The Housing Bubble

It’s desk clearing time. “In a wide-ranging interview, Angelo Mozilo, the CEO of America’s No. 1 lender suggested that panic was gripping the market over mounting distress in the subprime business. But he also predicted that the bad news is far from over. Q: ‘So the industry got a little crazy with some of the lending?’ A: ‘Any kind of bubble like that creates irresponsible behavior. And we did have a bubble in real estate.’”

“Q: ‘You’ve said that you’ve never seen a soft landing in housing.’ A: ‘Never seen it. That’s right.’”

“Toll Brothers CEO Robert Toll said the spring selling season has been ‘pretty much a bust’ and he can’t predict when the housing recovery will begin.”

“‘When will the market rebound?’ Toll said. ‘Who knows? The Shadow knows. I have no idea. I would’ve thought that it would’ve rebounded by now and I would’ve been dead wrong, and I was.’”

From West Virginia. “Ralph and Blanche Ettinger placed their single-family house up for sale in June and waited for a buyer to come along and snap it up. More than six months later, when a buyer emerged with what had been only the second offer on the house. It sold for $260,000, about $29,000 less than the couple’s initial listing price.”

“‘When we put it up, they were going in weeks,’ Ralph Ettinger said. ‘We knew it was going to take longer than that, but we didn’t think it was going to take six months.’”

“‘Today the seller is waiting longer on his dollar,’ broker Greg Ahalt said. ‘(The longer listing times are) driving them nuts and holding them back from movement forward. They’re not used to it.’”

“Lousy weather but some terrific football helped home sales in Central Indiana decline 13.6 percent in February compared to the same period in 2006, one Indianapolis realtor said today. ‘February has traditionally been a slow time period for the home sales market, and the Colts’ Super Bowl win kept even more people home,’ H. James Litten said.”

“Call them the three stages of real estate grief. At first, there is denial, like the kind John Davis and his wife were living in when they put their three-bedroom home in Boulder, Colo., up for sale last April for $850,000. ‘We were pretty unrealistic,’ the 47-year-old social worker admits.”

“Finally, there is acceptance, a feeling the Davises are now in since relisting their house last month for $140,000 less than the original asking price. ‘We’re finally coming to that place [of acceptance],’ Jeffy says of the couple’s attitude adjustment. ‘We’re not going below a certain price. And if we need to, we’ll find another renter.’”

“Lenders are rushing to offer products to help ease Australia’s housing affordability crisis. Steve Keen, an associate professor at University of Western Sydney, described it as a ‘very silly’ product.”

“‘If it’s going to drive prices even higher, of course it’s disastrous,’ he said. ‘It is another one of those products which is dependent upon the level of prices not falling over time. That has been a guaranteed line of success for 40 years, but it has reached such a level, now it is a wing and a prayer.’”

“The federal government, hardly known for its prescience or nimbleness, flagged the problem 15 months ago when the Treasury Department, the Federal Reserve and other agencies jointly urged lenders to: Refrain from giving loans to people who can’t repay them. Educate borrowers on the risks involved with these subprime mortgages. Increase their cash reserves to prepare for the possibility of widespread defaults.”

“Today, these guidelines stand less as pillars of wisdom than as testaments to the obvious, like telling kids not to play on the freeway or use electrical appliances in the bathtub.”

“Yet, amid the housing bubble euphoria, the guidelines were resisted or roundly ignored. Now the party’s ending.”

“Fed data as of January show banks tightening mortgage guidelines, a trend likely to intensify.”

“‘More restrictive regulatory guidance, which is perfectly appropriate, is nonetheless coming at the worst possible time,’ says Richard DeKaser, chief economist at National City, who says the moves could restrict credit as lenders are already pulling in.”

“‘The best time for these changes would have been three years ago,’ he says.”

“‘We have had to tell customers that were dreaming and hoping of finding a place to sort of put their search on hold because of the way the market has turned,’ said Daniel Walsh, president of a lender and broker in Kensington, Md. The firm’s motto has been ‘When others say no, we say yes.’ But recently, ‘we’ve been saying some no’s,’ Walsh said.”

“A softer real estate market could be trouble for Valley residents. Some homes are now worth less than the cost of the mortgage.”

“‘They’re going to have a difficult refinancing, unless they’re willing to put money into it,’ says Joe Paonessa, president of America’s Mortgage Banc Corp in Scottsdale.”

“Listen closely and you’ll hear the croaking sound of nearly 40 subprime mortgage lenders nationwide, including Las Vegas-based Silver State Mortgage, that have either shut down operations, filed for bankruptcy or have been acquired through last-ditch mergers since late last year.”

“‘It’s really a liquidity crunch,’ said Scott Bice, commissioner of the Mortgage Lending Division of Nevada. ‘I could give you horror story after horror story over here of a maid owning eight rental properties, a Clark County worker making $30,000 a year who got into an investment club and now she’s got a $2.5 million mortgage in her name,’ he said.”

“There’s no way to spin this into good news, investor Gary Anderson of Reno said. He wants to know how people with low credit ratings, the target for subprime lenders, are going to come up with just 5 percent, or $20,000, to buy a $400,000 starter home. And where are people with good credit going to turn when they want to refinance out of their exotic loans?”

“‘The party is over and the fat lady is singing. (Federal Reserve Chairman Ben) Bernanke may lower rates, but the dollar will tank if he does,’ Anderson said.”

The Contra Costa Times reports from California. “Contra Costa County home sales in February dropped nearly 20 percent from last year, a 10-year low, while prices also dipped 5 percent, from a median of $568,000 to $537,000, a Dataquick reported. Several East Bay real estate agents and brokers said they think February and even March statistics will be lower than anticipated because of a drop in lenders and limitations on 100 percent financing.”

“‘Lots of lenders are closing their doors and pulling loans in the middle of escrow,’ said Griselda Quezada-Chavez, an agent in Benicia. ‘It already has had a little bit of an impact.’”

The San Francisco Chronicle. “In the past two weeks a series of events have cast doubts on the possibility of a quick rebound in the housing market.”

“‘The problems with the subprime loans have nothing to do with today’s sales numbers,’ said David Shulman, a senior economist with the UCLA Anderson Forecast. ‘The subprime meltdown is two weeks old. In all likelihood, what’s going on in the subprime market will make things much worse in terms of both volume and prices.’”

“Prices fell most steeply region-wide for new homes, as builders continued to slash prices to clear inventory. The median price for a new single-family house fell 13 percent from a year earlier to $595,000, according to DataQuick.”

The Modesto Bee. “Home sales in the Northern San Joaquin Valley last month tumbled to their lowest levels for February in nearly a decade, and median prices also slid, a real estate research firm reported Thursday.”

“In Stanislaus County, the number of homes sold declined by 40.4 percent and median home prices dropped by 9.4 percent last month compared with a year earlier. Sales in San Joaquin County were off by 44 percent and prices by 6.7 percent, while Merced County sales plunged 54 percent and prices 14.2 percent, according to DataQuick.”

“‘There’s at least as much uncertainty as there was a year ago,’ said DataQuick analyst Andrew LePage. ‘I think we’re closer to a normal market now than two years ago, but normal has to be redefined.’”

The LA Times. “In California, Perris is at the epicenter of mortgage problems. From November to January, 177 homes in Perris’ central ZIP Code have received notices of default, the first step toward foreclosure.”

“The trouble stems partly from a proliferation in recent years of so-called sub-prime loans to borrowers with shaky credit or erratic income. The Inland Empire is full of new and almost-new homes and commuters who often travel great distances to jobs to pay for them.”

“The billboards on the way into town extol 11 active developments. Signs on the city streets point visitors to them. But many intersections tell a more downbeat story. Telephone poles are festooned with signs that say, ‘Behind in payments? We can help.’”

“Lily Quinlan just sold her three-bedroom house on a cul-de-sac in one of Perris’ older developments. It went on the market last June, for $395,000. Her first agent reduced it to $383,000, then $375,000, then $369,900. Her second agent dropped it all the way to $333,000, where it finally found a buyer.”

“While the price was descending, Quinlan’s ability to pay the mortgage was becoming intermittent. World Savings, their mortgage company, started sending default notices.”

“The couple bought in 2002, as the boom was beginning. At its peak, the house was worth more than three times what they paid for it. But they refinanced and took cash out to do upgrades on the house, and then they refinanced again because — well, Quinlan isn’t sure why.”

“She’s learned this about lenders and loan agents: “They make it look like they are trying to do all this for you, but the reality is that it was mainly for them. They got their chunks out of you, and then they put you out to the wolves.’”

“Even when she was in default over the last few months, the offers continued. ‘They kept calling and calling, saying, ‘You won’t have any payments for two months.’ And I’m like, ‘Dude, the last thing I need is another refinance.’”

“She’s sorry to be leaving for Florida. If their house had not increased in value, if it was still worth exactly what they had paid for it four years ago, they could afford to stay. But the boom ruined everything, and so Quinlan was selling what she could at a yard sale before packing for the movers.”

“Her neighbors house went on the market this week for $369,900. ‘The price you got is going to drag down our price,’ Ron Blacic tells Quinlan.”

“‘Thanks, Lily,’ cries Dawn Blacic as she pretends to punch her.”

“The Blacics, who are moving to Yucca Valley, owe $372,000. They refinanced once, taking out cash to pay for their wedding and other bills. ‘We figured the value would go up and up, and it didn’t,’ says Ron.”

“After the agent’s cut, the couple will need to bring a check to the table for $22,000 or so to avoid destroying their credit. ‘We want to purchase another home,’ explains Ron. ‘We don’t want to wait 10 years until our record is clean again.’”

“If the house sells for their asking price, the Blacics will come out about even on their first real estate venture: First the house dispensed money, then they had to give it back. For them, it will be as if the boom never happened. On the other hand, if the house doesn’t sell immediately, they’ll have to rethink their plan. They can borrow only so much.”

The Union Tribune. “San Diego’s leading economic indicators fell for the 10th month in a row in January. ‘The interesting thing is the impact of housing on the economy,’ said economist Alan Gin, who compiles the indicators. ‘In employment, not only construction and real estate are down, but you’re also seeing an effect in the retail sector.’”

“Peter Schiff, who runs Euro Pacific Capital in Newport Beach, said the real estate decline will be an impact on the economy for quite some time.”

“‘Think about all the mortgage debt that was assumed by San Diegans in the last few years,’ he said. ‘All they’re going to be doing is paying interest on that money. Instead of buying a new car or going shopping, they’ll be paying down their interest on interest-only loans. And there are so many people who bought homes for zero down payment, they will just be going to be walking out of their homes, if they haven’t already, since they have no financial incentive to stay. This is a real disaster.’”

From Reuters. “Unlike many borrowers who took out subprime loans, Andy Sobel had good credit, a decent job and modest savings, but he needed to stretch to buy a home in the white-hot San Diego housing market in 2004.”

“Three years later, Sobel has lost his home and his savings, and he faces a big tax bill as a consequence of a failed subprime mortgage held by Countrywide Financial Corp. he says he should never have been written.”

“He knew payments on the loan could rise, but was told he could refinance. His broker advised him to take out a negative amortization loan that would add $300 each month to his principal and ‘ride it out for a few years’ until the market recovered.”

“‘I said, ‘Are you crazy?’ I started really worrying,’ he said.”

“For Sobel, the banks began foreclosure proceedings in December. Both lenders have agreed to allow Sobel to sell the condo at a loss of $60,000, on which he has to pay taxes.”

“‘You never think that this could happen to you. You feel like an idiot,’ said Sobel, who has a doctorate in education. ‘You fall down and they stab you.’”

The Journal Constitution reports from Georgia. “Subprime loans helped fuel the housing boom in Atlanta, and now they are feeding fears of a foreclosure epidemic. In the past quarter, 13.5 percent of the nation’s subprime mortgage loans were in default. The rate was higher in Georgia —17.4 percent, according to a report last week by the Mortgage Bankers Association.”

“Filings for mortgage foreclosures rose 67 percent in Georgia in 2006, and the state had the nation’s second-highest rate of foreclosure filings, according to RealtyTrac.”

“David Worley, a metro Atlanta wholesale lending manager, said he has seen similar cycles in his 30 years in the mortgage business, but ‘none quite as severe as this.’ ‘Someone’s going to go in there and offer it,’ he said of the higher-risk loans. ‘If they didn’t offer it, somebody else would be out there selling it.’”

“Borrowers with better credit could benefit from the fallout in the subprime market, said Tyler Wood, president of the Mortgage Bankers Association of Georgia. ‘If you’re a prime mortgage candidate, you will be highly sought after,’ Wood said.”

The Sun Sentinel from Florida. “Speaking at a Futures Industry Association annual conference here, Retired Federal Reserve Chairman Alan Greenspan took questions from an audience of 200-plus members on topics from mortgage troubles to the price of gold.”

“Greenspan was greeted like a rock star, with a video introduction that included the song Money by Pink Floyd. On every table were medallions and money clips bearing his image.”

“A spokeswoman said she could not, by contractual agreement, say how much Greenspan was paid for his appearance, but Fortune magazine recently estimated his speaking fee at $100,000.”

“Greenspan said the problems of the subprime mortgage market had more to do with home prices than easy credit. ‘If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear,’ he said.”

“On housing, he said ‘if prices go down from here, I think we’re going to have problems that could spill over to other areas.’ Specifically, he was referring to the subprime mortgage market further affecting other segments of the market and economy.”

The St Petersburg Times. “The bill is coming due on subprime loans. Florida, which accounts for one-tenth of the country’s subprime loans, could face more pain than most. ‘There’s clearly some elements of a crisis,’ said Mark Vitner, Wachovia Corp.’s senior economist.”

The Herald Tribune. “Everybody knows that the region’s residential real estate market lurched, staggered and stumbled through 2006 while attempting to find an elusive balance. But just how bad was it?”

“The quartet of Southwest Florida’s largest and best-financed realty brokerages dropped an average of 43 percent in sales and an average of 47 percent in unit sales. In raw dollars, it was a drop of about $3.5 billion.”

“For all four of the large brokerages, 2006 fell short not only of 2005 but also of 2004.”

“‘The correction in 2006 was very different than previous corrections’ said Joe Hembree, the president of the Sarasota Association of Realtors. The drop-off did not occur, as most do, in a general economic downturn. In fact, it was quite the opposite, he said.”

“It was speculation that fueled the historic sales and price increases and it was ‘at levels that simply are not sustainable in a healthy economy,’ Hembree said.”

“‘Inventory levels remain high, which has continued to create a buyer’s market,’ (broker) Scott Sosso said.”

“Sue Louis, senior VP for Coldwell’s Sarasota Bay division, said her company is seeing an increase of rental properties. ‘Many homeowners are electing to rent their homes, which indicates a trend toward reduced inventory,’ she said.”

From Florida Today. “Struggling to recoup expenses in a weak housing market, real estate speculators are flooding Brevard County with inexpensive rental homes, causing heartache for apartment operators and bargains galore for apartment dwellers looking to upgrade their digs.”

“There were 1,127 homes available for rent this week in the county, according to the MLS. Realtors say that’s more than twice as many as they recall seeing.”

“Sheryl Jones of Century 21 had 60 single-family homes to rent last year. This year? She has 130. ‘It’s a buyer’s and a renter’s market now,’ she said.”

“Although he wishes he didn’t, Ken Myers owns 15 rental homes along the central coast of Florida, including five in Brevard County.”

“Like many home flippers, people who build or buy homes, improve them if need be and then sell them for a profit, Myers made money for three or four years until the new home market softened about a year ago. ‘I was trapped into renting,’ he said.”

“To compete in this market, Myers has to keep rents low, negotiate for less than his monthly costs and even offer the first month free. ‘I’ve got mortgages for $2,700 a month, and I’m renting a 3,000-square-foot (house) for $1,200. I’m upside down,’ Myers said.”

“But he’s determined to stick it out until the new-home market levels out. ‘Your money is still stronger in real estate — if you can outlive the chest pain.’”

“Margie Kemmler in Indialantic hasn’t seen anything like it. ‘I’ve been handling rental properties for 10 years, and I’ve never seen so many new homes available at these prices. I have three-bedroom, two-bath homes on the market for $950, and they’re not renting,’ she said.”

“The situation had Bob Taylor, manager of Pentagon Garden Apartments in Melbourne, rooting around in a closet recently for ‘Now Leasing’ and ‘For Rent’ signs. He said three residents left at the end of January to rent new homes, and he has six notices to vacate, the most he recalls having at once.”

“‘Why rent a two-bedroom apartment for $725 when you can have a whole house with three bedrooms for a little more? It’s kind of rough,’ he said.”

“‘I came here a year ago to a full house and waiting list and now I need a life preserver,’ said Alan Guthrie, manager of the 236-apartment Riviera Terrace Apartments in Palm Bay. He said in January, two tenants moved into homes ‘with rents within $150 of what they pay here.’”

“Cindy Riggin, president of the Space Coast Apartment Association, estimates occupancy rates at apartments in the county average 88 percent now, when last summer they hovered near 100 percent. ‘The market for apartment rentals has taken a nosedive,’ agreed Patricia Davis.”

“Several factors are contributing to the soft housing market. New lending policies, for example. Sue Bergamo with Matrix Lending of Melbourne Beach said until January, even those with poor credit could buy a new home with no money down.”

“‘Now, we’re more particular and a home must be owned for at least three months before it can be put on the market again,’ she said. Some lending agencies require a year.”

“And flippers often compete with home construction firms for buyers. Myers said he had a home for sale in a development where the builder offered the same home for $100,000 less.”

“Franck Kaiser of the Home Builders and Contractors Association of Brevard County blames flippers for artificially increasing the price of homes, causing overpricing and oversupply. ‘Homes are still not selling because people think home costs are going lower still,’ he said.”

“(Broker) Michael Pruitt in Melbourne considers the sluggish new home market temporary. ‘By mid-year, I think, it’ll balance out. It’s simple economics of supply and demand. We have oversupply. But it’s much better here than in South Florida.’”

The Republican reports from Massachusetts. “Indicators of delinquent mortgage payments that could lead to foreclosure rose dramatically in Massachusetts in February, according to a report issued yesterday. The first step taken by a lender against a delinquent borrower, petitions to foreclose filed in state Land Court, rose 92.1 percent to 2,242 across the state compared to the number of petitions filed in February last year, according to The Warren Group.”

“Advertisements for foreclosure auctions, the last step before a property is actually sold at auction, rose an alarming 199 percent to 1,005 statewide compared to the year before, according to the report.”

“Terence Egan, editor at The Warren Group, said the ‘trend is accelerating.’ Month-over-month comparisons throughout 2006 and into 2007 have shown steady increases, he said. ‘It’s likely to get worse before it gets better,’ he said.”

“Petitions to foreclose in Hampshire County rose 177.8 percent, from 9 to 25; in Franklin County, petitions were up 122.2 percent, from 9 to 20; and in Hampden County, petitions were up 101 percent, from 99 to 199.”

“Egan said ‘what’s really interesting’ is that foreclosure petitions in the Pioneer Valley are tracking the increases across the state, but the increase in auction announcements is ‘dramatically lower’ than the rest of the state. That may be because housing prices are lower in Western Massachusetts and did not spike as high as eastern Massachusetts housing prices during the boom years.”

“Also, he said, homeowners may find it easier to sell their homes than eastern Massachusetts homeowners, who have watched housing values slide. ‘There’s not a lot of wiggle room when you owe more on your home than you can sell it for,’ Egan said.”

From News Center 5. “NewsCenter 5’s Amalia Barreda reported that the numbers mean that in just about any neighborhood in any Massachusetts town, homeowners could be on the brink of losing their most important financial investment. Mortgage broker Don Larsen had to break the bad news to his client on Wednesday. New Century Mortgage, a wholesale lender, did not have the cash for a promised $417,000 loan.”

“‘They’ve always said everything was fine. Keep sending loans in, everything will fund. Unfortunately, this one didn’t fund, and it makes me look bad and makes my borrower unhappy,’ Larsen said.”

“Foreclosure loomed for Barbara Gosselin and her husband recently. A risky zero percent down payment loan helped them become first time buyers of a property in New Hampshire. But tight finances got tighter when her husband had unexpected business problems.”

“‘The stress has been unbelievable. I’ve had days where I’ve cried. At work I’ve cried trying to do my job and just worrying about the stress of losing the home,’ Gosselin said.”

From CNN Money. “Jemima and Ricardo Sanon saw the possibility of trouble before they ever signed their mortgage documents in 2004. The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender.”

“‘I worried about how we would make payments when they increased,’ said Jemima. ‘The mortgage broker [at New Century] told us we could refinance.’”

“Fast forward a couple of years, and the Sanons, like so many other subprime borrowers today, are struggling to keep their heads above water. As the housing market boomed, refinancing or selling your home was a simple solution for borrowers who had trouble making the mortgage payment. Now that the housing market has stalled, subprime borrowers are stuck with loans they really couldn’t afford in the first place.”

“Defaults and foreclosures are rising, and the industry is roiling as lenders face the consequences after years of handing out money irresponsibly. Says Bruce Marks, CEO of a non-profit that is trying to help the Sanons and other subprime borrowers refinance into sensible mortgages: ‘Lenders knew these loans were structured to fail.’”

“For the Sanons, the initial monthly payment on the larger loan was some $1,300. Two years later, that payment jumped to over $1,800. As a result of the sticker shock, the couple fell behind on their credit cards and student loans.”

“In November, Jemima had to leave her job for several months because of a difficult pregnancy, which put them even further behind on the bills. She recently returned to work. But not in time to stay current with the mortgage; in February, the Sanons paid late. Now the March payments are due, and the latest adjustment has pushed the sum on the larger loan to over $2,000.”

“After the first adjustment, Ricardo called Litton Loan Servicing (the company currently servicing the mortgage) to try to work something out. ‘They threatened us,’ he says. ‘They said, ‘If you don’t make your payment, we’ll foreclose.’”

“Ricardo’s working with Marks’ organization to try to get into a loan that makes sense. In the meantime, he has been logging seven days a week at the drug store where he is employed as an assistant manager to keep up with the house payment. With their newly blemished credit record, the couple hasn’t yet been able to refinance out.”

“‘We want to keep our house,’ says Jemima. ‘But we can’t do it with the mortgage we have right now.’”

From AFP Press in New York. “In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan. Today, Sharon Edwardsen risks losing her Staten Island, New York home, trapped by spiraling payments.”

“Edwardsen was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to 2,800 dollars, yet she only takes home 1,600 dollars.”

“‘I’m panicking every day. I’m not sleeping because I’m worrying. This house has been in my family forever and I don’t want to lose it. But I can’t make the payments they are asking me for,’ she told AFP.”

“During the boom years, when the repayments got too high, home owners could even refinance their loans borrowing against the increased value of their house. That’s exactly what Edwardsen did, remortgaging her home three times between 2002 and 2006.”

“Each time she got into difficulties, her mortgage broker would offer a new deal. From an original loan of 103,000 dollars, she now owes the credit company some 285,000 dollars even though her monthly income has remained the same.”

“‘They took advantage of the fact that I was so desperate that I needed it. I told her (the broker) I had trouble with it. So she said in three months ‘we’re going to do this again. We’re going refinance you again and the money you take out, you going to use it for your mortgage payments,’ Edwardsen said.”

The Star Ledger from New Jersey. “A property appraisal Michael Meehan conducted in Chester Township more than two years ago noted improvements such as a new kitchen, two new bathrooms, new plumbing and 17 new exterior windows.”

“NJ Affordable Homes then used that appraisal to help one of its investors obtain a $375,000 mortgage. But there were at least two problems with Meehan’s work, federal prosecutors said: He never went to Chester to visit the property, and the land was vacant.”

“Meehan pleaded guilty to conspiracy to commit wire fraud yesterday during a hearing before U.S. District Judge Jose Linares in federal court in Newark. ‘He’s not a bad guy,’ defense attorney Thomas Harley said. ‘He just got caught up in something common sense tells you you shouldn’t get caught up in.’”

“His contact at the company gave Meehan sales contracts with prices far exceeding properties’ values and Meehan appraised the homes to generally match that price, according to charging documents. The unnamed employee also provided Meehan with a list of improvements purportedly made to the property.”

“‘It became easier to just do what they wanted to do,’ said Harey, who noted Meehan appraised about 100 properties.”

From New Jersey. “Call it Retail 101: Low prices attract shoppers. Increasingly, real estate agents are coaching home sellers to list their homes at an asking price that clearly undercuts the competition. Agents have taken to calling it ‘drama pricing.’ Others, the ‘eBay effect.’ Either way, the logic is simple: In a housing market with a glut of properties for sale, an unusually low price is a surefire way to make your home stand out and attract more prospective buyers.”

“One homeowner who recently adopted this strategy said her real estate agent referred to it as ‘the bungee jump.’”

“‘You go down and then you get sprung back up,’ said the seller, who did not want to be identified because the deal has yet to be completed. ‘You would rather have that effect than overpricing your home and getting no bids at all.’”

“Realtors said many sellers are reluctant to take ‘the bungee jump’ for fear the offers will come in lower, not higher, than the asking price. Still, with the housing market slack, more and more sellers are willing to give it a try, Realtors say, particularly those with homes priced between $500,000 and $1.5 million.”

“‘When buyers see good value, they will come and they will buy with a sense of urgency,’ said Cara Moxley, a Realtor in Summit. ‘Ultimately those underpriced homes bring more, even beyond most sellers’ expectations.’”

“‘I take pains to help clients understand that the rationale behind a lower list price is to maintain a position of negotiating strength as a seller,’ (realtor) Howard Bunn said. ‘A low price pits the buyers against one another. They must compete or lose the house. A higher list price pits the potential buyer against the seller and the seller is then playing defense, negotiating with a buyer who knows he’s operating alone and not concerned with the actions of excited other buyers.’”

“Still, Bunn said he always cautions sellers never to list their home at a price they would be sorry to sell at. As with any real estate deal, a seller is under no obligation to accept an offer. But once the asking price has been set, there’s no going back: It won’t help sell a house to later raise the asking price.”

“‘That kind of pricing is the devil’s workshop and will lead at best to a severe loss of credibility,’ he said.”

“There’s also some risk for a buyer in this situation, Realtors say. Make sure you’re not the winner who ends up feeling like a loser in the morning because you overpaid for a property, said Lorrie Cohen, a broker in West Orange.”

“‘People always want what they can’t have, and they get caught up in the frenzy of this bidding war and they get the house, but the next day they wake up and they say, ‘What did I do?’ Cohen said.”

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