The Housing Bubble

The North County Times reports from California. “For the first time in nearly three years, the median price of a single-family home has fallen below $600,000, according to the latest report from the North San Diego County Association of Realtors. The decline amounted to 4.82 percent, from $609,375 in October 2006 to $580,000 this October. Not since January 2005, when the North County median was $589,000, have single-family homes in North County sold for less, said Robert Brown, an economics professor at Cal State San Marcos who prepared the Homedex report.”

“The market is soft right now, said Mark Oatman, president of the Realtors group. ‘Sales are definitely off right now…People that are out there looking right now are really looking for the deal.’”

“With 5,827 single-family homes on the market in North County at the end of October, North County has just over a 14-month supply of homes on the market.”

“Median prices for attached homes tumbled 11.65 percent, from $395,000 in October 2006 to $349,000 in October 2007, the lowest in a year.”

“Oatman attributed the decline to a large supply of condos for sale, especially new condos. ‘Many of those are from developers who are offering some pretty good incentives to get out from under large projects,’ Oatman said.”

The Orange County Register. “The credit crunch and a foreclosure tsunami continue to pound the county’s mid-section. New home-buying stats from DataQuick show that for the 22 business days ended Oct. 23 that mid-county ZIPs in Santa Ana, Anaheim, Orange, Garden Grove and Westminster had just 343 home sales, a stunning 62 percent below year-ago levels.”

“Orange Countians likely failed to buy more homes last month than the year-ago period for the 25th consecutive month. And the median selling price hovers at early 2005 levels.”

The Daily Press. “From Jan. 1 to Oct. 16, there have been 1,318 foreclosures, with the High Desert accounting for 30 percent of the total number in San Bernardino County. Between September and October, the number of Victor Valley foreclosures jumped 25 percent.”

“The Victor Valley hasn’t been hit as hard as some areas of Southern California because economic trends usually start at the coast and move inland, said County Assessor Bill Postmus. But with the number of foreclosures in the county increasing 1,000 percent since last year and only continuing to grow, we likely have not seen the worst of it yet.”

The Desert Sun. “The number of homes sold continued to decline in September, dropping 32.7 percent from a year ago.”

“The most recent statistics continue to show a housing market in transition, one that favors buyers, is frustrating sellers, and has investors and homeowners nervous about their equity.”

“The median price of existing homes in the Coachella Valley jumped 6.4 percent to $399,000 in September, bumped up largely by the sale of several multimillion-dollar homes.”

“‘Knowing the median price of a home in the desert is interesting, but it is as indicative of the value of your home as knowing the median temperature in America is to predicting the weather here,’ said Leslie Appleton-Young, the chief economist for the California Association of Realtors.”

“‘High-end homes are a market unto themselves and have continued to perform better than the overall market,’ said Patrick C. Veling, president of Real Data Strategies. ‘The entry-level market is really stumbling because of the financing crisis and, frankly, because of affordability.’”

“At the mid-level, motivated sellers who have changed their original expectations are having some luck, but several of them are still in denial. Sales in the high-end, tony market are motivated by lifestyle choices, not the cost of the property.”

“Greg Berkemer, executive VP of the California Desert Association of Realtors, noted that ‘while sales fall overall, you would expect prices to decline as a function of supply and demand. One reason the median prices have not fallen is because the high end is selling so well.’”

“Veling says the data ‘points out the flaw in using median price for anything except real macro analysis.’ ‘The statistical sample (of homes sold) is now small enough that the median price misrepresents what buyers and sellers are dealing with,’ he said.”

“Veling said he thinks it is far more important to know what a competing seller is asking and position against that. ‘The median has basically been reduced to a meaningless academic exercise,’ he said.”

“In September, 524 housing units were sold, down 32.7 percent from a year ago, according to DataQuick. The sale of existing homes dropped 40.7 percent from a year ago. The median square-foot cost also dropped a bit more than 6 percent for existing and new homes and for resale condos.”

“Berkemer said there were 9,170 unsold homes in the Coachella Valley in October, up 571 units over September and up 1,094 from a year ago.”

“The economy through 2008 is on the razor’s edge, Leslie Appleton-Young told Coachella Valley Realtors.”

“‘A key concern is whether turmoil in the housing market will tip the economy into recession,’ she said, before noting: ‘Probably not.’”

“She assuaged Realtors attending the meeting by pointing out the Coachella Valley’s strengths as a resilient area with its resort panache for Canadians and baby boomers, and its multiple sub-markets.”

“‘The market will take back the last 1½ year in terms of price appreciation,’ she said, and the first half of the year will be peppered with resets on mortgages for those who bought homes when the real estate market was at its peak. ‘We’ll have to get through the first half of the year, and we’ll be in a healing mode after that.’”

“Strategies Appleton-Young suggested Realtors adopt for 2008 included one essential business practice: Make sure your clients have their loan. ‘Price appreciation trumps solid underwriting every single time,’ she said.”

“Appleton-Young also advised Realtors to double their efforts, expand their sphere of influence, broaden their portfolio and keep the view that first-time buyers will return in 2008.”

A report from the Charlotte Observer. “Beazer Homes USA will delay paying subcontractors in at least one city where it builds homes, as the company struggles to ride out one of the most severe housing slumps in recent history. The Observer obtained a letter dated Nov. 5 and signed by Beazer Nashville division President David Hughes, who said ‘effective immediately’ the company would hold up payments.”

“‘It is unfortunate, but we cannot continue the prompt payments you have received in past years,’ the letter stated. It is unclear how this policy specifically differs from Beazer’s previous payment schedule, and if it extends beyond Nashville.”

“The company has reported that it is burdened with an ‘unusually high’ cancellation rate of 68 percent — 18 percentage points higher than its nearest competitor.”

“Nita Hunt, president of plumbing contractor Falapco Inc. in Charlotte, said she has been doing business with Beazer for 15 years. ‘I’ve never had a problem with them,’ she said, ‘and I can’t imagine they’d send a letter like that.’”

The Post & Courier from South Carolina. “Brad Rundbaken has had experience in real estate, the stock market and appraisals, so he has a wide scope on housing trends. In his third quarter Charleston real estate market report, Rundbaken sees some but not much uptick in the sluggish housing market.”

“‘Sales have really taken a hit here locally due to the current credit crisis and overall negative mentality of buyers and sellers,’ he says. ‘Until sellers and some Realtors get a clue how to price a home in this buyers market the trend will only get worse.’”

“He says inventories have shown short-term improvement. However, in September 2006, ‘overall inventory was 6.1 months or 8,336 properties. September 2007 shows 10.95 months of inventory with 9,742 properties for sale. YIKES!’”

The Palm Beach Post from Florida. “The 78-year-old homebuilder Levitt and Sons filed for Chapter 11 bankruptcy protection late this afternoon.”

“‘The homebuilding industry, particularly in Florida, has experienced unprecedented declines, with an oversupply of inventory and waning demand exacerbated by the recent disruptions in the credit markets,’ Levitt Corp. CEO Alan Levan said in a statement.”

“For people who signed contracts on homes in Levitt and Sons’ 12 communities in Florida, Georgia, South Carolina and Tennessee, the bankruptcy proceedings create more uncertainty.”

“Levitt Corp. reported today that it lost $169.2 million during the quarter ended Sept. 30. The huge losses included pretax charges of $163.3 million stemming from Levitt and Sons’ swollen homebuilding inventory. The builder is in default on more than $300 million in loans and had been working to restructure its debt.”

“Levitt and Sons is now the biggest builder in bankruptcy, according to Bloomberg News. Its bankruptcy is more proof that the homebuilding machine that emerged during the housing boom could not be sustained, said Brad Hunter, an analyst at MetroStudy in West Palm Beach.”

“‘Too many builders built too many homes, and obviously there had to be a day of reckoning,’ he said. ‘We’ve seen a couple of builders go bankrupt, and there will probably be more.’”

The Wall Street Journal. “Levitt Corp.’s home-building unit, Levitt & Sons LLC, filed for Chapter 11 bankruptcy protection on Friday citing ‘unprecedented conditions in the home-building industry’ that has been ‘particularly sudden and steep’ in Florida and Southeast.”

“‘The home-building industry, particularly in Florida, has experienced unprecedented declines with an over supply of inventory and waning demand exacerbated by the recent disruptions in the credit markets. Levitt Corp.’s results for the quarter are a reflection of the deeply challenging environment in the housing sector and the primary cause of recent actions taken at Levitt and Sons,’ CEO Alan B. Levan said.”

“The home-building unit’s troubles dragged on the parent company’s stock, which has plunged 84% this year.”

The St Petersburg Times. “The company filed a Chapter 11 petition in U.S. Bankruptcy Court in Fort Lauderdale. Thirty-eight Levitt Corp. affiliates also sought court protection.”

“As part of the bankruptcy process ‘we will explore the potential sale of all or some of Levitt & Sons’ assets,’ said Lawrence Young, the company’s chief restructuring officer. He said the company would ’seek a mechanism that will facilitate the completion of some unfinished homes.’”

From WESH.com in Florida. “A new national report shows Central Florida homeowners could really get nailed in the slow real estate market. According to Fortune magazine, home prices in Orlando need to drop significantly so investors will get back into the home-buying game.”

“Right now investors aren’t interested because the mortgage they would have to pay exceeds the rent most people will pay. A house in Orlando now worth $522,000 needs to drop to $343,000 in the next five years, according to Fortune magazine.”

“‘Guesses don’t work. What we can tell you is this: the fact of the matter is prices will come down a little bit more over the next year. That’s for sure. There’s no guessing about that, but five years from now, that may be accurate. It might not be. It’s kind of like throwing darts in a dark room,’ Realtor Gary Balanoff said.”

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