The Housing Bubble

The Union Tribune reports from California. “Despite months of discouraging reports about tightening credit, defaulting mortgages and falling home prices, the California Building Industry Association Thursday issued an upbeat housing forecast for the coming year. ‘I believe 2008 will be a year we stop the bleeding in the home building industry and we turn things around,’ said Alan Nevin, the association’s chief economist.”

“Acknowledging that most other forecasts anticipate no start of a recovery in the state’s housing market until late 2008 or early 2009, he said, ‘I am taking a contrarian view. The buyers will start coming out again. I think you will see it sooner rather than later.’”

“‘In the single-family market, we anticipate a modest improvement in sales in those markets that are highly urban.. . . In those areas, where lots are not abundant, we forecast a 10 to 15 percent increase in sales in 2008, with prices holding steady,’ he said.”

“In regions where lots are in good supply, such as Riverside, San Bernardino, the San Joaquin Valley, and the Sacramento area, ‘there will be a major change in the home building mentality,’ Nevin said.”

“‘Lots, for the most part, have declined substantially in value. They will be written down to more practical value levels.’ That means home builders will be able to build substantially smaller homes and sell them for substantially lower prices, he said.”

The Fresno Bee. “It’s no surprise that a cooling real-estate market meant fewer new homes being built in Visalia in 2007 than the record levels of two years ago.”

“But even though the number of building permits issued by the city last year for new single-family houses tumbled by more than a third from 2006, representing a 38% decrease in construction value, 2007 still stacks up as the fifth-busiest year on record for home builders.”

“‘These [housing] numbers aren’t surprising; they’re not shocking,’ said Dennis Lehman, the city’s chief building official. ‘I think it’s indicative of what’s happening all over the place.’”

“Robert Keenan, executive VP of the Home Builders Association of Tulare and Kings counties, said he’s heard some out-of-town builders who entered Visalia in 2004 and 2005 have sold their local interests or, in some instances, filed for bankruptcy for individual subdivision projects.”

“Lehman said his staff members see some of those effects in homes that are only partially built with no signs of completion.”

“‘We’ve had some builders who, for whatever reason, have stopped building,’ he said. ‘Maybe they’ve run into financing problems or their buyers have pulled out, but we’re starting to write some of those letters to ask what their intentions are.’”

“‘I suspect some of them are hurting somewhat, but there’s no reason for them to leave a bunch of half-finished work around,’ he said.”

The Daily News. “The San Fernando Valley’s residential real estate market remained frozen during November with both sales and prices retreating substantially from a year ago, a trade association said Wednesday.”

“The median price of a previously owned single-family house fell an annual 6.3 percent, or $37,500, to $557,500, said the Southland Regional Association of Realtors. It’s the lowest median in 32 months, or the start of the 2005 second quarter.”

“Sales plunged an annual 53 percent, to 355 transactions, just one more than the record low set in October. ‘I honestly think we’re in a bit of an impasse. Buyers aren’t doing anything and sellers are just sitting back waiting for something to happen,’ said Jim Link, the association’s executive VP. ‘It was not good … and we don’t expect December’s numbers to be any better.’”

“Sales have now fallen on an annual basis every month since October 2005. During November, the inventory of unsold homes reached 15 months.”

“Some potential buyers talk of holding out for price declines of 25 percent to 30 percent from the current level. ‘It’s just not going to happen here,’ Link said.”

“The Valley’s condo market took a similar hit. Sales plunged 50 percent, to 141 transactions, and the median price dipped 4.1 percent, or $16,000, from a year ago, to $384,100. In the Santa Clarita Valley, sales of single-family houses fell an annual 39.3 percent, to 111, and the median price declined 9.9 percent, to $522,500.”

“Condo sales fell 57 percent, to 38 transactions, and the median price fell 13.4 percent, to $316,000.”

“Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said this tough market will persist throughout the year.”

“‘You may have a buyer who may have good credit but can’t get a mortgage loan,’ he said. ‘And you have people frightened to death that there will be more price declines.’”

The Signal. “A total of 111 single-family homes and 38 condominiums were sold in the Santa Clarita Valley in November, the Southland Regional Association of Realtors reported Wednesday. A total of 2,341 properties were listed for sale throughout the Valley at the end of November, which is an increase of 7.2 percent from November of 2006.”

“Southland Regional Association of Realtors officials see the numbers as a a sign that local buyers recognize the opportunities that exist in the current market.”

“‘I don’t think you can time the housing market any more than you can time the stock market,’ Larry Gasinski, 2007 president of the Association’s Santa Clarita Valley Division, said in the report. ‘How do you know when any market has hit bottom and is on its way back up again?’”

“He offered advice to potential buyers, as well. ‘It’s a buyer’s market today, so why not make an offer? If you think prices will drop 10 percent over the next year, open up with an offer that is 10 percent lower than current sales comparisons. Waiting could mean the home you love will not be there, that favorable loan interest rates will be gone or that you’ll be competing with many more prospective buyers.’”

“The median price of single-family homes sold during November was $522,500. The median has been falling slowly since the record high of $643,000 was set in April of 2006.”

“After nine years of increase in the annual median price, the association believes 2007 is likely to post a decline of about 5 percent.”

“In a statement, Jim Link, CEO of the Southland Regional Association of Realtors, said: ‘The resale market in the Santa Clarita Valley appears to be finding a new equilibrium faster than other communities. Until the lending industry starts making jumbo loans higher than $417,000 the recovery will be very slow. Still, the region’s economic fundamentals are good and a growing number of buyers can recognize that there are opportunities today that didn’t exist just a short while ago.’”

“‘The market will remain stymied until more prospective buyers realize that affordable home loans are still available and that opportunities in today’s market outweigh the risks of waiting,’ Link said.”

The Herald News. “The year 2007 will be remembered by some people in Fontana as a traumatic time due to the problems facing the real estate market, including a huge rise in home foreclosures.”

“However, city leaders are optimistic in 2008 that Fontana will be insulated from the most severe repercussions of the housing woes that threaten the Inland Empire economy.”

“In fact, the city is actively promoting Fontana as a ‘city of action’ and a ‘land of opportunity.’”

“Part of the reason for Fontana’s positive outlook is the fact that many prime retail positions are still undeveloped, said Elisa Grey, the economic development manager for the city. Large sections of the city’s northern area are available for economic expansion and development.”

“Grey said Fontana’s lower land prices will continue to attract businesses moving eastward from Los Angeles and Orange counties.”

“‘Over the next few years Fontana is positioning itself to emerge as a job growth center as companies and people migrate toward the Inland Empire,’ Grey said. ‘We see this migration already happening with the location of Target Distribution Center, Home Shopping Network and Cliffstar (producer of Kirkland Juices) calling Fontana home.’”

“Fontana has now undergone a significant change in its occupation classification, according to statistics released by the city.”

“Fifty percent of Fontana’s jobs are considered white collar, while 35 percent are blue collar and 15 percent are service and farm. This is a dramatic transformation from previous generations; Fontana was known as a blue collar community from the 1950s through the 1980s, and prior to that, Fontana was a small town dominated by agriculture.”

“‘Fontana’s change is a result of the Inland Empire changing as a whole,’ Grey said. ‘Lots of professionals are moving into the inland areas.’ Consequently, the average household income in Fontana as a whole is approaching $70,000, Grey said.”

The Gazette reports from Colorado. “Colorado Springs’ housing market suffered through one of its worst downturns in recent memory during 2007. Foreclosures broke a 19-year-old record, home construction slowed to a pace not seen since the early 1990s. And as foreclosed homes come on the market, they’ll continue to create competition for builders and the resale market, where prices already have declined during the past few months.”

“Several parties, not just lenders, are to blame for the mortgage woes, said El Paso County Public Trustee Carol Snyder. Homebuilders, real estate agents and mortgage brokers all eagerly worked to sell homes, she said, while many buyers bought too much home for their budgets.”

“‘You put a larger housing stock with all of the creative financing, and all the eager people at all ends of the spectrum, and you end up in the situation we are in now,’ Snyder said.”

The Rocky Mountain News from Colorado. “The final tally of foreclosure filings in the seven-county Denver area in 2007 represent a 41.5 percent increase over the record filings in 2006. Last year’s 26,326 filings were the equivalent of every home in Littleton and Louisville going into foreclosure.”

“In August, Broker Brian Bartlett started tracking the number of us foreclosures in Denver’s MLS, and found the percentage increases had doubled by the end of the year. At first, about 6 percent of the homes listed for sale were either owned by lenders or the Departmentof Housing and Urban Development and 13 percent of the sold and closed homes were foreclosures.”

“Now, those numbers have risen to 13 percent and 26 percent, respectively.”

“‘That is consistent with the raw data you have on foreclosures,’ Bartlett said. ‘Every week and every month, the numbers have gone up. And that may be under-counting it, because some lenders will not allow the listing agent to put the home in the MLS as a lender-owned.’”

The Daily Times from New Mexico. “If being spotlighted on NBC’s ‘Today Show’ were not a big enough deal, the Farmington and San Juan County real estate market was highlighted Monday by the National Association of Realtors as one of the top 10 fastest-growing places in the country.”

“During November…homes in San Juan County sold for median prices between $200,000 and $275,000, according to Elizabeth Tafoya, incoming president of San Juan County’s Board of Realtors. ‘We’re not artificially inflated, and we have affordable housing,’ Tafoya said. ‘We have some foreclosures, but they’re mostly in the manufactured home market.’”

“The housing market ‘went out of control’ even in the state’s metro areas, and took a hard fall, Tafoya said.”

“In light of the roller coaster ride that has been the national home real estate market in recent months, outgoing Board of Realtors President Rosemary Hart hopes local buyers and sellers will learn a lesson.”

“‘News about the foreclosures, lending crisis and decreases in value nationally gave us an unnecessary scare here, but didn’t really affect us,’ Hart said. ‘But people panicked and we saw a decrease in sales. Other than what I call the panic stage,’ we’ve had steady sales.’”

“Her advice to people considering buying or selling here this year is to do their homework, but make sure it’s homework that’s based on the local real estate market. ‘Stay focused in your location when you get educated,’ Hart said. ‘The house you’re buying or selling isn’t in Las Cruces or Roswell.’”

The Sun News from New Mexico. “After a red-hot pace in 2006, the Las Cruces real estate market took a slight step backward in 2007. About 2,400 homes sold in 2006, while slightly less than 2,000 sold this year, according to statistics from the MLS compiled by Kaye Miller of Steinborn Realty.”

“‘There are more homes on the market,’ Miller said. ‘It might take longer to sell, but the homes are eventually selling. It’s a little bit of a tougher market; there’s more on the market and sellers have to be aware that they have to price it right. They have to be a little more patient.’”

“Stacey Melzer sold her Las Cruces home in 2007, but it was on the market for more than six months. ‘I did not think it would take (so) long,’ she told the Sun-News after one deal fell through because a contingent sale did not pan out.”

“Eventually the house sold, but she had to make two mortgage payments for a while, she said.”

“Miller said the national real estate market affects Las Cruces because it is taking out-of-towners longer to sell their homes in other markets and delaying the purchase of homes here.”

“‘We are so lucky here because we are sort of in this little bubble,’ she said. ‘Other areas across the country are hurting so badly. It’s impacting us because people who buy a lot of these homes have to come in from other places.’”

The Arizona Republic. “Two years after Scottsdale’s real estate market started to cool from its red-hot run-up, the big question for 2008 remains whether the market has hit bottom.”

“Optimists among local real estate professionals think it has and the new year will see improvement. ‘We’re on the other side of the dip,’ said Janine Brown, Scottsdale Area Association of Realtors president.”

“A Greater Phoenix Blue Chip panel of economists noted that new-home permits fell to about 32,000 in the Valley this year, about half the totals of two years ago and will drop to 30,000 in 2008.”

“Scottsdale Realtor Mark Tait said the softer market is motivating sellers to price their homes more reasonably and do improvements that they were not willing to do when multiple offers were rolling in on homes a few years ago.”

“And back when people were camping out to pay $190,000 for 15-year-old condo conversions.”

“‘They realize it is a buyers market and prices have retracted,’ Tait said.”

“People in real estate and construction are fighting to hold on until the market improves. ‘Builders are selling finished lots for 20 cents on the dollar just to stay afloat,’ he said, adding that as many as two-thirds of the smaller builders will not survive.”

“There should be some good indicators of where the Scottsdale market is headed by the second quarter of 2008, Tait added. ‘When is the bottom? Nobody can answer that,’ he said. ‘The bottom is when the media starts writing all kinds of good stories.’”

“Thanks to recently passed federal legislation, getting out from under mortgages with a short sale is easier in the troubled Southeast Valley real estate market.”

“Nick Martini of Mesa may be one Southeast Valley homeowner who gets a break from the new law. In 2005, Martini and his wife bought a house in Mesa and owe $315,000 on it now. The couple has completely remodeled the home’s interior, but currently it would probably sell for $280,000, said Martini.”

“In November, Martini was laid off and said he is now working a lower-paying job. And, his wife is five months pregnant with the couple’s second child. They struggle to make their house payments now, he said.”

“‘Come April, we’re going to fall on our face,’ he said. ‘We’d like to keep our house. Basically, we need to make more money.’”

“Should the Martinis short-sell their house, they won’t be alone. Randy Kutz, co-owner of Phoenix Heritage Real Estate Group and Arizona Short Sale Experts, said his companies have 60 short-sale listings around the Valley, and they aren’t going away anytime soon.”

“Even if the Valley’s housing inventory is reduced, Kutz said many portions of the region are down to 2004 prices. ‘I think the short-sale situation is going to be with us for five-plus years,’ he said.”

The Mohave Daily News from Nevada. “Some Southern California investors in The Hoover Companies projects are claiming they’re not getting the money they invested returned to them when they request it.”

“The Hoover Companies owns the golf course, country club and master-planned community of El Rio in Mohave Valley. They also own the future master-planned community of Mariposa, across the highway from El Rio.”

“The El Rio development, which has been taking shape since 2005, has fallen on hard times like its cousin to the north - Laughlin Ranch - due to the sharp downturn in home sales. Only three residences at El Rio are occupied, according to Hoover spokesman Chaz Martinez.”

“Other signs of trouble for El Rio include the fact that its clubhouse restaurant has scaled back its hours, no longer serving dinner. The nearby El Rio Professional Plaza, completed this year, has so far attracted only three tenants. And the Mariposa housing project, adjacent to El Rio, lays idle.”

“In an attempt to encourage development, Hoover is offering homes at El Rio with 1,300 square feet starting at $189,000, built on lots discounted at 40 percent and priced at $49,000.”

“‘I’m proud of this because I don’t think other developers have been willing to do what we do in this horrible market,’ Martinez said. ‘I mean, some developers just go bankrupt. They’re not paying anybody back. We would never want to do that. I mean, we’re fighting this gloomy period just like everyone else. We have tried to think outside the box to spur economic growth.’”

The Reno Gazette Journal. “A trying time, these past 12 months were for Northern Nevada’s economy. At the forefront: The housing market whose downfall was, by most accounts, inevitable after the runup some years back. Even the once-hot condominium market has cooled, as some downtown Reno projects have been halted.”

“‘Even McDonald’s will be affected,’ said Tom Cargill, economist at the University of Nevada, Reno. ‘People will have less money to spend. That’s real. There’s a sense of feeling less wealthy.’”

“Ken Wiseman, broker/owner of Reno Rancho Realty, recalls the heady times of a few years ago when homes sold furiously, sometimes in a matter of hours. Those days now are just memories.”

“‘We’ve finally seen the 180-degree turnaround,’ he said. ‘The bubble has burst.’”

“Added Wayne Capurro, incoming president of the Reno-Sparks Association of Realtors, ‘It was not unexpected, but it certainly feels worse once you’re in it. It got so overheated.’”

“”Cargill said society has bought into the myth that home prices will always go up.”

“‘That’s simply not true,’ he said. ‘But this is not a catastrophe. It’s normal to have ups and downs. Business cycles are a natural part of the economy. It’s a myth to think that these things can be made to go away. This was true 300 years ago, and it’s true today.’”

“Observers apply a positive twist to the real estate spinout by saying lower prices can be a good thing.”

“‘Our market was inflated. It got out of reach for the average wage earner,’ Wiseman said. ‘Businesses won’t move here if it’s not affordable. It needed an adjustment. What goes up, comes down. We’re going to see it go back to 2003 prices.’”

“Nationally, sales of new homes last month sank to the lowest level in a dozen years, and sales of new homes in Washoe County showed an even worse downturn than the national figures.”

“Locally, the November 2006 to November 2007 figures showed new-home sales crashing by 64 percent in Reno and more than 60 percent in Sparks and countywide.”

“‘The numbers show the housing showdown is real and is showing no signs of getting better at this point,’ said Brian Kaiser, an analyst at the University of Nevada, Reno.”

“He said looking at a full year of data, Washoe County shows at least a 40 percent decrease in new and existing home sales. ‘It’s my feeling we haven’t seen the bottom yet,’ he said. ‘If you look at the foreclosure data, there’s a dramatic increase in 2007.’”

“Those homes become inventory in the real estate market. They’ll be offered at cut-rate prices and will be competing with existing and new home sales. ‘I wouldn’t be surprised if 2008 is another bad year like 2007,’ Kaiser said.”

“Eugenio Aleman, senior economist at Wells Fargo Bank, told a business conference in Minden earlier this month that the Reno area’s housing industry might make a comeback by the end of 2008.”

“‘Reno is going to come back stronger than Las Vegas,’ Aleman said. Aleman expects California’s recovery to take longer.”

“Sonny Amendola, managing broker for Century 21 Goldcrest Properties in Reno, said the real estate market locally has bottomed out. ‘We’ll see for sure if this market is going to turn around in April, May, June, when people put their houses on the markets,’ Amendola said. ‘It just went up way too fast, way too quick.’”

“Prices have dropped by about 30 percent and he’s not sure how much more they can drop.”

“Part of the equation, though, is California, where many people who move to Nevada have to sell their homes first. ‘California always has an impact on Nevada, just because of the sheer number of people who live there,’ Amendola said. ‘When California rebounds, that will affect us, too.’”

Some housing bubble news from Wall Street and Washington. Reuters, “State Street Corp said on Thursday it will take a $279 million fourth-quarter charge after making bad bets on subprime mortgages and other debt, and said it replaced its investment management chief. The company is the world’s largest money manager for institutions, with about $2 trillion of assets under management as of September 30.”

“It is also one of the world’s largest providers of custody services for institutional investors, overseeing $15.1 trillion of assets.”

From Bloomberg. “State Street had $8.2 billion…in securities backed by mortgages made to the riskiest borrowers, down from $13.9 billion as of June 30.”

“State Street faces at least three lawsuits filed by clients who accused the firm of breaching its fiduciary responsibilities as a fund manager. Each claims that investment strategies sold as low risk led to substantial losses because of investments in mortgage-backed securities.”

Dow Jones Newswires. “State Street set up a $600m reserve to cope with legal and other costs it faces after the credit crisis.”

“In October, US life insurer Prudential Retirement Insurance and Annuity Company sued State Street, claiming it acted deceptively and imprudently when two of its bond funds declined by as much as 25% in July and August as a result of investments in mortgage securities.”

“National City Corp, one of the 10 largest U.S. banks, said on Wednesday it will cut its common stock dividend 49 percent and eliminate 900 jobs as it stops offering mortgages through brokers.”

“‘It plans to keep making home loans, emphasizing mortgages considered less likely to go into default, but expects loan volume to fall by more than half in 2008. National City expects to make about $15 billion to $20 billion of mortgage loans in 2008. That compares with about $43.9 billion for the first 11 months of 2007.”

“Pressure in the housing market is not going to abate any time soon,’ including in 2008, CEO Peter Raskind said in an interview. He said the changes will help the bank ‘navigate through a very difficult period for the entire industry, and beyond.’”

“National City is still reeling from the U.S. housing slump a year after selling its subprime mortgage unit to Merrill Lynch & Co. A third of the bank’s branches are in Ohio and Michigan, two of the states with the highest foreclosure rates.”

“The housing market ‘requires aggressive steps to overcome the near-term challenges,’ Raskind said in a statement today. ‘It is clear that origination volumes will be lower going forward, and we are configuring our mortgage business to operate profitably.’”

The Boston Globe. “Springfield…is one of those investors that got clobbered in its portfolio by owning securities backed by home loans.”

“Springfield bought investment securities that had been rated AAA and worth nearly $14 million in the middle of last year. Those same investments have plunged in value to just $1.2 million now. No one thinks they deserve an AAA rating any more.”

“In the global financial marketplace, an investor losing $12 million or $13 million during such a wild period doesn’t amount to a hill of beans. For a city that has stepped back from financial disaster in just the last few years, it’s a very big deal.”

“Thanks to aggressive collections and cost-cutting, Springfield has managed to generate surpluses in the last two years. That surplus was about $17 million two years ago and $30 million in the most recent year, so it hurts when $12 million goes up in smoke.”

“Springfield purchased CDOs, or collateralized debt obligations, securities backed mainly by mortgages, from Merrill Lynch as a way to put its available cash to work. City officials say Merrill Lynch, an active player in the municipal finance business, sold them securities that cities in Massachusetts aren’t legally allowed to own for reasons of safety and liquidity.”

“‘We take very seriously the financial cost and the breach of public interest,’ said Chris Gabrielli, the chairman of Springfield’s Finance Control Board. ‘Our view is that Merrill Lynch has responsibility here and is accountable. We shouldn’t have to settle for less than getting the money back.’”

“The rating agencies, which caused so much of the subprime pain with their indiscriminate blessings, seem to be skating past responsibility.”

“Issuance in the U.S. asset-backed market plummeted 30 percent this year as subprime mortgage loan origination declined in a deteriorating housing market and investors fled the risky securities.”

“The dollar total of ABS securities fell to $863.6 billion in 2007 from $1.249 trillion sold in 2006, Thomson Financial said on Monday. The overall decline in issuance was led by a sharp 61.9 percent drop in the home equity segment, also referred to as subprime mortgages.”

“‘2007 will be a year to remember with the subprime mortgage market falling off the cliff, contagion spreading to every market and volatility at all-time highs,’ said Deustche Bank in a recent report.”

“Commercial paper backed by mortgages, credit-card loans and other assets rose $26.3 billion to a seasonally adjusted $773.8 billion for the week ended Jan. 2, the Federal Reserve in Washington said today.”

“‘The market’s in a process of healing,’ said Neal Neilinger, managing director and co-founder at NSM Capital Management LLC. ‘The weakest are going to fall and the strongest are going to survive.’”

“The rise in asset-backed commercial paper, which matures in 270 days or less, snapped a retreat of $447.6 billion, or 37 percent, that began after the market reached a peak on Aug. 8 of $1.2 trillion.”

“The contraction resulted from a ‘disappearance of the ’shadow’ banking system that had allowed banks to securitize their mortgage loans and move assets off their balance sheets,’ David Rosenberg, chief economist at Merrill Lynch & Co. in New York, said yesterday in a research report.”

From Builder Online. “The National Association of Homebuilders is forecasting that the housing market could reach bottom by the second quarter of 2008, with a ‘pretty good expansion’ occurring once again in 2009.”

“David Seiders, NAHB’s Chief Economist, sees new home sales bottoming out in the first quarter of 2008. He noted that recent price declines, which he labeled a ‘correction process,’ are helping to ‘revive affordability.’”

The Philadelphia Inquirer. “Orleans Homebuilders Inc. today said it recorded a $55 million pretax charge on the sale of about 1,400 building lots, mostly in Florida, Illinois and Arizona, in nine separate deals for $32 million.”

“Most of the land sold in the nine deals was raw or partially developed, with the exception of the property in Arizona, which involved work-in-progress houses. ‘We generally sold lots and land in weaker-performing communities,’ Jeffrey P. Orleans, the company’s CEO said in a news release.”

The Washington Post. “The homeownership rate was approaching 70 percent in 2005, up from 64 percent in 1990. A good cause shielded bad practices. (C)omplacency lulled ordinary Americans into paying ever-rising home prices. Something so embedded in the national psyche must be okay.”

“By 2005, the average newly built U.S. home measured 2,434 square feet, and there were many that were double, triple or quadruple that.”

“‘We’re not selling shelter,” says the president of Toll Brothers, a builder of upscale homes. ‘We’re selling extreme-ego, look-at-me types of homes.’”

“In 2000, Toll Brothers’ most popular home was 3,200 square feet; by 2005, it had grown 50 percent, to 4,800 square feet. ‘Buying a bigger house isn’t an investment,’ warned Wall Street Journal columnist Jonathan Clements. It’s ‘a lifestyle choice — and it comes with a brutally large price tag.’”

“Sociologically, the ‘housing bubble’ resembles the preceding ‘tech bubble.’ When people paid astronomical prices for profitless dot-com stocks, they doubtlessly reassured themselves that they were investing in the very essence of America — the pioneering spirit, the ability to harness new technologies.”

“Exorbitant home prices inspired a similar logic. How could anyone go wrong buying into the American dream? It was easy.”

The Wall Street Journal. “U.S. house prices ‘likely would have to fall considerably’ to return to a normal relationship with rents, says a study by one former and two current Federal Reserve economists.”

“The study, which doesn’t necessarily reflect the views of Fed policy makers, suggests prices would have to fall 15% over five years, assuming rents rose 4% a year. House prices would have to fall further if the adjustment took place more quickly.”

“Starting in 1996, home prices started to grow much more rapidly than rents. By the end of 2006, they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818.”

“The rent/price ratio is about a third below its long-term average…The paper suggests house prices would need to fall about 3% a year, if rents grew in line with their 4% average annual growth this decade.”

“The U.S. study is by Morris Davis, an economist at the University of Wisconsin-Madison and until 2006 a staff economist at the Fed; and Andreas Lehnert and Robert F. Martin, staff economists at the Fed.”

“Mr. Davis said…’To justify current price levels, you need rapid growth in rents.’ But it’s hard to imagine the scenario that would justify such rapid growth in rents, he added. Indeed, it’s possible rents will grow more slowly than 4%, reflecting the overhang of unsold homes that might be rented out.”

“Mr. Davis said the authors postulated a five-year horizon for the rent/price ratio to return to normal by looking at previous downturns. ‘When a downturn begins, it will last for a while.’”

The Palm Beach Post reports from Florida. “Palm Beach County’s foreclosure rate skyrocketed in 2007, figures from the county clerk’s office show. In Palm Beach County, the clerk’s office recorded 13,962 foreclosure filings in 2007, compared with 4,831 in 2006. That’s nearly three times the foreclosure rate of 2006, according to the county clerk’s figures.”

“The rising tide of foreclosures will, of course, add more homes to that inventory as the market continues to decline. Indeed, inventory has become the ‘elephant in the room.’”

“‘Nobody talks about it,’ said analyst Jack McCabe. But ‘there’s 55,000 homes for sale in Palm Beach County alone.’”

The Sun Sentinel from Florida. “Palm Beach County’s median price for homes sold in November was $345,700, down 7 percent from $370,400 a year ago, the Florida Association of Realtors said. Sales declined 13 percent, to 459 from 525 last November.”

“The county’s existing condominium market also was hit hard, with the median price of $177,400 falling 19 percent from $219,800 a year ago. Condo sales dropped 17 percent, to 347 from 420. Many condo owners were short-term investors who bought at peak prices during the past several years. With an oversupply of units for sale, owners now have to slash prices if they have any hope of selling.”

“Marvin Hochberg, a retired accountant, lived in his three-bedroom house west of Boynton Beach for five years. He recently got married and moved into his wife’s home in Boca Raton.”

“Hochberg listed his house in August for $339,000 but has since dropped the price to $289,000. Still, no offers.”

“‘I’m disappointed in the way things have turned out,’ Hochberg said. ‘The way the market is, even people who might be interested are saying, ‘What’s the rush?’ Eventually, things have to bottom out.’”

“South Florida is expected to be slammed by the foreclosure debacle in 2008. Analysts say the market conditions that created the slump will not suddenly go away in the new year. ‘The best thing to say about ‘08, is that ‘09 is right behind it,’ said David Levin, a housing consultant in Delray Beach.”

From CBS 4 in Florida. “Throughout 2007, there have been reports of how South Floridians have been overwhelmed wth high property taxes and insurance rates, all happening in the midst one of the worst housing markets to hit South Florida and the U.S.”

“Families like the Bozas want to start a new life in South Carolina if they can sell their Cutler Bay home. ‘It’s been pretty difficult. I’ve had only one person call,’ explained Adele Boza.”

“The Weisses have had their Pinecrest home on the market for months. They said they’ve had several open houses but very few people have come by.”

“Some call this struggling housing market a slump, others feel it’s a crisis. Veteran realtor Hazel Goldman, who’s been selling real estate in South Florida for 30 years, said the market is simply a challenge that does have an end in sight.”

“She offers some advice in trying to sell property under the current strained conditions. ‘There is a buyer for almost everything we have out there… if the seller is realistic and in tune with the competition and what they have to do to get the property sold.’”

“Realtors say sellers should be realistic, make a home ready to move into for a buyer, and continue to drop prices.”

From Tampa Bay 10 in Florida. “Brad and Stephannie Sharp love their two bedroom home, but they’re trying to sell it, so they can relocate to Minnesota. ‘It’s been brutal that’s the best word I can use, is brutal, not a lot of hits, just a couple,’ according to Brad.”

“Their house has been on the market since March, so they recently put an ad on Craig’s List and other internet sites. The couple is also willing to give up items like their couch and television in order to sell their home.”

“Realtor Ed Gunning says the housing market isn’t as bad as it seems. Gunning adds, ‘It’s a buyers market and if the sellers are realistic on the prices of their homes, they can sell their home.’”

“He goes on to say, homes are about 20-percent lower than they once were. Gunning advises a person not to sell if they don’t have to. But it is a great time to buy a home.”

“Sharp’s home is appraised at 170-thousand-dollars. By dropping his price to $164,900, he hopes to finally sell it. ‘Time will tell, I hope so, we both hope so. It’s disheartening,’ says the hopeful homeowner.”

The News Press from Florida. “Some 27,769 building permits, valued at nearly $2.3 billion, were issued in 2007, a steep drop from the 43,357 permits, valued at $3.8 billion in 2006.”

“‘It’s great to compare, but it had to come down drastically,’ said Bob Knight, president of the Lee Building Industry Association. ‘It couldn’t sustain itself.’”

“He added buyers are starting to look for homes again. ‘Somebody’s got to sell all this,’ Knight said. ‘Is it ever going to be like 2005? Probably not. That was unsustainable. It will probably come back to the normal pace of 2000. We have to burn off some excess inventory.’”

“December was the worst month — not only in 2007 but in 26 years — for new single-family home permits in unincorporated Lee, Bonita and Fort Myers Beach. Thirty-five permits were issued last month, compared to 292 in December 2006, said Joan LaGuardia, spokeswoman for the Lee County Department of Community Development.”

“The previous low for the county was 45 single-family home permits issued in November of 1981. Cape Coral had another record low month with only nine new single-family home permits issued in December, breaking November’s record of 12.”

“‘For as long as we’ve been keeping records, nine is probably the record low,’ said Cape Coral spokeswoman Connie Barron.”

“‘There’s still so much land available for the development of homes,’ she said. ‘That’s why we’re optimistic we’re going to come out of this in a reasonable amount of time.’”

“Knight said the real estate cycle is a pendulum that swung far to the boom, then far to the bust, and is now working its way toward the middle. ‘It’s stabilization,’ he said. ‘It’s a good time to buy or build a house, but everybody wants to wait until it hits bottom. You’ll never know when it hits bottom.’”

The New York Times on South Carolina. “Ettore and Larisa Costanzo are showing off their new house, which they love madly. The house, on which the couple made a down payment of $88,820, is empty. Their belongings are in storage. They live, unhappily, in a hotel.”

“‘It’s very upsetting, not to be allowed in our own house,’ said Ms. Costanzo. ‘Please take our money and let us move in.’”

“Their builder is Levitt & Sons, a unit of the Levitt Corporation, which ran out of cash in October and declared bankruptcy in November. All work on this planned 460-home development for retirees, grandly named Seasons at Prince Creek West, has ceased.”

“The Levitt employees were laid off, the subcontractors put down their tools, and the Costanzos found themselves in limbo.”

“The collapse of Levitt, the first big home builder to fail in the current slump, illustrates how the turmoil in real estate is spreading far beyond subprime. Levitt had a fabled brand, decades of experience and enthusiastic customers with good credit, but none of that was enough to save it.”

“Paul S. Singerman, Levitt’s bankruptcy lawyer, said that as the real estate market in Florida went into ‘an absolutely unprecedented and catastrophic downturn,’ the builder’s customers across the Southeast became victims. ‘There is a bad story, an unfortunate story, about every customer that placed a deposit,’ Mr. Singerman said.”

“Seasons is less than a quarter finished. About 90 buyers have paid a total of $3.48 million in deposits for houses in varying stages of completion, ranging from all but done, like the Costanzos’, to unadorned dirt.”

“Another 90 houses are occupied, but many of these residents are, if anything, even more unhappy than the depositors. Levitt sold them on a community where everything would be taken care of. Those assurances mean little now.”

“‘I can’t believe we’re dealing with Levitt & Sons,’ said Nancy Harth, who moved in last March. ‘It feels like a start-up company.’”

“Selling a lifestyle was something Levitt perfected long ago. Thanks to the builder, Time magazine noted approvingly in a 1950 cover story, buying a house was suddenly easier than buying a car. The original cost was $6,990, about $70,000 in today’s dollars.”

“The product changed in a half-century, of course. The houses at Seasons are not the tiny boxes of the original Levittown but expansive dwellings with whirlpool tubs and marble vanity tops. With upgrades, prices reached $450,000.”

“But they were still sold as Levitt houses. Home movies of early Levittown residents dancing on their lawns played in the sales center and on the Web site. A pamphlet giving a detailed history of Levitt’s glory years was passed out to prospective buyers.”

“Nancy Darr, who had once watched her condominium developer go bankrupt, asked her Levitt salesman whether the company could fail. ‘This is Levitt & Sons, America’s oldest home builder. We built Levittown,’ Ms. Darr remembers him replying. ‘It’s a solid company. It’s listed on the stock exchange. This could never happen.’”

“Gary Drejza, a former Seasons salesman, confirmed that such assertions were routine. ‘We felt they were the truth,’ Mr. Drejza said. ‘We believed.’”

“He must have, because he bought a house himself. ‘Want to see it?’ he asked, pointing from the window of his Mercedes-Benz at Lot 49, still a pile of dirt.”

The News & Observer from North Carolina. “Record numbers of homeowners in the Triangle were threatened with losing their homes through foreclosures in 2007. Foreclosure proceedings were filed against 7,390 homeowners in Wake, Durham, Orange and Johnston counties.”

“Because the state largely was left out of market speculation that left many areas glutted with overpriced homes, foreclosures in North Carolina are proceeding slower than the national pace.”

“The increase in foreclosures is already swelling the inventory of unsold homes in the Triangle and could depress prices that have continued to rise throughout the national housing slump, said Bernard Helm, a residential sales consultant.”

“The inventory of unsold existing homes in November was up 24.5 percent to 13,107, according to the Triangle MLS. In 2007, total closings were down 5.4 percent in the first 11 months.”

“Most of the increased foreclosure filings are in urban areas where home sales and populations are concentrated, or in resort areas where there was more speculation. Filings increased 20 percent in Wake County to 4,461 and 11 percent to 7,943 in Mecklenburg County. In New Hanover, where many oceanfront homes are sold, filings rose 27 percent to 714.”

“‘Home prices in the Triangle have not dropped, but increased foreclosures will increase the inventory of homes on the market for sale and that will tend to put steadying or downward pressure on prices,’ Helm said. For sellers, ‘it’s going to be more difficult to get what you want — there’s more competition.’”

The Citizen Times from North Carolina. “If everything scheduled to be built downtown actually gets under way, there might be times this year when the number of construction workers downtown exceeds the ranks of lawyers or bankers.”

“Work on The Ellington, a 23-story luxury hotel and condominium building planned on Biltmore Avenue, and on Zona Lofts, a condo building planned for Coxe Avenue, should get going this year.”

“People looking to sell a home, developers, Realtors and everyone else in the real estate industry will be looking anxiously for an end to the housing slump affecting the nation and Western North Carolina.”

“Several larger apartment complexes and some condominium complexes have been approved or proposed for sites ringing the city limits of Asheville.”

“‘People have asked me, ‘Do you think we’re going to have denser development in the city, or are we going to have sprawl out in the county?’ and I answer, ‘Yes,’ said Jim Coman, Buncombe County zoning administrator.”

“Home sales in the Asheville area started dropping in fall 2006, but last year it became clear that the declines nationwide would have a deep and lasting impact locally. The number of existing homes sold in Buncombe County through the MLS was down 19.2 percent for the first 11 months of 2007 versus the same period of 2006.”

“‘A lot of people in places like Florida want to sell there before they buy here. As soon as those markets turn, we should see increased pent-up demand for Asheville,’ said Terry Horner, co-owner, Preferred Properties of Asheville.”

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