The Housing Bubble

The Desert Sun reports from California. “Home sales plummeted 44 percent in November across the Coachella Valley compared with a year ago, while the overall median home price dipped about 1 percentage point to $395,000, a new report shows.”

“Some 717 homes and condominiums sold last month across the valley, compared with 1,070 in November 2005 and 1,116 in November 2004, according to a report released Wednesday by DataQuick.”

“The California Association of Realtors, which compiles home sales and price figures a little differently, reported home sales in Palm Springs and the Lower Desert area were down about 35 percent in November from a year ago, with a 2.1 percent drop in the overall median price. CAR listed the median price in Palm Springs and the Lower Desert area at $369,900 last month, down from $377,740 in November 2005.”

“Area real estate brokers and agents said the downturn in activity last month compared with recent boom years is still a little unsettling. Some agents are faring better than others.”

“‘November was actually a little better than this month (December) and better than August through October,’ said Mario Perez, whose team closed about a dozen home sales last month. ‘It’s weeding out a lot of those agents who unfortunately got into the market late or got into the business when it was really booming.’”

“Greg Berkemer, executive VP of the California Desert Association of Realtors, said as the desert’s traditional high sales season - January through March - nears, ‘the best time to act’ may be right now for buyers and sellers.”

“‘Locally, for buyers, they will find they will pay a little less for the same house than they would have a year ago,’ Berkemer said. ‘In those areas with the greatest appreciation or with certain sellers who must sell, the discounts from a year ago may be considerably greater.’”

“Some 20,388 new and resale homes sold in six counties including Riverside, San Bernardino, Los Angeles, Orange, San Diego and Ventura last month, compared with 27,637 home sales in November 2005, DataQuick reported. Last month’s sales count was the lowest for any November since 1997, when 18,305 homes were sold.”

“In the valley, the slowdown in home sales continued a trend of the past several months. Sales dropped almost 18 percentage points in October, 38 percentage points in September and 41 percentage points in August compared with year-ago home sales numbers.”

“In October, new home sales in the valley surged by 27 percent compared with a year ago. But the increase was apparently shortlived, as new home closings dipped again by 44.7 percent in November, with a 3.2 percent drop in the median price to $398,500, DataQuick reported.”

“By mid-December, there was an inventory of 8,236 homes in the valley, compared with 5,657 in December 2005 and 2,915 homes in December 2004, Berkemer said.”

The Whittier Daily News. “Foreclosures of subprime mortgages are expected to rise dramatically in the coming months, with nearly one in five subprime borrowers at risk, according to a consumer advocacy group.”

“(Broker)Tom Adams, who has local offices in Monrovia and Glendora, said he hasn’t encountered the problem very often. ‘We haven’t seen a lot of it, but it is out there,’ he said. ‘It’s the old, ‘If it sounds too good to be true, it probably is,’”

“Adams said buyers should be wary of advertised deals that tout 1 to 2 percent interest rates. ‘Common sense tells you that at some point you’re going to have to pay for that,’ he said. ‘But the good news, except for the people who bought during the last eight to nine months, is that homeowners now have some built-in equity, so they can sell and move on.’”

“Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., noted recently that some homebuyers who locked in to extremely low adjustable-rate mortgages are going to have a tough time when mortgage rates creep up. ‘You’ll see a big increase in foreclosures,’ he said.”

The Press Democrat. “Home sellers desperate to make a deal during the slowest housing market in a decade have embraced St. Joseph as a sacred real estate agent of sorts.”

“In Santa Rosa, sales of the figurines have doubled this year at Interfaith Books & Gifts, Santa Rosa’s largest Christian book and gift store. The store even ran out of them for several weeks this summer.”

“‘We ask them, ‘Do you want to sell your house?’ We tell them you’re not performing magic here. You’re only asking St. Joseph to sort of put in a good word for you,’ said Rodney Reyes, an Interfaith employee.”

“‘We try to steer them away from that it’s some sort of old wives’ tale sort of thing,’ he said. ‘They’re at a point where what they’re doing is not working.’”

“Cutting prices, paying closing costs and crediting buyers for needed repairs, homeowners have been doing more to get homes sold.”

“After three months, three price reductions and not a single purchase offer, Michele and Efrain Sifuentes wondered if their Santa Rosa home would ever sell. But buyers continue seeking good deals, knowing sales are down more than 25 percent from a year ago and many homes languish on the market for several months or more.”

“Before listing the home for sale, they put in new kitchen counters, floor tile and carpet and painted the outside. They began cutting the price when no offers came in after two weeks. Starting at $569,000, they reduced it to $559,000, then $539,000 and finally $529,000 over the next three months. But still there was nary a buyer.”

“Picking a spot in the backyard near a koi pond, Michele Sifuentes dug a hole for the 8-inch figurine. The next day, she dug up the statuette to change its position from sideways to upside down, a tip she had gleaned from reviewing Web sites and blogs devoted to the many rituals that have sprung up around the practice. Five days later, a couple made the long-awaited offer.”

“Was it coincidence? Or did faith in the patron saint of home-selling make a difference? The Sifuenteses aren’t going to test fate. They are leaving St. Joseph in the ground until the sale closes.”

The Massachusetts realtors have their November numbers out. “November sales of single family homes in Massachusetts fell nearly 13 percent compared to a year earlier, the 8th consecutive month of year-over-year sales declines, the Massachusetts Association of Realtors reported. The median selling price slipped to $340,000, down 4 percent from $354,000 n November 2005.”

“The continued decline in sales, and growth in the number of homes on the market suggests the slumping housing market is still seeking a bottom. The inventory of single-family homes for sale is up 25 percent from November 2005.”

“‘Both the detached single-family home and condo markets have been experiencing a healthy correction,’ said David Wluka, president of the Massachusetts Association of Realtors. ‘With home prices leveling, interest rates remaining low, inventory still plentiful and more sellers accepting market-based pricing, Bay State homebuyers have a special window of opportunity right now,’ Wluka stated. ‘We just don’t know how long the window will stay open.’”

The Boston Business Journal. “Echoing their optimistic message from last month, the Massachusetts Association of Realtors said Thursday that the state’s housing market may be stabilizing, despite data that reveals a double-digit decline in home sales when compared to the same period a year ago.”

“Last month’s statewide inventory of 35,254 listed homes was 25 percent higher than November 2005. Statewide condominium sales last month slipped 13.6 percent over sales in November 2005.”

From the talking points. “Most sellers are setting reasonable prices based on this market rather than the unusual spiking prices of the past five years. Last month’s sales total was lowest November volume since 1995, when 3,190 homes were sold.”

“The number of condos for sale is up 37% from 13,024 units last November to 17,851 in November 2006. This represents 12.7 months of supply, up from 8 months in November 2005.”

The Salem News. “The median price of a single-family home in Essex County fell to $350,000 last month from $373,000 in November 2005, a drop of about 6.2 percent, according to the Warren Group.”

“Single-family home sales were down by 13.5 percent from November 2005 levels, their eighth double-digit percentage drop this year. Sales have now dropped from year-before levels in 25 of the last 28 months. The 4,130 homes sold in November 2006 marked the lowest sales figure for a November time period since 1992.”

“The state’s median single-family home sale price also decreased in November to $315,000 from $337,000 in November 2005. The median home sale price has now dropped in eight of the last nine months and is down more than 13 percent from the $364,000 peak registered in June 2005.”

“Alan Pasnik, data analyst for The Warren Group for more than two decades, said the cities and towns of Essex County ‘look as bad as everybody else.’ ‘We are on a downward trend here,’ he said. ‘Housing prices got too high to be supported by people’s income levels. There had to be an adjustment; it is happening now.’”

“Pasnik said in the past six years the prices of housing doubled across the state while income levels increased at modest levels. He said because of this, the current trends in the market will continue into the new year and could continue for at least another 12 months.”

“In the meantime, Pasnik said, the market is ripe for those looking to buy a home, calling it a ‘buyer’s market.’ And, in contrast, he said those looking to sell their homes should consider holding out until the market improves. ‘If you don’t have to sell your house, don’t,’ he said.”

“Though it might be painful for sellers, the real estate market has grown steadily for 13 years without a price correction, Timothy Warren said. That’s a long time to go, he added. By comparison, the stock market has gone through several cycles.”

“The greatest danger in the current market, Warren said, is the potential for loss for the people who have been using the equity in their homes as a savings account, taking out loans for cars or college pinned to the rising value of their properties.”

The Florida realtors have their November numbers out. “Sales of existing homes and condos in Florida were down in November. A total of 11,912 existing single-family homes sold statewide last month, a decrease of 30 percent from the 17,088 homes sold during the previous November, according to the Florida Association of Realtors.”

“The statewide existing-home median price was $242,500 last month; a year ago, it was $250,400 for a decrease of 3 percent, according to FAR. Florida’s existing condominium sales also declined in November with a total of 3,346 condos sold statewide compared to 5,198 in November 2005 for a 36 percent decrease, according to FAR. The statewide median sales price for condos last month was $206,000; a year ago, it was $215,100 for a 4 percent decrease.”

The Palm Beach Post. “Palm Beach County home prices took a big dip from their November 2005 peak, the Florida Association of Realtors said today. The median price for an existing single-family home sold in November was $370,400, down 12 percent from $421,500 a year earlier. Home sales plunged 45 percent.”

The News Press. “Prices and the number of sales continued to fall in November for existing single-family homes in Lee County. The median price of a home sold fell 12 percent from November 2005, from $295,400 to $258,600, while the number of sales was down 21 percent from 810 to 637.”

“In Collier County, the median price fell 13 percent from $479,800 to $415,200 while the number of sales fell 45 percent from 333 to 182. Charlotte County had an 8 percent fall in the median price from $236,900 to $217,300 while the number of homes sold fell 21 percent from 245 to 194.”

From Florida Today. “Housing prices continued to fall last month in Brevard County. The median sales price of existing homes in Brevard County dropped to $203,400 in November, down 12 percent from November 2005.”

“Condominium prices in Brevard, meanwhile, fell to a median of $170,000 in November, down 15 percent from November 2005. The number of condominiums sales in Brevared plummeted to 33 in November, down 78 percent from a year earlier.”

“Statewide, single-family home and condo prices fell last month in 13 of the 20 metro areas tracked by the Florida Association of Realtors.”

The South Florida Business Journal. “The median price of a single-family, existing home in November fell: 7 percent to $362,000 from $391,100 in Fort Lauderdale. 2 percent to $372,400.”

The St Petersburg Times. “Tampa Bay area builders, using incentives and price cuts to restore some semblance of sales stability, can’t say for sure when they expect the slowdown to end.”

“Transeastern Homes: The builder has tried to stave off bankruptcy by laying off more than 100 and dismissing regional president Bob Krieff. Ryland Homes: Heavily invested in Pasco County, saw new home orders tank 64 percent from the third quarter of 2005 to the third quarter of 2006.”

“Centex Homes: Centex’s home contracts plunged 53 percent. Beazer Homes: The company said new home orders dropped by a third in Florida. Its stronghold has been southeast Hillsborough County. Pulte Homes: Based on its latest report, the nation’s second-biggest homebuilder sold 29 percent fewer homes in the region that includes Florida. It has trimmed its work force 10 percent.”

The Herald Tribune. “Economist Paul Kasriel refers to a fairly simple formula: take the dollar value of new and existing single-family homes in 2005 and divide it by the nation’s gross domestic product, the total of all goods and services produced in one year. That gives you a ratio of 16.3 percent.”

“‘That’s off the scale,’ Kasriel said. ‘The ratio has never been that high. The median is 8.4 percent and the previous high, of less than 12 percent, was in the late 1970s.’”

“Real estate prices have been dropping faster than ever before. The NAR said last month that the median price in October for existing homes fell a steep 3.5 percent from October 2005. ‘That’s the largest decline on record since 1968, and the speed of the decline has been breathtaking,’ Kasriel said. ‘It’s just like a straight line down.’”

“Lawrence Yun, an economist with the National Association of Realtors, concedes that housing prices in certain areas, including Southwest Florida, ‘have gotten ahead of themselves, we don’t see the sector tipping the economy into recession.’”

“‘It’s psychology, people are waiting to see when the bottom is coming,’ Yun said. ‘Due to dropping rates and dropping prices, it’s only a matter of time.’”

From Reuters. “On a piece of prime bayfront property near downtown Miami, weeds climb the steps of the sales office for Onyx 2, a planned waterview condo where apartments were to sell for $500,000 to $2,000,000.”

“Developers have pulled the plug on some of Miami’s most anticipated condominium developments. ‘This market was too good to be true,’ said Lewis Goodkin, a Miami economist and real estate analyst. ‘But it was a market fueled by speculators, so it wasn’t a true market.’”

“The seller of a Miami Beach waterfront one-bedroom dropped his asking price from $445,000 to $400,000 to $370,000 in a matter of weeks. ‘We’re starting to see projects being canceled almost on a weekly basis,’ said consultant Jack McCabe.”

“‘You have to have people buying units to live in. Who are the speculators going to sell these units to?’ Goodkin said.”

The existing home sales numbers are out. “Sales of existing homes managed to eke out a small increase in November but the price of homes sold fell for a fourth consecutive month, a real estate trade group reported Thursday. The median price for an existing home sold in November dropped to $218,000, down 3.1 percent from the price a year ago.”

“It was the first time on record that sales prices compared to a year ago have fallen for four straight months.”

“David Lereah, chief economist for the Realtors, predicted price declines would continue in December and probably for the early part of 2007. He said these were necessary adjustments that were luring buyers back into the market.”

“Year-over-year declines in home prices are relatively rare and are seen as a significant sign of weakness in the real estate market. Until it occurred in August, there hadn’t been such a drop in 11 years.”

“The pace of home sales, coming in at an annual rate of 6.28 million for the month, was 10.7 percent below year-ago levels of 7.03 million units.”

“‘Mortgage interest rates are the lowest they’ve been since January,’ said NAR President Pat Vredevoogd Combs. ‘This is increasing buying power at the same time that sellers are showing a willingness to negotiate price and terms. Combined with a plentiful supply of homes on the market, there’s a window for buyers now with conditions that we haven’t seen prior to the beginning of the housing boom in 2001.’”

“Existing condominium and cooperative housing sales were 13.6 percent below the 876,000-unit pace in November 2005. Existing-home sales in the Northeast were 4.5 percent below November 2005. The median existing-home price in the Northeast was $269,000, down 2.2 percent from a year earlier.”

“Existing-home sales in the West were 17.5 percent lower than a year earlier. The median price in the West was $351,000, down 0.8 percent from November 2005. Existing-home sales in the Midwest were 9.6 percent lower than November 2005. The median price in the Midwest was $165,000, which is 3.5 percent below a year ago.”

“Existing-home sales in the South 10.2 percent below a year ago. The median price in the South was $179,000, down 3.2 percent from November 2005.”

“Builders sold new homes at a faster rate last month than they did in October, the Commerce Department reported yesterday. When the numbers are not seasonally adjusted, the number of new homes sold in November, 72,000, was the lowest in almost four years. Inventories, a 7.7-month supply unadjusted, were the highest since December 1995.”

“‘There’s a relatively large adjustment factor here,’ said Michael Carliner, an economist with the National Association of Home Builders. ‘I wouldn’t read too much into those numbers.’”

“Sales of new homes are off 15.3 percent compared with a year earlier. ‘Although the rebound in sales is consistent with the housing slowdown bottoming out, it seems too early to rejoice,’ said economist Dimitry Fleming. ‘Supply is still high.’”

“The sales data from the last year is more sobering. The Northeast was hit particularly hard; sales fell 42.4 percent from a year ago. Sales in the South declined 19.2 percent, and they fell 9 percent in the West.”

“Permits for new home construction fell in November, the 10th consecutive decline, to a nine-year low, the Commerce Department said last week. Yesterday’s report on new homes showed the number of homes completed and waiting to be sold rose 51 percent to a record 169,000 in November from the same month last year.”

“Homeowners took a net $379.8 billion out of home equity at an annual rate last quarter, down 56 percent from the record reached a year earlier and the least since the fourth quarter of 2003, according to calculations by Fed economists. ‘The weakness in housing will continue to be a drag on overall economic activity into the first half of next year,’ Fed Bank of Richmond President Jeffrey Lacker said.”

“None of the bulls seem to have a good answer to the facts being laid out by David Rosenberg, the chief economist for North America at Merrill Lynch. Rosenberg’s contention is that when you take a close look at homes for sale, including those being completed and those under construction, the glut in supply seems likely to get worse, not better.”

“Rosenberg notes that in addition to the record 4.3 million residential units for sale as of October, there were 1.95 million home completions, the 12th-highest month since 1979. Units under construction were through the roof as well.”

“Rather than seeing supply dwindle and prices start to firm up in early 2007, Rosenberg says ‘it could be a year before the reduction in starts begins to put a meaningful dent into the inventory backlog.’”

“According to John Mauldin, even the current projection of housing sales may be overstated and thus the existing supply of homes greater than what is reported in the official data. The reason is that the Census Bureau fails to account for cancellations in home sales contracts. Cancellations ran as high as 40 percent for some major homebuilding firms last quarter.”

The American Statesman reports from Texas. “Central Texas home builders have been offering plenty of year-end discounts and bonuses to boost sales, but that doesn’t mean that the Austin area housing market is cooling or that prices are falling. Sales to West Coast buyers could slow as investors and people seeking to move to Austin find it harder to sell or take equity out of their homes.”

“But outside forces are not expected to have a significant impact on Central Texas.”

“Last spring, Dr. Susan King is counting signed a contract to buy a new 4,800-square-foot house in Cedar Park. ‘If we would have signed now, I think it would have been more expensive, because the prices have gone up,’ she said.”

“The base price for the Wilshire Homes model home she chose when she signed was $440,000. Now it’s about $460,000.”

“Big, publicly traded national production builders such as D.R. Horton, KB Home and Pulte Homes dominate the Central Texas market. They may need to raise prices in strong markets such as Austin as they watch profits decline in many other parts of the country. ‘The local builders are facing tremendous pressures to produce because the market is slowing in other parts of the country,’ said Dick Rathgeber, a longtime local developer.”

“‘Now that their margins are not as high in those coastal markets, they are looking to the other divisions including Texas to be more profitable and show better margins,’ said Eldon Rude, director of the Austin office of Metrostudy. ‘One of the ways the public builders are likely to do that is to carry less speculative inventory. We’re seeing them have a strong push to reduce their inventory levels during the end of the year.’”

“Some builders have offered end-of-the-year discounts to spur sales. In mid-December, for example, Pulte was offering discounts as high as $40,000 on every one of its homes in Central Texas.”

“They also have offered cushy incentives to real estate agents who find buyers for their houses. Beginning in October, some agents received daily e-mails about various incentives, such as 10 percent commission, rather than the typical 3 to 6 percent, on certain houses in communities such as Leander.’”

“Slowdowns in other once-hot markets, such as the West Coast, could reduce the number of investors buying homes and moving here as it becomes harder to sell or get equity of properties elsewhere. Working late at the office of Austin-based Streetman Homes recently, founder Randy Streetman fielded three calls from interested California buyers after 8 p.m.”

“West Coast residents with plenty of cash from selling their homes are still buying in Central Texas, he said. But the recent housing downturn there has led to a spike in contract cancellations here.”

“First American Loan Performance estimates approximately 15 percent of new mortgages in the Austin area last year were for investor homes purchases, while nearly 8 percent were for second homes. That’s up from nearly 14 percent and 6 percent, respectively, in 2005.”

“The median sales price of an existing house was $174,000 for the first 11 months of 2006, up 7 percent from the year before. The median price of a new house in the third quarter of this year was $212,527, a nearly 15 percent jump from the same time last year. Rising prices also could put home ownership out of reach for many buyers.”

“‘Generally speaking, housing prices are growing about twice as fast as wages,’ said Brian Kelsey, for the Capital Area Council of Government’s Center for Regional Development.’”

From KEYE TV. “Market analysts say Texas usually ranks dead last for appreciation in home values. As parts of the country have seen 30 and 50 percent appreciation, a slump wasn’t hard to imagine. While most of the country has been slumping, Austin set a new home sales record this year.”

“That record is 16,000 new homes sold. Market analysts say new home sales are one reason it’s a sellers’ market. There were 29,000 real estate listings in Austin in 2006. Median home price went from $181,000 in ‘05 to $196,000 this year. And developers built 16,700 new homes.”

“‘Four years ago, we had a record number of starts with 11,000. Now we’re around 17,000,’ said Mark Sprague with Residential Strategies, Inc. ‘To equate that, that’s the number of starts Denver, Colorado had and that’s a city of 3.5 million.’”

“Sprague says buy now if you’re in the market because you’ll pay more in 30 days and considerably more in three months.”

“Sprague says his firm counted almost 3,000 new homes finished and vacant. He says there’s been a bit of a slow-down in homes under $200,000.”

“Residential Strategies says Austin, Houston, Dallas, and San Antonio are in the top 10 in the country for percentage of foreclosures. Analysts attribute that to more lenders in those cities taking a chance on buyers with lower credit scores.”

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