The Housing Bubble

A report from the Washington Post. “Shauntise Harris expected competition when she put her one-bedroom condominium on the market in April. But she didn’t know how intense that competition would get. Not only was she up against some of her neighbors at a 246-unit luxury building in the District’s Mount Vernon Triangle neighborhood, but she also was competing with the project’s developer, the JBG Cos.”

“Nineteen months after starting sales, JBG still had units to unload and was offering a year of no condo fees on one-bedroom units, an incentive Harris could not match. ‘I’m like, you guys are still here?’ she said.”

“There are 20,217 new condos on the market in the Washington metro area, by Delta’s count. Marketing on another 18,867 units is expected to begin in the next three years, said Gregory H. Leisch, CEO of Delta Associates, citing his firm’s midyear analysis of the condo market.”

“What’s hurting new projects the most are contract cancellations, when buyers back out of deals. ‘A lot of times these projects were sold out. But people would put down deposits and wouldn’t go through with the closing,’ said William Rich, VP of Delta.”

“For buyers, the competition can be a blessing. Thomas K. Meyer, president of real estate brokerage Condo 1 in Falls Church, said potential buyers should not be afraid to offer less than asking price, especially when they’re dealing with the developer.”

“‘It’s a much more competitive world for the builders now,’ he said, ‘and the farther away you get from Washington, the more competitive it is.’”

The Baltimore Sun from Maryland. “Real estate investors, leaping to buy Baltimore homes during the boom, helped fuel the frenzy and drive up prices in neighborhoods from Canton to Reservoir Hill. Now they’re part of the fallout.”

“Properties belonging to ‘nonowner occupiers,’ usually investors, accounted for nearly 30 percent of the city homes that lenders were trying to foreclose on during the first three months of the year, according to a Sun analysis.”

“In popular Canton, for instance, investor-owned real estate added up to more than half the 25 homes on the court foreclosure-filing rolls.”

“‘Some people just got left holding the bag,’ said T. Guy Cook… whose niche is lending to Baltimore real estate investors. ‘It was inevitable. You knew it was going to happen - it’s like musical chairs.’”

“The rising tide of foreclosures has swept up investors both novice and experienced, though it appears that the newcomers are far more numerous. They were ‘the most giddy of all,’ jumping in too late and paying too much, Cook said.”

“‘It’s been a nightmare,’ said Ndabezinhle Moyo, a Baltimore resident who began investing last year in several city neighborhoods. After a series of setbacks, he’s fighting to save four of his rentals - plus his own home - from foreclosure. ‘I was OK up until December. From December, I basically couldn’t make a single payment for anything till about April.’”

“Investors who descended on certain areas to buy, buy, buy during the housing boom helped drive prices up even further at the time, said Mark Fleming, chief economist with a firm that helps the mortgage-lending industry manage risk and fraud.”

“‘They artificially inflated values, in essence, because of their interest in bidding it up to get it away from the other investor,’ he said. ‘If you have concentrated investors in certain areas and then house prices start to move south or sideways, the ramification is their greater willingness to walk.’”

“A California mortgage fraud detection company, said just over 30 percent of the Baltimore loan applications it looked at in the first five months of the year had possible ‘property valuation’ problems, often inflated values. That compares with 8 percent nationwide.”

“‘A lot of people [who] got in, put a lot of money into fixing up houses and have loans, can’t sell them, they can’t rent them for enough to cover mortgages, and they’re stuck,’ said Alan Chantker, president of the Mid-Atlantic Real Estate Investors Association. ‘They may have thought they were going to be in and out of the home in six months, nine months - and then it turns into a year, a year and a half.’”

“Nobody expected the collapse of two New York hedge funds investing in subprime mortgages to kick up dust in Baltimore. Nobody expected a bunch of First Mariner’s mortgages in Northern Virginia to go bad less than three months after they were issued.”

“‘I’ve never had anything like this happen to me,’ First Mariner CEO Edwin F. Hale Sr. said last week.”

“Until very recently, economic optimists had comforted themselves with the notion that housing problems were ‘contained.’ Things would pick up in the spring home-buying season, people figured. But there was no season, it is now apparent.”

“The salve of federal money that has protected the Baltimore-Washington region from economic pain is losing its effectiveness. Half of First Mariner’s problem loans were in Northern Virginia, home of a defense-spending spree since 2001.”

“Hale thinks some of the mortgages may have been issued to ‘flippers’ seeking a quick buck, violating contract terms requiring the money to be applied to a primary residence. Even so, the delinquencies don’t speak well of the Northern Virginia economy or, by implication, Maryland’s, which has been operating in the same federal bubble.”

The Post Gazette from Pennsylvania. “David and Jerri Bauman, a mentally challenged couple who have scraped through life, wanted a home. It was supposed to be 22 Fairview Ave. in West View, a place sold to them amid a flurry of confusing paperwork they couldn’t read, a pair of unexplained bank transactions and at least three sales documents that contradict reality.”

“The lawyer who handled the transaction, according to Mrs. Bauman, told her it would take too long if they read everything. ‘We didn’t understand them. We just signed,’ Mrs. Bauman said.”

“Arnold Kogan, a veteran real estate attorney in Harrisburg, finds the deal a symptom of a reckless market. ‘It goes beyond that these people couldn’t pay. If this is systemic, it could be a much more problematic situation for the economy,’ Mr. Kogan said.”

The Philadelphia Inquirer from Pennsylvania. “Linda Reid-Williams is in trouble. Her mortgage payment is increasing about $200 next month, and she’s worried she can’t afford it.”

“Reid-Williams tried for months to refinance the house she bought in Yeadon eight years ago, but recently decided against it, to avoid a $4,000 penalty for paying off her existing loan early, she said.”

“This is quite a contrast from two years ago. When Reid-Williams refinanced in 2005, it seemed like the lender was coming to her rescue with money she needed to pay off her car and other bills. When it was too late, she read the fine print.”

“‘What did I just do?’ she recalled asking herself.”

“The result, according to Mark Zandi, chief economist at Moody’s Economy.com in West Chester, will be a surge in defaults this year and next. The impact already has been seen in Willingboro, where 436 houses were for sale last week, said Martha Lee Boyer, owner of Imani Realty & Associates, citing MLS data.”

“Boyer, whose business is based in Willingboro, said that in 2004 and 2005, the biggest number of listings at any one time would have been 100. Boyer said that while she continued to see home buyers who were trading up, ‘we’re still seeing more and more distressed sales.’”

“In 2005, more than half, 1,409 of 2,716, of the mortgage loans made in Willingboro were high-cost loans, based on a federal benchmark.”

The Morning Call from Pennsylvania. “The average price of a home in the Lehigh Valley rose 2 percent in the first half of the year. It’s been five years since home appreciation hit such a low level here.”

“The rate of appreciation has slowed as home sales have fallen and new listings have soared. For every one home that has sold this year, 2.5 homes have been listed for sale.”

“The volume of transactions has slowed to a crawl. ‘The Achilles heel of the housing market is volume,’ said Bethlehem economist Kamran Afshar. ‘Volume does drop. We are observing a significant drop right now in volume, and that is serious.’”

“Prospective buyers, on the other hand, felt no sense of urgency in the first half of the year because there were so many homes to choose among. ‘They don’t have a gun to their head so they are taking their time looking at a lot of properties,’ said Jeff Burnatowski, an agent in Allentown. ‘If they can’t strike up a deal to their terms, they just go on to the next home.’”

“In June, pending sales, a measure of future sales activity, were down 17 percent to 622 contracts, compared with the same period last year. Many suburban properties priced at $250,000 or more have idled this year. Burnatowski said those properties compete with newly-built homes, ‘where builders are giving mega discounts to move inventory, which is hurting resales. They have deeper pockets.’”

“In the Valley, a mix of local and national builders construct new homes and subdivisions. National builders have been facing a glut of unsold homes this year, according to the National Association of Home Builders.”

“To reduce inventory, builders have offered a large number of incentives, including premium flooring, decks and closing costs. That’s because builders with unsold houses in new subdivisions typically can’t lower sales prices because the other residents have paid a given price for their homes.”

“Real estate agents say factors such as high gas prices and the lengthy commute are also deterring some prospective buyers.”

“‘There was a great buzz about moving out here. Now the buzz in New York and New Jersey is: ‘It’s not quite as much paradise as they were saying,’ said Gail Hoover, a real estate agent in Center Valley.”