The Housing Bubble

The Tribune reports from California. “March blew in a slightly lower number of home sales to San Luis Obispo County and a drop in the median price compared to the same month a year ago. The median price of a home declined to $506,000 in March, a 10.4 percent decrease from the previous year, when the median reached $565,000. A median of $525,000 was recorded in February.”

“Lenny Jones, a Realtor in Arroyo Grande, believes the county will see a ‘continual decline of the median home value for 2007.’”

The Press Enterprise. “Could something akin to eBay auctions be the next stop for new-home builders facing a glut of unsold properties? On April 1, builder Prosperity Homes held a live auction in Ontario for new condominiums available in San Bernardino. For another auction planned for May in Orange County, the company is looking into incorporating an online bidding element.”

“Steve Johnson, a director with Metrostudy, noted that unsold inventory of newly built Inland homes went from about 1.3 months of supply, or about 2,700 properties a year ago, to the current 2.4 months of supply, a total of around 5,000 properties.”

“To move those homes, he said builders are continuing to offer a number of incentives that began to kick in last summer, when the local new-home market began to soften.”

“Lennar is using the technology to expedite sales of the remaining 14 homes at Marquesa, with online bids starting as low as $295,000. ‘The expedited sale of these homes in a final close-out allows us to reduce our marketing costs in the development, which will put us in a position to accept what the market dictates as fair market value,’ said Bob Tummolo, regional VP for Lennar’s Palm Springs division.”

Inside Bay Area. “The market has slowed in San Joaquin County. Some 780 homes changed hands in March, down from 1,302 in March 2006. The median sales price in March was $415,000, down from $440,000 a year ago.”

“‘I think Alameda County is stronger than the Contra Costa County market,’ said associate broker Linnette Edwards. ‘We are starting to see short sales and foreclosures in outlying areas…like Pittsburgh, Bay Point and Antioch. The market has slowed down there.’”

From News 10. “Owners who bought ‘luxury’ condo conversions at the peak of the market in Elk Grove, now complain their complexes still feel like apartments.”

“Signs and banners in front of the complex advertise ‘luxury’ condominiums for sale from $190,000. But ads in housing rental publications offer the same units as apartments from $925 per month. ‘They explained they’re trying very hard to sell but they still need revenue, so they’re still renting them out,’ said Bill Bearss.”

“Now more than half of the 272 units are vacant and Rollingwood North LLC, has stopped paying dues to the homeowners association.”

“Rollingwood condo owner Sandy Simpson said she worries the developer’s default threatens the solvency of the association. ‘We hope that nothing major goes wrong with our places,’ Simpson told News10. ‘Our roofs are in really bad shape.’”

The Santa Cruz Sentinel. “In the first 13 weeks of this year, Monterey County averaged 42 notices of default recorded per week. San Benito County has averaged 10 per week, and Santa Cruz County has averaged 15 per week.”

“Santa Cruz attorney Balam Letona, a specialist in bankruptcy, said he is getting three or four calls a month from people with mortgage problems. Letona is taking a few of these cases, but not all of them.”

“‘A year ago, I’d go months without receiving a call like that,’ he said. ‘Most of these mortgages are vintage 2005 and 2006. Those two years are going to be terrible.’”

“Aptos accountant Patricia Beckwith has postponed her search, saying she couldn’t afford to pay $3,000 per month on a mortgage. In her house-hunting, she met people who owe more than what their home is worth because they had resorted to interest-only loans.”

“‘The whole interest-only thing is scary,’ Beckwith said.”

The Voice of San Diego. “When Rosa Gonzalez was left $10,000, she decided to invest it in a home. She found a two-bedroom, two-bathroom condo in Barrio Logan for $235,000. Because she hadn’t built a very thick credit file, she ended up with a loan geared toward those with bad credit.”

“She was intimidated by the fact that the loan papers, laden with technical and legal terms, were in her second language, English. ‘You sign the papers, but it’s so hard to understand,’ she said.”

“Bruce Norris hosts a real estate radio show in Riverside County. He said the impact of foreclosures will eventually be widespread among both rich and poor neighborhoods, even though it has been so far contained in some low-income neighborhoods in Southern California counties. He said the worst is yet to come.”

“‘This certainly hasn’t played out yet,’ Norris said. ‘It inevitably has to turn more ugly. More and more foreclosures being sold in the marketplace will depress prices even more.’”

From Fox 40. “Home foreclosures are rising across the country and there is no worse place than the Sacramento region. The latest figures show four of the top ten metro areas are Sacramento, Stockton/Lodi, Modesto and Yuba City.”

“Netta Savage believes she was scammed into her home loan, and that she is not alone. Savage said, ‘Under duress, you do dumb things. So I accept my responsibility. I should have said, ‘I’m not signing nothing. We need to take this home, and let me get with someone.’ But he’s saying sign it, sign it. It’s what we agreed on. It’s what we agreed on. Sign it, sign it, sign it. And I’m like…okay.’”

“Now into the second year of her loan, Savage’s mortgage payments exceed her monthly fixed income of $2,000.”

The Desert Sun. “The once-booming real estate market has indeed been a career draw: Roughly 1 in every 54 Californians holds a real estate license. And despite a generally sluggish housing market in recent months, California continues to add 200 to 300 new real estate licensees every week.”

“‘At least it’s not 1,000 a week like it was a year ago,’ said California Real Estate Commissioner Jeff Davi.”

“Indian Wells Realtor Pat Fredericks, who was president of the California Desert Association of Realtors two years ago, said Davi’s expectations for a decline in real estate licensees due to the market downturn should be right on target based on what she’s seen during her many years in the industry.”

“‘We are always about 18 months to two years behind the curve,’ Fredericks said.”

The North County Times. “Against the backdrop of an Otay Ranch field being leveled for people’s American dreams, about 300 construction workers, real estate agents and home-building executives gathered Friday to promote a renewed commitment to housing in San Diego County.”

“However, in issuing an annual forecast for new home construction in January, the California Building Industry Association stated that companies were voluntarily curbing building locally and around the state because of swelling inventories. The statewide association said those inventories were a result of prices so high few people can afford to buy.”

“Jerome Stocks, an Encinitas councilman, questioned whether there is in fact a shortage. ‘If we have a crisis of not enough housing, then why are all these houses on the market not selling?’ he asked.”

Readers suggested a topic surrounding the latest bailout news. “Supporting a tax bailout is akin to supporting higher taxes, higher interest payments and ultimately serfdom. If the market is allowed to run its course, prices will fall and homes will once again be affordable.”

A reply, “IMO, this stuff doesn’t have much support. Here’s an editorial.”

One said, “Hooray for the St. Cloud Times! Now lets see if we can get this type of editorial into the 2 big papers! (The Star Tribune and Herald, and the St. Paul Pioneer Press).”

Another had questions. “Why a bailout to keep people in ‘their’ homes, when the only out-of-pocket equity they have invested in it are the curtain rods? What right to an enforced transfer from taxpayers do they deserve?”

“Why a bailout to the first mortgage companies if they are already out of business?”

One thinks borrowers won’t want a bailout, “Are people going to want to be saved if their homes are worth less than they paid for them or would they rather walk away?”

“Bankruptcy reform makes it harder to do a Chapter 7, many won’t be able to even afford after a Chap 13 rearranges their finances. Things will still be too high.”

“What is the number, something like $600 billion in ARM’s reset this year? That is just the tip of the iceberg. Bailouts for FB’s will not even make a dent in this bubble. Sorry.”

One posted this link. “Does anyone have a spare $120b to chip in for bailing out FBs? ‘Want to pick up the check for every homeowner who got saddled with a risky mortgage? It’s a big one, on the order of $120 billion.’”

“‘The numbers are going to get very large,’ says Raphael Bostic, a professor of economics at the University of Southern California. ‘I don’t think this is a feasible plan.”

“Economists say bailout could have the effect of causing more defaults. ‘If the plan is to pay off loans when people quit, then I plan to quit paying my loan,’ says Michael Englund, chief economist at Action Economics.”

“What’s more, some economists say a bailout could encourage more risky lending in the future. ‘A bailout would validate what some of these lenders and borrowers did, which we now understand was reckless,’ says Carl Tannenbaum, president of the National Association of for Business Economics. ‘I don’t think that’s what we want to do.’”

From CNN Money. “Non-profits and lawmakers are stepping up efforts to help people at risk of losing their homes. But critics contend the programs will do little to stem the nation’s rising tide of foreclosures.”

“‘By putting people in new loans all we are doing is throwing leverage after leverage,’ says Joseph Mason, a finance professor at Drexel University and an expert in the mortgage market. ‘These programs are not a good idea. They just don’t work.’”

“‘There are hundreds of billions of dollars worth of problem loans out there,’ says Zach Schiller, research director at Policy Matters Ohio. ‘We have much larger problems than can be dealt with by these programs.’”

A report from the Arizona Republic. “The number of Valley residents who lost their home to foreclosure spiked more than tenfold in the past year as more and more homeowners fell behind on their mortgages. The problem may soon get worse. Mortgage delinquencies hit a four-year high last month.”

“‘Our economy isn’t bad, but foreclosures will continue to rise,’ said Jay Butler, director of realty studies at Arizona State University Polytechnic. ‘The fallout from the subprime market is just beginning.’”

“Last month, 553 Valley families lost their homes, according to the Information Market. At the same time, 1,705 homeowners got notices from their lenders that they were at least three months behind on their mortgage.”

“In March 2006, 782 homeowners were delinquent, but only 40 houses were taken back by lenders and sold at a foreclosure or trustee sale.”

“‘Many homeowners who bought at the peak and are now struggling may just end up walking away from their houses,’ said Margie O’Campo de Castillo of Arizona Dream Realty. ‘People who bought new homes on the Valley’s fringes a few years ago are particularly having trouble selling for what they owe now.’”

“Heather Ferguson thought she was getting a low-rate mortgage when she bought her Fountain Hills home in 2005. ‘I wasn’t a real estate expert, but I had decent credit and could afford the payments on a 6.5 percent loan,’ she said.”

“But after waiting for her loan broker for four hours at the title agency, she ended up signing for a subprime loan that started with an 8.5 percent interest rate that has now climbed to almost 12 percent. Her payment went from $980 to $1,680.”

“People behind on their mortgages are often dealing with other financial or personal problems and are in denial, experts say.”

“‘They think the Valley’s housing market a few years ago was normal,’ said Joann Hauger of the non-profit group Community Housing Resources of the Arizona. ‘Struggling homeowners shouldn’t think those price run-ups are going to return and save them.’”

The East Valley Tribune from Arizona. “Some 5,703 Maricopa County properties entered a stage of foreclosure in the last three months of 2006, a 49 percent jump from the same period the year before, according to RealtyTrac.”

“Inflated home values and the use of creative financing, such as interest-only loans, have left many owners unable to make payments or sell, Intero division manager Patti Crawford said. Refinancing frequently isn’t an option because the borrower owes more on the home than it’s worth.”

“Homeowners who bought in the $250,000 to $350,000 range or in outlying areas, such as Queen Creek and Maricopa, seem to be the hardest hit, Crawford said.”

“Coldwell Banker started new divisions at the beginning of the year, one for preforeclosures and another for foreclosures. ‘We are starting to get more and more requests from lenders,’ department head Connie Swenson said.”

“Crawford expects foreclosures to continue to climb. ‘I don’t think we’re even near the beginning of it,’ she said. ‘People’s rates are going to start adjusting. Their payments are going to go up.’”

CNBC reports from Nevada. “Luxury condos will continue to hit the market in Las Vegas as speculators attempt to flip properties. In fact, there’s more than 11,000 units under construction that have been pre-sold, largely to investors, which means they’re likely to come back onto the market.”

“There are another 12,000 units planned and being marketed now, according to Brian Gordon, principal of Applied Analysis in Las Vegas.”

“While several projects have been cancelled in recent years, ‘there is still a lot of inventory to burn through,’ says John M. Restrepo, a real estate consultant in Las Vegas. ‘Don’t be afraid to make a lower offer. There is a lot of product out there.’”

“The impact of foreclosures has on pricing remains to be seen, though Nevada has been registering the highest rates in the nation. In February, foreclosures rose 77% from the year prior with one foreclosure for every 278 households, or three times the national average, according to RealtyTrac.”

“Should buyers take the plunge now? ‘If they’re looking for housing options short-term and don’t expect to be in the market long-term, it might be worth waiting,’ Gordon said.”

The Review Journal frm Nevada. “Tammy Anziano rented a unit at Savannah Apartments last week to a woman who was looking at buying a home, but got caught in the squeeze of tighter mortgage lending requirements.”

“‘She said she found a house and put a substantial amount down on the house, but they came back and said they needed an extra $35,000,’ said Anziano, business manager at (a) 400-unit luxury apartment complex. ‘This is a woman who has excellent credit.’”

“‘What’s interesting is that Nevada has the highest foreclosure rate in single-family homes. You would think that the vacancy rates for apartments would be going down,’ said Carl Sims, apartment broker in Las Vegas. ‘In reality, it has increased from 4 percent to 6 percent to 7 percent in the last year.’”

“Sims said higher vacancy rates are partly due to new development and ’shadow rentals,’ or condominium conversions that have been purchased by investors and put back into the rental pool.”

“Sims said he checks with Chicago Title and finds 80 to 100 foreclosure filings coming in daily. With all of the investor homes on the market, renters can find a three-bedroom home for $1,275 a month, about the same as a three-bedroom apartment, Sims said.”

“Spence Ballif of CB Richard Ellis said he’s also seeing a lot of foreclosures. ‘You’ve got all the investors who bought here,’ he said. ‘We’ve probably got 6,000 or 7,000 homes out there that are being leased.’”

The Gazette Journal from Nevada. “The chief economist for Stewart Title Guaranty Co. advised Reno-area home sellers Friday to get real with pricing.”

“‘You have to sober up the seller and educate the buyer,’ (said) Ted C. Jones. ‘Your seller is like road kill, and your buyer is waiting for that road kill to rot.’”

“‘Your issue is surplus inventory. What’s not moved is a huge inventory of existing homes. What scares the tar out of me is one-third of it is vacant,’ he said.”

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