The Housing Bubble

ABC 30.com reports from California. “For some, what’s happening with the housing market is a bargain. ‘I guess it’s a buyers market,’ said new homeowner Sheldon Kahoonei. The Kahoonei family just moved from San Jose to Mountain House, near Tracy, because they got a great deal on their new home. ‘They offered us a lot of money off of the original price,’ said Monica Kahoonei.”

“‘Originally, the house was priced for over $600,000. We ended up getting this for $481,000. So we have something like $140,000 in incentives,’ said Sheldon Kahoonei.”

“All the incentives don’t help those who bought here a year ago. They paid in some cases as much as $100,000 more for the same model.”

“A Prudential agent selling one home said it’s been on the market for 67 days with no inquiries. The owners owe $590,000 and stopped paying on the house months ago. The house is likely to get marked down this week to $489,000, perhaps even lower. Others are in the same boat.”

“‘Their home prices have dropped, and a lot of them owe more than they have and they can’t refinance them,’ said Bill Erb, Diablo Funding Group. ‘So they’re going to end up losing them because they can’t make the payments.’”

The LA Times. “The housing market slump appears to be taking a toll on two signature Orange County projects. In Anaheim, city officials were alerted last week that Lennar Corp. will halt construction on A-Town for up to a year, slowing progress on the centerpiece of what some are calling the city’s new downtown.”

“In Irvine, Lennar’s plans to build thousands of homes around the planned Orange County Great Park have been pushed back, and the city has not received an updated timeline from the developer since 2005.”

“‘Looking at the housing market, it creates frustration and suspicion that our partnership is not functioning as it should be,’ said Councilwoman Christina Shea.”

“The question over the next several years, said Esmael Adibi at Chapman University, may be just how long Lennar can weather the tough times in real estate without the brisk home sales anticipated.”

“‘In the short term,’ he said, ‘it is extremely difficult for a builder to justify new projects and new developments, because they’re almost certainly going to lose money.’”

The Bakersfield Californian. “A monthly newsletter detailing local building permit activity is reporting rumors of layoffs at local Lennar Corp. operations. Gary Grumbles, local head of the homebuilding giant, would not comment on earlier layoff rumors Wednesday. He did not return calls for comment Friday.”

“The newsletter was distributed by e-mail Friday by Howdy Miller, marketing director at Ticor Title. ‘I’m sure you’ve all heard by now … the local Lennar effort has been reduced by 40 employees … A bit strange … Since they pulled 84 permits in the month of August!!! … Rumor has it they want to sell off existing inventory before continuing their building program … go fish!!!’ reads the report.”

From KCRA 3. “Last May, Jason and Gina Rossow fulfilled their dream of buying their first home in a brand-new subdivision under construction in Elk Grove. But now across the street are weeds. An entire field is empty with just debris. And around the corner there are unfinished homes. The Rossows’ dream is slowly creeping toward nightmare.”

“What’s causing confusion, concern, and unwelcome news is a closed sign that’s on the Dunmore Homes sales office door. All construction was halted last month, and contractors filed roughly $5 million in liens against Dunmore Homes.”

“‘That tells ya it’s not a great sign for new home sales,’ Mike Show of the Sacramento Business Journal said.”

The Sacramento Bee. “California’s job market…is still wobbling under the weight of the housing downturn. Continued cutbacks in the housing sector, from construction sites to loan offices, sent the statewide unemployment rate up two-tenths of a point to 5.5 percent.”

“‘It has slowed in 2007 — job growth is considerably lower than it was last year,’ said Howard Roth, chief economist at the state Department of Finance. ‘You can really see the housing slowdown in these numbers.’”

“‘The numbers are starting to mount a little bit and look a little more ominous,’ said David Lyons, labor market consultant at EDD.”

“‘The consumers, for sure, haven’t made a full-on response to housing prices,’ said Jon Haveman of Los Angeles consulting firm Beacon Economics. ‘In time, they’ll come to recognize’ that the downturn will last a while.”

The Contra Costa Times. “The East Bay fended off an employment downturn in August even though housing-related jobs deteriorated at a greater pace.”

“‘Construction is a disaster,’ said ecnmist Jon Haveman. ‘It will take 18 months to two years for the housing market to stabilize. It’s going to be awhile before they put hammer to nail in that industry.’”

“During the pat year, the Alameda-Contra Costa County area lost 5,900 jobs in construction, 1,000 in finance and insurance and 800 in real estate. In the same period, California lost 24,300 construction jobs. That means the East Bay accounted for about one-fourth of all the construction jobs that vanished in California.”

“‘It’s difficult to find a job,’ said Christine Bonanno, a Pittsburg resident who lost her job at a Walnut Creek escrow company when the housing and residential mortgage industries collapsed. ‘A lot of people were laid off from my company. I haven’t found anything yet since March.’”

“Bonanno said she is willing to take a job in pretty much any category besides the mortgage business. And she is flexible on wages. ‘I don’t want to stay with the mortgage industry with how bad it is right now,’ Bonanno said.”

The Fresno Bee. “The housing slowdown continues to ripple through the economy, leading to a reduction of construction jobs and prompting title companies and related businesses to shrink office space.”

“As a result, the unemployment rate in Fresno County was higher in August than a year earlier, increasing to 7.6%.”

“The evaporating construction payrolls are related to slow home sales. The number of permits for single-family homes issued in Fresno County through August was…27% less than two years ago, according to the Burbank-based Construction Industry Research Report.”

“With less work comes the need for fewer workers. ‘There’s no mystery to it,’ said Mitch Covington, president of the Building Industry Association of the San Joaquin Valley.”

“‘Mortgage companies are just flat closing down,’ said Phil Souza, an office specialist at Grubb & Ellis/Pearson Commercial. ‘They are just gone. They are shutting down, subleasing their space or defaulting on their lease. We’re seeing all of that.’”

“Meanwhile, home builders are slashing prices and offering incentives to attract buyers. Covington said builders won’t offer concessions forever.”

“‘It’s bargain time,’ he said.”

The Union Tribune. “In a clash that was bound to happen in a city with a growing university, owners of luxury condos are complaining about students partying and acting wildly.”

“Residents of Rancho Coronado just south of Cal State San Marcos say they are tired of the noise, trash and alcohol-induced behavior by students living there.”

“Rancho Coronado consists of five gated communities with a total of about 850 condos. Outside the meeting, several residents who belong to the homeowners association said they are disgusted with the behavior they have seen.”

“Students have been running around intoxicated, wearing bras and no shirts, and leaving bodily waste and vomit in the community pool and on playgrounds, said Maria Manning, who moved into a condo about nine months ago.”

“‘It’s beyond ‘Animal House,’ she said.”

“Alicia Smith said she has tried talking to them but has gotten ‘disrespectful’ responses, including ‘you live by a college, what do you expect?’”

“Condos in her complex were selling for more than $500,000 when she bought one two years ago, Smith said.”

“Part of the problem is that owners aren’t supposed to rent their units, Jennifer Schoch said, but some do anyway. She said she didn’t realize she would be living near college students when she moved in three years ago. ‘I just didn’t think that college kids could afford this,’ Schoch said.”

Readers suggested a topic on media viewpoints and the housing bubble. “My weekend topic suggestion would be examining what other bass-ackwards terms the media is using that clearly favor The Plight Of The Poor FB.”

“The media shouldn’t assume that FB’s voices are the only ones that count and that a ‘crisis’ for them is a crisis for everyone. Falling prices don’t hurt the first time buyer hoping to break into the market.”

“First time buyers enable people to become second-timers and so on. Why do the media continue to use this word to describe people being expected to repay what they’ve borrowed, instead of using it to describe people who have been priced out of the market and seen their savings thwarted by mutant price runups?”

“In line with this questionable and flagrant overuse of the word ‘crisis’ in this situation, is the bewildering mention of a ‘moral hazard’ on CNNMoney this morning to describe our government NOT being more generous with FB’s.”

“Why are we using this term to describe government not bailing everyone out, when we should be using the term to describe lender/broker/agent/flipper/consumer greed pricing people out of homes?”

Another added, “The cheerleaders on the business news always twist everything that is said. For every one person that makes a honest comment, they have three people cheerleading to offset the comment or the host makes a final comment to sum up the cheerleaders point of view.”

“I have never heard a discussion by MSM about this housing boom being a outright mania of speculation in real estate, that was funded by fraudulent lending set up by Wall Street and that is why prices are crashing.”

The Atlanta Journal Constitution. “Mortgage market turmoil. A painful housing slump. Economic concerns don’t get any worse than they are these days in America, right?”

“Wrong. Try coming to Britain. After a decade of unprecedented economic growth, this nation of perhaps the world’s most overextended borrowers might finally be forced to pay the piper.”

“High debt ‘really snuck up on me without me realizing how bad things were getting,’ said Erire Obano, who had to sell her London home this month after she remortgaged her property — twice — in order to pay her rising debts.”

“As she fell behind on mortgage payments that rose from $1,200 a month five years ago to $4,000 a month today, ‘I was living off credit cards there for a while and it wasn’t a good thing,’ she said. ‘The debts just grew like crazy.’”

“As home prices tripled, with the average house price recently smashing through the $600,000 mark in London, owners borrowed against that value to fuel consumer spending.”

“The number of people declaring bankruptcy jumped 28 percent in the year ended this June, while the number of home repossessions soared 30 percent.”

From North Shore Sunday. “Last month, 4,527 homes went into foreclosure in Massachusetts. ‘Our toes are just getting wet,’ says Janet Hilton, a real estate broker in Rowley. ‘There’s a massive tidal wave, a tsunami that’s about to hit us on the beach.’”

“Just about everyone is pointing a finger at subprime mortgages. Those loans might have been the Titanic for many homebuyers, but it was the sagging real estate market that cut loose the lifeboats. A lot of homeowners found themselves locked into mortgages that were written for more than the price they could get for their homes if they tried to sell.”

“In hindsight, subprime lending looks almost like taking a kid who failed basic math and telling him he can still graduate as long as he passes calculus. ‘In many cases borrowers facing difficulties are those who may have entered into loan products they didn’t understand,’ says Dave Bernotas, president of East/West Mortgage Company in Peabody.”

“Hilton agrees that a much the responsibility falls on the shoulders of mortgage companies and lenders who were only too happy to write loans for virtually anyone who appeared to be conscious and breathing.”

“‘They made it so easy for those poor souls who didn’t have the money to buy a home,’ she says.”

“But Nancy DelMaro, a senior VP for Coldwell Banker, says you also have to look at the climate in which those loans were written.”

“Three years ago, people were thrilled with the red-hot real estate market. Lots of people, real estate brokers, lawyers, appraisers, movers, plumbers, electricians, carpenters, landscapers and newspapers that ran ads all made out when home sales were booming.”

“That atmosphere of prosperity probably affected a lot of buyers, who figured that even if their rates did rise in three years, they would be earning more and doing better, says DelMaro.”

“But now that the party is over, buyers with those subprime loans are left with the mess. And the toll on those people is enormous.”

“‘People have not only lost their homes, they’ve lost every dime they had,’ says Hilton. ‘And they are horrified because they think they have let their families down.’”

“DelMaro, who has been selling homes since 2000 and seen both the bubble and the bust in prices, agrees the personal costs of the mortgage mess have been enormous. Like other realtors, she has stories about couples and families who were devastated by the losses.”

“‘It breaks our hearts,’ she says. ‘It’s a tough time to be in real estate.’”

The Herald Online reports from South Carolina. “HSBC Holdings PLC on Friday said it was closing a Fort Mill-based unit that made subprime mortgage loans through independent brokers, eliminating 369 jobs in the Charlotte area. ‘It’s no longer sustainable and not the right place to allocate capital in the future,’ said Michael Geoghegan, HSBC’s group CEO, in a statement. ‘We said we would make tough decisions, and we have done exactly that.’”

The Atlanta Journal Constitution from Georgia. “A year ago, Fulton Concrete Co. stayed busy pouring basement walls, foundation slabs, driveways, curbs and other infrastructure in new subdivisions in metro Atlanta. Residential work has all but dried up now.”

“The housing euphoria of the last few years created an ‘if you build it, they will come’ atmosphere. Developers flooded the market with plans for new subdivisions. Now, the building boom, plus a rash of foreclosures and a slowdown in new home sales, has created a glut of metro Atlanta subdivisions where the slab, driveway, sidewalks and curbs are in, but little else.”

“As of June, the latest data available, metro Atlanta had a record 133,538 vacant developed lots, according to Metrostudy. That’s about three years of inventory. ‘How are we going to burn through that?’ said Bill Benzur, Fulton Concrete’s general manager.”

“Real estate wasn’t booming in metro Atlanta in the early 2000s the way it was in cities such as Miami. But the market, with low interest rates and eager buyers, was still perfect for Phillip E. Hill’s mortgage fraud scheme to milk millions from inflated home values.”

“On Friday, a federal judge in Atlanta sentenced Hill to 28 years in prison and ordered him to pay more than $41 million in restitution for running a conspiracy that involved loan officers and real estate appraisers and racked up $112 million in fraudulent loans.”

“Prosecutors said the scheme involved the sale of more than 50 homes and 250 condominiums in eight Atlanta-area condo complexes. ‘The sentence today does not replace the losses that were incurred due to this scheme,’ said Rodney E. Clarke, acting special agent in charge of the Internal Revenue Service’s criminal investigation unit.”

The Naples News from Florida. “A Fort Myers man has been arrested and charged with 60 felonies as part of what investigators say is a complicated real estate scheme that bilked investors out of $3.8 million.”

“Heckler is accusing of scamming over a dozen people in Southwest Florida. For nearly a year and a half, Heckler and Jack, through a company called Alternative Home Financing, worked deals to arrange financing for lease option to buy homes in Lee and Charlotte counties.”

“‘They were preying on people who wanted the American Dream of buying a home and couldn’t get a conventional mortgage,’ said Trish Routte with Crime Stoppers. ‘Then they lost all the money they had worked so hard to save.’”

The Palm Beach Post from Florida. “Jobless rates continued to rise in Palm Beach County and the Treasure Coast in August, a trend largely attributed to the cooling of the region’s housing market.”

“The state’s slumping construction industry lost 18,500 jobs over the past year. In Palm Beach County, the construction industry lost 1,300 jobs over the past year. About 100 construction jobs were lost in Martin and St. Lucie in the past year.”

“‘Given the weakness in the national jobs numbers, I take the Florida report as pretty good news,’ said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.”

The Herald Tribune from Florida. “Unemployment in Southwest Florida edged up in August, carrying the region further into territory not seen in decades. Southwest Florida’s sluggish housing market is clearly a major player in the higher unemployment. The subsequent effects that industry has had on businesses from restaurants to retail stores also play a major role.”

“‘Overall, this report is good news in the midst of what’s becoming an increasingly turbulent soft landing of the national economy,’ Snaith said.”

The News Journal from Florida. “As the area’s unemployment rate continues to hover at 4.5 percent, the mood in the local One-Stop Career Center has turned desperate, even ugly.”

“‘There are no jobs in Volusia County,’ Brandy Harris snapped.”

“The slump in the housing market continues to plague the area, hitting not only Realtors and home builders but other businesses. Even companies that aren’t laying off employees are enacting hiring freezes.”

“David Plaza, who works for a beachside time-share resort, said he has to find a different job. He is paid by commission to generate leads of people wanting time shares. But no one wants to buy a time share now. ‘My paycheck was $72 last week,’ he said.”

From CBS 4 in Florida. “There are a record number of foreclosures in South Florida in what economists are calling a housing recession. The foreclosures are isolated to homeowners who financed their property with subprime and adjustable rate loans.”

“At the time when maintaining a home costs more, residents are complaining their proposed property tax bills haven’t dropped like a rock as lawmakers promised.”

“Property assessments are supposed to reflect property values January 1st of this year. But that’s not happening, because much of the real estate data tax collectors are now using goes back to when real estate values were way up.”

“Helen Guerrera’s fighting mad and she’s trying to do something about it. The Brickell condo owner said, ‘They’re screwing us badly. It’s really awful.’”

“Guerrera’s property assessment was $593,000, which was increased $168,000 over last year.”

“Assessments on the value of a property is based on so-called comparable sales in a neighborhood, but criticism has been that those sales were based on high values before South Floridas’ real estate market crashed.”

“Broward realtor Peter Maloney says his house has been over-valued based on last year’s stronger sales. ‘The assessment is on the high side, and of course we’ve had such a drop in prices recently that it’s killing me,’ Maloney said.”

“Miami-Dade Commissioner Bruno Barreiro said, ‘We’re looking at data over a year ago which I think is incorrect.’”

“Property appraisers do believe assessments and tax bills could be lower next year.”

The St Petersburg Times from Florida. “The Federal Reserve’s decision this week to cut the short-term federal funds rate more sharply than expected to 4.75 from 5.25 percent was met with some decidedly mixed views in a sampling of Tampa Bay businesses and borrowers.”

“‘Hopefully get foreign investors in here to buy new housing and some of those condos,’ said Mike Kelly, owner of Kelly Pools in Indian Rocks Beach.”

“Kelly noted that there are numerous people in the building trade ‘out there starving for work. I get calls from subs every day looking for jobs that never used to give us the time of day.’”

“In theory, the Fed’s rate cut should be a boon for mortgage brokers. Lenders should be slicing mortgage rates, homebuyers would be lured by more affordable terms, and calls to mortgage brokers increase.”

“Tell that to Scott L. Clark. The president of The Loan Store Inc. in St. Petersburg says the rate cut won’t help him much because most of the alternative loan programs he specializes in have either tightened their standards or disappeared, thanks to the ongoing housing slump. These include riskier ‘no-doc’ and ’stated’ loans, which require relatively little financial disclosure from borrowers.”

“It would take a huge rate cut to rejuvenate The Loan Store, which began the year with 22 employees and a nice office. ‘I’m pretty much down to myself and my wife,’ Clark said.”

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