The Housing Bubble

The Orange County Register reports from California. “For the first time in a decade, the median price of an Orange County home failed to post a gain from the year before, falling to $600,000 in January, DataQuick reported. It also was the sixth month-to-month price drop since the median hit a record high of $642,500 in June, and was the lowest median in a year.”

“‘It could have been worse,’ added Jan Brueckner, professor of economics at UC Irvine. ‘We could be San Diego.’”

“Chapman University economist Esmael Adibi believes Orange County is on the verge of seeing negative annual price appreciation. Indeed, prices may already be in negative territory since DataQuick’s figures don’t reflect the concessions homebuilders are offering new home buyers in lieu of cutting their recorded prices.”

“‘The median is not really reflecting what’s going on because of that,’ said Adibi.”

“For example, Irvine home shopper Wally Welter reported seeing a $1 million William Lyon Homes model selling at the former Tustin air base for $160,000 less than it was in August, not counting the $25,000 floor allowance.”

“It took five months and three price reductions to find someone to buy Michael and Elizabeth Ploppert’s Ladera Ranch home after Michael accepted a job transfer to Idaho. The Plopperts even showed their three-bedroom, two-story house on Christmas Eve and New Year’s Eve.”

“‘It wasn’t fun,’ Michael Ploppert, said, noting that more than 300 homes were for sale in Ladera Ranch at the time. Around mid-January, they found a buyer. Escrow was set to close Wednesday. ‘The buyers in the market dictate what’s going to happen,’ he said.”

“Banks sent out more tardy notices in January to Orange County borrowers who are behind on their mortgage payments, marking the sixth consecutive monthly increase in such notices. They mailed 847 notices of default last month, up 23 percent from December and 121 percent from a year ago, DataQuick said today. It was the highest monthly total since March 1999.”

“And more owners lost their home to the bank last month. Banks foreclosed on 153 homes in January, up 26 percent from December and 512 percent from a year ago.”

The Union Tribune. “San Diego County housing prices slid a bit further last month, returning to mid-2004 levels, as buyers pressed for more concessions from builders and discounts from sellers.”

“It was in the new-housing sector that the biggest price fluctuations occurred. Analyst Tim Sullivan, said what’s at work in the new-housing category is a buildup of finished homes sitting empty in subdivisions and condo projects. ‘Inventory (of unsold homes) is the bugaboo everyone is focused on,’ Sullivan said.”

“Sharon Hanley, who publishes a weekly bulletin on local new-home sales, reported that the inventory of unsold homes stood at 5,095 at the end of January, a 36-week supply, with 871 detached and 4,224 attached homes available. At the same time five years ago, the inventory was 2,378 homes.”

The Ventura County Star. “Ventura County’s median price for new and existing homes and condominiums fell 6.5 percent to $565,000 in January, the fifth consecutive month of year-over-year declines. The number of sales countywide also was down, 14.3 percent from January 2006 with only 689 properties changing hands, according to DataQuick.”

“While he still expects Ventura County’s real estate market to be fairly flat this year, economist Mark Schniepp said it could improve if sellers are competitive on price. Much of that, he added, will depend on the way builders price new homes and condominiums.”

“‘A bounce may be coming,’ said Schniepp. ‘But the only way it would be coming is if a lot of the new-home product, which is slated to come on line this year, is priced accordingly by builders. If it’s not, then I don’t think you’ll see the bounce that we are projecting.’”

The Thousand Oaks Acorn. “Home prices up, home prices down. But the experts agree on one thing: Residential real estate isn’t the safe haven it used to be. ‘No major collapse is being forecast,’ economist Mark Schniepp said, but warned, ‘It doesn’t really look like we’ve hit a plateau yet at the bottom.’”

“‘The real estate bubble has effectively burst as sales have collapsed and price appreciation has subsided,’ Schniepp’s forecast said.”

“Howard Roth, chief economist for the California Department of Finance, thinks the housing turnaround will be slow in arriving. ‘The California and national housing sector downturns are not yet over,’ Roth said.”

The Press Enterprise. “Inland homebuyers and sellers continued their standoff of the past several months, with January sales counts dropping by nearly a third from year-ago levels.”

“DataQuick analyst John Karevoll said Southern California continues to have a glut of unsold homes, created in large part by sellers still trying to capitalize on a market peak that has passed. ‘Half are unrealistically priced,’ said Karevoll. ‘The people who are really serious about selling are getting serious about their prices.’”

“Robert Kleinhenz, deputy chief economist for the California Association of Realtors, said Wednesday that the Inland region’s rising unsold inventory is an indication that prices will likely be softening in the coming months. According to association figures, the region had about 4.7 months’ worth of unsold inventory as of July 2006, but that had risen to 9.2 months by December 2006.”

The Sacramento Bee. “Developer John Saca Wednesday said he has defaulted on a $22 million loan he used to buy the downtown land where he broke ground last year for two 53-story condominium and hotel towers.”

“Construction on the prominent site stopped in January, leaving a hole in the ground, studded with piles, a few blocks down from the Capitol. Contractors and professionals on the project have filed about $13 million worth of liens, bringing the project’s total unpaid debts, including the land loan, to about $35 million, Saca said in a prepared statement.”

The Record.net. “One hundred employees of Washington Mutual Bank’s downtown administrative center were notified Tuesday their jobs will be eliminated by the end of the year. he Seattle-based bank’s Stockton center is downtown’s largest private employer, with 703 administrative workers and another 50 working in bank branches throughout Stockton.”

“It’s Washington Mutual’s second 100-person layoff announcement in a year. It wasn’t good news to those who promote the downtown economy. ‘Our goal is to promote economic growth in downtown Stockton. It obviously isn’t pleasing to us,’ said Steve Stevenson, president of the Downtown Stockton Alliance.”

“Fifty of the affected employees work for Washington Mutual subsidiary Long Beach Mortgage. Their back-office, loan-fulfillment jobs will end on a staggered schedule until the office is shut down sometime in April.”

“‘Our decision is a reflection of the weakening overall of the subprime mortgage market,’ corporate spokesman Tim McGarry said.”

“McGarry said another 50 Washington Mutual employees working in custodial operations within the loan servicing department were informed Tuesday their jobs will end this year, with half ceasing July 31 and the remainder at the end of the year.”

“‘By early 2008, we will be consolidating this function in Florence, S.C., on a staggered basis for continuity’s sake,’ McGarry said.”

Some housing bubble news from Wall Street. “Major financial firms like Merrill Lynch, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.”

From Reuters. “Standard & Poor’s said it may downgrade ratings on 18 securities from 11 mortgage-backed bond issues sold by units of companies, including Goldman Sachs Group Inc. and New Century Financial Corp..”

“The bonds are backed by subprime and second-lien mortgages, and so-called alt-a loans, whose credit is considered between prime and subprime, S&P said.”

“‘Many of the 2006 transactions may be showing weakness because of origination issues, such as aggressive residential mortgage loan underwriting, first-time home buyer programs, piggy-back second-lien mortgages, speculative borrowing for investor properties, and the concentration of affordability loans,’ S&P said in a statement.”

“The percentage of loans in the pools that are severely delinquent range from 2.77 percent for Terwin’s 2006-8 issue to 13.46 percent for New Century’s 2006-S1 deal, S&P said.”

The North County Times. “Accredited Home Lenders Holding Co., which sells mortgages to customers with poor credit, on Wednesday reported a loss of $37.8 million for the fourth quarter of 2006.”

“The company’s financial performance, combined with the declining subprime lending market, has led Accredited to put a stronger emphasis on screening subprime borrowers to make sure that they can repay their loans, the company said Wednesday.”

“Joseph Lydon, the company’s COO, speaking during a telephone conference, said that the subprime market could get worse before it gets better. ‘Unless the market moves the way it should, there will be plenty of additional blood flowing in the streets,’ he said.”

“Keith Gumbinger, a VP at the mortgage research firm HSH Associates, said the declining housing market, combined with loose lending standards during the last two years, have come back to haunt the subprime market. However, he said, the current industry troubles could be beneficial in the long term.”

“‘We are going to see more losses as 2007 goes on, (and) more companies could close their doors,’ he said. ‘This is the first step toward getting back to lending sanity.’”

“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”

The Union Tribune. “‘We have been making adjustments to the products we offer as well as processes and underwriting discipline,’ said Joseph Lydon. ‘We recognize the market we’re in, and we believe credit quality has to be the No. 1 priority.’”

“The question for the housing industry is whether the troubles in subprime lending will spill over into more conventional mortgages. If they do, lenders could tighten credit standards for borrowers…and that could hurt not only first-time buyers but also people who recently purchased homes using hybrid adjustable rate mortgages with the idea of refinancing.”

“Nationwide, between $1.1 trillion and $1.5 trillion in hybrid adjustable mortgages are scheduled to reset this year, according to the Mortgage Bankers Association. With little or no price appreciation in the past year, it may prove difficult for these borrowers to refinance out of their hybrid loans if lenders boost credit standards.”

“During the housing boom, scores of lenders entered the niche business of making loans to borrowers with tarnished credit. The increased competition for loans led to easy credit. There are only so many people in that market, said Lou Galuppo, at the University of San Diego. ‘The only way to enlarge the market is to drop the (credit) score.’”

“‘I just don’t think there’s a whole lot of room for anyone in the business to continue to book bad loans,’ Lydon said. ‘The buyers of the loans are putting them back fairly quickly’ if they default.”

From Bloomberg. “Former Federal Reserve Chairman Alan Greenspan said the U.S. housing slowdown may be coming to an end, citing sales of new homes. ‘I think the worst is behind us,’ Greenspan told a Toronto conference.”

“‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”

“Greenspan also said ‘disarray’ in the U.S. subprime mortgage market, which serves borrowers with weak credit who typically pay higher interest rates, isn’t likely to create greater financial instability in the rest of the economy.”

“‘We do have a problem here; it’s probably not over,’ Greenspan said. ‘It may actually infect some parts of the prime mortgage market, but there’s no real evidence that this is a significant issue.’”

“The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices declining in nearly half of the metropolitan areas surveyed, a real estate trade group reported Thursday.”

“The National Association of Realtors report showed that the biggest declines were in former boom areas.”

“Median home prices fell in 49 percent of the 149 metropolitan areas surveyed in the fourth quarter, compared to the same period a year ago. That was the largest percent of metro areas reporting price declines since the Realtors began tracking price data in 1979.’

“David Lereah, chief economist for the Realtors, said he believed the data shows that housing, which had enjoyed a five-year boom, was bottoming out in the final three months of last year.”

“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said. ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”

The Herald Tribune reports from Florida. “Hundreds turned out to a Long Island Marriott Hotel to hear one of several presentations that led many northeastern investors into perhaps the biggest financial catastrophe of their lives. As the historic 2003-05 Florida real estate boom peaked, Seashore Resorts LLC and its agents regaled investors with stories about…the potential for 30 percent annual returns on residential real estate.”

“Seashore pitched ‘100 percent spec investor pre-construction loans’ requiring little or no money down so long as the investor had good credit: a score of 680 or higher. By the time most investors were brought aboard, the music had all but stopped, along with the work on their homes.”

“Scores of investors are now preparing to go to court, saying they were swindled and sucked into a deal where they lost control of their credit lines. They say that Bradenton’s Coast Bank, now wrestling for its own survival, did not adequately supervise the loans, allowing large draws by Construction Compliance Inc, with no proof that work had been done.”

“At first, many deals worked out in the booming Florida housing market of the last several years. Investors watched as friends made killings, and those tales of success drew more friends, family and club members into the fold.”

“George Tannous, a New Jersey resident, and several friends and family put down sums ranging from $2,500 to $7,500. ‘Each investor very quickly had a credit line established at Coast Bank amounting to as much as $300,000 each,’ Tannous said.”

“Joanne Inglese, another New Jersey investor, was told to expect a 10 percent slice of the gross sales price of her home, or about $30,000, for the use of her credit. She has since seen $70,000 drawn from her Coast Bank loan for an uncompleted home, liens from subcontractors who have not been paid by CCI and the prospect of a badly damaged credit rating.”

“Paul Matera and Bob Prisco were big movers of Seashore deals. Prisco and Matera were paid fees of up to $3,000 by each of the 70 investors they brought into the deal, for a total of about $210,000. Matera said he personally invested in two uncompleted CCI homes and some of his family members invested in another two. ‘I invested right alongside everybody else,’ he said.”

“Matera said he ‘feels terrible’ about the problems that have arisen around the deals he sold to investors. But he said he warned everyone whom he brought into the Seashore circle that they should ‘not do this deal, if you can’t carry the house.’”

The Palm Beach Post. “In St. Lucie County, whose phenomenal boom-time growth once prompted a front-page story in The New York Times, new foreclosure filings in January more than quadrupled, RealtyTrac said Tuesday. And some analysts say the worst may not be over.”

“In St. Lucie County, speculators fueled a run-up in home prices, as they did throughout South Florida, analysts say. Consultant Jack McCabe estimates that as many as 50 percent of St. Lucie County buyers were ‘investors buying to flip homes like a share of stock.’”

The Orlando Sentinel. “The quick sale of homes for a fast buck is fading rapidly in Florida and even faster in Central Florida. Sales of homes owned less than six months fell again in the fourth quarter, as flat home values continued to cool the practice of speculative, quick sales known as ‘flipping,’ according to a company that tracks sales and home values.”

“Speculators’ ability to make money on a quick sale has plummeted, Ela said. The company’s analysis of Florida sales found that the number of flippers who lost money on their gambles more than doubled last year, from 10.4 percent in 2005 to 24.4 percent. ‘That’s a big jump,’ said HomeSmartReports President Mike Ela.”

“Of those speculators who lost money on a Florida home sale, the median loss was $23,250 in the most recent quarter, up from about $15,000 a year earlier. ‘They were losing more money every quarter,’ Ela said.”

The Sun Sentinel. “Almost three years ago, Al Vazquez bought a historic fixer-upper next door to him in the Parker Ridge neighborhood of West Palm Beach. He transferred his homestead exemption to the new house, then watched in disbelief as the property taxes on the first home ballooned to $3,500 from $650.”

“Carrying two mortgages, Vazquez recently tried to unload the tiny home off Forest Hill Boulevard to a friend for about $200,000, or about 20 percent below market value. ‘It would have been a steal,’ Vazquez said, ‘but his property taxes would have doubled.’”

“After almost three years of frustration, Vazquez said he can’t wait for the day his home sells. ‘We just want to get rid of it and go on vacation.’”

The St Petersburg Times. “Homeowners aren’t the only ones vulnerable to foreclosure these days.”

“Sun Vista Snell LLC, which paid $41-million last year for a Snell Isle apartment complex and planned to spend another $20-million converting it into condominiums, has been sued by its chief lender for allegedly defaulting on a $34-million loan.”

“Wachovia Investment Holdings LLC claims Sun Vista stopped paying its mortgage in October, just months after obtaining a loan to acquire the 272-unit Snell Isle Club complex on Eden Isle.”

“In a court filing, St. Petersburg-based Sun Vista acknowledged that it stopped making payments but denied defaulting on the loan.”

“The suit could spell financial trouble for principal John Loder, who caught the real estate bug after his family sold the Crabby Bill’s restaurant chain and is involved in several other high-profile real estate projects locally.”

“Wachovia says Loder and architect Stephen Spencer both guaranteed the loan personally; each claimed he was worth at least $20-million.”

“Wachovia’s not the only Sun Vista creditor feeling crabby. Gannaway Builders of Clearwater claims the developer stiffed it for more than $500,000 worth of work, while Gulf Coast Painting and Waterproofing says it’s owed about $38,000.”

The Tampa Tribune. “A Tampa title agency under investigation by state and federal authorities for its role in questionable property transactions has closed. Ocean Title’s sole underwriter, Houston-based Stewart Title Guaranty Co., terminated its relationship with the company in November, two weeks after The Tampa Tribune published a story detailing how the agency handled some of the sales.”

“Stewart ‘has continued to cooperate with the various investigative agencies,’ Susanne Hawkins, regional claims counsel, said in a statement Wednesday.”

“The Tribune’s story in October detailed 36 area homes sold over seven months by Tampa real estate agent Dawn L. Molen. Her buyers, most from Indiana and in an investment club, consistently paid $50,000 to $70,000 more than the sellers were asking.”

“All the deals were closed by Ocean Title, and the money beyond the seller’s price, an average of $60,000, was paid as an ‘assignment fee’ to third parties associated with Molen.”

“The story prompted investigations by the state attorney general’s office and three other state agencies. Stewart representatives have said the FBI also is investigating. Nina Banister, spokeswoman for the Florida Department of Financial Services, which oversees title agents and agencies, said its investigation is ongoing. ‘It is very active,’ Banister said.”

“Amity Bernhard, an officer of Ocean Title, said the company closed because it could not do business without an underwriter. ‘We haven’t been indicted, but because of the bad publicity … the business I worked so hard to build is now defunct and all my employees have been laid off.’”

The Wall Street Journal reports on New York. “Five-Fifteen Park Avenue has everything one could want in a Manhattan home. But on most days, the limestone and beige-brick tower at the elegant Upper East Side address lacks one thing: many of its residents. More than half of the building’s 35 units belong to absentee owners.”

“‘It can feel a little empty,’ says Las Vegas developer and billionaire Phillip Ruffin.”

“A number of the 180-plus residences at the Time Warner Center condominium belong to absentee owners. Thomas Siebel, who paid $28 million for his full-floor home, has rarely been there since buying it early in 2006, say real-estate professionals. The condo fees and taxes on the 79th-floor unit total almost $20,000 a month.”

“Michael Linn recently spent about $2.3 million for a Manhattan residence. He says he bought the Manhattan home for convenience, but ‘putting money in New York real estate was an important investment for us.’”

“The occasional occupants are troubling to some full-time residents, who say their buildings are left depressingly hollow. ‘It deadens the whole neighborhood,’ says Keith Irvine, a long-time Upper East Side resident. ‘You sometimes get a sense that whole streets are deserted.’”

“Antonio Reid says the building can ‘go dead’ some weeks when many residents are gone, leaving hallways empty and his kids without playmates. ‘Let’s just say that my kids aren’t going next door to borrow a cup of sugar,’ he jokes.”

From Newsday. “In Nassau, the median home price fell to $450,000 in January from $470,000 in December, down 6.3 percent from a year earlier. Nassau’s median closing price is at the same level as it was in March 2005. In fact, broker Dianne Clark said it’s increasingly common to sell homes at prices prevalent two years ago.”

“‘That’s what you have to do,’ Clark said. ‘You have to do that. If people price them unreasonably, nothing’s going to happen.’”

“A Freeport homeowner eager to move lowered the price every two weeks when there weren’t interested buyers, Clark said. The small two-bedroom home in Freeport sold last month for $315,000 - $50,000 less than the original listing price in 2006.”

The Democrat and Chronicle. “The market hiccupped a bit late last year, but buyers have come back in force after realizing much of what is happening with falling home prices in the South and West isn’t happening in Rochester, said John Antetomaso, president of the Greater Rochester Association of Realtors.”

“There were 840 home closings during the month, compared with 759 in January of last year. The Monroe County Clerk’s computer system failed for a week in late December, causing some closings to be pushed to January, but the numbers were not significant enough to make much of a difference, said real estate attorney Michael Ringrose. Home closings were down 14.1 percent in December.”

“Buyers are a little more cautious than they were two to three years ago, but ‘buyers are willing to buy if there’s value,’ said John Arquette, general manager of Nothnagle Realtors, which has 570 agents in the six-county region. ‘We may be headed to the market we had 24 months ago,’ he said.”

“Penfield resident Jim Crowley purchased and sold a home last year because his family needed more space. But Crowley did make a few concessions to the buyer. ‘We sensed that things were starting to change,’ he said, adding he did not want to pay two mortgages since he was building a new home.”

“In December, Crowley and his wife Michele and children moved into their 3,400 square-foot home in Penfield. ‘We’re hoping that the house will be an investment,’ Crowley said. ‘We’re not under any delusion that it’s a hot Florida market.’”

“The intensity of the pace is not quite at the level it was two years ago, when sellers were in the driver’s seat, said Rome Celli, broker in Brighton. While home sales are still strong, the asking prices are not as firm in the current market, he said.”

“‘What we have is a market in transition,’ Celli said. ‘We have to assume trends that were there last year will still be around.’”

The Staten Island Advance. “For 2006, Staten Island experiencing a 47 percent jump in the number of people who fell far enough behind in their mortgage payments to slip into some stage of foreclosure, according to year-end data. One in every 52 households here defaulted on a loan, 1.8 times the national average. By comparison, one in 121 homes in Queens entered foreclosure, and one in 96 homes in Brooklyn was in foreclosure last year.”

“Experts have said the problem is driven by an increase in high-risk, predatory lending in the borough, the $6.5 billion in commercial and residential loans taken out by Islanders in 2005, and a general downturn in the housing market. Foreclosures represented about 2 percent of the 163,993 households in the borough last year.”

“The Advance first reported last summer that Staten Islanders were slipping into foreclosure faster than the national average and the rest of the city, and that concern about the problem was enough to prompt Legal Services for New York to open a foreclosure prevention project in Staten Island in St. George.”

“‘We’ve been flooded with calls. We are getting calls from all over the Island and all ranges of incomes,’ said Margaret Becker, an attorney with the foreclosure prevention project. The project opened one year ago and is currently working on about 15 lawsuits against lenders.”

“Citywide, foreclosures jumped 40 percent from 2005 to 2006, according to RealtyTrac.” “A report last year by New York University, found that the rate of sub-prime lending in Staten Island for purchases and refinances nearly doubled between 2002 and 2004, while housing prices here increased at a slower rate than in the other boroughs.”

“Ms. Becker said the majority of cases involve people who have refinanced multiple times, moving from sound, affordable mortgages to risky loans and lumping unsecured credit card debt into new mortgages, often under pressure from brokers and without realizing the ramifications of those loans. She said many people often get into trouble after becoming temporarily unemployed.”

“‘It’s because they are put into these unsound, risky mortgage products that they are losing their homes,’ she said. ‘On Staten Island, something really bad is going on and I can’t quite figure out what it is.’”

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