The Housing Bubble

The New York Times reports on California. “The north end of Clarks Fork Circle in Stockton tells you all you need to know about the depth of the mortgage worries here. On a curve in a handsome new residential development, four of five homes are for sale, at least two of which have already been repossessed by a lender.”

“Once considered a safe alternative to the overheated Bay Area real estate market, Stockton and its streets are now filled with ‘For Sale’ signs and evidence of foreclosures. ‘It is disturbing, there’s no question about it,’ said Mayor Edward J. Chavez, who himself has two houses on the market, with no sales in sight. ‘What was once a vibrant market has kind of hit a brick wall.’”

“Average single-family houses here can still be had for $350,000. But many of the recent house deals, brokers and local officials say, were financed by subprime loans, some of which offered 100 percent financing for a small down payment, occasionally even no money down.”

“‘It’s gone from the most liberal financing I’ve ever seen a few years ago to the most foreclosures and delinquencies I’ve ever seen now,’ said Art Godi, a longtime Stockton real estate agent and the former president of the National Association of Realtors.”

“Alma Neri…bought a modest house in Stockton in 2002 for $223,000. Three years later, Ms. Neri and her husband found an even better house around the corner. The plan was to sell the old house to pay off its mortgage.”

“But now, both of the Neris’ houses are languishing on the market, and the debt from two mortgages, and an equity loan they took to remodel the new house, is piling up.” “‘We made bad decisions,’ said Ms. Neri. ‘We’re worried if we don’t sell by the end of the year, we will lose one of them. We just didn’t see the downturn coming.’”

“Brokers in Stockton are now increasingly offering so-called short sales. Even so, sales are slow to come, leading to annoyed sellers.”

“‘They’re not crazy about us or anybody right now,’ Mr. Godi said. ‘They’ll say, ‘Gee, I lowered the price on my house, why haven’t you sold it?’”

“He added, ‘It’s much better dealing with people if they’re going to make a profit.’”

“Fannie Mae and Freddie Mac can still purchase mortgages and issue securities. But those who want larger mortgages, or cannot make down payments, face a harder burden.”

“Jumbo mortgages are most important in areas with high home prices, most notably on the East and West coasts. ‘In California, it has shut down the purchase market,’ said Jeff Jaye, a mortgage broker in the Bay area. ‘It has shut down the refi market.’”

“Investors made the mistake of assuming that housing prices would continue to rise, said Dwight M. Jaffee, a real estate finance professor at the University of California, Berkeley. ‘I can’t believe these sophisticated guys made this mistake,’ he said. ‘But I would remind you that lots of investors bought dot-com stocks.’”

“He added, ‘When you are an investor, and everybody else is doing the same thing and making money, you often forget to ask the hard question.’”

The San Francisco Chronicle. “For California’s home builders, it has gone from a perfect storm to a pathetic one. Each week, it seems, there is more bad news as potential buyers stay away in droves. A recent wave of discounting has lured some shoppers to subdivisions, where a backlog of unsold dwellings await … something … anything.”

“But the price cuts, ranging from $10,000 to more than $150,000 on $1 million-plus homes, have yet to turn many of the looky-loos into buyers, according to anecdotal information from homebuilding executives.”

“‘This is the first recession (in the housing market) that isn’t being driven by job losses,’ said Steve Delva, president of the South Bay division of Standard Pacific Corp. ‘Somebody called (the housing bubble of 2005-06) a perfect storm of cheap interest rates, a lack of supply and rampant speculation. Then, when the air went out of the bubble, everybody turned back into pumpkins.’”

“Standard Pacific, with headquarters in Irvine, has several projects in Northern California. It reported a $165.9 million loss for the second quarter, which ended June 30.”

“Nearly all of the publicly traded home builders in the country have reported substantial losses this year, including such widely known names in the Northern California market as Toll Bros., Pulte Homes, Centex and KB Homes.”

“As the year has progressed, tens of thousands of families have fallen behind in their payments until the dreaded ‘notices of default’ arrived.”

“With no other choice, they put their nearly new homes up for sale only to discover that a growing glut of other frantic sellers had flooded the market with their distressed properties.”

“As homes sat waiting for buyers who never materialized, prices nose-dived to a point where owners owed far more on their mortgages than they could ever hope to realize on a sale.”

“‘There’s a lack of urgency among people (looking for homes) right now,’ said Mike Forsum, regional president of Taylor Woodrow Homes. ‘Traffic is up … at many of our projects, but I get the feeling that you’ve got the hovering masses waiting for the next big deal before they buy.’”

“As with previous housing slumps, this one seems to be playing out along a well-traveled path, building industry officials say.”

“‘This isn’t going to get better until this unsold inventory gets absorbed,’ said Standard Pacific’s Delva, ‘And this isn’t going to happen until the financing issues are resolved; the smart money has the slump ending in the letter half of next year or some time in 2009.’”

The LA Times. “In the county of Riverside, in the city of Corona, on a street called Plume Grass, there’s a foreclosed house that no one wants to buy. A decade ago it was worth $148,000. That’s what Theodore and Cassandra Judice paid the developer, Beazer Homes, borrowing nearly all of that sum.”

“Life threw some curveballs. In 2000, they refinanced, drawing cash out in exchange for a bigger monthly mortgage. Theodore would marvel at his neighbor’s boats, their swimming pools, their toys. He and Cassandra did some remodeling, getting the patio done, he remembers, was particularly urgent.”

“The couple refinanced again in 2001, 2003 and 2004, borrowing larger sums each time.”

“In September 2005, the Judices borrowed $447,500. Almost immediately after that, they put the house on the market for $480,000. It was time to go: They had drawn so much cash out of their home they couldn’t afford to live there anymore. The ATM had turned into a trap. With no equity cushion, they couldn’t afford to cut their price either.”

“‘They got offers, but they weren’t high enough for them to break even,’ says their agent, Peter Pesek. ‘They wanted to keep waiting for something better.’ It never came; the market had peaked.”

“The couple moved to Austin, Texas, and bought another house. They couldn’t afford both mortgages, so for Plume Grass they tried to negotiate a short sale, an agreement in which the lender accepts less than it is owed. The deal fell through.”

“A notice of default was filed June 9, 2006, making the house one of the first in Corona to enter the foreclosure process in the current downturn.”

“‘We made some bad decisions,’ acknowledges Theodore. ‘No one ever came to our house and forced us to do anything.’ He figures it will take him several years to clean up his credit record.”

“GMAC Mortgage took ownership after the foreclosure. The lender asked Leo Nordine, a veteran foreclosure agent based in Hermosa Beach, to clean up the house and evaluate it for resale.”

“On March 15, Nordine recommended $6,000 in cosmetic work and a low price to get out in front of the market. ‘Don’t overprice,’ he warned.”

“His suggestion: $425,000 for the house as it was, $437,500 if the repairs were done. The lender didn’t authorize the repairs, and stuck a price of $445,000 on the house. No one wanted it.”

“On May 30, Nordine advised reducing to $409,000. GMAC agreed to drop the price, but only to $419,500. Six weeks earlier, that might have done the trick. Not anymore. A week later, Nordine recommended $399,000. The lender didn’t respond.”

“On June 27, he suggested $390,000. Lower the price, he urged yet again: There are three times as many lender-owned homes on the market now as there were a few months ago. On July 31: ‘This is the worst market I’ve ever seen.’ He proposed $385,000.”

“There was no answer. GMAC, like most lenders, has been in turmoil. In late April it said it would fire 700 workers. The asset manager for the Plume Grass house was one of them.”

“To sell the house now, Nordine said late last week, would require a price of $379,000. ‘The banks will wise up after a bit,’ the agent said. ‘I think the fall is going to get really ugly.’”

“A GMAC spokesman said Friday morning that the lender’s goal was to sell all its properties, including the Plume Grass house, for ‘fair market value.’ Several hours later, either wising up or merely responding to the glare of publicity, GMAC sent Nordine an e-mail authorizing him to drop the price to $395,000.”

The Daily News. “Foreclosures and loan portfolio problems continue to grow, troubles that are wearing down Wall Street and spilling into foreign markets. A big question is what the impact will be in California. We’ve already seen a record number of foreclosures in the second quarter, and the threat of a record-breaking third quarter looms.”

“Sales in California have reverted to mid-1990s levels, a down cycle that persisted for most of that decade. Up until last year, credit was so easy that many loan applications were works of fiction. Not a problem, really, because appreciation was still strong, interest rates low and there would be an opportunity refinance out of a toxic loan.”

“Not any more. Now we have a situation in which the last ones into the housing market are the first ones trying to get out.”

“The Internet company Bargain Network found that in July, California had 29,931 properties on the foreclosure path. That’s the most in the nation and a 5 percent increase from June.”

“California is also the nation’s biggest real estate market so being No. 1 isn’t a surprise. California is the country’s fifth-most distressed state, foreclosure-wise. Nevada is the most distressed state followed by Florida, Colorado and Arizona.”

“California leads in another area, too, the most mortgage activity in the nation, including the subprime variety that’s now a vexing problem. For example, last year California led the nation in buyers who opted for payment-option adjustable rate mortgages, commonly known as negative amortization loans. They accounted for 24 percent of all the state’s home loans.”

“Nationwide payment-option ARMs made up 11 percent of home loans. Looks like we’ve got some of the trouble behind us. And more ahead of us, too.”

Some housing bubble news from Wall Street and Washingotn. Reuters, “Facing continued deterioration in the U.S. housing market, upscale home builder Hovnanian Enterprises Inc. said on Monday that it expects to take a charge of $90 million to $110 million related to land impairments and write-offs. The third-quarter cancellation rate was 35 percent, compared with 33 percent a year earlier.”

“On a preliminary basis, net new contracts for homes fell 24 percent, excluding unconsolidated joint ventures.”

From MarketWatch. “In announcing limited results before its full quarterly report scheduled for Sept. 6, the company cited ‘continued deterioration in sales pace and pricing in certain communities.’ The company said it closed on 3,179 homes for the three months ended July 31, down 31% from the year-ago quarter.”

“The company said its cancellation rate represented 35% of gross contracts, underscoring the tough times in residential housing markets.”

“Banc of America Securities analyst Daniel Oppenheim said that it appeared Hovnanian saw more weakness at the start of the quarter and that management lowered home prices to maintain sales volume.”

“”However, we think the recent challenges in the mortgage market have led to worsening trends once again,’ the analyst wrote in a report to clients. ‘We expect the cancellation rate to continue to worsen in [the company's fiscal fourth quarter] as a result of the tighter lending, which started at the end of July,’ he added.”

The Star Telegram. “D.R. Horton used to say that only another Great Depression could stall its growth. It’s clear now that Horton bulked up at the wrong time, doubling its land position as the housing market was hitting its peak and not long before demand plummeted.”

“Sales have been in a free fall and, for the first time, the red ink is flowing.”

“Horton, the nation’s largest home builder, has tried myriad ways to stave off the housing downturn, without success. The company has eliminated 3,300 jobs, punted 60 percent of its option deals on land lots, slashed home prices, boosted buyer incentives, and bullied suppliers and subcontractors.”

“In April, it ordered division presidents to do whatever was necessary to hit sales targets. Instead of rebounding, Horton home sales fell 40 percent in the quarter ended in June. Nearly 4 of 10 buyers also walked away from their contracts.”

“‘D.R. Horton doesn’t see strength in any of its markets right now,’ CEO Don Tomnitz told analysts recently. ‘You hate to say it, [but the decline] is actually a little bit worse than [it] appears.’”

“In the West, excluding California, Horton sales fell 39 percent. In California, the decline was 53 percent. The best performer, the Southeast, was down 25 percent.”

“A whole class of home borrowers who could get easy money a few years ago can’t get any loans now. ‘If you told shoppers at Wal-Mart that they couldn’t use Visa or MasterCard for six months, many wouldn’t be able to buy anything,’ said Mark Dotzour, chief economist for the Texas A&M Real Estate Center.”

“Horton and others, it turns out, couldn’t resist the excesses of a market bubble. Now we’ll see how they work them off.”

The San Francisco Chronicle. “Kerry Killinger is chairman and CEO of Seattle’s Washington Mutual Inc. Killinger met with Chronicle reporters and editors at a time when turmoil from the subprime market meltdown was beginning to spread to other parts of the financial and housing markets.”

“Q: In broad terms, could you tell us your impression of what happened in the mortgage market and how it happened? Foreclosure activity is increasing as adjustable-rate loans are reset. Who is to blame?”

“A: ‘House price appreciation in the United States was significantly above normal for several years…That led to price increases growing above average. That then accelerated into a bit of a bubble as speculators came into the market thinking that housing was going to increase in value at an above-average rate forever. The market peaked about two years ago. Simply, prices were rising much faster than they should have.’”

“Q: Why would anyone make a stated-income loan in the first place? Why would a practice like that ever become the norm? A: ‘From competitive pressures, from significant excess of capital flooding into the business from Wall Street. That’s really what it was. Severe competitive pressures leading to a loosening of underwriting standards for the industry.’”

“Q: Other people were making them, everybody was on the boat? A: Very much. And the boat, again, the loans in the underwriting were predominantly being pushed by the money flooding in from Wall Street that wanted to buy the loans…we really pulled our horns in at the same time that Wall Street money was just flooding us.’”

“Q: And yet you’ve been making 2/28 and 3/27 loans up until last month? (These loans have a low interest rate for two or three years but then reset. Monthly payments can go up by hundreds of dollars.)”

“A: ‘But at significantly lower volumes. We tried to reduce our participation. The conclusion we have made is that the slowdown in housing prices and the risk of the housing market have increased this year, making the 2/28 and the 3/27 products less appropriate than they’d been in the past. Those products worked well when housing prices were continuing to increase.’”

The Rocky Moutain News. “The home buyers on Main Street…are feeling the brunt of what happened on Wall Street. ‘The best I can tell, mortgage bankers needed to find a way to prop up their loan volume a few years ago and decided to relax their underwriting standards a bit,’ said broker Brian Bartlett, in an e-mail to the Rocky Mountain News.”

“‘Then, as these higher risk loans were packaged (on Wall Street) and gobbled up by investors chasing higher yields, the bankers kept incrementally relaxing underwriting a bit at a time. . . . The assumption was made that increasing market values would offset the risks. That didn’t happen,’ he said.”

“‘It’s back to the future,’ said Lou Barnes, president of Boulder-based Boulder West Financial Services.”

“‘In the last nine months, the marketplace eliminated 25 percent of the worst nouveau lending practices, and in the last two weeks, the market eliminated the other 75 percent,’ Barnes added. ‘We set the clock back 10 years in two weeks.’”

“Peter Lansing, president of Universal Lending, who four years ago lost business by shunning ‘funny money’ lending, said he has never seen such turmoil in the market in 30 years in the business.”

“‘I really believe this is a pretty big watershed event in the mortgage banking business that is going to change the face of mortgage banking back to normal lending practices - that sounds like an oxymoron, a watershed event that takes us back to what is normal,’ Lansing said.”

“Realtor Bartlett thinks the hangover from the easy money party is not something that will end soon. ‘The final effects and ramifications won’t be seen for months or years,’ Bartlett said.”

The Financial Post. “Peter Morici has little sympathy for investors snared in the U.S. subprime mortgage meltdown.”

“Mr. Morici, the former chief economist for U.S. International Trade Commission and now a business professor at the University of Maryland’s School of Business, lays the blame squarely on what he calls the ’sinfully wealthy Barons of Wall Street’ who tried to pull off ‘an Ivy League Ponzi scheme.’”

“The recent market meltdown had much less to do with bad subprime loans than advertised,” he says. ‘It was caused more fundamentally by excesses at hedge-and private-equity funds.”

“In other words, inventors of these funds…attempted to pair put-and-call options with borrowed money. Under normal circumstances, he argues, these ‘buy-sell pairings’ can work in smaller markets since computers can establish patterns of stocks and other investment vehicles moving in different directions and then cash in on the difference or spread.”

“‘But when hedge funds multiply, they essentially bet against one another and require one another to validate their bets,’ he says. It was doomed to failure, he says.”

The Financial Times. “The much-heralded financial rocket scientists responsible for the explosion in complex mathematical trading strategies are bracing themselves for fresh pain after what one team of analysts called ‘the perfect storm’ last week.”

“Quantitative strategists, or ‘quants’ as they are known, attempt to profit from pricing inefficiencies identified through mathematical models. These send buy and sell signals on small variations in price between different securities.”

“One hedge funds manager said the average quantitative fund manager was down about 15 per cent in the first few days of August.”

“‘Nothing seems to be working. Previously uncorrelated factors have recently been falling with the same pace, leaving investors with very few places to hide,’ said Citigroup analysts in a report to clients last week.”

“One hedge fund manager estimated that statistical arbitrage funds with more than $100bn in assets had on average borrowed four times their actual assets. These borrowings magnify significantly any moves they may make in the market.”

“The wave of selling only exacerbated the problem by pushing down prices. As asset values fell, the ratio of debt to assets rose. This forced them to sell yet more assets.”

“One hedge fund manager said: ‘Nobody is happy with their credit position and everyone wants to de-risk and de-leverage. And it is global. The market has gone freaky.’”

From Newsweek. “An idea for a morality play: capture the madness of an era when investors, entranced by new technology, a novel set of economic assumptions and an all-powerful Federal Reserve, lost their heads, blew an exuberant bubble and suffered a painful bust.”

“It is, in a way, the Henny Youngman Economy. Lenders pleaded: ‘Take my money … please!’”

“And this credit boom rested on the staunch belief in three pillars of faith, all of which, coincidentally, underlay the 1990s boom. Pillar #1. Technology. Pillar #2. Asset prices continually rise.”

“Pillar #3. In a pinch, the Federal Reserve would step in with a well-timed interest-rate cut, just as it did after various 1990s crises, flooding the system with cheap money.”

“As low rates proliferated, lenders fell over themselves to stuff cash in customers’ pockets. Bankers proved similarly accommodating to corporations, especially to private-equity firms.”

“It all worked fantastically well. But this year, one by one, the pillars underlying the Henny Youngman Economy crumbled. The securitization of subprime mortgages had the perverse effect of tethering more investors around the globe to the same crumbling assets.”

“Home prices fell nationwide for the first time in a generation, according to the Case-Shiller Index. And Alan Greenspan’s replacement, Bernanke, revealed himself to be more concerned with the prospects of inflation than with the prospect of unemployment among hedge-fund managers.”

“Chagrined lenders have been gripped by the sudden realization that debt can, and does, go bad. So just as rapidly as they rushed to lower standards, mortgage companies—the ones that remain solvent—and lenders of all types are rushing to tighten them.”

“Credit, the fuel that powers the economy, is becoming more scarce and expensive. Somewhere, in the great borscht belt in the sky, Henny Youngman is hoisting his violin.”

A report from the New York Times. “When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent. ‘I have been in the business 20 years and I have never seen’ such a big swing in interest rates, said the broker, Bob Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.”

“The investment banker’s problem was that he was taking out a so-called jumbo mortgage — a loan greater than the $417,000 mortgage that can be sold to the federally chartered enterprises, Freddie Mac and Fannie Mae. The market for large mortgages has suddenly dried up.”

From Newsday in New York. “Local housing prices turned in a mixed performance in June, but they continue to point to an ever-weakening market. Mona Holzman, the branch manager of June Shapiro Realty Laffey Associates in Great Neck, said that the number of closings by the office are down 13 percent from with a year ago.”

“She added that because of rising inventories, sellers should be more realistic about pricing their homes. ‘We could sell a house in a day if it’s priced right,’ she said.”

“Nesconset economist Thomas Conoscenti attributed the year-to-year declines in Queens primarily to a maxed out market in the borough and a hotter real-estate market in Brooklyn.”

“Residential inventory, a key indicator of the market’s vitality, rose to 15,185 homes in Suffolk, compared with 13,724, a year ago. In Nassau the number of houses for sale rose to 10,574, from 9,934 a year ago. In Queens, the supply on the market rose to 10,851, compared with 9,483 a year ago.”

“When Luveria Hazelwood refinanced her home with now-defunct American Home Mortgage in January, she was told her monthly mortgage payment would drop from more than $3,000 to just over $1,800.”

“But Hazelwood said she did not receive the fixed-rate mortgage she thought she was getting, but an adjustable rate one. She now is having to accept financial assistance from her six grown children to pay the $2,204 bill.”

“Hazelwood was one of four Long Island residents who testified Tuesday at an Elmont hearing on alleged predatory lending practices and the wave of foreclosures sweeping Long Island and the rest of New York.”

“‘AHM entered into this relationship without considering whether those borrowing have the ability to pay,’ said state Sen. Craig M. Johnson of Havelwood’s situation. ‘Here you have lenders not recognizing that these loans may not be good for the customers.’”

“According to a survey released by Sen. Jeff Klein in May, Long Island has the highest rate of subprime loan foreclosures in the state, with 22 percent of subprime mortgages issued in 2005 expected to end in foreclosure. ‘This is a statewide and nationwide crisis,’ Klein said.”

The New York Sun. “The Manhattan apartment market, long immune to national trends, could be cooled by the latest credit crunch and its effect on global markets, experts say.”

“With hedge funds collapsing and a stock market increasingly prone to wild swings, Wall Street bonuses, a major driver of the booming local housing market, could take a hit, especially when compared with the record awards at the end of 2006.”

“Taken with a hike in mortgage rates from wary lenders and a tightening of lending standards, the seemingly endless demand for Manhattan apartments could drop. ‘I’ve been doing this 20 years; I’ve never seen anything change this fast,’ a vice chairman for the brokerage firm Prudential Douglas Elliman who works with the high-end residential market, Dolly Lenz, said.”

“‘The high-end market is one of confidence; it’s pure, pure confidence, and the minute the confidence isn’t there, that’s when the attitude changes,’ she said.”

“In the past two to three weeks, as a number of high-profile hedge funds have collapsed and interest rates for some loans have shot up, a chilling, cautious mood seems to have hit the real estate community, even in Manhattan.”

“‘There’s been so many declines in home prices around the country,’ an economist at Yale University, Robert Shiller, said. ‘Of course it could be reversed, but the more probable outcome is that it will continue, and I don’t know that Manhattan can continue to be immune from that.’”

“Manhattan, with an average sales price of about $1.3 million, is especially prone to the spike in interest rates for jumbo mortgages, which have climbed nearly a half point in the past two weeks alone, according to Bankrate.com.”

“‘In a market like Manhattan, where so many of the potential purchases would require mortgages above the jumbo cutoff, it’s inevitable that higher mortgage rates and a higher cost of capital will impact demand,’ the senior economist at Reis Inc., Sam Chandon, said.”

Reuters reports on New York. “At the end of July, Deanna Kory had a bidding war on her hands. Three potential buyers were vying for a luxury apartment the Manhattan real estate broker was selling for a client at a $4 million asking price.”

“On July 27, the end of a week when the Standard & Poor’s 500 stock index suffer its worst one-week percentage drop since 2002, she called the winning bidder with the good news. The next day he withdrew his bid for the Upper West Side home.”

“Kory’s experience may be an early sign of weakness in the robust Manhattan market that could be vulnerable to struggling stock markets, hedge fun losses and newly cautious lenders.”

“‘I guess he called his mortgage person and found it wasn’t going to be as easy as he thought for him to get what he wanted. He got nervous and decided not to proceed,’ said Kory, senior VP of the Corcoran Group.”

“August is a slow time for real estate. Any slowdown will be difficult to detect for now, brokers said. ‘It will be much easier to tell if there’s impact a month from now,’ said Frederick Peters, president of Warburg Realty.”

The Democrat and Chronicle from New York. “Buyers appear to have gained the upper hand in the regional real estate market. New figures from the Greater Rochester Association of Realtors show that the volume of sales of existing homes slipped 1.9 percent in July from a year ago while the inventory of houses on the market continued to climb, up 2.9 percent.”

“‘The buyers recognize that at any given time there’s inventory that’s available,’ said Earl Krakower of Coldwell Bankeer Prime Properties in Pittsford. ‘They’re taking a lot longer to make decisions.’”

“Gone are the days when multiple offers are put in on a home as soon as it is listed for sale, said Armand D’Alfonso, president and chief executive of Nothnagle Realtors.”

“‘It takes a lot longer to market a home,’ D’Alfonso said. ‘The buyers have more time and more to choose from.’”

The Boston Herald from Massachusetts. “Real estate broker Francis Adams has a condo sale set to close tomorrow, but fears the lender providing the buyer’s second mortgage might go out of business by then. ‘I’ve been in real estate for 12 or 14 years and I’ve never worried before about a bank not (completing) a transaction,’ Adams said. ‘It’s scary.’”

“‘The era of cheap and available credit for everyone has ended,’ said economist John Bitner of Boston-based Eastern Bank.”

“Experts say investors will no longer put funds into risky mortgages, leaving banks with little capital to make anything other than the most conservative loans. As a result, lenders are cutting back on many types of mortgages that Massachusetts buyers relied on during the housing boom to afford the state’s high home prices.”

“‘The game is over,’ said Boston real estate broker John Ford. ‘(Banks) were just giving away money - but now, that’s stopped.’”

“For instance, Westwood mortgage broker John Brodrick estimates 70 percent of first-time home buyers he worked with during the boom years used ‘piggybacking’ to buy homes. But today, Brodrick said banks require piggybackers to have sterling credit scores.”

“Experts say borrowers, likewise, need near-perfect credit for ‘no-documentation’ loans, payment-option mortgages and other products popular during the boom years. ‘We’re going back to the basics of conventional lending,’ said Kevin Cuff of the Massachusetts Mortgage Bankers Association.”

“Eastern Bank’s Bitner, who previously predicted housing would bottom out this winter, now expects conditions to worsen until spring. He estimates median U.S. home prices will fall about 2 percent to 3 percent more by then.”

“Housing economist Karl Case of Wellesley College is even more downbeat, saying prices could drop as much as some 7 percent going forward. ‘We’ve got some ways to go before housing clears up - and taking out the subprime market doesn’t help,’ he said.”

The Eagle Tribune from Massachusetts. “Steven Calheta, an auctioneer from Irving Shectman of Pawtucket, R.I., stood outside 26-28 Washington St. on Wednesday, reading from a legal document that announced the foreclosure sale of the house behind him.”

“The only person to show up was a representative of Wells Fargo Bank, which holds the mortgage. Bank agent Bob Scanlon bid $308,466.24, and the house was sold - back to Wells Fargo.”

“Across the street, Guadalupe Martinez sat on the front steps of her ranch-style home. Four years ago, Martinez refinanced her $345,000 mortgage with Ameriquest. She got an adjustable-rate loan on her property, which has an attached, three-unit apartment building.”

“Her monthly payments started out at $1,900 a month and most of that was covered by the $1,700 monthly rent she got from her tenants. Then reality struck, and the rates started to rise. Two years ago, her monthly mortgage payment began going up in $300 increments. Her most recent bill was for $3,300 a month.”

“‘There’s no way I’m going to make that payment,’ said Martinez.”

“All over Lawrence, the Merrimack Valley, the North Shore and the rest of the country, homeowners are getting caught in the adjustable-rate mortgage bind.”

“‘I talked to Ameriquest, but they’re so mean. They have no interest in helping people,’ she said. ‘Maybe next month, I’ll have to move out.’”

“The foreclosure rate across the state is skyrocketing. In Essex County alone, the number of properties that face foreclosure auctions rose nearly 200 percent in the first six months of 2007 compared to the first six months of 2006. In that time period, 313 properties were up for auction in 2006. In 2007, the number rose to 920, according to the Warren Group.”
“Every day is a clinic in the offices of the Neighborhood Assistance Corporation of America in Lawrence. Distressed or would-be homeowners have been streaming into the offices lately to speak with the director, Nelida Machicote, hoping to get a refinancing package.”

“‘It’s gotten horrible, horrible, horrible,’ said Machicote. Under NACA guidelines, people must meet certain income-to-debt ratios, and show that they’ve at least tried to make their mortgage payments.”

“If they can’t meet those guidelines and Machicote runs out of alternatives to help the homeowner, she counsels the person that ‘it may be a blessing in disguise’ that they are losing their home.”

“‘Their house may be worth $300,000 today, but homes around theirs are selling for $200,000 or $150,000,’ she said. ‘The value is going down.’”

“She said in many cases, the best option may be just to walk away from the property.”

“Realtor Raul Ortega said many people these days are suffering from reverse sticker shock. ‘People call and want to know the value of their property,’ he said. ‘Many are shocked when told that properties similar to theirs are selling for less. The market has changed - prices are being adjusted accordingly based on the sales.’”

“For some of the people, he said, ‘the stress and worry is just not something they are willing to put up with. They just want to get out of it. They don’t have the means to keep up the property. Plus, rents are more modest by comparison.’”

“For Martinez, who may lose her home on Washington Street in Lawrence, that may be the best choice. ‘I’ve still got my job,’ she said. ‘I can go rent somewhere.’”

The Ledger reports from Florida. “Jon Brock was sure Polk County’s rental home market would take off, just like property values did nearly two years ago. In a typical real estate climate, higher home prices drive a greater demand for rental units, he said. But so far, it hasn’t happened. ‘It hurts,’ said Brock, broker and owner a real estate and property management company in Lakeland. ‘It should be good but it’s not.’”

“Across Florida, about 40 percent of the homes purchased during the peak of the housing boom two years ago were picked up by investors looking to make quick money by turning around and selling the property, Brock said. But many investors were caught in a high-stakes version of hot-potato in the latter stages of the boom.”

“Their only option: Rent or suffer foreclosure. Now those rentals have flooded the local market, giving renters a wide selection. But just like in the sales market, if they aren’t priced right the homes will remain vacant.”

“‘I’ve been doing this for 17 years,’ said Dottie Rowe, a Realtor and certified property manager in Auburndale. ‘For the first time this year, I’ve had people not show up for appointments. It’s a unique market.’”

“It wasn’t until two years ago that the real estate veteran began marketing new homes for rent. ‘The boom just opened the market up,’ she said.”

“Rowe estimates that about 22 percent to 23 percent of the available homes for rent are new. ‘It is a relatively high number,’ she said. ‘The people have to do something with them because they can’t sell them.’”

“‘We have more three-bed, two-bath rentals over $1,000 a month than I have seen in seven years,’ said Tracy Crews, a Realtor and property manager in Lakeland. ‘If they are priced right and advertised right, we are finding we can rent them. Everybody is flooded.’”

“That glut in the market is forcing a decline in rental rates, said broker John Marchetti. ‘There has definitely been a decline,’ he said. ‘We’ve had almost a $200 (a month) pullback on some of these homes. Say you were asking about $1,400 a month for a new home in 2006. Now you really couldn’t get more than $1,200.’”

“The majority of those homes, he said, were all built during 2005 and 2006.”

The Herald Tribune. “Last month, Nancy Detert sold Osprey Mortgage to a former employee, saying that she decided to sell her 23-year-old business because ‘the market is so strange right now.’”

“‘I’ve seen buyers markets and sellers markets, high interest rates and low interest rates, but now there’s something I’ve never seen before,’ Detert said. ‘Interest rates are as low as they ever have been, but people can’t afford to buy because they overpurchased and overfinanced during the boom, and now they’re upside down in their homes.’”

“‘The next step we’re all waiting for is foreclosures,’ Detert said. ‘It will hit the banking industry hard.’”

“‘The foreclosure phase will be the final nail in the real estate coffin,’ Detert said. ‘After that the market will turn and soon we will be back to where we were before the locusts invaded — probably by the end of 2008.’”

The News Journal. “In stark contrast to the glut of residential housing on the market, blue-chip commercial properties in the Pensacola Bay Area have become a relatively scarce commodity.”

“But commercial sales are starting to feel the effects of the housing slump, made worse by the drag that escalating insurance rates and property taxes are having on property transactions.”

“‘What we’re seeing right now is that commercial sales are slowing,’ said Justin Beck of Beck Property Co. ‘Commercial prices have not dropped anywhere near as much as residential … but it’s not what it once was.’”

The News Press. “Foreclosures in Lee County topped 1,000 in July, an all-time high, as investors continued to let go of houses and land they bought on speculation in the real estate industry boom that ended two years ago.”

“‘It’s really the pre-construction and speculative second-home buyers going south,’ said mortgage broker Jeff Tumbarello, who tracks the local foreclosure market.”

“A total of 1,045 foreclosures occurred last month. That’s about four times more than a year ago.”

“Tumbarello noted that many investors find themselves faced with the prospect of closing on deals they made for homes now worth far less than what they agreed to pay.”

“Since the height of the real estate boom in December 2005, the median price of an existing home sold with the help of a Realtor has fallen 21 percent, from $322,300 to $253,900 in June 2007, according to the Florida Association of Realtors.”

“Meanwhile, buyers have become scarce as the number of home sales fell 39 percent in the same period, from 1,084 to 558, and the number of homes for sale is still about 15,000.”

“‘I assume people had to close on these pre-construction deals and they’re really saying, ‘I’d rather be able to live in the house I’m living in than have good credit,’ Tumbarello said. ‘It’s pretty harsh, but they are doing the right thing in my opinion — they need to have a place for their children to live.’”

“Somebody, please … Buy something! That’s one way of interpreting the advertisements and MLS entries from builders and real estate agents in today’s market.”

“From fire-sale prices to bonuses for agents, homeowners and builders are pulling out all the stops to try to get buyers off the fence.”

“‘Sellers are trying to price their homes attractively, aggressively,” said Jim Higgins, a residential agent in Fort Myers. ‘And they’re picking up the (homeowner’s association) fees or golf membership fees for a period of time. Say, six months to a year.’”

“The Lennar newspaper ads are hard to miss. Big, block print, sparsely worded and to the point, they announce the price of an available new home. ‘People are responding to the ads because price is the big thing in this market,’ said Mark Berry, a Lennar new home consultant. ‘Folks are looking for the best deal when they can shop around.’”

“Price is the big thing for M.W. Johnson Construction as well, according to Kelly Palmer, division VP of sales and marketing. Palmer added that until more inventory comes off the market, things will stay slow for builders and resellers. With the deals builders are offering, she said buyers should be going for the new homes.”

“‘A builder has to make a very risky decision,’ said Gerard Marino, commercial agent in Fort Myers. ‘Does he sell at a discount, possibly angering past clients, or does he gamble that the market will come back and try to sell at the higher price? If he’s wrong, his losses could be horrendous. Most have decided it’s more prudent to sell at a loss and adapt to a changed market.’”

“On builders’ Web sites, the incentives are mainly big price cuts. Really big. More than $100,000 big.”

“Centex is offering these deep discounts during its summer clearance sale at The Plantation in Fort Myers. A 1,557-square-foot, ‘twin-villa’ lakeview home with two bedrooms plus a den, two baths and a two-car garage was $401,407 — on sale now for just $269,990. That’s $131,417 off.”

“An estate home in the same section of the community has 3,021 square feet of living area with four bedrooms plus a den, three bathrooms and a two-car garage. It was being offered for $615,173 but is now just $499,990. A reduction of $115,183.”

“A myriad of freebies can be found in the resale market in listings in the Greater Fort Myers MLS: cars, plasma televisions and surround sound stereo equipment thrown in by homeowners, up to 6 percent toward buyers’ closing costs, bonuses to buyers’ agents, home warranties and, perhaps most valuable to Cape Coral buyers, sewer and water assessments paid in full.”

“‘If you’re a buyer looking for a home to live in, and if you can qualify for a mortgage, with interest rates as low as they are, there has probably not been a better time to buy than right now,” Marino advised.”

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