The Housing Bubble

The Recordnet reports from California. “August was a very cold month, at least in the home-sales market. The last time the median sales price of an existing Stockton home crossed the $300,000 mark, in November 2004, it was a major landmark in a long-running boom market. Last month, the sales price crossed $300,000 again, but this time, on the way down.”

“And sales, 118 in August, dropped to the lowest level not seen since the last real-estate downturn in the mid-1990s.”

“The market is flooded with foreclosure homes, credit has tightened hard and most would-be buyers are sitting back and watching prices continue to drop, say local brokers and agents.”

“‘It’s slamming the psyche of the market for sure,’ said Mike Collins, of Collins Realty. ‘All people are seeing are foreclosures, lender layoffs and title company layoffs - all this bad news in the real-estate industry. That makes them want to wait to buy.’”

The Fresno Bee. “Home sales last month in Fresno County were the lowest of any August in a decade, a real estate tracking company said Thursday. The 910 new and existing houses sold in Fresno County represented a 33% decline from August 2006, the lowest number for any August since 1997, reported DataQuick.”

“In Tulare County, the 422 transactions were the lowest for any August since 1998.”

“Concessions to buyers by sellers are helping to mask the true decline, said Carole Laval, an appraiser in Fresno. She cited a recent sale as an example. The new house carried a base price of $340,900, but the builder offered to take 6% off the top if the buyer used one of two preferred lenders. Then, the seller tossed in a free package of options on top of that.”

“Thus, the recorded sales price was $340,900, but the actual price was 9% less.”

“She also shared an example of a transaction in a gated community, where the seller of an existing house gave back $9,450 to the buyer. That amounted to a 3% reduction and when combined with DataQuick’s reported 8.6% drop, led to a year-over-year drop of almost 12% — or 1% per month.”

“‘It is an extraordinary market,’ she said.”

“‘After a year of trying to help first-time home buyers, I came to the conclusion that, although most of them can buy a house and want to buy a house, they are afraid to buy a house. The current market and the sky-is-falling mentality isn’t helping one bit,’ said agent Ron Thomas.”

The Hollister Freelance. “First it was Alliance and Old Republic title companies. Today it’s Century 21 Premier.”

“One of South County’s leading real estate agencies shuttered its Gilroy and Morgan Hill offices today, the latest casualty in a market that has seen a rash of foreclosures and plummeting home sales.”

“‘I think we have two to three more years of a buyer’s market,’ said Susan Jacobsen, who works for Starritt Realtors in Gilroy.” “For too long, she said, ‘people were out there using homes like an ATM’ - borrowing more than they could afford, putting up little or no money, and leveraging any equity they built to borrow even more.”

“In South County, foreclosures abound and homes idle for months without a buyer, according to figures from MLS RE InfoLink and the Santa Clara County Association of Realtors.”

“Median home prices in Morgan Hill dropped to $858,000 in July, compared to $1 million for the same month last year, according to the MLS. In Gilroy, homes prices dropped to $675,000 in July, compared to $725,000 for the same month last year.”

“Larry Cope, director of the Gilroy Economic Development Corporation, likened the exodus to the dot-com bubble bursting in 2001. ‘The old economic rule, unfortunately, is what goes up, must come down,’ said Cope.”

The Friday Flyer. “At a few homes in Canyon Lake, pristine lawns and blooming flowers have given way to brown straw and shriveled petals as a ‘Little Bit of Paradise’ has turned into a financial nightmare for some homeowners.”

“Apparently caught in the web of lenient lending, adjustable loans and stagnant home prices spoken of in news stories across the country, there are some here who have cut their losses and abandoned their dream homes.”

“Paula Clark of Prudential Canyon Lake Realty, an agent/broker in Canyon Lake for 27 years, says, ‘This is the third downturn I have experienced and each has been caused by a different economic situation. It’s the same in that we are flooded with foreclosures and short sales, but the cause is different.’”

“‘This time the downturn is due to financing being too easy to obtain and at high loan to value amounts,’ she continues.”

“Home resale activity comparing July 2007 to the same month last year, showed a countywide median price decrease of 3.2 percent for homes and 5.2 percent decrease for condominiums.”

“Homes aren’t selling at the brisk pace they have in the past. Real estate signs are becoming fixtures on most streets as listings have increased and sales have slowed. Agents like Diana Ballou of Tarbell Realtors have seen a dramatic change in the number of listings.”

“‘When I started two years ago there were on average 80 to 85 homes on the market; now there are an average of 250,’ says Diana, a Canyon Lake resident. With such a large number of homes on the market, sellers are anxious and some agents are experiencing financial burdens.”

“While agents and sellers ride out the economic ripple effects of the downturn, buyers appear to be cautiously waiting for just the right wave. The few buyers who are out there are ‘looking for the steal,’ says Paula Clark.”

The LA Times. “It was supposed to be a blowout sale for home builder Standard Pacific Corp. For days, the Irvine company has been touting its ‘Mission: Possible’ extravaganza in 49 communities throughout Southern California, with bonuses for buyers totaling as much as $20 million.”

“But in Victorville on Friday, the blowout looked more like a washout. Only a trickle of potential buyers showed up on the first day of the 10-day event.”

“The sales promotions ’show the builders are serious about moving inventory,’ said Patrick S. Duffy, a principal at Metro Intelligence. ‘They’re trying everything.’”

“‘They’re beautiful homes, but there’s a catch,’ said Tracy Davenport of Victorville, who viewed the sample properties with her mother, Frances. Davenport said it seemed clear the agents were anxious to make a sale. Despite offers of $75,000 in discounts, mother and daughter left the sales event shortly after arriving.”

“‘They’re desperate because they’ve got to make money,’ she said. ‘They’re trying to get rid of them.’”

“A month ago, Juan Ramirez bought a Diamond Ridge home for $388,000 after the builder offered him a free washer and dryer and $30,000 in incentives. Although the juice-bar owner was worried that the home’s value would decrease, it was too good of a deal to pass up, he said.”

“‘You’ve got to take a chance to see what happens,’ Ramirez said.”

“But others weren’t convinced. As she left the sale with her daughter, passing by a fence draped with a ‘Mission: Possible’ banner, Frances Davenport expressed doubt that the builder would reach its goal. “‘It’s an impossible mission,’ she said. ‘They’re saying possible, but I think it’s impossible.’”

Readers looked at a topic on next weeks Fed meeting and the former chairmans interview on 60 minutes this weekend. “I think the Greenspan article is veerrry interesting. It will relieve some of the rate-cutting pressure on Bernanke, as more people realize that he shouldn’t cut as low as AG did. Perhaps they may go so far as to realize that causing some pain by leaving interest rates (relatively) high is in their long-term best interest.”

“From that interview: “Former Federal Reserve Chairman Alan Greenspan said he was late to see the storm gathering around mortgage lending practices and commended his successor Ben Bernanke’s handling of the crisis, saying he would likely be responding in a similar fashion.”

“‘I think he is doing an excellent job,’ Greenspan said of Bernanke in a television interview scheduled to air on Sunday.”

“Greenspan was asked if he would lower interest rates as dramatically and quickly now as he did just ahead of, during and in the wake of the 2001 recession, according to excerpts of the CBS ‘60 Minutes’ interview released on Thursday.”

“‘I’m not sure that’s true,’ he said. ‘We were dealing with an environment back then when inflation was easing. We could have acted without the fear of stoking inflationary pressures.’”

“‘You can’t do that anymore. … I’m not sure I would have done anything different (if chairman today),’ he added.”

“Bernanke’s Fed has come under fire from some quarters for not acknowledging quickly enough how deeply the current crisis could harm the economy or responding aggressively enough to keep the U.S. expansion on track. Some analysts have speculated that Greenspan would have acted more swiftly.”

“Bernanke and his colleagues meet on Tuesday. They are widely expected to lower benchmark overnight interest rates, which the Fed has held at 5.25 percent since June 2006, by at least a quarter-percentage point.”

“Greenspan…said that as Fed chief he knew about questionable lending practices that were leaving subprime borrowers with adjustable rate loans vulnerable to harm from rising interest rates, but did not recognize those loans would trigger broader problems until fairly recently, CBS said.”

“‘While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,’ Greenspan said. ‘I really didn’t get it until very late in 2005 and 2006.’”

One said, “To me, the most interesting question of all is whether AG’s candid admission of ignorance on the severe problems which would result from the lending industry’s abandoning traditional lending standards and making Jumbo loans for McMansion purchases to anyone who could breath should be taken at face value, or if they represent a calculated dilution of Greenspan Fed culpability.”

“It would look much worse if he was perceived as having cognizantly watched the seeds of a future banking crisis get planted under his nose.”

“Now that AG is openly lamenting the folly of giving loans to help low income buyers purchase houses they cannot afford, will Fannie Mae, Freddie Mac and HUD (not to mention certain high-profile members of Congress) stop encouraging the practice?”

“At any rate, it is about time that AG stepped up and took some of the weight of blame for the current crisis (the root causes of which predate AG’s retirement) off of BB’s shoulders.”

Another added, “There is no way we can avoid Fed-talk under current circumstances. It’s the moment of truth. ABCP credit is deflating, the stock market looks wobbly, banks are approaching the discount window, and consumers are grasping for their last line. Add to that, rising inflation and the falling dollar. It looks like we are at sixes and sevens.”

One imagined, “I can just see the headlines now: ‘Greenspan: I really didn’t get it.’”

One looked at the public perception, “Most regular J6p’s dont think about, dont know about, and cant understand the situation that is staring the central banks’s directly in the face.”

“Why is the common theme of restoring confidence centering around a rate cut? I think it may be probable that confidence can only be returned through the pain of failure. All the kool-aid drinkers need a slap in the face.”

“A rate cut for this bloggger does not restore confidence, a rate cut increases the fear of more ’shoe-dropping’ going forward. Confidence can only be restored by allowing failure of market participnants who gambled and LOST coupled with significant risk repricing and an S&P 500 of around 1100.”

A report from the New York Times. “For more than a year, home buyers who have been looking in the suburbs of Manhattan have struggled to reconcile market rhetoric with metro-area reality. Sellers were clinging tightly to the past, and many scoffed at price reductions of more than a few percentage points. Now, after a nearly nonexistent spring selling season and a summer marred by stock-market jitters, buyers and sellers are closer to a meeting of the minds.”

“Real estate agents and market watchers throughout the region report that houses are selling at prices 5 to 18 percent lower than a year ago.”

“‘Homes that have come on the market in the last two or three months have started at prices that are more conservative,’ said Savo Fries, manager of the Houlihan Lawrence offices in Yorktown and Croton-on-Hudson, both in Westchester County. ‘Sellers are finally more willing to listen.’”

“Roberta Feuerstein, a sales associate with Shawn Elliott, said that in the Dix Hills and Melville area in Suffolk County, just over the Nassau border, prices have come down about 10 percent. Some homeowners are having to reduce their prices by much more, she said, but those houses are usually the ones that were most grossly overpriced.”

“Not all sellers have come around to the new reality. ‘We have homes overpriced by $300,000 or $400,000 out of just pure insistence,’ she said.”

From Newsday in New York. “Housing prices plunged in Queens, likely due in part to increased foreclosures in the borough, experts said. These homes, concentrated south of the Grand Central Parkway, sell at a discount, which depresses the median price borough-wide.”

“‘Those are the first homes to be sold,’ said Robert Campbell, professor of real estate finance at Hofstra University. He expects Queens to suffer greater price drops than Long Island for at least a year.”

“More upscale homes in Queens can’t fetch the prices they once did either, said Judy Markowitz, who owns Re/Max Millennium in Flushing. Homes that sold last year for $715,000 are now going for $675,000, she said. This is in part because the interest rates on jumbo mortgages have risen over the summer.”

“‘Buyers either moved to rentals or just decided to offer less to compensate for the increase in rate,’ said Markowitz, noting it’s easier to find a rental in Queens than on Long Island.”

“Long Island real estate agents are seeing small declines in prices, particularly in more expensive homes, and some are sitting on the market longer. The number of homes for sale last month rose to 36,309 versus 34,045 the same time a year ago.”

“Higher-end properties aren’t selling as quickly because the owners are still trying to get what their neighbors did a year ago, said Marilyn Urso, who owns Long Island Village Realty in Syosset. ‘They are not looking at prices realistically,’ she said.”

The New York Journal News. “National problems with the subprime mortgage market are surfacing in the Lower Hudson Valley, as creditors go to court to foreclose in sharply higher numbers this year, a survey of county clerks’ offices shows.”

“‘Unfortunately, it’s kind of grim,’” said Blanca Lopez, director of Port Chester-based Human Development Services of Westchester. ‘We know in the long run these people are not going to be able to afford their homes.’”

“In Westchester, the number of foreclosure filings brought by creditors rose 39.4 percent through August, year over year, to 1,414. Actual judgments of foreclosure, were up 61.8 percent to 424. In Rockland County, where numbers were available through July, the filings were up 12.7 percent to 692. Judgments were up 94.4 percent to 175.”

“In Putnam County, foreclosure filings were up 50 percent through August to 294. ‘A lot of people, they’re living by paycheck to paycheck in their general lives,’ said David L. Babel, an Eastchester attorney who specializes in clients with troubled credit. ‘They have options, but in many cases they’re not that good.’”

“Gerri Levy, executive director of the Rockland Housing Action Coalition in Nanuet, said one woman who came to her for help four months ago had been able to obtain a $360,000 mortgage, even though she made only $25,000 to $30,000 a year.”

“‘The bank knew what she was making, and they gave her the loan anyway,’ Levy said.”

The Express Times from New Jersey. “Age-restricted homes at the Riverview Estates development in Forks Township are being auctioned Sunday starting at more than half off prior asking prices.”

“‘I’m not surprised to see it happen,’ said Stephen Thode, director of the Goodman Center for Real Estate Studies at Lehigh University. ‘Developers can be motivated sellers.’”

“Signs of a housing market slowdown have been evident for more than a year. Reported sales are declining while many suspect that migration from New Jersey, which fueled much of the boom earlier this decade, has finally cooled.”

“Hovnanian Enterprises Inc. is offering discounts of more than 20 percent on certain homes this weekend. The Hovnanian offer, which began Friday and ends Sunday, includes reductions of up to $100,000 at selected developments in Lower Macungie Township.”

“Thode said it is more common for builders to offer incentives such as free upgrades because those things don’t affect the nominal price recorded for public view in deeds. Cutting the price outright, Thode said, ‘could make it more difficult for the developer to increase the price at a later point.’”

The New Haven Register from Connecticut. “The number of single-family homes sold in Connecticut in July remain 4 percent below 2006 levels, The Warren Group reported Wednesday.”

“‘There are not the quantity of buyers in the marketplace right now that there had been’ in previous years, said John Cuozzo of Press/Cuozzo Realtors in Hamden. ‘We’ve got a number of people who seem to be waiting on the sidelines.’”

“Problems in the mortgage industry, particularly among faltering subprime lenders, are making buyers more cautious, he said. With fewer buyers in the market, home sellers, who in recent years had been able to set high asking prices, have started to price homes more realistically, Cuozzo said.”

“‘Some of the over-inflated asking prices are beginning to be more in line with what things are actually selling for,’ he said. ‘It may not be quite as easy to sell a home in Connecticut as it was two years ago, and homeowners can’t expect the prices to appreciate by double-digit percentages every year.’”

From the Day in Connecticut. “Housing permits in New London County fell 16.7 percent last year when compared to 2005, according to the Department of Community & Economic Development. But the statewide drop in permits was even greater, at 22.3 percent.”

“Condominiums are not moving quickly anywhere but in Fairfield County. Locally, condo sales in July were off more than 20 percent, and the prices fell nearly 12 percent from the previous year.”

“‘They’re selling, but there’s an oversupply,’ said John Bolduc, executive VP of the Eastern Connecticut Association of Realtors. ‘We’re in what I call a normal real estate market. If you compare to the year 2000, the year before the boom, the numbers are very similar.’”

The Street.com on Massachusetts. “Places don’t get much richer than Nantucket. The quaint Massachusetts island is an enclave of the super-rich. But even here, in what may be America’s most rarefied real estate market, the first signs are emerging that the housing bust is starting to be felt.”

“On Nantucket, the number of transactions through the end of August has plunged 13% from a year ago, according to local data. Compared with the same period during the boom year of 2005, it’s down by a third. And the local market may be heading for the worst year since the big real estate crash of 1990.”

“The figures are tracked by veteran local real estate agent Flint Janney, who’s been running Denby Real Estate on the island for a quarter-century. ‘The market is in a slow period,’ he concedes. ‘Prices are down, too.’”

“As the rest of America has relearned over the past two years, the first sign of a housing bust is when the volumes fall off. Prices only start coming down later.”

The Boston Herald from Massachusetts. “The number of building permits for new homes in Massachusetts has plummeted by more than 30 percent since July 2005.”

“‘It’s shocking,’ said Gary Ruping, owner of Ruping Cos., a Bedford homebuilder. ‘Many builders I know have simply stopped building.’”

“The numbers reviewed by the Herald are grim. Single-family home construction permits in July, compared with the same month two years ago, were off nearly 40 percent.”

“The housing market’s woes have spread to other sectors as well. ‘If people stop buying and building new homes, they stop buying furniture,’ said Al Salameh, co-owner of Al Salameh Home Furniture in Brockton. Salameh estimated his business is down by about 50 percent since last year.”

The Providence Journal from Rhode Island. “As the summer draws to a close, the slowdown in the Rhode Island housing market has settled in, with a drop of about 3 percent in both the median house price and the number of houses sold in the first half of this year, according to statistics from the state Realtors’ association.”

“The condominium market has fared a little better, and a little worse: the median sales price dropped nearly 8 percent, but the number of sales increased 5 percent, in the first half of the year, the Rhode Island Association of Realtors reports.”

“According to Alan Pasnik, an analyst with The Warren Group in Boston, inventory is a key statistic to watch in tracking the real estate market. ‘As it goes up, you can be pretty sure that prices will go down,’ he said.”

“Some sellers even blame their real estate agents, but ‘the Realtors don’t really control what’s happening out there,’ said Cecile Cohen, president of the Rhode Island Association of Realtors. ‘It really is the buyer that controls the market — what they are willing to pay.’”

“Cohen said that although the five-year housing boom that nearly doubled the average real estate price in Rhode Island ended in 2005, many sellers still haven’t come to terms with the fact that it’s now a buyer’s market. ‘There are always sellers who aren’t willing to believe that the market isn’t booming,’ Cohen added. ‘They are really in the position of being behind the market.’”

“Real estate attorney Robert Goldman, of Providence, said he believes there will be a ’second wave of implosion’ in the real estate markets that have seen price depreciation of 20 to 50 percent since the boom ended. In markets where prices have plummeted so far so fast, more people who have refinanced and borrowed against equity that is no longer there will be in trouble, he said.”

“‘Foreclosures, the number of foreclosures are only going to escalate in 2008,’ Goldman said. ‘There’s going to be a real problem.’”

“Phipps said there are buyers in the market who are creditworthy, but they are ’savvy’ and will not pay more than what they think a property is worth. Often they encounter sellers who refuse to negotiate, he said.”

“Phipps said he has been involved in situations as recently as this month in which sellers rejected offers from buyers outright, without making any counteroffer, because the prices were so far below their expectations.”

“‘We still have sellers who are wrapped in nostalgia,’ he said with a sigh. ‘If you really don’t want to sell … if you’re waiting for the exuberant buyer who will buy anything … it may make sense to step back and say, ‘I should wait a couple of years.’”

“Joy Sawyer has been playing the waiting game for more than 18 months. She bought a house in 2004, at the height of the boom, in North Kingstown’s coastal Poplar Point neighborhood. Last year, the house went on the market because her husband’s job took them to Albany, N.Y., where they have been renting a one-bedroom apartment.”

“Their North Kingstown house remains unsold, so they plan to return to Rhode Island this month and live there until it does sell. ‘We got stuck in one of those places that you never want to be,’ she said.”

“Sawyer’s husband can work from Rhode Island, but his company’s headquarters is in Albany. Sawyer said her husband’s employer has allowed this accommodation because of housing market conditions.”

“Sawyer’s house is now priced at $939,000, but was first listed at about $1.1 million. ‘They’re just aren’t that many people who are looking in our price range,’ she said.”

“Having a house on the market for 18 months has been an emotionally draining experience, Sawyer said. ‘It’s like being pregnant,’ she joked. ‘You talk about it all the time.’”

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