The Housing Bubble

The Victorville Daily Press reports from California. “High Desert sale prices for resale homes are experiencing a firm downward trend. Prices of resale homes in the High Desert went down by nearly 4 percent in January from the same time last year, not a big drop but the largest one in years.”

“The average home price is now $310,965, down from $327,609 in December, according to a MLS operated by Larry Trombley . Trombley does not count the community of Helendale in his listings.”

“And although the number of homes on the market went up by 78 percent since January 2006, it has dropped from where it was in December, when there were 3,455 homes for sale. In January there were only 3,073 for sale.”

“That could be because fewer homeowners are putting their houses on the market, not because of a rise in sales. Fewer homes sold in January, at 233, than in December, at 295.”

“It’s hard to say what the recent spike in foreclosures will do to the entire housing market, broker Caroll Yule said. The idea would be that bargains will edge out the competition from market-priced homes.”

The Reporter. “Sales at the state’s major new home communities fell by 29 percent to under 86,300 homes during 2006, the median asking price still rose by nearly 4 percent to $450,990, the California Building Industry Association reported.”

“Although builders have drastically curtailed pulling building permits during the last few months, unsold inventory continued to rise by about 53 percent to nearly 16,800 homes between the end of 2005 and 2006.”

“Wes Keusder, CBIA’s Chairman, said the fact new-home pricing remains strong, even with builder incentives being offered, demonstrates once again that California’s housing affordability crisis will only be solved by producing enough new homes and condos to meet the need.”

The Fresno Bee. “Major development projects in Madera County’s Rio Mesa area are nearing milestones with the county Board of Supervisors expected to cast votes on the fates of several within the next year.”

“The surge of activity comes 12 years after the county first approved conceptual plans for the area, where some 28,000 homes and 100,000 new residents ultimately are expected to line the northern bank of the San Joaquin River.”

“Madera County Planning Director RayburnBeach predicts that the developments will draw a majority of their residents from elsewhere in the state.”

“‘Most of our residents in our county the last few years have been from outside the Valley,’ he said. ‘They can come here, sell their home in San Diego for $800,000, buy twice the house for $360,000, and coast on the money.’”

The Press Telegram. “The biggest news in residential real estate seems to be foreclosures. The 130,511 new foreclosure filings last month were up 25 percent from 2006, according to RealtyTrac. With 14,430 foreclosures, California had the nation’s second most, which was a 14 percent increase from the previous month.”

“Charles Barger, president of the Southern Los Angeles County Chapter of the California Association of Mortgage Brokers, said one of the biggest contributors to the foreclosure buzz is the buzz itself, adding that the media has overblown the problem.”

“‘I think bad news sells better than good news,’ he said. ‘There’s going to be some foreclosures, and people are going to lose their homes, but the fact is we just went through the greatest four-year boom we’ve ever seen.’”

“While some of the loan programs that became popular during the residential boom may be leading to increasing foreclosures, many of those loans helped some people buy homes when they couldn’t have afforded property otherwise, Barger said. ‘The loan programs, some of them are risky, but they’ve helped many more times people than they’ve hurt,’ Barger said.”

The Santa Cruz Sentinel. “Nervous investors have predicted that a slowing housing market could affect the country’s economy. Now, the nonpartisan California Budget Project has joined in the concern, saying, ‘The recent slowdown in the housing market has begun to take its toll on the economy.’”

“The CBP quoted the Legislative Analyst’s Office as reporting the real estate slump ‘is having a major adverse impact on the incomes of Realtors, developers, contractors and real-estate lenders.’”

“We don’t see any sort of major collapse of the real estate market. True, there are more listings than there used to be. And, prices have leveled off — and have even dropped a bit at some price levels. A quick look at weekend housing advertisements reveals an increase in inventory.”

“Some who aren’t in the housing market are waiting patiently for prices to come down to an affordable price. But so far, we don’t see a collapse in prices coming. Nationwide, and even statewide, the story might be different. But when you’re talking about the coast of California, don’t expect real estate prices to bottom out.”

The Record Searchlight. “OK, just who’s talking down the local real estate market? Our stories documenting SLOWING Shasta County home sales over the past year have been derided by some for allegedly sinking the once robust north state real estate market. Most criticism has come from agents.”

“So it’s ironic to hear that a radio spot by former Redding Mayor Ken Murray, a licensed Realtor, has garnered less than favorable reviews from some area agents.”

“In the commercial, which has aired for months, Murray says we’re in the middle of a down cycle, a trend that will continue. He encourages people to call him for advice on how to buy or sell in these tough times.”

“A member of the Shasta Association of Realtors who didn’t want to be identified acknowledged that Murray’s advertisement has struck a sour note, adding that a number of members don’t think he represents their take on the market and market trends.”

“Agent Brad Garbutt, past president of the association, hasn’t heard the commercial but is dubious of anyone who makes predictions. ‘All kinds of people try to forecast the market,’ he said. ‘How often does it really come true?’”

The Kansas City Star reports from Missouri. “Here’s how bad the housing market is getting across metropolitan Kansas City: Doug and Cathy Cade are offering a new car or a trip to Hawaii for anyone who buys their five-bedroom Shawnee house for the asking price. And they haven’t had a taker. ‘It’s kind of a down market,’ Cathy Cade said.”

“Last year, the average resale price of existing homes declined in almost half, 44 percent, of almost 100 ZIP codes tracked by The Star in the six-county area. ‘The market has been going up and up and up, and what goes up must come down,’ said agent Sue Walton.”

“For much of the rest of the area, however, plenty of sellers have gone through what the Cades are finding: The easy days of real estate speculating appear over.”

“The Cades are investors and bought the 3,600-square-foot home out of foreclosure. They intended to flip it quickly after some cosmetic repairs. They tried an advertising blitz capped by a local auction. But the bids were too low. That’s when they added the special incentives for a full-price.”

“The Plaza area was littered with sales in which sellers lost money or came way down in price. One two-story house off 53rd Street and Brookside Boulevard went on the market at $330,000 before eventually selling at $182,500. Another house just a block off Loose Park sold in 2004 for $472,500, then resold last year for $465,000.”

“‘There was too much on the market, and the people who had to sell just kept reducing,’ said agent Pat Tholen.”

“Several Realtors said they noticed investors bailing out of real estate because they were no longer able to turn quick profits. ‘That flipping thing is kind of over,’ said broker Judy Comstock. ‘It’s no longer the in thing to do.’”

“That may be the case, but investors still have properties they are trying to unload.”

“Consider Teresa Doherty. She and her husband are stuck with a three-bedroom ranch near the University of Kansas Medical Center in Kansas City, Kan. It has been on the market more than four months.”

“She put the house on the MLS. She put ads on the medical center’s Web site and on Craigslist. She even put the house up for auction on eBay. But that auction has generated only a lowball offer so far. ‘I know it’s a slow market like this all over the city,’ Doherty said.”

The Springfield Business Journal from Missouri. “The FBI is investigating alleged mortgage fraud schemes in the Springfield area, some of which may be driving a spike in foreclosures on homes sold to unsuspecting buyers at inflated prices.”

“The real estate community is buzzing with speculation about disproportionately high list prices in some subdivisions and an upsurge in foreclosures – two signs often associated with mortgage fraud.”

“Carol Jones Realtor LeeAnn Quinn said a handful of conspicuously priced properties caught her attention several months ago. ‘They stuck out like a sore thumb,’ Quinn said. ‘I did show a house that possibly I thought might be in that (alleged scheme). It was sold at a price, and it was bought a few months later at a higher price … quite a bit higher.’”

“Quinn said less scrupulous real estate agents or builders may have turned to illicit tactics when the housing market began showing signs of a slowdown last year. Foreclosures in Missouri increased 96.5 percent in 2006, according Foreclosures.com.”

From Chicago Business. “Illinois’ housing market ended 2006 on a low note and housing experts are forecasting modest gains, if any, for this year. ‘We had a year of contraction,’ said Pat Callan, treasurer for the Realtors’ association. ‘But I think we’ve seen the worst.’”

“Paul Kasriel, economist for Northern Trust Bank, is less optimistic, given the excess supply of new and existing homes. ‘Sales are still going to be sluggish,’ he said. ‘It’s going to be another year of recession in housing.’”

“‘Builders are abandoning land now and that indicates they are not expecting to start a lot of new homes,’ he said. ‘Construction is going to continue to weaken.’”

The Chicago Sun Times. “Robert Kelter was watching a football game when he noticed water dripping from the ceiling into the living room. Kelter, who had paid $405,000 for his 2-bedroom condo in 2001, had no idea the water drip would turn into a potential $100,000 expense because of alleged major structural problems in the building. But it did. And he’s not alone.”

“A legal expert says the jaw-dropping extra assessments result from a perfect storm of condo conversion circumstances: A lack of oversight by the city, buyers with stars in their eyes and little information and developers who claim they have no assets to correct defects after they sell the condos.”

“Loft condos in old factories and warehouses are in vogue. But the buildings are complicated to convert into residential uses, and pose unique maintenance problems, said Mark Pearlstein, the attorney who has filed lawsuits against the developers at both sites. ‘The owners have to realize that they’ve bought into an old building,’ Pearlstein said.”

“Pearlstein said buyers have the mistaken impression that city inspectors will guard against shoddy construction. ‘There is no effective government oversight of construction or renovation in the city,’ Pearlstein said.”

The Business Ledger from Illinois. “Most experts in the industry agree the housing boom has come to an end but differ as to whether the landing will be hard or soft. Take a deep breath and relax, says Lori Palmer, a realtor in Bartlett. There was, indeed, a housing bubble, but the explosion was more of a pop than a burst. ‘There was a correction that was definitely needed,’ said Palmer.”

“‘Buyers now think they can go out and get houses for bargain prices because the media has said it’s a buyer’s market. Sellers are not necessarily desperate to sell. They prefer to sit and wait for six months or even a year, rather than take a loss on the sale of their home,’ said Palmer. ‘It’s become a stalemate,’ she said. ‘Who’s gonna blink first?’”

“Palmer stressed that a seller shouldn’t have to take a loss on the sale of his home just because a buyer wants a deal.”

“Developers like The Macom Corporation in Naperville agree there has been somewhat of a burst in the housing bubble. It hasn’t affected Macom in a real big way, but the company has slowed down in developing the high-end subdivisions. There isn’t a big demand right now for lots.”

“S.J. Peters, executive director of the Plumbing and Mechanical Contractors Association of Northern Illinois, echoes Van Poucke’s sentiments. ‘There’s definitely a housing bubble and it has burst, but the residential seems to be bouncing back,’ said Peters. ‘It seems to go in cycles.’”

“In the meantime, professionals in industries related to development and real estate are not panicking. They know it’s just the natural cycle of economics. The bubble may have just popped or even burst, but they’re still standing.”

The Herald Sun reports from North Carolina. “The median sale price of resold houses in Durham dropped from $167,500 in the third quarter to $155,000 in the fourth, according to Market Opportunity Research Enterprises. That amounts to a 7 percent decline and is $15,000 below the median in the fourth quarter of 2005.”

“‘The abruptness of the negative numbers surprised me and the extent to which they’ve become negative surprises me,’ said Bernard Helm, president of MORE. ‘The phenomenon is not unique to Durham County, it is Triangle-wide although not necessarily to the same extent. There is obviously some excess inventory in terms of the number of buyers available.’”

“It seems clear that prices have dropped for existing homes in Durham because there are so many on the market. ‘It means some sellers are reducing prices to move their houses,’ Helm said.”

“Nick Tennyson, executive VP of the Home Builders Association of Durham, Orange and Chatham Counties, likened the drop in existing home prices to a correction. ‘I think there might be people with unrealistic expectations of what their house was worth,’ he said.”

“It appears that the fourth-quarter jump in the median sale price of new homes is linked to an increase in the number of high-end homes sold during the fourth quarter. ‘I suspect in the first quarter that is not going to be as pretty a number as it is now,’ Helm said. ‘As the price difference [between new and resale] gets larger, you get some downward pressure on new home pricing.’”

The News & Observer. “Record numbers of homeowners in the Triangle and North Carolina were threatened with losing their homes through foreclosures last year.”

“Foreclosure proceedings were filed against 6,451 homeowners in Wake, Durham, Orange and Johnston counties last year, up 4.5 percent from 2005. Statewide, foreclosure filings jumped 6.1 percent to a high of 45,512 during that period. And this year’s numbers could be even worse, experts say.”

“‘It’s horrible,’ said Shawn Kornegay, whose Knightdale home was sold at auction in January.”

“Because proceedings can be stopped many ways, statistics aren’t available on how many foreclosure filings result in owners losing their homes. But some housing experts say more than 50 percent end up with owners losing their homes.”

“In Wake County, which had the majority of the Triangle’s foreclosures, at least 40 percent of homeowners in foreclosure are estimated to lose their homes, said Lynne Murray, a former assistant clerk of Superior Court who handled foreclosure cases for 18 years.”

“The number of people who actually lose their homes has risen, Murray said. About 25 percent of foreclosures resulted in people losing their homes in the 1990s, she said. ‘People weren’t borrowing as much money then,’ she said. ‘It was easier to work things out.’”

“The surge in foreclosure filings shows a downside of the housing boom that powered the national economy through the economic downturn at the beginning of the decade.”

“Mark Pearce has seen his share of mortgage fraud. As deputy commissioner of the North Carolina Banking Commission, Pearce has investigated lenders who pad a home buyers’ bank account so they will qualify for a loan, then take it out and charge the person a fee.”

“He has seen other lenders let family members with good credit sign for a relative’s home. And he has seen lenders falsify loan applications, even changing a potential home buyers’ annual income.”

“‘People just get out the Wite-Out or cut-and-paste documents,’ Pearce said.”

“On the face of it, such actions don’t make sense. Why would a lender provide a mortgage to someone who can’t afford it? Because a lender gets paid up front. And in some cases, the original lender will sell the loan to another lender.”

“‘For the past five years, mortgage complaints have taken up about half my time,’ said Joe Smith, the state banking commissioner.”

“Now the banking commission is looking at new rules and regulations to clean up the mortgage industry, and hopefully lower the number of foreclosure filings.”

The Miami Herald reports from Florida. “The story of housing in South Florida in 2006 was one of waiting. Now the question is: Will 2007 be the year the market turns around? The answer lies in the mountain of homes across South Florida with ‘For Sale’ signs, the single biggest indicator of a market out of whack.”

“For every home that sold in each month of 2006, an average of 14 did not. The number of homes on the market doubled to almost 66,000, as sales dropped to their lowest level in a decade. At the current sales pace, it’s up to 16 months in Broward and 18 in Miami-Dade. For condos in both counties, it’s more than two years.”

“It’s a quiet Sunday afternoon in West Kendall, the third quiet Sunday afternoon in a row that Olga Alvarez has opened her house to buyers. ‘The house is priced well; there is just a lot of competition,’ says Alvarez’s broker, Leigh Fortuna. ‘Within one square mile, there are 42 other homes for sale that are like us.’”

“Alvarez is already throwing in incentives. One-page fliers proclaiming in big letters: ‘Seller will pay closing costs up to 3%.’ That shaves off $11,700. And the asking price for the three-bedroom, two-bath house is down from $399,000 when it was listed in October to $389,000. Plus, there’s a yearlong warranty. So far, it’s still not enough.”

“Alvarez and her husband bought their home in 2000 for $147,500. Since then, prices in the neighborhood have more than doubled. But it’s also harder to sell in the first place because many people simply can’t afford to buy.”

“The irony is that if Alvarez sells, she, too, will be priced out of the region. If Alvarez ever buys in South Florida again, she will be hit with much higher property taxes and insurance costs. ‘We’ll never be able to afford to live here again,’ Alvarez says matter-of-factly. ‘We don’t plan on coming back.’”

“It’s 2:50 p.m. Ten minutes left for the open house. The phone rings. ‘I thought it was the doorbell,’ Fortuna says. She’s only half-joking. Instead, it’s Zab Alvarez calling to check on things. His wife delivers the bad news. By 3 p.m., the open house is over. Not one person came.”

“The condo market is in danger of choking on its own leftovers from the housing boom. The supply of available condos has tripled over the past year. There are now almost twice as many condos as single-family homes for sale in Miami-Dade and Broward counties.”

“It will get worse before it gets better. More than 11,500 new condos are expected this year and 15,000 more next year, with the bulk coming to Miami-Dade.”

“The average condo asking price in Miami-Dade went down 12 percent in 2006 to $532,000. In Broward, it dropped 11 percent to $354,000. Peter Zalewski has compiled a database of properties that have seen a drop of $100,000 in asking prices or stayed on the market for 100 days. The single-spaced list now runs 27 pages.”

“Key West broker Melanie Crocker sums up the past year’s housing market this way: ‘It’s been tough.’”

“Both prices and sales fell considerably in 2006 in Monroe County, where the standoff between buyers and sellers has already given way to a down market. The median price for a single-family home went down 11 percent, settling at $625,000, according to a Miami Herald survey. Condo prices were off even more, dropping by 17 percent to $440,000.”

“Things were especially bad in Key West, where prices for single-family homes dropped 37 percent to $395,000. Condo prices fell 19 percent to $440,000.”

“Sales of houses in 2006 were down 38 percent from a year earlier. For condos, it was 47 percent. ‘There were no buyers because they wanted to see the prices adjust,’ says Crocker. ‘People are still wondering if we have hit bottom or not.’”

The News Journal. “Sylvestri Investments’ auction of 25 condos at Ocean Walk in New Smyrna Beach last weekend was either a desperate move or the bold setting of a new trend, but it has drawn criticism from some Realtors concerned about the area’s sagging condo market.”

“‘I’m getting calls from Realtors. They are saying the market is really bad and you are going to show how bad it is,’ said William R. Bone, president of the National Auction Group. ‘They are afraid the condos will sell real cheap and hurt everybody,’ Bone said. ‘Everybody’s property values are at stake here. But something’s gotta happen. Things will move at some price.’”

“On the other hand, some developers are watching Sylvestri’s experience, Bone said. ‘They are telling me, ‘Gosh, if you can do this, I’ve got others to sell.’”

“The 25 Ocean Walk condos sold at auction for an average of $290,000 each, Bone said. New condos at Ocean Walk usually range from $379,000 to $850,000 for a penthouse, said Rob Camporese, vice president of Silvestri Instruments.”

“Camporese said some of the condos being auctioned had been sold, but buyers walked away from the deposits. ‘Basically what has happened everywhere is people got caught up in the real estate market and some went out and purchased units. They continued to buy and roll, but they got caught in the roll,’ he said.”

The Palm Beach Post. “Buyers of canceled condo projects in downtown West Palm Beach are becoming increasingly angry, and frantic, over unrefunded deposits on units, and unfulfilled contracts.”

“Dozens of buyers fell for sales pitches promising gleaming high-rises. Instead they wound up with fading sales brochures. Most upsetting: Some buyers are having trouble getting all their deposit money back. That’s because some of their money was released to developers for construction, even though the condos weren’t built.”

“While some buyers are resigned to lessons learned, others are fighting back by filing lawsuits against the developers who they say failed to deliver. In the past two months alone, half a dozen lawsuits have been launched.”

“One particular lawsuit, filed by buyers David Weber and Amy Lichtenstein, seeks a lien on the 3-acre Opera Place land. In a Feb. 12 court filing, Opera Place says the Weber-Lichtenstein buyers aren’t entitled to share in the profits because the land was never improved.”

“Will this claim, and the other lawsuits, derail the land’s sale next month? ‘The property continues to be a vacant lot with a trailer on it. Construction never began,’ the motion says.”

“A lawyer for Weber pounced on this statement. According to Florida law, deposits can be released to developers for construction only. If construction on Opera Place never started, attorney David Gorman wonders, then why did Opera Place get half his clients’ deposit?”

“Behind all the numbers tossed around at the recent International Builders Show in Orlando are real people affected by the ups and downs in the housing market. Many of those people are hurting now. Badly. Either they can’t pay the mortgage, with disastrous results, or they’re stuck with a real estate investment that grows less profitable every day.”

“Many think flippers are getting what they deserve now: They ran up home prices with their frenzied buying, this argument goes, when they had no intention of living in the houses and condos they bought. Let them reap what they sowed.”

“Meanwhile, homeowners who weren’t playing market games and who need to sell are caught, too. A large sign at the corner of Flagler Drive and Almeria on West Palm Beach’s lakefront reads: ‘$1 million reduction.’”

“Another sign, this one on Olive Avenue a few blocks north of Belvedere, states simply: ‘Make me an offer.’ ‘There’s a lot of desperation out there,’ a local observer says.”

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