The Housing Bubble

The Record Searchlight reports from California. “Jeff and Julie Cozzo are giving new meaning to a short sale. The couple, who split time between Redding and the San Francisco Bay area, plan to sell their Springer Drive home, an investment, Sunday night to the highest bidder. Bids will open at $199,500 for the 1,176-square-foot, three-bedroom, two-bath home.”

“Julie Cozzo explained that the auction is a gimmick, something different to create excitement. ‘When you put yourself in a sea of sameness, then it takes forever to sell a house, especially in a quiet market like now,’ Cozzo said.”

“The Cozzos bought the home in October 2005 for $249,500. They have put in new kitchen cabinets, tile countertops, new carpet, new paint inside and out, new appliances, and updated the bathrooms.”

“Redding Realtor Josh Barker said he’s heard of these auctions, but not many have been staged in the north state. ‘It probably benefits the seller as long as they get enough people in the house to bid it up,’ Barker said.”

“Barker wondered what happens if only one person makes a bid for $199,500. ‘Are (the sellers) really going to take that?’ he said.”

The Press Democrat. “Sonoma County home prices fell again in December, but the decline appears to be leveling off, concluding a year that saw sales hit a 10-year low and prices drop from record highs.”

“‘We still have a very large amount of the inventory that continues to adjust their prices. That tells me there’s a lot of sellers out there chasing the market instead of setting the market,’ broker Ross Liscum said.”

“Buyers remain cautious, reflected in the number of sales that fall through. In December, 27 percent of sales pending the end of November were not completed. The real estate industry average is about 20 percent.”

“‘This shows that buyers are in the market, but they expect repairs and concessions and if they don’t get it, they’re willing to walk and go down the street,’ said Rick Laws, Santa Rosa manager for Coldwell Banker.”

The Santa Maria Times. “In the survey, 38 percent of the California Association of Mortgage Brokers said home prices will decrease less than 5 percent this year in California, while 26 percent believe there will be an increase of up to 5 percent.”

“‘There has been a lot of press about how (home) prices have fallen, but I don’t know if they’ve fallen as much as they were overinflated,’ said Mike Hahlbeck, president of the association’s North Central Coast Chapter.”

The Desert Sun. “Developer Mayer Luce Companies has put its ambitious 505-acre, $1 billion Tuscan Hills development in Desert Hot Springs on hold until the valley’s sluggish housing market shows signs of rebounding.”

“Other valley developers are making similar adjustments, with even large builders such as KB Home and Lennar Corp. slimming down local operations. Builders marketing to entry-level and lower mid-price-range buyers have become particularly aggressive about downsizing to conserve cash, said Fred Bell, executive director of Palm Desert-based Desert chapter of the Building Industry Association.”

“‘They’ve seen what’s happening with sales and they’re doing two things: adjusting the overall scope and size of their operations and they’re managing their vertical inventory, - how much they’ve got left in the pipeline,’ Bell said.”

The LA Times. “Some of the decline in retail hiring reflected the housing slump. Hiring among dealers of building materials and supplies was down 2.5% in December compared with a year earlier. Construction remained the biggest drag on the economy, shedding 15,700 jobs in 2006, more than any other sector.”

“The question now is when the housing market will hit bottom. Many economists are projecting that the slump in home sales will be over by the end of the year.”

“That may be wishful thinking, said Chris Thornberg, a former UCLA economist. ‘I keep hearing that the real estate markets are going to turn around, and it never ceases to amaze me,” he said. ‘These cycles take two years, top to bottom, when they pop. We’re only a year into it. If anything, this is different because the bubble was so much larger.’”

The Orange County Register. “Orange County’s job growth continued at a slow, steady pace last month, according to state figures released Friday. The culprits in last year’s slowdown included sectors related to real estate.”

“In the 12 months through December, Orange County’s construction industry added jobs at a 0.7 percent annual rate, much slower than the industry’s 7.2 percent growth in 2005. The number of jobs in financial activities, a sector that includes mortgage firms and real estate brokerages, shrank by 1.4 percent in the 12 months through December. That compares with growth of 4.3 percent in 2005.”

The Union Tribune. “In San Diego County, construction firms shed 1,800 workers during December and real estate firms cut 500 positions, according to data released yesterday by the California Employment Development Department.”

“During 2006, construction firms in the county lost a total of 5,000 jobs, more than 5 percent of their work force. Statewide, construction firms have axed 15,300 workers, a 1.7 percent loss. And economists say the losses will probably continue.”

“‘I expect further contraction on single-family home construction,’ said Kenneth Simonson, chief economist for the Associated General Contractors of America. ‘It’s hard to say when that will end. It’s really a question regarding how long potential home buyers think they can hold on. Right now, home prices are still dropping and buyers are waiting to see when there will be a bottom of the market.’”

The Sacramento Bee. “The housing market downturn continues to soften up job growth in Sacramento and statewide. ‘You can isolate it to the housing slowdown,’ EDD labor market consultant David Lyons said. ‘It’s been kind of a drag on the economy. The positive spin is that it could have been worse.’”

“Housing-related employment accounted for roughly 40 percent of the Sacramento area’s new jobs during the boom. Economic consultant Chris Thornberg said the downturn is just ’starting to squeeze’ the economy as a whole.”

The Record.net. “Average apartment rents in San Joaquin County slipped by several dollars last quarter, pushed down by a slight decline in occupancy, according to RealFacts, which tracks the apartments industry. Throughout California, every metro market tracked by RealFacts saw occupancy slide.”

The Reno Gazette Journal reports from Nevada. “Clark County had 2,163 homes, one in 277 households, in the foreclosure process in December. ‘Much of the buying in Southern Nevada was by people that were going to not occupy the house, and they fully expected to flip the house (once it was built),’ said Thomas Powell, chairman of the Nevada Mortgage Advisory Council.”

“‘When it came time to actually put the mortgage in there, they had hoped to have the house sold. And that didn’t happen this go-around when it had been happening year after a year for a period of a time,’ he said.”

“Washoe County has many of the same problems, a slowing market along with exotic loans, that are driving up the foreclosure rate across the country. John Bissett, a foreclosure specialist and broker, said the Wednesday home auctions on the steps of the Washoe County Court House have been busier of late.”

“‘I’ve actually bought more at the courthouse in the last 120 days than in the last five years,’ Bissett said. ‘What we are seeing (is) a slight bump in Washoe County, and certainly Vegas has risen quite a bit.’”

“About three years ago, northern Nevada experienced a boom in the housing market which managed to stabilize about six months ago, leaving some homeowners in a difficult financial situation.”

“June Young, president and director of Young & Associates Mortgage Services, describes interest-only loans as a ‘big, dangerous bet.’”

“Young, who has over 15 years of experience at credit unions, sees payments ‘go through the roof all the time’ for people who went through unconventional mortgage companies and signed up for adjustable-rate mortgages. ‘Anyone who has two full years on a job, and two full years of credit history in two different areas can buy a house,’ said Young.”

In Business Las Vegas. “North Las Vegas inserted a clause in its agreement with developer Olympia Group that requires any homes, town homes or condos sold to have deed restrictions preventing owners from renting the property for at least 24 months.”

“Call it a lesson learned from the Aliante master-planned community in North Las Vegas, city officials said. There’s a concern that selling to investors can result in a large number of homes sitting vacant in neighborhoods.”

“‘We had to start somewhere,’ North Las Vegas Councilman William Robinson said. ‘We were getting too many investors. It leads to depreciation. It also creates problems with renters who’ve moved and you have an empty home sitting there for six months.’”

“Terry O’Donnell, sales manager with Coldwell Banker Premier Realty in Las Vegas, said one reason prices for most resale homes aren’t likely to increase much this year is that about 42 percent of the homes currently for sale in the area are vacant.”

“Many were purchased in recent years by speculators who had no plans to hold their properties but instead hoped to sell at a profit soon after they purchased.”

“‘When the tap turned off, they didn’t know what to do,’ O’Donnell said. Many of these homes are still on the market, he said, and ‘if almost half the market is in a so-called ‘dump’ situation, it’s not going to help us increase property values.’”

The Deseret News from Utah. “If you own a home in Utah, chances are it was worth a lot more at the end of 2006 than it was at the end of 2005. But steep sales prices and a glut of new listings have started to put the brakes on Utah’s fiery real estate market.”

“Gary Cannon, president of the Salt Lake Board of Realtors, said the local market slowed in the third and fourth quarters, mainly because investors started to dump more homes on the market. ‘2006 wasn’t as good as it appears because we had a really big slowdown in the latter part of the year,’ Cannon said. ‘It’s the first time in a long while where we are starting to see price reductions and added incentives from new-home builders.’”

“A rising inventory of expensive homes priced from $400,000 to $800,000 are the slowest moving price range. ‘Sellers in this range will need to be more aggressive with their pricing if they want to move their home faster,’ Cannon said. ‘On the south end of the valley, both east and west, this price range is carrying the most inventory, both new and existing.’”

“Drew Larson, a real estate agent in Draper, said home sellers are not very willing to drop prices. ‘That’s what is contributing to extra inventory,’ Larson said. ‘So and so sold their home for ‘X,’ so I should get ‘X’ or ‘X plus one.’ We’re all competing for the same buyers. I noticed that in Phoenix and in Las Vegas you had to get in a lottery in 2005 to buy a home, and by 2006 they were giving away tens of thousands of dollars in incentives.”

The Republican reports from Massachusetts. “New home construction for 2006 more than halved the 100-home- a-year average seen here for more than a half-century. The Building Department issued 49 building permits for new single-family dwellings in 2006. Westfield, geographically one of the largest cities in the commonwealth with 47.33 square miles, has been averaging about 100 new homes a year for more than a half-century, city officials have said.”

“‘There is no question there is still a lot of inventory left over from previous years,’ said Community Development Director James M. Boardman. ‘I think there is a sense that everything has settled down and I don’t think anyone has moved into optimistic mode. What has plummeted is sales,’ Boardman said.”

The Boston Globe. “Banking regulators in Massachusetts and eight other states yesterday ordered Mortgage Lenders Network USA Inc. to cease its lending activity after the Connecticut company failed to fund mortgages that had been approved or even closed.” “Such cease and desist orders are the strongest regulatory tools state governments can use to control or stop mortgage companies and other lenders.”

“Company officials have blamed Mortgage Lenders’ problems on increased defaults and the faltering housing market. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”

From The Day in Connecticut. “Banking regulators in several states took action Friday that could result in tens of millions of dollars in fines against a troubled Connecticut-based mortgage lender that works primarily with people with poor credit. New York and Michigan officials were also expected to take action.”

“The privately held company, which bills itself as one of the country’s top subprime mortgage lenders, has a portfolio of $17.8 billion. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”

“Several subprime lenders have fallen victim within the past year as housing prices dropped, mortgage amounts exceeded home values, loan volume declined and foreclosures and delinquencies increased, said David Olson, president of Columbia, Md.-based Wholesale Access Mortgage Research & Consulting.”

“‘The subprime continues to have a lot of problems,’ said Olson, whose firm tracks the mortgage industry. ‘I think it’s difficult times for the next year, and we’ll see consolidation at the larger firms.’”

The Providence Journal from Rhode Island. “Ronald Danis thought he got a good deal when he bought a $252,000 house with no down payment. Danis was living with his family of three in a two-bedroom apartment in West Warwick. The rent was $800 a month. So, when his wife became pregnant again, they began looking at houses. ‘We felt, why waste the money on rent?’ Danis recalled.”

“He bought a three-bedroom ranch in a cul-de-sac in a blue-collar neighborhood in Coventry in April 2004. The price was $252,000. The mortgage lender financed 100 percent of the price, plus fees and closing costs. Danis even got back his $2,000 deposit at the closing.”

“‘They told me this was the best mortgage for [me],’ he recalled. ‘I took their word for it.’”

“But a year later, Danis decided it was not such a great deal. He ran into trouble paying his $2,000-a-month mortgage and eventually the lender threatened to foreclose.”

“After years of rising home prices, Rhode Island is now experiencing a run-up in home-loan delinquencies. More than 5,600 home loans made in Rhode Island were delinquent during the third quarter of last year, an increase of 46 percent from the same period in 2005, according to the latest survey by the Mortgage Bankers Association.”

“‘New England looks like the roughest area of the country after the Midwest,’ said Karl Case, a housing economist at Wellesley College. ‘It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”

“The shift has been particularly dramatic in Rhode Island, which in 2004 ranked first in the nation for house-price appreciation. As prices climbed out of reach, prospective buyers stretched their household budgets and lenders offered new, riskier mortgages to allow borrowers to buy houses that they otherwise could not afford.”

“‘Lenders turned more aggressive,’ said economist Mark Zandi, ‘because borrowers wouldn’t have qualified for loans otherwise.’”

“Ron Danis knew his credit score was low because he’d gotten into trouble with credit cards in his 20s. But for the last 10 years, he’d had a steady job. He said a friend who was a real estate agent recommended a mortgage broker who suggested an 80-20, or ‘piggyback’ loan, which would allow Danis to borrow more money by splitting the mortgage into two: 80 percent based upon the prime lending rate and a second, 20-percent loan at a higher, ’subprime’ rate.”

“The broker arranged for the loans with Option One Mortgage, the dominant subprime home mortgage lender in Rhode Island. The Jacksonville, Fla.-based lender originated 3,239 loans for single-family houses in Rhode Island in 2005, according to data from the Mortgage Bankers Association.”

“The interest rate on Danis’ first mortgage was 8.44 percent. The rate on the second mortgage was 11.25 percent. Together, the payments on the two mortgages came to $2,000 per month. The bigger of the two mortgages allowed Danis to pay ‘interest only’ for the first two years of the loan.”

“‘We didn’t know any better,’ said Mary Danis. ‘Now, we’re just kicking ourselves.’”

“Shortly after he bought the house, Mary Danis, who was having a difficult pregnancy, stopped working and their income dipped. He fell behind on his mortgage payments. He didn’t want to sell the house, but even if he did, it wouldn’t have gotten him out of the hole. In 2005, his house was appraised at $225,000, almost $27,000 less than his mortgage.”

“On Nov. 6, 2006, a legal notice ran in The Providence Journal stating that the Danis family’s house ‘will be sold at public auction on November 20, 2006 at 4:00 PM.’ It was among dozens of foreclosure notices that filled the newspaper’s classified ads almost daily. The lion’s share of the foreclosures appear to be in Providence, where the mandatory legal notices that ran in The Journal last year jumped nearly 300 percent, according to a Journal analysis.”

“‘I see 25 families a week, easily,’ said Christopher Lefebvre, a bankruptcy lawyer in Pawtucket. ‘To be a homeowner today — to be able to afford that privilege — is a very costly thing. The fact of the matter is, the average family of four, even those making $75,000 or $80,000 a year … can’t afford the homes they want to buy.’”

“On Dec. 4, Lefebvre filed a Chapter 13 bankruptcy petition for Danis. At the time he filed, the balance on Danis’ two mortgages had climbed to $260,678, according to court documents. Under the Chapter 13 bankruptcy plan, Danis agreed to pay, over time, the arrearages on his mortgage and all of his other debts.”

“If he sticks to the plan, Lefebvre said, Danis will be able to get out of Chapter 13 in just under three years. ‘As long as I make my mortgage payments,’ Danis said, ‘the house is still mine.’”

The News Press reports from Florida. “Property owners hoping for a quick profit left disappointed Friday as bids were low during the first day of a land and home auction in Fort Myers, where 68 residential and commercial lots were on the block.”

“Ariel Crespo put two lots in the auction. He had both listed on the MLS for more than $60,000. The bids came in at $22,500 for each. Both lots were off water in northwest Cape Coral. ‘I just won’t take a bid that low,’ said Crespo. ‘That’s just way too low.’”

“‘I’d say they will be lucky to get 10 percent of the sellers to accept bids,’ said Cape Coral resident Jim O’Day. ‘I wanted at least $145,000 minimum.’”

“Two other lots, desirable because of their size at 11,934 square feet, and waterfront location on the Caloosahatchee River, drew bids at half of their $799,900 listing price.”

“Despite the low bids at Friday’s lot auction, Cape Coral’s Ginnie and David Ward remain optimistic about the sale of their home in the auction today. Their three-bedroom, waterfront home in Cape Coral with deep-water canal and easy access by boat to the Gulf of Mexico lists on the Lee County Property Appraiser Web site at $862,410.”

“‘The auction today (Friday) was full of speculators,’ Ginnie Ward said. ‘The auction Saturday will have more end users, people who want a great home. That’s a big difference.’”

The Herald Tribune. “Financial problems that have paralyzed a large regional home builder are now smashing into Coast Financial Holdings, a Bradenton-based community bank that loaned about $110 million to the builder’s customers.”

“The Herald-Tribune reported last week that CCI customers had been hit with a slew of construction liens after the home builder failed to pay electricians, drywall experts, plumbers and a variety of other subcontractors and suppliers.”

“The bank warned that if the home builder failed to complete the homes, it could threaten the ability of borrowers to repay their loans, which in turn might damage the ‘value of the bank’s collateral.’ Several banking and foreclosure experts contacted by the Herald-Tribune believe that Coast’s loan problems are grave and foreshadow more problems for both the home building and banking industries.”

“‘It’s an alarming amount,’ said George Huhn, a Venice-based commercial Realtor and foreclosure specialist. ‘One hundred and ten million in loans represents 25 percent of the bank’s entire loan portfolio. Hello, has anyone got a flare gun?’”

“Marilyn Schwegman, a St. Petersburg resident who contracted with CCI to build a house in North Port, said she first learned about the company from a local Realtor in 2005. She said CCI officials told her that if she bought a house in North Port, Battle Realty would have it sold again by the time construction was finished.”

“CCI also promised to make the payments on Schwegman’s $237,150 mortgage from Coast Bank until construction was finished. Schwegman said she had no trouble getting the loan from Coast. ‘They came to my house. Filled out a very sparse financial record, and bang, you get the loan,’ she said.”

“Schwegman now faces more than $25,000 in liens from several subcontractors. ‘It’s been a rather disappointing and frightening situation really,’ she said.”

“What amazed consultant Jack McCabe, and other analysts and bankers, is how much of its financial risk Coast was willing take on a single partner. ‘I’ve never heard of so many construction loans funneled to one particular company,’ McCabe said.”

“Steve Jonsson, chief executive of Bradenton’s Flagship National Bank, agreed. ‘Four hundred and eighty-two contracts seems like a ton of loans with one bank,’ Jonsson said.”

The Naples News. “The Naples Area Board of Realtors no longer will provide monthly home sales numbers to the statewide association that calls itself the voice for real estate in Florida. The local real estate board says it doesn’t think the way the Florida Association of Realtors reports the numbers is relevant and that it can do a better job with its own reports, and better reflect what’s going on in the local market.”

“This comes as the state association’s numbers have shown sharp drops in home sales and median home prices during the past year in the Naples area.”

“The numbers aren’t truly reflective of what’s going on in Naples because they include sales made outside the Naples market, in such areas as Cape Coral and Lehigh Acres, said Joe Ballarino, president and chief executive of Amerivest Realty in Naples. Some Naples members’ sales even extend beyond Lee County to Charlotte County. ‘They are accurate numbers,’ Ballarino said. ‘They are just not relevant numbers and that is an important distinction.’”

“Currently, there are 11,000 listings in the Naples area. That’s an 18-month supply. ‘Buyers have a lot more choices available to them this season,’ said Spencer Haynes, NABOR’s president. ‘Now is a good time to buy,’ Ballarino said. ‘But the buyer confidence is not there.’”

The Ledger. “The coming months will be a proving ground for local Realtors. They will have to decide who can stick out the market slowdown without suffering an empty stomach. The market is flooded with listings.”

“‘I believe some (Realtors) are looking for day jobs,’ said Judy Cleaves, a Realtor in Winter Haven. ‘Real jobs we call them.’”

“The current abundance in new home inventories has builders undercutting existing home sales and making it difficult for local Realtors and their clients. New homes are being priced in the $150,000 range, a significant drop from asking prices a year ago.”

“Many real estate agents entered the Polk County feeding frenzy in 2005, looking to make a quick buck. But it was only temporary. And now those Realtor speculators have returned to other jobs.”

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