The Housing Bubble

The North County Times reports from California. “As Riverside County’s real estate boom fades in the rearview mirror, signs of housing hangover are everywhere. Just ask a real-estate agent who hasn’t closed a sale this year. Or representatives of Fox & Jacobs Homes, who are having to offer $10,000 incentives to move the last few houses off their books in in Lake Elsinore. Or homeowners who have reduced their asking price several times.”

“The oversupply of new houses and new real-estate agents suggests that the faster downturn of the last six months has taken builders, agents and buyers by surprise. The number of Southwest County homebuyers who defaulted on their mortgages nearly tripled in the July-September period from a year ago, to about 800.”

“Diane Holl, a Fallbrook agent who brokers sales in Riverside and San Diego counties, said she has seen several agents go all year without selling a single house. Many have recently invested in new suits of clothes, extensive advertising, and sometimes even a new car to ferry clients around. In a down market, those kinds of expenses make for a lot of angry husbands and wives, she added.”

“The Southwest Riverside County Association of Realtors membership has risen since then, even as the markets have slowed further. The group now counts 5,099 active members who are registered to use its listing service. ‘You do the math,’ said (realtor) Gene Wunderlich. ‘It doesn’t take long for the people to figure out they’re not making anything.’”

The Union Tribune. “For the sixth month in a row, San Diego’s index of leading economic indicators declined in September, dragged down by declines in home construction and a rise in unemployment filings, according to a report.”

“To economist Alan Gin, the weak housing market was the most significant indicator for where the economy is heading. New residential units authorized for construction through the end of September were 32 percent lower than during the same period in 2005.”

“Single-family homes were down more than 40 percent, while multi-family units, such as apartment buildings or condominium projects, were down 22 percent.”

“One reason for the slowdown is that there is currently a glut on the market. A study reported a 12-month supply of condominiums and attached homes in San Diego County, a surplus that has pushed the average price of an attached home 9 percent lower than last year.”

“Researcher Kelly Cunningham warned that the weakness in the housing market also would have an effect on retail sales.”

“‘During the housing boom, home refinancing really freed up a lot of money for consumers to spend,’ he said. ‘You’re not going to see that next year. Retail sales have already flattened out, and they may go down as people try to pay off their bills.’”

The Press Democrat. “Prices have dropped the past three months to $567,500, down from last year’s record of $619,000 for a median-priced home in Sonoma County, the first such decline in 12 years. The number of homes for sale is at a nine-year high.”

“‘Today the listed price is just a suggested asking price,’ said Belinda Andrews, an agent in Santa Rosa.”

“Neil Pacheco just about gave up hope after five months of shopping for a home. The monthly payments seemed prohibitive on the $484,000 house he was eyeing in Windsor. But then the slowing housing market turned in his favor. The seller, who had lowered the price by almost $6,000, knocked another $8,500 off the price tag, and then agreed to pay $10,000 toward closing costs.”

“Add in some creative lending help, and Pacheco and his wife got the house off Los Amigos Road. With the median home price dropping in Windsor three months in a row, their timing seemed right. Slightly more than half of their combined income will go toward their $3,100-per-month house payment. And that doesn’t cover insurance or property taxes.”

“But Pacheco believes he got a bargain by paying $475,500 for the house, which was listed for $489,900 when it went on the market in mid-September. Pacheco feels he did well on the 1,300-square-foot, three-bedroom house built in 1993, because it was appraised for $505,000.”

“In the end, their loan, actually a first and second mortgage combined, had a zero down payment and the Pachecos had to come up with only $700 out of pocket for some paperwork costs. Their monthly payment is more than three times the $1,000 rent they were paying for a two-bedroom apartment.”

“‘We know that we can do it,’ said Pacheco of the relatively steep house payments. ‘We want to work hard for this. We were working hard before.’”

The Sacramento Bee. “Alison Munro of Vacaville is among those who believe prices have further to fall. Others who bought late last year and lost equity, or who find themselves with a mortgage that allows too few other pleasures, are looking for help. Munro says she has friends in Benicia who took on roommates to help make payments.”

“‘It’s not that they couldn’t make the mortgage payment,’ Munro says. ‘But they couldn’t go on vacations in the summer.’”

“Growing numbers of financially troubled properties also represent new discount possibilities for buyers, real estate agents say. Foreclosures and short sales, where banks accept lower prices to avoid repossessing the house, are up. So is the number of bank-owned properties.”

“‘I know there’s at least 200 in our four-county area,’ says broker Carey Covey.”

The LA Times. “Welcome to a twilight open house, one more way to make a listing stand out in a market glutted with them. ‘With the market the way it is right now, you have to be a little more creative,’ said Priscilla Gonzales, who shares the Silver Lake listing with her daughter, Bautista.”

“The agents represent Joseph Lopez, who owns the two-bedroom, one-bathroom Spanish bungalow, listed at $660,000 for two months now. This is their second attempt at selling his 861-square-foot house. He asked $749,000 in January. After receiving no nibbles in eight months, he took it off the market, then listed it at the reduced asking price.”

“As the sky darkened, Bautista turned on tiny lights threaded through the leaves of potted trees. The sunset was not visible from the deck. ‘You can see the sunrise,” she said, pausing as her mind worked. ‘We should have a breakfast open house.’”

Readers want to hear your story. “How did the fence-sitters (waiting to buy) on this blog arrive at their decision? And did you have to face strong opposition from your significant other? If you did, how did you convince him/her to wait before purchasing a home?”

“I’m curious because I’m an accidental bubble-sitter. I started a home search in June, and was stunned and perplexed that condos and townhomes in desirable communities were sitting on the market for months. That’s what started my research into the housing bubble.”

“What’s your story?”

Another said, “Good topic — I’d bare all for that one.”

And another said, “I sold a condo WAY back in late 2001 (LA) for what I thought was a big profit. I had a work assignment abroad for about a year, so I figured I would buy a house when I returned.”

“By that time, the LA bubble had already started to get looney - fundamentals were already out of line. I eventually searched for answers on the phenomenon, and found this blog. Fence sitter ever since!”

The Boston Globe reports from Massachusetts. “When Stephanie Ward-Wilson put her Norwell home on the market for $820,000 last January, she never dreamed she’d have to go through more than one cold dark winter with a ‘for sale’ sign on her front lawn.”

“‘It was a very slow winter last year, especially the part of the winter that our house was on the market,’ she said. ‘We’ll leave the house on the market as long as we continue to have activity. If not, we’ll have to take it off. We have hit rock bottom on our price.’”

“The coming winter threatens to deliver another blow to home sellers who are struggling through a slow real estate market. Buyers for the most part seem to hibernate during this period. Just the uncertainty surrounding the status of the house, the financial worry and dread that looms over an anxious seller, risks disturbing an otherwise cheery holiday period.”

“Despite well-attended open houses, Ward-Wilson has not had a single offer on her four-bedroom Colonial. She acknowledged the house was ‘way overpriced’ initially, but has since lowered it nearly 15 percent, to $699,000.”

“‘I think a lot of buyers have been sitting back and watching to see how low the prices could go. Well, this is it,’ she said. ‘Hopefully, they’ll see that this is actually a great time to buy.’”

“Maybe so. But brokers said that sellers also have to make the most of this period, and, if they haven’t already, reprice their homes to reflect the lower adjustments in the market.”

“But a big obstacle in the current market is that many potential buyers are themselves also sellers, and so may be reluctant to purchase a new home if they fear they can’t sell their old one.”

“That did not stop Amy Green from purchasing her ‘dream home’ in Kingston recently. Now she is putting her current home, also in Kingston, on the market this month. She is planning to meet with her realtor and said she will ‘price it to sell,’ since she wants to move into her new home in January.”

“‘Of course there is always the risk — even if the house is well-priced — that it won’t sell as fast as you want it to during the holiday season,’ said Green. ‘For me, it was such a great time to buy that I didn’t want to miss out. It was a risk worth taking.’”

“Mike Spinelli has already moved out of his Windham, N.H., home, which is for sale for $899,000, but is confident the sprawling six-bedroom property will sell before the deep freeze sets in. ‘First, this house is worth well over a million dollars and everyone knows it,’ he said. ‘Second, I’m planning on offering the buyer $10,000 cash — more or less — depending upon the final sale price. In a soft market, you need gimmicks.’”

The Patriot Ledger. “Fetching a seven-figure price in a housing downturn takes more than just hiring a real estate agent and scheduling an open house. Some sellers are spending hundreds of thousands of dollars on renovations and hiring ‘home stagers’ to make their properties more attractive to potential buyers.”

“‘You have to go the extra mile in this market,’ said (realtor) Gail Bell in Hingham. ‘The home has to be priced perfectly, and it has to show perfectly.’”

“After originally listing the property at $1.6 million, developer John Nestel has shaved his asking price to $1.2 million in a nod to the local competition among luxury properties. There are 35 $1 million-plus listings on the market in Cohasset. ‘Two years ago, this house would have flown off the market at $1.6 million,’ Bell said.”

The Eagle Tribune. “Isabel Frias thought she was buying a home. Instead, she found herself saddled with a $3,000-a-month mortgage she could not pay working for $9 an hour. Eventually, Frias was forced into foreclosure on the three-family house on Andover Street.”

“‘It was a dream to buy a house in the U.S.,’ Frias told a group of bankers, state legislators and city and state officials.”

“She is not alone. So far this year, 236 buildings, mostly homes, have gone into foreclosure in the city. That’s up 20 percent from last year. As recently as 2003, only 56 foreclosures were filed in the city.”

“‘We’ve created a monster,’ said Peter Milewski, director of the mortgage insurance fund for MassHousing. ‘Credit is now readily available, but at what cost and what consequence?’”

“Juan Bonilla, a home ownership counselor for Lawrence Community Works, said many of the people he works with, who are unable to pay their mortgage, had no concept of what they were signing up for. ‘The common theme is, ‘I didn’t realize that I had an adjustable-rate mortgage. I didn’t even know what an adjustable-rate mortgage was. I didn’t realize I had an interest-only loan,’ Bonilla said.”

What do you see in your housing market this weekend? Have a graph to share? Slower market? “In a climate of nervous buyers and frustrated sellers, the average Baltimore-area home sales fell by more than 22 percent. It was the weakest October since 2000.”

“‘This has everything to do with buyer psychology,’ said Anirban Basu, an economist in Baltimore. ‘They’re nervous about buying at the peak of the market.’”

Developer problems? “In what appears the biggest Madison real estate scandal in years, a prominent development firm has collapsed amid a market downturn - leaving a trail of creditors, tax bills and disgruntled investors from Green Bay to Dallas.”

“Interviews and a review of public records have put PRDC’s debts at more than $20 million. That includes some $11 million owed to two lenders that helped finance Richmond Terrace, an upscale condominium project in downtown Appleton. ‘The whole house of cards has crumbled,’ said one attorney familiar with the case.”

“British Columbia is experiencing the slowly approaching end to its real estate market cycle due to astronomically high prices in the most expensive regions, Credit Union Central B.C. reported Friday. Economist HelmutPastrick said that this cycle shift is unique. ‘There hasn’t been a phase like this,’ he added, ‘in the sense that the market adjustment is price-driven, affordability driven.’”

From Alabama. “The Birmingham/Hoover metro area had a total of 878 properties in some stage of foreclosure in the third quarter, an increase of more than 70 percent from the second quarter of this year.”

“San Antonio had 3,788 foreclosed homes during the third quarter 2006. That equates to one foreclosure per every 145 households or 2.5 times above the national average.”

The Palm Beach Post reports from Florida. “It’s so over for Opera Place. Reps are telling buyers and at least one attorney that both of the project’s twin towers have been canceled. Buyers of the West Palm Beach project’s second tower already were notified their tower was canceled and their deposits were being returned.”

“Sadly, relations between buyers and developers are considerably worse at another unbuilt West Palm Beach condo project. Last week, 24 would-be buyers at Palladio Terrace filed a lawsuit in Palm Beach County Circuit Court. They are demanding Palladio developer Merco Group return some of their deposit money. The luxury condo on North Flagler Drive is stalled, with no building plans, no bank loan and not enough sales.”

“The Miami-based developer is knee-deep in another condo lawsuit, this one over a project in Miami-Dade County. There, about 60 buyers are suing because an entity owned by Merco hasn’t gone through with redoing the Deauville Hotel in Miami Beach into a condo hotel. ‘We lost the opportunity to invest in other projects by investing here,’ said Luis Maseda, one of the plaintiffs.”

The St Petersburg Times. “Not long ago, popular south Clearwater Beach was teeming with tourists. But those hotels and others were knocked down or closed in recent years to make way for nine high-end condominium and hotel projects, valued at $1.4-billion. And more closures are expected.”

“Somewhere amid the ‘condo boom,’ however, prices skyrocketed, the market softened, insurance rates escalated, and buyers vanished.”

“What was supposed to be a time of great optimism, of unprecedented construction on the famed beach, has given way to quiet and an uncertain future. It could be many years before the rooms, and the millions of dollars in business, return to the beach. ‘We might never make up for what we’ve lost,’ said David Little, a real estate agent and redevelopment chairman for the Clearwater Beach Chamber of Commerce.”

“The nine projects cover a nearly 1 mile stretch of S Gulfview Boulevard. Work on eight of them was to begin by the fall; the ninth was to start early next year. But all but one have stalled or changed.”

“The market soon became oversaturated. In April 2005, there were 1,430 condos on the market countywide, and about 62 percent were selling. In April, there were 6,100 on the market, with 5 percent selling. ‘People are saying ‘enough is enough’ and they’re walking away,’ said Ray Ferrara, president of a Clearwater-based financial planning firm. ‘The prices simply got ahead of themselves.’”

“Even if developers break ground early next year, many say they’ll still miss at least four tourist seasons. Rob Remeikis, who works at Big Kahuna’s Wave Runners and Parasail, said the delays already are proving costly. ‘This is going to kill the businesses out here,’ Remeikis said. ‘They’re building these condos and no one is buying them. It’s going to be a ghost town.’”

The Miami Herald. “The once spotless apartment is a gutted shell now, a place where junkies shoot up and urine saturates the carpet beneath layers of fast-food wrappers, tangled window blinds and broken glass. Five months ago, it was the tiny but pin-neat home of Martha Pomare and her two boys.”

“All around the dilapidated Cameo, new condo towers are nearing completion. But Miami’s overheated real-estate market has cooled, and projects that haven’t broken ground face increasingly difficult conditions. The future of those projects remains in question.”

“Many planned projects have stalled, Miami real-estate analyst David Dabby said. In many cases, those projects already had cleared out rental apartments and knocked the buildings down. ‘If they had known the projects were going to bog down, they would have kept the buildings and collected rents to offset taxes,’ Dabby said.”

“Inside the Cameo, the newest residents are sleeping off last night’s high. Nearly every apartment has been vandalized. Larry, stretched out on a lounge chair in a second-floor apartment, keeps headphones on to drown out the construction racket. He has lived in the complex ‘a couple months,’ he said.”

“Martha Pomare, the former tenant who lived a few doors from the apartment where Larry now sleeps, says that learning what has become of the complex stings. ‘We didn’t have to leave,’ she said. ‘We could have been there all this time.’”

The News Press. “Tom Baker rents a furnished three-bedroom, two-bath condominium in the Cross Creek neighborhood of south Fort Myers for $1,000 per month, there’s no way he’s buying anytime soon.”

“‘This is the most overpriced area in the world, almost,’ said Baker. ‘We make good money, but I’ll be damned if I’ll buy it just to throw it away.’”

“Baker is not alone, experts say. Last year’s wave of buying by investors followed by this year’s bust in prices left an oversupply of houses whose owners are willing to rent at discount prices. They have given up on selling them for a profit, for now.”

“The average rent for a two-bedroom, two-bath house in the Fort Myers area is $940, down from an all-time high of $1,041 less than a year ago.”

“That comes as the supply of unsold houses has ballooned to more than 12,000 in Lee County. The median price has dropped 18.9 percent from the all-time high of $322,300 in December 2005 to $261,400 in September.”

“‘For Rent’ signs are plentiful in neighborhoods in Cape Coral, Gateway and Lehigh Acres, where they were rare six months ago.”

“Keith Hopkins, a real estate agent in Naples, said there has been a change in the type of people choosing to rent. Renters once were people who couldn’t afford to buy, he said. ‘The renter has changed,’ Hopkins said. ‘They’re not renting because they can’t afford to buy. They’re renting because they think it’s prudent at this point.’”

“Lee and Collier counties have a combined total of 30,000 homes on the market. Drew Schlosser noticed a year and a half ago that he was having a hard time getting anyone to help him rent his properties. So he started a real estate practice specializing in home leases from Estero to Bonita Springs”

“Now Schlosser’s turning away would-be landlords because he has too much business. ‘We can’t take anymore,’ he said.”

“Randy Bacik, owner of Sanibel-based Royal Shell Vacations, said it’s not just new owners who are feeling the need to rent. He said he has owners who owe nothing on their condos but have to pay $35,000 to $40,000 per year in condo fees, insurance and taxes.”

“People are saying for the first time that they need to rent out their unit to defray those costs, Bacik said.”

“Also contributing to the glut of rental homes is the conversion of numerous Southwest Florida apartments into condominiums in the past three years, said Brad Hunter, of Metrostudy.”

“‘Most of the rental units got converted and now some of them are reverting to rentals and others are joining the shadow market for rentals, being rented out by the owners,’ Hunter said. ‘Some of those owners thought they’d make a quick flip and sell, and their fallback plan was always to rent.’”

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