The Housing Bubble

The Record.net reports from California. “Anne Thompson, of Stockton, has a variety of properties in the Central Valley. The rental market is better now partly because the area is seeing a rising wave of foreclosures, she said, as people who bought homes with flexible loans tied to interest rates are caught with higher payments after rates rose.”

“And there are a lot of people who haven’t hit foreclosure yet who are in trouble, she said.”

“There is a plethora of houses for rent on the market these days, owned by investors who bought when values were jumping 25 percent to 40 percent per year during a five-year period that ended last fall.”

“Since prices began dipping, the investors have been unable to ‘flip’ the properties for a profit, she said, and they need to rent the houses to get some kind of cash flow.”

“Those investor-owners likely have big mortgage payments and probably are left needing to charge more than the market can bear, she said. ‘Fourteen hundred dollars is the break point,’ Thompson said. ‘It’s really hard to rent out anything over $1,400.’”

The Sacramento Bee. “Plans for an eye-popping housing and retail project in midtown have been shelved, the result of an overly ambitious design and a declining residential market. ‘We shot too high and it cost too much,’ says developer Mark Friedman.”

“CADA boss Paul Schmidt is optimistic he can interest another developer in the site. And given the current housing market, probably with apartments rather than condos.”

The Valley Voice. “A new City of Visalia report to the City Council says there are about 8400 unbuilt home lots in the city’s current 129,000 population as of September 2006. ‘It’s going to take years to work through this inventory,’ says contractor Basil Perch.”

“On top of all this there is nearly 1000 acres within the city limits that is not mapped but is likely for future residential or mixed use - meaning there is likely another 4000 units in the shadows.”

“Visalia is swimming in residential lots that builders and city planners expect to market when there are over 2000 homes listed for sale in the Tulare Visalia MLS - a sizable portion of them vacant. That doesn’t count the number of homes for rent - not on the market, that are also empty.”

“Council member Greg Collins says the empty homes he sees around town make him scratch his head. ‘ I wonder if we are really losing population’ he says citing all the people who have moved away in recent months in neighborhoods he is familiar with.”

“If there is an inventory beyond those of planned or permitted homesites of 12,000 to 15,000 - we’re looking at a decade or longer worth of inventory to work through.”

“What has gone up says Realtor Bill Jordan according to his numbers, is inventory of homes for sale up from just 600 listings in July 2005 to 1730 in July 2006. Mr. Jordan says he hopes sellers expectations have had to come down from two years ago on homes that could have sold for half a million now having to take a $100,000 price cut to sell. To that degree he says he has seen a price drop.”

“Home owners here and real estate agents alike may sense a glut of competition forcing prices (due to) the fact that national builders have continued to build and widespread incentives are being offered to reduce their inventory.”

“Even with a $50,000 price cut suggested in the last issue of the Valley Voice by homebuilders the run up in prices in the past few years still allows for profits for homebuilders if the land was purchased at the right time, says industry sources.”

“Council member Greg Kirkpatrick says says while it may seem strange that builders continue to pull permits considering the atmosphere, ‘it shows that even at lower prices they seem to think they can make money.’”

Several readers are looking at inexpensive areas in every direction. “Once I have my rainy day fund in the bag and I can live in the hills in the far north for a few years if need be. Or buy a villa in central America for cash. Just in case the U.S. get ‘ruff’” Another said,

“Eastern Sierra looks good to me, there’s plenty of wind and sun for power, and you could always ‘tap’ into the aqueducts.”

Another, “You are right! And places are not that expensive out there. I did a lot of hiking and biking in the region over a span of 11 years. Interestingly, many people overlook the area. There are some pockets even in the desert ‘hills’ that are not considered part of the Sierra and they could be fine too.”

One agreed, “On the Eastern Sierra: That has alway been my favorite region to hike and explore as well! If one had money salted away and enjoys unpopulated regions with vast expanses of Sagebrush, desert peaks and volcanic-lava terrain then the eastside is the place.”

“I always favored Lone Pine as my favorite little ESide village. A popluation of Cal Coastal expatriates have purchased decent homes and properties(and bid up the prices momentarily). Next several years I expect properties in Eastide to plummet, and there will be steals galore.”

One looks outside of the United States. “I’d like to see a discussion of overseas real estate. There are still some places that are inexpensive (methinks). I like Central America. Caribbean is nice but could be too expensive. A buddy of mine (American) is having his escape haven built right now in Jamaica overlooking the water.”

“I like Costa Rica, but the prices have gone up tremendously. The great thing about going international is that you are looking at bigger markets. When you expand your choices of where to buy, you have a chance of finding better values, rather than being only in the U.S.”

One said, “Great topic. Costa Rica, Nicaragua, Guatamala, Chile,? I know several of us entertain the fantasy of an escape hatch out of the US just in case the Greater Depression is not so much fun… Price per square foot, stability of Govt, predicted impact of US crash on local RE market, rent vs. buy pros and cons, currency issues, amount of nice RE near ocean, quality of waves for surfing, and any incubation period for pets are some relevant issues.”

Others look farther afield, “I’d love to live in India. Kerala or Pondicherry to be more specific, but there’s a fierce RE bubble there too. Also in other places I like such as Sydney or New Zealand.”

And another, “New Zealand or Montenegro for me.” One had a more specific question.”Great topic…anybody have insight on Vancouver Island?…I love it there…or in BC?”

A reply, “Great place, I spent all summer cruising there on our boat. Prices are very high, same for the YVR area. Everyone in YVR thinks the olympics will save their bubble, I doubt it. Right now my pals on the Island say the prices are easing a little but not much.”

One likes Central America. “I follow Costa Rica somewhat closely since I started going there to surf 2 years ago. The new hot spot is Nicaraugua, lots more flights being opened up to there, articles on people buying their dream places, etc. Still rough from what I gather, but some people like adventure.”

“Costa has had a lot of ‘investors’ from the US who are dumber than dirt buy places in the middle of nowhere. They are already starting to sell. It will take some time to clear out the excesses, just like in the US. The roads are rough, amenties limited, but if you love good surf, good food, and want to get away from so called civilization, it’s hard to beat.”

“I also hear Vietnam is quite a deal right now. Cheap, and good waves.”

One suggests the discussion include the pratical. “Plus info on laws and law enforcement. Don’t want to spend umpteen years in a 16th century prison just because you accidentally turned down the wrong street.”

In Business Las Vegas reports from Nevada. “Former Nevada State Bank appraiser Patrick Egger with Stewart Title, recently gave real estate agents his take on the Las Vegas housing market and its future.”

“Egger said people make a mistake when they try to compare the existing market to 2004 and 2005 when there was rapid appreciation and homes sold quickly. ‘We keep trying to make the benchmark a record year, and it’s not fair,’ Egger said. ‘This will be the third best housing sales record in history. It won’t be as good as 2004 and 2005, but that’s not what the whole world wants to focus on.’”

“Normally, 60 percent of the market’s home sales are resales and 40 percent are new, but that has reversed because the incentives offered by homebuilders makes them more attractive, he said.”

“Even with more than 20,000 homes on the market, homeowners have been reluctant to give back equity. But he said prices are coming down, and that will help jump-start the market, Egger said. ‘They are greedy,’ Egger said. ‘They don’t want to believe what is happening. Mary’s house sold for $450,000, and they think their house is better and don’t want to leave money on the table.’”

“With a large number of investors and home buyers relying on low down payments and adjustable rate mortgages, Egger said it’s likely that the number of homes entering foreclosure will increase.”

“Although Las Vegas homebuilders are falling out of escrow and dropping options on land, that doesn’t mean there isn’t any land activity, said Richard Lee, VP of First American Title.”

“How quickly home builders move through their inventory will determine their next moves but Lee said conditions could last from six to 18 months. ‘It is just an adjustment of the market, not a collapse,’ Lee said. ‘It’s a realignment of how many years ahead of the curve they need to be. They don’t want to be six or eight years out, but maybe two to four years.’”

“A slowdown in the Las Vegas Valley housing market is starting to uncover a growing number of mortgage fraud cases.” “Investigators for the FBI, state Mortgage Lending Division and local law enforcement said complaints of mortgage fraud are picking up and will undoubtedly increase as the number of properties entering foreclosure continues to rise.”

“Many of the complaints involve falsifying home mortgage applications, including exaggerating incomes and claiming investment properties as a primary residence. ‘Mortgage fraud is just beginning to jump by leaps and bounds in this town,’ said Pete Dustin, a part-time white-collar crime investigator for Metro Police. Dustin said the number of complaints has risen from one or two a month to one or two a day.”

“‘When everybody is getting paid, nobody cares. The second they start instituting foreclosure proceedings, they pay attention. The lending institutions are going to start screaming,’ he said.”

“According to a foreclosure-tracker, one out of every 452 Nevada homes entered the foreclosure process in September, for a total of 1,919 properties beginning the process. The number is up 237 percent from September 2005.”

“Scott Bice, commissioner of the Mortgage Lending Division, said his office has 300 active complaints, many of them dealing with mortgage fraud. ‘This is as high a complaint log I have seen in three years in business,’ Bice said. ‘And I don’t see it slowing down. Right now with the slowdown in the market, all these little things are popping up. In a rising market, even if people inflate, everything bails them out.’”

“One of the most prevalent mortgage frauds committed is buyers stating on their loan applications that the home they’re purchasing is their primary residence, when they only intended to acquire it as an investment property and flip it, authorities said. In other cases, buyers misstated their income to secure mortgages or mortgage brokers coached them to doctor their applications as a way to secure loans.”

“Authorities cited cases they are investigating in which mortgage brokers, working in cahoots with buyers, submitted loan applications to various lenders for the purchase of more than a dozen properties. The buyer didn’t have enough income to qualify for that many loans.”

“‘The problem with mortgage fraud, and it’s true with white collar crime (in general), is that it pays well,’ Bice said. ‘The way the system works is that people don’t report fraud until there are losses. Mortgage fraud is that dirty little thing that people don’t talk about because once they start bringing it up, they are liable for their actions or losses.’”

“Steve Schauer, president of a local mortgage broker, said he’s not surprised authorities are investigating more fraud cases and pointed out those problems in the industry hurt legitimate borrowers who want to purchase a home. ‘The white lie in my opinion is more and more lenders are falsifying documents,’ Schauer said. ‘It doesn’t show up until the foreclosures happen and it hurts all of us.’”

“David Nanz, a special agent with the Las Vegas FBI who investigates white collar crimes, said one of the biggest causes of the mortgage fraud in Las Vegas is lack of due diligence by lenders. He said there have been cases in which a buyer will claim a certain income and the lender won’t even contact the employer for verification.”

“‘In my view, I think it is a rush to make loans,’ said Nanz. ‘The bottom line is they are trying to get as many loans as they can.’”

The Orlando Sentinel reports from Florida. “The inventory of available properties total 20,319, still near record levels, the Orlando Regional Realtor Association said Friday in its monthly report. September sales in the Realtors’ core Orlando market (mainly Orange and Seminole counties) totaled 1,965 homes, down 33.7 percent from September 2005, the second straight month in which sales have been down by one-third from a year earlier.”

“Agents are having to work harder or smarter in this slowing market, and successful sellers are definitely cutting prices, said Realtor Beth Goldstein. ‘If you really want to sell your house, you’ve got to price below appraisal and probably 10 percent below the last [comparable] sale in your neighborhood,’ she said. ‘A lot of sellers are still not accepting that change.’”

“Goldstein has organized an open house today for a home she has listed in Oviedo, a nicely appointed pool home that has languished for three months without a showing. ‘This a home that would have sold within a week a year ago,’ Goldstein said. Now, however, ‘there’s just so much out there.’”

“Shelly and Richard Taylor recently sold their east Orlando home by trimming the price and making other concessions. It took a little more than three months, and they accepted $310,000 for the four-bedroom, two-bath home, $25,000 below their asking price.”

“‘We consider it a success story,’ Shelly Taylor said Friday. ‘We paid the closing costs and met some other demands, too, but that’s really what you have to do. We were holding our breath there,’ she said, as the home competed with six others for sale nearby in the neighborhood.”

“Housing prices have been declining across much of Florida and in many other states in recent months, raising fears that a more serious plunge in values could derail the economy overall. All four Metro Orlando counties posted year-to-date declines.”

The Ledger. “Are you a wannabe homebuyer eyeing a particular property that’s captured your fancy? Yet are you petrified that you’ll pay too much? Smart buyers narrow their search to the precise area where they’re looking, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents.”

“Factor in neighborhood economic trends before you bid. At a time when real estate markets are relatively volatile, as they are now, you need to look beyond closed deals to see where values are heading, according to Berard.”

“Check inventory levels before crafting any offer. At present, many neighborhoods have a surplus of homes for sale. That means the supply of housing has outstripped demand and sellers must cater more to buyers.”

“‘An on-the-ball purchaser operating in a strong buyers’ market should be able to negotiate a healthy discount on the overall price or gain valuable concessions from the sellers,’ says author Sid Davis.”

“Often sellers are much more willing to yield to such valuable ‘concessions’ than to give way on price, Davis says. This helps protect their pride.”

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