The Housing Bubble

The Daily Bulletin reports from California. “Residents hoping to incorporate Eastvale might have to wait longer for land on which their future civic center and fire station can be built. Developer D.R. Horton, which had planned to build a housing development called Riverdale and set aside 20 acres for Eastvale’s civic center, has walked away from the project.”

“‘It’s indicative of the housing market slowing down,’ Riverside County Second District Supervisor John Tavaglione said.”

“D.R. Horton’s decision to not go forward with the project, however, is nothing new, said Steve Johnson, director of Southern California Metro Study. The developer has walked away in the last six months from an estimated 22,000 proposed homes throughout the U.S., he said.”

“Booming growth in the unincorporated community of Eastvale has not been immune to the present housing market decline, Johnson said. ‘In Eastvale, the price reduction is 12 percent and buyer traffic is down 50 percent from this time last year,’ Johnson said. ‘Eastvale continues to see some growth, but it’s slowed down with the rest of the housing market.’”

The LA Times. “The great real estate boom is dead. Buyers can check out dozens of houses without dreading that they suddenly will be priced out of a delirious market. Sellers are eager, sometimes desperate, to make a deal.”

“But not in a narrow strip of land across from San Francisco. Although the house hadn’t been updated in decades, Jimmy and Elaina Chan’s agent warned that a three-bedroom contemporary would definitely go for more than the asking price of $699,000.”

“The Chans wrote a letter to the owner, expressing the hope ‘that you could consider us as the future stewards of your home.’ They mentioned they had grown up nearby and wanted to return to start a family. They promised to ‘nourish and preserve’ the garden. The letter and $720,000 bid weren’t enough.”

“As the home market in California has contracted, sales volume has fallen less in the in-demand East Bay towns than elsewhere in the state, according to DataQuick. The price data are more equivocal. When DataQuick measured changes in the median price per square foot for single-family houses the best market in the state is hundreds of miles away, in San Bernardino County.”

“But the raw numbers might not tell the whole story. Agents in the Inland Empire confirmed that the market there was visibly in decline. ‘The average home is on the market 50 or 52 days,’ said (realtor) John Bernardi in San Bernardino.”

“As for letters designed to sweet-talk sellers, ‘No one’s writing them,’ he said. ‘No one needs to.’”

The New York Times. “As the red-hot California real estate market sizzled in recent years, National Consumer Mortgage looked like just another residential mortgage company successfully riding the boom.”

“N.C.M. ran an investment arm that offered high-yielding notes to preferred clients, promising to use customers’ funds to make short-term, high-interest loans to individuals and companies that needed money quickly. For customers like Bryan Downey, it was a tantalizing pitch. Mr. Downey had a $125,000 inheritance that he wanted to put to work, and his younger brother had already invested his inheritance with N.C.M.”

“Earlier this spring, Mr. Downey, along with more than 200 others living mostly in California and Colorado, found out they were victims of a long-running Ponzi scheme that pulled in about $30 million before N.C.M. sought bankruptcy this spring.”

“The N.C.M. scheme bears all the hallmarks that have made financial scams possible for generations: naïve trust, a speculative market offering seemingly easy riches, and gilded lures hitched to people’s unending desire to keep up with the Joneses.”

“Experts say that for those caught up in financial scams, the early stages are exhilarating and therefore magnetic. Indeed, until the moment investors finally absorb the fact that they may have been duped and their money gone forever, speculating on a ’sure thing’ has all of the warm and fuzzy benefits of a freewheeling joy ride.”

“‘You’re experiencing the ride, singing, ‘Yo ho ho! It’s a pirate’s life for me,’ but you never see any of the trappings of the ride itself,’ said Anthony Pratkanis, a psychology professor at the University of California, Santa Cruz. ‘Criminals call it, ‘putting the victim under the ether.’”

“‘I lost a lot of faith in human beings,’ said Mr. Downey, who regrets losing his father’s money. ‘He worked hard to become middle class, he left us a nice home that we sold, and we all got taken in by a clown in Orange County.’”

“‘People believe their next-door neighbor is investing in property, flipping it and getting rich quick,’ said James H. Burrus, assistant director with the Federal Bureau of Investigation in Washington. ‘Everybody seems to be doing it. Fraudsters take advantage of those types of cycles.’”

The Honolulu Advertiser reports from Hawaii. “Hawai’i developers aren’t confronting ballooning inventories of unsold homes or falling prices like on the Mainland, but a few are offering special deals to keep the sales coming as buyer demand retreats.”

“Corinda Wong, (an) agent who’s been in the business 17 years, said she’s aware of a few new-home projects offering incentives. ‘I haven’t seen a lot,’ she said. ‘It’s just starting.’”

“At a 47-unit project in Makakilo, the developer last month ran a limited special giving buyers upgraded kitchen and laundry appliances, plus a two-point closing cost discount on loans through Towne Island Mortgage. Peter Aiello, president of Aiello Development, said the incentives were a response to 10 or 11 cancellations mostly from Mainland buyers.”

“‘That hit us hard, he said. A lot of Mainland (investors) have dropped out.’”

“To see incentives emerging at a few projects underscores the shift under way in the local real estate market that in the last few years had developers turning away buyers. Weaker demand is evident in O’ahu’s resale market, where sales of previously owned homes fell 17 percent in the first 10 months of the year compared with the same period last year.”

“Local developer Stanford Carr said some home builders were caught chasing the market too aggressively. Developers built homes at higher price points. But now with prices flattening, it’s harder to sell higher-end homes that aren’t affordable to the bulk of buyers. ‘It’s just an adjustment,’ Carr said of incentives.”

“The last time Hawai’i developers offered widespread incentives for home purchases was during the mid- to late-1990s market decline. During the market’s downturn, median prices for existing homes fell 21 percent for single-family homes and 42 percent for condominiums.”

“Market analyst Ricky Cassiday said developers regard price reductions as the incentive of last resort. ‘It’s blood in the water,’ he said. ‘If I wanted to boost my sales I’d be doing mortgage rate buy-downs and maybe things like flat-screen TVs.’”

The Waco Tribune reports from Texas. “Thomas is a Central Texan who knows the heartbreak of foreclosure, something more Americans are facing as easy credit during the housing boom ‘comes home to roost,’ as one industry expert put it.”

“Thomas, who did not want his last name used because of his embarrassment over his predicament, has lost five houses this year to foreclosure. His losses and those of others in McLennan County are piling up.”

“Thomas hoped to retire more comfortably on the money he made from these homes, all in Waco, which he bought as investment properties. Instead, ‘I’ve lost $100,000 or more, and my credit rating is totally and completely shot.’”

“Thomas bought the homes intending to fix them and sell them for tidy profits. He said he hired appraisers to help him gauge their values. In hindsight, he said, those values were not true. His properties languished on the market, ‘and all of a sudden, I ran out of money.’ All five homes found new buyers on the steps of the McLennan County Courthouse.”

“Some say foreclosures are beginning to surge locally. ‘Yes, sir, they’re just beginning to hit,’ said (realtor) Mark Bowles. ‘I’ve processed 12 foreclosures in the last three days.’”

“‘It would be hard to say foreclosures are an economic-driven problem in Texas,’ said Jim Gaines, a research economist at the Texas A&M. So what’s going on here? Gaines said blame lies at the doorstep of questionable lending practices during the housing boom.”

“Since 2001, those wanting to buy homes enjoyed low interest rates and qualifying terms that were almost laughable. ‘If you could walk, chew gum and breathe,’ Gaines said, ‘you could qualify for a mortgage.’”

“These practices ‘are coming home to roost,’ Gaines said, as homebuyers who probably should not have received loans in the first place are bailing on their payments.”

“‘I’m starting to see an increase (in foreclosures) on the upper end, involving middle-class properties in Waco, Woodway and Hewitt,’ said Sean McCann, a local real estate agent who specializes in foreclosures. ‘And word on the street is there is going to be more.’”

The Denver Post from Colorado. “In Montbello and Green Valley Ranch, existing-home values are falling as foreclosures spread. Burned-down houses sit abandoned for a year or more.”

“For-sale signs carry notes of desperation. One offers a week-long Caribbean cruise to the buyer of a foreclosed house. ‘Zero down? Poor credit? First-time buyer? Call for a free two-minute pre-approval,’ another urges.”

“From August to October, the median sale price on existing homes in Green Valley Ranch was $185,450, down from $201,000 during the same months a year ago. In Montbello, median sale prices dropped from $175,385 to $164,950.”

“In Montbello, Bernadette Ukolowicz waited seven months for one lucky knock at her door. Three times she lowered it. Then she took the sign down. When most house sales in your neighborhood are foreclosure-related, it’s hard to compete.”

“In seven months, six people looked at her three-bedroom house. Nobody has since September. For-sale signs abound on her street. Three houses on her block have been foreclosed in eight months.”

“‘The house next door, it’s been vacant six months, maybe longer. People across the street, they’re trying to sell. Three homes down, it’s vacant,’ Ukolowicz said. ‘Anyone trying to sell their home right now in the area is up against all the vacant homes. Why should I buy this house for $175,000 when the bank will sell that one for $130,000?’”

“Foreclosure prevention consultant Dottie Melton negotiates ’short sales’ - sales that avoid foreclosures by getting lenders to buy houses for less than borrowers owe. In Montbello, she calculates that 70 percent of pending house sales and 68 percent of all sales in the past six months were either short sales or foreclosures.”

“‘Where’s the homeowners in this? They’re not there,’ she said. ‘You have a home on the market, and you’re going to compete with 70 percent of the sales?’”

“Melton sees a spreading belt of foreclosures, however, that is now reaching middle-class neighborhoods in Arapahoe and Jefferson counties where homes were overvalued and buyers borrowed 100 percent of the purchase price. ‘It’s on its way. It’s in my backyard,’ she said.”

“Green Valley Ranch, to the east, is still under construction. Its current developer envisions a community stretching from Denver into Aurora that ultimately could hold 20,000 homes. Yet these neighborhoods share troubling foreclosure rates and stagnant house prices that trap many homeowners who try to sell.”

“In October alone, 65 more homes were foreclosed in the neighborhoods. Seventy percent of the foreclosed loans were approved in 2004, 2005 or this year. Nearly half refinanced previous home loans. Half of those homes already appear vacant. At one, a real estate flier offers a seven- day Caribbean cruise to anyone who buys it.”

“One of the new foreclosure notices came to Anthony Neely and his wife, Thelma, who thought they were making all the right moves when they bought a two-story home in Green Valley Ranch in 2003. They put $24,000 toward the $277,000 purchase price of their home, thinking they had a cushion to sell if they ever got in a bind or needed to move.”

“But their home isn’t selling in a deflated market. Come December, the couple could lose every penny they’ve invested in it. ‘We paid a high price, and we got a bad loan,’ said a dejected Neely. ‘We saved a long time to get that down payment.’”

“Neely lost his job and…making matters worse, the couple’s adjustable-rate mortgage has started escalating. Payments have risen from $1,100 a month to more than $2,000, Neely said.”

“The home had only six showings in four months on the market, including a lowball offer of $210,000. ‘Even the bank is not going to take that,’ he said. ‘We are between a rock and a hard place.’”

The Post Tribune reports from Indiana. “Some single-family residential properties in Northwest Indiana are taking a month longer to sell than last year, but fortunately, the housing bubble has not burst here as it has in other regions of the country, according to local real estate agents and builders.”

“But not all the builders are as enthusiastic about the market. In Porter County, builder Steve Dalton confirms he is seeing slower sales. Dalton said some ’speculative’ homes have not sold as fast as some businessmen hoped. Some sit on lots north of Valparaiso, waiting for buyers.”

“In Valparaiso’s Coolwood Estates, Bill Hanna has had his home up for sale for four months. Initially, there was some interest, but it has dropped off substantially in the last month, Hanna said. And now, winter is approaching, a season that has sellers such as Hanna concerned. ‘It just sort of dried up with the change of seasons,’ Hanna said.”

The Columbus Dispatch from Ohio. “Property seems to be easy pickings at real-estate foreclosure auctions, which are going strong in Ohio and other parts of the Midwest. But some in the industry consider realestate foreclosure auctions something of a game between banks and buyers. That’s because these aren’t absolute auctions, in which the final bid is the accepted price.”

“‘The name of the game is the bank always wins,’ said Raymond Smith, a buyer’s broker.”

“(A) three-bedroom, 2,282-square-foot house was the last one to be auctioned at the event, and the auction ended at $185,000. The owner, Deutsche Bank, didn’t accept the offer and didn’t come to terms with the bidder. The house has been relisted, this time for $225,000.”

“At most foreclosure auctions, buyers pay the price that the seller insists on. Freddie Mac, for example, required a higher price than the winning $29,500 bid for a condominium on Cherry Hollow Road in Columbus. It settled with the bidder on an even $30,000.”

The Detroit Free Press from Michigan. “Sales of houses and condominiums have plunged during the past year, in the worst housing market since at least the 1980s. As a result, prices have begun to decline sharply.”

“Gilda Bone put her family’s Saline duplex on the market two years ago, she’s cut the price from $257,000 to $199,000, and still has no buyer.”

“John and Beth Fohrman of Ann Arbor, each brought a home to their recent marriage. They sold John’s house after cutting the price, closed on their new house and put Beth’s condo up for sale in 2005. The condo remains on the market after five price cuts.”

“The sales slump has been especially difficult for people such as John and Linda Bruce, who are paying two mortgages, one for the home in Grosse Pointe Farms they haven’t been able to sell in more than a year, and one on their new, smaller ranch home in St. Clair Shores. ‘We were not prepared for what’s happened here. … It has not been easy,’ John Bruce said.”

“Many market-watchers blame today’s slump on a price bubble that finally burst. ‘A lot of things are overpriced,’ said Sherri Richwine, a broker in Ann Arbor. ‘People are not being realistic. Just because they received a large paper appreciation, they think they should be able to sell it for that. In reality, the gain is not as great as they thought.’”

The Appleton Post Cresent from Wisconsin. “With fewer willing buyers, sellers as a whole are dipping prices, 3.6 percent in the median price, from $138,300 to $133,300, for the quarter in the northeastern part of the state, according to the Wisconsin Realtors Association.”

“Chuck Peeters, general sales manager for Coldwell Banker in Appleton said properties around the Fox Valley ranging between $80,000 and $120,000 are selling best. ‘We have about 120 homes in that range available now,’ he said.”

“Homes ranging between $200,000 and $300,000 are not selling as well, Peeters said. ‘There’s quite a bit of inventory in that range,’ he said. Coldwell Banker had 253 properties listed in that price range across the Valley.”

“‘Sellers are holding and buyers are waiting for that good deal and expecting to buy something for 50 cents on the dollar,’ said Jim Zimanek, a residential loan officer in Appleton. ‘It’s more like a stalemate. Both sides are sitting idle, which may be contributing to the slowdown in the number of transactions we’re seeing.’”

The Star Tribune from Minnesota. “Home foreclosures in Minneapolis and St. Paul are rising at a rate that is beginning to alarm officials in both cities and threatening to destabilize some neighborhoods.”

“Similar trouble is evident in some metro suburbs and around the state, as more homeowners who plunged into the housing boom are now struggling with mortgages they can’t pay.”

“In St. Paul, foreclosures are on a pace this year to be three times as high as they were in 2003. In Minneapolis, foreclosures have increased by about 79 percent compared with last year.”

“‘There are more and more people who have purchased houses using mortgage products that they didn’t fully understand,’ said Cliff Morse, a mortgage financial planner in Chaska. ‘Now people are falling backwards.’”

“As of Nov. 3, there were 1,353 sheriff foreclosure sales in Minneapolis, according to data released by the city. During all of 2005, there were 870. And there were 414 in 2002.”

“Roberta Englund, a neighborhood leader on the north side, said she is watching with dismay as homes whose owners can no longer pay their mortgages get taken over by banks and become vacant. ‘I don’t think there’s any way to explain adequately how devastating one or more vacant houses on a block is to a community,’ Englund said.”

“Minneapolis Mayor R.T. Rybak said foreclosures are now the top housing issue in the city. ‘It’s on some level the underside of the refinancing boom,’ he said, ‘but it also has deeper aspects including financial literacy and risky lenders who sometimes don’t have the best intentions.’”

What do you see in your housing market this weekend? Auctions?

Builder incentives? “ILO Group of Houston, Texas, is pleased to announce the launch of the Punctual Payment Program. For the first time in Texas, ILO Group is offering any new buyer of a condominium at Towers at Clear Lake, no payments for 12 months, no HOA fees for 12 months and no closing costs.”

Realtor advice. “Being that we’re in the Hamptons celebrating the Film Festival, let’s start with the market out East: how did the market do this summer as compared to last, and is the ‘bubble’ bursting? [laughing] No, the bubble is not bursting.”

“But there are so many For Sale signs? ‘It has definitely changed from an overheated market where the seller rules to a much more balanced market. I think that sellers have to pretend they are buyers. I often ask sellers ‘Would you buy your house at this price?’”

Tax changes. “After leading the region with double-digit increases in property assessments, Loudoun County taxpayers should expect their home values to decline in each of the next two years, county budget officials said yesterday. A softening real estate market means tough times for government services.”

“County Administrator Kirby Bowers told board members that he has trimmed more than $40 million from departmental requests in such areas as public safety, parks, libraries, health and welfare. He said the shortfall could grow, depending on what the school system asks for. Schools account for nearly three-fourths of the current year’s $1.1 billion budget.”

A failed landbank? “One of Britain’s biggest landbankers has gone bust, leaving investors who paid a total of £7m for tiny slices of farmland, wondering where their money went.”

“‘I fully expected 20% annual returns over the next decade, multiplying my money up to eight times. I know that’s a lot but I did not go into this investment with my eyes closed,’ says one Kent investor who asked for anonymity. Now all he has is title to a plot of land in the middle of a field which is unlikely ever to gain planning permission.”

The Boston Globe reports from Massachusetts. “If home shoppers are frustrated by the lack of bargains in the real estate market, they might want to follow John Pesa’s lead. When sellers would laugh at his outrageously low offers, he would counter with a lower figure. He would dig up information on comparable, but less expensive, houses to buttress his point and learned as much about the pricing and movements in the market as the brokers showing homes knew.”

“The result was a house in Halifax that they bought at the end of summer for $81,000 below the seller’s original price. ‘I was able to put myself in a frame of mind where I was a complete businessman,’ Pesa said. ‘I was a stone cold hunter.’”

“For home shoppers who don’t have Pesa’s tenacity, the current soft real estate market has been something of mixed bag. Home prices have only fallen around 5 percent, hardly the kind of discount that would get buyers rushing off to a department store sale, much less to make the largest purchase of their lives.”

“Karl Case, an economics professor at Wellesley College, said the most recent annual survey he and a colleague conducted among home buyers revealed growing pessimism about buying in a down market. ‘They’re scared they’re going to buy something very expensive that’s going to fall in value,’ he said. Sellers, meanwhile, he said, are being ’stubborn. They seem to be holding out so far.’ The result: ‘People are staring each other down.’”

“Buyers should not panic at a sudden resurgence in the market and make rash offers, said Pesa. Be patient, be selective, he counseled; but more important, get to know the target market inside and out. ‘You’ll get to a certain point where you’ll be able to recognize what’s a good deal,’ Pesa said, ‘and what’s not a good deal.’”

The Enterprise. “After being on the market for more than a year, the house in Taunton is finally under agreement. But while the house sold for about $100,000 less than the original $459,000 asking price, its $421,900 assessment is likely to remain the same next year.”

“It’s a situation that property owners throughout the region are experiencing: Property values are plummeting but assessments, done at the height of the market, aren’t budging.”

“Abington assessors, expecting the situation to cause some confusion, have put homeowners on notice that lower values of today’s sagging real estate market, they’ve told homeowners, cannot be reflected until next year, fiscal 2008.”

“Even if the values drop, East Bridgewater assessor David Lincoln Phillips said tax bills will not necessarily be lower because the tax levy or amount the town needs to collect generally increases. ‘The tax rate is driven more by what the town needs for revenue,’ Phillips said. ‘So if the values are high the tax rate may be less. If the values are lower, the rate may have to go up.’”

“The three-bedroom house at 10 Tania Drive is assessed at $421,900, according to city records. But listing agent Jim Ricker says the agreed selling price is mid-way between $349,000 and $379,00. In this slow real estate market, it is not unusual for houses to sell below their assessed values, according to municipal assessors and real estate agents.”

“‘It’s really a strong buyers market,’ said Jean Sawtelle, spokesman for the Plymouth and South Shore Board of Realtors. ‘Values are down, the demand has eased and the sales pace is moderate. It’s helped boost the affordability level.’”

The Gazette. “Ana Martinez’s three-storey house in the Dorchester section of Boston is scheduled to be auctioned in December because she’s far behind on her mortgage payments.”

“Martinez has become so desperate to save her clapboard house on a quiet working-class street that she’s even appealed to America’s patron saint of lost causes: Oprah. ‘I offered myself as a charity to her,’ she says. ‘Her workers called me back and said there were thousands of cases.’”

“Martinez has dug a hole for herself by repeatedly refinancing her home over the last decade as its value soared in a real-estate boom that’s lifted prices in Boston and other U.S. cities. The downturn in the U.S. real estate market has exposed folly and fraud in an orgy of mortgage borrowing over the last five years.”

“Besides a surge in mortgage lending for home purchases, Americans cashed out $740 billion from their houses in 2005 alone through refinancings and home-equity loans, according to the Federal Reserve. The Fed estimates half of that cash went to buy goods and services, cars, granite counter tops, vacations. It’s called using your house as an ATM.”

“Now, with house prices falling in many cities and the inventory of unsold homes rising, an out-of-order sign has been hung on the mortgage refinancing ATM for many families.”

“Lois Meisler runs a Boston company that manages foreclosed properties across the U.S. for banks. Meisler’s business gets better with each passing month and she expects the real estate bust to continue for years. ‘People have refinanced every dollar out of their house. There’s no equity left.’”

“Many upper- and middle-class homeowners and real estate speculators were caught owing too much when the music stopped. For example, a columnist for the Boston Globe newspaper and a Massachusetts state senator narrowly avoided foreclosure this year when they failed to keep up with mortgage payments.”

“The situation has been made worse by predatory lending practices. These operators frequently saddle unsophisticated borrowers with high fees and penalties and have gone as far as fraudulently inflating borrowers’ incomes on applications to qualify them for mortgages.”

“The mortgage companies are in it for the fees and quickly offload their default exposure. They achieve this by selling the loans to Wall St. investment banks that packaged them into ‘mortgage-backed securities’ that are in turn sold to investors.”

“The mortgage broker who arranged Ana Martinez’s refinancing recorded her income as $8,420 a month, said Virginia Pratt, a counsellor at an community group. In fact, she was earning only about $2,500 in rental income at the time the deal was closed.”

“To close this refinancing, she had more than $16,000 in charges tacked on to the loan, including an astonishing $12,825 fee paid to the mortgage broker. Martinez says she was supposed to have received $28,000 from the refinancing, but claims never to have received the sum.”

“Martinez has repeatedly remortgaged her three-storey home since buying it in 1994 for $97,500, moving down the chain from bank lenders to sub-prime mortgage companies. In all, she has taken more than $300,000 that she says went for major house repairs and trips to Honduras to visit her ailing mother.”

“Most recently, she refinanced through a California sub-prime lender in October 2005. She ended up with two loans, one for $427,500 and another for $28,500. The interest rate on the larger loan was fixed for two years at 7.35 per cent. After that, the rate is to ratchet up every six months until it hits a maximum of 13.35 per cent, said Pratt.”

“Documents show her monthly payment is to rise from $2,766 to $3,612 beginning June 1, 2008. After paying that amount for 27 years she will still owe a lump-sum ‘balloon payment’ of $276,938. In all, she is scheduled to pay $1.14 million in interest over 30 years. At the same time, she’s supposed to pay $421 a month on the smaller loan.”

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