The Housing Bubble

The Winchester Star reports from Virginia. “Residential permits in Frederick County fell by 30 percent, from 1,975 in FY 2006 to 1,379 in FY 2007, according to county data. In Clarke, the residential drop was more severe, with permits plunging 58 percent, from 125 to 52. The reason for the numbers is fairly simple. ‘That’s just the national trend being reflected here locally,’ said Clarke County Planning Administrator Charles Johnston.”

“‘There are a lot of factors involved, the most important one being that the market for new housing is stagnant,’ said Ellen Murphy, Frederick County commissioner of the revenue.”

“‘People are finding it hard to sell the homes they have and they’re experiencing financial trouble,’ she said. ‘We’re seeing a record number of foreclosures and repossessions and that has thrown a scare into the market. People are now looking at trying to buy some of these homes for a bargain price, so there’s not a big market for new homes.’”

The Herald Mail from Maryland. “The home construction industry in Washington County has pretty much fallen through the floor over the past two years. From January to September 2005, permits were issued to build 1,163 homes, according to figures from the Hagerstown and Washington County building permits offices.”

“In the same period this year, the figures show, builders got permits for just 360 houses. That’s a 70 percent drop.”

“‘Three years ago was good, and two years ago it went to hell. And this year, further hell,’ said Carl Gallahan, manager of Sellmore Industries’ building materials distribution business in Hagerstown. ‘And not little changes, either. This year, it fell off the cliff,’ Gallahan said.”

“Many people who have borrowed against the value of their homes are seeing it drop. And among those still looking to buy is worry that the price they pay today won’t hold up tomorrow.”

“‘There’s no buyer confidence out there. It’s very low,’ said Dennis Swope, VP of Home Construction Corp. of Hagerstown.”

“‘Used to be, you’d put an existing house up for sale and it would go, and it was selling for more than it was listed, and this was just two or three years ago,’ Swope said. ‘And customers for new homes weren’t asking for discounts. Today, they’re asking for discounts.’”

“For Hagerstown Block Co. ‘has been a little bit slow,’ Plant Manager Bret Sprecher said. ‘We’re down some. We’re kind of thinking this year’s going to be worse.’”

“The negative effect ‘trickles right down. It’s like you have a lot of homebuilders out there used to do 150 homes. Now they’re doing like maybe 20, maybe 30. They employ a lot of electricians, framers, plumbers,’ who now have had to find home-improvement jobs,’ Gallahan said. Some local contractors, whom he declined to name, have been forced out of business.”

“He said he worries about builders who have money tied up in houses they built on speculation as models or as inventory. ‘That’s a lot of money sitting there that a lot of builders aren’t closing on,’ Gallahan said.”

“Another problem for homegrown contractors arose a few years ago when national builders, following the market out to the suburbs, came here with city-sized budgets.”

“‘We had a kick in the pocket two years ago when land prices went crazy,’ Swope said. ‘Lots that were selling for $40,000 to $50,000 all of a sudden went to $90,000 or $100,000. Mostly that was caused by the large builders coming to town and paying astronomical prices. And now that things have slowed down, it has caused a correction in the market.’”

“But landowners have been reluctant to accept lower prices. So, local builders said, they have been largely shut out of the local market for large properties for housing developments. ‘Today, I cannot afford to go out and buy tracts of land. You have to have deep pockets to do that,’ said Swope, who has been with Home Construction since 1969.”

“Worsening the situation, builders said, is that the large developers who have been coming here are reacting to the national economic slowdown by offering deep discounts on some houses.”

“This adds to consumers’ uncertainty over value throughout the county, said Tim Fields, president of the Homebuilders Association of Washington County. ‘When there’s a full-page ad offering $40,000 worth of discounts if you buy this weekend, that certainly introduces doubt.’”

“Swope said the situation would not improve ‘until the buyer realizes prices have stabilized and aren’t going to go lower.’”

The Record from New Jersey. “Where are the buyers? Many are holding back, hoping to get a better deal if, as some economists predict, home prices continue to slide in 2008.”

“‘An atmosphere has been created that says, ‘Wait and see, maybe you’ll get a better deal next spring,’ said broker Honor Noreen Kremer in Leonia. ‘I don’t have one customer at this point ready to put an offer in on anything. I’m not sure, even if I found them the right thing, if they’re ready to make an offer.’”

“‘People are really taking their time looking – because they can,’ said Diane Stroud, an agent in Allendale.”

“‘Everybody wants a steal,’ said Nafi Sela, a real estate agent in Wayne. ‘If something is listed at $300,000, they want it for $200,000.’”

“Jeana Cowie of Re/Max in Oradell calls them ‘extreme deal seekers. They’re making incredibly low offers — 40 percent off market value — to see if they can get a steal,’ she said. “If the offer is not accepted, they typically do not increase their offer. They just go on to the next home.’”

“Yildiray Yildirim, a professor of real estate at Syracuse University, said buyer psychology is affected by the stream of negative news about housing.”

“‘Buyers are waiting for a better deal. As a buyer, that’s exactly what I would do,’ he said.”

“In fact, that is what he is doing. He moved to Syracuse from Ithaca, and has been looking for a house for about two years. He has made low offers, but so far, the sellers have turned up their noses at him. He thinks that may change as the months go on and sellers continue paying mortgages and taxes on houses they want to unload.”

“‘It’s the best buying opportunity we’ve seen in a long time,’ said real estate agent Eileen Meehan in Saddle River. ‘Right now, real estate is on sale.’”

“Rhonda Brown, a would-be buyer who lives in Bergen County, said prices haven’t fallen enough to make North Jersey affordable to middle-income workers. She has been looking for a town house for less than $300,000, but has not had much luck.”

“‘If it was so much of a buyer’s market, I would have bought a long time ago,’ said Brown. She plans to keep looking, save more money for a down payment and hope that prices will decline in 2008.”

“‘Those are the only three things I can do,’ she said.”