Tales of the Housing Bubble

Not having paid close attention to the housing bubble news in recent weeks, the spate of reports over the weekend was a bit of a shock - San Diego, Denver, Florida, Washington, DC and elsewhere - it seems the bad news is piling rapidly.

Living in the non-San Diego portion of Southern California, the real estate market does not seem to have changed much here, although the volume of advertisements from real estate agents does seem to be increasing, and they sound increasingly desperate.

They're still building new houses - lots of them - and "For Sale" signs are going up at rates that far exceed the rate at which they come down, but it is springtime.

Two houses a couple blocks away from here have been on the market since last summer and they now both have "Sale Pending" signs on them. These "Sale Pending" signs have been up for what seems like months now.

Is it possible that these two sellers accepted conditional offers and are waiting for the buyer to sell their house?

That's been a big problem up in Sacramento they say - it's hard to sell a home because the only people who can afford to buy one have to sell theirs first, and it's hard to sell a home because the only people who can afford to buy one have to sell theirs first, and so on.

One of these two houses has been in pre-foreclosure since sometime last year - about $25,000 behind on their payments according to foreclosure.com.

Another house nearby appears to be abandoned - the grass is about a foot high and it looks horrible. The couple has apparently split up and a "For Sale" sign went up for a couple weeks, then it came down, then they stopped taking care of the place, and apparently left. They were almost $20,000 behind on their mortgage payments when foreclosure.com was last checked.

Another "For Sale" sign went up in the same block, and at about the same time another entry appeared at foreclosure.com. It seems to be a common occurrence - in this community of about 300+ homes where we rent, last year sales prices were between $800,000 and $1M+.

Now there are eight or nine homes in pre-foreclosure.

There are also eight or nine new Escalades, Yukons, and full-size trucks all with custom wheels, tinted windows, and lots of other extras. These are probably not the same eight or nine homeowners, but you never know.

That concludes the tour of our neighborhood - now on to the rest of the country.

San Diego: Professor Piggington's Econo-Almanac

Bad news for San Diego homeowners, well condo owners, actually. In Rich Toscano's latest housing report the data indicates that the gravity of year-over-year price changes is now working like a tractor beam on San Diego condominiums.

Rich has granted permission to excerpt from the premium area of his site and he also wanted it to be made clear that the data is preliminary and the chart below results from the combination of two data sources. An update next month will confirm the most recent price trends. Anyway, here goes.

The oft-hailed spring rally simply has not shown up to the party.


... what we see in the graph above is that there has been absolutely no upward price pressure this spring. From April 2005 - April 2006, the median SFR price is up a meager 2%, while the condo median is ever so slightly down. That's correct, the median condo price is now negative year over year.

If the May forecast ends up being even close to the mark, condo prices will be hit even harder next month, while SFR prices will suffer a slight decline. If SFR prices don't rise next month, the mainstream press' beloved year-over-year median price will go flat or negative for both condos and SFRs.

If you are interested in detailed information about housing trends in San Diego and other parts of Southern California, you might want to check out Rich's site.

Denver: A Pile of Homes

This story from the Rocky Mountain News paints a pretty stark picture of the real estate market there (unless of course your wealthy - then things aren't so bad):

The number of unsold homes on the Denver-area market hit a record 29,045 in April, according to reports released Thursday.

Rising foreclosures were the driving force for the skyrocketing inventory, which is 19.2 percent higher than a year ago, experts said.
...
Pierce said that the Denver-area market increasingly has become a two-tiered one composed of the haves and have-nots.

He noted two homes in Cherry Hills Village recently came on the market in the high $900,000s, and within a week they were both under contract for full-price cash offers, with others standing in line to buy them.

"Flying in the face of that activity, I have a listing in south Aurora," Pierce said. "The house is in good shape and has been updated. It was on the market in the $180,000s last summer and it didn't sell. We now have it at $164,900. We have not even had a showing in 10 days."

The lesson from those two scenarios is simple, he said: "The super-rich do not have any problems. The little guys are worried about their jobs and seem to be suffering."

Ed Jalowsky, principal of Classic Advantage Realty, said 50 percent of the homes priced less than $300,000 in his office are either in foreclosure or facing foreclosure.

First of all, get a load of these prices! A home for $164,900? In California, you could probably get one of those kid's play houses for that amount. And the high $900,000s puts you in the super-rich category in Denver?

That's just slightly above average in many parts of California - call it super-average.

Maybe it's time to start thinking about relocating to the Rocky Mountain state, and ponying up the $10 a week fee for a full-time subscription to foreclosure.com.

Miami: Mish and Mike Morgan

Mish's Global Economic Trend Analysis blog has a great new source for real estate news in Florida - Mike Morgan. If you haven't been keeping up with it, here are some links to a few recent posts where Mike has offered some on-the-ground reporting:

• FAR vs. NAR
• The New Gold Standard
• Flipper Anomalies and the Flight from ARMs
• Dwindling Speculators, Dwindling Jobs
• Abandon Ship

Favorite commentary from Mike so far:

There is no soft landing to this housing market. The smart money knows this and is positioning accordingly. The money that sits on the Street and does not make a trip out in the field is still star struck by the numbers based on misleading foundations.

I’ve had a few analysts and media people fly down and tour the area. Their responses have been amusing. One big analyst cut his trip short after seeing the number of houses for sale in new developments and the number of high-rise condos going up. He said he had seen enough and started calling clients on our way back to my office!

The Street needs to get out in the field and see the thousands of homes for sale in active developments, where builders are competing with the flippers that have are desperate to sell their properties. There is no way for the builders to compete with these guys, unless the builders want to slash margins by 25-35%. If they slash margins to compete, they will lose money.

That kind of commentary kind of reminds you of when SoCalMtgGuy posted to his blog regularly.

Washington: Walking Away

According to this report, they are walking away in the nation's capitol:

As the housing market cools, builders are reporting that more people are walking away from contracts and from tens of thousands of dollars in deposits.

Wall Street analysts say the Washington market is among those seeing the highest percentages of buyers abandoning ship -- more than double last year's rate, according to one research firm, and perhaps as high as one in three new-home buyers in some places. And nationally, some big builders are beginning to report cancellation rates upward of 25 percent.

Typically, buyers of new homes pay upfront deposits calculated either as flat amounts as low as $1,000 or as a percentage of the price, generally about 5 percent of the home price. In recent years, some builders increased deposits to discourage speculators and get more upfront cash from desperate buyers. Some require deposits of 7.5 to 10 percent.

Despite the pain of giving up that much money, some buyers are canceling to cut their losses because builders are pricing the same houses for so much less, Alexandria lawyer James C. "Beau" Brincefield Jr. said.

"I have seen people literally walk away from $125,000 deposits rather than go forward with the closing because the value of a house identical to their own was being sold by the builder for $100,000 less," said Brincefield, who is preparing litigation for buyers who want to sue builders to get their deposits back.
...
Credit Suisse First Boston stock analyst Ivy Zelman this week said big builders nationally are reporting cancellation percentage rates in the mid- to high 20s, compared with the mid- to high teens of a year ago. Executives from Pulte Homes, for example, said in an April 27 conference call with analysts that cancellations reached 27 percent in the most recent quarter, vs. 18 percent a year ago.

This being Washington, DC, it's probably only a matter of time until someone blames the media for not reporting the good news about real estate - that the media "filter" is only reporting the bad real estate news, which is causing people to lose confidence.

There are so many stories and only a limited amount of time. Las Vegas, Sacramento, Phoenix - you're at the top of the list for next time around.