The Housing Bubble

The New York Observer. “In 2005, Wall Street investment houses handed out a record $21.5 billion in year-end bonuses, according to the State Comptroller. This year may be even bigger. A very healthy bonus season means a very healthy Manhattan home-sales season in the spring, right?”

“Not really. While bonuses can pump up springtime prices, the effect on the volume of sales is more Wizard of Oz than Master of the Universe.”

“In the first six months of 2003 and 2004, despite widely varied bonuses the years before ($8.6 billion in 2002 versus $15.8 billion in 2003), the number of sales floated around 4,070, according to Miller Samuel. From the first half of 2005 through the first half of 2006, sales dropped by 270—despite 2005 being a record year for Wall Street bonuses, nearly $3 billion above the 2004 total.”

“‘If you take away our bonuses, our marketplace could be something like Miami or California, where they’re seeing a great deal of price depreciation,’ said Christopher Mathieson, the managing partner at luxury boutique JC DeNiro & Associates.”

From Vanity Fair. “This new architectural catwalk of ‘high-design,’ ‘high-concept,’ and ‘high-priced’ condo buildings doesn’t only fail to fit the vernacular of New York, it looks like a clearance sale from Europe and the Middle East.”

“‘Real estate is being marketed like fashion,’ an excitable young bedroom broker to the rich and famous told me in the back of his stretch limo. ‘Architects are the new couturiers.’”

“It’s a strange and lonely calling, that of the lifestyle salespeople for New New York. They wander the empty corridors like the friendly undead. All the undead Realtors are desperate for you to know the oddest things. They all begin with the ceiling height.”

“Salespeople haunt the empty apartment, spinning a life made of brushed steel and 12 shades of Indian marble. After a time, the repetition of this lifestyle blends all the apartments into one apartment. They all have minute, $100,000 kitchens that no one will ever toast more than a bagel in, which is just as well because there’s nowhere to sit and eat anyway.”

“There’s an overriding sense of impermanence. This is a fashion choice. No one will buy one of these gloomy spaces and say, ‘I want to have kids here. I want to grow old and die here.’ This is simply an investment opportunity with sleepover possibilities.”

“Whatever these New New York lifestyle brokers tell you about the sales and occupancy of these buildings, they’re lying. They want you to get aboard this vertical trailer park because they want you to have a cool, imported, classy, unique lifestyle.”

“All the salespeople believe the brochure. In truth, there is a swamp of unsold apartments. I’m told that many of the ones that are spoken for are speculative investments. They’ll stay empty for long weekends, through the summer and ski seasons. These blocks are constructed to be ghost towns echoing with the hum of unappreciated climate control.”

“Their gyms will have Fox News silently terrifying the unexercised machines. Their entrance halls, with their slinky, ergonomic space, will doze as the elevators wink.”

“This building boom isn’t a great expression of design and architectural excellence. It’s a massive speculation to relieve bankers of their bonuses, and bankers’ money is sterile. It buys peace and quiet and second-rate ideas.”

“New York is a city that was built out of risk and danger, with much more poverty and failure than riches and success. Fund managers kill the thing they crave. They want to buy their way into excitement and that old promise of the New York vista, but they drive it out and make it extinct.”

“The final, unpalatable, zero-tolerance truth is that hedge-fund managers, bankers, cynical architects, and insecurity-exploiting designers are far more damaging to the unstylized life of a city than all the junkies, prostitutes, panhandlers, urban cowboys, bag ladies, homeless, and graffiti kids they replace.”

The Contra Costa Times reports from California. “As the housing market slows down, many areas in the East Bay are showing a growing inventory of homes sitting on the market. Antioch’s inventory would take more than a year to catch up, while Rossmoor has close to 10 months of sales sitting on the market, according to the Contra Costa Association of Realtors.”

“The Contra Costa Association of Realtors also reported a 29 percent year-over-year drop in sales of attached, single-family homes, such as condos and townhomes, for October. The number of active listings also rose 76 percent, from 501 to 882 on the market, with the average price decreasing about 7 percent.”

“The number of listings has dropped since then to October’s 1,773 and is expected to drop a little further toward the end of the year. ‘It’s because most people don’t want their home on the market during the holidays,’ said real estate broker Rhene Montiel in Walnut Creek.”

“‘Some of (the listings) have been on the market a long time and the owners want to take a break,’ Montiel said. ‘And they’re hoping that in January and February the prices will rise again.’”

Inside Bay Area. “It was going to help revitalize Centerville’s historic district, boasting upscale retail shops and restaurants, and 110 town homes. But now Centerville Market Place is going back to the drawing board. Developer James Tong and city officials announced Wednesday they have agreed to scrap the project.”

“‘It’s nobody’s fault,’ added City Manager Fred Diaz. ‘It’s just bad timing.’ ‘My understanding is that they have an alternative plan,’ Vice Mayor Steve Cho added. ‘It’s a similar plan, but with no housing and all retail.’”

The San Francisco Chronicle. “As many as 30,000 condos are under construction, planned or proposed in San Francisco and about half of those units will probably wind up being built in the next five years, according to a consulting firm.”

“With developers taking deposits of just 3 to 5 percent for many of the most expensive units in the city, some economists question whether buyers will go through with their purchases a year or more from now when it’s time to close the deal.”

“Economists say that the presale practice raises concerns because buyers have too little at stake. ‘Such a small deposit is required that it makes it a very risky endeavor,’ said Ken Rosen, at UC Berkeley. ‘It’s a very, very flimsy view of what’s sold.’”

“Developers in other segments of the condo market are already offering incentives to compensate for the increased supply. Buildings such as the Beacon, the Lansing and the Palms are offering discounted mortgages in a bid to reel in new buyers.”

“‘They are offering those types of promotions because they are trying to hold the list price higher than it really should be,’ said Berkeley’s Rosen. ‘That shows weakening of demand already. There’s no way to know how much of the demand is real.’”

The North County Times. “Sales of apartment projects in North County and throughout San Diego County have fallen sharply this year over last, after condo-converting investors drove prices upward, according to a survey. The number of transactions fell for the seventh consecutive quarter.”

“‘Pricing for San Diego apartment properties became distorted as condominium converters paid unprecedented amounts in anticipation of profits from the sale of converted units,’ said George Carlson, apartment specialist. Carlson said the downward trend is evidence of a correction that will be followed by significant decreases in selling prices.”

The Record.net. “Commercial values have been holding steady in California based on income, Michael Yesk said…even as, separately, the single family housing market has gotten pounded. ‘We’re certainly not seeing dumping of buildings left and right like you do in single-family homes,’ he said.”

“The day before Thanksgiving, about 30 Stockton workers had no job, when Meek’s Lumber & Hardware, did not open for business.

“Don Woxberg, general manager at San Joaquin Lumber Co., wasn’t surprised, though. ‘The lumber market right now is in turmoil,” said Woxberg, who started in sales 35 years ago. After seven good years for lumber suppliers, he said, ‘everything started going south in January. Prices are cheaper now than they were five years ago.’”

The Sacramento Bee. “An unrelenting housing slump that has driven down the region’s home values and sent sales into a tailspin is expected to strike local governments next year, curbing the record growth rates in tax collections. From downtown Sacramento to rural Amador County, financial officials and county assessors say they’re watching a gathering storm that’s initially expected to blow into their budgets during the 2007-2008 fiscal year beginning July 1.”

“‘We will have perhaps the largest growth drop year to year we’ve seen in modern times,’ said Geoff Davey, Sacramento County’s chief financial officer.”

“New and existing home sales in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties have fallen by 24,000 this year compared with last year. Now begins the down cycle that Sacramento County officials feared in June 2005 when the property tax bonanza helped solve their financial problems.”

The Times Herald. “A higher percentage of homes in Solano County were in some stage of foreclosure in October than nearly anywhere else in California, new figures show. ‘I know we’ve been waiting to see what was going to happen with some of the creative financing done over the past four years or so,’ said Solano Association of Realtors President Sandy Vollmer.”

“Sinking real estate values and rising variable mortgage loans have driven foreclosures sky high, with the number of Solano County homes sent default notices rising 171 percent in September. The combination of factors also leaves some people owing more on their home than their home is worth, experts said.”

“‘We’re taking a hell of a hit, and no one’s really sure why,’ Vallejo Realtor Beth Brittenbach said.”

“As scary as the real estate situation is for some recent homeowners, it’s great news for potential buyers, Vollmer said. ‘Some people may be waiting for a huge price drop before they buy, but we don’t expect that. I think we’re approaching the bottom of the price decline,’ she said.”

The Orange County Register. “O.C. housing got off to a slow start in November. Fresh stats from DataQuick hint that this will be the 13th straight month that total sales can’t keep pace with the previous year’s pace.”

“Renters nationwide say they are most thankful for the maintenance-free lifestyle provided by landlords, a survey found. ‘What is the number one reason you’re thankful to be a renter?’ 43.6% Maintenance-free living. 23.6% Less expensive than home ownership. 19.4% Flexibility/No long-term commitment.”

The Rocky Mountain News reports from Colorado. “Doug Milliken, the newly elected Arapahoe County treasurer who ran on a platform that promised to help families avoid foreclosure, is in the process of losing his house. Milliken’s Centennial home in the Parkview Meadows subdivision is scheduled to go up for auction on Jan. 3, a day before he is sworn in as treasurer. County records show he owes $243,624 on the property.”

“Milliken’s campaign fliers promised to ‘educate homeowners on how to make wise decisions to avoid losing their homes’ and to ‘empower families to save their home when faced with foreclosure.’”

“But Adrian Ciazza, the outgoing Arapahoe County treasurer, said Milliken ‘won on false pretenses.’ ‘The treasurer has absolutely no ability to help people avoid foreclosure,’ he said.”

“Milliken, who said he found out Friday about the foreclosure, said he fell behind because he has been focused on campaigning, was shutting down his accounting firm, and was taking care of his ailing father. He said he didn’t expect he would be embroiled in the same problem he was telling voters he would help them avoid. ‘When I brought up this issue, this was the furthest thing from my mind,’ he said.”

“Milliken says he plans to use what he learns from the foreclosure process he faces to help others in difficulty. ‘It’s just amazing that I have some personal experience,’ he said.”

The Associated Press reports from Tennesee. “A church that wanted to do something special for Hurricane Katrina victims gave a $75,000 house, free and clear, to a couple who said they were left homeless by the storm. But the couple turned around and sold the place without ever moving in, and went back to New Orleans.”

“‘Take it up with God,’ an unrepentant Joshua Thompson told a TV reporter after it was learned that he and the woman he identified as his wife had flipped the home for $88,000.”

“‘They came in humble like they really needed a new start, and our hearts went out to them,” said Jean Phillips, a real estate agent and member of the church. ‘They actually begged for the home.’”

“The church was also shocked by an ungrateful interview the couple gave with WHBQ-TV in Memphis. ‘I really don’t like this area,’ said Delores Thompson. ‘I really didn’t, and I didn’t know anybody, so that’s why I didn’t move in and I sold it.’”

“Thompson thanked the church for its generosity but said she saw nothing wrong in selling the three-bedroom, two-bath house. ‘Do I have any legal problems? What do you mean? The house was given to me,’ she said. ‘I have the paperwork and everything.’”

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