The Housing Bubble

The Loudoun Times Community reports from Virginia. “In another sign of the slowing residential housing market and mirroring a national trend, Loudoun builders reported 15 percent of new-home contracts were canceled last month. In September 2005, 2.4 percent were canceled, according to research conducted by Hanley Wood. The January-to-September period in 2006 shows about five times as many cancellations in Loudoun than the same period in 2005.”

“‘A lot of the cancellations we are seeing are people who can’t make the financial equation work,’ said Jonathan Dienhart at Hanley Wood. Many home buyers may have not been able to sell their previous homes, he said, and therefore don’t have the cash to carry out the sale of the new house.”

“Depending on the type of contract the builder used, home buyers can expect to lose part or all of their deposit when they back out of contracts. In the Washington market as whole, cancellation rates have tripled in the past year, to 17 percent, said Dienhart.”

“According to Laura Hampton, communications director at the Northern Virginia Building Industry Association, builders are using a whole range of incentives to keep home buyers to their contracts.”

From Style Weekly. “Richmond’s skyline looks stunning from the future second-floor terrace of Rocketts Landing’s Skyline condo project. The city’s evening glow, however, owes little to the recent influx of downtown condos.”

“The irony seems lost on a crowd of future residents of the latest riverfront condo development: If the market is so attractive, where are the flickering living-room lights? Is it bedtime already at these much-touted projects? Or is lights-out a telling market indicator?”

“‘We’ve seen a lot of — quote, investor sales, unquote,’ says Sam Worley, partner at real estate brokerage firm Commonwealth Commercial Partners. Richmond’s quick-selling condo projects can be misleading. In many of the projects, the condos were first sold to investors who bought into a hot real estate market pre-construction, and wound up in the cold after the sawdust cleared. Nationally, Worley says, the condo market has ‘dried up.’”

“‘A lot of that was because of the investor coming in on the pre-sale and never intending to move in, and hoping he could flip out,’ Worley says, expecting that some of the same might be said — though to a far lesser extent — for certain segments of the Richmond condo market. ‘If you go down [to Riverside on the James] at night … count how many lights you see in those projects.’”

“Dr. Steve Booth and his wife, nearly bought into a riverside condo project, Vistas on the James in Manchester, Lynn Booth says. ‘But when we went to buy over there, well, there was a lot to buy.’”

“They say they pulled out of their Vistas contract-signing at the 11th hour. There was little substance to buy into, the pair thought, concluding that the project just seemed more focused on the investor and less on the prospective resident.”

“Some experts estimate that as many as 5,000 condo or townhouse construction starts are planned or in the pipeline locally. The Richmond market typically absorbs only about 1,000 condo and townhouse units each year, meaning the potential for a surplus that could last four to five years. ‘But the problem is we have only a temporary oversupply,’ says developer Robin Miller. ‘I don’t think prices are going to go down.’”

“Some builders were willing to take the risk and rush into the market knowing their condos eventually would sell, even if they couldn’t take advantage of the brisk selling spree of the last two years.”

”I don’t see where [builders] could have expected it to keep going at the 2005 level,” analyst Tom Tyler says, speculating that many builders may have worn rose-colored glasses during the recent building boom, but few wore blinders. ‘I would expect that they would have had some contingency there.’”

From Leesburg Today. “The local housing market’s double-digit declines in sales and volume are taking its toll on area banks, and research analysts who track banks in the region and the rest of the country are seeing the trend affect the bottom line at some institutions.”

“In Loudoun, the latest housing figures to date indicate a 38 percent year-to-year decline for August in residential building permits, according to information from county agencies.”

“For home resales, the number fell 41 percent in September from a year ago compared with 650 in September 2005, according to the Dulles Area Association of Realtors.”

“‘This is one of the most difficult periods that banks have experienced in at least five years and probably 10 years, it’s been a very long time since we’ve had a period where the earnings outlook has looked so unfavorable,’ said James Abbott, a research analyst with Friedman Billings Ramsey.”

“‘Virginia Beach has also been experiencing somewhat of a slowdown, more so than Raleigh, but less so than the Northern Virginia area,’ said Megan Malanga, with Ryan Beck & Co.”

“Abbott noted that the housing slowdown and its effect on construction lending is just one factor contributing to the banking industry’s current issues, pointing to interest rates as another influence. ‘It’s not just the level of one particular interest rate but the level of all interest rates are flat or inverted. The short-term rates are higher than long-term rates, and banking doesn’t work in that environment,’ he said.”

“‘Many, many banks are missing Wall Street consensus earnings estimates, and by a wide margin-substantial misses, not just a penny or so, but three, four, five cents a share-and then the outlook is substantially reduced for each of these companies,’ Abbott said.”

From the Examiner. “As the housing market continues to slow in the Washington region and across the country, the number of real estate agents leaving the field is expected to grow, said industry officials.”

“There are currently more than 26,000 agents in the area, according to combined membership numbers from the Greater Capital and Northern Virginia associations. But many of those are new to the profession and have never experienced a down market.”

“Nearly 50 percent of NVAR’s members have been a part of the organization for less than three years.”

“‘We’ll lose some, but we’re not expecting the bottom to fall out,’ said Jill Landsman, a spokeswoman for NVAR. Landsman said some agents have taken on second jobs, such as substitute teaching or retail, to make up for decreased income, rather than leave the field all together.”