The Housing Bubble

The Tracy Press reports from California. “The dipping housing market has yet to halt the number of building permits issued in Mountain House this year, despite the fact that home sales have slowed to a trickle. Just more than 200 home-building permits have been issued so far this year, according to Rick Coats, San Joaquin County building inspector. That’s 150 more than last year’s first quarter total. But only about four homes a month are sold.”

“‘More than two years ago, there wasn’t a subdivision out there that didn’t have a waiting list,’ Coats said. ‘It’s a lot different now.’”

“The number of homes for resale is also on the rise. This week, 46 existing homes are for sale, which is 18 more homes than three months ago, said Ann Middleton, a real estate agent in Tracy.”

“To entice buyers, the Mountain House median home price has plummeted from $722,500 in February 2006 to $596,000 this March.”

“But Mountain House is hardly the worst-off locale in the regional housing market, said Eric Teed-Bose, spokesman for (a) Mountain House developer. Home sales in Lathrop have decreased from 22 in March 2006 to two this month, and Manteca home sales have dropped from 74 in March 2006 to 27 this month.”

“Middleton said she’s seen developers in San Joaquin County slash prices. She spotted Pulte Homes, a Mountain House developer, drop a house price by $40,000. ‘As long as the developers are offering these huge incentives, people who try to resell their homes will not make their money back,’ she said.”

“Middleton suggests to her clients that they set the sale price just high enough to break even. ‘I think they just need to be realistic about what the price is going to be on the house,’ she said. ‘You’re competing against developers.’”

The Associated Press. “Darren Shimasaki, a teacher from Yorba Linda, bought a $425,000 condo last August with a stated income loan. Shimasaki, who makes about $55,000 a year, would not have been able to get a standard loan based on his income, he said.”

“‘In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,’ he said.”

“Shimasaki ended up getting 100 percent financing through two loans, including one that requires interest-only payments for the first three years before an adjustable rate kicks in. After that, he plans to refinance so he can keep up with payments.”

“‘I’m pretty confident that the housing market won’t bust,’ he said.”

The Fresno Bee. “For Jim and Carrie Lawrence, homeownership turned quickly from a blessing to a curse. The couple bought their first home, a two-bedroom in central Fresno, for about $240,000 in the summer of 2005.”

“After less than two years, financial emergencies and loan problems forced them into foreclosure. Last week, they turned over the keys and moved into a rental house, deeper in debt and with credit ratings even lower than before.”

“‘Everybody told us: ‘Just get in the house, get your foot in the door,’ Jim said. ‘But when you get your foot in the door, you get that golden shackle put on your ankle.’”

“Home prices in the area have been falling an average of 1% a month since November 2005, according to Carole Laval, an appraiser in Fresno, and the homeowners, especially those with spotty credit, couldn’t get a new loan.”

“‘They were buying too big a house, driving too nice a car and when they had to pay the piper, they couldn’t do it. They didn’t have it to begin with,’ said Charles Adkins, loan consultant in Fresno.”

“Fresno bankruptcy attorney Kristine Kelly said she has taken on about 15 foreclosure-related bankruptcies per month this year, compared with a negligible number last year. ‘It’s wreaking havoc on our clients. They don’t even have money to move.’”

Inside Bay Area. ” Some of the sharpest spikes in home mortgage defaults in California have surfaced in the East Bay, a study by the University of California, Los Angeles, Anderson Forecast disclosed.”

“‘The East Bay is definitely the place where the defaults have risen the most in the Bay Area,’ said Ryan Ratcliff, an economist with the Anderson Forecast. ‘It is not quite as bad as the areas surrounding Sacramento, but the defaults are up a great deal.’”

“The unsettling outlook was fresh evidence that the ailments that have afflicted the fading housing market have yet to run their course.”

The Recordnet. “Mortgage default notices are up across the country, and that’s true here in San Joaquin County. About one in 10 homes on the market now is either a bank-owned foreclosure property or a short-sale.”

“‘It is a good time for the buyer as long as you’re smart,’ said Dale Gray, CEO of the Central Valley Association of Realtors.”

The Desert Sun. “Home foreclosures climbed in February across the Coachella Valley, up to 62 from just seven at the same time last year. Mortgage default notices jumped to 282 valleywide in February, up from 104 in February 2006, according to DataQuick.”

“‘Some people were counting on home prices to continue going higher, and they would buy themselves out by refinancing,’ said economist Esmael Adibi, of Chapman University. ‘Of course, that’s not happening.’”

“‘I’m aware of a significant number of loans that were interest-only, 100 percenters, adjustable rates - 3-year, 5-year adjustables - and they’re starting to come due right now,’ said John Sloan, Realtor in Palm Desert.”

“Now, rising inventory levels, nearly 9,000 homes were on the market by mid-February, according to the California Desert Association of Realtors, mean competition is stiffer.”

“Adibi said inventories in the Coachella Valley are rising in part because speculators are trying to sell properties as home prices remain flat or decline, as are homeowners ‘who did not anticipate fully the correction in their interest rates on their mortgages.’”

“‘Those who bought in late 2005, they have barely any equity,’ Adibi said.”

The Orange County Register. “Experts say that these ‘foreclosure rescue scams’ are proliferating and that such frauds are contributing to the subprime loan industry meltdown. With overextended homeowners teetering on the brink of foreclosurebecause of the housing market slowdown, law enforcement expects to see a lot more cases in the future.”

“Since the perpetrators have no intention of repaying the loans, the homes usually end up in foreclosure anyway, and the mortgage companies that issued the loans end up taking the house back and reselling it at a loss.”

“Four Orange County-based subprime lenders were used to refinance 12 of the 19 loans mentioned in the federal indictment against Edward Seung Ok and his associates. Two attorneys specializing in mortgage fraud said as many as half of the ‘early-pay defaults’ are due to fraud, and early-pay defaults have been a major reason behind the recent earnings losses reported by subprime lenders.”

“‘Mortgage fraud is a huge part of (the subprime meltdown),’ said attorney James Brody.”

“‘It’s almost obscene how prevalent it is,’ said Gregory Annigian, an Upland attorney representing a woman who says she was duped into acting as a straw buyer in one of the cases. ‘You have phony notaries. You have phony appraisers. They suck the equity out of (the home), and (the owner’s) in foreclosure.’”

The Bakersfield Californian. “(Broker) Michael Marlowe said affordability is the silver lining behind a recent report by the California Association of Realtors that Bakersfield’s median home price declined by 5.1 percent to $280,000 between February 2006 and February 2007.”

“‘The value in Bakersfield is pretty good,’ Marlowe said. ‘Our home prices won’t drop as much as other areas because of our affordability to begin with — our original affordability.’”

“Local real estate agents have welcomed the index as a nugget of good news amid a series of troubling reports. The number of Kern properties entering some stage of foreclosure in February was 634, almost 31/2 times the total in February 2006, according to RealtyTrac.”

“Local appraiser Gary Crabtree, who makes people in the real estate community wince with his public prediction that Bakersfield’s median home price will decline by as much as 6 percent in 2007, says the forecast would be worse if not for affordability.”

“‘We still have that going for us,’ he said.”

The Keys News reports from Florida. “It took nearly an hour, but only a few minutes were needed Saturday for auctioneers to sell four residential properties and three commercial buildings. With less than 100 attendees at the auction, those in chairs seemed outnumbered by the agents moving around the room trying to generate bids.”

“A 2,000-square-foot home on Terry Lane sold for $800,000 and a 1,400-square-foot Terry Lane home sold for $500,000. In both cases, the bids were closed without any action from the crowd. Because of this, two similar properties on Terry Lane weren’t offered up for auction.”

“‘We didn’t feel like we were near where we could be, it was a disappointment,’ auction founder Ben Anderson said.”

“‘Has real estate really gone down that much?’ auctioneer Chris Camp asked after no one bid on a Third Street triplex that started out and sold for $600,000. ‘Yes,’ someone in the crowd retorted.”

“Anderson attributes buyers’ hesitation to the concern that the market hasn’t yet bottomed out. ‘It’s a buyers market and everything is shifting and changing,’ Anderson said, adding that buyers have ‘gotten off the bus.’”

“‘They’re going to walk around the block before they get back on,’ he said.”

The Montgomery Advertiser. “Colonial BancGroup Inc. has lent $6.4 billion for construction projects, five times the average for banks nationwide. Colonial lends money mostly to local homebuilders well known to loan officers, according to analyst Robert S. Patten.”

“Since 2000, Colonial has bought six Florida banks with assets of $3.5 billion. A seventh acquisition of a $1 billion-asset bank is pending. Many of the deals looked wise at the time because Florida’s economy was sizzling and home values were soaring.”

“Today, a Florida real estate bank must deal with plummeting sales and a growing list of abandoned projects, giving credence to the experts who told the Wall Street Journal that the state ‘is undergoing one of its worst housing recessions ever.’”

“‘Given that Colonial sees itself as primarily a real estate bank, they’re vulnerable,’ said Richard X. Bove, of specialty investment bank Punk Ziegel & Co.”

“Bove said the damage to banks with extensive Florida franchises has yet to show up in their financials. ‘Wait till next quarter,’ Bove said. ‘It’s not just Colonial. A lot of banks are going to have trouble. They’re all in a difficult environment right now.’”

The Sun Sentinel. “If home ownership is the American dream, the scene that plays out every week in Room 385 of the Broward County Courthouse is the American nightmare. ‘Case No. 06-19776,’ intoned the auctioneer, a foreclosure clerk named Barbara Pendergrass.”

“Near the back, Earl Lawrence leafed through his thick black binder and looked up the property, a small townhouse in Tamarac. Bought for $65,500 in September 2000, a foreclosure judgment for debts totaling $188,000 last December.”

“‘They borrowed themselves right out of a home,’ said Lawrence, of Hollywood, a real estate investor who has been coming to the public auctions for 25 years.”

“There were no bids on the Tamarac townhouse Thursday, apart from the minimum $100 that the foreclosing bank made to formally seize the property.”

“The real estate market has become so uncertain, and the debts racked up on these properties so high, even the vultures aren’t nibbling. ‘Would you buy a property for $420,000 if you could only sell it for $400,000?’ said Adnan Kabbara of Weston, a developer and contractor who has bought homes at auction for four years.”

“Properties that would have attracted a bidding war a year or two ago, when the real estate market was soaring, now stay with the lenders. The banks sell them through major national real estate firms, more frequently at a loss.”

“‘The party’s over,’ said Lawrence.”

“With more loans and homes skidding off the rails, the crowd in Room 385 isn’t going to thin anytime soon. As the auctioneer worked through the stack of folders on Thursday, investor John Derynda groaned that he should have brought lunch.”

“‘Two months from now,’ he said, ‘it’s only going to be worse.’”

“A few years ago, condo-hotels practically sold themselves. With real estate prices marching upward, the idea of owning a condo unit on the beach and covering some of the expenses through hotel rental payments seemed irresistible.”

“‘We weren’t salespeople, we were order takers,’ recalled Joel Greene, president of North Miami-based Condo Hotel Center.”

“Today, the market has sobered up. Condos aren’t selling and condo-hotels are caught in the same downdraft. In West Palm Beach, plans for The Harrick, a 138-unit condo-hotel at Lakeview Avenue and South Dixie Highway are on hold. ‘We’re redesigning it as a hotel,’ said developer David Gostfand. ‘The condo market is a little quiet at the moment.’”

“About 1,250 condo-hotel units have been opened in the past two years in Broward and Palm Beach counties, with another 2,500 units approved or under construction. That’s a small number compared with the 15,500 units proposed for Orlando or the 32,800 going up in Las Vegas.”

“Condo-hotel units that sold for $650 a square foot in the late 1990s are offered at $1,200 to $1,400 a square foot now. ‘The big question is with all these projects coming along at one time, are there enough luxury buyers?’ said (consultant) Jack McCabe.”

“Some developers concede that buyers must get a low price per square foot to have any hope of a return on their investment. Jim Clarke plans to begin construction on Clarkes Hotel, a 92-unit condo hotel in downtown West Palm Beach, within 60 days. ‘We’re virtually sold out, but our prices are low,’ said Clarke, who estimated an average unit costs $375,000.”

“Clarke cites a rule of thumb among hotel developers that to be profitable rooms should rent for a tenth of 1 percent of their building cost. If a buyer acquires a unit for $500,000, that translates to room rates of $500 a night.”

“‘That’s kind of hard to sustain down here,’ Clarke said.”

What do you see in your housing market this weekend? Repartments? “Citing sluggish sales, the residential developer in Rockville’s Town Square is shifting more than three-quarters of its units from condominiums to rentals. Scott Ross confirmed on Friday that all but one residential building would now be marketed as rental units.”

Changes in loan conditions? “As the subprime home financing fiasco continues to unravel, one of its most frayed threads is coming to light, according to three new studies: Many longtime homeowners have put their houses in jeopardy by refinancing with high-interest loans.”

“Shorewest real estate broker Ian Francis said he just turned down a listing from a homeowner who had a $147,000 refinance loan on a house that is likely worth $110,000. ‘There was no point to taking the listing,’ he said. It’s not unusual to see homes worth up to $600,000 in similar straits, said Francis.”

“‘The way things are looking is that things will be getting worse, not better, for some time,’ said John Pawasarat, of the University of Wisconsin-Milwaukee.”

Hesitant buyers? “Realtor Mindy Althoff can tell you a thing or two about marketing a home in Michigan’s sluggish housing market. To sell a home these days, sellers and their agents will have to go the extra mile, Althoff said. ‘Now, (buyers) don’t really want to do anything,’ she said.”

Cheaper materials? “Kruger Inc. is slashing more than 1,000 jobs as it indefinitely shuts four sawmills in Quebec to cope with the impact of the drop in the demand for lumber.”

“‘Over the last two or three weeks there has been a dramatic drop in [lumber] prices. Our prices are 24 per cent lower than last year at this same time. It’s a record,’ said Kruger spokesman Jean Majeau. The main culprit is plummeting housing starts in the U.S.”

Less speculation? “New and existing unit homes sales in Benton County were off 18.8 percent from a year ago, according to figures released Thursday by the Arkansas Realtors Association. ‘This decline is directly related to the number of speculators and investors that have gotten out of the market,’ broker Shae Dittrich said.”

A spring bounce? “Springtime usually means good times in the U.S. housing industry, but this year it’s threatening to become a grim season of reckoning. ‘Things seem to be snowballing very quickly,’ said economist Steven Cochrane. ‘It’s going to be a weak spring.’”

“‘This isn’t going to be over in a year,’ predicted Yale University economics Prof. Robert Shiller. ‘Housing prices could be declining for years and years.’”

“Lenders made these subprime loans largely because they felt protected by rising home prices. But weakening home prices have exposed the folly of that premise. ‘Giving mortgages to people who couldn’t afford them was the biggest error of recent years,’ Shiller said.”

The Hartford Courant reports from Connecticut. “The Southington homeowners took a gamble on their housing purchase, believing they would be in the three-bedroom home for years and, therefore, taking out a home equity loan to make some improvements. The couple, hoping to avoid foreclosure, are now listing their house for sale.”

“‘It looks like they are going to lose about $18,000 on their house,’ said Tom Abbate, an agent in Middletown, who is handling the listing, which will be about $225,000. ‘They are trying to avoid foreclosure and saying, ‘What do I do?’”

“During the last six months of 2006, foreclosures rose sharply in Connecticut - jumping about 36 percent, compared with the same time a year earlier.”

“Cheryl Keithan, a foreclosure expert, said the impact of foreclosures on the housing market is only going to worsen in the next six months because foreclosure resolutions can take months to finalize.”

“‘The pipeline is filling up for me,’ said Keithan, who has handled foreclosures for the past 14 years. ‘Foreclosures dropped significantly in 2004 and 2005, but by the end of last year it started picking up again. By summer, you are going to see a lot of these listings, and that is only going to further slow down the market.’”

“Michael Menatian, president of a mortgage brokerage, said he is handling more mortgages for clients who are buying foreclosure properties.”

“‘I’d say there are two or three a month, and two years ago, that was unheard of,’ Menatian said. ‘And these are not distressed properties. These are $400,000 or $500,000 houses, and they are getting them at a discount because the owners used a product or program that enabled them to buy a house when they probably shouldn’t have because they couldn’t really afford it.’”

The Providence Journal from Rhode Island. “For real estate agents like Edward Manfredi, the subprime mortgage foreclosure crisis means that business is booming. Manfredi works for a Warwick real estate firm that specializes in (bank owned) properties.”

“Mark Reo is a builder, property manager, landlord, and foreclosure consultant. Reo said he has purchased six REO properties recently, but would like to start buying them ‘in groups of 10 or 15′ directly from banks. ‘A lot of these banks now … they have 300 REOs instead of 30. … I’m here to help them,’ Reo said. Because the banks want to reduce their REO inventory, Reo believes they are willing to negotiate on price.”

“‘I can suggest almost anything and I have their ear,’ he said. ‘Because it’s a big, big problem.’”

The Journal News from New York. “With lowered expectations, John and Cynthia Vergilii have put their ranch-style house in Cold Spring back on the market. The asking price, $550,000, is $100,000 lower than what they tried to sell it for about 1 1/2 years ago, Cynthia Vergilii said.”

“‘I’m one of those people with an enormous amount of faith,’ Vergilii said. ‘I’m confident we’ll sell it.’”

“Paul Lee of Nanuet said he and his fiancee looked for a place in Rockland County for more than a year. Lee said he hasn’t seen prices drop far enough to suit him. The couple will have to budget carefully to keep their new home, he said.”

The New York Times. “As homeowners across the country have dealt with the declining values of their houses and their ballooning mortgage payments, most New Yorkers seem to believe that the market here doesn’t play by the same rules.”

“But in recent weeks, a growing number of New Yorkers, often with six-figure salaries and reasonably good credit, have begun to find that mortgages are harder to get as lenders try to stem losses from loans to the weakest, or subprime, borrowers.”

“Mortgage brokers…warn that people with any red flags on their mortgage applications will face delays and will pay higher fees. ‘You’re going to pay the piper for any little mistake,’ said Melissa Cohn, the president of Manhattan Mortgage Inc. She said her brokers were spending twice as much time on each application as they did a month ago because of new lending requirements, and she expects the situation only to get worse.”

“‘The impact is going to be much greater as banks demand that people have clean credit to get the best mortgages,’ she said.”

“Buyers like Lee and Kimberly Au had to adjust their expectations. The Aus wanted to buy a one- or two-bedroom condominium costing $800,000 to $1.25 million at the Atelier on West 42nd Stree. But they quickly learned that they could no longer get 100 percent financing, even though Dr. Au makes more than $700,000 a year as a surgeon.”

“Eric Eisenberg, the mortgage broker handling the deal, said that even though the Aus put up more cash, the transaction was far more difficult to close than it once would have been.”

“‘About three weeks ago, I would have gotten this done by snapping my fingers,’ said Mr. Eisenberg. ‘Now it’s a very lengthy and time-consuming process where every bit of paperwork has to be done to the T. The guidelines are literally changing every hour.’”

“The Aus tried to tap into the equity in their four-bedroom house in Honolulu or their rental property at Haiku Plantation nearby in Kaneohe, but banks refused to refinance or to lend on these investments.”

“The couple are using Ms. Au’s credit score, which falls in the Alt-A category, to qualify for a 7.5 percent first mortgage and an 8.5 percent second mortgage. ‘We have a lot of our money tied up in real estate in Hawaii,’ she said. ‘I knew we had to find something quick.’”

The News Journal from Delaware. “For now, the party is over for vacation property owners at the Delaware beaches, where house prices in some communities at Washington’s summer playground nearly tripled from 2000 to 2005.”

“‘The market at the beach has died,’ said Scott Gaston of Dover, an investor who is selling a Rehoboth Beach house he bought in foreclosure in January. Already, he has lowered the price.”

“From Lewes to Dewey Beach, average sale prices for single-family homes last year declined for the first time since 2000, according to MLS data provided by the Sussex County Association of Realtors. Prices in the communities closest to the ocean dropped 5 percent from 2005 to 2006.”

“Bowing to the new reality, sellers, from home builders to owners of existing homes, are throwing in incentives. Along with the bricks and mortar, how about a trip to Bermuda?”

“‘You’re going to see people doing everything. We’re talking cars, vacations, boats, anything that will make people buy it,’ said Jack Corrozi, managing member of Corrozi Builders in Newport.”

“While real estate agents and developers tend to be perennially optimistic, even some of the sunniest are nervous about the spring season. ‘I’m pessimistic,’ said Trevor Gouert, an affiliate broker in Lewes. ‘I tell my owners: Hold on to your property if you can. Now is not the time to sell.’”

“Brett Reilly doesn’t need to be told that. For nearly a year, Reilly, a chief executive with Tapa Homes in Dagsboro, has been trying to sell a manufactured house his company put up on a lot in Rehoboth Beach. The price has been dropped 11 percent from $259,000 to $230,000. Now, with a monthly carrying cost of $800 to $900 a month, Tapa is eager to deal.”

“‘We want that thing gone,’ Reilly said.”

“Average sale prices of a single-family home from 2000 to 2005 nearly tripled in some oceanside communities. The average sale price of a home in the Lewes-Rehoboth Beach-Dewey Beach area, for example, rose from $426,170 to a peak of $1.23 million in 2005.”

“‘A lot of people thought there was no end to it. But there’s always an end,’ Corrozi said.”

“Inventories have climbed. The number of homes that came on the market in some beach communities in 2006 were four times the level at the beginning of the boom in 2000.”

“Robert Harman, president of the Sussex County Association of Realtors, blames the slowdown on overbuilding. For the first time, the nation’s largest home builders, such as Lennar Corp. of Miami, Fla., and Centex Corp. of Dallas, Texas, entered the market, Harman said.”

“‘They anticipated a great wave of buyers that didn’t come,’ Harman said.”

“The old adage that it was a good investment to buy beach property ‘because they’re not making more of it’ proved not to be true in the case of the Delaware shore. The vacation home market simply expanded inland to the west and north.”

“New-home communities miles from the water were given salty names, such as ‘Sandbar Village.’ ‘There’s more woods than bay,” said Pat Campbell-White, a broker in Rehoboth Beach.”

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