The Housing Bubble

It’s desk clearing time for this blogger. “Sales of existing single-family homes in New York continued their downtrend in September. Realtors recorded 8,876 home sales in September, down 15.7 percent from the record 10,533 sales in September 2005.”

“The preliminary data showed a median selling price of $238,000 statewide in September, down 10.1 percent from $264,750 in August, and down 8.1 percent from the year-ago median of $259,000. ‘The reduction in the median sales price can be attributed to an increase in available inventory as the shift to a buyer’s market continues,’ said Charles M. Staro, NYSAR CEO.”

From Georgia. “Tim Holdroyd, a longtime Midtown real estate broker, worries that developers and investors are paying too much for Midtown real estate in an uncertain office and condo market. The same thing happened in the district in previous decades, and some properties grew weeds because developers paid too much and couldn’t get their projects out of the ground, he said.”

“‘You have individual developers picking up huge pieces of land for huge numbers — you saw this in the 1980s and 1990s. I don’t get it,’ he said.”

From Alabama. “Existing home sales in Alabama dropped 17.8 percent decline from August. Compared to September 2005, sales were down 12 percent. The average selling price in September dropped to $158,076. The inventory of previously owned homes listed on the market in Alabama rose again in September to 36,414 units, a 2.9 percent increase from August.”

From Australia. “Sydney prices have dropped 9 per cent since the last boom. Sydney house prices are forecast to fall 5 per cent after next week’s interest rate rise. ‘We need another rate rise like a hole in the head,” Real Estate Institute of NSW president Cristine Castle said.”

From China. “The average price of homes in Shanghai dropped by 1.1 percent year-on-year in the third quarter of this year. New home prices in Shanghai dropped by 2.3 percent from the second quarter.”

From Canada. “New housing construction shows more signs of cooling in British Columbia, with a local research firm finding supply outstripping demand in some areas. In a report, the Vancouver-based development-research firm said markets are still strong, but ‘for the first time we are beginning to see small corrections in some areas.’”

“Edmonton home prices have fallen for the first time in 10 months. ‘Panic buying is reduced and buyers have a little more time to consider a home purchase,’ EREB president Madeline Sarafinchan said. After months of reported bidding wars, 65 per cent of single-family home sales in October were below list price.”

From Hawaii. “Two weeks ago, Big Island developer Gil Barden offered 21 units at county-defined affordable prices as part of a 105-unit Hilo condominium project, and only one potential buyer signed up. ‘Shocked’ is how Barden described his response.”

“At the Hawai’i Kai townhome complex Marina Palms, similar quality units with three bedrooms and two bathrooms sold for $599,000 last December and $552,000 in March. Another was listed in June and after at least two price reductions is still for sale at $545,000. ‘It’s definitely slowed down,’ said agent Amy Conley. ‘The buyers are being a little more picky, because they know they can be. The panic buying is over.’”

“An economic ’soft landing’ is likely in 2007, with the housing market worsening before rebounding, consultant Anirban Basu said Thursday. Consumer spending is bound to taper off, Basu said, adding, ‘How many flat-screen televisions do you really need?’”

“What was a seller’s housing market has shifted toward the buyers. Basu said interest and mortgage rates are not the driving force; rather, it’s a ‘buyers’ psyche,’ waiting for ‘fear and panic’ in sellers’ eyes. Locally, the result has been rising inventory, with more existing houses for sale as new construction drops off.”

“‘This will be a lengthy process,’ says Zoltan Pozsar, at Moody’s Economy.com. Some won’t be pleasant, particularly for people who have made good livings in construction or real estate sales in recent years, Pozsar says. Nationwide, sales agents received about $100 billion in commissions in 2005; next year’s total should be around half that amount, Pozsar forecasts.”

“Builders, meanwhile, have yet to downsize their payrolls to match the decline in construction. About 1.2 million jobs were created since housing really took off in 2003, Pozsar says, and employment in the sector is still only about 75,000 jobs shy of its peak.”

“‘If you don’t tell your story, someone else will,’ Joe Williams, co-founder of Keller Williams said recently about the media’s disinclination to quote real estate brokers as sources for the myriad stories written recently about the so-called housing bubble.”

“Instead they turn to anyone but people who buy and sell homes for a living. The effect on buyers has been paralyzing. Many brokers say buyers are concerned with more than rising home prices and interest rates, they’re scared of being the next greater fool.”

The San Bernardino Sun reports from California. “Home prices aren’t rising very fast, and in some cases, they’re even falling as inventories grow. Sellers are offering incentives and concessions to close deals. Should the would-be homeowner buy now or wait a little longer? The answer depends on who you ask.”

“Economist Chris Thornburg says ‘the market will be ugly for a couple of years. Prices will continue to soften for awhile with no major rebound.’ Thornburg believes home prices throughout Southern California are about 30 percent overvalued.”

“Real-estate types, however, remain upbeat. ‘In real estate, there is no bad time to buy a house if you need one and can afford one,’ said Bill Velto, broker in Upland.”

“Sales for new and existing homes in San Bernardino County tumbled 25.8 percent in September compared with September 2005, according to DataQuick. The number of San Bernardino County homeowners entering the first phase of the foreclosure process increased 100 percent in the three-month period ending in September.”

“Hanley Wood reported that the standing inventory of unsold new homes in San Bernardino County increased 336 percent from September 2005 to September 2006. To keep inventory from growing, especially toward the end of the year when housing markets slow, many home builders are offering incentives.”

“For example, Hesperia-based Frontier Homes is offering incentives of up to $14,000 in closing costs to help get people into houses before the end of the year. The median price of new homes sold in San Bernardino County decreased 4.1 percent between September 2005 and September 2006, DataQuick reported.”

The Orange County Register. “DataQuick’s latest O.C. home sales data, for the 22 business days ended Oct. 17, strongly hints that October was the eighth straight month where the sales pace was 20 percent or greater below the year-ago pace.”

“The last time we saw as deep a drop running for as long a time was in 1991. The most recent median price was a slim 1% above a year ago.”

The Union Tribune. “For the first time in six years, San Diego County’s economic growth is lagging the rest of the state and nation, according to a report. One of the chief culprits for the slowdown is the decline in home construction and growing softness in prices. In San Diego County, median home prices have dropped 4.4 percent since last year, according to DataQuick.”

“Economist Kelly Cunningham, who prepared the forecast, predicted that prices could decline an additional 5 percent over the next year. ‘The biggest declines will come in condominium prices,’ he said. ‘We’re really overbuilt in condos. And I’m concerned about the growth of condo conversion.’”

“James Hamilton, economist with the University of California San Diego, said there are signs that housing may be bottoming out. However, there are several factors that could keep prices declining, he said. A spike in loan defaults and foreclosures ‘could give us a much uglier scenario.’ And home buyers might be slow to enter the market, hoping that the longer they wait to buy a house, the cheaper it will get.”

“I think it’s a little more likely than not that we have reached the bottom (in housing prices),’ he said. ‘But there’s still a very significant possibility, maybe 30 or 40 percent, that things could get much more frightening.’”

The Desert Sun. “Leslie Appleton-Young, chief economist for the California Association of Realtors, told more than 500 real estate agents, mortgage brokers and other business people at a real estate forecast symposium Thursday in Palm Desert that home sales and median prices statewide are likely to decline slightly from the once ‘red-hot market,’ then level off over the next 18 months.”

“‘The housing market is going through an adjustment after a four-year boom that was not sustainable, but the (economic) fundamentals are still very positive for this region,’ Appleton-Young said. ‘But there’s no area of California that is immune to the adjustments,’ she said.”

“Her forecast that the drop in home sales and home-price appreciation should level off left attendee Robert Dennis, a real estate broker in La Quinta, ‘feeling a lot more upbeat’ than in recent months. Like many real estate agents across the valley, Dennis is working with sellers to adjust their expectations after several years of double-digit home-price appreciation.”

“Now, with more than 8,300 homes listed across the valley this week, competition has heated up and many sellers have begun ratcheting down asking prices.”

“One seller of a four-bedroom, three-bath home at in Rancho Mirage slashed the asking price by $125,000 to $770,000, for instance, said Tom Steffen, sales associate in Palm Desert.”

“Homebuilders in the valley are likely to get even more aggressive with incentives as their inventories climb, Appleton-Young said.”

The Sacramento Bee. “Aiming to move thousands of would-be homebuyers off the fence, the National Association of Realtors is launching a major advertising campaign today. The campaign begins as Sacramento-area analysts suggested this week that more buyers are entering the market, but that local sales prices may fall 10 percent before stabilizing in 2007.”

“Capital region real estate agents believe many would-be homebuyers are unnecessarily waiting for the market to bottom out, a situation aggravating record resale inventory, causing headaches for new-home builders and contributing to lower prices.”

“El Dorado, Placer, Sacramento and Yolo counties have a 7.4 month supply, with nearly 15,000 houses for sale. Though the number of sales are expected to rise about 7 percent next year in the four counties, the number of for-sale signs suggests ‘prices are going to decline in most areas,’ (broker) Mike Lyon told a North State Building Industry Association gathering Wednesday. ‘We’ve got another year of this, another 10 percent probably, in the next year, of value loss,’ he said. ‘We won’t see true price stabilization until 2007, and then we’ll slowly start ramping back up again.’”

“Folsom-based home-builder consultant Greg Paquin told the industry group that new houses won’t see ‘real increases in pricing until 2009 or 2010, and then it’s going to be more modest than we’ve seen in the past.’”

From USA Today. “Hear that steady hiss? That’s the air seeping out of the housing bubble. If you’re a struggling real estate agent, now’s a good time to consider a new line of work.”

“In California alone, the number of real estate agents and brokers increased from 303,351 in 2000 to 511,459 in August 2006. There are too many agents chasing too few sales. No wonder you’re struggling. Ever consider consulting?”

The Christian Science Monitor reports on the midwest. “The housing market slowdown is nationwide, yet it has taken its earliest toll in Midwestern communities where the word ‘boom’ never applied to home prices. Here in the northern Indiana city of South Bend, where ‘For Sale’ signs sparkle in the autumn sun, the median price of a resold home is $101,000, less than half the national average.”

“Some forecasters say that coastal communities, from California to the Eastern seaboard, may in the end see the sharpest downturn in prices. But it is this region, characterized by slow job growth and gathering problems in the automotive industry, that has stumbled first.”

“In a business where outright price declines are rare, the Midwest was the first region in recent years to post a drop in prices, with median single-family homes down 2 percent in the second quarter from the same period in 2005. Is the Midwest leading a national downturn?”

“Here in South Bend, realtor Bruce Gordon says a weak economy with state property tax hikes have dampened housing. ‘It’s a way different market, towards the bad side,’ from just a couple of years ago, he says. In many parts of town homes are listed at $50,000 or less, and aren’t selling.”

The Muskegon Chronicle from Michigan. “Patient sellers will have a lot less frustration and heartache in the currently ’soft’ residential real estate market in Muskegon County.”

“Jim and Maria Tate of Whitehall, have had their 3,700-square-foot, four-bedroom, three-bathroom home up for sale since late July through Dan Tardani of Five-Star Professionals in Muskegon. There have been no offers and just a handful of showings on the property listed at $399,900, (realtor) Dan Tardani said.”

“There is a glut of homes in the $199,000-and-above market segment, agents say. At the $199,000 and above price level, there were 336 homes listed on the market. That calculates to about a 20-month supply for the upper end of the housing market, Tardani said.”

“‘The sellers are getting killed out in the market for those $200,000 and up,’ said Tardani, who has been selling real estate in Muskegon since 1987. ‘And if we look at the last quarter of 2005, it was the worst I have ever seen the market while I have been in this business.’”

“‘We just have too much inventory and not enough buyers,’ said (realtor) Bill Carlston.”

“Many people are getting hurt by the trend of pulling equity out of their homes through various mortgage programs, agents say. That leaves real estate agents faced with some impossible tasks, according to Carlston.”

“‘The problem is that people owe more on their homes than we can get for them in a sale,’ Carlston said. ‘I see that every day … several times a day.’”

The Chicago Tribune. “The proliferation of incentives is beginning to blur the true selling price of homes. Appraisers and other experts say..anyone who comes along later to the neighborhood and makes a bid on a comparable house based on the $500,000 figure, rather than the actual $485,000 value, may overpay.”

“The issue is a small but significant byproduct of a real estate market that has turned downward and made many sellers feel anxious. ‘It puts pressure on the appraiser,’ agreed La Grange Park appraiser Robert Napoli. ‘The next buyer comes along, and they get an inflated sale price that includes a non-real estate item,’ such as a car or a trip.”

KTHV from Arkansas. “Numbers are in for the September housing market and they’re down. This, as experts say prices are bottoming out. Ethan Nobles with the Arkansas Realtors Association says, ‘If you go up to Northwest Arkansas, things are down quite a bit. They’ve overbuilt and they’re having some adjustments to make. This is a great time to buy up there.’”

“In response to the recent housing market trends prices are falling. That is bringing buyers back to the market. Experts say that’s a good thing because we have one of the highest housing supplies we’ve had in years.”

The Idaho Statesman. “Jim Donerkiel believes reports of a major slump in the Treasure Valley residential real estate market have been overblown. Donerkiel concedes that his business is off about 19 percent from 2005, when an overheated market set a one-year record in the Valley with sales of 18,486 homes.”

“Newly released figures for the latest quarter show that 3,918 single-family home sales were recorded between July 1 and Sept. 30, a 29 percent drop from the 5,548 sales for the same period of 2005. But the numbers compare favorably with the same quarters in 2003 and 2004, when 3,281 and 3,878 were sold.”

“Terry Sklar said area appraisers are weathering the downturn with work involving estates, residential refinancing, home-equity loans and foreclosures.”

“A Boise State University economist said three consecutive months of declining sales should remove any doubt that the local housing sector is in a ‘recession.’ ‘It’s just a matter of how far it will go,’ said Don Holley, BSU professor of economics. ‘A 29 percent drop is huge.’”

Some housing bubble news from Wall Street and Washington. “Third-quarter profit at New Century Financial got cut in half, as the mortgage lender to people with poor credit histories saw a decline in loan production.”

“A top executive at Caterpillar Inc. said late Thursday he believes 2007 will be a year of ’significant slowdown’ in the U.S. housing market.

“Washington Mutual, the nation’s largest savings and loan, is laying off 255 workers as part of its efforts to trim costs amid a downturn in the national housing market. Sixty-five layoffs in Sacramento, Calif., and 190 in Austin, Texas, will take effect by the end of December, spokeswoman Darcy Donahoe-Wilmot said Wednesday.”

“Many of the jobs being cut are in the company’s mortgage-related business, Donahoe-Wilmot said.”

“Friedman, Billings, Ramsey Group Inc., the investment bank and brokerage, on Thursday reported a third-quarter loss. Separately, the company wrote down the value of a mortgage loan portfolio by $146.8 million. In addition, it wrote down equity positions in its merchant banking portfolio by $20 million, saying a majority of this sum relates to companies doing business in the subprime mortgage sector.”

“Home prices fell from July to August in seven of the 10 major housing markets covered by the S&P Case Shiller indexes. But prices are heading down a lot more, if the investment pros who trade in housing futures can be believed.”

“The latest report by the Labor Department showed construction companies got rid of 26,000 jobs.”

“Earlier this year, S.A. Ibrahim’s pitch that mortgage investors would benefit from insuring portfolios against a spike in borrower defaults fell on deaf ears. Now his phone is ringing. There is a heightened sensitivity to credit risk among investors, said Ibrahim, a 20-year veteran of the mortgage industry and former GreenPoint Mortgage CEO. ‘A big disconnect between that and the behavior of credit spreads,’ which have been tight, may soon reverse, he said.”

“It may go down as the ‘Got milk?’ moment for the housing sector. Just as dairy associations, with their widespread ads, have tried to convince Americans of the many benefits of milk, the National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good in a $40 million campaign that boldly declares: ‘It’s a great time to buy or sell a home.’”

“‘In visiting our local associations and state associations, we were hearing our members saying, ‘God, we are getting beat up out there,’ said Thomas M. Stevens, president of the trade group. Stevens dismissed the idea that the campaign, the first of its kind undertaken by the association, could be viewed as a sign of desperation.”

“As the credit market has grown and become more sophisticated, lenders have been able to extend credit to households and businesses that might previously have been considered uncreditworthy, Federal Reserve Chairman Ben Bernanke said.”

“‘Some evidence, including recent Federal Reserve research on consumers holding adjustable-rate mortgages, suggests that awareness could be improved, particularly among borrowers with lower incomes and education levels,’ Bernanke said.”

“Dallas Fed President Richard Fisher said the Fed held its target rate at 1 percent ‘longer than it should have been’ and unintentionally prompted speculation in the housing market. The Fed was influenced by inflation figures, which have been revised upward, he said.”

“In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets,’ Fisher said. ‘Today, as anybody not from the former planet of Pluto knows, the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the task of achieving our monetary objective of creating the conditions for sustainable non-inflationary growth.’”

“Fed Governor Susan Bies told reporters that the economy is ’still running at a solid pace outside of housing.’ While the housing slump may see even ‘further softening,’ that may be limited by ‘relatively low’ mortgage costs, income growth and recent stock-market increases, she said in her speech.”

“‘I am still more worried about inflation than a slowdown in economic growth,’ Bies said to reporters.”

The Ledger reports from Florida. “September brought more hard times for the local housing market as new home construction and home sales fell sharply, according to The Ledger’s monthly Polk Business Barometer. Polk’s 295 single-family building permits last month plummeted 82.6 percent from a record 1,692 in September 2005. September’s percentage decline, the largest in Ledger records, beat the previous record of 62 percent in August.”

“Mike Hickman, president of Lakeland-based Hickman Homes, said Polk and other areas are now seeing a ‘market adjustment’ after the feverish pace of building and real estate speculation in 2004 and 2005. A continued slowdown in housing could affect hiring levels in affiliated industries, said Hillsborough County economist Kevin Brickey.”

The News Press. “Builders in unincorporated Lee County, Bonita Springs and Fort Myers Beach pulled 444 permits for single-family houses in October, according to the Lee County Community Development Department. Compared to October 2005, a record-setting month, single-family residential permits are down 48 percent, the department reports in a statement released this morning.”

The Orlando Sentinel. “Masterpiece Homes, a major home builder in Volusia County, trimmed about 30 jobs this week, more than a third of its staff, in reaction to the slowing market for new homes. Founder and President Bob Fitzsimmons also took an early retirement as part of the restructuring.”

“‘This was in reaction to marketplace changes,’ said Executive VP Dean Amann, of the parent company. ‘It’s a normal course of business. We had overstaffed the organization” during the building boom of the past several years.’”

The Tampa Tribune. “A New York lender fears it is on the hook for millions of dollars in loans that now total more than the New Port Richey properties are worth. Lehman Bros. filed suit in Tampa on Tuesday against a group of investors, title companies, a mortgage company and an appraisal company involved in potential mortgage fraud at a Pasco County condominium complex.”

“Fifteen defendants used overvalued appraisals in a ’scheme to defraud’ the bank, according to the lawsuit. The 13 properties each were appraised for $733,000. The lawsuit says the triplexes are worth ‘barely one-third’ of that value.”

“Lenders across the country are investigating mortgages that may be worth more than the market value of the properties. Part of the problem, they say, is that lenders usually don’t spot problem mortgages until buyers start missing payments.”

“Lenders are discovering overvalued loans now for two reasons, said Doug Pollock, a mortgage investigator in Sanford. For one thing, fraudulent loans were easily overlooked during the past five years’ real estate boom. Second, industry professionals may be tempted to participate in fraudulent deals to attract business, Pollock said.”

The Herald Tribune. “Piero Rivolta is not completely convinced of the great baby boomer influx that is gospel to so many of the region’s real estate professionals. Though there are millions of boomers getting ready to retire ‘not too many of them are Great Gatsby boomers’ who can afford condos priced in the millions, said Rivolta, the developer of the Rivo condominium on Main Street in Sarasota.”

“Rivolta unabashedly acknowledged the frothy pricing of the past several years. ‘People lost their minds’ in valuing Southwest Florida land here in recent years, he said.”

“During the recent pullback in residential financing, largely because developers are increasingly unable to meet lender deposit requirements, development activity has been shifting to retail, office, hotel and apartment construction, said panelists.”

“‘Watch out for raw land deals right now’ was the message from one panel of bankers. Land with no immediate development plans is almost impossible to finance, as is highly speculative property that depends on substantial rezoning or unusual permitting.”

“Single-family home sales are off by a third statewide this year, down by 42 percent in the Tampa-St. Petersburg market and by 28 percent in Sarasota-Bradenton. Condo data was even worse, with a 41 percent statewide drop this year. Sarasota-Bradenton condo sales were hit harder, down 55 percent in 2006. Tampa-St. Petersburg condo closings fell by 41 percent.”

“Overall residential prices are down across the board by as much as 14 percent, Guido said.”

The Sun Sentinel. “The National Association of Realtors is advertising in some of the country’s largest newspapers, hoping to persuade skeptical consumers that it’s a good time to buy a house. The Washington, D.C., trade group cites interest rates near historical lows, a plethora of homes to choose from and the security of a long-term investment.”

“‘Nobody is telling that story,’ Tom Stevens, president of the Realtors group, said.”

“Part of a $40 million public awareness push, the full-page ad appears today in The Wall Street Journal and USA Today and will run Sunday in The New York Times, Washington Post, Los Angeles Times and Chicago Tribune.”

“Prices of existing homes in South Florida and other parts of the country have declined, compared with a year ago. Many buyers say they’re waiting for prices to fall even more, causing homes to stay on the market for months.”

“‘We see people on the fence right now,’ said Jupiter agent Pat Fitzgerald, chairwoman of a national Realtors committee that agreed to start newspaper advertising. ‘We’re looking at them and saying, ‘C’mon. Let us show you the benefits.’”

“Realtors associations in Palm Beach and Broward counties say they plan to ‘piggy-back’ on the national campaign. Mike Larson, an analyst for Weiss Research in Jupiter, said he understands the national association’s motive.”

“‘Obviously, a lot of agents are hurting,’ said Larson. ‘When agents don’t sell homes, they don’t make any money. That’s what it boils down to. But past real estate downturns have lasted years, and this downturn has a long way to go. I don’t see a reason to rush in.’”

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