The Housing Bubble

The California realtors report on April sales. “Home sales decreased 27.8 percent in April in California compared with the same period a year ago, while the median price of an existing home increased 6.2 percent, CAR reported today. ‘April sales fell in part because of tighter credit standards and growing concerns about the impact of subprime loans on the market,’ said C.A.R. President Colleen Badagliacco. ‘Throughout the state inventory levels have increased to their highest levels in recent years, giving buyers more time to view a greater variety of homes and sellers who set realistic prices an edge in the market.’”

“‘Although the median price of a home in California continues to rise, this reflects the fall-off in sales in the lower-priced markets of the state where new home inventories and foreclosures are competing with the existing home market,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘Fewer sales from these regions coupled with modest gains in some of the stronger coastal markets are pushing the median price for the state up slightly.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in April 2007 was 10 months, compared with 5.7 months (revised) for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 35.3 percent, or 128 out of 363 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Ventura County Star. “Ventura County’s total sales fell 20.8 percent from April 2006, continuing a sharp pullback from the frenzied buying days that began to cool in 2005. Year-over-year monthly sales have declined in double-digit percentages for the past year, ranging from 16.3 percent to 41.5 percent. April sales were also down 12.4 percent from March.”

“The area’s median price can increase while sales totals fall because it is mostly more expensive properties that are moving, said Mark Schniepp, director of the California Economic Forecast Project in Santa Barbara.”

“‘We’re actually seeing that,’ Schniepp said. ‘The higher-end market is less affected by the sales slump than the lower-end market right now.’”

“Joe Virnig, president of the Ventura County Coastal Association of Realtors, said the increase in the median price in April does not mean real estate prices are going up across the board.”

“The median is as much a factor of the types of properties that are selling as their prices, he said. And a sales slowdown is to be expected after years of unsustainable price appreciation.”

“‘There are some people in my industry who see things only as wonderful and rosy when things are clearly not that way,’ said Virnig, a broker in Ventura. ‘I think it’s better to be realistic about the current situation because you have to know where you are today so you can predict accurately where things are going tomorrow.’”

“Ventura County has many neighborhoods where homes are selling at somewhat lower prices than a few years ago, Virnig said. Almost no properties in those areas changed hands for months until sellers began reducing their prices.”

“‘Now you’re seeing people with asking prices that reflect the new reality and those homes are selling,’ Virnig said.”

The News Sentinel. “The housing market in Lodi isn’t spectacular — in fact, it’s sluggish. But compared with nearly every other city in the area, sluggish looks pretty good.”

“Few think Lodi has cracked the housing slump yet and that may actually take some time. Kevin Fritz, who buys and sells houses as a hobby, said he’s had to lower the price on most of his houses.”

“‘It was easy (to flip homes) three years ago — now it’s a challenge,’ said Fritz.”

“Fritz has battled the housing slump by posting numerous ‘for sale’ signs, hosting lots of open houses and keeping his yards in top shape. Being flexible on price has also helped, he said. ‘The houses are still selling,’ said Fritz. ‘You’ve just got to listen to all offers.’”

“Currently there are 485 homes on the market between Lodi and Woodbridge, said Paul Mertz, a past president of the Lodi Association of Realtors. That’s about a nine or 10 month supply of inventory, but quite a bit less than in Stockton where many existing and new homes are still on the market.”

“Jaime Alvayay, professor of real estate finance and investments at California State University, Sacramento said he doesn’t see the state’s or the region’s housing slump disappearing anytime soon, especially now that cheap home loans are harder to find.”

“Arturo and Reyna Leyva don’t have enough money to buy a house quite yet. But even if they did, the Lodi couple said they’d probably keep renting. ‘We’d probably wait,’ said Reyna.”

“Paying $900 a month for their Lakeshore Meadows Apartment is probably the best bet for now, Arturo Leyva said. ‘Having your own house has its advantages, but (the prices) are too high,’ he said Friday in south Lodi.”

“Julie Stearns, co-owner of Colonial North Property Management in North Stockton, said many homeowners have given up on selling their homes for now. ‘They’re opting just to rent it out and wait out this (housing) slump,’ said Stearn.”

“She added that the rental market could grow stronger as the home loan business tightens up. Without as many loan options as a few years ago, fewer first-time home buyers will be able to enter the housing market, she said.”

The Orange County Register. “Subprime mortgage problems first showed up last year as an increase in defaults and foreclosures, but more recently experts say the financial difficulties are being seen on a new front, bankruptcies.”

“Filings are beginning to grow again, more than doubling in Orange County in the first four months of this year vs. the same period last year.”

“Bankruptcy experts blame it, at least in part, on homeowners who are behind on their mortgages and can’t make the payments after their initial low-cost ‘teaser’ loans adjust to higher rates.”

“‘Every month it’s worse, more and more people are coming in,’ says Natalie Lohrenz, director of counseling at Consumer Credit Counseling Service of Orange County.”

“‘The percentage of these clients coming to us for counseling and struggling with mortgage and default and/or foreclosure has been increasing from less than 20 percent in 2005 to nearly 40 percent at present,’ she says.”

“‘We’re seeing a lot more (mortgage-related bankruptcies),’ says James Bastian, a bankruptcy attorney in Foothill Ranch.”

“The mortgage effect he is seeing is twofold. First, homeowners with mortgage problems were asking about bankruptcy. Then people who lost their jobs as local mortgage companies filed for bankruptcy protection and slashed staffs also began calling.”

“‘We saw an upswing in phone calls in the last month from the fallout of the mortgage mess,’ Bastian says.”

“One of the myths about filing for bankruptcy protection is that it can prevent someone from losing their home. It’s not necessarily so.”

“‘The problem with bankruptcy for clients struggling with mortgage default is that it is only a temporary fix unless getting rid of all their unsecured debt leaves them plenty to pay the regular mortgage,’ says Lohrenz. ‘They will still face foreclosure and the filing only postpones the inevitable.’”

Readers suggested a topic on housing bubble prices, “I propose a discussion of a topic the MSM-quoted cheerleaders avoid like the plague: How will the market absorb the huge glut of new homes targeted at the $500K+ price range now that home equity appreciation has gone into reverse?”

“Consider who was buying these homes four years ago versus who can buy them currently. Four years ago, when prices were going up by 10%+ forever (and 20%+ forever in El Aye), buyers with very little labor market income or accumulated household wealth could roll home equity appreciation on their current home forward into a move-up purchase.”

“Now that equity appreciation has stalled and, in some cases, gone into a tailspin, it seems as though only trust fund babies and CEOs can afford to purchase in the $500K+ price range, although there is no shortage of recent and current construction targeted at that price range.”

“The current median list price on ziprealty.com for our zip code (Rancho Bernardo W 92127) is $1.3m, but depending on whom you believe (DataQuick or Sandicor), the April 2007 median home sale price was somewhere on the range between $725K-$775K — at least $500K below the current median list price. This appears to me as prima facie evidence that there is a serious shortage of junior executives currently out looking for homes in the $1m+ price range.”

“As further evidence on this point, the used SFR inventory listed for sale in 92127 has increased by 30% since February 1 (from 200 to 260), while the median list price has dropped by $95,000 (from $1.395m to $1.3m). I believe the median list price has quite a bit of downward adjustment ahead of it before the market works through the housing bubble stages of grief. Sellers are still stuck in denial at the moment.”

One replied, “I posted here a few days ago about the news that my friends received down in SW florida. Their 1.2m condo purchase might now go for 750K IF someone were to be out buying. However, there are almost NO buyers out looking at these condo’s and there are something like 160 out of 180 that are EMPTY!”

“It is virtually empty in all 3 buildings and these are all upper-end condo’s on the west coast of Florida! The builder is offering the penthouse suites for 1.2M, formerly offered at 3.0M. No one knows how far this has to fall but I’m going to predict that ALL of these units are going to be well below $500K before this is over.”

“The number of people who can ACTUALLY afford a $500K condo or house is miniscule compared to the number of listings that exceed this price. Just imagine what is going to happen in places like Miami if this is happening on the West coast! This crash is just starting folks. No need to push, plenty of seats still available up front!”

Another wrote, “It’s the same here in Queens, You cannot get a SFH or rowhouse in a good neighborhood for under $500,000. The median income is $45,000. Unless every Wall Street type wants to live in Queens, I don’t know how these prices are sustained. Though there still seem to be a few greater fools buying.”

One from Arizona, “The higher end stuff ($600K to $850K and above) will crash much worse than the lower end stuff ($100K to $200K). There is almost no one who can actually afford a $750K home in the U.S. Even with 10% down, you would need roughly $225,000 per year.”

“There just aren’t that many people that make that kind of money. Granted this blog may skew to the higher end of payscales, but the majority of people make a household income somewhere between $50,000 to $80,000 per year. That doesn’t equate to median home prices in the $600,000’s.”

“The NAR keeps arguing that R.E. is local, but everywhere the homebuilding industry just decided to build homes and charge $500K to $800K (as based on loose lending). Just like with cars, the purchase is predicated on payment qualifying and not on purchase price.”

“Places like West L.A. and the beaches there will crash. So will most of South OC as the people are mostly fronting and dont have the incomes to back up the show.”

“In our Zip Code in Scottsdale, the median household income is about $85,000, meanwhile the median asking price is about $650,000, so something doesn’t equate. Prices will have to correct and anyone who is into an Alt A or pick-a-payment is screwed. This 15% to 20% correction stuff is b.s., everything will go back to pre-1997 prices guaranteed, and will probably overshoot as many here have predicted.”

One sees buyers remorse, “People are brainwashed into payments vs. purchase price. When it’s easy to get a $500k home for $1650 a month (interest-only), hell everyone wants a nice house. But as the piper comes to collect his dues, reality sets in and these asshats go running to the gov’t for a bailout ‘I didn’t understand the loan,’ ‘I was screwed over,’ etc.”

One doubts a policy influence. “I just don’t see how policymakers could reflate the bubble at this point. The Fed can’t drop interest rates significantly without creating inflation. They can’t drop regulations on lending standards any lower than than they have already.”

“Regardless, I don’t think any business entities want to follow New Century’s path. We already have huge tax breaks for with the mortgage interest deductions. What else could they do? I don’t think policymakers can stop this bursting dam.”

The Palm Beach Post reports from Florida. “April’s existing-home sales report released Friday dashed all hope that the spring selling season would pull the local real estate market out of its post-boom doldrums. The inventory of unsold homes from Boca Raton to Hobe Sound soared to a stunning 43-month supply in April, according to Illustrated Properties Real Estate.”

“In Palm Beach County, the median price of an existing single-family home fell to $376,300 in April from $386,500 a year ago, the Realtors association said. In the Treasure Coast, the median price dropped to $239,700 from $258,000.”

“Statewide, existing-home sales fell a dismal 26 percent, while the median price of an existing home in Florida dropped 4 percent to $236,000, the association said.”

“‘We’re going to see some downward pressure on those properties that weren’t priced properly to start with,’ said Ellen Bitton, CEO of Park Avenue Mortgage in Palm Beach.”

The St Petersburg Times. “Realtors couldn’t sell Paul Swisher’s house. Maybe his rhapsodies will. Frustrated by a home on the market for nearly 15 months, the St. Petersburg resident has taken a new tack to attract potential buyers: a 3-by-4 whiteboard on his lawn.”

“‘Hey, what’s up with this?’ he wrote this week. ‘Do I have to hit somebody over the head with a brick? This is a truly beautiful home. Are you going to force me to stand out here in a clown suit?’”

“The answer may be ‘yes’ if housing numbers released Friday are any indication. In the Tampa Bay area, the number of existing homes sold in April plunged 35 percent from April 2006, and 56 percent compared with April 2005, during the housing bubble that’s now a fading memory.”

“Since listing his house in March 2006, he’s dropped the price by $86,000 from $425,000, which his Realtor recommended, to $339,000. He’s also gotten rid of the Realtor.”

“Swisher hopes that a ‘For Sale’ flag he just ordered, which he’ll hang from the 20-foot flagpole in his yard, will attract some inquiries, too.”

The New York Times. “As dozens of condominium towers conceived during Florida’s real estate boom near completion, investors who snatched up units in the preconstruction phase in hopes of turning a quick profit are increasingly trying to break contracts, even walking away from fat deposits.”

“‘I get two or three of these calls a day,’ said James Ryan, a lawyer in Boca Raton who said he had 40 clients looking to get out of condo contracts. One, Mr. Ryan said, abandoned a $340,000 deposit rather than close on a $1.6 million unit that lost its appeal as the market faltered.”

“‘I see buyers unleashing all possible means to try to get out of contracts,’ said Gary Saul, a lawyer in Miami for developers, adding that in some projects, 20 percent of buyers want their money back.”

“Tom Leon said he planned to give up $200,000 in deposits on two condo units in Miami, priced at $500,000 each, after finding ‘no loopholes’ in his contracts. He said he was not especially bitter, since he had made money flipping other properties at the height of the boom.”

“‘There are some people that mentally can never bring themselves around to that, especially in real estate. But there’s a time to hold and a time to fold, and in my opinion, this is a time to fold,’ said Mr. Leon, adding that he never had any intention of living in either of the units.”

From TC Palm. “Sales of existing homes in Indian River County continued to slide last month, as prices inched down. ‘I wish it was better, but it could be worse,’ said Karen Hall, president of the Realtors Association of Indian River County.”

“Sales were off 18 percent while the median price of existing homes fell 7.5 percent to $217,400 from April 2006.”

“‘My fear is that a lot of people are not lowering their price because they can’t,’ said Brad Hunter, director of West Palm Beach-based Metrostudy. ‘There is no negotiating room left.’”

The Sun Sentinel. “The spring home-selling season is proving to be a misnomer. Many buyers are holding off. They’re waiting for prices to keep falling, experts say.”

“New data released Friday shows that sales of existing homes in Palm Beach County dropped 17 percent last month from a year ago, according to the Florida Association of Realtors. The county’s median price was $376,300, a decline of $10,200 from $386,500 a year ago.”

“‘Home builders have dropped their prices like a rock,’ said consultant Brad Hunter. ‘People can buy a home discounted by $100,000 or $150,000.’”

“Palm Beach County had about 36,000 properties on the market at the end of April, up almost 30 percent from a year ago and triple the number from 2005, according to Keyes Co.”

From Florida Today. “Daryl Adkins hopes the end of the school year means an ample pool of willing buyers in Brevard in the next month or so, and that the three-bedroom Indialantic home he is trying to sell will catch someone’s eye.”

“After two years and a couple of price reductions without a buyer, Adkins is hopeful, but not too confident. ‘I think houses are selling,’ Adkins said. ‘The problem is there is just too many of them. The market is just flooded.’”

“Adkins purchased his home for $245,000, and did extensively remodeling to the property. His initial asking price was $329,000, although he has reduced it to $233,000.”

“Gary Corbett of Melbourne also isn’t getting a whole lot of buzz for his three-bedroom home, which he has listed for $225,000. That’s also a lower price than what he originally was asking.”

“He’s not confident that he’ll sell the house any time soon, but that doesn’t worry him. ‘I’m not in a hurry,’ Corbett said. If it doesn’t sell, I can stay here. It’s just a lot of house for one person.’”

The Miami Herald. “South Florida home sales suffered through their slowest April in at least 10 years, dropping 37 percent from a year ago. Prices mostly inched up, although Broward condominiums sold for 8 percent less than they did in April 2006.”

“The condo market is cold. Sales dropped 22 percent in Broward to 683 units and 30 percent in Miami-Dade to 722 units. The demand drop cut into prices in Broward, as the typical unit went for $197,800, about $17,000 less than in April 2006.”

“Single-family home sales plunged compared to a year ago: down 16 percent in Broward to 580 houses and down 37 percent in Miami-Dade to 531. Those are the lowest April numbers recorded on the Realtor group’s website, which contains data back to 1997.”

The Herald Tribune. “Pat Neal, president of Neal Communities, has seen changes in the market. ‘Our May results are better than May of 2004, 2005 and 2006,’ Neal said.”

“The average price for one of Neal’s homes is down about $125,000 since the market softened early last year.”

“‘Because underwriting standards are much more difficult now, many of the lower priced homes may well find their way back onto the market through foreclosure,’ he said.”

“Amanda Stark of Fort Myers, and her husband, Bill Berry, bought their three-bedroom house a year ago for $229, 000, with a subprime mortgage and no downpayment. The interest rates were steep: 8.75 percent on 80 percent of the mortgage, and 11.25 percent on the other 20 percent. ‘Every time I say it,’ Stark said, ‘it just kills me.’”

“‘We thought, ‘For two years, we’ll struggle and get by, and after two years, we’ll refinance,’ said Stark.”

“But Berry, a carpenter, has had a hard time finding work since the housing market slowed. They’d been paying $1,000 a month in rent; now, they’ve got an $1,800-per-month mortgage, and another $600 in property taxes and insurance. ‘This could be a farewell party, too,’ Stark said.”

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