The Housing Bubble

The Review Journal reports on some changes in Nevada. “There’s probably no better indication that Las Vegas’ real estate market has cooled than the number of people who kept their wallet in their pocket at Wednesday’s BLM public land auction. Only nine of 61 parcels on the block were sold, a total of 27.5 acres out of 488 acres.”

“It was the smallest sale since the Southern Nevada Public Land Management Act of 1998 ordered the release of 27,000 acres of federal land. Some 2,800 acres sold for $754.5 million at the last auction.”

“‘I imagine it’s the market. It’s the prices,’ said Anna Wharton, land sales specialist for the Bureau of Land Management. ‘It’s likely developers are thinking values are too high. They also have a stock of property they’re trying to turn over and I’m not sure the market is ready for turnover.’”

“At one point early in the auction, after 10 consecutive parcels received no bids, someone in the audience shouted, ‘Too expensive.’ The land is independently appraised for the BLM and offered twice a year at public auctions, though bidding starts at minimum value.”

“Bill Fritchley, who went to the auction, said the parcels aren’t going to sell for what they’re asking. ‘All of a sudden, we had the market going up. Now we’re seeing a softer market. What we’ve seen is the market was overinflated,’ he said.”

“Bill Wilson of First National Bank of Nevada said a lot of the parcels were zoned residential. Land prices have leveled off and even retreated in some residential areas, said Travis Nelson, assistant vice president at Nevada Title Co.”

From Business Week. “More than most cities, Las Vegas has benefited from four years of low interest rates, a sizzling housing market, and explosive growth in jobs and population. With its heavy dependence on housing and consumers, Las Vegas may provide some hints of what a national slowdown might look like.”

“In Las Vegas, as in other hot markets, soaring real estate prices have driven spending on cars and other consumer goods. Since 2003 home price appreciation has generated more than $20 billion in paper and real wealth for residents. Although the median price of existing Las Vegas homes is still rising, the annual appreciation rate slowed to 7% in May. And the number of existing homes sold in May fell 18%. Like it or not, Las Vegas seems poised for a slowdown.”

“The housing market in the Las Vegas Valley has cooled down considerably from just a year ago. According to the latest real estate market condition report, there are more than 20,000 houses on the market in the valley.”

“Eyewitness News spoke with a number of homeowners Wednesday and they say they are lowering the price just to get people to look at their homes. Real estate experts say the problem is home prices went up too high too fast and now they’re starting to come down.”

“Investor and realtor Don Weimer has had a property on the market for about a month and hasn’t seen much activity on it. He says many homeowners are now rethinking the selling price of their home. ‘We’re going to have to further drop in prices. I’ll probably drop this in another week or so. I have a payment. I have association dues. I’m a big boy; I’m not going to get what I thought I would. It’s the function of the market. Real estate is not a liquid item,’ he said.”

“Weimer says the housing market is 15-percent off right now from the all-time high and we should expect to see resale home price come down further.”

A pair of reports from Idaho. “If you’re looking to buy a home in the Wood River Valley, there are almost 1,100 of them to choose from. That’s about 400 more than were on the market at this time last year. ‘It’s a good time to look around and make an offer, because there are deals to be had,’ said Jim Figge, president of the Sawtooth Board of Realtors.”

“Meanwhile, prices have started to drop, in some cases by as much as 10 percent.”

“Figge acknowledged that the residential housing market has been unusually flat this summer. ‘Our phones are more quiet than usual for the end of July,’ Figge said. I think there’s a lot of people who have a sit-back-and-wait attitude,’ he said. ‘Buyers are witnessing that our market is in a period of adjustment, and they’re electing not to buy. They’re waiting to see what the market will do.’”

“So, what’s going on with the valley’s housing market? The market has leveled off and is readjusting following the recent real estate boom. Figge said many potential buyers are waiting to see if prices are going to come down further.”

“He said some sellers have overpriced their properties because of the real estate boom of the past few years. Now that the market has flattened out, they may have to lower prices if they’re anxious to sell.”

“‘I don’t think anyone is chipping into their equity yet,’ he said. ‘I think what sellers need to do is make it look like a deal, so it looks like if you don’t buy it, the next guy will.’”

“If you’re thinking about buying a house in Kootenai County this summer you will have more to choose from. More than 1,800 homes are on the market right now, an increase of over 600 homes from last year and real estate agents say the market is finally cooling down after a year of record sales.”

“Real estate agents say the tables have turned and with more homes on the market buyers have more selection and that means it’s taking longer to sell a home.”

“‘We don’t have as many investors in the market as we did last year and we do have more listings because I think they saw what happened last year and wanted to take advantage of the acceleration in prices,’ (realtor) Christy Oetken said.”

“People looking to sell their homes may be too late. Buyers are paying on average $3,000 less than the asking price, and because there are more homes on the market it’s taking 30 days longer to sell.”

Some housing bubble news on the lending front. “Annaly Capital Management, Inc.today reported $852 million face amount of securities were sold, resulting in a realized loss of $1.2 million. In addition, the Company had a loss on other-than-temporarily impaired securities as of June 30, 2006 of $20.1 million. Of the $20.1 million, $15.7 million resulted from further declines in the value of securities classified as other-than-temporarily impaired at March 31, 2006.”

“Michael Farrell, CEO, commented, ‘The two additional 25 basis point increases to the Fed Funds rate during the second quarter brought the total to 425 basis points over the 17 meetings since June 30, 2004. Market conditions, therefore, continued to be a challenge for strategies such as ours as the protracted sell-off in the front end of the yield curve pressured the value of our assets and raised our cost of funds relative to the yield on our assets.’”

“MFA Mortgage Investments, Inc. today reported a net loss available to common stockholders of $21.8 million for the second quarter ended June 30, 2006. Stewart Zimmerman, MFA’s CEO said, ‘As previously indicated, increases in the target federal funds rate have increased the cost of MFA’s liabilities at a more rapid pace than the yield on its assets, negatively impacting portfolio spreads.’”

“Mr. Zimmerman continued, ‘MFA undertook a further repositioning of its portfolio in the second quarter of 2006. This repositioning consisted of the sale of approximately $1.035 billion of MBS with realized losses of approximately $24.7 million. This MBS sale was predicated on a number of factors, including the negative impact of Federal Reserve tightening, increasing inflationary pressures from higher capacity utilization..and the relatively flat and at times inverted yield curve.”

“Increased lending in a slowing housing market helped New Century Financial Corp., one of the largest U.S. subprime mortgage lenders, boost quarterly profit 11 percent, but earnings rose less than expected. Profit rose despite ‘a very challenging market environment,’ said CEO Brad Morrice. Delinquencies rose and Morrice said New Century is seeing ‘isolated’ markets where home prices are flat or declining.”

“Referring to the earnings shortfall, he said: ‘If we had sold all the loans we originated, we would have more than made up the difference.’”

From MarketWatch. “It is becoming increasingly obvious that financial advisers, real estate experts and parents will someday point to what is happening in the mortgage market today and use it as a cautionary tale of what can go wrong when a buyer stretches to get too much house during a market that seems invincible.”

“‘There is no apples-to-apples comparison from the kind of mortgage someone could get a year ago and what they can get today,’ said Anthony Hsieh, president of LendingTree.com. ‘As rates rise on adjustables, there are steps people can take to reduce the sticker shock, but they’re probably not going to be too happy with what they have to swallow now.’”

“‘People’s choices are only going to get uglier, and plenty of people are on their way to trouble. For everyone who has avoided this trouble, they’re going to look back someday, when their kids are looking for a mortgage and are tempted to stretch too far by using an ARM, and have stories to tell about how they saw a time when everything that could go wrong with that strategy did go wrong,’ said Greg McBride, senior editor at Bankrate.com.”

The Washington Post. “In a new sign of the continued deterioration in the housing market, applications for home loans plunged to a four-year low last week. Lenders ‘are seeing their volumes down, not just for purchases but also for refinancing,’ said Jay Brinkmann, a financial economist with the Mortgage Bankers Association.”

“‘It’s pretty bad,’ said Christopher Cruise, who trains mortgage brokers and is based in Rockville. ‘The problem is that the high was so high and the low is so low. Now it’s not just the end of the refinancing boom, but people aren’t buying either. There’s been a real drop off in purchases.’”

“Cruise said attendance at some of his classes has dropped by 50 percent, and he has canceled some classes for lack of interest. ‘It’s causing some pain for some people,’ Brinkmann said, adding that declining loan volumes are cutting into lender profits. ‘Some will go off to a different field,’ Brinkmann said. ‘They may need to go out to find a different line of work to support their lifestyles if the income is no longer there.’”

The California press reacts to the Dataquick release. “Foreclosure activity across California soared by its biggest margin in 14 years during the second quarter in response to diminishing price appreciation, an industry tracker said Wednesday. During the April-through-June period, lenders sent 20,752 default notices to homeowners in the state, up 67.2 percent from the year-ago period and up 10.5 percent from the first quarter, said DataQuick Information Systems.”

“That’s the biggest annual quarterly increase since La Jolla-based DataQuick began mining these numbers in 1992.”

“In Los Angeles County, activity increased 45.3 percent to 4,586 default notices. In Ventura County, activity increased 80.8 percent to 452 notices. In Southern California, activity increased 69.5 percent to 12,222 notices.”

The LA Times. “‘This is a key measure of financial distress,’ DataQuick analyst Andrew LePage said. ‘If it continues long enough it could impact home values.’ The number of foreclosures in the state is rising too. The second-quarter total was 1,901, according to DataQuick, a 215% jump over the 604 in the same period last year.”

“How bad things are, and how bad they’ll get, remain a matter of dispute. Analyst Sean Snaith has changed his metaphor for the state’s real estate market from a souffle (delicate, full of hot air) to a crepe (less exciting but less likely to collapse).”

“Patti Hale, a San Diego agent, had a succinct summary of the market: ‘It stinks.’”

“Mortgage default notices in San Diego County nearly doubled this spring to the highest figure in the past seven years, according to a report.”

“Arnie Levine, a (foreclosure) broker in Mission Valley, said he has alerted his clients to about 400 houses and condominiums on the market that have been foreclosed on or been hit with notices of default. They range from a 42-year-old, 588-square-foot home on 50th Street in San Diego, priced at $159,000, to a 14-year-old, 3,671-square-foot home in El Cajon with an asking price of $1.2 million.”

“‘It’s bad for the people (selling) but good for our clients, because they’re looking for foreclosures,’ Levine said.”

“Roxanne Carr, of the Mortgage House in San Luis Obispo, said she’s not worried that local homeowners are getting into serious trouble making their mortgage payments. But she acknowledged that homebuyers should take care when choosing creative financing options that could leave them paying more per month than they anticipated.”

“‘People have to be careful,’ she said. ‘It’s (a mortgage) a big expense.’”

“Every Bay Area county except Marin experienced an increase in the notices of default on houses and condos during the one-year period ending June 30, according to DataQuick’s figures. The increase in the Bay Area was 37 percent. Default notices increased 74 percent in Napa County; 65 percent in Solano County; 53 percent in Sonoma County and 51 percent in San Mateo County.”

“Dennis Kelly, of Coldwell Banker in San Rafael, said DataQuick’s figures sound ‘extreme,’ but he said he has recently noticed anecdotal evidence of some people in Marin County falling behind their mortgage payments, especially those with 100 percent financing of their mortgage. He said the default notice rate in Marin County could increase.”

“Sutter County led the state with a 229.4 percent increase over the same time last year. Placer County, with 276 notices in the second quarter, was up 126.2 percent. That figure, up from 239 during the first quarter, was the highest since 1998. Placer County’s record is 322 notices in 1996.”

“Sacramento County recorded 1,352 notices of default during the second quarter of 2006, up 108.6 percent from 2005. ‘We’re seeing more people calling and coming in and wanting to know what to do,’ said Pam Canada, of Sacramento-based Neighborworks Homeownership Center. ‘They’re in over their heads basically and can’t be bailed out with refinancing. The real heartbreaking part is there’s not a lot of solutions.’”

“Many have mortgages that represent more than 100 percent of their home’s value, she said. Others face rising monthly payments with adjustable-rate mortgages and don’t have enough equity in the home that would allow them to move to a different mortgage, Canada said.”

“‘In San Joaquin County, the number of foreclosure notices was up almost 90 percent from a year ago, rising from 318 in the second quarter of 2005 to 604 in this year’s last quarter. Ron Cutler, broker-owner of Suntec Financial, Stockton, said he believes there’s a nationwide problem developing with foreclosures resulting from questionable mortgage loan deals that allowed people to buy in a pricey housing market.”

“Some mortgage brokers and lenders put people into adjustable-rate mortgage loans with introductory payments as low as a 1.25 percent interest rate the first two years, he said. When those ARMS kicked in with current higher interest rates that often doubled the house payment, many of those home buyers found themselves going into mortgage default, he said.”

“‘It’s evident those people were getting into homes that they basically shouldn’t have qualified for,’ he said. ‘Now the market is starting to change. They’re trying to sell their house, and that’s not happening either when you have a large amount of houses on the market.’”

“Mortgage brokers and lenders had no business doing those kinds of deals, he said. ‘I believe there’s been a lot of fraud committed already in the mortgage industry, and it’s beginning to come out,’ Cutler said.”

The Virginia Pilot has this report on a condo project in Norfolk. “The city may provide tax incentives to Granby Tower, a 34-story condominium project that would be downtown’s tallest building, said two city officials who asked not to be identified. A performance-based grant would rebate a portion of taxes, the officials said.”

“Such grants have routinely been used by the city to attract businesses but have rarely, if ever, been used for residential projects.”

The Baltimore Sun. “Five months after registering to convert the building at 3900 N. Charles St to condos, the owner is abandoning the conversion because of slow sales. DSF Group of Boston plans to market the units it had offered for $185,000 to $300,000 as luxury rentals.”

“‘It’s really what the market wants, and it’s as straightforward as that,’ said Art Solomon, CEO of DSF, which bought the 232-unit building. DSF has taken 35 to 40 reservations since starting the marketing campaign in April, Solomon said.”

“The abrupt switch, the first halting of a condo conversion in the state in at least three years, was made at a time when the once red-hot housing market is losing steam. Home sales in Baltimore and the five surrounding counties have fallen each month since October from year-earlier levels, and the number of unsold properties has been piling up: The number for sale in June was more than twice the number a year earlier.”

“At the end of June, about 13,300 condos, 3,800 of them conversions, were for sale in Northern Virginia, up from 9,600 a year earlier.”

“Barbara Ruland and her husband moved across 39th Street to the Ambassador on July 12. ‘They were expensive, and they weren’t fixing any major systems,’ said Ruland. They put a lot of money in stuff on the first floor we’d never use, a bar/lounge, billiard rooms and a little projection room.’”

“Residents and city officials said it may have more to do with the company’s inability to sell the 243 units. In a letter to tenants July 24, DSF said, ‘During the past several months, the overall community has voiced its opinion and we have therefore decided to maintain the property as a rental community.’”

“In a letter to residents who weren’t eligible for extensions of their leases, DSF said that it considered those leases as being month to month and that they could negotiate a new, one-year lease at their current rents. ‘What it really means is that they were not able to complete one sale’ of an apartment as a condo, tenant Ann Murray said. Tessa Hill-Aston, housing coordinator for the city and city councilwoman Pat Clarke, said that’s their understanding, too.”

The Providence Journal. “Sales of condominiums in Rhode Island this spring fell sharply, as the pace of condo construction picked up with no sign of abating. During April, May and June, condo sales declined 22.6 percent compared with the same three months last year. Condo listings statewide jumped 76 percent from a year ago, to 1,784 units.”

“Nationally, the condo market is showing signs of weakness, with inventory running at its highest level since the early 1990s. In South Florida and Las Vegas, some developers have scrapped their condo construction plans because they can’t sell enough units to get financing.”

“In Rhode Island, 16 out of 27 cities and towns which recorded second-quarter condo sales, including Providence’s East Side, reported, on average, price declines from a year earlier.”

“In the Providence metro area, which includes parts of Massachusetts, more than 900 new condominium/townhouse units are currently under construction. That’s 900 new units in a market that historically absorbs 500 to 600 condo units per year, said economist Gleb Nechayev in Boston. And another 2,500 more condo/townhouse units are planned, he said. ‘Condos are the first to go when there’s a slowdown,’ he said.”

“‘I haven’t sold any condos this quarter, actually,’ said Bob Del Deo, a real estate agent on Providence’s East Side. And if all those condos don’t sell, what then? Del Deo, of Coleman, said some of the condo plans could be converted to satisfy another demand in the housing market: rentals.”

The Orlando Sentinel reports on a conference in Florida. “Top housing-industry economists warned home builders meeting in Orlando on Wednesday that the industry will remain weak the rest of this year and next before possibly rebounding in 2008.”

“Higher interest rates and declining affordability are taking a toll, said David Seiders, chief economist for the National Association of Home Builders.”

“‘I’m trimming everything in our forecast. The economy has slowed and will slow further. I’ve got it that way through next year,’ Seiders said.”

“Seiders said cancellations of new-home sales contracts are up sharply, builder confidence has plummeted, investor-owned homes are boosting inventory to record levels and home prices are starting to slip. ‘Something is seriously going on here,’ said Seiders, who repeated a previous warning that ‘it’s more than an orderly downturn.’”

“Seiders said he continues to be concerned that the Federal Reserve’s interest-rate hikes are having an unintended consequence in that they drive up the so-called core inflation rate in a respect related to the ongoing downswing in housing.”

“Rising interest rates..shift more consumers into the rental market, boosting apartment rates, and that gets factored into the federal government’s Consumer Price Index, signaling more inflation, Seiders said. ‘It turns out that Fed tightening is inflationary. How crazy is that,’ he said.”

The Boca Raton News. “Despite reports of declining home sales, Boca Raton realtor Marlene Piccolo does not feel terribly concerned. ‘There’s a lot of product out there, but prices are going down,’ Piccolo said. ‘I think buyers are just taking their time and being careful.’”

“Recent statistics indicate that June existing single-family home sales for the Boca Raton-West Palm Beach area totaled only 947-a 39 percent drop from the same month in 2005. In addition, condominium sales of 512 were 41 percent less than June of last year, when 872 were recorded.”

“Some Realtors have attempted to sell listed homes by promising special incentives to prospective buyers. ‘I know that realtors have offered things like plasma TVs to encourage sales,’ Jack McCabe said. ‘Of course, with the way prices are dropping, that probably won’t be necessary.’”

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