The Housing Bubble

The Union Tribune reports from California. “Although the current real estate market downturn eventually will reverse itself, agents should prepare for difficult times, California Real Estate Commissioner Jeff Davi yesterday told about 300 members and guests of the San Diego Association of Realtors. Several years ago, during the fevered housing boom, some agents could make sales simply by going to work and answering the telephone, Davi said. ‘Well, those days are over.’”

“Because the ranks of agents grew rapidly during the recent boom, competition now is keen, he said. ‘One in 53 adults in California has a real estate license,’ Davi said, drawing laughter from the crowd.”

“Taking the stage after Davi, Greg Smith, the county’s assessor, recorder and clerk, predicted that the housing market will soon rebound. ‘We’re going to be in a trough for a while, but ‘08 is basically the bottom,’ Smith said. ‘This is an outstanding time to buy real estate.’”

“Smith criticized the loose loan underwriting standards that enabled people to continue purchasing homes as prices soared. ‘We had people offering 1 percent teaser rates, no down (payments), stated income. How in the world do you suspend the laws of economics?’”

The Los Angeles Business Journal. “Los Angeles County home sales are sharply down from a year ago…a 43 percent drop year-over-year. Foreclosures rose 130 percent in Los Angeles County in the first quarter year-over-year, with 20,339 homeowners receiving foreclosure notices, according to DataQuick.”

“In Lancaster’s 93536 ZIP code, sales fell 42 percent in March year-over-year, but in April jumped 28 percent year-over-year. At the same time, the April median price fell to $285,000 –$9,000 less than March and $90,000 less than a year ago.”

“Conversely, home sales in the county’s priciest neighborhoods were at a virtual dead standstill – the opposite of last year when luxury home sales were propping up the market. In Beverly Hills’ 90212 and 90210 Zip codes, where median prices top $2 million, there were a total of just 10 sales.”

“Cal Poly Pomona finance and real estate professor Michael Carney said he is worried about the sharp drop in prices, especially when compared to the last real estate bubble that burst in the early 1990s. He believes it may mean the bottom is even further off than most people expect.”

“‘That prices are falling faster than sales is not a good sign in terms that the bottom is near,’ said Carney, noting that in the 1990s housing bust it took almost six years for prices to drop 20 percent. ‘You’ll start seeing year-to-year sales volume pick up long before we see a turnaround in prices.’”

“In Covina’s 91722 ZIP code, sales volume rose 80 percent to 27 homes, as the median price fell 30 percent to $345,000. In Palmdale’s 93550 ZIP code, the median price fell 39 percent to $202,000 as sales rose to 62 homes, 35 percent higher than a year ago and 63 percent higher than March.”

“Even so, just three years ago a typical month in that once fast-growing Palmdale neighborhood might see more than 150 sales.”

“Rhett Winchell, president of Beverly Hills’ Kennedy Wilson Auction Group, has an auction scheduled June 1 to help builders in the Palmdale-Lancaster area dispose of 17 luxury model homes. Winchell said that given the current market conditions, the starting price will range only between $125,000 and $250,000 – for homes that during the height of the boom would have sold for $289,000 to $605,000 on the open market.”

“That’s much lower than the discounted minimum starting bid Kennedy Wilson normally sets.”

“‘There are properties in this area that have been on the market six months to a year,’ Winchell said. ‘We don’t have that much time to sell these (model) homes. Our program works for builders because we price them below market, and let the buyers determine the market.’”

The San Fernando Business Journal. “Developer Rick Caruso’s Americana at Brand in Glendale has enjoyed nearly two weeks of immense publicity surrounding its May 2 opening. But success of the so-called ‘lifestyle center’ could come down to two issues – parking and the development’s residential element.”

“These are tough times for those in the luxury living sector of the industry, with a large supply of both high-end apartments and condominiums recently opened or coming online soon between Pasadena, Downtown L.A. and Woodland Hills.”

“The Americana has two categories of residences: 238 luxury apartments aptly named The Residences were 20 percent leased prior to the grand opening, while 100 condominiums are expected to open later in the year. When asked what his target market was for the residences, Caruso quipped, ‘Anybody with a buck.’”

“Rents for the apartments range from $2,000 to $5,500 per month. According to Glendale native and Realtor Phyllis Harb, those prices are going to be a tough sell. A typical one-bedroom in Glendale rents for about $1,100.”

“Jodi Taylor-Zens, director of marketing for the retail portion of the project, said the biggest challenge of the apartment-over-retail concept is noise. ‘I think you have to be the kind of person who understands you’re living in a downtown environment where trash trucks come early and stores get deliveries early in the morning and at night restaurants and bars are open late with music and people,’ she said.”

“The Paseo has one thing the Americana doesn’t – its own grocery store. ‘It certainly makes it easier,’ said Taylor-Zens, but it shouldn’t be a deal-breaker, she added.”

The Desert Sun. “Real estate professionals at the sixth annual Commercial Real Estate Investors Forum on Friday talked about making concessions to weather the current storm, finding opportunities and bargains where possible, and being prepared for the eventual market turnaround.”

“‘The truth is, the market is still declining,’ said Peggy Sue Lane, VP of Stewart Title Insurance in Palm Desert.”

“‘We’re not quite at ground zero, but many economists and appraisers are suggesting that we’re close. Economists expect the Coachella Valley to recover before the rest of the Inland Empire,’ Lane said. ‘We’re going to recover first. We have too much to offer.’”

The Press Enterprise. “State officials will probably decide within the next two weeks which agencies will teach idled construction workers the skills they need to work on state-funded projects, a spokesman said. California has allocated about $4.5 million in emergency funding for the retraining efforts.”

“Construction workers in Riverside and San Bernardino counties are among the biggest losers in the housing slowdown, according to the Employment Development Department’s latest report on the job market. Once seen as a sure thing by Inland blue-collar workers, construction has sent nearly 15,000 workers to the unemployment line within the past 12 months, the report shows.”

“The state also has a $5.6 million federal grant to retrain financial services workers idled by the housing slowdown. The Inland area has lost 3,600 financial services jobs within the past year, about 7 percent of the work force in that sector.”

The Bakersfield Californian. “On Miranda Court the little things have been left undone. And some worry big things — such as home warranties — may vanish. The developer of Tehachapi’s partially built Alta Estates neighborhood filed for bankruptcy protection April 25.”

“‘We have seen or heard nothing from them at all,’ homeowner Fayetta Lapham said of the San Bernardino County homebuilder behind her new house.”

“These days, empty dirt lots surround Miranda Court and nearby roads. Streets need finish work. Residents complain about peeling paint and cracked windows. If and when such tasks will be finished is up in the air.”

“Lapham and her husband moved into their $250,000 house in September, comforted by the idea of being in a new development where a builder could fix any small problems that might arise.”

“‘My husband just didn’t want something he was going to have to put a lot of work into,’ she said. Now they worry they’ll be stuck doing repairs.”

“Chapter 11 allows a company to operate while it restructures finances. But that doesn’t mean the Laphams and their neighbors will have access to a familiar company that will fix broken windows as expected.”

“‘It’s not that simple,’ said Empire’s attorney, Richard Pachulski, ‘because the company will probably not survive at the end of the day.’”

The Merced Sun Star. “Zack Guettinger’s alarm sounds at 3:45 a.m., bringing with it a cruel reminder that he must drag himself out of bed for another three-hour drive to his job in San Ramon.”

“On a typical day, he drives 200 miles there and back. It’s not a short drive, but as he explained, it’s what must be done.”

“Guettinger, along with other Merced County residents, is willing to trade endless hours on the road for their own corner of the American Dream. There’s a phrase, ‘Drive until you qualify,’ meaning that a Bay Area worker can afford a house only if he moves farther from his job.”

“‘I struggle through every day with the drive so they can have somewhere nice to live,’ the 31-year-old Guettinger explained. ‘I really wanted to get a house down in the Valley for everyone to grow up in.’”

The Recordnet. “Caroline Latham, CEO of RealFacts, said some analysts of the troubled single-family home market have speculated that people forced out of foreclosure houses would move into apartments. But the RealFacts survey suggests that this isn’t happening, she said.”

“‘There has been no increase in demand for apartments, as would be the case if former homeowners were turning into apartment renters,’ she said.”

“Latham said many people bumped by foreclosures may be renting houses rather than apartments and are part of a ’shadow market’ not being measured.”

“Ada Ulloa and her family of four will be moving out of their Morada home next month after four years because their monthly adjustable-rate mortgage is jumping by $500, to $3,300. Knowing they’ll not be able to make those higher payments, they’ll be walking away, giving up a house now worth $100,000 less than what they owe on it.”

“But from a renter’s perspective, she said she’s having no trouble finding at least a half-dozen good house rental possibilities at pretty good prices.”

“‘It feels like it’s a good time for renters,’ she said as she was checking out a three-bedroom, two-bath rental house with a huge backyard in the Country Club area listed at $1,450 per month.”

The Monitor reports from Texas. “Two national magazines have pointed to Hidalgo County’s job and real estate markets as among the best in the nation. The area has seen record home sales and prices during the last five years. At the end of 2007, the median home price was $106,300, up 25 percent from five years earlier. ‘The long range for job growth and population growth make it a desirable area to own a home,’ Randall Allsup, a real estate analyst with Metrostudy, said of the McAllen metro area. ‘If you are willing to own your home for more than three years, buyers stand to make some money.’”

“A glut of vacant housing lots and a dwindling interest in new homes are leading many McAllen developers to look into a new direction - condos and townhouses.”

“Almost counterintuitive in a region where a new home can cost as little as $80,000, developers across the Upper Rio Grande Valley are turning to community dwellings to target young professionals, retirees and Mexican nationals.”

“Several new condominium projects, mostly in McAllen, are expected to add hundreds of new units to the area during the next 18 months. Developers plan to break ground this month on a $16 million high-end condo project in South McAllen and another group is planning a high-rise tower in Edinburg.”

“‘It’s kind of a gamble because it’s out of the norm,’ said Fred Harms, a developer of a town home project in central McAllen.”

“Mortgage market problems and oversupply of new homes significantly hurt sales during the last nine months of 2007, but real estate agents and homeowners are crossing their fingers and hoping the worst is over.”

“‘The Valley appears to be adjusting to get back to a normal market,’ said Metrostudy’s Randall Allsup.”

“The average sale price for homes in the area took a hit during the first quarter of this year, falling nearly $20,000 from the fourth quarter of 2007. The median sale price for a home in Hidalgo County was $89,400 in March, the lowest since April 2004.”

“There is currently a 14.4-month supply of homes on the local market, which is extremely high for any market, according to Allsup. Also, the Valley’s large number of low-income residents means the tightening of the lending market is hurting this area more than most.”

From The Sun. “Quarter-million dollar homes up for auction with bids starting at $80,000. What’s the catch?”

“With real estate not moving as quickly as it once was…many developers are turning to the auction process as a means to move their product – with a quickness.”

“‘For builders who have excess inventory, the time is really what’s costing them now and if the auction can eliminate some of that time, that’s a cost savings to them,’ said Texas A&M University Research Economist Jim Gaines.”

“Bob Stratton, President of Verandah Development which owns Champions Townhomes, said they chose the method of sale to ‘create urgency’ because the homes aren’t selling at the pace they had anticipated.”

“Built while the market was booming, by the time the project was complete, things had changed, he said. ‘We have a number of people who are interested in buying townhomes, but don’t want to pull the trigger because they continue to read national headlines,’ he said. ‘And the national headlines aren’t necessarily affecting the Houston market.’”

“Sheldon Good President Alan Kravets said the company conducted successful auctions all over the country in the last year including Dallas, Boston, California and Chicago. ‘It’s interesting this is not troubled property,’ Kravetz said. ‘This is just a smart builder who is saying that they are being sold too slowly. Let’s just sell a bunch of them now and the buyers can get the benefit.’”

“Kravets said Verandah Builders engaged their firm to sell out the development so they could move forward to other projects.”

“‘Despite what people may have heard, now is the best time to buy because the market for residential properties is the lowest it’s ever been,’ said Kravets. ‘Prices are going down, but that means that prices on extraordinary homes are going down as well.’”

The American Statesman. “Equity Residential, the nation’s largest publicly traded owner and operator of multifamily housing, is pulling out of Texas and selling its entire Austin apartment portfolio, totaling nearly 3,000 units. Equity has sold its Houston portfolio, and a pullout from Texas would mean sales of 17 properties in the Dallas area and two in San Antonio.”

“Marty McKenna, a spokesman for Chicago-based Equity, said the firm is leaving because it has ‘been investing in markets that have better long-term prospects.’ He did not elaborate.”

“Although there is much investor interest in the Austin rental market, Robin Davis, president of Austin Investor Interests, said, there are a few concerns, including the nearly 10,000 new units expected to be completed in the next year.”

“But Austin’s multifamily market isn’t prone to being overbuilt, partly because of environmental restrictions, said George Deuillet, senior investment adviser for an apartment investor research firm.”

“‘We have some insulation for being overbuilt,’ he said. ‘It is a really good time to sell because we have a large demand, but the fundamentals of the Austin multifamily market remain strong, so it is a good time to buy, too.’”

The News Journal. “The Texas real estate market remains stronger than much of the rest of the nation with the Longview area doing its part to buck that national trend, according to James P. Gaines, research economist with the Texas Real Estate Center at Texas A&M University.”

“In a several county East Texas area that includes Longview, Marshall and Tyler, Gaines said homes are still appreciating at about 4 percent to 5 percent a year. The average price of home sold in the Longivew area in 2007 was about $124,000 — more than double the $60,000 average price of 1990, he said.”

“‘Rural land prices in East Texas went up 20 percent last year and I don’t know when that’s going to stop,’ he said. ‘This area is a tremendous area in attracting retirees and for population growth in general you’re poised for a boom.’”

“Due to problems on the national level, mortgage lending requirements have tightened up, while in Texas housing continues to increase about 4 percent a year. While that means home ownership can be a good investment in Texas, it also means fewer people may qualify for loans.”

“‘In Texas, 54 percent of all households can’t afford a $125,000 home — if they could find one at that price,’ Gaines said.”

The Dallas Morning News. “There are plenty of houses for sale in North Texas – more than 45,000. And prices in many neighborhoods have dropped from recent peaks.”

“But what’s missing in this year’s spring housing market is the usual rush of buyers. Through the first four months of 2008, home sales are off 15 percent in the area, according to statistics released Wednesday from Texas A&M University’s Real Estate Center and the North Texas Real Estate Information Systems.”

“Agent Barry Hoffer says buyers are stuck on slow. ‘Even with interest rates in the 5 percent range, buyers are taking their time in making a decision,’ Mr. Hoffer said. ‘They want to make sure that they can make the best deal that they can and are not chasing properties as they did a year or two ago.’”

“April was the ninth straight month of double-digit sales declines in the area. The recent decline in affluent home sales continued in April. So far this year, there has been as much as a 29 percent drop in purchases of homes priced above $600,000.”

“Since the last housing recession here in the early 1990s, the tax values of homes in the Dallas area have jumped about 70 percent.”

“While the rest of the country has suffered double-digit home price declines, in North Texas the drop so far has been small – only about 4 percent in the most recent survey.”

“Dallas is no stranger to home price drops. In the last big housing downturn – brought on 20 years ago by a regional recession and years of overbuilding – home prices fell at an even greater rate than we are now seeing in some California and Florida markets.”

“Between 1987 and 1990, the value of a then-average-priced $100,000 home in the Dallas-Fort Worth area fell by about 30 percent, according to surveys done in that period.”

“And it was seven years from the peak of 1980s home prices to the turnaround in the market in the early 1990s. Even the most pessimistic home market forecasts for North Texas don’t talk about that kind of debacle.”

“‘All bets are off, however, if we lose 50-70,000 jobs around here like we did in the late ’80s,’ said Dallas appraiser Chuck Dannis.”

“‘Some neighborhoods are holding up well in values, while others are suffering,’ said appraiser Jack Towers. ‘Overall, volume of sales is down significantly; I can attest to that.’”

“‘Just about every report I have done in the past year or so, the sales volume has dropped to about half what it was the previous year,’ he said. ‘This has to eventually work its way into an oversupply of listings creating more price competition.’”

“The high volume of home foreclosures here – almost 20,000 in 2007 – is also adding to the number of for-sale signs popping up across towns.”

“The developer of Dallas’ big Victory complex is shifting gears for the next phase of construction. Ross Perot Jr. said Friday that his firm Hillwood will delay work on more high-rise condominiums and hotel rooms to focus on additional office space.”

“Hillwood has postponed construction of Victory’s next big hotel and condo project. The 43-story skyscraper was to include a Mandarin Oriental Hotel, luxury condominiums, office space and retail. It was scheduled to open next year.”

“But Mr. Perot said, ‘Our hotel and condos are on the slow track at the moment. You don’t want to introduce that until people feel better than they do,’ he said.”

“Lenders are also reluctant to finance additional luxury hotel and condominium development, Mr. Perot said, speaking to the National Association of Real Estate Editors.”

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