The Housing Bubble

The California realtors report March sales. “Home sales decreased 20.8 percent in March in California compared with the same period a year ago, C.A.R. reported today. ‘March sales fell below the levels of recent months in reaction to an uptick in mortgage rates earlier this year along with tighter underwriting standards,’ said C.A.R. President Colleen Badagliacco.”

“‘Moreover, recent news regarding foreclosures and the subprime situation had an adverse impact on the market psychology of many buyers, leading some to delay their home-purchase decisions,’ Badagliacco said.”

“‘The inventory of homes for sale continued to increase, a sign of price softness in the coming months, as expected,’ said C.A.R. Vice President Leslie Appleton-Young.”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in March 2007 was 8.7 months, compared with 4.7 months for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 36.4 percent, or 140 out of 385 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Fresno Bee. “Home prices and sales continued to slide in Fresno and Clovis last quarter. The median price of a house in Fresno County fell 6% in the first quarter compared with the same period a year earlier, according to DataQuick. The number of transactions fell almost 24% during the same period.”

“Appraiser Carole Leval said prices have fallen an average of 1% per month since late 2005 and noted that some sellers are offering concessions such as money back to buyers.”

“In addition, foreclosures are on the rise. In Fresno County, the number doubled between first quarter 2006 and first quarter 2007. In Madera County, it increased almost 133%.”

“D.R. Horton Fresno division manager Tony Wyman acknowledged a sluggish market. ‘The market is what it is right now,’ he said. D.R. Horton has eight subdivisions in the central San Joaquin Valley under way and four more coming online soon.”

“‘We’ll have a soft 2007,’ added Mitch Covington, president of the Building Industry Association of the San Joaquin Valley. Covington said builders still are trying to dispose of unsold houses that became surplus when deals fell through. ‘The cleaning out process is not done,’ he said.”

From Bloomberg. “Investors are losing money because of places like Riverside County, California, where foreclosures almost tripled last quarter to 6,103 from a year earlier, the biggest increase in the U.S., according to Foreclosures.com.”

“Lehman Brothers Holdings Inc. used Riverside loans as collateral for $1.5 billion of bonds sold in January 2006. Some of the lowest-rated portions of the securities trade at 63 cents on the dollar, down from more than 100 cents in October, according to Merrill Lynch.”

“Driving around Riverside County’s Lake Elsinore, realtor Abdul Syed counts about 40 lots with brown grass in the 1,200-home Tuscany Hills subdivision. Owners stop watering their lawns when they are about to lose their homes, he said.”

“‘All of these people are probably in default and probably going to face foreclosure really soon,’ said Syed.”

“The owner of 16 Ponte Russo paid $650,000 for the Mission- style house in November 2005 and got financing for 100 percent of the price from BNC Mortgage Inc. in Irvine, California, according to country records. BNC is a subprime lender owned by Lehman.”

“The owner never made mortgage payments. Now, the house is on sale for $496,000 following a foreclosure.”

“That house is ‘a real nice one because it backs up into a canyon and you have endless views of hills,’ Syed said. ‘That’s a great deal. The banks must be getting kind of desperate.’”

“More than 43 percent of the bonds sold by Lehman, called SAIL 2006-1, are based on property in California. Foreclosures in the state have quadrupled since September to $2 billion, according to Foreclosure Radar.”

“Rates on almost half of the loans in the Lehman bonds are scheduled to increase to an average 10.3 percent in December from about 7 percent now, according to the prospectus for the securities.”

“Foreclosures in California will rise to 70,000 in 2008 from 3,000 in 2005, said Bruce Norris, a resident of Riverside, California, who buys houses in foreclosure. ‘There is no way this is going to play out without pain,’ Norris said. ‘It’s already not OK. It just hasn’t hit the courthouse steps.’”

The San Francisco Chronicle. “In an effort to stem potential mass foreclosures of homes financed with controversial subprime loans, a state Assembly committee on Monday approved a bill intended to create a pool of money for homeowners to refinance their mortgages.”

“‘We’re not trying to bail out lenders and speculators,’ said Assemblyman Ted Lieu. ‘The idea is to assist first-time homeowners who may face foreclosure due to bad loan products.’”

“Critics of the proposal questioned whether the state should be in the business of refinancing mortgages or bailing out people who may have made bad financial decisions. They also say it would be wrong to use funds from November’s Proposition 1C…when voters weren’t told that the money might be used to help troubled subprime borrowers.”

“‘That would be a fundamental violation of the pact and trust made with the voters,’ said Jon Coupal, president of Howard Jarvis Taxpayers Association.”

“State Sen. Mike Machado said subprime lending practices should be scrutinized in the future, but stopped short of agreeing with Lieu that the state should create funds to help restructure mortgage loans.”

“‘The state has to be very careful if it uses public funds for a bailout,’ he said.”

“‘The subprime lending has popped,’ said Assemblyman Alberto Torrico. But the first step will be to get a handle on the problem, including figuring out who benefited financially the most by these questionable lending practices, Torrico said.”

From MarketWatch. “Gary Kent has more foreclosed properties to sell than ever before during his 23 years in the real estate business. The San Diego-based realty agent currently represents about 100 homes for sale, 85 of which are foreclosures.”

“A year ago, Kent represented about 20 homes for sale with only a couple of foreclosures among them. ‘I feel sorry for the people who lost their homes, but I’m probably going to have to best year I’ve ever had,’ Kent said.”

“Even when priced below the competition, foreclosed homes can linger on the market. Kent thinks it could take up to four months to sell the foreclosed properties in his listing book, particularly those that appeal to ‘low-ballers’ and ‘bottom-feeders’ willing to wait in order to pressure lenders into taking just 50 cents to 75 cents on the dollar for the homes.”

The Record Searchlight. “The jump in home foreclosures in Shasta County and around California is about as surprising as rain showers at Kool April Nites. As the real estate market zoomed like a supercharged Camaro in the first half of this decade, rising prices fueled the popularity of all manner of exotic home loans.”

“Meanwhile, the number of new subprime loans more than tripled from 2000 to 2005.”

“It’s a heartbreaking day when any family is forced out of its home. Nonetheless, the wave of defaults and foreclosures is part of the painful but inevitable correction in the real-estate market. It’s hardly a bad thing, though, if mortgage bankers stick to borrowers who can actually repay their loans.”

“Easy credit and the real-estate bubble drove each other. Now they’ve run out of gas together. The ride couldn’t last forever.”

The Florida realtors report on March sales. “Sales of existing homes in Florida remained at a sustainable pace in March, with buyers continuing to see favorable mortgage rates and a range of housing options available across the state, according to FAR. Statewide, sales of single-family existing homes totaled 13,469 last month compared to 18,751 homes sold in March 2006 for a 28 percent decrease.”

“Sales of existing condominiums in Florida also decreased last month, with a total of 4,236 condos sold statewide compared to 6,193 in March 2006 for a 32 percent decline, according to FAR.”

“‘The wide selection and diversity of housing choices in the Palm Beach area is a boon for buyers,’ says John Mike, president-elect of the Realtors Association of the Palm Beaches.”

The Sun Sentinel. “Palm Beach County’s median price in March was $375,100, down 5 percent from $393,700 a year ago. March home sales fell by 22 in Palm Beach County and 25 percent in Broward.”

“Delray Beach-based housing consultant David Levin said prices will continue fluctuating, with the downturn likely to continue for the balance of 2007. ‘There’s still nothing that says otherwise,’ he said.”

The Palm Beach Post. “The Treasure Coast posted the biggest drop in single-family sales last month, 41 percent year over year, as the housing boom continue to deflate.”

“Palm Beach County single-family home sales posted a total of 725 single-family homes sold in March, compared with 929 in March 2006, a 22 percent drop.”

“Prices also continued their precipitous drop in both markets - and in some categories the drop was bigger than the U.S. sales decline in March. The median price of a single-family home in the Treasure Coast fell 7 percent, to $239,700 from $$258,000 in March 2006, FAR said.”

“In Palm Beach County, the median price of a single-family home fell 5 percent, to $375,100 from $393,700 a year ago, FAR said.”

“Higher condo prices are due in large part to the crazy speculation in the condo market that drove prices up during the five-year housing boom that came to a screeching halt last year. Now those speculative buyers are trying to get their money back, at the least, a task made more difficult because of huge inventories.”

The News Press. “The median price of an existing single-family home sold in Lee County fell 5 percent to $268,000 in March from $281,300 a year ago, according to FAR. The number of existing-home sales dropped 33 percent in March to 636, down from 955 a year ago.”

“In Charlotte County, the price fell 14 percent to $193,000 from $224,700 a year ago while the number of sales fell 25 percent from 315 to 237.”

From Bizjournal. “In Tampa Bay,h only 2,502 homes sold, or 38 percent fewer than in March 2006.”

“Prices continue to plunge as well, with the median price in the state falling 4 percent to $236,000, while in Tampa Bay, the median price dropped 4 percent to $209,700, the lowest price since June 2005.”

“It was the best of times and the worst of times in the Treasure Coast last month as falling home prices and rising mortgage payments pushed hundreds of homeowners into foreclosure.”

“A total of 370 households in St. Lucie County entered some stage of mortgage default, the worst foreclosure record in the tri-county Treasure Coast region in March, and a startling 444 percent increase over March of 2006, according to RealtyTrac.”

“‘Overburdened homeowners simply can’t catch a break in this real estate market,’ said anslyst Mike Larson. ‘Home sales are down by double digits, home prices are stagnant or falling, and home inventories are through the roof.’”

“Tightened lending standards make it impossible for many troubled debtors to refinance at better terms. That’s a recipe not just for rising foreclosures but also for soaring inventory. Indeed, Palm Beach County has a 21-month supply of unsold homes, according to HomeDiscovery.com.”

“Florida ranked No. 2 in the nation for total number of foreclosures filed in March, 14,303, behind California’s stunning 31,434 filings, according to RealtyTrac.”

“In other Florida counties, Broward posted a 62 percent increase in foreclosures year over year, while Miami-Dade saw foreclosures nearly double in March, to 2,823 from 1,434 in March 2006, according to RealtyTrac.”

The Ledger. “A national title company and a jilted business partner have filed lawsuits totaling $825,000 against Independent Title Agency LLC in Lakeland, its owner and her husband.”

“Among the allegations are that the couple used escrow funds to purchase three real estate properties, a 2005 BMW Coupe, a 2005 Hummer H2, a 2004 Ford F-250 pickup and a travel trailer.”

“When the housing market goes cold, trouble heats up in the title industry, said Jim Smith, VP for Stewart Title Guarantee in Orlando. ‘It happens in typically hard times in the industry. I know of about 10 to 15 (cases) that have happened in the last 12 to 18 months (in Florida). And we are in a down market right now.’”

“‘It’s when the flow (of money) is low and the checks bounce,’ Smith said. ‘That’s when a lot of them come to light.’”

“”In February, Polk County’s home sales totaled 334, a 25 percent drop from 447 sold in February 2006. The decline in sales has been an ongoing local trend for the past nine months.”

Some housing bubble news from Wall Street and Washington. “Existing home sales posted their sharpest drop in 18 years in March, a real estate group said Tuesday, as the latest reading on the troubled housing sector came in much weaker than economists had forecast. Sales slowed to an annual pace of 6.12 million homes in March, according to the National Association of Realtors, down 8.4 percent from the 6.68 million rate in February. It was the biggest one-month drop since January 1989.”

The Associated Press. “The fall in sales in March…dashed hopes that housing was beginning to mount a recovery after last year’s big slump. David Lereah, chief economist at the Realtors, said that the troubles in mortgage lending were also playing a significant part in depressing sales.”

“‘The negative impact of subprime is considerable,’ Lereah said. ‘I expect sales to be sluggish in April, May and June.’”

“There was weakness in every part of the country in March. Sales fell by 10.9 percent in the Midwest. They were down 9.1 percent in the West, 8.2 percent in the Northeast and 6.2 percent in the South.”

“NAR President Pat Vredevoogd Combs, and vice president of Coldwell Banker-AJS-Schmidt, said market conditions are clearly favoring buyers. ‘It’s a good time to buy, in part, because home buyers are not pressured to make quick decisions,’ Combs said. ‘We’re in a window of low interest rates with a plentiful supply homes on the market and flat prices in most areas. First-time buyers now have more power to negotiate with sellers for help on downpayment or closing costs.’”

From Bloomberg. “The supply of homes for sale decreased 1.6 percent to 3.745 million last month. At the current sales rate, that represents a 7.3 months’ supply, the highest since October, compared with 6.8 months’ worth at the end of February.”

“Last year, 6.48 million previously-owned homes were sold, the third-highest on record.”

“Another industry report earlier today showed a measure of home values in 20 metropolitan areas, the S&P/Case-Shiller home- price index, declined 1 percent in February from a year earlier, the biggest price drop since the index started in 2001.”

“S&P/Case Shiller’s 10-city composite, which has a longer history, dropped 1.5 percent in the 12 months ended February, the most since October 1993.”

“In 20 metropolitan areas…thirteen cities showed a year-over-year decline in prices, led by a 7.8 percent drop in Detroit and a 5 percent decline in San Diego.”

“Housing markets including California, Florida and Arizona ‘are becoming tougher’ for sellers, said Donald Tomnitz, CEO of D.R. Horton Inc. the second-largest U.S. homebuilder. ‘We’re back to rock-bottom pricing in California,’ Tomnitz said on a conference call.”

“‘Home prices are exhibiting successive monthly declines,’ economist Robert Shiller said. He said the numbers indicate ‘a widespread downward trend’ that started at the end of 2006 and has extended into the beginning of this year.”

“When compared to January, the February sales figures show that 17 of 20 cities had price depreciation, S&P said.”

From Reuters. “Losses on risky subprime loans originated in 2006 may climb to 6 percent to 8 percent of the loan principal, higher than previous forecasts, according to Moody’s Investors Service.”

“‘Delinquencies and early defaults for mortgage loans originated in 2006 continue to trend higher than in previous years,’ the rating company said.”

“Bond investors who financed the U.S. housing boom are starting to pay the price for slumping home values and record delinquencies in subprime loans.”

“They will lose as much as $75 billion on securities made up of millions of mortgages to people with poor credit, says Pacific Investment Management Co., manager of the world’s biggest bond fund. Some of the $450 billion in subprime mortgage-backed debt sold last year has lost 37 percent, according to Merrill Lynch & Co.”

“‘Bond investors will be the ones who will take the losses,’ not the banks, said Scott Simon, who oversees $250 billion in asset-backed securities at Pimco.”

“About two-thirds of mortgages get turned into bonds, up from 40 percent in 1990, when the market was $1.08 trillion and the country suffered its last real estate slump, according to data from the Federal Reserve and Fannie Mae in Washington.”

“About 13 percent of subprime mortgages made in 2006 were delinquent after 12 months, with 6.65 percent considered ’seriously delinquent,’ or more than 90 days late, Standard & Poor’s estimates.”

“‘Underwriter standards have gotten progressively more lenient,’ said Mark Tecotzky, chief investment officer at Ellington Management Group LLC, a $4 billion hedge fund that invests in mortgage bonds.”

“Bondholders are as much to blame as lenders, Federal Deposit Insurance Corp. Chairwoman Sheila Bair in Washington says. ‘We should hold the servicers’ and the investors’ feet to the fire on this,’ Bair said in testimony to the House Financial Services Committee last week. ‘We did not have good market discipline with investors buying all these mortgages.’”

“Subprime mortgage bond sales grew to $450 billion last year from $95 billion in 2001, according to a New York-based industry trade group. The amount of mortgage bonds outstanding increased 82 percent over that period.”

“Building materials maker USG Corp…signaled it would be hurt by the continued weakness in the housing market. ‘During the first quarter, housing construction activity was substantially below the strong levels experienced a year earlier, continuing a trend that began in the middle of 2006,’ said CEO William Foote.”

“The company said the downturn in new residential construction is likely to continue throughout 2007.”

“Consumer confidence in the U.S. declined to the lowest level in eight months in April, sapped by concerns about rising gasoline prices and a wave of mortgage defaults.”

“‘There was some further deterioration in plans to buy homes and appliances, which suggests the weakness in the housing sector is not going to go away,’ said economist Douglas Porter.”

“The share of Americans who plan to buy a home in the next six months fell to 2.7 percent, the lowest since November 2004, from 3.2 percent, the survey showed.”

“The housing slump is hurting sales at some retailers. Federated Department Stores Inc., owner of Macy’s, said March sales increased 2.3 percent, missing analysts’ estimates. The miss was ‘largely attributable to weakness in home- related merchandise categories,’ CEO Terry Lundgren said.”

“Myron Ullman, CEO of J.C. Penney Co., said the housing slowdown was affecting the chain’s sales of housing-related furnishings. ‘We have big-ticket furniture and window covering and those business are softer,’ Ullman said.”

“The crisis in the U.S. mortgage market has hurt U.S. auto sales this month, General Motors Corp. Vice Chairman Bob Lutz said. ‘The market as a whole has been a little weakish. That has come as a result of the housing market problems and the mortgage industry meltdown,’ Lutz told Reuters.”

“GM in March also said it expects results from finance company GMAC, in which it retains a 49-percent stake, to remain under pressure this year due to increased defaults in subprime mortgages or loans to borrowers with poor credit.”

“Spanish real estate and bank stocks tumbled on concern the country’s property boom is imploding.”

“‘This is the burst of the Spanish real-estate bubble,’ said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages about $7 billion. ‘Banks are exposed and have risk.’”

“‘This is a warning sign for the real-estate market in general and for banks that are exposed to the sector, for the risks of increased provisions,’ said Emanuele Vizzini, who oversees about $1.2 billion at Investitori Sgr in Milan.”

“Between 1998 and the end of 2006, the amount that Spanish banks lent for real-estate activity rose ten-fold to 107 billion euros, according to the bank of Spain.”

“‘Everyone knows there is a bubble in the Spanish real- estate market,’ said Christophe Ochsner, an equity salesman at Venture Finanzas SA in Madrid. ‘The decline started with Astroc and it has contaminated the rest of the sector.’”

The Boston Globe reports from Massachusetts. “Massachusetts house prices held steady in March, putting an end to the monthly price declines that have plagued sellers since last April. However, March sales fell, by 2.8 percent for houses and by 1.4 percent for condos, though the magnitude of those declines was smaller than in prior months.”

“(Agent) Gary Dwyer said more people are coming out this spring intending to buy because prices are more attractive. During the peak of the housing boom in 2004 and 2005, first-time home buyers in particular were put off by bidding wars and by properties that were too expensive or in poor shape for the price.”

“‘Sellers are pricing a lot closer to what market value is, lower,’ he said.”

“Real estate agents and economists said it’s premature to declare a full turnaround. Foreclosure filings by lenders against homeowners behind on their mortgage payments continue to soar. The number of auctions advertised for foreclosure sales more than doubled. In the first quarter, Warren Group said, there were 3,118 auctions, compared with 1,069 a year ago.”

The Boston Herald. “Massachusetts home sales have fallen for the second straight month, following a January rebound, making it unclear whether the market is truly bottoming out.”

“‘There are some hopeful signs here, but I would be very much reluctant to say that we’re out of the woods,’ said Terry Egan of market tracker the Warren Group, which yesterday reported the market weakened in March.”

“Egan said yesterday that just 4,239 Bay State houses changed hands last month, down 5 percent from year-ago levels. Median house-sale prices likewise have fallen 1.59 percent to $314,900 since March 2006.”

“The condo sector fared even worse, with sales volume down 8.72 percent and median prices dropping 2.68 percent to $267,625.”

“MAR also said the length of time houses take to sell hit a new record high. The group said houses changing hands in March needed 158 days on average to find buyers. That figure is up from 142 days in March 2006 and it’s the worst level ever seen in the two years MAR has tracked such data.”

The Telegram from Massachusetts. “The Warren Group showed condominium sales dropping 3.7 percent statewide, and condominium prices falling 3.3 percent, from $274,000 in 2006 to $265,000 for the most recent quarter.”

“Condominium sales in Central Massachusetts were down 26 percent for the quarter to 465 from 632 in the first three months of 2006, and the median condominium price in Central Massachusetts fell nearly 12 percent for the quarter to $190,000 from $215,000 a year ago, the Realtors association said.”

“‘What they’re showing is that the market is a little more stable than what we saw in 2006,’ said Terence Egan, for The Warren Group. ‘It’s still slumping, but with far less volatility than what we were tracking for all of last year. I wouldn’t characterize it as a balanced market. It’s still a buyer’s market, and we may see more of that.’”

“The first quarter also saw petitions to foreclose rise nearly 80 percent in Massachusetts. Advertisements for foreclosure auctions also spiked 191.7 percent compared with the first quarter of 2006, The Warren Group reported. Mortgage lenders filed 6,395 petitions to foreclose in Massachusetts Land Court from January through March, compared with 3,556 during the same period in 2006, and 3,130 in 2005.”

“He said that many homeowners entered the market at a time when loans were easily obtained, and are now finding it difficult to keep up with payments as rates adjust upward. ‘The way the numbers are tracking, the worst is yet to come,’ Mr. Egan said.”

“‘What we’re showing is that auction notices are up by nearly 200 percent,’ Mr. Eagan said. ‘What that’s telling us is that the escape hatch is closing. It’s difficult to sell, especially if the home is not worth what it was purchased for.’”

“Massachusetts foreclosure filings spiked by 47 percent in March as many local home owners struggled to make monthly mortgage payments, a new report said.”

“ForeclosuresMass.com said there were 2,190 filings in the Bay State last month, compared with 1,492 for March 2006. March 2007 was the 6th consecutive month with more than 2,000 Massachusetts foreclosure filings, the firm said.”

“‘It is clear that tens of thousands of Massachusetts residents are trapped in properties they can no longer afford,’ said president Jeremy Shapiro. ‘They can’t keep up with mortgage payments that are too high.’”

“Shapiro added, ‘With no substantial market turnaround in sight, we expect Massachusetts foreclosure rates to continue at record or near-record levels for months to come.’”

“For the first quarter of 2007, Massachusetts foreclosure filings rose 76 percent to 6,624, compared with the first quarter of 2006, Shapiro noted.”

The Providence Journal from Rhode Island. “Rhode Island’s home foreclosure rate last year was the highest in New England and exceeded the national average, according to data released yesterday.”

“Nearly 6 out of every 1,000 mortgages in Rhode Island were in the process of foreclosure during the fourth-quarter, the highest in at least 20 years, according to a recent analysis by the Federal Reserve Bank of Boston of data from the Mortgage Bankers’ Association. Rhode Island’s overall foreclosure rate was slightly higher than Massachusetts.”

“Foreclosures were even higher, nearly 4 out of every 100 mortgages, for high-cost, or subprime loans made to Rhode Island borrowers with poor credit.”

“And the pace is expected to continue to climb. Interest rates on risky adjustable rate mortgages, or ARM loans, made to borrowers with poor credit usually ratchet up, meaning that defaults on those mortgages have yet to hit their peak, said the Federal Reserve Bank of Boston’s senior research associate, Julia E. Reade.”

“In Rhode Island, the rise in home foreclosures follows one of the nation’s biggest run-up in house prices. Price appreciation has since leveled off and, more recently declined slightly, making it harder for borrowers who had grown accustomed to ‘cashing out’ their home equity to refinance.”

“‘We haven’t seen the worst of it yet,’ said the Rhode Island Mortgage Bankers Association’s Jerome D. Margulies. Margulies said he recently shuttered his own mortgage company after 22 years. ‘We have a major hurdle we’re not over yet.’”

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