The Housing Bubble

The Bay Area Newsgroup reports from California. “Many home sellers, bogged down in a housing downturn, are now doing the only thing they can to sell, dropping prices. Only this time, the sagging market often means taking a loss if the home was bought in 2005 or 2006. Christopher Thornberg, the former UCLA Anderson Forecast economist who predicted the ‘housing bubble’ since 2002, said that sellers’ only hope is to ‘price to sell.’”

“‘You want to get out of the market,’ he said. ‘There’s no point in holding out if you want to get out before the next three years.’”

“The credit collapse unnerved people so ‘they’re not willing to buy, not willing to bundle and not willing to provide credit,’ said Max Neiman, associate director of a think tank based in San Francisco ‘Any number of people don’t want to get caught up in the process and worry about prices falling even further,’ he said. ‘They want to sell now.’”

“Research by the Contra Costa Times found that although east Contra Costa and Alameda counties as well as Solano County have lower-cost homes, homes in Alameda, Walnut Creek, Pleasant Hill and even blue-chip San Francisco are affected by the price drops.”

“‘This will spread,’ Thornberg said. ‘It will eventually have an effect. … It will circulate through the entire Bay Area and it will be a stubbornly slow process.’”

“‘The regular homes will not sell until all the foreclosures are gone,’ said Dave Konesky, a Tracy-based real estate agent.”

“He said that now many buyers look at a house and offer what the foreclosed home down the street is selling for. ‘They offer the foreclosure price, take it or leave it,’ he said.”

“Konesky said that there were only two home sales pending recently in Tracy, one selling for $1.4 million and another for $1.2 million.”

“‘I just had one for 173 days and they kept saying to leave it on,’ he said. ‘Eventually I told them, ‘This is a waste of my advertising dollar, you haven’t had a showing in months.’ People have to get realistic.’”

“One of his Tracy listings, on Brighton Drive, is a home selling for $419,000 was previously bought in 2004 for $430,000. ‘It will probably be priced at $399,000 soon.’”

“The phenomenon isn’t isolated. In Brentwood, agent and broker Bryce Ellsworth tells story after story of owners selling for less than they bought their home for in 2004 and 2005, many just eating the loss. ‘We’re at the 2004-2005 prices and some are even 2003-2004,’ he said.”

“A quick perusal of the MLS and Ellsworth says the same thing is happening in Walnut Creek, Pleasant Hill and other areas. ‘I think our area is more impacted because our homeowners don’t have the long-term experience or cash reserves to ride it out,’ Ellsworth said.”

“Dale Cose in Tracy, is now looking for a home and has a lot to choose from. Cose…said he hopes to get a good deal with so many foreclosures on the market. ‘I don’t have the same feeling of what happened in 1988 and 1992, where everything started free falling,’ he said. ‘You only see investors dumping their properties.’”

“Cose lost his home to foreclosure in 1995 and has been renting since. He said he’s sure buying now will be a good investment later, but most people find the housing market difficult to predict. ‘The thing is that you never know where the top or bottom of the market is,’ he said. ‘You never know until after the fact.’”

The Union Tribune. “Most economists and market analysts are now pointing their fingers wildly in the air – sometimes in several directions at once, as they try to assess blame for what may turn out to be an extremely dire economic downturn.”

“David Shulman, an economist at the Anderson Forecast at the University of California Los Angeles, predicted that all this finger-pointing will result in ‘a made-for-TV extravaganza,’ with a series of trials for mortgage fraud, securities fraud and other crimes.”

“‘In terms of the theater of it all, there will be clear heroes, clear villains and before it is over, there will be ritual sacrifices,’ he said. ‘Think of the ‘perp walks’ that came out of the corporate scandals. The entire process will be examined, from the mortgage broker to the lender to the Wall Street securitizer and on to the ratings agencies. It won’t be pretty, and before it is over more than a few participants will be called ‘merchants of debt.’”

“The merchants of debt were especially active in San Diego County, where notices of foreclosure and default are now at an all-time high and home sales are at a 15-year low. And it’s likely that we are only at the beginning of the downturn.”

The Union. “The sound of nail guns thumping roof sheeting into place echoed across a cul-de-sac in Morgan Ranch, where crews were building the last house in a subdivision of 400 homes.”

“This week the 15 men will receive their last paycheck and begin job hunting at a time when many contractors are laying off workers because there’s not enough work to go around.”

“‘I’m worried about these guys — the housing market is hurting,’ said Tim Rowe, foreman of the Morgan Ranch Development since 2001.”

“New home construction is down in western Nevada County, and the development of four major subdivisions is still years away from gaining approval, said Kevin Casey, owner of Caseywood Corporation, a major lumber supplier to area contractors.”

“In two years, Casey’s deliveries have fallen by 20 percent, he said.”

“Only two years ago, when business was booming, many construction-related companies upgraded with new equipment and shiny new trucks. Then business came to a grinding halt.”

“‘You’re carrying all this new overhead. It can be a little unnerving,’ Casey said.”

“Compounding the problem is the influx of Sacramento-based contractors coming into the region to build homes in Nevada County, said Keoni Allen, president of the board of the Nevada County Contractor’s Association.’

“The number of building permits issued by the county dropped from 390 in August 2005 to 275 in August of this year, said Brian Washko, director of the county’s building department.”

“The number of additions and remodels have increased while new home construction has fallen — a change Washko attributes to homeowners who decide to fix up their homes rather than try to sell them. ‘The value has gone down. They can’t get what they hoped to get for it,’ Washko said.”

“Some out-of-work laborers are seeking employment outside of California, said Eric Fullmer of an employment agency.”

“Construction workers such as Rob Belendez are worried. He worked at Morgan Ranch for the past 11 years. He has a wife and four children to support, plus a mortgage and car payment.”

“A large bonus anticipated with his last check will get him by for awhile, but the lean times of winter are coming. He’s sent out a few résumés around the area but hasn’t yet landed a job. ‘It remains to be seen,’ Belendez said, shaking his head.”

“It’s not the first time economic hard times have befallen the local industry, said Casey, who recalls a similar dip in the early 1990s. ‘We stumbled and fumbled, and we all got through it,’ Casey said.”

“On the bright side, now is a great time to build because lumber is at a 20-year low and property owners have a pool of quality contractors with time to devote to their clients, said Jeff Pardini, owner of Hills Flat Lumber. ‘You’re crazy not to do something right now,’ Pardini said.”

“Added Casey, ‘You’re going to get a lot of attention.’”

The Daily News. “Monday is the one-month anniversary of Meltdown Friday, the day Calabasas-based Countrywide Financial Corp. took a big hit, the day the mortgage business as we knew it ceased to exist. Investors in mortgage-backed securities stopped buying them, and the home-loan industry is still feeling the aftershocks.”

“Countrywide’s meltdown is reminiscent of the one that hit Lockheed Corp. in the early 1990s. The Cold War ended, defense spending plummeted, and Lockheed eventually moved out of California - selling its building to Countrywide for $33 million.”

“In the past month, Countrywide Chairman and CEO Angelo Mozilo has ordered lending standards tightened and arranged for $25.5 billion in financing to keep the business going. He has also said as many as 12,000 jobs will be eliminated.”

“While you and I keep making our monthly mortgage payments, the Countrywides of the world don’t wait 30 years or however long to get their money back. They get it back from the investors who buy the loan package. And the loan cycle begins anew.”

“On Meltdown Friday, that cycle broke. Scrambling ensued. John Karevoll, an analyst at DataQuick, said Aug. 17 was a Countrywide day, for sure.” “The market was continuing to take Freddie Mac- and Fannie Mae-guaranteed loans, which are capped at $417,000. But lots of the loans made by Countrywide were jumbo loans because the houses cost more than the Fannie and Freddie limit.”

“‘Investors that were buying them said they were no longer buying them,’ he said of Countrywide’s loans.” “Keith Gumbinger, VP of mortgage tracker HSH Associates calls that day a fracture point. ‘There is a trust issue going on between the buyer and seller,’ he said.”

“In other words, those on the buying side are sort of saying to the sellers, ‘We’re not sure about your MBS (mortgage-backed securites) anymore.’”

The Pacific Coast Business Times. “The paths of Countrywide and Amgen, two beleaguered firms that are Ventura County’s largest private employers, are diverging. Amgen is beginning a rebound, while Countrywide’s fate remains unclear.”

“For Countrywide, the question was whether massive job cuts and an infusion of loans and $2 billion in convertible debt from Bank of America was enough to guarantee its survival.”

“Despite Calabasas-based Countrywide’s recent announcement that it will cut between 10,000 and 12,000 jobs, Thousand Oaks and Simi Valley, the Ventura County cities closest to the potential fallout, were taking the developments in stride.”

“‘Whatever the current layoffs are in our area, we are certainly disappointed, and for those directly impacted, there are obviously going to be significant challenges, so I don’t want to minimize that,’ said Gary Wartik, Thousand Oaks’ economic development director.”

“Simi Valley City Manager Mike Sedell said foreclosures and collections are also functions of Countrywide in the area. ‘That work will need to go on and even beef up.’”

“Sedell said he was comfortable that if a major credit crisis hit, the Countrywide departments in Simi Valley would not be significantly affected by it.”

“Wartik said the layoffs could be an unfortunate, but beneficial, lesson learned for Countrywide and other residential lenders that have deviated to riskier sub-prime lending practices in recent years.”

“‘One of the things that this whole subprime market at Countrywide and others effects is they had good business models when they then moved outside of and then began lending to people wholly and largely unqualified,’ said Wartik. ‘This retrenchment or shakeout was inevitable and hopefully won’t be repeated.’”

The News Review reports from Oregon. “To make the jump to a larger house, Eric Pickle and his wife have to sell their current home first. And attracting buyers has proven a difficult challenge these past six months amid a stagnant real estate market. ‘Unfortunately, I missed the boom,’ Pickle said.”

“According to the Regional MLS, houses for sale in Douglas County in July 2005 outnumbered closed sales by a ratio of only 3 to 1. Two years later the ratio had jumped to 12.7 to 1. The inflated inventory reflects a lull in home sales, keeping houses like the Pickles’ on the market longer than expected.”

“Pickle, who originally listed his home for sale at $237,000, has since dropped it to $197,000. He paid $105,000 six years ago for the four-bedroom, two-bath house on Rainbow Street. Since then he’s spent $30,000 in upgrades, and expected to turn a nice profit when he initially put it up for sale.”

“It didn’t stay at its original listing for long. Two weeks later, the Pickles slashed $18,000 from the asking price. They cut another $10,000 a month later. Not until they dropped the price below $200,000 did interested buyers come by to take a serious look.”

“Pickle said the home’s appraisal two years ago was $198,000. And that was before the upgrades. ‘It was a starter home. I was thinking how I can get in the market and make a profit on a home,’ he said. ‘That’s the whole idea.’”

“The Pickles, who are now on their own, had a contract with a real estate agent which ended Sept. 1. Pickle said he and his wife are constantly picking up after their kids and cleaning the house to make it more appealing to homebuyers. ‘There’s no relaxing at home now,’ he said.”

“‘Really, I think the prices are too high. Prices need to come down,’ said Diana Woodward, president-elect of the Douglas County Board of Realtors. The majority of homes currently pending sale in the county are priced around $225,000 or less, Woodward said. Newly built homes, however, are largely hovering at $400,000 or more and are not in high demand.”

“‘Two years ago you could buy a ranch for that,’ she said.”

The West Linn Tidings from Oregon. “The delay in closing the deal on the sale of two properties owned by the West Linn-Wilsonville School District will continue probably until the spring of 2009, according to Dale Hoogestraat, chair of the school board.”

“The softening housing market and delays getting through the cities’ permitting processes, Hoogestraat said, are reasons for the delay.”

“Those earnest money payments are not refundable, but beyond that Hoogestraat says keeping the contracts is in the best interest of saving taxpayers’ money because if either deal defaults, the land could not be sold today for the same price.”

“‘The market has softened to the point that we are in very good shape price wise,’ he said. ‘In today’s market, we would not be able to sell at those prices.’”

The Olympian from Washington. “The South Sound real-estate market has shifted from a sellers’ to a buyers’ market in the past year. Inventories of homes, pushed by new-home builders entering the market, have swelled, sales volume is down and homes are staying on the market longer before they sell, according to two regional MLS’s.”

“The shift to a slower sales market attracted Roman and Rosemarie Pitka of Tenino to the remodeling show. Roman said he thought of selling his Tenino home recently but decided to remodel as the region’s real-estate market cooled in recent months.”

“‘A few years ago, homes were selling in a month or two, but not now,’ said Roman Pitka.”

“The couple have noticed it taking longer for Tenino-area homes to sell. ‘In our town, ‘for sale’ signs now stay up for a year,’ Rosemarie Pitka said.”

The Columbian from Washington. “For the third month in a row, Clark County home values slipped in August below 2006 levels, as year-over-year sales dropped 21.67 percent.”

“Sales of new homes took the hardest hit last month, dropping by more than 52 percent from 2006 with a total of only 82 transactions out of 730 total sales. Builders have reacted to slowing sales with a dramatic cutback in construction as measured by single-family home building permit requests.”

“In August, local home builders sought 50 percent fewer permits to build homes in unincorporated parts of the county. Home construction represents a $350 million piece of the local economy and supports several thousand jobs in construction and related services.”

The Anchorage Daily News from Alaska. “Anchorage’s hot housing market has cooled. Evidence comes from the proliferating ‘for sale’ signs around town and in the Mat-Su, many of them marked ‘price reduced.’”

“The upshot is that the housing market in the state’s largest city, for the first time in years, is shifting in favor of buyers.”

“The number of houses for sale in Anchorage has increased steadily almost every month since spring of last year. By August, the inventory of Anchorage single-family homes for sale was the largest since 1994 and almost double what was available in August 2001.”

“In Anchorage, the inventory of single-family houses for sale in the $250,000 to $350,000 price bracket has increased to about a five-month supply, based on how many houses typically sell in a month.”

“The inventory of houses priced $1 million or greater is at 29 months’ supply. New home construction has tumbled to half of last year’s level.”

“Terrie Gottstein and her husband, Jim, recently downsized to a smaller home. But they are having a heck of a time selling off their sprawling stucco estate on the Lower Hillside.”

“These days, the house on Alpine Woods is mainly a source of anxiety. It’s been on the market since late October. Since then, an average of one house per month in its price bracket, $1 million and up, has sold in Anchorage.”

“So, Terrie has joined the ranks of the nervous sellers. She’s hired a professional who ’staged’ the house. The Gottsteins are holding frequent open houses, and recently, when Terrie heard about a business executive moving to town, she e-mailed him a link to a virtual tour of her home.”

“‘One of the ways to deal with stress is to be more proactive, to put (the house) out there as much as I can,’ she said.”

“Crystal Neff, who owns a home in Muldoon, is another nervous seller. She, her husband and their four kids are moving to Texas to advance his career.”

“After purchasing their Anchorage home a couple years ago, the Neffs remodeled it ‘from head to toe,’ taking out a second mortgage to complete the repairs.”

“They still owe more than $400,000 on the home but can’t seem to attract any serious buyers, she said. They’ve already reduced the list price by $15,000, and can’t afford to reduce it much more without losing some money, she said. She’s speculating that prospective buyers are getting scared by the national news about housing.”

“‘I am partly scared that it hasn’t sold or remotely had an offer,’ Neff said.”

Some housing bubble news from Wall Street and Washington. Financial Times, “US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market. The former chairman of the Federal Reserve said the decline in house prices ‘is going to be larger than most people expect.’”

“As Fed chairman, Mr Greenspan had talked about ‘froth’ in the housing sector, but never said there was a bubble in the market as a whole. But Mr Greenspan told the FT that froth ‘was a euphemism for a bubble.’”

From Newsweek. “Former Federal Reserve chairman Alan Greenspan was willing to sit down with NEWSWEEK’s Jon Meacham and Daniel Gross. Q: ‘The housing bubble has burst, the subprime-mortgage market has melted down and we’re in a credit crunch. Critics have charged that the Fed contributed to the trouble by keeping interest rates low for so long.’”

“AG: ‘This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who’d had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the subprime-mortgage market provided it.’”

“Q: ‘The mortgage brokers were just meeting demand from investors?’”

“AG: ‘Precisely. And so you had Wall Street’s securitizers basically then talking to the mortgage brokers saying, ‘We’ll buy what you’ve got.’ … The big demand was not so much on the part of the borrowers as it was on the part of the suppliers who were giving loans which really most people couldn’t afford. We created something which was unsustainable. And it eventually broke. If it weren’t for securitization, the subprime-loan market would have been very significantly less than it is in size.’”

The Wall Street Journal. “Q: ‘So a bubble is the inevitable end of every business cycle?’”

“AG: ‘It comes to an end under two conditions. One is a bubble, or some variation of a bubble, in which capital investment is projected with expectations which are not realistic. The other is … you get an inventory cycle. [At the bottom of the cycle] inventories are liquidating .. and consumption is above production and as it goes up, production goes above consumption until [inventories need to be liquidated again]. There is no irrational euphoria, it’s just misjudgments.’”

“Q: From the vantage point of 2007, can you say now that it was in a bubble?’ AG: ‘Oh yeah. Lots of froths are equal to a bubble… What was driving prices higher was essentially the aftermath of the decline of the Soviet Union and the fall in real long term interest rates which drove up residential prices all over the world. And indeed, the U.S. was not at the top of the list by any means. It drove them up sooner in Britain and Australia as I recall.’”

“‘I find this issue that the Federal Reserve created the housing bubble just utterly devoid of any awareness of who created all the other bubbles. And they all look alike. Long-term real interest rates moved [in] parallel all over the world and the results were what you always get: a fall in equity [risk] premiums, a rise in price:earnings ratios, huge increases in liquidity, and large increases in the market values of assets.’”

“Q: ‘Many people, including some former colleagues of yours from that period, believe the Fed kept interest rates too low for too long, thereby contributing to the housing bubble and problems in subprime mortgages. Do you agree?’”

“AG: ‘We kept them too low for too long because we were effectively creating an insurance against [deflation]. The problem in making choices is that you recognize that if you miss, you can end up with interest rates too low, too long.’”

“‘The question is, what did that have to do with the housing boom? Remember that long term Treasury rates and mortgage rates stayed flat from early 2004 through the summer of 2005 [while the Fed raised the federal-funds rate from 1% to 3.5% in 0.25 percentage-point steps]. We tried effectively to get mortgage rates up as part of our incremental 25 basis point operation and we failed… ‘”

“‘If we were dealing with an inflationary environment, we would have had no trouble getting the 10-year [Treasury yield] up… Had we [raised rates] earlier, do you think we wouldn’t have gone through exactly the same phenomenon?’”

The New York Times. “John B. Taylor, a professor of economics at Stanford University and a former under secretary of the Treasury, recently argued that the Fed’s rate cuts after 2001 appeared to have exaggerated both the housing boom and bust.”

“‘There has been a bit of historical revisionism going on,’ Mr. Greenspan grumbled. The real force behind soaring real estate prices, he said, was a global one: a drop in worldwide inflation and interest rates, in part because of the end of the Cold War and the rise of China as a manufacturing colossus.’”

“‘The housing boom is not an American phenomenon — it’s a worldwide phenomenon,’ Mr. Greenspan said. ‘The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.’”

“The United States was only one of 40 countries that experience a housing boom after 2000, he said, and all of the booms were driven in part by low interest rates.”

“‘If you line up all the major developed countries and all the developing countries…inflation rates were all in single digits. This is utterly unprecedented, there is no history like this. And the consequence was a fairly dramatic decline in real interest rates, which created dramatic housing price increases around the world.’”

From CNBC. “The Federal Reserve tried to curb the explosive growth in the U.S. housing sector under Alan Greenspan’s tenure, but each time it tried to raise long-term interest rates it failed, the former Fed chief said.”

“‘In 2004 we tried to raise mortgage rates by moving the 10-year Treasury note up and we failed,’ Greenspan told CNBC, adding that the Fed failed again in 2005 and would have failed had it tried in 2002.”

“‘We had no control, that I could see, which would have made any difference in the extent of the bubble that was emerging,’ he said.”

“‘What we were responding to was global forces which every central bank was responding to,’ he said. ‘We had a continual, gradual decline in the rate of inflation. And, indeed, we were acutely aware that there are downsides to that, as well as upsides.’”

“‘The upsides were … world economic growth of unprecedented order. Hundreds of millions of people coming out of extreme poverty. And there are all sorts of plusses to it,’ Greenspan said. ‘But there are downsides. And the downsides are what we’re experiencing in bubbles.’”

“Greenspan also said an inflation target of 1% to 2% is unrealistic when the crutch of disinflation is gone.”

“‘The Fed does have the capability of suppressing the type of inflation process which is going on,’ he said. ‘The difficulty is it will require very significantly higher interest rates. And when Paul Volker successfully suppressed inflation in the early 1980s, he was vilified.’”

The Union Tribune. “Denial, anger, bargaining, depression and acceptance. Those are touted as the five stages of grief. But somewhere between denial and anger there is an important but rarely mentioned sixth stage: finger-pointing.”

“And that’s the stage where we are right now in the Great American Mortgage Crisis.”

“Although there are many culprits to blame for this mess, topping the list is the Federal Reserve. The Fed of Alan Greenspan After the dot-com stock market bubble burst in 2000, Saint Alan steadily lowered the federal funds rate, flooding the global market with cheap and easy money. ‘It was our job to unfreeze the American banking system if we wanted the economy to function,’ he told CBS reporter Leslie Stahl last week. ‘This required that we keep rates modestly low.’”

“Modestly low? That’s like saying the electric chair is modestly dangerous. The federal funds was just 1 percent from mid-2003 to mid-2004, its lowest point since 1958. Considering that the official inflation rate was around 2.25 percent during that period, the Fed was essentially paying people to take money off its hands.”

“Wall Street firms and international financiers that had been burned by the dot-com boom scooped up that cash and started buying bundles of mortgages, because nobody ever loses any money on real estate, right? To meet the demand for mortgages, lenders packaged a wide array of creative but risky loans.”

“Speculators swooped in, using those loans to buy homes that they were never going to live in but would quickly flip because prices would just go up and up. Covetous homeowners refinanced their properties so they could buy the latest Humvee or flat-screen television. And a lot of working-class Janes and Joes got swept in too.”

“Greenspan confessed to Stahl last week that he ‘didn’t really get’ how serious a threat subprime lending could be to the economy until very late 2005 or early 2006. Just as he was about to leave office. After the subprime market peaked. After most of the damage had been done.”

“That’s funny, because as early as 2003, a number of economists were warning of a housing bubble, prompting Greenspan to assure Congress that ‘the notion of a bubble bursting and the whole price level coming down seems to me, as far as a nationwide phenomenon, really quite unlikely.’”

“Unfortunately for his successor, Ben Bernanke, the Fed is now faced with just such a nationwide phenomenon.”

“‘A Fed funds cut will not bring back the U.S. housing market,’ Wells Fargo economist Eugenio Aleman bluntly said. ‘What if the housing market remains depressed? Then the markets will ask for another rate cut and another and another and another – and then what?’”

“The cheap cash that Greenspan and others injected into the world economy after the Asian economic crisis of 1997 helped fuel the stock market bubble of 1999. The cheap cash that Greenspan floated in 2000 helped fuel the real estate bubble. What new bubble will be created if too much cash enters the economy?”

“‘The subprime mess was a bad investment decision from the very beginning and was brought about by having very low interest rates for a very long period of time,’ Aleman said. ‘And the only way to go forward is to flush it out, take the loss and move forward, not bring it back.’”

From Bloomberg. “Federal Reserve Chairman Ben S. Bernanke is grappling with what predecessor Alan Greenspan might call a conundrum. At issue is whether today’s U.S. economy most resembles 1998, when Greenspan may have been too eager to cut interest rates, or 2000-2001, when he may have been too slow. The trouble is, the situation now resembles a bit of both.”

“The Fed ‘has been very slow to acknowledge what is one of the biggest busts in U.S. housing history,’ says Allen Sinai, president of New York-based Decision Economics Inc.”

“In remembering the lessons of 2000 too well, though, the central bank would risk losing ground in its fight to keep inflation contained.”

“‘Rate cuts are not free,’ says Marvin Goodfriend, senior vice president at the Richmond Fed from 1993 to 2005 and now a professor at Carnegie Mellon University. ‘You pay a price.’”

The Independent. “The housing market busts in the early Nineties in Scandinavia and Japan were very different in terms of intensity and duration. The Scandinavian countries suffered several years of collapsing house prices as well as deep economic and financial crises. These economies and property markets subsequently made quick recoveries.”

“In contrast, the Japanese housing bust was less intense but it lasted a long time. Nearly 15 years, to be more precise. Between 1991 and 2004, real estate prices in Japan dropped 60 per cent. House prices in Tokyo plummeted 90 per cent.”

“So what kind of housing adjustment are we likely to experience? Unfortunately, the prospects for a soft landing are growing dimmer by the day. Anecdotes suggest that the much anticipated autumn selling season opened with more of a whimper than a bang. Recent readings show a sharp drop in confidence among households and builders. These are hardly ingredients for a soft landing.”

“In a US Federal Reserve study of 44 house price booms and busts in industrial countries since 1970, the average bust lasted nearly five years. More precisely, real (that is, inflation-adjusted) house prices typically declined for almost five years after the peak.”

“Japan’s biggest problem was that they attempted to sweep the consequences of the housing bust under the carpet. You see, when housing markets go bad, lots of money is lost. Be it homeowners, property investors, developers, banks, and taxpayers, someone has to take the hit.”

“The Japanese wasted a decade-and-a-half arguing over how to allocate the losses, and their economy stagnated in the meantime. Let’s hope we don’t do that.”

The Boston Globe reports from Massachusetts. “When Paul Rappoli Jr. put his four-bedroom Colonial on the market for $449,900 in June 2006, he felt good about its chances of selling. Eight months later, the house finally sold for nearly $75,000 less than the initial asking price. ‘It was a long, drawn-out, frustrating ordeal, and it was unfortunate,’ said Rappoli. ‘I felt like we were constantly chasing the market, just constantly chasing it.’”

“Why didn’t the house sell sooner? That’s easy: the price.”

“It was a beautiful house in a great neighborhood. There was absolutely nothing wrong with it,’ said Jeffrey Ledin, a broker with in Stoughton who stepped in after Rappoli’s contract with his first broker expired. ‘The problem was the price.’”

“When Ledin took over the listing, he repriced the house at $379,900. Just nine days later, it sold for $375,000. ‘We had eight showings in the first three days,’ Ledin said. ‘The price sold it.’”

“Peggy Buresh in Quincy initially had the Rappoli listing. She said they were building a new house in Foxborough and were willing to take a bit of time selling. She priced it at the high end, thinking, ‘Let’s just try it and see what happens. Then the market started to change.’”

“Rappoli said, ‘Part of it had to do with what I thought I’d like to get and what other homes in the neighborhood had gone for.’”

“Now, he advises buyers, ‘Forget about what you want, about what you could have gotten a year ago, what your neighbor got two years ago - those days are gone.’”

The Eagle Tribune from Massachusetts. “The banner hanging above the entrance to the spacious new home in North Andover captures the plight of the real estate market in just four words. ‘MAKE ME AN OFFER,’ it pleads.”

“Owner and developer William Barrett already dropped his asking price from $929,000 to $799,900 for the house on a sprawling, well-manicured property with a stone wall and brick walkway. Even so, the two-story, 3,700-square-foot, yellow-and-white four-bedroom home with a two-car garage has been sitting idle on the market for 15 months.”

“‘Basically, right now I’m looking to get rid of the property at the level where I can get rid of the loans,’ Barrett said. ‘And if I make no money, at least I won’t have the monthly payment.’”

“His situation is typical in today’s real estate market. For buyers, the climate translates into a plethora of properties from which to choose, allowing them to shop around for deals that did not exist a few years ago.”

“Work at the Monarch on the Merrimack has all but stopped, some contractors and subcontractors haven’t been paid in months, and the future of the $200 million condominium complex might be in the hands of a California bank.”

“Bob Ansin, a Fitchburg-based developer, needs another $40 million to finish the first phase of the three-phase housing and retail development, Chief Operating Officer Shaw Rosen said.”

“Neither Rosen nor Ansin commented on why such a dramatic shortfall surfaced even as signs on the mill promise it will be ready for occupancy this fall. It’s a strange turn of events for a project that has been hailed by city officials as key to revitalization — to bringing new money and energy here.”

“Ansin has characterized Lawrence as a place with ‘pent-up demand … for an exciting revitalization’ that city residents ‘are hungry for.’”

“A potential buyer who toured the site late last month said he was concerned by what he perceived as a lack of progress. ‘They were nice enough to give me a (hard) hat to go onto the construction site. But nobody was there,’ said Stewart Hou, who lives in Quincy and wants to relocate to the Merrimack Valley.”

“‘There was no construction going on. I thought maybe they were just taking a break,’ Hou said.”

“Contractors say they pulled out of the project because they aren’t getting paid. Plumbing contractor David Youngblood pulled 25 of his licensed plumbers off the site in June for nonpayment. They began work at the Monarch on the Merrimack in November 2006.”

“‘Like everyone else, we are owed a fair amount of money,’ said Youngblood. ‘All the work has stopped.’”

“Across the street from Monarch on the Merrimack, Lisa Arcand opened an eatery, Fisherman’s Corner. ‘One of the reasons I grabbed this place was knowing there would be condos there,’ she said. ‘This could be a gold mine. My interest in this place is that there would be people living there and all they’d have to do is walk across the street.’ Since contractors left, she said, business has suffered.”

“Lawrence Mayor Michael Sullivan said. ‘The whole story is easy for me to talk about because it’s very real.’ ‘Stick with it because it’s going to happen,’ Sullivan said. ‘I still see this property appreciating. Once people are in there, the prices are still going to go up.’”

The News Times Live reports from Connecticut. “Thousands of state residents never thought they would find themselves fearing the loss of their home. Foreclosure rates in the state, however, have skyrocketed in the past year.”

“Industry experts say adjustable-rate mortgages and interest-only loans are just some of the hybrid products offered during the housing boom of the past few years that have gotten homeowners into trouble.”

“‘There were a lot of people who bought houses they couldn’t really afford using mortgage products tailored to get them into the house — not to stay in the house over the long haul,’ said Jay Lent, chief operating officer for Union Savings Bank.”

“The brokers, who made their money up front, then packaged the mortgage with others and sold them to investors, ridding themselves of risk.”

“Fairfield County alone had 403 foreclosures in July, compared with 240 in July 2006 and 127 in July 2005. During the last 12 months there have been more than 4,400 foreclosures in Fairfield County.”

“Sheritha Jones of Danbury refinanced her home with an adjustable-rate mortgage two years ago. Her first mortgage, also an adjustable-rate product, was readjusting and she couldn’t afford the new payments.”

“‘I didn’t want to refinance but I had to do something,’ she said. Her lender, she said, tried to rush the process, telling her she would have to accept a higher interest rate if she waited. The lender even offered its own attorney to look over the paperwork, Jones said.”

“‘I knew it sounded too good to be true,’ she said, adding that her mortgage payment has increased from $2,000 to $3,000 in the past five months. ‘Now I regret it.”

“Debbie Killian, owner of the Charter Oak Lending Group in Danbury and education chairperson for the Connecticut Society of Mortgage Brokers, said several factors led to the current crisis. ‘It’s not the perfect storm — it’s the perfect tsunami,’ she said. ‘It was a culmination of several factors moving at the same time.’”

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