The Housing Bubble

Dataquick reports on California. “Bay Area home sales held steady at a five-year low in October as buyers and sellers circled each other in a game of wait-and-see. A total of 7,979 new and resale houses and condos were sold in the nine-county region in October. That was up 0.9 percent from 7,907 for the month before, and down 24.1 percent from 10,508 for October last year, according to DataQuick.”

“‘The market is in the midst of its post-frenzy rebalancing phase. The sky is probably not falling, as some have predicted. But there will be those who bought near or at the peak, and who could find themselves in financial trouble if they need to sell and move sooner than they had planned,’ said Marshall Prentice, DataQuick president.”

The Contra Costa Times. “The 1,586 homes sold in Alameda County represented a 27.5 percent drop from a year ago, as the median home price increased 1.2 percent to $578,000. In Contra Costa County, 1,658 homes changed hands in October, a 21.2 percent decline from a year ago, as the median price dropped 5.4 percent to $544,000.”

“The 653 homes sold in San Mateo County were off 13.4 percent from a year ago, as the median price dropped 1.8 percent to $745,000.”

The San Francisco Chronicle. “‘There’s some turbulence here as the market continues to rebalance,’ said DataQuick analyst Andrew LePage. ‘We had a huge shift this year in the supply of homes for sale and the level of demand. It’s clear there’s less demand. Many buyers who are out there and interested are on the sidelines waiting to see if prices will fall more.’”

“New homes experienced the biggest price decline, down 7.9 percent for the Bay Area as a whole.”

The Noe Valley Voice. “Noe Valley homebuyers took advantage of a retreating housing market to purchase real estate at less than full price in September–the first time that has happened in years. Randall Kostick, Zephyr’s general sales manager, said one home in the $2 million range sold for 5 percent below the asking price. And buyers closed escrow on a $1.1 million home, for 14 percent below its initial price tag.”

“The lower sales figures and long waits were examples of ‘both sellers and realtors not taking into account that the market is not what it was a year ago,’ Kostick said. ‘If you overprice your home or don’t price it correctly, it just sits there.’”

The Daily Bulletin. “‘Certainly buyers are apprehensive, and in some neighborhoods that have high fees or homeowners association memberships, prices may actually fall. But overall, the only ones that aren’t selling are the ones priced higher than they should be,’ said Bill Velto, manager of Tarbell Realtors in Upland.”

“San Diego saw prices fall 5.5 percent to $485,000. ‘We’re really watching the condominium market down there,’ regional economist Jack Kyser said. ‘And I’m somewhat concerned about condos in downtown L.A. as well.’”

The Orange County Register. “Bob and Sara Bell put their Silverado Canyon house on the market in May, hoping to move to a bigger home. Six months and $81,000 in price reductions later, they pulled their one-story house off the market, opting to stay in their 1,100-square-foot home until the market improves.”

“‘We didn’t get any offers,’ Sara Bell said. ‘We decided it just wasn’t the time to sell.’”

“The Bells are among a growing number of sellers who are keeping their homes, or renting them out, rather than selling in today’s buyer’s market, industry insiders say. That resulted in a slight decrease in the number of homes for sale.”

“Last month also marked the first four-month price drop in the 19 years that DataQuick has been tracking local housing. It also was the 12th straight month in which sales were worse than the year before, and the worst October in 13 years. And with 2,715 homes soldOctober’s sales were well below October’s average of 3,530 homes sold.”

“Prices for existing houses and condos also have declined steadily in the past several months. The median price for existing houses, for example, fell $40,000 after hitting $705,000 in May, a 5.7 percent price drop in the past five months, according to DataQuick.”

“Condo prices fell by almost $30,000 since hitting $469,750 in March.”

“Sara Bell of Silverado Canyon doesn’t think buyers will be ready until next spring or summer. She and her husband plan to take out an equity line of credit and start fixing up their home to attract a buyer when the market returns, she said.”

“Waiting makes sense, she said, after learning that a home comparable to theirs sold in the $450,000 range, nearly $140,000 less than their original asking price. ‘If we have to go down to $450,000, we wouldn’t be able to afford (a house) anywhere else,’ Bell said. ‘So we decided to stay crammed in here.’”

Some housing reports from the Boston Globe. “The housing downturn in Massachusetts will last longer, and prices will fall further than first projected, according to an economic forecast released yesterday. Housing prices will slide by as much as 10 percent from their 2005 peak before hitting bottom in early 2008, according to the forecast by the New England Economic Partnership.”

“A year ago the nonprofit research group forecast prices would decline less than 3 percent, bottom at the end of 2006, and regain their peaks in early 2008.”

“But Alan Clayton-Matthews, the University of Massachusetts at Boston professor who prepared the forecast, said job growth isn’t strong enough, and mortgage rates aren’t low enough to so quickly offset the main reason for the correction: Home prices outstripping incomes.”

“‘Once prices start declining there’s a lot of force to keep going until they are more in line with income,’ said Clayton-Matthews, adding that it’s difficult to predict where housing prices will go. ‘That’s what we saw in the late ’80s and early ’90s.’”

“Foreclosure filings against Massachusetts homeowners surged to nearly 13,000 through September, already surpassing 2005’s count. Filings increased 54 percent in the first nine months of 2006, compared to the same period last year, according to a monthly report.’”

“‘I don’t think we have hit the peak yet,’ predicted Jeremy Shapiro, the president of ForeclosuresMass.com.”

“More than a dozen communities, from Fitchburg and Athol not far from New Hampshire to Springfield near the Connecticut border, had at least 40 foreclosures per 10,000.”

“During the accelerating housing market, many people were desperate to buy a house, and credit was easy, though many could not afford the mortgages, once the adjustable rates began to increase, housing specialists and counselors said. In central and western Massachusetts, where house prices historically were low but took off during the boom, property flipping and investment scams compounded problems.”

The Telegram. “The Massachusetts economy is…still lagging behind the nation and will not likely recover all of the jobs it lost in the last recession until 2011, according to economists. The problem is a slumping housing market, which endangers an economy that is pumping out more exports, adding a small number of jobs, according to Alan Clayton-Matthews.”

“‘We expect these (housing) declines to be deeper and longer’ than the nation, said Mr. Clayton-Matthews, who described the state’s housing correction as ‘a very dark cloud.’”

“The difficulty with housing is that investors have been pulling out of the sector, home construction outpaced demand in recent years, homeowners extracted cash from their homes by refinancing and lenders delayed a collapse by offering mortgages with adjustable rates and interest options, economist Mark Zandi said.”

“About 20 percent of all of the nation’s $2 trillion in mortgages is due to reset to new interest rates in the next two and a half years, Mr. Zandi said. Another concern is whether foreign investors, who have purchased large amounts of mortgages, will maintain their appetite for investing in debt, he said.”

The Christian Science Monitor. “When she put up a new ‘for sale’ sign two weeks ago, real estate agent Mary Ellen Wasielewski had some unusual advice for the sellers: Give the buyer money to build a garage.”

“The family lives in the Boston suburb of Medway, where homeowners enjoyed a seller’s market not so long ago. But now the tables have turned. For a deal to happen, buyers must be pleased on every front. With the snow and slush of winter just around the corner, Ms. Wasielewski says no garage probably means no sale.”

“‘The buyers are out there. I see the same ones coming around,’ she says. ‘They’re not willing to pull the trigger until [they find] the perfect equation of the condition and the price.’”

“‘It’s all pricing,’ says Kenneth Hawkins, who has seen four real estate downturns in his four decades selling homes in Milford, Conn. ‘The new ones on the market draw the most attention, and if they’re priced competitively - maybe even a little bit below [the market] - that’s the incentive for people to buy.’”

“Even after sellers have made the wrenching decision to lower the listing price and offer other incentives, buyers are likely to ask for even more concessions in negotiations. ‘It’s a very emotional process,’ says Wasielewski. Many sellers ‘believe when they get to the negotiating table that they have already lost’ and don’t want to give up more money.”

Some housing bubble reports from Wall Street, New Orleans and Washington. “The slowdown of the U.S. housing market will last through 2007 as inventories are pared enough to prompt a change in consumer psychology, the CEO of the nation’s biggest mortgage lender said.”

“Mortgage lending has slowed as rising inventories in the housing market led to a ‘hard landing’ for the industry after a decade of strong growth, Countrywide Financial Corp. CEO Angelo Mozilo said at a conference in New York. ‘We have another year of adjustment, or ‘transition’ in the industry until consumers believe home prices won’t decline, Mozilo said.”

The Globe and Mail. “First, Americans quit buying homes. Now, they may have stopped fixing and furnishing them too. Bob Nardelli, Home Depot’s CEO said job losses in the home construction market are the worst he’s seen in 35 years, and the pain is starting to spread to the home renovation market.”

“‘The loss of jobs…in the home construction market is at unprecedented levels,’ Mr. Nardelli told analysts. ‘Home builders [are] basically writing off earnest money and liquidating land. We’re starting to see a lot of that unemployment find its way over to the small repair and remodel contractors.’”

“In October, U.S. retail sales fell at an annual rate of 0.2 per cent, the third consecutive monthly decline, according to a U.S. Commerce Department report yesterday. ‘The housing slowdown left its grimy fingerprints all over this report,’ economist Douglas Porter said.”

“‘People are being very cautious,’ said economist Ian Shepherdson. ‘The housing crunch is now hurting.’”

The Star Telegram. “D.R. Horton’s earnings fell for the second quarter in a row. Horton has been…making aggressive cuts in its red-hot growth strategy and realigning management positions for a bear market, said Gregory Gieber with AG Edwards. ‘It’s like sailing and thinking it’s going to be a gale, when it’s going to be a hurricane,’ he said. ‘I think when they saw what was going on, they reacted very strongly.’”

“The moves included: Eliminating three COO positions in October. Reducing speculative inventory by starting 46 percent fewer homes than a year ago. Getting out of options to buy land and writing down costs on land purchased at higher prices.”

“‘This was the first write-down of inventory for Horton and we expect more going forward, given the continued market erosion,’ wrote Daniel Oppenheim, analyst with Banc of America Securities.”

The Dallas Morning News. “The new-home market faces at least six months of further declines, predicts Don Tomnitz, CEO of Fort Worth-based D.R. Horton Inc, the country’s largest builder. ‘We believe calendar year 2007, especially quarter one and quarter two, will be more challenging than the past three quarters,’ Tomnitz said.”

“‘I’d say we are in the early stages of a declining market,’ he said in a conference call. ‘Most of these downturns are longer and deeper than we envision at the beginning.’”

“‘We continue to operate in an increasingly challenging housing environment, as is evidenced by our increasing cancellation rate,’ he said. About 40 percent of Horton’s home purchases were canceled in the most recent quarter. The company said that about half the homes it has under construction have no buyer.”

“Horton said its biggest sales declines have been in Florida, down 51 percent, and California, down 39 percent. In Texas, sales were down 15 percent.”

From Newsweek. “For the last few autumns, when America’s real estate agents met at their annual convention, much of their shoptalk focused on navigating the red-hot housing market. What a difference a year makes.”

“The much-celebrated real estate boom has officially ended; nationally, economists now say, the housing market peaked in August 2005. ‘The biggest question I’m faced with is how far do prices have to drop and how long will it take for the correction to finally turn around in [those] markets. I don’t have an answer,’ NAR chief economist David Lereah says, conceding that those markets could stay soft into 2008.”

“But he counters that falling prices, while unpleasant for homeowners, are really a good thing, because lower prices will spur more buyers to make offers, and the resulting sales will help not only commission-hungry agents, but…other ancillaries that make housing such a vital prop to the economy.”

“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own. This slowdown (is) an anomaly, which makes it hard to predict where things will head next. Says Lereah: ‘You’d have to go back to the Great Depression to find a housing period that is this unique.’”

From Business Week. “‘We just don’t know how much further the housing downturn has to go,’ St. Louis Fed president William Poole said, according to Bloomberg News. ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’”

“Fed policy makers are now giving the housing market what Poole called ’special attention,’ the report said. The housing market is seeing ’significant price softness’ and may be weaker than it appears, Poole said, according to Bloomberg.”

A Washington Post from the Washington Post. “A dramatically slowed housing market has disappointed home sellers and left real estate agents waiting for the phone to ring. The Washington area remains one of the most expensive places in the nation to buy a home. Still, over the past year, as the number of available homes for sale has climbed, prices have flattened or fallen.”

“The decline in prices is most evident in the District and Northern Virginia, according to figures released last week. The median price of all types of houses and condominiums sold in the District dropped 12 percent in October from the same month a year earlier, dropping from $425,000 to $375,000, according to the region’s MLS.”

“Prices fell 6 percent in the same period in the close-in Northern Virginia suburbs, dropping to $458,850 from $490,000, according to MRIS. ‘The shoe is on a different foot,’ said Diana Whitfield, an agent in Burke. ‘Buyers are realizing they are more in control.’”

“Daniel Moshinsky still can’t afford the home he would like. Now, though, he is ‘hopeful,’ he said. ‘I hope prices keep falling a little bit longer. So far they haven’t fallen enough to be affordable.’”

“The decline in prices is making other buyers wary. Scott McCrimmon has been studying the market for a year, since he and his wife moved to the Washington area from Miami. They are renting a house in Germantown and will wait to see what happens in the spring. ‘I have a strong suspicion the market is still a bit overpriced,’ McCrimmon said. ‘There may be some basis for why others are not buying, so I’m holding back, too.’”

The Baltimore Examiner. “Data from MRIS show the number of houses sold in the region fell 22.29 percent. ‘Carroll and Howard counties showed a downturn,’ said John McClain, an economist at George Mason University. That downward movement, he said, is ‘most likely due to the fact that those areas feature higher-priced homes.’”

“‘High-priced homes are taking longer to sell, as buyers proceed cautiously in light of the softening market nationwide,’ McClain said.”

“In the region, the number of days a house stayed on the market climbed to 70, a 79.49 percent jump from the same month in 2005, according to MRIS data. In Anne Arundel County, it’s 81 days, up 97.56 percent.”

“The average selling price in Carroll County in October was $352,995, down 4.76 percent from October 2005. In Howard, it was $416,736, down 2.11 percent for the same month a year ago.”

“In the popular Baltimore City neighborhood of Federal Hill, the numbers are staggering. The average sale price of a home fell 3.11 percent in October, to $246,261 from $254,163 the same month a year ago.”

“The total number of homes sold during the month — 71 — was down 26.04 percent from October 2005. And the average number of days on the market skyrocketed 238.24 percent to 115 days.”

“Local governments across the region are considering cutting spending or raising taxes in the coming year because of a decline in revenue growth caused by the housing downturn. Officials in Arlington and Prince William counties and Alexandria said yesterday that they are projecting budget shortfalls.”

“Maryland officials said they are seeing sharp declines in recordation and other tax revenue connected to the housing market.”

“Local governments in Virginia by law cannot run budget deficits, so to balance their budgets for the fiscal year that begins July 1, officials must make up millions of dollars in shortfalls by cutting spending or raising taxes.”

“In Loudoun, officials are warning of spending cuts, likely in schools, or an increase in the tax rate…for such public projects as schools, firehouses and roads. Loudoun led the region this year in the growth of property assessments at 28 percent, but housing assessments are forecast to plummet to negative figures during the 2008 budget year, officials said.”

“‘The situation has deteriorated a little bit and is expected to deteriorate further,’ said Loudoun budget manager Ari Sky.”

“Houses are taking more than twice as long to sell, and the average price of a home in Northern Virginia last month was $524,236, a 4.7 percent drop from the previous year.”

“Because of the steep drop in taxes linked to home sales, council member Marilyn Praisner said she warned the school system and the public works department to be ‘cautious about asking for anything new’ in next year’s capital budget.”

The Palm Beach Post reports from Florida. “The newest single-family home community in the village will add 264 high-end homes to the State Road 7 corridor at prices once found only in Wellington’s large-lot communities. A partnership between Centex Homes and Engle Homes, is planning to build the community.”

“Some real estate agents privately bemoaned the development of more homes in an already-saturated market. The Florida Association of Realtors show a 47-month supply of homes for sale.”

“Homes in the community, named Castellina, will range from $600,000 to $1 million for 3,100 to 6,070 square feet of space. The $600,000 starting price is almost double that of Palm Beach County’s current median sales price of $365,500. But Castellina will be in good company. Last week, the Realtors’ MLS showed about 170 houses with roughly the same asking prices in neighborhoods along State Road 7.”

“‘A million-dollar home doesn’t have to be a $700,000 home that’s now priced at $1 million just because the market says so,’ Lewis Birnbaum, division president of Centex Homes said. ‘There’s a lot of homes on the market whose prices are really inflated.’”

“Housing analyst Jack McCabe said Castellina presents challenges. ‘These are very large houses with minimal distance between them,’ McCabe said. ‘My own opinion is this is going to be a very challenged project.’”

The Tampa Tribune. “Undeterred by the cooling housing market, a Tampa developer wants to build his third condo project in the growing Channel District. Ken Stoltenberg has proposed a 120-unit condo tower in the heart of the Channel District.”

“‘You have to look out into the future,’ Stoltenberg said. ‘You can’t look at what’s happening over the past three months and extrapolate what’s going to happen for years.’”

“Steven Bartlett, president and owner of the Spring Hill-based Coral Bay Homes, has turned himself into the Hernando County Jail after a warrant was issued for his arrest last week. With more than $1,000,000 in claims from 134 victims, investigators say Coral Bay Homes could be the largest home building scheme in Florida.”

“Home builders need to take responsibility for their financial state, Assistant State Attorney Phil Hanson said ‘A builder can’t be an ostrich and stick his head in the sand,’ he said. ‘They can’t say I didn’t know where I stood.’”

“With Florida’s soaring housing market coming in for a landing, government economists said Tuesday the state will have lower tax collections next year than previously expected. The state’s consensus estimate for next year’s incoming general revenue dropped by $466 million on Tuesday, almost entirely because of the slowdown in what had been a booming housing market.”

“Economists have noted the slowing housing market, and have warned for more than a year that the pace of sales would soon slow. ‘This is just more intense than what we anticipated,’ said Amy Baker, for the Legislature. She said that while the housing market is cooling off nationally, the retrenchment is hitting Florida particularly hard because of lots of speculative home building here.”

The St Petersburg Times. “Michael Cremeans opened his business in March this year with $50,000 and a whole bunch of hope. His Owl’s Nest Cafe was smack in the heart of Pasco Professional Place, a New Port Richey building that is also the headquarters for developer Lexington Homes.”

“Three weeks ago, his hopes died. He had to close his cafe after Lexington Homes laid off 80 of its 135 employees. ‘I depended a lot on Lexington,’ he said. ‘The building emptied out. At some point, I said, ‘I’ve got to stop the bleeding.’”

“Developers warn the worst is yet to come, as they expect to build about 40 percent fewer new homes next year. Major builders, like Ryland Homes, say it won’t be until 2008 that the residential market picks up again.”

“Some retailers are already postponing plans for more stores, dallying where they would have rushed in before. Last month, Wal-Mart put on hold plans to build a supercenter in Dade City because the company wanted to see more ‘maturation’ in the housing market there, its officials said.”

“As for developers, Lexington Homes is not alone in laying off employees. Builders big and small, from Pulte Homes to Southern Image Homes, have slashed their work forces. Down the production chain, contractors and subcontractors are hurting too.”

The Sun News from South Carolina. “More homes on the market and price cuts make today’s housing market ripe for first-time homebuyers, real estate agents say. ‘Get the Facts’ will be a one-hour free informational session held tonight in Conway. Mortgage giant Freddie Mac created the ‘Get the Facts’ program.”

“‘A 20 percent down payment and perfect credit are no longer the industry standards for getting a mortgage,’ said Theresa Ross, certified consumer credit counselor at the resource center. ‘Today, in most situations $500 is all an individual needs to put down in order to purchase their first home.’”

“Ross said it’s important to look at your budget and decide what kind of mortgage payment you can afford. ‘We want people to be able to live in their homes and not for their homes. Lenders always qualify you for more than what you can afford,’ she said.”

“Rachel Broadhurst said her company recently held a first-time homebuyer workshop. ‘It’s time for them to start to looking around because there’s some good buys coming up out there right now. People are trying to get rid of inventory so there’s a lot to choose from,’ Broadhurst said. ‘Prices are down and there’s more to choose from,’ she said.”

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