The Housing Bubble

The Tracy Press reports from California. “The number of houses on the market in Tracy and Mountain House is still climbing, while prices either remain flat or have dropped since the beginning of the year. The latest numbers from the Central Valley Association of Realtors show 930 houses for sale in Tracy, Banta and Mountain House as of the end of April, though only 249 houses actually sold during the first four months of 2007.”

“The median sale price of homes has dropped from the same time last year, from $560,000 to $520,000. Meanwhile, the median list price, which was $580,000 at this time last year, is down to $530,000.”

“Buyers have so much to choose from that they can hold out for the best deal. ‘It’s almost like a standoff between buyers and sellers,’ Tracy real estate broker David Ormonde said.”

“The most dramatic example of the drop in home prices is in Ripon, where the median home price was $550,000 a year ago, compared with $440,000 today.”

The Union Tribune. “Troubled subprime mort-gage originator Accredited Home Lenders said yesterday that it expects ’significant losses’ during its first quarter and that it has slashed 1,300 jobs nationwide so far this year.”

“The San Diego company, which specializes in loans to borrowers with poor credit, revealed the cutbacks and other information in a filing late yesterday with federal securities regulators.”

“Because it expects heavy losses, Accredited said it has taken steps to cut costs, reducing its work force by 30 percent from 4,200 employees to 2,900 since Dec. 31. Company spokesman Rick Howe declined to say how many workers had been cut in San Diego.”

“Accredited gave no estimate of when it expects to file its annual report and first-quarter financial statements. Accredited originated $1.9 billion in mortgage loans during the first quarter, down 47 percent from $3.6 billion for the prior year.”

“Delinquent loans made up 8.96 percent of the portfolio of loans the company services, compared with 2.85 percent during the same quarter last year.”

The Orange County Register. “Mortgage industry woes are rapidly spreading beyond the subprime sector as LendingTree, a major presence in Orange County, laid off 20 percent of its workforce nationwide Friday.”

“Although a majority of the company’s 2,200 workers are in Irvine, the layoffs are evenly distributed among operations in Irvine, Charlotte, N.C., and Jacksonville, Fla., said Rebecca Anderson, a spokeswoman for the lender.”

“It’s the second large layoff announced by an Orange County lender this week. ImpacMortgage Holdings Inc. said Wednesday that about 100 workers got pink slips, including 70 at its Irvine headquarters. That follows more than 3,000 other mortgage layoffs in Orange County so far this year.”

“The announcements this week, however, were the first among large lenders that fund loans to more creditworthy borrowers, suggesting the problems in the industry won’t be confined to the riskiest subprime market.”

“Scott Anderson, a senior economist at Wells Fargo (and no relation to the LendingTree spokeswoman), said the fallout from the once-hot mortgage industry is just starting as fewer borrowers can qualify for loans.”

“‘It’s not just subprime, it’s across the mortgage spectrum,’ he said. ‘It’s going to get a lot worse before it gets better.’”

“Wayne Clemons Jr. was among the LendingTree workers in Irvine laid off Friday. ‘It was a total surprise,’ said Clemons.”

The Orange County Business Journal. “Shares of Irvine-based Impac Mortgage Holdings Inc. dropped Friday after the mortgage investor reported a first-quarter net loss of $121.7 million a day earlier.”

“Impac let go of 120 local workers earlier in the week, the result of housing and mortgage slowdown.”

The Associated Press. “New Century Financial Corp., will not file its first-quarter financial results on time and may never be able to file any of its outstanding financial statements, the collapsed subprime mortgage lender said in a regulatory filing Friday.”

“New Century, which sought Chapter 11 bankruptcy protection last month, said it would be unable to file its first-quarter results ‘without unreasonable effort and expense.’ The company also said it is ‘uncertain as to whether or not it will ever be able to file its financial statements.’”

“New Century had been the second-largest provider of home loans to high-risk borrowers, but it collapsed after a spike in mortgage defaults led its lenders to pull funding and demand that it buy back bad loans.”

“The company stopped trying to make new home loans in March due to lack of funds. It has since laid off more than 5,000 employees, retaining less than 1,000 to handle the process of liquidating its assets.”

The Ventura County Star. “Plenty of house-hunters turned out last weekend to tour area homes that will be sold to the highest bidders on May 19 at the Los Angeles Convention Center.”

“At the coming auction, which includes nine Ventura County homes, the winning bidder will be whisked off to sign paperwork as soon as the bidding is over. The lender-owned properties are all foreclosures that did not sell at a previous auction. They will be on the block along with hundreds of homes in Los Angeles and Orange counties.”

“There haven’t been many auctions in Southern California in recent years, but the meltdown in the subprime loan industry, where lenders provided high-rate mortgages to high-risk borrowers, has increased the number of foreclosures.”

“Notices of default for the first three months of 2007 increased to the highest level in almost 10 years in California, according to DataQuicks. A year ago, 9 percent of homes that received notices of default went into foreclosure in the first quarter, DataQuick reported. This year, it was 40 percent.”

“Foreclosures totaled 11,033 for the first quarter, up 81.5 percent from the last three months of 2006. There were only 1,223 in the first quarter of 2006. In Southern California, notices of default were up 139.2 percent from a year ago, with 26,748 notices in the first quarter.”

“‘Now that the market is down a bit, we’re starting to get busy again,’ Robert Friedman said of his auction business.”

“Tom Pool, spokesman for the California Department of Real Estate, notes that the homes were foreclosed on for a reason, and they are owned by the lenders because no one made an offer that exceeded what was owed.”

“Felix Babka of Burbank, said the auction makes him nervous, in part because there is a reserve price. That means the seller doesn’t have to sell the home if the highest bid isn’t as high as the seller wants.”

“Last weekend, Babka visited Oxnard to look at a home on Piedmont Street. He has been renting since he sold his family home for $440,000 and is looking for a place to retire. He said the housing market ‘has slowed down a little bit, but the prices are still too high.’”

Readers suggested a topic around home prices and migration. “Florida migratory outflow: Could it stemmed by falling house prices?”

A reply, “Given the rate at which home prices are falling there and the reluctance of buyers to catch falling knives, I would guess the migratory outfow could be stemmed by the end of falling house prices, but not until they stop falling and everybody knows they have stopped falling.”

Another said, “I would add one slight caveat. If Florida prices reach the point where people from elsewhere can purchase for cash as ’sunk cost,’ they may be tempted to move even if prices are still falling on a ‘live here until I die’ basis.”

“I can assure you I have seen this happen in more than one coastal area of Australia. I have friends who made a move like this from my city, and paid cash at the coast 2 years back. Their only interest in house prices now is how much they’re likely to leave their kids.”

Another from Florida, “It will take a while and much lower prices to stop the flow here in South Florida. I know at least a dozen people with plans in the work to leave. The only thing that is keeping most of them here is their inability to sell their homes.”

One said, “It’s hard to say what will happen. People are sheep. Will they continue to think that they have to have a house and keep buying? Or eventually when things bottom out, will they think that real estate is always a terrible deal?”

“A lot of people took a long time to start buying stocks again after the 2000 peak (which of course is when they should have been buying.) And I remember when we bought our first house in Orange County, CA. in 1993, my in-laws, who had made a bad investment in a RE limited partnership in 1988, begged us not to buy because we would lose money.”

And lastly, “I’ve been here in So. Florida for nearly two years and it’s amazing how many people I talk to who are leaving. Just yesterday, the huz and I were at the bank and the teller said she was movin’ to Carolina as soon as her house sells. Next door neighbor’s grown kids are going, three other families on my block, about seven families from my kids’ school, many, many are desperate to move outta Florida. Most are going to Tennesee, Georgia or the Carolinas.”

The Herald Tribune. “Sarasota and Manatee counties could be facing a shortfall of nearly 12,000 workers in the next seven years or so, a study of the region’s job market projects.”

“‘You tend to lose people in their 20s. It hard to find a home and hard to find the right kind of job,’ said Richard Judy, CEO of Indianapolis-based Workforce Associates Inc. ‘And the prospect is for more of this qualitative deterioration of the work force. So a company that might expand can’t, because they can’t find the right kind of workers,’ he said.”

“‘Of 80 employees surveyed who have left jobs at CEO Mary Ruiz’s Manatee Glens, 21 said they were leaving the area. The business has been forced to return $200,000 in state money because of staffing vacancies and service cuts.”

“Ruiz said she recently wooed a candidate for a key clinical position, but after the worker looked at housing prices online, she decided against the job.”

The Wall Street Journal. “This is something few would have predicted 20 years ago. Americans are now moving out of, not into, coastal California and South Florida, and in very large numbers they’re moving out of our largest metro areas. They’re fleeing hip Boston and San Francisco, and after eight decades of moving to Washington they’re moving out.”

“The domestic outflow from these metro areas is 3.9 million people, 650,000 a year. High housing costs, high taxes, a distaste in some cases for the burgeoning immigrant populations; these are driving many Americans elsewhere.”

“There are some variations. New York had a domestic outflow of 8% and an immigrant inflow of 6%; San Francisco a whopping domestic outflow of 10% (the bursting of the tech bubble hurt) and an immigrant inflow of 7%. Miami and Washington had domestic outflows of only 2%, overshadowed by immigrant inflows of 8% and 5%, respectively.”

“The nation’s center of gravity is shifting: Dallas is now larger than San Francisco, Houston is now larger than Detroit, Atlanta is now larger than Boston, Charlotte is now larger than Milwaukee.”

The Capital Gazette reports from Maryland. “Anne Arundel County home prices dropped last month and sales slowed amid the national fallout from the subprime mortgage market. Homes also were sitting on the market nearly twice as long as they were at this time last year.”

“Meanwhile, people are losing their piece of the American dream. Carolyn Krohn, an Annapolis attorney who specializes in consumer bankruptcies, said she’s seen ‘more people lose their homes in the last year than the entire time I’ve been in my practice.’”

“Her practice has shifted to focus on Chapter 13 bankruptcy cases, which homeowners file to stop their homes from going on the auction block, she said. ‘The Chapter 13’s have increased exponentially,’ she said.”

“‘People are really taking their sweet time,’ said Bill Hyland, an associate broker in Annapolis. He said there are currently 29 condos and townhomes for sale in the Chesapeake Harbour community of Annapolis. So far this year, five homes in that community have sold, and for at least 10 percent less than they would have last year, he said.”

“Mr. Hyland said one home was originally listed for $590,000 in March 2006 and sold in February for $390,000.”

“Jeanne Hawkins, who lives in Carroll County, said she’s in no rush to buy a home. She and her husband have been shopping for a waterfront home in Anne Arundel and Annapolis since January.”

“‘There’s so much inventory,’ she said. Ms. Hawkins said sellers have come down on their prices and more homes are coming on the market ‘but they are not selling.’”

“She said she’ll buy a home ‘as soon as we find the right one at the right price.’”

The Baltimore Sun from Maryland. “The average sale price in Baltimore and the five surrounding counties rose 1.88 percent from $310,323 in April last year, Metropolitan Regional Information Systems Inc. reported yesterday. Half the jurisdictions in the region registered an increase, and half a decrease.”

“Arundel County had the biggest drop, at nearly 5 percent. In Baltimore City, the average price fell 1.79 percent, from April a year ago, the first drop since January 2003.”

“The mixed-price picture came as home sales continued to stumble. The city’s price drop likely reflects a slump in once rapidly appreciating, expensive waterfront neighborhoods such as Canton and Federal Hill, rather than a broader drop, said one economist.”

“‘Those were areas seen as very hot markets,” said Daraius Irani, of Towson University. ‘People rushed into those markets and housing prices were bid up substantially. As the market has softened, and there is a decline in demand and tightening credit restrictions, those are areas that are likely to see slowdown.’”

“The arrival of spring hasn’t brought the boost to the housing market that typically comes with the season, agents said. And some believe that tightening credit requirements will reduce the pool of buyers.”

“‘It is somewhat of a random market,’ said Tom Mooney, a partner with O’Conor & Mooney Realtors in Baltimore. ‘We’re getting showings, but buyers are not as quick to pull the trigger. There’s very little impulse buying any more.’”

“While 6,524 homes were listed for sale in April alone, contracts and contingent contracts were reached on just over half that number, or 3,536, properties, the MRIS said. The number of homes for sale topped 17,000, nearly three times as many as were listed two years earlier at the height of the housing boom.”

“Buyers are holding out, expecting that prices will come down more.”

“‘The market has not stabilized to the point where everybody is on the same page yet,’ said Sharon Martin-Sims, a broker in Baltimore. ‘For this time of year, we should have been a little stronger by now.’”

“‘Since buyers know it’s a buyers market, they want to offer much lower than what sellers are asking for,’ Martin-Sims said. ‘Sellers, on the other side, don’t want to understand the fact that prices should be coming down a little bit.’”

“Offers tend to be for less than asking price, by 5 percent to 10 percent, on average, Realtors said. Martin-Sims said sellers are beginning to adjust prices more quickly. A four-bedroom Colonial with a two-car garage in the Ten Hills neighborhood of Baltimore went on sale for $499,000 in September and has now been reduced to $399,000.”

“Condo jitters are rippling through major downtown Baltimore projects on the drawing boards.”

“A developer planning twin towers that could be the tallest in Baltimore presented designs for the first phase yesterday, but said the towers themselves will have to wait until the condo market picks back up.”

“Meanwhile, two other companies planning downtown skyscrapers said yesterday that they’ve pulled back on the number of condos they plan to build.”

“Richard W. Naing of RWN Development Group, thinks it’s not a good time to be selling or building condos. ‘It’s not just the market, it’s also the perception,’ he said. ‘Right now the perception is very negative, you couldn’t even get financing if you wanted to.’”

“Baltimore has fewer condo units being actively marketed now than it did a year ago, in part because several projects were dropped, said William Rich, of Delta Associates in Alexandria, Va. Even so, sales have slowed so much that it would take more than four years to sell them all at the current pace, compared with less than two years this time in 2006, he said.”

“‘If they all were to come online now,’ Rich said of the skyscraper projects, ‘that wouldn’t bode well.’”

The Gazette. “While the residential mortgage market is ‘tightening up’ across most of the nation, mortgage industry players in Maryland are more sanguine.”

“‘It’s good to buy now. The weather has broke, housing prices are low and mortgage rates are good,’ said Charles DiPino, president of the Maryland Association of Mortgage Brokers.”

“Still, the home mortgage market is nowhere near where it was two years ago, many say. ‘There’s been a tightening in the subprime market, and Wall Street is not buying loans as much as it did,’ DiPino said.”

“According to Michael Galeone, executive VP of The Columbia Bank, the subprime market was ‘abused’ during the mortgage boom of two years ago.”

“‘The subprime market got into trouble as lenders began lending to people with less-than-sterling credit qualifications,’ he said. ‘Sub-prime lending lets you borrow based on the value of your home, maybe up to 125 percent of the value. The trouble happens when the market goes against those people.”

“‘People bought more than they could afford,’ he said. ‘In the past, they could buy an $800,000 house at 3.5 or 4 percent interest. Then the market shifted and their monthly payments doubled. Many people didn’t have the cash to cover it, and they’re struggling.’”

“Foreclosures in the first quarter of 2007 totaled 2,031 in Maryland, up 88 percent from last year’s first quarter, according to RealtyTrac.”

“‘In the last few years, you had a lot of people who were not really qualified to buy a house buy a house anyway,’ said Cary Reines, executive VP of Mason Dixon Funding in Rockville. ‘Now they’re finding out that they can’t afford to keep them. We’ve seen a lot of that in the last six to nine months.’”

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