November 30, 2006

Welcome To The Roller Coaster Of California Real Estate

The LA Times reports from California. “Housing construction in California dropped sharply last month, led by a steep decline in single-family homes. In October, the number of permits declined 29% compared with a year ago, the California Building Industry Assn. said. Builders are backing off constructing new homes until they can sell existing inventories.”

“That prompted a 47% plunge in single-family permits, the trade group said.”

The Sacramento Bee. “It’s little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget. Meanwhile, sales of the Towers’ condos are slow, and developer John Saca has switched general contractors.”

“One thing is clear: Saca admits the Towers, at Third Street and Capitol Mall, is being pinched between a weak housing market and rising prices for materials.”

“Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower’s sales are ’slowing down.’ He also has a condo competitor, Craig Nassi, who has plans to build the Aura tower two blocks east on Capitol Mall and Sixth Street.”

The Desert Sun. “Last month sales of previously owned homes and condominiums plummeted compared with a year ago across the Coachella Valley. Sales of existing single-family homes dropped 24 percent last month and existing condominium closings fell 54 percent compared with October 2005, according to DataQuick.”

“Overall, sales of new and resale single-family homes and condos in the valley declined 17.8 percent last month compared with October 2005. The dip in sales comes as more valley homeowners are putting their residences on the market.”

“Across the valley, there were 8,076 homes on the market in October and almost 8,600 by mid-November, said Greg Berkemer, executive VP of the California Desert Association of Realtors. That compares with 5,384 home listings in November 2005 and 2,800 listings in November 2004.”

“Fred Bell, executive director of the Desert Chapter of the Building Industry Association, said cautiously optimistic home builders will continue to aggressively manage their cash and reduce inventory. ‘I think we’re still in a challenging market,’ Bell said. ‘Conventional wisdom is that we’re going to remain in a challenging market for the next 24 months.’”

The Record Net. “A total of 179 building permits for single-family homes were pulled in San Joaquin County in October, down 43.4 percent from 316 in September, and down 49.7 percent from 356 in October 2005.”

“The question in potential buyers’ minds is, said Tom Doucette, president of Frontiers Community Builders, will the market continue to get softer? ‘The problem is uncertainty about the direction of pricing: Is it at or near the bottom?’ Doucette said. ‘That’s creating some hesitation. People want to buy at the best time.’”

“Alan Nevin, chief economist for the California Building Industry Association, said that new-home construction in California is expected to continue cooling off till the end of the year. He predicted that 2006 will end on the lower end of his 170,000-180,000 permit projection made earlier this year.”

“‘The primary decline is in the single-family sector, where half of the decline is in the Riverside/San Bernardino, Sacramento and San Diego areas,’ he said.” “Even with the decline, total production this year is expected to be the sixth-highest since 1989.”

The North County Times. “Hoping to avoid flooding the market with a glut of new homes, builders in San Diego and Riverside counties started construction on half as many single-family houses in October as they did in the same month a year earlier.”

“‘It is very much driven by their need to try to clean up their balance sheets by year’s end,’ said Borre Winckel, executive director of the Riverside County chapter of the Building Industry Association of Southern California.”

“Winckel said builders remember all too well the bloated inventory they were stuck with during the 1990s after a period of overbuilding, and they want to avoid getting into a similar predicament. ‘They don’t want history to repeat itself,’ he said.”

“Economist Alan Nevin cautioned against concluding that the sharply lower numbers for 2006 signal a housing market headed into the tank. ‘It is not a crisis situation,’ said Nevin, whose association represents the state’s 6,700 home builders and related businesses.”

“Robert Campbell, a San Diego economist who closely tracks the market, disagreed that a rebound is around the corner. ‘This is clearly a normal cyclical downturn,’ Campbell said. ‘Welcome to the roller coaster ride of real estate. It goes up and it goes down, and now we’re going down. This is going to be a very slow, painful downturn.’”

“Economist Christopher Thornberg said construction won’t rebound for some time because the leveling off of home values will squeeze homeowners’ ability to buy bigger, more expensive houses. ‘You’re not going to be earning capital gains in this market for a long time to come,’ Thornberg said.”"

“‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘And this is absolutely the biggest housing bubble, price-wise, that we have ever had in California. This is not going to disappear overnight. Demand for (new) housing is going to be weak for a while.’”




“Repenting For What They Did”

A housing report from the Arizona Republic. “Those mountain vistas, star-filled skies and expensive furnishings in Ahwatukee Foothills are coming at a steep price - sometimes of the home itself. Homeowners, many strapped with some of the highest credit-card debt in the Valley, are falling behind on their mortgage payments and facing foreclosure at nearly record rates.”

“‘Basically, it’s something we saw coming last summer, and even up to a year ago,’ said Rock Argabright, an agent in Ahwatukee. ‘Home buyers were signing up for no-money-down, adjustable-interest-rate mortgages, so they have no equity in their homes. They trapped themselves as the value of their homes started sliding. It really was written on the wall, it was going to happen.’”

“The problem is that most everyone’s largest investment is their home, and real estate values have fallen over the past year.”

“‘What they’ve done is gotten a second (mortgage) on their home and lived on the second. Then maybe the wife got pregnant, or someone lost their job, and now they have to refinance and their house value is slowly sliding,’ said Argabright. ‘One of the saving factors is that our home prices haven’t fallen as much in Ahwatukee as other parts of the Valley.’”

“Scott Nelson, a certified financial planner in Ahwatukee, believes many residents got into trouble by buying too much of a house.”

The Review Journal from Las Vegas. “In Las Vegas, local research firm SalesTraq reported 2,581 new home closings in October, down 22 percent from the same month a year ago. It was the fourth straight month of declining sales.”

“‘The future seems clear,’ said real estate consultant Steve Bottfeld. ‘October is not the end of the buyer’s market in Las Vegas. But October data does tell us that the Las Vegas housing market is much closer to the end of the buyer’s market than most people believe.’”

The Financial Times. “If you buy a house this month in Nevada’s bone-dry Las Vegas valley you can probably get a swimming pool and a Florida vacation thrown in for the price of a new home.”

“The perks are among the incentives being offered by property developers desperate to fill tens of thousands of homes that stand empty in the billowing dust after a whirlwind of speculative construction swept the southern and western states.”

“Anna Klinger, a Nevada real estate agent, says: ‘The developers are repenting for what they did. They built too much, too fast.’”

“The large builders admit that the slowdown has been more severe than they expected at the start of this year. David Rosenberg, chief US economist at Merrill Lynch, says: ‘I think the latest barrage of data told you that housing hasn’t bottomed. We’re not going to hit bottom for the entire sector until the tail-end of 2007.’”

The Nevada Appeal. “Housing market information isn’t cheery. A weakening national housing market will continue to be felt throughout the nation in 2007, said John Mitchell, western region economist with U.S. Bank.”

“Some local residential real estate agents are worried, but they’ve heard this prediction before. ‘It’s exactly what we know,’ said Chris Kallas, a Realtor in Minden, after the meeting. ‘I don’t want to be negative. We’re hoping for the correction to finish.’”

“The Carson City housing market hit a high in 2005 when the median price of a single-family home jumped 34 percent over a year to $348,500. It has inched down to $310,000 in September, according to the MLS.”

“Broker Mike Veatch said recent 10 percent to 15 percent price declines are eased by the huge gains seen in the last few years. ‘My view is we are returning to a normal real estate market in this area,’ he said. ‘As far as a slow down, we have hit the bottom of the trough.’”




“The Slowdown Is Not Unexpected”: OFHEO

Some housing bubble reports from Wall Street and Washington. CNN, “Home prices rose in the third quarter but at a slower pace than in the second quarter, a government agency said Thursday, the latest sign that the housing market is still trying to find a bottom. The Office of Federal Housing Enterprise Oversight (OFHEO) said that housing prices nationally edged up just 0.9 percent from the prior quarter.”

“Five states; New York, Rhode Island, Michigan, New Hampshire and Massachusetts, recorded lower prices for the quarter, according to OFHEO, with Michigan also showing a year-over-year decline of 0.6 percent. It was the first time in six years any state reported falling prices over a 12-month period, according to the agency.”

From Reuters. “The data ‘provide more evidence that the long-forecasted national deceleration in house prices is occurring,’ said James Lockhart, the OFHEO director.”

“Quarterly price declines occurred in more than half the cities in California, OFHEO reported. The West and Northeast regions of the United States saw weak gains in the quarter.”

From MarketWatch. “The OFHEO index is considered the best gauge of home values, because it doesn’t depend on the mix of houses sold as do the median prices for new and existing homes. It compares apples with apples by tracking mortgages written for the same houses over time.”

“Prices fell on a quarter-to-quarter basis in 15 cities in California, including San Francisco, San Diego, Oakland and Sacramento. The biggest year-over-year declines were seen in Anderson, Ind.; Ann Arbor, Mich.; Springfield, Ohio; Holland, Mich.; and Greeley, Colo. In all, 18 cities recorded price declines over the past year.”

“‘The slowdown is not unexpected,’ said Lockhart. ‘There are still some areas where appreciation rates remain very high, but now they are the exception rather than the norm.’”

From Bloomberg. “A gauge of business activity unexpectedly showed a contraction in November as production and orders at U.S. companies weakened, according to a Chicago-based purchasing managers’ group.”

“The National Association of Purchasing Management-Chicago said today its business barometer fell to 49.9 this month, the lowest since April 2003, from 53.5 in October. A reading lower than 50 signals contraction.”

“The Chicago report ‘will likely raise concerns that the housing slump may be spreading, especially in the Midwest, where the weakened auto industry is especially important,’ said David Resler, chief economist at Nomura Securities International Inc.”

“Caterpillar Inc., the world’s largest maker of earthmoving equipment, said on Nov. 3 it plans to cut jobs at U.S. factories…to cope with a slowdown in the economy next year. ‘It will be a more challenging year than the past two,’ Caterpillar CEO James Owens said. ‘We’re going to hit some turbulence.’”

The Savannah Morning News. “Weyerhaeuser Co. announced Wednesday it will permanently close its Mountain Pine veneer and plywood mill, eliminating 340 jobs in the rural Arkansas town.”

“‘These are just really tough times for this industry,’ said Kathy Stacey, a Weyerhaeuser spokeswoman in Arkansas. ‘The housing market didn’t just fall off, it plummeted. It is tough all over the wood products industry.’”




“The Merry-Go-Round Stops” In Florida

The Daily Business Review reports from Florida. “No one can point to any single reason for Palm Beach County’s drastic downturn in home prices, but real estate players identify a slew of contributing factors.”

“Susie Van Pelt, an agent in North Palm Beach, has a listing for a waterfront condo at Flagler Pointe in West Palm Beach priced $5,000 less than the year-old purchase price. The unit isn’t selling even though the price is $80,000 less than a comparable three-bedroom water-view listing in the same building.”

“With the huge supply of homes on the market, some sellers are in a panic. The people who are forced to sell are the ones dragging down the median price, said (realtor) Kim Stevens in Boynton Beach. Stevens recently sold a Lake Worth home that was appraised at $380,000 but sold for $318,000. Two years ago, she said the home would have sold for more than $400,000.”

“Based on the current market index, Palm Beach County has a 47-month inventory backlog.”

“A surge of new Palm Beach County construction is contributing to the flooded market, Stevens said. After buying land at boom-high prices, investors and builders cannot afford to sit on the sites. ‘We got caught up with a lot of inventory,’ said Bregman, who represents clients who bought up tracts of land during the heyday. ‘When the merry-go-round stops, there is a lot of product out there.’”

The Herald Tribune. “George Fischer’s for-sale sign is one of roughly 7,600 in the Sarasota MLS. That is more than double the 3,700 homes listed for sale in mid-November 2005. Neither figure counts condominiums. That number of condos for sale, too, has more than doubled in the past year.”

“Meanwhile, real estate brokers are having trouble making these puppies play. They are closing on houses at the rate of 73 per week. At that speed, it would take two years to get rid of just today’s inventory.”

“In response, sellers have gradually, painfully lowered their prices, to the point where the median price is nearly back to 2004 levels.”

“Fischer has not even managed to get a lowball offer. ‘It is almost as if there aren’t any true buyers out there, or there is no urgency,’ Fischer laments. ‘Because there is such a glut on the market, people feel they don’t need to make a decision, because the house will always be there.’”

“‘The activity has just died,’ said Peter Magnuson, a Sarasota real estate investor who chairs a local real estate investor club. ‘People have lost money, and they just haven’t realized it yet.’”

“It is people who bought at the peak, like Fischer did in May 2005, who are hurting. Fischer paid $320,000 in May 2005, just as the market was topping out, and then put $30,000 more into the place, for an outlay of $350,000, not counting monthly carrying costs. So even if Fischer gets his asking price, and even without counting any closing costs except the 3 percent commission, he would be in the red on the deal.”

“‘It is going to happen more and more in the next two to five years,’ said Stan Geberer, an economist at a real estate consulting firm. ‘Almost everybody who bought in 2005, if they try to sell in 2006, is going to be upside down.’”

From Florida Today. “A total of 512 housing construction permits were issued countywide in October, according to statistics from the Home Builders & Contractors Association of Brevard. October’s total, which includes single-family homes, condominiums and apartments, was the highest monthly number in Brevard since 554 permits were issued in April. However, it was lowest total for October in five years, the association’s monthly report shows.”

“The median sales price for an existing single-family home in Brevard was $212,400 in October, down from $238,200 a year earlier, according to a report Tuesday from the Florida Association of Realtors.”

“Franck Kaiser, CEO of the association, said builders are trying to sell off their inventories of new homes left over from a flurry of construction, which ended not long after the surge in local housing prices ended last year.”

“In Brevard, home sales have slowed in part because many homeowners have been trying to sell their homes at last year’s higher prices, said (broker) Betty McCluskey. ‘People can’t get over a year ago when they saw their neighbors getting such big numbers’ for their homes, McCluskey said.”

“To stimulate the local housing market, builders and others are hoping to persuade county commissioners to delay a scheduled increase in a county transportation impact fee on each new single-family home. The delay could help the market, said Dave Armstrong, treasurer of the Florida Homebuilders Association and a local home builder.”

“‘Right now, the animal is wounded and we don’t want to kill it,’ Armstrong said about the housing market.”




“Paying The Price For Overheated Appreciation”

The Boston Globe reports from Massachusetts. “The median price for a single-family home has fallen 7.8 percent since hitting a peak of $370,000 in June. Sales of single-family homes fell 16.5 percent from the previous October to 3,239. In each of the past three months, single-family home sales fell by more than 20 percent.”

“Some agents say the October numbers forecast a slow winter. ‘The importance of October is that’s the tail end of the selling season before you get into the holiday, and everybody was hoping it would’ve been a little better,’ said Arthur Shannon, an agent in Danvers. October, he said, ‘tells us how we’re going to sit throughout the next few months.’”

“‘Buyers have started to move forward,’ David Wluka, president of the realtors’ association, said yesterday. Still, at the end of October, there were 33 percent more homes and condos for sale statewide than a year earlier.”

The Daily News. “Massachusetts home and condo sales fell by double-digit percentages in October and home prices continued to decline as part of a market correction that may still take several months to conclude.”

“The October home price decrease is the sixth-straight monthly drop compared to the same months last year, and the drop in home sales marks the 20th of 21 months where the number of home sales have dropped in the state. The latest 11 months of decreases were marked by double-digit percentages, reflecting the sharpest and most sustained slowdown since the 1989 to 1991 period, according to the Warren Group.”

“‘This market is paying the price for overheated appreciation,’ said Nicolas Retsinas, of Harvard University. ‘It was clear for a long time that it couldn’t be sustained, but it did last for a while.’”

“Retsinas said homebuyers should do their homework when shopping and look forward to at least five to seven years in the home they buy if they don’t want to lose money. ‘If you think you’re going to buy a home to make money, you’ll be disappointed,’ he said. Retsinas also warned buyers to be wary of the condo market, which is investor dominated, and thus, more susceptible to a downturn, he said.”

The Boston Herald. “Boston house prices plunged last month at their fastest pace in more than 13 years, erasing all gains recorded since early 2004, new figures show. The Warren Group reported yesterday that median house-sale prices in Suffolk County, which mostly consists of Boston, fell to $325,950, a stunning 13.31 percent decline from October 2005.”

“That drops prices back to May 2004 levels. It’s also the sharpest 12-month pullback since 1993.”

“David Wluka, president of the association said the smaller sales drop-offs show him that ‘the market correction may be about over.’ But Wellesley College housing economist Karl Case is less optimistic. ‘All of the indicators, sales volume, prices, everything, are pointing downward,’ he said.”

The Sun Chronicle. “Condominiums, increasingly the single-family home alternative for buyers in Southeastern Massachusetts, may finally be losing momentum in a softening real estate market.”

“Condo sales in the area declined 36 percent in the third quarter, compared with sales results for the same quarter in 2005. Statewide, the drop in the number of condominium sales exceeded that of single family homes for the second straight month according to The Warren Group, ending a decade-long trend in which condo sales outperformed single family home sales virtually every month.”

“‘For a long time, as real estate was appreciating, condos trailed somewhat behind single-family homes,’ said Terry Egan, for the Warren Group. ‘As sales began to decline, condos also seemed to trail somewhat timewise. Now they seem to have caught up.’”

“Market watchers said a large number of newly-completed condos arriving on the market at a time when sales are already depressed added to an already bulging inventory.”

The Boston Channel. “Buyers and sellers are carefully crunching the latest housing numbers, and in Massachusetts…it reflects the most sustained slowdown since the bubble burst of 1989 to 1991. One Duxbury house has been on the market for about one year now. Two weeks ago, the sellers dropped the price yet again. It is now $60,000 less than where it started.”

“Several miles away, homeowner Robert Burnham can relate. His experience is nearly identical. ‘There is a house we would like in a retirement community, which we are not able to move. We are very much like many people my age that can’t get out of their home to retire,’ he said.”

“‘It means we’re still in a real estate slump. We are still seeing a lot of houses on the market. Buyers and sellers can’t quite come to an agreement,’ said Tim Warren. Burnham has decided not to drop his price again. He’s taking his house off the market for the winter, making a few changes and then will try again in February. Warren said that he thinks it’s a good strategy.”

From the Times in New Jersey. “Sales of newly built homes continued their slide last month, the government reported yesterday, renewing fears the housing slump would continue for the long haul. The Northeast region experienced the biggest decline in new- home sales, dropping 39 percent in October from September.”

“Industry watchers say the housing slump is likely to continue. ‘It may not be until 2008 until the market bottoms out,’ predicted James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University.”

“The problem, Hughes said, is the ‘extraordinary gains’ in the market played out over seven years, from 1998 to 2005. When the highs last a long time, ‘it takes time to adjust,’ he said.”

“The 39 percent drop for the Northeast came as no surprise to Patrick O’Keefe, chief executive of the New Jersey Builders Association. ‘The evidence is overwhelming that the state’s housing markets are weak and will continue to weaken,’ O’Keefe said. ‘This market in New Jersey particularly, given the economic concerns outside the housing sector, cannot see its bottom.’”




Bits Bucket And Craigslist Finds For November 30, 2006

Please post off-topic ideas, links and Craigslist finds here.