The Housing Bubble

The Union Tribune reports from California. “San Diego County’s resale home prices remained relatively steady last month with the median price of single-family houses unchanged at $540,000 for the fourth straight month, DataQuick Information Systems reported Monday. The overall median stood at $480,000, down 5.9 percent from February 2006.”

“There were 2,863 sales last month, a decrease of 5.7 percent from February 2006. There were 1,461 resales of single-family homes, down from 1,636 in February 2006.”

The Orange County Register. “The subprime game is a mess. These loans proved riskier than promised. As a result, numerous subprime lenders are, at best, up for sale.”

“What will subprime loans look like once the angst subsides and the ownership musical chairs end? Will folks with less-than-perfect credit histories still have a shot at buying a home?”

“It’s no small factor in the real estate puzzle. While these riskier loans tend to be refinancing deals, LoanPerformance’s estimates show that subprime mortgage dollars funded roughly 1-in-5 home purchases in Orange County in 2006. That’s on par with the national lending pattern.”

“The most aggressive 2006 use, with roughly four out of every 10 loan dollars to buy a home being subprime, was in three California cities (Stockton, Modesto, Merced). The Inland Empire ranked fifth.”

“Towns with the heaviest subprime usage, by LoanPerformance’s tally, tended to have bigger mortgages. The 66 places with the highest concentration of subprime dollars, the top fifth, had an estimated median subprime loan amount of $131,000.”

“That’s a surprising 40 percent more than all other subprime purchase loans made in metro areas. I fear that aggressive subprime lenders in some markets may have helped hyper inflate prices.”

“San Francisco’s $392,400 average subprime loan in ‘06 was the nation’s highest. Santa Cruz, at an estimated $352,100, was next in line. Orange County’s typical 2006 subprime home purchase was financed with an estimated $312,400 loan.”

“LoanPerformance analyst Mark Carrington says it’s unclear if subprime lending’s turmoil is truly a negative for the market. What was obvious, as loan losses mounted, was ‘that something had to change,’ he said.”

The LA Times. “California’s housing bubble and housing slump share a root cause: easy money. And the particular category of easy money that sustained the bubble for so long, so-called sub-prime mortgages, may also prolong the slump.”

“They make it easier for buyers to break into expensive markets such as Southern California; since 2003, 15% to 25% of the mortgages originated in California have been sub-prime.”

“But these loans have a dark side: The size of their payments can increase, sometimes steeply. In the fourth quarter of 2006, default notices rose to almost 40,000 — their highest level in eight years. The pain could spread if rising defaults beget stricter lending practices and demand for housing slips, driving prices still lower.”

“Economists from industry groups say the sub-prime crisis doesn’t necessarily spell doom. Another view is that the housing market was in need of a correction and that a tightening of credit is just what the broker ordered. Either way, wobbles from large sub-prime lenders, which include Irvine-based New Century Financial Corp. and Santa Monica-based Fremont General Corp., could put a damper on the local economy.”

The Valley Voice. “A promising start to the new year in the resale market in Visalia has turned quiet, reports several realtors, while home builders appear to be slowing their appetite for construction of new homes in Visalia at least until they reduce their existing inventory.”

“The total value of all building permits so far this year in Visalia has dropped by 53 percent from the same two month period in 2006, reports the city of Visalia. So far this year homebuilders have taken out permits for 134 new homes compared to 246 the first two months of 2006.”

“A Centex official says that some 50 percent of new buyers of an entry level new home subdivision in Tulare are Hispanics who speak no English.”

The Press Enterprise. “With concern building over troubles in the mortgage industry, a think tank on Monday said the federal government should take new steps to protect low-income homeowners at risk of foreclosing.”

“‘Congress can’t wait for that many families to foreclose,’ said Almas Sayeed, who wrote the report for the Center for American Progress. ‘The economic impacts for communities and for the country could be devastating.’”

“During the housing boom that ended in the second half of 2005, lenders relaxed standards, extending credit to ’subprime’ buyers with poor credit histories, or to people who could not document their income.”

“Mortgage defaults, the first step toward foreclosures, were up sharply, about 150 percent, in San Bernardino and Riverside counties in the fourth quarter of 2006, according to research firm DataQuick Information Systems. There were 8,169 defaults in the Inland area. For Riverside County it was the most since 1998.”

The Columbian reports from Washington. “A shake-up in the nation’s subprime mortgage lending industry is beginning to have an impact in Clark County. Some offices have closed, others have cut staffing to deal with a slowdown in the housing market and tighter regulations related to higher interest rate loans sold to people with weak (subprime) credit.”

“The Vancouver office of Home 123 Mortgage, which stopped issuing loan applications last week amid rumors of the impending bankruptcy of its parent company, New Century Financial Corp. Vancouver-based lender Millennium Funding Group, which cut 76 employees from its Vancouver work force earlier this month.”

“‘Declining home sales and a subsequent rise in loan defaults have forced ‘investors away from purchasing these loans,’ said Dave Botieff, manager of four Vancouver branches of Wells Fargo Home Mortgage.”

“Some investors have tightened their lending criteria. Many have stopped funding the loans altogether, thereby affecting the companies that sell them. That could leave local mortgage lenders stuck in the middle, said Jerre Broselle, president and owner of Cascade Mortgage & Financial in Vancouver. He predicted the ‘middle-man’ companies would be the first to cut back or close in Clark County.”

“‘If they’re expecting (investors) to fund those loans and there’s no one to cover it, the lender will close its doors,’ Broselle said. That happened to the parent company of local lenders Vancouver Mortgage and Homeloan Source, former affiliates of Central Pacific Mortgage, which abruptly closed its Folsom, Calif., headquarters in late February.”

“‘No one knows how it’s all going to pan out,’ said Kirk Faulkner, district manager of First Horizon Home Loans in Vancouver. ‘But there are some major corrections taking place.’”

The Olympian from Washington. “It seems like there is an explosion of new houses being built all around us in Tum water. Four hundred new homes will be built between Barnes, Eighth and Linwood Avenue; many more between Barnes, Sapp and Crosby; as well as new homes and apartments on Rural Road and Trosper.”

“I’m sure all of these developers know more about the future of Tumwater than I do. I cannot imagine that these new homes being built in our area are for our present population.”

“Some studies show that it will be four years before all of the present inventory of new homes will be sold, and yet the developers continue to develop.”

“In talking with a Realtor, I discovered that many of these new homes are being sold to California people moving up to the Northwest and Seattle people moving down to Thurston County because the housing is cheaper.”

“As the homes go up, have you noticed that the lots are a lot smaller and almost all of the houses are two story? Again, the developers have done their research and discovered that the younger, working families just don’t have the time to spend on their property.”

“In fact, some of the homes have asphalt or concrete yards with a postage stamp bit of grass. This allows the developers to put up more homes with the smaller lots.”

The Register Guard from Oregon. “Building permits for single-family homes dipped 15 percent in Lane County last year compared with 2005, U.S. Census figures show. In spite of that, most local builders still had a good year, according to Ed McMahon, executive vice president of the Home Builders Association of Lane County.”

“But he worries that the future may not look as promising. ‘We’re seeing more and more of a trend where land that opens up is being built on by developers,’ he said. ‘Instead of developing the lots and selling them off to other builders, they’re keeping it for themselves.’”

“Recent escalation of land costs has led to more development being done by big, out-of-town builders with deeper pockets than most local builders, McMahon said. In fact, almost 25 percent of the single-family permits issued last year went to non-Lane County builders.”

“Housing giant D.R. Horton Inc led the pack with 97 building permits, mostly in Eugene’s far-west Bethel area.”

“Nearly all of the houses constructed by nonlocal builders are built on speculation, as opposed to custom homes built for specific buyers. Of the 206 permits issued to out-of-area builders, only 21 are custom, and 17 of those belong to Adair Homes.”

“McMahon says the trend in the local building industry away from ’spec’ development began when the superheated housing boom years of 2004 and 2005 began to cool, and probably will continue.”

“A couple of years ago, builders could sell virtually everything they built, so looking for custom clients wasn’t as critical. ‘But now that things have cooled off, there’s a lot more inventory on the market, and builders are much more nervous about selling on spec,’ McMahon said.”

“Even with a drop in the number of building permits issued last year, local builders don’t seem to be overly concerned, said Katrina Wester, president of the local homebuilders group. ‘Things have definitely slowed down, but it was so good for a while that a change was inevitable, and people realize that,’ Wester said.”

The East County News from Oregon. “A year ago, real estate broker Cheri Axt had very few listings for previously owned homes. ‘There’d be three, four and five offers on one piece of property,’ she recalled. ‘One even had 11 offers.’”

“Now, the big change in sales of homes in outer East Portland is its boost in inventory. ‘I have twice the amount of listings this year as last,’ Axt said.”

“‘We’re a little bit less,’ she said of outer East’s prices compared to the rest of Portland. For that reason, the area attracts a lot of young, first-time homebuyers. ‘Many of them are from out of state, especially from Southern California,’ Axt said.”

“Another type of buyer driving outer East’s housing market is out-of-state investors, Axt said. They tend to purchase (often sight unseen) outer East’s newly constructed, skinny houses on narrow lots, and then use them for rental income.”

“Outer East Portland’s housing market has adjusted from a period of double-digit appreciation, but that doesn’t mean prices of houses won’t go up again. ‘We’re self-correcting,’ Axt said.”

The Democrat Herald from Oregon. “Building is going on throughout both the Lebanon and Sweet Home school district, but so far, it’s not bringing in more students. Enrollment has remained flat for at least the past four years.”

“Building permits in Lebanon jumped from 92 in 2002 to 211 in 2005 and 179 last year. Lebanon’s total enrollment, however, is still hovering around 4,000, the way it’s been since 2002.”

“Real estate agent Don Robertson, a member of the Lebanon Planning Commission, said…the overall downturn in the housing market scared some buyers away. A good many of the ones who have been coming appear to be out-of-state retirees whose children are grown.”

“In Sweet Home, Superintendent Larry Horton said the district had budgeted for 90 additional students this year, Horton said, and he’s mystified as to what’s keeping them. ‘It’s really caught me off guard. I don’t have an explanation for it,’ he said. ‘If people are looking for nice new homes, Sweet Home’s the place to come.’”

“New lots approved by the Sweet Home Planning Commission went from 124 in 2004 to 564 in 2005, and to 611 in 2006.”

“Carol Lewis, community development director, noted not all the new housing is geared toward families. Lots in a development known as the Santiam River Club, which includes some 57 lots approved a little more than a year ago, are priced between $150,000 and $300,000.”

“‘It’s probably not a young working couple that’s going to be buying these lots, that don’t even have a house on them yet,’ Lewis said.”

“The state allows school districts to use either last year’s enrollment or the current year’s, whichever is higher, when figuring its budget. Sweet Home, therefore, hasn’t felt the financial impact yet, but probably will this year if growth doesn’t materialize, Horton said. ‘We’re waiting,’ he said. ‘We’re ready. We have space for them.’”

Some housing bubble news from Wall Street and Washington. CNN Money, “Embattled mortgage lender New Century Financial Corp. announced early Monday that all of its lenders are cutting off its financing, that it has been found in default of many of its financial agreements, and that it does not have the funds necessary to meet its obligations under current circumstances.”

“The company’s filings said that several of its lenders were now demanding New Century and its subsidiaries repurchase all outstanding mortgage loans, and that its other lenders now all have the right to make that demand. It said if each of the company’s lenders make that demand, the aggregate repayment obligations would be approximately $8.4 billion.”

“‘The company and its subsidiaries do not have sufficient liquidity to satisfy their outstanding repurchase obligations under the company’s existing financing arrangements,’ said the company’s filing.”

“‘We know they didn’t get their $8 billion by holding a bake sale. We knew it would touch other financial institutions; now we’ll see how,’ said Art Hogan, chief market analyst at Jefferies & Co.”

From MarketWatch. ” New Century said it’s been informed by Morgan Stanley of problems with a $265 million financing agreement. ‘The company received a letter from Morgan Stanley notifying the company of certain purported defaults, accelerating certain obligations under the Morgan Stanley Agreement and stating that Morgan Stanley was discontinuing financing,’ New Century said in a filing.”

“The company also disclosed letters on financing agreements with Citigroup, Credit Suisse, Bank of America, Barclays, Goldman Sachs, and IXIS Real Estate Capital.”

“New Century also said it doesn’t expect to file its annual report prior to March 16 and that it could face delisting procedures under New York Stock Exchange rules, which allow an extension of up to six months for filing its financial report.”

“‘We think bankruptcy is likely,’ UBS said in a note to clients Monday. ‘If New Century gets temporary relief through a capital infusion, we believe it is only likely to delay, rather than solve its liquidity issues.’”

“Countrywide, one of the nation’s largest mortgage lenders, said Monday that the volume of subprime loans it made in February fell as the company tightens lending standards in response to rising defaults.”

“It said subprime loan fundings in February fell to $2.6 billion from $2.8 billion a year ago.”

From Reuters. “Countrywide said it has low exposure to nonprime mortgages, but may still experience fluctuating earnings in the near term due to turmoil in the U.S. subprime market.”

“Countrywide on Friday told its brokers to stop offering borrowers the option of taking out a mortgage without a down payment, according to a document obtained by Reuters.”

“Countrywide said tighter lending policies lowered the percentage of nonprime loans it originated in February. ‘In response to market factors, management has implemented changes to our origination policies to mitigate future exposure including further tightening of underwriting guideline,’ the company said in a statement.”

From theStreet.com. “‘The nonprime lending industry is currently experiencing significant volatility and instability,’ says David Sambol, Countrywide’s president and COO. ‘As a result, many nonprime competitors have recently exited the market and other lenders have suggested their continued viability is in question.’”

“‘As a result of investor concerns about nonprime loan performance, yield requirements have increased and secondary market liquidity has been reduced,’ Sambol says. ‘These factors will adversely impact residual valuations and gains on sale of nonprime loans until market conditions improve.’”

“Countrywide’s monthly purchase volume fell 7% to $13 billion in February. New home equity loans fell 13% to $3 billion.”

The Orange County Register. “Is it too late for the federal government to fix the subprime problem? The crisis leads some experts to wonder why the government didn’t act sooner.”

“‘That horse has left the barn,’ said Jim Svinth, chief economist in the Irvine office of LendingTree. The Federal Reserve should have acted three years ago, he said.”

“Indeed, last year, lenders issued about $600 billion in subprime loans, and many of those are going sour amid flat or falling home prices. At this point, Svinth said, it’s doubtful new regulation is needed, although a discussion on the need for tighter loan underwriting is welcome.”

“‘I think the market is relatively self-regulating,’ he said. ‘You can see it right now. The subprime market is punishing itself.’”

“Freddie Mac, the No. 2 buyer of mortgages and a government-chartered company, said it would stop buying subprime loans fixed for just two or three years.”

“Scott Simon, who heads the mortgage unit of Newport Beach’s Pimco, said the move by Freddie has had little effect on the market for mortgage securities. Simon’s also a believer that regulation would be superfluous: ‘Most of the things people are talking about the market is already doing itself.’”

From Bloomberg. “More than a year after he stepped down as chairman of the Federal Reserve, Alan Greenspan is very much with us, handicapping recession risks (a one-third probability) for anyone willing to cough up a reported $150,000.”

“No one seems to have appreciated the irony in his recent comments that ‘imbalances’ can build up after six years of expansion. The numero uno imbalance, a housing bubble that is rapidly deflating, went unmentioned by the maestro, which is interesting since his easy money policies were primarily to blame.”

“Hold on to your assets. The deepest housing decline in 16 years is about to get worse.”

“As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor.”

“The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.”

“‘The correction will last another year,’ said economist Mark Zandi.”

“Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year.”

“The subprime crisis ‘has taken the fuel out of the real estate market,’ said Edward Leamer, director of the UCLA Anderson Forecast. ‘The market needs new money in order to appreciate, and all of that money is gone for a very long time. The regulators are not going to allow it to happen again.’”

“Housing and related industries, which account for about 23 percent of the U.S. economy, fired about 100,000 workers last year. The total will be higher this year, according to Amal Bendimerad of Harvard University.”

“‘There has been an increase in unscrupulous individuals in the market,’ said Arthur Prieston, chairman of a San Francisco-based company that investigates mortgage fraud. ‘There’s an unfair assumption of a connection between subprime failure and fraud. But there is a connection between early default and fraud.’”

“Some of that fraud involved speculators. They drove up prices during the boom by ordering new homes with the intent of selling them immediately after taking possession. That ‘flipping’ inflated demand and put the speculators in competition with the homebuilders, propelling the median U.S. home price to $276,000 last June from $177,000 in February 2001.”

“‘A lot of the housing bubble was speculation,’ said Mike Inselmann of the research firm Metrostudy.”

The Sun Sentinel reports from Florida. “When it comes to single-family homes, better to buy now. But hold off on those condominiums. That’s the word from the University of Florida, which last week released a quarterly study that suggests the housing slump is stabilizing. Meanwhile, existing home sales and prices were down in both Broward and Palm Beach counties in January, the Florida Association of Realtors said this month.”

“UF’s report appears to be ‘a lot of wishful thinking,’ Delray Beach housing analyst David Levin said.”

“‘Just because we have seen a decline in how fast prices are falling doesn’t mean they have stopped falling,’ Levin said. ‘And once we get to the bottom, then what? The bottom might become the new reality.’”

“The new reality in the region’s marshmallow-soft real estate market is that homes in Palm Beach and Broward counties languish for weeks or months without a showing, let alone an offer.”

“So savvy but skittish homeowners are considering an alternative: house-swapping. ‘I can see the attraction,’ said Jon Gelman, a Fort Lauderdale real estate lawyer. ‘Anyone who’s trying to upsize or downsize, there’s a concern: are they going to be able to sell the house they’re in? A lot of insecurity makes it hard to sleep at night.’”

“Ira Shanes, of Boynton Beach is concerned about falling prices. He said his three-bedroom home was appraised two years ago at $419,000; now it’s worth roughly $360,000.”

“‘There are just too many houses on the market right now,’ said Shanes. ‘You just don’t know for sure that your house is going to sell [the traditional way].’”

“There are, of course, potential roadblocks to trading. It’s difficult to arrange if either homeowner owes more on the loan than the house is worth. And getting strangers to agree to swap properties is a bit of a long shot. ‘It definitely is like trying to find a needle in a haystack,’ said Gelman.”

“Wellington agent Jim Corbin said he has worked only three trades in 35 years but acknowledges the market’s recent slide makes the concept worth considering. ‘There are so few buyers out there that anything you can do to find one is a good thing,’ Corbin said. ‘People certainly are being creative these days.’”

The St Petersburg Times. “With 40 homes from 19 builders on display, the Hernando Builders Association is aiming to woo buyers with low interest rates during this year’s Parade of Homes.”

“When considering the record year of 2005, when 4,271 single-family residence building permits were issued by the county, not many builders expect that 2007 will top that.”

“‘What you’ve got to realize is that 2005 was an anomaly,’ said Dudley Hampton Jr., first vice president of the builders association. ‘And it’s one of those years that comes along once or twice in a lifetime as far as real estate and home-building goes.’”

“This year, the potential home buyers that Ed Velasquez has seen come through the two Lexington Homes models in the Villages of Avalon subdivision seem to just want to know what’s out there.”

“‘I’d say that 95 percent of the people I’ve talked already own a home,’ Velasquez said. ‘And while they’re looking to sell first, they’re trying to make plans to figure out what they want.’”

The Herald Tribune. “When speculators stopped grabbing every parcel in sight and inventories of unsold homes began to rise in summer and fall 2005, anxiety crept into the regional psyche.”

“Suddenly, it seemed possible that the laws of gravity still applied and that homes would no longer appreciate at 30 percent per year. Values might even drop.”

“Many Southwest Floridians tried to put that thought out of their minds, preferring to live in denial in the hope that the market would rebound.”

“‘The fundamental thing that drives prices up is greed,’ said Venice real estate broker and foreclosure specialist George Huhn. ‘You start to see articles in which so-and-so gave up a job as a teacher and turned a $60,000 salary into $700,000 a year. Other people start to think they’ve got to get theirs before it’s too late. But in the end, there’s still plenty of real estate. There’s just no one left to sell it to.’”

“‘The news is not good,’ said economist Paul Kasriel. Kasriel points to the enormous financial problems facing sub-prime lenders. ‘Increased foreclosures means more houses will come on the market,’ Kasriel said. ‘But buyers who might have been able to buy those houses with sub-prime mortgages have been taken out of the chain.’”

“‘The lawsuits are already popping out,’ said Kasriel. ‘It’s a shotgun approach where everyone sues everyone else in the hope someone has money.’”

“It is basic supply-and-demand economics, said Don Atwell, an agent in Punta Gorda. ‘When you have all this supply, dropping prices is the only way to jump-start demand.’”

“That does not mean going down in ‘chicken steps — a little reduction here and a little reduction there,’ said agent Barbara Ackerman. ‘If sellers do that, all they’re doing is following the market. What they need to do is stand out like sunflowers in the weeds.’”

“The worry among some market experts is that no matter how much prices are reduced, demand for real estate will not recover until buyers are convinced that the market has bottomed out. ‘No one buys in a down market,’ said Garrick Newman, an agent in Bradenton, pointing to a real estate auction last month where property formerly owned by developer Michael Tringali was offered at the Sarasota-Bradenton Convention Center.”

“‘That summed it all up,’ Newman said. ‘There was a lot of sitting and no bidding. People weren’t looking for deals. They were looking for steals.’”

“Huhn believes that buyers will not get comfortable with real estate again until ‘there is blood in the streets.’ By ‘blood,’ Huhn means more foreclosures, more builders going out of business, more bankers reporting losses, more developers, real estate agents and investors suing one another in an attempt to pass on the blame for their losses.”

“Some are still in denial, but the prevailing emotion is moving toward fear, Huhn said. ‘The F-word is definitely creeping in. If we were whistling past the graveyard a couple of months ago, we definitely know there are a lot of dead bodies buried in there now.’”

From Florida Today. “A wave of home mortgage foreclosures is sweeping across Brevard County, signaling a disastrous end to the local housing boom for those who could lose their homes. More than 200 local mortgages have been foreclosed on in each of the last four months, and thousands more are in danger of being foreclosed, records show.”

“Many of the foreclosures and homes vulnerable to foreclosure are in Palm Bay and Viera — two areas of Brevard County that have had the highest volumes of new-home construction in recent years.”

“In Brevard County, there were 982 foreclosures from November through February, more than double the 377 foreclosures during the same four-month period a year earlier, according to data provided by Brevard County Clerk of Courts Scott Ellis. The figures include some commercial foreclosures, but the vast majority are residential.”

“In addition, there are more than 5,600 local properties where the owners are at least two months behind in mortgage payments, according to RealtyTrac.com.”

“‘We’re starting to see the beginning of the increase in foreclosures now,’ said Gene Collins, the former president of the Melbourne Area Association of Realtors and a Realtor who has handled foreclosure sales for banks and others.”

“If there is a marked downturn in the economy, ‘this could be seen as the tip of the iceberg,’ said David Brown, professor at the University of Florida’s Department of Finance, Insurance and Real Estate.”

“”We’ve adapted to what I call ‘The Easy Society,’ in that we made it easy for people to get into houses with submarginal credit. Since they had submarginal credit, that puts them in the sub-prime category, ripe for a product like the exotic mortgage or the junk loan, or optional adjustable-rate mortgage,’ said Steve Srein, founder of People’s First Financial Services of Melbourne.”

“‘The problem today is that the people were pushed into loans they really couldn’t afford,’ Srein said. ‘The real estate people and the mortgage brokers are saying the borrowers knew what they were doing. But, really, it’s the optional (adjustable-rate mortgages) that are the big culprit behind the whole problem.’”

“‘If your habit is spending on lavish trips or spending on clothes, you need to cap the spending to keep your house. It’s the wants versus the needs,’ Srein said. The other factor is that, in recent years, housing prices have soared in Florida overall, Srein said, ‘and the salaries have not.’”

“What is worrisome about the rise in foreclosures is that it’s not tied to a general downturn in the economy, David Brown said.”

“‘You’re getting a high level of defaults that are not associated with an economic downturn, people losing their jobs, things like that,’ he said. ‘It’s probably troubling that there are these large number of defaults in this kind of environment.’”

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