The Housing Bubble

From the Baltimore Sun. “The five-year housing boom that pushed prices up 80 percent in the Baltimore region ended last fall, but as recently as a couple of months ago, it appeared that the market was downshifting for a fairly soft landing. Now, as the market heads into its historically slower months, that so-called soft landing is looking harder by the day.”

“More than twice as many homes are for sale as there were a year ago, and they’re taking significantly longer to sell. Markdowns can be found across the region.”

“The abruptness of the return has taken sellers and real estate professionals by surprise. And on top of it all, sellers only now starting to recognize that they can no longer expect to get more than the neighbor did a few months back.”

“‘There are a lot of homes for people to choose from, a whole lot more than there would have been a year ago,’ said Mooney, who never thought his own would sit this long. And as co-owner of O’Conor & Mooney Realtors in Lutherville, he’s not an uninformed seller. ‘The buyers..don’t feel a sense of urgency.’”

“Average prices fell in nine ZIP codes across the metro area, according to the MRIS. Sales continued to plummet. ‘We’re finding now that people really do have to reposition their properties on the marketplace to get interest from buyers, and sometimes that does mean pricing under the asking prices of last year,’ said Judy Plowman, president-elect of the Harford County Association of Realtors.”

“‘Prices are already declining,’ economist Mark Zandi said. ‘Effective prices are declining as sellers do things to get the transaction done. I think market prices will start falling, too.” “The number of homes on the Baltimore-area multiple listing service, which doesn’t include for-sale-by-owner or most new construction, more than doubled in the first six months of the year versus the same part of last year, returning to 2000 levels. At the same time, sales fell 16 percent.”

“For every home sold during the average month in the first half of the year, there were about four on the market at the end of that month, compared with 1 1/2 the same time last year. That’s the highest since the first half of 2000.”

“When Tricia and Ryan Clendaniel bought their house in the Anne Arundel County community of Arnold in 2003, they rushed to bid the day after the for-sale sign went up. Now they’ve been trying to sell for two months. They’ve cut $30,500 off the asking price for the recently remodeled Colonial, to $429,900. Price drops are the new trend in the neighborhood.”

“‘As we saw people coming down, then we would come down,’ said Tricia Clendaniel, whose family has been living with relatives since her husband was transferred to a job in Delaware. ‘We will just have to wait it out until it sells.’”

“Agents believe that some homeowners, nervous that the market is headed for a fall, want to cash out. ‘Everybody had that idea, I think, in the same month,’ said Stephen Luckett, an agent in White Marsh. That appears to be particularly true for owners of homes worth at least $500,000. In an average month in the first half of this year, there were 9 1/2 listings for every home sold in that price range.”

“To entice buyers, owners have begun agreeing to incentives. Karen Hubble Bisbee is offering a $100,000 bonus to the agent whose buyer seals a deal on one of her listings, a $3 million home in Cockeysville. And cuts are more common now at the higher end, said Katie E. Grove, president of the Greater Baltimore Board of Realtors.”

The Sacramento Bee has this update from California. “Sam Webber had it all during the real estate boom. The former accountant bought old houses, fixed them up and resold them for more than he paid. It was a good independent living until four months ago when the bottom fell out of his game.”

“Now as home prices have declined 5 percent from last year in Sacramento County, Webber is what analysts call ‘upside down.’ He owes banks more than his two remaining fixer-uppers are worth. He’s missed mortgage payments on each. Worse, he’s tied up his entire savings and previous profits in remodeling the houses.”

“Webber has one last hope to avoid foreclosure, selling the houses for what he can get and persuading his bankers to accept less than he owes. ‘The house in North Sacramento, I’m $305,000 into the bank, and it’s worth $280,000. I’m trying to get the bank to agree to $280,000,’ he said.”

“Known in the real estate trade as a ’short sale,’ this desperate, but practical tactic, negotiating less than a complete payoff to lenders, reappears like clockwork when real estate markets sour. Elk Grove real estate agent Derek Kirk recently counted 264 short-sale listings in El Dorado, Placer and Sacramento counties compared with fewer than 50 six months ago.”

“‘I made a decision to do this as my livelihood,’ Webber said recently as he begins a job search. ‘All my income was coming from the houses. This time it’s burned me. I’ve tapped out every dime I have.’”

The Contra Costa Times. “By the time Janie Kent received the notice that her two-bedroom, one-bath cottage in San Leandro was going to be sold in three weeks, she was desperate. ‘I was in denial, sitting in my house and didn’t know what to do,’ said Kent. Kent isn’t alone. Hundreds of people in Alameda County will lose their homes this year; 176 already have. Thousands more will sit in their home, awaiting what they feel is the inevitable outcome.”

“Home foreclosures are on the rise across the East Bay, with Alameda, Contra Costa and Solano counties all reporting data similar to the post dot-com bust years of 2000-01.”

“Alan Wolf, a mortgage banking attorney said that interest-only and negative amortization loans seem to be fueling the higher default rates. ‘Once those refinanced adjustables hit, it’s going to be a big problem,’ he said. ‘This is not the bad year. Next year is going to be the bad year.’”

“San Ramon Loan consultant Ed Jeffry puts some of the blame on lenders who haven’t been historically gentle with borrowers but also faults borrowers for not thinking through loan decisions. ‘A lot of problems occur when people enter into a high-cost or subprime loan,’ he said. ‘Usually because there’s no plan and no strategy.’”

The Press Democrat. “In Windsor, where homes stay on the market longer than anywhere in Sonoma County, some newer neighborhoods sport ‘for sale’ signs on every other block and sometimes several on the same street.”

“‘Price reduced’ and ‘price reduction’ are common inducements on the signs in front. It is a scene repeated across Sonoma County, from neighborhood to neighborhood, cul-de-sac to cul-de-sac. Behind those for sale signs are sellers who have put their lives on hold as a market that stayed red hot for so long has turned cold.”

“Now the market has reached a kind of psychological standoff, with sellers reluctant to accept the reality of falling prices and buyers holding onto the expectation of even deeper cuts. Some forgot that home prices could go down, as they did in Sonoma County in 1993 and 1994. That downturn lasted four years.”

“‘A year ago, you got away with murder. You sold a house no matter the condition,’ said Sandy Geary, broker in Rohnert Park. ‘Buyers have almost too much choice. I have buyers who come back and every week something is cheaper,’ Geary said.”

“Brett and Amy Reiter lowered the price for their Santa Rosa home nearly 4 percent to $515,000 to attract potential buyers, but they have received only one offer since putting their home on the market in March. ‘When we first put it on there was a lot of interest,’ Brett Reiter said. ‘But no one was ready to jump on anything. It seemed like people were waiting, knowing prices would go down some.’”

A common topic suggestion this week is the growing media awareness of the housing bubble. “The Washington Times has a big front page headline this morning: ‘Home Prices Fall; Sales Plummet’. This is probably also in a lot of other newspapers as well, given the recent sales numbers, but how many will put it up front like that remains to be seen.”

“This and other news stories this week does seem to indicate that the Housing Bubble is finally catching attention of the mass media. Once they start piling on and make this the latest ‘hot story,’ that will crunch the market. There are still people out there convinced that there s no slump; hearing it on TV and reading it on front pages might convince them otherwise.”

Another added, “The Today show had a big story on the housing bust. I couldn’t believe it. They actually had someone talking about how people used their houses as ATMs. The only thing that they don’t seem to be addressing is the fundamentals. If that kind of talk hits the news it will be officially over.”

One said, “PBS Newshour did an excellent report on the housing bubble last night. Nothing new to us, but a good overview for the common folk.”

Another reader looks ahead, “How long will it be before we begin to see Newsweek or Time Magazine articles about ‘The New Austerity’ or ‘Simple Living?’”

A reply, “I remember that issue. Even TIME admitted a year later that ‘the new simplicity’ was really the next recession.”

Another said, “The Big Media are excellent…at noticing trends that have already happened. At the top of the bubble in July 2005, Time Magazine had a cover-story about how great housing is doing.”

“Now the major media is noticing the giant popping sound. Since they usually get timing exactly wrong, will the market head up a little (gotta make that last shoulder in the chart, right?) before heading back down? Or is this headlong plunge unstoppable due to FBs whose financial state is so bad their sales will now be forced?”

One said, “I have not once heard any reference to the credit bubble that got us here. But I’m wondering if the media believe info is over the public’s heads.”

A reply, “And I’m wondering if the info is over the media’s heads.”

The New York Times. “The latest housing numbers seem like they could be a turning point. A real estate crash might not be the most likely outcome, but it certainly seems legitimate to think about what one would look like.”

“The fate of the housing market will influence whether the economy will merely slow over the next year, as the Federal Reserve forecasts, or fall into a recession for the first time since early 2001.”

The Guardian. “The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year and could be more damaging to the world economy than the dotcom crash, economists have warned. ‘Things do seem to be getting worse very quickly. Freefall is a strong word, but I think it’s the right one to use here,’ said Paul Ashworth, chief US economist at Capital Economics.”

The Vancouver Sun. “The odds of a U.S. recession have increased dramatically, a Canadian bank economist is warning. ‘We have long held the view that a bursting of the U.S. housing bubble would be bearish for the U.S. economy,’ the National Bank of Canada said in a statement.”

“‘It’s the single biggest risk to the U.S. economy and..we haven’t seen the bottom yet,’ said Patricia Croft, chief economist with Phillips, Hager and North Investment Management Ltd. ‘There may be a bit of a lag but if the U.S. goes down we’re going down with them.’”

The Burlington Free Press. “Fresh evidence shows that high energy prices and sagging home values are pinching the main driver of the U.S. economy; the average joe’s wallet. Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets.”

“”Meanwhile, this week’s housing numbers show that the real estate market is likely to decline further as the number of unsold homes grows, further pressuring prices downward. ‘I rarely find myself in a position where a single data release really snaps my head around,’ said Gregory Miller, chief economist at Sun Trust Bank. ‘I’m beginning to question my assumption that this housing correction will continue to occur in a controlled fashion.’”

The Arizona Republic has this update from the Phoenix area. “Real estate agents need to be ‘brutally honest’ with sellers today, as there is about a six-month supply of unsold homes, agents were told at a panel discussion. Many clients are still holding out for last year’s prices and not trusting their agents, but agents were advised to teach sellers how competitive the market is and not just tell them what they want to hear.”

“‘You are not going to sell a property at market value. You are not going to sell it for its appraised value,’ said Paul Pastore of Re/Max in Chandler. ‘You are only going to sell it for what someone is willing to pay.’”

“There is an 18-month to two-year supply of unsold homes in Surprise and 2 1/2- to three-year supply in the Johnson Ranch area near Queen Creek, said Russell Shaw in north Phoenix.”

“The biggest mystery for agents today is how to price a home. You can’t count on city or town medians or appraisals but have to look at what comparable homes in the neighborhood are selling for, they said. It is common for prices to be reduced several times if a house isn’t selling. Pastore said he even quit putting prices on fliers because they are so flexible.”

“Although appraisals serve as a general guideline for what houses can be priced, they aren’t always hitting the mark. Agents talked of houses selling for $50,000, $80,000 or other amounts below appraised values. One agent said she has a home priced $100,000 below appraisal that isn’t selling.”

“(Realtor) Caryn Shannon in Gilbert said, ‘I hope people in the next month who don’t have to sell will drop out of the marathon.’”

“Sometimes clients don’t believe it when agents advise them to lower prices because they are remembering the run-up over the past two years. Bruce Fraser in Chandler remembers an Ahwatukee Foothills man who insisted that he be able to set the price and commission and wanted a price in the $500,000s. Fraser recommended a lower price. ‘The man shook my hand and said, ‘OK, it’s time for you to leave.’”

“Teresa Anderson, a Mesa resident, said, ‘If I pick up that someone is draining my energy and that of my team, I walk away from it.’”

“Bill Ryan said agents have to be honest. ‘Mr. and Mrs. Seller, I would rather turn you down than let you down.’ He said sellers need to keep things in perspective. He advised one woman who had reduced her price to lower it more. She was reluctant until he pointed out that even with the lower price, her investment had earned about 40 percent in 36 months. She accepted the lower price.”

Some housing bubble reports from Florida. “Q: Looking at today’s housing market, what in your opinion is the new housing reality on Treasure Coast? Don Santos, past president of the Treasure Coast Builders Association, ‘What I’ve been seeing the past couple of weeks is a decrease in the price of land that I would consider pretty dramatic.’”

“Q: Builders are in a unique position here. Can they absorb the slowdown in demand and what is their future on the Treasure Coast? Jim Weix, broker in Palm City, A: Unfortunately, this business is like survival of the fittest. That’s just the sobering reality here. I am still in line with my profit margins and overhead. Other spec builders won’t be able to do that. This is just going to kill them.’”

“Q: What should sellers expect when selling a home now? Pat Jayne, local Realtor trying to sell her Stuart home, ‘A: It’s probably pushing a year since we put our house on the market. We finally lowered the price by about $55,000 but the reason we did is that we bought another house. So we are now the proud owners of two homes. We discussed ways to set our house apart from all the others and we decided to offer the (winning real estate) agent a brand new Pontiac. I really don’t know what else to do. I’ve been in the business for 20 years and I’ve never seen it this bad. It went from hot to cold over night.’”

The News Press. “Some experts say a wave of mortgage foreclosures is about to sweep across Southwest Florida. They point to rising monthly payments, reckless investment in 2005’s red-hot real estate market, the end of low interest rates, and plunging home prices. In July, Lee County saw a 56 percent increase in year-to-year foreclosure filings.”

“‘The markets that have gone up the highest are the ones that are going to see the highest correction, and Fort Myers is definitely one of those,’ said Jack McCabe, a housing-market analyst based in Deerfield Beach. A lot of people, including developers and lenders, are not sleeping at night, McCabe said. ‘The big news for people who haven’t believed it yet is that the housing boom is over,’ he said.”

“‘We cannot treat our homes like ATMs anymore,’ said Karin Klaassen, a certified credit counselor. ‘That window of opportunity for anyone to cash out their equity is closing rapidly. The people who already have been taking equity out of their homes to pay for consumer debt are setting themselves up for trouble.’”

“Jennifer McArdle worries whether she and her family will be able to hold on to their San Carlos Park dream house. ‘The bank is hounding us daily,’ said McArdle, who with her husband, David, bought the house 14 months ago for $289,000. The McArdles are two payments behind. The McArdles are trying to refinance their 8 percent mortgage even though they’ll be hit with a $10,000 penalty to Option One Mortgage. David is working six days a week and Jennifer is working a part-time retailing job to supplement her office job with WCI Communities.”

“Fort Myers-based real estate attorney Kevin Jursinski said he has clients who bought lots in Lehigh Acres last year at prices double what they’re worth now. ‘What do you do? Sell now? Turn it back to the bank? When it comes down to whether you’re going to go broke or take the bad credit report, you may want to do the latter.’”

“For those who choose foreclosure, a problem is lurking: If the mortgage isn’t satisfied by the price the property brings, the lender may sue the borrower to cover the difference. The lender’s primary home is safe from the judgment if it’s in Florida, but all other assets are fair game, Jursinski said.”

“Someone drifting toward foreclosure generally is better off getting out fast, he said. ‘Immediately surrender it back to the bank, because it only gets worse,’ Jursinski said. ‘Take your medicine and move on.’”

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