The Housing Bubble

The Press Telegram reports from California. “Where is Long Beach’s condo market headed? The inventory has been on the rise, and there is no end in sight any time soon.”

“The West Ocean twin tower project in downtown is slated to open, bringing nearly 250 units to the area. A project behind the World Trade Center promises to bring more than 1,000 upscale units to the area, and there are two other projects in downtown on the drawing boards each with 1,000 units or more.”

“‘Stuff’s been sitting there hundreds of days,’ one Realtor recently said about some of his condo listings.”

“If anyone is feeling the pinch, it’s Jason Patterson. Patterson, who is referred to as the ‘Ocean Boulevard specialist,’ sold 45 Ocean properties in 2005, most of them condos or lofts. Patterson saw that number drop to 35 in 2006. He has 13 active listings now on Ocean.”

“‘I think that anyone with a head on their shoulders is going to realize that more inventory is going to mean slower sales,’ Patterson said.”

“Properties are sitting longer, and in some cases buyers are being forced to lower their expectations. ‘Things are sitting for a longer time, and we are having to play with the prices a bit to find buyers,’” he said.

The Auburn Journal. “In the Auburn area, it appears that 2006 was a buyers’ market. ‘The market has clearly been soft. It’s been a buyers’ market,’ said (broker) Maureen O’Connell in Meadow Vista, who has been in the business 12 years. ‘It’s not a horrible thing. It’s good depending on where you are in it.’”

“O’Connell said she’s seen some hesitation on the part of buyers in the past quarter. ‘Some are thinking that the market may continue to drop and it’s a mistake to make that assumption for much longer,’ she said.”

“‘We could see an increase (in prices) but we’re not going to go down,’ she said.”

“The average sale price of a three-bedroom home in the Auburn area was $495,634 in November, down from $532,375 in October, according to a report fro the Placer County Association of Realtors.”

“(Broker) Russ Broughan in Auburn, said that 2006 was a ‘correction market.’ ‘I’m sensing that there is kind of a bottoming out of the value-drop issue,’ Broughan said. ‘With realistic sellers, there are buyer opportunities.’”

“‘In the past two years in particular, you could have a house on the market one day at $500,000 and have four offers on it and it would sell at $560,000. Now that’s a mistake (to believe that is going to happen right now),’ O’Connell said.”

“If the market continues to be flooded with houses for sale, there is a possibility that prices won’t fluctuate in the coming year. ‘As long as inventory remains high we’ll have an up-kick potential,’ O’Connell said. ‘If it’s still flooded with listings, the prices won’t go anywhere.’”

The Press Enterprise. “A second year of a cooling market could bring more painful adjustments for some of Inland Southern California’s home sellers in 2007. A continued slowdown in home construction, more foreclosures and price declines are in the offing, several economists said.”

“‘We haven’t hit the bottom in sales or prices,’ said Esmael Adibi, an economist at Chapman University.”

“Inland economist John Husing said home builders will have to sell off their inventory, and financially distressed sellers will have to be flushed out of the market. ‘The people who will be hurt the most will be those who have no choice but to sell,’ Husing said.”

“Adibi disputes predictions the housing market correction would end this winter. He predicted any meaningful recovery would be delayed by a surge of new houses that hit the market when homeowners, who can’t afford mortgages that reset at higher interest rates, are forced to sell.”

“Bruce Norris, a Riverside real-estate investor and consultant, expects bank foreclosures to triple in 2007, triggered by drops in home values that will prevent owners from refinancing their way out of financial difficulty.”

“Patrick Duffy for Hanley Wood Marketing Intelligence, said it is difficult to predict the full effect of riskier mortgages. ‘We are in uncharted territory,’ Duffy said.”

“Buyer psychology is at the heart of the softness of the for-sale housing market, said Michael Carney, executive director of the Real Estate Research Council of Southern California at Cal Poly Pomona. Carney said he believes the abrupt decline in sales in the first quarter of 2006 reflected the decision of buyers to wait for bargains.”

“Alan Nevin, chief economist for the California Building Industry Association, said he expects between 21,000 and 23,000 single-family homes will be built in Riverside County this year, down from just fewer than 25,000 in 2006 and 29,000 in 2005.”

“In San Bernardino County, single-family home production peaked at 15,000 in 2005, declined to 13,000 homes in 2006 and is expected to drop to 11,000 homes in 2007, Nevin said.”

“Mary and Tom Hale of Redlands, pulled their four-bedroom home off the market in November after three discouraging months. ‘We had an open house and nobody showed. Only the Realtor,’ Hale said. He said they also have been trying to sell a second home in the Big Bear area since July.”

“Hale said because of the slowdown in construction he hopes to have less competition when he puts the Redlands house back up for sale for about $600,000 in March or April.”

The Naples News reports from Florida. “After a rocky year in 2006, local Realtors expect the market to smooth out in 2007. ‘You know I’m optimistic,’ said Wes Brodersen, past president of the Bonita Springs-Estero Association of Realtors. ‘If I wasn’t, I wouldn’t be in real estate.’”

“In the Naples area, the year ended with more than 11,000 listings, a 16-month supply of homes, on the market. That could increase by 1,000 or more this month, with the height of season.”

“In Lee County, there were 13,330 single-family homes, and another 8,559 condominiums listed for sale on the MLS last week. That works out to a more than 17-month supply of single-family homes and about a three-year supply of condos on the market.”

“There seems to be an end in sight to the down market, said (broker) Brett Ellis in Fort Myers. ‘I’m starting to see a pick-up over last year, and I think what we’ve just come off of is a year of heartache and misery as buyers sat on the sidelines waiting sellers out to come down on prices,’ he said.”

“Now, sellers are starting to listen to the Realtors and adjusting their prices to where they should be instead of where they want them to be, Ellis said. ‘Last year there was not much buyer confidence,’ he said. ‘The market felt like it was floating in space. It was quiet. It was eerie because the buyers weren’t there. They weren’t on the same wavelength as the sellers. So nothing happened.’”

“Since prices have come down in Southwest Florida, there are more buyers able to afford to make purchases, he said. A small home that sold for $170,000 in North Fort Myers in March is now on the market for $130,000. A condo in Cape Coral that was listed at $275,000 has recently been reduced to $230,000, Ellis said.”

“Homes are not worth today what they were last year, or even six or eight months ago,’ he said.”

“Since the end of 2005, property values have fallen an average of 20 percent in Southwest Florida, said Ellis. Transactions were off 40 to 50 percent for single-family homes throughout 2006 in the Naples area, compared to a year earlier, he said.”

“Realtors don’t expect to ever again see the kind of run-up in prices that sellers experienced in 2005. Median home prices appreciated 40 to 50 percent. ‘That was stupid and everyone is paying for it now,’ said Brodersen.”

“With the cool-down in the market, some Realtors have left their jobs for other careers or have moved to other states seeking better opportunities. Ellis said 2,500 members of the Realtor Association of Greater Fort Myers and the Beach did not pay their annual dues on time. The deadline was Dec. 15, and it has been extended to January to help those who might be hurting for money, Ellis said.”

“If those Realtors don’t renew, the association will lose almost 40 percent of the primary board members, he said. The association’s membership grew from 2,735 in July 2003 to 5,884 in July 2006.”

“The market may not have hit bottom just yet. But the bottom might be around the corner. ‘Buyers know they have more leverage than they did at any time throughout last year,’ said Ellis.”

The St Petersburg Times. “In a Jan. 1, 2006, column on the transforming power of redevelopment, I wrote this: ‘People who visit North Pinellas a year from now will be shocked by the differences.’ Well, maybe not so shocked. That’s the problem with new-year predictions. Stuff happens.”

“A year ago, speculators were gobbling up land here, and their appetite seemed insatiable. Their starry-eyed optimism rubbed off on government officials.”

“In that column a year ago, I forecast that the place most transformed in 2006 would be Clearwater Beach. The column also predicted that the sounds of construction would ring across downtown Clearwater, where numerous residential and retail projects were supposed to get under way during 2006.”

“So here we are at the end of 2006, and the picture has dimmed. If this isn’t the bust that follows a boom, it is at least a sobering slowdown. Now, those pretty artists’ drawings are nailed to posts erected in front of vacant lots where there is no movement except the wind swirling the dust. Projects large and small appear dead in the water, and ‘For Sale’ signs sprout like weeds.”

“Developers avoid talking about missed construction deadlines, or they try to put a good face on changes in their plans. New construction hasn’t stopped, but it has become the province of those developers with the deepest pockets and the most experience.”

“On S Gulfview Boulevard, only a ragged chunk of the old Holiday Inn Sunspree remains, to be replaced starting early next year with Cheezem’s Marquesas condominium. What about the other beach projects that were supposed to kick off in 2006? Next to the Marquesas site, a lovely sign announces ‘Enchantment - Emerging in November.’ Make that November 2006. But no Enchantment rises yet on Clearwater Beach.”

“Next door, the Clearwater Grande condo tower was supposed to replace the squat Quality Hotel, but those plans are shelved for now. Nearby, the 13-story Entrada condo project is on hold.”

“Where the Adam’s Mark Hotel once welcomed guests, a developer’s plans for a condo-hotel have been delayed. On down S Gulfview, there is no sign of the Marbella and Sienna Sands condominiums, plans on hold. The old Days Inn eyesore is gone, but property owner is talking with the city about allowing the empty lot to be used for temporary beach parking. And I’ve touched on only the biggest ones.”

“One bright spot, for those who rent, is that the conversion of rental apartments to condominiums appears to have slowed in the second half of 2006.”

What do you see in your housing market this weekend? Graphs in the local paper? How about a letter to the editor? “People should have to pass a test to be able to vote in Massachusetts. The person from North Andover who thinks his taxes should go down just because his property value has declined is probably one of those who shouted and stomped his feet at Town Meeting.”

“Anyone following the real estate market knows that North Andover’s real estate prices are falling faster than other towns. You don’t lower taxes by reducing property values; you just lose money!”

Any speculators? “The new home market party started when Fortune magazine anointed San Antonio the nation’s strongest housing market. Out-of-town investors flooding into San Antonio this year have glutted the market with rental homes, and the average rent has dropped $202 a month since this time last year, according to the San Antonio Board of Realtors.”

“At the end of October, renters had their pick of more than 2,000 homes. So far this year, more than 10,650 homes have gone onto the rental market, 22 percent more homes than last year. Kevin Knight with Liberty Management Inc. said the out-of-state investors had a different mentality than local landlords, who traditionally bought fixer-uppers. The out-of-state investors wanted new homes that required little maintenance.”

How about a poll? “Half of the responders to last week’s Business Pulse survey are optimistic about the national economy in 2007. Some of your comments: ‘Our business depends heavily on the housing market and next year looks bad.’”

“‘Housing balloon has popped, and the rest of the economy could go either way.’ ‘The economy is doing well everywhere except Portland.’”

Or foreclosures. “Nearly two dozen properties on Fort Wayne’s southeast side will be auctioned in a sheriff’s sale after their owner defaulted on the $700,000 mortgage and lost them in a foreclosure.”

“This foreclosure is the latest in a series of court cases involving Hicksville Bank and large numbers of foreclosures. Earlier this year, the bank filed suit against several local appraisers, alleging they inflated property values and hurt the bank financially when those loans defaulted.”

Or construction trends? “At her previous job, Wendy Laxton had a ringside seat for the Las Vegas housing boom, which made Seattle’s look modest. ‘I still feel Seattle is growing quite a bit,’ Laxton said. ‘When I go to downtown Bellevue and see all the cranes going up, that’s what Vegas felt like. I like to see that growth and renewal. I’m definitely optimistic.’”

Just regular statistics. “Following a national trend, the Alaska housing market seems to be cooling, with more homes on the market for longer periods of time when compared to last year. Meanwhile, the cost for homes and land continues to rise at an alarming rate.”

“Alaskans had 3,401 residential properties listed for sale in November, 52 percent more than last year, according to the Alaska MLS. Developer Chuck Spinelli, owner of Spinell Homes, said the inventory in the once-promising Mat-Su market just got out of control.”

“‘I can’t say the market has been dead, but it’s not increasing in proportion to the inventory,’ he said. ‘There are tons of builders out there.’”

The Journal News from New York. “Listings are the low-hanging fruit of real estate. So why did J.P. Endres, a (realtor) in Scarsdale, start turning away some listings last spring? She’s concluded that the would-be sellers wanted too much money for their homes. ‘I said, ‘No thank you,’ Endres said Friday about the first listing she turned down. ‘It would have been a pure-dollar-loss for me.’”

“The potential customer wanted $2 million in an area where the highest selling price had been $1.75 million. The home went on the market with another agent securing the listing. The price was lowered three times before the listing expired with the house unsold.”

“Though housing inventories climbed throughout most of the year and sales softened, the median sales price actually continued rising to record highs in Westchester County. The quarterly high was set in the third quarter at $716,125.”

“Fourth quarter data won’t be in until late this month, but it’s likely prices will be lower in both Westchester and Rockland counties. Preliminary numbers from the New York State Association of Realtors last week showed Westchester’s median was down to $595,000 in November, down 8.5 percent from $650,000 in November 2005.”

“Endres, who’s wrapping up a year as the president of the Westchester County Board of Realtors, said 2006 actually ended up being more of a normal year after five years of ‘insanity,’ but she still thinks most of the homes for sale are overpriced.”

“‘Only about a third of the inventory is priced right,’ she said, estimating that the remaining two-thirds is overpriced by 10 percent or more.”

The Asbury Park Press from New Jersey. “(Broker) Gloria Zastko in North Brunswick, said recent price downturns are nothing new in real estate. But she cautioned people about the more exotic mortgages available.”

“‘When the housing prices do dip a bit, this is going to be a deadly thing. Their monthly payments will go up. It’s just too bad that the criteria is not a little more stringent to make sure that these people can afford to continue with these houses. Surely, people should buy, but they should be qualified to buy,’ Zastro said.”

“Buying a home is the largest investment most people will ever make, said Shrikant Nadkarni, a certified public accountant. Nadkarni said that in today’s market, with rising interest rates and softening real estate prices, buying a home to make a short-term profit is certainly not an attractive proposition.”

The Vineyard Gazette. “The price of the typical home on Martha’s Vineyard fell for the first time in six years in 2006, as buyers left the market and sales figures dropped by nearly 30 per cent. The median price for properties was down to around $690,000 in the third quarter of 2006, a fall of almost six per cent compared with a year earlier when the median price was around $732,000.”

“Land sales were down 35 per cent compared with 2005 and more than 50 per cent compared with 2004. And while complete figures for the fourth quarter are not yet in, industry experts are expecting the market to continue to trend down or at best stay flat.” “Meanwhile, agents’ inventories of properties for sale were up around 30 per cent throughout the year.”

“‘We have seen a definite change over 2006. But things have been going up for eight or nine years. It had to end sometime,’ said Sharon Purdy, a 35-year veteran of the Island market’s ups and downs. But Mrs. Purdy said she sees no signs of a bursting of the housing bubble, rather a slow deflation, which was on balance healthy.”

“‘People are waiting to buy and renting instead. Until that stalemate comes to a conclusion we will remain dormant for quite some time,’ Mrs. Purdy said.”

“‘It’s a classic standoff. The sellers want their price and the buyers want their price and the two have not come close yet,’ said the president of Dukes County Bank, Chris Wells. ‘But I think this correction is different in that leverage is less and there’s a lot less speculation in the market than in the last significant downturn, in 1987 to 1991.’”

Readers wanted to know what you see in the year ahead. “How about predictions of what next year brings? 2007.” And here are some predictions from the mid-year 2006 thread. “It appears the call I made late last year, of a y-o-y decline in June 2006 for national US median existing home sale prices, was incorrect, or premature.”

“One interesting thing though; I’ve started to see the first references to Calendar Year national median prices never falling. That sounds to me like some RE players are starting to worry that we will indeed see y-o-y national declines by the end of this year, and are preparing a fall back position where they compare all of 2005 with all of 2006.”

One from Virginia. “My prediction is that the house we are looking to rent is also for sale and has be reduced from $710k to $659k just since March ‘06 and it will only continue to fall. It’s in Loudoun County, VA - Potomac Falls area. We saw several 800-700k homes with prices slashed out and reduced several thousands. I predict this will continue.”

From California. “Predictions are a dangerous game. 40%-45% Real declines in So Cal. 15-25% nominal declines in So Cal. Certain properties will go for less but as far as the nearly useless stats tracked by the RE industrial complex that is my prediction.”

“I am thinking late 2009 for the bottom in So Cal. I don’t think any appreciation will happen until later about 2012″

A general projection. “Inventory will continue to rise and the buyer seller stand-off will continue while both sides dig in fro the rest of 2006. Areas which have already experienced extreme appreciation will continue to slowly deteriorate, while outlying areas will continue slow appreciation as the outer reaches of the shock waves propagate outward.”

“I would not expect meaningful downward price action until the coming wave of foreclosures and much anticipated workforce reductions associated with building and real estate begin to have an impact. This will be the BIG news for 2007 thru 2011 and when the storm abates I predict the middle class will be a whole lot smaller, the poor poorer and the rich richer.”

“Property prices may well decline below the 40 year trend line as lenders swell their inventory of foreclosed properties and are forced to begin dumping en masse.”

One from Washington. “I predict that by the end of the year, the Seattle area will finally start showing signs of the bubble seen in the rest of the country.”

One from Florida. “I predict numerous Florida cities median prices will be negative yoy for Q2, several already are as of May. I think all of the following will show negative for Q2:

Cities YOY% as of May

Sarasota/Bradenton 2%

West Palm Beach 0%

Punta Gorda -2%

Panama City -1%

Melbourne 0%

Ft Lauderdale 3%

Naples 1%

Ft Myers 5%

Ft Walton Beach -9%

Ft Pierce 0%

“Already heard the first excuse for negative medians from a Realtor: ‘Oh, this just means more first-time buyers were jumping in ahead of the rate increases. Median indications aren’t that reliable…’”

A couple on rates. “8% mortgage rates by 1/1/07, skyrocketing inventory, double digit mortgage rates by July, 07 as lenders overreact to defaults, which were caused by the lack of underwriting. Bye bye middle class.”

Another, “If the Fed. decides to go to 5.5% at the next meeting, simultaneously stating they intend to pause at that level (barring dramatic economic changes) until the impacts have worked through. This would mean at least a 6 month pause (and wouldn’t be a bad strategy IMHO).”

“If the Fed. did this, I think long rates might go up a bit as the yield curve renormalised, but more importantly I think the housing market in many places would crater as the Great ARM Reset progressively kicked in.”

One updated a view. “I retain my prediction of last year that this mid year the Fed will pause once here at 5.25% and resume. This is part because they need time to judge the effects of so many past increases and to avoid looking like they are meddling in the mid-term elections.”

“No more cashing out, no more equity nomads, no more flipping. We’ll see the first halting stumbling steps this fall after a summer where no one budges and to the surprise of both sides nothing happens (except in the markets). Sellers won’t budge on price and buyers won’t pay those prices.”

“Expect a groundswell of corporate relocations away from Bubbletown. Expect people to adopt the single word Bubbletown to stand-in for Bay Area, LA, San Diego, Phoenix, Miami, Orlando, etc.”

Another had specifics. “EOY: Fed Funds Rate: 6% EOY. 1st National housing price YOY decrease : 9/06. State with biggest hit: Florida. 2Q Economic growth: 3.6%. 3Q Economic growth: 3.1%. 4Q Economic growth: 2.5%.”

One from California. “High-level prediction: Stubborn Orange County sellers will not start making real price concessions until late 2006. 2007 will be a steady slide downward.”

An economic viewpoint. “Personally, I think that a recession is baked in the cake.”

1) Inverted yield curve.

2) MEWs are practically done.

3) RE prices are reversing.

4) Declining leading indicators.

“There is no more fuel left to burn. IMHO we are headed for a deflationary debt collapse that will crash the economy. People will not borrow to buy more RE when prices are following. A deflationary psychology reinforces behaviour, just as an inflationary one does.”

From San Diego, “San Diego: less desirable areas will start to see real (>10%) reductions. Downtown condos will drop even more. Sellers are hanging on to their unrealistic prices in more desireable areas (but rarely selling).”

“Numbers of listings might start to drop or level off for 2-3 months as some sellers pull out, realizing they missed the boat….. And of course the Realtors will have to compare to 2004, because YoY will show declines.”

And finally, “Mid year Prediction, 6-month forecast: 1. *Major* decline in the buyer pool by October, across the nation. 2. Continued growth of inventory at a steady pace over the rest of the year. 3. 1/4 point rate hikes at the next three fed meetings. 4. ‘For Sale’ prices will tend to remain at the peak, despite onset of seller panic in fall, or the peak minus 10-15%. People will hold onto their suicide loans hoping for a turnaround until all resources are exhausted and the bank forecloses and sells at auction.”

“Cultural attitutes on renting vs. owning shift over the first half of 2007.”

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