The Housing Bubble

The Voice of San Diego reports from California. “New downtown condos were gold in 2004. Buyers rushed to deposit thousands of dollars to secure their spot. And so the company building apartments on Little Italy’s West Beech Street decided, eight floors in, it’d be better as condos.”

“The project, called Acqua Vista, was sold to K. Hovnanian Homes, which would finish construction on the two towers and change the project to condos. It was the first downtown project to be converted for sale before the apartments could even be rented.”

“But now, 14 of the building’s 383 units are in foreclosure, according to RealtyTrac. Thirty-eight units are on the market, some listed at a loss.”

“‘It’s the black hole of condominium values,’ said Anthony Napoli, a Little Italy Realtor, of the building.”

“The way in which downtown proceeds in the coming months could serve as a bellwether for overstocked markets nationwide. That’s why the 14 foreclosures in one complex stand out so starkly. The number of units for sale in Acqua Vista is more than double that of the building with the next largest pool of units for sale, said Lew Breeze, a downtown Realtor.”

“The addition of nearly 6,000 condos and apartments-turned-condos between 2001 and 2006 upped downtown’s residential quotient by almost half. But as these distressed owners, and the lenders who enabled them to buy, try to recoup as much of their debt as possible, the owners of the surrounding units could see their own values drop.”

“At least half of the owners currently in foreclosure eschewed down payments and used mortgages to cover the whole purchase price. For many in the project who financed 100 percent, it is proving difficult or impossible to refinance or sell without losing money.”

“‘The people that bought (in Acqua Vista) came late to the party,’ Napoli said. ‘They thought, like everybody, that things were going up. They thought they would make a killing.’”

“One distressed unit, is a 1,249 square foot penthouse. The owner, Carlos Espinosa, is a real estate agent himself and purchased the unit for $983,000 directly from the builder in June 2005, covering the entire cost with mortgages. He also owns another unit in the building, which he has listed on the MLS for $1.6 million.”

“The unit in foreclosure, has been listed on the MLS for 250 days with an asking price of $999,000 to $1.15 million.”

“As buyers have started thinking twice before making a deal, Acqua Vista has a few too many deal-breakers for units to sell at the same prices they garnered two years ago, Napoli said. ‘When a market turns, quality can still get you some value,’ he said. ‘But poor quality will plummet.’”

“Among the 14 distressed units, two have received notices of default, the first stage of foreclosure. Eleven of the units have been repossessed. One unit, No. 206, was scheduled for auction April 4. The owner of No. 421, which is scheduled for auction at 10:00 a.m. on Thursday, financed 100 percent of the $515,000 purchase price with New Century Financial Corporation when she bought her condo in January 2006.”

“Not much can distinguish one one-bedroom unit from another in a condo tower, so owners are often at the mercy of what price their neighbors’ units sold, or auctioned, for. That could worsen the foreclosure trend in Acqua Vista and in similar projects in the region.”

The LA Times. “There were 5,977 foreclosed homes on the auction block in Southern California in the first three months of the year, up from 711 in the same period last year, according to DataQuick.”

“There were six homes on the block this day. They were bought in 2005 and 2006, at the crest of the housing boom, by buyers who financed the entire purchase. That means the homes are probably worth the same, or less, than the amount the buyers owe. No one bid.”

“At 10:30 a.m., Travis Toth, an auctioneer hired by other trustees, stepped up to market a foreclosed condominium near La Cienega and West Jefferson boulevards in Los Angeles. The opening bid was $259,592, which was the sum owed on the mortgage plus about $20,000 in processing fees.”

“Right away, two men and a woman produced cashier’s checks to identify themselves as serious bidders. With cellphones at their ears and hands cupped over their mouths, the bidders bumped up the price in $1,000 and $100 increments.”

“After 10 minutes of back-and-forth, the auctioneer calmly declared, ‘Sold.’ The winner politely declined to give his name to a reporter except to say that he had been doing this for 11 years.”

“Whatever his identity, he appeared to have scored a bargain. The final sale price was $267,500, more than $100,000 below its estimated value.”

The Wall Street Journal. “Lenders, stung by a surge in defaults, have rediscovered the virtues of caution over the past few months, eliminating many of their no-money-down loan offerings. That tightening is ‘really starting to bite,’ says Ed Mixon, a real-estate agent in Monarch Beach, Calif.”

“Mr. Mixon recently had to advise one of his clients, a young woman with a good job and credit record, to put off her dream of buying a $300,000 condo in Laguna Niguel, Calif., until she could come up with more than her current nest egg of $5,000 for a down payment.”

“A year ago, he says, she could easily have obtained a loan to cover 100% of the condo’s price.”

The California Aggie. “Home prices in Davis, which saw a steady decline during the past year, have leveled off and are anticipated to increase, local real estate experts said.”

“‘They seem to have leveled off over the first three months, but we’re seeing inventory starting to rise a little bit,’ said local realtor Joseph Whitcombe.”

“‘Many potential buyers are waiting for a better deal or more choice later on,’ said Andrew LaPage, analyst for DataQuick. ‘Before, people thought it was better to buy now or get bought out later on.’”

“The same scenario is also impacting other areas around Davis that are seeing an influx of new housing tracts. In nearby Woodland, home sales dropped by 48 percent from a year ago, and prices fell by as much as 14 percent.”

The Times Herald. “The local real estate roller coaster’s descent may be slowing, so now may be a good time for buyers to hop on, some local experts say. Home sales in the Vallejo area and statewide are still falling, but at a much slower rate.”

“The median price of homes sold in Vallejo and Benicia fell slightly from a year ago, said Jeff Dennis, Solano Association of Realtors president. But quarterly numbers are almost meaningless, he said.”

“In Vallejo, sales dropped about 33 percent in 2006 over 2005, but only 30 percent so far this year, Dennis said.”

“‘We are still experiencing high inventory, especially in Vallejo, and longer times on the market, so I expect more price reductions to reduce the more than 1,000 homes for sale here,’ Dennis said.”

“‘None of this is the end of the world. The predictions of the whole market going in the tank have been proven wrong. Our area is being hit, but it’s only as significant as you want to paint it,’ Dennis said.”

“Benicia mortgage broker Mitchell Chernock of Sky Valley Financial, Inc. says he sees a less rosy local real estate outlook.”

“‘Every day we talk to people who are under water in their mortgage,’ Chernock said. ‘How can you expect home prices to rise with a record number of homeowners going into foreclosure? With rising interest rates and adjustable mortgages skyrocketing, people will need to get out of their homes, and they won’t be able to sell them.’”

Some housing bubble news from Wall Street and Washington. “National City Corp., the Ohio bank that sold its subprime mortgage unit to Merrill Lynch & Co. last year, said profit fell 31 percent as it set aside more money to cover bad loans. National City put $107 million into a reserve to cover bad loans, quadruple the amount from a year earlier, citing a ‘difficult environment’ in the mortgage market.”

“Delinquencies reached a four-year high last year, cooling demand from investors who buy loans and package them into securities. National City said last month it would hold on to more of its mortgages rather than selling them at depressed prices.”

From Reuters. “Net charge-offs rose 21 percent to $147 million, including $53 million for nonconforming mortgages. These include ‘Alt-A,’ short for ‘Alternative-A,’ which are between prime and subprime in quality.”

“‘The secondary market in mortgages has stabilized, but gain on sale, particularly in the Alt-A slice, has been under pressure,’ National City President Peter Raskind said.”

From Bloomberg. “Washington Mutual Inc., the biggest U.S. savings and loan, will cut back on terms that make subprime home loans more likely to default and step up ‘Alt-A’ lending to restore profit at its mortgage unit by year’s end.”

“The company, which lost $113 million on home mortgages in the first quarter, is making fewer loans that don’t document a borrower’s income and cutting second mortgages, executives told investors Friday.”

The Associated Press. “American Home Mortgage Investment Corp. said Monday first-quarter profit shrank 44 percent because of mounting payment defaults and sagging home prices.”

“CEO Michael Strauss said in a statement a ’severe disruption’ in that market forced prices for mortgages down. Mortgage lenders across the country are reporting that investors in the first quarter lost their appetite for mortgage debt as home prices slumped and borrowers defaulted on loans more frequently.”

“AHM said it set aside $60.5 million in anticipation of missed payments on loans. Most of the reserve was for a type of loan in which the lender doesn’t verify the borrower’s income and the home doesn’t provide enough collateral for the debt. AHM said its charges for loan delinquencies should diminish in the future because the company stopped issuing this type of loan.”

“Credit Suisse is being sued by a Florida insurer that says it lost money on investment-grade bonds backed by subprime mortgages sold by the bank.”

“The suit, filed last week by Bankers Life Insurance, is ‘one of three to five in the pipeline’ involving securitizations by Credit Suisse, said Dale Ledbetter of one of two law firms representing Bankers Life.”

“‘We suspect that once people understand what occurred here, there’s going to be a lot more,’ Ledbetter said. A total of $302.6 million of bonds were originally issued in the deal.”

“Bankers Life claimed that divisions of Credit Suisse caused it to lose money by overstating how much of a loss after foreclosures that the insurance on the loans would cover. It also says that the bank accepted ’shoddy, inferior’ loans, failed to buy back fraudulent ones, and covered up delinquencies of homeowners, according to the complaint.”

“Payments were being advanced on borrowers’ behalf to ‘maintain the illusion’ that defaults were not occurring, the suit says.

“Moody’s Investors Service, citing more subprime mortgage loan losses than forecast, has downgraded the ratings on 27 different pools of securities created over the past two years by Lehman Brothers Holdings.”

“Bonds created through Lehman’s Structured Asset Investment Loan Trust from 2005 and 2006 were cut because of ‘higher-than-anticipated rates of delinquency,’ Moody’s said Friday.”

“‘The servicers have started to sell the properties and therefore losses have started to come in,’ said Nicolas Weill, Moody’s chief credit officer for its Structured Finance Group in New York.”

From The Record. “We’ve come a long way since the giddy heights of 2005, when the real estate market peaked. Hovnanian Enterprises Inc., the nation’s sixth-largest home builder, has lost a total of more than $174 million for the past two quarters, its first losses in at least nine years.”

“In an extensive interview last week with The Record, Ara Hovnanian, the company’s CEO, talked about his company, the housing market and the home-building industry, where they are, and where they’re headed.”

“Q. How’s the outlook for housing for the rest of 2007? A. ‘My response is different today than it would have been a couple of months ago. Had you asked in January or February, I would have said it really looks like the market is stabilizing. Then this whole issue regarding the subprime mortgage industry came out, and that caused sales to dip.’”

“‘Now my prognosis is not as optimistic as it was. Obviously, the industry is still selling a lot of houses, but the recovery and spring bounce-back we had been hoping for seems to be stalled.’”

From MarketWatch. “A sharp drop in investment-home sales offset a record number of vacation-home purchases to bring down the overall share of second-home purchases in 2006, the National Association of Realtors reported Monday.”

“‘We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market,’ David Lereah, the association’s chief economist, said in a news release.”

“The median price of a vacation home was $200,000 in 2006, down 2.0% from $204,100 in 2005. Investment-home prices were also down, with the typical home costing $150,000 last year, down 18.3% from $183,500 in 2005.”

“‘The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling,’ Lereah said. ‘It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts.’”

“David Lereah, chief economist of the National Association of Realtors, is leaving NAR to join a new business entity next month, NAR said Monday.”

“Lereah has directed NAR’s research division, regulatory and industry relations division and other activities. He will leave the association in mid-May, NAR said.”

Chicago Business reports from Illinois. “Dashing hopes that the housing slump would soon bottom out, new-home sales in the Chicago area fell even faster in the first quarter as the market meltdown spread from the suburbs to the city. Residential developers in the Chicago area sold 5,341 homes in the quarter, down 35% from a year earlier and the weakest showing in more than 11 years, according to a report.”

“‘Everybody was waiting for spring,’ when buyers re-emerge, but ‘it just didn’t come,’” says Tracy Cross, president of a Schaumburg-based real estate consulting firm. ‘This is definitely the steepest downturn we’ve seen’ since the early 1980s.”

“Recovery now appears further away, particularly in the city, where developers continue to build despite the precipitous drop in sales.”

“‘We’ve seen continued softening in April,’ says Dan Star, Illinois division president for Dallas-based Centex Corp.. ‘Traffic is down. Contracts are down. I think this will go on for another six months or year or longer.’”

“The supply of unsold condominiums in downtown high-rises under construction is growing even as demand is declining. Speculators have all but disappeared from the market. And developers are likely to face stiff competition from the resale market, as thousands of owners of recently built condos put their units back up for sale, Mr. Cross says.”

“‘You should see continued erosion in the city,’ he says.”

The Beacon News from Illinois. “The vast flow of people moving west into Kendall and Kane counties have insulated the area, although there’s no denying things have slowed even here, said Dee Rechenmacher, a Realtor with Pilmer Real Estate and president of the Aurora Tri-County Association of Realtors.”

“‘This time last year, I had many multiple-offer situations,’ Rechenmacher said. That hasn’t happened yet this year, even though the traditional home-buying season is well under way.”

“That doesn’t mean houses are doomed to languish on the market for months, she said, but ’sellers have to get realistic with their pricing.’”

“Buyers now have the upper hand in the market, agreed real-estate expert Chip Wagner of the Headrick-Wagner Appraisal Group in Naperville. ‘The investors pretty much left the market once the interest rates started creeping up,’ Wagner said. And the entire Fox Valley area is now over-supplied with homes.”

“Perhaps buoyed by the area’s status as the second-fastest-growing county in America, developers nearly doubled their building permit requests last year in Yorkville.”

“The city now has more than a 12-month supply of houses on the market. Realtors said that level of supply makes for intense competition on prices, between new and existing homes, with the latter often being forced to sell for little more than owners originally paid.”

The Rockford Register Star from Illinois. “Clarice bought a home on Rockford’s near west side in 2005 with her then-fiance, Anthony. When it came time to sign for the home, they were looking at a mortgage of 11.85 percent, more than double what then was the national average of 5.65 percent for a 30-year mortgage.”

“‘I didn’t want to take the keys. I was crying. I didn’t want the house, not at that price,’ Clarice said. The Register Star agreed not to use the couple’s last name. ‘But we prayed and my husband said, ‘God wants us to have this house.’”

“The couple couldn’t make even their first payment. Within six months, the financial institution that had bought their loan started foreclosure proceedings.”

“Foreclosures increased 38 percent between 2005 and 2006 in Boone Winnebago and Ogle counties, from 661 to 912, according to county records.”

“Put another way: 7,190 homes and condominiums sold in the Rock River Valley in 2006, meaning it’s possible nearly 13 percent sold because the owner no longer could afford the home. A look at the foreclosures filed in Winnebago County by ZIP code since the start of 2006 showed no areas are immune.”

“Marve Stockert, executive director of the Illinois Association of Mortgage Brokers, which has about 1,000 member institutions, said there is no doubt 2007 is going to be a tough year. ‘In the next 12 to 15 months, people are all of a sudden going to see their payments go up 15 percent,’ Stockert said. ‘People are going to be stretched way beyond their limits.’”

“Todd Kudlacik of Byron, who, according to a Register Star database of real estate transactions, has bought 81 homes and sold 74 homes on Rockford’s west side since the beginning of 2005 through his Rockford-based company, said the market on the west side of Rockford is going to be flooded with homes for sale, cheap.”

“‘The foreclosures have already happened,’ Kudlacik said. ‘What’s going on now is banks are building a portfolio of houses and they are going to turn them loose all at once.’”

“Kudlacik said this is actually the worst time to get into home restoration. ‘There aren’t many buyers out there when you are finished,’ he said. ‘I bought a group of seven foreclosure houses last week and I walked through and saw that three had been rehabbed. The owners bought them, poured a bunch of money into them, got over their heads and lost them.’”

The Pioneer Press from Minnesota. “The West Side Flats condo project (is) going back to the drawing board. Developers have halted the project and are returning down payments, all seven of them.”

“It’s no secret that the condo market is soft, and real estate experts say it is especially difficult to sell buyers on a speculative idea such as the West Side Flats when so many completed condos are flooding the market.”

“‘I think the biggest problem is the condo market is oversold,’ said Ralph Peterson of Coldwell Banker Burnet. ‘They way overbuilt, way too fast.’”

“Peterson added that another barrier to sales is price. Lower-priced condos still sell, while the West Side Flats condos were priced from $250,000 to more than $1 million.”

“The news should not be taken as a sign that the Mississippi River falls short as a selling point for development and St. Paul in general, said Patrick Seeb, executive director of the St. Paul Riverfront Corp. ‘We’re in the middle of a pretty profound slowdown in the housing market,’ he said.”

The Journal News reports from New York. “In Westchester, the median price for houses was $635,000, down 2.3 percent from a year earlier and the second quarter in a row of year-over-year declines. Real estate agents said buyer resistance to high prices in the county had helped drive them down; last quarter’s median was well below Westchester’s record of $716,126 set in the third quarter of last year.”

“‘Most of the new stuff is coming on with reasonable prices,’ said J.P. Endres, president of David Endres Real Estate in New Rochelle.”

“Westchester and Putnam are seeing growing inventories of property for sale, but as a smaller market, Putnam may be feeling the effect to a greater degree. The number of single family houses for sale at the end of last quarter, 942, was up 48 percent over three years earlier.”

“The number of months of inventory in Putnam, a measure of the amount of time it would take to sell all the houses for sale in the county, reached 20 in the first quarter. It’s the biggest first-quarter number since 1998, when it stood at 22.”

“Michael Barile, a retired builder, said he sees a disturbing trend in the growing number of foreclosures in the county. About 90 percent of the properties are being taken over by the bank at foreclosure sales, and at some point they’re going to wind up back on the market, he said.”

“‘When I built in the 1970s and 1980s, you never saw inventory over 500,’ he said. His daughter has been trying to sell a one-bedroom house in Carmel for $209,900. It’s been on the market two months, even though she cut the price by $10,000, he said.”

“Buyers are finding that getting financing is not as easy as it was a year ago. ‘To get approval is not very easy now,’ said Sonia Velasco, broker in Yonkers. ‘They have so many foreclosures coming up that they’re really making sure the buyers are really qualified and are able to keep the house.’”

The Gotham Gazette. “A crush of foreclosures in Queens, Brooklyn and the Bronx is raising alarms and leading many to call on city and state authorities to do more to go after the unscrupulous people at mortgage brokerage firms, at banks and on Wall Street who, they say, are fueling the problem.”

“Through March, more than 1,200 foreclosures had been filed this year in Queens on one- to four-family properties, a 57 percent increase over the same period last year. About 3,600 were filed in all of 2006 in the borough, according to the Neighborhood Economic Development Advocacy Project.”

“In Brooklyn, over 1,100 foreclosures had been filed from January to March compared to about 3,300 for all of last year.”

“The rates of subprime lending here are higher than the national averages. About 23 percent of home purchase loans are subprime, up from just 6.5 percent in 2002. Nationally, the proportion of home purchase loans that are subprime is 17 percent.”

“Queens attorney Oda Friedheim sees the city’s numbers as ominous. ‘The subprime market is going bust and so we will see more foreclosures,’ she said.”

“Kevin Squires, a loan officer at a Queens mortgage company, said the first scenario is common as homeowners are bombarded daily with offers to refinance their homes. The advertisements blare across virtually every medium.”

From Newsday. “Thomas and Joy Geist have lived in the same house in East Meadow for more than 50 years. Currently, however, the Geists’ house is a source of family worry. The couple, who paid off their original mortgage 30 years ago, are struggling to make monthly payments on a new $280,000, 30-year mortgage that their lawyer is contending should never have been made to them.”

“‘How can you give a 30-year loan on a paid-off house to an 82-year-old person?’ the plaintiffs’ Manhattan-based lawyer, Jacob Zamansky, said in a recent interview. The suit accuses members of the mortgage industry, including a Glen Head bank and two Long Island-based mortgage brokers, of ignoring numerous ‘red flags’ signaling that the loans shouldn’t be made.”

“With home foreclosures rising nationally, lawmakers are considering legislation that would impose suitability requirements on the mortgage industry.”

“The effort is hotly opposed by the industry. ‘It’s a bad idea, because rather than protect borrowers, it would prevent borrowers from getting access to credit,’ said Kurt Pfotenhauer, a senior VP for the Mortgage Bankers Association.”

The Times Union. “Home foreclosure filings in the Capital Region surged in the year’s first three months, according to newly released statistics. The five-county region’s first-quarter foreclosure filings climbed 93 percent when compared with the same period last year, according to RealtyTrac.”

“Foreclosures in Albany County jumped 109 percent, while filings in Rensselaer County spiked a staggering 218 percent. Rensselaer County, in fact, had more foreclosures filings in 2007’s first three months (54) than it had all of last year (51).”

“‘We’re getting more and more calls from people in a panic,’ said Bobbi Carter, director at a nonprofit that works to keep defaulting mortgage holders in their homes. TRIP had 33 mortgage-default clients for all of 2006, Carter said, and has already had that many for the first three months of this year.”

“Those working with local homeowners facing foreclosure say they are seeing a large number of middle- or higher-income families in trouble. Guy Criscione, an Albany bankruptcy attorney who said he’s seen an ‘unbelievable’ number of foreclosure clients in recent months, said many are couples with combined incomes of over $100,000 who still can’t make mortgage payments.”

“Sandra Demars, an attorney in Albany, said some of the office’s foreclosure clients are unable to cover rising tax payments, while others, facing spiking housing costs, borrowed at levels they can’t afford.”

“The RealtyTrac information, Demars said, ‘is reflective of what we’re seeing and what we were afraid was going to happen.’”

“Observers found the sharp increase in the Capital Region troubling, and worried it might be a warning of worse numbers to come.”

“‘We are so not at the apex of this problem,’ said Kirsten Keefe, a lawyer with the nonprofit Empire Justice Center in Albany.”

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