The Housing Bubble

A report from the Arizona Daily Star. “Home builders are working to roll back or delay some Tucson-area impact fees to help the new-home industry weather its slump. The Southern Arizona Home Builders Association has been asking local governments to allow builders to postpone paying impact fees until after houses are sold rather than when construction permits are issued.”

“Home builders have been offering deep discounts and other incentives in recent months to help stimulate buying in a slow market. Lowering fees could help further, said John Strobeck, a local housing market analyst. ‘Anything that can reduce pricing will help the current situation,’ he said.”

The East Valley Tribune from Arizona. “Two East Valley real estate investment firms have joined up to buy more than 6,800 acres of land in Casa Grande from national homebuilder D.R. Horton for $70 million, a deal that could bring 23,000 homes to the community.”

“‘It’ll be larger than the city of Casa Grande itself,’ said Tim Wolff, co-president of The Wolff Co.”

“The sale is the latest in a flurry of recent land deals across the Valley, as publicly-traded builders rush to rid themselves of excess properties. ‘All the big builders are selling,’ said John Fioramonti, senior managing director for Meyers Builder Advisors in Scottsdale.”

“Privately held companies, both builders and real estate investment operations, are swooping in and buying up land at discounts, he said. ‘They’re coming in and taking advantage of the crunch that the national builders are in,’ Fioramonti said.”

The Arizona Republic. “There is not much to give thanks for in Scottsdale’s resale housing market, except for buyers. Home sales were down a third in October from a year ago and condominium transactions fell 16 percent…according to the Arizona State University’s Realty Studies Department.”

“Valleywide, the median resale home price fell from $257,000 last October to $242,000 last month. It was the lowest monthly median home price since May 2005 when it was $235,000, said Jay Butler, Realty Studies director.”

“‘The most evident impact of lower prices is improved affordability,’ Butler said.” “Foreclosures and sales incentives by homebuilders are factors in the declining sales of existing homes, he added.”

“The Ahwatukee housing market continued its slide in October, as the number and price of existing homes sold showed a decline compared with October 2006. The village recorded the sale of 70 existing homes compared with 85. The median price fell to $332,345 from $357,000.”

“In Gilbert the resale home numbers fell to 230 in October from 270 for the same month a year ago. The median price fell to $275,000 from $328,000. In Tempe, the number of resold homes fell to 85 in October from 90 in October 2006 and the median price fell to $261,200 from $296,500.”

“‘The take-home message right now is really he who has the financing gets the home,’ said Butler. ‘In order to reduce inventory and other things, these new developments in areas that aren’t doing very well are offering deals, so your best deal is probably the new home market not the resale market.’”

“New home developers have gotten increasingly creative with incentives, offering everything from free pools and upgrades to gift cards or a free Lexus.”

“Some 3,610 sales were recorded in October, up from 3,050 the month prior but still far below last year’s 4,985 sales, a report by ASU’s Realty Studies department shows. Last month brought year-to-date total sales to 44,410; a 23 percent drop from the same period last year and 54 percent decline from 2005.”

“Sellers are continuing to compete against new home builders, who can offer large incentives, and discounted foreclosure properties. Tighter lending standards are also still making it difficult for some potential buyers to get financing, especially in the move-up market, Butler said.”

“The biggest unknown is what the economic condition of the country will be in the coming months, he said. Talk of a possible recession continues, and gas prices are on the rise. ‘People aren’t certain about what they want to do,’ he said.”

“‘I think buyers have been waiting for good news,’ said Scottsdale real estate agent Carol Dillon. ‘I think everybody’s waiting to say we’ve hit the bottom of the market.’”

“The challenge in today’s market is not buying a home but selling your current home, Dillon said.”

“The labored housing industry is taking a toll on the Valley’s apartment rental market, which faces heavy competition from unsuccessful home sellers who are renting out properties. Valleywide, the rental vacancy rate was 10.3 percent in the third quarter, up from 7.7 percent a year ago, according to a new report by Pete TeKampe , an apartment investment broker.”

“One factor contributing to the increased vacancy is the number of single-family homes now up for rent because homeowners couldn’t sell them. There are ‘more rental homes than we’ve ever seen in this market,’ he said.”

“In one northeast Mesa neighborhood, at least six homes have been converted to rentals in the past two months, said real estate analyst Bob Kammrath, who lives in the area. ‘It’s just a sign of the times,’ Kammrath said.”

“People can’t sell their homes but still have mortgages to pay, so they rent them out, he said. Experts say failed condominium conversion projects that reverted to apartments have also contributed to the growing rental supply.”

“The manufactured-housing industry is suffering its lowest sales in at least 40 years. Loans are hard to get. Would-be buyers can’t sell their existing homes, manufactured or otherwise. Parks have been closing in Arizona at an accelerated rate because the land is more valuable for other uses.”

“Victoria Vargas, co-owner of Mingus Shadow Mobile Home Sales in Clarkdale, said, ‘This year we just sold one. Everywhere it is slow. People don’t come. I don’t know why.’”

The Havasu News from Arizona. “A total of 70 new and resale homes were sold last month in Lake Havasu City, down 23 percent from a year ago when there were 91 recorded sales. ‘We’re still in a buyer’s market,’ said Paula Singleton of the Lake Havasu Association of Realtors.”

“Lake Havasu City appears to have a more inflated inventory than neighboring cities. There were 1,731 homes on the local market at the end of October, according to the Lake Havasu Association of Realtors. As of Monday, there were 658 single-family homes for sale in Bullhead City and 913 in Kingman, according to the MLS.”

“Inventories are ’starting to dwindle, but there’s still an oversupply. The market in general is stable, but there are problems,’ Sam Wercinski, commissioner of the Arizona Department of Real Estate said.”

The Pahrump Valley Times from Nevada. “The women reading off the trustee sales weren’t hard to find. They were standing under the flagpole in front of the Nye County Courthouse promptly at 11 a.m. After this action, their property is either sold to a high bidder or it reverts back to a beneficiary, a finance company.”

“Mostly they’re talking to themselves, no one usually shows up to buy them.”

“Business is picking up lately for Penny Strickland. ‘The majority of them have been daily within the last two years,’ Strickland said. ‘I posted nine (sales) last week and I’m not the only one.’ She estimated 90 percent of the properties being auctioned are from Pahrump, 165 miles south.”

From Reuters on Nevada. “Las Vegas realtor Devin Reiss said agents in his market no longer expect business to fall into their laps as it did during the recent boom. ‘At that point it was absolutely crazy,’ Reiss said, noting it was not unusual to receive up to 15 telephone calls on properties the same day he listed them for sale. ‘Properties were just flying off the shelf.’”

“Investors who gambled hot growth and relatively inexpensive home prices would fuel ever-stronger demand now must contend with a glut of homes pulling prices down. Local realtors are working to convince sellers the market has turned decisively in favor of buyers, said Reiss, president of the Greater Las Vegas Association of Realtors.”

“Yet many sellers have not accepted the shift and are holding out for top dollar even if they must leave properties vacant — a vestige of the boom mentality. ‘I’ve seen a lot of properties sitting out there for a year,’ Reiss said.”

The Review Journal from Nevada. “As the local housing market took off in 2004 and 2005, new construction led the way, with freshly built single-family homes surging toward a median price of $350,000. Local real estate research companies could find virtually no new single-family construction below $200,000 by 2005, said Dennis Smith, president of Home Builders Research.”

“Now, 25 new-home subdivisions in Southern Nevada are selling single-family houses with starting prices below $200,000, according to an analysis of reports.”

“That’s as little as $110 per square foot in some communities. Compare that cost to expenses at the market’s apex in 2004 and 2005, when roughly $185 per square foot would have been the least-expensive price in the Las Vegas market, Smith said.”

“‘Builders are recognizing that buyers are struggling with the price points in the marketplace, and they’re struggling with lending requirements,’ said Ken Perlman, VP of Sullivan Group Real Estate Advisors. ‘This is an attempt by builders to create product that’s a little more attainable.’”

In Business Las Vegas. “In a deal believed to have been driven by a developer’s cash crunch, Station Casinos has acquired nearly 45 acres in Henderson’s Inspirada development…being developed by Focus Property Group. Several local builders said Focus has been hurt by the residential real estate slump, particularly by homebuilders who’ve walked away from deals to buy land from Focus.”

“Wayne Krygier, Amland Development president, said financial problems are common for any builder and developer these days. When home sales are down more than 40 percent, adjustments must be made, he said.”

“Speaking about another troubled developer, Lake Las Vegas, Krygier said that some builders just can’t afford to pour money into land when their existing homes aren’t selling. ‘Focus Property Group has the same situation with builders who had options and walked away from them,’ Krygier noted.”

“The developer of Lake Las Vegas in Henderson is in default on a $560 million loan and has until the end of the year to find buyers for its remaining undeveloped land or the development could face foreclosure, a Lake Las Vegas official said.”

“The latest financial woes center on buyers of the third phase of Lake Las Vegas dropping their plans to acquire land as expected, Cox said. Lake Las Vegas, although it took sizable deposits, was counting on $100 million in option payments from builders that fell through, said David Cox, the chief financial officer of Lake Las Vegas.”

“‘We had some option payments that came due, and they were not met,’ Cox said. ‘Those guys are doing their best to find funding sources, but they are in turmoil right now. Sales have dried up (in the industry).’”

“‘We are pursuing and continue to pursue large sales,’ Cox added. ‘They are just not U.S. buyers. That is dead as we see it. We are trying with Korean buyers. They have a different perspective. They see it as a discount.’”

“‘It is beautiful property. It is not going to become a trailer park,’ Krygier said. ‘It is a luxury property, and people are going to buy it for sure.’”

“Dennis Smith, the president of HomeBuilders Research, said land at Lake Las Vegas will sell but it has to be priced right. Land in Lake Las Vegas, depending on its location, has sold for more than $1 million an acre to as much as $3.5 million an acre, Krukowski said.”

“‘No one is selling land right now,’ Smith said. ‘If you are going to sell land, it is going to be discounted. Just ask the BLM (Bureau of Land Management). That is how it works. It is called supply and demand. No builders are buying land because they have got enough land in inventory to handle current absorption.’”

“When completed, Lake Las Vegas will have about 9,000 homes.”

“The Bureau of Land Management’s decision to consider abandoning its practice of not selling land for less than appraised value has sparked a lot of interest in the homebuilding and development community. It already has prompted speculation on what impact it will have on the land market and whether it would reduce prices of homes.”

“For now, the BLM is researching whether it has the authority to allow bidding to start below appraised value. The appraised value would be the reserve price, meaning that at the April auction it would simply be an exercise of how far below the appraised value the bidding will start.”

“The BLM would use that information to decide if it wants to change its policy that was developed out of congressional legislation in 1998 that required the BLM to sell land at fair market value. There was only one parcel sold at a BLM auction earlier this month.”

“Monica Caurso, spokeswoman of the Southern Nevada Home Builders Association, said changes in the auctioning process, however, would be welcome. ‘They are not auctioning land for its fair-market value,’ Caruso said. ‘They are auctioning land based on its historical information. It is not a viable form of auctioning.’”

“One unnamed homebuilder executive blames the BLM more for its practice of limiting the supply of land for the unintended consequence of raising the price of land. He said that if the BLM would have made more land available in the past, it would have helped accommodate growth and kept home prices down.”

“He said the BLM should be releasing more land in addition to allowing buyers to set the market price. ‘What holds down prices is more supply,’ the executive said.”