The Housing Bubble

The Valley Voice reports from California. “In Visalia, inventory has reached over 1900 single family homes on the MLS, up from 1801 July 1. There were just 437 homes for sale in the Visalia/Tulare MLS in July 2005. ‘It’s getting worse,’ says long time realtor Sherry Tietjens, with sellers having to lower their expectations significantly from just the first part of this year.”

“‘A home that might have sold for $315,000 last year in on the market for $250,000 today with no offers,’ says realtor Brad Maaske. ‘We’ve got nine and a half months of inventory’ in existing homes in Visalia, he says. Sales here were off about 30% in July compared to last year, something that is happening all over California.”

“With home prices declining in some places foreclosure activity was the highest in 14 years. Statewide foreclosures were up 67% from the same time in 2005. Tulare County was up 46% with 250 notices of default compared to 177 during the second quarter of 2005. Fresno County was up 55% and Kern 69%.”

The LA Times. “Suburban home builder Standard Pacific Corp. has opted out of an agreement to buy a major Los Angeles condominium project, another sign that downtown’s once-sizzling condo market might be losing steam. The condo development was behind schedule and was having trouble attracting buyers.”

“Instead of being sold as condos, the 272 units will be leased as apartments beginning today by the project’s owner.”

“Sales have slowed considerably while the supply of units continues to grow, creating what some analysts say is a condo glut. From January to June, sales of existing downtown condo and loft units plunged 25% compared with the year before. But developers have added 6,900 condo units and lofts in the last five years, with an additional 5,600 slated to be built in the next two years.”

“‘Maybe downtown has gotten a little ahead of itself,’ said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. ‘Downtown is a young market, and we don’t have that much history as to how it will perform in a true cycle.’”

The Roseville Press Tribune. “The prospect of people losing their homes has increased in Placer County as mortgage default notices have more than doubled. The amount of default notices in the county for the second quarter has increased 126.2 percent compared to numbers from the same time last year.”

“Placer County had the second largest percentage increase in the state behind Sutter, which had a jump of 229.4 percent.”

“‘What I’m seeing from clients I had a year ago, and especially the people that bought homes with 100 percent financing, they’re now upside down,’ said Tom Urbani, branch manager for Jim Leonard’s Mortgage Connection in Auburn. ‘Those people who did 100 percent financing are seeing the home values drop anywhere from $10,000 to $30,000.’”

“With home values dropping, those homeowners that have ‘aggressive’ financing are not able to refinance because the value of their home is not high enough to make it profitable.”

“‘For some clients we’ve suggested that they sell their homes,’ said Mike Ferguson, owner of Windsor Financial Services in Granite Bay. ‘They’re at their maximum debt ratio and the value is not going up so, unless they sell it, their credit is going to erode and they’re going to be heading into a foreclosure situation down the road.’”

The Denver Post reports from Colorado. “Weld County homeowners saw their home values decline as the nation’s housing market hit the brakes hard in the second quarter, according to a report. In Weld County, the housing market isn’t dead, but it barely has a heartbeat, said Pam Worster, a broker associate in Greeley.”

“Buyers who bought within the past three years without putting any money down, a common practice, can’t sell for what they owe. Foreclosures follow, putting further downward pressure on prices.”

“Worster, who calls Greeley the ‘bargain capital of Colorado,’ said she has seen $200,000 homes going for $180,000. ‘There is a trickle of buyers,’ she said.”

“Slower Front Range gains were expected, given that home values have outstripped income gains for several years running, said economist Bill Kendall in Denver. ‘Over the last dozen years, incomes have gone up only half as fast as home prices,’ he said.”

The Deseret News in Utah. “In a sign that Utah’s housing frenzy also might be at a turning point, housing prices in the St. George metropolitan area have started to soften.”

“‘Absolutely, the market has turned down here,’ said Allan Carter, director of developer services for Southern Utah Title Co. ‘There are whole subdivisions filled with spec homes that in one case don’t have a single home sold.’”

“Carter blames southern Utah’s wild housing ride on real estate investors, who bought up hundreds of properties with the intention of flipping them. Last summer, roughly 40 percent of people purchasing properties in the St. George market were investors, Carter said.”

“And Carter believes the Salt Lake region is prone to what he calls a ‘train wreck’ now hitting Las Vegas and Phoenix. His advice to people looking to buy a home in the Salt Lake region is to wait until next fall. ‘You guys are going to hit the wall between April and June next year,’ Carter said. ‘It’s a huge problem.’”

“‘Florida, California and Arizona, are under stress right now, with prices coming down a little bit,’said Jeff Thredgold, an economic consultant to Zions Bank. ‘The market is prone to excess, and they got a little carried away. In our market, we lagged behind for so long..we’ve talked for some time about the fact that Utah real estate would do well for 2006, 2007 and 2008.’”

“Carter said what Thredgold and other economists are missing is the effect of the investor presence in the market. ‘It’s the same element that Vegas missed,’ Carter said. ‘He’s assuming that when a home sells it’s being bought by somebody that holds a job and will live in the home. But the people that bought the homes, bought them with the idea of putting them back on the market. So now in Vegas you’ve got 10,000 homes that have never been lived in.’”

“Clark Ivory, CEO of Ivory Homes, the state’s largest homebuilder, agrees that investors in the Salt Lake region are creating what he calls artificial demand. ‘In many cases when the investors came in the builders couldn’t supply the inventory fast enough, so the prices escalated even more rapidly, which brings in even more speculators and investors,’ Ivory said.”

“‘Builders don’t realize that many of those people that were buying their homes had no intention of occupying them. The builders are ramping up production to meet a new demand, which is an artificial demand. The whole thing is artificially inflated, and then all of a sudden there is this surge of supply,’ he said.”

The Carrollton Leader Star reports from Texas. “Although the sale of homes in the area is rising, local realtors are telling a different story than the numbers. The market is flooded with existing homes, but new home developments have made it hard for realtors to turn a home quickly.”

“‘Today’s buyers are not buying anything like they use to, they have so many choices,’ said Luella Blaylock, (realtor) in Carrollton.”

“Blaylock said developers have offered up to $20,000 worth of free upgrades, something a realtor can’t give on an existing home. New home prices were falling because of the inundation of existing homes for sale. People move and the house will sit there until a price between the seller and buyer is agreed upon.”

“‘The numbers look good, but the homes are sitting there,’ Blaylock said.” “The market in Flower Mound is experiencing some of the same symptoms as Carrollton. ‘I wouldn’t say the prices are falling. There isn’t any appreciation right now, but I haven’t seen any appreciation in the last six months,’ said Jack Hurst, a 20-year real estate veteran.”

From My San Antonio. “Nearly 850 Bexar County residents lost their homes to foreclosure Tuesday, the third-highest monthly total in more than a decade. The slew of foreclosures is reminiscent of the late 1980s when oil busted and the San Antonio real estate market crashed.”

“‘Lenders are making riskier loans,’ said Jim Gaines, research economist with the Texas A&M Real Estate Center. ‘Some of that risk is coming home to roost.’”

“People who buy a home with no down payment and who roll closing costs into their mortgage loan seem especially vulnerable to foreclosure. These ‘upside-down’ loans make up only about 1 percent of all mortgage loans in San Antonio, according to a mortgage research firm.”

“But in the first half of 2006, they made up 16 percent of the Bexar County foreclosure market. George Roddy, president of Foreclosure Listing Service, said interest rates on adjustable-rate mortgages, known as ARMs, are resetting at higher levels now, sometimes doubling monthly mortgage payments. And consumers have had a harder time getting bankruptcy protection.”

“In 1996, 3,894 Bexar County homes were sold at the foreclosure auction. So far this year, 6,510 homes have sold at auction.”

“Gregg Stanley, owner of a San Antonio-based foreclosure listing service, said the rise in local property values has helped many families avoid foreclosure. ‘They can sell and be OK if they do it quickly enough,’ he said.”

“Without the rise in property values, Stanley said, foreclosures would be double or triple the current levels.”

“In the late 1980s and early 1990s, people typically lost their homes to foreclosure because of an economic downturn that led to layoffs. ‘This isn’t the ’80s,’ Gaines said. ‘In the state of Texas we’ve had a lot of people buying homes in the last two or three years on easy credit terms. Lenders are pushing mortgages out the door.’”

“Gaines said people who never thought they could become homeowners have been able to get into the market and, for the most part, hang onto their homes. ‘Was it a good thing or a bad thing? I don’t know where you draw the line,’ Gaines said. ‘These were people who were giving it a shot who were never able to give it a shot before.’”

Danielle DiMartino writes at the Dallas News. “For an idea whether the housing market is in for a soft landing or something a lot nastier, take a look at the performance of home equity loans. Last week, Moody’s Investors Service reported that the delinquency rate in the home equity loan market rose 11 percent for the quarter ended in April from the same period a year earlier.”

“‘This is the 11th consecutive month that the home equity delinquency growth rate has risen,’ Moody’s Ben Garber said.”

“To give you an idea how quickly the market turned, the delinquency growth rate was falling at a 27 percent annualized rate in the quarter ended May 2005. In the space of 11 months, we’ve rotated from vast improvement to sharp deterioration. According to Moody’s, delinquent loans now represent nearly 7 percent of the total existing pool of home equity loans.”

“For homeowners who are missing payments on their home equity loans, it boils down to what home prices have done for them lately. The biggest irony is that the rampant borrowing will exacerbate home price declines.”

“‘The home price drop-off has been aggravated by the rising inability of current and potential homeowners to fulfill loan obligations,’ Mr. Garber said. ‘The rising rates of these delinquencies portend a period of nominal home price deflation, the extent of which will determine whether or not the U.S. economy will be able to experience a soft landing.’”

From Bloomberg. “Fannie Mae and Freddie Mac have enjoyed an advantage over other financial institutions because of their government ties. Their charters give the Treasury the authority to buy as much as $2.25 billion of their securities in times of distress.”

“Fannie Mae and Freddie Mac ‘were on pace to basically absorb the entire mortgage market,’ said Scott Simon, at Pimco.”

“Competitors complained about the preferential treatment. Fannie Mae and Freddie Mac fought back, hiring 46 lobbying firms in 2003 to influence Congress, more than any other company or group, a nonpartisan group in Washington that tracks spending. The money helped stall legislation in 2003, 2004 and 2005 that would have created a tougher regulator.”

“The ‘old political reality was that we always won, we took no prisoners and we faced little organized political opposition,’ Daniel Mudd, then Fannie Mae’s chief operating officer, wrote to then CEO Franklin Raines in November 2004.”

“U.S. ‘financial markets would be safer if these asset and associated risks were broadly redistributed,’ said Emil Henry, the Treasury’s assistant secretary for financial institutions. ‘Past history reminds us that serious financial problems at’ Fannie Mae and Freddie Mac ‘are not only a possibility but an unfortunate reality,’ said Henry.”

The New York Times. “Default rates are inching up, credit ratings agencies have become more cautious and regulators have threatened to crack down on loose lending standards. Yet investors increased their exposure to the securities.”

“Mortgage-backed securities, the biggest sector of the bond market, have been critical in fostering the long housing boom. But there is the potential for growing strain in the close relationship between homeowners and their financial patrons.”

“In June, default rates on subprime mortgages, loans made to people with poor credit, increased to 6.88 percent of securitized loans from 5.49 percent a year earlier. Another report released yesterday showed that in the second quarter home prices rose at their slowest pace since the fourth quarter of 1999.”

“‘If something really bad happens, you are not going to take any U.S. financial institutions out,’ said Scott Simon at Pimco. ‘What you will have is you will lose liquidity in the mortgage market.’ And ‘that could happen at a time when the homeowner needs it the most,’ he added.”

“Guy Cecala, president of Inside Mortgage Finance, worries that investors may not be fully prepared for what could be coming. ‘We have never had a mortgage-backed market where a third or more of the product is subprime or has potential credit problems. If something does go wrong, you will see a lot of things being impacted.’”

The Palm Beach Post reports from Florida. “Palm Beach County home-price growth slowed in the second quarter compared with last year in the steepest three-month decline on record, according to a government report released Tuesday that shows the housing slump deepening.”

“Palm Beach County’s one-year home-price growth ranks 22nd out of 275 metropolitan areas, the federal report said. Although on its face that sounds like good news, it’s offset by a dramatic drop in the number of homes sold year over year and a huge expansion in inventory. The number of homes for sale in Palm Beach County rose to 22,206 in July from 7,701 in July 2005, according to a local real estate firm.”

“There is another important aspect of Fannie Mae and Freddie Mac that suggest the results shown in the Palm Beach County report, in particular, should be evaluated with caution, an analyst said Tuesday. ‘Fannie and Freddie,’ as they’re known in the mortgage industry, have low shares of adjustable-rate mortgages, the analyst said, but Palm Beach County’s share of adjustable-rate mortgages is high.”

“‘The last estimate I saw was about 57 percent for purchase loans,’ said consultant James Lawler. ‘The OFHEO index for your area would contain very few observations.’”

The Sun Sentinel. “For the first time in 35 years, Palm Beach County public schools started class with fewer students than the previous year. District officials anticipated a small decline this year, with hurricanes and high housing costs driving residents out of the county. But actual enrollment was about 2,200 students below even those projections.”

“Officials say housing costs may be the biggest factor in the decline. More than 12,000 rental units have been converted to condominium units, demographer Art Wittman said. ‘I’ve had parents tell me they could not afford to live in their own home,’ said Carol Blacharski, principal at Loggers Run Middle, west of Boca Raton. ‘If I did not already own a home, I could not afford to be here.’”

The South Florida Business Journal. “Here’s a fresh indicator of problems in the condo and townhome market: More than 50 unbuilt projects are listed for sale in the region. Some developers who fail to sell may find their projects going back to lenders. Miami hosts a majority of the more than 50 projects.”

“‘It’s a problem because a rental community developer won’t pay more than $35,000 a unit land cost, compared to $60,000 to $80,000 for a typical condominium project,’ CB Richard Ellis VP Robert Given said.”

“In Broward County, Brenner Real Estate Group President Scott Brenner had a contract with a major northeastern homebuilder firm that took a pass on the project at the last minute. ‘The buyer got concerned about the market,’ Brenner said, although he declined to name the publicly traded firm.”

“There is no single reason for the glut of offerings. Some are deals falling through, others are back on the market after financing turndowns and some developers are just worried about market conditions. (Developer) Luis Dominguez said he was not concerned about the oversupply of units in Miami and blamed the ‘doom-and-gloom reports’ about the market on the media.”

“There’s no question that Miami faces an oversupply of units. Consider the numbers: Since 1995, fewer than 15,000 residential units have been completed. Right now, almost 18,000 units are under construction. Nearly 63,000 units are in the permitting pipeline. And that’s just in the city of Miami.”

“In some cases, the slowdown will lead to a reduction in projects, and help the region’s workforce find homes they can afford. ‘Some deals just didn’t make sense from the get-go,’ said consultant Jack McCabe. ‘Market price dynamics work in both up and down markets, and we are in a down market right now.’”

The Boston Globe reports on auctions. “The developer of a new luxury condominium project in Boston’s financial district is resorting to a tactic last seen in the real estate bust of the 1990s: It’s holding an auction for the 34 remaining, unsold condominiums. ‘There’s been a stalemate between the buyers and sellers,’ said Jon Gollinger, whose firm will handle the auction. ‘We want the market to determine the value,’ he said. ‘We’re starting at a price that’s laughably low.’”

“The last time auctions were popular around Boston, the real estate market was in crisis. ‘I was around in the late ’80s and early ’90s when all that went on, and I kind of cringe. Are we doing this all over again?’ said Diane Maloney, who markets the 44-unit loft building on Broad Street.”

“The auction is a big risk for the developer. It would be financially ruinous to sell the rest of the Folio units at their minimum price, which range from 31 percent to 44 percent off the most recent asking prices. In some cases, the developer had already reduced asking prices.”

“A one-bedroom currently offered for sale at $480,000 will be sold at or above its $325,000 minimum price. ‘I wish I could’ve bought my unit for less money,’ said Christine White purchased a one-bedroom on Folio’s second floor in the ‘low $400,000s’ earlier this year.”

The Times Herald Record from New York. “Local housing prices fell slightly this spring, according to a federal report released yesterday. It provides the latest evidence that the mid-Hudson housing boom is petering out. In Orange County, the inventory of unsold homes has doubled in the past four years.”

“‘I’m seeing offers coming in $20,000, $30,000 below asking price,’ said Paula Meloi, (broker) in Port Jervis.”

The Courier Post from New Jersey. “Agent Jeff Adams in Sicklerville and Westampton, said the market is shifting to benefit buyers, especially first-timers. ‘In townhouses, we are actually seeing some prices coming down,’ he said. ‘The resale people are competing with the new homes, and builders are starting to drop their prices.’”

“In Burlington County, there are 3,849 homes for sale, up from 2,613 only three months ago. In Camden County, inventory ballooned from 2,473 to 3,617; in Gloucester, For Sale signs increased from 1,464 to 2,168.”

“‘Flippers and speculators are getting out of the market completely,’ economist Ken Fears said.”

The Hartford Courant from Connecticut. “Deep in the manicured woods beyond the Merritt Parkway, trouble is brewing. Across lower Fairfield County, for sale signs are as common as a new Lexus. On the Gold Coast the market has plummeted, with sales down by nearly 20 percent through the end of June, compared with last year. There’s no panic, but a lot of people are wondering.”

“‘The two burning questions at this moment are why are so many people trying to sell and why aren’t there more buyers?’ said (realtor) Michael Tetreau in Fairfield. ‘The problem is, following the baby-boom bubble, there is no bubble. There just aren’t as many buyers,’ said Tetreau. ‘I don’t see anything on the horizon that is going to change. We have two times as much inventory compared to a year ago.’”

“‘There certainly are some danger signs. It is possible that things will go down a lot,’ said John Clapp, a business professor at the University of Connecticut. ‘But it’s hard to see a dramatic decline in prices like in the 1980s.’”

The Union Leader from New Hampshire. “Holly Phaneuf needed to sell her condo, and fast. So she turned to one of the most popular real estate agents on the market today for a little assistance. His name is Saint Joseph. ‘My mom laughed at me and said I was a superstitious fool,’ said Phaneuf.”

“After years of rising home prices, the U.S. housing market no longer appears to favor sellers. New Hampshire’s housing market appears to be softening for the first time in close to 15 years. ‘People are getting desperate,’ said Priscilla Caza, a real estate agent in Hooksett. ‘So there are a lot of St. Josephs buried out there.’”

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