The Housing Bubble

The Sacramento Bee reports from California. “About a year ago, Susan McDonald began to see dead lawns, weeds and vacant houses in her new Elk Grove neighborhood built nearly overnight during the housing boom. Months later, as (the) downturn continues to deepen across the Sacramento region, thousands more empty homes and their unkempt lawns have become the ugly face of rising foreclosures and bank repossessions.”

“Many real estate agents estimate that about 40 percent of the 10,000 single-family houses for sale in Sacramento County are empty.”

“‘There are so many new homes here and so many investors from the Bay Area,’ McDonald says. ‘When we pull up the owner’s names, nine times out of 10 they live in the Bay Area.’”

“A big problem is dealing with banks that own hundreds of empty houses after foreclosing on them.”

“‘I’ll tell you the banks are inundated right now,’ says Pete Piccardo, code enforcement supervisor in Folsom. ‘They’re not thumbing their noses at us, but it’s like ‘You’re on our list. I’m sorry, we’ll get to it when we can.’”

“Luann Richardson, a Fair Oaks specialist in selling bank repossessions, says banks have been slow to spend money on sprucing up foreclosed properties.”

“‘They would sell so much faster if there was just a light fix from a general contractor,’ Richardson says. ‘They need to come in and act like a businessman and fix it up or severely drop the price to get them moving. Because they’re not moving.’”

The San Francisco Chronicle. “The worse times get in the housing market, the better they are for Cecily Tippery. That’s because she specializes in selling foreclosed homes that have been repossessed by lenders.”

“Tippery’s territory, which ranges from Pittsburg to Brentwood, encompasses many of the Bay Area neighborhoods hardest hit by foreclosures. The eastern Contra Costa County towns, where new construction has been rampant, were a hot spot for subprime mortgages, given to people with poor credit and few assets.”

“‘Anybody who could breathe got a loan,’ she said. ‘They had low entry rates and financed to the max. Everyone was betting the market would continue to increase so they could refinance into a new loan.’”

“One five-bedroom Brentwood home was purchased about three years ago for $850,000 and appraised at $1 million within a year of that. ‘Now I’m having a hard time getting it sold at $650,000,’ she said.”

From CBS 5.com. “Foreclosures are hitting hard in Stockton, Contra Costa, Sacramento County, Fairfield-Vallejo, and all around the country, and billions of dollars worth of mortgages are going to reset to higher rates next month.”

“The team at San Francisco’s Consumer Credit Counseling Service is swamped with phone calls. A staff of 10 takes close to 200 calls a day from desperate homeowners threatened with foreclosure. Director Rick Harper is scrambling to double the number of counselors now that calls are being forwarded from the National Foreclosure Hotline.”

“Harper says half of all the foreclosures are cases where the homeowner simply walked away. They just let the house go.”

“Realtor Kelly Stombaugh says many Fairfield homeowners who need to sell have to be willing to let their house go at $20,000 to $30,000 under asking price in neighborhoods with high foreclosure numbers.”

“‘Do not walk away. That foreclosure will be on the record for a long time and it will prevent you from buying another house,’ said Stombaugh.”

From CBS 13.com. “In the Fairfield-Vallejo area for every one homes in distress there are two homes on the market that are not foreclosure sales.”

“So for sellers like Kathleen Conklin this real estate market is a nightmare. ‘Our house was on the market for 8 months. We were not able to sell it, so we took it off the market thinking it would improve and it got worse,’ said Conklin.”

“She reduced the price several times on her Fairfield five bedroom 3 bath home, with a backyard pool, from $670,000 down to $635,000.”

“The Kihn family was renting a Fairfield home that went into foreclosure. Now they’re moving a few miles away to Vallejo into a two level house big enough for the growing family.”

“‘The house was purchased in May for $599,000. We put an offer it for $385,000,’ said Albert Kihn.”

“That’s $200,000 less than the original purchase price, but the bank agreed and threw in extras. ‘They did closing costs and all the pest work and repair damage on the house,’ said Kihn.”

“So while the Kihn’s plan a future in their first home, the Conklin’s can’t move to the mountains for retirement, until they sell. ‘So far we’ve had one person look at it and no offers,’ said Conklin.”

The Orange County Register. “The owners of an Anaheim fixer-upper got into a pickle when the value of their two-bedroom condo fell below the $335,000 they owe on their mortgage.”

“Unable to afford their monthly payments, they ended up with just two options: lose the home to foreclosure, or sell it themselves for less than they owe and ask the lender to eat a loss of $25,000 or more. If the lender agrees, the condo will be sold as a ’short sale.’”

“Short sales have skyrocketed in Orange County during the past 12 months, according to new figures from the Southern California MLS. Figures show that 193 new Orange County listings appeared in the MLS from July 24 through Aug. 23. That’s up from 23 Orange County short-sale listings added in the same period in 2006.”

“‘It’s really just a (result) of several years of very liberal (loan) qualifications,’ said Ken Wagner, a member of the Short Sale Advocates division of Century 21 Superstars in Yorba Linda. ‘Lots of people got those loans expecting the market to continue to go up, and the market didn’t.’”

“Wagner said that the bulk of people seeking to do short sales bought their home within the last three years, when prices were at or nearing the peak of the market. Many used subprime loans. Others were homeowners who bought earlier, then refinanced into a much bigger loan with escalating payments.”

“‘We saw a huge increase in this in May or June,’ said Mac Mackenzie, an agent in Irvine. Between 15 and 20 of the 60 listings he now has are short sales, Mackenzie said.”

“Mackenzie also believes that the number of short sales is far greater than indicated in the MLS. Many sellers are afraid that disclosure would scare off potential buyers since short sales are more complicated and take far longer than normal sales.”

“‘I would take the rate of disclosures that you see and (multiply) it by five,’ he said.”

“Ron Garber, chairman of Shortsaleplan.com, said lenders are starting to show more willingness to approve short sales.”

“‘The lenders are starting to gear up their departments and be more efficient,’ Garber said. ‘It’s becoming more of a pure economic decision where lenders are looking and thinking what makes sense. Before, they were playing hardball because they didn’t think it would be as dramatic as it truly is.’”

The LA Times. “The ripples of the U.S. real estate boom began washing up on the shores of this beach town a few years ago. Californians, feeling flush from the steep run-up in housing values stateside, pulled equity from their primary homes and snapped up vacation properties in northern Baja California as if they were buying $10 lobster dinners.”

“Ground zero was this mid-sized community about 20 miles south of Tijuana, where developers sold hundreds of condominiums on spec.”

“‘We nearly had…fistfights’ over choice units, said Michael Coskey, sales director of the Residences at a 274-unit development under construction north of Rosarito in which the average condo is priced at $500,000. ‘We were all appealing to people’s greed.’”

“Greed has turned to regret for some investors who now can’t sell their Mexican properties.”

“Californian Chris Romero’s biggest worry two years ago was missing out on the action. He had his eye on a $200,000, two-bedroom condo in a project called La Jolla Real in Rosarito. But by the time the then-Diamond Bar resident was ready to commit, the developer had raised the pre- construction price to $250,000.”

“Instead of folding, Romero doubled down, handing over a $120,000 down payment to lock up two units, one for $238,000, the other for $270,000, before prices increased again. The retiree and his wife reckoned they’d sell the cheaper one just prior to closing and use the profit to help finance the other.”

“‘The market was booming,’ said Romero.”

“No more. With the development nearing completion, he’s finding buyers scarce and competition fierce. Rosarito is littered with so-called ‘resale’ units whose owners are looking to unload them. Romero is offering a $5,000 bonus to anyone who can bring him a buyer. His $290,000 asking price is ‘negotiable.’”

“More inventory is on the way. About 7,000 condominiums are in the pipeline from Tijuana to Ensenada, with another 5,600 in the planning stages, according to the Assn. of Resort Developers of Baja California.”

“Flippers who can’t find buyers will have to come up with the cash to honor their contracts, or secure Mexican mortgage financing at rates as high as 12%. Those that can’t close the deals risk forfeiting their down payment, often 30% of the purchase price.”

“‘The ones who bought multiple units are going to be in real deep doo-doo,’ said real estate agent Roberta Giesea. ‘The market has slowed way down.’”

“After four futile months of marketing her condo, Judy Dinnel just wants out. She and her husband planned to flip a two-bedroom unit in a project called Riviera de Rosarito that they bought last year during pre- construction for $330,000.”

“At their $369,000 asking price, the Avila Beach, Calif., couple would barely break even, after paying commissions plus a $10,000 bonus they’re offering agents to move the unit. More than 40% of the project’s condos are back on the market, according to the listings on the development’s website.”

“To protect their $100,000 down payment, the Dinnels are considering taking an 11% loan from the developer until they can find a buyer. Those payments would run $3,300 a month, more than double the monthly payment on their California residence.”

“‘We will be strapped,’ said Dinnel. ‘We’ll have to cut back on everything….I’m losing sleep.’”

Readers suggested a topic on acceptable entry levels. “I’d like to recommend a weekend topic of what price and area people are going to buy in. What are they going to consider a buy signal and what will make them hold off? I think I’m going to get a condo in Miami, downtown San Diego, and Vegas for vacation rental biz. Maybe even a home in Costa Rica once they dry up like a dead dog.”

“The condo’s would have to be buy-one-get-one-free for me to jump. I think if they want to move property they will get better action that way. One to live in and one to rent. Can it get that bad?”

“We are in the second inning of a perfect game…the only thing that can keep it from a perfect game is the kool aid buyers diving in front of the fast ball!”

A reply, “If sellers in my area would accept an offer 10-12 percent below asking, that would be my signal. I’m not waiting for rock bottom. I just don’t want to pay for anything hideously overpriced.”

“Currently sellers are obstinately holding out for their wishing prices, as the comps slowly but surely reset downward.”

One has this buy signal, “Here’s the answer: PACKAGED FORCLOSRES.” “For a limited time you can get a condo in Miami, a beachfront house in Texas, and a Boat in Washington State…..all for the price of…[insert b***s**t finance package here].”

From MarketWatch. “Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated in many markets.”

“But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order, real estate professionals say.”

“Further, buyers need to effectively explain why the price of a home should be lower. That’s what Pat O’Heron did recently when buying a home in Ann Arbor, Mich. He was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood that had two years’ worth of inventory on the market.”

“Before he even made an offer, the asking price had already dropped by about $80,000, he said. After O’Heron made his case why the cost should be even lower, he eventually bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.”

“‘There’s a danger of them taking it too personally,’ said Jon Boyd, president of the National Association of Exclusive Buyer Agents. ‘When you’re making the offer, if you justify that offer with outside data, then it’s much less likely to be perceived as being an insult or (the buyer) not as serious,’ he added.”

“If the sellers have already purchased another home and that sale has closed, they’re likely to be more willing to make a deal, said Dick Gaylord, president elect of the National Association of Realtors and a broker based in Long Beach.”

“And certainly if the property has been on the market for a long time, sellers will be interested in entertaining any offers, he added.”

“‘If we just looked at the relative values of the houses that sold, we would end up paying too much for that house because we know that the values are going to fall,’ he said. ‘If we see two years’ worth of inventory, we should be buying 5 percent, potentially 10 percent less than what houses have sold for in the past year in the neighborhood.’”

“Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Gaylord said. That way, they can detail what they like about the house but express their fear of future dropping values.”

“‘The difficulty we’re having in my market right now … sale prices are not dropping, things are staying on the market longer,’ Gaylord said. ‘Buyers read about how terrible the market is; sellers don’t want to budge because they’re reading that prices aren’t falling.’”

“Danielle Kennedy, a real estate sales coach based in Pacific Palisades, advises sellers not to think of a low offer as an insult but as ‘a sign of interest.’”

“‘And it begins the dialogue regarding the purchase of your house,’ she said. ‘They should make every effort to be grateful that an offer has come in.’”

“Also, not all hope is lost even if a seller doesn’t bite immediately. Sometimes after time elapses, the seller comes around and decides to negotiate, Boyd said. Or new information, such as the sale of a comparable home at a lower price, can nudge a seller to give an aggressive offer a second look and open the negotiation process.”

The Wilmington Star reports from North Carolina. “The tightened home lending standards are having an impact on the local real estate market. ‘You ‘have to really make sure you’re pricing properly,’ said Pete Frandano, principal at Southport Realty. ‘Sellers need to lower their expectations from two years ago,’ Frandano said, pointing out that we’re in a cycle where the market heavily favors the buyer.”

“In New Hanover County, a nominal number of closings have fallen through because of mortgage problems, said broker Lenora Norris. But she sees a pent-up demand for homes here, despite the sizable inventory of homes for sale.”

“‘California is a big market for us. They’re paying cash,’ Norris said. ‘That type of client has helped us to maintain our property values.’”

“‘The easy money has gone away,’ said Chris Hutchens, a loan officer in Wilmington. ‘Two years ago anybody could have gotten a 100 percent loan on a second home or investment property. Most could get 95 percent to 100 percent (mortgages) on stated income.’”

“‘Appraisals are being looked at carefully and cautiously, especially in high loan-to-value loans,’ or those with low down payments, Hutchens said.”

“Among other potential homeowners most affected by tighter lending standards are the self-employed. Stated-income were an answer. The self-employed can still get a mortgage, but ‘you will be asked for more down or more documentation,’ Hutchens said. ‘And just signing your name will be a thing of the past.’”

The Journal Now from North Carolina. “Don Jud, an emeritus professor of economics at UNC Greensboro, is not surprised by the price slowdown in Winston-Salem. The main culprit, he reckons, is that there are too many homes being built to meet immediate demand.”

“‘No question, the market is slowing,’ he said. ‘It’s too much inventory.’ Builders, he said, were simply too optimistic and ‘overextended.’”

The Sun News from South Carolina. “Prices for oceanfront condominiums along the Grand Strand have been on a roller coaster in recent years, and have now plunged to levels seen three years ago before the condo boom.”

“‘We’re exactly where we were three years ago. If we’re not there, we’re really darn close. It’s like we erased the spike,’ said Mark Loomis, a real estate agent who specializes in oceanfront condos.”

“Case in point: Camelot by the Sea, a themed 230-unit condo tower that opened in 2001 in Myrtle Beach, sold a one bedroom unit in January 2005 for $209,900. The sales topped out at $345,000 six months later. In June, one sold for $176,000 - lower than the 2005 price.”

“Loomis said he sold a condo at $169,900 in August of 2004…that closed in March 2005. That summer, he had a buyer who wanted to purchase his client’s unit for $260,000. They passed up the offer. A year later, the same condo had an offer of $200,000. His clients said that was way too low and passed again.”

“Now, the condo is listed for $157,900, $12,000 less than what the client bought it for initially. That condo took only 10 days to go under contract for the low $157,900 price, which proves that buyers are out there, Loomis said.”

“The fall in prices turned a potential $90,100 profit if the client had sold in 2005 into a $12,000 loss.”

“The tide of the condo boom turned so quickly few saw it coming. ‘It’s like an instant brick wall on the roadrunner show and there’s no skid marks,’ Loomis said.”

“Loomis said that basic economics dictates that prices may still have room to fall because inventory is still slowly rising.”

From Online Athens in Georgia. “Athens residents and officials were aghast when they saw plans for a proposed 264-acre, 425-house subdivision on rural Newton Bridge Road.”

“‘This one scares me to death,’ north Athens resident Jim Spencer said. Athens-Clarke planning commissioner Karen Middendorf agreed at a meeting Thursday night. ‘To put this thing in that area is just a very, very bad idea,’ Middendorf said.”

“At least a half-dozen suburban subdivisions of more than 100 single-family homes are coming down in the pipe in Athens. And that’s not even counting already-approved developments like Oak Grove on Jefferson Road or Creekside on Atlanta Highway, urban infill houses, student apartments or Gameday-style downtown condominiums.”

“If built, the six subdivisions recently approved or currently under review by planners would add about 2,000 houses to a county that already has a surplus of almost 4,000 residential units, according to the Athens-Clarke Planning Department. At the current pace of development, that surplus will grow to almost 14,000 units in 2020.”

“Despite the recent downturn in the housing market, houses just keep on coming in Clarke County and the surrounding region. And county officials are at a loss about how to rebalance the market and ramp down development to match Athens’ modest 1.3 percent annual population growth.”

“‘All I know for sure is, in my opinion, we don’t need to be approving houses when we have 900-plus houses on the market,’ said Athens-Clarke Commissioner Doug Lowry, a real estate agent. ‘We are way overbuilt in Athens.’”

“Athens real estate broker Michelle DeRepentigny and David Hamilton, co-chairman of a committee that’s dealing with housing for Athens-Clarke’s new 10-year comprehensive plan, laid overbuilding at the feet of developers who ‘flip’ or sell properties to other developers and take out new construction loans to stay afloat in hopes that the market rebounds.”

“‘They just have to keep going and keep going and keep going until they have to stop,’ Hamilton said. ‘They have to keep the ball rolling on those things, because once it stops, it all comes crashing down.’”

“New houses still are selling for now, though sometimes at a discount. Existing houses for sale are bearing the brunt of a slow real estate market. ‘The new construction has been very competitive and … the resales are lagging,’ said DeRepentigny.”

“Lowry said he wonders whether the construction boom will stop, or the market will collapse completely as homeowners with adjustable-rate mortgages find they can’t keep up with higher interest rates and developers continue to flip properties in an effort to stay afloat.”

“‘We don’t know what the bottom looks like,’ Lowry said. ‘I can’t tell you what the turnaround looks like.’”

The St Petersburg Times from Florida. “Jill Jackson, a single mom and apartment renter with an annual take-home pay of about $24,000, managed to go on an incredible real estate buying binge last year.”

“In the span of 10 weeks, she bought 10 properties. She did not put a single penny down, borrowing the price for all 10 by signing for mortgage loans totaling $1.84-million. The investment plan seemed too good to be true. And it was.”

“A year later, Jackson’s portfolio has collapsed like a house of cards, with every one of the 10 properties in foreclosure and Jackson’s credit wrecked. The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”

“‘I didn’t know what I was doing,’ Jackson acknowledges. ‘I don’t have any background in real estate.’”

“Beginning with three closings on a single day in February 2006, Jackson says she followed the Investors Outlet instructions, buying 10 properties she never had seen. She paid about $700,000 more for the portfolio than the county property appraiser said the properties were worth, a premium of 61 percent.”

“‘This is a snapshot of what’s happening in every village, town, city and county in America,’ said Ralph R. Roberts, a real estate broker. ‘A lot of unassuming young men and women are being induced to be straw buyers.’”

“As before her foray into real estate investment, Jackson lives in a second-floor apartment in St. Petersburgand owns no real estate. She says she has been hurt by the investment fiasco and the accompanying newspaper publicity but has learned from it.” “‘I didn’t wish for it to turn out this way,’ she says. ‘I know a lot more now.’”

The Palm Beach Post from Florida. “The number of property owners fighting to lower their tax bills is expected to grow by as much as 40 percent this year — the highest number of challenges in more than a decade.”

“County Commissioner Jess Santamaria said he plans to challenge the value of all of the residential investment property he owns. Residents who feel their values are too high should do the same, he said.”

“‘The prices are artificial,’ Santamaria said. ‘Between 2002 and 2005 they spiraled to double and triple the value on paper. But those were artificial values. Now we are starting to come down to reality. The prices may still continue to drop until they become realistic, and until then you’ll have to contest it.’”

What do you see in your local housing market this weekend? Overbuilding? “In Loudoun County, Va., it seems that everywhere you look, construction crews are still building. But more than 440 foreclosures have been filed at the courthouse in Leesburg so far this year. ‘Everywhere you go, there are for sale signs and foreclosure signs,’ Jack Baumgartner said. ‘People got in over their heads with mortgages they can’t afford. It makes you sick.’”

Slower sales? “North Texas home sales continued a downward trend in August, with 10 percent fewer houses changing hands than a year earlier. The drop was even steeper in the condominium market, where sales were off 17 percent. ‘Some companies seem to be down significantly, while others are down slightly,’ said Jim Fite, president of Dallas-based Century 21 Judge Fite Realtors. ‘Same with areas’ of the city.”

Canceled projects? “A Chicago-area home builder will not proceed with expansion plans for a large condominium development in St. Francis that overlooks Lake Michigan. The move ends Kimball Hill’s troubled foray into the Milwaukee area.”

Housing related layoffs? “With the housing bubble bursting and new homebuilding in decline, Montana’s lumber industry is starting to feel the pinch, according to Charles Keegan, a researcher with the University of Montana.”

“After a five-year building frenzy fueled by low interest rates and real estate speculation, the downturn in building is expected to last through next year, Keegan said. ‘Construction this year and next year will be considerably below long-term averages,’ he said.”

“According to Keegan, the high rate of construction, which started around 2001, led to a glut in the market and a nosedive for housing prices nationwide.”

“Paced by losses in construction and manufacturing, the world’s largest economy shed jobs for the first time in four years last month, according to the U.S. Labour Department. ‘A drop of this magnitude has never been observed outside recessions,’ National Bank Financial economist Stéfane Marion remarked. ‘That is unnerving.’”

“Countrywide Financial Corp., the biggest U.S. mortgage company, plans to cut its workforce by 10,000 to 12,000 in the largest round of firings since the industry’s contraction began last year.”

“CEO Angelo Mozilo said in an interview he has ‘no regrets’ about adding staff in recent years. ‘We adjust to the environment we’re in,’ he said. ‘It was impossible to anticipate the credit crisis we’ve seen on a worldwide basis.’”

Lending changes? “Citigroup Inc., the largest U.S. bank, curtailed lending to mortgage companies, according to two people with knowledge of the decision. The bank’s First Collateral Services unit won’t accept new clients for ‘warehouse’ credit lines, which provide cash to mortgage banks so they can fund home purchases and refinancings, the people said.”

A letter to the editor? “In all of the articles regarding the mortgage mess I have yet to see some part of the blame directed to Congress for changing the capital gains provisions of the tax code in 1997, which in part contributed to the current problem.”

“Lenders were now free to design loan programs tuned to a 2-to-5 year turnover with a minimum of monthly payments and expecting that the property would be sold at a windfall profit. As a result, housing prices rose, therefore the price of raw land rose for developers, and the spiral began.”

“I am a Real Estate broker, have been since 1975. I’ve been through up markets and down markets for a long time. Consumers of bad loans should bear the action of their greed. All of them knew they were buying homes they really could not afford. And they all thought they could sell the property for much more than they paid for it in a short period of time. They need to accept responsibility for their own actions.”

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