The Housing Bubble

The Manteca Bulletin reports from California. “It is a tidy, sharp looking home. The Mossdale neighborhood west of Interstate 5 is clean and desirable. It has more than 2,200 square feet of bright living space and is less than two years old. If you had bought it 15 months ago you would have paid in excess of $600,000.”

“Now that home bought with 100 percent financing is in foreclosure. The lender is willing to take $379,900.”

“The go-go days of new home sales in Mossdale Landing 18 months to two years ago makes it susceptible to the sub-prime loan failures. Realtors said an inordinate number of new homes had unconventional financing often at 100 percent.”

“There were 586 notices of default sent to homeowners in the first three months of 2006 throughout San Joaquin County. That amount jumped by 193.7% in the first quarter of this year to 1,721 such notices.”

“‘People going into foreclosure today aren’t losing their jobs nor did they have income reduced,’ noted Steve Roland of the Real Estate Group. ‘They were simply living beyond their means.’”

“Carol Bragan, another Realtor with extensive knowledge of the Manteca market, doesn’t mince words. ‘It’s scary,’ she said.”

“The top of the market, $500,000 plus, has been hit the hardest. Among the foreclosures in Manteca is a large custom home in the Mt. Vernon neighborhood near Shasta Park that two years ago would have sold for $780,000. It’s available now for $560,000.”

“Bragan noted that Del Webb and new-home builders are going to keep building because they have to recoup their investment in improvements that are put in place at the front-end of projects.”

“And those new home buyers aren’t messing around. One model in Kennsington Place at Louise Avenue and Cottage Way was slashed almost $100,000 to jump-start sales. Builders also are tossing in incentives in upgrades and such that approach $$60,000 in some cases. That is also creating stiff competition for existing home sales.”

“Sales activity in Lathrop has dropped almost 70 percent in the fist four months of this year compared to the same period last year. Sales in Manteca are just a bit better being off about 60 percent.”

“‘It’s a black hole,’ said Realtor Tom Wilson in reference to foreclosures in the Mossdale area of Lathrop. Wilson noted those on the sidelines shouldn’t panic at all about dropping prices.”

“‘You can’t lose what you never had,’ (he said) of equity losses.” ‘It only counts when you go to sell.’”

From CNN Money. “Last summer Daniel Kim was feeling pinched. So when Kim, of San Leandro, Calif. got a call from a mortgage company, he was intrigued.”

“The loan officer, Mia Yi, sold Kim on refinancing, putting him an additional $81,000 in debt on his house. Kim says he was surprised he could borrow more. He had bought the two-bedroom the previous year for $560,000 with no money down.”

“According to an appraiser MONEY hired, Kim’s house is worth only $580,000 and was at the time he refinanced the house.”

“Yi strongly suggested to appraisers what the answer ought to be. In an e-mail she sent to numerous appraisers, Yi said she needed ‘a value of $650,000 or more. Please let me know ASAP with max value.’ Five days later, an appraiser in Discovery Bay, produced the appraisal that led to Kim’s $642,000 mortgage, less than Yi wanted but enough to do a deal.”

“The result: Kim now owes $62,000 more than his house may be worth. Kim put the money from the refinancing into a business and paying off a car loan. He can’t move without foreclosing. ‘It’s not a good feeling,’ he says.”

The Orange County Register. “Purchase contracts for new single-family homes in Orange County increased 12.7 percent in March from the year before, but condo orders fell by 51.3 percent, Hanley Wood Market Intelligence reported today. Overall, pending new home sales fell 22.6 percent in March, according to.”

“The median single-family home price fell to $1.05 million, down 13.3 percent from $1.2 million in March 2006, the firm reported. The median condo price was $410,000, down 6.8 percent from $440,000.”

“The median price for town homes and plexes fell 10.7 percent to $559,990, Hanley Wood reported.”

The Union Tribune. “Four out of five indicators of economic activity in San Diego County declined sharply over the past several months, according to a report.”

“Residential construction in February was 54 percent lower than in February 2006. Between 2004 and 2006, the total valuation of home building in the county plunged by 36 percent.”

“New business licenses dropped 27 percent between February 2006 and February 2007. Overall, the number of new business licenses has fallen to its lowest level since March 2002.”

The North County Times. “San Diego County’s housing market will continue to be flat for at least another year, and it could get worse before it gets better if spiking foreclosures dump a large number of properties on the market, an UCLA economist said Tuesday.”

“‘I think you’ll start seeing light at the end of the tunnel next year,’ said economist Ryan Ratcliff, who specializes in regional forecasts for the closely followed UCLA Anderson Forecast.”

“‘The bad news is that a new source of weakness has started to emerge: Default and foreclosure rates in San Diego are nearing levels not seen since the darkest days of the 1990s,’ Ratcliff wrote in the report.”

“During the first three months of the year, the foreclosure rate reached 10 for every 10,000 households in the county, one that matches the highest level recorded in 1997, at the end of last decade’s extended recession, the report showed.”

“Meanwhile, notices that people were behind on mortgages went out to nearly 40 families for every 10,000 households in the first quarter of this year, compared wtih 50 per 10,000 households at the depths of the recession in early 1996.”

“‘Does ’90s-level foreclosures mean ’90s-style depreciation?’ Ratcliff asked the crowd. ‘So far the answer is no. But it’s too early to tell.’”

“The number of construction jobs fell 9,000 from the June 2006 peak to 86,600 during the first three months of this year, the report stated. The slowdown in construction rippled into the retail sector, which lost 2,600 jobs between the first quarter of 2006 and the first quarter of 2007.”

The Sacramento Bee. “For a while, the pace of growth shot through the roof, but Lincoln, the little city that could, has lost some of its steam, reflecting a downturn in the region’s once-booming housing market.”

“No more bragging rights. ‘I guess not,’ said Rod Campbell, director of community development for the Placer County city. ‘It’s a little bit indicative of the housing market, that’s for sure,’ said Campbell.”

The Contra Costa Times. “East Bay homeowners who bought in the height of the housing market during the past two years and worry their home lost value could get some property tax relief, provided an appraisal can back it up, officials said.”

“Contra Costa County Assessor Gus Kramer said that this year his office has received about 400 requests from homeowners to reappraise their property and estimated that an additional 4,000 residential properties would be reassessed.”

“Property tax rollbacks have been big news since Sacramento County Assessor Kenneth Stieger announced that about 50,000 homeowners would have property taxes cut as much as 10 percent, which could cost about $15 million in revenue to public coffers.”

Some housing bubble news from Wall Street and Washington. “Fannie Mae, which finances one of every five home loans in the United States, reported it…expects to report lower earnings for 2006. The government-sponsored company is remaking itself as it recovers from a multibillion-dollar accounting scandal.”

“Fannie Mae said that it expects 2006 profit to show a decline, mainly due to reductions in interest income and ballooning costs from the restatement process. The company said that going forward, it expects its credit losses ‘will increase and serious (mortgage) delinquencies may trend upward’ as a result of the slumping housing market.”

The Associated Press. “Some on the brink of losing their homes will benefit from the foreclosure delays advocated by Massachusetts Gov. Deval Patrick, but many are so financially troubled that a delay won’t make a difference, the state’s top lenders association said Tuesday.”

“By the time many cases reach the foreclosure stage, it’s often too late, ‘whether we wait 60 days or not,’ said said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association.”

“John Battaglia of The Cambridge Mortgage Group, said he applauded Patrick’s efforts, but said it will be a daunting task for the state to determine which complaints have merit and which are just trying to take advantage of the extra time. The state has no power to force lenders to negotiate new terms.”

The Orange County Register. “It has been two weeks since H&R Block announced the planned sale of its subprime unit Option One Mortgage Corp. Well, the tax preparer already has hit a little snag, though nothing that will derail the deal at this point. The company said in a filing today that its mortgage unit lost a $1.5 billion credit line from Merrill Lynch & Co.”

“Other investment banks reduced or rearranged their financial backing. For example, UBS cut its credit line from 1.5 billion to $750 million.”

The Columbian. “Mortgage loan broker Millennium Funding Group stopped operations this week after laying off most of its Vancouver staff due to continued erosion in the subprime lending market.”

“‘The market in general doesn’t support operations at this time,’ said Joe Bell, VP of human resources for Ace Holding Co. LLC, Millennium’s owner. He said subprime lending represented about 60 percent of Millennium’s business.”

The Star Telegram. “Moody’s Investors Service, a credit-rating agency, reported recently that more than half the large home builders had negative cash flow at the end of calendar 2006. ‘A growing number of builders are at risk of failing to comply with their lender covenants, underscoring ‘a potentially serious problem,’ Moody’s said.”

“Since last summer, Moody’s has taken 15 ratings actions against home builders, all of them negative. More problems are expected.”

“‘Now, as the spring selling season shows signs of being a bust and a stunning surge in mortgage credit problems is roiling the nation’s mortgage market, 2007 looks to be a complete wash out,’ wrote Joseph Snider of Moody’s, ‘while 2008 is probably the earliest that some stabilization will begin to occur.’”

“This cycle is different, because 18 months into the downturn, many companies still have negative cash flow, Moody’s said. And that cuts into their capacity to handle debt payments.”

“Last month, at a conference at the American Bankruptcy Institute in Washington, lawyers warned that some large builders may be headed toward trouble, because they issued so much debt in the boom times.”

“The problem is that it’s taking much longer to sell finished, vacant homes. At DR Horton, that’s largely because cancellation rates are still running double their historical average. CEO Don Tomnitz doesn’t see that changing soon, even though Horton is building fewer homes and cutting sales prices.”

“‘We’re still faced with a liquidity crisis in the mortgage industry, and I think that’s going to get worse over the next two to three quarters,’ Tomnitz said, referring to tighter loan standards.”

From BYM News. “‘Florida markets continue to work through the down side of the real estate cycle and residential inventories remain high in our markets,’ said St. Joe Company CEO Peter S. Rummell.”

“‘We are selling a limited number of resort and primary residential units. High inventories remain an issue and sales activity is slow and sporadic. We knew heading into 2007 that this would be a difficult year in Florida’s residential real estate markets – and it is proving to be just that. We don’t expect to see our markets returning to health until 2008,’ Rummell said.”

“Yesterday, JOE announced that it has agreed to sell its mid-Atlantic homebuilding operations, primarily operating under the name Saussy Burbank. The transaction is expected to generate no gain or loss beyond an impairment loss of $2.2 million recorded in the first quarter 2007.”

From CNN Money. “John Devaney’s not a developer, and he’s certainly not a flipper. The CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners.”

“Option ARMs? Devaney loves ‘em. ‘The consumer has to be an idiot to take on those loans,’ he says. ‘But it has been one of our best-performing investments.’”

“Wall Street’s rocket scientists keep finding more sophisticated ways to repackage and resell mortgages. Now a lot of that lending looks foolish. Mortgage delinquencies among so-called subprime borrowers have risen to 13 percent, the highest in at least 10 years.”

“What comes next? The pullback. Investors will be more selective about where they put their money, and banks will be more cautious in their lending. But the risk is that this will happen so fast that we’ll see a vicious circle develop.”

“With option ARMs, borrowers tend to focus on the introductory rate and minimum payment, and to ignore the higher rate down the road. For the broker, that higher rate could mean the difference between a $3,000 commission and one several times as large.”

“‘Option ARMs are not a license to steal, but once a customer asks for it, I know I’m going to make four times as much,’ says Jim Moore, a Grand Rapids broker. ‘It’s what puts me down here at Best Buy buying a 40-inch flat screen.’”

The Baltimore Examiner reports from Maryland. “You face foreclosure. You quickly move to refinance but qualify only for a double-digit subprime rate. You take it, pay for an appraisal and learn your house is worth $425,000. Then the lender reduces your appraisal by $100,000. That’s the situation Mark Allen, of Gwynn Oak.”

“‘When I finally got a full-time job, I was so far behind I couldn’t catch up. I had to refinance to save my home, but when they dropped my appraisal by $100,000, I was floored,’ said Allen.”

“Allen accepted that his monthly mortgage payments would go up by $1,000 and that he would only receive 70 percent loan to value, but he questions whether dropping his appraisal was legal.”

“Real estate lawyer Stephen Greenwood said he thought lenders are ‘being oversensitive’ to avoid financial problems such as those that affected New Century Financial, which went bankrupt.”

“‘I don’t know if it is actually legal to decide to reduce somebody’s appraisal,’ he said. ‘Then again, the lenders are the ones loaning the money, and they want to make sure their risks aren’t worse than what they already are.’”

The Times Community from Virginia. “Misery loves company. In this case, the company is Loudoun County, which is still sharing in the continued housing slump that has enveloped much of the nation.”

“The number of homes in Loudoun that sold in March 2007 nosedived 20 percent from 12 months earlier, according to the most recent data kept by the Dulles Area Association of Realtors. The average sale price also dropped from $543,515 in March 2006 to $513,066 this year.”

“Nearby, Prince William County saw a more drastic decline in the number of homes that sold in March at 41 percent. ‘You don’t want to know my prediction. I’m not optimistic,’ said Leesburg agent Jay Thomas.”

“Local agent P.J. Riner has a subdued enthusiasm about the market picking up. She tells her selling clients that when they put their home on the market it is no longer theirs. Pricing, staging and holding weekly open houses are all keys, she contends, to selling a home. ‘It can be done.’”

“‘Not just clean, but sparkling, toothbrush clean,’ explained Sterling agent and home stager Nicole Richards, who has seen a recent spike in the number of sellers looking to stage their homes. ‘It has to look good, because there is so much out there. If they can smell it, you can’t sell it.’”

“In Loudoun, 3,254 homes were on the market in March, and those that sold were taking about 130 days to do so, eight weeks longer than last year.”

“Jeanette Newton, CEO of the Dulles Area Association of Realtor’s advice? ‘Sellers, be realistic at what you price at,’ adding that the days of free-wheeling house-flipping two and three years ago are nothing but a distant memory.”

“‘I don’t think that is coming back anytime soon,’ she said. ‘I’m not even sure what that was.’”

The News Sun from Ohio. “The impact of foreclosures seeps far beyond the homeowner and is beginning to take its toll on local real estate and lending markets.”

“Sue Smedley, owner of Real Estate II, said one of the area’s biggest problems is the ‘upside-down’ house, meaning owners owe more than the house is worth. She said this happens with almost one out of two homes her agents are called to list.”

“Andy Irick, senior VP at Security National Bank, said lenders, too, are seeing upside down properties, which cost them money. He has seen homes worth $60,000 with loans for as much as $110,000.”

“Smedley and Irick are concerned that buyers from all economic backgrounds need more consumer education to ensure financing they can live with. ‘Foreclosures can be found in every neighborhood in this community,’ Smedley said. ‘It’s my 39th year in the business and I’ve never seen anything like it.’”

The Enquirer. “As thousands of hopeful sellers already know, prospective home buyers these days are scarce, selective and not easily seduced.”

“New home sales figures depict a deep slump in the Greater Cincinnati and Northern Kentucky real estate market: Sales of existing single-family homes and condos reached a four-year low in the first three months of this year. The number of homes for sale is at an all-time high.”

“Sale prices are down. From 2005 to 2006, average prices dropped in 103 of 184 Southwest Ohio neighborhoods and in 35 of 76 Northern Kentucky neighborhoods.”

“‘When you’ve got an oversupply…buyers don’t feel a sense of urgency in buying a home,’ said Lee Robinson of Robinson Realtors. ‘So they shop a lot. They can afford to be picky, and if a home isn’t perfect in every imagined way in the buyer’s mind, there are a lot of other homes to consider on the market.’”

“Robinson’s clients, Jim and Bette Ramsey of Hyde Park, know all about the slump. They listed their home of 28 years last August and still don’t have a buyer. They dropped the price from $489,900 to $449,900. Any other year, the house, on a cul-de-sac near the Cincinnati Observatory Center, would have sold itself.”

“‘In the past, we even had people coming to the door and asking if we were interested in selling,’ Jim Ramsey said. ‘And there had never been a house on the street that even had the ‘For sale’ sign posted before it was sold.’”

“The supply of homes for buyers to browse is definitely up: As of March 31, the Cincinnati Area Board of Realtors had 15,455 listings, up 39 percent in two years. In Northern Kentucky, listings were up 30 percent during that span, to 3,629.”

“The downturn extends to the west side of Cincinnati as well, said Karen Rachford, an agent in Bridgetown. She’s listing a three-bedroom slab house in Northgate where the price has dropped to $79,000, below the amount of the owners’ loan.”

“‘A year-and-a-half ago that same house would have sold for $99,000,’ she said.”

“Fueling the glut of homes for sale are those repossessed by banks and landing on the market as distress sales. Rachford expects that trend to gain further momentum as holders of two-year adjustable-rate mortgages face their first interest-rate increases.”

“‘The sellers’ payments are going up because rates have climbed some,’ she said. ‘Their income didn’t go up to match what the market has done, and they’re not able to make the payment.’”

“Mark and Kimberly Kohus are among buyers taking their time to find the right house. They say they’ve been ‘frustrated’ by the quality of houses in their price range. Mark Kohus said sellers don’t seem to realize that market forces are working against them.”

“‘They are still asking premium prices, but several of them are not in premium condition,’ he said.”

The Bradenton Herald reports from Florida. “Lenders have filed 573 foreclosure actions in Manatee County Circuit Court through the first four months of 2007, including a record 156 in April alone, according to the Manatee County Clerk of Court’s Office. At that pace, the county’s annual foreclosure-filing record, 901, set in 2002, could fall as early as mid-July.”

“‘We used to get, like, five (foreclosures) a day; Now it’s sometimes as many as 15 a day,’ court clerk Very Reyna said. ‘It’s set monthly records already this year, so a record year, I wouldn’t be surprised if that happens.’”

“The number of Lee County homes in foreclosure as of Monday is nearly 1,900 percent higher than at the same time last year, and the numbers in six other counties, including Sarasota, have more than quadrupled. Statewide, the number of homes in foreclosure rose to more than 49,000 as of Monday.”

“‘It’s bad, it really is, and I think it’s going to get worse,’ said Ryan Snyder, of Snyder Law Group, which specializes in real estate law and works with local banks and at-risk homeowners.”

“‘It was these specialty kinds of loans that did the most harm,’ Snyder said. ‘Even the experienced banks were taking loans that, in hindsight, they know they shouldn’t have. The bottom line is almost everyone is partially guilty. Everybody rode the wave of real estate.’”

“‘I don’t know how people are surviving,’ Snyder said. ‘Some homeowners are finding themselves in properties that are appraised at $100,000 to $200,000 less than what they owe on it.’”

Bloomberg reports from Florida. “The glut of U.S. properties for sale is about to hit the rental market. A record number of homeowners who can’t sell condominiums and houses are competing for tenants.”

“Anthony De Silva said he’s not happy to become a landlord. He bought a two-bedroom condominium on the ocean in Hollywood, Florida, 18 months ago expecting to sell at a $100,000 profit. Instead, he’s looking for tenants at $1,700 a month.”

“‘I don’t want to sell for less than I paid, so my only choice is to rent it,’ said De Silva.”

“‘The market is flooded with condominiums,’ said De Silva, who has yet to find a tenant for his 1,200-square-foot property in Florida. ‘I didn’t want to be a landlord, but I had to bite the bullet so I can afford to wait for a real estate recovery.’”

“‘I’m hoping the good times for real estate will be back in next year’s spring market,’ he said.”

The Record. “In an extensive interview last week with The Record, Hovanian CEO Ara Hovnanian talked about his company, the housing market and the home-building industry. Q. You talked about Fort Myers, Florida, and I know that really slammed your most recent earnings report. Is that market still the worst one for you?”

“A: ‘That’s a very tough marketplace. It just got very overheated with investors, who helped drive prices artificially high, and now they have taken their prior purchases and listed them to sell. They’ve cut back demand and increased supply. So prices have dropped dramatically in that marketplace.’”

The Fayetteville Observer from North Carolina. “Shirlyn Kimble wants out. It wasn’t long ago that her neighborhood in west Fayetteville thrived with homeowners.”

“Kimble did everything right: She paid her mortgage, she kept up her home. Yet she’s paying the price for Cumberland County’s thousands of foreclosures.”

“A Fayetteville Observer investigation found dozens of middle-class neighborhoods where high concentrations of foreclosures have diluted property values, driven off homeowners and, according to residents, invited crime.”

“In three dozen neighborhoods, at least one in 10 homes fell into foreclosure over the five years, the analysis found.”

“Trouble started when the original buyers moved away but hung onto their homes to rent them out, Kimble said. Subsequent tenants damaged the homes or skipped out on rent, she said. At least five houses on her street have sold at foreclosure auctions, the Observer analysis shows.”

“‘I know one house on this street, (the owner) just left,’ she said. ‘It wasn’t they couldn’t afford it. They just moved and let it go into foreclosure.’”

The Sun News from South Carolina. “Homes are staying on the market longer and real estate sales are falling more on the Grand Strand than in any other area of the state. The entire coast, however, is seeing falling sales - and Myrtle Beach is in the lead.”

“Home and condo sales tumbled 31 percent on the Strand, followed by a 20 percent drop in Beaufort, a 16 percent drop in Hilton Head and a 16 percent drop in Charleston, according to the S.C. Association of Realtors.”

“‘This is the year that we catch our breath,’ said Nick Kremydas, CEO for the state Realtors. ‘By the end of the year, we’ll be close to the 2006 level [of sales]. 2008 will be a better year.’”

“Local agent Martina Haire said she’d recently been dropped by Allstate for a single-family home policy she’s had for at least 12 years. So far, the only quote she’s received for new insurance was $400 higher from State Farm.”

“And she’s seeing the problems with her clients too. Some are considering selling and moving inland. Others are taking second jobs to cover the cost, she said.”

“While insurance is contributing to the coastal real estate market drop, the meltdown in the subprime lending industry is also a factor.”

“‘It’s starting to affect, particularly, first-time home buyers. In some ways the shake-out of the industry is a good thing, but in other ways it’s making it harder for families to have access to other lending products,’ Kremydas said.”

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