The Housing Bubble

The Orange County Register reports from California. “California’s housing slump is in part a result of conflicting expectations of buyers holding out for better deals and sellers still seeking a premium for their homes, a state Realtors group concluded. As the market began to slow, buyers sensed they could get better deals by waiting. At the same time, sellers still hoped to get a premium for their homes.”

“‘This drove a wedge between buyer psychology and seller psychology,’ the report said.”

The Press Enterprise. “The California Association of Realtors said that according to its annual survey, homes purchased by first-time buyers slipped from almost 31 percent in 2005 to just over 27 percent last year.”

“Two of every five first-time buyers relied on 100 percent financing. Association chief economist Leslie Appleton-Young said first-time buyers apparently thought the goal of homeownership was worth stretching their finances. ‘I think when we look back at 2002 to 2005, appreciation was so strong that people couldn’t afford not to buy,’ Appleton-Young said.”

“‘Nontraditional mortgages are not going away. They are just a part of the landscape now,’ she said. She said they can be beneficial ‘for younger Generation Xers and Ys entering the market with the need to stretch every dollar.’”

The San Francisco Chronicle. “Appleton-Young pointed out that buyers are taking on a high debt load at the same time that foreclosure rates are rising.”

“The number of California homeowners who fell behind on mortgage payments more than doubled during the last three months of 2006, pushing defaults higher than at any other time in the past eight years, according to an analysis by DataQuick.”

“The steady increase in the number of people who have missed mortgage payments and received notices of default is cause for concern, Appleton-Young said. ‘You do have people, especially those who purchased in 2006 and 2005, who missed the big cushion of appreciation, who could get into trouble,’ she said.”

“Even as many first-time buyers showed a willingness to take on higher debt, the overall percentage of first-time buyers fell, reaching its second-lowest level on record. ‘The market is going to have to find a way to add new buyers,’ said Ed Leamer, director of the UCLA Anderson Forecast. ‘That’s another symptom of a market gone awry.’”

The Whitier Daily News. “The survey also found that the share of buyers who used a second mortgage hit 43 percent last year, more than triple the percentage since 2001 and the highest percentage since 1982.”

“‘We don’t know yet what the effect of defaulted mortgages will be like,’ said Norman Cox, VP for Coldwell Banker Town & Country in West Covina. ‘There’s no way to tell who’s gonna make it and who’s not.’”

“(Broker) Marty Rodriguez said she’s seeing more ’short-sell’ deals, where the seller owes more on the house than it’s worth. ‘What’s different about this market is now you’re dealing with first and second trust deeds, rather than just first trust deeds,’ she said.”

The Contra Costa Times. “Oakland was one of the few areas in the East Bay that reported a rise in median home prices in December year over year, according to DataQuick.”

“DataQuick analyst Andrew LePage said the rise in prices was mainly because of the drop in resale condominiums for December 2006, a number that historically ‘tugs down’ median home prices.”

“Agent Varnell Owens said she doesn’t see prices rising lately in her listings, mostly lender-owned foreclosures priced to sell. ‘Right now I’m seeing prices down,’ she said.”

The Redlands Daily Facts. “Residential real estate prices in the Inland Empire had been going up double digits in almost all market areas for several years until late 2005. As an appraiser, part of what I do is monitor what is happening to prices, whether they are going up or down.”

“Upward of 25 percent of the buyers during this run-up were investors or speculators. Add to this mix the commuter buyers who were coming from more expensive areas to the west and south. All of this was fueled by low interest rates and up to 100 percent financing.”

“Will prices fall? Yes. How much depends upon the local area, and where supportable demand levels exist. It is my estimate that the Inland Empire Region will experience 25 percent to 50 percent price declines during the cycle we are now in.”

“In Redlands’ 92373 ZIP code, prices started to decline in March 2006. Calculate the change between March and January 2007 and you get a little more than 10 percent. Where will the trend line go in the future? Downward for a while, maybe two to three years, then it will level off.”

“How much will prices decline in 92373? If the average price change was 1 percent per month but the most recent months were higher, what would you project? Probably more than 12 percent this year, maybe less than that in 2008, say 8 percent and maybe 5 percent in 2009.”

“Bear in mind too that all of these sales numbers include any concessions or cash-back that might be in many transactions.”

“When put into perspective of a 10-year pattern, the downturn should have been expected based on the huge run up since 2002. No reason to panic if you purchased your home for the quite peaceful enjoyment of it.”

“Only the speculators and flippers and the last ones that purchased in 2005-2006 are in any trouble at all. The rest of us just need to continue to enjoy our homes, unless we were using it as an automatic teller machine.”

“Orange County real estate agents earned a fifth less in commissions last year, forcing brokerages to close some offices and pushing some agents out of the business.”

“More than 59,000 people in the county have real estate licenses, 44,000 as sales agents and nearly 15,000 as brokers.”

“‘There were payroll reductions. Offices closed. All kinds of things happened to … keep (offices) running with the total loss of commission revenue,’ said Rich Cosner, president of a chain of realty offices in Orange County and the Inland Empire.”

“‘It’s back to the basics for the industry,’ said Steven Thomas, a broker in Aliso Viejo. ‘Our agency has let people go. Other agencies have let people go. We call it the year of the professionals in 2007.’”

“Amanda Wheeland, a flat-fee broker, said last year’s market actually favored her business because she was able to take over expired listings and sell homes that full-service agents couldn’t sell for a reduced price. Her sellers still had to pay full commission to buyers’ agents to attract showings, however.”

“Still, Wheeland said many agents who were just barely making a living selling homes had to leave the business or go into a related field like property management. ‘If they’re not getting clients, they’re not making enough to pay their rent,’ Wheeland said.”

KARE 11 reports from Minnesota. “Over the last ten years, housing prices here increased 6 to12 percent a year, in one of the longest, most profitable runs of any boom market ever in history. But the Minnesota Realtors Association wants you to understand something, it was an anomaly.”

“Josh and Jen Reitan are trying to sell a great little starter home in northeast Minneapolis. When they bought it two years ago, they paid more than the asking price the day it hit the market. Today it’s a whole different market.”

“‘It’s terribly obvious,’ Josh says, ‘I think we’re experiencing this at both extremes.’”

“They’re asking $230,000, about 10 percent more than what they paid. $230,000 is the median price for a home in the Twin Cities, so it should involve the greatest number of potential buyers. But it’s been almost three months and the house hasn’t moved.”

“Josh and Jen are motivated sellers, they’ve already bought their next home.”

“There are 25,000 homes for sale in the Twin Cities metro this week. If you’re trying to unload a twin home or town home here, depending on price, you could be up against an 18-month supply or more.”

“Glenn Dorfman has been with the Minnesota Realtors Association for 24 years. He believes people need to think about their homes less as an ‘investment’ – and more as ‘a place to live.’ ‘If you’re selling your house, you won’t get what your neighbor got two years ago,’ he says.”

“The variables are endless. ‘Timing is the most important one,’ Dorfman says. If you bought in the last 2 to 3 years and you bought 100 percent equity or took equity out of your house, whatever, you’re going to lose money. If you buy and hold, you’re in good shape.”

The Lincoln Courier from Illinois. “Logan County forclosures in 2006 continued a steady increase, reaching triple digits for a third consecutive year.”

“Lincoln attorney Douglas Muck, who also was a bank director 22 years, offered reasons to why there has been such a steep increase. But there was one reason he wanted to make clear. ‘My opinion is that it is the change in lending systems,’ Muck said.”

“Muck said a lot of mortgages are sold to secondary investors, including banks and financial institutions that are not locally based. ‘They can be in California, New York, Florida; they can be anywhere,’ he said. ‘Home lending has become a different business in the last couple of years.’”

“Another reason is buyers simply get a loan for a house they can’t afford. ‘They are overpaying for the property they buy,’ Muck said. ‘They are using the car-buying mentality in saying, ‘Can I afford the payment?’”

The Hillsdale Daily News from Michigan. “It seems like you can’t take a step in Hillsdale County, without tripping over a ‘for sale’ sign. More homes on the market with no comparable rise in demand, perhaps even a decrease, means prices are pressured to drop.”

“Complication matters is the spike inforeclosures. are rapidly accelerating, dumping even more houses on the market. In 1999, there were 38 foreclosures carrying a value of $1.74 million. Last year, those numbers had soared to 194 and $16.7 million.”

“Anne Fike, president of the Hillsdale County Board of Realtors said today’s real estate market provides an opportunity for investors if they want to buy and hold until the market improves. ‘We have to make a positive out of a negative in order to move ahead,’ Fike said.”

“Long–time agent and broker Don Helton shakes his head at the status of the current market. ‘I’ve been through four recessions affecting real estate sales,’ said Helton, ‘and I’ve never seen one like this.’”

“But don’t get the idea lower real estate values will quickly translate into lower property taxes, according to Nick Wheeler, who oversees the county’s equalization office. ‘Sometimes, I have to tell a new owner his property taxes are going to remain the same even though he paid a lot less than the property showed value previously,’ said Wheeler. ‘I tell him he got a great deal.’”

The Columbus Dispatch from Ohio. “Law-enforcement officials think that the popular Short North restaurant owners ran a multimillion-dollar mortgage-fraud ring that involved foreigners buying houses in elite central Ohio neighborhoods.”

“Numerous other suspicious deals across Franklin and Delaware counties also are under investigation. Authorities subpoenaed records from three other mortgage or title companies with offices in Columbus.”

“Deborah Osmond of Powell was glad to hear that authorities are investigating. A house down the street from hers sold in September. A buyer paid far more than the house was worth and never moved in.”

“Then, a week after the Dispatch article, another house across the street sold for an inflated price, only to sit empty. ‘This has got to stop,’ she said.”

The Cincinnati Post. “Salaries of area workers may not be keeping up with the rising cost of buying a home, a new study suggests. The widening gap between salaries and home prices means buyers are finding new ways to finance their purchases, said Janie Wilson, president of the Northern Kentucky Association of Realtors.”

“‘In today’s market, there are so many different types of financing,’ said Wilson. ‘If people have been prudent in the past with credit-type issues, then most people can buy a home. There are so many creative ways to do it that it’s amazing,’ she said.”

The News Leader from Missouri. “Downtown developer Craig Wagoner is going to do something different for his biggest endeavor so far. Instead of putting in rental apartments, the predominant practice for him and his peers in the downtown development business, Wagoner will sell the 32 condominiums he plans to build in his latest project.”

“‘Downtown is ready for condos,’ Wagoner said. ‘People think downtown is the real thing.’”

“Several developers are, or at least thinking of, shifting gears to offer more condo units in downtown Springfield. City planners are considering streamlining the procedure for developers to divide a building into condominiums, and lenders are turning their eyes to this burgeoning market.”

“‘I won’t be surprised if there will be hundreds and hundreds of (condominium) units (for sale) in downtown Springfield,’ said Tom Nash of North American Savings Bank.”

The Boston Globe reports from Massachusetts. “Mortgage lenders submitted a record 19,487 foreclosure filings in Massachusetts last year, leaving more homeowners in danger of losing their homes than at any time since the real estate recession of the 1990s.”

“Filings in Barnstable County rose 91 percent, to 934 in 2006, according to ForeclosuresMass.com. But the greatest number of filings was in Worcester County, 2,987, up 76 percent, followed by Middlesex County. Statewide, filings rose nearly 70 percent, from 11,493 in 2005, with the pace quickening at year end.”

“Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said yesterday in a statement that homeownership has increased, due to the greater availability of mortgages. ‘2003 through 2005 were historic years for [mortgage] production in Massachusetts,’ his statement said, ‘and it would correlate to the increased foreclosure results for 2006.’”

The Boston Herald. “Among communities recording 100 or more foreclosures in 2006, filings increased most sharply in Everett (up 159.6 percent), Lowell (146.4 percent) and Mashpee (121.7 percent). Boston fared little better: Hub foreclosures rose 85 percent.”

“‘(Last year) was a terrible year for thousands of Massachusetts homeowners,’ ForeclosuresMass.com President Jeremy Shapiro said. ‘More families faced foreclosure than at any other time in our history.’”

“Shapiro attributed 2006’s sharp spike in foreclosures to a ‘perfect storm’ of problems for homeowners, ranging from a soft housing market to increased use of risky ‘exotic’ mortgages. ‘All indications are that this trend will not abate, which means trouble for tens of thousands of additional homeowners in 2007,’ he said.”

“Mortgage foreclosures more than doubled in Everett, Lowell and five other Massachusetts locales during 2006.”

“Foreclosures increased statewide by 69.56% over 2005 levels (19,487 v. 11,493). Foreclosures have more than doubled since 2004, increasing by 124.27% (19,487 v. 8,689). More foreclosures were filed in Q4 of 2006 (6,525) than any previous quarter since ForeclosuresMass.com began tracking data in 2003. Foreclosure filings in Q4 jumped a staggering 33% above Q3 of 2006.”

“Filings during Q4 of 2006 were 112% above Q4 of 2005 (3,071). December 2006 had 114.74% more foreclosure filings than December 2005 (2,156 v. 1,004).”

“In communities with 10 to 49 foreclosure filings in 2006, the largest increases were in Bernardston (1000% increase, 11 in 2006 v. 1 in 2005), Lancaster (540% increase, 32 v. 5), Orleans (400% increase, 15 v. 3), Eastham (333% increase, 13 v. 3), and Granby (333% increase, 13 v. 3).”

From New York Business. “Despite a significant slowdown elsewhere, residential construction in New York City continued at a torrid pace in 2006, according to newly released figures from the U.S. Census Bureau.”

“The year saw the second highest number of building permits for privately owned residential units since 1972. Jason Bram, an economist at the Federal Reserve Bank of New York, points out that the 30,927 units that received permits in 2006 in New York City exceeds the total issued in the six-year period from 1990 through 1995.”

“In addition, last year’s figure includes only new construction and does not include units in office buildings or hotels being converted to residential use, or the units re-built in dilapidated buildings, Mr. Bram says.”

“Seventy-two percent of the permits issued in 2006 were for units in the Bronx, Brooklyn, Queens and Staten Island. Manhattan accounted for 28% of the units.”

The New York Post. “There were more residential building permits issued in Brooklyn last year than at any time since modern record-keeping began in 1965, according to figures released yesterday.”

“Manhattan’s stratospheric real-estate market undoubtedly was also a factor. ‘The high prices in Manhattan are pushing people over the bridges,’ observed Mark Kessler, president of the Brooklyn Chamber of Commerce.”

“Bronx Borough President Adolfo Carrión noted that property values in his borough spurted 75 percent in five years. ‘It’s a little scary,’ he said. But he added: ‘The positives far outweigh the negatives.’”

“During the recession of 1991, The Bronx recorded just 22 residential housing permits. Last year, it registered more than 200 times as many. ‘There is construction everywhere,’ said Carrion.”

The Poughkeepsie Journal from New York. “A slowdown in the housing market is delaying construction of a 199-unit subdivision off Beekman and Greenhaven roads. ‘They are in a wait-and-see mode right now,’ Town of Beekman Planner Neal Townsend said.”

“Sharbell Development Corp. of Robbinsville, N.J. is holding off on building the subdivision due to a ‘nose dive’ in the sale of new homes across the region, said Sharbell senior vice president Thomas Troy. ‘We’re hoping there will be a thaw in the market in the year ahead,’ he said.”

“Sharbell is planning on building single-family homes with three and four bedrooms and ranging in size from 2,400 to 3,600 square feet. Sale prices are expected to be $500,000 and up.”

“Tim Gunther, who sells real estate part time, said with about 200 upscale homes for sale in the towns of Beekman and Fishkill alone, he can see why Sharbell is holding off on sinking millions of dollars into construction of the Springs homes.”

“‘Since you have 200 homes on the market which aren’t selling, what makes you think these 200 are going to sell?’ he said.”

Bloomberg reports on Florida. “Brian Tuttle owns so much land that he paid $3.6 million to get rid of 125 acres ready for development in the middle of Florida’s Palm Beach County. ‘In 2005, I was a brain surgeon, and in 2006, I was a moron,’ said Tuttle, who walked away from his deposit on the land rather than lose even more money buying it and building homes on it. ‘The only good news is that I’m not alone.’”

“If he chose to buy the land, he would pay $310,000 an acre, almost 10 times more than the $33,000 an acre he paid for his first parcel there in 2000. Two years later, land values have fallen by as much as 40 percent. Tuttle said it was impossible for him to make enough on the deal, so he chose to give up the deposit rather than buy the land.”

“‘I’m just this humble guy and I didn’t see prices going this low,’ Tuttle said. ‘The big guys didn’t see it either.’”

“These days, the speculators are looking foolish. In Florida, where they helped inflate land values as much as 10-fold from 2000 to 2005, prices have dropped by as much as 50 percent.”

“‘The land market has dried up,’ said analyst Alex Barron. ‘Most builders are on the sidelines because they expect prices to go down another 30 percent.’”

“St. Joe Co., Florida’s biggest private landowner, said yesterday the average price per acre of land it sold in the fourth quarter dropped to $1,900 from $4,100 in the third quarter.”

“Jack McCabe, a real estate consultant in Deerfield Beach, Florida, said land prices in his region will keep falling. He said investors are waiting for prices to hit bottom, probably in the second half of this year. ‘It’s going to be pretty ugly,’ McCabe said. ‘Lots of people will lose money and a lot of paper wealth will be going away.’”

“Margie Bushnell is one land speculator who said she’s willing to wait to get the price she desires. The 77-year-old widow from Flagler County, Florida, owns a half-acre parcel on Highway A1A in the coastal town of Hammock. The carrying costs are killing her, she said. She’s paying property taxes of $4,500, triple what she paid when she made the purchase three years ago.”

“‘It’s an extremely lot of money,’ Bushnell said. ‘I’m retired and it’s hard for me to come up with that.’”

“Bushnell is offering the land on a free on- line advertising site. A year ago, her price was $699,000. Now she’s asking $650,000. She said in a half-whisper that the land, zoned mixed commercial and residential, could be had for $595,000. She’s ready to wait another year for a buyer at that price.”

“How much did Bushnell pay for the half-acre in 2004? $80,000.”

The News Press. “A meltdown in the Southwest Florida housing market has forced a hiring freeze of building inspectors and permitting staff in Lee County and Cape Coral.”

“‘We’re hearing that things could be slow possibly for another year, so I don’t think we’ll be filling (openings) any time soon,’ said Mary Gibbs, director of Lee County’s Department of Community Development.”

“‘When we had the boom, we had tons of overtime. So we cut out the overtime. We had some temporary help. We cut out the temporary help,’ Gibbs said.”

The Orlando Sentinel. “Bob Bach Sr., vice president of research nationally for Grubb & Ellis Co., and another expert, though speaking to a crowd of commercial real estate brokers, spent a lot of time talking about the state of residential real estate, given the nationwide slowdown in existing-home sales and the slump in new-home construction.”

“Mark Vitner, chief economist for Wachovia Corp., the nation’s fourth-largest bank, said a recent uptick in home sales doesn’t mean the residential market’s troubles are over. ‘I don’t think so,’ Vitner said. ‘There’s evidence the market still hasn’t hit bottom.’”

“Vitner said recent sales spikes were due to the holding power of relatively low mortgage rates and to home-builder incentives. The market’s weakness is reflected in order cancellations, which are still running high, he said. For example, Orlando’s new-home market is experiencing a 50 percent cancellation rate, while the nationwide average is 35 percent, Vitner said.”

The Tampa Tribune. “With a premier address and waterfront views, ParkCrest Harbour Island was irresistible to many investors, who repeatedly bought and sold units since it opened two years ago. Now, dozens of owners want out, and there are signs some can’t pay their bills.”

“Sixteen of the 336 units are in some stage of foreclosure, and 67 of the condos are for sale. An additional 41 units are listed in the database as leased or for rent. ‘This is excellent anecdotal evidence of what’s happening in the Florida housing boom and the bust we’re now in,’ said consultant Jack McCabe.”

“Of the 16 foreclosures in ParkCrest, five are a result of owners not paying condo association fees. The rest are being foreclosed on by the financial institutions holding the mortgages. It is not clear how many of them are investors, but three own two units each.”

“‘I tend to think the overall trouble in the condo market is because investors are overextended,’ said Jim Pyburn, president of the ParkCrest Harbour Island Condo Association. Pyburn said other condo owners are on the verge of foreclosure for not paying monthly fees. The fees vary depending on unit size, but a 1,300-square-foot condo runs $573 a month in maintenance fees, he said.”

“ParkCrest Harbour Island, along the Garrison Channel in downtown, opened in March 2005. The building was originally planned as an apartment complex, but the developer decided during construction in 2004 to convert the project into condominiums. Within six weeks, the building was nearly sold out, the company said at the time.”

“Investors have converged on the building since the beginning. There are 397 total sales in the building listed in the MLS. Some of the units have sold multiple times.”

“Developers typically sell units themselves and don’t use the listing service, so many of the sales listed in the database are resales, said Emmy Purcell Reynolds, vice president of Tampa real estate company Henry Purcell Inc.”

“Reynolds said she has taken clients to see units in ParkCrest three times and isn’t surprised by the amount of foreclosures. ‘The apartment-condo idea may have been good in its infancy, but developers oversaturated the market,’ Reynolds said. ‘The units themselves [in ParkCrest] don’t feel like condos; they feel like apartments.’”

“Of the 67 units on the market, 15 have been for sale less than a month; 10 have been on the market for more than 200 days and two have been waiting for a buyer for more than a year, according to listing data.”

“There are so many units on the market that the ParkCrest condo association has decided not to allow lockboxes to hang on the doors. Instead, the lockboxes, used by agents to gain access to units, go in a cabinet. ‘If you walked in a building as a buyer and saw 67 lockboxes, you might be a little intimidated,’ Pyburn said.”

“Michael Brudny, a lawyer in Oldsmar, is representing the condo association at ParkCrest. Brudny said the firm represents 400 condo associations in the Tampa Bay area and that foreclosures on behalf of associations are on the rise.”

“‘It’s the only remedy associations have when people don’t pay,’ Brudny said, noting that some condo owners face losing their property over as little as $2,000 in assessment fees. For some condo investors, the foreclosure process is a way to buy time to come up with the money, he said. But if they can’t, others are watching and waiting to buy units at a discount.”

“McCabe said he is advising these investors to wait for better deals. ‘In my opinion, it’s still a little early. After the current snowbird season is over, I think we’ll see lenders take back properties from developers and foreclosures will go up dramatically.’”

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