The Housing Bubble

The Star Phoenix reports from Canada. “Canadians’ seemingly endless appetite for buying and selling houses will continue the resale market’s ‘astounding momentum’ from the second quarter through the end of the year, according to a report released Thursday. ‘The most profound story in Canadian real estate today is the extraordinary interest that people across our country continue to have in buying and selling homes,’ added Phil Soper, CEO of Royal LePage Real Estate Services. ‘The sheer number of homes trading hands this year has far exceeded consensus expectation.’”

“All regions are expected to enjoy the same growth conditions with average house prices hitting double-digit gains in Edmonton, Calgary, Winnipeg and Regina, according to the report.”

The Leader Post from Canada. “Regina’s red-hot housing market isn’t just breaking records, it’s shattering them. Fuelled by strong demand and brisk sales, the city’s residential housing market broke a number of records last month, said the Association of Regina Realtors on Wednesday.”

“With demand still rising, the market should stay bullish throughout the summer, the association said in its monthly market report.’We’re seeing unprecedented levels of demand and buyers in the marketplace,’ said Gord Archibald, executive officer of the association.”

“The average house price in June was $169,729, a 24-per-cent-jump from last year. Archibald said this reflects the multiple offers many sellers receive, driving sale prices upwards. ‘Homes routinely get 10 or 15 offers,’ he said. ‘So prices are routinely going above listed price because of competing buyers.’”

“And despite soaring prices, Regina’s residential prices remain less than half the national average, Archibald said, attracting out-of-province interest. ‘I had three requests from Alberta buyers just this weekend,’ said broker Kelly Wilson. ‘And that’s just me. There’s 280 other realtors in the province.’”

“Paradoxically, the record-breaking month comes despite an increase in the number of houses up for sale. New listings rose slightly during June, but were overwhelmed by the fast pace that homes sold, Archibald said.”

“However, Regina’s strong housing market is not all good news. Wilson said some over-ambitious sellers have begun pricing themselves out of the market. As word of Regina’s hot market spreads, sellers who overprice their homes can find they don’t even receive an offer.”

“‘If you overprice your property, you’re going to see people unwilling to pay,’ he said.”

The London Free Press from Canada. “An exodus of people escaping the traffic, construction gridlock and dizzying home prices of boomtown Calgary helped push home prices in Saskatchewan to record levels, a trend expected to continue through the end of 2007.”

“Saskatoon recorded Canada’s largest property jumps in the second quarter: with bungalows costing an average $281,250, more than $100,000 over the same period in 2006. Two-storey homes were even more expensive, going from $196,500 to $305,000. Regina bungalows sold for $204,000 over $143,250 a year earlier.”

“Still, the runaway prices that have characterized Edmonton and Calgary for the last 18 months have begun to ease.”

“‘As home prices have escalated, it’s made the relative cost of living in a city like Saskatoon very appealing,’ said Royal LePage’s Phil Soper, noting the market will begin to level off at some point. ‘The price hikes in Saskatoon, and to a less degree, Regina, are completely unsustainable.’”

The Edmonton Journal from Canada. “Edmonton house prices fell almost $9,000 in June compared with May, as the number of listings continued to soar. Average prices in the Edmonton area for single-family houses dropped two per cent to $417,265. Condo prices dipped 0.3 per cent to $265,172, while duplexes and row houses fell 1.3 per cent to $342,836.”

“Meanwhile, 4,982 homes were newly listed in June, following the 4,850 listings in May, compared with 2,440 in June 2006.”

“‘Our members have reported a number of price reductions and fewer multiple offer situations than we have faced in the recent past,’ Carolyn Pratt, president of the Realtors Association of Edmonton, said today.”

“In this healthy market, ‘there is less desperation buying,’ Pratt said. ‘Sellers will have to price homes more realistically for a quick sale.’”

“She added that many new homes have been completed recently, causing buyers to list their previous homes. Pratt conceded that ‘investors may feel this is a good time to be selling.’”

“The 4,982 listings in June far exceeded the 2,203 sales in the same month, leaving a month-end inventory of 6,367 homes. That approaches the record inventory of 7,747 homes in July 1994.”

“This gives buyers more selection and encourages competitive pricing, but does not signal a market slowdown, Pratt says. Although unit sales in June were down 22.4 per cent from May, the strongest month in several years, they exceeded the average of the previous 12 months by 11.7 per cent.”

The Edmonton Sun from Canada. “Edmonton realtor Mike Onofrychuk wasn’t surprised to hear the housing market dipped slightly last month. ‘I could feel it. It started in early June,’ he said.”

“Carolyn Pratt, real estate board president, said Edmonton’s market is still strong and prices should continue to increase over time for all classes of property. The average residential price has risen nearly 74% in the past 18 months.”

“The only sellers affected by the June price decrease, suggests Jon Hall, real estate board marketing and communications manager, would be those hoping to ‘flip’ a property. ‘(Lower June prices) will make it a little harder to make a quick buck.’”

“Hall said several factors could have contributed to last month’s dip. For example, he said, more inexpensive residential options can bring housing prices down. Another likely scenario, Hall said, is more listings took some of the pressure off buyers to find a home.”

“Onofrychuk suspects the citywide inventory spike resulted from builders completing construction of prospect homes purchased by investors last year. He said those homes began coming onto the market a couple months ago.”

“The realtor guesses prices will hover around current rates for a few months until supply goes back down. At that point, he said the increase should resume. Hall said June prices certainly shouldn’t cause owners to sell in desperation.”

Readers suggested a topic on foreclosed homes that have been taken back by the lenders. “If anyone knows, share approximately what a bank with REO’s wants to hear (and what they do not want to hear).. along the lines of: ‘Mr. Banker, you and i both know those properties are depreciating fast and will eventually reach 1998 price levels, so let’s cut to the chase and deal now.’”

One replied, “The problem is that Mr. Banker will never sell at the price you both know is reasonable because he is waiting for (and may still get) the greater fool. As soon as the banks start to sell for reasonable prices; in a word, the gig is up. The comps will adjust to what the market will support (and no, a market will obviously NOT support the prices if you have a 60 month inventory; ala Palm Beach) and the banks will take the losses.”

“Unfortunately, the banks have little incentive to blow out their repoed properties; it will just decrease the values of the homes they are going to repo next week right down the street. However, how long with the bank’s investors allow them to keep a huge amount of RE on the books?”

Another said, “From time to time, I look at the REOs listed on line by various banks and other institutions. Usually, the contact is a local realtor in the area. The realtor who handles REO for one of the banks in this area (Tampa Bay) is very realistic. I had a conversation with her a few months back and she said that the bank she deals with has not yet adjusted to the reality of the bust and so the REOs are priced high.”

“Realtors who deal with repossessed property have a much different view of the market. They’ve been through it all and seen it all: the trashing of the property, squatters, stolen appliances and wiring, etc. My experience is that you can have a frank conversation with them. They will present your offer to the bank and will do the talking for you. They just have a hard time convincing the bank that the POS REO ain’t worth what the bank thinks it is worth.”

One was skeptical. “The banks consider ‘a good enough deal’ to be a price fairly close to what is owed to them when in reality (because loans were offered close or above 100% LTV) the market price is well below this price point.”

“The banks are refusing to feel the pain and are putting off the day of reckoning. I say screw the banks. Understand that there IS a cost of holding REO’s. Taxes, Assoc fees, maintenance to name but a few. Let these suckers let these languish through the summer and watch the maintenance issues mount.”

“Anyone buying right now is completely clueless on how bad this is going to get and how far prices are going to fall.”

The Modesto Bee. “Another home foreclosure auction is headed to Modesto, and it’s got potential bidders hankering for a bargain. The next big auction (is) scheduled by Hudson & Marshall for July 19 at Modesto Centre Plaza.”

“And more auctions are expected to be held later this summer and fall. That’s because lending institutions have repossessed thousands of Northern San Joaquin Valley homes, and they’re eager to sell them any way they can.”

“‘It’s definitely a buyer’s market and everything’s on sale right now,’ said Ken David Elving, co-owner of Matel Realtors. He is representing the sellers of five homes that will be auctioned July 19 in Modesto.”

“To determine a home’s value, Elving said, don’t rely on what homes sold for in the past because prices have been falling very quickly. ‘Focus on the prices being asked for homes for sale now,’ Elving said.”

“Current asking prices often are substantially less than previous sales prices for identical homes. Example: Elving said a home in the July 19 auction in Oakdale sold in May 2006 for about $550,000. By this spring, that 2,784 square-foot home was back on the market for $394,000. No one bought it, so now it will go to the highest bidder.”

“A search of properties for sale in that neighborhood shows several slightly larger homes priced about $360,000. So that $360,000 price may be a more logical bid than $550,000.”

“It can be easy to get caught up in the excitement of competing to buy a home. Auctioneers are good at getting buyers to up their bids. ‘Set your limit and don’t get swept away by the moment, because you may find yourself bidding more than the property is worth,’ cautioned Catherine Cooper, a Modesto real estate broker who attended last month’s auction.”

“Cooper thought many of the bid prices at that auction were too high. By the time the 5 percent buyer’s premium was paid, many of last month’s auction prices were full-market value, agreed Jason Rivers of Rivers Realty, who also was at the event.”

“‘Those buyers didn’t get any better deals than you can find right now with regular houses listed for sale,’ Rivers said. He is representing banks that have foreclosed on about 20 properties, he said, and those sellers are offering good deals.”

“Foreclosed houses can have construction problems that inexperienced buyers may not spot, said Matthew Irion, owner of M.K.I. Home Inspections in Modesto. ‘I’ve been doing some inspections on bank repossessions, and they’ve been in pretty bad shape,’ Irion said. He’s seen walls kicked in, appliances removed and recyclable metals such as copper, steel and brass pulled out.”

“Irion said bidders would be wise to arrange for home inspections before committing themselves to buy.”

“Many newer homes are in special taxing districts that require owners to pay additional property taxes each year. Such Mello Roos fees or community service district fees can add thousands of dollars a year to the cost of a home.”

“Few investors are able to buy homes, then immediately rent them out for a profit. ‘The rental market is soft right now,’ Elving said. ‘You have to offer very aggressive rental rates to get homes rented. If your price is above $1,000 (rent per month), you’re in trouble.’”

“A couple of years ago, many investors made big bucks buying fixer-upper homes that needed relatively minor remodeling. Flipping a house…works great when the real estate market is hot. Not now. ‘Flipping is financial suicide now,’ Elving warned.”

“That’s because buyers these days expect bargain prices, and they no longer have to pay extra for homes in great condition.”

The Miami Herald reports from Florida. “Investor Tony Barquin shifted amid the crowd in the stuffy auction room at the Miami-Dade County Clerk’s office Thursday, pondering which among scores of homes in foreclosure he might bid to buy. As more and more homeowners can’t pay their mortgages, the number of properties hitting the auction block has skyrocketed. So Barquin’s business should be booming.”

“But Barquin said fewer are worth buying. He left the auction empty-handed. ‘Everything is upside down here,’ he complained, describing homes worth less than the debt on them. ‘In a month, there might be only a few really good deals.’”

“The amount of foreclosed real estate owned by Florida-based banks and thrifts has nearly tripled since the fall of last year, when foreclosure rates began their upward trek, to $94 million as of March 31, from $34 million Sept. 30, according to the most recent Federal Deposit Insurance Corp. data. (These data do not include giants like Bank of America, which have large operations here but are based elsewhere.)”

“At Thursday’s auction, of roughly 70 properties offered for sale, investors bought only two. A handful were scratched. The rest were bought back by lawyers for various lenders.”

“Even seemingly great deals were snubbed. Example: a two-bedroom condo on Claughton Island Drive in Miami bought last June for $690,000. The outstanding balance on the loan was $588,062, but the lender was willing to let the property go for $373,900.”

“‘What is happening now is not the aberration,’ said Stuart Gitlitz, a Miami lawyer who represents lenders in foreclosure proceedings. ‘What happened in the last couple years was the aberration,’ he said.”

“‘What is happening is that values are not there and investors are being more cautious,’ he said.”

“Foreclosure investors’ business depends on their ability to rehab and sell homes quickly, so they can’t hold out for a market rebound. That’s perhaps why even some deeply discounted properties for sale Thursday did not garner bids.”

“One Miami Beach condo was slashed by nearly $400,000. ‘Even at that price nobody was interested,’ said Barquin, ‘because that’s not what it’s worth on the market.’”

The Times Picayune from Florida. “Ivan was Pensacola’s epochal storm, that city’s version of Katrina. For locals, the hangover has lasted longer. They continue to struggle with staggering insurance premiums, a depressed real estate market and a deep-seated anxiety about living in hurricane alley.”

“Real estate prices rose in Pensacola immediately after Ivan, as buyers scrimmaged for the limited inventory of undamaged housing. Now the market is groaning under the weight of 7,000 houses for sale, about double what was available in June 2002.”

“Doug Gooch, president of the Pensacola Association of Realtors, said 508 houses and condominiums moved last month, at an average price of $222,000. That compares with 724 houses sold in June 2004, three months before Ivan hit, at an average price of $193,000. Prices have fallen since their post-Ivan highs, when the average sale was $290,000.”

The Palm Beach Post. “John Devaney, the deep-pocketed, high-flying trader who’s lead financier for the $510 million purchase of Briny Breezes, is facing a financial squeeze after a series of bad bets on the subprime mortgage market. Some wonder whether Briny Breezes’ buyers will have to look elsewhere for financing.”

“Devaney’s company, Key Biscayne-based United Capital Markets Holdings, acknowledged this week that it has suffered ’significant losses’ on its risky subprime mortgage trades. The company has taken the unusual step of not allowing investors to cash out of four of its hedge funds.”

“‘There’s gonna be a concern, especially because it implies liquidity problems,’ said Ken Thomas, a Miami banking analyst.”

“United Capital’s losses follow the near-collapse of two Bear Stearns hedge funds that also trade arcane mortgage securities. ‘Bear Stearns and others have deep-pocketed parents,’ Thomas said. ‘Who’s going to bail out United Capital?’”

The News Press. “When all else fails, trust in St. Joseph. That’s the advice of Robin Milburn, a real estate agent who recently sold a house on Lemon Street on Pine Island for $390,000 after 688 days.”

“‘At one point I tried to give it away,’ Milburn said with a chuckle, remembering the long, involved process that preceded the happy ending. She cut the price twice before selling the house. ‘I even was desperate enough to bury a statue of St. Joseph in the yard,’ she said.”

“Lee County has seen the average numbers of days on market soar as the bottom fell out of the real estate market. In May 2006 the average number of days on market for homes listed by real estate agents was 75, that number had risen to 121 by May 2007.”

“Days on market is a good indication of how a market’s doing, said Michael Timmerman, the Naples-based managing director for Florida at Hanley Wood. But he cautioned you have to be careful in interpreting the data.”

“‘Statistically,’ he said, ‘it could go down because a lot of people take their place off the market, and then it goes back up again.’”

“It’s still not always easy to move even an attractive dwelling, said Art Boesch, (an) agent trying to sell a house in The Vines in Estero for $439,000. It’s been on the market for more than 800 days.”

“‘Well, the news has not been very kind to us and a lot of people are just waiting for things to go lower,’ he said. ‘It’s priced right, a nice house, it just doesn’t have the right view. Snowbirds come down and they want a beach view or a golf course view.’”

“Boesch is optimistic long term, however, noting most sellers in The Vines aren’t succumbing to low-ball offers. ‘They’re offering 30-40 percent off and they’re saying, ‘Absolutely not. I won’t sell at that price.’”

“Besides, he said, construction prices are far higher than they were a few years ago and as inventory of homes is sold off, prices have nowhere to go but up.”

“Sometimes, however, a house’s price is simply too high for the market. Hector Saitta of Century 21 Novelli has the listing for a three-bedroom, two-bath house in Cape Coral with an asking price of $480,000. It’s been on the market 812 days, at least in part, he said, because the price is a little high.”

“‘I’ve spoken many times to the owner to reduce the price. I don’t show it too many times: a few times, a few calls,’ Saitta said.”

What do you see in your housing market this weekend? Lower prices “In a recent Web chat, a reader from Manassas summed up what is probably the overriding concern of many local homeowners: ‘How much lower is this residential market going to go? I have already lost over $200,000 in value compared to what I paid for my house in Gainesville last year! Even after taking the down payment into consideration, I owe more than what the house is worth! Help!!!’”

“Let’s pause and let that number sink in. Two hundred thousand dollars. Gone. Lea Morris, an agent with Long & Foster’s Gainesville office, says a decline of that magnitude is indeed possible.”

“‘The list prices we have now are much lower than a year ago,’ she said. She’s frustrated that so many buyers are still sitting on the fence despite the negotiating leverage they have. ‘They can go in and offer a lower sales price and get all their closing costs paid,’ Morris said.”

Reporting changes? “One view is that it hurts sellers, another is that it helps buyers. The bottom line is that you, the real estate professional are in the best position to explain to your customer, buyer or seller, what the true DOM figure is and what it means.”

“To that end, the SoCalMLS BOD, after getting input from MLS Committees and other practitioners, have decided to remove the Days on Market and Cumulative Days on Market fields from all Client reports.”

Lending news? “Bad bets revealed by some hedge funds in recent weeks may mean other funds will be forced to accept the market’s deteriorating views on subprime mortgages and report their own losses soon.”

“‘The interesting thing is the varying stages of denial that the street finds itself in,’ said a university endowment manager who asked that he not be named. Some, he said, are ‘very willing to mark prices down and take the lumps.’”

“The ritual at hedge funds of placing a new value on securities held at month end, rather than daily, appears to worsen the blow to investors if prices have fallen over the period, said fund manager Jason Brady.”

“‘When investors redeem, the leverage unwind is awful,’ he said. ‘They redeem when they see their statement. That happens over the next week or so.’”

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