The Housing Bubble

The LA Times reports from California. “Escondido homeowner Rogelio Alvarez paid $485,000 in February 2006 for a three-bedroom home, moved in with his wife and their two children, now ages 2 and 8, and began making the $3,700 monthly mortgage payments, which include property taxes and two loans, one at 11% and one at 8%. Then business slowed. Alvarez said he has tried to find extra work but can’t make enough money to meet payments.”

“‘Every day, when I open my eyes, I am thinking about my house,’ he said. ‘We never thought this could happen. This was our dream.’”

“But that dream has become a nightmare, and Alvarez now hopes to sell the home for $425,000, before the lender forecloses in June.”

“He’s not alone. An unprecedented number of buyers purchased new homes or refinanced existing mortgages in 2004 and 2005. Now a season of slower sales, flat appreciation and teaser-rate mortgage adjustments has borrowers struggling to pay their bills, and defaults and foreclosures are on the rise.”

“From January to March 2007, lenders in the seven-county Southern California region filed 46,760 default notices, up 23% from the previous quarter and 148% over the first quarter of 2006, reported DataQuick. About 40% of owners who defaulted last year reportedly lost their homes to foreclosure in the first quarter, up from 9% a year ago.”

The Antelope Valley Press. “California Economic Forecast Director Mark Schniepp reported that in April for the Antelope Valley, lenders had filed Notices of Default on 1,513 homes behind in payments. An additional 364 homes were in the foreclosure process, Schniepp said.”

“According to RealtyTrac, 1,000 properties in Palmdale are in ‘preforeclosure’ situations where the owners are behind in payments, but the lender has not yet filed a Notice of Default.”

“Another 151 Palmdale properties are scheduled to be auctioned within 21 days on courthouse steps somewhere in Los Angeles County, although last-minute negotiations will bring many of those back from the brink. Banks own another 561 properties in Palmdale, according to the RealtyTrac.”

“In Lancaster, RealtyTrac lists 1,046 properties in preforeclosure, 186 at auction and 620 bank-owned.”

“‘In the Los Angeles County portion of the Antelope Valley, subprime borrowers represented 38% of the home loans in 2006, down from 47% in 2005. In the Kern County portion of the Antelope Valley, subprime borrowers were less common at only 27% of home loans, down from 36% in 2005,’ Schniepp said.”

“‘In April 2007 in the Antelope Valley, there were nearly 120 homes in default per 10,000 households, 10% higher than second place Riverside County. The rate of default in the Antelope Valley was nearly four times greater than the default rate in all of Los Angeles County,’ he said.”

“Dean Henderson, owner of Mammoth Mortgage in Lancaster, said a subprime rate of 6¾% for two to three years ‘can go to 10%, putting the payment up $300, $400, $600. That will wipe somebody out. And it can adjust every six months. They keep floating with the Libor index or whatever it is tied to. When those things reset they get hammered.’”

“If the borrowers are surprised when they get hammered thus, perhaps they were not paying attention when they signed the loan documents.”

“‘It’s always explained to them,’ Henderson said. ‘Everybody who’s bought houses, they think it doesn’t matter. ‘The market has gone up $100,000 a year, so what could go wrong?’”

“Some people, he said, would take out equity every six months. ‘They never expected to keep the loan more than two or three years. I’ll try to talk them out of it.’”

“He said that he has bailed out clients, advising them to ‘make your house payment and be happy. Then they would run up their cards again. I would talk them out of refinancing again.’ Then, he said, a telemarketer would talk them into refinancing.”

“Realtor Donna Oehler, a foreclosure specialist in Lancaster, said that during the real estate run-up, ‘Some lenders were careless about no-doc stated income, stated assets loans. We call them liar loans.’”

“‘It was a big surprise to us when we (Realtors) saw what types of loans the lenders gave, loans to first-time buyers for $300,000-400,000 houses. We kind of saw this coming. The banks and lenders didn’t see this coming. They kept giving out loans,’ Oehler said.”

The Orange County Register. “Subprime mortgages also are reshaping entire neighborhoods. In subdivisions from Rialto to Sacramento, half or more of all home-purchase mortgages in 2005 were subprime.”

“The Orange County Register analyzed all 920,000 home purchase mortgages made in California in 2005, the last year for which complete data is available.”

“The subprime market share varied widely among counties, from 8 percent in San Francisco to 40 percent in San Bernardino. In Orange County, 21 percent of home-purchase loan volume was subprime.”

“Subprime commanded most of the market in relatively poor cities such as Compton, Lynwood and Rialto.”

“Subprime dominated the bottom of the market, accounting for 61 percent of all home-purchase loans under $100,000 and 51 percent of loans under $200,000.”

The North County Times. “When mortgage brokers sign up borrowers, they have a big financial incentive to promote risky loans, according to a variety of industry experts.”

“A San Diego attorney specializing in representing borrowers who say they have been the victims of financial abuse by mortgage brokers said Friday that two years ago, he was getting one or two calls a month from people seeking his advice.”

“‘Now, I get maybe three calls a day,’ said attorney John Cleary. ‘There has been a massive increase in that kind of business.’”

“In the first quarter of this year, more than 1,800 North County homeowners defaulted on their loans in the cities of Escondido, San Marcos, Vista, Oceanside, Carlsbad, Poway and Encinitas. Countywide, the 6,310 foreclosure notices issued in the first quarter of this year represented a nearly 50 percent increase from the 4,541 notices in all of 2005, according to RealtyTrac.”

“The county’s foreclosure rate in the first quarter of this year, 10 for every 10,000 households, matches the highest level recorded in 1997, at the end of last decade’s extended recession, according to the UCLA Anderson Forecast.”

“‘Certainly, there is no denying that you have some who are putting people into the wrong loan product, making outrageous commissions,’ said John Yeager, a Valley Center mortgage broker with more than 20 years in the business, adding that in early 2005, lenders got really aggressive in offering complex and costly loans.”

The Tribune. “The San Luis Obispo Tribune picked the brains of six Realtors from around the county: Who’s buying? Are sellers getting real on prices? Have we hit bottom? And, most importantly…Which direction is real estate headed?”

“How have sellers been pricing their homes? Are they becoming more realistic about pricing to lure buyers?”

“Becky Adams: ‘Some have trouble reconciling the loss of unrealized gain over the last few years, even some of us Realtors. One of the few things a seller has control over is the price of their home, they can reduce if there are not enough showings.’”

“Beverly James: ‘Buyers determine what a home is worth, not sellers, nor agents for that matter. It is my experience that a home priced realistically from the beginning will not only sell faster, but sell for probably more than it will if it is priced higher.’”

“Q: It’s been said that the Central Coast is like an island unto itself, a unique place with a different kind of economy. Do you agree?”

“James: SLO is a very conservative area and not subject to sudden change, in just about any way. People do not move in or out of here frequently, nor do they move even within the area frequently…Even our weather does not reach extremes.’”

“Lenny Jones: ‘I do not agree. I specifically remember the last down market (1990-96 —a 25 percent decline in value), the banks, the lenders, the Realtors, the builders and developers knew we were in a downward market, and we all said, ‘The down market, the recession will not affect SLO County, we are special and different.’”

“‘When it was all done and said, property values lost 25 percent. We like to think it won’t happen to us, but we are part of the California and national economy.’”

The Associated Press reports on Texas. “Maxine Bryant received an ad in her mailbox last year for undeveloped land in West Texas and bought, sight unseen, 20 acres of sorry-looking desert in the middle of nowhere. She said she was led to believe that this was a place where ;things are happening.’ But if things are happening around Dell City, it’s news to locals.”

“And clearly, some of the buyers didn’t look very closely at a map before signing on the dotted line. ‘It’s desert? What we bought is desert?’ said new landowner Robert Brown of Hollywood, Fla. ‘It’s not wetland?’”

The Star Telegram. “Eight years ago, Christina Dreyfus moved to West Texas to escape the big city. Now she’s going back, not because she’s tired of the wide-open spaces and mountain vistas but because she can no longer afford it. The soaring real estate prices in far West Texas, and a limited job market, are forcing Dreyfus to look for work elsewhere.”

“The trend started over a decade ago in Marfa. Now it’s spreading to Alpine and Fort Davis, where prices, while not as outrageous as Marfa, have doubled in the last decade.”

“‘I’m still having houses appraised for $40,000 selling for $300,000,’ Presidio County chief appraiser Irma Salgado said of the Marfa real estate market. ‘I got another house valued at $27,000 that sold for $230,000. It’s a two-bedroom, one-bath, 600-square-feet home. So nothing has changed. The prices are still going up like crazy.’”

“Dreyfus’ Alpine home, which was worth $55,000 six years ago, was recently appraised for $115,000. That doesn’t sound too expensive, but most residents here earn low salaries, she said.”

“‘There aren’t many jobs that pay more than $10 an hour, some pay a lot less, so it’s getting harder all of the time to live here,’ Dreyfus said.”

“Long-distance commutes are already happening. Home builders say much of their labor pool makes the 85-mile commute from Presidio to Alpine or Fort Davis.”

“It also caused the price of mobile homes to soar around Fort Davis. ‘You’ve got a mobile home, 12 to 15 years old, with a 900-square-foot machine shop sitting on 5 acres and it goes for $185,000,’ said Jeff Davis County chief appraiser Zedoch Pridgeon.”

The Express News. “San Antonio’s formerly high-flying new housing market has returned to earth. First-quarter housing starts dropped 25.5 percent, in stark contrast to the first quarter of 2006 when builders worked at an exuberant pace.”

“Now the realities of last year’s real estate frenzy are casting a shadow over the market, as builders sell off the excess inventory that started stacking up late last summer and in the fall, according to Metrostudy, a housing research firm.”

“‘We need to sell some homes,’ said Jack Inselmann, vice president of Metrostudy’s U.S. Central Division.”

“There were 3,093 completed new homes on the market at the end of March, 60 percent more new homes than were on the market at the same time last year.”

“‘It’s a little early to touch the panic button,’ said Michael Moore, the first vice president of the Greater San Antonio Builders Association.”

“Builders are feeling the crunch for now. Many have laid off employees and are offering deals and incentives not available to home buyers last summer. There’s also more competition in the market, as new builders continue to arrive in San Antonio.”

“Bob Gardner of Gardner Financial Services said the sudden absence of subprime loans has taken many San Antonio residents out of the market. ‘It’s not that there’s not jobs and demand for housing, it’s just that we can’t qualify as many people,’ he said. ‘We won’t see the full brunt of it for a while. Once the attitude changes about who qualifies for a loan, that doesn’t change for a few years.’”

The Houston Chronicle. “The speedy pace of home building is starting to sputter. Houston-area home starts fell 14.5 percent in the first quarter, as builders reined in construction amid a national housing slowdown and problems in the subprime lending industry, according to Houston-based Metrostudy.”

“It was the second consecutive year-over-year quarterly decline for local home starts for the first time in more than a decade.”

“The dip, Metrostudy president Mike Inselmann said, was due in part to the unusually high level of construction reported during the first quarter of 2006 when 12,532 homes were built, a 22.4 percent jump over the previous year.”

“Inselmann expects builders to be more conservative this year, building between 40,000 and 45,000 homes. ‘The financing hype pushed us over the top in 2005 and 2006,’ he said. ‘The idea of getting back to 2004 levels is not a bad scenario.’”

“Area homeowners are increasingly having trouble making their mortgage payments, signaling foreclosures will likely continue to mount.”

“In the Houston area, 4.38 percent of loans were 30 or more days late during the first quarter of 2007, compared with 2.04 percent during the same period last year, according to Moody’s. Foreclosures shot up to 11,983 in 2006 from 8,300 in 2004, in Harris, Montgomery and Fort Bend counties.”

“‘We know the foreclosure rates have been rising for the last three years, so that’s not a surprise,’ said Barton Smith, a University of Houston professor of economics. ‘We don’t see the end of this mess until at least the end of this year or maybe next year.’”

“‘There’s almost a direct correlation between price appreciation and subsequent depreciation and delinquency rates,’ said Ben Streusand, president of the Texas Mortgage Bankers Association. ‘I would be concerned somewhat if we start to have big gaping gains in appreciation over the next two or three years, because we could be setting up for the corollary scenario you’re seeing in other parts of the country.’”

The Galveston Daily News. “After six months with no hard offers on the five condominiums he owns on the island’s western tip, Tom McKinley figured it was time to get serious.”

“‘Now is the time to get creative and try different things,’ said McKinley, a St. Louis, Mo., resident who a year ago paid about $2 million for the oceanfront properties in the new Pointe West development.”

“On May 22, McKinley’s properties, along with what organizers say will be about 35 other island homes, condos and lots, will go on the auction block in a Houston hotel.”

“Island Realtors are longing for the giddy days of 2005, when buyers, unfazed by rising prices, engaged in bidding wars and waited on lists for condos and waterfront properties. Most everyone agrees that year was a fluke.”

“And compared to 2000, real estate on the island is going strong. But some properties have languished on the market for months, after the hurricanes of 2005 cooled house-buying fever on the Texas coast.”

“In Galveston, hundreds of new mid-priced condominiums are causing a supply glut, competing with similarly priced properties across the island. Late last month, 900 houses and 600 condominiums were listed for sale on the island.”

“So far this year, Realtors closed sales on 167 homes, compared with 187 the year before. As of mid-April, only 40 condos had sold, compared with 62 for the same period the year before, according to Realtor David Bowers.”

“McKinley said an auction is a way to market his property among the hundreds on the market in Galveston. ‘It’s an opportunity for us to try to bring buyers into the area,’ McKinley said. ‘There’s a lot of property in Galveston for people to sift through.’”

Readers suggested a topic on the departing NAR economist. “Let’s talk about DL.” One said, “I know he already has a job but we should write his resume for him.”

Another suggested, “DL - ‘I’ve enjoyed about enough of this as i can stand.’”

“Perhaps he may be having some concerns about being sued for the b.s. that he has been peddling for so long to baffle any brains that have been left standing.”

The Chicago Tribune. “On his way out the door, the housing industry’s self-described ‘cheerleader’ is making one last economic forecast, a sober one at that.”

“‘We’re in a real estate recession,’ said David Lereah, chief economist for the National Association of Realtors, who surprised many this week when he announced he would leave the Chicago-based trade group on May 19. ‘I’m projecting the first [nationwide] price drop since the Great Depression,’ he said. ‘We’re going to have negative home prices in 2007.’”

“‘He promotes housing,’ said Washington economist Dean Baker. ‘Certainly, people who were making decisions to move, they either heard David directly or from someone who heard from David that home prices will never fall, don’t worry, the market will stay strong. So they paid too much for a house.’”

“Lereah, in an interview Wednesday, shrugged off the criticism. ‘I feel confident I did a very good job forecasting and reflected what was happening in the marketplace,’ he said.”

“‘If anybody actually took the time to read my book, rather than just comment on the title, I was insistent in it that…a frenetic boom was unsustainable. I predicted a downturn [would occur] shortly after I wrote it, in 2005,’ he said.”

“Lereah said the market overheated primarily because of lax lending practices and record numbers of speculators who bought houses at inflated prices to flip for profit, though others share the blame. ‘It’s easy to say with 20-20 hindsight,’ he said. ‘We’re all partly guilty. But the lenders and the speculators, they had the most in it. Making zero down payments with no documentation, that’s just irresponsible.’”

“‘But the Realtor, the lender, the title attorney, they all got wrapped up in the frenetic pace of the boom,’ Lereah said.” “He has one more public appearance, at a Realtors’ conference in Washington. He warns that his speech will not be cheery.”

“‘I am going to say, look, guys, we all have to face the music,’ Lereah said. ‘We strayed from [economic] fundamentals, and we’re paying for it. It’s not an all-out bust, not a crash in real estate, but it is a recession. This is going to cleanse the markets and in the long term this is what we have needed.’”

“In characteristic cheerleader style he demurred when asked whether he ever felt pressure from within NAR to skew forecasts in a positive direction. ‘You’ll have to talk to me about that in two or three weeks,’ Lereah said. ‘I work for NAR now.’”

The Citizen Times reports from North Carolina. “Twice this year, real estate broker and analyst Don Davies has accepted a contract to sell property he owns in Leicester, once from buyers from Florida, once from a California couple. Both times, the buyers backed out. The bursting of the real estate market bubble in some of the country’s higher-priced markets is starting to be felt in Asheville and Western North Carolina as well.”

“‘It’s going very much from a seller’s market to a buyer’s market,’ said Ken Dula, broker in central Asheville.”

“With people moving to WNC making up such a large proportion of the local market, problems elsewhere have had a ripple effect in the region, analysts say. ‘If you look at those markets where they’re having real trouble, a lot of them are the markets that feed people here,’ said Tom Tveidt, of the Asheville Area Chamber of Commerce.”

“Some in the industry say that if the number of homes sold continues to fall, it can’t help but have an impact on prices. Davies sees evidence of that already. Buncombe County set a record Tuesday for number of houses on the market and the region set a record ‘almost every day in April,’ he said.”

“In turn, the number of houses on the MLS with price cuts is steadily increasing, he said.”

“‘We have a lot of people that come from out of the area, and I think in some of the areas that have been hit harder and experienced some actual loss (in real estate values), those folks are having trouble selling their house,’ said James Blue, president of the J.D. Jackson Associates brokerage.”

“And traffic on a bulletin board in which Realtors let their colleagues know about price reductions or other incentives to sell homes has mushroomed. ‘If it continues to be less units selling, the prices will have to change,’ Blue said. ‘Buyers are savvy. They’ll wait, and sellers will get anxious.’”

The Bradenton Herald from Florida. “Andrea St. Laurent and her fiance, Joseph Forte Jr., moved to Florida four years ago from Massachusetts. They finally started house hunting in November.”

“‘The first one, the guy reneged on it. The second one, the guy wouldn’t budge on the price. The third one, the house didn’t appraise to value,’ said St. Laurent.”

“Chad Kramer hasn’t found much to get excited about in his price range of $250,000 or less. ‘The ones in my price range, honestly, a lot of them I think should just be knocked down,’ said Kramer. ‘It seems like everybody is trying to unload something.’”

“The median sales price of a home in the Sarasota-Bradenton market at $291,500, compared to $321,400 last year, according to the Florida Association of Realtors. But $291,000 is still out of range for many wage-earners, particularly those trying to make it on the $44,414 median household income the U.S. Census Bureau projected for 2005.”

“St. Laurent figures she and Forte have already looked at 40 houses in Palmetto, Parrish, Bradenton and Ruskin, where they made their most recent offer. Since the sale is pending, St. Laurent wouldn’t be specific about the list price. It is in the couple’s low $200,000 price range, and the seller has come down considerably on the price.”

“‘They started much higher than what we were getting it for,’ St. Laurent said. ‘It was a substantial amount that he came down. Probably a good 30 percent.’”

“One thing is certain: There are many more properties on the market today for buyers to consider than there were just two years ago. As of April 30, there were 5,601 homes on the market in Manatee County, compared to 1,175 homes for sale in April of 2005, according to the Manatee Association of Realtors.”

The Boca Raton News from Florida. “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 here in Palm Beach County and across the state, according to the Florida Association of Realtors.”

“While no local brokers we spoke with are even close to throwing in the towel, most were also realistic.”

“‘I have to look at the past nine months,’ said broker Sam Mina. ‘The market has not been the way we would like it to be. There has been a big, big slowdown in making decisions to buy. Buyers are very, very careful, and they are educated. Yesterday, I was at an open house with about 30 brokers, and they made the same comments I did.’”

“Broker Scott Agran says some of the concern stems from the reality that ‘marginal’ borrowers are going belly-up. When homes were selling at a rapid pace and prices soared, many lenders offered subprime mortgages to marginal lenders. ‘Now, the interest rates are going up,’ he said.”

“‘It was all right when properties were increasing in value,’ he said. ‘Then, if a person got in trouble, he could go out and sell. Now, people can’t sell, and they can’t afford to stay in their homes.’”

“And while Realtor Olive Belcher says the current market slowdown is among the worst she’s seen over the last 20 years, Mina offers an optimistic note: ‘My feeling is that we’ve seen the worst of it. Sellers are saying, ‘Enough.’ Just go and sell it. We are starting to see a transition.’”

“Agran noted that people who are trying to sell ‘don’t want to play games. The sellers understand that they have to energize the realtor. If you want to play games and try to outsmart the market, you will be holding on to your property for a long time.’”

The Venice Gondolier from Florida. “Area Realtors are beginning to smile again. March MLS figures showed a 16 percent increase in sales. There also are fewer homes on the market.”

“‘A year ago there were 300 Realtors wait-listed to get a lock box,’ Venice Area Board of Realtors Executive Vice President Marlene Merkle said. ‘We have 3,500. There’s no wait today.’”

“Prices of single-family homes reached a peak at the end of the summer of 2005 and sales bottomed out about three months later, according to Trendgraphix.com data for Venice. ‘It happened in October 2005,’ Realtor Tim Paradiso said.”

“‘We had the three biggest years in history,’ builder David Hunihan said. ‘Of course the prices would be down. You have to look in cycles of three to five years.’” “Trendgraphix.com data shows the average price of homes trending downward from the peak reached in 2005, but sales trending upward.”

“‘We have a great many cash buyers,’ Realtor Helen Moore said, adding that she also had buyers waiting for property to sell in Naples or somewhere else so they can buy here.”

“Hunihan said there is an eight-month supply of new homes available. More than 500 listings have expired, Realtor Janice Holloway said. Currently there are 1,616 listings, of which 79 have closed and 64 sales are pending.”

“‘Last year was tough,’ WCI Realtor Cheryl Youmans said. ‘I wasn’t here for the boom times, but I have enough listings. I don’t need anymore unless they are good. You can list your home or you can sell it.’”

What do you see in your housing market this weekend? An auction? “The auctioning of a large condo conversion project in Baltimore County drew a crowd of gawkers yesterday but only one bid, from the foreclosing lender. It is one of at least three local projects owned by Triton Real Estate Partners that have been or are scheduled to be auctioned.”

“Auctioneer Daniel Billig, standing on the steps of one of the renovated Colonial-style buildings, practically pleaded for more bids. ‘You can give me one-million-500-thousand,’ Billig said through a loudspeaker. ‘You won’t insult me.’”

“Tim Dobson, whose family rents an apartment there, mused about the conversion plans, and about how hindsight is always 20-20. A sign at the complex promised that a pool and clubhouse were ‘Coming Soon!’ but everything is up in the air now, he said. ‘I feel sorry for the guys that bought the condos,’ he said.”

Slowing sales? “According to statistics from the New York State Association of Realtors, 35 single-family homes were sold in Cayuga County in March, down from 56 reported during the same month a year earlier.”

“‘It’s the slowest its been in five years,’ said associate broker David Young, who’s been in real estate for five years. Young sells property in four counties, Cayuga, Onondaga, Seneca and Wayne, and said Cayuga has been stagnant this year.”

“‘Auburn was on fire this time last year,’ he said.”

Some statistics? “The ratio between house prices and rental rates in several of China’s leading cities has soared well above levels that often indicate a property bubble, the Xinhua agency said on Saturday.”

“An increase in house prices not matched by a rising rental market can signal an unsustainable price spiral, the researcher said. ‘The international warning line is 1-to-200. Once the ratio goes over the line, the market is in danger of a bubble,’ the report quoted Shan Jingjing saying.”

“In the downtown areas of the four cities Xinhua listed, however, the ratio had already reached between 1-to-270 and 1-to-400, the report added.”

A fire sale? “A hedge fund made a $58-million winning bid for the remaining mortgage portfolio of bankrupt sub-prime lender New Century Financial, the fund and New Century creditors said Friday.”

“Ellington Management Group’s bid amounted to only 34 cents on the dollar. The portfolio includes home loans and mortgage securities with a face value of $170 million.”

“Many of the loans are in default, and ’some are probably worth nothing,’ said Larry Penn, vice chairman of Ellington.”

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