the contrast between the California market and the national one. ‘There are definitely bubble markets nationally,’ he said. ‘We have bubblettes in California - folks are worried about Sacramento and the Central Valley - but we don’t have anything like Las Vegas or the Florida condo market.’”

“Kyser said two factors were keeping California housing relatively strong. ‘Our economy is doing well and the population is still growing,’ he said. ‘Yes, it’s a shift to a buyer’s market where prices may flatten some, but anyone looking for a blowoff like the early ’90s, forget about it.’”

The Napa Valley Register. “Residential foreclosure activity in California reached its highest level in more than four years in the third quarter, reported DataQuick. ‘I think the foreclosures that will happen will be those people who took out 100 percent financing loans over the last two years,’ said loan consultant Michael Madsen in Napa.”

“‘They bought with no money down and then today the houses are worth the same or less than when they purchased, and so there’s no room to refinance into a more favorable loan product. When the payment adjusts upwards there’s nowhere for them to go. The equity isn’t there. That’s where you are going to see the squeeze,’ he said.”

“Martha Pedroza-Ramos, Loan Consultant in Napa said she is also seeing a small increase in default notices. ‘A lot of the people that got in recently were speculators, and I believe those are some of the people that are receiving notices of default,’ she said. ‘Some negative amortization loans on 100 percent financing that are not appropriate for all clientele.’”

“‘People that are in foreclosure are generally people that shouldn’t have gotten a loan in the first place; they were approved for something they couldn’t qualify for. You have to really look at what you can afford,’ said Kevin O’Neill, branch sales manager, at Countrywide Home Loans.”

“During the housing boom, people flocked to become real estate agents and mortgage brokers, sending the tally of those holding California real estate licenses to more than half a million this year.”

“Experts say it’s inevitable that there will be a shake-out. The attrition has already begun, some say. ‘There may not be a real estate bubble, but there might be a real estate agent bubble,’ said Gino Blefari, president of Intero Real Estate Services.”

“Small-business owner Mike Pfaff was part of the ‘agent bubble.’ Pfaff got his real estate sales license in 2004 and started working for Coldwell Banker in March 2005, ‘at the tail end of the high point’ of the boom, he said. He sold one house and helped one buyer make a purchase.”

“But it soon became clear to Pfaff, a former engineer, that selling homes was a hard way to pay the bills for his family of five. ‘I went a couple of months without any income at all,’ he said. When he started in the business last year, competition was already tough, Pfaff said, ‘and now it’s even worse.’”

“‘Starting next year, you’re going to see more of the fallout,’ said Joe Brown, president of the largest brokerage in the South Bay. ‘There’s this whole group of agents that have done two or three deals a year, and that’s not really enough to sustain you,’ he said. ‘They might be saying, `You know what? I need to go get a job.’”

The Arizona Republic. “The stalled housing market is hitting builders in their wallets. Revenue and profits are down, and slower sales and canceled deals are pressuring builders. They’ve responded with layoffs and by unloading or revaluing land they bought in the housing boom.”

“Most of the big builders have operations in Arizona, and the Phoenix area has been a key market. Among them, Scottsdale-based Meritage Homes. Meritage also reported a third-quarter slide Wednesday. Cancellations hit an all-time high of 37 percent. Meritage also is adjusting its land position and rebidding construction contracts. The company had layoffs in some markets.”

“The latest new-home data from analyst RL Brown shows a market seeking, but not yet finding, a bottom. There were 2,281 new-home permits issued in the Valley in September, off nearly 53 percent from the same month last year and the lowest monthly total since December of 2001.”

“‘We’re bumping along the bottom,’ he said. ‘The builders are kicking it in the tail, marketing their inventory. When you cut a $195,000 house down to $118,500, that attracts buyers.’”

From USA Today. “Builders, with no emotional attachment to their homes, have become one of the biggest financial threats to individual sellers. Faced with a huge number of cancellations, builders began trying to lure buyers with eye-catching deals, such as free vacations, media rooms and landscaping.”

“That’s what’s hurting Bryan Rauch. In January, he bought a home in Anthem, Ariz., where Pulte Homes is offering a slew of incentives. ‘The plan was to renovate it and flip it,’ says Rauch.”

“He put the home back on the market in February, at $284,000, then lowered the price repeatedly until he hit $270,000. Still no buyers. After six months, he rented it out at a $500-a-month loss. ‘The problem is the builder is giving away homes,’ Rauch says. ‘Properties like this are now selling for the low $200s.’”

“But Rauch needs to cut his losses. So he’s putting the home back on the market at $260,000 and crossing his fingers, like a lot of other sellers around the country.”

“In the softest real estate markets, sellers are waking up to the harsh reality that they can’t get anywhere near what their neighbors sold their homes for last year. So they’re grudgingly reducing their asking prices and offering to pay closing costs.”

“At the same time, many buyers, emboldened by the transformed market, are low-balling sellers and getting deals they couldn’t have imagined last year. In 2004, Sevan Derderian bought a house in Las Vegas as an investment for $281,000. He found tenants, but he kicked them out after 10 months because their rent was always late.”

“‘I found that it’s really hard to be a landlord from a state or two away,’ says Derderian, a salesman in Los Angeles. He held onto the property for another year, hoping prices would keep going up. Once the market turned south, though, he panicked.”

“He listed the house in the summer for $305,000. Having owned real estate only during boom years, he assumed it would sell in about a week. After a month, he cut the price to $289,900. Another week went by. He offered to pay nearly $9,000 toward a buyer’s closing costs.”

“Then along came Reggie Johnson, who snapped up the house and boasts, ‘I got a great deal.’ Derderian, meantime, lost about $25,000 from paying the mortgage on an empty home.”

“That’s a risk confronting sellers in 56 metro areas, including Las Vegas, San Diego, Phoenix, New York and Miami, that are expected to suffer annual price drops, according to a study this month by Moody’s Economy.com.”

“‘It was surprising just how quickly the market seemed to turn,’ says Mark Zandi, chief economist for Economy.com. ‘It was like, boom, boom, bust. It was like, ‘What happened?’ The psychology in the marketplace unraveled very rapidly.’”

The Daily Progress reports from Virginia. “Sales of homes in Virginia slid nearly 27 percent in September, marking the largest percentage drop this year, and the 13th consecutive month of slower sales. The median price, with half the houses selling for more and half for less, fell 9 percent to $199,975, according to figures released yesterday by the Virginia Association of Realtors.”

“The Richmond area took a hit as well, with sales of all homes down 15 percent last month. ‘We continue to remind consumers that comparing this year’s numbers to last year’s extraordinary market isn’t a fair comparison,’ said Kit Hale, president of the Virginia Association of Realtors.”

“Still, ‘there is no doubt that consumers are more cautious and taking their time in making a purchase decision,’ Hale said. ‘We’re also hearing that sellers are waiting until their homes are sold before purchasing another in order to avoid placing a contingent contract.’”

“The market here is stable compared with Northern Virginia, where sales fell 35 percent in September, said Wes Atiyeh, president of the Richmond Association of Realtors. ‘Northern Virginia increased so fast that the only way it can go is down.’ There the median price fell to $445,000 in September from $480,00 a year ago.”

Thw Washington Times. “‘There will still be plenty of bad housing news for some time to come,’ said economist Alexander Paris. ‘The length and depth of major boom-bust sectors is generally underestimated,’ he said, noting that the technology sector is still struggling to come back six years after the tech bubble burst in 2000.”

“While housing may experience a temporary rebound after the steep decline of the past year, Mr. Paris said, the fallout from the housing bust is just beginning. Inventories of existing homes dipped a little last month, but inventories of new homes have shot up by 50 percent in the past year and are forcing builders to aggressively cut prices and offer deep incentives to move houses, he said.”

“Speculators, who drove the market for condominiums in Washington and other areas, are dumping properties to limit their losses, driving down prices, he said. ‘That price weakness will spill over to all new and existing homes,’ he said.”

“Also, after the housing boom prompted about 25,000 new jobs a month in real estate, mortgage finance, construction and other housing-related areas, the industry started shedding jobs at the rate of about 10,000 a month in March, he said.”

“The potentially large economic effects from losses, defaults and foreclosures in housing will unfold slowly, and have just begun to show, Mr. Paris said. Foreclosures are up 53 percent from a year ago, with about half of them the result of homeowners being unable to afford payments after their adjustable rate.”

“The leading edge of a large potential problem, Mr. Paris said; around $2 trillion of adjustable rate mortgages taken out to buy and refinance houses in 2004 and 2005 will be adjusting upward in the next two years to three years. ‘That is around 20 percent of all mortgages outstanding, with many of them high-risk loans with low introductory rates as low as 1 percent to 2 percent, back-end loads and other techniques to squeeze high- credit-risk buyers into higher priced homes than they could afford.’”

“‘Corrections of big credit-induced bubbles usually don’t end until we see pictures of more than a few handcuffed industry executives on TV,’ he said.”

The Washinton Post. “One reason prices are dropping is that sellers are having a harder time finding buyers. Nazirahk Amen thought a buyer would snap up his three-bedroom, three-bath Cape Cod in Takoma Park. He was so confident that he bought another house nearby and moved. For the past two months, he has been making two mortgage payments, and recently reduced the price $25,000 to attract a bidder.”

“‘Of course it’s frustrating,’ Amen said. ‘I’m looking for this to end. It’s frustrating, to say the least.’”

“Charles W. McMillion, an economist and president of District-based MBG Information Services, said he saw little sign that the decline was ending. ‘I don’t see stability when sales continue to decline sharply and price continued to decline sharply,’ McMillion said. ‘It’s pretty hard to argue we’ve reached a sustainable level.’”

“Peter Morici, an economist at the University of Maryland, said reduced inventory of unsold houses may mean ‘frustrated buyers are removing their homes from the market.’ Morici said that major price adjustments will be needed to bring the market back into balance.”

“‘The speculative frenzy of recent years is causing a major adjustment, and the happy talk of Realtors is prolonging the process,’ Morici said. ‘The absence of realistic analysis about the extent of overvaluation is characteristic in an industry that sees nothing but an upward progression for values, but houses like any other asset can be overpriced. . . . Things are likely to get worse before they get better.’”

Some housing bubble reports from Wall Street and Washington. “U.S. homebuilders slashed prices at the fastest pace in 36 years in September and managed to boost sales to the highest level in three months, the government said Thursday. However, sales in June, July and August were revised down by total of 67,000 annualized, continuing a pattern of downward revisions to the originally reported data.”

“Median sales prices dropped 9.7% in the past year to $217,100, the lowest price in two years. It’s the largest percentage decline in median prices since December 1970. Median prices for existing single-family homes are down 2.5% in the past year, the largest decline ever recorded.”

“Home builders have piled on incentives, including vacations and new cars, to sell homes. Such incentives are not subtracted from the sales price reported to the government. Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months.”

“The number of homes that are completed and waiting to be sold rose by 6,000 to 157,000 in September, today’s report showed. Mortgage lenders, builders and makers of construction materials are feeling the pinch. Countrywide Financial Corp., the biggest U.S. mortgage lender, said this week that its mortgage- banking profit dropped 40 percent.”

“The U.S. housing market has ‘already had a hard landing,’ Countrywide’s CEO Angelo Mozilo said on a conference call.”

“Pulte Homes Inc. said Wednesday its quarterly profit fell 52 percent and new orders dropped 39 percent as the U.S. housing market continues its sharp decline. The nation’s No. 2 home builder also issued a forecast which was well below what Wall Street had expected.”

“Part of the downfall was attributed to $87 million of write-down in land and options on land that the company won’t exercise. ‘It’s a surprise the degree and magnitude is not only large but obviously escalating,’ said Raymond James analyst Rick Murray. ‘It’s indicative of what’s going on in the housing market now, that things are continuing to escalate in a bad way,’ Murray said.”

“New orders fell 39 percent to 7,299, with a value of $2.4 billion, down 40 percent. New orders in the Southeast fell the hardest, down about 50 percent. ‘The operating landscape for new home sales remained challenging during the third quarter, as high inventory levels, affordability issues, elevated cancellation rates and a general lack of buyer confidence continued to weigh on new home demand,’ Richard Dugas Jr., Pulte’s CEO.”

“MI Homes Inc. said Thursday its third-quarter profit fell as the homebuilder delivered fewer homes and wrote down the value of its inventory, while also abandoning previous land deals amid a continuing decline in the housing market.”

“New contracts during the quarter totaled 571, down from 1,163 homes a year ago, reflecting higher cancellation rates, an excess supply of new and existing homes, and weak demand.”

“The Federal Reserve kept interest rates unchanged yesterday for a third consecutive meeting. Analysts said there was nothing in the Fed’s explanation of its decision to shake their view that the central bank will remain on hold for perhaps as long as a year.”

“‘There isn’t anybody on the Fed considering lowering rates, and the Fed knows if you were to raise rates now you could turn what is a reasonably orderly decline in housing into a rout,’ said Lyle Gramley, a former Fed board member.”

“Former Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. economy was pulling away from the shoals of a sharp housing-sector downturn. ‘Most of the negatives in housing are probably behind us,’ Greenspan said.”

“‘There are early signs of stabilization,’ Greenspan said of the U.S. housing market, although he added: ‘It’s not over.’”

The Florida press reacts to the home sale numbers. The Palm Beach Post, “Even the most steadfast residential real estate bull is going to have a hard time denying the bear is in the house with Wednesday’s sales report from the Florida Association of Realtors. Now, buyers are calling the shots.”

“The slowdown has caused an astounding 49-month supply of existing homes for sale in Palm Beach County, Regional MLS records show. ‘It’s very frustrating because there aren’t a lot of buyers, and all the negotiating power is on the other side now,’ said Richard Klein, who has had his four-bedroom, three-bath home west of Boca Raton on the market for three months.”

“He has had no serious offers, even though he dropped the price $50,000. ‘The buyers who are out there now are very aggressively looking for tremendous price cuts,’ said Klein’s agent, Barbara Siegel.”

“‘In most neighborhoods where we sell property, the average sales price has dropped more than 20 percent this year,’ said broker Thomas Moffett, whose office sells property in central Palm Beach County.”

The Sun Sentinel. “Palm Beach County existing home sales fell a whopping 53 percent in September. The county’s year-over-year median price dropped $34,500 or 9 percent last month, the Florida Association of Realtors said Wednesday.”

“Mike Larson, an analyst in Jupiter, said that builders are offering $100,000 discounts, one-day sales and other perks, which are helping lower home values across the region. Sellers of existing homes can’t match those incentives, so inventory is piling up. Palm Beach County had nearly 33,000 homes and condos on the market last month, more than double the number from September 2005.”

“A sense of uncertainty continues to grip sellers across Broward County as the housing slump plods on. Prices and sales of existing homes fell again in September. Broward had nearly 40,000 homes and condos on the market last month, more than double the number from last September.”

The Ledger. “Polk County’s home sales fell in September as the market continued its descent back to pre-boom levels. ‘Buyers are being shrewd and patient. They know there’s a lot of inventory out there and are waiting on prices to come down,’ said Marlene Duffy Young, a Realtor in Winter Haven. ‘We also know that we had zealous building and an oversupply of inventory.’”

The Miami Herald. “With the market sluggish, the backlog of homes and condos for sale in Miami-Dade and Broward counties grew in September to 62,000, about 1,800 more than in August, and almost triple the inventory from a year ago.”

“‘Business is one-fifth of what it used to be. There are brokers that don’t have anything to do,’ said broker Esslinger Maxwell.”

The Sun Herald. “Only 206 existing houses were sold in the Punta Gorda metropolitan statistical area in September. This represents a fall of 42 percent from 353 units in September last year. Metro Punta Gorda posted only a moderate decline in median home prices, down 10 percent from September 2005.”

“Sarasota-Bradenton saw volume collapse 33 percent. Meanwhile, the median sales price dipped to $290,000, down 16 percent from September 2005. ‘This data confirms what I already know … it’s not a large surprise,’ said Kristine Wishard, president of the Punta Gorda-Port Charlotte-North Port Association of Realtors.”

“In recent public appearances for the Realtors, Wishard has advocated what she pointedly calls ‘reality based pricing.’”

“Local agents ‘are telling me that when they go out to meet with potential clients, those clients are starting to understand what their property is now worth,’ Wishard said. ‘It’s either fact or fiction. You’re either going to go with a factual price and move your property or play with fiction and the property will sit,’ Wishard said.”

The Herald Tribune. “‘I think the prices have dropped so much that the buyers are realizing there is very good value in the market right now,’ said Steve DuToit, a high-volume real estate agent in Sarasota.”

“Real estate agents in Sarasota-Venice-Englewood closed 436 home deals in September, down 33 percent from a year earlier. The median price on those deals fell to $290,000 from $343,000 a year ago. If generally less-pricey Manatee were thrown into the mix, it would likely have pushed the median sales price lower.”

“Kent and Valley Hayes decided to take advantage of the hot market by building a speculative home. They took out an equity line on their residence to make the down-payment on the $215,000 home.”

“A deal closed this month for $235,000, nearly $30,000 less than they were first looking for. Valley Hayes said it ended up being a loss. ‘We had to pay the commission, and we had a year’s worth of the construction loan, and then eight months of full mortgage payments, plus a home equity line payment, so yeah, we lost a lot. ‘Everywhere you look there are new homes, empty homes for sale. People are getting kind of desperate down here.’”

“Centex Homes’ decision to drop plans for a 10,000-home ‘new town’ beside Palm Beach Gardens has prompted a renewed push for tougher rules to rein in western development. Centex representatives on Wednesday announced they would not renew an option to buy the 4,763-acre Vavrus Ranch.”

“A slowdown in the real estate market prompted Centex to drop out of other projects in Palm Beach County and elsewhere, and on Wednesday Vavrus Ranch was added to that list. Vavrus should stay a cow pasture and the County Commission should ‘rethink’ its plans for Mecca Farms, Palm Beach Gardens City Councilman Eric Jablin said.”

“‘If we are going to develop out west, there needs to be an employment base,’ Palm Beach Gardens Mayor Joseph Russo said. ‘Now all we are going to have is the houses.’”

The Naples News. “Buyers and sellers have until midnight Friday to complete deals resulting from 45 potential sales in a property auction this past weekend in Naples. Naples Area Board of Realtors President Jo Carter said Wednesday her members didn’t object to the idea of an auction, only that the true property values weren’t reflected in the opening price.”

“For instance, Collier County Property Appraiser Abe Skinner’s records show that a Crayton Road proprty has a taxable value of $788,257. Assuming the seller doesn’t reject the high bidder’s offer, someone will walk off with that Moorings home for $660,000, a price that includes the auction house’s 10 percent commission, figures released Wednesday show.”

“At the other end of the spectrum is a home at 539 Rudder Road that was purchased in April 1995 for $180,000; in April 2004 for $535,000; then resold in October 2004 for $809,000. Skinner’s records show the property has a taxable value of $933,269.”

“The top bid, or proposed contract price if the deal goes through, for that house was $671,000, Naples auctioneer Paul Drake said. Drake’s next auction will likely be absolute, not reserve as this one has been, he said Wednesday.”

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