January 5, 2007

“We Are Now In Reality Time”

It’s desk clearing time for this blogger. “The housing slump hitting New Hampshire is also hitting the state budget. Economist Russ Thibeault says fewer properties are selling, and those that do sell are selling for lower prices than they did last year.”

From Pennsylvania. “The banner advertising ‘Luxury condos from the 300s’ guarantees that Downtown living is not in Tom Kuretich’s future. ‘I’d have to sell my wife and two kids to afford that,’ said Kuretich.”

“Heather Miller sold herself on buying a new condo Downtown. ‘I wanted to be on the cutting edge of this Downtown explosion,’ said Miller.”

The Washington Post. “As home sellers grew more frustrated with the slow local real estate market in recent months, they abandoned their for-sale signs and put their homes up for rent. ‘This is the first sign that the cooling housing market is having an impact on the rental market,’ said Gregory H. Leisch, CEO of Delta Associates.”

“Maurice Philogene said he has bought at least 20 condos since 2001. He cut Yvonne Carter a break on the rent because she signed a two-year lease. The unit, he said, is ‘pricey — it was nerve-racking to cover the mortgage.’”

The Financial Times. “A leading estate agent has called the top of the property market, claiming an influx of sellers ‘motivated by greed’ is increasing the supply of homes for sale and creating a vicious circle that will send prices lower in 2007.”

“Henry Pryor says people are looking at the prices their neighbours’ are getting for their houses and deciding to follow suit. ‘They are saying, ‘we should cash in our chips,’ Mr Pryor said. ‘We may look back and say the fourth quarter of 2006 was the peak,’ he said.”

From Texas. “I have to laugh when, on the one hand, I see all of the doom and gloom about the collapse of the housing market and on the other hand, look at the boom and boom of cost of Collin County land. If land is selling at higher and higher prices that foretells a strong housing market next year. This housing is not part of a housing bubble in danger of collapse.”

From Colorado. “Local new home construction declined again in December. The slide makes for the fourth consecutive month that housing starts have dropped in Pueblo County.”

“In September, longtime regional economist Tucker Hart Adams cautioned Pueblo housing officials not to overbuild. ‘You don’t want to build more space than you need,’ she said, referring to the nationwide housing bubble she expects to burst this year.”

From Hawaii. “While none of the experts forecast a plunge for Hawaii real estate, the consensus is that it will be a while before homeowners see a return to virtually automatic short-term profits on their properties.”

“Hawaii’s real estate market got its own winter chill in November, when the Oahu median price came in 4.8 percent below the year before, the first significant year-on-year drop since the late 1990s.”

“Bank of Hawaii Economist Paul Brewbaker is adamant that ‘this ain’t no stinkin’ bubble.’ But he also cautions that any return to the price upswings of recent history may be one to five years off.”

From Oregon. “If you thought 2002 was a strong year on the Central Oregon real estate scene, then you’ll probably like the cooled-down climate in the year ahead, a Redmond appraisal service predicts. About 8,400 property sales took place in the region during 2006, a one-third drop from 2005.”

“Not calling it a burst bubble, she said the past couple of years were ‘a glory time that everyone benefited from’ in the construction and real estate businesses and related fields. And while some parts of the country are suffering more than the High Desert, Drahn said we, too, are ‘now in reality time,’ when it comes to real estate.”




“It’s Like A Memo Went Out And The World Changed”

The Press Democrat reports from California. “New home construction in the Bay Area, including Sonoma County, will stay flat in 2007, according to a forecast issued Thursday by the California Building Industry Association. ‘Last year, we said it’s time for a breather,’ said said Alan Nevin, an economist for the trade group. ‘We’re saying it again.’”

The San Francisco Chronicle. “In the Bay Area, where more than 30,000 condos are proposed or under construction, Nevin said he expects to see some projects tabled this year. There were about 1,200 new condos put up for sale in the city in 2006.”

“Steven Delva, president of the South Bay division of Standard Pacific Homes. said Standard Pacific dropped prices 10 to 20 percent at its Bay Area projects last year. Price reductions were greater in other parts of the state, such as Sacramento, where new homes have flooded the market.”

Inside Bay Area. “In 2004 and 2005 more than 200,000 homes were built each year to meet demand. That set the stage for a build-up of unsold inventory in the new home market, said Wes Keusder, a Southern California home builder and association chairman.”

“The demand for new homes started dropping in summer 2005 in response to rising prices. ‘The demand just cut off,’ Keusder said. ‘It was more like a stock market slump than a housing slump. That’s what gave us a large overhang of inventory that we’re burning off now. The decline was much more like a knife cut than in years past.’”

The LA Times. “The current rate of construction should be accepted as a ‘new mentality’ for builders, who pushed up the pace of building to near-record levels from 2003 to 2005, Nevin said.”

“‘That type of massive increase bent the industry out of shape,’ he said. ‘It caused lot and land prices to wildly accelerate, material and labor costs to skyrocket and trade contractors to throw away their standard profit-measurement tools.’”

The Union Tribune. “San Diego County’s home-building industry entered the new year in ’slowdown mode’ and will likely see the fewest building permits issued in a decade. The last time San Diego permits dipped below 10,000 was in 1996 at the tail end of the last major recession.”

“Wes Keusder said the construction slowdown here and around the state seemed to be tied to high prices and chronic affordability issues. ‘We have literally hit an affordability (constrained) market,’ Keusder said, ‘where even though we have low interest rates and (strong) demand and jobs, the prices got so high that it slowed down the market.’”

“Robert Rivinius, president of the building industry association, said the turnabout first showed up in August and September 2005. ‘The world just somehow changed,’ he said. ‘I don’t know why. It’s like a memo went out and that changed it.’”

“Builders reported rising cancellation rates as buyers found they couldn’t sell their current homes, Rivinius said. Then, new phases were delayed and options on building sites were canceled as builders walked away from planned projects.”

“Nevin said he flew over Riverside County recently and was ‘astounded’ by the lack of construction activity. ‘There are amazingly few new projects getting started,’ Nevin said. ‘We’re just not seeing anybody, particularly on the condominium side, that has shown a willingness to go ahead.’”

The North County Times. “Independent economists suggest that Nevin’s forecast is on the rosy side, and that fewer homes will be built. If the forecast is wrong, it won’t be the first time. Nevin said last year’s prediction was off by about 15,000 single-family homes statewide.”

“‘I think it’s just going to be a weak year all around for single-family construction in 2007,’ said economist Christopher Thornberg. ‘It’s not going to be until 2008 that we work through this inventory of single-family homes. I think we have massively overbuilt single-family homes, particularly in places like Riverside, San Bernardino, San Diego and Sacramento.’”

“Contrary to Thornberg, Inland Empire economist John Husing suggests that California has a housing shortage. ‘In this last go-round, price took off because of a shortage of housing,’ Husing said. ‘But it went higher than it probably should have because speculators got in and bought houses and restricted the supply; 2007 is a time to redress that imbalance.’”

From ABC 30. “Andrew Fiber, and his wife Tonya of Fresno, started looking for their first home six months ago and they’ve noticed housing prices have dropped considerably since their search began.”

“Andrew says, ‘I think the housing market is about as low as it’s going to be and it just seems like a really good time to buy.’”

“Fiber’s Real Estate Agent, Tye Faria says since buyers know there are many homes to choose from, they’re in no hurry to buy. ‘People are holding off a little bit, but only because they’re uncertain. No offense, but the media does hype up certain stuff and everybody says ‘the bubble’s gonna burst’ - there is no bubble.’”

“Perhaps no bubble, but there are a lot of houses. In 2005, an average of 1800 homes sat on the market in Fresno at one time. Last month, 4800 hundred homes had a for sale sign out front.”




“We Face A Challenging Market”: CEO

Some housing bubble news from Wall Street and Washington. Bloomberg, “Freddie Mac, the second-largest source of money for U.S. home loans, reported a $550 million net loss for the third quarter and likely had similar results in the fourth quarter as lower interest rates reduced returns on its investments.”

“Freddie Mac, which owns or guarantees about 20 percent of the $10.5 trillion U.S. residential mortgage market, hasn’t released timely financial reports since revealing in 2003 that it understated net income to minimize earnings volatility.”

“The company won’t provide financial results for the first quarter of 2007 until the second half of the year, Freddie Mac President and COO Eugene McQuade said today. ‘Sometime in the second half of this year, we expect we would be able to get back to quarterly reporting,’ McQuade said.”

“The third-quarter performance was attributable to $1.5 billion in pretax losses on derivatives and credit guarantee assets and obligations, Freddie Mac said. The results ‘reflect the volatility we see quarter-to- quarter in response to movements in interest rates,’ Freddie Mac CEO Richard Syron said in the statement. ‘We face a challenging market environment.’”

From the Street.com. “The following are rumors I’ve picked up from trading desks and other industry sources this morning. More signs of an imbalance in the residential real estate market are appearing.”

“For example, there’s been a surge in vacant homes because of foreclosures, owners who bought another home and await sale of their first home, and homes that are for rent because they can’t be sold. In certain regions of the country, such as California, vacant homes represent nearly 50% of annualized sales (triple the levels of four years ago).”

“A medium-sized private homebuilder and two more prominent subprime mortgage originators/servicers will shortly announce bankruptcy. HSBC is considering the sale of its Household Finance subsidiary because of the hemorrhaging of profits in its mortgage business.”

The Associated Press. “James Pedrick, executive VP of Mortgage Lenders Network USA Inc., said the company is negotiating with several firms about possible partnerships ‘that would allow us to reconsider our business model with the appropriate capital to support that.’”

“Pedrick blamed the company’s problems on rising defaults and the faltering housing market. ‘I don’t think the market is going to turn around real fast,’ Pedrick said. ‘I think we’re looking at 2007 being a tough year and beyond that it should improve.’”

“The company laid off workers Tuesday, although Pedrick called the actions two-week furloughs. He wouldn’t say how many of the company’s 1,300 workers were affected.”

“Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month. ‘Basically, this industry has been doing terrible things for a long time,’ said David Olson, president of a Columbia, Md.-based firm that tracks the mortgage industry. ‘It threw all the lending standards in the garbage.’”

“He criticized the industry for lowering its standards by reducing the level of creditworthiness acceptable to borrow money and pursuing a sales-driven strategy.”

“Michael Warshaw said he arranges about 80 loans a month, including four or five through Mortgage Lenders. Several loans that have closed have not been financed by MLN, he said. ‘MLN is legally bound to produce the money and they can’t,’ Warshaw said. ‘This has never happened before.’”

An editorial from the LA Times. “Buying a house with no money down was always sort of crazy, but the market is just now realizing it. The answer may be staring us right in the face. If you can’t get a house with no money down, the sky is obviously falling.”

“The problem for all these firms is that their market, people who want to own homes but have bad credit, little income, few savings or all of the above, is understandably at a much higher risk of default than the mortgage market as a whole.”

“The sub-prime market’s 45-fold growth, from $13 billion in 1995 to $594 billion in 2005, stands as a monument to the nation’s home-buying mania. You’d need the proverbial heart of stone not to laugh at the suffering of the gamblers who bet that the real estate market could increase indefinitely.”

“There’s a puritanical impulse to say, ‘If you can’t afford a down payment, you shouldn’t be buying a house.’ But it may be more appropriate to marvel at a nation in which you can buy a house the way you’d buy a used car, and to thank the market’s powers of natural selection that this behavior is now being curtailed.”




Florida Housing Market Has “Gone Sour”

The Bradenton Herald reports from Florida. “When a job opportunity led Heritage Harbour homeowner Richard Brody to move across the country, he knew selling his house would be rough. ‘By the time I listed my home, the market had already gone sour,’ Brody said.”

“The Heritage Harbour Master Association sent a letter to Brody last month telling him the small For Sale sign he had in his yard is no longer allowed. ‘We were flooded with complaints from homeowners because the neighborhood looked awful,’ said Rob Allegra, Lennar division president for Sarasota/Manatee.”

“Lennar, the developer and sole builder within Heritage Harbour, still maintains majority control in the homeowner’s association because the neighborhood has not reached 90 percent completion. ‘Developers will take every advantage they possibly can,’ said (realtor) Peter Evans, who listed Brody’s home. ‘In the case of Heritage Harbour, they’re going to continue doing things for their benefit.’”

“In East Manatee’s adult community, The Cascades, the addendum was a way to weed out the investors that had been infiltrating the market, said Reine Jesel, sales manager at the Levitt and Sons community. ‘They (Heritage Harbour) encouraged the investor and now they are irritated with them because they are cutting into their business,’ Jesel said.”

“Brody said it isn’t just the banning of signs that is holding back the sale of his house. Priced at a point where he won’t make a profit on the home, he still can’t compete with the discounts of the developer. ‘Several people who looked at my house in the last couple months have bought new houses because they’re giving them away,’ Brody said.”

The News Press. “Lee County’s pace of construction slowed last year as a huge inventory of unsold houses piled up. That inventory has also led to a substantial drop in the median price of an existing home. November’s price was $258,600, down 12 percent from a year earlier.”

“‘I think building permits are down for a good reason right now,’ (realtor) Brett Ellis said. ‘Builders are canceling projects. Why wait six months, nine months for a new home to be built when you can get a new one already existing?’”

“Jim York, who has been building houses in Lee County for 11 years, said business was good in the first part of 2006 but that ‘to be honest it’s pretty much dried up since then. There just hasn’t been a lot of activity.’”

The Orlando Sentinel. “The first Martha Stewart-inspired development in Florida will be built by KB Home on 31 acres southwest of Windermere, company representatives confirmed this week.”

“Mark Kistler, an assistant professor at North Carolina State University, bought a home in July in the first Stewart-affiliated community, a development called Twin Lakes in Cary, N.C. He said Stewart’s name did play a role in his family’s decision.”

“But the clincher for the sale was the price he got from the developer, who was eager to remove the home from its inventory after the first buyer backed out of a contract. Kistler said he paid about $359,000, or $41,000 less than the original asking price.”

“A former instructor at the University of Florida, Kistler said he is still trying to sell his house near Gainesville, though after nine months he has had no takers for the 2,100-square-foot home offered for $309,900. ‘The market here [near Raleigh] is definitely stronger than in Florida,’ he said.”

The Herald Tribune. “The first barrier island vacation rental that Warren Hickernell converted to a condominium-hotel sold out quickly, but that was the spring of 2005. Now Hickernell has millions tied up in a handful of former mom-and-pop motels that are hitting the market with fresh paint and granite countertops, but no buyers.”

“‘Look at the market; 2006 was a time where everybody stood on the sideline,’ Hickernell said. ‘It gave me time to get the renovations done. It also means there’ve been no pre-sales.’”

“Working with various partners, Hickernell has acquired vacation rental, motel and hotel properties on several barrier islands. He has gutted and renovated most of them with the idea of selling the units as small slices of paradise. Say 702 square feet for $653,900.”

“In the meantime, he said weekends are booking strongly, though he did not have exact occupancy figures. The Capri was running a grand opening special of $89 per night on weekdays through Jan. 15. The Pearl Beach Inn on Manasota Key was offering three weekend nights for $350.”

“Hickernell said the discounts are to attract a new clientele. ‘All those renters are potential buyers,’ he said.”




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