The Housing Bubble

The Press Democrat reports from California. “Builders are putting up homes in Sonoma County at a sluggish pace and don’t expect a turnaround until next year, another signal the housing downturn has not hit bottom. Delco Builders’ projects in Petaluma and Santa Rosa reflect what developers are going through across California. Delco’s sales have picked up in response to price cuts of 5 percent to 10 percent, yet demand is weak enough that Delco is limiting the number of houses it starts.”

“‘We’re seeing that in a lot of places,’ said Greg Paquin, president of The Gregory Group. ‘We’re still in a period of settling. The new home market is trying to figure out where that balance is between pricing and sales.’”

“Sonoma County’s housing market has been in a slump since an eight-year run of strong sales that pushed prices to record highs nearly two years ago. Buyers initially balked at paying ever higher prices, but now are wary about paying too much while prices are still falling.”

“The moves to attract buyers and reduce unsold homes have boosted demand. Sales of new homes rose 10 percent in the first half of the year, compared with the same period a year ago. But the average price is down from $818,719 a year ago to $665,729 now, an 18.7 percent decline.”

“‘We certainly are selling houses, but not at the pace we would like. The psychology is a big part of that. People are sitting on the sidelines,’ said Rick Rosenbaum, VP of sales for Delco Builders.”

“Slow sales are not the only challenge to getting supplies in better balance with demand. At last count, there were 29 housing developments going in the county, up from 14 a year ago. Builders are going ahead, though at a slow rate, with projects on land purchased when the housing market was booming.”

“Residential construction in the county is at its slowest pace so far in more than a decade. The only slower five-month period during the past 20 years was in 1995-96.”

“Builders in Sonoma County anticipated a more favorable home sales landscape by this summer. ‘We really thought we were at the bottom,’ Paquin said.”

The Mercury News. “The traditional spring home-selling season was a bust for D.R. Horton Inc., one of the biggest nationwide homebuilders. The report provided more evidence that the housing sector continues to sink.”

“‘It’s going to be another year-and-a-half before we see stability or growth,’ said Leslie Appleton-Young, chief economist of the California Association of Realtors. ‘We certainly haven’t bottomed out yet.’”

“Horton’s June-quarter orders fell the most—53 percent—in California. Horton was building entry-level homes in Sacramento and other inland markets that emerged as affordable alternatives to the pricey coastal markets but are struggling now.”

“The inventory of unsold existing homes in California hit 10.7 months in May, well above the normal 7 percent range, according to the California Association of Realtors.”

“Edward E. Leamer, director of the Anderson Forecast at UCLA, said housing markets are probably weaker than statistics suggest because more homeowners would like to sell but have decided to wait out the slump.”

“‘Builders have made price concessions, but even at that they still haven’t cleared out their inventories,’ Leamer said. ‘We keep looking for some blue sky, some sign that the market is improving, but we just don’t see anything out there.’”

The Sacramento Business Journal. “In the six-county Sacramento area, D.R. Horton sold 182 homes January through May 2007. The homebuilder had sold 590 homes in the same period of 2006.”

“Homebuilders are struggling. Second-quarter figures are expected to be issued next week, but the early indication is that housing analysts will report dismal sales in the Sacramento market. That’s despite modest gains earlier this year and late last year; and this drop-off is hitting during the peak homebuying season.”

“The number of local single-family housing permits has fallen this year by 14.3 percent, according to the construction board. The current new-home slump is already two years old with no sign of a turnaround.”

“One sector that might not escape housing’s effects is retail establishments. Construction of stores and other retail-related buildings is 8.3 percent lower than it was at the same time last year.”

“‘I’m hearing from the Bay Area companies and some in Southern California about slowing on the commercial side,’ said industry consultant Robert Earl. ‘From a hiring perspective, the local contractors’ market has softened. It’s easier to find people.’”

“Other contractors reported competition for small construction jobs has increased, suggesting there is less demand at the lower end of the business. That might also be a sign of a slowdown.”

The News Press. “The number of homeowners who are behind in their mortgage payments reached a record high in Santa Barbara County during the first quarter, and foreclosures also spiked sharply. Default notices, or notices sent out by mortgage lenders to homeowners late on payments by several months, jumped in the first quarter of this year, to its highest level in 19 years, according to the Real Estate Research Council of Southern California at Cal Poly University Pomona.”

“The number of defaults recently increased to 401, a rise of 33 percent from the 301 in the fourth quarter of 2006.”

The Record Searchlight. “Investors played a huge role in the five-year real estate boom that hit Shasta County before fizzling out last year. In 2005, the Redding area topped a nationwide list compiled by LoanPerformance of the percentage of homes sold to investors. Nearly one of every five homes was bought by speculators.”

“It couldn’t go on forever, and home prices and sales have come back down to earth. Last month, the median sales price of new and used homes in Shasta County was 5 percent below what it was in May 2006.”

“Mike Neves of Access Mortgage in Redding said don’t expect Redding to become a hotbed for investors, at least by 2005 standards, until the market settles some more.”

“‘I think I am seeing a lot of investors looking but not feeling the time is right because we have not reached rock bottom,’ said Neves, president of the California Association of Mortgage Brokers Greater Northstate Chapter.”

The Des Moines Register reports from Iowa. “The slowdown in home building is dramatic, dropping 26 percent in the Des Moines metro area from January to May compared with a year ago, building permits from the U.S. Census show. Construction activity fell 23.5 percent in the Des Moines area from 2005 to 2006. Real estate leaders say the bulging inventory puts buyers in the driver’s seat.”

“Iowa Realty agent Kris Mehmen also is having tough conversations with sellers. ‘They may say: ‘You tell me my house should be priced at $200,000, but let’s try it at $219,000 or try $224,000 or $300,000.’ It comes down to the agent having enough gumption to tell them it won’t sell.’”

“Real estate leaders say 2007 represents a return to a more traditional sales market after setting a record in 2005. ‘It was the crest of the wave,’ said R. Michael Knapp, chief executive of Iowa Realty. ‘2005 was the best year I’ve seen in my 35 years.’”

The Clarion from Indiana. “Seven months into the year, Gibson County sheriff sales on foreclosed properties are moving at a pace to set a new record. Last week, the Gibson County Sheriff’s Dept. advertised its 99th sheriff sale this year, compared to 120 at year’s end in 2006, which topped a previous all-time-high 105 sales.”

“Chief Deputy Sheriff George Ballard said sheriff sales are the result of a court ordered bank foreclosure for the non-payment of standard monthly mortgages.”

“‘People borrow equity on their house because of credit card debt, then can’t afford two mortgages and the credit-card bills,’ said Indianapolis lawyer Andrew Klopchin.”

“Interest rates a few years ago were at their lowest point in 40 years and have since risen, increasing the monthly payments on adjustable-rate mortgages. ‘That’s why we’re seeing all the foreclosures that we’re seeing now,’ said bankruptcy attorney Gary Hostetler.”

The Star Press from Indiana. “Muncie bankruptcy attorneys say they have seen an increase in filings that echoes a 70-percent jump statewide so far this year.”

“And although some of that increase is in comparison to an artificially low total in 2006 that was caused by tougher bankruptcy requirements, one local attorney said the increase in home foreclosures also shares the blame.”

“‘The new problem is just that foreclosures are so bad,’ said Muncie bankruptcy attorney Gordon Doyle, who has practiced for 32 years. ‘The way you stop a foreclosure is a Chapter 13 bankruptcy.’”

“The Associated Press reported Friday that that bankruptcy filings in two U.S. bankruptcy courts in Indiana had increased nearly 70 percent over 2006. More than 13,000 bankruptcy filings were recorded through June, a big increase over 7,700-plus filed last year.”

The Indystar from Indiana. “The dramatic and widespread jump in Marion County property taxes threatens to depress housing prices or at least freeze the steady rise in home values that property owners have come to bank on.”

“‘I see values coming down to adjust to buyers’ ability to afford the home and the taxes that come with it,’ said Kevin Kirkpatrick, president of the Metropolitan Indianapolis Board of Realtors.”

“Real estate professionals say some sales are falling through as the impact of higher taxes pushes some properties out of reach for buyers. Others say the increases could result in even more foreclosures.”

“Tom Ellis and his wife had planned to sell their two-story College Park home and move into a newer one-story home in the area. But now the Pike Township couple are holding off on putting their home up for sale and seriously considering moving out of state.”

“‘We had been counting on getting a certain amount out of our house, but there’s too much stigma about the taxes to sell it now,’ Ellis said.”

“Just how severe a blow it will deal to the city’s already struggling residential real estate market is unclear. Realtors report some closings of home sales have been abruptly called off, while offers are being renegotiated to reflect the unexpectedly higher tax bills.”

“And some homeowners, particularly retirees on fixed incomes, may find they can’t afford to stay in their homes. ‘If you think the foreclosure rate is bad now, just wait,’ said David Matters, mortgage consultant in Indianapolis for Nationwide Mortgage Funding.”

“Indianapolis ranked third among U.S. cities in overall home foreclosures last year.”

“‘Some people have got to come up with $6,000 (extra) by the end of July’ to pay their new taxes and avoid foreclosure, said Pegg Kennedy, a Realtor in Indianapolis. ‘My voice mail is almost full from people saying, ‘Help me, help me.’”

“First Mortgage of Indiana called off one of its closings in the past week when the buyer no longer qualified for the loan covering the mortgage, taxes and insurance on the home. Once the new taxes were figured in, the sale ‘blew up,’ said Michael Strawn, a VP at First Mortgage.”

The Journal Sentinel from Wisconsin. “One big ‘if’ hangs over metro Milwaukee’s new-home market, pushing June’s production numbers to an eight-year low.”

“‘People are ready, willing and able to buy, with one contingency - the sale of their existing home. So everything waits until that sale,’ said Matt Moroney, executive director of Metropolitan Builders Association.”

“‘What we’ve got now is more perception than recession. Buying isn’t gone - it’s just deferred. A lot of people, constantly bombarded by bad news like markets crashing in Florida, Arizona and California, are just scared to make a move,’ said Waukesha builder Bob Flanagan.”

“‘Builders say there are a lot of people out there who are very interested in buying,’ Moroney said, ‘but they’re also very cautious. And even though it’s a good time to buy, interest rates are still near historic lows and builders are offering incentives, there’s nothing forcing people to act.’”

The Wisconsin State Journal. “Like the single-family housing market, the Dane County condominium market suffers from excessive inventory.”

“A total of 2,470 condos were on the market during the first quarter of 2007, more than double the number two years earlier, and 252 were sold, according to the South Central Wisconsin MLS.”

“The high inventory is the result of slower sales and a boom in condominium construction. The number of Madison condominium parcels in new and converted buildings rose 12 percent last year to 14,012, according to the city assessor’s office.”

“About $194 million worth of condo projects were completed last year in the city, more than six times the $32 million in projects completed in 1997.”

“Developers who once planned on a two- to three-year investment turn-around for a condo project now expect six to eight years, said Brandon Buell, whose family is building the new Hometown Grove condos in Verona in partnership with Elliott Construction of Middleton.”

“‘These developers have got their necks on the line,’ he said. ‘They’re paying a lot of money to do this.’”

“The slow market has prompted developers such as Joe Krupp, who built Kennedy Point condominiums on Winnebago Street, to offer more buyer incentives, such as leases with an option to buy in, which some rent is credited toward a down payment. Kennedy Point had 10 of 42 units sold by mid-June.”

“‘We have no shortage of traffic and interested buyers going through our projects,’ Krupp said. ‘For some reason, they’re just not pulling the trigger.’”

“John Sveum of Yahara Builders is…worried about Prairie Park, the partnership’s second condominium project in Fitchburg’s Swan Creek neighborhood where nearly half of the project’s 32 units have sold in 10 months.”

“‘It truly is painful to do all right on one project and suffer on the next project,’ he said. ‘It’s kind of a helpless feeling on our end because it’s not anything we’re doing wrong.’”

“The slow condominium market doesn’t mean developers are desperate enough to accept extreme low-ball offers. ‘We’re not talking a fire-sale situation here,’ Krupp said.”

“(Developer) Pete Frautschi said he gets angry when someone offers $500,000, for example, on a $750,000 unit. But Frautschi said his sales staff calms him down so he can make a more reasonable counteroffer.”

Some housing bubble news from Wall Street and Washington. MarketWatch, “Home-building bellwether D.R. Horton Inc. early Tuesday said quarterly orders for new homes fell 40% from a year earlier and that it expects to post a loss after impairment charges. ‘Market conditions for new home sales declined in our June quarter as inventory levels of both new and existing homes remained high, and we expect the housing environment to remain challenging,’ said D.R. Horton Chairman Donald Horton in a statement.”

“He said the builder lowered its prices in response to sagging sales. The company expects to see a loss for both the third quarter and the nine months ended June 30, after charges.”

“D.R. Horton said its cancellation rate for the quarter was 38%, up from 32% in the fiscal second quarter. During the company’s last quarterly conference call in April, executives said the historic rate was about 16% to 20%.”

“‘People put a house under contract with a contingency to sell their existing home and then they weren’t able to sell their existing home,’ said Stacey Dwyer, D.R. Horton’s treasurer. ‘Or people who put a house under contract either just changed their mind and decided not to buy right now or find a better deal somewhere.’”

From Dow Jones Newswire. “Horton added that although the company expects to report a profit from operations before impairments for the quarter, ‘we will realize significant asset impairments.’”

“On a regional basis, the value of orders in California dropped 62% to $307.1 million during the third quarter. The value of orders in the Southwest fell 54% to $409.2 million; in the Northeast, the value of orders fell 40% to $308.3 million.”

From Reuters. “‘D.R. Horton was as aggressive as anyone in buying land during the bubble years,’ said Eric Landry, analyst at Morningstar. ‘They bought plenty of land when land prices were dear. Home prices now have declined such that there are several communities that aren’t profitable.’”

From Bloomberg. “D.R. Horton said…the average price for its houses slid 12 percent to $233,672. ‘All these companies face a lot of pressure,’ said Thomas Smith, an equity analyst at Standard & Poor’s. ‘It’s a tidal wave of trouble.’”

“‘We believe housing operating fundamentals are likely to get worse before they get better given still significant levels of oversupply, coupled with first full-quarter impact from the subprime debacle and the corresponding tightening in underwriting standards,’ Robert Stevenson, an analyst at Morgan Stanley, said in a report today.”

“D.R. Horton’s impairment charges will be at least $250 million to $300 million after tax for the quarter, Stevenson estimates.”

From CNN Money. “Home improvement retailer Home Depot cut its 2007 profit outlook Tuesday, citing continued weakness in the home building market and the sales of its supply business.”

“In a conference call with investors and analysts to discuss the company’s financial update, CEO Frank Blake said he felt it was reasonable to project that there was still more of ‘[a housing correction] ahead of us.’”

“Blake warned that the housing market woes could stretch beyond 2007. ‘Housing turnover is one of the key determinants of our business and activity related to it drives about 20 to 25 percent of [customer expenditure],’ Blake said. ‘Housing inventory is now at about 5 million units. It will take time to burn that off. Therefore we expect to see continued headwinds into 2008.’”

“Standard & Poor’s said it may cut the credit ratings on $12 billion of bonds backed by subprime mortgages, prompting investors to dump the securities.”

“‘S&P’s actions are going to force a lot more people to come to Jesus,’ said Christopher Whalen, an analyst at Institutional Risk Analytics. ‘When a ratings agency puts a whole class on watch, it will force all the credit officers to get off their butts and reevaluate everything. This could be one of the triggers we’ve been waiting for.’”

“Investors criticized S&P, Moody’s Investors Service and Fitch Ratings because their ratings on bonds backed by mortgages to people with poor or limited credit don’t reflect the fastest default rate in a decade. Prices of some bonds backed by subprime mortgages have declined by more than 50 cents on the dollar in the past few months while their credit ratings haven’t changed.”

“‘We expect that the U.S. housing market, especially the subprime sector, will continue to decline before it improves, and home prices will continue to come under stress,’ S&P said. ‘Weakness in the property markets continues to exacerbate losses, with little prospect for improvement in the near term.’”

“‘We do not foresee the poor performance abating,’ S&P said. ‘Loss rates, which are being fueled by shifting patterns in loss behavior and further evidence of lower underwriting standards and misrepresentations in the mortgage market, remain in excess of historical precedents and our initial assumptions.’”

“Declines in the ABX index indicate that investors believe the bonds are worth less than their ratings suggest. ‘If you look at where the market was trading these bonds, they weren’t trading like BBB bonds,’ said David Land, a portfolio manager in at Advantus Capital Management, which owns $783 million of mortgage bonds.”

“S&P said it is acting now because many bonds issued in late 2005 and most of 2006 now have ’sufficient seasoning’ to show delinquency, default and loss trends that indicated ‘weak future credit performance.’”

“S&P also said doubt had been cast over some data it used after the Mortgage Asset Research Institute reported mortgage fraud had risen above industry highs.”

“‘The loan performance associated with the data to date has been anomalous in a way that calls into question the accuracy of some of the initial data provided to us,’ S&P said.”

“Standard & Poor’s just drove a huge harpoon into the heart of the mortgage credit bubble and it’s going to take a long time to clean up the mess once the beast finally dies.”

“The bigger news is that S&P isn’t going along with the charade any more. S&P said it would change its methodology for ratings on not only hundreds of billions of dollars in residential mortgage-backed securities, but also on hundreds of billions of dollars in the more complex collateralized debt obligations based on those subprime loans.”

“A lot of debt will be downgraded to junk status. A lot of that debt will have to be sold at fire-sale prices.”

“‘The focus this morning is on S&P and the fact that they have basically put all ratings of pending securitizations on hold. It’s not clear as to why they have taken this action, but while the cloud of uncertainty exists it will weigh on an already fragile market,’ said (a) trader.”

“‘Higher margin requirements for financed ABS and CDO positions and concerns over forthcoming forced CDO liquidations have put further selling pressure on ABX prices,’ said Christopher Flanagan, analyst at JP Morgan, noting the index is frequently used as a hedge for long risk positions.”

“U.S. credit default swap spreads hit their widest levels this year on Tuesday because of fears of rating downgrades of subprime mortgage securities and weakness in the European credit market, market sources said.”

“‘We’re definitely at our widest for the year,’ said Melody Vogelmann, credit strategist at Barclays Capital.”

The Wall Street Journal. “Moody’s and other credit-rating firms are again taking heat for the meltdown in the subprime-mortgage market.”

“Together with some analysts and academics who believe the rating agencies played a key role in the subprime crisis by giving high ratings to thousands of bonds that fell quickly in value, some short sellers also are wagering that legislators, regulators and disgruntled investors will shake up the existing oligopoly structure and put an end to its fat margins and profits.”

“‘It’s a great business model as long as you can get people to pay for it,’ says James Chanos, president of a New York hedge fund with about $3 billion in assets that specializes in short selling. ‘If they have no predictive power over that which they’re rating, then why bother?’”

“In a paper co-written with Joshua Rosner, an independent research analyst, Prof. Mason argues that the ratings agencies, including Standard & Poor’s Corp. and Fitch Ratings, as well as Moody’s, are deeply involved with investment-bank underwriters in structuring pools of assets, which places them in a more active role than simply publishing opinions on the creditworthiness of the underlying assets.”

“U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.”

“Several risks,- the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers, point to continued weakness in the months ahead,’ Freddie Mac Chief Economist Frank Nothaft said in the forecast.”

“‘The recent sharp increase in mortgage rates is tapping the brakes on the housing market just when we had expected to see the bottom of the cycle,’ Nothaft said.”

“More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.’

“Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low ‘teaser’ rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.”

“‘In October alone more than $50 billion in ARMs will reset,’ according to Mark Zandi, chief economist and co-founder of Moody’s Economy.com. That’s a record, according to Zandi.”

“One of the reasons for the worsening situation, according to Zandi, is that just as the number of subprime ARMs being underwritten was reaching a high, the quality of loans was hitting new lows. ‘There were increasingly poor quality loans made starting in the spring of 2005,’ he said, ‘with the poorest of all made during the fall of 2006.’”

“‘Lenders wanted to keep the pipeline flowing,’ said Zandi, ‘and were hopeful that prices would grow again.’”

“Subprime ARM lending was most common in some of those once red-hot areas. According to Zandi, three quarters of all those loans were made in the California, Nevada, Arizona, Florida and Massachusetts markets. ‘Prices there are falling quickly, particularly in Florida and Las Vegas,’ he said.”

CNN Money reports on Florida. “The last time Fortune checked in with Bob Toll, founder and CEO of luxury-home builder Toll Brothers, was in April 2005, when we dubbed him the ‘new king of the real estate boom.’ Needless to say, much has changed since then.”

“Q: Weren’t you worried about speculation in Florida and elsewhere during the boom? A: There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to. And when the market goes south even slightly, the investor-speculator says, ‘It’s time to cash these things in.’”

“Q: Some analysts think new-home prices would have fallen even further if not for all the incentives that builders are offering.”

“A: When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, ‘Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’”

The Palm Beach Post in Florida. “City officials want to know how much longer the developer building the Eden condo will take to get it done. Work on the four-building, condo-conversion project began four years ago, and construction permits will expire in September.”

“The silence from Eden representatives hasn’t helped. Fifteen months have passed since their last promised completion date of March 2006.”

“‘They basically played with people,’ said a condo-unit owner who asked not to be identified. ‘I just want to know what’s going on.’”

“BauerFinancial Inc.’s latest quarterly survey of financial institutions shows a 50 percent increase in the number of problematic banks nationwide, but the overall U.S. banking industry remains in strong shape, both locally and nationally.”

“Palm Beach-based Lydian Private Bank was downgraded. The bank saw its four-star superior rating from the fourth quarter of 2006 drop to a three-star average, falling off Bauer’s recommended bank list.”

“Robert Reichert, Lydian’s chief financial officer attributed the first-quarter dip to timing. He said Lydian had a large number of real estate loan originations in the first quarter but did not resell the assets until the just-ended second quarter.”

“Harbor Federal Savings Bank and Fidelity Federal Bank & Trust, formerly two of the region’s biggest banking institutions, saw their ratings drop.”

The Sun Sentinel from Florida. “American Equity Mortgage Co. is shutting its West Palm Beach office and six other offices nationwide because of the slowdown in the U.S. housing market. The move should cut about 40 jobs, leaving the company with 24 offices and about 250 employees.”

“Besides West Palm Beach, American Equity also is closing offices this month in Orlando, Cleveland, Detroit, Las Vegas, San Diego and Portland, Ore.”

The South Florida Business Journal. “Miami housing prices would have to drop 41.4 percent to return the city’s income-to-housing cost to its historical ratio, a report by John Burns Real Estate Consulting said.”

“That is further than any other major market surveyed, the report found. The consultant calculated average wages versus average costs of home ownership, including mortgage payments, property taxes and down payments, to tabulate affordability discrepancies.”

From Florida Today. “More than half of Brevard County cities lost population from 2005 to 2006, according to new estimates from the U.S. Census Bureau. The federal numbers put Cocoa’s population at 16,743 people in July 2006. That’s 369 fewer people, about 2.2 percent, than the year before and 1,328 fewer, 7.3 percent, than a decade earlier.”

“Cocoa Community Development Director John Titkanich Jr. said the one-year drop in population is closer to 200 people and is only temporary. The difference between the two years is more of a growing pain as Cocoa tears down dilapidated housing to make room for new units, Titkanich said. The demolition reduced the housing pool, but residents will return when the new structures are finished, he said.”

“‘It’s a function of redevelopment. Units were demolished for the purpose of redevelopment,’ he said.”

The New York Times from Georgia. “Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.”

“The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist in Los Angeles.”

“As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.”

“A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.”

“While wages have languished, average Atlanta families are shouldering more debt. The equity that Atlanta residents have in their homes, the value of their house minus what they owe, has dropped 14 percent since peaking in late 2005.”

“At the end of March, 6 percent of all mortgages in Georgia were more than 30 days past due, the fourth-highest rate in the nation, according to the Mortgage Bankers Association. Mississippi, Louisiana and Michigan had more loans past due.”

“Rajeev Dhawan, an economics professor at Georgia State University, has started studying the characteristics of loans on homes that are in foreclosure. His preliminary analysis of data from April shows that nearly half were for adjustable rate mortgages and many were issued in the last two years.”

“‘Everybody thought if the home prices kept going up, the lenders will keep refinancing you,’ he said.”

“(At) an auction for the three-bedroom home near Turner Field…Corey Neureuther was the winning bidder. He said it was his first real estate investment and he was surprised that others did not bid the price up at the auction. Having recently moved to Atlanta from New York, he said he became interested in buying property after learning about foreclosures in the area.”

“‘I thought for sure it would sell for $200,000 plus,’ he said. Mr. Neureuther said he thought that he could make money by renting out the house.”

“Property records show the former owner of the home took out two loans to finance 100 percent of the purchase price. She borrowed the money from Ownit Mortgage Solutions, a California company that sought bankruptcy protection in December after many of its customers defaulted on their loans. Investors who bought bonds backed by Ownit loans will bear the loss on her home.”

“Dean Williams, the president of the firm that conducted the auctions, said results of the sales in Atlanta and elsewhere in the country showed that real estate prices were inflated during the recent boom, especially in less affluent areas.”

“‘When you find out what the market price really is, it can be a joke,’ said Mr. Williams.”

The Montgomery Advertiser from Alabama. “As the water recedes, so have prices for real estate on the shores of Lake Martin, says one longtime Realtor. Agent Betty Litsey said the drought has put the brakes on a two-year surge in real estate values.”

“‘The drought has been a godsend as far as a price adjustment,’ she said.”

“Litsey said prices began skyrocketing in 2005 and continued through 2006. At the time, the price surge was a simple case of economics. ‘There was a scarcity of product in 2005, and an overabundance of buyers,’ she said. ‘It was a seller’s market.’”

“Litsey said the wave continued in 2006, with prices nearly doubling in some areas around the lake.”

“‘People paid more than they should have,’ said the veteran Realtor, who has sold real estate for more than 20 years.”

“Now, the supply of housing has exceeded demand. That market change, coupled with the drought, has stabilized prices, she said. Litsey estimates there is a 24- to 31-month supply of real estate on the market and fewer buyers on the hunt compared to two years ago.”

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