The Housing Bubble

The LA Times reports from California. “Southern California home sales plunged to a 12-year low in May, falling by 34% from a year earlier, thanks to a sharp drop-off of buyers of lower-priced homes, data released today showed. DataQuick said the drop-off in sales has been especially pronounced among lower-priced homes. Indeed, the dearth of sales at the lower end has started to push prices down.”

“But because home sales are more robust among higher-priced homes, and prices in that category are flat or even increasing at the very top of the market, the overall median price appears to be gaining rising.”

“‘The median holding steady doesn’t equal a sure sign of stability,’ DataQuick analyst Andrew LePage said. ‘Fewer lower-priced homes are selling, and that puts upward pressure on the median.’”

“Last month, sales of homes priced $800,000 or lower plummeted 38%, while sales of homes priced above that amount saw no change from May 2006, DataQuick said.”

“In Riverside County, sales fell 45.4% to 3,307 year over year, while in neighboring San Bernardino County, sales plunged 46.5% to 2,220. Orange County’s sales declined 29%. In Ventura County, sales dropped 25% compared to with a year earlier. In San Diego County, sales fell 24.4%. Los Angeles County…sales fell 31% from a year earlier.”

The Orange County Register. “For the month of May, DataQuick reports this morning that 2,675 homes sold or 29 percent below a year ago. It’s the slowest-selling May in the 20 years DataQuick has tracked the market. The 13,336 homes of all types sold this year through May marks the slowest start of a year since 1995.”

“Looking at year-to-date sales, ‘07 so far has totaled 13,336 homes of all types sold, or 26.3% below historical pace. Twenty straight months of year-over-year sales drops can do that.”

“In Garden Grove, a 1,400-square-foot house on a quiet street is having trouble selling, even though the asking price is $15,000 less than the amount paid a year ago for a comparable home that is smaller with inferior construction and in a worse location.”

“Real estate agents in Cypress, Garden Grove, Tustin and Ladera Ranch said they’ve noticed a clear downward trend in prices, with current home values off between 5 and 10 percent.”

“‘I think prices have come down 8 or 9 percent,’ said Charles Folcke of North Hills Realty, an agent specializing in properties in the Tustin area.”

“Cypress agent Cary Hairabedian said Cypress home values are down about 6 to 8 percent in the last year. He noted that the median price doesn’t reflect the number of transactions in which sellers pick up a greater share of closing costs than they did a year ago.”

“‘You have a bigger gap than people realize,’ he said.”

“Chuck Pillsbury of Ladera Ranch Realty, who believes that Ladera prices are down by about 10 percent, added that buyers there used to pick up a 0.25 to 1 percent ‘lifestyle enhancement fee.’”

“‘Now, it’s negotiable,’ Pillsbury said. ‘The market’s changed quite a bit.’”

The Fresno Bee. “Year-over-year sales in the region have fallen for 20 consecutive months, which is leading to lower prices, said John Karevoll, a DataQuick analyst. ‘A year from now, the median is probably going to be anywhere from 4 (percent) to 6 percent from where it is,’ he said.”

“The Inland Empire counties of Riverside and San Bernardino are leading the sales and price declines in the region, Karevoll said. ‘The Inland Empire is now due for its drop-off,’ he said. ‘We’re seeing it certainly in sales and we’re seeing it more in prices.’”

The Press Enterprise. “The declining housing market continued in Inland Southern California in May, especially in Riverside County where the median price of a home fell by more than 3 percent.”

“Overall, sales of new and existing homes have slowed by almost half in the two Inland counties, according to a report released today by DataQuick.”

“With the cooling of the housing market compounded by a spike in mortgage failures, foreclosure activity is skyrocketing in California, according to a report.”

“Riverside County recorded 4,550 foreclosure filings last month, which was more than four times the 1,066 filings recorded in May 2006.”

“San Bernardino County was the seventh-ranked county in foreclosure activity, with a total of 3,633 filings, up more than seven-fold from a year earlier.”

“In California, a major propeller of foreclosures has been the failure of subprime loans, said DataQuick spokesman Daren Blomquist. ‘In California, people are getting into mortgages they just can’t afford,’ Blomquist said. ‘An analysis of our database shows about half of the foreclosures in the first quarter were from subprime loans.’”

“Most people who receive notices of default still are able to save their homes from going to foreclosure, even if it means having to sell them, Blomquist said.”

“But increasingly they are losing the battle. He said last month Riverside County recorded three notices of default for every notice of trustee sale, compared to five notices for every trustee sale a year earlier.”

“In San Bernardino County in the same time the number of default notices for every notice of foreclosure auction dropped from eight in May 2006, to four last month.”

The Daily Press. “As foreclosures add to the surplus of homes on the residential property market, auctions are rising in popularity. Hudson and Marshall on Thursday will put 2 homes under the gavel in Victorville ranging in price from $86,000 to about $350,000.”

“According to RealtyTrac, the state recorded 30,505 foreclosure filings in April, more than any other state for the fourth month in a row, while California’s foreclosure rate is nearly twice the national average.”

“‘Because of huge inventory and the continuing correction in housing prices, there will not be a quick turnaround in the market,’ said Carolyn McNamara, a real estate broker in Phelan.”

The Indystar reports from Indiana. “Across the metro area, the pace of existing home sales declined again in May. Throughout the nine-county Indianapolis area, 2,941 existing houses and condominiums changed hands last month, 10.3 percent fewer than in May 2006. Real estate veterans suggest the sluggish market reflects the hangover left from the excesses a few years ago: Developers overbuilt on new tracts, lessening consumer interest in older homes, said G.B. Landrigan, head of Indianapolis real estate firm Landrigan & Co.”

“Buyers flooded the home market, attracted by low interest rates. From 2004 to 2006, nearly 170,000 existing metro-area homes changed hands, about double the sales volume in any three-year period a decade ago.”

“Indianapolis’ soaring foreclosure rate poured homes on the market. Early in 2006, the metro area ranked first nationwide in foreclosures.”

“‘I have never, in my 35 years in the industry, seen the market the way it is. I won’t say it is being soft, but it is being inconsistent,’ said H. James Litten, president of Tucker’s residential real estate services division.”

“Average sales prices also have declined. In May, the typical home changed hands for $145,200, down 2.5 percent from a year earlier, Litten said. He noted the average this year has been brought down by foreclosed properties selling at an average of about $70,000.”

The Indianapolis Business Journal. “Buyers in the market for million-dollar homes can afford to be choosy these days, as the softness in the overall market extends to the high end, real estate agents say.”

“‘With the market like it is, we won’t buy if it’s not exactly what we want,’ said Harris Turner. ‘We are not in a rush at all.’”

The Oakland Press from Michigan. “More than 7,000 Oakland County homeowners could lose their homes to foreclosure by the end of the year, the highest level ever, and housing values on average are flat to falling because of it, Oakland County says. The county recorded 4,881 foreclosures last year.”

“‘These are properties that are hitting the market and dragging down prices,’ said Dave Hieber, the county assessor.”

“‘The decline in market value will probably result in us having the worst year we’ve had in 30 years in value growth,’ said Deputy Oakland County Executive Robert Daddow.”

The Journal Sentinel from Wisconsin. “Sellers started to get the hint last month: It may not be worth it to put a house onto a glutted market. New real estate listings rose a mere one-half of 1 percent from a year ago, according to Metro MLS. Meanwhile, sales dragged for houses already listed, falling 11.2% below May 2006.”

“‘It’s the worst in my eight years,’ said Jennifer Buzzell, broker based in Waukesha.”

“She and other brokers report that a domino effect is building: Each buyer puts down an offer contingent on the sale of his or her own home.”

“‘A lot of my deals are four and five people deep,’ Buzzell said. ‘I have sold a property to a lady, whose house I now have on the market, which I’ve sold to a guy, and none of the deals will close until his house sells.’”

The Star Tribune from Minnesota. “High hopes for a stellar spring housing market were dashed by a mixed sales report for May, according to data released Tuesday by Twin Cities-area Realtor groups.”

“The number of closed home sales last month was nearly 15 percent lower than last year at this time, one of the steepest annual declines in several months.”

“Last month, prospective buyers took advantage of the combination of slowing sales and high inventory to shop for bargains. Accordingly, May’s median sale price for Twin Cities-area homes dropped slightly.”

“That report noted that while prices have fallen in recent months, the housing market has outpaced the rate of inflation: Between 1998 and the first nine months of 2006 the consumer price index rose 24 percent while the median sale price of houses in Minnesota increased 85 percent.”

The Pioneer Press. “The Twin Cities housing market continues to trudge through a serious correction, with would-be buyers largely shrugging as rising foreclosures add to record for-sale inventories. Tougher lending standards and rising mortgage interest rates threaten to dampen activity further.”

“With less than a month to July 4, the sluggish activity spells trouble for the summer dog days ahead. ‘It will be a summer of more markdowns,’ predicts Steve Shea, owner of Sunset Realty in Maplewood. ‘It’s going to take this market a couple of years to clean out.’”

“Buyers seem indifferent to the deals; sellers sweat out a market flooded with a record 33,898 active listings. Those listings do not include all of the 9,300 newly built homes (excluding condos) either already built and sitting empty or under construction, said Ryan Jones, who manages the Plymouth office of MetroStudy.”

“To be sure, homes have continued to sell in the Twin Cities. Closed sales, pending sales and the median sales price for May in the metro area were up from April. But they were all down year over year. And the area’s prime spring selling season was flat-out disappointing.”

“Sellers, of course, feel urgent. They organize condo crawls, online foreclosure auctions, progressive open houses that stage appetizers through desserts at different houses.”

“Pulte Homes Inc., a major home builder in the metro area, announced Tuesday that from June 22 to June 24, buyers using Pulte Mortgage will get 10 percent off all homes plus $10,000 toward closing costs.”

“Karen Wilson, broker in St. Paul, said move-up buyers simply cannot sell their current houses given all the competition. Whatever the exact reason, buyers lack urgency. ‘They think they have all the time in the world,’ Greene said.”

Some housing bubble news from Wall Street and Washington. “U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments, RealtyTrac Inc. said. There were 176,137 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio.”

“A jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn’t over, said James Saccacio, CEO of RealtyTrac. ‘Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,’ Saccacio said in the report. That will add ‘to the downward pressure on home prices in many areas.’”

From Bloomberg. “Federal Reserve Governor Randall Kroszner said the central bank ‘will seriously consider’ tougher rules to prevent abuses in consumer credit, including whether it should ban some mortgage lending practices.”

“Kroszner’s comments show the Fed is now balancing its previous preference for unenforceable guidance and improved disclosure with the threat of new rules, which would give consumers the power to litigate against abuses.”

“‘Any rule should be drawn sharply with bright lines to avoid creating legal and regulatory uncertainty, which could have the unintended effect of substantially reducing consumers’ access to legitimate credit options,’ Kroszner said.”

“Still, his remarks are the most conciliatory to date toward congressional demands that the Fed toughen up restrictions.”

“‘The board is keenly aware, however, that disclosures and financial education may not always be sufficient to combat abusive practices,’ Kroszner said. ‘The board also has the responsibility to prohibit other practices by issuing rules.’”

From MarketWatch. “Prompted in part by troubles in the subprime mortgage market, banking regulators on Wednesday called for greater powers to fight unfair and deceptive lending practices and said they’d consider prohibiting some practices.”

“Sheila Bair, the chairman of the Federal Deposit Insurance Corp., called for a national standard for subprime mortgage lending.”

“The House Financial Services Committee is exploring improved consumer protection in financial services. The hearing comes a day before the Fed is to hold a hearing about how to curb abusive lending practices in the subprime market.”

From Marketplace. “The nation’s foreclosure problems may only be getting worse. RealtyTrac says there were 176,000 new foreclosure filings nationwide in May.”

“Thomas Lawler is an independent housing economist. Thomas Lawler: ‘What the foreclosure numbers are suggesting is that many of those delinquencies are entering what you might call phase two. A lot of lenders are feeling that these loans are not easily salvageable.’”

From Business Week. “Investors in a 10-month-old Bear Stearns (BSC) hedge fund are learning the hard way the danger of investing in risky bonds with borrowed money. The investment firm’s High-Grade Structured Credit Strategies Enhanced Leverage Fund, as of Apr. 30, was down a whopping 23% for the year.”

“The situation is so bleak that Bear Stearns’ asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that’s got some hopping mad.”

“‘At the end of the day, I’d like someone to be honest with me about what’s going on,’ says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages.”

“An investor in Europe, who didn’t want to be identified, says he’s been trying to get his money out of the hedge fund since February.”

“In a June 7 letter to investors, Bear Stearns says it’s suspending redemptions because the ‘investment manager believes the company will not have sufficient liquid assets to pay investors.’”

The Associated Press. “Millions of Americans with weak credit who took out mortgages the past few years are caught in a tug of war between hedge funds and lenders on Wall Street.”

“Who wins the dispute could have more impact on how many homeowners get financial help to avert default and foreclosure than anything Congress or regulators are contemplating in the near term.”

“Publicly, officials at banks and hedge funds say they want to do all they can to help distressed homeowners. Privately, however, a debate simmers over whether banks that sold bundled mortgages to institutional investors can legally pluck loans out of those bundles for workouts to help keep the default rates down.”

“Hedge funds argue that the real motive might be to avoid paying what lenders owe on complicated financial contracts negotiated on the mortgages.”

“Instead of having to pay on a contract at as much as 100 times the value of the underlying mortgage, ‘it becomes cheaper for some folks to buy worthless loans,’ says Harvey Pitt, a former chair of the Securities and Exchange Commission who represents a hedge fund.”

“Unregulated hedge funds effectively assumed some of the risk lenders faced when they issued mortgages to borrowers with risky credit histories. Lenders, in turn, agreed to pay hedge fund investors if the value of defaults soared on bundled mortgages sold to institutional investors.”

“Pitt says it would be market manipulation if lenders are trying to avoid paying on swaps. ‘So far people are talking about wanting to do this, but I’m not aware yet that anybody’s actually tried to do it…the important thing for folks to realize is that it’s unlawful,’ Pitt says. ‘There can be litigation if anybody tries,’ he added.”

“Josh Tullis, who in his eight years as a senior loan officer rarely felt compelled to reject a first-time home buyer’s mortgage application, is sending people away empty- handed in 2007.”

“Tullis’s latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they’ve been renting the same apartment for three years with zero late payments, he said.”

“Lenders won’t approve them because they don’t have enough money in the bank, said Tullis, Virginia sales director at A. Anderson Scott Mortgage Group in Falls Church. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”

“‘Six months ago, these folks might have qualified, a year ago, definitely,’ Tullis said. ‘It’s a lot, lot harder than it used to be for first-time home buyers.’”

“‘It all comes back to the first-time home buyer,’ said Gary Balanoff, a real estate broker in Oviedo, Florida. ‘If they could buy, we’d see a much better housing situation for everyone because it would start the domino effect.’”

“About 20 percent of U.S. mortgages issued last year were subprime loans to borrowers with bad or limited credit histories. One in four subprime home purchasers the last two years was a first-time buyer, according to the Mortgage Bankers Association.”

“Countrywide Financial Corp., the biggest U.S. mortgage lender, made 60 percent of its subprime loans for home purchases to first-time buyers in the fourth quarter. The bank will reduce that to about 16 percent, Chief Operating Officer David Sambol said in a conference call.”

“About 5 percent of the loans issued by Countrywide Financial this year will cover the full price of a home, down from 25 percent in 2006, Sambol said.”

“Countrywide CEO Angelo Mozilo said in an interview that the cutback was made in response to concerns about the viability of subprime loans issued last year. ‘We need to take a step back and make sure this readjustment hasn’t gone too far,’ Mozilo said.”

“First-time buyers have a delinquency rate of up to 40 percent higher than other borrowers, said Andy Chawla, senior VP for risk management at IMPAC Mortgage Holdings Inc.”

“Simply requiring a down payment of as low as 5 percent will disqualify one in four of the first-time buyers who were IMPAC customers a year ago, Chawla said. ‘We’re asking for skin in the game,’ Chawla said.”

The Street.com. “Toll Brothers CEO Robert Toll said on the company’s recent earnings call that sales of the company’s Brooklyn condos have been going ‘pretty strong,’ but he made no mention of the pricing problems at the developments.”

“In recent weeks, the homebuilder slashed prices by nearly 20% to sell a block of condo units that have less-than-desirable views in the first tower of Northside Piers, TheStreet.com has learned.”

“What’s more, the company appears to be having trouble selling the remaining 11 units that also suffer from poor views at North 8, a nearby project that has had these units on the market since October 2006.”

“‘I think that some of the big buildings being built on the water will not appeal to everybody,’ says Lior Barak, who handles new Brooklyn condo sales for real estate firm Prudential Douglas Elliman.”

“Two-bedrooms and three-bedrooms have been a ‘challenge to sell,’ says David Von Spreckelsen, a VP at Toll Brothers who heads the New York City office. ‘It’s a younger market than we thought.’”

The St Petersburg Times reports from Florida. “One in five U.S. homes entering the foreclosure process last month were located in Florida. It’s not the sort of ranking that makes you want to shout, ‘We’re No. 1!’ Mark Vitner, senior economist at Wachovia Corp., cites two key reasons why the state stands out today: An abundance of properties owned by speculators. The relative ease and speed with which mortgage lenders can obtain a court-ordered foreclosure here.”

“The onetime Jacksonville resident says he was surprised to learn, after the fact, just how much speculation took place in Florida during the recent boom. Many buyers told their lenders they planned to live in the homes they were buying. ‘The truth is, people lie,’ Vitner says.”

The Miami Herald. “A South Florida real estate broker Carlos Justo, flamboyant founder of Sol Sotheby’s International Realty, is in deep money trouble. Justo, who catered to millionaires and became one himself, says: ‘I am considering filing personal bankruptcy. I’m fighting for my financial life.’”

“He, along with some investors, lost $2.35 million in a deal at 3 Indian Creek Island, he says. He is in foreclosure on another property, where he now lives. He bought it in ‘05 for $6.85 million. The debt is around $11 million with interest. He’s trying to sell the house, for $14.9 million.”

“His timing was off, he admits. ‘The market is slowing down. Everybody knows what’s happening in the Miami market because of the condo oversupply. It’s going to be a bloodbath out there. You know what the buyers are saying? ‘Let me wait, why should I pay $10 million for a house when it might be down to $8 million in a year.’”

The Orlando Sentinel. “In April, the Orlando area’s median sales price for existing homes and condominiums sold through Realtors, had dipped year-over year by 2.77 percent, a relatively rare decline for home-sale prices in the area.”

“Sales by Realtors of homes and condos in the group’s core market, mainly Orange and Seminole counties, were down 45.46 percent to May 2006, the report stated.”

“The inventory of single-family homes and condos listed through Realtors, up 1,028 to 25,463 properties, (was) another record. That’s 40 percent more than a year ago and a 16.43 month supply at the recent, sluggish sales pace.”

“Property-tax relief can’t come soon enough for the lethargic home-resale market in the Orlando area. Realtors said they fear uncertainty over what state lawmakers may do to Florida’s property-tax system is contributing to the ongoing softness.”

“‘Everybody’s waiting to see what Tallahassee will do,’ said Randy Martin, president of the Orlando Regional Realtor Association.”

“Martin, an agent in Winter Park, said he has seen cases in the past year where people took a look at what their taxes would be if they sold and bought another home, and backed out when they realized their tax bill would double or triple when they lost their Save Our Homes tax-cap advantage.”

“‘That’s what’s trapping people, especially those who want to downsize,’ Martin said.”

“Martin warned that it now appears more likely the Federal Reserve will resume boosting short-term interest rates, adding upward pressure to the longer-term bond rates that are linked to home mortgage rates.”

“‘If those go up, it’s going to take more people out of the [home-buying] market,’ he said.”

From Time Magazine. “People have often said that Florida is the new California, but this week the Sunshine State hopes to really drive the point home, all the way into homeowners’ pockets.”

“On Tuesday the legislature started a special session to reform Florida’s dysfunctional property tax system, aiming to save residents the tens of billions of dollars that Californians reaped a generation ago.”

“In expensive markets like South Florida, for example, homeowners who have yet to qualify for a state property-tax cap say they’ve seen better than 100% increases over the past few years. It’s a large reason why, according to a new Zogby International poll, half of South Floridians and 37% of all Floridians say they’re considering moving out of the state.”

“When Sergio Martinez bought his 5-bedroom Miami house three years ago for $405,000, the taxes were only $2,800. But before he became eligible for the homestead cap last year, they’d jumped to $7,400.”

“His house is now valued at more than $900,000, and if he were to sell it, the new owner would be staring at an annual tax bill of almost $20,000.”

“‘That’s a big reason I’d have trouble finding a buyer for this house, and why I’d have trouble buying a new one here myself,’ says Martinez, who now works two jobs in order to pay his tax and insurance bills. Unless Martinez wants to leave South Florida, ‘I’m essentially in jail in my own house.’”

From Tampa Bay Newspapers. “Broker Karen Selby said residential real estate sales in Pinellas County are about 40 percent of what they were a year ago. ‘Taxes and insurance combined are putting (potential buyers) out of the ratio for getting approved,’ Selby said.”

“She hopes state leaders can come up with a solution as quickly as possible. ‘It’s anybody’s guess when it comes to our legislators,’ Selby said. ‘I hope they do something positive but I have my doubts. We need relief immediately.’”

“The area has lost 5,000 motel rooms in the past couple of years, not all mom-and-pop units. Such losses have a trickle-down effect on the economy, such as on sales tax collections, said Tony Satterfield, chairman of the Tampa Bay Beaches Chamber of Commerce.”

“The big culprit, Satterfield and others said, is that the Pinellas County Property Appraiser assesses property based on highest and best use, the use that will generate the highest net return to the property over a reasonable period of time.”

“‘Nobody should have to pay taxes on profits that haven’t been realized,’ Satterfied said.”

“Lizard Real Estate owner Liz Barrett had similar views. ‘It’s a complete disaster,’ Barrett said.”

“Mom-and-pop motels, which were the backbone of tourism in Florida, Barrett said, are all being run out of business. They are being taxed ‘as if there was already a six-story multimillion-dollar condo in their place.’”

“Property tax and insurance issues have affected the housing market seriously, Barrett said. ‘People who want to move and downsize can’t afford to because their property taxes will be too high because we don’t have the portability for homestead,’ she said.”

“An estimated 250 people, mostly Realtors, turned out for the three-hour forum May 28 hosted by the Pinellas Realtors Association. The real estate agents complained that ‘more people are leaving the state than moving here’ because of the state’s new reputation for high property taxes and scarcity of home insurance.”

“‘I see a $250,000 speed boat on the Intracoastal being used to catch people without their life jackets on,’ Kevin Hussey (said). ‘Something has to be done now. We read that the real estate market has slowed down. It’s worse. It’s on its knees.’”

“A billboard on interstates at Florida borders, facing south, should bear the message, ‘Will the last person out of Florida turn off the lights’ said Zapita Bukowsky of Seminole.”

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