December 27, 2006

“Buyers Know They Have The Upper Hand” In California

The Press Democrat reports from California. “Bring in a buyer for an Oakmont home and get a $5,000 bonus. Buy a fixed-up two-bedroom Santa Rosa house and drive away in a new Honda Civic. Close a deal in a Christopherson Homes subdivision and win a trip to Hawaii.”

“Incentives to drive home sales have become more common across Sonoma County during the housing slump. Most are aimed at enticing agents, in a market where the supply has doubled over the past year. ‘You pull up a price range and you get more houses than you can look at. You somehow want to do something to get noticed,’ said Tom Kemper, property manager in Windsor. ‘Houses don’t sell themselves any more.’”

“A new Honda Civic for a $359,000 house, that was an offer posted in red letters on a large yellow banner at a busy Santa Rosa intersection. ‘With the market as it has been, I thought it might be valuable to get a hook,’ said David Peoples, the agent with that listing. ‘I’m thinking anyone can lower the price, but let’s do something that will draw attention, and it did.’”

“More than a month later, despite more calls and interest, the lure of a new, $20,000 car still had not yielded an offer to purchase the house. ‘It didn’t sell the house, but it did get a lot of attention. It achieved that goal,’ Peoples said.”

“Since then, Peoples dropped the car offer and the sellers lowered the price to $339,000.”

The Sacramento Bee. “Curt Westwood recently settled a yearlong legal dispute with Loomis officials. He’s begun construction on the first of 62 luxury homes that will be sprinkled amid 320 acres of terraced vineyards and oak trees.”

“Now that an agreement is in place, Westwood is busily paving roads, staking out vineyards and starting work on the first homes. They’ll be finished in about a year, ranging from 5,000 to 7,000 square feet and priced between $3 million and $4 million. Custom homes built by others could be ’several million more,’ he says.”

“That’s a lot of money for a home, especially now when, as Westwood says, the housing market ’stinks.’ But he’s convinced it will rebound by the time his project is completed.”

The Daily Press. “Victorville lender Max Anderson concurs that the market for adjustable-rate mortgages dropped when the current market slow-down started. Now, he said, demand for ARMs ‘is dead.’”

“Then, again, he, along with most other lenders, want to guide buyers away from adjustable rate products anyway, not because they are inherently flawed, but because ‘many home buyers simply don’t understand mortgage products well enough’ to use them beneficially.”

“(Of) consumers who purchased 1 percent option mortgages, said Anderson, many didn’t realize the outstanding interest wasn’t disappearing; it was being shifted to the ‘back side’ of the loan amount, adding to their overall total cost, and resulting in buyers being responsible for thousand of dollars in additional cost.”

“Even if a buyer’s credit precludes them from purchasing a 30-year product, most lenders can fit subprime borrowers into 5- or 2-year fixedterm mortgages. which revert to and adjustable rate unless a buyer re-finances at the end of the fixed-rate term, he said. ‘Today is the only day to buy,’ Anderson said.”

The Voice of San Diego. “The year’s beach season was in full swing before many in the county noticed a chill in a San Diego housing market that had been sizzling for years. ‘The beginning of the year was still kind of jubilant from last year,’ said economist Michael Colby. ‘No one really realized where we were until the middle of July.’”

“‘Before that, it was just experts saying, ‘This is not sustainable,’ he said. ‘Now, the data actually showed a change.’”

“San Diego proved an extreme version of what was happening in markets across the country, as inflated markets started to cool. Year-over-year price declines continued monthly from June, eventually reaching a low point of $482,000 in November. That was a $36,000 drop from the previous November, according to DataQuick.”

“Many analysts considered a decline in sales activity the most concrete marker of a slowdown. The number of homes sitting unsold on the market soared to more than 23,000 units this summer before declining to about 19,000 in December, 10 times as many homes as the market’s lowest supply in 2004.”

“And 25 percent fewer homes sold in the first eleven months this year than in the same period in 2005. Home builders drastically scaled back their plans, slashed their profit outlooks and laid-off employees.”

“According to the San Diego Association of Realtors. The association experienced a sales volume drop of 25 percent from January to November, a $5.7 billion difference from the same period in 2005.”

“The drop in demand, and profit share, among the county’s estimated 10,000 real estate agents will force many out of the profession, experts say. Job losses in the real-estate related sector, including agents, mortgage brokers and construction workers, will have lasting, significant effects on the local economy, they project.”

“Many in the real estate industry blamed the media for the negative mindset of their formerly enthusiastic clients. Agents, builders and brokers lambasted those reporters, blaming the media for perpetuating a perception of doom for the housing market. But the numbers didn’t lie.”

“In these circumstances, convincing buyers to get into the market just for the sake of doing so will be a tough sell, said Peter Dennehy, VP of the Sullivan Group. ‘The market as a whole has gotten the memo,’ Dennehy said. ‘It is very hard to convince someone that it’s a good time to buy right now. That ‘let’s just get something,’ ‘gotta get in on the market’ — I think that perception is gone.’”

“Dennehy does consider San Diego a ‘buyer’s market.’ ‘Buyers have a lot of choice; they know that they have the upper hand,’ he said.”

“The popularity of creative financing options worries analysts. Some buyers got into homes even though they could only afford the introductory payment on the loan. Those watching the market fear an avalanche of foreclosures from those who can’t afford their loans anymore.”

“Dennehy said he expects an up-tick in sales in February or March. Prices will continue to come down until sales and inventory catch up, he said. ‘On the whole, we’re looking at more ‘fingers-crossed’ thinking,’ he said. ‘Six months ago, it seemed a lot more desperate than it does today.’”




“When People Start Believing It, It Makes It Real”

The Chicago Tribune reports from Illinois. “The housing market isn’t dead, it’s stuck. There’s a standoff between home buyers and sellers, and the health of the 2007 housing market may depend on who blinks first, according to Chicago-area consumers, real estate agents and analysts who are scratching their heads about how to move housing out of the post-boom doldrums in 2007.”

“‘This situation is unknown to me, and I’ve been doing this for 26 years,’ said Stephen Baird, CEO of Baird & Warner Real Estate in Chicago. ‘The market is irrational right now.’”

“As that impasse has formed, home sales have hit the brakes. October home sales in Illinois were down 9.7 percent a year earlier, and when November data are released Thursday, few expect improvement.”

“The housing thud seems to transcend the usual holiday-period slowdown, analysts say. Fitch Ratings, for example, recently said housing is in a fairly severe, multiyear contraction. It’s being driven by perceptions, the Fitch analysts said.”

“‘A negative buyer psychology seems to have become pervasive,’ Fitch reported this month. ‘The expectation or fear is that home prices have peaked and buying now would be a mistake.’”

“Frustrated condo seller David Waters said he buys that. ‘I suppose part of it is people are waiting to see if prices drop even further,’ said Waters, who has been trying to sell his Edgewater two-bedroom unit since August, without a single offer despite several price reductions and incentive offers.”

“‘Because experts were predicting [the market slowdown], things tended to snowball,’ Waters said. ‘People bought into the fear that it’s going to be a tough sell. When people start believing it, it makes it real.’”

“‘I’m more of a second-quarter, third-quarter guy,’ said James M. Merrion, regional director of Re/Max Northern Illinois. ‘The NAR is a little too optimistic,’ Merrion said. ‘We’ve had too strong a market. When you’ve had prices go up in Illinois as much as they have in the past five years, people’s salaries haven’t increased that fast. I think we need to see some price moderation [brought on as sellers lower their prices] in order to get back to a healthy market.’”

“‘I think it could take 18 months for the market to normalize,’ said Naperville real estate agent Eileen Landau, who said the bloated inventory of homes must clear before the market will regain momentum.”

“One year ago, about 28,000 single-family homes were listed for sale in the greater Chicago area, according to Alvin Wagner, president of the Headrick-Wagner Appraisal Group in Naperville. By the end of September, houses for sale had swollen to about 48,000, he said. By mid-November, the number had ebbed to about 43,000, or a 6.5-month supply, Wagner said.”

“‘I went to show two homes the other day and found they had taken them off’ the market, said agent Karrie Lange, who said she suspects frustrated sellers are taking a break during the holidays and will be back early next year. If so, inventory will swell again, as old sellers replant their for-sale signs alongside the new listings that inevitably show up in January.”

“Which would bring the market back to the blinking point. Most of the betting is on sellers budging first by cutting prices.”

“‘Sellers are in denial,’ said Lange, based in La Grange. ‘I don’t think they realize how much inventory is out there. If the buyer doesn’t think a house is a value, he will skip it.’”

“But others say it’s not necessarily greed causing sellers to stick to their guns; many sellers who bought at or near the top of the market can’t afford to bend much.”

“Naperville agent Landau said the ‘list-to-sell ratio,’ may not paint a true picture of pricing strength in the marketplace. ‘Right now, the majority of properties in Naperville, for example, are selling at 96 percent of list price. But that’s not accurate because the list-to-sell is based on the latest price,’ and ferreting out the original asking prices would tell a different story, she said.”

“And the numbers don’t account for the significant amount of houses that aren’t selling.”

The Herald News from Illinois. “A downturn in the local and national housing market has area builders searching for ways to bring in buyers. ‘Sales have been slow at best,’ Jeremy Sentman of Neumann Homes told Joliet plan commissioners recently.”

“For a while the fast-growing areas in Will and Grundy counties were insulated from the cooling market in other parts of the country, said John Latimer, president of Will-Grundy Counties Home Builders and Associates.”

“But builders with local projects have been feeling the pinch during 2006. ‘The tract builders, they’ve really pulled back a lot,’ said Latimer.”

“Custom and semi-custom builders also have seen a decline in sales, said Latimer. The middle-range of the market, or homes selling from approximately $250,000 to $400,000, has experienced the largest slowdown, Latimer said.”

“Buyers also are canceling contracts on new homes because they have had a hard time selling their existing residences. ‘There’s a lot of inventory on the market,’ Latimer said.”

The Detroit News from Michigan. “After lack of demand grounded an ambitious high-rise condo and retail project in Troy, developers…are looking for ways to redesign the project.”

“Joseph Freed and Associates closed its sales office for The Monarch this month after pre-selling about 24 of 156 condos planned for the $104 million mixed-use development. Several factors hurt the project, including the local housing glut, the condo prices, $400,000 to $800,000, and the relative novelty of upscale high-rise living in suburban Detroit.”

“‘The design wasn’t where the marketplace is right now,’ said Kris Gosselin, director of sales. ‘We want to be really thoughtful about what we decide to do given the current oversupply of homes on the market,’ Gosselin said.”




Buyers To “Appreciate The Urban Lifestyle For What It Is”

A housing report from the Washington Post. “Urban hipsters have shown a knack for dropping up to $1 million for condos in the heart of the District. But will they spend that much to live over a church that feeds the homeless?”

“The development company envisions 140 condominiums at 10th and G streets NW. As part of the deal, the developer will build a new sanctuary for the church, with eight floors of apartments above, along with balconies, a swimming pool and a fitness center.”

“When the new building opens, the church will occupy the first two floors and continue serving breakfast and dinner daily to several hundred homeless people.”

“One-bedroom apartments would sell for between $400,000 and $500,000, while two bedrooms with a den would go for about $1 million, said David DeSantis, PN Hoffman’s vice president of sales and marketing.”

“DeSantis said the company is well aware that some home buyers may blanch at the prospect of living above a homeless service center. But he said the developer expects to attract buyers who ‘are fully aware of the urban lifestyle’ and will ‘appreciate the building and the neighborhood for what it is.’”

“Charles Klein, a broker in the District, said so many condos are on the market that buyers have many choices. More than 18,000 condominium units are under construction, planned or proposed, according to the Washington DC Economic Partnership.”

“‘You don’t need the soup kitchen to make it a tough sell,’ Klein said. ‘It’s a tough sell because it’s a condo, and if there’s anything we need less of now, it’s condos. It’s like overkill. There must be five years’ worth of supply in the pipeline.’”




Bottom In Housing “Pure Fantasy”

Some housing bubble news from Wall Street and Washington. “Sales of new one-family houses in November 2006 were at a seasonally adjusted annual rate of 1,047,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.4 percent (±12.9%)* above the revised October rate of 1,013,000, but is 15.3 percent (±13.1%) below the November 2005 estimate of 1,236,000.”

From Bloomberg. “The number of homes for sale fell to a seasonally adjusted 545,000 during the month from 558,000 the prior month. Even with the decline last month, the number of unsold homes remains near a record high, making it less likely homebuilding will strengthen outright, limiting economic growth, economists said.”

“Sales of new homes were down 15 percent in November from the same month last year, the Commerce Department said in today’s report. The number of homes completed and waiting to be sold rose by 2,000 to 169,000 in October.”

“The number of new homes available have averaged 555,000 this year through October, compared with 351,000 during the past 10 years, according to government figures. Existing home sales inventories are also near a record, averaging 3.515 million this year.”

“Cancellations of purchase contracts, which aren’t counted in the government’s numbers, have mounted. ‘That’s growing,’ said economist Kevin Logan. ‘There is even more inventory than actual inventory numbers suggest.’”

“Hovnanian Enterprises, New Jersey’s largest builder, on Dec. 18 reported a fourth-quarter loss on cancellations of new-home orders. Hovnanian customers canceled 36 percent of their contracts in the period, an increase of 25 percent, the company said.”

“‘We didn’t have this in other slowdowns, customers walking away,’ CEO Ara Hovnanian said.”

“The housing slowdown is costing jobs. Builders shed 53,000 workers in the last two months, according to government reports. Manufacturers shed 59,000 workers in the same period, while goods producing companies, some at companies that produce housing- related supplies or products, cut 102,000 workers.”

“‘Even if sales stabilize at this level, the contraction in construction activity is still in front of us,’ said Kevin Logan, chief markets economist at Dresdner Kleinwort in New York. ‘That’s what’s going to affect the economy in the year ahead.’”

“Building permits in November fell to a 1.506 million-unit pace, the lowest in nine years, the Commerce Department reported.”

From Marketplace. “Should today’s new home sales figures turn out as well as expected, Chris Thornberg, of UCLA’s Anderson Forecast, won’t be impressed. Thornberg: ‘Who cares? In many ways, the last number you should be looking at is new home sales.’”

“For one thing, he says, the number can’t account for building contracts which later get canceled.”

“And the survey’s statistical sample is so small the number routinely gets revised. Take last October, when the Commerce Department reported a surprising 5 percent jump in sales. Thornberg : ‘They’ve already revised it. So new home sales for October ‘06 is now below what it was for September ‘06 once the revision came in.’”

“The more important numbers, Thornberg says? Building permits, which are down, and inventory, which is up. Both point to a continued slump in the New Year.”

The Street.com. “Last week, Hovnanian Enterprises said it recorded $336 million in land charges, the largest such charges among builders to date. Interestingly, Hovnanian said on its conference call that its fiscal 2007 guidance assumes zero additional impairments and land charges. While Hovnanian is optimistic, some investors believe 2007 holds more problems.”

“‘I think there is still more to come in impairment charges,” says Carl Tash, manager of Cliffwood Partners. ‘After a 15-year upside cycle [in housing] , I don’t think the downturn is going to last 12 to 15 months,’ he says. ‘I think that’s pure fantasy.’”

“‘A lot of people are under the impression that this is a one-time event, but that’s not the way it works. The only communities that you get to impair are the ones that are currently experiencing losses,’ says Alex Barron, an analyst with JMP Securities.”

“Thus far, most of the impairment charges have been for communities in California, especially San Diego. However, Barron says more writedowns are coming for Florida and Phoenix, which are in much worse condition than Southern California.”

“The reason writedowns haven’t occurred much in markets like Florida and Arizona is that builders are building on older, cheaper land and still making profits. Eventually, newer, higher-priced land will flow through the income statement, eroding gross margins and making the risk of impairment higher.”

“‘It is safe to say there will be more impairments than are being assumed by management currently, and there will be more impairments than are already taken,’ says William Mack, an equity analyst with Standard and Poor’s.”

The Associated Press. “Prices of single-family homes across the nation rose in October at the slowest rate in almost a decade, a housing index released Tuesday by Standard & Poor’s showed. ‘We can clearly see that the monthly price declines are wide spread nationally,’ said economist Robert Shiller.”

“The data is consistent with a report from the National Association of Realtors, which showed a tiny increase in sales of existing homes in October. The realtors association showed that the median sale price dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record.”

“Meanwhile, the inventory of unsold homes in October reached the second-highest level ever recorded. At the pace homes were being sold in October, it would take 7.4 months to sell the currently available homes.”

From Reuters. “U.S. mortgage applications plummeted last week to the lowest level in nearly five months, dragged down by a plunge in demand for home refinancing loans as interest rates nudged higher, an industry trade group said.”

“Demand for home purchase loans also weakened as the MBA’s seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, fell 10.6 percent to 390.2, its lowest since late October. The index was also below its year-ago level.”

From CNN Money “‘We don’t think there’ll be a recession, but the risks have risen,’ said David Berson, chief economist of Fannie Mae. He now estimates the chance of recession at 35 percent for 2007, up from a 25 to 30 percent chance a few months ago.”

“‘Some of the Christmas spending wasn’t as strong as we’d hope,’ said Berson, referring to estimates that holiday sales posted the smallest gain in four years this year. ‘And I think we have not reached the bottom in housing yet.’”

“Concerned some borrowers may be over-stretching to buy homes, U.S. lending regulators on Tuesday released a new consumer handbook that warns of the risks associated with interest-only, payment-option and other exotic home loan products.”

“As home prices have stalled and begun to fall, late payments and foreclosures increased in the third quarter, with the subprime adjustable rate mortgage category producing the most pronounced increase in delinquency rates, according to the Mortgage Bankers Association.”

“‘If housing prices fall, your home may not be worth as much as you owe on the mortgage. Also you may find it difficult to refinance your loan to get a lower monthly payment or rate,’ it reads.”




A “Cavalier Attitude On The Part Of Buyers”

The Democrat and Chronicle reports from New York. “In a year that has seen big swings in sales, the Rochester-area real estate market is settling into a slower mode, one in which buyers have more choices and sellers have to make more concessions. Houses are sitting on the market longer because of an increase in inventory. This is the year that the market started to cool after five years of a hot seller’s market, real estate brokers say.”

“‘This year has been extremely challenging,’ said Nunzio Salafia, broker associate in Greece and Brighton. ‘The oil companies have taken so much out of people’s paychecks.’”

“Sales in the region started to falter in late summer, according to statistics compiled by the Greater Rochester Association of Realtors. For the past four months, the number of closings has been down at least 6 percent compared with the same months of 2005. ‘It felt like a stop in mid-October,’ said Bob Miglioratti, chairman of the Realtors association. ‘We’re trending toward a buyer’s market.’”

“Frank Berardi is all too familiar with the shift from a seller’s to a buyer’s market. He listed his Chili home for sale late last year but decided to pull it off the market until spring of this year, when real estate activity picks up. He thought he had it sold in April, until the prospective buyer failed to show up for the closing.”

“Berardi, meanwhile, had already purchased a home in Conesus, Livingston County. Anxious to sell his 13-year-old, four-bedroom Chili house, he dropped the price to $225,000 from $234,900. It still hasn’t sold, was taken off the market last week and will be relisted in mid-January.”

“As Berardi discovered, the change in the market has changed the approach of some buyers. ‘There is this cavalier attitude on the part of buyers that if I don’t like this one, I’ll go out and buy another,’ said Realtor associate Mark Siwiec in Pittsford.”

“Siwiec said three trends prevailed in 2006: the market slowdown; the need for sellers to get their properties in mint condition; and the tendency of more buyers to cancel contracts.”

The Boston Herald in Massachusetts. “Bay State home sellers had little to give thanks for this Thanksgiving, new figures show. The Warren Group reported yesterday that just 4,130 Massachusetts houses changed hands last month, the market’s worst November in 14 years.”

“Sales also fell 13.5 percent when compared with November 2005 levels. ‘It’s clear that (Massachusetts) is still in a slump,’ Warren Group CEO Tim Warren said.”

“House values fell across all of Greater Boston except Middlesex County, where median prices remained at $400,000, unchanged from November 2005. Elsewhere, Suffolk County median prices dropped 13 percent to $330,000, while Norfolk County lost 7.9 percent to hit $375,000.”

“Essex County median prices eased 6.2 percent to $350,000. Condo sales fell 10.1 percent statewide when compared with November 2005 levels.”

The Telegram from Massachusetts. “The state’s housing market continued its double digit fall in the sales of single-family homes and condominiums last month, with Worcester County experiencing a drop in sales of more than 20 percent from November 2005, according to data released yesterday.”

“In Worcester County, November sales of single-family homes were down from 656 in November 2005 to 524 last month, a drop of 20.12 percent. The median price of a single-family home dropped nearly 10.3 percent in Worcester County, from $267,500 in November 2005 to $240,000 last month.”

“Condominium sales in Worcester County were down 26 percent from November 2005, 223 to 164 last month. The median sales price for a condominium in Worcester County dropped nearly 18 percent year over year, $237,000 to $195,060, according to the data. Through November this year, all of the state’s 14 counties have seen a decline in single-family home prices.”

“Terence F. Egan, editor of Banker & Tradesman, said it is hard to tell if the housing market correction is starting to level off. ‘It’s tough to tell. I’m wondering if we’re bumping along the bottom or if there is a kind of recovery on the horizon,’ he said. ‘Next month we may see the numbers slip and dip again. It’s too early to call it right now.’”

“Massachusetts experienced a decade of rapid housing price increases that ended in 2005, driving the median selling price of a home to among the highest in the nation. ‘It hit home a little harder. The areas where there was a run-up in prices are hit hardest,’ he said.”

“‘Nationally, we’re not looking at the kind of price correction we had in Eastern Massachusetts and some areas of California, places where prices skyrocketed. It was bound to happen. It can’t go up double digit year after year.’”

“With prices slowly coming down, buyers are waiting for the best deal, he said. ‘What you have here is a little bit of a waiting game,’ he said. ‘We’ve got a lot of sellers competing to attract buyers. That will push down prices. Buyers are looking for signs that the market has hit bottom or stabilized, so that a year from now they won’t regret it.’”




Bits Bucket And Craigslist Finds For December 27, 2006

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