The Housing Bubble

The Valley Voice reports from California. “Tulare County Association of Realtors numbers show that the inventory of existing homes for sale has been coming down for the past three months for the first time since late 2004. The numbers had ballooned from just 400 residential listings on the Visalia/Tulare MLS to over 1000 in October 2005 to over 2300 in September this year, even as miles of new home subdivisions remain under construction.”

“Since September existing homes on the market has fallen to 1709, a number that remains high compared to past years. MLS numbers show real estate activity has averaged about 200 sales a month.”

“Local realtor Brad Maaske says he believes many of the excesses of market have been squeezed out by the price correction mechanism that includes the new home sale market. ‘Before people would pay anything for homes, and they did’ compared to today as builders have adjusted prices and offered incentives that have allowed sales to continue at a far lower price point.”

“Maaske says the adjustment in inventory in the local MLS came for a combination of factors including fewer homes coming on the market, continued steady sales and expired listings of home sellers who have taken their listing off the MLS.”

“Title company owner Scott Collins says his figures show real estate refinancing activity in the last quarter down 41% when compared to the same quarter in 2005 and most worrisome a big increase in the number of defaults—up 42% over the same period in 2005.”

“Collins says the number of defaults came in part when a new homebuyer just barely qualified to buy a new home and does so by paying a minimum payment. Then the value of the home heads down and the buyer needs to sell because of a job change and the home is worth less than what he can sell it for.”

The Daily Press. “The financing honeymoon that swept thousands of home buyers into the High Desert is quickly becoming a foreclosure nightmare for growing numbers of homeowners, recent market data reveals.”

“Statistics compiled by DataQuick showed San Bernardino County had 2,548 foreclosures in last year’s third quarter — up 100.8 percent from the 1,269 reported in the same period of 2005. (A) foreclosure web site showed there were 426 foreclosures and 5,617 pending foreclosures throughout the county in December.”

“Paula Hurst, a foreclosure specialist, isn’t optimistic. The 13 pre-foreclosure evaluations she’s done in the past two weeks have left her ’scrambling.’”

“Hurst handled five foreclosures in 2004 and about 72 in 2006. That tells her an ‘avalanche’ is coming. She suspects the flow of new buyers may also decrease, as prices in bigger urban markets continue to soften.”

“‘If they’re frozen,’ she said of the bigger markets, ’so are we.’”

“Hurst advises homeowners to sell soon if they want to get anything near the latest price points, because prices will plummet as more foreclosures are filed. ‘Homes will land in a more affordable price range again,’ Hurst said.”

“As the number of financially distressed homes rises in the High Desert, one of the biggest risks faced by homeowners will come from people looking to steal from them.”

“Victorville Realtor Joe Brady warns that cases of squatting, where people illegally take possession of vacant houses waiting to be sold, may rise along with the foreclosure rate.”

“He believes the problem will occur most frequently in outlying areas, such as Newberry Springs, where the owner of one of Brady’s listed houses recently discovered a couple living in what was supposed to be her vacant investment.”

“Property manager Carol Randall said homeowners can avoid the possibility of squatters by keeping a vigilant eye on their vacant houses, either by themselves or through others. Homeowners might also want to buy insurance coverage for their houses while they’re waiting to be sold, since standard home insurance policies don’t cover periods when a house is vacant.”

“(Realtor) Craig Kudrly said another scam aimed at homeowners goes like this: A criminal approaches an owner desperate to sell his or her home. The criminal offers to ‘buy’ the house for a certain amount, no questions asked.”

“The criminal fails to change the title on the house, but ‘rents’ the house to unsuspecting renters for up-front fees. Then the criminal disappears, leaving the actual homeowner with illegal tenants and the tenants facing possible eviction.”

“‘I could write a book about all the times I saw it happen,’ said Kudrly, who began handling house foreclosures during the market bust in the early 1990s.”

The Union Tribune. “Robert and Marie Leboda would like nothing more than to make life simpler for 2007. The San Diego couple admit that they have been a little overzealous with real estate investments over the past few years. They’re now feeling buried by all of the financial obligations that owning property entails and don’t know how to come up from underneath it all.”

“The couple is now responsible for maintaining four properties, not to mention mortgage payments that total about $6,500 a month. They’ve each taken up additional jobs, but their extra efforts haven’t quite afforded them the quick and easy solution they were hoping for.”

“‘I wouldn’t say investing in real estate is a completely bad idea, but we just really overdid it,’ Marie said. ‘We jumped on the real estate bandwagon when we thought it would be great for us financially. But it’s turned out otherwise and now we’re so overwhelmed by it all, we don’t even know where to start.’”

The Portsmouth Herald reports on Maine. “After a tough year in the residential real estate market, industry representatives along the Seacoast say they are optimistic about 2007. ‘Values have fallen, in some cases, to what would have to be described as bargain levels,’ said John Rice, chairman of the Seacoast Board of Realtors. ‘While values should continue to slightly decline through 2007 as inventory is absorbed, it is likely that we are near the bottom of this correction.’”

“Sales of single-family existing homes across Maine were down by more than 12 percent from November 2005 to November 2006, with median sale prices down nearly 4 percent, according to the Maine Association of Realtors.”

The Providence Business News from Rhode Island. “A partner in the team developing the One Ten Luxury Residences says the project has changed scope, with hotel space replacing almost half of the condominiums previously planned for the building. The project will now include only 70 luxury condominium units, instead of the 130 formerly planned.”

“Critics of the recent push for condominium projects downtown may view the changing of the One Ten project as a sign of a slumping market. Last year, the developers of One Ten had said that despite the other condominium projects, such as The Residences at The Westin Providence and WaterPlace, that were slated to come online in Providence, the market would still be able to absorb the combined 400 units their project would add.”

“But University of Rhode Island economist Leonard Lardaro said that while he does have some concerns about the downtown projects, he doesn’t see many signs that they might fail.”

“‘So far, things look extremely good, but they just look too good,’ Lardaro said. ‘It just seems that the condominium prices got ahead of themselves here, more than they should have, and so some kind of correction is warranted.’”

The Boston Globe from Massachusetts. “A year ago, developers John Judge and Tom Truong arrived at the edges of a still solid real estate market with a lofty goal to go along with their plan to make money.”

“Now, 13 months later Judge and Truong have built just four condos, with only two of those units under agreement. They are unloading four other stately red-brick buildings in separate sales to private investors and to a nonprofit.”

“The pair’s Chelsea retreat isn’t unusual. Developers who snapped up properties in better times now face long odds trying to sell them in a stagnant real estate market. ‘It’s not a good time to be building condos,’ said economist Patrick Newport. ‘If they started out when prices were appreciating, they assumed they would keep going up, and they would make a profit. That just didn’t happen.’”

“When the real estate market turns, the Chelseas of the world often are hit earliest and hardest. Condo sales in this city, for example, plunged by two-thirds through the first 11 months of 2006.”

“If Truong and Judge are ruing their venture, they aren’t saying so. Indeed, they offer little introspection or explanation about what went awry, other than bad timing. ‘The market did not hold up,’ said Truong. ‘We’re being prudent businessmen.’”

“Not too far along they showed signs of buyers’ remorse, and got a taste of the difficulties ahead. Last August, with permits in hand for three buildings, they put all seven properties up for auction. The pair ultimately decided not to accept any of the offers because they were too low, Truong said.”

“‘We tested the market,’ he said. ‘There was a lot of interest, but we weren’t going to give them away.’”

The Island Packet reports from South Carolina. “The area housing market saw a more than 20 percent drop in the number of single-home sales in 2006 compared to 2005. According to the MLS data, which tracks sales in southern Beaufort County and Jasper County, single-family home prices fell 9.3 percent in 2006 from 2005 levels when looking at median price, and 6.1 percent when looking at average price.”

“In real dollars, the median price fell from $430,000 to $390,000. Realtor James Wedgeworth said he’s glad 2006 is over. ‘It was a bad year,’ Wedgeworth said. ‘Especially the last four months were very bad.’”

“(Broker) Bob Clarkson, noting the housing market still has roughly three times the inventory compared to 2005, said he thinks prices could drop a bit more. In the area’s villa market, the number of sales dropped from 2,146 in 2005 to 857 in 2006, about a 60 percent drop. Villas were often the purchase of choice for investors buying for short-term gain during the booming market in 2005, Clarkson said.”

The Times Union from Florida. “For home buyers, the question is no longer ‘Will prices drop?’ During six months in 2006, they did drop almost 15 percent. Now, as the number of sales still hovers about 20 percent below that of last year, the slow market conjures a different question: ‘Where’s the bottom?’”

“University of North Florida real estate professor Sid Rosenberg arrives at a ‘fair value’ far below even the November figures. According to Rosenberg, the ‘fair median value’ of homes in Jacksonville should be about $165,000 based on what an earner with the local median income can afford.”

“‘Buyers know that they’ve got a buyers’ market, and if it were me, I’m going to sit there and negotiate very hard,’ he said. ‘Make lower offers than normal, and if they’re not accepted, just move on. Because right now, you can.’”

The Herald Tribune. “Mike Marcus is no newcomer to the game; his Sarasota Builders and Remodelers has been in business for years. A couple years ago, Marcus decided that building hurricane-resistant houses was the way to go. Then the boom went bust.”

“‘It took a year longer to build than we had planned,’ he said. ‘In doing that, we inadvertently missed the real estate bubble. I am very happy to lose some money on them,’ said Marcus, who said he would be happy to get $249,000. ‘It’s nobody’s fault. It was good, sound business decisions, but things changed.’”

“When construction of the $150 million Promenade at Riverwalk condominiums got under way on the Manatee River in late 2004, the development promised to eventually transform downtown Bradenton.”

“One of the project’s planned 15-story towers will now be scaled down to five stories to offer smaller and much less pricey condominiums. ‘It was a market-based decision,’ said Bob Hatfield, the Atlanta developer behind the project. ‘There’s a limit to what the market can absorb in terms of higher-cost condominiums.’”

“In November, sales of condos were down 33 percent in the Sarasota-Bradenton market compared with the previous year. Prices were down 7 percent over that same period.”

The Orlando Sentinel. “After the city hemmed, hawed and battled with developers of a downtown project for years, Mayor David Strong is now hoping the developers of The Carlisle will simply go away — if he gives them more than $5 million.”

“The money is the amount Strong wants to give the developers in exchange for not building the project, and for not suing the city, should commissioners vote to deny the project after giving an earlier thumbs-up.”

The Sun Sentinel. “Gary Posner and the Hollywood Community Redevelopment Agency became partners three years ago in an ambitious and, city leaders now admit, flawed plan to transform a chunk of downtown Hollywood.”

“Today, both sides want out of the deal, hopes for a theater, trendy galleries and chic condos are all but dead and the city is trying to explain why it loaned $5.2 million to a man who had never attempted a major urban project. Commissioners didn’t even ask for a credit check before approving the loans.”

“‘This is, without a doubt, the biggest mistake the City Commission has ever made,’ Commissioner Cathy Anderson said of the development project. ‘It’s been a fiasco from the very beginning, and we all voted for it.’”

“‘I never look back, and it was an experience,’ Posner said. ‘Let somebody else step in and worry about it now. I’ll make some money out of the deal, so that’s OK too.’”

What do you see in your local housing market this weekend? Builder incentives? Auctions? How about price reductions? “Some of you may remember a listing a while back, that picture-perfect executive home out in Wingfield Springs that my clients purchased for $595K eighteen months ago at the top of the market?”

“The one I had listed for $480K then $460K then $450K? That home closed on December 21 for $439K after 75 days on the market. Now I’m sure there’s someone out there who’s going to ream me or the seller for ‘giving that house away’ or ‘undercutting the competition’ or ‘destroying the values of the neighborhood’ or whatever.”

“The truth is, it’s a market. The market doesn’t care what you paid for your house or how much you think its worth or what your neighbors think it’s worth. The market isn’t personal, whatsoever. Price is determined by what a buyer is willing to pay and a seller is willing to sell for.”

A related industry. “An estimated 500 workers at KraftMaid Cabinetry Inc., Geauga County’s largest manufacturer, received layoff notices Thursday. County Commissioner Mary Samide said she believed last year’s nationwide ‘housing bubble’ was a temporary, artificial inflation of prices that was bound to burst eventually.”

“‘People made their money up front, but somebody had to pay the price eventually,’ Samide said. ‘It’s just a shame it had to be here.’”

Suspect calculations? “Housing prices in Alberta’s largest cities skyrocketed in 2006, with an average residential property jumping 49 per cent in Edmonton and 38 per cent in Calgary over the year.”

“‘All one has to do is look back over the last 30 years to see where house prices come from, and if you use a calculator and extrapolate the percentage increases over those years, I think by the year 2025 the average home may be about a million dollars,’ said Ron Esch, president of the Calgary Real Estate Board.”

Public pronouncements? “Real Estate agent Anthony Toop said he was surprised areas like North Adelaide (-16 per cent, Adelaide (-14 per cent) and Kensington Park (-9 per cent) had experienced such big falls in property prices.”

“‘There are a lot of investors in these suburbs,’ Toop said. ‘Fewer people are paying over the odds for a property. Buyers are playing hardball and walking away if their price isn’t accepted. This is reflected in the Valuer-General’s figures, which show the boom is over and the market is marking time,’ he said.”

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