The Housing Bubble

The San Francisco Chronicle from California. “Ask any real estate agent worth her lockbox key to identify the No. 1 reason houses sit on the market. Her likely answer: The sellers want too much for them. ‘The first thing every buyer asks is: ‘How long has it been on the market?’ said Aldo Congi broker in San Francisco.”

“‘The old adage that you can use sales comparables from up to three months ago is lost in this transitional market,’ Congi said. ‘We really need to get sales comparables from properties that are in escrow within the last 30 days.’”

“Congi reports that his office’s sales are down 30 percent from last year. Most offers that come in are under the asking price. ‘It’s more common for a house to sell under the asking price in this market,’ Congi said.”

“In Contra Costa County, there are roughly twice as many active listings on the multiple listing service as there were last year at this time, says California Association of Realtors President Larry Spiteri.”

“‘And it’s hard for sellers because they feel like they’re leaving money on the table, like they’re giving their money away,’ Spiteri said. Adding to the challenge, agents say, is a common misconception among sellers that agents control the price of homes. ‘We try to sell the house for the highest price possible, but we don’t control the market, buyers do,’ Spiteri said.”

“Another misconception sellers have is thinking that their home’s improvements and amenities mean it will sell at last year’s prices. Shelly Moore, who just sold her Walnut Creek home, fell into this thought process.”

“‘We bought it during a bidding war, so at first it was pretty hard for us to swallow,’ says Moore. ‘We were comparing our features to those of houses on the market. But our agent reminded us that those houses weren’t sold.’”

“‘I don’t care if you have the Goodyear Blimp over your house, if it’s overpriced, it’s not going to sell,’ said Moore’s agent, Julie Dudum in Walnut Creek.”

“For now, the norm seems to be a plethora of ‘reduced price’ riders on for-sale signs, ads screaming ‘Motivated Seller!’ and agents lining up to announce their latest price reductions at weekly staff meetings.”

“The agents say don’t blame them. ‘The last thing any agent wants is an overpriced property that sits on the market,’ Congi said. ‘All you end up with is a big advertising bill and a signed withdrawal form from your seller.’”

The Press Enterprise. “On one side of Lavender Street, a two-story home (is) already decorated for Christmas. It is in stark contrast to a house directly across the street, where palm trees, plants and grass have withered to brown, months after the owners moved out and shut off the water.”

“Suburban eyesores like these are a sign of the softening real-estate market, a situation not limited to Eastvale, an unincorporated community surrounded by Norco, Ontario, Chino and Mira Loma.”

“‘When other people don’t keep their property up, it devalues mine,’ said Eastvale resident Connie Norton, who lives on Kite Court, a block away from another abandoned house. ‘It seems like it’s awful soon for having the houses look dumpy.’”

“She has lived in the neighborhood since 2003, when the Heather Ranch housing tract was built. ‘I don’t know whether the builders are selling to people who can’t afford the homes,’ said Norton.”

“‘This home fell into foreclosure,’ Mattis said. The former owners failed to make the mortgage payments for a prolonged period, so ownership reverted to the lender. Countrywide Home Loans holds the deed, real-estate agent Bruce Mattis said. He recently got the listing for the Lavender Street house, which has been empty since July.”

The Voice of San Diego. “The other day, I’m looking through the sales data of one of my favorite downtown condo complexes, Little Italy’s Village Walk, and my eyes almost popped out of my head. Nestled right there between the Mexican Consulate and Beech Street. It’s one of the ‘older’ complexes, constructed way back in 2002. It’s had a bit higher home values than some of its neighbors.”

“Except for unit 409. It’s a two bedroom, two-bathroom condominium. It has 1,264 square feet. In October 2004, it sold for $630,000. In October 2006, just two years later, the condo sold for $500,000.”

“If you look through the data, you can find a bunch of places that are now selling for far less than similar or even less attractive properties were selling for a year or more ago. But this was a 21-percent drop in two years.”

“Obviously the housing market is going through a correction. Some say it’ll crash, others say it will just ’soften.’ But even the most bearish of observers of the San Diego housing market would see a 21-percent drop in two years as an extremely large drop in a very short time.”

“I called the real estate agent who sold the property last month: Irvine-based Marta Riojas. Riojas said that the woman who sold the condo had been gifted it by her wealthy father, who purchased it for cash two years ago. The woman was moving to Arizona and just wanted to cash it out quickly, she didn’t mind potentially leaving money on the table.”

“But Riojas assured me that she could have sold it for more. ‘Absolutely, she would have gotten more. But she didn’t want to deal with it anymore,’ Riojas said, who adamantly denied that the sale was evidence of a housing crash.”

“I can’t imagine the people trying to sell condos right around this one are too happy about the drop in price. Riojas insisted it was just a good deal that one lucky buyer was able to get. The housing market is fine, she said. When a Realtor says that, you know it’s true.”

A housing report from the Arizona Republic. “New numbers are in on the fallout from the investor home-buying spree in metropolitan Phoenix. As many as 40 percent of the contracts on all the new homes in the Valley during 2005 and early this year have fallen through. That translates to 25,000 spec homes, according to a new survey from housing analyst RL Brown.”

“Many new-home deals fell apart because buyers couldn’t sell existing homes. But there also were many investors who pulled out of new-home deals after seeing they couldn’t flip the homes for hefty profits.”

“Speculators snatched up existing homes last year and are now trying to sell them for a profit. Those extra homes for sale, by many people who never lived in them, have created a glut in some areas of the Valley.”

“Realty Executives President John Foltz said many of his agents ask where all the home buyers are in this ‘buyers market.’ His answer: ‘They’re living in overpriced listings.’”

The Arizona Daily Star from Tucson. “After months of study — and hope on the part of city officials, Bookmans Entertainment Exchange will not be moving its Grant Road store to Downtown, citing a lack of residents.”

“For about the last six months the local multimedia chain had been exploring a move to Downtown. ‘A traditional Bookmans is going to get 50,000 to 60,000 people a month,’ Feeney said. ‘With the Downtown population … we felt it would be difficult to sustain that kind of traffic volume in the immediate area.’”

“Bookmans’ executives had concerns about store space, adequate throughways to get to Downtown and parking once customers arrived. But it was a lack of residents in the immediate area that was the backbreaker, said Sean Feeney, Bookmans’ executive vice president.”

“This isn’t the first time a lack of residents has disrupted potential Downtown development. The city had hoped to build a grocery store at West 22nd Street and Interstate 10, but dissolved an agreement in November 2005 with Bourn Partners because there weren’t enough people in the immediate area to support a store.”

“Greg Shelko, director of the city’s Rio Nuevo Downtown revitalization project, said he was disappointed by the news, but he did his best to stay positive. ‘A key endeavor for us is not to lose sight of the need to build as much housing as we can in the coming years,’ he said.”

Several readers suggested a topic on the overall economy. “I would like to see a discussion on what ‘nebulous’ indicators do you see pointing to a recession: I was at a trade show in LA and noticed that a lot of women wearing long dress skirts. Recalling from my early econ class: An indication of a recession is long skirts. Short skirts/fashions indicate a booming economy.”

One answered. “I drive through Visalia, Ca. about once a week and there are 1/2 a dozen 50 house lots that the graders are doing their thing to and it looks as if they’ll build the houses, although there is no need for more new houses, with over 2,000 on the market, in a city of 100,000.”

“What do you think goes on in the brain trust of the homebuilders? Is it that they’ve bought the land and all the building material already and full speed ahead, damn the torpedoes, or are they just house building savants that don’t know any better?”

Another said, “I noticed a few weeks ago that Home Dumpo isn’t even staffing the registers in the middle of they day now. Just one person at the ’self check out’ section. How much does one low wage cashier cost? They must be pinching pennies.”

A reply, “I visited Home Depot last summer when I was in the States. Nobody was at the checkout registers. I thought to myself WTF? Nobody wants to take my money. Finally someone directed me to the ’self check out’ booth and I almost laughed my azz off thinking about how that ’self check out’ booth would go down in Moscow. I left the items I wanted to buy at the booth and went to Lowes.”

Another anecdote, “In mid-October, I visited a Lowes store in Tucson. Only one cashier in the main store, and this was on a lovely Saturday morning. (Perfect for doing projects around the house and yard!) The garden center had one cashier station open, and they briefly opened a second to handle a sudden uptick in traffic.”

One looked at the media. “A broader topic that I have been thinking about: Does the MSM contribute to the risk of severe financial dislocation by hiding the proverbial elephant under the rug?”

“Because we keep seeing story after story in the press these days about the housing market ‘bottoming out’ with no supporting evidence. In fact, occasional items suggesting the inventory of vacant new homes is at a record high level, builders are continuing to pile on the new inventory, prices are falling faster than official statistics reveal (thanks in part to builder incentives masked by fraudulent appraisals) and foreclosures are rising all generally point into deterioration, not a bottoming out.”

“At some point, happy talk loses its force when any greater fool can see the huge gap between what gets reported and the evidence on the ground. Even so, we have seen an occasional post documenting how the LA Times kept talking up a recovery from roughly 1989-1996 last time around (and by 1996, they were right!).”

A reply, “The GF(s) out there just want what they want, so they gleefully skim over negative reports and focus only on the positive spin that will help ratify their decisions.”

One asks for a definition. “What’s YOUR definition of ‘recession’ and are we already in one?”

The Washington Times. “Economic weakness spread beyond the stricken housing and auto sectors last month, with reports showing U.S. manufacturing shrank for the first time in 31/2 years and construction dropped the most since the September 11, 2001.”

“An unexpected decline in construction of offices and other business facilities in October added to a record string of drops in housing construction of more than 1 percent in the last seven months to cause the biggest drop in construction spending in six years, the Commerce Department said yesterday.”

“‘Industry is clearly going through a rough patch’ that few anticipated, said Daniel Jester, analyst at Moody’s. Outside housing and autos, the Federal Reserve had expected business to pick up rather than decline this fall, supporting a so-called ’soft landing’ in the economy.”

“‘Two major manufacturing markets are declining — motor vehicles and housing — and many other industries are trying to adjust inventories to adjust for a period of much slower growth ahead in 2007,’ said Daniel J. Meckstroth, chief economist at the Manufacturers Alliance.”

“The ‘awful’ collapse of the construction market in October means that sector is likely to be a major drag on economic growth for the fourth straight quarter in the final quarter of 2006, according to Economy.com estimates.”

“‘Housing slowdowns tend to lead recessions rather than result from them,’ said economist John Makin. ‘An annual drop in the growth rate of residential investment of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965.’”

From Bloomberg. “The housing slump is also resulting in job cuts at construction companies and related industries. Builders shed 26,000 jobs in October, the most since February 2003, the Labor Department said. ‘The weakness in orders and obvious further declines in housing-related activity suggests more weakness in coming months,’ said Steven Wieting, managing director at Citigroup Global Markets.”

“‘Construction and manufacturing are certainly the anchors weighing down growth at the moment,’ said economist Joshua Shapiro. ‘Consumer spending is hanging in there, but there are certainly a lot of crosscurrents that will lead to pretty anemic growth in the fourth quarter and probably the first quarter as well.’”

The Palm Beach Post. “Ask Nancy Bagley about the relationship between the housing slowdown and her net worth, and the Delray Beach homeowner is emphatic. ‘Absolutely, I feel less wealthy,’ says Bagley.”

“It’s a sentiment shared by many homeowners in Palm Beach County and the Treasure Coast as the once-sizzling real estate market cools. The median price of a single-family home in Palm Beach County fell 12 percent from October 2005 to October 2006, the Florida Association of Realtors said last week, while national home prices dropped a record 3.5 percent for the year.”

“An increasing number of home sellers are getting less than they paid for houses bought last year or earlier this year, according to Palm Beach County property records.”

“Ronnie Pryor says she’ll spend about $1,500 on Christmas gifts this year, the same amount she spent last year. Though Pryor is pessimistic about the economy, she says the housing market won’t affect her spending. After all, she’s not selling her house now, so she can ignore short-term fluctuations in its value.”

“But, Pryor says, ‘If you have to sell, it’s very tough.’”

A report from the Seattle Times. “Former Washington Huskies football player Scott Greenlaw led the mortgage company he founded to dizzying heights, 400 employees, a sprawling new headquarters and kegs of beer at staff meetings. Now he’s selling his house to avoid bankruptcy as creditors line up with lawsuits.”

“The sudden demise in May of one of Washington’s largest mortgage brokerages has left a trail of angry ex-employees, expensive lawsuits, unpaid taxes and government investigations.”

“Greenlaw was one of many mortgage-business newcomers who saw gold in doing refinances. His target clients: tarnished borrowers whose credit problems qualified them only for expensive, and highly profitable, subprime loans.”

“The problem with much of mortgage lending, Greenlaw told the Business Journal, was that loan officers lacked sufficient training and accountability. ‘You could be selling shoes yesterday and making loans tomorrow,’ he said in a 2004 interview.”

“Some loan officers, including Kerrie Saulness, came to Merit with years of loan experience. However, many had none and got their jobs by word of mouth along the Eastside club scene’s grapevine. The lure was fast money.”

“Merit did put loan officers through a 19-step program. ‘Loan Officer 101′ was 15 minutes long, as was ‘Mortgage Glossary.’ Thirty minutes were devoted to ‘10 Step Loan Flow.’”

“Saulness wasn’t impressed. She sat next to two 18-year-old loan officers. ‘They didn’t even know how to read a credit report,’ she said.”

“Former loan officer Nick Barry said wryly that many ‘had no idea what product they were selling, but they knew how much money they could make.’”

“Merit employees proudly posted their résumés, plus photos of their luxury cars and drinking parties, on various Web sites. One loan officer had come to work fresh from being a Hooters Girl. Another solicited clients for two endeavors: writing mortgages for Merit and selling marijuana paraphernalia on the side.”

“Indeed, several Merit loan officers boasted online that doing drugs was a favorite pastime. ‘Let’s get hopped up and make some bad decisions,’ wrote one beside a photo of himself grinning broadly.”

“Former employees also said Merit regularly provided a keg of beer for some staff meetings, but Greenlaw said that, no, it was actually two kegs, and employees were free to bring in six-packs on Fridays. Asked about rumors of drug use in the office, Greenlaw said, ‘We just never checked.’”

“When interest rates rose and the lucrative refinance business slowed significantly, Greenlaw gambled that he could increase revenue by adding loan officers who could complete more complex loans. That didn’t work, and the overhead sank him, he said.”

“Was it really that simple? Pressed, Greenlaw admitted it wasn’t. ‘Buybacks were high,’ Greenlaw said, without giving details.”

“In other words, Merit’s loan officers executed mortgages that were so flawed that the investors who bought the loans from Merit forced them to buy them back. A longtime broker not affiliated with Merit said such buybacks are ‘extremely rare.’ ‘It will bankrupt most mortgage brokers because most don’t have the resources to pay off a loan that is purchased by a lender and bounces back,’ the broker said.”

“Ordered to complete a loan for an elderly homeowner who was incapable of understanding it, Loan officer Sunny Hoppe said she refused. ‘Merit’s whole attitude was, ‘Get the deal,’ Hoppe said.”

“Saulness said she also tangled with her boss. ‘It was highly promoted that you overcharged the customer because they’re subprime and they deserve it,’ Saulness said.”

From Lew Sichelman. “Home buyers who bite on houses that come with free vacations, cars or other sales incentives may be surprised to find out, sometimes too late, that the places they want are not worth what they thought.”

“In the eyes of lenders, these and the dozens of other ‘concessions’ sellers are dangling in front of potential buyers have a dollar value that should be accounted for by the appraiser, if not deducted outright from the selling price, when determining the true market value of the property.”

“If the appraiser is aware of the concession, he’ll make the adjustment accordingly. But if he somehow misses the incentive, the lender ends up ‘mispricing’ the loan for the risk involved. That’s the last thing any lender wants. But ‘it happens all the time,’ according to Douglas Vincent, a collateral and appraisal risk expert in Plano, Texas, with 20 years experience in the field.”

What do you see in your housing market this weekend? Auctions or builder incentives? Editorial cartoons? Statistics? “Remember when you could count on condominiums to carry the housing market, even as sales of single-families began to languish? Not anymore.”

“The amount of time it takes to sell a condominium in Massachusetts has skyrocketed 46 percent in the past year, according to the Massachusetts Association of Realtors.”

From New York. “We raised a cautious question recently. We asked why, in a market where big time media like The New York Times are writing sad songs about the East End’s glutted homes for sale market, would east end real estate firms fill pages of full page ads saturated with all the houses for sale they could fit in the space?”

“Self defeating to my mind, implying that an inventory overflow may indeed be true! Buyers note: there are some wonderful homes out there, in that range, waiting to be picked off.”

From Ohio. “‘The number of sellers who entered the market outpaced the number of buyers, so while homes continued to sell, there were far more listings on the market,’ Akron Area Board of Realtors President Bill Askin said. ‘People’s perception was that the market was soft because there were so many signs up in neighborhoods.’”

From the topics thread. “I live in Santa Monica, I sold my home about a year ago and now I’m renting. My home did not appraise for the price the buyer offered, but they insisted on buying my house anyway even though it was valued 30k under their bid.”

“The value of the home I sold dropped and I received a letter from my buyer (via my real estate agent) stating that they believe they overpaid and they had the nerve to ask me for 30k, the value of the property today.”

“They gave me a long song and dance about how much money I made on the property and how it would only be fair for me to return the money. Of course I told them to take a hike. Would they have shared the $$ with me if the property increased in value? Buyers remorse is a bitch.”

The Sun News reports from South Carolina. “The Grand Strand housing market is showing its first sign of quarter-over-quarter price declines. ‘The condo market will see continued price declines that is going to get worse,’ said Al Parish, economist at Charleston Southern University.”

“Skyrocketing insurance premiums have hit the condo market harder than the single-family market, Parish said. He cited up to 100 percent increases in single-family premiums and up to 700 percent increases in condos. Another factor, folks who bought a home they couldn’t afford on an interest-only loan to sell because of rising mortgage payments. Growing inventory is also adding to price declines.”

“Nationally, many areas that saw high speculative activity are seeing the quarter-over-quarter median price declines, said Mark Vitner, an economist at Wachovia in Charlotte, N.C. ‘A lot of folks that were buying homes never intended to close on them. A lot of folks are offering those homes for sale in the resale market,’ Vitner said.”

“Brunswick County posted a year-over-year median price decline for resale single-family homes, but experts say the drop is due to builders building more lower-end homes than last year. The median price dropped 23 percent to $200,000 from $260,000 for resale single-family homes.”

“(Broker) David Sandifer said motivated sellers are cutting prices in certain parts of the county, and he expects a buyer’s market for the next three months.”

“Several builders in the N.C. 211 corridor have lowered prices between $20,000 and $50,000 to move inventory, said Cathy Six, new homes director for Coldwell Banker Sloane in Sunset Beach, N.C. In Georgetown, new condos saw the quarter-over-quarter drop, from $143,900 to $117,900.”

“One developer is hoping to transform downtown Myrtle Beach by tearing down unused buildings and selling upscale lofts. Large-scale single family developments are also adding their own live/work town centers, like Centex Homes at RiverGrand in Little River. And local developers will soon build the same concept at Woodsong in Shallotte, N.C., and another loft-style project at Sunset Quarters in Sunset Beach, N.C.”

“‘Our downtown area is not like Chicago where you have a lot of executive people looking to live to be close to work. It’s pretty bleak down there,’ said Tom Maeser, president of the Fortune Academy of Real Estate. ‘What I’ve found is that buyers…will look around at what’s there now and that’s a hard sell.’ At $600,000, buyers could choose oceanfront condos instead of downtown living, Maeser said.”

“Robin Roberts, developer and architect of Palmetto Lofts, knows it could be a hard sell for downtown Myrtle Beach, a district that has been going downhill for years. ‘If you build it, they will come,’ he maintained.”

The Palm Beach Post from Florida. “The music in the residential real estate market has stopped, but the players still are changing seats. Developers with unbuilt projects are weighing whether to sell, sit on or find some other use for their dirt.”

“Rodolfo Gonzalez is an owner of three prime condo sites in West Palm Beach, but Gonzalez said he is selling one site and may redo another into an office/retail complex.”

“In downtown West Palm Beach alone, (realtor) Kenneth Close said, the real estate slowdown has led to the cancellation of 1,000 new condo units. About 450 condo units are still available for sale, Close said.”

“Gonzalez isn’t alone in trying to navigate today’s fickle market. The developer of the Eighty Point West condo planned for North Flagler Drive is in the same boat. Officially, the sales center for the luxury waterfront condo remains open. But since sales have dried up, developer Cliff Preminger said he will delay the start of construction indefinitely.”

“Building into a falling market is not an option. ‘Real estate is no field of dreams. We don’t build it and hope people will come,’ Preminger said.”

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