The Housing Bubble

The Register Guard reports from Oregon. “The Register-Guard’s Board of Economists predicts that 2007 will be a year of continued, albeit slow, growth in Lane County. Board member Bill Conerly sounded a note of caution, however, saying he is telling his business clients they need to plan for a worsening scenario.”

“A year ago Conerly, an economics consultant based in Portland, put the chance of a nationwide recession at one in 10. Now, he is putting it at between one in 10 and one in five. Conerly cites a housing market that he says is overbuilt nationally and the volatility of the economy locally as the causes for his concerns this year.”

“(Economist) Ed Whitelaw in Eugene, said he, too, was concerned about the housing market, particularly the growing percentage of people’s wealth, or savings, that is in their homes. Foreclosures in Oregon are increasing, Whitelaw said, which he found troubling.”

“Brian Rooney, regional economist with the state Employment Department, said he expects construction in Lane County to slow down in 2007, ‘but I don’t expect it to drop off the face of the Earth.’”

“Financial services, Rooney predicted, ‘will be flat as a pancake’ in terms of hiring, because of a slower residential market.”

The Daily World from Washington. “Home prices in Grays Harbor County rose again in 2006, but the total number of homes sold dropped. The beach and East County markets, which had been booming, saw the biggest decline. Real estate agents are now describing those areas as ‘buyer’s markets’ for the first time in several years.”

“The trend toward more expensive homes began in 2004, when county-wide prices started to rise at a faster-than-usual clip. Prices at the beaches and in East County rose far faster than in Aberdeen and Hoquiam, buoyed by second home buyers and overflow from Thurston County.”

“Russ Hutchinson, an agent in Ocean Shores, said the market ‘is definitely trending toward a buyer’s market. We’re a little flooded with houses, so there’s a big supply and not that high of a demand.’”

“‘People are listing their homes on last year’s market, and things have changed,’ said Don Cheli, an agent in Elma. ‘It’s hard for us to sell those properties at the prices people want to sell them.’”

“Cheli said what’s happening here is happening everywhere. ‘It’s definitely a trend right now, so it could change. But people will have to start lowering their asking prices if they want to sell.’”

“‘The new building that’s going on has hurt us,’ he said. New home building doesn’t appear to have slowed down like the existing home market. Grays Harbor County issued 177 permits for new homes in 2006, compared to the 179 it issued in 2005, which nearly doubled the 2004 number.”

Reades suggested a topic about the role of the internet and the housing bubble. “While reading yesterday’s ‘The Rest Of The Worst Is Yet To Come’ post, something occurred to me. People in Des Moines, Iowa are aware of what is going on in the major real estate markets at either end of the country in a way they never were before, and it’s affecting their market in real time. Why? The Internet, baby!”

“Twenty years ago, how many people in Des Moines, Iowa would even be aware of the real estate market in Florida or San Diego? What time lag would it take for information about a boom or bust to travel thousands of miles and affect a critical mass of people in another, largely unrelated market?”

“Maybe the untold story behind this whole thing is the impact of the Internet. Just as the Internet allowed folks the ability to research home prices and then buy them at long-distances with great confidence in what they ‘knew’ about the national market, so will the Internet spread the bad news now that the mania is turning to fear. Fear is contagious, and the Internet is a wonderful spreader of viruses.”

A reply, “I don’t believe that the internet is speeding up information transfer, on the contrary. Please explain to me why people in Europe are totally unaware of the housing bubble troubles in the US. We do have internet here as well.”

“I can assure you there is NO stories about the US housing bubble in Netherlands, either on the TV news or in the newspapers; nothing at all for at least the last year or so. And of course there are NO stories about the EU housing bubble either. If people don’t look for something they will not find it.”

“People are not interested in housing bubble stories, they believe all the rosy crap that the official news outlets (which are just as corrupt as those in the US) feed them. The 1635 tulip bubble in the Netherlands collapsed (minus 90%) within a week. That was long before the internet and the telephone. It’s all about psychology, not about technology.”

Another said, “I’ve been following the Seattle bubble closely, and what many market watchers there believe is that because Boeing was hit incredibly hard by 9/11, the Seattle real estate market had a significant lag behind many others. However, I’ve been wondering if the Seattle market won’t turn down faster, more in line with LA and MA and FL once news becomes more prevalent on a national level.”

“What happens when Time Magazine sports a cover with an illustration of an imploding bubble?”

One pointed this out, “Well The Economist, which is European if not continental, had the collapse of the American RE bubble as a cover story last year.”

One saw the internet as a factor all along, “I think the Internet was what helped equity locusts buy in Oregon and Arizona. In turn, that helped turn the bubble into a national phenomenon, or at least to extend it into areas that would not have seen such appreciation before the Internet.”

The Associated Press. “Call it a million-dollar impulse purchase. Ahmed Goheer was checking e-mail before bed this month when he read a message saying a Web site was selling luxury apartments in this boomtown.”

“So Goheer, a vice president at a Dubai investment bank, clicked. On the site, two apartments in a nearly finished high-rise caught his eye. Goheer looked over the floor plans and did some calculations. Still in his pajamas, the Pakistani banker jumped in his Range Rover and drove past the tower under construction, just to make sure it existed. Then he returned to his computer and clicked ‘buy now.’ In an instant, Goheer agreed to spend just more than $1 million for two apartments.”

“On the same site, Goheer arranged for a loan from local mortgage company, which took his personal information and gave him provisional approval. Goheer sealed the deal just after midnight by leaving a $2,700 deposit with his credit card.”

“‘There was no sense waiting. I bought it that night,’ Goheer said.”

“Selling property online might not make sense in markets where a buyer wants to see the neighborhood and inspect the house. But in Dubai’s high-octane market, apartments are often sold from architect’s renderings in neighborhoods that won’t exist for years.”

“‘There’s nothing physical to show them anyway,’ said Omar Hijazi, who oversees Simsari.”

“As of this week, Simsari, which is still in pre-launch mode, had sold four properties and was finalizing 20 more where mortgages had been approved online, Hijazi said. For those who insist on seeing the construction site, Simsari offers satellite imagery that gives views of neighboring homes and their backyard swimming pools.”

“Whether it’s smart to spend $500,000 on an apartment in Dubai, rather than in, say, London or New York, is another matter. Steve Brice, head of research at Standard Chartered Bank in Dubai, said the local market is overheated and nearing the peak of a boom that started in 2002 when foreigners were given permission to buy.”

“Skyrocketing prices that doubled over three years have slowed. Apartment prices jumped 10 percent in 2005 and home prices jumped 30 percent, Brice said. He believes housing prices will stabilize or start falling by summer, when dozens of 30- and 40-story apartment towers in the Dubai Marina neighborhood will be complete.”

“‘At some point soon we’re going to see the scales tip in favor of excess supply,’ Brice said. ‘If you’re prepared to buy and hold for the long haul, it’s not a bad purchase.’”

The Review Journal reports from Nevada. “The only thing missing from real estate consultant Steve Bottfeld’s presentation Thursday at Crystal Ball 2007 was his cheerleader outfit. ‘I don’t care what anyone says, prices in Las Vegas will continue to rise,’ Bottfeld told 1,100 real estate professionals.”

“Larry Murphy of SalesTraq said a ’scary stat’ is that 44 percent of the 20,000 listings in Las Vegas are vacant homes. ‘Who lists a vacant home? Predominantly investors,’ he said. ‘That’s one thing that’s going to moderate real estate prices this year. Without these vacant investor homes, prices would be through the roof again.’”

“Bottfeld said none of the naysayers are talking about the vertical market in Las Vegas, some 23,000 high-rise condo units that are going to redefine the market. ‘We’re creating this atmosphere of fear from nonsense, from negative national press,’ he said.”

“‘What happened is we started the transition from a suburban market to an urban market and with transition, certain things happen. Twenty percent of all Vegas home sales go to investors and second-home buyers, which are one in the same. I don’t separate them. In the last two months, investors have fled from resale (homes) to vertical. The sky is not falling,’ he said.”

In Business Las Vegas. “The demand for land has softened in the Las Vegas Valley as property owners continue to hold out for prices that speculators and developers, especially homebuilders, are finding less and less palatable.”

“That’s the assessment of Brian Gordon and Jeremy Aguero, principals of Applied Analysis who this week released the latest figures on land transactions. Demand dropped sharply in the fourth quarter, down nearly 68 percent from the same period in 2005 and off 33 percent from July through September of this year.”

“Sellers aren’t getting the prices that they believed they would get six to 12 months ago, Gordon said. Anyone who bought property recently isn’t willing to cut prices to take a loss, but property owners who have a lot less invested have been unwilling to cut prices even though they could do so.”

“‘We see a similar concept in the resale home market where home sellers are unwilling to cut prices and buyers are unwilling to pay premiums at the moment,’ Gordon said. ‘Over time, that should correct itself.’”

“Several land owners have been seeking high density valuation for their properties, many of which are no longer feasible because only so many mid-rise and high-rise projects can be built, Gordon said. But he added that ‘reality may be setting in for many of them’ over what they can charge.”

“Metrostudy’s Las Vegas division reported that vacant developed lot inventory remained abundant. At the end of 2006, there were 34,066 vacant developed lots, an increase of 11.7 percent compared to 2005.”

“‘In the face of reduced demand at current price points, builders have pulled back on production in an effort to move units off their balance sheets,’ said Metrostudy’s Josh Seime. ‘In order to expand margins from current levels, market strategies will need to evolve to reflect market conditions.’”

“Centex Homes, a national homebuilder which last week announced its first-ever quarterly loss, has pulled out of its deal to build a 2,200-acre master-planned community in Henderson.”

“In early January Centex sent LandWell a letter terminating its agreement, but left the door open to a deal with a reduction in pricing. Now, the door has been closed completely.”

“‘Given overall market conditions, Centex Homes recently made a decision not to move forward with its involvement in the LandWell project,” said Caroline Doyle, Centex VP, in a statement. ‘We made a business decision to redeploy our capital to support other projects that will produce better results in the near-term.’”

“With its financial difficulty, Centex announced last week its plans to cut 13 percent of its homebuilding workforce to improve its balance sheets. The company had already reduced staff 17 percent through the end of December, including staffing in Las Vegas.”

“In September, Centex announced it had dropped land options in Las Vegas and in October Centex Destination Properties pulled the plug on a $1.5 billion, 2,400-condominium project south of the Las Vegas Strip.”

“Centex has more than a three-year supply of land, even after the company walked away from 40 percent of its options nationwide, the company announced last week. It planned to decline options on another 40 percent in the first three months of this year.”

“Mark Paris, the CEO of LandWell Co. declined to say how much money Centex forfeited by pulling out of the land deal. The company also contributed money to the planning process, he said.”

“For residents of the $350 million, 45-story Sky Las Vegas condo tower set to open this spring, a dark shadow is looming on the horizon”

“To the disbelief of many owners of the 409-unit luxury high rise on the Las Vegas Strip, the Clark County Planning Commission has given its blessing for the Maxim 300-room hotel and casino and 1,860 condominium units just south of Sky Las Vegas.”

“‘It looks like a wall of towers,’ said Bruce Hiatt, a broker who along with more than 34 clients bought a condo at Sky. ‘My clients are outraged, and they are sending letters left and right (to commissioners) protesting this and demanding a public hearing and sitting down and talking because it’s almost like putting a wall in your face.’”

“The Sky Las Vegas condos are priced between $700,000 to in excess of $4 million. More than 50 units remain for sale.”

“Hiatt said owners who paid $1 million or more for a condo in the corner that has a southern view of the Strip will apparently have those Times Square-like views blocked. It also appears the Maxim project will take away sunlight from the tower and pool, residents said.”

“Chris Kaempfer, whose firm seeks entitlements for Las Vegas Valley projects, including Sky Las Vegas, said views, shadows and sunlight aren’t protected and said that it’s considered an inescapable consequence of growth. ‘Clark County commissioners have taken the position that views, especially on the Las Vegas Strip, are not a protectable interest,’ Kaempfer said.”

“Avis and Elliot Titcher of Philadelphia, who plan to use their condo as a second home, said they chose their unit for its views of the Strip and mountains. ‘Since our unit would be overlooking Maxim, it is a real possibility we would have to keep our shades drawn as people could look into our apartment,’ the Titchers wrote. ‘That is totally unacceptable.’”

The Journal News reports from Ohio. “With home sales and new residential construction in a slump in Greater Cincinnati, Realtors and builders are teaming on a new marketing campaign to boost consumer confidence. The result is a six-week ‘Buy Now’ online, print, broadcast and billboard campaign featuring the slogan, ‘Home, Home in your Range.’”

“‘The builders came to us and said, ‘The statistics show that we’re really hurting and we think the statistics show that you guys aren’t doing too well either,’ Cincinnati Area Board of Realtors President Tom Steele said. ‘We thought, ‘Why don’t we take the initiative to let people know the market isn’t as bad as it sounds and all the national stuff, the negative stuff, doesn’t apply to us.’”

“The gist of the campaign, Homebuilders Association of Greater Cincinnati President Dave Wittekind said, is that there is a wide selection of homes to choose from in the market at lower prices than what buyers found this time last year.”

“Both Steele and Wittekind blamed the slowdown on an oversupply of homes. Steele said, there were times last year when there were 3,000 to 4,000 more homes on the market here than should have been if supply and demand would have been in balance.”

“‘There’s a large volume of new homes and existing homes that they can take advantage of this buyer’s market and move into the house that really meets their needs and have the best selection,’ Wittekind said.”

The Capital Times from Wisconsin. “Go back just eight years and there was almost no downtown condominium market. Now, a half dozen larger condominium projects punctuate the downtown landscape.”

“You need a map to keep them all straight. Nearly 900 condominium units, conversions and new construction, have been built since 1998 in or near downtown Madison, and 1,600 more are planned or under construction. Beyond that, there are projects under discussion to add another 1,000 units.”

“But how much is too much? Is there really a market for that many condominiums downtown? If you look just at numbers for 2006, the answer might be ‘no.’”

“In the last quarter of last year, the Realtors Association of South Central Wisconsin reported that there were 2,422 condominium units for sale in Dane County, compared with 862 just two years earlier.”

“Here in Madison, Professor Tim Riddiough said the downtown condo market has clearly softened. That is because housing has softened in general ‘and condos always fall harder than houses.’ Plus, more supply has come online.”

“Riddiough, who is the academic director of the UW-Madison Center for Real Estate, said signs of a soft market are evident in the slowdown in proposals of new condo projects; cutbacks on projects currently under construction, like the Alexander Co.’s Capitol West project; and lights out in many condo spaces.”

“Discussions he has had with real estate agents have also pointed to a soft market, he said, adding that the market is going to stay this way for a while. ‘There is a lot of supply, and the speculative element of demand is gone for now. Prices may have to adjust a bit more to bring things back to equilibrium,’ Riddiough said.”

“Developer Todd McGrath, who has developed more than 200 units downtown in the last five years, said the market slowdown downtown in the last year has been driven by perceptions of uncertainty that were exaggerated by negative coverage in the national media.”

“At his Nolen Shore project, McGrath still has half of its 64 units for sale.”

“John Deininger, executive director of the Realtors Association of South Central Wisconsin, said an important fact to note is that condominiums and subdivisions differ markedly in their rollouts. ‘Unfortunately, condos come in in one fell swoop, and then it takes a while for the market to absorb the balance of those,’ Deininger said.”

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