The Housing Bubble

The LA Times reports from California. “Nearly 900 Californians a week are losing their homes because they can’t afford to pay the mortgage, up from about 100 a week a year ago, providing fresh evidence that the housing market’s troubles are nowhere near over. The 11,033 foreclosures in the first three months of the year represent an 800% increase over the same period a year earlier.”

“In addition, 46,760 homeowners were sent default notices in the first quarter, DataQuick reported.”

“‘For this rise in foreclosures to be happening in the midst of a strong labor market is truly unique and scary,’ said economist Christopher Thornberg. He predicts foreclosures will top out at four or five times the current level, enough, he says, to either induce a recession or at least bring the economy to the precipice.”

The Contra Costa Times. “Contra Costa and Solano counties saw their mortgage default notices reach an all-time high in the first part of 2007, with foreclosure activity rising more than 200 percent from last year. Foreclosure activity has tripled in the East Bay during the past 12 months.”

“DataQuick analyst Andrew LePage said those being served with default notices now were part of the ‘peak lending period of mid-2005.’ LePage said Solano County has experienced five months of median home price declines.”

“‘It will be harder for people there to pull out of their tailspin, even if they can sell the house,’ he said. ‘It may not be enough to cover its fees.’”

“Stephen Levy, director of the Center for Continuing Study of the California Economy, said he doesn’t believe the housing market has reached bottom. Levy said that with foreclosure activity high and lenders bottlenecking the number of qualified buyers, the housing market will be oversaturated with homes.”

“‘There’s still a pretty strong chance there’s a general decline in prices around the region and the state,’ he said.”

The Marin Independent Journal. “The number of home foreclosures initiated in Marin from January to March increased 55 percent over the first quarter of last year. ‘There are so many loans out there that have set people up to fail,’ said Carol Lee, manager of the Hamilton Federal Credit Union in Novato, said. ‘They don’t qualify, but they’re given a loan anyway.’”

The Sacramento Bee. “There’s a new kind of ‘For Sale’ sign appearing in the region’s neighborhoods, offering property repossessed by the banks, and there will be more.”

“Notices of default reached their highest levels ever during this year’s first quarter in Amador, El Dorado, Sacramento, Sutter, Yolo and Yuba counties, DataQuick reported. First-quarter foreclosure numbers also reached highs across much of the region, in Sacramento, Placer, El Dorado, Yolo and Sutter counties.”

“‘A lot of these lenders are going to end up with an awful lot of properties,’ said (counselor) Pam Canada. ‘It’s been difficult these past weeks particularly. There’s more of a tone of desperation from people we’re finding now. They have very few alternatives.’”

The Recordnet. “Foreclosure activity continues to soar, with the number of default notices sent to homeowners in San Joaquin County last quarter hitting the highest level in the past 15 years.”

“‘We’re seeing the tip of the foreclosures,’ said Jerry Abbott, president and co-owner of Coldwell Banker Grupe.”

“It will take up to two years for foreclosure properties to work through the market, where at the current sales pace, it would take 11 months for all homes currently on the market to sell if no other properties went up for sale, he said.”

The Ventura County Star. “In Ventura County, notices of default on houses and condominiums jumped to 965 in the first quarter, up 123 percent from 433 in the same period last year.”

“There were 203 foreclosures in Ventura County during the first quarter, up from 17 filed over the same period last year, said DataQuick spokesman Andrew LePage. The year-over-year leap was a drastic 1,094 percent.”

“‘A perfect storm is brewing, and most people don’t even know it,’ said Anderson, a partner of Ventura County Home Loans. ‘A lot of people are on the cusp of looking at foreclosure. More than likely, a large portion of these are going to be foreclosed on.’”

“‘That’s when there’s going to be blood on the streets, hypothetically,’ Anderson said. ‘As early as six months ago, you could do 100 percent financing for the stated borrower with a 600 credit (FICO) score.’”

The North County Times. “A record number of Riverside County homes went into foreclosure in the first three months of the year, and people in the real estate industry said they expect the number to go higher.”

“Mortgage defaults numbered 5,750, a record, rising from 4,528 in the last three months of 2006 and nearly tripling from 2,148 in the first three months of 2006, DataQuick said.”

“‘Monthly payments have gone up, in some cases to $3,500 or $4,000. It’s just way out of proportion to what the houses are worth,’ said Carolyn Tidmus, a local agent who has sold bank-owned properties in the area since 1989.”

“Lenders seized or auctioned 1,460 houses and condominiums in the county, 10 times as many as in the first three months of 2006, DataQuick reported. Tidmus and DataQuick analyst John Karevoll said that number is sure to go higher.”

“Many of the foreclosures involve home-equity loans or refinances, Tidmus said. ‘People were taking out money like it was an ATM,’ Tidmus said. ‘It was a refinance every six months, and now this new car, and then this new car.’”

The Voice of San Diego. “Local real estate analyst Gary London said the foreclosure rate could soar higher if the housing market continues its slump.”

“‘If there’s not a housing turnaround later on this year, we could start seeing real numbers that are really meaningful, representing real distress,’ he said. ‘If the housing market doesn’t improve in the foreseeable future, the situation could get substantially more dire.’”

The Union Tribune. “In San Diego County, 1,182 foreclosures took place from January through March, nearly eight times the 153 reported for the same period last year. The previous record was 1,059 in the third quarter of 1996, when the housing market was caught in a deep recession.”

“March’s foreclosure figure also was a record, at 433, compared with 66 in March 2006 and far ahead of the previous record of 389 in October 1996.”

“The first quarter yielded 3,931 notices of default in San Diego, a year-over-year gain of 156 percent. The March total of 1,395 defaults was more than twice March 2006’s 591 defaults and below the record 1,773 in March 1996.”

“‘It’s a spectacular increase, year over year,’ said DataQuick analyst John Karevoll of the foreclosure numbers.”

“Elsewhere in Southern California, Imperial County led the increase in default activity with a 218.5 percent increase.”

The Press Enterprise. “Mortgage defaults increased at a faster pace in the Inland region during the first quarter of this year than anywhere else in Southern California, reaching a record high in Riverside County, according to report.”

“In the first quarter, foreclosures soared to a near-record high of 1,460 in Riverside County, 10 times as many as a year ago when 144 homes were foreclosed on. Also, last quarter San Bernardino County had 909 foreclosures, a sharp increase from 111 foreclosures during the first quarter of 2006.”

“Economist Chris Thornberg said his company’s research has found that in the past three years, 20 percent of the people refinancing are in financial distress and have fallen at least six months behind on their mortgage payments. ‘That alone is a scary number,’ he said.”

“He said he is predicting a substantial slowdown in the national economy over the next three to six months, in which case he said the mortgage market will become a ‘mess.’ ‘We are going to reap what we sowed,’ Thornberg said.”

“DataQuick analyst John Karevoll said if the Inland region continues to generate jobs at the present rate there will be enough potential buyers for foreclosed properties that come on the market to keep prices from falling dramatically.”

“‘But if we get a recession at the end the year, which we are not predicting but some economists say could happen, then we are in trouble,’ he said.”

The Missoulian reports from Montana. “Some of my Missoula neighbors and I have been spending time out in the street lately, gathering to marvel, pontificate and puzzle over the small, vacant house on our block up for sale for the second time in less than six months.”

“The asking price for this circa-1940 house with about 950 square feet above ground is well over $400,000. It’s astounding to those of us living in similar and possibly better houses nearby. It’s all the more stunning because this same house sold in early winter for $100,000 less.”

“We all know western Montana housing prices are trending skyward, but this is crazy. Flipping crazy, more like it.”

“Of greater concern locally is the reality that people seeking quick profits help bid up the price of housing. When people seeking to maximize their investment gains shop for second or third houses, families seeking the American Dream of owning a home wind up in a bidding war. It’s a war the average Missoulian is losing.”

The Idaho Statesman. “The median price of an Ada County home has fallen for the first time since the slump in Treasure Valley residential home sales began nine months ago. The year-over-year drop was the latest sign that nine consecutive months of lagging home sales have forced some homeowners to slash their asking prices to attract buyers.”

“Hanging over the industry are 4,292 homes that were for sale in the Ada County last month, plus 2,322 listings in Canyon County. The total of 6,614 is 55 percent higher than the supply in March 2004, before the local housing bubble of 2005 and early 2006.”

“Housing sales remained sluggish last month, with 1,050 transactions in the two counties, 30 percent below the same month a year ago.”

‘”I’ve got some clients who should cut their price, but don’t want to,’ said Bob Hurtt, an agent in Boise.”

“Rod Blackstead, owner of Blackstead Building Co., said he managed 10 sales last month because his homes are priced below $300,000. ‘Our market never did get saturated like the market for these high-priced homes,’ Blackstead said.”

The Columbian from Washington. “Clark County home sales in March remained substantially lower than levels of a year ago. Sales of new and pre-owned homes totaled 771 last month, the lowest for March since 2003, according to a report.”

“A local real estate boom that began in 2004 and continued into early 2006 could not have continued, said Sandy Hendrick, executive director of the Clark County Association of Realtors.”

“Excess inventories of new homes could affect the local housing market’s recovery, said Kathy Rylander, an associate broker in Vancouver.”

“‘There’s also a thought process with some buyers who are worried they might be paying too much,’ Rylander said. ‘I think those worries are unfounded. Now is actually a good time to buy because there’s more selection and buyers might be more willing to negotiate.’”

“Some buyers are also concerned about recent problems in the subprime lending industry, Hendrick said. ‘Those loans were being made to people who were having trouble,’ he said. ‘I think it’s a good thing for the housing industry that we’re not going to have those types of abuses occurring.’”

The Bend Bulletin from Oregon. “Central Oregon’s housing market is reflecting a jumbled picture so far this year. On one hand, its general image is recognizable, there’s a buyers’ market everywhere, with plenty of houses on the market and plenty of sellers willing to slash prices or cut a deal.”

“In Bend, inventory levels have remained stable through the first quarter of the year, helped along by lower prices on new homes and strengthening sales in most areas, broker Bill Berger said.”

“Except, perhaps, in west Bend, where 412 unsold homes sat on the market Monday, according to the Central Oregon MLS, about a third of the entire city’s inventory. Among the reasons: 95 percent of the houses for sale in west Bend’s High Lakes Elementary School attendance area are priced above the city’s first-quarter median price of $347,750.”

“In Redmond, the median price has slumped to $255,950, according to first-quarter numbers released by the MLS on Tuesday. That’s 2.6 percent lower than the median price for all of 2006. Sales are off 48.6 percent from the first quarter of 2006, and the inventory of unsold homes has swollen to 619 homes, Berger said, about 13.5 months’ worth of inventory at March’s sales level.”

“In relatively high-priced Sisters, the median price dipped 1.54 percent below the first quarter price of 2006 to $415,000, on sales that were off 46.43 percent.”

“Inventory levels remained stable in Bend at around 1,250, according to appraiser Mike Caba. That’s about 20 percent more houses for sale than sat on the market in March 2006, but it’s 15 percent below the inventory peak the city hit in August last year, when still-rampant new home construction and steeply sliding sales combined to pile 1,454 unsold homes on the Bend landscape.”

“Some of the remaining inventory is probably owned by sellers who don’t necessarily have to sell, but are fishing the market with asking prices that are set too high, based on prices their neighbors got during the boom, Berger said.”

“Builders, on the other hand, have to move homes to keep their businesses viable, so most, including Pahlisch Homes, the largest home builder in the region, slashed prices and added incentives to carve its inventories down over the winter, Berger said.”

“In April 2006, when 89 Redmond homes sold, the city held about 2.8 months worth of unsold inventory, Berger said. In March this year, with only 46 homes sold, the inventory stood at more than 13 months.”

“Like the region, Redmond’s home market is suffering the afteraffects of ‘rolling too fast, too hard, for too long,’ said broker Fred Baldwin, who has been selling in Redmond for 30 years.”

“Still, he expects the city to grow by another third or so over the next five years. ‘We’ll be back in the thick of things,’ Baldwin predicted. ‘It’ll just be at a lower price.’”

Some housing bubble reports from Wall Street and Washington. “Builders broke ground on new homes at an annual rate of 1.518 million last month, an increase of 0.8 percent from February, the Commerce Department said today in Washington. Building permits, a sign of future construction, also rose 0.8 percent. The increase in housing starts was led by a 45 percent jump in the Midwest. Starts fell 7.7 percent in the West, 6.1 percent in the Northeast and 2.7 percent in the South.”

From MarketWatch. “Housing starts are down 23% from March 2006, while permits are off 26%. On Monday, the National Association of Home Builders reported that builder optimism sank in April, with builders warning that tighter lending standards for subprime loans could prolong the slump through 2008.”

From Reuters. “Completions of new homes fell 0.7% to a seasonally adjusted annual rate of 1.63 million. It’s the lowest number of completions since August 2003. It takes about 6 months for a home to go from groundbreaking to completion.”

“There were 1.2 million homes under construction in March, down 16% from the previous March.”

The Associated Press. “Like other banks, Wells Fargo saw some signs of worsening consumer credit and reported that net charge-offs and nonperforming assets rose in the January-March period from a year earlier.”

“The bank said that net charge-offs as a percentage of loans rose to 0.9 percent in the first quarter from 0.56 percent a year earlier. Nonperforming assets were 0.82 percent in the first quarter, up from 0.6 percent a year earlier and up a bit from the fourth quarter.”

“The bank’s first quarter credit losses were $715 million, up significantly from $533 million a year earlier, the earnings report said. Nonperforming assets were $2.67 billion at the end of the quarter, up from $1.85 billion a year earlier.”

“And Wells Fargo estimated that deterioration in the subprime mortgage market reduced first-quarter revenue by approximately $90 million before taxes.”

“On Monday, Citigroup Inc. and Wachovia Corp. increased their provisions for loan losses in the first quarter. Both also held down the growth of expenses, a typical strategy in a weakening credit environment.”

From Reuters. “Wells Fargo isn’t likely to buy another mortgage lender as the market for subprime loans goes through an ‘adjustment,’ and is probably adding market share as weaker lenders pull back, CFO Howard Atkins said on Tuesday.”

“Washington Mutual Inc. topped the list of mortgage lenders in the percentage of loans it gave to investors or second-home buyers, the Wall Street Journal reported on its Web site on Tuesday.”

“The Journal also said that Citigroup and WaMu had the highest concentrations of loans with high interest rates, which are generally subprime mortgages.”

The Seattle Times. “The high-credit-risk market known as ’subprime’ represented 9 percent of WaMu’s overall loan portfolio at the end of 2006. Analysts who follow the company predict first-quarter profit will suffer as a result.”

“‘Some of what they did is going to come back to haunt them,’ said Stuart Plesser, an equity analyst with Standard & Poor’s.”

“WaMu, which employs more than 5,000 in downtown Seattle, had $21 billion in subprime mortgages at the end of last year. The volume of its subprime loans made in the fourth quarter dropped 41 percent from a year earlier, but the company still ranked among the 10 most active subprime lenders, according to National Mortgage News.”

“WaMu last year determined it would not be able to collect on $140 million worth of subprime loans, up from $50 million in 2005. The company reported its home-loan group lost $122 million in the fourth quarter. ‘The subprime business already is hurting their profits and will continue to do so for the next two or three quarters,’ analyst Fred Cannon said.”

“WaMu and other lenders often packaged subprime loans into mortgage-backed bonds sold to investors. Among 20 issues in the closely watched ABX-HE 06-2 index of subprime loan bonds, a WaMu bond had the worst delinquency rate, said mortgage analyst Matthew Howlett.”

“About 23 percent of subprime loans supporting the bond issue were delinquent for 60 days or more in March. ‘Their reputation is not the best in the business,’ Howlett said of WaMu. ‘They’re a little aggressive.’”

“Plesser said he believes WaMu will have to set aside more money as losses mount. ‘When first-quarter earnings come out, people will focus on delinquencies and might be alarmed at how high they are.’ he said.”

The Columbus Dispatch. “JPMorgan Chase is drawing attention for the number of its mortgage loans that end up in foreclosure. Chase accounted for 4.1 percent of Franklin County mortgages but 8.4 percent of foreclosure filings and 10 percent of sheriff sales on foreclosed properties in 2006.”

“Chase’s foreclosure numbers may be the result of being the new player in Franklin County. Chase entered central Ohio in 2004, when it acquired Bank One.”

“When a bank comes into a region, it often has to buy its way into the market, said Ken Mayland, president of ClearView Economics. ‘That means doing the kind of business that other (banks) may not be doing,’ Mayland said.”

“M&T Bank Corp. on Tuesday said first-quarter profit fell 13 percent, hurt by weak demand for mortgages. The company said it had received low bids on some mortgages it tried to sell and that rising defaults had forced it to buy back some loans it had sold.”

“Fee income fell 7 percent to $236.5 million, including a 60 percent decline from mortgage banking. M&T set aside $27 million for bad loans, up 50 percent, while net charge-offs held steady at $17 million. Nonperforming loans nearly doubled to $273 million from $143 million.”

From Bloomberg. “SunTrust Banks Inc., the seventh- largest U.S. bank by assets, said first-quarter profit fell 1.9 percent as problem loans increased and mortgage lending slowed.”

“SunTrust said its nonperforming loans rose to 0.57 percent of total loans, up from 0.25 percent a year earlier, in part because of deteriorating credit quality in the Alt-A loan portfolio. Net charge-offs rose to $62.9 million from $22.3 million.”

“The mortgage investments that helped fuel a recent U.S. housing boom now have many troubled borrowers trapped in loans that they cannot afford, a top bank regulator will tell Congress in a hearing on Tuesday.”

“While mortgage investments added liquidity to the market in recent years this also has put dangerous distance between the lender and borrower, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, is due to tell a Congressional hearing.”

“‘Significant changes in the subprime mortgage market in recent years have substantially altered the relationship between borrowers and lenders,’ Bair said. ‘In some cases, this makes it more difficult to resolve troubled loans in a way that preserves the availability of credit and benefits deserving borrowers, namely, by keeping them in their homes.’”

“On Monday, Bair hosted a subprime summit with consumer groups, regulators and representatives from the mortgage industry. Several participants in the meeting said that subprime mortgages are bundled in such complex investments that it will be difficult to help borrowers who face foreclosure.”

“Losses are showing up in subprime mortgage bonds earlier than expected as the home foreclosure process becomes speedier, according to one research firm.”

“Investors with exposure to the riskiest asset-backed securities had expected to see some losses as a result of the problems with subprime loans underwritten in 2006, but many reckoned the red ink would start flowing much later as foreclosures can take up to two years to complete.”

“‘When you look at 2006 (subprime) collateral there are losses,’ said Michael Bykhovsky, president of Applied Financial Technology.”

“In at least some subprime bond deals, there are losses when loans backing the deals are just eight months old. The loss rates of around 0.5 percent are about triple what he’d normally expect from a loan that age.”

“One explanation, Bykhovsky said, is that banks in charge of collecting mortgage payments and responsible for handling foreclosure and sale of the properties in question are ‘just clamping down and processing and liquidating’ properties whose loans enter into delinquency and default, he said.”

“While in a rising home price environment waiting an extra month or two can actually work in a bank’s favor, Bykhovsky said, in the current environment, ‘if you have less of a chance of recovery you have to move very quickly.’”

“Net international buying of U.S. long-term securities slowed in February from the previous month. Purchases of agency debt slowed, dropping to a net $2 billion in February from a net $35.8 billion the previous month. The securities are issued by agencies including Fannie Mae and Freddie Mac.”

“‘The subprime story still has some legs,’ said Mike Englund, chief economist at Action Economics LLC. ‘The people who were concerned in February still think the market could get blindsided at any time.’”

The St Petersburg Times reports from Florida. “Inventories are bulging. Contracts are collapsing. A new vocabulary is emerging in the real estate market. Welcome to terms like ’short sale.’ This time last year in Pasco, there were 5,011 homes waiting to move off the shelf. Today, there are 7,796, according to a real estate company.”

“Sales are down and the glut of unsold homes is up, defying the optimists who said the market would turn around by spring 2007. Two years ago, one in two homes sold in any given month. Today, the same period would see one in 20 sell.”

“‘2007 is going to be flat,’ said County Commissioner Ted Schrader, himself a landowner who sold to developers. ‘2008 is probably going to be flat, at least in the early part.’”

“Prices are still coming down. Take Meadow Pointe in Wesley Chapel. At 28703 Crooked Stick Court, the selling price has gone from $389,900 in May last year to $335,000 in February.”

“Or 28418 Great Bend Place, also in Meadow Pointe, which was $419,900 in March last year. Now it’s for sale for $335,000.”

“Real estate agent Russ Perlowski said he is seeing more short sales. So is Christie Zimmer, who runs F.R.O.G. Realty in Land O’Lakes. ‘There’s been a 10 to 15 percent increase in the last year,’ she said, though she says this is a rough estimate. ‘That number is going to go up substantially. I just did six in the last three months.’”

“Short sales are a way out for desperate sellers who want to avoid having their homes seized. Foreclosure suits rose 87 percent in Pasco last year, the biggest jump in the Tampa Bay area.”

“‘Foreclosures have more than doubled,’ said Linda Pichler, VP for Consumer Credit Counseling Service of Central Florida.”

“Julius Green is a real estate appraiser. He and his wife…are finding themselves with more space than they might need. He just closed on his new home in Deerfield Lakes, a 230-home development on State Road 52 at the Suncoast Parkway. Just over a year ago, his 6-month-old neighborhood would have been crawling with builders.”

“It’s empty today. Of the 30 houses built in the development, his section has just three. ‘On our street, we are the only house that’s complete,’ Green said.”

The Sun Sentinel. “A deluge of South Floridians are falling behind on their monthly house payments, raising fears that many of the delinquent property owners will lose their homes to foreclosure this year and next.”

“‘Who knows how bad it’s going to get,’ said Richard French, president of the Broward County chapter of the Mortgage Bankers Association. ‘It’s a little scary to think about.’”

“Broward had 1,168 property owners with late payments in March, a 331 percent increase over the 271 a year ago, according to Realestat.com. Broward’s foreclosures hit 543 last month, more than double the 247 from last March. Palm Beach County’s late payments climbed 288 percent, to 888, from 229 last March.”

“Late home loan payments in both counties increased in each of the first three months of 2007. Marc Thomashaw, a VP for Realestat.com, was blunt. ‘We’re set for an explosion [of foreclosures] to happen between now and the next six months,’ he said.”

“Refinancing isn’t as easy because lenders are tightening credit standards. Last week, for example, Citibank and other lenders sent notices that they’re stopping 100 percent financing for borrowers who can’t prove two years’ worth of income, said Louis Spagnuolo, a senior mortgage banker in Boca Raton.”

“What’s more, South Florida’s slumping real estate market is holding down prices and preventing recent buyers from selling quickly to get out of financial trouble. ‘A lot of these escape valves are now shut,’ analyst Mike Larson said. ‘It’s not a pretty sight.’”

“Economist Mark Zandi agrees that short-term investors and others who bought within the past few years are most at risk of losing their homes. He said more mortgage delinquencies and foreclosures are inevitable due to a ‘noxious mix’ of aggressive lending, falling home prices and borrowers facing large increases in their monthly payments.”

“‘It bears close watching,’ Zandi said. ‘If it were to fall apart, the foreclosure problem would become very, very severe.’”

From Florida Today. “Brevard County’s soft 2006 real estate market will shrink taxable property values for the first time in recent history, according to preliminary estimates from Property Appraiser Jim Ford.”

“‘It’s certainly out of the norm,’ Ford said of the declining roll. ‘We don’t normally see a drop at all.’”

“After four years of double-digit increases, Ford’s estimates show a nearly 6 percent drop in existing property values in 2006, to $37 billion. The value of new construction sank 36 percent, to about $1 billion. Ford attributed the drop to a sluggish housing market, fueled in part by high insurance costs.”

“Sales of single-family homes last year dropped 34 percent, to 10,540. And the median selling price for single-family homes — the price at which half sold for more and half sold for less — was down 22 percent in September 2006 from a year earlier to $206,100.”

“Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, said the lower tax roll was ‘not that surprising.’ ‘It’s part and parcel of the adjustment in the housing market right now,’ he said.

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