The Housing Bubble

The Seattle Times reports from Washington. “October’s local home-sales activity continued to reveal a softening market, according to statistics released today by the Northwest MLS, which covers 19 counties.”

“Brokers throughout the Puget Sound region reported more homes on the market and fewer accepted offers compared with the previous October. In King County, which accounts for 40 percent of the region’s housing activity, the number of houses and condominims on the market was 34 percent above a year ago, while pending sales were down nine percent.”

“‘Housing sales are down, but this has created a greater balance in the market between buyers and sellers,’ said (broker) Lennox Scott.”

The Seattle PI. “Seattle has plenty of condominiums left to build and plenty of people coming to live in them, according to experts who spoke at a local housing forum Friday. ‘We’re just getting started in Seattle,’ said developer Bryon Ziegler.”

“Several speakers said the media are trying too hard to declare a bursting housing bubble in stories about a national market that, in September, saw the largest year-over-year drop in the price of the typical new home in 35 years.”

“Seattle’s median price was up from the year before, but it was the smallest gain since January 2004 and the first time since then that prices declined for two straight months. ‘The U.S. market is cooling rapidly, no question,’ said Stuart Tyrie, VP of Wells Fargo Home Mortgage’s Builder Division.”

“The national home market should bottom out in the second or third quarter of next year and rebound in 2008, Tyrie said. ‘You want a good deal on a place in Florida? Give it about eight more months.’”

“Joseph Cortright, an economist in Portland, said economic growth would depend on courting a shrinking pool of college-educated 25- to 34-year-olds. These people, whom he called ‘the young and the restless,’ want to find a job where they want to live, rather than moving where work is.”

“Denser urban centers also are catching on outside of downtown, in places such as Ballard and Wallingford, Ziegler said. ‘People don’t have to move from their neighborhoods to enjoy the condominium lifestyle.’”

The Columbian. ” Home-building activity as measured by building permits in unincorporated Clark County continued to lag in October. The county’s Department of Community Development issued 103 permits for single-family home construction last month, down from 197 permits in October 2005.”

“Residential builders have received a total of 1,338 permits from January through October this year, compared with 1,831 permits in the same period last year, representing a 29.9 percent decline.”

The Bellingham Herald. “It’s no secret that in recent months the red-hot housing market has been cooling down. Whatcom County has seen signs of a slowing housing market. More ‘for sale’ signs dot neighborhoods as the inventory has increased from 30 days to a more normal six months. It’s taking more time to sell homes, particularly those in the $350,000 to $450,000 price range.”

“‘I think the story that needs to be told here is that Washington state, including Whatcom, is behaving differently than most other parts of the country,’ said Glenn Crellin, at Washington State University. ‘The rise in housing prices came later to this area than other parts of the country, so there wasn’t the same kind of run-up.’”

“With the housing market cooling off across the nation, including Whatcom County, there have been concerns about what will happen next with the local market. As of Nov. 1, more than 2,100 homes were listed for sale in Whatcom County on local real estate Web sites, about triple the number of homes available in August 2005.”

“Construction and real estate fueled much of the job growth in the past few years, so there is an expectation that the labor market could see some cooling as well.”

“There is already some evidence of this: The number of jobs added to the economy dropped. There were 3,400 jobs added between August 2004 and August 2005, but just 800 added between August 2005 and August 2006. ‘I would expect some job attrition, but it shouldn’t have a huge impact on the overall local economy,’ said Julie Hansen, an economics professor at Western Washington University.”

“‘There is still a lot of real estate-related business going on, whether it’s refinancing or remodeling. The biggest concern I would have is construction employment,’ Hansen said,”

“When it was a seller’s market, there was a ramping up of jobs in the industry. Currently the number of Realtors is 878, according to Peter Roberts, president of the Whatcom County Association of Realtors, up more than 200 from a few years ago. Overall, there are currently about 1,100 real estate agents in Whatcom County.”

“‘It takes about 18 months before a slowdown works its way through the market,’ Roberts said. ‘People will hold on to their Realtors’ license while they look for other alternatives.’ In the home mortgage industry, things seem to have slowed down a little, said Jeremey Beck, a mortgage loan officer at Horizon Bank.”

“Roberts said there is a glut of homes in the $350,000 to $450,000 range. ‘That will be a tough price range to sell in the coming months,’ Roberts said. ‘I’ve never seen so many homes come on the local market in that price range.’”

From Tampa Bay Online in Florida. “More than a year after launching one of the area’s most expensive condo conversions, Bay Communities is trying a novel approach to unload its unsold units at The Hamptons in Tampa Palms. The developer will sell 100 condominiums on Dec. 9 at a public auction, 40 condos will be sold ‘absolute’ - awarded to the highest bidder with no minimum bid.”

“The developer owes the county $1 million in back taxes. The Tampa Palms Owners Association also has a lien on the property for unpaid dues.”

“The Hamptons has 315 units, and they were the priciest conversions in New Tampa. As of this summer, Bay Communities had sold just 70 units. With 13 condo conversions in one year, most New Tampa developers gave up and started leasing the units again.”

The Palm Beach Post. “Florida led the nation in foreclosure activity for the third quarter of this year as adjustable rate mortgages came home to roost, a report shows. The number of households in foreclosure throughout the state spiked 55 percent compared with the second quarter of this year, and rose 26 percent over the third quarter of 2005.”

“In Palm Beach County, one in every 153 households was in foreclosure in the third quarter, up 26 percent over the third quarter of 2005. Foreclosures rose 38 percent over the previous quarter.”

“St. Lucie County foreclosures jumped 68 percent over the same quarter a year ago, and 65 percent over the second quarter of this year.”

“The median sale price of a Martin County home was $339,900 last year, $182,550 more than a family of four earning the median annual income of $52,450 could afford, according to Florida Housing Finance Corp.”

“‘If we don’t start solving the problem with the price of housing … we’re going to end up with a bunch of companies with no workers,’ Seacoast National Bank’s Teresa Idzior said. Stan Fitterman, adviser for the Florida Housing Coalition, added: ‘Or with no companies.’”

The News Press. “First Home Builders, Southwest Florida’s largest homebuilder and a division of national homebuilder K. Hovnanian, will lay off 50 to 75 workers, the company said today. Company officials said they are ‘adjusting the team to current market conditions,’ according to spokesperson Samantha Scott.”

“This summer, Bonita Springs-based builder WCI Communities slashed an undisclosed number of jobs.”

“‘Our results this quarter continue to reflect the impact of dramatically lower demand for our Florida traditional and tower homes,’ said Jerry Starkey, WCI’s president and CEO. ‘Traditional home cancellations were about twice our historical rate during the quarter and we also experienced a higher rate of defaults in our Tower Division.’”

“The aggregate value of traditional and tower homebuilding orders for the quarter fell 82 percent over the same period a year ago to $120.1 million, while the number of unit orders declined 81.5 percent to 140.”

The Orlando Sentinel. “Eugene Ralph fears his life savings may be lost, the $66,000 swallowed by a bankrupt Kissimmee company whose owner has been arrested by the FBI and charged with fraud.”

“Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000, but make no mortgage payments for two years. Ralph bought two units in southwest Orlando that Main Street USA had converted to a condo project. He has never been inside his units; he doesn’t even have the keys. But the two mortgages he signed are already in default.”

“‘I can’t even sell them,’ said Ralph, who lives in Kissimmee. ‘Things are really tough.’”

“Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then Main Street USA defaulted on its promise to pay its condo investors’ mortgages for the first two years.”

“The couple has been making the payments since then, but they say it isn’t easy coming up with $1,128 each month in the hope of keeping their investment alive. ‘It’s tough,’ said Cortes. ‘I’m working a lot of overtime trying to make ends meet.’”

“The site of the old Langford Hotel in Winter Park, torn down to make way for luxury condominiums and a new, five-star hotel, has been put up for sale, a partner in the project confirmed Monday.”

“After the purchase, the buyers announced plans to develop luxury condos and an adjacent, five-star hotel with such amenities as a spa and 24-hour concierge service. The condo hotel was supposed to have somewhere from 110 to 158 rooms. The 23 condominium units have all been built and all but four have been sold, Heistand said.”

“He said the condos were not sold with any promise that an adjacent hotel would be built. ‘We put nothing like that in contracts,’ said Jim Heistand, president of the Orlando investment company that developed condominiums on part of the property. The condos sold for more than $1.75 million each.”

The New York Magazine. “Jeremy Kushnier waited until last year to buy his one-bedroom in Morningside Heights. ‘I just got tired of paying rent,’ says Kushnier. ‘I wanted to build some equity.’”

“So much for that: Sixteen months later, Kushnier’s selling his place and moving to Los Angeles. If he gets his price, $509,000, he’ll do slightly better than break even. But a little negotiation could wipe out his profit altogether. ‘The tough thing is, the market went down,’ says his broker, Désirée Halac. ‘A lot of people are offering 10 percent less.’”

“If you bought recently and have to sell now, you may be in a position not heard of since the early nineties: You can actually lose money on a New York apartment.”

“Some eager sellers are in the grips of an outside force like job relocation or a baby on the way. Others, like Corcoran’s Paul LeMarc Brown’s clients, have simply changed their minds. A year ago, LeMarc Brown handled a couple’s purchase of a Fort Greene co-op for $310,000. A few months after the close, they decided to visit One Hanson Place in downtown Brooklyn and fell hard for the redeveloped tower.”

“Now their old place is available for $345,000, which will—again, if they are lucky enough to get their price—leave them with a profit of less than $5,000.”

“Kushnier’s co-op doesn’t allow sublets so soon after an owner moves in—ruling out that option—and the expenses are piling up. ‘It’s a financial burden,’ he says.”

The Boston Herald. “Three Greater Boston locales have dropped out of the exclusive ‘million-dollar club,’ areas where median-priced houses cost $1 million and up. Market tracker The Warren Group reported yesterday that Brookline, Dover and Lincoln’s median prices all fell below $1 million in the nine months ended Sept. 30.”

“‘What goes up must come down,’ said Tim Warren of The Warren Group. ‘(Brookline, Dover and Lincoln) are all premiere communities where prices went up very far, very fast. But at some point, gravity takes over.’”

“Warren said median prices tumbled to: $944,750 in Brookline, from $1.1 million a year earlier; $897,500 in Dover, from $1.05 million a year ago; $875,000 in Lincoln, from $1.14 million in the same 2005 period.”

“The pullbacks don’t surprise brokers. David Wluka, president of the Massachusetts Association of Realtors, said people who list homes for $1 million or more ‘tend to have more flexibility on pricing. In most cases, (a few thousand dollars either way) isn’t as critical as it is to somebody selling a house for $300,000 or $400,000.’”

“Brookline agent Aliza Dash said she thinks her town’s prices have dropped because ‘people aren’t willing to pay astronomical prices for average houses any more.’ But Dash actually sees some benefits to the lower costs. ‘It’s nice that we’re getting back to realistic prices - or at least prices that aren’t quite so outrageous,’ she said.”

From CNN Money. “As housing markets have cooled, buyers are making demands that wouldn’t have flown during frothier times. ‘The market has turned in the direction of buyers,’ say Chuck Bartolo, a broker in Spencertown, New York. ‘They’re feeling empowered.’”

“In addition to agreeing to make more repairs, to lower their prices and to throw in extras to get deals done, sellers are also more willing to accept contingency clauses in the contracts that make the sale dependent on certain conditions being met.”

“‘A year ago,’ says New York City real estate attorney, Neil Garfinkel, ‘you couldn’t get any contingencies written into a contract. They are now finding their way back in.’”

“Garfinkel doesn’t expect the types or numbers of contingencies written into contracts to change if markets grow colder. He thinks the impact will be more on prices than on contract details. Right now, we’re in a fairly balanced market, in his opinion, and that has certainly helped buyers out. ‘There’s much more parity,’ he says.”

Some housing bubble reports from Wall Street and Washington. Paul Muolo, “We continue to hear tales that the subprime industry’s loan buyback problem isn’t getting any better. Bear Stearns has been identified as being one of the more aggressive Wall Street firms in terms of buybacks. One joke making the rounds goes like this: Bear Stearns doesn’t buy loans — it rents them.”

“According to Friedman Billings Ramsey, the credit performance of securitized non-agency mortgage loans weakened in the 361 metropolitan statistical areas from August 2005 to August 2006. Default rates (90-day or longer delinquencies, foreclosures and real estate-owned) rose year-over-year among prime, alternative-A and subprime loans.”

“In a sign that all ends of the housing spectrum continue to deteriorate, luxury builder Toll Brothers Inc. and conventional builder Beazer Homes USA Inc both reported order declines of more than 50%, and both are taking land-related write-downs in their latest fiscal quarters.”

“‘We continue to look for signs that a recovery is imminent but can’t yet say that one is in sight,’ said CEO Robert Toll. Toll’s orders declined 56% in its fiscal fourth quarter that ended Oct. 31, while Beazer’s fell 58% in its fiscal fourth quarter that ended Sept. 30.”

“Both companies also took large write-downs on land and land-related options in the latest quarter. Toll said it expects to take a charge of between $50 million and $100 million in land-related write-downs when it posts its fiscal fourth-quarter earnings results. Beazer took a charge of $23.8 million in land-related write-downs as well as a charge of $1.1 million related to severance costs associated with the company’s overhead cost-cutting measures.”

“Nearly 25 percent of the cancellations came in the Orlando, Florida and Northern California markets, Toll said.”

“WCI Communities Inc, a builder of homes and tower residences, Tuesday said its third-quarter net income fell 73% from a year earlier. The home builder said its decision to abandon land option contracts resulted in a charge of $14 million in the latest quarter.”

“Home builder KB Home said late on Monday it has received an additional notice of default related to its bonds from US Bank, which is the successor trustee of the debt.”

“(Builder) Technical Olympic USA Inc. Tuesday said it requires additional time to file its Form 10-Q for the third quarter ended Sept. 30 due to a change in its financial-statements presentation and the expectation it will report ‘a significant change in its results of operations’ due to asset impairment charges.”

“H&R Block Inc. said late Monday it may sell its Option One subprime mortgage business as the tax-preparation specialist looks to cut exposure to a slowing housing market. H&R Block also said it’s closing 12 Option One branch offices over the next four months, reducing its loan operations by a third.”

“H&R Block has already experienced problems from a slowdown in the real estate market. In August, the company announced an unexpected $102 million charge related to Option One. The losses covered loans it could be required to buy back should a borrower default on their first payment.”

“HomeBanc Corp. today reported a net loss attributable to holders of common stock of $2.4 million. Patrick Flood, HomeBanc CEO, said, ‘The Company’s third quarter results reflect the continuation of adverse market conditions in the mortgage industry, specifically in relation to loan originations. As a result of current conditions, and our expectation that these conditions will continue into 2007, we accelerated and intensified our expense reduction initiatives during the quarter.’”

“Flood continued, ‘With adverse market conditions as a backdrop, we expect to elect not to operate our public company as a REIT in 2007.’”

“For the quarter ended September 30, 2006, Anworth Mortgage Asset Corporation ANH announced today an unaudited net loss to common stockholders of $3.4 million.”

“During his last year as Fed chairman, Alan Greenspan often said he did not see a national housing bubble, but rather ‘froth’ in some markets. At the conference yesterday, however, he attributed much of the recent housing boom to a ’speculative surge’ caused by global financial conditions that pushed mortgage rates down to very low levels until the last year.”

“Greenspan said he could not predict when home sales would begin rising again or when home prices would stabilize. He said of prices, ‘it’s hard for me to believe that they can stabilize at the level they are now because we had too much of a speculative surge. We have to lose some of that.’”

“Greenspan defended the central bank’s actions during his tenure, disagreeing with one former colleague about whether the Fed fueled speculative investment in housing by holding interest rates too low for too long in recent years.”

“Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Thursday that because of faulty price data during this period, the Fed’s benchmark short-term rate was cut to a level that ‘turned out to be lower than what was deemed appropriate at the time, and was held lower longer than it should have been.’”

“Greenspan disputed such criticism, saying the recent housing boom resulted…from global financial conditions that lowered long-term mortgage rates worldwide. ‘In retrospect, I know of nothing we would have done differently,’ Greenspan said of Fed policy during those years.”

The New York Times reports on Arizona. “The number of unsold homes in the Phoenix area has soared to almost 46,000 from just a few thousand in early 2005. And builders are pulling back as fast as they can. They have little choice. Sales cancellations among big builders, not just here but around the country, are running as high as 40 percent, double the rate a year ago.”

“Across the nation, new-home sales are down by more than 20 percent from their peak last year. Prices fell almost 10 percent in September from a year ago. And that reported drop does not take into account the extras that builders are throwing in free or at steep discounts to lure buyers, which means that effective prices are even lower.”

“Local officials issued 60,000 single-family permits in the metropolitan area in 2005, twice the number issued in 2000. But in the first nine months of this year, permits fell by 27 percent from the same period last year. And builders are suddenly refusing to pay the asking prices for developable land.”

“The influx of buyers from California, many of them individual speculators, was so strong that builders overestimated demand and constructed a lot more homes than there were people wanting to live in them, said John Burns, a real estate consultant in Irvine, Calif. He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”

“Perhaps an early indication of things to come can be found in what has happened with land sales. In September, the Arizona State Land Department postponed the auction of two parcels of prime residential land north of downtown Phoenix after builders said the starting levels were too high.”

“Thomas Caldwell and his partner now own about 30 homes each and manage a total of 2,200 properties for clients, many in California. Asked what he thought of the contention that investors were to blame for the glut of homes on the market, Mr. Caldwell acknowledges ‘there was some fluff.’”

“But smart investors, he argued, were absorbing the surplus by buying up homes that builders were now unloading at bargain prices, some for as little as $60 to $80 a square foot, which local experts say is barely enough to cover construction costs let alone land expenses.”

The Arizona Republic. “The number of Valley homes for sale, breaks down to 12 homes for every home buyer in the market now, according to research from (realtor) Jay Haugen. At the end of September, the number of homes for sale was hovering near an all-time high of about 55,300.”

“Pinal County has been the hot spot for home-building in the Valley this year. Through September, 13,000 houses were started in the southeastern Valley suburb, according to Metrostudy. But resales in Pinal fell to 850 during the third quarter, according to ASU. More than 1,100 existing homes changed hands in the area during both the first and second quarters of 2006.”

“More than 4,500 new homes, complete or nearly finished, sit unsold in Valley subdivisions, Belfiore Real Estate Consulting says. Demand for unreasonably priced homes or homes far from jobs is ‘abysmal’ now, analyst John Burns writes.”

“Arizona housing analyst RL Brown still has a ‘code red’ on his monthly report and says, ‘The end (of the housing market’s slowdown) is not yet in sight, and the market is still seeking the bottom.’”

The Review Journal from Las Vegas. “The number of homes sold in October dropped 34.4 percent from a year ago to 1,689, the 13th straight month of declining year-over-year sales, the Greater Las Vegas Association of Realtors reported Monday.”

“Inventory of homes for sale continues to climb at 23,474, a 53.8 percent increase from October 2005. More than 5,000 homes were added to the MLS during the month.”

“Association President Linda Rheinberger said she sees positive signs in the emerging housing categories of mid-rise and mixed-use developments. ‘For those who want that lifestyle, they’re buying them, but not at a frenetic pace,’ she said.”

“Real estate investors have backed off from buying commercial property in Las Vegas because prices are generally perceived as being overvalued, an investment executive said. Investment broker Charles Moore said he had twice as many buyers looking at the market in May and June of 2005 than he has today.”

“‘Landlords and investors should be aware of their exposure to housing-related tenants in their properties and their submarkets and adjust their management and leasing plans accordingly,’ said Joseph Kupiec, managing director for Grubb & Ellis in Las Vegas.”

“Las Vegas Sands Corp. is the latest player in the Strip’s growing high-rise condominium market. The casino operator will ask the Clark County Commission for approval to build a 632-foot tower that would allow for 849 condominiums. Each unit would include a kitchen area.”

“Las Vegas Sands Executive Vice President Brad Stone said the condominium tower would have 370 ‘ultra-luxury’ units and the building would be at least ‘50 stories.’”

“Deutsche Bank gaming analyst Bill Lerner said Monday the planned Las Vegas Sands project can’t be viewed as part of a potentially oversaturated Las Vegas high-rise residential market.”

In Business Las Vegas. “Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar. Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.”

“One of those myths is that there is no affordable housing, Bottfeld said. He said 1,800 homes listed for sale are priced at $200,000 or less, which he said falls in the affordable category.”

“Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there’s nothing wrong with having so many homes vacant.”

“‘Investors are testing to market to see if they will get their price, and if not, they will rent it,’ Bottfeld said.”

“Bottfeld said he doesn’t believe the increasing number of homes entering foreclosure signifies a problem. He said a change in laws that makes it more difficult to declare bankruptcy is the likely reason for more foreclosures.”

“Bottfeld predicted the housing market will be ready for another boom by the end of 2007. ‘We have the same conditions that formed before the previous boom,’ Bottfeld said.”

“Michael DeLew, a senior VP of the industrial division of Colliers said that a slowdown is evident by builders pulling out of land deals, leaving millions of dollars on the table. Why should builders carry the interest on the land when they can get it in a year or longer at the same price and maybe lower? he asked.”

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