The Housing Bubble

A report from the Arizona Republic. “One of the challenges Mary Hennecke is facing in selling her house in Gilbert is competing against incentives being offered by homebuilders. But, those incentives are also a major reason why she plans to buy a new house in Gilbert after her current one sells. ‘Anything that they can offer is certainly beneficial,’ she said of her next purchase.”

“Hennecke bought her home in the Higley section of Gilbert with her husband in November, and said she benefited from an $85,000 price reduction. She said she’s hoping that margin works in her favor, as she has to sell because of a divorce.”

“The Valley’s real estate market has 20-25 percent more inventory than it needs, said Jo Ann Webley, a real estate agent working in Gilbert.”

“Jay Butler, director of Realty Studies at Arizona State University, said this is a ‘hard market.’ ‘It may be finally settling in with sellers and agents alike that this market is where its going to be, and you better be realistic about that price,’ he said.”

“If sellers need to lower their asking price, they should limit it to one significant cut, Butler said.”

“‘I tend to favor the big move a little bit,’ he said. ‘If you do a lot of little increments, their question is when do you actually stop? There’s no incentive for them to make a move on it.’”

“Last year’s market was bad, said Michelle Krause, a real estate agent in Gilbert. But, sellers are lowering prices and the tide is starting to turn.”

“Anyone looking for a quick rebound in housing prices probably is in for a disappointment, said an economist speaking in Phoenix this week.”

“‘We think real estate prices will move sideways or slightly lower for several years,’ said Thomas Higgins, of Los Angeles investment firm Payden & Rygel.”

“He follows the ratio of median housing prices to median household income. Nationally, the figure is 4.9 times greater, and it’s a bit higher in the Valley, at 5.9. That implies more cooling off ahead so that incomes can catch up a bit to home prices.”

The East Valley Tribune from Arizona. “The Tribune spoke with East Valley developer Michael Pollack, who has been in the development business for more than 30 years, about the state of the Valley’s market. Here’s some of what he shared.”

“Q: How would you characterize the Valley’s current real estate market? A: I think that we have a lot of the real estate market currently, in all sectors, that’s overpriced. As I said back in the year 2004, I thought that we were getting way too much investor activity in the single-family marketplace, and I thought that the loans were way too creative.”

“Q: What kind of impact are we seeing now from that influx of investors? A: Investors in some cases are still holding out hope that the values will go back again to what they were in 2005 in fairly short order, and I don’t see anything that’s going to accomplish that…We need to hit the bottom. And I don’t believe we can hit the bottom until we sort through the subprime mortgages that are out there.”

“‘(People) got in on low teaser rates and now those rates are at a more market rate, and they can’t afford the house that they’ve got. They try to refinance it and it won’t appraise for what they bought it for. And then it gets worse because they put nothing down so they have no equity, So how do they refinance it?’”

In Business Las Vegas from Nevada. “The condo speculation boom appears to be over in Las Vegas. For the first time since the condo boom started in 2003, the number of proposed units in the Las Vegas Valley has declined, according to Applied Analysis.”

“And the report doesn’t include the latest condominium project to fizzle out when the Edge Group announced last week that its W Las Vegas project wouldn’t go forward.”

“‘I would say the development community is responding to current market conditions, and we have seen fewer new proposals,’ Applied Analysis Principal Brian Gordon said. ‘Developer speculation and land price appreciation have subsided. Developers are seeking to move forward with projects that are financially feasible more so than in the past.’”

“Applied Analysis reported that Las Vegas had a total of 4,214 condominium units at the end of the first quarter and another 13,409 were under construction and 9,546 have begun selling units.”

“In addition, there were 56,302 planned for a total of 83,471 units. That is down from a total of 85,809 existing or planned as of the fourth quarter. About 2,491 units were suspended and 11,814 canceled, 12 percent of the total.”

“Local analyst John Restrepo, principal of Restrepo Consulting Group, said he expects only about 10,000 units of the proposed projects that aren’t under construction to go forward over the next five years.”

“‘The market was never as deep as everybody thought it was,’ Restrepo said. ‘The one thing that drives high-rise condo sales, if you look around the country, is water views. The Strip is very exciting to look at at night, and certain segments want to be in high-density entertainment environments. But a lot of buyers of high-rise condo units want to be in more urbanized cities with water views.’”

“In a sign of investors leaving the market, Applied Analysis suggested in its quarterly report that as many as 60 percent of all condo units closed in Las Vegas may enter the market during the next 36 months as resales.”

“At the end of the first quarter, Applied Analysis reported there were 754 luxury units on the market with an average asking price of $803,900 or $622 per square foot. Units that sold during the first quarter averaged $764,500 or $537 a square foot, the firm reported.”

“By the end of the year, broker Bruce Hiatt said he expects an 18-month to 24-month supply of condos.”

The Las Vegas Business Press. “The bulk of the (condominium) market is still speculative, with 56,302 units accounting for 57.6 percent of the valley’s total inventory. Only 13,409 units, or 13.7 percent, were under construction in the first quarter”

“‘The vast majority of units in the pipeline have been sold and their total is exponentially higher than the present market inventory,’ maintained Brian Gordon, principal of Applied Analysis. ‘Land owners and developers are dealing with conservative reactions by the investment community and potential buyers, in response to recent reports that a supply-demand imbalance is inevitable.’”

“Unemployment was up slightly in Nevada in April according to a report released Friday. The report singles out the residential housing market’s continuing slump as the cause of rising unemployment. A decrease in home building has meant more unemployed construction workers.”

“‘While the construction industry makes up 11 percent of Nevada’s workforce, it accounts for 25 percent of unemployment claims filed through DETR,’ Department of Employment, Training & Rehabilitation Director Terry Johnson said. ‘There is clearly a disproportionate number of workers in the construction sector becoming unemployed. It seems that the housing slump is signaling less of a need for workers in this industry.’”

The Review Journal. “A moribund housing market is enlivening unemployment offices across Nevada. Jim Shabi, an economist with the agency, said the state’s building sector lost 2,600 jobs, year over year in April.”

“Builders closed on 1,771 new homes in Las Vegas in March, down 50.9 percent from the 3,606 units they sold in March 2006, according to real estate research firm SalesTraq.”

“Southern Nevada’s housing slump and the scarcity of industrial land has forced Las Vegas’ eighth-largest manufacturer, Merillat Industries, to close its cabinet plant, costing 330 workers their jobs.”

“The closing was caused by the slowdown in new home construction and better prospects at a new plant in New Mexico, said Larry Wilson, director of marketing.”

“Sales of new homes were down 44 percent in April compared to April 2006, according to the Southern Nevada Home Builders Association.”

“‘Everyone in the industry is hurting - everyone,’ said Monica Caruso, spokeswoman for the Home Builders Association. ‘There are layoffs and tremendous cuts in revenue. This is a very tough time in the homebuilding industry, and it’s going to trickle down to other segments.’”

The Gazette Journal from Nevada. “The foreclosure rate in Washoe County remained dramatically higher from a year ago, according to a report released this week.”

“In Washoe County, 277 homes entered some stage of foreclosure in April, according to RealtyTrac. That’s up from just 41 in April 2006, according to the report.”

“Washoe’s rate is better than the average in Nevada, which boasted the highest foreclosure rate in the nation for the fourth consecutive month. Las Vegas had the fifth-highest rate of all metropolitan areas in the country.”

“Washoe’s western neighbors in California, Stockton, Vallejo-Fairfield, Modesto, Sacramento and Merced, joined Vegas in the Top 10 highest rates.”

Readers suggested a topic on real estate spin. “What’s your favorite property description or Realtor shill?”

Another, “‘Handyman Special.’ Usually used in conjunction with a house with MAJOR problems, being sold at a paltry discount to comps.”

And, “‘Pride of ownership.’ Pride goeth before destruction, and an haughty spirit before a fall.”

“‘Priced to sell’ and ‘Won’t last long.’ House has been on the market for greater than 6 months. NAR members should lose license if employing these terms after first month of listing. ”

One said, “‘New On Market’ and ‘Wont Last Long.’ Both are absolute nonsense.”

“‘Hurry!! Won’t Last!!!’ on a place that has 150+ DOM.”

The Washington Post. “Some real estate agents say that, despite key statistics that show the slowest housing market in years, they are seeing cases of multiple bids and rising prices. ‘I think the market is soft if you don’t price it right,’ said real estate agent Jane Fairweather in Bethesda.”

“‘You’re still seeing a lot of people buying when they see something as a fair deal to them,’ said real estate agent Ron Sitrin in Friendship Heights.”

“But not all agents have witnessed that confidence. Real estate agent Kristine Price in Chantilly, whose territory includes Prince William, Fairfax and Loudoun counties, said: ‘I’m getting more potential buyers at my open houses. Last year, at some of the open houses, I got zero. I’m getting a lot of traffic, but not getting a lot of offers on the table.’”

“‘When I talk to some buyers, they say, ‘Maybe I should wait a little and the prices will drop more.’ ‘I don’t think people are getting the asking prices,’ she said. ‘There’s definitely wiggle room for buyers.’”

“Other agents warn that padding a price can scare away the true suitors. ‘The problem is, if they price it too high, they can lose the buyers’ who would actually have been interested, said Robyn Burdett in Fairfax, who works in Fairfax, Loudoun and Prince William counties. ‘Those buyers won’t even look at the property,’ she said.”

“Jennifer Walker, a real estate agent in Alexandria who has sold some homes in Del Ray for more than the asking price, said the recent multiple bids she has seen bode well for sellers.”

“But she said the old days are gone. ‘I think definitely we’re not going to go back to a situation where we see people bidding $100,000 over the asking price,’ she said, ‘which was crazy in itself.’”

The Herald Tribune reports from Florida. “The Sky Sotheby’s/J.P. King real estate auction, offering one of the largest luxury home portfolios ever presented in a single swoop, drew an overflow crowd of 300 people. What the event showed even those in Southwest Florida’s all-important real estate industry who decided to bypass the gathering was that people are willing to buy, but definitely not at top dollar.”

“Some properties only generated half of their listed prices, while others commanded up to 80 percent.”

“Well-known Sarasota investor Marvin Kaplan bought a four-bedroom, three-bath house on Parmeron Lane in Gladstone Park for $300,000. The builder had about $590,000 in the home, meaning Kaplan got it for about 49 percent off. Kaplan offered to buy three more at the same price but the owner turned him down.”

“Someone got a tremendous $125,000 bargain on the absolute sale of a vacant lot near Sarasota Memorial Hospital. The property last sold for $415,000 in 2005.”

“Earl Niemoth summed up what might be the consensus among a real estate industry still struggling with slow sales and burgeoning inventory. ‘The bottom line is that they moved some property today,’ he said.”

The Orlando Sentinel. “Builders in the new Sawgrass subdivision south of Orlando are adding this weekend to what is already the fastest-growing segment of the housing market in Central Florida: model homes.”

“Builders have significantly cut the number of homes, condominiums and town houses they’re putting up in the region, as demand has slumped. But model homes are making a brisk comeback.”

“‘Before, all we needed to do was put up a sign, a ‘Coming Soon’ sign, and we’d get 400 people lined up. Now you really have to build and decorate model homes,’ said David Byrnes, Orlando division president of Beazer Homes.”

“According to Metrostudy, builders in the six-county area have boosted the total number of model homes by more than 50 percent in less than a year. The number of subdivision models in those counties, Orange, Seminole, Osceola, Lake, Volusia and Polk, mushroomed from 630 at the end of last June to more than 950 by the end of March, with much of the increase coming in the first quarter of the year.”

“‘It’s a reflection of the lack of sales activity,’ said Anthony Crocco, director of Metrostudy’s Central Florida and Northeast divisions.”

From Reuters. “The St. Joe Co. on Friday said it was temporarily suspending sales at its SevenShores luxury condominium development in Bradenton, Fla., while it updates its market research.”

“‘The slowing market has provided an opportunity to measure and analyze current demand so that we can better align our future product offerings before moving forward with sales,’ Nick Cassala, the company’s president of Northeast/Central Florida, said in a statement.”

The Wall Street Journal. “If the housing-market shakeout has an epicenter, it probably lies in Florida. Goldman Sachs economists note that speculative buyers in houses and, especially, condos fed a building boom that pushed Florida’s housing stock up far more quickly than the state’s population grew.”

“Speculators who have held back on selling now bear heavy costs. According to the U.S. Commerce Department, the number of vacant homes for sale in Florida doubled last year to 4.3 percent of the state’s total housing stock. That’s the highest vacancy rate in the country.”

“Home builders, hard hit everywhere, are getting hit hardest in Florida. Building permits for new-home construction were 51 percent below their year-ago level in the first quarter, according to the Commerce Department.”

“Florida’s housing woes likely will cause a statewide economic recession, according to New York investment firm Goldman Sachs.”

“Florida sales of single-family existing homes were down 26 percent in the first quarter of 2007 compared with the same period in 2006, according to the Florida Association of Realtors. Of 20 Metropolitan Statistical Areas, 19 of 20 were down in sales. Median sales prices were down 3 percent statewide.”

The TC Palm. “There were 3,500 more people on the Treasure Coast seeking work in April than a year earlier, with many of the jobs lost in construction, utilities and transportation.”

“Robert Sak, a Fort Pierce-based independent building inspector, said the numbers appear to match the market. ‘Prior to the slump, I had four to five inspections per day,’ said Sak, who inspects homes across the Treasure Coast. ‘Now I am doing one a day.’”

“‘Any business that depends on housing is going to be affected by this,’ said custom homebuilder Richard Hope in Vero Beach. ‘Furniture stores and landscaping businesses have been hurt pretty badly by all this.’”

“Merle Dimbath, Treasure Coast economist, said the report does not reflect the region’s true unemployment figures. ‘There’s a lot of people who are underemployed because their hours have been cut back from 40 to 50 hours a week to 12 to 18 hours a week,’ Dimbath said. ‘My suspicion is, a lot of people attached to the housing market are self- employed and file a 1099, so they won’t show up in this report.’”

“Susan Billero, owner of Billero & Billero Properties, said because developers are building less, there is little work available for construction workers. Additionally, less demand for homes means less traffic at Realtor offices. ‘A lot of (Realtor) offices were letting people go,’ Billero said.”

The Sun Sentinel. “The housing slump is chipping away at South Florida’s sturdy job market. Construction and real estate companies with bloated payrolls during the boom years now are cutting back, and experts predict those firms will shed more jobs in the coming months.”

“In April, Broward and Palm Beach counties lost almost 12,000 jobs, and statewide the building and real estate sectors led the payroll cuts, according to figures released Friday.”

“‘I just needed a break,’ longtime agent Myrna Bier of Boca Raton said. She recently left Lang Realty frustrated with the industry downturn and the hoard of people who jumped into the profession when housing was hot.”

“‘Anybody can go to school and get a license [to sell real estate]. There are a lot of amateurs out there who don’t know what they’re doing,’ she said.”

“Meanwhile, Broward County lost 6,362 jobs last month, compared with March.”

“There could be more job losses to come. ‘So far, we haven’t really seen the effects of a construction collapse,’ David Denslow of the University of Florida Bureau of Business and Economic Research, said. But he’s expecting more declines, following slowdowns in the housing market and the nation’s economy at the start of the year.”

The News Press. “Seasonal hiring declines and the area’s slowed construction industry pushed Lee County’s unemployment rate up slightly in April.”

“Builders in unincorporated Lee County, Bonita Springs and Fort Myers Beach pulled 264 permits last month for single-family homes, 69 percent fewer than the same month a year ago.”

“While the slowdown has had a direct impact on construction hiring, it also has slowed hiring in financial activities and the professional and business services sectors.”

“Real estate agent Virginia Andrade said the slow market means she is looking for another job to supplement her income. ‘I had a full-time job and I left it a few months ago to do real estate full time,’ said Andrade. ‘And now, things have slowed down so I am looking around and preparing my resume.’”

From WJHG 7. “New data released today at the Tax and Budget Reform Commission shows fewer families with children are moving to Florida. And, more families with kids are leaving the state. The high cost of housing is getting the most blame.”

“Forecasters thought 48 thousand new children would enroll in Florida schools this year. October figures show just 477 did. By now, many more are expected to have left the state, making this the first time in modern history fewer kids are in school here from one year to the next.”

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