The Housing Bubble

The LA Times reports from California. “April’s new-home sales figures remained weaker throughout the state compared with a year earlier, with total sales falling 40%, the California Building Industry Assn. said. And after holding steady for several months, median asking prices fell 6.2% statewide as builders slashed prices to move unsold inventory.”

“San Bernardino and Riverside (county) sales fell 18.3% from the previous month and were down 54% from a year earlier. The median price edged down 4% to $419,000 from a year earlier.”

“New-home prices rose year over year in Los Angeles and San Diego counties, however. Industry observers say builders in these areas are more likely to offer incentives such as free landscaping and interior upgrades, instead of discounts, to sell homes.”

The Bakersfield Californian. “What’s up with Bakersfield’s housing market? New home construction has slowed, but it hasn’t stopped.”

“The number of single-family home building permits filed in the first quarter of 2007 was 1,187, compared with 1,874 in the first quarter of 2006, a 37 percent decline, according to the Construction Industry Research Board.”

“Statistics show sales of existing homes in Kern County have dipped. First quarter 2007 sales were about 800, compared with 1,230 in the first quarter of 2006, said Delores Conway, a real estate economist at the Lusk Center for Real Estate at the University of Southern California.”

“In April, 204 new homes were sold in Bakersfield, compared with 256 homes in April 2006, according to information from Gary Crabtree, a local real estate appraiser. The new home median price for April was $297,250 compared with $342,000 in April 2006.”

The Sacramento Business Journal. “Sacramento-area’s new-home sales declined 25 percent in April, compared to the same month last year, according to a closely watched report released late Friday.”

“The Sacramento region’s median-home price dropped 10.5 percent to $409,990, from $457,950 a year ago.”

“‘It looks like we’re still playing the waiting game…in which buyers are looking for fire-sale prices which may never materialize,’ Patrick Duffy, managing director consulting for Hanley Wood, said in a news release. ‘With lenders increasingly working with homeowners to stave off foreclosures…they’re looking for different solutions than we saw in the mid-1990s, when it was more common to simply dump bank-owned homes on the market at deep discounts.’”

From News 10. “Nearly 20 percent of Sacramento homes are worth less than the value of their mortgage. Some 3,400 Sacramento County property owners faced foreclosure in the first quarter of 2007, up nearly 200 percent from 2006.”

“‘This one woman was paying $2,000 a month and is now paying $5,000 a month after a year,’ said real estate investor Tony Sedillo.”

The Sacramento Bee. “That big foreclosure auction on June 23 at Cal Expo is drawing ‘good, but not great’ response, said Robert Friedman, chairman of the Irvine-based auction firm, Real Estate Disposition Corp. Friedman said 220 bidders have registered for 107 area houses being auctioned.”

“But there’s still plenty of time. Two weekends of open houses for the bank-owned repossessions begin Saturday.”

The New York Times. “On a foggy Sunday morning last month, the parking lots around the convention center here were filling fast. On this occasion in Riverside, two lenders put 100 properties on the block. By the end of the day, 93 had sold. Most of the properties were in fast-growing exurban and desert communities in Riverside and San Bernardino Counties east of Los Angeles.”

“The company that held the auction had been dormant for a decade. ‘We went into hibernation, and we’re back!’ said Robert Friedman, the chairman of the REDC in Irvine.”

“In some cases, he said, the institutions sold the properties for less money than they were owed. ‘It’s not a happy occasion,’ he said. ‘They’d rather take a little loss quickly, rather than waiting and seeing.’”

“Foreclosures have surged in Southern California in the last year, particularly in outlying areas. In seven counties, lending institutions foreclosed on 6,007 properties in the first quarter of 2007, up from 721 properties in the first quarter of 2006, according to DataQuick.”

“The concern among many bidders at the event was that even if the properties sold for 20 or 30 percent less than their value at the peak of the market, the price might still be too high.”

“Jim and Betty Botley of Chino were looking to spend what Ms. Botley defined as ‘$300,000, and that’s it.’ The house they wanted went for an auction price of $550,000. The Botleys thought that it would have needed $50,000 to $100,000 for renovation. After the repairs, auction fee and closing costs, they couldn’t see how anyone got a deal.”

“‘We learned a lot today,’ Mr. Botley said. ‘You can probably buy them cheaper on the market than buying here.’”

The Desert Sun. “Last Saturday’s auction of cowboy-hero Hopalong Cassidy’s home in Palm Desert by auctioneer Pacific Auction Exchange drew nearly 250 curious lookers, a dozen solid bids, and a sales contract for $467,500.”

“Not a bad turnout, insisted Steve LaRocque, Pacific Auction Exchange owner, particularly considering there are roughly 2,200 homes on the market in Palm Desert alone.”

“A spate of real estate auctions have hit the Coachella Valley recently. Today, for instance, PAE representatives hope to take bids on nine Desert Hot Springs properties.”

“Auctioneer Hudson & Marshall’s properties, spread across the Coachella Valley and beyond, are owned by lenders and asset management companies. ‘We anticipate (we’ll) sell to the highest bidders at significantly reduced prices because banks want to quickly move bad loans off their books,’ said Dave Webb, principal at Hudson & Marshall.”

The North County Times. “The San Diego County economy will weaken through the end of this year, but it shouldn’t fall into recession, according to an economist who compiles an index of leading indicators.”

“The index dropped slightly in April, the 12th decline in the last 13 months. That signals slower job growth, higher unemployment and continued slow home sales, said Alan Gin, a professor of economics at the University of San Diego.”

“‘Job growth has slowed considerably,’ Gin said. ‘It’s almost exclusively due to the housing market.’”

The Press Enterprise. “At a conference in Riverside this week, economists presented dueling forecasts that gave different weight to the influence of the housing market downturn and subprime mortgage failures on the rest of the economy.”

“Christopher Thornberg was more pessimistic than Mark Schniepp. Thornberg emphasized that his bearishness about the Inland Empire doesn’t go very far. ‘I am talking about rough weather for the next couple years,’ he said. ‘This is a bend, not a trend.’”

“In a report handed to those attending the conference, the two economists agreed the housing sector in the Inland Empire is ‘clearly in a recession.’”

“Thornberg said forecasters who stick to models derived from historic trends won’t give enough importance to the unprecedented implosion of subprime mortgages. ‘We rely on history repeating itself. But nothing like this has ever happened before,’”

“Cutbacks in home construction and sales will cause some job loss, he said. Furthermore, he said, a tightened mortgage market combined with existing debt and falling home values will prevent people from continuing to refinance their homes to keep up the consumer spending that has buoyed the economy.”

“Jack Kyser, chief economist for the Los Angeles Economic Development Corp., said ’sober-sighted housing analysts’ agree the worst of the sub-prime mortgage meltdown is ahead and that Riverside and San Bernardino counties, along with San Diego County, will be hit the hardest because the region saw many homes built when such high-risk mortgages became popular.”

Readers suggested a topic on housing terminology and the media. “I would like to see someone get onto the mass media for their use of real estate industry spin terms, such as ‘housing boom,’ instead of factual ones, such as ‘housing bubble,’ ‘housing mania,’ ’something-for-nothing-stampede,’ and ‘mass hysteria.’ ‘Housing boom’ implies something wonderful happened and benefited everyone who owned a house, with no suggestion of something radically amiss.”

“Since most of the bubble was fueled by across-the-board criminal fraud, and could never have happened in a sane or ethical climate, the terms invented by those involved in the scam are hardly the ones the media should be adopting. ‘Boom’ and ‘correction’ are intentionally deceptive. ‘Bubble’ and ‘crash’ are factual.”

“Despite its 100% bogus forecast record, the NAR is still being consulted by reporters for juicy quotes and exciting predictions, and its ludicrous, painstakingly contrived vocabulary is still being treated as god’s word.”

One replied, “There is certainly a tendency to describe rising asset prices as a good thing, whether stocks or houses. The ‘housing boom’ was in fact an affordable housing disaster.”

Another relates, “On that subject (good vs evil), I had a brief exchange with (a reporter) for the St Petersburg (FL) newspaper. His articles had been attacked by HBB types, but really by persons more extreme and shrill than those here. His piece that I read was in fact somewhat balanced, but persistently described falling prices as ‘bad news’ and the stability of St Pete relative to neighboring markets as ‘good news.’”

“I wrote, acknowledging some balance in his reporting, but criticizing the ‘good/bad’ usage. I said it would be better for all if home prices were in line with incomes and rents. He wrote back saying that higher sales volume and stable prices would be the best thing. Well, yeah, but stable at what level?!?! - was my thought, but I didn’t bother writing again.”

One had this, “Higher volume is better for agents and brokers and some other businesses, but it isn’t the best deal for everyone else. Selling your house (in a stable price market) means you have to move. It could be a move to a ‘better’ job opportunity but that implies that you couldn’t find a better opportunity in your area.”

“Until people can sell their houses with little loss of value (to broker, lender or transfer taxes) it is better for a typical home owner to stay put. I acknowledge it is bad for people to be so scared of the market that no one is buying, but that doesn’t mean a high level of sales is a really good thing at any price level.”

And one looked at perspective, “It was a boom, in the sense that there was a residential construction boom and thousands of units were built. There was the resulting boom in unoccupied units as well.”

“All depends on what you’re looking at. These were boom years if you worked in construction.”

The Kitsap Sun from Washington. “If you were waiting for the peak time to sell your house, it may have already passed you by for now.”

“The median home selling price in Kitsap County in May was up 7 percent from the same month a year ago, according to statistics compiled by the Northwest MLS. But Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said that doesn’t mean your house’s value went up in value from a year ago.”

“‘My expectation is it will pretty much be on par,’ Crellin said, though in some cases the price might have even dropped a percentage point or two. Buyers, on average, may have 7 percent more to spend, but they use it on more elaborate or newer homes, he said.”

“Crellin points out that it’s not necessarily bad news, because few people sell their homes a year after buying it.”

“Nonetheless, it’s clear the market was hotter for sellers a year ago. The 2,488 active listings in May was 41.5 percent higher than the number a year ago. At the same time, there was a 12 percent drop in the number of sales and a 15.4 percent decrease in pending sales.”

“‘It’s not quite the seller’s market from a year ago. Buyers are more cautious now; days on the market have gone up, prices have gone down. They’re not jumping on the first thing they see,’ said Rich Jacobson with Windermere Real Estate in Silverdale.”

“Crellin and Jacobson agree that even though conditions are not what they were a year ago, the pendulum is still on the seller’s side. Part of that has come because the Puget Sound region has not suffered the problems other areas have. Crellin said he believes innovative lending was not as popular around here as it was in other parts of the country, meaning people here are not foreclosing at the rate their peers are elsewhere.”

“There might be hope ahead for sellers.”

The Indystar reports from Indiana. “A downward trend in Indianapolis’ home-building market is fueling scores of job cuts and discounts that, in some cases, risk devaluing entire neighborhoods. The half-dozen or more national tract builders in the market, plus local players, are trying to hang on by cutting overhead and turning to price-cutting and promotions to lure the smaller pool of increasingly picky buyers.”

“Some builders have even cut their prices below what comparable homes in the same subdivision sold for in the past year. Patty Torr, a VP for F.C. Tucker Realtors, said one builder this spring knocked $100,000 off the price of a Northside home it couldn’t peddle.”

“‘That’s just crazy,’ she said. ‘That devalues the whole neighborhood.’”

“‘Anybody looking to sell land, it’s virtually impossible,’ said Corby Thompson, president of Thompson Land Co. in Fishers. ‘We’re going through a cleansing,’ he said. ‘I think it was overdue. Land prices were getting frothy. It was just unstable.’”

The Star Press from Indiana. “Two years ago, Laurel Meadows was in the Parade of Homes, the showcase for the newest and nicest local houses. This summer, the housing development south of Yorktown is on the foreclosure auction block.”

“The subdivision’s developer says the bottom fell out of the local housing market, leaving him owing more than $500,000 to a Michigan bank. Terry Moore’s company, M&M Construction, was the developer of Laurel Meadows, a 52-lot subdivision.”

“‘It’s a struggle right now to survive,’ Moore said. ‘The housing market has disappeared.’”

“Moore, who said he has built and sold as many as 100 houses locally at a rate of eight to 10 each year, said Laurel Meadows floundered because of the downturn in the sale of new homes. ‘I could never dream that the economy would turn off that quick,’ Moore said. ‘We went from selling 10 houses a year to selling nothing.’”

“The house on Kepner Drive was home to Charles Minton, his wife and four kids, until a series of events caused him to fall behind on payments, prompting Huntington National Bank to foreclose on the house.”

“Minton said he made some bad decisions, including not having private mortgage insurance. ‘I didn’t have the greatest credit in the world, and I bought out of my means, when all is said and done,’ he said.”

“Home foreclosures in Delaware County increased an average of 20 percent a year between 2000 and 2006, and this year’s numbers are likely to equal or top those for last year.”

“Local real estate agent Cindy Welch agreed that there’s no immediate change to the foreclosure problem on the horizon. ‘I think the market is going to be like this for a couple more years.’”

The Journal Sentinel from Wisconsin. “The latest statistics indicate that foreclosure filings in Wisconsin have risen 21% so far this year over last year, to 7,697.”

“Homeowners are trapped not just by life’s reversals, but by increases in adjustable-rate mortgages, more restrictive refinancing standards and a housing market too soft to allow a quick house sale, theorized Robert A. Jansen, president of the Milwaukee-based property listing service.”

“‘In addition, the slowdown in (price) appreciation has taken away many homeowners’ safety nets,’ Jansen said.”

“The hardest-hit areas: Milwaukee County, with 1,932 foreclosure filings this year as of May 31; Waukesha County, 326 cases; Dane County, 322; Brown County, 328 cases; Racine County, 294 cases; and Kenosha County, 305.”

The Star Tribune from Minnesota. “Jack Capman needed cash to pay some bills and to repair his house in Anoka County last year, so he refinanced his fixed-rate mortgage into an adjustable loan that dropped his $1,500 payment to $600.”

“Three months ago, he got a letter informing him that his payment was going to increase. That’s when he and his wife started thinking about selling the house, which was appraised at $271,000 last May and has a $223,000 mortgage.”

“But their real estate agent said that they’d be lucky to get $204,900. And the difference between the home’s value and what Capman owes could get worse every month because Capman got his big break on the monthly payment by taking a negative-amortizing mortgage.”

“‘This is not a position to be in at age 72,’ he said, contemplating the possibility that he could lose the house he’s owned for nearly 20 years. ‘And I shouldn’t have been here, and that’s why this hurts so much.’”

“‘The subprime bust was the tip of the iceberg for the foreclosure problems. You also have a group of people that were refinancing every two years to pay off credit card debt, and with housing prices declining, they cannot refinance,’ said Steve Sherwood, owner of RMG in Minnetonka.”

The Pioneer Press from Minnesota. “Forget what you’ve heard about the condo glut. It’s a great time to buy, if you’re shopping for foreclosures.”

“A newly formed group called the Condominium Opportunities Partners in Eden Prairie said it couldn’t resist the opportunities it sees flashing in all those empty new condos dotting the Twin Cities landscape.”

“‘We came to recognize that developers were working very very hard to hide the state of trouble of their projects,’ said Ted Glasrud, a former commercial real estate lender heading the group. ‘We really believe that things are far worse than they seem on the surface.’”

“Foreclosures are rising fast, and developers are competing with a record number of homes for sale in the Twin Cities market. In the first four months of this year alone, 3,605 homes in the seven-county metro area have been sold in foreclosure auctions, according to Pioneer Press records. That puts the area on track to top last year’s record 7,076 foreclosure sales.”

“Altogether, there are a record 34,000-plus houses, condos and town homes on the market across the metro area. That doesn’t include all of the estimated 9,000 single-family homes either currently under construction or finished and sitting vacant.”

“Glasrud said he’s been studying the area’s overbuilding and has seen many poorly designed projects. He estimated that about six ‘good-sized multi-project developers’ in the area are struggling financially, and said he knows of a few condo projects that have gone into foreclosure.”

“Some troubled projects were built with one cookie-cutter floor plan for all the units in the building, he said, and others added too much expensive parking or thousands of square feet of unnecessary amenities.”

“Others were just built in the wrong place, Glasrud said, recalling condos carrying price tags of $300,000 and $400,000 sitting in neighborhood where the homes are valued at about $225,000.”

“‘There are a number of projects that were just bad projects from the get-go,’ Glasrud said.”

The Miami Herald reports from Florida. “With the housing market stuck in slow motion, more and more condos nearing completion, and many jittery preconstruction buyers wanting out as closing day approaches, Magdiel Guillemi’s betting he’ll be able to buy at steep discounts. Then he hopes to sell for a profit. The Florida Legislature starts a special session this week to consider lowering property taxes, a move he thinks could spur renewed buying activity and endanger the low-cost deals he’s scouting.”

“‘If they cut taxes that will motivate individual buyers,’ said Guillemi. ‘And I want to get in before they do. I don’t want to be left with the crumbs.’”

“Guillemi is focusing on a unit at the Brickell on the River condo in Miami. He said the owner bought it for $341,000 and is trying to sell for $280,000.”

“‘The seller has two other properties under foreclosure and is having trouble making mortgage payments,’ said Guillemi. ‘I’m trying to pick it up for $260,000.’”

“But not everyone is convinced a property tax cut in Tallahassee will cure the housing markets ills. Among the other issues the market must work through are: A giant oversupply of homes: more than 76,000 were listed for sale in April in Broward and Miami-Dade counties compared to some 50,000 a year ago.”

“Over the next 18 months about 20,000 new condo units are expected to come onto the market in Miami-Dade County alone, possibly spiking unsold inventory as those units are put back on the market for resale.”

“Analyst Jack McCabe, who is advising large vulture investors on bulk deals, said the market is too sick to recover from a tax reduction alone. A big property tax cut may reignite buying now, he said, but would effectively create a false bottom.”

“‘Meaningful reduction will slow down the correction cycle but the correction is still inevitable,’ said the Deerfield Beach analyst, who has warned for some time about too much construction going up too fast. ‘The market is so sick it will take a while to cure this,’ he said. ‘This is not a head cold, it is more like pneumonia.’”

The Herald Tribune. “There are about 500 unsold luxury units in downtown Sarasota, or about an 18-month supply at current absorption rates. From May 2006 to May 2007, only 324 downtown condominium units sold.”

“That somewhat bleak appraisal of the city’s condo scene was the subject of a standing-room-only meeting of about 75 local real estate agents. Perhaps the most telling moment came when Louise Guido, who served as moderator, asked for a show of hands from those who thought the condo market had bottomed. No hands went up.”

“Al Horrigan, chief executive and broker of Bradenton’s RSVP Associates was in the room and thought ‘it was a dose of reality.’ ‘No one argued that things were well in the condo marketplace,’ he said.”

“Guido suggested that, given the high inventory levels, many condos would not be selling anytime soon and that agents should counsel their sellers to lease them out until the market improves.”

“Guido gave examples of new two-bedroom and two-bath condos fetching $1,600 to $2,000 per month on annual leases.”

“‘Investors have dried up. Some investors have multiple properties, mortgage rates have risen and the absorption rate will get worse,’ said Guido, who also observed that prices have fallen to the ‘pre-construction prices of 2004.’”

“‘When you consider that a mortgage on that kind of property carries a monthly payment of $3,000 to $5,000 a month plus property taxes and condo fees, there is still some serious hemorrhaging occurring,’ Horrigan said.”

“‘One shared opinion is that the investor market has substantially dwindled, creating a bloated inventory,’ said Cheryl Loeffler of Sky Sotheby’s. ‘In the face of weak demand and affordability issues, it is going to take aggressive pricing and uniqueness, such as location and amenities, to move sales forward.’”

“‘People are looking to figure out how to get out and get their money back,’ Horrigan said. The deposit ‘is out of your wallet and has been for a couple of years. While it would be painful to walk away, because the money is already gone, it won’t change your lifestyle. Close on it and start running negative at $3,000 to $5,000 a month, and it becomes lifestyle-altering.’”

“Horrigan’s ‘tea leaves’ tell him ‘things will be selling below purchase price as people try to recoup.’”

The Daily News. “In another sign of the Emerald Coast’s cooling housing market, the number of foreclosures is up significantly across Okaloosa, Santa Rosa and Walton counties.”

“According to Metro Market Trends Inc, foreclosures are more than five times higher in Okaloosa County so far this year than in all of 2006. Foreclosures have more than doubled in Walton County and jumped by more than 60 percent in Santa Rosa County.”

“‘A lot of folks got these interest-only loans as a chance to enter into a home,’ said Realtor Lilly Vining. ‘And then, whammo, their payment rises, and they can’t make that payment.’”

“‘I really believe that a lot of foreclosures are the result of purchasing in an inflated market … and the entirely wrong mortgaging programs,’ she said. ‘People are not researching the loans. Just because you qualify now doesn’t mean you’ll be able to pay it in the future.’”

“‘I think we’re going to see more foreclosures,’ said Realtor Ray DiTirro. ‘I think it’ll continue for the rest of the summer.’”

“DiTirro said the rise in foreclosures is due to buyers jumping into interest-only loans, 100 percent loans and adjustable-rate mortgages. ‘These are the people who bought high and had little or no equity in the house,’ he said. ‘I think people got caught in the euphoria.’”

“Vining said she works hard to educate buyers about the ups and downs of the market. ‘Sellers really need to understand we’re not in an inflated market and haven’t been,’ she said. ‘You’ve got to counsel your buyer. You’ve got to find out everything, not just what you can afford now.’”

What so you see in your housing market this weekend? Lower prices? “Prices for some swanky pads on Long Island have been reduced recently, and it’s taking longer to sell, signs that the high-end market has started to feel the pinch, same as the regular folks. Agencies’ inventories of expensive homes have gone up, triple in one case.”

“A Centre Island estate where owner Patricia Altschul’s mini horses gambol, has dropped from $19 million last fall to $15.8 million now. Middlesea, singer Billy Joel’s estate on Centre Island, has dropped from last September’s $37.5 million to $32.5 million.”

“‘At the high end, there’s an end to the speculative market, in which people felt they could pay anything and sell and have their property be worth more than whatever they paid for it a year later,’ said Robert Campbell, associate professor of real estate finance at Hofstra University. ‘People are no longer making that assumption.’”

Homebuilder news? “D.R. Horton Inc.’s debt ratings are teetering on the brink of junk territory and further weakness in the housing sector and tighter lending standards may push the largest U.S. home builder’s ratings over the edge.”

“‘The company remains perhaps the most notorious speculative builder in the industry, a strategy that we expect to weigh heavily on margins and increase risk that inventory levels could rise more significantly than currently expected in coming months,’ Barclays Capital said.”

Legal matters? “New York Attorney General Andrew Cuomo’s probe into whether mortgage brokers pressured appraisers to inflate property values as housing prices increased in recent years continues to expand.”

“Mr. Cuomo said that ‘many, many more’ subpoenas have been issued by his office than the four that have been reported publicly so far.”

Or housing bubble reflection? “Alan Greenspan’s regulatory record has received far less scrutiny than his management of the economy. That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed’s broad authority.”

“‘I would have liked the Fed to be a leader’ in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.”

“‘He was opposed to it, so I didn’t really pursue it,’ says Edward Gramlich, who was Fed governor from 1997 to 2005.”

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