The Housing Bubble

It’s Friday desk clearing time. “Last week, a sign high over Interstate 75 reported for the first time there were more than 100,000 homes for sale in metro Atlanta. ‘I’ve been selling real estate in Henry County 20 years and this is the largest inventory I’ve ever seen,’ said associate broker Dottie Wise.”

“Tom Elder plans to move out of the Hasty Acres subdivision of Marietta and buy a new house after getting married. He said houses in his neighborhood once stayed on the market for weeks but now may linger for months. ‘I know for a plain fact that the only way they are going to sell is they drop their price,’ he said. ‘I know we will not get the money we would have a year or two ago.’”

“‘The guy behind me is trying to sell his house and move to Tampa, and he can’t even get any bites,’ he said.”

“Bill Meierhoff describes the current Duluth condominium market as ‘horse s–t,’ albeit with a chuckle.”

“The owner of Waterfront Plaza in Duluth’s Canal Park is developing condos in the upper floors of the former hardware warehouse. He plans a total of 60 units, but so far has sold only seven. He blames a national condo market slump on interests rates.”

“So far in 2007, a total of 14,185 homes have been recorded sold, in contrast to 17,980 for 2006 year to date and 27,325 sales for 2005 year to date.”

“‘The current market lacks the market frenzy to own and/or invest at almost any price and reasoning,’ said Jay Butler, at Arizona State University. ‘The general expectation is that the 2007 resale housing market should be a good year…assuming that there are no negative geopolitical events and that the sub-prime problem remains fairly contained.’”

“Tighter lending standards will also impact demand and put pressure on home prices, said Eric Belsky, executive director at Harvard University’s Joint Center for Housing Studies.”

“‘Spring housing is going to be off dramatically from the highs of 2005 due to weak pricing and tighter credit,’ Belsky said. ‘It is not going to be the hoped for recovery, it’s going to be a continuation of the correction.’”

“Bravo, to all of you for writing in, and may I just say that perhaps the politicians should be reading this, because if they think a government bailout would be popular, they’d better think again. We got about 57 emails in the hour after I did the bailout piece on TV, and I can’t find even one post that supports a bailout.”

“‘No Bailouts. The idea is insane! People must be allowed to feel the consequences of their decisions. They are house gamblers just like Las Vegas gamblers. They lost, so be it,’ says John in Wisconsin.”

“Bill Gross, who manages the PIMCO bond fund, wrote in April that easy credit fueled a ‘free-for-all’ in people buying homes. ‘They bought a house, began living the American dream by making money with someone else’s money, and expected to live happily ever after,’ Gross wrote. ‘Well, not so fast, at least for some of them, it seems.’”

“If Gross is correct, and the Fed acts accordingly, there may be a drop in housing prices that’s steady, and manageable for the public. I’d like to think that would happen. But the history of bubbles, no, the history of America, suggests that when a cycle ends, the only thing left to do is to pay for the excess.”

“‘Never in American history has there been a time where you could get a mortgage for no money down,’ said investment industry icon Jim Rogers. ‘You just don’t clean out a speculative bubble in six months.’”

“In a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime.”

“It’s almost as if they have thrown money away, an insult once reserved for renters.”

“It’s nice to see the New York Times step up and give the National Association of Realtors, and its head optimist, David Lereah, a poke it so richly deserves.”

“It’s still a bit of New York Times naivete: ‘Most striking, perhaps, is the fact that prices may not yet have fallen far enough for buying to look better than renting today.’ How is that striking? Home prices have gone through an unprecedented bubble. Rents have not.”

“One more thing. How about dropping the whole ‘American Dream’ cliche? There’s nothing inherently better about owning. And while we’re on the topic of ‘owning,’ maybe we should all do more to point out that homeowners buying with zilch down aren’t ‘owning’ at all. They’re simply renting from the bank.”

“I’ve rented and owned, and it comes down to this. A home is a place to hang your hat. Pay too much for the peg, and you’re risking the real American Dream: the pursuit of happiness.”

The Recordnet reports from California. “The existing home sales market is down about 40 percent from a year ago, said (broker) Jerry Abbott. The number of houses for sale jumped, likely because of foreclosure listings, from 4,119 in February to 4,580 last month. ‘It’s been disappointing when comparing to the year before, and last year was a bad year,’ Abbott said. ‘Nobody expected it to turn down this far.’”

The Ventura County Star. “Ventura County’s median sales price for new and existing homes and condominiums plummeted 6.9 percent in March to $566,750, Southern California’s biggest year-over-year decline,.”

“Closed sales were off too, down 24.7 percent to 999, according to DataQuick.”

“Tony Deleo, broker in Ventura, said he thinks DataQuick’s estimate of a 24.7 percent sales volume decline is too conservative. ‘My estimate would be 40 percent,’ Deleo said, ‘and I believe the median price is off way more than 6.9 percent.’”

The San Francisco Chronicle. “The median price paid for a Bay Area home in March was up, but the chorus still isn’t singing ‘Happy Days Are Here Again.’”

“‘We had such a large run-up (in home prices) in the state as a whole in the last four years and now there is excess inventory in unsold houses, in San Diego, Sacramento, Orange County and the Central Valley in particular,’ said Ken Rosen, director of the Fisher Center for Real Estate at UC Berkeley. ‘Usually, the reaction time to an overheated market is two to three years.’”

“‘I think prices will come down over the next year or so,’ said Stephen Levy, director of Palo Alto’s Center for the Continuing Study of the California Economy. ‘Because I think there are more people under pressure to sell now than there were a year ago and there are fewer buyers. I think we are at the beginning of a period of a sustained downturn.’”

“The husband and wife work as strawberry pickers in the fields around Watsonville, and each earns about $300 a week. They have three children. Not only did they dream the impossible dream, they managed to finance it.”

“How did a strawberry picker earning $15,000 a year qualify for a loan of $720,000? The answer, say the experts, lies in a lending industry that got too innovative for its own good.”

The Mercury News. “Brent Maier and his wife, Mari, were looking at townhouses in Cupertino and surrounding towns in February, with the hope of moving from their current home in Fairfield. But ‘in our area there are a lot of houses for sale,’ Maier said.”

“If they’d sold their four-bedroom house six or seven months ago, he said, they might have gotten $515,000 for it, but now, he said, the value is in the $460,000-to-$470,000 range, and some homes in the city are sitting on the market for months.”

“In Solano County, which includes Fairfield, the median house price fell in March to $439,000, 3.4 percent less than a year earlier, according to DataQuick. Along with Solano County, only Napa and Sonoma counties experienced median price declines in the Bay Area.”

“‘We don’t want to be in that situation where we’re letting it languish,’ Maier said So he and his wife have reluctantly put their South Bay home search on hold for now. ‘The desire, for us, is still there, but the reality is causing us to pause.’”

The Sacramento Bee. “For two months, it looked like Sacramento might finally be climbing out of its housing slump. Then the bottom fell out of the subprime loan market and threw home sellers a curve. DataQuick reported that the median price of homes fell from February to March in five of eight area counties.”

“‘It’s kind of a tough market,’ said Pradeep Gosai, who relisted his $529,000 house in Natomas this week after turning down offers last year that were ‘different from what we wanted. Now it’s a lower price than last year. I hope we make it,’ he said.”

“Sacramento real estate agent Carey Covey said many first-time buyers no longer qualify for today’s more demanding loans. ‘They actually wanted the buyers to have a pretty good credit history and a job and some income coming in,’ said Covey, who now is trying to sell 42 properties repossessed by the banks.”

“‘Certainly, (sales) dropped in March, and we haven’t actually seen a comeback yet in April,’ said Mark Levens, VP of Newport Beach-based John Laing Homes.”

The Contra Costa Times. “Michael Tacconi, a mortgage broker with Meridian Financial in San Ramon, said several sellers and builders are often paying closing costs and loan fees rather than lowering the actual costs of homes, something that keeps the neighbors happy.”

“‘In the East County, there has been Pulte Homes offering $100,000 towards closing costs,’ he said. ‘Sellers and builders are doing whatever they can to sell.’”

The Orange County Register. “The spring home-selling season is off to a slow start in Orange County, with local home sales down 25.5 percent and prices up just slightly from a year ago. It was the slowest March since 1995, and sales had fallen 44 percent from the March record of 5,577 homes sold that was set two years ago.”

“‘This spring is not as busy for most agents,’ said Les Fujimoto, an agent in Yorba Linda. ‘Our office as a whole sold over 30 homes last month. It was better than March 2006. But if you take (into account) January and what April’s starting to be and eeeee, it’s scary. I don’t think (the market has) turned around yet.’”

“‘January and February were fantastic,’ said Carla McKendry, a real estate broker in Yorba Linda. Then, she said, ‘right around March 15, the bottom dropped out. Everything came to a screeching halt. It’s probably because of all the bad press on the subprime market.’”

The LA Times. “In the Inland Empire, things aren’t looking so good. Gretchen Barrantes, a Moreno Valley agent, did eight deals in the first quarter of 2006. This year she’s done 14. But all were either foreclosures or short sales in which the sale price was less than the outstanding mortgage.”

“People don’t want to compete with foreclosure prices, she said, so they keep their homes off the market. ‘I haven’t had a regular sale in a long time,’ she said.”

The Daily Press. “Despite a rebound in residential sales in March, home prices fell in the Victor Valley as the single-family housing market sustained an ongoing slump.”

“March closing were down 54.6 percent year-over-year, while prices registered a decline of 9.4 percent, according to Century 21 data. ‘There’s no question that housing prices are too high in the Inland Empire and throughout Southern California,’ said economist John Husing.”

“The recent trend toward adjustable-rate and interest-only mortgages raises concerns over a surge in repossession activity, which could deflate prices even further. ‘There are likely to be more foreclosures and short sales in the near future,’ said Jim Philips, a broker in Victorville.”

The Press Enterprise. “Last month, Riverside County’s 3,680 sales were down 47.3 percent from a year ago, and San Bernardino County’s 2,476 sales marked a 46.6 percent drop.”

“The Inland region has so far avoided actual price declines, which has been seen in recent months in San Diego and Ventura counties. But experts said it’s just a matter of time before the numbers turn negative.”

“‘If you look at the historical norms, when the patterns trend flat for several months, they generally go negative eventually,’ said DataQuick analyst Andrew LePage.”

“On April 1, Mission Viejo-based builder Prosperity Homes had a live auction for condos available in San Bernardino.”

“‘It was a good response.’ Prosperity CFO Rob Wallstrom said. ‘We auctioned 23 condos and sold 23 condos at an average discount of 15.3 percent’ off the original asking prices, he said.”

The Home News Tribune reports from New Jersey. “There were 10,075 foreclosures in Central New Jersey last year, according to the JEC report. This means 1 in 87 homes, faced or are in the early stages of foreclosure, said JEC spokesman Israel Klein. ‘I don’t know what happened but this month, the number of calls…have really picked up,’ said Claire Lawrence, director of a housing counseling agency that serves Middlesex County and Franklin. ‘The problems are all over (the county).’”

“Lawrence said she is ‘dumbfounded’ at the extremely high mortgage payments people who come to her agency are expected to pay. Some, she added, are three to five months behind on those payments. ‘The problem is most of these people got into mortgages they can’t afford,’ she said.”

“Joe Petrucelli, an Edison mortgage banker, said risky mortgage loans, such as negative amortization loans, caused his mortgage business to drop by more than 50 percent a few years ago.”

“‘I wouldn’t sell the interest-only loans to people because they ratchet up,’ Petrucelli said. ‘What happens is, someone would get this comfortable feeling that they are only going to pay $1,500 a month but then it adjusts and ratchets up.’”

The Times Union from New York. “In the Capital Region, housing prices are dropping. The Greater Capital Association of Realtors says the median-sale price for single-family homes fell 7 percent in February from year-earlier levels. And Realtors say the inventory of houses here is growing.”

“‘People are going to have to come to the realization that prices are going to have to come down to get houses sold,’ said Mary Ann Larkin, a real estate agent in Sharon Springs. ‘There’s a tremendous amount of inventory, and the days of putting a high price on a house to see what buyers will pay are over.’”

“‘I’m definitely seeing price hesitation with buyers,’ said Latham Realtor Anthony Gucciardo. ‘If you don’t price it right, it won’t sell.’”

“In the Albany-Schenectady-Troy metropolitan area in February, 11.2 percent of homeowners with subprime loans were more than 60 days behind with payments, an increase from 8.5 percent one year ago.”

“In Glens Falls, 13.4 percent of such homeowners had fallen behind, the second highest figure in the state. Jamestown had the highest rate, with 14.8 percent of homeowners with subprime loans more than 60 days in arrears.”

The New York Post. “A startling 50 percent of homeowners in five of the city’s poorest neighborhoods are holding sub-prime mortgage loans, it was reported yesterday.”

“NYU’s Furman Center for Real Estate and Urban Policy said the percentage of home-purchase loans in the sub-prime category here more than tripled from 6.5 percent in 2002 to 22.9 percent in 2005.”

“The NYU study found that in 22 of the city’s 59 community board districts, more than 30 percent of all home-purchase loans were sub-prime. By comparison, the Brownsville section of Brooklyn, where the median annual income was $22,238, led the citywide list at 52.28 percent.”

“‘If [home-value] appreciation flattens out, you’re going to see a lot of homeowners going into distress,’ warned Furman research fellow Solomon Greene.”

“In many cases, sub-prime loans offer low two-year teaser rates that increase dramatically in the third year. They’re also tougher to refinance. ‘These homeowners could be stuck in very expensive loans,’ noted Greene.”

“Brownsville had the fifth-highest rate of foreclosure notices in the city, 30.5 per 1,000 occupied one- to four-family homes. Bedford-Stuyvesant had the most, 34.2 per 1,000.”

The Boston Herald from Massachusetts. “Hope is springing eternal for the Massachusetts real estate market as this year’s key spring house-hunting season gets under way. And this year, Realtors hope a good spring market will help home prices bottom out after some 19 months of declines.”

“But economists are less sanguine. ‘I’m thinking we still may see some more price weakness,’ said economist John Bitner of Boston-based Eastern Bank.”

“Bitner recently forecast that the subprime-mortgage industry’s sudden woes could mean Massachusetts home values won’t bottom out until at least this summer.”

“The good news? Pretty much everyone agrees that today’s soft market means great deals await this spring’s crop of house hunters.”

“‘I think buyers have a very strong hand right now,’ said Barry Nystedt, a Newton buyer’s agent. ‘It’s all about supply and demand.’”

“Unit 2, 71 Marion St., Somerville. Buyer Agents of Boston’s Gary Dwyer calls this $399,000 three-bedroom unit, located in a three-family near Inman Square, a ‘nice option for first-time buyers or growing families.’ He added that someone willing to close a deal quickly could probably ‘negotiate a nice price reduction.’”

“Nystedt likes this four-bedroom Nonantum home, which currently lists for $499,900. ‘Many folks would not believe you could get that much house in Newton anywhere (for the price sought),’ he said.”

“Atwood Ave., Newton. Nystedt considers this $799,000 four-bedroom a good deal because the owner has cut the asking price by $100,000. The Newtonville home has also been up for sale on and off for some five months, ‘indicating seller motivation,’ he said.”

The Sun Sentinel reports from Florida. “Home builder Ara Hovnanian was asked Thursday to rate the housing market on a scale of 1 to 10. ‘Am I allowed to use negative numbers?’ he said, drawing laughs from the crowd of about 400 at a real estate conference in Hollywood.”

“‘We’re in for a fairly ugly correction,’ said Ron Terwilliger, head of Atlanta-based Trammell Crow Residential.”

“David Seiders, chief economist for the National Association of Home Builders, opened the session with a sobering housing outlook that was more pessimistic than the one he delivered at the International Builders Show in Orlando in February.”

“Seiders said there are a record 1.4 million excess vacant housing units for sale nationwide, and the number will grow as homeowners lose their properties to foreclosure. He expects more home and condominium price declines in many areas, including South Florida.”

“‘Some markets will really be in the doldrums for quite a while,’ said Seiders.”

“Because of the subprime crunch, traditional lenders are tightening their standards. ‘The subprime world has really changed the market in for-sale housing,’ said Hovnanian, adding that his company’s two softest areas in Florida are Fort Myers and West Palm Beach. ‘I’m a bull long term on housing. But the short term is not so rosy.’”

“‘I think it’s a confusing time to buy,’ said Bill Donges, CEO of Lane Co., a apartment and condo developer. ‘It’s hard to tell if prices are at the bottom. With all the uncertainty, a lot of people think it might be better to rent for awhile.’”

The Palm Beach Post. “More than 400 building professionals from around the country are attending this week’s National Association of Home Builders conference on multifamily housing entitled ‘Welcome to the Next Step.’”

“But the next step for multifamily housing is really a step back. ‘We will see closings start to decline again,’ said economist David Seiders, addressing Thursday’s crowd about sluggishness and instability in the over-built condo market.”

“‘Sales, prices and inventory will all continue to decline this year,’ Seiders said, delivering a more dour forecast than he has in previous months and years. ‘This is not a recovery,’ he emphasized.”

“‘The impact of the mortgage market mess has not shown up in the housing numbers yet,’ Seiders said. Prices were rising 18 percent a year for several years, Seiders said. ‘We’ve got some more negatives ahead of us.’”

“The really bad word; Seiders called it ‘the big theme,’ is supply, he said. The important issue is not how many houses are in the backlog of unsold inventory, he said. It’s how many vacant houses, which have risen to unprecedented levels, Seiders said.”

“‘We’ve got 1.4 million excess vacant units on the market now,’ Seiders said. ‘That’s a lot. That’s the legacy of the finance-driven investor binge of ‘03. The condo inventory is at record levels.’”

“Vacant for-sale condos are ‘going straight up’ in numbers, he said. ‘That’s the major point. Wow! The ‘overhang’ (unsold units) is very heavy, and that’s not considering units under construction, which are still at near-record numbers.’”

“‘Pricing has a lot further to adjust. The places that have to adjust the most are the ones that rose the most (such as South Florida),’ he said.”

The St Petersburg Times. “Pooja Sharma sympathizes with the developers of Live Oak Preserve. She owns two houses there, plus a third in next-door Meadow Pointe and has felt the slackening demand in home values. ‘The market is very bad,’ she said.”

“Yet as a resident, Sharma would like to see Live Oak finished. ‘Everything should be done as soon as possible, so we won’t have all the trucks and all the dirt,’ she said.”

“Streets just east of Sharma’s are flanked by weeds, not houses. Transeastern Homes, the developer of the 1,600-home Live Oak and the nearby 500-unit townhouse development, obtained only four building permits since last June despite having the two developments only half finished. Nearly 50 earlier permits expired for lack of activity.”

“In a news release last month, the company described ’significant doubt’ that Transeastern, which lost $468-million in the year ending Nov. 30, could continue without restructuring its debt or obtaining an infusion of new money.”

“Meanwhile, TOUSA president Antonio Mon said the company has worked to shrink its inventory of land. ‘During the last six months of 2006, we sold land and abandoned our rights under option contracts,’ he said in the press release. Mon said TOUSA also would limit speculative building and focus on presales.”

“That may explain why Pooja Sharma, in Live Oak, heard from neighbors that Transeastern has begun selling 40-50 lots in a new estate section of Live Oak.”

“But over the last year, selling has been a problem. Realtors reported almost 30 percent fewer residential sales across greater Tampa in January and February, compared to the same period last year.”

“Mike Wright, renting in Live Oak while he tries to sell his prior home in Greensboro, N.C., said he talked to two Transeastern employees who feared they might be laid off within days. When they didn’t return, Wright learned they had lost their jobs, he said.”

“‘Right around the time that we closed was when construction stopped,’ said Eric Cross, who bought a Hammocks townhome last August. ‘Living in a half-built community is a frustration,’ Cross said.”

“‘I heard the prices are going down,’ said Pardeep Kumar. ‘But that’s not related just to Live Oak. I guess that’s normal everywhere.’”

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