The Housing Bubble

More November numbers from Dataquick in California. “Bay Area home prices dipped below year-ago levels in November for the second time in three months as sales held steady at a five-year low. The median price paid for a home in the nine-county Bay Area was $616,000, down 1.4 percent from $625,000 in November last year, according to DataQuick. Last month’s median was 4.3 percent below the $644,000 June peak.”

“A total of 7,204 new and resale houses and condos sold in the Bay Area last month. That was down 25.9 percent from 9,717 in November last year.”

The Contra Costa Times. “Bay Area home prices continued their downward spiral while home sales reached a five-year low. Nowhere was that drop felt more keenly than in Solano County, where the median sales price dropped 9 percent, or from $490,000 to $446,000, from November 2005 and homes sales fell 27 percent, according to DataQuick.”

“In Contra Costa County sales fell 28.3 percent from last year while values dropped from $589,000 to $562,000, a 4.6 percent drop. In Alameda County sales also fell 28.3 percent and prices dropped from $587,000 to $581,000, a 1 percent dip.”

The San Francisco Chronicle. “‘Absolutely, the bubble has popped,’ said economist Christopher Thornberg. ‘When a real estate bubble pops, it’s a slow-motion train wreck. Things don’t happen overnight.’”

“New home builders are slashing prices. As builders cut prices to move inventory and keep their shareholders satisfied, the resale market is feeling a spillover effect, said Keitaro Matsuda, senior economist at Union Bank of California.”

“Builders sold 1,128 new homes in November, down 21 percent from 1,433 a year earlier. The median price for a new home fell 10.1 percent to $602,00 from $670,000 last month in the nine-county region.”

“‘As lenders, we deal with many home builders and home builders are aware of what’s happening and they’re taking measure to adjust inventories quite quickly,’ Matsuda said. ‘That downward adjustment starts to influence the resale market as well.’”

The Monterey Herald. “Monterey County planning commissioners Wednesday gave preliminary approval to plans by Standard Pacific Homes to develop the lots on 16 acres in Spreckels. Project manager Peter Dunne said…no prices have been set. Initially, the thought was the homes would be priced between ‘the high $600,000s and $800,000,’ he said.”

“‘But the market has changed substantially since we first started,’ Dunne said.”

The Union Tribune. “San Diego County housing prices dropped by nearly 7 percent last month, the largest year-over-year decline on record. The association said 18,245 homes were on the market as of yesterday, up 29 percent from one year ago.”

“Robert Brown, an economist at Cal State San Marcos, said he was not so certain that prices will settle rather than continue to drop in the next few months. ‘I think a lot of that depends on people’s expectations,’ Brown said. ‘If they expect that (decline) is likely to happen, there’s a greater likelihood that they’ll stay out of the market and wait and see.’”

The Orange County Register. “Beverly Ann Huffman couldn’t sell her home even after doing something she vowed not to do: dropping the price by $20,000. So the San Juan Capistrano woman decided that she really didn’t need to sell it after all and took it off the market.”

“‘There’s a lot of places in the area for sale. A lot that aren’t going anywhere,’ said Huffman. ‘I think it’s that way everywhere. I think it’s indicative of the market.’”

“Data released Wednesday somewhat bolster Huffman’s conclusion, showing that Orange County home prices failed to post an annual gain for the first time in 9 ½ years. Sales volume continued to be below year-ago levels for a 13th straight month, with 2,475 homes sold, DataQuick reported. That’s the slowest November since 1992 and the third-lowest number of sales for the month in DataQuick’s records.”

“November was the fifth straight month that prices dropped from the month before since hitting the record price of $646,000 in June. It’s the longest monthly losing streak in the 19 years since DataQuick began tracking O.C. real estate transactions.”

“The median price for resale houses, which make up nearly two-thirds of the market, actually dropped from year-ago levels for the first time since February 1997, DataQuick figures show. Last month’s single-family home median was $660,000, or 1.5 percent below the November 2005 median.”

“Resale condominium prices likewise showed negative appreciation, falling 2.4 percent from last year to a median of $439,000.”

“‘Prices are trickling down,’ said real estate consultant John Burns. ‘There’s so many homes that are listed for more than they can sell for.’”

“Wally Welter, a home shopper from Irvine, said there are huge disparities between the amounts that homeowners are asking for their properties. Identical homes could have a $100,000 difference, he said. ‘It’s the reluctance of the sellers to face reality.’”

“Orange County homeowners are missing mortgage payments and losing their homes to foreclosure in rapidly increasing numbers, as the housing market slumps.”

“Banks sent owners 665 notices of default in November, a 125 percent increase from a year ago and an 11 percent rise from October, DataQuick reported. It’s the highest monthly total in more than seven years.”

“Last month’s total of 102 foreclosures is 900 percent higher than a year ago. October’s foreclosure total was the highest in more than six years. Andrew LePage, a DataQuick analyst, said defaults are approaching a normal level. ‘We don’t think it’s time to sound the alarm,’ LePage said.”

USA Today reports from Colorado. “Auctioneer Bret Richards barely broke his rapid-fire chatter as he eyeballed uncertain bidders. Less than a minute later, the house was sold. In two hours, 61 were auctioned, all of them foreclosures. One of main factors pushing up foreclosures: the number of borrowers who’ve fallen behind on their adjustable-rate subprime loans.”

“The loss of a job is the No. 1 reason people go into foreclosure. That’s what happened to Bill and Dana Pittman in Denver. Dana lost her job last year, then needed surgery. The couple managed their mortgage payments with Bill’s wages and an inheritance from Dana’s parents.”

“When the inheritance ran out, they fell behind. ‘I should have tattooed across my forehead, ‘Real estate stupid,’ says Dana. She says she wrote ‘a letter of hardship’ to the mortgage company last summer, but ‘It was, like, ‘Oh, well, too bad. We want our money.’”

“To stave off foreclosure on their suburban home, the Pittmans have been trying to sell a small vacation home they own in a remote valley three hours south of Denver. But with no takers despite a cut in the asking price, they don’t expect to sell it before they put their main home up for auction on Jan. 3.”

“‘In California, I saw a billboard that said, ‘Own the home you want, not the one you can afford,’ says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. ‘That was so silly.’”

The Denver Post. “Tighter credit could worsen the housing downturn by reducing affordability for a large block of buyers, said Tom Di Mercurio. Now that the market is slowing and needs capital to avoid a more severe downturn, lenders are becoming more risk averse, Di Mercurio said.”

“That was a mistake lenders made in the collapse of the Houston real estate market in the 1980s, and Di Mercurio said he fears it will be repeated.”

The Brighton Standard Blade from Colorado. “Fewer homes are being built in Brighton, Brighton finance director Bernadette Kimmey said. ‘What we’re seeing is on the number of foreclosures in Brighton, there’s an inventory of existing houses,’ Kimmey said.”

“The significant downturn in housing construction in Commerce City, director of finance Roger Tinklenberg said, follows market trends. ‘Nationwide the whole housing sector of the market is down significantly,’ he said.”

“‘Economists are projecting 2007 is going to be worse than 2006.’ In the metro area the market ‘is just overbuilt,’ Tinklenberg added.”

The Wickenburg Sun from Arizona. “Significant for those in the real estate business is the number of homes sold during these years. ‘The selling frenzy has stopped,’ said appraiser Tadd Nixon. ‘While values have not significantly dropped, the number of homes being sold has drastically decreased. This year we are only doing about half the number of appraisals as we did last year.’”

“Nixon attributed the rapid increase and present slowdown in the market to multiple factors affecting both Wickenburg and Arizona as a whole. He called the housing boom a rolling boom having started in California and traveling to many other hot spots of the country.”

“According to Nixon, the Phoenix market has experienced a sharp slowdown, which has been felt in Wickenburg to a lesser extent. While prices have not statistically fallen much in Phoenix, he expects that to happen since the rate of foreclosures is up sharply. With sales off in Wickenburg, he expects to see this market also soften somewhat in price.”

“‘High raw land prices are keeping the market up at the present time,’ continued Nixon. ‘We have several developments about to come on line, and when that happens we will see more available lots and can expect lot prices to level off or even drop a little. Generally the Wickenburg market moves in the same direction as Phoenix but a little later in time.’”

From Fortune. “Bret and Tricia Baird are all too aware of what they’re getting into. Friends and family have admonished them to rent when they move this month to Mesa, a suburb of Phoenix.”

“With an inventory of more than 38,000 homes for sale, up 94 percent from this time last year, Phoenix is one of the shakiest markets in the country. Nevertheless, Bret and Tricia have decided to make a leap of faith. They just put in an offer of $400,000 for a 2,700-square-foot, five-bedroom house right next door to her sister.”

“The place looks like a pretty good deal, 8 percent off the original asking price of $434,000 and $5,000 less than what the seller paid for it last year. But with the way things are looking in Phoenix, the Bairds realize they could be paying too much.”

“Tricia’s sister, for example, bought her house two years ago for $225,000. ‘We’re nervous,’ says Tricia. ‘If for some reason we have to sell a couple years from now, we’re not confident that we could get what we paid for it.’”

“‘It’s possible that the broader housing market will firm in the next few months, that the worst is over,’ says economist Mark Zandi. ‘But that to me is a dead-cat bounce.’”

“This time last year the big question was whether the real estate market was going to slow down. Today it’s ‘How bad will it get?’”

Some housing bubble reports from Wall Street and Washington. CNN Money, “Washington Mutual’s chief executive said that he expects 2007 to be another tough year for the U.S. mortgage industry, which faces overcapacity and unsustainably low margins. Kerry Killinger, CEO of the largest U.S. savings and loan, acknowledged that a sweeping correction in U.S. housing prices would lead to higher delinquencies and loan losses.”

“‘In our guidance we’ve assumed that the mortgage industry would be about as tough next year as this year,’ Killinger said, adding that he would not be surprised to see ‘multiple years’ of housing prices lagging inflation and other asset classes.”

“Industrywide, mortgage origination fell by 35 percent between 2003 and 2006, while industrywide head count rose 8 percent in the same period, he said. ‘There is a total disconnect in mortgage banking between realistic levels of production that are going to happen and the level of employment,’ he said.”

The Scotsman. “The World Bank yesterday said a global slowdown was firmly under way, led by the United States. The report said a soft economic landing remained likely, but warned that a cooling US housing market, especially, could be the catalyst to spark a sharper-than-expected downturn, and even a recession.”

National Mortgage News. “Aegis Mortgage Corp., Houston, which said goodbye to its longtime chief executive last month, has closed two subprime operation centers, laying off an undisclosed number of workers.”

From Origination News. “Fieldstone Investment Corp., Columbia, Md., a top-25-ranked nonprime lender, has put itself on the auction block, hiring Lehman Brothers as its adviser, according to investment banking officials. “There’s definitely a book out on them,” said one mergers-and-acquisitions adviser, requesting anonymity. Another investment banker confirmed this.”

From Bloomberg. “U.S. foreclosures begun on adjustable-rate mortgages rose to a four-year high in the third quarter as borrowers struggled to pay higher interest rates.”

“Surging home prices during the five-year real estate boom that ended last year spurred borrowers to choose riskier adjustable loans, many with rates that adjust annually, to afford real estate, said Doug Duncan, chief economist for the Mortgage Bankers Association.”

“‘You’re seeing the early edges of the reset phenomenon in the adjustables, particularly in the sub-prime market,’ Duncan said. In 2007, about $650 billion of U.S. home loans will reset at higher rates, he said.”

The Washington Post. “About 16 times as many of these high-cost loans, known as subprime loans, are past due as in 1998, when the industry began tracking subprime statistics as part of its quarterly delinquency analysis.”

“About 223,000 households with subprime loans lost their homes to foreclosure in the third quarter of 2006, and about 725,000 had missed payments, according to the quarterly survey from the MBA.”

“About 12 1/2 percent of all subprime loans were delinquent in the third quarter, up from 11.7 percent in the second quarter, the Washington-based bankers association reported. ‘It’s almost certain that the number of delinquent subprime loans is higher than it has ever been,’ said Duncan.”

The Associated Press. “The Office of Federal Housing Enterprise Oversight instructed Fannie Mae and Freddie Mac Wednesday to tighten up underwriting practices for some nontraditional mortgages.”

“According to OFHEO, the government-sponsored entities should follow guidelines issued by federal bank regulators in October that cover high-risk loans that allow borrowers to defer paying principal or interest for a certain period. Many of these loans come with adjustable mortgage rates. The popularity of these loans has ballooned in recent years.”

From Inman News. “2006 was the year that some real estate forecasters had been predicting for several years. It was the end of the boom.”

“‘All of the sudden this seller’s market had morphed into a buyer’s market,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. The signs began to appear toward the end of 2005, he said, that the market was in transition. ‘It seemed sudden at the time though all the signs were there before.’”

“Those signs, he said, included double-digit home-price appreciation, increasing investor interest and a rise in unconventional mortgage products that ‘acted almost as a steroid on the residential sector.’”

“With the ‘perfect vision of hindsight,’ Retsinas said it is clear that the slowing began late in 2005. ‘Everyone knew you couldn’t sustain double-digit appreciation,’ he said.”

“Edward Leamer, director for the University of California, Los Angeles, Anderson Forecast, said, ‘The big problem is the disconnect between prices and affordability.’ The housing boom followed normal patterns until 2002, he also said, when there were ‘five years of extraordinary appreciation.’”

“Investors pulled out of the market and consumers may have reacted as investors to changing market conditions, he noted. ‘A lot of people, whether explicitly or implicitly, were thinking like investors.’”

“Kenneth Jenny, CEO and managing partner for (a) real estate consulting company, said the media may have had a role in the housing slowdown, and other real estate industry participants, too, have blamed the media for impacting consumer attitudes about housing. ‘The influences that created this cycle are different than others, they aren’t so much economic as they are media-driven.’”

“The media can act like a match starting a wildfire when it comes to consumer perception about real estate market conditions, Jenny added. ‘Stopping it is really difficult. Whether it’s true or not, it can turn the whole thing into a house of cards.’”

The Miami Herald reports from Florida. “Coral Gables lawyer Brian Bieber is intimately acquainted with mortgage fraud, having represented people accused of the crime. But earlier this year, he was stunned when a broker instructed his own mother, a Broward County schoolteacher, to create phony evidence of a second job to get a mortgage for a Hallandale Beach condo.”

“‘That mortgage broker actually suggested to my mother that she obtain a false letter of employment from me and my law firm,’ Bieber said. ‘The broker went so far as to give her the explicit amount my mother needed to be earning per week and asked my mother to ask me to generate at least four pay stubs.’”

“Bieber called the North Miami broker, who he wouldn’t name, himself. ‘I confronted him and told him he could wind up getting indicted. He said, ‘Everybody does it.’”

“Florida has 67,266 licensed mortgage brokers, up from 41,211 three years ago. ‘You had all these guys doing [refinances]…they got used to a lifestyle where they were making $100 to $150 grand a year,’ said Scott Messina, a Stuart-based industry veteran. ‘Take the pie and divide it by half, and now instead of making $100,000 a year, their making $30,000. They have to make money, too, and desperate people do desperate things.’”

“Brokers and other originators can be forced to buy back fraudulent loans from investors who buy bundles of loans on the secondary market. Defense attorney Bieber told the broker who propositioned him and his mother to hang on to his phone number. ‘You better save your money; you may need my legal services in the very near future,’ he said.”

The Palm Beach Post. “In November, St. Lucie County saw its troubled real estate more than triple. ‘Tons of new homes have been built in St. Lucie County in the past couple of years, and a big chunk of those were snapped up by speculators,’ said Mike Larson, an analyst in Jupiter. ‘Now, some are finding they can’t rent them out for enough to cover their mortgages.’”

“Larson blames ‘excess speculation’ for driving prices far beyond what fundamental economic forces dictated. ‘Now, with prices falling, that irrational exuberance is being wrung out one foreclosure at a time,’ he said.”

The Bradenton Herald. “‘A prolonged weakness in house prices will no longer allow consumers to extract cash or liquidity from their home,’ said Jerry Kirschner, the executive director of a Sarasota-based liaison between business and government. ‘If homeowners face mortgage refinancing, increased property taxes and insurance, without consideration of maintenance expense, the homeowner mortgage financial obligation triangle will rapidly absorb household liquidity for many people in our area.’”

“Sarasota County Property Appraiser Jim Todora joked at Wednesday’s luncheon that he has had his share of ‘fan mail’ over the past year.”

“‘A person had wrote, ‘What are you doing down there? Are you out of your cotton-picking mind? Are you crazy? Don’t you know what is happening in the real estate market?’ Todora said. ‘I really enjoyed a homeowner who wrote to me lately. She said, ‘At this point you’ve probably been called every name in the book, so I thought I would skip that part and get to the important stuff.’”

“Dale Friedley of the Manatee County Property Appraiser’s Office, said the Sunshine State seems to have escaped fears of possible housing depreciation. ‘There’s no evidence at all of depreciation in Florida,’ Friedley said.”

“Any county that experiences a 27 percent increase in its taxable value in a year should call it a miracle, Todora said. ‘If we were to think that kind of trend was going to continue, I think we would only be kidding ourselves,’ Todora said. ‘We would probably break apart at the seams.’”

The Herald Tribune. “The plummeting real estate market could spell a rare downturn in taxable land values, at least in parts of Florida. And that could force local governments to raise tax rates to make up the difference.”

“Government officials say such increases are not out of the question. Charlotte County Administrator Bruce Loucks said that if property values fall, governments would have three choices: cut spending, raise tax rates, or both. ‘This isn’t a surprise to anyone,’ said Loucks.”

The Atlanta Journal Constitution from Georgia. “While sales and construction are not crashing here the way they are in some other places, Georgia is suffering a parallel, if milder, downturn in housing, said P. George Benson, of the University of Georgia. ‘The nation’s and Georgia’s housing markets are already in recession, both of them,” he said.”

“All in all, the r-word fits the situation, agreed Roger Tutterow, of Mercer University. ‘If you define a recession as contraction in the level of production and activity, whether locally or nationally, it is clear that is happening,’ he said. ‘You have to admit the housing market has slowed.’”

The Ledger Enquirer from Alabama. “The tide of the real estate market here has rushed out as quickly as it rolled in last year, real estate agents and property owners say.”

“Recent arrivals who hoped to turn their investments quickly and now suspect they’re stuck for a while. ‘The market has dropped off fast. It’ll come back again in the future, but nobody knows when,’ said Bill West. Two years ago, he put $190,000 into the land and the construction of the house, he said. Next year, he said, he plans to put it on the market for about $430,000. ‘It’ll be a hard sell, and I know it,’ West said.”

“Waterfront property values went up more than 50 percent in 2005, according to property sales records. Then in August came Hurricane Katrina and the following Gulf Coast-wide real estate slump. This year, property sales dropped back down to 2004 levels, and prices have dropped more than 30 percent from last year.”

“‘The trends here are pretty much in line with what you’re seeing everywhere along the Gulf Coast right now,’ said (realtor) Marc Estes in Bayou La Batre. The difference in the Bayou is that the market had only just begun to draw investor interest when Katrina hit, he said.”

“In 2003, just six properties were sold in the Bayou, according to records. In 2004, sales rose to 18 properties. Last year, 40 properties changed hands, more than 60 percent of them snapped up by investors and speculators, according to Mobile County property sale records. This year, just 16 properties were sold, according to records.”

“‘The entire Gulf Coast is facing the same problem right now,’ said (realtor) Lee Martin of Port City Realty. Sales on Dauphin Island are down 65 percent from last year.”

“West said he wished he’d known two years ago what he was getting into when he bought a lot in Woodbridge Landing. Four lots there sold in the past three years for $100,000 to $150,000 each, according to records. Houses were built on two of them, one of them West’s. The remaining five lots have sat, unsold and undeveloped, though each has bayou frontage.”

“The growth hoped for by people like West, Estes and James may come, but ‘it may be 10 years or more down the line,’ West said. Next year, he said, he expects to make a little money on the house he built, ‘but nowhere near what I was speculating.’”

Please post off-topic ideas, links and Craigslist finds here.