The Housing Bubble

It’s Friday desk clearing time for this blogger. Virginia, “Three experts, speaking to the Frederick County Builders Association, said the housing slump isn’t over. Wayne Six, a Frederick appraiser, said the inventory of homes, now at 1,500, will most likely climb to 2,200. ‘We knew it was coming. The market could not keep up with prices going up at 20 percent or more. It had to stop somewhere. Housing priced itself out of the market.’”

“Sellers, the three experts said, have to realize the change in the market and come down on prices. Six used several examples where some large homes were on the market for as much as $100,000 less than what was paid for them less than two years ago.”

From New Jersey. “Real estate expert Jeffrey Otteau told conference attendees that the widely forecast crash following the recent housing market bubble might not happen. ‘It’s beginning to look like this will be a correction and not a crash,’ said Otteau, president of the Otteau Appraisal Group of East Brunswick.”

“Betting their luck will hold, a Cape Coral couple hope to beat a soft real estate market by selling their home at auction. ‘We really don’t have to sell, but we decided to change our lifestyle and say goodbye to Florida,’ Ginnie Ward said

“Here in idiosyncratic Chicago, it’s ‘da price’ index. And I’ve found that da price is nearly always paired with the ‘who can afford dat?’ index.”

“We ask: Who is buying those $400,000 condos in Uptown and those $900,000 condos downtown? What do they do for a living? With the follow-up question: How do I get that job? There sure seems to be a lot of this expensive new stuff out there. Are there really enough buyers for all this construction?”

From Australia. “Service director Sue Mahalingham said that, until now, many people who had borrowed too heavily and defaulted on home loans had been able to sell their properties and still make a profit after repaying their loan.”

“But with reports of negative growth for the first time in a number of years, people who have bought in to the Perth property market and then defaulted on their loan face the situation where they may still have a debt left if they sell their house,’ Ms Mahalingham said.”

From Canada. “At least a third of condos and houses on the market in Calgary are vacant, prompting concern from a real estate agent that sellers aren’t being realistic about the price they hope to get for their properties.”

“‘Sellers are having a hard time grasping that we are not in early last year’s market,’ said Kristen McNaughton, a Calgary real estate agent.”

“Kevin Clark, president of the Calgary Real Estate Board, said almost half of the properties that sold in December went at a reduced price. ‘There are properties that were overpriced, are still overpriced and haven’t sold, and therefore becoming vacant,’ he said.”

From Idaho. “The Ada County vacancy rate for single-family rental houses fell in 2006, driven downward by slumping area home sales, according to a survey of local property management companies. ‘As housing has gotten more expensive, it’s become cheaper to rent,’ said Tony Drost, owner of a Boise company that handles single-family rentals for investors. ‘I had one client who was renting and thought he wanted to buy his own home — until he saw what the mortgage payment would be.’”

“San Diego police found a group of homeless people living inside the Laurel Street Bridge in Balboa Park. One of the occupants told NBC 7/39 that the group were in the process of turning the bridge into a multi-level condo complex. ‘The fifth floor was going to be the grand hall, it had rafters and and vaulted ceilings,’ said occupant Ruben Lopez.”

From Colorado. “Weld County eked out of its roughest year in 2006, posting 2,073 foreclosures, easily surpassing the 1,500 posted the year before. Somewhere along the line, the rules relaxed. Suddenly, people could buy homes with no money down, and all sorts of creative financing mechanisms popped up. The danger of all of this, we hope, is finally starting to sink in.”

“We hope, even in the face of impending legislation that could help stop the abuse, that buyers come down to earth and start realizing what they can afford. We also hope that area real estate agents and mortgage brokers walk that line with them as the market slowly recovers. It’s not just about morality; it’s about saving an economy.”

From Oregon. “What a year it was to get into, or out of, a home. In late spring, Portland-area housing eased up. The area’s most active real estate agents noticed slower sales. By midsummer, the inventory of houses for sale bumped up to the highest level in more than two years.”

“The ‘For Sale’ signs will be going out with the spring thaw. Time will tell whether buyers come knocking.”

The San Francisco Chronicle reports from California. “The slump in the Bay Area housing market continued in December. The number of homes sold in December fell almost 20 percent from a year ago. The drop extends a streak of monthly sales decreases dating back to April 2005. ‘I still think we’re nearer the beginning or the middle of a longer correction,’ said Stephen Levy, director of Palo Alto’s Center for the Continuing Study of the California Economy.”

“While many in the real estate industry say that the downturn in the housing market is over, economist Chrostopher Thornberg disagrees. ‘I’m hearing all this nonsense about a soft landing and rebounding in 2007, and that’s just incorrect,’ he said. ‘It just doesn’t work that way — housing cycles when they pop take years to clear out of the system, not months.’”

“In Santa Clara County, the median price of resale detached houses that sold last month was $710,000, 1.4 percent higher than a year earlier, but down from $734,500 in November. The median house price in the county also hit its high last year in June, at $770,000.”

Inside Bay Area. “The number of homes in some stage of foreclosure in December continued to rise in the Bay Area compared with a year ago. In Alameda County, 720 homes were in foreclosure, almost four times the number of a year ago. In Contra Costa County, 461 homes were in foreclosure, or three times the number from a year ago. In San Joaquin County, 460 homes were in foreclosure, more than three times the number from a year ago, the report said.”

“Earl Rozran, a Realtor (in) Pleasanton, said some properties in the East Bay have been on the market for six months. ‘Some sellers have refused to make any price concessions at all,’ he said. ‘Yet they are surprised when there is very little showing activity or offers.’”

The Sacramento Bee. “Two months ago Mark Aizenberg and his wife fell in love with the 2,400-square-foot Arden Hills home and watched the price tumble from $745,000 to $699,000, then to $624,000. The Aizenbergs offered $575,000. Then came a $600,000 counteroffer. ‘We said $585,000 and they said ‘Yes,’ says Aizenberg.”

“Median sales prices were down 16.9 percent in Placer County from December 2005. Yolo County reported prices down 14.1 percent. Sacramento County prices were down 7 percent. DataQuick attributed much of the year-over-year declines to huge discounts offered by new home builders eager to clear inventory before year’s end. Price cuts from $30,000 to $100,000 were not uncommon as 2006 ended.”

“Analysts say rents have been held down by continuing oversupply of rental units after years of new apartment construction. Add to it the growing number of single-family homes now available to rent. ‘A lot of people can’t sell their homes, and they put them on the (rental) market,’ said Bruce Mills, owner of Sacramento-based M&M Properties, a rental manager.”

“Sales of apartment complexes and smaller units have slowed alongside the 2005-2006 slump in other housing. ‘There are twice as many projects on the market now as last year, and they’re staying on longer,’ said Bruce Hester, a regional apartment broker. ‘The market has definitely softened. The escrows are off 40 (percent) to 45 percent.’”

The Bakersfield California, “Home sales in Kern County were down 30 percent in December from the same month a year earlier, while foreclosures increased 37 percent during the same period, according to reports.”

“The number of notices of default in the Bakersfield area has increased from 33 in December 2005 to 179 in November and 243 last month, appraiser Gary Crabtree said. He said notices of trustee sales are also up considerably.”

“‘What we are seeing is the direct result of the creative financing that has been put in place over the last three years by lenders,’ Crabtree said. ‘If we see a big spike in foreclosures, that’s going to add more supply to the market.’”

“There were 3,181 listings on the market in Bakersfield last month, up 53 percent from December 2005, Crabtree said.”

KABC Los Angeles. “Some Southern California landlords are lowering asking rents and offering move-in incentives, while vacancy rates are rising,- all signs the market may be softening, it was reported Thursday.”

“‘There’s a point at which you push beyond where people can afford the price and you run into resistance,’ John Husing, consultant in Riverside told The Times. ‘In supply and demand terms, the sign that the price has gotten too high is when you start seeing vacancies go up in the rental market, and inventories go up in the housing market.’”

The Voice of San Diego. “The condo-conversion phenomenon in El Cajon came in a flash. The general housing slowdown of 2006 didn’t leave El Cajon untouched. Last year, the council approved only about half as many projects , 641 units, as it had in 2005. And many of the projects that started building when real estate was sizzling finished construction just as the market had cooled.”

“‘We’re saturated,’ said local real estate agent Carol Carey, who’s been selling mostly new construction in El Cajon for 20 years and now sells condo conversions. ‘In El Cajon and across the county, we had a ‘feeding frenzy’ — eventually we ended up with a glut,’ said Jim Taylor, a member of the former condo-conversion oversight committee. ‘I don’t think anyone really realized it’d be as popular as it was.’”

The Pasadena Star. “California gained 723,000 jobs and built 851,000 homes from 2000 to 2005, a ratio of 0.8 jobs created for each homebuilding permit issued, said Esmael Adibi, at Chapman University.”

“The long-term ratio of jobs to homes from 1980 to 2000 is 1.7, he said. ‘We built too much for the job growth,’ he said.”

The Desert Sun. “Desert Hot Springs Councilwoman Mary Stephens said it’s somewhat discouraging to see the slowdown in home sales, but she sees an upside. ‘I’m almost thinking, ‘Well, maybe it’s kind of a reality check,’ Stephens said. ‘The (home) prices were getting so out of whack it would probably take three of my kids to buy a house.’”

The Dallas Morning News reports from Texas. “Dallas-Fort Worth home foreclosure postings are still growing – fueled by higher payments on adjustable-rate loans and rising consumer debt. The latest statistics show that pending foreclosures in Dallas County are 12 percent higher than a year ago and foreclosure postings are up 16 percent in Tarrant County.”

“The 1,940 homes in Dallas County and 1,274 Tarrant County homes threatened with foreclosure are approaching record highs, said George Roddy, president of Foreclosure Listing Service. ‘This is getting serious,’ Mr. Roddy said. ‘This level is getting very close to the all-time records set in 1989.’”

“It’s often because of poor consumer choices, credit analysts say. ‘Some of them got into more house than they can afford,’ said Gail Cunningham with Consumer Credit Counseling Service of Greater Dallas.”

“While many analysts are predicting that the inflated housing market will have a ’soft landing,’ Ms. Cunningham said she isn’t as optimistic. ‘In the trenches where the real folks are, they are feeling the pinch,’ she said.”

“Mr. Roddy said he’s noticed some subtle changes in the types of loans facing foreclosure. ‘I’m seeing a little pickup in home equity loans, but adjustable-rate loans still lead the pack,’ he said.”

The Star Telegram. “The last time Tarrant County saw this many foreclosure postings, it was the late 1980s and the real-estate market had crashed.”

“This month, 1,274 Tarrant County homes were posted for foreclosure. What was the previous record? In November, 1,222 homes were posted. Is 1,274 a lot? Consider this: In the 12 months ending with November, an average of 2,350 homes were sold in Fort Worth, Arlington and Northeast Tarrant County combined, according to the Real Estate Center at Texas A&M University.”

“How do foreclosures affect home values? As homes are sold back to the lender, they are put back on the market. That means more competition in a market that has already seen slower sales the past four months.”

Inside Texas Business. “Anyone who owns a home knows about the residential real estate bubble that is on the brink of deflation around the country. When this so-called bubble is talked about, it generally refers to the rest of the nation. The bubble has not manifested itself in Collin County or throughout most parts of Texas.”

“‘As prices have inflated, the real estate market ballooned up and now air is coming out of the bubble. We did not blow up,’ said (broker) Betty Magee.”

“‘The other markets are overvalued and DFW is not. The appreciation has been minimal and there is a swing of investors and relocations moving to North Texas,’ said Daniel Frank, president of DFW Real Estate Group. ‘There should be a surge in housing this year, along with refinance due to adjustable rate mortgages that are now adjusting.’”

“‘The national news pushes it [the bubble] so much. We have not escalated in value so you are going to have to stay put for a while,’ Magee said.”

“The Dallas Morning News reported a 5 percent decrease in housing sales last week. ‘The softening was due to lending guidelines changing, over-building by the builders, eagerness to not hold inventory coming into Christmas and too much overall inventory. Please note, 2007 should be an increase year and I really feel that the bubble is for other markets, not ours,’ Frank said.”

“Lenders reported 27,649 single-family residential foreclosures in 2005 in Texas, according to Dr. James Gaines, research economist with the Real Estate Center. This number reflects only the sales in which lenders reacquired properties. The actual number is greater.”

“In November of 2006, foreclosures for Dallas increased by 67 percent, according to RealtyTrac’s report. The Dallas area, consisting of eight counties, reported 4,653 new foreclosure filings during the month, a foreclosure rate of one new foreclosure filing for every 286 households, 3.4 times the national average. Dallas returned to the top spot, a place held for almost a year.”

“Collin County reported 767 new foreclosures in November, a 114 percent increase from the 359 foreclosures reported the previous month.”

“‘The foreclosures, in my opinion, are mostly due to 100 percent financing to buyers that should not have purchased. There were some builders lending 100 percent, through their JV’ed mortgage companies, plus rolling in their closing costs and escrowing ONLY based upon the unimproved,’ Frank said.”

“‘You will see pockets of foreclosures in certain new home neighborhoods and the builder in partnership with the lender had much to do with it,’ he said. ‘These buyers were in serious trouble when the taxes on their house went to improved and there was a shortfall in their escrow. Many of these folks could not refi or pay the shortfall and the effects have been disastrous. We get calls from these folks daily. In addition, 100 percent to buyers with 500 credit scores should have never been done.’”

“‘The biggest effects that we see in Collin County is people relocating to the area cannot get rid of their homes in other states,’ said David Mathews, VP for Darling Homes. ‘We’ve sold a lot of homes and when it comes down to the closing they are still struggling to get rid of the home they left.’”

“Sales and traffic are down significantly in the Dallas/Fort Worth area. Cancellations have edged up, especially for lower priced homes. Homebuilders and real estate agents noted increased uncertainty and uneasiness among buyers that they blamed partly on reports of weakness in other parts of the country. Builders have pulled back on starts and increased buyer incentives in an attempt to manage rising inventories.”

“‘I think that the builders hurt us more here because we have more space. They can go further north and buy cheap land. That is our biggest problem. We have too much land in Texas,’ Magee said.”

“‘We have felt that some of the national home builders have used Texas as a place to get their unit volume and are not necessarily that focused on profit because they are making such great profits in other markets,’ Matthews said.”

“Rural land prices in Collin County and throughout Texas are at a record highs. In 2005, land prices set another record at $1,483 per acre. Land prices are up 16 percent from 2004 and 76 percent over 2000 land prices.”

Some housing bubble reports from Wall Street and Washington. MarketWatch, “Pulte Homes Inc. warned it may post a fourth-quarter loss but said it would make an aggressive effort to strengthen its balance sheet by taking charges to reduce its land inventory.”

“Pulte ‘continues to navigate through a challenging operating environment, with demand for new homes during the fourth quarter still far below pre-2006 levels,’ CEO Richard Dugas said in a statement, throwing cold water on hopes that housing has bottomed.”

“The company also raised its estimate of the amount of land charges it expects to record for the quarter. It now anticipates land-inventory impairments and other charges such as options deposits will range $330 million to $350 million. Its earlier estimate was $150 million.”

“‘With our ongoing focus on the balance sheet, we continue to evaluate land positions, renegotiate contracts and, if necessary, forfeit deposits and pre-acquisition costs,’ CFO Officer Roger Cregg said.”

“Banc of America’s Daniel Oppenheim said Pulte’s increased land-charge estimate ‘reflects [a] recent price decline and also a shift in pricing strategy to reduce its speculative homes. We think it may be difficult for home builders to resist the temptation of starting construction in February and March in order to meet 2007 delivery goals,’ he added.”

“Homebuyers have been backing out of sales contracts and forfeiting their down payments during the housing slowdown. Hovnanian CEO Ara Hovnanian said many cancellations are for older contracts signed when the market was booming and home prices were rising. He said one way the company is avoiding cancellations is to negotiate with buyers at the closing table.”

“‘We don’t like to do it, but it can prevent cancellations,’ Hovnanian said.”

“When asked to pick an indicator he’s looking at to spot a potential bottom for housing, Hovnanian said ‘we’re watching [home] resale listings, which is something we never used to focus on.’”

“Toll Brothers Chief Financial Officer Joel Rassman said buyers are putting off home purchases because they think the house may end up being cheaper soon. ‘There was no [spring] selling season last year, and if it happens again a lot of the smaller private builders won’t be around the next selling season,’ he said.”

From Origination News. “The net income of Washington Mutual Inc.’s home loan segment plummeted by more than $1 billion last year, the Seattle-based thrift has reported. Originations of home loans declined 22% for the year. WaMu attributed the nosedive in the mortgage segment’s profits to ‘the continued slowing of the housing market and a significant weakening of overall subprime market conditions.’”

“The company said higher delinquencies on subprime home loans and weaker market conditions shaved $160 million from its pretax earnings in the fourth quarter.”

“Housing markets continue to soften in December and demand for residential mortgages continued to weaken, according to a Federal Reserve report called the Beige Book. ‘Nearly all [Federal Reserve Bank] districts reported a continued softening of housing markets, and high inventories of new homes have generally led to slowing in residential building,’ the Beige Book says.”

“In the San Francisco district (where homes are still appreciating), Realtors ‘are offering significant incentives to sell properties,’ the Beige Book says.”

“Fannie Mae saw a loss in the third quarter of 2006 on a GAAP basis, said James Lockhart, director of the Office of Federal Housing Enterprise Oversight, which regulates the safety and soundness of company. Analyst Jim Vogel predicted the loss to be around $400 million, based on OFHEO’s capital classification released Dec. 28.”

“Negotiations for new legislation are ongoing. One of the remaining sticking points has been whether the new law would allow Fannie Mae and Freddie Mac to purchase mortgages above the ‘conforming loan limit’ established for the rest of the country.”

“The existing conforming loan limit is $417,000. Lockhart said any legislative changes would likely affect 10 or 11 markets, concentrated in parts of California and some suburbs of New York City. ‘Certainly there is an argument that can be made that providing mortgages over $417,000 is well away from the affordable housing mission’ of both companies, Lockhart said.”

The Associated Press. “‘They unfortunately have very, very large problems,’ Lockhart said in a meeting with reporters, referring to the government-sponsored companies that are the two biggest financiers in the $8 trillion home-mortgage market in the United States. ‘They have a long way to go; there are still significant worries.’”

“The problems ‘are massive and they’re ongoing,’ he said. ‘We have to prevent these companies from growing out of control again,’ Lockhart said.”

The Daily Star. “Although the correction in the nation’s homebuilding industry will continue, it won’t be enough to stunt a strong U.S. economy, Susan Bies, a Federal Reserve System governor, said in a speech here Thursday.”

“The nation’s housing correction was ‘badly needed,’ she said. Nationally, while less then 10 percent of homes are usually bought by speculators, during the run-up that figure increased to up to 40 percent in some areas.”

“Bies encouraged people to become better-educated about mortgage options and cautioned an auditorium full of future home buyers about the pitfalls of sub-prime loans, such as interest-only mortgages and those with no down payments.”

“‘I don’t want to make you all scared of doing mortgages. They’re wonderful. They work most of the time,’ Bies said.”

The Herald Tribune reports from Florida. “Faced with continued sluggishness in the high-end condominium market and little reason for short-term optimism, the owner of the land at U.S. 41 and Gulf Stream Avenue downtown has shelved plans for a 17-story luxury residential tower. Kolter Communities’ decision to suspend its Grande Sarasotan project marks the biggest casualty to date for Southwest Florida’s slumping real estate market.”

“Kolter officials said they intend to redesign their $210 million tower and its 144 units while the project is on ‘hiatus.’ ‘If we are going to add additional units to a market ripe with condominium opportunities, they are going to represent a broader spectrum of choices and amenities for luxury-minded customers,’ said Bob Vail, the Kolter Tower Division president.”

“Palm Beach-based Kolter, developer of the 830-acre Woodfield Country Club in Boca Raton and $3.7 billion worth of property in Florida, has adopted a ’similar strategy statewide as it pulls back from several projects,’ Vail said.”

“‘Every aspect of the real estate market and industry is going through adjustments,’ said Michael Saunders, president of the regional real estate brokerage powerhouse that bears her name. ‘They felt they needed to be honest and realistic about the market. They feel right now it’s the right thing to do to take it off the market until they see some definite trending up.’”

“The luxury condo market has failed to pick up as anticipated, prompting Kolter to acknowledge it had miscalculated. ‘What worked so well a year ago is less than the perfect solution going forward in today’s market,’ Vail said.”

“Southwest Florida could net a healthy number of visitors this winter, but the local competition for their business is fierce. People who manage hotels and condos are starting to realize that visitors have many, many options. A glut of condos is drawing bargain hunters to the mainland. Second, small hotels are seeing less advance booking.”

“Condos, which hold the bulk of beds in the area, are plentiful. Some condo managers are responding by holding rates in check, despite the wishes of their owners. ‘When you’re talking about rates, you’re talking about a different market,’ said Gloria Stephens, rental manager on Siesta Key. ‘You’re talking about how do you get visitors in.’”

“Occupancy rates in Sarasota, Bradenton and Venice apartment complexes dropped nearly 5 percent during the past year and could be an indication that average rents won’t rise much in the months ahead, according to data released Thursday.”

“‘Such widespread declines in occupancy likely herald reductions in rent growth rates,’ RealFacts reported. Sarasota-Manatee apartment complexes saw their occupancy rates drop from 97 percent to 92.3 percent.”

The Palm Beach Post. “One in every 51 households in Palm Beach County - almost 11,000 properties, entered some stage of foreclosure last year, nearly double the national rate.”

“In Palm Beach County, one of the most prosperous real estate markets in the nation during the boom, foreclosures rose by 29 percent last year, to a total of 10,915, up from 8,454 the previous year (one filing for every 66 households). The increases were higher in Martin County, according to a report.”

“When adjustable-rate mortgages began to reset at higher interest rates the once-booming residential resale market began to collapse. This prevented financially strapped homeowners from selling quickly to avoid foreclosure as wary buyers began to wait for prices to hit bottom. Many are still waiting.”

“‘The declining home sales have made it less attractive for investors, and made them less able to rapidly resell a unit,’ said economist Hank Fishkind.”

The Orlando Sentinel. “The Home Builders Association of Metro Orlando kicked off a marketing campaign this week to encourage ‘fence sitters’ that now really is a good time to buy a home in the Orlando area. Valued at nearly $1 million, the six-week multimedia campaign is appearing on local television, in print, on billboards and on a Web site.”

“Randy Noles, a local home-building magazine executive, characterized it as ‘the largest public-awareness campaign this organization has ever done.’ He said it comes at time when new-home sales are ‘clearly in a lull.’ The thrust of the campaign message, he said, is that the lull will not last. ‘Smart people buy in the lulls,’ he said. ‘You just have more negotiating flexibility.’”

“As of Sept. 30, the region’s 12-month start total for homes was off by 9.8 percent compared with the same period a year earlier, but the new-home inventory as of that date, 22,794 units, was actually down slightly and represented an 81/2-month supply.”

“The category of ‘finished but vacant’ homes was up sharply, however, from a year earlier for a second straight quarter, surging 123 percent to 8,179 units.”

The Tampa Tribune. “A slowdown in one industry can provide a big boost for another. There are so many homes for sale nationwide that the Bradenton-based company that makes the front-doorlockboxes used to gain access to housesis working around-the-clock to keep up with demand.”

“One local real estate group ran out because it underestimated how many devices it would need. ‘There are more homes on the market, and they are taking longer to sell,’ said Jeff Antrican, sales manager for GE Security, which manufactures the electronic boxes. ‘Our demand is higher than ever.’”

“GE Security produced 1 million electronic lockboxes in 2006, an amount sufficient to cover demand for the previous three years during the hot real estate market. Now there are 3.8 million homes for sale nationwide, up 30 percent from a year ago, according to the National Association of Realtors.”

“In the Bay area this year, more homes are on the market than ever, real estate agencies say. There are 17,154 homes for sale in Hillsborough County, up from 5,279 this time last year. In Pinellas County, the number has doubled to 16,320.”

“Local real estate groups that lease the devices to agents say demand for the boxes is at record levels. The Pinellas County Realtor Organization misjudged demand last month and exhausted its supply. Its agents have to wait until a new shipment arrives Monday.”

“Carlos Fuentes, president of the Greater Tampa Association of Realtors, said the group goes through 150 boxes every two weeks. Demand increased dramatically during the summer, he said, and hasn’t let up.”

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