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A Chill Is In The Air For Sellers

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Apologies for length but the NY Times tends to remove stories after a couple of days:


A Chill Is in the Air for Sellers

Many Americans who planned on real estate as their path to wealth are beginning to find that there are limits to how high is up.

Graphic: Toward a Buyer's Market Blame market forces. As higher interest rates dampen demand in cities and suburbs that only a year ago were battlegrounds for fierce bidding wars among numerous buyers, sellers are grudgingly lowering their prices to drum up interest.

A house at 57 Marina Boulevard in San Rafael, across the bay from San Francisco, was originally listed at $1.45 million. The owner recently dropped the price to $949,000 when a competing house on the same street lowered its price to $959,000, from $989,000. In Marin County, the prices of about a quarter of all listings have been reduced. County records show that 57 Marina Boulevard was sold in February for $700,000, so the owner, Dan Marr, is unlikely to lose money even at the lower price, though he may not make as much as he had hoped. "I don't want to talk about it," he said.

It is getting tough out there for sellers. What is happening in Marin County is being repeated in cities and suburbs across the United States. Nearly a year after the sales of homes peaked, buyers are wresting control from sellers in many areas as inventories of unsold homes have grown, in some markets doubling. Few people are losing money after the run-up in housing prices in the last 10 years, but the air is coming out of the market.

It is a slow leak, to be sure. The most widely used statistic to measure home values, the median home price, shows that once-hot markets like San Mateo, Calif., and Mercer County, N.J., are now registering year-over-year declines. In general, prices are still climbing, but they are doing so far more slowly in cities like Las Vegas and San Diego, which had been lucrative markets for speculators.

"It's going from a seller's market to a buyer's market," said David Lereah, the chief economist for the National Association of Realtors. In March, "price appreciation went down to 7.4 percent, from over 10 percent," he added. "That most probably reflects that sellers are bringing their prices down."

As always, real estate remains intensely local and sellers have retained, or regained, control in some markets, because there are fewer properties to be had and demand is being bolstered by stronger job markets. Even in markets with growing inventories like Chicago, the situation is not uniformly weak in all neighborhoods.

ZipRealty, the discount real estate broker, has found widespread price reductions in the multiple listing services used by all agents to advertise homes. Prices have been trimmed on 35.7 percent of all homes currently listed for sale in the Boston area, for example. The same is true for homes in San Diego, Sacramento, Los Angeles and Miami. And prices have been snipped on a quarter of the homes in Chicago, Washington and Baltimore.

In Silicon Valley, where jobs are coming back after the collapse of the technology bubble, Richard Calhoun, a real estate agent, said that the number of homes sold was now 85 percent of the 25-year average. A year ago, it was 30 percent above that average. In Santa Cruz, inventories have tripled to 124 days, from 42 days.

A result is that the median price of homes in San Mateo County dropped 2.7 percent, to $875,000, in March, from $899,000 a year earlier.

"It's clearly a slowdown," Mr. Calhoun, the Silicon Valley agent, said. "But how can you complain when more than 50 percent of sellers are getting more than their asking price and when you have only two months of inventory when in other places four to six months is considered normal?"

Elsewhere, for the first time in nearly a decade, you can smell the anxiety. The listing agent for a four-bedroom home on Scripps Trail in San Diego informed other agents in the multiple-listing service that a "very, very motivated seller will entertain all reasonable offers" and "will help with closing costs." The house was listed in September at $810,000. After a previous price cut, the seller is now willing to entertain offers as low as $685,000.

The seller bought the house for $730,000 in 2005, according to county property records, for what the listing agent said were investment purposes.

Taking a loss is still rare for sellers, because homes appreciated so much in the 1990's and 2000's. Stephen and Brenda Abelkop bought their four-bedroom house in La Jolla, Calif., for around $850,000 about 15 years ago.

When they put it up for sale right after Thanksgiving, they followed their agent's advice to ask for $2.75 million. "You price it for the market," Mr. Abelkop said.

But they didn't attract much interest. Inventories in the San Diego area have risen 25 percent in the last year, to more than 19,000 unsold homes, a record. So there is a lot more competition, even for a high-end property like the Abelkops' house, which has sweeping views of San Diego Bay. They recently dropped the price to a range of $2.5 million to $2.7 million and said the drop had resulted in more buyer visits.

Some agents say setting price ranges attracts buyers who would otherwise walk away thinking the home was too expensive. Others say it is simply a sign of a wavering owner.

Because sellers are not panicking, it appears unlikely that the real estate market will fall abruptly. "Sellers remain optimistic," said Edward Leamer, an economist at the University of California, Los Angeles.

Mr. Leamer sees some evidence that the bubble is deflating slowly, but says he finds it striking that it has taken so long. For example, sales volume peaked in the San Diego area in the summer of 2003. Only in January did inventories begin to swell, hitting an eight-month supply of homes that month, and sellers began to get nervous enough to bring the prices down.

Inventories have since moved closer to a six-month supply of homes, which balances the volume between buyer and seller.

PMI, a company that tracks risk in the real estate market for mortgage lenders, said the chances were increasing that prices in San Diego would decline in the next two years. The company said the city had a 60 percent chance of a decline, up from 52.8 percent last summer.

Prices in most of California and the Boston-to-New York corridor could also fall, said Mark Milner, the company's chief risk officer. Its statistics, which lag the current market by about two months, show homes continuing to appreciate, but at a slower rate.

After open houses for their four-bedroom, two-story ranch house in Lawrenceville, N.J., brought in no offers, Mary Ellen and Anthony Pierrard are telling potential buyers they are willing to negotiate their $420,000 asking price and are even considering enlisting a real estate agent to help them market their home. That's a far cry from the couple's experience selling two houses on their own in Rockland County, N.Y., a few years ago.

"During the first open house for both, we received a minimum two to three offers," Mrs. Pierrard, a corporate employee relations manager, said. "We sold them on the first day. Now, no one is even making an offer, period."

Robin L. McCarthy, a real estate agent who works in nearby Princeton, N.J., said homes were sitting on the market three to four months, when houses sold in as little as a few days a year ago. Houses that would have been the subject of intense bidding wars now sell for slightly less than asking price.

"Buyers are afraid that real estate prices are going to go down, so they are very careful," Ms. McCarthy said. "They don't want to pay too much."

Thus far, prices have not fallen in any of the 375 largest American cities tracked by the PMI Group. But many are showing a sharp deceleration in price increases, among them Las Vegas, San Diego, Elmira, N.Y., and Lebanon, Pa.

Still, those cities are outnumbered by cities where prices are drastically accelerating — like St. George, Utah; Binghamton, N.Y.; Boise, Idaho; Naples, Fla.; and most cities in Arizona.

"We'd expect a soft landing in prices because, naturally, the economy is strong," Mr. Milner said. Unless a recession hits and people begin to lose jobs, house prices will fall slowly, most economists say.

In the new home business, large builders like Toll Brothers and Hovnanian Enterprises report that orders have fallen 4 percent to 29 percent but that average selling prices are still rising, albeit more slowly than six months ago. Nationally, however, the Commerce Department reported that median new-home prices — half the homes sold for more, half for less — fell 2.2 percent, to $224,200, in March from a year ago. It was the first year-over-year price decline since February 2003.

Inventories are not high in every city. For a variety of reasons, mostly stronger job markets, sales and prices are picking up in markets like Houston, Boise and Dallas, which did not see a boom in recent years, experts say.

In Seattle, for instance, some buyers are enmeshed in bidding wars that push prices far beyond the asking price — a phenomenon that was common in San Diego, Las Vegas and Washington only a year ago. Glenn Kelman, chief executive of Redfin, a new online real estate service based in Seattle, has hired a champion video gamer, with great thumb-twitching skill, to speed data entry during the multioffer auctions. "Polite, soggy Seattleites have become blood-thirsty cannibals," he said.

Houston appears to be benefiting from strength in the energy industry, robust hiring and transplants from Louisiana. More than 100,000 hurricane evacuees are living in the city and its suburbs. Clint Simpson of Greenwood King Properties said that in the last month he had represented four home buyers who were relocating to Houston because their companies were scaling back operations in New Orleans.

"Houses are getting multiple offers the first week on the market and many of them are going over list," he said.

In March, sales of existing homes were up 22 percent from a year earlier and median prices rose 5.4 percent, to $143,310, according to the Houston Association of Realtors. Inventories fell by nearly 3 percent in the month.

Formerly hot coastal markets and previously flat markets in the middle of the country have reversed their roles, said Mr. Lereah, from the Realtors association.

In Chicago, real estate agents say each neighborhood is different. A high-rise building boom has created a glut of condos downtown and buyers can often negotiate free parking spaces, which previously would have cost $35,000. But the pickings are so slim in the popular Lakeview area north of the central business district that an agent, Brad Lipitz, recently found only three listings there. "Chicago is comprised of many markets," he noted.

In Southern Florida, agents and sellers say sales have slackened as inventories have ballooned, but they note that prices are not falling.

Donna L. Lanzon sold her late mother's two-bedroom condo in Deerfield Beach in Broward County in March. The condo was initially priced at $250,000, but Ms. Lanzon reduced the asking price to $235,000 and sold the 1,260-square-foot, two-bedroom unit for $225,000 after three months on the market.

Her agent, Cathleen Flanagan, who works for ZipRealty, said the growing inventory — the Fort Lauderdale area had more than 20,000 homes for sale at the end of April, more than four times the level a year ago — had forced sellers to rethink their asking prices and offer incentives, like increasing the commission of the buyer's agent to 4 percent, instead of following the usual practice of splitting a 6 percent commission between buyer's and seller's agents. One seller recently offered a free five-night Caribbean cruise for two.

Do the tactics work? "Absolutely; it makes sense," Ms. Flanagan said. "A lot of buyers' agents will go out there to see the home."

More Articles in Business »

Edited by Realistbear

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Some tips for TTRTR:


Real Estate Tips: If you're a seller or speculator

Price it right, and don't be afraid of agents. Plus: a word of caution for flippers out there.

By Ellen Florian Kratz, FORTUNE writer

May 8, 2006: 9:42 AM EDT

NEW YORK (FORTUNE Magazine) - Each day brings fresh evidence of peaking home prices. But, with the right strategies, sellers can still command top dollar.
If you're a speculator ... get out now
In 2005, investors accounted for 28 percent of the housing market, up from 23 percent in 2004, according to the National Association of Realtors. But the game of buying a home - or two or three or 17 - holding it for a bit, and then flipping it for a handsome profit has pretty much played itself out.
"Get out as fast as possible,"
says Mark Zandi, chief economist with Moody's Economy.com. "The market is moving away from the investor, and even when it stabilizes, I don't think it's going to come back anytime soon."
So don't repeat the mistake that tech investors made during the dot-com bubble. As stocks spiraled downward, they held on, thinking that the market would bounce back quickly. Just accept that you're going to lose money on that Miami deal.
"Take your lumps," says Jon Duncan, a Tacoma financial planner. "If you're feeding this thing cash flow, it won't take long to make this a very bad investment."

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America's number 1 non-Sheeple paper also going bearish:


Real-Estate Slowdown Appears

To Be Spreading Nationwide

By Janet Morrissey

From The Wall Street Journal Online

There are signs a housing slowdown that has gripped certain high-growth markets during the past few quarters, is now spreading nationwide.

Preliminary reports from builders Hovnanian Enterprises Inc. and Toll Brothers Inc., whose quarters ended April 30, indicate demand is falling faster and more sharply than previously thought, and that the pullback is no longer confined to hot markets that had seen sharp home price run-ups in the past few years.

Hovnanian's orders fell 20% in its fiscal second quarter -- an about-face from the 5.5% order growth reported in its fiscal first quarter. Toll's orders declined 32%, which is steeper than the 29% dropoff posted in its fiscal first quarter.

For Toll, the order decline was across the board as all of its geographical regions reported year-over-year decreases in demand. Chairman Robert Toll attributed the declining demand to higher cancellations and to speculative buyers who are dropping out of the market and putting the homes they recently acquired up for sale. Although Toll said his company doesn't sell to speculators, "we have certainly been impacted by the overall increase in supply."

On top of this, some builders, such as Centex Corp. and Hovnanian, have started taking writedowns in connection with land options. In general, when builders take writedowns to walk away from land options, it is a sign that either land values are falling or demand in that market has dried up. In past cycles, declining land values often were a sign that a market was falling fast.

Until now, home-building executives said the pullback in demand was largely confined to markets where sales had been overheated and home prices had skyrocketed during the past few years, such as Washington, D.C., parts of California (especially Sacramento), Phoenix and parts of Florida. They blamed speculative buyers for much of the pullback, saying investors had exited the market, causing less overall demand and more inventory.

These hotspots continue to see the sharpest pullbacks, but other markets also are slowing.

Majestic Research analyst John Tomlinson, in his monthly report that tracks new-home sales in 40 major markets, found sales fell year over year in every market during February and March, with the average decline being 25%.

Washington, D.C., Los Angeles/Long Beach, Tucson, Ariz., Sacramento, San Francisco, and Phoenix saw the biggest declines with sales falling 22%, 50%, 50%, 46%, 30%, and 37%, respectively. However, even markets that hadn't been weak previously -- such as Philadelphia, Dallas, and Las Vegas -- softened in the quarter, with sales falling 30%, 15%, and 13%, respectively, he said.

"Almost every single major market that we track is showing pretty significant year-over-year declines in sales," Mr. Tomlinson said. "It's much more broad-based" than it was prior to February.

Rising inventory, slowing sales and bigger incentive packages all signal a correction in the housing industry, Mr. Tomlinson added. But time will tell if this will lead to big dropoffs in home prices, "which I think most people are most afraid of," he said.

So far, builders' efforts to offer more incentives and discounts have "failed to move the needle" in driving sales, Mr. Tomlinson said. As a result, he said some may need to resort to bigger price discounts. "That's the million-dollar question," he said.

Bernard Markstein, director of forecasting at the National Association of Home Builders, said there is no question housing demand is slowing nationwide. He said rising mortgage rates have given people reason to "pause" in their decision to buy.

"We've been getting reports of a slowdown in housing across the board," Mr. Markstein said. But so far, he said, it's just a "moderating of activity -- not a falling off of the cliff." He describes it as a "return to normalcy."

Mr. Markstein is predicting that overall housing starts will fall 7% to 1.95 million from 2.1 million in 2005. He sees demand returning to 2004 levels.

If companies continue to build at the pace they had in 2005, there could be more serious inventory problems.

"We were building at a pace that we did not expect to be sustained and we're seeing a slowdown," Mr. Markstein said. He expects builders to slow their pace of construction to meet the softer demand.

However, many builders aren't cutting back, and are instead talking about opening many new communities in order to drive order growth. Toll Brothers, for example, plans to open 80 communities during the next six months, and expects to wrap up fiscal 2006 with 295 subdivisions, up from 230 in fiscal 2005.

Chairman Toll sees the glut of inventory on the market as a "short-term phenomena" and believes the supply imbalance will correct "relatively soon."

Despite the softening trends nationwide, Fitch Ratings analyst Bob Curran said he still believes the housing sector is heading for a soft landing -- not a crash -- and that the current housing slowdown is temporary and will likely rebound by late 2006 or early 2007. He said economic data for job growth and consumer confidence has been positive.

"It would be highly unusual for housing to go into a multiyear tailspin when the general economy is holding up," he said.

Mr. Curran noted that most of the publicly traded home builders are heavily weighted in big-growth markets, such as California, Phoenix, South Florida, and Washington, D.C., which experienced overheated demand and a spike in home prices during the past few years -- and are now seeing the biggest weakness.

As a result, the sharp slowdown in the hot markets makes the major builders "a little more vulnerable in the short term," he said. A slight slowdown in smaller markets won't make a huge difference for them, Curran said.

"If you've got 25% of your assets in California, quibbling about what's happening in Salt Lake City isn't going to make a difference," he said.

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Q.At what point will the Fed stop raising short-term interest rates?





6% or higher

Yahoo is conducting a poll--you will never guess what the majority are voting on!

Go to:


Bottom right of page is the poll. Enter your guess and see the horrific result. :o

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