The Housing Bubble

The San Francisco Chronicle reports from California. “After a decade of annual, double-digit growth in house prices, the Bay Area now ranks as the nation’s most expensive housing market, sporting a median home price of $749,000 for single-family homes and $600,000 for condos, according to the National Association of Realtors.”

“And, while that explosive growth has stabilized this past year, many first-time home buyers still feel its sting. ‘You need to run the numbers to understand what you can afford,’ said Bob Walters, chief economist at Quicken Loans, a national mortgage lender that conducts a significant amount of business in California. ‘If the numbers say you can’t afford anything, then you shouldn’t buy.’”

“After a slight pause, he adds, ‘Or, you find another way to make the numbers work.’”

“(Realtor) David Reeves in San Francisco, said receiving financial help from family is common for many first-time home buyers, even in today’s ‘post-bubble’ housing market.”

“‘It’s definitely a buyer’s market now. But that hasn’t changed the fact that it’s still very expensive to buy a house here, especially your first one,’ Reeves said. ‘First-time buyers need to consider alternative ways to buy a place, such as getting financial help from relatives.’”

“‘Normalcy has come back to our market,’ pointed out (broker) Ben Coleman. ‘Buyers can now get more concessions when they make an offer on a house, such as including a repair contingency or having the seller cover closing costs. These are ways, which seemed to have disappeared during the real estate boom, that you can lower your overall housing costs.’”

“Coleman said first-time buyers should also look at new construction because sales in some areas have dropped by as much as 50 percent once the market shifted. Developers are now eager to sell off their mounting inventory.”

“But be careful. If you buy in an area that’s been overdeveloped, it may take a long time before you realize any significant gains.”

The Reporter. “Certified Mortgage Planning Specialist Pia Haynes has a seminar called ‘Why It Still Makes Sense to Buy vs. Rent.’ During her March 27 presentation, Haynes will explain how to realize the ultimate dream of owning your own home, and burst a few myths in the process, including the alleged unending doom and gloom of bad credit.”

“‘A home is like a trophy,’ said Haynes, who works for United Mortgage Inc. ‘Once you get it, you feel as if you’ve accomplished something.’ While this will be the first time Haynes has put on her seminar, she has been doling out the same advice for a while.”

“Michelle Perez, a Realtor who has dealt with several renters looking to get into their first home. ‘They didn’t want to throw their money away anymore,’ Perez explained of her clients’ motives.”

“Perez has been busy lately, especially now that it’s a buyer’s market. ‘It’s an exciting time,’ she said. ‘I’m getting calls every day from buyers. I’m getting people to see my homes at any price range.’”

“Three years ago, Haynes helped Valerie Santos say goodbye to an apartment and move into a house in Fairfield. ‘I looked at my finances and told myself that I can do this if I budget and see what I can do without. I knew that investing in a home would be an investment in my future. I knew that I could only gain from it,’ said Santos.”

“It took a bit of scrimping and saving, but Santos has no regrets. In fact, after only a year in her house, she had built up enough equity to refinance and pay off her debts. She actually ended up with extra money at the end of the day.”

The Desert Sun. “After some serious number-crunching, economists on Friday predicted an economic slowdown for the Coachella Valley during 2007.”

“‘The growth rate, mostly measured in terms of job creation, which was extremely strong the last few years, is slowing down,’ Chapman University Economist Esmael Adibi said. ‘We expect residential construction to slow down and since that is such a strong multiplier, it’s going to basically bring down growth in all sectors such as retail and wholesale trade.’”

“Home-price appreciation was 1.48 percent compared with a year ago. It peaked at 33 percent during the home-buying frenzy in the second quarter of 2004. The median home price may dip by as much as 6.7 percent, Adibi predicted.”

“‘The pace was extremely strong and home prices got too high too fast,’ Adibi said. ‘Affordability is a problem.’”

“Adibi said valley residents should expect the economic slowdown to last into early 2008 because housing downturn cycles typically last some 27 months and this one started in about June.”

“At least one economic indicator could point to potential problems, said Jeannie Chariton, who attended the event to shore up her knowledge about the local economy. ‘I think the foreclosure market will probably go up,’ Chariton said.”

“Adibi said more than 25 percent of homeowners in the Inland Empire opted for option-ARM type loans, which ratchet up and can make it tough to refinance or resell.”

Readers responded to questions to pose to a former Fed chair. “If you could ask Paul Volcker one question about the housing market situation, what would it be?”

“Former Federal Reserve Chair Paul Volcker is often lauded on this blog for having the gumption to crank overnight rates up high enough to crush inflation in the late 1970s. He is also a board member of my graduate institution. We are a very small school, and I have had the pleasure of his company on a couple occasions.”

“If we can develop some cogent and appropriate questions, I’ll be glad to email Paul the top choice. Obviously I can’t guarantee a response (or, perhaps, a public response), but I have always found him to be frank on other topics. Maybe we can get an exclusive.”

One asked, “Whither the symbiosis?”

Another, “I’d just like to hear Volcker’s predictions on what he sees as the outcome of all of this.”

One requests a prediction, “I would love to know where he thinks the rates should be right now/near future and why.”

Another wants an insiders view. “Well of course he has a better view of how the fed comes to decisions and the political pressures that are put upon it tha we do. So: ‘What does HE think is the most likely Fed RESPONSE (short and long term)to a RE disinvestment caused recession.’”

The Bellingham Herald reports from Washington. “Three years of escalating home prices, low housing supply and multiple offers finally came to an end last year in Whatcom County, prompting home buyers and sellers to ponder what it all means for 2007. (Realtor) Mike Kent said the number of days a home is on the market is still over 100, compared to the 18-day average seen in the summer of 2005.”

“‘Price is the critical component in this kind of market,’ Kent said. ‘If someone is selling a home to try and get as much profit as they can, the home will sit.’”

“What will be a challenge are homes in the $350,000 to $500,000 price range, where an oversupply exists. At the end of 2006, Coldwell Banker estimated the county had a seven- to nine-month supply of used single-family homes in that price range, and an eight- to 12-month supply of new homes.”

“‘What slowdown there is will be felt in that middle price range,’ Kent said. ‘Right now there are a lot of choices, so buyers can afford to be patient and pick the best situation for them, instead of just jumping at the first home they are comfortable with.’”

“Even for the homes expected to sell quickly, sellers are making adjustments for the changing market. Nate Button sells new homes in the King Mountain area of Bellingham that are generally under $300,000. Button said they are selling what is getting built, but he’s not seeing the multiple offers of a couple of years ago.”

“‘We make sure we do a lot for this price range, because we know there are more homes on the market,’ Button said. ‘It usually means adding more features.’”

“‘It may feel unusual because we haven’t seen it for a while, but this should be a normal year,’ said (realtor) Gragg Miller. ‘It is more like the market was in the late 1990s, before prices started jumping. The bottom hasn’t fallen out of this real estate market, but we won’t be going back to the high demand seen in the past few years, either.’”

“In the past three years, Whatcom County has seen a surge in condominium construction. These new units have been selling to people who want a second home, a rental investment or a place where they can move in a few years as they retire.”

“In the newer condo buildings, such as the Harris Square buildings in Fairhaven, only about 30 percent of units are owner-occupied. All the condo units were sold in 2005 as the building was being completed, said Troy Muljat, who partnered with Andre Molnar to build Harris Square.”

“‘The number (of absentee owners) is a little higher than we thought,’ Muljat said. ‘In this latest real estate market, there were a significant number of people who were buying a second or third home as an investment, with the plan that they will move up here a few years from now.’”

“In Bellingham, a little more than half the condo units have absentee owners, according to statistics gathered by First American Title of Bellingham. The absentee owners will use the unit themselves for part of the year, keep it empty until they are ready to move in or rent it out.”

“In comparison, only 17.8 percent of residential homes have absentee owners.”

“Gary Tice, a senior loan officer at American Home Mortgage, said the number of owners who live in a condo year-round is one of several things a bank will look at that’s different from a single-family home applicant.”

“‘In general condominium financing is a different animal than a regular home loan, and it can make it more challenging for the applicant,’ Tice said. ‘If it’s a new condominium project, they might have fewer choices for them. For example, they might qualify for an ARM (adjustable rate mortgage) rather than a 30-year fixed rate.’”

“Ken Gustafson said he has seen plenty of out-of-the-area buyers interested in the more expensive condominiums. He recently sold a condo unit above Village Books for $1.2 million, the highest price paid for a condo in Whatcom County. ‘They may not be ready to come here for a few more years, but they are planning ahead,’ Gustafson said.”

“Muljat, who originally intended Harris Square to be high-end apartments before he saw an opportunity to sell as condos, is keeping the original plan with nearby McKenzie Square. Those apartments are available to rent next month.”

“‘We wanted to retain McKenzie Square as a long-term investment, so we had no plans to turn them into condos, but we also realized that there are many more (condos) out there now,’ Muljat said. ‘It made more sense for us to change Harris Square into condos, before there were many more new ones on the market.’”

The Bend Bulletin from Oregon. “Downtown Bend’s budding forest of tall buildings seems destined to sprout some new shoots over the next couple of years.”

“Along with the two new buildings rising at 919 and 1051 Bond St., plans are still under way to build a new five-story complex over the site of the old City Center Motel on Franklin Avenue, and to build a pair of buildings over the rubble that surrounds the Bend Brewery Co. building on Brooks Street.”

“Two more projects, led by separate development groups, are on the drawing boards for the downtown area’s fringes. But, given the high prices for downtown land and the high price of construction, their economic viability may depend on a single factor, the health of the residential condominium market.”

“The reason: Selling parts of a building to condo dwellers is the only way, in most cases, to offset initial building costs to the point where ground-floor retail and midfloor office leases can generate a profitable income stream. In other words, as Bend Realtor Norma DuBois puts it, ‘It’s the only way you can make it pencil.’”

“So how is the market for urban condos, a relatively new market for Bend and Central Oregon, holding up? Results, so far, seem to be mixed. In Franklin Crossing, buyers lined up to snap up reservations on the buildings eight top-floor condominium units last spring, despite prices that ranged over $1 million, DuBois said.”

“But the market changed over the summer, and so did Franklin Crossing’s fate. Reserved buyers melted away from five of the building’s eight units by the end of 2006, DuBois said, leaving only three sold so far. The remaining five units, priced between $450,000 and $1.1 million, account for about $3.25 million in inventory at current listing prices.”

“Whether the pace will pick up, DuBois said, is anyone’s guess. Bend’s housing market has gone flat, along with most of the nation’s. ‘The urbanization we are seeing here is so unique to a community of this size, I think we’re just going to have to see some more inventory and see how that goes before we’ll really know,’ DuBois said. ‘No guts, no glory.’”

“Franklin Crossing is about to get some company. The 919 Bond building will add as many as nine residential condo units to the downtown mix by the end of the year, said Jeff Pickhardt, one of the project’s partners. But the developers are hedging their bets, configuring the building’s second floor so it can be used for either offices or condos, depending on market demand.”

“After 919 Bond, the floodgates could open. A project on Broadway would bring 45 condos on five floors, according to plans the backers brought to a preliminary planning meeting in City Hall last month. A second project on Wall Street, would bring another 15 condos to the downtown’s northern fringe, if the project can squeeze through the city’s height restrictions, developer Mike Wilhite said.”

“The Plaza, a purely residential condominium project, has moved 12 of its 42 units so far, owner and Realtor Becky Breeze said, at prices ranging from around $600,000 to nearly $2 million, although the building won’t be move-in ready until June.”

“The buyers have come ‘from all over the country,’ Breeze said. About half are planning to use their units as primary homes. The other half are second-home buyers.”

“In Bend, some developers are dialing back. DesertScape LLC President Craig Glazier said his group has shelved plans for a new mixed-use building on the lot on Bond Street, although it has already demolished the building that stood there before, partly in response to market conditions.”

“‘We’re not worried that things aren’t gonna move,’ Glazier said. ‘It’s just that you can only do so much.’”

The Record reports from New Jersey. “Two years ago, builder Meron Sason paid $1.5 million for a small Cape Cod on a wooded lot in Saddle River, tore down the home, and started to build a luxury stone-and-cedar house. Now, with the new six-bedroom house on the market for $3.87 million, Sason has run smack up against the reality of a new housing market.”

“The supply of houses in North Jersey with an asking price of $2.5 million or more is so high that it would take about 2½ years, at the current sales pace, to sell them all, said Jeffrey Otteau, an East Brunswick real estate appraiser.”

“Sason is afraid he may not be able to sell the house at a profit. ‘When we started, we thought we’d be able to sell for $4.5 million,’ Sason said. ‘Then, the profit would have been OK.’”

The Baltimore Sun from Maryland. “Last year was a turning point, the region’s first full year of deceleration after a string of double-digit annual increases that had boosted average prices 80 percent since 2001. Listings have mounted, more homes are sitting vacant and some homeowners are juggling two mortgages.”

“Frances Bond got blindsided by the turn in the market when she bought a townhouse condominium last summer, never dreaming it would take months to sell her Stoneleigh home of 41 years. She listed the Baltimore County property in July, didn’t get a contract until December and won’t settle until Wednesday.”

“‘I could not believe my sense of timing was so poor,’ said Bond, ‘because when I bought the condo, I didn’t quibble whatsoever. She was asking for a certain price, and I said, ‘OK, I’ll take it.’”

“Sales plummeted more than 20 percent in the county section of her ZIP code last year. For a while, she despaired. She buried not one but two statues of St. Joseph in her yard. In the end, Bond lowered her price about $68,000 to $482,000, not as much as she had expected.”

“Melanie Kelleher put her family’s Canton home on the market in June after buying a new house in Baltimore County. Despite the Canton home’s Jacuzzi tubs, marble floors and rooftop deck, it got no offers until last month, after she had dropped the price three times, $76,000 in all. She sold it for $353,000, relieved to stop paying two mortgages.”

“The average price rose 3 percent in Canton last year, but Kelleher thinks values really declined when comparing similar homes. Hers was appraised at just over $400,000 in fall 2005.”

The Tribune Review from Pennsylvania. “The steady, stable Pittsburgh area housing market hasn’t suffered the bumps and bruises that have battered other, higher-flying U.S. markets and the nation as a whole. ‘There definitely has been no burst of the housing bubble in Pittsburgh, because we haven’t had a housing boom,’ said George Hackett, current board president of West Penn Multi-List Inc.”

“Veteran real estate agent Lou Ryan listed a home at 132 E. Crafton Ave., Crafton for sale twice and sold three times, each time for an increased price. ‘The first time, I sold it for $93,500 in 1990,’ she said. ‘Then, in 2003 it sold again, this time for $134,000.’”

“The next time, she listed the home in February 2004 and just over a month later had an agreement to sell it to the current owners for $175,000.”

“Richard DeKaser, chief economist for National City Corp., oversees compilation of a national survey that at the end of the third quarter of 2006 found the Pittsburgh market to be 3 percent ‘undervalued,’ and thus at little risk for a major fall.”

“‘That doesn’t mean prices are not soft,’ he said. ‘In fact, they are.’”

From WCPO 9 in Ohio. “If you own a house, you need to know that a lot of homeowners are finding it harder to hold on to that home. The foreclosure rate is so staggering in the Buckeye State, it’s being called an ‘epidemic,’ and it’s effecting even those of you who can afford your home.”

“John Hamilton has made a second career out of buying foreclosed houses and fixing them up for renters. ‘It was like once every three weeks an auction,’ said John Hamilton with J&D Heritage Investments. ‘Now, it’s like every week and sometimes twice a week.’”

“The 9News investigation showed about 200 houses were foreclosed in Butler County in 1995. In 2006, the number jumped 550% to 1,300. The situation is similar in Hamilton County, where in 1995 there were 1,300 foreclosures. In 2006, there were 5,700.”

The Dayton Daily News from Ohio. “Homes sale prices in the Dayton market have reached a three-year low, according to the Dayton Area Board of Realtors.”

“In January, 2,460 homes were placed on the local market, for a total of 8,919 homes, up 192 units from December’s listing. The Miami Valley experienced a 5-year high for inventory figures in November, when 9,656 homes remained on the market.”

“‘We’ve had a special blend of problems here with foreclosures …, but what has been at the forefront is the very large inventory which is problematic for home prices,’ said analyst Barry James. ‘Locally, the problem has been that we had so much building going on for so long.’”

“Officials with the Home Builders Association of Dayton and Miami Valley have said builders have stopped building homes on speculation due to the large number of unsold homes. ‘To a large extent, I think we’ve gone through what the rest of the country is getting ready to go through, and in our opinion, we’re not in the dire straits other places will be,’ James said.”

What do you see in your housing market this weekend? Builder incentives? Auctions? Statistics? “According to statistics compiled by the Intermountain MLS, in the Treasure Valley, the 834 transactions posted in January were 27 percent fewer than the 1,149 sales in January 2006. Ada County saw a 40 percent decline in sales in January.”

“One real estate agent still worries that most homes coming onto the market are beyond the financial reach of the typical buyer. George Tallabas, a Realtor in Nampa, pointed out that on Dec. 3 there were 274 active listings in Nampa priced between $200,000 and $300,000. As of earlier this week, there were 387 listings in that range.”

Economic predictions? “The economy isn’t headed down the tubes this year. That’s the word from Memphis investment gurus. ‘There has been some air that has come out of the housing market,’ said David Waddell, CEO of Waddell & Associates. ‘The contraction in housing to date hasn’t affected consumers,’ Waddell said. ‘Never bet against the American consumer. We spend our way through everything.’”

New legislation? ” Mortgage fraud is on the rise, and the Texas Legislature may take a giant step to squash it. A pending bill would establish specific punishments for mortgage fraud, including imprisonment for up to 20 years and fines of up to $10,000 for knowingly making false statements.”

“Two state lawmakers plan to introduce bills on Monday that would require mortgage lenders in Colorado to be licensed, as well as other requirements designed to ‘put some teeth’ into measures to help stem the foreclosure tide sweeping the state.”

“‘I’ve been calling for the licensing of mortgage brokers for more than 10 years,’ mortgage lender Jim Spray said. ‘It is just stupid for a lender to be making loans when they know the borrower can’t pay it back.’”

“Existing law, the California Residential Mortgage Lending Act, provides for the licensure and regulation by the Commissioner of Corporations of persons engaged in the business of making residential mortgage loans or servicing those loans.”

“This bill would require a person engaged in the business of making or servicing residential mortgage loans who advertises option adjustable rate mortgage loans and references a payment rate with a negative amortization feature to include a specified disclosure in the advertisements.”

Or foreclosures? “With a historic increase in foreclosure cases Jacksonville (Florida) Legal Aid is now turning people away. ‘About 60 days ago we realized we reached capacity, despite foreclosures coming in the door 20 to 30 a week,’ said Jacksonville Legal Aid Director Michael Figgins.”

“With just four lawyers working foreclosure cases he says his office is overwhelmed, and can’t take new cases.”

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