The Housing Bubble

The Voice of San Diego reports from California. “Stricter regulations among lenders of home loans geared for consumers with imperfect credit could prolong the region’s housing slump, as the pool of first-time homebuyers eligible for such a mortgage will almost certainly shrink.”

“Nearly 10 percent of the active mortgages in San Diego County in December 2006 were subprime, according to First American LoanPerformance. The share of the mortgage market consumed by subprime loans has dropped some since December 2004, when they accounted for 12.3 percent of the active loans in the region.”

“It has become more and more common for San Diego homeowners holding those subprime mortgages to fall into foreclosure. The percentage of people in that category who’ve missed at least two of their mortgage payments has risen from 1.7 percent of the subprime pool in December 2004 to 11.3 percent in December 2006, according to First American.”

“About 6,000 such loans were in some stage of foreclosure in December out of the nearly 60,000 active subprime mortgages in the county.”

“‘This is a result of how unaffordable housing got,’ said Peter Dennehy, VP of Sullivan Group. ‘When housing prices were going up, these were the only products people could get. The question was always, ‘How are people affording these home prices?’”

“Before the rule change, a borrower hoping to buy a median-priced, $472,000 home could qualify for an initial monthly payment of $3,628 on a subprime, two-year, adjustable-rate mortgage at 8.5 percent. Now, under the new Freddie Mac rules, that borrower has to qualify also at the fully-indexed, higher payment of $5,405 monthly, according to Mark Carrington.”

“The regulations may be too little, too late, Dennehy said. The subprime market is ’symptomatic of the go-go real estate world’ that doesn’t stop until it’s forced to, he said. ‘It’s like slamming the barn door after the horse has gone away,’ he said.”

“David Cabot, president of the San Diego Association of Realtors, said the local market, which has slowed since the years of double-digit appreciation at the start of the decade, could be hurt by strict loan regulations. ‘Anytime you substantially remove a big chunk like that from the market, it’s going to have an impact,’ he said.”

“‘There are some (Realtors) who handle nobody but first-timers,’ Realtor Jim Klinge said. ‘They’re going to be out of business.’”

“And mortgage brokers are worried about their jobs, too, said David Maiolo of Ocean Mortgage. ‘It’s a big buzz right now, with a lot of mortgage brokers getting out of the business,’ Maiolo said.”

“Klinge would not attribute to the subprime shakeout alone a pessimistic view of the next few months for the housing market in San Diego, slow sales numbers and dropping prices don’t show signs of letting up yet, he said.”

“‘I think it’s definitely a contributing factor,’ he said. ‘But there’s so much more going bad. This is just adding another log on the fire.’”

The Recordnet. “San Joaquin County brokers reported an increase in calls and applications recently for both purchase and refinance loans. ‘We’re getting a lot of calls from people wanting to get out of that adjustable-rate loan,’ said David DiDio, mortgage broker in Stockton.”

“Tom Cole, senior loan consultant at Washington Mutual in Stockton, said refinancing activity hasn’t picked up lately at his office, but recently, there have many homeowners trying to ‘bail themselves out of a bad situation’ by refinancing to fixed-rate loans.”

The Plumas County News. “‘Sales prices have clearly moderated since the high point of 2005,’ said John Sheehan, director of Plumas Corporation.”

“He told the board that although the Chester/Lake Almanor area remains the most expensive in the county, advertised prices have dropped 21 percent.”

“Rental prices have stayed generally stable in all areas, with the exception of decreases in Portola/Sierra Valley. In 2000, the average countywide rental price was $525. Now average rentals are at least $125 higher.”

“Homes in the Portola/Sierra Valley area are selling for close to asking prices, while Quincy and Greenville houses are approaching ‘affordability,’ which means somewhere in the neighborhood of $280,000.”

The Hollister Free Lance. “Home prices in San Benito County held steady in February, with the market continuing to lag behind its position a year ago. Sixteen homes closed escrow last month at a median price of $585,000, according to REInfoLink. In February 2006, 24 homes closed escrow, with a median price of $600,000.”

“Dee Brown, a broker associate, noted that sellers tend to be settling for less than their asking price, a big change from the boom years. Overall, the market continues to lag behind early 2006. Sales totaled $16 million in February 2006, and only added up to $10 million last month.”

“Both Realtors reported seeing more people at open houses. Renee Kunz acknowledged that many weren’t serious buyers.”

The Orange County Register. “The number of residential building permits issued in Orange County fell 70 percent in January from the year before, driven mainly by a sharp decline in new condo and apartment project filings, the California Building Industry Association reports.”

“Building permits for single-family homes dropped 40 percent to 167 units in January from 278 in January 2006.”

“Statewide, residential building permits fell 21.4 percent, with a total of 9,798 units permitted in January. The decrease appears to show hesitancy on builders’ part to construct homes in advance of actual sales, state BIA Chief Economist Alan Nevin said.”

The Merced Sun Star. “The rate of new home construction in Merced County continues to tumble from the dizzying heights of 2005’s building boom. Merced saw a 70.4 percent drop in the number of single-family home building permits issued in January 2007 compared to January 2006 — the second-biggest decline in the state.”

“Sean Snaith, co-author of the University of the Pacific’s Eberhardt School of Business California Forecast, said Merced’s building slump will likely last through 2008 and into 2009.”

“‘I think for Merced it’s going to take a little bit longer than other areas of the state to recover,’ Snaith said. ‘There’s inventory that needs to clear before builders will feel comfortable resuming the pace they were at.’”

“The Modesto area saw a smaller dip in building activity than Merced, posting a 43.4 percent decrease in permits.”

“That could be because Modesto builders can still tap into the demand created by Bay Area commuters in search of relatively cheap housing, economist Lon Hatamiya said. Merced, 45 miles farther from the Bay Area, isn’t as influenced by those buyers, Hatamiya said.”

The San Francisco Chronicle. “The January freeze that ruined the oranges in the fields here in the citrus belt also killed jobs and chilled the economy.”

“Ruben Galindo has a mortgage and thinks he can handle two months of unemployment, but no more than that. He bought his house in Lindsay in 1995 and has thought about moving to El Paso, Texas, where housing costs are lower.”

“‘But when prices of homes here go down, I won’t be able to sell,’ Galindo said. ‘And they’re already starting to come down.’”

The Review Journal reports from Nevada. “If the Bureau of Land Management public land auction is any indication, Las Vegas has turned into a buyer’s market as demand for land has slackened and sales have slowed. In one of the smallest auctions since the Southern Nevada Public Land Management Act was passed in 1998, only four parcels totaling 25 acres were sold at Wednesday’s BLM auction for nearly $12.5 million, or roughly $500,000 an acre.”

“Fewer than 100 people attended the auction, which was held at the BLM’s Las Vegas field office. Past auctions have packed up to 2,000 people into venues.”

“‘We didn’t have long lines in registration,’ said BLM realty specialist Anna Wharton. ‘We cut back knowing there’s sluggish sales in the valley. If anyone here is interested in nominating a parcel, please do so.’”

In Business Las Vegas. “In September the BLM said it would allow the market to drive decisions on releasing land, and that it would not sell land when the real estate market is soft. The BLM canceled an auction for 2,200 acres in Henderson in December when developers were dropping their construction plans because of the soft market.”

“Without making more land available, Southern Nevada will become more like Southern California with its soaring prices because of limited land, said Las Vegas housing analyst Dennis Smith. Builders are having difficultly finding parcels of between 10 to 20 acres, and property owners aren’t cutting their prices, he said.”

“‘If you don’t have any more federal land, how do you expect prices to stabilize?’ Smith said. ‘We have been talking about this for 10 years, and eventually there is going to be a serious problem with land supply.’”

“A study by real estate consultant RGR Group of Las Vegas showed nearly 36,000 acres of federal and private land available for residential development.”

The Las Vegas Business Press. “Boyd Gaming Corp. has eliminated tentative plans for 1,000 condominium units at its $4 billion Echelon Place development, according to county planning permits.”

“‘Few projects are likely to commence construction in the next 12 months,’ said Brian Gordon, principal of a local business advisory firm. ‘Sources of market demand in 2007 will be much different than reported two years ago.’”

“Roughly 10,944 units had been canceled in the fourth quarter, and another 1,679 were suspended.”

From CNN Money. “D.R. Horton, like its rivals, has cut the number of new homes it starts to build, but a large supply of existing homes is also forcing homebuilders to reduce prices or offer incentives.”

“For example, in Las Vegas, formerly a ‘hot’ market, there are 2,500 unsold new homes, CEO Don Tomnitz said. But Las Vegas has 25,000 unsold existing homes, many of them unoccupied.”

The Arizona Republic. “The Arizona State Land Department still has no registered bidders for next Thursday’s planned auction of nearly two square miles of state trust land recently annexed into Fountain Hills.”

“The state has re-estimated the worth of the 1,276 acres at $95 million, officials said. The land was previously estimated at $130 million for an auction that was canceled in September because of low interest. A stagnant Valley housing market has led to an abundance of homes for sale and less interest in developing new housing tracts.”

“At least one major developer in the Fountain Hills market will pass on next week’s auction. Shelley Johnson, a spokeswoman for MCO Properties in Fountain Hills, said her company does not intend to participate.”

“Jamie Hogue, a deputy land commissioner for the Land Department, said 3,000 information packets about the Fountain Hills land were sent to prospective bidders. ‘I don’t have information on specific developers that I think will show up,’ Hogue said. ‘If there weren’t any bidders, we would have to review the entire process and consider what the options are for the future.’”

“New luxury condominiums are breaking price barriers, but the market slipped last month for Scottsdale resale condos.”

“The median price of Scottsdale condos dropped 10 percent in February 2007 to $254,950, and sales were off 6 percent from February 2006, according to a report Thursday from Realty Studies at Arizona State University.”

The Yuma Sun from Arizona. “Eastern Yuma County has been described as a blank canvas. Some projects are just being thought about, others are moving through various stages of the regulatory process. ‘There’s a lot of big things planned out there,’ said Anne Eichberger, long-range planning manager for Yuma County. ‘The question is what gets built.’”

“Since 2000, 274 housing units have been constructed in the Dome Valley/Wellton planning area. In the same time frame, zoning changes were approved that could allow for the construction of up to 317 more housing units.”

“Amendments to the Comprehensive Plan have been approved that would enable rezoning for up to 1,298 additional housing units. These numbers don’t include housing activity inside the town of Wellton, where Coyote Wash is located. When built out, Coyote Wash will include 2,500 residential lots (and) 140 condominiums.”

“Realtor Barry Julian focuses on eastern Yuma County ‘and has been extremely busy in the last couple of years. Thousands of acres have changed hands. Some pieces of ground have rolled over three times in the same year. It’s the only place to go for growth.’”

“He said he’s getting a lot of phone calls from energy companies from around the country. Others drive through the area, see the many for sale signs and wonder what is happening, he said.”

Some housing bubble news from Wall Street and Washington. BBC News, “DR Horton chief executive Donald Tomnitz told investors that the weak US housing market would continue to hit home prices during the year. ‘I don’t want to be too sophisticated here, but ‘07 is going to suck, all 12 months of the calendar year,’ he said.”

“The company’s net income for the three months to the end of December 2006 fell to $109.7m (£56.7m), from $310.1m at the same time the previous year. Mr Tomnitz warned that DR Horton may have to make further write-offs to reflect the number of unsold homes and lower land values.”

“‘I don’t think ‘08 is going to be a great year, but it’s going to be much better than ‘07,’ he added.”

From Business Week. “The canaries in the coal mine are keeling over fast. After years of easy profits, the $1.3 trillion subprime mortgage industry has taken a violent turn.”

“Now there’s evidence that the pain is spreading to a broad swath of hedge funds, commercial banks, and investment banks that buy, sell, repackage, and invest in risky subprime loans. According to Jim Grant of Grant’s Interest Rate Observer, the market is starting to wake up to the magnitude of the problem, entering what he calls the ‘recognition stage.’”

“Says Terry Wakefield, head of the Wakefield Co., a mortgage industry consulting firm: ‘This is going to be a meltdown of unparalleled proportions. Billions will be lost.’”

“BusinessWeek has learned that $700 million Carrington Capital and $3 billion Greenlight Capital may have gotten badly burned because of their intricate dealings with New Century Financial.”

“Magnetar Capital, a $4 billion hedge fund formed two years ago, may be on shaky ground, too. The question is, how many others may be suffering? ‘This is a very opaque industry, so no one really knows,’ says economist Mark M. Zandi. ‘My guess is that if you look at the top hedge funds, they’re bearing most of the risk.’”

“Among hedge funds, Greenwich (Conn.)’s Carrington seems particularly vulnerable. The fund was launched in 2003 with $25 million in seed money from New Century, which owns about a 35% equity stake. Not surprisingly, New Century is one of Carrington’s biggest suppliers. Another major supplier is Fremont General (FMT), which says it plans to exit the subprime business.”

“Other hedge funds that have feasted on mortgage-backed securities will be hit hard if rating agencies start downgrading them, as is widely expected. That would be likely to send their values plummeting.”

“‘This is indeed a stress scenario,’ says Glenn T. Costello, co-head of the residential MBS Group at Fitch Ratings. Kevin Kanouff, who heads bond surveillance for Clayton Holdings, a consulting firm for institutional investors, adds that ‘hedge funds are getting very nervous about their investments.’”

“The biggest fear is that the trouble will move up the food chain. While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year’s loans are ’showing a lot of signs of stress.’”

“One clear loser is David Einhorn, manager of hedge fund Greenlight Capital, who made a big, ill-timed gamble on the subprime sector when he fought his way onto New Century’s board last March. Einhorn’s seat on New Century’s board prohibited him from selling.”

From Reuters. “Hedge fund manager David Einhorn quit New Century Financial Corp.’s board late Wednesday. In Thursday’s SEC filing, Greenlight said it had not sold any New Century shares in the previous 60 days, a period in which the shares fell 83 percent.”

“The U.S. Federal Deposit Insurance Corporation on Wednesday issued a cease-and-desist order against Fremont General Corp. because of its subprime mortgage and commercial real estate lending practices.”

“The FDIC, a banking regulatory agency, said Fremont was operating without effective risk management policies and procedures and was marketing loans that substantially increased the likelihood of a borrower’s default.”

“‘Our concern has always been that banks make loans that borrowers are able to repay,’ FDIC Chairman Sheila Bair said.”

“The company said this week that it stopped making new home loans and would not fund home loans in the pipeline that had not yet closed.”

The Associated Press. “The FDIC said it found, among other things, that the bank was making subprime mortgage loans without having the proper criteria for assessing borrowers’ ability to repay, and that it was marketing and making the loans ‘in a way that substantially increased the likelihood of borrower default or other loss to the bank.’”

The Herald Tribune reports from Florida. “Roughly one-third of investors who committed to downtown condo towers during Florida’s post-2000 real estate boom appear to be having buyers’ remorse. Buyers are bailing from a handful of high-profile Sarasota towers. Their movement is likely mirrored across the region and the state.”

“‘It certainly isn’t surprising in this market,’ said Lisa Rooks Morris, who, until last autumn, sold condominiums at one of downtown’s most talked-about addresses. ‘The market couldn’t be more different now than two years ago. It went from one extreme to the other.’”

“At 1350 Main, buyers are expected to begin closing today and Friday on units they snapped up during a 90-minute buying frenzy in May 2004. But not all 1350 Main St. buyers are likely to finalize their deal and move in. Of the 134 units in 1350 Main, nearly three dozen are being offered for sale, again, primarily by investors who planned to resell their residences for easy cash.”

“For one penthouse buyer in Rivo, a North Carolina investor who decided to walk away when the market turned, forfeiting a deposit meant losing $340,000. He isn’t alone. Sarasota real estate broker Marc Citrin is trying to get his sister out of a $148,000 deposit she placed on an Alinari unit.”

“‘As more condos come on line, I think you’ll see more and more developer take-backs,’ said (broker) Louise Guido. ‘A lot of condos were built without any real demand. There was investor demand, but no demand from buyers.’”

“In all, Guido estimates that there are nearly 500 condo units on the market downtown. The number of condos in the broader market has risen in recent months: from 4,155 to 4,797 since the beginning of the year.”

“Developer Piero Rivolta believes no other new condo project will start in Sarasota until late 2008. Guido isn’t even sure about that. ‘We’ve never had this kind of inventory on the market before. Is it two years’ worth? Four years? How do you project it forward?’”

The News Journal. “Doug Gooch, Pensacola Association of Realtors president, conceded that home sales for the first two months of 2007 in Escambia and Santa Rosa are 18 percent below the same sales in 2006.”

“While Pensacola-area Realtor Cheryl Young acknowledges it’s a buyer’s market, she is also adamant that it’s not a market in free fall. ‘People think they can come in with some wild offer on a property and the seller will take it,’ Young said. ‘Well, the sellers are not taking it.’”

“Florida’s once-booming housing market, now the most troubled in the nation, likely will bottom out this summer and slowly rebound in 2008, predicts Mark Vitner of Wachovia Corp.”

“‘Historically, Florida has been an inexpensive place for people to move to,’ Vitner said. ‘But Florida’s housing prices are now about 20 percent above the national average.’”

“The state’s continuing population decline, coupled with the ongoing insurance and property tax crisis, presents some worrisome issues for the state’s economy.”

“Vitner cited a recent Florida Department of Education report anticipating the state would add 47,000 additional students to its public schools in 2006. In reality, the state’s public school population grew by 470 new pupils last year.”

From WESH 2. “A surplus of houses for sale in Central Florida has made it difficult for buyers to get a loan, officials said. A growing number of homeowners cannot pay their mortgages.”

“According to foreclosures.com, 65 new foreclosures were posted in Orange County on Tuesday alone. ‘There was a level in the marketplace that opened the doors to allow people that probably should not have purchased homes in the last couple of years. Those doors are going to be shut now,’ Tawn Kelley, President of Mortgage Funding Direct, said.”

“Jeff Perdue of All Florida Mortgages said his loan officers have homeowners looking for fixed rate loans to refinance their adjustable rate mortgage. But because of the increase in foreclosures, the credit ratings they used to qualify for a loan then may not get them qualified now.”

“‘Those customers are going into default at that rate, then you’re going to be a little more hesitant to lend money to those same kinds of customers in that same qualification arena,’ Purdue said.”

The St Petersburg Times. “Threatened with lawsuits from scores of disgruntled customers, Coast Financial Holdings is deflecting anger towards the alleged source of its troubles: St. Petersburg builder Construction Compliance Inc.”

“Customers have asked their lawyers to try to relieve construction loan debts totaling $70-million. But on Wednesday, bank spokesman and adviser Tramm Hudson said he considers the legal moves displaced. It’s the builder, not the bank, that failed its end of the bargain.”

“‘They have other options,’ Hudson said of customers considering suing Coast. ‘They had a contract with a builder who defaulted on them. We were the lender; we were not the originator of the deal.’”

“CCI customers, some sitting on vacant lots on which they owe $85,000, have approached such offers warily. They include investor Mike Wood, with contracts on two CCI houses.”

“‘My attorney told me don’t start construction, don’t sign anything, don’t move forward until we get though the first round of negotiating with the bank,’ Wood said.”

The Daily Record. “Fifteen minutes. That’s all the time it took to transfer title to 10 pieces of real estate property from the homeowner to the lender Tuesday morning in the lobby of the County Courthouse.”

“It’s the foreclosure auction and it has become an almost-daily event.”

“According to Foreclosure Clerk Lynea Parrella, Duval County ranks seventh in the nation in number of foreclosures with one out of 133 properties currently making its way through the court system.”

“About three dozen people showed up Tuesday morning. In all 10 cases, the lenders were the successful bidders, which is usually the case, according to John Kearn who was there looking for investment property.”

“‘Another wasted day,’ he said. ‘As soon as the auction opens on a property, the plaintiffs show the rest of us bidders how high they’re willing to go. Unless we really want the property, out of courtesy we don’t raise the bid above the $100 minimum.’”

“Real estate attorney William Nussbaum was also at the auction Tuesday representing a lender. He said he thinks there are so many properties going on the block in Duval County because for the past several years, a lot of people obtained balloon payment and adjustable-rate mortgages.”

Please post off-topic ideas, links and Craigslist finds here.