The Housing Bubble

A composite of three related topic suggestions. “What Christmas gift would you get for you neighborhood realtor, mortgage broker, appraiser or any other related industry member?”

A reply, “How about a framed picture of a bird: Particularly, a vulture.”

Another added, “2006 edition - What Color is your Parchute?”

The second suggestion, “Here’s one: ‘If you have a message for David Lereah, what would it be?’”

One said, “Just how many Florida condos are you underwater on?”

Another produced this, “A Visit from St. Lereah (The Patron Saint of Spring Bounce).” ‘Twas the night before Christmas, when all through the (open) house,

Not a GF was bidding, not even a louse(lo-ball);

The twirlers were assigned to their corners with care, In hopes that St. Lereah could find his way there.

The children were nestled all snug in their beds, While visions of Plasmas-games danced in their heads;

And mamma with her statue, and I in my cap, Had just settled down for a big equity slap, When out by the Hummer there arose such a clatter, I hoped it was Ben, dropping helicopter matter.

Away to the window I flew like a flash, It was stuck, wouldn’t open, damn subcontractor trash!

The moon on the breast of the new-fallen snow Gave a luster of mid-day to the FSBO signs below, When, what to my wondering eyes should appear, But a miniature intellect, and eight purveyors of cheer.

With a little old driver, in an S U V from KIA, I knew in a moment it must be St. Lereah. Louder than a train wreck, his cheerleaders they cried,

And he whistled, and shouted, and called them with pride;

‘Now, James! now, Donald! now, Alan and Cramer! On, Suzanne! on, Ben! on Kendra and Disclaimer! To the top of the chart! to the top of them all! Now REFI away! REFI away! REFI away all!’

As dry leaves that before the wild hurricane fly, When they meet with an assessment, that mounts to the sky; So up to the house-flop, the cheerleaders they drew, With an van full of tricks, and St. Lereah too.

As I drew back my head, and was turning around, From the kitchen there came, Suzanne with a bound. She was dressed only in fur, from her neck to her waist, And her teddy was all tarnished, with flour and paste; A pan of warm cupcakes, she presented with glee, In addition I can offer, ‘Coffee, tea or me?’

In front of a mirror, the Trump man he stood, Counting each of his hairs…whatever the good (that is)…??? And Alan and Ben, discussed rather deliriously, The merits of taking, the Euro more seriously. The talented Kendra performed like a true busker, Buying properties galore, in a state next to Corn Husker.

The stock choices of Cramer truly did astound,But he researched them quite thoroughly, and deemed them all sound. He ranted and raved, then proclaimed with a thump; “These Builders on the DOW are ready to jump! Pulte Homes and Toll Bros, I give them full support.”

Privately of course, he was selling them all short. The other two shills worked as a fine team, Polishing granite and stainless, to an unnecessary gleam. The boss man himself, tackled the Big Trouble. It was his job to spin away, the Existence of a Bubble.

On TV he spoke with a confidence, so assured, He made the difference between debt, and savings, seem blurred. The old standbys he quoted, left, right and center, Like, ‘It’s different here now.’ and ‘Don’t be a renter.’

A press release he issued, based on reason so scant, I’m sure it would embarrass, old Immanuel Kant. A flask of straight Kool-Aid, he finished in one chug; Declared ‘Mission Accomplished,’ then ranted so smug, ‘The Oracle of Omaha has nothing on me, The California Orifice…Second quarter, you’ll see.’

Then laying his fingers aside of his toes, Up the lower extremity of his digestive tract, he rose; He hovered a moment, then to his team gave a whistle, Then away they all drove like the down of a thistle. But I could hear him profane, and too frequently announce; ‘St. Lereah to all, and to all a Spring Bounce.’

And a more serious suggestion, “Considering the ‘potential fallout’ that many here predict, a great discussion could go like this. You’ve just been assigned the most powerful position in the United States, your decisions will become effective immediately - would you lower/raise rates (reasons why). Would you bail out homeowners or let them hang out in the wind. The list goes on.”

A reply, “Raise interest rates to: 17.211 % for a 30 year fixed loan. It would put to an end… the question about who can afford a house based on their income among other things.”

Another said, “Disband the ‘Federal Reserve,’ and go back on the gold standard at whatever gold price it would take to pay off all the outstanding ‘Federal Reserve Notes.’ These steps would make the rest of the issues fade into the background.”

One was specific. “Raise FFR to 6%. Announce that we will be major inflation hawks, and that the ‘govt numbers’ will correlate with what REAL people see in REAL life. No more hedonics, substitutions, ‘core’ rates, etc. Housing (50/50 mortgage/rent), healthcare, education, food, water, & utilities will the the primary costs factored in the new CPI numbers. Stop printing money.”

“Fine anyone with a licence (RE broker, mortgage broker, stock broker, etc.) who knowingly lies or tries to conceal the truth if the truth is relevant to those in his/her audience. Take away the licence of those who violate the ‘honesty’ law more than three times in a 10-year period.”

“Let the FBs twist in the wind, and the mortgage lenders with them. No bailouts for anyone. Fraud should be prosecuted to the fullest extent of the law.”

The LA Times reports from California. “If all you have ever wanted for Christmas was a second home in Mammoth Lakes, this may be the season Santa delivers. The current market is so glutted with unsold units that even St. Nick might pounce if prices start to melt. The numbers tell the Mammoth Lakes story: There are 217 condos listed for sale and 220 licensed realty agents trying to sell them.”

“The 2006 fall buying season was as flat as a dying aspen leaf. Only 124 condos and 20 homes were sold from June 1 to Nov. 1. That compares with 214 condos and 53 homes in the same period last year.”

The Press Enterprise. “The cooling housing market finally caught up with Inland builders last month, as the construction sector posted some of its biggest job losses of the year, according to a report. Though economists have predicted construction-job losses for most of the year, this was the first time the losses were reflected in the state’s job numbers.”

“‘While sales of houses had slowed considerably, many of the construction companies already had projects on the books and continued working,’ said John Husing, a Redlands-based economist.”

The Press Democrat. “The jobless rate in Sonoma County unexpectedly rose in November as retailers kept a tight grip on hiring while construction companies and manufacturers continued to lay off workers, the state reported Friday.”

“‘It is a signal that in general the economy is slowing down,’ said Robert Eyler, director of the Center for Regional Economic Analysis at Sonoma State University. ‘This is the bread and butter stuff that happens at the end of a recovery and beginning of a recession.’”

The Record.net. “The median home price in San Joaquin County has dropped 13 percent since January, as free-market gravity took hold of the Valley’s once-booming real estate industry. But that still is not enough to make owning a home affordable to thousands of San Joaquin County residents.”

“Fred Sheil believes 2006 is just a prelude to an even greater decline that will bring real estate back on par with the county’s wages. ‘They’ve run out of people that can afford to buy a $500,000 home,’ said said Sheil, who builds and rehabilitates homes for local low-income families. ‘Who else are they going to sell to?’”

The Gilroy Dispatch. “Home prices in Gilroy have been steadily declining during the past year, but that doesn’t necessarily mean now is the right time to buy. From November 2005 to November 2006 the median price for a home has dropped from $739,000 to $687,000, a 7 percent slide, according to REInfoLink database.”

“The lower prices and good interest rates have local real estate agents advising those looking for a home to take advantage of what they are calling a buyer’s market. ‘There is no reason not to buy,’ said (realtor) Susan Jacobsen. ‘There is more supply and less demand than there was a year ago and this is a great time for buyers to negotiate.’”

“Despite claims by real estate agents that the time to buy is now, John Mark Brady, an economist at San Jose State University, said that buyers will be better off waiting a few months. ‘Prices have gone down, but they will continue to go down,’ Brady said. ‘In my opinion, buyers - if they can - should try renting for a while as prices come down farther.’”

“Buyers like Gilroy resident Juan Biruetta said that it is still too expensive to buy a home. ‘It’s not a good time to buy. The prices are too high,’ said Biruetta, 19, who was told by lenders and real estate agents that right now is a good time to buy. He is in the process of buying a home in Madera, six rooms on two acres, for $400,000.”

“But the question remains how real-estate agents believe most people will be able to afford homes. Yahoo Real Estate lists the median annual family income in Gilroy at $65,330 a year, not enough to afford a monthly mortgage on a median-priced $687,000 home. In Morgan Hill the median home price is $775,000.”

“To afford a median price home in Gilroy, a household would need to earn an annual income $162,099 to afford a 30-year, 6-percent fixed-rate mortgage, according to Interest.com.”

The Herald Tribune reports from Florida. “New home construction, the linchpin of this North Port’s spending plans, has slowed to a comparative standstill and even optimists say these doldrums are far from over. The massive drop in home building, which started in April, has left everyone from City Hall staffers to spec home buyers scrambling to adjust.”

“Impact fees, used to pay for capital projects such as road widenings and new parks, account for $28 million of this year’s budget. To collect that much money would take about 3,900 houses and 50 large commercial projects. The city is nowhere near that pace so far, being on track to issue about 1,000 home permits this budget year.”

“‘Whether we did (cut) enough or not remains to be seen,’ said City Manager Steven Crowell.”

“The real estate downturn has been a disappointment beyond City Hall. Rich Deeds, who lives in Pennsylvania, jumped into the North Port spec housing market right before this year’s precipitous drop. Now he’s sitting on two new houses in the city.”

“He tried to sell one on eBay this month but didn’t get a single bid. Now he’s spending $4,500 on Florida mortgages every month. ‘I expected a leveling out,’ he said. ‘I didn’t expect it to take a plunge.’”

The St Petersburg Times. “‘We were actually crazy,’ said broker Dan Richard. ‘It seemed like it was almost out of control, people flipping houses. It’s much slower now.’”

“That, of course, is the big story of 2006, the slowing of the housing market, though by some accounts those terms don’t begin to describe it. ‘This thing has almost collapsed,’ Per Berglund, a senior economist with Moody’s Economy.com said.”

“The most telling statistic documenting this reversal is the number of permits the county’s Development Department issued for construction of new homes. That dropped from 4,185 in 2005, a record high, to 2,765 through Dec. 19 of this year, with a much more pronounced decline in recent months.”

“But people in the business of building and selling homes don’t need to see those numbers to know how things have changed. They can tell by the way they go about their jobs.”

“As the pace of building slackened in late 2005, builders had an easier time finding materials and workers to complete jobs. Then, toward the end of 2006, said Mark Vallery, owner of Vallery Custom Homes of Clermont, subcontractors’ prices began to drop substantially because they needed work.”

“‘Basically, they don’t have anything to do, as opposed to two years ago when we had to beg them and offer them bonuses to get any work done,’ said Valler.”

“The reduced labor costs mean that, finally, the prices of homes have started to drop. The least expensive houses he sells in Southern Hills, called cottages, have recently been repriced at $298,900, down from $350,000. Vallery, whose sales in 2006 dropped 70 percent from 2005, said he has reduced the prices of other homes in the golf course development by a full 20 percent.”

“‘You hear some people say, ‘My neighbor sold his for this much a year and a half ago, and I have the exact same house,’ said Richard, who said sales in his offices declined 30 percent this year. ‘We have to tell them, well, that was a year and a half ago. … That’s not working anymore.’”

The Miami Herald. “The squeeze on South Florida renters might ease because more rentals are coming onto the market. With condo sales slow, some condo investors are putting their units up for rent instead. And others who converted their rentals into condos in the hope of quick gains are deciding to convert them back.”

“While the size of this ’shadow market’ of inventory is hard to gauge, it is having an impact.”

“‘The shadow market has definitely affected the rental market. Whereas a year and a half ago the market was really tight, now you find an abundance of rental property,’ said Jay Massirman, a former vice chairman at commercial brokerage CB Richard Ellis.”

“‘Six months ago a renter could not find a concession anywhere. Now you can find a half-month or month offered for free in some places,’ said Kevin Judd, VP of Apartment Realty Advisors in Boca Raton.”

“Alan Ojeda, among the few developers to build an apartment rental tower in South Florida in recent years, said fully two-thirds of rentals converted into condos are now going right back in the rental market. ‘It is going back as rental supply, but under a different owner,’ he said.”

“Some 4,000 apartments set to be converted to condos have already reverted back to rentals, according to McCabe Research & Consulting, who has long predicted a meltdown in the condo market. The company only tracks market rate apartments of 100 units or more.”

“Earlier this year Pembroke Cove, a rental community in Pembroke Pines, was set to be sold as condos. Now the 302-unit complex is renting again.”

“Raul Nobili, VP of a small Miami Gardens company that owns a handful of Miami-Dade rental complexes, explains the change: ‘I used to get three calls a week from buyers wanting to buy the apartments and turn them into condos. Now I get two calls a week and they ask if we are interested in buying other rental buildings.’”

“The new condos are spinning off rentals as well. Roughly 10 percent of the units at Neo Vertika, a recently-completed 443-unit condo along the Miami River, are for rent. With thousands of condos under construction across South Florida, the number of new rentals could quickly rise.”

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