The Housing Bubble

The LA Daily News reports from California. “The home sales market in the Santa Clarita Valley is returning to normal, real estate experts said. ‘It’s not going to be like it was the last two or three years, where we were seeing huge numbers of sales and huge price increases,’ said Larry Gasinski, president of the Santa Clarita Valley division of the Southland Regional Association of Realtors Inc.”

“In January, the median price of a single-family home in the valley went down to $587,900, compared to $620,000 a year ago, a 5.2 percent decrease, according to the association. The median price of a condominium was $360,000 in January. In January 2006, it was 9.3 percent higher, at $397,000.”

“There is more than a seven-month inventory of homes on the market. Home sales dropped by nearly one-third from 2005. Realtors sold 2,531 single-family homes last year compared with the 2005 tally of of 3,726. Condo sales fell from 1,771 in 2005 to 1,246.”

“The good news was the median price of a house held at $590,000, just $10,000 lower that the previous year. The median price of a condo was $360,000 in 2006, compared with $389,000 in 2005 and $124,158 in 1998.”

The Daily Bulletin. “California was hit hard by rising foreclosure numbers in March. RealtyTrac’s report showed six California metropolitan areas, including San Bernardino-Riverside, among the 10 highest in the country. Overall, one of every 775 U.S. households had a foreclosure filing during March. California’s rate of one for every 389 was almost twice that.”

“‘This is probably starting to be a real problem,’ said regional economist John Husing. ‘It’s what we have all been expecting.’”

“Husing said two types of buyers seemed to be most at risk. ‘First is investors, who haven’t seen the type of capital gains they expected,’ he said. ‘I have spoken with developers who said that with some of the homes they sold to investors, the investors have just walked away from the property without making any payments.’”

“‘Second are the families who bought homes with some of this crazy financing,’ Husing said.”

The County Sun. “A look at the six California metro areas hardest hit shows that many of them are ones with a high amount of recent new-home construction.”

“San Bernardino-Riverside ranked seventh nationally, fifth in California. Stockton was No. 1 in the nation, Vallejo-Fairfield was No. 3, Modesto No. 5, Sacramento No. 6 and Bakersfield No. 10.”

“‘Developers will make their price adjustments by increasing giveaways,’ Husing said. ‘That makes it look like they’re holding the price level. As for homeowners trying to sell, I think you’ll just see them say the heck with it unless they really need to sell.’”

“A veteran of the Inland Empire lending scene, C.J. aMcKenna agrees. ‘We are not in a price bubble in the Inland Empire,’” she said. ‘I have watched this market for 20 years, and we were way below where we should have been. Now we’re not.’”

The North County Times. “Foreclosure filings in San Diego County doubled during the first three months of this year over the same period last year and increased sixfold over 2005, according to a survey.”

“For the month of March, county properties in some stage of foreclosure climbed by 49 percent from February to 2,551, the highest one-month level since the real estate market began to cool in 2005, according to RealtyTrac. That figure represents one in every 408 households.”

“David Michael, director of counseling for an accredited credit counseling service with three offices in San Diego County, said that in the first quarter of this year, its Oceanside office counseled five times as many clients with housing problems as it did during the same period last year.”

“Many clients have mortgages whose rates have adjusted sharply, increasing mortgage payments by as much as $800 per month. ‘Things just look bleak for them,’ Michael said.”

“Michael said that because the monthly payments can ratchet up so quickly, traditional credit counseling won’t begin to help. Some clients would like to sell, but can’t recover what they owe now that prices have flattened in a slow market. Others are maxed out on their home equity and can’t qualify to refinance their mortgages.”

“In a noteworthy change over previous years, more than half the clients seeking help at the Oceanside office come in while they are still current on their mortgage, because they can see big trouble ahead, according to Michael.”

“‘In a lot of cases there are going to be dramatic increases,’ he said. ‘The math just can’t add up.’”

“Gary London, of the London Group Realty Advisers in San Diego, said he had concerns that proposed regulatory reforms of lending standards could be too little, too late, and could make it more difficult for borrowers in trouble to get out.”

“For now, he said, foreclosures are a small part of the market. If they continue to increase, he said, they could drag down the overall county market, which has maintained level prices although sales are down.”

From Reuters. “General Electric Co.’s WMC Mortgage subprime lending unit plans to lay off 771 workers, about half of its staff, a spokeswoman said Thursday. The layoffs will include the closing of facilities in Costa Mesa and San Ramon, California.”

“The Burbank, California-based lender in March disclosed layoffs of more than 460 people. At that time, WMC also stopped writing new loans to people who do not make any downpayment.”

“‘We have realigned our resources to meet customer needs,’ spokeswoman Brandie Young said. ‘It certainly is in response to the changes across the industry and to align us to the current operating environment.’”

The Sacramento Bee. “Legislation aimed at slowing a growing trend of home foreclosures in California by tightening mortgage lending standards cleared a first hurdle Wednesday.”

“Senate Bill 385 by Sen. Mike Machado, would expand state regulatory authority over many of the state’s lenders and real estate brokers who make home loans. If passed by the full Legislature and signed by Gov. Arnold Schwarzenegger, it would make state- licensed lending firms follow new federal ‘guidance’ in their loan practices.”

“The guidance suggests lenders stop relying so heavily on credit scores and do more to verify people’s incomes and ability to repay loans. The guidance also suggests that lenders base decisions on a borrower’s ability to pay the maximum monthly payment of an adjustable-rate loan, not just the initial low introductory rate.”

The Denver Post reports from Colorado. “California has escalating foreclosures despite a respectable job market, following a trend that started in Colorado more than two years ago. The causes are familiar to Front Range residents, low home price appreciation, meager home equity and mortgages with payments that are adjusting higher, according to foreclosure experts.”

“Exacerbating the situation in recent months is a tightening in lending standards that has reduced the pool of available homebuyers.’A lot of people won’t be able to qualify for homes,’ said Robert Duran, president of First Liberty Lending in Longmont.”

The Coloradoan. “The Colorado Division of Housing’s foreclosure hotline is receiving about 75 calls per day, the most from Fort Collins, Colorado Springs and the Denver area. A recent survey shows 74 percent of callers were one to three months behind in payments, had an imminent sale date or had received an eviction notice.”

“Sara Allen, executive director at CCC in Northern Colorado, said Larimer County ranked eighth in 2005 and ninth in 2006 in foreclosures in the state. ‘Seventy-five percent were refinanced loans. Lots of people took out cash in the last mortgage boom,’ Allen said.”

The Rocky Mountain from Colorado. “More than 6,200 real estate foreclosures have been filed in the seven-county Denver area in the first three months of the year, a 30 percent jump from the record pace in the first quarter of 2006.”

“‘Our forecast was anticipating maybe a 5 percent to 10 percent increase over last year,’ said economist Patty Silverstein.”

“Kathi Williams, head of the Colorado Division of Housing, said she knew ‘the first quarter wasn’t going to be pretty’ based on the number of homeowners who were delinquent on mortgage payments.”

“Sarah Hays, a broker in Centennial, said that while the market is going to get worse before it gets better, investors and homeowners can get good deals, if they’re willing to be patient.”

“For example, a condo in Aurora sold in 2005 for $68,000 and is now being sold by the lender for $43,900, she said.”

“Hays also is seeing more move-up homes in foreclosure. A house with six bedrooms, four baths and 5,000 square feet in the Piney Creek subdivision along the southeast corridor is listed by a lender for $299,000, she said. Before the owner lost the home in a foreclosure, he tried unsuccessfully to sell it for $359,000.”

“But whether you buy a foreclosed home at an auction or on the open market, don’t plan on making a killing right away. ‘This is not a good market for flipping homes,’ Hays said.”

The Arizona Republic. “Metro Phoenix’s housing business may be struggling, but that’s not stopping a growing number of home builders from moving into what already is one of the country’s most competitive markets.”

“The Arizona Republic reported at the end of March that three newcomers were in various stages of launching local operations. Two weeks later, two more builders are getting projects off the ground, both in Estrella.”

“Some of the builders have said that the sag in the market following boom of 2004 and 2005 has provided builders a chance to get in. Some of the big national players that dominate new housing here over-reached during the boom, buying too much land and running prices higher.”

“Now, analysts say new builders can buy that surplus land cheaply and find competitive prices among trade contractors that are happy to have work in a slowing market.”

The East Valley Tribune. “A Phoenix-based developer made history at a state trust land auction Tuesday, buying up 269 acres in the Desert Ridge area for a record $149.5 million.”

“It was the Arizona State Land Department’s third attempt to sell the property in the past year, amid a slowing real estate market. The agency received no bids at an auction last August and canceled another planned for December after it became clear there would be no takers.”

“The previous record price for state trust land was $135 million, set in August 2005 for another piece of property in the Desert Ridge area. That land was purchased by builders Toll Brothers and Pulte Homes. The recent sale fell well short of the price-per-acre record of $1 million.”

“Rick Burton, one of three partners involved in the Desert Ridge purchase, said homes in the Desert Ridge project will likely be priced in the $400,000- to $500,000-range. Construction will probably start in 14 months to 18 months’ with full project buildout in three to five years, he said.”

“‘Now that we own it, as far as we’re concerned, the meter’s ticking,’ he said.”

The Arizona Daily Star. “New-home prices fell in March, while resale home prices showed little increase from the same month in 2006, said a report on real estate in the Tucson metropolitan area.”

“The median price of a new home dipped to $241,213 from $253,235 in March 2006, according to consultant John Strobeck.”

“New-home closings for the month dropped to 660 from 902 in March 2006. Resale closings fell to 1,559 from 2,001. New-home permit activity also dropped. A total of 555 permits were issued last month, down from 995 in March 2006, the report said.”

“Strobeck said he was ‘not surprised at all’ by the March statistics. Amid rising default rates for subprime mortgages, lenders are tightening their credit standards, keeping some would-be buyers out of the market, he said.”

“However, Strobeck said he expects the market will perk up again by late this year or early 2008. ‘We’re in an adjustment market,’ he added.”

Some housing bubble news from Wall Street and Washington. “D.R. Horton Inc. early Thursday said profit in its latest quarter fell 85% from a year earlier as the company booked land-related charges and said it continues to grapple with a challenging market for residential housing. Its results for the quarter ended March 31 included pre-tax charges of $67.3 million for inventory impairments and $13.9 million for write-offs and costs related to land-option contracts it does not intend to pursue.”

“‘Market conditions in the homebuilding industry continue to be challenging in most of our markets as inventory levels of both new and existing homes remain high, and further increases in the use of sales incentives continue to put pressure on profit margins,’ said Chairman Donald R. Horton.”

“The company said it closed 9,792 homes in the latest quarter, down from 12,570 a year earlier.”

From Reuters. “D.R. Horton, the largest U.S. home builder, on Thursday said it has cut 10,000 jobs since last spring and now has a staff of about 7,300. Horton also said it has seem some increased defaults on relatively new loans.”

From MarketWatch. “Pulte Homes warned late Wednesday that losses for the first quarter will come in deeper than previously anticipated. The homebuilder said it expects a net loss from continuing operations for the quarter. The results will include between $130 million and $140 million in land-impairment charges.”

“‘The operating environment for homebuilding continues to be challenging, with orders and closings remaining under pressure,’ Pulte CEO Richard Dugas said.”

“Net new orders fell to 8,499 for the quarter, a 21% drop from the same period last year. Closings dropped 37% to 5,420 homes during the period.”

“Many investors and analysts expect the market downturn, caused by a glut of homes for sale, tighter lending standards and weak demand, to worsen until at least the second half of this year.”

“‘I think it’s a pretty severe downturn,’ said Robert Curran, Fitch lead home building analyst. ‘Could it be more severe still? Obviously.’”

“‘The builders are the last ones to see that, because the resale market drives the new home market,’ said analyst Jim Wilson. ‘You have to start seeing (that) the resale market is seeing less inventory, and so far it’s not. It’s seeing more,’ he said.”

“‘There’s way too much resale inventory sitting out there that hasn’t been and needs to be marked down in price and needs to clear before you have any need of new homes,’ Wilson said.”

“Meanwhile, the year’s supply of new houses is expected to be about 1.2 million, Fitch’s Curran said. As a result, home builders will add 300,000 homes to the current overhang of new homes for sale, Curran forecast, adding that the overhang is already troubling at about two months worth of sales.”

From CNN Money. “Swapping risky mortgages for those with steady payments sounds like a reasonable plan to keep millions out of foreclosure. But the way mortgage products have been packaged and sold into financial markets presents a big hurdle.”

“This kind of restructuring may be complicated because most of the loans have been ’securitized,’ bundled together and sold into the capital markets.”

“In the first place, servicers don’t have quick access to the actual groups that own these loans. A bigger problem may be that the servicers’ contracts with investors often prohibit them from taking remedial actions with non-performing loans.”

“‘Subprimes sold into securitization are governed by terms of agreements signed when they were sold. Servicers have to abide by those agreements,’ says Doreen Woo Ho, president of Wells Fargo Consumer Credit Group.”

“Terms may, for example, not allow the loan to be modified until it is at least 90 days delinquent, according to Marietta Rodriguez, a director of a non-profit, community development organization.”

“In addition, the agreements between servicers and investors may not allow borrowers to work out their problems unless they can bring their payments current within a six-month period, according to Rodriguez. ‘That puts the borrower in a serious financial bind,’ she says.”

“Another impediment that can work against bailout efforts is stratospheric home prices. Many homes bought with subprime loans are in places like California and other high-cost areas where even many modest homes far exceed the conforming loan limits of these agencies, which is about $417,000.”

“Federal regulators and mortgage lenders Tuesday warned Congress against moving too aggressively to regulate the mortgage industry in response to a soaring number of home foreclosures.”

“‘There is no silver bullet,’ Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., told the House Financial Services Committee.”

“‘I think we should hold the servicers’ and the investors’ feet to the fire on this,’ she said, referring to failure of investors to conduct due diligence before buying mortgage-backed securities. ‘We did not have good market discipline with investors buying all these mortgages. There may be some issues of disclosure.’”

From Bloomberg. “A bailout for subprime borrowers wouldn’t be the best use of government dollars, said Representative Spencer Bachus of Alabama. ‘I can’t agree to taking taxpayers’ money and addressing this problem,’ Bachus said.”

“Freddie Mac CEO Richard Syron also cautioned against a borrowers’ bailout. Such a policy ‘could have lasting, unintended consequences that harm the housing finance system in the long-term,’ he said. ‘The ability to enforce a mortgage contract, including the use of foreclosure, is critical to continued investor confidence in the U.S. housing market.’”

“Federal lawmakers can take steps to protect consumers from bad mortgages in the future but have limited options in how to assist troubled borrowers today, a Congressional panel heard.”

“‘Legislation going forward will not help this current group of people who are entrapped,’ said Barney Frank, chairman of the House Financial Services Committee at the opening of a hearing on the subprime mortgage crisis.”

The LA Times. “A Capitol Hill summit on the mortgage problem (was) convened by Sen. Christopher J. Dodd. Following the summit, Dodd said…that ‘lenders raised questions’ about what can be done to rework mortgages that may be pooled together in large securities owned by investors.”

“The summit fueled no expectation of a taxpayer bailout. Dodd, who is chairman of the Senate Financial Services Committee, has been aloof to the plan, and Sen. Richard C. Shelby blasted it.”

“‘It’s a bailout,’ Shelby said. ‘You can’t save people from themselves in the marketplace.’”

“Some in the Senate have raised the possibility of direct government intervention to help sinking borrowers. Dodd, who is chairman of the Senate Banking Committee, has backed away from the idea. ‘I’m not overly anxious to legislate,’ he said Wednesday.”

TC Palm reports from Florida. “The number Treasure Coast residents falling behind on their monthly house payments has soared in the past year. According to Realestat.com, St. Lucie County had 151 property owners with late payments in March, up from 52 a year earlier. Martin County’s late payments climbed to 37, up from the seven recorded in March 2006.”

“‘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.’”

“Escalating home values from 2000 to 2005 caused buyers to overextend themselves. Many took out short-term, adjustable-rate mortgages and are seeing their loan payments spike as interest rates rise.”

“‘I would also fault the people that bought second homes and didn’t need them,’ said Brad Hunter, director of West Palm Beach-based Metrostudy. ‘Some people bought with the thought of wanting to make a killing and flip the house for $100,000. Now they realize they aren’t going to sell for a profit.’”

“Don Santos, past president of the Treasure Coast Builders Association, said the situation is due to the poor lending decisions of the subprime market and local people losing jobs in the construction industry. ‘It just created this perfect storm that we’re in now,’ Santos said.”

“‘We saw a 321 percent increase in foreclosures when you compare this versus last year,’ said Merle Dimbath, Treasure Coast economist in Stuart.”

“Dimbath’s percentage included Palm Beach and Brevard counties which had 1,207 combined foreclosures started last month. ‘That is not a pretty picture…I think it’s going to take the rest of this year and into the next year to run its course,’ he said.”

“Bill Fruth, president of an economic consulting firm based in Palm City, predicts 2007 will be a ‘bloody’ year for foreclosures.”

“‘This isn’t the end of it and it’s going to go on for a couple of more years,’ Fruth said. ‘During the last half of 2005, people paid extremely inflated prices for their homes and now they owe more than what the home is worth.’”

The Ledger. “A glut of new home inventory continues to bog down Polk County’s real estate market. Last month, building permits for single family homes dropped to 393, nearly a 48 percent decrease from 750 in March 2006.”

“Following the 2005 housing boom, builders were left with an overabundance of homes. That, coupled with hesitant buyers, has caused the market to slow down, making it a prime time for home buyers, builders say. They can now be more choosy in their choices in homes.”

The Miami Herald. “Florida’s powerful housing industry is hoping state lawmakers’ bid to revise property taxes will inject life into the anemic real estate market.”

“Single-family home sales have plunged more than 20 percent over the past year in Miami-Dade and Broward counties, as the number of homes for sale has hit a new high. At the current pace, it would take two years to sell all the single-family houses on the market and nearly three years to sell the condominiums.”

“‘This is the single biggest issue in the home-building industry right now,’ said Silvio Cardoso, president of the South Florida builders’ organization. ‘Property taxes are strangling the market’”

“Still, many builders reacted coolly to a Senate proposal for rolling back taxes to 2005 levels, since home prices were high then. ‘The Senate bill doesn’t make any sense at all,’ said Cardoso. ‘That is the peak of the market.’”

The Bradenton Herald. “The dismal housing picture and low wages are two key reasons the Tampa Bay region, including Manatee and Sarasota counties, is lagging economically in a comparison with other Southeast regions. Those were the results Tuesday from Tampa Bay Partnership’s third economic scorecard.”

“The region’s housing permits dropped 36.6 percent in a year. Job growth also declined by 1 percent, pushing Tampa Bay from first to fourth in that category. ‘Clearly, a red flag for the region’s economy,’ the report said.”

“‘Tampa Bay ranks last in home affordability because it has the highest home prices and the lowest household income of all the comparison regions,’ the report said.”

“The housing situation did not surprise broker Nancy Allen, but she said the cost of housing locally is on a downward slide.”

“‘What we still see is the imbalance is so dramatic between the amount of inventory, homes on the market both resale and new, compared to the amount of buyers, which is miniscule,’ she said. ‘And so we’re living in a buyer’s market, but there aren’t many buyers there. It’s forcing our prices lower because of supply and demand, it’s the same reason it went out of control in the other direction.’”

“Tampa Bay home prices were 25 percent higher than those in Raleigh-Durham, 46 percent higher than Atlanta’s and 68 percent higher than Dallas’, the report said. However, the household income here is less than the other regions, it noted.”

“‘It’s starting to be a drag on the whole economy,’ said Larry Henson, for the Tampa Bay Partnership.”

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