View Full Version : Investors Retreat From Housing Market

12-07-2005, 11:01 AM
Note Robert Cayoutette's situation (second to last paragraph). Ouch!

Inventories Rise as Speculative Buying Slows In Once-Hot Markets Like Phoenix and San Diego

By RUTH SIMON Staff Reporter of THE WALL STREET JOURNAL December 7, 2005; Page D1

Individuals are pulling back from buying homes and condos as an investment, in a move that could accelerate the cooling of the housing market.

In markets such as Las Vegas, Miami, Phoenix, San Diego and Washington, D.C., where investor activity had been heated, fewer people are competing to buy properties as an investment, real-estate brokers and housing analysts say. Some investor-owned properties are returning to the market for sale. With the pace of price appreciation slowing, some investors who were betting on quick profits are instead being squeezed.

The apparent pullback by investors is recent and is just beginning to show up in national data. Evidence of the development can also be seen in a number of markets that had until recently been a hotbed of investor activity. As speculators withdraw from the market in San Diego, for instance, the number of investors buying property has fallen by nearly half, estimates Russ Valone, president of MarketPointe Realty Advisors, which tracks the San Diego housing market.

In the Phoenix area, as many as 30% of properties for sale are currently owned by investors, says Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Six months ago, most investors were buying rather than selling, he says. The shift has helped to drive up inventories of homes for sale in the Phoenix area, which climbed to 22,340 in October from 8,600 in April, according to data from the Arizona Regional Multiple Listing Service.

In the latest sign that the housing market is cooling, the National Association of Realtors said yesterday that its index of pending home sales dropped 3.2% in October. The reading is the lowest since March.

It's too early to tell just how a pullback by investors will affect the broader housing market, but their impact on the housing boom has been considerable. Investors accounted for 9.6% of mortgages used to purchase homes in the first nine months of this year, the most recent data available, up from 6.7% in 2002, according to LoanPerformance, a unit of First American Corp. But the investor share began to drop in the third quarter, the firm says. The figures don't include second homes that may also provide rental income and serve as an investment.

A softening in investor demand is likely to accentuate any slowdown in home sales, says David Berson, chief economist at mortgage giant Fannie Mae. He estimates that home sales will fall 10.4% over the next two years, largely because of a decline in investor and second-home purchases. Mr. Berson also figures that without the recent surge in these purchases, home sales would have been 7.3% lower in each of the past two years. That estimate assumes that investment properties and second homes account for 10% of total sales.

Another concern is that investors will be quicker to sell if prices soften, accentuating any downturn, particularly in areas where speculation has been most prevalent. Some of the most vulnerable markets include Daytona, Fla., Las Vegas, Phoenix and Fresno and Bakersfield, Calif., according to Credit Suisse First Boston analyst Dennis McGill.

Even if investors don't all rush for the exits at once, more investor-owned properties are likely to return to the market over the next few years. In part, that's because many investors have bought preconstruction properties that won't be ready for occupancy for another year or two.

To be sure, investor demand remains strong in some parts of the country as investors take their profits in markets that have seen double-digit gains and move into areas such as Dallas, where price gains haven't been so steep. And while it's getting tougher for speculators to make a quick buck, brokers say that opportunities remain for investors who plan to hold their properties for several years.

Earlier this year, Sandra Geary, a broker in California's Sonoma County, was running seminars that drew as many as 200 would-be investors. She's also taken California investors on out-of-state home-buying expeditions to Arizona, Idaho, Nevada and Oregon and bought more than 30 rental properties for her own portfolio. But in recent months, her investor sales have fallen more than 75%. "Now that the market is slowing down, it's scaring investors away," she says.

Some brokers are advising speculators to put away their checkbooks. "I'm telling people who want to buy new construction to flip it that the gig is up," says Frank Borges LLosa, a real-estate agent in Arlington, Va.

Last year, Mike Morgan, a real-estate broker in Stuart, Fla., set up a Web site designed to attract investors scouring the Internet for preconstruction properties. But with the market softening, Mr. Morgan has cut back on promoting his site. Now, he works only with investors seeking "buy and hold" properties. "I haven't sold an investor a property to flip since June," he says.

Some investors also are backing out of preconstruction properties they bought. In San Diego, cancellation rates for new condominium units climbed 47% in the third quarter over the second, in part because a growing number of investors are getting cold feet, according to the Building Industry Association of San Diego County.

Cancellation rates for condo units are also rising in many other markets, including Florida and metropolitan Washington, according to the National Association of Home Builders. "It's largely because of investors" pulling back, says NAHB staff vice president for research Gopal Ahluwalia. "A whole lot of condo units are sitting empty." Whether a buyer can easily get out of a deal can depend on a number of factors, including the builder's policies and the terms of the buyer's contract.

With price appreciation slowing, it's getting tougher for investors looking to quickly flip a property to earn a return that's high enough to cover brokerage commissions, mortgage costs and other expenses. Prices for existing homes are expected to rise 12.4% this year, according to the National Association of Realtors, well above the 5.3% average annual gain since 1990.

Some investors are already getting pinched. Barry Fiske, an account manager, teamed up with a friend to buy a bungalow in the oceanside town of Hingham, Mass. The pair tore down the house and put up a three-story Victorian home that went on the market in October, priced at $889,000. After three price cuts, the asking price is now $799,000 and the opportunities to profit are "marginal," Mr. Fiske says. "We probably spent more than we originally intended to," he adds.

Robert Cayouette, a computer programmer, has put down deposits on 10 homes under construction in Florida, figuring he'd quickly flip them and make a profit of about $30,000 apiece. The first of those purchases, a three-bedroom home in Port St. Lucie, is expected to close this month. But Mr. Cayouette has learned he'll be lucky if the house fetches $285,000, or $10,000 less than his original purchase price. "I wouldn't be able to flip it if I wanted to," says Mr. Cayouette.

With home prices growing faster than rental rates, investors who decide to rent out their properties rather than sell them often can't make enough to cover mortgage payments, taxes and other costs. Arash Yazdi, an information technology consultant, decided to rent out his $465,000 townhouse in Merrifield, Va., this fall after a deal to sell the home fell through. He figures he's losing about $1,000 a month.

12-07-2005, 12:42 PM
hopefully the slowdown gains momentum as some ahole developer wants to build a huge condo building behind me, ruining my view.

12-08-2005, 04:43 AM
Econ 101...interest rates go up...yada yada yada...

12-08-2005, 12:39 PM
http://news.yahoo.com/s/ap/economic_fore...zkxBHNlYwN0bQ-- (http://news.yahoo.com/s/ap/economic_forecast;_ylt=AuajSsWVUow8vgG9w9gHO4es0NU E;_ylu=X3oDMTA2Z2szazkxBHNlYwN0bQ--)

LOS ANGELES - A sustained decline will hit the U.S. housing market next year, costing the nation as many as 800,000 jobs, according to a new economic report released Wednesday.

The slowdown is likely to last several years, with as many as 500,000 construction jobs and 300,000 financial sector positions lost, the quarterly Anderson Forecast predicted.

"We expect housing to start slowing the economy this quarter or the next," said Edward Leamer, director of the study done at the University of California, Los Angeles.

"Some jobs in manufacturing might well disappear as a result of weakness in housing, but this may be offset by jobs brought home or not lost to foreign competition," he wrote.

The forecast said eight of the last 10 economic recessions were started by housing market slowdowns. Though the coming cooldown will cause a drag on the nation's economy, it will fall short of triggering a recession, the forecast said.

The report cited several signs that the decline could be under way:

New construction of housing in October was down 5.6 percent from the previous month, with new construction of single-family housing accounting for a 3.7 percent dip.

New home sales have declined.

Applications for home mortgages have trended downward since late September as rates increased.

In some regions, homes are remaining unsold longer and the pace of housing construction is outpacing population growth, which could spell a decline in demand.

"On all these grounds, we believe housing is due for a sustained decline," economist Michael Bazdarich wrote in the forecast. "The remaining questions are how hard the fall will be and when it will begin."

The forecast for California, where housing prices lead the nation and housing-related jobs have been driving economic growth, resembles the national outlook.

Economist Ryan Ratcliff said the state's housing market will see a slowdown in spending along with job losses in construction and related sectors.

He expects California home prices to plateau while sales and new construction see moderate decreases during two years of weak growth.

"If the housing market slows more than we are expecting, a recession is not out of the question," Ratcliff wrote.

Counties showing signs of a cooldown include San Francisco, where housing sales have been off 20 percent since peaking in June, 2004. San Diego County has seen sales slow about 13 percent, while monthly price gains have plummeted to low single digits.

California's job picture has been lackluster in recent months. The rate of employment growth has slowed after a significant number of jobs were added in July and August.

Construction has remained the fastest-growing sector. But Ratcliff predicts a slowdown in construction activity through 2007 and moderate construction job losses.