The Housing Bubble

The LA Times reports from California. “Currently, nearly 3% of the homes for sale in Southern California are owned by lenders, according to ZipRealty, up from a fraction of 1% a year ago. ‘Volumes are increasing, definitely,’ said Patrick Carey, the executive in charge of foreclosed properties at Wells Fargo & Co.’s real estate division.”

“The San Francisco-based bank is managing more than 800 bank-owned homes for sale in Southern California. So far, lenders aren’t offering fire-sale prices, but that could change if sales remain slow and lenders slash prices to clear their inventories.”

“‘They will make a contribution to the erosion in property values,’ especially in neighborhoods that attracted marginal buyers with shaky credit, acknowledged Robert Kleinhenz, deputy economist for the California Assn. of Realtors. But he added, ‘How this plays out both directly and in a market psychology sense is going to be difficult to estimate.’”

The Union Tribune. “Moving from assigning blame to looking for solutions to the growing subprime mortgage crisis, the Federal Reserve Board’s San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.”

“Scott Turner, the bank’s community affairs director, distributed maps at a meeting in downtown San Diego that showed a concentration of problem loans in neighborhoods south of Interstate 8.”

“‘The homeownership gains are going to be threatened in San Diego,’ he said.”

“An examination of subprime lending by the San Diego City-County Reinvestment Task Force found a high incidence of defaults and foreclosures in Mira Mesa, south-central San Diego, Spring Valley, Oceanside, Vista, Escondido and Chula Vista.”

“At the San Diego meeting, some lenders said such steps would buy time until the real estate market recovers from its current slump.”

“‘If we can milk it along for a few years, we have a chance of recovery,’ said Mike Gross, Eestern managing director for Countrywide Home Loans. ‘Otherwise, your business gets wiped out.’”

“Apartment vacancies in San Diego County are rising as average rental rates have declined, the San Diego County Apartment Association reported in a study released today.”

“Some analysts said they were surprised that the study found rents to be falling. Six months ago, the association reported that landlords were enjoying rising rents and reduced vacancies. At the time, association Executive Director Robert Pinnegar said potential home buyers were swelling the ranks of renters while they waited for house and condo prices to fall.”

“The new report attributes the shift, in part, to condominium conversion units returning to the rental market.”

“‘Toward the end of last year, the surge in developers converting existing apartment stock into condominiums effectively came to an end,’ the report said. ‘Many of these converted units have since returned to the market as rentals, increasing supply.’”

“Alan Nevin, the chief economist of the California Building Industry Association, tracks housing conditions locally at MarketPointe Realty Advisors. He said the survey’s finding that rental rates are dropping was puzzling.”

“‘A 5 percent vacancy rate is equilibrium, but if a market is in equilibrium, rents don’t drop,’ Nevin said. ‘Rents are stable.’”

The Voice of San Diego. “In a strategy borrowed from the playbook of car dealers, some homebuilders are offering would-be buyers a way around the uncertainty of selling in a slow market.”

“They’ve taken out newspaper ads and posted large signs to push the tactic: If the builder’s realty team can’t sell a customer’s home in a certain amount of time, it will buy it so the customer can be free to purchase one of its new homes.”

“‘I think that it’s a sign of the times, this is not the first time we’ve seen it,’ said Tim Sullivan, president of the Sullivan Group Real Estate Advisors.”

“‘In today’s market, it’s the biggest obstacle: How am I going to get rid of my old house?’ said David Bennett, sales representative at Crews’ Cityscape, a group of 14 row homes in Escondido.”

“The trade-in program allows builders to offer buyers a concession (they’d call it a ‘value-added program’) on the purchase of a new home, without frustrating the neighbors, many of whom purchased similar homes when the market was hotter. If the home next door suddenly sold for substantially less than was paid for comparable homes, builders could face a line of disgruntled homeowners in short order.”

“‘This is more done to protect homeowner’s values than anything else,’ said Jeff Pitzer, sales director for Barratt American. ‘Some builders…do price-slashing, and we don’t do that.’”

“North County Realtor Jim Klinge said sellers in this market are notoriously averse to lowering their price for any reason. ‘They’re selling convenience, and God bless ‘em. But they’re not going to give you your sky-high dream price on your old home and cut you a deal on your new one. There’s no free lunch,’ Klinge said.”

The North County Times. “The burst of a real estate bubble could lead home prices to slide as much as 18 percent over the next four years, a Southern California economist argued in a report released Wednesday.”

“Prices could also begin to recover next year, according to a ‘best-case’ scenario outlined in the report, but weaker consumer spending and a continuing rise in foreclosures make that less likely, said Christopher Thornberg, a co-author of the report.”

“The recent proliferation of risky mortgage loans leaves plenty of room for uncertainty, said Thornberg, a consultant and former economist for the respected UCLA-Anderson Forecast.”

“A study by Global Insight, a forecasting firm, concluded in March that home prices here and in neighboring San Bernardino County should be about 38 percent lower, a discrepancy surpassed in only seven U.S. metropolitan areas.”

“The rate of mortgage defaults has risen sharply since 2006, with Riverside County’s number of foreclosure-related legal filings nearly doubling to about 6,900 in the first three months of this year, according to one research firm.”

“Thornberg said that number probably will continue to rise to the point where it severely undercuts home prices. ‘Prices relative to incomes are just ridiculously high,’ he said. ‘Clearly, prices must fall. The question is how fast. It depends on the rest of the economy.’”

The News Tribune reports from Washington. “Rising prices and sinking sales made for a mixed housing market in Pierce County last month as several thousand homes vied for buyers’ attention. Pending sales declined 21 percent, the largest year-over-year drop so far in 2007 and the biggest in the Puget Sound area. At the same time, the number of homes listed for sale skyrocketed, up 57 percent to 8,039 over the previous May.”

“Agent Gail Jensen in Spanaway, who primarily works with sellers, said she’s counseling them to price smart. ‘I haven’t seen a stagnant market like this in 18 years,’ Jensen said.”

“‘It seems like the listings are not hard to get. What’s hard to get are well-priced properties. Sellers being realistic is one of the main problems,’ said Dick Beeson, a MLS director.”

“Dawn Cutts said she thought her 1925 Mediterranean home in Tacoma was priced at market value but reduced it this week by $45,000 to $850,000. On the market for about 45 days, the 3,600-square-foot house is taking longer to sell than she anticipated.”

“‘We didn’t get comments that it was overpriced, but we’re just anxious to sell it,’ Cutts said.”

The Daily News from Washington. “The housing balloon hasn’t burst in Cowlitz County, but its definitely leaking. In May, housing prices fell below their levels in May 2005, marking the first year-over-year decline in the local market since October 2004.”

“Lower prices are partly the result of a glut of homes for sale, according to the Tacoma-based listing service.”

“‘I think we are leveling off. We’ve caught up to the (national) trends,’ said JoAnn Crayne, broker in Longview. Crayne said lower prices and a rise in home listings give buyers more choices, and sellers must be more patient. Sellers, she said, ‘can’t expect what happened a year ago when people were getting a couple offers a week.’”

“‘Bargain deals are few and far between,’ NWMLS director Kathy Estey said in a news release Wednesday. ‘In spite of growing inventory, prices are still increasing and homes that are priced right are selling very quickly. Insulting a seller with a ridiculous offer is not necessarily a winning negotiation strategy.’”

“In Cowlitz County, 668 homes were on the market last month, up 60 percent over a year ago and the most at any one time since June 2001, when 689 homes were for sale.”

“‘We’ve hit a pretty tough trend. We’re hoping we’re at the end of that cycle,’ she said. ‘I’m looking for homes sales to continue picking up this month but I don’t know about median price.’”

The Olympian from Washington. “Thurston County home and condominium sales gained some strength in May as sales dropped about 6 percent compared with a 15 percent drop in April sales, the Northwest MLS reported Wednesday.”

“Real estate agent Blake Knoblauch said the county’s housing market still is strong, though he acknowledged that its biggest problem is that it has more than 2,000 listings.”

“Home sellers today have to carefully consider the price, location and the condition of their homes, he said. ‘Entice (buyers) with price and ‘wow’ them with value,’ Knoblauch said.”

“The first-time buyer continues to be shut out of the local housing market, said real estate agent Jackie Tosland. ‘There has been a noticeable decrease in first-time buyers and lower-end homes,’ she said.”

“Real estate company Group 7 Inc. owner Ron Hill took a different view of the county’s housing market in May. ‘It was hot as a pistol until mid-May and then somebody flipped a switch,’ he said.”

“Tighter lending standards have resulted in more buyers backing out of deals because they can’t obtain financing, Hill said. ‘The people who shouldn’t be buying are now not buying,’ he said.”

The Seattle PI. “Seattle home sales shot up in May by 21 percent, compared with May 2006, according to the Northwest MLS. The number of homes on the market, however, shot up by an even-more-impressive 60 percent from May 2006. The county’s total sales nudged up by just over 2 percent, while pending sales declined 7.5 percent.”

“While the market is declining, it’s still good, said Matthew Gardner, a local land-use economist ‘We’re declining from a peak.’”

“Seattle’s May sales surge was largely due to condominiums, whose sales jumped by 74 percent. Gardner said completion of condos in new buildings like the Cosmopolitan and 2200, and subsequent flip sales of these units, can drive up condo numbers in particular months.”

“Seattle’s inventory of homes for sale has increased every month since April 2006. Gardner said he…doesn’t expect an oversupply in the next couple of years. ‘I’m getting a bit concerned about 2010, though,’ he said. ‘It looks like an awful lot of units will come to completion then.’”

The Idaho Statesman. “The vacancy rate for houses in Ada County has fallen dramatically in the last year, according to a recent industry survey. Industry members attributed the scarcity of houses for rent to increases in home values that have priced many area consumers out of the market, and to an influx of new residents who are choosing to rent while they decide where to live.”

“‘One big reason for these vacancy rates is because the three- bedroom house that used to cost $130,000 now costs $200,000,’ said Patrick J. Chapman of Chapman Properties.”

“Chapman, a 13-year veteran of the property management business, said some newcomers to the rental market include consumers who purchased homes with adjustable-rate loans and now have seen their monthly mortgage payment jump dramatically. They sold their homes or were foreclosed on and had to move into rentals.”

“According to RealtyTrac, the most recent statistics available show that there were 424 foreclosures in Idaho in April, compared with 190 for the same month a year ago.”

“Ada County had 116 filings in April, compared with 44 a year ago. Overall, there were 1,457 foreclosures in Idaho during the first four months of the year, up from 947 for the same period in 2006.”

“‘Lenders were letting just about every Joe into a home,’ Chapman said. ‘Now those lenders are foreclosing on a lot of those homes. And they have increased their lending criteria, which makes it impossible for some people to buy a home.’”

Some housing bubble news from Wall Street and Washington. “Homebuilder Meritage Homes Corp. said Wednesday it expects to fall short of its previous 2007 guidance as a result of weaker-than-expected April and May home sales. According to preliminary figures, net sales for the first two months of the second quarter were about 21 percent lower than the same period last year, Meritage said.”

“In addition, cancellations increased to 36 percent of gross orders from 27 percent in the first quarter, the company said.”

The Street.com. “‘We were encouraged by sales and cancellation rates that improved each month of the first quarter, leading us to anticipate relatively stronger second quarter sales results,’ said Steven J. Hilton, CEO of Meritage. ‘But these positive trends ended at the beginning of April, as demand slowed and cancellations rose. The weaker conditions we noted in April when we reported our first quarter results, continued through May.’”

From Reuters. “‘Weaker demand has predictably led to further price competition and margin deterioration, which we believe will prevent us from achieving the guidance we provided on April 25. It also increases the risk for larger associated write-offs of options and impairment charges, which could significantly impact our near-term profitability,’ Hilton said in a statement.”

From Bloomberg. “A 14-year high in the number of homes for sale in April is sapping consumer confidence in the housing market during a time of year that traditionally is the strongest for real estate, said Lawrence Yun, an economist for the National Association of Realtors.”

“A ’sluggish’ spring selling season will help to shave more than a percentage point off U.S. economic growth in 2007, he said.”

“‘People are looking, but they’re not buying,’ Yun said in an interview. Real estate agents report ‘an increase in traffic at open houses, but people are taking their time because inventory is so plentiful.’”

“Sales of new houses probably will drop 18 percent this year, matching last year’s decline, the association said in the forecast. Builders probably will sell 860,000 houses, down from 1.05 million last year. In 2005, a record 1.28 million new houses were sold.”

“The troubles of the U.S. high-risk mortgage markets seem to be contained but it is too soon to say they are over, Federal Reserve Governor Kevin Warsh said on Tuesday.”

“He was cautious on calling the end of the downturn in the U.S. housing market. ‘It would be premature for us to call that chapter complete,’ Warsh said.”

“Mortgage brokers and lenders may be headed for a standoff. The housing slump, now in its second year, is testing alliances between the two, who have become more mutually dependent as the competition for borrowers has intensified.”

“Lenders have been telling brokers to make good on contracts that previously had been ignored, or are refusing to soften contract language that had allowed brokers to wash their hands of responsibility after a loan is closed, brokers said.”

“‘I’ve seen cyclical swings before but I haven’t seen them (lenders) going after the brokers,’ said Eric Weinstein, CEO of one of Carteret Mortgage Corp., the nation’s largest privately held brokers. ‘Lenders make the decisions, I’m just selling what they have out there.’”

“Carteret is rejecting one in every two contracts today, compared with one in 20 a year ago, he said.”

“Lender-broker contracts ‘weren’t particularly strict, nor enforced,’ said Scott Everett, president of Supreme Lending, a mortgage broker in Dallas, Texas. But now he digs out those contracts frequently to fend off lender assertions of liability.”

“‘Two years ago, I never even had (a loan buyback demand) and now I get them every week,’ said Everett, a mortgage broker since 1993.”

“With the incidence of buybacks from investors on the rise, lenders are becoming more litigious, said Douglas L. Davies, a Seattle-based lawyer who represents lenders and brokers. He warned of ‘gridlock’ in the mortgage market.”

“‘As the players become embroiled in litigation, they stop doing business with one another and instead spend scarce resources trying to hash out the issues in court,’ he wrote in a trade publication.”

“The Financial Accounting Standards Board (FASB) is planning to talk with banks directly about frustrations its FAS 140 rule may be causing as they try to fix the subprime mess, a Board member said on Wednesday.”

“‘Our staff has been getting many, many questions about workouts,’ FASB member Leslie Seidman said.”

“‘What has become clear to me is that…if there hasn’t been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books,’ Seidman said. ‘I’ve come to the conclusion that…we’re going in the wrong direction, trying to maintain a standard that’s taking assets off the books when investors view it as economically still associated with the seller.’”

The Associated Press. “Italian lawmakers on Wednesday criticized major U.S. credit rating agencies, saying they ill-served international financiers by failing to properly evaluate the risks of investments tied to residential mortgages.”

“The U.S. ratings market is dominated by three companies: Moody’s Corp., Fitch Ratings and Standard & Poor’s, a division of McGraw-Hill Cos.”

“The letter said those agencies failed to accurately assess the risks of bonds backed by subprime mortgage loans. About 13.3 percent of subprime loans were delinquent in the fourth quarter of 2006, according to S&P.”

“‘The established agencies…face little competitive pressure to improve the quality of their ratings,’ the Italians wrote. ‘Many of the leading credit rating agencies are marred by conflicts.’”

“Subprime is not sublime for the prices of U.S. government-backed mortgage bonds.”

“The deterioration of the subprime mortgage market should increase the supply of Ginnie Mae mortgage-backed securities as more consumers turn to government lending programs for their housing needs.”

“‘One of the factors pressuring Ginnie Mae spreads recently has been expectations supply will be increasing as some subprime borrowers find their way into Ginnie Mae securities,’ said Scott Kirby, (who) oversees roughly $25 billion in an array of different mortgage-type securities.”

“‘If that happens, the additional supply will need to be absorbed by the market, and so prices are currently under pressure in anticipation of further supply increases,’ he said.”

“Michael Frenz, chief operating officer at Ginnie Mae, acknowledges the added volume should put price pressure on the bonds.”

“But not everyone is expecting issuance to rise. ‘I don’t expect a lot more Ginnie Mae supply, because the Ginnie Mae borrower and the subprime borrower are not necessarily synonymous,’ said Walter Schmidt, senior VP of mortgage strategy and research at FTN Financial Capital Markets.”

“The benchmark 10-year U.S. Treasury note’s yield surpassed 5 percent for the first time since August after New Zealand unexpectedly raised interest rates, igniting concern other central banks will respond to faster global growth.”

“Interest-rate futures and options showed traders who as recently as December were betting on three quarter-percentage point rate cuts by the Federal Reserve this year boosted bets on an increase in borrowing costs.”

“Yields are rising, led by long-maturity debt, in part because foreign appetite for Treasuries is abating, traders say.”

“‘The great conundrum that Chairman Greenspan spoke about many years ago, driven by global reserves recycling into U.S. Treasuries, is unwinding, leading to higher long yields and steeper curves,’ said Brian Varga, head of U.S. Treasury trading at Countrywide Securities Corp. ‘Yields are competing for capital with equities and other riskier asset classes.’”

“‘Investors took fright at the New Zealand move,’ said Stuart Thomson, who manages 23 billion pounds ($45.6 billion) in bonds at Resolution Investment Management Ltd. ‘Global growth is too strong; yields have to rise. The trend is bearish.’”

The Journal Constitution reports from Georgia. “Teresa Weathers may have bitten off more of the American Dream than she can afford. Recently laid off from her job as a mortgage loan processor and unable to find more work, the Clayton County resident is two months behind on the $1,345 monthly mortgage on her $125,000 four-bedroom townhouse.”

“The number of foreclosures is particularly startling in the communities south of Atlanta. Nearly 1 in 20 homes in Clayton County is in foreclosure, the highest ratio in the region, according to a recently released Atlanta Regional Commission report.”

“And Clayton has the second-highest percentage of subprime home loans of any county in the nation. The report also found Henry County has the highest percentage increase in foreclosures of any metro Atlanta county, jumping by 327 percent from 2001 to 2006. ”

“ARC officials caution that the rising foreclosure rate has occurred during a housing boom in the Atlanta region. Despite the foreclosure problems, townhouses are now springing up in the suburbs, in places such as McDonough and Marietta. About 125 new homes a day are built in the Atlanta area, according to data from the ARC report.”

“‘So it’s not that surprising there’s a high number of foreclosures given the [aggressive] lending market we have,’ said Mike Carnathan, who wrote the ARC report.”

The Gwinnett Daily Post from Georgia. “Housing foreclosures are soaring throughout metro Atlanta, an alarming consequence of mortgage costs that increasingly are outstripping growth in wages, a regional planning agency reported Wednesday.”

“There were nearly 43,000 foreclosures last year in the 10 counties that make up the Atlanta Regional Commission, up nearly 200 percent from the more than 14,000 that occurred in 2000.”

“While counties throughout the region are seeing a high number of sub-prime loans, Clayton and Rockdale counties are among the highest in the nation. More than 38 percent of home loans in Clayton came from sub-prime lenders in 2004, second highest in the country. Rockdale ranked fourth in the nation with sub-prime loans making up 34 percent of its total for that year.”

“Susan Adams of the Atlanta Neighborhood Development Partnership pointed to a report her organization did back in 2004 that showed a mismatch between the area’s housing stock and the incomes of most of its residents and between the locations of affordable housing and jobs.”

“The report found a shortage of 185,000 units of housing that are both affordable and accessible to job centers. Adams said that’s a huge problem considering that one-third of the region’s households earn no more than $40,000.”

“‘We have an oversupply of higher-end executive homes,’ she said.”

From WDEF 12 in Tennessee. “The housing boom during early part of the decade ended in a bust for some homeowners. Where does Chattanooga fit into this national problem?” “This morning, a husband and wife stayed away from the Hamilton County Courthouse as their Woodmore Lane home sold at a foreclosure auction. ‘A bid of $50,000 to FSG bank, going once twice, sold.’”

“It’s on to the next house, for the trustee running this auction. On this day, nearly a dozen homes in foreclosure will be sold.”

“Financial planners say a few years ago, people with credit issues entered the housing market, using a sub-prime loan. Aside from sub-prime loans, foreclosure factors include buyers purchasing more of a home than they could afford and adjustable rate mortgages, which shot monthly payments up hundreds, if not thousands of dollars.”

“Jim Place of Evergreen Management says ‘most of the people aren’t going to lose their house because they lost their job, they’re going to because their payments have become too expensive.’”

The Leaf Chronicle from Tennessee. “New home construction market analyst Edsel Charles told a group of local builders, developers, lenders and realtors this week that Clarksville still has a ‘heck of a good, doggone market,’ but he continued to warn of a ‘problem coming down the road.’”

“Charles continued to beg builders to plan for a growing influx of retirees. ‘here in Montgomery County, you need more lot inventory in the under $175,000 category. We haven’t taken the time to fully understand that market, and the truth is, it’s going to become 30 to 35 percent of this market,’ Charles said.”

“The two highest growth areas of Montgomery County continue to be the area near Interstate 24, and Sango. In the northeastern quadrant of the county, there are now 915 more lots for development than existed a year ago, and 298 more in Sango.”

“In all, the county has 125 subdivisions with 17,001 lots, according to Market Graphics’ numbers.”

“‘One problem I see is that rising prices are also driven to some degree by rising land prices in Montgomery County. Montgomery County’s current average price on closings is now around $183,000. That’s getting to be a little high. It should be just a little lower than that,’ he said.”

The News Journal from Florida. “Authorities investigating online sales of unbuildable swampland near Daytona Beach have seized $178,000 worth of cars, including a Hummer and Dodge Viper.”

“A warrant served at the 2,700-square-foot Ormond Beach home of James A. Kelly last week was just the start in a state investigation of real estate fraud for peddling ‘paper subdivisions’ in wetlands to unsuspecting victims, mostly from South Florida.”

“Among real estate transactions Kelly handled, records show Beata Jeune of Spring Valley, N.Y., bought five acres from him for $32,000 in August 2005. But the land has a listed value of $2,500, according to the Volusia County property appraiser.”

“Marketing such properties is nothing new; books and newspaper stories have been printed on the subject statewide since at least the 1960s. The same hooks for speculators and dreamers remain, but the Internet has made it easier to reach out to faraway buyers. Kelly used the Ebay Internet auction site to make some sales, officials said.”

“Several buyers claimed they were bilked; buying without seeing the property and only learning they could not build on the sites after they had paid.”

“All said they would not have bought the land if they knew they could not get building permits for the lots, the affidavit states. Some, according to the affidavit, claim Kelly got angry when they asked ‘why he was doing business on the side of the road.’”

“‘All the individuals who questioned Kelly felt extremely pressured to make the purchase,’ the affidavit states.”

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