The Housing Bubble

It’s Friday desk clearing time. “‘There’s a lot of inventory out there. There are some properties that have been sitting,’ said Gus Tsamouras, a Realtor in the Baltimore area. Tsamouras said the market has now shifted from a seller’s dream into a market where the buyers now have the power. ‘Prices are negotiable,’ he said.”

From Virginia. “Right now is a great time to buy a new home. New home prices are down and builders are trying to sell,’ said Eunice Waller, a Northridge spokeswoman.”

“‘There have been adjustments made in the prices here over the last nine months or so. They’ve been coming down some because the market was slowing down. With a larger inventory of things for sale, so you have to make that adjustment,’ Realtor Tim Kearney said.”

From Pennsylvania. “The number of homes listed on the market in York County in the first nine months of 2006 jumped 55 percent compared to the same period a year ago. Last year, there were 1,828 active listings for the first nine months of the year. This year there have been 2,826 active listings through September.”

“But even with the increase in homes available, local builders said they’re still building. ‘Any advantages you can get today in a competitive market is exactly what you need today,’ (builder) Greg Hill said. ‘And we’ve made a significant commitment to amenities and incentives for buyers.’”

“Illinois Association of Realtors President Robert Zoretich said 2006 is shaping up to be the third-best year for Illinois home sales. ‘This is the correction, the bump in the road, the blip on the screen, whatever you want to call it,’ (realtor) Al Suguitan said. ‘There was expectation that it was going to happen. We’re going to have an ad on cable TV that says things are OK. There is a lot of inventory out there, so jump in it.’”

From Missouri. “Lake of the Ozarks Real Estate Association President Helen Montgomery noted buyers have a wide selection of homes to choose from and there is still competition among sellers.”

“‘What is happening here is there are lots of homes on the market for sale, the competition is stiff, and there’s still a lot of buyers out there,’ Montgomery said. ‘And what those buyers are able to do is they’re just having a lot of property to choose from on the market.’”

“A year ago, the central Ohio real-estate industry was buzzing about record inventories creating a buyer’s market for single-family homes. That buzz was nothing more than a prelude.”

“‘With all the people panicking (at) not being able to sell homes, it’s not all that ominous,’ said Mark Simoff, a central Ohio agent. ‘Relatively, we’re still strong. We’ve got a better market than our sister cities (in Ohio).’”

“It’s also clear that it’s taking more time to sell homes. Real-estate agent Stephanie Walker thinks the actual number is longer. If a house is listed with another agent after a period of not selling, the days-on-the-market counter goes back to one. ‘The days are very inaccurate,’ Walker said.”

From Florida. “The Annie Lytle School in Brooklyn has been a development project waiting to happen since 1980. Spokesperson Lynn Fournier said the current adjustment in the real estate environment might work to their advantage.”

“‘The housing market is cooling off, so contractors are looking for work and we might find one that would consider a partnership. There are fewer opportunities for real estate investors right now and the amount of return they’re looking for is lower,’ she said.”

“Half of Canadians fear that they are only a paycheque or two away from poverty, according to a new survey. ‘These are the good days, man, they’re as good as it gets, and to have half of Canadians say they were one or two paycheques away from poverty, that was an astonishing number,’ said economist Armine Yalnizyan.”

The San Francisco Chronicle reports from California. “As of September 2006, Novato had experienced substantial price declines and plummeting sales volumes. But since it currently only has about two months of inventory, perhaps prices will stabilize.”

“The stabilizing influence of limited inventory isn’t present in all parts of the Bay Area however. In Napa County, for instance, inventory is running much higher with some areas showing a whopping 10 months worth. Last month, the county posted a 8.7 percent decline in the median price.”

“The 94065 ZIP code, which has newer developments of townhouses, condos and a more homogeneous housing stock has seen median prices fall 14.0 percent. Why would this neighborhood be harder hit than others? As developers continue to sweeten the pot for buyers, no doubt other developer neighborhoods will tend to be affected by these declines.”

“As Tim Earley, agent in Redwood City put it, ‘it’s hard to put a finger on it; some houses are selling with multiple offers and others need a lot of price reductions and even that isn’t doing it.’”

“He recently saw two four-bedroom homes, both fixers within three blocks of one another in the same prized school district on nice streets that received two completely different reactions. One got three offers and sold for more than $100,000 over the asking price. The other attracted no buyers initially until one came in significantly below asking price.”

“Earley said nearly 30 percent of the active listings in Redwood City have had price reductions. According to Alexander Clark, founder of a customized newsletter service for real estate professionals, the market probably hardest hit by the new housing paradigm is the cookie cutter lofts in SOMA. ‘Not the new loft developments but the ones that are all alike and a little older are selling the slowest,’ he says.”

“‘It’s street by street and property by property,’ he says. ‘It used to be that anything would sell, now if a house is on a busy street or there’s something odd about it, it may not have any buyers.’”

“At a real estate conference Monday in San Francisco, a UC-Berkeley expert predicted median home prices in the Bay Area will fall up to 15 percent in the next three years. ‘They should buy a house to live in it, and be sure they can afford the payments,’ advised Kenneth T. Rosen, of the University of California-Berkeley. ‘We’re a third or half way through already, depending on the sub-market,’ he said.”

“San Jose homeowner Michael Park and his wife wanted to move from their smallish three-bedroom, one-bath house near Santana Row into a bigger house on a big lot. ‘I just felt like the real estate market was so overvalued and sellers’ expectations were so out of whack. The last few months I felt like the market was settling down,’ he said.”

“The one they made an offer on, which has five bedrooms and a 12,600-square-foot lot, had been listed earlier this year for $1.15 million. When it didn’t sell, the owners took it off the market, made a few upgrades and then listed it again for $1,048,000, Park said. He offered less, and the sellers accepted without making a counter-offer.”

“Kathi Hammill, an agent in Los Gatos, said house-hunters in Silicon Valley right now are being extremely choosy. ‘Yes, there are deals out there, but a lot of buyers don’t want those less-than-perfect properties,’ she said.”

“In general, she said, ‘Buyers don’t want to buy in a buyer’s market, buyers want to buy in a seller’s market, they like the comfort of it,’ she said. ‘If I’m the only one, there’s this fear that it might not be the right thing to do.’”

“Investor Susan Bredehoft, an East Bay homeowner, is among those who aren’t touching California real estate right now. ‘It doesn’t fit into my game plan because the properties are so expensive that you can’t get cash flow,’ she said.”

“Bredehoft, who owns 17 investment properties in California, Arizona, New Mexico, Oregon and North Carolina, said she is planning to invest in rental property again next spring. But not in California, where properties are often so costly that rental income from them isn’t enough to cover mortgage and other expenses, she said.”

“‘What they’re worried about is, will prices decline further, so if they buy now, could they get a better bargain later?’ said Delores Conway, at the University of Southern California. ‘No one can predict that.’”

“Two things could cause a more serious correction than the mild one she sees happening. One is if large numbers of homeowners with adjustable-rate mortgages find themselves unable to afford their payments when their loans ‘reset,’ which could send inventories of for-sale homes soaring. The other is if there’s a sudden slowdown in the economy that results in big job losses.”

The Denver Post reports from Colorado. “Farm fields around the metro area are selling more slowly these days as national builders scramble to sell new homes they’ve already built, buyers and sellers involved in the transactions say.”

“For example, Brighton-area developer Craig Carlson said he recently dropped an option to purchase an 800-acre parcel south of Brighton after working on the transaction since 2000. Melody Homes, a division of national homebuilder DR Horton, walked away from a rumored $1 million that the company spent on plans and development issues on a parcel east of Longmont earlier this year.”

“KB Homes is one homebuilder that’s treading carefully in the more volatile market, said Rusty Crandall, the company’s division president in Denver. ‘We are being very careful about making any large investments and where we have our land acquisitions, we’re only buying those parcels that fit our strategy perfectly,’ Crandall said.”

“Farm-field sales are worse in states like California, Nevada and Florida than in Colorado, Carlson said, because new home prices shot up in those states even more quickly than they did here, and now…prices are dropping across the country.”

“Earlier in the year, property owner Jim Anderson sold more than 500 acres east of Longmont before the slowdown started in earnest. ‘We did close, even though some people did walk away (earlier),’ Anderson said.”

“With home foreclosures near record levels, banks are looking for alternatives such as online auctions to sell their properties. Freddie Mac listed four foreclosed properties with agent Roger Bottoms. When the properties failed to sell quickly, Freddie Mac decided to list them on (an) online auction site.”

“‘Only one has sold,’ Bottoms said. ‘If the banks had lowered the prices in the first place, they would have gotten more out of the properties and not wasted their time on an auction.’”

“Mortgage companies faced with an increasing number of delinquencies will do what it takes to reduce their inventory. ‘Our interest is in making the sale and getting a good market price to reduce our own credit losses, as well as creating an affordable homeownership opportunity,’ said Brad German, a spokesman for Freddie Mac.”

“During September, 4,485 Colorado properties were in some stage of foreclosure.

The Billings Gazette from Montana. “‘For sale’ signs are sprouting like weeds in the suburbs of Phoenix and Las Vegas, and foreclosures are way up in Colorado and Georgia. But as 2006 winds down, Billings real estate experts say the local market has avoided the ’speculative bubble’ that was real estate’s worry last year as well as the steep downturn in prices that many areas of the country saw this year.”

“The current rate of increase is well short of the double-digit price gains the Billings housing market experienced in 2004 and 2005. ‘Billings doesn’t have the sex appeal of some markets, but if you want a good solid return on your investment, it does provide that,’ said said Howard Sumner, a Billings real estate agent who closely tracks local real estate trends.”

“Ann Adair, economist at Montana State University-Billings, said economic indicators point to some softening in the Billings real estate market, but there’s little cause for concern. ‘It’s not anything huge,’ Adair said. ‘Sales appear to be in pretty good shape. There’s nothing huge and significant and scary.’”

“‘The traffic on our new houses and open houses has been very strong,’ (realtor) Rick Dorn said. ‘If you didn’t have people circulating, there would have been some nervousness.’”

“The number of houses on the market has increased by a larger amount. According to figures compiled by Sumner, 1,018 residential properties are for sale, compared with 864 at this time last year.”

“One reason houses are on the market longer is that some sellers may be pricing too aggressively, said Frosty Erben, president of the Billings Association of Realtors.”

“‘Because of what the selling public has read or heard, they may have an unrealistic view of the value of their home, and the tendency is to price it above what the market is,’ he said. ‘People want to turn their house into the goose that laid the golden egg, when the egg is silver now,’ Erben said.”

“‘Things are a lot better here than if you watch the national news,’ said Sam Picard, president of the Home Builders Association of Billings. ‘That’s not to say we’re where we were a year or a year and a half ago.’”

Bloomberg reports on home loans. “Defaults on adjustable-rate mortgages made this year to the riskiest borrowers and packaged into bonds surged 25% in October to the highest level for new loans in five years, Friedman Billings Ramsey Group Inc. said.”

“Defaults on this year’s sub-prime loans in the $2-trillion asset-backed securities market were 30% higher in October than the 2000-to-2006 average for loans of the same age, the firm said.”

“Subprime loans from 2006 aren’t just performing badly. The loans, in particular those used to back mortgage bonds, could prove to be one of the worst-performing groups yet, according to UBS.”

“‘I guess we are a bit surprised at how fast this has unraveled,’ said Tom Zimmerman, head of ABS research for UBS. While it’s ‘not a secret that subprime collateral has performed pretty disastrously so far,’ he said, ‘I must say we were a bit surprised by the magnitude with which’ the loans ‘deteriorated this year.’”

“There are a few contributing factors that explain why 2006 subprime loans are performing worse than those from earlier years, Liu said. One factor is what’s called risk layering, for example, giving interest-only loans to borrowers who are not showing full documentation of their income.”

“‘The biggest picture is the risk layering is getting worse,’ Liu said. ‘That is a problem of underwriting quality.’ The rate of subprime loan delinquencies of 60 days or more has climbed to about 8 percent, up from about 4.5 percent a year ago.”

From Ken Harney. “If the IRS wants to spot large numbers of people who are stiffing the tax collectors, it might want to consider auditing a fast-growing segment of the home-mortgage market.”

“Geosegment Systems asked a representative national sample of 2,140 mortgage brokers active in the limited documentation field and came up with some eye-opening answers. While 63 percent of brokers said they knew their self-employed clients had ‘unreported income’ that they wanted to keep off the record, 71 percent said their borrowers’ applications were dependent on additional income ‘from a household member with poor credit.’”

“Forty-five percent of the brokers in the study said a ’significant’ reason for their clients to avoid full documentation is that they are ’self-employed’ but have not filed tax returns. Forty-three percent said their clients ‘can’t qualify under standard [debt-to-income] ratios.’”

“1 out of 12 said they knew that their low-doc stated-income borrowers were unemployed. Unemployed? To Tom Popik, author of the study, responses like these suggest ‘there are significant risk factors’ for lenders.”

The South Coast Today reports from Massachusetts. “The shakeout continues in the housing market in SouthCoast and throughout Massachusetts, as many owners, mortgaged to the hilt, face foreclosure at a rate double that of a year ago, which was in some communities double the year before that.”

“‘I don’t see homes in the $250,000 range falling 30 percent. They’ll fall 10 percent, and they’ve already fallen,’ said Patrick Sullivan, CEO of Sovereign Bank. ‘But you’re going to see a hit in the upper market, with homes in the $700,000 to $800,000 range falling 150 grand,’ he said.”

“Roger Stanford, an attorney in New Bedford who handles many bankruptcies, said the rate of foreclosures he is seeing ‘has tripled, easily’ since last spring, when there were dire predictions about a tidal wave of adjustable rate mortgages being recalculated, always recalculated upward. That wave has indeed materialized.”

“The Standard-Times legal advertising volume for foreclosure auctions has doubled over last year, with a dozen properties listed on any given day.”

“The reasons differ from place to place, said Mr. Stanford. In the cities, many people bought multi-family homes as investment properties at inflated prices. In the suburbs, many people refinanced to draw out so much cash that they can’t keep up the payments when a point or two is added by their adjustable rate mortgages.”

“Mr. Sullivan said ‘a lot of people have overpaid for multifamily houses in traditional cities. And they’ve really overpaid. In many cases they’ve gotten their mortgages from sub-prime lenders. They didn’t get them from the banks. And if there is any kind of movement in adjustable rates, or if there’s a loss of a tenant, they’re in trouble.’”

“Mr. Stanford said, ‘Part of the problem is all these new mortgage products out there, especially one called an 80-20 mortgage. They’re horrible, just horrible. You’ve got no equity, so when the property goes down in value, you’re upside down right out of the box.’”

“‘I’ve had a number of cases where people are walking away from houses,’ Mr. Stanford said. ‘The trouble is, if they owe $220,000 and it’s auctioned for $180,000, they still owe $40,000.’”

The Boston Globe. “As the housing market cooled, foreclosure filings rose 40 percent in Massachusetts, from 10,026 in fiscal 2005 to 14,079 in fiscal 2006, said court officials. There were 4,930 filings in the first quarter of fiscal 2007, indicating that the pace has quickened.”

“‘I don’t want you to say we’re overwhelmed,’ said Deborah Patterson , recorder for the Land Court. ‘It is strained, certainly.’”

The Boston Herald. “Today marks the start of the holiday shopping season, but it’s also the end of the fall real estate season, leaving would-be sellers like Fran Adams in a bind. The quandary: Whether to leave unsold properties on the market all winter, or pull up ‘For Sale’ signs and start again next spring.”

“‘It’s a tough question, said Adams, a real estate agent who’s trying to sell a $419,000 West Roxbury Colonial. ‘The longer a property sits unsold, the greater the chance a buyer will offer less. But if you take the place off of the market, there’s always the risk that you’ll miss the buyer.’”

“With the Bay State housing market in a funk, thousands of would-be sellers face Adams’ dilemma this post-Thanksgiving weekend. According to the MLS Property Information Network, there are currently 44,817 unsold houses and condos on the Massachusetts market, up 15 percent from this time last year.”

“Unfortunately for would-be sellers, the market is entering the year’s slowest period. For sellers, few want to keep homes sparkling clean during the holidays, and often figure they’ll get a better price in spring anyway.”

“Agents add that keeping a house on the market all winter long can make a property look defective or the seller seem desperate. That can attract ‘low-ball’ bidders, not just in winter, but also the next spring.”

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