The Housing Bubble

The Voice of San Diego reports from California. “Every weekend for nine months, Marti Ummel has been making trips to real estate offices in North County. Ummel makes the trips in protest, asserting with printed signs that she and her husband were defrauded by a Re/Max associate in 2005.”

“She says she and her husband paid about $150,000 more than the recent homes in her Carlsbad neighborhood had sold for, a detail she says their Realtor, Michael Little, neglected to mention.”

“‘Even though it’s always ‘buyer beware,’ you think that the Realtor is looking out for the client’s best interest,’ Vern Ummel said. ‘You have to do your due diligence, but you can only work with the information you have. And we weren’t given the right information.’”

“Marti and her husband take to the streets with their signs that say things like, ‘It’s our money; we want justice.’”

“The Ummels admit that the house in question cost more than a million dollars. And after selling their former home in San Rafael, the couple needed only a $300,000 mortgage on the Carlsbad property. ‘Nobody’s going to feel sorry for us,’ Marti Ummel said. ‘We can afford to get screwed. But there are other people who can’t.’”

“In the heated real estate market that peaked near the end of 2005, real estate prices soared, and buyers often bid much higher than sellers had asked for. But they usually did so knowing what the comparable sales in the neighborhood had been.”

“The Ummels say Little didn’t provide the appraisal of the property until a week before they closed the sale. And when it did come, it matched the seller’s asking price exactly, and was based on sales that actually had larger lot sizes and better amenities, Marti Ummel said.”

“On May 29, they made an offer on a four-bedroom, 3,697-square-foot tract home in the Serenada neighborhood in Carlsbad. The seller, Vicki Urzetta, was herself a real estate agent and had advertised a selling price of $1.175 million for the home.”

“The Ummels made an offer at that price, and Urzetta countered with a $1.2 million price. They agreed to pay that, despite concerns that they hadn’t yet seen an independent appraisal on the property.”

“The Ummels’ copy of Little’s request for the appraisal shows double underlines and exclamation points next to the notes for the appraiser, John Contento: ‘Purchase price $1,200,000; Need yesterday — sorry!’”

“The Ummels claim this as evidence that Little influenced the appraisal so that they would feel more comfortable buying the home at that price. Another, almost identically sized, home on the same block had sold six weeks’ previously for $1.095 million, but the Ummels say Little didn’t tell them about it.”

“Roger Lopez, an appraiser who wasn’t involved in the sale, said that requests for price-matching aren’t uncommon for appraisers to receive. Because appraisers’ businesses depend on being asked to do appraisals by mortgage brokers, they sometimes feel ‘undue pressure’ from the mortgage brokers to match the price they’re asking for.”

“‘That doesn’t relieve the appraiser of the responsibility to do their job,’ he said. ‘But there is a gray area because nobody’s perfect.’”

“The Ummels are in the process of settling suits with both Contento and Horizon Pacific Financial Inc., the mortgage brokerage Little was affiliated with when he made their loan.”

“Under the current slow market conditions, work is less-than-plentiful for many real estate agents. A lot of times, the acquisition and retention of clients is a matter of perception and reputation. So, clients who enter a parking lot with picketers decrying the office’s integrity may consider taking their business elsewhere.”

“Marti Ummel said she may continue picketing even after the suit is settled. She wants more than money, she says she wants to make sure this situation doesn’t happen to anyone else. ‘I will not stop picketing until we feel that Re/Max has been fair with us,’ she said. ‘I could be doing this for five years.’”

The San Diego Business Journal. “Slower sales and rising rates and payments on adjustable rate mortgages continues to drive foreclosures higher for homes in San Diego County. An online market for distressed properties, said 12,623 properties entered some stage of foreclosure in December, up 66 percent from December 2005.”

“The site lists 4,466 properties in pre-foreclosure and 4,166 bank-owned properties in San Diego County alone.”

“Condo converters are suffering the first signs of a burst in the real estate bubble. San Diego condo converter Maisel Presley successfully managed conversion of 1,000 units since 2001, yet recently went into default on one of its major projects in Oceanside.”

“Cathryn Low, a principal with Lee and Associates’ Multifamily Advisory Group, confirmed that a number of converters in San Diego are in default or trying to work out agreements with their lenders.”

“Low said, ‘There is a lot of demand on too little cash’ when units do not sell. ‘There is no question that over time the existing inventory of condos will be absorbed but it is not going to happen in the next year or two; it could take another three to five years before the existing inventory of converted condos is absorbed,’ said Low.”

The Journal Sentinel reprots from Wisconsin. “One good month doesn’t spell recovery, industry representatives said. But so far, February is looking good. The big draw: better deals this year than in 2006. ‘A property might be going at 98% of asking price, but that’s 98% of the last list price, not original price,’ industry spokeswoman Tammy Maddente said. ‘That property might have been on and off the market two or three times.’”

“‘What’s happened now is that we’re out of La-La Land and into reality,’ Donahue said.”

The Detroit News from Michigan. “In December, Ed Roland, joined Michigan’s growing ranks of desperate home sellers. He had already moved in with his daughter in Florida and watched helplessly as his Canton Township home languished on the market for nine months.”

“‘It’s vacant and we’re paying taxes and paying lawn service,’ said his daughter Judy. ‘We just thought, ‘Don’t mess with it: We’ll just accept whatever (the buyer asks).’ And what did the buyer ask? Pay the rest of this year’s taxes, about $2,400, on the home.”

“It’s unclear how common the practice has become, but buyers emboldened by the housing market glut are not ashamed to ask for it. ‘It’s just giving us extra cash that we didn’t think we would have before,’ said Jim Lorenz, who is preparing to move his family from Dearborn Heights to their new Canton home. ‘The people purchasing our house asked for the same thing.’”

“Metro Detroit’s down-and-out housing market may be a nightmare for sellers, but it’s a paradise for potential home buyers.”

“Just ask Keith Nida of Clinton Township, who bought a house in Roseville for $50,000 below its asking price. Before he found the house, Nida put an offer on another house, but the bank foreclosed on it before his offer was approved. ‘It was either bad luck or a blessing in disguise,’ Nida said.”

” There’s a huge supply of homes, condos and rental housing to choose from. In 2006, there were 45,998 residential properties that went on the market in Wayne, Oakland, Macomb and Livingston counties. That compares to just more than 14,000 in 2001.”

“‘The market is great if a person is looking to buy,’ said Ron Simpson, president of the Detroit Association of Realtors. ‘Property values declined sharply in the past year.’”

“University of Michigan senior research specialist Don Grimes urges some caution and realistic expectations. Buyers can get a bargain right now, Grimes said, but he questions whether southeast Michigan’s housing market will ever rebound to what it was a decade ago.”

“‘I have no doubt there are deals to be had,’ Grimes said. ‘But don’t go into it expecting appreciation except at the rate of inflation.’”

“Realtor Ron Simpson agrees that buyers who expect quick appreciation will be disappointed. Buyers won’t get a return on their investment until the economy improves. Until things get better, Simpson said, buyers should be prepared to keep any property they buy. ‘Is it a good time to buy a home? Absolutely — if you can afford to hold on to it,’ he said.”

“John Kurczak, a Realtor in Sterling Heights, said his clients are on the lookout for the best deal. Many buyers won’t even look at a property unless they can practically steal it, he said.”

“That is why Kurczak warns home sellers against holding onto a house for too long. He advises considering any offer and working with the buyer. ‘There’s an old saying in the real estate businesses that goes: ‘Your first offer is your best offer,’ Kurczak said. ‘Don’t get upset if the offer is too low. Sellers need to understand the buyers’ anxieties and work with the buyer; you have to give and take.’”

“Prices will drop another 10 percent to 30 percent in 2007 and begin to stabilize in 2008, said Kurczak, who has seen this up-down cycle many times in his 16-year career. ‘This is the storm we’re going through right now,’ he said. ‘We’re at our bottom; the only way to go is up.’”

The Pioneer Press from Minnesota. “Ever shop the clearance racks for condos? Bargain shoppers can save up to $100,000 Saturday on brand-new condominiums in Burnsville’s Heart of the City.”

“A mortgage lender slashed prices on the 34 available units after the original developer defaulted on the mortgage — resulting in the lender foreclosing on the property.”

“The Uptown Landing project was the first condo project in the Heart of the City. Three more condo developments are in the works or have been completed in the area.”

“Industry experts suspect the building sat almost empty for nearly two years after completion because of today’s soft suburban condo market and rising interest rates, construction prices and land costs. ‘Right now, a lot of contractors are running into trouble,’ said Larry Zielke, who handles foreclosures. ‘Foreclosures are up overall on individuals, but they’re also up on contractors.’”

“Springbrook sold only three Uptown Landing units after finishing the first phase in summer 2005. With almost no condo sales, the company soon defaulted on the mortgage.”

“Kapital und Zinsen, a company formed to acquire the debt, purchased the mortgage in February 2006 for an undisclosed amount, said George Zeller, the company’s chief manager. ‘We said, ‘How can we get this property back productive? In this market, we need to give people a reason to buy. Let’s make an offer that’s hard to refuse,’ Zeller said.”

“The condos, originally priced from $175,000 for a one bedroom with 862 square feet to $325,780 for a two-bedroom with 2,021 square feet, now range from $134,900 to $229,900.”

“Uptown Landing ‘had some difficulty with the way the units were designed,’ Burnsville Mayor Elizabeth Kautz said. Kautz put money down on a condo at ParkCrest on Nicollet, a mixed-use building in the Heart of the City. She’s been waiting for her house to sell to move into the unit.”

“The market influenced Klingelhutz Construction Co. of Chaska to change its plans to develop Nicollet Plaza, a two-phase condo project in the Heart of the City, said Pat Pauly, general superintendent. Klingelhutz began building phase two first, a $12 million, 70-unit building, instead of phase one, an estimated $20 million, 140-unit building.”

“‘You’re better off being $10 million in the hole rather than $20 million,’ Pauly said.”

“In today’s market, it’s not unusual for developments to stall or go into foreclosure, Zielke said. But it’s more typical for projects under construction to default on their debt. It’s unclear what happened with Uptown Landing, but one thing’s certain: ‘Somebody lost money on this deal,’ Zielke said.”

Some housing bubble news from Wall Street and Bloomberg. “It was bound to happen sooner or later, an out-of-the-blue reminder that the froth or the boom or the disconnect between prices and fundamentals in the housing market would have a financial after-shock. HSBC Holdings dropped a small bomb last week. Yes, Virginia, subprime mortgages do carry some risk after all.”

“Isolated examples? Probably not. Confined to the subprime market? Doubtful. ‘There is no way the conditions that existed in the subprime market between borrowers and lenders weren’t a multiple of what went wrong,’ said Michael Aronstein, chief investment strategist at Oscar Gruss & Co. ‘The incentives are perverse. You’re paid for volume, not for being a schoolmarm.’”

“In its January survey on bank lending practices, the Fed said that a net 15 percent of domestic banks reported tightening credit standards on residential mortgage loans over the past three months, the biggest net increase since the early 1990s. That was the last time banks were saddled with, guess what?, bad real-estate loans.”

“The ripple effects of the housing slowdown aren’t confined to the financial sector, according to economist Asha Bangalore. ‘Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005,’ she says. ‘Employment in residential construction declined in nine out of the 10 months ended January 2007,’ according to the Bureau of Labor Statistics.”

“Only three years ago, former Fed Chairman Alan Greenspan said homeowners could have saved a heck of a lot of money had they opted for adjustable-rate mortgages during the past decade.”

“‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed- rate mortgage,’ Greenspan said in a speech to the Credit Union National Association in Washington.”

“Lenders took his advice. Borrowers jumped at the opportunity. Everyone may suffer the consequences.”

“Merrill Lynch CEO Stanley O’Neal was willing to lose $230 million to catch Bear Stearns Cos. and the shakeout is just beginning. That’s because Merrill is determined to capture a dominant share of trading in bonds backed by home loans.”

“‘You’ve got to remember’ that Bear Stearns, the perennial leader in mortgage bonds, ‘got into this business at the height of the boom, when you could not lose,’ Angelo Mozilo, Countrywide Financial Corp.’s CEO, said. ‘The real test will come for these new players in how they do in this new cycle,’ Mozilo said. ‘A couple may do fine and a couple won’t do fine. Just because it’s Wall Street and they’ve got into the origination business doesn’t mean they automatically win.’”

“‘We still have way too much capacity,’ said David Olson, the former director of market research at Freddie Mac. ‘That means a lot more firms have to go out of business.’”

“With more than 8,500 financial institutions competing for mortgages, many began extending them to borrowers who might not have qualified previously. ‘Too many firms got involved in making loans probably motivated in part by fees,’ Federal Reserve Bank of St. Louis President William Poole told reporters after a speech last week. ‘They thought they could lay off the credit risk by securitizing and selling these off in the market.’”

“Bear Stearns reduced its purchases of subprime loans by half last year because of concerns over the decline in credit quality, President Warren Spector said on a conference call. That’s not to say Bear Stearns is backing away. Last week, it completed the $26 million purchase of Encore Credit Corp., the subprime home-lending unit of Irvine, California-based ECC Capital Corp.”

“ECC Capital Corporation today announced the closing of the sale of its mortgage banking business to Bear Stearns. A significant portion of ECC Capital’s portfolio of loans held for sale, totaling approximately $1.2 billion, was included in the Loan Sale that also closed on February 9, 2007.”

“Certain of the loans included in the Loan Sale were sold at substantial discounts due to early, curable payment defaults and documentation and related defects that may be resolved so as to increase or decrease the purchase price to be paid by Bear Stearns.”

“ECC Capital closed the sale of certain residual interests in a securitization on February 9, 2007 at a price that resulted in a $10 million loss.”

“Home builders are confronting their own problems, as shown in Toll’s results, which showed that orders sank 33 percent in the first quarter while revenue from home construction dropped 19 percent.”

“Falling prices for land are also weighing on the industry. The five largest U.S. builders, Horton, Pulte, Lennar, Centex and Toll, recorded a total of $1.47 billion in related costs for the fourth quarter.”

“There may be more bad news to come as well. The National Association of Realtors said last week that sales of new homes would decline until the fourth quarter because too many had been built.”

“U.S. profits increased at the slowest pace in more than four years last quarter because of a record loss at Ford Motor Co. and earnings declines at Occidental Petroleum Corp. and Pulte Homes Inc. The biggest slump in home sales in 15 years battered homebuilders including Pulte.”

“‘Despite what people might say in terms of the bottoming in the housing market, if we are at the bottom, we’re not going to get off this bottom for at least a year or two,’ said Ernie Ankrim, chief investment strategist at Russell Investment Group.”

“The consolidation wave sweeping through the mortgage sector showed no signs of abating. Lenders Direct Capital Corp. stopped taking applications from mortgage brokers as of Friday, the company’s chief executive officer, told MortgageDaily.com.”

“The lack of ‘investor demand in subprime industry is such that we felt it was prudent to do it at this time,’ he said. ‘The liquidity of subprime loans seems to be in a state of flux.’”

The Record reports from New Jersey. “John and Susan Scerbo put their five-bedroom Ramsey house on the market more than a year ago, expecting to sell within a few months. But the house is still for sale, even after the couple cut the asking price from $695,000 to $649,000.”

“‘We got caught in a tough market,’ said John Scerbo. ‘Buyers are slow to act, and there’s enough inventory out there that they can take their time looking.’”

“‘A lot happened during the boom, and we have some paying back to do yet,’ said economst David Seiders.”

“(Brokers) Karl Kern in Wyckoff and Mark DeLuca in Teaneck both say prices in the Bergen County area dropped about 5 percent in 2006. Both said another drop of 3 percent or so is possible in ‘07. ‘Inventory is still very high, and inventory puts a whammy on prices,’ said Kern.”

“Tough as the softer prices may be on sellers, they come as welcome news for buyers. ‘You can drive a pretty good bargain,’ said Bob Walters, chief economist for Quicken Loans.”

“Walters predicts that prices will remain soft for 2007 and 2008. Kern has a similar view. ‘I think it’s the nature of the cycle of real estate that we’re not going to have a boom again for a long time,’ Kern said.”

“The housing slowdown has also had a big impact in the new-construction market, where activity is at the lowest level since mid-2000. Reflecting builders’ wary mood is Hovnanian Enterprises Inc. of Red Bank, the state’s largest home builder, which was forced to cut prices in many of its communities in 2006.”

“Hovnanian recently dropped plans for two North Jersey projects: a 372-unit development in Mount Olive and a 288-unit development in West Milford. In all, it walked away from $141 million in land deposits company-wide in the fourth fiscal quarter.”

“The company has been forced to scale back construction in the face of a wave of cancellations by prospective buyers, many of whom can’t sell their current homes.”

“Ara K. Hovnanian, the company’s chief executive, said until contracts pick up, ‘we are continuing to manage assuming that current conditions remain with us for the foreseeable future.’”

The New York Daily News. “The number of city foreclosures jumped 18% in the last half of 2006, with as many as 100 homes going on the block each week in both Brooklyn and Queens, according to Crain’s New York Business.”

“‘The last time I saw it this bad was in the early 1990s,’ Jessica David, president of Profiles Publications.”

“‘The [lending] industry is exploiting customers’ ignorance and seizing the opportunities offered by the skyrocketing real estate market,’ said Sarah Gerecke, chief executive of Neighborhood Housing Services of New York City.”

“Staten Island homeowner Leone John said she worried that the $280,000 home she bought in 2004 was more than she could manage. But a two-year freeze on the interest persuaded her to take the plunge. Now her payments have jumped 30%. That hike, along with other unanticipated expenses, has put her behind in her payments.”

The New Haven Register from Connecticut. “Both buyers and sellers are getting an early jump on the spring housing market. ‘The demand is there,’ said (broker) John Cuozzo in Hamden., and sellers have learned that, in order to sell, they must seek a lower price than they likely would have fetched last spring. ‘The asking prices seem to be more realistic; 2006’s expectations were rather grandiose.’”

“The market has returned to more normal levels, meaning buyers should see smaller price tags attached to homes this year, said Donald Klepper-Smith, chief economist at DataCore Partners in New Haven. ‘They’re going to be down from the lofty levels of 2006,’ he said. ‘It’s unrealistic to expect that housing market to go on forever. What we have now is a normal correction in the cycle.’”

“Donald Williams of New Haven plans to put his two-family home on the market in the spring so he can buy a smaller home in the area. He expects it to sell relatively quickly at his $210,000 asking price.”

“‘I think it’s worth more,’ he said, but he plans to ask that price in order to sell as quickly as possible. Williams also said he will spend the coming weeks doing yard work and making other improvements to the property in order to help it sell.”

“On average, homes in Greater New Haven are spending about 120 days on the market, a trend that is likely to continue through the spring, said Paul Gradwell, president of the Greater New Haven Association of Realtors. And as sellers are getting more realistic with their asking prices, he said, buyers are taking notice and stand to benefit throughout the spring. ‘They’re being more selective,’ he said.”

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