The Housing Bubble

It’s Friday desk clearing time for this blogger. “Jeffrey Finch spelled out the problem in a hand-written letter. ‘I can no longer afford my home,’ he wrote in April to the firm collecting payments for two subprime mortgages the Finches obtained when the couple refinanced their Jamaica Plain home last year. The couple found a solution to their dilemma, a ’short sale,’ in which a lender agrees to accept less than the total amount remaining on the mortgage.”

“HomEq and investors who held their mortgages forgave $168,500 of the couple’s $440,000 total debt, allowing HomeVestors to buy their house for $271,500, renovate it, and resell it for a profit. ‘I expect it to increase’ in coming months, said Robert Caruso, the Bank of America Corp’s national servicing executive.”

“While Denise Finch lost the house in which she grew up, the couple bought a newer one, from HomeVestors, for $152,000 in Charlotte, N.C., where both have family.”

“If you’re looking to buy a new home, the Montgomery area is a buyer’s market. ‘We’re feeling the pinch. There are a tremendous number of homes on the market right now,’ said Taylor Jernigan, president of the Montgomery Area Association of Realtors.”

“‘It is taking longer for people to sell their homes,’ Jernigan said, ‘and they’re getting a slightly lower price.’”

“Jeff Pettyjohn is trying to sell his home in the High Point Terrace area of East Memphis. He says, ‘I thought I could just stick the sign in the yard and it would go quick, but things have slowed down definitely.’”

“He says it used to be easy to sell a house in his neighborhood.’The way I always kind of refer to it is it’s musical houses and the music stopped.’ However, he says he’s still driven to wait for the price he wants. ‘It’s gonna turn back around. So I’m not, I don’t fear that it’s not going to turn back around.’”

“Illinois’ 5,530 homes in foreclosure in July put the state 15th in the nation, RealtyTrac said. Of those, 4,652 were in the Chicago area. Marki Lemons, a Chicago real estate agent who specializes in preforeclosure sales, said banks are now offering ’short’ sales, whereas in a balanced market they were mum about the possibility.”

“‘They’re willing to take less than what’s owed to them, to get it off their books. I’d say on average they’re willing to go down about 20 percent, Lemons said.”

“South Holland real estate agent Daryl Russell said the wave of foreclosures is not the investment bonanza that some clients envision because loans have dried up for them, too.”

“‘I had three deals that were about to close lately, and none of them happened’ because lenders changed their minds, he said. ‘I’m talking about people with 740 credit scores who six months ago could have bought two properties.’”

“‘These days, there is a lot more to this business than just sticking a sign in the yard,’ said Lydia Player, who sells houses in North Dallas neighborhoods. ‘People were used to moving properties quickly, and it was payday every day,’ said Lois Geller, a consultant who advises real estate agents. ‘Now, they are getting a little humble.’”

“Edmonton’s once-torrid housing market is showing clear signs of cooling off, setting the stage for what some observers say could become a buyers’ market over the next six months.”

“‘Over the last couple of months, most new home builders, in terms of sales, have hit a wall. That’s partly because…there’s too much choice out there,’ says David Bates, at Edmonton’s Reid Built Homes.”

“Gregg Becker, Jayman MasterBuilt’s Edmonton-area general manager, sees the same trend unfolding. ‘We’re looking at inventories now that are higher than anything we’ve seen since 1994. We also saw a resale price drop in June for the first time in a long while, and a lot of the major home builders are sitting with a good number of homes in inventory,’ he notes.”

“The Federal Reserve’s sudden discount rate cut may have stimulated rallies across Asia on Monday, but former chief economist of Morgan Stanley, Stephen Roach, believes the world’s central banks were ‘asleep at the switch’ when it mattered, when they might have prevented a credit bubble that is posing a serious threat to global financial markets.”

“Roach traced the current shakeout to the popping of the tech stock bubble, when central banks led by the U.S. made massive injections of liquidity to avoid deflation.”

“The excess liquidity driven by the Federal Reserve’s infusion, to Roach, was the ‘original sin,’ which ‘has allowed one bubble to beget another, from equities to housing to credit.’”

“It should come as no secret that admonitions in favor of thrift would be almost universally ignored. For we as a society appear to be hooked on debt and have been for many years. Indeed, the personal saving rate in the United States has been negative for more than two years.”

“Debt has played a significant role in the ability of our economy to spread the benefits of growth more widely. For many American homeowners, the extraordinary appreciation in the value of those homes bolstered their net wealth.”

“By drawing on that equity windfall to bolster their spending with seemingly little effort, consumers appeared to be able to ‘have their cake and eat it too.’”

“But the deflating housing bubble has changed all that. The adverse consequences seem to be spreading from subprime borrowers to more creditworthy individuals. Thus, the seeming ability to defy gravity in the financial marketplace is coming to be seen as an illusion.”

“The term ‘moral hazard‘ is being bandied about in commentary about the sub-prime mortgage woes currently roiling our financial markets.”

“Many unenlightened commentators suggest that the problem is that lenders have been ‘predatory’ and charged usurious rates. But if the lenders had been charging rates that were actually too high, they would still be in business!”

“Esteemed 19th century British economist, Walter Bagehot, in the book, Lombard Street back in 1873, had the right prescription for failing financial markets: ‘Lend freely against good collateral at a penalty rate.’”

“Seems pretty simple: ascertain the real value of the collateral, raise the rates and continue making loans.”

“As the previous century came to a close amidst a period of great national wealth, American financial institutions began offering mortgage options to consumers not likely to qualify for traditional loans.”

“Politicians are now clamoring for taxpayer bailouts in the interest of subprime lenders in order to both prevent them from going bankrupt and their clients from facing foreclosures. Politicians promoting this program cling to the fallacy that government intervention in failing market sectors can benefit overall economic progress in spite of obvious realities.”

“Regardless of how many families loose their home or how many corporations loose their business as a result of the temporary ‘crisis,’ the national economy will be better when the market is allowed to correct its own flaws than when the government intervenes in the interest of engineering a better result.”

“I would rather not share in the responsibility for the imprudent financial decisions that my fellow Americans make at the consequence of my own monetary standing. No, I would rather enjoy the fruits of my financial stewardship entirely ‘own my own.’”

The Sacramento Bee reports from California. “‘Closed’ in real estate has long meant the moment when a home loan was approved, escrow was finished, buyers got keys and everybody got a nice commission. Now it likely means the office is empty and your job is gone. Exact figures on how many people in the Sacramento-area mortgage industry have lost their jobs aren’t available, but the number is likely several hundred.”

“‘Unemployment in the area is going to be affected, and it’s not just us,’ said First Magnus branch manager Heather Fern-Luzzi, who also is losing her job. ‘This isn’t the end of the line.’”

“Local mortgage veterans say it’s hour by hour in their business. ‘You have to be in my industry to see a representative come in with all their materials and all their marketing and say, ‘We’ve got this and we’re going for that,’ said Valerie Harkin, a VP at 1st National Home Loans in Roseville.”

“‘Then you call them that afternoon and say, ‘I want pricing on this,’ and they’re like, ‘Well, they just laid off 220 employees and I’m one of them,’ she said.”

“Fern-Luzzi of First Magnus remembers the mortgage business during the housing boom as practically euphoric and populated by newcomers attracted to the commissions.”

“‘The last three to five years has been a great time in the mortgage business,’ she said. ‘And a ton of people have gotten into it. We got a lot of people into it because they were greedy. They thought this was a great way to make a buck.’”

“‘There’s a lot of banks and lenders who were not prudent in their lending decisions,’ she said. ‘I think that was the beginning of the fall.’”

Inside Bay Area. “The mortgage morass has engulfed more workers in the East Bay with a Wachovia Corp. decision to jettison at least 100 home-lending jobs in the region. What’s more, Wachovia confirmed it has chopped additional employees in its wholesale mortgage operations in Northern California”

“The number of East Bay job losses in the mortgage industry during 2007 alone now exceed 700. The employees who lost their jobs in San Leandro were primarily loan closing specialists, underwriters and loan processors, said Don Vecchiarello, a spokesman for Wachovia’s mortgage operations.”

“‘It’s a combination of what has been going on with the mortgage industry, the economic climate in the housing market,’ Vecchiarello said. ‘It’s also the integration between Golden West and Wachovia.’”

“‘These job losses are surprising,’ said Orson Aguilar, Greenlining Institute’s associate director. ‘I hope this does not indicate Wachovia’s commitment to California. We hope this is just temporary and a result of the housing crisis. We hope they have a solution to replace that work force.’”

“‘When these outside banks buy banks in our state, we want them to do more than treat California as a distant colony,’ Aguilar said.”

“It’s entirely possible the Wachovia problems related to the California mortgage business could worsen before they improve. Golden West’s specialty was adjustable-rate mortgages. And a growing number of loan defaults, foreclosures, business failures and job losses have begun to haunt the home-loan industry.”

“Wachovia reported a sharp increase in unpaid mortgages and loan charge-offs in the second quarter. It also set aside $179 million to pay for future credit losses, three times more than what it reserved the year before.”

“‘This is an overhang that is going to have to be worked off, and it’s going to take some time,’ said Christopher Thornberg, an economist familiar with the real estate market and a principal owner of Beacon Economics.”

“Thornberg said more than a few homeowners got used to spending much more than their basic salaries because they tapped the equity in their homes to bolster consumption.”

“‘People increased their spending way beyond where it should have been,’ Thornberg said. ‘That’s where the pain will come from. People will have to realize they can’t spend as much as they thought they could.’”

The County Sun. “Foreclosed homes are popping up in neighborhoods all over the Inland Empire, and there’s no telling when the tide will turn. They are known for their overgrown foliage, a withered landscape, and in extreme cases, graffiti and broken windows.”

“Charles Booker, who lives in north San Bernardino, resides a few houses down and across the street from a two-story foreclosure. The home, located on a cul-de-sac, has ‘NO TRESPASSING’ signs in the front window, and it’s front lawn has patches of dead grass.”

“Holes with exposed electrical wires on each side of the garage door are where small lamps once hung. Just over the brick wall lies a desolate backyard of dry weeds and plants hanging over a concrete patio and other walkways.”

“‘Not too many people want to live next to a house where the grass and bushes are dead,’ Booker said.”

“He thinks overgrown and run-down homes might push down values of nearby dwellings. But he doesn’t imagine his own house going down in value, especially since his street’s foreclosure isn’t directly next door.”

“Banks and lenders don’t like spending money on fixing and cleaning up properties they’ve already lost money on, according to David Vermilya, a broker in San Bernardino, which deals with foreclosures in the two-county area. ‘They kind of piecemeal it right now because they don’t want to put more in it than they have to,’ Vermilya said.”

“A foreclosed home with dead grass, dead bushes and other messy aspects could easily sell for $20,000 to $30,000 less than a foreclosure that’s been cleaned up on the outside, he said.”

“‘Banks aren’t concerned about the neighborhood,’ Vermilya said, noting that banks worry more about throwing too much money into cleaning up foreclosed properties.”

“On Tuesday evening, multiple foreclosures could be found on Walnut Avenue, a couple of streets down from Booker’s. They were spread out from each other, but all of them had a common theme - peeling rooftops, undesirable landscaping, shabby-looking front sides and big locks on the front-door handles.”

“Vermilya said time will tell whether or not foreclosures are going to bring surrounding prices down. ‘We’re working to sell these fast so they don’t bring down the neighborhoods,’ he added.”

“The City Council is worried about first impressions. Specifically, council members don’t want ‘Welcome to Rialto’ signs to be surrounded by blight, trash and weeds.”

“Code-enforcement officers have to check up on the 800 foreclosures moving forward in the city to make sure the properties are secured and vegetation isn’t growing haphazardly.”

“Bob Watson, code enforcement supervisor, said that out of the 281 homes that have been foreclosed, most are open and not secured.”

“With large development projects planned throughout the city, he said it seems like a good time for the city to ‘put on a new face.’ ‘I think with the wave of building coming this way, it was time for Rialto to be in the limelight,’ Watson said.”

The Press Enterprise. “Despite a soft housing market, affordability in most California markets has actually declined in the second quarter of 2007, according to new data released this week by the National Association of Home Builders.”

“In the Inland area, affordability nudged up slightly in the second quarter, with 10.5 percent of new and resale homes affordable to families earning the region’s median household income of $59,200. In the first quarter, the figure was 9.7 percent.”

“In California, just 11.7 percent of all homes sold in the second quarter were within reach of those families, up only slightly from 11.2 percent in the first quarter. Nine of the nation’s 10 least-affordable communities were in California, with Los Angeles County landing in the No. 1 spot.”

“Overall affordability in the second quarter was still up from a year ago, when just 7.3 percent of Inland homes could be bought by median-income families. That’s due partly to the rise in income and partly to a drop in the Inland median home price, which fell from $389,000 in the second quarter of 2006 to $370,000 in the most recent quarter.”

“Even with the slight improvement in affordability, the typical Inland home remains out of reach for most people.”

“Ten years ago, when the Inland median home price was $111,000 and the median household income was $44,800, more than 71 percent of homes were affordable for local median-income families, according to the national home builders group.”

“Robert Rivinius, CBIA’s CEO, said the fact that affordability has not increased despite a housing downturn that has lasted over a year is ample proof that prices aren’t likely to drop significantly, which means families that can afford to buy should consider doing so now, before prices and interest rates start to climb again.”

“He also said that policy-makers should recognize that market corrections alone are not likely to allow the hundreds of thousands of Californians priced out of homeownership to be able to buy their first homes.”

“‘Housing costs in California are driven by supply and demand. Because the supply of new homes hasn’t kept pace with the demand caused by a rapidly growing population, prices have climbed sharply over the years,’ Rivinius said.”

The Orange County Register. “The California Department of Finance issued a projection that the state population will grow from 36.5 million in 2006 to 60 million in 2050.”

“Frankly, there is good reason to doubt that will happen. What seems to be escaping everyone in California is that fundamental and very recent migration changes do not auger well for population growth, especially in the state’s more established areas.”

“According to U.S. Census Bureau estimates, California’s population growth rate has dropped substantially. In the past year, growth has dropped by two-thirds from its 2000-05 annual rate. In Los Angeles County, growth has dropped by 90 percent from the 2000-05 rate.”

“Orange County isn’t doing much better, with its population growth rate having fallen by two-thirds from the 2000-05 pace. The Census Bureau says the Los Angeles-Orange County metropolitan area has lost more than 900,000 domestic migrants since 2000.”

“San Diego is also seeing its growth evaporate. The growth rate has dropped 80 percent compared with the 2000-05 annual pace. In fact, San Diego may want to apply for membership in the Rust Belt club, having lost more domestic residents since 2000 than charter members Pittsburgh, Cleveland and Buffalo.”

“What is going on? Try housing affordability. In the three large coastal metropolitan areas, median home prices have exploded to more than 10 times median household incomes. Historically, this ‘median multiple’ has been 3.0 or less and remains so in many parts of the United States.”

“People have moved inland to take advantage of lower housing costs. But now housing costs are escalating substantially inland and, not surprisingly, growth has slowed.”

“California may be pricing itself out of the future. Given the choice between a rental unit 20 miles from the coast in San Diego and a 3,000-square-foot house on a third of an acre in the suburbs of Kansas City or Indianapolis, it is not surprising that places like the latter are now domestic migration winners.”

Some housing bubble news from Wall Street and Washington. “Sales of new one-family houses in July 2007 were at a seasonally adjusted annual rate of 870,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.8 percent (±12.0%)* above the revised June rate of 846,000 and is 10.2 percent (±12.3%)* below the July 2006 estimate of 969,000.”

“The seasonally adjusted estimate of new houses for sale at the end of July was 533,000.”

From MarketWatch. “Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.”

“Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.”

From CNN Money. “Builders, worried about a big glut of unsold homes on the market, cut price. The average price of a new home sold in the period fell to $300,400, down 3.4 percent from a year ago.”

“While the median price edged up 0.6 percent to $239,500 from a year earlier, it’s still off 8.8 percent from the record high hit just last March. The July 2007 median is also below the full-year reading for 2005 and 2006.”

“‘I suspect builders were pulling out all the stops to get those homes sold,’ said Stuart Hoffman, chief economist for PNC Financial Services Group. ‘But given what’s happened with the mortgage market since, it’s clearly going to be materially worse in August than it was in June and July.’”

The Chicago Tribune. “Despite a $2 billion vote of confidence from Bank of America Corp. on Wednesday, Countrywide Financial Corp.’s debt ratings are under review by Moody’s Investors Service for a possible downgrade.”

“In a conference call, John McMurray, Countrywide’s chief risk officer, said subprime tightening includes the elimination of the 2/28 program, the curtailment of 100 percent financing, added restrictions on first-time home buyers, and increased credit score requirements for interest-only loans.”

“‘In prime, guideline cutbacks include curtailment of 100 percent financing and adjustments to 95 percent financing,’ McMurray said. And, ‘as with subprime, more restrictions are under way.’”

“‘If we went back a year or two and you were in the marketplace at that time, what would you have done differently?’ Citigroup analyst Brad Ball asked Countrywide management. ‘Would you have put in place the actions that you have under way today?’”

“Angelo Mozilo, Countrywide’s CEO, struggled to answer and eventually borrowed a phrase from former U.S. Sen. Howard Baker, who said of scandal-plagued Richard Nixon, ‘What did the president know and when did he know it?’”

“‘Our volumes, our whole place in the industry, would have changed dramatically,’ Mozilo said, ‘because we would have arbitrarily made a decision that was contrary to what everything appeared to be: Values going up, and no delinquencies, no foreclosures, and we suddenly stop the music and say that we’re not going to’ offer certain products.”

“‘It would have been an insight that only a superior spirit could have had at the time.’”

“As CEO, Mozilo said he constantly asks himself: ‘What should I have known and when should I have known it, and what should I have done about it? Would we do things a lot differently, knowing what we know now? Absolutely. We would have done a lot of things differently. But we didn’t.’”

The Street.com. “By discrediting virtually every step taken thus far to help the housing market and the mortgage industry, Countrywide Financial CEO Angelo Mozilo killed Wall Street’s buzz about the credit crunch being over.”

“‘I don’t see the light here,’ he added, noting that the current financial panic is among the worst he’s seen in 55 years.”

“The message from the banks Countrywide typically borrows from has been, ‘We’ve got our own problems,’ said Mozilo in the CNBC interview.”

“The mortgage executive had no kind words for the Fed either, saying the central bank has done nothing to help Countrywide with its liquidity problems. The Fed’s discount rate cut…is useless to Countrywide because it cannot borrow there for regulatory reasons.”

“After Mozilo’s gloomy comments, it was hard for the markets to perceive Bank of America’s $2 billion stake in the company as anything but opportunistic for BofA, which like many banks and Wall Street firms faces some of its own liquidity and balance sheet issues amid the credit crunch.”

“Indeed, Bank of America’s little ‘confidence boost’ was quite a lucrative trade for the mega-bank, and maybe better considered in the context of distressed investing.”

The Boston Globe. “Countrywide Financial Corp. tried to calm depositors and home buyers yesterday with assurances it would continue operating in Massachusetts and nationwide.”

“Some real estate agents no longer refer their home buyers to Countrywide, the nation’s largest mortgage lender, because they fear it would be unable to fund the mortgage at the closing table, loan brokers said.”

“Keith Shaughnessy, president of Foundation Mortgage Corp. in Littleton, said he received two requests for mortgages from real estate agents who a few weeks ago would have sent their clients to Countrywide.”

“‘The realtors have a nagging fear, because of what’s happened to them in the past two months, of loans dying at the closing table,’ he said. Some agents now seek him out for mortgages, he said, because he can secure loans with commercial banks, in which realtors still have confidence.”

“Bank of America’s purchase of $2 billion worth of Countrywide preferred stock is effectively a loan with a 7.25 percent interest rate. The securities can be converted to shares of Countrywide stock for $18 a share.”

“The investment occurred five days after Countrywide drew down a $11.5 billion line of credit from its banks to replace funds that Wall Street investors no longer can provide by purchasing mortgages.”

“Bruce Marks, the CEO of a Boston group that provides…loans to potential homebuyers, brought about a dozen homeowners to Washington yesterday who said they were lured into risky and expensive loan agreements by Countrywide Financial Corp., which the homeowners said charged higher interest rates than promised, then imposed heavy fees when the buyers had trouble making payments.”

“‘They bullied us,’ said Jamie Washington, a Boston woman who said Countrywide jacked up the interest rate on her and her husband’s home loan to more than 11 percent just hours before closing.”

“When the Washingtons failed to persuade the buyers of their previous home to use Countrywide as a mortgage lender, the company threatened to refuse to release the cash for their new house, she said.”

“Cynthia Bryant, one of the panelists, said Countrywide refused to accept a late payment last year. The 42-year-old single mother of four, with a home in Pomona, Calif., has filed for bankruptcy to stop the rate from climbing on her interest-only loan.”

“‘We want [Office of Thrift Supervision] to go back to Countrywide, and we want them to say ‘We are going to require you to restructure loans,’ ‘There’s too much focus out there now on how investors are hurting, how lenders are hurting,’ he said.”

From Reuters. “Market turmoil set off by the U.S. subprime meltdown has taken a toll of bankers across Europe and analysts say many more could lose their jobs before the crisis runs its course.”

“‘The capital markets are a cruel master. One minute you are munificently paid and the next minute you are toast. It’s part of the explicit conditions of employment,’ said a partner at a financial consultancy based in London. ‘I expect we will see a round of people let go for misdeeds and others will leave because they are no longer needed.’”

“The owners of stricken state lender SachsenLB aim to sell the German bank quickly after its near collapse under heavy losses from U.S. subprime mortgages and other risky debt, sources familiar with the matter said.”

“Germany has taken the brunt of the European fallout so far from problems stemming from subprime home loans as two of the country’s banks have almost collapsed.”

“European Union market watchdogs are to meet with credit rating agencies to discuss their role in the U.S. subprime mortgage crisis that has roiled financial markets globally. The leading rating agencies include Standard & Poor’s, Moody’s and Fitch.”

“EU Internal Market Commissioner Charlie McCreevy said last week he was reviewing a voluntary code used by credit rating agencies as they appeared too slow in warning about problems in the U.S. subprime mortgage sector.”

“Germany’s VDP association of banks supplying money to the property market said rating agencies offered the only on-going quality control for structured finance products.”

“The more complicated the product, the fewer investors there were who could evaluate them on their own.”

“‘Hence, many investors rely heavily on external ratings (probably some of them exclusively). Therefore, some agencies might be tempted to push market developments in the direction of complex structures,’ VDP said in its submission.”

“Millions of Americans feel it when the market swoons, and the Federal Reserve no doubt had them in mind when it slashed a key short-term interest rate Friday.”

“To some observers, the Fed’s unusual action was a sop to the investment bankers, securities traders and hedge-fund managers who fanned the subprime mortgage boom and other excesses of the easy-money era.”

“They, and to a certain extent the homeowners who tapped into the frenzy to spend beyond their means, are taking the blame for the market mess and, in the eyes of some, should take the hit.”

“‘They have to pay a price for the risks they have taken,’ said Stanley Nabi, chief strategist at New York-based Silvercrest Asset Management. ‘They’re paying it now.’”

“There is a running debate about the wisdom of the central bank giving Wall Street the financial equivalent of a get-out-of-jail-free card, allowing the industry to curtail losses from its risky bets on subprime loans and leveraged corporate buyouts.”

“Shouldn’t a hedge fund holding too many subprime bonds be allowed to fail, and an investment bank stuck with unwanted bonds from a leveraged buyout take a hit to earnings? ‘The Fed is protecting these guys on the theory that they’re protecting the economy,’ said Richard Bove, an analyst at Punk, Ziegel & Co.”

“The Fed itself is caught in the blame game. Under former Chairman Alan Greenspan, the central bank created fertile ground for the housing frenzy by keeping interest rates at historic lows.”

“‘From the Federal Reserve to Wall Street, which developed new and sundry types of mortgage products, to people who stretched themselves further than they should have, everybody shares responsibility,’ said Jim Paulsen, chief investment strategist of Wells Capital Management.”

“‘There is a whole list of accomplices in this crime, and it includes the rating agencies, the brokers that packaged the mortgages, the hedge funds and other investors that bought the securities, and the regulators who didn’t watch the process carefully,’ said Brian Hamilton, CEO of a financial research firm. ‘As a result, there are a lot of somewhat innocent bystanders who are going to get burned.”

The Baltimore Sun reports from Maryland. “During the hot real estate market, this Roland Park brick Colonial probably never would have seen an open house. ‘One and a half to two years ago, this house would have had multiple contracts within three to five days,’ said Jim Mikula, who, with his partner Realtor Jeff Tessmer, is listing the property with a $419,900 price tag.”

“The number of homes sold in Baltimore and the five surrounding counties fell 12.36 percent to 2,921 in July, compared with 3,333 homes in July 2006, according to MRIS. With listings at a record 19,985, homes took an average of 80 days to sell, compared with an average 55 days in July 2006, when inventory was 16,749.”

“‘From the peak year of boom it’s been like taking a 20 percent pay cut,’ said Realtor Wayne Curtis. ‘That’s not easy for anyone to do.’”

“As for that Roland Park Colonial, the Aug. 5 open house was its first since being listed less than a month ago. It still hasn’t sold, Tessmer said yesterday, and has been taken off the market, at least temporarily.”

“While many homeowners are feeling the pinch of rates resetting on so-called ARMs, some are getting crushed by what housing advocates call ’strangulation ARMs’ that continue to reset as often as every six months.”

“‘Over the last couple of years, people became so desperate to buy a home that they stopped asking what the payments would be over time,’ said Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies. ‘The only question they asked is what’s the least possible payment I can make next month so I can afford to buy that house.’”

“Cornelia Barnett said she and her husband are struggling after the adjustable mortgage on the Edgewood home they bought in 2005 reset $330 higher in June to nearly $1,900 a month. The couple did not refinance for the first two years of the loan because they couldn’t afford the prepayment penalty.”

“Now the rate is scheduled to reset again in December, perhaps up to 11 percent. The initial rate was 8 percent. ‘We really, really are not in a position where we can afford this,’ Barnett said.”

“Barnett acknowledges she was a novice to the home-buying process when she signed up for her ARM but said that she was under pressure to close the deal. ‘As a lay person, how am I supposed to understand all this the day before I go to closing,’ she said.”

The Times Community from Virginia. “With money lenders refusing to lend any more to some mortgage companies, just how difficult is it to get a mortgage in Fauquier County these days?”

“‘You can still get a decent loan if you have a good credit score, and especially if you can put 10 percent down,’ said Bruce Qualters, principal in Nationside Mortgage in Warrenton. ‘And they are still doing loans that require only 3 to 5 percent down, but you have to be able to document those loans.’”

“‘Credit score requirements have increased, and the easy mortgages are no longer there,’ said Book Sengstack, owner of Cardinal Mortgage in Warrenton. ‘Most of the programs based on sound business practices are still there, but those where they didn’t verify the income have gone,’ he added.”

“It was the increasing appreciation in housing that impelled mortgage companies to continue to lend money, Sengstack said. ‘Few were willing to turn down loans based on the fact that prices were increasing 24 percent a year,’ he explained. ‘But that was unsustainable.’”

“‘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.’”

“Fauquier has weathered the storm better than many other places, but has not escaped it entirely. 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. ‘For Fauquier County, it’s harder to get hard statistics, but we are seeing them, as well.’”

“‘What we have seen is more inventory coming onto the market, and when that happens, sellers are continuing to have to lower their prices,’ said Herb Lisjak, a real estate broker in New Baltimore.”

“Lisjak said that the homeowners who are facing the most difficulty are the ones who bought a home in the last few years, who have no equity in the house, and who have to move for one reason or the other.”

“The decline in the average price in housing is hurting them the most. The latest statistics show that the average price of a house sold in Fauquier County declined 25 percent from July 2006 to July 2007.”

“Last year was the first time that Prince William’s housing values have fallen since 1993. As of June, the assessed value (not the sale price) of homes in Prince William had slipped to an average of $413,00, down significantly from a high of $429,000 in 2006.”

“Rising rates of foreclosure are an ominous sign and foreclosures have an impact beyond the homeowners affected directly. ‘Any foreclosure in a neighborhood tends to depress the existing housing prices in that neighborhood, and nobody likes that,’ said mortgage broker Andreas Keller. ‘And we’re going to see more, I think.’”

“‘A lot of loans made in 2004, 2005 and 2006 were made with low initial teaser rates, and now some of those are resetting to higher rates. People are faced with increased mortgage payments that are 20, 30 even 50 percent higher. That will be very painful,’ Keller said.”

“‘We could see a further 20 percent decline,’ he said, ‘”and it’s going to be a question of how they can be arrested so we don’t have a meltdown in the market.’”

“At current rates of consumption, there is an 18-month supply of housing inventory on the market, and that doesn’t account for any new listings. ‘This is the worst for me in the 12 years that I’ve been in the mortgage business,’ Frank said. ‘A lot of people are getting out of the business.’”

The News Journal from Delaware. “In a sign that housing market troubles are far from over, foreclosure filings in July increased by 21.74 percent in Delaware, a report said.”

“As many as 6,000 households in Delaware hold subprime, adjustable-rate mortgages that are due to reset at a higher rate in the next few years, said Gerry Kelly, Delaware deputy bank commissioner for consumer affairs.”

“Delaware court records from each county show foreclosure filings in Delaware increased year over year in July by 34 percent in New Castle, 43 percent in Kent and 54 percent in Sussex.”

“‘The filings that we have show a record year, far surpassing 2002 and 2003, and with much more uncertainty in the marketplace than we had in 2002 and 2003,’ said Kelly. ‘There are so many different things that are uncalculable.’”

The News & Observer from North Carolina. “The national housing slump is hitting harder close to home. ‘A lot of us have said it’s not as bad as elsewhere, but the area is starting to catch up with elsewhere,’ said Michael Helmar, an economist with Moody’s Economy.com who follows the Raleigh-Durham-Chapel Hill market. ‘The trends affecting other areas … are starting to bite the Triangle now.’”

“In July, a total of 2,947 existing homes were sold in Wake, Durham, Orange and Johnston counties, down about 13 percent from a year earlier, according to data collected by the Triangle MLS. New home sales fell 10.3 percent during April, May and June, according to the latest figures available.”

“That was the steepest quarterly drop in nearly seven years and came during the spring quarter, which is traditionally the busiest selling season.”

“Local home sales have set records each year since 2003. Unless the market improves dramatically, something observers agree is very unlikely, 2007 will mark the first decline since 2002.”

“Sales began slowing here last fall largely because many potential buyers couldn’t sell their homes in overbuilt markets elsewhere. Helmar predicts further sales drops into early 2008 as problems roil the credit industry and slowing job growth weakens confidence.”

“‘There’s now such a big inventory of homes sitting out there it will take time to work though that,’ Helmar said.”

“The July inventory of unsold homes was up 19 percent from a year ago to 16,786. Pending sales contracts were down 8 percent in July from 2006. Owners have lowered prices on 39 percent of homes now on the market, up from 34 percent a year ago, and 23 percent more homes were taken off the market in July than in the same month a year ago.”

“‘There are some frustrated sellers,’ said Susan Holbrook, senior VP of one of the Triangle’s largest residential brokerage firms.”

“She said it’s becoming common in closings for buyers to learn they need to come up with a bigger down payment. ‘Multiply that by all the [real estate] offices in the Triangle, and you’ve got a numerical effect of what’s going on,’ Holbrook said.”

“Sales are being stymied because potential buyers can’t sell their homes in distressed markets in Florida, California and elsewhere, said broker Joe Ward. Three buyers now are looking at the same $420,000 home in North Raleigh, but none will make an offer.”

“‘They’re all afraid they can’t sell their house,’ said Ward, who sells about 100 houses annually but this year is experiencing a 10 percent drop-off. ‘It’s a common theme right now. Can you tell I’m angry about it? It’s been going on the past 12 months.’”

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