The Housing Bubble

The Tribune reports from California. “San Luis Obispo County real estate agents should not expect a return of the sizzling housing market anytime soon. ‘Prices aren’t falling off a cliff, but they definitely are taking a breather, said Leslie Appleton-Young, chief economist for the California Association of Realtors.”

“‘I don’t see a slowdown lasting two or three months,’ she said. ‘It may be a couple of years.’”

The LA Times. “The anti-depressants said it all. In the mostly empty house, wires hung from ceilings, gaps yawned beneath kitchen counters where appliances had been removed and apparently sold and, most heartbreakingly, paintings done by the owner hung on the walls with price tags by their sides.”

“This was not a scene from ransacked New Orleans. This was what I saw Sunday in a hilly Los Angeles neighborhood in a house that was facing imminent foreclosure by the bank. The owner had purchased it with a five-year, low-interest loan for more than $100,000 over what the real estate agent was now trying to get.”

“So I guess it’s official: The real estate market is tanking. If you’re a renter, you now have permission to be as self-satisfied as the homeowners who once taunted you with their dizzying appreciation rates. As for us owners, we can just cover our ears and sing ‘Correction! Correction! I can’t hear you!’ until things start looking up again. Call it a correction or call it a crash. Either way, the party’s over.”

The Desert Sun. “Continuing a trend of the past several months, the number of homes sold was down 41.2 percent from a year ago. That’s the biggest drop seen so far this year in the monthly data. Ginny Becker, an executive with (a) real estate firm in La Quinta, noted that there were at least 117 price reductions posted Friday on the MLS, well up from past months.”

“The real estate market is one of the most important segments of the Coachella Valley economy. Thousands are employed as agents, brokers, bankers and escrow handlers. Experts note there will likely need to be more price reductions to move the current unsold inventory, which at more than 7,000 properties is at twice the level of a year ago.”

“‘Agents need to educate sellers, and sellers need to be realistic,’ Becker said. ‘It’s very much a buyer’s market right now.’”

The Merced Sun Star. “At the height of Merced’s real estate frenzy last year, Bay Area Realtors drove vanloads of clients through town on the hunt for investment properties. Now the out-of-town speculators are gone, leaving behind streets lined with For Sale signs and new subdivisions filled with freshly built houses standing empty.”

“Clearly the real estate party is over, and in Merced the hangover is bad. ‘I knew it was going to soften, but I didn’t know it was going to slide this quickly,’ said (realtor) Mike Salvadori.”

“The boom was fueled mostly by the out-of-town investors, creating what Realtor Kay Flanagan calls a ‘false market.’ Now, the market is shifting back to reality. It’s time for what people in the real estate industry optimistically refer to as a ‘correction.’ The question is, how long will it last and how bad will it be?”

“The downturn brings back memories of 1995 when Castle Air Force Base closed and 6,500 military personnel left town. Home prices fell dramatically, said Andy Krotik, a Realtor and Atwater city councilman. There’s one key difference between the current market correction and what happened after Castle closed, said Realtor Gail McCullough.”

“‘We didn’t have all the new homes (after Castle closed),’ said McCullough. ‘We’ve never had this many new homes. In order to sell now, one has to be quite motivated and realistic.’”

“In 2005, developers pulled a record number of permits to build houses in the city of Merced. The building spurt created jobs, a record 3,800 construction jobs in August 2005, that helped swell the number of people working in Merced to an all-time high.”

“When the dust cleared, Merced was left with more housing inventory than ever. Now developers looking to move new units are offering slashed prices. Salvadori said he’s seen $100,000 discounts on some new houses.”

“Ranchwood Homes, the county’s biggest developer, is offering $25,000 incentive packages and advertising $1,500 referral fees. Ranchwood is even listing some new houses as rentals.”

“With more than 1,000 houses on the market right now, sellers are working harder to make their houses an attractive buy, said McCullough. McCullough, who’s worked in the real estate business for 36 years, said she’s confident the pendulum will swing the other way.”

“‘I’ve seen a lot of different turn of events in real estate,’ said McCullough. ‘I still feel Merced and Merced County is the new frontier. There’s more opportunity here than anywhere else in California.’”

Several readers suggested the new lending guidelines as a topic. “Holy moly! If true, KABOOM! POP! Quote, ‘kept intact a proposal that says banks must qualify borrowers for popular payment-option and interest-only loans at a ‘fully-indexed’ rate — the highest rate that they could incur over the life of the loan.’”

Another said, “I have heard this new rule mentioned a few times, but I had no idea how strict the proposal would be! Unfortunately, there will probably be many loopholes to get around this rule.”

“For example, the borrower could state they plan to refinance the loan in a year; therefore, they only need qualify for the teaser rate.”

And another, “I understand this board’s general skepticism of the new OCC lending guidelines, but please, read the darn things first. The amazing thing about the guidelines is that they address almost every loophole you can think of. It’s good stuff.”

One looks at the lenders role. “If you ever had any notion that the banks/lenders are less adept at screwing with logic than the NAR: The ‘biggest US lenders,’ according to the article, are against the rules because they will make homes ‘LESS affordable’ for people!”

“The big lenders are on your side, little guy! I think everyone knows that, in the real world, the best way to make housing affordable is to put in place the strictest lending rules possible. And get rid of all the government ‘help’ with buying homes. The price of homes would crash overnight.”

Another has questions, “A) Does anyone think this will be effective? B) Does anyone think this is closing the barn door after the animals have all fled? C) Does anyone think this late bit of work will accelerate the downturn?”

One reader added, “‘The new guidance was issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.’”

“D) Does anyone think this guidance just amounts to cheap CYA talk with no teeth?”

From MarketWatch. “More than a year after Alan Greenspan warned of the “potential for individual disaster” from a new breed of mortgages that were helping to fuel the housing boom, federal regulators finally are trying to do something about it.”

“On Friday, in a jointly crafted message, multiple government agencies warned banks in strong terms to make sure borrowers can pay back the full amount of what they borrow and that homeowners know that a low monthly payment today could be shockingly high later.”

“In the meantime, the runaway writing of these mortgages went on unchecked, and the fact that nobody in government stood in the way highlights the fact that a patchwork of government bureaucracies was ill-equipped to bring the practice under control, lawmakers and regulators say.”

“‘We saw the potential for problems occurring,’ said John Dugan, the comptroller of the currency, a Treasury Department unit that regulates nationally chartered banks. ‘There have been some very abusive problems’ by institutions not covered by the guidelines. ‘We just don’t have jurisdiction,’ Dugan added, expressing hope that state regulators would follow with strong guidelines soon.”

“‘The housing credit bubble led to the growth of exotic loans, which, in a vicious spiral, drove prices even higher, said economist Dean Baker. In a bubble, ‘the financing gets progressively worse. At the end, you get nuttiness.’”

“‘The guidelines will likely have a chilling effect on option ARM lending at regulated institutions,’ said Frederick Cannon, a banking analyst. However, unregulated lenders such as investment banks and real estate investment trusts, could have a competitive advantage because they aren’t covered by the new federal guidelines, he said.”

“Regulators have to be wary of overregulation. ‘You heap disclosure upon disclosure, and at some point they have negative consequences,’ said Ned Gramlich, a former Fed governor. Baker says the Fed wasn’t shy about extending its authority into a new realm when needed to protect investors, such as the stock market crash of 1987 or the hedge-fund collapse in 1998.”

“‘At a time of a speculative boom in real estate, market participants find themselves in a moral dilemma: lenders cannot easily maintain their high lending standards and stay competitive when other lenders are weakening standards,’ said Robert Shiller, an economics professor at Yale. ‘At this time, regulators of lending institutions have some of their most important work to do, and, at the same time, it is especially difficult for them to do it.’”

From Kenneth Harney. “Starting Monday, it’s going to get much riskier to fib about your income when you apply for a home mortgage. That’s because the Internal Revenue Service is overhauling a key income verification tool used by lenders, making it faster and easier to pull up electronically the confidential income tax information of borrowers.”

“Some popular mortgage products themselves open the door to bogus assertions about income. Many lenders in recent years have offered ’stated income’” and other limited documentation mortgages aimed especially at self-employed applicants.”

“But now, with the IRS promising to provide electronic transcript tax data within one to two business days in an electronic format, more lenders are likely to run income checks before closing, even on loans to applicants who are not self-employed or using stated-income programs.”

From Newsday in New York. “As housing boomed, real estate agents, furniture sellers, mortgage bankers, construction workers and a host of others reaped the rewards. Now cracks are emerging in those key sectors of the region’s economy. Data and anecdotes alike are signaling the potential for job losses, closed offices and fewer new real estate licenses.”

“‘Real estate is about a third of the economy,’ when accounting for related industries, said Martin Cantor, chief economist for Sustainable Long Island. ‘It’s going to ripple all the way through.’”

“Huntington real estate broker Katy Anastasio has already cut one administrative staffer. Of the 14 licensed agents on her staff now, she plans to cut six before year’s end. ‘I decided to clean up the house,’ said Anastasio, who had 17 agents at the market’s height. ‘I don’t need people who are not producing.’”

“Brokers like Richard Dallow in Levittown, whose business is down 10 percent from a year ago, are readying themselves to trim agents who aren’t producing. Dallow estimates that 20 percent of his 120 licenses ’should not be licensed with us any longer,’ because they are either inactive or unproductive.”

“‘Some of the things that we just let go because the market was going off the wall, we pay more attention to now,’ said Dorothy Herman, who heads Prudential Douglas Elliman, which has offices throughout the region. ‘You’re judged by your weakest link.’”

“It’s not just real estate companies that are impacted. Construction and mortgage companies are already making job cuts, too, experts said. And retailers may not be far behind. ‘There’s been a lot of contraction and a lot of layoffs,’ said Hauppauge mortgage banker Jonathan Pinard, who heads the Empire State Mortgage Bankers Association. ‘Most people are finding it very difficult.’”

“Garden City home builder Alec Ornstein is trying to ride out the slowdown by offering incentives to lure buyers. His subcontractors, however, are already making cuts. ‘The effects of the softening of the market are going to be tremendous, and potentially recessionary in that field,’ Ornstein said.”

The Boston Herald. “It’s hard times for Hub business tycoons and sports stars trying to unload multimillion-dollar mansions and condos. Dodgers owner Frank McCourt has dropped the price of his Brookline mansion - again - this time to $15.7 million. He put it on the market for a whopping $22 million nearly three years ago, and previously dropped it to about $18 million.”

“Some brokers warn of a newly emerging tycoon shortage as some of the Boston area’s top companies move out or are acquired by out-of-state competitors. ‘It has narrowed the pool of tycoons, which is decreasing the demand for these palatial mansions in such areas as Brookline,’ said top Boston residential real estate executive John Ford.”

“Convicted Tyco looter Dennis Kozlowski appears to have missed the memo about the market downturn. Kozlowski tried unsuccessfuly to spark a bidding war for his Nantucket mansion in hopes of scoring a $23 million deal.”

“Instead, Kozlowski, now serving time in federal prison, recently missed a court deadline to pay $167 million in fines and restitution. Lawyers blamed his inability to sell several homes.”

From New Jersey. “Buyers have been scarce lately as the once-booming shore real estate market has cooled, so sellers are resorting to some interesting tactics. Offering a Ford Mustang with a new condo or a furniture allowance are a few tactics being employed, but another seemingly new one is actually a very old one: It’s the good old-fashioned shore home auction.”

“One is set for this Sunday, where 13 Wildwood Crest properties will be auctioned. Doug Clemens, the chairman and CEO of Traiman Auction, said auction interest rises when properties aren’t moving.”

“‘They just have an overbuilt situation that has to be corrected in the next couple years. Sellers are looking for alternatives. A tremendous amount of real estate has come on the market and a number of auctions are coming,’ Clemens said.”

“Builders are complaining about a lack of buyers right now. It could be from too much new construction, but some also argue shore real estate is overpriced.”

“(Agent) Douglas Jewell said the market had slowed considerably. The slow-down, Jewell noted, is cutting into profit margins, but he doesn’t see buyers getting huge savings, because the cost of construction materials such as copper, plywood and petroleum-based building materials are up.”

“‘People think a $550,000 condo will be $350,000 if they wait long enough. Not on your life. Construction costs are too high,’ Jewell said. Those with construction loans continue to build to satisfy their commitments, but those building with cash are ’sitting and waiting,’ Jewell said.”

“Cape May County Tax Administrator George Brown III said property transfers are down 10 to 15 percent in the county over the past year. Brown is not yet sure whether a reduction in sales volume will result in a decline in property values. Foreclosures have gone from an average of about one per month to about eight, Brown said.”

The Star Ledger in New Jersey. “When (realtor) Ken Baris logged onto his computer yesterday morning, he found him self on the receiving end of an e- mail blast from Beazer Homes, a developer building 96 new condominium units in Passaic County. The message to brokers and agents was crystal clear: Sell a condo and you can pocket a meaty 4 percent commission, instead of the standard 3.”

“It’s a theme that is playing out across the country. Home builders, who have more wiggle room than private homeowners when it comes to reducing their prices, are offering prospective buyers a lot of sweeteners to stimulate the lethargic housing market.”

“Richard Yamarone, the chief economist at Argus Research, is one of a handful of contrarians on Wall Street who be lieve the main culprit behind the housing market’s malaise is the media.”

“‘No doubt about it, there is some softening in the housing market. You can’t break records forever,’ he said. ‘But I really believe this has been fed by the left-wing press looking for a good story right before the elections.’”

Some housing reports from the Washington Post. “On Onion Patch Drive in Burke, neighbors are keeping an eye on each other. It’s not just because they’re neighborly. It’s also because, at a time when more and more for-sale signs are appearing on lawns around the region, what one family does to sell its house can have a big impact on the finances of the rest.”

“Seema Owais and her husband put their detached Colonial on the market several months ago for $619,000, about $100,000 less than others in the neighborhood got when they sold their houses last year. And now she worries that some of her neighbors are depressing real estate values even more.”

“‘They get scared and start reducing and reducing,’ she said. ‘For us, it’s disheartening, but you can’t do anything about it.’”

“Stephen Myers is planning his retirement and wants to sell. He and his wife have owned their house for almost two decades. He dropped the asking price for his house from $717,900 to $649,000 after the house across the street sold in June for $602,000. That owner was transferred, needed to leave town and accepted a low-ball offer.”

“‘I didn’t like it,’ Myers said, but he understood. ‘If I were in his shoes, I’d have done it, too. Did the people up the street like it? No. But we understood it.’”

“A couple of years ago, soaring real estate values kept the chatter at cocktail parties champagne-bubble bright. Now, when neighbors gather together, the talk is still real estate, but the tone can be somber. Instead of how high did it fly, they ask how low did it go. That’s because the competition to sell a house now can be cutthroat: In August, there were 40,870 houses on the market in the Washington area, up from 18,368 in August 2005.”

“And many have noticed that the house with the lowest price often moves first.”

“‘When there are for-sale signs all around you, you sort of watch and wonder, ‘What price is it?,’ ‘Did they finish their basement?’ and then, ‘Oh, they dropped their price again,’ Jenny Kelly said. On a recent warm afternoon, Kelly told the others she had heard that the house down the street sold in the mid-$600,000s, a far cry from the mid-$700,000s of the past.”

“‘That’s not good,’ Nicola Bullis said, shaking her head. ‘I heard they had an odd decor,’ Alyssa Hoard-Stewart said, adding that the owner of another nearby house for sale is adding a deck to attract potential buyers.”

“A similar conversation takes place frequently amid the big single-family houses on Tate Court in Oakton. Raghu Reddy combs Internet listings and online property transactions to keep abreast of prices. He thinks prices have fallen 10 to 15 percent in the past year, a decline of at least $100,000 on houses that cost $1 million.”

“Mack Dennis has plenty of negotiating room because he bought the unit during the last slump. Now the deciding factor can be the level of desperation, or the relative financial ease, of the seller. People who need to sell fast are the quickest to drop their prices. And people who bought long before the soaring prices of the past five years have a financial advantage.”

“Just a few doors away, John Palm has put his townhouse up for sale. He and his wife have moved to Leesburg, so he is eager to get out from under one of the mortgages. He bought when prices were low, in 1992, so he has been able to lower the price’.”

“‘The bottom line is, they’re in a different situation than us,’ Mark Bolt said. ‘If we keep dropping our prices, we can’t afford the place we want in Leesburg.’”

“How long will it take to sell your house these days? Longer than you might think, say real estate agents and some frustrated sellers. ‘I don’t know how long it should take now, but we’re still here,’ Charlene Hout said. She put her Georgetown townhouse on the market in March for $1.95 million as a ‘for sale by owner’ listing. In July, she hired veteran Georgetown agent Nancy Taylor Bubes. They recently dropped the asking price to $1.79 million.”

“With two to three times the inventory to choose from around the Washington area this year compared with a year ago, buyers are just not willing to jump anymore, agents said. They have to be convinced that they’re not paying above market, and they also are ‘demanding more’ in the terms of the contract, said Holly Worthington, president of the Greater Capital Area Association of Realtors.”

“Terry Belt, a Vienna agent, said, ‘People look at what their neighbor’s house did last year, and want that price or more. But in this market you can’t compare to last year. You can’t even do comparable sales from three to six months ago.’”

“A ‘good strategy,’ he said, is to look at similar homes that are on the market now and ‘to price your house at or about 3 percent below them.’”

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It’s Friday desk clearing time. “There numbers aren’t pretty, 20.7 percent of housing speculators in the Baltimore region reportedly lost money in the second quarter of 2006. ‘Speculators are taking a bath,’ said David Martz, a Realtor in Baltimore. ‘Rehabbed [houses] and new construction are hitting the market, and there is a glut of that inventory.’”

From Virginia. “‘You don’t want to get too greedy. When you get high appreciation like we have had and like other markets, you will fall off the cliff and it will hurt,’ said Wes Atiyeh, who is president of the Richmond Association of Realtors. ‘There’s more inventory than we’ve had in a long time,’ Atiyeh said.”

The Chicago Tribune. “There is no denying that the slowdown is taking a toll. Chicago-area sales in August were down nearly 21 percent from last year, while condo sales were off 11 percent. During the lull the inventory of homes for sale has grown about 40 percent from last August.”

“‘Too many sellers got greedy,” (realtor) James Merrion said in Elgin. ‘Prices have to come down.’”

“Not so, said Tommy Gentile, who has been trying to sell his five-bedroom home in west suburban Montgomery for about six months. He has reduced the price by $20,000, to about $380,000. ‘That price is pretty close to rock-bottom, as far as money we’ve put into it,’ he said of the house, bought two years ago. ‘We have to get our money back because we’ve bought another house, and we’re remodeling that one. We have two mortgages.’”

From Michigan. “Statistics show that the housing market has cooled across the United States. But that news doesn’t shake Lisa Damron, president of the Battle Creek Area Association of Realtors.”

“‘We do not accept the philosophy that the market is down,’ Damron said. ‘The more sellers keep a negative perception, the worse our outlook will be.’”

The Denver Post. “‘The national media would have people believe that the housing market is getting creamed, and that’s really not the case,’ said economist Jeff Thredgold. ‘Yes, there is a housing bubble on both coasts, but it is an issue somewhat exclusive to both coasts.’”

From Texas. “New subdivisions are popping up all over town in Austin. ‘There are just the right amount of homes on the market, so we are not like the rest of the country,’ Realtor Amy McDonald said. ‘I get sticker shock on both sides. I get people who can’t believe how inexpensive housing is. They come from big cities,’ McDonald said.”

“While many buyers are living their dreams of home ownership in Austin many have had those dreams shattered. ‘[There's] one foreclosure for every 142 households,’ Sally Borie of Consumer Credit Counseling Service said. Austin is now fifth in the nation for home foreclosures during the second quarter of this year. People move into homes that seem affordable at the time but they end up breaking the bank.”

The Arizona Republic. “New-home permits have been falling for months as builders try to sell their inventory of new homes. Valley housing analyst RL Brown said the housing market in the West had the steepest decline because it had been the most robust region. ‘Every place that was hot is cold now,’ he said.”

The Mail Tribune in Oregon. “Short-term real estate investors looking for a quick profit may now find themselves stranded in the slowing market. And that has contributed to a big increase in the number of homes for sale locally. Jackson County’s inventory of homes for sale crested at more than 2,000 in August. In the year 2000, it was typical countywide for no more than 900 homes to be on the market.”

“‘I think one reason for the increase of inventory is those investors trying to sell,’ says Bob Forest of Bob Forrest Loans. ‘The supply of new houses has competition from investors (trying to sell their properties), so there are excess lots and houses.’”

“One investment adviser says he’s not surprised by the burst of activity. ‘Most everybody is late to the dance,’ says financial planner Al Densmore. ‘They chase stock when the market is high and then they hear real estate is hot and get trapped. They’re sort of lemmings following the crowd.’”

From California. “‘There’s so many houses for sale on my street that I felt I needed to do something to get mine noticed,’ said Jean Simon, a of Corona, Calif. Since Doug found a new job on the East Coast, they want to sell fast so they can move.”

“After four months of trying to sell the house with no solid offers, the couple put the house up for auction on eBay. Simon says the $400,000 reserve price is a tad below the house’s fair market value.”

“‘We built up a lot of equity since we bought it, so it’s not like we’re losing money,’ she said. ‘But we’re motivated sellers who don’t have the time to find renters, and who don’t want to be saddled with property taxes and a mortgage for a house we no longer live in.’”

A report from the LA Times. “Mortgage fraud continues to escalate in Southern California, FBI figures show, raising concerns of increased defaults and foreclosures as the housing market cools down. The FBI and industry experts say the trend reflects growing deceit by average borrowers who overstated their income, exaggerated their assets or hid their debts simply to qualify for a mortgage in the region’s sky-high housing market.”

“‘There’s more of the little guy running around — people committing fraud for housing,’ said Ronda Heilig, the bureau’s mortgage fraud program manager. A seven-county region from Orange County to San Luis Obispo County has seen a fourfold increase in suspicious loan activity since 2003.”

“With prices flattening out or declining, those without sufficient equity could be forced to sell for a loss or even default on payments. That could accelerate any downturn in the market by swamping it with foreclosed and bargain-priced properties. ‘This is the calm before the storm,’ said Steve Smith, a Redlands appraiser.”

“One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to a data firm. Sixty of the borrowers had exaggerated their incomes by more than 50%, according to the institute.”

“In what might be a sign of trouble ahead, the HUD’s Office of Inspector General said that it had audited 41 loans that had gone into default. All of the loans had been made by National City Corp., one of the biggest lenders in the country, and had been insured by HUD”

“In 20 of the loans, or just about half, the inspector general found ‘errors and documentation omissions clearly contrary to prudent lending practices.’ On one loan, for example, the borrower’s previous address turned out to be nonexistent.”

“On another, the borrower submitted two bank statements. The first month’s closing balance didn’t match the second month’s opening balance, an indication that the documents might have been faked. A third borrower overstated his income, a fourth his assets.”

From the Daily Democrat. “An increase in housing options and steady home prices have caused the tables to turn in the real estate industry. After nearly a decade of booming home prices and fast selling times in Yolo County, the market has quickly slowed down.”

“‘In terms of the market, we peaked in fall of 2005,’ said (broker) Don Sharp in Woodland. ‘Looking back it continued to escalate and escalate. But then prices started to suffer in 2006.’”

“Sharp said currently, there are 356 houses available in Woodland, that’s more than three times the amount in 2004. Furthermore, the availability has caused builders and home owners to compete for buyers, which means better deals for those looking to buy.”

“BG Tacket, a Woodland home seller, put his home up for sale earlier this month and since then has had a few people inquiring about it. He’s not worried about the market because he priced his home competitively and feels it has enough character to stand out.”

“‘The market’s back to normal and everyone is freaking out about it,’ he said.’ He said some of the biggest reasons why some houses aren’t selling is because there’s nothing in the house that stands out and its over priced. ‘People are over-pricing to pay for the high Realtor commissions,’ he said.”

The Tracy Press. “For the first time in 15 years, the price of a home in Tracy fell from one year to the next. And with ‘For Sale’ signs spinging up all over the valley, buyers are feeling the market shift in their favor.” “September figures show the median price for a single-family home in Tracy during the last six months has retreated from $546,000 to $538,000, and at least one real estate professional thinks prices could drop even further.”

“‘The last time this happened was in the early 1990s, right after the 1989 San Francisco earthquake,’ said said Larry Rumbeck, president of the Central Valley Association of Realtors. ‘We’re a bit late with the drop.’”

“He said sellers today are being more realistic with asking prices, while investors have left the market altogether.”

“Rumbeck said factors such as lower gas prices and market-savvy buyers have conspired to limit Central Valley home sellers’ tendency to inflate prices. ‘Negative press about housing prices, along with the fact that buyers are much more educated today, have contributed to a bubble burst,’ he said.”

“Today, many buyers are sitting back and holding on a month or two before purchasing a home, Rumbeck said. They’ve got a lot of options. The MLS shows there are 745 homes on the Tracy market, along with 259 foreclosures in the works and 113 repossessions. The glut has forced many homeowners wanting to sell to put their homes on the rental market and wait out the lull.”

“Rents for a single-family house in Tracy are down far below $1,500, said (property manager) Barbara Johnson in Tracy, and renters paying that much right now opt to stay in the Bay Area and avoid the expense and time of a commute.”

“‘Prices were inflated drastically,’ Rumbeck said. ‘A house in Turlock that went for $180,000 in 2001 went for $380,000 in 2005.’”

A housing report from the Washington Post. “And so the great real estate boom has ended. Signs of a deteriorating market are everywhere, even in Prince George’s County, where the housing market conditions had remained close to boom levels even as other neighborhoods cooled dramatically.”

“‘The downturn in the Washington housing market is in full swing,’ said economist Mark Zandi. ‘The market is weak and getting weaker.’”

“Sales have plunged in every jurisdiction; in August, the latest figures available, 8,300 homes changed hands in the region. That’s down by a third from a year ago, according to the area’s MLS. As of the end of last month, 46,000 homes were on the market, up from 21,000 the same time last year.”

“One thing is clear: Buyers are overwhelmingly in control now. Year-over-year median prices were down 4 percent in August in Prince William and Loudoun counties, whose share of unsold homes account for roughly a quarter of the homes on the market in the region. Prices were also down in Arlington (14 percent), the District (9 percent), Fairfax County (6 percent) and Alexandria (2 percent).”

“Condo sales have been hit particularly hard. In Arlington, the District and Alexandria, condos account for more than half of the homes on the market. In Fairfax County, they account for a quarter.”

“Those who really do want to sell ‘need to recognize that they need to be the best house at the best price this week,’ broker David Hawkins said. ‘What the neighbor got a year or two ago has no bearing on the market now.’”

“Arlington renter James Cave is still waiting to buy. In the spring, he said he thought the housing market was overpriced and headed for a fall, so he is feeling quite smug these days about his decision not to plunge in.”

“‘There was no way I was going to jump into the real estate market that wasn’t grounded in reality,’ he said recently. ‘But what’ll happen to all these people who bought?’”

“Cave felt a lot of pressure from his friends and acquaintances to buy a home. He has been socking away half of his salary into savings for several years, and could have easily produced a substantial down payment. Instead, he spends $1,400 a month to rent a condo in a new building in Arlington.”

“‘I’m totally happy,’ the Washington-area native said. ‘All the people who were bragging about prices going up are suddenly silent and worried about what their properties are worth.’”

“Cave continues saving his money, waiting for what he thinks will be a flood of foreclosures when people are faced with escalating payments and can’t sell for enough to cover their mortgages. ‘What I’m waiting for is when the housing market is at its bottom,’ he said. ‘I think we’re a long way from there. I personally think it’s going to get really bad. It’s like the Internet craze.’”

“It seems to him that the investors who own units in the building, like his own landlord, are becoming more anxious to sell. He frequently visits open houses for new condominium complexes in the area. He has been noticing how many are offering generous incentives, and there are still several new buildings under construction.”

“Now he thinks he will wait for the market to drop enough so he can afford to buy a single-family house. He thinks he would be willing to pay $300,000 for such a house, not the $600,000 many owners are now asking. He said, ‘I believe my patience will work for me.’”

Some housing bubble reports from Wall Street and Washington. “Cracking down on exotic mortgages that have exploded in popularity in recent years, U.S. regulators told banks Friday that they’ve got to make sure that borrowers can actually pay back the full amount of the mortgage.”

“‘The agencies are concerned that some borrowers may not fully understand the risks of these products,’ the five banking regulators said in a statement Friday. In particular, banks were told not to offer loans that would require the borrower to sell the home or to refinance the loan in order to make the full payment. Such ‘collateral-dependent’ loans are typically prohibited as unfair or deceptive.”

“Exotic loans should generally not be offered to borrowers with limited or no down payment, the regulators said.”

“‘The agencies expect a borrower to demonstrate the capacity to repay the full loan amount that may be advanced,’ the regulators said, including any additional interest or principal that may accrue.”

“Wall Street analysts ahead of final guidance warned that the rules would temper consumer demand for the ‘affordability products’ that are also favored by investors in the $6.5 trillion market for mortgage-related securities.”

“‘It seems likely the rules will have sufficient bite to cause some adjustments in the types of loans being offered in the mortgage marketplace,’ analysts at UBS Securities LLC said in a Tuesday note. ‘That could have some serious repercussions for lenders, as well as for homeowners seeking to refinance their affordability loans.’”

The Christian Science Monitor. “The biggest trouble lies with the adjustable loans that begin with artificially low interest rates. An analysis estimated that $368 billion in adjustable-rate mortgages originated in 2004 and 2005 are at risk of default because of this pattern.”

“‘This translates into 1.8 million families that are at risk as a result of the possibility of default and another 500,000 that are likely to go into foreclosure,’ Allen Fishbein of the Consumer Federation of America said last week at a Senate hearing on nontraditional mortgages.”

“Experts on both the pessimistic side and the optimistic side agree on one thing: The impact of the ARM adjustments will occur over several years. ‘It’s a time release,’ says Christopher Cagan, who did the risk analysis at First American Real Estate Solutions. ‘It’s not a single impact like Pearl Harbor.’”

From Bloomberg. “Consider the bloated inventory of homes for sale and compare the performance to previous housing slumps, says Joe Carson, director of global economic research at AllianceBernstein.”

“‘Since the start of 2005, the inventory of unsold new homes has climbed 29 percent, while the stock of unsold existing homes is up a staggering 82 percent,’ Carson says. ‘During the sharp, protracted housing downturn of the early 1990s, these inventories actually declined, helping to cushion prices.’”

“Cancellations are rising, and they aren’t being captured in the aggregate statistics because of the way the survey is designed. Hence, sales are being overstated and inventories understated.”

“‘Once a sales contract is signed, there’s no way of recording the cancellation or putting the home back in inventory,’ says Dave Seiders, chief economist at the National Association of Homebuilders in Washington. ‘Builders keep track of gross and net sales; we don’t have a net sales number from Commerce.’”

“The Census Bureau, which is one of the Commerce Department’s statistical agencies, counts an initial new home sale: Sales go up and the ‘for sale’ inventory is reduced. If the sale is canceled, it isn’t reflected in revisions to previous months. What happens? When the home is ‘resold,’ statisticians ignore that transaction.”

“The effect of higher cancellations is ‘to overstate the overall level of sales and understate the level of inventories,’ Carson says. What makes the current situation so worrisome is the ‘unprecedented inventory overhang, encompassing new and existing markets and many of the largest metropolitan areas,’ Carson says. ‘Its sheer size raises the odds that prices will fall more and longer nationwide than they did in the 1990s.’”

From MarketWatch. “Banc of America Securities said Friday it expects pending home sales to decline between 3% and 4% in August from the previous month after its monthly survey of real estate agents revealed disappointing traffic trends.”

“‘Lower pending contracts in August should lead to weaker existing closings in September and October, as contracts precede closings by 30 to 60 days,’ wrote analyst Daniel Oppenheim.”

“A.G. Edwards analyst Gregory Gieber estimates the inventory overhang of new homes in the 190,000 area. ‘Hence, before one can even start to think about any improvement for home builders with regard to pricing and profitability, a large inventory drop is required and that in turn will likely require yet additional gross margin declines of a meaningful magnitude,’ Gieber said.”

“‘Residential construction is officially in recession, as the home-building stocks predicted long ago,’ wrote Merrill Lynch North American Economist David Rosenberg in a report Friday.”

The Long Island Business News from New York. “As Long Island’s housing market continues to soften, real estate executives refuse to utter the ‘b’ word: Bubble. But one area economist isn’t afraid to use it. ‘In the bubble areas, i.e. long island, things are really coming down quite quickly,’ said Irwin Kellner, a Hofstra University professor and North Fork Bank’s chief economist. ‘You don’t need me to tell you this.’”

“Inventory has soared by as much as 75 percent in some areas, Kellner told the group of Long Island’s key economic development players and real estate developers. ‘The housing market bubbled up in a way that it had not before,’ he said.”

The Boston Globe. “For Barry Bluestone, an encounter in an airport last spring crystallized the high cost of living in Massachusetts. The Northeastern University economist began chatting with the passenger next to him. She told Bluestone, ‘Even on our salaries, we can’t afford it here,’ Bluestone said. ‘If we can’t keep pediatric dental surgeons here, heaven help us.’”

The Boston Herald. “The increasingly troubled Bay State home and condo sales market is racing into a downturn that could take years, not months, to work itself out, experts said. ‘It could get very bad,’ said Bluestone of the impact of a recession on the housing market. ‘We already have a weaker economy (in Massachusetts) and we suffer from this terrible cost of living.’”

“A market that stabilizes this fall, while not impossible, is unlikely, said Chip Case, a Wellesley College economist and top real estate expert. ‘There are so many different scenarios,’ Case said. ‘I don’t expect this to be a long, drawn out thing, but it damn well could be,’ Case said.”

The Lowell Sun. “Marci Rossell, who has worked as chief economist at CNBC and now teaches at DePaul University in Chicago, said the current slowdown — she despises the term ‘bubble’ — had to happen.”

“‘It used to be that mortgage rates were only influenced by long-term (interest) rates, and that’s because the only mortgage you thought about was the fixed 30-year loan,’ she said. Now with all the innovations, adjustables, interest-only and option-pay mortgages, rates are far more susceptible to short-term rates, which are controlled by the Fed.”

“‘And what has the Fed been doing to interest rates?’ Rossell asked, egging on the crowd with an emphatic thumbs-up. Higher rates deplete demand, she said.”

“Rossell closed by hinting that too many homeowners are obsessed with real-estate values, anyway. ‘If it’s where you live, it’s ludicrous to take a short-term perspective,’ she said. ‘I mean, seriously: What do you care?’”

WBIR in Connecticut. “After years of going up, housing prices are now heading south in some places, so has the ‘bubble’ finally burst? Kate and Hans Koning have been trying to sell their Easton, Connecticut house for nearly a year. So far there are no takers, even though they cut their price not once, but twice.”

“‘I started at $875,000 and at the time I thought that was really a reasonable price for the house,’ says Date Koning. The Konings are not alone. Sellers across the country are struggling with a weakening housing market.”

“‘The people who bought at the top and sell out at the bottom can get really hurt and so there will be bankruptcies, foreclosures and people out of jobs, but we will recover from it…this is not nuclear war,’ says Economist Robert Shiller.”

The Times Argus. “Central Vermont’s real estate market is holding its own this year, despite national trends which continue to show a marked decline in new home construction, a swelling inventory of unsold homes, and stagnant prices. However, there is less urgency in the market, according to Nancy Gale, broker associate and president of the Vermont Association of Realtors.”

“‘There’s a lot more inventory available, but we’re not seeing prices coming down as much as we’re reading in the [national] news. It’s giving buyers more choices,’ she said.”

“Broker John Biondolillo said he hasn’t seen prices falling. ‘Except on houses that were overpriced to begin with,’ Biondolillo said.”

“Claire Duke, who has been selling real estate for 25 years, said ‘The thing that’s somewhat different is this extra lump sum that sellers have been adding to the price in hopes of it working is probably changing.”

“‘Some of that reaching is going to stop to a degree, at least for the more ordinary properties,’ Duke said. ‘Sellers need to come to terms with being more realistic about prices than they have been in the last three to four years.’”

The St Petersburg Times reports from Florida. “A year ago, Hillsborough County’s housing market was hyperventilating. Now it’s sighing. ‘The people who are selling are very fortunate,’ said Vince Arcuri, a real estate agent based in Odessa.”

“Why? Because everywhere Arcuri looks, he sees overpriced houses. One’s $50,000 too high here. Another’s 30 percent out of whack there. ‘They’re all overpriced,’ he said.”

“‘Inventory has quadrupled,’ said Brad Monroe, the New president of the Greater Tampa Association of Realtors. ‘Sales are off by 40 percent. There’s downward pressure on prices.’ ‘It’s getting very, very slow,’ said Yuly Vazquez, a Tampa real estate agent who has held four-hour open houses where only two or three people strolled in.”

“‘They’ve never had as much product to choose from,’ Monroe said. ‘Sellers are going to have to be more aggressive.’ The speculators are gone, yet the building boom they encouraged is still evident. ‘There’s a whole bunch of brand-new houses that have never been lived in that aren’t selling,’ Monroe said.”

“Arcuri and Monroe advise sellers not to peg their homes’ prices to sales during the past year. That was too high, they agree. ‘We need to go back to about mid-2004,’ Arcuri said. ‘That’s where the market is now.’”

“Monroe’s Realtors association predicted last week that it would lose 10 percent of its members next year. His statewide association reported Monday that August home sales in the Tampa Bay area had dropped 42 percent from the prior August. ‘The market was out of control,’ Arcuri said. ‘We needed this adjustment.’”

The Herald Tribune. “Leonard Sondheimer knows firsthand the perils of the real estate boom. The 68-year-oldm retired until he and his wife sought to diversify their investments into the Southwest Florida real estate rush, now finds himself working full time again in Bradenton.”

“The Sondheimers, who bought a house from Jade Homes that now stands unfinished with 75 others, also enticed more than a dozen neighbors and friends to buy investment homes from Jade. The Sondheimers and other Jade buyers are among the thousands who, during the booming 2003-05 cycle, saw a no-lose opportunity in the region’s real estate game.”

“Leonard Sondheimer just flunked a credit check at a time when he thought he would be enjoying his golden years. He deeply regrets involving friends and neighbors with Jade. They are now facing the same uphill prospects for recovering their investment. ‘I feel terrible,’ Sondheimer said.”

“Jade’s single largest customer is probably Ali Alshalkmi, a Tampa-based commercial investment broker who bought 10 homes from Jade for family and as investments. He figures he is at risk for more than $3 million. ‘I don’t think they’ve actually done anything,’ Alshalkmi said of Jade managers. ‘They’re buying time.’”

“Jade’s president, Andrew Coles, has lost weight since the Jade furor surfaced. He also has had a ‘lot of sleepless nights.’”

“Coles expected the real estate market to slow down, ‘but not so rapidly.’ Jade’s failure was a by-product of the ‘phenomenal growth’ of the past three years, Coles said. He said he built a business to handle high volume and found it ‘tough to readjust the scale’ in time to avert financial collapse.”

“When asked his greatest regret, Coles stared off into the distance for a full two minutes. ‘It’s a tough question,’ he said. ‘Not reacting quick enough to a change in the market. You always think next month it’ll get better.’”

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