Wednesday, June 14, 2006

Farewell to the flippers

Farewell to the flippers: Home prices are falling
Buyers in some cooling markets know they’re in the driver’s seat


NEW YORK - Low-ball bidders, persnickety buyers and cancellations are now the rule in once-hot housing markets.
Rising interest rates and sky-high home prices have cooled real-estate investment, “particularly in high-end markets in some juiced-up parts of the country where speculation was most rampant,” said Mark Zandi, chief economist at Moody’s Economy.com.
The record low interest rates and speculators that once drove prices higher are gone. Observers expect housing prices to stagnate or decline slightly, though a steep crash for housing prices is unlikely. As the market slows, both builders and buyers are getting used to the changes.

On a recent conference call, Ara K. Hovnanian, the president and chief executive officer of homebuilder Hovnanian Enterprises Inc. said that real estate investors “have largely pulled out.”
“Investors were a bigger part of the market than many thought, including ourselves,” said Hovnanian, whose company builds primarily in the Northeast. Would-be flippers are not only not buying new properties, they’re selling what they already own, adding to the record number of homes already on the market.
Stocks in the sector have fallen dramatically. Hovnanian, for instance, is trading near $30 a share, down from its 52-week high of $73.40. Rival Toll Brothers Inc. trades around $27 a share, down from a 52-week high of $58.67.
Wachovia last week cut its rating on builders including Pulte Homes Inc., KB Home and DR Horton Inc., citing a sharper more rapid downturn in the market than expected.
Developers have started canceling projects. Plans were scrapped last week for a 4,400-unit Las Vegas condo resort complex that had been backed by actor George Clooney and nightclub owner Rande Gerber. The development company for the project said rising construction costs and slow sales forced it to rethink the plan.
With land prices falling in some areas, Hovnanian has walked away from about $5.6 million of deposits on land parcels it had options to buy, lopping 5 cents a share off the company’s second-quarter earnings.
Buyers in some cooling markets know they’re in the driver’s seat.
Click for related story
Home sellers seeking new ways to woo buyers
Rachel Moehl, a real estate agent with Weichert Realtors in Jersey City, N.J., said she almost saw a deal for a three-bedroom condo fall apart over what proved to be a $400 problem — moisture between window panes.
The buyers “were saying the week before the closing, ‘We don’t really love the apartment. We’re ready to cancel the deal over the windows,”’ she said. The seller gave them a $400 credit.
Other agents say clients are putting in bids well below the sellers’ asking prices, or simply waiting.
“Home prices have risen to where buyers can’t afford to buy,” said Keith Gumbinger vice president at HSH Associates, which publishes consumer loan information.
The national median existing home price was $223,000 in April, according to the National Association of Realtors. While that was a 4.2 percent increase from April 2005, the organization predicts that prices this year will rise only 0.8 percent.
Others aren’t so sure they’ll rise at all.
There was a 4-month supply of unsold homes on the market in April 2004; it rose to 5.8 months in April 2006, according to the Department of Commerce.
In suburban Philadelphia, where the inventory of unsold homes has soared, Zandi asked an agent months ago how anyone could get a mortgage for a home listed at $3.2 million.
“They were almost snooty,” he said. “The girl said, ‘People who buy these homes buy with cash.”’ The house is still on the market, now listed at $2.8 million.
Part of the backlog is 128,000 unsold new homes, the highest level in history, said Mario Ricchio, housing analyst at Zacks Investment Research Inc.
“(H)omebuilders may not be able to push all this supply through the market,” he said.
Contract signings for new homes are down sharply and cancellations are up.
“It’s a more difficult market and our salespeople are no longer just taking orders; they have to sell,” Hovnanian said on the call.

0 Comments:

Post a Comment

Links to this post:

Create a Link

<< Home