The Housing Bubble

The Contra Costa Times reports from California. “Housing production slumped in San Mateo, the East Bay and California during November, according to a report. The number of building permits pulled in the San Francisco-San Mateo-Redwood City area by developers plunged by 77 percent in November 2006 compared with the same month in 2005. In the East Bay, the number of building permits fell by 43 percent during that period.”

“Statewide, the number of building permits issued in November lurched lower by 34 percent year-to-year, the California Building Industry Association reported.”

The North County Times. “A statewide building trade association reported that building permits for single-family and multifamily homes plummeted by 58 percent in November over October in the San Diego-Carlsbad-San Marcos metropolitan area. The number of permits fell 57 percent from November 2005 to November 2006.”

“For the first 11 months of last year, permits in the area were down 30 percent from the same period a year earlier, the association said.”

The Fresno Bee. “The housing downturn was not unexpected in 2006. But the severity of the fall was a surprise to some real estate agents. ‘The sudden screeching of the brakes caught people by surprise,’ said Joan Jolly, president of the Fresno Association of Realtors. ‘We expected slowing appreciation, but it was not expected to come to such a grinding halt.’”

“Through Dec. 20, 3,648 homes had changed hands in Fresno and Clovis, a 30% fall from the 5,204 transactions in all of 2005, according to association figures. Prices held their own, and even climbed some early in the year before heading down. Values fell by some estimates up to 15% in some neighborhoods and price ranges over a period of three to four months later in the year.”

“Home builders also suffered this year. Investors, sensing appreciation was running its course, pulled out in late 2005 and early 2006. ‘They pulled back, and that was the beginning of the domino,’ said Mitch Covington, president of the Building Industry Association of the San Joaquin Valley.”

“‘It was a year of adjustments,’ Jolly said of 2006. ‘Homeownership was never meant to be a commodity where you buy today and sell tomorrow, expecting to make a killing,’ Jolly added.”

The Lodi News. “Sellers will be adjusting home prices to accommodate for a slowing housing market in the coming year. And buyers will have more options than they’ve had in nearly a decade, according to analysts.”

“For renters and landlords, a similar slowdown is expected, according to Eileen St. Yves, who sits on the board of the San Joaquin County Rental Property Association. She said it can be difficult to find qualified tenants because lower income families are buying homes.”

“In addition, there are more rental properties available because those who can’t sell their homes often turn their home into a rental property as a way out. St. Yves said that just as with selling a home, landlords should price their rentals for a slowing market.”

“‘In 2007, the most important thing anyone can do is price right,’ she said.”

From KCBS AM. “This year is predicted to be a bad one for those either looking to buy or sell a home in California. Construction, sales and prices will keep plunging, according to economist Chris Thornberg.”

“‘I am extremely negative about 2007,’ Thornberg said. ‘I see foreclosures going up in 2007.’”

“Thornberg said those in the most trouble are newer home owners whose mortgages will re-set this year. ‘There are a lot of people out there who are in trouble, who were promised that real estate could be a no-lose investment,’ he said.”

“In fact, Thornberg sees the entire California economy for 2007 in a negative light. When asked why, he said the state is in a completely unsustainable situation. ‘Consumers cannot continue to spend more than they earn,’ he said.”

The Sierra Sun. “The number of property foreclosures in the Truckee-Tahoe area is lower than state and countywide trends, but experts say the market is vulnerable to outside influences.”

“Area homes repossessed by lenders are few compared to the western portions of Nevada and Placer counties, which have seen foreclosure rates grow in the last year by 165 percent and 320 percent respectively.”

“Truckee-Tahoe’s isolation is not complete, however, as fluctuating loan rates, the San Francisco bay area economy and real estate values all influence the local housing market. ‘The foreclosure issue up here has — and will continue to be — linked to the economy of the Bay Area,’ said John Falk, spokesman for the Tahoe Sierra Board of Realtors. ‘It has a ripple effect up here, not only for second homeowners but also on resale values.’”

“‘In a normal market, foreclosure bodes for a market under a degree of strain — but with the local values it just bodes well for the buyer,’ Falk said. ‘It may even enter the affordable realm.’”

“Dave Giacomini, broker and owner of Sierra Mountain Mortgage, said they now have their first foreclosure in four years, but he expects to see an increasing trend. He said adjustable rate mortgages have allowed people to pay less than the interest the loan is gathering, and said the rates are adjusting higher.”

“When a property stops appreciating in value, the buyer no longer has the ability to pay the loan, Giacomini said. ‘The amount they owe goes up instead of down,’ Giacomini said. ‘When they owe more than the house is worth they walk away.’”

“‘I think it has to do with the slow housing market — they can’t sell if they are having problems paying and have to let the lenders take it back,’ Giacomini said.”

The Rocky Mountain News reports from Colorado. “A record 19,425 real estate foreclosures were filed in the seven-county Denver area in 2006, 35 percent more than in 2005. Last year’s numbers topped the record set in 1988 by 13.45 percent. ‘It is a problem, a big problem, but it is not the worst it has ever been,’ said Chris Holbert, president of the Colorado Mortgage Lenders Association.”

“‘If everybody groans this is the worst it has ever been, it scares people out of the home-buying market,’ Holbert said.”

“He said people who bought during the previous foreclosure crisis in the late 1980s are the ones who have made the most money on their homes.”

“He also noted that a large percentage of homes that enter foreclosure do not complete the process. In some of those cases, lenders accept ’short sales,’ or less than the mortgage amount for the home, instead of going through with the foreclosure.”

“Holbert said lenders have told him that they are losing an average of $40,000 to $50,000 every time a home goes into foreclosure.”

“Sandy Hume, public trustee for Boulder County, said many experts tell him the foreclosure crisis ‘will get worse before it gets better. Unfortunately, I believe it will, too.’”

The Gazette from Colorado. “What a difference a year makes. In 2005, home construction in Colorado Springs and El Paso County soared to a second straight record-setting year. In 2006, the pace of home building fell to its lowest level in more than a decade.”

“The 2006 slowdown delivered a blow to the construction industry, which employs thousands of carpenters, framers, painters and other workers. Several builders, from local firms Vantage and Classic Cos. to national companies such as Pulte, said they laid off workers when production sagged. The slowdown also was felt among plumbers, electricians and other subcontractors.”

“Heidi and Greg Smith, who own Affordable Plumbing and Heat Inc. in Colorado Springs, said they were hit by a one-two punch in 2006. First, prices for copper and other materials skyrocketed. When the company hoped to offset those higher costs by doing more work, home builders cut back on construction. The result: Affordable Plumbing laid off 26 of 47 employees.”

“‘Instead of the subs being able to recoup the losses, building is down by 25 percent,’ Heidi Smith said. ‘So now it’s a fight to get the work, and you have to bid as low as you possibly can to undercut everybody else to get the work.’”

The Explorer News from Arizona. “The rookie realtor sat at a dining room table covered in brochures and home listings for his first open house. A sign-in sheet contained two names. ‘Those are fake names,’ Charles Durrenberger said. ‘A little trick of the trade. No one’s come by yet.’”

“The five-bedroom house seemed bigger than reality as Durrenberger paced through the home alone, saying things like, ‘Someone please come’ and ‘I wish someone would show up.’”

“Some call it a correction or a buyer’s market. Some call it a bust. Jane White, the owner of the home in Oro Valley Durrenberger wants to sell, just says ‘whatever.’ ‘I’m lucky in a sense because I’m not in a hurry,’ said White, who wants $492,000 for the home built in 2001. ‘The market is going to do what it is going to do. You can’t let it drive you crazy.’”

“White remains optimistic, predicting that the market will improve by spring. ‘Then maybe I can be a buyer in a buyer’s market.’”

“Experts have refrained from calling the state of the market an outright bust, though it seems like nothing less to those in the trenches. Take John, who ran into a wall when trying to sell his family’s home in Starr Pass Heights on the westside. He had a job offer elsewhere.”

“‘We hold open houses and no one shows up. We get two visitors a week, but no offers. We advertise like crazy, but without much response. I don’t know what to do next,’ John wrote.”

“The frustrated seller purchased the home for $300,000 in November 2005. Even though a realtor advised him to price the home at $375,000, John has lowered his asking price to $289,000. Still no buyers. ‘I’m definitely going to lose $30,000,’ John wrote, wondering what to do next. ‘Keep it at the insanely low price where I’m losing my shirt and wait for a buyer to come around? Try to find a renter and wait out this downturn?’”

“Production builders have been hit the hardest, said Alex Jacome, government liaison for the Southern Arizona Homebuilders Association. Rumors have swirled about people walking out on home orders and down payments. ‘I’ve heard some talk about people backing out on sales, but I haven’t seen anything concrete,’ Jacome said.”

“Nonetheless, construction workers have lost their jobs. ‘Not hordes of them, but there have been some layoffs,’ Jacome said. ‘We’re all just waiting for 2007 when this thing corrects itself.’”

“Richmond American recently abandoned two high-profile projects in Marana. The builder based its decision on an unattractive market, according to sources with the town of Marana.”

“The Tucson housing market has ‘all but stopped,’ according to University of Arizona’s economic forecaster Marshall Vest. Sellers have unrealistic price expectations and buyers think prices are plummeting ’so why buy now?’ Maybe buyers read the newspapers and sellers do not, Vest joked.”

“More than 9,000 homes in the region remain listed for sale. Inventory numbers have stayed about 66 percent higher than 2005 levels. Almost 40 percent of homes on the market are vacant, the product of investors or home-flippers who abandoned their purchases when the market shifted.”

“The investors, most from California, mistakenly thought they could cash in on 2005’s market but came too late, added Rosey Koberlein, CEO of Long Realty.”

“All in all, the past two years in Tucson’s real estate market, as one expert put it, tell a ‘textbook bubble story.’ Most think the ending will be written in 2007.”

Some housing bubble reports from Wall Street. Bloomberg, “Mortgage Lenders Network USA Inc. stopped making new loans through its wholesale arm, becoming the third mortgage company in a month to curtail operations as housing sales slowed and defaults by borrowers rose.”

“‘The economics of this market are not good, and it deals with the performance of loans, and to a lesser extent the value of homes,’ Executive Vice President James Pedrick said.”

“Lenders including Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP, which also specialize in ’sub-prime’ mortgages, were among companies that closed operations and cut staff in 2006 as loans to high-risk customers soured.”

“Nationwide, late payments on sub-prime loans rose during the third quarter to 12.56 percent of the total, the most since the first quarter of 2003, the U.S. Mortgage Bankers Association said.”

“Closely held MLN is the 15th-biggest issuer of sub-prime mortgages, with $3.3 billion of loans in the third quarter, according to National Mortgage News.”

The Hartford Courant. “Mortgage Lenders Network, currently building a sprawling new headquarters in Wallingford, said Tuesday that it is changing the focus of its business and will cut 100 jobs in Connecticut. In addition to the layoffs, Pedrick said ‘a few hundred’ workers, mostly outside Connecticut, would be furloughed for two weeks.”

“In a letter to brokers Friday that was obtained by The Courant, Mortgage Lenders said its sources for funds for making loans through other brokers have dried up. ‘Until we see credit quality and margins return to acceptable levels we have determined that MLN needs to pause’ from outside broker originations, Mortgage Lenders’ CEO, Mitchell Heffernan, said.”

“Unlike competitors, Mortgage Lenders increased its lending last year. Lending conditions, however, have ‘deteriorated dramatically’ in the past two months, the company said Tuesday.”

The Pittsburg Tribune Review. “National City Corp. eliminated about 50 mortgage loan jobs at Allegheny Center, North Side, on Tuesday, the first workday of the new year, informing employees as they showed up for work.”

“The layoffs came after National City completed the $1.3 billion sale of its subprime mortgage business, First Franklin, of San Jose, Calif., to Merrill Lynch on Saturday. First Franklin originated about $18 billion in subprime loans, which are loans to homebuyers with financial problems, handled by National City.”

“Not included in the deal was another National City unit at Allegheny Center, called Preferred Advantage, which also originated subprime loans. Because it was not included in the sale to Merrill Lynch, National City decided to close the unit Tuesday. As a result, National City cut ‘less than 50′ jobs, said spokesman William Eiler.”

The LA Times. “When Ownit filed for Chapter 11 bankruptcy protection last week, its chief executive and sole director, William Dallas, expressed regret at how the company’s destiny had spun out of his control.”

“The private company, which made higher-cost mortgages for borrowers with imperfect credit scores and income gaps, relied on Wall Street to fund its loans, buy them and sell them off as securities. Last month, as defaults on the risky loans rose, the Wall Street firms seized millions of dollars of Ownit’s capital to compensate for losses and then shut off the money spigot entirely, Dallas said.”

“Ownit’s demise is an example of wider troubles among independent sub-prime lenders, which, unlike more diversified banking companies, depend heavily on Wall Street for loans and services. ‘This is going to end badly’ for the industry, Dallas predicted.”

“Ownit’s most important partners, the ones that abandoned it, as Dallas sees things, were JPMorgan Chase, which provided cash to fund its loans, and Merrill Lynch, which supplied a major line of credit for Ownit and processed its loans into bonds for sale to investors.”

“Issuance of sub-prime mortgage bonds jumped from less than $13 billion in 1995 to $594 billion in 2005, according to analyst Michael Youngblood at Friedman, Billings & Ramsey Inc., with a slight dip, to $521 billion, expected in 2006.”

“Consultant David Olson said people were finally waking up to the risks of foolish credit practices that had enabled dodgy borrowers to repeatedly refinance using loans with artificially low starting payments, or to take out ’stated income’ mortgages.”

“Ownit specialized in 100% financing of home purchases to borrowers with low credit scores, often stretching the repayment time to 40 or 45 years. Analyst Matthew Howlett at Fox-Pitt, Kelton, noting that sub-prime loans made in 2006 were becoming delinquent at a near-record pace, said investors expected Ownit to be among the companies hardest hit by bad loans.”

“Ownit had agreed that buyers of its loans could force it to repurchase the mortgages if borrowers began missing payments in the early months. The potential liability made it impossible for Dallas, a 30-year veteran of the industry, to sell his company. Dallas said that as a last resort, he and Ownit’s majority owner, CIVC, offered to effectively give Ownit to Merrill Lynch if it would keep the lender in business.”

“He said he was still not sure why that offer was rejected. ‘I do not think this is the result they wanted,’ Dallas said.”

The Associated Press. “Shares of Lennar Corp. slipped after the homebuilder said it will post a loss in the fourth quarter on continued weakness in the housing market. The preannouncement is a blow to investors hoping the housing market is poised to recover from a slide that has lasted more than a year.”

“The bulk of the loss will come from accounting charges totaling as much as $500 million to reduce the balance sheet value of land and options to acquire land. Excluding the charges, Lennar will still fall short of prior forecasts.”

“Analysts said the charge to devalue land will be the biggest ever. A Wachovia analyst said he’d assumed $125 million in land devaluation charges, while Morgan Stanley analyst Robert Stevenson said the charge is twice the size he anticipated.”

“Construction activity showed further weakness as spending on homes dropped for a record eighth consecutive month. The Commerce Department reported Wednesday that building activity edged down 0.2 percent in November. That followed declines of 0.3 percent in October and 0.8 percent in September.”

“The weakness was led by a 1.6 percent plunge in home construction, which followed an even bigger 1.7 percent drop in October.”

“The slump in housing has been a big drag on the overall economy, trimming 1.2 percentage points off growth in the July-September quarter, when the economy slowed to a lackluster 2 percent growth rate. The slump in October and November indicates housing will remain a serious drag in the final three months of the year.”

The News Herald reports from Florida. “Bay County’s housing market came back to earth last year and will continue building steam in early 2007, says the president of the Bay County Association of Realtors. Acknowledging that 2006 was a ‘tough and challenging’ year for housing sales and prices, association president Teresa Dyer said she thought the area’s market had corrected itself.”

“Prices for existing area homes dropped 12 percent in November, with a median sales price of $201,200, according to FAR. The median sales price in November for an existing Panama City-area condominium declined to $275,000.”

“Some homeowners are still in denial about their homes’ values, (broker) Tom Neubauer said. ‘The ones that are realistic are selling their homes,’ Neubauer said.”

“Neubauer said the county has a high housing inventory, with an 18-month supply of single-family housing and a 3- to 4-year supply of condominium units.”

“Despite the 2006 decline in area housing sales and prices, Dyer said there are still 1,461 members in her organization. She said the association will not know until Jan. 25…that’s the deadline for members’ renewal dues. ‘When somebody drops off, there’s always somebody to take their place,’ Dyer said.”

The Associated Press. “The owners of nearly 500 mobile homes in one of the last waterfront trailer-park towns in South Florida stand to become instant millionaires if they agree to sell to a developer.”

“Palm Beach County Commissioner Mary McCarty is not so sure it’s a done deal because of constraints on zoning, water, sewage and traffic. ‘I find the developers extremely optimistic to the point of being delusional,’ she said.”

“For one thing, the community is in a hurricane evacuation zone and has few ways in or out. Developers will have to clear their plans through the state before any dirt is moved, and neighboring communities will have a chance to weigh in.”

“‘This would be extremely complicated and extremely unpopular,’ McCarty said. ‘But people see dollar signs and it sparks the imagination.’”

From NBC 2 News. “Real estate agents say they expect Southwest Florida’s sagging housing market to pick back up in 2007. Good news for sellers, like Robert Christopholidge, who have had their homes on the market for several months.”

“‘They were selling real good last year during the boom then I don’t know somebody pulled the plug. Some people are looking, but a lot are just not purchasing,’ said Christopholidge.”

“That meant in order to attract buyers; sellers had to lower their prices. Christopholidge dropped his price nearly $200,000. ‘It was $445,000 somewhere in there and all the way down to $260,000,’ he said.”

“‘Some people say well the buyers left the market that’s not actually true - what we like to say is the sellers’ prices left the market,’ said (realtor) Jim Woodard.”

“Agents admit there are still lots of homes on the market, but say there are buyers out there too. And Christopholidge may be proof. ‘He got an excellent deal you know, but I guess that’s what everybody’s looking for,’ he said.”

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