The Housing Bubble

The Ventura County Star reports from California. “Brian and Karry Hill moved to RiverPark because of the promise of a dream neighborhood. But much of their utopia is still acres of dirt and dusty roads. Until the massive development on the edge of Oxnard is finished in coming years, the Hills will be living in a shell of what is eventually promised in the county’s largest new project in years.”

“The Hills like their home, the first they ever purchased, for its newness, location and as a good place to raise their children. The $630,000 they paid for their 2,000-square-foot, four-bedroom home seemed reasonable in the inflated Southern California market.”

“Officials recently have said prices in the development have dropped 10 percent under a waning market.”

“The development is sort of a ghost town in reverse, a neighborhood that inches toward a community every day while the few living there wait and watch. About 190 of the 300 newly constructed units, roughly 10 percent of the final vision, have been sold. The Hills are paying a higher tax to help pay for the new schools, the fire department, the streets and parks. Everyone in the development has to pay homeowner dues.”

“In the first weeks after she moved in, Karry Hill could see into her next-door neighbor’s home when she was in the bathroom. Blinds have fixed that problem. The home on the other side of hers is vacant, and when the wind picks up, dust from all the construction swirls about the neighborhood. In the streets around her home, construction scaffolding is more common than Christmas lights.”

“The day they were moving in, the couple left a wagon her father gave his grandchildren on the front porch. The next morning, the wagon was gone. The occasional graffiti bothers Brian Hill. At one of the entrances someone sprayed a tag over a sign promoting new homes.”

“The complex was expected to be completed around 2009. Now the date is looking more like 2011, said Tony Talamante, RiverPark Legacy project director.”

“However, these are small things in the grand scheme for the Hills. In years to come they will be in the middle of this new pseudo-city. Once it’s all finished, they’ll be able to say they were pioneers.”

The Press Democrat. “Sonoma County is teetering on the brink of a mild recession this year, as job losses and the housing slump weaken the region’s economy, according to a new forecast.”

“‘The chances are high, certainly over 50 percent,’ said economist Robert Eyler, who prepared the Sonoma State University forecast. ‘The housing market slowdown is coming at the same time as a normal business cycle downturn. That’s why a recession should take place.’”

“Real estate built up an outsized role in the region’s economy during an eight-year housing boom. Housing-related jobs now account for 13 percent of employment in Sonoma County, and soaring prices boosted equity that bolstered consumer spending.”

“Housing’s surge ebbed in 2005, when the county’s median resale home price hit a record $619,000. Plunging sales led to construction layoffs and job losses in real estate, financing and other housing related areas. More could follow, economists warn.”

“The price for a typical county home has fallen to $565,000 and may not have hit bottom. Falling prices leave homeowners with less equity to tap for buying cars, home improvements and other spending. ‘All the forces are now ganged up,’ Eyler said of the chance for a recession.”

The Sacramento Bee. “If you doubt there’s a frosty trend in the local real estate market, look no further than a five-month-old local Web site. At Sacramento Area Flippers in Trouble, more than 470 Sacramento area homes are listed for sale at prices below, sometimes way below, what their owners originally paid.”

“One example: A Folsom home purchased a year ago for $518,500 that’s now on the market for $360,000. Another: A Sacramento home purchased for $371,500 in fall 2005 now offered for sale at $249,000.”

“The local site was launched last July ‘to counter the positive spin (from Realtors and others) about how great real estate is in tems of appreciation,’ says its founder, a state worker who identifies himself only as ‘Max.’”

“Why won’t he reveal his last name? ‘A lot of people (in the industry) aren’t very happy about what I’m doing,’ he says.”

“Several local real estate experts say the site’s information is an accurate reflection of how far the market has declined in certain areas. ‘It’s a very real situation,’ says Mike Toste, a real estate agent in Antelope. ‘I’m seeing sellers take those kinds of losses.’”

“But he also points out that many sellers won’t bear the full brunt of the loss, because lenders sometimes agree to forgive whatever debt remains after a house is sold to save themselves the costs of a foreclosure. ‘It all boils down to loss mitigation,’ says Toste.”

The Denver Business Journal reports from Colorado. “Homes sales in the metro area fell in 2006, as did the total volume of residential transactions. Perhaps a more telling figure is the percentage of the original listing price that single-family detached homes sold for in December: just 70 percent. That’s a significant drop from November’s 93 percent.”

“Condo sales prices stayed steady at 94 percent, a 5 percent increase over November. ‘It seems that condo owners are more realistic with their pricing,’ said Lance Chayet, principal of Hanover Realty in Lakewood.”

“He believes many sellers of single-family detached homes listed their homes at inflated prices earlier in the year, and by year-end, had to accept the slumping market. ‘They put their homes on the market in April at a [high] price and by October, they were getting fearful that the market was cratering,’ Chayet said.”

“By December, some sellers were so desperate, they took whatever they could get to make a quick sale. ‘Sellers are finally coming to grips with the reality of the market. The market is adjusting and that’s positive,’ Chayet said. ‘In June, July and August, there were a lot of ostriches out there.”

The Rocky Mountain News. “Home sales dropped by $424 million in 2006 from 2005, probably the first time the Denver-area market has ever seen a year-over-year drop in total dollar volume.”

“‘This is the first time we’ve seen a drop since we began tracking the market in 1985, and I think it is very likely it is the only time it has ever happened,’ said independent broker Gary Bauer.”

“The record 19,425 home foreclosures were the chief culprit for keeping a lid on the average price of homes in 2006, Bauer said. ‘I think foreclosures impacted the market more than we expected,’ he said.”

“‘Also, I think early in the year, people were a little too optimistic about what price they could get for their homes, and later in the year, sellers became more educated about what they could really sell them for,’ Bauer said.”

The Denver Post. “‘There is virtually no community not impacted in some manner by foreclosure,’ said (broker) Rob Horton. Even in neighborhoods where foreclosures were few, home-appreciation rates were under pressure.”

“The median single-family home price for 2006 was $249,900, slightly higher than 2005’s median price of $247,000. Median condo and townhome values fell to $157,000 in 2006, down from $160,000 in 2005. Those numbers may be artificially inflated by pricing concessions reached by buyers and sellers, Horton said.”

“Horton focuses on the southeast metro area. He said his business was off nearly 38 percent in 2006, and he isn’t alone. ‘It was a challenging year for nearly every Realtor,’ Horton said.”

“Four people accused of participating in a mortgage fraud conspiracy that stole millions of dollars and left a gated community in Arapahoe County ravaged by foreclosures pleaded guilty in federal court Friday.”

“The participants included Taiwan Lee, who managed to get 100 percent loans for five houses sold at inflated prices - including two he bought while living behind bars in the state prison system.”

“Until the foreclosures began, he owned five houses in the affluent The Villas at Cherry Creek, thanks to distant lenders who put up 100 percent of the inflated sale price on every house.”

“On Friday, U.S. District Judge Edward Nottingham hesitated to accept Lee’s guilty plea after the 25-year-old defendant said he really didn’t understand what he was doing when he signed the loan documents. ‘All I know is I signed my name,’ Lee said. ‘I thought it was legit. I don’t know much about real estate.’”

“On parole and unemployed when he started buying houses, Lee maintained that he did not read or comprehend the mortgage loan documents. He also denied knowing that more than $20,000 placed in a bank account for him came from the excess loan proceeds of a criminal conspiracy. ‘It sounds like to me you don’t think you did anything wrong,’ Nottingham said. ‘I’m guilty,’ Lee said.”

“State Senator Chris Romer has been waiting two years for the mortgage industry to address what he calls the ‘insanity’ of Colorado’s foreclosure crisis. Now, it’s his turn.”

“In the coming weeks, Romer and other members of the General Assembly seem likely to do to the home-loan business what the home-loan business has not done to itself: clamp down on mortgage brokers. The most telling thing Romer heard in last week’s roundtable session between legislators and lenders was this: ‘Third-party mortgage brokers have no fiduciary responsibility.’”

“Those fancy words mean the guy or gal arranging your loan doesn’t have to make sure you can afford the home payments you’re about to incur. He or she doesn’t have to make sure you know what’s in the fine print. With unlicensed third-party mortgage brokers setting up 70 percent of new home loans, said Romer, there is ‘a license for abuse.’”

From Denver Yourhub. “Everyone has seen the headlines, ‘Foreclosures Up, Home Sales Down.’ Homes sold by realtors are down from the previous year. This fact is facing many home owners who have had their houses on the market but still have not sold.”

“One homeowner, Kim Hiebert, had her home on the market for over six months with a commercial real estate agent and did not sell. Having to refinance her home in 2006 to use the equity to attend graduate school has left the amount she owes on her home exactly where homes are selling for in her area. With added closing costs, and real estate commissions, she was not informed of at the refinance, has priced her out of the market.”

“In order to sell her home, Hiebert is now trying a different approach, selling it herself. ‘I cannot afford to pay a selling agent commission as well as a buyer agent commission. I would probably have to bring money to closing that I do not have,’ Hiebert says.”

“She remains positive, ‘I’ll sell it at absolutely the lowest I can. I don’t mind not making a dime at closing, If I can sell it lower, I will. I just need to move closer to work, the snow is killing me,’ Hiebert jokes.”

Some housing bubble reports from Wall Street and the New York Times. “Housing bulls took heart on Dec. 27, when the Commerce Department reported that sales of new one-family homes rose 3.4 percent in November from October. But those who think that the worst may be over for the housing market should take another look at the data, economists say.”

“On its Web site, the Census Bureau acknowledges: ‘As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.’”

“By how much? Economist Joseph Carson estimates that the government is overestimating the pace of annual sales by 100,000 to 150,000. Economist Mark Zandi estimates that the differential is even greater. ‘Given the rise in cancellation rates, it suggests that between 150,000 and 200,000 home sales are being counted that actually did not occur.’”

“Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories.”

From Inman News. “With the Fed continuing to express worries about inflation, there’s no guarantee that short-term rates will come down.”

“‘Three meetings ago, bond futures traders were already pricing in a rate cut in January,’ said Amy Crews Cutts, deputy chief economist for Freddie Mac. ‘But the Fed pretty much said, ‘Bah humbug! You’re not getting a Christmas present. We’re not going to cut rates anytime soon. If you’re lucky, we’ll leave them alone,’ rather than raise rates to keep inflation in check.”

“According to Kenneth Rosen, of the University of California-Berkeley, ‘even a hiccup’ in foreign investment will mean ‘long rates go up.’ ‘Money is as loose as it’s ever been in modern American history — way too loose,’ Rosen said. ‘I can’t imagine them cutting interest rates unless we have an actual recession.’”

From Bloomberg. “European Central Bank President Jean- Claude Trichet said he’s optimistic Europe and Asia will be able to withstand a slowing U.S. economy and policy makers must be ready to act against any inflationary risks.”

“When asked about inflation risks in the world economy, Trichet said: ‘We do not declare victory, we have to remain alert.’”

“Even in the U.S., where a housing-market slump is clouding the outlook, inflation is still policy makers’ ‘predominant concern,’ according to minutes from the Fed’s December rate meeting released Jan. 3.”

From National Mortgage News. “Wall Street now controls a significant portion of the nation’s subprime industry. Now, there’s nothing wrong with that, but Wall Street will be dictating the terms of foreclosures for thousands upon thousands of subprime borrowers who are predicted to go delinquent in the coming 24 months. And some subprime borrowers vote, but they don’t donate the kind of money to Congress that the Street does.”

“About three weeks ago Mandalay Mortgage of California laid off an untold number or workers. One source there told us it was the second round of layoffs for the company.”

From Origination News. “Mortgage lenders cut 2,900 full-time employees from their payrolls in November, wiping out a 2,500 increase in October that established a new high for jobs in the mortgage industry. Freddie Mac estimates that originations of conventional mortgages dropped from $715 billion in the second quarter to $597 billion in the fourth quarter. For the whole year, originations totaled $2.65 trillion, compared with $3.17 trillion in 2005.”

The LA Times. “When the cold call came from Ameriquest Mortgage Co., Jeff and Cheryl Busby were intrigued. The agent was a smooth talker, and the Busbys were not concerned that he didn’t offer them a chance to study the documents.”

“They later found that their interest rate was 11% — far too high. The agent said he would get them a better loan. The new terms were worse. The payments nearly equaled their entire income. Ultimately, they sued, saying Ameriquest had invented a car sales business for Cheryl to improve her financial status. Their lawsuit also said the agent had fabricated a higher income to ‘flip’ the Busbys into a bigger loan, larded with illegal charges.”

“The Busbys couldn’t make the payments and were forced to sell. The bungalow had been in Cheryl’s family since 1935. It was 100% of the Busbys’ retirement nest egg. Now it was gone.”

The Houston Chronicle. “Cynthia Muir thought she got a good deal in 2003 when a friend told her that with his help she could buy a town house and sell it for a profit in six months. But the payments rarely were made, she said, and the home never was rented out.”

“The FBI’s Houston division has formed a unit dedicated solely to fighting mortgage fraud. Currently, the office has about 25 multimillion-dollar cases open involving various types of mortgage fraud. If left unchecked, the fraud could have repercussions for the local housing market as bankers, fearful of the growing problem, make it harder for homebuyers to get loans.”

“Muir also sued the appraiser, who she claims inflated the property’s value; the mortgage broker, who she alleges knew the property was overvalued; and the title company, which she claims failed to protect her.”

“‘I should have just never let someone be in charge of something like that,’ said Muir, who acknowledged that she never saw the property before buying it. Muir paid $448,000 for her four-bedroom town house. In 2006, the Harris County Appraisal District valued the property at $298,057.”

“‘The industry is turning a blind eye to fraud,’ said David Zugheri, a Houston mortgage broker. ‘The industry is completely inside-out right now.’ Experts say many Houston-area homes are being lost to foreclosure because of mortgage fraud. ‘This is an epidemic that will come to roost in the Houston housing market,’ said Zugheri.”

“The fraud sends ripples through the economy because many loans are wrapped into mortgage-backed securities and sold to investors. If investors get wary of the investments and take their money elsewhere, banks could get more reluctant to lend and tighten lending requirements.”

“‘The potential does exist,’ said Barton Smith, an economics professor at the University of Houston. ‘We’ve already seen construction loans start to get hard to get. But I think the Federal Reserve’s going to find out that to avoid a collapse, they’ll have to back off their interest rates to provide enough liquidity to the financial system to not bring the whole stack of cards down.’”

The Herald Tribune reports from Florida. “In the fourth quarter, there was about $2 billion worth, or more than 3,600, unsold condos in the Sarasota Multiple Listing Service alone. In October, only 83 were sold, most of them for less than $350,000.”

“That monthly absorption rate amounts to 2.28 percent of available condo inventory or, to put it another way (assuming no more would-be condo sellers materialize and no new condo projects are built), it will take about 31/2 years to empty the condo inventory cupboard.”

“The local glut notwithstanding, Mark Miller, president of Sarasota’s Westwater Construction Inc., backed by a $47 million line of credit from Wachovia Bank plus his own money, has unveiled a 189-unit gated golf condo community.”

“The company is making a big bet because it offers ‘resort-style residences and amenities, a brand new challenging 18-hole golf course and all at prices that are affordable for this market,’ said Jimmy Stewart, Westwater’s director of business development. The condos range from 1,770 to 2,240 square feet, with prices starting in the $400,000s.”

The Orlando Sentinel. “For the past couple of years, the region’s economy has hummed along at a solid growth rate of 3 percent to 4 percent. But that’s no longer sustainable in the face of a slowing housing market and rising costs facing consumers.”

“‘You’ve got to keep one eye on the housing market to see how that’s going to shake out,’ said Sean Snaith, an economist at the University of Central Florida.”

“The housing sector’s biggest challenge now is working through the massive inventory of homes on the market. In November, there were 21,122 homes awaiting buyers, according to the Orlando Regional Realtor Association. In comparison, one year earlier there were 9,685 homes on the market and in 2004 there were only 3,681.”

The Palm Beach Post. “Months after Ocean Land Investments started chatting up Ocean Resorts residents about a deal to purchase their 400-lot park, the Boca Raton-based company has backed off. Ocean Resorts stretches from the Atlantic to the Intracoastal, offering idyllic views for the condos the developer has in mind.”

“Logan Pierson, acquisitions VP, conceded that Ocean Resorts’ less-urban setting, combined with slowdown in the condo market, have tempered the firm’s enthusiasm. Meanwhile, the buzz that the developer’s interest initially sparked at Ocean Resorts has quieted.”

“‘The last word we heard from them was that they needed to do more due diligence and that the market was down,’ said Glenn Ludwig, president of the co-op that controls the community.”

The Sun Sentinel. “Buyers have been wielding more power since South Florida’s five-year housing boom last year yielded to a significant slowdown. Those getting the best deals are hiring experienced agents, pushing for incentives, wearing poker faces, finding motivated sellers and, when all else fails, walking away.”

“Buyers are in control as investors have pulled out of South Florida real estate, creating less of a demand for properties. With fewer buyers, homes stay on the market longer. The supply of homes for sale has swelled in Broward and Palm Beach counties, creating havoc for people who need to sell quickly.”

“Jenn Vest made what she thought was a fair offer on a house in Broward County, but the seller rejected it and wasn’t much in the mood to haggle. The same thing happened on another property.”

“Vest later found a two-bedroom house in an eclectic neighborhood near downtown Fort Lauderdale. Originally listed at about $550,000, it was reduced to $349,000. She closed on the deal Dec. 29 for $316,000.”

“MLS listings also include histories of the properties, and they can show buyers just how motivated or desperate sellers are. Real estate agent Pamela Orr noticed that the home Vest bought had been on the market for more than a year. The length of time was the first clue that the seller might be getting antsy.”

“After probing further, Orr found that prices in the neighborhood were falling, in part because developers were buying homes on the cheap and tearing them down to build luxury townhouses. Armed with that background information, Vest offered the seller $316,000, about 10 percent less than the latest list price.”

“‘We told the seller, `This is our best offer,’ Orr said.”

“In today’s climate, buyers who intend to live in the homes typically can pay 10 percent to 15 percent below market value, said David Dweck, an agent in Palm Beach and Broward counties. Investors paying cash, closing quickly and taking the property ‘as is’ might be able to swing deals with desperate sellers for 65 percent to 70 percent below market value. ‘That’s reality,’ he said.”

“Some agents say buyers shouldn’t worry about making lower offers, reasoning that sellers can’t afford to be insulted in a market glutted with properties.”

“(Realtor) Douglas Rill in West Palm Beach just had a client list a Lantana condominium for $400,000. A prospective buyer first offered $330,000 and then $365,000, but the seller refused. After later agreeing to accept the deal, Rill’s client lost out when the buyer had bought another unit in the same complex for less money. ‘Sellers can’t be choosy,’ Rill said.”

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