The Housing Bubble

The Burbank Leader reports from California. “The average price for a single-family home in Burbank dropped almost 5% from August to September, and the number of residences listed on the open market in the same period increased almost 50%, according to the National Assn. of Realtors. ‘There’s a decline, no doubt about it,’ said Judy Graff, a broker in Burbank.”

“The average asking price for a single-family home in August was about $692,000 and about $658,000 in September, she said.”

“‘The housing boom [lasted] from 1998 to spring 2005,’ said Ken Fears, an economist with the National Assn. of Realtors. ‘The housing market has been slowing down since then and, since July 2007, home sale prices have sharply decreased.’”

“‘It used to be that if you could fog a mirror, you could get a loan,’ Graff said. ‘Now, lenders want to see a 10% down payment and excellent credit scores. If the median price of a single-family home is $700,000, you would need to have $70,000 sitting in the bank. How many young couples have that kind of money?’”

“The problem remains prevalent in Burbank but may not be an impediment to ownership for all, Burbank Assistant City Manager Mike Flad said. ‘Cost of housing is one of our largest obstacles,’ he said. ‘But the cooling-off is a plus for some who can enter the market with lower prices.’”

From Business Week. “One of the most rapidly appreciating real estate markets during the boom, this part of Southern California has been hit hard. Foreclosures are up, and builders are dumping inventory.”

“The median home price, which had more than doubled this decade, to a peak of $622,000 in May of last year, has settled back to a recent $595,000, according to the California Association of Realtors.”

“Some of the strongest growth came from what locals call the North County, an area just up Interstate 5 from the city of San Diego. In Carlsbad, Realtor Jim Klinge says he has been following a three-bedroom, Mediterranean-style villa purchased in January, 2006, for $950,000 and listed now at $849,000.”

The Sun Post. “Complaints from two developers that rising foreclosures and a large housing inventory have crippled sales led the City Council this week to postpone the fees developers owe for homebuilding reservations under the city’s growth cap.”

“Stockton attorney Mike Hakeem, lobbying on behalf of developers Raymus Homes and FCB Homes, (said) that no one else would be willing to pay for the reservations this year because the housing market was so bad.”

“‘Who is going to buy a $600,000 house when there’s brand new houses for $400,000 and $450,000?’ Hakeem said.”

“Mayor Willie Weatherford drove home Hakeem’s point, warning that ‘if no houses are built because of the economy, then the city gets nothing. There is a surplus in the housing market. Do we want to add to that problem?’”

“As foreclosures rise in Manteca, the growing number of dilapidated, empty homes has attracted vagrants and teen parties to otherwise quiet neighborhoods, police say. A new law will allow the city to clean up vacant, neglected houses and penalize the banks and absentee owners who allow their properties to go to pot.”

“On Monday, Oct. 15, the City Council voted unanimously to enact a law that will impose fines of as much as $1,000 a day on owners of abandoned homes, with a maximum penalty of $100,000.”

“The Manteca Police Department estimated that banks now own as many as 300 homes in the city, while another 800 properties are in some stage of foreclosure.”

“Council members roundly applauded the law at their meeting, though some worried that the heftier penalties could thwart banks’ attempts get buyers back into the homes. ‘All of a sudden you’ve got a $100,000 lien on your property,’ Councilman Steve DeBrum said. ‘What will that do to those houses that are for sale?’”

The LA Times. “The state unemployment rate ticked up in September, when more than 1 million Californians were looking for work, the first time that benchmark had been breached in nearly three years.”

“The housing slump and mortgage meltdown were behind the biggest job losses in the state last month. The construction sector got rid of 5,000 jobs, bringing the number lost over the last year to 28,600 for a 3% decline, the Employment Development Department said.”

The Union Tribune. “Job growth in San Diego County lagged behind the population growth rate in September, as the decline in the real estate industry continued to weigh down the local economy, according to the California Employment Development Department.”

“With home-building plans stalled and sales continuing to falter, construction and real estate firms shed 1,000 jobs last month. ‘If it weren’t for the declines in construction and real estate, San Diego would be having a better growth rate than we did last year,’ said Alan Gin, an economist at the University of San Diego.”

“‘We’ve been saying for a while that the housing market was going to have an impact on the economy, and that’s exactly what we’re seeing now,’ said Christopher Thornberg, a former UCLA economist. ‘We’re seeing the weaknesses spread from construction and real estate into retail and transportation and, most disturbingly, a lot of temporary jobs. Temporary workers are usually the first who get hired when the economy’s doing well and the first to go when it’s doing poorly.’”

The Modesto Bee. “Unemployment rates in Stanislaus, San Joaquin and Merced counties swelled above last year’s averages, the result of a shaky economy and deepening housing crisis.”

“‘It is indicative of the economy shifting,’ said Liz Baker, EDD labor market analyst for Stanislaus and San Joaquin counties.”

“The housing slowdown has taken an even larger toll on San Joaquin County. Its unemployment rate was 7.8 percent last month, up from 6.5 percent the previous year. The county saw huge declines in manufacturing, construction, professional business services and financial activities. Combined, those industries lost about 2,100 jobs.”

“‘All are definitely related to the housing crisis and mortgage credit issues,’ Baker said.”

The Mercury News. “The implosion of the mortgage and housing industries has caused the East Bay’s job market to stall. The East Bay economy, which as recently as a year ago was bolstered by the startling growth of the housing industry and its satellite sectors, now is struggling to produce jobs on a consistent basis, according to a state labor report released Friday.”

“‘We are in a housing recession in Northern California,’ said Scott Anderson, a senior economist with San Francisco-based Wells Fargo Bank. ‘I see the fingerprints of the housing slowdown in a number of industries.’”

“The Employment Development Department estimated that, adjusted for seasonal changes, the East Bay in September lost 800 jobs.”

“‘The East Bay is being hit very hard by the residential real estate downturn,’ said Jon Haveman, an economist and partner with Beacon Economic. ‘It has been hit hard for the last several months.’”

“Why the decline? The weakness in four key sectors tied directly to housing, residential construction, specialty trades construction, real estate, and credit intermediation, which consists largely of mortgage agents and loan officers, tells much of the tale. Over the yearlong period, those four industries shed 8,100 jobs.”

“But in 2006, the housing market produced a starkly different story. Those same four industries during the year that ended in September 2006 produced 5,500 jobs. That’s a swing of nearly 14,000 jobs from the positive to the negative column.”

“A survey of the four housing-related industries shows that California lost 33,000 of those types of jobs during the 12 months. The East Bay accounted for one-fourth of those losses. And 23 percent of all the construction jobs that were lost in California in the last year vanished in the East Bay.”

“‘Almost all of the job losses in September in California were in construction, finance and real estate,’ said said Dennis Meyers, an economist with the state Finance Department.”

“Some economists believe California and the East Bay won’t soon escape the housing nose dive.”

“‘We don’t think this will be over any time soon,’ Haveman said. ‘We expect home price declines in California to continue through 2009. Employment declines will continue into 2008. The real estate bubble has a long way to go before it completely bursts.’”

From KESQ.com. “The Coachella Valley is in a housing slump, but its underlying economy is strong due to the region’s population growth, according to a report released Wednesday.”

“According to the Coachella Valley Economic Partnership’s annual report, the median price of a new home in the area was $419,999 in the second quarter of 2007, down from $462,760 in the year-ago period.”

“‘Right now, existing residential prices are 20 percent too high and new home prices are 13 percent too high,’ said the report’s author, economist John Husing.”

“Volume across the valley fell 16.8 percent compared to the same month last year, according to the California Association of Realtors.”

The Pinnacle News. “Foreclosure rates in San Benito County have skyrocketed from last year. With four foreclosures this week and an additional 13 letters of default sent out to homeowners. To date, there have been 213 property foreclosures this year, according to an industry newsletter.”

“Pam Gibbs lives next door to an abandoned house, the result of a foreclosure. The grass is dying and the plants are unkempt, one of the windows upstairs is broken.”

“‘The house has been abandoned for several weeks,’ Gibbs said. ‘The family that lived there left in the middle of the night. It’s not uncommon. I think the bank was going to auction it off. I talked to several of my friends who have seen the exact same thing. I don’t know what it’s going to do to our property value.’”

“Down the street at 2611 Glenview Drive there is a sign for a live auction to be held Saturday. Lender Greg Dolan of Shamrock Funding said this situation is happening all over.”

“Business for lenders like Dolan dropped close to 90 percent because the majority of borrowers took 100 percent financing on their loans, he said. Then something happens and they can’t make the payments.”

“‘Anybody and everybody could get loans two years ago,’ Dolan said. ‘People were qualifying by moving their entire extended family into a house, then something happens and they can’t make the payments.’”

“Not everyone whose homes have been foreclosed on was the victim of a multi-rate mortgage suddenly going through the roof. Many of the borrowers got themselves into trouble by taking out a second or a third mortgage and then couldn’t make the payments.”

“Chuck and Mary Stetson didn’t want their street identified, but said that four of their neighbors have had houses for sale at one time or another during the last year.”

“‘Only one of them still has his house for sale, but the price has been dropped four times,’ Mary Stetson said. ‘It’s gotten to the point where I think most of them are renting the houses because they can’t get what they’re asking for them. We used to know everyone in the neighborhood. Now we don’t know anybody.’”

“Another problem people are seeing is short sales that are devaluing surrounding properties. According toa real estate Web site, there was a 25 percent decline in the average price of houses sold in Hollister during the past three years.”

“In 2005 the average sales price of a home in Hollister was $638,000; in 2006, the average sales price was $591,000 and in 2007 the average sales price is $547,000.”

“One person’s loss is another’s gain. There are more affordable homes out there priced for first-time homebuyers.”

“‘This is a good time to start analyzing the market and analyzing what you’re capable of financially,’ said Karl Skow of Pacific Finance Co. in Hollister. ‘If you’re asking me if it’s turning into a buyer’s market, I say absolutely. This is the start of a true buyer’s market. We might not be there yet, it might be the spring, but it’s a start. There are first-time homebuyer starter homes out there.’”

“That’s not to say that there is a home for every person, but people who want to legitimately own their own home and know the true value of their money can make it happen. They just need to inquire,’ Skow said.”

“‘Everybody that bought two to three years ago and paid too much is now calling back to re-finance their loans,’ Dolan said. ‘But they have no equity because their homes have depreciated $80,000, $90,000, even $100,000. Many people are just walking away. On the upside, it’s a great rental market.’”

Readers want to hear how you deal with the housing bubble and the people around you. “I would like to see a thread on how to deal with bubble related issues in the people around you. How have you dealt with parents who think you should buy, coworkers who somehow ‘blame’ you for the bubble, friends who think that house prices will go back up as soon as Bernake lowers rates, etc?”

One said, “2 sisters own 5 houses between them. My 2 sisters. It’s a no win situation to discuss it now.”

A reply, “Sort of the same here, except it is one sister with a huge house. ‘The market is fine!’ End of conversation. No sense attracting anger.”

“Different with my mother, she sold her house ‘while she could’ and is moving into an appartment with her nest egg intact. She figured this out just from the newspaper. When I say it is a nice time to rent, she smiles. People either can read the signs, or you can’t talk to them about it.”

One has this strategy, “With parents I would be obligated to tell them how I feel. Anyone else, only if they ask.”

One relates, “I try to tell my parents how I feel, but it only lasts for a 2 months or so before they bother me again about how I should buy a condo or townhouse.”

“My parents really aren’t the biggest problem. I have this one coworker who keeps saying its a great time to buy. When he says it, he sounds like he was hypnotized or brainwashed into saying it because it doesn’t sound natural when he says it. His wife is a real estate agent so you can see the problem.”

“Another coworker who lives in West Virginia (but we work in the g”reater DC area) is convinced (really under the delusion) that his house will be going back up as soon as Bernake lowers rates. He bought at the top of the bubble in 2005 because he got married. Before he was trying to sell the house to move closer to our office, but he doesn’t want to do that now since ‘prices will be going up again.’”

To which was said, “That co-worker, sounds like he not only thinks you should buy, but from his wife. Maybe you should offer to spot him a $20, since he is such a good friend.”

And another added, “You have no idea how right you are. I started my current job in the second half of 2005 right around the peak. My second day of work, that coworker with the real estate agent wife says that ‘I should buy a house’ and gives me his wife’s business card. Even back then I was aware of the bubble so I didn’t. In the future when I buy needless to say I won’t be using that coworker’s wife services.”

One gets excited at the idea of lower prices. “I get frustrated that I can’t SHARE in the excitement of more bad housing news everyday.. because no one around me will benefit from it except ‘renter’ me.”

“It is hard to contain the excitement and not totally ostracize people. I go around the house teaching my toddler to chant ‘the housing market it crashing’ to the tune of ‘nah-na nah-na nah-na.’”

The Journal Gazette from Indiana. “An industry association representing local Realtors is combating declining home sales with a campaign to reassure wary consumers. The Fort Wayne Area Association of Realtors on Thursday introduced a new Web site, promoting the benefits of purchasing a home.”

“Reports on the subprime mortgage crisis have shaken consumer confidence, but those national problems should not affect how potential buyers view the local housing market, said Bob Coffee, the association’s president-elect. Buyers can choose from many homes on the market, and prices remain affordable locally, said Coffee, a Realtor at Mike Thomas Associates/F.C. Tucker.”

“‘What we really have here is a consumer confidence issue,’ he said, ‘not a market issue.’”

“The Web site highlights the large inventory and other favorable conditions for buyers, including low interest rates around 6.5 percent, Coffee said. The association is advertising the Web site on billboards, in newspapers and on television.”

“Although sales have dipped, several factors should encourage Hoosiers to consider buying homes, said Richard J. DeKaser, chief economist for National City Corp. Even if buyers must sell their current home at a lower price due to market conditions, they are likely to get a deal if they upgrade to a larger house, DeKaser said.”

“Some consumers avoid buying as home prices drop, but they should be more concerned about how a house’s value will change in the future, DeKaser said. If prices recover after a house changes hands, the buyer would benefit.”

“‘Believe it or not, that could be the best time to buy a house,’ DeKaser said.”

The Dallas Morning News reports from Texas. “More than 30 of the 45 residential areas The Dallas Morning News tracks have had declines in home sales this year. The biggest declines have been in Coppell and Westlake, which has almost an eight-month supply of houses on the market. Many buyers who relied on subprime loans are now out of the market. ‘It has lowered our sales some, and some of the people can’t get in,’ said Al Herron of Century 21 Galloway-Herron Realtors.”

“‘But it’s going to be good for the housing market in the long run,’ Herron said.”

“‘There is plenty of mortgage money available, but not under the ridiculously easy standards of the past several years,’ Dr. James Gaines of Texas A&M University’s Real Estate Center said.”

“The number of North Texas homes set to be auctioned in foreclosure next month is the highest since 1989, according to Foreclosure Listing Service.”

“Next month’s foreclosure auctions have 4,303 postings in the five-county area, up 7 percent from the same period last year, when 4,009 were listed.”

“Year to date, foreclosure postings are up 10 percent to 38,880 for the region, excluding Rockwall County. In Dallas County, they are up 8 percent to 18,326.”

“‘It’s very, very difficult to explain the postings for this month because there’s been no real material change in the economic conditions,’ said George Roddy, president of Foreclosure Listing Service Inc.”

“Economist Jim Gaines attributes the spike to delays in proposed plans to help mortgage-holders. He said lenders had held off on foreclosures because they thought that aid was on its way but had decided they couldn’t wait any longer.”

“He said the lenders are now saying: ‘We can’t really afford to carry this anymore. The meter’s running … need to shut the meter off.’”

The Star Telegram. “For the Nov. 6 foreclosure auction, 4,220 homes are on the block for Dallas, Tarrant, Collin, Denton, Rockwall, Ellis, Johnson, Grayson, Parker and Kaufman counties. The last record monthly number of 4,056 homes was posted in February, the research firm said.”

“That compares with 1,221 listed in November 2000, the firm said. It was in 2001 that postings began to rise, and they have accelerated every year since.”

“The new level is unwelcome news, said Roddy. ‘About the only one that can see a silver lining in this news is the real estate investor who is in a position to buy homes at this time,’ Roddy said.”

“Housing starts in North Texas slowed in the third quarter to the lowest annualized rate since early 2001, as home buyers became more cautious and lenders pulled back mortgage offerings. New home closings fell 19 percent during the quarter. Sales of existing homes have also declined.”

The Express News. “Bexar County foreclosure postings have hit the highest monthly total in more than 17 years, reaching a level not seen since the oil bust and real estate slump of the late 1980s and early 1990s.”

“November’s foreclosure auction will see 936 homes sold off to the highest bidder. And this is no one-month aberration.”

“Thanks to easy lending standards that gave no-money-down loans to people with questionable credit histories, higher foreclosures likely will be an unwelcome houseguest in Texas for a few years.”

“With so many homes headed for auction on the courthouse steps next month, Bexar County is on track to have more than 9,100 foreclosures this year — more than at any time since 1990. ‘The next wave has hit,” said Gaines, research economist.”

“Bexar County foreclosure postings slowed in the 1990s, but started rising dramatically by 2001. ‘This is the most we’ve had since the savings and loan crisis,’ said Gregg Stanley, owner of a San Antonio-based foreclosure tracking service.”

“More than 26 percent of the Bexar County properties going into foreclosure in November have adjustable-rate mortgages, according to a foreclosure data analysis by his company. And the loans going into foreclosure are fairly recent — just 4.5 years old on average.”

“‘These November foreclosures started about six months ago,’ Stanley said. ‘If you recall, that’s when a lot of the bad news was coming out about the national real estate market. Some people here just walked away from their mortgage.’”

“Gaines agrees, and believes the higher foreclosure numbers are here to stay, at least for a few years until the real estate industry works its way through the series of risky mortgage loans made in 2004 and 2005.”

“Texas foreclosures actually dropped in the first part of the year, but Gaines thinks that just was the luck of timing. He suspects banks and lenders may have held off from foreclosing for a short time, either in hopes a government bailout might come or in an effort to try to work out a deal with a homeowner.”

“When neither of those things happened, the foreclosure filings increased.”

“Meanwhile, San Antonio already has a rising inventory of pre-owned homes for sale and new-home builders are working to sell off a slight oversupply of homes. ‘I don’t think the builders are going to see relief for two to three years,’ Gaines said. ‘The inventory has to clear the market.’”

“One thing that should be different this time around with foreclosures, Gaines said, is that plenty of investors are willing to purchase distressed properties. With the little-to-no-money-down loans so popular in recent years, there’s been little financial incentive to try to stay in a home once someone falls behind on mortgage payments, Gaines said.”

“Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University, told a group of San Antonio business leaders Thursday that between unsolved problems in the lending market, politicians in Washington, D.C., devising rescue plans and volatility in the stock market, the economic outlook for 2008 remains uncertain.”

“The best possibility for Texas: We slip past the national economic woes without notice. ‘It’s possible we could have a national recession, and Texas could choose not to participate,’ Dotzour said.”

“Dotzour said most of the problems in the national economy stem from lenders giving 100 percent mortgage loans to people who never would have qualified for a mortgage in the past. That’s over now. ‘Silly residential mortgage lending is over for this decade,’ Dotzour said.”

The Facts. “Heightened interest in Brazoria County property is leading to greater sales of tax foreclosure land, county officials say. Although it might sound like a good deal to buy land below market value, that’s not always the case.”

“‘It’s buyer beware,’ Tax Assessor-Collector Ro’Vin Garrett said. ‘A lot of people make offers on multiple tracts, sight unseen.’”

“‘Some of it is definitely a good value,’ said Precinct 1 Commissioner Donald Payne. ‘We have people who research this land and buy it, sometimes on speculation. We’re willing to take half the value to get it back on the tax rolls.’”

The Houston Chronicle. “The local housing market got slammed last month, posting its biggest drop in sales in more than a decade. Single-family home sales in the Houston area fell 15 percent in September as the real estate slump spread to higher-priced homes, the Houston Association of Realtors reported.”

“The slowdown is now affecting sales of more expensive properties dependent on move-up buyers selling their lower-priced homes. ‘There is a delay in terms of folks moving here that have a home to sell,’ said Tim Welbes, co-president of The Woodlands Development Co.”

“Jim Glaser and his wife have had their 104-year-old, completely restored Victorian/Craftsman home in Woodland Heights on the market for more than two months. But Glaser, who is retired and moving to Colorado, doesn’t have to sell the 3,200-square-foot, four-bedroom house by a certain date, and he won’t consider dropping the $779,000 asking price because he’s confident about the local market.”

“‘We just had a big open house on Sunday, and it was jam-packed,’ Glaser said of the Victorian. ‘This is a historic house, and it’s got to be the right kind of buyer.’”

“While September is traditionally slow for sales, tougher credit requirements stemming from a rash of subprime loan defaults continue to make it difficult for some buyers to qualify for loans.”

“‘By the end of the year, I think you’ll see more decreases in price,’ said Shad Bogany, of the realty firm ERA Bogany Properties.”

The Caller Times. “Sure, home sales and building permits aren’t where they were last year, but Corpus Christi’s economy still is strong and healthy, according to the chief economist for a nationwide title company.”

“Ted C. Jones, chief economist for Stewart Title, acknowledged existing home sales in Corpus Christi were down 8.9 percent from last year, he predicts that by end of the year home sales will have the second-best year on record.”

“‘Although sales are off from an unsustainable peak in 2005, there is a historically high level of home sales taking place this year — a lot of people are, in fact, buying homes,’ said Lawrence Yun, National Association of Realtors senior economist.”

“Cheri Sperling, owner of Coastline Properties Inc. on Padre Island, said business had been slower for real estate agents but things are looking brighter.”

“Jones said real estate markets are local and no two markets are the same. ‘While at one time Florida and California were at the top of the market, they are no longer there,’ Jones said. ‘Corpus Christi and Texas as a whole are stronger than most markets.’”

From Action 4 News. “Here in the Valley, one city is struggling with home foreclosures. If you stop by ‘El Valle Grande’ subdivision in Brownsville, for example, and knock on some doors, you will find no answer at many homes.”

“Instead, doors are secured with special locks to avoid vandals from entering. That’s because many of the empty houses have been repossessed- because the owners couldn’t make their monthly payments.”

“The 2500 block of Frankfurt St. in Brownsville has four homes on sale, most of which went through foreclosures last year.”

“The country as a whole, has seen a record number of foreclosures but 15 percent of those are in the Valley, with most of them in Brownsville. Realtor Linda Villareal, of One Stop Realty, who’s currently handling the sale of nearly 50 foreclosed homes tells Action 4 News, a big part of the problem are the builders.”

“‘The national builders came down and anybody ‘with a pulse’ was able to buy a house,’ she said. ‘There’s a lot of lenders that are making it easy but are just there to take the money.’”

The El Paso Times. “Esteban Zubia of El Paso was used to helping other people. He never dreamed he would fall victim to the nation’s housing crisis and need assistance to keep from losing his home.”

“‘I had fallen behind on my mortgage because the humongous increases in interest rates were not explained to me,’ Zubia said.”

“More then 156,000 Texans experienced foreclosure in 2006, a 14-percent increase over the previous year, according to ACORN. In El Paso there were 2,700 foreclosure filings in 2006.”

“An adjustable-rate mortgage is what led to Zubia’s troubles. He wanted lower payments on the Lower Valley home he has lived in for 25 years, so he said he decided to refinance. In about 21/2 years, his monthly payments ballooned from about $550 to more than $900.”

“The college-educated Zubia found himself needing a helping hand.’I never thought I would find myself in a situation like this,’ he said.”

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