The Housing Bubble

The Orange County Register reports from California. “Location, location, location is the mantra of the real estate industry, but at a Southern California home foreclosure auction Saturday, it was all about price, price, price. And even at $1.95 million, the highest bid on any of the 90 properties sold, the price was right for William Liao of Irvine, who won the bid on a three-bedroom, four-bath ocean view Laguna Beach home.”

“‘I thought it was a good price,’ said Liao, noting the previous value was $2.789 million.”

“With real estate sales plummeting and thousands of homeowners in trouble on their mortgages, would-be homebuyers see an opportunity that has been scarce for a decade, foreclosed homes.”

“As recently as a year ago in April, there were only 22 foreclosures in Orange County, according to DataQuick. That rose to 234 this April. As the numbers start to grow, lenders are beginning to turn over their properties to companies like Irvine-based Real Estate Disposition Corp., which oversaw Saturday’s foreclosure auction.”

“The three auctions the company is holding this month in San Diego, Los Angeles and Riverside are the first since the recession of the mid-1990s, said Rob Friedman, REDC chairman. He expects more to come as the home inventory builds.”

“Winning bids on the 15 properties in Orange County ranged from $225,000 on a Garden Grove condo previously valued at $299,000, a 25 percent discount, to Liao’s bid. Many were 15 percent to 20 percent below the previous value.”

“The bid price also did not include a 5 percent buyer’s premium charged by the auction company.”

“Several winning bidders said they were happy, but had hoped to pay less. ‘There was too much competition,’ said Ton Kim of Bellflower, who had the winning $495,000 bid on an Anaheim house valued at $560,000. ‘I was hoping to pay $430,000.’”

“The start of Orange County real estate’s 2007 has been a major disappointment, at best. Hopes had circled that buyers would…get their shopping patterns reinvigorated by the generous selection of homes for sale, a growing flock of somewhat motivated sellers and relatively affordable financing. Instead, buyers are increasingly saying ‘No, thank you.’”

“DataQuick stats show 10,661 O.C. homes of all stripes sold in the first four months of this year. That’s down 21 percent from 2006 after a 21 percent year-over-year drop in 2005. That puts 2007’s buying pace 22 percent behind the 1988-2007 average.”

“And this year’s sales pace is so sluggish that only two years – 1993 and 1995, started any slower for homebuying in DataQuick’s two decades of O.C. sales history.”

“What’s clear is that many shoppers, for now, are choosing to watch, not act. What’s unclear is what will get them to become buyers.”

The Tribune. “San Luis Obispo County home sales declined nearly 25 percent in April and the median price also fell slightly compared with the same month a year ago, according to DataQuick.”

“A total of 266 homes were sold last month, down from 354 in April 2006. That represents a 12-year low for home sales in April and the 19th consecutive month that home sales have declined year-over-year.”

“April was also the third month in a row that the median price for resale detached houses ($540,000 in April, down 5.7 percent from a year ago) declined from the previous year.”

“‘It’s not just Poly parents. I’m also working with local buyers who are saying they’re ready to buy because prices have come down, and they’re looking back at the amount they paid for rent last year,’ (realtor) Sean Fitzpatrick said. ‘They say, ‘I might as well buy and have the potential for appreciation.’”

“In the North County, houses are taking longer to sell and inventory has gone up in some areas. Mark Farley of ReMax Parkside in Paso Robles reported that 477 single-family homes are now on the market in that city.”

“The market, Farley believes, is ‘going through a cycle right now.’ But as sellers become more realistic about their prices, buyers will respond. ‘We had to find who the real sellers are,’ he said. ‘Buyers can be intimidated. No one wants to think they spent too much.’”

The Times Herald. “Vallejo’s downtown revitalization project likely will not meet its June 1 start deadline and will require another extension, a Triad Communities spokesman said Friday.”

“‘It was sort of a perfect storm, with the housing market tanking and Triad making some mistakes when its builder pulled out,’ said Vallejo City Councilwoman Stephanie Gomes.”

“‘It’s a difficult economic time to do home building in Vallejo, where home prices have softened while construction costs have continued to increase unabated,’ said project manager Mark Ruebsamen. ‘Downtown needs this project badly to keep the area from spiraling.’”

The Press Enterprise. “Despite the Inland region’s softening housing market, developers are still banking on McSweeny Farms, a major master-planned community that could bring about 4,000 new residents to an area east of Diamond Valley Lake.”

“The median price of a home in Riverside County dropped last month for the first time in a decade and home sales declined 45 percent, according to DataQuick. That and a decline in sales of almost 47 percent in San Bernardino County reflected the continued weakening of the region’s market.”

“There are two ways to look at the situation, Inland economist John Husing said. Demand for housing is expected to remain weak for the remainder of the year, and could stabilize by next year. After that, he said, demand for housing could resume.”

“‘It’s not going to go on forever,’ Husing said about weak market conditions. ‘Southern California still has a housing shortage.’”

The Sacramento Bee. “A red-hot housing market, fueled by loose credit and low interest rates, pulled California out of the brief economic slowdown after the collapse of the dot-com boom, but now housing has flattened, casting a pall of uncertainty over the state’s economic future.”

“Whether the post-housing plateau is equally brief or the harbinger of a longer-term slide will affect millions of workers and their families, but state and local government officials, whose budgets were fattened by the housing boom, are nervous as well.”

“The Legislature’s budget analyst, Elizabeth Hill…warns that the extent of the housing downturn is still being plumbed and that rising oil prices could generate a broader downturn.”

“The state is just beginning to feel the potential impacts of the housing slump on local property taxes. Housing starts have declined, tens of thousands of homes are being marketed below their original sales prices.”

“Economically, California appears to be in somewhat of a holding pattern. It has seen the dot-com and housing bubbles inflate and deflate and is waiting for the next big economic generator.”

The Bakersfield Californian. “About 20,000 Kern County homeowners will get a slight break on their property tax bills this September. The decreases, the result of falling home prices, will mainly affect homeowners who bought between July 2005 and June 2006, when the real estate market was at its peak.”

“Many of those homes’ values have fallen below their original purchase price, and county assessors are reviewing properties and lowering their values, as required by state law.”

“Most homes under review have dropped 2 percent in value, according to County Assessor-Recorder Jim Fitch. Reassessments are based on Jan. 1 home values.”

“For the county, the reassessments still translate into an increase in property tax revenues. But that may change if the real estate market fails to pep up.”

“‘I anticipate that we could be doing a lot more properties and that we could see a 10 or 15 percent drop from January 2007 to January 2008, if the trend continues,’ Fitch said.”

The Clarion Ledger reports from Mississippi. “The national housing market has been cooling for some time, but local firms say the metro market, while it may have some problems, is generally bucking the trend. Only sales of high-end homes priced at $500,000 and up are languishing.”

“‘The high-end homes just aren’t selling as fast,’ said David Smith, VP of the Home Builders Association of Jackson.”

“‘Below the $300,000 price point, where there is a high demand, we’ve got a lot of inventory, but it’s consistent with the number of sales we have,’ said Crye-Leike real estate agent Dan Grimmett. ‘When you get up in the higher price points, the $500,000 and above, we do have an abundance of supply.’”

“That hasn’t stopped builders from focusing on the high-end homes though. There are 29 homes for sale in Madison County with listing prices more than $1 million, according to the MLS. ‘We don’t have 29 buyers,’ Grimmett said.”

“Ten $1 million homes were sold in Madison County during the last year, he said. ‘So we have about a three-year supply of $1 million homes,’ Grimmett said.”

“One of the houses Grimmett has been trying to sell on the lake in Ridgeland’s Bridgewater subdivision, was appraised at more than $1 million but has a $995,000 listing price. ‘We’re keeping it out of that $1 million-plus market,’ he said.”

“Smith said, as a contractor, he doesn’t understand why builders continue to focus on high-end homes. ‘The bigger homes are more fun to build,’ Smith said. ‘But the business is being saturated.”‘

“Smith has seen some builders with 10 to 15 $500,000 homes in inventory, he said. ‘That’s a lot of money to have tied up,’ he said. ‘I’m not sure if maybe they just aren’t business-smart or what. I just don’t really understand it.’”

“Smith said some builders have experienced foreclosures as they wait for the houses to be sold, but he did not have specific details. ‘We’re definitely seeing some fallout here,’ he said.”

“Some builders are adjusting to the market’s demands by switching to the $200,000 and below range, Smith said, while others have decided to construct fewer homes. ‘I’ve intentionally slowed down this year,’ Smith said. ‘It would help the market if everyone did that.’”

The Shreveport Times from Louisiana. “When some lenders opened the door to everyone wanting to get a slice of the American dream, a home with a neatly manicured lawn of their own, people stepped through. Bad credit? No problem. Not enough money for a down payment? No problem.”

“‘There are a lot of people who closed on loans who shouldn’t have been approved,’ said Mike Anderson, president of the Louisiana Mortgage Lenders Association.”

“Though other areas in the nation are doing worse, the Shreveport-Bossier City area is no exception to the trend. In Caddo Parish, the number of foreclosures jumped from six in March 2006 to 46 a year later, according to RealtyTrac. That latest figure was only one more than the 45 reported for February.”

“Foreclosures reported for Bossier Parish jumped from one in March 2006 to 17 for March 2007.”

“The substantial jump could be partly attributed to a moratorium on foreclosures for hurricane-ravaged areas that expired in May 2006. However, Darin Domingue, deputy chief examiner for the state’s Office of Financial Institutions couldn’t say what accounted for the jump in foreclosures in the Shreveport-Bossier City area.”

“‘It’s a little bit hard to see the impact Katrina would’ve had on these parishes,’ said Daren Blomquist, for RealtyTrac.”

“Donna Johnson, branch manager for Allied Home Mortgage in Shreveport, believes the same thing that is hitting struggling homeowners nationwide is impacting homeowners locally. The branch is getting calls from customers in need of refinancing because they have waited too long, she said.”

“Higher home prices and rising property taxes also could be part of the problem. ‘The thing about Louisiana is we have not incurred the incredible price increase in housing that other states have,’ said Dave Brennan, president of Brennan Mortgage, adding $100,000 or $150,000 will get buyers a decent house in Louisiana. ‘Then again, our income is not as high as other states.’”

“But, ‘Louisiana just doesn’t have that much of those type products,’ Domingue said of subprime loans. ‘Only 13.9 percent of the Louisiana market was subprime.’”

“However, the industry that experienced a boom is changing. Fears of feds stepping in already have put some lenders on edge. ‘Washington is working on it,’ Anderson said. ‘Credit has already tightened. People who were getting approved for a mortgage three months ago, those same people are being rejected today.’”

The Associated Press reports on Texas. “On former grazing land more than 15 miles north of downtown (Fort Worth), workers on bulldozers are carving out pads for upscale apartment buildings that will soon sprout from the prairie.”

“‘Right now, rental housing is extremely cheap compared to for-sale housing,’ said Steve Patterson, chief executive of Florida developer ZOM Holding Inc. ‘The difference can be 40 percent or more,’ even after the tax deduction for mortgage interest.”

“Rentals are also getting a boost from tighter lending standards, which make it harder for people with marginal credit ratings to buy property.”

“Some developers believe the biggest factor is the weak housing market itself. During hot housing markets, like the early 2000s, young people believed that if they didn’t buy immediately, prices would rise so fast that they could never afford a house or condo. That urgency is gone.”

“‘A lot of them are going into rentals, and they will continue to do that until the for-sale market returns or the psychology of buying becomes positive again,’ said Ron Terwilliger, CEO of Trammell Crow Residential, one of the nation’s largest developers of condos and apartments.”

“Apartment vacancy rates remain high in historical terms. According to the Census Bureau, rental housing vacancies were 10.1 percent in the first quarter of this year, down only three-tenths of a point from their high in 2004.”

“Developers say much of that is the lingering effect of overbuilding in the 1990s. They say many of the vacancies are in older properties that aren’t appealing to most renters. That’s why they’re building new ones, and often upscale.”

“‘This year, for the first time in many years, there will be a burst of new apartment construction,’ said Alan Nevin, director of economic research at MarketPointe Realty Advisors.”

“Some of that burst will come from projects that were originally planned as hotels or condominiums. In March, Trammell Crow bought an abandoned condo project in downtown Denver and plans to build about 450 luxury apartments on the land.”

“In San Diego, builder D.R. Horton Inc. recently sold a lot it planned for condos to an apartment developer at a loss of $3 million plus costs.”

Some housing bubble news from Wall Street and Washington. “Retailer Lowe’s Cos. reported a lower-than-expected first-quarter profit on Monday as the slower U.S. housing market pressured sales and cut its full-year earnings forecast. In a statement, Lowe’s said a difficult U.S. housing market, tough comparisons to hurricane rebuilding efforts and falling lumber prices pressured results.”

“Last week, industry leader Home Depot Inc. posted a 30 percent decline in first-quarter profit as its retail store sales fell.”

For Reuters. “Troubles in the U.S. housing market will weigh on economic growth this year even more than earlier estimated, according to a forecast of economists released on Monday.”

“The survey of 48 economists taken between April 19 and May 8, found that housing market troubles, particularly those in the risky subprime mortgage lending market, will drag out through this year. ‘Residential investment remains a dominant force dampening growth in 2007,’ NABE wrote.”

From MarketWatch. “The spring housing market is turning out to be something of a dud, dashing hopes of a turnaround. ‘The housing market is struggling to get back on its feet,’ according to economist Sal Guatieri.”

“‘The spring-selling season is coming well below expectations,’ agreed Mario Ricchio, a housing analysts with Zacks.com.”

“Many factors are at work. Buyers are hesitant to buy a home if they think prices are falling. Sellers have pulled homes off the market, waiting for prices to rebound. In addition, tightening lending standards are hurting home buyers. At the same time, speculators are fleeing the market, Ricchio pointed out.”

“Countrywide Financial Corp. CEO Angelo Mozilo said on Monday that proposed regulation in the subprime mortgage industry would help crooks while hurting legitimate lenders and the housing market.”

“Mozilo said current guidelines proposed by regulators would exacerbate problems in the housing market. ‘The reason why people can’t sell their houses is there are no buyers around,’ Mozilo said. ‘And there are no buyers around because they can’t get the financing.’”

“Kieren Quinn, chairman-elect of the MBA, acknowledged in the Mortgage Bankers Association conference’s opening remarks that subprime woes had given the entire mortgage industry a black eye.”

“Quinn also drew comparisons to Major League Baseball’s steroids scandal. He said the industry needed to continue to scrub the industry, ‘or we’ll get ugly, ugly regulation.’”

The San Francisco Business Times. “Subprime mortgage lending’s deep freeze has sent a chill over the rest of the mortgage industry as layoffs spread to those who lend to the more creditworthy.”

“GreenPoint Mortgage, a unit of Richmond, Va.-based Capital One, laid off 70 employees. The company makes so-called ‘Alt A’ mortgages, which go to borrowers that fall between prime and subprime. A big part of GreenPoint’s business is making jumbo loans, those that exceed Freddie Mac and Fannie Mae’s loan limit of $417,000.”

“Another broker hard hit by the downturn is Lending Tree, which funnels loan applications to lenders across the nation. The Charlotte, N.C., company said this month it will lay off 440 workers, or 20 percent of its staff.”

“San Rafael mortgage broker Paul Financial let go of 36 employees this month. Peter Paul, president of Paul Financial, said the company won’t make money this quarter given the drop-off in lending and the decision to set aside reserves for loans that might go bad down the road.”

“Looser lending in the Alt A and other segments of the mortgage market is now taking its toll. ‘Some lenders were really making Alt B loans,’ Paul joked.”

National Mortgage News. “The Illinois Association of Mortgage Brokers has sent out an alert to its members, warning that if a new proposed amendment passes bankers and brokers will not be able to originate any ’stated-income’ or ‘non-income-verification’ loans. The trade group fears that if the language passes, loan offices will be held ‘personally responsible’ for their actions and could have their personal assets attached by the state attorney general.”

“A large hard-money lender is on the verge of closing its correspondent division, according to one industry source who has played in that market. The source, requesting anonymity, said the lender also is entertaining buyout offers from two groups.”

“Are non-depository subprime funders beginning to see some relief in the secondary market? ‘If we get 101 for a loan we consider ourselves fortunate,’ said the president of one West Coast-based B&C shop. ‘If we get 101.5 we consider that a fortune.’”

“Prices offered for nonperforming second liens that were part of 80/20 combos are still at rock bottom, in the range of $0.08 to $0.10 on the dollar.”

The Philadelphia Inquirer reports from Pennsylvania. “With the spring real estate market more than halfway to its traditional end-of-June close, many agents are saying that they - and the buyers and sellers they deal with - have finally adjusted to post-housing-boom conditions.”

“In the suburbs, ’sellers are more educated about the realities of the market than they were six months or a year ago,’ said John Duffy of Duffy Real Estate. ‘Most know what ‘pricing properly’ means, although there are a few exceptions.’”

“With so many houses for sale, Duffy said, ‘buyers are spending more time, and aren’t just looking at a property once, but coming back two or three times for each listing.’ More than 60,000 units are on the market.”

“Although sellers in other regions of the country appear to be panicking, agents and brokers said they see no evidence of that here.”

“‘Today’s sellers are more educated than they were in the 1980s, so they hear these reports of doom on the national media and take them with a grain of salt, because they know this area is different,’ said Diane Williams, an agent in Montgomery County.”

“But Williams said some sellers still cling ‘to last year’s comps’ of sale prices.”

“Agent Bari Shor suggested that the sellers who would be tough to deal with in any market climate ‘are still getting angry at the messenger.’ ‘I just tell them the truth,’ she said. ‘Most believe it, because I’m still getting referrals.’”

“Wider choice for buyers means that every house has to look its best, Shor said. That’s another sea change from two or three years ago, when, unless a house was just a pile of bricks and dust, someone would make an offer.”

The Democrat and Chronicle from New York. “Despite free-falling real estate prices in some parts of the country, the Rochester area is holding steady. Area home buyers had retreated during the second half of 2006 but have come back this year, real estate professionals say.”

“‘They were scared,’ said Jeff Scofield, an agent in Brighton. ‘Now Rochesterians are saying the sky is not falling. It’s not 2005 (a strong year), but it’s a lot better than 2006.’”

“In the Rochester area, the market has cooled a bit after being hot from 2001 through 2005. During those years, it was common for buyers to pay above the asking price and for sellers to receive multiple offers within days of putting up a for-sale sign.”

“Now ‘it’s a balanced market’ between buyers and sellers, said Armand D’Alfonso, president of Nothnagle Realtors.”

“Agents say the business has gotten back to the basics, meaning that homes appropriately priced and in good condition don’t stay on the market for long.”

The Asbury Park Press. “New Jersey lost 3,600 jobs and its unemployment rate remained at 4.3 percent in April, signs that the slow housing market and the state’s high costs took a toll on the economy, experts said.”

“‘Usually this time of year we’re really, really busy,’ said Ralph Sabatino, a Toms River builder that has four employees, down from six a year ago. ‘Now, people are extremely price-conscious.’”

“‘The No. 1 reason (for the slowing job market) is the winding down of the housing boom,’ said Mark Vitner, an economist for Wachovia Corp. ‘Anything tied to residential (real estate) or construction of new homes is seeing the downside of the housing boom.’”

The Frederick News Post from Maryland. “Although one local builder said he is looking at his best year yet, home construction is down in Frederick County.”

“Mark Lancaster, of Lancaster Craftsman Builders, said it has been especially hard on larger building firms. ‘The smaller builders are what is keeping them going,’ he said of subcontractors who do plumbing, electrical, heating, air conditioning and other work on homes.”

“‘The subcontractors are the real barometer of the industry,’ he said.”

“‘Talking with the people I know at the Frederick and Washington counties permits offices, they say it is down from two years ago,’ Lancaster said. ‘Permits for decks or remodeling are pretty constant, but housing construction permits are down.’”

“The number of foreclosures in Frederick County, 801 during a 12-month period ending in March, increased by 26 in April.”

“‘It’s due to the unique loan products that caught a lot of consumers unaware,’ said Terry Fox, president of the Frederick County Association of Realtors. ‘We do handle foreclosures and have a few right now.’”

“‘Work it out with the lender, an (real estate) agent or an attorney. If you have enough equity you can get the home sold,’ said Stephen Mackintosh, of Mackintosh Inc. Realtors.”

“‘A lot of buyers, because of the negative news in the media, have jumped back on the fence,’ Mackintosh said.”

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