The Housing Bubble

The Union Tribune reports from California. “Homeowners throughout San Diego County are defaulting on their loans and losing their properties to foreclosure at an increasingly rapid pace. In the first two months of the year, there were four times more default notices issued in the county than in the first two months of last year, while foreclosures tripled over the same period, according to DataQuick.”

“‘It’s disconcerting,’ said Bob Visini, spokesman for LoanPerformance. ‘Everything seemed to be going well and then six months into 2006, we already saw the warning signs.’”

“At the end of last year, Visini said, 9.6 percent of all outstanding mortgage loans in San Diego County were subprime and of those, 11.3 percent of owners were at least 60 days late in making payments.”

“The area with the highest local default rate this year was San Ysidro ZIP code 92173, and February ranked San Ysidro 15th among 1,100 ZIP codes statewide having 1,000 or more homes. Also in South County, three Chula Vista ZIP codes were among the 10 worst-performing San Diego-area communities.”

“Javier Garcia of Virtual Realty & Loan said he has one client whose business reverses are forcing her to sell her Otay Ranch house for about $399,000, which is $60,000 less than the outstanding loan amount. She will have to deal with the tax consequences of the forgiven debt from her lender.”

“Scott Vinson, chief executive of Coldwell Banker Royal Realty, said he is handling 11 foreclosure listings for Countrywide Financial in Otay Ranch.”

“Sergio Rivera in Vista, who moved from selling cars to real estate last year, said the sale of nondistressed property will take longer and often involve a lower price if a neighbor’s home went to foreclosure. But then the buyer may be getting a bargain.”

“‘Every time there’s drama, there’s opportunity,’ Rivera said. ‘This is going to be an excellent time for a lot of people and terrible time for a lot of people. It depends on your point of view.’”

Inside Bay Area. “The number of foreclosures and ’short sales’ of homes equals nearly 10 percent of the total number of homes for sale in San Joaquin County, according to the Central Valley Association of Realtors.”

“Dale Gray, CEO for the association, said out of 4,340 total, there are 317 home sale listings for short sales, where the home is sold for less than is owed to the bank, or foreclosure, a home that has been repossessed by the bank and put up for sale again through a broker. And the number may continue to grow.”

“‘They are up and we are hearing that from a lot of areas in the United States,’ Gray said. ‘A lot of these sub-prime loans… puts (the homeowner) over 100 percent of the value of the house and some of the adjustments are coming home to roost.’”

“The median sales price for a home in Tracy has hovered around $520,000 for the better part of the past year. In Manteca, the median sales price has dropped to $362,250, one of the lowest points in the past three years.”

The Contra Costa Times. “In the first two months of the year, single-family home-building activity in the East Bay and Peninsula picked up a bit but the state saw a big decline from a year ago, an industry report released Wednesday said.”

“Statewide, 13,007 single-family housing permits were pulled, a 31 percent drop from a year ago.”

“‘March and April will really tell the tale for the whole year,’ (said) Alan Nevin, the association’s chief economist.”

“San Joaquin County saw a decline in both single-family and multifamily starts issued for apartments, condos and townhouses. There were 384 single-family starts, a 37 percent drop, and 46 multifamily starts, a 45 percent decline.”

“The East Bay and San Francisco metro area were in line with a 37 percent statewide decline in multifamily permits.”

The Fresno Bee. “Permits increased 18% from January to February in Fresno County. In Madera County, permits edged up 1.9% in February. The area of Hanford/Corcoran saw a 63.4% increase that month.”

“Visalia was among those regions that experienced a decline. Permits fell almost 34% there, to 54 from 110. Los Angeles fell 23.5%, Bakersfield tumbled almost 22%, Riverside/San Bernardino slid 14.1%.”

The North County Times. “In yet another signal of the weakening housing market, home builders sharply scaled back construction in the San Diego region in February.”

“The number of permits pulled by developers ready to start building fell to 539 in February, from 819 in January, a decline of 34.2 percent, and a steep drop of 54.3 percent from February 2006, when 1,180 permits were pulled.”

“Many of the builders with projects in North County are big national developers, such as Lennar Corp. and D.R. Horton, which have reported substantial losses in 2006, said Alan Nevin, chief economist for the builders association. So they are reluctant to start construction on a new phase or a project unless they can get nonrefundable deposits from buyers.”

“‘They still don’t have evidence enough of strength in the market,’ Nevin said. ‘They’re just plain afraid.’”

The Daily Bulletin. “Housing starts fell significantly in February, but at least one builder says the market is actually stronger than it appears. ‘Affordability is the big issue right now,’ said Scott Laurie, president of Pomona-based KB Home Inland Valley. ‘We have a great economy, with job growth and population growth. Unfortunately, over the last few years, incomes did not move up with home prices.’”

“‘When you add in the problem in the subprime mortgage market, it makes the situation more confusing. The buyers’ perception right now is that they may have trouble getting a mortgage,’ he said.”

“There’s also a perception on the part of some people that a big correction is coming in home prices. ‘New home prices have fallen,’ Laurie said. ‘But if there are people waiting for a big correction, they could be waiting for 20 years.’”

“‘The main issue is affordability, said regional economist John Husing of Redlands. ‘It is all about the price point right now.’”

The Bakersfield Californian. “(Economist) John Husing said the housing market has created a bubble, but that the bubble won’t burst. Husing predicted investor home sales and foreclosures brought on by subprime home loans will increase supply and lower prices of residential real estate. He said the Southern California real estate market won’t start to improve until early 2008.”

From KFSN TV. “Local realtors say the housing market is simply coming back down to reality after a period of inflation in Merced. Jim Noumov put his four bedroom home on the market about six months ago. His asking price is $649,000.”

“He says, ‘The realtors say your house is worth your asking price, but you’re overpriced for the market. We’re currently looking at anywhere from $50 to $100,000 overpriced from where the market was to where it is right now.’”

“Jim knows his selling experience would have been much different just one year ago. He says, ‘There would probably have been 2 or 3 people waiting at the door bidding on the house.’”

The San Francisco Chronicle. “Californians see tougher economic times ahead and are losing confidence in the ability of their political leaders to deal with the state and nation’s growing problems, according to a poll released Wednesday by the Public Policy Institute of California.”

“The poll found that half of all adults and nearly as many likely voters now believe bad economic times are ahead for California in the next year, up from 39 percent just two months ago.”

“The loss of confidence ‘is a big change in a couple of months,’ said Mark Baldassare, president and pollster for the policy institute. ‘It reflects anxiety about the stock market, the slowdown in the housing market, rising gas prices and concerns about possibility of home foreclosures due to subprime loans.’”

From Bloomberg. “California Attorney General Jerry Brown is investigating the collapsing subprime mortgage industry in the state, the largest U.S. market for high-risk home loans.”

“Gareth Lacy, Brown’s spokesman, said yesterday that the attorney general has an ‘active and open investigation’ that’s a continuation of probes into predatory lending practices that began a couple of years ago. Lacy wouldn’t say which companies may be targeted or how far the probe has progressed.”

“‘I think it’s appropriate for the attorney general to take a look, especially if there’s been abuses in lending practices,’ state Senator Mike Machado said. ‘There’s a lack of scrutiny over the practices and the brokers engaged in originating some of these loans.’”

A housing report from the Arizona Republic. “Permits for new-home construction are on the rise in Maricopa and Pinal counties, jumping 26 percent in February compared with the previous month and building on two straight months of gains. The skyrocketing prices of the housing boom scared away buyers and many walked away from contracts, leaving some builders with cancellation rates of 30 to 40 percent. ”

“It’s unclear exactly how many spec homes are on the market. Some analysts say the number could be more than 10,000.”

“Doug Fulton of Fulton Homes hopes the surge in permits isn’t just big public home builders cranking up local production so they can book 2007 sales. ‘I would like to see permits go down,’ he said. ‘What are you doing? You are just generating more inventory. I don’t like to see permit increases any more than I like to see additional homes listed on the MLS. It’s a supply-and-demand issue.’”

“RL Brown’s report noted that the number of closed sales was the lowest since May 2003. He said most new houses being sold in the Phoenix area these days are spec homes.”

The Explorer News from Arizona. “Like many in the formerly booming real estate market, Bob Bates decided to refinance his family’s 1,300-square-foot Marana home on an adjustable rate mortgage, using the extra cash to pay off vehicles and catch up on bills.”

“But when a slew of car accidents and health woes pushed his $33,000 annual income to the wall, the 41-year-old construction worker pursued the familiar option.”

“Despite being late on payments at the time, Bates sought out and was approved for his second refinancing last year, during the lending frenzy to those with marginal credit scores.”

“‘It made sense and I was desperate anyways,’ Bates said. ‘I was shocked they were even going to do it. If I couldn’t make my payment at $800 a month, what made them think I could afford $1,300 a month?’”

“Bates planned to fix up the 15-year-old cul-de-sac ranch house and sell it within months. Then came a nationwide sea change in the housing industry. Now, months behind on his mortgage, Bates stares down the barrel of foreclosure.”

“‘Who would’ve thought the market did what it did with houses,’ Bates said. ‘Nobody’s buying and it’s like, ‘Oh Jeez.’”

“Lenders are tightening their standards, which could have ripple effects in the market. Northern Pima County’s new construction market depends heavily on that population and could stand to lose up to 20 percent of its clients, according to David Modisett, who owns a local home financing company.”

“Property values across the board could also be jeopardized, as neighborhood prices dip when sellers look to unload discount-rate properties. ‘Those areas that have the high foreclosure rates are going to be the ones that have declining values,’ Modisett said. ‘This next year’s going to be pretty volatile, no question about it.’”

“Long Realty Vice-President Janell Jellison said the public perception of a sour market is creating drag on sales. ‘It’s stalling out the market is what it’s doing,’ Jellison said. ‘Everybody’s sitting there going ‘Well, maybe the sky is falling in, so I just won’t do anything.’”

“That mindset is obvious during a drive through many planned subdivisions, including Marana’s Gladden Farms. The community boasts nearly 100 homes for sale, many built on speculation, still waiting, empty of furniture, for their first occupants.”

The Benson News from Arizona. “While there may be a national housing slump, local experts believe Benson’s housing and land sales have gone from crazy to normal.”

“‘Land sales have taken sort of a nose dive right now because landowners have priced themselves right out of the market,’ said local Broker Mary Ann Scott. ‘The market right now is being called a corrective market.’”

“‘It was almost like a panic-buying mode in 2005,’ she said. ‘People were coming in from everywhere and buying whatever they could get their hands on. Compared to prices in California, even the overpriced land looked fabulous to them.’”

“In 2005 and 2006, because Benson’s open land became popular for housing developers and investors, undeveloped land was being sold for up to $12,000 an acre. Will White of Arizona Land Advisors in Tucson said prior to the boom, land cost about $4,000 an acre.”

“Some of the problems in the market were also caused by investors, broker John Davis said. ‘The investors would come in and buy the homes and turn around and sell them,’ he said. ‘The homebuilder had to start competing with investors. Buyers didn’t want to wait six months for their home to be built, so they would buy the one that was ready.’”

“Once the investor inventory decreases, Davis said home sales and construction will continue to go up. ‘Sure it’s not the crazy free-for-all market anymore, but it’s OK. For this area, you could say the market went from incredibly crazy to normal,’ he said.’”

The Sun News from New Mexico. “Do you want to buy a home in Las Cruces? The good news is that there are more homes on the market than in years past. Even though 2006 was another record-setting year for home sales in Las Cruces with more than 2,300 homes sold, the first quarter of 2007 reflects a major step back from that pace.”

“According to Annette West, a Las Cruces real estate agent, 352 homes have been sold so far this year. Through March of last year, 507 homes had been sold. ‘That’s a big change in volume,’ West said.”

“The housing slump reported in other parts of the nation is affecting Las Cruces, experts said. The record-setting pace of the past several years was fueled in part of out-of-town buyers. Many potential newcomers are now having difficulty selling their old house, which makes it difficult for them to buy a new house here.”

“Michael Tassler and his wife moved to Las Cruces from Virginia and bought a house last year. ‘Our home back there is still on the market,’ Tassler said.”

“Luckily his wife’s company helped with the move and bought the house in Virginia although it remains unsold.”

“Tassler said that his home in Virginia is slightly smaller than the one he purchased in Las Cruces, yet it is on the market for significantly more than he paid for his new house. ‘Compared to some other markets, the prices are really good here,’ he said.”

“He said he has acquaintances in California who consider prices in Las Cruces to be ‘dirt cheap.’”

The Chicago Tribune reports from Illinois. “Nearly 29,000 foreclosures were filed in the six-county Chicago region in 2006, a one-year jump of 36 percent and the highest level in at least eight years, according to a study. ‘The popularity of these complicated and risky products, combined with loose mortgage underwriting standards, have driven foreclosures to record highs’ in the region and the city, said Geoff Smith, research director for the non-profit Woodstock Institute.”

“‘Adjustable rate mortgages and no-interest mortgages have also gotten affluent people in trouble,’ said Jeff Metcalf, CEO of Record Information Services. ‘Interest rates were so low for so long,’ Metcalf said. ‘Something had to give.’”

From ABC News in Illinois. “On Aberdeen Street, on Chicago’s South Side, there is a new and unwelcome neighbor as home foreclosures alter the neighborhoods. The growing number of abandoned homes with plywood nailed to the windows is prime evidence that the foreclosure crisis has moved in.”

“‘Here’s a nice bungalow that’s boarded up,’ says Deborah Moore. ‘So that’s two on this block.’”

“Mark Hill is already feeling the impact at his South Side residence. In the year since he and his wife purchased their first home, five neighboring houses have gone into foreclosure. He said he wonders what the value of his house is, after a year in which five homes were boarded up right next to his home. ‘We don’t know what to do,’ says Hill.”

“In 2004 there were more than 13,000 foreclosures in the Chicago area. This year that number is expected to nearly double.”

Reuters reports from Michigan. “In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.”

“Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston.”

“‘Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside,’ says Guzek.”

“In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac began tracking data.”

“‘Everyone’s looking at subprime. The rock they aren’t looking under are the adjustable rate mortgages and teaser rates and low money-down loans,’ said Mark Kiesel, a portfolio manager for Pacific Investment Management Co. ‘It’s going to affect prime as well.’”

“Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start. ‘To define the problem as a subprime problem is short-sighted,’ Rosner said. ‘It’s really seeing the tip of the iceberg as the iceberg.’”

“Increasingly, Guzek offers different advice than devising financial plans to save her clients’ homes. ‘If they can’t afford it, sometimes the best thing for them is to walk away,’ Guzek said.”

The Enquirer from Ohio. “New Century Financial Corp. has agreed to halt all foreclosures in Ohio while state regulators and law enforcement officials determine if any of the loans violated predatory lending laws, Ohio Attorney General Marc Dann’s office said.”

“‘New Century has taken a good faith step by agreeing to let us review its documents before any further foreclosures are acted upon in Ohio,’ Dann said in a statement. ‘I want to make sure consumers are in a mortgage loan they can afford and not one agreed to under false pretenses.’”

“If bad business practices are discovered, New Century will be obligated to postpone action on that loan until the company makes corrective measures that are approved by the state, the attorney general’s office said. One option might be reworking the original loan to make it affordable for the consumer, it said.”

The Star Tribune from Minnesota. “Subprime mortgage defaults will continue to hurt Residential Capital’s profits this year, company executives told investors Wednesday.”

“The Bloomington-based company, one of the country’s largest mortgage lenders, plans to slash expenses and significantly reduce its subprime loan portfolio in reaction.”

“ResCap earned $182 million in 2006, compared with a profit of $1 billion the previous year, as bad subprime mortgages played havoc with the company’s balance sheet. For the fourth quarter, the company lost $651 million.”

“Philip Kibel, an analyst with the credit rating agency Moody’s Investors Service, said ResCap’s troubles likely will persist into 2008 as the company cycles through bad subprime loans made in 2006.”

“‘Subprime is a delicate market right now,’ Kibel said. ‘ResCap still has a lot of exposure.’”

“‘ResCap did not move quickly enough to reduce exposure in the face of this downturn,’ CEO Bruce Paradis said. ‘ResCap was too slow to reduce infrastructure and modify business processes in the face of new conditions.’”

The Republican reports from Massachusetts. “Foreclosure filings in Massachusetts soared to new heights in February, the fifth consecutive month with more than 2,000 filings statewide, according to a report released yesterday. ForeclosuresMass.com reported that foreclosures almost doubled in the 12-month period ending Feb. 28, compared to the same period a year earlier.”

“In the 12 months ending Feb. 28, lenders filed 21,644 foreclosure petitions, compared to 11,894 in the year ended Feb. 28, 2006, for an 82 percent increase.”

“‘We see this continuing well into 2007,’ said Jeremy Shapiro, president of ForeclosuresMass.com. ‘We’ve never seen this volume before, even during the crash of the 1990s.’”

The New York Times on New Jersey. “Broad swaths of Newark are groaning under the weight of mortgage debt, much of it accumulated in the building boom of recent years. In many of these neighborhoods, a heavy mortgage debt has led thousands of residents, many of them first-time homebuyers, close to financial ruin, experts and local officials say.”

“According to recent census figures, more than 40 percent of Newark homeowners spend more than half their income on housing, one of the highest percentages in the New York metropolitan region and among the highest in the country.”

“Driving the high mortgage debt and the boom in home sales here, and around the country, has been the proliferation of mortgages that have made it possible for people with poor credit, scant savings and modest incomes to buy homes.”

“For Quintin Fields, buying a home in Newark was less about finding a place to live and more about trying to find opportunity in the city’s housing boom. It is an opportunity he now wishes he had passed up.”

“A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company, a subprime division of General Electric, and another from the Option One Mortgage Company, the subprime group of H & R Block.”

“The $2,312 monthly payments were much more than he could afford, but Mr. Fields said his brother assured him that they could find tenants. They did, but then lost them. Last July, without the rental income, his brother, who was managing the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in delinquent payments and has fallen out with his half brother.”

“‘It’s just sad,’ said Mr. Fields. ‘I can’t even borrow money.’”

New Hampshire Public Radio. “In New Hampshire, twice as many houses went to foreclosure in the first few months of 2007 than did during the same period last year. That increase has been blamed on a preponderance of subprime loans.”

“But there’s evidence that more conventional loans have also played a part in the sharp rise in foreclosures.”

“Lenders have foreclosed on more than twelve-hundred foreclosures in New Hampshire since the beginning of the year. Most of them were in Hillsborough, Stafford and Rockingham Counties.”

“Carol Stacy, the Registrar of Deeds in Rockingham County says she’s seen the numbers take off from last year. ‘Well, we’re talking in January, 2006 there were fifteen foreclosures, and in January, 2007 there were 35 foreclosures. In February 2006 there were 13. And in February 2007 there were 28. That’s pretty substantial.’”

The Buffalo News from New York. “Denouncing what he called ‘rogue’ mortgage lenders and ‘liar’ loans, New York Sen. Charles E. Schumer on Wednesday called for the national regulation of mortgage brokers, and a ban on riskier products and controversial loan terms.”

“However, one Western New York mortgage lender said some regulation is clearly necessary to weed out bad actors. She even supports some of Schumer’s recommendations, although she hopes Congress doesn’t overreact.”

“‘As usual, the government is reacting far too late to abuses,’ said Linda Mallia, president of Devere Mortgage Corp. ‘I just hope now that they don’t do what they usually do. I hope what is done is reasonable and realistic.’”

“Schumer conceded that nothing can be done for those who have already lost their house. ‘Once it’s foreclosed, you really have trouble,’ he said. ‘It’s probably something we should look into, but we can’t get them back into their house.’”

The Poughkeepsie Journal from New York. “Economists at a forecasting center in Westchester County say the nation’s housing market is far from being done with its downturn. Too-high home values, heavy consumer debt and harder-to-get loans will combine to push prices down, predicts the Jerome Levy Forecasting Center in Mt. Kisco.”

“How much? There’s 30 percent to 50 percent left to go, they say. ‘Flimsy financial arrangements,’ or risky lending practices, are being curtailed as people struggle to meet their mortgages and delinquencies skyrocket, the Levy crew said.”

“In Dutchess County, prices are already down from the peak, according to the most recent data published by Mid-Hudson MLS in Poughkeepsie.”

“For the first two months of the year, the average sales price for Dutchess single-family detached homes fell by 11.2 percent versus the same period a year ago. Volume of sales was about flat while the inventory of listings was high, running 20 percent above year-ago levels.”

“David Levy, head of the institute, said in a news release, ‘Most people are missing the point. The biggest imbalance is in price, not inventories of unsold homes.’ The study predicts prices will fall substantially over several years.”

“Kevin Feltes, an economist at Levy and author of the report. said, ‘The reason prices need to come back down is that affordability is so low. But also, what’s really allowed home prices to go as high as they were was a lot of speculator buying.’”

“‘We think that loan problems are going to push lenders to be tighter and tighter,’ Feltes said. That means marginal buyers will be pushed out of the market, and having fewer buyers tends to depress prices.”

“It is now ‘a severe crunch,’ said Arnold Restivo, a Fishkill-based lending manager for Tuthill Finance, which lends to people who have been turned down by other lenders. ‘As credit standards are tightened with the subprime market, more marginal buyers cannot qualify for as many loans as they did in the past,’ Restivo said.”

“Pete Plavchan, owner-broker at the Real Estate Superstore, Town of Poughkeepsie, cited a local factor that could wreak havoc: property revaluations done recently in eight local towns, leading to owners getting reassessment notices telling the presumed current market value.”

“Those numbers, he said, were taken ‘at the top of this bubble,’ and seem to be about 30 percent higher than what current sales prices suggest. ‘It contributes to false expectations from people,’ he said, which encourages them to set prices high, depressing sales and, eventually, prices.”

“‘There’s always going to be sales,’ he said. ‘The only ingredient that’s going to change is price and value.’”

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