The Housing Bubble

The Sacramento Bee reports from California. “It was two years ago this month that some housing experts began seeing the first signs that the Sacramento region’s housing boom had begun to peak. ‘The bell has tolled,’ said Lyon Real Estate owner Mike Lyon in August 2005, declaring that the era of skyrocketing home values and sales may have hit its high-water mark.”

“Ever since, the ride for Sacramento’s housing market has been bumpy and it got no better last month. The Sacramento region’s 2,906 closed escrows in July 2007 were the lowest for a July in 11 years. Sacramento, Placer and Solano counties also showed some of California’s biggest declines in median sales prices from the same month last year, according to DataQuick.”

“July 2007 ended with a record inventory of 15,927 houses for sale in El Dorado, Placer, Sacramento and Yolo counties, reported TrendGraphix. In the past two years, ‘The inventory (of houses for sale) has more than doubled and the (sales) transactions have halved,’ said Lyon.”

“Rocklin real estate agent Maxine Sunada toured a client through existing homes on Alder Creek Court in Lincoln. There, six of the street’s 18 houses, built in 2004 and originally priced in the $500,000s, were for sale. Many had dead lawns and two bore signs saying ‘bank repo.’ Prices ranged from $429,000 to $459,000, a drop of about 10 percent to 15 percent in three years.”

“‘People bought in the $500,000s and the values went down,’ said Sunada, who saw a similar boom-and-gloom cycle in the 1990s.”

The San Francisco Chronicle. “The protracted waiting game between home buyers and sellers continued in July, as Bay Area real estate sales slowed to a 12-year low while prices edged up, according to a report. The median rose because a greater proportion of expensive homes were sold, said Andrew LePage, an analyst at DataQuick.”

“‘If you yank out a bunch of low-cost sales, then guess what happens to the median?’ he said. ‘Things could change, even if temporarily, in August because of the credit crunch.’”

“Jillian Wilkowski, who wants to sell so she can move to a less expensive area. Interest in her sale ‘has been really quiet; it makes me a little anxious,’ she said. ‘From my house, I can see six other houses for sale, and all except one have been on the market a longer time.’”

The Mercury News. “Santa Clara County’s housing market continued in fire and ice mode in July, with expensive homes selling briskly while more affordable ones languished as lenders tightened their standards. But the numbers released by DataQuick reflect sales initiated before the recent turmoil in the mortgage market, which has real estate agents nervous.”

“Sales of single-family homes in Santa Clara County fell nearly 11 percent in July. ‘This is not the beginning of some long-term debacle. We’re just priced a little over our heads right now,’ said Stephen Levy of the Center for Continuing Study of the California Economy in Palo Alto.”

“‘We’re at record high volume of inventory of homes available and record low sales,’ said San Jose real estate broker Richard Calhoun, ‘and it does not take that much to understand that this does not bode well for the industry.’”

From KCBS.com. “More bad news for the battered Bay Area housing market. KCBS’ Matt Bigler reports that a huge number of houses on the market are in the Silicon Valley.”

“Stephen Levy explains a huge number of potential buyers have simply vanished. ‘Either they don’t want to buy at this price, they can’t get financing, they don’t think housing prices are going to go anywhere but down,’ Levy offered. ‘So it’s the absence of buyers.’”

“Despite the slump, Bigler reports that home prices rose in the region last month by 7.4%. ‘The subprime market has melted,’ One San Jose realtor further explained.”

The Recordnet. “San Joaquin County almost topped the nation in home-foreclosure activity during the first half of the year. The number of Stockton-area properties in foreclosure action, 4,239 in the first six months of the year, was more than twice the number of properties reported in the previous six-month period and more than triple the number reported in the first six months of 2006.”

“Kevin Moran, a real estate agent in Stockton, predicted the foreclosure picture will darken. ‘It’s the tip of the iceberg,’ Moran said.”

“Moran, who specializes in foreclosure properties, said that in San Joaquin County, most foreclosures are found not in older, established neighborhoods but in new subdivisions. He said there is one positive aspect to foreclosures: The flood of foreclosures on the market is increasingly putting heavy downward pressure on all home prices.”

“‘What we’re finding out is that across California - Southern California included - there were greater numbers of investor buyers than we ever thought,’ said Greg Paquin, president of the Gregory Group.”

“‘The foreclosures are going to get worse before they get better,’ he said.”

Th Modesto Bee. “Home sales prices plunged again in July, pushing median prices down more than 13 percent throughout the Northern San Joaquin Valley compared with July 2006. In Stanislaus County, for instance, 371 homes sold in July compared with 706 for the same month last year and 519 in June.”

“Stanislaus County Assessor Doug Harms said the dramatic decline in overall sales ‘indicates the market is doing very poorly.’”

“Harms said home value declines are widespread. ‘If you bought your house within the last three years, it’s probably worth less today,’ said Harms, whose office is reassessing home values to potentially lower property taxes for thousands of homeowners.”

“Harms said his office has lowered assessments on about 6,000 Stanislaus County homes, and he knows more need to be lowered.’We’ll probably review every property that (sold) after July 2003,’ Harms said.”

“Homeowners aren’t so thrilled when real estate agents tell them they can’t sell their home for as much as they had thought it was worth. ‘We have to inform our sellers to be realistic and lower their price, but not all sellers are willing to do that,’ said John Christiansen, who is chairman of the Modesto Council of the Central Valley Association of Realtors.”

“The number of homes for sale continues to rise even though buyers are tough to find. In Modesto, about 1,950 homes were listed for sale by Realtors as of last week. But since the year began, Realtors have sold about 1,000 Modesto homes.”

“But home prices aren’t low enough to be affordable for most Northern San Joaquin Valley families, according to Darryl Rutherford, a researcher for the California Coalition for Rural Housing.”

“Considering Stanislaus County’s median-income family earns about $54,000 a year, Rutherford said median home prices would have to drop to about $185,000 to be affordable.”

From KGET.com. “Bakersfield earned the dubious distinction of being eighth in the nation for foreclosure activity. ‘I think the money was too easy to get,’ said Ray Karpe, Board President of the Bakersfield Association of Realtors. ‘People were qualifying for loans they should not have been able to qualify for. We were the hottest market in the country for a couple of years, so no, that doesn’t shock me.’”

“Karpe said the Bakersfield statistics are severe, and…the victims of the foreclosures will be widespread. ‘It hurts the value of the people who aren’t in foreclosure,’ Karpe said. ‘The family is trying to move up, move down, move out of town, and that’s part of the shame of this, too, innocent people are going to get damaged a little by this.’”

The Daily Bulletin. “Prices are down, interest rates are low and there are plenty of homes on the market. But sales of homes in the Southland were at their lowest level since 1995, according to DataQuick.”

“Sales in San Bernardino County were off 42.6 percent in July from a year ago, a level even worse than the six-county Southern California decline of 27.4 percent. Sales all around the Southland were not only off from a year ago, they were down 11.4percent from the previous month.”

“‘It’s fear,’ said regional economist John Husing of Redlands. ‘People just flat don’t understand this market. If you’re thinking about the biggest purchase of your life and you don’t understand it, you don’t buy.’”

“‘We’re coming into a rough period,’ said Bill Velto, manager of Tarbell Realtors in Upland. ‘With the realities of the subprime market and the problems people are facing with interest-only and adjustable-rate mortgages resetting, we are definitely seeing increased uncertainty.’”

“Whether it’s fear or indecision or the inability to get loans, Husing said what’s going on is simple. ‘The buyers are on strike,’ he said. ‘It’s not at all surprising to see the price decline. I’m really surprised they were not down before this.’”

The Wall Street Journal. “Nearly two years ago, Mario and Leticia Montes found a home they loved, a gray stucco bungalow with a hot tub in the backyard in a middle-class neighborhood of Orange County.”

“The price was a major stretch at $567,000. But the couple, who had sold a home a few years earlier to move to a better area, was tired of renting.”

“‘We agreed we wanted to be homeowners again,’ says Mr. Montes, ‘even if it meant the end of vacations and not eating out as often.’”

“Like many people who jumped into the rising housing market in recent years, they had little money for a down payment and chose a loan that would…’reset’ to a much higher level. Mr. and Mrs. Montes say their mortgage broker assured them they would be able to refinance in a couple of years to keep their payments affordable.”

“With a December ‘reset’ on their loan looming, however, the refinancing option now looks impossible. A loan officer called with some bad news this week: Similar homes in their area have been selling for $535,000 to $565,000 recently. That means the Monteses’ loan balance may exceed the value of their home.”

“‘We have a disaster on our hands,’ says Mr. Montes. He fears he won’t be able to handle the payments after the December reset and wonders whether the family can avert foreclosure. ‘At this point,’ he says, ‘we really don’t have a plan.’”

“‘It’s getting worse and worse,’ says Jeff Lazerson, chief executive of a mortgage broker in Laguna Niguel, who tried to help the Montes family last spring but concluded even then that they couldn’t qualify for a new loan.”

“He says: ‘It’s either work 24 hours a day to make ends meet [with the existing loan] or mail the keys back to the bank.’”

“To bring in a bit more income, Mr. Montes two weeks ago found a weekend job. He says he might be able to take on a third job.”

“‘Bottom line, it’s our little home,’ Mrs. Montes told a visitor one evening in April as tears welled in her eyes. ‘We’re going to keep it. Hopefully, we won’t go down and if we do, we’re going to go down with a fight.’”

A report from the Arizona Republic. “Banks are becoming stricter with lending and foreclosures are on the rise, placing many Valley homeowners in dire straights, struggling to stay afloat. Monique Walker of Intero Real Estate estimates 25 percent of housing inventory are short sales. ‘We, as realtors talk to the bank and the bank at times allows the seller to sell the house for lower than they actually owe on the mortgage,’ said Walker.”

“Gov. Napolitano said, as Governor, she can’t turn the housing market around, but is focusing her efforts on lessening the harm done to people caught in the down cycle. She cited a bill she signed last year making it a crime for lenders to mislead buyers.”

“She said she wants to avoid a situation like the one in Silicone Valley where people can only afford a home if they are millionaires.”

The Arizona Daily Star. “First Magnus Financial Corp. announced this morning that it would substantially cut its workforce, after announcing to its employees late Wednesday that it would stop writing loans today. Employees at the Tucson-based mortgage firm were leaving this morning with packed boxes, many with downtrodden faces and some uncertain about what to do next.”

“In an e-mail sent out early Thursday morning, senior First Magnus executives said the nationwide credit crunch forced the company to stop writing or funding new mortgage loans and lay off workers.”

“‘Despite our efforts to continue normal operations, we have come to a point when we must substantially reduce our workforce. What this means for most of our employees is that Thursday, August 16, 2007 will be your last day of employment.’”

“Home sales are still sliding, and prices are also slipping, according to a monthly report released today by the Tucson Association of Realtors.”

“The number of homes sold in July fell 10.51 compared to the same month a year ago, according to information compiled from the Tucson Association of Realtors MLS. The median price fell 2.78 percent to $218,750.”

The Rocky Mountain News from Colorado. “Denver-area home sellers from Firestone to Castle Rock are slashing prices and kicking in everything from free plasma TVs to paying homeowner association dues to entice people to buy.”

“In recent years, home builders have constructed too many houses in areas that have gone from hot to cold, saddling them with huge supplies of inventory. National home builders, such as Beazer and D.R. Horton in Denver, are offering about $100,000 in price reductions on some hard-to-sell homes.”

“In one case, D.R. Horton knocked down the sales price of a 3,201-square- foot home in Firestone to $299,990 from $394,720, or 24 percent.”

“Housing consultant S. Robert August doesn’t like the practice of builders slashing prices. ‘It devalues the homes of previous buyers,’ which contributes to the record foreclosure numbers, when a homeowner who bought a house in the same subdivision for a higher price has to sell, August said.”

“Still, some sellers, especially in suburban Denver, are offering incentives themselves. Broker Chad Corbett is listing a two-bedroom condo in Aurora at $125,000, which is $15,000 below the assessed value. The owner also is tossing in a ‘brand-spanking-new,’ 42-inch plasma TV.”

“‘Mostly, people are just getting a big price reduction,’ said John Fritzel of Paragon Real Estate and Development. ‘There are some infill homes on the market for $2.5 million, and the offers are coming in at $200,000 or $300,000 under that, and there’s not a lot of counteroffers. Nobody seems to be married to a specific house.’”

“In other words, they’re willing to walk away from one house to shop for a better deal.”

“What the slow market cycle will do is weed out the ‘ma and pa guys and the doctors who had a couple of extra hundred thousand dollars’ and thought they could make a killing tearing down a small house and replacing it with fancy townhomes or a large single-family home, he said.”

“‘Usually, these people make some pretty expensive mistakes, and it is pretty easy for their interest carrying costs to get to $10,000, $15,000 or $20,000 a month,’ he said, forcing the owners to throw in the towel.”

The Denver Post from Colorado. “Colorado reported the highest foreclosure rate of any state in 2006, according to RealtyTrac. But other states have since passed it. Foreclosure filings rose 11 percent in the Denver-Aurora area, which ranked sixth among metro areas.”

“For those caught in the slump, the losses can be significant. Denver real estate analyst Gary Bauer said he has a friend who purchased a Las Vegas home for $250,000 a few years ago after a job transfer. He is being called back to Denver, but the move will cost him.”

“‘He will be lucky to sell the home for $190,000. It may be $175,000,’ Bauer said. ‘He is crying his woes.’”

The Review Journal from Nevada. “U.S. Bankruptcy Court Judge Bruce Markell postponed a motion Wednesday for summary judgment against Tower Homes, developer of Spanish View Towers in the southwest Las Vegas Valley.”

“Las Vegas law firm Marquis & Aurbach filed a lawsuit in May to recover deposits for buyers at Spanish View Towers. Managing Partner Terry Coffing said Rod Yanke, principal of Tower Homes, took the Fifth Amendment during a deposition in which he was asked where the money went.”

“Yanke had claimed to have 90 sales, but they were actually nonbinding reservations. Coffing said only 20 reservations were converted to ‘hard contract,’ or sales.”

“Larry Shiffman said the luxury condo project with its slickly produced advertisements looked like a good investment two years ago. Now he’s resigned that his $168,000 deposit is gone.”

“‘It’s a nightmare. Unbelievable,’ Shiffman said. ‘There’s a lot of fraud involved. They don’t expect there’ll be five cents left for us, but they hope to get insurance money.’”

“Shiffman said he received an e-mail from Yanke a month ago promising he would never give up on building Spanish Towers. ‘This guy is great. He can convince you of anything. He should sell used cars,’ Shiffman said.”

The Deseret News from Utah. “Presenters at a Wednesday morning symposium on the state of Utah’s real estate market also painted a fairly rosy picture of the state’s commercial, industrial, retail and residential markets. Of course, there are, as one presenter said, some ’storm clouds on the horizon.’”

“‘In life there’s not always all good news,’ said Gary Wright, a consultant for one of Utah’s largest homebuilders. ‘There’s good news and there’s bad news. And so it is in Utah’s residential housing market.’”

“Utah’s housing market remains one of the strongest in the nation, Wright said, but it has shown ‘definite signs of weakness’ in the past six months. Single family building permits, for example, have decreased 20 percent since January 2006.”

“The biggest threat to Utah’s market, analysts agree, is affordability. House prices in the state are increasing at least twice as fast as incomes.”

“The average price of a house in Salt Lake County is nearing $300,000, a $110,000 increase over the past four years, according to a recent Wells Fargo analysis. At the same time, Wright said, land prices have gone up 250 percent.”

“Kelly Matthews, executive vice president and economist at Wells Fargo in Salt Lake City, agreed. ‘At the moment, we just simply can’t afford the homes that are being offered for sale vs. the income levels of our people.’”

“Another blemish on the national housing picture, which has plenty of implications in Utah, is the meltdown in the subprime mortgage market. The subprime market meltdown is ‘having a large effect on the housing market both nationally and in Utah,’ Wright said.”

“When Josh and Summer Adams moved to Utah earlier this summer, they hoped to buy a house for their growing family, but…the couple realized that all signs were pointing toward only one option: a subprime mortgage.”

“‘My wife and I realized that the only way we’d be able to get into a house is to do something similar to what everybody else is now paying for,’ Adams said.”

“The couple opted to rent a house in Utah County until the volatile housing market settles into a more predictable pattern.”

“‘It’s hard to throw away the money each month for rent, but I’d rather throw my money away for a year … than to get into something and a year or two from now I’m upset because I acted off emotion,’ Adams said.”

“Home lenders have tightened standards across the board for all types of borrowers, whether they live in hard-hit areas such as Phoenix and Las Vegas, or in Utah, which has, so far, escaped much of the trauma gripping other parts of the nation.”

“‘The bubble was not as big here as it was in other places,’ said Kelly Matthews, economist at Wells Fargo in Salt Lake City.”

“While no one is saying that Utahns will escape the crisis completely unscathed, the extent of the impact is still unknown. ‘I think everybody’s kind of holding their breath and waiting to see what happens,’ said John Norman, executive director of the Utah Mortgage Lenders Association.”

“In 2005, approximately 14 percent of all loans offered in Utah were subprime loans, according to numbers kept by the Mortgage Bankers Association. The year before that, 18 percent, or 24,928 loans, were subprime.”

“According to the National Association of Mortgage Brokers, 13 percent of all loans offered nationally in 2006 were subprime.”

“The majority of the subprime loans offered last year were in the form of adjustable-rate mortgages. ‘They shouldn’t have been able to get a loan, really, based on their income, and they were getting more than 100 percent in some cases,’ Matthews said. ‘It’s just a disaster waiting to happen.’”

“Tightened lending standards will mean new standards for all homebuyers, regardless of their credit situation.”

“‘The homebuyer here in Utah is likely going to have to have a larger down payment than they had to have six months ago, (and) they’re likely going to have to be in a better financial position than they were,’ said Norman with the Utah Mortgage Lenders Association. ‘If you’ve got blemished credit or are a subprime borrower, it’s going to cost you quite a bit more.’”

“Which is why Josh and Summer Adams have decided to delay home ownership until the markets stabilize and they have some time to work on their own financial situation. By then, Josh Adams said, ‘we (will) be in a position where we wouldn’t have to do any kind of creative financing.’”

Some housing bubble news from Wall Street and Washington. Associated Press, “Construction of new homes fell to the lowest level in more than a decade in July as builders continued to struggle with the steepest housing slump since 1991. The Commerce Department reported Thursday that construction of new homes and apartments dropped 6.1 percent last month to a seasonally adjusted annual rate of 1.38 million units.”

“That was down 20.9 percent from the pace of activity a year ago and represented the slowest pace since January 1997.”

“Housing construction fell in all parts of the country except the Midwest which posted a 2.6 percent increase in July. Construction starts were down 11 percent in the South, 3.7 percent in the West and 1.3 percent in the Northeast.”

From Bloomberg. “Confidence among home builders fell this month to the lowest level since 1991, and sales of existing homes fell in 41 states during the second quarter, according to reports released Wednesday.”

“The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22 from 24 in July, the association said, as cancellations and more restrictions on lending took a toll. A reading below 50 means most respondents view conditions as poor.”

“The gauge has decreased for six consecutive months, and the August reading was the second-weakest since the survey’s inception in 1985. It hit a record low of 20 in January 1991, when the housing market and economy were both in recession.”

“The group’s measure of single-family home sales declined to 23 from 24 in July. The index of buyer traffic dropped to 16 from 19. A measure of sales expectations for the next six months fell to 32 from 34.”

“‘It’s not a terribly encouraging sign,’ said David Seiders, chief economist of the builders group.”

“‘Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,’ said NAHB President Brian Catalde. ‘Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we’re dealing in a difficult market environment.’”

“‘There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt.-A and jumbo markets, delaying a revival of the single-family housing market,’ added NAHB Chief Economist David Seiders.”

The Street.com. “Many homebuyers in recent years took out exotic mortgages that ultimately backfired. This raises the question of why such booby-trapped financing was available at all.”

“Last week, TheStreet.com reported that several of nation’s largest lenders, such as Countrywide Financial, were still offering the types of loans at the center of the current meltdown in the subprime mortgage market.”

“The percentage of option-arm loans issued has ballooned to the current level of about 7% in the first quarter of 2007, up from less than 0.25% of loans originated in the first quarter of 2002, according to estimates by TheStreet.com.”

From CNN Money. “Embattled Countrywide Financial, the nation’s No. 1 writer of mortgage loans, was forced to tap an $11.5 billion line of credit Thursday to address its looming liquidity crunch, and it said it is toughening the underwriting standards on the home loans it will make going forward.”

From MarketWatch. “Moody’s Investors Service downgraded the senior debt ratings of Countrywide Financial on Thursday and said that it may lower them again to below investment grade.”

“‘The downgrade of Countrywide’s ratings reflects significant diminution in the company’s liquidity and debt market access due to the stresses being experienced in a wide array of single-family mortgage markets, stresses that have caused Countrywide to fully draw its committed back-up bank lines,’ Philip Kibel, a Moody’s analyst, said.”

From Reuters. “The cost of insuring the debt of Countrywide Financial Corp. and Residential Capital LLC leaped on Thursday on new concerns about Countrywide’s liquidity and the state of the mortgage market.”

“‘There are a lot of measures that they can take before filing — selling mortgage holdings in the pipeline, slowing originations, and most importantly, talking to third parties about an equity investment,’ said Ricardo Kleinbaum, analyst at BNP Paribas in New York.”

“However, ‘it’s not that they are too big too fail,’ he said.”

The Arizona Daily Star. “First Magnus Financial Corp., a mortgage lender that is one of Tucson’s only locally based national firms and one of the area’s major employers, is no longer writing loans as of this morning.”

“An e-mail Wednesday evening told branch managers of Great Southwest Mortgage, the retail arm of First Magnus, that the parent company was no longer funding loans. ‘We will not be funding loans tomorrow,’ wrote Erik Lutz, the president and founder of Great Southwest.”

“Australia’s Rams Home Loans Group Ltd. failed to refinance A$6.17 billion ($5 billion) of short- term U.S. loans, forcing the lender to seek emergency funding.”

“The company…touts loans for as much as 100 percent of the purchase price of a home under the slogan ‘No deposit? No worries!’”

“‘Lenders globally who rely on commercial paper for funding will be hurt as the liquidity taps are turned off,’ said Craig Saalmann, credit strategist at JPMorgan Chase & Co. in Sydney.”

“Fannie Mae’s profit for 2006 dropped 35% as the mortgage-finance giant spent much of the year dealing with a weakening housing market as well as administrative costs tied to its accounting scandal, financial results showed Thursday.”

“In a statement, CEO Daniel Mudd characterized 2006 as a ‘rebuilding year’ for Fannie. Downward pressure on home prices during the year led to higher credit losses, Mudd noted. He also said continuing strain in the housing market will probably boost Fannie’s credit loss ratio this year.”

“Fidelity Investments, Franklin Resources Inc. and Kensington Investment Group Inc. are the biggest losers in a decline by U.S. real estate funds that wiped out $13 billion in the past three months.”

“Jeremy Grantham, who helps oversee $150 billion as chairman of money manager Grantham, Mayo & Van Otterloo, said declines in real estate investment trusts are a result of the rout in the mortgage market.”

“Record defaults of subprime loans…have deepened the housing slump and decreased demand for REITs, set up for individual investors to own commercial property such as offices, malls and hotels. ‘With REITs, the contagion is directly from the housing market,’ he said.”

“French President Nicolas Sarkozy and Europe’s financial regulator called for a probe into Moody’s Investors Service, Standard & Poor’s and other ratings firms criticized for underestimating the risk of subprime debt.”

“The New York companies face scrutiny after failing to cut their ratings on bonds backed by subprime mortgages until July, when some of the securities had already lost more than 50 cents on the dollar.”

“‘We have to ask ourselves the exact role rating agencies should play in mapping risks,’ Sarkozy said. ‘Their role, which allies the creation of these products and the risk assessment, should be submitted to a careful examination.’”

From Marketplace. “The European Commission is investigating credit-rating agencies on claims that they failed to warn investors about subprime risks.”

“There are…concerns. Among them that the subprime mortgage market might not have grown so large if the credit ratings had not been so favorable. And there’s another worry about a potential conflict of interest, says David Shellock of The Financial Times.”

“David Shellock: ‘There could be a problem, because these rating agencies are actually employed by the banks issuing the securities, which are backed by subprime mortgages. Therefore, there might be a bias involved there.’”

“The rating agencies not only face a European probe. Congressional hearings on their performance are due to begin next month.”

“Toll Brothers Inc., the largest U.S. luxury-home builder, said Aug. 8 that third-quarter revenue dropped 21 percent as the new credit restrictions reduced the pool of potential buyers.”

“‘With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down and sort themselves out,’ Robert Toll, CEO, said in a conference call with analysts. ‘If the economy gets worse, I think that you could see a much lengthier downturn for housing.’”

“William Poole, president of the St. Louis Federal Reserve Bank, said the subprime mortgage rout doesn’t threaten U.S. economic growth, and only a ‘calamity’ would justify an interest-rate cut now.”

“Poole, who confers regularly with regional business contacts and votes on rates at the Fed this year, said in an interview yesterday that ‘no one has called up and said the sky is falling.’”

“‘It’s premature to say this upset in the market is changing the course of the economy in any fundamental way,’ Poole said. ‘If the Federal Reserve were to act when it turns out there is no impact, then clearly the market would say these guys really don’t have the intelligence they need to have a policy actually based on solid evidence.’”

“Poole acknowledged that the credit-market turmoil will ’stretch out’ the ‘adjustment’ in the housing industry. He said he couldn’t predict how long the downturn will last.”

“He also conceded that speculation Countrywide Financial Corp., the biggest U.S. home lender, may go bankrupt shows the mortgage crisis is deeper than previously thought. There is ‘a sort of credit crunch’ in place affecting housing and some types of corporate paper, he said.”

“‘I don’t see any impact as yet on the real economy or on the inflation rate,’ Poole said. ‘Obviously, there could be an impact, but we have to rely on some real evidence.’”

“‘There’s no way the Fed is going to reduce interest rates before the meeting,’ said former Fed Governor Lyle Gramley. ‘Bill is just being realistic.’”

“U.S. Treasury Secretary Henry Paulson said the turmoil in global markets will exact a penalty on U.S. growth but the financial system and economy was strong enough to withstand it without provoking a recession.”

“‘The economy and the markets are strong enough to absorb the losses,’ Paulson told the Wall Street Journal.”

“Paulson also said the repricing of risk in markets should not surprise anyone and was inevitable, and that nothing should be done to guarantee market players against losses or restrain them from taking risks.”

“‘When you have periods of benign markets, particularly in situations where parts of markets and the economy are growing at levels that are unsustainable, market participants aren’t going to be as vigilant as they should be,’ he was quoted as saying.”

“‘One of the natural consequences of the excesses is that some entities will cease to exist,’ he said.”

The report from the Washington Post. “A growing number of condominium developers are backing out of projects as the worsening real estate market causes lenders to tighten their standards. In the past 12 months, nearly 20,000 condo units have been removed from the glutted local development pipeline, said Gregory H. Leisch, CEO of Delta Assoc. in Alexandria.”

“By Delta’s count, in the second quarter of this year, developers abandoned plans for 22 local condo projects.”

“During the real estate boom that ended two years ago, developers could get loans even if they presold only one-quarter of their units, said Peter Antonoplos, a real estate lawyer. But then sales slowed drastically, and many would-be buyers cancelled their contracts.”

“Now lenders are asking that 50 percent or more of the units be sold before construction, he said. Others want the developers to contribute more of their own money. ‘Institutional lenders don’t have the appetite for condo properties that are going to sit around and present a credit risk,’ Antonoplos said.”

“At Vaughan Place in Northwest Washington, the developers sold 186 units to individual buyers, then sold the remaining 388 to a New York rental company in April.”

“That has rattled some of the owners. ‘I have very mixed feelings about it. In terms of my day-to-day living here, it’s extremely pleasant,’ said Patricia Kenworthy, who bought her condo at Vaughan Place in April 2006. ‘In terms of thinking if I had to sell for some reason, it’s very scary.’”

“Joy Siegel, a Bethesda lawyer who handles home-sale closings, uses a spreadsheet to track which mortgage lenders are filing for bankruptcy protection these days.”

“‘It’s getting incredibly nerve-wracking for us,’ said Siegel, president of Settlement Pros. ‘There are banks I haven’t even heard of, pages and pages of them, who have stopped making loans.’”

“Letters from lenders approving loans ‘used to be a reason to exhale, a reason to believe that a deal is done,’ said Leisa Hart, an agent with Long & Foster Real Estate. ‘We no longer have reason to exhale until we’ve gotten to the settlement table and until that loan has been fully funded.’”

“Eric Iversen learned that the hard way. Half an hour before he and his wife, Catherine, were scheduled to settle on a house in Bethesda, their loan officer at American Home Mortgage informed them that the company would no longer fund any loans, including theirs.”

“‘I was driving, talking on the phone on the Beltway, trying to keep the car going in one direction,’ Iversen said. ‘My wife was next to me with this stricken look on her face, especially when she heard me say: ‘Should we turn around and go home?’”

The Baltimore Sun from Maryland. “Maryland’s housing market took a beating in the spring selling season, recording one of the biggest drops in sales in the nation. Homeowners in the state sold 21.1 percent fewer homes during the second quarter than they did a year earlier, the National Association of Realtors said yesterday.”

“‘All of us were on a nice bubble, and everybody was waiting for that bubble to fizzle,’ said Thomas C. Shaner, executive director of the Maryland Association of Mortgage Brokers. ‘Well, it popped.’”

“Maryland home prices doubled from 2000 to 2005, an unusually big gain even for the U.S. boom years. Incomes didn’t rise nearly as fast. With half the homes now selling for more than $325,000, some would-be buyers just can’t make the numbers work.”

“‘Affordability has been eroded,’ said Celia Chen, director of housing economics for Moody’s Economy.com. ‘If prices are not falling off, that’s going to constrain sales. Conditions can easily become much worse than we expect because of all the issues arising right now in the mortgage markets and financial markets.’”

“Builders say the credit crunch is causing problems not only for borrowers with shaky credit but also for prospective buyers who need ‘jumbo’ loans of more than $417,000. It’s hardly helpful for expensive markets such as Howard County. Nearly half the existing homes in Howard are selling for more than that price, let alone the big new homes.”

“‘That’s a scary thought,’ said Pat Hiban, an associate broker in Ellicott City.”

The Times Community from Virginia. “You go to the settlement, sign the papers, and are informed that your check from the sale will be given to you in a couple of days. It all sounds so normal. But life these days in the housing market is anything but normal, as people in the area are discovering.”

“‘People are closing loans, but then the mortgage company may not be able to sell it. They have three days to back out, and some of them are,’ according to Valerie Frank, president of Preservation Mortgage in Old Town Warrenton. ‘You could close today, and the money might not be there, even though the borrowers have the loan rate locked. That’s the state of the market today.’”

“‘You used to be able to get a mortgage without the company even checking what your income was,’ she said. ‘I talked with a lender today, and she said that she had seven loan applications that her company was working on. Normally they would have 50 to 75. A senior underwriter can process three to four a day, so you can see that the business is really slowing up.’”

“There were just seven foreclosures here in the last half of 2006. In the first half of 2007, 48 other properties were sold on the courthouse steps. ‘I understand that there were 900 foreclosures in Prince William County last month,’ Frank said.”

The Daily Times from Delaware. “As ‘for sale’ signs continue to line Wicomico County home lawns and condo windows faster than they can be removed, residential builders have changed the county’s construction machine mantra to a wait-and-see approach.”

“At the end of July, the number of active inventory listings jumped to nearly 800, or double the amount on the market in January 2006, the Lower Shore-based Coastal Association of Realtors reports. In the last 12 months, there has been more than a 35 percent increase in listings, and sales are down 6 percent.”

“This housing downturn translates into less revenue for the county. ‘For certain, the county is going to collect less money,’ said Tom Ruark, president of Salisbury-based Thomas H. Ruark Builders. ‘There is substantially less construction than anybody anticipated.’”

The New Jersey Herald. “Standing five stories high at the center of the county seat, the Aberlour building is now opening its doors to a new breed of home buyers in Sussex County: the single professionals.”

“Now that all of its age restrictions have been removed, the 45-unit condominium complex has dropped its starting prices and revamped its marketing campaign to attract a younger professional crowd looking for a more affordable place to live.”

“The starting price has been decreased from $299,900 to the low $200,000 range for about six of the units. ‘We want that building to be successful. We don’t want an empty building,’ Newton Community Development Director Debra Millikin said. ‘It shows there’s not as much of a need as everybody thought for age-restricted housing.’”

“With lower prices on some units, Aberlour might be able to attract single professionals who can no longer afford to live in Bergen, Morris and other nearby counties, said Deb Cleary, the new head of marketing for Aberlour. ‘Everywhere in New Jersey, builders have to adjust prices if they want to maintain velocity in the sales. If I’m going to come out there (to Sussex County), it’s got to be a deal.’”

The Jersey Journal from New Jersey. “The allure of home ownership in Hudson County has charmed thousands of residents to try their hand at the risky practice of subprime borrowing.”

“The controversial practice helped boost home ownership to all-time highs in the United States, but it’s now aiding the so-called crash of the real estate market nationwide as these same borrowers find themselves in over their heads and defaulting on their loans.”

“‘We are seeing a tremendous increase of people in foreclosure,’ said Jeannie Seeliger, a bankruptcy attorney with roughly 20 years of experience in Jersey City. ‘There are a number of people who simply can’t afford it and they have given up.’”

“Seeliger told me about one of her clients, a woman who purchased her first home when she moved from New York to Jersey City. The woman walked into a realtor’s office and was enticed to buy after the salesman talked up the benefits of buying a two-family home instead of renting.”

“The pitch was attractive. The loan required no money down, and she could rent out the second unit to help pay off the $2,500-a-month mortgage, while accruing equity in a hot market along the way.”

“Then the proverbial floor fell out from under her feet, Seeliger told me. ‘The place was much harder to rent than she had hoped and the house needed repairs,’ Seeliger said. ‘Then the rate increased by 3 percent and it became unsustainable.’”

“The woman is currently filing Chapter 7 bankruptcy.”

From Newsday in New York. “Foreclosure rates in Suffolk soared in the first half of 2007, a new study has shown. There were 2,993 properties in Suffolk with at least one foreclosure notice, up 65 percent from the same period a year ago, according to RealtyTrac.”

“One reason Suffolk may be experiencing a jump in foreclosures is because there are more first-time homebuyers purchasing homes there.”

“Queens, meanwhile, has 3,901 homes in foreclosure, up 49 percent from the second half of 2006 and up 183 percent from the same period a year ago.”

“The Community Development Corp. of Long Island has been swamped with area homeowners in trouble this year, said Eileen Anderson. Between the middle of May and the end of July, the organization fielded 166 calls, a tenfold increase from the same period a year ago.”

“‘We are getting inundated with phone calls,’ Anderson said. ‘I don’t see this diminishing. This is just the tip of the iceberg.’”

“Homeowners who still have their hearts set on boom-time prices may be in trouble, Long Island real estate agents say. Monthly sales numbers show the median price for July contracts was as low as 70 percent of the median price for all properties for sale, according to July data from the MLS of Long Island.”

“MLS divides Long Island and Queens into 16 zones, so consider zone 3, which covers about 60 communities, including Muttontown, Centre Island, New Cassel and parts of Hicksville. Out of 309 contracts signed in July, $630,000 was the median price, or 81 percent of the $779,000 median list price of all homes for sale in that zone.”

“MLS began comparing inventory prices to contract prices last fall, after buyers began refusing to participate in bidding wars and upping offers to more than 100 percent of list prices.”

“Emmett Laffey, CEO of the Greenvale-based Laffey Associates real estate firm, said he sees a lot of limitations in those comparisons but said the numbers have some value in revealing a trend. ‘That means the marketplace has a ton of overpriced houses,’ Laffey said.”

“There’s no question that the number of homes for sale is up, a market bellwether. There were 36,185 homes for sale in July, up from 33,724 a year ago.”

“‘Two years ago, buyers were willing to overpay,’ said Don Scanlon, president of the MLS of Long Island and broker in Wantagh. ‘Today, they’re not.’”

Please post off-topic ideas, links and Craigslist finds here.