The Housing Bubble

The Union Tribune reports from California. “San Diego County’s tepid housing market continued to cool in April, DataQuick reported Tuesday. DataQuick Analyst Andrew LePage said April was the 10th consecutive month that the combined median price for all types of homes had declined year over year. ‘The sky is not falling, it just looks a lot different than it used to,’ LePage said. ‘It’s still unclear where we will be in the fall, If we have an interest rates spike or a recession, things could get ugly.’”

“‘I don’t think the bubble has burst yet, but we may not have a soft landing either,’ said University of San Diego economist Alan Gin. ‘Things are going down, but they are not collapsing…In the past, a slowing economy has dragged down the housing market. The question this time is, ‘Will the slowing housing market drag down the economy with it?’”

“Despite some gains, April had the lowest sales total for that month since 1997, LePage said. April also marked the 34th consecutive month of year-over-year sales declines. Single-family resale homes totaled 1,854 sales, down 16.3 percent from a year ago.”

The Voice of San Diego. “Fewer homes sold in Southern California last month than in any April since 1995, DataQuick Information Systems reported today.”

“The 19,269 homes sold in L.A., Orange, Riverside, San Bernardino, San Diego and Ventura counties measured the lowest number since 15,303 sold in April 1995, which was the lowest rate on record since DataQuick started tracking real estate statistics in 1988.”

“The rate dropped 28.9 percent from the 27,114 homes sold in April 2006.”

The LA Times. “Most of the erosion in sales appeared in the lower-priced markets of the Inland Empire that only a year ago still seemed to be soaring. In Riverside County, sales dropped 45.1% to 2,987 year over year, while in neighboring San Bernardino County, sales plunged 46.7% to 2,049, according to DataQuick.”

“‘The falloff in starter home sales has the effect of pushing median prices up a bit, although it’s still somewhat surprising prices haven’t declined more,’ said DataQuick president Marshall Prentice.”

The Orange County Register. “April homeselling stats from DataQuick show that buyers continue to be shy. Sales activity was down 24.7 percent vs. a year ago. That’s the 19th straight month in which the buying pace failed to meet last year’s activity levels.”

From Dataquick. “‘The drop-off in sales of more affordable homes was expected. That was the part of the market that was last in line for price and sales increases during the upside of the cycle. What we’re in for now is the somewhat painful endgame of that cycle,’ said Marshall Prentice, DataQuick president.”

“‘In addition to cyclical factors, there are other potential culprits behind the current lull: a buyer-seller standoff, the huge rush to buy during the frenzy (leaving less demand for today), tighter mortgage money, or something more ominous like a severe market correction,’ Prentice said.”

“The median price paid for a Southland home was $505,000 last month, the same as the March record. It was up 6.1 percent from $476,000 for April last year. When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are roughly one percent below year-ago levels. They are about two percent below the peak in June last year.”

The Mercury News. “Sarah Portales wants to keep paying her mortgage on time, but she’s got a problem. Her monthly payments are $3,500 and her income is slightly less than that. All the efforts to find a way to refinance her loan into something she can afford have so far led nowhere.”

“Even in the valley, the agencies that offer help to at-risk homeowners are finding their small staffs swamped by the problem. One legal group, the Fair Housing Law Project, is so backed up it stopped taking new calls this month; it will start again in June.”

“‘Lately, we’ve just had a huge increase in the number of cases we’re taking,’ said Annette Kirkham, the group’s senior staff attorney.”

“Portales is one of many borrowers nationwide who obtained bigger mortgages in recent years than their income and assets should have allowed. About 29,730 loans, or 24 percent, of the adjustable-rate loans held by San Jose-area homeowners will experience their first interest-rate adjustments this year, according to an estimate from First American LoanPerformance.”

“‘I was ignorant; I didn’t know how it all worked,’ said Portales.”

“Portales bought her first home, on San Jose’s East Side, in October 2005. She paid about $589,000, according to public records. She said her mortgage broker, who also acted as her real estate agent, exaggerated her income on her loan application, allowing her to qualify for the loan.”

“Portales, for example, will incur a $15,000 prepayment penalty if she refinances before October, she said. Now, she has two renters and a little help from her mother’s Social Security benefits to help make her payments on her three-bedroom home.”

The Daily Times reports from New Mexico. “The real-estate market within the Four Corners is experiencing minor jolts and bumps, but area realtors say the bubble has not burst locally as it has elsewhere. Roughly 75 homeowners listed their homes for sale in December but in March, the latest month statistics are available, that number doubled to more than 160.”

“Broker Valerie Uselman described the market in San Juan County as tight and swift in 2005. It has since cooled off but she said the trend looks to be reversing itself. ‘(Homes) are moving, but they’re not moving as swiftly as they were three years ago,’ she said. ‘It’s not quite the same now, but I think the market around here will always be good.’”

“The Durango Area Association of Realtors released its first quarter statistics on Friday, which showed a drop in median home values within La Plata County from $345,000 last year to $328,000 this year. The average home price in La Plata County also dropped from $425,000 to $412,000.”

“The number of sales dropped during the first quarter for the third consecutive year with only 83 homes selling this year.”

“Since 2000, the average price for a new home in La Plata County has more than doubled from $187,000 to nearly $350,000.”

The Arizona Republic. “The standoff between home buyers and sellers in metropolitan Phoenix could be nearing an end. ‘Both buyers and sellers are readjusting their expectations,’ said University of Arizona economist Marshall Vest.”

“Valley home listings recently hit a new high of 50,000. But housing-market watchers say many of the listings are sellers who put their home on the market last year based on price run-ups from a few years ago. Those houses are languishing on the market with little chance of selling for the listed prices.”

“Thomas Herz realized there was a glut of homes for sale when he decided to sell his central Phoenix home earlier this year. He originally wanted to list it for $340,000, the price he believes his home is worth now. But Herz didn’t want to wait months while it sat on the market and then have to go through the process of lowering his price one or more times.”

“He and his real estate agent watched as the comparable sales in his neighborhood started coming in lower. ‘After watching what was going on with the market, I wanted to list it at $319,000 but decided to go with $314,900, hoping it would sell faster,’ said Herz, who put his three-bedroom home in the Woodlea historic district on the market a few weeks ago.”

“‘Two years ago, homes like mine were selling in the high $300,000s. This house is a great deal for someone,’ he said.”

“‘People are realizing this isn’t a fad,’ said Margie O’Campo de Castillo of Arizona Dream Realty. ‘Listing prices have to come down for homes to sell, and buyers have to be realistic. It’s good to see it finally happening.’”

“Some people tour Europe. Some lie about on beaches in Hawaii or Thailand. And then there are others who want to unwind in a stucco house near the end of a cul-de-sac in Pinal County.”

“Some homeowners in Pinal County are turning their investments into vacation homes. They’re investing in high thread-count sheets, stocking refrigerators with continental breakfasts and renting to visitors who stay for a few days or weeks.”

“Xavier Johnson and his wife, Krista used to live in the vacation home they now call Mayfield Circle Lodge, but moved when they bought a new house in Queen Creek. The bursting real estate bubble made it hard to sell or rent out their old home. Then, Xavier started ‘thinking outside of the box.’”

“‘I was looking at him like he was crazy,’ Krista said. ‘I told him, ‘I’ve lived there, and that is not a vacation.’”

“The Johnsons had to invest thousands of dollars to furnish and decorate the Mayfield Circle Lodge. They’ve equipped the house with board games, high-speed Internet access, video games and DVDs. And now they pay two mortgages.”

“There’s also competition. In their neighborhood, there are at least a dozen other ‘vacation homes’ for rent at similar rates.”

The Sierra Vista Herald from Arizona. “National housing analyst Metrostudy is forecasting good things for Southern Arizona. With new home construction down 34 percent to 7,228 starts, between April 1, 2006, and March 31, 2007, oversupply of new homes, due to speculative buying and over-generous lending practices, continues to decline. That is keeping the total of finished vacant homes at 1,593 units.”

“‘Tucson does not appear to be as overbuilt as some other U.S. markets,’ said Ben Sage, director of Metrostudy’s Arizona Division.”

“The analyst continues to rank Vail-Corona de Tucson as the most active suburban area, with 1,693 annual starts through the end of the first quarter 2007. It surged past Sahuarita and Green Valley, which experienced a 33 percent drop, due to rising prices and fewer vacant lots available.”

“By comparison, the Phoenix metropolitan area continues to experience a much larger inventory of unsold homes. Sage said, ‘one third of all inventory is finished and vacant.’”

The Review Journal from Nevada. “The W Las Vegas mixed-use project slated for almost 50 acres along Harmon Avenue was canceled Friday after minority partner Starwood Hotels and Resorts Worldwide pulled out of the project.”

“”In a brief e-mailed statement, the Edge Group said its partnership with Starwood is scheduled to end and the project ‘could not overcome numerous significant challenges.’”

“The Edge Group had bought the land from home builder D.R. Horton for $108 million. The W Las Vegas was to neighbor the 4,000-unit hotel-condominium project, Las Ramblas.”

“But poor unit sales forced Las Ramblas’ cancellation and it sold 25 acres and entitlements to the Edge Group for $202 million in June 2006.”

“Edge spokeswoman Maggie Feldman said company officials could not comment further now but added that the group is selling assets including the land.”

“The e-mail statement from Edge also said all condominium reservation deposits have been returned to the buyers. The company had held reservation agreements, but no hard contracts, for 750 units.”

Some housing bubble news from Wall Street and Washington. The AP, “Existing home sales rose at an annual rate of 6.4 million units last quarter, down 6.6 percent from a year ago, the National Association of Realtors said Tuesday. The national median existing single-family home price was $212,300, down 1.8 percent from a year ago when the median price was $216,100.”

“State existing home sales in the first quarter generally are below a year ago but more states are improving than reported in the fourth quarter of 2006, and home prices in most areas show that conditions are favoring buyers, according to the latest quarterly survey by the NAR.”

“‘Essentially, we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction, with a modest gain from the fourth quarter. Conditions changed fairly rapidly during the boom, but we need more patience now to see a slow, gradual recovery, which should start in the second half of this year,’ said Lawrence Yun, NAR senior economist.”

“NAR President Pat V. Combs said a flattening in home prices is encouraging.”

“‘It appears the worst of the price correction is behind us,’ she said. ‘More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who’ve been on the sidelines. Plentiful inventory and motivated sellers in many areas mean there are many opportunities to buy a home, especially if you’re in it for the long haul.’”

“The National Association of Realtors, in partnership with the Center for Responsible Lending and NeighborWorks America, introduced a new brochure today at NAR’s 2007 Midyear Legislative Meetings & Trade Expo. ‘Learn How to Avoid Foreclosure and Keep Your Home’ is the fifth mortgage-related brochure in NAR’s consumer education series.”

“‘Foreclosures threaten the very communities that Realtors work to build,’ said NAR President Pat V. Combs. ‘Realtors care as much about keeping families in their homes as we do about helping them find the home of their dreams.’”

From Bloomberg. “HSBC Finance Corp., a division of HSBC Holdings Plc, said profit slumped 39 percent in the first quarter. The U.S. mortgage lender flagged loan defaults may rise.”

“Net income in the three months to March 31 fell to $541 million from $888 million last year, mainly as HSBC Finance had to almost double the provisions set aside for credit losses to $1.7 billion, the Illinois-based company said in a statement filed to the Securities and Exchange Commission today.”

“The ability of HSBC Finance’s customers to repay the mortgages could be affected this year as interest rates on the remainder of their loans rise, the company said.”

“‘Many adjustable rate loans are expected to require a significantly higher monthly payment following their first adjustment’ given that interest rates have risen in the past three years, the company said.”

“The Home Depot Inc., the world’s largest home improvement store chain, cited erratic weather and continued weakness in the housing market as it reported Tuesday a 29.5 percent drop in first-quarter profit.”

“‘While we expected a tough quarter, this was worse than we expected,’ CEO Frank Blake said in a conference call with analysts. He said the housing market continues to be a challenge, and erratic weather conditions across the United States negatively affected the company’s spring selling season.”

“Blake said Home Depot is not expecting any ‘near-term market improvement.’”

The Canadian Press. “Forestry company Tembec Inc says it will shut down its Kirkland Lake, Ont. engineered wood products mill for at least two months to cut inventories because of the slumping U.S. housing sector.”

“‘Demand for lumber is down sharply, driven primarily by the dramatic decline in the level of housing starts in the United States,’ said Dennis Rounsville, president of Tembec’s forest products group. ‘This decline in demand has resulted in both lower prices for lumber and reduced operating rates in sawmills across Eastern Canada.’”

The Prince George Citizen. “Tolko Industries reacted Monday to continuing poor lumber markets and other cost issues by announcing a series of temporary sawmill shutdowns at its Interior operations.”

“‘The decline in U.S. housing starts, which has resulted in depressed commodity pricing, coupled with a strengthening Canadian dollar and high transportation costs have forced us to make these difficult decisions,’ said Mike Harkies, general manager solid wood and kraft papers for Tolko.”

“Lumber prices, driven downward by slumping U.S. housing starts and an oversupply of existing unsold homes, have dropped below the $230 US level, significantly lower than the highs of $400 US reached in 2004 and 2005.”

“The price levels, coupled with the impact of a higher Canadian dollar compared to the U.S. currency, haven’t been seen since the early ’90s, said forest industry analyst Kevin Mason.”

“‘It is very ugly out there,’ said Mason.”

The Wall Street Journal. “Fortress Investment Group LLC, the first hedge-fund manager to go public in the U.S., on Tuesday reported a 52% drop in first-quarter net income.”

“Fortress bought subprime mortgages from Fremont General Corp. in March. Federal regulators had halted Fremont’s home-lending business earlier that month.”

From Reuters. “A wide swath of U.S. banks tightened lending standards for nontraditional and sub-prime home mortgages in recent months, while terms for commercial and industrial loans eased amid tough competition, the Federal Reserve said Monday.”

“The Fed, in its April survey of senior loan officers, said 45% of domestic banks polled reported a tightening of nontraditional residential mortgage standards. More than half the institutions originating sub-prime mortgages also tightened credit standards.”

From CNBC.com. “‘I think we have some more pain to endure this year and next,’ added Bob Walters, chief economist at Quicken Loans, referring to weak home sales and pricing. ‘Industry-wide, about 10% to 15% of individuals who could have gotten a loan four months ago can’t get one today.’”

“‘The housing market looked like it was ready to bottom until the problems in the subprime market began to surface,’ said Celia Chen, director of housing economics at Moody’s Economy.com. ‘Because of the timing, that will prolong the housing correction a little bit more. The risks remain on the downside for housing.’”

“Mortgages in foreclosure rose 62 percent in April and the number of Americans falling behind on home loans will climb this year as home prices fall and lending standards are tightened, RealtyTrac Inc. said.”

“There were 147,708 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio. ‘We expect foreclosure activity to at least stay above last year’s levels for the remainder of 2007,’ CEO James Saccacio said.”

“In the first quarter, properties valued at $750,000 or more made up about 2.5 percent of all foreclosures, the highest since the first quarter of 2005.”

“‘It’s not just homes that are in poor areas or valued less going into foreclosure,” said Daren Blomquist, a spokesman for RealtyTrac. ‘The problem is widespread.’”

“Houses valued at less than $225,000 accounted for 56 percent of foreclosure filings last quarter, down from an average of about 65 percent during the two years RealtyTrac has collected the data.”

“A federal bailout is the wrong way to deal with a wave of foreclosures in the subprime mortgage market, the secretary of the Department of Housing and Urban Development said on Monday.”

“‘While I am sympathetic to the people who are in these tricky situations, I strongly disagree with the idea that a bailout is the answer,’ said Alphonso Jackson, top administrator for U.S. national housing policy.”

“‘In my mind, companies should not be rewarded for risky investments. The American taxpayer should not foot the bill for risky ventures,’ he said.”

The Providence Journal reports from Rhode Island. “The sharp rise in home foreclosures, according to data cited by U.S. Sen. Jack Reed, follows a run-up in house prices at a time when wages have remained largely stagnant. Reed and local housing officials yesterday laid much of the blame for rising foreclosures on mortgage lenders who sold borrowers ‘interest only’ loans with low teaser rates that are now adjusting upwards.”

“The homeowners are people such as Aida Maria Jansen, who got a no-down-payment loan less than a year ago to buy a $250,000 house that she cannot afford.”

“‘I didn’t even have a job,’ she said at the news conference. ‘They told me my payments would be $1,200 a month and to get a roommate.’”

“Aida’s mortgage was actually two loans which totaled about $2,000 a month. Last year, Jansen earned $11,212, according to her tax returns. ‘I have money for two more payments and them I’m totally broke,’ Jansen said after the hearing. ‘In nine months I’ve paid $18,000 on that house…I’m exhausting everything.’”

“Jansen said that she never should have qualified for the loan. ‘They all ripped me off,’ she said. ‘They put double my income to get this mortgage.’”

The Buffalo News from New York. “The buyers are well-heeled, even affluent, and their new homes will be among the most expensive ever built in Buffalo, luxury lakefront condominiums with price tags as high as $659,000.”

“And to help ensure the upscale condos sell, City Hall added an incentive, a 10-year break on property taxes. All at an average savings of about $100,000 for each home buyer.”

“‘I’ve never heard of such a thing,’ said Michael J. Wasylenko, a professor of economics at Syracuse University.”

“‘This is found money,’ said developer Carl Paladino. ‘The city is giving away tax revenue that doesn’t exist today. Besides, don’t we want wealthy people moving into the city?’”

“To hear Paladino talk, tax breaks are the difference between the project making money and losing money. He said the benefits help bridge the gap between the project’s high construction costs and, by national standards, the city’s low real estate values.”

“The tax breaks allow for higher prices, but Paladino said the higher prices are needed for the project to finish in the black. Not everyone buys that. ‘We don’t see any reason why it’s necessary to give tax abatements to prospective luxury homeowners,’ the homeowner association at a complex next door said in a statement.”

The Asbury Park Press from New Jersey. “If you thought the real estate market had hit bottom, think again. Increasing numbers of New Jersey homeowners are faltering on their mortgage payments, state and local records from the first three months of this year show.”

“At the current rate, there would be nearly 36,000 foreclosure filings statewide this year, up from 23,875 in 2006.”

“James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, New Brunswick, is concerned the state is in the middle of a multiyear housing down cycle, on par with the bust years of 1988 to 1992.”

“‘There’s no computer model that can figure this out,’ said Hughes, who studies regional economics. ‘We don’t know the full scale of the problems. If you bought in 2005 or 2006, you will be the one with the long-term correction. If you were a peak of market buyer, that’s a scary prospect.’”

The South Coast Today from Massachusetts. “With the numbers for the first quarter of 2007 in the books, Realtors are hoping they can finally shake words such as ’slumping’ and ‘cooling’ from the vocabulary describing the local housing market.”

“‘This is a wonderful time to buy a house,’ said Linda Hopps, president of the Greater New Bedford Association of Realtors. ‘The rates are great. The prices are good. There is a lot on the market so you have a lot to pick from.’ But ‘I think buyers are now afraid to make that jump because they keep reading everything in the paper that’s saying this is not the time to buy.’”

“Part of the frustration for Realtors is that the market is often compared to the real estate boom of 2003-05, during which prices were driven rapidly higher by a limited supply of houses, relative to the number of potential buyers.”

“‘The mind-set overall of the consumer has changed,’ said Ralph Grassia, president-elect of the Greater New Bedford Association of Realtors. ‘They’re not in the panic buying situation, which has taken the real estate market and made it more even.’”

“Caught up in the bidding frenzy, many new homeowners found themselves in over their heads with mortgages, taxes and utility expenses bigger than their budgets. Two or three years later, those houses are beginning to turn over.”

“‘There are a lot of them,’ Ms. Hopps said. ‘There really are. A lot of people qualified for mortgages for whatever reason and they didn’t look at the big picture.’”

Please post off-topic ideas, links and Craigslist finds here.