The Housing Bubble

Inman News reports on Colorado. “Colorado’s housing market endured a slower December as sales and prices of single-family homes dropped from their 2005 levels, according to statistics provided by the Colorado Association of Realtors. There were 5,033 single-family homes sold statewide in December, off 17.8 percent from the same month in 2005.”

“The statewide median home price sank 4.8 percent between December 2005 and December 2006, falling from $245,517 to $233,854.”

“The steepest decline in median home price occurred in the Pagosa Springs area (near the border with New Mexico), where the median fell from $332,143 in December 2005 to $269,231 in December 2006, an 18.9 percent drop.”

The Greeley Tribune. “In 2006, northern Colorado saw record sale prices but fewer purchases, down 9 percent. Weld County had the state’s highest foreclosure rates. The Group Inc. president Chuck McNeal described last year as a soft landing, which he believes the region will slowly take off from throughout the year.”

“‘We have been in a valley or trough in northern Colorado for a while. The question is, how deep is the valley or trough we are in?’ he said.”

“McNeal also detailed the challenges for Realtors in 2007. The market must still absorb many virtually unsellable ‘residential leftovers’ that buyers purchased at high prices. There will be more foreclosures to come, and with the completion of some large construction projects, a decline in construction revenue will impact the market.”

“Still, The Group labeled 2007 as ‘Another Year in Paradise’ for real estate and touted the unique qualities that attract people to northern Colorado. ‘Real estate people have been accused of being cheerleaders, of being overly optimistic, I say guilty as charged,’ McNeal said.”

The Coloradoan. “A task force hopes to curb soaring foreclosure rates in Colorado with a foreclosure hotline. Gov. Bill Ritter recently joined forces with the consortium of private- sector and government organizations involved with the hotline.”

“As of Monday, the hotline had received 7,400 calls since its debut in October. Ryan McMaken, a spokes-man for the Colorado Division of Housing, estimates the hotline receives 100 calls per day, an increase due in part to the new public service announcements.”

“‘It’s not outlandish to say … we have broken 8,000 by (Friday),’ he said. ‘Considering at one time there were 40,000 homes that were delinquent…we still have a lot of work to do to save a lot of families from foreclosure,’ said McMaken.”

“There have been no indication the foreclosure problems from 2006 will disappear in 2007, McMaken said. In 2006 there were a total of 1,253 foreclosures in Larimer County. In 2007, there have been 114 foreclosures reported in Larimer County.”

The North Forty News. “With property tax bills arriving, work is well under way on the looming reappraisals that will determine the magnitude of taxes for the next two years. In the next three months, Larimer County Assessor Steve Miller said, he and his staff will be developing new formulas to more equitably value the thousands of properties in the county.”

“In developing new property values, Miller said, his office this year will consider sales during the last four years rather than the traditional 18 months. Foreclosures also will be taken into consideration, he said. In doing so, Miller expects to balance out the extremes in values, particularly since the real estate market started cooling.”

“‘We’re in a settling market, so we can’t use one time frame,’ he said.”

“Miller said it is hoped that taxpayers will find their property values plausible. He realizes, however, the reaction may not be so enthusiastic. ‘I think we’re going to get a lot of hard questions,’ Miller said. ‘This is a tough market.’”

“The ugly truth about foreclosures in Larimer County is out, a 33 percent increase from 2005 to 2006.”

“Peggy Bauer of the Larimer County Public Trustee’s Office said the figure for 2006 is 1,253 foreclosures compared with 939 in 2005. By late January, the office had an average of eight new filings a day, Bauer said.”

“The very first culprit Sara Allen, director of Consumer Credit Counseling in Fort Collins, mentions is unscrupulous lending practices, some that were almost guaranteed to get people into trouble if the interest rates changed or their houses declined in value. Colorado was in the top five states in the country in adjustable rate mortgages, she noted.”

“Also, there was a lot of what can euphemistically be called ‘creative financing’ flying around Colorado in the past few years. John Green, a regional economist who lives in Fort Collins, said the biggest culprit in the foreclosure boom is the no-money-down mortgage.”

“‘Without a doubt,’ Green said promptly. ‘To put money down, you have to have money. This is like going to Central City with a couple of bucks and playing roulette and thinking you’re going to be rich.’”

“Green said he couldn’t even pin down a price range of houses for people in foreclosure. ‘I can’t say it’s people in $200,000 houses or $600,000 houses,’ he said. ‘It seems to be pretty much across the board.’”

“Green said the foreclosure problem is a combination of unscrupulous lenders and gullible borrowers. ‘We had a very large number of mortgage companies out there sucking people in,’ Green mused. ‘I wonder how many of them have gone bankrupt.’”

“‘We have had clients whose homes have depreciated before,’ said Allen. ‘What they could do was sell the house, walk away and start over with a little bit of money.’ What’s different now is that some people have gotten in so deep that even if they sell their homes, they are still in the hole.”

“‘Selling their homes does not seem like a very good solution,’ she said.”

“‘You’ve got a recipe for foreclosure,’ Green said. ‘For a lot of people, their answer is to let the bank eat it. So they walk away from their homes.’”

The Rocky Mountain News. “At the beginning of December, people looking to buy or refinance a home could find a 30-year rate at slightly less than 6 percent. Those days are gone. ‘Mortgage rates are rising hard,’ said mortgage banker Lou Barnes.”

“Many of these loans have pre-payment penalties so the home-owners can’t afford to refinance them even to 6.5 percent, said Peter Lansing, CEO of Universal Lending. ‘They can’t sell their homes, they can’t refinance their homes, and they can’t afford their homes because of the adjustable rate mortgages,’ Lansing said. ‘This creates a perfect storm for foreclosures.’”

“‘Obviously, I hope that it doesn’t dissuade anybody from buying. At first, rates were creeping up, and then they went down, and now they are going higher. I hope this persuades people that now is the time to get in a house before they go way up,’ (said) Jeff Rorabaugh, who is selling his home in Broomfield for $265,000.”

Some housing reports from Wall Street and Washington. “Amid brightening hopes that the U.S. housing market is stabilizing, some economists are zeroing in on a piece of data that could augur badly for the consensus view: the homeowner vacancy rate.”

“That figure has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.”

“J.P. Morgan economist Haseeb Ahmed said the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can’t sell and may be under increasing pressure to drop their prices. ‘We are concerned that there could be downward pressure on prices for awhile,’ Mr. Ahmed says.”

“The homeowner vacancy-rate increase ‘does temper your outlook’ for new construction, says David Seiders, chief economist at the National Association of Home Builders in Washington. ‘There clearly are uncertainties about how this is going to work its way out,’ says Mr. Seiders. ‘I keep preaching to builders it’s not time to ramp up production.’”

“The owner of a vacant home, could be more willing to drop the price to minimize the cost, than a homeowner who lives in the home and doesn’t have to sell. Jon Estridge owned a pair of investment homes in Virginia that sat empty for several months last year. When the market slowed, it was difficult not only to find buyers, but also to find tenants who would pay enough rent to cover his mortgages.”

“‘It eats you alive,’ said Mr. Estridge. ‘The market is going down, and you are paying a mortgage.’”

“He eventually sold one home last spring, after dropping the price. He bought the property for $395,000 and sold for about $35,000 less. The other home sold for $260,000 in late August after he dropped the price by about $30,000.”

“‘I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years,’ said Richard DeKaser, chief economist at National City Corp.”

“‘This whole thing has been new,’ says Mr. Seiders. ‘We’ve never seen this kind of investor activity and we’ve never seen this kind of (vacancy) resale. It’s an extra complication moving forward.’”

From Reuters. “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note released on Monday.”

“‘Looking at the inventory backlog and still-stretched affordability levels, this story is far from over,’ Merrill Lynch economist David Rosenberg wrote.”

“A Commerce Department report showing the homeowner vacancy rate rose to 2.7 percent in the fourth quarter, well above the year-earlier level of 2 percent. Goldman Sachs analyst Jan Hatzius noted that the vacancy rate had fluctuated between about 1 percent and 2 percent for the past 50 years.”

“‘By itself, this would point to a fairly enormous supply overhang and little prospect of a bottom any time soon,’ Hatzius wrote in a research note.”

From USA Today. “Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.”

“Wachovia senior economist Mark Vitner says although recent housing data have been upbeat, they have been skewed by warmer-than-usual weather. ‘That brought out a few more buyers and allowed for more building in the Northeast,’ he says. Vitner says the warm weather ‘pulled sales forward.’ Come spring, housing activity will be slower than normal, he says.”

“‘I haven’t met a home builder yet who thinks things have bottomed out,’ he says.”

“Economist Tucker Hart Adams says the housing market won’t stabilize in 2007. The combination of resetting adjustable-rate mortgages, homeowners unable to keep up with payments on so-called exotic mortgages such as interest-only loans, and other debt will lead to higher foreclosure rates and more homes on the market, she says.”

“‘It’s really optimistic to think that it just took a little adjustment and everything is fine,’ she says.”

National Mortgage News. “Should loan brokers be held accountable for all the early payment defaults that are hammering the nonprime sector? One due diligence expert told us ‘bad’ brokers should be run out of the industry on a rail. Several wholesalers are scouring their broker-clients for bad actors with the intention of throwing them overboard.”

“Just how bad was the loan underwriting at Mortgage Lenders Network? One servicing official who worked there told us the privately held non-depository funded a ‘a ton of bad loans.’ He said underwriting was so poor that a 27-year old who claimed to be making $14,000 per month was approved for a $500,000 mortgage on a stated-income loan. The mortgage is now in default.”

“Capital Alliance Income Trust Ltd., a mortgage REIT, released a shareholder letter to address recent organizational changes and operational challenges that the company faces to restore profitability in 2007, dated February 2, 2007.”

“As we enter 2007, approximately 34% of CAIT’s mortgage loans are non-performing assets (as measured by mortgage payments delinquencies in excess of 60 days). Due to the partial financing of the mortgage loan portfolio with debt, non-performing mortgage loan balances are currently estimated at approximately 51% of total shareholder equity and approximately 95% of common shareholder equity.”

“Until this situation improves, management will focus on curing these delinquencies, in order to restore income and protect shareholder value. Until these ratios improve, operating income and new business initiatives will remain constrained.”

“2006’s fourth quarter financial results will require additional loan loss expenses (reserves) to account for the mortgage portfolio’s identified losses. If the residential housing market continues to soften or if the economy slips into a recession during 2007, additional reserves may be needed.”

An update. “Mortgage Lenders Network USA Inc. on Monday filed for Chapter 11 bankruptcy protection, becoming one of the largest casualties among ’subprime’ lenders as the U.S. housing market slows.”

“The Middletown, Connecticut-based company…had been the 15th-largest U.S. subprime lender, filed for protection from creditors with the U.S. Bankruptcy. It listed more than $100 million of assets and debts, and in excess of 5,000 creditors, court papers show.”

“The filing suggests that Mortgage Lenders’ attempts to find a suitor had broken down. On Jan. 2, Mortgage Lenders had said it was in ’strategic negotiations’ with several Wall Street firms about its loan operations.”

“Mortgage Lenders made $3.31 billion of subprime loans in the third quarter of 2006, according to National Mortgage News.”

The Chicago Tribune reports from Illinois. “For Joelle Murphy and Patrick Blackwell, last fall was a blur of open houses. For 21 tedious Sunday afternoons, from August to January, a real estate agent camped out in their living room, trying to sell their house. Early in January, they decided they’d had enough and pulled their Edgewater home off the market–but only for a month. After all, the Super Bowl was coming.”

“‘We were probably priced too high,’ said Murphy, who will have lowered her asking price from $975,000 to $899,000 when her home goes back on the market Tuesday. Last year, before she and her husband listed the home, she said an appraiser pegged it at $1 million.”

“‘We dropped it to $960,000, then to $929,000,’ she said. ‘We were trying to respond to the market, but we just kept missing it, we were behind the curve.’”

“‘There’s an expectation that things are going to pick up after the Super Bowl,’ said North Side agent Patrick Martin, who will relist Joe Delfini’s Uptown condo after the game.”

“Delfini had his two-bedroom, two-bath unit on the market from August through October. He turned down the sole offer he received. He has since lowered his price, and this time, he predicts, the unit will sell. ‘What makes me optimistic is that I’m going to bite the bullet on price so that somebody is going to come in and say, ‘It can’t get much better than this.’”

“Delfini admits he wasn’t enthusiastic about his prospects in August. ‘I knew in my heart of hearts it wasn’t going to move because of the sheer magnitude of the inventory,’ he said.”

“Delfini said…he suffers from non-seller’s remorse. ‘Somebody did make an offer, and, in hindsight, I should have taken it,’ he said. ‘I needed them to come up about $5,000.’ He said the carrying costs of the condo would have outweighed the difference.”

“‘Coulda, shoulda, woulda,’ he said. ‘But in real estate, you can’t have regrets like that.’”

“In Chicago, active listings dwindled throughout the fall, from 48,400 at the end of September to about 39,000 on Jan. 1, according to Chip Wagner, a Naperville appraiser. Wagner also said the declining number of houses available was due more to homes being withdrawn from the market than from sales, and that inventory is beginning to climb again. Between Jan. 1 and Jan. 30, the number of active listings grew by more than 2,900, to nearly 43,000.”

“‘I fear that if a lot of activity comes [from new listings cascading onto the market], we’re going to sink back to where we were,’ he said.”

“Mary Jo Pritza is carrying two mortgages, one on a home she bought last year, another on an Oak Park townhouse first listed in February 2006. She decided to give it a rest at the end of November, to refinish the home’s floors and to see whether buyer attitudes have changed.”

“‘They’re very selective, unrealistically selective,’ she said. ‘They would say things like, ‘This is a great unit but it’s two blocks farther than I wanted to be.’”

“In a couple of weeks, it will be for sale again, she said, though she’s holding on to her price, which she says is reasonable. ‘I don’t know where their hesitancy comes from,’ she said.”

The Toledo Blade from Ohio. “The residential real estate market in northwest Ohio last year can be summed up in three words: houses, houses, houses.”

“(Realtor) Jon Modene in Perrysburg, said sellers of modestly priced homes are beginning to experience the same problems seen at the higher end for two years. ‘They’re under pressure,’ he said.”

“Startling evidence of that was revealed by December statistics for the city of Toledo on the median price of homes on which offers had been accepted. It was $69,000, down 33 percent in a year, Mr. Modene said. ‘It shows that the lower-priced homes were the only ones selling,’ he added.”

“Anna Mills, who buys and rehabs homes for rentals in the Toledo area, is amazed by the number of available properties brought to her attention. ‘We’re flooded with houses,’ she said. The president of the nonprofit Toledo Real Estate Investors Association buys just one house a year.”

“Last year, she hooked up two club members seeking to liquidate with California investors, who are attracted by relatively inexpensive housing in Toledo and elsewhere in the Midwest. She said an unusually high number of unsold houses in the region are vacant, either because lenders foreclosed or owners were unable to meet mortgage payments and voluntarily returned the houses to the bank.’”

The Grand Rapids Press from Michigan. “In Michigan, where the foreclosure rate was among the top five in the nation, there was one filing for every 52 households, a 127 percent increase over 2005.”

“‘It goes from someone losing an inexpensive house to a high-priced house,’ said Chet Trybus, sales manager for West Michigan operations at LandAmerica Transnation Title Insurance. ‘It’s all neighborhoods; East Grand Rapids, Ada, Cascade, you name it.’”

“Widespread layoffs from high-paying, auto-industry jobs is a key problem, but so is a new generation of mortgages that made buying a house easier, until mortgage rates started to rise.”

“Typically, a home is a source of security during financial struggles, but (realtor) Susan Kazma-Hilton in Grandville, said people need to know the limits. ‘When they first lose their jobs, and they start falling behind, they go out and get an equity line because they figure they will get another job or that this is just short term,’ she said. ‘But a lot of times it makes it worse because now they’re upside down.’”

“Easy credit can take some of the blame, too, said Ellen Coon, a partner with a Detroit-area law firm that represents banks and mortgage companies in foreclosures. ‘It used to be hard to get a 30-year mortgage,’ she said. ‘Now, you can get mortgages after you’ve filed for bankruptcy.’ she said “

The Record reports from New Jersey. “Diane Barone could hardly wait for the six-month real estate listing on her Elmwood Park ranch home to expire in late January. She had listed with a neighbor, who is a real estate agent, in July. And she didn’t think the agent did enough to market the home.”

“‘All she kept saying from Day One is that she recommended the house be listed at $299,000,’ Barone said. ‘I had it listed at $325,000. Other houses in the neighborhood have sold for $400,000.’”

“Barone got three offers in the $280,000 range. But, she realized she couldn’t sell at that price, pay the commission and pay off the mortgage. She is now working to sell the house on her own.”

“Sellers trying to swim the chilly waters of the housing market for the past three to six months, and whose homes remain unsold, now have a decision to make: renew with their current real estate agent, or go elsewhere. ‘Absolutely, you should renew the listing if your Realtor has done everything he or she said they would do,’ said Joan Sobeck, an agent with 40 years’ experience. ‘If the price is too high, that’s not the Realtor’s fault.’”

“Sobeck said that if sellers are holding out for prices their neighbors got when they sold six months ago, their homes are not going to sell. When she does comparable price evaluations, she’ll show the seller comparable homes in the area that haven’t sold in the past six months.”

“‘If there are five houses on the market for $550,000 and they haven’t sold, why would you put your house on the market for $550,000?’ she said.”

The Asbury Park Press from New Jersey. “City property owners this week finished receiving their new assessments, all of which are increasing as a result of the city’s ‘vibrant’ real estate market, said an official. But maybe Long Branch did a little too well.”

“Although the average increase was 209 percent, many property owners in the Elberon section saw their assessments triple, said Mayor Adam Schneider, who lives in that section.”

“‘I’ve got to see if there is a factual basis for that,” Schneider said of the significant increases.’ ‘Sticker shock’ is to put it mildly. I’ve got people on the phone screaming at me. I can’t at the moment justify’ the increases.”

“Schneider said that the assessments may have been done when the real estate market was hotter than it is right now, and many people may be reacting to the fact that they cannot sell their property for the new assessment amount now.”

“Ramon Chaparro Sr. said his single-family house on Broadway was assessed at more than $700,000 although when a bank appraised it in 2004, the figure was $260,000. ‘If they are willing to give me $700,000 for my house, I’d be happy to give it to them,’ Chaparro said.”

“In January 2006, another bank appraised the house at $330,000. ‘I don’t think the market is that great that it is going to go up $400,000′ in a few months, he said.”

“Gary Gvrdik, who lives in Oceanport and owns six investment properties in the city, said he bought a two-family house at 692 Broadway for $120,000 eight years ago. In 2003, it was assessed at $218,000. Now, it is valued at $751,600.”

“‘I just don’t know where they come up with these prices,’ he said. ‘You had these investors investing in town and not caring what kind of prices they paid for things,’ he said of out-of-state investors’ interest in luxury housing. ‘Why should we have to pay for their’ largess?’”

The Baltimore Sun from Maryland. “Baltimore City homeowners saw some of the region’s steepest increases in the recent round of property reassessments. In the city, nearly one in five reassessed homes saw values at least double since they were last evaluated three years ago.”

“This assessment cycle, which takes in about a third of each jurisdiction, is the first to straddle both the housing boom and the more recent slump.”

“‘It’ll be a cold day in hell the day someone gets $900,000 for a home in this neighborhood,’ said Perry Huntley, a homebuilder who judges that his waterfront house in Pasadena is overassessed at about $923,000. He said it was appraised for $100,000 less when he built it last year, and he believes local values have dropped since.”

“‘Everybody, everybody I’ve talked to has complained about the property taxes. … I think [state officials] are going to be inundated with appeals,’ he said.”

“Baltimore County’s west side has the lowest average home price among the reassessed suburbs, and saw the biggest jump by far, at an average of 76 percent.”

“In Howard County, the region’s most expensive jurisdiction, assessors are getting angry calls from residents demanding, ‘Didn’t you read the newspapers? Property values are going down!’ Some metro area residents say values have dropped in their neighborhoods since the housing boom ended in late 2005.”

“‘I appealed it; I was furious,’ said Owings Mills resident Dianne L. Stern, a real estate agent whose assessment more than doubled, to about $600,000 from roughly $275,000. She added: ‘If someone wants to come and pay me $600,000 right now, they can have this house.’”

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