The Housing Bubble

The Albuquerque Tribune reports from New Mexico. “The market, locally and nationally, reversed itself this fall, realtors and economists said. The number of existing homes on the market in Albuquerque, 4,695 as of September, has more than doubled from the 2,319 a year earlier. The anxiety has transferred from the buyers to the sellers.”

“‘There’s a clear deceleration in the market. You are having a build-up in the inventory of existing homes. That’s all true,’ said Lee Reynis, of the University of New Mexico.”

“Real estate investors, seeing that a souring market means less profit, have moved on to safer investments, Reynis said. ‘In the housing market, there isn’t the expectation there might have been a year or two ago that housing prices will continue to go up,’ Reynis said.”

“With the inventory of unsold homes so high in Albuquerque, some sellers have been forced to reduce their prices just to compete, she said. ‘Some sellers are willing to negotiate a little more or have already dropped prices,’ (realtor) Sandra Creek said.”

“The rising inventory of homes appears to be taking its toll on the construction industry as well. The number of building permits for single-family homes dropped to 319 in September. That’s a 52 percent drop from the 670 permits issued the same month a year earlier and a 67 percent drop from the year’s high of 964 permits issued in March.”

“Jim Folkman, of the Home Builders Association of Central New Mexico, looks toward developments on the horizon and assumes building will remain steady. A master-planned development south of Albuquerque International Sunport, is projected to add more than 30,000 homes to the city’s southeast quadrant.”

“Also, shareholders of 55,000 acres of West Side land voted last week on whether the land should be sold to a California development company. Folkman estimates that the land could yield up to 100,000 residential lots.”

The Denver Post reports from Colorado. “Homeowners aren’t the only ones having problems paying mortgage loans. Some investors in Colorado have also had rental properties foreclosed upon recently, especially in and around Longmont and Greeley, where there’s a big rental market, some Realtors say.”

“Recent ‘for sale’ listings show at least 10 duplex and apartment buildings owned by banks and on the market in Longmont.”

“‘(Investors) thought they were going to make a fast buck, and they got caught, because the housing economy goes in cycles,’ said Lynn Bishop, a spokeswoman for the Colorado Mortgage Lenders Association. ‘You’re going to ‘walk’ on it if you can’t find a renter.’”

“If an investor with renters faces foreclosure, those renters are forced to move when a bank takes over, said Bryan Potter, a property manager at Alert Realty in Longmont with more than 2,000 rental properties. Potter said he has seen such cases two or three times in the past six months.”

“If rental properties go into foreclosure, it’s usually because investors have taken on interest-only mortgages with high monthly payments, said Lu Etta Legler, a Realtor in Brighton who also owns investment property. Investors who manage to find good renters still have to plan for a softer market and potential vacancies. For example, a rental home Legler owns in Greeley that used to take in $1,000 per month now reaps only $800 per month, she said.”

The Arizona Republic. “The median price for existing single-family homes in Mesa fell to $235,000 in October, a 4 percent drop from a year earlier and the sharpest decline in the Southeast Valley.”

“The number of homes on the market throughout the Southeast Valley has hit a record in recent months. It reached 17,629 in September, the last month for which data are available.”

“Like the rest of the Phoenix area, sales slowed in Mesa from 1,015 to 555 sales. Condo sales also dropped from 260 to 100 sales, and the median price dropped from $154,100 to $153,000.”

The Arizona Daily Sun. “Even though Michon Javelosa’s three-bedroom, two-bath home on the far East Side is newly built and never lived in, she just couldn’t raise much interest from buyers after listing it for sale in May. The same was true of two other homes in the same neighborhood she later listed for sale.”

“So, borrowing a page from home builders who offer everything from free swimming pools to six months of mortgage payments, Javelosa is offering a brand new Toyota Corolla with each home at the time of closing.”

“‘They can pick the color,’ said Javelosa, a Long Realty agent.”

“Javelosa is among thousands of agents and sellers looking for ways to draw the attention of buyers in Tucson’s slowed housing market. Many are turning to price cuts and other incentives on both new and resale homes.”

“The reason: Buyers have more power than they have had in years. Tucson’s inventory of houses for sale reached an all-time high of 9,401 in August, according to the Tucson Association of Realtors. The number was down, but just barely, to 9,336 last month.”

“Tucson’s median home price last month was $211,500, a 5.5 percent decrease from last year, though up slightly from September.”

“Builders, offering commissions of 5 percent or higher, are sending out notices to agents advertising deals on ‘quick move in’ homes, those near-finished or completed homes that became available because of a cancellation or at the end of a subdivision’s production line.”

“A list sent out in September of 25 US Home and Lennar home projects in Marana listed incentives ranging from $25,000 and $90,000 on select houses. One home — a two-bedroom, two-bath house, shows an asking price of $288,501 with an incentive worth $90,000.”

“A recent ’spec home’ list from KB Home listed three dozen homes with reduced prices, including a four-bedroom, two-bath near Downtown selling for $200,000, a reduction of $40,000, and a five-bedroom, 2 1/2-bath home in Sahuarita selling for $399,000, a reduction of more than $100,000.”

“For new-home builders, sales cancellations are running as high as 40 percent, double the rate a year ago. And while new-home prices have fallen nationally, even those lower reported prices don’t take into account the extras that builders are throwing in to lure buyers. In other words, effective prices are even lower than reported.”

“Another factor in builders’ urgency to sell homes is their quarterly earnings reports, in which they hope to meet Wall Street expectations. ‘They, then, will do something to make sure that homes are sold. They want to make their quotas. They just can’t say ‘I’d like to take a breather over the next two years,’ said John Strobeck.”

A housing report from New Orleans City Business. “The market has flipped upside down and buyers may soon have the upper hand, real estate professionals say. From the North Shore to the South Shore, there are more properties for sale than there is demand, the classic oversupplied market.”

“September revealed the largest supply-demand gap since Katrina, with 7,398 homes for sale in southeastern Louisiana and only 1,262 sold, according to Prudential Gardner Realtors.”

“Realtors have begun stressing the need for sellers to consider lowering prices. In a market where 50 to 70 homes in the same price range are up for sale, ‘you better be priced competitively,’ said Mary Ann Casey, broker/owner who services Lakeview, Mid-City, Uptown and Old Metairie.”

“Casey said the situation calls to mind the oil industry bust of the 1980s when it took 15 to 18 months on average to sell homes in an oversupplied market. Sellers need to be educated about pricing their property correctly, she said. ‘It’s a whole different marketing approach than it was pre-Katrina.’”

The Dallas Morning News. “Texas is seeing signs of a slowdown in the housing industry, but the downturn is not as sharp as in some other parts of the country, the top official of the Federal Reserve Bank of Dallas said Monday. ‘We are seeing some signs of slower growth in the construction and construction-related industries,’ said Richard Fisher, president of the Federal Reserve Bank of Dallas.”

“‘Housing permits softened in August, builders are slowing their home construction and home inventories are inching up,’ he said. ‘We haven’t seen what I call the coastal blues, the turndown you see in the rest of the country in housing,’ he said.”

The Star Telegram. “Borrowers in the Fort Worth-Arlington area are more likely to default on mortgage loans backed by government insurance than consumers in other major metropolitan areas in Texas and throughout the United States.”

“As of Sept. 30, 5.5 percent of FHA loans made in Fort Worth-Arlington went into default within two years of being made, according to the Department of Housing and Urban Development. That rate compares with 3.3 percent nationwide during the same period and 4.7 percent for all of Texas. Partly as a result, some local lenders are tightening their standards.”

“‘It’s a concern. Foreclosures in general are high in North Texas, and our numbers have gotten worse,’ said Jim DuBose, president of Fort Worth-based Colonial Savings, the largest mortgage lender in the Fort Worth-Arlington area, which includes Tarrant, Hood, Parker and Wise counties.”

“Colonial’s FHA loans, which DuBose said represent about 3 percent of Colonial’s business, defaulted at 161 percent of the Fort Worth-Arlington rate. After examining its loan portfolio, DuBose said, Colonial discovered that of about 9,400 FHA loans it made over the past five years, loans that included down-payment assistance from not-for-profit groups went into default 20 percent of the time.”

“That compared with 9 percent of FHA loans without down-payment assistance over the same five years. ‘So they’re more than twice as likely to be delinquent. That’s why we stopped doing down-payment-assistance loans,’ DuBose said.”

“Gary Lacefield, executive VP for compliance at Plano-based W.R. Starkey Mortgage, said that just over a year ago his employer made it a policy that if a borrower couldn’t qualify for a loan at a 30-year term, he or she wouldn’t qualify for a shorter-term loan, either. ‘Once we did that, the number of defaults dropped dramatically,’ Lacefield said.”

“Among locally based lenders, Judith Smith said she experienced a spike in defaults in loans that independent brokers brought to the lender and in January stopped accepting loan packages from brokers. ‘I was having way too many defaults, so I decided not to do it,’ she said. ‘We did business with people I have known forever, and it probably was the luck of the draw. But I got tired of it.’”

“During the nationwide housing boom that just recently started to cool down, lenders have been offering loan terms that allowed more and more marginal borrowers to qualify for noninsured loans, and that meant less business for FHA.”

“In response, Congress is considering authorizing an FHA program that would allow 100 percent loans. But several observers questioned the wisdom of such a move. Loans that finance 100 percent of the purchase price could be setting up a marginal borrower for heartache, said David O’Brien, executive director of Housing Opportunities of Fort Worth.”

“In markets with little or no housing appreciation, such as much of Texas, he said, lenders do borrowers no favors by getting them into a house they can’t afford or sell at a price sufficient to cover the mortgage amount.”

“‘Down-payment assistance versus 100 percent loans — it’s the same thing, isn’t it?’ said Jim Gaines of the Texas Real Estate Center at Texas A&M University. ‘We have people being lent 100 percent, or more, of the home price. You’re upside-down the day you move in,’ he said.”

“‘Some of these programs, not intentionally, have the effect of putting people in a position to fail,’ Lacefield said.”

“Sunday afternoon, Terry Johnson walked out of a packed hotel ballroom on his way to becoming a homeowner, thanks to a $43,000 winning bid on a 1,064-square-foot home in Fort Worth. The whole process took less than two hours.”

“‘You get a lot better price on a home,’ the disabled Fort Worth veteran said after signing some papers and handing over a deposit.”

“Mr. Johnson was one of about 250 people who gathered at the DFW hotel to bid on 53 foreclosed homes that were auctioned. Interest is rising because of the soaring number of foreclosed homes, both nationwide and in Texas. Foreclosed properties now account for more than a quarter of the preowned houses on sale in the Dallas-Fort Worth area.”

“With that kind of volume, some people’s misfortunes are quickly becoming others’ opportunities. ‘If you miss a deal, there’s another one coming,” said Ed Massey, who came to the auction to bid on a house in Crowley. ‘The economy is down, and since it’s down, it’s a buyers’ market.’”

“Sunday’s auction was the fifth one Hudson & Marshall has held in Texas in the last five days. With a weakening housing market and higher interest rates, ‘there are quite a few foreclosures in the pipeline coming down,’ said Dave Webb, Hudson & Marshall’s co-owner.”

The News Press reports from Florida. “The desperation may not be so obvious these days, but as the real estate market cools, some people are turning to auctioneers as a way to unload property they want, or need, to dispose of. As the once red-hot real estate market chills in Florida and other states, more houses are for sale, about 12,000 in Lee County, and area auctioneers are beginning to see more business.”

“Neal Van De Ree, who heads Venice-based Auctions by VanDeRee, says he’s added more phone lines and almost doubled his staff to 20 because of interest in the service, including from Lee and Collier counties.”

“‘We work with Realtors on a regular basis, because a lot of them have seen what has happened to the market in Florida with the exception of Tallahassee and Jacksonville,’ says Van De Ree, who, as required by Florida law, is also a licensed Realtor. ‘It’s a bad market for people who bought in the last year or two and instead of making money they are looking at losing money.’”

“Van De Ree, who estimates it could take two years or more for the real estate market to stabilize, says his clients range from retirees, ‘to regular people who are needing or wishing to sell and then the investors who were in the marketplace to make a profit but are now seeing losses. A lot of those are blue collar workers who saw all the money being made and thought they could get a piece of that market and are now looking at losing their retirement and everything else.’”

“Some of those customers include fellow Realtors. ‘I heard from one Realtor who had three houses that were about to be completed and he called and wanted me to help sell them, to just stop the damage,’ says Dan Mahaney who operates Luxury Auction Group from offices on Sanibel Island and Indianapolis. ‘I think these auctions will continue, based on the amount of calls we are getting.’”

“While there are more auctions in the area, including a recent group sale in Naples that was slated to sell 45 prime properties, many local Realtors say it’s not yet affecting their business.”

“‘I think some people get discouraged by them,’ says Lynette Schwab, owner-broker in Cape Coral. ‘I know of one house that was listed at $1.8 million then it was suggested they do an auction and put it up at $999,999 and that’s kind of misleading because they turned down a bid of $1.2 million.’”

“Even Mahaney, who recently opened an office in the Boston area and is looking into going into California as well, says some would-be sellers still aren’t aware of just how much the market has changed or how to market what they have. ‘A lot of people can’t afford to auction a property,’ he says. ‘They have to pay for the marketing and if you take a property to market that is not going to sell, it’s a waste of time and money.’”

“As more owners want to make residences available to renters, condominium and homeowners’ associations are having to decide whether to allow rentals.”

“‘What we see now in large complexes is an extremely high percentage of people who bought to flip them,’ said Joe Adams, a Fort Myers-based attorney (who) represents many condominium and homeowners’ associations. ‘Obviously they want to get some cash flow out of it while they hold them,’ said Adams.”

“Some financial institutions such as Freddie Mac or Fannie Mae won’t offer loans in condos with more than 50 percent renters, he said.”

The Sun Sentinel. “For more than four years we’ve been growing and adding jobs at a pace envied by the nation. It’s an expansion cycle that started in October 2002. The tourists came back and the housing market took off. But in the world of economic cycles, every beginning has an end. It’s just a matter of when and a question of how.”

“Perhaps the most immediate threat comes from the housing market, whose red-hot growth has generated high-paying jobs and a massive surge in personal wealth in the form of home equity. ‘If there is a soft underbelly to the Central Florida economy, that’s where it is,’ said economist Mark Zandi.”

“Investors have quit snapping up homes, removing much of the pressure that once pushed prices upward every month. Now homes are piling up, with more than 20,000 existing homes in the inventory pool, compared with less than 4,000 two years ago.”

“The biggest worry is a mass exodus of investors, they may have stopped buying, but many of them are still holding onto their last purchases. ‘They aren’t panicking and selling at a big discount,’ Zandi said. ‘At least not yet.’”

“A crash of the housing market would ripple throughout the economy and its job machine, eliminating the need for some of the higher paying jobs it creates, including construction workers, real estate agents and a host of financial services workers.”

“‘You would see a screeching slowdown, if not a halt in the job market,’ said Bruce Nissen, economist at Florida International University. ‘Suddenly, we’d have all these unemployed construction workers sitting around.’”

The Palm Beach Post. “Florida-based WCI Communities reports that third-quarter orders for ‘tower homes’ (that means ‘condos’ in WCI-speak) were a negative four compared with the third quarter of last year.”

“‘That is, cancellations exceeded gross orders,’ said analyst Thomas Lawler of Lawler Economic & Housing Consulting in Vienna, Va. ‘I’m not sure I’ve ever seen that,’ Lawler added. ‘What’s scary is that cancellations are occurring on orders placed in the latter part of 2004, which should give you an idea how bad that market is.’”

The New York Daily News. “Sorry, sellers - you don’t have the upper hand anymore. The city’s apartment buyers realize the market is tilting in their favor. Instead of frantically throwing themselves at the one suitable apartment they find, many are playing the field. If one seller doesn’t like their offer, so what? They’ve got other options.”

“Some buyers are still learning how to function in the new market environment. Broker Richard Ferrari says they should ask the tough questions, and keep pushing until they get answers they like. ‘Look out for your own interests,’ said Ferrari, a Prudential Douglas Elliman senior VP.”

“Don’t ask, ‘Is the price negotiable?’ Instead ask, ‘How negotiable is it?’”

“Most of the apartments Richard Ferrari has sold since Labor Day have gone for 90% to 95% of their asking prices. So, don’t be shy. As a starting point for negotiations, offer 15% less than the asking price, Ferrari said. ‘A buyer has nothing to lose by demanding a lower price,’ he explained.”

“Until recently, developers have been doctrinaire about not giving discounts. Now, many are willing to negotiate, but you have to ask. ‘The prices are no longer set in stone,’ said Bellmarc principal Neil Binder.”

“If the apartment’s in a development project, ask the builder to pay the real estate transfer tax. The tax is 1.825% of the selling price - almost $14,000 for a $750,000 apartment.”

“Don’t ask, ‘What will this apartment be worth in three to five years?’ No one really knows the answer to this question, Ferrari said. Don’t force the broker to fictionalize. The right question is, ‘What’s this apartment actually worth right now?’”

The Herald News from New Jersey. “The ‘For Sale’ sign is an unwelcome addition to Manuel Maldonado’s neat little yard. The Maldonados, like many other homeowners, faced financial difficulties and refinanced with a nontraditional mortgage, the kind of adjustable-rate loan that has inundated the market over the past few years.”

“Now, mortgage payments eat up Maldonado’s entire monthly income.”

“Equity Source Home Loans said the value of the Maldonado’s home had grown to $345,000. They offered the family a $230,000 adjustable rate mortgage, with monthly payments of $2,330, more than Maldonado’s take-home pay.”

“But Equity Source verbally promised them that they could refinance again in six months, the Maldonados said. With better credit, they’d get a lower interest rate and smaller monthly payments, Equity Source told them. The Maldonados signed.”

“Adjustable-rate mortgages have been around for years, but recently have shot up in popularity. When housing prices exploded in the early 2000s, mortgage brokers began offering them widely. The loans have proliferated in New Jersey because of rapidly rising home values.”

“Many of the loans are sealed with verbal promises that never pan out, says Christina Cowell, a New Jersey attorney specializing in predatory mortgage lending. It is geared toward soliciting business, Cowell said. ‘The loan officers are kids from off the street,’ she said. ‘They don’t know about banking law.’”

“Staying with the existing ARM was no better for the family. The loan will readjust in 2008 to a double-digit interest rate, and could go as high as 14.3 percent, according to the loan. If the Maldonados try to stay in their home with the existing loan, they could become one of a growing number of homeowners ending up in foreclosure.”

“According to a Fair Lawn-based company that tracks foreclosures, between September 2005 and 2006, New Jersey foreclosures increased by 71 percent. ‘The house is killing me,’ said Maldonado.”

The Asbury Park Press. “Kara Homes Inc. has virtually no chance of surviving in bankruptcy and should be liquidated, one of the home builder’s biggest creditors said in court papers.”

“East Brunswick-based Kara, one of Monmouth and Ocean counties’ biggest home builders, ran out of money and filed for Chapter 11 bankruptcy protection on Oct. 5. The company’s 22 affiliates, subsidiaries set up for each of its developments, subsequently filed for bankruptcy as well.”

“If the case is converted to Chapter 7, secured creditors such as North Fork Bank would be first in line to get paid. Some subcontractors who haven’t been paid and customers who have made downpayments but have yet to see their homes built, would be reimbursed if any money remains, experts said.”

“North Fork in court papers said it is owed $21.6 million plus interest and fees for loans it made to Kara for its Mt. Arlington project in Morris County. The bank said Kara has tainted its reputation so badly that it would have trouble selling homes even if it secured financing.”

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