Typical of a real estate downturn cycle...
Far-flung exurbs hard hit by housing downturn
By Patrick Rucker 52 minutes ago
WASHINGTON (Reuters) - While the housing downturn has depressed once-thriving real estate markets around the nation, far-flung suburbs of major cities have suffered the most abrupt market correction.
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Home construction in these distant exurbs has slowed and prices and sales have fallen more than those of close-in suburban neighbors since a five-year housing boom ended in the summer of 2005.
Average home prices in Loudon County, Virginia, 35 miles outside of Washington, D.C., fell roughly 11 percent in 2006, according to the Northern Virginia Association of Realtors. By contrast, Virginia's Arlington County, which hugs the nation's capital, saw a price decline of only about 2 percent.
"It's been hard for sellers to comprehend, and I'm usually the bearer of bad news," said Mike Wagner, a real estate broker who works in Loudon. "The news is: Your home is worth $100,000 less than it was a year and a half ago."
And it's not just prices that have suffered.
The average Loudon County home sold in December spent 101 days on the market, according to the Realtor group. In Arlington, the average was 72 days.
Wagner and other local real estate agents say the area's soft market is a hangover, in part, from a building spree and a buying binge among investors priced out of other areas.
The same holds true for California, where exurban housing markets have softened more than those close to urban centers.
Home prices in Los Angeles rose a relatively modest 5.8 percent in December from a year earlier, while sales were down 14.5 percent, the California Association of Realtors said.
Riverside and San Bernardino counties, which are on the eastern edge of Los Angeles' suburban frontier, saw a more modest 3.9 percent increase in prices, while sales volume plummeted 40.6 percent. High Desert, about 80 miles from downtown Los Angeles, saw just a 1.3 percent increase in sales price and a 39 percent drop in the number of sales.
Some observers blame the sales stall in the Los Angeles area on home builders who for years gobbled up available land in exurban tracts and overbuilt. Areas closer to the city are already built out and have not faced a big injection of new homes, said Leslie Appleton, an economist with the California Association of Realtors.
Now, real estate agents in the exurbs trying to sell a glut of new homes, along with the inventory of previously owned houses.
"There is intense competition in the inland areas of the state between the existing stock and new homes," said Appleton. "The absorption of this new product is going to take some time."
And while new buyers are needed to sop up the housing stock, many investor-owners are losing their properties through bankruptcy, said Jesse Ramirez, a real estate agent in Riverside.
"There were some investors thinking that the market was going to continue going up," said Ramirez, who has noticed a spike in the number of bank repossessions. "When things go up, they creep. When they go down, they go down fast."
In some of Florida's distant suburbs, strong price appreciation rates had builders imagining a continued demand for homes, said Brad Hunter, director of South Florida real estate research firm Metrostudy.
"I think it was easy for builders to think that there were real users in these fringe areas far from jobs and entertainment," he said. "In fact, we found that purchases in those areas over the last three years or so ... were speculators and not users."
This doesn't sound good...
Vacant Homes for Sale Cloud
U.S.'s Economic Outlook
By Michael Corkery
From The Wall Street Journal Online
Amid brightening hopes that the U.S. housing market is stabilizing, some economists are zeroing in on a piece of data that could augur badly for the consensus view: the homeowner vacancy rate.
That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.
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That brought the national homeowner vacancy rate to 2.7%, up from 2.0% a year earlier. Before 2006, the number had never risen above 2.0%. Like the housing economy more broadly, the measure varies by region: The South had a homeowner vacancy rate of 3.0%, the Midwest had a rate of 2.9%, the West had a 2.4% rate and the Northeast had a rate of 2.0%.
The report, which usually gets little attention, sparked fresh concerns about the housing market. Goldman Sachs economist Jan Hatzius concluded in a report last Monday that rising vacancies signal that excess housing supply continues to grow -- and that new construction has to decline further this year, even after a 13% decline in new home starts in 2006.
Meantime, J.P. Morgan economist Haseeb Ahmed said the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can't sell and may be under increasing pressure to drop their prices. "We are concerned that there could be downward pressure on prices for awhile," Mr. Ahmed says.
Such worries could cloud hopes for a swift housing rebound. Those hopes have been bolstered recently by signs that the market may be stabilizing. Sales, which fell sharply through much of last year, have leveled off in many metropolitan areas and mortgage applications have been rising.
Also upbeat was a report two weeks ago from the National Association of Realtors that the supply of existing homes for sale declined during the final two months of 2006. That was greeted as a positive sign for housing because a decrease in supply tends to lead to firmer prices. But the NAR figures count both vacant and owner-occupied homes for sale -- and inventory levels for owner-occupied homes can fall not just because the home is sold, but also if sellers remove the property from the market because they didn't receive desirable offers.
The homeowner vacancy-rate increase "does temper your outlook" for new construction, says David Seiders, chief economist at the National Association of Home Builders in Washington. Mr. Seiders is forecasting largely flat housing sales this year followed by a strong rebound in housing starts in 2008. "There clearly are uncertainties about how this is going to work its way out," says Mr. Seiders. "I keep preaching to builders it's not time to ramp up production."
Mr. Ahmed of J.P. Morgan says the homeowner vacancy rate calculates vacant homes that are residential year-round, and is supposed to exclude homes that are used occasionally as vacation homes, which have been growing in number in recent years. He says it's possible the vacancy rate may have captured some of these seasonal properties inadvertently. The high vacancy rate also may have been affected by the active 2005 hurricane season that forced residents to flee the Gulf Coast.
Another factor that may have contributed to the high vacancies, says Mr. Hatzius of Goldman: newly constructed homes that are finished and awaiting occupants, but haven't sold.
The vacancy indicator may help distinguish between the sellers who have casually listed their house on the market to see what price they can fetch, versus sellers who are under real pressure to sell. The owner of a vacant home -- who may be squeezed by mortgage payments for the vacant home as well as a current residence -- could be more willing to drop the price to minimize the cost, than a homeowner who lives in the home and doesn't have to sell.
Jon Estridge, 34 years old, owned a pair of investment homes in Virginia that sat empty for several months last year. When the market slowed, it was difficult not only to find buyers, but also to find tenants who would pay enough rent to cover his mortgages. "It eats you alive," said Mr. Estridge, who works for the federal government. "The market is going down, and you are paying a mortgage."
He eventually sold one home last spring, after dropping the price. He bought the property for $395,000 and sold for about $35,000 less. The other home sold for $260,000 in late August after he dropped the price by about $30,000.
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To be sure, so far prices have fallen in relatively few markets. In fact, median home prices nationally were up 1.1% in 2006, according to the NAR. And last week, the Federal Reserve's Federal Open Market Committee said in a statement that "recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."
Many economists agree, however, that rising vacancies have likely been fueled by a group that is proving to be the wild card of this housing market: speculators. During the boom, they flooded the market and flipped homes for a profit. When sales slowed, speculators were stuck with vacant homes that have lingered on the market.
There's no doubt speculators had a major impact, but their numbers have been difficult to quantify. The recent vacancy data may be a useful measure of speculative activity and its fallout.
"I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years," said Richard DeKaser, chief economist at National City Corp.
What's troubling is that speculators may not act like typical home sellers. When they sell their vacant home in a down market, they don't necessarily purchase another home. By contrast, people selling the homes they live in will most often buy another house -- thus fueling a healthy market of buying and selling.
Not surprisingly, buildings with five or more units -- which include condos that were magnets for speculators -- had the highest rate of vacancy. The vacancy rate among these units rose to 11% in the fourth quarter from 7% in the first quarter. For single-family homes, the vacancy rate rose to 2.3% in the fourth quarter from 1.8% in the first quarter.
Mr. Hatzius expects homeowner vacancies will slow, as builders cut back on production and owners convert their units to rentals to take advantage of rising rents. But then again, the housing market has been full of surprises.
"This whole thing has been new," says Mr. Seiders, the National Association of Home Builders' economist. "We've never seen this kind of investor activity and we've never seen this kind of [vacancy] resale. It's an extra complication moving forward."
