The Housing Bubble

It’s Friday desk clearing time for this blogger. “After rising rapidly for several years, house prices have stalled in North Jersey, according to the National Association of Realtors. One buyer who has benefited from the recent turn of the real estate cycle is Burt Guralnik, who started looking for a house in Teaneck more than a year ago.”

“At that time, he and his wife found prices a bit steep. But in a slower real estate market this year, the couple recently snagged a three-bedroom Tudor, saving more than $100,000 off the seller’s first asking price in the mid-$600,000s. ‘The prices have definitely softened,’ said Guralnik.”

“The Triangle’s ailing new home market weakened further in the first quarter as tighter lending rules eliminated many buyers. ‘The people who come to our market used to come with confidence to sign a contract,’ said Chris Martin Pulte division VP of sales and marketing. Now ‘they’re just kicking the tires. The house next door has been on the market 14 months.’”

“The number of Bay State homes put up for foreclosure auction nearly quadrupled last month as tough market conditions left financially strapped homeowners unable to refinance or sell.”

“‘There’s just not much people (in financial jams) can do these days,’ said Tim Warren of market tracker The Warren Group, which yesterday reported banks advertised 1,712 foreclosure auctions in April. That’s a 355 percent increase from a year ago, as well as the largest number of auction ads Warren has seen since the early 1990s real estate bust.”

“Thousands of Virginians have lost their homes since the beginning of the year, according to the most recent foreclosure data. The commonwealth’s foreclosure rates rose dramatically during the first quarter of 2007.”

“‘I think some people have gotten into homes that they find now they can’t afford,’ said Steve Baugher, executive director of the Virginia Association of Mortgage Brokers in Richmond.”

“‘It’s just too ironic that this subprime crash is happening at the same time as these foreclosures,’ said Mike Burnette, spokesman for (a) nonprofit, fair housing group in Richmond.”

“Cypriots have gone on a massive borrowing spree encouraged by easy and flexible loan products from the commercial banks with the majority snapping up property, which in the process has fuelled prices ever higher.”

“The lending frenzy in March must have been a record considering that in March 2007 alone, total lending surged by CYP 594 mln compared to February 2007, while in the first three months of the year, total lending is up CYP 830 mln.”

“Compare that to the total Jan-Mar 2006 increase of CYP 342 mln and one realizes the dimension of the lending craze now dominating the country.”

“The Taupo district’s relatively slow population growth - about a third of the national average, has some people questioning the prudence of the ‘build it and they will come approach’ that has seen many large-scale housing developments planned for the district in recent years.”

“‘They’re (developers) hoping for another Queenstown but I don’t think Taupo has all the attractions Queenstown has, there’s just not enough employment opportunities,’ said Mapara Valley Preservation Society secretary Sarah Foreman. ‘Unless there’s a huge amount of people coming for some reason we don’t know about, I think it’s being very optimistic.’”

“Richard Fisher, president of the Federal Reserve Bank of Dallas, said Wednesday that the state’s employment growth might slow this year but would still be twice the national rate of expansion. He attributed that to an influx of Californians and Floridians, who are drawn by Texas’ lower cost of living.”

“He went on to say: ‘Our housing market is softening, but not as aggressively softening as in California and the rest of country, Arizona, Nevada, the upper Midwest and so on.’”

“‘We have a lot going for us,’ he said, ‘This is a very affordable place to live, and we’ve got the best Mexican food.’”

“The number of homes for sale in major markets ballooned in April, according to a new industry report, adding further evidence that the U.S. housing slump is still trying to find a bottom. In April, there were 743,367 existing house and condo properties listed for sale in the 18 major metro areas tracked by ZipRealty. That was up 33 percent from a year earlier and 7.2 percent higher than in March.”

“Some of the markets ZipRealty covers suffered far bigger inventory expansions than the total jump. Los Angeles reported a 39.7 percent leap since April of 2006, Miami climbed 53.9 percent and Seattle soared 63.2 percent.”

“More Seattle-area homeowners are facing foreclosures this month, according to new statistics.”

“‘We’re definitely seeing an increase in the number of people who are contacting us,’ said Erin Rearden, a mortgage default counselor. ‘We’re seeing people in much, much worse situations than we ever saw before — people in loans where the interest rate is 9, 10, 11 percent, the payments are more than their income, just scary loans.’”

“Many facing foreclosure already have refinanced at higher values, Rearden said. ‘People seem to be moving pretty quickly to take the equity out of their homes.’”

“The Portland-area median home price dropped in April, according to the Regional MLS. That was the first March-April drop since 2001.”

“The normal spring bounce in prices appears weak to nonexistent this year, said agent C. Morgan Davis. Last year, buyers would expect to pay more for a house each month, but this year, ‘The market wants more house for the same money,’ he said.”

“Home prices have grown far faster than nearly everyone’s incomes in recent years. ‘The people who would have normally bought their first house in 2007, they bought in 2005,’ said Bill Conerly, an economist in Lake Oswego. ‘So here it is in 2007. Can we get the people who would buy in 2009 to buy now? No. Because prices are too high.’”

“We asked visitors to the Lansner on Real Estate blog if any homeowners facing foreclosure should get government aid. And the results from 870 votes cast online in what’s an unscientific sample of public sentiment were stark: 9.2 percent: Yes. 90.8 percent: No.”

“Visitor comments: ‘Finally something all bears and bulls can agree on.’”

The Sacramento Bee reports from California. “Here’s the forecast from two more experts on the housing market: The slump is likely to continue through the rest of this year and most of 2008. April sales numbers show little reason to doubt them. ‘I think we’re going to be dealing with this all the way through 2008,’ Countrywide Home Loans Executive VP Jack Haynes told Sacramento home-building industry representatives.”

“Sacramento County’s median price of $341,500 compared with $367,250 a year ago; Placer County’s median of $450,000 was down from $477,000 last year.”

“Timothy Sullivan of Sullivan Group Real Estate Advisors blamed the market slowdown on tighter lending rules as well as the lack of urgency among other buyers. ‘Right now there is fear about housing,’ he said. ‘There is fear you can’t win at housing.’”

The Sacramento Business Journal. “Brokers don’t know how long it will be before the tide of foreclosures recedes. Across the Sacramento area, the inventory of homes set for foreclosure sale stands at 2,175, with another 5,274 homes owned by banks or mortgage companies.”

“Another 7,000 homeowners are at least 60 days late with their mortgage payments.”

“‘It’s going to be a rough year and a half,’ said Michael Lyon, CEO of Lyon Real Estate. He predicted the effects might reach into 2009.”

“‘If you look at the listings, half of them are short sales,’ agent Karen Berkovitz said as she scrolled through a screen showing listings in the Elk Grove area. ‘That’s scary.’”

“‘You have to ask, what do these places have in common? These are areas that grew too fast. This is where the homes were selling in 2005 and 2006, just before the market changed. The buyers bought on impulse,’ said broker Carlos Kozlowski.”

“The upside, Kozlowski said, is that falling prices means there are people who can now afford to buy a home who couldn’t before.”

The Union. “Median house prices in Nevada County continued to slip in April compared to prices a year earlier. Real estate agents cited the local effects of a national tightening of credit requirements as part of the cause.”

“The county saw 141 house and condominium sales recorded at the county recorder’s office for the month, with a median price of $458,000, according to DataQuick. The median price a year ago was $500,000.”

“‘The prices are coming back to reality,’ Realtor John Gibson said. ‘I have a whole list of people who are waiting for (the) market to settle out. They’re hesitant right now because they don’t know if prices will drop.’”

The Valley Voice. “Real estate sources say the existing home resale market is slow this spring, just when it ought to be buzzing. ‘We saw a spurt of new loans in April but they have dropped off in May,’ says Greg Sherman with AG Mortgage of Visalia.”

“‘The high level of existing home inventory was last September when there were 2300 homes on the market. Things are really soft out there,’ says realtor Brad Maaske of Investors Realty in Visalia. He says that the Fresno market is worse off with 6400 homes available for sale.”

“Visalia realtor Ed Evans says he is aware of perhaps 75 homes in the Visalia marketplace that are going through foreclosure and will be sold—in turn likely driving down the market price here more.”

“One factor that has affected prices here is that ‘we don’t see the number of potential buyers coming from L.A. or the Bay Area looking to buy here because they too can’t sell their homes,’ says Maaske.”

The Daily News. “Housing affordability for first-time buyers improved slightly in Los Angeles County and across the state in the 2007 first quarter, although prices remained high despite tumbling sales, a trade association said Thursday.”

“Jonathan Weiss, senior investment associate at Marcus & Millichap Real Estate Investment Services, said renting is now less expensive than owning. ‘The average monthly payment differential between owning and renting is about $3,000,’ he said of the state average.”

“Andrew LaPage, an analyst at La Jolla-based DataQuick Information Systems, said that affordability is increasing in areas that have seen an erosion in the median price. This is expected to spread to other areas as the market slump continues.”

“‘I’m certainly open to the possibility you may see increased affordability in lower cost neighborhoods in the next six to 12 months,’ he said.”

The Union Tribune. “A record 525 San Diego County dwellings were reclaimed by lenders or sold at auction in April, surpassing the previous record of 433 properties in March.”

“There were 1,346 notices of default issued, the first step in the foreclosure process, DataQuick reported yesterday. That was more than double the 554 notices in April 2006.”

“Delores Conway, director of the USC Casden Real Estate Economics Forecast, said a rise in the use of adjustable loans during the housing boom has played a significant role in foreclosures today.”

“‘This is the wild card we were all wondering about,’ she said. ‘As adjustable mortgages are reset, the question is, ‘How many people can afford the payments?’”

“California ‘documented the largest foreclosure total of any state for the fourth month in a row,’ RealtyTrac said. ‘The state’s foreclosure activity…was up more than 200 percent from April 2006.’”

The Gilroy Dispatch. “A housing slump that’s erased millions in equity will mean lower property taxes for more than 10,000 Santa Clara County homeowners this year.”

“While that might strike cash-strapped Silicon Valley residents as good news, it also means school districts, cities and other agencies will lose millions of dollars in revenues.”

“‘It means less money for everyone,’ said David Ginsborg, deputy to the Santa Clara County Assessor. ‘And it’s not necessarily good news for homeowners. Nobody wants to be losing equity.’”

“‘It indicates a softening of the real estate market,’ said Santa Clara County Assessor Larry Stone. ‘Properties purchased in the last two or three years have declined in value.’”

“The economic downturn reflects a cooling period in 1995 when close to a third of the county’s residential properties were adjusted for lower taxes.”

“‘A timeline is difficult to do, but it’s definitely a cycle,’ said Peter Gallo, president of Gilroy-based Gallo & Gallo Real Estate Appraisals, Inc. ‘We’ve seen this before…it’s definitely a buyers’ market.’”

Some housing bubble news from Wall Street and Washington. “Former Federal Reserve Chairman Alan Greenspan said rising defaults in the subprime mortgage market and tightening loan standards will bring a ‘continued period of weakness’ to housing, making it difficult to forecast growth in the next year.”

“‘We have considerable difficulty,’ Greenspan said Thursday in a speech. ‘We have never been through anything like this. I can’t say how it is going to come out.’”

“Greenspan said the housing market has been hurt by a ‘huge surge in subprime borrowing’ in the past few years, with imprudent loans made on the basis of rising home prices, and a similar surge in ‘Alt-A’ mortgages.”

“‘We are sitting in a market that all of a sudden prices are flattening out,’ Greenspan said. ‘You can immediately see a backing up of problems.’”

“His outlook has been more pessimistic than that of current Fed Chairman Ben Bernanke, who said in a speech Thursday that the housing slowdown won’t have a broader impact.”

“‘We do not expect significant spillovers from the subprime market to the rest of the economy or financial system,’ Bernanke said in a speech.”

From CNBC. “In a speech today at the Federal Reserve Bank of Chicago, Fed Chairman Ben Bernanke detailed the many ways in which financial regulators, including the Federal Reserve and Congress, could act in order to prevent a recurrence of the subprime mortgage crises.”

“My question, even with steps 1 and 2, is: why is all this a new idea? I mean, I thought all this stuff was in place already; you know, like the federal government might have already had some rules in place to keep banks and lenders from ripping me off.”

“Chairman Bernanke did teach me a few new terms in today’s speech: TILA, HOEPA and Regulation Z. ‘The purpose of Regulation Z is to ensure that lenders provide borrowers or potential borrowers with clear, accurate and timely information about the terms and conditions f loans,’ Bernanke said.”

“I’m still asking the same question. If all this stuff is there already, then why is housing in the mess it’s in now?”

“‘The Chairman misspoke when he said that the Federal Reserve is ‘authorized’ to write rules by the Home Ownership and Equity Protection Act (HOEPA). In fact, the law requires the Federal Reserve to write rules to protect home borrowers from unfair or deceptive practices,’ claims a ‘Statement of Senator Dodd in Reaction to Bernanke Speech.”

“‘I hope that Chairman Bernanke is right when he says that a slumping housing market will not affect the broader economy, but I would not bet the house on it,’ (said) Senator Chuck Schumer.”

From Bloomberg. “OceanFirst Financial Corp., a New Jersey-based banking company, will shut its subprime mortgage business and said the unit’s president resigned after defaults were hidden from top management.”

“The bank blamed loans it made to borrowers who weren’t required to document their income, according to a presentation for investors included in a federal regulatory filing today. The mortgages covered as much as 100 percent of a property’s value.”

“OceanFirst said some of the loans made in 2006 quickly soured, and unnamed officials at the Columbia Home Loans unit ‘concealed’ the defaults until February 2007. New subprime loans were halted by the bank in March, and OceanFirst has taken $21.6 million in charges.”

The Herald News. “Nationwide, reported cases of mortgage fraud increased by 30 percent between 2005 and 2006, according to data released on Wednesday. But in New Jersey, reported fraud incidences more than doubled in the first part of 2006. The state recorded the highest increase in the country.”

“New Jersey and other states enacted anti-predatory lending laws in the last several years to crack down on mortgage fraud. But New Jersey’s law only covers refinancing, not purchase loans. And at the request of loan rating companies, lawmakers tossed a statute ensuring a loan was in a borrower’s best interest, Wolfe said.”

“For unscrupulous loan officers, risky mortgages translated into quick cash through high fees and interest rates. And even mortgage bankers admit that greed was a motivator.”

“‘It’s bank robbery without a gun,’ said Corey Carlisle, a senior director at the national Mortgage Bankers Association. ‘Unless there’s a real threat of enforcement, they think they can get away with it, because they can.’”

The Grand Rapids Press. “Foreclosures declined locally and across Michigan from March to April, but Grand Rapids real estate agents said the market has yet to hit rock bottom.”

“Real estate agent Gail Brinks said 66 homes went to sheriff’s sale this week in Kent County alone. Sometimes, there can be as many as 100 per week, she said.”

“Veteran real estate agent John Schlundt Bodien believes conditions are likely to worsen before they get better. ‘We can’t continue to have fraudulent appraisers,’ he said. ‘People are offering loans for property with the wrong values.’”

“Willis Blackshear combs through Ohio mortgage filings, looking for time bombs to defuse.”

“The Montgomery County official, who oversees real estate filings in Dayton, is searching for loans with balloon payments, or interest rates that may soon rise to unaffordable levels. He has found more than 3,100 in Montgomery, which had one of the highest foreclosure rates in the state last year.”

“‘It’s crazy,’ Blackshear said. ‘I knew it was bad, but I didn’t know it was this bad.’”

The Business Journal. “Real estate appraisers face a dramatic increase in their licensing requirements beginning next year…adopted by a national foundation authorized by Congress to establish such rules.”

“But, the updated criteria may, or may not, be a hedge against repeats of the current real-estate mortgage lending meltdown in which some appraisers have played both witting and unwitting roles.”

The Tallahassee Democrat reports from Florida. “Home sellers should heed the advice of their real-estate agents, especially in this current competitive environment, according to longtime Realtor Jan Soto. ‘Sellers need to do everything they can to make their homes, properties look good,’ Soto said. ‘It has to be priced right.’”

“‘Our number of closed sales improved slightly (over March), but we’re dramatically putting more listings on the market,’ said Don Pickett, a Realtor and chairman of the market trends and research committee at the Tallahassee Board of Realtors. ‘It’s like we’re taking one step ahead, one step behind.’”

“‘I’m not really sure why we’re getting more and more on the market. We can’t say it’s all investors,’ he said. ‘Some people really hesitated putting things on the market a year or two years ago. Now they’ve waited, and they’re doing it.’”

“Pickett recently asked members of the local real-estate industry why there is currently so much residential inventory. They cited several reasons, including the following: ‘Sellers that were on the fence about selling and waiting until the market ‘peaked’ came in too late last summer/fall.’”

“‘Qualifying for a loan has become more difficult for some first time home buyers.’ ‘Overbuilding.’ ‘Housing prices have surpassed incomes in many metro areas.’”

The Herald Tribune. “Hank Fishkind, Florida’s premier economist, believes that the downturn in the residential real estate market is over. ‘I argue that housing has stopped going down,’ Fishkind said. ‘It is weak. It is painful, but it is not going to get any worse.’”

“For the several hundred builders, developers, Realtors, mortgage brokers and other members of Southwest Florida’s real estate industry, Fishkind’s comments came as a welcome relief after two of the the toughest years in more than a decade.”

“When it comes to the region’s condo market and sales of raw land, however, Fishkind was not nearly as ebullient. ‘Ugly, ugly,’ was how the economist referred to the condo market, in which sales have plunged to about 120 per month from about 600 per month during the boom.”

“‘People who are closing on condos now and thinking of reselling them are going to find that there is no liquidity,’ said Fishkind.”

“Prospects for land sellers are even worse. ‘Land prices were bid up in the expectation of rising home prices,’ Fishkind said. ‘We all know that didn’t happen. Prices have not returned to equilibrium. It is a dangerous place to be.’”

The Tampa Tribune. “Florida now leads the nation in the number of cases of suspected mortgage fraud. Experts say the fallout from Florida’s hot housing market is leading lenders to pick up on bad loans originated last year.”

“‘One of the things that fueled growth in fraud is the rapid growth in prices in the housing market,’ said John Mechem, spokesman for the bankers association. ‘When people see all that money, it becomes a target for mortgage fraud schemes.’”

“The state’s overall housing economy could suffer as mortgage fraud pushes up foreclosure rates, which causes more homes to flood the already crowded real estate market. As homeowners compete with each other and lenders, home prices could go down.”

“‘When banks have to take these homes back, they have to get rid of them fast,’ said real estate analyst Mike Larson. ‘They are willing to drop prices and undercut everybody just to get the homes off their books.’”

“The fraud report comes on the heels of another dim housing report released Tuesday by the Florida Association Realtors. Amid such slow sales, mortgage origination volume is the lowest since 2001. Lenders, however, report 30 percent more suspicious mortgage loans were made in 2006 than a year earlier, according to a research firm.”

“Doug Pollock, president of Sanford-based Information Data Services, which investigates mortgage fraud for lenders, said he’s not surprised at Florida’s rise to No. 1. ‘2006 looks bad, and I think 2007 will be worse,’ he said. ‘The only thing keeping us afloat right now is that the Fed is keeping the prime loan rate low, but at some point we have to pay for our sins.’”

“‘I don’t think we’ve seen the fallout of the subprime lending industry,’ Pollock said. ‘It may be another couple of years before it gets better.’”

The Bradenton Herald. “The number of mortgage-fraud cases reported by Florida lenders jumped by 43 percent from 2005 to 2006, according to a national study.”

“‘It’s really embarrassing,’ said Greg Hallam, president of the Mortgage Bankers Association of Florida. He and others in the industry said an unprecedented boom and subsequent slowdown in Florida’s housing market is behind the surge in fraud.”

“As home values skyrocketed in 2004-05, more people sought to cash in through inflated appraisals, exaggerated incomes and other fraudulent means. Lenders also relaxed their lending standards and practices, making them more vulnerable to fraud.”

“‘There’s always been a lot of fraud and misrepresentation in the Florida market, but a lot of it was masked by appreciation’ in property values, said Merle Sharick, one of the report’s authors.”

“But when values began dropping and mortgage defaults started rising in 2006, lenders began taking a harder look at their loan portfolios, and uncovering more fraud.”

“That likely will continue through this year, a local mortgage lender predicted. ‘Unfortunately, I think we’re going to be seeing more of it,’ said Pete Minarich, a senior lending officer for CTX Mortgage Co. in Bradenton. ‘I think it’s going to get worse before it gets better.’”

“A record number of delinquent taxpayers have two weeks to settle up or face an investor who buys the debt, adds 10 percent and tries to collect. The bills not paid by June 1 will be sold in the last up-close-and-personal auction to be held by Manatee County.”

“In all, about 96 percent of 165,000 tax bills, which were mailed in November, were settled. That left 5,930 property owners unpaid, a record, the tax collector’s office said.”

“Manatee’s delinquent population is higher than ever, due mostly to a greater frequency in foreclosures. ‘People are stuck with second homes because they thought they could sell the first,’ said Susan Profant, a paralegal at the tax collector’s office.”

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