The Housing Bubble

The Daily Breeze reports from California. “The South Bay MLS of properties for sale shows more homes with reduced prices, and more cumulative days on the market. So why are collective median prices in the South Bay and Los Angeles County mostly going up if an increasing number of list prices of individual homes are going down?”

“‘More than half of cities in Los Angeles County actually have year-to-year declines,’ said Robert Kleinhenz, deputy chief economist for California Association of Realtors. ‘The higher-ends make up a larger share of sales distribution by price range, so that affects the calculation of median price.’”

“‘I see (situations) where nobody is buying a house,’ said Warren Snyder, co-owner of Carriage Realty, based in Torrance. ‘You now have houses for four and five months on the market, and you get one or two offers and they are 20 to 30 percent below price.’”

“‘Anyone out there buying a house is making offers that are absurdly low compared to what we had before,’ he said. ‘The sellers just aren’t used to that. It will take a long time for sellers to adjust.’”

“Snyder has sold real estate in the South Bay for 45 years, and believes he is witnessing the fourth housing downturn in his career.”

“‘This one will be the worst we’ve ever had,’ Snyder said. ‘It will involve so much more of the economy than ever before. So many owners have turned homes into ATM machines. If you’d done loans 10 years ago the way they’re done today, you would have been thrown in jail for fraud. So many people are in houses they can’t afford. This will be a tremendous problem over the next 18 months.’”

” ‘I believe the death spiral is on, and it will deflate values in real estate,’ said ‘Kyle Kazan, who owns Beach Front Real Estate Services in Long Beach. The company either owns or manages 2,000 apartment units in Los Angeles and Orange counties, and invests in properties in other states and foreign nations. His company’s combined portfolio is worth more than $250 million.”

“‘The crazy appreciation in real estate in the last few years is now in reverse,’ Kazan said. ‘None of the South Bay is as much of an island as people believe. We’re all pretty well interconnected and tied together. The outlying areas get hit worst and first, and then the flu spreads to more densely populated areas of Los Angeles and Orange counties.’”

The Daily Bulletin. “When Southern California’s residential real estate market began to slow down, it forced developer John Young…laid off about 40 percent of his workers at Rancho Cucamonga-based Young Homes. ‘Unfortunately, in our whole division we’ve had layoffs,’ said Young, the company’s president. ‘They’re all over the board. It’s progressively gotten worse.’”

“In the Inland Empire and the Antelope Valley, foreclosures are soaring and causing financial misery for families who just a few months ago celebrated moving into a home. The South Bay, long a lucrative enclave that usually rides out each wave of a downturn, now shows signs of some pain and no gain.”

“‘They (buyers) are having rough times right now just because the loan programs are changing by the hour,’ said Kelvin Munemitsu, VP of lender Value Properties in Woodland Hills. ‘I could have a loan program set up with a major bank in the morning, and by the afternoon that loan program no longer exists.’”

“A pursuit for Rick Izquieta, CEO of Beach Lending Inc. in Redondo Beach, is foreclosure sales. ‘The biggest problem now is the lending,’ Izquieta said. ‘The question now with buyers is can they get the loan to (buy) the home? I don’t event mention zero down. That’s not even in my vocabulary anymore.’”

“Steve Thomas, owner of Rancho-Cucamonga-based CIG Property Management and Investment, has a wide range of job candidates to choose from: loan processors, loan officers, brokers and several applicants with various bachelor’s and master’s degrees.”

“It’s a good example of the plethora of jobs that sprung forth from the recent housing boom, only to be extinguished by the market’s downward spiral, Thomas said.”

“‘People who didn’t know anything about (real estate) were jumping into it,’ he said. ‘It means the plane was just about to go down.’”

The Daily News. “President George W. Bush’s pledge to rescue some homeowners from foreclosure rallied Wall Street on Friday, but got a cooler reception from Los Angeles County borrowers who might owe too much to benefit from federal assistance.”

“‘Right now we’re seeing 30-40 calls a day. And 85 percent of these families we can’t help, simply because the gap of what they can afford and should have been able to afford is so huge,’ said Ester Cadavid, chief development officer of Los Angeles Neighborhood Housing Services. ‘They bought too much house. Even if we refinance them into a fixed-rate (mortgage), the payment is still too much.’”

“‘It would be useful if the government would end its encouragement of borrowers taking on a huge amount of debt,’ said Michael Carney, executive director of the Real Estate Research Council at California State Polytechnic University at Pomona.”

“‘Ultimately, if I had to decide, I’d let the market do its work. Do you want the government to bail out everybody who makes a bad decision?’ he said.”

“Folks with low-wage jobs and bleak prospects somehow thinking the housing boom could put them in the proverbial big house on the hill? Or was it more a case of always-optimistic Californians trying to grab their share of the dream?”

“‘Homeowners make a lot of sacrifices to buy their first homes,’ said Pat McKenna, mortgage broker in Montclair and Ontario. ‘There may have been a real small percentage of people who thought they could sell or refinance if they couldn’t manage the payments, but mostly I think that was investors.’”

“McKenna has overseen funding of more than 6,000 home loans in more than 20 years in the business. Most of them with first-time buyers. ‘I really think the biggest problem is that most people truly don’t understand what they’re getting into,’ she said. ‘Your typical first-time buyer is not that savvy.’”

“Colleen Badagliacco, California Association of Realtors president, pointed out that while a limit of $417,000 for federally insured loans would certainly help in places such as the Central Valley and the High Desert, it wouldn’t do very much to help in the state’s major metropolitan areas.”

“‘Does this solve the problem? No. Is it better than nothing? Yes,’ she said.”

“In the end, it is about the borrowers, whether or not they thought they could afford the properties they purchased. ‘In a way, Bush’s proposal is something of a Band-Aid,’ said Todd Tatum of American Housing Group in Victorville. ‘I think it’s a good step, but I don’t know how you can determine whether someone really thought they could afford the house they bought. Anybody you ask, they would tell you they made an honest mistake.’”

The Tribune. “In real estate circles, Pete Gliniak is known as the ‘Short Sale King.’ ‘You can take any house in any neighborhood and determine the price it can sell for in today’s market - not what it used to sell for - but now,’ the La Verne resident explained. ‘Then you deduct the normal and traditional selling costs. If there’s not enough left to pay off the house, you put together a short-sale package.’”

“‘If there is a $400,000 loan on the house and it sells for $350,000, that minus the costs would make it around $300,000,’ he said. ‘If the bank doesn’t accept that, they will have to foreclose and resell it. But by the time that happens, the house might be worth $30,000 less.’”

“And for homeowners who opt to go for a short sale, the financial information that’s presented to the bank is a little different. ‘Instead of putting together a packet that shows how (financially) strong you are, this will show how distressed your situation is,’ Gliniak said.”

“Gliniak, who has worked in the real estate industry for 30 years, stressed that sellers can resort to a short sale only when all of their other options have been exhausted. In most cases, they’ve already depleted their bank accounts, tapped out all family resources and are not eligible for bankruptcy, he said.”

“Gliniak receives 10 to 15 leads a day from real estate agents, brokers and attorneys who have clients they feel are prime candiates for a short sale. But as more and more homeowners fall behind on their mortgage payments because of loans that have reset, Gliniak figures he’ll soon see 25 to 30 requests a day.”

“That doesn’t surprise William Moran, a spokesman for the California Department of Real Estate. ‘Notices of default are up considerably in California from a year ago or two years ago,’ he said. ‘There is definitely a need for short-sale services.’”

The Morning News reports from Arkansas. “When a real estate market is hot the news travels fast and far. That was the case in Northwest Arkansas not too long ago as real estate investors from California and Idaho tapped into the housing sector with investment dollars. The strength of solid employment numbers and population growth the region caught the eye of out of state real estate investor groups like Realty Wealth Advisors of San Francisco.”

“‘Several investors came to me with profits they had made in Boise, Idaho, from the sale of property in that market. Six of them came back earlier this year and bought a second home after the market had slowed,’ said mortgage broker Chad Bridgers.”

“John Sullivan, broker in Tontitown, recently tried to work with a lady in Southern California who bought a newly built home in Northwest Arkansas as a real estate investment. He said the lady called and asked him to help her lease the property to cover her $3,100 monthly mortgage.”

“When he told her the home would bring $1,500 a month tops, she knew that her choices were limited. He said the house she bought was likely overpriced.”

“Unable to make up the payment gap, the home sits empty. It is probably now on its way back to the mortgage lender, marring her good credit score, Sullivan said.”

“More than 300 homes in Northwest Arkansas sit empty, ‘hidden’ in plain sight. Many of those homes show no signs of life. The grass has grown up and stacks of bricks sit in the garage. No ‘For Sale’ sign adorns the front yard.”

“Market analyst Paul Bynum classifies more than 350 homes in the region priced above $300,000 as potentially ‘hidden.’”

“The Quail Ridge subdivision in Centerton had 27 homes on Bynum’s hidden list. However, more than a dozen of these homes are owned by investors in Colorado Springs, Colo., and Newport News, Va.”

“Jeff Collins, economist with Streetsmart Data Services in Springdale, said there are a large number of empty homes in the region. His research revealed 578 completed but unoccupied new homes in Washington County, and 1,230 in Benton County as of June 30.”

“Pending litigation is another explanation for some of the hidden homes on Bynum’s list. ‘Homes in the midst of foreclosure or bankruptcy can sit vacant for up to a year waiting on the court dismissal,’ said Gary Head, president of Signature Bank.”

“We know some builders who are leasing new construction property even if the proceeds don’t fully cover their interest note because something is always better than nothing,’ Head said.”

“‘I am seeing new construction at price levels of $129,000 and higher now fronting signage ‘For sale or lease,’ said Austin Bivens, real estate agent in Springdale.”

The Democrat Gazette from Arkansas. “Landquest Communities of Arkansas was the largest developer in Bentonville before a bank filed foreclosure suits for loans totaling more than $ 20 million, a former employee said Tuesday.”

“The foreclosure is for the largest amount of outstanding debt to date for Benton County but it might not be the largest by the end of the year, warned Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville.”

“‘When you look at the amount of housing inventory out there, then you realize there will have to be shake-outs and big shake-outs at that,’ she said. ‘It is a very painful part of the process of getting this market back into equilibrium.’”

The Tyler Morning Telegraph from Texas. “What some real estate agents called new, innovative ways to obtain home financing a few years ago has turned around to bite the borrower. Or, perhaps the borrower should have waited to qualify for a prime quality loan, said Guillermo Covarrubias, assistant professor of economics at The University of Texas at Tyler.”

“‘These people have so little equity on their houses, that they find it really easy to just walk out,’ he said. ‘They’re not going to lose a lot of equity, so they’re tempted to say, ‘Well, I’m just going to stop paying and let them come and repossess the house.’ They already have bad credit anyway.’”

“‘The foreclosures are higher than they were a year or two years ago in Tyler,’ said Margie Fisher, loan officer for Republic Mortgage Home Loans and owner of B4Closure of Tyler. ‘I do think that we’ve seen a slowdown in the purchases, mainly because people are scared.’”

“As more people default, the local market could see a little bit of a housing glut. ‘Time on the market is starting to increase a little bit,’ she said. ‘I believe that since we still get a large amount of people moving in from Dallas - retirees - we’re somewhat insulated where other parts of the country are not.’”

The Dallas Morning News from Texas. “North Texas home foreclosure postings for the first nine months of 2007 show that almost 31,000 homes valued at more than $4.5 billion have been scheduled for forced sale by lenders…a jump of 12 percent in number and 19 percent in value from the same period of 2006.”

“More than half of the Dallas-Fort Worth home loans in foreclosure this year are held by the country’s biggest mortgage firms, Fannie Mae and Freddie Mac, Foreclosure Listing Service found.”

“Only about 1 percent of the foreclosure postings for the first nine months of 2007 were for houses valued at more than $500,000. Foreclosure Listing Service CEO George Roddysaid those numbers could increase now that lenders are charging higher interest rates for so-called jumbo loans, over $417,000.”

“‘There’s a big issue now with these jumbo loans and all the speculative homebuilding out there,’ he said. ‘That’s got to be of concern to these builders.’”

The Record reports on Texas. “Today, public and private investors are sinking billions of dollars into Galveston’s building boom. Although Galveston is still partially gritty, that hasn’t deterred buyers from the Northeast in search of bargains.”

“Some blue-collar BOIs (local-speak for those born on the island), complain of a shortage of affordable housing, citing rising rents and property taxes. Other longtime residents express discontent over the town’s increasingly touristy feel.”

“Last year, Lee Avery, a Brooklyn-based traveling salesman, and his wife, bought a restored 3,300-square-foot five-bedroom, three-bathroom Victorian four blocks from the beach for $350,000.”

“‘Whenever there is change, someone is not going to be satisfied, but I think most people agree that this sort of change in Galveston is for the better,’ said Avery. ‘Folks back in Jersey and the Big Apple had better come down and take a look before the whole country takes notice and prices go through the roof.’”

The Galveston County Daily News from Texas. “Loan defaults and foreclosures in the county are soaring as once starry-eyed island speculators renege on multimillion-dollar loans and hundreds of families are unable to make mortgage payments on homes in subdivisions across the mainland.”

“July foreclosures on properties in Galveston County rose 484 percent to 146 from 25 for the same month last year, according to Bargain Network. So far this year, banks have moved to foreclose on 596 local properties, compared with 289 in the last eight months of 2006.”

“What Happened? Banks competing fiercely for loans and the fees they generate began offering easy credit with exotic terms that helped to fuel a five-year housing hot streak that began to cool last year, industry observers say.”

“‘Lenders didn’t check whether stated income was correct,’ said Harris L. Kempner Jr., president and portfolio manager of island-based Kempner Capital Management. ‘They didn’t insist on down payments for homes and condos; they violated a whole lot hard-earned rules of lending.’”

“‘What’s clear is that there are tightening standards for lending everywhere,’ Kempner said. ‘Those who ordinarily have no trouble at all in a logical real estate market are having more trouble than they would have ever expected.’”

The Express News from Texas. “Thanks a lot, National Real Estate Market. And you too, Mortgage Meltdown. Things were going just fine in San Antonio until you showed up.”

“Now, San Antonio’s once-smoking real estate market is cooling further because of national pressures that no longer can be ignored.”

“The inventory of pre-owned homes for sale reached 12,470 at the end of July, about 33 percent higher than it was at this time last year, according to the San Antonio Board of Realtors. The inventory is so high that San Antonio is on the brink of becoming a buyer’s market for the first time in several years.”

“The biggest concerns for local builders are things they have no control over: the swelling inventory in the existing-home market and the uncertainty in the mortgage lending industry, said Randall Allsup, manager of the San Antonio division of Metrostudy.”

“In San Antonio, it looks as if there might be an oversupply of new homes in the $250,000 range, Allsup said. ‘There’s been an over-response on the mortgage side. In some cases, people with good credit aren’t able to get a home loan.’”

“The lower demand means builders such as David Anderson of David Anderson Homes have struggled to sell off their inventory homes this year. ‘A lot of builders, myself included, got caught with inventory,’ he said.”

“Anderson purchased more lots and will open new neighborhoods this year. ‘I’ve seen it a whole lot worse,’ said Anderson, who started building homes in the late 1980s. ‘We’re not making a lot of money, but I’m holding my own and we’re turning inventory.’”

What do you see in your housing market this weekend? A new home sale? “This is your LAST CHANCE to get a new Centex inventory home at a drastically reduced price. If you’ve been waiting to buy, NOW’S THE TIME!”

Or lower prices? “Residential home sales have fallen 22.6 percent in the period of Jan. 1 through June 30 of this year, said Kirk Goehring, senior VP at First South Bank in Jackson, Tennessee; the number of homes on the market during that same time period stood at 185, and a 37 percent increase over the 135 homes on the market in 2005.”

“Market saturation has caused some home prices to be reduced, said Gerry Neese, a 22-year veteran of the Jackson real estate market. ‘You can go through the MLS and see a lot of prices that have been reduced,’ he said. ‘We are having to adjust prices back to get houses to move.’”

A related market effect? “Sellers are eager to make deals, and buyers are in control, but there’s nary a real estate sign in sight. Welcome to the new and used vehicle market, where many Northern San Joaquin Valley dealers are experiencing the same slowdown seen in housing.”

“What happens in auto sales often follows housing markets, dealers said…because fewer people can refinance their home loans and use the money to buy a car or truck. ‘That was driving the market,’ said David Hillier, who owns Hillier Ford in Escalon. ‘The best way to describe what’s happening now is like the real estate people say: It’s going back to normal.’”

A housing bubble reflection? “Even Robert Toll admits there are troubles in the U.S. housing market. He spoke to CNN’s Maggie Lake. Maggie Lake: ‘Should we have seen this slump coming? Should we have been better at spotting it?’”

“Robert Toll: ‘I don’t see how we could have done better. The news talked about the bubble while we were still roaring as a market. So there were plenty of warnings that we were entering trepidatious times.’”

“Maggie: You only know after it happens. Toll: It’s hard. You should feel it, but what would you do? You say I’m raising my prices 5, 10 thousand dollars every other week — I better quit? Shareholders might have a problem with that.”

“Maggie: What do you worry about most as CEO of Toll Brothers? Toll: The macro economic scene has bothered me, this time around more than anything else. God forbid we have a recession, a bad economy on top of a bad housing market, then we are in for trouble.’”

“Maggie: What do you see happening? Toll: ‘I’m sorry to say the future is that you will see a rebound that will come back with a vengeance and the prices will chase up even faster than they have in the past.’”

“‘I think what you will see when the market straightens itself out, as it always does, you will see a resurgence so that we begin to pay for our homes proportionately to what they are paying in Britain or Western Europe, which is 45 even 50 percent of their incomes for their housing.’”

The State reports from South Carolina. “Bill Rhomberg is without a worry in the world, except for the two-bedroom, two-bath baggage he left behind in nearby Bluffton. There sits Rhomberg’s 1,900-square-foot home on a golf course. It is for sale. So are 280 other houses in Sun City. After no bites, Rhomberg soon dropped the price to $360,000. Then, he shaved it to $345,000. Again to $325,000. Then, $305,000.”

“Now I’m down to $295,000, looking for an offer, any offer,’ said Rhomberg, who spent about $64,000 on the home to build an addition, bar and bookcases. ‘So many people are just looking, looking, looking,’ Rhomberg said. ‘They just can’t sell their (own) house.’”

“Former Sun City resident Akber Haidri said he has been ’scrounging every penny’ since he moved to Atlanta in May with his wife and bought a $480,000 town house. The couple put their 2,600-square-foot, lagoon-side house in Sun City on the market in November for $459,000. Since then, they have reduced their asking price to $389,000. No one has toured the house for three months.”

“‘You can drop the price as much as you want, but if there’s no buyer, what do you do?’ asked Haidri.”

“Beside the glut of neighbors’ homes he’s competing against for a sale, Sun City developer Del Webb is building new houses at comparable prices.”

“The $3,000-a-month mortgage payment Haidri pays for the Sun City home has forced him to delay the decoration of his Atlanta home and cut out visits to restaurants. ‘We are postponing even putting curtains on the windows,’ Haidri said.”

“Rhomberg attempted to rent the house until it sells, but a property company said not to bother listing it, the company is flush with properties to rent.”

The News Press from Florida. “People who work for a living are feeling the pain — especially those in the construction trades who find themselves unable to make close to what they did during the boom.”

“Dolores Taylor, the former mortgage underwriter said a history of making good money is no help in the search for a new job.”

“‘I can’t even get a basic cashier job, things are so bad,’ she said. ‘I have 15 years’ mortgage experience. When they look at my resume, they basically say, ‘What are you doing here? You’re overqualified to be an $8-an-hour cashier.’”

“Christina Torres was a drywall installer and faux painter for 30 years, making good money in Southwest Florida and around the country. Now, she said, ‘I’m trying to brush off my GED, trying to get a teacher’s assistant job.’”

“Torres said she had been making $18 an hour, but the teaching job would pay $10. ‘I haven’t been making 10 dollars an hour for 30 years,’ she said.”

“The job, even if she gets it, will not pay all her living expenses. ‘I’ve got $2,300 a month in bills,’ she said. ‘I’m going to have to work two jobs.’”

“It doesn’t help that insurance on Torres’ North Fort Myers home has gone up $500 a month since she bought it in 2003. She likes Southwest Florida, but isn’t sure it’s in the cards for her to stay here. ‘Everything’s so expensive here, the housing’s so bleak here,’ she said. ‘It’s only made for the rich.’”

“The situation isn’t likely to turn around soon, she predicted. ‘I can feel the recession,’ she said, ‘and it’s going to get worse.’”

“Jim Rose used to spiff up his 16 rental apartments as fast as he could in order to get them leased out again. Now Rose doesn’t worry so much about getting a unit back on the market — it’s likely to take a while to get it leased out.”

“From his vantage point as landlord, he sees what’s happening: a mass exodus of the construction tradesmen and others who rented his $500-a-month efficiencies in Cape Coral. ‘In the last three months I’ve lost three tenants,’ Rose said. ‘It wasn’t like the lease was up and they left. They just left. One wrote me a letter; the other two just disappeared.’”

“It doesn’t help, he said, so many newly-built houses in Cape Coral are on the rental market at fire sale prices. ‘There are people desperate to rent their house because they can’t sell it,’ he said. ‘I can rent a three-bedroom house for $650.’”

“‘It just finally dawned on me a month ago, man: We’re in a fix here,’ he said. ‘If it’s not a recession, I don’t know what the hell it is.’”

“Ray Kest, an economics professor at Hodges University in Fort Myers, spent the summer tracking various economic indicators. ‘Each one of them shows a trend downward,’ Kest said. ‘Every one shows an upcurve from 2003 to a peak in 2005 and then it starts going down slightly in 2005 and a big free-for-all in 2006. They’re all down except foreclosures.’”

“Steve Shimp, president of construction company Owen-Ames-Kimball in Fort Myers, said he’s seeing it, too. ‘I would tell you that this is probably more broad spread than what we’re looking at on the surface, and deeper than what we want to believe,’ he said.”

“‘I think that unfortunately it is kind of flowing into the rest of the marketplace,’ said Michael Timmerman, Naples-based managing director for Florida at Hanley Wood. ‘The fact is that there’s a lot of people who can’t get the financing, can’t get refinanced. It gets to the point it starts affecting disposable income.’”

“Still, he said, the news isn’t all bad: Property and labor costs are falling, and the tourism industry remains relatively strong.”

The St Petersburg Times from Florida. “President Bush extended a helping hand Friday to thousands of homeowners caught in the financial bind of escalating mortgage rates.”

“Those most vulnerable may benefit little from the administration’s offer. ‘You’re talking about helping people who have relatively good credit and that’s not the problem,’ said Scott Brown, senior economist at Raymond James & Associates in St. Petersburg.”

“Wachovia Bank economist Mark Vitner said Bush is doing the right thing by not offering help to investors. ‘In Florida and California, unfortunately the speculators need to be hurt,’ Vitner said. ‘That’s the only way we’re going to restore affordability. If we don’t make housing more affordable in Florida, people can’t afford to move there.’”

“Exactly how much help to provide debt-burdened homeowners is not a simple issue. ‘We do not want to take all of the mortgages that are certain to default and just have the government pay them off,’ said Stuart Feldstein, president of SMR Research Corp., which researches housing issues. ‘Even if we could afford it, it would just encourage more loony lending going forward.’”

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