The Housing Bubble

It’s Friday desk clearing time for this blogger. “Prices in the majority of Sydney suburbs were down compared with three years ago. The inner-west suburb of Homebush West, and Casula in Sydney’s south-west were both down 42 per cent compared with early 2004. Liverpool, Monterey, North Parramatta, Fairfield, Hinchinbrook and Cabramatta were all down by more than 25 per cent.”

“John Dabassis recently sold his Sylvania Waters riverside mansion for $300,000 less than he wanted. ‘We all know the market is down … but eventually an offer came in and that’s what you are selling it for. It’s a decision you make,’ he said.”

“The (Irish) construction economist, Jerome Casey has warned that the current downturn in the housing market could become a housing bust unless competitive issues in the economy are addressed through Government policy. Mr Casey says structural difficulties in the economy, in relation to competitiveness, energy and healthcare, have been unmasked by the tailing off in the housing boom.”

“For some, the visit and all its staged hoopla felt as unlikely in this city as Mr. Trump’s gleaming $850 million, 1,392-foot tall hotel and condominium tower, which has shot out of the ground in recent months complete with banners proclaiming his name along the edge of the Chicago River.”

“‘We want to give people really good deals,’ he said, as gusts of wind buffeted his trademark hair.”

“Some pondered what so many changes ahead might mean for the city’s skyline. ‘Well, it’s shiny,’ Doug Strubel said, gazing over at the building. Then, as an afterthought, he added, ‘I guess this is what a television game show gets you.’”

“North Carolina saw 45,512 foreclosures in 2006. Take a look around your neighborhood or out your car windows on your way to work or school. Chances are you’ll see quite a few homes with ‘for sale’ signs spiked in the front lawn, some of which have been there for a year.”

“The market is seemingly glutted while new construction continues and many homeowners are unable to maintain their current mortgage payments.”

“In a presentation, hedge fund president Bill Ackman focused on the shakeout in the subprime mortgage sector and which companies and investors might be hurt most by the trend.”

“Ambac has $18.7 billion in subprime exposure through guarantees of MBS or CDOs, according to Ackman’s presentation. That’s a little over 284% of the company’s statutory capital, he noted. The customers of Ambac and MBIA believe they have transferred credit risk to highly-rated guarantors.”

“But when subprime mortgage losses hit, these guarantees ‘will have no value’ and the policyholders will be ‘left holding the bag,’ Ackman’s presentation concluded.”

“More than 2,100 people who own houses, townhouses, condominiums or co-op units were surveyed between April 26 and 30 by a market research firm. The survey found that 65 percent of homeowners believe that, given the current state of the real estate market, there are many advantages to renting.”

“‘In the past, people who own their homes have generally seen renting an apartment as a stepping stone to homeownership. That phenomenon has by no means disappeared, but, across the nation, we’re seeing more and more consumers opting to rent instead of own,’ says Douglas Culkin, NAA president.”

“One of the biggest astonishments to me has been how the Federal Reserve has played down the residential sector slowdown and its possible impact on the entire economy. Even when it was obvious that the homebuying binge had burst, Fed economists and officials were saying not to worry.”

“Local Fed economists are sometimes more direct in their assessment. Last week, Mine Yucel, senior economist at the Federal Reserve Bank of Dallas said that ‘clearly, this housing bust is having some effect on the national economy.’”

“The inconsistent housing market in Oregons’ Rogue Valley has left some homeowners in a very tough situation. The Josephine County Recorder’s Office has reported 111 notices of mortgage delinquency in the first quarter of 2007. Those numbers are up from just 34 notices last year and 36 in 2005.”

“‘Well it’s a nation wide phenomenon and if it wasn’t a nation wide phenomenon we wouldn’t be feeling it as bad as we are now,’ said broker Mike Burns.”

“Could something good come from the Treasure Valley’s housing slump? Shaun Tracy thinks so. All of 2005 and the first six months of 2006 were boom times for (Idaho) home builders, who were putting up homes at a record pace.”

“Some say the downturn contains the seeds of recovery. ‘We don’t need a turnaround,’ Tracy said ‘The last two years were an aberration.’”

“For now, though, sellers find their hopes and patience tested. Among the homes that have failed to find a buyer is one purchased and newly remodeled by Rod Palmer of Golden Brook Properties, a company that buys, renovates and resells homes.”

“Palmer dropped the asking price on a home in Meridian by $12,000 to $238,000. Asked if the price cut lured buyers, he said, ‘Not really,’ conceding that another cut could be in the offing.”

The Union Tribune reports from California. “DataQuick expects to report today that the six-county Southern California region saw defaults rise nearly 159 percent last month to more than 9,200, compared with 3,562 in April 2006, and that foreclosures skyrocketed from 311 to more than 2,800 over the same period. San Diego’s defaults rose from 554 to 1,346, and foreclosures increased from 85 to 525, April to April.”

“(Consultant) Peter Dennehy said only about 4.6 percent of sales involve foreclosures, far less than in the recessionary 1990s and a trend he called ’something to watch’ but still ‘manageable.’”

“A rise in resale inventories may represent good news for buyers, Dennehy said. Many sellers have to sell and will lower prices to do so, when a year ago, many were simply testing the market to see if they could get a high price and would not negotiate if someone offered to pay much less.”

“‘That probably will keep pushing prices down this year and next,’ he said.”

“One factor on buyers’ minds is gas prices, the speakers said. Imperial Valley expert Adam McAvee, said that market is ’struggling’ from affordability and commuting issues to the point where the typical new subdivision is only selling 1.3 homes per month.”

The North County Times. “The California Department of Real Estate is trying to bar a local broker from the industry, accusing him and his company of arranging inflated appraisals in order to pocket huge commissions.”

“Houses that Stonewood Consulting Inc. brokered were typically sold for $50,000 to $100,000 more than nearby comparable houses, according to the real estate database. Managers at local real estate offices noticed the unusual transactions in early 2005 and several warned their agents to steer clear, said Gene Wunderlich, a director at the Southwest Riverside County Association of Realtors.”

“The more immediate issue is the rising number of foreclosures, Wunderlich said, a trend that he attributed to lower lending standards, a marked slowdown in real estate markets and unusual investment arrangements, such as Stonewood’s, that have come to light in the last year.”

“‘It’s kind of a three-way whammy,’ Wunderlich said.”

The Mercury News. “Mention ’short sale’ in Silicon Valley in the past few years and people probably would have assumed you were talking about a technique for selling stocks. But it’s a real estate term that’s back in parlance in 2007.”

“‘It’s the hottest topic in the industry,’ said Rob Bates of Fidelity National Title.”

“It’s unclear just how many of the houses and condos on the market in Santa Clara County now are being offered by owners trying to do a short sale. Sometimes realty agents who are listing property for owners trying to do short sales make note of the situation in the ‘remarks’ portion of the listing.”

“In a sample of 461 houses and condos listed for sale in Santa Clara County on the MLS early this month, 18 listings, or about 4 percent, contained some mention of short sale or a sale requiring lender approval, said real estate broker Richard Calhoun in San Jose.”

“‘Not all agents will disclose a short sale in the remarks,’ Calhoun wrote in an e-mail, ‘So I think that 4 percent is likely low.’”

“Edgar Meneses, a real estate agent who works for the non-profit Neighborhood Housing Services Silicon Valley, said earlier this month that of the six first-time home buyers he was assisting, five had made offers on houses or condos being sold in short sales.”

The Press Enterprise. “Inland builders continue to struggle with a rising unsold inventory, despite lowering their prices and throwing in freebies such as swimming pools. Steve Johnson, a director in the Riverside office of consulting firm Metrostudy, said builders are still up against flagging consumer confidence.”

“‘They’re having a tough time shaking off the apathy that’s affecting the market,’ Johnson said of builders.”

“Johnson noted that as of the end of the first quarter, the Inland region’s unsold new-home inventory stood at 6,545 properties, a supply of 7.3 months. That’s 88 percent higher than the 3,473 properties, about 3.5 months of supply, that were unsold at the same point of 2005.”

“The 1,375 new homes sold in the Riverside-San Bernardino county area in March marked a 51.7 percent drop from March 2007. Johnson said the trend likely means that new-home prices will be dropping long term, but the size of homes built will also be going down to meet market demand.”

“Fred Bell, executive director of the California Building Industry Association’s Desert Chapter, said there are no signs of a new-home buyers surge kicking in. ‘I’m not optimistic that it’s going to improve really soon,’ Bell said. ‘The residential side continues to be very slow, and that will probably (continue) into 2008.’”

“Patrick Duffy, managing director in the Costa Mesa office of Hanley Wood Market Intelligence, said after several months of builders offering similar types of buyer incentives, like pools and amenity upgrades, new-home developers are turning more to straight price reductions.”

“‘The ones who are serious about selling are lowering their prices,’ Duffy said. ‘Builders are getting really serious about moving that inventory off the books.’”

The Desert Sun. “Lennar Corp., the Florida-based builder of several housing communities throughout the Coachella Valley, is closing the administrative office division serving Palm Springs desert resort communities.”

“‘It’s a challenging time for the home building industry,’ said Jeff Roos, regional president of the Southwest Region for Lennar.”

“Other Lennar offices affected by the consolidation include those located in San Diego, Orange and San Bernardino counties. CBIA director Fred Bell said this move is not surprising.”

“‘As the housing market slowed, they’ve been aggressively trimming their administrative overhead,’ Bell said. ‘Every one of the home builders is aggressively looking at managing their inventory,’ Bell added, citing the projected inventory of roughly 10,000 new and existing properties on the market in the Coachella Valley.”

“‘How do I feel?’ one worker bemoaned Thursday, as she headed into the attractive slate-studded building Lennar has leased at the corner of Cook Street and Country Club Drive in Palm Desert for several years. ‘I’m not happy.’”

The Merced Sun Star. “The housing market isn’t crashing. That’s the good news local Realtors heard Thursday when state Department of Real Estate Commissioner Jeff Davi visited Merced.”‘

“‘There’s no bubble in California real estate,’ Davi told a crowd of 140 at UC Merced’s Lakireddy Auditorium. ‘It’s been a soft landing and a subtle downturn.’”

“Davi gave a half-hour talk that first recapped the ‘euphoria’ of the five-year period between 2000 and 2005, when California’s real estate market saw huge growth. That upswing fueled speculation, contributed to the breakdown in subprime lending, and drove thousands of people to become real estate agents, Davi said.”

“One in 53 adults in California now holds a real estate license, which is twice the number of attorneys in the state.”

“Statewide home sales slumped 23 percent between 2005 and 2006, a ‘very significant drop’ that marked the beginning of the downturn, he said. ‘The run’s over, that’s all right,’ Davi said. ‘We’re transitioning from a seller’s market to a buyer’s market. We’ve been through this before in the ’90s.’”

“Davi also touched on other consequences of the housing downturn. His agency has seen a dramatic increase in the number of enforcement cases it handles. People are less likely to file complaints when their home values are rapidly appreciating, he said.”

“Recent press coverage of the real estate industry has been ‘weighted toward the negative,’ said Merced County Association of Realtors President Scott Oliver, and Merced is now in the process of returning to a ‘normal market’ after the boom years of 2004, 2005 and 2006.”

“The real estate research firm DQNews listed Merced’s median home price as $314,000 in April, down 16 percent from the April 2006 price of $375,000.”

Some housing bubble news from Wall Street and Washington. CNN, “The battered real estate market was even weaker than expected in April, as the pace of existing home sales fell to a nearly four-year low, and a glut of homes on the market continued to cut into home values, according to the National Association of Realtors.”

“‘We’ve been anticipating slower home sales because many subprime loan products are no longer available,’ Lawrence Yun, NAR senior economist said a statement. ‘In addition, increased scrutiny by lenders is stopping risky mortgage origination.’”

“The tougher lending standards are now cutting into sales, causing a rise in the supply of homes on the market for what is typically the start of the spring selling season.”

“That glut continues to slam home values. The median price of a home sold in the month was $220,900, down 0.8 percent from the $222,600 price for a typical home sale a year earlier.”

“It marked the ninth straight month that prices showed a decline from a year earlier, a relatively rare condition that had not been seen in 11 years before the current housing slump. The annual pace of existing home sales fell 2.6 percent to 5.99 million in April, down from a revised 6.15 million pace in March. It’s the first time the pace of sales fell below the 6 million level since June 2003.”

From Inman News. “Total housing inventory rose 10.4 percent at the end of April to 4.2 million existing homes available for sale, which represents a 8.4-month supply at the current sales pace, up from a 7.4 month supply in March.”

“Regionally, existing-home sales in the Midwest are 11.5 percent below a year ago. In the South, sales of existing homes slipped 8.8 percent below April 2006. Existing-home sales in the West declined 15.6 percent below a year ago. Existing-home sales in the Northeast fell 8.8 percent lower than April 2006.”

“‘It appears the worst of the price correction is behind us,’ said Pat Combs, NAR’s president.”

The Washington Post. “The Commerce Department reported yesterday that April sales of single-family homes…fell 10.6 percent short of the April 2006 estimate of nearly 1.1 million homes. The median sales price of new houses sold in April was down 11.1 percent from March, the largest monthly decline on record.”

“‘In terms of the home builder industry, the bad times are not over,’ said Gregory E. Gieber, VP of research at A.G. Edwards. ‘This is probably one of the worst recessions I’ve ever seen for housing.’”

“‘The very sharp decline in the median price suggests many sales occurring now are coming at the expense of quite a bit of discounting of homes,’ said Celia Chen, director of housing economics for Moody’s Economy.com. ‘It’s probably too soon to declare the end of the housing correction.’”

“‘I wouldn’t be surprised by some downward revision of April figures and some downward numbers in May,’ David F. Seiders, chief economist for the National Association of Home Builders.”

From MarketPlace. “Seiders says…we’re still in a depressed housing market. ‘The builders are saddled with a very heavy inventory overhang. Over half the builders in my most recent survey saying they are cutting prices to try to move inventory.’”

From CNN Money. “Most industry watchers agree that home prices will continue to slide before they recover, but now some economists say they’ve got a long way to fall before bouncing back. David Wyss, chief economist at Standard & Poors, has forecast a price drop of about 8 percent for the 24-month period through the fourth quarter of 2008.”

“Housing prices will suffer from a ’significant increase in defaults and foreclosures,’ he said, with affordability still a major issue.”

“He said its impact on areas like South Florida, where much of the buying is speculative investment in second homes, could be big. ‘You don’t need a second home,’ Wyss said.”

“Economist Celia Chen followed Wyss’ lead. ‘We also have an 8 percent decline in median house prices [for the 24-month period ending March 31, 2008].’”

“‘That is quite a bold forecast,’ NAR economist Lawrence Yun, said of Wyss’s prediction. NAR is predicting a much less severe total decline of 1.4 percent through the slump, prices have already declined three straight quarters, and that a recovery will start to take place in early 2008.”

“‘The run up,’ Yun said, ‘was an investor-demand driven boom, and it was followed by an investor-driven collapse.’”

From Reuters. “‘With respect to the recent problems in the subprime mortgage market, the Board plans to consider how it might further use its rulemaking authority…to address particular lending practices,’ Fed Chairman Ben Bernanke said in a letter released on Friday.”

“Delinquent payments and foreclosures have since risen as many adjustable rate loans reset at higher interest rates and U.S. home prices stagnate or fall in some areas.”

“Comptroller of the Currency John Dugan said he found it telling that lenders have responded to new housing market conditions by tightening standards on stated income and that loan servicers are verifying income before a loan is restructured.”

The Orange County Register. “Mortgage rates in Orange County spiked this week, at exactly the wrong time for a sluggish housing market. The average rate on a 30-year fixed loan with a one-point fee hit 6.107 percent for the week ended Thursday, its highest level in seven months.”

“‘The market is finally getting into its head that the Fed’s not going to decrease rates, said Josh Lewis, a mortgage broker in Costa Mesa.”

“Another reason is the spike in loan defaults, he said. Investors in bonds backed by mortgages are demanding higher yields to compensate for the risk more loans will go bad.”

“New Century Financial Corp., the largest U.S. subprime lender in bankruptcy, on Thursday said it uncovered accounting errors in its 2005 financial statements, and probably ‘materially’ overstated earnings for that year.”

“New Century had been one of the largest U.S. providers of home loans to people with poor credit histories before filing for bankruptcy protection on April 2. New Century has said at least 27 lawsuits have been filed against the company, its officers and its directors.”

From Bloomberg. “Two thirds of HSBC Holdings Plc’s $10.6 billion in loan defaults last year were in North America. The bank put a new U.S. management team in place and reinforced credit controls, HSBC CEO Michael Geoghegan said.”

“‘We have stopped production on nonprime correspondent mortgage loans and eliminated certain classes of products,’ he said. ‘We have recognized the problem ahead of the industry, and we have taken swift and decisive steps to fix it,’ he said. HSBC (is) Europe’s biggest bank by market value.”

“Angelo Mozilo, who built Countrywide Financial Corp into the largest mortgage lender in the United States, disavowed blame for the collapse, pleasing his audience of fellow mortgage-banking industry leaders and foot soldiers.”

“‘You’ve got to be careful here about blaming ourselves too much,’ the chairman of Countrywide told the Mortgage Bankers Association this week.”

“Marvin Von Renchler, a veteran mortgage broker in Oregon, isn’t ready to shed a tear for consumers. ‘I run into very few people who can legitimately say, ‘I didn’t know (what I was getting into).’”

“‘People on Wall Street live in their own world,’ said Jim Campen, an economics professor at the University of Massachusetts in Boston. ‘They don’t understand what’s going on the other end. If these (subprime lenders) couldn’t sell these loans to Wall Street, they couldn’t do what they do.’”

“But many say they just do what the market wants. Peter Paul, considered a pioneer in bringing loans to well-off borrowers with untraditional financial histories, likens mortgages to clothing.”

“‘We’re somewhat amoral about this kind of stuff,’ he said. ‘If we were fashion designers and they wanted purple polka dots, we might have our own opinion, but we’d probably give them purple polka dots.’”

Newsday reports from New York. “In Queens, the trend of bucking the area’s declining prices ended last month. The median closing price fell to $466,400 in April, versus $499,000 a month earlier and $473,000 a year ago. Home sellers have yet to come to terms with a slowing market, some agents said. ‘There are so many overpriced homes on the market,’ said Mona Holzman, branch manager of June Shapiro Realty Laffey Associates in Great Neck.”

“As a result, buyers are holding out, she said. Holzman said she showed a four-bedroom, 21/2 bathroom house in Great Neck about 90 times before a buyer bit, scooping up the house, which was originally listed at $949,900, for ‘considerably less.’”

“Broker Audrey Livingstone said that sellers in her area, Freeport, Roosevelt, Uniondale and Hempstead, aren’t getting their asking prices either.”

“Despite that, ’some sellers are still not budging,’ she said. ‘That’s why the inventory is there.’”

From Bay News Brooklyn from New York. “For the thousands of Brooklyn homeowners facing onerous mortgage payments and the threat of foreclosure, City Comptroller William Thompson, Jr. has launched a new Foreclosure Prevention Helpline.”

“‘There are people that have bought million dollar homes that thought they could afford them, that find out they can’t make the payments,’ said Bruce Solomon, the Comptroller’s Associate Director of Community Relations.”

“Senator Charles Schumer predicts that over the next two years, 91,000 New York City homeowners are ‘likely’ to lose their homes. Schumer said 6,100 Brooklyn families are at risk.”

“The is particularly troublesome given that New York City already has the lowest home ownership rate—33 percent—of any major city in the United States.”

The Poughkeepsie Journal from New York. “Building construction contracts have continued to show a decline in Dutchess County, and to a lesser extent, in Ulster County, so far this year.”

“Homes are down by 58 percent in dollars in Dutchess, with 95 single-family units on the books for the year so far, versus 179 in the same period in 2006, a drop of 47 percent. No apartment deals have surfaced so far this year, versus 338 of them a year ago”

“The situation benefits buyers. ‘The interest is out there, but the traffic is no doubt less than it was,’ said Jean Rowe, executive officer of the Builders Association of the Hudson Valley, so there’s more inventory to look at and price reductions are common.”

The Boston Globe from Massachusetts. “The Massachusetts housing market will remain in a slump, and by the time it hits bottom about a year from now, prices will have dropped 14 percent from the peak in 2005, according to an economic forecast released yesterday.”

“Such a decline would mean the current downturn would match the real estate collapse of the late 1980s and early 1990s, when the median single-family home price also fell about 14 percent.”

“‘Although these price declines are not welcome by existing home owners, they are healthy for the economy,’ said Alan Clayton-Matthews, the University of Massachusetts professor who prepared the forecast. ‘With housing prices in line with incomes, Massachusetts will once again be affordable for the state’s future labor force.’”

“Increasing foreclosures will put more homes on the market and make it difficult to reduce the sizable inventory of homes for sale. In Boston, for example, nearly 30 percent of the subprime mortgage debt is delinquent, suggesting more foreclosures ahead, said Clayton-Matthews.”

“‘All this is going to force prices to adjust,’ Clayton-Matthews said.”

The Republican from Massachusetts. “This city came in second in the state in the number of foreclosures filed during the 12 months that ended April 30. Boston, whose population of 559,034 is nearly four times that of Springfield, saw just under twice as many foreclosure filings.”

“Jeremy Shapiro said his analysis of the statewide numbers ‘has revealed the foreclosure crisis is hitting urban, suburban, rural, wealthy and poor communities in every part of the state.’”

“Statewide, 23,116 foreclosures were filed in the 12 months ending April 30, up 81.3 percent over the previous 12-month period. In April alone, statewide foreclosures rose 63 percent to 2,002.”

“‘This is the seventh straight month with over 2,000 foreclosures,’ Shapiro said. ‘Even if the numbers were to stabilize, they would still be astronomically high.’”

“Michael J. Farrell, president of Northeast Financial Group in Wilbraham, said he’s working on about 30 foreclosure cases right now, with about 20 from Springfield.”

“‘There’s just an abundance of fraud in the origination documents,’ he said. ‘It’s not something I used to look at in the process of working with somebody in trouble, and it’s one of the first things we look at now.’”

“He’s dealing with ‘numerous cases filled with fraud,’ he said, with ‘phony income numbers, out-of-town appraisers’ overvaluing properties to enable bigger loans. He said all the cases involve mortgage companies, not banks.”

“Farrell added that in some cases, the homeowners made bad financial decisions so there are some cases ‘where the borrower has to take some blame here.’”

The Glouchester Times from Massachusetts. “The nonprofit developer of Pond View Village didn’t know it, but Cape Ann Housing Opportunity was in a race against time to get its condos built and sold before the overheated market began too cool in a regional and national real estate downturn. It was a race Cape Ann Housing Opportunity lost.”

“Taken together, said Christine Cousineau, executive director of the project, when the condos went to market last summer, they were at least one year late. In the interim, the housing boom on Cape Ann swooned, with condos leading the dive.”

“It had reached its high point, according to Alan Pasnik, data analyst for The Warren Group, in 2004, the fourth straight year of spiraling prices and demand. ‘By then,’ he said, ‘demand had squeezed all the credit out of the mortgage companies. People were buying houses they couldn’t afford,’ he said.”

“Prices began declining as supply continued expanding, giving a boost to The Heights next door to Pond View Village as apartments at The Heights were converted to condos and marketed.”

“The tumble of prices was dramatic. The $293,000 average condo price in 2003 was down to $250,000 the next year, then continued to fall to $225,000 in 2005. Prices fell further, to $194,000 in 2006.”

“That was the year Cape Ann Housing Opportunity finally got to market with its housing stock, at prices between $229,000 and $359,000. None was sold.”

The Martha’s Vineyard Gazette from Massachusetts. “The real estate market on the Vineyard has swung strongly in favor of buyers, as record stocks of unsold properties force agents and owners to begin to heavily discount prices.”

“Figures for the first quarter of this year showed the total inventory of residential property up more than 40 per cent over the same period a year ago. The median sale price also continued a decline which began last year.”

“According to the numbers provided by the real estate listing service Link, there were 549 properties on the market, compared with 391 for the first quarter of 2006. The number of unsold properties has risen rapidly over several years. At the same time in 2004, there were 242, or fewer than half as many unsold houses, and in 2005, 314.”

“The trend also is evident in inventories of land. In 2004, there were 59 parcels, in 2005, 73, in 2006, 97, and in March of this year, 115.”

“Further adding to the gloomy picture, foreclosure notices are sharply up and there is evidence that the slowdown is affecting other sectors of the Island economy.”

“Eleanor Wilson, owner of Link, said…that people are being forced to lower prices. ‘In fairly large leaps and bonds on specific properties,’ she said, adding: A price drop of $100,000 is not unheard of. ‘It seems that the people who are keeping their places at a price they could have got a few years ago, are not moving them.’”

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

And send in your housing bubble photos to:

hbbphotos@gmail.com