The Housing Bubble

The Marin Independent Journal reports from California. “Hundreds of buyers, sellers and brokers are trying to figure out where Marin’s fabled real estate market is headed. The answer: No one knows for sure. Corina Rollins, a Greenbrae appraiser and real-estate instructor at College of Marin, is, if not quite bearish, then certainly concerned about current market conditions.”

“Rollins now sees ‘a significant and growing backlog of inventory.’ There was 20 months of available detached-home inventory in the year ending Feb. 1, versus 15 months the previous year. For condos and townhomes, there were 21 months of potential sales on the market in the year ending Feb. 1, versus 14 months the previous year.”

“Scott Hunt in San Rafael said business has dried up recently for him and other housing inspectors. Hunt said he usually gets six or seven jobs a week, but lately he has gone for more than a week at a time without an assignment.”

“‘I just lost a huge chunk of the market, so I don’t know what’s going on,’ he said. ‘I called myself yesterday to see if my phone was still working. My phone hasn’t rung in two weeks. It seems like the whole world’s for sale, and there’s no buyers. It’s been dead as a mackerel.’”

“Bill Powell, a flooring and carpet specialist who works closely with real estate agents, said the existing inventory is growing, so sellers are starting to realize their homes must be in top condition to be competitive.”

“‘It’s not a time to put a fixer-upper on the market,’ said Powell. ‘You’re going to have to discount deeply or let it sit on the market for a while.’”

“Knox Lundgren bought (an) aging three-bedroom home in 2004 for a little over $900,000 and planned to tear it down, build a new home and resell it. With the approval process in limbo, Lundgren decided to place the home on the market to see if a seller emerged. He originally listed it for $999,000 before reducing it to $899,000, meaning he will lose money in an otherwise torrid Larkspur market.”

“‘My wife wants a bigger house and she wants it now, and she’s not willing for me to wait or build a new house,’ said Lundgren. ‘She wants to get going.’”

The San Francisco Chronicle. “As home prices in the Bay Area stagnate and sales volume plunges, the next blow to the region’s housing market could come from defaults among high-risk borrowers, some experts say.”

“Until recently, the Bay Area’s booming housing market kept such marginal borrowers out of trouble. But no more. ‘The stunning erosion in mortgage credit quality is quickly becoming another very heavy weight on the Bay Area’s housing market,’ said economist Mark Zandi.”

“The percentage of Bay Area subprime borrowers who fell behind on payments jumped to 23 percent from 11 percent in that same period. About a quarter of the mortgages issued in 2005 and 2006 in California fell into the subprime category, compared with 20 percent nationwide, according to Economy.com.”

“‘Most people are stretching pretty far to get into that loan to begin with,’ said the Center for Responsible Lending’s Paul Leonard. ‘Many of these loans were underwritten only based on initial payment, not on a fully indexed rate.’”

“Some borrowers will simply be unable to afford the higher payments, said economist Christopher Thornberg. ‘Money is money, and the first rule of financial markets is that there is no such thing as getting money in a cheaper way,’ Thornberg said. ‘You can’t reduce the cost — you’re only shifting when the costs occur.’”

“Many loans, especially subprime loans, are packaged into complex pools called mortgage-backed securities and sold to investors.”

“Mortgage companies have always been willing to work with tardy borrowers. ‘The servicer is often given latitude,’ says Brad Blackwell, national sales manager for Wells Fargo. ‘If it’s sold to Fannie (Mae) or Freddie (Mac), we have predetermined ranges we can take. If it’s sold to a private investor, our hands are a little more tied,’ says Blackwell.”

The Union Tribune. “It is one of San Diego’s newest neighborhoods, 349 addresses in a waterfront community envisioned by the late local developer Corky McMillin as a place that would be home to Middle America.”

“But the compact enclave at the former Naval Training Center, public property the city turned over to The Corky McMillin Cos. in 2000, has block after block of million-dollar homes far out of the financial reach of most San Diegans.”

“A four-month analysis by The San Diego Union-Tribune of residential properties at what now is called Liberty Station has found a community of investments where unoccupied homes are the norm on some streets.”

“At least one in three households, 40 percent of condo owners, have not declared their homes as a primary residence for tax purposes, despite a sales contract that required owners to live in the homes for a year before selling or leasing.”

“Among the buyers were many of McMillin’s top executives, some current and former city officials and dozens of real estate professionals.”

“Dominic Carnevale and his mother, Alissa Davey, who is a Realtor, had been showing up at McMillin’s headquarters every weekend when Carnevale finally heard his name called one Saturday in 2004.”

“Carnevale, who works for a brokerage firm, had his heart set on a particular house. But then, he said, a McMillin salesperson told him it was ‘already taken by a VIP’ who wasn’t even there. Carnevale complained. He said McMillin offered to put him on the top of the list for the next phase of houses, but he declined because the purchase price could go up.”

“‘Technically, to us, they cheated,’ Davey said. ‘Rules are rules, and they broke them. I don’t care who they are; if you make a rule you keep it.’”

The LA Times. “If buyers have felt lonely making the sole bids on houses these days, it might be because home flippers, those who buy property with the intention of renovating and reselling quickly, haven’t been as active in the last year.”

“‘The market where you could just go in, tidy something up and make a lot of money is gone,’ said Jad Najjar, a longtime flipper and real estate broker in Beverly Hills.”

“The number of his clients looking for houses to flip has declined 75% in the last year, he said, in part because it’s become a more rigorous and less profitable business right now and less experienced buyers fear a potential drop in the market. Najjar himself has had a 50% drop in profits from flipping since 2005.”

“Although buyers can find lower prices in transitional neighborhoods, said Michael Richards, an agent in Los Feliz who specializes in finding flip properties, they shouldn’t jump into new and unfamiliar territory too quickly in a softening market.”

“‘Transitional markets can lag behind the better markets, and they are usually the areas that decline first’ if the market goes down, he said.”

“Toby Donnelly also has become a lot pickier about what he will buy. ‘All your profit is determined by how well you buy the property,’ he said. He won’t purchase a house now unless he feels like he’s ’stealing’ it.”

“To hedge her bets, Debra Klein always makes sure a property is rentable in the event it doesn’t resell quickly. ‘You have to make sure the rent you could get would cover your costs,’ she said.”

“Many rental agencies and real estate brokers will provide free estimates and surveys of comparable homes for potential clients, services Klein used last year before she bought condominiums in Palm Desert and Indio. She is currently renting out those condos in addition to a house in Encino that she bought last year.”

“Although she’s covering her costs and making a profit on renting, she still plans to put all of the properties on the market in the next 12 months.”

The Yuma Sun reports from Arizona. “Increasingly, people’s dream homes of two or three years ago turn into nightmares because of mortgage payments they no longer can afford. ‘We used to get one or two (foreclosures) every couple of months,’ said Vicki Bardo, 2007 president of the Yuma Association of Realtors. ‘For some years, we didn’t have any at all.’”

“She noted that these days it’s common to find several trustee sales listed in the public notices section of the newspaper on any given day. For example, on Friday, there were 20 listed. ‘We’re seeing a preponderance of them,’ Bardo said. ‘They’re in every price range. They’re new houses and old houses. They’re all over the county from San Luis to Wellton and everywhere in between.’”

“For one thing, people may have used online lenders. Another factor was the number of investors in the market who sometimes bought four or five houses, Bardo said. That resulted in a run-up in prices and an artificial demand for houses. Some of them are now deciding to sell and move on because they can’t rent their houses.”

“And what had been a housing shortage for several years has now become an overabundance, she said. ‘We couldn’t keep a house on the market a couple of years ago. Now we can’t get it off.’”

“This is all having an impact on new home construction as well, Bardo said. If people can’t sell their current house, they can’t pay for the new house they were having built. That trend is reflected in the number of housing permits issued by the city. In the first two months of this year, the city issued 38 new single-family housing permits, said Randy Crist, city building official. During the same period in 2006, there were 187 permits.”

“‘It’s not that money isn’t there to buy a house … and interest rates are still low. People are simply waiting for the best deal they can get,’ Bardo said.”

The Arizona Republic. “Big lenders and Wall Street investors are going after Arizona mortgage brokers, appraisers, real estate agents, title firms and home buyers for fraud.”

“Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months. Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley.”

“‘Banks are going to force mortgage brokers to buy back bad loans, and mortgage brokers don’t have the money so they are going to go under,’ said Richard Hagar, a national mortgage and real estate fraud expert. ‘This is the beginning of the wave of lawsuits, lost licenses and criminal indictments in Arizona.’”

“Phoenix-based Biltmore Bank is suing Security Title of Arizona and a group of others over a cash-back deal. The suit alleges the group worked together to get Biltmore to fund a $1.3 million loan for a home valued at $800,000 and then pocketed the extra cash. Also named in the suit are Valley appraiser Kittelmann & Associates and Tucson resident Frank Padilla, who was indicted and pleaded guilty last year to fraud and money laundering as part of a $13 million property-flipping scheme.”

“A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank misrepresented the values of properties, and the income, debt and employment of some of the borrowers.”

“San Francisco-based Transnational Financial Network is suing Phoenix-based Lending House Financial and a Scottsdale investor who purchased 22 Valley homes within days of each other last spring. Transnational funded loans worth nearly $2 million on seven of the homes but says it wasn’t notified the investor was buying multiple properties and his real debt level wasn’t disclosed on mortgage documents.”

“The investor never made a payment on the houses, which were foreclosed on last year. Most of the homes sold at foreclosure auctions for tens of thousands of dollars less than the mortgages the investor took out on them.”

“This wave of mortgage fraud, bad loans and foreclosures is deja vu for Michael Manning. He was an Arizona attorney for the Federal Deposit Insurance Corp., which seized failed lenders due to bad loans in the late 1980s. He was then the Phoenix attorney for the Resolution Trust Corp., which was formed to clean up the savings and loan debacle and dispose of the overvalued properties.”

“‘This is the tip of the iceberg, but I think regulators got on top of it faster than in the mid-1980s,’ Manning said. ‘And lenders are now really starting to crack down on their own underwriting.’”

The Greeley Tribune from Colorado. “A year and a half ago, Christina Vazquez and her family were happy when they qualified to own their first home in a new subdivision in southwest Greeley. Even though she only made $25,000 a year, a lender said her family could get her in a new home worth $225,000.”

“‘I don’t know how they approved me, but they did,’ Vazquez said. ‘When I bought the home they said my payments would go down in a year.’”

“A year after owning the home, the payments never went down and Vazquez was left with no option but to foreclose. Vazquez is among close to 20 other families from the Gateway Lakes development who have either gone into foreclosure or may soon go into foreclosure. All of the families purchased their homes from the same man, Mark Strodtman of JS Real Estate, LLC.”

“‘I feel they took advantage of me,’ Vazquez said. ‘Even though I speak English, they still did not explain any of the paperwork to me and just told me where to sign.’”

“As the homeowners began investigating their home sale paperwork and talking with appraisers, the families discovered that many of their homes were sold to them several thousand dollars more than market value. They claim that JS Real Estate bumped up the prices as much as $70,000 more than the market price in some cases.”

“Vazquez purchased her home $55,000 more than what similar homes were selling for. ‘What they did was wrong, and all I want is justice to be done,’ said Guadalupe Moreno, who is struggling to make the payments on her home. ‘If I have to tell the whole world, I will.’”

“Librado Herrera works various jobs for about $12,000 a year and was approved for a $230,000 home. He said he was told by Strodtman to say he owned a catering company when the bank called to verify the information on his loan application. Charles Brandt, president of JC Distinguished Finance who worked with Strodtman in selling the homes, declined to comment.”

“‘I have never seen a Realtor selling a house $40,000 or $50,000 more than the market price,’ said David Kiekhaefer, a Greeley broker and home builder who built five houses in the Gateway Lakes subdivision. ‘Another scary thing is that many of them (the families) haven’t seen their appraisals from when they purchased their homes.’”

“He said he was not able to sell the homes he built in the subdivision and ultimately turned them into rentals. He was always curious, however, how the other homes that were built were sold so quickly and at a higher cost.”

“‘There are homes on one side of the street selling at $70,000 more than the same house across the street,’ Kiekhaefer said. ‘There are a lot of freaky things going on, and it just brings up a lot of red flags.’”

The Sun Sentinel reports from Florida. “After a December dose of optimism, Broward County’s housing market backpedaled to start 2007. The county had 458 sales of existing homes in January, down 17 percent from 552 in January 2006, the Florida Association of Realtors reported. The median price was $364,500, off 2 percent, or $6,000, from $370,500 a year ago.”

“The median condo price in January dropped 6 percent, or $12,300, to $199,200 from $211,500 a year ago. Condo sales fell 26 percent, to 556 from 753. ‘It’s not surprising, and I don’t think it’s the end,’ David Levin, a Delray Beach-based housing consultant, said.”

“Broward has nearly 36,000 homes and condominiums for sale, up 24 percent from last year, according to the Keyes Co. of Miami. At the current sales pace, it would take several years to sell that inventory.”

The Palm Beach Post. “For months, a ceaseless routine has gripped the St. Lucie clerk of court’s civil office: New mortgage foreclosure lawsuits arrive in unprecedented numbers - huge stacks, some a foot or 2 tall. But as soon as one stack is processed and emptied from the in-box, another dozen or more foreclosures show up the next day.”

“On really busy mornings, process servers drop off banks’ boxes filled with these documents, which set into motion a process that often means homeowners who haven’t paid their mortgages will lose their homes.”

“As 2006 unfolded, the number of new St. Lucie mortgage foreclosure filings surged upward, culminating in a yearly total of 1,329 cases. That’s a more than a 170 percent increase from 2005’s total of 485 cases, according to the clerk’s office.”

“Take this snapshot: On Wednesday, the last day of February, the St. Lucie clerk’s office received 30 new foreclosure cases. That single day accounted for more cases than the office received in the entire month of October in 2004, according to the office’s records.”

“‘In all the years I’ve done this, I’ve never seen this many foreclosures,’ said Nancy Bennett, supervisor of St. Lucie’s circuit civil clerks division, who has worked in the office for more than 20 years. ‘It has never been like this.’”

“‘Most are just frustrated because they thought their home was worth something more,’ St. Lucie Circuit Judge Ben said.”

The Orlando Sentinel. “Three years after Central Florida’s housing market turned red hot, prompting families and investors to buy, buy, buy, thousands of people are in danger of losing their homes because they can’t make their monthly payments. In January, lenders filed 1,787 foreclosure suits in Central Florida, more than twice the number compared with a year earlier, according to research by the Orlando Sentinel.”

“And early results for February are even worse: In the first two weeks of the month, the number of suits climbed 63 percent compared with all of February 2006.”

“‘You feel so trapped,’ said Jennifer McCall, who bought a $220,000 house near Winter Park in May, then quickly fell behind on her payments and was sued by her mortgage company in January. ‘It’s frightening,’ she said. ‘You have a family you’re trying to take care of and a mortgage that’s eating you alive.’”

“She and her husband, Jason, had never owned a home before and didn’t have much in savings, but they found a mortgage company willing to use creative financing, McCall said. ‘That’s a huge mistake,’ she said.”

“They wound up with a first and second mortgage and monthly house payments of $1,986, she said.”

“Sales of existing single-family homes have plunged to half the May level. Rob Mitchem, sales manager in metro Orlando for HomeBanc Mortgage, said his business was off 25 percent in January compared with a year earlier. ‘Properties aren’t selling,’ he said.”

“Although foreclosures are on the rise in Central Florida, they are not at unprecedented levels, and the local real-estate market is not about to collapse, said Sean Snaith, a UCF economist. Home prices remain far higher than before the run-up, he pointed out.”

From Florida Today. “Early last year, The Preserve at Longleaf in Melbourne was a new apartment complex all set to become a top-of-the-line condominium property, with units selling for more than $200,000. Today, with Brevard County’s condominium market perceived as soft, Longleaf is staying as apartments, with leases starting at $900 a month for a one-bedroom, one-bathroom unit.”

“Jerry Kelleher of Viera said the response for a Satellite Beach condominium he has for sale, across the street from the ocean, so far has been slow. The two-bedroom unit is on the market for $170,000. ‘I’m up from Miami, and, to me, something across the street from the ocean for under $300,000 is amazing,’ Kelleher said.”

“Cypress Cove at Suntree, which converted to condominiums early last year, now is leasing some of the units at the 326-unit complex. Coral Gables-based The Berman Group, owner of Coral Gardens condominiums in Melbourne, which converted from a rental unit last year, also is leasing some of the unsold units.”

“‘They are leasing some of them to make up for cash flow,’ said Lee Slovik, who is a broker for Coral Gardens. ‘Unfortunately, the conversion was made when the market started to change,’ Slovik said.”

“According to a compilation of monthly reports from the Florida Association of Realtors, condominium resales by Realtors fell 73 percent last year, from 2,537 units sold in 2005 to 679 units sold in 2006. A separate year-end report showed different numbers of units sold than the individual monthly reports, but still a similar percentage decrease in total sales, 69 percent.”

“Median price fell 14 percent to $156,000 in December, down from $181,100 in December 2005. The trend continued in January, the last month in which statistics are available, with sales down 49 percent from the previous January and the median price down 21 percent.”

“Jane McCrea said she and her roommate decided on The Preserve at Longleaf because it was a new, top-grade rental property. Buying a house — along with the insurance and association fees, wasn’t in her budget.”

“‘Buying property right now is really out of reach for a lot of people,’ McCrea said. ‘I don’t know if you get the bang for your buck.’”

The Herald Tribune. “Racked by the headlong downturn of one of the nation’s most robust housing markets, Florida’s home-building giants are shedding workers in an effort to remain competitive. Most recently, Lennar Corp. laid off 35 employees, which represented nearly 15 percent of its work force in Sarasota and Manatee counties.”

“The layoffs last week ‘were a result of reviewing the changing market and how Lennar could best retool its approach so it can continue to compete and be the best choice for its customers,’ said Carol Cassara, a Lennar spokeswoman.”

“In December, Bonita Springs-based WCI Communities Inc. announced plans to cut its work force by an estimated 15 percent. Steven Zenker, a WCI vice president, said Friday the company is now in the process of shedding 1,000 workers, or one-quarter of its total staff.”

“‘This kind of thing affects every industry that is cyclical, eventually,’ said John Challenger, a partner in a Chicago employment research firm. ‘And home building is certainly that.’”

The Star News from North Carolina. “The white sand beaches and still rural feel of Brunswick and Pender counties have been siren songs to scores of retirees and people from less-balmy climates seeking a second home on the coast.”

“But that resort-like quality also could explain why, unlike in New Hanover, the median price for existing homes in those two counties have dipped as sales across the region slowed, said Bernard Helm, president of Market Opportunity Research Enterprises..”

“‘Resort markets retreat very quickly,’ Helm said, noting that the slowdowns first seen along the Carolina coast in August 2005 didn’t hit traditional markets like Charlotte and Raleigh until a few months ago.”

“‘When it softens, it’s just devastating for people who haven’t been through it before,’ Helm said. ‘They are generally a purchase of desire and dreams, not of necessity.’”

“The sales volume of new and existing homes in Pender declined by 6 percent from 2005 to 2006, a softening that tamped down most prices. The median sales price of existing homes, which make up a larger part of the market, plunged from $232,000 in 2005 to $175,000 in 2006, dropping even more to $160,000 in the fourth quarter of last year.”

What do you see in your housing market this weekend? Price reductions? “Despite the fact that apartments in the capital were subject to the biggest regional price increase in November last year, flat prices over the Greater London area have recently plunged. The price of a city apartment has fallen by 4.9 per cent since December and the cost of an Essex flat has crashed by eight per cent, according to a study by independent estate agents, Team Association.”

“Figures show that despite demand still outstripping housing supply, the housing stock for January has shown a 215 per cent increase, making it the best month for new listings since last September.”

Or banking developments? “The parent of Coast Bank of Florida will post a $17.3 million loss for 2006 as it tries to recover from a major loan crisis. Sarasota attorney Alan Tannenbaum, who represents dozens of Coast clients, said ‘it appears the bank is moving closer to reality as to what their exposure is,’ though he believes that exposure is probably higher.”

“The bank could lose money from borrowers who walk away from their loans, those who convert their construction loans to permanent loans, or those who want the bank to reduce the value of the loans, he said. Coast revealed in January that those 482 loans were in jeopardy after the home builder stopped construction.”

Condo conversions? “In a sluggish residential market, Falcone Group plans to attract the elite to the top floors of the premiere Philadelphia tower. ‘At the time they purchased the space, it was a good thing to do because there was a glut of office space in the market, and probably that is what led them to consider that,’ said Bob Clements, executive VP of Grubb & Ellis.”

“‘If they opened a year and a half ago, the market was much more favorable to sellers,’ said said Kevin C. Gillen, a Wharton School economist who monitors the local housing market. ‘The condo inventory is very large vs. the number of people who want to buy, so buyers are being very selective right now.’”

Any speculation? “Regina’s housing market continued its torrid pace in February, setting a 20-year high for sales activity and a record high for sales volume, according to the Association of Regina Realtors.”

“‘There’s a real shortage of quality listings,’ said Gord Archibald, executive officer of the association. Archibald said realtors have told him of recent transactions where there were ’six or eight offers on a property in a day or two of coming on the market, selling $12,000 or $13,000 over list price.’”

“Archibald suggested that out-of-province investors may be snapping up bargains. ‘A lot of these investors are out-of-province people who are coming in and parking their money here … because they can buy an investment property here at a pretty reasonable price.’”

“But there’s no doubt that buyers from Alberta are having an impact on the housing market in Regina, he added. ‘I’m hearing almost daily from (association) members who are working with somebody from Alberta,’ Archibald said.”

Reports of overbuilding? ” Even in a slowing housing market, homes continue to be in the works, under construction and for sale in Gilbert. Homebuilders, including Taylor Woodrow Homes Lennar, and Cachet Homes, are planning to bring about 3,600 houses to southeastern sections of the town.”

“Lennar, a Miami-based homebuilder, plans with a joint venture partner to construct 1,965 houses on property at Lindsay and Queen Creek roads. Adora Trails, will bring 1,871 units of single and multi-family housing to property on Riggs Road between Val Vista Drive and Higley Road, said Seth Keeler, project manager.”

“Taylor Woodrow Homes and Element Homes are bringing more than 800 houses to Shamrock Estates, near Higley and Chandler Heights roads. Taylor Woodrow just started selling a 114-lot collection at Stratland Estates, and a 78-lot collection is coming soon to Carrara Estates, Scott Holland said.”

“Gilbert is perceived as an infill community, which may be fueling popularity of new home projects in the area, said ASU’s Jay Butler. ‘For people who want a new home, this is not a community that lacks everything at the moment,’ Butler said.”

“In January, Gilbert was the third largest issuer of residential permits in Maricopa County behind Phoenix and unincorporated areas of the county, Butler said.”

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