The Housing Bubble

It’s Friday desk clearing time for this blogger. “A new report from the Des Moines Realtors Association shows sellers have reason to worry, but also to cheer. The real estate group says the Des Moines metro market has about 800 more homes for sale than a year ago. ‘It would be a Christmas miracle if we got our asking price,’ Dubansky Haase said, jokingly.”

From Hawaii. “Many local prices have dropped, said Honolulu-based real estate analyst and appraiser Stephany Sofos. ‘I’m seen prices come down anywhere from 10 to 30 percent in Waianae,’ she said. ‘When primary and ancillary markets start dropping, that is a sign that most others will soon follow suit.’”

From Florida. “Jeb Bush, who will soon vacate the governor’s mansion in Tallahassee, is moving to The City Beautiful. Bush and wife Columba are renting a ninth-floor condo in Segovia Tower in Coral Gables.”

From Massachusetts. “With Bay State home-foreclosure rates soaring, Mayor Thomas M. Menino is calling on the Legislature to tighten mortgage-lending rules. ‘We have all seen the dramatic spike in foreclosures, and we know that a large part of the problem is caused by lax oversight of mortgage companies,’ Menino said.”

“Several U.S. lending trade groups asked mortgage regulators to resist tightening guidelines on the low introductory-rate loans that helped fuel the recent housing boom. The joint letter expresses ’strong concern’ that the rules on such mortgages could be expanded.”

“The current cooling trend in the housing market appears to have dampened investor confidence somewhat in companies whose primary business involves apartments and condos, according to the National Association of Home Builders. ‘The current inventory of unsold condos is somewhat troubling for the multifamily housing market,’ said David Seiders, NAHB’s chief economist.”

From Canada. “The affordability of housing in Calgary and Alberta has plummeted dramatically in the past year, an economic report concluded. Kevin Clark, president of the Calgary Real Estate Board, said the trend cited in the report merely shows the city’s housing market is catching up to its affluence.”

“‘Calgary’s marketplace was largely undervalued prior to 2006,’ said Clark. ‘It looks like a falseness but the reality is, it’s been a correction.’”

From Wisconsin. “Dear Editor: More condos? I notice the ones on Midvale, in front of Hilldale, don’t seem to have a lot of lights on at night. Perhaps that is because no one lives there. There is NO indication whatsoever that the city of Madison can use more condos. Can we stop this building/banking game now?”

From MarketWatch. “The fate of the housing market is no longer in the Federal Reserve’s hands, since psychology has now become the driving force behind the decline in home prices.”

“As everyone knows by now, the 17 hikes in interest rates engineered by Fed policymakers since the middle of 2004 have punctured the housing bubble, the same bubble that the Fed, itself, helped create.”

“As prices fell, the balance of power began to shift from sellers to buyers. Sellers soon found themselves throwing an open house but with no one even bothering to show up, much less make an offer. Buyers, though, could care less about the outlook for interest rates: They smell blood.”

“And there’s no guarantee that sales won’t go lower, especially if the Fed hikes interest rates further. But even if rates stay the same, the damage has been done. Once psychology turns, it takes a long time to reverse.”

The Pasadena Star reports from California. “Home sales in Los Angeles County dropped 21.6 percent compared to last year and some communities are showing drops in median home prices, according to figures released Thursday.”

“The statewide median home price increased 1.4 percent in November, the smallest increase in nearly a decade, said Robert Kleinhenz, deputy chief economist for the California Association of Realtors. ‘The 1.4 percent increase in the statewide median masks the fact that you’ve got markets across the state moving in different directions,’ Kleinhenz said.”

“The San Gabriel Valley had similar highs and lows. Hacienda Heights’ median home price dropped 17.8 percent to $512,000. But Altadena’s median home price increased 15.2 percent to $702,500.”

“Sales have dropped substantially and defaults and foreclosures are up, said Michael Carney, a professor of finance and real estate at Cal Poly Pomona. More money might be flowing out of speculative housing and into stock markets, Carney said.”

“Some sellers who were waiting for a market peak are panicking and putting their homes on the market, he said. ‘How long this will go on is the issue. If there’s going to be a recovery, I think it will be well into 2008 before we see it,’ he said.”

The LA Times. “Optimism was voiced Thursday by economists for three of the biggest industry lobbying groups. They see home sales bottoming in the current quarter and picking up in 2007.”

“However, after three years of record sales, the slowdown will continue to be a drag on the nation’s economy until at least the middle of next year, they said. ‘A lot happened in that boom and we have some paying back to do yet,’ said David Seiders, chief economist for the National Assn. of Home Builders.”

The Sacramento Bee. “California home sellers face several more months of pain, leading housing economists said Thursday. But while they believe the current ‘correction’ will be shorter-lived than those that hammered home values during the early 1980s and 1990s, the three cautioned that residents of California, Florida and much of the Eastern Seaboard are likely to endure the most prolonged pain.”

“That’s because prices during the past five years reached levels in all those areas that became unaffordable to buyers and unsustainable for sales, they said.”

“‘I would just emphasize that all real estate is local and there will be markets in this country that will continue to experience some pain in 2007,’ said David Lereah, chief economist of the National Association of Realtors. ‘It may be a 2 percent drop, a 5 percent drop. Maybe it even gets to be an 8 percent drop in that area.’ Lereah said about 25 percent of the country falls into that category.”

“Local experts say that includes the Sacramento region, where year-over-year prices have fallen up to 14 percent in Placer County alone and 2006 sales of all homes and condos are running 14,000 behind the same time last year.”

“Sacramento-area sales prices are expected to keep falling, up to another 10 percent during 2007 before stabilizing, according to predictions last month by (broker) Mike Lyon. The chief culprit: excess inventory, with 12,652 homes on the market in El Dorado, Placer, Sacramento and Yolo counties, according to real estate researcher TrendGraphix.”

“A year ago, Lereah and Seiders were among housing economists nationally and in California who provided outlooks for a market that in hindsight proved to be overly sunny.”

“‘Affordability is the problem in housing right now,’ Lereah said.”

“Folsom-based home-builder consultant Greg Paquin has predicted sales of 9,500 to 10,000 new homes in 2007, lowest since the 1990s and well below 17,155 sales in 2004. Paquin also recently told the North State Building Industry Association he doesn’t expect significant price hikes for new Sacramento-area homes until 2009 or 2010.”

The Tracy Press. “Mortgage foreclosures have tripled in San Joaquin County during the past year, making this one of the leading areas in the nation where people default on home loans.”

“An Irvine-based company that tracks foreclosures in California shows that foreclosures in San Joaquin County have tripled from last year. The company reported 1,228 foreclosures in the second quarter of 2006, compared with 374 for the third quarter in 2005. In November alone, 594 loans were in default compared with 139 for the same month last year.”

“‘There are a certain amount of loans out there that are probably going to cause problems for the consumer if the consumer isn’t prepared to refinance right now,’ said Dale Gray, executive director for the Central Valley Association of Realtors.”

“He added that there were a lot of investors who took advantage of rising prices and could use risky loans if they could build equity quickly. Those opportunities disappeared last year when the market hit a slowdown.”

“‘If they missed that window and bought it for an investment, it could be those property owners who find they can’t hold that property,’ Gray said.”

The Seattle PI reports from Washington. “While Seattle experienced some of the slowing affecting housing nationally, it is clear that slow here is not the same slow as in many markets. ‘Yes, some consumer confidence issues, some weather issues, some holiday issues are giving us a cold,’ said Peter Orser, president of the state’s largest builder of single-family homes.”

“Orser and others agree a slowing national market, and media coverage of that, has scared buyers away, or at least gave them false expectations about the local market.”

“‘This is not a buyer’s market,’ said Glenn Crellin, at Washington State University. ‘This is really approaching a balanced market.’”

“Then there are people like Ned Redpath, broker in Hanover, N.H. ‘What has been expressed in the media recently has been well written, and has gone an awful long way to help us educate our clients and customers,’ he said.”

“The New Hampshire market is rebounding after an 18-month slump, thanks to sellers lowering their expectations, buyers making quality offers and interest rates staying low, Redpath said. ‘I feel that right now we are at the bottom of this huge trough that we’ve been in.’”

“So is Seattle just slower to descend into a New Hampshire-like trough? Recent numbers show Seattle buyers have less competition and more selection than a year ago. The number of Seattle homes for sale in October was the highest in two years and declined only slightly in November, according to statistics from the Northwest MLS.”

“The year-to-year number of listings increased every month since April, while the number of closed sales decreased in every month since June. ‘Yeah, it’s a contraction, but it’s not a contraction from zero to under water,’ Orser said.”

“One feature of the changing market is that homes that probably would have sold quickly last year, or earlier this year, are sitting on the market for months. The owners of one Seward Park house finally took it off the market in November, after cutting their asking price from $989,000 to $895,000 to $859,000 over about five months.”

“‘They’re so stressed they can’t stand it,’ said agent Carole Alexander. ‘They were willing to look at offers that were significantly lower than that and still didn’t get any.’”

“Alexander said the owners would probably keep the house off the market for at least 90 days, the time needed for it to show up as a new listing in the local listing system, and might use the time for renovations.”

“The owner of a Greenwood house pulled it off the market after two and a half months, and a cut in the asking price from $379,000 to $365,000. ‘The house didn’t sell as quickly as she thought it would so she took it off the market to wait for things to improve,’ agent Deborah Arends said. ‘She’s going to try again after the first of the year.’”

“Crellin said some owners have not priced homes for a softer market or are not willing to wait as long as needed. ‘We do have some folks with some unrealistic expectations,’ he said.”

The Spokane Journal. “Residential and commercial real estate sales are expected to remain strong here in 2007, although below their record-setting paces in 2005 and 2006.”

“Spokane-area home sales during the first 11 months of this year were running about 5.4 percent behind the year-earlier period, in terms of number of units sold, but were on pace to make 2006 the metropolitan area’s second best year historically, says Rob Higgins, executive vice president of the Spokane Association of Realtors. That moderate downturn likely will continue, he says.”

“‘It may still be our third or fourth best year,’ he says of the number of home sales predicted for 2007.”

“In the condominium market, more units are proposed in the downtown and periphery area than usual, says Scot Auble, president of Auble Jolicoeur & Gentry.. Of 539 units proposed, about 140 are under construction, and 116 are presold.”

“‘That’s a whole lot,’ Auble says. ‘Time will tell what the market will absorb.’”

The Naples News reports from Florida. “Two sales have been successfully completed since an Oct. 21 Naples residential real estate auction. The first house at 1430 Crayton Road sold to a Minnesota company for $660,000, according to records from the Collier County property appraiser’s office.”

“The market value of the Crayton Road house and land is listed as $788,257.”

“Announcement of Drake’s auction caused a stir two months ago. Some real estate professionals complained that there was no minimum bid requirement, and, for that reason, Naples Area Board of Realtors would not include the listings at the group’s Web site. Drake originally listed 51 properties, only 45 of which attracted bids.”

From Florida Today. “Brevard County’s housing market continued to be in the doldrums in November, according to the latest statistics from the Home Builders & Contractors Association of Brevard. The number of housing construction permits issued countywide in November was 235, down from 613 permits in November 2005.”

“‘It’s been pretty serious. It’s going to get a little bit more serious before it gets better,’ said Franck Kaiser, the association’s CEO.”

“How serious is it? The number of mortgage foreclosures in Brevard County has increased in recent months as housing prices have fallen and sales have slowed since last year, according to Kaiser and others in the local real estate industry. In places such as Palm Bay, ‘For Rent’ signs have become a somewhat common sight in front of homes.”

“A lot of it stems from investors who bought homes last year — when prices peaked, and they haven’t been able to sell at a profit, or even break even. ‘They can’t carry all that debt,’ Kaiser said. ‘They can’t make the payments.’”

“‘We’ve seen a spike in foreclosures,’ said Sue Pierce, owner and principal broker at Integrity Home Loans in Melbourne. ‘I just saw a foreclosures list with about 200 people on it from the Palm Bay area. A lot of them are investors’ who are stuck in the market. ‘Usually, you’ll see only a handful of names,’ Pierce said.”

“In Brevard County, the median sales price of an existing single-family home in October was $212,400, down 11 percent from $238,200 in October 2005.”

“Condominium prices dropped to a median of $179,000 in October, down 17 percent from $214,400 in October 2005, according to the latest statistics from the Florida Association of Realtors.”

The Gainesville Sun from Florida. “Gainesville home prices are the fifth-fastest growing in the nation, according to a list appearing on CNNMoney.com Wednesday. However, Carol Bosshardt of Bosshardt Realty said a lot of ’sales’ in 2006 were closings of sales made in 2005 when the market was stronger. ‘A lot of it is artificial,’ she said of the increase.”

“The increase is puzzling, Bosshardt said, because there is more supply than demand.”

“Deborah Minck, president of the Gainesville-Alachua County Association of Realtors, said she hopes the news will counter what she called negative and misleading press about a housing bust. That made people hesitant to buy, she said. At the same time, sellers responding to 2004-05 demand have created a large inventory of houses on the Gainesville market.”

“Despite the slowdown, she said 2006 will still be the third-best year on record.”

“(Realtor) Carolyn Quinones expressed surprise that Gainesville was in the top 5, but said that may have as much to do with a slowing national market as increases in Gainesville. ‘What I have heard in the past is that we tend to be behind the national curve by a couple months, maybe a couple years,’ she said.”

“The value of vacant land also continues to increase tremendously ‘because we just don’t have anymore of it,’ she said.”

The News & Observer from North Carolina. “Sales of existing homes declined for the second consecutive month in November, further weakening the Triangle’s most important industry.”

“Brokers closed on 5.5 percent fewer homes last month compared with a year ago in Wake, Durham, Orange and Johnston counties. The inventory of unsold homes rose 5.1 percent and the number of sellers scaling back asking prices jumped 11 percent, according to the Triangle MLS.”

“The $9.3 billion industry, which provides thousands of jobs, has been pinched by fewer numbers of transplanted buyers, who had helped drive the market to records in the past two years.”

“‘Now that we’ve seen a second month of similar data, this confirms where we are heading,’ Moody’s.com economist Michael Helmar said. ‘The forces pulling the nation down will pull Raleigh and Durham down, just not as low. Slower job growth, spent up demand for housing and higher adjustable rate mortgages will impact your area.’”

“Hundreds of sellers are slicing prices to sell homes. There were 3,650 homes with reduced prices on the market in November, or 35 percent of all listings.”

“Many brokers say they are losing sales because buyers can’t close on their homes in other parts of the country. ‘My agents say their clients tell them ‘we’ll do something after … my home out of town sells,’ said (broker) George Pittman. But ‘well-priced houses are still selling in this market.’”

“Glen Astolfi, COO for Cary’s DNJ Mortgage, said higher adjustable rates slowed sales. In 2004, adjustable mortgages with rates as low as 3.75 percent comprised 40 percent of his company’s loans. Now the lowest rate is 5.5 percent and adjustable mortgages comprise only 10 percent of his company’s loans.”

“Years of inviting interest rates encouraged potential home buyers to move up their purchasing decisions, which means fewer buyers in the market now, experts say.”

“‘Attractive interest rates have brought a lot of what we called future buyers into the present, which creates a shortage of present buyers when we reach the future and the future is here,’ said Bernard Helm, a Rocky Mount consultant who tracks Triangle residential trends.”

Newsday reports from New York. “Well, the sky isn’t falling, but local real-estate market conditions remain mostly cloudy, for sellers at least, according to housing data released yesterday.”

“The latest data was more confirmation that the long run of double-digit price increases on Long Island had ended. The price slowdown has proved challenging for real estate agents. ‘It’s been kind of like a roller coaster,’ said Rosie West, an associate broker in Freeport. ‘The sellers, or some of them, are still in last summer’s prices, whereas the buyers are in this season’s prices.’”

“Potential buyers are holding out, betting that prices will decline, she said. One big result is that the ‘really over-priced’ homes are ‘coming into reality,’ West said.”

“As another measure of the market’s slowdown, the increase in residential housing inventory, rose to 13,313 homes in Suffolk from 9,847 a year ago. In Nassau the number of houses on the market jumped to 9,457, from 6,786. In Queens, the number spiked to 9,170 from 7,024.”

“That higher inventory has increased the amount of time it would take to sell all the houses on the market. It would now take 12.9 months in Suffolk, compared with 9.4 a year ago. In Nassau, the figure rose to 11 months from 8.5. In Queens, the number rose to 12.5 months from 10.8.”

“Also telling are the median prices for houses in contract, a number that indicates the latest overall housing prices. That value slipped in Suffolk by 1.0 percent to $395,000 from $399,000 a year ago. In Nassau, it declined by 2.1 percent to $465,000 from $475,00.”

The New York Daily News. “As the city’s once-booming real estate market cools, many Bronx homeowners are starting to feel the heat. The number of ‘lis pendens’ actions filed in the Bronx, an indication of upcoming foreclosures, has risen 21% in the first 10 months of this year over last, according to the latest mortgage statistics.”

“‘It’s ugly out there,’ said Sarah Ludwig, director of the Neighborhood Economic Development Advocacy Project.”

“Ludwig blamed a range of scams and unscrupulous lending practices, from ‘interest only’ mortgages to ‘one-stop’ real estate brokers, for the rash of lis pendens filings.”

“‘A major factor is the resetting of adjustable-rate mortgages,’ said Ludwig. ‘Lots of people are seeing their payments go up by hundreds of dollars a month.’”

“In areas like Throgs Neck and Middletown, the main culprit is the recent trend of refinancing, where most often elderly homeowners take out new loans to make home repairs but fall victim to hidden fees and rate hikes.”

“Manhattan saw a drop as striking as the Bronx’s rise, with 17% fewer lis pendens filings this year, attributable to the island’s hot real estate market making it easier for distressed owners to sell, said Robert Ugorets, who runs a foreclosure-tracking Web site. ‘If you got into trouble in that market,’ said Ugorets, ‘you could just get out.’”

“But in the Bronx, where most mortgage-holders are homeowners rather than speculators, getting out from under an impending foreclosure isn’t so easy.”

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