The Housing Bubble

The Ventura County Star reports from California. “Centex Homes shelved a proposal this year to build 94 town houses at one of Oxnard’s most congested intersections. With a softening real estate market, the Dallas-based developer decided to clear out its inventory of unsold homes before building the town houses, they said. Centex also shelved a project in Thousand Oaks for the same reason. And some other home builders are following suit.”

“The median price for new and existing homes and condominiums in the county dropped 8.2 percent, to $562,000, in November from the same month a year ago, according to DataQuick. It was the steepest year-to-year decline in more than five years. And the number of sales was also down, by 30.8 percent from a year ago.”

“The city of Ventura last year approved The Olson Co.’s proposal to build 172 downtown dwellings. The developer has yet to take out a single building permit. ‘They’re concerned about the ability of the project to be profitable,’ City Manager Rick Cole said. Thirteen downtown Ventura projects in various stages of approval have stalled, Cole said.”

“Prices have dropped 10 percent to 20 percent at RiverPark, a development of 2,800 homes in Oxnard north of Highway 101 and west of Vineyard Avenue, officials said.”

“Several real estate appraisers, however, said the rebound will take five to eight years, based on historic patterns. ‘I’m not sure that we’ve bottomed out yet,’ said Lindsay Nielson, a Ventura-based appraiser for more than 40 years. ‘We’re certainly in the trough right now.’”

“(Realtor) Joe Virnig in Ventura said he and others in the industry believe that the hot market began to cool last fall, even though data from DataQuick and the California Association of Realtors showed median prices climbing. Those reports, he said, generally lag the market.”

“‘In the field, we knew that prices had leveled off and even receded a little bit, though that wasn’t being reported in the statistics,’ said Virnig. ‘These numbers probably better reflect what’s happened over the last year.’”

The Press Democrat. “Sonoma County home prices fell in November for the fifth consecutive month. One measure of buyers’ unease is the number of sales they back out of before a deal is closed. In November, 39 percent of the sales that had been pending the end of October were not completed. ‘If the sellers won’t negotiate, then the buyers are going to say ‘I’m going to try down the street,’ said Rick Laws, (who) prepares the monthly report.”

“More sellers are offering incentives to buyers including paying a portion of loan costs for a year or two and covering closing costs. ‘We’re doing closing costs on practically every single deal,’ said Sandy Geary, broker in Rohnert Park. ‘It depends on how desperate a seller is,’ she said. ‘I think people are kind of settling down and taking what the market will give them.’”

The Sacramento Bee. “Sacramento’s central city housing effort, despite a mountain of recent hype, took so long to germinate that downtown largely sat out one of the hottest housing markets in memory. With the real estate industry in a slump, it’s unclear whether some of the ambitious projects conceived at the tail end of the housing boom will materialize.”

“‘Market conditions have deteriorated rapidly,’ said developer Mark Friedman, whose firm recently walked away from a 16th Street project. ‘At the moment, nothing will pencil.’”

The LA Times. “Citing the ongoing housing slowdown, KB Home has withdrawn from a joint venture to build a 54-story hotel and condominium tower that is a central component of the L.A. Live project in downtown Los Angeles.”

“AEG, L.A. Live’s developer and owner of Staples Center, has bought out KB Home’s stake in the project and will develop it entirely on its own. ‘At this stage, it’s best for AEG to just move ahead. They have ambitious plans for the whole L.A. Live project, so they have to go for it,’ said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.”

“‘KB has not been immune to the changing dynamics in the housing market,’ spokeswoman Caroline Shaw said.”

The Daily News. “Kyser said the slowdown in the housing market had an impact on KB Homes’ operation. ‘A lot of people have been expecting this, given the downturn in the housing market and the strain that was putting on finances,’ Kyser said.”

Readers suggested a topic on taxes. “Could we have a discussion about the ticking property tax bomb? I rent in Newton, MA. Essentially all of my colleagues have had their property taxes double over the last 10 years, despite city taxes limited by law to 2.5% increases. Even with a few tax-increase overrides, the real increases far outpaced the Prop 2 1/2 restrictions.”

“No-one cared that much when their house values were skyrocketing (it was a kind of brokerage fee). But now with a collapsing market and looming foreclosures, I predict tax wars will soon break out all over the map. (Local towns have become addicted to very agressive spending.) As a potential buyer, even if prices fall dramatically, property taxes and assesments may very well still make it too costly to buy.”

One added, “In California, due to prop 13, there is little worry about taxes. In States ‘Marked to the Market’ property taxes are a nightmare. I know several couples that are selling houses they have owned for 9+ years as a result of property tax increases. Their incomes did not keep up with tax and insurance increases.”

“This is an untalked of consequence of this bubble. And as you point out ‘Local towns have become addicted to very aggressive spending.’ I can visualize everything from complacency to assessors getting shot.”

Another said, “A lot of the condo boom in Center City Philadelphia was encouraged by a recent law granting 10 year tax abatements to new construction. When those ten years are up . . . whammo! I’m assuming the new owners expect to sell out before then? I’m wondering to whom? I doubt the city will reset the abatement.”

“Philadelphia itself redid the method it used to assess property taxes just after we sold and got the heck out of dodge, it had been based on land/age/improvements, and they changed to a ‘comp-based’ model - I heard tax assessments in our old neighborhood (manayunk) went up a LOT (thanks in part to comps like ours, we sold for 3x what we’d paid four years earlier, with no improvements. I still feel a little guilty).”

“So people there were very grumbly about the fact that they were paying a mint (in property taxes) for 60-100 year old rowhomes while the kiddoes buying in the rapidly built new construction condos (with parking!) didn’t have to pay anything.”

“Of course as the Inquirer pointed out, the high valuations on the new condos more than made up for any property tax savings! Naturally.”

“Could get very ugly in Greater Philadelphia - there is a pretty high amount of residential inventory when you count the neighborhoods. And the business tax environment is notably poor.”

“Honestly I hope things aren’t as bad as I anticipate, since I’ve been really happy to see the positive changes the boom has wrought in Philadelphia (most of them at least). So maybe it really is ‘different’ there.”

One from Colorado. “I posted this morning about Larimer County, Colorado voting down a property tax increase for prisons. When home values were going up that was easy. No so much now. Not only will tax increases become more difficult to swing, lower property values mean less revenue to the cities/counties. Will gov have to learn to live with less or will they go the route of Larimer County and try to tack on more ‘user’ fees?”

A housing report from the Oregonian. “If you’re thinking that For Sale sign down the street is about to sprout moss, you’re not imagining things. New listings of homes for sale in the Portland metropolitan area increased 8.5 percent last month, while closed sales declined by 17.5 percent.”

“The result: homes are sitting longer and the supply of homes for sale is at its highest level in almost two years. In November, the inventory reached the equivalent of 5.1 months.”

“‘We’re transitioning to a buyers’ market,’ said Jerry Johnson of the Johnson Gardner economic consulting firm in Portland. ‘There’s an element of seasonality, but standing inventory really is more of an issue. We’ve seen it roughly double in the last year or two.’”

“He said sellers can expect to see buyers pushing for lower prices, and home builders discounting their new homes. Year-over-year price increases have dwindled to their lowest levels since mid-2004.”

“At seven months, Southwest Washington’s inventory, comprising homes for sale in Clark, Cowlitz and Pacific counties, is larger than the Portland metro area’s.”

“Agents think the next few months will be telling. ‘The spring market will tell the story,’ said (realtor) Brian Pienovi. ‘Everybody’s a little cautious about what’s going to happen this spring.’”

“Real estate agent Peggy Hoag said her telephone didn’t ring in November. Now, she said, pre-holiday activity is picking up as buyers sense bargains.”

“On the other hand, she said she’s seen a lot of sellers pull their houses off the market, both for the holiday break and their sense that the market was weak. Many of those listings will be back in January, she said. ‘I think we’re going to see a lot of new inventory out there in the new year,’ Hoag said. ‘It’ll be interesting to see what happens.’”

“(Realtor) Billy Grippo said he is having a strong December after ‘everybody froze up’ in September and October. But he was making no predictions for the new year. ‘I’m hoping the buyers show back up, because we know the supply is going to be there,’ he said.”

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