The Housing Bubble

The Daily News reports from Texas. “Karen Smith and husband Gerald Cleveland had no ambitions to become landlords. But their custom-built West End home has been on the market for more than a year. Even a $100,000 price cut didn’t budge it. And the longer it sat, the warmer they got to the idea of tenants. This week, they hammered a second sign into their yard, this one heralding the home’s debut in the rental market.”

“Since January, developers have either built, begun or announced plans to build more than 4,200 condominium units on the island, according to the Galveston Economic Development Partnership. Meanwhile, developers are planning hundreds more rooftops on the West End.”

“Smith and Cleveland are asking $595,000 for the three-bedroom, 2.5-bath resort home. They’re willing to rent it for $2,700 a month until the housing market rebounds.”

“Smith and Cleveland say too much competition pushed them reluctantly down the path to landlordship. ‘With all these condos springing up on the island, homes seem to be going much slower,’ Smith said. ‘Why do developers keep building?’”

“In August, the island had an 18.6-month supply on the market, according to the most recent statistics available from the center.”

“The Galveston MLS offered 1,764 homes for sale in August, up 176 percent from a year ago. Not all homes for sale are listed on the service.”

The Express News. “What can you do for me? It’s the first question potential home buyers are asking these days when they walk into a builder’s model home, and with good reason.”

“With a few thousand ready-for-move-in homes awaiting owners, San Antonio’s new-home market has shifted in favor of buyers for the first time in at least five years. Some builders are offering upgrades, discounts off the price of a home, money toward a down payment or no-cost move-in deals.”

“San Antonio has about 3,000 completed new homes, according to Metrostudy, a housing research firm. ‘That’s higher than a year ago,’ said Keith Fahey, vice president of marketing for Centex Homes in San Antonio. ‘Last year at this time, we had about 1,900 homes. It’s got us above the equilibrium.’”

“Translation: Homes are on sale. ‘Now is the time,” said David Marne, owner of the Half Priced Real Estate Co. ‘You can pick up some gems right now. There are homes selling at last year’s prices.’”

“Builders are much more flexible than they were a year ago. Centex, for instance, is offering buyers a set amount of money, depending on the home’s price, that they can use for upgrades, for buying down their mortgage interest rate or for a down payment.”

“‘A lot of people are using it toward their down payment,’ Fahey said. ‘People can afford the monthly payment. It’s the down payment that is a problem.’”

“But home buyers shouldn’t get too caught up in the incentives, said Jane Caskey, manager at the Coldwell Banker D’Ann Harper Realtors office in Alamo Ranch. ‘The builders are setting the discount, but they’re also setting the starting price,’ Caskey said. ‘Is it really a discount?’”

“Often, it is. But it makes sense to stop and ask questions about how the builder arrived at both the price and the discount. On a spec home, for instance, the builder may have finished the home several months ago and had a deal with another buyer fall apart. The house has been sitting empty ever since.”

“‘There’s a difference between what it cost them to build it six months ago and today,’ Marne said. In those six months, the price of homes in the neighborhood has been climbing every month.”

“Making an offer that is lower than today’s prices but higher than prices six months ago often results in a good deal for the buyer (and for the builder who finally can get that house off his books). ‘It’s still more than they were going to get for the house six months ago,’ Marne said. ‘Everything is negotiable.’”

“The biggest problem in San Antonio real estate was an invasion of out-of-town investors in 2005 and 2006, most of whom have since left the market. Those investor-buyers helped fuel a run-up in building, then backed out of contracts when it was clear San Antonio wasn’t the kind of market where double-digit returns can be had.”

“The result was those 3,000 inventory homes on which buyers now can get a good deal. ‘We have job growth, but we overbuilt,’ said Jack Inselmann, of Metrostudy.”

The Dallas Morning News. “Home starts fell almost 30 percent in the Dallas-Fort Worth area during the third quarter. Sales of new housing fell to 10,000 units during the third quarter in Dallas-Fort Worth. Homes priced under $200,000 are seeing the biggest decline.”

“And sales of new houses were off 20 percent from the same period of 2006, according to Metrostudy Inc. The drop in new home sales was in line with the 19 percent dip in pre-owned homes reported earlier.”

“Builders started 8,855 houses in the just-completed quarter. That’s down from more than 12,000 starts in the same period of 2006. At the same time, sales fell to 10,000 units, a decline from 12,520 new home purchases a year earlier.”

“Through the first nine months of the year, new home sales in Dallas-Fort Worth are off 14 percent, according to Metrostudy. Most of the drop in sales has been in houses priced under $200,000, buyers most likely to be affected by recent toughening in home loan underwriting standards.”

“‘The reason the closings have been off so much is because of the mortgage problems,’ said David Brown, director of Metrostudy’s Dallas office.”

“Builders have managed to trim the inventory of homes available for purchase by almost 4,500 units so far this year. ‘It’s going to take awhile longer,’ Mr. Brown said. ‘We still have 24,500 new homes in inventory,’ both completed and under construction. ‘That needs to get down under 20,000.’”

“Although builders have cut back on the number of speculative houses they build, many homebuyers back out of the purchase before the house is finished. ‘We are continuing to hear of elevated cancellation rates,’ he said.”

“‘Sometimes they don’t know whether they have a spec house or not until they get to the closing table,’ Mr. Brown said.”

“North Texas home sales plunged in September. The 19 percent drop in sales of pre-owned homes was the largest annual decline in more than seven years.”

“Local real estate agents sold only 6,031 pre-owned homes last month, according to statistics released Monday by the North Texas Real Estate Information System. That’s a big falloff from August’s 8,480 sales and the lowest monthly total since February.”

“‘The tightened mortgage market has forced some buyers, especially first-time or easy credit-dependent buyers, out of the market,’ said Jim Gaines, an economist with Texas A&M University’s Real Estate Center. Dr. Gaines said this change ‘reflects a reversion to market norms rather than the sky falling.’”

“Real estate agent Bob Edmonson said some ‘buyers have been scared off, thinking that either they won’t be able to qualify or home prices may go lower. I wonder just how many people are incapable of obtaining a mortgage now vs. how many think they can’t get a mortgage,’ he said.”

“At the end of September, almost 49,000 pre-owned single-family homes were for sale in North Texas, an increase of about 4 percent from a year earlier. That works out to about a 6.5-month supply.”

“The outlook for October sales isn’t promising. At the start of the month, the number of pending home sales in the pipeline was down 17 percent.”