The Housing Bubble

Newsday reports from New York. “Sales at Pulte Homes’ nine developments on Long Island are brisk, but the national builder’s local office has shifted its focus from land acquisition and approvals to reaping the proceeds of the projects that are ready to build, consultant Don Eversoll said yesterday.”

“Pulte is not alone. Across the Island, residential developers said, land prices are artificially high. and most are waiting for them to drop. ‘Land prices have been way above what the market should be for the last two years at least,’ said long-time developer Ronald Parr. ‘Up until this point, builders could get away with anything and everything. Now, things are much tighter.’”

“But Parr is convinced it will take ‘another year, maybe more’ for landowners to adjust their expectations. ‘This is not the time for a developer to be out there buying,’ Parr said.”

“The rental market is so ‘vastly undersupplied,’ said AvalonBay VP Matthew Whalen, that inflated land prices have merely led to ‘less bidding wars for sites and some of the competition [for sites] slowing down,’ he said.”

“Parr said more than half of Long Island’s residential developers might have trouble remaining profitable as the market continues to adjust.”

“John Giamarino no longer believes in incentives, at least not when it comes to selling his West Gilgo Beach summer house. His offer to make a year’s worth of mortgage payments for the buyer fell on deaf ears last year, even after he was featured in a Newsday story on incentives being offered in the slowing housing market.”

“After taking the four-bedroom property off the market in November, he put it up for sale again last month with a lower price tag, from $645,000 to $599,000, but no incentive.”

“‘If anything’s going to motivate, it’s going to be price,’ said Giamarino of Seaford.”

“The businessman said he got lots of attention about his house, mostly from locals commiserating with him because they can’t sell their homes either.”

The Boston Globe from Massachusetts. “Housing prices north of Boston continue to head south. The slide started a year ago, when Bay State house sales and prices cooled after peaking in 2005. The spring market didn’t produce a thaw this year, with house sales and prices rapidly declining across Essex County for the first five months of this year, according to the Warren Group.”

“‘The numbers don’t lie,’ said Terry Egan, editor in chief of the Warren Group’s real estate publications. ‘The Massachusetts real estate market as a whole is slumping.’”

“A glut of houses for sale, longer selling times, and rising interest rates have combined to put downward pressure on the market. In the January-May period, the median price plunged 32 percent compared with the same period last year in West Newbury, to $448,500, and fell 25.5 percent in Essex, to $384,275, the Warren Group reported.”

“The old shipbuilder’s house hit the market in November with a $719,000 price tag. Todd and Kristen Walker could not even think of bidding, even when the price dropped to $679,000.”

“But in a soft housing market, they had buyer’s clout. After negotiating with the sellers, the Walkers bought the house for $630,000 in March.”

“‘I think we got a deal,’ said Kristen,. ‘We wanted to be in a top school district. We figure it is worth it for us to be house-poor.’”

“‘It’s a challenging time,’ said Kim Sandler, president of the North Shore Association of Realtors. ‘We’ve had a lot inventory, and some of that old inventory is moving…but a lot of that is due to price reductions.’”

“‘The prices couldn’t continue as they had,’ said Pam Cote, an agent in Beverly. ‘They were going up, up, up for so long, things had to start to come down. We’re seeing that now.’”

The Republican from Massachusetts. “The decline in single-family home sales in the Pioneer Valley last month was sharper than the drop in sales statewide.”

“Two groups both showed sales dropping more steeply in Franklin and Hampshire counties than statewide. Terence F. Egan, for The Warren Group, said the steeper decline in the region ‘almost leads me to wonder whether the market correction, the downturn, is just a step behind in Western Massachusetts.’”

“He said, ‘We saw these kinds of numbers for a lot of the eastern Massachusetts regions throughout 2006.’”

“In Franklin County, sales dropped 20.3 percent to 51 homes sold in the month; in Hampshire County, sales dropped 12.8 percent to 116 homes sold, and in Berkshire County, home sales dropped 20.5 percent in May, to 124 homes sold.”

“‘It would almost seem that the correction has radiated outward from the hub, and Western Massachusetts wasn’t immune from the downturn,’ Egan said. ‘It just hit home a little bit later.’”

“If you’re about to do that last-minute scramble to find a house to rent this summer on Cape Cod, there’s no rush.”

“With home sales in decline, owners of Cape Cod vacation properties are more anxious than ever to rent them for income to cover big mortgage payments or home equity loans. There is so much availability that rental agents and homeowners are jockeying to attract latecomers looking for rentals in July and even into August, the most popular month for vacationers.”

“‘There are too many homes on the rental market,’ said Mary Fritz, a rental agent in Orleans. ‘You can get a deal. People are negotiating.’”

“Even now a three-bedroom in Eastham, minutes from Nauset Light Beach, is unrented for five weeks in July and August, at $1,400 a week, the same price as last year.”

“Property owners are wrestling with several phenomena these days. Investors who snatched up vacation homes at record prices during the recent housing boom are now finding their properties are worth less, making it impossible to sell for a profit. That’s left many owners desperate to rent to meet the mortgage.”

The Philadelphia Inquirer from Pennsylvania. “In the past, both the Philadelphia and South Jersey areas have seen strong housing appreciation, house prices climbed 70 to 80 percent over the last five years.”

“This has been a boon to subprime homeowners who fell behind on their loans because they were able to tap into this increased home equity to refinance their loans or sell their homes at a profit. But double-digit house price growth is a thing of the past, and foreclosures in these markets are climbing.”

“We expect almost 17 percent of Philadelphia area borrowers with recent subprime loans to lose their homes through foreclosure. We expect similar results in the Camden area (which includes Burlington, Camden and Gloucester Counties), where yearly housing appreciation has dropped from 16 percent to 6 percent.”

The Record from New Jersey. “As of a week ago, Remi Cos. planned to put 40 of the 128 units on the auction block Sunday to see what the market would bear. However, by the time proceedings began in a Jersey City hotel ballroom, the list had been cut to 16, and without notice, it was cut to nine after about a half-hour of spirited bidding.”

“The apartments that were sold brought in $3.6 million, about two-thirds of what developers said was their last asking price, but a third higher than minimum prices they had set.”

“Some viewed the sudden end to proceedings as a sign that the condo market is hurting. ‘It’s bad P.R.,’ said Sean Munroe of Ridgewood, who predicted that Sunday’s results would push prices down. ‘There’s a glut of condos here.’”

The Times from New Jersey. “Perhaps no one illustrates the meteoric rise and stunning fall of the real estate market better than Zuhdi Karagjozi.”

“In just a few short years, Karagjozi built his company, Kara Homes, up to be one of the state’s largest home builders. At the height of the housing boom, Karagjozi predicted Kara Homes would hit $1billion in revenue by 2006.”

“Instead, 2006 marked the year the housing market fell into decline, taking Kara’s fortunes along with it. The company, which filed for Chapter 11 bankruptcy protection last fall and left dozens of homeowners in limbo, now plans to emerge without its founder, and without the Kara name.”

“And unsecured creditors, including contractors, vendors and some homeowners, will be reimbursed pennies for every dollar owed.”

“The proposal needs the approval of creditors and the bankruptcy court judge. But Kara lawyer David Bruck said if all goes well, the plan could be confirmed by August, meaning Kara would emerge from Chapter 11 within a year of its filing.”

“Bruck said the plan reflected the harsh realities of the housing market, which has been in a steep downturn for more than a year. Even larger, more diversified public home builders have not been immune. PRed Bank- based Hovnanian Enterprises, the sixth-largest U.S. home builder, said earlier this week it did not expect a recovery even next year.”

“‘The reality is, the market fell away,’ Bruck said. ‘This is the best we can do.’”