The Housing Bubble

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It’s Friday desk clearing time for this blogger. “Jammie Sabin, president of Windsor-based Aspen Homes Inc. of Colorado said he has seen a sharp and welcome shift in consumer behavior this spring and summer compared to the past three years. Sabin said ’spec’ homes, those built without buyers backing the projects, are selling out. ‘The specs are selling as fast as we can get them up,’ Sabin said. ‘The number of people who are out there getting serious has about doubled, and they all seem like they have to go ‘right now.’”

“At the height of the real estate market in 2007, a 4,300-square-foot two-story home in the Daybreak subdivision could have fetched as much as $575,000. So it’s easy to see why, at a list price today of only $299,900, the seller has been inundated with offers — so many, in fact, that the listing agent decided to stop receiving bids after getting no fewer than 18 of them.”

“Inventory is low in most areas and price ranges, and buyers generally outnumber available properties. There also is an urgency among many buyers given the fact that mortgage rates have slipped into an almost laughable low and, like prices, are almost certain to increase. ‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers,’ said Adam Kirkham, co-owner of Kirkham Real Estate in Salt Lake City.”

“Suzanne Key with Ebby Halliday in Arlington, who has been a real estate agent for 22 years, said the market is running the gamut for buyers. She was involved in recent months with a buyer in Mansfield where four people were lined up to buy a $600,000 house. Yet some folks are still trying to sell their homes after two years on the market, she said. ‘It’s nothing like we’ve ever experienced,’ Key said. ‘The market is so different. We’ve got the lowest interest rates on record and combined with that, we have lots of foreclosures.’”

“About a month ago, Candace and Eddie Bill listed their 1,400-square-foot house in north Fort Worth. Candace Bill said she’s been commuting to Denton since moving into the house six years ago, but now wants to live closer to work. ‘We’re actually thinking about doing some improvements and staying here,’ she said. ‘My expectations for selling the house are realistic. It’s a little discouraging to see so many houses for sale.’”

“Shelby County’s real estate market is still feeling the effects of foreclosure activity, with a second quarter increase in activity following an even larger one in the first quarter. Holly Swogger, president of Memphis Investors Group, earlier this month hosted a panel discussion titled ‘Everything You Want to Know About Foreclosures. ‘These investors are really practical people. They drive around all sections of Memphis and Shelby County, and what they see is a lot of vacant houses that don’t even have the papers in the window yet that indicate they’re going into foreclosure,’ Swogger said.”

“The residence of the townhome units at 1002 Hwy. 98 in Mexico Beach don’t know what to do about apartment one—the bugs and dead squirrels that reside there are not good neighbors. The unit has been abandoned for the last three years and it has taken a huge toll on the building’s structure, and the crumbling drywall allows for bugs and small animals to get inside. ‘Our property value has diminished a great deal,’ said Chris Wilhelm, who shares a wall with the abandoned unit. ‘There’s dead animals in there. I don’t know what else to do—it’s going to fall down.’”

“The complexity of the foreclosure process has left Wilhelm with nowhere to turn while the property waits to be moved to foreclosure sale. Florida foreclosure timeframes are now longer than ever, with the average foreclosure lasting 861 days, or 2.4 years, according to RealtyTrac Inc. Wilhelm said he has hit roadblocks everywhere; he has gone to the health department, building inspector, code enforcement, city manager and council about the issue, to no avail. ‘If they don’t do something quick, it’s going to literally fall down,’ he said. ‘And I’m the first one that’s going to be affected.’”

“With sprawling housing developments and state-of-the-art skyscrapers, the outward impression is of a bustling metropolis. But look closer and the so-called Kangbashi New Area of the Chinese city of Ordos is anything but teeming with people. Known as the ghost town district of the wealthy mining city, it was built to house a million residents. But less than 30,000 live in this spanking new town, the construction of which started in 2004. There are many reasons why people have stayed away, soaring property prices being the most cited.”

“And despite pictures showing some of the country’s reported 64 million empty homes, Chinese authorities have since erected masses more buildings. China last year announced plans to build 20 cities a year for the next 20 years.”

“A state house is being marketed as an ‘entry level property’ - despite a probable price tag of $1 million. The real estate agent says the term refers to the starting price for a home in Westmere, rather than what first time buyers should be paying in Auckland. But a valuer in the area said entry-level properties started at about $700,000.”

“It did not give the council valuation of $900,000, made in July last year. Experts say the property is likely to go for more than $1 million. ‘This Westmere entry-level property is almost an extinct breed, but not quite,’ the advertisement says. ‘This attractive and comfortable 1920s, three bedroom bungalow has everything going for it.’”

“The lowest recent sale in Westmere was a derelict two-bedroom, 1920s bungalow on 468sq m which went for $741,000 in April. Another on the same road, a 1950s, two-bedroom brick home on 507sq m sold for $835,000. ‘It’s a time where there’s not a huge amount of listings and good, steady buyer demand,’ valuer Ross McCabe said.”

“Knight Frank’s Pranay Vakil tells Forbes India why property prices continue to be so stubborn. Q. How do existing buyers react to price drops? A: After having bought the property a buyer is not mentally reconciled to the fact that prices can go down. Take the case of a developer who has opened up a building for sale and completed 25 percent of sales at say Rs 10,000 per square feet. The developer later on finds that there is a lot of resistance at this price so he wants to reduce the price to Rs 9,000 per square feet for the new buyers. The first 25 percent of the buyers are paying at Rs 10,000 per square feet over the construction of the project and they will all come back to the developer and tell him to reduce their rates.”

“Q. Is this the same with real estate investors who collaborate with the developer? A: Investors typically are known to underwrite projects for developers. These investors make money through leverage. If he has money to buy one flat, he will book five flats with a 20 percent down payment. Sometimes he doesn’t have the intention of completing the payment because he wants the price to go up.”

“‘It is a very dangerous idea to think that dwelling prices cannot fall,’ RBA governor Glenn Stevens said in a speech today. ‘They can, and they have. We should never say a crash couldn’t happen here, and the Reserve Bank continues to monitor property markets and the performance of mortgages quite closely,’ said Mr Stevens.”

“Home prices in Australia have fallen 5 to 10 per cent from their peak according to the RBA. Measured against incomes, home prices are now close to where they were in 2002, Mr Stevens said. While admitting that home prices relative to income are higher than 20 years ago, Mr Stevens said ‘the problem is that there is no particular basis to think that the price-to-income ratio 20 years ago was ‘correct’. ‘Are dwelling prices overvalued?’ said Mr Stevens. ‘It’s very hard to be definitive on that question.’”

“Mr Stevens linked the increase in home prices to the global debt boom which was seen through the US, UK, and Europe since in the mid-1990s. ‘As everyone knows, dwelling prices rose a great deal over the decade or more from 1995, and not just in Australia,’ he said. ‘This occurred globally.’ The ‘widespread phenomenon…suggests that the global dwelling price dynamic had a lot to do with financial factors - and there is little doubt that finance for housing became more readily available.’”

“A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble. David Madani, economist with Capital Economics, said that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.”

“A flurry of speculation has emerged about the fate of Canada’s housing market following changes to mortgage lending rules recently. Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. ‘Overall, the willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop,’ he said. ‘The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.’”

“‘There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,’ he said. ‘Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.’”

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Readers suggested a topic on what to expect for the money. “I want to know just what people expect to get for the price that they are willing to purchase a house for. Let’s take for example something in the $400K to $600K price range. This can be a norm for places like CA. Are we talking a bare bones structure tract house here or are your expectations for this range elevated to a custom one of a kind house? Do you expect to get more land at these lofty prices? What about a view (I know every house has a view of something), will you pay extra for a view and if so what of and how much has to be viewable? (I have a friend who has a house in Cambria, CA who says she has an ocean view, if you go to one corner of the house and look at a very small corner you see some ocean water).”

“I recently set in on a RE negotiation who stated that he just sold a house (cash) in Seaside, CA for $20K over asking because it has an ocean view (two miles away and 90% of the view is crappy house rooftops? For me a beach house is on the beach or within a block or two away. For an ocean view I want to hear and see the waves crashing on the shore otherwise it is just a view of water in the distance. A view in a city high rise like SF doesn’t do it for me as all I see are roof tops but at night the city lights aren’t bad.”

“Do you expect to have a house in this price range furnished according to the price you paid? Here in Salinas, CA most of the houses I’ve been in a furnished like a frat house and people living in them are living like slobs. Do you plan on making the house your own and if so does that mean balanced color and art work or does it mean slab counter tops and stainless refrig and stove top? Does it mean swimming pool, spa, fancy BBQ and pizza oven?”

“I ask because RE use selling points as slab tops, stainless appliances, fans, views, as a means to require higher selling prices.”

One said, “I would not buy a house for $400K. I would pack up and leave to a lower cost area. Oh, wait. I already did that.”

A reply, “We have looked into this. The hitch: jobs.”

One had this. “This is one of the hidden benefits of working from home. It allowed me to get the hell out of California, and added about 25k a year to my bottom line. I was renting there and am here… I think if I bought in both places, that savings would be on the order of 40k a year.”

“The weather isn’t THAT nice, and what nature you’re allowed on is fairly trampled.”

And another. “I lived in both Phoenix and Moorpark CA. Moorpark =400K 1650 sq ft. Phoenix = 200K >2000 sq ft.”

“I used to walk in Phoenix under the power lines next to the tracks between Chandler and Ray even in the summer at over 115F it was sureal like being on a moon base, power lines crackling, water flowing in a cement culvert, nothing alive out not even red ants. Had to wear a big hat. Bring water. Phoenix was alright. Main thing I didn’t like about Phoenix was the air pollution.”

Finally, “Sounds awful. I am living on the Kawartha Lakes right now, free of real estate, if you don’t count the square foot of earth beneath my CQR. It is ironic, the money you pay over 30 years to buy that $400,000 house, so that you can have that prestigious job in a cube farm, would support not owning anything for many lifetimes.”

The Merimbula News Weekly, “It’s the sort of news that bunk-bed manufacturers won’t want to hear, but Sydneysiders have entrenched their love affair with the four-bedroom house, to the point where some experts believe it has replaced the three-bedder as the traditional family home. Harley Dale, the chief economist at the Housing Industry Association, said the preference for four bedrooms was a trend that had been under way since the 1990s, pushed along by rising household incomes that had created ‘an aspirational element’ in buyers’ housing choices. While the overall size of homes had plateaued several years ago, the desire for each occupant to have their own room hadn’t, he said.”

“Strong overseas migration was another factor, which ‘reflected people having a preference for intergenerational living under one roof, which requires more bedrooms’, as was the growing trend of caring for sick relatives, Mr Dale said.”

“A flat market and high transaction costs of selling a house were also encouraging many who might have upgraded to a bigger house to renovate instead and add more bedrooms. Architects report this is a common request among clients. Four-bedroom houses are now preferred in new estates, too, such as Greenhills Beach near Cronulla where almost every house on the 95 lots sold so far will be a four-bedder.”

“Dr Andrew Wilson, the senior economist at Australian Property Monitors, said these houses were the ‘minimum expectation’ among new-home buyers.”

The Calgary Herald. “Along with new docks, two luxury condo buildings are being built overlooking the new marina, with some of the balconies actually hanging over the water above it. WatersEdge Condominiums and Marina encompasses two opportunities for buyers — condominiums and ‘dockominiums.’ The condos each come with a slip, with more slips separately for sale.”

“Crystal and Danny Dokken, who own a home in Sylvan Lake’s Points West Resort, had been leasing space for their boat at the old marina, so when the opportunity to buy it permanently came up, they jumped on it. With hectic lives, it just makes sense to the family to have the boat at the ready through the summer, allowing them to just hop aboard, unhitch and head out onto the lake.”

“‘It’s an excellent investment and opportunity,’ says Dokken, who invests in agricultural land in Saskatchewan. Her husband, Danny, is a manager with Haliburton Service Industries. The dockominium slips will have monthly fees of about $45 to cover locker storage, showers, change rooms and electrical hookups. WatersEdge condo suites range from 1,235 to 2,118 square feet and are priced from $490,000 to more than $1 million.”

“The four-storey buildings will have heated underground parking. The top-floor suites each have a loft and a 26-foot glass wall with cathedral ceiling facing the lake in the great room.”

The Manteca Bulletin. “Back in the 1950s, the typical new Manteca home consisted of a one-car garage, a little over 850 square feet and had two bedrooms and one bath. Today, Manteca tract homes are surpassing 4,000 square feet and can offer up to eight bedrooms, five bathrooms, three-car garages and a rotunda if you’re so inclined.”

“And if you think 4,000 square feet for a tract home is pushing the envelope, just look to the southeast of those subdivision monsters that cast shadows over streets in Woodward Park and Rose Garden and take in ‘The Mansion’ - a 28,000-square-foot custom home resembling an Embassy Suites hotel that includes a home gym and the ultimate option package of underground parking and elevators.”

“Somehow, the idea of building a McMansion - a larger version of homes built in the early 1990s without losing some of the nice exterior architectural touches - went out the window in at least three new developments that started in the early days of the decade. They were of the McMansion genre but they look more like the same architecture of Home Depot and Wal-Mart than a home - big box, blah side and rear walls and little, if any, architectural relief on the front elevations.”

“Side setbacks were minimized and homes built in a perfect rigid line adding an ever flatter dimension to the concept of row houses. And what would you expect to pay for these big box charmers? Believe it or not, they were a lot more per square foot than the McMansions with character. It wasn’t unusual to see the tributes to the box come in at just under $500,000 or the price of roughly 70 Manteca flat tops 50 years prior.”

The Mercury News. “Bay Area home sales in June erased any doubt that it’s a sellers’ market, with some frantic buyers even sweetening their offers with a timeshare vacation or a couple of months of free rent. Real estate agents said low inventory is driving up prices in some areas as people try to outbid each other for more expensive homes while ultralow interest rates are drawing in first-time homebuyer.”

“‘Some people are offering free rent back, or a vacation for a week anywhere in the world for the seller,’ said Mark Wong, with Alain Pinel Realtors. ‘It’s crazy. But you’re talking about less than 10 grand. If you get the house, that’s a good deal.’”

“Wong said the craziest offer he’d heard of was from a buyer who simply offered to pay $200,000 more than the highest bidder. ‘This guy probably had been outbid 10 times and was desperate.’”

“In Sunnyvale, a homebuilder held a ‘Bingo style’ drawing last weekend for 12 homes with 60 potential buyers. ‘The market has just really heated up in Silicon Valley,’ said Susie Frimel, marketing manager for the developer, Foster City-based O’Brien Homes. ‘Inventory is really tight and a lot of people are very well qualified and want to take advantage of those low interest rates.’”

“One frustrated home shopper is Henry Chan. The 34-year-old mechanical engineer entered the Bingo-style lottery last weekend. The developer drew marked pingpong balls to determine the winners. Chan didn’t win, but said he hasn’t given up. He made an offer of $20,000 over asking price on another home last weekend and lost out to an even higher bid. ‘We continue to shop around,’ he said.”