The Housing Bubble

The Press Enterprise reports from California. “Inland Southern California’s home sales last month were the worst in a decade in Riverside County and the worst on record in San Bernardino County. In June, Riverside County posted 3,359 home sales, down more than 47 percent from June 2006. San Bernardino County recorded 2,190 home sales, a drop of more than 50 percent. The slowing market took a toll on sales prices.”

“‘We have seen rising foreclosure activity through the year and no sign it is done climbing, and we are now seeing some real steep declines in prices. It is very difficult to say where bottom is,’ said Andrew LePage, analyst for DataQuick.”

“The move-up market has almost disappeared, which has cut demand for homes in the $400,000 to $700,000 price range, said Scott Chappell, a director of the Inland Valley Association of Realtors. He said as a result home prices in Riverside’s Orangecrest area have dropped 15 percent in the past 18 months.”

“Bill Santoro, broker owner of National Realty Group in Moreno Valley, described the market there as ‘almost in a free fall. Every time we move the price down to get ahead of the pack, the competition comes back just as fierce, dropping their price further.’”

The Union. “The number of defaulted properties in Nevada County has doubled in the past year, according to figures from the county recorder’s office.”

“The high rate of repossessed homes stems from a combination of a buyer’s frenzy several years ago, when buyers were willing to do anything to get into a home before prices rose beyond their reach, said Phil Ruble, president of Olympic Mortgage in Grass Valley.”

“‘You can’t make the payments,’ Ruble said. With prices falling in some markets, some homeowners now owe more than their house is worth. ‘So they just walk away,’ Ruble said.”

“Interest-only loans are tools to get some buyers into a home and have been used effectively by a number of people, said John Taber, a commercial and residential loan officer. Those who neglected to do their homework before they invested are the ones hurting now, Taber said.”

“‘If you take a chain saw out and don’t know how to use it, you’ll be without a hand,’ Taber said.”

The Orange County Register. “The median price for an Orange County home returned to record territory last month, but experts warned home sellers against popping champagne corks.”

“Sales were way down, making the month the slowest-selling June in two decades. Some said the record median home price likely is a distortion caused by the decline in sales and a lack of buyers for lower-priced homes.”

“It was the slowest June in the 20 years DataQuick has tracked the market, and it follows the worst May on their books as well.”

“‘It doesn’t mean the value of your house has gone up,’said housing consultant Richard Gollis. ‘We’ve eliminated people who couldn’t afford to be in the market. Those who can afford to be in the market are buying higher-priced product.’”

“Juliette Saunders of Fullerton and her husband have been unable to find an acceptable home in Orange County that they can afford. ‘There’s no way we can afford a house anywhere in Orange County,’ she said. ‘Say, I wanted a loan right now. The banks are freaking out and not giving them.’”

The LA Times. “In Los Angeles County alone, 3,000 sellers took their homes off the market from May to June, or about 7% of all sellers, according to real estate brokerage ZipRealty Inc. Many sellers are simply holding out, refusing to give up any perceived equity gain by reducing their asking price, said John Karevoll of DataQuick.”

“Regina Nadeau didn’t need the latest sales figures to tell her that the market is slow, she’s been trying to sell her Lake Forest condo for the last eight months. ‘I pray every day and have a sense of peace, otherwise I would be stressing out,’ she said.”

“Nadeau has cut her asking price twice since January, and is now seeking $318,000 for her one-bedroom place. But she says she’s reluctant to take it down any lower: ‘I don’t want to sell too cheaply.’”

“San Bernardino is reeling from the post-boom effects. In June, sales in the city fell by 57% and the median price dropped 16% to $246,000 from $290,000 a year earlier.”

“Ditto for Lancaster in the Antelope Valley, which like San Bernardino also attracted large numbers of first-time home buyers seeking affordable prices. There, sales plunged 62% in June and the median price declined 13% to $279,500 from $320,250, according to DataQuick.”

“‘Whenever you have a market that is receding, as Southern California is right now, it will recede more in the spillover markets,’ Karevoll said. ‘In the core areas, people will be much less affected than where there was a lot of building and risky lending.’”

The Ventura County Star. “The days of double-digit price and sales increases are gone, said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. The housing market probably won’t recover until 2008 or early 2009, he said.”

“‘We’ve had the bubble, and now the bubble has slowly deflated,’ Kyser said.”

“In June, Ventura County’s median sales price for new and existing homes and condominiums was $582,000 in June, down 6.9 percent from $625,000 the previous year, DataQuick reported Tuesday.”

“Sales in Ventura County fell by 27.8 percent, from 1,227 a year ago to 886 in June. Monthly sales have not topped 1,000 since December 2006. In contrast, sales during the peak year of 2005 exceeded 1,000 every month, hitting a high of 1,913 in June.”

“Sales have fallen more than predicted, said Mats Olson, an economist with the UC Santa Barbara Economic Forecast Project. In February, he projected about a 15 percent increase to existing home sales in Ventura County, based on historical housing cycles. Instead, sales have declined even further.”

“Still, there is no reason to be alarmed, Olson said. ‘Granted, prices are down 6.9 percent from a year ago, but the month over month numbers are generally flat,’ he said.”

“‘When people ask, when are we going to be off to the races again?’ you have to say, the races have shut down,’ Kyser said.”

The Fresno Bee. “An overflowing and rambunctious crowd bid on 16 bank-owned houses in less than 45 minutes Tuesday at what was likely to be the first of a string of auctions to be held in Fresno.”

“Energized by rock music that set the tone, more than 200 people, some serious investors and many just curious, crowded into a room to watch Hudson & Marshall’s first auction in Fresno since 2001.”

“Some fetched prices so low that real estate agents in the audience wondered whether the lenders would wind up accepting them. Representatives of the lenders did not attend the auction, so the bidders won’t know for one or two days whether their offers will be accepted.”

“Nhung Nguyen, who submitted the winning bid on two Fresno houses, said she was surprised that the prices were so low. She bid $132,500 for a five-bedroom, two-bath house that was listed for sale at $184,900, and $155,000 for a three-bedroom, two-bath house that was listed for $199,900.”

“An almost 4,000-square-foot house on Alluvial Avenue previously listed for sale at $669,900 was auctioned off for $500,000.”

“‘It was my first auction,’ Nguyen said. ‘With so many people, I never thought I could get anything.’”

“Nguyen, a real estate agent, plans to rent the properties to tenants for about $1,200 per month.”

“Eric and Jane Wood traveled from Orange County to try to buy some investment property. Eric Wood bid on a four-bedroom, two-bath house on Millard Avenue, but was outbid. Wood said he didn’t want emotion to get the better of him.”

“That was also the advice of Daniel Slenders, a Chowchilla resident and a veteran of cattle auctions who had his eye on a house in Clovis and one in Madera, but didn’t get either. ‘You never get excited,’ he said. ‘There are more auctions coming up.’”

The Review Journal reports from Nevada. “Home Builders Research reported that new home sales through May are down 43.8 percent in Las Vegas from a year ago and resales are off by 34.7 percent. Median new home prices have declined 4.4 percent to $308,874 and existing home prices slipped 3.8 percent to $278,000.”

“Meanwhile, the inventory of homes for sale on the MLS climbed to a record 23,642 in June, with about 40 percent of them sitting vacant.”

“‘I walked into the office of the title company I use yesterday and they were down to less than half their normal staff,’ Robin Camacho of Direct Access Lending said. ‘People are losing jobs in this market. We’ll see a lot of part-time Realtors and mortgage officers leave the business before the market turns around.’”

“Camacho said there’s not much good news in her local market research. ‘The number of foreclosures and short sales (homes sold for less than what’s owed) continues to rise,’ she said.”

“Las Vegas’ housing market is not yet near the bottom, despite claims from some real estate agents that the worst is behind us, Andrew Pugh of SellFastLV.com said.”

“‘It’s pretty bad out there. Unless you’re buying a low-end property, under $250,000, you’re better off renting. A $350,000 house in a good neighborhood can be rented for under $1,500 a month. Right now you can’t buy much house for $1,500 a month with a fixed-rate loan,’ Pugh said.”

“The growing percentage of houses selling for under $269,000 is an indicator that prices are dropping.”

From KVBC 3 in Nevada. “The numbers don’t lie and they can be sobering. Each month about 5,500 homes come on the market in Las Vegas and only 1,500 are sold.”

“Jim Snyder: What’s your plan? Do you want to buy a house? Vuk Dukic (home buyer): Most likely yes. I’m testing the market, I guess… see what’s available and see where the prices will go.”

“Vuk: Coming from San Francisco, it’s way, way cheaper than over there. I did notice the prices are coming down. I guess a lot of hesitancy in the market right now.”

“Lisa Eggleston is a long time Las Vegas resident and she’s buying up. She’s found great homes she wants to move into, but she’s in a catch-22. ‘I can’t upgrade to my new home until I get the equity out of my house that I’m in, but then I’m having a hard time selling the house that I’m in.’”

“She’s trying to get a seller to agree to a contingency: she’ll buy the home as soon as her own home is sold. ‘People are not accepting contingencies,’ Lisa says, ‘they’re accepting cash or offers that are now.’”

“She’s frustrated that deals keep falling through and it only reinforces that hesitancy buyers are feeling in the market.”

The Arizona Republic. “Deals that help struggling homeowners avoid foreclosures are on the rise in metro Phoenix. ‘Short sales’ are similar to regular home sales except a deal is worked out in which the lender accepts what the house is appraised for or what it will currently sell for instead of what is owed on it.”

“Travis Olsen, president of the National Short Sale Center, is tracking the market and said there are more than 700 short sales under way in the Phoenix area.”

“Real estate agents say that two years ago, there were almost no short-sale properties on the market or deals closing.”

The Rocky Mountain News from Colorado. “Royce Morales bought a foreclosed home for $86,000 last month, about half of its previous sales price.”

“The Center Avenue home in southwest Denver sits smack in the middle of an area hardest hit by foreclosures. The latest tally for the 80219 ZIP code: 758 foreclosures in the past 18 months.”

“One home in Denver, which had a $149,000 loan, is now being sold by the lender for $52,000.”

“Of the 4,000 foreclosed homes actively being processed in Denver, a Rocky Mountain News analysis of the data shows: 890 of them are in the hands of whoever bought them at a public trustee auction, typically the lender.”

“1,507 have gone through the foreclosure sale, but could still be redeemed by the borrower. 1,557 of them are being sold by the public trustee. The status of the remaining 46 is unknown, according to city records.”

“April Crumley, president of the Concerned Citizens for Barnum, said Hispanics are especially vulnerable to losing their homes. They are talked into getting loans that they don’t understand. ‘I’m talking Hispanic lenders to Hispanic customers,’ she said.”

“Much of Barnum and Athmar Park neighborhoods are in that ZIP code. The neighborhoods are filled with empty homes with broken windows and yards covered with weeds, sometimes topping seven feet.”

“It’s not just lenders, but buyers who are increasingly contributing to the foreclosure crisis, said Karen Cuthbertson, president of the Athmar Park Neighborhood Association.”

“‘There are people like the gentleman across the street who bragged how this was the third home he bought using false documentation,’ Cuthbertson said. ‘He took a sledgehammer and ripped out all of the copper pipes and then left. They’re predatory borrowers.’”

“She said much of the focus by legislators and politicians has been on the ‘poor distraught home buyer, and clearly that is a valid market.’ But she said the reality is that there are an increasing number of buyers who are just as culpable as any predatory lender.”

“And as in Barnum, Athmar Park is suffering more now from foreclosed homes than it did in the 1980s, (she) said. ‘A couple blocks away from me, probably seven of the 10 houses on the street are empty,’ she said.”

Some housing bubble news from Wall Street and Washington. Bloomberg, “Builders in the U.S. unexpectedly started work on more homes last month while permits for future construction fell to the lowest level in a decade, suggesting a recovery from the housing slump may not be quick.”

“Housing starts rose 2.3 percent to an annual rate of 1.467 million, led by an increase in apartment buildings, the Commerce Department said today in Washington. Building permits fell 7.5 percent to a 1.406 million rate.”

“A glut of unsold homes suggests the slump is not over. There were enough homes on the market in May to satisfy 7.1 months’ worth of demand at the current sales pace, the government said last month. The supply of existing homes was 8.9 months, the most in almost 15 years.”

The Associated Press. “Home builder Pulte Homes Inc. said Tuesday it expects to report a hefty loss from continuing operations for the second quarter, due to large charges and a worsening consumer environment.”

“Pulte said Tuesday that it expects to record impairments and land-related charges…to reflect the decreased value of unsold homes on its books and for walking away from deposits on land it no longer wants to buy.”

The Street.com. “The loss comes as Pulte’s orders for the second quarter slid 20% from a year earlier to 7,532 homes. The company closed on 5,938 homes during the period, a drop of 40% over the prior-year quarter.”

“‘The difficult conditions that plagued the homebuilding industry in the first quarter of 2007 worsened in the second quarter, with increased competitive pricing pressures, elevated levels of new and resale home inventory, and weak consumer sentiment for housing affecting the entire industry,’ said Richard Dugas Jr., CEO of Pulte Homes, in a press release.”

“Shares of Novastar Financial Inc. continued plunging Wednesday amid doubt a $150 million injection of cash will be enough to sustain the mortgage lender.”"

“Friedman Billings Ramsey analyst Scott Valentin called the $150 million cash injection a ‘Hail Mary.’ He said he does not think it will be enough ‘to ensure NovaStar’s viability, barring a significant improvement in subprime capital markets conditions.’”

From Reuters. “Alliance Bancorp Inc. has filed for Chapter 7 bankruptcy protection and will liquidate, becoming the latest residential mortgage lender to collapse in the U.S. housing downturn.”

“Alliance differed from most struggling lenders in that it specialized in ‘Alt-A’ home loans, rather than ’subprime’ loans that have caused the greatest problems.”

“JPMorgan Chase & Co. said on Wednesday it tripled the amount set aside for loan losses as even borrowers with good credit defaulted on home equity loans.”

“JPMorgan Chief Financial Officer Mike Cavanagh said losses on home equity loans to prime borrowers, or those with good credit, will steepen, partly because U.S. housing prices have flattened or fallen in some areas.”

“The bank set aside $1.53 billion for loan losses, up from $493 million a year earlier. The increase was driven by higher loss estimates on home equity loans where borrowers had little equity in houses whose values are falling.”

“‘It’s definitely a change in trend that we’re reacting to,’ Cavanagh told reporters.”

“Bear Stearns Cos. told investors in its two failed hedge funds that they’ll get little if any money back after ‘unprecedented declines’ in the value of securities used to bet on subprime mortgages.”

“‘This is a watershed,’ said Sean Egan, managing director of Egan-Jones Ratings Co. ‘A leading player, which has honed a reputation as a sage investor in mortgage securities, has faltered. It begs the question of how other market participants have fared.’”

“Estimates show there is ‘effectively no value left’ in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and ‘very little value left’ in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter.”

“The larger fund, which had $925 million of capital in March, is down about 91 percent this year, according to a person with direct knowledge of the performance, who declined to be identified because the figures aren’t public. It borrowed almost $9 billion, and its remaining debt was taken over by Bear Stearns in the bailout.”

“Douglas Sipkin, an analyst at Wachovia Corp., said today in a note to clients that most securities firms probably reduced the value of their mortgage assets during the first half of the year. Any holders that continue to overvalue CDOs and subprime bonds will have to mark them down to market this quarter, he wrote.”

“Countrywide Financial Corp.’s bonds weakened after the largest U.S. mortgage lender reported a surge in defaults.”

“Countrywide said that pending foreclosures as a percentage of outstanding loans more than doubled in June from a year earlier and delinquencies hit a six-month high.”

“Downey Financial Corp. reported net income for the second quarter of 2007 of $32.7 million, down 32.1% from the second quarter of 2006.”

“CEO Daniel D. Rosenthal commented, ‘The ongoing softening of the housing market, coupled with a challenging interest rate environment, have contributed to continued declines in our loan portfolio and increases in our non-performing loans.’”

“Some lenders are eliminating what until recently was the most popular type of home-mortgage loan for subprime borrowers, or borrowers with weak credit histories.”

“Countrywide Financial Corp., Option One Mortgage Corp. and Merrill Lynch’s First Franklin Financial unit told employees and mortgage brokers this week that they would no longer offer so-called 2/28 subprime loans.”

“A spokesman for Countrywide, the nation’s largest home-mortgage lender in terms of lending volume, said investors’ demand for such loans is ‘very, very limited.’”

“The benchmark ABX index sank to record intraday lows in nervous trading on Wednesday on concerns over mounting deterioration in assets backed by subprime mortgage securities, traders said.”

“The ABX ‘BBB-’ 07-1 index, which is tied to loans made in last year’s second half, fell to 43 on Wednesday after closing at a record low of 45.02 bid on Tuesday.”

The Wall Street Journal. “Moody’s Investors Service says it is paying a high price for its tough stance on lax lending standards for commercial mortgage-backed securities.”

“The Moody’s Corp. unit said it was passed over and not hired for 75% of the commercial mortgage-backed securities rating assignments issued in the past few months as a result of its requirement that issuers add an extra layer of credit enhancement.”

“Moody’s said issuers are ‘rating shopping,’ meaning they were hiring competitors that would hand out higher ratings on securities.”

“Federal and state banking regulators on Tuesday said they would step up their scrutiny of lenders that make home loans to people with shaky credit, focusing on companies that operate outside federal banking oversight.”

“The pilot program announced by the Federal Reserve, two other federal agencies and state banking officials is scheduled to start in the fourth quarter and affect about 12 lenders. It will be designed to examine firms that account for the majority of subprime loans.”

“The home-mortgage business exploded in recent years, with big Wall Street investment firms buying packages of loans in bulk from banks and other lenders. Critics say the Federal Reserve has been slow to use its authority under a 1994 consumer protection law to crack down on deceptive mortgage practices.”

The Morning Call reports from Pennsylvania. “Charline Pillinger and boyfriend Christopher Dorsey wanted more space for themselves and their five children, so they moved out of a $500-a-month two-bedroom apartmen. The couple had no savings and earned only $40,000 combined, but they still qualified for a mortgage to buy the $124,000 home in May 2005. The investment, they now know, was a disaster.”

“Pillinger and Dorsey…say they never saw it coming when they were buying their homes. ‘I was very confused,’ Pillinger said.”

“Neither made more than $20,000 per year, nor did they have much money saved. With a bankruptcy in his past, Dorsey’s credit rating was so poor he couldn’t be on the mortgage application, so it included his income but was in Pillinger’s name only, according to the documents provided to The Morning Call by the couple.”

“Less than a decade ago, a lender would have told them to stay in the apartment, save money and rebuild Dorsey’s credit.”

“Pillinger said she did not understand the paperwork, and that her financial ignorance and excitement over buying a house led her to sign her name to an adjustable rate on a $99,200 first mortgage. It had a manageable $603-a-month beginning payment, but an interest rate that could swing from an opening rate of 6.125 percent to a crushing 11.125 percent.”

“She also took out a second loan for $24,800 to cover the down payment. That loan, costing them another $217 a month, is due in 15 years and packed a second punch: a balloon payment of more than $20,000 at the end.”

“‘I didn’t know nothing about a balloon payment,’ Dorsey said.”

The Washington Post. “More than 700 homes were in foreclosure in Montgomery County between April and June of this year, up from 49 during the same period last year, said Maryland Labor Secretary Tom Perez, offering a sobering picture yesterday of how the surge in foreclosures is affecting the affluent county.”

“Prince George’s County continues to have the highest percentage of homes in foreclosure in Maryland. More than 2,300 foreclosures have been recorded in the county this year.”

“In Montgomery, there were more foreclosures in the first quarter of this year than in all of 2006.”

“‘Sometimes there’s a perception that a place like Montgomery County is immune to something like this,’ County Executive Isiah Leggett said.”

The Baltimore Sun from Maryland. “Borrowers who stretched to qualify for more flexible loans have been added to the categories of borrowers who had lost their homes to foreclosure due to job loss, illness or divorce, experts say.”

“‘You’re seeing nicer homes, higher-priced homes,’ agreed Jeff Rogers, an associate broker who lists homes for lenders, who said some of the borrowers have owned their homes for two years or less. ‘You sort of saw that coming. [Borrowers] were being set up for failure with some of these mortgages.’”

“Loans in the foreclosure process in Maryland soared nearly 30 percent in the first quarter compared with the first three months of 2006. Local home listings, already at a record high, will climb even more, partly because of mounting foreclosures, said economist Anirban Basu of Baltimore.”

“‘Inventory has been rising sharply, and it will continue to rise, with the impact of ARMs [adjustable-rate mortgages] resetting and foreclosure activity,’ Basu said. ‘I don’t think we’ve begun to see that impact in a major way.’”

“Real estate agents and brokers, too, worry that putting more inventory into an already sluggish market will bring down prices and cause houses to sit longer.”

“Jennifer Marshall, an agent with Maryland REO real estate brokerage, said she is seeing the number of foreclosure properties soaring in suburban areas.”

“‘With more inventory, it’s a buyer’s market now,’ Marshall said. ‘People aren’t going to offer what the house is listed for.’”

“Banks are increasingly buying foreclosed properties back at auction as other bids fall short of the amount owed. That scenario has become more common as the number of owners with little or no equity, or even negative equity, has grown, particularly in cases of pricier homes with more recent mortgages.”

“‘Because we’re seeing more expensive homes, higher-end homes going to foreclosure, logic indicates that less of those are being sold to third parties,’ or buyers other than the lender,’ said Donald Miller, national sales director for Express Auctions, of Baltimore.”

“Miller said about 30 percent of the homes sold through his company’s foreclosure auctions go back to the lenders, but banks tend to buy back an even greater percentage at foreclosure auctions in general.”

“One homebuyer who came to an Express Auction in May beat out an investor on a three-year-old house in Hampstead, with a winning bid of $567,500. Before the auction, the owners had listed it for sale at $1 million, Miller said.”

“The buyer of the property got a sprawling five-bedroom house with a master bedroom, sitting room with coffee bar, workout room, library and a three-car garage, in a neighborhood where houses have sold for more than $700,000.”

“Evelyn Ray, a real estate agent in Bel Air, is hoping the increase in foreclosures might help some of her clients who are struggling to buy a house in the aftermath of a soaring market. Ray said she has begun looking for foreclosure properties to show her clients.”

“‘Now, people just cannot afford the houses that are out there,’ said Ray. ‘I have about 30 buyers who are just waiting. They either can’t afford the houses they want or are just scared or waiting for prices to come down, or they can’t sell.’”

The Daily Reflector from North Carolina. “Second homes accounted for 36 percent of all residential property sold in the United States last year, according to the National Association of Realtors, and the abundance of rivers and beaches make eastern North Carolina a prime destination for recreation-loving baby boomers.”

“Real estate agent Serena Sullivan said speculation buying contributed to driving up housing costs, with investors looking to cash in on quickly escalating prices. Atlantic Beach also is undergoing a transformation with condominium complexes replacing old hotels and mobile home parks.”

“‘There’s a lot of inventory at the beach right now,’ Sullivan said. ‘There’s a great selection for people.’”

“Maria Wilson, VP of Coldwell Banker Coastal Realty in Washington, said the housing market nationwide is undergoing a correction after the bubble burst last year. A stagnant market in other areas of the country has a trickle-down effect, she said.”

“‘The market in other areas has affected us somewhat, but we still have a brisk second home market,’ Wilson said. ‘We still have people who are selling their properties in other places and coming down and buying. It just isn’t as immediate as it was. I can’t say that we’re not affected by that, but we aren’t as affected as some other areas are.’”

“David Harrell and his wife recently got a taste of the shock value when pricing condos in Atlantic Beach. They…wanted a vacation retreat more convenient to their Greenville home.”

“‘I love Myrtle Beach because there is so much to do there, but it is a long ride,’ said David Harrell. ‘Real estate is really high. When you look at what people bought these places for back in 2002 and 2003, it’s at least double for them (now). It kind of bothers me. It’s ridiculous. That’s been my holdup. It’s so expensive.’”

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