The Housing Bubble

The California realtors have this October report. “Home sales decreased 28.7 percent in October in California compared with the same period a year ago, while the median price of an existing home increased 2 percent. ‘While it appears that home sales have stabilized over the past three months, it’s too soon to say whether or not the market has bottomed out,’ said C.A.R. President Colleen Badagliacco.”

“The median price of an existing, single-family detached home in California during October 2006 was $548,680, a 2 percent increase over the revised $537,930 median for October 2005, C.A.R. reported. The October 2006 median price decreased 1.5 percent compared with September’s revised $556,920 median price.”

“‘The existing home market continues to be impacted by the inventory of new homes for sale, especially in areas where there has been excess capacity since the start of the year,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘The unsold inventory of existing homes is at 7.2 months, twice last year’s inventory. Higher inventory levels are a key factor in the moderation of home price appreciation.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in October 2006 was 7.2 months, compared with 3.4 months (revised) for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 195 out of 372 cities and communities, showed an increase in their respective median home prices from a year ago.”

“The median price of an existing single-family house in Orange County fell from last year’s level for the third month in a row, CAR reported today. The association reported that the midpoint of all O.C. house sales last month was $681,340, compared to $701,520 in October 2005.”

“That’s a decrease of 2.9 percent, and follows year-over-year price drops in August and September. Sales continued their slide too, falling 21.4 percent from October 2005 levels.”

The Orange County Register. “A homebuyer needed to make at least $123,800 in total household income to afford a typical starter home in Orange County this past summer, according to the California Association of Realtors’ latest housing affordability index.”

“An estimated 22 percent of Orange County households fall into that category, the association reported Monday. That’s a slightly greater percentage than during the spring, reflecting a period when Orange County prices began their four-month fall from the peak set in June. But it was a smaller number than a year ago.”

“The Realtors association created its new housing affordability index earlier this year as a rough guess of how many first-time buyers can afford homes at current prices. The group then recalculated historical affordability back to the start of 2003.”

“The index assumes that a starter home is 15 percent cheaper than the median-priced house and that buyers of such homes put 10 percent down and use adjustable-rate mortgages.”

The Daily News. “The association began its Housing Affordability Index in 1984, a time when fixed-rate mortgages were the prevailing financing vehicle, a 20 percent down payment was required and the mortgage payment was equal to 30 percent of a household’s income.”

“Since then the financial landscape has changed dramatically to include a wide range of mortgage products. The new index reflects this as well as the current underwriting criteria.”

“In the third quarter affordability fell from a year ago in 16 of 17 markets tracked and remained flat in Northern California at 33 percent.”

“In Los Angeles affordability remained flat from the second quarter and fell 4 percentage points from a year ago. To buy the entry level house priced at the median $494,690 a family would need a minimum income of $102,190 and the monthly payment would be $3,410.”

“In Ventura County 22 percent of families could afford that first home, down from 23 percent in the second quarter and 26 percent a year ago. The entry level house cost a median $596,120, the qualifying income level was $123,150 and the monthly payment $4,100.”

“Last week, the National Association of Home Builders/Wells Fargo Housing Opportunity Index showed that California had the lowest affordability in the nation.”

The Press Enterprise. “Despite a softening housing market, Inland residents are finding it tougher to buy their first house, CAR said. The association reported that in the third quarter of this year, 31 percent of households in Riverside and San Bernardino counties could afford the region’s median-priced, entry-level house, which costs $346,800. That was down from 33 percent in the second quarter and 38 percent a year earlier.”

“‘The first thing this tells us is even though the market has slowed we are still seeing erosion of affordability,’ said Robert Kleinhenz, the CAR’s deputy chief economist.”

“Steve Johnson, a director with MetroStudy, a Riverside consultant to builders, said, ‘What is sad for Southern California and California as a whole is that these very people often wind up so frustrated they move to other states.’”

The Lodi News Sentinel. “No money down and adjustable rate mortgages sounded like a good idea two years ago when the housing market was still a seller’s playground. But lenders say in today’s buyer’s market these loan programs are leading to more defaults and foreclosures.”

“‘Pick-a-pay’ loans are the worst possible on the market because they lure buyers who really can’t afford to purchase a home, said Dennis Peck, a Lodi lender. ‘They’re given an option to pay below interest and it sounds great to them at the time,’ he said. ‘The problem is nobody explains to them those low payments won’t last.’”

“Others blame the slowing housing market, which in some cases has depleted home prices by up to 15 percent, for increased foreclosures throughout the state. In California last month, more than 16,000 homes entered some stage of foreclosure, the most of any state for the second straight month. California foreclosure activity has more than tripled from a year ago.”

“‘It’s a result of people getting loans who probably should be saving money instead,’ Peck said. ‘People don’t see down the road; they just want a low monthly payment.’”

“He said people who received 100 percent financing don’t have many options because the market has eroded what little equity they may have stored and now they owe more than their home can sell for, making it impossible to refinance or sell.”

“In San Joaquin County 1,809 homes entered some stage of foreclosure last month. Last year’s numbers were unavailable for comparison.”

“The increased number of foreclosures could mean banks will work with homeowners rather than foreclosing immediately, said Duane Burg, manager of Guild Mortgage in Lodi. ‘It’s up to each individual lender,’ Burg said. ‘But it’s not profitable for lenders to foreclose on homes with no equity, so right now lenders seem to be more willing to work with borrowers.’”

“Burg said in the last six years he has only helped two people through foreclosure, and both were last month. He said foreclosures will probably continue to increase for at least two years while the housing market stabilizes.”

The Massachusetts realtors report on October sales. “Local home prices showed signs of ’stabilizing’ in October, the Massachusetts Association of Realtors said today. The median sale price of a single-family home was down 2 percent in October to $341,000 from the same month a year ago.”

“According to MAR, the volume of detached single-family homes sold in the Bay State during October fell 16.5 percent to 3,239 homes when compared to October 2005. On a volume basis, condo sales fell 17.6 percent to 1,464 condos in October, and the condo median selling price was $261,250, down 3.7 percent from the same month a year ago, the association said.”

“The group’s report was the second one issued today on the local housing market, and its pricing data differed from numbers in an analysis by the Warren Group, a real estate data firm.”

“Massachusetts home sales fell by double-digit percentages in October, and the median sale price of single-family homes dropped 6.9 percent compared to October 2005, according to The Warren Group.”

“The October home price decrease marks the sixth straight monthly drop compared to the same months last year. The 14.9 percent drop in single-family home sales marks the 20th month out of 21 where home sales have fallen in Massachusetts. Eleven of the 20 monthly decreases were by double-digit percentages, reflecting the sharpest and most sustained sales slowdown since the 1989-1991 period.”

“Overall, the number of single-family home sales in October fell to 4,313 from 5,068 in the same month last year. The median sale price fell 6.9 percent to $312,000 from $335,000.”

“Meanwhile, condominium sales dropped 19.5 percent in October, down to 2,226 units sold from 2,765 during the same month in the previous year. The median condominium sale price dropped 4.8 percent to $261,750 from $275,000.”

“Year-to-date through October, all 14 Massachusetts counties experienced declines in single-family home sales. Hampshire’s 4.5 percent sales decline was the smallest while Nantucket’s 30.9 percent was the steepest. Essex, Suffolk and Worcester all saw prices fall by more than 5 percent.”

“‘The October numbers continue the trend we’ve been seeing for some time now, a pronounced slowdown that’s affecting every facet of the housing market,’ said Timothy Warren Jr., CEO of The Warren Group. ‘While we expect the market to stabilize sometime in 2007, it appears as though the housing sector is undergoing a significant correction.’”

The Worcester Business Journal. “MAR points to the combination of mortgage rates being at their lowest level since February and average home prices falling 10 percent from the summer of ‘05 as key ingredients for creating an affordable market for homebuyers.”

“Says David Wluka, president of MAR: ‘For anyone attempting to time the market, this wouldn’t be a bad time to jump in before mortgage rates start inching up or supply levels begin to drop.’”

The Florida realtors have the October sales out. “The pace of home sales in Florida continued to slow in October. A total of 12,773 existing single-family homes sold statewide last month, a decrease of 22 percent from the 16,407 homes sold during the previous October, according to the Florida Association of Realtors.”

“Looking to Florida’s existing condominium market, sales of existing condos also decreased in October, with a total of 3,440 condos sold statewide compared to 5,001 in October 2005 for a 31 percent decrease, according to FAR.”

“‘Inventory levels appear to be stabilizing and sales prices also are leveling,’ says Dorine Longhini, president of the Realtor Association of Greater Fort Lauderdale. ‘This is good for buyers, who have more options in the market, while the biggest impact has been on speculative buyers.’”

“‘I see evidence that the real estate market is on the rise,’ says Jerry Mabus, president of the Realtors Association of St. Lucie and broker associate in Port St. Lucie. ‘We’re on the cusp of growth in a new direction.’”

The Baker County Press. “Baker County residents who believe the area is growing too fast can relax a bit. The real estate and housing slump that began nationwide during the summer is clearly obvious here as 2006 draws to a close. The balloon that was a frenzied re-sale and new home market the past two years has burst, and property priced at ‘old’ levels sits unsold.”

“‘The way the market is now, sellers are having to come down on prices, it’s no longer their market,’ observes Wayne Combs of a Macclenny real estate company.”

“So, what do we know? The bubble has burst, no one disputes that as November draws to a close. If you were a seller and wanted in on the feeding frenzy, that was 2005 and half of 2006, you’ve missed the boat.”

The Miami Herald. “The two-acre parking lot next to the Bank of America Tower in downtown Miami rode the building boom to the top. Today, there is no construction on the site. The deals have collapsed, the buyers are locked in a court fight, and the original owners have the property back up for sale.”

“‘There is a lot out there for sale,’ said Adam Greenberg, president of BayBridge Real Estate in Miami. ‘But a lot don’t make sense because they come with designs that are very expensive to build or with condo sales contracts that are below market.’”

“There are 22,254 condo units under construction in Miami, according to the city’s planning department. That’s compared to 15,525 total units that went up since 1995.”

“Meanwhile, 29,558 condos have been approved by city commissioners for construction, and developers have proposed another 30,674 units that city planners are reviewing. These number say nothing of the building in other towns across Miami-Dade and Broward counties.”

“You’ve heard the pitches for home mortgages that just about anyone could get: 100 percent financing! No closing costs! One percent interest! A lot of South Floridians did indeed rush into these unconventional mortgages in search of a bargain. Now some are finding themselves trapped by monthly payments that are about to soar, even as the real estate market slumps.”

“Cynthia Cariseo is struggling to make interest-only payments on an option adjustable-rate mortgage for the Dania Beach town house she bought last year. Cariseo said her broker cited an interest rate of 3.4 percent, but didn’t tell her it applied only if she made a minimum monthly payment. The actual rate: 8.4 percent. And if she wants to refinance, she gets hit with an early payoff penalty of nearly $8,000.”

“Cariseo put her vacation home in Mexico on sale last week, hoping to raise enough to pay off the mortgage. ‘I am stuck,’ Cariseo said. ‘My payments have gone up three or four times. I know I’m not the only one, but that doesn’t make me feel any better.’”

“In 2006 alone, more than 15 percent of new home loans in South Florida were what is known as ‘payment-option adjustable-rate.’ The real hikes are likely to arrive en masse by next summer, when payments go up for more people.”

“”People will avoid foreclosure at whatever cost because it ruins your credit,’ said Ana Valenti-Brisuela, a South Miami real estate broker who also does financial planning. ‘But some, especially those who bought at the peak of the market last year, are going to sell for $50,000 or $100,000 less than they bought for in order to save their credit.’”

“Julio Escobar, who lives in North Miami Beach, said he didn’t know what he was getting into when he took out an option ARM. When he refinanced again into a fixed-rate loan in September, his payment had risen to $1,300 and, to his astonishment, his balance was $211,000.”

“‘I was throwing money away,’ Julio said. ‘The broker we did the deal with didn’t really explain all that, or maybe it was a mistake on both sides.’”

The October existing home sales numbers are out. “The price of existing homes sold in October fell for the third straight month and posted the biggest drop on record, according to an industry trade group report. The number of homes sold in the month is down 11.5 percent from the pace of sales a year earlier which led to the glut of homes on the market rising once again to a record 3.9 million, up 1.9 percent from September, and 34.4 percent from a year earlier.”

“The median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record. It marked the third straight month that home prices have fallen compared to the same period a year ago, the longest stretch of such declines on record.”

“David Lereah, NAR’s chief economist, said market fundamentals are improving. ‘The present level of home sales demonstrates some confidence in the market, but sales are lower than sustainable due to psychological factors,’ he said.”

“NAR President Pat Vredevoogd Combs said sellers in most of the country are doing what it takes to attract buyers. ‘With the exception of parts of the West, sellers are cutting their price enough to encourage sales,’ said Combs. ‘About 10 percent of the country is experiencing economic weakness, and a fourth of the nation, areas that had the biggest boom, is in a correction that will take longer to balance.’”

“Regionally, existing-home sales in the West were 18.9 percent lower than a year earlier. The median price in the West was $340,000, down 0.6 percent from October 2005. Existing-home sales in the Midwest were 0.2 percent lower than a year ago. The median price in the Midwest was $170,000, which is 1.2 percent below October 2005.”

“Existing-home sales in the Northeast were 9.8 percent below October 2005. The median existing-home price in the Northeast was $254,000, down 5.2 percent from a year earlier.”

“Prices fell in all regions, with the South posting the largest year-over-year decline, a 6.7 percent decrease.”

“‘As expected, existing-home sales appear to be stabilizing, fingers and toes crossed,’ said Lereah. Falling prices are ‘a good thing,’ Lereah said. ‘Sellers are cutting their price enough to encourage sales,’ said Combs.”

“Sales of condos dropped 4.8% to 778,000. Median sales prices are down 5.3% in the past year to $214,300. Condo sales are down 14.5% in the past year. The inventory of unsold condos rose to 9.1 months. ‘That’s a segment of the marketplace that’s experiencing some pain,’ Lereah said.”

The New York realtors report on October sales. “Sales of existing single-family homes in New York state in October dropped slightly more than 7 percent compared to October 2005, according to preliminary single-family sales data. The preliminary data showed a median sales price decrease of 6 percent compared to October 2005.”

“The October 2006 sales total of 8,721 represents a 7.3 percent decrease from the October 2005 sales total of 9,403. The October 2006 total fell 3.1 percent compared to the September 2006 sales total of 9,001.”

“Sales gains were reported in 24 of the 58 reporting counties compared to September 2006, while 17 reported growth compared to October 2005.”

The Evening Times. “The October 2006 statewide median sales price of $235,000 represents a six percent decline from the October 2005 median of $250,000. The October median did increase slightly, 1.1 percent, compared to the September median of $232,500. ‘As anticipated, the New York housing market’s shift toward buyers, driven by an increase in available inventory, has slowed median sales price growth to single-digit gains,’ said Charles M. Staro, NYSAR CEO.”

The Times Herald Record. “As the market slows down and the stock of unsold homes piles up, builders are emptying bags of cash onto their granite kitchen counters (now standard, at no extra cost) in an attempt to lure wary buyers.”

“‘Things have slowed down, so we’ve gotta be innovative in selling,’ said John Stack, a second-generation Orange County builder whose father offered similar incentives in the late 1980s, the last time the local market went south.”

“In Rock Hill, Ronstein Construction is offering a smorgasbord of perks. Owner Richard Steinberg sounds a little bit like the Crazy Eddie pitchman when he ticks off the company’s offerings: ‘We’ll give you one year’s taxes on standard inventory. We’ll pay your closing costs. We’ll pay your title insurance. We’ll pay your transfer tax and your mortgage tax, and we’ll get you 100 percent financing, so you can buy a house now without spending a penny.’”

“Steinberg tried offering a free Chevy Aveo with the purchase of a $245,000 townhouse, but got only one taker. Now he’s focusing on perks that affect the buyer’s bottom line. He recognizes the same thing Stack does: For many buyers, the sticker price on a home isn’t as important as the cash outlay required at closing and the monthly payments that follow.”

“For a buyer who’s strapped for cash, picking up $20,000 in taxes and closing costs makes a bigger difference than dropping the price by the same amount.”

“An upscale subdivision on the edge of Middletown is offering a grand opening special that includes upgrades to stainless steel appliances and granite in the kitchen. The package is worth about $8,000, said Tom Atkin (a) sales agency for the project. Atkin said that perks have become commonplace in the past several months, as builders struggled to sell into an increasingly difficult market.”

“‘If they’re not incentivizing, if they’re not doing something, they’re not making sales,’ said Atkin.” “Vacations are another popular perk, though some real estate agents say they’re not a very good idea, in part because they don’t add to the value of the home. ‘Once you move into a house, I don’t think you’re ready to go on vacation,’ said Theresa Budich of ARC Realty.”

“Some incentives target the buyer’s agent instead of the buyer. Popular carrots include vacations and larger shares of sales commissions. ‘I told my builders we should pay a buyer’s agent more than I’m getting paid,’ said Budich. ‘I want to entice buyer’s agents to come and look at the house.’”

“All of these incentives have one thing in common: They’re designed to help sell a home without lowering the price. Builders know that if they offer a discount to make a sale, the next buyer in line will ask for even more. ‘No builder wants to start to discount his property, because you taint it,’ said associate broker Robin White.”

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