The Housing Bubble

The Lompoc Record reports from California. “The number of homeowners in Santa Barbara County who have fallen behind in their house payments has quadrupled over the past two years. In Santa Barbara County between 2005 and 2006, notices of default more than doubled, increasing by 110 percent, from 400 to 841, according to officials in the county clerk-recorder-assessor’s office.”

“For 2007, default notices more than doubled again, from 841 to 1,978. ‘Almost every neighborhood has one home in trouble,’ said Wendy Teixeira, president of the Santa Maria Association of Realtors.”

“Santa Barbara County officials estimate that 1,978 homes will go into default this year and 765 properties will be taken by lenders. Officials also estimate that 885 properties will be sold by lending institutions.”

“According to county officials, April 2007 made the top 10 list of highest-volume months since 1989 for notices of default and trustees’ deeds - when a lender forecloses and takes ownership.”

“The increase in defaults and foreclosures may cause lenders to tighten their standards, making it harder for people to get loans, said Dan Hamilton, with the UCSB forecast. If that is the case, the slow-down may last longer than the usual two-year real estate cycle, he said.”

“Mark Schniepp with the California Economic Forecast added that part of the problem is that the recent lending environment has made it ‘too easy for people to get in over their heads,’ alluding to the popularity of sub-prime and other ‘exotic’ adjustable loans.”

The Santa Maria. Times. “When the real estate market began cooling in 2005, it was like a pebble thrown into a pond, spreading through the Central Coast economy. The slow-down since then is almost a textbook example of how the sputter and cough of an economic engine can put the brakes on all the businesses it’s pulling behind it.”

“The economic ripples spread, first to businesses tied directly to real estate. ‘When sales of existing homes start falling, the Realtors, title companies, there are lots of people involved, their income slows,’ explained Bill Watkins, executive director of the Economic Forecast Project.”

“‘It used to be a lot easier,’ said Wendy Teixeira, president of the Santa Maria Valley Association of Realtors. ‘You’d show two houses and write an offer on the hood of your car. Now, it takes two or three months to sell a house. It’s challenging for beginning agents.’”

“‘As an association, we’ve not seen a rapid decrease in members,’ she added. ‘But definitely, when you have 500 agents and 90 closings last month, a lot of people are not going to get paychecks.’”

“Beyond lenders, escrow companies and termite inspectors, homeowners spent fewer dollars fixing up houses to make them more attractive to buyers, who would then fix them up more. ‘The big hardware companies, the national ones, are seeing a sales decline. Their income is down, and they’re laying off workers - or not replacing them,’ Watkins said.”

“‘In the market that we had, which ended about 18 months ago and was abnormal, superheated, builders didn’t start construction on units until they were sold,’ explained Jerry Bunin, government affairs director for the Home Builders Association of the Central Coast.”

“‘Now we’re in a normal market,’ he continued. ‘A lot of units that were built are not selling, which creates a standing inventory, and that’s slowing construction.’”

“‘The whole industry is falling down, and you can see some (contractors) are a little panicky about what’s coming,’ said Robin Hayhurst, executive director of the Santa Maria Valley Contractors Association.”

“‘This (downturn) is not as easy as the last one,’ she said. ‘We had a pretty good 10-year ride.’”

The Eureka Reporter. “In the March Humboldt Economic Index released by Humboldt State University, data reveal dropping home prices have contributed to a spike in foreclosures nationwide.”

“HSU economics professor and Humboldt Economic Index Director Erick Eschker said Humboldt County is experiencing a similar increase in the number of foreclosures, which can be attributed to a drop in home prices in coastal areas of the United States.”

“Locally, foreclosures are up 150 percent from this time last year. Citing online foreclosure marketplace RealtyTrac, HSU reported an increase in foreclosures by more than 30 percent in March and 150 percent over the course of the past year.”

“A high of 185 homes in Humboldt County were in some state of foreclosure compared to the 67 in foreclosure in May 2006, Eschker said.”

“The spike in the foreclosure rate is not specific to Humboldt County, though,communities around the state and country are experiencing the same trend.”

“‘The major metropolitan markets around us are suffering from very high foreclosures, drops in sales and prices coming down slowly,’ Eschker said. Sacramento, he added, has one of the highest foreclosure rates in the nation because people bought homes they couldn’t afford.”

The Voice of San Diego. “The city of San Diego hit the real estate market with full force Monday, placing 17 properties worth an appraised $37 million up for sale.”

“The bundle of properties, which includes downtown high-rises, million-dollar La Jolla homes and vacant dirt lots, represents the first large-scale land sale in recent memory for a city with vast real estate holdings.”

“The properties for sale include a three-bedroom, two-bathroom home with a pool blocks away from Windansea Beach on Beaumont Avenue that was purchased for $35,000 in 1965. It is appraised at $1.7 million. The home is currently being rented for $1,900 a month.”

The North County Times. “The Escondido Planning Commission tonight will consider a proposal to raze and replace Enchanted Gardens at 328 S. Escondido Blvd. with a four-story apartment building that would also include office and retail space.”

“John Winn, who with his wife owns the business, said the project would feature ‘upscale luxury apartments for rent.’”

“San Diego developer Nathan Adler, who has worked with the Winns on the project, said Monday they decided to create rental apartments rather than condominiums both in spite of and because of the trend in recent years of building condominiums in the city’s center.”

“‘Our approach has been to provide the downtown revitalization zone with some diversification,’ Adler said. ‘Not everything needs to be for-sale housing.’”

The Des Moines Register reports from Iowa. “Iowa Realty agent Lora Murphy could be called a motivated seller because the three-bedroom home she’s marketing is her own. Murphy has no illusions that a new owner will emerge as quickly as she did a year ago, when the home sat on the market for a day. Nor that it will sell in less than the week it took in 2004, amidst of a five-year housing boom.”

“Home sales last month dipped 3.4 percent from a year ago. The average sale price fell 3 percent, nearly $5,000,to $158,631.” “April’s home sales report from the Des Moines Area Association of Realtors showed the market had 453 more homes on the market than a year ago. In April, 6,616 homes were listed.”

“‘There’s a lot of great inventory and a lot of choice,’ said Carolyn Helmlinger, who leads Coldwell Banker Mid-America Group. ‘It’s going to take a lot longer to make a decision.’”

The Journal Sentinel from Wisconsin. “Wisconsin’s spring housing market is like a clogged drainpipe. Sometimes sales flow; sometimes it’s no go. The clog: contingencies. Most fearsome among contingencies is the sale of the would-be buyer’s home, said Peter M. Stefaniak, partner with The Stefaniak Group in Milwaukee.”

“‘Sellers are happy to have an offer, but the offer’s chock-full of contingencies,’ said Wisconsin Realtors Association chairman Roger C. Rushman.”

“‘Two years ago, buyers were willing to buy without making their own home sale a contingency. Now there’s fear it won’t get sold and the buyer will be stuck with two mortgages,’ Stefaniak said. ‘We’re doing contingencies these days even on the market’s lower end. And on a lot of the upper end, the seller has offers, but some unrealistic buyers won’t come down on their own house’s price.’”

“Sluggish sales times aren’t news to Jim and Bonnie Hemmerich, who put their 4-year-old Okauchee Lake home on the market for $1.19 million in March. Now asking $1.09 million, they’ve endured a steady stream of seemingly casual lookers.”

“‘Buyers are more demanding,’ says Jim Hemmerich. ‘One broker told us that one guy has seen 100 houses, and nothing is satisfactory. Seems like some people are turning into professional buyers.’”

From WLNS 6 in Michigan. “Dozens of foreclosed homes are on the auction block. 18 are being auctioned off by John Leggett. He says with foreclosures rising, his company is holding more auctions all across the state.”

“Leggett says many of the homes will probably sell for a deep discount. While most the homes need improvements, Leggett says your could save between twenty 5-50% on the homes. ‘Sellers are getting rid of these properties because they want them off the books, because they have a lot coming in.’”

The Enquirer from Ohio. “Ohio’s Foreclosure Prevention Task Force held its fourth meeting today in what was billed as an opportunity for borrowers facing foreclosure or people who’ve been through the foreclosure process to tell their stories.”

“Mark Lawson, a senior attorney for the Legal Aid Society of Southwest Ohio, told the panel that his organization has so many people calling for help with mortgage-related problems that it can’t begin to handle them all.”

“Lawson cited one example of an unidentified woman who bought a two-family house in 2005 with an adjustable-rate mortgage that started with an interest rate of 9.5 percent. The property was appraised at $130,000, although an earlier appraisal put its value at only about $70,000.”

“She bought it on the recommendation of a real estate agent who, Lawson later discovered, was an owner of the company that arranged the mortgage.”

“The loan included $15,000 for repairs necessary to make the second unit rentable, which the real estate agent contracted to perform himself, Lawson said. The repairs were never completed, and the woman will probably have to give up the property, he said.”

From CBS 2 in Chicago. “A record number of homeowners are now defaulting on their loans and risk losing their homes, 7,000 in the Chicago area in April alone.” “Debbie Clark owns a home in Marquette and recently got the shock of her life. Her adjustable rate mortgage, or ARM, will jump from 7 to 13 percent in a year.”

“‘It’s all over the city,’ researcher David Rose said. ‘Even neighborhoods like this one in Jefferson Park saw an 89 percent increase in foreclosures.’”

“Hot neighborhoods like the West Loop saw foreclosures soar 440 percent; the South Loop by 600 percent; and Washington Park, a potential site for the 2016 Olympic Games, by 786 percent.”

“Investor T.J. McKinney says that there are plenty of foreclosures in suburbs, like Glenview, Naperville, Plainfield, Forest Park and Oak Park.”

“Here’s what they have in common: most were ARMs. ‘The adjustable rate mortgages gave people a false sense of what was affordable,’ McKinney said.”

“The interest in an adjustable rate mortgage goes up or down based on a specific financial index. That’s the kind of loan that got Clark in trouble. For the last two years, she’s paid about $1,000 a month. In August, it jumps to $1,300, in February $1,410, finally capping at $1,635.”

“‘They would say do not worry, when you have to worry, because if you don’t worry, they will come two years later, hike your mortgage up so high that you cannot even eat,’ she said.”

“But experts say this is just the tip of the foreclosure iceberg. ‘The actual crisis hasn’t started yet,’ said John Groene of Neighborhood Housing Services. ‘We’ll see that in a couple years.’”

The Southern Illinoisan. “The housing bubble in Southern Illinois hasn’t burst yet. No one really expected it to, largely because there was never a bubble to burst.”

“The Illinois Association of Realtors reports homes sales dropped 13.9 percent in Williamson County from the first quarter of 2006 to quarter one of 2007. Five other counties, Franklin, Johnson, Perry, Pulaski and Randolph, also experience drops in that time frame.”

“Marion broker Dave Thompson hopes potential buyers won’t be dissuaded by what they hear about the housing market on television and in other media. ‘I think the biggest thing right now is we listen to too much of the national news, and I think (buyers) are having difficulty making decisions,’ he said.”

The Register Mail from Illinois. “For the first quarter of this year, 114 single family homes were sold in Knox County, down 25.5 percent from the 153 for the first quarter of 2006. However, the median home price remained basically unchanged, down 1 percent from $53,000 in 2006 to $52,450 in 2007.”

“Single family home sales across the state were down 15.5 percent for the first quarter of the year. The statewide median home price was down 1.9 percent.”

“Some area counties did better than Knox County, while others also had a tough first quarter. In Warren County, first quarter sales were down 20 percent, while the median home price was down 8.2 percent, from $49,000 to $45,000.”

“‘Looking forward, we are likely to see smaller year-to-year declines as we enter the traditional buying season,’ said Robert Zoretich, president of the Illinois Association of Realtors. ‘Homes that are priced to reflect realities of today’s market will continue to sell.’”

Some housing bubble news from Wall Street and Washington. “NetBank Inc. will try to stay afloat by selling assets to EverBank Financial Corp. The sale will cause a loss of $60 million to $70 million, said NetBank. Regulators are ‘increasingly concerned’ about NetBank’s losses and capital level and told the company to ‘find an alternative immediately’ to cover its deposit obligations, the statement said.”

“‘The company isn’t done, but it’s close,” said analyst Christopher Marinac. ‘It’s a very unfortunate casualty of the mortgage market because the deposits at this company have been rock-solid for the last three years.’”

From The State. “In March, when CEO Steven Herbert talked about focusing NetBank on core banking and mortgage activities, he likened the company’s journey back to profitability with traveling through a tunnel. On Monday, Herbert all but conceded that instead of seeing a light at the end of that tunnel, he now faces the glare of an oncoming train.”

“‘What we were doing was not working,’ Herbert said of the past few years. ‘We needed to make some changes.’”

“But the company reported in March a $168 million loss for 2006, and that cash situation has not improved. Federal banking regulators were worried, Herbert said. ‘They made it pretty clear that if we did not take action to resolve our deposit issue,’ he said, ‘they also were not going to hesitate to step in.’”

From Fitch Ratings. “Though subprime closed-end second-lien (CES) RMBS transactions represent a small sub-sector of the overall subprime RMBS universe, these transactions are proving to be some of the worst performers through the first four months of 2007.”

“At this time the cumulative exposure to subprime CES RMBS transactions in these CDOs is not sufficient to cause Fitch to place any tranche on Rating Watch Negative.”

“However, as Derivative Fitch expects this negative performance trend to continue, the potential for negative actions on both high-grade and mezzanine SF CDOs increases dramatically where there are significant exposures to 2006 subprime CES RMBS and limited asset manager flexibility to sell assets.”

From Inman News. “The downturn in the housing market appears to have caused more layoffs in construction and mortgage lending than real estate sales, the Mortgage Bankers Association reports.”

“While the National Association of Realtors reported that there were about 1.3 million Realtors at the end of 2006, the MBA report relied on Bureau of Labor payroll statistics, which counted 386,000 real estate agents and brokers at year-end.”

“‘Thus our estimate, which excludes self-employed workers, understates the actual employment in housing-related industries and could underestimate the extent of the decline in housing-related employment,’ the report said.”

The Chicago Tribune. “USG Corp. on Monday disclosed plans to eliminate about 500 white-collar jobs, or about 10 percent of its salaried workforce, as the nation’s deep housing slump continues to take a financial toll on the Chicago building-products company.”

“The maker of gypsum wallboard, citing adverse ‘current market conditions,’ outlined the cost-cutting plan in a Securities and Exchange Commission filing. The company has already scaled back its operating capacity, as a drop-off in U.S. housing starts has dampened previously white-hot demand for wallboard, a spokesman noted.”

From Bloomberg. “Five banking industry groups unveiled a set of principles, including more clearly disclosed loan terms, they’re advocating for lenders, lawmakers, and regulators trying to protect borrowers with subprime housing loans.”

“Lenders should issue loans only if borrowers can afford to repay them and should work with consumers to prevent foreclosures, the groups wrote in a statement released yesterday.”

“‘There’s going to have to be some form of uniform standard by which the consumer and the industry can abide by and live with,’ James Ballentine, the American Bankers Association’s director of housing, said.”

From Reuters. “Little can be done to change the terms of subprime mortgages to prevent foreclosure because of the way loans that were packaged and sold to Wall Street investors, mortgage industry executives said Monday.”

“‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”

“Surging defaults on subprime mortgages, which cater to borrowers with poor credit histories, and more than two dozen collapsing lenders are exacerbating the already precarious U.S. housing market.”

“Countrywide CEO Angelo Mozilo said depreciating home values are the main culprit.”

“‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’ he said at a Mortgage Bankers Association conference.”

“‘First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,’ he said.”

The Bradenton Herald reports from Florida. “Pre-construction sales at SevenShores condominiums on Perico Island have temporarily ground to a halt just a year after units first went on the market and despite developers reducing their prices by $60,000 in December. In December, officials at SevenShores said deposits had been received on only nine units in the project’s first building with 40 units.”

“Sales officials said at least 20 units needed to be pre-sold before vertical construction could begin. That same month, St. Joe officials said they had reduced the price of entry-level units from the $700,000s to $534,900.”

“‘”I just think it’s a reflection of the market and obviously the condominium market has not been one that would give developers a warm and fuzzy feeling right now,’ said Manatee County Commissioner Ron Getman.”

The Herald Tribune. “Responding to the softened downtown condo market, developer Enterprise Associates of Sarasota LLC has reconfigured the design of its planned Marquee on the Bay residential tower.”

“Some of the 15 units planned for the site have gotten smaller, to 1,900 square feet and 2,800 square feet, down from about 4,000 square feet. Not surprisingly, prices have dropped commensurately, from a range of $3.55 million to $4.1 million, down to $1.6 million to $2.5 million.”

“‘Given the condition of the market, there have been a lot of requests for smaller units,’ said Sam Hamad, Enterprise’s CEO.”

“While the $45 million project has been on the boards since mid-2004, Hamad says he will start construction when he sells just two more residences. ‘The building is going up, and there’s no power on Earth that can stop it,’ Hamad said.’

The News Press. “Our residential market…suffered its fall almost two years ago, and it has been painful for property owners to see their values plummet.”

“Let’s first look at the entry level market, which includes price points below $200,000. It is now possible to purchase a new home in Lehigh or Cape Coral for well below $200,000. Some have sold in the $160,000 range! That is roughly 50 percent less than a similar home would have sold for at the peak of the market.”

“These attractive prices are a result of lot prices falling more than 80 percent in the past 20 months, construction costs becoming more competitive, heavy inventory, and in some cases short sales offered by sellers trying to avoid the foreclosure process.”

“The same opportunity exists with existing inventory in the dozens of new developments around town. The developers’ backlog of sales is turning into a backache as many initial buyers are walking from their deposits and leaving the developer with unwanted homes for sale.”

“Buyers are taking full advantage by getting discounts as much as 30 percent off the sticker price as well as other attractive goodies such as special financing. In some cases the sale prices have been rolled back to pre-boom prices.”

“Gulf-front properties are in limited supply due to the relatively small amount of privately owned beachfront real estate. But according to recent sales, it appears like Gulf-front property came down with the rest of the market.”

“In March 2007 there were still a number of condo sales exceeding $600 per square foot, but in March 2006 it was much more common to see sales exceed $700 or $800 per square foot.”

“Let’s look at some examples of Gulf-front condominiums on Estero Boulevard in Fort Myers Beach by narrowing the comparison down to units with 1,000-1,200 square feet built around 1980. Last month a Gulf-front condo located midway on the island sold for $465,000, or $406 per square foot.”

“A year ago, a similar condo just down the street sold for much more: $700,000, or $664 per square foot (that buyer was a company, suggesting the purchase was most likely for investment).”

“A 4,840-square-foot singe-family home on Sanibel Island recently sold for $2.4 million, or $496 per square foot. Compare that with a similar transaction from a year ago, when a 4,570-square-foot home on the same street sold for $3.35 million, or $733 per square foot. (That home was sold to a company, suggesting once again an investor-driven purchase).”

“The comparables demonstrate factually that even Gulf-front property is not immune to the market cycle.”

The Palm Beach Post. “Last year, Drew Burris bought four boat slips in Charleston, S.C. He’s now looking at picking up a few more in South Florida.”

“‘It’s a great investment play,’ he said. ‘I’ve seen the prices continue to escalate as more and more people move closer to the coast. It’s a good way to park your money into a boat slip, have it rented and in the future realize a capital gain.’”

“Touting rising values, some marina developers are pushing the high-priced spaces to a new brand of customer: the real estate investor. It’s a no-brainer, they say, especially in Florida.”

“‘There’s frustration in the marketplace, certainly with single- and multi-family homes and especially in South Florida. They’ve fallen out of love with the residential side of the business, and they’re looking for other creative places to put their money,’ said Dunston Powell, sales manager for Atlantic Marina Holdings, LLC.”

“‘The condo market is soft because it’s saturated. Too many condos, not enough buyers. That’s not a problem for slips,’ said Steeven Knight, CEO of the Fort Myers-based Yacht Clubs of the Americas.”

“Others aren’t as bullish. Boat slips saw a rapid rise in prices during the past few years, partially driven by speculation. But prices have leveled off.”

“Marty Laven started The Dockominium Group, based in Fort Pierce, in 2001. Laven’s skeptical of the investor and the promise of large returns. Prices peaked in 2005, and some slips have sold since for less than their original price, Laven said. In early 2006, he listed a 130-foot slip in Jupiter for $1.2 million, or $9,231 a foot. It’s now reduced to $775,000.”

“‘It doesn’t make sense to buy one of these things and hope that you can sell it on the upside,’ he said. ‘Nobody’s going to make money in three to five years. The prices are too high.’”

“Many investors will lease their slips, but that’s not where the value is. ‘The prices are so high, you’re not going to make any real return on leasing your slip,’ said Boca Raton lawyer Dennis Hillier, who sets up slip-sale programs for marinas. ‘You make your money on the resale.’”

The Orlando Sentinel. “Condominium converters drained more than 30,000 apartment units from Metro Orlando’s rental pool during the height of the nation’s home-buying frenzy, creating a market so tight that many landlords had waiting lists of would-be tenants. No more.”

“The current slump in home sales has turned the local rental market on its head. Thousands of condos have slipped back into the rental pool during the past year.”

“‘Before the condo-conversion craze, condos were an insignificant part of the rental market,’ said Jim Lewis, president of a Maitland research firm. ‘Now it’s big, but how big, we don’t know. It’s a shadow market.’”

“Lewis said the firm’s March survey of Metro Orlando’s apartment complexes found they were 91.3 percent full, down from 94.1 percent in September and way down from the record-high, 96.4 percent occupancy rate set just a year earlier, in March 2006. He attributed the decline in apartment occupancy to the flood of condo conversions re-entering the rental pool.”

“Thousands of units were sold to investors who planned to rent them out as the home-buying frenzy drove property values ever higher. Once the housing market cooled, converters began dumping condo units back into the rental pool when they could no longer sell them.”

“Greg Willett, VP of research for a apartment-research company, said anecdotal evidence from across the country suggests that about one-third of all apartment units caught up in condominium conversions are back in the nation’s rental pool.”

“He said the two Florida markets in which landlords are ‘getting hammered’ the most by condo-conversion rentals are Orlando and West Palm Beach.”

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