The Housing Bubble

The Press Democrat reports from California. “A spring home sales surge wasn’t enough to keep Sonoma County prices from falling for the ninth consecutive month in March. The March median resale price was $565,000, down 1.7 percent from a year ago. The stretch of price declines is the longest in 14 years, according to the latest Press Democrat monthly real estate report.”

“Home sales were down 19.8 percent in March, compared with a year ago. The 368 sales in March were a nine-year low for the month. ‘Prices are still coming down. Sellers are having a difficult time of it,’ said (broker) Ron Wareham in Santa Rosa.”

“The county’s housing market continues to recede from its peak in summer 2005, when the median resale price hit a record $619,000. Sales here have fallen 18 consecutive months in year-over-year comparisons.”

“Lenders have been tightening standards or eliminating high-risk loans as foreclosure activity soared in Sonoma County and across the nation. ‘I’ve lost three or four borrowers just in the last few weeks. I could have gotten them qualified a month ago,’ said Darren Seliga, owner of Seliga Financial in Santa Rosa.”

“Spring and summer usually bring strong sales as the weather improves and families look to make moves. But despite the seasonal increase, home sales are down 13.7 percent in the first three months of 2007, compared with the same period a year ago.”

“Buyers, however, are in no rush to make deals with a large supply of homes to choose from. Homes still take several months to sell, on average, and even those that stand out may not get snapped up. ‘You have to have everything in a row to make it work and it probably will sit awhile,’ Wareham said.”

“‘Now are the buying months and we’re seeing more applications,’ said Joan Picard, president of the Redwood Empire Mortgage Lenders Association. ‘We had some doubts. I think people are now coming to the realization that prices have come down.’”

The Mercury News. “The number of Bay Area homeowners who failed to pay their mortgages on time more than doubled in the first quarter compared with the same time last year, as home values flattened and fewer homeowners could sell or refinance to escape mortgages they can’t afford.”

“In the nine Bay Area counties, 6,730 homeowners received ‘notices of default’ from their lenders in the January-to-March period, according to DataQuick. That’s 160 percent more than during the same time last year.”

“When would the numbers indicate that the Bay Area is in trouble? ‘If the economy weakens or there are labor market problems, then look at this to be a disconcerting number as it’s rising,’ said Mark Schniepp, director of the California Economic Forecast, in Goleta.”

“The other risk factor is whether more and more borrowers who qualified for loans with subprime credit will default. ‘We don’t know to what extent the subprime problem is really going to blow up,’ he said.”

“A total of 11,054 homeowners in the 16-county Central Valley region - spanning from Kern to Yuba counties, received notices of default last quarter, up 166 percent from a year earlier.”

“The statewide rise in default notices is ‘the result of flat appreciation, slow sales, and post-teaser-rate mortgage resets,’ the DataQuick report said. About 40 percent of those who received default notices last year in the Bay Area were foreclosed upon. The previous year, only about 8 percent were foreclosed upon.”

“In Santa Clara County, 1,058 homeowners received default notices in the first quarter, slightly more than double the 527 who got them in first quarter 2006. In Contra Costa County, however, defaults rose to a record 1,969 in the quarter, up 226 percent from a year earlier. Sacramento and San Diego also hit new quarterly records, at 3,234 and 3,931 defaulting homeowners, respectively.”

The Union Tribune. “The San Diego City-County Reinvestment Task Force tomorrow will examine how deeply the recent spike in home loan foreclosures has affected the region’s neighborhoods.”

“‘What does it mean to the local economy?’ task force director Jim Bliesner asked of the increase in foreclosures. ‘If there is a large volume of properties being foreclosed on, what does that say about the safety and soundness of the lenders and the practices of the mortgage lending industry as a whole?’”

“City Councilman Tony Young, co-chairman of the task force, said the San Diegans he represents in District 4 are feeling the pain. ‘Many of the neighborhoods I represent are being affected negatively,’ Young said. ‘Some of our citizens are in deep trouble. I want to find out what effect it will have on San Diegans as a whole, in regard to housing.’”

“Countywide, 1,182 foreclosures took place from January through March, nearly eight times the 153 recorded in the same period in 2006. The previous record was 1,059 in the third quarter of 1996, when the housing market was in recession.”

“Critics link rising foreclosures to the widespread use of adjustable-rate mortgages that offer low monthly ‘teaser’ payments before adjusting upward. They are widely used in the subprime market. In early 2005, when the local housing boom was approaching its peak, adjustable loans accounted for 84 percent of purchases, according to DataQuick.”

“Yesterday lending giants Fannie Mae and Freddie Mac announced the development of new loans to help borrowers at risk of default. Edward Leamer, director of the UCLA Anderson Forecast, said the move comes ‘a little too late.’”

“‘We should have had some kind of system in place a year or two ago to prevent people from getting in over their heads,’ Leamer said. ‘Buyers assume (that) if they can qualify for the loan, they can afford the product.’”

The Baltimore Sun reports from Maryland. “The recent rise in foreclosures isn’t hitting only homeowners. An apartment complex just north of Baltimore that is in the midst of being converted to condominiums is in default and is to be auctioned off next month, the auctioneer said yesterday.”

“Daniel Billig, a partner with A.J. Billig & Co. Auctioneers, which is handling the scheduled auction, said the number of high-value foreclosures is abnormal. They include Triton’s and a condo conversion in Rockville. But Billig is also working on foreclosures of significant developable properties in Aberdeen and the Havre de Grace area.”

“Those four properties together are worth more than a quarter of a billion dollars, he said. ‘It’s pretty unusual to have cases this large, this many of them at one time,’ said Billig, who isn’t sure what is causing the increase.”

“‘Whether it reflects on the strength of the borrower or maybe their ability to hold [on] in a slower market, I can’t answer the question,’ he said.”

“Renovations of the 508-unit Rodgers Forge Condominiums, built about 1955, began last year as the cool-down in the housing market accelerated.”

“Residential foreclosures jumped an average of 10 percent in the Baltimore area last year, and the number has continued to rise this year, according to court records.”

“Economists blame the trend on the reversal from housing boom to slump and on risky mortgages buyers assumed to get their feet in the door.”

“The sharp slowdown in sales, which has killed some condo conversion plans in the Baltimore-Washington area, couldn’t have helped.”

“More than half of the Rodgers Forge complex’s approximately 500 units are vacant, according to the auctioneer. About 60 have been renovated, and a dozen of those have been handed over to new owners. Forty-four are under contract.”

The Maryland Gazette. “County home prices came down last month and sales slowed, signs the market is continuing to correct itself. There were 634 homes purchased in the county last month at a median price of $326,000, according to Metropolitan Regional Information Systems.”

“That price is a roughly 4 percent decrease from March 2006 and the first monthly decline this year.”

“‘I think we’re just seeing natural market forces at play,’ said Bob Burdon, CEO of the Annapolis and Anne Arundel County Chamber of Commerce.”

“Joseph Cater, chief economist for Market-Economics in Annapolis, said the collapse of the subprime market affects what he calls the ‘invisible group,’ low- to moderate-income families living in Annapolis and the surrounding area who are struggling with mortgage payments and cutting corners to make ends meet.”

“‘In some cases that’s not enough, and that’s why we’re seeing larger and larger increases of foreclosures,’ he said.”

“Widespread news coverage of bankruptcies has caused some uncertainty in the market, said Bill Hyland, an associate broker in Annapolis. ‘They’re not quite sure what the heck to do,’ he said, adding that he’s got 12 active buyers who are ‘waiting to see what happens.’”

“Realtor Frank Rosati said sellers who are ‘realistic’ with their prices will see homes move. ‘I tell sellers, ‘Do you want be on the market 14 days or 45 days?’ he said.”

“He said one Severna Park home originally listed for $445,000 was brought down to $425,000. It got an offer for $410,000.”

The York Dispatch from Pennsylvania. “For five years, a Lower Windsor Township couple have been buying, remodeling and reselling homes for a profit. But for the last six months, Jeremy Rauhauser and Karen Hake have just not been able to resell, or flip, a 50-year-old brick house in East Manchester Township.”

“About two months ago, the house-flipping duo even ditched their real estate agent and pitched a neon sign announcing the three-bedroom home was for sale by the owner, and reduced to sell.”

“‘He (the real estate agent) is a great guy and does a great job, but we’re looking for any way to sell this property,’ Rauhauser said, noting they reduced the price by about $20,000. ‘But so far, that’s not helped a whole lot, either.’”

“Home sales in York County in 2006 were stagnant, as the number of houses on the market remained high, making it more of a buyers’ market. There were 2,863 homes on the market in February 2007, compared to 1,386 in the same month in 2005, according to the Realtors Association of York and Adams counties.”

“A slowdown in the market is at least partially because of the 200-home developments popping up all over York County, said Rauhauser. He said he’s perplexed by the recent phenomenon of buying a large house with little property.”

“‘I think it’s a status symbol for people. They need a home that looks like $400,000, even if it was built in six days and who knows what might be wrong with it inside,’ said Rauhauser.”

“Barbara Crumbling in Windsor Township just put her four-bedroom house on the market. She hopes it sells before the end of July, when she and her husband plan to move to the South. ‘Hopefully, it’ll sell real quick,’ said Crumbling, who is opening the house up on weekends this month. ‘Though, there seems to be a lot of homes for sale out there.’”

“Jim Fry, another house flipper, has been trying to sell a home in Windsor borough for about four months. It’s the longest the Lancaster County man has held onto a property in the three years he has been flipping houses in the region.”

“‘I had a buyer, but they had financial difficulties,’ Fry said. ‘I’m not sure if it’s just harder to get a loan, or if everyone is expecting to buy a house without putting money down.’”

“Steve Snell, executive director of Realtors Association of York and Adams counties, said given the number of homes on the market, he isn’t sure if house flipping will still be profitable. ‘I don’t think there’s a real market for people trying to flip properties,’ he said.”

Bloomberg reports from New York. “Luxury home prices slid in New York’s Long Island and Queens in the first quarter as more property came onto the market and took longer to sell, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said. The median sales price fell 5.3 percent to $900,000 from a year earlier and houses took 25 percent more time to lure a buyer, the companies said today in a report.”

“An oversupply of expensive houses for sale is reducing demand, said Jonathan Miller, president of Miller Samuel. ‘You’re just not seeing the demand level that you had been seeing in prior years,’ Miller said. ‘You just reached a saturation point to what the economy could support.’”

“The median sale price of a condominium dropped 4 percent to $240,000, Miller Samuel and Prudential said. The weakness at the high end also hurt the overall housing market on Long Island, and in Queens, a borough of New York City.”

“Sales fell 6.4 percent to 7,001 from a year ago and the median sales price slipped less than 1 percent to $437,500. The number of homes for sale jumped 18 percent to 31,954.”

“‘Inventory levels today are double what they were two years ago,’ Miller said. ‘It’s a real issue. What that’s going to do is temper any price appreciation going into the spring market.’”

From Newsday in New York. “In Nassau inventories climbed 19 percent, to 9,260 houses. In Suffolk the listings rose 20.1 percent, to 13,424. In Queens the supply of homes listed for sale rose 13.7 percent, to 9,270.”

“Dottie Herman, Prudential’s chief executive, said the rising inventories shouldn’t be a cause for alarm. She said homeowners got used to a red hot market when ‘everything sold in two days’ but that was an ‘anomaly.’”

“‘In the last few years, you could put a home out in any condition…and it would sell,’ she said. ‘And now that’s really not the case.’”

“A MLS of Long Island report issued for February showed a rise in inventory listings, compared with January. Need more evidence that it’s a bad time for sellers? Median prices and total sales were down on most of Long Island in the first quarter of the year.”

The Buffalo News from New York. “Mortgage brokers are defending themselves against accusations by politicians and consumer advocates that they are to blame for causing the meltdown in the mortgage industry by giving loans to borrowers who couldn’t afford them.”

“‘Don’t just keep labeling mortgage brokers as the bad apples,’ said Nancy B. Gascoyne, past president of the New York Association of Mortgage Brokers.”

“‘There are so many aspects of why the subprime world is having problems,’ Gascoyne said. ‘To blanket it across the world and say it’s bad mortgage brokers, that is irresponsible.’”

“‘When you look back at who’s actually been fined for predatory lending, it’s been Ameriquest, Citigroup, Household Finance,’ said Harry H. Dinham, president of the National Association of Mortgage Brokers. ‘Not everybody out there who does mortgages is a broker. The lenders are the ones that are actually approving and closing these loans.’”

“At a press conference last week, Suffolk County Executive Steve Levy cited projections that the number of foreclosures in Suffolk would increase by 117 percent betwen 2005 and 2008. In Nassau, the increase is projected to be 111 percent.”

The Courier Post from New Jersey. “With unemployment below the national average, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, described South Jersey’s economy as ‘doing better than many other areas of the U.S.’”

“Despite the good news, Plosser told an audience ‘uncomfortably high’ inflation and a housing market bogged down with unsold inventory are clouding the forecast.”

“These trends signal a continued buyers’ market for homes and an employees’ market for jobs.”

The Citizen from New Hampshire. “Joe Kevlin and his wife Lynne are in a foreclosure situation that is becoming more and more common across the country.”

“The Kevlins, like many families, encountered serious money problems after refinancing their home through an adjustable-rate mortgage. Their house payment went from $1,000 in past years to nearly $2,000 when they consolidated their bills and dropped a local bank mortgage that offered a fixed rate.”

“The Kevlins thought consolidating their bills was a smart choice considering that the financing plan they were given appeared to allow them to pay a slightly higher payment than the mortgage alone. What they didn’t understand is that the payments wouldn’t stay that way for long.”

“‘There really wasn’t a big difference, but then the rate kept going up,’ explained Kevlin.”

“Both Lynne and Joe Kevlin admit to being at fault for not fully understanding the terms of their refinancing plan, but say they are among the many well-meaning homeowners who are now in big trouble after being sold on a plan by a large national financing company.”

“‘They tell you the good stuff … they say its only going to be one payment (per month),’ explained Joe Kevlin.”

“As a mortgage consultant for a local bank, Chris Guilmett said underwriting guidelines sometimes require him to turn down an applicant with less than perfect credit thus creating a situation where they could turn to subprime options.”

“‘What I see, and it bothers me, is that I could end up saying ‘no’ to somebody, but I know one of these predatory lenders is going to say ‘yes,’ said Guilmett.”

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