The Housing Bubble

From Money Magazine. “When Chicagoans John and Judy Peeler decided to move to Philadelphia last spring, they blithely assumed they’d get more space for their money. Indeed, the couple quickly found a 2,500-square-foot, four-bedroom colonial for $440,000, just about what they figured their 2,000-square-foot Windy City condo would fetch.”

“Since then the seemingly ideal move has devastated their finances. The Peelers’ Chicago condo has generated little interest, even after they dropped the price, twice, to its current $389,000. And it has been four months since they relocated, which means they’ve been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.”

“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer. They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”

“Many victims of this fearsome financial trap have been wooed by the upsides of the new buyer’s market: increased choice and better prices. ‘But they forget the other side of the equation,’ says Albert Hepp, owner of BuySelfRealty.com in Minneapolis. Only when they try to unload their old house do they realize just how hard it is to sell.”

“For those who’ve just signed contracts to buy, it’s less and less likely they’ll be able to sell their old houses before closing on their new ones. In Massachusetts, a state particularly slow for sales, it takes the average seller 114 days to find a buyer. That’s almost four months of double house payments.”

“With a $300,000 mortgage, you’d pay about $10,000 in interest, taxes, upkeep and insurance while house No. 1 sits on the market.”

“Even the savviest sellers can get stuck in this situation. NAR head Tom Stevens is himself a tweener: He’s been trying to off-load his Virginia home for more than a year. ‘The housing market is going through a period of adjustment,’ he told Congress. ‘I have experienced this firsthand.’”

“Another way to use your vacant house to float you: rent it out. After Jeff Greene’s company relocated him from Tampa to Boulder in June, he and his wife put $15,000 into their home to get it ready to sell. Didn’t work. They cut the price $60,000. Still no takers.”

“Carrying the house while it sat on the market 90 days cost them $7,500; meanwhile, they were also paying the mortgage on their new house. It was fast becoming impossible for them to hold on to both.”

“Then, by chance, they found a renter. The $2,500 a month they collect covers mortgage, insurance and taxes. They now plan to rent their house out until the market recovers. ‘We still don’t have as much freedom with our budget as we’d like,’ says Jeff. ‘But it’s definitely stopped the bleeding.’”

From Smartmoney. “It’s a tough time for home sellers. Crowded open houses and bidding wars are becoming a quick-fading memory. Homes prices are down, and so are sales. In September, the number of existing home sales fell a whopping 14.2% compared with the same period last year, according to the National Association of Realtors.”

“In the third quarter of 2006, the median single-family-home price fell 1.24% on a year-on-year basis, marking the first average quarterly home-price decline since 1989. There are currently 3.75 million homes for sale in the U.S., nearly a million more than buyers had to choose from at the same time last year.”

“‘If you don’t have to sell right now, don’t do it,’ says NAR spokesman Walter Molony. ‘But if you need to be in the market, be realistic about the competition. Buyers are certainly aware of it.’”

“Forget about bidding wars. If they want their property to move these days, sellers have to offer incentives to the buyers and even their brokers, says Anthony Margueas, a realtor in Pacific Palisades, Calif.”

“Granted, offering the buyer’s broker money doesn’t sound fair if you’re a buyer. ‘As a buyer, make sure your agent isn’t getting a bonus to get you to see a house,’ Margueas notes.”

“Jeremy Lichtenstein, a realtor in Maryland, has seen perks range from a two-year lease on a Mercedes (for the buyer) to a $5,000 gift card to an all-paid trip to Hawaii (for the buyer’s agent).”

“Just got an offer? Better act fast. With all his properties, Margueas prepares in advance all reports and paperwork. ‘That way, the minute we get an offer we give all those reports to the buyer and the buyer’s agent and they can review them within a few days,’ he says. ‘That’s when they’re most excited about the property.’”

“The longer it takes to receive these documents, the more likely it is that the buyer sees another property they like or get buyer’s remorse, Margueas says.”

“Worse comes to worst, consider renting out your home while the market recovers. Margueas notes he is seeing an increase in the so-called ‘lease options to buy’ deals.”

“Adding insult to injury are economists’ predictions that real-estate prices will continue to fall. ‘We’re anticipating that the market will bottom out toward the end of next year,’ says Celia Chen, at Economy.com. ‘It will get a little bit worse before it recovers,’ Chen predicts.”

The Gazette reports from Colorado. “One Colorado Springs-area home builder is offering landscaping, a sprinkler system and special financing to woo buyers. Another builder is telephoning previous customers in hopes of attracting buyers.”

“And several builders have joined forces in a first-ever marketing blitz to promote a couple of hundred unsold homes.”

“Even as Pikes Peak region builders look for ways to spur sales, a report Wednesday provided fresh evidence that housing demand has slowed dramaticallys. The number of single-family home-building permits issued in El Paso County plunged 45.5 percent to 188 in October compared with the same month last year.”

“Building permits this year will fall short of records set in 2005 and 2004, when permits topped 5,000. The Springs slide has the potential to whack the local economy like a two-byfour upside the head. The home-building industry employs thousands, and some builders already have said they’ve laid off some employees.”

“So far this year, the total dollar value of permits for new single-family homes, townhomes and other residential construction has fallen by nearly $165 million, according to Regional Building.”

“The results aren’t in on last month’s marketing campaign by 16 home builders, to market about 250 already-built, unsold homes, marketing director Victoria Stone said. Some builders thought it went well, but others said it fell below their expectations, she said.”

The Denver Post. “A consumer advocate warned Colorado real-estate professionals Wednesday that homeowners nationally may be headed for a devastating round of foreclosures.”

“‘We are very concerned that we are going to see a foreclosure rate the likes of which we have never seen before,’ said David Berenbaum, executive VP of the National Community Reinvestment Coalition.”

“Berenbaum cited several factors: Pressures from lenders that have caused appraisers to overvalue homes, securing trillions of dollars of loans. Interest-only and other exotic loans that give home owners little or no equity. And the huge numbers of adjustable-rate loans whose monthly costs are about to jump.”

“‘That adjustable date is coming for many, many consumers,’ he said.”

“‘I’ll be honest with you,’ said Jan Zavislan, the Colorado attorney general’s consumer-protection chief. ‘The problem is bigger than all the law enforcement agencies in the state put together.’”

“Sonya Leonard, who owns a real-estate firm, said her own industry is guilty of various practices that can put a false value on a house, from counting basement space in the listed square feet to undercounting how long it has been for sale.”

“She told Zavislan she had complained to several state agencies and the FBI when the prospective buyers of one house wanted her to raise the price from $499,000 to $625,000 and kick back the difference to a third party.”

“Jon Goodman, a Boulder real-estate lawyer, suggested two ways that mortgage fraud could be reduced without new laws or regulations. Appraisers, who are forced to choose ‘between eating well and sleeping well,’ should be randomly selected, he said, not chosen by a lender.”

The Rocky Mountain News. “‘Mortgage fraud has reached epidemic proportions,’ said Ivor J. Hill, owner of Pueblo-based I.J. Hill Appraisal Services.”

“In many cases of mortgage fraud, appraisers, mortgage brokers and real estate agents work together, said Lou Garone, who reviews appraisals for a Lehman Brothers company. Often, they work with an investor who gets a loan for far more than the market value of the house and then lets the home go into foreclosure.”

“Denver attorney John Head, along with several Realtors and brokers in the audience, said the state isn’t doing enough to crack down on mortgage fraud. James Spray of America’s Mortgage LLC said bringing cases of mortgage fraud to the attorney general’s office ‘is like complaining to a black hole.’”

“(Realtor) Sonja Leonard said that in one case, a Denver home was purchased for $1.3 million in December, listed for $2.25 million in April, and the price was lowered to $2.15 million in June. Then in August, it was placed under contract for $3.1 million.”

“In another recent case, she said, a client was listing a home at $499,000 and an investor group offered $625,000. When Leonard Leonard suspected a scam and turned it down, she said the investor threatened her with a ‘drive-by shooting.’”

The Denver Business Journal. “Denver area third-quarter housing starts fell 22 percent from the same period last year, from 4,889 new homes to 3,830. The year-to-date rate through the third quarter declined 3 percent, from 19,568 in 2005 to 18,908 in 2006.”

“Inventory continues to climb, with 31,450 homes on the market at the end of September — an increase of 16 percent compared to the same time last year. Still, prices remain high, with 54 percent of new homes falling in the $200,000-to-$350,000 range. Homes priced above $500,000 made up 14 percent of the market.”

“‘Consumer financial stress has increased, and many potential home buyers are worried about high foreclosure rates or are waiting for the market to normalize,’ said John Covert, director of Metrostudy’s Denver division. ‘These factors have led to softening demand and increased levels of both existing and new home inventory.’”

A housing report from the Arizona Republic. “Pinal County’s nascent resale housing market continues to reflect the Valley’s as it backslid in third-quarter 2006. Sales volume was off by nearly half from the same period last year and the median price dipped under $200,000, according to a report by Arizona State University.”

“The median price on a year-to-year basis dropped 6.4 percent to $199,900 from $213,500, and fell 5.3 percent from second-quarter 2006’s median of $211,000, the report said. Pinal County’s median resale price peaked at $220,000 in fourth-quarter 2005 and has dropped for three straight quarters.”

“Sales fell 45.2 percent to 850 homes, from 1,550 homes sold in third-quarter 2005, and by 28 percent from last quarter’s 1,180 transactions.”

“Bill Murdoch, an associate broker-manager at ReMax’s Queen Creek office, said the market is cooling from ‘last year’s insanity.’ He predicted that first-time buyers and investors would return to Pinal County’s resale market once the median price dips under $190,000.”

“Buyers and refinancers who did deals last year from July to November, at about the market’s peak, and want to sell now will find themselves ‘completely upside down,’ Murdoch said.”

“Probably the biggest loss is Pinal County’s image as a quick-turn cash cow, ASU’s Jay Butler said. ‘(Buyers) figured they could turn around and sell and make a lot of money,’ he said. ‘That market is gone now. There is a loss of expectation.’”

“Sweet deals from new home builders, infrastructure and traffic problems, and higher prices than first-time buyers and investors can afford continued to push Pinal County’s resale housing market downward in third-quarter 2006.”

The East Valley Tribune. “The resale prices of single- family homes in Pinal County, including Apache Junction and portions of Queen Creek, are declining partly because of buying incentives being offered by builders for new homes.”

“‘New homebuilders have been aggressively pursuing buyers through incentives such as specially priced upgrades, free pools and gift cards,’ said Jay Butler.”

“Butler said new homes have become a ’strong competitive and attractive alternative’ to resale homes in Pinal County. As a result, the market for the resale of homes is also slowing.”

Arizona State University. “Although the average 30-year mortgage for third quarter 2006 was 6.2 percent (5.5 percent for a year ago), the declining home prices allowed the monthly mortgage payment for the median price, based on an 85 percent loan-to-value, to be very comparable at $1,040 versus $1,350 for a year ago.”

“‘Because investors were drawn to the inexpensive housing in Pinal County, higher prices have limited the investor’s role in the local housing market,’ said Butler. ‘There are many reasons for the slowing market and issues that will have to be overcome for any future recovery.’”

The Tucson Citizen. “The Tucson market has seen cutbacks in new homes, aggressive incentives by home sellers, the exit of many speculative investors, said Mike Inselmann, president of Metrostudy.”

“About 10,062 new homes were built in the 12 months ending in September 2006. That’s a 9 percent decline from the market peak six months before.”

“The median resale price in September was $210,000, a decline of 6.7 percent from June, when the median price peaked. During the 12 months ending August 2006, the median price hovered near $220,000, so the September price decline is noteworthy, said Ben Sage, director of Metrostudy’s Arizona division.”

The Business Journal of Phoenix. “The Phoenix area posted an annual rate of 54,747 home starts at the end of the third quarter, a decline of 12 percent from the record 62,000 starts recorded at the end of the first quarter of 2006, according to the Metrostudy.”

“‘Builders’ efforts to liquidate inventory have been successful, but starts are likely to continue dropping until inventory declines further,’ said Sage.”

From AZ Family. “If you’re looking to buy real estate in the Valley, you may want to wait a year. Last year, as many as a third of new homes sales went to speculators and investors. Now, many of them are competing with builders to dump their holdings. As a result, some developments have dropped by more than $100,000.”

Two housing reports from the Virginia Pilot. “The field of dreams for Hampton Roads home builders has been reversed – if they don’t come, you won’t build. Faced with falling sales across the region, some builders are slowing construction, cutting prices and offering incentives unheard of in the recent seller’s market.”

“The number of permits issued for residential home construction fell by nearly 22 percent in South Hampton Roads and Isle of Wight County during the first nine months of the year.”

“‘We’re going through a down cycle, that goes without saying,’ said Vincent Napolitano, president of Virginia Beach-based Napolitano Homes, which has acquired 20 to 25 percent fewer permits so far this year. ‘How long it’s going to last is anybody’s guess.’”

“New developments sprouted and thousands of new homes were built and sold at a blistering pace in Hampton Roads in the past few years. ‘They were building to keep pace with the market we had a year ago, and it’s not there anymore,’ said John Olivieri, president of the Tidewater Builders Association.”

“Even in a slower market, builders are reluctant to drop prices, fearing it hurts the perception of their homes. ‘We have not reduced our prices … and we don’t intend to,’ said Tuck Bowie, president of Terry-Peterson Residential Cos. in Virginia Beach. ‘That’s about the worst thing you could do. We’re not in the used-car business.’”

“Terry-Peterson has more than 1,200 units in the pipeline. ‘We want to get slabs in the ground so, when the market readjusts, we’re in a position to capture as much of the market as we can,’ Bowie said.”

“Still, prices have come down on some new homes. On Tuesday, agent Joan Revell was preparing to drop the listing price on a 3,900-square-foot home in Chesapeake’s Edinburgh development to $799,000 from $838, 000 . The price had already been cut from $858,500 ‘just to get it moved,’ she said.”

“A sign in front of one massive red-brick Edinburgh home on Sunday advertised ‘closing costs paid.’ Builders have offered to pay closing costs and give $10,000 in options at Chesapeake’s Riverwalk Estates condominium development, and they’re throwing in stainless steel appliance upgrades at Graystone Reserves in Suffolk.”

“The incentives from builders are ‘pretty huge,’ said Lee Halyard, who owns a Chesapeake real estate agency. ‘The ones that have inventories sitting, that’s a pretty big nut to pay down.’”

“The number of home-shoppers in new developments is about 30 or 40 percent lower than it was last year, Bowie estimated. Prospective buyers think they can get a better deal by holding out, he said. ‘Until that perception changes … you’re not going to get the traffic.’”

“A major cause of the current slowdown in new-home construction is the difficulty home­owners encounter as they try to sell their houses and move up to new ones, said Rip Montague.”

“‘You’re dependent on a continuous supply of buyers who, up until this point, had been able to sell their houses,’ said Montague, who has a stake in a company that renovates homes for resale. ‘But those prices continued to rise, and they got to the point where the mid-income buyer started saying, ‘Wait a minute.’”

“Developers and buyers in Hampton Roads have poured millions of dollars into condominiums, a market known to fluctuate wildly with real estate cycles. Some warn the pace of development is a sign that the market is overheating, but building continues.”

“There are about 1,500 condos on the market, according to the region’s MLS. There are ’signs of overbuilding relative to anticipated demand,’ particularly in downtown Norfolk, warned an Old Dominion University study released last month.”

“‘The problem in the condo market is they’ve already built up a lot of inventory, and now there’s a lot of inventory waiting to come onto the market,’ said ODU economist James V. Koch, the study’s author.”

“Developers of a planned condominium project on 21st Street in Norfolk decided to convert it to apartments. Known as 201 Twenty One, it was approved last week by the city’s planning commission.”

The Washington Post reports on New York. “After years of soaring prices, the unstoppable New York real estate market has either taken a breather or a truncheon to the skull, which will send it staggering soon enough. Already, apartments are lingering for weeks on the market, and for the first time in years, sellers are cutting prices.”

“Marketers of super-pricey buildings in Manhattan are engaged in a sort of high-end amenities arms race, where extravagance and gimmickry are the weapons of choice. The alliance of 255 Hudson, for instance, was celebrated at a cocktail party in the club’s showroom/garage months ago, with a couple of women hired to mingle and grin wearing little more than pasties and body paint meant to evoke racing stripes. If this is the smell of developer desperation, New York is about to inhale a lot of it.”

“‘I count 40-plus construction projects in my neighborhood alone,’ says Nouriel Roubini, a professor of economics at New York University, who lives in Tribeca. ‘There’s going to be a huge glut in six months here in New York. And unless you see a huge increase in hiring in the financial industry, you have to wonder, who is going to buy all these units?”

The Boston Herald. “A small but growing number of Boston area condo and homeowners are finding themselves ‘upside down.’ That’s real estate parlance that describes what happens when home owners owe the bank more money than their houses are worth.”

“And in a real estate market where home values are declining, it’s leaving some people who are trying to sell their homes facing a jam. Home owners whose mortgage covers most of the original purchase may walk away from a sale owing the bank a big chunk of change.”

“Lois Meisler, who runs Somerville-based Asset Disposition Management, launched her firm back during the real estate crash of the late 1980s to help banks unload homes and condos. She suggests Boston looks like a fertile market once again. While foreclosures are her bread and butter, Meisler sees major potential by specializing in short sales for home and condo owners trying to make the best of a losing hand.”

“Meisler doesn’t buy suggestions from the real estate industry that prices and sales may have finally hit bottom. ‘The brokers are saying the market is turning when we have hit bottom. I don’t think so,’ Meisler said. ‘We predict that short sales are going to become very popular.’”

“Lauren Snedecker, a mortgage broker based in Quincy, is exploring putting on a short-sale seminar for local Realtors. Real estate brokers say the math just doesn’t add up for those unlucky enough to have bought condos at the height of the boom market.”

“The first-time buyers Snedecker is working with now have a much different price limit, below $300,000. But would-be condo sellers stuck trying to unload units in a difficult market may be looking to get as much as they can, even if it’s far less than what they paid.”

“One downtown broker describes a North End condo owner who bought his one bedroom at the market’s height for $330,000. He is now ‘in pieces’ after having to sell for $320,000.”

“And then there’s the Back Bay condo owner who bought her one bedroom for $359,000 back in 2003. She put it on the market earlier this year for $369,000, just as prices and sales began to collapse. The price now: $339,000.”

The Boston Globe. “Seven Century 21 franchises in Boston’s western suburbs merged yesterday to create one of the state’s largest real estate agencies. The merger parties hope the deal bolsters their competitive edge by allowing them to combine advertising budgets, share expenses, and beef up compensation.”

“The deal comes on the heels of a shakeup in other housing-related companies, particularly mortgage lenders adjusting to the end of a market boom. A plunge in home sales has stoked competitive pressures. Local banks said they have shaved their lending units slightly, Eastern Bank by eliminating the overtime required in boom times and by reassigning a few employees and Citizens Bank by attrition.”

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