The Housing Bubble

The LA Times reports from California. “Plans for a $1-billion high-rise condominium complex overlooking Pershing Square park in downtown Los Angeles were unveiled Monday by developers who expect to build the tallest residential building west of Chicago. The project is drawing its doubters from people who wonder whether there is a market for another huge housing complex downtown.”

“Adding downtown housing is a risk, market observers said. ‘There is a huge supply that far exceeds demand’ at the moment, said real estate broker Stephen May, who estimates that more than 400 units are for sale.”

“Prices are holding level, he said, but may come down in future months as more new units hit the market and create competition.”

“‘People wonder if this is the right time’ to announce a large housing development, said economist Jack Kyser of the Los Angeles County Economic Development Corp. ‘Downtown is overbuilt and some other projects are grinding to a halt.’”

The Orange County Register. “Spring may come and go without the usual annual home-buying rush, says the math of Steve Thomas at Re/Max Real Estate Services in Aliso Viejo.”

“It would take 8.33 months for buyers to gobble up all homes listed for sale at the current pace of deals vs. 7.75 months two weeks earlier and vs. 4.43 months a year ago.”

“And Thomas notes: ‘Believe it or not, the Spring market is almost over. With the growing inventory, dropping sales, increased foreclosures (nothing compared to the Inland Empire and Central Valley), we can anticipate additional media attention which could continue to dampen demand.”

The Associated Press. “With a second child on the way, Chris Shields and his wife, Michelle, wanted to move from their two-bedroom apartment in Southern California to a house with more space.”

“But because their timing coincided with a shakeout in the mortgage market earlier this year, their credit now isn’t good enough to get a loan to purchase the house they wanted with no money down.”

“As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shields. ‘Now we’re stuck in the apartment,’ said Shields.”

The LA Daily News. “Finally, we have a reference point on the last two San Fernando Valley residential real estate market tankings. The current one and the Great Collapse of the 1990s.”

“In this year’s first quarter, both the median price and home sales fell from their year ago levels. The last time both sales and the median price fell in a quarter dates all the back to the 1995 fourth quarter.”

“‘I don’t think that this particular markets is anything like what we experienced in the early- and mid-90s,’ said Jim Link, the association’s executive vice president. ‘I think this market is a correction based on the longest sustained increase in median prices that we can recall.’”

“Back in 1989, the median price peaked at $245,000 on three occasions. It took 129 months to get back above that level.”

“And finally, the median house price moved above the year ago level again in March of 1997. It then increased 127 consecutive months on an annual basis, finally dipping below the year ago level again in November of 2006.”

“In the 1990s the market teeter-tottered. Sales and prices generally rose and fell in a haphazard pattern. That mostly held true for sales but prices started falling annually on a consistent basis in April 1992. We didn’t see another annual increase for 66 months.”

“The price bottom came at $155,000 in November 1995 but relatively attractive buying opportunities existed for about five more years.”

“We can pinpoint the pain threshold in this market, though. The fourth quarter of 2005, when the median price hit $600,000 for the third time that year. ‘Prices outpaced buyers’ willingness to buy, not buyers’ ability to buy,’ Link said.”

The Voice of San Diego. “The size-adjusted median price of San Diego resale homes rose in April. By this measure, single family home prices were up .6 percent from the prior month while condos were up 1.0 percent.”

“While the size-adjusted median is down from a year ago, and down still more from the peak, prices by this measure have been rising in aggregate since December. It’s possible that the size-adjusted median is being thrown off by the reduced presence of low-end buyers and thus overstating actual prices.”

“The answer may lie in the superior-but-lagging Case-Shiller HPI. The HPI has shown continuous price weakness through February, the latest available month, which would suggest that the size-adjusted median price gains to that point had been illusory.”

“Home foreclosures in San Diego County hit a 25-year high in April, public records show.” “Transfers of mortgage notes from owners to lenders jumped to 604 in April, up 20 percent from 509 properties in March. The previous record of 589 foreclosures in a single month was set in July 1996, according to The (San Diego) Daily Transcript.”

“‘This might be just the beginning,’ said Nathan Moeder, principal at San Diego-based London Group Realty Advisors Inc. ‘Right now it’s subprime mortgages, but down the road it might be from the middle-class.’”

The Bakersfield Californian. “The company formerly known as Crisp & Cole Real Estate Inc. is in the midst of reorganizing and downsizing as the local housing market continues to cool.”

“‘It’s a result of the downturn in the market in Bakersfield,’ said Jack Doremus, the former broker of record at Crisp & Cole Real Estate. ‘People are losing their jobs everywhere.’”

“Doremus said he resigned from Crisp & Cole in late March after Crisp told him and five others with high salaries that Crisp could no longer pay them. ‘He said, ‘I can’t make payroll for you guys.’ So we left,’ said Doremus, who said he has remained good friends with Crisp.”

The Honolulu Advertiser reports from Hawaii. “The number of O’ahu single-family home and condominium sales peaked in 2005 at 12,607. Sales dropped 17 percent to 10,421 last year, and have continued to decline this year but at a slower pace. Inventory, which dropped to roughly 1,700 units in mid-2005, has been around 4,000 this year.”

“Agent Angie Pasion said one of the bigger recent challenges has been dealing with tighter lending standards instilled in the fallout of several Mainland lenders struggling with defaults on exotic mortgages.”

“‘It has a tremendous effect,’ she said. ‘I find that more challenging than selling. I have the product, but it’s the mortgage companies now providing the pressure.’”

“The shift hasn’t been pleasant for Kapolei homeowner Regina Akpinar, who would prefer that the market’s robust growth had continued. Akpinar and her husband bought their home during the frenzy in October 2005 after moving to Hawai’i from Florida.”

“‘We were extremely shocked about the market,’ she said, explaining that they often competed against multiple bids above prices asked by sellers. ‘We were basically chasing after homes. We were never fast enough.’”

“The couple put their home on the market in February after Akpinar’s husband, who’s in the military, received unexpected orders to relocate to the Mainland. The Akpinars received an offer fairly quickly, but will take a slight loss on the sale after factoring in money they invested to fix up their home.”

“‘I think we bought at the worst time, and are selling at a bad time,’ Akpinar said.”

“Sharon Naukana of ‘Ewa Beach bought her house at a great time, 2001 before prices started taking off. But now the single-parent is selling because she’d like to be closer to family members moving to the Mainland.”

“Since Naukana’s three-bedroom home went on the market in November, there have been no offers. ‘It’s frustrating because everyone is lowering their prices,’ she said, adding that she reduced her asking price by $7,000 to $448,000 but isn’t willing to go lower. ‘I will be patient. I don’t have to sell.’”

“Ben Severson, who’s become a real-estate investor, said he’s seen sellers price property relatively low to entice competing bids, a strategy that was rare at the top of the market. But many sellers, in his view, are still pricing property as though the boom isn’t over.”

“‘I think people are still living eight or 10 months ago and trying to gouge,’ he said.”

“Severson is in escrow to buy another Makaha house that was on the market 186 days and had its list price reduced to $239,000 from its tax-assessed value of $279,000.”

“Still, other buyers, like Dara Young, who bought a condominium this year, felt compelled to act fast despite the slowing market. Young started searching a year ago as prices were peaking but sales were falling. At the time, she vowed not to rush as a first-time buyer.”

“Even though the market had significantly cooled by January, Young saw a Kapi’olani condo she liked a lot, and rushed to put in an offer the same day. ‘I didn’t let anybody squeeze in there,’ she said.”

“Sales of existing homes on Kaua’i and the Big Island were lower last month, but the median price of condominium resales on the Garden Isle set a record.”

“Broker R. Scott Lindman said the median spike was likely the result of resales of recently developed luxury resort condos influencing a small number of transactions.”

“On the Big Island, the single-family home median sale price was $412,000 last month, down 6 percent from $439,900 a year earlier. There were 139 sales, down 26 percent from 187.”

“Big Island condos sold for a median $385,000 last month, down 29 percent from $540,000 a year earlier.”

Some housing bubble news from Wall Street and Washington. CNN Money, “Home prices are expected to finish down for the year, the National Association of Realtors said Tuesday, which would mark the first drop since the group started tracking values in 1968. According to Lawrence Yun, a senior economist for NAR, speculative investing in real estate, which contributed to abnormal price growth for several years, has all but disappeared in the present market.”

“‘Home buyers today are purchasing for the long-term, generally with a realistic expectation of modest gains over time,’ Yun said.”

From Reuters. “The group, which has cut sales and price forecasts for several months in a row, to reflect deteriorating market conditions, said the median price for an existing home would slip 1.0 percent in 2007 to 219,800 this year. Last month, the group predicted a 0.7 percent price decline, its first nearly 40 years of record-keeping.”

From MarketWatch. “‘If it weren’t for a favorable economic backdrop, housing would probably have a hard landing,’ said Lawrence Yun, senior economist for the NAR. ‘As it is, we see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later.’”

“For nearly a decade, investors were rushing to real estate. Federal tax deductions and housing programs also fueled the boom.”

“Even established lenders of high-quality mortgages lost their compass and chased bad business as competition increased, said Angelo Mozilo, CEO of the largest U.S. mortgage lender, Countrywide Financial Corp.”

“Mozilo said he saw the industry’s long-established standards come unglued in the face of new competition. ‘I’ve been doing this for 54 years,’ Mozilo recently said. For many years, he said, ’standards never changed: verification of employment, verification of deposit, credit report.’”

“But then new players came in with aggressive lending policies. Names like Ameriquest, New Century, NovaStar Financial and Ownit Mortgage Solutions set a new, lowered standard, changing the rules of the game, Mozilo said.”

“‘Traditional lenders such as ourselves looked around and said, ‘Well, maybe there’s a (new) paradigm here. Maybe we’ve just been wrong. Maybe you can originate these loans safely without verifications, without documentation,’ Mozilo said.”

“Bill Dallas, CEO of Ownit, the nation’s 20th-largest subprime lender in 2006, said he saw the handwriting on the wall in April 2005 after he overheard a rival account executive tell a customer how to get a better rate by committing occupancy or income fraud.”

“‘I just went, ‘We are hosed as an industry,’ Dallas said. ‘I told our guys, ‘We’re the problem.’”

“A former CEO at a failed subprime lender, who asked to remain anonymous as his company unwinds, said as long as Wall Street was willing to buy the risky loans and package them into securities, the market was going to create them.”

“‘You act very differently when you know somebody is willing to buy the loans,’ the executive said.”

The Washington Post. “Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang!”

“‘You cut my [expletive] deal!’ she recalls one man yelling at her. ‘You can’t do that.’ Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said.”

“‘The stress in that place was ungodly. It was like selling your soul,’ said Hardiman, who worked for New Century in 2004 and 2005. ‘There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals.’”

“The head of a large Wall Street bank’s mortgage group contended that his firm regularly lost out on New Century’s business because its due diligence process was stringent and it had been returning a high number of loans. New Century wanted the bank to ease its standards, and the issue became a source of friction between the companies.”

“‘The entire industry, over time, became more lax,’ he said, speaking on condition of anonymity because he was not authorized to talk about his company’s inner workings. ‘The more [loans] you accepted, the better relationship and the better price you would have. The name of the game was definitely volume.’”

“A veteran appraiser who worked in Pearl River, N.Y., said…he quickly discovered that the place was a pressure cooker. He said he often was encouraged ‘to make loans work.’ His boss generally supported him when he wanted to reject a questionable loan, he said. But other office managers ‘were all about the numbers just so they got their bonuses.”

“Still, the veteran appraiser didn’t blame them. ‘They were pressured to make loans, that’s how you do business,’ said the man. ‘They were trying to do more and more business. That’s essentially what Wall Street wanted.’”

The New York Times. “Ownit filed for bankruptcy protection late last year. Gone are the lavish parties, the extravagant trips and the executive salaries and sales commissions that routinely topped a million dollars.”

“What used to be a profitable partnership between subprime lenders and Wall Street banks has now degenerated into a cross-country blame game. Lenders in California say big investment banks encouraged and pushed them to make risky loans. On Wall Street, bank executives say mortgage lenders became sloppy and did not pay enough attention to fraud.”

“William D. Dallas, the founder and CEO of Ownit, acknowledges loosening lending standards but says he did so reluctantly and under pressure from his investors, particularly Merrill Lynch, which wanted more loans to package into lucrative securities.”

“He recalls being asked to make more ’stated income’ loans, in which lenders do not verify the information provided by borrowers and brokers with tax returns, pay stubs or other documentation. The message, he said, was simple: You are leaving money on the table, do more of them.”

“Mr. Dallas, who has been in the mortgage business for more than 25 years, said he disagreed, but complied. ‘If I can sell it at a profit,’ he said, ‘why would I not do it?’”

“In retrospect, it was exactly the wrong time to ease credit: interest rates were rising and home prices were cresting after a sharp four-year rally. Many in the industry also suspected that speculation and fraud were rampant in many hot real estate markets on the coasts and in the Southwest.”

The Associated Press. “Irwin Financial Corp. said Monday its first-quarter loss widened as its mortgage business felt the effects of the housing sector slump.”

“The company said it did not sell some loans on the market because the prices offered were too low after buyers became more risk averse amid increased defaults and a slump on the housing market.”

From Bloomberg. “U.S. homeowners entered the foreclosure process in April at more than double the rate of a year ago as tightening credit made it more difficult to refinance and a swelling supply of unsold homes made it tough to sell.”

“The number of homeowners in all three phases of foreclosure rose last month over the same period a year ago, according to Foreclosures.com. Those receiving their first notice of foreclosure from a bank climbed 127 percent, those with homes going up for sale by auction jumped 164 percent and those whose homes were repossessed by banks went up 40 percent.”

“According to Credit Suisse, 82 percent of subprime mortgages have an adjustable rate provision, meaning that payments start with low or ‘teaser’ rates and adjust to a higher rate after a set number of years.”

“The subprime mortgage industry rushed so many buyers into the housing market that it opened an ownership gap, pulling in people who likely would have bought a home only years later, and that gap will stall a recovery in the sector.”

“Besides favorable terms, many borrowers found low, low interest rates irresistible. Mortgage rates on 30-year loans set new records almost every week through early 2003.”

“‘That did pull housing demand from the future into the present,’ said David Seiders, chief economist with the National Association of Home Builders. ‘When all that demand supply pressure started to push prices up, the whole thing died under its own weight.’”

The Providence Journal reports from Rhode Island. “Rising home foreclosures in Rhode Island could claim a new casualty, house prices. In 2005, house sales in Rhode Island outnumbered foreclosure auctions advertised in The Providence Journal by 14 to 1. Now, that ratio has narrowed to less than 3 to 1.”

“‘That’s the possible storm cloud on the horizon,’ said Timothy Warren Jr., CEO of The Warren Group. ‘There’s a threat that those distressed properties, whether they sell at auction or are dealt with another way, could have an impact on the market.’”

“Lenders advertised 678 houses in Rhode Island for foreclosure auction during the first quarter, up 122 percent from the same period last year, according to a Journal analysis of newspaper legal ads. The pace is on track to exceed last year, when just over 1,850 homes were advertised for foreclosure sale, which was more than twice as many as in 2005.”

“There were 5,639 single-family houses on the market in Rhode Island as of the end of March, the largest number for that time of year since 1997, according to data provided by the statewide MLS to the Rhode Island Association of Realtors.”

The Union Leader from New Hampshire. “Hundreds of New Hampshire homeowners are losing their homes to foreclosure, victims of a nationwide crisis within the ’subprime’ mortgage industry. And experts say it’s going to get worse before it gets better.”

“‘We’re in for a Nantucket sleigh ride,’ declared Ben Niles, past president of the Mortgage Bankers and Brokers Association of New Hampshire. ‘The damage is done. People are in mortgages they should never have been in, whether it’s their fault or someone else’s fault, and there’s no easy way out.’”

“‘It’s compounded by the fact the market’s oversupplied and flat, so it’s hard to sell a house today. And, depending on your loan-to-value-ratio, it can be hard to refinance,’ he said.”

“‘This is the beginning of the beginning,’ said Peter Hildreth, the state’s banking commissioner. ‘It is very scary stuff.’”

The Associated Press from New Jersey. “Deborah Beatty recognizes that she and her family could lose their home in Jersey City, across the Hudson River from New York, because they can’t afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty’s master bedroom window.”

“Her daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans of 8.75 percent and 12.5 percent.”

“With income from tenants, which didn’t happen right away, Beatty’s daughter thought she could afford monthly payments of nearly $5,000. But she hasn’t made a mortgage payment in more than three months, and she’s receiving letters threatening foreclosure.”

“Beatty acknowledged the mortgage was probably too good to be true, and now her house is on the market. The family wouldn’t be able to afford buying another house and would likely rent, she said. ‘It’s embarrassing,’ Beatty said.”

The Long Island Business News from New York. “Long Island’s economists aren’t panicking yet, but they are clearly worried. It was easy to predict a drop from 2004-2005 when home prices rose at an unsustainable rate. So the slight fall in median housing prices isn’t a shock.”

“The bigger problem is in the subprime market, as 12 percent of Long Island’s riskiest borrowers are at least 60 days late on mortgage payments, up considerably from 7 percent a year ago.”

“‘Our home prices were so out of line,’ said Pearl Kamer, chief economist for the Long Island Association. ‘A lot of people bought more house than they could afford and that’s why we’re likely to see a continued decline. We haven’t seen the worst of this and the decline could last into 2009.’”

“Those looking to sell are waiting much longer to shed property. There’s an 18-month supply of homes on the market here, the highest level since 1991. ‘A lot of homeowners took their homes off the market, figuring they could come back in the spring,’ said Irwin Kellner, chief economist for North Fork Bank. ‘But sales are still dropping and homes are still staying on the market longer.’”

From KDKA 2 in Pennsylvania. “Housing foreclosures are at a record high in Allegheny County and it’s not just happening in poor communities. At today’s monthly sheriff’s sale at the county courthouse, there was one house on the block worth more than $800,000.”

“‘Mortgage foreclosure knows no boundaries any longer. It can go from the blighted areas to the most affluent,’ County Sgt. Rich Fersch said.”

“Real estate agent Jo Ann Milseky says people are buying those big houses with risky mortgage packages that require no money down and interest payments only, or they refinanced and have taken on additional debt.”

“She says banks and mortgage brokers have greased the skids. ‘I definitely think it’s the lenders, talk real fast and say you can afford this. We’ll get the mortgage for you,’ Milseky said.”

The Philadelphia Inquirer from Pennsylvania. “A New York auctioneer said yesterday that it would take bids for the Old City site of a proposed 33-story, 236-unit luxury condominium development that has not progressed beyond the planning stage.”

“‘We have flat prices, rising inventories and dropping sales,’ said Kevin C. Gillen, a Wharton School economist who monitors the local housing market. ‘The numbers are even worse for the condo market.’ He said the turnover rate for condos was about a third of what it was last fall.’”

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