The Housing Bubble

The California realtors have their November numbers out. “Home sales decreased 22.2 percent in November in California compared with the same period a year ago. The median price of an existing, single-family detached home in California during November 2006 was $555,290, a 1.4 percent increase over the revised $547,870 median for November 2005, C.A.R. reported. The November 2006 median price increased 0.7 percent compared with October’s revised $551,620 median price.”

“‘Although the statewide median price is on track to post just under a 7 percent increase for the year, there is a mixed picture across the state, with more regions reporting year-to-year declines than increases at this point,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘We’ve seen three or more months of year-to-year price declines in areas where there was a lot of homebuilding activity and in those areas that are popular for second-home purchases.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in November 2006 was 7.4 months, compared with 3.6 months (revised) for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 47.2 percent, or 168 out of 356 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Monterey Herald. “It’s a whole new era in Monterey County real estate. Sandra McGavin has had her three-bedroom, 1,600-square-foot King City home on the market since summer. Her real estate agent initially recommended a listing price of $519,000, a price that made McGavin uncomfortable. ‘I thought that was too high,’ she said.”

“But over the course of the six-month listing, McGavin received but one offer from a would-be buyer, for $450,000, which she declined. Since then, she’s dropped the price multiple times, posted an online ad in hopes of finding a buyer, and found out just how frustrating a slow market can be.”

“Today, McGavin said she’s ready to accept $470,000. ‘Now, if I get a deal at $470,000, I’d be happy.’”

“Those unwilling to adjust their expectations risk rejection from agents. ‘They’re turning down listings where sellers are not motivated,’ said Monterey County Association of Realtors CEO Sandy Haney, ‘where a seller comes in and says, ‘I want this much for my house,’ and the market won’t support it.’”

“Even the language of real estate is changing. ‘Anxious to Sell’ and ‘Make an Offer’ have crept into the verbiage of real estate ads, as has ‘Motivated Seller.’ And ‘Reduced’ is now ubiquitous.”

“Realtor Stephanie Park has dropped the price four times in 10 months on a remodeled three-bedroom Salinas property on Palma Drive. Initially listed at $669,000, it’s now at $578,000. She has had one offer but no sale yet.”

“Buyers are definitely looking for bargains, she said. ‘They’re making offers below the asking price, and they’re being accepted.’”

The San Francisco Chronicle. “California’s population growth rate slipped for a sixth year in a row as tens of thousands of residents left for other states, according to new estimates the state released Wednesday.”

“‘In the past when (the economy was strong), California has attracted a lot more people from other states. Now we’re losing people to other states, and the Bay Area is part of that flow out,’ said Hans Johnson, a research fellow at the Public Policy Institute of California. ‘Why? The answer is housing prices have a lot to do with this.’”

The Daily Bulletin. “More than 27,000 more people moved out of Los Angeles County than moved in during 2005-06. ‘They’re definitely escaping Los Angeles for the Inland Empire,’ Fontana Mayor Mark Nuaimi said.”

The Recordnet. “San Joaquin County’s population is growing at a slower pace than it has for nearly a decade. Declining population growth is likely reflected in housing starts. Mike Niblock, Stockton’s community development director, said Wednesday that there has been a definite downturn in the number of building permits for new residential construction.”

“‘I’m sure there are a lot of different factors that impact those numbers, but usually there is a fairly strong tie between housing and population,’ he said.”

The Ventura County Star. “Ventura County’s population grew by just 0.9 percent last year, to 821,698, according to state estimates released Wednesday. It marked the second straight year that the county experienced a growth rate of less than 1 percent.”

“The state lost 67,000 residents to other states. It marked the third straight year in which the state experienced a net loss in domestic migration.”

“Foreclosures are climbing in California. More than 19,000 California properties entered some stage of foreclosure in November 2006, a 19 percent increase from October and more than three times as many as a year ago, according to RealtyTrac.”

“The year-to-year bump of 218 percent might be cause for alarm, but no one seems too worried, according to regional economist Jack Kyser. Sales are at 21st century lows in the state, but except for a few areas, folks seem willing just to bide their time and wait it out.”

“‘There is some concern about the condo sale market in downtown Los Angeles and some people are worried about San Diego,’ Kyser said. ‘There are worries as well about Riverside County, but that’s it.’”

“Riverside was partly responsible for the Riverside/San Bernardino metropolitan area ranking third worst among the nation’s 200 largest cities. There were 4,747 properties entering some stage of the process in the two-county area in November.”

“‘The industry may be in the intensive care unit through 2007,’ Kyser said, ‘but when you look at mortgage rates, there’s a real irony.’”

The Times Herald. “Solano County has among the highest projected foreclosure rates in the United States, according to a report released Tuesday.”

“Some local mortgage experts blame a combination of uninformed consumers, a declining real estate market, creative financing and unscrupulous mortgage lenders. ‘The consumer is an idiot,’ Mitchell Chernock of Benicia’s Sky Valley Financial said of those who accept unconventional mortgages without doing their homework first. ‘There is also out-and-out fraud against consumers by some mortgage and real estate professionals.’”

“Chernock said the recent drop in home prices is one reason the situation is particularly acute locally. ‘Who comes in at the tail end of the longest boom ever?’ Chernock asked. ‘Those who didn’t know how before.’”

“Some of the lenders who during the big local real estate boom were getting many low- and moderate-income people into their first homes, in some cases, wound up doing them no favor, Benicia mortgage broker Robbin Gifford added. ‘That’s true in the past year, especially,’ Gifford said.”

AZfamily.com reports from Arizona. “Just like the housing boom, the condo craze has also slowed down. The condo boom started as a cheaper alternative to buying a single-family home. But once the market became overcrowded with condos, some developers are now forced to rent.”

“‘Just recently, we had a boom just like the housing market in places like Phoenix and Florida. What happened was they just overbuilt,’ Phoenix broker Mike Bianchi said.”

“He said developers in the Phoenix metro area converted too many apartments into condominiums. ‘(Developers) took a ton of properties that were rentals before and turned them into homes,’ Bianchi said. ‘At the same time, (developers) flooded the market with too many condos and now there is not enough buyers for those homes.’”

“‘I think, currently, 98 percent of the apartments that are in the city of Tempe are currently rented,’ he said. ‘That’s an extremely high rate of rentals.’ That’s why you’re seeing some condos being converted back to apartments.”

“‘The good news for consumers is if you want to buy a property and you want to buy a condo, today is a great time to do it because there’s a ton of them on the market,’ Bianchi said.”

The Arizona Republic. “Connie Edelman is owner/broker of Sterling Fine Homes and Land, which has offices in Cave Creek, Scottsdale, north Phoenix and Surprise. Question: How long have you been in the real estate business? Answer: ‘I have been in real estate for 12 years and have lived in the Valley for 45 years.’”

“Q: Can you discuss trends in the rental market? A: ‘As homes sit on the sales market for a longer period, sellers look to the rental market to tide them over until the inventory decreases and the sales market picks up again. This has brought a flood of new inventory to the rental market.’”

“‘This has been especially noticeable in the areas that were hard hit by the investors. The increase in rental inventory keeps rental rates lower, making renting a good option for many who want to wait and see what will happen to prices in the coming months.’”

“Q: Some buyers are apprehensive about buying because of a fear the home’s value will go down. What is your advice? A: It is not a time to buy and flip a property, but for those looking to buy a home that they will live in and enjoy, it is a great buyer’s market.’”

The Arizona Daily Star. “As many as 2.2 million Americans with subpar credit could lose their homes through foreclosure over the next several years, a new report said.”

“In Arizona, the delinquency rate during the third quarter was 7.46 percent,an increase over the 5.96 percent in the second quarter of 2006.”

“There were 1,097,078 loans serviced during the third quarter of 2006 in Arizona. Of those, 2.93 percent of the homes had payments that were past due, an increase over the 2.44 percent of homes with late payments in the second quarter of 2006. In the third quarter, about 1.2 percent of all Arizona mortgages were at some stage of the foreclosure process.”

“The downturn in Arizona’s real estate market is translating into business for Catholic gift stores around the Valley, where shoppers are asking for the St. Joseph Home Selling Kit.”

“‘People come in very sheepishly and ask if we have the statue. They just want to get it and slink out again,’ said Mary Gibson, manager of St. Thomas the Apostle gift shop in Phoenix.”

“Gibson has seen sales of the kit, which retails for $6.95, rise dramatically since the first of the year. ‘During the real estate boom cycle of the past couple of years, we didn’t see any movement at all on the saint (statues). When the slump started and people realized that it was going to be around for a while, they started coming in,’ she said.”

“‘Back when the market was hot and you were practically interviewing people to see if you wanted to sell them your house, it was a different story,’ Gibson said. ‘St. Joseph is their last desperate attempt to get the house sold.’”

“Gibson said her shop is ordering more of the kits to keep up with the new demand.”

“The Treasures of Faith gift shop in Paradise Valley has been selling four to 10 kits a day, according to manager Loretta Winn. ‘They’re driving in from all over the Valley; it’s not just people from this neighborhood,’ Winn said. The shop, near Paradise Valley Mall is in the middle of a residential neighborhood where ‘For Sale’ signs abound.”

“Recently, Susan Schuerman of central Phoenix bought a statue to help sell the home of her boyfriend’s son. The homeowner hasn’t reported a sale yet, but Schuerman isn’t discouraged. ‘He’s not living on the property, so maybe that makes a difference,’ she said.”

The Denver Business Journal reports from Colorado. “Affordable apartments are hard to find in the Denver metro area, according to a survey released Tuesday by the Colorado Division of Housing. Usually an improving economy is good news, but said Kathi Williams, director of the Colorado Division of Housing, said investors, especially from California, are driving up prices and rents.”

The Rocky Mountain. “The vacancy rate for rental units termed affordable in the Denver metro area was 3.8 percent in the third quarter, according to the inaugural report on government-subsidized rental units.”

“Because of softness in the market, some privately owned apartment markets actually offer lower monthly rents than subsidized ones, said Gordon Von Stroh, a professor and researcher at the University of Denver.”

The Missoulian from Montana. “The Bitterroot Valley appears to be keeping the national real estate slump at bay, at least for now. In 2000 through Dec. 14, the median price for a residence under one acre was roughly $93,000, according to the Board of Realtors. This year, that price increased to $169,500.”

“‘Quite a jump,’ said Layna Lyons, executive officer for the Bitterroot Valley Board of Realtors. Over the same time period, townhouses and condos increased from roughly $98,500 to $125,000.”

“While Bitterroot real estate doesn’t appear to be heading into the tank anytime soon, Lyons said she sensed the market cooling slightly over the summer. ‘I can’t say that it was anything real drastic,’ she said.”

“Some buyers sensed the market cooling, too, Lyons said. She expected some of them to wait until 2007 to buy. She doesn’t expect the Bitterroot to experience a crash, but she doesn’t believe the valley will escape unscathed from the national downward turn, either. ‘I don’t think we can sidestep it altogether,’ Lyons said.”

“(Realtor) Bill McDavid agreed. ‘I think we all feel like there’s going to be some kind of change,’ he said.”

“A Bitteroot Valley real estate broker said Wednesday that the housing market in the valley softened more than the Bitterroot Valley Board of Realtors suggested.”

“Bill Zader, broker and owner of Western Montana Realty Group, said the drop was much more dramatic. ‘This summer, it crashed down,’ Zader said.”

“In 2005, he counted 849 sales. This year, he put the sales at 680. Zader said he noticed sales were off in spring 2006. When summer rolled around, he noticed that the Bitterroot market was running 25 percent behind the previous year’s market. ‘That’s where we are now,’ he said.”

“Broker Sheri Jones agreed. Through the end of October, the Bitterroot sales dropped about 25 percent on individual units, she said.”

“Zader said he wants sellers in the Bitterroot to know that the market has cooled off. He doesn’t want them to have false expectations when they put their houses up for sale. He said real estate executives want to stay optimistic, but the Board of Realtors painted a picture of the market that was too rosy.”

“Lyons said Wednesday that a number of Realtors in the Bitterroot have told her they haven’t experienced a drop in business this year. ‘I don’t see any bubble bursting. I don’t even see a bubble,’ she said.”

“Total residential sales were at 983 this time last year, she said. This year they’re at 811. (Zader and Lyons provided different figures because sales statistics can be counted in a variety of ways.) ‘You don’t really see a big difference there,’ Lyons said.”

“Baby boomers created their wealth from real estate, Jones said: ‘They’re not going to stop.’”

The Morning Call reports from Pennsylvania. “Average home prices in the Lehigh Valley fell last month, the surest sign yet that the local home market is in retreat from the sales frenzy of the past few years. The number of homes sold, which has fallen six consecutive months.”

“Buyers have their pick of properties, and agents say they can make offers that are below the listing price. ‘The sellers who are getting good buyers are pricing their homes very competitively, because buyers have just so many options they will walk away and go to the next house,’ said Ellen Shaughnessy, a real estate agent in Easton.”

“Experts have said the rate of home appreciation in the Valley was unsustainable. The market was bolstered by strong demand from home buyers moving to the Valley from more expensive towns in New York and New Jersey, and to a lesser extent the Philadelphia area. The newcomers found Valley home prices more affordable and often offered more than the asking price.”

“‘We were expecting it to slow down. The market took much longer to give, but eventually it happened,’ said Bethlehem economist Kamran Afshar.”

“Last month, the number of homes sold fell 22 percent, compared with last year, and the number of pending sales fell 25 percent. It was the lowest number of pending sales contracts since December 2003, according to LVAR statistics.”

“The glut of homes on the market is slowing the pace of sales, experts say. The number of homes listed this year is almost double the number that have sold. There have been more new listings in the first 11 months of the year than all of last year.”

“As supply outstrips demand, an unavoidable consequence is a decline in home prices, said Afshar, the Bethlehem economist. ‘We expect further declines in volume, and maybe further adjustments to price,’ Afshar said.”

“Agents say sellers still want to set their own prices. Deb Dahlinger, an agent in Hanover Township, Northampton County, warns sellers they may have to consider a price reduction if the home does not sell after a month on the market.”

“I tell them: ‘Don’t expect the house to sell right away. It is going to be sitting like all the other ones,’ Dahlinger said.”

The Providence Journal from Rhode Island. “One classified newspaper ad says ‘1st Mo. FREE.’ Another: ‘Free Heat, Free Hot Water and FREE RENT!’”

“The latest ‘promotional giveaways’ to lure new tenants even include a free spa getaway weekend. If that’s not enough, one property manager offers $500 to anyone who makes a referral that lands a new tenant.”

“The reason is simple: rental properties are going empty. ‘Our occupancy rates are off anywhere from 2 to 5 percent’ from last year, said Cheryl Martin, VP of Residential Property Management of Warwick. ‘We need to do something to be more aggressive in order to compete.’”

“Property managers and real-estate agents say the demand for rentals priced at $1,100 per month and up has gone soft. Not since the recessional mid-1990s, Martin said, have they resorted to freebies to lure new tenants.”

“The large number of rentals going empty is reflected statewide in the ‘rental vacancy rate,’ which has nearly doubled in the last three years, to 7.7 percent last year, according to U.S. Census data.”

“‘We’re flooded with inventory,’ said Diane Barone, a real-estate agent in Cranston. ‘The rental market is terrible; it’s just terrible. You get a bunch of people and you show, you show, you show, and they’re just sitting there.’”

“The construction of hundreds of condos, many in downtown Providence, has also flooded the real-estate market, and some of the spillover is driving up the inventory of rentals as condo owners who can’t sell their units decide instead to rent them out.”

“‘I have a client right now, he’s got a little house on Ninth Street for $1,600 a month, and he’s down to $1,300 and nobody even wants to look at it,’ said Suzanne Knight, a real-estate agent on Providence’s East Side. ‘It’s been vacant for four months now. … There’s just much more supply than demand.’”

“East Side property owners are competing with new downtown properties, Knight said. ‘There are hundreds of rental units downtown that weren’t here two years ago,’ Knight said. ‘You’d think landlords would lower their rents, but it takes a while. So they’re empty.’”

The Baltimore Sun. “One-fifth of the ’subprime’ mortgage loans that Marylanders took out this year will end in foreclosure and home loss, according to a report released yesterday that predicts problems nationwide.”

“The findings are especially worrisome for Baltimore, where, according to one recent survey, about half of mortgage loans made to homebuyers in recent years are subprime.”

“Several independent experts said the center’s forecasts, though disturbing, seem reasonable. ‘It’s based on very sound assumptions,’ said Greg McBride, senior financial analyst with Bankrate.com. ‘Let’s hope it’s one of those worst-case scenarios that never comes to pass.’”

“Mark Zandi, chief economist of Economy.com, said he too expects significant increases in subprime loan defaults, fueled by ‘bad underwriting,’ weaker house prices and a softer job market.”

“Nervous regulators and lenders now are tightening standards, he said. Though that’s good news down the road, it’s bad for people stuck in mortgages they can’t afford, he said: ‘It’s going to be harder for homeowners … to refinance out.’”

“Carol Gilbert, co-chairman of the Baltimore Homeownership Preservation Coalition, thinks the state needs to offer temporary loans to homeowners in danger of losing their homes; to better promote its new ‘lifeline’ refinancing loan that can get Marylanders out of bad mortgages; and to help connect more people with nonprofit housing counselors.”

“‘It’s very troubling, but there are some things we can do,’ said Gilbert.”

“The root of the problem is that residents have taken out loans they clearly cannot afford over the long term, said Vinnie Quayle, executive director of the St. Ambrose Housing Aid Center in Baltimore.”

“Speaking in support of the report’s conclusions, Pat Vredevoogd Combs, president-elect of the National Association of Realtors, said: ‘We want to make sure that Americans who achieve the dream of homeownership do not see it turn into their worst nightmare.’”

The Bradenton Herald reports from Florida. “Fortune Magazine has named Bradenton/Sarasota in its top 10 housing markets ready for a fall. Ranking the area number seven, the magazine projects local home prices will tumble 4.8 percent in 2007. Home prices started to see a correction as early as the last quarter of 2005 and buyers are being more realistic when pricing their properties, said broker Milt Flinn. Fortune’s prediction is akin to ‘looking out the rear window.’”

“The latest numbers released by the Florida Association of Realtors found the median home price for October at $277,900, down 18 percent from the $340,700 median in 2005.”

“‘I think we all need to take a look at our individual greed temperature,’ said Rod Rawlings, VP of corporate development for Re/Max Gulfstream. ‘Sellers now who realize there is no way they can lose money on the sale of their house are more likely to price according to what the market allows.’”

“The best bet for selling a property in an area that has multiple homes on the market is to price a home in the bottom of that area’s price range. ‘It takes two to make a transaction and the buyers have been sitting back waiting for the market bottom and I think they’re coming back now,’ Rawlings said.”

The Orlando Sentinel. “Ed Wittenberg moved into a ghost town. At the fringe of the 60,000-retiree community, the well-landscaped homes in his Villages neighborhood stood empty. The front windows of home after home revealed empty living rooms. No one else lived there.”

“‘I was alone, but not lonely,’ Wittenberg said. ‘I did wonder if I was getting any neighbors. I wondered if it was selling down here.’”

“The Villages home-building machine put the brakes on during 2006. This year home building in the retirement mecca is on pace to drop by about 40 percent from 2005. ‘It’s slowed dramatically,’ Sumter County Planning and Development Director Robbie Rodgers said.”

“This year, the master-planned community went from a high of 529 building permits pulled in January to only 76 in November. Each month saw fewer permits pulled. The surplus of empty homes from last year leaves vacant neighborhoods and isolates new retirees such as Wittenberg.”

“Frustrated would-be Villagers lament that their retirement dreams are shackled to a soft housing market. ‘People can’t sell their houses up North or anywhere,’ Lorri Lewis, a South Florida real-estate agent. ‘I already lost $60,000 on my house in Vero Beach,’ Lewis said.”

“Experts said the ghost neighborhoods of The Villages are symptomatic of the new-home market across the country. As the market cools, home builders face excess inventory while competing with a flood of existing houses for sale.”

“Lewis rented in The Villages for 21/2 months. She is spending Christmas in The Villages with friends. She already dropped the asking price on her Vero Beach home and plans to drop it again until it sells.”

“‘I’ve met too many people who have bought here and can’t sell their homes,’ Lewis said. ‘It’s just a matter of patience.’”

“Marj Fada could not wait any longer. At least 165 other people from her hometown of Mansfield, Ohio, already have moved here. ‘I had been coming down here for five years,’ Fada said. ‘The homes down here have doubled in price.’”

“When she retired, she immediately bought a Villages home, sight unseen, and put her Ohio property on the market. That was September. She has taken her home off the market for December and January to save on real-estate-agent costs while she covers two mortgage payments.”

“She thinks The Villages’ momentum will return and allow her to resell her home when the market rebounds. ‘Even if it doesn’t work out for me here now, I don’t think it was a bad decision,’ Fada said. ‘I can always come back.’”

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