The Housing Bubble

It’s Friday desk clearing time for this blogger. “Jackson County, Oregon’s residential real estate market is going through a variety of fits, spurts and convulsions heading into the summer selling season. The broad brush analysis is that median sales prices continue to dip from inflated high-water marks.”

“‘Some of it is people moving out of the area and needing to sell,’ said Rich Humphrey, broker in Medford. ‘There are investors that bought during the rising market and are having difficulty renting them or may have a loan that’s coming due. Lower-end prices have dropped under $200,000 and those are homes that first-timers can buy. But because a lot of that is investment inventory…which keeps supply high and puts pressure on the market to be lower.’”

“The housing market slump in Arkansas continued in April, according to figures released Monday by the Arkansas Realtors Association. The average price of a home sold in Washington County last month $170,104, compared with $190,668 for the same month a year ago, a drop of 10.8 percent.”

“Foreclosures have more than doubled over the last two years, both across the country and in the Philadelphia region. ‘Whether or not houses hold their value has come to be measured by blocks,’ said Chris Artur, of Artur Realty. ‘In places like West Mayfair, the best houses are holding or increase in value. On older blocks, there has already been a decline of 10 to 15 percent.’”

“Local realtors agree on one thing: it’s a buyer’s market. ‘I’d say it’s our worst in year in eight years,’ said Judy Lamphere of Sturgis (Michigan) Online Realty. ‘There are a lot of foreclosures.’”

“The Denver-area home sales market is flat overall. It’s unusual for the average price to be down when the high-end market is strong, because the expensive home sales typically skew the numbers upward. Blame the increasing number of sales of foreclosures being dumped on the market, said Chris Mygatt, president of Coldwell Banker Residential in Colorado.”

“‘Banks are getting rid of their foreclosures; they have become sellers, not listers,’ he said.”

“The Baltics have till recently been Europe’s hottest residential investment destination, with Estonian house prices (e.g.) rising 556.41% between 1997 and 2006, and 245.95% in the past five years.”

“In Eastern Europe, GPG sees various disadvantages in Russia and the Ukraine, which make them ‘unacceptable investment destinations.’ ‘Russia is very expensive, has high transaction costs, low gross rental income returns in Moscow, high taxes and an uncertain political environment,’ the GPG said, adding that the country’s strong GDP growth makes Russia attractive for some domestic investors, ‘but for foreign investors the risks are now too high.’”

“Thomson Riviera, a condominium development known for its record-setting prices, will not be allowed to sell property starting today.”

“The Shanghai municipal housing, land & resource administration bureau had been investigating the developers of Thomson Riviera for forging sales. The developer has also drawn a lot of negative press because of its high prices, which have climbed to more than 100,000 yuan per square meter.”

“A subprime-mortgage unit of American International Group offered inappropriate loans to some borrowers and charged fees that were too high, the Office of Thrift Supervision said Friday.”

“‘Some loans were due to reset in some way, and our concern was that a lot of folks would not be able to pay the higher rate and would enter foreclosure,’ said Kevin Petrasic, an agency spokesman.”

“Sales were swift when Winchester Homes began marketing Broad Creek Landing, a cul-de-sac community of 24 single-family houses not far from downtown Annapolis, so swift that Winchester officials saw no need to decorate their model home.”

“But 18 months later, the market has cooled and there are seven houses left to be sold, starting in the upper $700,000s.”

“While prices in places like Los Angeles have remained relatively firm, there are more and more bargains to be had there, thanks to a housing inventory that has fattened by 30 percent since last year, including a growing supply of foreclosed properties repossessed from borrowers who defaulted on high-interest subprime loans.”

“Take, for instance, the two-bedroom townhouse that Bryan Metoyer picked up last month at an auction in L.A. that disposed of 275 bank-owned properties in just a day. ‘I was trying to get it for under $300,000, but another bidder stayed right in there with me,’ he says of the competition, which he finally won with a $320,000 bid.”

“Still, Metoyer figures he saved about $50,000 from what similar units have sold for recently. And although he expects the market to remain soft for a while, ‘I don’t see a bubble bursting here. It’s either going to hold steady or go back up again. So either way, I win.’”

The Review Journal reports from Nevada. “The number of homes listed for sale in Southern Nevada topped 23,000 in May, just shy of the record 23,474 single-family homes for sales in October, the Greater Las Vegas Association of Realtors reported Thursday. The median price of a single-family home decreased 2.8 percent from a year ago. Sales are down 38.7 percent.”

“‘As we’ve been saying, we don’t expect to see any dramatic changes to these numbers in the next several months,’ Realtors’ association president Devin Reiss said. ‘Inventory continues to trend upward, which tells us, among other things, that sellers need to be more realistic when pricing their homes. There are an increasing number of bargains out there for buyers, but they need to make sure they are making reasonable offers.’”

“Frank Nason of Residential Resources said about half of the homes for sale are empty, probably owned by investors who can’t sell or rent them. Most will probably show up as foreclosures or short sales, he said.”

“‘I showed 10 houses Saturday and all of them were bank-owned and vacant, and I’m talking within a two-mile radius,’ said Julie Brown of Keller-Williams Realty.”

“A flier distributed in the neighborhood of Decatur Boulevard and Washington Avenue advertised a four-bedroom, two-bath house for auction by owner at $149,500 or best reasonable offer. ‘Home will be sold Sunday night to highest bidder,’ the flier said.”

“The number of condos and townhomes listed for sale in May increased to 6,343, up nearly 50 percent from a year ago and an all-time peak for that residential segment. There were 373 sales, down 38.3 percent. Median sales price dropped 5.9 percent to $189,999.”

In Business Las Vegas. “The predictions in 2004 and 2005 that Las Vegas couldn’t absorb all the condominium projects that were proposed are coming to fruition. Nearly one-third of the units in proposed luxury condo and condo hotel projects have been stalled or canceled, according to a local analyst.”

“John Restrepo principal (of the) Restrepo Consulting Group said those who bought condos in 2004 and early 2005 when prices were cheaper have fared the best if they flipped them quickly or sold them recently. Those who purchased in late 2005 or 2006 and wanted to flip them had less flexibility and may have taken a loss.”

“‘Right now, it is soft,’ Restrepo said. ‘It is no different than single family. There are not as many buyers in the market. If you are the seller, more flexibility is the key.’”

“About 15 percent of the condos purchased are serving as primary homes with the remainder going to second homebuyers, investors and speculators, Restrepo said. Most of the buyers are from outside of the Las Vegas market.”

“The state’s job losses triggered by the downturn in the housing market have been deeper than estimated and could worsen as homebuilders struggle with tightening credit.”

“Compared to the 2005 fourth quarter, there were 39 percent fewer framing contractors, 20 percent fewer painting contractors, 19 percent fewer general single-family home construction workers, 14 percent fewer foundation contractors and 10 percent fewer plumbing and heating workers.”

“‘We knew (residential housing jobs) were falling off, but it was dropping faster than we saw,’ said Jim Shabi, an economist with the employment department. ‘It was worse than originally estimated.’”

“That trend hadn’t turned around in April in the most recent estimates, Shabi said.”

“Some had hoped the nation’s housing market had hit bottom, but that hasn’t proven to be the case. Pulte Homes, one of the leading homebuilders in Las Vegas, announced last week that it’s cutting its national workforce by about 16 percent or 1,900 jobs.”

“Pulte has already cut a handful of executive jobs in Las Vegas as part of its reorganization and more layoffs are likely. So far, Pulte has already trimmed its Las Vegas workforce by 14 percent from its 2005 and 2006 highs.”

“‘We are doing what everyone in our industry has been doing for months,’ said Richard Dix, Mountain Area president of Pulte.”

“‘Builders are going to restructure their workforce based on demand,’ said local housing analyst Dennis Smith. ‘I don’t think this is the last one you are going to hear. Other builders will probably have to do similar layoffs unless the market picks up.’”

“There have been no signs of an upturn. New home closings are down 42 percent through April even though builders are ratcheting up incentives to lure buyers. New home prices are down 7 percent for the year.”

“‘It affects the real estate agents, title companies and mortgage brokers, home decorating companies, home suppliers and home furnishers. All of those things are needed for home sales,’ said Monica Caruso, a spokeswoman for the Southern Nevada Home Builders Association. ‘This is an industry in 2006 that sold 36,000 homes. This year, we will be fortunate to sell 20,000. We are coming down to numbers that put us back at sales levels of 1998, 1999 and 2000.’”

“Smith said 2008 may not be any different from this year given the tightening of credit because of a fallout in the subprime lending market. ‘There are much fewer people in position to buy a home,’ Smith said. ‘Nobody foresaw that this would happen. No one had a model for this because it has never happened before.’”

“‘The bottom line is, though a correction is predictable, it is a matter of when and how quickly it would correct,’ Shabi said. ‘The end of the correction is not in sight yet.’”

From LasVegasNOW. “The University of Nevada Las Vegas conducted the mid-year economic report. Its authors make a couple of predictions. If you’re trying to sell your home, it’s pretty dire.”

“More and more people keep trying to sell and the prices keep going down. For people like Mike Fitzwilliams who bought two years ago and suddenly have to sell, it means big losses.”

“Nine months ago, he wasn’t willing to take a $9,000 loss. Now, he’s looking at offers $40,000 below what he paid for his home.”

“Fitzwilliams said, ‘There is a lot of anxiety and a lot of stress that goes along with it. You try to go from here on forward and maintain a positive perspective.’”

“Keith Schwer, of the UNLV Center for Economic Research, said, ‘There has been a housing bubble, a lot of excess supply. We think about 14-15,000 housing units more than we need and that is depressing home building and home building has slowed significantly.’”

Some housing bubble news from Wall Street and Washington. “Homeowners unable to pay monthly mortgage bills and facing foreclosure shouldn’t count on help from Washington this year. Regulators and lawmakers seem to be taking a wait-and-see approach as they confront the fallout from several years of lenders making too many home loans to people with inadequate credit.”

“Mark Adelson, an analyst with Nomura Securities, warns that the housing market would be hurt if some banks overzealously arrange loan workouts. ‘Lending money is not about being nice,’ Adelson said. ‘It’s a business.’”

“And though Sen. Charles Schumer wants $300 million of government money, matched dollar-for-dollar by mortgage lenders, to be channeled to community groups that help distressed homeowners avoid foreclosure, his proposal has gained little traction.”

“On the regulatory front, the Fed has scheduled a June 14 hearing about whether to take action under a 1994 law that gives it authority over deceptive mortgage practices by any lender, not just federally regulated banks.”

From Bloomberg. “New York Attorney General Andrew Cuomo, who is investigating whether mortgage brokers pressured appraisers to inflate property values, subpoenaed records from Vanderbilt Appraisal Company LLC.”

“Three appraisers and a mortgage broker have now said they received subpoenas from Cuomo.”

“Ohio Attorney General Marc Dann yesterday sued 10 real- estate companies, accusing them of improperly pressuring appraisers to inflate property values.”

“The companies, based in Ohio, California, Arizona and New York, are accused of setting specific estimated values on properties and communicating a desired price to appraisers, according to the lawsuits filed against seven mortgage brokers, two lenders and an appraiser.”

“Those sued include seven mortgage brokers, two lenders and an appraiser.Foreclosure filings in Ohio jumped 135 percent in April from a year ago, pushing the state’s rate to almost two times the national average, according to RealtyTrac.”

“States have opened investigations of mortgage brokers, lenders and appraisers as delinquencies rise across the U.S., led by subprime borrowers.”

“‘It’s a step in the right direction,’ said Jonathan Miller, a New York-based appraiser for two decades who says appraisers often face pressure from brokers and lenders. ‘Finally someone is listening.’”

“Vu Ho, a managing director of American Home Brokerage, said his company doesn’t do business in Ohio. He also said it faxes a standard form to all appraisers seeking an estimated value before it commissions a full appraisal.”

“‘We have to do a value check,’ Ho said. ‘We don’t push values.’ The other companies declined to comment.”

“The lawsuits seek at least $250,000 in civil fines, or $25,000 from each of the 10 defendants. The attorney general also asked for injunctions barring similar acts in the future and for the courts to order an unstipulated amount of refunds to consumers.”

The Daily Times. “Washington Mutual on July 20 will close its Longmont branch, which it opened 4 1/2 years ago. The Longmont branch is one of seven in Colorado that are being ‘consolidated’ as part of the company’s ‘normal course of business,’ according to spokeswoman Missy Latham.”

“The bank will close at 1 p.m. July 20, according to a note to customers taped to the door.”

“Defaults on subprime loans have hit Washington Mutual hard. In the first quarter of 2007, WaMu lost $113 million on home loans, according to the company’s financial reports. It projects that it will make $8 billion in subprime loans this year, down from $27 billion in 2006. The company also has reduced its staffing by 27 percent over the past year.”

The Birmingham Business Journal. “The national crash of the subprime mortgage-lending industry has hit Birmingham hard, a recent study found. More than half of the mortgage companies in Birmingham have closed as a result of the subprime mortgage-lending industry, revealed a study.”

From Reuters. “Few U.S. consumers expect any renewed strength in home prices until the middle of next year, though they cautiously concluded that the worst of the sector’s slump is over, a survey released on Friday showed.”

“Until that improvement takes place, a stalemate in the market is likely to prevail as buyers await further falls in prices, but sellers remain reluctant to sell after recent declines, according to the survey by Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.”

“‘This standoff has remained largely unchanged since the start of 2007, but it is likely to gradually recede over the next year,’ Curtin said in a statement on the survey.”

“Also, Curtin said that financial institutions are likely to constrain borrowing against home equity based on smaller estimated home values that reflect market changes.”

“U.S. economic growth will pick up through the end of this year, making it unlikely the Federal Reserve will cut interest rates before 2008, according to economists surveyed by Bloomberg News this month.”

“‘Inflation numbers have been better but they may still bounce back again, and that’s why the Fed can’t cut rates,’ said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc.”

The Orange County Register. “Hopes for cheaper mortgages during a slowing housing market seem to be disappearing. Long-term rates in Orange County rose this week to their highest level in more than nine months. And more increases could be on the way.”

“John Belles, VP and sales manager with Bank of America in Brea, said higher mortgage rates are coming at the wrong time, adding more strain to a stalled housing market. Homesellers are just beginning to offer more reasonable prices, he said.”

“The busy selling season that begins in May and lasts through the summer so far hasn’t materialized, he said. ‘These next few months are going to tell all,’ he said.”

“As for what consumers should do in this market, Jeff Lazerson, president of loan brokerage Mortgage Grader in Laguna Niguel, said someone should only buy a home if they plan to live in it for at least five years. Values are slipping, and buyers should know they could take a loss if they have to sell soon after buying, he said.”

“But those looking to refinance should do so quickly, before home values erode further, he said. Belles said the same thing.”

From Smart Money. “For the last year, ever since the Fed stopped raising interest rates…virtually every major Wall Street economist has been absolutely positive that the Fed would lower rates as economic growth got slower.”

“But over the last week, one by one, all the most high-profile Wall Street doves have changed their minds.”

“Crow is what the doves are eating this week. But this is different. This is one of the biggest crows I’ve ever seen. And it’s making one heapin’ helping for the doves who are having to choke it down. The biggest serving of all is being masticated by Bill Gross, the perpetually dovish bond manager for PIMCO.”

“Yesterday he got in line behind ISI, Merrill Lynch and Goldman Sachs, all hopeless, hapless doves now spitting out crow-feathers.”

“The idea that the economy will falter, requiring the Fed to bail it out with low interest rates, has been the conventional wisdom since early 2004. Remember how the Fed kept rates at an ultra-low 1% for such a long time, and then started ratcheting them up 25 basis points at a time starting in 2003?”

“Just about when rates hit 2%, all the Wall Street economists decided that the Fed wasn’t going to raise rates anymore, because there was always some reason why the economy was going to come off the rails. High energy prices. Rising debt. Hurricane Katrina. The housing bubble. The housing bust. Subprime mortgages. It’s always been something.”

“Shares of home builders slid on Thursday, dragged down by a warning of weaker sales from Meritage Homes Corp.,h plus fears of rising interest rates.”

“‘Interest rates are part of the concern at the moment, but it seems like there are more impairments coming for this group all the time,’ said Mike McGarr, a portfolio manager and analyst at Becker Capital Management, which manages around $2.5 billion in assets.”

“McGarr said the news was unlikely to improve any time soon. ‘The fundamentals for the home builders were so good for so long,’ he said. ‘The sense is that it’s going to take the fundamentals a long time to unwind.’”

The Bradenton Herald reports from Florida. “April marked the second month in a row that saw existing-home sales in the Bradenton-Sarasota market increase. It was the only market in the state that showed a positive change, according to numbers released by the Florida Association of Realtors.”

“‘We’re not as bad as everybody else in the state, maybe even in the country,’ said Ron Cornette, Wagner Realty’s marketing and training coordinator.”

“Prices aren’t holding quite as strongly. ‘There are equal levels of price reductions and new listings practically every day,’ Cornette said.”

“On Wednesday, there were 97 new listings in Manatee and 94 price reductions, according to MLS.”

From USA Today. “Each bit of news about the softening housing market makes these real estate investors, hoping for a turnaround, even more nervous, says Rob Alpert, a financial adviser based in Long Island with several clients who bought investment property in Florida.”

“‘They’re waiting and seeing. They’re miserable,’ says Alpert, who has advised clients with shakier finances to take the loss. ‘Don’t make this worse,’ he tells clients.”

The St Petersburg Times. “No one denies the Tampa Bay area housing market is flatter since the frothy sales and prices of 2004 and 2005. Prices have plunged from their peaks as too few buyers chase too many homes.”

“The Times talked to two nationally known economists whose opinions mostly clash on this issue.”

“Jan Hatzius, Senior economist, Goldman, Sachs & Co, believes Florida’s record home price appreciation since 2000 now makes the state ‘the epicenter of the U.S. housing bust.’ His take: Homes prices will decline deeply for a couple of years.”

“Hatzius: ‘Forty percent is the current level of overvalue in Florida. I would guess the area will have 10 percent or 15 percent price declines for a couple of years. Beyond that, my crystal ball doesn’t go.’”

The Sun Sentinel. “A delegation from Broward County’s real estate industry implored state Rep. Ellyn Bogdanoff on Thursday to push for the deepest possible property tax cuts during next week’s special legislative session.”

“Several of the 15 real estate agents and others who work in related areas told Bogdanoff that the escalation in property taxes during recent years has helped choke their business.”

“‘It has to be made affordable again. That is the issue,’ said Diane Hedges, an agent in Fort Lauderdale.”

“The real estate industry did well during the booming market in the first half of the decade. Now, its representatives say, they’re suffering. ‘It went from busy to slow to downright nothing,’ said Joe Roberto, of Roberto & Associates title and closing services. ‘It’s scary.’”

From Winknews. “You’re not going to believe what some brand new townhomes went for on the auction block Thursday night in Fort Myers, considering where prices have been. A three bedroom townhome previously priced at $310,000 sold for about $180,000!”

“Greg Toher was outraged when he heard the prices some of the homes were going for. Walking out of the auction room, he told us, ‘$145,000! Unbelievable! We paid $300,000! They just got rid of at least four for $145,000!’”

“He says he closed on his three bedroom San Simeon townhome in December, ‘You’ve got to be kidding me, that’s not fair.’”

“Tara Gionpalo said, ‘I feel really mad, really sad, hurt.’ Victoria Toher said the developer went back on their word, ‘They promised us they were not going to go below market value.’”

“Levitt and Sons representative told WINK News that the homes did go for fair market value…as determined by the hundreds of bidders at the auction.”

The Star Banner. “Local manufactured housing producer Nobility Homes blames a slowdown in the housing market for a sharp drop in second-quarter financial results.”

“The company reported sales declined 38.1 percent in the second quarter of 2007 compared to the second quarter of 2006. Income from operations dropped by 54.6 percent compared with the same quarter last year.”

“Nobility President Terry Trexler said in the statement that sales and operations for the quarter were ‘adversely impacted by the reduced manufactured housing shipments in Florida plus the overall decline in Florida and the nation’s housing market.’”

The News Press. “Cape Coral contractor R. Fry Builders has started partially dismantling houses where the customers are balking at closing the deal, removing doors, windows, air conditioners and other items.”

“Fry officials said they’re responding to an increasingly common phenomenon caused by plunging real-estate values that have left buyers unwilling or unable to close the deal because the mortgage would be more than the house is worth.”

“‘It’s industry-wide and every builder has gone through it,’ R. Fry operations manager Charlie O’Key said. ‘We’re building them and they’re leaving us holding the bag. We’ve laid out our money, but we’re not being paid.’”

“Michael Reitmann, executive vice president of the Lee Building Industry Association, said he has only recently heard of local builders taking similar action. ‘Within the last three weeks I’ve heard of three different instances.’”

“Before that, he said, ‘It may have happened but never in the 20 years I’ve been here.’”

“Andrea Rols tried unsuccessfully to file a theft report with the Cape Coral Police Department for damage to a house being built as an investment for her mother. Rols also is having a house built by R. Fry but said nothing has been taken from it.”

“She’s angry at what happened to her mother’s house and blames R. Fry for being late in finishing the houses, which are almost finished after the permits were pulled in late 2005.”

“Rols acknowledged she and her mother are behind on payments but blamed that on R. Fry’s slow pace of construction. Now they’re having to pay the interest on the construction loans because construction has gone on so long, she said.”

“Whoever is right, government intervention appears unlikely. Joe Friedman, deputy press secretary with the state Department of Business and Professional Regulation, said from his agency’s point of view, ‘This is actually a civil issue. It would be a breach-of-contract issue’ between the builder and the customer.”

“At the height of the market in December 2005 the median resale price for a single-family home in Lee County was $322,300; it dropped to $283,200 in April, according to the Florida Association of Realtors.”

“Meanwhile, the number of foreclosure notices filed in Lee County court has spiked this year: 783 in April, six times the number from a year earlier.”

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