The Housing Bubble

The California realtors have their December numbers out. “Home sales decreased 15.3 percent in December in California compared with the same period a year ago, CAR reported today.”

“‘Year-over-year sales declined in most regions last month,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘The price picture across the state continues to be mixed. Increases were strongest in urban areas that experienced relatively less new home building or strong economic growth in recent years. Prices were weakest where there has been robust home building activity or in those areas of the state that were popular with second-home buyers.’”

The Press Democrat. “The number of default notices lenders sent to Sonoma County homeowners more than doubled in the fourth quarter of 2006, compared with the same period in 2005, and was the highest in nearly a decade, according to DataQuick.”

“‘We’re in the midst of an adjusting market right now, and we won’t know until spring or summer if this is ominous or not,’ said Marshall Prentice, DataQuick’s president.”

“Just over half of the loans that went into default statewide during the fourth quarter were made between January 2005 and February 2006. So those loans were made to buyers purchasing homes around the time the market was peaking in summer 2005, DataQuick analyst John Karevoll said.”

“‘Just because of the higher-priced homes, that is the product that is in demand in order to qualify,’ said Colleen Oller, real estate loan officer for Exchange Bank. ‘But now we’re seeing a downside to that, especially if they’re needing to sell. The value of those homes is not what they paid for them and they’ve got no equity built up.’”

The Contra Costa Times. “In the last quarter of 2006, about 1,000 more mortgage default notices than last year went out to Contra Costa County homeowners, a 179 percent increase.”

“An additional 700 showed up in Alameda County (a 157 percent uptick) and 500 more (or 163 percent) went out in Solano County, signaling the highest rate of foreclosure activity ever for Solano County and the highest since 1998 for Alameda County, DataQuick reported.”

“Ed Jeffry, a loan consultant in Walnut Creek said that in the past few months four lenders he has used have stopped providing home loans. The quality of applicants has deteriorated, and he is referring many of his clients to bankruptcy attorneys, he said.”

“Many succumbed to the lure of easy home equity or low payments. ‘For so long people have relied on the advice of the guy who used to sell shoes at Payless who now sells loans,’ Jeffry said.”

The Santa Cruz Sentinel. “Mortgage defaults in Santa Cruz County jumped 36 percent last year, part of a statewide trend. ‘It’s crazy out there,’ said Liese Varenkamp, publisher of the Santa Cruz Record. In the first two weeks of the new year, 16 foreclosures have already taken place, up from two last year.”

“‘Look at that difference,’ Varenkamp said, adding the 80 percent of the homes go back to the bank that made the loan.”

“The 37,273 default notices mailed between October and December was up 145 percent compared to 15,196 in the same period in 2005. Most of the default notices were sent to Southern California addresses, with homeowners in Los Angeles County receiving the largest number of notices.”

“About 32 percent of homeowners who had previously been in default lost their homes to foreclosure in the fourth quarter, up from 8 percent in the same quarter of 2005, DataQuick said.”

“The number of foreclosed homes last quarter was 6,078, compared with 874 in the fourth quarter of 2005 and 3,435 in the third quarter of 2006, the firm said.”

Inside Bay Area. “In San Joaquin County, default notices hit a record high. Some 1,293 homeowners received default notices, compared with 464 a year earlier. San Joaquin County’s increase in foreclosure notices is partly linked to speculators who are finding it difficult to sell homes in today’s slowing market, said broker Renee Becker.”

“‘The market has turned, so maybe (speculators) have not been able to sell the homes,’ she said. ‘They are stuck with them.’”

The Sacramento Bee. “Hundreds of Sacramento-area homeowners who missed their first mortgage payments early last year fueled the region’s most dramatic rise in home foreclosures since the 1990s during the fourth quarter of 2006.”

“The 865 fourth-quarter foreclosures compare to 63 the same time last year in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. ‘What’s the old saying? ‘The chickens are coming home to roost,’ said John Arvanitis, president of Sunrise Vista Mortgage Corp.”

The Merced Sun Star. “In Merced County, homeowners received 466 notices last quarter, up from 118. That’s a rise of 294 percent, second highest in the state. Lenders also warned a record 909 Stanislaus County homeowners in the last three months of 2006 that they are at risk of foreclosure. That’s an increase of 471 percent, highest in the state.”

“Rick Seymour, House Mart branch manager in Merced, said the rush among homeowners to buy into the housing market before they were priced out is a major cause of the foreclosure rate doubling. ‘The problem was that the market turned,’ he said. ‘When they paid top dollar, and then turn around and it’s $30, $40, $50,000 less, they aren’t going to be too motivated to make those payments.’”

“‘If you are making $5,000 a month, you don’t want a $3,000-a-month house payment,’ he said. ‘I knew three years ago that this would happen based on the people who were buying.’”

“Merced County Association of Realtors President Scott Oliver said many Bay Area families already stretched thin invested in Merced County homes and took out questionable loans. ‘I believe that a lot of loans went into place that should not have happened,’ he said. ‘It was inevitable that with the market exploding the way it did that you’d see a high rate of foreclosure.’”

The Fresno Bee. “Foreclosures in Fresno County more than quadrupled in the fourth quarter from last year, a sign, analysts say, that a day of reckoning is coming for thousands of home buyers who used unconventional loans.”

“‘This is just the first wave,’ said Shannon Martin of Mid-State Realty in Fresno. ‘Within the next few years, you’ll see more foreclosures coming.’”

“Locally, real estate agents and credit counselors have seen huge jumps in foreclosure-related activity. Martin, who specializes in selling foreclosed properties for lenders, said such listings he handles climbed from 10 to 70 in the past six months.”

“‘People who bought their houses within the last year or two with zero down are at the high-water mark,’ he said. ‘As the values have decreased, they owe more than the house is worth.’”

“Martin said he has foreclosure listings in all price ranges and geographic areas. ‘I’ve got them from $640,000 to $120,000. They are all over,’ he said.”

“‘It’s no surprise,” said Martha Lucey, VP of a nonprofit credit counseling organization in Fresno. The number of phone calls to her housing credit counselors has increased threefold over the past six months.”

“Many of those families are first-time home buyers who have little or no equity in their houses. Many should have thought twice about buying the house they did, she said. ‘It is wishful thinking,’ she said.”

The Daily News. “In Los Angeles County, 7,445 property owners received default notices, up an annual 113.9 percent. In Ventura County, 794 property owners received notices, up an annual 204.2 percent.”

“Most of the loans that went into default in the 2006 fourth quarter were made from January 2005 to February 2006. The median age for the loans was 15 months. On primary mortgages, homeowners were a median five months behind on their payments when the lender started the default process. And they owed a median $10,555 on a median $324,000 mortgage.”

“‘It’s what we expected,’ said Jack Kyser, vice president and chief economist at the Los Angeles County Economic Development Corp.”

The Press Enterprise. “Riverside County saw a nearly 182 percent increase in mortgage defaults compared to the fourth quarter of 2005, while San Bernardino County saw a year-to-year increase of 140 percent. In the fourth quarter, Riverside County recorded 4,631 notices of default. San Bernardino County recorded 3,538 notices.”

“Nancy Herrera, a broker-associate with Corona Mortgage, said she gets requests from people who want to refinance, but who have borrowed to the hilt against the properties and don’t have enough equity.”

“Herrera said in recent years lenders relaxed qualifying guidelines to the point that people with relatively low credit scores could buy a house with 100 percent financing and without documenting their income. She said although lenders have recently begun to tighten their requirements, ‘people are still buying homes they can’t afford.’”

“A nonprofit credit-counseling agency in Riverside handled 10,000 calls about mortgage defaults in 2006, said the organization’s president Dianne Wilkman. ‘And the phone is ringing off the hook this year,’ Wilkman said. Wilkman said nontraditional loans, especially those that originated last year, are driving much of the activity.”

The Florida realtors have the December numbers out. “Sales of existing homes and condos in Florida were down in December. A total of 12,415 existing single-family homes sold statewide last month, a decrease of 28 percent from the 17,215 homes sold during the previous December, according to the Florida Association of Realtors.”

“Looking to Florida’s existing condominium market, sales also declined in December with a total of 3,788 condos sold statewide compared to 5,428 in December 2005 for a 30 percent decrease, according to FAR.”

The Sun Sentinel. “The median price of an existing Broward County home last month was $367,600, off $1,400 from $369,000 in December 2005. The year-over-year decline wasn’t as sharp as in previous months. Palm Beach County’s December median was $368,200, a $40,000 decline from $408,200 in December 2005.”

“Broward had 1 foreclosure for every 35 households in 2006, RealtyTrac said. Broward had 21,144 foreclosures last year, up 56.5 percent from 13,514 in 2005. Palm Beach County had 1 foreclosure for every 51 households in 2006. The county had 10,915 foreclosures in 2006, up 29 percent from 8,454 in 2005.”

The News Press. “Sales of existing homes plummeted 45 percent in December, compared to a year ago, according to FAR. The median price also dropped, from $322,300 to $262,500, down 19 percent from a year ago.”

“Percentage-wise, Lee County saw the biggest decline in the state. Statewide, the numbers of sales dropped 30 percent, while the median price saw a decline of 2 percent from $205,500 to $200,600.”

From TC Palm. “(FAR) says that single-family home sales in the Fort Pierce-Port St. Lucie metropolitan statistical area, which includes Stuart, dropped 27 percent to 330 closings in December from levels of the same month in 2005. Sales of existing single-family homes in the Vero Beach area, tracked by the Realtors Association of Indian River County, dropped 22 percent.”

“Prices on the Treasure Coast also declined from the previous December. In the Fort Pierce-Port St. Lucie area, the median home price fell 9 percent to $240,000. Vero Beach’s median home price fell 6 percent to $220,000.”

The Herald Tribune. “Pressure continued in December on home sellers to lower their prices. The median sales price for homes sold during December in the Sarasota-Bradenton market was $284,700, down 17 percent when compared with the same month last year.”

“Though Coast Bank officials are downplaying the financial turmoil brought to their business by a floundering Southwest Florida home builder, there are strong indications that the problems will grow in coming weeks.”

“Most of the $110 million in troubled construction loans that Coast has on its books were made to out-of-state investors, people more likely to walk away from their obligations to the bank.”

“Customers who bought homes are becoming more and more convinced that they were defrauded by a group of home-building, mortgage and real estate companies that lured them into risky real estate investments in various Florida developments during the market’s boom years.”

“Fernando Cacoilo, the owner of Jodfer Land Service, started clearing and grading home sites for CCI two years ago, and the demand quickly consumed his small business. Now he finds himself short $1 million.”

“He has filed 186 liens against CCI home buyers for bills of $3,000 to $15,000. ‘Fifty percent of my work was from CCI because they just kept pushing, pushing, pushing,’ Cacoilo said.”

“CCI kept him busy, but the company never paid a bill in full, Cacoilo said. Other subcontractors were strung along the same way, he said. ‘As long as we kept getting a check every week, we were all OK,’ he said. ‘My dumb ass didn’t pay attention to the billing.’”

“Before the work stopped, CCI principals were driving Hummers, and construction supervisors new pickup trucks, Cacoilo said. All the contact from customers that Cacoilo has had makes him wonder where the money went. ‘I keep getting calls from homeowners that I liened: ‘CCI drew $127,000 on my home, and all I got is dirt with a pad on it,’ he said.”

“Developers facing a downturn in the housing market want a freebie from Palm Beach County traffic rules. The Gold Coast Builders Association asked the County Commission for a two-year ‘blanket extension’ of building deadlines for all developments.”

“‘These guys always say, ‘Let the market decide,’ said Joanne Davis, spokeswoman for (a) watchdog group. ‘When the market decides against them, then they want government to decide. They can’t have it both ways.’”

“‘Too many homes got built because of the speculation boom,’ real estate analyst Bradley Hunter said. ‘The correction is beginning.’”

“Benderson Development’s plan to build 1,750 new homes next to a new mall seems a bit riskier. A glut of housing has other builders scaling back. ‘This project might be ahead of its time,’ said (consultant) Jack McCabe. Noting that the median price of homes sold in this market is down 18 percent from last year, McCabe said it is ‘an optimistic endeavor to start this type of project in a declining marketplace.’”

“Real estate agent Clay Hyslop’s client bought a two-bedroom condominium on Flagler Drive in 2005, but didn’t spend much time there and needs to sell it. Easier said than done in today’s housing market.”

“‘Sometimes there aren’t buyers,’ Hyslop said. ‘It’s like having the best lemonade stand in the middle of the desert.’”

“So Hyslop persuaded the seller to try something different: listing the West Palm Beach condo in a public auction Saturday in Hollywood. Roughly 160 properties, most of them in South Florida, will be auctioned at the event.”

“Nicole Hollander, president of Auction USA, said she expects plenty of below-market sales at this event as the housing slump lingers in this region. Some sellers in the auction paid $1,500 for the right to turn down the highest bid. But others paid nothing and have agreed to sell to the highest bidder, regardless of price.”

“Two sellers who tried unsuccessfully to list their properties in the auction broke down and cried, Hollander said. ‘There was almost a desperation in people’s voices,’ she said.”

“Richard Lane, a full-time investor, figures the auction is his best chance to sell his house in Hollywood. He bought a home with a pool early last year for $344,000. He said he sank $47,000 into renovations and put it back on the market in May.”

“Carrying costs are about $3,500 a month, and the longer the property sits unsold the more money Lane loses. ‘I’ve had a million agents call me and say they want to list it,’ he said. ‘But nobody wants to bring me a buyer.’”

Some housing bubble reports from Wall Street and Washington. “Home sales saw the biggest drop in 24 years last year, according to a trade group report on the battered real estate market. The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005.”

“The annual sales pace in December was even slower- a 6.22 million annual rate, down 7.9 percent from a year earlier, and off 0.8 percent from the November sales pace. ‘It looks like we’re moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers,’ said a statement from David Lereah, the Realtors’ chief economist.”

“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”

“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”

The Dallas News. “A day after the company reported its first-ever quarterly loss, officials with Dallas-based Centex Corp. said they expect to take more write-offs because of the soft homebuying market. The big homebuilder, which has already cut 17 percent of its staff, also plans more job cuts, Centex CEO Tim Eller said.”

“He cautioned that the U.S. housing market still has potential for further decline. ‘This housing correction is still unfolding,’ Mr. Eller said. ‘Although we are seeing some encouraging signs in some markets, it’s still too early to call the bottom.’”

“For the quarter ended Dec. 31, Centex reported a $228.2 million loss. It took $435 million in charges to get out of lot purchases and write down the value of land. Centex expects $130 million in write-offs in the current quarter from canceled lot purchases.”

“‘We are estimating that we will walk away from another 40 percent of our remaining option deposits,’ Mr. Eller said. Although the builder has dramatically cut back the number of vacant lots it owns, Centex still has a 3.5-year supply, which is ‘longer than we would like,’ Mr. Eller said. ‘Most land sellers are not yet renegotiating options in a way we find acceptable.’”

From MarketWatch. “Centex said its home-building total gross margin for the latest quarter plunged to 6.7% from 29.2% in the year-ago period. CFO Cathy Smith said housing margin for Centex’s latest quarter was ‘down significantly’ due mainly to an increase of discounts, which hit an all-time high of 8.3% of housing revenue in the quarter.”

“‘Our discounts will most likely remain at higher levels for a while as we stay aggressive in reducing our unsold homes and as cancellation rates remain high,’ the CFO said. She said the company’s cancellation rate was 38.5% in the quarter.”

“Two large public home builders after the closing bell Wednesday said their quarterly profits fell from a year earlier as builders reel in their balance sheets to adjust to slower activity in the U.S. housing market. Ryland Group Inc. said its fourth-quarter net income dropped to $87.2 million, from $162 million in the year-ago period.”

“The Company’s consolidated net earnings decreased 46.2 percent for the fourth quarter. For the fourth quarter of 2006, new order dollars decreased 48.7 percent to $463.9 million from $904.2 million in the fourth quarter of 2005.”

“Gross profit margins from home sales averaged 17.8 percent for the fourth quarter of 2006, compared to 26.3 percent for the same period in 2005. Total gross profit margins, including land sales, decreased to 17.9 percent in the fourth quarter of 2006 from 26.3 percent in the fourth quarter of 2005.”

“This decrease was primarily due to pretax charges totaling $54.4 million, which were comprised of $42.8 million for inventory valuation adjustments and $11.6 million for write-offs of deposits and preacquisition costs, as well as to increased sales incentives relating to deliveries for the fourth quarter of 2006.”

The Arizona Republic. “Meritage Homes Corp.’s earnings fell in its fourth quarter as it struggled with a housing slowdown that is hurting all the major home builders. The Scottsdale-based company earned $9 million in the quarter, down 91 percent from $101.9 million in the same period in 2005.”

“Builders are finding they don’t need all of the land they loaded up on during the frenzy. Meritage took $63 million in land charges in the quarter and $78 million for the year, either in inventory valuation impairments or forfeited deposits.”

“Higher cancellations raised inventory. Meritage had 545 completed-but-unsold homes and another 820 that were unsold but under construction at the end of 2006, representing 32 percent of total inventory.”

“‘In response to slower market conditions, we are managing the business more conservatively by slowing new investments in land, renegotiating construction contracts on existing projects and aggressively managing overhead,’ Meritage CEO Steve Hilton said.”

From Reuters. “Gross margins fell 12.2 percent, less than half of the 24.6 percent last year. Orders fell to 1,201, nearly half of the 2,072 the prior year. The average order price was 16 percent lower than in the fourth quarter of 2005.”

“Cancellations soared to 48 percent of orders, up from 32 percent in 2005. As a result of lower sales volume and selling prices, higher cancellations and increased closings in the last 12 months, the number of homes on order and waiting to be built fell 42 percent to 3,685, while the dollar value of the backlog shrank 45 percent to $1.2 billion.”

“‘Based on our reduced backlog and order trends in the last few quarters, we expect 2007 will be a difficult year,’ CEO Hilton said in a statement.”

“Beazer Homes USA Inc. reported Thursday a first-quarter loss and said it sees little proof pointing to ‘meaningful’ recovery in the nation’s housing market. The company said it posted a loss of $59 million in the quarter ended Dec. 31, a reversal from the profit of $89.9 million generated in the first three months of fiscal 2006.”

“The Atlanta-based home builder said $119.9 million in charges (were) taken for inventory impairments and abandoned land-option contracts. ‘At this point, we have yet to see any meaningful evidence of a sustainable recovery in the housing market,’ said Ian McCarthy, Beazer’s CEO. ‘Most markets across the country continue to experience lower levels of demand for new homes, high cancellation rates and significant levels of discounting,’ the CEO added.”

“The company’s home closings totaled 2,660 in the latest quarter, down 31%. Orders for new houses plunged to 1,779 from 3,872 a year earlier, also on lower demand for homes. The company said its cancellation rate for the quarter rose to 43% from 26% a year earlier.”

“NVR, Inc., one of the nation’s largest homebuilding and mortgage banking companies, announced that net income decreased 39% when compared to the 2005 fourth quarter. The fourth quarter results were negatively impacted by land deposit impairments of approximately $60,000,000. These impairments lowered gross margins by 375 basis points.”

From CNN Money. “Ford Motor Co. reported the largest annual loss in company history Thursday. The company has seen big drop in consumer demand for its key products, such as the F-series pickups. While still the nation’s best-selling vehicle, the pickup saw sales plunge by more than 100,000 trucks in 2006 in the face of record fuel prices and a slump in the housing market, which cut demand from contractors.”

“The number of homes in the United States foreclosed by lenders rose 42 percent in 2006 from a year earlier in a sign that many homeowners have became overextended in mortgage debt, a real estate information service reported on Thursday.”

“Recent homeowners who believed the housing market would continue its break-neck pace or used flexible mortgages to make a purchase may be feeling a sting, the company said.As much as $1.5 trillion in adjustable-rate mortgages are due to have their rates reset this year, according to the Mortgage Bankers Association.”

“Many recent homeowners are already struggling to make those higher payments and are drifting toward loan default and foreclosure, said James Saccacio, CEO of RealtyTrac.”

“‘As more and more of these loans re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters,’ Saccacio said.”

The Capital Times reports from Wisconsin. “Developers of the upscale Bergamont golf and housing project in Oregon are turning their attention downtown. Fleming Development is seeking city approval for a 12-story condominium tower at the corner of West Johnson and Bassett streets that would include 197 housing units.”

“Developer Dan Fleming said he was not concerned about the current glut of new condominiums on the local housing market. There are more than 2,400 unsold condos in Dane County, up from 867 just two years ago.”

“‘That’s mostly in the upper prices ranges,’ he said. ‘We’ve got a different target market.’ That market includes students or parents who might want to buy a condo for their children rather than paying rent, Fleming said.”

The Detroit News from Michigan. “For the second year in a row, most Metro Detroit homeowners are facing higher tax assessments despite a continuing drop in the market value of their homes.”

“Charles Weir of Bloomfield Hills said he isn’t pleased about the possibility of his current $15,000 tax bill going up when the average assessed value in his area has dropped 3.62 percent, according to preliminary figures released by Oakland County.”

“‘I don’t feel good about that,’ he said. ‘I think it’s wrong. I think the taxing authorities are not being realistic or fair. The real estate taxes are not reflecting the state of the market.’”

“The math of real estate assessments is heavily tied to the quirks of Proposal A, the state tax law that took effect in 1994. That law kept homeowners’ tax bills from following the then-soaring housing market.”

“‘We’re already hearing people asking, ‘How can my taxes go up when my market value is going down?’ said Steve Mellen, director of Macomb County’s Equalization Department. He estimates that the gap between taxable value and assessed value averages about 20 percent.”

“Dawn Bettcher said she believed homes in her town were being overvalued given the moribund housing market. She cringed over her taxes jumping up again this year. ‘If our house was worth that, I wouldn’t mind, but I don’t think we could get that if we wanted to sell,’ she said.”

“Bettcher added that several homes in her neighborhood have been for sale for over a year, even after dramatic price cuts. ‘They keep dropping the price, and they’re still not getting anyone.’”

The Kansas City Star from Missouri. “Single-family housing construction slowed 21 percent last year in the Kansas City area in response to a glut of unsold new homes. There were 9,359 single-family units built last year, a decline from several consecutive years in which housing starts topped 10,000.”

“Builders put on the brakes partly because of the number of unsold new homes already on the market, 5,575 as of December, according to the Kansas City Regional Association of Realtors. Coupled with a slowdown in sales last month, the Realtors group estimated the area had a 10.9-month supply of new homes.”

“‘The past year has been a year of transition for the local housing market, with the primary focus of local home builders to reduce speculative new-home starts,’ said Tim Underwood, executive vice president of the Home Builders Association.”

“Underwood used the year-end report to warn that Kansas City builders and governments had to do more to ensure that housing remained affordable.”

“‘There is little doubt that Johnson County and other areas of the metro have lost market share due to a lack of housing choices for families and households headed by teachers, nurses, police officers, firefighters, retail sales workers and many other professionals,’ Underwood said.”

“In August, the Kansas City area hit a cyclical peak in unsold inventory tracked by the Realtors, with 20,409 new and existing homes for sale. In December that number had been whittled to 18,030 unsold homes.”

“The inventory number isn’t shrinking because of a surge in sales. In December, 2,336 new and existing homes were sold in the area, down 14 percent from the same month a year earlier.”

“Builders are delivering fewer new single-family homes and shifting more attention to apartments. Some would-be sellers, meanwhile, appear to be holding their homes off the market for the time being while supply and demand rebalances.”

“The 2007 housing outlook in these parts depends on continued restraint by builders and potential sellers. But we haven’t nailed that soft landing just yet. Much depends on how many existing homes go on the market during the spring selling season. At this point, there’s still a buyer’s edge.”

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