The Housing Bubble

The Fresno Bee reports from California. “After years of seeing their buying power eroded by rising home prices, moderate-income home buyers in Fresno are starting to see some relief. That’s according to the California Association of Realtors’ First-time Buyer Affordability Index. For the first quarter of 2007, the affordability index for the Central Valley stood at 41%.”

“That’s up from 38% in the same quarter in 2006, and is the highest the index has been since the first quarter of 2005.”

“There’s a simple explanation for rising affordability, said Anthony Gamber, president of the Fresno Association of Realtors. ‘The market is tightening up,’ he said. ‘Sellers are getting more realistic’ about the prices they can demand, and builders of new homes are offering more and more incentives to lure buyers.”

“In fact, this year has seen the first fall in median home prices in the Fresno market since 2004, he said.”

“For Gamber, a real estate professional with 27 years of experience in the Fresno market, the trend reflects a return to normalcy. While the real estate boom of the past several years has been a driver of the region’s economy, ‘it is putting some people out of the market, which is sad.’”

“David Mendoza, executive director of the Community Housing Council of Fresno, agreed that moderate-income Fresno residents are seeing their housing options expand in this buyer’s market.”

“‘There’s more negotiating, whereas three or four years ago the sellers picked who they wanted,’ he said.”

“‘Right now we have a lot of supply on the market,’ said Doug Heffner, owner of Integrity Lending Group in Fresno. ‘People are waiting for the demand to flow, so prices are coming down.’”

“Another factor that could work against increasing affordability is the tightening of credit standards that has followed the collapse of the subprime mortgage industry.”

“‘If you were a live body a year ago, even two years ago, if you placed a mirror under your nose and it fogged up, you could get a home loan and get into a house,’ Heffner said of the lax standards some lenders pursued.”

The Desert Sun. “New-home sales dropped 57 percent across the Coachella Valley compared with a year ago, helping push down overall home sales volume and median prices, a new report shows.”

“Sales for all types of valley homes, new, resale and condos, dropped a combined 28 percent in April compared with April 2006, according to DataQuick.”

“The median price for a new valley home dipped 6.7 percent to $375,000, while the median price for all kinds of homes declined 2.6 percent in April to $390,000 compared with a year ago, DataQuick reported.”

“April’s sagging new-home sales came on the heels of a 53 percent sales decline in March, 43 percent in February and 23 percent in January, all compared with year-ago figures.”

“The drop-off in home sales volume during April marks the continuation of a trend not only valley-wide but in the Inland Empire and California. Southern California home sales sank to a 12-year low in April, led by striking sales drops in affordable neighborhoods.”

“Fred Bell, executive director of Southern California Builders Industry Association’s desert chapter, said the industry hopes for a rebound by early next year. A longer, drawn out downturn could prompt the valley’ s construction industry base to seek out more vibrant markets elsewhere.”

“‘We’re all very concerned about how long the retraction will last,’ Bell said.”

“As buyers, sellers and economists watch local, state and national figures to try to gain an understanding of the market, everyone is a bit confused, top experts say.”

“Many buyers and sellers are simply confused at this point, said economist John Husing, who studies the Inland Empire’s economy.”

“‘They’re saying, ‘I’m going to wait and see what’s going on,’ Husing said. ‘I think we’re involved in about an 18-month pause with an overall median price decline of 5 percent.’”

“To cope with the current downturn, new-home builders have aggressively managed inventories, trimmed staff and downsized some operations. Because ‘buyers have a lot of choices,’ builders are doing what they can to stand out, from implementing new designs to offering all kinds of incentives and amenities.”

“One clear indication is reflected in building permits that contractors have taken out. In La Quinta, for instance, 176 single-family home permits were taken out during the first quarter, compared with 377 during the first three months a year ago and 515 in the first quarter of 2005.”

“Statewide, 7,174 single-family home permits were pulled in April, a 37 percent drop from a year ago, California Building Industry Association reported.”

“Across Riverside County, where sales declined 45 percent in April, the median price dropped about 1 percent to $409,000 from $413,000 a year ago, DataQuick reported. In San Bernardino County, the median price climbed 2.8 percent to $370,000, despite a 46.7 percent drop in sales volume from a year ago.”

The Philippine News. “Jose Mercado couldn’t believe his eyes when he read the report of the California Association of Realtors last week that home sales were falling by 27.8 percent statewide.”

“Mercado was planning to sell his modest house in Riverside in the hope that he could make a killing and retire early in the Philippines. At the prevailing exchange rate, he told himself, he could easily sell his house for at least $1 million.”

“But fate had been unkind to him and many other residents in the area. ‘If the statistics are true, then, it means I am stuck with it. It means I can’t sell my house and relocate to other places,’ he surmised.”

“In the area where he lives, real estate prices are hardly moving. ‘There are very few buyers of existing houses,’ he confirmed. ‘Maybe, the buyers are waiting for prices to further dip,’ he guessed.”

“Last month, home sales in Riverside tumbled by 44.6 percent with buyers getting fewer by the day.”

From USA Today. “It’s easy to sour on real estate while…dealing with rental property and the associated costs, says Norma Solarz. Solarz, who has next to no retirement benefits, bought a property in Oakland for $225,000 in 1997 with plans to rent it out, collect income along the way, sell it down the road and use the proceeds as a retirement fund.”

“Things haven’t worked out the way she’d hoped. While the property has appreciated, being a landlord is a bigger hassle than she’d ever imagined. She’s plowed about $56,000 into the property for various repairs and had to deal with tenants and their problems no matter the time of day.”

“‘I’m not sure it’s worth the headache,’ she says, adding she’s prepared to sell the property as soon as housing prices firm up. She might have to wait awhile if current trends persist.”

“Some investors want to get out but fear they’re so far in the hole already that they don’t want to take the loss. Janice Burnham, who lives in San Francisco, bought a Silicon Valley home in 2002 and an investment property in Folsom, Calif., near Sacramento two years ago. She paid $353,000 for the investment property.”

“‘Everyone else was making money,’ she says. ‘I figured this was the way to make money. I’ve changed my opinion on that,’ she says.”

“Now she figures she would have trouble selling the Folsom home for $320,000, a loss she’s trying to avoid by renting the property. But that’s not going well, either, because she spends money for upkeep and struggles to find tenants. ‘It’s a lot of work for no gain,’ she says.”

The Arizona Daily Star. “A consumer-rights group is warning people obtaining mortgages to read and understand the documents so that they don’t lose their homes. Sophia Tesch of East Valley ACORN said…lenders and brokers have ignored borrowers’ ability to pay and put them into loan agreements that are bound to go into default.”

“The call for more consumer education is getting the backing of Stan Lund, the incoming president of the Arizona Association of Mortgage Brokers. Lund said he has seen more fraud committed this year in Arizona than ever before. He said a loan officer who commits some misdeed might be fired by the broker or the bank.”

“‘But they go right down the street and get a new job,’ Lund said, because they have no license that can be revoked. He said licensing won’t stop all fraud. ‘But it would stop it the second time,’ Lund said.”

“State Rep. Steve Gallardo even went so far as to suggest at a Tuesday press conference that the Legislature should outlaw certain types of mortgages. But Gallardo said the simpler, and potentially more politically acceptable, option may be better education of would-be borrowers.”

“‘They’re not aware that in three years or two years that rate is going to fluctuate,’ Gallardo said. ‘So they’re going from a $500-a-month house payment all the way up to a $1,000-a-month house payment.’”

From USA Today. “Buying real estate seemed a no-brainer five years ago. Cheap loans were easy to get. Home prices were soaring. How things have changed.”

“Financial adviser Dave Yeske was featured in (a) 2002 story because he was being barraged with people selling stocks to buy homes.”

“‘The pendulum has swung in the opposite direction, he says now. ‘The clients that sold stocks to buy spec houses in Arizona are telling me they’re under water, can’t rent them and they wish they left all the money in the stock market.’”

“Some real estate investors are sticking with housing, in the belief that the bottom has been formed. Scott Hibner sold his investment properties in Las Vegas and used the proceeds to buy rental properties in Austin, where he thinks the prospects are brighter. He’s planning on holding the properties for five to 10 years and not going ‘for a quick flip.’”

“Others, like Nigel Swaby, a mortgage broker in Salt Lake City, are reluctant stock investors. Fearing the prices on two investment properties he owned in Salt Lake City could decline, he sold them in 2005.”

“Swaby wants to get back into real estate and has been hunting for homes to buy, but feels prices are still too inflated. ‘There aren’t a ton of deals out there,’ he says.”

The Transcript Bulletin from Utah. “It could be a long, dry summer for home sellers at the top end of the local housing market. About 111 houses in the price range of $300,000 to $1.4 million are on the market in Tooele Valley, according to the Wasatch Front Regional Listing Service.”

“But real estate agents believe those houses could be up for sale for several more months because finding buyers for such pricey real estate is particularly difficult at a time when the market is cooling off.”

“Sales of homes in Tooele Valley jumped dramatically from 2004 to 2006, but have leveled off in 2007. During first quarter 2007, 32 houses sold in the Grantsville area at a median price of $259,547 & up 58 percent in price from this time last year.”

“‘We’ve had a lot of spec homes pop up in Grantsville,’ said Tooele County Board of Realtors President Michelle Warner. ‘There are between 20 and 22 houses built and standing without a buyer. Most of these are not built by local builders, but builders outside the area. I think these outside builders are anticipating a big influx of people moving into Grantsville.’”

“Broker Brad Sutton said builders speculating they will find a buyer once a house is built is a new trend in Tooele Valley.”

“‘Builders have been more willing to build spec homes the past two years,’ Sutton said. ‘Before they would do just the opposite & they would make sure they had a buyer. In fact, prices were rising so fast that some builders did not want to have a buyer early on. Because most of these spec homes were in the $300,000 range, it would take them up to six months to build. By the time they had it built, a $300,00 house would be worth an additional $27,000.’”

“Tooele Prudential Real Estate owner Vickie Griffith said there are still several mid-range-priced houses on the market in Tooele Valley.”

“‘It is good for a buyer right now because there is a wide selection of houses and properties,’ she said. ‘The only problem is that it is hard to find anything under $130,000. We don’t have affordable new houses.’”

Some housing bubble news from Wall Street, Washington and beyond. “The outlook for home prices this year, already expected to post the first drop on record, got worse Wednesday as an industry group cut its forecasts for sales and prices for 2007. The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year.”

“That’s almost twice the 0.7 percent drop forecast just two months ago, and is worse than the 1.0 percent drop in prices it estimated in May.”

“‘We continue to experience a temporary distortion in comparing median existing-home prices,’ said Lawrence Yun, NAR senior economist. ‘Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison.’”

“‘Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,’ Yun said.”

The Associated Press. “(The NAR) said Wednesday it expects sales of existing homes to drop 4.6 percent this year to 6.2 million Two months ago, the group had predicted a 2.2 percent decline for the year.”

“Sales of new homes are forecast to drop 18.2 percent to 860,000 compared with an earlier estimate of a 14.2 percent decline.”

From Reuters. “Subprime mortgage guidance opposed by some of the nation’s biggest lenders will be ‘largely intact’ when completed by a group of regulators later this month, Federal Deposit Insurance Corp. Chairman Sheila Bair said on Wednesday.”

“The guidance ‘is simple common sense,’ she said.”

“Countrywide executives have said that some 60 percent of borrowers given adjustable-rate loans made last year wouldn’t have qualified under the ‘fully indexed’ rate. About half the subprime customers with adjustable-rate loans were able to refinance into a prime loan before payments on the original mortgage rose, they said.”

“But lenders have failed to prove to regulators that those borrowers wouldn’t be better served with a fixed-rate loan. ‘Why do you need this payment shock feature to get people into homes? I really don’t understand that,’ Bair said.”

From Fitch Ratings. “In the context of recent adverse developments in the U.S. mortgage market, Fitch Ratings released a special report that examines recent trends in the domestic business of the U.S. mortgage insurance companies, and the results show delinquencies are on the rise at these firms.”

“According to the report, ‘Across the Board, Delinquencies Are Up - An Analysis of U.S. Private Mortgage Insurance Exposure,’ market concerns have been broadly centered on 2006 vintage originations, but to some degree concerns extend to originations of the preceding years as well.”

From Bloomberg. “Francisco Paramés, the best-performing fund manager in Spain for the past five years, predicts that a real estate crash in his homeland will spread, dragging down companies throughout the country. Lending by banks and other credit institutions has almost tripled in Spain since 2000.”

“‘Credit has increased by 25 percent a year for six years,’ Paramés said. ‘That’s never happened anywhere else in the world, even China.’”

“Javier Usua and Ruth Graneda never got out of the car when they visited Sanchinarro and Las Tablas, two of Madrid’s biggest new suburban developments. The concrete-block buildings and empty streets were all they needed to see.”

“‘We came to look at apartments but found ghost towns,’ said Usua. ‘You’d need to drive miles for a loaf of bread or cigarettes and my girlfriend found it creepy and unsafe so we turned around and left.’”

“The abandoned developments are evidence of a housing glut that will lead to Spain’s first decline in home prices since at least 1992, when the Housing Ministry started keeping records. Spanish builders constructed 750,000 houses and apartments last year, more than France and Germany combined, while annual demand runs about 60 percent of that, according to the Finance Ministry.”

“‘The real killer of the housing market is the immense oversupply,’ said Gonzalo Bernardos, a professor of economics at the University of Barcelona. ‘Prices are already unofficially falling.’”

“‘We live in a country where everybody understands that appraisals are poetry,’ said Jesus Encinar, CEO of a property Web site that tracks existing home prices in Madrid, Barcelona and Valencia. ‘Bankers have said to me, ‘Why do you care if the appraisal is fake? It will be true in the future.’”

“‘The problem here is that people have this unshakeable conviction that prices simply cannot fall,’ Encinar said.”

The Advertiser from Australia. “Leading mortgage insurers are feeling the pinch from rising home loan defaults, after insurance claims from banks and other lenders soared by more than 500 per cent during last year.”

“The two big mortgage insurers were hit by sharp rises in claims from home lenders according to 2006 accounts filed with the Australian Securities and Investments Commission.”

The Edmonton Sun from Canada. “Edmonton’s real estate war is getting intense as a tidal wave of Edmontonians decided to unload their properties last month, clearly taking advantage of soaring house prices which saw the average single family dwelling jump from $282,208 a year ago to $426,028 last month.”

“You also have to be asking if this is the storm before the lull after the MLS residential inventory shot up by 42% at the end of May to a fearsome 4,485 units on the books.”

“Realtors Association president Carolyn Pratt said she is ‘upbeat’ about the rising prices and short selling cycles. Pratt predictably urged sellers to ‘consult a realtor before venturing into the market” where the average single family dwelling price is jumping by over $400 a day.’”

“So why have all these folks suddenly decided to cash out? And do they know something that Pratt doesn’t?”

The Winnipeg Sun from Canada. “In the suburbs or by the docks, the Manitoba real estate market is sizzling. In May, Winnipeg’s housing market smashed sales and dollar volume records to chart its best month ever, while the province’s average waterfront cottage price hit almost double that of the average home.”

“‘It’s the number one month ever. I think it’s great because every time there’s a house sold in Winnipeg, there is a great spinoff for so many different people and there is wonderful job creation activity,’ said Wes Schollenberg, Winnipeg Realtors Association president.”

“Schollenberg admits skyrocketing prices can make home-buying difficult. ‘The buyers have to be really patient and it can be very frustrating,’ Schollenberg said.”

The Star Phoenix from Canada. “Curtis Olson recently purchased and renovated a two-storey home close to the Saskatoon Farmers’ Market. Olson put the house on the market himself last Friday. By Monday, it had sold for the asking price of $164,000. The buyer? An Albertan who didn’t even bother to come and see it. In fact, half of the calls he received were from Alberta.”

“Olson’s experience isn’t unique. Investors from Alberta and British Columbia are buying up properties in Pleasant Hill, Riversdale, King George and Holiday Park in increasing numbers, without even seeing them.”

“Out of 540 properties listed in the area since January, 480 sold at an average price of $121,000, not bad for last year’s lowest-selling area, which had an average price of $86,000.”

“‘We’re seeing a number of investors from Alberta and British Columbia coming in and buying two or three properties at one time,’ said Harry Janzen, executive officer of Saskatoon Region Association of Realtors. ‘Some are even buying homes without coming to look at them, which tells us that there’s not a direct interest in the home, but rather the land value and location.’”

“‘Many of our out-of-province investors want big lots and don’t really care if the homes are dilapidated,’ said Realtor Susan Toledo . ‘They want to take them down and rebuild to generate revenue.’ She expects house prices to keep climbing.”

“Canadian building permits slipped 8.4 percent in April, after rising at a record pace the previous month. Permits have been volatile all year, rising 27 percent in March and posting double-digit gains or losses throughout the first quarter. Still, year-to-date permits are 15 percent ahead of where they were in the same period in 2006.”

“‘There are still no compelling signs of distress in Canada’s housing market,’ CIBC World Markets economist Warren Lovely wrote in a note to clients today.”

The Herald Tribune reports from Florida. “‘For Rent’ signs litter lawns in almost every Southwest Florida neighborhood. The apartment and home rental vacancy rate is at nearly 10 percent because of the mass exodus of construction and service sector workers from the area. Instead of lowering rents, some landlords are simply getting out of the business.”

“One theory goes that Southwest Florida landlords cannot afford to lower their rents because of the spiraling cost of taxes and insurance. For instance, a two-bedroom house in Sarasota that sold for $250,000, with 20 percent down, paying 6 percent interest on a 30-year mortgage, would cost $1,199 per month, not including closing costs, property taxes and insurance, to own.”

“The average price listed for two-bedroom house rentals in the classified section is $850 to $900 per month.”

“‘I had to sell one of my houses last year just to cover my taxes. My rent could not keep up,’ said Mike Geenen, a Sarasota landlord for more than 27 years. ‘I borrowed money and kept borrowing money, and I finally had to sell out, which got me out of debt.’”

“‘If there’s not a drastic resolution to this, I am going to liquidate and move to Tennessee,’ said Geenen, who has sold three of his eight rental houses in recent years.”

“The Florida Agency for Workforce Innovation says that, statewide, more than 3,000 construction jobs were lost just in the first three months of 2007. That likely understates the total because the majority of workers in the industry are subcontractors, who often are not counted.”

“During the first quarter, for example, 217 housing units were built in Sarasota County, a 60 percent decline from the same time last year.”

“Al Holmes, president of the Sarasota and Manatee landlord associations, who manages the 66-unit Baltic Apartments in Sarasota, has lost nearly a dozen renters in the past year because they could no longer afford to live in the region.”

“‘The construction side got sick and they all started moving out. Now, we’re seeing a lot of vacancies. We’re seeing vacancies like we’ve never seen before,’ Holmes said.”

“His taxes and property insurance have gone up 307 percent in the last few years, he said. To break even, Holmes would have to pass on to his tenants a rent increase of about $75 or $100 per month on an $850-per-month rental.”

“Holmes knows his tenants would not like it, and would not have to accept it with so many other rentals on the market.”

“‘We’re being hit with the double whammy. The building trade is slow. Taxes are high. Rent is low. And insurance is thrown on top of it,’ he said.” “Complicating that is the fact that Southwest Florida has so much investment property from the recent housing boom that likewise is being rented out, or whose owners are at least trying.”

“‘All these people who bought condominiums and houses in speculation are grateful right now just to have someone to help cover the mortgage,’ said Jude Levy, an affordable housing advocate. ‘But eventually, they are finally going to sell that house and that condo.’”

“Geenen considers himself fortunate because he owes very little on the majority of his properties. When the housing market rebounds, Geenen thinks he will be well positioned to cash out. He imagines many others who might not be so lucky.”

“‘Some of these people are mortgaged right to the hilt. They can’t move,’ he said.”

“For SevenShores, one of the largest Manatee County developments ever, it is back to the drawing board, literally, after the owner, St. Joe Co., recently announced it was suspending sales at the site and offered to return deposits.”

“The suspension announcement came after St. Joe, the state’s largest landholder with 900,000 acres, said in August that it planned to exit Florida home building.”

“That was a move that resulted in layoffs and a greater reliance on local, regional and national home builders.”

“Condos at the development were expected to range from the high $600,000s to about $1 million. A new product mix will likely reduce those lofty price points. Many other developers in the region have taken that tack to stimulate sales.”

The Palm Beach Post. “Despite a prolonged housing slump, 4,000 new homes will be going up west of Interstate 95. Centex Homes unveiled plans for Phase 1 of the 2,068-acre project at a planning and zoning board meeting Tuesday.”

“A contract dispute waylaid plans for homes in 2003, just as nearby landowners like Core Communities, PGA and G.L. Homes were announcing dreams of building their own mega-communities on vast tracts of farmland west of I-95.”

“With the court battle settled and Centex paying $110 million for the land last year, developers said they are eager to break ground next spring despite the slumping housing market.”

“No price range has been set, but Kenneth DeLaTorre of Centex said value will be a key factor in attracting buyers in a lackluster market.”

The News Journal. “The number of permits for new single-family homes in Volusia County during the first quarter of 2007 fell nearly 45 percent from the first quarter of 2006, according to a new report.”

“The latest quarterly figures continue a decline that began in early 2006. Rick Michael, Volusia County’s economic development director, said his agency tracks the housing permits issued by every city and the county every three months, and those figures show the number actually peaked in the last quarter of 2005.”

“‘You cannot measure against 2005 because it was an artificially robust year,’ Michael said. ‘The housing market has come down to what it was before it heated up (that year). We’re back to normal.’”

“The downturn in housing starts also affects construction employment, Michael said, although the decline in jobs will lag behind the fall in permits issued.”

From Hernando Today. “About 200 people packed a county commission budget workshop Tuesday pleading for tax reform. In the last five years, James Knotts of Spring Hill says his property taxes have risen 100 percent. During that same period, his house insurance soared 300 percent, he told county commissioners.”

“Sen. Paula Dockery said legislators must walk a fine line between cutting taxes and jeopardizing public service.”

“Ana Trinque said the county raked in big bucks during he housing explosion of 2006. ‘What did the county do with all that money from the housing boom?’ she asked.”

“Realtor Vera DuGray said she can live with reduced services if it means cutting her taxes. ‘We need tax relief and it has to come now,’ she said.”

“Linda Hayward, part of the Lower Hernando County Taxes group, said she couldn’t reconcile commissioners’ dire economic budgetary warnings when the county’s reserve budget grew 54 percent from 2005 to 2007. Owning property has now become a liability instead of an asset, she said.”

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