‘The Reality Is That Prices Are Dropping All The Time’
It’s Friday desk clearing time! “Dallas’ high-rise condo boom appears to be peaking. With construction costs soaring and investors pulling out of the housing market, several residential tower deals have been killed and others are in doubt. ‘Sales at the kickoff were a bit disappointing,’ said Art Lomenick, managing director of developer High Street Residential. ‘A lot of folks are stepping back and looking at their options because of what is going on in the market.’”
“What’s going on is that investors, many of them from out of state, are abandoning the housing market. Investors have accounted, by some estimates, for more than a third of local condo presales. The declines have been worse in markets such as California, Florida and Las Vegas, where dozens of condominium deals have been canceled because of slumping demand.”
“At least 56 subdivisions have been approved since 2004. Even Bell, a Teton County resident only since February, is startled by the pace of growth. ‘People are flying in from all over the country,’ he said, adding that he’s met real estate prospectors from California, Hawaii, Michigan, Texas and New York. ‘Houses just don’t stay on the market long. They fly off the shelf. There are people coming in and paying cash.’”
The Anchorage Daily News. “It couldn’t go on forever. Analysts say the Valley’s homebuilding frenzy is cooling, leaving more than 800 homes on the market last month, more than at any time in the last 10 years. The Valley’s housing market this summer boasts a glut of new homes between $250,000 and $350,000, good news for anybody looking to buy in that range.”
The Morning News from Arkansas. “Benton County has too many single-family homes that are built but not sold, according to a study. An additional 19,783 residential lots have been approved by cities’ planning commissions. That brings the total lot supply to 39,109, or enough new lots to supply the area for 8.86 years. Sandy Heathman, an employee in the building permits and inspection department, said builders ‘went berserk’ in March and obtained more than 600 building permits for single-family homes.”
From Little Rock. “‘You can buy a home for no money down. You can buy a home with bad credit. It’s amazing what you can do,’ says Robyn Johnson with American Home Mortgage. Since May 1, Crye-Leike Realtors has seen more than 70 homes in Central Arkansas foreclosed. That’s a family almost every day that is evicted. ‘We are getting a lot of homes just like in the last two days. We’ve gotten seven homes that are over 400,000,’ says Danny Holt with Crye-Leike Realtors.”
From Washington. “Not too long ago, people would have laughed to hear it costs a half-million dollars for a new house in Snohomish County. No waterfront, no view. Just new, two-story houses shoulder-to-shoulder on cul-de-sacs. Despite the price, these are some of the smallest lots in the county. In some cases, the houses come 10 or more to the acre.”
“‘The days of new homes in the $400s are pretty much gone,’ real estate agent Dave Duncan said. ‘The days of the neighborhoods with big yards are all gone,’ Duncan said. ‘It’s not a bad thing, it’s just where we’re headed. Other parts of the country have been there for years.’”
“A correction in the red-hot Toronto area condominium market ‘cannot be far away,’ says a leading housing economist. ‘An onslaught of condo completions is just beginning and I expect that rents will start to fall late in the year with the possibility of price weakness to follow,’ said Will Dunning.”
“‘The eventual consequences (which include falling rents and rapid exits with negative consequences for prices) have been averted to date only because of construction delays,’ he said. In a worst-case scenario, ‘panic selling could emerge’ as investors sell off their condos because of oversupply, says the report.”
The Review Journal in Las Vegas. “To the editor: Regarding the article , ‘Analysts: Home prices won’t fall.’ I and others who work full time professionally in the real estate business are amazed at how these ‘experts’ manage to put a positive spin on the reality of the real estate market here. The reality is that prices are dropping all the time.”
“Builders are giving away the store in incentives. The use of ‘median price’ numbers to interpret what is going on is foolish, meaningless and serves no one, except those determined to delude people into thinking everything is OK. But like the dance band on the Titanic, they keep cranking out the same old tune.”
Sorry about the down time this afternoon. Another critical week for building bubble consensus. My thanks to those who support this blog. Another update to the photo gallery will happen Sunday night. Check back this weekend for news, your market observations and topics.
It’s the “rolling bubble effect” that nhz talks about.
But back to the down time, I thought there was something wrong with my computer!
Lots of love and thanks for saving me at least fifty thousand dollars! I work hard for my money! Thanks Ben!
“The reality is that prices are dropping all the time.”
Getting so much better all the time
It’s getting better all the time
Better, better, better
It’s getting better all the time
Better, better, better
Getting so much better all the time
Me used to be angry young renter
Home prices, they kept climbing higher
You gave me the word, I finally heard
That I would be priced out forever
Getting so much lower all the time
Price dropping lower all the time
Lower, lower, lower
They’re getting lower all the time
Lower, lower, lower
Suzanne researched it.
Lereah encouraged, hyped, cheered.
Cat now out of bag.
I-O “no brainer”.
Two years pass. Oh no, reset.
Repo man cometh.
Actually, the Rainman cometh. Scroll down
Affordable no more.
I’d rather rent than become.
A slave to you, home.
cry - like realtors. now there’s a great company name for ya’
I remember an ad Jay Leno showed on the Tonight Show. I was for a law firm….Payne & Fears.
What a great name
Nope. You are referring to the law firm of Dewey, Fuckem, and Howe.
There used to be a realtor in the Keys named Cherry Rash..no kidding. I do not know if she is still in business.
KBTC interrupts this blog to bring you the following educational program.
BTC #8
Howdy Kids, it’s me, Bubbles The Clown! I hope you’re ready for some zany Housing Bubble fun! And make sure you stay put for today’s BTC Fun Zone, cuz this one is a real brain twizzler! So get your thinking caps ready!
Okay, today’s show is all about toys! No, not Hot Wheels and Malibu Barbie, but adult toys like Jet-Ski’s, Escalades and Breast Implants (ask your mommies). Now why have adults been buying all these toys? Well boys and girls, it’s because their houses made them think that they were wealthy! And in the Housing Bubble, nothing said “Screw you, I’m RICH!” more than driving down your street in a Hummer towing your new boat to your vacation house! But what these posers didn’t realize is that their wealth was all in their heads and they bought all those toys with play money…Yikes! The problem is that Mr. Banker isn’t playing and he wants his money back, with interest…Double Yikes!!
So what made your Mommies and Daddy’s think that they were rich enough to afford all those toys? Well kids, that would take Bubbles all day to explain and his medication is wearing off! But it’s partly because people like David Lereah (Booo!), Leslie Appleton-Young (hee-HAW!) and Suzanne the Realtor (Eeeeeek!) told them that their houses would always go up in price and that the party would never end! Whoops! But the party is ending and it’s gonna be one mother of a hangover!
Now Bubbles thinks that some of these dimwits won’t be able to accept that they have to give up their fancy houses and expensive toys! So Bubbles thought he’d write a song to help them out with their good-byes!
“We Had Toys, We Had Fun, There’s A Reason Why We’re Done”
Goodbye to you, House ATM
We never dreamed that it would ever end.
We thought our purchases were free.
Turned our house into a spree
Buying Boats and ATV’s.
Goodbye The Mall, it’s hard to buy,
When my line of credit has run dry.
Now that the sales are in the air
Plasma Screens are everywhere
When I see them I’ll despair.
We had toys, we had fun, but the reasons why they’re gone.
All the crap we attained
But the payments still remain.
Goodbye, Lere-rah please guarantee
That the market will come back to me.
You tried to preach that it was strong
To the willing greedy throng
Wonder how you got it wrong.
Goodbye Leslie, it’s hard to lie.
When the inventory is so high
Now that the truth is in the air.
Folks foreclosing everywhere
When you see them, will you care?
We had toys, we had fun, we have reasons why we’re dumb.
Cuz we came to rely
On our HELOC cash supply.
Goodbye, Suzanne, my Realtor chum.
You gave me lies and said to buy this one.
And at the time I said I’d drown.
The research you said was sound
Said that prices won’t come down
Goodbye, farewell, it’s time to cry.
When the credit noose is swinging high.
Pull the rope tight, kick the chair
With a sour, bitter prayer,
That I’ll come back a housing bear.
We had toys, owe a ton, now the squeezin’ has begun.
Cuz the wealth that we spent
We now owe at 12 percent.
We’re destroyed, get a gun, there’s no reason to go on.
Greed and cheap debt supplies
Led us straight to our demise.
Wow, that was a sad song 
Bubbles hasn’t been this depressed since ex-wife #2 found his “video collection” under the stairs! Now that was a bad year for Bubbles!
Doiink! Whoo hoo! That sound means it’s time for the BTC Fun Zone! Now today’s Fun Zone isn’t easy and it’s gonna make you scratch your heads so get your pencils and papers out and think real hard….here we go!!!
Okay boys and girls, listen to the following story and then answer the question!
Four Real Estate Economists, David, Leslie, Alan and Gary were speaking at an industry press luncheon.
1. David spoke for 40 minutes. After Leslie but before Gary.
2. Leslie spoke before Gary and after Alan for 10 minutes less than David.
3. Alan spoke in-between Leslie and David for twice as long as Gary.
4. Gary spoke less than David but longer than Alan before David but not Leslie.
Question:
How many of the Real Estate Economists were lying their asses off?
Did you get it right??? Yea! If you did then you’re smarter than most adults!
Okay boys and girls, that’s all the time we have for today! Bubbles needs to get on Craigs List so he can buy your Daddy’s Lexus! So until our next show remember:
Bubbles the Clown is fun, Housing Bubbles are icky.
A rainman18production 2006 copyright
BTC#8
Way Way to Funny !!!!
Rainman …can I be your agent . How can you have left brain and right brain talent at the same time ?
Some accompaniment:
http://www.geocities.com/bjaes3/midi3/tjacks.mid
Go Bubbles!!!
That tune was voted as one of the worst songs of the decade…..I may have to rethink my opinion now!
The correct answer is 5.
Their numbers never add up, but they always go up.
Bravo. I look forward to the Bubbles the Clown “Greatest Hits” compilation.
I just read “Flipagain’s Isle”
from the link … Total Crack UP…
http://housingbubblecasualty.com/?p=32
LMFAO, bubbles that has to go platinum, at least frame it.
Rainman — You outgunned me! I need to rework the Beatles lyrics a bit to at least acknowledge the high poetic standards you have set…
That was classic, fricking hilarious! I’ll probably have that dreadful melody bouncing around my brain all night. I don’t think that Terry Jacks had David, LAY, or GWatts in mind when he recorded one of the worst songs of all times!!
Rainman that was genius!!
Outstanding!!!!! Bubbles - you’re the best!
Didn’t Simon and Garfunkel have a song on this topic?
Oh, yes they did! Cast your mind back to the 1960’s, sing along, and enjoy. A midi link is provided (at the bottom of the post) for the weak of tune and those under 50 years of age.
Hello HELOC, my old friend,
I’ve come to draw on you again,
Because inflation softly creeping,
Raised my nut while I was sleeping,
And the lifestyle that was planted in my brain
Still remains
If I could just… refinance.
In restless dreams I walked alone,
My FICO score completely blown,
My bank account is quickly leaking,
My creditors completely freaking,
Any my mind was chilled by the growl of
A marshall’s voice
…forced my choice
And pushed me to… refinance.
And in the courtroom light I saw,
Ten Thousand Floppers, maybe more,
Floppers freaking without speaking,
Floppers screaming without listening,
Floppers swearing oaths… Money’s coming, from somewhere,
No one cared.
Because they can’t… refinance.
Fools said I, you do not know
Interest like a cancer grows.
Hear my words that I might teach you,
Take my arms that I might reach you.
But my words like silent raindrops fell,
And echoed
In the halls of finance.
And the Floppers bowed and prayed
To the credit God they made.
And the market flashed out its warning,
In the signals that it was forming.
As the signals said, the words of the prophets
Are written in the blogger’s posts…
You are toast.
And you will not… refinance.
Straight:
http://sglyrics.myrmid.com/silence10.mid
or Jazzy:
http://sglyrics.myrmid.com/silence6.mid
Fantastic! Both of these are great.
Awesome!….now who has the ceativity and talent to remake “Bridge Over Troubled Water”?
A possible chorus:
Like a bridge loan to my next heloc,
I need a way out…
or maybe:
I need a fool to buy me out,
or I will be foreclosed….
OMG…now THAT was genius, Rainman! And sm landlord!
Terrific talent.
Well, I do have another one, but it’s so obscure that I can’t find a midi track. I wrote this the other day when Ben posted about “Black Clouds over Las Vegas”. For those old enough to remember the ’60s and the Youngbloods (and Jesse Colin Young), I present Darkness Darkness:
Darkness, darkness, be my zillow,
Make my price, and let me sleep.
In the coldness of your data,
In the silence of your deep.
Darkness, darkness, has me yearning,
For a price that cannot be.
Keep my mind from constant turning,
Toward the deals that cannot be,
Deals that cannot be,
Deals that cannot be.
Darkness, darkness, long and lonesome,
Ease the day that brings the pain.
I have found the cliff of value,
I have known the depth of fear.
Darkness, darkness, be my blanket,
Cover me with endless night,
Take away the pain of knowing,
That my bankruptcy is near,
Bankruptcy is near,
Bankruptcy is near.
Darkness, darkness, black and silent,
Hit the bid, and take my keep.
In the glinting of my stainless,
I can hear my rafters weep.
Darkness, darkness, quench the burning,
Constant churning, while I sleep.
Hit the bid, and bring the buyers,
And Lord please, don’t make them cheap,
Please don’t make them cheap,
Please don’t make them cheap.
Darkness, darkness, be my zillow,
Take my deed, and let me sleep.
In the scorching of your desert,
In the silence of your deep.
Darkness, darkness, be my blanket,
Cover me with endless night,
Take away the pain of knowing,
Pack my car, and travel light,
Pack and travel light,
Pack and travel light.
Very good both of you .
Rainman, you’re brilliant! Love the S&G knock off, too, sm_landlord!
Dudes, you both RULE!
Bravo!!!!!
We had joy, we had fun, we had seasons in the sun…
You remember! I think that pegs you age!
Perfect!
Excellent song, Rainman!
“Seasons in the sun” — now that’s a depressing song!!
Bubbles you my friend are a pimp
“Between speculators, developers, second home owners and urban transplants craving the rural lifestyle, Teton County’s housing market is booming.”
They came, they saw, they ruined the rural lifestyle they were looking for.
“In the past five years, Teton County’s population has only increased by about 1,500 people and the school district has added about 67 students. During that same time, hundreds of single family houses have been built, while hundreds more are on the drawing board.”
So essentially you’re building a modern ghost town ?
The equity locusts looking for Shangri-La don’t realize that their problems are internal.
The only constant in their horrible existence is themselves and their problems follow them everywhere.
Unfortunately, the equity locusts will keep coming.
606 home subdivision approved for rural Garden Valley, Idaho
http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060728/NEWS01/607280358/1002
McCall, Idaho picked as prime place to own a second home- Sunset Magazine
http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060726/NEWS02/607260324/1029/NEWS02
I’m going to visit the grandparents up in St. Maries, ID in a couple of weeks. Taking a long road trip. The last time I talked to them they said some big condo project was planned in town. Lots of SFR builds on the outskirts. This town is only about 2,000 residents and has been like that for 20 yrs. I’ll have to give everyone the scoop on what I see on my travels when I get back. I’ll try to take some pics.
OCKURT,
That large areaby St MAries, as you know is a superund site. There are signs saying don’t eat the fruits and veggies.. Perfect.. let’s build on a toxic waste site.
Construction is has also been the big job driver in Idaho:
http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060728/NEWS02/60728016
“Idaho created new jobs at the fastest rate in the nation from the second quarter of 2005 to the second quarter of this year, Idaho Commerce & Labor reported today. ”
“Construction remained the hottest sector of the Idaho economy, with an 18 percent job growth rate, or 8,000 new jobs that sprang up to support the state’s housing boom.”
“How long Idaho can keep generating new jobs at its current pace will depend on how long the construction sector can defy the slowdown in the U.S. housing sector. “Someday the (housing) party will be over in Idaho, too,” Church said.”
It’s a like a monster feeding on itsself. RE promoters say Idaho is great because of job growth, but most of the jobs have been created by the RE boom. When the boom busts- so will a lot of jobs.
It’s a damned shame what they’ve done to the Teton Valley.
I drove through Boise today. They’re building like there’s no tomorrow, which I believe is correct. I also drove through Ogden, UT. Many houses for sale judging by all the signs.
The Dallas story is just confirmation of what I’ve been saying for close to a year now. There is no market for “upscale” condos - at least not the numbers envisioned by these people - except as hot potatoes to flip to one another.
The Dallas SFH market will be next. It will be ugly, uglier than LA or Boston or Miami.
I love how Steve Brown tries to put a positive spin on every real estate story he writes. The Dallas condo market is gone; sales were entirely reliant upon out of town speculators (as well as a few get rich quick Dallasites that will lose big time with these glorified apartments). I emailed Steve last week and I told him I was saving all of his cheerleading stories to send to him this time next year when this whole area is deep in recession. This crash is going to be huge in this part of the country.
How did the Fla bar go? Ready to move to Bubble Central?
I’ll see on September 17th - at least they won’t be able to take away my Texas license for my poor performance on the FL exam. Looks like I’ll be taking it again in February.
While I think you now know what I think of Dallas
, I am not sure it can get uglier than Miami……(or FL or PHX, for that matter).
I agree. From what I read, the South Florida condo gut is pretty bad. Then again, they are building A LOT of condos in Uptown. I lived in La Tour from 98-04 and I thought there were a lot of condos built then, but there are as many towers under construction right now as were built during that time.
There is no way an investor could buy one of these condos and hope to come close to cash flowing. Taxes and fees alone are almost as much as one could hope to get in rent.
I thought TX was sorta boomin
back to zero?
It is. Sure it’s gone up but nowhere near what the coasts have. It may see a levelling off but no way the Texas SFH market will even come close to the blood bath of LA where I moved from. It’s like talking about two different planets.
You been watching too much Red Green there, buddy.
HAHAHAHAHA!!!
Yup! It’s DIFFERENT there!
From the just released FDIC Outlook, Summer 2006 (http://tinyurl.com/ppxcn):
“Since ancient times, credit markets have undergone periodic booms and busts. In 594 BC, for example, the Greek state of Attica found itself under severe economic stress because of the massive debt incurred by many of its citizens. The ensuing civil disorder resulted in the handover of power to Solon, one of the “seven wise men” of Greece. Solon took radical steps to restore balance to the economy, such as canceling debts, freeing those enslaved for failing to repay their loans, and devaluing the currency by 25 percent.”
Interesting that the same thing might happen over 2,500 years later.
Solon was one of the wisest philosopher/rulers in history. It was he who came up with the idea of a republic, or representative form of government as the wisest form of government. Elected leaders were meant to represent the people and work in their best interests. Representatives were supposed to prevent the mob rule of a popular democracy. The founders of Rome sailed to Greece to consult with the disciples of Solon in order to establish their own representative form of government. So, in a sense, Solon is the father of our own form of government. I’m sure he never envisioned that the representatives would become the mob, in the pay of the commercial interests. By the way, elected officials in the pay of commercial interests was a problem in those times as well. Poisoning was a popular way of getting rid of idealistic leaders who worked for the people.
I like this story. Where is Solon when you need him? But, we are not yet at the point of civil unrest, although I think it is coming.
I like these two posts. Good info. I’ll drag it back into an appropriate low brow level by noting that the City of Sacramento used to have a semi-pro baseball team called the Sacramento Solons. Played where the Target store on Broadway is, I believe.
Solon was indeed one of the most important innovators of how to run a government. That the founders Rome sailed to him, however, seems only a myth - Rome was a tiny town at that time that was built in the swamps, because all the good places had been taken already. The influence from Solon on Rome was probably mediated by the many Greek colonies in Italy at that time.
Thanks for the FDIC Report link.
This was interesting for me in D.C.
“A Hanley Wood Market Intelligence report found that more than half the condominium purchase contracts had been cancelled in Fairfax County, Virginia, in March 2006, compared to none a year earlier”.
this is somewhat related to something i was pondering today. we frequenly muse over the need for a central bank, fiat currencies, booms, busts, panics, etc. i got to thinking about how the Catholic Pope designated a Jubilee Year every 25, 50 years where all debts were to be forgiven. what do you think the expansion of the money supply was in years 23 and 24 of this system? it seems every society throughout history explicitly recognized the destructive nature of [reckless] debt and took some measures to counter it.
“‘The days of new homes in the $400s are pretty much gone,’ real estate agent Dave Duncan said. ‘The days of the neighborhoods with big yards are all gone,’
Gee, what a wild dreamer I am to expect an affordable home where my kid can play ball in the backyard.
They keep this crap up, and I’ll leave the country altogether. I’m not going to raise kids in a condo while paying the grey crowd’s Social Security checks…
Amen.
I wouldn’t worry too much. Dave Duncan is right, but probably not in the way he intended. The days of the $400k houses are indeed ‘pretty much gone’–soon to be replaced with the days of the $250k houses.
Right on, ChrisO!
If I had to pay 400k for a house in Sac with no yard, I’d move back to TX. Probably get a job with similar wages, and the houses cost half as much with huge yards.
I’d have to get used to the humidity and the bugs again though. At least I would get to drive a HUGE truck again and drink Lone Star beer. Heh heh.
Easy there East Beach - It’s my right to collect 30k in ss benefits plus my Medicare. You have to work overtime to support my life style, it’s your duty.
“San Diego Housing Crash far worse than originally reported! Even Real Estate Brokers say so!!”
http://www.homepricebubble.com
Listen, people. There are no regional price reductions going on right now. All you are seeing are a large number of individual houses being reduced in price. There are currently no regional housing bubbles. There are only some properties that are in an individual bubble of their own.
Signed,
an expert,
some analyst,
this economist,
and a realtor
So what is the differance?
1,000,000 by T Day 11/23 might be way too conservative.
mid may was 799,000
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
6/20/06 was 850,317
6/22/06 was 855,892
6/24/06 was 860,647
6/29/06 was 866,037
7/01/06 was 858,675
7/09/06 was 870,854
7/11/06 was 882,239
7/13/06 was 886,055
7/14/06 was 890,896
7/18/06 was 895,022
7/21/06 was 900,000
7/25/06 was 905,170
7/28/06 today 910,110
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
If you look at these numbers it represents 900 thousand families or singles trying to sell their homes so they can go someplace. One has to wonder where they are moving to. Just thought.
At this rate, we’ll hit 1M at the beginning of October.
Actually, if you project at the same growth rate as was realized from 6/10/06 through 7/28/06 (a 48 day period), then we will surpass 1m homes in less than 54 days, which would bring us to September 20, 2006.
Around September, I hope to see also the first official national home price decline since the Great Depression. Falling prices and over 1M on the market - that should change some psychology in the market.
“A correction in the red-hot Toronto area condominium market ‘cannot be far away,’ says a leading housing economist. ‘An onslaught of condo completions is just beginning and I expect that rents will start to fall late in the year with the possibility of price weakness to follow,’ said Will Dunning.”
You mean this is happening in Canada too? What happened to “real estate always goes up”?
Apparently some of it went up north.
According to the NY Times, the drop in the economy was due mostly to the housing slowdown.
“Housing Slows, Taking Big Toll on the Economy
By VIKAS BAJAJ and DAVID LEONHARDT
The housing industry — which largely carried the American economy through the tribulations of the 2000 stock-market crash, a recession and climbing oil prices — has lost its vigor in recent months and now has begun to bog down the broader economy, which slowed to a modest 2.5 percent growth rate this spring.
That was a sharp comedown from the 5.6 percent growth rate of the first quarter, the Commerce Department reported yesterday, caused in part by the third consecutive quarterly decline in spending on houses and apartment buildings, after several years of rapid growth. [Page C1.]
“It hasn’t slowed down a little bit — it has slowed down a lot,” said Doug McCraw, a developer who has scrapped his plans for a 205-unit condominium tower in a neighborhood just north of downtown Fort Lauderdale, Fla. “Anybody who did not have a shovel in the dirt has chosen to wait till the market settles.”
The housing slowdown is perhaps the clearest effect of the Federal Reserve’s two-year campaign of raising interest rates in a bid to tap the brakes on the economy and reduce inflation. That campaign has been largely successful, with the decline happening gradually while other parts of the economy, mainly the corporate sector, pick up much of the slack.
“Housing is going from being far and away the most important contributor to growth to being a measurable drag, and it’s happening gracefully so far,” said Mark Zandi, chief economist of Moody’s Economy.com, a research company. “But there’s now a growing and measurable risk that things don’t go according to plan.”
The biggest risk, economists say, is that the optimism that fed the real-estate boom will reverse dramatically. The number of homes for sale has surged in recent months, particularly in once-hot markets, like the Northeast, Florida, California and parts of the Southwest. As builders delay land acquisition and construction it could reduce employment and spending in the coming months.
More broadly, just as rising housing prices during the boom added to Americans’ sense of wealth and well-being — encouraging them to spend more on a variety of goods and services — the reverse could dampen sentiment and lead consumers to pull back on their purchases.
While the fate of housing prices has received far more attention recently than real estate’s role as an engine of job growth, the sector has also become one of the country’s most important industries. Residential construction and all the activity that swirls around it — mortgage lending, renovations and the like — account for roughly 16 percent of the economy, making it the largest single sector, slightly bigger than health care.
For much of the last five years, housing — along with health care — was also one of the only reliable generators of jobs. From the start of 2001, when the Fed began cutting its benchmark rate to steady a faltering economy, until early last year, the housing sector added 1.1 million jobs.
The rest of economy lost 1.2 million jobs over the same period, according to an analysis by Moody’s Economy.com.
Housing continued its rapid growth last year, and other industries began hiring in far greater numbers than they had been, creating the healthiest national job market since 2000. In the last few months, though, three pillars of the housing sector — homebuilders, mortgage lenders and real-estate agencies — have stopped adding to their payrolls, and overall job growth in housing has begun to slow.
In South Florida and Las Vegas, where contractors until recently complained that they could not find enough workers to begin work on many projects, developers are scrubbing plans for new condominiums because they cannot sell enough units to get construction financing.
Mr. McCraw, the developer in Fort Lauderdale, said slowing condo sales and a 35 percent jump in the cost of construction materials like steel, copper and concrete convinced him to shelve his project. He is now considering building office space, where demand remains strong, or simply waiting for two years.
In Las Vegas, cranes are still busily at work on new casino projects but dozens of gleaming condominium towers that were slated to sprout up a few miles from the Strip are not likely to be joining the city’s neon-bedecked skyline soon. John Restrepo, a real estate consultant in the city, estimates that only about 7 percent of the 60,000 condominium units that were announced and under construction as of the first quarter of the year are actually being built today.
Among the high-profile projects that were scrapped is Las Ramblas, an 11-building, $3 billion condominium and hotel complex being developed by the Related Companies and Centra Properties and had investors like the actor George Clooney.
“The period of irrational exuberance we saw in ’04 and ’05 and the gold rush fever has gone away,” Mr. Restrepo said.
The Commerce Department said yesterday that housing investment fell at an annual rate of 6.3 percent last quarter, after dropping less than 1 percent in each of the two previous quarters. It grew at roughly 9 percent a year during the previous three years.
Still, building activity for single-family homes, condos, hotels and casinos in Las Vegas is vibrant enough that construction workers are not struggling to find work, said George Vaughn, a business manager for a local of the Laborer’s International Union of North America, which represents almost 5,000 workers in Las Vegas. “The boom is still on,” he said.
The situation is somewhat different elsewhere. An official at the International Union of Bricklayers and Allied Craftworkers said housing work was more difficult to find, but most of its members had been able to find work on commercial building sites.
“If something were to happen with both markets, that would affect us — and everybody for that matter,” said Robert A. Fozio, director of the union’s Northern Ohio district.
On average, real-estate jobs pay somewhat less — about 7 percent less a year on average — than those in other parts of the economy. But real estate has also been one of the only industries creating good jobs for workers without college degrees in recent years, especially in construction and contracting work.
At Hovnanian Enterprises, one of the nation’s largest homebuilders, executives are renegotiating the company’s options to purchase land for future developments, in an effort to delay some transactions and reduce the purchase price on other parcels of land. In April, it forfeited $5.6 million in deposits on property near West Palm Beach, Fla., and Minneapolis, because it was not ready to build in the area.
“It doesn’t make sense to own the land and have it sit there,” said J. Larry Sorsby, the company’s chief financial officer and an executive vice president.
Orders for Hovnanian’s homes fell by 18 percent in the three months ended April 30 and cancellation of existing orders by homebuyers rose to 32 percent from 21 percent a year ago. The company, whose earnings jumped 34 percent to a record last year, is expecting a mere 3.4 percent profit increase this fiscal year.
Mr. Sorsby said the company had not resorted to layoffs, but it had been asking sub-contractors to lower labor costs — with some success.
Going forward, many economists say, the biggest question is whether the orderly real-estate slowdown the Fed has engineered thus far will continue. “Outside the threat of surging energy prices,’’ Mr. Zandi said, “the most significant threat to the expansion is that the housing correction turns into a housing crash.”
The fact that mortgage rates remain low by historical standards offers one reason to doubt that a crash will happen. The average rate on a 30-year conventional mortgage was 6.8 percent last week, up from 5.7 percent a year earlier, according to the Fed.
On the other hand, the boom of recent years has pushed housing prices out of reach for many families along the coasts. Already, some homeowners have resorted to creative loans, like interest-only mortgages, to afford a house, and even modest increases in mortgage rates have the potential to cause a significant drop in demand for new houses.
In either case, housing seems unlikely to continue being the economic powerhouse it was over the last five years.
“Housing is just not going to be what it has been,” said Edward Yardeni, chief investment strategist at Oak Associates, a money management firm. “It could go back to being a significant but relatively small contributor to economic growth.”
Jeremy W. Peters contributed reporting for this article.”
Some friends said that they were buying raw land in Texas for investment purposes. I think it is a really lousy idea, and that they might as well burn the money.
Which one of us is right?
Raw land in Texas? Because god’s not making any more vast empty wastelands?
Burning the money would be smarter and less painful.
You are the one who is right. What’s funny is that you can’t just imagine the number of people everywhere in the world, thinking that any raw and rancid land is a good buy. It’s mostly dead money and a decaying asset. You have even the price of raw land going up in places where there are no jobs or economic activity going on! Anyone interested in Siberian raw land or Canadian far north with a ton of blood sucking black flies and mosquitos ?
Surprise, surprise, the sagging housing market is mentioned as a reason…
O.C. auto sales drop
Despite dealer incentives, purchases fell 6.8 percent for first six months of year. Slowdown could last into 2007.
http://tinyurl.com/hbol4
OT. I was talking to a friend that lives in Valencia ,Ca. today . He told me that some of the people he knows had $900 to $1,100 utility
bills for the month .I know there was a heat spell in California ,but you got to be putting the air on 72 degrees to pay that much .More black out’s in store .
With the car gas increasing and utility bills going sky high ,tell me that people aren’t going to be having problems .
That’s why I really believe that the housing expense shouldn’t be more than 25% of you income per month .
That’s odd. Very hot in S. Georgia and my (tree shaded though) house is 1600sq feet. My bill was about $75.
Interesting point. A/C systems out here near the beach are not properly sized for this load. Example: the A/C unit at my office has been running 24×7 to keep the inside temperature below 80 degrees. Overnight, it manages to bleed off enough heat to get the inside temperature down to about 74. During the day, the inside temp creeps back up to 80.
Even more worrisome, the temperature in my wine cellar has gotten as high as 74 degrees over the last week. Now that is serious. I may have to install another cooler.
I can’t wait to see the bill for this situation. Not.
No problem……just read something on Yahoo news that could be a double win for those with high expenses in those million dollar homes.
a) 40% wage increase for that second job at minimum wage - going from $5.15/hr to $7.25/hr
b) House prices fall below $1 million and save on estate taxes
—————————————-
House approves minimum wage increase
By ANDREW TAYLOR, Associated Press Writer
48 minutes ago
WASHINGTON - Republicans muscled the first minimum wage increase in a decade through the House early Saturday after pairing it with a cut in inheritance taxes on multimillion-dollar estates.
The GOP package would increase the wage from $5.15 to $7.25 per hour, phased in over the next three years.
Under current law, the estate tax is phased out completely by 2010, but jumps back to 55 percent on estates larger than $1 million in 2011.
“the estate tax is phased out completely by 2010, but jumps back to 55 percent on estates larger than $1 million in 2011″
What a bunch of crooks this government is (both Demodumbos and Repukes). So I suppose some wealth people are planning to die in 2010, and not pay any estate taxes. After that, everyone else pays 55%!
To think “we the people” fought england over a 2%(?) tax on some goods. Is it time to scrap the Demopubs and Repukes yet?? COME ON PEOPLE, WAKE UP, AND TAKE BACK YOUR LIBERTY.
So much news this week. Always like it when Ben cleans his desk.
Rainman and sm landlord, you guys are hilarious. Maybe these should hit the radio.
I can hardly wait to meet you OC folk. If you guys are newbies, there will be a party at the Marriott’s Newport Coast Villas some time in September… my treat. It will a potluck kind of thing. I will also furnish the margaritas and golden cadillacs… yummmm.
Thanks Ben for keeping this blog alive. I love you Ben
Mel
i will be there.
Ok, just to post a single serious response on this thread:
The story from Washington just reads like another wedgie from the planner bullies:
“The days of new homes in the $400s are pretty much gone,” Remax real estate agent Dave Duncan said.
“The family’s 2,700-square-foot house sits on one-tenth of an acre and cost $545,000. These are some of the highest figures yet for this type of dense housing.”
“The days of the neighborhoods with big yards are all gone,” real estate agent Duncan said. “It’s not a bad thing, it’s just where we’re headed. Other parts of the country have been there for years.”
Oh for the love of God, please someone save us from these idiots. This is completely unnecessary. According to Duncan, since other parts of the country are already screwed, Washington homeowners should bend over and take their ass-pounding like real men. Not.
Come the revolution, these puppies are going up against the wall right after the politicians and not long before the lawyers. Unless someone figures out that these wankers are the ones feeding the bogus ideas to the politicians, in which case they may even come up before the pols.
If you look at the Soviets as an example, they killed off their big thinkers first, then the apparatchiks, then the politicians. The carnage among the civilians was mostly a side-effect of the general anger after the system started falling apart, ignoring of course the victims of repression while the system tried to preserve itself during the discussion preceding the final collapse.
Does anyone think that we will do better? If so , How?
Once the AMT hits the lower middle class, what happens next? That problem is only about five years in the future if inflation picks up.
Sorry to be so depressing.
Wow, wonder how many more of these are out there
http://phoenix.craigslist.org/rfs/187267433.html
I’d be willing to give an alligator away for free, too.
Royal Cobra is better.
The days of new homes in the $400s are pretty much gone,’ real estate agent Dave Duncan said. ‘The days of the neighborhoods with big yards are all gone,’
Perhaps the days of upper-income people moving to Snohomish County are all gone, too. Not a lot of people make enough money to legitimately buy a $500K house, and most of them are too smart to shell out $4K/mo to live in a crappy tract house when they could rent something nicer for much less. I used to live in western Washington. Snohomish County is not a particularly affluent area. According to the census bureau, the median income there is around $50K. That means that these crummy tract houses would take 10X the median income to purchase. People in WA are kidding themselves. Their homes haven’t suddenly become that much more valuable — the increase in prices has been due to easy money and an influx of CA speculators. The same thing happened in the late 80’s.
It never ceases to amaze me that people of ordinary means act as if $500K is an affordable amount to pay for a home. Just a few years ago, homes in this range were considered to be out of reach for all but the highest income brackets. Today, Joe Sixpack will plop down $500K for blue-collar housing like it’s no big deal. My wife told me this morning that her hairdresser’s roommate just bought a house in Leesburg for $500K. He’s a real estate agent. Let’s see — straight from being a roommate to purchasing a $500K house. And it’s not like being a realtor in Loudoun County is a lucrative job anymore. We know several of them, and they’ve all said that RE has fallen off a cliff and nothing’s selling.