The Housing Bubble

It’s desk clearing time for this blogger. “If you are squarely in the ‘blame the media for the housing slowdown’ camp, you are going to love this. The vast majority of Americans are optimistic about what will happen with home prices, according to a nationwide survey.”

“‘The poll clearly debunks the more sensational media reports speculating on the demise of the housing market,’ says David Pressly, president of the National Association of Home Builders, which commissioned the survey.”

The Sydney Morning Herald. “‘The softness in the outer suburbs of Sydney is really biting,’ said John Symond, the founder of Aussie Home Loans. Symond says credit has never been easier to obtain in his 30 years in property. ‘We have never before seen lenders offer 100 percent finance in a softening property market,’ he says.”

“‘I reckon that over the last two or three years those who have borrowed more than 95 per cent [of the purchase price of the property] are in negative territory,’ he says.”

The Globe and Mail. “When Stephen Webber and his wife put their Vancouver-area townhouse up for sale in September, they expected to close a deal within a month. After several open houses, nearly a dozen private showings and two price cuts, they’re still waiting.”

“‘It seems there is a lot of supply out there. Buyers have more choices. There is not that rush. And there might be hesitation because of what’s going on in the States,’ Mr. Webber says.”

“The sizzle has gone out of Calgary’s housing market as rising inventories and cautious buyers have ended the bidding wars and soaring prices that marked the first half of the year. Price reductions of $40,000 or $50,000 have become common, realtors say, and some top-end buyers have even tried to back out of deals after realizing they may have overpaid by hundreds of thousands of dollars.”

“‘Anybody who thought it was going to continue forever was smoking something funny,’ said John Riseborough, a 23-year veteran of the industry in Calgary.”

The Star Telegram. “More than 12,000 Tarrant County homeowners faced foreclosure this year, a record high. This month, the North Texas Real Estate Information System reported that home sales declined in eight of the year’s first 10 months.”

“Jim Brown, who has published the Tarrant County Foreclosure Report for more than three decades, said the numbers are high because borrowers have adjustable-rate mortgages. Many foreclosures are on high-end houses and occur the same year the loan was taken out, Brown said. ‘I don’t see any help or effort being made to stop this. It’s going to continue.’”

The Arizona Daily Star. “The state’s jobless rate still increased, albeit slightly, in October. The state’s housing market has been in the doldrums recently as the speculators stopped investing and housing prices flattened - and, in some cases, actually declined. The big difference, said economist Don Wehbey, is that home builders may not be making as much on the homes as they were before.”

The Arizona Republic. “Verrado developer DMB Associates Inc. announced Thursday that Vancouver-based resort developer Intrawest Corp. let expire an option to buy 56 acres within the Buckeye community. Late last year, the housing market and economy were booming. Now, both have slowed.”

From KCPW News in Utah. “After several years of record growth, Washington County’s population boom seems to be cooling a bit. Ken Sizemore of the Five County Association of Governments says it’s because of housing: ‘It’s a function of the housing market, the fact that housing prices escalated so rapidly during the year,’ says Sizemore. ‘So it’s not a function of land or water or roads. It’s mainly market forces.’”

The Columbian from Washington. “Scott Mikel, a Vancouver real estate broker, said some buyers may be waiting for prices to drop. Those conditions are difficult to explain to home sellers who still want to list homes at top-dollar, he said. The market just isn’t where it was six months ago, he said. ‘If they purchased (the home) last April or May, that was probably at the top of the market,’ he said.”

The Reporter. “Solano’s real estate market has seen the steepest decline in the Bay Area, whose nine counties averaged a 24.1 percent year-over sales decline in October, as did the Northern California region. Despite the sales downturn, broker Bob Dorsett said, ‘The sky is not falling at all, by any stretch of the imagination.’”

The Fresno Bee reports from California. “Housing sales in the Fresno area this year are at their lowest level since 1999. The steep drop-off in activity combined with a glut of houses for sale has left would-be home sellers shaking their heads in disbelief.”

“‘Some sellers have been stuck on March 2006 prices and are still there,’ said Ken Neufeld of London Properties. ‘Those do need to fall.’”

“Investors and so-called equity refugees from the Bay Area and elsewhere who helped drive up values in the Valley have left the scene, which has contributed to the slowing market. And prices have not fallen to the point where first-time home buyers can enter with enough force to make a difference. ‘Most of us couldn’t afford the house we are living in,’ Neufeld said.”

The LA Times. “A Times review of approximately 100 residential and commercial developments downtown shows that about 20% are behind schedule. ‘It has gotten to the point where with … huge construction costs combined with huge land costs and a flat sell-out rate, it just doesn’t pencil out anymore,’ said Mark Tarczynski, a senior VP at CB Richard Ellis.”

“Some experts are skeptical about several huge projects announced with much fanfare, including a 50-story condo development near the Civic Center and twin residential towers near the Harbor Freeway.”

“The delays and cost fluctuations mean that Related will not pre-sell condominiums in the first phase until at least mid-2008. ‘I’d rather that it be then than today,’ said Bill Witte, president of Related California. ‘Clearly there’s a slowdown, not just in downtown…. People are on the sidelines waiting to see where the market is going to go.’”

“Witte said Related officials have told city and county leaders that the hotel in Phase One ‘is completely unfeasible’ without a 20-year rebate of the city’s hotel tax. ‘I want to ask, ‘Do the people of South-Central, East L.A. and the Valley have to subsidize yuppie housing downtown?’ said Joel Kotkin, a Southland author.”

The Voice of San Diego. “More than 2,800 new housing units have flooded downtown since July 2004, upping the neighborhood’s housing stock by nearly 30 percent. And construction cranes still stand over the downtown landscape as builders hammer out the nearly 2,400 more due by the end of June 2007.”

“The addition of Petco Park and higher-end condo complexes to downtown has attracted the yuppie and investor crowds to the area, economist Murtaza Baxamusa said. For some of them, their primary residence is elsewhere in the county, ‘that’s why you see a lot of dark lights downtown at night,’ he said.”

The Contra Costa Times. “Contra Costa, Solano and San Joaquin counties have the dubious distinction of making the top 10 list for foreclosure activity in California as homeowners struggle with higher mortgage payments and a slowing housing market.”

“Borrowers who took out alternative loans a few years ago are getting hit with higher payments, said Dave Konesky, a Realtor (in) Tracy. ‘I think a lot of it has to do with 100 percent financing. I think we are seeing the brunt of that coming back on us. All of those loans are coming back to bite us,’ he said.”

From CNN Money. “Like many other California renters in early 2005, Nick Basile and his fiancée decided to act. They snapped up a house last summer in the San Joaquin Valley town of Visalia where prices had already spiked 40 percent in the prior 12 months.”

“‘We figured we better buy before things really got out of control,’ says Basile.”

“The Visalia homes were being sold in a lottery process. ‘It was unreal,’ says Basile. ‘There were 50 families packed into a model home. We were shaking.’ The last name drawn, theirs, gave them the right to buy a home.”

“The couple ended up spending $329,000, which they financed with an interest-only ARM with a home loan for the down payment. They knew their salaries would cover the monthly payments and they reasoned that if they ever got in trouble they could always sell, at a profit.”

“What they didn’t count on was that they soon began to miss their native East Coast. This past summer they decided to move back and they put the Visalia house on the market in August.”

“They first priced the house, a three-bed, two-bath 2,150 square foot contemporary, for $409,000. That price drew nothing more than a few chuckles from prospective buyers. One of the main problems was their builder was still churning out these homes and, to move inventory, he was undercutting Basile and Neuffer’s (and every other seller’s) price.”

“‘The builder can’t give away the houses,’ says Basile. ‘He’s selling them for $324,000 with swimming pools, granite counter tops, spas, landscaping - all things we didn’t get.’”

“They kept dropping the price in $10,000 increments as they only attracted showed two showings in three months. They held an open house and nobody attended the first day.”

“Even if they rented the place, the numbers wouldn’t add up. ‘Our payment is about $1,700 and we could only get about $1,500 for it,’ says Basile. That doesn’t even take into account property management fees, taxes, lawn service and other expenses. They’d be awash in red ink every month.”

“They hired a real estate broker and lowered the price to $364,900, which, even if they get, will probably still leave them with a net loss after commission and other closing costs. Plus, they’ll be out a total of about $10,000 in prepayment penalties for paying off their mortgage and home equity loan early.”

“Now, if their agent doesn’t come through, they’re considering trying to find a friend to rent it on a short-term basis and then put it back on the market during the spring selling season. The ordeal may have made them a little more real estate savvy but Basile is not exactly kicking himself. ‘I still think it was a good idea at the time,’ he says.”

The News Press reports from Florida. “Foreclosures in Lee County jumped sharply last month as speculators gave up on land for which they overpaid and homeowners failed to keep up with their payments. In October, 352 foreclosures were filed in circuit court, up 48.5 percent from the 237 filed in September. That’s almost three times as much as October 2005.”

“‘In my opinion this is the market bottoming out with defaults,’ said mortgage broker Jeff Tumbarello in Fort Myers. ‘A lot of the foreclosures right now are failed speculative ventures, homes that never got built, where they bought them assuming it would continue to appreciate.’”

“But prices for residential property peaked in December 2005 as the median price for a single-family home in the county hit an all-time high of $322,300. In September, the median price was down 18.9 percent at $261,400, according to the Florida Association of Realtors.”

“The price of lots has dropped even more, Tumbarello said, noting that ‘there are now lots under $20,000 in Lehigh Acres,’ where it was hard to find one for less than $50,000 at the peak of the market.”

“John McWilliams, a real estate broker with Coldwell Banker Preferred Properties, said it’s not just lots in Lehigh that are losing their value. ‘Sad to say, the consensus feels that due to the plethora of 100 percent financing for entry-level homes, we expect to see an increase in foreclosures over the next six to 12 months,’ he said.”

“The problem, he said, is that a lot of people bought homes with no money down and also financed the closing costs. As a result, they might owe $240,000 on a house originally valued at $230,000 that’s worth even less now.”

“As foreclosures mount, the auction business is getting ready for a repeat of its heyday in the early 1990s when large numbers of Florida condominiums went on the block as prices plunged, said Carl Carter of J.P. King Auction Co. King already is getting inquiries and has hired a specialist to handle the auctions company officials expect will occur. ‘We’re preparing for a whole new business,’ Carter said.”

The Palm Beach Post. “New foreclosure filings in Palm Beach County nearly doubled last month as homeowners struggled with declining home values, plunging sales and soaring inventory, a report released Thursday shows.”

“The number of new foreclosure filings in Palm Beach County leaped to 866 from 453 in October 2005, RealtyTrac said, a 91 percent jump. In Martin County, foreclosure filings more than doubled in a year. St. Lucie County foreclosure filings, meanwhile, rose 28 percent over the previous October.”

“‘We have such a dramatic inventory glut in Florida - and such a disparity between prices and incomes - that there’s more work to be done,’ said Michael D. Larson, an analyst in Jupiter. ‘I don’t expect foreclosure activity to cool, or pricing weakness to end, until at least 2008.’”

From TC Palm. “The foreclosure rate in Indian River County more than tripled from 32 homes entering some stage of foreclosure in October 2005, to 109 this month, according to RealtyTrac. The highest rate on the Treasure Coast continues to occur in St. Lucie County.”

“Merle Dimbath, Treasure Coast economist, said the numbers have yet to reach a peak. ‘Unfortunately, this is going to take awhile to run its course,’ Dimbath said. ‘This might be a combination of people who took out home equity lines or had lower interest rates and are now seeing those rates rise,’ Dimbath said. ‘But this isn’t unique to just the Treasure Coast, I suspect is going on in Broward and Miami-Dade.’”

“Don Santos, past president of the Treasure Coast Builders Association, said he wasn’t surprised at the numbers. ‘Basically these are investors who can’t afford their second or third mortgages,’ Santos said.”

The Census Bureau has the new home numbers out. “Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,535,000. This is 28.0 percent (±1.2%) below the October 2005 estimate of 2,131,000. Single-family authorizations in October were at a rate of 1,173,000; this is 3.8 percent (±1.3%) below the September figure.”

“Privately-owned housing starts in October were at a seasonally adjusted annual rate of 1,486,000. This is 14.6 percent (±7.6%) below the revised September estimate of 1,740,000 and is 27.4 percent (±5.3%) below the October 2005 rate of 2,046,000.”

“Single-family housing starts in October were at a rate of 1,177,000; this is 15.9 percent (±7.4%) below the September figure of 1,400,000.”

From Bloomberg. “Housing starts in the U.S. tumbled in October to the lowest level in more than six years, as waning home sales and swollen inventories discouraged new projects.”

“‘This is a shocking number,’ said Phillip Neuhart, an economist at Wachovia Corp. ‘The market is going to remain weak well into next year.’”

“The decline was led by a 26 percent drop in the South. Starts also fell 12 percent in the Midwest and 2.1 percent in the West. Construction rose 31 percent in the Northeast.”

“The number of homes available for sale averaged 556,000 a month this year through September. That compares with a 457,000 monthly average for the same period in 2005 and 351,000 during the past 10 years, according to government figures.”

“‘The excess supply of homes on the market is putting downward pressure on prices and that’s making some potential buyers put off a purchase until the negative impact is finished or near finished,’ said David Berson, chief economist of Washington-based Fannie Mae.”

From Reuters. “Many economists had thought the worst of the housing slump had already passed, and data released earlier this week seemed to support that idea, but Friday’s data cast doubt on that view. ‘The raw number (housing starts) looks incredibly weak,’ said econimst Robert McIntosh.”

“Permits for future groundbreaking, an indicator of builder confidence, fell 6.3 percent to an annual pace of 1.535 million units, the lowest rate since December 1997, from a 1.638 million pace in September. Permit applications were down 28 percent from October 2005.”

From CNN Money. “Both housing starts and applications for new building permits tumbled well below Wall Street forecasts - a sign that the slumping housing market has not yet hit bottom.”

“‘Today’s figures clearly reveal that a quick turnaround in this sector is not just around the corner,’ said Anthony Chan, chief economist for JPMorgan Chase Private Client Services. ‘Any real turnaround may not be forthcoming until the central bank reverses course and begins to lower short-term rates again.’”

“There had been hopes from other recent real estate reports that perhaps the slump in home sales and home building had bottomed out. The National Association of Home Builders’ survey of builder confidence for November posted a modest increase for the second month, even though far more builders still saw the market as poor rather than good.”

The Chicago Sun Times reports from Illinois. “Home sellers in Chicago’s flagging housing market who are turning to auctions to unload their properties learned from a West Rogers Park auction that buyers will show up with checkbooks ready if the prices are right. About 75 would-be bidders were at a recent auction and watched as two new luxury houses, originally listed for $899,000, were bought for prices in the low $600,000s.”

“‘The ones that sold were in the low $600,000s,’ auctioneer Rick Levin said. ‘Then prices dropped below that, so the seller had the right to stop selling. This is consistent with what has been happening for the last seven or eight months.’”

“About three times as many anxious real estate sellers have asked the auctioneer for help moving their homes this year compared with last year, he said. Many are builders with a few units to move in a development or building. Others have luxury homes that are in less demand, he said.”

“Levin said the 75 people who attended the auction Wednesday ‘had come to buy,’ but the sellers were hesitant to sell at low enough prices. Said Levin, ‘The bet the developers were making was that the market would be better next year.’”

The Detroit Free Press. “In a dramatic sign of southeast Michigan’s lagging housing market, properties with opening bids as low as $30,000 will be offered Sunday in what is believed to be the largest-ever auction of its kind in Michigan.”

“Neumann Homes, a Chicago-based builder with extensive operations in Michigan, is trying to recoup its investment in the area by conducting a one-day auction of 87 homes, lots and condos in nine communities.”

“‘Every builder in the U.S. is facing a downturn, and everybody is left with excess inventory,’ said Laurie Tarver, division president for Neumann Homes in Michigan. ‘The bottom line is, no builder wants to do an auction, because it means you need to get the return quicker than you wanted.’”

“Neumann is putting 23 single-family homes, 24 condos and 40 building sites up for auction, including luxury homes and condos in Rochester Hills, Clarkston, Highland Township, Lake Orion, South Lyon, Milford, Southfield, Pontiac and Novi. Minimum opening bids will range from $30,000 to $200,000.”

“‘The advantage of having an auction as a builder is you have the opportunity to sell a lot of property in one day,’ Tarver said. ‘For consumers, it’s the deal of a lifetime. It’s definitely a buyers market.’”

“Bids for 21 of the homes, condos and lots will be sold on an absolute basis, meaning that they will be sold at the highest bid, regardless of the seller’s desired minimum bid.”

“Other Michigan builders are considering similar auctions. Jim Babcock, president of the Building Industry Association of Southeastern Michigan, recently put up for auction homes he built in Monroe. ‘It’s no secret that new home sales are slowing down and our members are doing all types of things to be creative and move product,’ he said. ‘Auctions are becoming more common.’”

“Permits in southeastern Michigan have fallen from 24,359 in 2004 to 7,429 for the first eight months of this year. But even as developers find it more difficult to sell properties, they say the downturn in the housing market is temporary and Michigan will be on the mend by 2008.”

“‘I think we’re right around the bottom of this cycle,’ said Robert Filka, CEO of the Michigan Association of Home Builders. ‘It will probably take another 12 to 18 months before things start to pick back up.’”

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