December 18, 2006

“The Perception Is That Prices May Be Going Down”

The Daily Democrat reports from California. “California home sales declined last month to the lowest level for November in eight years, and prices fell on an annual basis in eight of the most populous counties, a real estate research firm reported, with the most pronounced drops occurring in pricier markets.”

“Yolo County, meanwhile, saw a drop of 17.6 percent in the sale of homes overall, from 306 in November 2005 to 252 last month. The median price was also down some 13.5 percent, from $480,000 in November 2005 to $415,000 last month.”

“The greatest decline countywide came in the sale of existing home, where a 25.5 percent decline was reported. The median price of existing homes, however, dropped only slightly by 4 percent, from $436,500 to $419,000.”

“New home sales, however, dipped slightly, although their prices plunged. Countywide, the sale of new homes dropped 7.1 percent from 141 to 131 over the past year. The price of new homes fell from $532,750 to $416,500, or 21.8 percent between November and November.”

“For months, many would-be buyers have been on the sidelines, expecting prices will fall further, so sales have suffered. ‘It’s harder to buy a home when the perception is that prices may be going down,’ said DataQuick analyst John Karevoll. ‘Right now the number of counties going negative is on the rise.”

From Inman News. “California’s closely watched housing market will see a decline in median home price and existing-home sales in 2006 and 2007, the California Association of Realtors projects.”

“At this time last year, CAR chief economist Leslie Appleton-Young was dismissive of a ‘bubble’ scenario, saying the state’s economy would continue to grow and mortgage rates would remain at all time lows. She said significant housing-price declines are usually spurred by economic downturns, including job losses or high mortgage rates.”

“Existing-home sales for 2006 are now projected at 481,200, significantly less than the 630,610 predicted by CAR at the end of 2005. The median home price of $560,700 is also about $14,000 lower than anticipated.”

“‘While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected,’ Appleton-Young said Oct. 18. in releasing her 2007 Real Estate Market Forecast.”

“Appleton-Young said that some regions in the state, such as the Central Valley, San Diego and Riverside/San Bernardino regions, will likely experience sales declines greater than the state as a whole in 2007. ‘That also holds true for several second-home markets, including the desert areas of Southern California and the Wine Country,’ she said.”

From Fortune. “Shim and Neesa Patel were ready to pounce on a brand-new home in San Diego early this year. But two months before the house became available, Shim noticed that local home sales had more or less ground to a halt.”

“‘It made me very uneasy,’ he says. The couple stood pat for nine months, and for about the same price, they’re getting a place that’s 1,000 square feet bigger.”

“If you’re purchasing from a developer, push especially hard. ‘Builders are doing anything to move their inventory, because it costs money to carry it,’ says Ivy Zelman, a housing analyst with Credit Suisse. ‘Free cars. Vacations. No closing costs. You name it. [They're discounting] anywhere from 6 percent to a third off the base price.’”

“North of Sacramento, Pulte Homes recently agreed to part with a 2,700-square-foot four-bedroom home for almost 18 percent off the $497,000 list price, plus an additional $8,500 in credits. ‘I’ve never seen anything like it,’ says Lance Pagel, the realtor on the deal. ‘I recently point-blank asked one developer’s agent what incentives she was offering, and she point-blank answered $80,000.’”




“The Last Man Standing On The Road To Nowhere”

A housing report from the Arizona Republic. “In another sign that the condo conversion market is declining, a company that was converting a large Tempe apartment complex to condos announced Friday that it is going to lease the units as apartments instead.”

“The CG Development Group, of Chicago, decided there was a greater need for apartments because the market is flooded with condos, according to company staff. About 60 of the 660 units had been pre-sold, and those owners will get their deposits back, said Chris Day, a publicist for the company.”

“Several real estate experts say they are seeing more of these ‘reversions’ and that they are proof the condo conversion craze that began several years ago has peaked.”

“‘There are still people looking around for property with the intent to convert to condos,’ said Ron Brock Jr., vice president and director of sales for a Scottsdale multifamily housing research firm. ‘The last man standing is not smart enough to realize it’s already over.’”

“He and Terry Feinberg, president of the Arizona Multihousing Association, said they have heard of other complexes intended for condo conversions in Tempe and elsewhere that have reverted to apartments.”

“Jay Butler, director of the Arizona Real Estate Center, said he wasn’t surprised. Butler said he was around to see the apartment-to-condo conversion market in the 1980s wither away.”

“‘In a sense, the concept (converting apartments to condos) is a reasonably good idea, but there was just too much. You just can’t handle the mass in a reasonable period of time. You can only absorb so much into the market,’ he said.”

“The latest condo conversion market was driven by a shortage of houses for sale. But that situation eased a year ago, and last month there were about 15,800 homes for sale in the Southeast Valley, according to the Arizona Regional MLS.”

“All the units in the Haven, formerly known as the Meridian Corners Apartments, are being stripped out and getting makeovers, complete with granite countertops. They will be available for lease in February at prices ranging from $850 for a studio to $1,400 for a two-bedroom, two-bath.”

“A remote parkway in the far West Valley nicknamed the ‘Road to Nowhere’ is poised to become Main Street for nearly 1 million people. More than a dozen huge developments are sprouting up on both sides of the 30-mile-long Sun Valley Parkway, west of the White Tank Mountains.”

“Buckeye, with just 30,000 residents, has been annexing so much land it’s about to rival Phoenix in sheer size. Deep-pocketed developers bought huge swaths of land west of the mountains and already have started building the first of more than 300,000 homes.”

“‘This is Buckeye’s shot at growth,’ said Kevin Johnson, a real estate agent. ‘If it’s done right and bosses and their employees want to live in the new developments, then companies will move to them and bring jobs.’”

“Buckeye needs jobs because new homes already are going up. And without jobs there, people have to commute on the already clogged I-10.”

“In 2000, fewer than 50 new homes were built in the town. Last year, 5,000 went up. The town stretches across 230 square miles but is planning for 600 square miles.”

“Sun Valley’s developers are thinking big, too. Douglas Ranch, still in the planning stages, will span almost 34,000 acres and have as many as 83,240 homes.”

“People already have moved into new homes in the 12,812-acre Tartesso at the southern gateway of Sun Valley Parkway. Nearly 49,000 homes are planned for the project. Many fringe areas draw buyers with low prices, but homes in Tartesso are now selling in the high $200,000s, close to the Valley’s median new-home price.”

“Farther north along the parkway is Trillium, a 3,000-acre project that could sprout 7,200 homes. Pulte Homes is building Sun City Festival with 7,200 homes in north Sun Valley.”

“Transportation already is an issue. I-10 is jammed with commuters as well as big-rig trucks making the drive between Phoenix and Los Angeles. Every day, more than 100,000 vehicles travel the portion of I-10 that bisects Goodyear.”

“Drew Brown, president of DMB, which is developing Verrado, has joked that with all the projects planned for Buckeye, I-10 would need more than 20 lanes.”

“One plan is to build a road west of Sun Valley that would connect to the East Valley. But there is no money to build it.”

“‘We want to show the nice lines on the map for new roads and work out a plan to pay for them,’ said Bob Hazelett, senior engineer with the Maricopa Association of Governments.”




Home “May Be Cheaper In A Month”: CEO

Some housing bubble news from Wall Street and Washington. “U.S. homebuilders’ sentiment dipped slightly in December, although they expressed greater confidence for mid-2007, the National Association of Home Builders said on Monday. The index fell one point to 32 but held above the 15-year low of 30 reached in September, the group said.”

“Economists expected the index would rise to 34, based on the median forecast in a Reuters survey. Just three of 31 economists polled forecast a drop, with Citigroup Inc. and 4Cast Ltd. economists predicting a jump to 37. Readings below 50 mean more builders view market conditions as poor than favorable.”

“The index of sales expectations for the next six months rose for a third consecutive month to 48 from 45 and its highest since June, even as the measure of prospective buyer traffic fell three points to 23.”

The Associated Press. “A JPMorgan analyst on Monday downgraded Sealy Corp. because she thinks the world’s largest bedding manufacturer will miss Wall Street’s estimates for fourth-quarter earnings, amid a housing slump.”

“‘It appears the significant housing slowdown is having a substantial impact on industry demand,’ analyst Dara Mohsenian said. She fears revenue could ‘decelerate significantly’ in 2007 as U.S. prices stagnate.”

From Bloomberg. “The U.S. economy has cooled significantly in recent months, with growth slowing to 2.2 percent in the third quarter from 5.6 percent six months earlier, as a recession in the housing sector and a slump among car makers take hold.”

From Business Week. “Treasury Secretary Hank Paulson traveled to China for his first strategic meeting with his Chinese counterparts. Do you think, as Wall Street’s recent behavior seems to suggest, that the housing slump has bottomed out? I don’t know whether it has bottomed out. The one thing I do believe is that we’ve had a correction that in many ways was inevitable and necessary.”

“‘The housing correction has taken about 1 percentage point off of GDP, so we’re growing below our sustainable rate right now. So whether [housing] has bottomed out, not quite bottomed out, or is going to take a quarter or two longer.”

Housing booms are short. are short and exciting. Housing busts, on the other hand, are long and painful. So don’t put much faith in those oft-heard assertions that the worst is already over. Prices are likely to fall further in many markets in 2007.”

“A BusinessWeek analysis of the past three decades shows that if history repeats itself, it’s likely to take 15 years or more for many parts of the country to get back to their inflation-adjusted peaks.”

“Advice to homeowners: If you need to sell and you’re not getting much interest, cut the price by an extreme amount. If you make halfhearted cuts, you’ll remain overpriced and you’ll follow the market all the way to the bottom.”

“Advice to buyers: Bargain hard. Many sellers are still asking for too much.”

“‘As tough as our market’s been, the toughest thing is to get sellers to understand that prices aren’t going up 18% to 20% a year anymore,’ says Ned Redpath, head of Coldwell Banker Redpath & Co. Realtors in Hanover, N.H.”

National Mortgage News. “An active secondary market has developed for buyback loans. As we went to press, one large subprime lender was coming to market with a $580 million portfolio of buybacks.”

From MarketWatch. “Hovnanian is slated to release fourth-quarter results after the closing bell Monday. In November, the Red Bank, N.J., company warned it expected to post a quarterly loss on land charges.”

“CEO Ara Hovnanian, at a recent industry conference, said the company isn’t overly optimistic about the housing market’s recovery and that it isn’t managing as if ‘everything will be hunky-dory in 2007.’”

“The CEO said the latest housing slump is different from previous ones because it wasn’t triggered by an economic shock but by a sharp pullback in the confidence of buyers, who are reluctant to purchase a home ‘that may be cheaper a month later.’”

From Bill Fleckenstein. “It is essential that folks understand the past, in order to prepare for what lies ahead. That the Fed was able to precipitate a housing bubble to bail out the equity bubble was a miracle. But there is no next bubble to bail out the housing bubble.”

“The fact that the economic strength of the past few years was powered by a housing mania, an unstable, unsustainable engine of growth, is what one needs to understand to realize that the ramifications of the housing bubble’s unwinding will be brutal.”




“We’ve Over-Supplied The Market” In Tennessee

The Daily News Journal reports from Tennessee. “While the high cost of housing may have stalled in other parts of the country, the housing market in Rutherford County continues to flourish in a way that benefits buyers, sellers and home builders for homes in most price ranges up to $300,000, said Bud George, the general manager for Bob Parks Realty.”

“Affordable townhouses are the new starter homes for many who can’t afford big high-priced houses, yet first-time buyer Amy Childers was looking for more. ‘I wanted a yard not a patio,’ said Childers.”

“Home buyers this year have closed on 5,883 through November at an average price of $172,240, and about 44 percent of them were new houses, according to RealTracs MLS.”

“Buyers looking for starter homes are now having to buy townhouses because of the high cost of land and building materials, said Rob Calk, the sales and marketing manager for Ole South Properties in Murfreesboro.”

“‘We’ll close 750 to 800 homes in the year 2006, and 50 percent of those are going to be townhome sales,’ said Calk, whose company is building several subdivisions in Rutherford County with townhouses in the $110,000 to $140,000 range. ‘That’s what we’ve replaced our affordable houses with — townhomes.’”

“Ole South Properties began the previous decade building single-family starter homes in Evergreen Farms subdivision in west Murfreesboro, and these 1,100-square-foot houses on quarter-acre lots sold for about $70,000, Calk recalled.”

“‘That same house today is pushing $130,000,’ said Calk, noting that those homes are being squeezed on about an eighth of an acre to keep them affordable. ‘You have no yard at all.’”

“Not all first-time buyers, though, want high density. ‘I’ve already lived in an apartment, which is not a whole lot different than a condo,’ said Childers.”

“Home shoppers searching for larger houses here have numerous choices, but this makes it harder on the sellers, a real estate professional said.”

“‘The problem we’ve got is we probably have 350 on the market right now,’ said Bud George. ‘Once you get over $300,000 in general…we’ve just built many more than we’ve built before. We’ve over-supplied the market above $300,000 in Rutherford County.’”

“The remaining houses in that range represent about a one-year supply based on the rate of selling, said George, noting that Realtors consider a sixth-month supply to be a balanced market for both sellers and buyers.”

“‘Locally, we don’t have a bubble. Our sales prices average 96 to 98 percent of list prices. There’re lots of opportunities for buyers and sellers in this market,’ said real estate agent Joi Sherrill.”

“Although real estate professionals remain upbeat, rumors have spread about home builders turning in keys to the bank for unsold $300,000 houses because they can’t make payments.”

“Those stories are exaggerations, said Tad Craig, board president for the Middle Tennessee Association of Realtors. ‘The upper-end market is the only thing that has slowed down,’ said Craig. ‘A year is longer than they want to see, but it’s not the end of the world.’”




“The Problem Is A Dramatic Over-Supply”: Florida

The Herald Tribune reports from Florida. “Not many developments here can boast the views of the massive SevenShores condominium project planned for land straddled by Anna Maria Sound and Perico Bayou. Thirteen condo towers will eventually rise above the mangroves lining the encircling shoreline. The plan is to sell the luxury homes for as much as $1 million. If only they could find buyers more quickly.”

“Now well into a housing downturn, the developer has sold only nine condos since opening its sales office in May. Low-end prices were set at just under $700,000 when SevenShores’ sales office opened in May. Those units now start at $534,000.”

“Economist Hank Fishkind said he expects new condo sales in the area to suffer for at least the next two years. The problem is a ‘dramatic over-supply,’ probably the worst in 25 years, he said. ‘Anything currently in pre-sales will be long-delayed,’ Fishkind said. ‘You’re not going to see construction anytime soon.’”

“Also within the city limits of Bradenton, Tidewater Preserve will offer 993 units on both sides of Interstate 75 on the south shore of the Manatee River. A sales office has been open for nearly a year, but the project developer, WCI Communities, won’t say how many homes have been reserved or sold.”

“Spokesman Steve Zenker would only say, ‘The market environment has certainly been more difficult than it was a year, year and a half ago.’”

“Development giant Lennar Corp has found a way to sell condos in a saturated market: offer maintenance-free living on the cheap. Stoneywood Cove’s town houses, most of which are priced in the $190,000s, defy the dimensions of typical affordable housing. One model is a three-bedroom, two-and-a-half-bath town house with more than 1,200 square feet. Another is a 1,436-square-foot, two-bedroom model.”

“Lennar is able to offer the units at low cost because of the development’s lack of perks. The basic living conditions keep Stoneywood’s homeowner dues below $200 per month. ‘We are basically offering a price point that is unheard of in this market right now,’ said Levent Yamuk, a Lennar new home consultant.”

“Market forces may have encouraged Lennar to set Stoneywood’s prices low. (A) Web site listed a staggering 865 condos on the Venice market in early December. But only 27 of those were 1,200-square-feet or bigger with a price tag between $170,000 and $210,000. All 27 were resales, and most were more than 15 years old.”

“Many of Stoneybrook’s rows of identical single-family houses sit dormant while construction at Stoneywood is brisk. The pace of sales at Stoneywood is also a stark contrast to Stoneybrook, where ‘for sale’ signs seem to outnumber Christmas decorations.”

“Stoneybrook at Venice, a 998-home master-planned community, was expected to be a haven for professionals and families when its $300,000 to $400,000 homes went on sale in 2004.”

“But it was investors, not families, who sensed the new hot address. Many of those investors are now saddled with a property that won’t flip in a neighborhood that is still going up. Some have turned to renting just to help pay the mortgage.”

“Lennar division president, Rob Allegra, didn’t think he was building a rental community in 2004 when buyers had to win a special lottery just to purchase a home in Stoneybrook. But Allegra conceded the renters are helping keep the lights around Stoneycreek Boulevard turned on.”

“‘The last thing you want in a community is a bunch of vacant homes,’ he said, ‘or homes that nobody buys.’”

“While investors are slashing prices elsewhere in Stoneybrook, Lennar representatives said they expect Stoneywood’s prices to climb in the coming months. Stoneywood’s affordability reflects Lennar’s philosophy in a chilled housing market, said Gordon Greenfield, Lennar markering director.”

“Some Realtors believe lowering prices is a sign of lack of confidence in a product, but Greenfield said he believes the reverse is true.”

“‘We’re doing very, very well, but prices are reduced,’ Greenfield said. ‘Prices were going up 40 percent last year, and that’s not sustainable. And now we’re seeing prices correcting to a reasonable market rate.’”




Bits Bucket And Craigslist Finds For December 18, 2006

Please post off-topic ideas, links and Craigslist finds here.