November 14, 2006

“Times Are Changing” In California

Dataquick reports from California. “Last month was the slowest October for Southern California home sales in a decade. Prices continued to level off. A total of 22,117 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 22.4 percent from 28,489 for October a year ago, according to DataQuick.”

“‘It’s harder to buy a home if you think it might go down in value than it is if you’re convinced it’s going up,’ said Marshall Prentice, DataQuick president.’

The Union Tribune. “San Diego County’s housing price slide reversed course last month, DataQuick reported. September’s overall median of $476,000 was the lowest since February 2005. The inventory of unsold active listings was 35.9 percent higher than a year ago, standing at 20,416 homes.”

“But agents, brokers, lenders and all the other players in the housing industry shouldn’t uncork the champagne just yet, market watchers say. Ross Starr, a UCSD economist, said a ‘bicoastal housing recession” has developed in previously hot markets, including Southern California, South Florida and Las Vegas.’ ‘The bubble’s burst,’ he said.”

“The median price for resale single-family houses fell $10,000 in October, DataQuick figures showed. The $535,000 median was down $34,500, or 6.1 percent, from its all-time high of $569,500 set in May and is back to where it stood in March last year.”

The LA Times. “DataQuick analyst John Karevoll cautioned that L.A. County’s rate of price appreciation could turn negative at the end of this year or early next year, as it has been for several months in San Diego County.”

“‘It’s not the end of the world. It might be uncomfortable for those who bought at the peak if they have to sell,’ he said.”

“The median home price in L.A. County peaked in July at $520,000. It dipped the next two months, hitting $509,000 in September, before rebounding last month (to $514,000).”

“In Ventura County, home prices dipped 2.3% to $582,000. Sales fell 19.6% to 940. In Orange County, the region’s priciest market, the median price rose 3.1% to $625,000, which was the same median a month ago. Sales declined 24.9% to 2,715.”

“The Inland Empire counties of Riverside and San Bernardino, where prices were still rising by double-digits as recently as this spring, also showed marked slowing. In October, the median in Riverside rose 4.9% to $410,000, but was off its peak of $423,000 reached in September. Sales fell 24.2%.”

“San Bernardino’s median price was flat with the median price set last December. Sales declined 21.3%.”

The Contra Costa Times. “Robin Anderson’s home here was on the market for six months with no offers when her real estate agent decided to quit. The Andersons’ home started off on the market in February at $525,000, dropped to $485,000, and only a handful of people had looked at the house.”

“After moving into a new home and paying three mortgages (two firsts and a second), the Andersons were in a hurry to sell. ‘All the real estate agents said the same thing, that nothing’s selling and nothing’s moving,’ she said. ‘Then one of the agents suggested the auction.’”

“‘It really was scary,’ she said of the idea of putting her house on the block for a minimum bid of $299,000. ‘But at least with this option we knew it would sell.’”

“The Andersons had to move and soon began looking at new homes in the Oakdale area. They received great buyer incentives for their new home, including thousands in free upgrades when they bought a new home in February for $425,000.”

“The only problem was the same thing was occurring in Discovery Bay, where their resale home was competing with new construction with up to $100,000 off. The reality of paying two first mortgages and a second became a stark reality. ‘In the market right now, I don’t think there is an ideal situation,’ Robin Anderson said. ‘The ideal situation is hanging on until the market turns, but that wasn’t an option for us.’”

“The auction of the Anderson home took only four minutes in front of the house on a recent Saturday afternoon. The winning bid was $434,500. The Andersons received $395,000.”

“Home auctions increased 4.5 percent in the third quarter from last year, said Erica Brown,of the National Auctioneer’s Association, making it the biggest growth sector in the industry, even surpassing charity auctions. ‘People are sick of their home burning a hole in their pockets while they sit for six to eight months,’ she said. ‘Now, they’re increasingly going to auction.’”

“‘Times are changing,’ said Ann Galassi, who owns two houses in Discovery Bay’s Country Meadows subdivision, mentioning that she could not sell one of her homes for what she paid for it a year ago.”

“Steve LaRocque, owner of the Pacific Auction Exchange franchise in Pleasanton, said the next auction is scheduled for Dec. 2, where his office will auction off several parcels from San Mateo, Sonoma, Mendocino and other counties in Foster City.”

“LaRocque said that they have turned down many customers who ask him to auction their home, since many are in debt for more than 100 percent their loan value.”

“‘The auction process won’t work for them because no one will pay that much for the house,’ he said. ‘Homes that are 110 percent of the value of their home are difficult to sell through a real estate agent or auction process.’”




“It’s Darwinist Times” In Las Vegas

The Deseret News reports from Utah. “The number of building permits issued for new houses, condominiums and apartments is falling across Utah, but in Utah County permits are skyrocketing, according to a new report.”

“Many Utah cities have seen the number of residential permits issued this year drop dramatically. Permits in St. George fell 43 percent in the first nine months of 2006, compared with that period in 2005. In Herriman, permits fell 50 percent. West Jordan was down 31 percent.”

“However, Chris Gamvourulous, president of biggest homebuilder said, the company remains concerned over the ‘investor presence’ in the Salt Lake market. ‘We think in our communities we are going to be OK, but it just depends on how individual builders and developers deal with it in their individual communities,’ Gamvourulous said. ‘If they refuse to sell to speculators and investors, then their communities will probably be OK.’”

“‘We’re optimistic, but we are very cautious,’ Gamvourulous said. ‘Just because things are transacting doesn’t mean they are real. It could be speculators. There are recisions.’”

“‘We’re still not building too many houses relative to the population and the numbers of jobs that we have,’ economist Kelly Matthews said. ‘But we have to be cognizant that clearly what’s going on nationwide and what’s gone on in Phoenix, Las Vegas and even St. George probably will have some bearing here along the Wasatch Front.’”

The Review Journal. “Developers of the 41-story Allure luxury condominium tower plan to build a second, substantially taller tower on the 5-acre site on Sahara Avenue, one block west of the Strip.”

“It’s been boom, bust, boom,’ (developer) Steve Fifield said. ‘In 2005, we were in a boom period with presales. It was too good to be true. Now we’re reporting a slowdown in sales and traffic. We all jump on the bandwagon and say it’s a bust. Public home builders are unloading land. They’ve got an unsold inventory of homes.’”

“‘Las Vegas does have an overhang of housing, but that overhang is coming down quickly. There’s only 280 (high-rise) units available for sale, so I think we’re at the end of the bust,’ he said.”

“Research firm Applied Analysis reported 95,647 existing or planned luxury condo units in Las Vegas as of October, including 1,152 existing units on the Strip and 4,795 under construction. ‘It’s Darwinist times,’ said developer Richard Worthington. ‘Only the well-positioned, well-located, well-capitalized are going to be successful in the near term.’”

“‘The hard thing about condo-hotel is it doesn’t pencil out from an investment standpoint,’ Applied Analysis principal Jeremy Aguero said. ‘It’s problematic from the consumer side. We’ve heard some buyers grumbling about the money they’re getting back (on condo-hotel rentals).’”




“It’s All About The Pipeline”

A housing report from the Idaho Statesman. “The inventory of vacant single-family residential construction lots and unsold speculative homes rose dramatically in the third quarter of this year, according to a recent survey. The survey’s author and veteran Treasure Valley builders believe the increases will provide potential home buyers with more options, which in turn will help drive area home prices lower.”

“The survey, by a local Web site that tracks new subdivisions, vacant lots and unsold spec homes in the Valley, showed that 7,740 lots got preliminary approval in Ada County during the third quarter, bringing the total number of available lots to 25,883.”

“Recent industry statistics show that the drop in area home sales during the third quarter shaved 3.5 percent off the median price of an Ada County home between July and September. The median price at the end of September was $240,000.”

“Wayne Forrey, director of development for Kastera Homes in Eagle, said the growing inventory of building lots and unsold homes means the turnaround for the home building industry will not be immediate. ‘It’s going to take a while to absorb all of that (inventory),’ Forrey said. ‘And the high end housing market will be slowest to recover. We have a disproportionate number of homes priced over $300,000. But we don’t have many buyers at that price range.’”

“The Treasure Valley area housing market will remain strong as long as Idaho employment growth remains among the strongest in the nation, said Don Hubble, owner of Hubble Homes in Meridian. ‘Another problem is that most of the jobs being created are in the $35,000-a-year range, which are not top-paying jobs. And that is going to limit the parts of the market that people can afford,’ he said.”

The Morning News from Arkansas. “After a five-year bull run in area residential home construction and record real estate prices, the latest evidence suggests a construction correction is underway. The University of Arkansas report found that while the housing pipeline remains clogged with an oversupply of unoccupied homes, the overall number of building permits dropped more than 60 percent in the year-over-year quarter.”

“Rogers saw the biggest decline with 305 permits in the third quarter of 2005 dropping to only 71 in 2006, a drop of almost 77 percent. Permits for Fayetteville and Bella Vista also fell sharply by 125 percent and 122 percent, respectively.”

“One factor seen as a step in addressing the oversupply of upscale housing inventory was the declining average home value for the permits issued. A year ago, Bentonville’s home value permits were priced near $225,000. More recently, the permit averages are for homes priced at $177,000, according to the report.”

“Rogers saw home permit values drop by nearly $50,000 to an average of $162,734 in the most recent quarter.”

“Kathy Deck, associate director for the Center for Buinesss and Economic Research, said the present oversupply is a result of too many builders in the game. ‘While builders may only start a few projects at time, the present abundance is an aggregated effect. There have been so many houses completed that even our strong growth can’t absorb them all,’ she said.”

“‘While there is a public perception of greedy sellers, we have found that many times it’s just a matter of what they have invested in the property,’ (realtor) Austin Bivens said.”

“Some sellers have reduced prices in their homes with values over $300,000, he said. ‘I have seen more than one seller cut the price to move the house and then have had to take a check to closing to make up the shortfall,’ he said.”

“Bivens said more recently he has witnessed a tightening in appraisal values under the direction of local lenders. ‘I had a contract with a buyer, but it didn’t close because the appraisal came in too low. I relisted the property and quickly got another buyer and again the appraisal was short. On the third try, I finally got the deal closed.’ Bivens said.”

“Tightening appraisals produce a forced price reduction. Property can’t be sold if the bank says it’s not worth the asking price, he added.”

The Arkansas Democrat Gazette. “The increase in the number of completed but unoccupied homes in Benton and Washington counties is part of a booming building cycle that will continue for the next six months, the lead researcher on the Skyline Report said.”

“‘It is all about the pipeline,’ Kathy Deck said. ‘But we are beginning to see the market forces do what we were expecting it to do,’ she said.”

“The inventory of unoccupied houses rose most dramatically in Benton County, where an increase of 229 percent to about 2, 200 was reported in the third quarter of 2006 from the same quarter of 2005.”

“In Washington County, the increase was only 17 percent, or about 600 in the third quarter of 2006 compared with the third quarter of 2005. There were 2, 956 unoccupied houses reported in both counties.”

“‘Yes, there is an oversupply, but we are seeing a lot of activity,’ broker Meza Harris said. But the general price of some houses is down, Harris said. Harris said the phenomenal growth of housing prices and demand over the past two years has become an accepted, and expected, perception of Northwest Arkansas. ‘We’ve gotten used to the success. We just got spoiled,’ she said.”

“‘That is, of course, what inventory does. It drives down prices and puts more pressure on all the market’s properties,’ Deck said. ‘That is the market at work. And that is true in most economies, not just in real estate,’ she said.”

“The number of new housing starts dropped to the lowest point recorded in the two-year study, to 204. The number of lots approved for active subdivisions in the third quarter was 19,543, meaning a supply of lots sufficient for 112.9 months at current market demand.”




“Conditions Not Seen In Many Years”: CEO

Some housing bubble reports from Wall Street. “D.R. Horton, the largest U.S. homebuilder, said Tuesday that quarterly profit fell 51 percent as orders declined, but results topped forecasts. Net sales orders for new homes fell 25 percent to 10,430 from 13,950, while the dollar amount of these orders fell 33 percent.”

From MarketWatch.”The latest quarter included charges of $142 million, or 28 cents a share, covering inventory impairments as well as $57.2 million, or 11 cents a share, covering write-offs of deposits and pre-acquisition costs related to land-option contracts that the builder doesn’t intend to pursue.”

“During the conference call Tuesday, D.R. Horton’s management said the company’s cancellation rate rose to 40% from 29% in the third quarter, underscoring the pullback in the housing market. Gross profit margin on home-sales revenue in the fourth quarter before inventory impairments and land-option write-offs fell to 20.9% from 25.4% a year earlier.”

“‘This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year,’ said CFO Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.”

“Fellow builder Technical Olympic USA Inc., meanwhile, said it swung to a third-quarter loss of $80 million, from the profit of $70.3 million it generated in the same period a year earlier. The Hollywood, Fla.-based company said the results included $203.9 million in charges resulting from the write-down of assets including investments in joint ventures, write-off of deposits and abandonment costs, and inventory and goodwill impairments.”

“The company said its gross profit margin as a percentage of home sales dropped to 17.3% in the third quarter from 27.6% a year earlier. Technical Olympic revised its 2006 profit outlook to a range of $62 million to $72 million on the expectation of ‘continued difficult market conditions.’ CEO Antonio Mon said the forecast does not include additional impairment charges or deposit write-offs.”

“Land sales gains (excluding $20.0 million of write-offs of deposits, abandonment and impairment costs) recorded during the third quarter 2006 were $1.1 million compared to $29.9 million in the prior period.”

“‘These results reflect the continued deterioration of conditions in most of our markets throughout the third quarter,’ said Mon. ‘The record level of inventories of new and existing homes combined with diminished buyer confidence has created housing conditions not seen in many years. Our weaker markets continue to experience similar patterns of lower traffic, increased cancellations, higher incentives, and lower margins.’”

“Home sales gross profit was impacted by higher incentives and $29.8 million (or 500 basis points) of asset impairments recorded in cost of sales for homes. Incentives per delivery increased 180% to $22,400 in the third quarter of 2006 from $8,000 in the third quarter of 2005.”

“The Company’s unconsolidated joint ventures reported a loss of $119.4 million for the three months ended September 30, 2006 primarily due to impairment losses of $143.6 million related to the Company’s investment in the Transeastern joint venture and $4.8 million relating to the Company’s investment in a Southwest Florida Joint Venture.”

“Home Depot Inc. on Tuesday reported a 3 percent drop in third-quarter profit, and sharply cut its forecast for earnings growth this year as the U.S. housing slowdown crimps spending on big-ticket projects.”

“‘I don’t think we’ve seen the bottom yet,’ Home Depot Chairman Robert Nardelli said. ‘I don’t see anything that suggests it’s going to get significantly better in ‘07.’”

From Origination News. “Fieldstone Investment Corp., Columbia, Md., has reported a loss of $45.0 million for the third quarter, compared with net income of $23.0 million a year earlier. The company, structured as a real estate investment trust, is the parent of nonconforming lender Fieldstone Mortgage Co.”

“Michael J. Sonnenfeld, CEO, said the loss resulted from increased reserves needed to cover delinquencies of the newer loans in its portfolio and continued market pressures on sale margins.”

“Servicing initiatives include accelerated intervention on delinquent loans, engagement of a delinquency- and loss-mitigation monitor for 2006 production, and elimination of high-delinquency products. ‘We have not reduced our credit quality nor changed our pricing discipline to increase originations, and we have eliminated the lowest-credit, highest-risk loans from our guidelines,’ Mr. Sonnenfeld said.”




“Too Many Homes, Not Enough Buyers”

The Flint Journal reports from Michigan. “The housing slump appears to be taking its toll even here in the lap of lakefront luxury, with for sale signs going up and prices coming down, if only to a point; sellers still would like a cool $2.6 million for that three-fireplace dream house, on N. Long Lake Road.”

“That’s just a sampling of the glut of homes for sale on Lake Fenton, where one resident recently counted 181 ‘for sale’ signs. On Margaret Drive, along the lake’s northwest side, at least 14 homes are on the market.”

“‘I’m going to wait until things go back to normal,’ said Langdon Mayhew. ‘It’s just gotten this bad in the last year. There are an unusually high number of signs.’”

“‘People are living closer and closer to their income level, and a lot may be in over their heads,’ said (realtor) Mary Ann Tremaine. Tremaine, who has listings in the area, said she’s not shocked the nationwide trend, too many homes, not enough buyers, has hit Lake Fenton.”

“‘What does surprise me is that so few are being sold,’ she said.”

“Flint Area Association of Realtors CEO Doris Nurenberg said the slow housing market was bound to affect once-sought-after lakefront properties. ‘The areas that are the hardest hit were booming 18 months ago,’ she said, adding that asking prices may have to drop before ‘Sold’ signs start popping up. ‘There’s a bottleneck of houses for sale, but people want the prices from two years ago.’”

“James Lozon has lived on Lake Fenton for 30 years and said he’s been blown away by the number of properties on the market. ‘This is the most signs ever,’ he said.”

The Star Tribune. “The Twin Cities housing market had a case of the sags in October; sagging prices, sagging ranks of listings and sagging numbers of closed sales.”

“After more than five years of commanding double-digit price increases in some areas, declining prices are an indication that buyers truly have the upper hand in the market and sellers are finally budging on price.”

“One of broker John Andersons’ clients recently bought a house for $75,000 less than the original asking price. ‘After five years of being tough to buy, it’s a great time to buy,’ he said.”

“Some sellers have no choice but to cut their prices to attract attention. Meanwhile, buyers have plenty of options. During November there are expected to be 9.84 homes on the market for every expected buyer. That measure is up 57 percent from the same time last year.”

“The price declines also could be a reflection of changes in the upper-bracket market, which… facing a serious oversupply issue. According to the weekly market report by the Minneapolis Area Association of Realtors, during October there was a 20-month supply of houses priced at $1 million or more.”

The Journal Sentinel from Wisconsin. “More homeowners planted ‘for sale’ signs around the Milwaukee area in October, but fewer home shoppers agreed to pay for their removal.”

“The four-county region’s existing-home market is suffering a double whammy of rising supply and waning demand, industry officials said Monday. They cited Metro Multiple Listing Service’s report of 1,548 resales last month, the slowest October in three years, as 3,186 new listings hit the market.”

“‘It’s sellers who have to get acclimated. I tell them, ‘You have one house to sell, but buyers have many to choose from,’ said Tammy Maddente, board president of Metro MLS.”

“It’s payback time for buyers, real estate agents say. In this year’s first 10 months, metro Milwaukee sales are down 4.8% and ‘for sale’ offerings are up 16.1%, MLS figures show.” “‘Our biggest difficulty is keeping deals together,” said Maddente. ‘When something (bad) comes back on an inspection, they want to reopen negotiations.’”

“Deals are being made, sometimes at a snail’s pace, ‘as sellers become more realistic,’ said Mike Ruzicka, president of Greater Milwaukee Association of Realtors.”

“The secret to selling a home successfully in this year, said Howard Loeb, broker-associate in Mequon: ‘Price right, present well - and be open to negotiation.’ ‘Buyers like a seller who’s flexible,’ Loeb said.”




Bits Bucket And Craigslist Finds For November 14, 2006

Please post off-topic ideas, links and Craigslist finds here.