The Housing Bubble

The Fresno Bee reports from California. “Anthony Gamber assumes presidency of the Fresno Association of Realtors during a housing slowdown, but the veteran agent says he isn’t worried. He called the 5.3% drop in median price in Fresno County over the last year a stable reduction, and noted it was expected after a five-year run-up that tripled home values in some areas.”

“‘It’s not real drastic,’ said Gamber, a real estate agent for 27 years. ‘It’s not the bubble bursting.’”

“Still, at least half of the 4,344 members in the association have three years or less of experience, so they have not been through a slow market. Gamber said he expects many of those to exit the profession.”

“He thinks that is the year that agents and sellers come together on market conditions, and set more realistic price expectations. ‘You cannot price according to the last [property] sold and put on appreciation,’ he said.”

“Whether 2007 proves to be the year the market hits bottom remains to be seen, and may not be obvious for some time afterward. ‘You don’t know when you’re there,’ Gamber said.”

The Orange County Register. “O.C. home inventory tracker Steve Thomas says ‘in the past two weeks, the active inventory shed another 593 homes, dropping to 13,572 homes. The drop in the active inventory is due to so many sellers throwing in the towel as we move further into the Holiday market.’”

“‘With more and more sellers realizing the weakness in both the Fall and Holiday markets, the active inventory has descended to 2,434 homes since reaching its peak for 2006 on August 24th, 16,006 homes.” That 15% drop from the cyclical peak is more a seasonal switch than a sea change.’”

“Thomas notes: ‘The active inventory may drop down to 12,000 homes. HOWEVER, last year we started the year with 8,098 homes on the market. That’s almost 4,000 fewer homes than what is expected to begin 2007. With so many sellers pulling their homes off the market now only to place them right back on the market in the Spring, coupled with a number of new sellers who did not market their homes in 2006, the active inventory could climb to nearly 20,000 homes.’”

The Tahoe Daily Tribune. “With a cooling housing market entering the winter season, patience and timing may be the key words that bring buyers and sellers together on the South Shore. The National Association of Realtors, supported by California’s version, predicts existing home prices will fall by about 9 percent this year.”

“‘But take heart - the worst may be over,’ David Lareah, NAR chief economist, said.”

“A full correction will take getting the sellers’ prices to meet the buyers’ demands. The current median of homes listed is about $75,000 higher than the average of homes sold. It’s still a buyer’s market, if those seeking America’s biggest dream seize a good opportunity, the sellers become more realistic in their pricing and agents work smarter and harder.”

“‘We’re hoping to see things rebound. Now’s the time for the first-time home buyer. Otherwise, when prices go up, they may not be able to afford (another surge),’ said real estate agent Michelle Keck.”

The Daily Breeze. “It’s been nearly six months since Donald Trump held a lavish unveiling of the first model home at The Estates at Trump National Golf Club in Rancho Palos Verdes. At the time the real estate mogul boasted he had already sold five of the first 36 homes for prices ranging from $5.5 million to $10.5 million.”

“Yet today, property records show only one home in the subdivision has actually sold, to a Trump pal and business partner, amid a slowing housing market.”

“Andy Lemke, VP of real estate sales at the development, says seven additional sales are pending. However, only three are in actual escrow, said real estate agent Clara Duran Reed. Records indicate one of those has been in escrow for two entire years, an inordinately long time, she said.”

“‘The entire Peninsula has only 12 properties available that are over the $5 million price range and only about seven properties have actually sold, since the start of the year,’ said Duran Reed.”

“‘He’s going to have to do a lot of marketing, I think,’ said Duran Reed. ‘We have not seen the bottom line yet on these homes. There are beautiful homes that don’t cost anywhere near that amount on the Peninsula that have lots of land and beautiful views.’”

“And Trump’s homes are quite close together, overlook what one potential buyer in June called a San Pedro trailer park and seemed to some a little ordinary for the price.”

“City officials said the interiors of four homes remain incomplete, while Trump is about to start building two others and has submitted plans for two more. The last time The Hill saw a collection of very expensive homes come on the market the developer pulled out after sales failed to meet expectations.”

The Kingman Daily Miner reports from Arizona. “Headlines around the country are portraying the housing market as ‘gloomy,’ ‘hopeless’ and, for those non-sensationalists, ’slow.’ If the market continues to stagger, which is the assumption given the abnormally stellar market of the past two years, construction of new developments, homes and subdivisions aren’t likely to increase.”

“If fewer people are buying homes, fewer new homes will be built and the mass influx of developers who’ve migrated to Kingman will leave. Some Kingmanites predict that the hordes of realtors and builders who inundated the growing city to earn an extra buck will filter out as the housing market continues to slow.”

“By year’s end, John Kirby, sales manager at Angle Homes Inc., is expecting a 20 percent decrease in the number of new homes the company builds. And right now, he said, because the market is flooded with builders, his outlook on 2007 isn’t positive.”

“‘It’ll be interesting to see who’s standing when the dust settles. It’s just who was smart with managing their resources when the market was good,’ he added.”

“Exactly how much the market has slowed has been a controversial topic as homeowners and constituents increasingly fret over plummeting home values. To claim, as many realtors and market analysts have on the national level, that buying a home right now is a bad idea isn’t necessarily the same perspective held by local Realtors.”

“National statistics are far worse than numbers the Southwest region is putting up, one realtor said. Bob Bass said, ‘Kingman is still doing pretty well compared to everybody else.’ Prices are falling, and interest rates are respectable. ‘Its an excellent time to buy a house right now,’ he said.”

“For those residents worried about home value, the message Realtors are sending is that the heavenly market of the last few years was abnormal. ‘We definitely saw in the last couple of years a fluke in the market, as far as how it took off,’ said Bass. ‘The type of buying and selling that was happening, the increase in price, that wasn’t normal at all,’ he added.”

“The average price of a single-family home on the market in Kingman this year is $249,843 and falling, according to data collected by Todd Tarson, president of the Kingman/Golden Valley Association of Realtors. Drop $13,000 from that for the October average. September’s average asking price fell below October by nearly $11,000.”

“The big difference was realized in the selling price, which on average was $40,000 below the yearly asking price, according to Tarson, whose data includes Valle Vista, Kingman, the Hualapai areas and Golden Valley. Between September and October, the selling price fell $20,000 to $201,250 for the average home.”

“‘Everybody’s sitting here ready to hit the panic button,’ Kirby said. But Kirby’s not going to be the one to push it. Angle Homes hasn’t had to slash prices, although it has lost some employees.”

“Angle Homes, which has been in Kingman since 1996, kept everything in-house during the last few years of a bustling market. To hope for anything to continue like that would only postpone, and likely worsen, a future market crash.”

“The question all Realtors have come to abhor is, how long will this downward trend last? There have been some analysts who’ve made predictions about when the market will recover, but Realtors in Kingman have mostly kept quiet.”

“To make such a prediction, given the large number of factors…would be idealistic at best. And one factor, the number of quality jobs, is another significant determinant of how many people are out buying homes. Without adequate paying jobs, people aren’t going to buy.”

The Arizona Republic. “Since coming to Phoenix 1976, I have been fascinated (strictly as an observer and not at all as an investor) by housing price trends.”

“For the past year, newspapers, including the Republic, have run repeated articles that make two points: the housing inventory (supply) has seen a dramatic rise (from 3,000 units to over 35,000 units in Phoenix) while median housing prices have not fallen or even have continued to rise.”

“Yet, with a couple of minor exceptions, there has been scant attempt to explain this apparent contradiction of the law of supply and demand. This shrugging of shoulders is particularly curious because the explanation is not a difficult one.”

“It is the lumping together of all houses into ‘one inventory’ that misleadingly hides that housing prices are falling, and perhaps by a substantial amount (and not by the mere 3.5% most recently reported).”

“By way of illustration, assume that: (i) in 2004, 100 houses sold and the median price was $250,000, meaning half sold above that amount and half below; and (ii) then in 2005, again 100 houses sold and the median price was 10% higher or $275,000–does that mean housing prices went up? Absolutely not.”

“Here’s why: If in 2004, 50 houses sold for $249K and 50 sold for $2 million, the median would be $250K; and then if in 2005, there were 49 houses that sold for $220K, one for $274K, and the other 50 for $1 million, and, assuming the 100 houses in 2004 were comparable in every way to the 100 houses in 2005, the overall median housing prices would rise 10% from $250K to $275K while, in reality, the price of all but one house would have fallen dramatically.”

“Another way to state it is this: As the ratio of expensive homes to lower-priced houses sold increases, median prices over the entirety of the housing stock will rise even if prices on all individual houses are falling.”

“The bottom-line is that misleading metrics should be avoided, and it is wrong to use median house sale prices to reach any conclusion about price trends in housing values. The bad news: Median housing prices likely are understating the severity of the housing slump. The good news: The Fed likely is not looking at median housing prices in assessing the severity of the housing slump.”

Some housing bubble reports from Wall Street and Washington. “The National Association of Realtors said Monday the pending home sales index fell 1.7% in October after a 1.1% drop in September. The index is down 13.2% in the past year.”

“‘It’s important to focus on where the housing market is now, it appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high,’ David Lereah, chief economist for the trade association, said in a statement.”

“‘In addition, a temporary correction in prices distracts from the fact that it is primarily the number of home sales that affects the economy, and the number for this year will be the third highest on record,’ he said.”

“Regionally, the PHSI in the Midwest was 15.4 percent below a year ago. The index in the South was 9.3 percent below October 2005. In the Northeast, the index was 13.5 percent lower than a year earlier. The index in the West was 17.4 percent below October 2005.”

From MarketWatch. “‘The existing home market needs to find a bottom for the new home market to rise again,’ according to Alex Barron, a housing sector analyst at JMP Securities.”

“‘Given that the majority of people who buy homes from the public builders, including move-up, luxury and active-adult buyers, are current homeowners who need to sell their home before they close on their purchase of a new home, we believe the existing home market needs to find a bottom first in order for the new home market to find its footing again,’ Barron wrote.”

“According to the analyst, much of the problem is that many sellers continue to set unrealistically high prices, while many buyers lack confidence.”

From Bloomberg. “Cemex SA, the world’s third-largest cement maker, said its $11.7 billion takeover offer for Rinker Group Ltd. was adequate, rejecting claims from the Australian building materials maker the bid may be 36 percent too low.”

“When it rebuffed the bid last week, Rinker didn’t adequately explain the outlook of its U.S. business as a housing bubble in Florida, its biggest market, is bursting, Cemex said. The valuation by its adviser was based on ‘unrealistic multiples and unjustified premiums,’ the cement maker said.”

From Reuters. “The U.S. Treasury and key lawmakers in the U.S. House of Representatives have drafted a compromise plan in the long-delayed bid to reform oversight of mortgage finance giants Fannie Mae, and Freddie Mac.”

“The compromise language that was circulating Friday states the new regulator ’shall monitor the portfolio of each enterprise’ and ‘may, by order, require’ the companies to shed some of their investments.”

National Mortgage News. “Fannie Mae and Freddie Mac may face restrictions on purchases of interest-only and payment-option mortgages if the Office of Federal Housing Enterprise Oversight decides to move ahead and issue nontraditional mortgage guidance for the two government-sponsored enterprises.”

“According to the new 3Q issue of the Quarterly Data Report, loan production fell 11% in the third quarter. And according to the Alternative Products Quarterly Data Report, jumbo loan production fell 21%.”

The Orlando Sentinel reports from Florida. “Experts say they don’t know how many of the Orlando area’s newly converted condominium units now have tenants living in them again, because condo complexes aren’t included in the industry’s apartment surveys. But faced with a slump in sales, individual investors and professional converters alike have added enough condo units to the local rental pool since March to cause the apartment market’s occupancy rate to drop for the first time in more than three years.”

“Jim Lewis, president of a Maitland research company, said the sharp drop in apartment occupancy, from a record-high 96.4 percent in March to 94.1 percent in September, came as a surprise. ‘We scratched our heads and concluded the biggest factor was the several thousand conversions out there that are rented’ but not included in local apartment surveys, the researcher said. ‘No one knows just how many. It’s a shadow market.’”

“Angela Paradiso is a small real-estate investor who owns three condominium units: two in downtown Orlando and one in Altamonte Springs. She has tenants in all three and charges ‘very competitive rents,’ she says, ‘because I want to keep them occupied.’”

“Developers have backed off dramatically from last year’s record-setting pace of conversions, but thousands of apartment units are still being snapped up for makeovers into condos. Just since March, Lewis said, more than 5,500 rental units have been converted to condos in Metro Orlando.”

“‘Conversions are still coming on line, even though many [converters] are renting while they wait for the market to come back,’ Lewis said.”

“Broker Luis Casanas, opened an office in Orlando to focus on condo sales and rentals in MetroWest, where thousands of rentals have been converted during the past couple of years. Casanas estimates that anywhere from a third to a half of those converted condos are now for rent. ‘There are plenty of rentals available in MetroWest,’ he said.”

“Condo conversions were a national phenomenon in 2004-05 in the country’s growth markets, but the question of how many remain rentals isn’t known, said Mark Obrinski, chief economist for a Washington-based apartment-industry trade group.”

“‘That’s the big question when apartment researchers get together,’ Obrinski said. Some rental-property investors, he said, are assuming for planning purposes that one-third of all conversions in any given market are staying in the rental pool, while the rest have been occupied by the people who bought them.”

“‘But that’s not backed by any real data,’ Obrinski said.”

“Tony Martin, VP of Tarragon South Development Corp., said that in some rental communities, as many as 50 percent of the units have been bought by investors who didn’t move into them after taking ownership. Many of those investors were hoping to profit from quick resales, but because for now they can’t find a buyer at a price they’ll accept, they have begun renting to tenants while waiting out the market slump, Martin said.”

“But with rising property taxes and insurance in Florida, investors are finding it tough to break even, said Patrick Skinner, an apartment broker in Orlando.”

“Paradiso, the investor, was aware of that problem when she bought her three units. The rent money from her three condo units falls about 20 percent short each month of covering her expenses, she said. But at some point, she insisted, the rental income will exceed her expenses, and the properties will appreciate in value.”

“‘I’m looking at things long-term,’ she said.”

The Naples News. “The furniture business in Southwest Florida is getting a new look. Street walkers hold up signs advertising the closing of Spectrum Home Furnishings on Davis Boulevard and on U.S. 41 North. The stores from East Naples to Cape Coral are draped in brightly colored ‘Going out of Business’ signs.”

“Blame it on the real estate market that has sagged like an old easy chair. Naples resident John Munzenrieder, who has run Spectrum Home Furnishings for more than 20 years, does.”

“When condo sales dropped by 50 percent after the market turned last year, business dropped by almost that much at Spectrum, Munzenrieder said. ‘It’s kind of funny. Two years ago was the best year we ever had in sales and profitability and when things slowed down, they slowed down very drastically,’ he said.”

“Spectrum isn’t alone. Brown’s Interiors has closed after more than 35 years in business. A going-out-of-business sale ended Thursday. Though the owner isn’t talking about the reasons for closing, some in the business say they think it has something to do with the sluggish market they’ve experienced themselves.”

“‘There are some people really hurting,’ said David Dann, who has been the manager of Badcock Home Furnishings in Golden Gate for 21 years. ‘I brought this store up from scratch. And I’ve seen nothing like this at all.’”

“Two weeks ago, he attended a companywide meeting for Badcock in Lakeland and for the first time that he can remember stores in Florida were at the bottom of the graph for sales. Florida stores are usually at or near the top, Dann said. It may be a really hard Christmas, he said.”

“Dave Annand, sales manager at Haverty’s Furniture in North Naples, said business at his store began to slow at the beginning of the year. He understands the reluctance to purchase furniture. He has two homes that he bought as investments and hasn’t been able to sell. Until he does, he’s not buying new furniture for his new house, he said.”

The Daily Star reports from New York. “Otsego County is bucking state and national trends in home sales, sales and prices continue to increase. ‘The market is still very busy, but the market has normalized,’ said broker Carol Chesser. ‘We are still seeing home sales, but not as many multiple-offers.’”

“Paula Loesel, an associate broker in Stamford, said sellers don’t always accept and understand that they may not be able to get the price for the home that the market once brought.”

“Jim Mead, an associate broker in Oneonta, said the area is driven by downstate buyers. Mead said those who are selling might want to take advantage of the current climate. ‘If people want to sell, they’re better off to do it now than to wait,’ he said.”

The Utica Observer Dispatch. “Houses are taking longer to sell, much to the chagrin of local homeowners. Nationally, that slowing-down process is being called the bursting of the housing bubble.”

“When Jody Thomas decided to sell her New Hartford home, she thought the quality of the house, its school district and the neighborhood would have potential buyers flocking to buy it.”

“That was in April. Three months later, she lowered the purchase price by 5 percent to $138,000. Three months after that, she lowered the price to $134,900. The three-bedroom, 1,500-square-foot ranch-style house finally sold. ‘It seemed like forever,’ said Thomas, who sold a house in Clinton much quicker three years ago.”

“Those whose livelihoods are invested in the local market are noting the recent changes. ‘It’s a little lower than it’s been in the past couple of years, but we’ve had a phenomenal past couple of years,’ said Brady Endryck, executive officer of the Home Builders Association of Mohawk Valley.”

“The phenomenal years to which Endryck is referring are illustrated through the number of single-family building permits issued in the Mohawk Valley. They have increased every year since 2000, with the biggest surge being a 10.6 percent increase to 563 permits between 2004 and 2005. Endryck expects a decrease in 2006, although figures won’t be available until the new year.”

“‘We’re down quite a bit this year,’ said Whitestown Codes Enforcement Officer Phil Husted, who has issued 10 single-family home building permits so far this year, compared to 34 by the same time last year and 35 for the entire year in 2004. ‘It’s been a slow year for everybody, I believe, as far as building new homes,’ Husted said.”

“‘It’s a good place to buy a house because I think the home prices will be fairly stable,’ said Celia Chen, director of housing economics at Moody’s Economy.com. ‘I think there is an adequate supply of land,’ Chen said. ‘There’s not a lot of population growth. And the economy alone is not that fast growing. It doesn’t need to correct.’”

“Kimberly Salatino’s patience was tried for a few months, but now a huge weight has been lifted off her and husband Christopher’s shoulders. Last month, the South Utica residents accepted a bid for their home, which had been on the market since September.”

“The pressure was on since they had entered into a contract to buy a bigger home in southeast Utica. ‘I thought it would be easier, but I know we missed the summer market,’ said Kimberly Salatino. The couple still lowered the selling price by 5.3 percent to $179,000 to entice a buyer, Salatino said.”

“The region’s percentage of homeowners struggling to afford housing has increased in the past several years, government figures show.”

“And that increase in the percentage of people spending 30 percent or more of their income on rent or a mortgage is coming at a faster rate than the national and state increases. This is the case despite the fact Mohawk Valley housing prices did not soar at the rate seen in the South and along the coasts.”

“In 2005, 26.8 percent of Utica-Rome area residents with a mortgage spent more than 30 percent of their household income on housing costs, compared to 16.4 percent of residents in 2000, according to U.S. Census Bureau data. ‘It’s not a great number, but I don’t think it’s terrible,’ said Celia Chen.”

“She said the area is still quite affordable in terms of housing. Our median housing price is about one-half the national average, but median incomes are also far lower.”

“Still, household incomes aren’t rising, which could cause a problem down the line, economist Trudi Renwick said. ‘If incomes don’t rise and housing prices continue to rise, you’re going to catch up with the rest of the state at some point,’ she said.”

The Concord Monitor from New Hampshire. “Half-acre parcels selling for as much as $600,000 on Loon Mountain in Lincoln are posted with the names of owners who hail from Belmont, Hingham, Stoneham and a half-dozen other towns within a 35-mile radius of Boston.”

“At a time when the New Hampshire real estate market has slipped into its first downturn in nearly a decade, the state’s largest ski areas are launching aggressive real estate ventures like Loon Mountain’s expansion project. ‘There is a very large population in this country looking for second homes,’ said Ed Brisson, VP of northeast operations for Centex. ‘What we are building responds to what the market is looking for.’”

“Most buyers so far have been families in their mid-30s from the Boston area, Brisson said, and they don’t want to have to get in the car and go across the street to ski when they’re there”

“‘They keeping building everywhere, and people keep buying it,’ said Karl Stone, spokesman for a statewide ski industry association. ‘It shows there’s a lot of disposable income in our society.’”

“Peter Francese, a demographer from Exeter who has studied the second-home market extensively, said New Hampshire has the third-highest number of second homes in the country. And even though the real estate market has hit what Francese calls a ‘plateau,’ in which sales have gone flat after a long span of boom years, the market for second homes in the state is likely to continue growing.”

“Still, he said, building a hefty inventory of second homes during a real estate slowdown is enough to make him ‘a little nervous.’”

“‘I would be a trifle nervous if I were in that business,’ he said. ‘I wouldn’t be worried sick because the market will pick back up again, but in the short term, it’s a little nerve-wracking because I doubt they’re selling at the pace they were a couple of years ago.’”

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