The Housing Bubble

The Star Bulletin reports from Hawaii. “This time last year, real estate watchers were scratching their heads wondering just how high the market could go. Now the most popular question is, ‘How low can it go?’”

“The median price paid for a single-family home on Oahu slid 4.8 percent in November, which marked the first year-over-year decrease in home prices since the market took off in the late 1990s, according to the Honolulu Board of Realtors.”

“The situation was the same on Kauai and the Big Island last month, as the once-frenetic real estate market finally saw prices headed groundward.”

“The good news: It looks like a soft landing. Bank of Hawaii Economist Paul Brewbaker still says, ‘This ain’t no stinkin’ bubble.’”

“Scott Higashi, VP of sales for Prudential Locations LLC on Oahu, agreed: ‘We’re still nowhere near a monumental fall in value. During this cycle, we don’t expect to see any double-digit rises or falls.’”

“‘The change in sales volume is more dramatic, Brewbaker said. ‘We have 25 percent less trades on Oahu than there were two years ago, which means either one out of every four Realtors needs to get out of the industry, or that everyone has to make do with less business,’ he said. ‘Either way, that’s not good.’”

“The November 2005 median was $640,500. Last month, Oahu buyers paid a median $610,000 to purchase a single-family home. They also bought 19.9 percent fewer of them.”

“Kauai’s single-family home sales decreased 20.5 percent from the previous November and condominium sales declined 60.94 percent during the same period, according to data released yesterday. The median price paid for a single-family home on Kauai fell 14.43 percent to $590,000, a decline of $99,500 from November 2005. The median price paid for a condominium fell by 9.53 percent to $415,240, a drop of $43,760 from the prior year.”

“On the Big Island, more than half of single-family home buyers paid at least $370,000 for a single-family home; that’s a 3.65 percent drop over the previous year’s $383,999 median. The median price paid for a condominium fell 10.07 percent to $335,000 from $372,500 in November 2005.”

“The Big Island’s single-family home sales fell about 32 percent, and condominium sales fell about 66 percent in November.”

“‘The soft landing is good. It means we all get to be humans again,’ said Mary Begier, who owns Mary Begier Realty on Oahu and the Big Island.”

The Honolulu Advertiser. “Has O’ahu’s housing market turned? A five-year, three-month string of rising prices was a long and ultimately unsustainable run, but industry analysts said it’s too early to say whether a substantial decline in residential real estate values is coming.”

“The median price for previously owned single-family homes last month was $610,000. That was down from $640,500 in November 2005. Last month’s median also was the low for this year in which monthly medians had previously ranged between $613,500 in February and $668,300 in May, a record.”

“The last time the single-family home median sale price declined in one month compared with the same month a year earlier was August 2001, when the price eased 0.6 percent to $307,000 from $309,000 a year earlier.”

“That was shortly before O’ahu’s real estate market went on a tear, with single-family home median prices rising 12 percent in 2002, 13 percent the next year, 21 percent in 2004 and then 28 percent last year.”

“Doris Sullivan, a Kailua resident who put her Coconut Grove home on the market in February, has seen the softening market unfold.”

“Sullivan said real-estate agents initially suggested she list her house for $769,000 to $789,000 based on what comparable homes were selling for. After hosting a lot of lookers but no takers, Sullivan started lowering her price.”

“The house sold in September for $650,000. ‘I think the market had a big effect on the sale,’ Sullivan said. ‘It’s just frustrating. Great for buyers because with the glut of homes on the market, they can pick and choose.’”

The Rocky Mountain News reports from Colorado. “It’s official. A record number of real estate foreclosures have been filed in the Denver area this year. In the first 11 months of 2006, public trustees in the seven-county metro area opened 17,782 foreclosures. That’s 3.85 percent higher than the record set in 1988, during the oil industry bust.”

“Experts say other parts of the country that recently had hot real estate markets need only look to Denver to see what’s in store for them.”

“A large percentage of filings are concentrated in the ‘foreclosure belts’ of Adams and Weld counties, north Aurora, and northeastern Denver neighborhoods such as Montbello and Green Valley Ranch.”

“Today’s foreclosure crisis is increasingly taking its toll on homeowners, especially with scams and fraud on the rise. ‘It’s like the wild, wild West out there,’ said Zach Urban, a housing counseling manager for (a) nonprofit.”

“Mark A. Murphy is trying to sell his house in Aurora before the lender takes it back. He has fallen four months behind on his mortgage after losing his job. When he bought his home two years ago, other comparable homes in his neighborhood were selling for $235,000, he said, about $50,000 more than he paid. The home is on the market for $205,000.”

“Ironically, Murphy bought his home out of foreclosure. ‘I believe this property has been in foreclosure four times,’ Murphy said.”

“Urban said he is seeing an increasing number of mortgage-fraud schemes. In some cases, people are offered more than the house is worth in exchange for a ‘gift’ donation. The phony buyer collects the gift and never makes a mortgage payment.”

“In other cases, homeowners who think they are refinancing their mortgage really are signing quitclaim deeds, so the person becomes a renter in their own home.”

“The biggest culprits in the rising mortgage tide are a flat housing market and overbuilding in certain areas, such as north Interstate 25, said Boulder lender Lou Barnes. ‘Our housing market went flat in early 2001, and since then, foreclosures have been rising in the foreclosure belts about 50 percent a year,’ Barnes said.”

“Despite what some think, foreclosures aren’t being driven 100 percent by financing, he said. He noted that the Veterans Administration has been providing zero-down loans for decades, and Federal Housing Administration-insured loans only require a 3 percent down payment.”

“But it’s never been easier to qualify for a loan, so many people who would have been unable to buy a home previously can now buy one, he said. Despite rising foreclosures, Barnes said there has been no move to tighten borrowing requirements because the federal government wants to encourage homeownership.”

“Previously hot markets such as the West Coast, Phoenix and Las Vegas now are softening. Said Barnes: ‘If the national lag in these ‘bubble zones’ is anything like the lag we saw after the technology crash,’ he predicts other cities will see an increase in the foreclosure rate similar to Denver’s.”

“‘I think (the metro area’s record foreclosures) are very significant for the rest of the country,’ he said.”

The Arizona Republic. “Hundreds of homes and lots left unfinished in Pinal County by bankrupt home builder Turner-Dunn may be auctioned to clear tens of millions of dollars in debt and finally complete some homes two years after buyers signed sales contracts.”

“However, buyers still will be locked into higher prices from two years ago. Pinal County’s cooling housing market has forced a reduction in prices for big new homes this year by tens of thousands of dollars to the low $200,000s.”

“After finding a new home from a different builder in the same neighborhood, Tony Tellez said he no longer wants the $262,000 house in Maricopa that he signed for two years ago. He won’t pay the now higher price and losing $2,500 in earnest money is almost worth having Turner-Dunn out of his life, he said.”

“‘I’d basically be buying a money pit,’ Tellez said. ‘I’d get a $262,000 home that wouldn’t even appraise at that price.’”

“Gerald and Barbara McCurdy of Caledonia, Ill., paid $28,000 in earnest money on a $277,000, 3,300-square-foot house in Casa Grande because Turner-Dunn considered them investors and charged a premium. They planned to rent it out until retirement in a few years and can’t afford to walk away.”

“Half-finished homes have sat for most of the year deteriorating in heat and storms since Turner-Dunn, owned by Marc Dunn, walked away from construction and contracts early this year.”

The East Valley Tribune from Arizona. “The first seven floors of Elevation Chandler, a planned 10-story high-rise with condominiums, luxury hotel and health club rose out of the ground in less than four months. Then nothing.”

“‘It’s a very obvious site, and I do get questions from citizens,’ said Chandler Mayor Boyd Dunn. A timeline on when the project will be finished is unknown. Developer Jeff Cline managed to hold off foreclosure proceedings scheduled for February with a $25 million bridge loan Friday. It’s not enough to complete the $250 million project.”

“And there’s little Chandler officials can do to move the project along, said Doug Ballard, Chandler planning and development director. Ballard said he’s also received complaints from people ‘concerned about the eyesore nature of it.’”

“Chandler resident Tom Stokes said construction projects are tolerable when progress is being made, but that’s apparently not the case here. ‘You don’t want something that’s been abandoned next to your nice new mall,’ Stokes said.”

The Chippewa Herald reports from Wisconsin. “The housing market in Chippewa County has flipped. ‘Home sales are definitely a little slow,’ said real estate agent Jason Huebner. Fewer people are buying houses as investments, doing a quick remodel and sale commonly called a ‘flip.’ The people buying houses nowadays are buying them to live in them, said Huebner.”

“There are an abundance of houses on the market. There’s 30 percent more housing inventory than last year, said Mark Fouts, president of the Realtors Association of Northwest Wisconsin. But, interestingly enough, there’s been a decline in the number of days that houses are on the market. ‘The homes that are selling are selling more quickly,’ Fouts said.”

“Gone are the days during what was a five-year period when homesellers could make a big profit by merely putting a house on the market. ‘The days of making exorbitant money on a house are done,’ Huebner said. ‘I think people are having to price their homes more appropriately,’ he said.”

“He said a good house in a good location that’s priced and marketed right will still sell in today’s market. ‘Our spin on it is it’s a good time to buy,’ Fouts said.”

From Channel 3000 in Wisconsin. “Dane County alone had more than 5,500 homes on the market this October, which was up 49 percent from 2005 and more than doubled from 2004.”

“Residents Jason and Larissa Decker said that they’ve had their home on the market for four months now. ‘We’ve had 10 showings now,’ said Decker. ‘I understand the situation.’”

“Realtors said that the situation isn’t that no one is interested, but there is more competition.”

The Marietta Times from Ohio. “Home sales have fallen by about 10 percent around the state of Ohio, according to real estate market expert. Darlene Breen, president of the Ohio Association of Realtors, said the Ohio market was on an upswing for the last few years and now it is simply normalizing.”

“Breen said with the upswing, many home sellers were overly optimistic about the profit they might see on their home. ‘Things sort of went back to normal,’ Breen said. ‘But people did not make as much as they had expected.’”

“Lydia Donnelly, a broker in Marietta, said a lot of homes in the area are on the market because of foreclosures. ‘One of the reasons we’re seeing a lot of houses on the market right now is because people have overextended themselves,’ Donnelly said.”

“She said predatory lending and especially zero down home equity loans have gotten home buyers in trouble. In 2005, almost 50,000 homes in Ohio were in foreclosure ‘Some sellers owe more on the house than what they can sell it for,’ Donnelly said.”

“When Bobby Fitzgerald got a job transfer in September, he and his wife put their Devola house on the market. ‘There were quite a few showings right at first, but lately we haven’t had as many. It’s a little slow here. The market seems dead,’ Bobby Fitzgerald said of local real estate. ‘We went through the entire month of November with no showings.’”

“Donnelly said right now buyers have their pick of homes in the area. ‘Buyers are driving hard bargains right now,’ she said. ‘Bids are about 15 percent below the asking price.’”

“‘Sometimes when people are enticed into home ownership with no money down, those people are really caught between a rock and a hard place,’ said real estate agent Dan Jones. ‘There’s an awful lot of borrowing going on.’”

“Jones also did not think the downturn in the local market was significant, although he did say there are more homes for sale this year. ‘There’s a little bit of a downturn here but it’s very small,’ he said. ‘Marietta doesn’t go as the rest of the nation goes.’”

Some housing bubble reports from Wall Street. Bloomberg, “Toll Brothers Inc. said fiscal fourth-quarter profit slid 44 percent as orders tumbled and the company wrote down expenses for land. Net income in the three months ended Oct. 31 dropped to $173.8 million from $310.3 million a year earlier. Fiscal 2007 earnings may drop as much as 62 percent, Toll said today in a statement.”

“‘This spring is going to be very important,’ said analyst Todd Vencil. ‘Last year it was bad. It was not a good selling season. People just never showed up.’”

“Toll took a pretax charge of $115 million on optioned and owned land in the fourth quarter. On Nov. 7, it forecast a charge in the quarter of as much as $100 million. Toll included a pretax charge of $60 million for land- related writedowns in fiscal 2007 in its earnings forecast.”

“The company cut the number of lots it controls to 74,000 at the end of the fourth quarter from 91,200 six months earlier.”

“Toll said on Nov. 7 that orders slid 58 percent in the fiscal fourth quarter as more than one-third of customer contracts were canceled. ‘With these cancellations creating unintended specs, we could face increasing margin pressure as we seek to move these homes,’ CEO Robert Toll said. Nearly 25 percent of the cancellations came in the Orlando, Florida and Northern California markets, Toll said.”

“‘Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom, or slightly above,’ said Toll in a statement.”

“Morningstar analyst Eric Landry cautioned against reading too much into a possible bottoming out of the housing market. ‘It’s not hard to be better than it was, because it was awfully bad,’ he said. ‘It’s still pretty much a given that there’s too much inventory on all the home builders’ books right now.’”

From CNN Money. “Late payments on subprime loans have surged, The Wall Street Journal reported on its Web site on Tuesday, and while economists don’t expect major harm, a continued rise could hurt investors in mortgage-backed securities.”

“Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, the report said. It cited the bank saying that roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments.”

“HSBC holdings Plc, the world’s third- biggest bank by market value, said third-quarter revenue growth slowed as bad loans rose in the U.S. and the U.K.”

“In the U.S., where the bank gets the biggest share of pretax profit, loan delinquencies and writedowns increased from the first part of the year due to more bankruptcies and a weaker housing market, London-based HSBC said in a statement today.”

“‘There is little in the statement that will calm fears of a slowdown,’ said Colin Morton, who helps manage $1.8 billion, including HSBC stock, at Rensburg Sheppards Plc in Leeds, England. ‘People were looking for signs of a stabilization in bad debts, and things seem to be worsening.’”

“The main risks for earnings are ‘further weakness’ in U.S. housing, employment and consumption, the lender said today. A slowdown in mortgage lending will raise delinquencies as a percentage of all loans, HSBC said.”

“‘It’s not a case of pulling in our horns, but we are being cautious on loans,’ said CEO Mike Geoghegan. ‘We won’t go out’ with unprofitable loans, he added.”

“HSBC miscalculated some borrowers’ ability to repay mortgage loans in the U.S., Finance Director Douglas Flint said today. ‘The situation has worsened since we looked at the third- quarter numbers,’ Flint said. There was a ‘weakening trend’ in the fourth quarter, he said.”

From MarketWatch. “If Federal Reserve chairman Ben Bernanke hadn’t let on that he and some of his colleagues had a target range for inflation, he wouldn’t have to keep repeating over and over how worried he is about the pace of price hikes.”

“Former Fed head Alan Greenspan resisted the notion of publicizing an inflation target because he feared the very thing that’s happening now, above-range inflation combined with below-trend growth.”

“Right now, the Bernanke Fed is between a rock and a hard place. If it accepts above-range inflation, it loses credibility as an inflation fighter. If it doesn’t, it risks dumping the U.S. economy into another recession.”

The News Observer reports from North Carolina. “Weakness in the Triangle housing market probably will continue through the middle of next year, the region’s builders were told Monday. ‘We will see some real, negative numbers in both new and resale home transactions, as they compare to a year ago, during the next six months,’ Helm told members of home builder associations for Wake, Durham, Orange and Chatham counties.”

“‘We now have to wait for the market to find a way to absorb the excesses and imbalances, a large resale inventory and a fairly large new home inventory, in a market short on buyers,’ Helm said.”

“The Triangle’s housing market has felt the slowdown largely because many people moving to the area are having difficulty selling their homes in distressed markets.”

“Production builders have begun slashing prices and offering incentives. Homeowners, facing more competition, have begun reducing their selling prices.”

“In October, resales dropped for the first time in almost four years, 17 percent more homes had price reductions than a year ago and the inventory of homes for sale grew by 6.6 percent, with 14,538 homes on the market, according to the Triangle Multiple Listing Service.”

“Residential building permits were down 24 percent in the third quarter. The Triangle’s home building industry is one of the area’s most important economic drivers, with ancillary effects on a range of businesses from bankers to furniture retailers.”

The Sun News reports from South Carolina. “There were 147 bankruptcy filings in Horry and Georgetown counties during the first nine months of this year, compared with 647 filings the same period a year earlier, according to the U.S. Bankruptcy Court. Experts say that is because law changes that took effect in October 2005 made it more expensive and difficult for consumers to file for bankruptcy protection.”

“‘The debt problems are no different than they were before the new laws,’ said Michael Drose, whose law firm in Myrtle Beach specializes in bankruptcies. ‘The new laws didn’t change the fact that people are still drowning in debt.’”

“Foreclosure statistics, another indicator of individuals’ economic standing, also can be misleading, experts say. There has been a slight decrease in the number of home foreclosures in the Carolinas this year compared with 2005, according to RealtyTrac. The declining local numbers are the result of more real estate investors buying up distressed properties before they hit the foreclosure auction, according to Michelle Hallstrom, owner of (a) real estate agency in Myrtle Beach.”

“‘The number of people having problems is about the same as last year or before,’ Hallstrom said. ‘The numbers just make it look better because more homes are being bought before they go to auction.’”

“The higher delinquency rates are showing up at some Grand Strand banks, according to their U.S. Securities and Exchange Commission filings. For example, the amount of charged-off loans at Beach First National Bank nearly tripled during the first nine months of this year, compared with a year ago.”

“Non-performing loans more than doubled at Beach First, even though the total amount of all loans increased by 53.5 percent. Conway National Bank said in a Sept. 30 SEC filing that the ratio of charged-off loans to all outstanding loans increased to 0.06 percent during the first nine months of 2006, compared with 0.03 percent for the same period a year earlier.”

“Walt Standish, president and chief executive officer at Beach First, said loan delinquencies at that bank are largely the result of a slowing real estate market. Mortgages comprise 76.9 percent of the bank’s $404.1 million loan portfolio.”

“‘Some people have had the unrealistic expectation that if it took 30 to 60 days to sell real estate last year, it would take the same time this year,’ Standish said. ‘Now it’s taking 120 days to 180 days, and some people didn’t plan for that.’”

The News Press from Florida. “The slide in Lee County’s home-building industry continued in November as the number of permits for single-family homes fell to levels not seen in almost four years.”

“Builders in Cape Coral pulled 152 permits, the fewest since 81 in December 2002. In unincorporated Lee County, which includes Bonita Springs and Fort Myers Beach, 357 permits were issued, the fewest since 299 in March 2003, according to figures released Monday.”

“‘They’re pretty much in a situation of just waiting because there’s so much inventory, and you don’t want to add inventory’ with almost 14,000 existing homes already on the market, said said Michael Timmerman, managing director for Florida at Hanley Wood.”

“In Fort Myers, which typically has smaller numbers of homes being built, 32 permits were pulled in November. That’s down from October’s 51 but more than three times the 10 pulled in November 2005.”

“About 77 percent of the single-family home permits were for work in Lehigh Acres, valued at about $63.4 million. That’s up from October’s 74 percent. Even in Lehigh, said real estate broker John McWilliams, ‘builders are seeking ways to tweak their home/lot packages below $200,000 because they know that’s what has to happen for their building careers to continue.’”

“Jack Bowles and his wife recently closed a deal with America’s First Homes on a three-bedroom, two-bath house in Lehigh for $240,000. They’ll move from Naples, where he works.”

“Bowles said he probably got twice the home for his money than in Collier County. ‘In Naples, I wasn’t able to buy a home for less than about $300,000 or $350,000,’ he said. ‘We spent a whole lot less than that and got a brand new home with a whole lot of amenities.’ Now, he said, he has a 90-mile commute but the lower price for his house will more than offset higher gas prices.”

“One factor that could cause a turnaround, Timmerman said, would be a continued drop in land prices. That’s beginning to happen, he said, as people who paid $40,000 to $50,000 for a lot in Lehigh are willing to sell for $30,000.”

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