The Housing Bubble

Friday desk clearing time. Florida. “Recalling its recent boom, Palm Beach County’s five-year appreciation rate was almost 130 percent, according to OFHEO. ‘Did wages and salaries rise anywhere near that much?’ asked analyst Mike Larson. ‘Of course not. Our prices were driven up by a massive wave of cheap, easy money and rampant speculation.’”

“‘The markets that boomed the earliest, and that had the biggest price gains, are the ones that are now flaming out,’ Larson said. ‘Unfortunately, that’s us.’”

“‘The old, easy model‘ for pricing a house ‘is to look at the computer to see what sold last year and add 5 percent,’ said Stephen Baird, president of Baird & Warner Real Estate in Chicago. ‘That model doesn’t work now. The market is going to tell you what a house is worth. You just may not like what the market says.’”

From Kentucky. “Paul and Rosanne Jantzen’s house has been for sale for more than eight months and has attracted near zero interest. ‘I’ve never seen houses sit on the market for so long,’ says Paul. His agent has told him, ‘Nobody’s out there buying. All you can do is sit.’”

“‘We’ve talked about dropping the price again,’ he says. ‘but we feel the price is extremely reasonable. We’re not going to give it away.’”

“Like the rest of the housing market, however, condo hotels are not immune to the slowdown, and several projects, after splashy sales releases, have quietly curtailed building plans because of sluggish sales and rising construction costs.”

“Turning a profit may very well be an unattainable goal, according to Dante Alexander, CEO of the National Condo Owners Association. ‘Most should not expect to make a profit even with full participation in the rental program,’ Mr. Alexander said. ‘The average condo hotel will generate $7,500 a year but cost you $12,000 a year.’”

“Hawaii’s economy isn’t likely to sour as badly as it did in 1991 and 1992 after the state’s last housing boom took its turn for the worse, said Carl S. Bonham, UHERO director. ‘The housing bubble wasn’t as big and our population isn’t downsizing. This is a slowdown; it’s not a contraction,’ Bonham said.”

“Circuit City put a price tag of $1,760 on a 42-inch plasma high-definition television at the end of the summer. By October, Best Buy was offering the same model for $100 less. Then, Wal-Mart dropped the price to $1,294 in early November. On Black Friday, Best Buy chopped its price again, to $999. Circuit City quickly matched, leaving Wal-Mart in the dust.”

“Economists say the housing slump has made average Americans a lot more cautious, cost-conscience, and for the first time in at least a couple of years. ‘Now that housing prices have stopped rising, people are returning to more normal behaviour,’ explained economist Mark Vitner.”

“Century 21 Canada’s latest national house price survey indicates that there has been absolutely no growth in real estate prices in Vernon during the last six months.”

“‘Prices aren’t dropping but they’ve levelled off,’ said (realtor) Bill Hubbard in Vernon. ‘I want to stress that we’re not tanking. We’re into a good healthy, balanced market. It’s a better market than a year ago because it’s not as radical.’”

From Oklahoma. “Bob Schiermeyer, planning director for the City of Edmond, said building permits are often down this time of year. ‘We have an inventory of over 2,000 lots right now. All are ready to build. This is probably the biggest inventory I’ve seen since the biggest booms we’ve had. I think people are saying, ‘Let’s see how things go’ right now.’”

From Texas. “Even though San Antonio has a robust housing market, you can still negotiate with builders when purchasing a new home. While the inventory of homes for sale is still low, it’s starting to grow slightly. Builders have noticed a bit of slowing in the market. ‘They’re beginning to get a little bit nervous,’ said Jim Gaines, research economist at Texas A&M University.”

The Dallas Morning News. “Lately I’ve been getting calls and e-mails from folks who don’t like what they read about the housing market. They suggest that we quit writing about the slowdown in home sales so that the housing boom can catch its breath and take off again. Some real estate professionals think that’s the way to handle the modest slowdown we’re having.”

“I’ve reported on the real estate industry long enough to know that it’s a business that runs on good news. But every so often in the real estate cycle, activity slows a bit. That’s what we’re seeing now. The days when real estate agents were the gatekeepers for the housing market have gone the way of typewriters and printed MLS books.”

“The key to coping in today’s online housing market is to provide as much information as possible and let the consumer decide.”

The Tucson Citizen reports from Arizona. “The real estate dip put the brakes on the downtown 44 Broadway Lofts project this year, but the developers expect to start looking for condo buyers in the next few weeks in the former federal courthouse annex. Managing partners Ron Schwabe and James LeBeau opened a sales office with a splash on the July 4th holiday, but that coincided with the slump in housing prices.”

“‘We just kind of pulled back,’ said Schwabe. ‘In the next few weeks, we’ll know more about our pricing.’”

“Realtor Susan Cassidy took down a couple hundred names of people, but has not entered into any contract talks with potential condo buyers in the vacant concrete-and-steel building. ‘The developer never really decided they wanted to take reservations,’ Cassidy said.”

The Arizona Daily Star. “The chill in the air is not just from the weather. New figures from the Office of Federal Housing Enterprise Oversight show a definite cooling of home prices in Arizona.”

“‘There are still some areas where appreciation rates remain very high,’ Agency director James Lockhart said. ‘But now they are the exception rather than the norm.’”

“One of those areas is Flagstaff. Prices increased nearly 3 percent in the last quarter and by close to 22 percent since the same time last year. The continued increase in Flagstaff is bad news for those hoping to find affordable housing in the area, according to Helen Hudgens Ferrell, the executive director of Both Hands Inc., which deals with housing and shelter issues.”

“‘I was certainly hoping it would cool down like the rest of the state and the country,’ she said. The problem, said Hudgens Ferrell, is land, the lack of it. She said the community is more or less landlocked, with little available private land on its boundaries for new homes.”

“And complicating the problem of available housing for Flagstaff residents is that perhaps a quarter of the houses are second homes for those living elsewhere.”

“She said some firms have even taken to hiring buses to bring in workers from Winslow, where homes are more affordable.”

The Salt Lake Tribune from Utah. “Nancy Cygan is home-shopping in Salt Lake City this week, wedged between two worlds. Her house in the Chicago suburb of Roselle, listed at $369,900, has been shown only once since May. Then there is Utah.”

“‘I never thought, leaving Chicago, that I would not be able to afford something comparable in Salt Lake City,’ Cygan said.”

“Three years ago, Utah’s housing market was the weakest in the nation. Today, it is second only to Idaho. Home prices in Utah rose 17.4 percent during the three-month period ending Sept. 30 compared to a year ago, according to statistics released Wednesday by the Office of Federal Housing Enterprise Oversight.”

“It was only a matter of time before Utah caught up, Salt Lake City economist and Zions Bank consultant Jeff Thredgold. said. But going from dead last to No. 2 is ‘amazing,’ he said, noting Utah does not attract the same level of speculation as places like Nevada and Arizona.”

“Rather, housing prices here are a reflection of a raging economy, a tight labor market and a steady flow of newcomers, he said. ‘People have been cashing out in places like San Diego and Phoenix and going to Boise, Salt Lake and Twin Falls where they can get twice the house for half as much money,’ Thredgold said.”

“‘But someone in Austin or Atlanta would be stunned at what they would have to pay to live in Salt Lake City,’ he said. Or, say, someone in Logan.”

“Jeremy Pugh and wife started scouting for a home in Sugar House. ‘I was like, ‘Whoa, are you kidding me?’ There were these bungalows and they were cute, but they were teeny. We finally upped our price range.’”

“They sold their home in Logan for $140,000 and paid $260,000 for a 1914 Victorian in Sugar House. ‘We now have twice the house payment for a smaller home,’ Pugh said. ‘We bought high, basically, and we’re just hoping our value will continue to appreciate.’”

“Don’t count on it, says Salt Lake City real estate agent Bob Plumb. The market already is softening, Plumb said, and while some of the slowdown is seasonal, sellers aren’t as brazen as they were six months ago. ‘Sellers used to just add 5 to 10 percent onto the value and get it,’ Plumb said. ‘Now pricing is a little more critical.’”

“Real estate agent Joan Taylor echoed Plumb, saying it used to be that houses registered to be part of a home tour would sell before the tour began. Which is why she’s advising her sister, Nancy Cygan of Chicago, to be patient, and to steer clear of Idaho.”

Some housing bubble reports from Wall Street and the Washington Post. “Construction activity in October plunged by the largest amount since the recession in 2001 as home building fell for a record seventh consecutive month. It was the biggest decline since a similar 1 percent drop in September 2001.”

“Residential construction fell for a seventh month in October, the longest stretch of weakness on record. The 1.9 percent drop in this category in October was the biggest decline since July.”

The Chicago Tribune. “New-home sales data startled investors this week, declining more than expected, and leaving many economists speculating whether the housing downturn would drift through the economy.”

“‘The absolute number of homes on the market has peaked,’ economist Ian Shepherdson said. ‘But that is not enough; home builders need to reduce inventory drastically. There is a long, long way to go.’”

“‘The housing downturn is a very big deal for the U.S. economy,’ because of how it spills into multiple industries, economist Stephen Roach said. Among them: a contraction in construction, cutbacks in buying such things as furniture and appliances, mortgage finance companies and real estate brokers struggling for business, and what’s called ‘a negative consumer wealth effect.’”

“Although jobs are firm, Roach is not impressed. In the last 58 months compensation has climbed only 16 percent versus the usual 23 percent during a typical economic expansion. ‘With the home-building sector now moving into recession, a renewed cyclical shortfall of labor income should be increasingly evident in the months ahead,’ he said.”

From Bloomberg. “H&R Block Inc. posted its worst loss in at least 17 years during the second quarter because of a slump at its mortgage unit, which the company is trying to sell. The company’s net loss almost doubled to $156.5 million in the quarter ended Oct. 31, compared with a loss of $81.2 million a year earlier, H&R Block said.”

“The mortgage unit lost money in the quarter after H&R Block wrote off $102.1 million linked to home loans during the first quarter. ‘Ongoing weakness in the mortgage industry’ reduced profit in the second quarter, CEO Mark Ernst said.”

“Revenue from the company’s mortgage business was almost halved to $140.6 million, because of lower originations and higher provisions for loan losses. The unit had a pretax loss of $39.0 million, versus pretax income of $46.2 million a year earlier.”

“The mortgage bond market is beginning to buckle under the weight of the worst U.S. housing slump in six years. Yields on so-called sub-prime mortgage securities rated BBB have risen to 6.52 percent on average from 6.28 percent on Sept. 5, data compiled by Bank of America Corp. show.”

“About 3.3 percent of the $160 billion in sub-prime loans made this year through July have payments that are more than two months late, the highest ever for mortgages in their first year, according to New York-based Fitch Ratings.”

“‘The higher delinquencies do set off an alarm for many people and make us more conservative,’ said Alex Wei, a senior VP at Delaware Investments, which has about $100 billion in bonds including mortgages.”

“When the housing market was setting records in sales and prices last year, securities backed by floating-rate sub-prime mortgages returned 3.9 percent including reinvested interest, almost double the 1.97 percent gain for investment-grade corporate bonds, according to Merrill Lynch. Sub-prime mortgage securities have returned 1.38 percent in the past three months, less than half the 3.63 percent return for corporate debt.”

“Sub-prime lenders are paying more in interest on the bonds they sell to fund mortgages. Interest expense for New Century Financial Corp. rose 29 percent to $375 million in the third quarter from a year earlier. Accredited Home Lenders Holding Co.’s jumped 62 percent to $138 million. Fieldstone Investment Corp’s payments climbed by 57 percent to $91 million.”

“Late payments are accelerating after lenders began to require less documentation for loans and financed more homes without down payments, Bear Stearns analyst Gyan Sinha said. About 38 percent of the most common sub-prime mortgages this year were for the full value of the home, up from 31 percent in 2005 and 21 percent in 2004, according to Bear Stearns.”

“Sinha said 45.5 percent of the loans this year required ‘low documentation’ of borrower income and net worth, up from 44.5 percent in 2005 and 40.1 percent in 2004. The data reflect ‘common methods of allowing first-time homebuyers to borrow more than they can afford,’ Sinha said.”

The Toledo Blade reports from Ohio. “Industry reports this year have indicated a slide in the national housing market and price drops in Michigan and Ohio. But the latest report paints a stark picture. Toledo ranked last out of 10 metropolitan areas in Ohio, according to the Office of Federal Housing Enterprise Oversight.”

“‘Prices are dropping. That’s reality,’ said Dan Lepkowski, a real estate agent in Toledo. ‘It’s been that way for a while and the Realtors that don’t admit that aren’t being straight.’”

“(Broker) Dan DiSalle, Jr. said stagnant home sales in the Toledo area mainly are in the move-up market, or houses $200,000 and up. ‘My experience is in the move-up price ranges there is mostly an oversupply,’ he said.”

From ABC 13. “Drive down a lot of streets in the area and you’ll see a lot of ‘For Sale’ signs and while Toledo has a glut of homes on the market, realtors say there is a silver lining. Rod Culler is a local realtor who deals with foreclosures. He says he’s never had so much business. ‘I’ve seen about a twenty percent increase,’ he said.”

The Detroit News from Michigan. “Stalled subdivisions are becoming an increasing part of the landscape across Metro Detroit amid a slumping housing market for single-family homes and condominiums, threatening increases in property values and quality of life for neighbors.”

“‘It’s probably been the worst year I’ve ever seen in my life,’ said (developer) Anthony Sorrentino. ‘It’s like the whole world completely stopped.’”

“In some half-finished subs where neighbors aren’t moving in, blight is. Vandals and thieves have smashed windows and stripped copper pipes from the abandoned Taylor Meadows condominiums across from the house where Lightfoot lives. ‘Ain’t nobody there,’ Christopher Lightfoot said.”

“Frank Slavik lives on Tiara Lane in the Monroe Meadows subdivision on an unfinished cul-de-sac, where one lot is undeveloped, one house is being auctioned and another one sold for $209,000, about $100,000 less than what Slavik’s home is worth, he said.”

“Slavik said he has had difficulty refinancing his home. ‘It’s going to kill everyone’s value on this street,’ Slavik said. ‘It drives me nuts.’”

ABC Newspapers from Minnesota. “The Port Riverwalk townhouse and condominium project on Coon Rapids Boulevard is on hold. The soft housing market at this time is the reason for Rottlund Homes pulling back from the planned 2007 start of the project, according to City Manager Matt Fulton.”

“‘The community will undoubtedly be disappointed by the failure to move forward, but I believe that everyone will appreciate the hesitation to start, given today’s very soft housing market,’ Fulton said. ‘They just can’t do it right now, given the current market conditions.’”

“According to Marc Nevinski, city community development director, the soft housing market is affecting many developers, not just Rottlund. ‘The problem is that there is a huge amount of inventory out there that is not moving,’ Nevinski said. ‘Developers are selling off projects at huge discounts and walking away altogether.’”

The Forum from North Dakota. “It’s a homebuyer’s market in Fargo-Moorhead for two reasons. There are a lot of homes for sale and 30-year fixed-term mortgage rates have dropped below 6 percent. ‘They are definitely going down with the uncertainty in the economy,’ Dave Ouradnik, owner of Executive Mortgage Corp.”

“The local housing market has been moving at a fast pace for several years in a row, said Mark Daniel, president of Coldwell Banker First Realty Encore, Fargo. The fastest home-sales market in Fargo-Moorhead occurred in 2003-2004, Daniel said.”

“‘We are not in a bad market,’ Daniel said. ‘We are in a corrective market. The market just needs a little breather and a little catch-up time.’”

The Hartford Courant reports from Connecticut. “Sales of single-family houses in Connecticut dropped sharply in September, raising concerns that prices may dip if sales continue to decline. The 25-percent plunge in sales in September, the deepest in 12 straight months of sales declines, caught the eye of real estate experts. They said the median sales price in Connecticut could not hold up if sales continued to fall at such a clip.”

“‘It would indicate that a price adjustment is on the way,’ Ronald F. Van Winkle, a West Hartford economist, said.”

“Each of the state’s eight counties showed a decline in sales, with the largest drop coming in Fairfield, 30 percent. Fairfield was one of three counties above the overall percentage decline registered by the state. Litchfield County saw the most dramatic decline in median sales price, falling nearly 15 percent in September, to $231,500, from $271,250.”

“‘What you are looking at is a shift back to a more sustainable rate of sales,’ said Barry Rosa, VP at Prudential Connecticut Realty in Rocky Hill. Median sales price increases have slowed because sellers are setting more realistic asking prices because there are more homes on the market than a year ago, Rosa said.”

The New Haven Register. “The Warren Group in Boston reported a total of 3,043 single-family homes were sold statewide in September, compared with 4,043 the same month a year earlier.”

“‘Sellers were sticking to their price. But my guess is it will be hard to sustain double-digit declines in the number of sales for too much longer without sales prices coming down as well,’ said CEO Timothy Warren Jr.”

“Condominium sales plunged 27.3 percent, from 1,694 in September 2005 to 1,232 a year later.”

“In the third quarter, Connecticut single-family home sales fell 20.3 percent, from 13,462 in the third quarter of 2005 to 10,730 a year later. Single-family home sales in Connecticut already had dropped 13 percent in the second quarter, 11.2 percent in the first quarter, and 14 percent in the fourth quarter of 2005, compared with the same periods a year earlier.”

The New Jersey Herald. “A nationwide slowdown in the housing market has stalled the borough’s Main Street renewal plan. With new home sales down 17 percent across the country, developer K. Hovnanian has decided to pull out of two proposed housing projects in the borough.”

“The Hovnanian project was seen as the force that would bring new life to the barren downtown and help reduce the burden on borough taxpayers. ‘What’s down here right now? Nothing,’ said Franklin Mayor Douglas Kistle, who recently saw six Main Street properties go up for sale.”

“Hovnanian’s departure reflects an ongoing trend among home builders scaling back on their production in response to a slowing housing market. In Green Township, Toll Brothers recently dropped plans for a 45-unit development because the economics no longer made sense.”

“‘Builders are pulling back because there’s an oversupply of houses on the market,’ said Walter Molony, a senior public affairs associate for the National Association of Realtors. ‘Unless builders can be assured of healthy profits, there’s hesitancy there.’”

“In Franklin, Hovnanian had proposed building 546 age-restricted units on a 103-acre parcel along Munsonhurst Road. The developer has withdrawn its two-year-old request for a zoning change.”

“The cost of purchasing land, combined with New Jersey’s strict regulatory procedures, has forced Hovnanian to abandon several projects around the state and cut some of its staff, company spokesman Doug Fenichel said.”

“If the developer went forward with its Franklin projects, it might not make a profit when the homes are sold or, looking to make a profit, the homes would be overpriced and not sell, Fenichel said.”

“‘We’d love to be building in Sussex County. We think there’s tremendous opportunities there,’ Fenichel said. ‘We need to find deals that remain economically viable.’”

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