The Housing Bubble

The Review Journal reports from Nevada. “By Fortune Magazine’s reckoning, Las Vegas in the next two years will turn in the second-worst housing performance in the nation. ‘Las Vegas was one of the most frothy markets in (in 2004 and 2005), and a lot of that price appreciation was due to speculation,’ economist Charmaine Buskas said. ‘There were a lot of second-home purchases for investment purposes. With weak demand fundamentals going forward, we expect the correction in the housing market will continue to progress.’”

“Local real estate analysts don’t discount Fortune’s predictions out of hand. ‘Anything is possible,’ said Larry Murphy, president of SalesTraq. Murphy said he’s especially wary of the amount of inventory sitting on the MLS. The service had 17,834 listings in December, a 33.3 percent increase over the number of listings posted in December 2005.”

“And Murphy’s research found that 44 percent of those homes for sale are vacant, likely because they’re investor-owned. ‘We still have a much-higher-than-normal number of investors holding vacant homes,’ Murphy said. ‘Prices could go down in 2007, and if we were going to ascribe one reason to (a decline), it would probably be the number of vacant listings.’”

The Arizona Republic. “More than 800 people registered for the Urban Land Institute’s real estate trends conference, going on today in downtown Phoenix.”

“One of the big questions on people’s minds is what’s next for Phoenix housing. A panel that included a top land broker and some building executives agree one one thing: There’s more pain ahead before the market bottoms.”

“‘What we saw (in the boom), we’ll never see again in our lifetimes,’ said Steve Hilton, CEO of Scottsdale-based Meritage Homes.”

“The consensus was that the new-home market, struggling to shake off the hangover of the 2004-05 housing frenzy, wouldn’t hit bottom until spring or summer as builders tried to get rid of unsold homes and adjusted their land inventories.”

“Boom-time increases in some parts of the area persuaded builders to load up on land and employees. Now, they are laying off people and either getting rid of land or revaluing it while looking for other ways to reduce costs in a time of falling sales.”

“‘All of the builders have done significant cutting,’ said Mark Upton, executive VP of Engle Homes parent TOUSA.”

“The greatly reduced number of new-home permits will hurt the construction side of the economy, affecting jobs, economists at the conference said.”

The Phoenix Business Journal. “Speaking at the conference Tuesday, Douglas Poutasse, chief investment strategist at AEW Capital Management LP out of Boston, and Elliott Pollack, president of Elliott D. Pollack & Co. in Scottsdale, said not only will it take awhile to whittle down an overabundant housing inventory, but affordability issues also could haunt the metro area.”

“‘In 2003 Phoenix housing affordability was equal to Dallas. Today Phoenix housing affordability is equal to Boston,’ Poutasse said.”

“A twist on the correcting single-family housing market, is that the construction industry could take a hit. Pollack said that for every 10,000 houses built, 15,000 direct and 17,000 indirect jobs are created. ‘The worst in the housing market is yet to occur,’ he said. As Poutasse put it, ‘We still have an awful lot of housing.’”

The Casa Grande Dispatch. “The debate on what is ‘affordable’ housing arose again Thursday night during the Planning and Zoning Commission’s regular monthly meeting when Ryland Homes came forward with a proposal to cut the sizes and construction costs of homes in part of the Carlton Commons subdivision.”

“When questioned, he put the possible price of the smallest home, 954 square feet on a 40-foot by 60-foot lot - at around $150,000. Affordable for Casa Grande, where wages are much lower than the Phoenix Valley? No one seems to know.”

“Less than five years ago, below $100,000 was considered ‘affordable’ in a new home being built in Casa Grande. You don’t find any today.”

“Ryland sees $150,000 for a house just a little bigger than an apartment as affordable. Other developers have come before the commission touting their ‘affordable’ housing in ranges of $170,000, $180,000, $185,000 (which that developer called ‘eminently affordable, we believe’) and $190,000.”

“A Casa Grande resident making $36,000 a year wanting to buy a $150,000 home on a 30-year loan at 6 percent interest, one mortgage calculator estimates, might qualify for a $95,000 loan. That assumes a very lowball minimum of monthly expenses in the example of $250 for a car payment and $110 for taxes and insurance. No calculation is made for possible points, loan costs and closing expenses, all of which would take away from the $95,000.”

“Another mortgage calculator shows the monthly payment on a 30-year, fixed-rate $150,000 mortgage at 6 percent being $899.33.”

“‘So this is going to be sort of like an apartment on steroids, right?’ asked commission Chairman Timothy Lee. ‘Because 954 square feet is an apartment, and the apartments right across the way there go all the way up to about 1,200 square feet.’”

“For Ryland Homes, it’s a matter of competition and a glut of new homes on the market in the same category as originally proposed for Carlton Commons. ‘The original square footages are very saturated in the market, according to our research. This would create an opportunity to move into a home,’ the spokesman said.”

“Other areas of town have empty homes in the higher ranges that aren’t being sold, Commission member Tina Cramp said, ’so I’m really hoping that you strongly look at that. I think that these will go very well in what we’re looking to accomplish as far as affordable, as long they are affordable according to Casa Grande standards,’ said Cramp.”

“‘Affordable housing isn’t $100,000 for the average family of four. It is not affordable, and so I’m not going to sit here and allow developers to tell me that this is affordable housing when they skinny something up, and then tell us that they’ve downgrading the materials and now we’re talking about affordable housing at $150,000. That’s ridiculous; it’s just simply ridiculous,’ Chairman Lee added, ‘Affordable to me is when Del Webb is giving $110,000 off a house in Phoenix. That’s affordable.’”

The Tribune reports from Colorado. “Foreclosures hit a record high in 2006. Weld County foreclosures hit 2,073 for 2006, more than 500 more than in 2005, according to the Public Trustee’s Office. And through the first three working days of 2007, 45 more foreclosures had been filed with that office.”

“‘We have a lot of investor buyers looking at our prices right now. There are some prices on single family homes I haven’t seen in six or seven years and I’ve been in this business in Greeley for 11 years,’ (realtor) Steve Baker said. Prices have decreased significantly in some cases, he added.”

The Mountain Mail. “The number of filings for foreclosure in Chaffee County increased 57 percent from 2005 to 2006, representing one foreclosure for every 152 pieces of commercial and residential property. Many foreclosures in the metro area are a result of risky adjustable rate mortgages, Kim Anderson, mortgage loan officer at High Country Bank, said, and when the adjustable rate increased, monthly payments doubled in some cases.”

The Denver Business Journal. “Tucker Hart Adams, a leading Colorado economist, continues to foresee a 75 percent chance of a Colorado recession in 2007; with a 40 percent chance of a severe recession, 30 percent chance of a ’soft landing’ and a 5 percent chance of disaster.”

“‘Although we do have speculation and overbuilding, particularly in the single-family market, we got on top of it more quickly than many other parts of the country. I’m very concerned about multi-family and townhouses; even though anybody who sells in that market will tell you that it’s dead in metro Denver, starts are still up almost 40 percent year-to-date,’ Adams said.”

The Denver Post. “Pressuring an appraiser to inflate a home’s value would become a crime under legislation unveiled Monday by Colorado Attorney General John Suthers. Submitting a falsified appraisal to get a loan would also be a crime under the bill.”

“Prosecutors need new laws to fight fraud and reduce foreclosures, Suthers said Monday. ‘Appraisal fraud is a big part of the problem we have,’ he said.”

“Reaction from the mortgage industry to Suthers’ proposals was mixed. ‘An inflated appraisal defrauds the funding lender. It can also be bad for the consumer,’ said Chris Holbert, president of the Colorado Mortgage Lenders Association. ‘We are very supportive of the bill.’”

“But Bill Kidwell, president-elect of the Colorado Association of Mortgage Brokers, said there is not enough evidence of a link between appraisal fraud and deceptive trade practices to mortgage brokers. ‘We firmly believe that significantly more research needs to be conducted before additional legislation is even considered,’ Kidwell said.”

“Appraisal fraud typically occurs when an appraiser assigns an inflated value to a home. In some cases, the inflated value allows the appraiser, mortgage broker and real-estate agent to make more money on a completed deal. When borrowers are unable to sell or refinance the inflated property, foreclosure can result.”

“In cases of refinancing, the borrower may benefit initially from an inflated value but owe more than the home is worth.”

“Corrupt appraisers have been too willing to provide whatever value is needed to get a deal done, taking business from ethical providers, said Matt George, vice president of the Colorado chapter of the Appraisal Institute.”

“‘There are a lot of good friends of mine who are not appraising anymore because they lost business by doing what was right,’ George said.”

The Rocky Mountain News. “‘Just as homeownership is the American dream, mortgage and foreclosure fraud has become an American nightmare,’ Suthers said at a news conference. Last year, a record 19,425 real estate foreclosures were filed in the seven-county Denver area.”

“Chris Holbert, president of the Colorado Mortgage Lenders Association, praised the proposal. ‘One of the best aspects (of this bill) is that it includes everyone who would be involved in real estate fraud - it’s not just about mortgage brokers or loan originators, but includes real estate agents and consumers,’ Holbert said.”

“The Division of Real Estate will have the authority to deny or revoke the registration of a mortgage broker who has been prohibited by any court from engaging in deceptive conduct related to the industry. Prohibits mortgage brokers from compensating, coercing or intimidating a real estate appraiser to get an artificially inflated appraisal.”

“(It) will prohibit anyone else, including Realtors, other brokers, lenders, investors or consumers, from improperly influencing an appraiser and prohibits an appraiser from knowingly submitting a false appraisal.”

CNN Money reports from Florida. “Jonas Lee’s doing the most critical part of his job: scoping out homes for his investment firm, Redbrick Partners, to add to its growing stable of rental properties. Lee is doing more drive-bys than ever these days. A handful of housing markets, such as southern Florida and certain neighborhoods of Washington, D.C., are wildly overbuilt.”

“Prices are dropping. And developers who raced to build new houses and condos during the boom are likely to soon be begging for buyers. ‘There’s going to be blood in the water,’ Lee says. ‘A big pileup.”

“No region has Lee more bullish than southern Florida where, as Redbrick co-founder Tom Skinner puts it, the near-term fundamentals are ‘out of whack.’ Lee predicts that buying opportunities will begin in early 2007. ‘The next couple of years will be ugly,’ Lee says, optimistically.”

“Lee says developers are offering condos in the region at 20 percent below appraisal value. Redbrick expects the discount to grow to 40 percent because developers lose money every day they own a property.”

From Bloomberg. “Buyers canceled contracts to purchase homes at a record pace in the second half of 2006, swelling builders’ inventories. That means buyers like David and Wendy Butler of Orlando, Florida, are able to purchase an already-completed new home at a discount.”

“The Butlers are purchasing a four-bedroom, 3,700-square-foot house in Orlando built by Ashton Woods USA LLC for $545,000. ‘People were saying the average homes in this neighborhood would be $1 million-plus, but there’s so many homes on the market the prices have been tumbling,’ said David Butler.”

“The high volume of completed homes for sale may result in a later start to the so-called spring-selling season’ because buyers have the option to choose a completed home rather than order one to be built. And, the completed new homes may offer price bargains, said Gary Balanoff, a broker in Oviedo, Florida, 18 miles southeast of Orlando.”

“‘We find that people are canceling contracts because they found a better deal,’ Balanoff said. ‘People figure they can get the same house for $30,000 less.’”

The News Press. “Expect Lee County’s housing prices to stay soft for another 12 to 15 months before the market turns around, consultant Michael Timmerman told the Real Estate Investment Society.”

“‘We will have more sales in 2007, I will guarantee you that,’ said Timmerman, Naples-based managing director for Florida at Hanley Wood, a national company that collects and analyzes data for home builders. ‘But it will come at the sacrifice of price.’”

“A lot of investors who own houses and are trying to get rid of them will likely decide to cut prices deeply after the winter season if they still haven’t been able to sell, he said. ‘They can’t afford to hold it.’”

“Prices have fallen steeply: according to the Florida Association of Realtors, the median price of an existing home sale was $258,600, down 12 percent from a year earlier.”

“Economist Hank Fishkind and Timmerman said the market will be toughest for the mid-range homes that were heavily speculated by investors as prices rose sharply in 2004 and 2005. ‘It’s the standard homes in Cape Coral and Fort Myers that have seen rapid escalation that are the most likely,’ Fishkind said. ‘I think that is the place where we’ll see the most falloff in price.’”

“Timmerman said the sales are weak in the middle — which makes up most of the unsold inventory of 14,000 houses.”

From the Ledger. “Two years ago, Polk’s County’s real estate market was a seller’s dream. Then along came 2006. ‘I think what happened was that we underestimated the number of speculators in the market,’ said Dean Saunders,broker in Lakeland.”

“Speculators, buyers who have no intention of living in a home or keeping a property for a substantial amount of time, purchased property throughout the state, causing a frenzy in both commercial and residential real estate circles.”

“It meant skyrocketing prices and overbuilding of properties. For the market to make a full rebound, home inventories need to be cleared out, experts say. ‘It is all going to be dependant on the absorption rate,’ said Grant Thrall, a professor of geography at University of Florida, referring to the existing home inventories in Polk. ‘There’s not a lot of new construction going on.’”

WILX reports from Michigan. “If you’re looking to buy a home, now’s the time to do so. There are more than 4,100 homes on the market in the greater Lansing area. ‘I think the decline that we’ve seen is not going to occur,’ said Tomie Raines Realty President Debbie D’Valentine.”

“It can’t get much worse after the Lansing area witnessed a 20 percent drop in sales last year. More than 7,000 were sold in 2005 compared to just 5,600 in 2006.”

“While sales volume may have fallen, prices did not. The constant prices haven’t helped those like Deborah Frederick who’s currently paying two mortgages. ‘It’s going to get old very fast,’ she said.”

“Frederick and her husband put their Lansing home on the market last June to buy a condo. More than 6 months later, it’s still unsold. ‘I was just really shocked the first time we had an open house,’ she said. ‘I thought a lot of people would show up and there wasn’t.’”

The Detroit News from Michigan. “In a sign of just how low Metro Detroit’s economy has fallen, one of the nation’s largest home foreclosure auction specialists will hold its biggest single-city sale Saturday. More than 300 Detroit homes, all of them repossessed by mortgage lenders, will be sold in a two-day auction. The homes are valued at $5,000 to $300,000.”

“Detroit agent Kimberly Simpson said the popularity of risky adjustable rate mortgages is the primary cause for the foreclosures. ‘People are getting their ARMs broken,’ she said. ‘That’s the major part of it. It’s killing the market.’”

“In November, Detroit had the nation’s second highest foreclosure rate, with 3,333 properties. It’s a grim picture Simpson doesn’t expect to change soon. ‘It’s going to be a buyer’s market for a very long time,’ she said. ‘I don’t see it getting any better.’”

The Star Tribune from Minnesota. “Last year was the worst in almost a decade for Twin Cities-area home builders and developers. The rising number of unsold homes built during 2005 forced builders to dramatically slash the number of homes they could build during 2006, said Betty Hardle of Residential Research in Minneapolis.”

“‘In 2005, most builders should have been slowing down and only building sold houses, but quite a few didn’t,’ Hardle said.”

“During 2006, builders were issued 7,325 permits to build 12,644 new units. The market clearly is in the midst of a long-awaited correction after peaking in 2003, the year a record 19,000 units were built. Nearly half of those new units were condominiums and townhouses.”

“When interest rates started rising in early 2004, demand drooped, leaving builders and developers with deep inventories of unsold homes. They now include a glut of new condominiums in Minneapolis, which last year issued enough permits for more than twice as many units as Woodbury.”

“In the Twin Cities, builders and developers are scaling back or abandoning plans for new projects. Brighton Development, for example, passed on its plans for a condominium project in the Mississippi River Mill District. And during the coming year, it’s likely that at least a couple of announced downtown condo projects may be scaled back or scrapped as the market absorbs inventory, said Tom Melchior, multi-family real estate analyst.”

“Colleen Carey, president of the Cornerstone Group in Edina, said she, too, has embraced a much more conservative approach. The company has canceled plans for two metro-area condominium projects (and) has reduced the size of the company’s staff.”

“‘I believe that now is a time for planning our next move, rather than executing it,’ Carey said. ‘I think this is a part of a cycle and it will pick up; no one knows the magic moment when things will take off again.’”

The Pioneer Press from Minnesota. “Developers have dropped their plans for a downtown St. Paul indoor farmers’ market topped with condos because of the housing slowdown. Now, a former city official is stepping in with his own proposal.”

“Brian Sweeney plans to ask the city’s Housing and Redevelopment Authority on Wednesday for development rights and the land to build a five-story building that will feature four floors of condos.”

“Despite the glut of condos for sale, Sweeney believes he can make a go of the $13.5 million project by offering smaller units at prices between $159,000 to $259,000. ‘We want to be very sensitive to this softer market and at the same time move this forward,’ Sweeney said.”

“Developers Michael Lander and George Sherman started to feel uncomfortable last year putting up more condos when they still have other units for sale, Lander said. The decision by Lander and Sherman to walk away from the project comes amid a slowing housing market. Twin Cities home sales fell 23 percent in November from a year earlier in the 13-county metro area and median selling prices had slipped slightly as well.”

The Journal Sentinel from Wisconsin, “The city of Milwaukee’s torrid home-building pace slackened in 2006 but not as dramatically as that of its outstate neighbors. The Milwaukee Department of City Development reported Friday that volume is 22% below that of 2005, but it beats the 36% plunge in statewide home building.”

“Milwaukee Mayor Tom Barrett said, 2006 culminated a seven-year, $830.9 million downtown residential construction boom that sets the stage for job growth. ‘It’s the city’s renaissance,’ Barrett said. ‘All you have to do is look at our skyline, at the number of cranes and booms out there. People are interested in staying in or moving to the city. Now, companies are saying, ‘We want to be in the city because more of our employees live here.’”

“‘There’s plenty of activity, and I’m excited about what’s still coming,’ said Bruce Johnson, president of the Metropolitan Builders Association of Greater Milwaukee. ‘You hear this skepticism once in a while, along the lines of, ‘Where are all these people coming from?’ Well, maybe they don’t appreciate how many baby boomers are becoming empty-nesters and moving into condos here.’”

“City Development Commissioner Rocky Marcoux sums up the city’s housing fortunes as ‘fabulous.’ Years ago, he said, ‘all the stories were about how the metro area was doing better, and the city was the exception. Now, metro statistics about the downturn don’t apply to us.’”

From GM Today in Wisconsin. “While the real estate market has been in the midst of some great upheavals in the coastal areas of the nation, local industry sources say the housing market in Ozaukee County has been somewhat more stable.”

“‘There has been quite a bit of appreciation in the last few years, and we’re probably just getting back to an even keel,’ said Marie Kaysen, president of the Ozaukee Realtor’s Association.”

“As for the influx of homes on the market, Kaysen points to a number of reasons. One factor is the change in employment from some of the larger businesses in the area. Another is the uprise in residential subdivisions, many of which are just getting off the ground. ‘The Midwest has weathered changes in housing before, and the real estate market is just going through one of its cycles,’ Kaysen added.”

“Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, said while home sales really peaked in 2005, he predicts sales to go back on the rise. ‘Because (the market in) 2005 was flooded, the prices became flat in 2006 in comparison,’ Ruzicka said. ‘A lot of home sellers didn’t want the appreciation on their home to come down, so they put their homes on the market.’”

“‘Perhaps they won’t be at the levels of 2003-04 when all the stars were lined up with low interest rates and good demographics,’ said Matt Moroney, executive director of the Metropolitan Builders Association. ‘Speculative (building) results in extra inventory. A lot of homes were built when the interest rate was 5.25 percent. Then when it edged up to 6.5 percent, things slowed down.’”

“‘There clearly was a real estate slowdown that started in the last quarter of 2005, but most of the slowdown has been in the speculative market,’ said Jeff Larson, president of Grafton State Bank.”

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