The Housing Bubble

The Voice of San Diego reports from California. “About a year into his career as a Realtor, Denny Oh was itching to buy a home. With just a year under his belt in a commission-based business like real estate, Oh knew his income made it impossible to buy alone. So, two years ago, he and two college friends went in together on a three-bedroom, two-bath condo in Pacific Beach.”

“‘I mean, most of my clients are older and buying million-dollar homes and I’m renting a $500 room somewhere?’ he said. ‘It’s kind of like a car salesman who doesn’t own a car.’”

“His friends were dating each other, had been for several years. Oh moved into the second bedroom, and they rented out the third. They wrote up a contract and each has one-third ownership of the condo. But then, a few months ago, the couple broke up.”

“‘We don’t really know what we’re going to do,’ he said. ‘Obviously, it wasn’t planned and we’ll have to figure it out.’”

“And market conditions are far from the golden days from several years ago. The market could dip further, and the home-buying partners could lose some of their investment if they decide to sell.”

“Indeed, despite the breakup, Oh’s biggest regret about his situation is that they bought in 2005, at the peak of a sizzling housing boom.”

“‘I probably shouldn’t have bought; I should have waited and rented,’ he said. The condo ‘is probably worth exactly what we bought it for. We would not make any money at this point. Maybe in a couple of years.’”

“Oh said his living costs quadrupled when he bought his share of the condo unit, but it was worth it to live where he wanted to live and work toward some equity.”

“‘You just have to really make sure everyone’s on the same page,’ Oh said. ‘What if you lose your job? What if you get married? It sounds bizarre, but stuff happens.’”

The Orange County Register. “Real Estate Economics from Irvine has published its take on SoCal’s new-home market in the second quarter: Average net base price for new homes has fallen by 8.9% in a year.”

“Advertised concessions increased 121% in a year to $10,442. ‘It should be noted that, in many areas of Southern California, the level of undisclosed concessions may be more than double the disclosed amounts.’”

“The rate of total monthly sales has fallen dramatically by 84.9% since 2nd quarter 2006.”

“The overall level of inventory has increased by 15.6% during the past twelve months. Total months of inventory (which accounts for slower sales rates) is now 12.”

The San Francisco Chronicle. “To many people in the affluent Bay Area, losing a home to foreclosure sounds like a Depression-era relic or a Rust Belt phenomenon. But in recent months, the Bay Area has proven to be home to numerous victims of the subprime loan debacle.”

“Just like elsewhere in the country, people here with tarnished credit or limited funds bought houses that proved to be beyond their means.”

“Jeff Hahn bought the house, a nicely laid-out decade-old four-bedroom Colonial in a neighborhood of classic two-story homes, three years ago for $495,000. Later that year, he met Vanessa, they fell in love and started a family.”

“‘When I first bought the house, everything was too good to be true,’ Jeff recalled. ‘No money down, instantly gaining $10,000 in equity. Written in very small print was that the loan will adjust in two years. Everybody I talked to said it would only be a (minimal) increase.’”

“Instead his two loans, initially totaling $2,200 a month, hit $3,700 last September. Several loans fell through for various technicalities. By the time a new loan finally came through in March, not only had the subprime mess caused banks to tighten their lending standards, but the home’s value had dipped.”

“Jeff had borrowed against the home’s equity to pay off some bills…start his business (and) to cover closing costs for the new $570,000 loan. The 40-year fixed-rate loan, at an interest rate of 10.5 percent, carries monthly payments of $5,000.”

“Why did Hahn accept a loan with higher monthly payments? ‘I was using credit cards to subsidize the payments’ on the existing mortgage, he said. ‘I was about to miss a payment. My lender said, ‘Take the loan, because it will save your credit, that’s the first issue. Then you can sell the house.’”

“The Hahns have not made any payments on the loan since it was funded in March. ‘Honestly, I gave up once (monthly payments) hit $5,000,’ Jeff Hahn said.”

“The Hahns put their house on the market, only to discover that real estate prices were spiraling downward in their area. Their house, which had been appraised for $630,000 in January, was now worth less. They started out listing it at $575,000, and now have dropped the price to $555,000.”

“So far, the Hahns haven’t received any offers. ‘My neighbor is selling his house for $505,000,’ Hahn said. ‘My Realtor wants me to drop my price another 100 grand.’”

“Jeff Hahn said he is bitter about his experience with home ownership.”

“‘I’ve probably wasted $90,000 over the past three years and have nothing to show for it,’ he said. ‘I lost my house, have to relocate my family and ruined my credit. Now my family will probably never own a house again because we will be considered even more of a risk in the future.’”

The Contra Costa Times. “Thinking about refinancing a mortgage or getting a no-money-down loan to buy a home? Something that was relatively easy to do several months ago may be a lot harder in today’s stricter lending environment.”

“‘In many cases, down payment requirements are higher than they were before,’ said John Holmgren, president of the East Bay chapter of the California Association of Mortgage Brokers.”

“Those who are getting hit hardest by the tightening loan standards are those with low credit scores, subprime borrowers and people who are unable or unwilling to document their income, mortgage experts say.”

“‘If you have marginal (credit) and try to do a stated-income (loan), that’s where the loans have become much more constrained,’ Holmgren said.”

“Many lenders are requiring borrowers with less-than-perfect credit scores to put a 3 percent to 5 percent down payment, said Janet Parker, senior VP of national underwriting operations at Walnut Creek-based PMI Mortgage Insurance Co.”

“‘If they buy a new home, they may have to save a little more for a down payment, which is not a bad thing,’ she said. ‘That way, they have some equity in the home right away.’”

The Sacramento Bee. “The onslaught of foreclosures in Sacramento’s housing market has left a grim, telltale mark: hundreds of vacant and boarded homes throughout the city. No area of the city is immune, but city leaders say the hardest-hit areas seem to be Oak Park and North Sacramento.”

“Fueled by riskier adjustable-rate mortgages and falling property values, foreclosures have escalated at an astonishing pace in Sacramento: 73 in 2005, 667 in 2006 and 1,066 through the first five months of 2007, according to DataQuick.”

“‘Go down any street and it seems like you find them,’ said City Councilwoman Sandy Sheedy in a recent tour of the Del Paso Boulevard area.”

The Times Herald. “The real estate picture in Vallejo and the rest of Solano County may be slightly worse than statewide, but by no means is it in free fall, a local real estate expert said. The picture was worse on both counts in Vallejo, Benicia and Solano County generally, said Solano Association of Realtors president Jeff Dennis.”

“In the first five months of 2007, the number of transactions plunged more than 43 percent in Vallejo and about 20 percent in Benicia, Dennis said. The numbers for May 2006 over May 2007 were even worse, he added.”

“‘There were 202 transactions in Vallejo in May, 2006 and only 93 this May,’ Dennis said. ‘That’s down more than 60 percent.’”

“In Benicia there was a drop of about half that, from 41 transactions in 2006 to 27 this year, he added.”

“‘It’s the lower-end homes that aren’t selling because of the subprime borrowers being locked out of the market by the tightening standards,’ he said. ‘But a lot of the more expensive homes are selling, which drives up the average price of homes sold.’”

“People who are holding off buying a home, waiting for a dramatic bubble burst, don’t have to, Dennis said.”

“‘People are afraid to buy because they’re hearing that prices are going to drop, but if you look back over the past 50 years, that’s not going to happen,’ he said. ‘Real estate is still a good long-term investment and always will be.’”

“The Record.net. “Wells Fargo Bank has become the latest of the big name banks to join the ranks of born-again mortgage lenders, folks who’ve seen the light, embraced the truth and vowed to go forth and sin no more.”

“The sin, of course, is the wink and a nod lending that put people in homes who should have stayed in apartments or who put people in too much home for the income of the family.”

“DataQuick reported last week that San Joaquin County default notices more than tripled in the second quarter from the same period in 2006. Home values are falling, off 12 percent countywide in the last year to a median price of $390,000,and the inventory of homes for sale high is considerably higher than the pool of eager buyers.”

“Gotta unload your house quickly? Death in the family? Divorce? Transfer? Good luck. Been getting calls from your mortgage lender? Got fired? Your adjustable mortgage adjusted upward about 30 percent? You’ve got really bad luck.”

“What happens next is that we’ve just got to work through it. The excess inventory has to be absorbed. Mortgage lenders have to take on the sober banker image of an earlier time. And borrowers have got to stop believing that just because they want something, they deserve it. Oh, and they might actually read the fine print.”

“An interest-only loan, more than 40 percent of the new paper being written in this county at one point, really means you’re only renting the money, not buying the house. Take one of those loans today and it means you’re really stupid.”

The Statesman reports from Oregon. “In a year’s time, the mad dash to buy houses is over. The Mid-Willamette Valley’s residential real estate market has cooled. The numbers show the area is not immune from the national housing slump. Sales have dropped 12 percent this year, according to June statistics from the Willamette Valley MLS. ‘The market has been so hot over the last few years, at some point it had to cool off,’ said Mike Erdman, executive VP of the Home Builders Association of Marion and Polk Counties.”

“‘A lot of people rushed into the market and bought, and that’s an extraordinary event,’ said Peter Rogers, the president of Coldwell Banker Mountain West Real Estate, of 2005 and 2006. Conditions today are similar to 2004, Rogers said, and it’s a return to a ‘good old-fashioned market.’”

“Booming sales had become almost routine for real estate agents and home builders. The area’s real estate industry hasn’t experienced a down year since 2000.”

“Real estate industry observers say it’s shifted from a seller’s to a buyer’s market. For June, about 6,325 houses were for sale in the Mid-Willamette Valley, or about 1,960 more than in June 2006.”

“‘The buyer has a big choice, and it’s taking a bit longer to get sales,’ said Gladys Blum, a real estate agent in Salem. ‘Last year, they could toss out a sign and it would sell.’”

“Dave Glocar, a Salem-area builder with three decades in the business, doesn’t think the market has hit bottom. His Dave Glocar Custom Homes began scaling-back its projects a couple years ago. ‘Most people thought I was a little premature, and maybe I was, but Oregon tends to go into things later and come out later,’ Glocar said.”

“The Portland metropolitan area is seeing a similar softening of the real estate market. Closed sales for June were down by more than 18 percent from a year ago, according to the RMLS.”

“Fewer speculators buying houses for investments, and lenders requiring more stringent standards for ’subprime’ borrowers, often are blamed for the real estate slump.”

The Oregonian. “The downturn in the housing market that roiled Wall Street this week is beginning to take a toll on the Oregon economy. The state’s construction business and its timber industry, still a major supplier of lumber for homes nationwide, are starting to suffer.”

“Across the state, construction of new subdivisions and condos has dropped sharply. Oregon, late to the national runup in housing prices, can plan on continued fallout from the national real estate bust.”

“‘At this point, the housing slump continues, and it seems there’s no end in sight,’ said Dae Baek, acting state economist.”

“The slowdown has builders idling their back hoes until demand increases. New housing construction in 2006 dropped 11 percent in Oregon from the previous year. Lumber production in mills across the West is down 16 percent this year for softwoods, which include 2-by-4s used in new homes. And in June, the state’s wood-products industry lost 2,900 jobs compared with a year earlier.”

“Weyerhaeuser’s first-quarter sales declined 14 percent from the same quarter the prior year and softwood lumber sales slumped 27 percent. In response, Weyerhaeuser has cut back operations at 70 percent of its operations in the Northwest and virtually all of its wood-products plants, which include mills in Lebanon, Warrenton and Dallas. Other mills are temporarily shutting down.”

“‘Our anticipation is housing will remain weak throughout the year,’ said Butch Bernhardt, director of information services for Western Wood Products Association, an industry group.”

“The number of brokers and bankers registered with Oregon’s Department of Consumer and Business Services peaked at more than 14,000 in 2005. That figure fell to about 11,000 by June, but most of those who left were out-of-state brokers who were registered to do business in Oregon.”

“Realtors report a recent shift to a buyers market. Billy Grippo, a real estate broker who specializes in Northeast Portland, said buyers now win more concessions from sellers. Homes tend to stay on the market longer, but Grippo says buyers still get close to their asking prices.”

“Baek, the state economist, says the housing market will fall further before it rises again. He expects housing to bottom out in late 2007 before making a rebound in mid-2008. ‘All things combined, it’s a terrible mess in housing,’ Baek said.”

“But he added: ‘We’re in a better position to get out of this housing slump than the nation as a whole.’”

The Seattle Times from Washington. “Shirley Rhodes prepared for the worst in April when she began her search for a three-bedroom home. But less than one month into her search Rhodes found a perfect match in Buckley, Pierce County, for $525,000 and she found half-a-dozen King County properties in her price range that fit her criteria.”

“In Southeast King County, stories like Rhodes’ are becoming more common. As in much of the county, slower home sales have given buyers like Rhodes an edge.”

“Pending sales…were down 24 percent in June compared with the same month last year, the Northwest MLS reported earlier this month. Active listings of single-family homes increased, too, from 960 last year to 1,005 this year.”

“Rhodes compared her experience to being a kid in a candy store. ‘You think, there’s got to be something better around the corner,’ she said.”

“Here’s where Rhodes experiences the downside of such a housing market: Five buyers have viewed the four-bedroom rambler she put on the market in April. She’s asking $449,000, for a 2,500-square-foot rambler on 5.5 acres in the Orting Valley in Pierce County.”

“Although she’s found several homes she’d like to buy, she needs to sell hers. ‘I’ve seen homes I’d like to take a leap on, but mine isn’t moving,’ Rhodes said.”

“If her property doesn’t sell before the holiday season, Rhodes said she’ll begin her search again next spring. ‘I’m in no great hurry,’ Rhodes said. ‘Being a buyer is really nice, but it’s the selling end that’s tough.’”

The Seattle PI from Washington. “When Seattle debated allowing taller downtown skyscrapers last year, some warned new costs that the city imposed for affordable housing could kill the building boom. So far, given the area’s strong real estate market, those dire predictions haven’t proved true.”

“Some planned high-rises may be scrapped if construction costs continue to soar and the market softens. But city officials and several downtown observers say the new requirements don’t appear to have undermined projects so far.”

“‘If it doesn’t make sense, people won’t build, and people are building downtown,’ said Ryan Bosa, president of Embassy Development Washington Inc., which is developing Insignia, which includes two 40-story condominium towers on Sixth Avenue.”

“‘If people are actually going for it, they see a market there. That’s what we’re banking on. Of course, in three years, I could be calling you from a cardboard box and singing a different tune,’ Bosa said.”

“‘We use market research as much as possible, but at some point one is making a prediction for where the market will be,’ said Adrienne Quinn, director of the Seattle Office of Housing. ‘In Seattle, we’ve been fortunate that the market is strong. Had the market turned the same way as it has in Miami or other parts of the country, it may have proved to be a disadvantage.’”

Some housing bubble news from Wall Street and Washington. Bloomberg, “IKB Deutsche Industriebank AG replaced its CEO and said profit will be ’significantly’ lower than forecast, hit by the U.S. subprime mortgage rout that it said 10 days ago would not affect it. The bank said in a statement it had to scrap its 280 million-euro ($382 million) earnings forecast as ‘massive uncertainty’ in the markets threatens access to funding.”

“State-owned KfW Group, which holds a 38 percent stake in IKB, said it will cover the company against potential losses. ‘One can only gawp at what happened,’ said Konrad Becker, an analyst at Merck Finck in Munich. ‘I’m asking myself whether KfW will be keeping its stake in the longer term.’”

“The bond market experienced ‘violent fluctuations’ last week and IKB’s creditworthiness was being questioned because of its exposure to subprime, the company said today. The ABX-HE-BBB- 06-1 index, tied to mortgage-backed bonds with the lowest investment-grade ratings, fell 17 percent last week, increasing this year’s drop to more than 60 percent, according to (the) administrator of the indexes.”

“Default swaps on Dusseldorf-based IKB Deutsche Industriebank AG IKB bonds jumped, trading at six times the prices of a month ago.”

“Investors are fleeing corporate credit at the fastest pace in seven years, Barclays Capital said in a report. More than 40 companies have abandoned or reworked loan and bond sales as yield premiums on corporate bonds rose to the highest relative to U.S. Treasuries since 2003.”

“‘It’s pure fear,’ said Gary Jenkins, a partner at London- based hedge fund Synapse Investment Management, which manages $650 million of debt assets. ‘It’s fear of the unknown, fear of hedge funds unwinding, fear of knock-on effects of the subprime meltdown.’”

“Hedge funds and insurers have reported declines in their subprime investments after adjusting their value to reflect the falls, a process known as marking to market. ‘The winds and rain have not fully subsided,’ Lehman Brothers Holdings Inc. fixed-income analysts led by Jack Malvey said in a research note dated today. ‘The storm may not fully abate until the end-of-month marks on July 31 and a day or two of final damage reassessment.’”

“‘Subprimemania is spilling into the real economy,’ said Jochen Felsenheimer, head of credit derivatives strategy at UniCredit SpA in Munich. ‘IKB’s statement was an end for those who believed this is a derivatives linked problem only.’”

“Default swaps linked to D.R Horton Inc., the second-biggest U.S. homebuilder, are quadruple their level of June 1. D.R. Horton, which last week posted an $823.8 million net loss, jumped $22,000 to $410,000.”

“Credit swaps on Fannie Mae and Freddie Mac, the U.S. government-chartered companies that are the largest providers of money for U.S. home loans, have almost tripled this month, with both contracts trading at $29,000 today, according to CMA.”

From Reuters. “American Home Mortgage Investment Corp. shares sank on Monday after the home loan provider announced ‘major’ writedowns, delayed a dividend and said lenders were demanding it put up more cash.”

“The announcement late Friday evening reflects how liquidity and credit issues affecting subprime lenders are extending to companies that make home loans to borrowers considered to be good credit risks.”

“American Home specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation. The company recently commanded a roughly 2.5 percent share of the U.S. mortgage market.”

“‘Bankruptcy is not out of the question,’ said Matt Howlett, an analyst at Fox-Pitt Kelton Inc.. ‘It needs to find a partner with alternative funding and hope the market turns around. It’s going to be tough.’”

“He added, ‘It’s clear now we’re in a liquidity crisis. Any loans that aren’t pure prime are falling in value.’”

“‘The disruption in the credit markets in the past few weeks has been unprecedented in the company’s experience and has caused major writedowns of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities,’ the company said.”

The Street.com. “American Home Mortgage…delayed paying its quarterly dividends, citing margin calls and writedowns.”

“The Melville, N.Y., lender said it delayed the payments ‘in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the company’s balance sheet and overall liquidity.’”

“American Home is not the only Alt-A lender feeling pain. Alliance Bancorp, an Alt-A lender in Brisbane, Calif., shut its doors this month. According to a letter posted on its Web site on July 13, CEO Lisa Duehring said Alliance had ‘exhausted our resources’ and ‘do not have the means to move forward.’”

“The U.S. credit markets opened with an ‘extremely negative tone’ on Monday, with credit default swaps sharply wider amid fears that fallout from subprime mortgage losses is spreading, according to Barclays.”

“‘The subprime losses, which most investors had assumed would be absorbed by otherwise profitable banking operations, now appear to be spilling over into the markets at large,’ Barclays said in a report.”

The Baltimore Sun. “Black & Decker is having trouble selling lock sets for doors. Most lock sets are installed in new homes. And new homes aren’t selling.”

“‘The fact is, the housing market has everyone spooked,’ said Bob Goldsborough, VP of research at Ariel Capital Management, Black & Decker’s second-largest shareholder. ‘The results that you see in Black & Decker today are not all that surprising. You’re seeing this play out in any area that housing touches. Demand is really, really weak, and it’s going to be weak for a while.’”

“‘Black & Decker is not alone,’ said R. Bentley Offutt, a securities analyst. ‘Companies that are related to the homebuilding industry are all having a rough day of it.’”

The St Petersburg Times. “It’s no secret that the housing malaise is infecting other industries. But the variety of those affected keeps growing.”

“Car retailing giant AutoNation, parent of the AutoWay dealerships in the Tampa Bay area: ‘Results for the first three and six months of 2007 were adversely impacted by a decline in new vehicle sales especially in California and Florida, driven in part by continued weakness in the housing market. To the extent that we continue to see weakness in the housing market, we anticipate that our sales trends will be adversely impacted.’”

“Boat manufacturer Brunswick Corp.: ‘Higher interest rates, weak housing markets and higher prices for fuel, food and other essentials have continued to erode consumers’ disposable income. Further, the depressed housing situation is most pronounced in Florida and California, which are two of the nation’s largest boating markets,’ said CEO Dustan E. McCoy.”

“Media General, parent of the Tampa Tribune: ‘Our second-quarter results mostly reflected a decrease in publishing division operating profit, driven primarily by a significant decline at the Tampa Tribune.’ said CEO Marshall N. Morton. ‘Florida’s economy…has dramatically reversed, driven by an adjustment in the housing market following several record-breaking years.’”

“U.S. foreclosures rose 58 percent in the first half of 2007 from a year earlier, led by California and Florida, as more homeowners fell behind on their monthly mortgage payments, RealtyTrac Inc. said.”

“The company for the first time reported on what it calls ‘unique addresses,’ or properties that have had at least one foreclosure- related legal filing. In previous reports, RealtyTrac had only reported the number of legal filings, which could have resulted in properties being double and triple counted.”

The Star Telegram. “The national housing slump brought a crashing end to D.R. Horton’s 29-year streak of profits. CEO Donald Tomnitz said there is no relief in sight.”

“Tomnitz cited several reasons for Horton’s continued troubles: Larger incentives to buyers are cutting into profits. Higher prices and higher interest rates are reducing buyers’ ability to afford new homes. Tighter mortgage financing is affecting the buyer pool.”

“‘In some instances across the country, we’re trying to qualify the same buyer two and three times, based upon the changing conditions in the marketplace,’ Tomnitz said.”

From CNN Money. “A hedge fund manager whose fund ran into trouble from the sell-off in securities backed by subprime mortgages is having to put his huge yacht up for sale.”

“John Devaney, the CEO of United Capital Markets, a fund that specializes in buying and selling bonds that are backed by the mortgage payments, particularly adjustable rate subprime mortgages, has put his 142-foot yacht up for sale, according to a yacht broker’s Web site.”

“Devaney told Money magazine this spring that despite problems that the loans cause for borrowers, the assets backed by them provided a good return for his fund.”

“‘The consumer has to be an idiot to take on those loans,’ he said. ‘But it has been one of our best-performing investments.’”

A report from the Washington Post. “Shauntise Harris expected competition when she put her one-bedroom condominium on the market in April. But she didn’t know how intense that competition would get. Not only was she up against some of her neighbors at a 246-unit luxury building in the District’s Mount Vernon Triangle neighborhood, but she also was competing with the project’s developer, the JBG Cos.”

“Nineteen months after starting sales, JBG still had units to unload and was offering a year of no condo fees on one-bedroom units, an incentive Harris could not match. ‘I’m like, you guys are still here?’ she said.”

“There are 20,217 new condos on the market in the Washington metro area, by Delta’s count. Marketing on another 18,867 units is expected to begin in the next three years, said Gregory H. Leisch, CEO of Delta Associates, citing his firm’s midyear analysis of the condo market.”

“What’s hurting new projects the most are contract cancellations, when buyers back out of deals. ‘A lot of times these projects were sold out. But people would put down deposits and wouldn’t go through with the closing,’ said William Rich, VP of Delta.”

“For buyers, the competition can be a blessing. Thomas K. Meyer, president of real estate brokerage Condo 1 in Falls Church, said potential buyers should not be afraid to offer less than asking price, especially when they’re dealing with the developer.”

“‘It’s a much more competitive world for the builders now,’ he said, ‘and the farther away you get from Washington, the more competitive it is.’”

The Baltimore Sun from Maryland. “Real estate investors, leaping to buy Baltimore homes during the boom, helped fuel the frenzy and drive up prices in neighborhoods from Canton to Reservoir Hill. Now they’re part of the fallout.”

“Properties belonging to ‘nonowner occupiers,’ usually investors, accounted for nearly 30 percent of the city homes that lenders were trying to foreclose on during the first three months of the year, according to a Sun analysis.”

“In popular Canton, for instance, investor-owned real estate added up to more than half the 25 homes on the court foreclosure-filing rolls.”

“‘Some people just got left holding the bag,’ said T. Guy Cook… whose niche is lending to Baltimore real estate investors. ‘It was inevitable. You knew it was going to happen - it’s like musical chairs.’”

“The rising tide of foreclosures has swept up investors both novice and experienced, though it appears that the newcomers are far more numerous. They were ‘the most giddy of all,’ jumping in too late and paying too much, Cook said.”

“‘It’s been a nightmare,’ said Ndabezinhle Moyo, a Baltimore resident who began investing last year in several city neighborhoods. After a series of setbacks, he’s fighting to save four of his rentals - plus his own home - from foreclosure. ‘I was OK up until December. From December, I basically couldn’t make a single payment for anything till about April.’”

“Investors who descended on certain areas to buy, buy, buy during the housing boom helped drive prices up even further at the time, said Mark Fleming, chief economist with a firm that helps the mortgage-lending industry manage risk and fraud.”

“‘They artificially inflated values, in essence, because of their interest in bidding it up to get it away from the other investor,’ he said. ‘If you have concentrated investors in certain areas and then house prices start to move south or sideways, the ramification is their greater willingness to walk.’”

“A California mortgage fraud detection company, said just over 30 percent of the Baltimore loan applications it looked at in the first five months of the year had possible ‘property valuation’ problems, often inflated values. That compares with 8 percent nationwide.”

“‘A lot of people [who] got in, put a lot of money into fixing up houses and have loans, can’t sell them, they can’t rent them for enough to cover mortgages, and they’re stuck,’ said Alan Chantker, president of the Mid-Atlantic Real Estate Investors Association. ‘They may have thought they were going to be in and out of the home in six months, nine months - and then it turns into a year, a year and a half.’”

“Nobody expected the collapse of two New York hedge funds investing in subprime mortgages to kick up dust in Baltimore. Nobody expected a bunch of First Mariner’s mortgages in Northern Virginia to go bad less than three months after they were issued.”

“‘I’ve never had anything like this happen to me,’ First Mariner CEO Edwin F. Hale Sr. said last week.”

“Until very recently, economic optimists had comforted themselves with the notion that housing problems were ‘contained.’ Things would pick up in the spring home-buying season, people figured. But there was no season, it is now apparent.”

“The salve of federal money that has protected the Baltimore-Washington region from economic pain is losing its effectiveness. Half of First Mariner’s problem loans were in Northern Virginia, home of a defense-spending spree since 2001.”

“Hale thinks some of the mortgages may have been issued to ‘flippers’ seeking a quick buck, violating contract terms requiring the money to be applied to a primary residence. Even so, the delinquencies don’t speak well of the Northern Virginia economy or, by implication, Maryland’s, which has been operating in the same federal bubble.”

The Post Gazette from Pennsylvania. “David and Jerri Bauman, a mentally challenged couple who have scraped through life, wanted a home. It was supposed to be 22 Fairview Ave. in West View, a place sold to them amid a flurry of confusing paperwork they couldn’t read, a pair of unexplained bank transactions and at least three sales documents that contradict reality.”

“The lawyer who handled the transaction, according to Mrs. Bauman, told her it would take too long if they read everything. ‘We didn’t understand them. We just signed,’ Mrs. Bauman said.”

“Arnold Kogan, a veteran real estate attorney in Harrisburg, finds the deal a symptom of a reckless market. ‘It goes beyond that these people couldn’t pay. If this is systemic, it could be a much more problematic situation for the economy,’ Mr. Kogan said.”

The Philadelphia Inquirer from Pennsylvania. “Linda Reid-Williams is in trouble. Her mortgage payment is increasing about $200 next month, and she’s worried she can’t afford it.”

“Reid-Williams tried for months to refinance the house she bought in Yeadon eight years ago, but recently decided against it, to avoid a $4,000 penalty for paying off her existing loan early, she said.”

“This is quite a contrast from two years ago. When Reid-Williams refinanced in 2005, it seemed like the lender was coming to her rescue with money she needed to pay off her car and other bills. When it was too late, she read the fine print.”

“‘What did I just do?’ she recalled asking herself.”

“The result, according to Mark Zandi, chief economist at Moody’s Economy.com in West Chester, will be a surge in defaults this year and next. The impact already has been seen in Willingboro, where 436 houses were for sale last week, said Martha Lee Boyer, owner of Imani Realty & Associates, citing MLS data.”

“Boyer, whose business is based in Willingboro, said that in 2004 and 2005, the biggest number of listings at any one time would have been 100. Boyer said that while she continued to see home buyers who were trading up, ‘we’re still seeing more and more distressed sales.’”

“In 2005, more than half, 1,409 of 2,716, of the mortgage loans made in Willingboro were high-cost loans, based on a federal benchmark.”

The Morning Call from Pennsylvania. “The average price of a home in the Lehigh Valley rose 2 percent in the first half of the year. It’s been five years since home appreciation hit such a low level here.”

“The rate of appreciation has slowed as home sales have fallen and new listings have soared. For every one home that has sold this year, 2.5 homes have been listed for sale.”

“The volume of transactions has slowed to a crawl. ‘The Achilles heel of the housing market is volume,’ said Bethlehem economist Kamran Afshar. ‘Volume does drop. We are observing a significant drop right now in volume, and that is serious.’”

“Prospective buyers, on the other hand, felt no sense of urgency in the first half of the year because there were so many homes to choose among. ‘They don’t have a gun to their head so they are taking their time looking at a lot of properties,’ said Jeff Burnatowski, an agent in Allentown. ‘If they can’t strike up a deal to their terms, they just go on to the next home.’”

“In June, pending sales, a measure of future sales activity, were down 17 percent to 622 contracts, compared with the same period last year. Many suburban properties priced at $250,000 or more have idled this year. Burnatowski said those properties compete with newly-built homes, ‘where builders are giving mega discounts to move inventory, which is hurting resales. They have deeper pockets.’”

“In the Valley, a mix of local and national builders construct new homes and subdivisions. National builders have been facing a glut of unsold homes this year, according to the National Association of Home Builders.”

“To reduce inventory, builders have offered a large number of incentives, including premium flooring, decks and closing costs. That’s because builders with unsold houses in new subdivisions typically can’t lower sales prices because the other residents have paid a given price for their homes.”

“Real estate agents say factors such as high gas prices and the lengthy commute are also deterring some prospective buyers.”

“‘There was a great buzz about moving out here. Now the buzz in New York and New Jersey is: ‘It’s not quite as much paradise as they were saying,’ said Gail Hoover, a real estate agent in Center Valley.”

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