The Housing Bubble

The Sacramento Bee reports from California. “Capital-area home sales…remained well below last year. Across much of the region median prices continue their 12-month trend of year-over-year declines. TrendGraphix reported 14,704 existing homes for sale at May’s end. That’s 678 more houses for sale than in April.”

The Modesto Bee. “For the more than 500 people who attended the Valley Real Estate and Economics Conference in Modesto…the hot topic was the depressed real estate market. Stephen Endsley, the longtime real estate investor who organized the conference, gave the most gloomy forecast: Housing prices will continue to fall 5 percent to 10 percent per year for the next five years.”

“‘It took us five years to get into this housing bubble, and it probably will take us five years to get out,’ said Endsley.”

“In Stanislaus County, only 3,700 homes are expected to sell in 2007, which is about half as many as sold in 2004 or 2005, according to Craig Lewis, president of Prudential California Realty.”

“Lewis said median home prices have fallen from $414,000 in 2005 to $359,000 now, and it takes nearly three months to sell the typical home. ‘First-time home buyers have the ability to buy now, but…they’re sitting back and waiting because they think the price will go down more,’ Lewis said.”

The La Times. “Build them and the buyers will come. That’s how developer Shone Wang has been selling homes in Southern California for the last 15 years. But this spring, Wang hit a snag: no takers for a cluster of luxury homes he built in Rancho Cucamonga.”

“‘The first day my homes went on sale I decided I had to do something else,’ Wang said.”

“His solution is an auction, set for Saturday, at which bidders have to agree to pay at least $700,000 for homes originally priced at $1.2 million.”

The Daily News. “When Ron and Diane Golden decided to sell their four-bedroom home in Granada Hills, they spruced up the landscaping, shampooed the rugs and painted it inside and out.”

“But 22 months later and $224,00 cheaper, their home is still on the market because buyers have asked for a new roof, granite countertops or new gates for the pool. The home, now listed for $749,000 by Coldwell Banker, has fallen out of escrow six times.”

“‘They make demands, huge demands,’ Diane Golden said. ‘A buyer wants everything replaced, brand-new.’”

The Daily Bulletin. “In May, the Southern California housing market continued tripping, stumbling and falling, and things should get worse before they get better. That’s the word from those who follow interest rates.”

“Regional economist John Husing of Redlands said the increase in long-term rates is ‘very scary,’ and that the 10-year rate, on which mortgage lending is based, is at its highest in five years.”

“‘I have been saying it would be the first quarter of 2008 before the market would stabilize,’ Husing said. ‘Now for the first time, I think it depends on what happens with long-term rates.’”

The Orange County Register. “A total of 2,675 homes closed escrow in May, DataQuick reported. That’s the smallest number of May sales in the 20 years that DataQuick has been tracking the local housing market. Sales fell nearly 29 percent from a year ago and were down almost by half from May 2005.”

“‘It’s the slowest spring that I can remember,’ said Patrick Veling, president of Real Data Strategies of Brea. ‘(Home shoppers) seem to be convinced that the bottom is unknown. They really have no idea what the value of a home is right now.’”

The Voice of San Diego. “That May Gray that hung over San Diego’s coastline last month also extended to the county’s housing market, as the region’s lowest sales of any May in 12 years clouded over the market’s chances for a quick recovery, according to numbers released by DataQuick.”

“Andrew LePage, DataQuick analyst, said lower-priced neighborhoods saw the most significant drops in sales throughout the six Southern California counties DataQuick analyzed in its report.”

“Fewer homes selling in the lower price ranges means the median price edges higher. But that doesn’t mean the prices on individual homes are rising. ‘The trend’s definitely down, the question is, would it be down even more if more of the lower-priced homes were selling?’ LePage said.”

“‘What you can sell your house for two years ago versus today is probably about 15 to 20 percent lower,’ said local analyst Peter Dennehy. ‘The median is an extremely misleading way of looking at prices, because we all know that the market is now pretty disparate.’”

“‘In a hot market, all homes are created equal,’ agreed local Realtor Bob Casagrand. ‘In a cold market, all homes are not created equal. In a cold market, the distance between the good stuff and the not-so-good stuff widens substantially.’”

The Press Enterprise. “Inland home sales maintained their months-long sluggish pace in May, as Southern California experienced its slowest May housing market in 12 years.”

“DataQuick analyst John Karevoll said that the Inland area is experiencing what San Diego saw through much of 2006, after its prices peaked in November 2005. ‘We’re just astonished that it didn’t happen earlier,’ Karevoll said of the Inland slowdown.”

The Bakersfield Californian. “David Crisp, who made headlines with his extravagance during the housing boom, shrugged off another financial blow this week.”

“The Internal Revenue Service slapped him and his wife with a $111,170 lien in back taxes and penalties, according to public records. The back taxes stem from 2005, when the local real estate market experienced a frenzy of home sales and price appreciation.”

“The escalating size of his debt has yet to worry Crisp, who said that the rising total means little for someone accustomed to dealing with million dollar sums. ‘How many times has Donald Trump filed bankruptcy?’ Crisp asked.”

“He quickly added that bankruptcy filings are not in his plans. His debts will be paid off, one by one, he said. ‘I’m self-employed,’ Crisp said. ‘I can’t make it go any faster.’”

The East Valley Tribune reports from Arizona. “Sales of existing Valley homes picked up slightly in May, as tens of thousands of homeowners competed for buyers in a dragging market. Some 5,220 existing homes sold last month, down 24 percent from the same period last year, a study by Arizona State University’s Realty Studies department shows.”

“So far this year, 24,265 existing homes have sold, down from 30,830 in the first five months of 2006 and 46,485 the same period in 2005.”

“The market is…still dealing with a huge overhang of unsold homes, Realty Studies director Jay Butler said. The inventory of existing homes has hit record highs in recent months, soaring to more than 50,000. Many are investment properties, he said.”

“‘(Investors are) in trouble,’ Butler said. ‘They can’t rent them. They’re not making any money. They’re just simply wanting to unload them.’”

“Sellers in Pinal County and the West Valley are struggling to compete with builders offering larger homes, landscaping and other incentives at resale prices, he said.”

The Arizona Republic. “Median prices for homes sold in May throughout the Southeast Valley fell compared to a year earlier. Jay Butler, at ASU, said new home builders are aggressively pursuing homebuyers and competing with sellers of existing homes.”

“Also investors continue to sell and put downward pressure on prices. There are more than 18,000 homes for sale in the Southeast Valley, according to the Arizona Regional MLS, a record.”

“Compared to May 2006, Ahwatukee Foothills saw the biggest decrease in median prices, with a 10 percent decrease, to $346,500. Gilbert had an 8 percent decrease, to $300,000. Tempe’s price fell 6 percent, to $270,780; Mesa declined 5 percent, to $238,000; and Chandler fell 3 percent, to $297,750.”

From Newszap.com. “Real estate experts say a buyer’s market is still in place after more than a year-and-a-half as the number of home listings Valley and nationwide continue to increase.”

“There are more than 60,000 home listings in the Valley compared to 38,000 listings two years ago when a bull market was in place and homes were selling like hotcakes, said Norm Brenna, general sales manager for Ken Meade Realty, Surprise, Arizona.”

“The market has slowed somewhat and buyers believe they can pick and choose what they want as they are in control in today’s housing market.”

“Mr. Brenna described the market as slow simply because buyers may be reluctant buy as prices continue to surge. Some sellers are getting $20,000 to $40,000 less than their original asking prices despite the downward trend of homes sold.”

“Still, sellers believe they can get their original asking price and are looking to broker deals, but are often asking too much. ‘We still have a lot of sellers who believe their home is worth what it was a year-and-a-half ago,’ he said.”

“During the first quarter of 2007, January through March, there was a 15.9 percent decrease in the number of homes sold in Sun City and the average sale price went up .6 percent compared to last year.”

“Homes have also stayed on the market longer this year, a 147.6 percent increase this year versus last.”

“This year’s numbers indicate an 11.8 percent decrease in homes sold in Sun City West and an average sale price decrease of 7.2 percent. Average days on the market for Sun City West homes increased 225 percent, according to Mr. Brenna.”

“‘Sellers are asking too much and believe their homes are still built with heavy-duty nails,’ he said. ‘This news is slowly getting them back to the realization of where the housing market is.’”

“The Recreation Centers of Sun City also tracks homes sold as a $2,500 fee garnered from sold homes goes into the corporation’s Capital Preservation Fund.”

“As of April, the latest statistics available from the RCSC shows 146 new homeowners paid the one-time Capital Preservation Fee, according to Helen Thiel, executive coordinator for the board of directors. Last year, a total of 1,757 homes sold in Sun City.”

“Ms. Thiel said 579 homes have sold this year in Sun City. ‘The housing market is down,’ she said. ‘It’s a nationwide trend.’”

“If sellers are interested in selling their homes now, Mr. Brenna’s advice for them is to wisely position it in the marketplace and be realistic about selling goals. ‘There are a lot of houses for buyers to look at and you want to get the best buy for your dollar,’ he said.”

“Arizona is ranked No. 6 nationwide for foreclosures with 5,918 properties entering foreclosure last month, a nearly 200 percent increase from May 2006, according to RealtyTrac.”

“Analysts worry that the increase in foreclosure activity during the spring when sales are typically strongest could mean even higher rates later in the year.”

“Nevada topped the firm’s list with a 375 percent jump in foreclosure activity. Colorado, California, Florida and Ohio rounded out the top five.”

The Gazette Journal from Nevada. “After a slight reprieve in April, the Washoe County foreclosure rate continued to rise in May, echoing a national trend according to a report released Wednesday.”

“‘Some people, although it’s a minority amount, are in trouble with housing,’ said Thomas Powell, chairman of the Nevada Mortgage Advisory Council. ‘Most people aren’t. Are they going to have to scale back in their lifestyle? You bet. Is that going to have an impact on the economy? Sure.’”

“Nevada had the nation’s highest rate, one in every 166 households, for the fifth consecutive month. But that is largely because of Las Vegas, which has the fourth-highest rate of any metro area in the country.”

“Washoe County, despite doubling the national rate, continues to fare better than many of its neighbors. In fact, California cities Stockton, Merced, Modesto, Riverside-San Bernardino, Vallejo-Fairfield and Sacramento joined Las Vegas to make up the metro areas with the seven highest foreclosure rates, according to the report.”

The Denver Post from Colorado. “Buying a home continues to be an iffy proposition for many Coloradans. The state is on track to log more than 37,000 foreclosures this year, a 30 percent increase over last year, according to the Colorado Division of Housing.”

“Rachel Basye, spokeswoman for the Colorado Housing and Finance Authority, is among the real estate experts who say the zeal for home ownership caused too many buyers to opt for houses they couldn’t afford.”

“Pair that with risky financing packages that allowed many people to qualify for more extravagant houses than they should have, and the scene was set for Colorado’s record high foreclosure rates.”

“‘The market is being flooded with houses that…people can now afford,’ says Basye.”

Some housing bubble news from Wall Street and Washington. “The number of U.S. homeowners who face possible eviction because of late mortgage payments rose to an all- time high in the first quarter, led by subprime borrowers. ‘Housing is in a recession, and we’re seeing that reflected in prices,’ said Doug Duncan, chief economist for the Mortgage Bankers Association. ‘If you’re in a position where you can refinance or sell, but house prices have fallen below your outstanding loan balance, you’re in trouble.’”

“In the quarter, 2.58 percent of prime barrowers sent their mortgage payments at least 30 days late, according to the Mortgage Bankers report. The subprime share of late payments rose to 13.77 percent from 13.33 percent in the fourth quarter, according to the report. The percentage of total homes in foreclosure, the so-called inventory, also rose for both categories.”

From MarketWatch. “Duncan points to two groups of states for the rise in foreclosure starts and the foreclosure inventory rate. When it comes to loans entering the process, increases in California, Florida, Nevada and Arizona are to blame, he said.”

“‘Information provided to the MBA from a variety of sources indicates that the foreclosures in Florida, Nevada, California and Arizona are heavily influenced by speculators who are walking away from properties now that home prices have started to fall in areas of those states and they face resets in the adjustable-rate mortgages they took out for these homes. In addition, speculators in Florida are also facing much higher insurance bills,’ he said in a news release.”

“In terms of the foreclosure inventory rate, the blame for the increase lies with Ohio, Michigan and Indiana. The three states account for 8.7% of the mortgage loans in the country yet make up 19.9% of the nation’s loans in foreclosure and 15.0% of foreclosures started in the first quarter.”

“‘The level of foreclosures and foreclosure starts for those three states exceeded what occurred in Texas during the oil bust of the mid-1980s, and Ohio is the highest ever seen in the MBA survey for a large state,’ he said.”

The Chicago Tribune. “As late payments and new foreclosures on adjustable-rate home mortgages made to people with spotty credit spiked to all-time highs in the first three months of this year, the Federal Reserve on Thursday considered reforms to crack down on lending abuse.”

“The Fed’s discussion comes amid new signs that the housing market’s downturn is worsening. The percentage of payments that were 30 or more days past due for subprime adjustable-rate home mortgages jumped to 15.75 percent in the January-to-March quarter, up from the prior quarter’s delinquency rate of 14.44 percent and the highest on record.”

“‘This is a moment of great concern in our economy as to whether subprime is going to pull us all down,’ Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business said in an interview.”

From Bloomberg. “Bear Stearns Cos., the second-biggest U.S. underwriter of mortgage bonds, said earnings fell 10 percent, the first quarterly decline in two years, as mounting home-loan defaults reduced trading revenue.”

“‘Not only did they cite the challenges in the subprime market, but they also perceived a spillover into Alt-A,’ said Bill Fitzpatrick, who helps oversee more than $1 billion at Johnson Asset Management. ‘If there’s a crescendo effect there, that will be a major concern for Bear Stearns and some of its competitors.’”

From Reuters. “‘We’re certainly going to be impacted in a weaker mortgage market until the mortgage business turns back around. That’s going to be a little bit challenging,’ said Bear Stearns CFO Sam Molinaro.”

“The firm tightened its underwriting standards during the most recent quarter, which reduced the amount of loans to borrowers with weaker credit, Molinaro said.”

“Bear Stearns Cos. is liquidating holdings from one of its hedge funds after making money-losing bets on subprime mortgage bonds, said three people with knowledge of the decision.”

“Investors ‘may also call into question’ the asset values of other hedge funds, depending on how much Bear Stearns gets in the auction, said Josh Rosner, managing director at investment-research firm Graham Fisher & Co.”

“Combined delinquency and default rates on subprime home loans in bonds are at the highest since 1997, Friedman, Billings, Ramsey Group Inc. reported. A derivative index used to bet on defaults of pieces of mortgage-bond deals with the lowest investment-grade ratings and sold in the second half of 2006 reached a new low two days ago and has dropped about 38 percent since it was developed in January.”

“Lehman Brothers Holdings said yesterday it would merge two residential mortgage units, cutting 400 jobs. The investment bank, one of the biggest underwriters and traders of mortgage debt on Wall Street, said BNC Mortgage will be combined with Aurora Loan Services into a single residential mortgage business.”

“About 400 employees, or 24 percent, of BNC’s work force will be cut over the next two to three months.”

The New York Times. “Turmoil in the subprime mortgage market took its toll on two Wall Street investment banks today, as second-quarter profit at Bear Stearns dropped 33 percent and Goldman Sachs squeezed out a modest 1 percent rise in profit.”

“Both firms suffered from the implosion in the subprime mortgage market, as borrowers with poor credit histories defaulted on their loans in record numbers.”

“Goldman Sachs Group Inc.CFO David Viniar predicted that the U.S. subprime mortgage market, which has suffered rising defaults and generated losses for lenders over the past year, will get worse before it gets better.”

“‘The subprime business continues to be weak. We have not seen the bottom in the market. There will be more pain felt by people as it works its way through system,’ Viniar told reporters in a conference call on Thursday.”

The Associated Press. “State Banking Commissioner Howard Pitkin on Wednesday refused to issue a license for a new home mortgage company formed by former executives of the defunct Mortgage Lenders Network.”

“Pitkin, in a letter to an official at Middletown-based InHome Capital LLC, said he was declining the request for the first mortgage broker’s license because Mortgage Lenders Network did not release money for loans it signed off on late last year.”

The LA Times. “If you were confused by the disclosure forms your mortgage lender gave you, you’re far from alone, according to the Federal Trade Commission, which says the industry can do a better job.”

“A study released Wednesday by the agency found that the required disclosures were ineffective at explaining the costs and risks of home loans. The study found that when given the disclosures now used: Half the borrowers couldn’t correctly identify the loan amount. Nine in 10 couldn’t figure out the total upfront cost of the loan.”

“Two-thirds did not recognize that they would have to pay a penalty if they paid off the mortgage within two years. And 95% didn’t know how much that penalty would be. One in five couldn’t correctly identify the annual percentage rate, the amount of cash due at closing or the monthly payment, or whether that payment included charges for property taxes and insurance.”

“Some experts say better disclosure may not be enough. Initial disclosures sent to consumers are notoriously inaccurate and there’s no penalty for that, said Jeff Lazerson, president of Mortgage Grader. It’s not until lenders give final disclosures at closing do they make a concerted effort to provide all the necessary details. By then, he said, it’s too late.”

“‘They can make disclosures more clear all they want, but if there is no penalty if you don’t comply, what does it matter?’ he asked. ‘Until there is a penalty for being late or inaccurate, it’s business as usual.’”

“Freddie Mac, the second-largest source of money for home loans, reported its third consecutive quarterly loss after a drop in the value of derivatives it uses to hedge interest rate risk.”

“Losses from the investments and derivatives were $1 billion in the quarter ended March 31, compared with a $934 million gain in the same period last year, Freddie Mac said.”

“Freddie Mac reported that its credit-related expenses more than tripled in the first quarter, to $193 million from $60 million a year earlier.”

“The increase in expenses was largely the result of boosted provisions for credit losses as mortgages purchased last year moved more frequently from delinquency to foreclosure, the company said. It said it expects such charge-offs to increase in the future ‘from today’s very low levels.’”

“‘Worsening expectations’ for risk of mortgage defaults had an adverse effect on Freddie Mac’s financial results in the first quarter, the company said.”

KTVZ reports from Oregon. “You have to go all the way back to 2000 for a May in which fewer Bend homes sold than last month, the surest sign yet that the High Desert is anything but immune from the nation’s real-estate cooldown, and there are new signs prices finally are dropping, to reflect that chill.” The numbers from the Central Oregon MLS are dramatically clear, showing the slowest month of the year, at a time of year when home sales normally start to pick up.”

“There were 120 homes sold in Bend (without large acreage) last month, said Realtor Rob Eggers. That compares to 146 sales in April and 156 in March, and is even slower than the typically frigid winter months, 128 homes sold in Bend in February and 133 in January, he said.”

“Bend’s May home sales figure is the lowest since 2000, when 101 homes sold that month, fairly equally split between west and east. The 2007 number is comparable to the 125 homes sold in May of 2001, a figure that steadily climbed to the super-hot figures of 2005 (256 May home sales) and 2006 (down a bit, to 242).”

“‘One of the most baffling stats from May is that the median sale price for the Westside actually went up roughly 15 percent’ from a year ago, Eggers said.”

“‘There’s definitely some conflicting data in the MLS right now concerning pricing,’ Eggers said, but he agreed with observers who said ‘May prices may have been skewed by 11 $1 million-plus homes closing where on average we have about one to three close per month.’”

“‘Regardless of what the numbers say, prices are dropping,’ the Realtor said. ‘According to our 24-hour market watch on the MLS, yesterday (Tuesday) there were roughly 65 new listings, 25 sale pending, 30 closings and 127 price reductions. Those reductions will ultimately lead to lower prices throughout our market.’”

“‘People are hesitant to buy right now because if they wait a month or two, prices may come down even further. Exactly the opposite of 2005 and 2006, (when) sellers were hesitant to put their home on the market because if they waited a month or so longer to list, they could earn more equity, he said.”

The Bend Bulletin from Oregon. “Last year, the houses that Sun Creek Homes built in its little subdivision in east Bend flew off the market nearly as fast as they went up. Not this year, though.”

“The 14th and last home, finished in the spring, still stands unsold, Meridian Realty owner Natalka Hamilton said Tuesday. Despite a 13.25 percent price reduction. And despite the builder’s offer to pay thousands of dollars in closing costs.”

“Why? Investors who could have easily afforded its $338,000 price tag have long since fled the market, leaving mostly first-time buyers to pick up homes in the region’s lower-end $250,000 to $350,000 price range, Hamilton said.”

“And, with the rug pulled out from under the market’s once plentiful supply of no-money-down, no-documentation loans, fewer first-timers can afford to buy, even if they wanted to.”

“‘You actually have to have 5 percent (down) of your own money right now,’ Hamilton said.”

“In Redmond, the month’s sales plunged to 38, according to the MLS, 61 percent off of the still hot-market sales of May 2006, and also the weakest May in the last five years.”

“Compared with May sales of 2004 through 2006, May 2007 sales also were off in Crook and Jefferson counties.”

“In Bend, sales of homes worth $400,000 or less last month were down 65 percent from May 2006, according to the MLS. Sales in the $400,000 to $750,000 range were down 39.7 percent, while sales in the $750,000 to $1 million range slid 22 percent.”

“Redmond’s generally lower-priced market showed even more weakness compared with May of last year, with sales in the $250,000 to $400,000 range off 71 percent and sales of $250,000 or less off 33.3 percent. Nothing sold for more than $522,000 in Redmond in May.”

“Only 169 building permits were issued throughout the region in May, according to Cascade Central Business Consultants President Don Patton. That’s about on a par with the first five months of this year but 52 percent less than the torrid pace of May 2006 when the market was still booming.”

“Inside the industry, the strains are apparent. Subcontractors are easier to find in nearly all trades this spring than they were last, WoodHill Homes President George Hale said, and their prices are either down or have at least stopped rising.”

“‘It really hits everybody,’ Hale said. ‘Mortgage brokers, Realtors, title companies, anybody who has any kind of piece in the real estate industry is really feeling the slowdown.’”

“Mortgage brokers, in particular, have been whipsawed by fallout from the sudden decay of the subprime lending industry, said Rockland Dunn, last year’s president of the Central Oregon chapter of the Oregon Association of Mortgage Professionals.”

“Several offices around town, including Dunn’s own, have laid off brokers, Dunn said. The rest are waiting to see where things stabilize.”

“‘We rode the wave, and now it’s going to get back to a normal buyers’ market, rather than the artificial one we had created,’ Dunn said.”

“Sam Jauchius moved here a few weeks ago from Sacramento. He’s living in his RV now while his wife tries to sell their old house, which could take awhile. But, even in Sacramento’s slumping market, Jauchius figures he’ll make enough to easily afford a Bend house and everything that goes with it.”

“‘It’s beautiful. So I’m here for the duration,’ Jauchius said.”

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