The Housing Bubble

The Tribune reports from California. “A rented bus carrying more than a dozen potential homebuyers toured foreclosed homes in San Luis Obispo County and northern Santa Barbara County on Saturday. ‘People know that foreclosure can be a good buy. (Bank-owned) properties are priced really well because there is no emotional attachment and the lenders have so much inventory to get rid of,’ said Dick Keenan of the Keenan Carter Group at Keller Williams Realty in Pismo Beach.”

“For a $20 ticket, attendees were given a package of information on each property, including the previous sales price, the price the bank paid and the current asking price. A spreadsheet was provided depicting different mortgage payment scenarios as well as what an approximate rent could be for the homes.”

“Foreclosure activity is increasing in the county, according to data from a San Luis Obispo firm that tracks county foreclosures. Lenders sent county homeowners 859 notices of default…between January and September. Meanwhile, 223 trustee’s deeds, the final step in the process when the owner loses the home, were recorded through the end of September.”

“‘Lenders know that price is the biggest factor in moving a house. They are leading the market downward,’ Keenan said. ‘Buyers can definitely negotiate on price and other items like closing costs.’”

“A second tour is scheduled for Nov. 17, and Keenan expects that trip will focus on North County homes.”

The Daily News. “Foreclosures in the Greater San Fernando Valley jumped an annual 571 percent in September and sales sank to the lowest level in 19 years as the residential real estate market’s free fall intensified, a research center said Monday.”

“Last month, 302 home and condominium owners from Glendale to Calabasas lost their properties because they could not make the mortgage payment, up from 289 in August, said the San Fernando Valley Economic Research Center. A year ago, just 45 properties were lost to foreclosure.”

“While some foreclosed properties are selling at about 20 ‘percent under the most-recent purchase price for the property, they have not yet pounded down home values like they did in the mid-1990s.”

“‘Our) inventory is increasing but we’re not getting flooded with foreclosures,’ said Jim Link, executive VP of the Van Nuys-based Southland Regional Association of Realtors.”

“Sales of new and previously owned houses and condos plunged 54.3 percent to 760 transactions in September. That is the lowest number of sales in the center’s database.”

“‘I think sellers are holding off the market because they don’t have to sell now and I think the advice some of the buyers are getting is sit back if you can because there might be some better deals coming on the market,’ said CSUN professor Daniel Blake, the center’s director.”

The Times Herald. “Real estate professionals, including some local ones, are pushing the federal government to declare California a ‘high-cost’ state to ease the home foreclosure crisis that has hit the Vallejo area especially hard.”

“‘Our association has been working on this for a long time,’ said California Association of Mortgage Brokers member Dale DiGennaro of Napa. ‘We got a bill as far as the Senate last year and it died there. We hope it passes this time.’”

“The designation would raise the federal mortgage loan limit to something near that needed to buy a house in California, DiGennaro said. ‘This would increase the loan limits to a more reasonable number,’ he said.”

“The median home price in Vallejo in August was about $415,000; it was about $515,000 in Benicia and about $430,000 countywide, said Solano Association of Realtors president Jeff Dennis. The Statewide median price is about $589,000, according to the mortgage brokers association.”

“‘This would allow more people to qualify for lower-interest loans, attracting more people to the real estate market,’ Dennis said. This could help jump-start the flagging industry, he said.”

“‘I can’t imagine anyone would object to making loans more affordable,’ Dennis said. ‘I just don’t see a downside to it.’”

“DiGennaro said he thinks the designation ‘would go a long way toward turning the crisis around.’ ‘We’ve needed this for a long time in California, and the problem is exaggerated now, because the liquidity in the market place is almost gone,’ he said.”

The Mercury News. “California new car sales will fall below 2 million units in 2007 for the first time in five years, the state’s dealers said Monday. Through the end of September, sales of new cars and trucks in the Golden State were down 9.3 percent compared to the first nine months of 2006. In the third quarter, sales dropped 11.2 percent compared to the same quarter last year.”

“Reasons for the decline include housing market worries, and especially the sub-prime mortgage market fallout, according to economist Jeff Foltz, who prepares the outlook for the California Motor Car Dealers Association.”

“‘How long will it last?’ Welch asked. “It’ll last as long as the subprime tail is going to last, as long as people are concerned about their jobs, the economy and whether they’ll be able to make their adjustable-rate mortgage payments.’”

“Since the beginning of the decade, the sales of new vehicles in California have increased annually, peaking in 2005 at nearly 2.2 million units. Sales fell to just above 2 million in 2006, and the dealer group forecast that they’ll fall again - to 1.87 million this year. It also projects that sales will fall again in 2008.”

“Welch noted ‘a dramatic shift’ in the types of vehicles that Californians are buying. Trucks and sport-utilities represented 51 percent of the state’s new-vehicle market just 18 months ago. In the third quarter, trucks and SUVs accounted for just 44 percent of sales.”

“Smaller vehicles are often cheaper, Welch said, and that not only means less revenue for car dealers, it means less tax money for state and local governments.”

“‘Dealers are giant tax generators,’ he said. ‘When car sales go down and the dollar purchase price for those cars goes down, there’s going to be less tax revenue for the state.’”

The Desert Sun. “Dealing with the Coachella Valley’s shifting housing trends will be the focus of an open-to-the-public gathering today that brings together local real estate experts. New ideas for a changing market” is the focus of the eighth-annual State of Real Estate presentation.”

“Today’s event comes at an important time: Local residential real estate trends have cooled considerably, thanks to speculators buying and selling homes and buyers’ willingness to see how low prices get.”

“It’s pinching many sellers, said Greg Berkemer, executive VP of the California Desert Association of Realtors. They’re confronted with loans with rising payments, slower sales, declining prices and the tightening of credit.”

“‘Because there is no historical reference in recent times, real estate agents, mortgage lenders and builders may not be able to conduct their business the same way they did in a recession-led housing downturn,’ he said. ‘It is a new market that requires new ideas.’”

“Just last week, a Southern California economist gave the desert a B-minus overall grade because of the slumping housing market.”

“‘People are not going to get into the market until they see …prices go down,’ John Husing told about 600 business leaders at the Coachella Valley Economic Partnership lunch.”

The East Valley Tribune reports from Arizona. “With the end of the year quickly approaching, Valley homebuilders are hustling to rid themselves of excess homes and hit sales projections by offering incentives and price discounts to potential buyers. Builders are working to meet the sales numbers they predicted at the beginning of 2007, trying to stimulate activity during the slowest time of year when people are focused on holidays, not home shopping, said John Fioramonti, at Meyers Builder Advisors in Scottsdale.”

“‘It’s a good time to buy,’ he said. ‘(Builders are) going to be competing with each other like crazy for the next 90 days.’” “Real estate agents and home owners say the ability of builders to dramatically slash prices often makes it tough for nearby existing home sellers to compete.”

“In a healthy market, the Valley’s existing home market should have roughly 30,000 homes for sale, and right now it has about 20,000 too many, said Ken Peterson, VP of sales and marketing for Shea Homes. At the same time, builders need to unload inventories, Peterson said.”

The Arizona Daily Star. “In the boom of 2005, homeowners like Sue and Dave Broberg and Lisa and Robert Hall felt lucky to nab houses in new subdivisions on the outskirts of Tucson. But now, the Brobergs say there are many for-sale signs throughout their Northwest Side neighborhood. One is in front of their home.”

“‘It’s a lot different than when we bought the house two years ago,’ Robert Hall said. ‘People were fighting over lots,’ Lisa Hall said.”

“But now, buyers no longer line up to buy homes in outlying subdivisions. Instead, builders slash prices, pack on incentives and still are left with unsold spec homes and empty lots. In many cases, homeowners trying to sell properties in newer developments are finding they can’t compete with builders’ rock-bottom prices.”

“‘The builders, they just flooded this market with inventory,’ said Melinda Turner, who put her Sahuarita home on the market about a year ago without success. ‘And the rest of us, the previous customers, got really screwed.’”

“‘Certainly the prices have dropped precipitously, and the homes just aren’t selling,’ said Rancho Sahuarita seller Susan Chapman, whose house went a month without being seen by a single buyer.”

“The situation is worse for homeowner Melinda Turner, who put her house on the market a year ago, anticipating a move to Idaho. In the meantime, her husband moved to Idaho, started his own custom home-building business, but had to move back to Sahuarita because the house still hadn’t been sold.”

“Turner said the house has been seen by many prospective buyers, but the serious ones ended up buying similar new homes from the builder. ‘We ended up becoming the unofficial model home,’ she said.”

The Arizona Republic. “Elizabeth and Jose Torres were happy with their small Phoenix home. Even when a loan officer approached the couple in 2005 about buying a bigger home for a good price, they weren’t interested, Elizabeth said.”

“Eventually, though, the ‘persuasive’ loan officer sold them on the four-bedroom Queen Creek home, she said.”

“Now, the couple is at risk of losing their home because they can’t afford the mortgage payments and can’t refinance because of a prepayment penalty they said they were never told existed.”

“The Valley’s housing non-profits are being deluged with calls from homeowners asking for help. ‘We are getting three to five referrals a day about people facing foreclosures,’ said Joann Hauger, executive director of Community Housing Resources of Arizona. ‘There aren’t any programs to help them, and many are upside down in their loan and can’t sell or refinance.’”

The Pahrump Valley Times from Nevada. “Home foreclosure worries appear to have been reflected in the Wednesday legal notices in the PVT, which listed 18 notices of trustee sales. The number of such notices soared from nine in August and September 2006 to 47 in August and September this year.”

“A drive around some new housing developments showed building activity was tentative. At the Beazer Homes Tesora at Pahrump project, 14 large homes from 2,357 to 2,995 square feet were already constructed on Sedgwick Avenue. But no one seemed to be on duty at the sales office Wednesday morning.”

“A walled community of Beazer’s Burson Ranch up the street, where the sign advertised homes of 1,625 square feet to 2,749 square feet, was empty inside the walls.”

“A tour of Concordia Homes of Nevada’s Pleasant Valley project off Homestead Road, showed 49 homes already constructed, but the only activity Wednesday was a landscape crew putting in plants at Pleasant Valley Park. A count showed 14 for-sale signs in front of homes while there were 11 homes with vehicles parked in front that probably weren’t construction workers.”

“‘Our projects are moving right on along. I think we had four or five sales last month,’ said Concordia Homes spokesman Stormy Andrews of the Pleasant Valley project in Pahrump.”

“‘We’ll go through and build up an entire section and sell through it,’ he said. ‘Once we get through those, we start the next grouping.’”

“Rows of house frames were going up on cul-de-sacs in Mountain Falls in the Tivoli section and in Entrata. Luxury homes were going up in the Paradiso development, with advertised prices in the $400,000 range.”

The Nevada Appeal. “Members of a legislative study committee agreed Monday they want to help homebuyers who are facing foreclosure through no fault of their own. But they made it clear they have a lot less sympathy for speculators left high and dry by their own greed.”

“Legislative research analyst Dave Ziegler told lawmakers nearly 29,000 Clark County homes are up for sale, just under half of them vacant, which lawmakers interpreted to mean they are owned as investments by speculators. Ziegler said Nevada has had the highest foreclosure rate in the nation for nine consecutive months.”

“Tony Ramirez, of the U.S. Department of Housing and Urban Development, said there are more than 15,800 properties in Nevada in pre-foreclosure status as of August. He presented figures showing another 11,700 properties have already been foreclosed on.”

“While the vast majority of those homes are in Clark County, statistics presented by Ramirez show 40 homes foreclosed on in Carson City and 40 more in Douglas. In Carson City, he said 28 are in pre-foreclosure - 52 in Douglas.”

“In Lyon County, the situation is worse with 46 homes foreclosed on and 86 in some stage of pre-foreclosure as of a week ago.”

“Sens. Bob Beers, Las Vegas, and Warren Hardy, Henderson, said they want to know how many of those homes were purchased as speculative investments and have never been someone’s primary residence. Hardy said that information is needed ’so we can determine as best we can determine whether this is the investment market correcting itself or is it a true crisis.’”

“Panel head Assemblyman Marcus Conklin said he has been told up to half the homes in foreclosure are owned by speculators. Hardy made it clear he doesn’t support much help for those owners.”

“‘There’s got to be pain associated with the greed,’ he said. ‘If we soften the load for the individuals who created this, there’s no incentive to correct it.’”

“Gail Burks of the Nevada Fair Housing Center said it’s important to act quickly because whether borrowers were individual homeowners or speculators they’re all caught up in a Titanic-like situation: Without efforts to resolve the crisis ‘we’re all going to go down together.’”

The Reno Gazette Journal. “Most homeowners in the North Valleys and Spanish Springs will see a drop in property values when they receive their annual property assessment notices from the Washoe County Assessor’s Office in late November.”

“It’s the first widespread drop in residential land values since 1981-82 when the last real estate bubble burst, county assessor Josh Wilson said.”

“Homes in the North Valleys and Spanish Springs are seeing the drop in housing values because the area, with all 54,000 parcels, was mass appraised in 2005-2006, just as housing prices hit their peak. Since then, housing prices have declined.”

“The assessor’s office provided a few examples of the changes in land values at several large communities. Sky Vista in Stead: The taxable land value for the standard lot has dropped from $92,000 to $78,000, a 15.2 percent drop. Woodland Village in Cold Springs: A drop from $82,000 to $74,000, a 9.7 percent drop.”

In Business Las Vegas from Nevada. “Harvey Whittemore (is) the developer of Coyote Springs, which straddles the line between Clark and Lincoln counties. In 1998 he and a partner purchased 43,000 acres for $15 million.”

“Q: What are the plans? A: The plan calls for 160,000 units on 43,000 acres. The exciting news is we have been at this for nine years and we are less than 12 months away from having homes.”

“Q: How did the deal come about with Pardee Homes? A: Pardee has been selected as the master developer for all the single-family and multifamily homes. They have an option to purchase land every year. What they have done is take down the first almost 2,000 acres and started the process of developing the planning and different model types.”

“Q: What is Pardee Homes paying her acre? There was a transaction listed on assessor records last year in which they paid $25.5 million for 3,605 acres ($7,074 per acre). A: That is private. I can’t disclose that.”

“Q: How much will homes cost? A: Everybody knows land is a finite commodity in the Las Vegas area, and we think that Pardee is going to have a huge price advantage compared to its competitors, and that’s going to be reflected in price. I think you are talking 10 to 20 percent below Las Vegas market.”

“Q: But the Las Vegas market price keeps coming down.”

“A: That is one thing you are going to have to look at and say long term what is going to happen with respect to prices in Las Vegas. People who have to sell their products because they built their homes already, it wouldn’t surprise me if prices would be in the $105 to $115 per square foot range. I think if you are a good shopper today, you can buy that. There is no way to replace those homes under present market conditions for that price. What does that mean on a macro basis, it means that I believe sellers today are having to sell below cost.”

“Q: Have you done anything like this before? A: I don’t think there are many people that have developed 43,000 acres. It is 10 times larger than the development we did in Sparks. We successfully developed more than 4,400 units with two golf courses and a whole resort component. My partners like to say the difference is just about adding zeros (laughing).”

The Salt Lake Tribune from Utah. “After years of increases, home sales along the Wasatch Front were down sharply in the third quarter, compared with last year. In Salt Lake County, 2,712 homes changed hands in the July-August-September period, down 33.8 percent from the same three months last year, according to the Salt Lake Board of Realtors.”

“Bob Scofield listed his 9,200-square-foot home in Orem with a Realtor about five months ago at the appraised value of $725,000. He later reduced the asking price to $699,000 before taking it off the market and listing it on a for-sale-by-owner Web site for $679,000. It’s now listed at $659,000.”

“‘Things have definitely slowed down a bit,’ Scofield says.”

“Craig Christensen, of Saratoga Springs, and his wife moved into their new home in July and consider themselves lucky to have even sold their former home at a price with which they could live.”

“But now the couple, like others who have purchased in higher-end areas, are watching as building in their neighborhood has come almost to a halt. Sellers in their area have reduced asking prices as a way to get properties sold.”

“Instead of being surrounded by scores of other families in houses priced from $400,000 to $700,000, the Christensens are surrounded by empty lots and unoccupied houses with for-sale signs in the windows.”

“Craig Christensen said he’s worried about the growing number of for-rent and lease-to-own signs cropping up nearby, including one in an unsold house next door. He and his wife have a nagging feeling their home is not worth what they paid for it and they may have to wait years to turn any type of profit if they do sell. They plan to stay put for a while.”

“‘This is definitely not what I had in mind when we decided to move,’ he said. ‘I’m very nervous about how the market is going.’”

The Deseret News from Utah. “The Wasatch Front housing market has caught the blues that have plagued much of the rest of the nation. Some areas, such as the Capitol Hill and Avenues areas of Salt Lake City and parts of Lehi, saw the average sales price drop. The Capitol Hill and Avenues drop in price was almost 14 percent, although the number of homes sold in those areas dropped less than many other areas, with a 9 percent reduction.”

“The hardest homes to move are those over $500,000, said Gary Cannon, president of the Salt Lake County Board of Realtors. Few buyers can afford those homes, especially with more creative financing options being eliminated.”

“‘The median price being pushed to $300,000 requires an annual income of around $90,000,’ he said. ‘That’s a good chunk of dough, and not a lot of people make that.’”

Some housing bubble news from Wall Street and Washington. Chicago Tribune, “Neumann Homes, one of Chicago’s largest home-building companies, said Monday that it plans to file for bankruptcy. Neumann, based in Warrenville, said it closed all of its sales, production and customer service offices. Neumann said the downturn in Michigan had hurt his company significantly, adding that it had lost $60 million in the last two years in the Detroit market alone.”

“‘In the process of trying to make [that market] work, we saw property values on lots alone go from over $100,000 to $30,000′ since late 2004, said CEO Ken Neumann. ‘Homes that would have gone for $400,000 sold for $250,000.’”

“As for the homes under contract but not under way, Neumann said the company placed those customers’ deposits in escrow and will seek court approval to cancel their contracts and return those funds.”

“‘As we saw our lenders start to go through the turbulence in the financial markets over the last several months, we started having serious concerns in September and held off on releasing other homes for construction,’ he said.”

The Sun Times. “‘The market downturn in the Chicago and Denver housing markets [is] now in excess of 50 percent, with home prices dropping from 10 percent to 25 percent in some sub-market,’ Kenneth Neumann commented in the fax. ‘Even after the significant help we have received from our lenders this year, the company can no longer weather this storm.’”

The Daily Herald. “‘They were too aggressive at a time when we knew the boom of ‘03 to ‘05 couldn’t be sustained,’ said Tracy Cross of Tracy Cross & Associates.”

“Of its current inventory of 5,485 single and multi-family homes in the Chicago area, 2,619 have been sold, according to Tracy Cross. Its Chicago area inventory reached 5 years worth of unsold homes, according to Cross. Neumann Homes has 46 developments active in 18 Chicago area towns, according to Cross.”

“As for Neumann customers with complaints or partially built homes, Cross has little advice. ‘I’m in the industry and if I was (in that spot), I wouldn’t know what to do,’ Cross said. ‘Call my lawyer of course.’”

From Reuters. “Countrywide Financial Corp, the largest U.S. mortgage lender, on Tuesday offered to refinance or restructure up to $16 billion of adjustable-rate mortgages through the end of 2008.”

“Like many rivals, Countrywide has faced criticism that it fed the housing slump by putting Americans into mortgages they could not refinance once home prices stopped rising. Congress is considering legislation to require lenders to put borrowers in loans they can afford, rather than loans that are more profitable, and to let homeowners sue Wall Street banks that package loans that should never have been made into securities.”

“‘Unprecedented times call for unprecedented remedies,’ Chief Operating Officer David Sambol said in a statement. ‘We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help.’”

“Countrywide made $468.2 billion of mortgage loans in 2006, including $40.6 billion of ‘nonprime’ mortgages.”

“The company is now emphasizing smaller, higher-quality loans. It stopped making most subprime mortgages, and adjustable-rate loan fundings slid 76 percent in September. Overall mortgage volume that month fell 44 percent.”

“It also services $1.46 trillion of mortgages, and said that as of June 30, payments were at least 30 days late on one in five nonprime loans it serviced.”

From CNN Money. “Countrywide is expected to announce a deep loss when it reports results Friday, along with a sharp drop in its business levels in the third quarter. It has announced it will have to take charges of between $125 million and $150 million to lay off staff and close offices.”

From USA Today. “Chetera Miller, a credit counselor for Neighborhood Housing Services of Chicago, has noticed that lenders are becoming more willing to cut deals with delinquent borrowers. There’s just one problem: That’s only about half the number of financially strapped clients she’s working with.”

“Larry Litton Jr., head of Litton Loan Servicing, restructured 2,000 loans last month to help subprime borrowers. ‘We are modifying more loans than we ever have, and despite that, the foreclosure volume continues to increase,’ he said.”

“Normally, his company, which collects mortgage payments and handles late payments, helps about 60% of homeowners avoid foreclosure after they fall behind on their subprime mortgages. But with tougher lending standards, falling home prices in many areas and a lot of poorly underwritten loans, he said he can modify only about 45% of the bad loans he has on his books.”

“The housing crisis, Litton says, ‘is bigger than what people had originally thought. Youre probably looking at a peak in these defaults in the third or fourth quarter of 2008.’”

“Katrina Vizinau of Community Housing Development of North Richmond, Calif., says about 90% of the people who call her group for help aren’t able to refinance, because lenders say they have little or no equity in their homes. Further, many of her clients are late on their mortgage payments, meaning their credit scores have taken a hit.”

“She sees some older borrowers who were persuaded to refinance to tap into home equity. ‘They’ve used all the cash that they took out. They’re just stuck, and they’re just waiting. … They can’t refinance because they’re on a fixed income,’ she says.”

“Sheila Bair, chair of the Federal Deposit Insurance Corp, wants lenders to take a more sweeping approach, instead of painstakingly reassessing each individual mortgage. Some loan servicers, including Litton Loan Servicing, say Bair’s plan would expose them to lawsuits from mortgage investors if the servicers reduce the interest rates on loans that aren’t at serious risk of default.”

“‘The loan servicer has to walk the line of having a fiduciary duty to the investor and, at the same time, help homeowners stay in their house,’ Litton says. ‘We are required to look at each loan individually.’”

“Countrywide’s CEO of Loan Administration Steve Bailey says, many people forget that job loss or a reduction in income, followed by illness and divorce, are the most common reasons why people default on mortgages.”

“But Michael Kanef of Moody’s says the increase in payment puts more stress on the borrower and raises the risk that the borrower will default in the future.”

“Bailey counters: ‘If the primary driver of foreclosures is a significant reduction of income, and property values do not continue to appreciate, that is going to make foreclosures continue to rise, and there really isn’t anything to fix that.’”

The Wall Street Journal. “Some lenders are now making it tougher for borrowers in softening housing markets to get a mortgage. The policy is designed to keep lenders from holding the bag if home prices in those markets continue to fall. But the tighter standards, by discouraging home buyers, could add to downward pressure on home values in already weak markets.”

“Lenders such as J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are cutting the maximum amount some borrowers can finance in counties or states where home prices are declining. Mortgage companies are also taking a tougher look at appraisals in housing markets with falling prices.”

“Among the areas being hit by the tougher standards are parts of California, Florida and Michigan.”

“With house prices falling, lenders are looking to control their risk, says Doug Duncan, chief economist of the Mortgage Bankers Association. But ‘there’s a little bit of a self-fulfilling prophecy,’ he adds. ‘If you tighten standards, fewer people can qualify [for a mortgage]. Effective demand is going to be lower, resulting in lower house prices.’”

“Wells Fargo has expanded a program begun earlier this year that tightened standards in certain ‘declining’ markets. The list includes more than 50 counties in seven states, including parts of California, Florida and Michigan. It also cut by five points maximum financing in more than 125 other counties in a total of 22 states and the District of Columbia. A spokesman says the company is monitoring credit conditions on a ‘day to day’ basis.”

“Bank of America Corp. says it is asking for more detailed appraisals in markets with falling prices. In many cases, appraisers are being told to drive by the property to get a better estimate of its value instead of just running information about the home through a computer model.”

“In October, SunTrust Banks Inc. published a list of roughly 50 metro areas in 16 states and the District of Columbia that it designated as ‘declining markets.’ The declining markets list ‘was issued to make sure that appraisers in those markets are taking that into account and explaining how it figures into their valuation,’ a SunTrust spokesman says.”

“‘The lenders are being way more conservative than they were a year or two ago,’ says John Rooney, an appraiser in Phoenix. In some cases it can be tough to find enough comparable properties that meet lenders’ criteria, particularly for higher-end homes, he says.”

“A county in Washington state emerged as the most recent casualty from the financial-market turmoil caused by complex securities known as SIVs when Standard & Poor’s Corp. said yesterday it may downgrade debt of King County because of investments in debt issued by SIVs.”

“King County invested in a risky form of SIVs known as SIV-lites that typically invest more than SIVs in securities tied to residential-mortgage securities, including subprime loans.”

“Ken Guy, King County’s finance director, said county officials saw the SIV-issued commercial paper as a safe investment that would provide slightly higher yields than U.S. government bonds, and relied on the high ratings given the commercial-paper investment vehicles by S&P and Moody’s. ‘That is the frustrating aspect about all this: you have these highly rated investments that have been downgraded simply overnight,’ he said.”

From MarketWatch. “The world’s top banking overseer has reservations about the $100 billion rescue package planned by U.S. banks.”

“Nout Wellink, the chairman of the Basel Committee on Banking Supervision who is also president of the Dutch central bank and a member of the European Central Bank’s Governing Council, discussed the recent credit-market turmoil with Joellen Perry of The Wall Street Journal and Damian Paletta of Dow Jones Newswires. WSJ/Dow Jones: What are your thoughts about this new superconduit that’s been proposed?”

“Wellink: For the time being, I have mixed feelings. …What is exactly the idea behind it? Is it a way of escaping your fate? Because if there is no market, at a certain price, then you’re confronted with losses. Take these losses. As long as it’s meant to create an orderly process, okay. But if these artificial elements are involved, then immediately the supervisor and the central banker uses the phrase moral hazard.”

“European banks are not the least interested to participate in this project. This is an American initiative, and it’s the banks who created, themselves, these mortgage problems. So the European banks, they look from a certain distance.”

From Bloomberg. “Ivy Zelman’s view of the U.S. housing market is gloomy, but it’s probably the most realistic. A veteran Wall Street analyst, Zelman, CEO of the research firm Zelman & Associates, says it’s unlikely the U.S. housing market will recover before 2009.”

“‘I’ve never seen the market as bad as this,’ Zelman said. ‘And it could get worse. The home-price decline could range from 16 percent to 22 percent.’”

“‘These are the worst inventories we’ve seen as a nation,’ she says. Zelman’s words carry some weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year.”

“She was alarmed that home prices far outpaced personal-income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime.”

“Meanwhile, builders are stuck with thousands of new homes they can’t sell, and potential buyers are canceling in droves or are unable to get a mortgage.”

“‘Builders are desperate now and blowing through inventory,’ says Zelman of homebuilders who are doing anything they can to sell homes. ‘Their revenues are shrinking so fast, they can’t keep up.’”

From Businesss Week. “After three decades of stability, the national rate of homeownership suddenly began rising around 1995. The rush to buy homes fueled an enormous surge in housing construction and home prices. Experts differed on the cause of the increase in homeownership, from 64.2% of households in early 1995 to 69.1% in early 2005.”

“Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market. Young families with little savings flocked to those loans to buy first homes.”

“Trouble is, lenders aren’t making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away.”

“If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections.”

“One Wall Street economist who has studied the Atlanta Fed working paper, Jan Hatzius of Goldman Sachs, wrote on Oct. 18 that ‘the implications could be dramatic.’ Wrote Hatzius: ‘Our current forecast calls for a decline in new home sales to a trough level of 650,000 by the first quarter of 2008, which we believe is one of the lowest estimates on Wall Street. However, the simple arithmetic [implied by the Atlanta Fed paper] suggests that this estimate could still prove much too optimistic.’”

“But could the homeownership rate actually decline? Yes. In fact, it already has begun to.”

The Palm Beach Post reports from Florida. “The outlook for the Palm Beach County housing market is none-too-stellar. Palm Beach County’s median home price in August was off 13 percent from its November 2005 peak, according to the Florida Association of Realtors. ‘Will prices fall further? Yes,’ writes University of Central Florida economist Sean Snaith.”

“But, he adds, falling prices will feel more like a fender bender than a full-on crash: ‘When a true speculative bubble bursts, the asset’s price doesn’t fall 6 percent or 15 percent from its peak; it falls all the way back to its pre-bubble values (see Nasdaq after the dot-com bubble burst). Will the same happen in housing? If you are waiting until this occurs to buy, you will spend the rest of your life as a renter.’”

The News Herald from Florida. “From the old Miracle Strip to Back Beach Road, from Bay Point to Lake Powell, a surge of construction west of the Hathaway Bridge is changing the landscape of the ‘island’ almost beyond recognition.”

“This ongoing activity appears to defy the marketplace. An oversupply of housing units, tighter mortgage credit rules, soaring property taxes and high insurance rates, have thrown many sectors of the local real estate market into a tailspin.”

“‘In 2004, we identified over 140 projects that were on the list as preparing for development,’ said Rick Dye, city president of Regions Bank. ‘Out of that 140, probably today, 80 or 90 of those are either complete, under construction or finishing up on permitting.’ The rest have been delayed or canceled, he said.”

“Upon completion in 2018, Breakfast Point will include 3,100 housing units’. Given the company’s vast land holdings and financial resources, St. Joe officials said the company is well positioned to carry out the development despite the current housing glut on the island.”

“‘Oversupply, tighter mortgage credit, higher insurance and falling prices have created a ‘perfect storm’ in the market,’ cautioned Pensacola real estate attorney Michael Wilboun. His business now includes a growing number of people trying to break out of condo sales because the appraised values have plummeted below their original contract prices.”

“Before real estate market values can appreciate again, the glut of both condo units and single-family homes will have to be absorbed, Realtors admit. That could take between four and six years for the resort condo market, several recent studies predicted.”

“Veteran Realtor Mary Jane Shields said in 31 years of work in the local market, she never has seen as big an oversupply of housing units as exists today.”

“‘There are 3,142 listings on the Beach, and 895 of them are houses,’ Shields said. ‘There were years where we’d knock on doors, we were so short of listings, but right now it’s a buyer’s market. If you are a seller, it’s very, very bad.’”

“The dominating factor has been the creation of a massive oversupply in condo units that has depressed resale values and trapped thousands of pre-construction investors into sales contracts that now exceed their unit’s market value.”

“The steady market decline already has scared off speculators and now is straining developers’ finances. Meanwhile, many buyers find themselves trapped in preconstruction sales contracts, committing them to a purchase price that is significantly higher than the condo’s actual value.”

“‘Builders and developers don’t make any money unless they develop,’ said real estate broker and appraiser Sam Portman, who specializes in the Panama City Beach market. ‘Even though the market is turning down, they will still build, as long as they are using somebody else’s money.’”

“The result has been a glut of condo units for sale that will continue to get larger as a secondary ‘bow wave’ of projects launched in the past two years reaches completion.”

“Regions Bank intern Steve Stokes found the combined inventory of hotel rooms and condo/town house units on the ‘island’ was projected to more than triple from 15,573 in January 2007 to 46,869 by the end of 2012.”

“To no one’s surprise, the oversupply has caused price declines. Average condo resale prices for identical units at the Beach fell by 15 percent from Aug. 1, 2006, to the same date this year, he said.”

“‘It’s still trending down,’ Portman said of market prices. ‘It’s hard to tell what’s going to happen.’ And the pain doesn’t stop there.”

“The reversal from a seller’s to a buyer’s market has not only hurt sales, Portman and other experts said. The glut of new condos also has depressed rental fees for existing units. That is an additional source of pain to owners who budgeted their investment on the premise that a condo unit would generate a healthy rental income to cover a large share of the mortgage, utility bills and other costs.”

“Two years ago, Portman’s investor signed a pre-construction contract at Laketown Wharf for a $350,000, three-bedroom and two-bath unit. He made a down payment deposit of $75,000 and planned to obtain a mortgage for the remaining $275,000 and another $20,000 for furniture and appliances.”

“Today, the investor faces a hard decision, Portman said. At closing, the buyer will come into possession of a $350,000 condo that in the current market is worth only $315,000 at best — and that is before the monthly cost of ownership.”

“Offsetting those expenses would be an estimated $1,666 in monthly rental income, requiring the owner to fork over another $900 to $1,000 per month to cover those expenses.”

“Portman calculated eight scenarios for the condo unit’s value over a five-year period. In only one of the eight pathways did the condo’s value exceed the owner’s investment after five years. In the other seven scenarios, the owner’s investment ranged from $44,000 to $166,000 in negative value after five years.”

“Portman said his client has decided the best option is to walk away from the deal, forfeiting the down payment. The client declined to be interviewed, but Portman quoted him as saying, ‘Why buy off the beach when you can buy on the beach for the same money?’”

From TC Palm in Florida. “Like most new home developments across the country, Tesoro has seen sales slow. According to county public records, Tesoro has sold five lots so far this year. That’s a fraction of 41 lot sales in 2006.”

“The developer, Ginn Company, sells only the land. Buyers receive a list of builders and have three years to start construction. Of the lots that have sold, only a fifth of owners have completed construction on their homes within the gated community.”

“‘That has to be disappointing the builders,’ said Brad Hunter, director of Metrostudy. ‘I think the experience there is reflective in the market as a whole, but Tesoro might be showing more sluggish movement because of the high price point.’”

“However, not every lot is owned by someone who plans to build a home. Tesoro was not spared by the residential real estate flipping craze of the last few years, said Bonner Herring of Tesoro. Last year, a group of unlucky flippers tried to unload their lots in a post-bubble auction. None sold.”

“Herring said Ginn hopes the tournament encourages some land investors to reconsider their original plans. ‘Our goal is to convert them into members,’ Herring said.”

The Orlando Sentinel from Florida. “Ask a real-estate broker, look at figures on new housing starts or pick up a newspaper. They all paint the same picture, the housing marking is in the doldrums. But that isn’t stopping two ambitious condominium projects in downtown Sanford from moving forward, at least when it comes to getting land-use approval.”

“Both projects propose a series of high-rise condominium towers on Lake Monroe that will be priced to lure potential buyers away from downtown Orlando. In all, the projects would add 660 units to an area that didn’t get its first condos until earlier this year.”

“‘A developer would be crazy to start vertical construction right now,’ said Sid Vilhen, whose 360-unit RiverScape on Lake Monroe project goes before the City Commission on Monday. ‘But in two to four years, the market will be back.’”

The Atlanta Journal Constitution from Georgia. “At first glance, Enchanted Forest subdivision looks like any other thriving suburban community of two-story brick and split-level homes.”

“But modern-day problems have tarnished some of the neighborhood’s medieval luster: Homes with no drapes or signs of life inside; code violations tacked to the front door of empty homes for overgrown grass and debris; ‘For Sale’ signs throughout the subdivision almost outnumber the trees.”

“Homeowners in every other house on one side of a keyhole-shaped street have faced the prospect of losing their home. Several properties in Enchanted Forest have been scheduled for foreclosure two or three times in the past year.”

“Even Grant, who had quickly and quietly resolved her foreclosure without her neighbors’ knowledge, was surprised to learn so many of her neighbors were facing similar situations — and often without a happy ending.”

“She had assumed the empty houses and ‘For Sale’ signs were the normal comings and goings of a neighborhood of mostly first-time home buyers. ‘Of course now that I know it’s going on, it’s a concern,’ she said. ‘The (sale prices of the) houses will probably go below [original market value].’”

“Bargain hunters might want to keep their eyes on the new home market over the coming months. An analyst with the housing-industry tracking firm Metrostudy told a lunchtime meeting that it could take builders until 2009 to sell off the thousands of vacant new homes and lots around the metro area.”

“That means new homes could continue to be an unusually good deal as builders work to unload unsold properties.”

“The number of finished vacant homes is three times the normal for metro Atlanta, and the number of vacant lots awaiting homes — 140,000 — is twice the usual number, according to Metrostudy senior analyst Domonic Purviance.”

“‘That’s the highest number we have ever seen in the Atlanta region,’ he said.”

From WRAL in North Carolina. “There were more signs Monday that the national housing slump has hit the Triangle. According to the North Carolina Association of Realtors, sales of existing homes dropped 24 percent for the month of September compared with the same period last year.”

“The slump has hit high-priced neighborhoods the hardest. ‘In certain price ranges, we’re seeing quite a lot of stagnation,’ real estate agent Gilbert Hensgen said.”

“Hensgen added that not only are sales slowing, but the market has become more competitive, with an overflow of listings in certain neighborhoods.”

”I’ve actually turned more pessimistic about the economy in the next six months. I think these numbers show the real estate slump has really hit the Triangle,’ N.C. State economist Mike Walden said.”

“‘Buyers are being very smart with picking and choosing and making sure they’re priced right. And not everyone is pricing them right,’ Hensgen said.”

From News 14 in North Carolina. “Real estate agents say the housing market is booming, but not everyone is keeping their home. Because of that, agents say more and more people in the Traingle area are getting good deals on foreclosed homes.”

“‘Sometimes they go for under 20 percent their value, so someone might get $80,000 off their house,’ said Robin Barton with Barton Estate Realty.”

“She adds that hundreds of people in the Triangle are getting steals just like that. According to Barton, from 2006 up until this year, 400 people in the Triangle had their homes foreclosed.”

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