The Housing Bubble

It’s Friday desk clearing time. Boston, “It was on the market for more than two years, but Brad Whitford’s 5,567-square-foot custom Federal-style Cape in Marshfield Hills was finally sold for $3 million. The original asking price was $4.9 million.”

From New York. “The local housing market continued its steady decline in October, with sales and median prices down in Orange and Ulster counties, according to county boards of Realtors. The Orange County Association of Realtors reported fewer homes under contract this October than it did a year ago, suggesting that the coming months will see a continuing drop in closings.”

In New Hampshire. “Two residences on Rose Petal Lane will be auctioned off on the premises on Saturday. The highest bidder wins no matter how low the bid. ‘This is a chance for the buyer to state their price,’ auctioneer Daniel Flynn said. ‘The buyer dictates the market.’”

“The greatest potential for problems is the North Texas foreclosure bubble. So far this year, more than 35,000 homes in the Dallas-Fort Worth area have been posted for foreclosure. More than 15,000 homes have been taken by lenders when the owners couldn’t keep up with the payments.”

“That means more than a quarter of the pre-owned houses up for sale in the Dallas-Fort Worth area are foreclosed properties.”

“A real estate downturn that has become rampant in some parts of the U.S. and Eastern Canada may be creeping into the Central Okanagan. ‘Prices have been going up year after year,’ said Brenda Moshansky, for the Okanagan Mainline Real Estate Board. ‘At times, they have been going crazy so fast, it’s not unusual to have a reckoning.’”

“Peter Gilgan has sold more than 30,000 homes as owner of Canada’s biggest builder. Now he’s struggling to sell his own, a nine-bedroom mansion listed at a record price of C$45 million ($40 million). ‘There’s no longer the demand,’ said Mike Donia, a Toronto- based specialist in luxury homes. ‘It just waned.’”

From Spain. “Property professor José Antonio Pérez tells us that prices of residential properties reach their ceiling at 300,000 euros, and from there on sales have more or less stopped. He talks of fear in the property investment market. ‘Many investors are beginning to get very nervous right now, afraid they will not be able to sell. So they end up selling at below market value,’ he says.”

From Idaho. “Wayne Forrey, for Kastera Homes in Eagle, (said) that falling home sales have forced area land owners to shave thousands off asking prices for their properties. ‘Realistic land prices are in the pipeline,’ Forrey said. (Builder) Don Hubble said land prices in the previously red-hot Meridian market have fallen dramatically, in some cases as much as $60,000 an acre for property that was selling for about $140,000 an acre earlier this year.”

“According to (consultant) Karim Rahemtulla, based in Baltimore, Md., the situation is about to get much worse. ‘Homeowners are in denial,’ Rahemtulla said. ‘Right now, sellers aren’t selling. They’re still waiting for Santa to deliver their asking price.’”

From Hawaii. “The median price of previously owned single-family homes on Maui fell in October to its lowest level in more than a year. For single-family homes, the median price fell 4 percent to $647,500 last month from $674,500 a year earlier. Maui’s median price high of $780,000 set in May 2005 was matched 14 months later in July. ”

“Calvin Mobbs, Realtors Association of Maui president, said a lot of buyers are waiting to see if market values decline significantly as sellers reconsider whether it’s a good time to sell. But his long-term view is that prices will drop just a little. ‘The sky’s not falling,’ he said. ‘It’s not.’”

The Gold Coast Bulletin reports from Australia. “Interest rates have hit their highest level in six years and Prime Minister John Howard says the pain for households is necessary to get inflation under control. But leading industry figures have warned there will repossessions ‘within weeks’ as a result of yesterday’s interest rate rise.”

“Gold Coast independent property valuer Iain Herriot said the rate rise was ‘really bad news’ for the investors who had stretched themselves to buy investment properties. ‘In a matter of weeks you’ll start to see investors selling their rental properties so they can hold on to the family home,’ said Mr Herriot.”

“‘It’s particularly prevalent in those new estate areas where people have been sold house-and-land packages that quite simply don’t add up in terms of market value,’ he said. ‘When they go to put their investment property on the market in the next couple of weeks because they can’t afford this interest rate squeeze, they are going to get a very rude shock.’”

“Leading valuer LandMark White said the rate rise would ‘murder’ the Queensland property market. Mr Herriot could see some benefit to first home buyers.’I think their Christmas stocking will be full of decent buying, unfortunately though it will be at someone else’s expense,’ he said.”

The Australian. “Low-doc, no-doc, half-a-doc loans. Any-doc-will-do. Get rich quick. On the outskirts of Sydney and Melbourne, things are getting ugly. ‘For Sale’ signs abound.”

“What they don’t tell you is who’s selling. The banks, you see, are telling the agents not to disclose the vendor, to not say a word. The bulk of these sales are mortgagee-in-possession jobs.”

“An ABC crew toured the western Sydney arc from north to south last week. Its findings were disturbing. The bulk of house auctions were mortgagee-in-possession sales.”

“Agents said it was the worst they’d seen it: negative equity everywhere, locks changed, savings lost. One house in western Sydney suburb Fairfield, a three-bedroom weatherboard number, had just been passed in at auction for $279,000. The bank was the vendor. It had been sold for $560,000 just 18 months earlier.”

“The banks are calling in their loans, folks. The credit binge is kaput and the waking hangover will be so bad the lawyers will be sorting it out. Who will sue whom? Mortgage brokers, banks, non-bank lenders, lawyers, mortgage insurers, dodgy valuers. Pick a box.”

“What of the banks and other assorted credit spruikers? Did they exercise the required care, outsourcing their sales to spivvy operators who loaded up their prey with home equity withdrawal products while rates rose and household disposable incomes sank? They’ll blame the brokers.”

The Sydney Morning Herald. “The managing director of property research firm Braxton Chase, Andrew Donnelly, said there were plenty of bargains in the market as higher interest rates force vendors to slash property prices.”

“‘We are regularly coming across developers selling at up to 20 per cent below current valuation,’ he said.”

“Mr Donnelly said investors were becoming more aggressive, and in Sydney had been known to put in offers of $320,000 to $330,000 for properties valued at $400,000.”

“‘And they’re being accepted simply because vendors and particularly developers are not able to afford the holding costs that these rate rises are putting on them,’ he said.”

“Mr Donnelly said that while mortgage repayments would rise as a result of Wednesday’s interest rate increase, which pushed official rates up to 6.25 per cent, the increase would have only a minor effect on investor returns.”

“‘In most cases any increases will be significantly outweighed by the capital gain that can be made from buying at a major discount,’ he said.”

The Modesto Bee reports from California. “New home sales have declined dramatically throughout the Northern San Joaquin Valley this year. New home sales were down nearly 59 percent the third quarter of this year compared with the same period a year ago in Stanislaus County, according to The Gregory Group.”

“Sales were off 32 percent in San Joaquin County and 39 percent in Merced County. ‘As a whole, we’re not seeing a turnaround for 12 to 18 months,’ predicted president Greg Paquin. ‘Most projects are having to offer some sort of incentive to sell homes.’”

“Some of those incentives can be worth more than $100,000.”

The Bakersfield Californian. “Local housing market observers are disputing a new report warning that Bakersfield is a bad place to invest in real estate over the next year or so. Four other Central Valley cities also made the nationwide list; Stockton, Merced, Fresno and Sacramento.”

“Local house prices have definitely dipped and could drop further, real estate agent Robin Ablin said. ‘Are (prices) going to go down to $125,000 like they were five years ago? That’s never going to happen,’ Ablin said.”

Inside Bay Area. “Cash-out refinancings are at their highest rate in 16 years. Joyce Broder did a cash-out equity refinancing on her Daly City home in September to pay for improvements. ‘I basically put it back in the house — most of it — and paid some bills off. … I invested a portion of it also,’ Broder said.”

“A borrower who refinanced now wouldn’t have to worry about home prices falling in the next couple years, said Andrea Lanier, a mortgage broker (in) San Mateo. ‘Some people are refinancing now to take advantage of today’s values,’ Lanier said.”

“Last month, Jill Stephens and her husband refinanced their Burlingame home to lower monthly payments so she could take some time off from work and stay home with their children. The Stephenses now have a less expensive interest-only loan with a fixed rate that lasts five years.”

“‘That gives us more monthly income so that I can stay home,’ Jill Stephens said.”

The Voice of San Diego. “The county’s leading economic indicators sustained a sixth straight month of declines in September, attributed primarily to drops in residential building permits and consumer confidence.”

“Alan Gin, professor of economics at the University of San Diego, reported sharp drops in residential building permits, initial claims for unemployment insurance and consumer confidence played large roles in the decline.”

“‘The thing’s been trending down for six months now,’ Gin said. ‘It’s more negative news for the county.’ Gin predicts…a further weakening housing market and tumbling retail sales. ‘Housing and real estate is one obvious place where you’ve got to look,’ he said.”

From KNVN 24. “If you own a home in the North State, you probably know that home prices are dropping. For nearly four months Claudia Sigona and her partner have tried to sell their home. They’ve gotten a lot of looks, but no offers. Sigona says ‘the market just seems to be a little slow right now. we’ve had to reduce the price a couple of times, but we’re hopeful.’”

“Around the couple’s corner is Jensen Park, brand new homes with all of the frills. Twelve houses in the development still sit — and on this day anyway, not one person came to this open house.”

“‘Greg Melton is another frustrated seller in Chico. ‘At this point concern has turned to panic.’”

“Melton expected a quick sale. that was five months ago. Melton says ‘I don’t understand. it’s a nice neighborhood, great location, cul de sac, park on both sides. I thought it would sell a lot faster.’”

“Melton and his real estate agent had the house sold, but the deal fell through when the buyer was unable to sell his house. In the interim, Melton bought a new house… so now he has two mortgages and the selling price of this one has gone down.”

“Many home sellers we spoke to say they are panicking that they’ll never sell their house for what they paid for it. Sherry Payne is a Chico Real Estate Agent. ‘I think the last I heard we had about 800 houses on the market.’”

“Payne has sold real estate in Chico for 28 years. She estimates prices have dropped 20 percent from last year’s peak. further declines could be coming. Payne says ‘what has happened also is the fact that because they’ve come down they’re getting lower offers, even lower than the prices they’ve leveled off to. so they’ve reduced the prices quite a bit.’”

“Payne says ‘I think the buyers have a realistic view that in a sense that the market is going down. But I think they’re also very nervous about making any type of offer or going forward until they see what really is going to happen.’”

“In other words, buyers are being picky… and they may get pickier. Notices of foreclosure are up dramatically in Butte County, and many financially-strapped sellers are desperate for an offer.”

“Frank Hill is a flipper. But after he sells this Canyon Gates estate, his flipping days will take a recess. ‘I think that just everybody is in a holding pattern to see how far and how low the prices of these homes are going to go.’”

“Frank has priced his gorgeous house below others in the neighborhood. His $579,000 dollar asking price includes $25,000 worth of furniture. ‘We thought as an added incentive in this quote ‘hard market’ we would include the furniture too and maybe stimulate a buyer that way.’”

“Even so, veteran Chico realtor Sherry Payne says buyers are few and far between these days. Hundreds upon hundreds (of homes) are on the market and only wise sellers will succeed in unloading their piece of the american dream.”

“Payne says ‘for the seller I recommend keeping their house at a very, very marketable price, and even, yes, realistically, even a little bit low to catch the eye of that one potential buyer that’s out there.’”

“Potential buyers should know that they have more choices, and thus, more negotiating power, than anytime since the mid-90’s.”

A housing report from the Virginia Pilot. ” A pronounced slump in home-building permits in Hampton Roads will dampen demand for construction workers during this quarter and next year, economic forecasters at Old Dominion University said Wednesday. The full effect of the downturn in home-building won’t be felt until next year, which would coincide with the closure of the Ford truck plant, said Vinod Agarwal, chairman of ODU’s economics department.”

“‘New home construction,’ according to the economists’ report, ‘has slowed as builders react to the excess inventory, roughly three times that of 2004, of both new and re-sale housing in the region.’”

From the Hook in Virginia. “Is it still smart to buy a house in Charlottesville? Will people who paid those princely sums for a house over the last several years ever see their money again? It doesn’t take an economist, however, to see that things have changed in the housing market on both the local and national level.”

“Eighteen months ago, the MLS offered 1,100 properties, says Charlottesville Area Association of Realtors CEO Dave Phillips. And as of press time this week, there are approximately 3,000 listings in Charlottesville and Albemarle. The number of transactions completed or pending in Charlottesville or Albemarle during the third quarter of 2006 is down about 18 percent from 2005 figures.”

“While the last few years saw a flipping frenzy, those days are over for now, Realtor Jim Duncan says.”

“‘In the last several years, people had gotten away from the ‘buying smart’ mentality and were just buying,’ he says. ‘I don’t want it to sound like it’s a scary thing. It’s a really good time to buy, it’s just a very different market.’”

“To those who suspect that agents are just feeding the public a line to keep their own heads above water, George Overstreet, associate dean at UVA’s McIntire School of Commerce and an expert in real estate investment, says that’s not the case. ‘People think we’re in some sort of bubble, so they’re on the sidelines,’ says Overstreet, ‘but interest rates are still down, and the demand has shifted back to the left. So prices have dropped.’”

“If all this news is actually good for the real estate market, there’s one group who may be doing some teeth gnashing: the agents themselves. In the last five years, the number of realtors in the Charlottesville area has risen 50 percent increase, according to Phillips.”

“‘If you do the math, it’s less than two transactions per realtor,’ says Phillips. Duncan says a realtor needs to have 15 closings, to make a decent living. ‘There’s a bursting of the agent bubble,’ says Duncan, who is glad to see the competition stiffen. Having real estate agents ‘who do the job as a hobby,’ says Duncan, ‘detracts from the professionalism.’”

The Baltimore Sun. “Local homebuilders are slashing overhead, holding off on some projects and redoubling marketing efforts as they adjust to the slump in the once hot housing market.”

“Buyers are hesitating to buy, and more are backing out of contracts ‘The psychology has changed,’ said Michael Carliner, senior economist for the National Association of Home Builders. ‘Until people think it’s a good investment and prices are not going to go down, people are reluctant to buy.’”

“Many speculators got into the housing market to capitalize on the rapid appreciation. Now speculators are fleeing the market and potential homeowners are fearful of values dropping, he said.”

“In Baltimore and the five surrounding counties, standing inventory increased more than 61 percent in September compared with a year earlier, according to Hanley Wood Market Intelligence. When homes to be completed within one to six months are included, the number of unsold homes soared 130 percent, Hanley Wood said.”

“In Clarksburg, in Montgomery County, where many new home projects compete, Beazer dropped prices about $40,000 per house on single-family homes that were selling in the high $600,000 to low $700,000 range, said Dave Carney, Beazer’s division president for Maryland.”

“To generate interest in its homes, Toll Bros. has held weekend- long events in which it features special offers, such as making specific options available for $1. One event caught the attention of Deb and Joe Sundberg, a Howard County couple who were not looking for a new house since they had just finished major remodeling on their 19-year-old, four-bedroom home in Columbia.”

“But after seeing the spacious lots in Ellicott City, and attending a barbecue at the property off Route 108, the couple signed a contract on a $1.2 million luxury home with four bedrooms, two-story great room and a big foyer.”

“‘They were offering pre-model pricing for Phase I of the neighborhood, so this was a chance to get in on the ground floor, and the possibility of using this house to be our nest egg for retirement,’ said Deb Sundberg.’”

“‘We’re looking at it as an investment as well as a nice place to move.’”

“The Sunbergs became more convinced of their timing after taking a complimentary limousine ride to a Toll Bros. model home in Potomac for an evening of hors d’oeuvres that featured a talk by an economist who said it was a good time to buy.”

The Herald Tribune reports from Florida. “A downtown Sarasota property once slated to become a luxury condominium sold Thursday for $555,000 at a no-reserve, open-air auction. That price was nearly $200,000 less than the developer paid two years ago for the same piece of dirt and probably half what the land might have commanded during the peak of the real estate boom.”

“‘Sounds like he was operating on the greater fool theory,’ said Peter Magnuson, a Sarasota real estate investor, of the property’s owner. ‘It may be a ridiculous price, but somebody else will pay a more ridiculous price later.’”

“‘Thirty-five thousand vehicles per day drive by here,’ said auctioneer Michael Peters, attempting to squeeze a few more thousand out of the 20 or so people sitting in folding chairs under a white canopy tent. He then pointed out that the land was officially valued at more than $700,000 by the Sarasota County Property Appraiser.”

“But it didn’t work. The sacrifice sale is the latest indication of a real estate market that has gone into a severe correction after a boom that started in 2002 and pushed prices to sweeping highs by early 2005.”

“‘Clearly, there are a number of planned projects that are behind schedule, and some that people have dropped out of,’ said John Harshman, a Sarasota commercial real estate agent and downtown expert.”

“By buying the vacant Sarasota land in November 2004, the buyer paid nearly the most he could have, said Marvin Rose, a residential real estate consultant. ‘That was just about the peak of the Sarasota market,’ Rose said. ‘Sarasota came down in early ‘05, or started to come down.’”

“The average price of a condo in the Sarasota MLS acted like a roller coaster in the past couple of years. From $414,200 in August 2004, the price hit $526,000 in August 2005, before descending back down to $436,000 in August.”

“The auction price on the property worked out to a current downtown bargain of $71 per square foot. ‘Probably $100 a square foot is what people have been pegging in on downtown properties,’ said Joe Hembree, a Sarasota commercial real estate agent.”

“The property was likely the first piece of prime downtown Sarasota land to be sold through an open auction during this real estate cycle, Harshman said.”

“The event was advertised as an ‘absolute auction.’ That means that no matter how low the bid was, the buyer would be obligated to accept it, said Peters, the auctioneer. ‘That’s what an auction is all about.’”

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