The Housing Bubble

The Gazette Journal reports from Nevada. “The median price for an existing single-family home rose modestly in Washoe County but sales dropped during the first quarter, according to a report. The median price was in the Reno-Sparks metropolitan area was down 9 percent compared with the first quarter of 2006, said the report that does not count new home sales.”

“Sales recorded by the MLS dropped from 929 in the fourth quarter to 830 in the first quarter, a sign that the local real estate market has not fully recovered from last year’s slide.”

“‘I think we have seen the worst,’ said Tom Cargill, economist at the University of Nevada, Reno. ‘House prices are likely to stabilize, and they could come down a little more because there is still a considerable volume of inventory out there.’”

“‘People are wondering what is going to happen. You have the subprime market that has imploded and a lot of people I’ve talked to are just scared to purchase because they don’t know what’s going to happen,’ said Association president Dennis Wilson.”

“For the local market to fully recover, it must overcome a rising foreclosure rate, fueled by failing subprime loans, and housing prices that still are relatively expensive in the area, said Ken Wiseman, owner of Reno Rancho Realty.”

“‘A lot is highly dependent on how the subprime fallout comes about,’ he said. ‘And the house prices don’t meet the wages. Until we see that equal out, we are just going to be flat.’”

“The number of listings for existing single-family homes on MLS increased to 3,442 during the first quarter, up from 3,278 in the fourth quarter but well below the nearly 7,000 homes listed at its peak in 2006.”

“But inventory increased in every month during the quarter compared with the month before, according to the report. If that trend continues along with sales decreasing, a glut of homes could once again hit the market.”

“‘You are seeing fewer houses for sale, but still a lot of inventory out there,’ Cargill said. ‘That’s why I think prices are still soft.’”

The Tucson Citizen from Arizona. “David Greenleaf is seeing both sides, seller’s and buyer’s, of Tucson’s housing market. He recently sold his far East Side house but it took him eight months. The golden days of just two years ago, when eager buyers bid up prices and homes sold in days, rather than months, is a distant memory.”

“High housing inventory levels and falling prices make Tucson a strong buyer’s market with supply outstripping demand and sellers willing to do what it takes to get rid of properties.”

“The 10,185 active listings in the Tucson Association of Realtors’ March statistics mark the highest number in the past 12 years, and a 25.6 percent increase over the same month a year ago.”

“Greenleaf decided to sell his house last August. His original asking price undercut the five homes for sale in his neighborhood by $15,000 to $25,000, but he still had no takers. An offer for $14,000 less than his asking price resulted in Greenleaf selling the 1,380-square-foot home for $208,000 earlier this month rather than face more waiting.”

“‘It was a rude awakening to us,’ Greenleaf said. ‘When this offer came in we were kind of incredulous. We were in a dream world. We realized that holding out was not going to get us anywhere. Buyers are in a position where if they don’t go with ours, they can go to another seller and get a great deal.’”

“Industry experts say Tucson’s real estate market is adjusting following a buying boom that peaked in 2005. ‘It is almost a 180-degree turnaround from an extreme seller’s market 16 months ago to an extreme buyer’s market,’ said Steven Randles of Coldwell Banker Residential Brokerage.”

“‘We sucked the buyers in who weren’t thinking quite yet about buying,’ (consultant) John Strobeck said. ‘They would have normally have been buyers in 2006 or 2007. Now we don’t have the buyers out there.’”

“‘It was a feeding frenzy,’ Tyler Ford, mortgage adviser at First Magnus Home Loans, said of the boom that peaked in 2005. ‘There was little or no inventory out there. It was kind of auction-style bidding. It was kind of like when the stock market was going nuts and everyone wanted to get into the stock market. No one wanted to get left behind. They jumped on the bandwagon and bought at the top of the market.’”

“Price reductions are common, Randles said. ‘There are between 110 and 160 home-price reductions every day across the city,’ he said.”

“‘I look at this as another part of the real estate cycle,’ Randles said. ‘It is not what it was: We were spoiled in 2005.’”

The LA Times. “When Kyle Campos transplanted his family from Santa Barbara to this scorching slice of Sonoran Desert three years ago, Campos accomplished something he never could have done if he’d stayed on the California coast: He bought a house.”

“And he unleashed a flood of family members who followed him here to the Phoenix suburbs to fulfill the same thwarted dreams.”

“‘Living in Santa Barbara, you get used to nothing being under a million dollars, and a million-dollar house is really small,’ Campos said. ‘Here, I could build my dream house for less than $300,000. At some point, you weigh the beach versus a realistic life someplace.’”

“For the first time since Nevada became a magnet for Californians in the 1990s, the Phoenix area has nudged Las Vegas aside as the No. 1 destination for people fleeing the Golden State and its soaring home prices.”

“‘Housing isn’t cheap in Vegas anymore, nor is it in Phoenix, compared to what it was. But it’s still cheap compared to California,’ said R.L. Brown, publisher of the Phoenix Housing Market Letter.”

“In the 1980s, the Pacific Northwest decried the hordes of ‘Californicators’ who snapped up real estate and filled freeways in Starbucks’ stamping ground. After that, Sin City and its non-neon environs reigned supreme: no state income tax; no brainer.”

“But then home prices in the Silver State took off like a drunken gambler’s dreams. Between 2003 and 2004, the median price of a Las Vegas-area house jumped 40%, according to DataQuick. Phoenix started looking better and better.”

“February’s median home price speaks volumes about California migration patterns. Los Angeles County: $528,000. Las Vegas area: $300,000. Phoenix area: $253,000.”

“Ray Aleman is from East Los Angeles. But back in 1996, when California was struggling to shake off a recession, his bosses at Wells Fargo told him he could move along with his job to Arizona or look for work in his hometown.”

“It was a pretty simple decision: Los Angeles, unemployment. Maricopa Countyt. Los Angeles, a lifetime of renting. Arizona, a four-bedroom house with a pool on half an acre in suburban Mesa, purchased for $140,000 in 1999.”

“‘Can you get anything for $140,000 in L.A.? Not even in Compton,’ Aleman said. ‘My house doubled in five years. It was like, wow. That’s the main reason people from L.A. come here.’”

“Sure there are things he misses about Los Angeles, and he visits twice a year. As for the future: ‘I won’t go back.’”

The Chicago Tribune reports from Illinois. “Lumber dealer Rick Baumgarten knew business wouldn’t be good this year. But even after a career spent riding the ups and downs of the housing business, he said he was too optimistic. ‘I didn’t think that the slump was going to be as deep as it was,’ said Baumgarten. ‘I was plain, flat-out wrong.’”

“The slump is deep. New data shows that existing-home sales in the Chicago area they dropped a wrenching 22.1 percent.”

“One economist said the weaker housing market is contributing to public unease. ‘There is a relationship,’ said Jonathan Noonan, chief investment strategist for an investment management firm in Boston. Noonan said some people who once thought of their home as a source of ready cash, whether through home-equity loans or outright sales, may be becoming less confident.”

“‘You could tap into your house just like an ATM’ when sales and prices were rising, he said. ‘What we have now is the unwinding of this.’”

“Jackey Licka, who said that even though she and her husband had a deadline to sell their New Lenox duplex home in order to move into a newly built house in Pennsylvania, they knew they were probably overpricing their unit when they listed it for sale two months ago.”

“‘We knew we were too high in the beginning, and then we lowered it by $10,000,’ she said.”

“Even then, the couple got offers that were $25,000 below their asking price, she said. She said they held firm, and in recent days they negotiated a contract to sell the home for about $7,000 below their asking price, which she declined to disclose.”

“‘We’re definitely in a market that is still finding its legs,’ said Robert Zoretich, president of the Illinois Realtors. ‘Tentative buyers and sellers are still trying to read the market and are taking their time.’”

The Journal Star from Illinois. “Area home sales dipped in the first quarter this year compared with the first three months of 2006, according to the Peoria Area Association of Realtors.”

“‘While construction of new homes has seen a dramatic slowdown nationally, central Illinois builders are moving ahead, said Shara Manning, association president. ‘A lot of people pulled in the reins for six months, but there’s a huge influx of new (housing) starts in the area,’ said Manning.”

“‘New subdivisions are opening. Lots are ready to be built on,’” said Manning.”

“The inventory of homes on the Peoria market remained around the 2,400 mark, said Manning, noting that sellers need to remain competitive in how they price their property. ‘There is an outstanding inventory of affordable homes on the market right now,’ she said.”

“‘Spring is our big time. The second and third quarters will truly reflect what is happening in our market,’ she said.”

The News Democrat from Illinois. “Home Builders Association of Greater Southwest Illinois Executive Director Jerry Rombach said local market declines are modest. ‘We’re not seeing the declines as we’ve seen in other hot housing sectors in Phoenix, Florida, California or Las Vegas,’ Rombach said.”

“‘The message is that a lot of the problems with the present housing market have really been a little exaggerated by the national media, and the word may not be getting out locally that in the Greater St. Louis area, interest rates are still at very favorable levels and product is more available,’ Rombach added.”

“Greater Gateway Association of Realtors executive director Al Suguitan said lenders are always going to devise ways of helping people get into houses, but there are always going to be some people who probably should not have been granted a loan.”

“‘I would say that after the fact, when they’re doing the post-mortem or the forensic analysis on what went wrong with the subprime market, they will point out that some lenders lent money out and shouldn’t have, but lenders have to take risks,’ Suguitan said. ‘That is why they have to have such strong underwriting standards.’”

“‘I think that some of them realize that lending standards were a little lenient during the boom and are tightening them up,’ said realtor Heather Horvath in Collinsville. ‘But a mortgage is still reasonably easy to get.’”

“‘I think our area is OK,’ she said. ‘I don’t think we’ve seen the recession most areas in the nation have seen. You definitely have more to choose from in this market. There are a lot of nice listings out there right now.’”

The Star Tribune from Minnesota. “Foreclosure sales in Minneapolis climbed more than 100 percent during the first three months of this year compared with the same period last year.”

“At the current rate, Minneapolis is on track to far surpass the 1,610 homes foreclosed last year. Nearly 900 of the foreclosures in 2006 were on the North Side, more than the 863 foreclosures the whole city had in 2005.”

“‘It’s a bad situation,’ said Elizabeth Ryan, a city planning official. She attributed the spike in foreclosures to the rise of abusive lending practices such as subprime loans.”

“Minneapolis City Council President Barbara Johnson, whose Fourth Ward has a high number of foreclosures, said subprime lenders commit ‘white-collar crime. ‘To have our neighborhoods targeted by these criminals on this scale is overwhelming. They’re ruining our neighborhoods,’ she said.”

“‘In some cases, there was a loosening of credit standards and what happens is homeowners end up with products that in the short term looked like a good deal, but in the long run were unsustainable,’ she said.”

“More than 2,000 homes in Minneapolis and St. Paul went into foreclosure last year, according to sheriff’s records. Other areas statewide also are seeing record numbers of foreclosures.”

“Minneapolis Mayor R.T. Rybak called the foreclosure rise a ‘troubling trend.’ Among the 384 foreclosed homes on the North Side, the Jordan neighborhood had the most: 74.”

“Jason Little, treasurer of the Jordan Area Community Council, said Monday that prospective homeowners need to do more homework before signing any paperwork.”

Some housing bubble news from Wall Street and Washington. “Pulte Homes Inc., the No. 2 U.S. home builder, posted a quarterly net loss Wednesday, chiefly because of charges related to the lower value of land and homes it owns. The first-quarter 2007 loss included $132.1 million for impairments and land-related charges.”

“Home-building revenue fell 38 percent to $1.8 billion. The average selling price of a home fell 2 percent to $330,000. Looking ahead, the company said…because of ‘difficult market conditions that exist today,’ the company said it could not provide a forecast for the full year.”

“‘Overall, the homebuilding environment remained challenging during the first quarter of 2007, as elevated inventory levels combined with weak consumer confidence for housing continue to place pressure on results,’ Pulte CEO Richard Dugas said.”

“Ryland Group Inc., the biggest U.S. homebuilder for first-time buyers, said yesterday after the close of regular trading its net loss in the three months ended March 31 was $24.4 million. First-quarter revenue fell 34 percent, the Calabasas, California-based company said in a statement. New orders in the quarter plunged 26 percent to 2,989.”

“Pulte, Beazer Homes USA Inc. and Ryland had a combined $300 million in costs for land and options on parcels they no longer need.”

“‘This is a much weaker year than in the peak year of 2005 and the prospects are still pretty cloudy as to 2008,’ Robert Curran, an analyst at Fitch Ratings said.”

From MarketWatch. “‘We continued to experience extremely challenging operating conditions,’ Beazer CEO Ian McCarthy said. ‘Most housing markets across the country continue to experience lower levels of demand coupled with higher levels of inventory, resulting in increased competition and continued significant discounting.’”

“He said…that so far this spring selling season it’s ‘yet to see any meaningful evidence of a sustainable recovery in the housing market, and we expect current conditions will continue to put pressure on home builders’ operating results.’”

“Meritage Homes Corp. first-quarter net income fell to $15.1 million from $79.7 million a year earlier. ‘We anticipate that margins will continue to be under pressure due to competition in 2007, and would expect some modest improvement in demand during 2008, but are not relying on a rebound in 2007 to achieve our projections,’ CEO Steven Hilton said.”

“Before Thursday’s opening bell, M/I Homes Inc said its quarterly earnings fell 87% from a year earlier to $2.2 million. ‘Our first-quarter results reflect the challenging conditions that we continue to face in most of our markets,’ CEO Robert Schottenstein said.”

From Bloomberg. “Countrywide Financial Corp., the biggest U.S. mortgage lender, said profit declined by the most in more than two years as it lost money selling loans to investors amid a nationwide surge in subprime mortgage defaults. First-quarter net income fell 37 percent.”

“Countrywide’s revenue from making and investing in subprime mortgages fell by $400 million from the fourth quarter. Countrywide recorded a $33 million loss from the sale of subprime loans it produced, compared with profit of $149 million a year earlier. The company increased the amount set aside for future loan losses to $152 million from $63.1 million a year earlier.”

“Deteriorating market prices also showed up in the lender’s prime-quality home-equity loans in the quarter. The declining value of its retained home-equity loans hurt earnings by $119 million, it said.”

From Reuters. “‘Turbulent mortgage market conditions had an adverse impact,’ CEO Angelo Mozilo said.”

“Countrywide has tightened its lending guidelines, and in March stopped making some subprime loans that do not require down payments.”

“Friedman, Billings, Ramsey Group Inc., the investment bank and brokerage, posted a quarterly loss due to the poor performance of its non-prime mortgage businesses.”

“Friedman Billings is trying to sell First NLC, cited ‘an extremely difficult operating environment for the entire nonprime mortgage banking industry.’”

“‘The worst thing that could happen did in the quarter, with investors pulling money from the loans and creating a liquidity crisis,’ said analyst Gary Gordon. ‘Housing downturns don’t take a few quarters, they take years. Prices for subprime loans aren’t going to get better anytime soon.’”

The Associated Press. “Indymac Bancorp, the second-biggest independent U.S. mortgage lender, said Thursday first-quarter earnings shrank 34 percent as a spike in missed payments on home loans choked profits across the industry.”

“CEO Michael W. Perry pointed to ‘challenging conditions’ in the mortgage market, marked by sagging home values, a surge in payment defaults, weak prices for mortgage debt and failed mortgage banks.”

“The proportion of loans in Indymac’s portfolio classified as ‘nonperforming,’ or doubtful to be repaid, more than tripled.”

“IndyMac also said it expects second-quarter earnings performance to be ’similar’ to the first quarter.”

“IndyMac, which is also one of the largest U.S. savings and loans, specializes in ‘Alt-A,’ or ‘Alternative-A’ mortgages, which fall between ‘prime’ and ’subprime’ loans in quality.”

“Standard & Poor’s said it may lower ratings on bonds from 11 different securitizations of home loans made last year, more than doubling the number of its warnings on bonds of so-called Alt A mortgages. S&P said it’s considering the move amid higher-than-anticipated delinquencies.”

“Early delinquencies in the bonds may be high because of ‘aggressive residential mortgage loan underwriting, first-time home-buyer programs, piggyback second-lien mortgages, speculative borrowing for investor properties, and a higher concentration of ‘affordability’ loans,’ S&P said, referring to loans allowing borrowers to initially pay only interest or less.”

“Ten of the deals S&P said yesterday that it may cut were sold in the first half of 2006. The first Alt A bond that S&P warned about, in February, was issued by Countrywide and backed by loans from Impac Mortgage Holdings Inc.”

“Moody’s Investors Service cut the ratings on the payment-collection abilities of sub-prime mortgage lenders Option One Mortgage of Irvine, Accredited Home Lenders Holdings Co. of San Diego and NovaStar Financial Inc. of Kansas City, Mo.”

The LA Times. “Fremont General Corp. employees lost millions of dollars on company stock in their retirement plans when the company was forced out of the troubled sub-prime loan business in March, losses that Fremont’s board should have foreseen and prevented, according to a lawsuit.”

“The suit contends that from 2003 through early this year the company engaged in unsafe lending practices in an attempt to boost Fremont’s stock, a strategy the suit said ‘began to unravel as, predictably, sub-prime borrowers began to default on loans in large numbers.’”

“It contends that the directors knew or should have known the stock was not a prudent investment for Fremont’s Employee Stock Ownership Plan, which held the stock exclusively, and a 401(k) retirement plan where employees had invested about two-thirds of their savings in Fremont shares.”

“The U.K.’s financial stability faces a greater threat than it did in July from low corporate lending rates and growth in markets that transfer credit risk, the Bank of England said today.”

“Britons have taken on a record 1.3 trillion pounds ($2.6 trillion) of debt amid a housing boom where prices rose about 10 percent last year. Higher home values are ‘increasing the equity buffer for most U.K. mortgagees and offering a source of refinancing for homeowners with unsecured debts,’ the bank said.”

“The bank’s heightened assessment of the risk from consumer debt follows record bankruptcies exceeding 100,000 households last year as financial distress ‘picked up sharply,’ the report said. The ’significant rise’ in loan defaults is due in part to tighter lending standards, the report said.”

The Post & Courier reports from South Carolina. “Joe Desagun hopes to sell his mother’s three-bedroom home in North Charleston by fall. So he put it on the market in February, knowing it could take that long to find a buyer in a slowing market. Desagun said he adjusted his expectations after watching friends and neighbors struggle to sell their homes. ‘It’s been really tough,’ he said. ‘We lowered the price already.’”

“Charleston hasn’t been spared effects of the slowdown, which took hold about a year ago. As a result, the number of homes on the market has more than doubled in two years. Now, many sellers hoping to move to a new home are feeling locked in, while buyers have taken charge.”

“‘The market in Charleston is in a standoff,’ said agent Brigitte McElroy. ‘Sellers are living in the glory days, unwilling to come off their prices, and buyers shopping and looking are afraid to put a contract on a home, hoping the prices will fall even more.’”

“‘For sale’ signs are common sights these days, peppering subdivision entrances and front yards from Mount Pleasant to Summerville to West Ashley. ‘There’s so much inventory on the market right now that buyers are overwhelmed by choices and it paralyzes them,’ said agent Dave Johnston.”

The News Observer from North Carolina. “Triangle home sales rose modestly in March as the national housing slump continued to pinch the area’s largest business. The inventory of unsold homes rose 13 percent, and the number of sellers dropping prices increased 16 percent compared with a year ago.”

“‘There’s no question things are slower,’ said Mark Vitner, an economist with Wachovia in Charlotte. ‘The Triangle is doing very well, but we’re seeing it slow all over the country and the Triangle is no exception,’ Vitner said.”

“‘Compared to the rest of the country, we’re doing well, but we’re seeing more and more people who can’t buy ‘here’ because they can’t sell ‘there,’ said Shields Pittman, a broker in Raleigh. Pittman has sold 12 homes this year, slightly ahead of last year, but could have sold four more if owners moving here could sell their houses.”

The Baltimore Sun from Maryland. “A large portion of a new-home project in Harford County is scheduled for foreclosure auction next month, an apparent victim of the sharp slowdown in the housing market that has hurt builders across the country.”

“Several defaulting condominium projects in the Baltimore area are set to be auctioned, while some Eastern Shore development projects that were started at the peak of the boom are now in trouble.”

“About 85 acres, approved for 414 homes, is up for grabs, according to auctioneer A.J. Billig & Co. ‘Everything’s slower than everyone would like,’ said John Kortecamp, CEO of the Home Builders Association of Maryland. ‘There are a number of developments that are being delayed.’”

“K. Hovnanian said market conditions were a ‘factor’ in the Greenway Farm situation and that the foreclosure is a result of a contract dispute with the investor-lenders over land value. Attorney Curtis C. Coon, the trustee appointed by the lenders to foreclose, said K. Hovnanian did not exercise its option to purchase the land that was supposed to be Greenway Farm’s last two phases.”

“‘If they think they overpaid for it, that’s their opinion,’ Coon said.”

“‘We are being extremely cautious in underwriting new land opportunities,’ J. Larry Sorsby, Hovnanian’s chief financial officer, said in a statement when the company’s most recent financial results were announced last month. He added that ‘land sellers have not lowered their expectations to match today’s economic realities.’”

“The market slowdown has prompted similar builder pullouts on the Eastern Shore, said Michael Crosby, president of Crosby New Home Sales & Marketing in Easton. Out-of-town builders rushed to buy land as prices skyrocketed, but when the market turned, they wanted out.”

“‘What we’re seeing now is, the national builders have liquidated or gotten out of deals that they could get out of by giving up, some of them, very big deposits on land,’ Crosby said.”

The Owings Mills Times from Maryland. “Amid the rows of brick town houses in a neighborhood dotted with big trees and pricey cars, a sign reads ‘Foreclosure sale.’”

“‘It’s a nice property,’ said real estate agent Kevin Goodnight. It’s a bargain, Goodnight said, at $278,000. Similar homes in the neighborhood have sold for more than $300,000. The previous owner bought the house for $310,000, only to lose it to foreclosure less than nine months later.”

“Selling the bargain, however, has been difficult. Since it went on the market three months ago, two accepted purchase offers have fallen through because the would-be buyers failed to secure financing.”

“‘Foreclosures are coming out of the woodwork, and they’re coming from everywhere. It used to just be Baltimore City, but now Baltimore County, Howard County, Carroll County are all big in foreclosures,’ said Goodnight, who exclusively sells bank-owned properties in Maryland and Delaware.”

“According to Realty Trac, 106 foreclosed properties were for sale in the Owings Mills, Pikesville, Reisterstown and Randallstown ZIP codes last week. ‘It’s becoming almost epidemic,’ said Steve Verstandig, president of Pikesville-based Citywide Properties.”

“Verstandig’s company specializes in buying, rehabbing and reselling properties, typically from owners in financial distress. The company recently erected a billboard on Reisterstown Road in Pikesville offering to help homeowners avoid foreclosure.”

“‘We’ve had a huge response. We don’t even have to advertise anymore. I constantly have people coming to me,’ Verstandig said.”

“But Verstandig said the lean resale market has constrained his business. Properties that typically took 30-45 days to sell now linger on the market for 90 days, and buyers have become more selective. ‘Projects I would have jumped on two or three years ago I am turning away today,’ he said.”

“‘I think the (foreclosure) market is just going to explode over the next year,’ Goodnight said.”

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