The Housing Bubble

The LA Times reports from California. “Southern California home sales tumbled to a 15-year low in August but the median home price continued to rise despite mounting industry woes, data released today show. Sales last month were the worst since 1992, according to DataQuick. In August, 17,755 homes were sold in the six-county region, compared with 27,875 a year ago, for a 36.3% drop.”

“‘Things are slow, but the big question is, ‘Is this a normal post-cycle lull or is the sky falling?’ I don’t think we know yet,’ said John Karevoll, DataQuick’s chief analyst.”

“What seems like a baffling combination of statistics, a plunge in sales but a rise in prices, is really a function of what kinds of homes are selling, experts say. But the story is different in lower-cost areas, especially in outlying communities that attracted first-time home buyers during the recent boom. Not only are sales falling faster, but median prices are declining.”

“Last month, the median price in Riverside County fell 6.1% to $394,523 and sales plummeted 46.4% compared with August 2006. In San Bernardino County, the median price fell 1.6% to $360,000 while sales tumbled 47.2%.”

“Elsewhere in Southern California, San Diego County’s median price fell 4% to $475,000 and sales fell 19.4%. In Ventura County, the median price fell 4.2% to $575,000 while sales fell 31.2%.”

The Press Enterprise. “In Riverside County, 2,834 homes were sold in August at a median prices of $394,523. It marks the first time the median sales price dropped below $400,000 since November 2005.”

“‘It looks like we’re pretty close to a ’floor’ level of purchase activity right now,’ DataQuick president Marshall Prentice said. ‘Market uncertainty has squeezed out most discretionary buying.’”

The Union Tribune. “The price of a home in San Diego County tumbled to a median $475,000 last month, down $20,000 from a year ago and $14,000 from July, as the number of sales continued falling, DataQuick reported Wednesday. There were 19.4 percent fewer sales than there were a year ago.”

The Orange County Register. “It’s official! O.C. home shoppers have failed to meet the year-ago buying pace for the 23rd straight month, eclipsing the previous longest losing streak back in 1989-91. The sales slump decidedly worsened in the year’s middle third: May to August, a typical year’s prime selling season.”

“DataQuick reports that 2,285 residences of all types were sold last month. That’s down 33.9% from a year ago and 48.9% below the average August in DataQuick’s 20-year history of O.C. sales data. August was so slow that it was the slowest August in DataQuick’s records back to ‘88 and the 11th slowest month overall.”

“Foreclosures in Orange County spiked last month to their highest level in nearly a decade. Banks foreclosed on 469 homes in August, the highest since October 1997, reports DataQuick.”

“And lenders sent out 1,476 notices of default last month, the highest in nearly 11 years. Default notices rose 26.5 percent from July and 196.4 percent from a year ago.”

“Who’s more to blame for the rise in foreclosures, overstretched working families who may have been preyed upon by predatory lenders, or speculators who bought homes for investment purposes? Economist Ryan Ratcliff of the UCLA Anderson Forecast analyzed the data and concluded that it’s the former.”

“More from Ratcliff: ‘(T)he lack of wider financial distress in the economy suggests that this spike in foreclosures is fundamentally different than previous cycles, the days when homeowners ate Top Ramen and let the repo man take the car before missing a mortgage payment may be a thing of the past.’”

“‘But this need not imply that today’s homeowners are somehow less conscientious about their finances. It may be that the mortgage payment has become so large that Top Ramen makes little difference, or that the lack of refinance opportunities and the adverse incentive of a huge prepayment penalty if you do refinance simply make foreclosure the least terrible of a set of terrible choices.’”

The Daily News. “The slumping housing market and rising foreclosures will continue to erode California’s economy until late next year or early 2009, but UCLA forecasters still maintain it will not tug the state into recession, according to a report released this morning.”

“‘With housing as weak as it is, the rest of the economy is going to keep its head above water. This is the glass is half full kind of a take,’ said University of California, Los Angeles, senior economist Ryan Ratcliff, author of the California report.”

“Ratcliff said that the forecast takes into account the mortgage sector turmoil that has so far resulted in thousands of job losses and some major players going bankrupt or closing down.”

“He also offered this caveat during an interview. ‘If it gets significantly worse than it’s been then maybe that’s enough to push us into recession without another source of weakness,’ he said.”

“Leslie Appleton-Young, chief economist at the California Association of Realtors, agrees that it will be at least until 2009 before the residential real estate market experiences anything resembling a rebound.”

“She also expects prices to fall by various amounts depending on the severity of the foreclosure situation. ‘I don’t think we’ve bottomed out yet. I think that will happen in 2008,’ she said.”

The San Francisco Chronicle. “The Bay Area should fare much better than the rest of the state, according to a widely watched forecast. ‘We still think we’re just going to get grazed by the bullet,’ UCLA economist Ryan Ratcliff said.”

“Local builders are hunkering down. ‘We’ve cut back, and we’re still in the process of cutting,’ said Kile Morgan, chairman of Ponderosa Homes in Pleasanton.”

“A few years ago, Ponderosa was building 250 to 300 single-family homes a year, with a median price of about $850,000. Now it’s down to fewer than 150 homes and has slashed its workforce to 50 from about 65, Morgan said. Its subcontractors, who do actual construction, have shrunk similarly.”

“‘Everybody’s looking for where the bottom is,’ he said.”

“Wells Fargo & Co. economist Scott Anderson stresses the risks of a statewide economic downturn more than UCLA forecasters do, pointing to how vital construction and other housing-related jobs have been to the state’s growth in recent years.”

“‘The odds of a recession (in California) are closer to 40 percent, given the outsized dependence on housing,’ Anderson said.”

“Both Anderson and UCLA forecasters stress that the biggest risk to California’s economy is that the housing slump will prove worse than they predict. ”

The Mercury News. “So far, the impact has been relatively small, according to the UCLA forecast and one released by the University of the Pacific Business Forecasting Center.”

“‘The consumer continues to spend,’ said Sean M. Snaith, who helped prepare the University of Pacific’s California and Metro report, which foresees a decline in housing prices through 2008 that ‘will not remotely resemble a bursting bubble.’”

“‘No question about it, we’re slowing a little,’ said Stephen Levy of the Center for Continuing Study of the California Economy. But the valley’s economy is ‘carried by the world, so the U.S. recession will hurt us, but will not take away the luster.’”

“‘By and large the soft landing is still the story,’ the UOP’s Snaith said. ‘It’s been a more turbulent landing that we would have liked, and it’s going to be little longer before we take off again.’”

“UCLA’s Anderson Forecast on the California economy also found ‘little evidence that mortgage defaults have led to wider financial distress for consumers.’”

The Central Valley Business Times. “A total of 9,477 properties, with a total loan value of $3.86 billion, were sold at auction in California last month, a 10.4 percent increase over July, according to a Discovery Bay-based foreclosure information service.”

“Speculator-owned properties (non-owner occupied properties) accounted for $1.71 billion of that total and represented 44.3 percent, or 4,199 of the properties sold at foreclosure auction.”

“CEO Sean O’Toole says the subprime market took the first hit as those borrowers had the least to lose when they walked away. ‘Now that nearly half of foreclosures represent non-owner occupied properties, it is clear that speculators are walking away too,’ he says.”

“Almost all (90.3%) of all foreclosure sales in California in August were for homes purchased or refinanced in 2005 and 2006. Of properties sold at auction, 95% went back to the bank, for a total of 9,015 properties with a loan value of $3.7 billion.”

From KGET.com. “FBI agents and other federal authorities were searching the home and offices of real estate agent David Crisp and his family and associates Wednesday morning.”

“On Monday, the California Department of Real Estate issued a formal accusation that said Crisp acquired homes in the area, then dramatically raised the prices of the properties.”

“Several of the homes already are in default. If they go to foreclosure, the mortgage company will sell them, but stand to lose hundreds of thousands of dollars because, experts say, the loans were made for more than the properties are worth.”

The Bakersfield Californian. “The home of Crisp’s mother was searched by FBI agents. And at around 11 a.m. Wednesday, two men were seen being led from the home in handcuffs and into a Bakersfield Police Department vehicle.”

The Press Democrat. “Owning a home means paying down a car loan, giving up dinners out and other scrimping for Reyna and Richard Jackson. The Santa Rosa couple, who bought their first home this summer, spend nearly half of their income on their monthly mortgage payment.”

“‘It is a big chunk,’ Reyna Jackson said. ‘It’s hard, it’s stressful. So far, so good.’”

“‘The thing that drove people to say ‘I’ll pay that’ was the fear of not getting in the game and never being able to buy a house,’ said Randy Blankenbaker, regional manager for Chase Home Mortgage.”

“During the run-up in home prices, houses increasingly were viewed as investments instead of shelter. ‘That was certainly the gamble. They weren’t thinking of it as a place to live, they were thinking of it more as an investment,’ said Darren Seliga, owner of Seliga Financial in Santa Rosa.”

“Many loans were made without requiring buyers to document income or assets. ‘Any loan officer can add and divide to come up with the figure to qualify. There’s no question that everybody may have overstated incomes,’ Blankenbaker said.”

“But the housing boom was not sustainable. High prices pushed out more buyers and made others wary of purchasing homes. The market peaked in 2005, followed by a slump that has seen prices fall the past 13 months. The county’s median home price is $575,000, down 9.3 percent from its August 2005 peak.”

“The Jacksons didn’t want to wait longer to purchase their first house. After a year of looking and watching prices fall, they bought a three-bedroom house in southeast Santa Rosa in July for $395,000 that originally was listed in February for $482,000. The deal went through after the seller’s lender approved the sale for less than what was owed on the mortgage.”

“‘We were nervous about getting into a house because of the mortgage payment. But we had to just do it. Even if the home prices went down more, lenders are getting more strict and it could be harder to get a loan,’ Reyna Jackson said. ‘A year ago, there was no way we could afford a home. It was definitely worth the wait.’”

“The Jacksons’ monthly housing costs jumped from $1,300 in rent for a Windsor house to $3,092 for their mortgage, taxes and insurance. To make ends meet means fewer new clothes, more frugal grocery purchases and other cutbacks.”

“‘I combine our errands so I don’t waste gas,’ she said. ‘We definitely live a different life.’”

The Journal Gazette reports from Indiana. “Builders received nearly 37 percent fewer Allen County home construction permits last month than August 2006, according to the Home Builders Association of Fort Wayne. Media stories about the mortgage crisis and increasing foreclosures are making potential buyers skittish, said Jim Lancia, president of Lancia Homes. Lancia Homes hopes sales will rebound this month and in October, Lancia said. Otherwise, it might be a long winter for homebuilders.”

“‘We’re braced for anything though,’ he said, ‘whatever happens.’”

The Indystar. “With home foreclosures near record highs in the Indianapolis area, businesses like Indy REO that cater to the distressed property market are bustling.”

“Foreclosures are so prevalent that they make up one in five home sales in the metro area. Sales happen when lenders take title to houses after the owners fail to keep up with the mortgage payments.”

“In many Indianapolis residential areas you can count on 50 recent foreclosures within a one-mile radius, estimates Seth Payton, an urban policy analyst at Indiana University- Purdue University Indianapolis.”

“‘There are deals in every neighborhood. The market’s flooded with ‘em. It’s bad for banks but good for…people like me,’ says Michael A. Scott of Southport, who has bought three foreclosed houses this year.”

The Daily Herald from Illinois. “During 2005 and 2006, more than 30,000 people settled into homes that today stand where corn fields once did in Kane County towns. Yet mounting signs of a suburban housing slump also urge caution.”

“Aggravated by an increase of homes on the market, flat or falling prices and higher foreclosure rates, homeowners continued to buy and have faith in their investments across the Chicago region. At least, they did last year.”

“Median home values reported in suburban counties inched higher last year, posting anywhere from a 3.8 percent to a 13 percent increase from 2005, according to the Census Bureau’s American Community Survey.”

“Such confidence, a year delayed and by definition, subjective, counters evidence of a real estate rut that emerged in 2006 and could persist through 2008.”

“Appreciation among home values appears to be slowing, a trend too new to register with census research yet too evident to ignore, experts said. ‘The state we’re in is something most Realtors, myself included, have never experienced,’ said Mike Boraca, a 20-year market veteran. ‘The data will be radically different the next time it comes out.’”

“Consider this: Boraca’s office listed 217 properties in August. It had 38 showings during the entire month, down dramatically from the two or three showings a single listing typically draws in a month.”

The Capital Times from Wisconsin. “UW-Madison economist Morris Davis doesn’t want to become known as the most bearish real estate pundit out there. But considering past housing slumps and the depth of the current crisis, Davis isn’t looking for any recovery for at least another three years.”

“‘Normally these bust periods last about four years and we’re only one year into this one,’ he says.”

“Unfortunately, says Davis, things will likely get a lot worse before they get any better. That means prices will keeping falling, new construction will slow to a crawl and more people are going to lose their homes — and their jobs.”

“UW’s Davis says it’s important to realize that extending credit to poor people is central in helping everyone realize the American dream of home ownership. ‘There is nothing wrong with (subprime) loans as long as home values increase,’ Davis says. ‘The problem comes when values are falling like they are now.’”

The Journal Sentinel from Wisconsin. “Milwaukee-based ForeclosuresWI.com reported 2,064 new foreclosure filings in August - the highest single month in its five years of operation.”

“August’s influx of new cases pushed year-to-date foreclosure filings in the Badger State to 12,955, a 27% surge from the 10,229 posted in the first eight months of 2006. Last year’s volume, in turn, was 34% higher than 2005’s.”

“What’s happening here, to a greater or lesser extent, spans the nation, said Perfecto Bobadilla, chief operating officer of American Mortgage Educators Inc. in Seattle.”

“‘The reason we have this catastrophe today - irresponsible lending. These lenders were overzealous to the point of institutionalized criminality,’ Bobadilla said. ‘It’s the lenders’ fault, and the federal government’s fault for not stopping them and of course the borrowers, who always have responsibility, too.’”

“Metro Milwaukee’s housing market in August was down a little on resales, down a lot on new construction.”

“Many customers are unwilling to bankroll a new house before snagging a buyer for their home, said Matt Moroney, executive director of Metropolitan Builders Association.”

“Home builders have faced a glut of unsold homes since the abrupt end of the nation’s heady 2001-2005 housing boom. Speculators who feverishly bought up properties during the boom abruptly departed, leaving unwanted holdings behind. Meanwhile, buyers grew skittish and postponed decisions in case prices dropped.”

“Two unmourned absences in today’s market are speculative building and quick but costly subprime loans, said high-end builder Pete Feichtmeier, president of Colby Construction Co. Inc. in Delafield. ‘Those deals are gone,’ the builder said, ‘and probably should be gone.’”

The Pioneer Press from Minnesota. “Katherine McCollum already had a full-time job, but the St. Paul mother of two had to pick up a weekend gig cleaning office buildings to make ends meet.”

“McCollum and her husband both work seven days a week now, tapping family to babysit, as they struggle to manage the $340 added to their monthly house payment since their adjustable rate mortgage first jumped last spring.”

“And the mortgage, now $1,343, isn’t done switching interest rates yet. ‘We’re struggling,’ said McCollum. ‘We’re just staying above water. It’s bad.’”

“The local stakes are high. LoanPerformance estimates that roughly 19 percent of mortgages in the 13-county Twin Cities are ARMs, and that about 29,000 of them are hitting their first reset date in the second half of this year, with another 20,000 resetting in the first half of 2008.”

“‘The pig is going to go through the python the second half of this year,’ said Robert Visini, a LoanPerformance VP.”

“Shellie Rowe, site manager at the East Side Family Center sums up her expectations for coming months in a word: ‘Pandemonium.’”

“Like North Minneapolis, parts of St. Paul’s East Side have been slammed hard by foreclosure activity, as has Frogtown.”

“Darryl Dahlheimer, program manager at Lutheran Social Services Financial Counseling in Minneapolis, said he’s bracing for years of fallout. ‘We’re not talking about a bad storm to weather out, we’re talking about complete neighborhoods potentially being gutted out with foreclosures,’ Dahlheimer said. ‘Whether it’s Richfield or Windom, you’re still talking this problem.’”

“Minnesota has already hit its own record, with 1.57 percent of outstanding mortgages - or more than 14,000 loans - now in some stage of foreclosure. That’s the highest since the Mortgage Bankers Association started its current delinquency survey in 1979.”

“McCollum said she and her husband didn’t fully understand how their mortgage worked. They refinanced in 2005 to consolidate debt, she said, and didn’t realize the loan would be an ARM until they sat down to sign the paperwork.”

“She blamed her mortgage broker for misleading them about the loan’s terms. The broker assured them they could refinance again before their interest rate changed, McCollum said.”

“They haven’t fallen behind on their mortgage, yet. She expects the mortgage will squeeze them even harder in December, when the current 8.5 percent interest rate adjusts to 9.5 percent. Their rate will continue climbing, she said, until it maxes out at 12 percent.”

“‘We have to refinance before then,’ said Katherine McCollum. ‘We’d end up losing our home.’”

Some housing bubble news from Wall Street and Washington. BBC, “Finance firm GMAC has had to take out a $21.4 bn loan as it becomes the latest lender to reveal the impact of the US sub-prime mortgage crisis. GMAC, which has borrowed the cash from Citigroup, said boosting its financial flexibility was ‘a prudent measure’ in the current market environment.”

“GMAC’s struggling home lending unit, Residential Capital, lost $254m in the three months to the end of June. A key problem is that sub-prime loans are often repacked into wider debt groupings which are then resold. This means that no-one is yet quite sure of the full impact of the woes.”

The Financial Post. “Against a backdrop of spreading fallout from the ongoing turmoil in global credit markets, two major business leaders yesterday warned of more ugliness yet to come for the North American economy.”

“Speaking in an interview, Ray McDaniel, CEO of Moody’s Corp., said the crunch time for the U.S. sub-prime mortgage sector is only now getting going. ‘We are just at the beginning of the peak mortgage reset period,’ Mr. McDaniel said.”

The Globe and Mail. “As a former Wall Street insider, John Talbott has a better appreciation than most for how large financial institutions operate. And what he senses now is a massive effort to conceal the extent of the toxic sludge buried beneath some of the biggest names in the business.”

“‘Everybody is hiding and not disclosing losses,’ he says. ‘They’re all winking and nodding at each other because they’ve all got this stuff on their books.’”

“The subprime meltdown has been described as a liquidity squeeze, which makes it sound like a temporary problem that can be cured with an injection of cash. But the problem is far more serious, he says.”

“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”

From Reuters. “Central banks are ready to prevent a major financial shock if necessary, Bank of England chief Mervyn King said on Wednesday, as U.S. Treasury Secretary Henry Paulson predicted no quick end to the credit crisis.”

“King said ongoing market upheaval was caused by mispricing of risk and central banks had to be wary of moral hazard, encouraging investors to feel they can act without risk by stepping in every time things turn bad.”

“‘If risk continues to be underpriced, the next period of turmoil will be on an even bigger scale,’ King said in a submission to the British parliament’s Treasury Committee.”

“Paulson said the uncertainty in financial markets would last longer than the turmoil that followed the Asian financial crisis and the Russian default of the 1990s, or the Latin American debt crisis of the 1980s, the Financial Times reported.”

“He said the complexity and global distribution of securities could prolong the crisis, stemming from mass defaults on ’subprime’ U.S. mortgages. ‘We expect this period of turbulence to go on for a while,’ the newspaper quoted him as saying in Washington.”

The New York Times. “‘What’s going on is a repricing of risk across the capital markets,’ Mr. Paulson told reporters.”

“The Federal Reserve chairman, Ben S. Bernanke, said on Tuesday that a high savings rate among oil-producing nations and Asian countries continued to help depress interest rates by keeping financial markets flush with cash.”

“But Mr. Bernanke warned against banking on the steady flow of cheap money — which helped stoke overly lax mortgage lending and the recently punctured housing bubble — over the long term.”

“Mr. Bernanke (cautioned) that the flood of cheap capital from abroad was likely to taper off in the decades ahead, possibly leading to higher interest rates, as countries like China save less and consume more.”

“‘The logic of the global savings glut suggests that, as the glut dissipates over the next few decades and thereby reduces the net supply of financial capital from emerging market countries, real interest rates should rise,’ he said.”

“Some economists now believe that the flood of foreign money, some of it from investors seeking higher yields in the United States, contributed to the speculative bubble in housing prices and the explosive growth in high-risk mortgages that helped finance it.”

“Others contend that the Federal Reserve played a major role as well, by cutting short-term interest rates to rock-bottom lows after the stock market’s fall in 2000 and the recession in 2001.”

“Subprime borrowers had trouble refinancing mortgages because loan programs were no longer available, according to a poll of 1,744 brokers in the last week of August by Campbell Communications.”

“About 5 million adjustable-rate mortgages are slated to reset to higher rates in the next 18 months, according to Lehman Brothers.”

“Lenders cut off credit to customers at an especially fast rate in August as many investors stopped buying the debt banks use to finance home loans. Commenting on business in the weeks ahead, 14 percent of brokers said they had no available lender for subprime loans at all, said Thomas Popik, the author of the survey.”

“‘The question is not what home sales are doing now, but what will happen three to four months from now’ as the lack of lender funding in August filters down, Popik said.”

“Broker customers with subprime, or weak, credit faced the most problems, with 64 percent unable to refinance their ARMs in August, the survey said. Half of prime borrowers were turned away from ARM refinancing, it said.”

“Countrywide Financial Corp. has sharply reduced its subprime lending, which may exacerbate refinancing troubles because many brokers were depending on the No. 1 U.S. mortgage lender, Popik said.”

“The Campbell survey also found that a third of home purchase closings were canceled in August. Loan closings were canceled for 56 percent of subprime borrowers in the month amid failed approvals, while closings for 21 percent of home buyers with good credit were foiled.”

The Wall Street Journal. “Thousands of homeowners face an ‘imminent risk’ of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.”

“In court documents, American Home said Ginnie Mae representatives ’stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office.’ Freddie Mac said American Home ‘had its security personnel escort the Freddie Mac representatives out.’”

“In addition to Freddie Mac and Ginnie Mae, several Wall Street banks are fighting to extract their loans from American Home’s servicing operation.”

“‘What’s occurred is that we have the money, but AHM hasn’t been able to or willing to pay the taxes and insurance, and they have the loan records,’ said Ginnie Mae’s senior VP, Theodore B. Foster. ‘Therefore, we don’t know who to pay, and we don’t know how much.’”

“Orleans Homebuilders, Inc. fiscal year 2007 residential property revenue decreased 34% for the prior year period. The Company experienced a cancellation rate of approximately 23% for the year ended June 30, 2007. Fiscal year 2007 net loss was $66.9 million.”

“As a result of a various factors…the Company recorded a pre-tax charge in the fiscal year 2007 fourth quarter related to inventory impairments of $19.3 million.”

“The increasing uncertainty with respect to the overall mortgage market, including the jumbo and Alt-A mortgage markets, may further reduce demand for our homes and require the increased use of sales incentives to overcome negative buyer sentiment.”

“The McMansion may be shrinking. With the nation’s housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing.”

“‘Financing has tightened down so much that many people aren’t able to qualify for the larger houses,’ said Kathryn Boyce, an account executive in Northern California for Hanley Wood Market Intelligence. ‘Throughout the U.S. people can’t afford what they previously did. Floor plans are going to get smaller.’”

“Recently, turmoil in the mortgage market has made it harder for buyers to qualify for bigger loans. This is causing builders to redraw their blueprints. After reducing prices on their current inventories of unsold homes, the next step is to ’start building to a new market. That new market is a lower price point at a smaller size. To the extent they can do it, they will,’ said Kermit Baker, chief economist at the American Institute of Architects.”

“Jeffrey Mezger, CEO of Los Angeles-based KB Home, said the change has been ‘driven by data on what our home buyers want and what they can afford in a new home.’”

“Even Toll Brothers Inc., known for its sprawling suburban ‘McMansions,’ recognizes that buyers may want smaller homes. Kira McCarron, the company’s chief marketing officer, said Toll doesn’t track home size, but she concedes that there ‘probably is more demand for 3,000- versus 6,000-square-foot,’ homes.”

“Ms. McCarron added, ‘It’s not that people don’t want or can’t afford [big houses]. It’s that they’re afraid of them now — it’s a confidence issue more than an affordability issue.’”

“In some cases, home builders are making the shift to smaller, less costly homes in existing subdivisions, angering homeowners who bought large homes during an earlier stage of the project’s development.”

“David Raidman moved into his 2,760-square-foot lake-front home in Fort Pierce, Fla., last fall in the first phase of a gated community developed by Lennar Corp. of Miami. Mr. Raidman said he was told that his home would be surrounded by similarly sized and priced homes. But when he heard Lennar was planning to build much smaller homes in his neighborhood, he and other homeowners fought the company’s plans.”

“Although Lennar agreed not to build the smallest of its new models — at just 1,326 square feet — next to the larger ones, the home builder has continued with its plans to downsize.”

“‘Our biggest concern is what it would do to the value of our homes,’ said Mr. Raidman, who doubts he can sell his home today for the $300,000 he paid for it last year. Standing on his back porch, he can look out across the lake and see at least six newer, smaller homes. ‘The garage looks bigger than the house,’ he said.”

“But while home builders are aware that customers increasingly want smaller, cheaper homes, and in some cases can’t afford anything else, building those homes eats into their profits, often because of the high price they paid for the land the homes are built on. That leaves them having to hope for higher sales volume to offset their reduced margins.”

“Some welcome the downsizing trend, including author Sarah Susanka. Since 1997 Ms. Susanka has written several best-selling books extolling the virtues of ‘The Not-So-Big House,’ and she says she has recently been attracting more interest from home builders. ‘I used to be asked all the time why would anybody want to downsize? People thought I was crazy,’ she said. ‘Now it’s becoming much more mainstream.’”

Hometown Annapolis reports from Maryland. “The number of homes sold in Anne Arundel County fell about 21 percent for the second straight month, while prices were down in the midst of the national credit crisis and a slowing economy. The median sale price for a home in the county in August was $335,000, a 2.8 percent decrease from August 2006. It also was $27,403 less than prices in July.”

“Joseph Cater, president of Market-Economics in Annapolis, said he expects foreclosures to increase the amount of available inventory, giving buyers plenty more to choose from. ‘It’s the old situation of demand and supply,’ he said. ‘You’ve got excess amount of supply and lower demand. Sellers are going to have readjust their housing prices to reflect demand.’”

“Pat Ogle, an associate broker in Annapolis, said some buyers are concerned they won’t be able to get a loan because some mortgage companies have shut down, while stricter guidelines will lower the number of people who qualify for a mortgage.”

“‘People with marginal credit are not going to be able to get houses,’ Mr. Ogle said.”

“Bill Hyland, an associate broker in Annapolis, said national headlines from the subprime market fallout has caused some buyers to hesitate, thinking the worst has already arrived. ‘They’re cautious at the moment,’ he said. ‘They thought the market bottomed out.’”

“Mr. Hyland is hopeful that ‘there’s not much left that can happen’ and said homes that are priced right will sell. ‘I think most people are eager to get back in the market, but want some assurances about what they are going to pay.’”

The Baltimore Sun from Maryland. “The number of homes sold in the Baltimore area last month plummeted 17 percent from August 2006 - the largest drop in volume this year, statistics released yesterday showed.”

“With the slowdown in the housing market stretching well into its second year, the inventory of unsold homes swelled to a record 20,265 listings in metropolitan Baltimore.”

“‘Buyers are moving much slower,’ said Leslie Thomas- Vitek, an agent in Marriottsville. ‘We have to try to talk to the sellers a lot and keep an eye on the competition and encourage them to reduce the price and not wait too long to do that.’”

“The slowdown has followed a four-year period in which buyers, nationally and in the Baltimore region, took advantage of low mortgage rates and easy credit to snap up properties in bidding wars that drove up values at double-digit rates. But when the home prices stopped rising, investors raced to unload properties, and inventory began to climb.”

“Slower sales in the Baltimore area have come partly as a result of the credit crisis, said John McClain, a senior fellow at the Center for Regional Analysis at George Mason University.”

“‘Companies are getting stricter for qualifications on mortgages because of what’s happening in the subprime mortgages,’ McClain said. ‘Some people might have been able to afford a house and get a mortgage three months ago, but the mortgage companies are getting more particular, and pending sales have been canceled because of this.’”

“The number of homes sold fell in all jurisdictions, as much as 23 percent in Baltimore City and Howard County.”

“‘The values are holding up, but the units [sold] seem to be dropping from prior months,’ said William L. Yerman, president of the Greater Baltimore Board of Realtors. ‘Sellers are not adjusting their prices quickly enough or aggressively enough, and that’s what’s causing buyers to wait it out.’”

“Many sellers, especially those who bought during the boom years when home values soared, are still counting on pre-slowdown prices, real estate agents said. The properties that settled in August sold for just under 95 percent of their asking price on average.”

“Cindy Ariosa, a regional VP for Long & Foster in Baltimore, said agents have begun re-evaluating the pricing of their listings much more often than in the past, checking the prices of comparable homes on the market every couple of weeks, instead of every month or so.”

“‘Sellers are starting to hear the message that prices are shifting,’ Ariosa said. ‘The buyers are coming in low [on offers] and asking for closing costs help.’”

“Sharon Welsh and her husband have been trying since the end of June to sell their eight-year-old, four-bedroom Colonial home in Ellicott City, so they can relocate to Florida. The sellers have reduced their asking price from $749,000 to $739,900, made some minor upgrades and held open houses. Yet no offers have come in.”

“‘We thought with the amount of folks coming through, we’d have at least one or two offers, but there are a lot of homes in our area for sale right now,’ Welsh said. ‘We’ll continue to advertise and have open houses and wait for the market to take a turn. I’m sure it will eventually. Hopefully sooner rather than later.’”

The Daily Press from Virginia. “New and existing home sales declined by double digits in July compared to the previous year, according to industry figures. Nearly all 24 regions of the state reported declines, the Virginia Association of Realtors reported.”

“‘Certainly, there is evidence that sales are decreasing from last year, but not enough to warrant hysteria,’ said Martha Durnett, president of the Richmond Association of Realtors. ‘People are still buying and people are still selling, although our inventory is increasing.’”

“In Prince William County, sales were down nearly 35 percent, among the steepest declines in the state. Thirteen regions reported double-digit percentage decreases, including the Charlottesville area with a 13.6 percent decline in sales in July from the same month a year ago.”

“‘It’s not all bad for the buyer,’ Durnett said. ‘They have a lot to choose from.’”

The Daily Times from Delaware. “Feeling the pinch of a sluggish real estate market, Bayside in Fenwick Island has cut nearly 30 percent of its home building staff. The layoffs won’t curtail the project’s final buildout of 1,640 homes, said Patti Grimes, VP of the community division for Carl M. Freeman Associates.”

“‘We’ve had slower sales because of the market,’ Grimes said. ‘We’re not building as many homes today as we had planned, but we’re still going to build it. It just may take a year or two longer.’”

“Delaware’s declining home sales mirror the problems of the national market, said Walter Molony, National Association of Realtors spokesman. ‘There’s just too much supply,’ he said.”

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