The Housing Bubble

It’s Friday desk clearing time for this blogger. “Home prices fell nearly 2 percent last month in Colorado Springs and the Pikes Peak region, the first decline in a little more than three years. Sales also were down sharply last month. Supplies of homes on the market, meanwhile, were way up.”

“‘That’s why we’re lagging downward,’ Benjamin Day, manager of ERA Shields Real Estate’s northern Colorado Springs office, said of prices. ‘There’s just too many options out there.’”

“American Home Mortgage Investment Corp. cut its first-quarter and full-year profit forecast by more than 25% Friday after being hit by problems in the secondary market for home loans and mortgage-backed securities.”

“The company also said that it’s stopped offering some types of so-called Alt-A mortgages because of the high cost of delinquencies on those loans. The warning suggests that problems in the subprime-mortgage business have begun spreading to other parts of the home-loan industry.”

“Subprime mortgages are causing a dramatic spike in foreclosures throughout the city with Queens homeowners facing the most devastating effects.”

“‘It’s really been a feeding frenzy the past few years,’ said NEDAP’s Executive Director Sarah Ludwig. ‘When you see a pattern where there are so many in a year or two, that’s a flag that goes up that maybe they [the loans] weren’t affordable when they were made.’”

“Builders are growing more pessimistic about the spring selling season, the National Association of Home Builders says. One reason for their grim outlook: Mortgage lenders are making it harder for potential buyers with tarnished, or ’subprime,’ credit to qualify.

“The downward sales trend ‘is pretty serious stuff,’ David Seiders, chief economist for the home builders association, said. Sales of new homes, which fell 21 percent last year, could take another pounding this year.”

“‘I’ve been sitting here with a pencil and eraser working on our forecast,’ Seiders said. ‘I started out two weeks ago expecting about a 2 percent decline for new-home sales this year. Now, I’ve got them down 8 percent, and I’m not sure that’s enough’ of a cut.”

“Retired businessman Tan Phong is not only willing to fork out more than 1,000 Singapore dollars ($660) per square foot for a condominium apartment, he will even queue overnight on the street just to get his dream unit.”

“‘I only stayed on the first night,’ said Tan, who recruited four friends to take turns standing in line for him. ‘It’s very uncomfortable.’”

“Ho Chi Minh City’s land department recently proposed to the city government solutions to ease skyrocketing property prices in new urban areas in the southern metro.”

“Many real estate companies are in dire financial straits, thus few businesses have adequate financial capacity to realize the housing projects. ‘This has led to a gap between supply and demand,’ said HCMC Natural Resources and Environment Department head Tran The Ngoc.”

“Arizona State Treasurer Dean Martin was in Kingman Wednesday to address the Arizona Association of County Treasurers. ‘Our employment numbers are still strong, but the real estate bubble has burst,’ he said. He was unsure what effect the downturn in the real estate market would have. The real estate market was a big help in keeping the state afloat during the last recession, he said.”

“‘Really, the question is population growth. Can it grow us out of the bubble burst? Will it chew out the excess capacity (in the housing market)?’ he said. In the last seven months, his office has seen a declining bank balance, he said. Last month saw a 20-percent reduction in the amount of operating funds.”

“The pace of single-family house construction in Anchorage continued to slow last year, and area builders are preparing for another decline this year. A dwindling supply of easily developed land and a large inventory of existing homes for sale that have significantly appreciated in value over the past several years are largely to blame for the deceleration, builders say.”

“‘We are getting pinched,’ Eric Schach, president of the Anchorage Home Builders Association, said Thursday.”

“This season, however, (builder) Chuck Spinelli’s biggest project isn’t going to be a single-family housing development but a three-story, 24-unit condominium complex in Bootlegger Cove. ‘I’ve got two kids in the business, and if we’re going to stay alive in Anchorage, we’re going to have to start building a lot more of that kind of stuff,’ Spinelli said.”

“Foreclosures among Oregon homeowners increased 40 percent last year. Nearly one-third of all Oregon mortgages issued in 2005 required interest-only payments, according to the Oregon Center for Public Policy.”

“Senate Bill 965 extends consumer protections for so-called High Cost Home Loans. Sen. Larry George panned the bill. ‘If someone is being deceptive, I’m with you,’ George said. But it’s not the state’s role to ‘protect people from being stupid,’ he said.”

“Oregon State Senator Jeff Kruse said one of the problems facing state legislators is that there has been little trend projections. He said the state could be in a world of hurt sooner rather than later.”

“‘The capital gain bubble is passing. Real estate is tanking, or at least flat and trending down. We now have a Rainy Day Fund. At this rate, it will be raining next February,’ said Kruse.”

KPIX 5 reports from California. “In March the number of houses on the market in the Bay Area jumped by more than 12,000 percent to just over 24,000. Dr. Chuck Williams, the Dean of the University of Pacific School of Business believes 2007 will mark rock bottom for the housing market.”

“‘We don’t see a bubble bursting,’ William said. ‘Prices have dropped 5 to 10 percent compared to two years ago. Interest rates are low; there’s a tremendous amount of inventory from which to choose. And if you’re a buyer those are the three conditions that you want.’”

“‘The buyers are more excited now to go out there because they know they can work better terms with the sellers,’ said real estate agent Adriana Barriga. ‘Because the sellers are willing to be more down to earth and negotiate with the buyers.’”

“And in Tracy, observers say the 900 foreclosures in San Joaquin County won’t slow the market for long.”

The Sacramento Bee. “The spring home sales season is under way, and pros say this year you’ll need every trick in the book to sell your house. With nearly 11,500 homes for sale in the capital region, and hundreds, perhaps thousands, of additional homeowners considering the same, 2007 is going to be more competitive than ever for sellers.”

“‘Price it right and present it right, and hope you get lucky,’ says Yuba City broker associate Doug Bryan.”

The LA Times. “Brad Cottrell was a paramedic when a friend introduced him to the high-rolling world of sub-prime mortgage lending. Within three years of landing a job with Ownit Mortgage Solutions Inc. in Agoura Hills, his salary had tripled. His wife quit working and they bought a 3,000-square-foot house in Camarillo.”

“But late last year, defaults on risky loans began to rise. By December, Ownit was out of business, and the 35-year-old father of three was out of a job.”

“‘It was a nightmare,’ he said. ‘I felt like I got hit by a Mack truck.’”

“There’s a lot of that going on. In California, mortgage industry job losses soared 367% in the first quarter. ‘It’s only going to get tougher,’ said Cottrell, whose house is now for sale.”

“In California, the 3,679 mortgage industry jobs lost in the quarter pales compared with the 70,000 construction jobs that economists figure could disappear over the next two years.”

The Desert Local News. “The lender has repossessed developer Mayer-Luce’s ambitious Tuscan Hills development in Desert Hot Springs.”

“‘Yes, Mayer-Luce was the borrower and we have foreclosed on the property. We took back the property,’ said Jeffery Lubin, President of Scripps Investments and Loans.”

“The Tuscan Hills property is the second development Scripps has repossessed from Mayer-Luce. In Indio, Scripps took possession of the partially-built Vineyards project.”

The Valley Voice. “Tulare has some 6000 ‘paper lots’ available to build on joining Visalia with an abundant oversupply of subdivision lots. Tulare did about 550 new homes last year meaning the 6000 lots are more than a 10 year supply.”

“The upshot, it will take time to absorb the inventory, a similar sentiment in Visalia.”

The Fresno Bee. “City building permit fees will rise in June to make up a shortfall in the city fund that pays for building inspection and safety services.”

“Visalia City Council members unanimously approved the increase Monday night after learning that the city’s building-safety fund, which depends on income generated by issuing building permits to contractors for new construction, has a deficit of about $100,000.”

“A slowdown in construction activity, led chiefly by a drop in home building from record levels in 2005, is being blamed for the deficit as fewer building permits are being issued. That continues a trend that began in mid-2006.”

“In the first three months of the year, the number of permits issued for new single-family homes, and the construction value those homes represent, is off by more than 40% from the same period in 2006.”

The Union Tribune. “The Australian development company that promised two years ago to build a 21-story luxury condominium project in National City is now considering asking city officials to lend the firm up to $2 million.”

“Executives of Constellation Property Group won’t discuss why they need a loan, but city officials said the company’s financial partner, Phoenix Realty Group, wants to pull its money out of the project.”

“City officials should view the Constellation loan as an investment, said Brad Raulston, the city’s redevelopment director. ‘They’re not asking for a subsidy. This is a good risk or investment for us to take,’ Raulston said.”

“The company’s Web site describes the Centro project as ‘upbeat, urbane, unfettered, at the heart of a burgeoning community close to all amenities.’”

“In 2005, Constellation launched a marketing campaign to promote the National City project. The company opened a sales office on National City Boulevard and hosted a launch party for the project at downtown San Diego’s Hotel Solamar that featured Australian food, live music and models of the project.”

“The company placed ads in magazines and on billboards and began taking reservations through its Web site.”

The Modesto Bee. “Kenneth Spencer hadn’t planned on being a landlord. He and a partner thought they would make a tidy profit buying an older Modesto home, fixing it up, then quickly reselling. ‘But we bought at the wrong time,’ lamented Spencer, who lives in Martinez. ‘We put a lot of money and a lot of time into that house.’”

“After spending $309,000 for the Elm Avenue home in 2005, plus $80,000 more remodeling it in 2006, they haven’t been able to sell it for enough to break even. So they’re trying to rent it for $1,650 a month. Even if they get that price, they’ll still be short $1,000 a month on their mortgage payment.”

“‘It’s all about trying to survive on the mortgage right now,’ Spencer said. ‘Real estate always goes up eventually, if you can hold on long enough.’”

“Many people are trying to hold onto houses they purchased as investments by becoming landlords. That has flooded the Northern San Joaquin Valley rental market with houses, pushing down rents and forcing landlords to compete for tenants.”

“Many rental properties originally were bought by speculators who got caught in the real estate downturn, explained Paula Leffler Zagaris, whose company manages 1,500 rental houses.”

“‘They were gambling,’ Zagaris said of investors who intended to quickly sell, or ‘flip,’ houses to cash in on rising property values. ‘Anybody who did that before October 2005 was a genius and made a lot of money. But if they bought after that, they’re stuck.’”

“Marie Nunez bought a home in 2005 on Bollinger Court in Modesto. She lived there one year, then moved to a larger home. ‘We wanted to sell the (Bollinger) house, but it didn’t sell,’ Nunez sell. Now she’s trying to rent the three-bedroom house for $1,275 a month, which is about $500 less than the mortgage costs. ‘It’s been hard to rent.’”

“A nearly new, 2,300-square-foot, four-bedroom, three-bath home with a three-car garage recently rented for $1,650 a month in Riverbank. Mortgages on such homes often cost $1,000 a month more than that, said Deborah Naylor, owner of Parkside Management, which manages 300 rental houses.”

“‘Owners are just so desperate because they can’t stand to take that mortgage hit every month (without renting to cover part of their cost),’ Naylor said.”

“Often, owners ask her to seek higher rents, say $2,000 a month, but Naylor tells them, ‘We’re not miracle workers.’”

“Zagaris agreed an owner’s costs have no bearing on what they can recoup in rent. ‘We do a tremendous amount of counseling with owners about the rental market,’ said Zagaris, who added 65 homes to her client list last month.”

KDKA 2 reports from Pennsylvania. “A wave of house foreclosures that has swept the nation from coast to coast is also hitting the Pittsburgh area hard. But you might be surprised to learn that it’s hitting hard in our affluent suburbs. After putting an addition on her home, Renee Schopper in McCandless refinanced the debt several times to pay off other debts and then refinanced again with a so-called adjustable rate mortgage which has adjusted to rates she can’t afford.”

“She blames herself for not reading the fine print but says she was pressured by her lender.”

“‘I was sitting in the office and I was sobbing and the gentleman was saying ‘you’re doing the right thing, don’t worry about it.’ and I said okay I trust you. So I signed,’ said Schopper.”

The Philadelphia Inquirer from Pennsylvania. “Domeeka Lawrence never imagined spending the rest of her life in the Southwest Philadelphia house she bought in June 2003 for $66,900. Next month, she is probably going to move, but not to make room for renters. The house is scheduled for a sheriff’s sale May 1.”

“Lawrence, like many low-income borrowers, got something she wasn’t expecting in her adjustable-rate mortgage: The monthly payment jumped in July 2005 from $387 to $514.”

“‘I asked at the settlement table, ‘Is this going to be my payment?’ Lawrence said. ‘I rushed into that without really thinking. I should have done a lot more research,’ said Lawrence.”

Bloomberg reports from Michigan. “Todd Alford put his house in Dearborn, Michigan, on the market in February, when he left his job as a Ford Motor marketing executive. He has not received a single offer.”

“Before Alford left his job, he and his wife, Paula, spent $25,000 on renovations to their brick house, sure they would recoup the investment whenever they sold it. They purchased the property for $200,000 in December 2002 and have a $1,428-per-month mortgage on it. Now the Alfords are hoping just to break even on the property.”

“‘The real estate market has plummeted because of auto industry layoffs and the foreclosures that go with it,’ said Alford, who put a $215,000 price tag on his family’s three-bedroom brick bungalow.”

The Journal Sentinel from Wisconsin. “Wisconsin’s mortgage-paying troubles deepened in March, and experts see no end in sight.”

“‘Foreclosures, I’m sorry to say, are a growth business,’ said Roy Scholtka, president of HomeSale Realty Inc. in West Allis. ‘Typically, they were something you saw in the lesser prices and the tougher areas. Now, we’re seeing them in the suburbs and across the board.’”

“‘April’s going to be a real big kicker. That’s when the subprimes of spring 2004 go up’ as these high-priced loans’ teaser interest rates expire, said Gary Zimmermann, national director of Federal Housing Administration lending for CFIC Home Mortgage.”

“‘Every day I get calls from people who signed for loans that weren’t fully explained to them,’ said Catey Doyle, chief staff attorney for the Legal Aid Society of Milwaukee. ‘Some people knew full well what the terms were but were hoping on a wing and a prayer that they’d get that raise at work, or their ship would come in somehow before the payments went up.’”

“For thousands, no ship came in. Wisconsin courts recorded 16,473 foreclosure filings last year and 4,834 in the first three months of this year, figures show.”

“‘On average, there were 77 foreclosures filed every business day in the first quarter,’ said Robert Jansen, president of (a) Milwaukee-based data tracking firm.”

The St Cloud Times from Minnesota. “Last year at this time, area real estate agents, builders and bankers knew a housing slowdown was on its way. Builders began to roll out more incentives, home staging became more important and agents expected a reversal of the real estate appreciation trend.”

“A year later, the St. Cloud area is weathering its part of a national housing slowdown caused by an inflated market and overdue adjustment. The area finished the quarter with almost 13 months of home inventory in March, compared with about eight months a year ago.”

“Mark Herron, a real estate agent in Waite Park, hung a sign that reads ‘Priced reduced’ on a home for sale in St. Cloud to motivate buyers. ‘It generates more interest from drive-by traffic,’ Herron said.”

“‘We’re pricing them now at where we were selling them last year at this time,’ said Scott Reinert, president of the St. Cloud association.”

“‘It takes awhile for the seller in the market to recognize that their asking price is too high,” Reinert said. ‘Now, they understand that overpricing a home is just costing them money.’”

The Star Tribune from Minnesota. “Soon, you might be able to buy a big-screen TV where Jaguars once roamed. A Seattle company has pulled the plug on plans to build a 290-unit condo building planned for the Downtown Jaguar site at Hennepin and Washington Avenues in Minneapolis.”

“Instead, the company is proposing an all-retail complex. This is the second luxury high-rise downtown condo project to alter plans in response to a sluggish market, and one of several that’s being redrawn for commercial or retail purposes.”

“Many applaud the changes at what was once called the Two Twenty Two project, because it will take some pressure off an already soft condominium market. ‘This would just be dynamite,’ said sales agent Fritz Kroll. ‘It says that there’s enough housing already on the market.’”

“Mary Bujold, a Minneapolis multifamily consultant, said that many developers are in a holding pattern. Right now there are 1,311 units in downtown Minneapolis that are being marketed, but are not under construction (not including the aborted Two Twenty Two project or the revised Nicollet Tower). And there are 1,336 units under construction, 60 percent of which are already sold or reserved, she said.”

“Last year the market absorbed 900 units, about 75 a month, not including condo resales. That’s down from the peak of 2004, when the market absorbed 1,300 units, about 108 units a month. Since the beginning of the year that number has dropped further, to about 30 units per month.”

“Seattle-based developer Don Milliken will present final plans to the neighborhood group later this month, and he still needs city approval. Milliken said that he scrapped the condo plans, which he announced after acquiring the site in November 2005, for several reasons.”

“‘It is just not economical to build high-quality condos right now, and the simple reason is that the costs are accelerating and continue to accelerate at a pace that doesn’t work,’ he said. ‘At the same time, the prices that can be acquired in selling condos is at best stagnant and at worst declining a bit.’”

The St Petersburg Times reports from Florida. “When the flood of fresh home listings stopped rising last fall, the Tampa Bay housing market appeared poised for a recovery. Welcome to the recovery that wasn’t. So many for-sale homes continue to bloat the area real estate market, nearly 41,000, that sales as a share of total home listings are at their lowest point in recent memory. In February, about one home of every 20 on the market found buyers.”

“Realtors, usually a confident lot, are making few attempts to sugarcoat the recent numbers. ‘It’s pretty huge, pretty staggering,’ said Ann Guiberson, president of the Pinellas Realtor Organization.”

“Carlos Fuentes, who presides this year over the Greater Tampa Association of Realtors, said buyers haven’t turned out as expected this year. He blames the standoff mostly on sellers fixated on reaping top dollar for houses that have depreciated.”

“‘The buyers are on the sidelines waiting for the blood to continue to rise,’ Fuentes said.”

“About a quarter of homes bought in the boom were ‘non-owner-occupied,’ the National Association of Realtors said in a Tampa area market study last year. Adding to a sense of alarm is the hidden home inventory that swells the market further. It includes by-owner sales, most new construction and condo conversions, and bank foreclosures.”

“Other danger signs abound: About 36 percent of Tampa area home buyers used adjustable-rate mortgages in early 2006 and 11 percent with weaker credit took out subprime loans carrying interest at least 3 percentage points higher than market rates.”

The News Press. “Local real estate experts shared a positive outlook about Southwest Florida’s real estate market at the Bonita/ Estero Market Pulse ‘07 Thursday night. How quickly it will turn around, they said, depends on sellers’ willingness to reduce prices.”

“After the boom of 2004-05, said broker Jim Scartz, sales prices in 2006 reflected closings on newly constructed homes that were bought six to 18 months earlier. The prices were not reflective of the true market in 2006, and as many as 60 percent of the listings had unrealistic prices. Even now, Scartz said, about 35 percent of the inventory falls into that overpriced category.”

“‘Prices always take off with a roar at some point after the plateau, achieving far higher levels than in the past,’ Scartz said.”

The Bradenton Herald. “The real estate markets in Manatee and Sarasota counties have hit rock bottom, will stay there for the next 12 to 18 months and then begin a 3 percent to 4 percent annual growth climb. That’s the opinion of noted Florida economist and financial oracle Henry H. Fishkind.”

“Lunch attendees Jack Hubbard and his wife, Karen, were happy with the news, since they have had a home on the market in Greenbrook for 15 months. ‘I’m thrilled,’ said Jack Hubbard.”

“The Hubbards priced the home at $414,900 just before the market collapsed. Now, they have it listed at $319,900.”

The Herald Tribune. “Lennar Homes, the region’s largest home builder, cut another 56 positions in Sarasota-Manatee on Thursday as it and builders around Southwest Florida continue to grapple with one of the nation’s slowest housing markets.”

“The layoffs on Thursday coupled with the 35 positions eliminated in late February mean that the big Miami-based home builder has trimmed 40 percent of its local staff. ‘Everyone is downsizing and reducing their costs,’ said Pat Neal, president of Lakewood Ranch-based Neal Communities.”

“Other builders have taken a similar tack. In December, Bonita Springs-based WCI Communities Inc. said it would cut its work force by an estimated 15 percent. The company is now shedding 1,000 workers, or one-quarter of the total.”

The News Journal. “The slump in condo sales has been well-documented, but its impact is still being felt. Throughout the Volusia-Flagler market, stalled condo projects have left partially completed buildings, vacant buildings and empty lots.”

“By the numbers, there were 965 condos sold by Realtors in 2006, down 55 percent from 2,162 in 2005, according to the Florida Association of Realtors.”

“Local government officials feel helpless to do much about the condo sites, other than to make sure the developer keeps them clean. Mark Rakowski, New Smyrna Beach director of Development Services, said he’s not sure what the city can do if developers don’t ultimately build what they planned and let the site go vacant.”

“Vacant buildings seem to always serve as malfeasance magnets. That’s obvious at the former Waterside Plaza in South Daytona where graffiti now decorates the exterior. Vagrancy, theft and vandalism have been problems at the property, said Realtor Herb Lubansky, who is marketing the condos planned for the site.”

“‘We’ve tried to keep the property as clean as we could,’ he said, ‘but you always have those types of issues with vacant buildings.’”

The Keys News. “Investors who had hoped to flip their condominiums before they even closed on their properties are suing the Santa Maria to return their $1 million in deposits. A second suit by another attorney is pending.”

“Santa Maria attorney Ed Scales brushed off the suit, saying the investors are just trying to find a way out of a declining real estate market, in which their condos are not selling.”

“‘The plaintiffs were assured by the defendants that once the building was under construction, prices would increase dramatically as they were contracting at a bargain price, therefore there would be no issue with the plaintiffs being able to resell their investment contracts to somebody else at a profit,’ the lawsuit says.”

“In the suit, the investors admit they relied on the Realtors’ claims without reading the entire contract.”

“‘This has to do with people speculating in the real estate market. It was a nationwide trend in 2004 and early 2005. They got pinched…The market is bad. Even by their own words, they never intended to close on the units. Obviously, they were speculating and this is what happens when you speculate. Sometimes it pays off and sometimes it doesn’t,’ Scales said.”

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