The Housing Bubble

KGET reports from California. “New numbers on home foreclosures in the metropolitan Bakersfield area, and they’re up—way up. We checked with the people who publish legal notices and they said there’s been an alarming spike in notices of default and trustee sales. There were just over 2,400 notices of default on home mortgages in Bakersfield during the last five-and-a-half months—a nearly 300 percent increase over the same period last year.”

“‘I think a lot of borrowers were naive, young kids or old people excited about getting a new home and fell for the fancy financing,’ said Ann Marino, owner of the Daily Report. ‘We call it creative financing…and then some were just gambling that their homes would be worth more but that just hasn’t happened since the bottom fell out.’”

“Apparently no one is immune to the vagaries of the housing market it seems. 17 News has learned that the real estate mogul David Crisp and his wife are among the thousands of home owners and investors in trouble.”

“According to the Daily Report, Jennifer Crisp is in default on four homes she holds title to, worth about $2.5 million, including a Seven Oaks-area home. Jennifer Crisp purchased that home last September for $1.2 million. It sold just two years earlier for $630,000.”

“‘I believe the market is going to be down as these foreclosures go to court and unfortunately it could be two years to filter out the foreclosures coming up recently,’ local realtor Mark Ponder said.”

“Ponder said he’s spending a lot of time on short sales of foreclosed homes right now and said while he never had to broker a short sale in his previous nine years as a realtor, he’s got more than a dozen of them to deal with right now.”

The Bakersfield Californian. “The number of Kern County homeowners running into mortgage trouble has risen dramatically in the past year. In April, 770 Kern homeowners entered some stage of the foreclosure process, according to RealtyTrac.”

“Compared with the same month a year before, the figure represents a 564 percent increase in the number of local homeowners with mortgage woes.”

“Eight properties owned by local real estate power player David Crisp and his close family members have entered the first stage of foreclosure in just the last six weeks.”

The Lookout. “City officials Tuesday rolled out a budget for 2007-08 that…comes as indicators point to a cooling in the housing market, long-term spending currently outpacing revenues and the possible annual loss of an estimated $8 to $12 million tax stream, said City Manager Lamont Ewell.”

“The dramatic slowing of the housing market nationally and in California could begin to impact local revenue, Ewell said. In Santa Monica, the number of foreclosures has risen dramatically and homes for sale are staying longer on the market, he said.”

“So far this year, there have been 114 foreclosures in the upscale beachside city, compared to 140 in all of last year, according to foreclosures rates obtained by the City Manager’s office.”

“The current foreclosure rate is double what it was in 2005, when there were 65 foreclosures in Santa Monica, according to the data. ‘Assuming that you extrapolate that out, we are seeing more foreclosures, and it’s showing us that the housing industry is continuing to take a hit,’ Ewell said.”

From Marketplace. “At the Riverside Convention Center an hour outside of Los Angeles, about a thousand people with brochures and paddles sit in folding chairs as the bidding starts. On a big screen is a picture of a two-story house with a market value of $420,000″

“Two minutes later…House Auctioneer: Last call for 300,000, 290 now 3. Anyone else at $300,000? And I haaaaaaaaave sold that $290,000 subject to confirmation.”

“Savvy bargain-hunters can get quite a deal. At this auction, Regina Lane had the winning bid on a three-bedroom house near Palm Springs. It was valued at $399,000. She got it for 260,000.”

“Regina Lane: ‘It’s exciting. I just can’t wait to get into it, because I haven’t seen it. That’s the scary part.’”

The Business Press. “Sales of single-family homes dropped nearly 46% in Riverside and San Bernardino counties during April, the second consecutive month housing sales dropped so dramatically in the two-county region.”

“The last time Inland home sales dropped as dramatically as they did in March and April was in December 1990, when sales dropped 47.4%, said John Karevoll, DataQuick analyst.”

“The words ‘December 1990′ cause local home builders to break out in a cold sweat. Home sales in Riverside and San Bernardino counties were so bad during the early 1990s that some builders, especially in the High Desert, say the region’s housing market slipped into a depression during that time.”

“DataQuick analyst John Karevoll admitted the region’s March and April sales numbers were ‘grim’ and worse than he expected them to be.”

“‘We knew sales were going to come down - they had to - but we didn’t think it would get much worse than 35%,’ he said. ‘I think maybe the extra 10% has to do with the loans some of the banks have been giving out. But there is definitely a lot of readjusting going on.’”

“Rollie Heschong, the owner of High Desert Homes in Joshua Tree, has sold one house this year, in Twentynine Palms, and he had to reduce the price by $50,000 in order to make that sale.”

“‘It’s tough up here, and I have to think there’s more going on than readjusting,’ Heschong said. ‘There are 300 houses for sale in Twentynine Palms right now, 19 of them are mine and no one is buying any of them. My electrician had 30 people working for him last year at this time, and now he has two.’”

“‘It used to be that as soon as we got a frame built, as soon something looked like a house, we had a sale, but not anymore,’ he said.”

“Bruce Norris, president of The Norris Group in Riverside, believes the Inland housing market is down, not readjusting, and that it won’t come back for a while.”

“‘I think that when people say ‘we’re going back to a normal market’ it’s code for ‘we aren’t sure what’s going on,’ Norris said. ‘I guess I’m a pessimist. I don’t see the market coming back for about three and a half years.’”

“Part of the problem has been banks loaning money to unqualified buyers, resulting in defaults and too many houses going back on the market.”

“‘I don’t think gasoline selling at $3 a gallon has anything to do with it,’ he said. ‘I think there is so much inventory out there that the banks can’t deal with it. They aren’t in the real estate business, and with so much inventory out there they’re reluctant to loan money.’”

The Chicago Tribune reports from Illinois. “In an effort to turn around a slowdown in sales of units in his luxury tower being built along the Chicago River, developer Donald Trump on Thursday will meet with reporters to deliver a message: He’s got a sale going on. ‘We’re pricing to sell,’ Trump said about his 825-unit Trump International Hotel and Tower now under construction. ‘People think we’re sold out but we’re not.’”

“Of the 825 units in the 92-story tower, 224 condominiums are still for sale. Trump is hoping that his appearance will help at a time when he claims Chicago’s sluggish housing market is hurting sales.”

“‘There’s no question, the market has taken a serious hit and is slowing,’ Trump said. ‘But it’s a great time to buy in our building because we aren’t raising prices.’”

“Since January, Trump has sold only eight condominiums in the tower, which will cost about $775 million to develop, he said.”

“‘With the market in upheaval, price discovery is difficult,’ said William Testa, a senior economist at the Federal Reserve Bank of Chicago. ‘Developers are reluctant to lower prices but buyers have expectations that prices will fall.’”

“Indeed, Chicago condominium sales declined about 45 percent in the first quarter from the year-ago period, according to Appraisal Research Counselors.”

“At the same time, residential developers are planning to deliver a record number of new, downtown units. From 2007 through 2011, they are slated to build 16,300 for-sale residences for an area with about 90,000 existing dwellings.”

The Grand Rapids Press from Michigan. “A Dallas-based company added Grand Rapids to its list of Michigan cities with a growing number of foreclosed properties. The company held auctions in Detroit, Battle Creek, Lansing and Jackson earlier this week, and is to do the same in Muskegon today.”

“More than 500 properties were up for sale from May 19 through today as part of the event, about 300 of which were auctioned off in Detroit. Hudson & Marshall is hired by lenders to help unload the foreclosed homes.”

“Real estate agent Abby Cook said her agency and others are trying to keep pace with the ‘unbelievable’ amount of foreclosed properties. ‘The market is tough right now, and auctions are a quick way of selling off the houses,’ she said.”

The News Press on Wisconsin. “Bob Arnold, an agent in Mequon, Wis., has noticed the rising number of empty houses in his market. He thinks the trend offers some encouragement because some sellers have enough faith in market trends to take a risk.”

“‘We’re coming out of a gloomy fall market. If they didn’t do anything then, they’re saying, at least there’s a more positive atmosphere out there,’ he says.”

“Agent Edward Smith represents a Milwaukee house that has stagnated on the market for more than 24 months, plagued by a poor location and other woes. Its price is now $309,000, a far cry from the original $425,000.”

The Perry County News from Indiana. “In Perry County the number of foreclosures - and sheriff’s sales - have been on a steady rise, figures show. ‘Years ago we might see no more than 10 sales for an entire year. Now we have dozens,’ said Sheriff’s Deputy Richard Myers.”

“Records provided by the county clerk’s office show 93 foreclosures were filed in Perry Circuit Court in 2006, up from 75 the previous year. Thus far in 2007, 29 foreclosures have been filed, many of them by national lenders who issued large numbers of subprime loans over the past couple of years.”

“‘A lot of the big companies you’ve heard about are the ones who have a lot of the bad loans,’ said Myers, pointing to common names such as Countrywide Home Loans, HSBC, Ditech and Washington Mutual.”

“Several of last week’s planned sales were put on hold and will likely be readvertised in The News. Those sales won’t be far off, Myers said. ‘It never stops.’”

The Chaska Herald from Minnesota. “Through April, home sales in Chaska and the Twin Cities market have not kept pace with the annual spring growth seen in previous years, according to a Minneapolis Area Association of Realtors press release.”

“Year-to-date, Chaska home sales are behind 2006’s pace by 23.7 percent. For the entire Twin Cities region, closed sales are down 14.1 percent year to date and 12.2 percent down comparing April of this year to April of 2006.”

“‘It is conceivable that by the end of the year, the average price for all of 2007 will be slightly below that of 2006, and this type of corrective price change is not unique to the Twin Cities’ stated Deb Greene, president of MAAR, in the release. ‘Markets throughout the country are experiencing the same readjustments following the frenzied price growth of the boom years.’”

“‘Interest rates remain very low, housing inventory is still robust and housing affordability has improved dramatically in recent months,’ said Kevin Knudsen, president-elect of MAAR. ‘With all the evidence of a fantastic environment for buyers, consumers will soon recognize that conditions are excellent for buying a home.’”

The Wichita Eagle from Kansas. “The rough winter of 2006-07 slowed the appreciation of homes in the Wichita area to the lowest point in three years. But analysts said it’s just a blip.”

“Home prices appreciated by 0.22 percent in the first quarter of 2007, according to a study released Tuesday by Wichita State University’s Center for Real Estate. That’s the slowest quarterly appreciation rate since 2004, said Stan Longhofer, director of the real estate center.”

“‘Activity certainly wasn’t robust in the first quarter, and I’m not quite sure why,’ said Connie Simcox, president of J.P. Weigand & Sons. ‘Weather certainly has an effect, no question.’”

“So does the widely publicized coastal housing market crash, said Bill Graham of Graham Inc. Realtors, as speculative increases in home values have outstripped demand. ‘Bad press from the national viewpoint affects the psyche of buyers everywhere,’ he said.”

“Wichita-area existing home sales fell 9 percent in the first quarter of 2007, and new home sales plummeted 26 percent, both bearing out the impact of the weather, Longhofer said.”

“But the downturn won’t take on statistical significance until and if it continues for another couple of quarters, he said. ‘If I saw appreciation rates were at an annualized rate of 1 to 1.5 percent for the next three or four quarters, then we’ve really slowed down.’”

“Wichita remains a seller’s market, Graham said. ‘We’re still considerably ahead of where we were last year,’ he said. ‘We’re still getting multiple offers on the prime houses. We’re still selling listings at or near cost. But if this trend continues, you’re going to have a totally different look.’”

Some housing bubble news from Wall Street and Washington. “Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years, ignited by the biggest decline in median prices since 1970. Compared with a year earlier, new home sales were down 11 percent, today’s report showed.”

“The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today’s report showed.”

The Associated Press. “The drop in median prices in April compared to March was a record one-month decline. If the April sales price was compared to the sales price a year ago, the decline was 10.9 percent, the biggest year-over-year drop since 1970.”

“Luxury homebuilder Toll Brothers Inc. said Thursday its fiscal second-quarter profit fell sharply, as the company took hefty charges to write down property values amid continued weakness in the housing market.”

“For the three months ended April 30, net income dropped to $36.7 million, from $174.9 million a year ago.”

“‘We continue to operate conservatively in the current difficult climate,’ said Robert I. Toll, CEO. ‘In the past year we have trimmed our lot position by 28 percent from our high of 91,200 lots to our current 65,800 lots.’”

“Second-quarter net signed contracts fell 25 percent to $1.17 billion from $1.56 billion a year earlier. The company signed 2,031 contracts, before cancellations, in the latest period, a 14 percent decline year-over-year.”

From MarketWatch. “Toll said second-quarter net income included pre-tax land write-downs of $119.7 million.”

“The company declined to supply a full-year profit outlook. ‘Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time,’ added Joel Rassman, chief financial officer.”

“Banc of America Securities analyst Daniel Oppenheim, in a research note Thursday morning, said he expects additional pre-tax land impairments of $225 million this year, based on continued declines in margins.”

“‘In addition, we believe Toll’s more recently purchased communities, which are not yet opened, face greater risk for impairment due to a likely higher cost basis, as a majority of impairments to date have come from operating communities,’ the analyst wrote.”

“‘Many of our communities are on sites in locations that are difficult to replace and in markets where approvals are increasingly difficult to achieve,’ Toll said. ‘We believe that many of these communities have substantial embedded value, realizable in the future, that should not be sacrificed in the current soft market.’”

From Bloomberg. “KB Home, the Westwood-based builder that has had two years of falling profit, said Wednesday that it agreed to sell its French subsidiary. KB Home CEO Jeffrey Mezger wants to quit France, where the firm has operated since 1968, to focus on weathering the worst slump in demand in the U.S. for new homes in 16 years.”

“Rising prices, higher borrowing costs and reduced tax breaks linked to investment in rental accommodation have caused French housing starts to decline as developers report rising inventory and slowing demand. Housing starts dropped 6.7% in the first quarter from a year earlier.”

“Banks need to know a potential borrower’s real, not stated, income when a subprime loan is applied for, a top U.S. banking regulator said Wednesday, as problems in the subprime mortgage market persist.”

“‘What we need to make clear,’ said Comptroller of the Currency John Dugan, ‘is the principle that a lender, in underwriting a mortgage loan, must assess not just a borrower’s will to make timely payments on the loan, but also his or her capacity to do so.’”

“For a lender to know a borrower’s capacity to repay a loan, he said, ‘the lender generally needs to know the borrower’s income, and I mean real, documented income, not a number that the borrower or loan originator can pull out of the air.’”

The Wall Street Journal. “Borrowers often see mortgage brokers as their allies. But many brokers are making it clear they don’t see things that way. They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers’ interests first.”

“‘The mortgage broker does not represent the borrower,’ says Chris Holbert, president of the Colorado Mortgage Lenders Association. ‘We sell access to money.’”

“Borrowers eyes ‘are glazed over with all the paperwork,’ says Jeff Lazerson, president of Mortgage Grader Inc., a mortgage broker in Laguna Niguel, Calif., that sets a fixed fee in advance for clients. Their confusion, he says, gives unscrupulous brokers ‘a license to lie.’”

From Reuters. “Jobless subprime mortgage specialists are looking for employment in the booming market for loans to senior citizens, mortgage market executives said on Tuesday.” “Between 12,000 to 15,000 displaced mortgage lenders may begin to seek employment in the growing market for reverse mortgages, an increasingly popular home equity loan for homeowners who are 62 years old or older, Goldman, Sachs & Co. and Wells Fargo Home Mortgage executives said at a mortgage conference.”

“Some bankers worry the market’s rapid growth may make reverse mortgages vulnerable to fraud and increased litigation, which has plagued subprime loans, mortgages to those with weak credit histories.”

“‘As you look at what’s going on in the subprime market, are those the types of folks who are really appropriate for pursuing reverse mortgages?’ asked Rolf Edwards, a VP at Goldman, Sachs & Co.”

The Herald Tribune reports from Florida. “If you need evidence of how the slumping housing market is impacting the local economy, look no further than Port Manatee. Shipments of lumber, plywood and fencing materials that exploded during the housing boom have dropped off significantly during the bust.”

“‘The market crashed and no one needed plywood,’ said Capt. Rasmus Okland, terminal manager for Port Manatee’s largest forestry product importer. ‘Prices have come down and stayed down, and consumption remains low.’”

“Sarasota County’s impact fees could become the second most expensive in the state by the end of the summer. The county recently approved two rounds of impact fee hikes that will raise the fees. Builders say the impact fee hikes come at a dangerous time for the construction and real estate industries.”

“‘We have a housing market in Sarasota that has fallen off the table. And to make such severe impact fee adjustments right now is certainly not helping stimulate the recovery,’ said Wayne Farrell, President of Southwest Florida Homes, Inc.”

“A Boston-based company working to transform a 200-acre tract in Charlotte County into a massive mixed-use development has revamped its plans in response to market conditions.”

“The Wilder Cos. has reduced to 500 the number of new residences that would become part of its massive project. When Wilder’s plans were announced last May, plans called for 800 homes.”

“Wilder said the drop in planned homes stemmed not from the softened residential real estate market, but rather from an enthusiastic response from merchants to the planned retail. ‘We found there was a little more demand for the retail we’ve planned,’ Wilder said.”

The Bradenton Herald. “Jim Hicks and other members of District 5 in Lakewood Ranch, a district comprised of the northern part of Lakewood Ranch Country Club, have the tough job of putting together a 2008 budget. Some Lakewood Ranch officials worry about foreclosures as a budget breaker.”

“On Tuesday, 15 homes were in foreclosure in Lakewood Ranch, according to Cynthia Wills, community association manager.”

“It doesn’t seem like a huge number when compared to the 6,000 total homes in the planned community, but the temporary loss of taxes and dues from foreclosures has been a steady stream in 2007 and will affect the 2008 budgets, which are being put together this week.”

“‘When there is a foreclosure, their assessment doesn’t get paid,’ said Wills. ‘Taxes don’t get paid. Quite often before a home goes into foreclosure, they haven’t paid their dues for a year. Then, of course, the property tends to go downhill, which impacts the rest of the neighborhood.’”

“‘I wouldn’t call it shocking, but it is disturbing,’ she said. ‘There might be 6,000 homes, but that doesn’t matter to you if you are living next door to one that is foreclosing.’”

“Nationwide, foreclosure has become an issue. ‘I don’t have any hard, cold facts, but a lot of people bought properties as investments and apparently are having difficulties,’ Wills said. ‘A lot of homes they purchased they couldn’t sell and now they are for rent.’”

From Money Magazine. “Steve and Carol Daimler retired to Florida from Virginia two years ago. The Daimlers spend most of their time consumed with selling two investment properties they bought shortly after the move, holding open houses, distributing fliers, cold-calling realtors and catering to prospective buyers.”

“The properties remain unsold, draining nearly $6,000 a month from the Daimlers’ dwindling retirement kitty. The couple had thought the properties would help finance the lovely new life they planned to lead in Florida.”

“To supplement their retirement savings of $260,000, they figured they’d buy fixer-upper homes to renovate, then sell at a profit in the state’s hot housing market. ‘We thought we’d make $100,000 without batting an eye,’ says Carol.”

“But when the housing bubble burst, so did their dreams of a real-estate funded retirement. The properties have been on the market for nine months without a serious offer, and the carrying costs are killer: The Daimlers pay more than $65,000 a year on their mortgages (including loans for their primary residence and a vacation house in North Carolina), plus tens of thousands more for property taxes, insurance and maintenance.”

“The couple are pulling out $15,000 a month from savings to cover their expenses, and they’ve already run through more than half of their nest egg.”

“Exactly how fast the local real estate market was deteriorating wasn’t clear in August when the Daimlers bought two three-bedroom, two-bath houses: one in a Daytona gated community for $235,000; the other in Palm Coast for $120,000.”

“To finance the purchases, they took out a $400,000 mortgage on their home. They spent $31,000 on renovations and listed the houses in September. But since then the market has been flooded with homes for sale, and the Daimlers have been caught in the changing current.”

“With just $120,000 left in his 401(k), Steve decided in March to go back to work. One thing hasn’t changed: The Daimlers remain staunch believers in real estate. ‘If the financial pressure was off, we’d still look for opportunities to invest,’ says Steve. ‘For now, though, we just don’t have the means to hang on.’”

From Florida Today. “The housing market in Brevard County is doing better than some markets in Florida, and doing worse than others, said Franck Kaiser, chief executive officer of the Home Builders & Contractors Association of Brevard.”

“Because of the housing slowdown, small homebuilders like in Brevard County like Bruce Pearcehave been forced to focus on home repair and remodeling jobs.”

“Pearce, owner of Talbott Construction Design Inc. in West Melbourne, said he may get out of homebuilding if business does not pick up because it is hard to compete with large corporate builders in a slow market.”

“Kaiser said homebuilders generally have dropped prices for new homes, including taking losses on some homes to clear out their inventory.”

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