The Housing Bubble

A housing report from California. “Bay Area home prices were flat last month while the sales pace was the slowest pace in a decade. A total of 7,488 new and resale houses and condos sold in the Bay Area last month. That was down 19.9 percent from 9,347 for December last year, according to DataQuick.”

“Sales have declined on a year-over-year basis the last 21 months. Last month’s sales count was the lowest for any December since 1996 when 7,180 homes were sold.”

From NBC San Diego. “The pace of home sales in a six-county region of Southern California slowed in December to an 11-year low for the month, as home prices fell in San Diego and Ventura counties, a real estate research firm said.”

“Los Angeles County ‘has been a bit stronger than anticipated, but we still expect…sometime later this year, the year-over-year numbers are going to start to go negative,’ DataQuick analyst John Karevoll said. ‘The Inland Empire is just ahead of their peak, and I think prices will be probably coming down,’ Karevoll said.”

The Orange County Register. “DataQuick reports that the median price of all residences sold, new and old, in December was $642,000, the county’s second highest behind only June’s $646,000.”

“Why should this seemingly out-of-season month seem so strong? Well, as almost any year ends, NUMEROUS builders usually rush to sell more new homes before the books close on their fiscal year. Unlike an individual, builders have bosses or shareholders to report to, and those folks like to see product moving.”

“Last month, for example, new homes, typically the market’s priciest houses, were 20 percent of all Orange County sales vs. 13 percent in 2006’s first 11 months.”

“We’re not alone. In Southern California’s six big counties, new homes were 27.5 percent of the December market vs. 22 percent the rest of the year. That’s a key reason why the six-county median price hit a record $495,000 in December.”

“Builders may be moving houses, but they do so at a somewhat hidden price. DataQuick’s results do not recognize any of the many discounts that don’t show up in the sales prices, such as buy-downs of mortgage rates or free extras or upgrades within a home.”

“December’s count of Orange County residences of all stripes sold was off 29 percent vs. the last month of 2005. When you add up 2006, you see sales down 27 percent. Last year was the slowest selling year since 1995.”

“Numerous visitors to this blog have wanted to see what O.C. home prices did when measured by cost per square foot. The square-foot measure has been down for the past two months, the first drops in a decade. Square-foot costs were down 4.3 percent year over year in December.”

“‘It took four months to sell Manmeet Nijjar’s five-bedroom home in Orange, and he ended up taking $100,000 less than his original asking price. He listed his home for $975,000, without any nibbles. ‘People had a lot of choices. They were overwhelmed, I think.’”

“Finally, he dropped the price to $950,000. Two weeks later, he got an offer for $850,000. He ended up settling for $875,000. ‘I felt it was better to take a lower offer than to rent it,’ he said.”

“Lenders increased their consumer warnings in the final months of 2006 to Orange County homeowners who fell behind on mortgage payments. They sent 688 notices of default in December, marking the fifth consecutive monthly increase in such notices, DataQuick reported.”

“Foreclosure totals also rose more or less steadily in the second half of 2006. For the full year they totaled 647, more than quadruple the 2005 total.”

The Union Tribune. “Residential foreclosure activity in San Diego County rose sharply in 2006, DataQuick reported. There were 1,612 foreclosures last year, compared with 212 in 2005, a jump of 660 percent. Notices of default, the first stage in the foreclosure process, totaled 8,816 during the year, compared with 3,933 in 2005, an increase of 124 percent, said DataQuick analyst John Karevoll.”

“The county’s housing market ‘is precarious in a way it was not five or 10 years ago,’ Karevoll added. ‘It could get bumped out of whack with much smaller movements in the broader economy. It is very stretched.’”

The Desert Sun. “Some Coachella Valley buyers are convinced they have the upper hand in a market where home inventories are high. So they’re not shy about making offers well below asking prices.”

“What’s happening is buyers are coming in with some low offers and not getting them accepted, said agent Terri Munselle. ‘It’s a stalemate right now in some cases. Sellers are holding out all across the board, partly because it’s so early in the season. The sellers really believe they have February and March to test the waters.’”

“Still others in a pinch to sell because they’re having another home built or for another reason are slashing prices to attract deal-seeking buyers.”

“‘On the upper, high end, prices are staying up there,’ said agent Kim Hyde. ‘But at $1 million and below, I see a lot of people negotiating.’”

“With nearly 8,300 homes on the market in the valley in mid-December, the competition often translates into some pretty good deals for buyers, real estate agents said. ‘The mid-range is still awfully stagnant, and that is where the bulk of the inventory is,’ Munselle said.”

The Ventura County Star. “Ventura and San Diego counties saw another slide in year-over-year home prices…Ventura County’s median of $593,000 was down 5.9 percent from $630,000 the previous year.”

“Mark Schniepp, executive director for the California Economic Forecast, said there’s usually no worry when a housing market that has seen increases at breakneck speed starts to slow. In fact, it could help the economy.”‘

“Though a slowdown in housing that leads to lower home prices affects real estate agents, lenders and others involved in the residential market, it wouldn’t necessarily affect other sectors of the economy and could actually be healthy for the market, Schniepp said.”

“‘A housing sector which cools off and somehow makes housing more affordable is a benefit to the work force,’ he said. ‘It would actually be a welcomed event, providing it would occur without chaos.’”

The Denver Post reports from Colorado. “Colorado regained the nation’s top foreclosure rate in December. ‘That’s a matter of concern, particularly since we haven’t had the appreciation in home prices that Nevada has had or the amount of speculative buying,’ said Tucker Hart Adams, a regional economist with U.S. Bank. ‘I don’t think we’re anywhere close to the end of it.’”

“The number of homes sold at foreclosure auctions has been rising each week, said Jeannie Reeser, Adams County’s public trustee. ‘We had over 200 last week, and we’re going to have a whole bunch again this week,’ she said.”

“Shawna Stieber, a broker who specializes in Adams and Weld counties, blames lenders for the high foreclosure rates there. ‘I constantly have people come to me and say the max they can afford is $1,000 a month,’ she said. ‘Then they go to the lender who says, ‘If you change your exemption and do this and do that, you can afford a $180,000 house.’ There’s a big difference between a $100,000 house and a $180,000 house.’”

“Foreclosures and overbuilding the market are taking their toll on existing- home prices, said Dave Babb, a broker who specializes in the north metro area. ‘They’re impacted by foreclosures, but they’re also impacted by new housing,’ he said. ‘Builders are discounting spec homes tremendously.’”

“Northern Colorado’s economy has rested on a foundation of strong construction spending since the early 1990s. That foundation could be sinking.”

“Forecasts from Colorado State University call for 6,100 new jobs in the region this year, which would represent a 2.8 percent gain from November’s payroll count of 216,800 jobs. But that may not be enough to shore up an overbuilt real-estate market, observers told an audience.”

“Construction activity in northern Colorado suffered a significant downturn in the fourth quarter, pointing to tougher times ahead for the region, said regional economist John Green. ‘If construction drives our economy, we need to be nervous,’ Green told (the) audience.”

“‘The northern Colorado real- estate market has generally too much supply in nearly every category,’ said Rocky Scott, president of a 3,000-acre commercial and residential project in Loveland.”

“Housing is where overbuilding carries some of the most severe consequences for residents of the region. Northern Colorado builders were pulling 500 permits per month in the two counties in the early months of last year, Green said. As the year came to a close, they were pulling around 200 a month.”

“In several recent months, Greeley and surrounding Weld County have led the nation with the highest foreclosure rate out of more than 200 metro areas.”

The Free New Mexican. “House sales were slower in Santa Fe County during 2006 than during any of the previous eight years, but the market slowed even more in Eldorado during the past year.”

“Price pressure is squeezing younger buyers out of the Eldorado market, associate broker Fred Raznick said. In the southeast county area, increases in median home-sale prices has outpaced increases countywide, nearly doubling since 1998. Countywide median prices increased by three-fourths over the 1998 median price.”

“Resellers have sometimes had to adjust their expectations. Some sellers have ’spun their wheels’ expecting their older home to be worth as much as a home built on a similar lot now valued at a higher price, Raznick said.”

“‘It’s not what I would call a seller’s market right now. It’s what I would call a balanced market and, at least in the short term, it seems to be leaning toward the buyer’s side,’ Raznick said.”

“The general housing market slowdown across the country apparently reached Santa Fe late last year, the latest home-sales figures show. Sales in both the city and county of Santa Fe in the fourth quarter of 2006 were well behind figures for the same period a year ago, continuing a trend that became apparent in the third quarter.”

“The softer real-estate market favors buyers for at least the time being, and likely means some real-estate agents are having a harder time making a living, one longtime real-estate agency owner said Monday.”

“‘In looking at the entire year (of 2006), there’s no question there was a slowing down but not a going down,’ said Wally Sargent of one of Santa Fe’s largest real-estate agencies. ‘There are more sellers than buyers, and properties are selling when sellers get realistic and don’t hold out for top dollar.”

“The Santa Fe Association of Realtors reported a total of 221 homes in the city sold during the fourth quarter of 2006, a 25 percent drop from the same period of 2005. Santa Fe County totals for the fourth quarter of 2006 show 177 homes sold (a 27 percent decline from a year earlier), and the median sales price dropped by 4 percent to $442,000.”

“David Barker of Barker Realty agreed that there was some softness in real-estate sales in the third and fourth quarters of 2006, a slowdown that has led to an increase in inventory and the number of days it takes to sell a house in Santa Fe. ‘More properties are on the market, and fewer are selling,’ Barker said, a situation that favors buyers at least temporarily.”

The Arizona Republic. “The West Valley’s housing market followed a Valley-wide slowing trend in 2006, with homeowners worrying about slipping values and sellers struggling to stay afloat in a sea of listings.”

“The sluggish market was good news for buyers, as sellers reduced prices and agreed to pay closing costs in a bid to lure customers. ‘Buyers had a lot of choices in 2006 and remain in the driver’s seat,’ said Meredith Andrews, a real estate agent in Surprise. ‘They can bargain a little bit.’”

“As for the West Valley’s resale housing market, Andrews anticipates a correction in the market by midyear. ‘It will take a little more time for listings to start moving again,’ Andrews said. ‘The trick will be to price right.’”

Some housing bubble news from Wall Street. “Lennar Corp., one of the nation’s biggest homebuilders, posted a fourth-quarter loss on Wednesday in contrast to a profit a year ago as revenue tumbled 15 percent and it absorbed big charges related to the housing market slowdown. Lennar also said it expects housing deliveries will decline more than 20 percent this year as it tries to unload inventory.”

“Lennar lost $195.6 million in the three months ended Nov. 30. The latest quarter includes write-offs of option deposits and pre-acquisition costs of $111.1 million and valuation adjustments of $382.8 million.”

“The dollar value of Lennar’s backlog plunged 42 percent to $4 billion. Further, Lennar reported that it does not intend to purchase more than 24,000 home sites that it had under option to buy.”

From MarketWatch. “Lennar Chief Executive Stuart Miller in a statement Wednesday said market conditions remained ‘depressed’ through the end of the fourth quarter. ‘We have continued to build out our inventory, deliver our backlog and convert inventory into cash.’”

“Lennar’s gross margins on home sales fell in the fourth quarter partly on land charges and the use of more sales incentives. The company said the average sales price of homes delivered in the fourth quarter fell to $302,000 from $338,000 a year earlier. Sales incentives offered to homebuyers averaged $47,300 per home in the fourth quarter, up from $10,600 the previous year.”

“‘We have not changed our outlook that the housing downturn should be extended by continuing price declines in the spring selling season, but we do believe Lennar is strategically better positioned than its peers, Deutsche Bank analyst Nishu Sood wrote.”

“‘We note that it is likely management’s [2007] outlook may be more optimistic than ours with regards to pricing; nevertheless, this guidance reflects the aggressiveness of Lennar’s strategy to date,’ the analyst said.”

“‘We think the guidance may be difficult to achieve, as the high level of homes for sale will likely continue to pressure home prices, absent a sharp improvement in demand,’ wrote Banc of America Securities analyst Daniel Oppenheim.”

“Miller during Wednesday’s conference call said market conditions remained ‘very difficult’ through the end the company’s fourth quarter. ‘While it is not our custom to comment or update our view of the market in the middle of quarters, I will say that we have not yet seen improvement in market conditions to date as we’ve gone through the seasonally slowest time of the year,’ the CEO said.”

“Residential Capital LLC, a real-estate financing company owned by General Motors Acceptance Corp., said it will eliminate 1,000 positions by October to reduce costs as the mortgage lender grapples with ‘the continued deterioration’ in the subprime mortgage sector.”

“ResCap estimated that it would incur about $10 million in severance and related costs associated with the workforce reduction. Also as a result of the job cuts, it expected to save $65 million in the full-year 2008.”

From Reuters. “A GMAC spokeswoman said the parent company had begun an effort to integrate ResCap more closely about a year ago in a bid to cut costs across its lending operations.”

“In its filing with the SEC, ResCap cited slower mortgage originations, a weakening trend for U.S. home prices and weakness in the sub-prime sector of the lending market as reasons for the job cuts.”

National Mortgage News. “A ‘couple of hundred’ mortgage banking firms could fail in the next year or so as the industry works out its excess capacity, according to the chief economist for the Mortgage Bankers Association.”

From CNN Money. “Americans continue having difficulties paying their mortgage obligations, with December foreclosure rates above the 100,000 mark for the fifth straight month. The number of homeowners entering into some stage of the foreclosure process in December was up 35 percent from December 2005, according to RealtyTrac.”

“Adjustable rate mortgages, especially sub-prime ARMs, continue to drive the spike in foreclosures: Many of those loans are due to reset in 2007 and many of the loans written in 2006 are performing less well than previous years.”

“Other factors are involved. One is that the housing market turned, removing one avenue of escape for some homeowners facing foreclosure. Another contributor is that some lenders tried to maintain business in a slower market. To do that, some relaxed their underwriting standards, approving more marginal borrowers for loans.”

“Interest rates were also higher for the year. Doug Duncan, chief economist for the Mortgage Bankers Association, estimates that $500 billion to $800 billion in loans outstanding are to borrowers who may face difficulties. ‘Some of that,’ Duncan says, ‘would go into foreclosure.’”

The Palm Beach Post reports from Florida. “Plans to sell the historic Gulfstream Polo Club to housing developers have collapsed. Westbrooke Homes terminated its contract to buy 221 acres for $66.5 million. Land speculator Brian Tuttle also wants to back away from buying another 212 acres of Gulfstream horse farms at prices negotiated before the downturn in the housing market began.”

“‘We’re renegotiating our whole idea because of the housing market and Westbrooke not closing on its land,’ Tuttle confirmed last week. ‘Land prices have deteriorated.’”

The News Press. “Page Mobile Village sits vacant and bedraggled, now the owners have put the Fort Myers landmark up for sale. Cornerstone representatives had discussions with city officials about building a town-home project on the property but there hasn’t been any progress lately, said Maureen Lund, the city’s development services manager. ‘It looks like they went away’ before getting permission to build the community.”

“Tom Birch of Birch Co., which is marketing the property, said Cornerstone’s original plans were a victim of the downturn in the demand for housing. ‘With the change in the residential market the way it is, that’s not salable and they’ve changed direction,’ he said.”

From TC Palm. “Indian River County commissioners opened a public hearing on Tuesday on the 462-acre Sexton family ranch. The county’s proposed purchase would buy the owners’ rights to develop the land for non-agricultural operations such as housing developments.”

“The county’s appraisals are a year old, created at a time of escalated property values. Now development has slowed, potentially affecting the appraisals, said Commissioner Joseph Flescher. The appraisals said the property was worth $22.19 million, or $48,000 an acre last year. The development rights were worth $19.87 million, or $43,000 an acre, said Chief County Environmental Planner Roland DeBlois.”

“The Sexton family’s own appraisal is $14 million for the development rights, said family member Sean Sexton.”

“The county and Sexton family negotiated the price of $12 million. Sexton wouldn’t comment on whether the family would settle for less. ‘We would have to talk about that,’ he said. ‘I can’t speak for everyone.’”

The Tallahassee Democrat. “The St. Joe Co. called it reorganization, but to about 50 Tallahassee employees, it felt like being fired when the office was closed abruptly around mid-day Tuesday.”

“‘A very talented group of people were let go today by a good company,’ said Erin Ennis, who until Tuesday was a St. Joe Co. vice president in Tallahassee.”

“‘I think they overbuilt,’ Tallahassee Mayor John Marks said, referring to the SouthWood development.”

The Sun Sentinel. “The honeymoon may be over for retailers in South Florida, thanks to the slow housing market. The National Retail Federation’s chief economist, Rosalind Wells, said the tides may have changed for South Florida. ‘It can’t boom forever,’ Wells said. ‘Maybe it’s going through a correction.’”

“Sales of existing single-family homes in Broward County dropped 23 percent compared with November 2005, according the most recent figures by the Florida Association of Realtors. In neighboring Palm Beach County, sales were down 45 percent in the same period.”

“The slowdown in the national housing market will undoubtedly continue to have an impact on furniture and home improvement stores, Wells said, noting those retailers are ‘at the mercy of the cycle.’”

The Herald Tribune. “Facing mounting debts, vicious overseas competition and a downturn in the residential housing market, one of Southwest Florida’s largest manufacturers appears to have melted down.”

“With debts of nearly $5 million, CFI Manufacturing-Carter Grandle Furniture last week filed for Chapter 11 bankruptcy protection from its creditors. It has shed all but eight of its more than 100 workers.”

“The last year, the already embattled industry was hit by the precipitous slowdown in new home construction, a key source of demand. ‘It is usually the first to be impacted after a housing industry slowdown, and that’s one of the triggering factors in this case,’ said Benjamin Martin, the bankruptcy attorney for Carter Grandle.”

“CFI might be a poster child for how fast things can change in the global economy. Just last year economic development gurus in Manatee County were pointing to it as a prototype for type of industries they wanted to lure to Southwest Florida.”

The Associated Press. “Tourism experts say many of these snowbirds are shortening their stays. Rental rates have risen to keep up with spiraling property insurance rates from recent hurricanes, pricing some retirees out of the market.”

“‘We’re 98 percent booked for February and March, but booked about 75 percent for January, which is very unusual,’ said Lisa Durgin, a Cocoa Beach-based Realtor who rents to snowbirds. Durgin said this January is among the slowest she has seen.”

“In Brevard County, for example, a study found that the number of snowbirds fell nearly 9 percent to 27,600 in 2005 from 30,300 in 2003. Abraham Pizam, dean of the Rosen School of Hospitality Management at the University of Central Florida, said that snowbirds have been stricken with ‘Florida fatigue.’”

“Business are feeling the crunch, said Rob Varley, executive director of the Space Coast Office of Tourism. ‘The season is shorter, and the part-time residents are not coming as soon, either,’ Varley said.”

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