Housing Doom Housing Bubble Blog

It doesn’t take long for the new to become old in Las Vegas:

LAS VEGAS — They blow up aging casinos in this town. Now, some are wondering what to do about yesterday’s desert dream homes.

The housing slump has fattened the inventory of unsold homes throughout the country. But there’s another twist to the story here — a glut of glitzy homes.

About 1,000 houses are listed for sale in Las Vegas for $1 million or higher, more than 600 of them built since 2004. But unless they’ve been built in the past year or two, the properties are considered out-of-date — making them all that more difficult to sell, real estate agents say.

Just as casinos on the Strip compete fiercely to be the prime destination— and seldom hold that distinction for more than a couple of years — houses and entire neighborhoods in Las Vegas are quickly eclipsed by flashier newcomers.

More difficult financing has also hurt upper end housing, compounding the difficulties of selling more expensive property- Not that the problems are exclusively in the luxury properties:

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No, the headline isn’t a typo. From today’s Wall Street Journal- Bailout ideas just keep getting dumber.  Here’s a gem from Fannie Mae: [Thanks John!]

Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn’t worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.

"We’re saying to the consumer, ‘You’re not trapped any more,’" said Jeff Hayward, a senior vice president at Fannie.

The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.

Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.

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L thought this looks like a sign of the times, and I had to agree.  If you have MLS access, check out #2895409.  It looks like the granite countertop business isn’t what it used to be:

$200,000.00 PRICE REDUCTION !GREAT LOCATION/ GOOD INCOME BUSINESS. HIGHLY POTENTIAL GROWTH GRANITE COUNTERTOP AND CABINET RETAIL AND WHOLESALE STORE. THIS SALE INCLUDES ALL BUSINESS FIXTURE, INVENTORY, EQUIPMENTS, OFFICE FURNITURE AND COMPUTERS. BIG SHOWROOM . CLOSE ON SUNDAY. EASY TO RUN. WILL TRAIN

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Moody’s is saying what we’ve been saying for awhile- Arizona is in a recession:  [Thanks L!]

The Phoenix and Tucson metropolitan areas, as well as the state of Arizona, are in a recession, economists at Moody’s Economy.com have declared.

The company first concluded several weeks ago that Arizona was in a recession and, in a separate report released Thursday, said that metro Phoenix is "firmly" in one.

Industries are shedding jobs, the housing market remains tumultuous, the mortgage-delinquency rate is rising faster than the national rate and credit conditions aren’t likely to improve in the near term, says the Phoenix report written by Rebecca Seweryn, a senior economist with Moody’s in West Chester, Pa. 

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Austin is beautiful this time of year, but I’m headed back to Phoenix for a few days. [Yeah it’s in the 90s this week- but it’s a dry heat.]

I’m driving this trip, so my internet access will be spotty. I’m counting on our usual cast of characters to keep the party going.

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According to data released by the Greater Las Vegas Association of Realtors, the median price of single family homes in Las Vegas fell 22.7% in April, from $305,000 in April 2007 to $235,875 in April 2008. Prices haven’t been this low since February 2004, when the median price was $220,000.

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It’s enough to make you burst out singing "Blue Skies". From the National Association of Realtors’ chief economist:

Two things homebuyers shouldn’t have to worry about is a recession or long-term credit crunch.

That’s what Lawrence Yun, chief economist with the National Association of Realtors, told real estate practitioners who gathered at the Kennedy Boulevard headquarters of the Greater Tampa Association of Realtors Wednesday.

Yun, who admits that he has to balance empirical data with a role of advocacy for the housing market, said that while the beginning of 2008 has been weak so far, the second half of the year should see an uptick that could lead to home value growth of more than 20 percent in the next five years. "I think there is enough momentum to bring the buyers back into the market," Yun said.

 Sales typically taper off the second half of the year, so Yun’s "uptick" is unlikely.  And about that "empirical data":

 NEW YORK (AP) — An industry group said Wednesday that pending U.S. home sales dropped to a new low in March, signaling the housing slump has yet to bottom out even as the spring sell season gets under way.

The National Association of Realtors’ seasonally adjusted index of pending sales for existing homes fell to 83.0 from a downwardly revised February reading of 83.8, the index’s previous low. The index stood at 103.9 in March 2007.

Wall Street economists polled by Thomson/IFR had predicted the index would slip to a reading of 83.8.

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According to Wickipedia:

Hurricane Katrina was the costliest and one of the five deadliest hurricanes in the history of the United States.[1] It was the sixth-strongest Atlantic hurricane ever recorded and the third-strongest hurricane on record that made landfall in the United States.

In spite of the devastation, there were no "hurricane prevention" bills.  Congress recognized that while the emergency response could be improved, hurricanes cannot be prevented.

We are now facing a devastating storm in the housing market.  Unlike Katrina, this storm cannot be considered an "act of God".  Mistakes by government, lenders, buyers and builders caused it- but it cannot be legislated away.  Housing will not be "rescued", but Congress continues to try:

WASHINGTON (Reuters) - The U.S. House of Representatives is due on Wednesday to begin debating a housing rescue package that could see the government buy up $15 billion of abandoned homes and help an estimated half million homeowners facing foreclosure.

The sweeping bill would offer fresh spending, tax credits and a new government guarantee on many risky loans to bolster the national housing market.

If the government buys $15 billion dollars worth of abandoned homes, it will take them off of the balance sheet of banks, but it won’t fill them with homeowners.  Values will continue to decline in areas filled with nuisance housing.  The values will fall on the surrounding properties, increasing the chance of foreclosure for the neighbors of unwanted houses.

Thankfully, the president is threatening to veto this legislation:

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When you ask "Who’s responsible for the bursting of the housing bubble?"  Fingers fly in every direction to point out the guilty- naive buyers, crooked lenders, low interest rates- you’ve probably know the possible suspects by heart by now.  An interesting paper called "Driven to the Brink" however, points the finger in a different direction- high gas prices: [Hat tip to Blanche Evans at Realty Times!]

The popping of the housing price bubble coincided with the run-up in gas prices. It can be argued that the magnitude of the increase in gas prices wasn’t sufficient to offset the gains households were seeing in the housing market. In a more steady market, gas price increases might not have been enough to derail the housing boom, but in the heated atmosphere of the bubble, gas price increases may have been the trigger that broke the expectation of continued growth. The households most affected by the rise in gas prices were those who had stretched the family budget to buy a house on the suburban fringe, often commuting long distances in the process. These families spent a higher fraction of their income on gas than the typical household and had less flexibility to accommodate the higher price of gas than others. And for the same reasons, as gas prices rose, houses in these far-flung neighborhoods tended to lose their market appeal first and fastest.

This spells trouble for the suburbs:

Observers of local real estate markets have noticed that not all neighborhoods in a given metropolitan area are affected by the same degree by the housing downturn. Within metropolitan areas, it appears that markets on the suburban fringe are generally experiencing the greatest declines, and consumer demand remains relatively stronger for close-in properties. For example, while exurbs in places like Denver and Salt Lake City offer big houses on large lots at low prices, many buyers today are forsaking size for the conveniences of being close to the city, often in areas that are redeveloping.

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Blanche Evans, editor of Realty Times says:

Stop listening to the media. Go buy a home.

 Her logic?

Why buy a house now? You’ve been getting bad information. Here’s why.

The financial press is worried that they might have gone too far — paralyzing the nation into recession by piling on housing. So they’re finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from ‘Don’t Buy A Home Now’ to ‘Is It Time To Buy?’

We said it here first on Realty Times — that consumers aren’t getting the full story. Indexes [sic] can be misleading because of the locations, prices, types of housing, and rates of increase they track.

Actually, I think we at Doom were criticizing the indices [In particular those of the National Association of Realtors] before Realty Times was- they didn’t seem to object to the flaws during the boom markets.  They are correct however, that the indexes are not without their limitations.  Evans states:

Finally, one brave journalist is writing that Case-Shiller is flawed.

In his story "Home-price data has its flaws,"Chris Plummer of MarketWatch slammed both Shiller’s Index and the Associated Press for being "Grim Reapers."

For the first time, S&P Index Committee Chairman David Blitzer "acknowledged his organization’s overall and metro-market readings paint an incomplete picture."

No kidding. The Index covers only 20 markets, heavily weighted to the most volatile metros in the nation.

 That Case-Shiller looks at 20 markets is not a news flash to those of us who actually look at the data every month. The Case-Shiller folks have never made claims to the contrary. It would be virtually impossible to track every sale, every month- so sampling is necessary.  [The Marketwatch article also criticizes the National Association of Realtor’s numbers too, but Evans fails to mention that.]

Evans uses this fact to try and discredit Case-Shiller findings:

"The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78 percent of the 330 metropolitan regions that the NAR tracks reported price increases … ."

Case-Shiller uses a different methodology than the NAR.  According to Standard and Poors:

The S&P/Case-Shiller Metro Area Home Price Indices use the “repeat sales method” of index calculation – an approach that is widely recognized as the premier methodology for indexing housing prices – which uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.

The NAR however, tracks median price- which even their chief economist criticizes:

The NAR reported last week that U.S median home prices fell 7.7% in March from a year ago. The decline resulted largely from a market anomaly — a steep decline in costlier home sales due to tighter lending standards and high jumbo-mortgage rates, coupled with a foreclosure-driven spike in cheaper homes.

"If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."

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