The Housing Bubble

The California realtors have the affordability index out. “The percentage of first-time buyers in California able to afford a median-priced home stood at 24 percent in the third quarter of 2006, compared with 28 percent for the same period a year ago.”

“The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment.”

The Union Tribune. “The percentage of first-time buyers able to afford a median-price home in San Diego County remained steady at 21 percent during the third quarter of 2006, according to figures released Monday by the California Association of Realtors.”

“The minimum household income first-time buyers needed to qualify to purchase a median-priced home at $511,590 in San Diego County was $105,680. At 39 percent, the High Desert region was the most affordable in the state, followed by Sacramento at 38 percent, according to CAR.”

“Santa Barbara was the least affordable region at 14 percent, followed by Monterey at 17 percent.”

“El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there’s no doorman to welcome them at the end of the day.”

“The fact that developer Peter Janopaul is now planning to build a new condominium tower where their pool and parking is, well, that’s just one more slap in the face. Disputes have generated a flurry of legal actions, including at least a half-dozen lawsuits and a request for a restraining order.”

“‘They made a lot of money off of all of us and then they turn around and do this?’ El Cortez resident Rob Mills said incredulously. ‘They just say, ‘We’ll put another building in front and ruin all your investments?’”

The Voice of San Diego. “Leslie and James Alkire have a foreclosure counseling agency, a venture they launched to satisfy a growing need, the rapidly accelerating number of people facing foreclosure who are wondering what to do.”

“The number of homeowners receiving notices of default is skyrocketing. The County Records Service reported the issuance of more than 1,100 notices in the county last month. That compares to about 400 in October 2005.”

“And more homes are reaching the next stage in the foreclosure process: lender repossession of the home. There were more than 400 trustee sales, homes up for bid in an auction, in October, more than four times as many as a year ago. And the real-estate-owned foreclosures, when a lender hires a real estate agent to sell the home, numbered almost 200, compared to 15 in the same month last year.”

“As prices started leveling off and dropping in many areas of the county this year, the safety net of being able to sell a home for more than a homeowner paid has vanished. Mortgage broker Paul Smith said he warned people about exotic loans for years, only to have them go to another lender to get one. Now, he said, many of them are stuck with rising payments and decreasing home values.”

“‘These homeowners are in a bind,’ Leslie Alkire said. ‘They’re over-leveraged. This is happening all over the city. People get into these interest-only loans, the rates start climbing. And the property [value] rates are dropping.’”

The Modesto Bee. “Foreclosures are soaring dramatically in the Northern San Joaquin Valley as homeowners struggle with rising mortgage rates, falling home prices and a stagnant real estate market. A higher percentage of Stanislaus County homeowners were in default on their mortgages last month, 0.47 percent, than in any other California county.”

“Many Merced County and San Joaquin County homeowners also are in trouble, with default rates over 0.35 percent. Merced had the third highest percentage of defaults in California. San Joaquin had the fourth highest. The three Valley counties had more than 1,600 homes in default on mortgages in October. That’s about eight times as many as in October 2005.”

“There were 128 homes in Stanislaus, Merced and San Joaquin counties taken over by lenders during October. Compare that with October 2005, when 10 homes were lost to foreclosure in the three counties, according to DataQuick.”

“A new analysis predicts 4,866 homeowners in Stanislaus, 7,591 in San Joaquin and 2,309 in Merced likely will lose homes to foreclosure because adjustable-rate mortgages will push their payments too high during the next five years. That’s on top of foreclosures caused by traditional problems.”

“Christopher Cagan, director of research and analytics for First American Real Estate Solutions, recently published two studies on foreclosures, and his predictions for the Northern San Joaquin Valley aren’t pretty. Cagan warns ‘the double whammy’ of adjustable mortgage interest rates on homes with little or no equity will force borrowers into foreclosure.”

“Homeowners in the biggest trouble are those who bought homes with little money down and ‘teaser’ rate mortgages. Such adjustable-rate mortgages aren’t new, but what’s changed is the real estate market.”

“During 2004 and 2005, Cagan said, homeowners who had mortgages adjust to unaffordable levels had ways to get out of trouble. That’s not the case now because home prices have dropped about 5 percent compared with last year in the Northern San Joaquin Valley.”

“‘Some homeowners will find it hard to sell or refinance because they may have little or no equity in their residences,’ Cagan said.”

“He calculated that about 19 percent of homes that were purchased or refinanced since 2004 in the Northern San Joaquin Valley are likely to be foreclosed during the next five years because of what he calls ‘mortgage reset and equity strain.’”

“Borrowers who agreed to such adjustable-rate loans with little or no down payments may not have comprehended what they were getting into, said Frank Mandella, president of the San Joaquin Valley chapter of the California Association of Mortgage Brokers.”

“‘I’m sure some of those loans were made to people who did not understand the advantages and disadvantages,’ Mandella said. ‘Maybe they were not educated properly on how the lending program worked.’”

“Mandella, who owns Meadow Lake Mortgage in Stockton, said that during the past few years there were mortgages available for as much as 125 percent of a home’s assessed value. ‘They were designed for people to consolidate debt,’ Mandella said. He said there also were loans for 103 percent of value to enable buyers to pay for a home and its closing costs.”

“Homeowners who choose the wrong mortgage and have their homes foreclosed may end up watching their property get auctioned on the county courthouse steps. More times than not these days, however, no one bids on foreclosed houses because lenders are owed more than the property is worth. That means the starting bid often is too high to attract buyers.”

“Lenders then end up taking possession of the foreclosed homes, and they list them with real estate agents. Increasingly, those houses end up selling at a loss. ‘They don’t want to sit there holding onto it,’ Cagan said.”

“He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years.”

A housing report from the Oregonian. “Portland hasn’t seen a housing market like this one in at least 10 years. Listings are up. Sales are down. Buyers, sensing an edge, are leaning hard on prices. The region’s 7,000 or so Realtors are working harder to sell homes.”

“‘If I’m not selling it tomorrow, I don’t care what it’s worth,’ said David Morganstern, a personal financial adviser in Portland. ‘You should buy a house for all the fundamental reasons about enjoying it as a place you live in, as opposed to, ‘Is it a salable piece of property?’ Then you’re a speculator, not a homeowner.’”

“The frenzied days of 2005 notwithstanding, most people make housing decisions based on lifestyle changes. Pat and Todd Salvo put their four-bedroom Lake Oswego house on the market about a month ago. ‘It’s a little slower than I would have expected,’ Pat Salvo said.”

“There’s enough uncertainty to give even the econometrics geeks the willies. ‘It’s a particularly risky year, and you want to increase your investment in housing? I’m not so sure,’ said Mark McMullen, senior economist for Economy.com who covers the Portland area.”

The Bellingham Herald from Washington. “Dave Christensen is a longtime local architect who holds onto all his work, no matter how old or dead the project. He estimates about half the projects he starts never make it to the groundbreaking ceremony.”

“A flurry of proposals in the late 1970s, 1980s and early 1990s came as Bellingham was trying to find a new identity, said Bellingham Mayor Tim Douglas, who also served as mayor from 1984 to 1995.”

“‘It was a time when Bellingham was flat on its back economically because of declines in our resource industries, including fishing and timber,’ Douglas said.”

“As Douglas begins his second stint as mayor, he is starting to see similarities with what’s now taking place. ‘Is Bellingham ready for high-rise condominiums in the downtown core? I guess we’ll find out,’ Douglas said.”

“Ken Hertz also sees similarities today to when he was mayor from 1976 to 1984. ‘So much of what was proposed back then was ‘pie in the sky,’ Hertz said. ‘There is so much being proposed today, it will be interesting to see what will actually get built.’”

The Daily World from Washington. “It was just about a year ago that Weyerhaeuser CEO Steve Rogel announced that the company would be closing two mills on the Twin Harbors, eliminating about 350 jobs.”

“So what happened here? ‘In looking forward at what the capital costs were to keep the (pulp mill) running and safe,…and we couldn’t see ourselves go down that path,” Rogel said.”

“The company also suspected that the housing boom wouldn’t last forever. And, right on schedule, the boom has, well, started to bust.”

“Because of the closure of the federal forests and more recently with the drop in home building,…the economics in the pulp and paper business on the West Coast is pretty difficult,’ Rogel said. ‘With the housing market dropping, all of the sawmills in the area are taking downtime and that’s putting pressure on the chip supply.’”

A housing report from Maine Today. “Workers have begun framing the first home in a new subdivision in Westbrook. It’s a 1,400-square-foot cape with a base price of $204,000, roughly $50,000 below the median home price in Cumberland County. That price point is no accident. The builder had initially planned ‘move-up’ homes, with garages, paved driveways, gas fireplaces and other extras that would sell for $270,000 or so.”

“But as the housing market slowed and potential customers had trouble selling existing homes, the builder redesigned the project to make it more affordable for first-time homebuyers.”

“Cutting amenities is one way southern Maine homebuilders are weathering the national downturn. They’re also offering buyer incentives, writing contracts contingent on the sale of existing homes and lowering prices. Some, like Custom Built Homes of Maine, are staying away from price segments already burdened with too many ‘for sale’ signs.”

“‘We’re trying niches that keep us out of the $350,000 to $400,000 market,’ said Ron Smith, the company’s owner.”

“Builders such as Smith say these adjustments really just reflect a correction, a return to a more-stable construction environment after a few hectic years. But housing-start figures for 60 towns in southern Maine, collected by Construction Data New England, show that the brakes have come on fairly hard.”

“Through the end of October, the number of new building permits dropped 27 percent from the same period last year ­ 1,515 compared with 2,069.”

“Kasprzak Builders of Waterboro develops condominium communities in Wells, Kennebunk, Gorham and Brunswick. The company typically builds 60 units a year and has had to make adjustments to stay on track. Overall prices have been cut about 5 percent this year, according to Bob Georgitis, the company’s VP.”

“Customers typically have homes to sell, and that can be a slow process these days. ‘It wasn’t a problem in the past,’ Georgitis said. ‘But now, people are unwilling to sign contracts until they are near closing.’”

“‘Buyers will remain very price conscious, Smith said, and builders will need to respond. ‘It’s going to be very competitive, no doubt about that,’ he said.”

The Portsmouth Herald from New Hampshire. “The current housing market may give those on the lower income bracket a chance to look at buying their first home. ‘We are in a snail’s pace market,’ Realtor Florence Ruffner joked. ‘Prices have leveled; people can get in now that maybe couldn’t get in six months ago.’”

“‘I think it’s gone back to a more normal market,’ said Ruffner, in Exeter and a 25-year industry veteran. ‘It can now take six to nine months for a property to sell, before it was just wild. That was just a very different kind of market. It’s more like what it used to be before the wave. We rode the wave and now it’s calm.’”

“‘People are taking longer in making decisions … they have the luxury of taking their time,’ she said. ‘Still, people are not giving houses away, and they shouldn’t. People are entitled to fair-market value of their home.’”

“Loan officer Mark Danie thinks the market is switching from a seller’s market to a buyer’s market. ‘It’s a supply-and-demand situation,’ he said. ‘Those out there looking for the $250,000 range have many to select from. They are able to compare and contrast properties. They can be more picky than they were before.’”

The Nashua Telegraph. “Every town in Hillsborough County complains about too much growth, so when the Federal Reserve Bank does an in-depth study of New England migration patterns, what does it find? More people are leaving the county than entering it, the study found.”

“Of all the people who moved into Hillsborough and Rockingham counties in the year 2003, 47 percent were from the Bay State. And southeastern New Hampshire wasn’t the only Massachusetts magnet; the whole state was a draw. ‘Massachusetts had a net out-migration of 47,600. Of those, 18,444 (39 percent) went to New Hampshire,’ said Carrie Conaway, deputy director at the New England Public Policy Center.”

“But unlike the state’s other nine counties that drew Bay State immigrants, Hillsborough saw more people pack up and leave than unpack and arrive in 2003. (The population didn’t decline, however, because of more births than deaths.)”

“‘I don’t think that’s all that surprising, for two reasons,’ said Steve Williams, executive director of the Nashua Regional Planning Commission. One is jobs, he said: 2003 was a down time for the Boston-area tech industry, and ‘Hillsborough County, and especially the Nashua area, tracks Boston very closely in terms of employment.’”

“The other is that old bugaboo, housing prices. ‘At some point people began to realize there are less expensive housing opportunities not too far north, in Merrimack County, or out to the west,’ he said.”

The Wilmington Star reports from North Carolina. “Amid national concerns of a deflating housing bubble, Wilmington remains a choice destination and prices in its core have stayed strong even as homes are taking longer to sell, demand at the beach has turned anemic and buyers have hopped in the driver’s seat.”

“Across the board, island markets in Pender, New Hanover and Brunswick counties have dried up. In October, the median price for an existing single-family home in Brunswick County was $221,000, down more than $50,000 from the same month in 2005 as beach traffic has slowed.”

“‘The beach has come almost to a halt,’ said Beth Suggs, president of the Brunswick County Association of Realtors. ‘I think buyers are kind of sitting back waiting to see if prices drop.’”

“In Carolina Beach and Kure Beach, where a surplus of new construction cooled one of the areas’s most overheated markets, the number of residential units sold was down about 70 percent through Nov. 4 from last year, said (realtor) Steve Bowwman.”

“Oceanfront lots that last year went for $1.3 million now sell for about $980,000, he said. ‘We’ve seen land prices just tumble,’ he said.”

“In the $300,000 to $600,000 range,there is little appreciation and long stays on the market, Realtor Jeff Lucas said. Likewise in New Hanover County, the $400,000 to $800,000 range is the most crowded, said Realtor Jim Spicuzza. Some sellers are throwing out ‘make my day’ numbers just to see what they can get, he said.”

“Real estate investor Rich Lehrer said he doesn’t see who’s going to buy the high-priced homes. Rents have not risen enough to make landlords interested in home prices; slow markets elsewhere mean that people wanting to relocate are pressed to get out of their current homes; and local salaries remain meager in comparison to the cost of real estate.”

“Last year, the per capita income in the Wilmington metropolitan area was $28,584, just less than that of Rome, Ga., and 222nd in the country, according to the U.S. Department of Commerce.”

“‘Prices are going to have to come down before the market starts moving again,’ Lehrer said. ‘If you bought last year, you better not need to sell this year.’”

The Pensacola News Journal reports from Florida. “In a year marked by falling home prices, record-high inventories and shocking property tax hikes, putting a positive spin on the Pensacola area’s 2006 housing market would seem a difficult task.”

“But some local Realtors are…striking a similar theme: ‘Things aren’t that bad, and it’s a great time to buy.’ Veteran Realtor Al Ingram says sellers finally are reducing unrealistic prices for their homes and letting the market price their property.”

“The Escambia-Santa Rosa inventory of unsold homes remains at record levels. At the end of last week, the Pensacola Association of Realtor’s MLS had more than 6,400 homes on the market, and that number excluded houses ‘for sale by owner.’”

“That consistently high number, which has hovered above 6,000 for the past six months, worries Al Muller, co-owner of an independent Pensacola firm that monitors area housing sales.”

“‘The biggest question coming up with people I talk to is, ‘With more than 6,000 homes for sale, just what do those people do when they sell?’ Muller said. ‘How many have left the area because of hurricanes, high insurance rates and property taxes? That’s the critical question.’”

“He points to recent U.S. Census data that show Escambia is one of only two counties in Florida, the other is Monroe, that have shown a net loss in population between 2003 and 2005.”

“Milton Realtor Bill Wallace said that despite the recent fall in home values, he believes prices remain high, and need to pull back even more.”

The Orlando Sentinel. “Residential construction is slowing here and across the country, and layoffs have been thinning the ranks of home builders everywhere, raising fears of a job bust that could ripple through the rest of the economy.”

“‘The housing souffle has finished baking and is out of the oven and cooling quickly,’ said Sean Snaith, a UCF economist.”

“For Metro Orlando, Orange, Seminole, Osceola and Lake counties, Snaith projects that construction employment will experience rare, year-over-year declines beginning in the third quarter of next year before turning positive in the second quarter of 2008. He expects much of the same thing to happen statewide. The housing boom of recent years was never sustainable, said Snaith.”

“The phone has been ringing lately at Terry’s Electric in Kissimmee, and many of the calls have been from electricians looking for work now that home building in the area has started to slacken.”

The News Press. “Home construction across Southwest Florida has slowed dramatically in the past few months. In October, Lee County builders pulled 698 home construction permits in October, less than half the 1,409 pulled a year ago.”

“When housing slows, furniture sales typically begin to slow three to six months later, said Barry Edelman, general manager of Havertys in Fort Myers. ‘I think everyone has seen it drop off,’ said Edelman.”

“John Munzenrieder has seen plenty of ups and downs while running a furniture store chain for 23 years. But he’s finishing his final ride on that roller coaster. Munzenrieder announced that his stores across Southwest Florida would close.”

“Warren Jalving, president of La-Z-Boy Furniture Galleries in Fort Myers, said November and January tend to be the busiest months locally, and November has been ‘difficult, very difficult.’ ‘We sort of got spoiled and now it’s back to reality,’ said Jalving, who has had a local store for 18 years.”

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