The Housing Bubble

The Denver Post reports from Colorado. “During the first quarter, new-home sales were down 39 percent over the same period last year, according to the Genesis Group. ‘It’s a painful thing for the homebuilding community to have to deal with that kind of loss in sales activity,’said Mike Rinner, senior analyst with Genesis.”

“New homes are not the main cause of the oversupplied housing market. Foreclosures are to blame for much of the woes in the housing market. They increased 33 percent in the first quarter of 2007, compared with the same period last year. More alarming is that 72 percent of all foreclosure filings were for properties with an original loan amount of less than $200,000, mostly in Adams, Denver and Arapahoe counties.”

“‘Someone trying to sell a home for under $200,000 is competing with foreclosures,’ Rinner said. ‘If they can’t sell their home, they can’t move up to a $300,000 home.’”

The Rocky Mountain News from Colorado. “The Genesis Group said ‘foreclosures represent the most significant challenge contributing to the woes of both the new and resale housing markets.’ Genesis, which tracks the Front Range housing market, said foreclosures are creating an ‘involuntary supply’ of homes, according to its report.”

“The thousands of foreclosed homes on the market are ‘threatening the health of metro Denver’s housing market by directly and indirectly reducing demand for existing and new housing.’”

“Kathi Williams, director of the Colorado Division of Housing, said the division’s Foreclosure Hotline is ‘trying to slow down this dumping of properties into an overall saturated market.’”

“Susan Melton, who heads the Denver chapter of the National Association of Residential Property Managers, said it is more difficult to raise rents in apartments, condos and small townhomes.”

“‘There is more of a big glut of townhomes and condos on the market than houses,’ said Melton.”

“The soft housing market is driving down vacancy rates for rental homes in the (Denver) metro area, even as property owners convert a growing number of homes they can’t sell into rentals.”

“A growing number of landlords are paying more in mortgage payments, taxes and other costs than what they can bring in as rent, said said Robert Alldredge, a Lakewood-based property manager. They are willing to do so because losing a couple of hundred dollars a month is more manageable than trying to cover the thousands of dollars their home has lost in value, he said.”

“Those landlords, however, are at great risk if their homes stay unrented on the market for too long.”

“‘There are a lot of investors who have trouble with the mortgage. They have to refinance. They are struggling with cash- flow problems,’ Melton said.”

The Arizona Republic. “Few in the housing industry, those who are seeing listings increase and more mortgages fall through because of tighter guidelines, will be surprised to hear housing analyst RL Brown’s April report on the market.”

“New-home sales, new-home permits and resales were all down in April from March in metro Phoenix. Brown said the hope that supply and demand for homes in metro Phoenix will balance out in 2007 grows ‘fainter and fainter.’”

“New-home sales across the Valley fell 20 percent from March. Home-building permits were down 5 percent. Existing home sales dropped 8 percent.”

“There are new-home deals in the Valley, plenty of them. But Brown said builders can’t increase their sales until buyers can sell their existing homes. He said 2007 is a transition period for the market and ‘if you made a lot of money in 2005 and even 2006, hope you banked some of it.’”

“Here are some of his new realties for the housing market: The housing industry will eventually ‘give back’ one way or another much of the profit gains of 2004-05.”

“The demise of ‘wink-wink’ financing will cut the ranks of home buyers. Appraisals will be based on today’s comparable sales, not comps from 2005-06, and appraisers ‘will be edgy as cats at a dog show.’”

“Brown reiterates that the Valley will continue to grow. Based on his April report, the rebound just might not be as soon as many hoped it would be.’

The Review Journal from Nevada. “Community banks in Southern Nevada are starting to report higher percentages of bad loans as the real estate boom turns to a bust. Some analysts do wonder whether the bad loans that popped up in the fourth quarter of 2006 will spread like a cold in a kindergarten classroom in the next few quarters.”

“First National participated in the boom in residential mortgage loan originations over the past few years, said president Patrick Lamb, and that business has slowed dramatically. ‘Anybody who tells you they are happy with the performance of the residential mortgage business is lying to you,’ Lamb said.”

“Dawn McLaren, research economist at Arizona State University, compared the problem to the bursting of the housing ‘bubble’ in Las Vegas. While community banks generally do not make loans for single-family residences, they do lend money to developers and homebuilders, which benefited from the housing boom.”

“‘This will affect builders, too,’ she said.”

“Bankers say real estate lending looms large in Southern Nevada because banks make so many development, construction and other real-estate loans. ‘Most of your banks in Southern Nevada are concentrated in real estate,’ said Ed Jamison, CEO of Community Bancorp. ‘That’s where the growth is.’”

“Problem loan totals may be tightening credit availability for small businesses, said Lanis O’Steen, president of the Turnaround Management Association in Nevada. ‘There was a tremendous amount of easy business credit for small businesses (previously),’ O’Steen said.”

The Las Vegas Business Press from Nevada. “Buyers of the seemingly defunct Spanish View Towers, a 15-acre luxury condominium project in southwest Las Vegas, filed suit Thursday to have their deposits returned.”

“The law firm of Marquis & Aurbach filed suit on behalf of Allison Gaynor, Barbara Chandler and Saralee Bowers. The family trio had put down more than $600,000 in cash as deposits on three high-rise residences.”

“This project is more than eighteen months behind schedule,’ said Terry Coffing, managing member of Marquis & Aurbach. ‘To date, there is no construction above the first floor of the first tower and the sad truth is, even that floor is not substantially completed.’”

“The project stalled shortly after breaking ground in early 2006. There are millions in mechanics’ liens filed against the project for non-payment.”

“The 2.38 million-square-foot development was initially scheduled to open by June 2007, a date it has missed. ‘Construction ceased long ago and we have learned there is no financing in place to move the project along,’ said Coffing.”

“The developer, who financed the purchase of land for the project, has reportedly set a foreclosure sale on the property for June 4.”

Readers suggested a topic on the pros and cons of owning a home. “Anybody out there who will never buy a house no matter how cheap it gets? I had a mortgage broker send me a GFE for a loan on a place I was fairly interested in (severely discounted) and when I looked at the list of fees, charges, taxes, etc. it just clicked. I don’t want the hassle, the commitment, etc. You can always find someone who will rent to you long term. I’ve never had any trouble. Today, I can’t say that I will ever buy anything.”

One replied, “I own my home, and love it. My mortgage payment is less than comparable rent, even more so after mortgage deduction is taken into account, so financially it has also been a good decision.”

“Even if/when my house loses 20-30% of its ‘value’ I’ll still be happy with the purchase, because it is still ‘worth’ losing that money to me.”

“However, I would never buy if it didn’t make economic sense. (like in my hometown of SF, which is why I moved away in the first place). If I were renting right now, I, too, would hold off on buying at least until it were sensible to do so.”

“There are pros and cons to every decision. Right now in most markets the cons to buying a home far outweigh the pros.”

Another said, “I agree that owning has intangibles that make it far superior to renting. That said, we are still looking for the right house here in the Phoenix area and have not taken the plunge. Good housing is now comfortably within our price range but we are very particular and are still looking. Inventory levels are huge and still rising.”

A long time owner said, “As a current owner I have to agree. There are enough advantages to owner/occupation that prices will, someday adjust to a point where it makes economic sense for those who live for say, a decade at one address. Keep in mind that for many of us who bought pre-bubble, our mortgage is LESS than equivalent rent. Purchasing a house with a conventional mortgage serves to severly limit inflation of one’s housing costs.”

“As for renting being equivalent to ‘throwing money away’ well, that’s no more true for renting than buying groceries. It is spending money on a consumable item. If you think that the housing that you’re renting is worth the rent that you’re paying, the money is hardly being ‘thrown away.’ Now paying more than equivalent rent for interest only loan on a depreciating asset, THAT’S ‘throwing money away.’”

One from Illinois. “I am a fairly happy homeowner. Bought in ‘93 in the exburbs of Chicago for 198K, 3/2.5. If prices are reasonable it makes sense, but now??? I agree 110% that renting would be the way to go today. Even if I had $400K +, I refuse to throw that kind of dough into RE, I can do much better job investing in equities.”

One replied, “When you deduct maintenance and property taxes from the annual rent, owning looks like an even worse use of money.”

“Considering the aging (pre- and post- WWII) housing stock of Nassau Co. NY (the western 1/3 of Long Island, NY), you have maintenance of at least 1% of value annually, property taxes approaching 2% annually. Prices of 20x annual rent (that’s being generous with the rent and assuming no vacancy) implies 5% annual return, or 2% net.”

“2% net return on a depreciating asset?!? Where do I sign?!?”

To which was posted, “I’m not sure that looking at asset appreciation gives you the real return. The main return is housing. The value of the housing goes up as equivalent rents go up. Ten years on, the house may have just kept up with inflation, but if your equivalent rent has gone up, the returns that ownership give you have gone up. Much of the value of owning is locking in a nearly (Taxes, maintenance, and insurance still go up) fixed price for housing. There is little advantage to locking in historically high prices.”

One from California said, “I’ve had one great landlord (stayed with her for 10 yrs) and a dozen terrible ones. Buying for me means not having to deal with the people that prey on students and staff in Davis.”

“As soon as something comes along that balances the rent/buy, we’re buying. The city is ok and I can adapt to anything. I just know how bad the economic sh!tstorm that is loaming on the CA horizon is going to be and I want to be in good place (like 1 mi from work) to weather it.”

And lastly, “I used to dream about owning my own home but no more. I rent quite happily now, it made it a lot easier to move when we wanted to relocate.”

“I think the stress of watching prices in the northeast, where I used to live, go parabolic (and now reversing) and looking at all the jerks who want me to fund their lifestyle/retirement by buying their overpriced and undermaintained POS houses just snapped something in my head. If I want to own Real Estate I will just buy REIT shares in a tax deferred account someday.”

The News Press reports from Florida. “The median price of an existing home sold in Lee County edged up in April, but experts say that’s not the whole story in a market flooded with inexpensive houses. Real estate broker Denny Grimes said the higher median doesn’t translate into a recovering market. ‘It only takes a couple of sales higher than the median to push it from $269,000 to $283,200,’ he said. ‘Prices in our market are still going down.’”

“One seller agreed that prices are far below what they were when the market reached its peak in December 2005 with a median price of $322,300.”

“‘It’s a horrible market,’ said Keith Olson of Fort Myers Beach, an investor who lost $90,000 on one Cape Coral house he sold recently and expects to lose $70,000 when he closes on the sale of another one next month.”

“There’s no indication that higher prices are in the offing anytime soon, he said. ‘The next 90 days will be golden days for buyers.’”

“Fred Elliott of Coldwell Banker Preferred Properties in Lehigh Acres said…sales appear to be increasing, in part because ‘We’re seeing more bank foreclosures than in the past and they’re getting more realistic with bank-owned properties and short sales.’”

“Peggy Hummel, CEO of the Realtor Association of Greater Fort Myers and the Beach, said the association’s statistics show that ‘we’ve got about a 15-month supply of residential and 18 months of condominiums,’ so the inventory of unsold homes should be gone by late 2008. ‘The market should be back about 2009.’”

The Miami Herald. “Richard Coren thought his three-bedroom house in Pembroke Pines was worth about $420,000 when he put it up for sale in November. And he appeared to be the only one. After it sat for six months on the market, Cohen knocked about $40,000 off the asking price and found a buyer willing to pay $383,500.”

“‘I figured if the market was bad, I had to change with the times,’ Coren said, recalling how his real estate agent urged him to ask for less money. ‘We got instant activity as soon as I took her advice.’”

“Coren was one of the 580 people who sold a house in Broward County in April, 16 percent fewer than did so a year ago, the Florida Association of Realtors said Friday. Miami-Dade County’s housing market took a much bigger dip: Single-family home sales plunged 37 percent to their lowest level for April in at least 10 years.”

“Cyndy Wald listed Coren’s Pembroke Pines house and was the one who told him that his original $420,000 asking price was ‘yesterday’s news.’ ‘We’re still in this correction phase,’ Wald said, using a term for a market with retreating prices. ‘They have to price it very competitively.’”

“The buyer’s market that took firm hold of South Florida’s housing market last year extended its grip in April. Esslinger-Wooten-Maxwell reported unsold inventory has grown 9 percent since January to 76,063 units in Broward and Miami-Dade counties.”

“But the 12-month figure shows how much things have changed: unsold inventory grew 36 percent in Broward since April 2006 and a full 53 percent in Miami-Dade.”

The Herald Tribune. “Although local housing inventory stubbornly hovered near record high levels, the Sarasota-Bradenton market was the only market in the state to show positive sales growth for April. The news was not as bright further south in Charlotte County-North Port, where April sales fell 15 percent from a year ago and median prices dropped 12 percent.”

“‘We were among the first markets in the state where a unified real estate community counseled sellers to price realistically and to not expect the windfall profits we saw during 2004-05,’ said Michael Saunders, president of Sarasota’s Michael Saunders & Co.”

“‘There was considerable resistance at first, but we have steadily chipped away at that resistance as sellers saw properly priced homes sell much faster. The numbers tell the tale,’ she said.”

“While some Sarasota sellers may be asking for the moon, the Port Charlotte-Punta Gorda market is yearning for the past. Waterfront specialist Florence Tanner in Punta Gorda, says she sees more activity in the starter home market than in waterfront, which is bringing down prices on the more expensive waterfront properties.”

“‘Someone who is looking for a waterfront property, you can find one for under $200,000 now in Charlotte County,’ Tanner said. ‘Here is one that is one bridge to open water, and it’s only $179,000.’”

“The condo inventory was in the upper 4,000s until mid-April, when it broke above 5,000, and it has stayed there since. As of May 15 there are 5,207 condos for sale and only 383 deals pending.”

“Broker Albert E. Horrigan, said: ‘It’s not the end of our current market downturn.’”

The News Journal. “Existing-home sales in Volusia and Flagler counties fell 25 percent in April compared to the same month a year earlier, but the median sales price dropped by only 7 percent over the period.”

“‘I think we’re getting back to what the market was before it got crazy. We’re seeing some good price reductions, and when prices come down, houses are selling,’ Don Wood, president of the New Smyrna Beach Board of Realtors.”

“Ray Arriana said he is offering $10,000 in incentives to be used however a buyer wants. His three-bedroom, two-bath house has been on the market about six weeks, but lenders have tightened their guidelines. ‘I would have had a contract (a couple of times), but the credit keeps falling through,’ Arriana said.”

“‘Lenders certainly are tightening up their guidelines. The days of buying a house with no money down and poor credit are pretty much over,’ said Stephen Bradt, owner of M & R Mortgage Services in Orange City.”

“While Southwest Florida’s prime real estate season ended on a relatively high note, developers and Realtors are scratching their heads about what they can do to keep drawing buyers in a wobbly market.”

“It is not easy to grab attention for a listing when there are more than 13,300 properties for sale on the Sarasota MLS alone.”

“Premier Properties, a Sarasota player and part of the much larger Naples company of the same name, opted to sponsor an open house featuring Diane Ahlquist, a psychic and author.”

“So, did Ahlquist encourage Realtors to bring their psychic powers to bear on selling? Sort of. ‘We all have intuitive abilities, which are like muscles. The more you use them, the stronger they get,’ she said, advising Realtors that when considering a possible listing, ’stop at the front door for a moment.’”

“‘Ask yourself, ‘Will this sell?’ or ‘Will it be nothing but a headache?’ Ahlquist said. ‘Use intuitive power to determine how to deal with buyers and sellers or even to determine if you should take a listing.’”

“Ahlquist capped off the evening with an announcement that she and her husband had put their home on the market. When asked, in that beautifully appointed room full of Realtors, whether her sponsor Premier was handling the sale, Ahlquist could have used the power of clear thinking, it seemed, before answering.”

“‘I am doing a FSBO.’ For sale by owner? The party was over.”

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