The Housing Bubble

The Review Journal reports from Nevada. “Median prices for new homes in Las Vegas continue to rise in November, but at least one analyst believes incentives are keeping those prices high. ‘Factoring out sales incentives offered by most home builders, new home prices would probably be down by double digits, said Dennis Smith of Home Builders Research.”

“‘Home builders that have more standing inventory will be more likely to have larger sales incentives and therefore have seen their prices decline more than those that had fewer standing inventory homes,’ Smith said.”

The Las Vegas Business Press. “Lagging homes sales are weighing on the Southern Nevada economy but they aren’t causing a recession, according to the UNLV Center for Business and Economic Research. Eight out of 10 leading economic indicators declined for the second month in a row.”

“Residential construction permits are off almost 40 percent from last year, and the value of those permits dropped by more than 41.3 percent from 12 months before. The Las Vegas Valley may have become ‘the poster child for an overbuilt housing market,’ remarked CBER Director Keith Schwer.”

“As for recession talk, Schwer put the odds of a national downturn at 25 to 30 percent, but noted, ‘If the national economy goes into a recession, we are not immune.’”

The East Valley Tribune from Arizona. “The Valley’s new home market continued to sag in November, as building permits and sales slumped. Builders took out 1,985 permits for homes last month, down 55 percent from the same period a year before, according to real estate analyst RL Brown.”

“Some 40,125 new home permits were issued in 2006 through November, a 31 percent decrease from last year. ‘The market basically is still reacting to the surge of speculative buying that we saw in 2005 and the first part of 2006,’ Brown said.”

“That resulted in a wave of building contract cancellations when investors grew nervous, he said.” “Hundreds of lots of land have been graded in subdivisions throughout the Valley, but few homes are actually being framed, Brown said.”

“About 43,800 homes are currently up for resale, down from a peak of roughly 48,000 two or three months ago, said Robert Rucker, CEO of the Arizona Regional MLS.”

“Builders have been offering incentives and have cut way back on production, said John Fioramonti with Hanley Wood. ‘The builders are finally coming to grips with reality here,’ he said.”

“Homeowners and builders alike are reducing prices, he said. During the housing boom, home price appreciation rates weren’t sustainable, said Ross Smith, VP at commercial brokerage Grubb & Ellis.”

“‘As the prices went up, people got to the point where they weren’t willing to pay those prices,’ Smith said. When the slowdown hit, some new homebuyers canceled contracts with builders, and others couldn’t sell their old homes to buy new ones, he said. Now, sellers are adjusting their prices or taking their homes off the market, and builders are clearing out excess inventory, he said.”

The Arizona Republic. “A downturn in the housing market is forcing budget cuts in Queen Creek. Facing lower-than-projected revenue from a construction sales tax and building permits, town departments are being told to prioritize projects and shave spending by 15 percent.”

“Council member Lisa Coletto-Cohen said she isn’t sure what will happen. Coletto-Cohen said road projects already promised to residents need to be a priority. ‘I think it’s imperative that we look at ways to develop a revenue base that doesn’t fluctuate and isn’t so dependent on construction,’ she said.”

“The seller’s market of 2005 sharply reversed itself to a buyer’s market in 2006, and Chandler homes became harder, much harder, to sell.”

“Since summer, homes have been selling at their slowest pace in at least four years. In recent months, only about 15 percent of the homes on the market at any time are selling. The MLS listed about 2,160 homes for sale in the city this week.”

“Ahwatukee homeowners saw home values soar in 2005, but like everywhere in the Valley, the market saw big corrections this year.”

“The median price for existing homes, which was a relatively meager $204,000 in 2003, reached close to $400,000 in 2005, but fell back to $347,000 in November. They remained above $342,000 for all of 2006, according to Arizona State University Polytechnic.”

“Despite the downturn, buyers are still balking at what remain high prices. In the last few months of the year, only about 100 homes a month have been selling, and there are at least seven times that many on the market in Ahwatukee Foothills.”

“Sales of existing homes in Scottsdale are on track to reach about 5,200 in 2006, down nearly 40 percent from last year’s torrid pace. Sales of existing condominiums and townhouses are on track to hit just over 2,900, down a third from 2005.”

“A Southern California homebuilder plans to breathe new life into five Pinal County subdivisions, which were abandoned months ago by a bankrupt Phoenix developer.”

“Frontier Homes agreed to purchase the housing developments in Casa Grande and Maricopa, totaling 430 home sites, for $29 million during a U.S. Bankruptcy Court auction last week.”

“Some 132 homes are in various stages of construction at the sites, left unfinished by bankrupt Turner-Dunn. Half finished homes and auction signs can hurt the value of homes in the entire area, which has several other new projects by other homebuilders, said John Russell, a Casa Grande real estate agent.”

“People wonder if they want to move into an area like that, he said.And then there are the people who already bought homes in the largely-vacant subdivisions.”

“‘You just feel awful for them,’ Russell said. ‘They have no neighbors, and there are homes in various stages all around them.’”