The Housing Bubble

It’s Friday desk clearing time for this blogger. New York, “After years of inflating, the Island’s housing bubble sprang a noisy leak; prices for homes, the largest investments for many Long Islanders, fell in Nassau and rose barely at all in Suffolk. Sensing the crest, more homeowners put their houses up for sale so that inventory backed up and there seemed hardly to be a street anywhere without for-sale signs.”

“Dede Gotthelf, owner of the Southampton Inn, said that the tony resort seemed to die in the fall. ‘We are dead as a dodo bird - the entire village,’ she said.”

“South Fork real estate brokers conceded that the market in general has slowed. (Broker) James McLauchlen said that 115 properties had changed hands in 2004. In 2005 the number reached 125 sales or trades. This year, only 65 properties were exchanged.”

“‘Those with money don’t want to be the last one who paid the most’ for a property here, (broker) Paul Brennan said. Even the very rich do not want to appear foolish.”

From New Jersey. “Having prices down from their high point is good news for consumers, said Dan Shiver, president of the Passaic County Board of Realtors. ‘More people can afford to get into the marketplace. The market has not crashed; it’s just softened,’ Shiver said. ‘For lack of a better word, it’s more normal.’”

“Maine real estate sales tumbled into the double digit range last month as decreases in prices and sales followed a national track downward, an industry group said Friday. Maine real estate agents emphasized the brighter side of the housing slump.”

“‘Buyers are in a better position than they were a year ago by not having to make an on-the-spot decision to buy a house,’ said John Hatcher in Portland.”

“The Massachusetts Association of Realtors reported yesterday that the 3,246 houses sold in November needed 130 days on average to attract buyers. That’s the longest period ever seen since MAR began keeping such data in April 2005, and association President David Wluka thinks it’s probably the longest period in history.”

“‘My gut is that it’s the highest (time-on-market figure) ever,’ Wluka said. The expert also said the 53,105 unsold houses and condos listed for sale last month probably represent the biggest November inventory ever, although MAR records only go back to 1997.”

From Wisconsin. “The stateline area’s real estate market may be ‘disinflating,’ said Russ Kashian, an author of the center’s Stateline Economic Report, but it’s never been a bubble in danger of bursting. ‘It can be argued that this is a correction,’ he said. ‘A decline in sales in the years following a record is not necessarily a failure. It is possible to view the slowdown as a reversion to the mean rather than a collapse.’”

“Sales of previously owned homes in Greater Cincinnati plunged 13.5 percent in November, the Cincinnati Area Board of Realtors said Thursday. It was the seventh straight monthly decline in year-to-year comparisons.”

“‘Some buyers are simply taking a breather from the housing market this year,’ said Dave Otto, president of the Cincinnati Area Board of Realtors. ‘It’s happening nationwide.’”

From Washington. “The Seattle-King County Association of Realtors has about 8,800 active members, up more than 80 percent from 1999. The state Department of Licensing reports there are 13,747 licensed real estate salespeople in King County.”

“A growing number of agents are trying to distinguish themselves. Dominic Canterbury, owner of (a) Seattle marketing and public relations firm, said niche real estate marketing can work, if done right. ‘Most agents are awful with their marketing,’ he said. ‘That’s why they’ve sort of become the used car salesmen of our time.’”

“An industry group said homeowners eager to unload their properties in a crowded market cut their prices. While recent signs have led some economists to speculate that the worst of the housing slump has passed, many are taking a wait-and-see approach, including those at the Realtors association.”

“‘Maybe we’ve hit bottom,’ said David Lereah, chief economist of the Realtors association. ‘I’ll need another month before I can get comfortable with that statement.’”

The Camarillo Acorn reports from California. “The housing market softened in 2006 but professionals aren’t anticipating a long-lasting slump. The market is only normalizing itself, experts say. ‘The circumstances bringing the real estate market into balance are happening unusually quickly,’ said Glen Scalise, president of the Conejo Valley Real Estate Association.”

“‘The general trend is that sales of existing homes are down by 30 percent or more,’ said Bill Watkins, executive director for a research program of the University of California at Santa Barbara.”

“John Murray, a Realtor who sells homes throughout the area, said the housing market has definitely softened. ‘I have seen prices drop from 5 to 10 percent versus earlier this year in a number of areas,’ Murray said.”

“Because of the declining market, some homes are now valued at less than what the owners paid for them. Short pays, in which lenders forgive all or a portion of a debt to make up for loss of equity due to decreasing house values, are becoming more common, Murray said. ‘Part of the problem has been the prevalence of interest-only loans,’ he said.”

“Developers are making some concessions to sell homes quickly, but don’t appear overly worried about future demand. ‘The market goes up and down, but developers are used to this,’ said Dave Bobardt, planning manager for the city of Moorpark where several large tract housing developments are underway.”

“Prices also are leveling off in Simi Valley as properties stay on the market longer, said Linda Enderson, a director on the Simi Valley-Moorpark Association of Realtors. ‘It’s more like a normal market,’ Enderson said; lower priced homes sell more quickly. ‘A couple of years ago you couldn’t find a single-family home under $500,000, but now you can.’”

“In the Conejo Valley, the market is being driven by supply and demand basics, said Russ Watson, housing manager for Thousand Oaks. ‘Homes stay on the market a bit longer than they used to, and that causes pressure to reduce the price a little,’ Watson said.”

The New York Times. “The Napa Valley ranch house, built in the 1970s, wasn’t much of a looker. And with a price tag of nearly $1.4 million, it wasn’t cheap either. But its location on Highway 29, on an acre of land in St. Helena caught the attention of Jocelyn Singh.”

“‘We ended up getting it for $975,000,’ said Ms. Singh, noting that the seller’s final price wasn’t too far from her initial offer of $950,000.”

“Thirty percent price cuts in asking prices for homes aren’t the norm, but stories like this, with sellers willing to negotiate or even drop their asking prices, are increasingly popping up in suddenly cooling vacation home markets.”

“Since different factors motivate sellers of second homes, they simply might take their homes off the market or wait longer to reduce prices. ‘That’s one of the reasons the price effect can lag,’ said Cynthia Kroll, an economist at the University of California, Berkeley. ‘It can take awhile for the sellers to accept the reality of lower prices.’”

“The National Association of Realtors predicts that 30 percent of all home sales for 2006 will have been second homes, down from 40 percent last year, and attributes much of that drop to the exit of investors.”

“And the places that saw the biggest influx of investors and the most heated activity are likely to see the biggest price drops. ‘Areas that had the highest appreciation and that were the hottest can cool the most,’ said Edward E. Leamer, an economist at the University of California, Los Angeles.”

“In Northern California, ‘properties under $1 million have reverted back to last year’s prices,’ said Mike Silvas, the owner of a real estate agency with offices in wine country and in coastal areas of Northern California. ‘The Carmel market is the one that has really ground to a halt. Prices got to more than $1,000 a square foot and buyers finally balked.’”

“In Carmel, prices were off 5 percent this year through October, said Mark Wilson, an agent with Morgan Lane in Carmel. Properties in Monterey County, which includes Carmel, are sitting on the market for an average of 113 days, more than twice as long as a year ago.”

Some housing bubble news from Wall Street. The Chicago Tribune, “About 500 Chicago-area workers at LaSalle Bank Corp. and other ABN Amro Bank NV businesses will lose their jobs by mid-2007 as its Dutch parent company looks to cut costs in a competitive environment. ABN Amro has struggled to control costs because the addition of customers in new markets has forced it to set aside more money for loan defaults.”

“And more cuts in the industry may be in the offing, said George Morvis, CEO of Hinsdale-based bank consulting firm Financial Shares Corp. ‘You’ll continue to see more banks get more efficient as business continues to be tough, especially on the retail side,’ he said.”

The Sun Times. “Layoffs are also expected at Harris, Chicago’s third-largest bank, though the timing and the numbers are not yet known, according to spokeswoman Amy Yuhn.”

“Yuhn said that as part of a large cost-management effort across Harris parent Bank of Montreal, jobs will be lost and ‘Harris is not immune.’”

“Harbourton Mortgage Investment Corp., Mclean-based Harbourton Capital Group’s wholly owned mortgage banking subsidiary, stopped funding new mortgage loans and began winding down its operations.”

“The company, which funded $1 billion in loans in 2005, says it was forced to make this move as it was unable to resolve mortgage purchase claims made by its investors who had bought mortgage loans from HMIC.”

“Harbourton Capital Group is likely to write off its full investment in the mortgage company. Harbourton already has taken significant losses this year as a result of the mortgage operations.”

“For the first nine months of 2006, Doral Financial had a net loss of $62.5 million. Doral Financial’s financial performance for the third quarter of 2006, compared to the third quarter of 2005, was principally impacted by (1) lower net interest income as a result of a decrease in net interest spread and margin together with a decrease in the balance of interest-earning assets, and (2) non-interest losses driven primarily by losses on securities held for trading, a servicing loss and lower gains on sales of mortgage loans.”

“The reduction in average interest-earning assets reflects the sale during the second quarter of 2006 of approximately $2.4 billion in mortgage loans as part of a previously reported restructuring of loan transfer transactions with a local financial institution. It also reflects the discontinuance of the practice of purchasing whole loans for subsequent securitization into mortgage-backed securities.”

“Doral Financial’s loan production for the third quarter of 2006 was $329.1 million, compared to $1.4 billion for the comparable period in 2005, a decrease of approximately 76%. The decrease in Doral Financial’s loan production is due to…changes in the underwriting standards…and competition from other financial institutions.”

From Bloomberg. “Low-rated bonds created by Lehman Brothers Holdings Inc. this year through four securitizations of mortgages and home-equity loans to the riskiest U.S. consumers may be cut by Moody’s Investors Service.”

“The potential for losses has ‘rapidly increased’ as consumers face financial difficulties, Moody’s said. Ratings on Lehman bonds from three securitizations of ’sub-prime’ home loans made last year also were put on Moody’s list of possible downgrades. A total of 30 bond issues with $416 million in balances were affected.”

“The Lehman bonds ‘caught our attention’ because of the high levels of late payments and foreclosures piling up early in the loans’ lives relative to the protection for bondholders they carry, according to Nicolas Weill, a managing director at Moody’s.”

“‘It’s hard for us when we just see the numbers to conclude’ why mortgages in specific recent deals, such as Lehman’s, are performing especially poorly, Weill said.”

“Defaults on sub-prime adjustable-rate mortgages made and securitized this year surged 27 percent last month, remaining at the highest level for new loans in five years, Friedman Billings Ramsey said. About 3.2 percent of sub-prime ARM loans, the most common type, were delinquent by 90 days or more, in foreclosure or already seized property, according to the investment firm.”

“As of Nov. 1, about 11 percent of the loans backing one of the securitizations, SAIL 2006-BNC2, were at least 30-days late, with 3.6 percent foreclosed upon, according to a securities filing. Some of the 30 bonds being watched by Moody’s still offer protection to investors similar to what they started with, despite ‘not having had a pretty start,’ Smith said.”

“Anaheim, California-based Fremont’s loans were the fourth- worst performing after the adjustments, while bonds issued by Goldman Sachs, General Electric Co.’s WMC Mortgage unit and Morgan Stanley were the worst, according to UBS. The adjustments reflect things ratings firms consider in assigning ratings.”

“The findings probably mean the ‘watched Fremont deals represent the tip of a wave of potential downgrades of the 2006 deals,’ the firm said.’

From Manufacturing.net. “A slowdown in home building is likely to end the record run enjoyed by lumber manufacturers over the past four years. The Western Wood Products Association said in its forecast that lumber demand fell in 2006 and is expected to slow further during 2007.”

“‘While home prices will still fall in some areas, we think that housing starts and home sales are nearing a sustainable rate,’ said Kevin Binam, the association’s chief economist. ‘But construction is going to be lower than we’ve seen in the past few years and that will mean less demand for lumber.’”

The LA Times. “KB Home has dropped plans for now to build a subdivision upriver from New Orleans, a proposed project that was to be one of the largest housing developments in the hurricane-ravaged Gulf Coast region. The Los Angeles company said Thursday that it let expire a contract to jointly purchase 3,000 acres of farmland west of New Orleans.”

“Developers had hoped to build as many as 12,000 homes. ‘We’re really committed to the area, but things didn’t work out,’ KB Home spokeswoman Caroline Shaw said.”

The Star Tribune reports from Minnesota. “In a stagnant housing market, optimists already are calling 2007 the year of recovery. ‘To me, the stars are all starting to align,’ said Todd Shipman, outgoing president of the Minneapolis Area Association of Realtors. Is that shameless optimism or an educated guess?”

“The market will face plenty of challenges during the coming months, including increasing mortgage foreclosures, stagnant home prices and a glut of homes for sale. ‘It’s going to be a slow recovery,’ Shipman said.”

“The theme of the coming year will be absorption, as sellers step back to avoid stiff competition and buyers step forward to take advantage of low interest rates and seller flexibility. George Karvel, professor of real estate at the University of St. Thomas in St. Paul, said that during the recent five-year run-up in prices, future demand was satisfied, leaving a dearth of buyers and too many listings.”

“At the end of the December, a seven-month supply of existing homes was on the market in the Twin Cities metro area, according to the Minneapolis association’s weekly housing-supply outlook.”

“‘I think we’re all feeling quite cautiously optimistic that the worst is behind us,’ said Wendy Danks, marketing director for the Builders Association of the Twin Cities.”

The Journal Sentinel from Wisconsin. “Mortgage foreclosure lawsuits in the five-county Milwaukee area are up 33% over last year, putting more than 5,000 households in jeopardy of losing their homes, court records show.”

“The largest number of foreclosure actions has occurred in Milwaukee County, where nearly 3,600 such lawsuits have been filed this year, compared with 2,702 in 2005, also a 33% increase.”

“In Washington and Waukesha counties, the number of foreclosure suits increased 49% and 30%, respectively. In Ozaukee County, 14 sheriff’s foreclosure auctions are scheduled for next month alone. For all of this year, Ozaukee County had 30 such auctions.”

“‘Families’ incomes did not keep pace with everything else that was happening, and the final victim was the houses,’ said Kathryn Crumpton, manager of the non-profit Consumer Credit Counseling Services of Greater Milwaukee. ‘I tell them that they are being held hostage by their mortgage payment. It’s just way more than they can afford.’”

“Doug Gordon, president of Wauwatosa Savings Bank, said homeowners without significant equity in their homes are less likely to try to stave off foreclosure. ‘They don’t tend to fight to keep them as much,’ Gordon said. ‘Mostly, there’s not as much of an incentive to save the house because the person doesn’t have much in it.’”

“Borrowers with minimal equity in their property are becoming more common, he said. ‘I don’t think that we have ever experienced as high loan-to-value mortgages as we have today,’ Gordon said.”

“During the heady days of advancing home prices, many people tried to get as much house as they could, and some stretched beyond their financial means, according to the managing principal and portfolio manager of an investment firm that specializes in bank stocks.”

“‘People said, ‘If I don’t buy today, that house is going to cost about 10% more in six months,’ said Robert C. Ollech of Fortress Partners Capital Management Ltd. in Hartland. ‘That was the go-go attitude two or three years ago, but that has come to a screeching halt,’ he said.”

From CNN Money. “Mike and Mary Ott thought they had a good plan. They would sell the mobile home they owned outside Montello, Wisconsin, and buy a house in town. Well, they bought the house they wanted, but they didn’t sell the mobile home. Now, thanks to the housing slump, they have two homes, only one of which they can really afford.”

“‘We have just enough extra every month to cover the new mortgage,’ says Mike Ott.”

“In early 2006, the two started looking seriously for a new house. After a couple of months the Otts agreed to buy a four-bedroom, two-bath built in 1905 with a modern addition. The Otts put their mobile home up for sale in February. They didn’t want to rent a place during any gap between selling their old place and moving into the new one, since that would mean having to move twice. So they didn’t push the sale of their house very hard. Perhaps they should have.”

“Their real estate agent suggested a $42,000 price, which the Otts thought was too high. They priced it at $39,500 and then $37,500. They got some lookers and even a couple of offers, but those deals fell through. Now the home is priced at $32,000, just $1,000 more than Mary paid for it nearly six years ago.”

“During the past six months or so, the market has cratered. ‘The market is pretty slow,’ says Mike, ‘and getting slower every day.’”

“When they put their home on the market there were a couple of neighbors selling their mobile homes also. Since then, more and more for sale signs have appeared on lots all over the park. As August approached, the couple started to fear that they would have two houses and few options.”

“‘The park doesn’t allow us to rent,’ says Mike. ‘Our stress levels rose as the closing date came nearer.’”

“The Otts are fortunate that they can just afford to carry both places. ‘We’re just able to make the payments on both places,’ says Mike. But if there’s an emergency or an unexpected expense they don’t have the cushion the money from the sale would provide.”

The Herald Tribune reports from Florida. “Sarasota-Bradenton home sellers are cutting prices so aggressively that the median sales price was 18 percent lower this November than last, the biggest drop in the state. The median sales price for Sarasota-Bradenton fell from $343,600 in November 2005 to $281,900 last month.”

“After asking $549,000 for their Venice home starting in June, Cindy Gerber said she and her husband did a discount MLS listing of their own at $397,000. They really needed to sell, since they have purchased an English Tudor near Johnson City, Tenn.”

“‘We needed to move on, and we said, ‘The only way to do it is to take a loss and go,’ she said.”

“The Charlotte County market has so frustrated Dave Bonham that he moved his family to Idaho. He has been trying to sell his house since August 2005, and so far all he has to show for it are four price reductions and one failed deal. ‘We just had a little bit of poor timing there,’ said Bonham. He got it appraised for $285,000 and listed it for $279,000. Two expired listings and an attempted auction later, his price is $219,000.”

“‘Nothing has really changed as far as people moving here,’ said Bonham. ‘The difference, is where each buyer had three houses to choose from, suddenly each buyer has 30 houses to choose from.’”

The Miami Herald. “South Florida home sellers dropped prices last month to combat a buyer’s market that has taken firm hold of the real estate industry this year. ‘If you look at the skyline, a lot of those buildings have not been finished,’ real estate analyst Jack Winston said. ‘We know 70 to 80 percent of those buyers were speculators. They’re going to have to face the music.’”

“Broker Andy Weiser recently closed a deal for a condominium in Fort Lauderdale’s upscale Victoria Park neighborhood that sat on the market for eight months with a $319,000 price tag. When the seller agreed to drop the asking price down to $295,000, the two-bedroom unit sold within two weeks for $290,000.”

“‘If sellers aren’t repositioning their property to reflect current conditions, they’re out of their minds,’ said Weiser. ‘I’m pricing things approximately 10 percent less than I was pricing things last year, which doesn’t make everyone happy — especially if you bought last year.’”

The Ledger. “Polk County’s existing home sales have: dropped, declined, slumped, plummeted, fallen and tanked. How ever you want to describe it, the sales figures have done it for the sixth consecutive month. ‘It’s obvious we have a lot of inventory,’ said Meg Loftheim, a Realtor in Lakeland. ‘We have buyers out there, but I get the feeling that they are waiting for something to go lower.’”

From Florida Today. “The median sales price for an existing single-family house in Brevard County was down 18 percent from $248,700 in August 2005, when local housing prices peaked, statistics show.”

“In many cases, people ‘have to realize they can’t sell their house for what properties have been selling for in 2004 and 2005,’ said Betty McCluskey, broker in Suntree. ‘They have to be realistic, and bring prices down to attract buyers, because there’s a vast inventory of houses and so much competition.’”

The Sun Sentinel. “Broward County existing home sales and median prices kept declining last month. The county’s median price was $362,000 last month, down $29,100, or 7 percent, from a record $391,100 in November 2005. As the inventory of homes piles up, many sellers are getting nervous and slashing prices to attract buyers.”

“‘Sellers are in a place where they haven’t been for a number of years — over a barrel,’ analyst Mike Larson said.”

“Marilynn Obrig, an agent in Fort Lauderdale, said she sees real estate speculators putting their homes back on the market, which is affecting inventory. ‘Buyers seem to be waiting to see when the bottom’s going to be,’ she said.”

The Palm Beach Post. “The median price for an existing single-family home sold in November in Palm Beach County was $370,400, down 12 percent from the November 2005 peak of $421,500. The number of homes sold plunged 45 percent in Palm Beach County, with 525 sales last month compared with 952 in November 2005. In central and northern Palm Beach County, more than 22,000 houses and condos were on the market in November, double the number in November 2005, said Bob Graeve, an agent in Palm Beach Gardens.”

“‘We still have a bunch of inventory, and until it’s absorbed prices are going to be soft,’ Graeve said.”

“(Broker) Douglas Rill in West Palm Beach, sees trouble in the glut of listings. About 31,000 homes and condos are for sale in all of Palm Beach County, dramatically more than the 7,000 homes on the market in late 2004. Sales aren’t keeping pace with the growing number of for-sale signs. ‘It’s still very, very quiet,’ Rill said.”

The Orlando Sentinel. “The weakest metro area was Naples, with a 45 percent plunge in sales and the median falling 13 percent to $415,200. ‘It’s difficult to sell an existing home because of all the competition from new home builders,’ said Dean Palombi, a broker in east Orlando. Palombi said the area he specializes in, Stoneybrook, Eastwood, Waterford Lakes and Avalon, probably has at least 1,000 homes for sale within five miles. But most sellers, he said, either will not or cannot slash their prices.”

“‘Part of the reason is that a lot of people went in and financed at 90 percent and they can’t just give it away for 20 percent less,’ he said.”

The News Press. “The number of existing homes sold in November in Lee County was 637, down from 1,084 in December 2005. ‘They’re continuing to wait to see how low this market will go,’ said agent David Drabik. ‘They’ll go out and look and want to make an offer and they’ll go home and say, ‘I’ll think about it.’ They’re waiting to hit the absolute market bottom.’”

“Although prices have fallen, analyst Jack McCabe said, ‘it’s a much better time to rent. You can rent a property for 55 to 70 percent of the ownership costs would be, even factoring in your federal income tax deduction.’”

“Besides, he said, ‘there’s a huge credit bubble out there right now’ with about $2 trillion worth of adjustable-rate mortgages that will have to be adjusted to current market rates in the next two years. That could trigger a wave of foreclosures as people have to give up houses they no longer can afford, McCabe said.”

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