The Housing Bubble

The North County Times reports from California. “Home sales in the San Diego region decreased 19.2 percent last month compared to the same period a year ago, while the median price of an existing home was down 4.5 percent to $574,530 from $601,850 in October 2005, a Realtors group reported.”

“In neighboring Orange County, sales were down 21.4 percent last month when compared to a year ago, while the median home price was off nearly 3 percent, to $681,340 from $701,520 in the year-ago period.”

The Orange County Register. “Sluggish housing sales and wobbly home prices have prompted developers to rethink projects that would have injected thousands of new condominiums into the county. With rising land prices and construction costs, developers would lose money if they lowered their prices, experts say.”

“They’re scrapping some projects and, in at least one high-profile case, reverting to apartments. Just six months after it entered a contract to sell condominiums in Orange, homebuilder K. Hovnanian Homes backed out in August because of slow sales in the spring and summer, said Brad Perozzi, managing director of developer Trammell Crow Residential.”

“‘I don’t think it’s any secret that the housing market is declining,’ said Jim Reichert, Orange’s economic development director. ‘It’s just part of a never-ending cycle.’”

“In Irvine Standard Pacific Corp. decided against building 445 condos at the corner of Main Street and Von Karman Avenue, according to the builder. Standard Pacific walked away after leaving a cash deposit.”

“Consultant Tim Strader said a handful of other builders, including Shea Homes, have dropped housing projects in the commercial hub near John Wayne Airport.”

“Walter Hahn, a real estate economist in Irvine, said more developers likely will continue to abandon expensive high-rise and condo projects across the county. ‘All their pro formas were based on rapid sell-outs,’ Hahn said. ‘They paid a bundle for the land.’”

“Speculators have abandoned the market and are selling whatever homes they still own. And buyers with the riskiest loans are trying to sell to avoid higher payments, Hahn said. The county is likely to see its next recession when the market corrects itself in about three years, Hahn said.”

“‘What we’ve seen in the past few years was a hyper market, with speculators and investors,’ said Mark Boud, owner of Real Estate Economics in Irvine. ‘Those kinds of buyers are completely gone.’”

The Daily Bulletin. “Ventura, Orange and San Diego counties all saw declines from October 2005. The Riverside/San Bernardino metropolitan area saw 37.6 percent fewer home sales last month than in the same period a year earlier. Five different cities saw prices tumble, with the 10.4 percent decline in Upland the largest among local cities.”

“Three factors continue to impact the market, as economist John Husing pointed out recently. Unsold inventory is at 7.2 months, more than double a year ago. Foreclosures are up from historic lows, with several thousand homeowners entering the process each month. Speculators are still in the market, pushing supply artificially higher.”

“‘Once those three factors are dealt with, the market will get back to normal,’ Husing said. What’s normal?”

The Pasadena Star News. “In a continuing trend, some San Gabriel Valley cities registered a decline in their median home price. The biggest occurred in Alhambra, where the median home price fell 10.6 percent to $474,000, compared with $530,000 in October of 2005.”

“Other cities with declines included Claremont (-5.1 percent), Monterey Park (-4.1 percent) and Rowland Heights (-3.6 percent).”

“Phyllis Fritz, owner of Coldwell Banker Millennium in Glendora, said the current housing market is better for buyers. Fritz said…media reports predicting a possible housing collapse have put some potential buyers on the sidelines. ‘That’s one of the things that I think is stalling the market a little bit,’ she said.”

“‘Right now, people with no money are able to find sellers who will cover their closing costs,’ said (broker) Marty Rodriguez, in Glendora. Rodriguez said about half of the offers under $600,000 involve 100 percent financing.”

The Tribune. “For the second month in a row, after eight years of year-over-year gains, the median price of San Luis Obispo County homes fell in October. The median price of an existing, single-family home was $560,980 in October, representing a 7 percent decline from October 2005, according to the California Association of Realtors.”

“September had been the first month the median price fell since December 1998.” “Further downward movement in home prices is likely in November as well in part because of the seasonal trend and because home prices were at lofty levels last fall, said Robert Kleinhenz, deputy chief economist at the California Association of Realtors.”

“Sales, meanwhile, continued their downward spiral, off 43 percent from October 2005 and down 39.9 percent from September 2006. ‘We’ve seen sales declines which are large, and in many cases, larger than what we have seen for the state as a whole,’ he said. ‘It is symptomatic of a decline in second-home purchases to longer-term normal levels.’”

The San Francisco Chronicle. “Retired tennis stars Andre Agassi and Steffi Graf finally have found a buyer for their Tiburon estate for $20 million, or about $3 million less than what they paid for it in 2001.”

“The property was put up for sale because Agassi and his family were using it infrequently and the tennis star’s financial advisers wanted him to dispose of it, said Bill Bullock, whose firm represents Agassi and Graf.”

“‘When they considered the annual cost of that property to sit there vacant, they decided that they needed a little inducement for the marketplace and they started reducing the price,’ Bullock said.”

“After initially listing the Agassi property at $24.5 million, the price was reduced several times before Agassi dropped it six months ago to $21 million. The tennis stars have branched out into real estate development and have invested in a condo hotel project in Idaho with Miami developer Bayview Financial.”

The Denver Post reports from Colorado. “New-home sales in metro Denver are down nearly 20 percent through the first nine months of the year, a new report says. Existing-home sales declined 9.5 percent compared with the same period last year, according to a report by the Genesis Group. ‘The resale market is facing significant downward pressure on prices,’ the report said.”

“Aggressive building and lending practices also have contributed to a wave of mortgage foreclosures, which has helped fuel the downturn, experts say. Many parts of the metro area, particularly in Adams, Arapahoe and Weld counties, have seen home prices depreciate in recent months.”

“New-home sales have fared worse in northern Colorado than existing-home sales, said (realtor) Dave Pettigrew. ‘The cost of new construction is relatively high, and builders are bucking a lot of competition in the resale market,’ he said.”

“‘New-home builders have been under a lot of pressure, and they continued to build for too long and were not as aware of the warning signs as they could be,’ Pettigrew said. ‘If they had stopped construction a year ago, we wouldn’t have so much inventory.’”

“Declining home prices can feed on themselves once they get started, said Tom Dunn, an economist with the Colorado Legislative Council. ‘Do you want to buy something today that is going to be worth less tomorrow?’ Dunn asked.”

“Nearly three out of 10 new- home contracts in the metro area were canceled in the third quarter, compared with only one out of five during the third quarter of 2005. The seven- county metro area recorded 14,164 foreclosures in the first three quarters of the year, up 34.2 percent from the same period a year ago.”

“The inability of potential new- home buyers to sell their existing homes or to obtain financing is contributing to the high cancellation rates, said Dave Bracht, division president of Neumann Homes, which is selling off lots in areas where it has excess inventory.”

“‘A lot of builders are looking at peeling off excess inventory,’ he said. ‘We bought significant landholdings in too few places. We don’t need 400 lots in southeast Aurora.’”

The Idaho Statesman. “According to the latest Intermountain MLS statistics, the downturn in housing continued in October, with sales in the Treasure Valley falling 41 percent below the same month a year ago. ‘Even the Realtors can’t put a good face on that,’ said Ken D. Simonson, chief economist with the Associated General Contractors of America.”

“New home sales in Ada and Canyon County were off last month 50 percent and 38 percent, respectively, while existing home sales slumped 33 percent and 44 percent. New home sales in Ada and Canyon County were off last month 50 percent and 38 percent, respectively. The median price of an Ada County home has fallen 6 percent since July, from $248,900 to $235,000 last month.”

“Some sellers are being forced to consider drastic measures to market their homes. Victor Clark, a Meridian building contractor, considered offering a new Chevy truck or Suburban to anybody willing to pay $699,900 for a 3,550-square-foot, four-bedroom, 3-bath spec home he’s building in the Foothills overlooking Boise.”

“His goal, he said, has always been to keep from having to slash his price. ‘I think it’s imperative that people keep their prices up,’ Clark said. Cutting the asking price of a home simply devalues other homes for sale in the area, he said.”

“Don Hubble, owner of Meridian-based Hubble Homes attributes the continuing decline to the exodus of out-of-state investors who drove the market to record levels in 2005. ‘Now, not only aren’t they buying, I think they’ve turned into sellers,’ Hubble said.”

From USA Today. “During the real estate boom, home prices in the Sun Valley, Idaho area spiked almost as high as the peak of nearby Bald Mountain. The median home price is now about as high as San Francisco’s.”

“Sales of homes in Sun Valley and the adjacent town of Ketchum that are priced over $2 million are holding their own right now. But the rest of the market, with sales in the area down 50% from last year, looks as scary as a black-diamond slope.”

“‘I’ve been in real estate here for 18 years,’ says Mia Edsall, an agent in the southern part of the valley. ‘I’ve seen it slow but never like this. There are no buyers, and the reason there are no buyers is because they can’t sell the house they have. A lot of us (agents) are getting second jobs.’”

The Illinois realtors report on October sales. “October home sales were down 9.7 percent, compared to 14,430 sales in October 2005. Year-to-date home sales (including single-family and condominiums) totaled 145,678 in 2006, down 7.1 percent from 156,746 homes sold from January through October of 2005.”

“The Illinois median home sale price in October was $198,777, off 3.5 percent from $206,000 a year earlier.”

“‘Sidelined buyers should have confidence in the market and take advantage of the low interest rates and ample choices,’ said Robert Zoretich, president of the Illinois Association of REALTORS. ‘It’s shaping up to be the third best year for Illinois home sales.’”

The Chicago Tribune. “With the housing boom becoming an ever-more-distant memory, Chicago home sales took another hit in October, and real estate experts are saying wait until spring. Or until next fall. Or maybe longer.”

“The Illinois Association of Realtors said Tuesday that October’s combined single-family and condo sales in the Chicago area were 15.4 percent below last year’s sales. Chicago-area condo prices fell about 5 percent.”

“Pat Callan, a broker in Wheaton, said sellers who have reduced their prices are improving the logjam of properties for sale in DuPage County, where sales of all types of homes declined by nearly 28 percent in October. ‘The higher-end properties aren’t moving,’ Callan said.”

“‘There are still people out there waiting to see prices come down,’ Zoretich said. ‘But buyers are not listening. They’re really not. If people need to sell right away, they need to adjust their prices.’”

“The downtown condo market has slowed from jet-propelled to a mere chug, chug, chug. ‘Right now, sales for newly constructed condos are down about 10 percent from last year,’ says analyst Gail Lissner. She adds that statistic doesn’t really tell the tale because in 2005, the downtown market grappled with selling not only new construction, but also the conversion of 4,000 rental units to condos.”

“‘In 2008, we’re looking at 6,200 [new condos downtown], providing that everything currently announced gets delivered,’ she said. ‘That’s double the volume delivered this year.’”

The Sun Times. “If you own a home or property in Chicago, it’s probably worth more, maybe two or three times more, than it was three years ago, according to the Cook County assessor. And you’ll be taxed accordingly.”

“‘You don’t have any choice, you pay it or you have to move,’ said Leonard Gilbert, whose taxes on his Rogers Park home are jumping from $4,604 to $6,513. ‘I pay more in taxes now than on my mortgage.’”

The Times Herald from Michigan. “Struggling to make sales in a tough housing market, a Novi company interested in Port Huron development auctioned about 100 Livingston County properties last month.”

“William Russell, vice president and general counsel at Michigan Group Realtors in Brighton, said property auctions indicate sellers are ‘grasping at straws’ in their effort to sell properties at decent prices.”

“‘They don’t want to believe the degree the market has fallen,’ he said. Greeneisen said it is most difficult to sell higher-priced homes, especially homes priced at $500,000 or more - because people in the market for those houses can’t sell their current properties.”

“Some developers are using buyers’ interest in new homes to ensure success. Jeff Curtis is the principle developer for a 124-unit development of duplexes on Lakeshore Road set to break ground in the spring. ‘Everything has to be low cost,’ Curtis said. ‘It makes it affordable for people.’”

“‘If you can go buy something new for roughly the same price you can buy an existing home, people tend to buy the new one,’ agent Pat Moore said.”

“Until the housing market turns around, the glut of new subdivisions could make things worse for owners of existing houses. New homes in the area could force sellers to cut their price tags, experts said.”

“The developers’ optimism does little to soothe Mayland Skinner of Fort Gratiot, whose home has been on the market for four months. ‘I don’t have an optimistic feeling for the market,’ said Skinner.”

“Skinner is planning to lower the price on his home from $239,000 to $229,000 and may take it off the market until spring if there’s no buyer by December. The drop in price will put the house below its appraised value. ‘It will sell when the market’s ready,’ he said.”

Some housing bubble reports from Wall Street and Washington. “Sales of new homes fell 3.2% in October to a seasonally adjusted annual rate of 1.004 million, the Commerce Department estimated Wednesday. New-home sales are now down 25.4% in the past year. Measured out over the first 10 months of 2006 compared with the same period in 2005, sales are down 17.9%.”

“Median sales prices were up 2% in the past 12 months to $248,500. Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and work off inventories. Such incentives are not subtracted from the sales price reported to the government.”

“Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.”

“The Commerce Department said…the number of homes completed and waiting to be sold rose by 6,000 to 166,000 in October.”

“The U.S. economy grew faster than first thought in third quarter on strong business investment, even as the housing sector posted its biggest decline in more than 15 years, the government said Wednesday. Investment in housing tumbled by 18 percent during the quarter. It was the biggest decline since a 21.7 percent slide in the first quarter of 1991.”

“Wolseley Plc, the world’s biggest supplier of plumbing and heating equipment, said it cut 2,000 U.S. jobs after a housing slowdown reduced earnings.”

“Copper fell to a one week low on speculation demand from homebuilders in the U.S., the world’s second-largest user of the metal, will slow as the pace of new construction declines. ‘Activity in housing is still very weak, and we are far from turning any corners here,’ Ed Meir, a commodity analyst said.”

“The Office of Federal Housing Enterprise Oversight, the regulator for mortgage financing concern Fannie Mae, said it intends to sue ousted chief executive Franklin Raines and former chief financial officer Timothy Howard in an effort to recover salaries from the time the company overstated earnings by billions.”

“An OFHEO report issued in May said that Fannie employees manipulated accounting to hit quarterly earnings targets and allow senior executives to collect performance bonuses between 1998 and 2004.”

“Former Federal Reserve Chairman Alan Greenspan said on Tuesday that the worst of the housing adjustment was over. But he also said there would be actual price declines in housing.”

“New signs appeared yesterday that the economy is stuck in a slowdown, but Federal Reserve Chairman Ben S. Bernanke made it clear he’s more worried about inflation and is not prepared to cut interest rates anytime soon.”

“The head of the nation’s central bank said in a New York speech that the ‘core’ inflation rate, which excludes food and energy costs, ‘remains uncomfortably high’ and could even trigger an interest-rate increase if not brought under control.”

“Carl Tannenbaum, an economist at LaSalle Bank in Chicago, said financial markets expected one interest-rate cut in 2007, and possibly two cuts. Now, with Bernanke’s statement, there’s a good chance interest rates will remain steady throughout next year, and possibly could be increased again, he said.”

“Lower oil prices and a U.S. commercial property boom will help offset the serious problem of a cooling housing market, Dallas Federal Reserve President Richard Fisher said in an interview.”

“German financial daily Handelsblatt said Fisher described the downturn in the housing market as a ‘very serious problem’ which had been exacerbated by keeping rates too low for too long.”

The Herald Tribune reports from Florida. “Prices remain the story in home sales, with Sarasota-Bradenton prices falling 18 percent in October, the second biggest drop in the state. The Charlotte County-North Port market was not far behind, with a drop of 17 percent, from $243,900 to $202,800.”

“Only Fort Myers-Cape Coral took a bigger fall, posting a 44 percent decline in median sales price, from $445,100 to $249,200, the Florida Association of Realtors reported on Tuesday.”

“Chad Roffers, president of Sarasota-based Sky Sotheby’s Realty, said the price decline goes hand in hand with slowing sales. ‘An 18 percent decrease feels about right. We’re seeing unit sales down by a third across the board and prices off by 20 percent from the peak in mid-2005,’ said Chad Roffers, president of Sarasota-based Sky Sotheby’s. ‘Those sellers who accept that level of value are seeing action. Those who hold out for 2005 prices are not.’”

“Budge Huskey, president and chief operating officer of Coldwell Banker Residential Real Estate, is not convinced that prices are done declining. ‘Sell now; you may get less in three months than today.’”

“Sales of condominiums in the Sarasota-Bradenton market were off 51 percent from the same time a year ago. The median sales price dropped 27 percent, from $294,000 to $216,000. ‘Condos always go belly up when economy gets sluggish,’ said (realtor) Barbara Anson.”

“‘We now have to come back to reality,’ she said. ‘I am explaining to my sellers in Myakka that the bubble has busted. They’re not going to get $350,000-$400,000 for a 10-acre parcel like they used to. They’ll get $200,000.’”

“‘All I can say is nothing in my neighborhood is moving,’ Yetta Levitt said, noting that one of the less expensive, nonwaterfront homes in her 210-home subdivision sold last month for $410,000. ‘Prior to that sale, I believe the last sale was November 2005.’”

The Miami Herald. “The median price for existing single-family homes in Miami-Dade dropped to $356,000 in October, the lowest since August last year. In Broward, prices went down to $349,400, the lowest since April last year.”

“Ronald Shuffield, president of Esslinger Wooten Maxwell, contends that people who buy now may still see prices go down in 2007, as the market digests the enormous number of homes for sale. Nearly 65,000 homes are now listed for sale in South Florida, from 25,174 a year ago. The antidote, some industry players and watchers say, is still for prices to come down.”

The Sun Sentinel. “Palm Beach County’s October median declined $50,900, or 12 percent, on an annual basis, and experts say prices will keep falling into 2007.”

“Prices actually have fallen even more than that because sellers are giving buyers lucrative incentives, that aren’t reflected in the sales prices, analyst Jack McCabe said. ‘Sellers are not getting all that money in value for their properties because they’re having to pay a big chunk of that out as concessions,’ he said.”

The News Press. “Lee County’s housing market continued to slow in October, with sales and prices down and the inventory of homes for sale still going up. The median price of an existing home sold with the help of a Realtor was $249,200 in October, down 4.7 percent from $261,400 in September. People selling their homes in Lee County have seen prices fall steadily since the median price reached an all-time high of $322,300 in December 2005.”

“The number of homes on the market in the county in October was 13,260, almost five times what it was in October 2004.”

“In Collier County, the median price was down 17 percent from October 2005 to $420,000 and the number of sales fell 27 percent to 204. Charlotte County’s median price fell 17 percent to $202,800.”

“Warren and Tracy Pearce sold their three-bedroom, two-bath, lakeside house in North Fort Myers recently to move into a condo. ‘We’d had it for sale since February,’ he said, but at the initial asking price of more than $400,000 there were no takers.”

“The Pearces’ agent got them to reduce the asking price, it finally sold for $289,000. The Pearces paid $170,000 for the house 31/2 years ago.”

“When sellers are unable to get the price they need, agent Michael Burke said, increasingly, ‘It’s Plan B: rent it.’ Owners usually can’t break even on the expenses of keeping the home, he said, ‘but they’re easing the pain.’”

From Florida Today. “Brevard County’s housing market continued to slow in October compared with the same period a year ago. Condominium sales year over year plunged 69 percent, falling to 85 transactions from 273 in October 2005. The median sales price for condominiums in Brevard dropped 17 percent.”

“‘We still have to convince sellers we’re in a new phase and the asking prices they had last year are probably not realistic now,’ said Gene Collins, president of the Melbourne Area Association of Realtors. Daryl Adkins of Indialantic has been trying to sell his three-bedroom home for more than a year and has dropped his original asking price of $325,000 to $238,500.”

“‘It’s slow all over the county because there is so much on the market,’ Adkins said, adding higher taxes and insurance costs ‘aren’t doing us any justice either.’”

The Daytona Beach News Journal. “Gertrude Butler and her husband have been trying to sell their house since April, dropping the price twice, so they can move back to Delaware to be near their family. But, Butler said, ‘If we don’t sell this house, we won’t be going anywhere.’”

“The Butlers have dropped their price $12,900 in seven months. They started out asking $289,900, and now are asking $277,000 for their three-bedroom, two-bath, lakefront home in the Cypress Cove subdivision. ‘We’ve had people look and even a few really low offers,’ Butler said, admitting she feels discouraged.”

The Nassau Neighbors. “Jeff Timian was sure he was making a good investment this year when he bought and renovated a house in Fernandina Beach. But now, after the house has sat on the market for months, Timian’s sure thing isn’t so sure. He’s now offering it for sale below its appraised value.”

“This week it’s down to $225,000, he said. ‘I’m not going too much below $225,000. At that point, I still make money,’ he said.”

“Sales of single-family existing houses in the Jacksonville area, which includes Nassau Countym dropped 18 percent between July and September as compared to the same quarter in 2005. Condominiums fared worse. Sales plunged 49 percent between the same period in 2005.”

“Lou Goldman is the sales manager for a Yulee marshside subdivision. He said the current buyer’s market is a cycle that recurs in the real-estate industry, Goldman said. What complicates it is that the most recent ‘boom’ phase lasted a lot longer than usual, he said.”

“‘From 1992 to 2005 was the longest run there’s been,’ he said. ‘Most people don’t remember what it was like the last time it plateaued. The last one was from 1990 to 1992. This is a buyer’s market. You don’t have the urgency you have when there’s a seller’s market, because the prices aren’t going up.’”

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