The Housing Bubble

The Eureka Reporter from California. “Vince Malta, who is the current president of the California Association of Realtors, spoke to members of the Humboldt Association of Realtors at a luncheon. Statewide, home sales have decreased 30 percent from the same time last year, and Humboldt County isn’t far behind at 27 percent, Malta said.”

“The local market has also experienced a 6 percent drop in overall home prices and more houses are remaining on the market for longer, quite a change from recent years when sellers had buyers lining up for houses that could be sold immediately.”

“‘This is a normal market — you actually will need to do something!’ Malta joked, then seriously added, ‘I consider this to be the year of the realtor because in prior years, you could make no mistakes. This year, there will be some pricing errors.’”

“Citing Humboldt County’s median income of approximately $30,000, Malta also touched upon the need for affordable housing in the area. ‘I don’t see how the majority of people here can afford housing and that’s a big problem,’ he said.”

The Orange County Register. “Here’s what the researchers at Real Estate Economics in Irvine are telling their builder clients about The O.C.: The current ratio between median new home prices and household incomes is $9.90, much higher than the previous peak ratio of $5.40 set in 2nd quarter 1989.”

“Relative to household income, $0.62 of every dollar was represented by mortgage costs during 3rd quarter 2006, which exceeds the peak ratio of $0.49 set in 2nd quarter 1989.”

“Over the next four quarters, the mortgage cost-to-income ratio is expected to remain at high levels, reflecting the impact of overvalued prices and forecast higher interest rates. Some downward price pressure and slower sales per development will become more apparent over the next four quarters.”

“The current condition of overstated prices will need to further correct. There remains strong demand for all types of housing in Orange County, but new housing product must be offered at market supported prices.”

“California’s real estate commissioner cautioned agents recently against trying to influence property appraisals to help clients get loans.”

“‘Many licensed real estate appraisers are concerned that, on occasion, attempts are made to pressure them into performing appraisals for a minimum value specified by a broker in a transaction,’ state Commissioner Jeff Davi wrote.”

“Anaheim appraiser Karen Davidson, president of the Southern California chapter of the industry trade group, the Appraisal Institute, said that while pressuring appraisers is a longstanding problem, it may be on the increase lately because of declining sales and property values.”

“‘The values that the appraisers are coming up with are lower than they were,’ Davidson said. ‘That might kill some deals.’”

The Press Democrat. “Housing costs are eating bigger holes into the budgets of families in Sonoma County, where more than 4 in 10 households spend more than a third of their income on housing, according to a Census Bureau study.”

“After two decades as renters, Rosa and Juan Meza bought their first home in Cloverdale last month. To make the purchase, they took out an interest-only loan and financed the entire $455,000 price. The couple spend half their monthly income for their $2,300 mortgage payment, which is more than double the rent they paid for a house.”

“‘It does feel a little tighter. But you have to budget to make it work,’ Rosa Meza said. ‘I know a lot of people who buy homes and they just work for their home. It’s a big sacrifice for a lot of people.’”

“The Mezas, with a son and daughter, don’t eat out at restaurants, buy fewer new clothes and mostly spend their money on gas and groceries. ‘We don’t really splurge on stuff. We budget so we have money set aside for the mortgage and savings,’ she said.”

“Those are small sacrifices to own the roof over their heads, an investment they expect to increase in value and boost the family’s wealth in the long run, Rosa Meza said. ‘We were kind of tired of just paying rent,’ she said.”

“Most home buyers Roger Farah makes loans to spend more than 30 percent of their income on mortgages and some top 50 percent, he said. ‘They’re financing more of their purchase. We’re starting to see more people coming forward with less down,’ said Farah. ‘They’re not only counting on the market to build equity, they’re looking at the benefits of living in a home.’”

“Fully two-thirds of home purchase and refinance loans in the county today are either interest-only loans or negative amortization mortgages with minimum payments that don’t even cover the interest due.”

“‘It does allow them to buy more house. They are proving to be popular,’ Farah said.”

CNN reports on the realtor boom. “There wasn’t just a boom in real estate over the past decade, there was also a big boom in real estate agents. But the exuberance couldn’t last forever. Agents, who work on commission, are already beginning to feel the bite.”

“‘We’ve seen a big softening in Florida, there are fewer sales to be spread around more sales people,’ Richard Fryer, President of a Florida school that offers a variety of real estate courses. ‘Obviously there are some people who are not generating a lot of income in this market.’”

“‘You’ve got a lot of people who got into the business in the last two to three years who never really had to do the hardest work of an agent, people who were basically picking low-hanging fruit,’ said Fryer. ‘Now they’re suffering the most.’”

“Some realtors are beginning to look to other professions for an income to sustain them during the tightening. ‘Many agents in my local community are really crying the blues,’ said Geri DeWitt Ruby, an agent in upstate New York. ‘They’re very pessimistic, and they’re even talking about finding other employment.’”

“Said Gayle Henderson, an agent in Phoenix: ‘Our realtor population had swelled to over 70,000 in a population of 3.6 million. Now people are talking about getting another job or leaving the business altogether.’”

“The cornerstone of the whole boom was the real estate license, seen by many as the easy ticket to wealth. Apparently a whole lot fewer people see it that way now. ‘I’m absolutely encountering fewer new agents in the field,’ said Neil Brooks, an agent in Phoenix.”

“‘In the frenzied market we just came out of, there were plenty of brokers that were just acting as order takers,’ said Pamela Liebman, CEO of Corcoran in New York City. ‘Now they really need to work hard to sell these properties.’”

“And so it is that the end of irrational exuberance doesn’t trouble most long-time brokers. ‘You can’t just expect to stick a sign in someone’s front yard and have the house sell,’ said Brooks.”

The New York Times. “If ‘Million Dollar Listing’ had a disclaimer at the beginning of each episode, it might read something like this: The scenes depicted in this television show were filmed at the height of an overheated real estate market. They are not reflective of current economic conditions.”

“Consider the following scene. A Hollywood real estate agent, Ray Schuldenfrei, implores his wife and business partner, Dia, to list a two-bedroom Hollywood Hills home for $949,000, about $25,000 higher than she thinks is fair. ‘This is a crazy market right now. People aren’t buying from here,’ he says, pointing to his head. He then taps his chest. ‘They’re buying from here.’”

“These programs are being broadcast on television as the real estate boom they depict is a fading memory. ‘It was hot, hot, hot,’ Mrs. Schuldenfrei said last week, reflecting fondly on the Southern California boom days. ‘All you had to do was put a sign up.’”

“Without a white-hot market to drive the plot, the producers of ‘Million Dollar Listing’ and other shows about real estate now have to rethink their formats. And a handful of real estate agents may start to wonder whether their careers as reality TV stars are over.”

The Census Bureau has a report out. “The burden of housing costs in nearly every part of the country grew sharply from 2000 to 2005, according to new Census Bureau data. The numbers vividly illustrate the impact, often distributed unevenly, of the crushing combination of escalating real estate prices and largely stagnant incomes.”

“‘Housing prices have gone up much more than incomes have,’ said Christopher Jones, vice president for research at the Regional Plan Association in New York City. ‘Clearly, you can’t sustain that sort of imbalance over the long run. There’s only so long that housing prices can go up without sustained increases in income to support them.’”

“In Clifton, N.J., the percentage of mortgage holders spending at least 50 percent of their income on housing rose to 27 percent in 2005 from 12 percent in 2000, a 134 percent rise. In New Britain, Conn., the group paying at least 30 percent more than doubled, rising to 57 percent of people with mortgages, up from 27 percent.”

From New Jersey.com. “People’s pocketbooks didn’t benefit from the boom. Between 2000 and 2005, median household income fell by an average of 13 percent in Passaic County, when adjusting for inflation. Nationally, incomes dropped by 2.8 percent during the same period. But they still bought homes. The number of new mortgages in Passaic County increased by more than two-thirds between 2000 and 2005.”

“Many turned to exotic mortgages in order to afford their home. New Jersey had one of the highest concentrations of these nontraditional mortgages, according to a federal Government Accountability Office report. ‘These people were totally taken advantage of by programs that weren’t for them,’ said Jenna Triano of a West Paterson company that assists those on the brink of foreclosure.”

“Income ratios have also been stretched. Whereas lenders have traditionally advised clients that their monthly mortgage payment shouldn’t exceed 36 percent of gross income, some lenders have pushed that to more than 60 percent, Wendi Nastasi said. ‘Every day there’s more and more foreclosures being filed,’ said Charles Barbarow, a Totowa-based Realtor.”

The Chicago Tribune. “A growing number of Chicago-area residents who spend more than a third of their gross income on housing, crossing a traditional threshold of affordability, according to a new U.S. Census Bureau report.”

“For Maria Salvedra and her husband, a soaring property tax bill, included in their mortgage payment as part of an escrow agreement–drove housing costs beyond 60 percent of their monthly income. ‘We are thinking of getting rid of the house and renting somewhere else,’ said Salvedra.”

“Janet Smith, a University of Illinois at Chicago demographer, said more people have been signing on to mortgage loans they can’t really afford. ‘There are people who are paying four or five times their [annual] income,’ for a home, Smith said. Alternative loan packages, such as interest-only loans, allowed people to qualify for much-more-expensive homes than traditional guidelines would have, she said.”

The Sun Sentinel. “One in five Palm Beach County homeowners last year spent at least half their monthly gross household income on housing, according to census figures released today. That’s up sharply from 2000, when about one in every eight homeowners spent half of their monthly income on such costs.”

‘”I’ve had to tighten my belt. We don’t go out much,’ said retiree Ed Fuller, who bought his house west of West Palm Beach three years ago. Fuller has a $2,200 monthly mortgage payment, about $100 more than his monthly income. He draws from his 401(k) account to make ends meet, but knows that money will dry up before his mortgage is paid off.”

“Ed Kessner of Kessner Financial Inc. in Boca Raton said federal guidelines of devoting between 28 percent and 36 percent of income to housing costs are passé. ‘Most of the lenders I’m working with are allowing people to go up to 40 percent, 45 percent and even up to 50 percent if they’ve got good credit,’ Kessner said.”

“Oregon homeowners are spending a greater amount of their income for housing than at the start of the decade, according to Census Bureau data. ‘People are willing to bet more of their incomes on housing if they think that housing prices will rise,’ said Portland economist Joe Cortright, adding that people bought for ‘offensive’ and ‘defensive’ during the housing boom that followed the dot-com crash.”

“‘It’s offensive if you think, ‘Hey, I’m going to be able to sell this and make money at some point,’ Cortright said. ‘The other thing is defensive: I don’t really want to buy now but I better buy now before prices rise any more.’”

The Contra Costa Times. “The Bay Area is home to some of the nation’s highest housing values, a higher percentage of them are stretching to afford a home here than in most of the rest of the country, new census figures show. In Pleasanton, which the Census Bureau recently ranked as having the wealthiest households among cities of 65,000 or more, nearly 43 percent of homeowners were paying what the federal government considers too much for their housing.”

“Families who pay more than 30 percent of their income on housing are considered ‘cost burdened’ by the federal government.”

“Lenders and real estate experts said home buyers in the Bay Area are used to paying more for housing than home buyers elsewhere. They ‘are going to make the lifestyle change necessary to own a home, which may mean that 50 percent of their income goes to their mortgage. … (They) don’t go out to dinner, they don’t go shopping anymore. It’s about changing their lifestyle,’ said Andrea Lanier, a mortgage broker in San Mateo.”

The Modesto Bee. “Anna Coley said her family is in their dream home now: a new $505,000 five-bedroom house with 2,833 square feet bought this year in northeast Modesto. ‘It is a struggle, and money is tight,’ Coley said. She and her husband pay $2,325 monthly for mortgage, property taxes and insurance, plus hundreds more for electricity, gas, water and sewer. ‘We could move to Texas or Arizona and live for a lot less, but we want to live here.’”

The Daily Press reports from Virginia. “The economic boom times are over for Hampton Roads, says Old Dominion University’s State of the Region report for 2006. Slower increases in defense spending this year and cooling of the housing market mean the region’s rate of growth will fall slightly below the nation’s for the first time in years.”

“‘We’re not heading into a disastrous time; it’s not going to be as good,’ said James Koch, professor of economics.”

“The slowdown in the region’s economy will drive push deceleration in the region’s housing market. That market currently sees homes overvalued by about 20 percent, twice as overvalued as last year at this time.”

“That doesn’t mean prices are due to fall, Koch said. It means sellers won’t make as much of a profit as they might have expected, and homes will stay on the market longer. A house listed at $400,000 might fetch $350,000, or sellers might find themselves offering incentives such as closing costs.”

“The high prices relative to incomes, unemployment, building costs and mortgage interest rates also mean that renting has become even more attractive.”

“‘Everyone who wanted to buy a house has bought one,’ said Aubrey Layne, who manages 10,000 apartments and condominiums in Hampton Roads.”

“Housing experts see trouble ahead is for those hoping to sell condominiums. Condominium permits rose to 3,513 in 2005 from 930 in 2000. Koch predicted that people who bought condos hoping to sell them would instead become landlords at least for a few years. ‘They’ll function as apartment houses until the market turns around,’ Koch said.”

“‘I can tell from personal experience, knowing people who have purchased three or four units in downtown Norfolk, and they don’t intend to live in any of them, they’re headed for disappointment,, he said.”

The Virginia Pilot. “‘All things considered, our economic prospects for the remainder of this decade are much less favorable than they have been over the past few years,’ the forecasters said in a sobering assessment of the region’s prospects. ‘The ‘good old days’ have passed.’”

“‘Despite our high home prices, we do not expect a marked decline in the price of single-family housing across the region,’ the report said. ‘Instead, we anticipate market sluggishness that will generate… larger inventories.’”

“The prices of condominiums, they said, are especially vulnerable to declines because of an abundant supply. ‘Builders and condominium owners will find it difficult to sell their inventory and increasingly will rent, rather than sell, that inventory,’ the ODU forecasters predicted.”

“Improvements in military pay and benefits provided a powerful stimulus for the Hampton Roads economy between 2001 and 2004. ‘We’re now dealing with much more modest growth rates in Department of Defense spending plus the removal of DoD assets and personnel from the region,’ the forecasters wrote. ‘The economic picnic is over.’”

The Palm Beach Post reports from Florida. “As sobering as last week’s existing-home-sales report was, Palm Beach County’s home prices declined for the first time in seven years, the reality is a lot worse, I’m hearing from some corners of my beat. Other corners still believe that any local housing-market slowdown is mostly the fault of the media”

“The Florida Association of Realtors’ report last week showed existing home prices in both Palm Beach County and the Treasure Coast fell 6 percent in August, year over year. But prices have plunged a lot more than that, some readers say.”

“‘My office primarily sells property in central Palm Beach County,’ writes broker Thomas Moffett. ‘Most neighborhoods where we sell property, the average sales price has dropped more than 20 percent this year.’”

“Moffett thinks the problem with association reports is that they include all sales in Palm Beach County, including the $1 million-plus ones. ‘It disguises what the true price is doing,’ Moffett says. ‘The over-a-million-dollar market is not affected by the economy and should be looked at separately from other real estate sales.’”

The Orlando Sentinel. “Buffeted by the slowing real estate market, an Orlando-area apartment-to-condominium converter filed for Chapter 11 reorganization Friday in U.S. Bankruptcy Court. ‘No question that the slowing market is a factor here,’ said lawyer Scott Shuker, who is representing the business.”

“Shuker said Main Street USA has more than 100 investors. At least one investor lawsuit against the company is pending, he said. The company bought the Waldengreen Apartments in southwest Orlando late last year and converted the rental property to condo units selling for about $150,000 to $180,000 each. About 100 units in the 276-unit project have been sold, Shuker said.”

“Main Street USA lost more than $3 million in deposits in an effort to purchase two other Orlando-area apartment complexes for conversion to condos. When its financial situation deteriorated, the company was unable to complete those deals.”

“Metro Orlando was engulfed in condo conversions last year, at the height of the frenzied real estate market. And thousands of converted units are still being marketed. Many of the sales last year were to investors who hoped to realize a profit from a quick resale.”

From the State in South Carolina. “Builders in Richland County are constructing homes at twice the rate that people are moving in, which means more homes are being left vacant.”

“The number of vacant houses in Richland County, whether on the market or not, is up 53 percent from 2000. That’s an increase to 14,840 vacant homes in 2005 from 9,692 in 2000. ‘If your housing stock is growing faster than your population, you would expect to have more vacant housing units,’ said Joe Cronin, research manager for Richland County, who added that it could be a sign of overbuilding or a slowing real estate market.”

“If the county continues to have more vacant homes on the market, it could translate to slower home sales and dropping prices. Some local real estate agents agreed the market has shifted. The total number of homes in the county is up 12 percent. Meanwhile, the total population is up only 6 percent.”

“Broker Len Ross called the leap in vacant homes ‘puzzling.’”

“Sherri Brosius, who sells homes in Northeast Richland and Kershaw County, said ‘it definitely has moved from more of a seller’s market to more of a buyer’s market. Sellers need to be a little bit more conscious,’ she said, meaning homes should be clean, in good repair and competitively priced.”

“Statewide, the new numbers also showed signs of overbuilding. The number of housing units in South Carolina increased 10 percent in 2005, to 1.93 million. The number of vacant housing units in the state increased 33 percent, to 291,957.”

Please post off-topic ideas, links and Craigslist finds here!