The Housing Bubble

The East Valley Tribune reports from Arizona. “Buyers welcome. That’s the message the East Valley’s new home market is starting to send to people looking to buy homes, especially those who held back as prices escalated to new records. What’s telling is the average new home price, which was $331,336 last month, down from $343,116 in August.”

“‘There’s a clear indication of a change in direction in the marketplace,’ said R.L. Brown, Valley housing analyst. ‘The bottom line is prices are soft and softening further in both the new and resale markets, and that’s what’s important to the consumer. That’s good news for the consumer, and bad news for the resale sellers and bad news for the homebuilding industry because it’s going to cut into their profits.’”

“Homebuilders have a clear advantage over homeowners, said James Bortz, a real estate agent in Chandler.”

“‘They’re giving out a lot of concessions to get these houses sold, whereas the people who are already in them and trying to sell are more or less locked into a price or have a price that they have to have,’ he said. ‘I’ve gone out to new home sales with a buyer and they automatically will give them $40,000 off, then they’ll come back and say we can give you another $10,000 if you use our lender, and we can throw in a washer and dryer, etc.’”

“As for ‘flippers,’ ‘it means that the risk they assumed when they started speculating in real estate is for real,’ Brown said. They’re seeing the size of the risk for that kind of investment,’ he said. ‘Frankly, they shot the dice. Its a tough time to sell right now.’”

“A lot of people bought houses thinking they could live in them for a year or two, and then they would double in price, ‘and it’s just not happening,’ Bortz said. ‘You have a lot of people who took these low interest rates (adjustable rate mortgages) that are now coming due and they can’t afford the payments now, so they’ve got to get rid of the house,’ he said.”

“‘Homebuilders are desperate,’ Bortz said. ‘You still see a lot of building, but those were the ones that were already started or were planned, or paid for. They have to move their inventory. Worst possible scenario for them is they’ll roll them all the way back to a break-even point for them, which is still in their favor and not the resale person.’”

“In the meantime, the number of single-family homes on the Valley market was 45,500 last month, up sharply from about 15,000 homes in August 2005, and lots of homes are just sitting on the market month after month, he said.”

The Review Journal from Las Vegas. “Someday, Larry Murphy, president of a Las Vegas real estate research, called for a ‘paradigm shift’ in how locals view resale supply.”

“He said resale inventory from January 2003 to April 2004 stayed below 5,000 units. Today’s for-sale inventory is nearly 21,000 units. ‘20,000 listings is very normal,’ Murphy said. ‘I think inventories will stay at that level or go higher. We have to change our thinking on what’s normal.’”

“In the third quarter of 2007, he said, analysts may even be discussing local housing shortages.”

“The starting price per square foot of the city’s mid-rise and high-rise sector has jumped significantly, from $342 in the first quarter of 2004 to $596 in the third quarter. Much of the increase is because failed projects whose prices were too low to cover rising construction costs are no longer factored into Murphy’s reports.”

“‘If you see a project with base prices under $500 (per square foot), that’s a big red flag,’ Murphy said. ‘At those prices, they won’t get built.’”

In Business Las Vegas. “The Las Vegas housing boom attracted everyone from strippers and schoolteachers to waiters and blackjack dealers to try their hand as a part-time or full-time real estate agent. Membership in the Greater Las Vegas Association of Realtors more than doubled to nearly 15,000 between Jan. 1, 2002, and 2005 and now exceeds 17,500.”

“But the landscape changed as prices rose and investors dropped out of the market. The number of listings has swelled, and the buyers who remain are exercising caution and waiting for prices to drop.”

“The Nevada Real Estate Division reported this week that since July 1, nearly 2,700 real estate agents failed to renew their licenses, which requires a fee of less than $300. In Clark County, 26 percent of the more than 17,700 agents don’t have their licenses activated to handle real estate transactions.”

“Realtor Karen Pincock, an agent since 2000, said many newer agents have gone back to their old jobs and careers where they have a steady paycheck. Some newcomers have gone months without a sale, she said. Many agents can’t afford to stay in, she said.”

“‘So many agents got into the business when it was crazy, and they thought there was money for the taking,’ Pincock said. ‘But it is not that way. When we get up every morning, we are unemployed.’”

A realtor from Wisconsin started this topic suggestion. “How about a discussion of effective negotiating tactics in a buyer’s market, especially in light of the ’stubborn seller’ phenomenon? For those who have to buy (for example, are moving and can’t find a rental that works for them), how should they negotiate? During my years in the business (which include a few booms and busts), the art of negotiating is as much about psychology as it is about numbers/data and that applies in a bust as well as a boom.”

A reply, “Step one: decide what you are willing to pay. Step two: offer that and use backup documentation to support your offer (market conditions, inspector report, your knowledge of what the seller paid for the place or owes on it).”

“Step three: if rejected, tell them goodbye and try the next one on the list. You’d have to be nuts to bail any of these sellers out now.”

One added, “Spot on. One thing I would add; don’t become emotionally involved in the deal. (it’s only another house, and looking at inventory there’s plenty others to choose from).”

And another, “I would amend that a bit: ‘Decide what you are willing and can afford to pay. Too many buyers in recent years were willing to pay what they could not actually afford.”

“The thing that sticks in my craw is the Realtors’ dogma, that it is somehow essential to buy a home. When purchase prices are as out-of-whack with rents as they are in most places in the USA where there are existing homes, the best shot at fair appreciation over time is to rent until purchase prices are back in whack. We are a long way from that time where I live.”

One said, “People don’t want to catch a falling knife with the prices in many areas doomed to go down more. In this market it’s not a matter of how to dupe the seller or buyer into selling or buying but rather what is the value of a property absent a mania or a false run up.”

“The builders of new homes will be more willingto discount the market right now in part due to the false hope given by the realtors/NAR in the news about a spring bounce for 2007.”

“I don’t think a real estate agent should encourage panic buying or selling just so they can make a commission . Also I don’t think realtors in the news/NAR/CAR should be giving false hope for a spring bounce in 2007. It would be better if realtors just said, ‘here is the bathroom.”

Another on renting, “It’s a ridiculous statement to say you can’t find a rental that will work. It’s, in fact, EASIER to find a rental that works than a house (IMO). If for no other reason, then the fact that it’s only temporary makes it work.”

And another, “There will always be sellers that *have* to sell (or risk foreclosure). I have yet to see a case where someone *has* to buy (because of relocation, etc.) I don’t get what yo mean by ‘can’t find a rental that works for them’…do you mean it’s not the ‘perfect’ rental? I don’t mind renting a semi-perfect rental house when the monthly outlay is 50% of buying (and I don’t have maintenance costs, etc. to deal with).”

One had a suggestion, “In order to get some deals done, realtors should start by doing the math between buy vs rent to those ’stubborn sellers.’”

“For example, a client wants to list property for $1M, HOA $500/month and $12K/year taxes, and realtor finds that similar properties are renting for less than $4K. The conclusion is obvious: you dont need a ‘buyer,’ you need a ‘miracle.’”

The Boston Globe reports from Massachusetts. “Condominium prices in downtown Boston declined 6.9 percent in the three months ending Sept. 30, the second consecutive quarter in which slumping sales drove prices down. The median condominium price was $419,000, down from $449,950 in the third quarter of 2005, according to Link.”

“The median price was nearly 11 percent below the condo market’s price peak of $470,000, which occurred in the fourth quarter of 2005. The number of condos sold fell 19.7 percent. Prices declined in 8 of the 12 central city neighborhoods tracked by Link.”

“The market correction comes as developers continue to plan and build condo projects in Boston. In the third quarter, there were 1,554 condos on the market, less than five months’ supply. ‘What’s remarkable is, yes, sales are off,’ but price declines are ‘marginal,’ said Debra Taylor Blair, president of Listing Information Network. ‘We’re not looking at 20 percent price declines,’ she said.”

“Larissa Duzhansky, a New England economist, predicted prices will not rebound until 2008 because housing has become increasingly unaffordable. In Boston last year, personal incomes increased at a 4.7 percent average annual rate, failing to keep pace with a 9.5 percent housing price increase.”

“‘Even if they’re dropping, they’re still high,’ said Duzhansky.”

The Easton Journal from Massachusetts. “Homes in MetroWest are staying on the market on average as much as five months longer than a year ago as buyers sift through the inventory and wait for price reductions.”

“That’s a normal pattern during a market correction, said the chief economist for the National Association of Realtors, and shouldn’t ruffle sellers who had planned on making a move months ago. After all, these sellers, who increasingly are reducing their asking prices, also are, or will be, buyers.”

“They buy another place and are then on the other side of the marketplace, checking out what’s available and hoping to negotiate a lower price.”

“And now’s the time to buy for the long-term. ‘Many potential home buyers who have been taking a wait-and-see attitude or taking their time and being methodical in the search process are being enticed by lower home prices,’ said the NAR’s David Lereah.”

“Eleven MetroWest communities saw sales drop last month, compared to a year ago. And the median price dropped in 10 of the 16 towns. In Ashland, the median sale price dropped 14 percent from September of last year. Sales in Framingham dropped by 35 percent, the median sale price dropped just 4 percent. The average days on the market for a home in Holliston increased 400 percent.”

The News Times Live from Connecticut. “While housing prices in the United States are spiraling downward, those in the Danbury area are in what might be considered a slow glide, one that’s been long overdue. ‘What we’re seeing is an adjustment,’ said Terry Mercede, manager of Prudential Connecticut Realty in Danbury.”

“While real estate agents said they’re seeing prices decline about 5 percent, they’re not surprised or even upset. What’s happening here, they said, is simply a long overdue change in the market. Prices have been rising for at least 7 to 8 years, many local real estate agents said. Normally, such cycles only last about 5 years.”

“(Broker) Cathy Masi in Newtown, said she thinks it’s been more like a 15-year upward swing. ‘I’ve lived here since 1963 and been in real estate since 1965,’ Masi said. ‘This is the longest upswing I can remember.’”

“‘We got spoiled,’ said Realtor Sal Pandolfi of Danbury.”

“What this created was a surplus of housing stock, although builders were completing new homes, people weren’t buying them. Masi said that while sales are declining, active listings with the Connecticut MLS for Fairfield County are now up 26 percent.”

From WTNH in Connecticut. “The housing bubble is deflating nationwide. What was a sellers market has become a buyer’s advantage. That’s especially true when it comes to new construction.”

“When you’re talking about new homes the numbers aren’t good for builders anywhere. A brand new four-bedroom house in Bristol has been on the market since it was finished being built in September of 2005.”

“‘We expected this to be gone after the third person saw it,’ says Carrie Cameron of Cameron Builders. ‘With all the bells and whistles in here this should’ve been gone a long time ago.’”

“She says plenty of people have been through, many more than once, but no one’s made an acceptable offer. And this price of this house has recently been reduced by $50,000 to under $500,000. ‘The market has switched from a seller’s market to a buyer’s market,’ said Linda Baumgarten, director of the Connecticut Real Estate Investors Association.”

“Baumgarten says potential buyers are waiting longer and waiting for a better deal. And that means houses like this are taking longer to sell and for much less than a builder anticipated. ‘The chances of you making money as a builder is right up there with winning the lottery, so you have to be very careful when you do that,’ Baumgarten said.”

“The Camerons are waiting before they build on the other lot they own in this neighborhood. They don’t want to start on a new project while they’re still paying for heat, electricity, and taxes here. ‘It’s never ending until it sells,’ Cameron said. ‘We’re paying for it with an empty house. Nobody’s living here.’”

The Gainesville Sun reports from Florida. “What a difference a year makes. In Alachua County last month, only 215 homes sold here, a 26 percent decrease. The number of condominiums that closed in the year-to-year comparison took a nose dive as well; 41 percent fewer this September than last.”

“‘We have definitely begun to see the effect of declining housing sales,’ survey director Chris McCarty said. ‘As inventory continues to build and houses sit on the market longer, sellers will ultimately realize that they have to reduce their asking prices. This will have multiple effects, particularly on those that are in a position where they must sell, and those that rely on their homes as their primary source of wealth.’”

“‘We manage a condominium whose yearly insurance went from $15,000 to $120,000. It’s a bad, bad scene,’ Aaron Bosshardt said.”

The TC Palm. “The surge in new-home construction in St. Lucie and Indian River counties has contributed to a glut of unused inventory, a housing report suggests.”

“Metrostudy reported 362 homes completed but unoccupied east of Florida’s Turnpike in St. Lucie County in the past three months. Metrostudy projects it will take 8.7 months to fill those homes. The 697 unoccupied units west of the turnpike are an 8.9-month supply.”

“‘There’s no doubt that there’s an excess of newly built developer homes on the market as evidenced by boosted developer incentives,’ said broker Sally Daley. Separately, Tradition in Port St. Lucie came in first in South Florida for new home starts, with 873 units started, however only 235 families moved into those homes. The Newport Isles subdivision in St. Lucie County came in fifth on the list with 429 new starts and 299 move-ins.”

“‘They keep waiting for the bottom to fall out but builders have already offered some very good incentives. They don’t want to lower their prices too much because they want to keep the value that they sold at before,’ said Richard Hope, president of the Treasure Coast Builders Association.”

From Florida Today. “A University of Central Florida study released Friday forecasts a slower-growing economy in the first half of 2007, mostly due to a continued sluggish housing market.”

“In Brevard County, the median selling price in September for a single-family home was $206,100, the lowest level in 11/2 years. That’s 6.3 percent below the August price of $220,000 and 8.5 percent below the September 2005 price of $225,300. It was the third consecutive monthly drop.”

“The number of home resales fell 30 percent September, compared with September 2005. Excess inventory, particularly in Florida’s condominium market, will create lower prices for homebuyers. ‘This, however, does not constitute a bursting bubble,’ Sean Snaith writes in his report.”

The Tampa Bay Business Journal. “Consumer intent to purchase new housing has fallen to its lowest levels since 1991 fueled mostly by the exit of many speculators in the market, Tony Polito, director of Metrostudy’s Tampa division, said. Tampa had 4,228 single-family starts during the third quarter, a 33.2 percent drop.”

“Pasco County saw one of the largest housing start drops, declining more than 50 percent. Hillsborough County’s starts dropped 28.5 percent.”

“Polito said the highest level of finished vacant inventory is located in both Hillsborough and Pasco counties. Finished vacant inventory has exploded, jumping 137.6 percent to 3,970 units, compared to 1,671 units the quarter before.”

The Florida Times Union. “‘Things have definitely slowed down, but it’s not like it’s a depression,” said Roger Day, president of the Clay County-based Rosewood Homes.”

“‘The last three years have seen a lot of growth, but 2005 was absolutely the craziest year of all,’ said Martha Dickerson, for Coldwell Banker on Fleming Island. ‘I would call this a normal market. Before, it was almost like a fantasy world out there.’”

“Much of that spike can be attributed to South Florida investors who came to the area hoping to ‘flip’ houses and make a tidy profit. ‘They wore out the market down there, and then they moved up to the Jacksonville area,’ said (developer) Roger Arrowsmith.”

“But when appreciation and sales slowed, many of the investors walked away from the finished homes, thinking it was cheaper to lose tens of thousands of dollars in deposits rather than pay for closing costs and then perhaps have to carry a mortgage for awhile. ‘So we have an oversupply of finished houses,’ said Arrowsmith.”

The Naples News. “The market needs to burn through its huge backlog of inventory, said Mike Timmerman, managing director of Hanley Wood Market Intelligence. Current levels are at two to three years of inventory, he said.”

“It may get a little worse, at least for some purchasers, before it gets better. ‘The black eye we have had is investors,’ Gates said. ‘Instead of selling to homeowners we were selling to speculators.’”

“That means there will be foreclosures coming down the pike for those who made unwise decisions and got into the market to make a quick buck, Timmerman said. The ‘unique’ mortgage products that were created to get everyone into a house will also, ‘come back to bite us and harder than we think,’ Timmerman said. ‘We all got into where everyone is living for the day,’ he said.”

The St Petersburg Times. “The statewide telephone survey conducted for the St. Petersburg Times highlights the angst over the rising cost of living. Cheri Riznyk sees no other way for her family to afford a home. ‘We pretty much do plan to leave here in another a year or so,’ said Riznyk.”

“The couple is among the 1-in-3 Floridians who said in a newly released poll they have seriously considered moving out of the Sunshine State.”

“James Kelly owns two houses in South Florida but is considering moving to Tennessee, where he just bought a home, because taxes and insurances are eating away at his money. He thinks Florida living is chipping away at everything he has acquired.”

“‘The price of living down here and the land is going up tremendously,’ Kelly said. ‘Florida is getting just like California. … It seems too hectic and a lot of money.’”

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