The Housing Bubble

The Modesto Bee reports from California. “These are tough times for Northern San Joaquin Valley home builders. They’ve got too many homes to sell and too few buyers who want them. Lafferty Homes recently turned over sales of its finished houses in Oakdale, Livingston and Lathrop to real estate agents, and slashed its asking prices. Some homes that had been priced above $600,000 have been lowered to the mid-$400,000s.”

“Some builders are offering even bigger potential discounts. Anderson Homes has agreed to auction off 59 houses in Manteca and Los Banos to the highest bidders next month.”

“‘It’s a very efficient way to reduce our inventory,’ said Craig Barton, Anderson Homes’ chief financial officer. His company…built too many homes last year when sales were strong, then got stuck with empty houses when buyers disappeared.”

“To lure back buyers, the opening bids for Anderson Homes will start about 40 percent below previous asking prices. Example: Its Paseo West houses in Manteca, once priced at $460,898 could go for as little as $285,000, and Anderson’s Teal Landing houses in Los Banos, once priced at $353,316, could go for $215,000.”

“Craig said his company ‘won’t be making any money if we sell for the minimum bids,’ but the company is going to trust ‘buyers to set the fair market value.’”

The Recordnet. “The national and international media have homed in on the Stockton metro area - meaning San Joaquin County - as one of the top foreclosure hot spots in the nation. It’s the bust part of the cycle that followed an unparalleled six-year boom.”

“Edmundo de la Cruz’s Spanos Park West home (is) up for sale, but the Stockton sales market, with 3,000 listings that include hundreds of foreclosure properties, is rugged. He and his wife, who are living on pensions, are facing mortgage adjustments that they absolutely won’t be able to cover, he said.”

“The couple is upside down on their house, meaning that the $363,000 they owe on it is more than the $350,000 it would sell for. About a year and a half ago a neighbor sold a similar house for $474,000. De la Cruz said his appraised for $480,000 a year ago.”

“To complicate their problem, they’ve been using credit-card advances to help cover their mortgage payments, he said.”

“‘We had no idea we would get into this trouble,’ de la Cruz said. ‘Now the market is so bad we can’t even get any offers, nothing. It’s very frustrating.’”

“‘We’re still waiting for the pipepline to flush out,’ said broker Kim Currieri. ‘The repos are now competing against repos, so the homeowners are almost totally out of the market now.’”

The Times Herald. “A Vallejo woman we’ll call ‘Maria,’said she is losing her house because she trusted a loan broker who may not have had her best interests at heart. ‘I’d say pay attention before you sign anything,’ said Maria.”

“‘It ain’t over yet’ said Solano Association of Realtors president Jeff Dennis of the subprime mortgage crisis. ‘My office has, probably, 33 bank-owned properties we’re trying to sell.’”

“Maria said she bought her Vallejo home five years ago for $375,000 with an adjustable negative amortization mortgage, meaning the amount she owes on her home rises every month. ‘Since the first bill, it’s been a nightmare. I’ve been trying to sell it off and on for a year, and I can’t sell it,’ she said. ‘It’s a terrible market for sellers. I’ve gotten no offers.’”

“‘It was the American Dream,’ she said. ‘I got it, I lived it, and now, it’s gone.’”

The Press Enterprise. “Real estate agents say this year lenders are approving short sales as an escape route for borrowers whose adjustable-rate mortgages have skyrocketed beyond their means.”

“‘The old school mentality was the hardship had to be marital, medical or job related. But I have had short sales approved and the hardship is that the loan is adjusting,’ said Jacob Swodeck, short sale manager for a company in Covina.”

“‘If everyone comes out of the woodwork, even those able to pay, the next thing you know the bank is being pummeled,’ said Chris Thornberg, a real estate economist. ‘The problem with a short sale or a foreclosure is that the process forces the bank to have to acknowledge its losses.’”

“The biggest frustration, say agents, is that it can take months for a lender to decide whether to accept an offer, in part because lenders’ mitigation departments are being inundated with such requests.”

“‘The loss mitigators in the loan servicing offices may have as many as 175 short sales each. They are so overwhelmed that all they can do is just work on the ones close to being auctioned off,’ said Karen Beer, an agent in Murrieta.”

“Karen Hirsch, business administrator for Mountain West Financial, said underwriters for the Redlands-based mortgage banker view short sales as negatively as foreclosures and it would take time before a short seller would be considered a reasonable credit risk for another mortgage.”

“‘If (borrowers put) themselves in a position where they were unable to make their house payment, it tells you about their sense of responsibility,’ she said.”

“Richard Macias has had no luck selling his house in Corona’s Horsethief Canyon for $329,000, which is $88,000 less than enough to repay his mortgage. Macias said he can’t afford the adjustable mortgage he got two years ago when he refinanced his house to raise funds to develop an invention.”

“Macias, a dock builder for the city of Los Angeles, said in the last year the interest rate on his mortgage has steadily risen, pushing up his monthly payments from $2,200 to $3,600. When he tried to refinance to a fixed rate, he said, he still could not get a payment he could afford because late mortgage payments hurt his credit score.”

The Daily News. “Just last month, Patti Hutchinson and her husband were in escrow on a $675,000 home in Torrance. They had prequalified for a traditional 30-year loan, had a strong income and agreed to a 5 percent down payment.”

“Suddenly, the Hutchinsons’ slightly less-than-perfect credit scores turned them into a liability. Their lender said they’d have to up the down payment to 15 percent, and then he raised the interest rate on the loan to double digits.”

“The Hutchinsons bailed out of escrow, and they plan to stay in their rental house until next year.”

“‘We were very disappointed,’ said Patti Hutchinson. ‘We took all the right steps to get into something and got prequalified and provided everything possible. I don’t know what else I can do.’”

“Still, lenders and brokers insist that now is a great time to buy. ‘There is inventory available and sellers are becoming more realistic,’ said Anthony Olague, branch manager at Provident Bank Mortgage in Glendora.”

“‘Yes, prices are high, and some are really stupid,’ said said Carol Gilles, a Realtor in Torrance who represents the Hutchinsons. ‘But there are ways to purchase. Figure out where you want to live and what you can afford. It may have to be close to the airport or close to Gardena. If you don’t want to do that - move to Hemet.’”

The Daily Breeeze. “The sluggish real estate market is taking its toll on one San Pedro condominium project that’s still under construction. Seaport Homes on Western Avenue will now lease out its 136 units rather than sell them.”

“Seaport Homes reportedly sold only about 15 percent of the units in advance of the scheduled opening in January.”

“‘Mainly the market’s not good,’ Seaport spokeswoman Nancy Bush said. ‘It’s hard for people to get a loan, so we thought we’d let people try it out on a lease with a purchase option first, to kick the tires, see how they like it.’”

“Rents will range from $1,500 for a one-bedroom, one-bath to $2,750 for three bedrooms and three baths, according to Seaport’s Web site.”

“Bush said it is anticipated that the units will go up for sale later, after the housing market rebounds. Those with leases would have first right of refusal to buy.”

The Union Tribune. “Home builders registered their gloomiest view of the future since recessionary 1991, the National Association of Home Builders reported this past week. The association’s 22-year-old Housing Market Index, based on a monthly survey of builders, dropped to 20 points, tied with the record low set in January 1991. In the West, it was even lower at a record 18 points.”

“In San Diego County, builder Bill Davidson said many potential buyers continue to sit on the fence, even as many people continue visiting housing projects.”

“‘In my career, I’ve never seen such a sophistication in the marketplace,’ Davidson said, noting he has weathered four recessions in nearly 30 years.”

“Looking ahead, Davidson thought national builder analysts might be too optimistic in thinking that sales will pick up next spring, especially in markets suffering from oversupply, overbuilding and speculation.”

“‘Some of this is healthy, as much as I hate to admit it,’ he said.”

The Billings Gazette reports from Montana. “Ripples from the national mortgage mess are upsetting some Montana borrowers. Mike Thelen, VP of Professional Mortgage Consultants in Billings, said that in early August a client buying a house signed papers on a Thursday for a 30-year conventional loan. ‘The following day, the wire wasn’t sent and the lender’s phone wasn’t working,’ Thelen said. ‘On Monday, I received a notice they were out of business.’”

“The national company, Aegis Wholesale, cut off funds in two other Montana house deals, he said. ‘My borrower never got this house,’ Thelen said.”

“In early September, Wallinder said the national belt-tightening affected some of her loans that were ready to cross the finish line. ‘Wells Fargo sent us an e-mail saying if we didn’t have our subprime loans closed in three days, tough luck,’ said Kim Wallinder Moffet, owner of Wallinder Mortgage in Billings.”

The Daily Interlake from Montana. “From August 2006 to August 2007, the number of homes sold through the Northwest Montana Association of Realtors Multiple Listing Service dropped by 45, from 262 in August 2006 to 217 just last month. That’s a 17 percent drop for Flathead, Lake and Lincoln counties.”

“‘Prices are starting to stabilize, but that’s just a good market correction,’ Kalispell Realtor Ted Dykstra, Jr., said. ‘We needed a market correction for a number of years.’”

“He estimated that stretch of too-high prices ran for perhaps the past five or six years. ‘The correction started somewhere back in March. April and May were somewhat soft, then June and July were real soft.’”

“In a slowed-down market with plenty of housing stock to choose from, said Greg Carter of Rocky Mountain Real Estate, they can take their time and be much pickier on when and what they buy. When they find the right home, they can spend what it takes to snag it — but, he said, they also can wait for a price drop.”

“‘We haven’t seen this kind of market in a long, long time,’ Realtor Dave Alexander said.”

“From his standpoint at West Venture Properties, Alexander sees ‘we’re definitely heading toward a buyer’s market, and coming out of a very long seller’s market … I don’t think it’s a bad market. It’s a different market.’”

The News Tribune from Washington. “Come next month, some of the cheap loans that got U.S. buyers into homes they might not have otherwise been able to afford are expected to get far less cheap. Adjustable-rate mortgages already are resetting.”

“Lisa Brady finds herself among the local buyers caught unaware that her rate would reset after two years. Brady financed the purchase of an 803-square-foot home in Parkland with two loans, the larger of which adjusted in August from a 5.0 interest rate to 11.5 percent.”

“‘In these little teeny tiny letters it says it goes to an ARM after two years,’ said Brady. Payments for the two loans combined jumped from $800 to more than $1,400, she said.”

“Brady said she didn’t see the small type when signing the loan documents and her loan broker, a friend, didn’t tell her the term would adjust. Because she’s been late on some of her mortgage payments and she makes only $22,000 yearly plus tips, Brady said she’s been unable to refinance.”

“‘I’ll keep struggling and make the payments or get a second job,’ she said. ‘I don’t want to lose my house. I can’t lose my house.’”

“It’s not necessarily adjustable rates that are getting borrowers into trouble; it’s the options attached to them, such as deferring interest that gets added to the principle, said M.J. Walsh, a senior loan consultant at Pierce Commercial Bank.”

“‘What we’re experiencing today is a result of poor lending decisions that the industry made in the last 24 months. I don’t blame the people or the government. I blame the lending industry that made loans they shouldn’t have been doing,’ she said.”

“Some potential borrowers, she said, are stuck in homes they expected to sell, because adjustable rates are no longer an option. A client recently pulled his house off the market in Gig Harbor, where prices aren’t keeping up, because he couldn’t get an adjustable-rate loan that would make up for the equity he’d lost, she said.”

The Spokesman Review from Washington. “Spokane keeps waiting to see if the credit crunch afflicting the mortgage industry across the country will spread to the Northwest.”

“In Spokane County there are 3,240 listings, about 26 percent more than a year ago. Those with a higher price tag need extra work, though, noted Grant Forsyth, an Eastern Washington University economist, ‘people from outside are still kind of astonished about what you can get for your money and how modest the taxes are.’”

“There’s another problem that will arise next year, said Tom Flanigan, branch manager for Golf Savings Bank. More than $3 trillion of adjustable rate mortgages change from their fixed-rate introductory years to the variable interest years beginning in 2008. This, Flanigan said, is when the credit crunch could bite Spokane.”

“‘There’s a ton of adjustables here,’ he said.”

“Too many people have tapped the equity in their homes and spent it rather than saving or investing. ‘Are we immune or do we have our heads in the sand?’ Flanigan asked. ‘Who’s to say?’”

“Jeff Berglund, owner of Morgan Mortgage in Spokane, said the problems with credit are about context. ‘The sky is not falling. People who are taking care of their credit are going to be fine,’ he said. ‘Some people may have to wait a while to buy their first home, but that’s OK. For a while there, it was easier to buy a first home than to qualify to rent an apartment.’”

“He called the credit crunch part of a market cycle that was overdue and believes that there was a national housing bubble. ‘We just simply couldn’t keep up, and yes, I think we’ll see some of it in Spokane,’ he said.”

From KGW.com in Oregon. “Is the bubble bursting in Portland’s pearl district? Dismal sales in a new condo building have forced developers into converting the property into an apartment building.”

“Condo buyers at that building are getting their money back with interest, and trying to figure out what to do next. Gabby Lang is moving from Las Vegas to Portland’s Pearl District. He says he found the perfect condo in the almost completed, 238-unit building. Everything looked like it was going smoothly until this week.”

“‘I did a walk-through last week. I flew up and the place looked great. And I was a little excited,’ he explained. But the excitement is over. After a half year of marketing the Wyatt, Pearl Real Estate has sold only a quarter of the building’s condos.”

“The developer has made a decision that converting the building into apartments will blunt any losses. ‘It’s a tough decision,’ said Chris Suarez, Pearl Real Estate’s principal broker.”

“‘It’s definitely a buyer’s market out there right now. There are buyers out there buying. They’re just taking a lot longer to make that decision to buy,’ he explained.”

“But what about the big picture? Condo tower construction cranes loom still loom over parts of the Pearl District. Does the Wyatt conversion signal a trend?”

“‘That was inevitable at some point,’ said Larry Brown, a city development manager.”

“For now, though, price-cutting is common with re-sale condos in the Pearl. Hoyt Street properties, which is also marketing new condo towers, says the slowdown shouldn’t impact local buyers, the ones who plan to live in the Pearl District.”

“‘It’s more the people that are investors that think they come in and buy something and flip it and make $100,000 in a year. I think those are the people that we’ve lost,’ said Marilyn Anderson, principal broker at Hoyt Street Properties.”

“Lang has had time to reflect on his situation. “Lang says if the Pearl’s condo market is having a hiccup, he’s happy to get his investment money back from the developer and try again later. ‘Everything happens for a reason. So I’m very happy,’ he said.”

The Press Herald reports from Maine. “Looking back, Maureen Green often wishes she had just gotten up from the table and walked away. In January 2006, Green and her husband, Loni, sat down to buy their first house, a modest two-bedroom home shaded by tall pines in the Lake Arrowhead subdivision. At the time, Green had no down payment, no recorded credit score and a part-time job earning $11 per hour.”

“Her husband, who is diabetic, worked as a mechanic at a salvage yard, earning $9 per hour without benefits.”

“But Green, like thousands of other borrowers with poor credit who obtained mortgages in the past few years, discovered there were lenders willing to loan her money, albeit at a higher-than-standard interest rate. Today, Green has learned that the loans she found easy to obtain are almost impossible to pay back.”

“‘Once I was sitting in that chair with that pen, I just wanted that house,’ she said.”

“During the first year in their new home, Green switched to working full time but the couple still fell behind in their property taxes. In January their lender began foreclosure proceedings. Green is expecting a court action later this week that may order her to leave the tidy one-story home where she has planted flower beds out front.”

“‘It was my first house, and it might be my last,’ she said.”

The Boston Globe from Massachusetts. “Just two years ago, East Boston was the next ‘it’ location. Developers snapped up triple-deckers to remodel and flip, and proposed converting factories into high-end condominiums.”

“‘It was on fire. It was going crazy here,’ said David Barsky, who bought a house in the neighborhood in 2000 and embarked on an eight-unit remodeling project in 2006.”

“Then, as fast as the boom started, it was over. In 2006, the real estate market statewide softened. As extreme as it was during the boom, East Boston’s condo market was way out front during the bust: Sales here fell 30 percent in 2006, compared to a 10 percent decline citywide. And so far this year, condo sales in East Boston are down nearly 18 percent.”

“Once-imminent luxury condos are suddenly on the back burner. Earlier this year, work on the massive East Pier, a 550-unit luxury condominium and apartment complex, stalled just months after it began. The developers now intend to begin building an apartment building this fall, rather than the condos that were initially planned to go first.”

“Meanwhile, another waterfront development, Clippership Wharf, where 400 condos were proposed, is also going to be built as an apartment complex.”

“With the housing market slowdown, and the stalling of major developments that would have dramatically altered the landscape, East Boston is ‘where we were five or six years ago. We’re in a day-by-day market,’ real estate agent James Zarrella said. ‘Not everybody is pounding the neighborhood to get over here and live. There just isn’t that demand to be here.’”

“People who recently converted condos are now offering steep discounts or renting them out; in some cases, lenders took over the properties, he said.”

“Barsky, who estimated he stood to make as much as $1 million restoring a huge Victorian, was unable to complete renovation before the market cooled. He ran out of money, sold it to someone with deeper pockets, and lost $500,000, including his house.”

“Now he is working with another developer to try to get eight newly constructed condo units on Cottage Street sold before winter hits. He’s worried the market could decline even more, and the condos, which were originally going to go on the market for the high $300,000s or low $400,000s, have already been marked down to the low $300,000s.”

“Longtime East Boston realtor Tony Giacalone said the major benefit residents expect from the East Pier project was the waterfront access it would provide. He said he has never heard anyone talking about actually buying a unit in the development.”

“‘A lot of people would be just as happy if that were turned into a park,’ Giacalone said, contending the projected unit prices are too high for the neighborhood.”

The New York Daily News. “The growing wave of foreclosures casting a shadow over the nation’s economy just crashed over 63-year-old Eva Murphy of Queens. The former airport worker says she became a homeowner after a representative of a company called 2000 Homes showed up on her doorstep in December 2005.”

“The sales rep told her she could afford to buy a house even though she had bad credit and lived on an amalgam of government subsidies.”

“The sales rep promised Murphy a house with a mortgage she could afford. She says he suggested a two-family home on Roscoe St. in Jamaica, Queens, for $430,000. After the closing, she discovered the price was actually $538,000.”

“Murphy says she was told monthly payments would be about $2,000. She later learned they would be $3,990. She also learned that even though she has no full-time job, her mortgage application listed her as a $9,000-a-month ‘marketing manager’ for a company owned by her loan officer’s husband.”

“Ten months ago, her house ended up in foreclosure. ‘It’s a mess,’ she said.”

“Eitan Sror, chairman of 2000 Homes, provided a copy of the sales contract, which was dated May 4, 2006, and signed by Murphy, showing the price of the house was $538,000. ‘I can’t see how she would think otherwise,’ he said.”

“Sror said he didn’t know about Murphy’s loan documents, adding, ‘We’re not required to keep any information that has to do with the mortgage.’”

“Murphy says she doesn’t know what she’ll do if she loses the house. ‘I didn’t know there was so many dishonest people that they can just sell you a bunch of garbage,’ she said. ‘And this is what this is - a bunch of garbage.’”

The Philadelphia Inquirer from Pennsylvania. “Portents of economic doom darken the national real estate picture daily. Anywhere but here, it seems. Observers of the local real estate market say the eight-county Philadelphia region has so far managed to dodge the crashing prices that have beset some other major U.S. metropolitan areas.”

“‘While the market has cooled, we have yet to see any significant price declines - yet,’ said Kevin C. Gillen, a Wharton School research fellow.”

“For buyers, it’s the wide selection of houses to choose from. ‘This is a market you can take your time with,’ said Steve Storti, senior VP for marketing with Prudential Fox & Roach Realtors. ‘With so much for sale, there is not an extreme sense of urgency about buying now - because you might miss out on a better house.’”

“No one is willing to predict how long this region can stay above the national fray. ‘It will be a while before we hit the turning point,’ Gillen said. ‘There are still a number of major adjustable-rate mortgage resets coming over the next six to eight months, which will determine how long it takes the lenders to stabilize themselves.’”

“‘With national credit conditions becoming tighter’ even as long-term fixed interest rates decline, he added, ‘this will affect local conditions here, regardless of what we can do about our own market.’”

“The municipal and MLS data reviewed show that in 2006 and thus far in 2007, sales of existing homes dropped to slightly below the level of 2003 - the midpoint in the so-called ‘hot market’ of 2000-05.”

“Sales of new homes - which typically drive median prices higher in a town - also declined, forcing suburban builders to turn to incentives and focus on smaller and less-expensive attached houses.”

“The perception that the national housing malaise has infected this region is having an impact, observers said.”

“‘Chalk it up to the infrequent nature of the real estate business,’ said Storti. ‘Buying a home is either elective [you want to] or based on need [you're relocating]. If your perception of the real estate market is colored by the extremes that the media cover, then you aren’t going to see the differences.’”

“Thus, buyers who don’t need a new house aren’t rushing out to look for one.”

“Broker John Duffy said there was no comparison between that 1990s slump and now. He thinks that a lot of ‘elective’ buyers are waiting for prices to drop, and that it isn’t going to happen.”

“Yet the problem isn’t just with hesitant buyers. ‘There are still a lot of sellers who want us to list their houses for any number they come up with, and we just won’t take the listing,’ said Duffy, who owns Duffy Real Estate in Narberth and Wayne.”

“The sooner sellers and agents allow prices to become more rational, the sooner sales will pick up, Econsult’s Gillen said.”

“Even if we do experience a meaningful price deflation, that isn’t necessarily an overall bad thing, because it increases housing affordability and accessibility for [the region's] population.”

“It’s difficult to predict short-term fluctuations, Gillen said, ‘because the near term is as much dominated by buyer-seller psychology . . . as it is by fundamental forces.’ ‘To paraphrase Dr. McCoy from Star Trek, ‘I’m an economist, Jim, not a mind reader.’”

What do you see in your local housing market this weekend? For sale signs? “The number of homes for sale in central Ohio continued to skyrocket in August, the Columbus Board of Realtors said yesterday. More than 4,500 houses were added last month to the inventory of homes for sale in the board’s MLS. There were 19,789 houses for sale last month locally, the board said. That’s 83 percent more than were for sale five years ago, said Brad Bennett, president of the Realtors board.”

Developers in trouble? “Greater Des Moines’ residential real estate market has shown signs recently that some developers may be the next casualties in a market already reeling from foreclosures. The recent foreclosures on developers may be just the tip of a much larger iceberg, say attorneys familiar with the cases.”

“‘I think there are a lot of developers who are in serious trouble,’ said Don Neiman, one of three bankruptcy trustees for the southern district of Iowa. ‘(Those developers) haven’t filed yet, but I would expect them to file Chapter 11. I’m surprised we haven’t seen these file yet; we’re just waiting for the other shoe to drop.’”

“‘Once the house of cards starts coming down, once one lender forecloses on one development, that causes defaults in other loan agreements, and they’ve all got guarantees, and it just starts ratcheting down,’ said Matt Cronin, a Des Moines attorney. The end result, Cronin said, may be further decreases in property values.”

“South Korea’s mid-sized construction companies are collapsing like houses of cards, intensifying fears of a looming liquidity crunch in Asia’s third-largest banking market.”

“‘This is a critical moment,’ said Chung Dong-joo of the Korea House Builders’ Association. ‘We call this a ‘bankruptcy surplus’, as companies have the ability to raise capital but are going bankrupt because of the high number of unsold apartment units.’”

Foreclosure avoidance? “Sheryl Christman allegedly had a plan that would give her what her mortgage company wouldn’t; a way out. Four days shy of losing her 3-year-old home to foreclosure, Christman allegedly set the $150,000 residence on fire Sept. 1, Kent County sheriff’s officials said.”

“Christman was arraigned Friday on a felony arson count that is punishable by up to 20 years in prison. She is being held in the county jail on a $20,000 cash bond.”

“‘That much fire that quick, you almost have to be suspicious of its origin,’ said Russ Jansen, the Gaines Township fire chief. ‘We just wanted some sort of an explanation, and that never came. For us, this is really the first time we’ve seen anything like this.’”

Signs of speculation? “Real estate broker Anne Marie Moriarty told me that seven Irish investors had already bought in the development, with the prospect of more to come.”

“‘Many of my clients are really fearless - they believe in buying in property and knowing that they are always going to make money in New York City, they will buy multiple apartments at one time,’ she said.”

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