The Housing Bubble

The Orange County Register reports from California. “The Yorba Linda beauty had been on the market for more than a year. But despite the ‘$450k in upgrades,’ the ‘unbelievable view of Catalina’ and the ‘gorgeous pool/spa’ – not to mention a $150,000 price reduction – it drew only low-ball offers.”

“So Tom Pelton of Prudential California Realty decided to take drastic action, both to get the house sold and to teach other agents how to retool for the current sluggish housing market. He hired a professional photographer and brought in a ’stager’ and gave the home an ‘extreme listing makeover.’”

“‘We’re getting a lot more people through the door,’ said listing agent Kimberly Rehnquist.”

“Pelton is one of many real estate office managers prodding agents to adapt to the new realities of the housing market. ‘We’ve always had training. We just changed the training as the market changed,’ said broker Bill Plattos.”

“There’s no debate that the market has changed. DataQuick reported recently that Orange County sales last month hit the lowest level for a May in at least two decades, falling 37.5 percent below the month’s norm. As of mid-June, the number of homes for sale in Orange County had swollen to nearly 16,900, according to Steven Thomas.”

“The number of new escrows during the past 30 days, meanwhile, was below 2,000, or just over one sale for every 10 homes listed. Two years ago, three homes sold for every four listings.”

“Bob Schultz, a sales consultant, has been holding ‘Home Sales Boot Camps’ for agents. ‘Every builder and every real estate broker should be training their people how to deal with this kind of market,’ Schultz said. Agents who don’t adapt won’t be around much longer.”

“‘It’s Darwinian,’ he said. ‘It’s a thinning of the herd.’”

The North County Times. “Northeast Oceanside’s 92057 area near the back gate of Camp Pendleton is on the list of the 10 San Diego County ZIP codes with the highest number of homes in some stage of foreclosure, according to a new report.”

“In April, a total of 1,316 houses and condominiums were in some stage of foreclosure countywide, a sharp increase from the 324 reported for the same month in 2006, the report shows.”

“Dennis Smith, a Carlsbad real estate agent who sells homes in coastal North County, said the group’s high number for 92057 does not come as a surprise because sales prices are relatively low there. A large number of buyers in recent years opted for adjustable loans that are now becoming more expensive, he said.”

“At the same time, there are 554 houses and condominiums for sale in the 92057 ZIP code, Smith said. Given that 292 homes have sold there since Jan. 1, that means there is close to a year’s supply of housing.”

“‘That makes it real difficult to get top dollar on your property when you’ve got a lot of competition,’ Smith said. ‘There is always someone more motivated who is going to sell it for less.’”

“The price in the 92057 ZIP code declined 10 percent from May 2006. During the same period, the median condo price there declined 5 percent year over year to $273,500. With falling prices, people who are having trouble making house payments are less likely to be able to sell their homes and more likely to end up losing them, said broker Carlton Lund”

“‘When the market is not moving, there is a less of a tendency to hang on,’ Lund said. ‘If you’re stretching and you have a hiccup, you just have no staying power because there has been no price appreciation.’”

The Record Searchlight. “Pulte Homes’ massive restructuring has claimed the job of Sun City Tehama project manager Brendan Leonard. Leonard was among 45 people laid off from Pulte subsidiary Del Webb Corp.’s Sacramento and Reno division, said former company spokeswoman Judy Bennett, who was let go at the same time as Leonard.”

“Bennett said management told her that ‘it’s going to be a bare-bones operation, mission critical.’ Bennett spent 14 years with the company, working on Del Webb projects in Roseville, Lincoln and Cloverdale. ‘It was a wonderful run, but it’s definitely over,’ Bennett said.”

“Don McKim, a principal owner of Walnut Creek-based Nine Mile Ranch, which owns the property where Sun City Tehama would sit, said the project is not dead. Del Webb has an option to buy McKim’s land.”

“‘Everybody is waiting for the market to return,’ McKim said. McKim said Pulte’s restructuring makes sense. ‘Look at the home builders, they’re all running for cover. You can’t build and have homes just sit there.’”

From Kiplinger. “Mike Franey, a mortgage loan officer in Bakersfield, Cal., saw trouble coming. For years, swarms of investors descended on his hometown, buying and flipping some of the cheapest housing in the state, driving up the area’s median home price from $99,000 in 2001 to $280,000 in 2006.”

“Franey feared that when the investors left for greener pastures, prices would decline and he and his wife, might lose the equity in their home just as they approached retirement.”

“‘I said, ‘We need to sell right now and rent until we can buy again cheaply,’ says Mike.”

“The Franeys sold in May 2006, just as prices peaked, for $577,000, nearly twice what they had paid in 2002…and they moved into a much smaller rental home.”

“But for Mira, owning a home meant security. She hated renting and wanted to buy again. So the Franeys purchased a four-bedroom, two-bath house in a nice neighborhood for $420,000. They used an ‘alt doc’ loan, one that lets borrowers state their income without proving it.”

“For six months, Mike didn’t make a single loan, and his six-figure income dropped by half in 2006. Struggling to make their mortgage payments of $3,200 a month and running out of savings, the couple tried to sell the home last fall but had no takers.”

“Mike approached their lender, Countrywide Financial, and offered the deed in lieu of foreclosure. Countrywide refused to do anything until the Franeys were delinquent, a common practice among lenders for legal and tax reasons.”

“The Franeys missed their first mortgage payment in January, and in February they listed the home for sale at $368,500. Countrywide agreed to accept a ’short sale,’ meaning it would cancel the couple’s debt in exchange for the proceeds of the sale. In early May, the couple lost a buyer who had offered $350,000 but then found a better deal while everyone waited for Countrywide to approve the sale.”

“The house is back on the market and now stands vacant. The Franeys moved into a rental with an option to buy in three years. By then, Mike’s loan underwriter tells him, he’ll be able to get a mortgage again, as his credit score and his income improve.”

The Union Democrat. “The number of Calaveras and Tuolumne county residents in the process of losing their homes to foreclosure in the first half of this year has nearly tripled compared to last year. A slowing housing market, creeping interest rates and changing loan conditions for some borrowers are largely being blamed for the rapid ascent in foreclosure activity.”

“‘For a lot of people, their hope was to get into a home and then deal with the loan later,’ Robert Featherstone, who runs the loan division of Sonora-based Mother Lode Bank, explained a common scenario. ‘Now, they are paying the price.’”

“‘A large part is people were lured into interest rates and programs that weren’t beneficial to them,’ Featherstone said. ‘It’s not that people don’t want to make their payments, it’s that people financially can’t make their payments.’”

“In the first six months of this year, more than 220 default notices have been filed with the Calaveras County Recorder. Compare that with the same period last year; 69 between Jan. 1 and June 19; and 2005, when 65 were filed.”

“Tuolumne County has seen a similar spike:142 default notices recorded between Jan. 1 and this week, compared with 74 for the same period last year.”

“Other indicators of foreclosure trends, trustee’s sale notices, which follow default notices, and trustee deed filings, which occur when a defaulted property is foreclosed upon, are also up. Altogether, the number of filings this year is almost triple the number as this time last year.”

“Sonora attorney Timothy Trujillo, whose specialties include real estate law, says he’s seeing the rapid rise in local foreclosure activity through his practice. He’s seen four or five clients in the past six weeks in danger of losing their homes, he said.”

“With foreclosures on the rise and the real estate market softening, more and more lenders are being stuck with properties that can sit on their books for months before selling, and which may fetch less than the amount loaned on them. That makes lenders more willing to negotiate, either for a new loan or a lower payment, said Trujillo and Featherstone.”

“‘A lot of times, the lender just ends up selling them at a discount,’ Trujillo said.”

“Many borrowers now facing foreclosure bought more than they could comfortably afford during the recent real estate salad days, betting they could turn a profit and not considering home prices could stop rising or drop.”

“‘In many cases, people got loans from subprime lenders and their interest rate that was fixed has gone up. And now, all of a sudden, a payment that was $1,200 a month is now $1,800 a month,’ said Trujillo. ‘They were betting essentially on the market going up and now they are underwater on their loans.’”

Readers suggested a topic on auctions. “How about discussing at what point will it be truly worth looking at an auction to get a deal. Most of the auctions now have high starting bids or low starts with high reserves. Also, there are people who think now is the time to jump in so they end paying only 10% less than what these places listed for originally.”

One replied, “But when you factor in the 10% commission you are back to where you started price-wise. You also forgot to mention the auctioneer’s bidding to rig the price higher, and the bidding shills who pose as genuine bidders.”

One looks at bank owned properties. “When will the lenders get serious about selling their ever-growing collection of REO’s. In my neck of the woods, Southwest FL, they’re no better than the most clueless civilian sellers with their ‘wishing’ prices.”

A reply from fellow Floridian. “Port Charlotte is having the first REO auction I have seen advertised next Sat., the 30th. 28 houses/approx 20 lots and a single batch of approx 10 lots.”

“I have a friend at work and his wife is pulling all available info about the properties. I have no desire to purchase yet but I will attend just to see if I can spot any shill bidders. I also want to get a feel for what the public thinks these places are worth. I personally dont see auctions doing good for at least six more months.”

“The guy whose wife is getting the property info owns 17 rentals in North Port. I posted a couple of weeks ago he just bought three more brand new places from a specuvestor from up north. The guy needed out asap. He picked up all three properties for 100k each. He got renters in all three this week but he now figures he overpaid by about 25-35k per property. He will do o.k. because the properties are paid for but it still bothers him a little.”

“We are at the very beginning of this whole debacle.”

One said, “I just moved from FL and it seems to me many don’t understand the reality of what their house is worth in the marketplace versus what they think it worth. I think that some of these auctions will give us a true idea of what the market place is really at.”

“People can’t let go from the ‘what my house was worth 2 years ago’ issue Like I told a friend, ‘you already equity lined out what your house was worth and you still think you deserve more?’”

One was skeptical, “I am down in Lee County. Most of the auctions I have attended or watched online have been a huge waste of time with reserves or shills or seller has the right to accept or refuse the high bid, etc.”

“I think these phony ‘auctions’ are ultimately going to hurt when the need for a real auction arises and no bidders show up.”

Another suggested, “You ought to make a T-Shirt that reads, ‘Reserve Auctions are Fraudulent.’”

One reported, “I am attending the event in Sacramento this weekend. The on-line rules allow the auctioneer to bid against me, up to the seller’s undisclosed reserve price. This is clearly a Shill Auction and the opening bid prices are truly meaningless false advertising. I will report back here on Sunday. Are any other bubble bloggers going in for some Saturday morning entertainment at the Cal Expo Fairgrounds?”

From News 10. “More than 240 homes repossessed by the lenders in the Central Valley and Bay Area will be sold in a three-day auction beginning Saturday in Sacramento.”

“At first glance, the foreclosure auction appears to be a bargain hunter’s dream. In some cases, the opening bid starts at well under half the price of the property’s recent market value.”

“For example, the starting bid for a one-year-old home at 10216 Shoech Way in Elk Grove is $279,000. Property records show the house sold new last year for $620,000.”

“Foreclosure specialist Alexis McGee says…the buyer must be careful. The excitement and competition at the event can drive the price beyond the fair market value, she said.”

“‘Create a maximum bid sheet for every property,’ McGee advises. ‘Walk when it goes over your top price. Do not get personally connected to any house. There is no reason to get caught up in a bidding frenzy.’”

“Buyers need a $5,000 cashier’s check to register, and properties can be financed with as little as 5 percent down. But some of the homes in poorer condition require a 30 percent down payment.”

The Review Journal from Nevada. “Las Vegas new home sales are down 43.8 percent for the year and median prices have slipped 4.4 percent. ‘Part of the good news is prices went down,’ said Dennis Smith, president of Home Builders Research. ‘That’s odd to say that, but people have to realize they have to meet the market demand.’ Given the market conditions, it might indicate that sellers, particularly investors, are finally facing reality and pricing their homes so they’ll sell, Smith said.”

“He hopes prices continue to decline, which should in turn reduce the inventory of resale listings for the good of the housing market in the long term.”

“Kurt Lehman of Realty One Group said home prices must fall further before sales rebound, but he doesn’t know when the bottom is coming.”

“‘The number of houses selling per month is really the key to what’s happening,’ he said. ‘Still, a house that someone could buy five years ago for $175,000 now is one of thousands of average resale homes…and the asking price is $320,000 when most people can’t afford it, especially with the tightening of underwriting by most lenders. It’s going to be an economic problem until more (people) are making a lot more money and aren’t afraid of buying into what appears to be a sinking home value market.’”

“People are taking a little longer to jump into the housing market after moving here, real estate consultant Ron Rulof.”

“‘They’re still coming into town, but they see a little turmoil from what they’ve been reading so they’re sitting on the sideline,’ Rulof said. ‘What you have in a nutshell, because of market conditions, is they’re spending a little more time renting.’”

“Smith said the Las Vegas housing market fits the definition of a recession, but how long it lasts is the great unknown. ‘Six months? A year? Two or more years? Unfortunately, nobody has that answer. In our opinion, those that continue to say by early 2008 are basing it on hopes instead of facts,’ he said.”

In Business Las Vegas. “The Las Vegas housing market won’t reach its bottom until the second quarter of 2009 when it could effectively fall in excess of 20 percent, according to the latest projection from Moody’s Economy.com.”

“Earlier this year, Moody’s predicted that Las Vegas prices would fall 13 percent from its peak of $320,000.”

“The effective loss to homeowners, however, is even greater because of costs for improvements and other expenses to entice buyers, said Mark Zandi, chief economist at research firm.”

“‘I think the correction is in full swing and has a way to run,’ Zandi said. ‘Affordability is a very significant problem for first-time buyers and investors are looking to get out. Until it is affordable and those investors do leave the market, you won’t find a bottom.’”

“Zandi said homeowners are starting to realize that with the large level of inventory, they will have to cut prices if they want to sell. Las Vegas has been hurt by its large number of investors. That leads to a high vacancy rate, which creates a glut on the market.”

“‘What happens is you have a good year or two, the investors jump in and juice it up and then it’s not affordable,’ Zandi said. ‘It creates a bubble that bursts.’”

“The state reported 5,235 foreclosure filings in May, a 40 percent increase over April and five times the number reported in May 2006. In May, Nevada had 2,870 notices of default, 2,626 notices of trustee sales and 739 bank repossessions.”

“Mesquite, (NV), is about to go from a sleepy town to becoming a place on the map for retirees. Pulte Homes has kicked off sales for its 3,500-home senior community and will launch sales in 2008 for its 1,500-home traditional community.”

“Pulte expects 30 percent to 40 percent of its buyers in the senior community to be second-home buyers, many who live in Las Vegas, Salt Lake City or California. Others will choose Mesquite as their primary residence, including those who currently live in Las Vegas, Pulte officials said.”

“Economist Mark Zandi warned there are problems with swelling or unsold inventories in Las Vegas and other parts of the country and that should hamper projects like Sun City Mesquite in the first six to 12 months.”

“‘People want to come down but they can’t sell their home,’ Zandi said. ‘They don’t want to sell at a price they feel is unfair.’”

The Arizona Republic. “Despite competition from a huge number of homes for sale in the Phoenix area, real estate expert Jay Butler told Tempe business leaders Thursday that prices remain above the national average.”

“‘The market is about where it should be and people don’t like to hear that,’ the director of Realty Studies at Arizona State University said.”

“The inventory of homes for sale has climbed to about 51,000. The median price of a home in the Phoenix area used to be about 90 percent of the National Association of Realtors’ national median price, he said. Prices began rising during a hot housing market in early 2005, and over the past year and a half have settled at about $260,000. The national median is $219,000.”

“Buyers can’t afford as much because of the higher prices and because skittish lenders have been tightening their guidelines. Sellers won’t or can’t lower prices because they owe too much. And buyers are having problems selling their own homes.”

“‘The problem is a lot of people say this is a buyers market, but most buyers first have to be sellers,’ he said.”

“In Tempe, Butler said the big issue is that the houses are getting old and not necessarily being well maintained. There are many rental properties and sometimes amateur landlords let them get run down, Butler said.”

“‘I think Tempe is holding its value a lot better than other communities, but the aging of the housing stock is going to be a big issue,’ he said. ‘What concerns me more is homes not being well maintained. And there’s a certain amount of indifference.’”

From Tucson Weekly in Arizona. “Residential foreclosures are skyrocketing in Pima County, and fingers point to ARMs (adjustable-rate mortgages) as a primary culprit.”

“For the first five months of 2007, the number of ‘Notice of Trustee’s Sale’ recorded with Pima County totaled just more than 1,600, a whopping 55 percent increase from the same period a year earlier.”

“This year’s monthly totals have ranged from a low of 276 in February to 398 for May. That last figure alone is a 90 percent increase over the number just 12 months earlier.”

“While some people see opportunities to make money by cheaply buying homes facing foreclosure, on the steps of the County Courthouse a few weeks ago, more than a dozen homes were offered–but the four potential bidders in attendance quickly passed on each one of them.”

“Located along a sloping street in the prestigious Starr Pass neighborhood, a burnt tan home stands out among those around it, all of which have a light desert sand stucco finish. But the home is also different because it was in foreclosure because of a loan in excess of $400,000.”

“The growing number of foreclosures certainly isn’t restricted to Pima County. One estimate puts the nationwide jump at 25 percent just between February and March of this year.”

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