August 6, 2014

Investors Are Selling Like Crazy

A report from the Colorado Springs Gazette. “The pace of homebuilding tumbled last month in the Colorado Springs area, continuing this year’s downward trend in residential construction, according to the Pikes Peak Regional Building Department. Permit totals have declined in all but one month in 2014 on a year-over-year basis. The pent-up demand among homebuyers after the recession, which helped drive last year’s homebuilding surge, has dissipated somewhat, said CreekStone Homes owner Rhonda McDonald.”

“Likewise, permit numbers might be down because builders are constructing fewer speculative homes - those without committed buyers. ‘I’m not worried that, as a builder, I won’t have any houses to build,’ McDonald said. ‘I wish our market was the Denver market, but it isn’t. It is what it is, and we respond accordingly.’”

The Denver Post in Colorado. “Metro Denver’s constricted housing market, which has squeezed buyers since early 2013, has begun to wrap its coils more tightly around renters. Higher home prices and quicker sales times have resulted in a larger number of landlords cashing out, leaving fewer homes for lease and pushing up rents. Real Property Management Colorado started the year with about 1,600 homes in its portfolio and is now down to 1,300, co-owner Jeff Bacheller said.”

“‘Investors are selling like crazy,’ he said. Many of those selling are ‘accidental landlords,’ homeowners trapped by the housing downturn who decided to rent rather than sell at a loss.”

The Santa Fe New Mexican. “Today marks the end for Questa’s molybdenum mine that has employed about 300 people. The future is less certain for Questa, a town of about 1,700 people that has been entwined with the mining industry since 1916. For New Mexico, the only state in the region that has not recovered from the national recession, what is happening in Questa is part of a long slide. In June, the same month the Questa mine closure was announced, New Mexico lost 4,700 jobs, the U.S. Bureau of Labor Statistics reported.”

“Jacob Montoya, 38, had just refinanced his house, from a 30-year to a 20-year mortgage, thinking he could handle the higher payments. He said Chevron had assured workers that the mine would last for generations. ‘Our kids’ kids were going to be there, they told us,’ Montoya said.”

KLAS-TV in Nevada. “Some people living in the northwest part of the Las Vegas valley are fed up with the recurring flooding in their neighborhoods. Many are concerned about the new housing construction near flooded areas. Homeowners along Grand Teton say another frustration is not having a way in or out of their housing complex once it floods. ‘There’s only one road into the complex, where was that builder’s head?’ said Jeanette Shoemaker.”

‘Shoemaker’s son’s house is currently up for sale, along with other homes around the Grand Teton area. What is shocking to Shoemaker is how many homes are still being built in areas that are prone to flooding. ‘Several thousand more homes further northwest of us, have they planned for the flooding? I feel bad for people attempting to buy a home there and the next monsoon it will be flooded again,’ Shoemaker said.”

The East Valley Tribune in Arizona. “Rick Metcalf, founder of CANAM Realty Group, specializes in selling local real estate to Canadian buyers. He said when the market here crashed, Canadians came out of the woodwork — not just vacation buyers but investors as well. He estimates that 90 percent of Canadian owners he manages property for are investors. ‘I guess we should be thankful to them for keeping the market going,’ said Michael Orr of the W.P. Carey School of Business at Arizona State University.”

“The rate of Canadian homebuyers in Maricopa County fell from a whopping 6 percent of houses purchased in the county in April 2011 to 1.5 percent in May 2014. ‘They’re pretty price-sensitive,’ said Orr. ‘What they are looking for is not necessarily the same as what local residents would be looking for.’”

The Arizona Republic. “Only one other metro area in the nation had worse annual job losses in construction than Phoenix did in June, employment data shows. Compared to June 2013, the Phoenix area had 2,900 fewer people in construction this year, a 3 percent decline topped only by the 4,000 jobs lost in the Bethesda, Md., area in suburban Washington, D.C., according to the Associated General Contractors of America. On a separate AGC ranking of locales according to the percentage of construction jobs lost, Phoenix ranked 279th among the nation’s 339 metro areas, the AGC review found. The Tucson area, which lost 700 workers, ranked 294th.”

“The poor showing isn’t surprising given the weakness in construction statewide since the housing crash began. Over the past year, Arizona as a whole has seen construction employment fall 3.2 percent. Aruna Murthy, director of economic analysis for the Arizona Office of Employment and Population Statistics, blamed the poor numbers on the rapid slowdown in construction of buildings. Nationally, such projects have increased 5.6 percent over the past year. In Arizona, they were down 14 percent, she said recently.”

The Phoenix Business Journal in Arizona. “Real-estate guru Michael Orr finally has confirmed what I’ve been experiencing all spring and summer: the Phoenix housing market is in a slump. That’s what Orr lays out in his latest monthly report that shows the housing markets in Maricopa and Pinal counties have slowed dramatically in the past year. Sales activity has been trending downward since the spring, which is when my wife and I first put our home on the market. In other words: The Gallens couldn’t have picked a worse time to try to sell.”

“‘We’re in an 11-month slump in demand,’ said Orr, the director of the Center for Real Estate Theory and Practice at the W.P. Carey School of Business at ASU.”

“Any help on pricing is unlikely until next year. ‘There is always a long delay – typically nine to 15 months — between any change in the market and the resulting change in pricing,’ said Orr. ‘Meantime, we may see a little downward correction, not a bubble bursting, as some have predicted.’”

“One potentially good sign for people who want to buy a home to, well, actually live in it, is that investors seem to be leaving Phoenix, according to the report. The percentage of Phoenix-area residential properties purchased by investors fell from a peak of nearly 40 percent in July 2012 to 14.4 percent this June.”




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51 Comments »

Comment by Ben Jones
2014-08-06 04:16:19

‘Wells Fargo has relaxed its standards for loans for some high-priced homes as the largest U.S. mortgage lender tries to combat an industry-wide drop in mortgage volumes. In addition to lowering minimum credit scores, Wells Fargo is now willing to buy jumbo loans from other lenders that go toward the purchase of a second home, Goyda said. For a refinancing, the bank is now willing to buy mortgages whose balance exceeds the size of the borrower’s previous loan, known as “cash-out refinancing.”

‘The latest expansion of Wells Fargo’s mortgage lending comes six months after the bank began to offer home loans directly to borrowers with credit scores as low as 600 that were eligible for insurance with the Federal Housing Administration. Its previous minimum credit score for FHA-insured loans was 640.’

‘The bank said last month that it made $47 billion in home loans in the second quarter, 58 percent less than the same period of 2013, compared with a 50 percent fall in industry-wide volumes, according to estimates from the Mortgage Bankers Association.’

“The purchase market is softer than we thought that it would be,” said Wells Fargo Chief Financial Officer John Shrewsberry on a July conference call with analysts. “We’re not seeing breakout returns to pre-crisis levels of the enthusiasm around homeownership.”

Comment by Whac-A-Bubble™
2014-08-06 07:02:13

It’s amazing that subprime lending is back less than a decade after the practice blew up the global economy.

Comment by Neuromance
2014-08-06 17:35:09

All the architects of the debacle, from Joe Cassano to Dick Fuld to Angelo Mozilo, etc, all walked away vastly wealthier. Politicians suffered no consequence from enabling the debacle. So… why not take another crack at it?

 
 
Comment by taxpayers
2014-08-06 07:04:23

they lowered to 600 and still volume dropped
Sum Ting Wong

Comment by Whac-A-Bubble™
2014-08-06 07:06:48

Maybe there aren’t all that many 600 credit score folks who are financially positioned to buy at peak echo bubble prices?

 
 
Comment by Ella58
2014-08-06 10:25:47

Not only jumbo loans, but jumbo loans for SECOND homes. Wow. Forget about $500k starter homes - what people really need now are $1 million vacation homes!

Comment by Guillotine Renovator
2014-08-06 19:06:13

Yeah- jumbo subprime loans for second homes. What could go wrong?

 
 
Comment by oxide
2014-08-06 14:05:13

So who is buying the loans from Wells Fargo? Surely not Fannie/Freddie, surely WF isn’t holding that kind of risk themselves? I lost track of Dodd-Frank… is it now so watered down now that the Fed would still bail out WF if this all blew up?

Comment by Whac-A-Bubble™
2014-08-06 22:44:48

“So who is buying the loans from Wells Fargo?”

Could it be the Fed?

 
 
 
Comment by Housing Analyst
2014-08-06 04:20:26

Sacramento Single Family Housing Prices Fall At Peak Of Season; Inventory Billows 37% As Demand Collapses Statewide

http://www.movoto.com/sacramento-ca/market-trends/

 
Comment by Housing Analyst
2014-08-06 04:23:08

Scottsdale AZ Single Family Housing Prices Crater 10%YoY As Sellers Slash Prices

http://www.movoto.com/scottsdale-az/market-trends/

 
Comment by Housing Analyst
2014-08-06 04:28:01

Arlington VA Housing Prices Plunge 11%; Inventory Skyrockets 57% As Defaulted Excess Inventory Rocks Market

http://www.movoto.com/arlington-va/market-trends/

 
Comment by Housing Analyst
2014-08-06 04:32:32

Tampa FL Housing Prices Crater 6% YoY As Market Activity Plunges To 19 Year Lows

http://www.movoto.com/tampa-fl/market-trends/

Comment by azdude
2014-08-06 05:59:17

craterville

 
 
Comment by Housing Analyst
2014-08-06 04:39:20

Norcross GA Housing Prices Collapse 32% YoY; Sellers Desperately Seek Exit

http://www.movoto.com/norcross-ga/market-trends/

 
Comment by Ben Jones
2014-08-06 06:44:09

‘ASU’s Mike Orr, who authored the report, said the slump is partly because investors are finding better deals in other cities, and also because younger adults don’t have as much of an appetite to buy homes as previous generations did.’

“A lot of the younger generation who would normally be first time home buyers have a lot of student debt,” he said. “They also have experienced the pretty dramatic downturn in the housing market in recent history, so they’re probably not as enthralled at the prospect of home ownership as a way of keeping your wealth. Most baby boomers and gen xers still believe that home ownership is good for your long-term finances.”

‘The sale of low-end homes priced $150,000 or less dropped 30 percent in the last year.’

Comment by Albuquerquedan
2014-08-06 07:44:49

ASU’s Mike Orr, who authored the report, said the slump is partly because investors are finding better deals in other cities, and also because younger adults don’t have as much of an appetite to buy homes as previous generations did.’

And it is not just about student debt. The racial make up of the younger generation is different than the racial make up of the boomers. A higher percentage of blacks and Hispanics means a lower percentage of people that will actually buy houses based on historical averages. I do not know why no one is discussing this other than he or she runs the risk of being called a racist.

Comment by Blue Skye
2014-08-06 09:57:03

My Black neighbor across the street, and the Hispanic along side me seem to like housing as much as any white people on the block. I wonder what’s wrong with them?

Comment by Albuquerquedan
2014-08-06 10:59:53

I am not saying no blacks or no Hispanics own homes. I am just saying that the percentage of them that buy homes over their lifetime is far lower that is not opinion it is fact. We can argue over the cause of that but not whether it is true.

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Comment by Whac-A-Bubble™
2014-08-06 22:47:15

Luckily for blacks who want to own homes, white racists tend to flee the area once a few blacks start moving in. This drives down prices, making them far more affordable for more blacks to move in.

 
 
Comment by Albuquerquedan
2014-08-06 11:02:45

From Wikipedia, and BTW most of my neighbors are Hispanic:

Among racial demographics, European Americans had the country’s highest homeownership rate, while those identifying as being African American had the lowest homeownership rate. One study shows that homeownership rates appear correlated with higher school attainment.[

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Comment by Albuquerquedan
2014-08-06 11:11:43

Another excerpt, the impact of governmental policies and law that encourage the housing bubble often on this blog gets less blame than deserved for the housing bubble:

The homeownership rate for minorities approached the sixty percent mark in 2006, which was a significant change because less than half of all minority households owned homes as recently as 1994. The ownership rate for minorities increased by 25.6%, from 47.7% in 1993 to 59.9% in 2006. This rate fell after the 2006 peak, consistent with overall homeownership rates.[8]

The increase among white Americans was less substantial. In 2005, 75.8% of white Americans owned their own homes, compared to 70% in 1993, and the rate fell during the last half of the decade of the 2000s, slightly more slowly than for the rest of the population. Thus one can conclude that despite a large remaining discrepancy between the homeownership rates among different racial groups, the gap had been closing up until the peak, with ownership rates increasing more substantially for minorities than for whites, but subsequently began slightly widening.[8]

 
Comment by Albuquerquedan
 
 
 
Comment by Dguy
2014-08-06 12:07:54

” I do not know why no one is discussing this other than he or she runs the risk of being called a racist.”

Dan, are you trying to say it’s “their” fault that real estate is slumping? Maybe the purchase rates of blacks and hispanics has something to do with their income levels, which are lower on average than whites. Unless you’re trying to imply that there is something about being black or hispanic that makes them genetically predisposed to not buying. But there are many poor whites that don’t buy either. I wonder why you don’t mention them? Actually, I don’t know what kind of point you’re trying to make here, but it sure is a bizarre observation.

Comment by Albuquerquedan
2014-08-06 12:38:14

I meant exactly what I said. As the American population becomes less white we can expect a smaller percentage of the population to own a home based on historical averages. I see less demand in the future for houses because of it. As I said, the discussion on why minorities are less likely to own is a separate discussion probably more fit for the bits part of this blog.

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Comment by Dguy
2014-08-06 13:32:14

If income rates go up, so will home purchases, regardless of the race, because most people want to live in a house. I’m not aware of any cultural reason why blacks or hispanics wouldn’t buy a house if they wanted one and they could afford it.

 
Comment by Albuquerquedan
2014-08-06 13:46:00

Why will their incomes go up above historical averages?

 
Comment by Housing Analyst
2014-08-06 15:40:59

Now seriously…. Do you really believe wages are going to triple to meet grossly inflated housing prices?

Of course not. Grossly inflated housing prices will continue falling until they meet current wage structure.

 
Comment by Blue Skye
2014-08-06 17:29:33

In this environment, all renters have a higher IQ than debt donkey mortgage slaves.

 
 
 
 
 
Comment by Ben Jones
2014-08-06 06:47:52

Once in a while, someone will mention we are surrounded by millions and millions of empty acres.

‘Estes Park is not alone in its struggles to provide affordable housing for residents. Estes Park’s latest attempt to address the problem involved the proposed Falcon Ridge Development was met with opposition over an increase in the number of units to be built. Other mountain community such as Steamboat Springs and Frisco wrestle with the same affordable housing dilemma.’

‘Jack Trautman, former chairman of the Steam Boat Springs Parks and Recreation Commission recently said, “One of our biggest needs as a community is affordable housing. Who in this community would put additional open space ahead of affordable housing? We have plenty of open space, trails and parks. We have little affordable housing.”

Comment by goon squad
2014-08-06 12:43:00

I’ll be up in Estes this weekend and will report any anecdotals I may gather.

 
 
Comment by Ben Jones
2014-08-06 06:56:28

‘The number of detached, single-family homes sold in the Flagstaff region in June was down approximately 5 percent from the same period last year. Stephen Brighton from Century 21 Flagstaff said the number of homes being put on the market is starting to increase.’

‘Some of the slowdown in sales may be due to sales falling through after a home doesn’t appraise at the agreed on price and the seller is unwilling to reduce the price further, he said.’

 
Comment by Whac-A-Bubble™
2014-08-06 07:05:26

“The pent-up demand among homebuyers after the recession, which helped drive last year’s homebuilding surge, has dissipated somewhat, said CreekStone Homes owner Rhonda McDonald.”

Fantasy demand can’t last long before the illusion collapses.

 
Comment by snake charmer
2014-08-06 07:40:41

“Jacob Montoya, 38, had just refinanced his house, from a 30-year to a 20-year mortgage, thinking he could handle the higher payments. He said Chevron had assured workers that the mine would last for generations. ‘Our kids’ kids were going to be there, they told us,’ Montoya said.”
___________________________/

I’m actually going to put this one on Mr. Montoya. No one should believe a promise like that.

Comment by Ben Jones
2014-08-06 07:46:27

He could just stop making payments. Probably wouldn’t get kicked out until his kids’ kids inherited it.

Comment by mathguy
2014-08-06 07:58:31

At the very least he could save that money and rebuy when al the prices crash with a nice new down payment.

 
 
 
Comment by Ben Jones
2014-08-06 07:50:29

‘He estimates that 90 percent of Canadian owners he manages property for are investors. ‘I guess we should be thankful to them for keeping the market going,’ said Michael Orr’

Gosh, I hope these investors don’t try and get out. If they did, would people in Phoenix resent them?

Orr pulled a slick little maneuver with this slump comment. (Which the media jumped right on). See, Phoenix has retroactively been in a 11 month downturn, but hey, it’s almost over!

 
Comment by AZtoORtoCOtoOR
2014-08-06 10:04:51

Nice to see a post about two of the places my name.

I sold my house in Chandler, AZ in June 2006. The zillow estimate has never reached the price I sold it for back then. I was looking to buy a house in Colorado Springs after that, but things didn’t work out - lucky for me since I only ended up in Springs for 2 months before heading to Oregon. Rented from 2006 - end of 2010. If interest rates on CDs had stayed above 5%, I would have never bought again. It was a beautiful situation where the interest on my savings account paid more than what I was paying in rent.

Even though the house I bought is paid off, it still sucks owning.

Comment by Guillotine Renovator
2014-08-06 19:13:24

I’d much rather have money in the bank where the interest covered my rent than a paid off house. What’s better than being able to move anywhere knowing it’s paid for?

Comment by AZtoORtoCOtoOR
2014-08-07 09:01:37

Couldn’t agree more!

 
 
 
Comment by rj chicago
2014-08-06 10:30:17

Banking - hmmm… This from Ritholtz Big Picture blog - read on peeps. This is interesting.
Happy day!!

http://www.ritholtz.com/blog/2014/07/shilling-big-banks-shift-to-lower-gear/

Comment by taxpayers
2014-08-06 11:35:28

booty doesn’t like banks
dodd /fwrankie

people may regret bank hate

 
 
Comment by Ben Jones
2014-08-06 11:46:40

‘Carlsbad schools are preparing for the beginning of the 2014-2015 school year next week with several key teaching positions vacant. “We did have several potential hires who after visiting the area decided to turn down our offers because of housing prices,” said Assistant Superintendent Kelli Barta. The Realtors Association of New Mexico’s June report indicates the average cost of a single family home in Eddy County has risen 40 percent since 2013 to $175,000 and the median rental price of a single bedroom apartment is $800.’

Comment by Albuquerquedan
2014-08-06 11:54:33

Oil boom.

Comment by Ben Jones
2014-08-06 11:58:58

Yeah, those oil booms are never accompanied with housing bubbles.

Comment by Housing Analyst
2014-08-06 12:49:31

…. that turn into oil busts.

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Comment by Whac-A-Bubble™
2014-08-06 22:50:47

…with housing busts soon to follow.

 
 
Comment by Guillotine Renovator
2014-08-06 15:09:52

The gold boom also produces massive housing bubbles which turn into epic crashes once the mining companies shut things down.

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Comment by tresho
2014-08-06 12:00:48

From the article:

The school district’s single solution to the problem, building a low-cost subsidized apartment building for district teachers, was voted down last year

 
 
 
Comment by LCaution
2014-08-07 15:35:54

Affordability crisis in San Francisco, not a bubble - and the former can last a long time.
http://sf.curbed.com/archives/2014/08/07/gasp_sfs_housing_market_is_not_that_overvalued_after_all.php

Figures from Redfin for June for our Bay Area town:
Homes for sale: 24% over May, 5% over last June
Homes sold: 18% over May, 9% over last June
Median Sale Price: 9% over May, 8% over last June
% Sale to List: 114%. Up .9%.

Avg. no. offers: 7
Median down payment: 33%

The explanation in the linked article is fairly simple: population increase is greater than increase in housing stock.

Much as I would wish that we were in a bubble that will crash sooner rather than later, the evidence suggests that at least in the near term (1 year? 2 years?) prices will continue to push houses out of the range of the average potential buyer.

 
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