The Housing Bubble

Readers suggested a topic surrounding holiday shopping. “It would be interesting to have a thread on how those of us on this blog are spending (or not spending) money on holiday gifts.”

A reply, “I’d be interested in hearing that too, but I’d like to hear it done as a comparison to say 5 years ago…..compare to pre-bubble days.”

“Myself….all cash spending and the number of gifts slashed incredibly….and somehow, I feel it will be one of the nicest Christmases ever.”

Another reports, “I think a lot of the happy retail noise is bull!@#$. I live in a shore vacation town and every merchant asked will always say they had a great year until you get them alone and do a little prodding.”

One commented on the media. “When you go to a variety of stories covering Black Friday in google news, there’s definitely a commonality. Many contain quotes from shoppers such as ‘Well, I only came for the [insert hot item here], but maybe I’ll pick up [insert more unnecessary garbage here] while I’m out…I mean, I was camped out all night, after all.’ or ‘well, I’ve got 4 kids/2 kids in private school/we’re not rich, so I had to come out here and get the best bang for my buck!’”

“I still can’t decide what to make of it all. I’m curious to see how this holiday season will shake out overall, or if BF was it, and the rest of the season will be weaker than expected. Time will tell, but I’m guessing if holiday sales exceed expectations, we can look for a Fed funds rate hike in early 2007.”

One said, “The retailers know the economy is weak. They’ve engineered a lot of hype to get things started early because they know the best strategy is to get shoppers in the door early on. All the big retailers like WalMart have announced big cuts right out of the chute.”

“The estimate is that each shopper will spend between $700-800 on gifts this year. They’re going to be disappointed by my shopping performance.”

Another added, “My wife and I really hate the pressure of buying gifts for family members we see a few times a years. As it turns out, my 2 brother-in-laws were as sick of the whole spectacle as we were and the whole family is excited about the prospect of just a family get together, sans gifts.”

“Of course we always hear that this is the retailers ‘make or break’ season. Are they just bad businessmen the other 11 months of the year?”

A reply, “You will be reported to the Department of Homeland Security for your unpatriotic celebration of Christmas without presents.”

The Union Tribune. “The kickoff to the 2006 holiday shopping season was brisk, if not overwhelming, yesterday in San Diego County. Some shopping centers were less crowded than on ‘Black Friday’ a year ago.”

“Analysts said the spending increase in San Diego County could lag behind the national average because of a cooling housing market. In October, the number of homes sold in the county declined 21 percent from the previous October, to 3,282, and the median price fell 5.5 percent to $485,000, and a loss of 1,200 construction jobs over the past year.”

“‘I wouldn’t be surprised if spending on Black Friday wasn’t as good here as in the rest of the country,’ said Alan Gin, an economist at the University of San Diego. ‘(With housing), there is a negative wealth effect. . . . People feel that they’re not as wealthy as they were this time last year.’”

The Star Telegram. “According to Deloitte & Touche’s forecast, consumers in North Texas will spend more than most on holiday gifts, $728 on average, compared with $584 nationally.”

“‘We see a number of positive factors” for holiday spending nationally and locally,’ said Sherrie McAvoy, who leads Deloitte’s national retail practice and was gauging the crowds Friday at NorthPark Center in Dallas. ‘Disposable income is slightly higher … and the fact that the housing bubble here has not been as severe as it’s been elsewhere, it all bodes well for a good holiday season.’”

The New York Times. “After a holiday-shortened week, traders will return to a bountiful calendar of economic reports, but if one fund manager has them figured right, any festive mood is likely to dissipate quickly.”

“Russ Koesterich, senior portfolio manager at Barclays Global Investors, foresees soft numbers in housing, manufacturing and consumer spending. Just how much weakness there is in housing will become clearer earlier in the week: the report on existing-home sales for October is scheduled for Tuesday, and the report on new-home sales is due the day after. The Bloomberg poll anticipates declines in each.”

“Depending on the various reports, stocks or bonds could suffer, Mr. Koesterich cautioned. Movements in the two markets reflect antithetical economic outlooks at the moment, he said. ‘The bond market is discounting a significant falloff in housing,’ he said, pointing to a big drop in yields in the last few months, ‘while the equity market is still looking for pretty good earnings.’”

“‘There is a pretty big disconnect,’ he added.”

A report from the Arizona Republic. “The number of people losing their homes to foreclosure or falling behind on their mortgages in metropolitan Phoenix is near a two-year high, the latest and most tragic sign of the Valley’s housing market slowdown.”

“People are losing their homes at a nearly record rate, not only in the West Valley, where foreclosures have traditionally been high, but also in pricey neighborhoods in the East Valley, where credit-card debt levels are higher than average.”

“‘A lot of people with rising mortgage payments due to adjustable loans can’t refinance now because their credit and debt situation has changed,’ said (realtor) Margie O’Campo de Castillo in Phoenix. ‘They are faced with finding a way to sell their home fast or lose it.’” “Economists say that nearly 40 percent of all home loans in metropolitan Phoenix are adjustable-rate mortgages, or ARMS.”

“Household debt has climbed to 132 percent of disposable income. It is the first time since the Great Depression that Americans are spending more than they make and saving next to nothing. Some Valley homeowners piled on debt by taking out second mortgages to buy investment houses. Some of those investment properties are now in foreclosure.”

“In October, the Valley’s notice of trustee sales almost doubled from April’s level. Trustee notices, which are handed out by lenders when a homeowner is three months or more behind on mortgage payments, are at their highest level since January 2005.”

“Last month, 1,186 homeowners got trustee notices and 133 homes were auctioned off to the highest bidder at foreclosure auctions on the steps of the Maricopa County Courthouse, according data firm Information Market.”

“Julian Baeza fell behind on the payments on his west Phoenix home late last year. He tried to refinance with a private lender but ended up losing his job and then his home last summer. ‘I thought I was getting help and could catch up on my payments,’ he said. ‘But, instead, my monthly payment went up, and they wouldn’t work with me.’”

“Parts of the Valley, including the poshest neighborhood in Ahwatukee, the Anthem area of the north Valley and far east Mesa, have high foreclosure rates. Some parts of the Valley, particularly new neighborhoods on the fringes, drew more speculators.”

“Now, many of those investors can’t sell homes or rent them for a profit, so they are walking away from them. Foreclosures are climbing in those neighborhoods as well. ‘A lot of homeowners are very nervous, and some are in trouble,’ said Jay Butler of the Arizona Real Estate Center at Arizona State University. ‘A lot of people gambled on home values continuing to climb like they did last year, and now they are losing that bet.’”

“Arizona’s cooling housing market is hitting the town’s fledgling multicultural celebration in its pocketbook. KB Home, chief sponsor of the Global Village Festival held in April, recently told organizers that it would no longer be able to sponsor the one-day cultural event, said Omar Hameed, vice chairman of the town’s Human Relations Commission.”

“The housing boon has shown signs of slowing since June, straining Arizona’s home-building industry, an enormous cog in the state’s overall economic engine. The slowdown has hit Gilbert. For the first time in almost a decade, median sale prices for existing Gilbert houses are down from what they were the same month a year ago.”

“‘We understand what happened,’ Hameed said, referring to KB Homes’ pullout. ‘When you’re down, you’re down.’”

In Business Las Vegas. “Southern Nevadans’ buying may be tempered this holiday season by high gasoline prices and a slowdown in the housing industry, retail analysts said.”

“In Las Vegas, a slowdown in new home construction has prompted additional layoffs by builders, including some in the last two weeks by KB Home and that in turn has led to cutbacks in the construction industry, mortgage, title and other companies as well.”

“The housing market is another factor to watch because of the slowdown in appreciation, said Julie Cameron, a VP of retailer productivity at General Growth Properties.”

“Customers have had years of being able to leverage their homes to come up with more money to spend on other things,” Cameron said. “That party is kind of over with, and it can affect the holiday season.”

Several readers suggested a topic about spring sales tactics. “How about some dicussion on what tactics the agents and builders will use this spring to create a ’sense of urgency’ among buyers. The last few years its been very effective to tell people that they would be ‘priced out forever,’ or to ‘hurry up before interest rates rise.’”

“Creating a ’sense of urgency’ is a very effective sales technique. It causes people to make rash decissions without much thought.”

A reply, “Easy: ‘It’s a BUYER’S MARKET now! Hurry up before you miss it!’”

Another, “NAR: ‘Hurry up before prices start going up again later this year.’”

One on rates, “Buy before interest rates go up.”

Another said, “Buy now for the best selection and location! Quantities are limited. Take advantage of your best and last chance in a lifetime to qualify for the home you’ve always dreamed of.”

“Get in now before it’s too late! Don’t let the market take off again without you.”

One had specifics. “I just got a mailer from Standard Pacific (San Diego area), and they are offering $15,000 to buy down interest rates, along with some free upgrades (depends on the development) and cash back for closing. They mentioned four different communities.”

From a blogger. “This topic is particularly interesting in light of the likely inventory explosion we’ll experience post-Super Bowl. One of my posts yesterday linked to an agent in Baltimore who has started tracked withdrawn listings, and in some places there continue to be more new listings than withdrawals, going into November!!!”

“This report contains some really great lines, like this one…’This month I started tracking withhdrawn listings and you can see that there are as many coming off as going on. I think we’ll see sales numbers stabilizing until late January/February 2007 and then as hordes of new sellers try to hit the ‘resurging spring market’ the proverbial stuff will hit the fan. Only those with a strong stomach should apply for this job.’”

Another quotes from the link. “‘When I was younger, very few people bought a home for investment purposes, but when the last stock decline hit, many did just that. The glut of rental properties and proliferation of speculators has a whole lot to do with today’s slowdown. Greed is another big factor. I think sellers should be happy with a decent return versus an obscene return.’”

“Wow, Dominick may be sleeping with the fishes before long if he doesn’t clam up.”

One poster is shopping for an agent. “In a year or two, when purchasing a house possibly becomes affordable again, I’ll be looking to hire a realtor with some honests posts like that. Any D.C./VA realtors want to come forward?”

The Herald Tribune reports from Florida. “The torrent of unpalatable real estate data is enough to ruin some folks’ holiday appetite. But there might be some good news despite the fact that the Sarasota-Bradenton market led the state in the third quarter with an 11 percent erosion in median sales price.”

“Charlotte, Manatee and Sarasota counties seem, so far, to be bucking a trend of rising foreclosures. The three-county area registered 997 foreclosures during the third quarter. That was an increase of about 32 percent from the second quarter but down 30 percent when compared with the same time last year.”

“But others said that this apparent drop in folks unable to make their mortgage obligations could be just the breath before the dive. Peter Lyddy, a licensed mortgage broker, sees ‘things getting worse before they get better, especially for homeowners with ARMs that are likely to reset at higher rates in the coming year.’”

“Lyddy noted that October’s 430 foreclosures were nearly 17 percent higher than last year’s 368, and that additional increases are possible in a rising interest rate environment.”

The News Press. “Ken Smith’s family should have celebrated Thanksgiving in their new Lehigh home. Instead, Smith, and his wife, Barbara Pandoff’s $185,000 dream home in Lehigh Acres is only a skeleton. It was to be ready by last spring. The couple have paid $63,575 on a home that likely won’t be built. Smith is out money from the sale of real estate, including a four-unit apartment building.”

“They are not alone in their plight. More than 100 people who paid thousands of dollars in down payments for homes that either haven’t been built or haven’t even been started. Builder Richard Leli of Fort Myers-based RL Homes says he’s broke and won’t have the money to finish some 120 projects in various stages of completion or never started.”

“‘It all happened due to several factors, especially mismanagement from my part,’ Leli said from his nearly abandoned office. Leli said he called his customers with a simple message: The money is gone.”

“‘This guy is taking people’s money and running away with it,” said Freddie Alicea, who along with wife is out a $20,000 down payment.”

“Subcontractors Ari Herrera and wife Carrie, say they have wiped out their savings and are owed nearly $80,000 by Leli for work on homes. They have placed liens on Leli property, including a $500,000 house in Naples and two New Jersey properties worth more than $700,000.”

“Leli agreed in 2004 to build Alicea a home for $197,000, Alicea said. Now he’s not even sure he can get his down payment back. Fort Myers attorney Henry Andreasen, who represented the couple, was told by Leli that there was no money for restitution.”

“‘The further along the house is, the more complicated and the worse position the homeowners are in,’ Andreasen said.”

“If the builder doesn’t pay, subcontractors, such as the Herreras, could begin chasing the homeowner, the lawyer said. In Smith’s case, $27,000 in liens have been placed against his unfinished home for money subcontractors say Leli owes them.”

“The couple have little money to pursue Leli legally but are hopeful the state will take up the case. ‘We spent everything on our house,’ Pandoff said.”

From WWAY TV 3 in North Carolina. “First-time homebuyers Cal and Seanna Morgan are looking to buy a house in Wilmington and they are experiencing first-hand the softer real estate market.”

“Cal said, ‘I’ve found that prices have leveled off, instead of going up $10,000 per house every time one sells in the neighborhood. They’ve kind of leveled off. And that’s good for us in a sense that we’re buying, but bad for us in a sense that we’re selling.’”

“‘We’re seeing some builders and developers offer incentives like paying the interest on a property for a year for the buyer. Maybe doing some extras like a plasma TV or appliances, that kind of thing. You are seeing some incentives like that,’ (broker) Jim Wallace said.”

“The reason? To attract buyers. In September of this year the number of homes listed was up 11 percent over the same time last year. But the number of homes sold was down 28 percent. Another tell-tale sign: houses are sitting on the market longer, up 28 percent over last year.”

“As Jim Wallace says, the flip has flopped. ‘There were people buying these houses during the boom period, second homes, that really never intended to stay one night in them. They bought them to put them back on the market six months or a year later to make a profit. Those people are on the sidelines now,’ Wallace said.”

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