November 16, 2006

“A Return To Reality, Not A Market Crisis”

The Appeal Democrat reports from California. “After years of almost surreal rises in home prices, home sellers and builders in Northern California are being sobered by the cold bath of a slowdown, and the Yuba-Sutter area is no exception. According to Mid-Valley agents, the contraction…reflects a return to reality, not a market crisis.”

“‘The self-fulfilling prophecy is the opposite of what we had in the good market,’ said Lloyd Leighton, a Yuba City broker. ‘The herd mentality drove prices higher than it should have; now it’s causing them to drop probably farther than they should.’”

“October home purchases fell 31 percent from October 2005 and median selling prices sank from about $310,000 to $280,000, while the projected time to sale for newly listed houses more than doubled, to 9.3 months. Crimping homeowners’ ability to charge top price are major homebuilders with the will and financial means to cut prices on new houses, as well as a jump in the number of foreclosed homes being resold by banks, he said.”

The Sacramento Bee. “In a sign that Sacramento-area home values are still searching for a bottom, October sales prices across much of the region again posted the biggest year-to-year declines in California, statistics released Wednesday show.”

“Placer County topped California in September with a 14.3 percent price decline from the same month a year ago. In Sacramento County, the median sales price of $354,000 for all homes and condominiums was down 8.1 percent from October 2005, DataQuick reported.”

“‘You’ve had people who have probably reconsidered and investors who have turned to renting their homes,’ said (broker) Bob Bronswick. ‘During the fourth quarter, there is a pullback, and this year is not going to be any different,’ added Anthony Graham, analyst at Lyon Real Estate. ‘Obviously, there’s a lot more withdrawn listings because of the overabundance of supply.’”

The Press Democrat. “Sonoma County’s housing downturn deepened in October as prices fell for the fourth consecutive month and homes continued to languish on the market. The median price for resale homes was $565,000, down 4.2 percent from a year ago.”

“Prices also fell in July, August and September, making this the longest stretch since a six-month decline in prices that began in fall 1994, according to The Press Democrat’s monthly real estate report. County home prices peaked at $619,000 in August 2005 after an eight-year run of strong sales and record prices.”

“‘This market is top heavy with overpriced properties,’ said Ted Horsman, broker-owner in Santa Rosa. ‘If I bought a home today, I’d use a little bit of caution. Shop, there’s nothing wrong with that.’”

The LA Times. “It’s familiar: A handful of Californians make a killing on investments, and their tax payments send state revenues soaring. Lawmakers go on a spending spree, without a plan for paying the bills when fortunes turn.”

“California is once again on budget quicksand. ‘I’m at a loss to see how they are going to balance this budget,’ said Stephen Levy, for the Continuing Study of the California Economy in Palo Alto. ‘The state got bailed out last time around by a surprise revenue surge. That is unlikely to happen again.’”

“The bubble in the housing market that began to deflate after tax receipts that fueled this year’s spending were tallied. Now, analysts say, inaction may come back to haunt the state. The influx of cash ‘we’ve seen in the last couple of years could go in the other direction…’It is just a question of when,’ said Brad Williams, an economist (with) Elizabeth Hill, the Legislature’s nonpartisan budget analyst.’”

The Desert Sun. “‘I think the real story in terms of California’s economy as well as the nation is what is happening in the real estate industry,’ Hill said. She noted that the real estate industry…makes up 15 percent to 20 percent of the state’s private sector economy.”

“The slowdown in this industry was the largest single factor in a sharp decline in personal income growth, resulting in a drop in withholding tax payments from over ten percent in the first half of 2006 to less than five percent in the third quarter, Hill reported.”

“‘California has been hard hit by what has happened in the overall real estate sector,’ she said. ‘That is the main reason we see the softness in California’s economy through 2007 and the rebound in 2008.’”

The Daily News. “The San Fernando Valley’s residential real estate market continued weakening in October with home and condominium sales well under the year-ago level, a trade association said Wednesday. Last month homes sales fell an annual 22.7 percent to 771 transactions, the lowest level for the month since 642 sales in 1992, said the Southland Regional Association of Realtors.”

“The median house price increased an annual 1.7 percent in October, or $10,000, to $610,000, a record for the month. But it was $15,000 shy of June’s all-time record of $625,000.” “At month’s end there were 6,791 houses and condominiums listed for sale, a 6.7-month supply at the current sales pace and up 58.7 percent from a year ago.”

“‘There are no panic sales, no one is losing money,’ said Jim Link, executive VP at the Van Nuys-based association. ‘All that has been lost is the madness and the quick profits. Those days are gone.’”

The Daily Press. “The Victor Valley real estate market has mirrored the rest of Southern California. Sales for new houses in San Bernardino County fell as much as 25.8 percent in September compared with September 2005, according to DataQuick. Those same DataQuick numbers suggest the median price of new homes sold in San Bernardino County decreased 4.1 percent between September 2005 and September 2006.”

“Broker Caroll Yule of Victorville, asserted that local buyers have been biding their time until they saw the market wouldn’t slide anymore. ‘Buyers are waiting for someone to tell them the market is stabilizing. But the prices are still falling,’ she said, ‘Wouldn’t you wait and see what happens?’”

“Yule’s inventory soared from 200 houses in the summer of 2004 to 4,600 listings in the middle of this year. Now, she said, her inventory has dropped to about 4,000, a sign home owners once blinded by thoughts of instant real estate treasures have become more realistic and taken their houses off the market.”




“It’s Tougher To Sell Everything” In Arizona

The East Valley Tribune reports from Arizona. “A house was sold Tuesday for what may be the highest price ever paid for a residential property in Scottsdale. The home was sold for $10 million, said broker Bob Hassett.”

“The 27,000-square-foot Scottsdale home was built in 1994 and cost more to build 12 years ago than it was sold for on Tuesday, Hassett said. ‘The replacement cost in today’s market would be about $30 million,’ he said.”

“The owner originally sought $35 million for the property, but the price had to be reduced to sell, he said. ‘Despite what has happened in the marketplace, it still is the most expensive house ever to sell out here,’ Hassett said.”

“R.L. Brown, a Valley housing-market analyst, said he was not surprised that the seller had to lower the price because the high end of the market has been affected by the same pressures as lesselaborate homes.”

“‘Right now, it’s tougher to sell everything,’ he said. ‘The reason is the expectations of the sellers are often out of whack with the reality of the marketplace.’”

“At the high end of the market, there are not many properties available, but there also are not many buyers, he said.”

The Arizona Republic. “Emily and John Craiger are among more than 100 homeowners Valley-wide who were left with unfinished projects when Sunvek, one of the Valley’s biggest names in residential remodeling and roofing, filed for reorganization Sept. 18 in U.S. Bankruptcy Court.”

“‘We’re furious. Remodeling your home is tough enough without something like this happening,’ John said. Some homeowners had signed contracts with Sunvek and put down deposits but never saw the work start.”

“‘It took everyone by surprise, that is how quickly the decision was made,’ said Lori Ramirez, Sunvek’s controller. ‘But we had to call it what it is.’ Sunvek quickly asked the federal Bankruptcy Court to release it from more than 100 unfulfilled contracts, saying they ‘are of no benefit to the bankruptcy estate.’ Judge Charles Case agreed last month.”

“Homeowners may get something back when the bankruptcy case wraps up, but lawyers consider that unlikely. The homeowners are considered unsecured creditors, who are among the last groups to be paid in bankruptcy cases.”

“Years of poor financial performance, aggravated by an inability to raise prices in a competitive market and topped off by a huge state sales-tax bill, sank longtime Valley roofer and remodeler Sunvek, according to its controller.”

“The company tried to keep going until the end, however. Bankruptcy filings paint a picture of an enterprise that in its final year was slow to pay its bills and an owner who periodically pumped in money to make payments.”

“‘Just because the economy is booming doesn’t mean all businesses are doing well,’ controller Lori Ramirez said.”

“Despite its shaky finances in the past few years, Sunvek couldn’t raise prices because few customers were willing to pay over the going rate for projects, Ramirez said.”




OFHEO To “Avoid Disrupting The Market”

Some housing bubble news from Wall Street and Washington. Origination News, “Subprime lender ECC Capital Corp., Irvine, Calif., posted a stunning $54 million loss in the third quarter, citing loan buybacks and early payment defaults. Through the first nine months of the year, the publicly traded nondepository lost almost $80 million.”

“ECC said it is continuing to “experience higher levels of repurchase claims generally relating to early payment defaults.”

“Williams-Sonoma Inc. on Thursday posted lower third-quarter profit and cut its outlook for the fourth quarter due to weak demand for home goods.”

“‘We are increasingly concerned about the ‘home-related’ macro-economic environment, as well as the competitive landscape,’ CEO Howard Lester said.”

From CNN Money. “Economists think it’s looking more and more likely that the Federal Reserve will hold interest rates steady for quite a while, maybe through all of next year. So investors hoping for a rate cut in 2007 may need to kiss that wish goodbye.”

“‘There’s no reason to assume that inflation pressures will come down quickly so it’s very unlikely the Fed will ease anytime soon,’ economist Chris Probyn said.”

From Bloomberg. “Central bankers and finance ministers from the world’s 20 largest economies may say inflation risks have increased amid the fastest global economic expansion in decades, raising the specter of higher interest rates.”

“‘They’re more concerned about inflation than growth,’ said Jean-Michel Six, chief European economist at Standard & Poor’s. ‘There will be more hikes from the European Central Bank and the Bank of Japan. The Federal Reserve will pause, but it won’t cut rates until the second half’ of 2007.”

From Reuters. “The conforming loan limit for mortgage finance giants Fannie Mae and Freddie Mac will be frozen for a year if national home prices decline in 2006, the Office of Federal Housing Enterprise Oversight said.”

“The agency said it was anticipating a drop in average home prices since September’s average price saw a 3.1 percent decrease from a year earlier.”

From MarketWatch. “James Lockhart, director of the OFHEO, said the decision to freeze the limit was made to avoid disrupting the market.”

“‘If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,’ he said. ‘We want to make sure that guidance exists to avoid disrupting the end-of-the-year pipeline of mortgages or the market for mortgage-backed securities.’”




“Ever More Bargains Loom”

The Miami Herald. “Luxury high-rise developers who last year flooded the market with irrational exuberance have a quieter pitch these days: ‘Never mind.’ And those families who were in the way of the phantom behemoths? That’s really too bad. Several were pushed out last year from Bayfront Manor on Northeast 31st Street to make way for ICE2.”

“Now they’re gone and so, apparently, is ICE2. The number for the sales center listed on the website has been disconnected. ‘My understanding is that the projects are canceled,’ said broker Nate Cohen, who once was involved with the original project.”

“The fantasy of high living has given way to the unglamorous truth of life in a subtropical, hurricane-lashed coastal republic. Today, while developers shrug about a ‘normal downturn,’ addicts shoot it up in their failed projects.”

“Through it all, the city of Miami has sat perched like the Cheshire cat on the bay. What do they have to show for it? On the way to being a world-class city, Miami finds itself once again having to dip into reserves to balance the budget.”

“Commissioners just can’t help themselves. Last week, over neighbors’ objections, they voted 4 to 1 to approve plans for yet another paper giant on the bay.”

From Miami Today. “A broker in our pages last week blamed the media for the residential real estate slide. And a developer wrote to us that press warnings of a condo bust had killed the market here and driven him out of it. Folks, don’t shoot the messenger.”

“The press didn’t build tens of thousands of condos, then contract with speculators who now are stuck with units, or might never close. Unlike our developer friend, we never wrote to another newspaper that Miami’s condo bubble could never, ever burst, that prices would rise forever.”

“We aren’t the ones who told potential buyers that they could resell condos for 20% or 40% more in a year with only a down payment actually out of pocket. We aren’t the ones who are still building tower after condo tower, flooding the market with housing while Multiple Listings Service sales have fallen nearly a third and some smaller brokerages are shaky.”

“Seven columns in this space in 2+ years warned that more than 100,000 planned Miami-Dade condos were a full decade’s supply. If timely warnings helped slam brakes on a market that experts now admit was about 80% speculators and only 20% real residents, good.”

“The press would have been far more culpable if we’d seen a train wreck coming and hadn’t raised a warning signal.”

“In the end, of course, someone will occupy every new condo. But it turns out that the condos we’re still building at a record pace are going to be bargains as residences when purchased at proper prices. Meanwhile, the City of Miami and others keep on approving plans for still more massive high-rise condos. Which means that ever more bargains loom for buyers who plan to live and enjoy where they buy.”

From News 11 Alive in Georgia. “One couple got a $500,000 condo for $300,000. Just five minutes later, another man got the same model for just $278,000.”

“Hundreds of people showed up at the Sheraton Hotel in Buckhead to bid on condos at the View at Chastain. Right now there are 9,000 condos for sale in the city of Atlanta and plans in the works for 17,000 more.”

“While analysts say the burst of the housing bubble does not include Atlanta, when it comes to condos there is no denying there is a glut on the market. So why do investors keep building thousands more when the existing buildings aren’t even filled? They’re counting on more people from the suburbs to…choose urban living.”

The News and Observer from North Carolina. “Sales of new homes in the Triangle climbed only a fraction as fast in the third quarter as in 2005, and a sharp fall in building permits suggests further cooling in a housing market that has set records each of the past two years.”

“‘We’re definitely in a period of adjustment,’ said Bernard Helm, president of (the firm) which compiled the report.”

“‘They’re still selling their homes, just not as fast,’ said Hal Adams, division president for Bill Clark Homes. Bill Clark has lost two sales a month since August because potential buyers moving to the area have trouble selling their homes in other markets, Adams said. But because lot purchases haven’t declined, he expects the construction pace to pick up in mid-2007.”

The Charlotte Observer from North Carolina. “Doug Boone, owner of Boone Communities, said too much investment can be dangerous but that he hasn’t seen ‘runaway prices’ in the region. Boone, whose company sells empty housing lots to developers, has seen an influx of investment in the NoDa and Belmont neighborhoods, but mostly they are buying inexpensive fixer-uppers.”

“In his circles, he heard homeowners wondering aloud how high they could price their homes. They eventually had to lower expectations or take their homes off the market, he said.”

“‘The Market is rational,’ he said. ‘When you start to hear irrational statements, then the market’s about to turn.’”

The Gulf Breeze News. “‘New Orleans looked good,’ says Susan Moody, Montgomery Realtors. ‘The convention was huge and we received so much great information to better serve our clients. We are really seeing a pricedright market, and the volume of homes on the market offer more choices for our buying clients. The market will come back, and in the mean time the value of homes is still appreciating.’”




“All That Bubble Talk Isn’t Coming From Nowhere”

The Record reports from New Jersey. “When the housing market gets tough, sellers offer incentives. In Demarest, builder American Properties of Iselin is offering to park a Maserati (worth about $125,000) in the garage for any buyer who forks over $2.2 million to $3.6 million for a new luxury town house in a 34-unit complex in a French chateau style.”

“Offering the car is better than simply cutting the house price by $125,000, said spokeswoman Karen Kessler, because ‘our buyers are not looking for a bargain; they’re looking for some pizazz and some excitement.’”

“Incentives are popular for a number of reasons. For one thing, they are a bit more dramatic than the standard price cuts, although many sellers who use incentives also have cut prices.”

“But incentives can be easier for builders to swallow. ‘The fact that they’re giving back $10,000, $20,000 or $30,000 in extras somehow seems a little more psychologically palatable than taking down the $500,000 sign and putting up a $470,000 sign,’ said Michael Schonberger, an adjunct professor of real estate financing at Rutgers University.”

“At the Bellaire project, seven of the 34 town houses have been sold since the sales office opened last spring. Several would-be buyers are being held up because they can’t sell their own houses, said Deborah Deck, project director.”

“Occasionally an individual seller gets in on the act. In Bergenfield, for example, the seller of a raised ranch recently began offering to pay half the buyer’s property taxes for two years. ‘If a seller needs to sell, why not offer something to attract a buyer?’ asked real estate agent Lourdes Garcia in Englewood, who is listing the house for $429,999, down from the original asking price of $459,900.”

“The taxes on the three-bedroom house are high, she said, more than $12,000 a year. So offering tax relief seemed to make sense. But so far there have been no takers.”

The Press of Atlantic City. “The region is seeing more sheriff’s sales. New Jersey has seen 23,272 foreclosures so far this year, or about 63 percent more than all of last year.”

“Cape May County Sheriff John Callinan’s office has sold 114 Cape May County properties at auction through November compared with 95 all of last year and 91 in 2004. Ocean County, too, has seen more auctions: 150 so far compared with just 99 in all of 2005.”

“The downturn in the real-estate market has scared off most speculative investors at sheriff’s sales. ‘It went from competitive to cutthroat. Now the market is starting to drop down,’ said Ocean County Undersheriff Wayne Rupert. ‘Almost all of the properties we’ve sold have gone back to the bank or lender. The local investors are holding off until values level off.’”

The Hartford Courant. “In Connecticut, business has slowed considerably from the hectic pace of recent years and prices have flattened in many areas. Home construction is slowing. Now, there’s a new specter: foreclosure.”

“Foreclosures in Connecticut climbed 9.7 percent, to 3,514, between April and June, compared with the same three months in 2005, according to the Warren Group. The dreaded f-word can send a shudder through anyone who lived through the most recent recession in Connecticut. In the early 1990s, foreclosed property selling at a discount helped contribute to plummeting home prices at a time when there was a glut of residential property for sale.”

“‘People’s ability to pay is being stretched,’ said Donald Klepper-Smith, an economist in New Haven. ‘A lot of people are overextended, and it’s very easy to get into a foreclosure situation.’”

“More than any other time, the past five years have seen the proliferation of all kinds of mortgages that permitted borrowers to put little cash down and stretch their budgets to get them into a bigger house than was perhaps wise.”

“And with flat prices, it’s now tougher to refinance, especially if homeowners have already tapped into equity for improvement projects or college tuition bills.”




Bits Bucket And Craigslist Finds For November 16, 2006

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