The Housing Bubble

The Union Tribune reports from California. “Plans by lenders to auction more than 200 foreclosed homes in Southern California reflect the weakening nature of the housing market, analysts say. The increased presence of auction companies illustrates that the Southern California housing market is ‘pretty weak,’ University of San Diego economist Alan Gin said. ‘We have had all those foreclosures, and there are no buyers through normal channels.’”

“A record 525 San Diego County dwellings were reclaimed by lenders or sold at auction in April, surpassing the record of 433 properties in March, DataQuick said. There were 1,346 notices of default, the initial step in the foreclosure process. That number was more than double the 554 notices of April 2006.”

“‘I do think you will see it more,’ Irvine-based Real Estate Disposition Corp. Chairman Robert Friedman, said yesterday. ‘You have lenders who have a lot of inventory and pressure to sell.’”

“The last time private auction companies put large numbers of homes out to bid in Southern California was in 1997, during a housing recession, Friedman said.”

“High gas prices have started to discourage new-home buying and construction in the Inland Empire, the California Building Industry Association said in a report yesterday.”

“‘There has been a massive drop as commuters from elsewhere in Southern California have stopped coming to Riverside County,’ the associations chief economist, Alan Nevin, said. ‘It’s largely a function, we think, of gas prices, because most of them commute at least an hour and sometimes two to three hours a day, and (the price of) gas has just gotten to them.’”

“In his report, Nevin said the rise in fuel prices translates into a $40,000 to $50,000 reduction in home-buying power, particularly in households where both adults are working and facing long commutes to their jobs in Los Angeles, Orange and San Diego counties.”

“‘Thus, the savings on their mortgage payments originally gained by buying in Riverside (or) San Bernardino County quickly dissipates,’ he said.”

“San Diego County will have 9,000 to 10,500 new houses, condominiums and apartments permitted this year, compared with the 10,000 to 12,000 projected in January.”

“Nevin attributed the dip to reluctance on the part of some builders to start infill, low-rise condo projects because the extra cost of underground parking garages cannot be recouped at current price levels.”

“‘When we look around at Orange and San Diego (counties) in particular, we see a great slowdown in that product,’ he said. ‘It’s somewhat of a high-risk product.’”

The Sacramento Bee. “For some time now, it has been hard to escape the feeling that a downtown condominium project known as The Towers has evolved from a development into a soap opera.”

“Then all those visible signs of progress were replaced by the sound of silence. Developer John Saca apparently hadn’t been paying the crews. Subcontractors began slapping liens on the property. The housing market cooled. The Towers began to look like a project whose timing was just a little too late.”

“Another developer affiliated with CalPERS, the Los Angeles-based CIM Group, is looking at other options for the site. ‘The sad thing is that CIM doesn’t want to build (my) project,’ Saca said. ‘They would basically throw away the plans and start from scratch.’”

“In this case ’scratch’ means a big hole in the ground at one of the most important sites in the city.”

“The situation could be worse. A half-built project, abandoned by its backers, would stand as a can’t-do symbol that could stain the Sacramento skyline for some time. The advantage of a hole in the ground is that something can still rise from it.”

The Daily Bulletin. “More than 1,000 people came out to the new community of Edenglen last month to stroll its tree-lined streets and tour the first model homes to open within the New Model Colony.”

“But one month after collecting a lengthy interest list and receiving accolades for the 8,200-acre development’s inaugural neighborhood, Adrian Foley of Brookfield Homes said sales have turned out to be a bit anticlimactic.”

“Of the 30 new Brookfield and Standard Pacific homes in Edenglen released onto the market May 7, only about half have been sold, Foley said. ‘It’s less than we’re anticipating,’ Foley said. ‘There’s a ton of interest. The issue for buyers is selling their homes in the resale market.’”

“Many prospective buyers cannot sell their existing homes, so they are opting to wait on a new home until the market kick-starts again, he said.”

“Such is the case for Suzanna Macias of Adelanto. Macias said she and her husband liked the Edenglen homes a lot, but their house has been sitting on the market with no takers.”

“‘It might take a while,’ Macias said. ‘We’re competing with all the new home builders coming in.’”

The Press Democrat. “The housing market in Sonoma County will continue to spiral downward for another year, but the local economy will remain strong enough to prevent a recession, according to a new forecast issued Thursday.”

“Home prices have dropped 8 percent since their peak in summer 2005, and will fall an additional 6 percent before the market stabilizes in the summer of 2008, according to the forecast by Moodys Economy.com, which tracks the local economy.”

“Home prices peaked in the third quarter of 2005, when the median price for new and resale homes hit $715,000, according to Moody’s Economy.com. Prices slid over the next 21 months, dropping to $659,000 in the second quarter of 2007.”

“Economist Steven Cochrane, who prepared the forecast, predicted home prices would hit bottom next spring, with the median dropping to $622,000, and begin to rise slowly in the second half of 2008. ‘We expect the low point in the second quarter of 2008,’ he said.”

“Sonoma County’s major weaknesses continue to be the high cost of housing and of doing business here.”

“Home prices have fallen moderately over the past year, but not enough to significantly improve affordability. A family earning the median income can qualify only for a home priced 50 percent below the median price of a home.”

“‘In Sonoma County, that means they can’t buy a home. They’re renters,’ Cochrane said. ‘Home prices will have to fall further, or stay constant as household income rises, before there is any considerable improvement.’”

“Ben Stone, executive director of the county Economic Development Board, said Cochrane drew a reasonably good picture of the local economy.”

“‘I think generally it was a pretty good perspective on our economy,’ Stone said. ‘I was struck by his statement that we have to find a way to lower home prices or else find a way to pay our work force more.’”

In Business Las Vegas reports from Nevada. “Las Vegas analyst Dennis Smith said the housing market slump is deeper and longer than most expected. It’s going to be painful for a while longer before it gets better, Smiths said. In the resale market, the news is sobering, with 9,847 transactions during the first four months, a drop of nearly 33 percent from 2006.”

“Smith said one of the big differences in the inventory of new homes and resale homes is that larger home builders will slash prices to whatever it takes to sell their unsold product.”

“‘It’s more difficult for the smaller builders to match these price incentives, so it’s crucial for them to keep unsold standing inventory at a minimum,’ Smith said. ‘It is impossible for home owners to compete with the price reductions of the larger homebuilders. Owners who are leveraged can’t cut their price much without losing money on their investment.’”

“Smith said that one of his clients told him that Lennar Homes sent a letter to companies they do business with offering a 30 percent discount on their standing inventory of homes if they closed escrow by the end of May.”

“‘If a home is priced at $500,000, you could get a $150,000 discount and purchase it for $350,000,’ Smith said. ‘The discount on a $750,000 home would be $225,000. That is a primary reason that the resale (market) will normally take longer to correct. There are more of them, and they can’t or won’t lower prices to match the new home discounts.’”

The Review Journal from Nevada. “Potential supply is flattening and market demand is modest in Las Vegas’ luxury condominium market, a local research analyst said. The report showed 4,214 existing units with another 13,409 under construction. Most of those have been sold or reserved. Total units that are built, proposed or canceled exceed 97,000.”

“Industry insiders are saying that many high-rise condos are being put back on the market for resale and, like single-family detached homes, they’re not selling.”

“One luxury condo broker said he walked the floors at Metropolis and saw lockboxes on nearly every door. Real-estate agents use lockboxes to access empty homes for showing. He said 70 percent of the units at SoHo Lofts are listed for sale.”

“Las Vegas-based SalesTraq reported 213 escrow closings at Sky Las Vegas in April at an average price of $723,480 a unit. About one-third of high-rise closings are showing up for resale the next day on the MLS, SalesTraq President Larry Murphy said.”

“‘There’s so many condo owners trying to figure out what to do with their property. They’re on the phone to us all day. It’s a very hot topic,’ said Eric Smith, owner of a company that matches owners of executive homes with potential renters.”

“Condo presales account for 9.8 percent of the market, while speculative plans call for 56,300 more units, or 57.6 percent of the market, Applied Analysis reported. More than 14,000 units have suspended sales or have been officially canceled.”

“Buyers at projects such as Krystal Sands, Vegas Grand and Icon filed class action lawsuits against the developer and the next potential lawsuit could involve Spanish View Towers, which has halted construction in the southwestern valley.”

“Sisters Allison Gaynor and Barbara Chandler and their late mother, Saralee Bowers, thought they had a secure deposit when they put down more than $600,000 on three luxury high-rise condos to be built in the southwestern Las Vegas Valley.”

“They entered contracts stating that the first units at Spanish View Towers would be available for occupancy in July.”

“The developer’s current actions, together with his history, may establish a pattern that constitutes racketeering, the lawsuit contends.”

The Arizona Republic. “Pulte Homes Inc. will consolidate its three Phoenix area divisions into two as part of a nationwide restructuring that will trim about 2,000 jobs, or 16 percent of its total workforce. Pulte reported 1,190 employees in the state at the end of 2006.”

“Local housing analyst RL Brown said he wasn’t surprised that a major builder would be doing some restructuring in the current market. ‘I would imagine, though that their (Pulte’s) situation in Arizona is no worse than elsewhere,’ he said.”

“In any given month, Mesa businessman Jamison Manwaring is juggling 100 or so clients who are selling very different homes with one goal: making a sale without using a real estate agent.”

“Instead of paying commission, they hand over a few hundred dollars to his For Sale By Owner affiliate for some professional guidance, an Internet listing and a yard sign. Last year, about 250 homeowners decided to go it alone with the company’s help. They’re not the only ones striking out on their own.”

“The prospect of selling a home without a typical 6 percent commission is especially appealing in Arizona and elsewhere where the housing market has cooled.”

“‘In markets like this, you tend to see more for sale by owners. They’re cutting the sales price as close as they can, so they want to cut out the commission,’ said Jay Butler, director of realty studies at Arizona State University’s Polytechnic campus in Mesa.”

The New Mexico Business Weekly. “The nationwide less-than-perfect-credit mortgage crisis has spread to New Mexico, as subprime delinquencies increased a hefty 25 percent during 2006, to the point where now, one in eight of these loans statewide is overdue.”

“Subprime adjustable-rate mortgage performance is even worse, with nearly 14 percent of these loans delinquent here.”

“New Mexico’s foreclosure rate on subprime loans is higher than all its Mountain state neighbors except Colorado. Only about 10 percent of New Mexico’s mortgages are subprime, below the national average. And, the bulk of them appear to have been made by out-of-state lenders.”

“Greg Frost, the founder of Frost Mortgage in Albuquerque, said most subprime business in the market has been done by local brokers for out-of-state subprime shops like New Century Mortgage, Argent, Fremont Investment, or First Franklin. And, he said some of these out-of-state players haven’t done too well by their customers.”

“‘There are a lot of loan originators who have availed themselves of the subprime account executives’ willingness to take a minimal application from them and finish it, process it, and baby-sit it through to underwriting and closing,’ Frost said.”

The St Petersburg Times reports from Florida. “In what could be a sign of things to come in the sluggish housing market, a prominent Tampa condominium project faces 34 lawsuits from buyers trying to back out of their deals. But unlike some pie-in-the-sky deals like Trump Tower Tampa, the Place at Channelside is weeks from completion.”

“The problem: Some buyers who paid top dollar in 2004 and 2005 are afraid to take possession of what they fear is a depreciating asset in the housing slump. ‘They locked in at the height of the condo boom and the units are not worth what they paid,’ said Tampa lawyer Harry Coe, who represents seven buyers.”

“Developer Fida Sirdar blamed the suits on a small group of buyers acting in bad faith. ‘They will either have to buy or forfeit their deposits. It’s as simple as that,’ he said.”

The News Press. “Hovnanian Enterprises Inc., parent company of Lee County’s largest residential builder, reported Friday that it is writing off $8 million worth of sales and land values in Lee County for the second quarter.”

“Hovnanian CEO Ara Hovnanian said the $8 million includes two ‘bulk sales’ of scattered lots in Cape Coral and Lehigh Acres. He didn’t give a dollar figure for either deal but said that one of them involved the sale of lots the company now values in the low $20,000s per lot — down from $80,000 at the height of the market. ‘The contract price came in slightly below that level.’”

“With the lots priced at today’s prices, he said, ‘All of a sudden we’re back in the environment where we can have affordable housing. I think that’s a good indication of what vacant lots in Cape Coral are worth today.’”

“In other comments, Hovnanian said home contract cancellations spiked in March and April after a good month in February.”

“A key element to the Naples Bay Resort, a revitalization project in downtown Naples, has been postponed because of the slumping market, developer Jack Antaramian said Friday.”

“‘There’s just no market,’ said Antaramian, noting that all early buyers have had their money returned.”

“A class action lawsuit brought by people who bought houses from First Home Builders alleges that they were defrauded by the developer and real estate brokerage D’Alessandro & Woodyard in a program to sell homes as an investment.”

“A Fort Lauderdale couple…and others bought ‘at least 100 investment properties’ and got them financed by preferred lenders through D’Alessandro & Woodyard in a program that called for First Home, now owned by Hovnanian Enterprises, to build the houses and provide a tenant who would defray the investor’s mortgage cost with rent. The tenant would eventually buy the house, giving the investor a profit.”

“But beyond that, the investors differ with the builder and broker on who was at fault when the deal fell apart in many cases as First Home stopped providing tenants and the homes, when completed, were worth less than the buyer’s cost.”

“The lawsuit charges that the arrangement amounted to unlicensed securities sales besides being fraudulent and violating the federal Interstate Land Sales Full Disclosure Act.”

“Kevin Jursinski, a Fort Myers-based real estate attorney not affiliated with the class action, said the land sales act is increasingly being used. ‘So far, so good,’ he said. ‘We’ve gotten some deposits back.’”

“Lehigh Acres residents could feel their fire services suffer after preliminary numbers show a nearly 10 percent drop in taxable property value, mirroring a trend of a slowing real estate market throughout Lee County and across the nation.”

“‘This just proves what people have been saying — the bubble has burst,’ Lee County Property Appraiser Ken Wilkinson said.”

The Palm Beach Post. “The developer of Downtown at the Gardens, the shopping-and-dining destination that opened more than a year ago in northern Palm Beach County, has killed its plans for a similar project west of Port St. Lucie.”

“When Menin Development Corp. first announced plans for the open-air Main Street Village last August, the company’s chief operating officer, Rob Jacoby, cited St. Lucie County’s hot housing market as a driving factor.”

“Since then, St. Lucie County’s housing scene has chilled as investor-owned units have languished on the market.”

The Sun Sentinel. “The era of high-flying property values is over. The total value of homes and commercial properties in Palm Beach County grew just 5.2 percent from 2006 to 2007, marking a halt to the five-year bonanza that pushed local government spending to unprecedented levels.”

“‘The market went down, in real simple terms,’ Property Appraiser Gary Nikolits said. ‘Those areas that seemed to have a superheated market were the ones who took the biggest hits, because they were overvalued.’”

“Real estate analyst Brad Hunter, of Metrostudy in West Palm Beach, said Friday’s figures are the first signs uncovered by government appraisers of the downturn in the real estate market.”

“‘It kind of reflects moving back to reality,’ Hunter said. ‘Prices were moving up, residential real estate in particular, at unsustainable rates. Obviously you have to come back down.’”

“‘We’ve not hit rock bottom yet,’ Nikolits said. ‘We’re still in a declining market. I would say next year’s numbers are going to be worse.’”

The Herald Tribune. “In what seemed part of a campaign to arm real estate agents against naysayers and fence-sitting buyers, the National Association of Realtors’ top economist was in the region offering strong words of encouragement.”

“The softness that has bedeviled Southwest Florida’s residential real estate market for almost a year has just about run its course and will not last beyond another six to 12 months, said Lawrence Yun. ‘For those with a house on the market, there’s good news, the worst is over.’”

“The Sarasota market has enjoyed a 150 percent run-up in value in recent years. In the current downward cycle, it has given back about 10 percent to 20 percent of that. ‘That’s not a crash,’ said Yun, especially when compared with what happened to the Nasdaq earlier this decade. ‘Now that’s a correction.’”

“Yun noted that with median home values in the $300,000 range, the region was not really overpriced compared with other coastal markets such as San Francisco at $700,000 and Washington, D.C., at $400,000.”

“The region’s housing fundamentals compare very favorably with those of San Diego and Miami, he said. ‘One can safely say that there is more accumulation of wealth in Sarasota than there is in the rest of the country,’ Yun said.”

“Looking long-term, Yun predicted that Florida real estate remains one of the safest bets in the nation. During the next 40 years, Southwest Florida homeowners will enjoy values about 20 times higher than now.”

“That would mean a $500,000 home bought today will be worth about $10 million in 2045, or double the national appreciation average, Yun said.”

Please post off-topic ideas, links and Craigslist finds here.