The Housing Bubble

The Financial Times reports on California. “Far away from the sun-kissed beaches and palm trees that make up southern California’s idyllic coastline, trouble is brewing in the Inland Empire. The area is facing a looming crisis, with an increasing number of homeowners delinquent, or failing to make payments on their loans. Delinquency often leads to mortgage foreclosure, or the repossession of the house by the lender.”

“‘It used to be that we would get one call a month from someone needing help [about mortgage foreclosure,' says Vilma Mercado, manager with the Neighbourhood Housing Service of the Inland Empire. 'Now we're getting close to 50.'"

"Riverside County appears to have been most badly hit by the subprime collapse, with mortgage defaults in the first three months of the year up 168 per cent on the same period of 2006, according to DataQuick."

"Ms Mercado says many buyers were not adequately prepared. 'A lot of people moved into these areas thinking they were more affordable, but didn't understand what they were getting into.' The increase in foreclosures in the region, she adds, is 'absolutely overwhelming.'"

"Almost two years ago Sonya Mcphearson and her husband moved from Los Angeles to San Bernadino, where they bought a six-bedroom house for $480,000. Ms Mcphearson works in Los Angeles 70 miles away. She commutes by train but stays with her sister during the week to save money."

"Ms Mcphearson says that the couple were unaware they had taken out an adjustable rate mortgage. 'Our payments went up and we couldn't afford to pay. Now we're three months behind and we've been told we have to leave. I don't know what we're going to do.'"

"'Anything can turn that has doubled in five years,' says Dr Christopher Cagan, at First American Real Estate Solutions. Meanwhile, the Inland Empire 'ran out of new buyers' which exacerbated the problem."

"'What we have [in the Inland Empire] is an explosion of building and an explosion of generous lending. There was no single villain: this was a market phenomenon characterised by 30 years of [house price] growth with very few defaults. There is no one person or company to point to,’ he adds.”

“Any action that California or the federal government takes to resolve the subprime collapse is likely to come too late for the people currently facing foreclosure in the Inland Empire.”

“The increase in foreclosures has ‘come on strongly and quickly and none of us anticipated it,’ says Ms Mercado. ‘And it is nowhere near ending.’”

The Orange County Register. “Several lenders and financing organizations this month said they are developing loan bailouts for some homeowners with subprime mortgages, but many strapped borrowers will not qualify or the help will come too late to save their houses.”

“‘The devil is really in the details,’ says Jeff Lazerson, a Laguna Niguel longtime mortgage expert. ‘They can say all they want about the availability of financial help and want to appear to be responsible corporate citizens, but you really have to understand what they are willing to finance.’”

“The First American Corp. in Santa Ana estimates that Orange County will see 21,000 to 22,000 adjustable-rate loans go into foreclosure by 2012. DataQuick says Orange County is now averaging 174 foreclosures a month.”

“‘When there’s a foreclosure in a neighborhood, it brings down the entire neighborhood.’ said Richard Castro, NeighborWorks America’s regional spokesman. Castro says the group’s hot line has been getting 3,000 to 4,000 calls a month.”

The Hollister Free Lance. “Local home foreclosure rates skyrocketed during the first quarter of this year.”

“San Benito County had 103 foreclosure filings in the first three months of 2007, according to RealtyTrac. That’s more than double the 44 seen during the same period in 2006 and even exceeds the 90 foreclosure filings that occurred here during all of 2005.”

“Meanwhile, sales closed on 75 homes during the first three months of 2007. That means that during the first quarter of this year, there were more San Benito County houses in some stage of foreclosure than there were homes sold.”

“Karl Skow, who operates Pacific Finance Company in Hollister, said the foreclosure epidemic has been caused by buyers who got in over their heads.”

“‘Many people felt values could not stop going up,’ said Skow, who is the president of the California Association of Mortgage Brokers. ‘Nearly anyone could get a loan. Then people started realizing what they’d gotten into.’”

“A number of real estate agents have said the foreclosures are also contributing to the local housing slump. Rick Pennington said that when homes are foreclosed, or homeowners struggling with high payments decide to sell their house, those homes go back on the market and drive housing prices down.”

“There were 427 homes on the market in March 2007, up from 286 homes in the same month in 2006, according to REInfoLink.”

“Economist Cynthia Kroll and Skow both said they’ve heard about many loans that just shouldn’t have been made. But Skow said things have changed, and lenders are tightening their rules.”

“Real estate agent Melissa Mitchell said that it’s become more common for an agent to think they’ve sealed a deal only to discover weeks later that a buyer can’t get a loan.”

The Bakersfield Californian. “A local home appraiser is alleging widespread mortgage fraud in Bakersfield’s housing market, accusing local real estate professionals of artificially inflating prices to generate illegal profits.”

“Appraiser Gary Crabtree said Friday he has alerted federal, state and local authorities to ’suspicious’ home sales in the Bakersfield area. But he said he believes what he has found is just the beginning.”

“‘I think I’ve just scratched the surface,’ Crabtree said. ‘I know there are other people in the real estate industry in Bakersfield that have knowledge of this. They are just not talking.’”

“Crabtree said some of the properties in question may have been ‘flipped,’ purchased and sold for profit, by investors, real estate professionals or so-called straw man buyers whose identities and credit histories were used to secure loans.”

“The cases include what Crabtree said appear to be fraudulently inflated sales prices and buyers purchasing properties with 100 percent financing.”

“Crabtree said he believes some real estate agents and brokers as well as lenders and appraisers may have taken part, while others were taken advantage of in the scheme. Some of the properties have gone into foreclosure or received notices of default, Crabtree said, leaving lenders holding the bag.”

“‘It has falsely inflated values,’ Crabtree said. ‘Foreclosures will follow.’”

“Powers said a relative who earns about $10 an hour was approved for a $200,000 loan and asked to falsify documents to say he made more money.”

“Bakersfield Association of Realtors President Ray Karpe confirmed that his organization received information from Crabtree, but said the potential wrongdoing falls outside the association’s policing authority. He said the Realtors association would wait to see if any punishment was handed down from higher authorities.”

“‘Once some of the investigations go through and people get their just punishment, it will clean things up,’ Karpe said.”

“‘It is an epidemic,’ said Ann Fulmer, vice president of a company that provides mortgage fraud prevention and detection technology and risk management tools to banks and lenders. ‘We don’t have a…handle on how big a problem it is because it is not reported by everyone. Lenders don’t always recognize it. I don’t think we have seen the worst of it yet.’”

“‘When the market was so hot and properties were appreciating quickly, it was more difficult to spot,’ she said. ‘Because the market is slowing down, the fraud that happened in loans that originated in the last two years is like dead bodies rising to the surface.’”

“Crabtree said word is out in local real estate circles that he has provided information to agencies about potential improprieties. He said he has lost business as a result and others in the industry have stopped talking to him for fear of being implicated.”

“But he said he believes it is the right thing to do. ‘I could have just let this gone on and not said anything to anyone,’ Crabtree said.”

In Business Las Vegas reports from Nevada. “The price of new homes has tumbled nearly 10 percent this year, the inventory of existing homes has reached an all-time high and bank repossessions accounted for a greater percentage of existing home sales in Las Vegas, according to the March housing statistics. The median price of new homes sold in March was $308,471, down nearly 10 percent from $341,990 in December.”

“The new-home market rebounded slightly in March with 1,771 sales, up 330 from February, but sales were down nearly 51 percent from March 2006.”

“Dennis Smith’s HomeBuilders Research reported Tuesday that there were 5,204 new-home sales in the first quarter, the fewest since 2001. ‘The first quarter of 2007 will go into the archives as one that most in the homebuilding industry would like to forget,’ Smith said.”

“Don Boettcher, an area VP with Pulte Homes, said the price reductions are a reflection of the softening housing market. In a competitive market, it’s part of a ‘continuing correction of supply and demand.’”

“Since January, Smith said the price of new homes has dropped nearly $29,000 or 9 percent. He attributes part of the decrease to sales of condos on Las Vegas Boulevard South, with 37 at one project selling for less than $300,000.”

“On the existing home market…402 or 13 percent of those 3,175 sales were bank repossessions, the first time that figure has reached double-digits in Las Vegas in history, SalesTraq reported.”

“Bank repossessions accounted for 9 percent of the existing home closings in January and February.”

“The drop in new-home prices isn’t surprising given the large number of existing homes on the market, said Monica Caruso, spokeswoman of the Nevada Home Builders Association. SalesTraq reported the 22,970 existing homes on the market in March was the highest in history and represents a 13-month supply.”

“‘It is having a tremendous impact (on new home sales and prices) because there are a significant number of existing homes that are essentially brand new homes,’ Caruso said. ‘They have never been lived in. Homebuilders are competing against that housing. This has to do with supply. If new homes are sitting on the market and not selling, prices have to come down.’”

“That competition is borne out because 44 percent of homes listed for sale on the MLS remain vacant, SalesTraq reported.”

The Record Courier from Nevada. “As the hot, summer, home-selling season approaches, builders and agents are confident that decreasing prices will draw more buyers to Carson City.”

“Average home prices have stayed in the mid-to-low $300,000 range. Median prices reveal a market that has dipped back under the $300,000 mark.”

“Last year, Carson City’s housing market saw the fewest number of homes sold in 18 years, at the largest average sale price ever recorded by the city assessor’s office, which has tracked all home sales since 1988.”

“Residential home building will increase in the next few months, said Rick DeMar, CEO of the Builders Association of Western Nevada.”

The Arizona Republic. “It’s now been one year since work stopped on Elevation Chandler, the forlorn skeleton of a high-rise hotel next to Chandler Fashion Center.”

“Last April, workers walked off the job because they weren’t getting paid by developer Jeff Cline. Now, after a year that included liens and settlements, the property is for sale.”

“‘We certainly hope someone comes along with the wherewithal to finish it,’ said Doug Ballard, the city’s director of planning and development.”

The Salt Lake Tribune from Utah. “Wasatch Front real estate agents say the changing market represents some challenges for both buyers and sellers. Trying to move a higher-priced home? Be prepared to face longer waits or drop your asking price.”

“The market may be slowing, but make a lowball offer at your own risk. Some sellers, burdened with large first and second mortgages, simply cannot lower their asking price much.”

“Salt Lake County’s median selling price was up nearly 20 percent in the first quarter to $241,000 compared with the first three months in 2006, according to the Salt Lake Board of Realtors report. Davis County prices were up 25 percent to $218,000, while Tooele jumped nearly 31 percent.”

“Four percent fewer homes sold in Salt Lake County in the first quarter of 2007 compared with 2006. Sales were down nearly 2 percent in Davis and Tooele counties; Salt Lake County was off more than 4 percent.”

“Those aren’t bubble-bursting drops by any means. But ‘things are definitely slowing down a bit, especially in the higher price ranges,’ said Gary Cannon, president of the Salt Lake Board of Realtors.”

“Linda Coleman, a real estate agent specializing in the Sandy-Draper area, said she has been amazed at how much the asking price influences how long it takes to sell a home right now. Coleman said in her area of the valley, homes under $400,000 are still selling briskly. Above that amount? ‘It’s going to sit on the market for a while,’ she said.”

“Her advice for sellers is to get real: ‘People are thinking the market is as good as it was last year,’ she said. ‘It’s not.’”

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