Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, February 28, 2006

The Cat is Out of the Bag.

US Housing Market Headed for the Deep Freeze

"After five adrenaline-pumping years of real estate sales, 2006 is already fulfilling predictions of a weaker market."

"January should have been a hot month to sell new homes. Record warmth for much of the country kept construction crews busy and was expected to entice prospective buyers to come out to shop, economists said. Instead, America's housing market went into the deep freeze. And that has some worried there may be trouble down the road for several sectors of the economy."

"Though many analysts say the market is undergoing the expected cooling off after five years of red-hot sales, some are worried about the slowdown's dual effect, first on construction and then on consumption. Consumers who have seen the price of their houses double in the last few years have used equity built up in the homes to help power the country's economic engine."

"If home prices flatten out--and we are expecting that--it has a slowing effect on the economy," said Ed McKelvey, a senior economist at Goldman Sachs in New York.

The Commerce Department said sales of new homes dropped 5 percent in January to their slowest pace in a year while the number of new homes on the market hit a record high.

"A record number of new homes, 528,000, are sitting waiting for buyers. At the current sales pace it would take 5.2 months to sell that inventory--the longest time since 1996."

"Inventories of existing homes climbed in January by 2.4 percent, leaving 2.91 million homes available for sale at the end of the month. That equates to 5.3 months' supply at the current sales pace, the highest since August 1998."

"The figures were the just the latest in a string of data pointing to a cooling in the U.S. housing market after a five-year rally that shattered sales and construction records, and sent prices soaring more than 55 percent across the country."

"Builders are seeing more orders canceled. Meanwhile, the number of homeowners who are late paying their mortgages has been creeping up. For subprime borrowers — those with impaired credit who carry higher-interest loans — the number of delinquent loans has jumped to nearly 10%."

"Horsham, Pa.-based Toll Brothers Inc., one of the nation's biggest home builders, said last week that its first quarter-end backlog rose 22 percent and signed contracts declined 21 percent compared with the company's record first-quarter results last year."

"One in five builders said they are seeing more cancellations of new-home orders than they did six months ago, according to the National Association of Home Builders, with 4% saying the problem is significant."

"To entice home shoppers, many builders are offering free TVs, swimming pools, landscaping and other incentives."

“The inventory of homes for sale could swell as new homes nearing completion come on the market, and as home owners who believe mortgage rates will head higher rush to list houses before financing tightens, said Bob Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.”

"The backlog of unsold homes will put real downward pressure on prices over the next few months," despite a January rebound, raising mortgage rates and depressing future sales, said Ian Shepherdson, chief U.S. economist at High Frequency Economics."

“‘We have now seen three months in a row where sales have dropped more than expected,’ said Robert Kleinhenz, an economist with CAR. ‘At least some home buyers have adopted a wait-and-see attitude.’”

"One key reason fewer people are buying: They can't afford to. The median price — half cost more, half less — was unchanged from December."

“‘Mortgage brokers are not as busy, real estate brokers are not as busy,’ said Kevin Clay of a San Carlos-based real estate and financial services firm. ‘There seems to be a decrease in activity overall.’”

"Home prices have gotten a little frothy, as [former Federal Reserve Board Chairman Alan] Greenspan said," noted Carl Tannenbaum, chief economist for LaSalle Bank, but that is mainly true in California, parts of the Northeast and Las Vegas.

"The housing market is certainly shifting away from a record-breaking pace," said Lawrence Yun, senior economist for the Realtors."

"The data showing a slower-than-expected sales pace contributed to a drop in U.S. stocks (^DJI - news) and the dollar on Tuesday, while Treasury bond prices rose. Shares of housing-related stocks also traded lower."

"According to the Realtors, home sales were easing in the priciest markets where an increase in mortgage rates will have the biggest effect on buying power. Sales dropped 10 percent in the Northeast, 7.7 percent in the Midwest and 3.5 percent in the West."

"January was not a good month for home sales in Sacramento or the state, according to a report released Tuesday by the California Association of Realtors. In Sacramento, 31 percent fewer homes were sold in January than in December, a mark that was also 32.4 percent below January 2005."

"CAR vice president and chief economist Leslie Appleton-Young said in a statement. "The number of homes for sale has risen to a six-month supply, which will translate into a slower rate of price appreciation than we experienced in 2005."

"Fran Floyd took her Houston townhome off the market Saturday after nearly six months — even though she was willing to sell it for $3,400 less than she paid in 2002."

"It's just sad," said Floyd, 81. "I've got to sell. I don't know what I'm going to do. What I'm thinking about and praying about is renting it for a year, hoping the real estate market gets better."

"We've just got tons of inventory," and prices are coming down in Grand Rapids, Mich., said Pat Vredevoogd of AJS Realty.

"The writing seems to be on the wall at this point," said Chris Low, chief economist at FTN Financial in New York. "Prices are .. falling. Meanwhile, the supply continues to rise."

214 listings for Sonoma

25 houses sold last month

53 with price reductions

For more information on the links between how much money we make, spend and save in the US visit: The Mess That Greenspan Made and check out the solid article titled 'Income, Wealth, and Debt'

Stay tuned for more data from: The Office of Federal Housing Enterprise Oversight (OFHEO) 4Q 2005 Housing Price Index numbers will be released at 10am EST today.

Also in the news another REIT hints it may have some trouble brewing...

“Saxon Capital, Inc., a residential mortgage lending and servicing real estate investment trust (REIT), today announced it is delaying its 2005 fourth quarter and year end earnings press release and related conference call. The Company expects to report its complete operating results on or before March 31, 2006.”

“Management is reviewing the..derivative transactions used in its hedging strategy to manage interest rate risks from 2001 to the third quarter of 2005. If the Company determines that it did not meet the requirements of SFAS 133, a restatement of results from 2001 to the third quarter of 2005 may be required. ‘We are disappointed in this delay, but need more time to review these complex accounting issues before reporting our results,’ said Michael Sawyer, CEO of Saxon. Robert Eastep, CFO of Saxon said, ‘In light of recent scrutiny as to the application of hedge accounting, we are reviewing our accounting treatment of our derivative transactions related to our hedging strategy to ensure that our financial statements adhere to SFAS 133.”

“The Mortgage Loan Operations segment originates, purchases, and securitizes primarily nonconforming residential mortgage loans.”

“In the wake of the prime lending sector’s refinance contraction, the nonprime sector has picked up and become more mainstream, accounting for 28% of total loan originations, according to a panel member at the MBA Expo in Phoenix. Michael Drawdy, senior vice president at Countrywide Financial Corp., said half of subprime ARMs will be due in the summer and over the next 14 months. ‘There will be some people who can’t pay for an ARM change,’ Mr. Drawdy said.”

“‘That is why you must make sure there is a system in place for collections, to make sure borrowers know their options.’ Panelists talked about repayment plans and ARM modifications aimed at helping borrowers stay in their homes. Over the next 12-24 months, there is a potential for severe delinquencies, they said.”


At 3/01/2006 10:18:00 AM , Anonymous Anonymous said...

I really like the blog. Keep up the good work!

But can you please not italicize all the text? It is very hard to read.

At 3/01/2006 11:20:00 AM , Blogger Athena said...

thanks for the feedback! I will adjust the text.

At 3/01/2006 01:15:00 PM , Blogger marin_explorer said...

Record warmth for much of the country kept construction crews busy and was expected to entice prospective buyers to come out to shop, economists said.

At cursory glance, the MLS listings are on the upside...gotta wonder how it will be in Spring? Speaking of new homes, does anyone have an idea of how many new Sonoma housing units are coming to market in spring/summer? Those could sure dampen the interest for resale homes in inventory spikes.

At 3/01/2006 01:50:00 PM , Blogger Marinite said...

athena -

Being the goddess that you are I am sure you already know this, but if you look at the rich text editor that Blogger provides for you when making a new post, there is a button in the button bar that looks like a big double quote. Highlighting your quoted text and then clicking that botton will indent the whole selection and further differentiate it from the rest of the post that is not quoted.

- Your humble servant.

PS - but then again, I like to italicize quotes too.

At 3/01/2006 02:02:00 PM , Blogger Athena said...

LOL... I don't like to italicize really... I didn't see that nifty little button to indent! Thanks Much!!! I will do an editing job on the blog this weekend.

Reskeptic... let me see what info I can find on that. There are a couple of new housing developments I can think of in Sonoma... it is difficult to build new stuff there, but there are some. One in particular I have driven by the last few weekends and they have been dead dead dead with nobody walking around their developments and nobody but the agents there talking among themselves.

I don't know what the spring will bring... my guess is more inventory. When we have a 5 month supply of homes in the first 2 months of the year, I can't help but think that is a harbinger of how much worse it might get.

At 3/01/2006 03:00:00 PM , Blogger marin_explorer said...

let me see what info I can find on that.

Athena, thanks! You seem pretty busy yourself, so if I come across any info, I'll be sure to pass it your way.

Btw, I'm sure you've seen that yupscale McMansion development...on Napa? (sorta forget) Admittedly, the homes look well-built, ok: overbuilt. Driving around, we were a bit amazed, and wondered how strong the market is for these homes...?

At 3/01/2006 04:48:00 PM , Blogger Athena said...

well reskeptic, I happen to know a bit about the Napa area. Which mcmansions are you talking about? My hunch is you are talking about the ones in my mother's neighborhood! where they are practically right on top of each other affecting a ranch style architecture... but being about 7 inches apart (slight exageration)

which street are the ones on that you are talking about?

At 3/01/2006 07:18:00 PM , Blogger sf jack said...

athena -

Did you see today's CAR data?


Notable year-over-year declines in Bay Area cities Cupertino, Mountain View, Burlingame (-21%) and San Rafael (-6%).

It's just the beginning.

Sonoma, however, went the other way... up, up, up over the past year.

That place up there is on fumes...!

"Oh, the humanity!"

"California’s 10 major communities with the greatest median home price increases in January 2006 vs. same period a year ago:

Sonoma, 78.2%
Atwater, 62.3%
Barstow, 59.1%
Sanger, 54%
Ridgecrest, 49.6%
Banning, 48.9%
Hesperia, 47.2%
Walnut, 46.9%
Lake Arrowhead, 45.9%
Upland, 45.1%."

At 3/01/2006 08:00:00 PM , Blogger moonvalley said...

Just wondering, how many of our fellow Sonomans who are waiting for the spring to put their places on the market are going to think twice and not do so?
Will we see more for rent signs out there instead of for sale signs? What do you think?

At 3/01/2006 08:02:00 PM , Blogger moonvalley said...

One in particular I have driven by the last few weekends and they have been dead dead dead with nobody walking around their developments and nobody but the agents there talking among themselves.
Are you talking about the future ghost town of Bel Terrino over on East Napa Street?

At 3/01/2006 10:03:00 PM , Blogger Athena said...

MV- I have seen that one too that is dead. BUt the 5th street cowpasture annex is also dead. Well, I take that back... one day two weekends ago I drove past and saw two people checking out the houses, except that I know for a fact they were just lookie loos because it was my daughter's grandmother and her great grandmother... and they are not buying... LOL

SFJack- Thanks for that link. I'm going to go read it now. Can you believe it? That place that pays me actually expected me to work today, and it definitely cut into my blog time! :-D

I actually like that the prices went up and up and up. Oh the Humanity is right, like when the Hindenberg came down, so will this blimp of a bubble. Considering the rising inventory, the fact that the last figures said only 7% of the population of Sonoma County could afford a home in the County when the median was only $614k... what are we down to now?

Are they waiting to see that 0% can afford to buy before recognizing they have depleted the flipping demand for their supply?

Makes you wonder about the ability for the average hockey puck to do simple math doesn't it?

At 3/01/2006 10:34:00 PM , Blogger marin_explorer said...

which street are the ones on that you are talking about?

Athena, are we talking about the same place? I'm thinking either Napa or MacArthur street in Sonoma--those new, rather other-the-top homes. Not shoved together, if I recall. Nothing serious, we were just a little surprised by their scale.

At 3/01/2006 10:46:00 PM , Blogger Athena said...

I will have to go look at the ones on MacArthur street to see which ones you are talking about. I know MacArthur place is there and their buildings look like McMansions too... and very out of place

In Napa on the north end of jefferson near where my mother lives they have two soon to be three really new developments, they have shoehorned these houses onto these teeny little lots... and they are practically touching. I am pretty sure one neighbor can hand another a roll of TP from one window to another. and.. I haven't seem much traffic there with interested buyers in a while.

At 3/02/2006 09:22:00 AM , Blogger marin_explorer said...

Family in the S. Bay live near a nursery that was recently developed for residential. Initially, they were planning to do 12 homes/acre (.08 lots, small enough). However, greed set in, and it's now zoned for 20/acre--and still under construction. Good luck with selling those on the downside!


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