The Housing Bubble

The Jackson Hole News & Guide reports from Wyoming. “‘Price reduced.’ ‘Must sell.’ These phrases are becoming almost as familiar in real-estate advertising as ‘Location, location, location.’ As sales volume slows - 77 single-family home sales in the first six months of 2008 versus 166 in 2007 - more properties are glutting the market, said, leaving roughly 80 percent more inventory than a year ago. Most sellers, accustomed to full-price offers, won’t sell for less if they’re not desperate, said David Viehman, owner of Jackson Hole Real Estate and Appraisal.”

“‘Locals can’t get over the fact that their property is not worth more than it was last year,’ Viehman said. ‘They won’t come off their price, and consequently they can’t buy their next property.’”

“The way Viehman calculates it, Teton County’s median single-family home price, excluding affordable housing, condos, townhouses and fractional ownerships, was $1.175 million as of July 1, 2007, and $1.2 million as of July 1, 2008, an increase of 2 percent in a year. In a market in which properties appreciated roughly 20 percent per year for many years in a row, a nominal increase can feel like a sharp slide.”

“‘Buyers are now recognizing that it is some sort of a buyer’s market,’ said Lenny Roehrkasse, senior VP of the real-estate department with The Jackson State Bank & Trust. ‘Unlike months and years in the past, there hasn’t been this urgency of ‘I need to make an offer by tomorrow or it might be gone.’”

“Brad Watsabaugh just listed his condo in the News&Guide classifieds as for sale by owner. He’s offering the property for $10,000 less than for what it was appraised. He’s asking $468,000 for the two-bedroom, one-bathroom, 900-square-foot condo.”

“‘I just need to get a quick sale,’ said Watsabaugh, who’s building another house. ‘I know there’s a lot of condos on the market right now.’”

“The old wisdom of not being rude by submitting a low offer is out the window, Viehman said. ‘Make an offer,’ is what we’re telling everybody now,’ Viehman said. ‘The owner is not going to be insulted, he will be excited he got an offer and will most likely counter.’”

The Missoulian from Montana. “Plum Creek Timber Co. announced the latest in a string of shift reductions Thursday, as a sluggish national real estate economy continues to reduce demand for wood products. ‘What happens in the national economy affects our business in Montana,’ said said Hank Ricklefs, VP for the company’s northern resources and manufacturing division. ‘News about the housing market continues to be gloomy, and these market conditions have a direct impact on demand for our wood products.’”

“And it could have been much worse in 2007, without a late-year sale of 100,000 acres in Wisconsin. Land sales, in fact, have propped up company profits in recent years, but now even that sector is struggling, and Plum Creek has recently pulled real estate listings rather than sell at today’s depressed prices.”

“With the exception of a large conservation deal to sell 320,000 acres into public ownership, ‘our land sales in Montana have come to a screeching halt,’ CEO Rick Holley said. After several years of red-hot real estate, he said, ‘we’re selling maybe a couple lots per month. It’s really slow.’”

“Both problems - the downturn in lumber demand and flagging real estate sales - can be traced to the same root cause, Holley said: ‘a flat housing market.’”

“‘This is a tough, tough market,’ said Holley. ‘I’m an optimist, and I can usually see a light in the darkness. But I look down that tunnel today, and it’s just black. I can’t see any light.’”

The Idaho Statesman. “According to the latest Intermountain MLS statistics, the inventory of available homes for sale in the area fell 9 percent in August, to 7,168 from 7,889 the previous month.”

“‘That’s going to be the key to turning this market around,’ said Shaun Tracy, associate realtor with Re/Max Capital City. ‘We have too much supply for the demand that exists. Until we can come into balance, we won’t start building any momentum.’”

“Others, however, continued to insist that the MLS numbers do not accurately reflect the actual number of homes for sale because they don’t include condominiums, townhomes, manufactured housing or trailer homes. When those numbers are factored in, the local inventory numbers swell to 8,468, said Heinrich Wiebe of Wiebe Modern Realty.”

“‘There are different ways to skin a cat, depending on how you want to slant things,’ Wiebe said.”

“According to the MLS, 657 homes sold in the Treasure Valley last month, a 23 percent decline from the comparable period a year ago. Ada County recorded 472 transactions, about 22 percent fewer than a year ago, while Canyon County’s 185 sales were off 11 percent from August 2007.”

The Bonner County Daily Bee from Idaho. “Less than two months after Spokane-based Sullivan Homes Inc. abruptly went out of business, Sullivan Homes Idaho followed suit Wednesday with its own unexpected closure. Sullivan Homes Idaho went a year without selling a custom built or speculative home, according to owner Todd Sullivan.”

“Sullivan said there had been considerable interest in homes throughout the year, with the company submitting bid letters on as many as 28 projects. ‘It’s really just a sign of the economy, but not one of them came through,’ Sullivan said of the prospective clients.”

“The company…currently owns four finished homes and several others in various stages of completion, and Sullivan has not decided how he and his wife, co-owner Lori Sullivan, will proceed with the assets.”

“Due to the nature of the business, Sullivan said his personal assets will most likely be affected by the closure. ‘With a home-builder, you’re so intertwined financially that the loss of a company is a loss of all your personal stuff, too. So financially, we’re going to take a very significant personal setback,’ he said.”

“‘The midsize builders, the family home builders, we’re in dire straits. People just aren’t buying. Imagine going a whole year without selling a newspaper or not selling whatever it is you’re trying to sell. It’s just not possible to do that and stay in business,’ said Sullivan, who estimates as many as 80 percent of all mid-size builders could end up falling victim to the housing crunch.”

The Oregonian. “Legend Homes, which faced a potential death sentence in bankruptcy court, has struck agreements with its lenders to build for another day. On Monday the company will put masons, framers and drywall hangers back to work at four subdivisions in Tigard, Hillsboro and Corvallis. It’s the first time Legend will start a new home since its Chapter 11 filing in June.”

“When his company filed bankruptcy, CEO David Oringdulph blamed ill-timed land purchases in Southern California, Bend and Vancouver. Some lenders pressed for Legend to liquidate to raise as much cash as possible to pay off bank debts. Banks such as Cleveland-based KeyCorp, Legend’s largest lender, are aggressively working to reduce their poor performing real estate loans.”

“‘There were no punches pulled about that with some of these national banks,’ said Clyde Hamstreet, a Portland business consultant who’s advising Legend Homes.”

“Legend may be back to work, but falling land values continue to bite its parent company, Matrix Development. Key Bank has started to foreclosure on a property Matrix Development purchased in Riverside, Calif., as part of a massive Winchester Ranch development. It’s the only Matrix property that’s fallen into foreclosure, President Jim Chapman said.”

“The company is working to reduce its land holdings and Chapman expects to lose more land through foreclosures. At one point, the company had enough land to serve 12 years’ worth of new home construction.”

The Columbian from Washington. “A total of 292 foreclosures were filed in the county last month, down from 315 in July, according to RealtyTrac. Clark County’s August total was up more than 114 percent from the 136 foreclosures filed during the same month last year.”

‘The county’s foreclosures accounted for 9.2 percent of the 3,172 foreclosures filed statewide last month. Washington had the 21st-highest foreclosure rate out of 50 states, reported RealtyTrac. Oregon ranked No. 22.”

“Across Clark County, 2,191 houses entered foreclosure from January through August, nearly three times the total of 763 foreclosures filed during the same period in 2007.”

“Rising foreclosure rates have been fueled by slowing home sales, as potential home buyers wait out the market, expecting prices to drop, said Carol Sundstrom, a Realtor in Vancouver. ‘They (buyers) fear entering the market or think they should wait,’ Sundstrom said. ‘And that’s why the problem continues.’”

“According to RMLS, there were 5,402 new and pre-owned homes for sale in Clark County in July, representing a supply of 12.7 months, if no more homes were added to the market.”

The Leader Post from Canada. “A recent study that suggests Regina’s housing market could be in for a big correction should be in for a big correction itself, according to Regina housing market watchers.”

“Gord Archibald, executive office of the Association of Regina Realtors, said the UBC study provides a ‘misleading’ picture of the local real estate market. ‘If that’s the methodology they’ve used and they’re saying the average price is $347,000, when it’s really $250,000, that’s where the $87,000 (overvaluation) comes from,’ Archibald said. ‘You’d think these (UBC) guys would be a little smarter than that,’ he added.”

“Unfortunately, the UBC study and an earlier report by Merrill Lynch, which claimed the Regina market was overpriced by nearly 50 per cent, ‘creates consternation’ in the minds of some homebuyers.”

“‘This (study) does not mean that prices are going to fall off the edge of the cliff,’ Archibald said. ‘(Buyers) might wait and postpone their buying decision until prices come down $87,000. Well, they’re not going to.’”

The Calgary Herald from Canada. “In talking with Bryan Morrow of Re/Max First and Gary MacLean of Re/Max Central, they both agree that by the end of this year, the average selling price of homes listed on the MLS system could be down as much as 20 per cent city-wide.”

“In real numbers, this is a decline of something like $100,000 from last year’s average high of about $515,000.”

“The predicted decline will be a reaction to the massive number of resale homes on the market, and the fact homebuyers decided to fight escalating prices by not spending the kind of money sellers were asking for. Regarding price, Morrow sent a price graph that pretty much explains what happened to prices through 2005 and up until the mid-point of 2007.”

“‘Prices went up nearly 100 per cent in 2-1/2 years,’ he says. ‘Let’s just say the ‘why’ for the decline can be found in the words, ‘Too far, too fast.’”

“Calculations made by Morrow show that as of the end of August, the average price for single-detached homes had fallen 13.6 per cent. Prices have been falling for 15 months, says MacLean. Sure, there have been a couple of spikes, but the trend is for prices to go down.”

“The problem isn’t sales, but inventory, he says. ‘Sales have been flat but good over that time, but the inventory situation sucks and until the inventory drops, prices will continue to fall.’”

“‘The people who are going to lose are those who have to sell — those who can no longer afford the payments based on 100-per-cent financing,’ says MacLean. ‘Their lifestyles have changed. Maybe they now have a family, maybe someone lost their job. Whatever, they are in a position where they have to sell in a market that sucks.’”

“Another realtor has a suggestion that might just help deal with the large amount of used homes listed for sale. ‘In this market, sellers have to think more like buyers,’ says the realtor, who didn’t want his name used.”

“It’s not just Calgary that has slowed down when it comes to real estate. But like Calgary, the Okanagan has so much going for it: it’s not worrying people, nor is it bound to last, say officials.”

“‘The Okanagan is a special spot and because of that, it will continue to stay in favour,’ says Randy Kowalchuk, a partner in one of the major residential developers in the Okanagan, and president of the Penticton Chamber of Commerce.”

“‘The short story is the market has dried up with Alberta buyers (and some from Vancouver) who are attracted to the soft market in the U.S.,’ says Wayne Tebbutt. ‘Some projects have stopped, others haven’t started, and still others are not going to the next phase right now.’”

“One such project that was shut down completely was the large Skaha Beach Club and Spa in Penticton, the result of the sub-prime crisis in the U.S., says developer Mel Reeves.”

“The right projects are selling, says the vice-president of Sothebys International Realty in Canada, which looks after several projects in the Okanagan, Vancouver Island and the mainland. ‘The irresponsibility has gone out of the market and we are seeing a really strong appetite for property from the sophisticated purchasers,’ says Kyle Dunn.”

The Times Colonist from Canada. “The value of B.C. housing sales plummeted nearly 50 per cent in August compared with the same month last year, highlighting the drastic changes slicing through all segments of the real estate market.”

“‘We’ve seen it now for a number of months — the decline in sales — and demand has certainly come off its record levels last year,’ said Cameron Muir, chief economist for the B.C. Real Estate Association. ‘It does have an impact on all markets in the province, particularly when we see not only a falloff in demand but also a sizable increase in the number of homes for sale.’”

“In Greater Victoria, the number of homes for sale — 4,657 — is at its highest level in a dozen years. Provincially, total listings climbed to 58,445 in August, up by 61 per cent from August 2007.”

“B.C. home sales dipped to 5,175 last August, down 47.4 per cent from the same month in 2007, the report said. And in the capital region, individual sales slid by 37.5 per cent, compared with the same month the previous year.”

“The average price of a single-family house in Greater Victoria has dropped by nearly five year cent from $606,449 in January to $549,914 in August, according to Victoria Real Estate Board figures.”

“‘The average price in Victoria has edged down over the last several months in light of the imbalance between supply and demand in the marketplace. And that situation is occurring in most major markets in the province,’ Muir said.”

The Vancouver Sun from Canada. “New homes sale listings in August suffered their second-largest monthly drop in 25 years on the Multiple Listing Service, the B.C. Real Estate Association said Friday. Residential unit sales followed the same pattern. They were down 47 per cent to 5,175 units last month compared to 9,834 units in August 2007.”

“On a regional basis, the biggest drop was in Greater Vancouver where sales fell from 3,493 units to 1,611 — a 53.9-per-cent decline.”

“In an economic research paper released earlier this week, BMO Capital Markets chief economist Sal Guatieri suggested the decline is not a short-term trend. ‘Canada faces the prospect of lower house prices in the year ahead, similar to many other countries — the U.S., Britain, Ireland, Spain, France, and Australia,’ Guatieri wrote.”

“‘After six years of unsustainable growth, prices have run smack into the affordability wall. Demand is sagging, listings are at record highs and prospective first-time buyers are choosing to rent rather than own,’ he said.”

“Guatieri said the average house price in major Canadian markets rose 78 per cent from early 2002 to late 2007 — ‘more than twice as fast as income.’ He said that a nationwide decline in average prices is being ’skewed by deep sales drops in high-priced regions like Vancouver’ — but said that in spite of the disproportionately large drop here, a national ’softening trend is undeniable.’”