The Housing Bubble

The Tribune News reports from California. “Those looking to buy a house in San Luis Obispo County in 2007 are expected to have a lot to choose from, while those trying to sell may have to lower their prices to stay competitive. The softening housing market of 2006 is expected to continue into 2007, real estate experts say.”

“In 2006, homes took longer to sell than in previous years, leading to a large number of homes on the market. In San Luis Obispo County, 216 homes sold in November, a drop of 38 percent from the previous year when 351 homes sold, according to DataQuick.”

“The high inventory may have led to the median home price dropping for the first time in eight years. September marked the first time it had dropped since December 1998. It decreased again in October and November.”

“The median home price in November was $512,000, according to DataQuick. That’s a decline of 8.4 percent from November 2005 and down from October’s median price of $545,000.”

“‘Buyers should be able to negotiate a little harder to what they think is a good price,’ (realtor) Lenny Jones said. ‘Sellers can expect a lot of competition. Put it on the market at a good price, not a pie-in-the-sky price.’”

“That’s not to say prices are expected to drop drastically. ‘I don’t think we’re going to see huge price reductions,’ agent Richard Watkins said. ‘It’s sort of a nontraditional market.’”

“‘Generally, 2006 was not a banner year,’ Watkins said. ‘But if you go back and look at the last 10 years, it wasn’t that bad.’”

The Sacramento Bee. “We did OK in our predictions for local business doings in 2006. Here’s the report card: Prediction: Developers offer a new proposal for housing and retail at 10th and K streets. Reality: Retail, yes. Housing, no. Prediction: A proposed 21-story project combining lofts, office and retail gets under way at Eighth and I streets. Reality: Nope. Homebuilder D.R. Horton pulled out of the project.”

The Daily Bulletin. “The for-sale signs are up longer now and there are many more of them. You don’t have to be an expert to know that the Inland Valley’s phenomenal housing boom is over.”

“‘There’s no question the boom is over,’ said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.”

From the Reporter. “The nation’s house party ended with a thud in 2006. The sudden stall in home sales, home construction and home prices was voted the top business story of the year by U.S. newspaper and broadcast editors surveyed by The Associated Press.”

“In 2006, home builders scuttled projects, would-be buyers canceled orders, and the re-sale market hit landmark lows.”

“‘The experienced agents are telling me this is one of the worst markets they’ve seen,’ (broker) Sue Kappel told The Reporter. ‘It used to be get listings, get listings, get listings. Now it’s find buyers, find buyers, find buyers. The paradigm has shifted.’”

“In Solano County, home prices are falling, and sales are now taking an average of nearly three months. Meanwhile, short sales, when a home is purchased for an amount less than the debt owed by the seller, are reportedly on the rise.”

“Bob Solomon, of Vacaville’s Solomon & Associates Real Estate, noted that of his company’s four listings in mid-December, three were short sales. It’s an increasingly common phenomenon, he said, given current market conditions and depending on when home owners purchased their house, what type of mortgage they chose, and whether they’ve spent their equity.”

“‘It could be the best of times or the worst of times, depending on where you are in the game,’ Solomon said. ‘If you bought your house two years ago and you bought it with 100 percent financing and you didn’t see any appreciation, you’re going to be upside down by the time you try to sell the house.’”

The Review Journal reports from Nevada. “Median prices for new homes in Las Vegas continue to rise in November, but at least one analyst believes incentives are keeping those prices high. ‘Factoring out sales incentives offered by most home builders, new home prices would probably be down by double digits, said Dennis Smith of Home Builders Research.”

“‘Home builders that have more standing inventory will be more likely to have larger sales incentives and therefore have seen their prices decline more than those that had fewer standing inventory homes,’ Smith said.”

The Las Vegas Business Press. “Lagging homes sales are weighing on the Southern Nevada economy but they aren’t causing a recession, according to the UNLV Center for Business and Economic Research. Eight out of 10 leading economic indicators declined for the second month in a row.”

“Residential construction permits are off almost 40 percent from last year, and the value of those permits dropped by more than 41.3 percent from 12 months before. The Las Vegas Valley may have become ‘the poster child for an overbuilt housing market,’ remarked CBER Director Keith Schwer.”

“As for recession talk, Schwer put the odds of a national downturn at 25 to 30 percent, but noted, ‘If the national economy goes into a recession, we are not immune.’”

The East Valley Tribune from Arizona. “The Valley’s new home market continued to sag in November, as building permits and sales slumped. Builders took out 1,985 permits for homes last month, down 55 percent from the same period a year before, according to real estate analyst RL Brown.”

“Some 40,125 new home permits were issued in 2006 through November, a 31 percent decrease from last year. ‘The market basically is still reacting to the surge of speculative buying that we saw in 2005 and the first part of 2006,’ Brown said.”

“That resulted in a wave of building contract cancellations when investors grew nervous, he said.” “Hundreds of lots of land have been graded in subdivisions throughout the Valley, but few homes are actually being framed, Brown said.”

“About 43,800 homes are currently up for resale, down from a peak of roughly 48,000 two or three months ago, said Robert Rucker, CEO of the Arizona Regional MLS.”

“Builders have been offering incentives and have cut way back on production, said John Fioramonti with Hanley Wood. ‘The builders are finally coming to grips with reality here,’ he said.”

“Homeowners and builders alike are reducing prices, he said. During the housing boom, home price appreciation rates weren’t sustainable, said Ross Smith, VP at commercial brokerage Grubb & Ellis.”

“‘As the prices went up, people got to the point where they weren’t willing to pay those prices,’ Smith said. When the slowdown hit, some new homebuyers canceled contracts with builders, and others couldn’t sell their old homes to buy new ones, he said. Now, sellers are adjusting their prices or taking their homes off the market, and builders are clearing out excess inventory, he said.”

The Arizona Republic. “A downturn in the housing market is forcing budget cuts in Queen Creek. Facing lower-than-projected revenue from a construction sales tax and building permits, town departments are being told to prioritize projects and shave spending by 15 percent.”

“Council member Lisa Coletto-Cohen said she isn’t sure what will happen. Coletto-Cohen said road projects already promised to residents need to be a priority. ‘I think it’s imperative that we look at ways to develop a revenue base that doesn’t fluctuate and isn’t so dependent on construction,’ she said.”

“The seller’s market of 2005 sharply reversed itself to a buyer’s market in 2006, and Chandler homes became harder, much harder, to sell.”

“Since summer, homes have been selling at their slowest pace in at least four years. In recent months, only about 15 percent of the homes on the market at any time are selling. The MLS listed about 2,160 homes for sale in the city this week.”

“Ahwatukee homeowners saw home values soar in 2005, but like everywhere in the Valley, the market saw big corrections this year.”

“The median price for existing homes, which was a relatively meager $204,000 in 2003, reached close to $400,000 in 2005, but fell back to $347,000 in November. They remained above $342,000 for all of 2006, according to Arizona State University Polytechnic.”

“Despite the downturn, buyers are still balking at what remain high prices. In the last few months of the year, only about 100 homes a month have been selling, and there are at least seven times that many on the market in Ahwatukee Foothills.”

“Sales of existing homes in Scottsdale are on track to reach about 5,200 in 2006, down nearly 40 percent from last year’s torrid pace. Sales of existing condominiums and townhouses are on track to hit just over 2,900, down a third from 2005.”

“A Southern California homebuilder plans to breathe new life into five Pinal County subdivisions, which were abandoned months ago by a bankrupt Phoenix developer.”

“Frontier Homes agreed to purchase the housing developments in Casa Grande and Maricopa, totaling 430 home sites, for $29 million during a U.S. Bankruptcy Court auction last week.”

“Some 132 homes are in various stages of construction at the sites, left unfinished by bankrupt Turner-Dunn. Half finished homes and auction signs can hurt the value of homes in the entire area, which has several other new projects by other homebuilders, said John Russell, a Casa Grande real estate agent.”

“People wonder if they want to move into an area like that, he said.And then there are the people who already bought homes in the largely-vacant subdivisions.”

“‘You just feel awful for them,’ Russell said. ‘They have no neighbors, and there are homes in various stages all around them.’”

The Naples News reports from Florida. “Collier County single-family existing home sales dipped from 333 in November 2005 to 182 last month, a 45 percent decrease. Median sales prices for homes dropped by 13 percent from $479,800 in November 2006 to $415,200 last month. But it’s really not a dismal picture, if one approaches the numbers and patterns logically and systematically, said Realtor Brett Ellis in Fort Myers.”

“The market is leveling off to what it was in 2002 and 2003, before home sales and prices went crazy, Ellis said of Lee County sales. ‘This is positive,’ Ellis said Friday.”

“Naples Realtor Phil Wood is optimistic about sales. ‘Actually, this year looks like it could be the third best in history, a little ahead of 2003,’ Wood said.”

The Sun Herald. “This year saw a sudden slump in the housing market. Barbara Rainey, North Port’s Building Department’s administrative division manager, predicts within six months the city will begin to experience a slowdown in as it reflects with this year’s building permits.”

“Many homeowners who tried to refinance their homes found out their appraisals came out much lower than they was before the market slump. Many others who have tried to sell their homes, have had them on the market for more than eight months.”

“Real Estate investors also have seen the value of their investments drop. Building lot sales have slowed down. Recent data provided by a local Arthur Broslat, a Realtor in Murdock, said in November, there are 2,986 lots in North Port on the market, and only 10 have been sold.”

“Property owners are also having issues with their tax bills. According to Broslat, many of these tax bills were 100 percent higher than last year. This has also added to downward prices as many owners do not want to pay high taxes on land that has been losing value, Broslat said.”

The Tampa Tribune. “Frank Gregoire, a St. Petersburg property appraiser, couldn’t help but chuckle when an appraisal request came through his fax machine this month. It was sent by a California loan originator, and the message was clear: ‘Please call if unable to attain this value BEFORE INSPECTION.’ Photos of the property, the request said, could not include ‘unfinished construction or damage.’”

“Gregoire knew right away that the loan company was trying to influence his valuation of the home. ‘It was the most blatant request I’ve seen,’ said Gregoire, who is chairman of the Florida Real Estate Appraisal Board. He said he’s seen a recent spike in unethical requests like the one from California.”

“Professional appraisers say they’re under more pressure to value homes at specific, and often inflated, amounts. This type of fraud requires a string of real estate professionals willing to go along. A key to the scheme is having an appraiser willing to overvalue a property.”

“‘Without an appraiser coming in at the magic number, the fraud is stopped in its tracks,’ said Tampa police Detective Jim Bartoszak, who’s working on several loan fraud investigations.”

“Appraisers in such deals usually get little more than their typical appraisal fee of $300 to $500. So why would appraisers risk their licenses for so little? Richard Powers, president of the Appraisal Institute, said appraisers are tempted to overvalue a home when they’re starved for work.”

“Now that the market has cooled, there isn’t enough work to go around. ‘Appraisers who do this are often guaranteed more work from the client,’ Powers said.”

“The pressure to inflate an appraisal, he said, comes from mortgage brokers, loan officers and real estate agents, who are also competing for work in a slow market.”

“Phillip Wallen said such pressure prompted him to leave the business. Wallen worked as an appraiser in Pinellas County for 12 years and owned his own business. ‘Every day I would get calls that I needed to do an appraisal for X amount,’ Wallen said. ‘There are so many appraisers out there willing to give out whatever value a client wants. That makes it tough for the honest appraisers to compete.’”

“Scott Murphy, who owns an appraisal company in Sarasota, said it’s the loan officers that have pressured him to come up with a value to justify a sales price. ‘An appraiser may agree to go up 10 to 15 percent to ‘prove’ a value for a loan officer,’ Murphy said. ‘Before you know it, they get more and more business, and they’re committing serious mortgage fraud.’”

The Herald Tribune. “The sentencing of Taya Parodo closed the judicial door on Todd Kolbe’s scheme of artificially inflating property prices to defraud lenders.”

“Of the eight people involved in the scam, Parodo is the sixth to be sentenced. Parodo acted as closing agent through her Bradenton-based title insurance company. Kelly Abercrombie, a Sarasota mortgage broker was sentenced to 15 months in prison. Mary Bolan, a Manatee County real estate agent, got six months, while Amy Samelson Kolbe was sentenced to four years’ probation for her role as a straw buyer.”

“Properties in Sarasota and Manatee counties were purchased for one price and sold to other members of the gang at much higher prices. In the process, Kolbe and other members of his gang produced fraudulent appraisals, earnings statements, income tax returns and rental agreements.”

“The bogus loans were ultimately exposed by Fannie Mae, the giant government-backed mortgage company, after the loans had been sold in the secondary mortgage market.”

“Home Star Mortgage Services, a New Jersey-based mortgage lender that Kolbe worked for, was forced to repurchase the loans, foreclose on the underlying properties and sell them at a $1.8 million loss.”

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