The Housing Bubble

A report from the Arizona Republic. “One of the challenges Mary Hennecke is facing in selling her house in Gilbert is competing against incentives being offered by homebuilders. But, those incentives are also a major reason why she plans to buy a new house in Gilbert after her current one sells. ‘Anything that they can offer is certainly beneficial,’ she said of her next purchase.”

“Hennecke bought her home in the Higley section of Gilbert with her husband in November, and said she benefited from an $85,000 price reduction. She said she’s hoping that margin works in her favor, as she has to sell because of a divorce.”

“The Valley’s real estate market has 20-25 percent more inventory than it needs, said Jo Ann Webley, a real estate agent working in Gilbert.”

“Jay Butler, director of Realty Studies at Arizona State University, said this is a ‘hard market.’ ‘It may be finally settling in with sellers and agents alike that this market is where its going to be, and you better be realistic about that price,’ he said.”

“If sellers need to lower their asking price, they should limit it to one significant cut, Butler said.”

“‘I tend to favor the big move a little bit,’ he said. ‘If you do a lot of little increments, their question is when do you actually stop? There’s no incentive for them to make a move on it.’”

“Last year’s market was bad, said Michelle Krause, a real estate agent in Gilbert. But, sellers are lowering prices and the tide is starting to turn.”

“Anyone looking for a quick rebound in housing prices probably is in for a disappointment, said an economist speaking in Phoenix this week.”

“‘We think real estate prices will move sideways or slightly lower for several years,’ said Thomas Higgins, of Los Angeles investment firm Payden & Rygel.”

“He follows the ratio of median housing prices to median household income. Nationally, the figure is 4.9 times greater, and it’s a bit higher in the Valley, at 5.9. That implies more cooling off ahead so that incomes can catch up a bit to home prices.”

The East Valley Tribune from Arizona. “The Tribune spoke with East Valley developer Michael Pollack, who has been in the development business for more than 30 years, about the state of the Valley’s market. Here’s some of what he shared.”

“Q: How would you characterize the Valley’s current real estate market? A: I think that we have a lot of the real estate market currently, in all sectors, that’s overpriced. As I said back in the year 2004, I thought that we were getting way too much investor activity in the single-family marketplace, and I thought that the loans were way too creative.”

“Q: What kind of impact are we seeing now from that influx of investors? A: Investors in some cases are still holding out hope that the values will go back again to what they were in 2005 in fairly short order, and I don’t see anything that’s going to accomplish that…We need to hit the bottom. And I don’t believe we can hit the bottom until we sort through the subprime mortgages that are out there.”

“‘(People) got in on low teaser rates and now those rates are at a more market rate, and they can’t afford the house that they’ve got. They try to refinance it and it won’t appraise for what they bought it for. And then it gets worse because they put nothing down so they have no equity, So how do they refinance it?’”

In Business Las Vegas from Nevada. “The condo speculation boom appears to be over in Las Vegas. For the first time since the condo boom started in 2003, the number of proposed units in the Las Vegas Valley has declined, according to Applied Analysis.”

“And the report doesn’t include the latest condominium project to fizzle out when the Edge Group announced last week that its W Las Vegas project wouldn’t go forward.”

“‘I would say the development community is responding to current market conditions, and we have seen fewer new proposals,’ Applied Analysis Principal Brian Gordon said. ‘Developer speculation and land price appreciation have subsided. Developers are seeking to move forward with projects that are financially feasible more so than in the past.’”

“Applied Analysis reported that Las Vegas had a total of 4,214 condominium units at the end of the first quarter and another 13,409 were under construction and 9,546 have begun selling units.”

“In addition, there were 56,302 planned for a total of 83,471 units. That is down from a total of 85,809 existing or planned as of the fourth quarter. About 2,491 units were suspended and 11,814 canceled, 12 percent of the total.”

“Local analyst John Restrepo, principal of Restrepo Consulting Group, said he expects only about 10,000 units of the proposed projects that aren’t under construction to go forward over the next five years.”

“‘The market was never as deep as everybody thought it was,’ Restrepo said. ‘The one thing that drives high-rise condo sales, if you look around the country, is water views. The Strip is very exciting to look at at night, and certain segments want to be in high-density entertainment environments. But a lot of buyers of high-rise condo units want to be in more urbanized cities with water views.’”

“In a sign of investors leaving the market, Applied Analysis suggested in its quarterly report that as many as 60 percent of all condo units closed in Las Vegas may enter the market during the next 36 months as resales.”

“At the end of the first quarter, Applied Analysis reported there were 754 luxury units on the market with an average asking price of $803,900 or $622 per square foot. Units that sold during the first quarter averaged $764,500 or $537 a square foot, the firm reported.”

“By the end of the year, broker Bruce Hiatt said he expects an 18-month to 24-month supply of condos.”

The Las Vegas Business Press. “The bulk of the (condominium) market is still speculative, with 56,302 units accounting for 57.6 percent of the valley’s total inventory. Only 13,409 units, or 13.7 percent, were under construction in the first quarter”

“‘The vast majority of units in the pipeline have been sold and their total is exponentially higher than the present market inventory,’ maintained Brian Gordon, principal of Applied Analysis. ‘Land owners and developers are dealing with conservative reactions by the investment community and potential buyers, in response to recent reports that a supply-demand imbalance is inevitable.’”

“Unemployment was up slightly in Nevada in April according to a report released Friday. The report singles out the residential housing market’s continuing slump as the cause of rising unemployment. A decrease in home building has meant more unemployed construction workers.”

“‘While the construction industry makes up 11 percent of Nevada’s workforce, it accounts for 25 percent of unemployment claims filed through DETR,’ Department of Employment, Training & Rehabilitation Director Terry Johnson said. ‘There is clearly a disproportionate number of workers in the construction sector becoming unemployed. It seems that the housing slump is signaling less of a need for workers in this industry.’”

The Review Journal. “A moribund housing market is enlivening unemployment offices across Nevada. Jim Shabi, an economist with the agency, said the state’s building sector lost 2,600 jobs, year over year in April.”

“Builders closed on 1,771 new homes in Las Vegas in March, down 50.9 percent from the 3,606 units they sold in March 2006, according to real estate research firm SalesTraq.”

“Southern Nevada’s housing slump and the scarcity of industrial land has forced Las Vegas’ eighth-largest manufacturer, Merillat Industries, to close its cabinet plant, costing 330 workers their jobs.”

“The closing was caused by the slowdown in new home construction and better prospects at a new plant in New Mexico, said Larry Wilson, director of marketing.”

“Sales of new homes were down 44 percent in April compared to April 2006, according to the Southern Nevada Home Builders Association.”

“‘Everyone in the industry is hurting - everyone,’ said Monica Caruso, spokeswoman for the Home Builders Association. ‘There are layoffs and tremendous cuts in revenue. This is a very tough time in the homebuilding industry, and it’s going to trickle down to other segments.’”

The Gazette Journal from Nevada. “The foreclosure rate in Washoe County remained dramatically higher from a year ago, according to a report released this week.”

“In Washoe County, 277 homes entered some stage of foreclosure in April, according to RealtyTrac. That’s up from just 41 in April 2006, according to the report.”

“Washoe’s rate is better than the average in Nevada, which boasted the highest foreclosure rate in the nation for the fourth consecutive month. Las Vegas had the fifth-highest rate of all metropolitan areas in the country.”

“Washoe’s western neighbors in California, Stockton, Vallejo-Fairfield, Modesto, Sacramento and Merced, joined Vegas in the Top 10 highest rates.”