The Housing Bubble

It’s Friday desk clearing time for this blogger. From New York, “On the housing front, those properties priced below a million dollars were down last year by 5 percent from August 2005 highs, said Chris Chapin, a broker in East Hampton. ‘The hardest-hit range was from $1 million to $4 million, north of the highway, away from water, and outside any village.’”

“‘Properties in this price and geographic area went into contract, in some cases, at 25 to 30 percent less than what they might have sold for in August 2005,’ said Mr. Chapin. ‘In the summer and early autumn, these sellers were dropping asking prices hundreds of thousands of dollars at a time. Every day, the reductions would come in over the fax machine.’”

From Hawaii. “Both the total sales and prices of homes on Kauai and the Big Island dropped in the last month of last year. On the Big Island, the median home price dropped 18 percent to $353,500 from December 2005. ‘It’s changed from a seller’s market to a buyer’s market,’ said broker Debra Blachowiak. ‘Buyers are feeling more in control, and offering lower prices than sellers are accepting.’”

“On Kauai the median price of a home was $605,000. At the market’s height of summer 2005, Blachowiak recalls the median sales price on Kauai reached close to $700,000.”

“The condo market is sensitive. Sometimes rich vacationers pick up one or two or three when the market seems hot. Now that it’s not so hot, ‘they’re offloading,’ says Terry Tolman, executive staff director of the Realtors Association of Maui.”

“That can be seen in Kihei, where more modestly priced condos have stopped selling. Kihei median condo prices have slipped $50,000 from the last quarter of 2005 to the last quarter of 2006, and the number of sales this year – 396 – is down by more than half.”

“Home sales across Maryland dropped for the 15th straight month in December amid a sea of listings. Many areas reported steeper year-over-year sales declines in December than they did in November, including: Prince George’s County, down 31.8 percent from a year ago; Baltimore, down 20.4 percent; Frederick County, down 29.5 percent; and Anne Arundel County, down 10.7 percent.”

“Despite the month-to-month drop in active listings, there were still 47 percent more homes for sale on the market last month than there were a year ago.”

From Ohio. “The slow-down in the housing market experienced in 2006 has led organizers of the annual Homearama show to cancel this year’s event. High levels of unsold homes remain on the market, said Tim Franck, of the Home Builders Association of Dayton and the Miami Valley. ‘Because of the amount of inventory available on the market, builders are not interested in building additional spec homes right now,’ he said.”

The United Kingdom. “Landlords are flooding the housing market at a time when rental returns are falling, according to research. Many regard a buy-to-let property as their pension and may not invest in a separate retirement fund. Experts again warn this could be a mistake if the property market falls.”

“The number of buy-to-let mortgages has soared to a high of nearly 770,000, according to the Council of Mortgage Lenders. In 2000 there were just 90,000.”

“In the whirlwind of money, land and new housing developments, it was easy last year to get caught up in Egypt’s three-year-old real-estate boom. Some analysts have cautioned that a real estate bubble is building, warning that there is a glut of stock and that prices are starting to lose touch with reality. Others, however, point to prices and market dynamics in Dubai and claim that the bubble is far from bursting.”

From Arkansas. “A five-year bull run in area residential home construction and record real estate prices hit a wall in late August. ‘It just amazes me that with all the solid data available to bankers and builders related to supply and demand that banks are still willing to loan and builders are still building. It will hit a wall,’ said John Dominick, finance professor at the University of Arkansas.”

“The numbers continued to look good for Southern Oregon in 2006, despite real estate and residential construction softening, U.S. Bank economist John Mitchell said Monday. ‘Three years ago, how long did it take to sell a house — a nanosecond,’ Mitchell said. ‘Why, because the prices were going to rise. You had to buy then, because it might not be available tomorrow. Now, it might be cheaper tomorrow. I think it’s going to be something we tell our grandchildren about. I don’t think we’re going to see that kind of market soon.’”

From Utah. “Historic downtown Provo can do much more than get its groove back, according to a market analysis. There’s room, and demand, for more downtown condominiums. ‘There is an empty-nester movement that is interested in downtown-type environments generally and Provo specifically,’ ERA VP Steven Spickard said.”

“An urban living center is an option that is becoming necessary, said Kevin Call, VP of the Utah County Association of Realtors. ‘Given where our cities are now, I think it’s needed. We’re running out of developable land,’ he said.”

From Arizona. “The Flagstaff housing frenzy is a distant memory. A slew of condos and townhomes flooded the market in 2006, Realtor Stephen Brighton said, producing more than a year’s worth of inventory. According to the Northern Arizona Association of Realtors’ MLS, there are roughly 282 condos and townhomes listed for sale in the greater Flagstaff area.”

“‘It is an excessive supply,’ said Brighton. ‘and they have come online in a down market.’”

“Leah Waggoner said she is excited at the fierce competition between motivated sellers. ‘It is exciting to watch the prices fall by $10,000 in a week,’ Waggoner said.”

“Waggoner said she was surprised to tour more than a dozen empty homes in the last few weeks, all seemingly waiting for a new owner.”

The Sacramento Bee reports from California. “After weathering one of their toughest periods in a decade, Sacramento-area home builders closed 2006 with a bang, boosting year-over-year quarterly sales of new homes for the first time since 2004 with steep price cuts and giveaways that often totaled as much as $150,000 per house.”

“But even as builders celebrate a strong finish, 2006 still saw the fewest new home sales since 1998 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. Builders sold 9,588 single-family homes and condominiums during the year,- 4,500 fewer than in 2005.”

“Placer County showed the quarter’s biggest year-over-year sales gains as builders cut prices and offered huge incentives at large master-planned communities in Lincoln, Roseville and Rocklin. In Roseville, for example, fourth-quarter sales prices fell 11.3 percent from the same time in 2005.”

“In contrast, Sutter and Yuba counties saw the region’s biggest fourth-quarter declines in sales. Both felt the brunt of builder price cuts and incentives in Sacramento’s urban core, Paquin said. ‘If Lincoln and Natomas and West Sacramento are responding with appropriate pricing levels, buyers are going to go there instead of further out,’ said Gregory Group President Greg Paquin.”

“Barry Grant, Sacramento-based president of KB Home’s North Bay territory, acknowledged the tougher sales climate in Sutter and Yuba counties. ‘You have to price aggressively there to make it a compelling deal for the buyers,’ he said.”

“Construction has stopped on downtown Sacramento’s most ambitious development project ever, two 53-story condominium and hotel towers planned for the foot of Capitol Mall.”

“In a sign of developer John Saca’s ongoing financial struggle to build his skyscrapers, several contractors filed liens against him in the past week for unpaid bills totaling $7.3 million for such items as architectural work and pile driving.”

“Eric Rasmusson, a spokesman for Saca, called the work stoppage ‘a short temporary regroup’ while the developer tries to reconstruct a workable budget and secure his construction financing.”

“‘We want them to follow through with their commitment and their investment on that site,’ said said John Dangberg, the city’s assistant city manager for economic development. ‘This is a very important project to the city of Sacramento, particularly since a building has been torn down and there are piles in the ground. We want it to proceed, and we think it will proceed. We’re not interested in having a hole at the gateway to the Capitol Mall.’”

The Orange County Register. “Production in California’s manufacturing sector declined in the fourth quarter, according to a survey of purchasing managers by Chapman University that was released Thursday.”

“The survey’s production index fell to 47.5 in the fourth quarter from 63.6 in the third quarter. A reading under 50 indicates a contraction. It’s the first time production has fallen since the survey began in 2002, Chapman said.”

“Raymond Sfeir, a professor of economics at Chapman, said the drop was tied to a decrease in housing construction in California. Manufacturing of wood products, furniture and metal products were hurt, he said.”

The Daily Breeze. “House flipping in California last year declined to its lowest level since 2003 as speculators retreated from a market in which sales plunged and prices flattened, a market tracker said Thursday. Homes owned for six months or less accounted for just 3.2 percent of resales last year, down from 4.2 percent in 2005 and 3.6 percent in 2004.”

“‘What’s happened now is the flipping activity is just reflective of today’s real estate climate,’ said Steve Morgan, the company’s VP. ‘Investors, if they can, have adopted a buy and hold strategy until prices come back up.’”

“And if prices don’t start rising, some owners will be forced to sell and cut their losses, he said.”

“Speculative buying and selling of homes contributes to market volatility and risk, all part of that bubble theory people were talking about. Lending institutions measure risk and volatility, homeowners and buyers would also do well to keep an eye on them in addition to watching the ups and downs of their local prices and sales,’ Mike Ela, the company’s president, said.”

“When factoring in commissions and costs, 24.9 percent of the last year’s flip sales resulted in a loss for the seller, the highest percentage since 25.2 percent during 2002. If there were improvement costs, profit would be lower.”

“As the market has cooled off, particularly in terms of prices, the investors have become increasingly wary about buying investment homes,” said Nima Nattagh, an independent market analyst.

The Press Enterprise. “The California community with the greatest amount of flipping as a percentage of sales was Corona at 12.9 percent. San Jacinto came in third at 12.2 percent, trailing Playa Vista at 12.3 percent.”

“Bruce Norris, president of a Riverside-based real estate investment company, said flipping homes for profit is much riskier now than a year ago and requires more knowledge and research. ‘You have to buy at a greater discount to make sure you realize a profit,’ Norris said.”

“He predicted that over the next five years, more of the prime properties for flipping will be lender-owned properties in foreclosure, as households who bought homes with adjustable-rate mortgages can no longer afford their mortgage payments.”

The Star Telegram reports from Texas. “New-home starts and sales fell sharply in North Texas in the fourth quarter, as builders adjusted to the slowing market. Builders are cutting back building new homes and selling land they have stockpiled, analysts said.”

“‘We have the most new-home builder inventory that we have ever seen in the market, and we have ample existing-home supply, and we have foreclosures,’ said Ted Wilson, principal at a Dallas-based housing-tracking service.”

“Wilson said the cancellation rate has risen as well. The percentage of failed contracts has jumped to 35 percent from 25 percent, Wilson said. He cited three factors: credit problems, investor walkaways and the inability of potential buyers to sell their existing homes.”

“Home buyers should continue to see lots of incentives as they shop for new homes, Wilson said. ‘It’s tough right now. A lot of builders are not making a lot of money,’”

The Dallas Morning News. “Local homebuilders have gotten the message about the housing slowdown, sharply cutting construction during the final months of 2006. Single-family home starts in the Dallas-Fort Worth area dropped more than 17 percent during the fourth quarter.”

“With 9,629 units, it was the weakest quarter for housing starts in two years. Sales of new homes in the fourth quarter also dropped about 4 percent compared with a year earlier. With almost 12,000 unsold new houses on the market in North Texas, don’t be surprised to see further declines in construction, said Ted Wilson.”

“‘The builders have continued to back off starts,’ Mr. Wilson said. ‘Everybody is taking a good, hard look at the business.’”

“Don’t be surprised if housing starts in the D-FW area are more restrained this year. That’s because builders overdid it early in 2006. The problem is even worse on the West Coast and in Florida.”

“‘A lot of big builders are having severe problems in other parts of the country,’ Mr. Wilson said. ‘On a weekly basis, I’m hearing about layoffs around town in the industry.’”

“‘It’s definitely an adjustment that any prudent builder is going to make for the market conditions,’ said T.W. Bailey, president of the Home Builders Association of Greater Dallas.”

“Some buyers are bailing out of purchases, Mr. Bailey said. ‘We are seeing some cancellation orders from people who made a commitment and see a change in their income and future,’ he said.”

“The fourth-quarter decline in new home sales mirrors the fall-off in sales of preowned homes in North Texas. Earlier this week, the North Texas Real Estate Information System reported that preowned home sales in December were down 5 percent from a year earlier.”

“December was the seventh consecutive month of lower pre-owned home sales in North Texas. It was the fourth consecutive month that home prices were down from the previous year. Some of the largest sales declines in 2006 were centered in homes priced under $150,000, where buyers were affected more by higher mortgage rates.”

“Industry analysts say it’s too early to tell whether 2007 will be a better year for the housing market. ‘January and February will probably still have some decline – normal cyclicality,’ said Jim Gaines, an economist with Texas A&M University. ‘By March and April, expect an uptick. If not, Dallas may have a rough 2007.’”

“At the end of December, 41,598 pre-owned single-family homes were on the market in North Texas, 9 percent more than a year earlier.”

The Austin Business Journal. “Ken Simonson, chief economist with the Associated General Contractors of America, warns that in Austin, which is still in the throes of a condo project boom, some of the for-sale units being built will eventually end up being offered as rental units. ‘I do expect some increase in rental construction and conversion,’ he says.”

“Nationwide, Simonson says there has been a falloff in investor interest in single-family homes and condo units. ‘Those buyers have all but disappeared to a great extent and a lot of projects are hanging out there unsold,’ he says.”

The Express News. “San Antonio real estate had a jaw-dropping year in 2006, with San Antonio builders starting more homes than there are residents in Alamo Heights, Boerne, Castroville and Lytle combined. Builders started 19,092 new single-family homes, 15 percent more than in 2005, according to Metrostudy.”

“It marked the sixth consecutive year of record-breaking building. The exuberant building pace and shocking statistics are unlikely to make repeat appearances this year, however. San Antonio housing has seen a significant shift, and the market for new and existing homes isn’t as strong as it was at this time last year, said Jack Inselmann, a new-housing analyst with Metrostudy.”

“Home-buyer traffic has slowed in new neighborhoods and builders are having a harder time closing sales, a change many builders started noticing during the summer. ‘The housing bubble has burst, right?’ Inselmann said. ‘All is lost, right? Absolutely not.’”

“Out-of-town investors created an artificial market when they made down payments on homes and then canceled their contracts when they figured out they would be able to flip a property for a double-digit gain. ‘It’s probably the worst thing that affected our market this year,’ Inselmann said. ‘I think we’ve gotten most of those people out of here.’”

“San Antonio real estate has been on an upward trend since 1990, when builders started just 2,000 homes. ‘This market is on a 17-year run,’ Inselmann said. ‘Ladies and gentlemen, it can’t go on forever. We came close to making an error in our housing market.’”

TC Palm reports from Florida. “Don’t expect the Treasure Coast real estate market to make any positive strides until 2009. That’s according to a new report by (exonomist) Hank Fishkind. ‘It’s going to take some time to absorb the inventory levels in the residential market,’ Fishkind said. ‘Residential housing prices rise like rockets and drop like feathers.’”

“‘I can tell you that sales have slowed in our area because of rising inventory, so it will take a while for things to settle down here,’ said Sherry Wetzel, president of the Realtors Association of St. Lucie County. ‘We do have about 3,500 homes for sale at the moment, but I don’t think that it will take until 2009 for things to recover.’”

“Overall, Fishkind said the Treasure Coast real estate market is still doing better than other parts of the county. ‘It’s not all crashing, we’re not seeing an overall market deterioration.’ Fishkind said.”

From Business First. “M/I Homes Inc. warned investors Thursday of a drop in sales in the fourth quarter and for the year, with its Florida market suffering the most from the depressed housing market. The builder saw new contracts in Florida fall 60.2 percent to 640, from 1,609 new contracts signed in 2005.”

The Orlando Sentinel. “Orlando’s hot housing market lost much of its spark in the second half of 2006. The number of homes for sale in December dipped below 20,000 properties for the first time since July, to 19,537 listings. But that still represented a more than 11-month supply at the recent, more sluggish sales pace.”

“‘There’s just a lot more supply than demand out there,’ said William Weaver, a University of Central Florida finance professor and real-estate specialist. ‘Basic economics 101 tells you that prices are going to get softer.’”

“Weaver warned that, even with lower interest rates, many home buyers who bought at or near the market’s peak in 2004 or 2005 using ‘various exotic mortgages’ and adjustable loans with low ‘teaser rates’ will be trying to sell in the weaker market.”

“Many mortgages will be adjusting upward, pushing the monthly carrying costs out of reach for some. ‘Those folks are going to be in trouble,’ he said.”

The News Journal. “Although 2006 was its third-best sales year in history, the Pensacola Association of Realtors is going on the offensive to stimulate more housing sales. The 2,350-member group launched a major advertising campaign Thursday centered on a simple message: It’s a good time to buy a home.”

“‘Interest rates are down, and the inventory of homes for sale is very good,’ said Doug Gooch, the newly installed president of the association.”

“Gooch said even if the Florida Legislature cannot find a way to lower taxes and insurance rates, the economic advantages of owning a home still make sense.”

The Herald Tribune. “This will probably not come as a major surprise: The Sarasota Association of Realtors thinks it is time to buy. Many of the group’s 4,200 members experienced a tough 2006.”

“The ‘Time2Buy’ effort is the first large-scale marketing campaign in the association’s history, said Kathy Roberts, SAR’s chief executive. Expect to see Realtors wearing ‘Time2Buy’ buttons. Also expect to see advertisements in magazines, Web sites, newspapers, billboards, television, radio and at Sarasota-Bradenton International Airport.”

“‘If you have missed an earlier opportunity to purchase a home, now is the time to take advantage of low interest rates, stabilizing home prices and a plentiful inventory of homes,’ Roberts said in a statement. ‘We are discovering that savvy buyers are finding sellers to be more flexible in their pricing than perhaps anytime in the past three years.’”

“(Realtor) John Allen contends that ‘the campaign will focus on information that has not been reported in the mainstream media.’ There is a good selection of high quality inventory of condos and homes. Tens of thousands of baby boomers will be added to the area over the next 25 years.”

The Sun Sentinel. “For the first time in 30 years, United Van Lines Inc. says it moved more people out of Florida than in, and analysts see that as a sign that consumers are looking elsewhere for a cheaper slice of life.”

“The nation’s largest moving company reported 16,212 inbound shipments to Florida last year and 17,019 outbound shipments.”

“The housing boom brought more people to the Sunshine State at the start of the decade, but the run-up in home values during the past five years sent property-tax rates soaring. Many residents now say they can’t afford to move elsewhere in Florida because of the huge hit they’d take on taxes.”

“What’s more, busy hurricane seasons in 2004 and 2005 led to massive rate hikes from the state’s largest home insurance companies. ‘It all just pushed us past the breaking point,’ David Levin, a Delray Beach-based housing consultant, said.”

“A couple of years ago, Paul Mount and his wife moved from Wellington (to) a log-cabin home on two acres near Chattanooga. In Wellington, their property taxes were $9,300 a year; their tax bill in Tennessee is $1,100.”

“‘We just got tired of it,’ said Mount. ‘Everything is financial. The state of Florida is just going crazy.’”

“As Floridians struggle with housing affordability and wages that have not kept pace with the cost of living, other states are aggressively trying to capture the Northeast migration that Florida once relied on for its growth, said Levin.”

“‘People move to where their well-being is going to be the greatest,’ said Grant Thrall, a professor of business geography at the University of Florida. ‘Many people find the urban-built environment of Florida totally disgusting.’”

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